<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the fiscal year ended 12/31/95
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934.
For the transition period to
Commission File number 2-78788
CALIFORNIA COMMERCIAL BANKSHARES
--------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3748495
(State or other jurisdiction of (IRS Employer
incorporation or organization) identification No.)
4100 NEWPORT PLACE, NEWPORT BEACH, CALIFORNIA 92660
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 863-2300
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Not applicable.
The aggregate market value of voting stock held by non-affiliates of the
registrant was $9,410,000 on March 11, 1995, based on the average bid and
asked price of $5.50 share as reported on the National Daily Quotation
Service "Pink Sheets".
2,944,000
---------
(Number of shares of Common Stock outstanding as of March 13, 1996)
<PAGE>
PART I.
ITEM 1. BUSINESS.
BUSINESS OF THE COMPANY
California Commercial Bankshares (the "Company") is a bank holding company,
incorporated under the laws of the State of California on June 16, 1982, and
is registered under the Bank Holding Company Act of 1956, as amended. The
Company's primary purpose is to be a bank holding company for its
wholly-owned subsidiary, National Bank of Southern California, a national
banking association organized under the laws of the United States (the
"Bank"). At December 31, 1995, the Company had total assets of $334 million
and total shareholders' equity of $21 million.
On January 10, 1983, the Company purchased 450,000 shares of the Bank's
common stock, which constituted all of the issued and outstanding capital
stock of the Bank. The Bank's charter was granted by the Comptroller of the
Currency (the "Comptroller") on January 10, 1983, and the Bank began
operations as a full-service commercial bank on that date.
During 1985, the Company activated another subsidiary, Venture Partners,
Inc., a California corporation incorporated on March 11, 1983 ("Venture"),
which acts primarily an intermediary for tax deferred exchanges, a service
function for the escrow department of the Bank.
The Company has no other subsidiaries or affiliated businesses other than the
Bank and Venture. The Company's executive offices are located at 4100
Newport Place, Newport Beach, California 92660. Its telephone number is
714-863-2300.
BUSINESS OF THE BANK
The Bank's accounts are insured by the Federal Deposit Insurance Corporation
("FDIC") and it is a member of the Federal Reserve System. In addition to its
headquarters office in Newport Beach, California, the Bank presently operates
four branches located in Santa Ana, El Toro, Orange and Fountain Valley,
California. At December 31, 1995, the Bank had total assets of $334 million,
gross loans and leases of $195 million, total deposits of $309 million and total
shareholders' equity of $23 million.
The Bank is engaged in substantially all of the services customarily conducted
by community banks in California including checking, savings and time deposit
accounts, commercial, interim construction, personal, home improvement,
mortgage, automobile and other installment and term loans, leasing, traveler's
checks, safe deposit boxes, collection services, night depository facilities,
wire transfers and automatic teller machines.
See distribution of assets, liabilities and shareholders' equity, interest
rates and interest differential at pages 16, 17 and 18.
2
<PAGE>
LOANS AND LEASES
The aggregate balances of loans and leases, including loans available for sale
and excluding deferred fees, outstanding at the indicated dates are shown in the
following table according to the type of loan. All loans are domestic loans.
<TABLE>
<CAPTION>
AT DECEMBER 31:
$ in 000's
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Real Estate:
Miniperms (Real estate secured
with 1-5 years maturity) $ 62,466 $ 66,102 $ 62,799 $ 52,479 $ 47,688
Equity Lines 7,039 8,691 10,838 11,191 14,281
Construction 24,954 29,792 38,563 56,703 66,996
------------------------------------------------------------
Total Real Estate 94,459 104,585 112,200 120,373 128,965
Commercial 84,271 82,600 86,887 103,576 128,750
Installment and Other 13,120 10,845 11,290 15,506 20,544
Leases 3,064 3,615 3,970 5,590 8,109
------------------------------------------------------------
Total Loans And Leases $194,914 $201,645 $214,347 $245,045 $286,368
------------------------------------------------------------
------------------------------------------------------------
</TABLE>
The declining balance of loans from 1991 through 1995 reflects the Bank's
commitment of its financial and human resources to identifying and collecting
problem loans and leases and to disposing of other real estate owned obtained
through foreclosure.
The Bank concentrates its lending activities in three principal areas:
(1) REAL ESTATE LOANS Real estate loans are comprised of construction loans,
miniperm loans collateralized by first or junior trust deeds on specific
properties and equity lines of credit. The properties collateralizing real
estate loans are principally located in the Bank's primary market area of Orange
County and contiguous communities. The construction loans are comprised of loans
on residential and income producing properties, generally have terms less than
two years and typically bear an interest rate that floats with prime. The
miniperm loans finance the purchase and/or ownership of income producing
properties. Miniperm loans generally are made on a thirty year amortization
schedule with a lump sum, balloon payment due in 1-5 years. Equity lines of
credit are revolving lines of credit collateralized by junior trust deeds on
real properties. They bear a rate of interest that floats with prime and have
maturities of five to seven years. The Bank also makes a small number of loans
on 1-4 family residential properties and 5 or more unit residential properties.
From time to time, the Bank purchases participation interests in loans made by
other institutions. These loans are subject to the same underwriting criteria
and approval processes as loans made directly by the Bank. During 1995, the Bank
purchased $339,000 of participations in real estate loans from other
institutions. At December 31, 1995, the Bank had $2,279,000 outstanding in real
estate participation loans purchased from other institutions.
(2) COMMERCIAL LOANS are granted to finance operations or for specific
purposes, such as to finance the purchase of equipment. Since cash flows from
operations are generally the primary source of repayment, the Bank's policies
provide specific guidelines regarding required debt coverage and other important
financial ratios. Lines of credit are made to businesses or individuals based on
the financial strength and integrity of the borrower, are generally
collateralized by inventory and accounts receivable, but may be
uncollateralized, and generally have a maturity of one year or less. They
generally bear an interest rate that floats with prime.
3
<PAGE>
Commercial term loans are typically made to finance the acquisition of fixed
assets, refinance short term debt originally used to purchase fixed assets or,
in rare cases, to finance purchases of businesses. Commercial term loans
generally have a term of from one to five years. Commercial term loans may be
collateralized by the asset being acquired or other available assets.
(3) CONSUMER LOANS include personal loans, auto loans, boat loans, home
improvement loans, equipment loans, revolving lines of credit and other loans
typically made by banks to individual borrowers. The Bank also makes leases on
new and used automobiles. These leases may be closed-end or commercial leases,
have a term of one to five years and bear interest at a fixed rate.
The following tables show the amount of loans of the Bank outstanding as of
December 31, 1995 which, based on remaining scheduled repayments of principal,
(1) are due in the period indicated and (2) for the amounts due after one year,
are fixed rate or floating rate.
<TABLE>
<CAPTION>
MATURING IN MATURING IN MATURING AFTER
1996 1997-2000 2000 TOTAL
$ IN 000'S
----------
<S> <C> <C> <C> <C>
Commercial and other $61,926 $37,230 $ 9,415 $108,571
Real Estate and Construction 33,971 32,456 19,916 86,343
----------------------------------------------------
TOTAL $95,897 $69,686 $29,331 $194,914
----------------------------------------------------
----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
$ IN 000'S INTEREST SENSITIVITY
----------------------------
FIXED RATE VARIABLE RATE
<S> <C> <C>
Due After One But Within Five Years $25,498 $44,188
Due After Five Years 14,281 15,050
----------------------------
TOTAL $39,779 $59,238
----------------------------
----------------------------
</TABLE>
The prime rate with which the interest rate floats may be the prime rate of a
specific money center bank, the prime rate posted in the Wall Street Journal or
the Bank's own posted prime rate. The Bank's prime rate is set by Bank
management. The Bank's prime rate at December 31, 1995 was 9.50%.
The following table shows the concentration of loans by categories.
<TABLE>
<CAPTION>
$ IN 000'S DECEMBER 31,
1995 1994
BALANCE PERCENTAGE BALANCE PERCENTAGE
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Real Estate Loans:
Mortgage $62,466 32.05% $66,102 32.78%
Equity Lines 7,039 3.61% 8,691 4.31%
Construction 24,954 12.80% 29,792 14.78%
---------------------------------------------
TOTAL REAL ESTATE LOANS $94,459 48.46% $104,585 51.87%
Commercial Loans 84,271 43.24% 82,600 40.96%
Installment and Other 13,120 6.73% 10,845 5.38%
Leases 3,064 1.57% 3,615 1.79%
---------------------------------------------
TOTAL LOANS & LEASES $194,914 100.00% $201,645 100.00%
Less: Deferred Loan
Origination Fees (702) (782)
Less: Allowance for Loan
and Lease Losses (6,542) (5,660)
---------------------------------------------
NET LOANS & LEASES $187,670 $195,203
---------------------------------------------
---------------------------------------------
</TABLE>
4
<PAGE>
There are no concentrations of loans exceeding 10% of total loans which were not
otherwise disclosed as a category of loans in the above table.
CLASSIFIED ASSETS AND NONPERFORMING ASSETS. The Company maintains an internal
loan review program. All loans are categorized into one of the five following
groups: Pass loans: loans that contain strong credit quality and ability to
repay. Special mention loans: loans that have an identified weakness which
requires correction to protect the Bank (not considered a classified loan).
Substandard loans: loans that exhibit some weakness and require immediate
attention to correct the deficiency. Doubtful loans: loans that exhibit a
significant weakness and whose full collection is improbable. Loss loans: Loans
that are charged off upon identification of being loss loans. The following
table shows the amounts of special mention loans, classified loans (substandard
or doubtful) and the amount of other real estate owned as of the dates indicated
(see ITEM 1. BUSINESS, BUSINESS OF THE BANK, ALLOWANCE FOR LOAN AND LEASE LOSSES
FOR A DISCUSSION OF LOANS AND LEASES CHARGED OFF):
<TABLE>
<CAPTION>
$ IN 000'S AT DECEMBER 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Special Mention $10,458 $12,822 $11,988
-----------------------------
Substandard 14,704 37,451 39,314
Doubtful 317 1,505 4,156
-----------------------------
Total Classified Loans 15,021 38,956 43,470
Other Real Estate Owned 2,165 2,676 2,289
-----------------------------
TOTAL SPECIAL MENTION LOANS,
CLASSIFIED LOANS AND OTHER
REAL ESTATE OWNED $27,644 $54,454 $57,747
-----------------------------
</TABLE>
Special mention loans, classified loans and other real estate owned decreased
significantly in 1995 as compared to 1994. The balances decreased as a result of
the Bank's high staffing levels of personnel dedicated to problem loan
identification and workout and the disposal of other real estate owned.
It is generally the Company's policy to discontinue the accrual of interest on a
loan when any installment payment of interest or principal is 90 days or more
past due, when management otherwise determines the collectibility of the
interest or principal on the loan is unlikely or when the loan is deemed to be a
potential foreclosure. Accrued but unpaid interest on loans placed on
nonaccrual status is generally reversed from income. In certain cases where the
value of the collateral is sufficiently in excess of the balance of principal
and interest owing, the Bank may continue to accrue interest or may not reverse
accrued but unpaid interest from income.
5
<PAGE>
The following table shows the aggregate amount and percentage of the portfolio
of delinquent loans and nonaccrual loans as of December 31, 1995:
<TABLE>
<CAPTION>
LOANS DELINQUENT AT DECEMBER 31, 1995
-------------------------------------
$ IN 000'S 30-89 DAYS 90 DAYS AND OVER TOTAL LOANS
---------- ---------- ---------------- -----------
PERCENT OF PERCENT OF PERCENT OF
AMOUNT PORTFOLIO AMOUNT PORTFOLIO AMOUNT PORTFOLIO
------ ---------- ------ ---------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
NONACCRUAL LOANS
Real Estate $7,688 3.93% $6,111 3.12% $13,799 7.05%
Commercial 205 .10% 735 .38% 940 .48%
Installment and Prime
Equity 171 .09% 636 .33% 80 7.42%
Leases 0 0% 27 .01% 27 .01%
--------------------------------------------------------------------------
Total Nonaccrual Loans $8,064 4.12% $7,509 3.84% $15,573 7.96%
--------------------------------------------------------------------------
--------------------------------------------------------------------------
DELINQUENT ACCRUING LOANS
Real Estate 53 .03% 0 0 53 .03%
Commercial 584 .30% 0 0 584 .30%
Installment and Prime
Equity 606 .31% 0 0 606 .31%
Leases 0 .0% 0 0 0 0
--------------------------------------------------------------------------
Total Accruing Delinquent
Loans 1,243 .64% 0 0 1,243 .64%
--------------------------------------------------------------------------
Total Delinquent Loans $9,307 4.76% $7,509 3.84% $16,816 8.60%
--------------------------------------------------------------------------
--------------------------------------------------------------------------
</TABLE>
6
<PAGE>
The following table sets forth information regarding the Company's nonperforming
assets at December 31, 1995:
<TABLE>
<CAPTION>
$ in 000's
SPECIFIC ALLL
PROPERTY DESCRIPTION LOCATION BALANCE ALLOCATION
- -------------------- -------- ------- ------------
<S> <C> <C> <C>
NON-ACCRUAL LOANS
Commercial Building Los Angeles County $859 0
Apartment Complex Orange County 968 0
Commercial Building Orange County 2,576 0
Retail Complex Riverside County 1,698 0
Apartment Complex Riverside County 881 0
Commercial Building &
Finished Lots Los Angeles County 880 0
29 Condos Units Orange County 1,287 0
Medical Center Riverside County 410 0
Commercial Building Orange County 401 0
Commercial Building Los Angeles County 1,381 0
Auto Service Center Orange County 843 0
Motel Orange County 592 0
Retail Center Orange County 824 0
22 Other Loans Various 1,973 0
---------------------------
TOTAL NONACCRUAL $15,573 0
OTHER REAL ESTATE OWNED
Condo Orange County 50
Finished Residential Lots Orange County 184
Commercial Building Orange County 235
Auto Service Center & Los Angeles County 1,232
Car Wash
Vacant Lot Orange County 43
Commercial Building Riverside County 26
Land San Mateo County 395
---------------------------
TOTAL OTHER REAL ESTATE OWNED 2,165
---------------------------
TOTAL NONACCRUAL LOANS AND
OTHER REAL ESTATE OWNED $17,738 0
---------------------------
---------------------------
</TABLE>
ALLOWANCE FOR LOAN AND LEASE LOSSES The allowance for loan and lease losses is
based on an analysis of the portfolio and reflects an amount which, in
management's opinion, is adequate to provide for potential losses after giving
consideration to the portfolio, current economic conditions, past loss
experience and other pertinent factors. Management and the internal credit
review function monitor delinquency reports, new loans, renewals and reports of
on-site inspections to identify credits requiring special attention. Annual
examinations of the loan portfolio are also performed by an independent, third
party credit review professional.
7
<PAGE>
On a quarterly basis, senior management, in conjunction with the board of
directors, reviews the adequacy of the allowance for loan and lease losses. Loan
officers prepare Special Asset Credit Reports ("SAC reports") for each loan on
the special asset report. SAC reports include all pertinent details about the
loan, a write-up of current status, steps being taken to correct any problems, a
detailed workout plan and recommendations as to classification of the loans as
pass, special mention, substandard, doubtful or loss (see ITEM 1. BUSINESS,
BUSINESS OF THE BANK, CLASSIFIED ASSETS AND NONPERFORMING ASSETS) and specific
allocation of the Allowance for Loan and Lease Losses. Loans classified as loss
are charged against the Allowance for Loan and Lease Losses. Specific allowances
are established for loans designated by management. Quarterly, the credit review
function is responsible for preparing a historical migration analysis of loans
as part of the determination of the required balance of the Allowance for Loan
and Lease Losses. The migration analysis tracks charged off loans to their
original classifications and assigns a risk factor to each loan in the portfolio
based upon classifications of such loans as pass, special mention, substandard
or doubtful. The amount of the general portion of the allowance is determined by
multiplying the aggregate principal balance of loans in each category by the
specified percentage. The amount of the required general portion of the
allowance is added to the specific allowances previously established to form the
total balance of the allowance. The amount of the allowance is based upon
management's evaluation of this analysis and other factors, including adequacy
of collateral, economic conditions, collateral value trends, nonperforming asset
data, delinquencies and other material.
Management utilizes its best judgement in providing for possible loan losses and
establishing the allowance for loan and lease losses. However, the allowance is
an estimate which is inherently uncertain and depends on the outcome of future
events. Adverse economic conditions and a declining real estate market in
California have adversely affected certain borrowers' ability to repay loans. A
continuation of these conditions or a further decline in the California economy
could result in further deterioration in the quality of the loan portfolio and
could require increased provisions for loan and lease losses that cannot
reasonably be predicted at this date. In January 1994, a severe earthquake
occurred in the San Fernando Valley of Los Angeles, causing over 50 deaths,
destroying property valued in the billions of dollars, causing major impediments
to Southern California transportation networks and affecting the business
community. Damage in the Bank's service area was relatively minimal and, after
contacting customers and investigating its potential exposure, the Bank is not
aware of any of its borrowers who were directly affected by the earthquake.
Since the calculation of the adequacy of the allowance for credit losses is
based largely on loan classification categories and not only whether a loan is
performing or nonperforming, changes in the amount of nonperforming loans will
not necessarily be reflected in corresponding changes in the ratio of the
allowance for loan and lease losses to nonperforming loans. The following table
shows the ratios of the allowance for loan and lease losses to total loans and
the balance of the allowance for loan and lease losses to nonperforming loans as
of December 31:
<TABLE>
<CAPTION>
AT DECEMBER 31,
1995 1994
---- ----
<S> <C> <C>
Ratio of the Allowance for Loan and Lease
Losses to Total Loans 3.36% 2.81%
Ratio of the Allowance for Loan and Lease
Losses to Nonperforming Loans 42.01% 38.32%
</TABLE>
8
<PAGE>
SUMMARY OF LOAN LOSS EXPERIENCE The following table summarizes loan and lease
balances of the Bank at December 31, 1995, 1994, 1993, 1992 and 1991, changes in
the allowance for possible loan losses arising from loans charged off, additions
to the allowance for loan and lease losses which have been charged to expense
and the ratio of net charge-offs during the periods to average loans and leases:
<TABLE>
<CAPTION>
$ in 000's December 31,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Amount of Gross Loans and Leases
Outstanding at the End of the Period $194,914 $201,645 $214,347 $245,045 $286,368
Balance of Allowance for Loan and
Lease Losses at the Beginning
of the Period $5,660 $7,221 $6,253 $7,107 $3,705
Loans and Leases Charged Off (1) (6,212) (6,082) (4,664) (6,434) (3,722)
----------------------------------------------------
Recoveries of Previously Charged
Off Loans and Leases (1) 494 1,156 743 805 261
----------------------------------------------------
Net Loans Charged Off (5,718) (4,926) (3,921) (5,629) (3,461)
Additions to the Allowance Charged
to Expense 6,600 3,365 4,889 4,775 6,863
Balance of the Allowance for Loan
and Lease Losses at the Ending of
the Period $6,542 $5,660 $7,221 $6,253 $7,107
----------------------------------------------------
Ratio of Net Charge-offs During the
Period to Average Loans Outstanding 2.93% 2.44% 1.74% 2.08% 1.25%
----------------------------------------------------
----------------------------------------------------
</TABLE>
(1) See the table below for summary of the amounts of loans and leases charged
off and recoveries of loans and leases previously charged off.
<TABLE>
<CAPTION>
$ IN 000'S 1995 1994 1993 1992 1991
---------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Loans and Leases Charged Off:
Commercial $1,332 $1,150 $2,763 $5,712 $3,463
Real Estate - Mortgage and
Construction 4,569 4,764 1,274 344 102
Installment & Other 300 120 507 252 131
Leases 11 48 120 126 26
--------------------------------------------------
Total Loans and Leases Charged Off $6,212 $6,082 $4,664 $6,434 $3,722
Recoveries of Loans and Leases
Previously Charged off:
Commercial $35 $593 $669 $795 $255
Real Estate - Mortgage and
Construction 408 461 0 0 0
Installment & Other 17 50 62 7 4
Lease 34 52 13 3 2
--------------------------------------------------
Total Recoveries of Loans and Leases $494 $1,156 $743 $805 $261
--------------------------------------------------
Net Loans and Leases Charged Off $5,718 $4,926 $3,921 $5,629 $3,461
--------------------------------------------------
--------------------------------------------------
</TABLE>
9
<PAGE>
The allowance for loan and lease losses has been allocated between the following
categories of loans and leases according to the amount deemed adequate to
provide for the possibility of losses being incurred at the dates indicated:
<TABLE>
<CAPTION>
At December 31,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Ratio of Ratio of Ratio of Ratio of Ratio of
Allowance to Allowance to Allowance to Allowance to Allowance to
Outstanding Outstanding Outstanding Outstanding Outstanding
$ in 000's Allowance Loans Allowance Loans Allowance Loans Allowance Loans Allowance Loans
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $1,838 2.14% $1,151 1.39% $2,573 2.96% $4,256 4.11% $3,995 3.10%
Real Estate-
Construction 796 3.27% 2,516 8.45% 3,095 8.03% 1,500 2.65% 1,563 2.33%
Real Estate-
Mortgage 2,122 3.38% 1,355 2.05% 100 .16% 67 .10% 954 1.54%
Installment 556 2.80% 352 1.90% 281 2.50% 250 1.60% 260 1.27%
Leases 47 1.55% 88 2.43% 85 2.14% 125 2.24% 125 1.54%
Not Allocated 1,183 .60% 198 .10% 1,087 55 210
---------------------------------------------------------------------------------------------------------------------
TOTAL $6,542 $5,660 $7,221 $6,253 $7,107
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
</TABLE>
In accordance with SFAS 114, as of December 31, 1995, the Company had written
down all its nonperforming loans to the current collateral value or had
established specific reserves that the management believes, are adequate to
cover future exposure.
10
<PAGE>
INVESTMENT PORTFOLIO
The following table sets forth the book value and estimated fair value of
investment securities available for sale as of December 31, 1995 and investment
securities of the Company as of December 31, 1994 and 1993:
<TABLE>
<CAPTION>
DESCRIPTION 1995 1994 1993
----------- ---- ---- ----
$ in 000's Amortized Estimated Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value Cost Fair Value
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Government securities $35,314 $35,457 $60,099 $58,778 $59,420 $59,946
U.S. Government agencies or
insured obligations 23,611 23,656 9,657 9,262 18,052 18,158
State political subdivisions 423 416 1,509 1,274 619 619
Mortgage-backed securities-
U.S. agencies 1,047 1,070 1,186 1,132 1,644 1,650
Other securities 1,697 1,684 1,653 1,629 1,402 1,443
---------------------------------------------------------------------
Total Securities $62,092 $62,283 $74,104 $72,075 $81,137 $81,816
---------------------------------------------------------------------
---------------------------------------------------------------------
</TABLE>
As of January 1, 1995 the Bank had classified all its Debt Securities as
"Available for Sale."
As of December 31, 1995 the Bank had no derivatives.
The following table sets forth the maturities of investment securities of the
Company at December 31, 1995 and the weighted average yields of such securities
(calculated available for sale on the basis of the cost and effective yields
weighted for the scheduled maturity of each security):
<TABLE>
<CAPTION>
$ IN 000'S 1996 1997-2001 2002-2006 OVER 2006
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U. S. government
securities $25,226 5.29% $10,231 5.81% $0 0 $0 0
U.S. government agencies
or insured obligations 5,000 6.49% 18,657 6.11% 0 0 0 0
State political
subdivisions 0 0 416 4.88% 0 0 0 0
Other 0 0 0 0 0 0 66 .55%
------------------------------------------------------------------
Total $30,226 5.49% $29,304 5.99% $0 0% $66 .55%
------------------------------------------------------------------
------------------------------------------------------------------
</TABLE>
DEPOSITS
The Bank's major source of funds for lending and other investment purposes is
deposits. In addition to deposits, the Bank derives funds from principal and
interest repayments on loans, maturities and sales of investment securities, and
Federal funds sold.
The Bank's deposit strategy has been to emphasize business deposits through its
five branch offices and by a network of couriers employed by the Bank. From
time to time retail deposits and time certificates of deposits have also been
gathered through listings in various national publications.
11
<PAGE>
Business demand deposits earn credits for collected balances against which the
Bank charges fees for various products and services used by the customer. In
some cases, the Bank pays for data processing fees for business customers with
significant balances. The Bank has four business customers each of which
maintains demand deposit balances in excess of 1% of total deposits. The
balances in these accounts averaged an aggregate of $33 million and $38.7
million during 1995 and 1994, respectively, and totaled an aggregate of $35.7
million and $37.3 million, or 11.6% and 13.4% , respectively, at December 31,
1995 and 1994.
Guidelines by federal regulatory agencies specify that time certificates of
deposit may be considered to be brokered if the rate on the deposit exceeds 75
basis points over (i) the average rate paid locally for certificates of deposit
of similar maturities or (ii) 120% of the rate for treasury bills and notes of
similar maturities. Time certificates of deposit generated through publication
of rates in national publications totaled an aggregate of $895,000 at December
31, 1995.
As of December 31, 1995, the Bank had no brokered deposits. Under the prompt
corrective action provisions of FDICIA, the Bank must obtain prior approval from
the FDIC in order to acquire or roll over brokered time certificates of deposit.
On January 31, 1994, the Bank completed the acquisition of approximately $12.5
million in deposits from a local Bank that decided to no longer be an insured
depository institution. The Bank paid no premium for these demand, savings and
time deposits and has retained most of the core deposits acquired.
The following table shows the average daily amount of deposits and average
interest rates paid for the periods indicated:
<TABLE>
<CAPTION>
For the year 1995 For the year 1994 For the year 1993
$in 000's Daily Average Daily Average Daily Average
Average Interest Average Interest Average Interest
Balance Rate Paid Balance Rate Paid Balance Rate Paid
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Demand Deposit $100,526 $101,022 $92,270
Money Market and Saving Deposits 121,110 2.82% 120,120 2.58% 120,600 2.84%
Time Deposits Less than $100,000 31,620 5.55% 37,354 4.23% 67,985 4.42%
Time Deposits $100,000 or More 32,632 5.68% 33,941 3.98% 34,888 3.89%
----------------------------------------------------------------
TOTAL $285,888 $292,437 $315,743
----------------------------------------------------------------
----------------------------------------------------------------
</TABLE>
The following table shows the maturities and repricing data of time certificates
of deposit of $100,000 or more at December 31, 1995:
<TABLE>
<CAPTION>
$ in 000's
<S> <C>
FIXED RATE MATURITIES
3 Months or Less $9,205
Over 3 Through 6 Months 3,190
Over 6 Through 12 Months 3,030
Over 12 Months 250
----------
Total Fixed 15,675
Variable Rate 19,043
----------
Total $34,718
----------
----------
</TABLE>
12
<PAGE>
BORROWING ARRANGEMENTS
In December 1988, the Company obtained a $3,000,000 term loan from another
financial institution for the purpose of providing additional capital to the
Bank. The Credit Agreement for this loan was amended pursuant to a Second
Amendment to the credit agreement dated August 25, 1994. The loan, as amended,
bears interest at a fluctuating rate per annum equal to .75% in excess of the
lender's reference rate (8.50% at December 31, 1995). Interest was payable
monthly on the unpaid principal balance of the loan. Principal was to be repaid
on January 1, 1997. At December 31, 1995 and 1994, $2,351,000 remained
outstanding on the loan. The Second Amendment was supported by a Support
Agreement between a shareholder Director of the Company and the Company whereby
the shareholder guaranteed the payment of the loan.
To compensate the shareholder for signing the Support Agreement, the Company
signed a Holding Company Support Agreement whereby the Company: (1) paid the
shareholder a standby fee of $23,500 in 1994 and 1995, and (2) will issue to the
shareholder on or prior to March 31, 1997 warrants to purchase 25,000 shares of
common stock of the Company at an exercise price per share equal to 80% of the
book value per share of the Company on December 31, 1996.
In March of 1996 the shareholder paid off the outstanding balance of $2,350,000
to the lending financial institution to allow the Company to contribute the
maximum amount from the proceeds of the stock offering into the Capital of the
Bank. (See Note 17 to Notes to Consolidated Financial Statements) The new note
bears an interest rate of 3% over prime rate with interest only payable
quarterly for the first year and thereafter $125,000 plus interest payable
quarterly. The remaining principal and interest is due on April 1, 1999.
The Bank maintains three lines of credit with outside financial institutions for
the purpose of purchasing Federal funds. The lines of credit bear interest at a
floating rate and provide for borrowing up to $8,000,000, $5,000,000 and
$2,000,000, respectively. At December 31, 1995 and 1994, no amounts were
outstanding on these lines of credit.
Under an agreement with the Federal Home Loan Bank, the Bank may obtain an
extension of credit of up to 50% of total assets collateralized by real estate
loans. At December 31, 1995, the Bank had pledged loans amounting to $4,413,000
and had available credit of $2,207,000 based on 50% of the outstanding balance
of pledged loans. No amounts were outstanding on this line of credit at December
31, 1995 and 1994.
13
<PAGE>
LIQUIDITY AND INTEREST RATE SENSITIVITY
The following table shows the components of the Company's liquidity at the dates
indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
IN 000'S 1995 1994 1993
-------- ---- ---- ----
<S> <C> <C> <C>
Cash and Due From Bank $28,549 $21,315 $20,781
Federal Funds Sold 45,000 2,000 6,000
Investment Securities 62,283 72,075 81,137
----------------------------
135,832 95,390 107,918
Restricted Balances ( 6,444) (4,029) (4,714)
----------------------------
TOTAL LIQUIDITY $129,388 $91,361 $103,204
----------------------------
----------------------------
Ratio of Liquidity to Total Assets 38.73% 30.39% 31.80%
Reserves Held at the Federal
Reserve Bank $6,720 $8,428 $8,028
</TABLE>
The principal sources of asset liquidity are balances due from banks, Federal
funds sold and short term investment securities. Secondary sources of liquidity
are loan repayments, maturing investments, and loans and investments that can be
used as collateral for other borrowings. In addition, in 1995, the Company
obtained $3,200,000 from a private placement of its common stock. The majority
of the Company's loans are short term and if paid in accordance with their
terms, provide continuous additional cash inflow. The following chart shows the
distribution of loans by their maturities and ratio to total loans and total
assets as of December 31, 1995:
<TABLE>
<CAPTION>
$in 000's Under 1 Year 1-5 Years Over 5 Years Total
<S> <C> <C> <C> <C>
LOANS AND LEASES $95,896 $69,687 $29,331 $194,914
Ratio to Total Loans and Leases 49.20% 35.75% 15.05% 100.00%
Ratio to Total Assets 28.71% 20.86% 8.78% 58.35%
</TABLE>
Liability-based liquidity includes interest bearing and noninterest-bearing
deposits, largely from local businesses and professionals, time deposits from
financial institutions throughout the United States and obtained through
listings in national publications and Federal funds purchased. From time to
time the Bank has used brokered deposits as an additional source of funds;
however, under conditions of its formal agreement (see ITEM 1. BUSINESS,
SUPERVISION AND REGULATION, FORMAL AGREEMENT) and regulations issued by the
Federal banking agencies (see ITEM 1. BUSINESS, SUPERVISION AND REGULATION,
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991, OTHER ITEMS, PASS
THROUGH FDIC INSURANCE PROVISIONS), the Bank is currently precluded from
accepting or rolling over brokered deposits.
The Company maintains an Interest Rate Risk simulation model which enables
management to measure the Bank's Interest Rate Risk (IRR) exposure using various
assumptions and interest rate scenarios, and to incorporate alternative
strategies for the reduction of IRR exposure. The Bank measures its IRR using
several methods to provide a comprehensive view of its IRR from various
perspectives. These methods include analysis of repricing and maturity
mismatches, or gaps, between assets and liabilities, and analysis of the size
and sources of basis risk.
14
<PAGE>
Gap analysis measures the difference between financial assets and financial
liabilities scheduled and expected to mature or reprice within a specified time
period. The gap is positive when repricing and maturing assets exceed repricing
and maturing liabilities. The gap is negative when repricing and maturing
liabilities exceed repricing and maturing assets. A positive or negative
cumulative gap indicates in a general way how the Bank's net interest income
should respond to interest rate fluctuations. A positive cumulative gap for a
period generally means that rising interest rates would be reflected sooner in
financial assets than in financial liabilities, thereby increasing net interest
income over that period. A negative cumulative gap for a period would produce
an increase in net interest income over that period if interest rates declined.
The following maturity and interest rate sensitivity analysis summarizes the
asset and liability balances of the Company at December 31, 1995 on the basis of
rate adjustments due to occur within the periods indicated:
REPRICING OPPORTUNITIES
<TABLE>
<CAPTION>
$ in 000'S 3 Months or Less 4 to 12 Months 1 to 5 Years Over 5 Years Total
<S> <C> <C> <C> <C> <C>
Interest Earning Assets $197,160 $37,734 $54,790 $12,322 $302,006
Interest-bearing Liabilities 159,997 15,568 2,279 177,844
-------------------------------------------------------------------------
Cumulative Interest Sensitivity Gap $37,163 $59,329 $111,840 $124,162
</TABLE>
Interest earning assets include loans and leases on which the accrual of
interest has been discontinued in the amount of $15,573,000.
As of December 31, 1995 the Company had a positive gap of $124,162,000 with a
cumulative positive gap of $59,329,000 over one year period. The Board of
Directors has established limits on total net interest income exposure for a one
year time horizon based on 1% rate change. While the gap analysis is a useful
asset/liability management tool, it does not fully assess IRR. Gap analysis
does not address the effects of customer options (such as early withdrawal of
time deposits, withdrawal of deposits with no stated maturity, and options to
prepay loans) and Bank strategies (such as delaying increases in interest rates
paid on certain interest-bearing demand and money market deposit accounts) on
the Bank's net interest income. In addition, the gap analysis assumes no
changes in the spread relationships between market rates on interest-sensitive
financial instruments (basis risk), or in yield curve relationships. Therefore,
a gap analysis is only one tool with which to analyze IRR, and must be reviewed
in conjunction with other asset/liability management reports.
15
<PAGE>
INTEREST RATES AND INTEREST RATE DIFFERENTIAL. The following tables set forth
the average amounts outstanding for major categories of interest earning assets,
interest bearing liabilities, the average interest rates earned thereon and
interest income/expenses for the Bank as of and for the years ended:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994 VARIANCE
----------------- ----------------- --------
AVERAGE AVERAGE AVERAGE
ASSET/ AVERAGE ASSET/ AVERAGE ASSET/ AVERAGE
LIAB INCOME/ YIELD/ LIAB INCOME/ YIELD/ LIAB INCOME/ YIELD
$ IN 000'S AMOUNT EXPENSE COST (%) AMOUNT EXPENSE COST (%) AMOUNT EXPENSE COST (%)
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Federal Funds Sold $22,855 $1,333 5.83% $13,255 $501 3.78% $9,600 $832 2.05%
Investment Securities 61,727 3,409 5.52% 76,796 3,873 5.04% (15,069) (414) .48%
Loans and Leases (1) 200,757 19,094 9.51% 202,009 17,599 8.71% (1,252) 1,495 .80%
Total Int. Earning Assets $285,339 $23,836 8.35% $292,060 21,973 7.52% (6,721) 1,863 .83%
----------------------------
----------------------------
Due From Banks (Non-int) 22,289 23,326
Other Assets 4,239 3,743
----------------------------------------
TOTAL ASSETS (2) $311,867 $319,129
----------------------------------------
----------------------------------------
LIABILITIES & EQUITY
Savings Deposits $121,110 $3,412 2.82% $120,120 $3,103 2.58% $990 $309 .23%
Time Deposits 64,252 3,610 5.62% 71,295 2,933 4.11% (7,043) 677 1.50%
Securities Sold Under Repo 123 8 6.50% 1,135 59 5.20% (1,012) (51) 1.31%
Capital Note 2,351 259 11.02% 2,351 241 10.25% 0 18 .77%
---------------------------------------------------------------------------------------------
Total Int. Bearing Liab 187,836 7,289 3.88% 194,901 6,336 3.25% (7,065) 953 .63%
---------------- ---------------- ----------------------------
----------------------------
Demand Deposits 100,526 101,022
Other Liabilities 1,810 2,160
Shareholders' Equity (2) 21,695 21,046
----------------------------------------
TOTAL LIAB. &
SHAREHOLDERS' EQUITY $311,867 $319,129
----------------------------------------
----------------------------------------
Net Yield on Int Earn. Assets $16,547 5.80% $15,637 5.35%
-------------------------------------------------
-------------------------------------------------
</TABLE>
(1) Average loans and leases include non-performing loans and leases, however,
income does not include foregone interest. In addition, loan fees
have not been included in interest income and in calculating the rate
realized on loans and leases.
(2) Average Assets and Average Equity do not include unrealized gains or losses
on Investment Securities.
16
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993 VARIANCE
----------------- ----------------- --------
AVERAGE AVERAGE AVERAGE
ASSET/ AVERAGE ASSET/ AVERAGE ASSET/ AVERAGE
LIAB INCOME/ YIELD/ LIAB INCOME/ YIELD/ LIAB INCOME/ YIELD
$ IN 000'S AMOUNT EXPENSE COST (%) AMOUNT EXPENSE COST (%) AMOUNT EXPENSE COST (%)
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Federal Funds Sold $13,255 $501 3.78% $17,514 $477 2.72% ($4,259) $24 1.07%
Investment Securities 76,796 3,873 5.04% 70,224 3,261 4.64% 6,572 612 .40%
Loans and Leases (1) 202,009 17,599 8.71% 224,978 18,775 8.35% (22,969) (1,176) .36%
---------------------------------------------------------------------------------------------
Total Int. Earning Assets $292,060 $21,973 7.52% 312,716 22,513 7.20% ($20,656) ($540) .32%
-----------------------------
-----------------------------
Due From Banks (Non-int) 23,326 22,227
Other Assets 3,743 9,577
----------------------------------------
TOTAL ASSETS (2) $319,129 $344,520
----------------------------------------
----------------------------------------
LIABILITIES & EQUITY
Savings Deposits $120,120 $3,103 2.58% $120,600 $3,430 2.84% ($480) ($327) (.26)%
Time Deposits 71,295 2,933 4.11% 102,873 4,360 4.24% (31,578) (1,427) (.13)%
Securities So Under Repo 1,135 59 5.20% 1,615 62 3.84% (480) (3) 1.35%
Capital Note 2,351 241 10.25% 2,837 234 8.25% (486) 7 2.05%
---------------------------------------------------------------------------------------------
Total Int. Bearing Liab. $194,901 6,336 3.25% 227,925 8,086 3.55% ($33,024) ($1,750) (.30)%
---------------- ---------------- -----------------------------
-----------------------------
Demand Deposits 101,022 92,270
Other Liabilities 2,160 4,138
Shareholders' Equity (2) 21,046 20,187
----------------------------------------
TOTAL LIABILITIES &
SHAREHOLDERS' EQUITY $319,129 $344,520
----------------------------------------
----------------------------------------
Net Yield on Int Earn.
Assets $15,637 5.35% $14,427 4.61%
-------------------------------------------------
-------------------------------------------------
</TABLE>
(1) Average loans and leases include non-performing loans and leases, however,
income does not include foregone interest. In addition, loan fees have not
been included in interest income and in calculating the rate realized on
loans and leases.
(2) Average Assets and Average Equity do not include unrealized gains or losses
on Investment Securities.
17
<PAGE>
INTEREST EARNED AND INTEREST INCURRED RESULTING FROM CHANGES IN VOLUME AND
CHANGES IN RATES. The following table sets forth, for the periods indicated, a
summary of the changes in interest earned and interest incurred resulting from
changes in volume and changes in rates:
<TABLE>
<CAPTION>
1995 COMPARED TO 1994 1994 COMPARED TO 1993
--------------------- ---------------------
$ in 000's Volume Old Volume Net Volume Old Volume Net
Change X Volume X Change Effect Change X Volume Change Effect
Old Rate Rate X Rate Old Rate X Rate X Rate
Change Change Change Change
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST EARNED ON:
Federal Funds Sold $363 $270 $196 $829 ($116) $185 ($45) $24
Investment Securities (760) 372 (73) (461) 305 281 26 612
Loans (109) 1,614 (10) 1,495 (1,917) 825 (84) (1,176)
--------------------------------------------------------------------------------
TOTAL INTEREST
EARNING ASSETS ($506) $2,256 $113 $1,863 ($1,728) $1,291 ($103) ($540)
INTEREST PAID ON:
Savings Deposits $26 $281 $2 $309 ($14) ($314) $1 ($327)
Time Deposits (290) 1,073 (106) 677 (1,338) (128) 39 (1,427)
Securities Sold Under
Agreement to Repurchase (53) 15 (13) (51) (19) 22 (6) (3)
Note Payable 0 19 0 19 (40) 58 (10) 8
--------------------------------------------------------------------------------
TOTAL INTEREST
BEARING LIABILITIES ($317) $1,388 ($117) $954 ($1,411) ($362) $24 ($1,749)
--------------------------------------------------------------------------------
NET INTEREST EARNINGS ($189) $868 $230 $909 ($317) $1,653 ($127) $1,209
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
</TABLE>
In calculating interest rates and volumes and related changes, non-performing
loans and leases have been included in loan and lease volumes; however,
foregone interest has been excluded. Loan fees were not included in interest
income in calculating the rate realized on loans.
COMPETITION
The banking business in California generally, and in the Bank's service area in
particular, is highly competitive with respect to both loans and deposits and is
dominated by a relatively small number of major banks which have many offices
operating throughout wide geographic areas. In addition, there are numerous
other independent commercial banks within the Bank's primary service areas.
The primary factors in competing for deposits are interest rates, personalized
services, quality and range of financial services, convenience of office
locations and banking hours. The Bank competes for deposits and loans
principally with banks, savings and loan associations, thrift and loan
associations, credit unions, mortgage companies, insurance companies, other
lending institutions, money market and mutual funds and other investment
alternatives. Competition for loans comes primarily from other commercial
banks, savings institutions, mortgage banking firms, credit unions and other
financial intermediaries. Among the advantages that some of these institutions
have over the Bank is their ability to undertake extensive advertising campaigns
and to allocate their investment assets to areas of highest yield and demand.
Many of the major commercial banks operating in the Bank's service area offer
certain other services which are not offered directly by the Bank, such as
trust, investment and international banking services, and by virtue of their
greater total capitalization, such banks have substantially higher lending
limits than the Bank. In competing for deposits, the Bank is subject to certain
limitations not applicable to non-bank financial institutions.
18
<PAGE>
SUPERVISION AND REGULATION
THE COMPANY
The Company is a bank holding company registered under the Bank Holding Company
Act of 1956, as amended (the "Act"), and is subject to supervision by the
Federal Reserve Board. As a bank holding company, the Company is required to
file with the Federal Reserve Board an annual report and such other additional
information as the Federal Reserve Board may require pursuant to the Act. The
Federal Reserve Board may also make examinations of the Company and each of its
subsidiaries. The costs of any examination by the Federal Reserve Bank are paid
by the Company.
The Federal Reserve Board has significant supervisory and regulatory authority
over the Company and its subsidiaries. The Federal Reserve Board requires the
Company to maintain certain levels of capital (see ITEM 1. BUSINESS, SUPERVISION
AND REGULATION, CAPITAL ADEQUACY GUIDELINES). The Federal Reserve Board also
has the authority to take enforcement action against any bank holding company
that commits any unsafe or unsound practice, or violates certain laws,
regulations or conditions imposed by the Federal Reserve Board in writing (see
ITEM 1. BUSINESS, SUPERVISION AND REGULATION, FEDERAL DEPOSIT INSURANCE
CORPORATION IMPROVEMENT ACT OF 1991 AND FORMAL AGREEMENT).
The Act requires prior approval of the Federal Reserve Board for, among other
things, the acquisition by a bank holding company of direct or indirect
ownership or control of more than five percent of the voting shares, or
substantially all the assets, of any bank or for merger or consolidations by a
bank holding company with any other bank holding company. The Act also prohibits
the acquisition by a bank holding company or any of its subsidiaries of voting
shares or substantially all the assets of any bank located in a state other than
the state in which the operations of the bank holding company's bank
subsidiaries are principally conducted, unless the statutes of the state in
which the bank to be acquired is located expressly authorizes such an
acquisition. (see ITEM 1. BUSINESS, SUPERVISION AND REGULATION, MEMORANDUM OF
UNDERSTANDING). One shareholder who purchased 289,000 shares at $6.75 per share
(9.9% of the total shares outstanding) through private placement offered in
November, 1995, has an option to purchase an additional 267,000 shares at $6.75
per share (which would bring the total shares owned by the shareholder to
556,000 shares or 17.4% of the total shares which would then be outstanding).
The option is subject to the approval by the Federal Reserve Board and it will
expire on May 1, 1996.
With certain limited exceptions, a bank holding company is prohibited from
acquiring direct or indirect ownership or control of more than five percent of
the voting shares of any company which is not a bank or bank holding company and
from engaging directly or indirectly in any activity other than banking,
managing or controlling banks or furnishing services to or performing services
for its authorized subsidiaries. A bank holding company may, however, engage or
acquire an interest in a company that engages in activities which the Federal
Reserve Board has determined to be closely related to banking or managing or
controlling banks or properly incident thereto. In making such a determination,
the Federal Reserve Board is required to consider whether the performance of
such activities can reasonably be expected to increase competition, or produce
gains in efficiency, that outweigh possible adverse effects, such as undue
concentration of resources, decreased or unfair competition, conflicts of
interest, or unsound banking practices. The Federal Reserve Board is also
empowered to differentiate between activities commenced de-novo and activities
commenced by acquisition, in whole or in part, of a going concern.
Additional statutory provisions prohibit a bank holding company and any
subsidiary banks from engaging in certain tie-in arrangements in connection with
the extension of credit. Thus, a subsidiary bank may not extend credit, lease or
sell property, or furnish any services, or fix or vary the concentration for any
of the foregoing on the condition that: (i) the customer must obtain or provide
some additional credit, property or
19
<PAGE>
service from, or to, such bank other than a loan, discount, deposit or trust
service; (ii) the customer must obtain or provide some additional credit,
property or service from or to the Company or any other subsidiary of the
Company; (iii) the customer may not obtain some other credit, property or
service from competitors, except under reasonable requirements to assure the
soundness of credit extended.
The Federal Reserve Board generally prohibits a bank holding company from
declaring or paying a cash dividend which would impose undue pressure on the
capital of subsidiary banks or would be funded through borrowing or other
arrangements that might adversely affect a bank holding company's financial
position. The Federal Reserve Board's policy is that a bank holding company
should not continue its existing rate of cash dividends on its common stock
unless its net income is sufficient to fully fund each dividend and its
prospective rate of earnings retention appears consistent with its capital
needs, asset quality and overall financial condition.
Transactions between the Company and its subsidiaries are subject to a number of
other restrictions. Federal Reserve Board policies forbid the payment by bank
subsidiaries of management fees which are unreasonable in amount or exceed the
fair market value of the services rendered (or, if no market exists, actual
costs plus a reasonable profit). Nor is the holding company allowed to transfer
to the Bank any nonperforming loans or other assets.
As a creditor and a financial institution, the Bank is subject to certain
regulations promulgated by the Federal Reserve Board, including, without
limitation: Regulation B (Equal Credit Opportunity), Regulation D (Reserves),
Regulation E (Electronic Funds Transfer Act), Regulation F (Interbank
Liabilities), Regulation Z (Truth in Lending), Regulation CC (Expedited Funds
Availability Act) and Regulation DD (Truth in Savings Act). As creditors on
loans secured by real property and as owners of real property, the Bank has
liability under various statutes and regulations applicable to property owners,
generally including statutes and regulations relating to the environmental
condition of the property.
THE BANK
The Bank is a national banking association whose deposits are insured by the
Bank Insurance Fund ("BIF") as administered by the FDIC, up to the maximum legal
limits of the FDIC ($100,000), and is subject to regulation, supervision, and
regular examination by the Comptroller of the Currency.The Bank is a member of
the Federal Reserve System, and as such is subject to certain provisions of the
Federal Reserve Board. The Bank is also subject to applicable provisions of
California law, insofar as they do not conflict with, or are not preempted by,
federal law. The regulations of these various agencies govern most aspects of
the Bank's business, including reserves against deposits, interest rates payable
on deposits, loans, investments, mergers and acquisitions, borrowing, dividends,
and locations of branch offices. California law exempts banks from the
California usury laws.
LEGISLATIVE AND REGULATORY CHANGES
Over the past few years the volume and complexity of banking regulations and the
intensity of the regulatory examination process have increased dramatically.
Banking institutions are subject to closer scrutiny today than ever before. This
increased scrutiny is designed to reduce the number of failing institutions and
to require immediate corrective actions by troubled institutions. Many of the
recent statutory changes have been directed at giving the various bank
regulatory agencies increased enforcement powers to take "prompt corrective
actions" (see ITEM 1. BUSINESS, SUPERVISION AND REGULATION, FEDERAL DEPOSIT
INSURANCE CORPORATION IMPROVEMENT ACT OF 1991) when an insured financial
institution's capital falls below certain levels. In addition, more stringent
capital requirements have been imposed to provide more
20
<PAGE>
protection against potential losses. Premiums for deposit insurance have
increased to record levels and are now based upon risk evaluations. While the
Company and the Bank have not directly measured the full impact and cost of
compliance with these new requirements, such compliance represents an ever
increasing expense for the Company and the Bank and requires a significant
amount of staff and officer time.
DIVIDEND LIMITATIONS
On January 1, 1991, the Comptroller changed the interpretations of the dividend
regulations to simplify the calculation of a bank's dividend paying capacity and
make them more consistent with generally accepted accounting principles. The
dividend limit is based on retained "net profits" for the current year plus the
two previous years, less any required transfers to surplus or a fund for the
retirement of preferred stock. "Net profits" are defined as the net income as
reported in the bank's call report with no adjustments. The Formal Agreement
also prohibits the payment of any cash dividends by the Bank without the prior
written consent of the Comptroller or by the Company without prior notice to the
Federal Reserve Bank of San Francisco (see ITEM 1. BUSINESS, SUPERVISION AND
REGULATIONS, FORMAL AGREEMENT AND MEMORANDUM OF UNDERSTANDING). In addition, a
national bank may not pay any dividends or make other capital distributions if
the capital distribution would cause the national bank to be undercapitalized,
with the exception of repurchases or redemptions of the national bank's shares
that are made in connection with the issuance of additional shares, or that will
impair the national bank's financial condition.
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991.
On December 19, 1991, the Federal Deposit Insurance Corporation Improvement Act
of 1991 ("FDICIA") was enacted. Set forth below is a brief discussion of certain
portions of this law and implementing regulations that have been adopted or
proposed by the Federal Reserve Board, Comptroller and the FDIC (collectively,
the "federal banking agencies").
BIF RECAPITALIZATION. FDICIA provides the FDIC with three additional sources
of funds to protect deposits insured by the BIF administered by the FDIC. The
FDIC is authorized to borrow up to $30 billion from the U.S. Treasury; borrow
from the Federal Financing Bank up to 90% of the fair market value of the assets
of institutions acquired by the FDIC as receiver; and borrow from financial
intermediaries that are members of the BIF. Any borrowing not repaid by asset
sales are to be repaid through insurance premiums assessed to member
institutions. Such premiums must be sufficient to repay any borrowed funds
within 15 years and provide insurance fund reserves of $1.25 for each $100 of
insured deposits.
IMPROVED EXAMINATIONS. All insured depository institutions must undergo a
full-scope, on-site examination by their appropriate federal banking agency at
least once every 12 months. The cost of examinations of insured depository
institutions and any affiliates may be assessed by the appropriate federal
banking agency against each institution or affiliate as it deems necessary or
appropriate.
STANDARDS FOR SAFETY AND SOUNDNESS. FDICIA requires the federal banking
agencies to prescribe, by regulation, standards for all insured depository
institutions and depository institution holding companies relating to internal
control, loan documentation, credit underwriting, interest rate exposure and
asset growth. Standards must also be prescribed for classified loans, earnings
and the ratio of market value to book value for publicly traded shares. FDICIA
also requires the federal banking agencies to issue uniform regulations
prescribing standards for real estate lending that are to consider such factors
as the risk to the deposit insurance fund, the need for safe and sound operation
of insured depository institutions and the availability of credit.
<PAGE>
Further, FDICIA requires the federal banking agencies to establish standards
prohibiting compensation, fees and benefit arrangements that are excessive or
could lead to financial loss. In 1995 guidelines were adopted in the areas
of excessive compensation, internal controls, information systems,
documentation, credit underwriting, interest risk exposure, asset growth and
compliance with laws and regulations. Under the excessive compensation
standard, the Comptroller will analyze a person's compensation history,
post-employment benefits, the financial condition of the institution,
compensation practices at comparable institutions and other relevant
information. The final rule authorizes, rather than requires, the
Comptroller to seek a compliance plan from institutions failing to meet the
safety and soundness guidelines. Asset quality and earnings standards have
also been proposed that would require monitoring and reporting systems to
identify emerging problems and corrective actions to resolve them.
In December 1992, the federal banking agencies issued final regulations
prescribing uniform guidelines for real estate lending. The regulations, which
became effective March 19, 1993, require insured depository institutions to
adopt written policies establishing standards, consistent with such guidelines,
for extensions of credit collateralized by real estate. The policies must
address loan portfolio management, underwriting standards and loan-to-value
limits that do not exceed the supervisory limits prescribed by the regulations.
In December 1993, pursuant to the mandate of FDICIA, the federal banking
agencies issued an interagency policy statement regarding the allowance for loan
and lease losses ("ALLL"). Insured depository institutions are required to
maintain a level of ALLL that is adequate to absorb "estimated credit losses"
associated with the loan and lease portfolio, including all binding commitments
to lend. "Estimated credit losses" are defined as an estimate of the current
amount of the loan and lease portfolio that is not likely to be collected given
the facts and circumstances as of the evaluation date. These estimated credit
losses should meet the criteria for accrual of a loss contingency set forth in
generally accepted accounting principles as stated in Statement on Financial
Accounting Standards No. 5 ("SFAS 5"). The policy statement describes the
responsibility of the board of directors and management to maintain the ALLL at
an adequate level and prescribes that the ALLL should be no less than the sum of
the following items:
(1) For loans and leases classified substandard or doubtful,whether analyzed
and provided individually or as part of pools, all estimated credit losses
over the remaining effective lives of these loans.
(2) or components of the loan and lease portfolio not classified, all estimated
credit losses over the upcoming 12 months.
(3) Amounts for estimated losses from transfer risk on international loans.
The board of directors and management are also responsible to ensure:
(1) the institution has an effective loan review system;
(2) loans or portions of loans are promptly charged off if determined
uncollectible; and
(3) the process for determining an adequate level for the ALLL is based on a
comprehensive, adequately documented and consistently applied analysis of
the loan and lease portfolio.
22
<PAGE>
The policy statement describes components of the portfolio which should be
reviewed and factors to consider in the estimation of credit losses.
Furthermore, the policy statement specifies the steps which will be followed by
examiners of the federal banking agencies in examining the adequacy of the ALLL
for individual institutions. These steps include analyzing an institution's
policies, practices and historical credit loss experience, and a further check
of the reasonableness of management's methodology by comparing the reported ALLL
(after deduction of all loans, or portions thereof, classified as loss) against
the sum of the following amounts:
(1) 50 percent of the portfolio that is classified doubtful;
(2) 15 percent of the portfolio that is classified substandard; and
(3) for the portions of the portfolio that have not been classified (including
those loans designated special mention), estimated credit losses over the
upcoming twelve months given the facts and circumstances as of the
evaluation date (based on the institution's average annual rate of net
charge-offs experienced over the previous two or three years on similar
loans, adjusted for current conditions and trends).
The policy statement cautions that "the amount is neither a 'floor' nor a 'safe
harbor' level for an institution's ALLL. However, examiners will view a
shortfall relative to this amount as indicating a need to more closely review
management's analysis to determine whether it is reasonable and supported by the
weight of available evidence, and that all relevant factors have been
appropriately considered." The Bank's ALLL is more than that which would be
established under the policy statement guidelines.
PROMPT CORRECTIVE REGULATORY ACTION. FDICIA requires each federal banking
agency to take prompt corrective action to resolve the problems of insured
depository institutions that fall below one or more prescribed minimum capital
ratios. The purpose of this law is to resolve the problems of insured
depository institutions at the least possible long-term cost to the appropriate
deposit insurance fund.
The law required each federal banking agency to promulgate regulations defining
the following five categories in which an insured depository institution will be
placed, based on the level of its capital ratios: well capitalized
(significantly exceeding the required minimum capital requirements), adequately
capitalized (meeting the required capital requirements), undercapitalized
(failing to meet any one of the capital requirements), significantly
undercapitalized (significantly below any one capital requirement) and
critically undercapitalized (failing to meet all capital requirements).
In September 1992, the federal banking agencies issued uniform final regulations
implementing the prompt corrective action provisions of FDICIA. Under the
regulations, an insured depository institution will be deemed to be:
-"well capitalized" if it (i) has total risk-based capital of 10% or
greater, Tier 1 risk-based capital of 6% or greater and a leverage capital
ratio of 5% or greater and (ii) is not subject to an order, written
agreement capital directive or prompt corrective action directive to meet
and maintain a specific capital level of any capital measure;
-"adequately capitalized" if it has total risk-based capital of 8% or
greater, Tier 1 risk-based capital of 4% or greater and a leverage capital
ratio of 4% or greater (or a leverage ratio of 3% or greater if the
institution is rated composite 1 under the applicable regulatory rating
system in its most recent report of examination);
23
<PAGE>
-"undercapitalized" if it has total risk-based capital that is less than
8%, Tier 1 risk-based capital that is less than 5% or a leverage capital
ratio that is less than 4% (or a leverage capital ratio that is less than
3% if the institution is rated composite 1 under the applicable regulatory
rating system in its most recent report of examination);
-"significantly undercapitalized" if it has a total risk-based capital that
is less than 6%, Tier 1 risk-based capital that is less than 3% or a
leverage capital ratio that is less than 3%; and
-"critically undercapitalized " if it has a ratio of tangible equity to
total assets that is equal to or less than 2%.
An institution that, based upon its capital levels, is classified as well
capitalized, adequately capitalized or undercapitalized may be reclassified to
the next lower capital category if the appropriate federal banking agency, after
notice and opportunity for hearing, (i) determines that the institution is in an
unsafe or unsound condition or (ii) deems the institution to be engaging in an
unsafe or unsound practice and not to have corrected the deficiency. At each
successive lower capital category, an insured depository institution is subject
to more restrictions and federal banking agencies are given less flexibility in
deciding to deal with it.
The law prohibits insured depository institutions from paying management fees to
any controlling persons or, with certain limited exceptions, making capital
distributions if after such transactions the institutions would be
undercapitalized. If an insured depository institution is undercapitalized, it
will be closely monitored by the appropriate federal banking agency, subject to
asset growth restrictions and required to obtain prior regulatory approval for
acquisitions, branching and engaging in new lines of business. Any
undercapitalized depository institution must submit an acceptable capital
restoration plan to the appropriate federal banking agency 45 days after
becoming undercapitalized. The appropriate federal banking agency cannot accept
a capital plan unless, among other things, it determines that the plan (1)
specifies the steps the institution will take to become adequately capitalized
on an average basis during each of four consecutive calendar quarters and must
otherwise provide adequate assurances of performance. The aggregate liability
of such guarantee is limited to the lesser of (a) an amount equal to 5% of the
depository institutions's total assets at the time the institution became
undercapitalized or (b) the amount which is necessary to bring the institution
into compliance with all capital standards applicable to such institution as of
the time the institution fails to comply with its capital restoration plan.
Finally, the appropriate federal banking agency may impose any of the additional
restrictions or sanctions that it may impose on significantly undercapitalized
institutions if it determines that such action will further the purpose of the
prompt corrective provisions.
An insured depository institution that is significantly undercapitalized, or is
undercapitalized and fails to submit, or in a material respect to implement, an
acceptable capital restoration plan, is subject to additional restrictions and
sanctions. These include, among other things: (1) a forced sale of the voting
shares to raise capital or, if grounds exist for appointment of a receiver or
conservator, a forced merger; (ii) restrictions on transactions with affiliates;
(iii) further limitations on interest rates paid on deposits; (iv) further
restrictions on growth or required shrinkage; (v) modification or termination of
specified activities; (vi) replacement of directors or senior executive
officers, subject to certain grandfather provisions for those elected prior to
enactment of FDICIA; (vii) prohibitions on the receipt of deposits from
correspondent institutions; (viii) restrictions on capital distributions by the
holding companies of such institutions; (ix) required divestiture of
subsidiaries by the institution; or (x) other restrictions as determined by the
appropriate federal banking agency.
24
<PAGE>
Although the appropriate federal banking agency has discretion to determine
which of the foregoing restrictions or sanctions it will seek to impose, it is
required to force a sale of voting shares or merger, impose restrictions on
affiliate transactions and impose restrictions on rates paid on deposits unless
it determines that such actions would not further the purpose of the prompt
corrective action provisions. In addition, without the prior written approval
of the appropriate federal banking agency, a significantly undercapitalized
institution may not pay any bonus to its senior executive officers or provide
compensation to any of them at a rate that exceeds such officer's average rate
of base compensation during the 12 calendar months preceding the month in which
the institution became undercapitalized.
Further restrictions and sanctions are required to be imposed on insured
depository institutions that are critically undercapitalized. For example, a
critically undercapitalized institution generally would be prohibited from
engaging in any material transaction other than in the ordinary course of
business without prior regulatory approval and could not, with certain
exceptions, make any payment of principal or interest on its subordinated debt
beginning 60 days after becoming critically undercapitalized. Most importantly,
however, except under limited circumstances, the appropriate federal banking
agency, not later than 270 days after an insured depository institution becomes
critically undercapitalized, is required to appoint a conservator or receiver
for the institution. The board of directors of an insured depository
institution would not be liable to the institution's shareholders or creditors
for consenting in good faith to the appointment of a receiver or conservator or
to an acquisition or merger as required by the regulator.
As of December 31, 1995, the Bank had a total risk-based capital of 11.36%, a
Tier 1 risk-based capital ratio of 10.11% and a leverage capital ratio of 6.76%
Based solely upon these ratios, the Bank would be deemed to be well capitalized
as of December 31, 1995; however, because the Bank is subject to a written
agreement with the Comptroller and the Company with the Federal Reserve Bank,
the Bank and the Company are deemed to be adequately capitalized. (see ITEM 1.
BUSINESS, SUPERVISION AND REGULATION, FEDERAL DEPOSIT INSURANCE CORPORATION
IMPROVEMENT ACT OF 1991, FORMAL AGREEMENT AND MEMORANDUM OF UNDERSTANDING). In
addition, under the prompt corrective action provision of FDICIA, a subsequent
reduction in the Bank's capital could cause it to fall within a lower capital
category and subject it to the mandatory and discretionary sanctions applicable
to the category.
OTHER ITEMS. FDICIA also, among other things, (i) limits the percentage of
interest paid on brokered deposits and limits the unrestricted use of such
deposits to only those institutions that are well capitalized; (ii) requires the
FDIC to charge insurance premiums based on the risk profile of each institution;
(iii) eliminates "pass through" deposit insurance for certain employee benefit
accounts unless the depository institution is well capitalized or, under certain
circumstances, adequately capitalized; (iv) prohibits insured state chartered
banks from engaging as principal in any type of activity that is not permissible
for a national bank unless the FDIC permits such activity and the bank meets all
of its regulatory capital requirements; (v) directs the appropriate federal
banking agency to determine the amount of readily marketable purchased mortgage
servicing rights that may be included in calculating such institutions'
tangible, core and risk-based capital; and (vi) provides that, subject to
certain limitations, any national bank may acquire or be acquired by any insured
depository institution.
BROKERED DEPOSITS. FDICIA prohibits "undercapitalized" institutions from
accepting funds obtained, directly or indirectly, by or through a deposit
broker. Undercapitalized institutions also are prohibited from soliciting
deposits by offering rates of interest that are significantly higher than the
prevailing rates of interest on insured deposits in the institutions' normal
market areas, or in the market area in which the deposits would otherwise be
accepted.
25
<PAGE>
"Adequately capitalized" institutions may accept brokered funds only if they
first obtain a waiver granted the FDIC. Adequately capitalized institutions
that solicit brokered deposits pursuant to a waiver granted by the FDIC may pay
a rate of interest on brokered funds that significantly exceeds the rate paid on
deposits of similar maturity in the institution's normal market area or the
"national rate" paid on deposits of comparable maturity for deposits accepted
outside the institution's normal market area. The term "deposit broker" also
includes any insured depository institution, or employee thereof, that solicits
deposits by offering rates of interest that are significantly higher than the
prevailing rates of interest offered by other insured depository institutions
having the same type of charter in the offering institution's normal market
area. The effect of this definition, and the other limits on brokered deposits,
is to preclude an institution that is only "adequately capitalized" from
offering rates of interest that are significantly more than local or national
rates.
PASS THROUGH FDIC INSURANCE PROVISIONS. As of December 19, 1992, pro rata, or
"pass through" deposit insurance is available for deposits attributable to
participants in or beneficiaries of certain employee benefit plans, only if the
institution in which the deposits are placed is permitted to accept brokered
deposits or qualifies for a second exception. Under the brokered deposits
exception, deposit insurance "passes through" to the participants or
beneficiaries (i.e., with coverage up to $100,000 per person) only if the
institution is well capitalized, or if the institution was adequately
capitalized with a waiver from the FDIC that allowed it to accept brokered
deposits. In the latter case, at the time the deposit was made the depositor
must receive a written statement from the institution that the deposit was
eligible for insurance coverage on a "pass through" basis. The second exception
is available for deposits placed in an institution that meets each applicable
capital standard set forth by the institution's appropriate Federal banking
agency. The exception is also subject to the requirement that the depositor be
given written notice, at the time the deposit is made that the deposit is
entitled to insurance or a pass-through basis. The Bank has obtained a waiver
from the FDIC under the first exception category.
RISK-BASED DEPOSIT INSURANCE PREMIUMS. As required by FDICIA, the FDIC adopted
a transitional risk-based assessment system for deposit insurance premiums which
became effective January 1, 1993. Under the transitional regulations, insured
depository institutions were required to pay insurance premiums within a range
of 23 cents per $100 of deposits to 31 cents per $100 of deposits depending on
their risk classification. To determine the risk-based assessment for each
institution, the FDIC categorized an institution as well-capitalized,
adequately capitalized or undercapitalized based on its capital ratios, a review
by the institutions' primary federal or state regulator, statistical analyses of
financial statements and other information relevant to evaluating the risk posed
by the institution. As a result, the assessment rates within each of three
capital categories until August 1995 were as follows (expressed as cents per
$100 of deposits):
<TABLE>
<CAPTION>
SUPERVISORY SUBGROUP
--------------------
A B C
-- -- --
<S> <C> <C> <C>
WELL CAPITALIZED 23 26 29
ADEQUATELY CAPITALIZED 26 29 30
UNDERCAPITALIZED 29 30 31
</TABLE>
In August 1995, the FDIC reduced the deposit insurance premiums paid by most
commercial banks insured by BIF. The new assessment rate within each of three
capital categories are as follows( expressed as cents per $100 of deposits).
<TABLE>
<CAPTION>
SUPERVISORY SUBGROUP
--------------------
A B C
-- -- --
<S> <C> <C> <C>
WELL CAPITALIZED 0 03 17
ADEQUATELY CAPITALIZED 03 10 24
UNDERCAPITALIZED 10 24 27
</TABLE>
The Bank currently pays deposit insurance to the FDIC at the rate of 17 cents
per $100 of deposits.
26
<PAGE>
FORMAL AGREEMENT
An on-site examination of the Bank was conducted by the Comptroller as of July
31, 1991. As a result of that examination, the Comptroller requested the Bank
to take certain actions to improve the condition of the Bank, and the Bank
agreed, pursuant to a formal agreement entered into with the Comptroller on
April 8, 1992 (the "Formal Agreement"), to take such actions. Under the terms
of the Formal Agreement, the Bank agreed to (a) conduct studies of various parts
of its operations and develop written action plans and policies designed to
address any issues raised by those studies, (b) develop and implement a program
designed to reduce the Bank's level of criticized assets, (c) implement an
effective and ongoing loan review system, (d) establish a program for
maintaining an adequate allowance for loan and lease losses, (e) develop and
implement a program to improve the Bank's loan administration, (f) update the
Bank's real estate appraisal program and procedures, (g) develop a program for
the management of the Bank's other real estate owned (OREO), (h) develop a
capital program and maintain total capital at least equal to 9% of risk-weighted
assets, and Tier 1 capital at least equal to 6% of actual adjusted total assets,
(I) maintain liquidity at a level sufficient to sustain the Bank's operations,
and (j) develop a program for Board supervision over the Bank's management team.
The Formal Agreement also prohibits the payment of any cash dividends by the
Bank without the prior written consent of the Comptroller.
The Comptroller conducted another examination of the Bank as of July 31, 1992.
As a result of that examination, the Comptroller requested, and on November 27,
1992, management and the Board of Directors of the Bank agreed to certain
commitments to take specific actions to assure compliance with the Formal
Agreement. The Comptroller conducted its annual examinations as of August 31,
1993 and September 30, 1994 and 1995. The Bank was found to be in full,
substantial or partial compliance with all terms and commitments under the
Formal Agreement. Management believes the Bank is now in substantial compliance
with all the terms of the Formal Agreement.
MEMORANDUM OF UNDERSTANDING
On May 27, 1993, the Company executed a Memorandum of Understanding
("memorandum") with the Federal Reserve Bank of San Francisco (the "Fed") in
which the Company agreed to submit a summary of actions to improve conditions in
the Bank, not declare cash dividends without prior notice to the Fed, and obtain
prior approval of changes in Directors or executive officers. Management of the
Company believes the Company is in substantial compliance with the Memorandum.
CAPITAL ADEQUACY GUIDELINES
The Federal Reserve Board, FDIC and Comptroller have issued guidelines to
implement the new risk-based capital requirements. The guidelines are intended
to establish a systematic analytical framework that makes regulatory capital
requirements more sensitive to differences in risk profiles among banking
organizations, takes off-balance sheet items into account in assessing capital
adequacy and minimizes disincentives to holding liquid, low-risk assets. Under
these guidelines, assets and credit equivalent amounts of off-balance sheet
items, such as letters of credit and outstanding loan commitments, are assigned
to one of several risk categories, which range from 0% for risk-free assets,
such as cash and certain U.S. government securities, to 100% for relatively
high-risk assets, such as loans and investments in fixed assets, premises and
other real estate owned.
27
<PAGE>
A banking organization's qualifying capital consists of two components: Tier 1
capital (core capital) and Tier 2 capital (supplementary capital). Tier 1
capital consists primarily of common stock, related surplus and retained
earnings, qualifying noncumulative perpetual preferred stock (plus, for bank
holding companies, qualifying cumulative perpetual preferred stock an amount to
25% of Tier 1 capital) and minority interests in the equity accounts of
consolidated subsidiaries. Intangibles, such as goodwill, and deferred tax
assets are generally deducted from Tier 1 capital; however, purchased mortgage
servicing rights and purchased credit card relationships may be included,
subject to certain limitations. At least 50% of the banking organization's
total regulatory capital must consist of Tier 1 capital. The Company has
established an allowance of $1,202,000 against its tax asset of $3,451,000 as of
December 31, 1995.
Tier 2 capital may consist of (i) the allowance for loan and lease losses in an
amount up to 1.25% of risk-weighted assets; (ii) cumulative perpetual preferred
stock and long-term preferred stock (which for bank holding companies must have
an original maturity of 20 years or more) and related surplus; (iii) hybrid
capital instruments (with characteristics of both debt and equity), perpetual
debt and mandatory convertible debt securities; and (iv) eligible term
subordinated debt and intermediate-term preferred stock with an original
maturity of five years or more, including related surplus, in an amount up to
50% of Tier 1 capital. The inclusion of the foregoing elements of Tier 2
capital is subject to certain requirements and limitations of the federal
banking authorities.
The federal banking authorities have also adopted a minimum ratio of Tier 1
capital to average total assets of 3% for the highest rated banks. This risk-
based leverage capital ratio is only a minimum and applies only to the highest
rated banks. Institutions experiencing or anticipating significant growth or
those with other than minimum risk profiles are expected to maintain capital
well above the minimum level. Furthermore, higher leverage capital ratios are
required to be considered well capitalized or adequately capitalized under the
prompt corrective action provisions of FDICIA (see ITEM 1. BUSINESS, SUPERVISION
AND REGULATION, FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991,
PROMPT CORRECTIVE ACTION). Thus, the effective minimum risk-based leverage
ratio, for all practical purposes, is at least 4% or 5%.
The federal banking authorities have issued a joint advance notice of proposed
rule making, in accordance with FDICIA, seeking public comment of methods to
take account of interest rate risk, concentrations of credit risk and the risks
of nontraditional activities in calculating risk-based capital. Although the
notice does not contain any agency proposals relating to concentration of credit
risk and risks of nontraditional activities, the notice includes a general
framework for taking account of interest rate risk. Under that framework,
institutions with interest rate risk exposure in excess of a certain threshold
would be required to hold capital proportionate to that excess risk. Exposures
would be measured in terms of the change in the present value of an
institution's assets minus the change in the present value of its liabilities
and off-balance sheet positions for an assumed 100 basis point parallel shift in
interest rate markets.
COMMUNITY REINVESTMENT ACT
The Community Reinvestment Act ("CRA") requires each national bank, as well as
other lenders, to identify the communities served by the national bank's offices
and to identify the types of credit the national bank is prepared to extend to
such communities. The CRA also requires the Comptroller to assess the
performance of the national bank in meeting the credit needs of its community
and to take such assessment into consideration in reviewing applications for
mergers, acquisitions and other transactions. An unsatisfactory CRA rating may
be the basis for denying such an application.
28
<PAGE>
In connection with its assessment of CRA performance, the Comptroller assigns a
rating of "outstanding," "satisfactory," "needs to improve" or "substantial
noncompliance." Based on an examination conducted during May of 1993 and
February of 1995, the Bank was rated Outstanding.
ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-
LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF and SFAS No. 122,
ACCOUNTING FOR MORTGAGE SERVICING RIGHTS, an amendment to FASB
Statement No. 65. The provisions of these statements are effective for
financial statements for fiscal years beginning after December 15, 1995. The
Company has not completed the process of evaluating the impact that will result
from adopting these statements and is therefore unable to disclose the impact of
adopting such statements. However, the Company does not believe the application
of SFAS Nos. 121 and 122 will have a material impact on its financial condition
and results of operations when adopted.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," which requires adoption of the disclosure provisions no later
than fiscal years beginning after December 15, 1995 and adoption of the
recognition and measurement provisions for nonemployee transactions no later
than after December 15, 1995. The new standard defines a fair value method of
accounting for stock options and other equity instruments. Under the fair value
method, compensation cost is measured at the grant date based on the fair value
of the award and is recognized over the service period, which is usually the
vesting period.
Pursuant to the new standard, companies are encouraged, but are not required, to
adopt the fair value method of accounting for employee stock-based transactions.
Companies are also permitted to continue to account for such transactions under
Accounting principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," but would be required to disclose in a note to the financial
statements pro forma net income and, if presented, earnings per share as if the
company had applied the new method of accounting.
The accounting requirements of the new method are effective for all employee
awards granted after the beginning of the fiscal year of adoption. The Company
has not yet determined if it will elect to change to the fair value method, nor
has it determined the effect the new standard will have on net income and
earnings
per share should it elect to make such a change. Adoption of the new standard
will have no effect on the Company's cash flows.
EMPLOYEES
The Bank currently employs approximately 178 persons in varying capacities. The
Company does not have any full-time employees at this time. (See ITEM 11.
EXECUTIVE COMPENSATION, for further information).
29
<PAGE>
ITEM 2. PROPERTIES.
On December 29, 1982, the Company entered into a sublease (the "Sublease") for
the premises covering approximately 6,147 square feet on the ground floor of a
building located at 3951 South Coast Plaza Drive, Santa Ana, California 92704.
The Sublease the ("old Sublease") had an initial term of 10 years, which expired
on January 31, 1993. The Sublease was amended effective February 1, 1993 for a
term of 24 months, terminating on January 31, 1995. It has further been amended
to expire on January 31, 1998. The rent for the premises at the end of the term
of the old Sublease was $2.61 per square foot per month. The rent under the
terms of the "new Sublease" is $1.38 per square foot per month. The Company has
assigned the Sublease to the Bank for the purpose of conducting banking
operations on the premises. The Company does not independently occupy any part
of the premises.
On May 4, 1988, the Bank entered into a lease expiring June 30, 2000 for the
branch located at 22831 Lake Forest Drive, El Toro, California. The El Toro
premises consist of approximately 6,672 square feet and the current monthly rent
is $1.73 per square foot.
On September 19, 1989, the Bank entered into a lease expiring September 18, 1993
for the Service Center located at 17252 Armstrong, Suite H, Irvine, California.
These premises consist of approximately 7,900 square feet. On June 20, 1995,
the Company revised and extended the lease for a period of twelve months,
expiring September 17, 1996, at the current monthly rent of $.70 per square
foot.
On October 4, 1989, the Bank entered into a lease expiring December 31, 1999 for
the Orange regional office located at 625 The City Drive, Orange, California.
These premises consist of approximately 8,257 square feet and the current
monthly rent is $2.10 per square foot.
On November 29, 1991, the Bank entered into a lease for a branch facility,
commercial loan department and escrow division space covering approximately
14,866 square feet on the ground floor and 14,103 square feet for its
headquarters office on the ninth floor of a building located at 4100 Newport
Place, Newport Beach, California 92660. The Lease has an initial term of 10
years.
The current rent for the premises is $1.64 per square foot per month on the
ground floor and $1.62 per square foot per month for the ninth floor. Pursuant
to the Lease, the Bank has an option to lease additional space on the ninth
floor. The Bank is using the ground floor for banking operations and is using
the ninth floor for administrative offices.
On November 1, 1995 the Bank entered into a lease expiring October 31, 2005 for
the Beach Cities Regional
Office located at 17330 Brookhurst, Fountain Valley, CA. These premises consist
of approximately 5534 square feet and the currrent monthly rent is $1.25 per
square foot.
All of the premises leased by the Company are used by the Bank and there are no
immediate plans to utilize any of the leased premises for any other purpose.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
From time to time, the Company or the Bank is a party to claims and legal
proceedings arising in the ordinary course of business. Management of the
Company evaluates the Company's or Bank's exposure to the cases individually and
in the aggregate and provides for potential losses on such litigation if the
amount of the loss is determinable and if the incurrence of the loss is
probable. As of December 31, 1995, a judgement in the amount of $361,000 plus
interest had been entered against the Bank. The Bank has accrued $440,000 for
the judgement. After taking into consideration information furnished by counsel
to the Company and the Bank as to the current status of various remaining claims
and legal proceedings to which the Company or the Bank is a party, management of
the Company and the Bank believe that the ultimate aggregate liability
represented thereby, if any, will not have a material adverse effect on the
Company's consolidated financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to security holders during the fourth quarter of the
fiscal year ended December 31, 1995.
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
As of February 29, 1996, there were approximately 298 shareholders of record of
the Company's common stock. No shares of the Company's preferred stock have
been issued or are outstanding.
Although there are at least four broker/dealers purporting to make a market in
the Company's common stock, there is limited trading activity in the Company's
common stock. No cash dividends have been paid on shares of the Company's
common stock since the formation of the Company, and the Company presently has
no intention to pay cash dividends in the foreseeable future.
The following table lists high and low bid prices of the Company's Common Stock
in the over the counter market. Prices represent quotations by dealers making a
market in the stock and reflect inter-dealer prices without adjustments for
mark-ups, mark-downs or commissions and may not necessarily represent actual
transactions. Trading in the Company's common stock is limited in volume and may
not be a reliable indicator of its market value.
<TABLE>
<CAPTION>
1995 1994
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter $6.38 $5.00 $4.25 $4.25
Second Quarter $6.63 $6.00 $4.75 $4.25
Third Quarter $7.50 $6.57 $5.00 $4.63
Fourth Quarter $7.97 $7.40 $5.50 $4.63
</TABLE>
In November, 1995, the Company sold 474,000 shares of its common stock through a
private placement at $6.75 per share.
31
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following table should be read in conjunction with, and is qualified in its
entirety by, the Company's Consolidated Financial Statements and the notes
thereto contained in Item 8 of this Form 10-K.
<TABLE>
<CAPTION>
For the year ended December 31,
$ in 000's 1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Operating Revenue $27,097 $24,849 $25,800 $30,912 $36,137
Interest & Fee Income 24,742 22,721 23,642 28,861 34,378
Net Interest and Fee Income 17,453 16,385 15,556 17,630 18,291
Net Income (Loss) (3,341) 859 (2,815) 507 319
Net Income (Loss) Per Share (1.30) 0.35 (1.14) 0.20 0.12
Cash Dividends Declared Per Share 0 0 0 0 0
=============================================================================================
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
$ in 000's 1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Total Assets $334,043 $300,665 $324,550 $372,762 $368,159
Total Deposits 308,504 277,389 299,726 343,137 341,607
Total Liabilities 312,924 280,937 304,363 350,067 346,481
Net Loans & Leases 187,670 195,203 206,370 237,884 278,408
Long Term Debt 2,351 2,351 2,351 3,000 3,000
Total Shareholders' Equity 21,119 19,728 20,187 22,695 21,678
</TABLE>
32
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
The purpose of this discussion is to provide additional information about the
Company's financial condition and results of operations which is not otherwise
apparent from the consolidated financial statements included in this annual
report. Since the banking subsidiary represents most of the Company's activity
and investment, the following discussion relates primarily to the financial
condition and operations of the Bank. It should be read in conjunction with the
consolidated financial statements of the Company and the notes thereto contained
in Item 8 of this Form 10-K.
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Summary
The following chart shows comparative data for selected items of the financial
statements:
<TABLE>
<CAPTION>
$ in 000's Except Increase Increase
Earnings Per Share Data 1995 (Decrease) 1994 (Decrease) 1993
-------------------------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Average Total Assets $311,877 ($7,252) $319,129 ($25,391) $344,520
(2.3)% (7.4)%
Average Loans and Leases $200,758 ($1,251) $202,009 ($22,969) $224,978
(0.6)% (10.2)%
Average Deposits $285,888 ($6,549) $292,437 ($23,306) $315,743
(2.2)% (7.4)%
Net Interest Income $ 17,453 $1,068 $16,385 $829 $15,556
6.5% 5.3%
Provision for Loan and Lease
Losses $6,600 $3,235 $3,365 ($1,524) $4,889
96.1% (31.2)%
Net Income (Loss) ($3,341) ($4,200) $859 $3,674 ($2,815)
N/A N/A
Income (Loss) Per Share ($1.30) ($1.65) $0.35 $1.49 ($1.14)
N/A N/A
Return on Average Assets (1.07)% (1.34)% .27% 1.09% ($.82)%
N/A N/A
Return on Average Equity (1) (15.56)% (19.75)% 4.19% 17.14% ($12.95)%
N/A N/A
Ratio of Average Equity to
Average Assets 6.88% $0.42 6.45% .14 6.31%
6.7% 2.20%
Cash Dividends declared 0 N/A 0 N/A 0
</TABLE>
1) Average equity computed based on month end balances
The average assets, average loans and leases and average deposits decreased from
1993 through 1995 as the Company continued improving asset quality and
collecting loans rather than on generating new business. Net interest income
increased in 1995 due to improved spreads in interest earning assets. During
1995, the Company made a provision for loan and lease losses in the amount of
$6,600,000 and charged off loans which amounted to $5,718,000 net of recoveries.
Increased legal expenses and losses on foreclosed properties contributed to a
net loss of $3,341,000 in 1995.
Total deposits increased by $31,115,000 on December 31, 1995 from the same
period in 1994. The increase in demand and saving deposit amounted to
$22,341,000 and $8,774,000 in time deposits. No deposits were acquired through
national publications.
33
<PAGE>
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Increase Increase
$ in 000's 1995 (Decrease) 1994 (Decrease) 1993
---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C>
Total Interest and Fee Income $24,742 $2,021 $22,721 ($921) $23,642
8.9% (3.90)%
Total Interest Expense 7,289 $953 6,336 ($1,750) 8,086
15.0% (21.64)%
- ----------------------------------------------------------------------------------------------
Net Interest Income Before Provision
for Loan and Lease Losses $17,453 $1,068 $16,385 $829 $15,556
6.5% 5.33%
==============================================================================================
Net Interest and Fee Income Earned as a
Percentage of Average Interest Earning
Assets 6.12% .51% 5.61% .64% 4.97%
</TABLE>
NET INTEREST INCOME BEFORE PROVISION FOR LOAN AND LEASE LOSSES. Net interest
income increased in 1995 and in 1994 from 1993 as the interest spread continued
to improve on interest earning assets due to rising interest rates and increased
average non-interest bearing deposits. The average non-interest bearing deposits
increased from $92,270,000 in 1993 to $101,022,000 in 1994 and $100,525,000 in
1995.
The net yield on interest earning assets increased to 6.12% in 1995 from 5.61%
in 1994. As of December 31, 1995, the Company had a total of $225,358,000 in
interest earning assets that would reprice within one year as compared to
$175,879,000 interest bearing liabilities that would reprice within the same
period of time. The short term impact of any rise or decline in interest rates
would therefore be insignificant.
<TABLE>
<CAPTION>
Increase Increase
$ in 000's 1995 (Decrease) 1994 (Decrease) 1993
---------- ------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Average Nonaccrual Loans $12,760 ($4,127) $ 16,887 $3,213 $13,674
(24.4)% 23.5%
Interest Income Not Recognized
During the Period on Nonaccrual
Loans $41,189 $221 $951 ($218) $1,169
22.8% (18.65)%
Interest Income Recognized
During the Period on
Nonaccrual Loans ($20) $20 ($73) $93
(100.0)% (78.49)%
Average Loans and Leases
to Average Deposits 70.2% 1.1% 69.1% (2.2)% 71.3%
1.6% (3.1)%
Average Interest Earning Assets $285,339 ($6,721) $292,060 ($20,656) $312,716
(2.3)% (6.6)%
</TABLE>
During the three-year period, loan production and average outstanding loans
declined as the Company focused on monitoring the performance of the outstanding
loans, identifying potential problems and collecting identified problem loans
and real estate owned. At the same time, the Company refined its loan
underwriting and approval process, seeking higher quality credits which reduced
the volume of loans meeting the tightened criteria.
34
<PAGE>
<TABLE>
<CAPTION>
Average Balances, Percent Percent Percent
$ in 000's of Total of Total of Total
- ----------------- -------- Interest -------- Interest --------
1995 Rate 1994 Rate 1993 Rate
---- -------- ---- -------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Savings Deposits $121,110 42.36% 2.82% $120,120 41.08% 2.58% $120,600 38.20% 2.84%
Time Deposits 64,252 22.48% 5.62% 71,295 24.38% 4.11% 102,873 32.58% 4.24%
- ---------------------------------------------------------------------------------------------------------------------
Total Interest Bearing
Deposits 185,362 64.84% 3.79% 191,415 65.46% 3.15% 223,473 70.78% 3.49%
Demand Deposits 100,526 35.16% N/A 101,022 34.54% N/A 92,270 29.22% N/A
- ---------------------------------------------------------------------------------------------------------------------
Total Deposits $285,888 100.00% $292,437 100.00% $315,743 100.00%
=====================================================================================================================
</TABLE>
Interest expense declined as interest rates fell in 1994 and interest expense
increased as the interest rates increased in 1995. In addition, during 1993, and
continuing in 1994, the Company established a policy not to renew brokered
certificates of deposit and deposits gathered through listings in national
publications listing the rates offered on time deposits by a large number of
banks around the country. Although the rates paid on the certificates of
deposit approximate the rates paid by the Bank on its other certificates of
deposit, the decline in balances of these deposits caused a concurrent decline
in interest expense.
PROVISION FOR LOAN AND LEASE LOSSES The provision for loan and lease losses
creates an allowance for estimated future loan and lease losses. When losses or
recoveries occur, they are charged against or credited to the allowance.
<TABLE>
<CAPTION>
Increase Increase
$ In 000'S 1995 (Decrease) 1994 (Decrease) 1993
- ---------- ------ ---------- ------ ---------- ------
<S> <C> <C> <C> <C> <C>
Loan and Lease
Charge-offs
(Net of Recoveries) $5,718 $792 $4,926 $1,005 $3,921
16.1% 25.6%
- --------------------------------------------------------------------------
Provision for Loan
and Lease Losses $6,600 $3,235 $3,365 ($1,524) $4,889
96.14% (31.17)%
==========================================================================
</TABLE>
Due to continued high levels of nonperforming and classified loans and lease
charge offs, substantial provisions for loan and lease losses have been
necessitated. In addition to provision for loan and lease losses the Company
incurred $1,070,000 in 1994 and $2,799,000 in 1995 in real estate owned
expenses. Those expenses included, property taxes, selling costs, writedowns
and losses on sale. The total real estate owned at December 31, 1994 and 1995
amounted to $2,676,000 and $2,165,000 respectively. Those properties have
already been written down to their fair market values less estimated selling
costs and therefore the Company does not expect any significant losses during
1996 related to these properties.
35
<PAGE>
OTHER INCOME The following table sets forth information by category of other
income and the changes in categories of other income between periods for the
periods indicated:
<TABLE>
<CAPTION>
Increase Increase
$ in 000's 1995 (Decrease) 1994 (Decrease) 1993
---------- ------ ---------- ----- ---------- ------
<S> <C> <C> <C> <C> <C>
Escrow Fees $308 $4 $304 ($100) $404
1.30% (24.8)%
Service Charges 983 $14 969 $(5) 974
1.4% (.5)%
Securities (Losses) Gains (72) ($78) 6 $6 0
N/A N/A
Other Income 1,136 $287 849 $69 780
33.8% 8.8%
- -------------------------------------------------------------------------------
Total Other Income (Loss) $2,355 $227 $2,128 $(30) $2,158
10.70% (1.4)%
===============================================================================
</TABLE>
The increase in other income (loss) from 1993 as compared to 1994 and 1995 is
principally the result of the increase in rental income on REO properties and
net master card merchant revenue.
OTHER EXPENSE The following table sets forth information by category of other
expense and the changes in categories of other expense between periods for the
periods indicated:
<TABLE>
<CAPTION>
Increase Increase
$ in 000's 1995 (Decrease) 1994 (Decrease) 1993
---------- ------- -------- ------ ---------- ------
<S> <C> <C> <C> <C> <C>
Salaries and Employee Benefits $7,513 $1,059 $6,454 ($780) $ 7,234
16.4% (10.8)%
Occupancy, Furniture and equipment 2,129 $121 2,008 ($474) 2,482
6.0% (19.1)%
Data Processing For Customers' 184 $11 173 ($53) 226
6.4% (23.5)%
Legal Fees and Related Costs 1,439 $779 660 $426 1,086
118.0% (39.2)%
Regulatory Assessments 717 ($211) 928 ($28) 956
(22.7)% (2.9)%
Supplies 321 $54 267 ($18) 285
20.2% (6.3)%
Other Real Estate Owned 2,799 $1,729 1,070 ($1,094) 2,164
161.6% (50.6)%
Other 3,377 $1,192 2,185 $23 2,162
54.6% 1.1%
- --------------------------------------------------------------------------------------
Total Other Expenses $18,479 $4,734 $13,745 $2,850 $16,595
34.4% 17.17%
======================================================================================
</TABLE>
In November 1993, the Bank reduced staff by 20 personnel at an annualized
savings of salaries and benefits of approximately $700,000 and a one time cost
of approximately $50,000. During 1995 the Company hired additional personnel
for opening of its new branch in Fountain Valley and additional staff in the
business development for its future projected growth. Occupancy expense was
relatively constant during the period with exception of the costs related to the
new headquarter and branch
36
<PAGE>
Legal fees, other real estate owned expenses (including losses on sale) and
other expenses have all remained high as a result of increases in delinquent
loans, nonperforming loans and other real estate owned. (see ITEM 1 BUSINESS,
BUSINESS OF THE BANK, LOANS, ALLOWANCE FOR LOAN AND LEASE LOSSES & ASSET
QUALITY). Other real estate owned expenses included provisions for selling
expenses of $177,000 and $243,000 in 1995 and 1994, respectively, and expenses
and losses on sales of other real estate owned of $2,622,000 and $827,000 in
1995 and 1994, respectively.
From time to time, the Company or the Bank is a party to claims and legal
proceedings arising in the ordinary course of business. Management of the
Company evaluates the Company's or Bank's exposure to the cases individually and
in the aggregate and provides for potential losses on such litigation if the
amount of the loss is determinable and if the incurrence of the loss is
probable. As of December 31, 1995, a judgement in the amount of $361,000 plus
interest has been entered against the Bank. The Bank has accrued $440,000 for
the judgement. After taking into consideration information furnished by counsel
to the Company as to the current status of various remaining claims and legal
proceedings to which the Company or the Bank is a party, management of the
Company believes that the ultimate aggregate liability represented thereby, if
any, will not have a material adverse effect on the Company's consolidated
financial statements.
Regulatory assessments decreased due to the decline in deposit premium rate to
$.17 per $100 in 1995 from $.29 per $100 in 1994 and 1993.
INCOME TAX EXPENSE
The following table shows the Company's income tax expense or benefit, related
effective tax expense or benefit rate for the periods indicated and the changes
between periods:
<TABLE>
<CAPTION>
Increase Increase
$ in 000's 1995 (Decrease) 1994 (Decrease) 1993
---------- ------- ---------- ----- ---------- -------
<S> <C> <C> <C> <C> <C>
Income Tax (Benefit)
Expense ($1,930) ($2,474) $ 544 $1,499 ($ 955)
N/A N/A
Effective Income Tax
(Benefit) Expense Rate (36.6)% 38.77% (25.33)%
</TABLE>
The effective tax benefit rates are in accordance with the requirements of SFAS
109, adopted by the Company effective January 1, 1993, that limits the amount of
tax benefit a company can recognize.
37
<PAGE>
FINANCIAL CONDITION
OVERVIEW
The following table sets forth the book values and changes in book values of
selected assets and liabilities of the Company as of December 31, 1995, 1994 and
1993:
<TABLE>
<CAPTION>
Increase Increase
$ in 000's 1995 (Decrease) 1994 (Decrease) 1993
- ---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Investment Securities $62,283 $(9,792) $72,075 $(9,062) $81,137
(13.6)% (11.17)%
Net Loans and Leases $187,670 $(7,533) $195,203 $(11,167) $206,370
(3.9)% (5.41)%
Other Real Estate Owned $2,165 $(511) $2,676 $387 $2,289
N/A 16.91%
Total Assets $334,043 $33,378 $300,665 $(23,885) $324,550
11.1% (7.36)%
Total Deposits $308,504 $31,115 $277,389 $(22,337) $299,726
11.2% (7.45)%
Total Equity $21,119 $1,391 $19,728 $(459) $20,187
7.1% (2.27)%
</TABLE>
During the years from 1993 through 1995 the Bank focused its human and financial
resources on identifying and working our problem loans and other real estate
owned. Other real estate owned remained low as the Bank applied significant
resources to disposing of properties. Total assets and total deposits decreased
significantly in 1994 as the Bank decreased its marketing efforts while
concentrating on resolving asset quality issues. The increase in total assets
and total deposits from 1994 to 1995 was a result of the Bank's business
development efforts.
During 1994 the Company continued its efforts on working out problem loans. The
proceeds from loan collections and maturing investment securities were used to
payoff time certificates of deposits acquired through listings on national
publications resulting in a decline in investment securities, loans and deposits
from 1993 to 1994. The decline in equity was due to unrealized losses on
securities in 1994.
The primary sources of funds for the Bank's lending programs are local deposits,
loan payments and proceeds from the sale or maturity of investment securities.
INFLATION
The impact of inflation on a financial institution is significantly different
from that exerted on an industrial concern, mainly because a financial
institution's assets and liabilities consist almost entirely of monetary items.
The relatively low portion of the Company's fixed assets to total assets reduces
both the potential of inflated earnings resulting from understated depreciation,
and the potential understatement of absolute asset values.
38
<PAGE>
CAPITAL RESOURCES
On December 31, 1990, new risk based capital requirements became effective.
Under the requirements, holding companies and banks are required currently to
maintain minimum ratios of total capital and "core" (Tier 1) capital to risk-
weighted assets (see ITEM 1. BUSINESS, SUPERVISION AND REGULATION, CAPITAL
ADEQUACY GUIDELINES); however, under the terms of its formal agreement with the
Comptroller, the Bank will be required to maintain capital in excess of this
minimum requirement (see ITEM 1 BUSINESS, SUPERVISION AND REGULATION, FORMAL
REGULATORY AGREEMENT). The regulatory capital requirements, capital
requirements under the formal agreement and the Bank and Company's actual
capital ratios are shown in the following table as of the dates indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31
1995 | 1994
EXCESS | EXCESS
PER EXCESS TO | PER EXCESS TO
MINIMUM FORMAL TO FORMAL | MINIMUM FORMAL TO FORMAL
STATU- AGREE- STATU- AGREE- | STATU- AGREE- STATU- AGREE-
TORY MENT ACTUAL TORY MENT | TORY MENT ACTUAL TORY MENT
------- ------ ------ ------ ------ | ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> | <C> <C> <C> <C> <C>
FOR THE BANK |
RISK-BASED |
CAPITAL: |
TIER 1 4.00% N/A 10.11% 6.11% N/A | 4.00% N/A 10.82% 6.82% N/A
TOTAL RISK-BASED 8.00% 9.00% 11.36% 3.36% 2.36% | 8.00% 9.00% 12.07% 4.07% 3.07%
TIER 1 |
LEVERAGE RATIO (1) 4.00% 6.00% 6.76% 2.76% .76% | 4.00% 6.00% 7.47% 3.47% 1.47%
FOR THE COMPANY |
RISK-BASED |
CAPITAL: |
TIER 1 4.00% N/A 9.45% 5.45% N/A | 4.00% N/A 10.00% 6.00% N/A
TOTAL RISK-BASED 8.00% N/A 10.70% 2.70% N/A | 8.00% N/A 11.24% 3.24% N/A
TIER 1 |
LEVERAGE RATIO 4.00% N/A 6.32% 2.32% N/A | 4.00% N/A 6.97% 2.97% N/A
</TABLE>
As of December 31, 1995 and 1994, the Bank and the Company were in compliance
with statutory risk-based capital requirements and the Bank was in compliance
with the more stringent capital requirements imposed by the Formal Agreement.
(1)In some circumstances this minimum ratio may be 3%.
During 1995, the Bank obtained $3,200,000 in proceeds from a private placement
of the Company's common stock. One shareholder who purchased 289,000 shares at
$6.75 per share (9.9% of the total shares outstanding) through private placement
offered in November, 1995, has an option to purchase an additional 267,000
shares at $6.75 per share (which would bring the total shares owned by the
shareholder to 556,000 shares or 17.4% of the total shares which would then be
outstanding). The option is subject to the approval by the Federal Reserve
Board and it will expire on May 1, 1996.
39
<PAGE>
8. FINANCIAL STATEMENTS.
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page Number
<S> <C>
Independent Auditors' Report 42
Consolidated Balance Sheets,
December 31, 1995 and 1994 43
Consolidated Statements of Operations
For The Years Ended December 31,
1995, 1994 and 1993 44
Consolidated Statements of Shareholders'
Equity For The Years Ended December 31,
1995, 1994 and 1993 45
Consolidated Statements of Cash Flows
For The Years Ended December 31, 1995,
1994 and 1993 46
Notes to Consolidated Financial Statements
For The Years Ended December 31, 1995,
1994 and 1993 48
</TABLE>
40
<PAGE>
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
Consolidated Financial Statements for the
Years Ended December 31, 1995, 1994 and
1993 and Independent Auditors' Report
41
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF CALIFORNIA COMMERCIAL BANKSHARES:
We have audited the accompanying consolidated balance sheets of California
Commercial Bankshares and subsidiaries (the Company) as of December 31, 1995 and
1994, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of California Commercial Bankshares
and subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
FEBRUARY 9, 1996
MARCH 18, 1996 AS TO NOTE 7
LOS ANGELES, CALIFORNIA
42
<PAGE>
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
---- ----
<S> <C> <C>
CASH AND DUE FROM BANKS
Noninterest bearing (Note 3) $28,549,000 $21,069,000
Interest bearing 246,000
FEDERAL FUNDS SOLD 45,000,000 2,000,000
------------ ------------
TOTAL CASH AND CASH EQUIVALENTS 73,549,000 23,315,000
INVESTMENT SECURITIES Available
for sale at estimated fair value (Note 4) 62,283,000 72,075,000
LOANS AND INVESTMENT IN LEASES, net
(Notes 5 and 9) 178,050,000 195,203,000
LOANS AVAILABLE FOR SALE 9,620,000
ACCRUED INTEREST RECEIVABLE 2,649,000 2,846,000
PROPERTY - net (Note 6) 1,150,000 988,000
OTHER REAL ESTATE OWNED 2,165,000 2,676,000
OTHER ASSETS (Notes 8 and 10) 4,577,000 3,562,000
------------ ------------
TOTAL $334,043,000 $300,665,000
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS:
Demand:
Noninterest bearing $130,660,000 $98,733,000
Interest bearing 65,301,000 79,695,000
Savings 45,312,000 40,504,000
Time certificates, $100,000 and over 34,718,000 28,896,000
Other time deposits 32,513,000 29,561,000
------------ ------------
Total Deposits 308,504,000 277,389,000
INTEREST PAYABLE 221,000 149,000
NOTE PAYABLE (Note 7) 2,351,000 2,351,000
OTHER LIABILITIES (Note 8) 1,848,000 1,048,000
------------ ------------
Total Liabilities 312,924,000 280,937,000
SHAREHOLDERS' EQUITY
(Notes 7, 8 and 13):
Preferred stock - no par value; authorized, 1,000,000 shares;
outstanding, none
Common stock - no par value; authorized, 10,000,000 shares;
issued and outstanding, 2,922,000 in 1995
and 2,423,000 in 1994 14,077,000 10,782,000
Paid-in capital 470,000 475,000
Retained earnings 6,448,000 9,789,000
Net unrealized gain (loss) on investment securities available for sale,
net of tax of $67,000 in 1995 and $711,000 in 1994 124,000 (1,318,000)
------------ ------------
Total Shareholders' Equity 21,119,000 19,728,000
------------ ------------
TOTAL $334,043,000 $300,665,000
------------ ------------
------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
See notes to consolidated financial statements.
43
<PAGE>
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
INTEREST AND FEE INCOME: 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Loans and leases, including fees $20,000,000 $18,347,000 $19,904,000
Investment securities 3,409,000 3,873,000 3,261,000
Federal funds sold 1,333,000 501,000 477,000
----------- ----------- -----------
Total Interest and Fee Income 24,742,000 22,721,000 23,642,000
----------- ----------- -----------
INTEREST EXPENSE:
Deposits 7,022,000 6,036,000 7,791,000
Securities sold under agreements
to repurchase 8,000 59,000 62,000
Note payable (Note 7) 259,000 241,000 233,000
----------- ----------- -----------
Total Interest Expense 7,289,000 6,336,000 8,086,000
----------- ----------- -----------
NET INTEREST INCOME BEFORE PROVISION
FOR LOAN AND LEASE LOSSES 17,453,000 16,385,000 15,556,000
PROVISION FOR LOAN AND
LEASE LOSSES (NOTE 5) 6,600,000 3,365,000 4,889,000
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN AND LEASE LOSSES 10,853,000 13,020,000 10,667,000
----------- ----------- -----------
OTHER INCOME (LOSS):
Escrow fees 308,000 304,000 404,000
Service charges 983,000 969,000 974,000
Securities gains (losses), net (72,000) 6,000
Other income 1,136,000 849,000 780,000
----------- ----------- -----------
Total Other Income (Loss) 2,355,000 2,128,000 2,158,000
----------- ----------- -----------
OTHER EXPENSES:
Salaries and employee benefits (Note 8) 7,513,000 6,454,000 7,234,000
Occupancy, furniture and equipment (Note 11) 2,129,000 2,008,000 2,482,000
Data processing for customers 184,000 173,000 226,000
Legal fees and related costs (Note 12) 1,439,000 660,000 1,086,000
Loan collection and related costs 414,000 331,000 136,000
Lower of cost or market adjustment
on loans available for sale 756,000
Regulatory assessments 717,000 928,000 956,000
Supplies 321,000 267,000 285,000
Other real estate owned 2,799,000 1,070,000 2,164,000
Other 2,207,000 1,854,000 2,026,000
----------- ----------- -----------
Total Other Expenses 18,479,000 13,745,000 16,595,000
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME
TAX EXPENSE (BENEFIT) (5,271,000) 1,403,000 (3,770,000)
INCOME TAX EXPENSE (BENEFIT) (NOTE 10) (1,930,000) 544,000 (955,000)
----------- ----------- -----------
NET INCOME (LOSS) ($3,341,000) $ 859,000 ($2,815,000)
----------- ----------- -----------
----------- ----------- -----------
NET INCOME (LOSS) PER COMMON
AND COMMON EQUIVALENT SHARE ($1.30) $0.35 ($1.14)
----------- ----------- -----------
----------- ----------- -----------
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 2,564,000 2,427,000 2,459,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- --------------------------------------------------------------------------------
See notes to consolidated financial statements.
44
<PAGE>
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
NET
UNREALIZED
GAIN (LOSS) ON
INVESTMENT
SECURITIES TOTAL
COMMON STOCK PAID-IN RETAINED AVAILABLE SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS FOR SALE EQUITY
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993 2,345,000 $10,593,000 $357,000 $11,745,000 $22,695,000
Net Loss (2,815,000) (2,815,000)
Stock Options Exercised (Note 8) 78,000 189,000 189,000
Tax Benefit of Stock
Options Exercised 118,000 118,000
-----------------------------------------------------------------------------
Balance at December 31, 1993 2,423,000 10,782,000 475,000 8,930,000 20,187,000
Net Income 859,000 859,000
Change in net Unrealized Loss
On Investment Securities Available
For sale, net of tax of $711,000 ($1,318,000) (1,318,000)
-----------------------------------------------------------------------------
Balance at December 31, 1994 2,423,000 10,782,000 475,000 9,789,000 (1,318,000) 19,728,000
Net Loss (3,341,000) (3,341,000)
Stock Options
Exercised (Note 8) 25,000 95,000 (83,000) 12,000
Tax Benefit of Stock
Options Exercised 78,000 78,000
Common Shares Sold Under
Private Placement (note 17) 474,000 3,200,000 3,200,000
Change in net Unrealized Gain on
Investment Securities Available
For Sale, net of tax of $67,000 1,442,000 1,442,000
-----------------------------------------------------------------------------
Balance at December 31, 1995 2,922,000 $14,077,000 $470,000 $6,448,000 $124,000 $21,119,000
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
See notes to consolidated financial statements.
45
<PAGE>
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($3,341,000) $859,000 ($2,815,000)
Adjustments to reconcile net income (loss) to net
cash from operating activities:
Depreciation and amortization 473,000 580,000 610,000
Amortization of discounts and premiums
on investment securities available for sale 850,000 795,000
Amortization of discounts and premiums
on investment securities 449,000
Provision for loan and lease losses 6,600,000 3,365,000 4,889,000
Provision for losses on other real estate owned 177,000 244,000 1,759,000
Deferred income taxes (1,627,000) 621,000 18,000
Loss (gain) on sale of investment securities
available for sale 72,000 (6,000)
Loans originated for sale (9,620,000)
Loss (gain) on sale of other real estate owned 1,675,000 4,000 (167,000)
Loss (gain) on sale of property 2,000 (7,000) (7,000)
Decrease (increase) in accrued interest receivable 197,000 (359,000) 121,000
(Decrease) increase in deferred loan fees (80,000) 27,000 (153,000)
Decrease in unearned lease income (145,000) (19,000) (384,000)
(Increase) decrease in other assets (166,000) 686,000 (714,000)
Net increase (decrease) in interest payable
and other liabilities 872,000 (1,156,000) (385,000)
----------- ----------- ------------
Net cash from operating activities (4,061,000) 5,634,000 3,221,000
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity of investment
securities available for sale 17,232,000 19,350,000
Proceeds from sale of investment
securities available for sale 21,016,000 49,229,000
Purchase of investment securities available for sale (27,158,000) (62,335,000)
Proceeds from maturities of investment securities 168,418,000
Purchases of investment securities (189,395,000)
Net decrease (increase) in loans and
investment in leases 3,260,000 (505,000) 26,159,000
Recoveries of loans and investment in leases 494,000 1,156,000 743,000
Payments received on in-substance foreclosures 93,000 210,000
Purchase of property (661,000) (251,000) (298,000)
Proceeds from sale of property 24,000 18,000 7,000
Proceeds from sale of other real estate owned 5,683,000 6,872,000 9,616,000
Additions to other real estate owned (390,000)
----------- ----------- ------------
Net cash from investing activities 19,890,000 13,237,000 15,460,000
----------- ----------- ------------
</TABLE>
46
<PAGE>
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (CONTINUED)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits $31,115,000 ($22,337,000) ($43,411,000)
Decrease in securities sold under
agreements to repurchase (2,500,000)
Proceeds from sale of common stock and 3,290,000 189,000
exercise of common stock options
Payments on note payable (649,000)
----------- ----------- -----------
Net cash from financing activities 34,405,000 (22,337,000) (46,371,000)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 50,234,000 (3,466,000) (27,690,000)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 23,315,000 26,781,000 54,471,000
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $73,549,000 $23,315,000 $26,781,000
----------- ----------- -----------
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during the year for:
Interest $ 7,217,000 $ 6,327,000 $ 8,222,000
----------- ----------- -----------
----------- ----------- -----------
Income taxes $ 627,000 $ 602,000 $ 745,000
----------- ----------- -----------
----------- ----------- -----------
SUPPLEMENTAL INFORMATION ON
NONCASH INVESTING ACTIVITIES:
Property acquired through foreclosure $ 7,024,000 $ 7,143,000 $ 260,000
----------- ----------- -----------
----------- ----------- -----------
Assumption of debt through foreclosure $ $ 67,000 $ 1,359,000
----------- ----------- -----------
----------- ----------- -----------
Tax benefit for exercise of non-qualified stock options $ 78,000 $ $ 118,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- --------------------------------------------------------------------------------
See notes to consolidated financial statements.
47
<PAGE>
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1. GENERAL
California Commercial Bankshares (the "Company") was incorporated on June 16,
1982 for the purpose of becoming a bank holding company. National Bank of
Southern California (the "Bank") commenced operations as a wholly-owned
subsidiary of the Company on January 10, 1983. The Bank operates five branches
in Orange County, California. The Bank's primary source of revenue is providing
loans to customers who are predominantly middle market businesses and middle
income individuals.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION - The consolidated financial statements include the accounts of
the Company, the Bank and Venture Partners, Inc. All significant intercompany
balances and transactions have been eliminated.
CONSOLIDATED STATEMENTS OF CASH FLOWS - Cash and cash equivalents for the
purpose of the consolidated statements of cash flows are defined as cash and
due from banks and Federal funds sold.
USE OF ESTIMATES IN THE PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS - The
preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and the reported
amounts of 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 - The Bank adopted Statement of Financial Accounting
Standards (SFAS) No.115, Accounting for Certain Investments in Debt and Equity
Securities, as of January 1, 1994. SFAS No. 115 requires the classification of
investments in debt and equity securities into three categories: held to
maturity, trading, and available for sale. Debt securities that the Bank has the
positive intent and ability to hold to maturity are classified as held to
maturity securities and reported at amortized cost. Debt and equity securities
that are bought and held principally for the purpose of selling them in the near
term are classified as trading securities and reported at fair value, with
unrealized gains and losses included in earnings. The Bank has no trading
securities. Debt and equity securities not classified as either held to maturity
securities or trading securities are classified as available for sale securities
and reported at fair value, with unrealized gains and losses excluded from
earnings and reported as a separate component of equity, net of deferred taxes.
As of January 1, 1994, the cumulative effect of the adoption of the new
statement was not material.
The Bank designates investment securities as held to maturity or available for
sale upon acquisition. Gain or loss on the sales of investment securities is
determined on the specific identification method. Premiums and discounts on
investment securities are amortized or accreted using the interest method over
the expected lives of the related securities.
LOANS AND INVESTMENT IN LEASES - Loans and leases are carried at principal
amounts outstanding, net of deferred net loan origination fees, unearned lease
income and the allowance for loan and lease losses.
48
<PAGE>
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (CONTINUED)
Nonaccrual loans are those for which management has discontinued accrual of
interest because (i) there exists reasonable doubt as to the full and timely
collection of either principal or interest or (ii) such loans have become
contractually past due ninety days with respect to principal or interest.
Interest accruals may be continued for loans that have become contractually
past due ninety days when such loans are well secured and in the process of
collection and, accordingly, management has determined such loans to be fully
collectible as to both principal and interest.
For this purpose, loans are considered well secured if they are collateralized
by property having a realizable value in excess of the amount of principal and
accrued interest outstanding or are guaranteed by a financially capable party.
Loans are considered to be in the process of collection if collection of the
loan is proceeding so that management reasonably expects repayment of the loan
or its restoration to a current status in the near future.
When a loan is placed on nonaccrual status, all interest previously accrued
but uncollected is reversed against current period operating results. Income on
such loans is then recognized only to the extent that cash is received and
where the ultimate collection of the carrying amount of the loan is probable,
after giving consideration to borrowers' current financial condition,
historical repayment performance and other factors. Accrual of interest is
resumed only when (i) principal and interest are brought fully current and
(ii) such loans are either considered, in management's judgement, to be fully
collectible or otherwise become well secured and in the process of collection.
Troubled debt restructured loans are those for which the Company has, for
reasons related to borrowers' financial difficulties, granted concessions to
borrowers (including reductions of either interest or principal) that it would
not otherwise consider, whether or not such loans are secured or guaranteed by
others.
On January 1, 1995, the Bank adopted SFAS No.114, ACCOUNTING BY CREDITORS FOR
IMPAIRMENT OF A LOAN , and SFAS No. 118, ACCOUNTING BY CREDITORS FOR IMPAIRMENT
OF A LOAN- INCOME RECOGNITION AND DISCLOSURES. SFAS No. 114 generally requires
all creditors to account for impaired loans, except those loans that are
accounted for at fair value or at the lower of cost or fair value, at the
present value of the expected future cash flows discounted at the loan's
effective interest rate or, as a practical expedient, at the loan's observable
market price or the fair value of the collateral if the loan is collateral
dependent. SFAS No. 114 indicates that a creditor should evaluate the
collectibility of both contractual interest and contractual principal when
assessing the need for a loss accrual. The adoption of this statement did not
have a material impact on the results of operations or the financial position
of the Association, taken as a whole.
The Bank considers a loan to be impaired when it is probable that the Bank will
be unable to collect all contractual principal and interest payments in
accordance with the terms of the original loan agreement. The Bank applies the
measurement provisions of SFAS No. 114 to all loans in its portfolio except for
single-family residence and installment loans which are collectively evaluated
for impairment.
LOAN ORIGINATION FEES - Loan origination fees, net of certain related direct
incremental loan origination costs, are deferred and amortized to income over
the term of the loans using the effective interest method.
49
<PAGE>
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (CONTINUED)
ALLOWANCE FOR LOAN AND LEASE LOSSES - The allowance for loan and lease losses
is based on an analysis of the loan and lease portfolio and reflects an amount
which, in management's judgment, is adequate to provide for potential loan and
lease losses after giving consideration to the loan and lease portfolio,
current economic conditions, past loan and lease loss experience and other
factors that deserve current recognition in estimating loan and lease losses.
While management uses the best information available to provide for possible
losses, future adjustments to the allowance may be necessary due to economic,
operating, regulatory or other conditions that may be beyond the Company's
control.
In each reporting period, the allowance for loan and lease losses is increased
by provisions for losses charged against operations in that period and
recoveries of loans and leases previously charged off, and is reduced by
charge-offs of loans and leases recognized in that period.
LOANS AVAILABLE FOR SALE - Loans available for sale are recorded at the lower
of cost or estimated market value, determined on an aggregate basis, and
include loan origination costs and related fees. Any transfers of loans
available for sale to the investment portfolio are recorded at the lower of
cost or estimated market value on the transfer date. Gains or losses resulting
from sales of loans are recorded at the time of sale and are determined by the
difference between the net sales proceeds and the carrying value of the loans
sold.
OTHER REAL ESTATE OWNED - Other real estate owned, which represents real estate
acquired in settlement of loans, is carried at fair value less estimated
selling costs. Any subsequent operating expenses or income, reduction in
estimated fair values, or gains or losses on disposition of such properties are
charged or credited to current operations.
PROPERTY - Property is stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed using the
straight-line basis over the estimated useful lives of the related assets
(estimated to be one to five years) or, if shorter, the term of the lease in
the case of leasehold improvements.
INCOME TAXES - The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under
SFAS No. 109, deferred income taxes are recognized for the tax consequences in
future years of differences between the tax basis of assets and liabilities and
their financial reporting amounts at each year-end based on enacted tax laws
and statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income.
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE - Net income (loss)
per common and common equivalent share is based on the weighted average number
of common and common equivalent shares (stock options) outstanding during the
year.
RECLASSIFICATION - Certain items in the previous years' consolidated financial
statements have been reclassified to conform to the current year presentation.
50
<PAGE>
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (CONTINUED)
3. CASH AND DUE FROM BANKS
The Bank is required to meet statutory reserve requirements. In part, the Bank
meets these requirements by maintaining a balance in a non interest-bearing
account at a Federal Reserve Bank. During 1995 and 1994, the average balance in
this account was approximately $6,669,000 and $6,480,000, respectively
4. INVESTMENT SECURITIES
Book value and market value of investment securities (in thousands of
dollars) are summarized as of December 31 as follows:
<TABLE>
<CAPTION>
1995
----------------------------------------------
Amortized Estimated Gross Unrealized
Cost Fair Value Gains Losses
----------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
U.S. Government
securities $35,314 $35,457 $168 ($25)
U.S. Government agencies
or insured obligations 23,611 23,657 61 (15)
State political subdivisions 423 416 (7)
Mortgage-backed securities-
U.S. agencies 1,047 1,070 25 (2)
Other securities 80 66 (14)
Federal Reserve Bank and
Federal Home Loan
Bank stocks 1,617 1,617
----------------------------------------------
Total $62,092 $62,283 $254 ($63)
----------------------------------------------
----------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1994
------------------------------------------------
Amortized Estimated Gross Unrealized
Cost Fair Value Gains Losses
------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
U.S. Government
securities $60,099 $58,778 $(1,321)
U.S Government agencies
or insured obligations 9,657 9,262 (395)
State political
subdivisions 1,509 1,274 (235)
Mortgage-backed securities-
U.S. agencies 1,186 1,132 (54)
Other securities 97 73 (24)
Federal Reserve Bank and
Federal Home Loan
Bank stocks 1,556 1,556
------------------------------------------------
Total $74,104 $72,075 $(2,029)
------------------------------------------------
------------------------------------------------
</TABLE>
51
<PAGE>
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,1995, 1994, 1993 (CONTINUED)
The maturity distribution for investment securities available for sale at
December 31,1995 is as follows (in thousands of dollars):
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ----------
<S> <C> <C>
ONE YEAR OR LESS $25,165 $25,226
OVER ONE THROUGH FIVE YEARS 34,183 34,303
OVER FIVE YEARS 80 67
------- -------
59,428 59,596
MORTGAGE-BACKED SECURITIES-U.S. AGENCIES 1,047 1,070
FEDERAL RESERVE BANK AND FEDERAL HOME
LOAN BANK STOCKS 1,617 1,617
------- -------
$62,092 $62,283
------- -------
------- -------
</TABLE>
Proceeds from sales of investment securities available for sale were $21,016,000
for the year ended December 31, 1995. Gross realized losses from the sales of
investment securities were $72,000 for the year ended December 31,1995.
Proceeds from sale of investment securities available for sale were $49,229,
000 for the year ended December 31, 1994. Gross realized gains were $12,000
and gross realized losses were $6,000 from sales of investment securities
available for sale for the year December 31, 1994.
The carrying value of investment securities pledged as required or permitted
by law amounted to $6,444,000 and $4,040,000 at December 31, 1995 and 1994,
respectively.
52
<PAGE>
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (CONTINUED)
5. LOANS AND INVESTMENT IN LEASES
The loan portfolio and net investment in direct financing leases (in
thousands of dollars) at December 31 is summarized as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
REAL ESTATE:
MORTGAGE $ 55,207 $ 66,102
EQUITY LINES 7,039 8,691
CONSTRUCTION 22,593 29,792
COMMERCIAL 84,271 82,600
INSTALLMENT AND OTHER 13,120 10,845
-------- --------
182,230 198,030
LESS:
ALLOWANCE FOR LOAN LOSSES (6,431) (5,572)
DEFERRED LOAN ORIGINATION FEES - NET (702) (782)
-------- --------
LOANS - NET 175,097 191,676
-------- --------
TOTAL MINIMUM LEASE PAYMENTS
RECEIVABLE 3,253 3,778
ESTIMATED UNGUARANTEED RESIDUAL
VALUE OF LEASED PROPERTY 210 381
-------- --------
3,463 4,159
LESS:
UNEARNED LEASE INCOME (399) (544)
ALLOWANCE FOR LEASE LOSSES (111) (88)
-------- --------
NET INVESTMENT IN LEASES 2,953 3,527
-------- --------
TOTAL $178,050 $195,203
-------- --------
-------- --------
</TABLE>
The Bank grants loans to customers throughout its primary market area of
Southern California. The Bank makes loans to borrowers from a number of
different industries, the largest of which, including undisbursed amounts,
are as follows at December 31 (in thousands of dollars) (see Note 11):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
NONRESIDENTIAL CONSTRUCTION $34,717 $47,237
PERSONAL 30,384 26,699
REAL ESTATE AGENTS/DEVELOPERS 37,556 32,584
RESIDENTIAL CONSTRUCTION 22,506 27,242
</TABLE>
Loans in the commercial loan portfolio are collateralized primarily by
accounts receivable and inventory.
53
<PAGE>
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (CONTINUED)
The allowance for loan and lease losses is an estimate involving both
subjective and objective factors and its measurement is inherently uncertain,
pending the outcome of future events. Management's determination of the
adequacy of the allowance is based on an evaluation of the loan and lease
portfolio, previous loan and lease loss experience, current economic
conditions, volume, growth and composition of the loan and lease portfolio,
the value of collateral and other relevant factors. The ongoing economic
downturn in Southern California continued to have an adverse impact on the
credit risk profile and performance of the Bank's loan and lease portfolio in
1995. Management believes the level of the allowance as of December 31,
1995 and 1994 is adequate to absorb losses inherent in the loan and lease
portfolio; however, additional deterioration of the economy in the Bank's
lending area could result in levels of loan and lease losses that could not
be reasonably predicted at that date.
A summary of the changes in the allowance for loan and lease losses (in
thousands of dollars) for the years ended December 31 follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
LOANS:
BALANCE AT BEGINNING OF YEAR $ 5,572 $ 7,137 $ 6,161
RECOVERIES ON LOANS CHARGED OFF 460 1,104 731
PROVISION FOR LOAN LOSSES 6,600 3,365 4,789
LOANS CHARGED OFF (6,201) (6,034) (4,544)
-------- ------- -------
BALANCE AT END OF YEAR 6,431 5,572 7,137
-------- ------- -------
LEASES:
BALANCE AT BEGINNING OF YEAR 88 84 92
RECOVERIES ON LEASES CHARGED OFF 34 52 12
PROVISION FOR LEASE LOSSES 100
LEASES CHARGED OFF (11) (48) (120)
-------- ------- -------
BALANCE AT END OF YEAR 111 88 84
-------- ------- -------
TOTAL $ 6,542 $ 5,660 $ 7,221
-------- ------- -------
-------- ------- -------
</TABLE>
Loans and leases on which the accrual of interest has been discontinued
amounted to $15,573,000 and $14,771,000 at December 31, 1995 and 1994,
respectively. If interest on those loans and leases had continued to accrue,
the additional income would have been $625,000 and $968,000 in 1995 and
1994, respectively.
The Bank has pledged real estate loans amounting to $4,413,000 as collateral
for a line of credit with the Federal Home Loan Bank (Note 7).
At December 31, 1995, the Company had classified $1,397,000 of its loans as
impaired with a specific reserve of $390,000 and $15,147,000 of its loans
impaired with no related specific loss reserve determined in accordance with
SFAS No. 114. The Company considers a loan impaired when it is probable that
the Company will be unable to collect all contractual principal and interest
under the terms of the loan agreement. In determining when a loan is
impaired, management considers the following factors: Loans which have delays
in payments of less than 3 months or less than $100,000 are not necessarily
considered impaired unless other factors as described above also apply to the
loans. The average recorded investment in impaired loans during the year
ended December 31, 1995, was $13,101,000. It is generally the Company's
policy to place loans on nonaccrual status when they are 90 days past due.
Thereafter, interest income is no
54
<PAGE>
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (CONTINUED)
longer recognized and the full amount of all payments received, whether
principal or interest, are applied to the principal balance of the loan. As
such, interest income may be recognized on impaired loans to the extent they
are not past due by 90 days or more. Interest income of $236,000 was
recognized on impaired loans during the year ended December 31, 1995, all of
which was collected in cash. The Company will charge-off an impaired loan in
accordance with its established charge off policy.
6. PROPERTY
Property (in thousands of dollars) at December 31 is summarized as follows:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
FURNITURE, FIXTURES AND EQUIPMENT $ 4,042 $ 3,687
LEASEHOLD IMPROVEMENTS 1,416 1,364
------- -------
5,458 5,051
LESS ACCUMULATED DEPRECIATION AND AMORTIZATION (4,308) (4,063)
------- -------
PROPERTY - NET $ 1,150 $ 988
------- -------
------- -------
</TABLE>
7. BORROWING ARRANGEMENTS
In December 1988 the Company obtained a $3,000,000 term loan from another
financial institution for the purpose of providing additional capital to the
bank. The credit agreement for this loan was amended pursuant to a Second
Amendment to the credit agreement dated August 25, 1994. The loan as amended
had interest at a fluctuating rate per annum equal to .75% in excess of the
lender's reference rate (8.5% at December 31, 1995). Interest was payable
monthly on the unpaid principal balance of the loan and required prepayment
of 40% of the proceeds of any stock offering or placement of debt or equity.
The Second Amendment was supported by a Support Agreement between a
shareholder director of the Company and the Company whereby the shareholder
guaranteed the payment of the loan.
To compensate the shareholder for signing the Support Agreement and
subsequently paying off the lending institution the Company had signed a
Holding Company Support Agreement whereby the Company: (1) paid the
shareholder $23,500 in 1994 and 1995 and (2) will issue to the shareholder on
or prior to March 31, 1997 warrants to purchase 25,000 shares of common stock
of the Company at an exercise price per share equal to 80% of the book value
per share of the Company on December 31, 1996.
In November 1995, the Company sold 474,000 shares of its common stock through
private placement at $6.75 per share for the purpose of contributing most of
the proceeds into the Bank as additional capital. Of the total proceeds of
$3,200,000 the Company contributed $2,900,000 into the Bank's capital in
December 1995. The shareholder paid off the outstanding balance of
$2,350,000 to the lending institution in March of 1996 and the Company
entered into a new note with the shareholder. The new note bears an interest
rate of 3% over prime rate with interest only payable monthly for the first
year and thereafter $125,000 plus quarterly interest payable monthly. Any
remaining principal and interest is due on April 1, 1999.
55
<PAGE>
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (CONTINUED)
The Bank maintains three lines of credit with outside financial institutions
for the purpose of purchasing Federal funds. The lines of credit bear
interest at a floating rate and provide for borrowing up to $8,000,000,
$5,000,000 and $2,000,000, respectively. At December 31, 1995 and 1994, no
amounts were outstanding on these lines of credit.
Under an agreement with the Federal Home Loan Bank, the Bank may obtain an
extension of credit of up to 50% of total assets collateralized by real
estate loans. At December 31, 1995, the Bank had pledged loans amounting to
$4,413,000 and had available credit of $2,207,000 based on 50% of the
outstanding balance of pledged loans. No amounts were outstanding on this
line of credit at December 31, 1995 and 1994.
8. EMPLOYEE BENEFIT PLANS
The Company had a stock option plan that expired in 1992. Under the plan the
options were granted to directors, officers and employees to purchase shares
at the fair market of the common stock on the date of grant. The outstanding
options become exercisable over a period of ten years.
A summary of stock option transactions under this plan for each of the three
years in the period ended December 31 is as follows:
<TABLE>
<CAPTION>
1995
1995 1994 1993 OPTION PRICE
---------------------------------------------
<S> <C> <C> <C> <C>
OPTIONS OUTSTANDING
BEGINNING OF YEAR 229,446 229,446 367,496 $4.33 TO $13.00
OPTIONS EXERCISED (44,249) (96,050)
OPTIONS CANCELED (51,250) (42,000)
---------------------------------------------
OPTIONS OUTSTANDING,
END OF YEAR 133,947 229,446 229,446 $4.67 TO $13.00
---------------------------------------------
---------------------------------------------
</TABLE>
At December 31, 1995, options for 132,447 shares were exercisable. During the
year ended December 31, 1995, 44,249 options were exercised and paid for with
cash of $12,000 and 19,198 shares of common stock previously outstanding. No
options were exercised in 1994. During the year ended December 31, 1993,
96,050 options were exercised and paid for with cash of $189,000 and 18,050
shares of common stock previously outstanding.
During 1995 the Company adopted a stock award plan that permits the granting
of options to directors, officers and employees to purchase, at the fair
market value of the common stock on the date of grant, up to 750,000 shares
of the Company's common stock. The outstanding options become exercisable
over a period of ten years.
56
<PAGE>
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (CONTINUED)
A summary of stock option transactions for the stock award plan for the year in
the period ended December 31, 1995 is as follows:
<TABLE>
<CAPTION>
1995
OPTION
1995 PRICE
-----------------------------
<S> <C> <C>
OPTIONS OUTSTANDING,
BEGINNING OF YEAR 0
OPTIONS GRANTED 142,000 $5.25 TO $6.50
OPTIONS EXERCISED
OPTIONS CANCELED
-----------------------------
OPTIONS OUTSTANDING, END OF YEAR 142,000 $5.25 TO $6.50
------- --------------
------- --------------
</TABLE>
During the year ended December 31, 1995 142,000 options were granted and none
were exercised.
The Company also has stock option plans it uses as a means of compensating
directors in lieu of cash director's fees for services performed. During the
year ended December 31,1995 12,249 options were exercised. During the years
ended December 31, 1995, 1994 and 1993 no options were granted, or canceled.
At December 31, 1995, options for 3,447 shares were outstanding and
exercisable.
The Company maintains a stock bonus plan that covers substantially all
Company employees. The plan provides for the issuance to participating
employees of share units in the plan, which entitles participants to
distributions primarily of common stock of the Company. Contributions to the
plan are held in trust and invested in common stock of the Company (which is
purchased from third parties) or other investments under the terms of
the plan agreement. Contributions are determined based on management's
discretion. The Company's contributions for 1995, 1994 and 1993 were
$45,000, $5,000 and $51,000 respectively.
The Bank has a defined contribution plan, which meets the requirements of
Section 401(k) of the Internal Revenue Code and covers substantially all
employees. The Bank's contributions are determined as a percentage of each
participant's contribution. The amounts contributed to the plan by the Bank
were $108,000, $88,000 and $81,000 for 1995, 1994 and 1993, respectively.
In 1987, the Company purchased cost recovery life insurance with aggregate
death benefits in the amount of $2,473,000 on the lives of the senior
management participants. The Company is the sole owner and beneficiary of
such policies, which were purchased to fund the Company's obligation under
separate deferred compensation arrangements. The cash surrender values and
obligation under deferred compensation agreements at December 31, 1995 and
1994 of $1,231,000 and $1,167,000, respectively, and $317,000 and
$189,000, respectively, have been included in other assets and in other
liabilities, respectively, in the accompanying consolidated balance sheets.
9. RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Bank has granted loans to certain
directors, executive officers and the businesses with which they are
associated. All such loans and commitments to loans were made under terms
that are consistent with the Bank's normal lending policies.
57
<PAGE>
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (CONTINUED)
The following is an analysis of the activity of all such loans for the years
ended December 31:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
OUTSTANDING BALANCE, BEGINNING OF YEAR $ 2,623,000 $2,236,000
CREDIT GRANTED, INCLUDING RENEWALS 1,474,000 761,000
REPAYMENTS (2,249,000) (374,000)
----------- -----------
OUTSTANDING BALANCE, END OF YEAR $ 1,848,000 $2,623,000
----------- -----------
----------- -----------
</TABLE>
10. INCOME TAXES
Income tax expense (benefit) for the years ended December 31 is as follows:
<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
------------ ---------- ------------
<S> <C> <C> <C>
1995:
CURRENT ($341,000) $38,000 ($303,000)
DEFERRED (1,051,000) (576,000) (1,627,000)
------------ ---------- ------------
TOTAL ($1,392,000) ($538,000) ($1,930,000)
------------ ---------- ------------
------------ ---------- ------------
1994:
CURRENT ($79,000) $ 2,000 ($77,000)
DEFERRED 621,000 621,000
------------ ---------- ------------
TOTAL $542,000 $ 2,000 $ 544,000
------------ ---------- ------------
------------ ---------- ------------
1993:
CURRENT ($982,000) $ 9,000 ($973,000)
DEFERRED 18,000 18,000
------------ ---------- ------------
TOTAL ($964,000) $ 9,000 ($955,000)
------------ ---------- ------------
------------ ---------- ------------
</TABLE>
Income tax expense (benefit) for the years ended December 31 (in thousands of
dollars) varies from the amounts computed by applying the statutory Federal
income tax rate as a result of the following factors:
<TABLE>
<CAPTION>
1995 1994 1993
--------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FEDERAL INCOME TAXES AT STATUTORY RATE $(1,845) (35.0%) $491 35.0% $(1,320) (35.0%)
STATE FRANCHISE TAXES - NET OF
FEDERAL INCOME TAX BENEFIT (355) (6.7) 95 6.8 (270) (7.1)
UNBENEFITED STATE NET OPERATING LOSSES 20 1.4 276 7.3
INCREASE (DECREASE) IN DEFERRED TAX ASSET
VALUATION ALLOWANCES - STATE AND FEDERAL 178 3.4 (49) (3.5) 370 9.8
OTHER 92 1.7 (13) (0.9) (11) (.3)
--------------------------------------------------
INCOME TAX (BENEFIT) EXPENSE $(1,930) (36.6%) $544 38.8% $(955) (25.3%)
--------------------------------------------------
--------------------------------------------------
</TABLE>
58
<PAGE>
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (CONTINUED)
The Company has recorded net deferred tax assets as of December 31 consisting
principally of the following:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
DEFERRED DEFERRED
TAX TAX
1995 1994
- ---------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS:
LOAN LOSS RESERVE $2,465,000 $1,373,000
UNREALIZED LOSS ON LOANS 342,000
UNREALIZED LOSS ON
INVESTMENT SECURITIES 711,000
DEPRECIATION 233,000 241,000
NONACCRUAL INTEREST INCOME 171,000 252,000
SELF-INSURANCE RESERVE 106,000 71,000
REO RESERVES 601,000 104,000
CONTINGENCIES 184,000 50,000
OTHER 262,000 361,000
- ---------------------------------------------------------------------
DEFERRED TAX ASSETS 4,364,000 3,163,000
VALUATION ALLOWANCE (1,202,000) (837,000)
- ---------------------------------------------------------------------
DEFERRED TAX ASSETS,
NET OF ALLOWANCE 3,162,000 2,326,000
- ---------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
UNREALIZED GAIN ON
INVESTMENT SECURITIES 67,000
FINANCIAL ACCOUNTING
LEASE DIFFERENCE 846,000 (926,000)
- ---------------------------------------------------------------------
NET DEFERRED TAX ASSETS $2,249,000 $1,400,000
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
</TABLE>
In the event the future consequences of difference between financial
accounting bases and the tax bases of the Company's assets and liabilities
result in a deferred tax asset, SFAS 109 requires an evaluation of the
probability of being able to realize the future benefits indicated by such
asset. A valuation allowance related to a deferred asset is recorded when it
is more likely than not that some portion or all of the deferred asset will
not be recognized.
At December 31, 1995, the Company has a California state net loss carry
forward of $1,410,000 which expires primarily in 1996-2000 and a Federal net
loss carry forward of $408,000 which expires primarily in 2010.
59
<PAGE>
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (CONTINUED)
11. COMMITMENTS AND OTHER MATTERS
OPERATING LEASES - At December 31, 1995, the Company and the Bank were
obligated under various noncancelable lease agreements, classified as
operating leases, primarily for the rental of office space. Certain leases
for office space contain provisions for renewal options of one or two
five-year periods. Minimum future rental payments under these lease
agreements are summarized as follows:
1996 $1,155,000
1997 1,139,000
1998 1,099,000
1999 1,118,000
2000 865,000
THEREAFTER 1,478,000
----------
TOTAL $6,854,000
----------
----------
Total rental expense was $1,136,000, $1,072,000 and $1,173,000 in 1995, 1994
and 1993, respectively.
The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. These instruments involve, to varying degrees, elements
of credit and interest rate risk in excess of the amount recognized in the
consolidated balance sheets. The Bank's exposure to credit loss in the event
of nonperformance by the other party to commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. At December 31, 1995 and 1994, the Bank had primarily variable
rate commitments to extend credit of $55,769,000, and $47,920,000,
respectively, and obligations under standby letters of credit of $2,032,000
and $1,629,000, respectively.
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 amounts do
not necessarily represent future cash requirements. Standby letters of
credit are conditional commitments issued by the Bank to guarantee the
performance of a customer to a third party.
The Bank uses the same credit policies in making commitments and conditional
obligations as it does for extending loan facilities to customers. The Bank
evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Bank upon extension
of credit, is based on management's credit evaluation of the customer.
Collateral held varies but may include accounts receivable, inventory,
property, plant and equipment or real estate.
60
<PAGE>
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (CONTINUED)
12. LEGAL PROCEEDINGS
From time to time, the Company or the Bank is a party to claims and legal
proceedings arising in the ordinary course of business. Management of the
Company evaluates the Company's or Bank's exposure to the cases individually and
in the aggregate and provides for potential losses on such litigation if the
amount of the loss is determinable and if the incurrence of the loss is
probable. After taking into consideration information furnished by counsel to
the Company or the Bank as to the current status of various claims and legal
proceedings to which the Company or the Bank is a party, management of the
Company or the Bank believes that the ultimate aggregate liability represented
thereby, if any, will not have a material adverse effect on the Company's
consolidated financial statements.
13. RISK-BASED CAPITAL STANDARDS AND OTHER REGULATORY MATTERS
On April 8, 1992, the Bank executed a Formal Agreement (the "Agreement") with
the Office of the Comptroller of the Currency (the "Comptroller") in which the
Bank agreed to take specific action with respect to classified assets and the
allowance for loan and lease losses, maintain specific minimum capital levels,
obtain prior approval of changes in Directors and executive officers, strengthen
controls over loan administration and real estate loan appraisals, improve
liquidity management, submit a three-year capital program and obtain prior
written approval from the Comptroller before dividends may be declared.
Management believes that the Bank is in substantial compliance with all terms of
the Agreement.
On May 27, 1993, the Company executed a Memorandum of Understanding (the
"memorandum") with the Federal Reserve Bank of San Francisco (the "Fed") under
which the Company submitted a summary plan of action to improve conditions in
the Bank, cannot declare cash dividends without prior notice to the Fed, and
must obtain prior approval of changes in Directors or executive officers.
Management of the Company believes the Company is in substantial compliance with
the terms of the memorandum.
Risk-based capital guidelines require that the Company and the Bank maintain a
minimum total capital of 8% of risk-weighted assets. Further, at least 4% of the
required capital must be "core" (Tier 1) capital. Leverage capital guidelines
require, generally, that the Company and the Bank maintain a minimum ratio of
(Tier 1) capital to total assets of 4%.
61
<PAGE>
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (CONTINUED)
The Agreement requires the Bank to maintain a minimum ratio of total capital to
risk-weighted assets of 9% and a minimum ratio of core capital to adjusted
total assets of 6%. At December 31, 1995, the Company's total capital to
risk-weighted assets and core capital to risk weighted assets were 10.70% and
9.45%, respectively. At December 31, 1995, the Bank's total capital to risk-
weighted assets and core capital to risk weighted assets were 11.36% and
10.11%, respectively. At December 31, 1995, the Company's and the Bank's
leverage ratios were 6.32% and 6.76%, respectively. At December 31, 1995, the
Bank was in compliance with the capital requirements set forth in the Agreement.
Under Federal and California laws and regulations, the Company and the Bank are
subject to restrictions related to the payment of dividends and the transfer of
funds from the Bank to the Company through intercompany loans and advances.
14. CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
Balance sheets as of December 31:
<TABLE>
<CAPTION>
ASSETS
- ------
1995 1994
---- ----
<S> <C> <C>
CASH $ 587,000 $ 489,000
OTHER REAL ESTATE OWNED 83,000 88,000
INVESTMENTS IN SUBSIDIARIES 22,686,000 21,350,000
OTHER ASSETS 122,000 157,000
----------- -----------
TOTAL $23,478,000 $22,084,000
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
NOTE PAYABLE $ 2,351,000 $ 2,351,000
OTHER LIABILITIES 8,000 8,000
TOTAL SHAREHOLDERS' EQUITY 21,119,000 19,728,000
----------- -----------
TOTAL $23,478,000 $22,084,000
----------- -----------
----------- -----------
</TABLE>
Statements of operations for the years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
INCOME:
INTEREST $ 21,000 $ 13,000 $ 18,000
---------- ---------- ----------
TOTAL INCOME 21,000 13,000 18,000
---------- ---------- ----------
EXPENSES:
INTEREST 259,000 241,000 233,000
OTHER EXPENSES 45,000 27,000 23,000
---------- ---------- ----------
TOTAL EXPENSES 304,000 268,000 256,000
---------- ---------- ----------
LOSS BEFORE INCOME TAX EXPENSE
(BENEFIT) AND EQUITY IN INCOME
(LOSS) OF SUBSIDIARIES (283,000) (255,000) (238,000)
INCOME TAX EXPENSE (BENEFIT) 52,000 (89,000) (81,000)
---------- ---------- ----------
LOSS BEFORE EQUITY IN
INCOME (LOSS) OF SUBSIDIARIES (335,000) (166,000) (157,000)
EQUITY IN INCOME (LOSS) OF
SUBSIDIARIES (3,006,000) 1,025,000 (2,658,000)
---------- ---------- ----------
NET (LOSS) INCOME ($3,341,000) $ 859,000 ($2,815,000)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
62
<PAGE>
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (CONTINUED)
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) ($3,341,000) $ 859,000 ($2,815,000)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS)
TO NET CASH FROM OPERATING
ACTIVITIES:
EQUITY IN LOSS (INCOME) OF SUBSIDIARIES
FROM OPERATIONS 3,006,000 (1,025,000) 2,658,000
DECREASE IN OTHER ASSETS 35,000 99,000 167,000
INCREASE (DECREASE) IN OTHER LIABILITIES 3,000 (5,000) (9,000)
---------- ---------- ----------
NET CASH FROM OPERATING ACTIVITIES (297,000) (72,000) 1,000
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
PROCEEDS FROM SALE OF OTHER REAL ESTATE OWNED 5,000 681,000
---------- ---------- ----------
NET CASH FROM INVESTING ACTIVITIES 5,000 681,000
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
PROCEEDS FROM SALE OF COMMON STOCK AND
EXERCISE OF COMMON STOCK OPTIONS 3,290,000 189,000
PAYMENTS ON NOTE PAYABLE (649,000)
INCREASE IN INVESTMENT IN SUBSIDIARIES (2,900,000)
---------- ---------- ----------
NET CASH FROM FINANCING ACTIVITIES 390,000 (460,000)
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH 98,000 (72,000) 222,000
CASH AT BEGINNING OF YEAR 489,000 561,000 339,000
---------- ---------- ----------
CASH AT END OF YEAR $ 587,000 $ 489,000 $ 561,000
---------- ---------- ----------
---------- ---------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
CASH PAID DURING THE YEAR FOR:
INTEREST $ 259,000 $ 241,000 $ 233,000
---------- ---------- ----------
---------- ---------- ----------
SUPPLEMENTAL INFORMATION ON NONCASH INVESTMENT ACTIVITY
TAX BENEFIT FOR EXERCISE OF NON-QUALIFIED STOCK OPTIONS $ 78,000 $ $ 118,000
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
63
<PAGE>
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (CONTINUED)
15. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with Statement of Financial Accounting Standards No. 107,
"Disclosures About Fair Value of Financial Instruments," a summary of the
estimated fair value of the Company's consolidated financial instruments as of
December 31, 1995 and 1994 is presented below. The estimated fair value amounts
have been determined by management using available market information and
appropriate valuation methodologies. However, assumptions are necessary to
interpret market data to develop the estimates of fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts the
Company could realize in a current market exchange. The use of different
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------
CARRYING ESTIMATED
VALUE FAIR VALUE
<S> <C> <C>
ASSETS:
CASH AND DUE FROM BANKS $ 28,549,000 $ 28,549,000
FEDERAL FUNDS SOLD 45,000,000 45,000,000
INVESTMENT SECURITIES 62,283,000 62,283,000
LOANS AND INVESTMENT IN LEASES, NET 171,363,000 170,715,000
ACCRUED INTEREST RECEIVABLE 2,649,000 2,649,000
LIABILITIES:
SAVINGS AND DEMAND DEPOSITS 241,273,000 241,273,000
TIME DEPOSITS 67,231,000 67,234,000
INTEREST PAYABLE 221,000 221,000
NOTE PAYABLE 2,351,000 2,351,000
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-----------------
CARRYING ESTIMATED
VALUE FAIR VALUE
<S> <C> <C>
ASSETS:
CASH AND DUE FROM BANKS $ 21,315,000 $ 21,315,000
FEDERAL FUNDS SOLD 2,000,000 2,000,000
INVESTMENT SECURITIES 72,075,000 72,075,000
LOANS AND INVESTMENT IN LEASES, NET 156,247,000 154,814,000
ACCRUED INTEREST RECEIVABLE 2,846,000 2,846,000
LIABILITIES:
SAVINGS AND DEMAND DEPOSITS 218,932,000 218,932,000
TIME DEPOSITS 58,457,000 58,352,000
INTEREST PAYABLE 149,000 149,000
NOTE PAYABLE 2,351,000 2,351,000
</TABLE>
The carrying value of cash and due from banks, Federal funds sold, accrued
interest receivable, savings and demand deposits, interest payable, note payable
and commitments is a reasonable estimate of the fair value. The fair value of
investment securities is based on quoted market prices.
64
<PAGE>
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (CONTINUED)
The fair value of loans and investment in leases is estimated by discounting the
future cash flows using the current rates at which similar loans would be made
to borrowers with similar credit ratings and for the same remaining maturities.
The fair value of classified loans with a carrying value of approximately
$16,307,000 and $38,956,000 as of December 31, 1995 and 1994, respectively, was
not estimated because it is not practical to reasonably assess the credit
adjustment that would be applied in the market place for such loans. These
classified loans, which are primarily real estate or construction loans, have a
weighted average interest rate ranging from 8% to 12.5% and from 9.50% to 13.50%
as of December 31, 1995 and 1994, respectively, and are due at various dates
through the year 2025.
The fair value of demand deposit accounts is the amount payable on demand. The
fair value of term deposit accounts is estimated using the rates currently
offered for deposits of similar remaining maturities.
The fair value of commitments is not deemed material at December 31, 1995 and
1994.
The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 1995 and 1994. Although management
is not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these consolidated financial statements since that date and, therefore,
current estimates of fair value may differ significantly from amounts presented
herein.
16. ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-
LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF and SFAS No. 122,
ACCOUNTING FOR MORTGAGE SERVICING RIGHTS, an amendment to FASB Statement No. 65.
The provisions of these statements are effective for financial statements for
fiscal years beginning after December 15, 1995. The Company has not completed
the process of evaluating the impact that will result from adopting these
statements and is therefore unable to disclose the impact of adopting such
statements. However, the Company does not believe the application of SFAS Nos.
121 and 122 will have a material impact on its financial condition and results
of operations when adopted.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," which requires adoption of the disclosure provisions no later
than fiscal years beginning after December 15, 1995 and adoption of the
recognition and measurement provisions for nonemployee transactions no later
than after December 15, 1995. The new standard defines a fair value method
of accounting for stock options and other equity instruments. Under the fair
value method, compensation cost is measured at the grant date based on the fair
value of the award and is recognized over the service period, which is usually
the vesting period.
65
<PAGE>
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (CONTINUED)
Pursuant to the new standard, companies are encouraged, but are not required, to
adopt the fair value method of accounting for employee stock-based transactions.
Companies are also permitted to continue to account for such transactions under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," but would be required to disclose in a note to the financial
statements pro forma net income and, if presented, earnings per share as if the
company had applied the new method of accounting.
The accounting requirements of the new method are effective for all employee
awards granted after the beginning of the fiscal year of adoption. The Company
has not yet determined if it will elect to change to the fair value method, nor
has it determined the effect the new standard will have on net income and
earnings per share should it elect to make such a change. Adoption of the new
standard will have no effect on the Company's cash flows.
17. STOCK OFFERING
During 1995 the Company sold 474,000 shares of its common stock through private
placement at $6.75 per share, thus increasing its capital in the amount of
$3,200,000. The Company contributed $2,900,000 of the proceeds into the Bank as
additional capital. One shareholder who purchased 289,000 shares (9.9% of the
total shares outstanding), has an option to purchase an additional 267,000
shares at $6.75 per share (which would bring the total shares owned by the
shareholder to 556,000 shares or 17.4% of the total shares which would then be
outstanding). The option is subject to the approval by the Federal Reserve
Board and it will expire on May 1, 1996.
66
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-39926 of California Commercial Bankshares on Form S-8 of our report dated
February 9, 1996 (March 18, 1996 as to Note 7), appearing in this Annual Report
on Form 10-K of California Commercial Bankshares for the year ended December 31,
1995.
LOS ANGELES, CALIFORNIA
MARCH 28, 1996
67
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING FINANCIAL
DISCLOSURE.
Not Applicable.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following lists information regarding all directors and executive officers
of the Company.
PHILLIP L. BUSH, 59 years of age, has been a Director and Secretary of the
Company since 1982. Mr. Bush has been a practicing attorney with the firm of
Bush, Bush and Larsen, in Fountain Valley, California since 1967. Mr. Bush's
practice is primarily litigation of personal injury matters. He also has
practiced in the areas of real estate development and syndication, and business
enterprise organization and formation.
MICHAEL J. GERTNER, 56 years of age, has been a Director of the Company since
1982. Mr. Gertner is a owner in the law firm of Michael Avey Gertner, a
professional corporation in Newport Beach, California. He is licensed to
practice law in both California and New York. Mr. Gertner is also a Certified
Public Accountant and specializes in the areas of taxation, estate planning and
estate administration.
JAMES W. HAMILTON, 63 years of age, has been a Director of the Company since
1982. Mr. Hamilton is Senior Counsel to the law firm of Paul, Hastings,
Janofsky & Walker of which he has been a partner from 1965 until 1993. His
office is in the firm's Costa Mesa facility. He specializes in securities and
corporate law.
FARRELL G. HINKLE, DDS, MSD, 53 years of age, has been a Director of the Company
since 1982. Dr. Hinkle is an Orthodontist with offices in Newport Beach and
Santa Ana. He has been practicing Orthodontics since 1973. He has a degree in
Mathematics and graduated from the UCLA School of Dentistry as a Regents Scholar
in 1971. He also earned a Certificate in Orthodontics and a Masters Degree from
the University of Washington in 1973.
WILLIAM H. JACOBY, 57 years of age, has been a Director, and the President and
Chief Executive Officer of the Company since 1982 and is also Chairman of the
Board and Chief Executive Officer of the Bank. Mr. Jacoby began his banking
career in 1960 with First Interstate Bank of California. In 1979 Mr. Jacoby
joined Westlands Bank and served in various positions until joining the Company
in June 1982 during its organizational period.
ROBERT L. MCKAY, 65 years of age, is a private investor in Orange County,
California, where he oversees his investments in Venture Capital for business
and real estate. From 1966 to 1981 Mr. McKay was President of Taco Bell, Inc.
MARK H. STUENKEL, 43 years of age, is, and since November 1982 has been,
Executive Vice President of the Company. He is, and since December 1988 has been
President of the Bank. He was previously Executive Vice President of the Bank
since 1982. Mr. Stuenkel was made a Director of the Company in 1987. He
started his banking career in 1974 and prior to joining the Bank held various
positions with Security Pacific National Bank.
DANNIE M. HAYES, 54 years of age, is, and also has been since May 1993,
Executive Vice President and Senior Credit Officer of the Bank. Mr. Hayes began
his banking career in 1963 and prior to joining the Company held various senior
positions with Security Pacific National Bank and City National Bank.
ABDUL S. MEMON, 50 years of age, is, and since 1983 has been, Chief Financial
Officer and Assistant Secretary of the Company and Senior Vice President,
Cashier, Controller and Assistant Secretary of the Bank. Mr. Memon began his
banking career in 1973 and prior to joining the Company held various senior
positions with Westlands Bank.
Effective February 1991, the director's fee paid to non-employee Directors has
been $1,000 per meeting attended and the fee for attending committee meetings
has been $375 per meeting attended. No fee is paid to employee directors.
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<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
(A) SUMMARY COMPENSATION TABLE
The following Summary Compensation Table sets forth information for the fiscal
year ended December 31, 1995 concerning all plan and non-plan compensation
awarded to, earned by, or paid to (I) the Company's Chief Executive Officer
("CEO") at the end of such fiscal year, regardless of compensation level, and
(ii) the Company's four most highly compensated executive officers other than
the CEO who were serving as executive officers at the end of such fiscal year
and whose compensation exceeded $100,000, if any.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------- ------ -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other
Name Annual Restricted
and Compen- Stock Options/ LTIP Other
Principal sation Awards(s) SARs Payouts Compen-
Position Year Salary($) Bonus($) ($)* ($) (#) ($) sation($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William 1995 190,000 0 5,000 0 0 0 0
H. Jacoby 1994 190,000 22,000 4,000 0 0 0 0
CEO 1993 190,000 0 3,000 0 0 0 0
Mark H. 1995 144,000 0 4,000 0 0 0 0
Stuenkel 1994 137,000 16,000 2,000 0 0 0 0
EVP 1993 137,000 0 2,000 0 0 0 0
Dannie 1995 108,000 0 3,000 0 0 0 0
M. Hayes 1994 100,000 5,000 2,000 0 0 0 0
# - Number of units
$ - Dollar amount
* Amounts reported represent Company's matching contribution to the 401-K Plan.
None of the named officers had other annual compensation in excess of $50,000 or
10% of the total annual salary and bonus reported for any of the last three
fiscal years.
</TABLE>
The following letter footnotes contain information which relate to the
corresponding lettered columns in the above table:
(c) The dollar value of base salary (cash and non-cash) earned by the named
executive officer.
(d) The dollar value of bonus (cash and non-cash) earned by the named executive
officer during the fiscal year covered, even if deferred at the election of
the executive officer.
(e) The dollar value of other annual compensation not properly categorized as
salary or bonus; including
(i) perquisites and other personal benefits, securities or property unless the
aggregate amount of such compensation is the lesser of either $50,000 or 10%
of the total annual salary and bonus reported for the named executive
officer in columns (c) and (d); (ii) above-market or preferential earnings
on restricted stock, options, stock appreciation rights ("SARs") or deferred
compensation paid during the fiscal year or payable during that period but
deferred at the election of the named executive officer, (iii) earnings on
long-term incentive plan ("LTIP") compensation paid during the fiscal year
or payable during that period but deferred at the election of the named
executive officer; (iv) amounts reimbursed during the fiscal year
69
<PAGE>
for the payment of taxes; and (v) the dollar value of the difference between
the price paid by a named executive officer for any security of the Company
or its subsidiaries purchased from the Company or its subsidiaries (through
deferral of salary or bonus, or otherwise), and the fair market value of
such security at the date of purchase, unless that discount is available
generally, either to all security holders or to all salaried employees of
the company.
(D) STOCK OPTIONS AND STOCK APPRECIATION RIGHTS TABLES
Option/SAR Grants in Last Fiscal Year
The following table discloses grants of stock options and stock appreciation
rights ("SARs") to the named executive officers during the year ended December
31, 1995. Multiple grants are aggregated only if they have the same terms, such
as exercise price and expiration dates. The table also discloses information
related to the potential realizable value of the awards at assumed annual rates
of stock price appreciation (5% and 10%) compounded annually over the
option/SAR term.
OPTIONS/SAR GRANTS FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation
for Option
Individual Grants Term
Value*(a) (b) (c) (d) (e) (f) (g)
% of
Total
Options/
SARs
Options/ Granted to
SARs Employees Exercise Expir-
Granted in Fiscal or Base ation
Name (#) Year Price($/Sh) Date 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
William Jacoby 25,000 17.6% $5.25-6.50 2005 $7,000 $14,000
CEO
Mark H. Stuenkel 25,000 17.6% $5.25-6.50 2005 $7,000 14,000
EVP
DannieM. Hayes 10,000 7.0% $ 6.50 2005 $3,000 $ 6,000
</TABLE>
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End option/SAR
Values
70
<PAGE>
The following table describes the aggregate option/SAR exercised during
fiscal year ended December 31, 1995 and unexercised options/SARs for each
named executive officer at the end of such fiscal year:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End(#) at FY-End($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise(#) Realized($) Unexercisable Unexercisable
- ---- ---------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
William H. Jacoby 4,455 $31,000 30,000/25,000 0/0
Mark H. Stuenkel 2,000 $1,000 26,000/25,000 0/0
Dannie M. Hayes NONE N/A 0/10,000 0/0
</TABLE>
During the fiscal year ended December 31, 1995, the Company did not reprice any
options or SARs held by a named executive officer or otherwise reduce the terms
of exercise. No options or SARs held by any executive officer over the last ten
years have been repriced or modified.
(C) LONG-TERM INCENTIVE PLAN ('LTIP") AWARDS TABLE
The following table describes awards to the named executive officers under long-
term incentive plans ("LTIP") during the fiscal year ended December 31, 1995, of
items such as phantom stock, restricted stock units, dividend equivalents, and
performance shares or units. The disclosures encompass plans that are "stock-
based" where the benefits are a function of market price movements, as well as
plans prescribing performance criteria other than or in addition to market
price. For the latter type of plan, the table discloses the estimated payouts
realizable in relation to the performance targets (threshold, target, and
maximum).
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e) (f)
Performance
Number of or Other
Shares, Units Period Until
or Other Maturation Threshold Target Maximum
Name Rights (#) of Payout ($ or #) ($ or #) ($ or #)
- ---- -------------- ------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
William H. Jacoby NONE N/A N/A N/A N/A
CEO
Mark H.Stuenkel NONE N/A N/A N/A N/A
EVP
Dannie M. Hayes NONE N/A N/A N/A N/A
</TABLE>
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<PAGE>
(D) DEFINED BENEFIT OR ACTUARIAL PLAN DISCLOSURE
Although the Company has no defined benefit plan or actuarial plan, the Company
has entered into certain executive salary continuation agreements with Messrs.
Jacoby, Stuenkel and Memon. Please see "(F) Employment Contracts and
Termination of Employment and Change-in Control Arrangements".
(E) COMPENSATION OF DIRECTORS
Since February 1991, the director's fee paid to non-employee directors of the
Bank has been $1,000 per board meeting attended and $375 per Committee meeting
attended. The total amounts of director's fees paid and accrued by the Bank
during the fiscal years ended December 31, 1995, 1994 and 1993 were, $140,000,
$130,000 and $147,000 respectively. No director's fees are paid by the Company.
(F) EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN CONTROL
ARRANGEMENTS
In 1988, the Bank entered into Executive Salary Continuation Agreements with
Messrs. Jacoby, Stuenkel and Memon. Pursuant to the agreements, each executive
receives benefits upon his retirement or upon termination of service with the
Bank prior to retirement unless such executive's employment with the Bank is
terminated prior to retirement either (i) voluntarily by the executive other
than for "Good Reason" (as defined in the agreements) or (ii) by the Bank for
"Cause" (also defined in the agreements), in which case no benefits or payments
are paid pursuant to the agreements. The agreements also provide each executive
with benefits (to the extent such benefits are vested at the time) if his
employment is terminated by the Bank prior to the executive's retirement for any
reason other than the executives's death, disability, for Cause or is terminated
by the executive for Good Reason. With the exception of Mr. Jacoby whose
benefits vest at the rate of ten percent (10%) per year for each year of
employment that he has been employed by the Bank, benefits vest under the
agreements at the rate of ten percent (10%) per year for each year that the
executive has been employed by the Bank commencing as of January 1, 1988, up to
a maximum of 100%.
Under the agreements, the executives shall receive the following yearly sums for
a period of fifteen (15) years after either their retirement from the Bank or
upon their death: Mr. Jacoby, $80,000; Mr. Stuenkel, $62,500; and Mr. Memon,
$23,000. If one of the executives' employment with the Bank is terminated
because of disability prior to retirement, such executive (or his/her Estate)
shall be entitled to receive the above benefits upon retirement or death or in
lieu thereof, to elect to receive a disability benefit in an amount equal to
the present value of such executive's retirement benefits under the agreement.
Each agreement also has provisions which become effective upon the occurrence of
a "Change in Control" (as defined therein) of the Company or the Bank. In such
event, the agreements become employment agreements with three-year terms for Mr.
Jacoby and Mr. Stuenkel and employment agreements with eighteen month terms for
Mr. Memon. The agreements also provide for the executives' compensation to
increase annually. The executives shall also continue to receive all non-cash
forms of compensation and benefits which they received prior to the Change in
Control for such three year term. Under the agreements, a Change in Control is
deemed to have occurred if (a) any person (other than the Company's directors as
of the date of the agreements) becomes the beneficial owner of more than 40% of
the Company's outstanding Common Stock (exclusive of shares held in the
Company's treasury or by the Company's subsidiaries) which such stock shall have
been acquired after the date of the agreements pursuant to a tender offer,
exchange offer or series of purchases or other acquisitions, or any combination
of such transactions; (b) there is a change in the Company's or the Bank's Board
of Directors at any time within two years after any tender offer, exchange
offer, merger, consolidation, sale of assets or contested election or any
combination of those transactions (the "transaction") so that persons who are
directors of the Company or the Bank immediately before the first
72
<PAGE>
transaction cease to constitute a majority of the Board of Directors of the
Company or the Bank any corporation which may be the successor to the Company
of the Bank in any such transaction; or (C) the Company sells, transfers or
otherwise disposes of substantially all of its assets and properties
including the stock of the Bank or the Company shall cause the Bank to sell,
transfer or otherwise dispose of substantially all of the Bank's assets and
properties.
If after a Change in Control one of the executives shall either terminate
his/her employment for a Good Reason or be terminated by the Bank for any reason
other than Cause, then the Bank shall pay such executive the cash compensation
during his/her remaining term (but in the case of Messrs. Jacoby and Stuenkel
such payments shall not be less than two times the executives' annual cash
compensation and in the case of Mr. Memon, not less than one times the
executives' annual cash compensation). Moreover, all employee benefits plans
and programs in which the executives are entitled to participate shall continue
for the remainder of the executives' terms and the executives shall continue to
receive the retirement, death and disability benefits under the agreements.
DISCOUNTED STOCK OPTION AGREEMENT
In January 1988, the Company granted William H. Jacoby an option to purchase
1,980 shares of the Company's Common Stock pursuant to a Discounted Stock Option
Agreement. The option was granted to Mr. Jacoby in consideration of his past
performance as an officer of the Company. The option to purchase shares granted
to Mr. Jacoby was intended to be the equivalent at its inception to a $24,500
bonus. As a result, the option price to be paid upon exercise for the shares is
only $1.00; such price being determined by the difference between the exercise
price and the fair market value of the Company's Common Stock as determined by
the Board of Directors on the date of grant. Subject to the conditions set forth
in the Agreement, the option may be exercised in whole or in part at any time.
Mr. Jacoby exercised his option during 1995.
STOCK OPTION PLAN
The Company had a Stock Option Plan (the "Plan") for its directors, officers and
full time employees. The Company's Board of Directors administers the Plan. The
purpose of the Plan was to compensate certain of the organizers of the Company
and the Bank, and to provide incentives to key employees to remain in the employ
of the Company and the Bank.
Options were not transferable under the Plan other than by will or by the laws
of descent and distribution and during the participant's lifetime were
exercisable only by the participant. The option price per share for options
granted under the Plan had to be at least 100% of the fair market value of the
Common Stock on the date any such options were granted, except that in the case
of a shareholder owning more than 10% of the total combined voting power of all
classes of the outstanding stock of the Company, the option price for incentive
stock options had to be at least 110% of the fair market value on the date of
grant. Upon expiration or termination of any outstanding options, shares
remaining unexercised became available for grant under the Plan. The plan
expired in October 1992.
As of December 31, 1995, options to purchase 133,947 shares of Common Stock were
outstanding at prices ranging from $4.67 to $13.00 per share. During 1995, all
employees as a group exercised options for 44,249 shares of Common Stock which
had a net value (market value less exercise price) of $172,000. Of such
options, Mr. Jacoby and Mr. Stuenkel exercised options and received 4,455 shares
and 2,000 shares, respectively, which had a net value of $31,000 and $1,000,
respectively.
73
<PAGE>
STOCK AWARD PLAN
During 1995 the Company adopted a Stock Award Plan (the "Plan") for its
directors, officers and full time employees. The Company's Board of Directors
administers the Plan and decides to whom and upon what terms options shall be
granted. Subject to adjustment by reason of stock splits or similar capital
adjustments, the Plan provides for the granting of nonstatutory stock options as
well as incentive stock options to purchase an aggregate of 750,000 share of the
Company's Common Stock. The purpose of the Plan is to provide incentives to
directors and key employees to remain in the employ of the Company and the Bank.
Options are not transferable under the Plan other than by will or by the laws of
descent and distribution and during the participant's lifetime were exercisable
only by the participant. The option price per share for options granted under
the Plan has to be at least 100% of the fair market value of the Common Stock on
the date any such options are granted, except that in the case of a shareholder
owning more than 10% of the total combined voting power of all classes of the
outstanding stock of the Company 10% of the fair market value on the date of
grant. Upon expiration or termination of any outstanding options, shares
remaining unexercised become available for grant under the Plan.
As of December 31, 1995, options to purchase 142,000 shares of Common Stock were
outstanding at prices ranging form $5.25 to $6.50 per share. No options were
exercised during 1995.
STOCK BONUS PLAN
Effective January 1, 1986, the Company adopted a Stock Bonus Plan (the "Stock
Bonus Plan") and established a related trust. Subject to certain eligibility
requirements for time of service, all of the Company's employees participate in
the Stock Bonus Plan.
The Stock Bonus Plan is a tax-credit employee stock ownership plan and is
administered by the Board of Directors or the Chief Executive Officer. The
amount of the Company's contributions of cash or securities of the Company to
the Stock Bonus Plan is determined by the Board of Directors (or the Chief
Executive Officer). Subject to certain limitations, such contributions are
allocated to each participant's account in proportion to such participant's
compensation earned during the applicable Stock Bonus Plan year. Allocations to
a participant's account vest in accordance with the schedules set forth in the
Stock Bonus Plan. Distributions to participants are made at participants'
death, retirement, disability, or termination of employment. Participants are
not permitted to make voluntary contributions to the Stock Bonus Plan and the
Stock Bonus Plan may not make loans to participants. Any cash amounts
contributed to the Stock Bonus Plan will be used primarily to purchase
securities issued by the Company. The Company contributed $36,000 to the Stock
Bonus Plan for 1995. Of such allocations Mr. Jacoby, Mr. Stuenkel and Mr. Hayes
received $1,000 each.
401-K PLAN
Effective February 1, 1989 the Company established a 401-K Plan which enables
employees to defer a portion of their wages tax free subject to limitations
established by the Internal Revenue Service. All the employees at the
completion of certain eligibility requirements for time of service can elect to
participate in the plan. Under the plan, the Company may make matching
contributions to the plan up to stated limits. Such contributions are determined
by the Board of Directors at the beginning of the year. The vesting of such
contributions to the employees is based on the time of service since the
effective date of the plan.
(G) Additional Information with Respect to Compensation Committee Interlocks
and Insider Participation in Compensation Decision.
74
<PAGE>
Not Applicable.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The shares of the Company's Common Stock constitute the only class of voting
securities of the Company. As of March 13, 1996 there were 2,944,000 shares of
common stock outstanding and entitled to vote. As of March 13, 1996, there were
approximately 298 shareholders of record.
Set forth in the table on the following page is certain information regarding
persons who according to the Company's records own more than five percent of the
voting securities of the Company as of March 13, 1996, each director of the
Company and all directors and officers of the Company as a group.
<TABLE>
<CAPTION>
TITLE NAME AND ADDRESS AMOUNT AND NATURE PERCENT
OF BENEFICIAL OF BENEFICIAL OF
CLASS OWNER OWNERSHIP (1) CLASS
<S> <C> <C> <C>
Common Stock *Phillip L. Bush 102,081(2) 3.5%
(no par value) 10061 Talbert Ave.
Fountain Valley, CA 92708
Common Stock *Michael J. Gertner 33,643(2) 1.1%
(no par value) 4340 Campus Drive Ste. 100
Newport Beach, CA 92660
Common Stock *James W. Hamilton 80,138(2) 2.7%
(no par value) 695 Town Center Drive
Costa Mesa, CA 92626
Common Stock *Farrell G. Hinkle 133,886(2) 4.5%
(no par value) 2740 South Bristol
Santa Ana, CA 92704
Common Stock *William H. Jacoby 221,140(3) 7.4%
(no par value) 4100 Newport Place
Newport Beach, CA 92660
Common Stock *Robert McKay 683,992(2) 23.2%
(no par value) 4100 Newport Place
Newport Beach, CA 92660
Common Stock *Mark H. Stuenkel 45,698(4) 1.5%
(no par value) 4100 Newport Place
Newport Beach, CA 92660
Common Stock All Directors and 1,403,145(5) 45.1%
(no par value) Officers as a Group
(29 in Number)
Common Stock Financial Institutions Partners LP 289,000(6) 9.8%
(no par value) 1110 Lake Cook Road #165
Buffalo Grove, IL 60089
Common Stock Randall Rose & Co. 165,000 5.6%
(no par value) 635 Madison Ave.
New York, NY 1022
</TABLE>
*Director of the Company
75
<PAGE>
(1) Except as otherwise indicated, each of the persons named in the table has
sole power to vote and dispose of his shares of the Company's Common Stock,
subject to community property laws where applicable.
(2) Includes 3,333 shares of the Company's Common Stock which may be purchased
on the exercise of stock options.
(3) Includes 35,000 shares of the Company's Common Stock which may be
purchased on the exercise of stock options.
(4) Includes 31,250 shares of the Company's Common Stock which may be
purchased on the exercise of stock options.
(5) Includes an aggregate of 168,514 shares of the Company's Common Stock
which may be purchased on the exercise of stock options.
(6) Has an option to purchase an additional 267,000 shares at $6.75 per share
(which would bring the total shares owned by the shareholder to 556,000
shares or 17.4% of the total shares which would then be outstanding).
The option is subject to the approval by the Federal Reserve Board and
it will expire on May 1, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Bank has had, and expects to have in the future, banking transactions in the
ordinary course of its business with directors, principal shareholders and their
associates on the same terms, including interest rates and collateral securing
loans, as those prevailing at the time for comparable transactions with
unaffiliated persons, and which do not involve more than a normal risk of
collectibility, nor present other unfavorable features.
Please refer to Note 7 (Borrowing Arrangements) of Item 8 (Financial Statements)
regarding the Support Agreement between a director/shareholder, Robert L.
McKay, and the Company, and the related compensations paid currently or which
will be paid in the future by the Company.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) (1) FINANCIAL STATEMENTS.
Financial statements and schedules of the registrant are listed in
the index to Consolidated Financial Statements contained under
Part II Item 8. Financial Statements and Supplementary Data of
this report.
(2) FINANCIAL STATEMENT SCHEDULES.
All Financial statement schedules are omitted either because the
conditions under which they are required are not applicable or
because the information is included in the Financial Statements.
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<PAGE>
(3) EXHIBITS:
(3) (a) Articles of Incorporation of California Commercial Bankshares as
amended. (Incorporated by reference from Company's Form 10-K filed
on March 31, 990).
(3) (b) By-Laws of California Commercial Bankshares, as amended.
(Incorporated by reference from the Company's Form 10-K
filed on March 31, 1989.)
(10) (A) Office Sublease between First California Associates and the
Company (Incorporated by reference from the Company's Form 10-K
filed on March 31, 1983).
(10) (B) First Amendments to Sublease between First California Associates
and the Bank (Incorporated by reference from the Company's
Form 10-K filed on March 31, 1984).
(10) (C) The Company's Stock Bonus Plan (Incorporated by reference from
the Company's Form 10-K filed on March 31, 1986).
(10) (D) Amendments to Office Sublease between First California Associates
and the Company (Incorporated by reference from the Company's
Form 10-K filed March 31, 1986).
(10) (E) Executive Salary Continuation Agreement between National Bank of
Southern California and William H. Jacoby. (Incorporated by
reference from the Company's Form 10-K filed March 31, 1989).
(10) (F) Executive Salary Continuation Agreements between National Bank of
Southern California and Mark H. Stuenkel. (Incorporated by
reference from the Company's Form 10-K filed March 31, 1987).
(10) (G) Executive Salary Continuation Agreement between National Bank of
Southern California and Abdul S. Memon. (Incorporated by reference
from the Company's Form 10-K filed March 31, 1987).
(10) (H) 401-K Plan. (Incorporated by reference from the Company's
Form 10-K filed March 31, 1989).
(10) (I) Lease for the premises on branch located at 22831 Lake Forest
Drive, El Toro, Ca. (Incorporated by reference from the
Company's Form 10-K filed March 31, 1989).
(10) (J) Lease for the premises on branch located at 625 The City Drive,
Orange, Ca. (Incorporated by reference from Company's Form 10-K
filed on March 31, 1990).
(10) (K) Lease for the property on branch located at 17252 Armstrong Ave.,
Irvine, Ca. (Incorporated by reference from Company's Form 10-K
filed on March 31, 1990).
(10) (L) 1982 Stock Option Plan, as amended. (Incorporated by reference
from Company form 10-K filed on March 31, 1991).
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<PAGE>
(10) (M) Lease for the property located at 4100 Newport Place, Newport
Beach, Ca. (Incorporated by reference from Company's Form 10-K
filed on March 31, 1992).
(10) (N) Credit Agreement dated 12/21/1988 with Security Pacific National
Bank. (Incorporated by reference from Company's Form 10-K filed
on March 31, 1994).
(10) (O) First amendment to Credit Agreement dated March 1993 with Bank of
America National Trust & Savings Association. (Incorporated by
reference from Company's Form 10-K filed on March 31, 1994).
(10) (P) Second amendment to Credit Agreement dated August 24, 1994 with
Bank of America National Trust & Savings Association.
(Incorporated by reference from Company's form 10-K filed on
March 31, 1995).
(10) (Q) Support Agreement dated September 27, 1994 with Robert L. McKay.
(Incorporated by reference from Company's 10-K filed on March 31,
1995).
(10) (R) Holding Company Support Agreement dated October 1, 1994 with
Robert L. McKay. (Incorporated by reference Company's Form 10-K
filed on March 31, 1995)
(10) (S) Lease for the property located at 17330 Brookhurst Ste. 110,
Fountain Valley, CA.
(10) (T) The Company's Stock Option Plan.
(10) (U) Form of Stock Option Agreement
(10) (V) Form of Nonqualified Stock Option Agreement.
(10) (W) Form of Director's Nonqualified Stock Option Agreement.
(22) Subsidiaries of the Company
(24) Independent Auditors' Consent.
(27) Financial Data Schedule.
(B) Reports on Form 8-K.
No report on Form 8-K were filed by the Company during the last
quarter of 1992.
(C) Exhibits Filed.
The following exhibits are filed with this 10-K
(10) (S) Lease for the property located 17330 Brookhurst, Suite. 110,
Fountain Valley, CA.
(10) (T) The Company's Stock Option Plan.
(10) (U) Form of Stock Option Agreement
(10) (V) Form of Nonqualified Stock Option Agreement.
78
<PAGE>
(10) (W) Form of Director's Nonqualified Stock Option Agreement.
(22) Subsidiaries of the Company.
(24) Independent Auditors' Consent.
(27) Financial Data Schedule.
(D) Financial Statement Schedules.
Please see paragraph (a)(2) above in this Item 14.
79
<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.
CALIFORNIA COMMERCIAL BANKSHARES
BY: William H. Jacoby MARCH 28, 1995
-------------------------------------
WILLIAM H. JACOBY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated:
Phillip L. Bush MARCH 28, 1995
- -----------------------------
PHILLIP L. BUSH
DIRECTOR/SECRETARY
Michael J. Gertner MARCH 28, 1995
- -----------------------------
MICHAEL J. GERTNER
DIRECTOR/TREASURER
James W. Hamilton MARCH 28, 1995
- -----------------------------
JAMES W. HAMILTON
DIRECTOR
Farrell G. Hinkle MARCH 28, 1995
- -----------------------------
FARRELL G. HINKLE
DIRECTOR
William H. Jacoby MARCH 28, 1995
- -----------------------------
WILLIAM H. JACOBY
DIRECTOR/PRESIDENT, C.E.O.
Robert L. McKay MARCH 28, 1995
- -----------------------------
ROBERT L. MCKAY
DIRECTOR/CHAIRMAN OF THE BOARD
Mark H. Stuenkel MARCH 28, 1995
- -----------------------------
MARK H. STUENKEL
EXECUTIVE VICE PRESIDENT
Abdul S. Memon MARCH 28, 1995
- -----------------------------
ABDUL S. MEMON
PRINCIPAL FINANCIAL & ACCOUNTING OFFICER
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT.
80
<PAGE>
Four copies of the following will be furnished to the Securities and Exchange
Commission when sent to the registrant's security holders:
(1) Registrant's annual report to security holders covering the registrant's
last fiscal year; and (2) the registrant's proxy statement and the form of
proxy which will be sent to the registrant's security holders with respect to
the next annual meeting of security holders.
No such reports or proxy materials have yet been sent to the registrant's
security holders.
81
<PAGE>
CALIFORNIA COMMERCIAL BANKSHARES
Exhibit Index
Exhibit Number Page Number
(10) (S) Lease for the property located 17330 Brookhurst,
Suite 110, Fountain Valley, CA
(10) (T) The Company's Stock Option Plan.
(10) (U) Form of Stock Option Plan
(10) (V) Form of Nonqualified Stock Option Agreement.
(10) (W) Form of Director's Nonqualified Stock Option Agreement.
(22) Subsidiaries of the Company. 142
(24) Independent Auditor's Consent. 144
(27) Financial Data Schedule. 146
82
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CITY CENTRE
O F F I C E L E A S E
LANDLORD: PACIFIC MUTUAL LIFE INSURANCE COMPANY
California Commercial Bankshares,
TENANT: A California Corporation
-------------------------------------
<PAGE>
STANDARD FORM OFFICE LEASE
Table of Contents
Section No. Title Page No.
- ----------- ----- --------
1. Terms and Conditions . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Lease of Premises . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. Common Areas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
5. Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
6. Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 3
7. Security Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
8. Use. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
9. Payments and Notices . . . . . . . . . . . . . . . . . . . . . . . . . 4
10. Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
11. Surrender; Holding Over . . . . . . . . . . . . . . . . . . . . . . . 5
12. Taxes on Tenant's Property . . . . . . . . . . . . . . . . . . . . . . 5
13. Condition Of Premises; Repairs . . . . . . . . . . . . . . . . . . . . 5
14. Alterations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
15. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
16. Assignment and Subletting . . . . . . . . . . . . . . . . . . . . . . 7
17. Entry by Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . 8
18. Utilities and Services . . . . . . . . . . . . . . . . . . . . . . . . 8
19. Indemnification and Exculpation . . . . . . . . . . . . . . . . . . . 9
20. Damage Or Destruction . . . . . . . . . . . . . . . . . . . . . . . . 9
21. Eminent Domain . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
22. Tenant's Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 10
23. Landlord's Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 11
24. Waivers of Subrogation . . . . . . . . . . . . . . . . . . . . . . . . 11
25. Tenant's Default and Landlord's Remedies . . . . . . . . . . . . . . . 11
26. Landlord's Default . . . . . . . . . . . . . . . . . . . . . . . . . . 12
27. Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
28. Estoppel Certificate . . . . . . . . . . . . . . . . . . . . . . . . . 12
29. Building Planning . . . . . . . . . . . . . . . . . . . . . . . . . . 12
30. Performance by Tenant; Interest and Late Charges . . . . . . . . . . . 13
31. Modification and Cure Rights of Landlord's Mortgagees and Lessors . . 13
32. Transfer of Owner's Interest . . . . . . . . . . . . . . . . . . . . . 13
33. Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
34. Parking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
35. Limitation on Landlord's Liability . . . . . . . . . . . . . . . . . . 14
36. Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . . 14
37. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
37.1 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 14
37.2 Successors and Assigns . . . . . . . . . . . . . . . . . . . . 14
37.3 No Merger . . . . . . . . . . . . . . . . . . . . . . . . . . 14
37.4 Professional Fees . . . . . . . . . . . . . . . . . . . . . . 14
37.5 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
37.6 Joint and Several Liability . . . . . . . . . . . . . . . . . 14
37.7 Terms and Headings . . . . . . . . . . . . . . . . . . . . . . 14
37.8 Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
37.9 Prior Agreements; Amendments . . . . . . . . . . . . . . . . . 14
37.10 Separability . . . . . . . . . . . . . . . . . . . . . . . . . 15
37.11 Recording . . . . . . . . . . . . . . . . . . . . . . . . . . 15
37.12 Exhibits and Riders . . . . . . . . . . . . . . . . . . . . . 15
37.13 Signs and Auctions . . . . . . . . . . . . . . . . . . . . . . 15
37.14 Accord and Satisfaction . . . . . . . . . . . . . . . . . . . 15
37.15 Financial Statements . . . . . . . . . . . . . . . . . . . . . 15
37.16 Tenant's Authority . . . . . . . . . . . . . . . . . . . . . . 15
37.17 Landlord's Lien Waiver . . . . . . . . . . . . . . . . . . . . 15
37.18 Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Page of First Reference
-----------------------
EXHIBITS
- --------
A. Site Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
B. Floor Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
C. Square Footage Determination . . . . . . . . . . . . . . . . . . . . . 1
D. Work Letter Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 1
E. Sample Form of Notice of Lease Term Dates . . . . . . . . . . . . . . . 2
F. Rules and Regulations . . . . . . . . . . . . . . . . . . . . . . . . . 4
G. Sample Form of Tenant Estoppel Certificate . . . . . . . . . . . . . . 12
H. Parking Rules and Regulations . . . . . . . . . . . . . . . . . . . . . 13
RIDERS
- ------
No. 1. Fixed Rent Increase Rider
No. 2. Rental Abatement Rider
No. 3. Extension Option Rider
No. 4 Fair Market Rental Rate Rider
No. 5 Tenant Signage Rights
-1-
<PAGE>
CITY CENTRE
O F F I C E L E A S E
This LEASE is made as of the day of September , 19 95,
-------- ---------------------- ----
by and between Landlord and Tenant:
W I T N E S S E T H:
1. TERMS AND CONDITIONS. For the purposes of this Lease, the following
terms shall have the following definitions and meanings:
1.1 LANDLORD: Pacific Mutual Life Insurance Company, a California
corporation
1.2 LANDLORD'S ADDRESS: Pacific Mutual Life Insurance Company
Office of the Building, City Centre
17330 Brookhurst Street, Suite 170
Fountain Valley, California 92708
On-site Telephone Number: 714/760-4188
With a copy to: Pacific Mutual Life Insurance Company
700 Newport Center Drive
Newport Beach, California 92660
Attn: REO-3590
1.3 TENANT: CALIFORNIA COMMERCIAL BANKSHARES
-----------------------------------------------
a California corporation
-------------------------------------------
d/b/a (if any):
-------------------------------
1.4 TENANT'S ADDRESS: 17330 Brookhurst, Suite 110
-----------------------------------------------
Fountain Valley, CA 92708
-----------------------------------------------
-----------------------------------------------
Attn: Bank Manager
----------------------------------------
With a copy to: National Bank of Southern California
-----------------------------------------------
4100 Newport Place, Suite 900
-----------------------------------------------
Newport Beach, CA 92660
-----------------------------------------------
Attn: Mr. William Jacoby
----------------------------------------
1.5 SITE: The real property located at the Southeast corner of
Brookhurst Street and La Alameda in the city of Fountain Valley, county of
Orange, state of California, as shown on the site plan attached hereto as
Exhibit "A".
1.6 BUILDING: A three (3) story office building located on the Site,
containing approximately 98,304 Rentable Square Feet (subject to
----------
adjustment as set forth in Exhibit "C"), whose address is 17330
----------
Brookhurst Street, Fountain Valley, California 92708.
1.7 PREMISES: These certain premises known as Suite(s) 110 as
-------
generally shown on the floor plan(s) attached hereto as Exhibit "B", located
on the first floor of the Building, and containing approximately
---------
5,534 Rentable Square Feet (subject to adjustment as set forth in
- ----------
Exhibit "C").
1.8 RENTABLE SQUARE FEET: See Exhibit "C".
1.9 COMMENCEMENT DATE: See Exhibit "D".
1.10 ESTIMATED COMMENCEMENT DATE: November 1 , 19 95 .
------------------ -------
1.11 TERM: Ten ( 10 ) years and Zero ( 0 ) months;
----------- ---- ----------- ----
provided, however, that if the last day of such period is not the last day of
a calendar month, the Term shall be extended to the last day of the calendar
month during which the expiration of such period occurs.
1.12 ANNUAL BASIC RENT: $ 83,010.00 , calculated based upon $ 15.00
------------- ----------
per Rentable Square Foot within the Premises per year. Annual Basic Rent is
payable in monthly installments ("Monthly Basic Rent") of $ 6,917.50 . The
------------
Annual Basic Rent is subject to adjustment as provided in Exhibit "C" and
increase as provided in Rider No. 1 .
---
1.13 TENANT'S PROPORTIONATE SHARE: Tenant's Proportionate Share shall
consist of two (2) separate percentages:
(a) 5.63 %, which is Tenant's Proportionate Share of the
--------
Building, which amount is equal to a fraction, the numerator of which is the
Rentable Square Feet of the Premises (as set forth in Subparagraph 1.7
above), and the denominator of which is the Rentable Square Feet of the
Building (as set forth in Subparagraph 1.6 above); and
(b) 1.84 %, which is Tenant's Proportionate Share of the Project,
--------
which amount is equal to a fraction, the numerator of which is the Rentable
Square Feet of the Premises (as set forth in Subparagraph 1.7 above), and
the denominator of which is the rentable Square Feet of the Project (as set
forth in Subparagraph 1.22 below. (See Exhibit "C")
1.14 LANDLORD'S CONTRIBUTION TO OPERATING EXPENSES: Tenant's
Proportionate Share of Operating Expenses incurred by Landlord during the
Base Year, which shall consist of two (2) separate components:
(a) with respect to the Building Operating Expenses, Tenant's
Proportionate Share of the Building (as set forth in Subparagraph 1.13(a)
above), multiplied by the Building Operating Expenses incurred during the
Base Year; and
(b) with respect to the Project Operating Expenses, Tenant's
Proportionate Share of the Project (as set forth in Subparagraph 1.13(b)
above), multiplied by the Project Operating Expenses.
As used herein, the "Base Year" shall mean the 1996 calendar year.
1.15 SECURITY DEPOSIT: $ Zero .
-----------------------
1
<PAGE>
1.16 PERMITTED USE: Bank or general office
--------------------------------------------------
- ------------------------------------------------------------------------------.
1.17 BROKERS: Voit Commercial Brokerage
-------------------------------------------------------.
1.18 INTEREST RATE: The lesser of: (a) the rate announced from time
to time by Bank of America (or if the preceding blank in this Subparagraph
1.18 is not filled in or if the entity named therein ceases to exist or
ceases to publish such rate, by the largest (as measured by deposits)
chartered bank operating in the state in which the Building is located) as
its "prime rate" or "reference rate", plus five percent (5%); or (b) the
maximum rate permitted by law.
1.19 LEASEHOLD IMPROVEMENTS: The tenant improvements installed or
to be installed for the Premises as described in the Work Letter Agreement
attached hereto as Exhibit "D".
1.20 PARKING: A total of twenty (20) parking privileges, consisting
of eight (8) reserved privileges and twelve (12) unreserved privileges,
subject to the parking rates and provisions set forth in Paragraph 34. Such
total parking privileges shall be based on ratio of four (4) spaces per 1,000
usable square feet leased.
1.21 GUARANTOR(S): N/A
----------------------------.
1.22 PROJECT: The Site, the three 3-story buildings located thereon
(including the Building), the Common Areas, the landscaping, parking
facilities and all other improvements and facilities now or subsequently
located on the Site from time to time, known as City Centre. The aggregate
Rentable Square Feet of the three (3) office buildings in the Project
(including the Building) is approximately 300,527 Rentable Square Feet. (See
Exhibit "C")
2. LEASE OF PREMISES. Landlord hereby leases to Tenant, and Tenant
hereby leases from Landlord, the Premises described in Subparagraph 1.7
above, improved or to be improved with the Leasehold Improvements. Such lease
is upon, and subject to, the terms, covenants and conditions herein set forth
and each party covenants, as a material part of the consideration for this
Lease, to keep and perform their respective obligations under this Lease.
3. COMMON AREAS.
3.1 DEFINITIONS; TENANT'S RIGHTS. During the Term of this Lease,
Tenant shall have the nonexclusive right to use, in common with Landlord and
other tenants in the Project, and subject to the Rules and Regulations
referred to in Paragraph 8 below, those portions of the Project (the "Project
Common Areas") not leased or designated for lease to tenants that are
provided for use in common by (or by the sublessees, agents, employees,
customers or licensees of) Landlord, Tenant and any another tenants of the
Project, whether or not those areas are open to the general public. The
Project Common Areas shall include, without limitation, any fixtures,
systems, decor, facilities and landscaping contained, maintained or used in
connection with those areas, and shall be deemed to include any city
sidewalks adjacent to the Project, any pedestrian walkway system, park or
other facilities open to the general public. The common areas appurtenant to
the Building shall be referred to herein as the "Building Common Areas" and
shall include the following areas:
(a) the common entrances, lobbies, restrooms on multi-tenant
floors, elevators, stairways and access ways, loading docks, ramps, drives
and platforms and any passageways and serviceways thereto, and the common
pipes, conduits, wires and appurtenant equipment serving the Premises; and
(b) the parking structure and parking areas (subject to
Paragraph 34 below), loading and unloading areas, trash areas, roadways,
sidewalks, walkways, parkways, driveways and landscaped areas and plaza area
appurtenant to the Building.
The Building Common Areas and the Project Common Areas shall be referred
to herein collectively as the "Common Areas."
3.2 LANDLORD'S RESERVED RIGHTS. Landlord reserves the right from
time to time to use any of the Common Areas and to do any of the following,
as long as such acts do not unreasonably interfere with Tenant's use of or
access to the Premises:
(a) expand the Building and construct or alter other buildings
or improvements on the Site;
(b) make any changes, additions, improvements, repairs or
replacements in or to the Project, the Site, the Common Areas and/or the
Building (including the Premises if required to do so by any law or
regulation) and the fixtures and equipment thereof, including, without
limitation: (i) maintenance, replacement and relocation of pipes, ducts,
conduits, wires and meters, and (ii) changes in the location, size, shape and
number of driveways, entrances, stairways, elevators, loading and unloading
areas, ingress, egress, direction of traffic, landscaped areas and walkways,
and subject to Paragraph 34 below, parking spaces and parking areas;
(c) close temporarily any of the Common Areas while engaged in
making repairs, improvements or alterations to the Project, Site and/or
Building; and
(d) perform such other acts and make such other changes with
respect to the Project, Site, Common Areas and Building as Landlord may, in
the exercise of sound business judgment, deem to be appropriate.
4. TERM
4.1 TERM; NOTICE OF LEASE DATES. The Term of this Lease shall be
for the period designated in Subparagraph 1.11 commencing on the Commencement
Date (as determined pursuant to Exhibit "D"), and ending on the expiration of
such period, unless the Term is sooner terminated as provided in this Lease.
Within ten (10) days after Landlord's written request, Tenant shall execute a
written confirmation of the Commencement Date and expiration date of the Term
in the form of the Notice of Lease Term Dates attached hereto as Exhibit "E".
The Notice of Lease Term Dates shall be binding upon Tenant unless Tenant
objects thereto in writing within such ten (10) day period.
4.2 ESTIMATED COMMENCEMENT DATE. It is estimated by the parties
that the Term of this Lease will commence on the Estimated Commencement Date
set forth in Subparagraph 1.10. The Estimated Commencement Date is merely an
estimate of the Commencement Date and, consequently, Tenant agrees that
Landlord shall have no liability to Tenant for any loss or damage, nor shall
tenant be entitled to terminate or cancel this Lease if the Term of this
Lease does not commence by the Estimated Commencement Date for any reason
whatsoever, including any delays in substantial completion of the Leasehold
Improvements.
5. RENT.
5.1 BASIC RENT. Tenant agrees to pay Landlord, as basic rent for
the Premises, the Annual basic Rent designated in Subparagraph 1.12. The
Annual Basic Rent shall be paid by Tenant in twelve (12) equal monthly
installments of Monthly Basic Rent designated in Subparagraph 1.12 in advance
on the first day of each and every calendar month during the Term, except
that the first full month's Monthly Basic Rent shall be paid upon the
execution of this Lease. Annual Basic Rent for any partial month shall be
prorated in the proportion that the number of days this Lease is in effect
during such month bears to the actual number of days in such month.
5.2 ADDITIONAL RENT. All amounts and charges payable by Tenant
under this Lease in addition to the Annual Basic Rent described in
Subparagraph 5.1 above (including, without limitation, payments for
insurance, repairs and parking, and Excess Expenses as provided in Paragraph
6) shall be considered additional rent for the purposes of this Lease, and
the word "rent" in this Lease shall include such additional rent unless the
context specifically
2
<PAGE>
or clearly implies that only the Annual Basic Rent is referenced. The Annual
Basic Rent and additional rent shall be paid to Landlord as provided in
Paragraph 9, without any prior demand therefor and without any deduction or
offset whatever, in lawful money of the United States of America.
6. OPERATING EXPENSES.
6.1 EXCESS EXPENSES. During the Term of this Lease, Tenant shall
pay to Landlord, in the manner and at the times set forth in the following
provisions of this Paragraph 6, the amount by which Tenant's Proportionate
Share of Operating Expenses (which consists of two (2) separate components as
set forth in Subparagraph 1.13 above) exceeds Landlord's Contribution to
Operating Expenses (which consists of two (2) separate components as set
forth in Subparagraph 1.14 above). Such excess amounts shall be collectively
referred to in this Paragraph 6 as the "Excess Expenses".
6.2 DEFINITION OF OPERATING EXPENSES. As used in this Lease, the
term "Operating Expenses" shall mean collectively, the "Project Operating
Expenses" and the "Building Operating Expenses." As used herein, "Building
Operating Expenses" shall include all costs and expenses for janitorial
services for the Building, all costs and expenses for utilities which are
separately metered to the Building, and all other costs and expenses of
operation and maintenance of the Building which Landlord may, from time to
time, separately allocate to the Building, all of which shall be calculated
assuming the building is ninety-five percent (95%) occupied. As used herein,
"Project Operating Expenses" shall include all costs and expenses of
operation and maintenance of the Project, as determined by standard
accounting practices, calculated assuming the buildings in the Project are
ninety-five percent (95%) occupied, excluding, however, the Building
Operating Expenses for the Building or the other two (2) buildings in the
Project. Project Operating Expenses shall include the following costs by way
of illustration but not limitation: (a) Real Property Taxes and Assessments
(as defined in Subparagraph 6.4 below) and any taxes or assessments imposed
in lieu thereof; (b) any and all assessments imposed with respect to the
Project pursuant to any covenants, conditions and restrictions affecting the
Project; (c) water and sewer charges and the costs of electricity, heating,
ventilating, air conditioning and other utilities; (d) utilities surcharges
and any other costs, levies or assessments resulting from statutes or
regulations promulgated by any governmental authority in connection with the
use or occupancy of the Project or the parking facilities serving the
Project; (e) costs of insurance obtained by Landlord pursuant to Paragraph 23
of this Lease; (f) waste disposal and janitorial services; (g) security; (h)
labor; (i) costs incurred in the management of the Project, including,
without limitation: (1) supplies, (2) wages and salaries (and payroll taxes
and similar governmental charges related thereto) of employees used in the
management, operation and maintenance of the Project, (3) Project management
office rental (if such management office is located on the Project) and (4) a
management/administrative fee not to exceed five percent (5%) of the annual
gross revenues of the Project exclusive of the proceeds of financing or a
sale of the Project; (j) supplies, materials equipment and tools; (k) repair
and maintenance of the elevators and the structural portions of the
improvements in the Project, including the plumbing, heating, ventilating,
air-conditioning and electrical systems installed or furnished by Landlord;
(1) maintenance, costs and upkeep of all parking and Common Areas; (m)
depreciation on a straight line basis and rental of personal property used in
maintenance; (n) amortization on a straight-line basis over the useful life
[together with interest at the Interest Rate (as defined in Subparagraph 1.18
of this Lease) on the unamortized balance] of all costs of a capital nature
(including, without limitation, capital improvements, capital replacements,
capital repairs, capital equipment and capital tools): (1) reasonably
intended to produce a reduction in operating charges or energy consumption;
or (2) required after the date of the Lease under any governmental law or
regulation that was not applicable to the Project at the time it was
originally constructed; or (3) for repair or replacement of any Project
equipment needed to operate the Project at the same quality levels as prior
to the replacement; (o) costs and expenses of gardening and landscaping;
(p) maintenance of signs (other than signs of tenants); (q) personal property
taxes levied on or attributable to personal property used in connection with
the Project; (r) reasonable accounting, audit, verification, legal and other
consulting fees; and (s) costs and expenses of repairs, resurfacing,
repairing, maintenance, painting, lighting, cleaning, refuse removal,
security and similar items, including appropriate reserves.
6.3 EXCLUSIONS FROM OPERATING EXPENSES. Notwithstanding the
provisions of Subparagraph 6.2 above to the contrary, "Operating Expenses"
shall not include:
(a) any ground lease rental;
(b) costs incurred by Landlord for the repair of damage to the
Project to the extent that Landlord is reimbursed by insurance or
condemnation proceeds or by tenants, warrantors or other third persons;
(c) costs, including permit, license and inspection costs,
incurred with respect to the installation of tenant improvements for tenants
in the Project (including the original Leasehold Improvements for the
Premises), or incurred in renovating or otherwise improving, decorating,
painting or redecorating space for tenants or other occupants of the Project,
including space planning and interior design costs and fees;
(d) depreciation, amortization and interest payments, except as
specifically provided herein, and except on materials, tools, supplies and
vendor-type equipment purchased by Landlord to enable Landlord to supply
services Landlord might otherwise contract for with a third party, where such
depreciation, amortization and interest payments would otherwise have been
included in the charge for such third party's services, all as determined in
accordance with standard accounting practices;
(e) brokerage commissions, finders' fees, attorneys' fees, space
planning costs and other costs incurred by Landlord in leasing or attempting
to lease space in the Project;
(f) attorneys' fees and other costs and expenses incurred in
connection with negotiations or disputes with present or prospective tenants
or other occupants of the Project; provided, however, that Operating Expenses
shall include those attorneys' fees and other costs and expenses incurred in
connection with negotiations, disputes or claims relating to items of
Operating Expenses, enforcement of rules and regulations of the Project, and
such other matters relating to the maintenance of standards required of
Landlord under the Lease; and
(g) interest, principal, points and fees on debt or
amortization on any mortgage, deed of trust or other debt encumbering the
Project, or any portion thereof.
6.4 DEFINITION OF REAL PROPERTY TAXES AND ASSESSMENTS. All Real
Property Taxes and Assessments shall be adjusted to reflect an assumption
that the buildings in the Project are fully assessed for real property tax
purposes as completed buildings ready for occupancy. As used in this Lease,
the term "Real Property Taxes and Assessments" shall mean: any form of
assessment, license fee, license tax, business license fee, commercial rental
tax, levy, charge, improvement bond, tax or similar imposition imposed by any
authority having the direct power to tax, including any city, county, state
or federal government, or any school, agricultural, lighting, drainage or
other improvement or special assessment district thereof, as against any
legal or equitable interest of Landlord in the Project, including the
following by way of illustration but not limitation:
(a) any tax on Landlord's "right" to rent or "right" to other
income from the Premises or as against Landlord's business of leasing the
Premises;
(b) any assessment, tax, fee, levy or charge in substitution,
partially or totally, of any assessment, tax, fee, levy or charge previously
included within the definition of real property tax, it being acknowledged by
Tenant and Landlord that Proposition 13 was adopted by the voters of the
state of California in June, 1978 election and that assessments, taxes, fees,
levies and charges may be imposed by governmental agencies for such services
as fire protection, street, sidewalk and road maintenance, refuse removal and
for other governmental services formerly provided without charge to property
owners or occupants. It is the intention of Tenant and Landlord that all such
new and increased assessments, taxes, fees, levies and charges be included
within the definition of "real property taxes" for the purpose of this Lease;
(c) Any assessment, tax, fee, levy or charge allocable to or
measured by the area of the Premises or other premises in the Project or the
rent payable by Tenant hereunder or other tenants of the Project, including,
without limitation, any gross receipts, tax or excise tax levied by state,
city or federal government, or any political subdivision thereof, with
respect to the receipt of such rent, or upon or with respect to the
possession, leasing, operation, management, maintenance, alteration, repair,
use or occupancy by Tenant of the Premises, or any portion thereof but not on
Landlord's other operations;
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(d) any assessment, tax, fee, levy or charge upon this
transaction or any document to which Tenant is a party, creating or
transferring an interest or an estate in the Premises; and/or
(e) any assessment, tax, fee, levy or charge by any
governmental agency related to any transportation plan, fund or system
(including assessment districts) instituted within the geographic area of
which the Project is a part.
Notwithstanding the foregoing provisions of this Subparagraph 6.4 above
to the contrary, "Real Property Taxes and Assessments" shall not include
Landlord's federal or state income, franchise, inheritance or estate taxes.
6.5 ESTIMATE STATEMENT. By the first day of April of each calendar
year during the Term of this Lease, Landlord shall endeavor to deliver to
Tenant a statement ("Estimated Statement") estimating the Operating Expenses
for the current calendar year and the estimated amount of Excess Expenses
payable by Tenant. Landlord shall have the right no more than three (3) times
in any calendar year to deliver a revised Estimate Statement showing the
Excess Expenses for such calendar year if Landlord determines that the Excess
Expenses are greater than those set forth in the original Estimate Statement,
(or previously delivered revised Estimate Statement) for such calendar year.
The Excess Expenses shown on the the Estimate Statement (or revised Estimate
Statement, as applicable) shall be divided into twelve (12) equal monthly
installments, and Tenant shall pay to Landlord, concurrently with the regular
monthly rent payment next due following the receipt of the Estimate Statement
(or revised Estimate Statement, as applicable), an amount equal to one (1)
monthly installment of such Excess Expenses multiplied by the number of
months from January in the calendar year in which such statement is submitted
to the month of such payment, both months inclusive (less any amounts
previously paid by Tenant with respect to any previously delivered Estimate
Statement or revised Estimate Statement for such calendar year); provided,
however, that with respect to the first Estimate Statement submitted, Tenant
shall also pay the Excess Expenses for those months, if any, during the Term
which occurred prior to January of the calendar year in which such first
Estimate Statement is submitted. Subsequent installments shall be paid
concurrently with the regular monthly rent payments for the balance of the
calendar year and shall continue until the next calendar year's Estimate
Statement (or current calendar year's revised Estimate Statement) is received.
6.6 ACTUAL STATEMENT. By the first day of April of each succeeding
calendar year during the Term of this Lease, Landlord shall endeavor to
deliver to Tenant a statement ("Actual Statement") of the actual Operating
Expenses and Excess Expenses for the immediately preceding calendar year. If
the Actual Statement reveals that Excess Expenses were overstated or
understated in any Estimate Statement (or revised Estimate Statement)
previously delivered by Landlord pursuant to Subparagraph 6.5 above, then
within thirty (30) days after delivery of the Actual Statement, Tenant shall
pay to the Landlord the amount of any such underpayment, or, Landlord shall
pay to Tenant (or credit against the next monthly rent falling due), the
amount of such overpayment, as the case may be.
6.7 NO RELEASE. Any delay or failure by Landlord in delivering any
Estimate or Actual Statement pursuant to this Paragraph 6 shall not
constitute a waiver of its right to receive Tenant's payment of Excess
Expenses, nor shall it relieve Tenant of its obligations to pay Excess
Expenses pursuant to this Paragraph 6, except that Tenant shall not be
obligated to make any payments based on such Estimate or Actual Statement
until ten (10) business days after receipt of such statement.
6.8 TENANT'S AUDIT RIGHTS. If Tenant disputes the amount of
Operating Expenses set forth in any Actual Statement delivered by Landlord,
Tenant shall have the right, to be exercised, if at all, not later than six
(6) months following receipt of such Actual Statement, to cause Landlord's
books and records with respect to the preceding calendar year to be audited,
at Tenant's expense, by a certified public accountant mutually acceptable to
Landlord and Tenant. The amounts payable under Subparagraph 6.6 by Landlord
to Tenant or by Tenant to Landlord as the case may be shall be appropriately
adjusted on the basis of such audit. If Tenant fails to request an audit
within the 6-month period, such Actual Statement shall be conclusively
binding upon Landlord and Tenant.
8. USE.
8.1 GENERAL. Tenant shall use the Premises solely for the Permitted
Use specified in Subparagraph 1.16, and shall not use or permit the Premises
to be used for any other use or purpose whatsoever. Tenant shall observe and
comply with the "Rules and Regulations" attached hereto as Exhibit "F", and
all reasonable non-discriminatory modifications thereof and additions thereto
from time to time put into effect and furnished to Tenant by Landlord.
Landlord shall not be responsible to Tenant for the violation or
non-performance by any other tenant or occupant of the Project or the
Building of any such Rules and Regulations. Tenant shall also observe and
comply with all requirements of any board of fire underwriters or similar
body relating to the Premises, and all laws, rules and regulations of all
governmental agencies having jurisdiction. Tenant shall not use or allow the
Premises to be used (a) in violation of any recorded covenants, conditions
and restrictions affecting the Site or of any law or governmental rule or
regulation, or of any certificate of occupancy issued for the Premises or
Building, or (b) for any improper, immoral, unlawful or reasonably
objectionable purpose. Tenant shall not do or permit to be done anything
which will obstruct or interfere with the rights of other tenants or
occupants of the Project or the Building, or injure or annoy them. Tenant
shall not cause, maintain or permit any nuisance in, on or about the
Premises, the Building, the Project or the Site, nor commit or suffer to be
committed any waste in, on or about the Premises.
8.2 EFFECT ON INSURANCE. Tenant shall not do or permit to be done
anything which will (a) violate or invalidate any insurance policy maintained
by Landlord or Tenant hereunder, or (b) increase the costs of any insurance
policy maintained by Landlord pursuant to Paragraph 23 or otherwise with
respect to the Building, Site or Project. If Tenant's occupancy or conduct of
its business in or on the Premises results in any increase in premiums for
any insurance carried by Landlord with respect to the Building, Site or
Project, Tenant shall pay such increase as additional rent within ten (10)
days after being billed therefor by Landlord. If any insurance coverage
carried by Landlord pursuant to Paragraph 23 or otherwise with respect to the
Building, Site or Project shall be canceled or reduced (or cancellation or
reduction thereof shall be threatened) by reason of the use or occupancy of
the Premises by Tenant or by anyone permitted by Tenant to be upon the
Premises, and if Tenant fails to remedy such condition within five (5) days
after notice thereof, Tenant shall be deemed to be in default under this
Lease, without the benefit of any additional notice or cure period specified
in Subparagraph 25.1 below, and Landlord shall have all remedies provided
in this Lease, at law or in equity, including, without limitation, the right
(but not the obligation) to enter upon the Premises and attempt to remedy
such condition at Tenant' cost.
9. PAYMENTS AND NOTICES. All rent and other sums payable by Tenant to
Landlord hereunder shall be paid to Landlord at the first address designated
in Subparagraph 1.2, or to such other persons and/or at such other places as
Landlord may hereafter designate in writing. Any notice required or permitted
to be given hereunder must be in writing and may be given by personal
delivery (including delivery by nationally recognized overnight courier or
express mailing service), facsimile transmission, or by registered or
certified mail, postage prepaid, return receipt requested, addressed to
Tenant at the address(es) designated in Subparagraph 1.4, or to Landlord at
the address(es) designated in Subparagraph 1.2. Either party may, by written
notice to the other, specify a different address for notice purposes.
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10. BROKERS. The parties recognize that the broker(s) who negotiated this
Lease are stated in Subparagraph 1.17, and agree that Landlord shall be
solely responsible for the payment of brokerage commissions to said
broker(s), and that the Tenant shall have no responsibility therefor unless
written provision to the contrary has been made. Each party represents and
warrants to the other, that, to its knowledge, no other broker, agent or
finder (a) negotiated or was instrumental in negotiating or consummating this
Lease on its behalf, and (b) is or might be entitled to a commission or
compensation in connection with this Lease. Any broker, agent or finder of
Tenant whom Tenant has failed to disclose herein shall be paid by Tenant.
Tenant shall indemnify, defend (by counsel reasonably approved in writing by
Landlord) and hold Landlord harmless from and against any and all claims,
judgements, suits, causes of action, damages, losses, liabilities and
expenses (including attorney's fees and court costs) resulting from any
breach by Tenant of the foregoing representation, including, without
limitation, any claims that may be asserted against Landlord by any broker,
agent or finder undisclosed by Tenant herein. Landlord shall indemnify,
defend (by counsel reasonably approved in writing by Tenant) and hold Tenant
harmless from and against any and all claims, judgements, suits, causes of
action, damages, losses, liabilities and expenses (including attorney's fees
and court costs) resulting from any breach by Landlord of the foregoing
representation, including, without limitation, any claims that may be
asserted against Tenant by any broker, agent or finder undisclosed by
Landlord herein. The foregoing indemnities shall survive the expiration or
earlier termination of this Lease.
11. SURRENDER; HOLDING OVER.
11.1 SURRENDER OF PREMISES. Upon the expiration or sooner
termination of this Lease, Tenant shall surrender all keys for the Premises
to Landlord, and exclusive possession of the Premises to Landlord broom clean
and in first-class condition and repair, reasonable wear and tear excepted
(and) casualty damage excepted if this Lease is terminated as a result
thereof pursuant to Paragraph 20), with all of Tenant's personal property
(and those items, if any, of Leasehold Improvements and Tenant Changes
identified by Landlord pursuant to Subparagraph 14.2 below) removed therefrom
and all damage caused by such removal repaired, as required pursuant to
Subparagraphs 14.2 and 14.3 below. If, for any reason, Tenant fails to
surrender the Premises on the expiration or earlier termination of this Lease
(including upon the expiration of any subsequent month-to-month tenancy
consented to by Landlord pursuant to Subparagraph 11.2 below), with such
removal and repair obligations completed, then, in addition to the
provisions of Subparagraph 11.3 below and Landlord's rights and remedies
under Subparagraph 14.4 and the other provisions of this Lease, Tenant shall
indemnify, defend (by counsel reasonably approved in writing by Landlord) and
hold Landlord harmless from any and all claims, judgements, suits, causes of
action, damages, losses, liabilities and expenses (including attorney's fees
and court costs) resulting from such failure to surrender, including, without
limitation, any claim made by any succeeding tenant based thereon. The
foregoing indemnity shall survive the expiration or earlier termination of
this Lease.
11.2 HOLD OVER WITH LANDLORD'S CONSENT. If, with Landlord's express
written consent, Tenant remains in possession of the Premises after the
expiration or earlier termination of the Lease Term, Tenant shall become a
tenant from month-to-month upon the terms and conditions set forth in this
Lease (including Tenant's obligation to pay all Excess Expenses and any other
additional rent under this Lease), but at a Monthly Basic Rent equal to the
greater of: (a) one hundred twenty-five percent (125%) of the Monthly Basic Rent
applicable to the Premises immediately prior to the date of such expiration
or earlier termination; or (b) one hundred twenty-five percent (125%) of the
prevailing market rate excluding any rental or other concessions (as
reasonably determined by Landlord) for the Premises in effect on the date of
such expiration or earlier termination. Tenant shall pay an entire month's
Monthly basic Rent calculated in accordance with this Subparagraph 11.2 for
any portion of a month it holds over and remains in possession of the
Premises pursuant to this Paragraph 11.2.
11.3 HOLD OVER WITHOUT LANDLORD'S CONSENT. If Tenant holds over
after the expiration or earlier termination of the Lease Term without the
express written consent of Landlord, Tenant shall become a tenant in
sufferance only, upon the terms and conditions set forth in this Lease so far
as applicable (including Tenant's obligation to pay all Excess Expenses and
any other additional rent under this Lease), but at a Monthly Basic Rent
equal to the greater of: (a) two hundred percent (200%) of the Monthly Basic
Rent applicable to the Premises immediately prior to the date of such
expiration or earlier termination; or (b) two hundred percent (200%) of the
prevailing market rate excluding any rental or other concessions (as
reasonably determined by Landlord) for the Premises in effect on the date of
such expiration or earlier termination. Acceptance by Landlord of rent after
such expiration or earlier termination shall not constitute a consent to a
hold over hereunder or result in an extension of this Lease. Tenant shall pay
an entire month's Monthly basic Rent calculated in accordance with this
Subparagraph 11.3 for any portion of a month it holds over and remains in
possession of the Premises pursuant to this Paragraph 11.3.
11.4 NO EFFECT ON LANDLORD'S RIGHTS. The foregoing provisions of
this Paragraph 11 are in addition to, and do not affect , Landlord's right of
re-entry or any other rights of Landlord hereunder or otherwise provided by
law or equity.
12. TAXES ON TENANT'S PROPERTY. Tenant shall be liable for, and shall
pay before delinquency, all taxes and assessments (real and personal) levied
against (a) any personal property or trade fixtures placed by Tenant in or
about the Premises (including any increase in the assessed value of the
Premises based upon the value of any such personal property or trade
fixtures); and (b) any Leasehold Improvements or alterations in the Premises
(whether installed and/or paid for by Landlord or Tenant) to the extent such
items are assessed at a valuation higher than the valuation at which tenant
improvements conforming to the Building's standard tenant improvements set
forth in Schedule "1" to Exhibit "D" are assessed. If any such taxes or
assessments are levied against Landlord or Landlord's property, Landlord may,
after written notice to Tenant (and under proper protest if requested by
Tenant) pay such taxes and assessments, and Tenant shall reimburse Landlord
therefor within ten (10) business days after demand by Landlord; provided,
however, Tenant at its sole cost and expense, shall have the right, with
Landlord's cooperation, to bring suit in any court of competent jurisdiction
to recover the amount of any such taxes and assessments so paid under protest.
13. CONDITION OF PREMISES; REPAIRS.
13.1 CONDITION OF PREMISES. Tenant acknowledges that, except as
otherwise expressly set forth in this Lease, neither Landlord nor any agent
of Landlord has made any representation or warranty with respect to the
Premises the Building, the Site or the Project or their condition, or with
respect to the suitability thereof for the conduct of Tenant's business. The
taking of possession of the Premises by Tenant shall conclusively establish
that the Project, the Site, the Premises, the Leasehold Improvements therein,
the Building and the Common Areas were at such time complete and in good,
sanitary and satisfactory condition and repair with all work required to be
performed by Landlord, if any, pursuant to Exhibit "D" completed and without
any obligation on Landlord's part to make any alterations, upgrades or
improvements thereto, except for the repair of any latent defects in the
Building or Premises (excluding any portion of the Premises constructed by
Tenant) disclosed by Tenant and specified in written notice to Landlord no
later than one (1) year after the Commencement Date. Landlord shall cause all
latent defects so specified in Tenant's notice to be completed and/or
repaired as soon as reasonably possible after Landlord's receipt thereof.
13.2 TENANT'S REPAIR OBLIGATIONS. Except for Landlord's obligations
specifically set forth in Subparagraphs 13.1, 13.3, 20.1 and 21.2 hereof,
Tenant shall at all times and at Tenant's sole cost and expense, keep,
maintain, repair and preserve the Premises and all Leasehold Improvements,
Tenant Changes, and any alterations, additions and property therein in
first-class condition and repair, reasonable wear and tear excepted. Such
maintenance and repairs shall be performed with due diligence, lien-free and
in a first-class workmanlike manner, by such contractor(s) selected by Tenant
and approved by Landlord, which approval shall not be unreasonably withheld
or delayed. Except as otherwise provided in this Lease, Landlord shall have
no obligation to alter, remodel, improve, repair, renovate, redecorate or
paint all or any part of the Premises.
13.3 LANDLORD'S REPAIR OBLIGATIONS. Notwithstanding the provisions
of Subparagraph 13.2 above to the contrary, Landlord shall, as part of the
Operating Expenses, repair and maintain (a) the Building shell and other
structural portions of the Building (including the roof and foundations), (b)
the basic plumbing, heating, ventilating, air conditioning, sprinkler and
electrical systems within the Building core (but not any conduits or
connections thereto or distribution systems thereof within the Premises or
any other tenant's premises), and (c) the Common Areas; provided, however, to
the extent such maintenance or repairs are required as a result of any act,
neglect, fault or omission of Tenant or any of Tenant's agents, employees,
contractors, licensees or invitees, Tenant shall pay to Landlord, as
additional rent, the costs of such maintenance and repairs. Subject to
Tenant's right to self-help and abatement of rent pursuant to Subparagraphs
13.4 and 20.3, respectively, and except as otherwise included in Landlord's
Indemnity in Subparagraph 19.3, Landlord shall not be liable to Tenant for,
and Tenant hereby expressly waives all rights to recover, any losses and
damages (including interference with or injury to
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Tenant's business) resulting from Landlord's performing or failure to perform
any such repairs or maintenance, it being expressly understood and agreed by
Tenant that Tenant shall be solely responsible for and look solely to its
insurance for any such damages and losses.
13.4 TENANT'S WAIVER; SELF-HELP. Tenant waives the right to make
repairs at Landlord's expense under any law, statute or ordinance now or
hereafter in effect (including the provisions of California Civil Code
Section 1942 and any successive sections or statutes of a similar nature);
provided, however, subject to the termination rights set forth in Paragraph
20 and 21, if Landlord fails to perform any maintenance or repair work
required pursuant to Subparagraph 13.3 within thirty (30) days after Landlord
receives Tenant's written notice of the need for such repairs (or such period
of time in excess of thirty (30) days as is reasonably necessary based upon
the nature of such work), and if such failure to repair unreasonably
interferes with Tenant's use of or access to the Premises, then Tenant shall
be permitted to make such repairs, using the Building's contractors or such
other contractors reasonably approved by Landlord, upon delivery of an
additional two (2) business days' prior written notice to Landlord indicating
that Tenant will be undertaking such repairs, and Tenant shall be entitled
to recover from Landlord the reasonable costs of such repairs made by Tenant,
but without any off-set rights against the rental or other amounts payable by
Tenant under this Lease.
14. ALTERATIONS.
14.1 TENANT CHANGES; CONDITIONS. After installation of the initial
Leasehold Improvements for the Premises pursuant to Exhibit "D", Tenant may,
at its sole cost and expense, make alterations, additions, improvements and
decorations to the Premises (collectively, "Tenant Changes") subject to and
upon the following terms and conditions:
(a) Notwithstanding any provision in this Paragraph 14 to the
contrary, Tenant is absolutely prohibited from making any alterations,
additions, improvements or decorations which: (i) affect any area outside the
Premises; (ii) affect the Building's structure, equipment, services or
systems, or the proper functioning thereof, or Landlord's access thereto;
(iii) affect the outside appearance, character or use of the Project, the
Building or the Common Areas; (iv) weaken or impair the structural strength
of the Building; (v) in the reasonable opinion of Landlord, lessen the value
of the Project or Building; or (vi) will violate or require a change in any
occupancy certificate applicable to the Premises.
(b) Before proceeding with any Tenant Change which is not
otherwise prohibited in Subparagraph 14.1(a) above, Tenant must first obtain
Landlord's written approval thereof (including approval of all plans,
specifications and working drawings for such Tenant Change), which approval
shall not be unreasonably withheld or delayed. However, Landlord's prior
approval shall not be required for any Tenant Change which satisfies the
following conditions (hereinafter a "Pre-Approved Change"): (i) the costs of
such Tenant Change do not exceed Five Hundred Dollars ($500.00) individually;
(ii) the costs of such Tenant Change, when aggregated with the costs of all
other Tenant Changes made by Tenant during the Term of this Lease, do not
exceed Fifteen Hundred Dollars ($1,500.00); (iii) Tenant delivers to Landlord
final plans, specifications and working drawings for such Tenant Change at
least ten (10) days prior to commencement of the work thereof; and (iv)
Tenant and such Tenant Change otherwise satisfy all other conditions set
forth in this Subparagraph 14.1.
(c) After Landlord has approved the Tenant Changes and the
plans, specifications and working drawings therefor (or is deemed to have
approved the Pre-Approved Changes as set forth in Subparagraph 14.1(b)
above), Tenant shall: (i) enter into an agreement for the performance of such
Tenant Changes with such contractors and subcontractors selected by Tenant
and approved by Landlord, which approval shall not be unreasonably withheld
or delayed; (ii) before proceeding with any Tenant Change (including any
Pre-Approved Change), provide Landlord with ten (10) days' prior written
notice thereof; and (iii) pay to Landlord, within ten (10) days after written
demand, the costs of any increased insurance premiums incurred by Landlord to
include such Tenant Changes in the fire and extended coverage insurance
obtained by Landlord pursuant to Paragraph 23 below. However, Landlord shall
be required to include the Tenant Changes under such insurance only to the
extent such insurance is actually obtained by Landlord and such Tenant
Changes are insurable under such insurance; if such Tenant Changes are not or
cannot be included in Landlord's insurance, Tenant shall insure the Tenant
Changes under its casualty insurance pursuant to Subparagraph 22.1(a) below.
In addition, before proceeding with any Tenant Change, Tenant's contractors
shall obtain, on behalf of Tenant and at Tenant's sole cost and expense: (A)
all necessary governmental permits and approvals for the commencement and
completion of such Tenant Change; and (B) a completion and lien indemnity
bond, or other surety, satisfactory to Landlord for such Tenant Change.
(d) Tenant shall pay to Landlord, as additional rent, the
reasonable costs of Landlord's engineers and other consultants (but not
Landlord's on-site management personnel) for review of all plans,
specifications and working drawings for the Tenant Changes, within ten (10)
business days after Tenant's receipt of invoices either from Landlord or such
consultants. In addition to such costs, Tenant shall pay to Landlord, within
ten (10) business days after completion of any Tenant Change, the actual,
reasonable costs incurred by Landlord for services rendered by Landlord's
management personnel and engineers to coordinate and/or supervise any of the
Tenant Changes to the extent such services are provided in excess of or after
the normal on-site hours of such engineers and management personnel.
(e) All Tenant Changes shall be performed: (i) in accordance
with the approved plans, specifications and working drawings; (ii) lien-free
and in a first-class and workmanlike manner; (iii) in compliance with all
laws, rules, and regulations of all governmental agencies and authorities;
(iv) in such a manner so as not to interfere with the occupancy of any other
tenant in the Project or Building, nor impose any additional expense upon nor
delay Landlord in the maintenance and operation of the Project or Building;
and (v) at such times, in such manner and subject to such rules and regulations
as Landlord may from time to time reasonably designate.
(f) Throughout the performance of the Tenant Changes, Tenant
shall obtain, or cause its contractors to obtain, workers compensation
insurance and general liability insurance in compliance with the provisions of
Paragraph 22 of this Lease.
14.2 REMOVAL OF TENANT CHANGES AND LEASEHOLD IMPROVEMENTS. All
Tenant Changes and the initial Leasehold Improvements in the Premises
(whether installed or paid for by Landlord or Tenant), shall become the
property of Landlord and shall remain upon and be surrendered with the
Premises at the end of the Term of this Lease; provided, however, Landlord
may, by written notice delivered to Tenant at any time prior to the date
which is fifteen (15) days before the expiration of the Lease Term (or
immediately upon any sooner termination of this Lease) identify those items
of the Leasehold Improvements and Tenant Changes which Landlord shall require
Tenant to remove at the end of the Term of this Lease. If Landlord requires
Tenant to remove any such items as described above, Tenant shall, at its sole
cost, remove the identified items on or before the expiration or sooner
termination of this Lease and repair any damage to the Premises caused by
such removal (or, at Landlord's option, shall pay to Landlord all of
Landlord's costs of such removal and repair).
14.3 REMOVAL OF PERSONAL PROPERTY. All articles of personal
property owned by Tenant or installed by Tenant at its expense in the Premises
(including business and trade fixtures, furniture and movable partitions)
shall be, and remain, the property of Tenant, and shall be removed by Tenant
from the Premises, at Tenant's sole cost and expense, on or before the
expiration or sooner termination of this Lease. Tenant shall repair any
damage caused by such removal.
14.4 TENANT'S FAILURE TO REMOVE. If Tenant fails to remove by the
expiration or sooner termination of this Lease all of its personal property,
or any items of Leasehold Improvements or Tenant Changes identified by
Landlord for removal pursuant to Subparagraph 14.2 above, Landlord may, at
its option, treat such failure as a hold over pursuant to Subparagraph 11.3
above, and/or may (without liability to Tenant for loss thereof), at Tenant's
sole cost and in addition to Landlord's other rights and remedies under this
Lease, at law or in equity: (a) remove and store such items; and/or (b) upon
ten (10) days' prior notice to Tenant, sell all or any such items at private
or public sale for such price as Landlord may obtain. Landlord shall apply
the proceeds of any such sale to any amounts due to Landlord under this Lease
from Tenant (including Landlord's attorneys' fees and other costs incurred in
the removal, storage and/or sale of such items), with any remainder to be
paid to Tenant.
15. LIENS. Tenant shall not permit any mechanic's, materialmen's or
other liens to be filed against all or any part of the Project, the Site, the
Building or the Premises, nor against Tenant's leasehold interest in the
Premises, by reason of or in connection with any repairs, alterations,
improvements or other work contracted for or undertaken by Tenant or any
other act or omission of Tenant or Tenant's agents, employees, contractors,
licensees or invitees. Tenant shall, at Landlord's request, provide Landlord
with enforceable, conditional and final lien releases (and other evidence
reasonably requested by Landlord to demonstrate protection from liens) from
all persons furnishing labor and/or materials with respect to the Premises.
Landlord shall have the right at all
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reasonable times to post on the Premises and record any notices of
non-responsibility which it deems necessary for protection from such liens.
If any such liens are filed, Tenant shall, at its sole cost, immediately
cause such lien to be released of record or bonded so that it no longer
affects title to the Project, the Site, the Building or the Premises. If
Tenant fails to cause such lien to be so released or bonded within ten (10)
days after filing thereof, such failure shall be deemed a material breach by
Tenant under this Lease without the benefit of any additional notice or cure
period described in Subparagraph 25.1 below, and Landlord may, without
waiving its rights and remedies based on such breach, and without releasing
Tenant from any of its obligations, cause such lien to be released by any
means it shall deem proper, including payment in satisfaction of the claim
giving rise to such lien. Tenant shall pay to Landlord within five (5) days
after receipt of invoice from Landlord, any sum paid by Landlord to remove
such liens, together with interest at the Interest Rate from the date of such
payment by Landlord.
16. ASSIGNMENT AND SUBLETTING.
16.1 GENERAL. No assignment or encumbrance of all or any part of
this Lease, and no sublease of all or any part of the Premises, shall be
permitted, except as otherwise expressly provided in this Paragraph 16.
16.2 RESTRICTION ON TRANSFER. Subject to the provisions of
Subparagraphs 16.3, 16.4, 16.5 and 16.6, Tenant shall not, without the prior
written consent of Landlord, which consent shall not be unreasonably
withheld, assign or encumber this Lease or any interest herein or sublet the
Premises or any part thereof, or permit the use or occupancy of the Premises
by any party other than Tenant (any such assignment, encumbrance, sublease or
the like shall sometimes be referred to as a "Transfer"). Any Transfer
without Landlord's consent (except for a Transfer pursuant to Subparagraph
16.6 below) shall constitute a default by Tenant under this Lease, and in
addition to all of Landlord's other remedies at law, in equity or under this
Lease, such Transfer shall be voidable at Landlord's election. In addition,
this Lease shall not, nor shall any interest of Tenant herein, be assignable
by operation of law without the written consent of Landlord. For purposes of
this Paragraph 16, if Tenant is a corporation, partnership or other entity,
any transfer, assignment, encumbrance or hypothecation of twenty-five
percent (25%) or more (individually or in the aggregate) of any stock or
other ownership interest in such entity, and/or any transfer, assignment,
hypothecation or encumbrance of any controlling ownership or voting interest
in such entity, shall be deemed an assignment of this Lease and shall be
subject to all of the restrictions and provisions contained in this Paragraph
16. Notwithstanding the foregoing, the immediately preceding sentence shall
not apply to any transfers of stock of Tenant if Tenant is a publicly-held
corporation and such stock is transferred publicly over a recognized security
exchange or over-the-counter market.
16.3 LANDLORD'S OPTIONS. If at any time or from time to time during
the Term Tenant desires to effect a Transfer, Tenant shall deliver to
Landlord written notice ("Transfer Notice") setting forth the terms and
provisions of the proposed Transfer and the identity of the proposed
assignee, sublessee or other transferee (sometimes referred to hereinafter as
a "Transferee"). Tenant shall also deliver to Landlord with the Transfer
Notice, a current financial statement and financial statements for the
preceding two (2) years of the Transferee which have been certified or
audited by a reputable independent accounting firm acceptable to landlord,
and such other information concerning the business background and financial
condition of the proposed Transferee as Landlord may reasonably request.
Landlord shall have the option, exercisable by written notice delivered to
Tenant within twenty (20) days after Landlord's receipt of the Transfer
Notice, such financial statements and other information, either to:
(a) approve or disapprove such Transfer, which approval shall
not be unreasonably withheld; or
16.4 ADDITIONAL CONDITIONS; EXCESS RENT. If Landlord does not
exercise its sublease or termination option and instead approves of the
proposed Transfer pursuant to Subparagraph 16.3(a) above, Tenant may enter
into the proposed Transfer with such proposed Transferee subject to the
following further conditions:
(a) the Transfer shall be on the same terms set forth in the
Transfer Notice delivered to Landlord (if the terms have changed, Tenant must
submit a revised Transfer Notice to Landlord and Landlord shall have another
twenty (20) days after receipt thereof to make the election in Subparagraphs
16.3(a) or 16.3(b) above);
(b) no Transfer shall be valid and no Transferee shall take
possession of the Premises until an executed counterpart of the assignment,
sublease or other instrument affecting the Transfer has been delivered to
Landlord pursuant to which the Transferee shall expressly assume all of
Tenant's obligations under this Lease (or with respect to a sublease of a
portion of the Premises or for a portion of the Term, all of Tenant's
obligations applicable to such portion);
(c) no Transferee shall have a further right to assign,
encumber or sublet, except on the terms herein contained; and
16.5 REASONABLE DISAPPROVAL. Landlord and Tenant hereby acknowledge
that Landlord's disapproval of any proposed Transfer pursuant to Subparagraph
16.3(a) shall be deemed reasonably withheld if based upon any reasonable
factor, including, without limitation, any or all of the following factors:
(a) the proposed Transfer would result in more than two subleases of portions
of the Premises being in effect at any one time during the Term; (b) the net
effective rent payable by the Transferee (adjusted on a rentable square foot
basis) is less than the net effective rent then being quoted by Landlord for
new leases in the Project for comparable size space for a comparable period
of time; (c) the proposed Transferee is an existing tenant of the Project or
is negotiating with Landlord (or has negotiated with Landlord in the last six
(6) months) for space in the Project; (d) the proposed Transferee is a
governmental entity; (e) the portion of the Premises to be sublet or assigned
is irregular in shape with inadequate means of ingress and egress; (f) the use
of the Premises by the Transferee (i) is not permitted by the use provisions
in Paragraph 8 hereof, or (ii) violates any exclusive use granted by Landlord
to another tenant in the Project; (g) the Transfer would likely result in
significant increase in the use of the parking areas or Common Areas by the
Transferee's employees or visitors, and/or significantly increase the
demand upon utilities and services to be provided by Landlord to the Premises;
(h) the Transferee does not have the financial capability to fulfill the
obligations imposed by the Transfer; (i) the Transferee is not in Landlord's
reasonable opinion of reputable or good character or consistent with
Landlord's desired tenant mix; or (j) the Transferee is a real estate
developer or landlord or is acting directly or indirectly on behalf of a real
estate developer or landlord.
16.6 PERMITTED CONTROLLED TRANSFERS. Notwithstanding the provisions
of Subparagraphs 16.1, 16.2 and 16.3 above to the contrary, Tenant may assign
this Lease or sublet the Premises or any portion thereof, without Landlord's
consent and without extending any sublease or termination option to Landlord,
to any corporation which controls, is controlled by or is under common
control with Tenant, or to any corporation resulting from a merger or
consolidation with Tenant, or to any person or entity which acquires all of
the assets of Tenant's business as a going concern, provided that: (a) at
least twenty (20) days prior to such assignment or sublease, Tenant delivers
to Landlord the financial statements and other financial and background
information
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of the assignee or sublessee described in Subparagraph 16.3 above; (b)
if an assignment, the assignee assumes, in full, the obligations above of
Tenant under this Lease (or if a sublease, the sublessee of a portion of the
Premises or Term assumes, in full, the obligations of Tenant with respect to
such portion); (c) the financial net worth of the assignee or sublessee
equals or exceeds that of Tenant as of the date of execution of this Lease;
(d) Tenant remains fully liable under this Lease; (e) the use of the Premises
under Article 8 remains unchanged; and (f) such transaction is not entered
into as a subterfuge to avoid the restrictions and provisions of this
Paragraph 16.
16.7 NO RELEASE. No Transfer shall release Tenant of Tenant's
obligations under this Lease or alter the primary liability of Tenant to pay
the rent and to perform all other obligations to be performed by Tenant
hereunder. Landlord may require that any Transferee remit directly to
Landlord on a monthly basis, all monies due Tenant by said Transferee.
However, the acceptance of rent by Landlord from any other person shall
not be deemed to be a waiver by Landlord of any provision hereof. Consent by
Landlord to one Transfer shall not be deemed consent to any subsequent
Transfer. In the event of default by any Transferee of Tenant or any
successor of Tenant in the performance of any of the terms hereof, Landlord
may proceed directly against Tenant without the necessity of exhausting
remedies against such Transferee or successor. Landlord may consent to
subsequent assignments of the Lease or sublettings or amendments or
modifications to the Lease with assignees of Tenant, without notifying
Tenant, or any successor of Tenant, and without obtaining its or their
consent thereto and any such actions shall not relieve Tenant of liability
under this Lease.
16.8 ADMINISTRATIVE AND ATTORNEYS' FEES. If Tenant effects a
Transfer or requests the consent of Landlord to any Transfer, then Tenant
shall, upon demand, pay Landlord a non-refundable administrative fee of Two
Hundred Fifty Dollars ($250.00), plus any reasonable attorneys' and paralegal
fees incurred by Landlord in connection with such Transfer or request for
consent (whether attributable to Landlord's in-house attorneys or paralegals
or otherwise). Acceptance of the $250.00 administrative fee and/or
reimbursement of Landlord's attorneys' and paralegal fees shall in no event
obligate Landlord to consent to any proposed Transfer.
16.9
17. ENTRY BY LANDLORD. Landlord and its employees and agents shall at
all times have the right to enter the Premises to inspect the same, to supply
janitorial service and any other service required to be provided by Landlord
to Tenant under this Lease, to exhibit the Premises to prospective lenders or
purchasers (or during the last year of the Term, to prospective tenants), to
post notices of non-responsibility,and/or to alter, improve or repair the
Premises or any other portion of the Building or Project, all without being
deemed guilty of or liable for any breach of Landlord's covenant of quiet
enjoyment or any eviction of Tenant, and without abatement of rent. In
exercising such entry rights, Landlord shall endeavor to minimize, as
reasonably practicable, the interference with Tenant's business, and shall
provide Tenant with reasonable advance written notice of such entry (except
in emergency situations). For each of the foregoing purposes, Landlord shall
at all times have and retain a key with which to unlock all of the doors in,
upon and about the Premises, excluding Tenant's vaults and safes, and
Landlord shall have the means which Landlord may deem proper to open said
doors in an emergency in order to obtain entry to the Premises. Any entry to
the Premises obtained by Landlord by any of said means or otherwise shall not
under any circumstances be construed or deemed to be a forcible or unlawful
entry into, or a detainer of, the Premises, or an eviction of Tenant from the
Premises or any portion thereof, or grounds for any abatement or
reduction of rent. Any damages or losses on account of any such entry by
Landlord shall be Tenant's sole responsibility except as otherwise expressly
provided in Subparagraph 19.3. Nothing in this Paragraph 17 shall be
construed as obligating Landlord to perform any repairs, alterations or
decorations, except as otherwise expressly required in the Lease to be
performed by Landlord.
18. UTILITIES AND SERVICES.
18.1 STANDARD UTILITIES AND SERVICES. As long as Tenant has not
committed an uncured default under any of the provisions of this Lease, and
subject to the terms and conditions of this Lease, and the obligations of
Tenant as set forth hereinbelow, Landlord shall furnish or cause to be
furnished to the Premises the following utilities and services, the costs of
which shall be included in Operating Expenses, unless otherwise specified
below (Landlord reserves the right to adopt non-discriminatory modifications
and additions to the following provisions from time to time):
(a) Landlord shall make available for Tenant's non-exclusive
use, the non-attended passenger elevator facilities of the Building, seven
days per week, 24 hours per day.
(b) Landlord shall furnish during "Business Hours" heating,
ventilation and air conditioning ("HVAC") for the Premises as required in
Landlord's judgment for the comfortable and normal occupancy of the Premises.
For purposes of this Subparagraph 18.1, the "Business Hours" shall mean
8:00 a.m. to 6:00 p.m. on Monday through Friday (except holidays), and 9:00
a.m. to 12:00 noon on Saturday (except holidays). The cost of maintenance and
service calls to adjust and regulate HVAC system shall be charged to Tenant
if the need for maintenance work results from either Tenant's adjustment of
room thermostats or Tenant's failure to comply with its obligations under
this Paragraph 18, including keeping window coverings closed as needed. Such
work shall be charged at hourly rates equal to then-current journeyman's
wages for HVAC mechanics. If Tenant desires HVAC at any time other than
during Business Hours, Landlord shall provide such "after-hours" usage after
advance reasonable request by Tenant, and Tenant shall pay to Landlord, as
additional rent (and not as part of the Operating Expenses) the cost, as
fairly determined by Landlord, of such after-hours usage (as well as the cost
of any HVAC used by Tenant in excess of what Landlord considers reasonable or
normal), including any minimum hour charges for after-hours requests and any
special start-up costs for after-hours services which require a special
start-up (such as late evenings, weekends and holidays).
(c) Landlord shall furnish to the Premises 24 hours per day,
reasonable quantities of electric current as required in Landlords's judgment
for normal lighting and fractional horsepower office business machines. In no
event shall Tenant's use of electric current ever exceed the capacity of the
feeders to the Building or the risers or wiring installation of the Building.
Landlord shall also furnish water to the Premises 24 hours per day for
drinking and lavatory purposes, in such quantities as required in Landlord's
judgment for the comfortable and normal use of the Premises. If Tenant
requires or consumes water or electrical power in excess of what is
considered reasonable or normal by Landlord, Landlord may require Tenant to
pay to Landlord, as additional rent, the cost as fairly determined by Landlord
incurred for such excess usage.
(d) Landlord shall furnish janitorial services to the Premises
five (5) days per week pursuant to janitorial and cleaning specifications as
may be adopted by Landlord from time to time. No person(s) other than those
persons approved by Landlord shall be permitted to enter the Premises for
such purposes. Janitor service shall include ordinary dusting and cleaning by
the janitor assigned to do such work and shall not include cleaning of
carpets or rugs, except normal vacuuming, or moving of furniture, interior
window cleaning, coffee or eating area cleaning and other special services.
Such additional services may be rendered by Landlord pursuant to written
agreement with Tenant as to the extent of such services and the payment of
the cost thereof. Janitor service will not be furnished on nights when rooms
are occupied after 6:00 p.m. or to rooms which are locked unless a key is
furnished to the Landlord for use the janitorial contractor. Window
cleaning shall be done only by Landlord, at such time and frequency as
determined by Landlord at Landlord's sole discretion. Tenant shall pay to
Landlord the cost of removal of any of Tenant's refuse and rubbish to the
extent that the same exceeds the refuse and rubbish usually attendant upon
the use of the Premises as offices.
(e) Landlord may provide security service or protection in the
Building, in any manner deemed reasonable by Landlord at Landlord's sole
discretion, from the Commencement Date throughout the Term.
(f) At Landlord's option, Landlord may install water,
electricity and/or HVAC meters in the Premises to measure Tenant's
consumption of such utilities, including any after-hours and extraordinary
usage described above. Tenant shall pay to Landlord, within ten (10) days
after demand, the cost of the installation, maintenance and repair of such
meter(s).
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18.2 TENANT'S OBLIGATIONS. Tenant shall cooperate fully at all times
with Landlord, and abide by all reasonable regulations and requirements which
Landlord may prescribe for the proper functioning and protection of the
Building's services and systems. Tenant shall not use any apparatus or device
in, upon or about the Premises which may in any way increase the amount of
services or utilities usually furnished or supplied to the Premises or other
premises in the Building. In addition, Tenant shall not connect any conduit,
pipe, apparatus or other device to the Building's water, waste or other
supply lines or systems for any purpose. Neither Tenant nor its employees,
agents, contractors, licensees or invitees shall at any time enter, adjust,
tamper with, touch or otherwise in any manner affect the mechanical
installations or facilities of the Building.
18.3 FAILURE TO PROVIDE UTILITIES. Landlord's failure to furnish
any of the utilities and services described in Subparagraph 18.1 above when
such failure is caused by all or any of the following shall not result in any
liability of Landlord: (a) accident, breakage or repairs; (b) strikes,
lockouts or other labor disturbances or labor disputes of any such character;
(c) governmental regulation, moratorium or other governmental action; (d)
inability, despite the exercise of reasonable diligence, to obtain
electricity, water or fuel; or (e) any other cause beyond Landlord's
reasonable control. In addition, in the event of the failure of any said
utilities or services, Tenant shall not be entitled to any abatement or
reduction of rent (except as expressly provided in Subparagraphs 20.3 and
21.2 if such failure is a result of a damage or taking described therein), no
eviction of Tenant shall result, and Tenant shall not be relieved from the
performance of any covenant or agreement in this Lease. In the event of any
stoppage or interruption of services or utilities, Landlord shall diligently
attempt to resume such services or utilities as promptly as practicable.
19. INDEMNIFICATION AND EXCULPATION.
19.1 TENANT'S INDEMNIFICATION OF LANDLORD. Tenant shall be liable
for, and shall indemnify, defend and hold Landlord and Landlord's partners,
officers, directors, employees, agents, successors and assigns (collectively,
"Landlord Indemnified Parties"), harmless from and against, any and all
claims, damages, judgments, suits, causes of action, losses, liabilities and
expenses, including attorneys' fees and court costs (collectively,
"Indemnified Claims"), arising or resulting from (a) any act or omission
of Tenant or of any Tenant's agents, employees, contractors, subtenants,
assignees, licensees or invitees (collectively, "Tenant Parties"); (b) the
use of the Premises and Common Areas and conduct of Tenant's business by
Tenant or any Tenant Parties, or any other activity, work or thing done,
permitted or suffered by Tenant or any Tenant Parties, in or about the
Premises, the Building or elsewhere on the Site; and/or (c) any default by
Tenant of any obligations on Tenant's part to be performed under the terms
of this Lease. In case any action or proceeding is brought against Landlord
or any Landlord Indemnified Parties by reason of any such Indemnified
Claims, Tenant, upon notice from Landlord, shall defend the same at Tenant's
expense by counsel approved in writing by Landlord, which approval shall not
be unreasonably withheld.
19.2 TENANT'S ASSUMPTION OF RISK AND WAIVER. Except to the extent
specifically included in Landlord's indemnification obligations set forth in
Subparagraph 19.3 below, Tenant, as a material part of the consideration to
Landlord, hereby agrees that neither Landlord nor any Landlord Indemnified
Parties shall be liable to Tenant for, and Tenant expressly assumes the risk of
and waives any and all claims it may have against Landlord or any Landlord
Indemnified Parties with respect to, any and all damage to property or injury
to persons in, upon or about the Premises, the Building, the Site or the
Project resulting from any act or omission of Landlord or of any Landlord
Indemnified Party (whether or not negligent) or from any other cause
whatsoever, including, without limitation, (a) any damage to property
entrusted to employees of the Project, (b) any loss of or damage to property
by theft or otherwise, and (c) any injury or damage to persons or property
resulting from any casualty, explosion, falling plaster or other masonry or
glass, steam, gas, electricity, water or rain which may leak from any part of
the Building or from the pipes, appliances or plumbing works therein or from
the roof, street or subsurface or from any other place, or resulting from
dampness, or any other cause whatsoever. Landlord or its agents shall not be
liable for interference with the light or other intangible rights.
19.3 LANDLORD'S INDEMNIFICATION. Notwithstanding the provisions of
Subparagraph 19.2 to the contrary, but subject to the limitation on
Landlord's liability set forth in Paragraph 35 below, Landlord shall be
liable for, and shall indemnify, defend and hold Tenant and Tenant's
partners, officers, directors, employees, agents, successors and assigns
(collectively, "Tenant Indemnified Parties") harmless from and against, any
injury to persons or damage to property located on the Premises or Site (but
not for injury to, or interference with, Tenant's or any Tenant Indemnified
Parties' business or for consequential damages), to the extent such damage or
injury arises or results from (a) the gross negligence or willful misconduct
of Landlord, its agents or employees and/or (b) the default by Landlord of
any obligations on Landlord's part to be performed under the terms of this
Lease; provided, however, that Landlord's indemnity shall not apply or extend
to any such damage or injury which is covered by any insurance maintained by
Tenant or any Tenant Indemnified Parties (or would have been covered had
Tenant obtained the insurance as required under this Lease). In case any
action or proceeding is brought against Tenant or any Tenant Indemnified
Parties by reason of any such injury or damage indemnified by Landlord as set
forth hereinabove, Landlord, upon notice from Tenant, shall defend the same
at Landlord's expense by counsel approved in writing by Tenant, which
approval shall not be unreasonably withheld.
19.4 SURVIVAL; NO RELEASE OF INSURERS. Tenant's and Landlord's
indemnification obligations under Subparagraphs 19.1 and 19.3, respectively,
shall survive the expiration or earlier termination of this Lease. Tenant's
covenants, agreements and indemnification in Subparagraphs 19.1 and 19.2
above, and Landlord's indemnification in Subparagraph 19.3 above, are not
intended to and shall not relieve any insurance carrier of its obligations
under policies required to be carried by Landlord or Tenant, respectively,
pursuant to the provision of this Lease.
20. DAMAGE OR DESTRUCTION
20.1 LANDLORD'S RIGHTS AND OBLIGATIONS. In the event the Premises
or any part of the Building is damaged by fire or other casualty to an extent
not exceeding twenty-five percent (25%) of the full replacement cost thereof,
and Landlord's contractor estimates in a writing delivered to the parties
that the damage thereto is such that the Building and/or Premises may be
repaired, reconstructed or restored to substantially its condition
immediately prior to such damage within one hundred twenty (120) days from
the date of such casualty, and Landlord will receive insurance proceeds
sufficient to cover the costs of such repairs, reconstruction and restoration
(including proceeds from Tenant and/or Tenant's insurance which Tenant is
required to deliver to Landlord pursuant to Subparagraph 20.2 below), then
Landlord shall commence and proceed diligently with the work of repair,
reconstruction and restoration and this Lease shall continue in full force
and effect. If, however, the Premises or any other part of the Building is
damaged to an extent exceeding twenty-five percent (25%) of the full
replacement cost thereof, or Landlord's contractor estimates that such work
of repair, reconstruction and restoration will require longer than one
hundred twenty (120) days to complete, OR Landlord will not receive insurance
proceeds (and/or proceeds from Tenant, as applicable) sufficient to cover the
costs of such repairs, reconstruction and restoration, then Landlord may
elect to either:
(a) repair, reconstruct and restore the portion of the
Building and Premises damaged by such casualty (including the Leasehold
Improvements and Tenant Changes), in which case this Lease shall continue in
full force and effect; or
(b) terminate this Lease effective as of the date which is
thirty (30) days after Tenant's receipt of Landlord's election to so
terminate.
Under any of the conditions of this Subparagraph 20.1, Landlord shall
give written notice to Tenant of its intention to repair or terminate within
the later of sixty (60) days after the occurrence of such casualty, or
fifteen (15) days after Landlord's receipt of the estimate from Landlord's
contractor.
20.2 TENANT'S COSTS AND INSURANCE PROCEEDS. In the event of any
damage or destruction of all or any part of the premises, Tenant shall
immediately: (a) notify Landlord thereof; and (b) deliver to Landlord all
insurance proceeds received by Tenant with respect to the Leasehold
Improvements and Tenant Changes in the Premises to the extent such items are
not covered by Landlord's casualty insurance obtained by Landlord pursuant to
Paragraph 23 below (excluding proceeds for Tenant's furniture and other
personal property), whether or not this Lease is terminated as permitted in
this Paragraph 20, and Tenant hereby assigns to Landlord all rights to
receive such insurance proceeds.
If, for any reason (including Tenant's failure to obtain insurance for the
full replacement cost of any Tenant Changes which Tenant is required to
insure pursuant to Subparagraphs 14.1(c) and/or 22.1(a) hereof), Tenant fails
to receive insurance proceeds covering the full replacement cost of such
Tenant Changes which are damaged, Tenant shall be deemed to have self-insured
the replacement cost of such Tenant Changes, and upon any damage or
destruction
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thereto, Tenant shall immediately pay to Landlord the full replacement cost
of such items, less any insurance proceeds actually received by Landlord from
Landlord's or Tenant's insurance with respect to such items.
20.3 ABATEMENT OF RENT. In the event that as a result of any such
damage, repair, reconstruction and/or restoration of the Premises or the
Building, Tenant is prevented from using, and does not use, the Premises or
any portion thereof for five (5) consecutive business days (the "Eligibility
Period"), then the rent shall be abated or reduced, as the case may be,
during the period after the expiration of the Eligibility Period that Tenant
continues to be so prevented from using and does not use the Premises or
portion thereof, in the proportion that the Rentable Square Feet of the
portion of the Premises that Tenant is prevented from using, and does not
use, bears to the total Rentable Square Feet of the Premises. Notwithstanding
the foregoing to the contrary, if the damage is due to the negligence or
willful misconduct of Tenant or any Tenant Parties, there shall be no
abatement of rent. Except for abatement of rent as provided hereinabove,
Tenant shall not be entitled to any compensation or damages for loss of, or
interference with, Tenant's business or use or access of all or any part of
the Premises resulting from any such damage, repair, reconstruction or
restoration.
20.4 INABILITY TO COMPLETE. Notwithstanding anything to the
contrary contained in this Paragraph 20, in the event Landlord is obligated
or elects to repair, reconstruct and/or restore the damaged portion of the
Building or Premises pursuant to Subparagraph 20.1 above, but is delayed
from completing such repair, reconstruction and/or restoration beyond the
date which is six (6) months after the date estimated by Landlord's
contractor for completion thereof pursuant to Subparagraph 20.1, by reason of
any causes beyond the reasonable control of Landlord (including, without
limitation, any acts of God, war, governmental restrictions, and delays
caused by Tenant or any Tenant Parties), then Landlord may elect to terminate
this Lease upon thirty (30) days' prior written notice to Tenant.
20.5 DAMAGE NEAR END OF TERM. In addition to its termination
rights in Subparagraphs 20.1 and 20.4 above, Landlord shall have the right to
terminate this Lease if any damage to the Building or Premises occurs during
the last twelve (12) months of the Term of this Lease and Landlord's
contractor estimates in a writing delivered to the parties that the repair,
reconstruction or restoration of such damage cannot be completed within the
earlier of (a) the scheduled expiration date of the Lease Term, or (b) sixty
(60) days after the date of such casualty.
20.6 WAIVER OF TERMINATION RIGHT. The provisions of California
Civil Code Section 1932, Subsection 2, and Section 1933, Subsection 4 (and
any successor statutes thereof permitting Tenant to terminate this Lease as a
result of any damage or destruction) are hereby expressly waived by Tenant.
21. EMINENT DOMAIN.
21.1 SUBSTANTIAL TAKING. Subject to the provisions of Subparagraph
21.4 below, in case the whole of the Premises, or such part thereof as shall
substantially interfere with Tenant's use and occupancy of the Premises as
reasonably determined by Landlord, shall be taken for any public or
quasi-public purpose by any lawful power or authority by exercise of the
right of appropriation, condemnation or eminent domain, or sold to prevent
such taking, either party shall have the right to terminate this Lease
effective as of the date possession is required to be surrendered to said
authority.
21.2 PARTIAL TAKING; ABATEMENT OF RENT. In the event of a taking
of portion of the Premises which does not substantially interfere with the
conduct of Tenant's business, then, except as otherwise provided in the
immediately following sentence, neither party shall have the right to
terminate this Lease and Landlord shall thereafter proceed to make a
functional unit of the remaining portion of the Premises (but only to the
extent Landlord receives proceeds therefor from the condemning authority),
and rent shall be abated with respect to the part of the Premises which
Tenant shall be so deprived on account of such taking. Notwithstanding the
immediately preceding sentence to the contrary, if any part of the Building
or the Site shall be taken (whether or not such taking substantially
interferes with Tenant's use of the Premises), Landlord may terminate this
Lease upon thirty (30) days' prior written notice to Tenant as long as
Landlord also terminates leases of other tenants leasing comparably sized
space within the Building for comparable lease terms.
21.3 CONDEMNATION AWARD. Subject to the provisions of Subparagraph
21.4 below, in connection with any taking of the Premises or Building,
Landlord shall be entitled to receive the entire amount of any award which may
be made or given in such taking or condemnation, without deduction or
apportionment for any estate or interest of Tenant, it being expressly
understood and agreed by Tenant that no portion of any such award shall be
allowed or paid to Tenant for any so-called bonus or excess value of this
Lease, and such bonus or excess value shall be the sole property of Landlord.
Tenant shall not assert any claim against Landlord or the taking
authority for any compensation because of such taking (including any claim
for bonus or excess value of this Lease); provided, however, if any portion
of the Premises is taken, Tenant shall be granted the right to recover from
the condemning authority (but not from Landlord) any compensation as may be
separately awarded or recoverable by Tenant for the taking of Tenant's
furniture, fixtures, equipment and other personal property within the
Premises, for Tenant's relocation expenses, and for any loss of goodwill or
other damage to Tenant's business by reason of such taking.
21.4 TEMPORARY TAKING. In the event of a taking of the Premises or
any part thereof for temporary use, (a) this Lease shall be and remain
unaffected thereby and rent shall not abate, and (b) Tenant shall be entitled
to receive for itself such portion or portions of any award made for such use
with respect to the period of the taking which is within the Term, provided
that if such taking shall remain in force at the expiration or earlier
termination of this Lease, Tenant shall then pay to Landlord a sum equal to
the reasonable cost of performing Tenant's obligations under Paragraph 11
with respect to surrender of the Premises and upon such payment shall be
excused from such obligations. For purpose of this Subparagraph 21.4, a
temporary taking shall be defined as a taking for a period of two hundred
seventy (270) days or less.
22. TENANT'S INSURANCE.
22.1 TYPES OF INSURANCE. On or before the earlier of the
Commencement Date or the date Tenant commences or causes to be commenced any
work of any type in or on the Premises pursuant to this Lease, and continuing
during the entire Term, Tenant shall obtain and keep in full force and
effect, the following insurance:
(a) All Risk insurance, including fire and extended coverage,
sprinkler leakage (including earthquake sprinkler leakage), vandalism,
malicious mischief and earthquake coverage upon property of every description
and kind owned by Tenant and located in the Premises or Building, or for
which Tenant is legally liable or installed by or on behalf of Tenant
including, without limitation, furniture, equipment and any other personal
property, and the Tenant Changes to the extent required under Subparagraph
14.1(c) above, (but excluding the initial Leasehold Improvements previously
existing or installed in the Premises), in an amount not less then the full
replacement cost thereof. In the event that there shall be a dispute as to
the amount which comprises full replacement cost, the decision of Landlord or
the mortgagees of Landlord shall be presumptive.
(b) Commercial general liability insurance coverage, including
personal injury, bodily injury (including wrongful death), broad form
property damage, operations hazard, owner's protective coverage, contractual
liability (including Tenant's indemnification obligations under this Lease,
including Paragraph 19 hereof), liquor liability (if Tenant serves alcohol on
the Premises), products and completed operations liability, and
owned/non-owned auto liability, with initial limits as follows: general
aggregate--not less than Two Million Dollars ($2,000,000.00), and per
occurrence--not less than Two Million Dollars ($2,000,000.00). The limits of
liability of such comprehensive general liability insurance shall be
increased every five (5) years during the Term of this Lease to an amount
reasonably required by Landlord.
(c) Worker's compensation insurance, in statutory amounts and
limits, and employer's liability insurance with limits as follows: bodily
injury each accident--not less than One Million Dollars ($1,000,000.00),
bodily injury/disease each employee--not less than One Million Dollars
($1,000,000.00), and a bodily injury/disease policy limit of not less than
One Million Dollars ($1,000,000.00).
(d) Business Income insurance in such amount as will reimburse
Tenant for direct or indirect loss of earnings attributable to all perils
commonly insured against by prudent tenants or attributable to prevention of
access to the Premises, Tenant's parking areas or to the Building as a result
of such perils.
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(e) Any other form or forms of insurance as Tenant or Landlord
or the mortgagees of Landlord may reasonably require from time to time, in
form, amounts and for insurance risks against which a prudent tenant would
protect itself, but only to the extent such risks and amounts are available
in the insurance market at commercially reasonable costs.
22.2 REQUIREMENTS. Each policy required to be obtained by Tenant
hereunder shall: (a) be issued by insurers authorized to do business in the
state in which the Building is located and rated not less than financial
class X, and not less than policyholder rating A in the most recent version
of Best's Key Rating Guide (provided that, in any event, the same insurance
company shall provide the coverages described in Subparagraphs 22.1(a) and
22.1(d) above); (b) be in form reasonably satisfactory from time to time to
Landlord; (c) name Tenant as named insured thereunder and shall name Landlord
and, at Landlord's request, Landlord's mortgages and ground lessors of which
Tenant has been informed in writing, as additional insureds thereunder, all
as their respective interests may appear; (d) shall not have a deductible
amount exceeding Five Thousand Dollars ($5,000.00); (e) specifically provide
that the insurance afforded by such policy for the benefit of Landlord and
Landlord's mortgagees and ground lessors shall be primary, and any insurance
carried by Landlord or Landlord's mortgagees and ground lessors shall be
excess and non-contributing; (f) except for worker's compensation insurance,
contain an endorsement that the insurer waives its right to subrogation as
described in Paragraph 24 below; and (g) contain an undertaking by the
insurer to notify Landlord (and the mortgagees and ground lessors of Landlord
who are named as additional insureds) in writing not less than thirty (30)
days prior to any material change, reduction in coverage, cancellation or
other termination thereof. Tenant agrees to deliver to Landlord, as soon as
practicable after the placing of the required insurance, but in no event
later than the date Tenant takes possession of all or any part of the
Premises, certified copies of each such insurance policy (or certificates
from the insurance company evidencing the existence of such insurance and
Tenant's compliance with the foregoing provisions of this Paragraph 22).
Tenant shall cause replacement policies or certificates to be delivered to
Landlord on or before ten (10) days prior to the expiration of any such
policy or policies. If any such initial or replacement policies or
certificates are not furnished within the time(s) specified herein, Tenant
shall be deemed to be in material default under this Lease without the
benefit of any additional notice or cure period provided in Subparagraph 25.1
below, and Landlord shall have the right, but not the obligation, to procure
such policies and certificates at Tenant's expense.
23. LANDLORD'S INSURANCE. During the Term, Landlord shall be
required to insure the Building, the Premises, the Leasehold Improvements
initially installed in the Premises pursuant to Exhibit "D" and certain
Tenant Changes to the extent described in Subparagraph 14.1(c) above
(excluding, however, Tenant's furniture, equipment and other personal
property and those Tenant Changes which Tenant is obligated to insure
pursuant to the provisions of Subparagraphs 14.1(c) and 22.1(a) above)
against damage by fire and standard extended coverage perils and general
liability insurance, in such reasonable amounts and with such reasonable
deductibles as would be carried by a prudent owner of similar building in the
state in which the Building is located. At Landlord's option, such insurance
may be carried under any blanket or umbrella policies which Landlord has in
force for other buildings and projects. In addition, at Landlord's option,
Landlord may elect to self-insure all or any part of such required insurance
coverage. Landlord may, but shall not be obligated to, carry any other form
or forms of insurance as Landlord or the mortgagees or ground lessors of
Landlord may reasonably determine is advisable. The cost of insurance
obtained by Landlord pursuant to this Paragraph 23 shall be included in
Operating Expenses.
24. WAIVERS OF SUBROGATION.
24.1 MUTUAL WAIVER OF PARTIES. Landlord and Tenant hereby waive
their rights against each other as well as the officers, partners, directors,
employees, agents and authorized representatives of Landlord and Tenant with
respect to any claims or damages or losses (including any claims for bodily
injury to persons and/or damage to property) which are caused by or result
from (a) risks insured against under any insurance policy carried by Landlord
or Tenant (as the case may be) pursuant to the provisions of this Lease and
enforceable at the time of such damage, loss and/or injury, or (b) risks
which would have been covered under any insurance required to be obtained and
maintained by Landlord or Tenant (as the case may be) under Paragraphs 22 and
23 of this Lease (as applicable) had such insurance been obtained and
maintained as required therein. The foregoing waivers shall be in addition
to, and not a limitation of, any other waivers or releases contained in this
Lease.
24.2 WAIVER OF INSURER. Each party shall cause each insurance
policy required to be obtained by it pursuant to Paragraphs 22 and 23
(excluding Tenant's worker's compensation insurance) to provide that the
insurer waives all rights of recovery by way of subrogation against either
Landlord or Tenant, as the case may be, and against the officers, employees,
agents, partners and authorized representatives of Landlord and Tenant in
connection with any claims, losses and damages covered by such policy. If
either party fails to maintain insurance required hereunder, such insurance
shall be deemed to be self-insured with a deemed full waiver of subrogation
as set forth in the immediately preceding sentence.
25. TENANT'S DEFAULT AND LANDLORD'S REMEDIES.
25.1 TENANT'S DEFAULT. The occurrence of any one or more of the
following events shall constitute a default under this Lease by Tenant:
(a) the vacation or abandonment of the Premises by Tenant.
"Abandonment" is herein defined to include, but is not limited to, any
absence by Tenant from the Premises for five (5) business days or longer
while in default of any other provision of this Lease;
(b) the failure by Tenant to make any payment of rent or
additional rent or any other payment required to be made by Tenant hereunder,
as and when due;
(c) the failure by Tenant to timely perform any of those
covenants described in Paragraphs 8.2, 15, 22.2 and 27.1 of this Lease, which
Paragraphs expressly provide that such failure shall be deemed a default by
Tenant under this Lease without any additional notice or cure periods;
(d) the failure by Tenant to observe or perform any of the
express or implied covenants or provisions of this Lease to be observed or
performed by Tenant, other than as specified in Subparagraphs 25.1(a), (b) or
(c) above, where such failure shall continue for a period of ten (10) days
after written notice thereof from Landlord to Tenant; provided, however, that
any such notice shall be in lieu of, and not in addition to, any notice
required under California Code of Civil Procedure, Section 1161 and provided
further that, if the nature of Tenant's default is such that more than ten
(10) days are reasonably required for its cure, then Tenant shall not be
deemed to be in default if Tenant shall commence such cure within said ten
(10) day period and thereafter diligently prosecute such cure to completion,
which completion shall occur not later than sixty (60) days from the date of
such notice from Landlord; and
(e) (i) the making by Tenant of any general assignment for the
benefit of creditors, (ii) the filing by or against Tenant of a petition to
have Tenant adjudged a bankrupt or a petition for reorganization or arrangement
under any law relating to bankruptcy (unless, in the case of a petition filed
against the Tenant, the same is dismissed within sixty (60) days), (iii) the
appointment of a trustee or receiver to take possession of substantially all
of Tenant's assets located at the Premises or of Tenant's interest in this
Lease, where possession is not restored to Tenant within sixty (60) days, or
(iv) the attachment, execution or other judicial seizure of substantially all
of Tenant's assets located at the Premises or of Tenant's interest in this
Lease where such seizure is not discharged within sixty (60) days.
25.2 LANDLORD'S REMEDIES; TERMINATION. In the event of any such
default by Tenant, in addition to any other remedies available to Landlord
under this Lease, at law or in equity, Landlord shall have the immediate
option to terminate this Lease and all rights of Tenant hereunder. In the
event that Landlord shall elect to so terminate this Lease, then Landlord may
recover from Tenant:
(a) the worth at the time of award of any unpaid rent which had
been earned at the time of such termination; plus
(b) the worth at the time of the award of the amount by which
the unpaid rent which would have been earned after termination until the time
of award exceeds the amount of such rental loss that Tenant proves could have
been reasonably avoided; plus
(c) the worth at the time of award of the amount by which the
unpaid rent for the balance of the term after the time of award exceeds the
amount of such rental loss that Tenant proves could be reasonably avoided; plus
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(d) any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform its obligations
under this Lease or which, in the ordinary course of things, would be likely
to result therefrom including, but not limited to: "Unreimbursed Leasehold
Improvement Costs" (as defined below); attorneys' fees; brokers' commissions;
the costs of refurbishment, alterations, renovation and repair of the
Premises; and removal (including the repair of any damage caused by such
removal) and storage (or disposal) of Tenant's personal property, equipment,
fixtures, Tenant Changes, Leasehold Improvements and any other items which
Tenant is required under this Lease to remove but does not remove. As used
herein, the term "Unreimbursed Leasehold Improvement Costs" shall mean the
product when multiplying (i) the sum of any Leasehold Improvement allowance
plus any other costs provided, paid or incurred by Landlord in connection
with the design and construction of the initial Leasehold Improvements
installed in the Premises prior to the Commencement Date pursuant to Exhibit
"D", by (ii) the fraction, the numerator of which is the number of months of
the Term of this Lease not yet elapsed as of the date on which this Lease is
terminated (excluding any unexercised renewal options), and the denominator
of which is the total number of months of the Term of this Lease (excluding
any unexercised renewal options). For example, if the total costs paid or
incurred by Landlord with respect to the initial Leasehold Improvements was
$100,000.00, the Lease Term was sixty (60) months, and the Lease was
terminated by reason of Tenant's default at the end of twelve (12) months,
the Unreimbursed Leasehold Improvement Costs would be equal to $80,000.00
(i.e., $80,000.00 equals $100,000.00 x 48/60).
As used in Subparagraphs 25.2(a) and 25.2(b) above, the "worth at the time
of award" is computed by allowing interest at the Interest Rate set forth in
Subparagraph 1.18. As used in Subparagraph 25.2(c) above, the "worth at the
time of award" is computed by discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco at the time of award plus one
percent (1%).
25.3 LANDLORD'S REMEDIES; RE-ENTRY RIGHTS. In the event of any such
default by Tenant, in addition to any other remedies available to Landlord
under this Lease, at law or in equity, Landlord shall also have the right,
with or without terminating this Lease, to re-enter the Premises and remove
all persons and property from the Premises; such property may be removed,
stored and/or disposed of pursuant to Subparagraph 14.4 of this Lease or any
other procedures permitted by applicable law. No re-entry or taking
possession of the Premises by Landlord pursuant to this Subparagraph 25.3,
and no acceptance of surrender of the Premises or other action on Landlord's
part, shall be construed as an election to terminate this Lease unless a
written notice of such intention be given to Tenant or unless the termination
thereof be decreed by a court of competent jurisdiction.
25.4 LANDLORD'S REMEDIES; CONTINUATION OF LEASE. In the event of
any such default by Tenant, in addition to any other remedies available to
Landlord under this Lease, at law or in equity, Landlord shall have the right
to continue this Lease in full force and effect, whether or not Tenant shall
have abandoned the Premises. The foregoing remedy shall also be available to
Landlord pursuant to California Civil Code Section 1951.4 and any successor
statute thereof in the event Tenant has abandoned the Premises. In the event
Landlord elects to continue this Lease in full force and effect pursuant to
this Subparagraph 25.4, then Landlord shall be entitled to enforce all of its
rights and remedies under this Lease, including the right to recover rent as
it becomes due. Landlord's election not to terminate this Lease pursuant to
this Subparagraph 25.4 or pursuant to any other provision of this Lease, at
law or in equity, shall not preclude Landlord from subsequently electing to
terminate this Lease or pursuing any of its other remedies.
25.5 RIGHTS AND REMEDIES CUMULATIVE. All rights, options and
remedies of Landlord contained in this Paragraph 25 and elsewhere in this
Lease (including Paragraph 30 below) shall be construed and held to be
cumulative, and no one of them shall be exclusive of the other, and Landlord
shall have the right to pursue any one or all of such remedies or any other
remedy or relief which may be provided by law or in equity, whether or not
stated in this Lease. Nothing in this Paragraph 25 shall be deemed to limit
or otherwise affect Tenant's indemnification of Landlord pursuant to any
provision of this Lease.
26. LANDLORD'S DEFAULT. Landlord shall not be in default in the
performance of any obligation required to be performed by Landlord under this
Lease unless Landlord has failed to perform such obligation within thirty
(30) days after the receipt of written notice from Tenant specifying in
detail Landlord's failure to perform; provided however, that if the nature of
Landlord's obligation is such that more than thirty (30) days are required for
its performance, then Landlord shall not be deemed in default if its
commences such performance within such thirty (30) day period and thereafter
diligently pursues the same to completion. Upon any such uncured default by
Landlord, Tenant may exercise any of its rights provided in law or at equity;
provided, however: (a) Tenant shall have no right to offset or abate rent in
the event of any default by Landlord under this Lease, except to the extent
offset rights are specifically provided to Tenant in this Letter; and (b)
Tenant's rights and remedies hereunder shall be limited to the extent (i)
Tenant has expressly waived in this Lease any of such rights or remedies
and/or (ii) this Lease otherwise expressly limits Tenant's rights or remedies,
including the limitations on Landlord's liability contained in Paragraph 35
hereof.
27. SUBORDINATION. Without the necessity of any additional document
being executed by Tenant for the purpose of effecting a subordination, and at
the election of Landlord or any mortgagee of a mortgage or a beneficiary of a
deed of trust now or hereafter encumbering all or any portion of the Building
or Site, or any lessor of any ground or master lease now or hereafter
affecting all or any portion of the Building or Site, this Lease shall be
subject and subordinate at all times to such ground or master leases (and
such extensions and modifications thereof), and to the lien of such mortgages
and deeds of trust (as well as to any advances made thereunder and to all
renewals, replacements, modifications and extensions thereof). As a condition
precedent to the effectiveness of any such subordination of this Lease to any
future ground or master leases or the lien of any future mortgages or deeds
of trust, Landlord shall provide to Tenant a commercially reasonable
non-disturbance and attornment agreement in favor of Tenant executed by such
future ground lessor, master lessor, mortgagee or deed of trust beneficiary,
as the case may be, which shall provide that Tenant's quiet possession of the
Premises shall not be disturbed on account of such subordination to such
future lease or lien so long as Tenant is not in default under any provisions
of this Lease. Notwithstanding the foregoing, Landlord shall have the right
to subordinate or cause to be subordinated any or all ground or master leases
or the lien of any or all mortgages or deeds of trust to this Lease. In the
event that any ground or master lease terminates for any reason or any
mortgage or deed of trust is foreclosed or a conveyance in lieu of
foreclosure is made for any reason, at the election of Landlord's successor
in interest, Tenant shall attorn to and become the tenant of such successor.
Tenant hereby waives its rights under any current or future law which gives or
purports to give Tenant any right to terminate or otherwise adversely affect
this Lease and the obligations of Tenant hereunder in the event of any such
foreclosure proceeding or sale. Tenant covenants and agrees to execute and
deliver to Landlord within ten (10) days after receipt of written demand by
Landlord and in the form reasonably required by Landlord, any additional
documents evidencing the priority or subordination of this Lease with respect
to any such ground or master lease or the lien of any such mortgage or deed
of trust. Should Tenant fail to sign and return and such documents within
said 10-day period, Tenant shall be in default hereunder without the benefit
of any additional notice or cure periods specified in Subparagraph 25.1 above.
28. ESTOPPEL CERTIFICATE.
28.1 TENANT'S OBLIGATIONS. Within ten (10) business days following
Landlord's written request, Tenant shall execute and deliver to Landlord an
estoppel certificate, in a form substantially similar to the form of Exhibit
"G" attached hereto, certifying: (a) the Commencement Date of this Lease; (b)
that this Lease is unmodified and in full force and effect (or, if modified,
that this Lease is in full force and effect as modified, and stating the date
and nature of such modifications); (c) the date to which the rent and other
sums payable under this Lease have been paid; (d) that there are not, to the
best of Tenant's knowledge, any defaults under this Lease by either Landlord
or Tenant, except as specified in such certificate; and (e) such other
matters as are reasonably requested by Landlord. Any such estoppel
certificate delivered pursuant to this Subparagraph 28.1 may be relied upon
by any mortgage, beneficiary, purchase or prospective purchaser of any
portion of the Site, as well as their assignees.
28.2 TENANT'S FAILURE TO DELIVER. Tenant's failure to deliver
such estoppel certificate within such time shall be conclusive upon Tenant
that: (a) this Lease is in full force and effect without modification, except
as may be represented by Landlord; (b) there are no uncured defaults in
Landlord's or Tenant's performance; and (c) not more than one (1) month's
rental has been paid in advance. Tenant shall indemnify, defend (with counsel
reasonably approved by Landlord in writing) and hold Landlord harmless from
and against any and all claims, judgments, suits, causes of action, damages,
losses, liabilities and expenses (including attorneys' fees and court costs)
attributable to any failure by Tenant to timely deliver any such estoppel
certificate to Landlord pursuant to Subparagraph 28.1 above.
29. BUILDING PLANNING. If Landlord requires the Premises for use by
another tenant or for other reasons connected with the Building planning
program, then Landlord shall have the right, upon sixty (60) days' prior
written notice to Tenant, to relocate the Premises to other space in the
Building or Project of substantially similar size as the Premises, and with
tenant improvements of substantially similar age, quality and layout as then
existing in the Premises.
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In the event of any such relocation, Landlord shall pay for the cost of
providing such substantially similar tenant improvements (but not any furniture
or personal property), and Landlord shall reimburse Tenant, within thirty (30)
days after Landlord's receipt of invoices and paid receipts, for the
reasonable moving, telephone installation and stationary reprinting costs
actually paid for by Tenant in connection with such relocation. If Landlord
so relocates Tenant, the terms and conditions of this Lease shall remain in
full force and effect and apply to the new space, except that (a) a revised
Exhibit "B" shall become part of this Lease and shall reflect the location of
the new space, (b) Paragraph 1 of this Lease shall be amended to include and
state all correct date as to the new space, and (c) such new space shall
thereafter be deemed to be the "Premises". Notwithstanding the foregoing
provisions of this Paragraph 29 to the contrary, if the new space contains more
Rentable Square Feet than the original Premises, Tenant shall not be obligated
to pay any more Annual Basic Rent or Excess Expenses than otherwise applicable
to the original Premises. Landlord and Tenant agree to cooperate fully in order
to minimize the inconvenience of Tenant resulting from such relocation.
30. PERFORMANCE BY TENANT; INTEREST AND LATE CHARGES.
30.1 LANDLORD'S RIGHT TO PERFORM. Except as specifically provided
otherwise in this Lease, all covenants and agreements by Tenant under this
Lease shall be performed by Tenant at Tenant's sole cost and expense and
without any abatement or offset of rent. If Tenant shall fail to pay any sum
of money (other than Annual Basic Rent) or perform any other act on its part
to be paid or performed hereunder and such failure shall continue for three
(3) days with respect to monetary obligations (or ten (10) days with respect
to non-monetary obligations) after Tenant's receipt of written notice thereof
from Landlord, Landlord may, without waiving or releasing Tenant from any of
Tenant's obligations, make such payment or perform such other act on behalf
of Tenant. All sums so paid by Landlord and all necessary incidental costs
incurred by Landlord in performing such other acts shall be payable by Tenant
to Landlord within five (5) days after demand therefor as additional rent.
The foregoing rights are in addition to any and all remedies available to
Landlord upon Tenant's default as described in Paragraph 25.
30.2 INTEREST. If any monthly installment of Annual Basic Rent or
Excess Expenses, or other amount payable by Tenant hereunder is not received
by Landlord by the date when due, it shall bear interest at the Interest Rate
set forth in Subparagraph 1.18 from the date due until paid. All interest,
and any late charges imposed pursuant to Subparagraph 30.3 below, shall be
considered additional rent due from Tenant to Landlord under the terms of
this Lease.
30.3 LATE CHARGES. Tenant acknowledges that, in addition to
interest costs, the late payments by Tenant to Landlord of any Annual Basic
Rent or other sums due under this Lease will cause Landlord to incur costs
not contemplated by this Lease, the exact amount of such costs being extremely
difficult and impractical to fix. Such other costs include, without
limitation, processing, administrative and accounting charges and late
charges that may be imposed on Landlord by the terms of any mortgage, deed of
trust or related loan documents encumbering the Premises, the Building or the
Site. Accordingly, if any monthly installment of Annual Basic Rent or Excess
Expenses or any other amount payable by Tenant hereunder is not received by
Landlord by the due date thereof, Tenant shall pay to Landlord an additional
sum of ten percent (10%) of the overdue amount as a late charge, but in no
event more than the maximum late charge allowed by law. The parties agree
that such late charge represents a fair and reasonable estimate of the costs
that Landlord will incur by reason of any late payment as hereinabove
referred to by Tenant, and the payment of late charges and interest are
distinct and separate in that the payment of interest is to compensate
Landlord for the use of Landlord's money by Tenant, while the payment of late
charges is to compensate Landlord for Landlord's processing, administrative
and other costs incurred by Landlord as a result of Tenant's delinquent
payments. Acceptance of a late charge or interest shall not constitute a
waiver of Tenant's default with respect to the overdue amount or prevent
Landlord from exercising any of the other rights and remedies available to
Landlord under this Lease or at law or in equity now or hereafter in effect.
31. MODIFICATION AND CURE RIGHTS OF LANDLORD'S MORTGAGEES AND LESSORS.
31.1 MODIFICATIONS. If, in connection with Landlord's obtaining or
entering into any financing or ground lease for any portion of the Building
or Site, the lender or ground lessor shall request modifications to this
Lease, Tenant shall, within ten (10) days after request therefor, execute an
amendment to this Lease including such modifications, provided such
modifications are reasonable, do not increase the obligations of Tenant
hereunder, or adversely affect the leasehold estate created hereby or
Tenant's rights hereunder.
31.2 CURE RIGHTS. In the event of any default on the part of
Landlord, Tenant will give notice by registered or certified mail to any
beneficiary of a deed of trust or mortgagee covering the Premises or ground
lessor of Landlord whose address shall have been furnished to Tenant, and
shall offer such beneficiary, mortgagee or ground lessor a reasonable
opportunity to cure the default (including with respect to any such
beneficiary or mortgagee, time to obtain possession of the Premises, subject
to this Lease and Tenant's rights hereunder, by power of sale or a judicial
foreclosure, if such should prove necessary to effect a cure).
32. TRANSFER OF OWNER'S INTEREST. The Term "Landlord" as used in this
Lease, so far as covenants or obligations on the part of the Landlord are
concerned, shall be limited to mean and include only the owner or owners, at
the time in question, of the fee title to, or a lessee's interest in a ground
lease of, the Site. In the event of any transfer or conveyance of any such
title or interest (other than a transfer for security purposes only), the
transferor shall be automatically relieved of all covenants and obligations
on the part of Landlord contained in this Lease accruing after the date of such
transfer or conveyance. Landlord and Landlord's transferees and assignees
shall have the absolute right to transfer all or any portion of their
respective title and interest in the Site, the Building, the Premises and/or
this Lease without the consent of Tenant, and such transfer or subsequent
transfer shall not be deemed a violation on Landlord's part of any of the
terms and conditions of this Lease.
33. QUIET ENJOYMENT. Landlord covenants and agrees with Tenant that, upon
Tenant performing all of the covenants and provisions on Tenant's part to be
observed and performed under this Lease (including payment of rent
hereunder), Tenant shall and may peaceably and quietly have, hold and enjoy
the Premises in accordance with and subject to the terms and conditions of
this Lease.
34. PARKING.
34.1 TENANT'S PARKING PRIVILEGES. During the Term of this Lease,
Landlord shall lease to Tenant, and Tenant shall lease from Landlord, the
number of parking privileges specified in Subparagraph 1.20 hereof for use by
Tenant's employees in the common parking areas for the Building within the
Project, as designated by Landlord from time to time. Landlord shall at
all times have the right to establish and modify the nature and extent of the
parking areas for the Building and Project (including whether such areas
shall be surface, underground and/or other structures) as long as Tenant is
provided the number of parking privileges designated in Subparagraph 1.20. In
addition, Landlord may, in its sole discretion, assign any unreserved and
unassigned parking privileges, and/or make all or a portion of such
privileges reserved.
34.2 PARKING CHARGES; LOSS OF PRIVILEGE. Except for during the
Initial Term of the Lease, each of Tenant's parking privileges set forth in
Subparagraph 1.20 hereof shall be subject to a monthly parking fee as may be
established and adjusted by Landlord from time to time. In addition to such
parking privileges for use by Tenant's employees, Landlord shall permit
access to the parking areas for Tenant's visitors, subject to availability of
spaces and payment (by validation charges or otherwise) of daily visitor
parking charges therefor as may be established and adjusted by Landlord from
time to time. If, at any time during the Term hereof, Tenant fails or elects
not to pay any parking fee so established by Landlord for the full number of
parking privileges set forth in Subparagraph 1.20, Landlord may, at any time
thereafter, upon ten (10) days' written notice to Tenant, terminate Tenant's
right to use any or all privileges for which Tenant has failed or chosen not
to pay. Eight (8) of the total parking privileges per Subparagraph 1.20 shall
be reserved and designated in front of Premises for visitor parking, free for
the Initial Term of the Lease (see Exhibit "A").
34.3 PARKING RIGHTS. The use of the parking areas shall be subject
to the Parking Rules and Regulations attached hereto as Exhibit "H" and any
other reasonable, non-discriminatory rules and regulations adopted by
Landlord and/or Landlord's parking operators from time to time, including any
system for controlled ingress and egress and charging visitors and invitees,
with appropriate provision for validation of such charges. Tenant shall not
use more parking privileges than its allotment and shall not use any parking
spaces specifically assigned by Landlord to other tenants of the Building or
Project or for such other uses as visitor parking. Tenant's parking
privileges shall be used only for parking by vehicles no larger than normally
sized passenger automobiles or pick-up trucks. Tenant shall not permit or
allow any vehicles that belong to or are controlled by Tenant or Tenant's
employees, suppliers, shippers,
13
<PAGE>
customers or invitees to be loaded, unloaded, or parked in areas other than
those designated by Landlord for such activities. If Tenant permits or allows
any of the prohibited activities described herein, then Landlord shall have
the right, without notice, in addition to such other rights and remedies that
it may have, to remove or tow away the vehicle involved and charge the cost
thereof to Tenant, which cost shall be immediately payable by Tenant upon
demand by Landlord.
35. LIMITATION ON LANDLORD'S LIABILITY. Notwithstanding anything contained
in this Lease to the contrary, the obligations of Landlord under this Lease
(including any actual or alleged breach or default by Landlord) do not
constitute personal obligations of the individual partners, directors,
officers or shareholders of Landlord or Landlord's partners, and Tenant shall
not seek recourse against the individual partners, directors, officers or
shareholders of Landlord or Landlord's partners, or any of their personal
assets for satisfaction of any liability with respect to this Lease. In
addition, in consideration of the benefits accruing hereunder to Tenant and
notwithstanding anything contained in this Lease to the contrary, Tenant
hereby covenants and agrees for itself and all of its successors and assigns
that the liability of Landlord for its obligations under this Lease
(including any liability as a result of any actual or alleged failure, breach
or default hereunder by Landlord), shall be limited solely to, and Tenant's
and its successors' and assigns' sole and exclusive remedy shall be against,
Landlord's interest in the Site and proceeds therefrom, and no other assets
of Landlord.
36. HAZARDOUS MATERIALS.
36.1 TENANT'S COVENANTS. In addition to its other obligations under
this Lease (including Paragraph 8 hereof), Tenant covenants to comply with
all laws relating to Hazardous Materials with respect to the Premises, the
Building and the Site. Except for general office supplies typically used in an
office area in the ordinary course of business (such as copier toner, liquid
paper, glue, ink, and cleaning solvents), for use in the manner for which
they were designed and only in accordance with all Hazardous Materials laws
and the highest standards prevailing in the industry for such use, and then
only in such amounts as may be normal for the office business operations
conducted by Tenant on the Premises, neither Tenant nor any Tenant Parties
(as defined in Subparagraph 19.1) shall use, handle, store or dispose of any
Hazardous Materials in, on, under or about the Premises, the Building or the
Site. Tenant shall promptly take all actions, at its sole cost and expense,
as are necessary to return the Premises, Building, Site and Project to the
condition existing prior to the introduction of any such Hazardous Materials
by Tenant or any Tenant Parties, provided Landlord's approval of such actions
shall first be obtained. Furthermore, Tenant shall immediately notify
Landlord of any inquiry, test, investigation or enforcement proceeding by or
against Tenant or the Premises concerning the presence of any Hazardous
Material.
36.2 TENANT'S INDEMNITY. Tenant shall be solely responsible for and
shall indemnify, defend (with counsel reasonably approved by Landlord) and
hold Landlord harmless from and against any and all claims, judgments, suits,
causes of action, damages, penalties, fines, liabilities, losses and expenses
(including, without limitation, investigation and clean-up costs, attorneys'
fees, consultant fees and court costs) which arise during or after the Term
of this Lease as a result of the breach of any of the obligations and
covenants set forth in Subparagraph 36.1 above, and/or any contamination of
the Premises, Building, Site or Project directly or indirectly arising from
the activities of Tenant or any Tenant Parties.
36.3 DEFINITION OF HAZARDOUS MATERIALS. For purposes of this Lease,
the term "Hazardous Materials" shall mean, collectively, asbestos, any
petroleum fuel, and any hazardous or toxic substance, material or waste which
is or becomes regulated by any local governmental authority, the state of
California or the United States Government, including, but not limited to,
any material or substance defined as a "hazardous waste," "extremely
hazardous waste," "restricted hazardous waste," "hazardous substance,"
"hazardous material" or "toxic pollutant" under the California Health and
Safety Code and/or under the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. 9601, et seq.
36.4 SURVIVAL. The foregoing covenants and indemnities of Tenant
shall survive the expiration or earlier termination of the Lease.
37. MISCELLANEOUS.
37.1 GOVERNING LAW. This Lease shall be governed by, and construed
pursuant to, the laws of the state in which the Building is located.
37.2 SUCCESSORS AND ASSIGNS. Subject to the provisions of Paragraph
32 above, and except as otherwise provided in this Lease, all of the
covenants, conditions and provisions of this Lease shall be binding upon, and
shall inure to the benefit of, the parties hereto and their respective heirs,
personal representatives and permitted successors and assigns; provided,
however, no rights shall inure to the benefit of any Transferee of Tenant
unless the Transfer to such Transferee is made in compliance with the
provisions of Paragraph 16, and no options or other rights which are
expressly made personal to the original Tenant hereunder or in any rider
attached hereto shall be assignable to or exercisable by anyone other than
the original Tenant under this Lease.
37.3 NO MERGER. The voluntary or other surrender of this Lease by
Tenant or a mutual termination thereof shall not work as a merger and shall,
at the option of Landlord, either (a) terminate all or any existing
subleases, or (b) operate as an assignment to Landlord of Tenant's interest
under any or all such subleases.
37.4 PROFESSIONAL FEES. If either Landlord or Tenant should bring
suit against the other with respect to this Lease, including for unlawful
detainer or any other relief against the other hereunder, then all costs and
expenses incurred by the prevailing party therein (including, without
limitation, its actual appraisers', accountants', attorneys' and other
professional fees and court costs), shall be paid by the other party.
37.5 WAIVER. The waiver by either party of any breach by the other
party of any term, covenant or condition herein contained shall not be deemed
to be a waiver of any subsequent breach of the same or any other term,
covenant and condition herein contained, nor shall any custom or practice
which may become established between the parties in the administration of the
terms hereof be deemed a waiver of, or in any way affect, the right of any
party to insist upon the performance by the other in strict accordance with
said terms. No waiver of any default of either party hereunder shall be
implied from any acceptance by Landlord or delivery by Tenant (as the case
may be) of any rent or other payments due hereunder or any omission by the
non-defaulting party to take any action on account of such default if such
default persists or is repeated, and no express waiver shall affect defaults
other than as specified in said waiver. The subsequent acceptance of rent
hereunder by Landlord shall not be deemed to be a waiver of any
preceding breach by Tenant of any term, covenant or condition of this Lease
other than the failure of Tenant to pay the particular rent so accepted,
regardless of Landlord's knowledge of such preceding breach at the time of
acceptance of such rent.
37.6 JOINT AND SEVERAL LIABILITY. If more than one person or entity
executes this Lease as Tenant: (a) each of them is and shall be jointly and
severally liable for the covenants, conditions, provisions and agreements of
this Lease to be kept, observed and performed by Tenant; and (b) the act or
signature of, or notice from or to, any one or more of them with respect to
this Lease shall be binding upon each and all of the persons and entities
executing this Lease as Tenant with the same force and effect as if each and
all of them had so acted or signed, or given or received such notice.
37.7 TERMS AND HEADINGS. The words "Landlord" and "Tenant" as used
herein shall include the plural as well as the singular. Words used in any
gender include other genders. The paragraph headings of this Lease are not a
part of this Lease and shall have no effect upon the construction or
interpretation of any part hereof.
37.8 TIME. Time is of the essence with respect to performance of
every provision of this Lease in which time or performance is a factor. All
references in this Lease to "days" shall mean calendar days unless
specifically modified herein to be "business" days.
37.9 PRIOR AGREEMENTS; AMENDMENTS. This Lease (and the Exhibits and
Riders attached hereto) contain all of the covenants, provisions, agreements,
conditions and understandings between Landlord and Tenant concerning the
Premises and any other matter covered or mentioned in this Lease, and no
prior agreement or understanding, oral or written, express or implied,
pertaining to the Premises or any such other matter shall be effective for
any purpose. No provision of this Lease may be amended or added to except by
an agreement in writing signed by the parties hereto or their respective
successors in interest. The parties acknowledge that all prior agreements,
representations and negotiations are deemed superseded by the execution of
this Lease to the extent they are not expressly incorporated herein.
14
<PAGE>
37.10 SEPARABILITY. The invalidity or unenforceability of any
provision of this Lease (except for Tenant's obligation to pay Annual Basic
Rent and Excess Expenses under Paragraphs 5 and 6 hereof) shall in no way
affect, impair or invalidate any other provision hereof, and such other
provisions shall remain and in full force and effect to the fullest extent
permitted by law.
37.11 RECORDING. Neither Landlord nor Tenant shall record this
Lease. In addition, neither party shall record a short form memorandum of
this Lease without the prior written consent (and signature on the
memorandum) of the other, and provided that prior to recordation Tenant
executes and delivers to Landlord, in recordable form, a properly
acknowledged quitclaim deed or other instrument extinguishing all of the
Tenant's rights and interest in and to the Site, Building and Premises, and
designating Landlord as the transferee, which deed or other instrument shall
be held by Landlord and may be recorded by Landlord once the Lease terminates
or expires (but not prior thereto). If such short form memorandum is recorded
in accordance with the foregoing, the party requesting the recording shall
pay for all costs of or related to such recording, including, but not limited
to, recording charges and documentary transfer taxes.
37.12 EXHIBITS AND RIDERS. All Exhibits and Riders attached to this
Lease are hereby incorporated in this Lease as though set forth at length
herein.
37.13 SIGNS AND AUCTIONS. Except for Tenant's identity sign on the
entry doors of the Premises and Tenant's elevator lobby identity sign on any
full floor of the Building leased by Tenant (which signs shall be consistent
with the Building's signage program and otherwise subject to Landlord's prior
written approval), Tenant shall have no right to place any sign upon the
Premises, the Building, Site or Project or which can be seen from outside the
Premises. In addition, Tenant shall have no right to conduct any auction in,
on or about the Premises, the Building or Site.
37.14 ACCORD AND SATISFACTION. No payment by Tenant or receipt by
Landlord of a lesser amount than the rent payment herein stipulated shall be
deemed to be other than on account of the rent, nor shall any endorsement or
statement on any check or any letter accompanying any check or payment as
rent be deemed an accord and satisfaction, and Landlord may accept such check
or payment without prejudice to Landlord's right to recover the balance of
such rent or pursue any other remedy provided in this Lease. Tenant agrees
that each of the foregoing covenants and agreements shall be applicable to
any covenant or agreement either expressly contained in this Lease or imposed
by any statute or at common law.
37.15 FINANCIAL STATEMENTS. Upon ten (10) days prior written request
from Landlord (which Landlord may make at any time during the Term but no
more often that two (2) times in any calendar year), Tenant shall deliver to
Landlord (a) a current financial statement of Tenant and any guarantor of
this Lease, and (b) financial statements of Tenant and such guarantor for the
two (2) years prior to the current financial statement year. Such statements
shall be prepared in accordance with generally acceptable accounting
principles and certified as true in all material respects by Tenant (if
Tenant is an individual) or by an authorized officer or general partner of
Tenant (if Tenant is a corporation or partnership, respectively).
37.16 TENANT'S AUTHORITY. If Tenant executes this Lease as a
partnership or corporation, then Tenant and the persons and/or entities
executing this Lease on behalf of Tenant represent and warrant that: (a)
Tenant is a duly authorized and existing partnership or corporation, as the
case may be, and is qualified to do business in the state in which the
Building is located; (b) such persons and/or entities executing this Lease
are duly authorized to execute and deliver this Lease on Tenant's behalf in
accordance with the Tenant's partnership agreement (if Tenant is a
partnership), or a duly adopted resolution of Tenant's board of directors and
the Tenant's by-laws (if Tenant is a corporation); and (c) this Lease is
binding upon Tenant in accordance with its terms.
37.17 LANDLORD'S LIEN WAIVER. If Tenant desires to purchase subject
to a security interest, lease or obtain a loan secured by Tenant's personal
property in the Premises and requests that Landlord execute a lien waiver in
connection therewith waiving Landlord's lien rights to such personal
property, Landlord agrees to execute such lien waiver on Landlord's standard
form, provided that Tenant delivers such request in writing to Landlord
together with a non-refundable processing fee in the amount of $300.00.
Notwithstanding the foregoing, however, if Landlord incurs processing costs
(including attorneys' fees) in connection with such request which exceed
$300.00, then Tenant shall reimburse such excess costs to Landlord within
three (3) business days following Tenant's receipt of invoice(s) therefor.
Nothing in this Subparagraph 37.17 shall permit Tenant to encumber its
leasehold interest in the Premises.
37.18 GUARANTY. This Lease is subject to and conditional upon
Tenant's delivery to Landlord, concurrently with Tenant's execution and
delivery of this Lease, of a Guaranty in the form of and upon the terms
contained in Exhibit "I" attached hereto and incorporated herein by this
reference, which shall be fully executed by the Guarantor(s) specified in
Subparagraph 1.21.
IN WITNESS WHEREOF, the parties have executed this Lease as of the
day and year first above written.
"TENANT" California Commercial Bankshares, a California Corporation
------------------------------------------------
By: /s/ W. H. Jacoby
---------------------------------------------
Its: President
-------------------------------------------
By:
---------------------------------------------
Its:
-------------------------------------------
"LANDLORD" PACIFIC MUTUAL LIFE INSURANCE COMPANY, a California corporation
By:
---------------------------------------------
Its:
-------------------------------------------
By:
---------------------------------------------
Its:
-------------------------------------------
15
<PAGE>
EXHIBIT "A"
SITE PLAN
[GRAPHIC]
CITY CENTRE
Fountain Valley
California
A-1
<PAGE>
EXHIBIT "B"
FLOOR PLAN
[GRAPHIC]
CITY CENTER
Fountain Valley California
Ground Floor
Building 17330
B-1
<PAGE>
EXHIBIT "C"
RENTABLE SQUARE FEET AND USABLE SQUARE FEET
1. The term "Rentable Square Feet" as used in the Lease shall be deemed
to include with respect to the Premises: (a) the total rentable area of the
Premises determined in accordance with the Method for Measuring Floor Area in
Office Buildings, ANSI Z65.1-1980 (the "BOMA Standard"), including (i) for
single tenancy floors, all the area covered by the elevator lobbies,
corridors, restrooms, elevator rooms, mechanical rooms, electrical rooms,
telephone closets and janitorial closets on such floors, or (ii) for multiple
tenancy floors, a pro-rata portion of all the area covered by the elevator
lobbies, corridors, restrooms, elevator rooms, mechanical rooms, electrical
rooms, telephone closets and janitorial closets on such floor; plus (b) a pro
rata portion of (i) the lobby area on the ground floor of the Building and
the conference room on the first floor of the Building and (ii) the area of
the emergency equipment, fire pump equipment, electrical switching gear,
elevator rooms, mechanical rooms, electrical rooms, janitorial closets,
telephone equipment and mail delivery facilities serving the Building which
are not located on any tenant floor. The term "Rentable Square Feet" with
respect to the Building shall mean the total rentable area for all floors in
the Building computed in accordance with the provisions of Subparagraph 1(a)
above, including the entire lobby and other areas described in Subparagraph
1(b) above. The term "Rentable Square Feet" with respect to the Project shall
mean the total rentable area for all floors in the Building and the other
buildings in the Project, computed in accordance with the provisions of
Subparagraph 1(a) above, including the entire lobby and other areas within
such buildings as described in Subparagraph 1(b) above.
2. The term "Usable Square Feet" as used in Exhibit "D" with respect to
the Premises shall be deemed to include the total usable area of the Premises
as determined in accordance with the BOMA Standard.
3. For purposes of establishing the initial Tenant's Proportionate
Share, Landlord's Contribution to Operating Expenses, Annual Basic Rent and
Monthly Basic Rent as shown in Paragraph 1 of the Lease, the number of
Rentable Square Feet of the Premises is deemed to be as set forth in
Subparagraph 1.7 of the Lease, the number of Rentable Square Feet of the
Building is deemed to be as set forth in Subparagraph 1.6 of the Lease, and
the number of Rentable Square Feet of the Project is deemed to be as set forth
in Subparagraph 1.22 of the Lease. For purposes of establishing the amount of
the Allowance in Exhibit "D" (if any), the number of Usable Square Feet of
the Premises is deemed to be 4,919 square feet.
C-1
<PAGE>
EXHIBIT "D"
WORK LETTER AGREEMENT
This Work Letter Agreement supplements the Office Lease (the "Lease"),
dated and executed concurrently herewith, by and between Landlord and Tenant,
covering certain premises described in the Lease (the "Premises"). All terms
not defined herein shall have the same meaning as set forth in the Lease.
1. CONSTRUCTION OF BUILDING SHELL.
1.1 BUILDING SHELL. Landlord has constructed, through its
contractor, a parking facility and building shell, including the following as
part of the Building shell: (a) rough concrete floor; (b) finished ceilings
on tenant space; (c) finished core area, including elevators and elevator
lobbies, toilet rooms, electrical rooms, telephone rooms, janitorial closets,
exit stairs and mechanical shaft; (d) primary heating, ventilating and air
conditioning service to the edge of the building core (not including main
loops and branch distribution, controls, and mixing boxes); (e) primary
sprinkler service to the edge of the building core (not including main loops
and branch distribution); (f) mail electrical panels on each floor (but not
including distribution); and (g) life safety systems as required by code for
a building shell. Landlord shall furnish and install within the Premises
those items of general construction (including any distribution to the
Premises of any of the foregoing services) shown on the plans and
specifications finally approved by Landlord and Tenant pursuant to Paragraph
2 below (the "Leasehold Improvements") in compliance with all applicable
codes and regulations. All Building shell work and Leasehold Improvements
shall be constructed pursuant to this Work Letter Agreement and shall be
performed only by Landlord's contractor.
1.2 CONSTRUCTION REPRESENTATIVES. Landlord hereby appoints the
following person(s) as Landlord's representative ("Landlord's
Representative") to act for Landlord in all matters covered by this Exhibit
"D": Sandra Baker-PM Realty Advisors. Tenant hereby appoints the following
person as Tenant's representative ("Tenant's Representative") to act for
Tenant in all matters covered by this Exhibit "D" William Jacoby. All
communications with respect to the matters covered by this Exhibit "D" shall
be made to Landlord's Representative or Tenant's Representative, as the case
may be. Either party may change its representative under this Exhibit "D" at
any time by written notice to the other party.
2. CONSTRUCTION PLANS FOR PREMISES. All plans and drawings required by
this Paragraph 2 shall be prepared in accordance with the schedule provided
in Paragraph 7 below.
2.1 PREPARATION OF SPACE PLANS. Tenant shall select an architect,
reasonably approved by Landlord, or shall select Landlord's architect, to
prepare preliminary space plans for the Premises. The architect so selected
by Tenant shall be referred to herein as the "Architect". The Architect, in
consultation with Landlord's engineers, shall prepare detailed space plans
sufficient to convey the architectural design of the Premises and layout of
the Leasehold Improvements therein ("Space Plans"). The Space Plans shall be
submitted to Landlord for Landlord's reasonable approval. If Landlord shall
disapprove of any portion of the Space Plans, Landlord shall advise Tenant in
writing of such disapproval and the reasons therefor. Tenant shall then submit
to Landlord for Landlord's reasonable approval, a redesign of the Space
Plans, incorporating those revisions required by Landlord.
2.2 PREPARATION OF FINAL PLANS. Based on the approved Space Plans,
Tenant shall cause the Architect, in consultation with Landlord's engineers,
to prepare complete architectural plans, drawings and specifications and
complete engineering, mechanical, structural and electrical working drawings
for all of the Leasehold Improvements for the Premises (collectively, the
"Final Plans"), showing: (a) the subdivision (including partitions and
walls), layout, lighting, finish and decoration work (including carpeting and
other floor coverings) desired by Tenant for the Premises; (b) all internal
and external communications and utility facilities which will require
conduiting or other improvements from the Building shell and/or within common
areas; and (c) all other specifications for the Leasehold Improvements. The
Final Plans shall be approved in the same manner as provided in Paragraph 2.1
above for approval of Space Plans.
2.3 REQUIREMENTS OF TENANT'S FINAL PLANS. Tenant's Final Plan shall
include locations and complete dimensions, and shall: (a) be compatible with
the Building shell and with the design, construction and equipment of the
Building; (b) be compatible with and at least equal quality as the standards
set forth in Schedule 1 to this Exhibit "D" (the "Standards"); and (c) comply
with all applicable laws and ordinances, and the rules and regulations of all
governmental authorities having jurisdiction, and all applicable insurance
regulations.
2.4 CHANGES TO SHELL OF BUILDING. If the Final Plans or any
amendment thereof or supplement thereto shall require changes in the Building
shell, the increased cost of the Building shell work caused by such changes
shall be charged against the Allowance.
3. ALLOWANCE FOR LEASEHOLD IMPROVEMENTS.
3.1 ALLOWANCE. Tenant shall receive from Landlord an allowance (the
"Allowance") of up to, but not exceeding, $33,204.00 (i.e., $6.00 per
rentable square foot within the Premises, subject to adjustment as set forth
in Exhibit "C"), which Allowance shall be used solely to contribute toward
payment of the Work Cost (as defined below) of the Leasehold Improvements.*
All items of Leasehold Improvements, whether or not the cost thereof is
covered by the Allowance, shall become the property of Landlord upon
expiration or earlier termination of the Lease and shall remain on the
Premises at all times during the Term of this Lease, except as otherwise
provided in Subparagraph 14.2 of the Lease. If the Work Cost exceeds the
Allowance, Tenant shall pay to Landlord such excess within five (5) business
days after invoice therefor (less any sums previously paid by Tenant for such
excess pursuant to the Work Cost estimate, as described in Paragraph 3.2
below). If the Allowance exceeds the Work Cost, Tenant shall not be entitled
to any payment, rent reduction or credit therefor. *Tenant may at Tenant's
sole discretion allocate all or a portion of said "Allowance" to the cost of
building-Top signage installation (See Rider No. 5).
3.2 WORK COST ESTIMATE AND STATEMENT. Prior to the commencement of
any of the Leasehold Improvements shown on the Final Plans, Landlord shall
submit to Tenant a written estimate of Work Cost of the Leasehold
Improvements, which written estimate shall be based on the Final Plans.
Tenant shall either approve the estimate or disapprove specific items and
submit to Landlord revisions of Final Plans to reflect the deletion of and/or
substitution for such disapproved items. Submission and approval of the Work
Cost estimate shall proceed in accordance with the schedule provided in
Paragraph 7 below. Upon Tenant's approval of said estimate, such approved
estimate to be hereinafter known as the "Work Cost Statement", Landlord shall
have the right to purchase materials and to commence the construction of the
items included in said Work Cost Statement pursuant to Paragraph 4 hereof. In
the event the total costs reflected in the Work Cost Statement exceed the
Allowance, Tenant shall pay such excess, as additional rent, within five (5)
business days after Tenant's approval of the estimate. Any differences
between the estimated Work Cost in the Work Cost Statement and the actual
Work Cost shall be determined by Landlord and appropriate adjustments and
payments by Landlord or Tenant, as the case may be, shall be made within five
(5) business days thereafter.
3.3 NO OBLIGATION OF LANDLORD. Until Tenant approves the estimate,
Landlord shall be under no obligation to perform the installation of any of
the Leasehold Improvements.
4. CONSTRUCTION OF LEASEHOLD IMPROVEMENTS. Following Tenant's approval
of the estimate described in Subparagraph 3.2 above and upon Tenant's payment
of the total amount by which such estimate exceeds the Allowance, if any,
Landlord's contractor shall commence and diligently proceed with the
construction of the Leasehold Improvements, subject to Tenant Delays (as
described in Paragraph 9) and any other delays beyond the reasonable control
of Landlord or its contractor (including, without limitation, any fire,
earthquake, inclement weather or other acts of God, shortages in material or
labor,
D-1
<PAGE>
strikes and delays in obtaining governmental permits and approvals). Promptly
upon the commencement of the Leasehold Improvements work, Landlord shall
furnish Tenant with a construction schedule setting forth the projected
completion dates therefor and showing the deadlines for any actions required
to be taken by Tenant during such construction, and Landlord may from time to
time during construction of the Leasehold Improvements modify or amend such
schedule. Landlord shall make a reasonable effort to meet such schedule, as
the same may be modified or amended; provided, however, Landlord shall have
no liability to Tenant for damages or losses, and Tenant shall have no right
to terminate or cancel this Lease, as a result of any failure or delay in
meeting such schedule or substantially completing the Leasehold Improvements.
Any approved changes to the Final Plans shall initiate a new written estimate
of Work Cost which shall be approved by Tenant pursuant to the provisions of
Paragraph 3.2 above.
5. WORK COST. "Work Cost" means: (a) all design and engineering fees
incurred in connection with the preparation of the Space Plans and Final Plans
(including the cost of Landlord's consulting engineers and other consultants);
(b) costs of permits, fees and taxes; (c) testing and inspecting costs; (d)
the actual costs and charges for material and labor, contractor's profit and
contractor's general overhead incurred by Landlord in having the Leasehold
Improvements done; (e) all other costs expended or to be expended by Landlord
in the construction of the Leasehold Improvements, including those costs
incurred by Landlord for construction of elements of the Leasehold Improvements
in the Premises, which construction was performed by Landlord prior to the
execution of the Lease (i.e., during or after the construction of the Building
shell) and which construction is for the benefit of tenants and is customarily
performed by Landlord prior to the execution of leases for such space in the
Building for reasons of economics (examples of such construction would include
the extension of mechanical (including heating, ventilating and air
conditioning systems) and electrical distribution systems outside of the core
of the Building, well construction, column enclosures and painting outside of
the core of the Building, ceiling hanger wires and window treatment); and (f) a
construction management fee to Landlord in the amount of None percent (0%) of
all other Work Costs specified in Subparagraphs 5(a) through 5(e) above.
6. FREIGHT ELEVATOR. Landlord shall, consistent with its obligation to
other tenants then in occupancy in the Building, make the freight elevator
(if any) reasonably available to Tenant in connection with initial
decorating, furnishing and moving into the Premises. Tenant shall pay for any
after-hours staffing of the freight elevator.
7. SCHEDULE. Preparation and approval of Space Plans, Final Plans and
the Work Cost Statement shall proceed in accordance with the following
responsibility and timing schedule:
<TABLE>
<CAPTION>
Action Responsibility
------ --------------
<S> <C> <C>
(a) Delivery to Landlord of initial Tenant
Space Plans
(b) Delivery to Tenant of written Landlord
notice approving or disapproving
initial Space Plans
(c) Delivery to Landlord, if necessary, Tenant
of redesign of Space Plans
(d) Delivery to Tenant of written Landlord
notice of final approval of
Space Plans
(e) Delivery to Landlord of Final Plans Tenant
(f) Delivery to Tenant of written Landlord
notice approving or disapproving
the Final Plans
(g) Delivery to Landlord, if necessary, Tenant
of redesign of Final Plans
(h) Delivery to Tenant of written Landlord
notice of final approval of
the Final Plans
(i) Delivery to Tenant of Work Landlord
Cost estimate
(j) Delivery to Landlord of written Tenant
notice of final approval of
Work Cost Statement and payment of
costs in excess of Allowance
</TABLE>
8. COMMENCEMENT DATE AND SUBSTANTIAL COMPLETION.
8.1 COMMENCEMENT DATE. The Term of the Lease shall commences on the
date (the "Commencement Date") which is the earlier of:
(a) the date Tenant commences operation of its business in all
or any portion of the Premises; or
(b) the date the Leasehold Improvements have been
"substantially completed" (as defined below); provided, however, that if
substantial completion of the Leasehold Improvements is delayed as a result
of any Tenant Delays described in Paragraph 9 below, then the Commencement
Date as would otherwise have been established pursuant to this Subparagraph
8.1(b) shall be accelerated by the number of days of such Tenant Delays.
8.2 SUBSTANTIAL COMPLETION; PUNCH-LIST. For purposes of
Subparagraph 8.1(b) above, the Leasehold Improvements shall be deemed to be
"substantially completed" when Landlord's contractor certifies in writing to
Landlord and Tenant that Landlord has: (a) provided to Tenant reasonable
access to the Premises; (b) substantially performed all of the Building shell
work and Leasehold Improvements work required to be performed by Landlord
under this Work Letter Agreement, other than decoration and minor
"punch-list" type items and adjustments which do not materially interfere
with Tenant's access to or use of the Premises; and (c) obtained a temporary
certificate of occupancy or other required, equivalent approval from the
local governmental authority permitting occupancy of the Premises. Within ten
(10) days after receipt of such certificate from Landlord's contractor,
Tenant shall conduct a walk-through inspection of the Premises with Landlord
and provide to Landlord a written punch-list specifying those decoration and
other punch-list items which require completion, which items Landlord shall
thereafter diligently complete.
D-2
<PAGE>
9. TENANT DELAYS. For purposes of this Work Letter Agreement, "Tenant
Delays" shall mean any delay in substantial completion of the Leasehold
Improvements resulting from any or all of the following:
(a) Tenant's failure to timely perform any of its obligations
pursuant to this Work Letter Agreement, including any failure to complete on
or before the due date therefor any action item which is Tenant's
responsibility pursuant to Paragraph 7 or any schedule delivered by Landlord
to Tenant pursuant to this Work Letter Agreement;
(b) Tenant's changes to Space Plans or Final Plans after
Landlord's approval thereof;
(c) Tenant's request for materials, finishes, or installations
other than the Standards set forth on Schedule "1";
(d) any delay of Tenant in making payment to Landlord for Tenant's
share of Work Cost; or
(e) any other act or failure to act by Tenant, Tenant's employees,
agents, architects, independent contractors, consultants and/or any other
person performing or required to perform services on behalf of Tenant.
TENANT: California Commercial Bankshares
-------------------------------------------------------------,
a California Corporation
------------------------------------------------------------
By: W H Jacoby
---------------------------------------------------------
Its: President
----------------------------------------------------
By:
---------------------------------------------------------
Its:
----------------------------------------------------
LANDLORD: PACIFIC MUTUAL LIFE INSURANCE COMPANY, a California corporation
By:
---------------------------------------------------------
Its:
----------------------------------------------------
By:
---------------------------------------------------------
Its:
----------------------------------------------------
D-3
<PAGE>
SCHEDULE "1" TO EXHIBIT "D"
BUILDING STANDARD IMPROVEMENTS
CITY CENTRE
FOUNTAIN VALLEY, CALIFORNIA
"BUILDING STANDARDS"
- -------------------------------------------------------------------------------
The following is a description of the building standard tenant finishes:
PARTITIONS/WALL FINISH - 5/8 inch, one hour-rated drywall/paint
CEILING - Armstrong, "Second Look", 2' X 4' ceiling tiles
CEILING HEIGHT - Nine feet (9')
LIGHTING - 2' X 4' fluorescent, reflectorized fixtures. Reduced from four
(4) tubes to two (2) tubes to save energy costs.
LIGHT SWITCHES - Hubble single pole.
DOORS - Typically 3' X 8'10", solid core door with red oak skin and Watco
oil finish.
DOOR HARDWARE - Schlage passage set with brushed aluminum finish in
common corridors. Hardware varies in tenant suites.
ELECTRICAL SYSTEM - Fluorescent lighting requirements at 277 Volts and
one watt per square foot for receptacles at 120 Volts
mounted vertically, at 12" AFF to center outlet.
ELEVATORS - Each building has two Montgomery hydraulic passenger
elevators.
FLOORING - CARPET: Design Waeve Tempest II, 30-ounce carpet over 5/16"
Nova padding.
BASE: Burke rubber base
HVAC SYSTEM - Variable air volume with fan units on each floor. The
central plan for making chilled water is located on the
ground floor of the parking structure with two (2) cooling
towers above. Three chillers service the entire project: two
(2) "Carrier" centrifugal chillers, each of 400-ton capacity
and one (1) of 250-ton capacity. The 250-ton chiller is
capable of serving the entire project during a large
percentage of the year; therefor, the three (3) chillers
represent a triple back-up system.
WINDOW COVERINGS - Bali mini-blinds in brushed aluminum is the building
standard.
WINDOW MULLION DISTANCE - Five Feet
D-4
<PAGE>
EXHIBIT "E"
SAMPLE FORM OF NOTICE OF LEASE TERM DATES
To:_________________________________ Date:_______________________________
Re: Office Lease dated ___________, 19__ between PACIFIC MUTUAL LIFE INSURANCE
COMPANY, Landlord, and _________________ Tenant, concerning Suite ____________
("Premises") located at _________________ Brookhurst Street, Fountain Valley,
California.
Gentlemen:
In accordance with the above-referenced Lease, we wish to advise
and/or confirm as follows:
1. That the Premises have been accepted by Tenant as being
substantially complete in accordance with the Lease, and that there is no
deficiency in construction.
2. That Tenant has accepted and is in possession of the Premises, and
acknowledges that under the provisions of the Lease, the Term of the Lease is
for _______ years, with __ options to renew for __ years each, and commenced
upon the Commencement Date of ________________, 19__ and is currently
scheduled to expire on _____________, subject to earlier termination as
provided in the Lease.
3. That in accordance with the Lease, rental payment has commenced (or
shall commence) on _______________________.
4. If the Commencement Date of the Lease is other than the first day
of the month, the first billing will contain a pro rata adjustment. Each
billing thereafter, with the exception of the final billing, shall be for the
full amount of the monthly installment as provided for in the Lease.
5. Rent is due and payable in advance on the first day of each and
every month during the Term of the Lease. Your rent checks should be made
payable to ___________________________ at ______________________________.
6. The exact number of Rentable Square Feet within the Premises is _____
square feet. The exact number of Usable Square Feet within the Premises is
_____ square feet.
7. Tenant's Proportionate Share as adjusted based upon the exact
number of Rentable Square Feet within the Premises, consists of two (2)
separate percenages: (a) _____%, which is Tenant's Proportionate Share of the
Building; and (b) _____%, which is Tenant's Proportionate Share of the
Project.
ACCEPTED AND AGREED
TENANT: LANDLORD:
____________________________________ PACIFIC MUTUAL LIFE INSURANCE COMPANY,
a California corporation
By: ________________________________ By: ___________________________________
Print Name: ________________________ Print Name: ___________________________
Its: ____________________________ Its: _______________________________
By: ________________________________ By: ___________________________________
Print Name: ________________________ Print Name: ___________________________
Its: ____________________________ Its: _______________________________
SAMPLE ONLY (NOT FOR EXECUTION)
E-1
<PAGE>
EXHIBIT "F"
RULES AND REGULATIONS
1. No sign, advertisement, name or notice shall be installed or
displayed on any part of the outside or inside of the Building without the
prior written consent of Landlord. Landlord shall have the right to remove,
at Tenant's expense and without notice, any sign installed or displayed in
violation of this rule. All approved signs or lettering on doors and walls
shall be printed, painted, affixed or inscribed at the expense of Tenant by a
person approved by Landlord, using materials and in a style and format
approved by Landlord.
2. Tenant shall not place anything or allow anything to be placed near
the glass of any window, door, partition or wall which may appear unsightly
from outside the Premises. No awnings or other projection shall be attached
to the outside walls of the Building without the prior written consent of
Landlord. No curtains, blinds, shades or screens shall be attached to or hung
in, or used in connection with, any window or door of the Premises, other
than Building standard materials, without the prior written consent of
Landlord.
3. Tenant shall not obstruct any sidewalks, halls, passages, exits,
entrances, elevators, escalators or stairways of the Building. The halls,
passages, exits, entrances, elevators, escalators and stairways are not for
the general public, and Landlord shall in all cases retain the right to
control and prevent access thereto of all persons whose presence in the
judgment of Landlord would be prejudicial to the safety, character,
reputation and interests of the Building and its tenants; provided, that
nothing herein contained shall be construed to prevent such access to persons
with whom any tenant normally deals in the ordinary course of its business,
unless such persons are engaged in illegal activities. Tenant and no
employee, invitee, agent, licensee or contractor of Tenant shall go upon or
be entitled to use any portion of the roof of the Building.
4. The directory of the Building and the directory located in the
courtyard area of the Project will be provided exclusively for the display of
the name and location of tenants only, and Landlord reserves the right to
exclude any other names therefrom. Tenant shall be entitled to one (1) line
on the Building lobby directory and one (1) line on the courtyard directory
to identify Tenant.
5. All cleaning and janitorial services for the Building and the
Premises shall be provided exclusively through Landlord or Landlord's
janitorial contractors in accordance with the provisions of Subparagraph
18.1(d) of the Lease. No person or persons other than those approved by
Landlord shall be employed by Tenant or permitted to enter the Building for
the purpose of cleaning the same. Tenant shall not cause any unnecessary
labor by carelessness or indifference to the good order and cleanliness of
the Premises. Except as expressly provided in Subparagraph 19.3 of the Lease,
Landlord shall not in any way be responsible to Tenant for loss of property
on the Premises, however occurring, or for any damage to Tenant's property by
the janitors or any other employee or any other person.
6. Landlord will furnish Tenant, free of charge, with two keys to each
door lock in the Premises. Landlord may impose a reasonable charge for any
additional keys. Tenant may not make or have made additional keys, and Tenant
shall not alter any lock or install a new additional lock or bolt on any door
or window of its Premises. Tenant, upon termination of its tenancy, shall
deliver to Landlord the keys of all doors which have been furnished to, or
otherwise procured by Tenant, and, in the event of loss of any keys, shall
pay Landlord the cost of replacing the same or of changing the lock or locks
opened by such lost key of Landlord shall deem it necessary to make such
change.
7. Electric wires, telephones, telegraphs, burglar alarms or other
similar apparatus shall not be installed in the Premises except with the
approval and under the direction of Landlord. The location of telephones,
call boxes and any other equipment affixed to the Premises shall be subject
to the approval of Landlord. Any installation of telephones, telegraphs,
electric wires or other electric apparatus made without permission shall be
removed by Tenant at Tenant's own expense. No machines other than standard
office machines, such as typewriters and calculators, photocopiers, personal
computers and word processors, and vending machines permitted by the Lease,
shall be used in the Premises without the approval of Landlord.
8. No furniture, freight, or equipment of any kind shall be brought into
the Building without prior notice to Landlord and all moving of the same into
or out of the Building shall be done at such time and in such manner as
Landlord shall designate. No furniture, equipment or merchandise shall be
received in the Building or carried up or down in the elevators, except
between such hours and in such elevators as shall be designated by Landlord.
9. Tenant shall not place a load upon any floor of the Premises which
exceeds the load per square foot which such floor was designed to carry and
which is allowed by law. Landlord shall have the right to prescribe the
weight, size and position of all equipment, materials, furniture or other
property brought into the Building. Heavy objects, if such objects are
considered necessary by Tenant, as determined by Landlord, shall stand on
such platforms as determined by Landlord to be necessary to properly
distribute the weight. Business machines and mechanical equipment which cause
noise or vibration that may be transmitted to the structure of the Building
or to any space therein to such a degree as to be objectionable to Landlord
or to any tenants in the Building, shall be placed and maintained by Tenant,
at Tenant's expense, on vibration eliminators or other devices sufficient to
eliminate noise or vibration. Except as expressly provided in Subparagraph
19.3 of the Lease, Landlord will not be responsible for loss of, or damage
to, any such equipment or other property from any cause, and all damage done
to the Building by maintaining or moving such equipment or other property
shall be repaired at the expense of Tenant.
10. Tenant shall not use or keep in the Premises any kerosene, gasoline
or inflammable or combustible fluid or material other than those limited
quantities necessary for the operation or maintenance of office equipment.
Tenant shall not use or permit to be used in the Premises any foul or noxious
gas or substance, or permit or allow the Premises to be occupied or used in a
manner offensive or objectionable to Landlord or other occupants of the
Project by reason of noise, odors or vibrations, nor shall Tenant bring into
or keep in or about the Premises any birds or animals.
11. Tenant shall not use any method of heating or air-conditioning other
than that supplied by Landlord.
12. Tenant shall not waste electricity, water or air-conditioning and
agrees to cooperate fully with Landlord to assure the most effective
operation of the Building's heating and air-conditioning and to comply with
any governmental energy-saving rules, laws or regulations of which Tenant has
actual notice, and shall not adjust controls other than room thermostats
installed for Tenant's use. Tenant shall keep corridor doors closed and shall
close window coverings at the end of each business day.
13. Landlord reserves the right from time to time, in Landlord's sole
and absolute discretion, exercisable without prior notice and without
liability to Tenant, to: (a) name or change the name of the Building, Site or
Project; (b) change the address of the Building or Project, and/or (c)
install, replace or change any signs in, on or about the Common Areas, the
Building or Site (except for Tenant's signs, if any, which are expressly
permitted by the Lease).
14. Landlord reserves the right to exclude from the Building between the
hours of 6:00 p.m. and 7:00 a.m., or such other hours as may be established
from time to time by Landlord, and on legal holidays, any person unless that
person is known to the person or employee in charge of the Building and has a
pass or is properly identified. Landlord shall not be liable for damages for
any error with regard to the admission to or exclusion from the Building of
any person. Tenant shall be responsible for all persons for whom it requests
passes and shall be liable to Landlord for all acts of such persons. Landlord
reserves the right to prevent access to the Building in case of invasion, mob
riot, public excitement or other commotion by closing the doors or by other
appropriate action.
F-1
<PAGE>
15. Tenant shall close and lock all doors of its Premises and entirely
shut off all water faucets or other water apparatus, and, except with regard
to Tenant's computers and other equipment which reasonably require
electricity on a 24-hour basis, all electricity, gas or air outlets before
Tenant and its employees leave the Premises. Tenant shall be responsible for
any damage or injuries sustained by other tenants or occupants of the
Building or by Landlord for noncompliance with this rule.
16. Tenant shall not obtain for use on the Premises, food, beverage,
towel or other similar services or accept barbering or bootblacking services
upon the Premises, except at such hours and under such regulations as may be
reasonably fixed by Landlord.
17. The toilet rooms, toilets, urinals, wash bowls and other apparatus
shall not be used for any purpose other than that for which they were
constructed, and no foreign substances of any kind whatsoever shall be thrown
therein.
18. Tenant shall not sell, or permit the sale at retail, of newspapers,
magazines, periodicals, theater tickets, or any other goods or merchandise to
the general public in or on the Premises. Tenant shall not make any
room-to-room solicitation of business from other tenants in the Project.
Tenant shall not use the Premises for any business or activity other than
that specifically provided for in the Lease.
19. Tenant shall not install any radio or television antenna,
loudspeaker or other device on the roof or exterior walls of the Building.
Tenant shall not interfere with radio or television broadcasting or reception
from or in the Building or elsewhere.
20. Except as expressly permitted in the Lease, Tenant shall not mark,
drive nails, screw or drill into the partitions, window mullions, woodwork or
plaster, or in any way deface the Premises or any part thereof, except to
install normal wall hangings. Tenant shall repair any damage resulting from
noncompliance under this rule.
21. Tenant shall not install, maintain or operate upon the Premises any
vending machines without the prior written consent of Landlord, which shall
not be unreasonably withheld.
22. Canvassing, soliciting and distribution of handbills or any other
written material, and peddling in and around the Project or the Building are
expressly prohibited, and each tenant shall cooperate to prevent same.
23. Landlord reserves the right to exclude or expel from the Project
and/or the Building any person who, in Landlord's judgment, is intoxicated or
under the influence of liquor or drugs or who is in violation of any of the
Rules and Regulations of the Project or Building.
24. Tenant shall store all its trash and garbage within its Premises.
Tenant shall not place in any trash box or receptacle any material which
cannot be disposed of in the ordinary and customary manner of trash and
garbage disposal. All garbage and refuse disposal shall be made in accordance
with directions reasonably issued from time to time by Landlord.
25. The Premises shall not be used for the storage of merchandise held
for sale to the general public, or for lodging or for manufacturing of any
kind. No cooking shall be done or permitted by Tenant on the Premises, except
that use by Tenant of Underwriters' Laboratory-approved equipment for brewing
coffee, tea, hot chocolate and similar beverages shall be permitted and the
use of a microwave shall be permitted, provided that such equipment and use
is in accordance with all applicable federal, state, county and city laws,
codes, ordinances, rules and regulations.
26. Tenant shall not use in any space, or in the public halls of the
Building, any hand trucks except those equipped with rubber tires and side
guards, or such other material-handling equipment as Landlord may approve.
Tenant shall not bring any other vehicles of any kind into the Building.
27. Tenant shall not use the name of the Project or Building in
connection with, or in promoting or advertising, the business of Tenant,
except for Tenant's address.
28. Tenant agrees that it shall comply with all fire and security
regulations that may be issued from time to time by Landlord, and Tenant also
shall provide Landlord with the name of a designated responsible employee to
represent Tenant in all matters pertaining to such fire or security
regulations. Tenant shall cooperate fully with Landlord in all matters
concerning fire and other emergency procedures.
29. Tenant assumes any and all responsibility for protecting its
Premises from theft, robbery and pilferage. Such responsibility shall include
keeping doors locked and other means of entry to the Premises closed.
30. The requirements of Tenant will be attended to only upon the
appropriate application to the office of the Building by an authorized
individual. Employee of Landlord shall not perform any work or do anything
outside of their regular duties unless under special instructions from
Landlord, and no employee of Landlord will admit any person (Tenant or
otherwise) to any locked office without specific instructions from Landlord.
31. Landlord may waive any one or more of these Rules and Regulations
for the benefit of Tenant or any other tenant, but no such waiver by Landlord
shall be construed as a waiver of such Rules and Regulations in favor of
Tenant or any other such tenant, nor prevent Landlord from thereafter
enforcing any such Rules and Regulations against any and all of the tenants
in the Building.
32. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of any lease of premises in the Project
or Building.
33. Landlord reserves the right to make such other and reasonable Rules
and Regulations as, in its judgment, may from time to time be needed for
safety, security, care and cleanliness of the Project and/or Building and for
the preservation of good order therein. Tenant agrees to abide by all such
Rules and Regulations hereinabove stated and any additional rules and
regulations which are adopted.
34. Tenant shall be responsible for the observance of all of the
foregoing rules by Tenant's employees, agents, clients, customers, invitees
or guests.
35. Tenant shall not lay linoleum, tile, carpet or other similar floor
covering so that the same shall be affixed to the floor of the Premises in
any manner except by a paste, or other material which may easily be removed
with water, the use of cement or other similar adhesive materials being
expressly prohibited. The method of affixing any such linoleum, tile, carpet
or other similar floor covering shall be subject to the approval of Landlord.
the expense of repairing any damage resulting from a violation of this rule
shall be borne by Tenant.
F-2
<PAGE>
EXHIBIT "G"
SAMPLE FORM OF TENANT ESTOPPEL CERTIFICATE
The undersigned ("Tenant") hereby certifies to __________ ("Landlord"),
and __________________________________, as follows:
1. Attached hereto is a true, correct and complete copy of that certain
Office Lease dated ____________, 19____ between Landlord and Tenant (the
"Lease"), which demises Premises which are located at ___________________.
The Lease is now in full force and effect and has not been amended, modified
or supplemented, except as set forth in Paragraph 6 below.
2. The Term of the Lease commenced on ________________, 19____.
3. The Term of the Lease is currently scheduled to expire on
_______________, 19____.
4. Tenant has no option to renew or extend the Term of the Lease
except: __________________________.
5. Tenant has no preferential right to purchase the Premises or any
portion of the Building or Site upon which the Premises are located, and
Tenant has no rights or options to expand into other space in the Building
except: ___________________________.
6. The Lease has: (Initial One)
( ) not been amended, modified, supplemented, extended, renewed or
assigned.
( ) been amended, modified, supplemented, extended, renewed or
assigned by the following described agreements, copies of which are attached
hereto: ______________________.
7. Tenant has accepted and is now in possession of the Premises and has
not sublet, assigned or encumbered the Lease, the Premises or any portion
thereof except as follows: ________________________.
8. The current Monthly Basic Rent is $______________; and currently
monthly parking charges are $__________________.
9. Tenant's Proportionate Share consists of two (2) separate
percentages: (a) ______%, which is Tenant's Proportionate Share of the
Building; and (b) ______%, which is Tenant's Proportionate Share of the
Project. Tenant's Proportionate Share of Operating Expenses currently payable
by Tenant is $______________________ per month, which amount is Landlord's
current estimate of Tenant's Percentage of Operating Expenses in excess of:
(Completed One)
(1) $___________ per year for Building Operating Expenses, and
$___________ per year for Project Operating Expenses (expense
stop) or
(2) ____________ the Operating Expenses incurred in the Base Year.
10. The amount of security deposit (if any) is $______________. No other
security deposits have been made.
11. All rental payments by Tenant have been paid in full as of the date
hereof. No rent under the Lease has been paid for more than thirty (30) days
in advance of its due date.
12. All work required to be performed by Landlord under the Lease has
been completed and has been accepted by Tenant, and all tenant improvement
allowances have been paid in full.
13. To the best of Tenant's knowledge, as of the date hereof, there are
no defaults on the part of Landlord or Tenant under the Lease.
14. Tenant has no defense as to its obligations under the Lease and
claims no set-off or counterclaim against Landlord.
15. Tenant has no right to any concession (rental or otherwise) or
similar compensation in connection with renting the space it occupies, except
as expressly provided in the Lease.
16. All insurance required of Tenant under the Lease has been provided
by Tenant and all premiums have been paid.
17. There has not been filed by or against Tenant a petition in
bankruptcy, voluntary or otherwise, any assignment for the benefit of
creditors, any petition seeking reorganization or arrangement under the
bankruptcy laws of the United States or any state thereof, or any other
action brought pursuant to such bankruptcy laws with respect to Tenant.
18. Tenant pays rent due Landlord under the Lease to Landlord and does
not have any knowledge of any other person who has any right to such rents by
collateral assignment or otherwise.
The foregoing certification is made with the knowledge that ____________
______________________ is about to [fund a loan to Landlord or Purchase the
Building from Landlord], and that _____________ is relying upon the
representation herein made in [funding such loan or purchasing the Building].
Dated: ____________________, 19_____.
"TENANT" ___________________________________
By: _______________________________
Print Name: _______________________
Its: _______________________
G-1
<PAGE>
EXHIBIT "H"
PARKING RULES AND REGULATIONS
In addition to the parking provisions contained in the Lease to which
this Exhibit "H" is attached, the following rules and regulations shall apply
with respect to the use of the Building's parking facilities.
1. Every parker is required to park and lock his/her own vehicle.
Subject to Landlord's indemnity in Subparagraph 19.3 of the Lease, all
responsibility for damage to or loss of vehicles is assumed by the parker and
Landlord shall not be responsible for any such damage or loss by water, fire,
defective brakes, the act or omissions of others, theft, or for any other
cause.
2. Tenant shall not park or permit its employees to park in any parking
areas designated by Landlord as areas for parking by visitors to the Project.
Tenant shall not leave vehicles in the parking areas overnight nor park any
vehicles in the parking areas other than automobiles, motorcycles, motor
driven or non-motor driven bicycles or four wheeled trucks.
3. Parking stickers or any other device or form of identification
supplied by Landlord as a condition of use of the parking facilities shall
remain the property of Landlord. Such parking identification device must be
displayed as requested and may not be mutilated in any manner. The serial
number of the parking identification device may not be obliterated. Devices
are not transferable and any device in the possession of an unauthorized
holder will be void.
4. No overnight or extended term storage of vehicles shall be permitted.
5. Vehicles must be parked entirely within painted stall lines of a
single parking stall.
6. All directional signs and arrows must be observed.
7. The speed limit within all parking areas shall be five (5) miles per
hour.
8. Parking is prohibited:
(a) in areas not striped for parking;
(b) in aisles;
(c) where "no parking" signs are posted;
(d) on ramps;
(e) in cross-hatched areas; and
(f) in reserved spaces and in such other areas as may be designated
by Landlord or Landlord's parking operator.
9. Loss or theft of parking identification devices must be reported to
the Management Office immediately, and a lost or stolen report must be filed
by the Tenant or user of such parking identification device at the time.
Landlord has the right to exclude any vehicle from the parking facilities
that does not have an identification device.
10. Any parking identification devices reported lost or stolen found on
any unauthorized car will be confiscated and the illegal holder will be
subject to prosecution.
11. Washing, waxing, cleaning or servicing of any vehicle in any area
not specifically reserved for such purpose is prohibited.
12. The parking operators, managers or attendants are not authorized to
make or allow any exceptions to these rules and regulations.
13. Tenant's continued right to park in the parking facilities is
conditioned upon Tenant abiding by these rules and regulations and those
contained in this Lease. Further, if the Lease terminates for any reason
whatsoever, Tenant's right to park in the parking facilities shall terminate
concurrently therewith.
14. Tenant agrees to sign a parking agreement with Landlord or
Landlord's parking operator within five (5) days of request, which agreement
shall provide the manner of payment of monthly parking fees and otherwise be
consistent with the Lease and these rules and regulations.
15. Landlord reserves the right to refuse the sale or use of monthly
stickers or other parking identification devices to any tenant or person who
willfully refuses to comply with these rules and regulations and all city,
state or federal ordinances, laws or agreements.
16. Landlord reserves the right to establish and change parking fees,
except Tenant's parking privileges are free of charge during the initial term
of this Lease per Subparagraph 34.2 of the Lease, and to modify and/or adopt
such other reasonable and non-discriminatory rules and regulations for the
parking facilities as it deems necessary for the operation of the parking
facilities. Landlord may refuse to permit any person who violates these
rules to park in the parking facilities, and any violation of the rules shall
subject the vehicle to removal, at such vehicle owner's expense.
H-1
<PAGE>
FIXED RENT INCREASE RIDER
RIDER NO. 1 TO OFFICE LEASE
This Rider No. 1 is made and entered into by and between PACIFIC MUTUAL
LIFE INSURANCE COMPANY, a California corporation ("Landlord"), and California
Commercial Bankshares, a California Corporation ("Tenant"), as of the day and
year of the Lease between Landlord and Tenant to which this Rider is
attached. Landlord and Tenant hereby agree that, notwithstanding anything
contained in the Lease to the contrary, the provisions set forth below shall
be deemed to be part of the Lease and shall supersede any inconsistent
provisions of the Lease. All references in the Lease and in this Rider to the
"Lease" shall be construed to mean the Lease (and all exhibits attached
thereto), as amended and supplemented by this Rider. All capitalized terms
not defined in this Rider shall have the same meaning as set forth in the
Lease.
Subject to any adjustment of the Rentable Square Feet of the Premises
pursuant to Exhibit "C", the Annual Basic Rent and Monthly Basic Rent set
forth in Paragraph 1 of the Lease shall be increased in accordance with the
following schedule:
<TABLE>
<CAPTION>
Months During Term in Which Increase Shall be Effective Annual Base Rent Monthly Basic Rent
------------------------------------------------------- ---------------- ------------------
<S> <C> <C>
13 through months 24 $ 86,330.40 $ 7,194.20
------ ------ --------------- ----------------
(i.e., $ 15.60 Per Rentable (i.e., $ 1.30 Per
------- ------
Square Foot within the Premises per Rentable Square Foot within the
year) Premises per month)
25 through months 36 $ 89,650.80 $ 7,470.90
------ ------ --------------- ----------------
(i.e., $ 16.20 Per Rentable (i.e., $ 1.35 Per
------- ------
Square Foot within the Premises per Rentable Square Foot within the
year) Premises per month)
37 through months 48 $ 92,971.20 $ 7,747.60
------ ------ --------------- ----------------
(i.e., $ 16.80 Per Rentable (i.e., $ 1.40 Per
------- ------
Square Foot within the Premises per Rentable Square Foot within the
year) Premises per month)
49 through months 60 $ 96,291.60 $ 8,024.30
------ ------ --------------- ----------------
(i.e., $ 17.40 Per Rentable (i.e., $ 1.45 Per
------- ------
Square Food within the Premises per Rentable Square Foot within the
year) Premises per month)
61 through months 96 $ 98,947.92 $ 8,245.66
------ ------ --------------- ----------------
(i.e., $ 17.88 Per Rentable (i.e., $ 1.49 Per
------- ------
Square Foot within the Premises Rentable Square Foot within the
per year) Premises per month)
97 through months 120 $ 102,932.40 $ 8,577.70
------ ------ --------------- ----------------
(i.e., $ 18.60 Per Rentable (i.e., $ 1.55 Per
------- ------
Square Foot within the Premises Rentable Square Foot within the
per year) Premises per month)
</TABLE>
1
<PAGE>
RENTAL ABATEMENT RIDER
RIDER NO. 2 TO OFFICE LEASE
This Rider No. 2 is made and entered into by and between PACIFIC MUTUAL
LIFE INSURANCE COMPANY, a California corporation ("Landlord") and California
Commercial Bankshares, a California Corporation ("Tenant"), as of the day and
year of the Lease between Landlord and Tenant to which this Rider is
attached. Landlord and Tenant hereby agree that, notwithstanding anything
contained in the Lease to the contrary, the provisions set forth below shall
be deemed to be part of the Lease and shall supersede any inconsistent
provisions of the Lease. All references in the Lease and in this Rider to the
"Lease" shall be construed to mean the Lease (and all exhibits attached
thereto), as amended and supplemented by this Rider. All capitalized terms
not defined in this Rider shall have the same meaning as set forth in the
Lease.
1. Provided Tenant is not in default under any provisions of the Lease,
Landlord hereby agrees to abate Tenant's obligation to pay Monthly Basic Rent
for the period commencing with the second (2nd) month of the initial Term of
the Lease and continuing through and including the sixth (6th) month of the
initial Term of the Lease. During such abatement period, Tenant shall still
be responsible for all of Tenant's other monetary obligations under the
Lease, including, without limitation, all Excess Expenses and any expenses
relative to Tenant's use and occupancy of the Premises (including "after
hours" HVAC and excess electrical and water consumption costs pursuant to
Paragraph 18 of the Lease).
2. In the event of a default by Tenant under the terms of this Lease which
results in early termination pursuant to the provisions of Subparagraph 25.2
of the Lease, then as a part of the recovery permitted by Subparagraph
25.2(a) of this Lease, Landlord shall be entitled to recover the entire
amount of Monthly Basic Rent which was abated under the provisions of this
Rider. Any such amount which Landlord is entitled to recover hereinabove
shall become immediately due and payable as unpaid rent which had been earned
at the date of termination.
<PAGE>
EXTENSION OPTION RIDER
RIDER NO. 3 TO OFFICE LEASE
This Rider No. 3 is made and entered into by and between PACIFIC MUTUAL
LIFE INSURANCE COMPANY, a California corporation ("Landlord") and California
Commercial Bankshares, a California Corporation ("Tenant"), as of the day and
year of the Lease between Landlord and Tenant to which this Rider is
attached. Landlord and Tenant hereby agree that, notwithstanding anything
contained in the Lease to the contrary, the provisions set forth below shall
be deemed to be part of the Lease and shall supersede any inconsistent
provisions of the Lease. All references in the Lease and in this Rider to the
"Lease" shall be construed to mean the Lease (and all exhibits attached
thereto), as amended and supplemented by this Rider. All capitalized terms
not defined in this Rider shall have the same meaning as set forth in the
Lease.
1. Landlord hereby grants to Tenant Two (2) consecutive options
(collectively, "Extension Options" and individually, "Extension Option") to
extend the Term of the Lease for additional periods of Five (5) years each
(collectively, the "Option Terms" and individually, the "Option Term"), on
the same terms, covenants and conditions as provided for in the Lease during
the initial Ten (10) year Term, except for the Annual Basic Rent, which shall
be the "fair market rental rate" as defined and determined in accordance with
the provisions of Paragraph 3 below.
2. Each Extension Option must be exercised, if at all, by written notice
("Extension Notice") delivered by Tenant to Landlord no later than the date
which is Six (6) months and no more than nine (9) months prior to the
expiration of the then current term of the Lease. Each Extension Option
shall, at Landlord's sole option, not be deemed to be properly exercised if,
at the time such Extension Option is exercised or on the scheduled
commencement date for the Option Term, Tenant has (a) committed an uncured
event of default whose cure period has expired pursuant to Paragraph 25 of
the Lease, (b) assigned all or any portion of the Lease or its interest
therein, or (c) sublet all or any portion of the Premises. Provided Tenant
has properly and timely exercised an Extension Option, the then current term
of the Lease shall be extended by the Option term, and all terms, covenants
and conditions of the Lease shall remain unmodified and in full force and
effect, except that the Annual Basic Rent shall be as set forth above.
3. The Annual Basic Rent for the applicable Option Term shall be 100
percent (100%) of the fair market rental rate in accordance with the Fair
Market Rental Rider attached to the Lease as Rider No. 4.
4. Tenant's Extension Option is personal to the original Tenant executing
this Lease and may not be exercised or assigned, voluntarily or
involuntarily, by or to any person or entity other than the original Tenant.
<PAGE>
FAIR MARKET RENTAL RATE RIDER
RIDER NO. 4 TO OFFICE LEASE
This Rider No. 4 is made and entered into by and between PACIFIC
MUTUAL LIFE INSURANCE COMPANY, a California corporation ("Landlord"), and
California Commercial Bankshares, a California Corporation ("Tenant"), as of
the day and year of the Lease between Landlord and Tenant to which this Rider
is attached. Landlord and Tenant hereby agree that, notwithstanding anything
contained in the Lease to the contrary, the provisions set forth below shall
be deemed to be part of the Lease and shall supersede any inconsistent
provisions of the Lease. All references in the Lease and in this Rider to the
"Lease" shall be construed to mean the Lease (and all exhibits attached
thereto), as amended and supplemented by this Rider. All capitalized terms
not defined in this Rider shall have the same meaning as set forth in the
Lease.
1. The term "fair market rental rate" as used in the Lease and any Rider
attached thereto shall mean the annual amount per square foot, projected
during the relevant period, that a willing, comparable, non-equity tenant
(excluding sublease and assignment transactions) would pay, and a willing,
comparable Landlord of a comparable office building in age, size and quality
would accept, at arm's length (including what Landlord is accepting in
current transactions for the Project), for space of comparable size, quality,
and floor height as the Premises, taking into account the age, quality and
layout of the existing improvements in the Premises, and taking into account
items that professional real estate appraisers customarily consider,
including, but not limited to, rental rates, office space availability,
tenant size, tenant improvement allowances, free rent and any other lease
concessions, if any, then being charged or granted by Landlord or the lessors
of such similar office buildings.
2. In the event where a determination of fair market rental rate is
required under the Lease, Landlord shall provide written notice of Landlord's
determination of the fair market rental rate within fifteen (15) days after
receipt of Tenant's notice. Tenant shall have ten (10) days ("Tenant's Review
Period") after receipt of Landlord's notice of the fair market rental rate
within which to accept such fair market rental rate or to reasonably object
thereto in writing. Failure of Tenant to so object to the fair market rental
rate submitted by Landlord in writing within Tenant's Review Period shall
conclusively be deemed Tenant's approval and acceptance thereof. In the event
Tenant reasonably objects to the fair market rental rate submitted by
Landlord within Tenant's Review Period, Landlord and Tenant shall attempt in
good faith to agree upon such fair market rental rate using their best good
faith efforts. If Landlord and Tenant fail to reach agreement on such fair
market rental rate within fifteen (15) days following Tenant's Review Period
(the "Outside Agreement Date"), then each party's determination shall be
submitted to appraisal in accordance with the provisions of Paragraph 3 below.
3. (a) Landlord and Tenant shall each appoint one (1) independent appraiser
who shall by profession be an M.A.I. certified real estate appraiser who
shall have been active over the five (5) year period ending on the date of
such appointment in the leasing of commercial (including suburban office)
properties in the Orange County area. The determination of the appraisers
shall be limited solely to the issue of whether Landlord or Tenant's
submitted fair market rental rate for the Premises, is the closest to the
actual fair market rental rate for Premises, as determined by the appraisers,
taking into account the requirements specified in Paragraph 1 above. Each
such appraiser shall be appointed within fifteen (15) days after the Outside
Agreement Date.
(b) The two (2) appraisers shall within fifteen (15) days of the date of
appointment of the last appointed appraiser agree upon and appoint a third
appraiser who shall be qualified under the same criteria set forth
hereinabove for qualification of the initial two (2) appraisers.
(c) The three (3) appraisers shall within thirty (30) days of the
appointment of the third appraiser reach a decision as to whether the parties
shall use Landlord's or Tenant's submitted fair market rental rate, and shall
notify Landlord and Tenant thereof.
(d) The decision of the majority of the three (3) appraisers shall be
binding upon Landlord and Tenant. If either Landlord or Tenant fails to
appoint an appraiser within the time period specified in Subparagraph 3(a)
hereinabove, the appraiser appointed by one of them shall reach a decision
based upon the same procedures as set forth above (i.e., by selecting either
Landlord's or Tenant's submitted fair market rental rate), and shall notify
Landlord and Tenant thereof, and such appraiser's decision shall be binding
upon Landlord and Tenant.
(e) If the two (2) appraisers fail to agree upon and appoint a third
appraiser, both appraisers shall be dismissed and the matter to be decided
shall be forthwith submitted to arbitration under the provisions of the
American Arbitration Association based upon the same procedures as set forth
above (i.e., by selecting either Landlord's or Tenant's submitted fair market
rental rate).
(f) The cost of appraisal (and, if necessary, arbitration) shall be paid
by Landlord and Tenant equally.
<PAGE>
TENANT'S SIGNAGE RIGHTS
RIDER NO. 5 TO OFFICE LEASE
This Rider No. 5 is made and entered into by and between PACIFIC
MUTUAL LIFE INSURANCE COMPANY, a California corporation ("Landlord"), and
California Commercial Bankshares, a California Corporation ("Tenant"), as of
day and year of the Lease between Landlord and Tenant to which this Rider is
attached. Landlord and Tenant hereby agree that, notwithstanding anything
contained in the Lease to the contrary, the provisions set forth below shall
be deemed to be part of the Lease and shall supersede any inconsistent
provisions of the Lease. All references in the Lease and in this Rider to the
"Lease" shall be construed to mean the Lease (and all exhibits attached
thereto), as amended and supplemented by this Rider. All capitalized terms
not defined in this Rider shall have the same meaning as set forth in the
Lease.
1. BUILDING IDENTITY SIGN. Landlord hereby agrees that Tenant, at
Tenant's sole cost and expense, shall have the right during the Term to
install one (1) exterior top identity sign on the Building ("Building
Identity Sign") above the third floor of the Building on the precise panel
and within five (5) feet of the northwest corner on the west side of the
Building with the exterior facing Brookhurst Street as depicted on Rider No.
5-1 attached hereto and incorporated herein by this reference. Tenant shall
be entitled to place on the Building Identity Sign "National Bank of Southern
California" and its accompanying logo. No other markings or identification
shall be permitted or placed on such sign except for any replacement of such
name and logo thereon with the name and/or logo identifying a Transferee
(signage rights shall be for another banking institution only) to which this
entire Lease and such signage rights are assigned in accordance with
Subparagraph 16.6 of the Lease; provided, however, any such replacement shall
be: (i) made at Tenant's sole cost and expense; (ii) subject to Landlord's
prior written approval as to lettering and graphics, and all other
specifications; (iii) subordinate to and shall not violate any signage
restrictions or exclusive in any then existing leases of tenants in the
Project; and (iv) consistent and compatible with (A) the restrictions
contained in this Rider No. 5, (B) all governmental regulations and
requirements, and (C) Landlord's design, signage and graphics program. All
letters on such signs shall be individual letters and may be illuminated from
the back to the extent provided in the specifications described in Paragraph
2 below and as long as such illumination is consistent and compatible with
Landlord's design, signage and graphics program or is otherwise approved by
Landlord, which approval shall not be unreasonably withheld.
2. SPECIFICATIONS. The specifications for the sign described in
Paragraph 1 above (including the graphics, materials, color, design,
lettering, lighting, height, size, quality and exact location thereof) shall
be subject to any applicable governmental agencies and authorities and shall
be subject to Landlord's prior written approval which approval shall not be
unreasonably withheld, and shall be consistent and compatible with Landlord's
design, signage and graphics program. The size of the sign shall be no more
than 30 inches in height.
3. INSTALLATION AND MAINTENANCE. The sign described hereinabove shall
be installed and maintained, at Tenant's sole cost and expense, pursuant to
an installation and maintenance program approved and supervised by Landlord.
Tenant shall be solely responsible for any additional costs of utilities for
illumination of the sign which shall be separately metered.
4. REMOVAL. At the expiration or sooner termination of this Lease,
Tenant shall, at Tenant's sole cost and expense, but subject to Landlord's
supervision, cause (a) the Building Identity Sign, described above to be
removed and (b) the Building to be restored to the condition existing prior
to the placement of such sign. If Tenant fails to remove such sign and
restore the Building as provided in this Paragraph 4 within thirty (30) days,
then Landlord may perform such work, and all costs and expenses incurred by
Landlord in so performing shall be reimbursed by Tenant to Landlord within
ten (10) days after Tenant's receipt of invoice therefor.
5. RIGHTS PERSONAL TO TENANT. The signage rights hereinabove provided
are personal to the original Tenant executing this Lease and may not be
assigned or transferred to, or utilized by, any other person or entity,
except that Tenant shall be permitted to assign such rights to a Transferee
to which this entire Lease is assigned in accordance with the provisions of
Subparagraph 16.6 of the Lese provided that (a) any replacement in the name,
logo or lettering of Tenant's sign to identify such Transferee shall (1) be
subject to the provisions of clauses (i), (ii), (iii) and (iv) of Paragraph 1
above; and (b) such replacement and the nature of the tenancy of such
Transferee do not conflict with any express exclusivity or signage provision
contained within any then existing leases of tenants in the Project.
<PAGE>
RIDER NO. 5-1
SIGNAGE LOCATION
[MAP]
5-1
<PAGE>
CALIFORNIA COMMERCIAL BANKSHARES
1995 STOCK AWARD PLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
I. THE PLAN............................................................ 1
1.1 PURPOSE........................................................ 1
1.2 ADMINISTRATION................................................. 1
1.3 PARTICIPATION.................................................. 2
1.4 STOCK SUBJECT TO THE PLAN...................................... 2
1.5 GRANT OF AWARDS................................................ 2
1.6 EXERCISE OF AWARDS............................................. 3
II. OPTIONS............................................................. 3
2.1 GRANTS......................................................... 3
2.2 OPTION PRICE................................................... 3
2.3 OPTION PERIOD.................................................. 4
2.4 EXERCISE OF OPTIONS............................................ 4
2.5 LIMITATIONS ON GRANT OF INCENTIVE STOCK
OPTIONS........................................................ 5
2.6 NON-EMPLOYEE DIRECTOR AWARDS................................... 5
III. STOCK APPRECIATION RIGHTS........................................... 7
3.1 GRANTS......................................................... 7
3.2 EXERCISE OF STOCK APPRECIATION RIGHTS ......................... 7
3.3 PAYMENT........................................................ 8
IV. RESTRICTED STOCK AWARDS............................................. 9
4.1 GRANTS......................................................... 9
4.2 RESTRICTIONS................................................... 9
V. PERFORMANCE SHARE AWARDS............................................ 10
5.1 GRANTS......................................................... 10
VI. OTHER PROVISIONS.................................................... 10
6.1 RIGHTS OF ELIGIBLE EMPLOYEES, PARTICIPANTS
AND BENEFICIARIES.............................................. 10
6.2 ADJUSTMENTS UPON CHANGES IN CAPITALIZATION .................... 11
6.3 TERMINATION OF EMPLOYMENT...................................... 12
6.4 GOVERNMENT REGULATIONS......................................... 14
6.5 TAX WITHHOLDING................................................ 14
6.6 AMENDMENT, TERMINATION AND SUSPENSION.......................... 15
6.7 PRIVILEGES OF STOCK OWNERSHIP;
NONDISTRIBUTIVE INTENT......................................... 16
6.8 EFFECTIVE DATE OF THE PLAN..................................... 16
6.9 TERM OF THE PLAN............................................... 16
6.10 GOVERNING LAW.................................................. 17
6.11 TRANSFER AND OTHER RESTRICTIONS UNDER
RULE 16b-3..................................................... 17
6.12 FINANCIAL STATEMENTS........................................... 17
VII. DEFINITIONS......................................................... 18
7.1 DEFINITIONS.................................................... 18
</TABLE>
i
<PAGE>
CALIFORNIA COMMERCIAL BANKSHARES
1995 STOCK AWARD PLAN
I. THE PLAN.
1.1 PURPOSE.
The purpose of this Plan is to promote the success of the Company and
its Subsidiaries by providing an additional means to attract, motivate and
retain key personnel of the Company and its Subsidiaries through the grant of
Options and other Awards(1) that provide added long term incentives for high
levels of performance and for significant efforts to improve the financial
performance of the Company and its subsidiaries.
1.2 ADMINISTRATION.
(a) This Plan shall be administered by the Committee. Action of the
Committee with respect to the administration of this Plan shall be taken
pursuant to a majority vote or the unanimous written consent of its members. In
the event action by the Committee is taken by written consent, the action shall
be deemed to have been taken at the time specified in the consent or, if none is
specified, at the time of the last signature. The Committee may delegate
administrative functions to individuals who are officers or employees of the
Company.
(b) Subject to the express provisions of this Plan, the Committee
shall have the authority to construe and interpret this Plan and any agreements
defining the rights and obligations of the Company and Participants under this
Plan, to further define the terms used in this Plan, to prescribe, amend and
rescind rules and regulations relating to the administration of this Plan, to
determine the duration and purposes of leaves of absence which may be granted to
Participants without constituting a termination of their employment for purposes
of this Plan and to make all other determinations necessary or advisable for the
administration of this Plan. The determination of the Committee on any of the
foregoing matters shall be conclusive.
- ----------------------
(1) For definitions of these and other capitalized terms, see Section 7.1,
Definitions.
1
<PAGE>
(c) Any action taken by, or inaction of, the Company, any
Subsidiary, the Board or the Committee relating to this Plan shall be within
the absolute discretion of that entity or body. No member of the Board or
Committee, or officer of the company or any Subsidiary, shall be liable for
any such action or inaction.
(d) Subject to the requirements of Section 7.1(i), the Board, at any
time it so desires, may increase or decrease the number of members of the
Committee, may remove from membership on the Committee all or any portion of
its members, and may appoint such person or persons as it desires to fill any
vacancy existing on the Committee, whether caused by removal, resignation or
otherwise.
1.3 PARTICIPATION.
Awards may be granted only to Eligible Employees. An Eligible
Employee who has been granted an Award may, if otherwise eligible, be granted
additional Awards if the Committee shall so determine. Except as provided in
Section 2.6 below, members of the Board who are not officers or employees of the
Company shall not be eligible to receive Awards.
1.4 STOCK SUBJECT TO THE PLAN.
The stock to be offered under this Plan shall be shares of the
Company's authorized but unissued Common Stock. The aggregate amount of Common
Stock that may be issued or transferred pursuant to Awards granted under this
Plan shall not exceed the sum of 750,000 shares, subject to adjustment as set
forth in Section 6.2. If any option and any related Stock Appreciation Right
shall lapse or terminate without having been exercised in full, or any Common
Stock subject to a Restricted Stock Award shall not vest or any Common Stock
subject to a Performance Share Award shall not have been transferred, the
unpurchased, unvested or nontransferred shares subject thereto shall again be
available for purposes of this Plan.
1.5 GRANT OF AWARDS.
Subject to the express provisions of this Plan, the Committee shall
determine from the class of Eligible Employees those individuals to whom Awards
under this Plan shall be granted, the terms of Awards (which need not be
identical) and the number of shares of Common Stock subject to each Award;
provided, however, that the aggregate number of shares of Common Stock subject
to Awards that may be granted to any employee in any twelve month period may not
exceed 30,000. Each Award shall be subject to the terms and conditions set
forth in this Plan and such other terms and
2
<PAGE>
conditions established by the Committee as are not inconsistent with the purpose
and provisions of this Plan and shall contain such terms and conditions as may
be required by the California Department of Corporations. The grant of an Award
is made on the Award Date.
1.6 EXERCISE OF AWARDS.
An Option or Stock Appreciation Right shall be deemed to be exercised
when the Secretary of the Company receives written notice of such exercise from
the Participant, together with payment of the purchase price made in accordance
with Section 2.2(a), except to the extent payment may be permitted to be made
following delivery of written notice of exercise in accordance with Section
2.2(b). Notwithstanding any other provision of this Plan, the Committee may
impose, by rule and in Award Agreements, such conditions upon the exercise of
Awards (including, without limitation, conditions limiting the time of exercise
to specified periods) as may be required to satisfy applicable regulatory
requirements, including without limitation Rule 16b-3 (or any successor rule)
promulgated by the Commission.
II. OPTIONS.
2.1 GRANTS.
One or more Options may be granted to any Eligible
Employee. Each Option so granted shall be designated by the
Committee as either a Nonqualified Stock Option or an
Incentive Stock Option.
2.2 OPTION PRICE.
(a) The purchase price per share of Common Stock covered by each
Option shall be determined by the Committee, but shall not be less than 100% of
the Fair Market Value of the Common Stock on the date the Option is granted,
other than in the case of a Participant who owns more than 10% of the total
combined voting power of all classes of stock of the Company, in which event the
option price shall be 110% of the Fair Market Value of the Common Stock of the
Company on the date the option is granted. The purchase price of any shares
purchased shall be paid in full at the time of each purchase in one or a
combination of the following methods: (i) in cash or by check payable to the
order of the Company, (ii) if authorized by the Committee or specified in the
Option being exercised, by a promissory note made by the Participant in favor of
the Company, upon the terms and conditions determined by the Committee, and
secured by the Common Stock issuable upon exercise in
3
<PAGE>
compliance with applicable law (including, without limitation, state corporate
law and federal margin requirements) or (iii) if authorized by the Committee or
specified in the Option being exercised, by shares of Common Stock of the
Company already owned by the Participant; provided, however, that any shares
delivered which were initially acquired upon exercise of a stock option must
have been owned by the Participant at least six months as of the date of
delivery. Shares of Common Stock used to satisfy the exercise price of an
Option shall be valued at their Fair Market Value on the date of exercise.
(b) In addition to the payment methods described in subsection (a),
the Option may provide that the Option can be exercised and payment made by
delivering a properly executed exercise notice together with irrevocable
instructions to a bank or broker to promptly deliver to the Company the amount
of sale or loan proceeds necessary to pay the exercise price and, unless
otherwise allowed by the Committee, any applicable tax withholding under Section
6.6. The Company shall not be obligated to deliver certificates for the shares
unless and until it receives full payment of the exercise price therefor.
2.3 OPTION PERIOD.
Each Option and all rights or obligations thereunder shall expire on
such date as shall be determined by the Committee, but not later than 10 years
after the Award Date, and shall be subject to earlier termination as hereinafter
provided.
2.4 EXERCISE OF OPTIONS.
Except as otherwise provided in Sections 6.3 and 6.4, an Option may
become exercisable, in whole or in part, on the date or dates specified in the
Award Agreement and thereafter shall remain exercisable until the expiration or
earlier termination of the Option; PROVIDED that the Option shall become
exercisable at the rate of at least 20% per year over five years from the date
that the Option is granted. No Option shall be exercisable for at least six
months after the Award Date, except in the case of death or Total Disability.
The Committee may, at any time after grant of the Option and from time to time,
increase the number of shares exercisable at any time so long as the total
number of shares subject to the option is not increased. No Option shall be
exercisable except in respect of whole shares, and fractional share interests
shall be disregarded. Not less than 10 shares of Common Stock may be purchased
at one time unless the number purchased is the total number at the time
available for purchase under the terms of the option.
4
<PAGE>
2.5 LIMITATIONS ON GRANT OF INCENTIVE STOCK OPTIONS.
(a) To the extent that the aggregate fair market value of stock
with respect to which incentive stock options first become exercisable by a
Participant in any calendar year exceeds $100,000, taking into account both
Common Stock subject to Incentive Stock Options under this Plan and stock
subject to incentive stock options under all other plans of the Company and
its Subsidiaries, such options shall be treated as nonqualified stock
options. For purposes of determining whether the $100,000 limit is exceeded,
the fair market value of stock subject to options shall be determined as of
the date the options are awarded. In reducing the number of options treated
as incentive stock options to meet the $100,000 limit, the most recently
granted options shall be reduced first. To the extent a reduction of
simultaneously granted options is necessary to meet the $100,000 limit, the
Company may, in the manner and to the extent permitted by law, designate
which shares of Common Stock are to be treated as shares acquired pursuant to
the exercise of an Incentive Stock Option.
(b) There shall be imposed in any Award Agreement relating to
Incentive Stock Options such terms and conditions as are required in order
that the option be an "incentive stock option" as that term is defined in
Section 422A of the Code.
(c) No Incentive Stock Option may be granted to any person who, at
the time the Incentive Stock Option is granted, owns shares of outstanding
Common Stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company or any of its Subsidiaries, unless the
exercise price of such Option is at least 110% of the Fair Market Value of
the stock subject to the Option and such option by its terms is not
exercisable after the expiration of five years from the date such Option is
granted.
2.6 NON-EMPLOYEE DIRECTOR AWARDS.
(a) PARTICIPATION. Awards under this Section 2.6 shall be made
only to Non-Employee Directors.
(b) OPTION GRANTS. Each person who is a Non-Employee Director in
office at the time that the provisions of Section 2.6 of this Plan are first
approved by shareholders shall be granted without further action a
Nonqualified Stock Option to purchase 10,000 shares of Common Stock (the
grant date or award date of which shall be the date of the meeting at which
the Board of Directors of the Company approved the Award.
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(c) OPTION PRICE. The purchase price per share of the Common
Stock covered by each Option granted pursuant to this Section 2.6 shall be
one hundred percent of the Fair Market Value of the Common Stock on the Award
Date. The purchase price of any shares purchased shall be paid in full at
the time of each purchase in cash or by check or in shares of Common Stock
valued at their Fair Market Value on the business day next preceding the date
of exercise of the Option, or partly in such shares and partly in cash.
(d) OPTION PERIOD. Each Option granted under this Section 2.6 and
all rights or obligations thereunder shall expire on the tenth anniversary of
the Award Date and shall be subject to earlier termination as provided below.
(e) EXERCISE OF OPTIONS. Except as otherwise provided in Sections
2.6(f), each option granted under this Section 2.6 shall become exercisable
as to one-third of the covered shares twelve months after the Award Date, as
to an additional one-third of the covered shares twenty-four months after the
Award Date and as to all covered shares thirty-six months after the Award
Date.
(f) TERMINATION OF DIRECTORSHIP. If a Non-Employee Director
Participant's services as a member of the Board terminate, each Option
granted pursuant to Section 2.6(b) hereof held by such Non-Employee Director
Participant which is not then exercisable shall terminate as provided in this
Section 2.6(f). If a Non-Employee Director Participant's services as a member
of the Board terminate by reason of death or Total Disability, any portion of
any such Option which is then exercisable may be exercised for one year after
the date of such termination or the balance of such Option's term, whichever
period is shorter. If a Non-Employee Director Participant's services as a
member of the Board terminate for any other reason, any portion of any such
Option which is then exercisable may be exercised for three months after the
date of such termination or the balance of such option's term, whichever
period is shorter. Notwithstanding the preceding sentence, in the event the
Non-Employee Director Participant's services as a member of the Board of
Directors is terminated for cause, all Options shall lapse immediately upon
such termination of services if required under applicable federal banking
laws, regulations or orders.
(g) LIMITATION ON AMENDMENTS AND AUTHORITY. Notwithstanding any
other provision of this Plan, the provisions of this Section 2.6 shall not be
amended more than once every six months, other than as may be necessary to
conform with any applicable changes in the Code, the Employee Retirement
Income Security Act of 1974, as amended, or the applicable rules thereunder.
Any discretionary
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authority granted to the Board or the Committee pursuant to this Plan shall
not be applicable to options granted pursuant to this Section 2.6.
(h) TRANSFER AND OTHER RESTRICTIONS UNDER RULE 16b-3. The
provisions of Section 6.12 are incorporated herein by this reference, except
that each time the words "Participant" and "Participants" appear in such
section they shall be replaced with the words "Non-Employee Director
Participant" and "Non-Employee Director Participants," respectively.
(i) ADJUSTMENTS. The specific numbers of shares stated in the
foregoing provisions of Section 2.6(b) hereof and the consideration payable
for such shares shall be subject to adjustment in certain events as provided
in Section 6.2 of this Plan.
(j) EFFECTIVE DATE OF SECTION 2.6. This Section 2.6 shall be
effective as of the date of Board approval (January 25, 1995), subject to
shareholder approval within twelve months after such date.
III. STOCK APPRECIATION RIGHTS.
3.1 GRANTS.
In its discretion, the Committee may grant Stock Appreciation
Rights concurrently with the grant of Options. A Stock Appreciation Right
shall extend to all or a portion of the shares covered by the related Option.
A Stock Appreciation Right shall entitle the Participant who holds the
related option, upon exercise of the Stock Appreciation Right and surrender
of the related option, or portion thereof, to the extent the Stock
Appreciation Right and related option each were previously unexercised, to
receive payment of an amount determined pursuant to Section 3.3. Any Stock
Appreciation Right granted in connection with an Incentive Stock Option shall
contain such terms as may be required to comply with the provisions of
Section 422A of the Code and the regulations promulgated thereunder. In its
discretion, the Committee may also grant Stock Appreciation Rights
independently of any Option subject to such conditions as the Committee may
in its absolute discretion provide.
3.2 EXERCISE OF STOCK APPRECIATION RIGHTS.
(a) A Stock Appreciation Right granted concurrently with an option
shall be exercisable only at such time or times, and to the extent, that the
related Option shall be exercisable and only when the Fair Market
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Value of the stock subject to the related Option exceeds the exercise price
of the related Option.
(b) In the event that a Stock Appreciation Right granted
concurrently with an option is exercised, the number of shares of Common
Stock subject to the related Option shall be charged against the maximum
amount of Common Stock that may be issued or transferred pursuant to Awards
under this Plan. The number of shares subject to the Stock Appreciation
Right and the related Option of the Participant shall also be reduced by such
number of shares.
(c) If a Stock Appreciation Right granted concurrently with an
option extends to less than all the shares covered by the related option and
if a portion of the related option is thereafter exercised, the number of
shares subject to the unexercised Stock Appreciation Right shall be reduced
only if and to the extent that the remaining number of shares covered by such
related Option is less than the remaining number of shares subject to such
Stock Appreciation Right.
(d) A Stock Appreciation Right granted independently of any option
shall be exercisable pursuant to the terms of the Award Agreement but in no
event earlier than six months after the Award Date, except in the case of
death or Total Disability.
3.3 PAYMENT.
(a) Upon exercise of a Stock Appreciation Right and surrender of
an exercisable portion of the related option, the Participant shall be
entitled to receive payment of an amount determined by multiplying
(i) the difference obtained by subtracting the exercise price
per share of Common Stock under the related option from the Fair Market
Value of a share of Common Stock on the date of exercise of the Stock
Appreciation Right, by
(ii) the number of shares with respect to which the Stock
Appreciation Right shall have been exercised.
(b) The Committee, in its sole discretion, may settle the amount
determined under paragraph (a) above solely in cash, solely in shares of
Common stock (valued at Fair Market Value on the date of exercise of the
Stock Appreciation Right), or partly in such shares and partly in cash,
provided that the Committee shall have determined that such exercise and
payment are consistent with applicable law. In any event, cash shall be paid
in lieu of
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fractional shares. Absent a determination to the contrary, all Stock
Appreciation Rights shall be settled in cash as soon as practicable after
exercise. The exercise price for the Stock Appreciation Right shall be the
exercise price of the related Option. Notwithstanding the foregoing, the
Committee may, in the Award Agreement, determine the maximum amount of cash or
stock or a combination thereof which may be delivered upon exercise of a Stock
Appreciation Right.
(c) Upon exercise of a Stock Appreciation Right granted
independently of any Option, the Participant shall be entitled to receive
payment of an amount based on a percentage, specified in the Award Agreement,
of the difference obtained by subtracting the Fair Market Value per share of
Common Stock on the Award Date from the Fair Market Value per share of Common
Stock on the date of exercise of the Stock Appreciation Right. Such amount
shall be paid as described in paragraph (b) above.
IV. RESTRICTED STOCK AWARDS.
4.1 GRANTS.
Subject to Section 1.4, the Committee may, in its discretion, grant
one or more Restricted Stock Awards to any Eligible Employee. Each
Restricted Stock Award agreement shall specify the number of shares of Common
Stock to be issued to the Participant, the date of such issuance, the price,
if any, to be paid for such shares by the Participant and the restrictions
imposed on such shares, which restrictions shall not terminate earlier than
six months after the Award Date.
4.2 RESTRICTIONS.
(a) Shares of Common Stock included in Restricted Stock Awards may
not be sold, assigned, transferred, pledged or otherwise disposed of or
encumbered, either voluntarily or involuntarily, until such shares have
vested.
(b) Participants receiving Restricted Stock shall be entitled to
dividend and voting rights for the shares issued even though they are not
vested, provided that such rights shall terminate immediately as to any
forfeited Restricted Stock.
(c) In the event that the Participant shall have paid cash in
connection with the Restricted Stock Award, the Award Agreement shall specify
whether and to what extent such cash shall be returned upon a forfeiture
(with or without an earnings factor).
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V. PERFORMANCE SHARE AWARDS.
5.1 GRANTS.
The Committee may, in its discretion, grant Performance Share
Awards to Eligible Employees based upon such factors as the Committee shall
determine. A Performance Share Award agreement shall specify the number of
shares of Common Stock subject to the Performance Share Award, the price, if
any, to be paid for such shares by the Participant and the conditions upon
which issuance to the Participant shall be based, which issuance shall not be
earlier than six months after the Award Date.
VI. OTHER PROVISIONS.
6.1 RIGHTS OF ELIGIBLE EMPLOYEES, PARTICIPANTS AND BENEFICIARIES.
(a) Status as an Eligible Employee shall not be construed as a
commitment that any Award will be made under this Plan to any Eligible
Employee generally.
(b) Nothing contained in this Plan (or in Award Agreements or in
any other documents related to this Plan or to Awards) shall confer upon any
Eligible Employee or Participant any right to continue in the service or
employ of the Company or any Subsidiary or constitute any contract or
agreement of service or employment, or interfere in any way with the right of
the Company or any Subsidiary to reduce such person's compensation or other
benefits or to terminate the services or employment of such Eligible Employee
or Participant, with or without cause, but nothing contained in this Plan or
any document related thereto shall affect any other contractual right of any
Eligible Employee or Participant.
(c) Amounts payable pursuant to an Award shall be paid only to the
Participant or, in the event of the Participant's death, to the Participant's
Beneficiary or, in the event of the Participant's Total Disability, to the
Participant's Personal Representative or, if there is none, to the
Participant. Other than by will or the laws of descent and distribution, no
benefit payable under, or interest in, this Plan or in any Award shall be
subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance or charge and any such attempted action shall
be void and no such benefit or interest shall be, in any manner, liable for,
or subject to, debts, contracts, liabilities, engagements or torts of any
Eligible Employee, Participant or Beneficiary. The Committee shall disregard
any attempted transfer, assignment or other alienation prohibited by the
preceding sentence and
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shall pay or deliver such cash or shares of Common Stock in accordance with
the provisions of this Plan.
(d) No Participant, Beneficiary or other person shall have any
right, title or interest in any fund or in any specific asset (including
shares of Common Stock) of the Company or any of its Subsidiaries by reason
of any Award granted hereunder. Neither the provisions of this Plan (or of
any documents related hereto), nor the creation or adoption of this Plan, nor
any action taken pursuant to the provisions of this Plan shall create, or be
construed to create, a trust of any kind or a fiduciary relationship between
the Company and any Participant, Beneficiary or other person. To the extent
that a Participant, Beneficiary or other person acquires a right to receive
an Award hereunder, such right shall be no greater than the right of any
unsecured general creditor of the Company.
6.2 ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
(a) If the outstanding shares of Common Stock are changed into or
exchanged for cash or a different number or kind of shares or securities of
the Company or of another issuer, or if additional shares or new or different
securities are distributed with respect to the outstanding shares of the
Common Stock, through a reorganization or merger to which the Company is a
party, or through a combination, consolidation, recapitalization,
reclassification, stock split, stock dividend, reverse stock split, stock
consolidation or other capital change or adjustment, an appropriate
adjustment shall be made in the number and kind of shares or other
consideration that is subject to or may be delivered under this Plan and
pursuant to outstanding Awards. A corresponding adjustment to the
consideration payable with respect to Awards granted prior to any such change
and to the price, if any, paid in connection with Restricted Stock Awards or
Performance Share Awards shall also be made. Any such adjustment, however,
shall be made without change in the total payment, if any, applicable to the
portion of the Award not exercised but with a corresponding adjustment in the
price for each share. Corresponding adjustments shall be made with respect
to Stock Appreciation Rights based upon the adjustments made to the Options
to which they are related or, in the case of Stock Appreciation Rights
granted independently of any Option, based upon the adjustments made to
Common Stock.
(b) Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving
corporation, the Plan shall terminate. Notwithstanding the foregoing, the
Committee may provide in writing in connection with, or in
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contemplation of, any such transaction for any or all of the following
alternatives (separately or in combinations): (i) for the assumption by the
successor corporation of the Awards theretofore granted or the substitution by
such corporation for such Awards of awards covering the stock of the successor
corporation, or a parent or subsidiary thereof, with appropriate adjustments as
to the number and kind of shares and prices; (ii) for the continuance of this
Plan by such successor corporation in which event this Plan and the Awards shall
continue in the manner and under the terms so provided; or (iii) for the payment
in cash or shares of Common Stock in lieu of and in complete satisfaction of
such Awards.
(c) In adjusting Awards to reflect the changes described in this
Section 6.2, or in determining that no such adjustment is necessary, the
Committee may rely upon the advice of independent counsel and accountants of the
Company, and the determination of the Committee shall be conclusive. No
fractional shares of stock shall be issued under this Plan on account of any
such adjustment.
6.3 TERMINATION OF EMPLOYMENT.
(a) If the Participant's service to or employment by the Company or
any Subsidiary terminates for any reason other than Retirement, death or Total
Disability, the Participant shall have, subject to earlier termination pursuant
to or as contemplated by Section 2.3, three months or such shorter period as is
provided in the Award Agreement from the date of termination of services or
employment to exercise any Option to the extent it shall have become exercisable
on the date of termination of employment, and any Option not exercisable on that
date shall terminate; PROVIDED that in no event shall such period be less than
30 days. Notwithstanding the preceding sentence, in the event the Participant
is discharged for cause, all Options shall lapse immediately upon such
termination of services or employment if required by applicable federal banking
laws, regulations or orders.
(b) If the Participant's service to or employment by the Company or
any Subsidiary terminates as a result of Retirement or Total Disability, the
Participant or Participant's Personal Representative, as the case may be, shall
have, subject to earlier termination pursuant to or as contemplated by Section
2.3, 12 months or such shorter period as is provided in the Award Agreement from
the date of termination of services or employment to exercise any option to the
extent it shall have become exercisable by the date of termination of services
or employment and any Option not exercisable on that date shall terminate;
PROVIDED that in no event shall such period be less than six months.
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(c) If the Participant's service to or employment by the
Company or any Subsidiary terminates as a result of death while the
Participant is rendering services to the Company or any Subsidiary or is
employed by the Company or any Subsidiary or during the 12 month period
referred to in subsection (b) above, the Participant's Option shall be
exercisable by the Participant's Beneficiary, subject to earlier termination
pursuant to or as contemplated by Section 2.3, during the 12 month period or
such shorter period as is provided in the Award Agreement following the
Participant's death, as to all or any part of the shares of Common Stock
covered thereby to the extent exercisable on the date of death (or earlier
termination); PROVIDED that in on event shall such period be less than six
months.
(d) Each Stock Appreciation Right granted concurrently with an
Option shall have the same termination provisions and exercisability periods as
the Option to which it relates. The termination provisions and exercisability
periods of any Stock Appreciation Right granted independently of an option shall
be established in accordance with Section 3.2(d). The exercisability period of a
Stock Appreciation Right shall not exceed that provided in Section 2.3 or in the
related Award Agreement and the Stock Appreciation Right shall expire at the end
of such exercisability period.
(e) In the event of termination of services to or employment with
the Company or any Subsidiary for any reason, (i) shares of Common Stock subject
to the Participant's Restricted Stock Award shall be forfeited in accordance
with the provisions of the related Award Agreement to the extent such shares
have not become vested on that date; and (ii) shares of Common Stock subject to
the Participant's Performance Share Award shall be forfeited in accordance with
the provisions of the related Award Agreement to the extent such shares have not
been issued or become issuable on that date.
(f) In the event of termination of services to or employment with
the Company or any Subsidiary for any reason, other than discharge for cause,
the Committee may, in its discretion, increase the portion of the Participant's
Award available to the Participant, or Participant's Beneficiary or Personal
Representative, as the case may be, upon such terms as the Committee shall
determine.
(g) If an entity ceases to be a Subsidiary, such action shall be
deemed for purposes of this Section 6.3 to be a termination of services or
employment of each employee of that entity who does not continue as an employee
of another entity within the Company.
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(h) Upon forfeiture of a Restricted Stock Award pursuant to this
Section 6.3, the Participant, or his or her Beneficiary or Personal
Representative, as the case may be, shall transfer to the Company the portion of
the Restricted Stock Award not vested at the date of termination of services or
employment, without payment of any consideration by the Company for such
transfer unless the Participant paid a purchase price in which case repayment,
if any, of that price shall be governed by the Award Agreement.
Notwithstanding any such transfer to the Company, or failure, refusal or neglect
to transfer, by the Participant, or his or her Beneficiary or Personal
Representative, as the case may be, such nonvested portion of any Restricted
Stock Award shall be deemed transferred automatically to the Company on the date
of termination of services or employment. The Participant's original acceptance
of the Restricted Stock Award shall constitute his or her appointment of the
Company and each of its authorized representatives as attorney(s)-in-fact to
effect such transfer and to execute such documents as the Company or such
representatives deem necessary or advisable in connection with such transfer.
6.4 GOVERNMENT REGULATIONS.
This Plan, the granting of Awards under this Plan and the issuance or
transfer of shares of Common Stock (and/or the payment of money) pursuant
thereto are subject to all applicable federal and state laws, rules and
regulations and to such approvals by any regulatory or governmental agency
(including without limitation "no action" positions of the Commission) which
may, in the opinion of counsel for the Company, be necessary or advisable in
connection therewith. Without limiting the generality of the foregoing, no
Awards may be granted under this Plan, and no shares shall be issued by the
Company, nor cash payments made by the Company, pursuant to or in connection
with any such Award, unless and until, in each such case, all legal requirements
applicable to the issuance or payment have, in the opinion of counsel to the
Company, been complied with. In connection with any stock issuance or transfer,
the person acquiring the shares shall, if requested by the Company, give
assurances satisfactory to counsel to the Company in respect of such matters as
the Company may deem desirable to assure compliance with all applicable legal
requirements.
6.5 TAX WITHHOLDING.
(a) Upon the disposition by a Participant or other person of shares
of Common Stock acquired pursuant to the exercise of an Incentive Stock Option
prior to satisfaction of the holding period requirements of Section
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422A of the Code, or upon the exercise of a Nonqualified Stock Option, the
exercise of a Stock Appreciation Right, the vesting of a Restricted Stock Award
or the payment of a Performance Share Award the Company shall have the right to
(i) require such Participant or such other person to pay by cash or check
payable to the Company, the amount of any taxes which the Company may be
required to withhold with respect to such transactions or (ii) deduct from
amounts paid in cash the amount of any taxes which the Company may be required
to withhold with respect to such cash amounts. The above notwithstanding, in
any case where a tax is required to be withheld in connection with the issuance
or transfer of shares of Common Stock under this Plan, the Participant may
elect, pursuant to such rules as the Committee may establish, to have the
Company reduce the number of such shares issued or transferred by the
appropriate number of shares to accomplish such withholding; provided, the
committee may impose such conditions on the payment of any withholding
obligation as may be required to satisfy applicable regulatory requirements,
including, without limitation, Rule 16b-3 promulgated by the Commission pursuant
to the Exchange Act.
(b) The Committee may, in its discretion, permit a loan from the
Company to a Participant in the amount of any taxes which the Company may be
required to withhold with respect to shares of Common Stock received pursuant to
a transaction described in subsection (a) above. Such a loan will be for a
term, at a rate of interest and pursuant to such other terms and rules as the
Committee may establish.
6.6 AMENDMENT, TERMINATION AND SUSPENSION.
(a) The Board may, at any time, terminate or, from time to time,
amend, modify or suspend this Plan (or any part hereof). In addition, the
Committee may, from time to time, amend or modify any provision of this Plan
and, with the consent of the Participant, make such modifications of the terms
and conditions of such Participant's Award as it shall deem advisable. The
Committee, with the consent of the Participant, may also amend the terms of any
Option to provide that the Option price of the shares remaining subject to the
original Award shall be reestablished at a price not less than 100% of the Fair
Market Value of the Common Stock on the effective date of the amendment. No
modification of any other term or provision of any option which is amended in
accordance with the foregoing shall be required, although the Committee may, in
its discretion, make such further modifications of any such Option as are not
inconsistent with or prohibited by this Plan. No Awards may be granted during
any suspension of this Plan or after its termination.
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(b) If an amendment would materially (i) increase the benefits
accruing to Participants, (ii) increase the aggregate number of shares which may
be issued under this Plan, or (iii) modify the requirements of eligibility for
participation in this Plan, the amendment shall be approved by the Board and, to
the extent then required by Rule 16b-3 under the Exchange Act, Section 425 of
the Code or any successor provisions, rules or statutes thereto, by a majority
of the shareholders; provided that the Board of Directors of the Company may
make such amendments to the Plan as may be required by the California Department
of corporations.
(c) In the case of Awards issued before the effective date of any
amendment, suspension or termination of this Plan, such amendment, suspension or
termination of the Plan shall not, without specific action of the Board or the
Committee and the consent of the Participant, in any way modify, amend, alter or
impair any rights or obligations under any Award previously granted under the
Plan.
6.7 PRIVILEGES OF STOCK OWNERSHIP; NONDISTRIBUTIVE INTENT.
A Participant shall not be entitled to the privilege of stock
ownership as to any shares of Common Stock not actually issued to him or her.
Upon the issuance and transfer of shares to the Participant, unless a
registration statement is in effect under the Securities Act and applicable
state securities law, relating to such issued and transferred Common Stock
and there is available for delivery a prospectus meeting the requirements of
Section 10 of the Securities Act, the Common Stock may be issued and
transferred to the Participant only if he or she represents and warrants in
writing to the Company that the shares are being acquired for investment and
not with a view to the resale or distribution thereof. No shares shall be
issued and transferred unless and until there shall have been full compliance
with any then applicable regulatory requirements (including those of
exchanges upon which any Common Stock of the Company may be listed).
6.8 EFFECTIVE DATE OF THE PLAN.
This Plan shall be effective upon its approval by the Board, subject
to approval by the shareholders of the Company within twelve months from the
date of such Board approval.
6.9 TERM OF THE PLAN.
Unless previously terminated by the Board, this Plan shall terminate
at the close of business on January 24,
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2005, and no Awards shall be granted under it thereafter, but such termination
shall not affect any Award theretofore granted.
6.10 GOVERNING LAW.
This Plan and the documents evidencing Awards and
all other related documents shall be governed by, and construed in accordance
with, the laws of the State of California. If any provision shall be held by a
court of competent jurisdiction to be invalid and unenforceable, the remaining
provisions of this Plan shall continue to be fully effective.
6.11 TRANSFER AND OTHER RESTRICTIONS UNDER RULE 16b-3.
Any Option, similar right (including stock appreciation rights)
or other Award that would constitute a derivative security (as such phrase is
defined in Rule 16a-1 under the Exchange Act and used in Rule 16b-3
thereunder) and that is issued under this Plan shall not be transferable by
the Participant other than by will, the laws of descent and distribution or
pursuant to a QDRO. The designation of beneficiary by an officer or director
of the Company shall not be deemed to constitute a transfer under this Plan.
It is the intent of the Company that the Plan satisfy and be
interpreted in a manner that in the case of Participants who are or may be
subject to Section 16 of the Exchange Act satisfies the applicable requirements
of the applicable Rule 16b-3 so that such persons will be entitled to the
benefits of such rule or other exemptive rules under Section 16 of the Exchange
Act and will not be subjected to avoidable liability thereunder in respect of
benefits intended by the Plan. In furtherance of such intent and the Company's
intent to satisfy any applicable state securities laws, the Awards granted under
all of the provisions of the Plan, in the discretion of the Committee, may be
deemed granted-under a separate plan if so required, notwithstanding the
designation of this document as a single plan for convenience of reference and
to establish certain provisions and limitations applicable to all authorized
Awards. If any provision of the Plan or of any Award would frustrate or
otherwise conflict with the intent expressed above, that provision to the extent
possible shall be interpreted and deemed amended so as to avoid such conflict,
but to the extent of any remaining irreconcilable conflict with such intent as
to such persons in the circumstances, such provision shall be deemed void.
6.12 FINANCIAL STATEMENTS. The Company shall deliver to each
Participant in the Plan a copy of the Company's Consolidated Annual Report (or
such other report
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as may be prepared by the Company on an annual basis containing financial
statements of the Company for the prior fiscal year) within ninety (90) days
after the end of the Company's fiscal year.
VII. DEFINITIONS.
7.1 DEFINITIONS.
(a) "AWARD" means an Option, which may be designated as a
Nonqualified Stock Option or an Incentive Stock Option, a Stock Appreciation
Right, a Restricted Stock Award or Performance Share Award, in each case granted
under this Plan.
(b) "AWARD AGREEMENT" means a written agreement setting forth the
terms of an Award.
(c) "AWARD DATE" means the date upon which the Committee took the
action granting an Award or such later date as is prescribed by the Committee
or, in the case of Options granted under Section 2.6, the date specified in such
Section 2.6.
(d) "BANK" means National Bank of Southern California, a national
banking association, so long as it is a Subsidiary.
(e) "BENEFICIARY" means the person, persons, trust or trusts
entitled by will or the laws of descent and distribution to receive the benefits
specified under this Plan in the event of a Participant's death.
(f) "BOARD" means the Board of Directors of the Company.
(g) "CODE" means the Internal Revenue Code of 1986, as amended from
time to time.
(h) "COMMISSION" means the Securities and Exchange Commission.
(i) "COMMITTEE" means the Compensation Committee appointed by the
Board and consisting of three or more Board members or such greater number as
may be required under applicable law, each of whom, during such time as one or
more Participants may be subject to Section 16 of the Exchange Act, shall be a
Disinterested Director; provided however, that the minimum number of members of
the Committee may be reduced by the Board to the minimum number required by Rule
16b-3 promulgated by the Commission pursuant to the Exchange Act, as then in
effect.
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(j) "COMMON STOCK" means the Common Stock Of the Company.
(K) "COMPANY" means California Commercial Bankshares, a California
corporation, and its successors.
(1) "DISINTERESTED DIRECTOR" shall mean a member of the Board who was
not, during the year prior to being appointed to the Committee, or during the
period of service as an administrator hereunder, granted or awarded equity
securities pursuant to the Plan or pursuant to any other plan of the Company or
its affiliates, except to the extent consistent with the disinterested plan
administration requirements under Rule 16b-3.
(m) "ELIGIBLE EMPLOYEE" means an officer or employee of the Company
or a subsidiary who has not served on the Committee within the preceding twelve
months.
(n) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(o) "FAIR MARKET VALUE" means (i) if the stock is listed or admitted
to trade on a national securities exchange, the closing price of the stock on
the Composite Tape, as published in the Western Edition OF THE WALL STREET
JOURNAL, of the principal national securities exchange on which the stock is so
listed or admitted to trade, on such date, or, if there is no trading of the
stock on such date, then the closing price of the stock as quoted on such
Composite Tape on the next preceding date on which there was trading in such
shares; (ii) if the stock is not listed or admitted to trade on a national
securities exchange, the last price for the stock on such date, as furnished by
the National Association of Securities Dealers, Inc. ("NASD") through the NASDAQ
National Market Reporting System or a similar organization if the NASD is no
longer reporting such information; (iii) if the stock is not listed or admitted
to trade on a national securities exchange and is not reported on the National
Market Reporting System, the mean between the bid and asked price for the stock
on such date, as furnished by the NASD; or (iv) if the stock is not listed or
admitted to trade on a national securities exchange, is not reported on the
National Market Reporting System and if bid and asked prices for the stock are
not furnished by the NASD or a similar organization, the values established by
the Committee for purposes of the Plan.
(p) "INCENTIVE STOCK OPTION" means an option which is designated as
an incentive stock option within the meaning of Section 422A of the Code, the
award of which contains such provisions as are necessary to comply with that
section.
19
<PAGE>
(q) "NON-EMPLOYEE DIRECTOR" means a member of the Board who is not an
officer or employee of the Company or any of its Subsidiaries.
(r) "NON-EMPLOYEE DIRECTOR PARTICIPANT" means a Non-Employee Director
who has been granted an Option under Section 2.6.
(s) "NONQUALIFIED STOCK OPTION" means an option which is designated
as a Nonqualified Stock Option.
(t) "OPTION" means an option to purchase Common Stock under this
Plan. An Option shall be designated by the Committee as a Nonqualified Stock
Option or an Incentive Stock Option.
(u) "PARTICIPANT" means an Eligible Employee who has been granted an
Award.
(v) "PERFORMANCE SHARE AWARD" means an award of shares of cash or
Common Stock, the issuance of which is contingent upon attainment of performance
objectives specified by the Committee.
(w) "PERSONAL REPRESENTATIVE" means the person or persons who, upon
the disability or incompetence of a participant, shall have acquired on behalf
of the participant by legal proceeding or otherwise the power to exercise the
rights and receive the benefits specified in this Plan.
(X) "PLAN" means the California Commercial Bankshares 1995 Stock
Award Plan.
(Y) "QDRO" shall mean an order requiring the transfer of an Award or
portion thereof pursuant to a state domestic relations law to the spouse, former
spouse, child or other dependent of a Participant. Such order must be in a form
substantially identical to a qualified domestic relations order as defined by
the Code or Title I of the Employee Retirement Income Security Act of 1974, as
amended.
(z) "RESTRICTED STOCK" means those shares of Common Stock issued
pursuant to a Restricted Stock Award which are subject to the restrictions set
forth in the related Award Agreement.
(aa) "RESTRICTED STOCK AWARD" means an award of a fixed number of
shares of Common Stock to the Participant subject, however, to payment of such
consideration, if any, and such forfeiture provisions, as are set forth in the
Award Agreement.
20
<PAGE>
(bb) "RETIREMENT" means retirement from employment by or providing
services to the Company or any Subsidiary after age 65 and, in the case of
employees, in accordance with the retirement policies of the Company then in
effect.
(cc) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(dd) "STOCK APPRECIATION RIGHT" means a right to receive a number of
shares of Common Stock or an amount of cash, or a combination of shares and
cash, determined as provided in Section 3.3(a).
(ee) "SUBSIDIARY" means any corporation or other entity a majority or
more of whose outstanding voting stock or voting power is beneficially owned
directly or indirectly by the Company.
(ff) "TOTAL DISABILITY" means a "permanent and total disability"
within the meaning of Section 22(e)(3) of the Code.
21
<PAGE>
CALIFORNIA COMMERCIAL BANKSHARES
INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT dated as of the ___ day of ____, ________, between California
Commercial Bankshares, a California corporation (the "Corporation"), and
____________ (the "Employee").
W I T N E S S E T H
WHEREAS, pursuant to the Corporation's 1995 Stock Award Plan (the
"Plan"), the Corporation has granted to the Employee effective as of the ___ day
of __________, 19___ (the "Award Date") an option to purchase all or any part
of _______ authorized but unissued shares of Common Stock, no par value, of the
Corporation upon the terms and conditions set forth herein and in the Plan.
NOW, THEREFORE, in consideration of the mutual promises and covenants
made herein and the mutual benefits to be derived herefrom, the parties agree as
follows:
1. DEFINED TERMS. Capitalized terms used herein and not otherwise
defined herein shall have the meaning assigned to such terms in the Plan.
2. GRANT OF OPTION. This Agreement evidences the Corporation's
grant to the Employee of the right and option to purchase, on the terms and
conditions set forth herein and in the Plan, all or any part of an aggregate
of ______ shares of the Common Stock at the price of ______ per share (the
"Option"), exercisable from time to time, subject to the provisions of this
Agreement and the Plan, prior to the close of business on the day before the
tenth anniversary of the Award Date (the "Expiration Date"). Such price
equals or exceeds the Fair Market Value of the Corporation's Common Stock as
of the Award Date. It is the intent of the Corporation that this Option
constitute an incentive stock option within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended ("Code").
3. EXERCISABILITY OF OPTION. Subject to the conditions set forth in
this Agreement, the option shall be exercisable in accordance with Schedule 1
attached hereto. To the extent the Employee does not in any year purchase all
or any part of the shares to which the Employee is entitled, the Employee has
the right cumulatively thereafter to purchase any shares not so purchased and
such right shall continue until the option terminates or expires. Fractional
1
<PAGE>
share interests shall be disregarded, but may be cumulated. No fewer than ten
shares may be purchased at any one time, unless the number purchased is the
total number at the time available for purchase under the option.
4. LIMITATION ON EXERCISE OF OPTION. In the event the Employee is
granted incentive stock options (whether under this Agreement or any other
incentive stock option agreement) and the aggregate fair market value
(determined as of the respective dates of grant of such options) of the Common
Stock with respect to which such options are first exercisable in any calendar
year exceeds $100,000, the most recently granted options shall be treated as
nonqualified stock options to the extent of the excess. In addition, in the
case of simultaneously granted options, the Corporation may, in the manner and
to the extent permitted by law, designate which shares are to be treated as
stock acquired pursuant to the exercise of an incentive stock option.
5. METHOD OF EXERCISE OF OPTION. The Option shall be exercisable by
the delivery to the Corporation of a written notice stating the number of shares
to be purchased pursuant to the Option and accompanied by payment made in
accordance with and in a form permitted in Section 2.2 of the Plan for the full
purchase price of the shares to be purchased, subject to such further
limitations and rules or procedures as the Committee may from time to time
establish as to any non-cash payment and as to the tax withholding requirements
of Section 6.5 of the Plan. The purchase price may be paid in full or in part
by shares of Common Stock of the Corporation already owned by the Employee;
provided, however, that any shares delivered which were initially acquired upon
exercise of a stock option must have been owned by the Participant at least six
months as of the date of delivery. Shares of Common Stock used to satisfy the
exercise price of an option shall be valued at their Fair Market Value on the
date of exercise. In addition, the Employee (or the Employee's Beneficiary or
Personal Representative) shall furnish any written statements required pursuant
to Section 6.7 of the Plan.
6. EFFECT OF TERMINATION OF EMPLOYMENT OR DEATH; CHANGE IN
SUBSIDIARY STATUS. The Option and all other rights hereunder, to the extent not
exercised, shall terminate and become null and void at such time as the Employee
ceases to be employed by either the Corporation or any Subsidiary, except that:
(a) if the Employee terminates for any reason other than
Retirement, death, Total Disability or discharge for cause, the Employee
may at any time within a period of three months after such termination
exercise the Option to the extent the option was exercisable at the date of
such termination;
2
<PAGE>
(b) if the Employee is discharged for cause, which shall include
(i) conviction of a felony, (ii) misappropriation of assets of the
Corporation, (iii) continued or repeated insobriety, (iv) continued or
repeated absence from service during periods the Employee is expected to
render services as an employee, other than due to disability or illness and
(v) refusal to carry out the reasonable directions of the executive
officers or Board of Directors of the Corporation, the Employee may at any
time within a period of thirty days after such termination exercise the
Option to the extent the option was exercisable at the date of such
termination, provided that the Option shall lapse immediately upon such
termination of services or employment to the extent required by applicable
federal banking laws, regulations or orders;
(c) if the Employee terminates as a result of Retirement or
Total Disability, the Participant or Participant's Personal Representative,
as the case may be, shall have twelve months from the date of termination
to exercise the Option to the extent the option was exercisable at the date
of such termination;
(d) if the Employee dies while in the employ of the Corporation
or any Subsidiary, or within twelve months after a termination described in
subsection (c) of this Section 5, then the Option may be exercised within a
period of three months after the Employee's date of death by the Employee's
Beneficiary to the extent the Option was exercisable on the date of the
Employee's death (or such earlier termination);
provided, however, that in no event may the Option be exercised by anyone under
this Section or otherwise after the Expiration Date. If the Employee is
employed by an entity which ceases to be a Subsidiary, such event shall be
deemed for purposes of this Section 6 to be a termination described in
subsection (a) in respect of the Employee. Absence from work caused by military
service or authorized sick leave shall not be considered a termination for
purposes of this Section.
7. ADJUSTMENTS UPON SPECIFIED CHANGES.
(a) If the outstanding shares of Common Stock are changed into
or exchanged for cash or a different number or kind of shares or securities
of the Corporation or of another issuer, or if additional shares or new or
different securities are distributed with respect to the outstanding shares
of the Common Stock, through a reorganization or merger to which the
corporation is a party, or through a combination, consolidation,
recapitalization, reclassification,
3
<PAGE>
stock split, stock dividend, reverse stock split, stock consolidation or
other capital change or adjustment, an appropriate adjustment shall be made
in the number and kind of shares that are subject to or may be delivered
pursuant to this Award Agreement. A corresponding adjustment to the
consideration payable by the Participant to exercise the option shall also
be made. Any such adjustment, however, shall be made by making an
appropriate adjustment in the price for each share subject to the Option
without changing the total payment applicable to the portion of the Option
not theretofore exercised.
(b) Upon the dissolution or liquidation of the Corporation, or
upon a reorganization, merger or consolidation of the Corporation with one
or more corporations as a result of which the Corporation is not the
surviving corporation, the Plan and the option shall terminate.
Notwithstanding the foregoing, the Committee may provide in writing in
connection with, or in contemplation of, any such transaction for any or
all of the following alternatives (separately or in combinations): (i) for
the assumption by the successor corporation of the option or the
substitution by such corporation for the Option of options covering the
stock of the successor corporation, or a parent or subsidiary thereof, with
appropriate adjustments as to the number and kind of shares and prices;
(ii) for the continuance of the Plan and the Option by such successor
corporation in which event the Plan and the Option shall continue in the
manner and under the terms so provided; or (iii) for the payment in cash or
shares of Common Stock in lieu of, and in complete satisfaction of, the
Option.
8. NON-TRANSFERABILITY OF OPTION. Subject to limited exceptions set
forth in Section 6.1 of the Plan, the option and any other rights of the
Employee under this Agreement or the Plan are nontransferable.
9. NOTICES. Any notice to be given under the terms of this
Agreement shall be in writing and addressed to the Corporation at its principal
office to the attention of Principal Accounting and Financial Officer, and to
the Employee at the address given beneath the Employee's signature hereto, or at
such other address as either party may hereafter designate in writing to the
other. Any such notice shall be deemed to have been duly given when enclosed in
a properly sealed envelope addressed as aforesaid, registered or certified, and
deposited (postage and registry or certification fee prepaid) in a post office
or branch post office regularly maintained by the United States Government.
4
<PAGE>
10. PLAN. The Option and all rights of the Employee thereunder are
subject to, and the Employee agrees to be bound by, all of the terms and
conditions of the provisions of the Plan, incorporated herein by this reference,
to the extent such provisions are applicable to options granted to Eligible
Employees. In the event of a conflict or inconsistency between the terms and
conditions of this Agreement and of the Plan, the terms and conditions of the
Plan shall govern. The Employee acknowledges receipt of a copy of the Plan,
which is made a part hereof by this reference, and agrees to be bound by the
terms thereof. Unless otherwise expressly provided in other Sections of this
Agreement, provisions of the Plan that confer discretionary authority on the
Committee do not (and shall not be deemed to) create any rights in the Employee
unless such rights are expressly set forth herein or are otherwise in the sole
discretion of the Committee so conferred by appropriate action of the Committee
under the Plan after the date hereof.
11. NOTICE OF DISPOSITION. The Employee agrees to notify the
Corporation of any sale or other disposition of any shares of Common Stock
received upon exercise of the Option, if such sale or disposition occurs within
two years after the Award Date or within one year after the date of such
exercise.
5
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed on its behalf by a duly authorized officer and the Employee has
hereunto set his or her hand.
CALIFORNIA COMMERCIAL BANKSHARES,
a California corporation
By:
--------------------------------
Title:
-----------------------------
EMPLOYEE
-----------------------------------
(Signature)
-----------------------------------
(Print Name)
-----------------------------------
(Address)
-----------------------------------
(City, State, Zip Code)
6
<PAGE>
SCHEDULE 1
RIGHT TO EXERCISE
The Option may be exercised as to ______ shares of Common Stock on and
after the first anniversary of the Award Date and as to an additional ______
shares of Common Stock on and after the last day of each succeeding calendar
month commencing on ___________, _____ and continuing through and including
_________, and as to the final _______ shares of Common Stock on and
after ________, ____.
7
<PAGE>
CONSENT OF SPOUSE
In consideration of the execution of the foregoing Incentive Stock Option
Agreement by California Commercial Bankshares, I, __________________________,
the spouse of the Employee herein named, do hereby join with my spouse in
executing the foregoing Incentive Stock Option Agreement and do hereby agree to
be bound by all of the terms and provisions thereof and of the Plan.
DATED:__________, ____. -----------------------------------
Signature of Spouse
8
<PAGE>
CALIFORNIA COMMERCIAL BANKSHARES
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT dated as of the _____ day of ____________,
______ between California Commercial Bankshares, a California corporation
(the "Corporation"), and ___________________ (the "Employee").
W I T N E S S E T H
WHEREAS, pursuant to the Corporation's 1995 Stock Award Plan
(the "Plan"), the Corporation has granted to the Employee effective as of the
_____ day of __________, 19__ the "Award Date") a nonqualified stock option
to purchase all or any part of _________________ authorized but unissued
shares of Common Stock, no value, of the Corporation upon the terms and
conditions set forth herein and in the Plan.
NOW, THEREFORE, in consideration of the mutual promises and
covenants made herein and the mutual benefits to be derived herefrom, the
parties agree as follows:
1. DEFINED TERMS. Capitalized terms used herein and not
otherwise defined herein shall have the meaning assigned to such terms in the
Plan.
2. GRANT OF OPTION. This Agreement evidences the
Corporation's grant to the Employee of the right and option to purchase, on
the terms and conditions set forth herein and in the Plan, all or any part of
an aggregate of ______ shares of the Common Stock at the price of ___________
per share (the "Option"), exercisable from time to time, subject to the
provisions of this Agreement and the Plan, prior to the close of business on
the day before the tenth anniversary of the Award Date (the "Expiration
Date").
3. EXERCISABILITY OF OPTION. Subject to the conditions set
forth in this Agreement, the Option shall be exercisable in accordance with
Schedule 1 attached hereto. To the extent the Employee does not in any year
purchase all or any part of the shares to which the Employee is entitled, the
Employee has the right cumulatively thereafter to purchase any shares not so
purchased and such right shall continue until the Option terminates or
expires. Fractional share interests shall be disregarded, but may be
cumulated. No fewer than ten (10) shares may be purchased at any one time,
unless the number purchased is the total number at the time available for
purchase under the Option.
<PAGE>
4. METHOD OF EXERCISE OF OPTION. The Option shall be
exercisable by the delivery to the Corporation of a written notice stating
the number of shares to be purchased pursuant to the Option and accompanied
by payment made in accordance with and in a form permitted by Section 2.2 of
the Plan for the full purchase price of the shares to be purchased, subject
to such further limitations and rules or procedures as the Committee may from
time to time establish as to any non-cash payment and as to the tax
withholding requirements of Section 6.5 of the Plan. The purchase price may
be paid in full or in part by shares of Common Stock of the Corporation
already owned by the Employee; provided, however, that any shares delivered
which were initially acquired upon exercise of a stock option must have been
owned by the Participant at least six months as of the date of delivery.
Shares of Common Stock used to satisfy the exercise price of an option shall
be valued at their Fair Market Value on the date of exercise. In addition,
the Employee (or the Employee's Beneficiary or Personal Representative) shall
furnish any written statements required pursuant to Section 6.7 of the Plan.
5. EFFECT OF TERMINATION OF EMPLOYMENT OR DEATH; CHANGE IN
SUBSIDIARY STATUS. The Option and all other rights hereunder, to the extent
not exercised, shall terminate and become null and void at such time as the
Employee ceases to be employed by either the Corporation or any Subsidiary,
except that:
(a) if the Employee terminates for any
reason other than Retirement, death, Total Disability
or discharge for cause, the Employee may at any time
within a period of three months after such termination
exercise the option to the extent the option was
exercisable at the date of such termination;
(b) if the Employee is discharged for cause,
which shall include (i) conviction of a felony,
(ii) misappropriation of assets of the Corporation,
(iii) continued or repeated insobriety, (iv) continued
or repeated absence from service during periods the
Employee is expected to render services as an employee,
other than due to disability or illness and (v) refusal
to carry out the reasonable directions of the executive
officers or Board of Directors of the Corporation, the
Employee may at any time within a period of thirty days
after such termination exercise the option to the
extent the Option was exercisable at the date of such
termination, provided that the Option shall lapse
immediately upon such termination of services or
employment to the extent required by applicable federal
banking laws, regulations or orders;
(c) if the Employee terminates as a result of Retirement
or Total Disability, the Participant or
2
<PAGE>
Participant's Personal Representative, as the case may
be, shall have twelve months from the date of
termination to exercise the Option to the extent the
option was exercisable at the date of such termination;
(d) if the Employee dies while in the employ
of the Corporation or any Subsidiary, or within twelve
months after a termination described in subsection (c)
of this Section 5, then the Option may be exercised
within a period of three months after the Employee's
date of death by the Employee's Beneficiary to the
extent the Option was exercisable on the date of the
Employee's death (or such earlier termination);
provided, however, that in no event may the option be exercised by anyone
under this Section or otherwise after the Expiration Date. If the Employee
is employed by an entity which ceases to be a Subsidiary, such event shall be
deemed for purposes of this Section 5 to be a termination described in
subsection (a) in respect of the Employee. Absence from work caused by
military service or authorized sick leave shall not be considered a
termination for purposes of this Section.
6. ADJUSTMENTS UPON SPECIFIED CHANGES.
(a) If the outstanding shares of Common Stock are changed into
or exchanged for cash or a different number or kind of shares or securities
of the Corporation or of another issuer, or if additional shares or new or
different securities are distributed with respect to the outstanding shares
of the Common Stock, through a reorganization or merger to which the
Corporation is a party, or through a combination, consolidation,
recapitalization, reclassification, stock split, stock dividend, reverse
stock split, stock consolidation or other capital change or adjustment, an
appropriate adjustment shall be made in the number and kind of shares that
are subject to or may be delivered pursuant to this Award Agreement. A
corresponding adjustment to the consideration payable by the Participant to
exercise the option shall also be made. Any such adjustment, however, shall
be made by making an appropriate adjustment in the price for each share
subject to the Option without changing the total payment applicable to the
portion of the Option not theretofore exercised.
(b) Upon the dissolution or liquidation of the Corporation, or
upon a reorganization, merger or consolidation of the Corporation with one or
more corporations as a result of which the Corporation is not the surviving
corporation, the Plan and the Option shall terminate. Notwithstanding the
foregoing, the Committee may provide in writing in connection with, or
3
<PAGE>
in contemplation of, any such transaction for any or all of the following
alternatives (separately or in combination): (i) for the assumption by the
successor corporation of the option or the substitution by such corporation
for the Option of options covering the stock of the successor corporation, or
a parent or subsidiary thereof, with appropriate adjustments as to the number
and kind of shares and prices; (ii) for the continuance of the Plan and the
Option by such successor corporation in which event the Plan and the Option
shall continue in the manner and under the terms so provided; or (iii) for
the payment in cash or shares of Common Stock in lieu of, and in complete
satisfaction of, the Option.
7. NON-TRANSFERABILITY OF OPTION. Subject to limited
exceptions set forth in Section 6.1 of the Plan, the Option and any other
rights of the Employee under this Agreement or the Plan are nontransferable.
8. NOTICES. Any notice to be given under the terms of this
Agreement shall be in writing and addressed to the Corporation at its
principal office to the attention of the Principal Accounting and Financial
Officer, and to the Employee at the address given beneath the Employee's
signature hereto, or at such other address as either party may hereafter
designate in writing to the other. Any such notice shall be deemed to have
been duly given when enclosed in a properly sealed envelope addressed as
aforesaid, registered or certified, and deposited (postage and registry or
certification fee prepaid) in a post office or branch post office regularly
maintained by the United States Government.
9. PLAN. The Option and all rights of the Employee
thereunder are subject to, and the Employee agrees to be bound by, all of the
terms and conditions of the provisions of the Plan, incorporated herein by
this reference, to the extent such provisions are applicable to options
granted to Eligible Employees. In the event of a conflict or inconsistency
between the terms and conditions of this Agreement and of the Plan, the terms
and conditions of the Plan shall govern. The Employee acknowledges receipt
of a copy of the Plan, which is made a part hereof by this reference, and
agrees to be bound by the terms thereof. Unless otherwise expressly provided
in other Sections of this Agreement, provisions of the Plan that confer
discretionary authority on the Committee do not (and shall not be deemed to)
create any rights in the Employee unless such rights are expressly set forth
herein or are otherwise in the sole discretion of the Committee so conferred
by appropriate action of the Committee under the Plan after the date hereof.
4
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Agreement
to be executed on its behalf by a duly authorized officer and the Employee
has hereunto set his or her hand.
CALIFORNIA COMMERCIAL BANKSHARES,
a California corporation
By:
-----------------------------
Title:
----------------------------
EMPLOYEE
----------------------------------
(Signature)
----------------------------------
(Print Name)
----------------------------------
(Address)
----------------------------------
(City, State, Zip Code)
5
<PAGE>
SCHEDULE 1
RIGHT TO EXERCISE
The Option may be exercised as to ______ shares of Common Stock on
and after the first anniversary of the Award Date and as to an additional
_______ shares of Common Stock on and after the last day of each succeeding
calendar month commencing on ______________, _____ and continuing through and
including ______________, _____________, and as to the final _______ shares
of Common Stock on and after ______________, ______.
6
<PAGE>
CONSENT OF SPOUSE
In consideration of the execution of the foregoing
Nonqualified Stock Option Agreement by California Commercial
Bankshares, I, _____________________________, the spouse of the
Employee herein named, do hereby join with my spouse in
executing the foregoing Nonqualified Stock Option Agreement and
do hereby agree to be bound by all of the terms and provisions
thereof and of the Plan.
DATED:______________, _____.
------------------------------
Signature of Spouse
7
<PAGE>
CALIFORNIA COMMERCIAL BANKSHARES
DIRECTOR NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT dated as of the _____ day of 1995, between California
Commercial Bankshares, a California corporation (the "Corporation"), and
__________________________ (the "Director").
W I T N E S S E T H
WHEREAS, pursuant to the Corporation's 1995 Stock Award Plan (the
"Plan") , the Corporation has granted to the Director effective as of the 25th
day of January, 1995 (the "Award Date") a nonqualified stock option to purchase
all or any part of _______________ authorized but unissued shares of Common
Stock, no value, of the Corporation upon the terms and conditions set forth
herein and in the Plan.
NOW, THEREFORE, in consideration of the mutual promises and covenants
made herein and the mutual benefits to be derived herefrom, the parties agree as
follows:
1. DEFINED TERMS. Capitalized terms used herein and not otherwise
defined herein shall have the meaning assigned to such terms in the Plan.
2. GRANT OF OPTION. This Agreement evidences the Corporation's
grant to the Director of the right and option to purchase, on the terms and
conditions set forth herein and in the Plan, all or any part of an aggregate of
shares of the Common Stock at the price of $5.25 per share (the "Option") ,
exercisable from time to time, subject to the provisions of this Agreement and
the Plan, prior to the close of business on the day before the tenth anniversary
of the Award Date (the "Expiration Date").
3. EXERCISABILITY OF OPTION. Subject to the conditions set forth in
this Agreement, the Option shall be exercisable in accordance with Schedule 1
attached hereto. To the extent the Director does not in any year purchase all
or any part of the shares to which the Director is entitled, the Director has
the right cumulatively thereafter to purchase any shares not so purchased and
such right shall continue until the Option terminates or expires. Fractional
share interests shall be disregarded, but may be cumulated. No fewer than ten
(10) shares may be purchased at any one time, unless the number purchased is the
total number at the time available for purchase under the Option.
<PAGE>
4. METHOD OF EXERCISE OF OPTION. The Option shall be exercisable by
the delivery to the Corporation of a written notice stating the number of shares
to be purchased pursuant to the option and accompanied by payment made in
accordance with and in a form permitted by Section 2.2 of the Plan for the full
purchase price of the shares to be purchased, subject to such further
limitations and rules or procedures as the Committee may from time to time
establish as to any non-cash payment and as to the tax withholding requirements
of Section 6.5 of the Plan. The purchase price may be paid in full or in part
by shares of Common Stock of the Corporation already owned by the Director;
provided, however, that any shares delivered which were initially acquired upon
exercise of a stock option must have been owned by the Participant at least six
months as of the date of delivery. Shares of Common Stock used to satisfy the
exercise price of an Option shall be valued at their Fair Market Value on the
date of exercise. In addition, the Director (or the Director's Beneficiary or
Personal Representative) shall furnish any written statements required pursuant
to Section 6.7 of the Plan.
5. EFFECT OF TERMINATION AS DIRECTOR OR DEATH; CHANGE IN SUBSIDIARY
STATUS. The Option and all other rights hereunder, to the extent not exercised,
shall terminate and become null and void at such time as the Director ceases to
serve as a director of either the corporation or any Subsidiary, except that:
(a) if the Director ceases to serve as a director of either the
Corporation or a Subsidiary for any reason other than death or Total
Disability, the Director may at any time within a period of three months
after such termination exercise the Option to the extent the option was
exercisable at the date of such termination, provided that the Option shall
terminate immediately if the Director is terminated for cause to the extent
required under applicable federal banking laws, regulations or orders;
(b) if the Director ceases to serve as a director of the
Corporation or a Subsidiary as a result of Total Disability, the
Participant or Participant's Personal Representative, as the case may be,
shall have twelve months from the date of termination to exercise the
Option to the extent the Option was exercisable at the date of such
termination;
(c) if the Director dies while in serving as a director of the
Corporation or any Subsidiary, or within twelve months after a termination
described in subsection (b) of this Section 5, then the Option may be
exercised within a period of three months after the Director's date of
death by the Director's Beneficiary
2
<PAGE>
to the extent the Option was exercisable on the date of the Director's
death (or such earlier termination);
provided, however, that in no event may the option be exercised by anyone under
this Section or otherwise after the Expiration Date. If the Director serves as
a director of an entity which ceases to be a Subsidiary, such event shall be
deemed for purposes of this Section 5 to be a termination described in
subsection (a) in respect of the Director.
6. ADJUSTMENTS UPON SPECIFIED CHANGES.
(a) If the outstanding shares of Common Stock are changed into
or exchanged for cash or a different number or kind of shares or securities
of the Corporation or of another issuer, or if additional shares or new or
different securities are distributed with respect to the outstanding shares
of the Common Stock, through a reorganization or merger to which the
Corporation is a party, or through a combination, consolidation,
recapitalization, reclassification, stock split, stock dividend, reverse
stock split, stock consolidation or other capital change or adjustment, an
appropriate adjustment shall be made in the number and kind of shares that
are subject to or may be delivered pursuant to this Award Agreement. A
corresponding adjustment to the consideration payable by the Participant to
exercise the Option shall also be made. Any such adjustment, however,
shall be made by making an appropriate adjustment in the price for each
share subject to the Option without changing the total payment applicable
to the portion of the Option not theretofore exercised.
(b) Upon the dissolution or liquidation of the Corporation, or
upon a reorganization, merger or consolidation of the Corporation with one
or more corporations as a result of which the Corporation is not the
surviving corporation, the Plan and the Option shall terminate.
Notwithstanding the foregoing, the Committee may provide in writing in
connection with, or in contemplation of, any such transaction for any or
all of the following alternatives (separately or in combination): (i) for
the assumption by the successor corporation of the option or the
substitution by such corporation for the Option of options covering the
stock of the successor corporation, or a parent or subsidiary thereof, with
appropriate adjustments as to the number and kind of shares and prices;
(ii) for the continuance of the Plan and the Option by such successor
corporation in which event the Plan and the Option shall continue in the
manner and under the terms so provided; or (iii) for the payment in cash or
shares
3
<PAGE>
of Common Stock in lieu of, and in complete satisfaction of, the Option.
7. NON-TRANSFERABILITY OF OPTION. Subject to limited exceptions set
forth in Section 6.1 of the Plan, the Option and any other rights of the
Director under this Agreement or the Plan are nontransferable.
8. NOTICES. Any notice to be given under the terms of this
Agreement shall be in writing and addressed to the Corporation at its principal
office to the attention of the Principal Accounting and Financial Officer, and
to the Director at the address given beneath the Director's signature hereto, or
at such other address as either party may hereafter designate in writing to the
other. Any such notice shall be deemed to have been duly given when enclosed in
a properly sealed envelope addressed as aforesaid, registered or certified, and
deposited (postage and registry or certification fee prepaid) in a post office
or branch post office regularly maintained by the United States Government.
9. PLAN. The Option and all rights of the Director thereunder are
subject to, and the Director agrees to be bound by, all of the terms and
conditions of the provisions of the Plan, incorporated herein by this reference,
to the extent such provisions are applicable to options granted to Non-Employee
Directors. In the event of a conflict or inconsistency between the terms and
conditions of this Agreement and of the Plan, the terms and conditions of the
Plan shall govern. The Director acknowledges receipt of a copy of the Plan,
which is made a part hereof by this reference, and agrees to be bound by the
terms thereof. Unless otherwise expressly provided in other Sections of this
Agreement, provisions of the Plan that confer discretionary authority on the
Committee do not (and shall not be deemed to) create any rights in the Director
unless such rights are expressly set forth herein or are otherwise in the sole
discretion of the Committee so conferred by appropriate action of the Committee
under the Plan after the date hereof.
4
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed on its behalf by a duly authorized officer and the Director has
hereunto set his or her hand.
CALIFORNIA COMMERCIAL BANKSHARES,
a California corporation
By:
------------------------------------
Title:
---------------------------------
DIRECTOR
---------------------------------------
(Signature)
---------------------------------------
(Print Name)
---------------------------------------
(Address)
---------------------------------------
(City, State, Zip Code)
5
<PAGE>
SCHEDULE I
RIGHT TO EXERCISE
The Option may be exercised as to _____ shares of Common Stock on and
after the first anniversary of the Award Date and as to an additional _____
shares of Common Stock on and after the second anniversary of the Award Date,
and as to the final _____ shares of Common Stock on and after the third
anniversary of the Award Date.
6
<PAGE>
CONSENT OF SPOUSE
In consideration of the execution of the foregoing
Nonqualified Stock Option Agreement by California Commercial
Bankshares, I, ____________________________, the spouse of the
Director herein named, do hereby join with my spouse in executing the
foregoing Nonqualified Stock Option Agreement and do hereby agree to be
bound by all of the terms and provisions thereof and of the Plan.
DATED: _________________, 19__
--------------------------------
Signature of Spouse
7
<PAGE>
SUBSIDIARIES OF THE COMPANY
The Company owns all of the issued and outstanding shares of National Bank of
Southern California which was licensed to do business as a National Bank by the
Comptroller of the Currency on January 10, 1983.
The Company owns all of the issued and outstanding shares of Venture Partners,
Inc., a California Corporation.
<PAGE>
EXHIBIT 24
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in Registration Statement No. 33-
39926 of California Commercial Bankshares on Form S-8 of our report dated
February 9, 1995, appearing in this Annual Report on Form 10-K of California
Commercial Bankshares for the year ended December 31, 1995.
LOS ANGELES, CALIFORNIA
MARCH 28, 1995
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