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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
HARBOR BANCORP
(Name of small business issuer in its charter)
California 95-3764395
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11 Golden Shore Long Beach, California 90802
(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number: (310) 491-1111
Securities to be registered under Section 12(b) of the Act:
Name of each exchange on
Title of each class which each class is to be
to be so registered registered
None None
Securities to be registered under Section 12(g) of the Act:
Common Stock, no par value
--------------------------
(Title of Class)
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INDEX
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DESCRIPTION PAGE NO.
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PART I............................................ 1
ITEM 1. Description of Business.................. 1
ITEM 2. Management's Discussion and Analysis..... 25
ITEM 3. Description of Property.................. 44
ITEM 4. Security Ownership of Certain
Beneficial Owners and Management....... 46
ITEM 5. Directors, Executive Officers,
Promoters and Control Persons.......... 48
ITEM 6. Executive Compensation................... 51
ITEM 7. Certain Relationships and Related
Transactions........................... 56
ITEM 8. Description of Securities................ 57
PART II........................................... 58
ITEM 1. Market Price of and Dividends on the
Registrant's Common Equity and Other
Shareholder Matters.................... 58
ITEM 2. Legal Proceedings........................ 59
ITEM 3. Changes in and Disagreements with
Accountants............................ 60
ITEM 4. Recent Sales of Unregistered
Securities............................. 61
ITEM 5. Indemnification of Directors and
Officers............................... 62
PART F/S.......................................... 69
PART III.......................................... 110
ITEM 1. Index to Exhibits........................ 110
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PART I
ITEM 1. BUSINESS.
General
Harbor Bancorp (the "Company") is a corporation that was
organized under the laws of the State of California on July 23, 1982 and
commenced business on December 17, 1982 when, pursuant to a reorganization, the
Bancorp acquired all of the voting stock of Harbor Bank (the "Bank"). As a bank
holding company the Company is subject to the Bank Holding Company Act of 1956,
as amended (the "BHC Act"). A general description of the business of each of the
Company's subsidiaries is set forth below.
The Company's principal business is to serve as a holding
company for the Bank and its subsidiaries and for other banking or
banking-related subsidiaries which the Company may establish or acquire. The
Company's principal source of income is dividends from its subsidiaries. Legal
limitations are imposed on the amount of dividends that may be paid and loans
that may be made by the Bank and its subsidiaries to the Company. As of December
31, 1996, the Company had total consolidated assets of approximately $200
million, total consolidated net loans of approximately $141 million, total
consolidated deposits of approximately $183 million and total stockholder's
equity of approximately $16 million. The Company does not have any industry
segments.
Harbor Bank Properties was incorporated under the laws of the
State of California on September 11, 1975 and is a wholly-owned subsidiary of
the Company. This company is presently inactive.
Harbor Bank was incorporated under the laws of the State of
California on December 3, 1973, and was licensed by the California
Superintendent of Banks (the "Superintendent") and commenced operations as a
California state-chartered bank on May 13, 1974. It currently operates six (6)
offices, two offices in Long Beach, one office in Los Alamitos, one office in
Irvine, one office in Fountain Valley and one office in Huntington Beach,
California. As of December 31, 1996, the Bank had approximately $200 million in
assets, approximately $141 million in net loans, and approximately $184 million
in deposits.
H.B. Funding is a California corporation that was
incorporated on February 17, 1983 and is wholly-owned by the Bank.
H.B. Funding operates as a mortgage company and currently brokers
loans to other lending institutions on a fee basis.
The Bank provides a wide range of commercial banking services
primarily for professionals and small and medium-sized
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businesses. Services include those traditionally offered by commercial banks of
similar size and character in California, such as checking, interest-bearing
checking ("NOW") and savings accounts, Money Market Deposit Accounts and Super
NOW accounts, commercial, real estate, personal, home improvement, automobile,
and other installment and term loans, travelers checks, safe deposit boxes,
collection services, and telephone transfers; however, the Bank places special
emphasis on services tailored to meet the needs of the professional and business
market, such as Small Business Administration ("SBA") loans, and payroll and
accounting packages and billing programs. As part of the Bank's wholesale
orientation, it makes few consumer loans and does not actively solicit personal
as opposed to business accounts. The Bank does not have a trust department;
however, the Bank makes arrangements with correspondent institutions to provide
trust services as well as investment and international banking services.
On August 3, 1993, the Bank and FDIC executed a Memorandum of
Understanding ("FDIC Memorandum"). The FDIC Memorandum required the Bank to take
certain actions, including the following: (i) increase Board of Directors
participation; (ii) maintain Tier 1 capital equal to or exceeding six and
one-half (6.5%) percent of the Bank's total assets; (iii) chargeoff or collect
certain assets classified loss, and reduce certain other assets classified
substandard in accordance with a specified reduction schedule; (iv) restrict
extensions of credit to borrowers who had loans previously charged-off or
classified loss and uncollected, or substandard; (v) revise, adopt, and
implement the following: lending and collection policies, profit plan,
business/strategic plan, liquidity and funds management policy, and internal
routine and control policy; (vi) review adequacy of the reserve for loan losses
and establish a comprehensive policy for determining the adequacy of the reserve
for loan losses; (vii) eliminate and/or correct any and all violations of law;
(viii) file with the FDIC amended Consolidated Reports of Condition and Income
as of December 31, 1993; and (ix) furnish written progress reports detailing the
compliance with the FDIC Memorandum.
As a result of an examination conducted by the FDIC as of
January 8, 1996, the FDIC determined that the Bank was in compliance with the
terms of the FDIC Memorandum, and the FDIC removed the FDIC Memorandum on May
22, 1996.
On January 3, 1995, the Bank and the Superintendent executed a
Memorandum of Understanding ("Superintendent's Memorandum"). The
Superintendent's Memorandum required the Bank to take certain actions, including
the following: (i) retain management acceptable to the Superintendent; (ii)
maintain tangible shareholders equity in an amount which equals or exceeds six
and one-half (6.5%) percent of total tangible assets; (iii) charge-off or
collect all assets classified loss, and reduce certain other assets classified
substandard and doubtful in accordance with a specified reduction schedule; (iv)
maintain an adequate allowance for loan losses, and review the adequacy of the
allowance prior to the end of each calendar quarter; (v) maintain an adequate
valuation allowance for other real
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estate owned; (vi) correct all violations of law; (vii) revise, adopt and
implement the following: lending and collection policies, investment policy,
internal loan and operations audit policy, liquidity policy, a profit plan and
month-to-month budget for 1995, and an annual schedule to review and adopt all
policies; (viii) avoid distributions to its shareholder without the prior
written consent of the Superintendent; and (ix) furnish written progress reports
to the Superintendent on a quarterly basis.
As a result of a request made by the Board of Directors of
Harbor Bank on May 28, 1996, the Superintendent determined that the Bank was in
compliance with the terms of the Superintendent's Memorandum, and the
Superintendent removed the Superintendent's Memorandum on June 12, 1996.
As a result of an examination conducted by the Federal Reserve
Bank of San Francisco ("FRB") as of March 31, 1994, the Company and the FRB
executed a Memorandum of Understanding (the "FRB Memorandum") dated October 25,
1994. In accordance with the terms of the FRB Memorandum, the Company agreed to
take certain actions including the following: (i) declare or pay any dividends
without prior written approval; (ii) submit a written plan to maintain an
adequate capital position; (iii) submit a written statement concerning steps to
be taken to improve the condition of the Bank and the Company; (iv) submit
written intercompany tax allocation and payment policies; (v) shall not enter
into any transaction which would result in lending or collateral violations;
(vi) increase borrowings or debt without prior written approval; (vii) enter
into any agreements to acquire any interest in any entities or portfolios, or
engage in any new line of business without prior written approval; and (viii)
form a committee of board of directors to monitor compliance with the provisions
of the FRB Memorandum.
Based on the Company's overall improved financial condition and the adoption of
certain resolutions by the Company's Board of Directors, the FRB terminated the
FRB Memorandum effective December 3, 1996.
Supervision and Regulation
Harbor Bancorp
The capital stock of the Company is subject to the
registration requirements of the Securities Act of 1933. The common stock of the
Bank is exempt from such requirements. The Company is also subject to the
periodic reporting requirements of the Securities Exchange Act of 1934, which
include, but are not limited to, the filing of annual, quarterly and other
reports with the Securities and Exchange Commission.
The Company, as a bank holding company, is subject to
regulation under the BHC Act and is registered with and subject to the
supervision of the Federal Reserve Board. Under the BHC Act, a bank holding
company is defined as any company which directly or indirectly
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owns, controls or holds with power to vote, 25% or more of the voting shares of
any bank or company that is or becomes a bank holding company under the BHC Act
or which controls the election of a majority of the directors of the bank or
company. The Company is required to obtain the prior approval of the Federal
Reserve Board before it may acquire all or substantially all of the assets of
any bank, or ownership or control of voting shares of any bank if, after giving
effect to such acquisition, the Company would own or control, directly or
indirectly, more than 5% of such bank. The BHC Act prohibits the Company from
acquiring any voting shares of, interest in, or all or substantially all of the
assets of a bank located outside the State of California unless the laws of such
state specifically authorize such acquisition.
Under the BHC Act, the Company may not engage in any business
other than managing or controlling banks or furnishing services to its
subsidiaries, except that it may engage in certain activities which, in the
opinion of the Federal Reserve Board, are so closely related to banking or to
managing or controlling banks as to be a proper incident thereto. The Company is
also prohibited, with certain exceptions, from acquiring direct or indirect
ownership or control of more than 5% of the voting shares of any company unless
the company is engaged in such activities. The Federal Reserve Board's approval
must be obtained before the shares of any such company can be acquired and, in
certain cases, before any approved company can open new offices. In making such
determinations the Federal Reserve Board considers whether the performance of
such activities by a bank holding company would offer advantages to the public,
such as greater convenience, increased competition, or gains in efficiency,
which outweigh possible adverse effects such as undue concentration of
resources, decreased or unfair competition, conflicts of interest, or unsound
banking practices. Further, the Federal Reserve Board is empowered to
differentiate between activities commenced de novo and activities commenced by
acquisition, in whole or in part, of a going concern.
Although the entire scope of permitted activities is uncertain
and cannot be predicted, the major non-banking activities that have been
permitted to bank holding companies with certain limitations are: making,
acquiring or servicing loans that would be made by a mortgage, finance, credit
card or factoring company; operating an industrial loan company leasing real and
personal property; acting as an insurance agent, broker, or principal with
respect to insurance that is directly related to the extension of credit by the
bank holding company or any of its subsidiaries and limited to repayment of the
credit in the event of death, disability or involuntary unemployment; issuing
and selling money orders, savings bonds and travelers checks; performing certain
trust company services; performing appraisals of real estate and personal
property; providing investment and financial advice; providing data processing
services; providing courier services; providing management consulting advice to
nonaffiliated depository institutions; arranging commercial real estate equity
financing; providing certain securities brokerage services; underwriting and
dealing in government obligations and money
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market instruments; providing foreign exchange advisory and transactional
services; acting as a futures commission merchant; providing investment advice
on financial futures and options on futures; providing consumer financial
counseling; providing tax planning and preparation services; providing check
guaranty services; engaging in collection agency activities; and operating a
credit bureau.
On August 28, 1996, the Federal Reserve Bank proposed
revisions to Regulation Y that amends the list of activities to include certain
nonbanking activities that previously had been determined by order to be closely
related to banking. It is our understanding that this proposal was recently
adopted by the Federal Reserve Bank with certain changes, and became effective
during the latter part of April 1997. Among the activities that would be
included are: (1) riskless principal transactions; (2) private placement
services; (3) foreign exchange trading for a bank holding company's own account;
(4) dealing and related activities in gold, silver, platinum and palladium; (5)
employee benefits consulting; (6) career counseling services; (7) asset
management, servicing and collection activities; (8) acquiring and resolving
debt-in-default; (9) printing and selling checks; and (10) providing real estate
settlement services.
The Company's primary source of income (other than interest
income earned on Company capital) is the receipt of dividends and management
fees from its subsidiaries. The Bank's ability to make such payments to the
Company is subject to certain statutory and regulatory restrictions.
As a bank holding company, the Company is required to file
reports with the Federal Reserve Board and to provide such additional
information as the Federal Reserve Board may require. The Federal Reserve Board
also has the authority to examine the Company and each of its subsidiaries with
the cost thereof to be borne by the Company.
In addition, banking subsidiaries of bank holding companies
are subject to certain restrictions imposed by federal law in dealings with
their holding companies and other affiliates. Subject to certain exceptions set
forth in the Federal Reserve Act, a bank can loan or extend credit to an
affiliate, purchase or invest in the securities of an affiliate, purchase assets
from an affiliate, accept securities of an affiliate as collateral security for
a loan or extension of credit to any person or company or issue a guarantee,
acceptance or letter of credit on behalf of an affiliate only if the aggregate
amount of the above transactions of the Bank and its subsidiaries does not
exceed 10% of the Bank's capital stock and surplus on a per affiliate basis or
20% of the Bank's capital stock and surplus on an aggregate affiliate basis. In
addition, such transaction must be on terms and conditions that are consistent
with safe and sound banking practices. A bank and its subsidiaries generally may
not purchase a low-quality asset, as that term is defined in the Federal Reserve
Act, from an affiliate. Such restrictions also prevent a holding company and its
other affiliates from borrowing from a banking subsidiary of the
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holding company unless the loans are secured by collateral.
The BHC Act also prohibits a bank holding company or any of
its subsidiaries from acquiring 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 banking subsidiaries are principally conducted unless
such acquisition is expressly authorized by statutes of the state in which the
bank to be acquired is located. Legislation recently adopted in California
permits out-of-state bank holding companies to acquire California banks. See
"Effect of Governmental Policies and Recent Legislation" later in this section.
The Company and its subsidiaries are prohibited from engaging
in certain tie-in arrangements in connection with any extension of credit, sale
or lease of property or furnishing of services. For example, with certain
exceptions the Bank may not condition an extension of credit on a customer's
obtaining other services provided by it, the Company or any other subsidiary or
on a promise by the customer not to obtain other services from a competitor.
The BHC Act and regulations of the Federal Reserve Board also
impose certain constraints on the redemption or purchase by a bank holding
company of its own shares of stock.
The Federal Reserve Board has cease and desist powers to cover
parent bank holding companies and nonbanking subsidiaries where action of a
parent bank holding company or its non-financial institutions represent an
unsafe or unsound practice or violation of law. The Federal Reserve Board has
the authority to regulate debt obligations (other than commercial paper) issued
by bank holding companies by imposing interest ceilings and reserve requirements
on such debt obligations.
The ability of the Company to pay dividends to its
shareholders is subject to the restrictions set forth in the California General
Corporation Law (the "Corporation Law"). The Corporation Law provides that a
corporation may make a distribution to its shareholders if the corporation's
retained earnings equal at least the amount of the proposed distribution. The
Corporation Law further provides that, in the event that sufficient retained
earnings are not available for the proposed distribution, a corporation may
nevertheless make a distribution to its shareholders if it meets two conditions,
which generally are as follows: (i) the corporation's assets equal at least
1-1/4 times its liabilities; and (ii) the corporation's current assets equal at
least its current liabilities or, if the average of the corporation's earnings
before taxes on income and before interest expense for the two preceding fiscal
years was less than the average of the corporation's interest expense for such
fiscal years then the corporation's current assets equal at least 1-1/4 times
its current liabilities.
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Harbor Bank
Banks are extensively regulated under both federal and state
law. The Bank, as a California state chartered bank, is subject to primary
supervision, periodic examination and regulation by the Superintendent and the
FDIC.
The Bank is insured by the FDIC, which currently insures
deposits of each member bank to a maximum of $100,000 per depositor. For this
protection, the Bank, as is the case with all insured banks, pays a semi-annual
statutory assessment and is subject to the rules and regulations of the FDIC.
Although the Bank is not a member of the Federal Reserve System, it is
nevertheless subject to certain regulations of the Federal Reserve Board.
Various requirements and restrictions under the laws of the
State of California and the United States affect the operations of the Bank.
State and federal statutes and regulations relate to many aspects of the Bank's
operations, including reserves against deposits, interest rates payable on
deposits, loans, investments, mergers and acquisitions, borrowings, dividends
and locations of branch offices. Further, the Bank is required to maintain
certain levels of capital.
There are statutory and regulatory limitations on the amount
of dividends which may be paid to stockholders by a bank. California law
restricts the amount available for cash dividends by state-chartered banks to
the lesser of retained earnings or the bank's net income for its last three
fiscal years (less any distributions to stockholders made during such period).
In the event a bank has no retained earnings or net income for its last three
fiscal years, cash dividends may be paid in an amount not exceeding the net
income for such bank's last preceding fiscal year only after obtaining the prior
approval of the Superintendent.
The FDIC also has authority to prohibit the Bank from engaging
in what, in the FDIC's opinion, constitutes an unsafe or unsound practice in
conducting its business. It is possible, depending upon the financial condition
of the bank in question and other factors, that the FDIC could assert that the
payment of dividends or other payments might, under some circumstances, be such
an unsafe or unsound practice.
Banks are subject to certain restrictions imposed by federal
law on any extensions of credit to, or the issuance of a guarantee or letter of
credit on behalf of its affiliates, the purchase of or investments in stock or
other securities thereof, the taking of such securities as collateral for loans
and the purchase of assets of such affiliates. Such restrictions prevent
affiliates from borrowing from the Bank unless the loans are secured by
marketable obligations of designated amounts. Further, such secured loans and
investments by the Bank in any other affiliate is limited to 10% of the Bank's
capital and surplus (as defined by federal regulations) and such secured loans
and investments are limited, in the aggregate, to 20% of the Bank's capital and
surplus (as defined by federal regulations).
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California law also imposes certain restrictions with respect to transactions
involving other controlling persons of the Bank. Additional restrictions on
transactions with affiliates may be imposed on the Bank under the prompt
corrective action provisions of the FDIC Improvement Act.
Potential and Existing Enforcement Actions
Commercial banking organizations, such as the Bank, may be
subject to potential enforcement actions by the FDIC and the Superintendent for
unsafe or unsound practices in conducting their businesses or for violations of
any law, rule, regulation or any condition imposed in writing by the agency or
any written agreement with the agency. Enforcement actions may include the
imposition of a conservator or receiver, the issuance of a cease-and-desist
order that can be judicially enforced, the termination of insurance of deposits,
the imposition of civil money penalties, the issuance of directives to increase
capital, the issuance of formal and informal agreements, the issuance of removal
and prohibition orders against institution-affiliated parties and the imposition
of restrictions and sanctions under the prompt corrective action provisions of
the FDIC Improvement Act.
The regulations of these various agencies govern most aspects
of the Bank's business, including required reserves on deposits, investments,
loans, certain of their check clearing activities, issuance of securities,
payment of dividends, opening of branches, and numerous other areas. As a
consequence of the extensive regulation of commercial banking activities in the
United States, the Bank's business is particularly susceptible to changes in
California and the Federal legislation and regulations which may have the effect
of increasing the cost of doing business, limiting permissible activities, or
increasing competition.
Effect of Governmental Policies and Recent Legislation
Banking is a business that depends on rate differentials. In
general, the difference between the interest rate paid by the Bank on its
deposits and its other borrowings and the interest rate received by the Bank on
loans extended to its customers and securities held in the Bank's portfolio
comprise the major portion of the Bank's earnings. These rates are highly
sensitive to many factors that are beyond the control of the Bank. Accordingly
the earnings and growth of the Bank are subject to the influence of local,
domestic and foreign economic conditions, including recession, unemployment and
inflation.
The commercial banking business is not only affected by
general economic conditions but is also influenced by the monetary and fiscal
policies of the federal government and the policies of regulatory agencies,
particularly the Federal Reserve Board. The Federal Reserve Board implements
national monetary policies (with objectives such as curbing inflation and
combating recession) by its open-market operations in United States Government
securities, by
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adjusting the required level of reserves for financial intermediaries subject to
its reserve requirements and by varying the discount rates applicable to
borrowings by depository institutions. The actions of the Federal Reserve Board
in these areas influence the growth of bank loans, investments and deposits and
also affect interest rates charged on loans and paid on deposits. The nature and
impact of any future changes in monetary policies cannot be predicted.
From time to time, legislation is enacted which has the effect
of increasing the cost of doing business, limiting or expanding permissible
activities or affecting the competitive balance between banks and other
financial intermediaries. Proposals to change the laws and regulations governing
the operations and taxation of banks, bank holding companies and other financial
intermediaries are frequently made in Congress, in the California legislature
and before various bank regulatory and other professional agencies. The
likelihood of any major changes and the impact such changes might have on the
Bank are impossible to predict. Certain of the potentially significant changes
which have been enacted and proposals which have been made recently are
discussed below.
Federal Deposit Insurance Corporation Improvement Act of 1991
On December 19, 1991, the FDIC Improvement Act was enacted
into law. 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, the Comptroller of the Currency ("Comptroller"), the Office of
Thrift Supervision ("OTS") and the FDIC (collectively, the "federal banking
agencies").
Standards for Safety and Soundness
The FDIC Improvement Act requires the federal banking agencies
to prescribe, by regulation, standards for all insured depository institutions
and depository institution holding companies relating to internal controls, 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. The FDIC Improvement
Act 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. Further, the
FDIC Improvement Act requires the federal banking agencies to establish
standards prohibiting compensation, fees and benefit arrangements that are
excessive or could lead to financial loss.
Final regulations have been issued by federal banking agencies
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 secured by real estate. The policies must address loan
portfolio
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management, underwriting standards and loan-to-value limits that do not exceed
the supervisory limits prescribed by the regulations.
Prompt Corrective Regulatory Action
The FDIC Improvement Act 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 the
FDIC Improvement Act. 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 for 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
capital 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);
- "undercapitalized" if it has total risk-based capital that
is less than 8%, Tier 1 risk-based capital that is less than
4% 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 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
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- "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 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 how 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 transaction the institution 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 (i)
specifies the steps the institution will take to become adequately capitalized,
(ii) is based on realistic assumptions and (iii) is likely to succeed in
restoring the depository institution's capital. In addition, each company
controlling an undercapitalized depository institution must guarantee that the
institution will comply with the capital plan until the depository institution
has been 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 institution'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 correction action 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: (i) a
forced sale of voting shares to raise capital or, if grounds exist for
appointment of a receiver or conservator, a forced merger; (ii) restrictions on
transactions with
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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 the FDIC Improvement Act; (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. 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 90 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.
The FDIC has adopted risk-based minimum capital guidelines
intended to provide a measure of capital that reflects the degree of risk
associated with a banking organization's operations for both transactions
reported on the balance sheet as assets and transactions, such as letters of
credit and recourse arrangements, which are recorded as off-balance sheet items.
Under these guidelines, nominal dollar amounts of assets and credit equivalent
amounts of off-balance sheet items are multiplied by one of several risk
adjustment percentages, which range from 0% for assets with low credit risk,
such as certain U.S. Treasury securities, to 100% for assets with relatively
high credit risk, such as business loans.
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In addition to the risk-based guidelines, the FDIC requires
banks to maintain a minimum amount of Tier 1 capital to total assets, referred
to as the leverage ratio. For a bank rated in the highest of the five categories
used by the FDIC to rate banks, the minimum leverage ratio of Tier 1 capital to
total assets is 3%. For all banks not rated in the highest category, the minimum
leverage ratio must be at least 100 to 200 basis points above the 3% minimum, or
4% to 5%. In addition to these uniform risk-based capital guidelines and
leverage ratios that apply across the industry, the FDIC has the discretion to
set individual minimum capital requirements for specific institutions at rates
significantly above the minimum guidelines and ratios.
In August 1995, the federal banking agencies adopted final
regulations specifying that the agencies will include, in their evaluations of a
bank's capital adequacy, an assessment of the exposure to declines in the
economic value of the bank's capital due to changes in interest rates. The final
regulations, however, do not include a measurement framework for assessing the
level of a bank's exposure to interest rate risk, which is the subject of a
proposed policy statement issued by the federal banking agencies concurrently
with the final regulations. The proposal would measure interest rate risk in
relation to the effect of a 200 basis point change in market interest rates on
the economic value of a bank. Banks with high levels of measured exposure or
weak management systems generally will be required to hold additional capital
for interest rate risk. The specific amount of capital that may be needed would
be determined on a case-by-case basis by the examiner and the appropriate
federal banking agency. Because this proposal has only recently been issued, the
Bank currently is unable to predict the impact of the proposal on the Bank if
the policy statement is adopted as proposed.
In January 1995, the federal banking agencies issued a final
rule relating to capital standards and the risks arising from the concentration
of credit and nontraditional activities. Institutions which have significant
amounts of their assets concentrated in high risk loans or nontraditional
banking activities and who fail to adequately manage these risks, will be
required to set aside capital in excess of the regulatory minimums. The federal
banking agencies have not imposed any quantitative assessment for determining
when these risks are significant, but have identified these issues as important
factors they will review in assessing an individual bank's capital adequacy.
In December 1993, the federal banking agencies issued an
interagency policy statement on the allowance for loan and lease losses which,
among other things, establishes certain benchmark ratios of loan loss reserves
to classified assets. The benchmark set forth by such policy statement is the
sum of (a) assets classified loss; (b) 50 percent of assets classified doubtful;
(c) 15 percent of assets classified substandard; and (d) estimated credit losses
on other assets over the upcoming 12 months.
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Other Items
The FDIC Improvement Act 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
institution's tangible, core and risk-based capital; and (vi) provides that,
subject to certain limitations, any federal savings association may acquire or
be acquired by any insured depository institution.
In addition, the FDIC has issued final and proposed
regulations implementing provisions of the FDIC Improvement Act relating to
powers of insured state banks. Final regulations issued in October 1992 prohibit
insured state banks from making equity investments of a type, or in an amount,
that are not permissible for national banks. In general, equity investments
include equity securities, partnership interests and equity interests in real
estate. Under the final regulations, non-permissible investments must be
divested by no later than December 19, 1996. The Bank has no such
non-permissible investments.
Regulations issued in December 1993 prohibit insured state
banks from engaging as principal in any activity not permissible for a national
bank, without FDIC approval. The proposal also provides that subsidiaries of
insured state banks may not engage as principal in any activity that is not
permissible for a subsidiary of a national bank, without FDIC approval.
Capital Adequacy Guidelines
The FDIC has issued guidelines to implement the 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. The
aggregated dollar amount of each category is then multiplied by the risk-weight
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associated with that category. The resulting weighted values from each of the
risk categories are then added together to determine the total risk-weighted
assets.
A banking organization's qualifying total 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 and
minority interests in the equity accounts of consolidated subsidiaries.
Intangibles, such as goodwill, are generally deducted from Tier 1 capital;
however, purchased mortgage servicing rights and purchase 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.
Tier 2 capital may consist of (i) the allowance for possible
loan and lease losses in an amount up to 1.25% of risk-weighted assets; (ii)
perpetual preferred stock, cumulative perpetual preferred stock and long-term
preferred stock and related surplus; (iii) hybrid capital instruments
(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 are subject to certain
requirements and limitations of the federal banking agencies.
The FDIC has also adopted a minimum leverage capital ratio of
Tier 1 capital to average total assets of 3% for the highest rated banks. This
leverage capital ratio is only a minimum. 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 the FDIC
Improvement Act.
Safety and Soundness Standards
In February 1995, the federal banking agencies adopted final
guidelines establishing standards for safety and soundness, as required by
FDICIA. The guidelines set forth operational and managerial standards relating
to internal controls, information systems and internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth and
compensation, fees and benefits. Guidelines for asset quality and earnings
standards will be adopted in the future. The guidelines establish the safety and
soundness standards that the agencies will use to identify and address problems
at insured depository institutions before capital becomes impaired. If an
institution fails to comply with a safety and soundness standard, the
appropriate federal banking agency may require the institution to submit a
compliance plan. Failure to submit a compliance plan or to implement an accepted
plan may result in
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enforcement action.
In December 1992, the federal banking agency issued final
regulations prescribing uniform guidelines for real estate lending. The
regulations require insured depository institutions to adopt written policies
establishing standards, consistent with such guidelines, for extensions of
credit secured 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.
Appraisals for "real estate related financial transactions"
must be conducted by either state-certified or state-licensed appraisers for
transactions in excess of certain amounts. State-certified appraisers are
required for all transactions with a transaction value of $1,000,000 or more;
for all nonresidential transactions valued at $250,000 or more; and for
"complex" 1-4 family residential properties of $250,000 or more. A
state-licensed appraiser is required for all other appraisals. However,
appraisals performed in connection with "federally related transactions" must
now comply with the agencies' appraisal standards. Federally related
transactions include the sale, lease, purchase, investment in, or exchange of,
real property or interests in real property, the financing of real property, and
the use of real property or interests in real property as security for a loan or
investment, including mortgage backed securities.
Premiums for Deposit Insurance
Federal law has established several mechanisms to increase
funds to protect deposits insured by the Bank Insurance Fund ("BIF")
administered by the FDIC. The FDIC is authorized to borrow up to $30 billion
from the United States Treasury; up to 90% of the fair market value of assets of
institutions acquired by the FDIC as receiver from the Federal Financing Bank;
and from depository institutions that are members of the BIF. Any borrowings not
repaid by asset sales are to be repaid through insurance premiums assessed to
member institutions. Such premiums must be sufficient to repay any borrowed
funds within 15 years and provide insurance fund reserves of $1.25 for each $100
of insured deposits. The FDIC also has authority to impose special assessments
against insured deposits.
The FDIC implemented a final risk-based assessment system, as
required by FDICIA, effective January 1, 1994, under which an institution's
premium assessment is based on the probability that the deposit insurance fund
will incur a loss with respect to the institution, the likely amount of any such
loss, and the revenue needs of the deposit insurance fund. As long as BIF's
reserve ratio is less than a specified "designated reserve ratio," 1.25%, the
total amount raised from BIF members by the risk-based assessment system may not
be less than the amount that would be raised if the assessment rate for all BIF
members were .023% of deposits. The FDIC, effective September 15, 1995, lowered
assessments from their rates of $.23 to $.31 per $100 of insured deposits to
rates of $.04 to $.31, depending on the
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condition of the bank, as a result of the recapitalization of the BIF. On
November 15, 1995, the FDIC voted to drop its premiums for well capitalized
banks to zero effective January 1, 1996. Other banks will be charged risk-based
premiums up to $.27 per $100 of deposits.
Governor Pete Wilson recently signed Assembly Bill 3351 (the
"Banking Consolidation Bill"), authored by Assemblyman Ted Weggeland and
sponsored by the California State Banking Department (the"Department"),
effective July 1, 1997, which creates the California Department of Financial
Institutions ("DFI") to be headed by a Commissioner of Financial Institutions
out of the existing Department which regulates state chartered commercial banks
and trust companies in California.
The Banking Consolidation Bill, among other provisions, also
(i) transfers regulatory jurisdiction over state chartered savings and loan
associations from the Department of Savings and Loans ("DSL") to the newly
created DFI and abolishes the DSL; (ii) transfers regulatory jurisdiction over
state chartered industrial loan companies and credit unions from the Department
of Corporations to the newly-created DFI; and (iii) establishes within the DFI
separate divisions for credit unions, commercial banks, industrial loan
companies and savings and loans. As the Banking Consolidation Bill has only
recently been enacted, it is impossible to predict with any degree of certainty
what impact it will have on the banking industry in general and the Bank in
particular.
Congress has recently passed, and the President signed into
law on September 30, 1996, provisions to strengthen the Savings Association
Insurance Fund (the "SAIF") and to repay outstanding bonds that were issued to
recapitalize the SAIF's successor as result of payments made due to insolvency
of savings and loan associations and other federally insured savings
institutions in the late 1980's and early 1990's. The new law will require
savings and loan associations to bear the cost of recapitalizing the SAIF and,
after January 1, 1997, banks will contribute towards paying off the financing
bonds, including interest. In 2000, the banking industry will assume the bulk of
the payments. The new law also aims to merge the Bank Insurance Fund and SAIF by
1999 but not until the bank and savings and loan charters are combined. The
costs and benefits of the new law to the Bank can not currently be accurately
predicted.
Interstate Banking and Branching
On September 29, 1994, the President signed in law the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Act"). Under the Interstate Act, beginning one year after the date
of enactment, a bank holding company that is adequately capitalized and managed
may obtain regulatory approval to acquire an existing bank located in another
state without regard to state law. A bank holding company would not be permitted
to make such an acquisition if, upon consummation, it would control (a) more
than 10% of the total amount of deposits of insured depository institutions in
the United States or (b) 30% or more of the deposits in the state in
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which the bank is located. A state may limit the percentage of total deposits
that may be held in that state by any one bank or bank holding company if
application of such limitation does not discriminate against out-of-state banks.
An out-of-state bank holding company may not acquire a state bank in existence
for less than a minimum length of time that may be prescribed by state law
except that a state may not impose more than a five year existence requirement.
The Interstate Act also permits, beginning June 1, 1997,
mergers of insured banks located in different states and conversion of the
branches of the acquired bank into branches of the resulting bank. Each state
may permit such combinations earlier than June 1, 1997, and may adopt
legislation to prohibit interstate mergers after that date in that state or in
other states by that state's banks. The same concentration limits discussed in
the preceding paragraph apply. The Interstate Act also permits a national or
state bank to establish branches in a state other than its home state if
permitted by the laws of that state, subject to the same requirement and
conditions as for a merger transaction. Effective October 2, 1995, California
adopted legislation which "opts California into" the Interstate Act. However,
the California Legislation restricts out of state banks from purchasing branches
or starting a de novo branch to enter the California banking market. Such banks
may proceed only by way of purchases of whole banks.
The Interstate Act is likely to increase competition in the
Bank's market areas especially from larger financial institutions and their
holding companies. It is difficult to assess the impact such likely increased
competition will have on the Banks' operations.
In 1986, California adopted an interstate banking law. The
law allows California banks and bank holding companies to be acquired
by banking organizations in other states on a "reciprocal" basis
(i.e., provided the other state's law permit California banking
organizations to acquire banking organizations in that state on
substantially the same terms and conditions applicable to banking
organizations solely within that state). The law took effect in two
states. The first state allowed acquisitions on a "reciprocal" basis
within a region consisting of 11 western states. The second stage,
which became effective January 1, 1991, allows interstate acquisitions
on a national "reciprocal" basis. California has also adopted similar
legislation applicable to savings associations and their holding
companies.
On September 28, 1995, Governor Wilson signed Assembly Bill
No. 1482, the Caldera, Weggeland, and Killea California Interstate Banking and
Branching Act of 1995 (the "1995 Act"). The 1995 Act, which was filed with the
Secretary of State as Chapter 480 of the Statutes of 1995, became operative on
October 2, 1995.
The 1995 Acts opts in early for interstate branching, allowing
out-of-state banks to enter California by merging or purchasing a California
bank or industrial loan company which is at least five years old. Also, the 1995
Act repeals the California
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Interstate (National) Banking Act of 1986, which regulated the acquisition of
California banks by out-of-state bank holding companies. In addition, the 1995
Act permits California state banks, with the approval of the Superintendent of
Banks, to establish agency relationships with FDIC-insured banks and savings
associations. Finally, the 1995 Act provides for regulatory relief, including
(i) authorization for the Superintendent to exempt banks from the requirement of
obtaining approval before establishing or relocating a branch office or place of
business, (ii) repeal of the requirement of directors' oaths (Financial Code
Section 682), and (iii) repeal of the aggregate limit on real estate loans
(Financial Code Section 1230).
Community Reinvestment Act and Fair Lending Developments
The Bank is subject to certain fair lending requirements and
reporting obligations involving home mortgage lending operations and Community
Reinvestment Act ("CRA") activities. The CRA generally requires the federal
banking agencies to evaluate the record of financial institutions in meeting the
credit needs of their local community, including low and moderate income
neighborhoods. In addition to substantial penalties and corrective measures that
may be required for a violation of certain fair lending laws, the federal
banking agencies may take compliance with such laws and CRA into account when
regulating and supervising other activities.
In May 1995, the federal banking agencies issued final
regulations which change the manner in which they measure a bank's compliance
with its CRA obligations. The final regulations adopt a performance-based
evaluation system which bases CRA ratings on an institutions' actual lending
service and investment performance rather than the extent to which the
institution conducts needs assessments, documents community outreach or complies
with other procedural requirements. In March 1994, the Federal Interagency Tax
Force on Fair lending issued a policy statement on discrimination in lending.
The policy statement describes the three methods that federal agencies will use
to prove discrimination: overt evidence of discrimination, evidence of disparate
treatment and evidence of disparate impact.
In February 1995, the federal banking agencies adopted final
safety and soundness standards for all insured depository institutions. The
standards, which were issued in the form of guidelines rather than regulations,
relate to internal controls, information systems, internal audit systems, loan
underwriting and documentation, compensation and interest rate exposure. In
general, the standards are designed to assist the federal banking agencies in
identifying and addressing problems at insured depository institutions before
capital becomes impaired. If an institution fails to meet these standards, the
appropriate federal banking agency may require the institution to submit a
compliance plan. Failure to submit a compliance plan may result in enforcement
proceedings. Additional standards on earnings and classified assets are expected
to be issued in the near future.
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New Accounting Pronouncements
In March of 1995, the FASB issued SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of.
SFAS No. 121 establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used and for long-lived assets and certain identifiable
intangibles to be disposed of. The statement does not apply to financial
instruments long-term customer relationships of a financial institution (core
deposits), mortgage and other servicing rights, and tax deferred assets. SFAS
121 requires the review of long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances include,
for example, a significant decrease in market value of an assets, a significant
change in use of an asset, or an adverse change in a legal factor that could
affect the value of an asset. If such an event occurs and it is determined that
the carrying value of the asset may not be recoverable, an impairment loss
should be recognized as measured by the amount by which the carrying amount of
the asset exceeds the fair value of the asset. Fair value can be determined by a
current transaction, quoted market prices, or present value of estimated
expected future cash flows discounted at the appropriate rate. The statement is
effective for fiscal years beginning after December 15, 1995. The implementation
of SFAS No. 121 did not have a material impact on its results of operations or
financial position.
In May of 1995, the FASB issued SFAS 122, Accounting for
Mortgage Servicing Rights. SFAS No. 122 eliminates distinctions between
servicing rights that were purchased and those that were retained upon the sale
of loans. The statement requires mortgage servicers to recognize as separate
assets rights to service loans, no matter how the rights were acquired.
Institutions who sell loans and retain the servicing rights will be required to
allocate the total cost of the loans to servicing rights and loans based on
their relative fair values if the value can be estimated. SFAS No. 122 is
effective for fiscal years beginning after December 15, 1995. Further, SFAS No.
122 requires that all capitalized mortgage servicing rights be periodically
evaluated for impairment based upon the current fair value of these rights. This
Statement which is superseded by SFAS No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, did not have a
material effect on the Company's or the Bank's financial condition and results
of operations.
In October of 1995, the FASB issued SFAS No. 123, Accounting
for Stock-Based Compensation, establishing financial accounting and reporting
standards for stock-based employee compensation plans. This statement encourages
all entities to adopt a new method of accounting to measure compensation cost of
all employee stock compensation plans based on the estimated fair value of the
award at the date it is granted. Companies are, however, allowed to continue to
measure compensation cost for those plans using the intrinsic value based method
of accounting, which generally does not result in compensation expense
recognition for most plans. Companies that elect to remain
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with the existing accounting are required to disclose in a footnote to the
financial statements pro forma net income and, if presented, earnings per share,
as if this statement had been adopted. The accounting requirements of this
statement are effective for transactions entered into in fiscal years that begin
after December 15, 1995; however, companies are required to disclose information
for awards granted in their first fiscal year beginning after December 15, 1994.
The proforma earnings per share disclosure required by SFAS 123 are not shown in
the Company's notes to Consolidated Financial Statements as the pro forma impact
of applying SFAS 123 is insignificant in 1996.
In June of 1996, the FASB issued SFAS No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,
and in December, 1996 issued SFAS No. 127, Deferral of the Effective Date of
Certain Provisions of FASB Statement No. 125 (an amendment of FASB Statement No.
125) establishing accounting and reporting standards for transfers and servicing
of financial assets and extinguishments of liabilities based on consistent
application of the financial-components approach. This approach requires the
recognition of financial assets and servicing assets that are controlled by the
reporting entity, the derecognition of financial assets when control is
surrendered, and the derecognition of liabilities when they are extinguished.
Specific criteria are established for determining when control has been
surrendered in the transfer of financial assets. Liabilities and derivatives
incurred or obtained by transferors in conjunction with the transfer of
financial assets are required to be measured at fair value, if practicable.
Servicing assets and other retained interests in transferred assets are required
to be measured by allocating the previous carrying amount between the assets
sold, if any, and the interest that is retained, if any, based on the relative
fair values of the assets on the date of the transfer. Servicing assets retained
are subsequently subject to amortization and assessment for impairment.
Management believes the implementation of this statement will not have a
material effect on the Company's or its subsidiary banks financial condition or
results of operations.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 (SFAS No. 128),"Earnings per Share."
SFAS No. 128 supersedes APB Opinion No. 15, Earnings per Share, and is
substantially the same as the International Accounting Standard 33, Earnings per
Share, recently issued by the International Standards committee. SFAS No. 128
establishes standards for computing earnings per share (EPS) previously found in
APB Opinion No. 15 and makes them comparable to international EPS standards. It
replaces the presentation of primary EPS with a presentation of basic EPS. Under
basic EPS, dilution is excluded and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. It also requires dual presentation of basic and diluted EPS on
the face of the income statement for all entities with complex capital
structures. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts
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to issue common stock were exercised or converted into common stock or resulted
in the issuance of common stock that then shared in the earnings of the entity.
Diluted EPS is computed similarly to fully diluted EPS pursuant to APB Opinion
No. 15. SFAS No. 128 will be effective for financial statements issued for
periods ending after December 15, 1997, including interim periods; earlier
application is not permitted. However, disclosure of pro forma EPS amounts
computed using SFAS No. 128 in the notes to the financial statements in periods
prior to required adoption are permitted. It is not anticipated that the
financial impact of this statement will have a material effect on the Company or
the Bank.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 129 (SFAS No. 129),
"Disclosure of Information about Capital Structure." SFAS No 129
continues the previous requirements to disclose certain information
about an entity's capital structure found in APB Opinion No. 10,
Omnibus Opinion-1966, APB Opinion No. 15, Earnings per Share, and SFAS
No. 47, Discloser of Long-Term Obligations, for entities that were
subject to the requirements of those standards. SFAS No. 129
eliminates the exemption of non-public entities from certain
disclosure requirements of APB Opinion No. 15 as provided by SFAS No.
21, Suspension of the Reporting of Earnings per Share and Segment
Information by Non-public Enterprises. SFAS No. 129 will be effective
for financial statements issued for periods ending after December 15,
1997. It is not anticipated that the financial impact of this
statement will have a material effect on the Company or the Bank.
Hazardous Waste Clean-Up Costs
Management is aware of recent legislation and cases relating
to hazardous waste clean-up costs and potential liability. Based on a general
survey of the loan portfolio of the Bank, conversations with local authorities
and appraisers, and the type of lending currently and historically done by the
Bank (the Bank has generally not made the types of loans generally associated
with hazardous waste contamination problems), management is not aware of any
potential liability for hazardous waste contamination.
Other Regulations and Policies
The federal regulatory agencies have adopted regulations that
implement Section 304 of FDICIA which requires federal banking agencies to adopt
uniform regulations prescribing standards for real estate lending. Each insured
depository institution must adopt and maintain a comprehensive written real
estate lending policy, developed in conformance with prescribed guidelines, and
each agency has specified loan-to-value limits in guidelines concerning various
categories of real estate loans.
Various requirements and restrictions under the laws of the
United States and the State of California affect the operations of the Bank.
Federal regulations include requirements to maintain non-interest bearing
reserves against deposits, limitations on the nature
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and amount of loans which may be made, and restrictions on payment of dividends.
The California Superintendent of Banks approves the number and locations of the
branch offices of a bank. California law exempts banks from the usury laws.
Market Area
The Bank and the Company provide a solution-oriented approach
to meeting the banking needs of individuals and businesses through six branches
located in Los Angeles and Orange Counties.
The Company's market areas in the past five years have felt
the full impact of the national recession that continued in California through
all of 1996. The recession has been most felt through the progressive loss of
jobs as defense contractors cut back and restructured; in declines in
construction activity; cutbacks in the aerospace industry and in the closing of
more than the normal number of small businesses. Real estate values have
substantially declined with some properties dropping by 20% to 30% depending on
location and price range and the increases in unemployment statistics. On a
positive note, most recent economic reports point to decreases in unemployment
and some increases in both sales volume and prices of real estate.
Business Concentrations
As of December 31, 1996, the Bank had approximately $200
million in assets and $184 million in deposits. No individual or single group of
related accounts is considered material in relation to the Bank's totals, or in
relation to its overall business.
Monetary Policy
Banking is a business which depends on rate differentials. In
general, the difference between the interest paid by the Bank on its deposits
and its other borrowings and the interest rate received by the Bank on loans
extended to its customers and securities held in the Bank investment portfolios
will comprise the major portion of the Bank's earnings.
The earnings and growth of the Bank will be affected not only
by general economic conditions, both domestic and international, but also by the
monetary and fiscal policies of the United States and its agencies, particularly
the Federal Reserve Board. The Federal Reserve Board can and does implement
national monetary policy, such as seeking to curb inflation and combat
recession, by its open market operations in U.S. Government securities,
limitations upon savings and time deposit interest rates, and adjustments to the
discount rates applicable to borrowings by banks which are members of the
Federal Reserve System. The actions of the Federal Reserve Board influence the
growth of bank loans, investments and deposits and also affect interest rates
charged on loans and paid on deposits. The nature and impact that future changes
in fiscal or monetary policies or economic
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controls may have on the Bank's businesses and earnings cannot be
predicted.
Competition
The banking business in California generally, and in the
Bank's primary service areas specifically, is highly competitive with respect to
both loans and deposits, and is dominated by a relatively small number of major
banks with many offices and operations over a wide geographic area. Among the
advantages such major banks have over the Bank are their ability to finance
wide-ranging advertising campaigns and to allocate their investment assets to
regions of higher yield and demand. Such banks offer certain services such as
trust services and international banking which are not offered directly by the
Bank (but which can be offered indirectly by the Bank through correspondent
institutions). In addition, by virtue of their greater total capitalization,
such banks have substantially higher lending limits than the Bank. (Legal
lending limits to an individual customer are based upon a percentage of a bank's
total capital accounts.) Other entities, both governmental and in private
industry, seeking to raise capital through the issuance and sale of debt or
equity securities also provide competition for the Bank in the acquisition of
deposits. Banks also compete with money market funds and other money market
instruments which are not subject to interest rate ceilings.
In order to compete with other competitors in their primary
service areas, the Bank attempts to use to the fullest extent the flexibility
which their independent status permits. This includes an emphasis on specialized
services, local promotional activity, and personal contacts by their respective
officers, directors and employees. In particular, each of the banks offers
highly personalized banking services.
Employees
At December 31, 1996, the Company and the Bank employed 96
individuals, all on a full-time basis. The Company believes that its employee
relations are excellent.
-24-
<PAGE> 27
Item 2. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results of
operations is intended to provide a better under standing of the significant
changes and trends relating to the financial condition, results of operations,
capital resources, liquidity and interest rate sensitivity of the Company during
the three-year period ended December 31, 1996, and for the quarters ended March
31, 1997 and 1996. The following discussion will focus on Harbor Bancorp's goals
in conjunction with current events and trends. Reference should be made to the
accompanying Consolidated Financial Statements of the Company and related notes
for an understanding of the following discussion and analysis.
FINANCIAL CONDITION
Assets
Total assets increased $5,011,366, or 2.6%, from $195,092,129 at December
31, 1995 to $200,103,495 at December 31, 1996 and $5,069,520, or 2.5%, to
$205,173,015 at March 31, 1997. The net increase in total assets from December
31, 1995 to December 31, 1996 results primarily from an increase in loans,
offset by a decline in investment securities. The increase in total assets from
December 31, 1995 to December 31, 1996, and from December 31, 1996 to March 31,
1997, is primarily the result of strong growth in loans offset by a decline in
investment securities.
Total loans increased by $13,575,643, or 10.4%, from $130,412,144 at
December 31, 1995 to $143,987,787 at December 31, 1996, with a minimal decline
of $690,870, to $143,269,917 at March 31, 1997. In 1996, the Company benefited
from a continued consolidation in the banking industry in Southern California
due to bank mergers, acquisitions and closures. The increase in the loan
portfolio is primarily a result of additional volume generated due to the
industry consolidation. Management continues to emphasize funding only the best
credits and there has been no change in the Company's philosophy of no growth
for growth's sake.
Cash and cash equivalents increased $2,378,627, or 9.1%, from
$26,164,212 at December 31, 1995 to $28,542,839 at December 31, 1996. The
increase in cash and cash equivalents is primarily due to an increase in federal
funds sold and securities purchased under resale agreements which is offset by a
decline in investment securities. Investment securities declined $10,130,284, or
28.9%, from $34,982,653 at December 31, 1995 to
-25-
<PAGE> 28
$24,852,369 at December 31, 1996. The primary reason for the decline in
investment securities is reallocation into other earning asset categories,
specifically federal funds sold and securities purchased under resale agreements
and loans. At March 31, 1997, the increase in total assets were primarily in
cash and cash equivalents which increased $19,580,300, or 68.6% from $28,542,839
at December 31 1996, to $48,123,139 at March 31, 1997, offset by a decline in
investment securities which declined $13,390,494 from $24,852,369 at December
31, 1996, to $11,461,875 at March 31, 1997. This net increase in liquid assets
is primarily a result of maintaining liquidity in the form of short term and
overnight investments in anticipation of growth in loan volume and to
accommodate possible seasonal reductions in title and escrow deposit levels.
The Bank positions its investment portfolio to maintain a level of
liquidity considered adequate within the prevailing economic climate. Under this
policy, purchases of investment securities as well as the sale of federal funds
are made after consideration of liquidity requirements.
The book value of the investment portfolio by investment category for
the last three years ended December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
U.S. gov't & agency obligations $23,510 $33,813 $33,721
Obligations of state/political
subdivisions 543 338 341
Mutual funds, net 799 832 757
------- ------- -------
$24,852 $34,983 $34,819
======= ======= =======
</TABLE>
The book value of the investment portfolio by investment category for
the three month period ended March 31,(in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
U.S. gov't & agency obligations $10,144 $26,673
Obligations of state/political subdivisions 541 336
Mutual funds, net 777 797
------- -------
$11,462 $27,806
======= =======
</TABLE>
-26-
<PAGE> 29
Maturities of the investment portfolio by investment categories is as
follows at December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
--------------------------------------------------
Less than One Year Five Thru After
One Year Thru Ten Years Ten Years
Five Years
--------------------------------------------------
Book
Value
---------
<S> <C> <C> <C> <C> <C>
U.S. gov't & agency obligations $23,510 $18,818 $ 2,802 $ 1,619 $ 271
Obligations of state/political subdivisions 543 104 25 414 -
Mutual funds, net 799 - - - 799
------- ------- ------- ------- -------
$24,852 $18,921 $ 2,827 $ 2,033 $ 1,070
======= ======= ======= ======= =======
Yield-Weighted Average 4.84% 7.53% 6.16% 10.31%
</TABLE>
Note: Interest income on non-taxable securities is not stated
on a tax-equivalent basis.
Maturities of the investment portfolio by investment categories is as follows at
March, 1997 (in thousands):
<TABLE>
<CAPTION>
Less than One Year Five Thru After
One Year Thru Ten Years Ten Years
Five Years
--------------------------------------------------
Book
Value
---------
<S> <C> <C> <C> <C> <C>
U.S. gov't & agency obligations $10,144 $ 5,771 $ 3,675 $ 439 $ 259
Obligations of state/political subdivisions 541 127 - 414 -
Mutual funds, net 777 - - - 777
------- ------- ------- ------- -------
$11,462 $ 5,898 $ 3,675 $ 853 $ 1,036
======= ======= ======= ======= =======
Yield-Weighted Average 5.71% 6.81% 6.28% 6.64%
</TABLE>
-27-
<PAGE> 30
Total average interest earning assets also experienced an increase of
$13,079,000, or 8.0%, from $162,875,000 at December 31, 1995 to $175,954,000 at
December 31, 1996, compared to $11,138,000, or 7.3%, from $151,737,000 at
December 31, 1994 to $162,875,000 at December 31, 1995. Loans, the largest
component of interest earning assets, averaged $133,951,000 for the year ended
December 31, 1996 compared to $118,986,000 for the year ended December 31, 1995.
The following table presents an analysis of net interest earnings for
the last three fiscal years ended December 31, 1996:
-28-
<PAGE> 31
<TABLE>
<CAPTION>
Year ended December 31, 1996 Year ended December 31, 1995 Year ended December 31, 1994
Interest Average Interest Average Interest Average
Average Income Yields Average Income Yields Average Income Yields
Balance Or Expense Or Rates Balance Or Expense Or Rates Balance Or Expense Or Rates
------------------------------- -------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest Earning
Deposits $ 495 $ 28 5.56% $ 495 $ 31 6.26% $ 1,445 $ 85 5.88%
Taxable Securities 24,571 1,436 5.84 28,357 1,739 6.13 20,405 989 4.85
Non-taxable Securities 369 15 4.18 341 21 6.16 356 22 6.18
Federal Funds Sold 16,568 859 5.19 14,696 805 5.48 12,996 537 4.13
Loans (1) 133,951 12,750 9.52 118,986 11,502 9.67 116,535 10,320 8.86
TOTAL EARNING ASSETS/ -------- ------- ----- ------- ------ ----- ------- ------ -----
INTEREST INCOME 175,954 15,088 8.58% 162,875 14,098 8.66% 151,737 11,953 7.88%
Reserve for Loan Losses (2,948) (3,044) (3,228)
Other Assets 22,485 21,539 25,061
-------- ------- -------
TOTAL ASSETS $195,491 $181,370 $173,570
======== ======== ========
LIABILITIES
& STOCKHOLDERS' EQUITY
Savings & Interest-
bearing
Demand Deposits $ 60,577 $ 1,368 2.26% $ 65,702 $ 1,413 2.15% $ 60,854 $ 1,207 1.98%
Time Deposits 32,580 1,687 5.18 24,473 1,185 4.84 21,170 727 3.43
Borrowed Funds 54 4 6.29 767 44 5.74 1,135 72 6.34
--------- ------- ----- --------- ------- ----- -------- ------- -----
TOTAL INT-BEARING
LIABILITIES/
INTEREST EXPENSE 93,211 3,059 3.28% 90,942 2,642 2.91% 83,159 2,006 2.41%
Demand Deposits 86,242 75,823 75,253
Other Liabilities 1,031 829 1,818
-------- -------- --------
TOTAL LIABILITIES 180,484 167,594 160,230
STOCKHOLDERS' EQUITY 15,007 13,776 13,340
TOTAL LIABILITIES & -------- -------- --------
STOCKHOLDERS' EQUITY $195,491 $181,370 $173,570
======== ======== ========
Net Interest Income $12,029 $11,456 $ 9,947
======= ======= =======
Net Interest Income
to Earning Assets 6.84% 7.03% 6.56%
===== ===== =====
</TABLE>
(1) Included in interest income on loans are fees of $173,517 in 1996, $433,019
in 1995 and $464,313 in 1994. Note: Interest income on nonaccrual loans is not
included in interest income. Interest income on non-taxable securities is not
stated on a tax-equivalent basis. Due to rounding individual amounts may not
agree to audited statements by $1 - 2.
-29-
<PAGE> 32
Sources of Funds
The Company had total deposits at December 31, 1996, of $183,431,500
compared to $179,204,795 at December 31, 1995. The principal source of the
increase in total deposits was in interest bearing deposits which increased
$3,241,011, or 3.7%, from $87,201,532 at December 31, 1995, to $90,442,543 at
December 31, 1996. For the first three months of 1997, total deposits increased
$4,588,639, or 2.5%, primarily in interest bearing deposits which increased
$3,496,634, to 3.87%, from $90,442,543 at December 31, 1996 to $93,939,177 at
March 31, 1997. The primary reason for the overall increase in 1996 and the
first quarter of 1997 was growth in core deposits. The Company continues to
maintain local commercial deposits by providing a secure, stable presence in its
market area. Substantially all of the Company's deposits are local, core
deposits. The Company does not have any out-of-area brokered deposits included
in the deposit base. The Company continues to emphasize core deposits and has
elected not to compete for vola tile deposits with increased rates.
The following table sets forth by time remaining to maturity, domestic
time certificates of deposit in amounts of $100,000 or more at December 31,
1996(in thousands):
Less than three months $11,556
Three to six months 10,550
Six to twelve months 1,320
Over twelve months 402
-------
$23,828
=======
The following table sets forth the average amount of and average rate
paid on each of the following deposit categories for the last three years ended
December 31, 1996:
<TABLE>
<CAPTION>
Average Deposits Average Rates
1996 1995 1994 1996 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing
demand deposits $ 86,242 $ 75,823 $ 75,253 - - -
Interest bearing
demand deposits 49,503 53,125 44,883 3.86% 3.65% 3.25%
Savings deposits 11,074 12,577 15,971 2.20% 2.18% 2.22%
Time deposits 32,580 24,473 21,170 5.18% 4.81% 3.43%
-------- -------- --------
Total Deposits $179,399 $165,998 $157,277
</TABLE>
-30-
<PAGE> 33
The following table sets forth changes in interest income and interest
expense and the amount of change attributable to variances in volume and
variance in interest rates. The change in interest due to both rate and volume
has been allocated to volume and rate changes in proportion to the relationship
of the absolute dollar amounts of the change in each.
<TABLE>
<CAPTION>
1996 OVER 1995 1995 OVER 1994
-------------- --------------
Amount of Change Amount of Change
Attributed to: Attributed to:
Total Increase Total Increase
or (Decrease) Volume Rate or (Decrease) Volume Rate
-------------- ------- ------ -------------- ------ -------
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Interest on taxable securities $ (303) $ (232) $ (71) $ 750 $ 437 $ 313
Interest on nontaxable securities (6) 2 (8) (1) (1) -
Interest on deposits with banks (3) - (3) (54) (58) 4
Federal funds sold 54 103 (49) 268 82 186
Interest & fees on loans(1) 1,248 1,447 (199) 1,182 227 955
----- ------ ------ ------ ------ ------
TOTAL INTEREST INCOME 990 1,320 (330) 2,145 687 1,458
Interest Expense:
Interest on Deposits:
Savings & Interest bearing demand (43) (99) 56 206 100 106
Other time deposits 502 393 109 458 137 321
Interest on short-term borrowing (41) (41) - (28) - (28)
------ ------ ------ ------ ------ ------
TOTAL INTEREST EXPENSE 418 253 165 636 237 399
------ ------ ------ ------ ------ ------
Net Interest Spread $ 572 $1,067 $ (495) $1,509 $ 450 $1,059
====== ====== ====== ====== ====== ======
</TABLE>
Note: Individual line items may not agree exactly to changes apparent from the
audited statements by $1 - 2 due to rounding.
(1) Included in interest & fees on loans are fees of $173,517 in 1996 and
$433,019 in 1995.
(2) The change in interest due to both volume and rate has been allocated to
volume and rate changes in proportion to the relationship of the dollar
amounts of the change in each. The following table shows the distribution
of assets, liabilities and stockholders' equity; interest rates and
interest differential (dollars in thousands).
-31-
<PAGE> 34
Results of Operations
Net Interest Income
Net interest income, the difference between interest and fees earned on
earning assets and interest paid on deposits and other sources of funds, has
continued to be challenged by deregulation through increased competition and
market conditions. The Company's net interest income is affected by the change
in the amount and mix of interest-earning assets and interest-bearing
liabilities. It is also affected by changes in yields earned on interest-earning
assets and rates paid on deposits and borrowed funds. Net interest income in
1996 was $12,029,588 compared to $11,456,120 in 1995 and $9,946,446 in 1994. Net
interest income for the first three months of 1997 reflects an increase of
$55,356, or 1.91%, from the same period in 1996. The Company is consistent in
its' ability to maintain a strong net interest income position with the increase
in 1996 a result of an increase in earning assets. Interest earning assets
averaged $175,954,000 in 1996 compared to $162,875,000 in 1995, which represents
an increase of $13,079,000, or 8.03%, and averaged $170,569,000 for the first
three months of 1997. Net interest income, when expressed as a percentage of
average total interest earning assets, is referred to as the net interest
margin. The Company's net interest margin decreased slightly to 6.84% in 1996
from 7.03% in 1995 and 6.56% in 1994. Net interest spread, the effective rate of
interest income on earning assets less the effective rate of interest expense on
deposits, decreased to 5.30% in 1996 from 5.75% in 1995 and 5.47% in 1994.
Allowance and Provision for Loan Losses
The allowance for loan losses is a general reserve established by
management to absorb potential losses inherent in the entire loan portfolio. In
evaluating the adequacy of the allowance, management gives consideration to the
Company's loan loss experience, the performance of loans in the Company's
portfolio, the quality of the loans in the Company's portfolio, evaluation of
collateral for such loans, the economic conditions affecting collectibility of
loans, the prospects and financial condition of the respective borrowers or
guarantors and such other factors which in management's judgment deserve
recognition in the estimation of loan losses. During 1996, $1,159,269 was
provided for loan losses compared to $312,596 provided during 1995 and
$1,088,000 provided during 1994. During the first three months of 1997, the
Company recorded a provision for loan loses of $150,000 compared to $196,000 for
the same period in 1996. The substantial provision for loan losses in 1994
compared to 1995 was necessitated by high levels of non-performing and
classified loans and loan charge-offs. The increase in the provision from 1995
to 1996 is primarily due to problem asset resolution which is reflected in the
reduction of nonperforming assets. Of the $1,159,269 provided for loan losses
-32-
<PAGE> 35
in the year ended December 31, 1996, approximately $435,000 was provided in the
fourth quarter to allow for a $350,000 charge-off. Net charge-offs for 1996,
1995 and 1994 were approximately $1,424,984, $533,833, and $1,530,355,
respectively. The allowance for loan losses at December 31, 1996 was
approximately $2,738,000, or 1.9% of total loans, as compared to $3,003,000, or
2.30% of total loans at December 31, 1995. Non-performing loans, loans which are
no longer accruing interest, decreased $2,963,433, or 43.9%, to $3,782,539 at
December 31, 1996 compared to $6,745,972 at December 31, 1995. Of the $3,782,539
in non-performing loans at December 31, 1996, there were no loans on cash basis
nonaccrual. At December 31, 1995, of the $6,745,972 in non-performing loans
$2,686,978 were on cash basis nonaccrual with all payments received as agreed.
The primary reason for the decrease in non-performing loans was the continued
improvement in the overall loan portfolio. At March 31, 1997, loans on
non-accrual status were $3,637,000, or 2.54% of total loans.
Loan Portfolio
(in thousands)
<TABLE>
<CAPTION>
------------Domestic---------------
Commercial Real Estate
Loans
(Construction)
------------------------------------
<S> <C> <C>
Maturity Distribution:
Due within one year $31,372 $ 523
Due after one but before five years 19,114 -
Due after five years 37 266
------- -------
TOTAL AT DECEMBER 31, 1996 $50,523 $ 789
======= =======
Interest Sensitivity: Loans Due
After One Year
Fixed-rate loans $10,002 $ -
Prime-tied loans 9,149 266
------- -------
TOTAL AT DECEMBER 31, 1996 $19,151 $ 266
======= =======
</TABLE>
The composition of the Company's loan portfolio for the last five years
ended December 31, 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Commercial $ 50,523 $ 51,528 $ 46,502 $ 46,698 $ 66,788
Commercial - real
estate secured 69,295 53,434 45,311 39,222 4,738
Real Estate-secured 17,021 16,127 15,101 18,661 22,721
Real Estate-
construction 789 3,412 4,329 12,089 13,286
Installment 6,360 5,911 3,607 3,838 2,748
-------- -------- -------- -------- --------
TOTAL $143,988 $130,412 $114,850 $120,508 $110,281
======== ======== ======== ======== ========
</TABLE>
-33-
<PAGE> 36
The following table categorizes the Bank's total loans for the periods
ended March 31 as indicated:
<TABLE>
<CAPTION>
Period Ended March 31,
------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Commercial $ 46,876,223 $ 49,332,392
Real Estate Mortgage 89,161,024 68,207,504
Real Estate Construction 805,569 2,057,877
Consumer Loans 4,731,951 4,764,432
Other Loans 1,722,150 4,128,073
------------ ------------
$143,296,917 $128,490,278
============ ============
</TABLE>
March 31, 1997 Maturity Schedule
<TABLE>
<CAPTION>
Due Within After 1 But After
Category 1 Year Within 5 Years 5 Years Total
- -------- ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C>
Commercial and
financial $ 28,210,462 $ 18,194,780 $ 470,981 $ 46,876,223
Real estate
mortgage 17,141,513 63,329,775 8,689,736 89,161,024
Real estate
construction 543,652 -- 261,917 805,569
Installment loans 577,643 3,615,906 538,402 4,731,951
Other loans 82,202 1,639,948 -- 1,722,150
------------ ------------ ------------ ------------
Total $ 46,555,472 $ 86,780,409 $ 9,961,036 $143,296,917
============ ============ ============ ============
Interest Sensitivity:
Predetermined rates .. $ 14,370,097 $ 61,474,882 $ 8,477,322 $ 84,322,301
Floating or adjustable
rates 32,185,375 25,305,527 1,483,714 58,974,616
------------ ------------ ------------ ------------
$ 46,555,472 $ 86,780,409 $ 9,961,036 $143,296,917
============ ============ ============ ============
</TABLE>
-34-
<PAGE> 37
The following table details accruing loans that are contractually past
due 90 days or more, loans that are accounted on a nonaccrual basis and loans
defined as troubled debt restructurings which are not included in the previous
two categories for the last five fiscal years ended December 31, 1996:
Loans Contractually Past Due
(all domestic)
<TABLE>
<CAPTION>
Troubled Past Due 90 Days(2)
Debt ------------------------- Loans On
Restructuring Amount % of Total Non Accrual(1)
------------- ------ ---------- --------------
<S> <C> <C> <C> <C>
December 31, 1996:
Commercial $ 45 $ 87 .17% $1,262
Real Estate-secured 1,836 -- .00% 2,521
Real Estate-
construction -- -- -- --
Installment -- 83 1.30% --
------ ------ ---- ------
TOTAL $1,881 $ 170 .12% $3,783
====== ====== ==== ======
December 31, 1995:
Commercial $ 769 $ 46 .09% $1,190
Real Estate-secured 335 35 .05% 5,497
Real Estate-
construction 49 -- -- --
Installment 12 40 .67% 59
------ ------ ---- ------
TOTAL $1,165 $ 121 .09% $6,746
====== ====== ==== ======
December 31, 1994:
Commercial $ -- $ 97 .21% 2,041
Real Estate-secured -- -- .00% 3,636
Real Estate-
construction -- -- .00% --
Installment -- -- .00% 63
------ ------ ---- ------
TOTAL $ -- $ 97 .08% $5,740
====== ====== ==== ======
December 31, 1993:
Commercial $ -- $ 196 .26% 827
Real Estate-secured -- 531 1.84% 3,176
Real Estate-
construction -- -- .00% 833
Installment -- 14 .27% 34
------ ------ ---- ------
TOTAL $ -- $ 741 .61% $4,870
====== ====== ==== ======
December 31, 1992:
Commercial $ -- $ 450 .67% $1,865
Real Estate-secured -- -- .00% 2,875
Real Estate-
construction -- -- .00% --
Installment -- 1 .03% 101
------ ------ ---- ------
TOTAL $ -- $ 451 .41% $4,841
====== ====== ==== ======
</TABLE>
(1) Interest income which would have been recognized in 1996 and 1995 on
nonperforming loans was approximately $172,713 and $260,264 respectively. The
amount of interest income on nonperforming loans that was included in net income
in 1996 was none. (2) Loans on Non Accrual have been excluded from the Past Due
90 Day column.
-35-
<PAGE> 38
The following table details accruing loans that are contractually past
due 90 days or more, loans that are accounted on a nonaccrual basis and loans
defined as troubled debt restructurings which are not included in the previous
two categories for the three months ended March 31, 1996 and 1997, respectively:
<TABLE>
<CAPTION>
March 31,
--------------------------
1997 1996
---------- ----------
<S> <C> <C>
Accruing loans which are contractually
past due 90 days or more $ 71,000 $ 294,000
Loans accounted for on a non-accrual
basis 3,637,000 7,502,000
Restructured loans not included
in above categories -- 823,000
---------- ----------
Total $3,708,000 $3,716,619
========== ==========
</TABLE>
The following table provides an analysis of the allowance for loan
losses for the last five fiscal years ended December 31, 1996:
-36-
<PAGE> 39
Summary of Loan Loss Experience
(in thousands)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Loans outstanding at year-end, net of
unearned interest income $ 143,988 $ 130,412 $ 114,850 $ 120,508 $ 110,281
========= ========= ========= ========= =========
Average loans outstanding, net of
unearned interest income
$ 133,951 $ 118,986 $ 116,535 $ 112,023 $ 108,226
========= ========= ========= ========= =========
Reserve balance, beginning of year $ 3,003 $ 3,224 $ 3,667 $ 1,355 $ 1,029
Recoveries:
Commercial 77 17 20 39 19
Installment 2 2 24 5 12
--------- --------- --------- --------- ---------
TOTAL 79 19 44 44 31
Loans charged off:
Commercial (672) (393) (1,401) (1,143) (126)
Real Estate-mortgage (781) (137) (126) -0- -0-
Installment (51) (22) (48) (153) (63)
--------- --------- --------- --------- ---------
TOTAL (1,504) (552) (1,575) (1,296) (189)
--------- --------- --------- --------- ---------
Net loans charged off (1,425) (533) (1,531) (1,252) (158)
Provision charged to expense 1,159 312 1,088 2,958 484
Acquired from Bank of San Diego 606
--------- --------- --------- --------- ---------
Allowance balance, end of year $ 2,737 $ 3,003 $ 3,224 $ 3,667 $ 1,355
========= ========= ========= ========= =========
Ratio of net loans charged off to
average loans outstanding 1.06% 0.45% 1.31% 1.12% .15%
========= ========= ========= ========= =========
Ratio of allowance for loan
losses to loans at year end 1.90% 2.30% 2.81% 3.04% 1.23%
========= ========= ========= ========= =========
</TABLE>
The Company does not anticipate charge-offs in 1997 for any loan categories,
however, the Company gives no assurance that charge-offs will not occur in 1997.
-37-
<PAGE> 40
Policy for Non-Accrual Loans
The policy of Harbor Bank is that all loans that are past due for
ninety (90) days must be placed on a non-accrual status. In addition, loans in
which it is probable that full collection of principal will not occur are placed
on non-accrual status.
Risk Elements in Loan Portfolio
and
Determination of the Allowances for Loan Losses
The allowance for loan losses represents management's recognition of the
quality of the loan portfolio. The allowance is maintained at a level considered
to be adequate for potential loan losses based on management's assessment of
various factors affecting the loan portfolio, which includes a review of problem
loans, business conditions and the overall quality of the loan portfolio.
The allowance is increased by the provision for loan losses charged to
operations and reduced by loans charged off to the allowance, net of recoveries.
-38-
<PAGE> 41
The following table shows an allocation of the allowance for loan
losses for the five fiscal years ended December 31, 1996.
<TABLE>
<CAPTION>
Percent of
Loans in Each
Category to
Amount Total Loans
------ -------------
<S> <C> <C>
December 31, 1996:
Commercial $2,006 83.2%
Real Estate-secured 704 11.8
Real Estate-construction 9 0.6
Installment 19 4.4
------ -----
$2,738 100.0%
====== =====
December 31, 1995:
Commercial $1,059 39.5%
Real Estate-secured 1,795 53.3
Real Estate-construction 116 2.6
Installment 33 4.5
------ -----
$3,003 100.0%
====== =====
December 31, 1994:
Commercial $1,863 59.7%
Real Estate-secured 1,151 31.7
Real Estate-construction 165 4.2
Installment 45 4.4
------ -----
$3,224 100.0%
====== =====
December 31, 1993:
Commercial $2,415 62.4%
Real Estate-secured 954 23.9
Real Estate-construction 220 9.4
Installment 78 4.3
------ -----
$3,667 100.0%
====== =====
December 31, 1992:
Commercial $ 995 60.6%
Real Estate-secured 207 23.9
Real Estate-construction 100 12.0
Installment 54 3.5
------ -----
$1,356 100.0%
====== =====
</TABLE>
Management believes that the allowance for loan and lease losses is
adequate for potential loan losses. In addition, the Bank has undertaken a
number of actions including restructuring loan administration, developing and
adopting new or revised policies, procedures and systems that are designed to
improve the credit, review and classification processes, and reduction of
classified assets and nonperforming assets.
As a result of the Federal Deposit Insurance Corporation ("FDIC")
examination at December 31, 1993, the Bank and FDIC executed a Memorandum of
Understanding ("FDIC Memorandum") dated August 3, 1994.
Based upon the January 8, 1996, FDIC examination of the Bank as of
November 30, 1995, the Bank was formally notified that the FDIC Memorandum dated
August 3, 1994, was removed effective May 22, 1996. Subsequent to the removal of
the FDIC Memorandum, the Board
-39-
<PAGE> 42
of Directors of the Bank approved a resolution which required Bank management to
maintain certain performance standards.
As a result of an examination conducted by the California State Banking
Department (the "Department") as of December 31, 1993, the Bank and the
Department executed a Memorandum of Understanding which was dated January 31,
1995, which was subsequently terminated June 12, 1996.
Based upon an examination as of March 31, 1994, by the Federal Reserve
Bank of San Francisco ("FRB"), the Company and the FRB executed a Memorandum of
Understanding dated October 24, 1994. Following adoption of certain resolutions
on November 19, 1996, the FRB terminated the Memorandum of Understanding
effective December 3, 1996.
Other Operating Income
Other operating income, which includes income derived from service charges
on deposit accounts, loan servicing fees and other fees and charges, and gain
(loss) on sale of securities, overall increased slightly to $1,189,483 in 1996,
from $1,145,756 in 1995 and $1,131,210 in 1994. For the three months ended March
31, 1997 and 1996, respectively, other operating income declined $21,895, from
$293,895 to $272,000. Service charges on deposit accounts improved modestly in
1996 over 1995 and 1994, but declined in the first quarter of 1997 compared to
the same period in 1996. However, the net increase from 1994 to 1995 in total
other operating income is primarily a result of gains on sale of securities in
1995 which did not occur in 1994. The Company recorded gain on sale of
securities of $18,750 and $54,044 in year ended December 31, 1996 and 1995,
respectively, and a loss of $734 in year ended December 31, 1994. Gain (loss) on
sale of securities is a result of the sale of securities held in the available
for sale category for the purpose of improving liquidity.
Noninterest Expense
The 1.85% decrease in total noninterest expense in 1996 to $10,180,256 from
$10,371,746 at December 31, 1995, is primarily in other real estate expense and
other operating expense. Other real estate expense declined in 1996 as a result
of the decrease in other real estate which decreased from $516,431 at December
31, 1995 to $328,952 at December 31, 1996. Other operating expense decreased
$194,028 to $3,095,603 in 1996 compared to $3,289,631 in 1995 and $3,087,826 in
1994. The Company experienced an increase in other operating expense in 1995
primarily due to a loss of approximately $295,000 which resulted from the
settlement of a lawsuit. Noninterest expense decline $163,055 from $2,683,742
for the quarter ended March 31, 1996 to $2,523,687 for the quarter ended March
31, 1997. As a percentage of average total assets, total noninterest expense
declined to 5.21% in 1996, compared to 5.72% in 1995 and 5.65% in 1994.
-40-
<PAGE> 43
Net Income
The Company reported net income of $1,196,546 in 1996, or $0.83 per share,
compared to $1,238,534, or $0.88 per share, in 1995 and $157,940, or $0.11 per
share, in 1994. The share and per share data information has been adjusted for
5% stock dividends issued on April 19, 1996 and October 1, 1994. For the first
quarter of 1997, the Company generated net income of $372,854, or $0.26 per
share, compared to $227,338, or $0.16 per share, for the first quarter of 1996.
Supported by an expansion economy, the Company's earnings performance in 1996
and early 1997 was primarily a result of growth in interest earning assets
coupled with improved credit quality and decreasing other noninterest expense.
Return on Equity and Assets
(in thousands)
<TABLE>
<CAPTION>
Period Ended March 31, Year ended December 31
----------------------- --------------------------------------
1997 1996 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Income $ 376 $ 227 $ 1,197 $ 1,238 $ 158
Average Total Assets 189,650 189,253 195,491 181,370 173,570
RETURN ON AVERAGE ASSETS 0.12% 0.20% 0.61% 0.68% 0.09%
Net Income $ 376 $ 227 $ 1,197 $ 1,238 $ 158
Average Equity 15,929 14,696 15,007 13,776 13,340
RETURN ON AVERAGE EQUITY 1.54% 2.24% 7.98% 8.99% 1.18%
Average Total Equity $ 15,929 $ 14,696 $ 15,077 $ 13,776 $ 13,340
Average Total Assets 189,650 189,253 195,491 181,370 173,570
AVERAGE TOTAL EQUITY TO
ASSET RATIO 7.77% 8.40% 7.71% 7.60% 7.69%
Dividend Declared
Per Share $ -- $ -- $ -- $ -- $ --
Net Income Per Share $ 0.26 $ 0.16 $ 0.83 $ 0.88 $ 0.11
DIVIDEND PAYOUT RATIO -- -- -- -- --
</TABLE>
The FDIC, based upon their examination dated January 8, 1996 believes
that capital levels have been maintained above prescribed regulatory minimums
for well capitalized banks.
-41-
<PAGE> 44
Asset - Liability Management
The Company relies on asset - liability management to assure adequate
liquidity, maintain an appropriate balance between interest sensitive earning
assets and interest bearing liabilities, and plan and control asset and
liability mixes, volumes, maturities, yields and rates for maximization of
interest margins. Liquidity management and interest rate sensitivity management
are key factors in asset - liability management. Liquidity management involves
the ability to meet expected and potential cash flow requirements of customers
who may be either depositors wanting to withdraw funds or borrowers needing
assurances that sufficient funds will be available to meet their credit needs.
Interest rate sensitivity management seeks to avoid fluctuating interest margins
and to enhance consistent growth of net interest income through periods of
changing interest rates.
The Company's Asset - Liability Management Committee manages the liquidity
position, the parameters of which are approved by the Board of Directors. The
liquidity position of the Company is monitored daily and the Company had liquid
assets (cash, federal funds sold, securities purchased under agreements to
resale, deposits in other financial institutions and investment securities) as a
percent of total deposits of 29.4% and 34.4% as of December 31, 1996 and 1995,
respectively. The Company's Investment Committee manages the investment
portfolio, based upon the Investment Policy which is approved by the Board of
Directors.
The Bank's goal is to maintain federal funds sold at $7 to $10 million
dollars on average with minimum daily investments monitored closely. Deposits
with other institutions and securities purchased under agreements to resale will
be maintained as alternative short-term investment products. Management's
intention is to maintain an investment portfolio which contributes an adequate
rate of return with minimal market or credit risk.
Interest rate sensitivity varies with different types of interest-earning
assets and interest-bearing liabilities. Harbor Bank intends to maintain
interest-earning assets, comprised of both loans and investments, and
interest-bearing liabilities, comprised primarily of deposits, maturing or
repricing evenly in order to eliminate any impact from interest rate changes. In
the event of a change in interest rates, 40.66% of the loan portfolio at
December 31, 1996 would immediately reprice, with 14.40% repricing within the
next twelve months. 47.7% of the deposit liabilities would reprice immediately
or within twelve months, with the remaining 50.7% of deposit liabilities being
in noninterest bearing demand accounts.
-42-
<PAGE> 45
Capital Resources
Management seeks to maintain a level of capital adequate to support
anticipated asset growth and credit risks and to ensure that the Company is
within established regulatory guidelines and industry standards. The Company's
capital plan for 1997 contemplates continued growth in stockholders' equity
through the retention of net income. Minimum capital ratios required under the
risk-based capital regulations are 4.0% for Tier 1 Capital and 8.0% for Total
Capital. As of December 31, 1996, the Company had Tier 1 Capital of 10.33% and
Total Capital of 11.58%, and at March 31, 1997, the Company had Tier 1 Capital
of 10.91% and Total Capital of 12.17%.
-43-
<PAGE> 46
ITEM 3. PROPERTIES
The Company's Corporate offices and the Bank's Main office are located at
11 Golden Shore, Long Beach, California, 90802, within a six-story modern
free-standing structure. The banking facilities are located on the main floor
and contain 7,500 square feet. The premises include three walk-up windows, a
vault, safe deposit boxes and a parking lot for approximately 60 cars. The
administrative offices are located on the sixth floor and use approximately
12,000 square feet of that floor. The Bank has under lease the remaining 4,000
square feet of the sixth floor, which has been subleased to JCM, Inc. and Long
Beach Area Certified Development Corporation. The office building is named and
signed Harbor Bank. There are two levels of parking below ground which provide
adequately for Bank personnel and other personnel within the building.
In connection with its Golden Shore office, the Bank entered into a Lease
Agreement for a term of ten years, renewable by the Bank for an additional ten
year term to expire December 2002. The Lease Agreement (lease) is a triple net
lease, and the Bank is responsible for nearly every cost and expense associated
with renting its premises. The annual cost of the lease in 1997 is expected to
be $805,000. Annual increases in the Bank's rental obligations under the Lease
will not exceed 7% or the cost of living index each year, and will be reviewed
every three years.
The Bank's Marina office is located in a one-story, free-standing structure
with approximately 7,500 square feet of area located at 6265 E. Second Street,
Long Beach, California 90803. The building was converted in part for the Bank's
use of approximately 16,000 square feet, of which 6,000 is currently leased to
Century 21 Coastline and 2,400 square feet is leased to Bancap Investment Group.
The facility is located within a retail business complex with all parking as
joint use. The premises include a vault, safe deposit boxes, a two-lane drive-up
facility and two walk-up windows. The lease term expires in December 2000 and
the expected annual cost in 1997 is $295,000.
The Bank's Los Alamitos office is located in a one-story, modern
free-standing structure with approximately 7,500 square feet of area located at
5252 Katella Avenue, Los Alamitos, California 90720. The Bank leases the land at
a monthly cost of $6,360 (for an annual rental of $76,320) and the lease expires
in 1999. There is parking for approximately 35 cars. These premises also include
a vault, safe deposit boxes, a four-lane drive-up facility and a walk-up window.
-44-
<PAGE> 47
The Bank's Huntington Harbour office is located within a retail shopping
and business complex, and has approximately 3,700 square feet of area at 16400
Pacific Coast Highway, Huntington Beach, California 92649. The space is leased
with an annual cost of $102,000 and an expiration date of November 1999. There
is ample parking which is shared with other tenants. The premises include a
vault, safe deposit boxes, a two-lane drive-up facility and two walk-up windows.
The Bank's Fountain Valley office is located in a free-standing, modern,
two-story structure located at 10760 Warner Avenue, Fountain Valley, California
92708. The Bank owns the building and land which has a fair market value of
approximately $850,000. The Bank occupies approximately 5,200 square feet of the
ground floor and second floor. Of the approximately 2,200 square feet of rental
space available, 1,000 square feet is currently leased to Henry Cooper, dba
Bankers Facility Maintenance Services, and the remaining 1,200 square feet are
vacant. The Bank premises include a vault, safe deposit boxes, three drive-up
tellers and a walk-up teller.
The Bank's South Coast office is located in a free-standing, modern
building and is part of a business complex at 9 Executive Circle, Irvine,
California 92714. The bank leases the ground floor of the building which is
approximately 22,940 square feet and occupies approximately 13,870 square feet
which includes a branch office and also a Service Center operation at a monthly
cost of $40,000 (for an annual rental of $ 480,000). The lease expires in March
of 2005. The Bank premises include a vault, safe deposit boxes, two drive-up
tellers and a walk-up teller window. The remaining 9,073 square feet is
subleased to Opera Pacific and the Building Industry Association of Orange
County.
-45-
<PAGE> 48
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.
The following table sets forth certain information about those
stockholders who are known to the Company to be beneficial owners of more than
5% of the Common Stock as of March 31, 1997:
<TABLE>
<CAPTION>
Name & address of Amount and nature of Percent
beneficial owner beneficial ownership of class
- ------------------------------------------------------------------
<S> <C> <C>
James H. Gray 120,441 8.51%
11 Golden Shore, Suite 600
Long Beach, CA 90802
Harbor Bank Employee Stock
Ownership Plan 120,649 8.53%
11 Golden Shore, Suite 600
Long Beach, CA 90802
James A. Willingham 81,524 5.76%
1881 Long Beach Boulevard
Long Beach, CA 90806
</TABLE>
The following table sets forth, as of March 31, 1997, the number and
percentage of shares of the Company's Common Stock, the only class outstanding
equity securities of the Company, beneficially owned by each of the Company's
directors, and the directors and current executive officers of the Company, as a
group:
<TABLE>
<CAPTION>
Name and Title Beneficially Percent
Other Than Director Owned(1) of Class(2)
- ---------------------------------------------------------------------------------
<S> <C> <C>
James H. Gray 120,441(3) 8.51%
President and Chief Executive Officer
of Company, Chairman of the Board and Chief
Executive Officer of Bank
c/o Harbor Bank
11 Golden Shore
Long Beach, California 90802
John W. Hancock 4,377 .31%
Dallas E. Haun 44,626(4) 3.15%
Vice President of Company and
President & Chief Operating Officer of Bank
Kermit Q. Jones 55,590 3.93%
Robert E. Leslie 837 .06%
Dorothy K. Matteson 38,741 2.74%
Malcolm C. Todd 48,145 3.40%
James A. Willingham 81,524 5.76%
Margaret E. Wilson 46,804(5) 3.31%
Harbor Bank Employee Stock Ownership Plan,
Melissa Lanfre, Trustee (6) 120,649(6) 8.53%
All Directors and Officers (11 in number)(7) 573,061(8) 40.49%
</TABLE>
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<PAGE> 49
(1) Beneficial owner of a security includes any person who, directly or
indirectly, through any contract, arrangement, understanding, relationship,
or otherwise has or shares: (a) voting power, which includes the power to
vote, or to direct the voting of such security; and/or (b) investment power
which includes the power to dispose, or to direct the disposition of such
security. Beneficial owner also includes any person who has the right to
acquire beneficial ownership of such security as defined above within 60
days of the Record Date.
(2) Shares subject to options held by directors and executive officers (or
group) are treated as issued and outstanding for the purpose of computing
the percent of the class owned by such person (or group), but not for
computing the percent of the class owned by any other person (or group).
(3) Includes 16,577 shares of stock options granted to Mr. Gray
but not exercised.
(4) Includes 39,233 shares of stock options granted to Mr. Haun
but not exercised.
(5) Shares are held by the Wilson Family Trust of which Mrs.
Wilson is a Co-Trustee.
(6) Includes 120,649 shares owned by the Harbor Bank Employee Stock Ownership
Plan of which Melissa Lanfre, Vice President and Chief Financial Officer of
the Company serves as Trustee and over which Ms. Lanfre has sole voting and
investment power.
(7) As used throughout this Proxy Statement, the terms "officer" and "executive
officer" mean the President and Chief Executive Officer of Harbor Bancorp
and Chairman of the Board of Directors and Chief Executive Officer of the
Bank, the President and Chief Operating Officer of the Bank and Vice
President of the Company, the Executive Vice President and Chief Credit
Officer of the Bank, the Senior Vice President and Chief Financial Officer
of the Bank and Vice President and Chief Financial Officer of the Company,
and the Senior Vice President and Director of Operations of the Bank. The
Secretary of the Company is not an executive officer.
(8) Includes 67,137 shares of stock options granted to all directors and
executive officers as a group but not exercised.
Management is not aware of any change in control of the Company or of
any arrangement which may, at a subsequent date, result in a change of control
of the Company.
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<PAGE> 50
ITEM 5. DIRECTORS & EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
The following table provides certain information as of December 31, 1996,
concerning the directors of the Company:
<TABLE>
<CAPTION>
Present Principal Served as
Occupation During Director
Name Age the Past Five Years Since (1)
- ---------------------------------------------------------------
<S> <C> <C> <C>
James H. Gray 59 Chairman of the Board and 1982
Chief Executive Officer of
Harbor Bank, President and
Director of Harbor Bancorp
John W. Hancock 59 President, Bancap Investment 1992
Group
Dallas E. Haun 43 President and Chief Operating 1993
Officer of Harbor Bank and
Director of Harbor Bancorp
Kermit Q. Jones 77 Owner, Treasure Valley Land 1982
& Cattle/Dairy Farmer
Robert E. Leslie 71 Retired Fire Chief 1988
Dorothy K. Matteson 70 Uniform Sales, Retired 1982
Malcolm C. Todd, M.D. 83 Physician/Surgeon, Retired 1982
James Willingham 68 President, Boulevard Buick 1982
and Chairman of the Board
of Harbor Bancorp
Margaret E. Wilson 68 Co-Trustee, Wilson Family 1993
Trust
</TABLE>
(1) All the current directors were appointed to the Board of Directors by the
Company's incorporator on June 24, 1982, with the exception of Robert E. Leslie
who was appointed March 22, 1988, John W. Hancock who was appointed on June 23,
1992, Margaret E. Wilson who was appointed on March 23, 1993, and Dallas E. Haun
who was appointed on December 21, 1993.
Mr. Henry "Bud" Nance announced his retirement from the Board of
Directors effective March 25, 1997, due to his relocation to Grants
Pass, Oregon.
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<PAGE> 51
Executive Officers
The following table sets forth, as of December 31, 1996, the persons who
currently serve as an executive officer of the Company and Bank, such person's
age, such person's principal occupation during the past five (5) years, such
person's current position with the Company and Bank, and the periods during
which such person served in such capacity.
<TABLE>
<CAPTION>
Date Elected, Date Elected,
Name and Position Age Company Bank
- ----------------- --- ------------- -------------
<S> <C> <C> <C>
James H. Gray
President & Chief Executive 59 March 22, 1983 November 1, 1987
Officer
Chairman & Chief Executive
Officer
Dallas E. Haun 43 May 23, 1995 October 24, 1995
Vice President
President & Chief Operating
Officer
Phillip J. Bond 33 N/A September 11, 1995
Executive V. President & Chief
Credit Officer
H. Melissa Lanfre 45 June 23, 1987 June 23, 1987
Vice President & Chief Financial
Officer
Senior V. President & Chief
Financial Officer
Lou Burgess 56 N/A November 1, 1995
Senior V. President &
Director of Operations
</TABLE>
All executive officers of the Company are elected by, and serve at the
pleasure of the Board of Directors. Set forth above are the names and offices
held by the executive officers of the Company and the date when each was elected
to his/her present position with the Company. A brief account of the business
experience of each is set forth below.
Mr. Gray has been with the major subsidiary of the Company, Harbor
Bank, since 1976. He currently holds the position of Chairman of the Board and
Chief Executive Officer of Harbor Bank and President and Chief Executive Officer
of Harbor Bancorp.
Mr. Haun has been with the major subsidiary of the Company,
Harbor Bank, since 1977. He currently holds the position of
President and Chief Operating Officer of Harbor Bank and Vice
President of Harbor Bancorp.
-49-
<PAGE> 52
Mr. Bond joined the major subsidiary of the Company, Harbor Bank, on
September 11, 1995, and currently holds the position of Executive Vice President
and Chief Credit Officer.
Ms. Lanfre joined the Company on July 13, 1987, and currently holds the
position of Senior Vice President and Chief Financial Officer of Harbor Bank and
Vice President and Chief Financial Officer of the Company.
Ms. Burgess has been with the major subsidiary of the Company,
Harbor Bank, since 1986. She currently holds the position of Senior
Vice President and Director of Operations.
-50-
<PAGE> 53
ITEM 6. EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning
compensation paid or accrued by the Company to or on behalf of the Company's
Chief Executive Officer and two other officers of the Company/Bank (determined
as of the end of the last fiscal year) whose annual salary and bonus exceeded
$100,000 in 1996 (the "Named Executives") for each of the fiscal years ended
December 31, 1996, 1995, and 1994.
SUMMARY OF CASH AND CERTAIN COMPENSATION
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
- ------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- ------------------------------------------------------------------------------------------------------------------
Other
Annual Restricted
Name and Compen- Stock LTIP All Other
Principal Salary Bonus sation Award(s) Options/ Payouts Compensation
Position Year ($)(1) ($)(2) ($) ($) SARs(#) ($) ($)(3)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James H. Gray 1996 $150,900 $ 60,000 -0- -0- -0- -0- $ 8,688
Chairman of the Board 1995 148,258 60,000 -0- -0- -0- -0-
and Chief Executive 1994 125,400 45,000 -0- -0- -0- -0-
Officer of Harbor Bank
Dallas E. Haun 1996 $123,442 $ 60,000 -0- -0- -0- -0- $ 8,880
President and Chief 1995 106,250 50,000 -0- -0- -0- -0-
Operating Officer 1994 97,850 40,000 -0- -0- -0- -0-
of Harbor Bank(4)
Phillip J. Bond(5) 1996 $ 89,667 $ 25,000 -0- -0- -0- -0- $ 619
Executive Vice 1995 25,563 10,000 -0- -0- -0- -0-
President and Chief 1994 -0- -0- -0- -0- -0- -0-
Credit Officer
</TABLE>
(1) Included in this column are salaries paid for services rendered to the
Company's subsidiary, Harbor Bank, during 1996 before any salary reduction for
contributions to the Company's plan under section 401(k) of the Internal Revenue
Code of 1986, as amended (the "Code"), and salary reductions for contributions
for welfare plan coverages under section 125 of the Code.
(2) The bonus amounts are payable pursuant to the Company's senior management
compensation plan as approved annually by the Board of Directors. This column
includes bonuses accrued in the current year to be paid in subsequent year.
(3) "All Other Compensation" is only required to be reported for 1996. The
amount represents the Company's matching contribution for the 401(k) plan and
directors' fees.
(4) Dallas E. Haun was promoted to the position of Vice President of Harbor
Bancorp on May 23, 1995, and was elected as the President and Chief Operating
Officer of Harbor Bank on October 24, 1995. On August
-51-
<PAGE> 54
22, 1995, the Board of Directors of Harbor Bank approved an Employment Agreement
effective September 1, 1995, between Harbor Bank and Dallas Haun that would run
to February 28, 1999. The agreement calls for base salary levels and bonus plan
participation declared annually by the Board of Directors and is extended for an
additional year each succeeding February 28 by mutual agreement.
(5) Phillip J. Bond joined Harbor Bank on September 11, 1995 as Executive Vice
President and Chief Credit Officer and by a Letter Agreement with the Board of
Directors will be entitled to extra compensation in the amount of $50,000.00 if
there is a change in majority ownership of the Bank within 24 months of his
employment.
The following table provides information with respect to the Named Executives
concerning the exercise of options and/or stock appreciation rights ("SARs")
during the fiscal year ended December 31, 1996 and unexercised options and/or
SARs held by the Named Executives as of December 31, 1996.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION/SAR VALUE
<TABLE>
<CAPTION>
(a) (b) (c) (d)
- -------------------------------------------------------------------------------------------------------
Value
Number of Unexercised In-
Unexercised the-Money
Options/SARs at Options/SARs at
Year-End (#) Year-End ($)
Shares Acquired on Value Realized(1) Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
James H. Gray -0- -0- 5,745/10,832 $26,012/$ 46,268
Dallas E. Haun -0- -0- 13,038/26,195 $63,209/$102,779
Phillip J. Bond -0- -0- 1,050/ 4,200 $ 2,338/$ 9,350
</TABLE>
Directors of the Company which are considered to be inside directors, or
employees of the Company, receive a director's fee of $600 per meeting and all
other directors, which are considered to be outside directors, receive a
director's fee of $1,000 per meeting. Non-officer directors serving on the
Company's Loan Committee receive $150 per meeting. As of April 1, 1997,
non-officer directors serving on the Company's Loan Committee receive $200 per
meeting.
Harbor Bancorp 1990 Stock Option Plan
On 2/22/90, the Company adopted an Employee Stock Option Plan for the
purpose of providing an additional means of attracting and retaining competent
managerial personnel. The plan provides 90,000 unissued shares of the Company,
or approximately 10% of the issued and outstanding shares of the Company to be
reserved for issuance to directors, officers and employees of the Company and
its subsidiaries. Options granted pursuant to the plan may be non-qualified
options or incentive options within the meaning of Section 422A of the Internal
Revenue Code.
-52-
<PAGE> 55
The plan will be administered by the Board of Directors of the Company or
by a committee appointed from time to time by the Board. The committee or the
Board of Directors will determine with respect to the persons who shall
participate in the plan and the extent of their participation.
The purchase price of stock subject to each option shall be not less than
one hundred percent of the fair market value of such stock at the time such
option is granted. An employee owning more than ten percent of the total
combined voting power of all classes of stock of the Bank may not be granted an
option under the plan. The purchase price of any shares exercised shall be paid
in full in cash. Options may be granted pursuant to the plan for a term of up to
ten years. Each option shall be exercisable according to the determination of
the Board or committee.
Options granted under the plan shall not be transferable by the optionee
during the optionee's lifetime. In the event of termination of employment as a
result of the optionee's disability or in the event of an employee's death
during the exercise period, to the extent the option is exercisable on the date
employment terminates or the date the employee dies, the option shall remain
exercisable for up to one year (but not beyond the end of the original option
term) by the disabled optionee, or in the event of death of the optionee, a
non-qualified option shall be exercisable by the person or persons to whom
rights under the option shall have passed by will or the laws of descent and
distribution.
If an optionee's employment is terminated, unless termination was by reason
of disability or death the optionee shall have the right, for a three-month
period after termination, to exercise that portion of the option which was
exercisable immediately prior to such termination. In no event may the option be
exercised after the end of the original option term.
In the event of certain changes in the outstanding Common Stock of the
Company without receipt of consideration by the Company, such as stock
dividends, stock splits, recapitalization, reclassification, reorganization,
merger, stock consolidation, or otherwise, appropriate and proportionate
adjustments shall be made in the number, kind and exercise price of shares
covered by any unexercised or partially unexercised options which were already
granted. Optionees will receive prior notice of any pending dissolution or
liquidation of the Company, or reorganization, merger or dissolution or
liquidation of the Company where the Company is not the surviving corporation or
sale of substantially all the assets of the Company, or other form of corporate
reorganization in which the Company is not a surviving entity, or the
acquisition of stock representing more than 50% of the voting power of the stock
of the Company then outstanding ("Terminating Event"). Optionees shall be
notified of the Terminating Event, any option not exercised shall terminate, and
upon the happening of the Terminating Event, the plan shall terminate, unless
some other provision is made in connection with the Terminating Event.
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<PAGE> 56
The Board reserves the right to suspend, amend, or terminate the plan, and,
with the consent of the optionee, make such modifications, of the terms and
conditions of his or her option as it deems advisable, except that the Board may
not, without further approval of a majority of the shares, increase the maximum
number of shares covered by the plan, change the minimum option price, increase
the maximum term of options under the plan or permit options to be granted to
any one other than an officer, employee or director of the Company or its
subsidiaries.
Harbor Bank Employee Stock Ownership Plan
On January 1, 1980, Harbor Bancorp established the Harbor Bancorp Employee Stock
Ownership Plan for the purpose of enabling employees of Harbor Bancorp to invest
in employer stock. The plan covers substantially all employees.
The Bank contributes amounts as determined annually by the Company's Board of
Directors, but not in excess of the amount allowable as a deduction for federal
income tax purposes. The contribution may be in cash, common stock or other
property which is acceptable to the Trustee, and shall be invested primarily in
common stock, but may be invested in assets other than common stock.
Contributions were $90,000 in 1996, 1995 and 1994. In absence of an active
Employee Stock Ownership Plan Committee, the trustee of the Plan has full
authority as to the investment of the Plan's assets.
Each employee of the Bank over 21 years of age becomes a participant of the Plan
when he completes one year of service. A new vesting schedule was adopted which
was effective January 1, 1989. Participants vest at the rate of ten percent per
year of service until the fifth year of service when vesting is at 60% in the
fifth year, 80% in the sixth year and fully (100%) vested after 7 years of
service. A year of service is a time period of no more than twelve months in
which an employee has at least 1,000 hours of service commencing on the
anniversary date of employment.
A separate account is maintained for each participant which is adjusted annually
for Bank contributions, income, gains and losses of the Plan and reallocation of
forfeitures.
Upon the earliest of retirement at age 65, death or disability, the balance of
the separate account is paid to the participant or his beneficiary in Company
common stock or in cash or a combination of common stock and cash (by his
election). If termination of employment occurs before retirement, death or
disability, the vested balance in the separate account is distributed to the
participant in the same manner if the vested balance exceeds $3,500.00. If the
vested balance does not exceed $3,500.00, the participant's election as to the
form of distribution is not required.
For the purpose of allocating Bank contributions and forfeitures, each
participant is credited on a pro rata basis determined by the proportion that
each eligible participant's compensation for the year bears to the total
compensation of all participants. Annual
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<PAGE> 57
additions to a participant account are limited to twenty-five percent (25%) of
the participant's compensation, or $30,000, whichever is less. Participants are
included in the allocation of forfeitures after one year.
The annual allocation of the income, gains and losses of the Plan is on a pro
rata basis determined by the proportion that each participant's dollar value of
interest in the Plan bears to the total dollar value interest of all
participants at the beginning of the year.
While the Company has not expressed any intent to terminate the Plan, it has the
right to do so at any time. In the event of termination, each participant's
interest automatically becomes fully vested to the extent of the balance in his
separate account.
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<PAGE> 58
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Some of the directors, officers and principal shareholders of the Company
and their associates were customers of, and had banking transactions with, the
Company's subsidiary, Harbor Bank, in the ordinary course of the Bank's business
during 1996 and the Bank expects to have such transactions in the future. All
loans and commitments to loan included in such transactions were made in
compliance with the applicable laws on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with other persons of similar creditworthiness, and in the opinion
of the Bank, did not involve more than a normal risk of collectibility or
present other unfavorable features.
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<PAGE> 59
ITEM 8. DESCRIPTION OF SECURITIES.
COMMON STOCK
The Company has an authorized capitalization of 5,000,000 shares of no
par value Common Stock and 1,415,214 shares outstanding as of March 31, 1997.
The Company sponsors a stock option plan covering directors, officers and other
key full-time employees under which approximately 90,295 shares have been
authorized. The balance of the Company's authorized capital stock will be
available to be issued when and as the Board of Directors of the Company
determines it advisable to so do. The Board of Directors of the Company has the
authority to issue shares of Common Stock to the extent of the number of
authorized unissued shares for such consideration, expressed in monetary terms,
as shall be determined from time to time by the Board of Directors.
VOTING RIGHTS
The holders of the Company's Common Stock are entitled to one (1) vote
per share on all matters requiring stockholder action, except that in connection
with the election of directors, the shares may be voted cumulatively if a
candidate's or candidates' name(s) have been properly placed in nomination prior
to the voting and a shareholder present at the meeting has given notice of his
or her intention to vote his or her shares cumulatively. If a shareholder has
given such notice, then all shareholders entitled to vote for the election of
directors may cumulate their votes. Cumulative voting entitles a shareholder to
give one or more nominees as many votes as is equal to the number of directors
to be elected multiplied by the number of shares owned by such shareholder, or
to distribute his or her votes on the same principle between two or more
nominees as he or she sees fit.
The holders of Common Stock have no preemptive or other Rights and
there are no redemption, sinking fund or conversion privileges applicable
thereto. The holders of Common Stock are entitled to receive dividends as and
when declared by the Board of Directors out of funds legally available
therefore, subject to the restrictions by its regulators. See "Business." Upon
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to share ratably in all assets remaining after payment of
liabilities.
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<PAGE> 60
PART II
ITEM 1. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The common stock of Harbor Bancorp is not listed on any stock exchange nor
with the NASDAQ. Although there is a relatively limited trading market in the
common stock of Harbor Bancorp, management is aware that Everen Securities,
Inc., Smith Barney, Ryan, Beck & Co., Elmer E. Powell & Company, Burford
Capital, Jim Alexander Securities,Inc. and Hoefer and Arnett make a market in
the Company's stock. The number of stockholders of record on December 31, 1996
was approximately 418.
The following table, which summarizes stock activity during the Company's
two fiscal years is based upon information provided by Everen Securities and
Hoefer & Arnett.
<TABLE>
<CAPTION>
Sales Price
-----------
Quarter Ended: High Low Dividend
- ------------- ---------- ---------- --------
<S> <C> <C> <C>
March 31, 1995 $ 7.75 $ 6.50
June 30, 1995 8.50 7.00
September 30, 1995 10.00 7.50
December 31, 1995 11.00 8.875
March 31, 1996 $10.797 $ 9.82
June 30, 1996 10.375 9.75 (1)
September 30, 1996 11.00 9.00
December 31, 1996 12.75 10.625
March 31, 1997 $14.75 $14.50 (2)
</TABLE>
(1) 5% stock dividend at 4/19/96
(2) $0.125 per share cash dividend to shareholders of record
as of May 12, 1997
Dividend Restriction
The Company is dependent to a significant degree on dividends from its
subsidiaries. There are statutory and regulatory limitations on the amount of
dividends which may be paid to the Company by the Bank. Retained earnings of
subsidiaries available for dividends to the Company approximated $2,720,057 at
December 31, 1996.
The Company declared a $0.125 per share dividend to shareholders of record as
of May 12, 1997, payable May 23, 1997.
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<PAGE> 61
ITEM 2. LEGAL PROCEEDINGS.
Except as noted below, due to the nature of their business, the
Company, the Bank, and their subsidiaries are subject to legal actions
threatened or filed which arise from the normal course of their business.
Management believes that such litigation is incidental to the business of the
Company and the Bank and the eventual outcome of all currently pending legal
proceedings against the Bank will not be material to the Company's or the Bank's
financial position or results of operations.
The Bank has been named in a litigation matter between the State of
California Department of Insurance and a certified public accounting firm
concerning the public accounting firm's audit of a failed insurance company. At
December 31, 1996, the Bank believed it had meritorious defenses, that it was
covered by comprehensive general liability insurance and had accrued no
liability for the matter. During the first quarter of 1997, the Bank was
notified by its insurance carrier that it has presently declined insurance for
this matter. No estimate can be made of the range of loss that is reasonably
possible and no accrual has been made as of the date of this filing.
-59-
<PAGE> 62
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
NONE
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<PAGE> 63
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
NONE
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<PAGE> 64
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 6.5 of Article VI of the Company's Bylaws provides as follows:
(a) the corporation shall, to the maximum extent and in the manner
permitted by the California Corporations Code (the "Code"), indemnify each of
its directors against expenses (as defined in Section 317(a) of the Code),
judgments, fines, settlements, and other amounts actually and reasonably
incurred in connection with any proceeding (as defined in Section 317(a) of the
Code), arising by reason of the fact that such person is or was an agent of the
corporation. For purposes of this Section 6.5 of Article VI, a "director", of
the corporation includes any person (i) who is or was a director of the
corporation, (ii) who is or was serving at the request of the corporation as a
director of another corporation, partnership, joint venture, trust or other
enterprise, or (iii) who was a director of a corporation which was a predecessor
corporation of the corporation or of another enterprise at the request of such
predecessor corporation.
(b) The corporation shall have the power, to the extent and in the
manner permitted by the Code, to indemnify each of its officers, employees and
agents against expenses (as defined in Section 317(a) of the Code), judgments,
fines, settlements, and other amounts actually and reasonably incurred in
connection with any proceeding (as defined in Section 317(a) of the Code),
arising by reason of the fact that such person is or was an officer, employee or
agent of the corporation. For purposes of this Article VI, an "officer",
"employee" or "agent" includes any person (i) who is or was an officer,
employee, or agent of the corporation, (ii) who is or was serving at the request
of the corporation as an officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was an
officer, employee or agent of the corporation which was a predecessor
corporation of the corporation or of another enterprise at the request of such
predecessor corporation.
(c) Expenses incurred in defending any civil or criminal action or
proceeding for which indemnification is required pursuant to Article VI(a) shall
be paid by the Corporation in advance of the final disposition of such action or
proceeding upon receipt of an undertaking by or on behalf of the indemnified
party to repay such amount if it shall ultimately be determined that the
indemnified party is not entitled to be indemnified as authorized in this
Article VI. Expenses incurred in defending any civil or criminal action or
proceeding for which indemnification is permitted pursuant to Article VI(b) may
be paid by the corporation in advance of the final disposition of such action or
proceeding upon receipt of an undertaking by or on behalf of the indemnified
party to repay such amount if it shall ultimately be determined that the
indemnified
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<PAGE> 65
party is not entitled to be indemnified as authorized in this Article VI.
(d) The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that such
additional rights to indemnification are authorized in the Articles of
Incorporation.
(e) The corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was an agent of the corporation
against any liability asserted against or incurred by such person in such
capacity or arising out of such person's status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of this Article VI.
(f) No indemnification or advance shall be made under this Article VI,
except where such indemnification or advance is mandated by law or the order,
judgment or decree of any court of competent jurisdiction, in any circumstance
where it appears:
(1) that it would be inconsistent with a provision of the
Articles of Incorporation, these Bylaws, a resolution of the
shareholders or an agreement in effect at the time of the accrual of
the alleged cause of the action asserted in the proceeding in which the
expenses were incurred or other amounts were paid, which prohibits or
otherwise limits indemnification; or
(2) that it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
Section 204 of the California Corporations code allows a corporation to
adopt a partial exemption from liability of its directors. New subsections (10)
and (11) of Section 204(a) of the California Corporations code permit the
Articles of Incorporation to include the following provisions:
"(10) Provisions eliminating or limiting the personal
liability of a director for monetary damages in an action brought by or
in the right of the corporation for breach of director's duties to the
corporation and its shareholders, as set forth in Section 309,
provided, however, that (a) such a provision may not eliminate or limit
the liability of directors (i) for acts or omissions that involve
intentional misconduct or a knowing and culpable violation of law, (ii)
for acts of omissions that a director believes to be contrary to the
best interest of the corporation or its shareholders or that involve
the absence of good faith on the part of the director, (iii) for any
transaction from which a director derived an improper personal benefit,
(iv) for acts or
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<PAGE> 66
omissions that show a reckless disregard for the director's duty to the
corporation or its shareholders in circumstances in which the director
was aware, or should have been aware, in the ordinary course of
performing a director's duties, of a risk of serious injury to the
corporation or its shareholders, (v) for acts or omissions that
constitute an unexcused pattern of inattention that amounts to an
abdication of the director's duty to the corporation or its
shareholders, (vi) under Section 310 (which relates to transactions
between corporations and directors of corporations have interrelated
directors) or (vii) under Section 316 (which relates to liability for
illegal distributions or dividends) (B) no such provision shall
eliminate or limit the liability of a director for any act or omission
occurring prior to the date when the provision becomes effective, and
(C) no such provision shall eliminate or limit the liability of an
officer for any act or omission as an officer, notwithstanding that the
officer is also a director or that his or her actions, if negligent or
improper, have been ratified by the directors.
"(11) A provision authorizing, whether by bylaw, agreement, or
otherwise, the indemnification of agents (as defined in Section 317) in
excess of the expressly permitted by Section 317 for those agents of
the corporation for breach of duty to the corporation and its
stockholders, provided, however, that the provision may not provide for
indemnification of any agent for any acts or omissions or transactions
from which a director may not be relieved of liability as set forth in
the exception to paragraph (10) or as to circumstances in which
indemnity is expressly prohibited by Section 317.
Notwithstanding this subdivision, in the case of a close
corporation any of the provisions referred to above may be validly
included in a shareholders' agreement. Notwithstanding this
subdivision, bylaws may require for all or any actions by the board the
affirmative vote of a majority of the authorized number of directors.
Nothing contained in this subdivision shall affect the enforceability,
as between the parties thereto, of any lawful agreement not otherwise
contrary to public policy."
Section 204.5(a) was added to the California Corporations code and
provides that if the articles of incorporation include a provision reading
substantially as follows: "The liability of the directors of the corporation for
monetary damages shall be eliminated to the fullest extent permissible under
"California law", then the corporation shall be considered to have adopted a
provision as authorized by paragraph (10) of subdivision (a) of Section 204 and
more specific wording shall not be required.
The Articles of the Company contains the following Article IV:
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<PAGE> 67
"ARTICLE IV
Section 1. Limitation of Directors Liability.
The liability of the directors of the corporation for
monetary damages shall be eliminated to the fullest
extent permissible under California law."
Section 2. Indemnification of Corporate Agents. The
corporation is authorized to provide indemnification of its agents as
defined in Section 317 of the California General Corporation Law for
breach of their duty to the corporation and its shareholders through
bylaw provisions, through agreements with agents, or both, in excess of
the indemnification otherwise permitted by such Section 317, subject to
the limits on such excess indemnification set forth in Section 204 of
the California General Corporation Law."
The Company has adopted provisions in its bylaws and indemnification
agreements pursuant to the above provisions
Section 317 of the California General Corporation Law is set forth
below:
"Section 317. Indemnification of Corporate "Agent".
(a) For the purposes of this section, "agent" means any person who is
or was a director, officer, employee or other agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another foreign or domestic corporation, partnership, joint venture,
trust or other enterprise, or was a director, officer, employee or agent of a
foreign or domestic corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation; "proceeding" means any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or investigative; and
"expenses" includes without limitation attorneys' fees and any expenses of
establishing a right to indemnification under subdivision (d) or paragraph (3)
of subdivision (e).
(b) A corporation shall have power to indemnify any person who was or
is a party or is threatened to be made a party to any proceeding (other than an
action by or in the right of the corporation to procure a judgment in its favor)
by reason of the fact that such person is or was an agent of the corporation,
against expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with such proceeding if such person acted in
good faith and in a manner such person reasonably believed to be in the best
interests of the corporation and, in the case of a criminal proceeding, had no
reasonable cause to believe the conduct of such person was unlawful. The
termination of any proceeding by judgment, order,
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<PAGE> 68
settlement, conviction or upon a plea of nolo contendere or its equivalent
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which the person reasonably believed to be in the
interests of the corporation or that the person had reasonable cause to believe
that the person's conduct was unlawful.
(c) A corporation shall have power to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action by or in the right of the corporation to procure a judgment in
its favor by reason of the fact that such person is or was an agent of the
corporation, against expenses actually and reasonably incurred by such person in
connection with the defense or settlement of such action if such person acted in
good faith, in a manner such person believed to be in the best interests of the
corporation and its shareholders.
No indemnification shall be made under this subdivision for any of the
following:
(1) In respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable to the corporation in the
performance of such person's duty to the corporation and its shareholders,
unless and only to the extent that the court in which such proceeding is or was
pending shall determine upon application that, in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for the
expenses and then only to the extent that the court shall determine.
(2) Of amounts paid in settling or otherwise disposing of a
pending action without court approval.
(3) Of expenses incurred in defending a pending action which
is settled or otherwise disposed of without court approval.
(d) To the extent that an agent of a corporation has been successful on
the merits in defense of any proceeding referred to in subdivision (b) or (c) or
in defense of any claim, issue or matter therein, the agent shall be indemnified
against expenses actually and reasonably incurred by the agent in connection
therewith.
(e) Except as provided in subdivision (d), any indemnification under
this section shall be made by the corporation only if authorized in the specific
case, upon a determination that indemnification of the agent is proper in the
circumstances because the agent has met the applicable standard of conduct set
forth in subdivision (b) or (c), by any of the following:
(1) A majority vote of a quorum consisting of directors who
are not parties to such proceeding.
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<PAGE> 69
(2) If such a quorum of directors is not obtainable, by
independent legal counsel in written opinion.
(3) Approval of the shareholders (Section 153), with the
shares owned by the person to be indemnified not being entitled to vote thereon.
(4) The court in which such proceeding is or was pending upon
application made by the corporation or the agent or the attorney or other person
rendering services in connection with the defense, whether or not such
application by the agent, attorney or other person is opposed by the
corporation.
(f) Expenses incurred in defending any proceeding may be advanced by
the corporation prior to the final disposition of such proceeding upon receipt
of an undertaking by or on behalf of the agent to repay such amount unless it
shall be determined ultimately that the agent is not entitled to be indemnified
as authorized in this section.
(g) The indemnification provided by this section shall not be deemed
exclusive of any additional rights to indemnification for breach of duty to the
corporation and its shareholders while acting in the capacity of a director or
officer of the corporation to the extent the additional rights to
indemnification are authorized in an article provision adopted pursuant to
paragraph (11) of subdivision (a) of section 204. The indemnification provided
by this section for acts, omissions, or transactions while acting the capacity
of, or while serving as, a director or officer of the corporation but not
involving breach of duty to the corporation and its shareholders shall not be
deemed exclusive of any other rights to which those seeking indemnification may
be entitled under any bylaw, agreement, vote of shareholders or disinterested
directors, or otherwise, to the extent the additional rights to indemnification
are authorized in the articles of the corporation. An article provision
authorizing indemnification "in excess of that otherwise permitted by Section
317" or "to the fullest extent permissible under California law" or the
substantial equivalent thereof shall be construed to be both a provision for
additional indemnification for breach of duty to the corporation and its
shareholders as referred to in, and with the limitations required by, paragraph
(11) of subdivision (a) of section 204 and a provision for additional
indemnification as referred to in the second sentence of this subdivision. The
rights to indemnity hereunder shall continue as to a person who has ceased to be
a director, officer, employee, or agent and shall inure to the benefit of the
heirs, executors, and administrators of the person. Nothing contained in this
section shall affect any right to indemnification to which persons other than
such directors and officers may be entitled by contract or otherwise.
(h) No indemnification or advance shall be made under this section,
except as provided in subdivision (d) or paragraph (3) of subdivision (e), in
any circumstance where it appears:
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<PAGE> 70
(1) That it would be inconsistent with a provision of the
articles, bylaws, a resolution of the shareholders or an agreement in effect at
the time of the accrual of the alleged cause of action asserted in the
proceeding in which the expenses were incurred or other amounts were paid, which
prohibits or otherwise limits indemnification.
(2) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
(i) A corporation shall have power to purchase and maintain insurance
on behalf of any agent of the corporation against any liability asserted against
or incurred by the agent in such capacity or arising out of the agent's status
as such whether or not the corporation would have the power to indemnify the
agent against such liability under the provisions of this section. The fact that
a corporation owns all or a portion of the shares of the company issuing a
policy of insurance shall not render this subdivision inapplicable if either of
the following conditions are satisfied: (1) if the articles authorize
indemnification in excess of that authorized in this section and the insurance
provided by this subdivision is limited as indemnification is required to be
limited by paragraph (11) of subdivision (a) of Section 204; or (2) (A) the
company issuing the insurance policy is organized, licensed, and operated in a
manner that complies with the insurance laws and regulations applicable to its
jurisdiction of organization, (B) the company issuing the policy provides
procedures for processing claims that do not permit that company to be subject
to the direct control of the corporation that purchased that policy, and (C) the
policy issued provides for some manner of risk sharing between the issuer and
purchaser of the policy, on one hand, and some unaffiliated person or persons,
on the other, such as by providing for more than one unaffiliated owner of the
company issuing the policy or by providing that a portion of the coverage
furnished will be obtained from some unaffiliated insurer or reinsurer.
(j) This section does not apply to any proceeding against any trustee,
investment manager or other fiduciary of an employee benefit plan in such
person's capacity as such, even though such person may also be an agent as
defined in subdivision (a) of the employer corporation. A corporation shall have
power to indemnify such a trustee, investment manager or other fiduciary to the
extent permitted by subdivision (f) of Section 207."
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
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<PAGE> 71
PART F/S
Index to Consolidated Financial Statements and Financial Statement Schedules
Covered by Report of Independent Public Accountants.
<TABLE>
<CAPTION>
Reference Page
--------- ----
<S> <C>
Report of Ernst & Young, LLP, Auditors 70
Consolidated Balance Sheets at
December 31, 1996 and 1995 71-72
Consolidated Statements of Income for the
years ended December 31, 1996, 1995 and 1994 73-74
Consolidated Statements of Stockholders'
Equity for the years ended December 31, 1996,
1995 and 1994 75
Consolidated Statements of Cash Flows
for the years ended December 31, 1996
1995 and 1994 76-77
Notes to Consolidated Financial Statements 78-99
</TABLE>
All schedules are omitted since the required information is not present or not
present in amounts sufficient to require submission of the schedule or because
the information required is included in the Consolidated Statements or Notes
thereto.
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<PAGE> 72
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Harbor Bancorp
We have audited the accompanying consolidated balance sheets of Harbor Bancorp
and subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1996. 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, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Harbor Bancorp and
subsidiaries at December 31, 1996 and 1995, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
Los Angeles, California Ernst & Young LLP
January 31, 1997
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<PAGE> 73
HARBOR BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1996 1995
------------ ------------
ASSETS
<S> <C> <C>
Cash and due from banks $ 20,142,839 $ 20,964,212
Federal funds sold and securities
purchased under resale agreements 8,400,000 5,200,000
------------ ------------
Cash and cash equivalents 28,542,839 26,164,212
Time certificates of deposit 495,000 495,000
Investment securities:
Held to maturity (fair value of
$6,094,994 in 1996 and
$10,190,673 in 1995)(Notes 1 and 2) 6,064,736 10,187,147
Available for sale 18,787,633 24,795,506
Loans (Notes 1 and 3) 143,987,787 130,412,144
Less allowance for
loan losses (Notes 1 and 4) 2,737,516 3,003,231
------------ ------------
Net loans 141,250,271 127,408,913
Bank premises and equipment (Note 1):
Land 159,000 159,000
Buildings and improvements 4,249,367 4,068,049
Furniture, fixtures and equipment 3,571,799 3,427,932
------------ ------------
7,980,166 7,654,981
Less accumulated depreciation
and amortization 6,131,924 5,726,982
------------ ------------
1,848,242 1,927,999
Other real estate 328,952 516,431
Accrued interest receivable 856,536 997,564
Other assets 1,929,286 2,599,357
------------ ------------
Total assets $200,103,495 $195,092,129
============ ============
</TABLE>
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<PAGE> 74
HARBOR BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)
<TABLE>
<CAPTION>
December 31,
1996 1995
------------- -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Interest bearing (Notes 1 and 5) $ 90,442,543 $ 87,201,532
Noninterest bearing 92,988,957 92,003,263
------------- -------------
Total deposits 183,431,500 179,204,795
Accrued expenses and other liabilities 972,013 1,330,907
------------- -------------
Total liabilities 184,403,513 180,535,702
Commitments and contingencies (Note 9) -- --
Stockholders' equity (Notes 1, 7, and 8):
Common stock, no par value; 5,000,000
shares authorized; issued and out-
standing, 1,415,214 shares in 1996
and 1,348,021 shares in 1995 13,963,517 13,257,875
Retained earnings 1,870,619 1,381,899
Unrealized losses on securities
available for sale, net of tax (134,154) (83,347)
------------- -------------
Total stockholders' equity 15,699,982 14,556,427
------------- -------------
Total liabilities and
stockholders' equity $ 200,103,495 $ 195,092,129
============= =============
</TABLE>
See notes to consolidated financial statements.
-72-
<PAGE> 75
HARBOR BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31,
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 12,749,764 $ 11,502,305 $ 10,319,644
Interest on investment
securities 1,397,555 1,760,002 1,010,920
Other interest 940,770 835,458 621,999
------------ ------------ ------------
Total interest income 15,088,089 14,097,765 11,952,563
Interest expense:
Interest on deposits 3,055,081 2,597,912 1,933,993
Interest on other
borrowed funds 3,420 43,733 72,124
------------ ------------ ------------
Total interest expense 3,058,501 2,641,645 2,006,117
------------ ------------ ------------
Net interest income 12,029,588 11,456,120 9,946,446
Provision for loan
losses (Notes 1 and 4) 1,159,269 312,596 1,088,000
------------ ------------ ------------
Net interest income after
provision for loan
losses 10,870,319 11,143,524 8,858,446
Other operating income:
Service charges on deposit
accounts 964,664 920,240 905,017
Loan servicing fees and other
fees and charges 206,069 171,472 226,927
Gain (loss) on sale of
securities 18,750 54,044 (734)
------------ ------------ ------------
Total other operating
income 1,189,483 1,145,756 1,131,210
</TABLE>
-73-
<PAGE> 76
HARBOR BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Continued)
Years ended December 31,
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Noninterest expense:
Salaries, wages and employee
benefits 3,781,418 3,605,859 3,244,680
Occupancy expenses 2,177,900 2,152,163 1,969,795
Equipment expenses 396,256 306,689 331,410
Data processing expenses 555,108 630,077 585,606
Other real estate expenses 173,971 387,327 592,399
Other operating expenses 3,095,603 3,289,631 3,087,826
----------- ----------- -----------
Total noninterest
expense 10,180,256 10,371,746 9,811,716
----------- ----------- -----------
Income before income taxes 1,879,546 1,917,534 177,940
Income taxes (Notes 1 and 6) 683,000 679,000 20,000
----------- ----------- -----------
Net income $ 1,196,546 $ 1,238,534 $ 157,940
=========== =========== ===========
Weighted average number of
common shares and common
share equivalents 1,434,245 1,415,214 1,415,214
=========== =========== ===========
Net income per common
share (Note 1) $ 0.83 $ 0.88 $ 0.11
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
-74-
<PAGE> 77
HARBOR BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Unrealized
gains (losses)
Number of on securities
shares out- Common Retained available for
standing stock earnings sale, net of tax Total
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at
January
1, 1994 1,284,023 $ 12,841,888 $ 402,733 $ (148,669) $ 13,095,952
Adjustment to
beginning
balance for
change in
accounting
method,
net of tax -- -- -- 11,175 11,175
5% stock
dividend 63,998 415,987 (417,308) -- (1,321)
Change in
unrealized
gains (losses)
on securities
available for
sale, net of
tax -- -- -- (128,816) (128,816)
Net income -- -- 157,940 -- 157,940
--------- ------------ ------------ ------------ ------------
Balance at -- -- -- -- --
December
31, 1994 1,348,021 $ 13,257,875 $ 143,365 $ (266,310) $ 13,134,930
Change in
unrealized
gains (losses)
on securities
available for
sale, net of
tax -- -- -- 182,963 182,963
Net income -- -- 1,238,534 -- 1,238,534
--------- ------------ ------------ ------------ ------------
Balance at -- -- -- -- --
December
31, 1995 1,348,021 $ 13,257,875 $ 1,381,899 $ (83,347) $ 14,556,427
5% stock
dividend 67,193 705,642 (707,826) -- (2,184)
Change in
unrealized
gains (losses)
on securities
available for
sale, net of
tax -- -- -- (50,807) (50,807)
Net income -- -- 1,196,546 -- 1,196,546
--------- ------------ ------------ ------------ ------------
Balance at -- -- -- -- --
December
31, 1996 1,415,214 $ 13,963,517 $ 1,870,619 $ (134,154) $ 15,699,982
========= ============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
-75-
<PAGE> 78
HARBOR BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Operating activities:
Net income $ 1,196,546 $ 1,238,534 $ 157,940
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for depreciation and
amortization 483,609 480,108 539,259
Provision for loan losses 1,159,269 312,596 1,088,000
(Gain) loss on sale of
investment securities (18,750) (54,044) 734
Decrease (increase) in
interest receivable 141,028 (25,237) 1,542
(Decrease ) increase in
interest payable (4,772) (4,023) 38,649
Provision for deferred income
taxes 210,000 1,000 (10,000)
Other (47,378) (494,554) (812,220)
------------ ------------ ------------
Net cash provided by operating
activities 3,119,552 1,454,380 1,003,904
Investing activities:
Investment securities held to
maturity:
Purchases (2,212,780) (16,295,523) (1,598,633)
Proceeds from maturities 6,272,169 15,688,858 --
Investment securities available for sale:
Purchases (34,905,252) (34,877,417) (38,324,772)
Proceeds from sale 3,018,750 6,995,550 4,978,000
Proceeds from maturities 38,000,000 29,000,000 42,274,008
Net decrease in short-
term securities -- -- 396,000
Net (increase) decrease
in loans (15,000,627) (16,095,734) 4,127,171
Capital expenditures (325,185) (473,184) (230,240)
Sales of other real estate 187,479 2,297,854 770,403
------------ ------------ ------------
Net cash (used in) provided by
investing activities (4,965,446) (13,759,596) 12,391,937
</TABLE>
-76-
<PAGE> 79
HARBOR BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Financing activities:
Net increase (decrease) in
commercial and other demand
deposits, savings, money
market deposits, and
certificates of deposit 4,226,705 17,092,881 (13,889,647)
Cash dividends and cash paid
in lieu of fractional shares (2,184) -- (1,321)
------------ ------------ ------------
Net cash provided by (used
in) financing activities 4,224,521 17,092,881 (13,890,968)
Increase (decrease) in cash
and cash equivalents 2,378,627 4,787,665 (495,127)
Cash and cash equivalents at
beginning of year 26,164,212 21,376,547 21,871,674
------------ ------------ ------------
Cash and cash equivalents at
end of year $ 28,542,839 $ 26,164,212 $ 21,376,547
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 3,063,273 $ 2,645,668 $ 1,967,468
Income taxes 460,260 700,000 244,211
Supplemental disclosures of noncash transactions:
Acquisition of real estate
acquired through
foreclosure $ 1,597,000 $ 725,000 $ 1,377,593
Unrealized (losses) gains
on securities available
for sale, net of tax (50,807) 182,963 (117,641)
</TABLE>
See notes to consolidated financial statements.
-77-
<PAGE> 80
HARBOR BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
1. Summary of significant accounting policies
Principles of consolidation
The consolidated financial statements include all the accounts of Harbor Bancorp
("Company") and its wholly owned subsidiaries, Harbor Bank ("Bank") and Harbor
Bank Properties. All significant intercompany accounts and transactions have
been eliminated upon consolidation.
Certain prior year amounts have been reclassified to conform with the current
year's presentation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
Investment securities
The Company adopted Statement of Financial Accounting Standard No. 115
"Accounting for Certain Investments in Debt and Equity Securities" as of
January 1, 1994.
Investment securities held to maturity are securities which the Company has the
positive intent and ability to hold until maturity. Accordingly, these
securities are carried at amortized cost. Unrealized holding gains and losses
are not recognized in the financial statements until realized or until a decline
in fair value below cost is deemed to be other than temporary.
Investment securities available for sale include debt securities and mutual
funds. These securities are stated at fair value with unrealized holding gains
and losses reflected as a separate component of stockholders' equity, net of
income taxes. Gains and losses are determined on the specific identification
method. Any decline in the fair value of the investments which is deemed to be
other than temporary is charged against current earnings.
-78-
<PAGE> 81
HARBOR BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
1. Summary of significant accounting policies (Cont'd)
Loans
Loans receivable that management has the positive intent and ability to hold for
the foreseeable future or until maturity or pay-off are reported at their
outstanding principal adjusted for any charge-offs, the allowance for loan
losses, and any deferred fees or costs on originated loans and unamortized
premiums or discounts on purchased loans.
Loan origination fees and certain direct origination costs are capitalized and
recognized as an adjustment of the yield of the related loan.
Nonaccrual loans
Nonaccrual loans are loans on which accrual of interest has been suspended.
Interest is suspended on all real estate loans when, in management's judgement,
the interest will not be collectible in the normal course of business or when
the loan is 90 days or more past due or full collection of principal is not
assured. When a loan is placed on nonaccrual, interest accrued is reversed
against interest income.
Impaired loans
The Company adopted SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan," ("SFAS 114") as amended, effective January 1, 1995. This statement
requires that impaired loans be measured based on the present value of expected
future cash flows discounted at the loan's effective interest rates or the fair
value of the underlying collateral, and specifies alternative methods for
recognizing interest income on loans that are impaired or for which there are
credit concerns. For purposes of applying this standard, impaired loans have
been defined as all nonaccrual loans. The Company's policy for income
recognition was not affected by adoption of the standard. The adoption of SFAS
114 did not have any effect on the total allowance for loan losses or related
provision.
-79-
<PAGE> 82
HARBOR BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
1. Summary of significant accounting policies (Cont'd)
Allowance for loan losses
The allowance for loan losses represents management's evaluation of the quality
of the loan portfolio. The allowance is maintained at a level considered to be
adequate for potential loan losses based on management's assessment of various
factors affecting the loan portfolio, which includes a review of problem loans
and general business conditions. The allowance is increased by the provision for
loan losses charged to operations and reduced by loans charged off to the
allowance, net of recoveries.
Other Real Estate
Other real estate ("ORE") is stated at the lower of cost or fair market value,
net of estimated selling costs.
Income taxes
Income tax expense is the current and deferred tax consequence, of events that
have been recognized in the financial statements, as measured by the provisions
of enacted tax law. The Company files consolidated federal and state tax returns
with all its subsidiaries.
Bank premises and equipment
Bank premises and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation and amortization are computed using the
straight-line method over the estimated useful lives of the related assets which
range from 10 to 30 years for buildings and improvements and 3 to 10 years for
furniture, fixtures and equipment.
Net income per common share
Net income per common share is based on average shares outstanding during each
year plus the net effect of dilutive stock options.
-80-
<PAGE> 83
HARBOR BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
1. Summary of significant accounting policies (Cont'd.)
Time certificates of deposit
Time certificates of deposit of $100,000 or more totaled $23,828,595 at December
31, 1996 and $15,278,000 at December 31, 1995.
Reserve requirements
The Bank is required to maintain a balance with the Federal Reserve Bank based
on a percentage of deposit liabilities. At December 31, 1996, the required
balance was $4,653,000.
Cash and cash equivalents
Cash equivalents include amounts due from banks, federal funds sold and
securities purchased under resale agreements. Generally, federal funds are
purchased and sold for one-day periods. Securities purchased under resale
agreements generally have a contracted term of one day.
Fair values of financial instruments
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the balance sheet
for cash and short-term instruments approximate those assets' fair values.
Investment securities: Estimated fair values are based on quoted market prices.
Loans: For variable-rate loans that reprice frequently and with no significant
change in credit risk, fair values are based on carrying values. The fair values
for other loans (e.g., commercial real estate and commercial and industrial
loans) are estimated using discounted cash flow analysis, using interest rates
currently being offered for loans with similar terms to borrowers of similar
credit quality. The carrying amount of accrued interest approximates its fair
value.
-81-
<PAGE> 84
HARBOR BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
1. Summary of significant accounting policies (Cont'd.)
Deposits: The fair values disclosed for demand deposits (e.g., interest and
non-interest checking, passbook savings, and certain types of money market
accounts) are, by definition, equal to the amount payable on demand at the
reporting date (i.e., their carrying amounts). The carrying amounts for
variable-rate, fixed-term money market accounts and certificates of deposits
approximate their fair values at the reporting date. Fair values for fixed-rate
certificates of deposit are estimated using a discounted cash flow calculation
that applies interest rates currently being offered on certificates to a
schedule of aggregated expected monthly maturities on time deposits.
-82-
<PAGE> 85
HARBOR BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
2. Investment securities
The amortized cost and estimated fair values of investment securities held to
maturity are as follows:
<TABLE>
<CAPTION>
1996
--------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
US Treasury
securities and
obligations of
US government
corporations
and agencies $ 5,521,161 $ 41,370 $ 12,862 $ 5,549,669
Obligations of
states and
political
subdivisions 543,575 6,533 4,783 545,325
----------- ----------- ----------- -----------
Totals $ 6,064,736 $ 47,903 $ 17,645 $ 6,094,994
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
1995
--------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
US Treasury
securities and
obligations of
US government
corporations
and agencies $ 9,848,726 $ 46,677 $ 43,320 $ 9,852,083
Obligations of
states and
political
subdivisions 338,421 7,343 7,174 338,590
----------- ----------- ----------- -----------
Totals $10,187,147 $ 54,020 $ 50,494 $10,190,673
=========== =========== =========== ===========
</TABLE>
-83-
<PAGE> 86
HARBOR BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
2. Investment securities (Cont'd.)
The amortized cost and estimated fair value of investment securities held to
maturity at December 31, 1996, by contractual maturity, are shown below.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
---------- ----------
<S> <C> <C>
Due in one year or less $ 934,070 $ 933,098
Due after one year through
five years 2,229,844 2,245,518
Due after five years through
ten years 414,130 418,319
Due after ten years 2,486,692 2,498,059
---------- ----------
$6,064,736 $6,094,994
========== ==========
</TABLE>
There were no sales of investment securities held to maturity in 1996, 1995 and
1994.
-84-
<PAGE> 87
HARBOR BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
2. Investment securities (Cont'd.)
The amortized cost and estimated fair values of investment securities available
for sale are as follows:
<TABLE>
<CAPTION>
1996
--------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
US Treasury
securities and
obligations of
US government
corporations
and agencies $17,990,897 $ -- $ 2,580 $17,988,317
Mutual funds 1,000,000 -- 200,684 799,316
----------- ----------- ----------- -----------
Totals $18,990,897 $ -- $ 203,264 $18,787,633
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
1995
--------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
US Treasury
securities and
obligations of
US government
corporations
and agencies $23,921,790 $ 53,059 $ 12,271 $23,962,578
Mutual funds 1,000,000 -- 167,072 832,928
----------- ----------- ----------- -----------
Totals $24,921,790 $ 53,059 $ 179,343 $24,795,506
=========== =========== =========== ===========
</TABLE>
-85-
<PAGE> 88
HARBOR BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
2. Investment securities (Cont'd.)
The amortized cost and estimated fair value of investment securities available
for sale at December 31, 1996, by contractual maturity, are shown below.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
----------- -----------
<S> <C> <C>
Due in one year or less $17,990,897 $17,988,317
Due after one year through five years -- --
Mutual funds 1,000,000 799,316
----------- -----------
$18,990,897 $18,787,633
=========== ===========
</TABLE>
Gross gains of $18,750 were realized on those investment securities available
for sale sold in 1996, (taxes related to investment securities available for
sale gains in 1996 were $6,948). Gross gains of $54,044 were realized on those
investment securities available for sale sold in 1995, (taxes related to
investment securities available for sale gains in 1995 were $24,320). Gross
losses of $734 were realized on those investment securities available for sale
sold in 1994, (taxes related to investment securities available for sale losses
in 1994 were $303). Proceeds from the sale of investment securities available
for sale were $3,018,750 in 1996, $6,995,550 in 1995 and $4,978,000 in 1994.
Maturities of mortgage-backed securities are classified in accordance with the
contractual repayment schedules. Expected maturities differ from the contractual
maturities reported above because investment security issuers may have the right
to call or prepay obligations with or without call or prepayment penalties.
The Company has pledged certain investment securities with a fair value of
$1,459,983 to secure treasury, tax and loan, bankruptcy and public deposits at
December 31, 1996.
-86-
<PAGE> 89
HARBOR BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
3. Loans
The composition of the Company's loan portfolio at December 31, 1996 and 1995 is
as follows (rounded to nearest thousand):
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Commercial $ 50,523,000 $ 51,528,000
Commercial - real estate secured 69,295,000 53,434,000
Real estate - mortgage 17,021,000 16,127,000
Real estate - construction 789,000 3,412,000
Installment 6,360,000 5,911,000
------------ ------------
$143,988,000 $130,412,000
============ ============
</TABLE>
The majority of loans, excluding installment loans, have variable
interest rates related to the prime interest rate. Installment
loans have fixed interest rates.
All of the Company's business is conducted in Southern California, with
individuals and small and medium-sized businesses. These relationships are
targeted to the geographic area in which management is familiar with real
estate and economic trends.
In the normal course of business, the Company has made loans to directors and
employees. Such loans were made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with others. Loans outstanding to directors and employees at
December 31, 1995 totaled approximately $2,519,617. During 1996, new loans of
approximately $193,573 were made and principal payments approximating $325,960
were received resulting in a balance outstanding at December 31, 1996 of
approximately $2,387,230.
Loan commitments are made to accommodate the financial needs of the Company's
customers. Letters of credit commit the Company to make payments on behalf of
customers when certain specified events occur. Both arrangements have credit
risk essentially the same as that involved in extending loans to customers and
are subject to the Company's normal credit policies and review. Collateral is
obtained based on management's credit assessment of the borrower. The amount of
credit risk is represented by the face amount of the commitments and letters of
credit.
-87-
<PAGE> 90
HARBOR BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
3. Loans (Cont'd.)
At December 31, 1996, the Company had outstanding commitments to its customers
on letters of credit of approximately $1,801,214 and unfunded nonrevolving loan
commitments of $1,644,941.
The recorded investment in loans considered impaired under SFAS 114 was
$5,663,729 at December 31, 1996, with a valuation reserve of $895,466 and was
$6,745,972 at December 31, 1995 with a valuation reserve of $858,962. For the
year ended December 31, 1996, the average recorded investment in impaired loans
was approximately $6,923,705 and, for year ended December 31, 1995, the average
recorded investment in impaired loans was approximately $4,888,800. Cash basis
interest income recognized on those loans during the year was immaterial for
1995 and 1996.
At December 31, 1996, 1995 and 1994, the Company had $3,782,539, $6,745,972, and
$5,739,511, respectively, of loans which were considered to be nonperforming
loans and on which the Company ceased its accrual of interest. Interest income
which would have been recognized in 1996, 1995 and 1994 on nonperforming loans
was $172,713, $260,264, and $166,308, respectively. At December 31, 1996,
approximately 59.19%, or $2,238,829, of nonaccrual loans were part of a single
lending relationship. Although income is not being recognized on an accrual or
cash basis on the loans within this relationship, the borrower continues to make
all payments as agreed on all but 2% of the loans.
4. Allowance for loan losses
Changes in the allowance for loan losses during each of the three years in the
period ended December 31, 1996 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of year $ 3,003,231 $ 3,224,468 $ 3,666,823
Provision charged to expense 1,159,269 312,596 1,088,000
Recoveries on loans previously
charged off 79,116 18,620 44,031
Loans charged off (1,504,100) (552,453) (1,574,386)
----------- ----------- -----------
Balance at end of year $ 2,737,516 $ 3,003,231 $ 3,224,468
=========== =========== ===========
</TABLE>
-88-
<PAGE> 91
HARBOR BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
5. Deposits
Deposits consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
NOW and money market $ 42,969,400 $ 49,253,838
Savings deposits 10,696,191 11,514,091
Certificate of deposits 36,776,952 26,433,603
Demand deposit accounts 92,988,957 92,003,263
------------ ------------
$183,431,500 $179,204,795
============ ============
</TABLE>
Accrued interest payable for the following deposit categories at December 31:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
NOW and money market $ 6,161 $ 12,849
Savings deposits -- 1,421
Certificate of deposits 170,491 167,782
Demand deposit accounts -- --
-------- --------
$176,652 $182,052
======== ========
</TABLE>
At December 31, 1996, the scheduled maturities of certificates of deposits are
as follows:
1997 $33,763,707
1998 2,997,961
1999 15,284
2000 --
2001 and thereafter --
-----------
$36,776,952
===========
-89-
<PAGE> 92
HARBOR BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
6. Income taxes
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
--------- --------- ---------
<S> <C> <C> <C>
1996:
Current $ 470,000 $ 3,000 $ 473,000
Deferred 159,000 51,000 210,000
--------- --------- ---------
$ 629,000 $ 54,000 $ 683,000
1995:
Current $ 536,000 $ 142,000 $ 678,000
Deferred 119,000 (118,000) 1,000
--------- --------- ---------
$ 655,000 $ 24,000 $ 679,000
1994:
Current $ 105,000 $ (75,000) $ 30,000
Deferred (20,000) 10,000 (10,000)
--------- --------- ---------
$ 85,000 $ (65,000) $ 20,000
</TABLE>
The deferred tax expense (benefit) represent the changes in the amounts of
temporary differences from January 1 to December 31 of 1996, 1995 and 1994,
respectively. The types of temporary differences that give rise to significant
portions of the deferred tax at December 31, 1996, 1995 and 1994, include
reserves for credit losses, other real estate and fixed assets. The amounts
previously reported as the current and deferred portions of income tax expense
for 1995 have been revised. Such changes to the components occur because all tax
alternatives available to the Company are not known for a number of months
subsequent to year end.
-90-
<PAGE> 93
HARBOR BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
6. Income taxes (Cont'd.)
The effective federal income tax rate varies from the statutory rate due to a
number of factors including certain interest exclusions for state income tax
purposes. A reconciliation of the differences between statutory and effective
tax rates follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Federal income tax based
on statutory rate $ 639,000 $ 652,000 $ 60,000
State income tax
net of federal income tax 69,000 16,000 (34,000)
Other (25,000) 11,000 (6,000)
--------- --------- ---------
$ 683,000 $ 679,000 $ 20,000
========= ========= =========
</TABLE>
The tax effects of temporary differences which give rise to significant elements
of deferred tax assets and liabilities as of December 31, 1996 and 1995 are
detailed below:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Gross deferred assets
Loan loss reserve $ 809,000 $ 927,000
Other real estate 63,000 40,000
Unrealized securities losses 69,000 43,000
Fixed assets 51,000 --
Other 53,000 22,000
----------- -----------
Total deferred assets $ 1,045,000 $ 1,032,000
Gross deferred liabilities
Fixed assets $ -- (29,000)
----------- -----------
Net deferred tax asset $ 1,045,000 $ 1,003,000
=========== ===========
</TABLE>
-91-
<PAGE> 94
HARBOR BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
7. Stock Options
The Company sponsors a stock option plan covering directors and officers and
other key full-time salaried employees. Approximately 90,295 shares have been
authorized under the plan, 44,793 of which were available at December 31, 1996
for future grants. Generally, the options become exercisable one year following
the date of grant in cumulative equal amounts over five years at which time any
options not exercised expire.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options because the
alternative fair value accounting provided under FASB Statement No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), requires the use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of Harbor Bancorp
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
The Company's stock option activity and related information for the periods
ended December 31, 1996 and December 31, 1995, is summarized below:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
--------------------- ---------------------
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price
------ --------- ------ --------
<S> <C> <C> <C> <C>
Outstanding at
beginning of period 55,100 $ 7.59 41,676 $ 7.34
Granted 10,000 10.00 25,000 7.90
Exercised -- -- -- --
Forfeited/expired -- -- (11,576) 7.34
5% dividend issued
4/19/96 3,253 -- -- --
------ ------
Outstanding at
end of period 68,353 $ 7.59 55,100 $ 7.59
====== ======
Exercisable at end
of period 26,307
======
</TABLE>
The weighted-average fair value of options granted during 1996 and 1995 were
$4.85 and $3.76, respectively.
-92-
<PAGE> 95
HARBOR BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
7. Stock Options (Cont'd.)
Exercise prices for options outstanding as of December 31, 1996, ranged from
$6.99 to $9.52. The weighted-average remaining contractual life of these options
is 3.08 years.
The fair value of the options presented above was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1996 and 1995, respectively: risk-free interest rates of 6.75%
and 6.25%; a volatility factor of the expected market price of Harbor Bancorp
stock of .378; and a weighted-average expected option life of 6 years. The pro
forma earnings per share disclosure required by SFAS 123 are not shown as the
pro forma impact of applying SFAS 123 is insignificant in 1996.
8. Employee stock bonus plan
The Company has an employee stock bonus plan which covers substantially all
employees. The Company may make annual contributions, subject to the approval of
the Board of Directors. Contributions were $90,000 in 1996, 1995 and 1994.
9. Commitments and contingencies
The Company conducts a portion of its operations in leased facilities under
noncancellable operating leases expiring at various dates through 2004, at which
time the leases are renewable at the then fair rental value for periods of five
to ten years. Total future minimum sublease rentals amount to approximately
$445,793 at December 31, 1996.
The minimum rental commitments for operating leases, excluding sublease income,
are approximately as follows:
Year ending December 31:
1997 $ 1,764,000
1998 1,764,000
1999 1,710,000
2000 1,580,000
2001 1,285,000
Thereafter 2,365,000
-----------
$10,468,000
===========
-93-
<PAGE> 96
HARBOR BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
9. Commitments and contingencies (Cont'd)
Rental expense for the three years ended December 31, 1996 consists of the
following:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Minimum rentals $ 1,884,000 $ 1,791,000 $ 1,878,000
Sublease rentals (298,000) (259,000) (333,000)
----------- ----------- -----------
$ 1,586,000 $ 1,532,000 $ 1,545,000
=========== =========== ===========
</TABLE>
Due to the nature of their business, the Company, the Bank and their
subsidiaries are subject to legal actions threatened or filed which arise from
the normal course of their business. Management believes that such litigation is
incidental to the business of the Company and the Bank and the eventual outcome
of all currently pending legal proceedings will not be material to the Company's
financial position or results of operations.
-94-
<PAGE> 97
HARBOR BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
10. Regulatory Capital
The Company and its bank subsidiary are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory - and possibly
additional discretionary - actions by regulators that, if undertaken, could have
a direct material effect on the Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Company and the Bank must meet specific capital guidelines that involve
quantitative measures of the Bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Bank's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined). Management believes, as of December 31, 1996,
that the Company and the Bank meets all capital adequacy requirements to which
it is subject.
As of December 31, 1996, the most recent notification from the Federal Deposit
Insurance Corporation (the "FDIC") categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be categorized
as well capitalized the Bank must maintain total risk-based, Tier 1 risk-based,
Tier 1 Leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the
institution's category.
The Bank's actual capital amounts and ratios are also presented in the table.
There was no deduction made from capital for interest-rate risk.
-95-
<PAGE> 98
HARBOR BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
10. Regulatory Capital (Cont'd)
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
UNDER PROMPT
CORRECTIVE
FOR CAPITAL ACTION
ACTUAL ADEQUACY PURPOSES PROVISIONS
--------------------- -------------------- ---------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ------- ---- ------- -----
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1996:
TOTAL CAPITAL (TO RISK-
WEIGHTED ASSETS):
COMPANY $17,355 11.58% $11,986 8.00% $14,982 10.00%
BANK 17,159 11.35% 12,093 8.00% 15,116 10.00%
TIER 1 CAPITAL (TO RISK-
WEIGHTED ASSETS):
COMPANY $15,472 10.33% $ 5,993 4.00% $ 8,989 6.00%
BANK 15,270 10.10% 6,046 4.00% 9,070 6.00%
TIER 1 CAPITAL (TO
AVERAGE ASSETS):
COMPANY $15,472 7.63% $ 8,116 4.00% $10,145 5.00%
BANK 15,270 7.53% 8,112 4.00% 10,140 5.00%
AS OF DECEMBER 31, 1995
TOTAL CAPITAL (TO RISK-
WEIGHTED ASSETS):
COMPANY $15,944 11.56% $11,029 8.00% $13,787 10.00%
BANK 15,748 11.55% 10,903 8.00% 13,629 10.00%
TIER 1 CAPITAL (TO RISK-
WEIGHTED ASSETS):
COMPANY $14,221 10.31% $ 5,515 4.00% $ 8,272 6.00%
BANK 14,044 10.30% 5,452 4.00% 8,357 6.00%
TIER 1 CAPITAL (TO
AVERAGE ASSETS):
COMPANY $14,221 7.09% $ 8,021 4.00% $10,026 5.00%
BANK 14,044 7.04% 7,980 4.00% 9,975 5.00%
</TABLE>
-96-
<PAGE> 99
HARBOR BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
11. Condensed Financial Statements
The following are condensed financial statements of Harbor Bancorp (parent
only):
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1996 1995
----------- -----------
<S> <C> <C>
Assets:
Cash $ 14,392 $ 20,437
Investment in Harbor Bank 15,566,287 14,379,680
Investment in Harbor Bank
Properties 25,227 25,052
Other assets 94,076 131,258
----------- -----------
Total assets $15,699,982 $14,556,427
=========== ===========
Stockholders' equity:
Common stock, no par value $13,963,517 $13,257,875
Retained earnings 1,736,465 1,298,552
----------- -----------
Total stockholders' equity $15,699,982 $14,556,427
=========== ===========
</TABLE>
INCOME STATEMENTS
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Equity in undistributed
earnings of subsidiaries $1,237,589 $1,279,964 $ 162,505
Miscellaneous income 61 -0- 14,725
---------- ---------- ----------
Total income $1,237,650 $1,279,964 $ 177,230
Operating expense 41,104 41,430 19,290
---------- ---------- ----------
Net income $1,196,546 $1,238,534 $ 157,940
========== ========== ==========
</TABLE>
-97-
<PAGE> 100
HARBOR BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
11. Condensed Financial Statements (Cont'd.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities:
Net income $ 1,196,546 $ 1,238,534 $ 157,940
Adjustments to reconcile
net income to net cash
used in operating
activities:
Equity in undistributed
income of
subsidiaries (1,237,589) (1,279,964) (162,505)
Decrease in
interest receivable -- -- 306
Other assets 37,182 31,140 (109,182)
----------- ----------- -----------
Net cash used in
operating activities (3,861) (10,290) (113,441)
Financing activities:
Fractional shares (2,184) -- (1,321)
----------- ----------- -----------
Net cash used in
financing activities (2,184) -- (1,321)
Decrease in cash (6,045) (10,290) (114,762)
Cash at beginning of year 20,437 30,727 145,489
----------- ----------- -----------
Cash at end of year $ 14,392 $ 20,437 $ 30,727
=========== =========== ===========
</TABLE>
-98-
<PAGE> 101
HARBOR BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
11. Condensed Financial Statements (Cont'd.)
Dividend Restriction
The Company is dependent to a significant degree on dividends from its
subsidiaries. There are statutory and regulatory limitations on the amount of
dividends which may be paid to the Company by the Bank. Retained earnings of
subsidiaries available for dividends to the Company approximated $2,720,057 at
December 31, 1996.
12. Fair Value of Financial Instruments
Fair value information about financial instruments, whether or not recognized in
the balance sheet, for which it is practicable to estimate that value, are
reported using quoted market prices. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and in many cases, could not be realized in
immediate settlement of the instrument. Fair values for certain financial
instruments and all non-financial instruments are not required to be disclosed.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Company.
The following is a comparison of the carrying amounts and fair values of
financial instruments as of December 31, 1996:
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
------------ ------------
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 20,142,839 $ 20,142,839
Federal funds sold and securities
purchased under resale agreements 8,400,000 8,400,000
Time certificates of deposit 495,000 495,000
Investment securities 24,852,369 24,882,627
Loans, net 141,250,271 141,198,267
Financial liabilities:
Noninterest bearing deposits $ 92,988,957 $ 92,988,957
Interest bearing deposits 90,442,543 90,449,761
</TABLE>
-99-
<PAGE> 102
Index to Unaudited Interim Consolidated Financial Statements
Reference Page
--------- ----
Condensed unaudited consolidated balance
sheets - March 31, 1997.......................... 101-102
Condensed unaudited consolidated statements of
income - three months ended March 31, 1997 and
1996............................................. 103-104
Condensed unaudited consolidated statements of
cash flows - three months ended March 31, 1997
and 1996......................................... 105-106
Notes to condensed unaudited consolidated financial
statements - March 31, 1997...................... 107-109
-100-
<PAGE> 103
HARBOR BANCORP AND SUBSIDIARIES
CONDENSED UNAUDITED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
1997
(000's omitted)
---------------
<S> <C>
ASSETS
Cash and due from banks $ 23,323
Federal funds sold and securities
purchased under resale agreements 24,800
--------
Cash and cash equivalents 48,123
Time certificates of deposit 495
Investment securities:
Held to maturity securities (market value
of $5,702,410 in 1997 and $6,094,994
in 1996) 5,698
Available for sale securities 5,764
Loans 143,297
Less allowance for loan losses 2,822
--------
Net loans 140,475
Bank premises and equipment:
Land 159
Buildings and improvements 4,256
Furniture, fixtures and equipment 3,586
--------
8,001
Less accumulated depreciation
and amortization 6,221
--------
1,780
Other real estate owned 329
Accrued interest receivable 920
Other assets 1,589
--------
Total assets $205,173
========
</TABLE>
(Continued)
-101-
<PAGE> 104
HARBOR BANCORP AND SUBSIDIARIES
CONDENSED UNAUDITED CONSOLIDATED BALANCE SHEETS
(Continued)
<TABLE>
<CAPTION>
March 31,
1997
(000's omitted)
---------------
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Interest bearing $ 93,939
Noninterest bearing 94,081
---------
Total deposits 188,020
Accrued expenses and other liabilities 1,094
---------
Total liabilities 189,114
Stockholders' equity:
Common stock, no par value; 5,000,000
shares authorized; issued and out-
standing, 1,415,214 shares in 1997
and in 1996 13,963
Retained earnings 2,247
Net unrealized security losses (151)
---------
Total stockholders' equity 16,059
---------
Total liabilities and
stockholders' equity $ 205,173
=========
</TABLE>
See notes to unaudited consolidated financial statements.
-102-
<PAGE> 105
HARBOR BANCORP AND SUBSIDIARIES
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(000's omitted, except per share data)
1997 1996
------ ------
<S> <C> <C>
Interest income:
Interest and fees on loans $3,356 $3,025
Interest on U.S. government
and agency obligations 161 404
Interest on obligations of
states and political
subdivisions 6 3
Interest on other investments 20 21
Interest on federal funds sold
and securities purchased under
agreements to resale 206 145
------ ------
Total interest income 3,749 3,598
Interest expense:
Interest on deposits 755 656
Interest on borrowed funds -- 4
------ ------
Total interest expense 755 660
Net interest income 2,994 2,938
Provision for loan
losses 150 196
Net interest income after
provision for loan
losses 2,844 2,742
Other operating income:
Service charges on deposit
accounts 221 260
Loan servicing fees and other
fees and charges 51 34
------ ------
Total other operating
income 272 294
</TABLE>
(Continued)
-103-
<PAGE> 106
HARBOR BANCORP AND SUBSIDIARIES
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(Continued)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(000's omitted, except per share data)
1997 1996
---------- ----------
<S> <C> <C>
Noninterest expense:
Salaries, wages and employee
benefits 987 954
Occupancy expenses 538 541
Equipment expenses 82 106
Data processing expenses 133 153
Other operating expenses 784 930
---------- ----------
Total noninterest
expense 2,524 2,684
---------- ----------
Income before taxes based on
income 592 352
Provision for taxes based
on income 216 125
---------- ----------
Net income $ 376 $ 227
========== ==========
Weighted average number of
common shares and common
share equivalents 1,434,245 1,434,245
========== ==========
Net income per common
share (Note 1) $ 0.26 $ 0.16
========== ==========
</TABLE>
See notes to unaudited consolidated financial statements.
-104-
<PAGE> 107
HARBOR BANCORP AND SUBSIDIARIES
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended March 31,
(000's omitted)
1997 1996
-------- --------
<S> <C> <C>
Operating activities:
Net income $ 376 $ 227
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for depreciation and
amortization 109 120
Provision for loan
losses 150 196
Increase in
interest receivable (64) (268)
Increase in
interest payable 32 5
Other 415 (14)
-------- --------
Net cash provided by operating
activities 1,018 266
Investing activities:
Proceeds from maturities, sales
and calls of investment
securities 18,360 7,128
Purchases of investment securities (4,991) --
Net decrease in loans 625 1,495
Capital expenditures (21) (157)
Other real estate -- (1,406)
-------- --------
Net cash provided by
investing activities 13,973 7,060
</TABLE>
(Continued)
-105-
<PAGE> 108
HARBOR BANCORP AND SUBSIDIARIES
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
Three Months Ended March 31,
(000's omitted)
1997 1996
------- -------
<S> <C> <C>
Financing activities:
Net increase in commercial
and other demand deposits, savings
and money market deposits and
certificates of deposit 4,589 14,456
------- -------
Net cash provided by
financing activities 4,589 14,456
Increase in cash
and cash equivalents 19,580 21,782
Cash and cash equivalents at
beginning of period 28,543 26,164
------- -------
Cash and cash equivalents at
end of period $48,123 $47,946
======= =======
</TABLE>
See notes to unaudited consolidated financial statements.
-106-
<PAGE> 109
HARBOR BANCORP AND SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
1. Summary of Significant Accounting Policies:
Basis of presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31, 1997
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1997.
Certain reclassifications have been made in the 1996 financial statements to
conform to the presentations used in 1997.
The balance sheet on December 31, 1996 has been derived from the audited
financial statements at that date. The accompanying notes are an integral part
of these financial statements.
Principles of consolidation
Harbor Bancorp ("the Company") was formed on July 23, 1982. The unaudited
condensed consolidated financial statements include all the accounts of the
Company and its wholly-owned subsidiaries, Harbor Bank and Harbor Bank
Properties. All intercompany accounts and transactions have been eliminated.
Investment securities
The Company adopted Statement of Financial Accounting Standard No. 115
"Accounting for Certain Investments in Debt and Equity Securities" as of
January 1, 1994.
Investment securities held to maturity are securities which the Company has the
positive intent and ability to hold until maturity. Accordingly, these
securities are carried at amortized cost. Unrealized holding gains and losses
are not recognized in the financial statements until realized or until a decline
in fair
-107-
<PAGE> 110
value below cost is deemed to be other than temporary.
Investment securities available for sale include debt securities and mutual
funds. These securities are stated at fair value with unrealized holding gains
and losses reflected as a separate component of stockholders' equity, net of
income taxes. Gains and losses are determined on the specific identification
method. Any decline in the fair value of the investments which is deemed to be
other than temporary is charged against current earnings.
Impaired loans
The Company adopted SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan," as amended, effective January 1, 1995. This statement requires that
impaired loans be measured based on the present value of expected future cash
flows discounted at the loan's effective interest rates or the fair value of the
underlying collateral, and specifies alternative methods for recognizing
interest income on loans that are impaired or for which there are credit
concerns. For purposes of applying this standard, impaired loans have been
defined as all non-accrual loans. The Company's policy for income recognition
was not affected by adoption of the standard. The adoption of SFAS No. 114 did
not have any effect on the total reserve for credit losses or related provision.
Allowance for loan losses
The allowance for loan losses represents management's evaluation of the quality
of the loan portfolio. The allowance is maintained at a level considered to be
adequate for potential loan losses based on management's assessment of various
factors affecting the loan portfolio, which includes a review of problem loans,
business conditions and the overall quality of the loan portfolio.
The allowance is increased by the provision for loan losses charged to
operations and reduced by loans charged off to the allowance, net of recoveries.
Other Real Estate
Other real estate ("ORE") is stated at the lower of cost or fair market value,
net of estimated selling costs.
Income taxes
Income tax expense is the current and deferred tax consequence, of events that
have been recognized in the financial statements, as measured by the provisions
of enacted tax law.
Bank premises and equipment
Bank premises and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation and amortization are
-108-
<PAGE> 111
computed using the straight-line method over the estimated useful lives of the
related assets which range from 10 to 30 years for buildings and improvement and
3 to 10 years for furniture, fixtures and equipment.
Net income per common share
Net income per common share was computed by dividing net income by the weighted
average number of common stock and common stock equivalents (stock options)
outstanding during each period. The number of shares used in the per share
calculations for the periods ended March 31, 1997 and 1996 was 1,434,245.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share", which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact is for the first quarter ended March
31, 1997 and March 31, 1996 of $0.01 and $0.00 per share, respectively. The
impact of Statement 128 on the calculation of fully diluted earnings per share
for these quarters is not expected to be material.
-109-
<PAGE> 112
PART III
ITEM 1. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Exhibits
Number Page No.
-------- --------
<S> <C> <C>
2.1 Plan of Reorganization (Exhibit 2 of Registration
Statement No. 2-79912 incorporated by reference)
3.1 Articles of Incorporation of the Holding Company
(Exhibit 3(a) of Registration Statement No. 2-79912
incorporated by reference)
3.2 Bylaws of the Holding Company (Exhibit 3(b) of
Registration Statement No. 2-79912 incorporated
by reference)
3.3 Amended Articles of Incorporation of the Holding
Company approved in May 1988 Shareholders Meeting.. 113
3.4 Amended Bylaws approved on May 27, 1997............ 115
10.1 Harbor Bank Stock Option Plan (Exhibit 10(a) of
Registration Statement No. 2-79912 incorporated
by reference)
10.2 Amendments to Harbor Bank Stock Option Plan (Exhibit
10(b) of Registration Statement No. 2-79912
incorporated by reference)
10.3 Headquarters Office Lease.......................... 118-181
10.4 South Coast Office Lease........................... 182-239
10.5 Golden Shore Office Lease.......................... 240-280
23.0 Consent from Ernst & Young......................... 281
</TABLE>
-110-
<PAGE> 113
SIGNATURES
Pursuant to the requirements of Sections 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.
HARBOR BANCORP
DATED: June 2, 1997 By: /s/ James H. Gray
-----------------------------
James H. Gray, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
PRINCIPAL EXECUTIVE OFFICER
AND DIRECTOR
DATED: June 2, 1997 By: /s/ James H. Gray
---------------------------------
James H. Gray, President and
Chief Executive Officer
PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER
DATED: June 2, 1997 By: /s/ H. Melissa Lanfre'
---------------------------------
H. Melissa Lanfre'
Vice President and Chief
Financial Officer
DIRECTORS:
DATED: June 2, 1997 By: /s/ James H. Gray
----------------------------------
James H. Gray, Director
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<PAGE> 114
DATED: June 2, 1997 By: /s/ John W. Hancock
----------------------------------
John W. Hancock, Director
DATED: June 2, 1997 By: /s/ Dallas E. Haun
----------------------------------
Dallas E. Haun, Director
DATED: June 2, 1997 By: /s/ Kermit Q. Jones
----------------------------------
Kermit Q. Jones, Director
DATED: June 2, 1997 By: /s/ Robert E. Leslie
----------------------------------
Robert E. Leslie, Director
DATED: June 2, 1997 By: /s/ Dorothy K. Matteson
----------------------------------
Dorothy K. Matteson, Director
DATED: June 2, 1997 By: /s/ Malcolm C. Todd
----------------------------------
Malcolm C. Todd, Director
DATED: June 2, 1997 By: /s/ James A. Willingham
----------------------------------
James A. Willingham, Director
DATED: June 2, 1997 By: /s/ Margaret E. Wilson
----------------------------------
Margaret E. Wilson, Director
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<PAGE> 1
EXHIBIT 3.3
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
HARBOR BANCORP
JAMES H. GRAY and DOROTHY K. MATTESON certify that:
1.They are the duly elected and acting Chairman and Chief Executive
Officer and Corporate Secretary, respectively, of HARBOR BANCORP, a California
corporation.
2.The Articles of Incorporation of said corporation shall be amended
and restated to read in full as follows:
ARTICLE I
The name of this corporation is: HARBOR BANCORP
ARTICLE II
The purpose of the corporation is to engage in any lawful act or
activity which a corporation may be organized under the General Corporation Law
of California other than the banking business, the trust company business, or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
The corporation is authorized to issue only one class of shares
designated "common" shares, and the total authorized number of such shares which
may be issued is Five Million (5,000,000).
ARTICLE IV
Section 1. Limitation of Directors Liability. The liability of the
directors of the corporation for monetary damages shall be eliminated to the
fullest extent permissible under California law.
Section 2. Indemnification of Corporate Agents. The corporation is
authorized to provide indemnification of its agents as defined in Section 317 of
the California General Corporation Law for breach of their duty to the
corporation and its shareholders through bylaw provisions, through agreements
with agents, or both, in excess of the indemnification otherwise permitted by
such Section 317, subject to the limits on such excess indemnification set forth
in Section 204 of the California General Corporation Law.
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<PAGE> 2
Section 3. Repeal or Modification. Any appeal or modification of the
foregoing provisions of this Article IV shall not adversely affect any right of
indemnification or limitation of liability of an agent of the corporation
relating to acts or omissions occurring prior to such repeal or modification.
ARTICLE V
This corporation elects to be governed by all of the provisions of the
General Corporation Law of California, effective January 1, 1987, not otherwise
applicable to it under Chapter 23 thereof.
3.The foregoing amendment and restatement of the Articles of
Incorporation has been duly approved by the Board of Directors of said
corporation.
4.The foregoing amendment and this certificate has been approved by the
required vote of the shareholders of said corporation in accordance with Section
902 of the California General Corporation Law; the total number of outstanding
shares of the single class of shares entitled to vote is 1,415,214 and the
number of shares voting in favor of the foregoing amendment and this certificate
exceeded the vote required, such required vote being a majority of the
outstanding common shares.
The undersigned do further each hereby declare under penalty of perjury
that the matters set forth in the foregoing certificate are true of his or her
own knowledge.
Executed at Long Beach, California, this 27th day of May, 1997.
/s/ James H. Gray
---------------------------------------
James H. Gray, Chairman and Chief
Executive Officer
/s/ Dorothy K. Matteson
---------------------------------------
Dorothy K. Matteson, Corporate
Secretary
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<PAGE> 1
EXHIBIT 3.4
CERTIFICATE OF SECRETARY
OF
AMENDMENT OF BYLAWS
OF
HARBOR BANCORP
I, Dorothy K. Matteson, hereby certify:
1. I am the Corporate Secretary of Harbor Bancorp.
2. Section 6.5 of Article VI of the Bylaws of Harbor Bancorp is hereby
added to read in its entirety as follows:
(a) The corporation shall, to the maximum extent and in the
manner permitted by the California Corporations Code (the "Code"),
indemnify each of its directors against expenses (as defined in Section
317(a) of the Code), judgments, fines settlements, and other amounts
actually and reasonably incurred in connection with any proceeding (as
defined in Section 317(a) of the Code, arising by reason of the fact
that such person is or was an agent of the corporation. For purposes of
this Section 3.16, a "director", of the corporation includes any person
(i) who is or was a director of the corporation, (ii) who is or was
serving at the request of the corporation as a director of another
corporation, partnership, joint venture, trust or other enterprise, or
(iii) who was a director of a corporation which was a predecessor
corporation of the corporation or of another enterprise at the request
of such predecessor corporation.
(b) The corporation shall have the power, to the extent and in
the manner permitted by the Code, to indemnify each of its officer,
employees and agents against expenses (as defined in Section 317(a) of
the Code), judgments, fines, settlements, and other amounts actually
and reasonably incurred in connection with any proceeding (as defined
in Section 317(a) of the Code, arising by reason of the fact that such
person is or was an officer, employee or agent of the corporation. For
purposes of this Article VI, an "officer", "employee" or "agent"
includes any person (i) who is or was an officer, employee, or agent of
the corporation, (ii) who is or was serving at the request of the
corporation as an officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was
an officer, employee or
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<PAGE> 2
agent of the corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
(c) Expenses incurred in defending any civil or criminal
action or proceeding for which indemnification is required pursuant to
Article VI(a) shall be paid by the Corporation in advance of the final
disposition of such action or proceeding upon receipt of an undertaking
by or on behalf of the indemnified party to repay such amount if it
shall ultimately be determined that the indemnified party is not
entitled to be indemnified as authorized in this Article VI. Expenses
incurred in defending any civil or criminal action or proceeding for
which indemnification is permitted pursuant to Article VI(b) may be
paid by the corporation in advance of the final disposition of such
action or proceeding upon receipt of an undertaking by or on behalf of
the indemnified party to repay such amount if it shall ultimately be
determined that the indemnified party is not entitled to be indemnified
as authorized in this Article VI.
(d) The indemnification provided by this Article VI shall not
be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any bylaw, agreement, vote of
shareholders or disinterested directors or otherwise, both as to action
in an official capacity and as to action in another capacity while
holding such office, to the extent that such additional rights to
indemnification are authorized in the Articles of Incorporation.
(e) The corporation shall have the power to purchase and
maintain insurance on behalf of any person who is or was an agent of
the corporation against any liability asserted against or incurred by
such person in such capacity or arising out of such person's status as
such, whether or not the corporation would have the power to indemnify
him against such liability under the provisions of this Article VI.
(f) No indemnification or advance shall be made under this
Article VI, except where such indemnification or advance is mandated by
law or the order, judgment or decree of any court of competent
jurisdiction, in any circumstance where it appears:
(1) that it would be inconsistent with a provision of
the Articles of Incorporation, these Bylaws, a resolution of
the shareholders or an agreement in effect at the
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<PAGE> 3
time of the accrual of the alleged cause of the action
asserted in the proceeding in which the expenses were incurred
or other amounts were paid, which prohibits or otherwise
limits indemnification; or
(2) that it would be inconsistent with any condition
expressly imposed by a court in approving a settlement.
3. The foregoing is a true and correct copy of an amendment to the
Bylaws of Harbor Bancorp as approved by the Board of Directors of the Bank at a
meeting held on May 27, 1997 at Long Beach, California.
4. The foregoing amendment is in full force and effect, and it has not
been revoked or rescinded as of the date hereby.
IN WITNESS WHEREOF, I have hereupon subscribed my name this 27th day of
May, 1997.
/s/ Dorothy K. Matteson
- ---------------------------------------
Dorothy K. Matteson, Corporate Secretary
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<PAGE> 1
EXHIBIT 10.3
OFFICE LEASE
HARBOR BANK
(Tower)
This lease is made on March 11, 1983, between GOLDEN SHORE
PROFESSIONAL BUILDING, a Partnership ("Landlord") and HARBOR BANK, a banking
corporation ("Tenant").
LEASE OF PREMISES
Landlord hereby leases to Tenant and Tenant hereby hires from
Landlord, subject to all of the terms and conditions hereinafter set forth,
those certain premises (hereinafter called the "premises") shown in the drawing
attached hereto as Exhibit A and located on the floor(s) of that certain office
structure constructed on certain land, all as set forth in Item 1 of the Basic
Lease Provisions, which land has also been improved with landscaping, parking
facilities and other improvements, all of which, together with the office
structure and underlying land, are referred to collectively herein as "the
Building".
BASIC LEASE PROVISIONS
1. Building Name: GOLDEN SHORE PROFESSIONAL BUILDING
Address: 11 Golden Shore Drive
Long Beach, CA 90802
2. Full Floor Rentable Area: 17,971 square feet.
3. Net Rentable Area: 16,184 square feet.
Tenant's Chargeable Area: 17,971 square feet.
4. Total Chargeable Area: 89,738 square feet.
5. Floor Location: Sixth Floor.
6. Tenant's Proportionate Share (Percentage): 20.03%.
7. Basic Monthly Rent: 28,753.60 ($1.60 per square foot times
Tenant's Chargeable Area)
8. Landlord's estimate of Tenant's share of excess actual
operating over Base Annual Operating Expenses during the first year of occupancy
0.00; per month 0.00. (See subparagraph 4.02; this is an estimate only and is
subject to adjustment).
9. Base Annual Operating Expense: $448,690.
10. Term: Approx 20 years.
11. Commencement Date: 12-10-82
Expiration Date: 12-31-2002
12. Security Deposit: $ 28,753.60
Liability Insurance: $1,000,000 CSL w/$3,000,000 umbrella.
See Article 15 of Additional Lease Provisions.
<PAGE> 2
13. Address for payment and notices:
Landlord: c/o ASPEN PACIFIC
11 Golden Shore Drive, Suite 220
Long Beach, CA 90802
Tenant: Office of the President
HARBOR BANK
11 Golden Shore Drive, Suite 600
Long Beach CA 90802
IN WITNESS WHEREOF, the parties hereto have executed this
lease, consisting of the foregoing provisions and Articles 1 through 39 which
follow, as of the date written above.
GOLDEN SHORE PROFESSIONAL BUILDING
a partnership
By _______________________________
By _______________________________
"Landlord"
HARBOR BANK, a banking corporation
By _______________________________
By _______________________________
"Tenant"
<PAGE> 3
ADDITIONAL LEASE PROVISIONS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Page
- ------- ----
<S> <C> <C>
1. Term ..................................... 2
2. Rent ..................................... 2
3. Definitions Of Certain Terms Relating to
Operating Expense Adjustment ............ 3
4. Operating Expense Adjustment ............. 9
5. Rent Adjustment .......................... 11
6. Security Deposit ......................... 13
7. Utilities and Services ................... 14
8. Use of Premises .......................... 17
9. Acceptance of Premises ................... 18
10. Alterations and Equipment ................ 18
11. Liens .................................... 20
12. Tax on Tenant's Property ................. 20
13. Maintenance and Repair ................... 22
14. Entry and Inspection ..................... 23
15. Hold Harmless and Non-Liability .......... 24
16. Assignment and Subletting ................ 28
17. Transfer of Landlord's Interest .......... 31
18. Damage or Destruction .................... 32
19. Eminent Domain ........................... 34
20. Relocation ............................... 35
21. Defaults; Remedies ....................... 36
22. Surrender of Premises; Removal of Property 41
23. Waiver of Damages for Re-entry ........... 43
24. Costs of Suit ............................ 44
25. Waiver ................................... 45
26. Holding Over ............................. 45
27. Subordination; Estoppel .................. 46
28. Rules and Regulations .................... 47
29. Miscellaneous ............................ 47
30. Tenant Improvements ...................... 49
31. Rent Not Paid When Due; Late Charge ...... 49
32. Notices .................................. 50
33. Quiet Enjoyment .......................... 51
34. Estoppel Certificates .................... 51
35. Access; Changes in Building Facilities;
Name ................................... 52
36. Building Directory ....................... 53
37. Agreement Not to Discriminate ............ 55
38. Option to Extend Term .................... 55
EXHIBIT A
EXHIBIT B
</TABLE>
<PAGE> 4
ADDITIONAL LEASE PROVISIONS
ARTICLE 1
Term
The term of this lease is shown in Item 10 of the Basic Lease
Provisions. This lease is effective retroactive to the commencement date shown
in Item 11.
ARTICLE 2
Rent
2.01. Tenant shall pay a basic monthly rent for the premises in
the amount shown in Item 7 of the Basic Lease Provisions payable on the first
day of each month in advance, except that if the commencement date occurs on a
day other than the first day of a month, then the basic monthly rent for the
fraction of the month starting with the commencement date shall be paid on said
commencement date, prorated on the basis of a 30-day month. If the term hereof
ends on a day other than the last day of a month, then the basic monthly rent
for the month during which termination or expiration occurs shall be prorated on
the basis of a 30-day month. In addition to said basic monthly rent, Tenant
agrees to pay additional rent as and when hereinafter provided in this lease.
Said basic monthly rent and additional rent are hereinafter sometimes referred
to collectively as the "rent". The rent shall be payable to Landlord without
deduction or offset, in lawful money of the United States of America at the
address for Landlord as shown in Item 13 of the Basic Lease Provisions, or to
such other person or at such other place as Landlord may from time to time
designate in writing.
2
<PAGE> 5
ARTICLE 3
Definitions of Certain Terms Relating
To Operating Expense Adjustment
For purposes of this lease the following definitions shall
apply:
3.01. "Full Floor Rentable Area" is the total square footage
of the floor area of a full floor, of the Building, measured from glass lines to
glass lines, less only the elevator shafts, stair shafts, and smoke and
mechanical shafts serving the entire building.
3.02. "Net Rentable Area" is the area of a Tenant's suite
measured from the glass line to the office side of adjacent corridors and to the
center line of demising walls without deduction for columns or partitions.
3.03. "Tenant's Chargeable Area" shall be, for each Tenant
occupying space on a multiple tenant floor, his Net Rentable Area plus his
proportional share of the Common Area square footage on that floor. The "Common
Area" square footage shall be the difference between the Full Floor Rental Area
of the floor and the total Net Rentable Area on that floor. Tenant's
proportional share of the Common Area square footage shall be (i) the Tenant's
Net Rentable Area divided by the total Net Rentable Area on the floor times (ii)
the Common Area square footage of that floor.
3.04. "Total Chargeable Area" shall be the sum of the
Full Floor Rentable Areas of Floors 2 through 6.
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<PAGE> 6
3.05. "Ground Floor Chargeable Area" shall be the
Full Floor Rentable Area of the ground floor of the Building,
excluding Building Lobby.
3.06. "Base Annual Operating Expense" is $5.00 times
the Total Chargeable Area.
3.07. "Tenant's Proportionate Share" shall be that percentage
computed by dividing the Full Floor Rentable Area, in the case of a full floor
tenant or the Tenant's Chargeable Area, in the case of a tenant on a multiple
tenant floor, by the Total Chargeable Area.
3.08. "Actual Total Operating Expenses" are defined
as those expenses necessary to operate and maintain the building
in a manner deemed reasonable and appropriate and for the best
interests of the tenants in the building, including the following:
A. Wages, salaries, and fringe benefits of all
employees engaged in the operation and maintenance of the building; employer's
social security taxes, unemployment taxes or insurance, and any other taxes
which may be levied on such wages and salaries; the cost of disability and
hospitalization insurance and pension or retirement benefits for such employees;
B. All supplies and materials used in operation
and maintenance of the building;
C. Cost of water and power, heating, lighting,
air conditioning and ventilating the building and of waste, trash
and sewage disposal;
4
<PAGE> 7
D. Cost of replacement of equipment and all
maintenance and service agreements on equipment, including, without limitation,
alarm service, building mechanical equipment, window cleaning and elevator
maintenance;
E. Cost of casualty and liability insurance
applicable to the building and Landlord's personal property used
in connection therewith;
F. Cost of repairs, general maintenance,
including, without limitation, all janitorial service and supply contracts and
all other service and maintenance contracts pertaining to the Building; however,
if Tenant furnishes its own janitorial services to the premises, only that
percentage of charges for janitorial services attributable to the "common
facilities" (as that term is defined in Section 4.02 infra) shall be included
for purposes of this definition; provided that any janitorial services furnished
by Tenant shall be reasonably acceptable to Landlord, shall conform to building
standards respecting maintenance, and shall be performed only during the hours
when the Building is generally available for janitorial services;
G. Any capital improvements made or installed
after completion of the Building for purposes of saving labor or otherwise
reducing applicable operating costs, with annual charges not to exceed the
aggregate estimated cost savings annualized on a straight line basis over the
useful life of the capital improvements as determined by Landlord in accordance
with generally accepted accounting principles and practices in effect at the
time of acquisition of the capital item;
H. All taxes and assessments and governmental
charges whether federal, state, county or municipal taxing
districts or authorities or by others, subsequently created or
5
<PAGE> 8
otherwise, and any other taxes and assessments attributable to the Building, or
its operation, including, without limitation, any tax or other levy, however
denominated, on or measured by rental collected by Landlord with respect to the
Building, on Landlord's business of leasing the Building or on the number of
persons employed and/or working in the Building, but excluding federal and state
taxes on income. If Tenant and other tenants in the Building, who together
occupy more than 50% of the Total Chargeable Area and the Ground Floor
Chargeable Area, at any time request that Landlord seek a reduction in the
assessed valuation of the Building, or contest any real property taxes levied or
assessed against the Building, Landlord shall seek such reduction in valuation,
or contest such levy or assessment, in accordance with the following:
1. Landlord shall not be required to
withhold payment of any levy or assessment if at any time any part of the
Building, is in immediate danger of being forfeited or sold because of
nonpayment of any levy or assessment.
2. The tenants requesting the contest
shall pay all of the costs associated with the contest including,
without limitation, the attorneys' fees and expenses associated
therewith;
6
<PAGE> 9
I. Cost of all accounting and other
professional fees incurred in connection with the operation of the
building; and
J. A management fee, not to exceed four
percent (4%) of the gross income from the building, which may be payable
to Landlord.
Notwithstanding the foregoing, Actual Total Operating Expenses shall not include
expenses for which the Landlord is reimbursed or indemnified other than pursuant
to Article 4, below; expenses incurred in leasing space or procuring tenants
(including, without limitation, lease commissions, advertising expenses, legal
expenses, and expenses of renovating space for tenants); legal expenses arising
out of disputes with tenants or the enforcement of the provisions of any lease
of space in the building; interest or amortization payments on any mortgage or
mortgages, and rental under any ground or underlying lease or leases (except
that such portion of said lease payments equal to taxes imposed upon the Land,
or upon the rental collected, or upon the business of leasing real property, or
any other tax, however denominated, imposed in addition to or in lieu of such
taxes, other than federal or state income taxes, shall be included as a part of
the operating costs); wages, salaries or other compensation paid to any
executive employees above the rank of building manager; the cost of any work or
service performed for or facilities furnished to a tenant
7
<PAGE> 10
at the tenant's cost; the cost of correcting defects (latent or otherwise) in
the construction of the building or in the building equipment, except those
conditions (not occasioned by construction defects) resulting from ordinary wear
and tear shall not be deemed defects; the cost of installing, operating and
maintaining any specialty improvement including, without limitation, any
observatory or broadcasting facility, cafeteria or dining facility, or athletic,
luncheon or recreational club, and any costs or expenses representing an amount
paid to a related corporation which is in excess of the amount which would be
paid in the absence of such relationship; cost of capital improvements and
depreciation or amortization (except as otherwise provided in Section 3.08G
above or elsewhere herein).
The definitions set forth in subparagraphs 3.02 thru 3.04 of this article do not
include the Ground Floor Chargeable Area. The Ground Floor Chargeable Area shall
at all times be leased on an absolutely net basis. From the expenses defined
above shall be deducted the reimbursements of such ground floor tenants to
Landlord for any common building expenses which by their nature cannot be
practically segregated ( to arrive at the "Actual Total Operating Expenses").
8
<PAGE> 11
ARTICLE 4
Operating Expense Adjustment
4.01. With respect to each calendar year during the lease term
the Tenant shall pay in the installments provided below in Sections 4.02 and
4.03, as additional rent, in addition to the basic monthly rent specified in
Article 2 above, an amount equal to Tenant's Proportionate Share of any excess
of the amount of Actual Total Operating Expenses for such calendar year over the
Base Annual Operating Expense. Notwithstanding anything to the contrary below,
Tenant shall not pay less than the basic monthly rent specified in Article 2
above in any calendar month.
4.02. Landlord shall provide to Tenant a written estimate of
total operating expenses at least thirty (30) days prior to the start of each
succeeding calendar year of the lease term. With respect to each calendar year
during the lease term, the Tenant shall pay to Landlord, with each installment
of basic monthly rent, one-twelfth (1/12th) of Tenant's Proportionate Share of
the excess of estimated total operating expenses for such year over the Base
Annual Operating Expenses.
4.03. Within one hundred twenty (120) days after the end of
every calendar year during the lease term, commencing with the first year after
the base year, the Landlord shall provide Tenant with a written statement of the
Actual Total Operating Expenses for such year. If Tenant's Proportionate Share
of Actual Total Operating Expenses should exceed the estimated amount previously
paid by Tenant with respect to such year, then Tenant shall pay Landlord the
additional amount due to Landlord within thirty (30) days and, if Tenant's
Proportionate Share of
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<PAGE> 12
Actual Total Operating Expenses should be less than the estimated amount paid by
Tenant with respect to such year, then Landlord shall credit against future
additional rent due under this Article the amount of overpayment by Tenant;
provided, however, that Tenant shall not be entitled to any credit against
future additional rent (or to any refund or any other credit) if the Actual
Total Operating Expenses are less than the Base Annual Operating Expense.
4.04. Landlord and Tenant shall each from time to time upon
request of the other sign a written memorandum confirming the amount of the
additional rent as adjusted from time to time hereunder.
4.05. Upon termination, any increase in Operating Expense for
any calendar year during the term of this lease shall be apportioned so that
Tenant shall pay at termination its proportionate share of the increase for such
year as falls within the term, as then estimated by Landlord.
4.06. In the event this lease shall commence other than on the
first day of any calendar year, Tenant shall pay monthly its pro rata share of
the operating expense increase for such year.
4.07. If any special assessments are included as part of the
real estate taxes and such assessment may be paid in installments, Tenant shall
be obligated to pay only Tenant's proportionate share of the installment falling
within the term whether or not Landlord pays such assessment in installments.
10
<PAGE> 13
ARTICLE 5
Rent Adjustment
5.01. Basic monthly rent shall be adjusted in accordance
with the provisions of this Article. As used herein:
A. "Index" shall mean the Consumer Price Index for all
Urban Consumers, Los Angeles/Long Beach/Anaheim, California,
1967=100, published by the Bureau of Labor Statistics of the
United States Department of Labor;
B. "Base Date" shall be that date four calendar months
prior to the month in which the Commencement Date occurs;
C. "Adjustment Calculation Date" shall mean the second
anniversary of the Base Date, and thereafter, each anniversary of
such Base Date;
D. "Rent Adjustment Date" shall mean the second
anniversary of the first day of the calendar month in which the
Commencement Date occurs, and thereafter, each anniversary
thereof;
E. As to each Rent Adjustment Date other than the first Rent
Adjustment Date, "Percentage Increase of Index" shall mean that percentage of
increase in the index on the immediately preceding Adjustment Calculation Date
equal to a fraction, the numerator of which shall be the index on such
Adjustment Calculation Date less the index on the last prior Adjustment
Calculation Date, and the denominator of which shall be the index on the last
prior Adjustment Calculation Date. In the case of the first Rent Adjustment
Date, such percentage shall be
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<PAGE> 14
calculated by treating the Base Date as the last prior Adjustment
Calculation Date;
F. "Adjusted Monthly Rent" shall mean the monthly rent
paid by Tenant during the month immediately preceding any
Adjustment Date, exclusive of any operating expense adjustment.
5.02. Each Rent Adjustment Date, the monthly rent to be paid
by Tenant pursuant to Article 2, shall be increased as follows:
A. On the first Rent Adjustment Date, the Basic Monthly Rent
set forth in Item 7 of the Basic Lease Provisions shall be increased by an
amount equal to the lesser of the Percentage Increase of Index or 14.49%.
B. On each Rent Adjustment Date thereafter, the Adjusted
Monthly Rent shall be increased by an amount equal to the lesser of the
Percentage Increase of Index or 7%.
C. In each case, the rent adjustment shall be effective as of
the Rent Adjustment Date, whether or not the precise amount of such adjustment
has been calculated by Landlord. Tenant agrees to pay, in one payment and
immediately upon notice of such calculation, the entire amount of the increased
rent accrued and owing as of the date of such notice.
5.03. In the event the Percentage Increase of Index is a
negative amount, the Percentage Increase of Index shall, for purposes of
subparagraph 5.02, be deemed to be equal to zero (0).
5.04. In the event the Index shall hereafter be converted
to a different standard reference base or otherwise revised, the
determination of the Percentage
12
<PAGE> 15
Increase Of Index shall be made with the use of such conversion factor, formula
or table for converting the Index as may be published by the Bureau of Labor
Statistics, or if the Bureau shall not publish the same, then with the use of
such conversion factor, formula or table as may be published by the Irving
Fisher Index or such other nationally recognized publisher of similar
statistical information as may be selected by the Landlord, in Landlord's sole
discretion.
ARTICLE. 6
Security Deposit
6.01. Tenant has deposited with Landlord the sum set forth in
Item 12 of the Basic Lease Provisions as security for the full and faithful
performance of every provision of this lease to be performed by Tenant. If
Tenant defaults with respect to any provision of this lease, including but not
limited to the provisions relating to the payment of rent, the repair of damage
to the premises caused by Tenant and/or the cleaning the premises upon
termination of this lease, Landlord may to the full extent permitted by law use,
apply or retain all or any part of this security deposit for the payment of any
rent or of any other sum in default, for the repair of such damage to the
premises, to the cost of such cleaning or for the payment of any other amount or
amounts as Landlord may spend or become obligated to spend by reason of Tenant's
default or to compensate Landlord for any other loss or damage which Landlord
may suffer by reason of Tenant's default. If any portion of said deposit is so
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used or applied, Tenant shall, within ten (10) days after written demand
therefor, deposit cash with Landlord in an amount sufficient to restore the
security deposit to its original amount and Tenant's failure to do so shall be a
material breach of this lease. Landlord's obligations with respect to the
security deposit are those of a debtor and not a trustee. Landlord shall not be
required to keep this security deposit separate from its general funds, and
Tenant shall not be entitled to interest on such deposit. If Tenant shall fully
and faithfully perform every provision of this lease to be performed by it, the
security deposit or any balance thereof shall be returned to Tenant (or, at
Landlord's option, to the last assignee of Tenant's interest hereunder) at the
expiration of the lease term.
ARTICLE 7
Utilities and Service
7.01. Provided that Tenant is not in default hereunder,
Landlord agrees to furnish to the premises during reasonable hours of generally
recognized business days, to be determined by Landlord at its sole discretion,
and subject to the rules and regulations of the Building of which the premises
are a part, electricity for normal lighting and fractional horsepower office
machines, heat and air conditioning required in Landlord's judgment for the
comfortable use and occupation of the premises, and (unless Tenant elects to
provide its own) janitorial service. Landlord shall also maintain and keep
lighted the common stairs, common entries and toilet rooms in the Building of
which the premises are a part. Landlord shall not be liable for, and Tenant
shall not be entitled to terminate the lease or to any reduction of the rental
provided for hereunder, by reason of Landlord's failure to furnish any of the
foregoing or by reason of any reduction in the amount or level of any of the
foregoing or furnished when
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such failure or reduction is caused or mandated by accident, breakage, repairs,
strikes, lockouts or other labor disturbances or labor disputes of any
character, or any law, regulation, rule, ordinance or court order limiting or
restricting the usage or consumption of utility items such as gas, water or
electricity, or by any other cause, similar or dissimilar, beyond the reasonable
control of Landlord. Landlord shall not be liable under any circumstances for a
loss of or injury to property, however occurring, through or in connection with
or incidental to failure to furnish any of the foregoing.
7.02. Tenant shall not, without the written consent of
Landlord, use any apparatus, machine or device in the premises (including
without limitation electronic data processing machines, punch card machines and
machines using current in excess of 110 volts) which would in any way increase
the amount of electricity or water usually required for use of the premises as
general office space; nor connect any apparatus, machine or device to water
pipes or electric current (except through existing electrical outlets in the
premises), for the purpose of using such water or electric current. If Tenant
shall require electric current in excess of that which Landlord is obligated to
furnish under Section 7.01 above, Tenant shall first obtain the written consent
of Landlord, which Landlord may in its sole discretion refuse, to the use
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thereof and Landlord may cause an electric current meter to be installed in the
premises to measure the amount of electric current consumed for any such other
use. The cost of any such meter and of installation, maintenance and repair
thereof shall be paid for by Tenant and Tenant agrees to pay Landlord promptly
upon demand by Landlord for all such electric current consumed as shown by said
meter, at the rates charged for such services by the local public utility
furnishing the same, plus any additional expense incurred in keeping account of
the electric current so consumed. If any lights, machines or equipment
(including but not limited to computers) are used by Tenant in the premises
which materially affect the temperature otherwise maintained by the air
conditioning system, or which generate substantially more heat in the premises
than would be generated by the building's standard lights and usual fractional
horsepower office equipment, Landlord shall have the right to install any
machinery and equipment which Landlord reasonably deems necessary to restore
temperature balance, including but not limited to modifications to the standard
air conditioning equipment, and the cost thereof, including the cost of
installation and any additional cost of operation and maintenance thereof, shall
be paid promptly by Tenant to Landlord upon demand by Landlord.
7.03. Tenant shall have the right to use in common with other
tenants or occupants of the building the parking facilities of the building
subject to the monthly rates, rules and regulations, and any other charges of
Landlord for such parking facilities, which rates, rules, regulations and
charges may be established or altered by
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Landlord at any time or from time to time during the term hereof.
7.04. Notwithstanding any other provisions of this Lease,
Tenant may provide its own janitorial services for the premises in which event
it shall be entitled to a credit against its rental obligation and/or operating
expense obligation hereunder in the amount of the actual savings to Landlord (if
any) resulting from Landlord not providing Tenant with such services.
ARTICLE 8
Use of Premises
8.01. Tenant shall use and occupy the premises only for
general office purposes and shall not use or occupy the premises for any other
purpose, including without limiting the generality of the foregoing any medical
or dental office, clinic, laboratory or similar business, without the prior
written consent of Landlord. Tenant shall not use or occupy the premises in
violation of law and shall, upon five (5) days' written notice from Landlord,
discontinue any use of premises which is declared by any governmental authority
having jurisdiction to be a violation of law. Tenant, at its sole cost and
expense, shall comply with any direction of any governmental authority having
jurisdiction which shall impose any duty upon Tenant or Landlord with respect to
the premises or the use or occupation thereof, by reason of the nature of
Tenant's use or occupancy of the premises. Tenant shall not do or permit to be
done anything which would invalidate or increase the cost of any fire and
extended coverage insurance policy covering the building and/or any property
located therein. Tenant shall promptly upon demand reimburse Landlord for any
additional premium charged for such policy by reason of Tenant's failure to
comply with the provisions of this Article.
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ARTICLE 9
Acceptance of Premises
9.01. Tenant acknowledges that neither Landlord nor any agent
of Landlord has made any representation or warranty with respect to the premises
or the building or with respect to the suitability or fitness of either for the
conduct of Tenant's business or for any other purpose. The taking of possession
or use of the premises by Tenant for any purpose other than construction shall
conclusively establish that the premises and the building were at such time in
satisfactory condition (except for latent defects) and in conformity with the
provisions of this lease in all respects, except as to any items as to which
Tenant shall give Landlord written notice in reasonable detail within fifteen
(15) days after Tenant takes such possession, commences such use of the premises
or the term of this lease otherwise commences as provided in Article 1 above,
whichever shall first in time occur. Nothing, contained in this Article 9 shall
affect the commencement of the term of this lease or the obligation of Tenant to
pay rent hereunder as provided in Article 2 above. Landlord shall promptly
correct any actual defects of which it is notified as provided above.
ARTICLE 10
Alterations and Equipment
10.01. Tenant shall make no alterations, additions or
improvements to the premises, other than usual decorating work, without the
prior written consent of Landlord, and Landlord may impose as a condition to
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such consent such requirements as Landlord in its sole discretion may deem
necessary or desirable, including, without limiting the generality of the
foregoing, requirements as to the manner in which, and the time or times at
which, such work shall be done. Landlord shall also have the right, in its sole
discretion, to approve or disapprove the contractor selected by Tenant to
perform such work. All such alterations, additions or improvements shall upon
any termination hereof become the property of the Landlord and shall be
surrendered with the premises, as a part thereof, upon any termination hereof,
except that Landlord may, by written notice to Tenant give at least thirty (30)
days prior to the end of term or within 30 days of any earlier termination
hereof, require Tenant to remove all partitions, counters, railings and the like
installed by Tenant, and to repair any damage to the premises for such removal,
all at Tenant's sole cost and expense.
10.02. All articles of personal property and all business and
trade fixtures, machinery and equipment, cabinet work, furniture and movable
partitions owned by Tenant or installed by Tenant at its expense in the premises
shall be and remain the property of Tenant and may be removed by Tenant at any
time during the lease term so long as Tenant is not in default hereunder,
provided that Tenant repairs any damage to the premises or the building caused
by such removal. On the expiration of the term of this lease, or on any earlier
termination of this lease, Tenant shall remove all such personal property, etc.,
in accordance with the provisions of Article 22 below.
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ARTICLE 11
Liens
11.01. Tenant shall keep the premises and the building free
from any mechanic's or other liens arising out of any work performed, materials
furnished or obligations incurred by Tenant, and agrees to defend, indemnify and
hold harmless Landlord from and against any such lien or claim or action
thereon, together with costs of suit and reasonable attorney's fees incurred by
Landlord in connection with any such claim or action.
ARTICLE 12
Tax on Tenant's Property
12.01. Tenant shall be liable for and shall pay not later than
ten (10) days before delinquency, all taxes levied against any personal property
or trade fixtures placed by Tenant in or about the premises. If any such taxes
on Tenant's personal property or trade fixtures are levied against Landlord or
Landlord's property, or if the assessed value of Landlord's property is
increased by the inclusion therein of a value placed upon such personal property
or trade fixtures, Landlord shall have the right, but not the obligation, to pay
the taxes caused by such inclusion or increase in assessed value (the "Added
Tax"). If Landlord elects in its sole discretion to pay and does pay such added
tax, Landlord shall have the right to offset such payment against the security
deposit or, at its sole election, to assess Tenant for such added tax, in which
case Tenant shall within ten (10) days of such assessment pay the full amount
thereof to Landlord. The
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Landlord shall have the right, as provided herein, to make such payment
regardless of the validity of such levy, but agrees to give not less than ten
(10) days, notice to Tenant of its intention to make such payment and shall, if
so requested by Tenant and if properly and to Landlord's full and complete
satisfaction indemnified by Tenant, make such payment under protest. If added
taxes are so paid under protest, Tenant shall have the right, in the name of the
Landlord and with Landlord's full cooperation, to bring suit in any court of
competent jurisdiction to recover the amount of any such taxes so paid under
protest; provided, however, that such suit may not be brought or commenced until
Landlord has been provided with assurance reasonable to it that Tenant shall pay
all costs of such suit and that Landlord shall incur no cost or expense in
connection with such suit. So long as the Tenant has properly reimbursed
Landlord for the added taxes paid by Landlord, and for Landlord's costs and
expenses in making such payment under protest and for cooperating with any
litigation or other proceeding relating to such protested payment, including
without limitation attorney's fees, any amount so recovered shall belong to
Tenant.
12.02. If the Tenant improvements in the premises, whether
installed and/or paid for by Landlord or Tenant and whether or not affixed to
the real property so as to become a part thereof, are assessed for real property
tax purposes at a valuation higher than the valuation at which Tenant
improvements conforming to Landlord's "building standard" in other space in the
building are assessed, then the real property taxes and assessments levied
against Landlord or Landlord's property
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by reason of such excess assessed valuation shall be deemed to be taxes levied
against the personal property of Tenant and shall be governed by the provisions
of Section 12.01 above.
ARTICLE 13
Maintenance and Repair
13.01. Subject to the provisions of Section 13.02 below,
Tenant shall take good care of the premises and the fixtures therein, and
subject to the provisions of Article 18 below, shall reimburse Landlord for all
repairs thereto or to the building which are made necessary as a result of any
misuse or neglect by Tenant or any of its officers, agents, employees,
contractors, permittees, licensees, visitors, guests or invitees.
13.02. Subject to the provisions of Article 6 and Article 18
hereof, Landlord shall repair and maintain the building structure and public
areas, and the plumbing, air conditioning and electrical systems serving the
premises. Landlord shall not be liable for any failure to make any repairs or to
perform any maintenance unless such failure shall persist for an unreasonable
time after written notice of the need for such repairs or maintenance is given
to Landlord by Tenant. Except as provided in Article 18 hereof, there shall be
no abatement of rent or lease termination by the Tenant, and no liability of
Landlord by reason of any injury to or interference with Tenant's business,
arising from the making of any repairs, alterations or improvements in or to any
portion therein; provided, however, that in making such repairs, alterations or
improvements, Landlord shall interfere as
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little as reasonably practicable with the conduct of Tenant's
business in the premises.
ARTICLE 14
Entry and Inspection
14.01. Tenant will permit Landlord and its agents at all
reasonable times during normal business hours and at any time in case of
emergency, in such manner as to cause as little disturbance to Tenant as
reasonably practicable, (1) to enter into and upon the premises for the purpose
of inspecting the same, or for the purpose of protecting the interest therein of
Landlord, and (2) to take all required materials and equipment into the
premises, and perform all required work therein, including without limitation
the erection of scaffolding, props, or other mechanical devices, for the purpose
of making alterations, repairs or additions to the premises or to any other
portion of the building in which the premises are situated as may be provided
for by this lease or as may be mutually agreed upon by the parties or as
Landlord may be required to make by law or for maintaining any service provided
by Landlord to Tenant hereunder, including window cleaning and janitor service,
without any abatement of rent to Tenant for any loss of occupancy or quiet
enjoyment of the premises, or damage, injury or inconvenience thereby
occasioned. Tenant shall also permit Landlord and its agents, upon request, to
enter and/or pass through the premises or any part thereof, at reasonable times
during normal business hours, to show the premises to holders of encumbrances on
the interest of Landlord under the lease, or to prospective purchasers,
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mortgagees or lessees of the building as an entirety, and during the period
beginning six (6) months prior to the expiration date of this lease, Landlord
may exhibit the premises to prospective tenants. Landlord shall also have the
right to enter on and/or pass through the premises, or any part thereof, at such
times as such entry shall be required by circumstances of emergency affecting
the premises or any other portion of the building in which the premises are
located. If during the last month of the term hereof Tenant shall have removed
substantially all of Tenant's property and personnel from the premises, Landlord
may enter the premises and repair, alter and redecorate the same, without
abatement of rent and without liability to Tenant, and such acts shall have no
effect on this lease.
ARTICLE 15
Hold Harmless and Non-Liability
15.01. This lease is made upon the express condition that
Landlord is to be free from all liability and claims for damages (except for
breach of lease by Landlord or that portion of any claim or damage resulting
exclusively from Landlord's willful conduct or omission), resulting from or
arising out of any injury to any person or persons, including Tenant, or to
property of any kind whatsoever or to whomsoever belonging, including that of
Tenant, from any cause or causes, while in, upon, adjacent to, in the vicinity
of or in any way connected with the premises or any portion thereof, during the
term of this lease, or any extension hereof, or during any other occupancy of
the premises by Tenant. Subject to the terms
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of this lease (and except for breach of this lease by Landlord or that portion
of any claim or damage resulting exclusively from Landlord's willful conduct or
omission), Tenant hereby agrees to indemnify and save Landlord harmless from and
against any and all claims, demands, obligations, liabilities, cause or causes
of action resulting from or arising out of the condition during the term of this
lease of the premises (including the building in which the premises are located)
and the parking area.
15.02. Tenant hereby agrees that Landlord shall not be liable
(except for Landlord's breach of this lease or that portion of any damage
incurred solely as a result of Landlord's willful conduct or omission) for
injury to Tenant's business or any loss of income therefrom or for damages to
the property of Tenant, or of Tenant's officers, agents, employees, contractors,
permittees, licensees, visitors, guests or invitees, or any other person in or
about the premises or the building, nor shall Landlord be liable for injury to
the person of Tenant, Tenant's officers, agents, employees, contractors,
permittees, licensees, visitors, guests, invitees or to the person of any other
person in or about the premises or the building. This shall be true regardless
of whether such damage or injury is caused by or results from, without
limitation, fire, steam, electricity, gas, water or rain, or from the breakage,
leakage or obstruction of or other defects in the pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures of the same, or from
any other cause, regardless of whether the said damage or injury results from
conditions arising upon the premises, the building in which the premises are
located, or elsewhere and whether
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the cause of such damage or injury or the means of repairing the
same is inaccessible to Tenant.
15.03. Tenant shall at its own cost take out and keep in force
during the term of this lease, public liability and property damage insurance,
in an amount not less than that set forth in Item ll of the Basic Lease
Provisions, insuring against all liability of Tenant and its authorized
representatives arising out of and in connection with Tenant's use or occupancy
of the premises, and insuring Landlord with respect to the ownership,
maintenance, operation and use or occupancy of the premises. All such insurance
shall insure performance by Tenant of the indemnity provisions of this Section.
Both parties shall be named as additional insureds, and the policy shall contain
cross-liability, personal injury and contractual liability endorsements. The
insurance requirements imposed on Tenant shall not impute to Landlord any
responsibility for the sufficiency or adequacy of the insurance carried by
Tenant, and Landlord shall have no liability to Tenant or to any third party for
Tenant's failure to obtain proper or sufficient insurance.
15.04. Tenant shall, during the term of this lease,
continually maintain insurance coverage as required by the State Banking
Department.
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15.05. To the extent, but only to the extent, claims are in
fact paid under such policies, the parties release each other, and their
respective authorized representatives, from any claims for damage to any person
or to the premises and the building and other improvements in which the premises
are located and to the fixtures, personal property, Tenant's improvements and
alterations of either Landlord or Tenant in or on the premises and the Building
that are caused by or result from risks insured against under any insurance
policies carried by the parties and in force at the time of any such damage. To
the extent, but only to the extent, claims are in fact paid under such policies,
neither party shall be liable to the other for any damage caused by fire or any
of the risks insured against under any insurance policy required by this lease.
15.06. All the insurance required under this lease shall:
A. Be issued by insurance companies authorized to do business
in the State of California, with a policyholders and financial rating of at
least A:Class X1 status as rated in the most recent edition of Best's Key-Rating
Guide;
B. Be issued as a primary policy; however, Tenant may carry
the insurance under blanket policy if the policy specifically provides that the
amount of
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insurance required under this lease will be in no way prejudiced by other losses
covered by the policy; and
C. Contain an endorsement requiring thirty (30) days' written
notice from the insurance company to both parties and Landlord's lender before
cancellation or change in the coverage, scope, or amount of any policy.
15.07. Each policy, or a certificate of the policy, together with
evidence of payment of premiums, shall be deposited with Landlord at the
commencement date, and, on renewal of the policy, not less than twenty (20) days
before expiration of the term of the policy.
ARTICLE 16
Assignment and Subletting
16.01. Tenant shall not, either voluntarily or by operation of
law, assign, sell, encumber, pledge or otherwise transfer all or any part of
Tenant's leasehold estate hereunder, or permit the premises to be occupied by
anyone other than Tenant or Tenant's employees or sublet the premises or any
portion thereof, without Landlord's prior written consent in each instance,
which Landlord agrees not to unreasonably withhold. Consent by Landlord to one
or more assignments of this lease or to one or more sublettings of the premises
shall not operate to exhaust Landlord's rights under this Section. The voluntary
or other surrender of this lease by Tenant or a mutual cancellation hereof shall
not work a merger, and shall at Landlord's sole option, either terminate such
subleases or subtenancies or operate as an assignment to Landlord of such
subleases or subtenancies as the Landlord may designate. If Tenant is a
corporation which, under
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the then current guidelines published by the Commissioner of Corporations of the
State of California, is not deemed a public corporation, or is an unincorporated
association or partnership, the transfer, assignment or hypothecation of any
stock or interest in such corporation, association or partnership in the
aggregate in excess of twenty-five percent (25%) shall be deemed an assignment
within the meaning and provisions of this Article. Tenant agrees to reimburse
Landlord for Landlord's reasonable costs and attorneys' fees incurred in
connection with the processing and documentation of any such requested
assignment, subletting, transfer, change of ownership or hypothecation of this
lease or Tenant's interest in and to the premises.
16.02. If Tenant desires at any time to assign this lease or
to sublet the premises or any portion thereof, it shall first notify Landlord of
its desire to do so and shall, within ninety (9O) days of the request for
Landlord's consent, submit in writing to Landlord (1) the name of the proposed
subtenant or assignee; (2) the nature of the proposed subtenant's or assignee's
business to be carried on in the premises; (3) the terms and provisions of the
proposed sublease or assignment; and (4) such reasonable financial information
as Landlord may request concerning the proposed subtenant.
16.03. At any time within fifteen (15) days after Landlord's
receipt of the information specified in Section 16.02 above, Landlord may by
written notice to Tenant elect to (1) consent to the subletting or assignment
upon the terms and to the subtenant or assignee proposed; (2) refuse to give its
consent; (3) sublease the premises or the portion thereof so proposed to be
subleased by Tenant or take an assignment of Tenant's
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leasehold estate hereunder or such part thereof as shall be specified in said
notice upon the same terms (excluding terms relating to the use of Tenant's name
or the continuation of Tenant's business) as those offered to the proposed
subtenant or assignee, as the case may be; or (4) terminate this lease as to the
portion (including all) of the premises so proposed to be subleased or assigned
with a proportionate abatement in the rent payable hereunder. Landlord agrees
not to exercise any option set forth in clauses (2) through (4) above unless its
refusal to consent is not unreasonable, taking into account the information
furnished Landlord pursuant to Section 16.02. And in the event Landlord elects
to exercise any options set forth in clauses (2) through (4) above, it shall in
its notice to Tenant specify its reasons for withholding consent to the
requested subletting or assignment. Tenant further agrees that no assignment or
subletting consented to by Landlord shall impair or diminish any covenant,
condition or obligation imposed upon Tenant by this lease or any right, remedy
or benefit afforded Landlord by this lease. If Landlord consents to such
assignment or subletting, Tenant may, within ninety (90) days after the date of
Landlord's consent, enter into a valid assignment or sublease of the premises or
portion thereof upon the terms and conditions described in the information
required to be furnished by Tenant to Landlord pursuant to Section 16.02 above,
or upon other terms not more favorable to Tenant; provided, however, that any
material change in such terms shall be subject to Landlord's consent as provided
in this Article 16. Failure of Landlord to exercise any option set forth in
clauses (1) through (4) above within such fifteen (15) day period shall be
deemed consent by Landlord to consent to the proposed subletting or assignment.
16.04. Notwithstanding the provisions of this Article 16
above, Tenant shall have the right, without Landlord's consent, to
assign this lease to a corporation with which it may merge or
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consolidate, to any parent or subsidiary of Tenant, or subsidiary of Tenant's
parent, or to a purchaser of substantially all of Tenant's assets, if the
assignee executes an agreement in form required by Landlord assuming Tenant's
obligations under this lease.
16.05. No subletting or assignment, even with the consent of
Landlord, or pursuant to Section 16.04, shall relieve Tenant of its obligation
to pay the rent and to perform all of the other obligations to be performed by
Tenant hereunder. The acceptance by Landlord of any payment due hereunder from
any other person shall not be deemed to be a waiver by Landlord of any
provisions of this lease or to be a consent to any assignment or subletting.
ARTICLE 17
Transfer of Landlord's Interest
17.01. Tenant acknowledges that this lease agreement and the
rents paid or payable hereunder may be assigned by Landlord, without notice to
Tenant, and agrees, upon written demand by Landlord and by the holder of any
mortgage, deed of trust and/or assignment of rents encumbering the Building
(hereinafter referred to as "mortgagee") to pay all rents due and payable
hereunder as so directed by such mortgagee.
17.02. In the event of any transfer or transfers of Landlord's
interest in the premises or in the real property of which the premises are a
part, other than a transfer for security purposes only, the transferor shall be
automatically relieved of any and all obligations and liabilities on the part of
Landlord accruing from and after the date of such transfer, including without
limitation the obligation of Landlord under Article 5 above to return the
security deposit as provided therein, provided such obligations and liabilities
are assumed in writing by the transferee.
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ARTICLE 18
Damage or Destruction
18.01. In the event the premises or the Building of which the
premises are a part are damaged by fire or other perils covered by extended
coverage insurance, Landlord agrees, to the extent insurance proceeds actually
paid and received allow, to forthwith repair the same, and this lease shall
remain in full force and effect, except that Tenant shall be entitled to a
proportionate reduction of the rent while such repairs are being made, such
proportionate reduction to be based upon the extent to which the making of such
repairs materially interferes with the business carried on by Tenant in the
premises. If, however, the damage is due in whole or in substantial part to the
fault or neglect of Tenant or its officers, agents, employees, contractors
(independent or otherwise), permittees, licensees, guests, visitors or invitees,
there shall be no abatement of rent.
18.02. In the event the premises or the Building are damaged
in an amount exceeding the insurance proceeds or by perils not covered by fire
and extended coverage insurance, Landlord shall forthwith repair the same,
provided the extent of the total destruction is no greater than the lesser of
Seventy-Five Thousand ($75,000) Dollars or ten percent (10%) of the then full
replacement cost of the premises (such lesser figure shall be referred to herein
as "Landlord's Repair Obligation Limit"). In the event the destruction is to an
extent greater than Landlord's Repair Obligation Limit, then Landlord shall have
the option (1) to repair or restore such damage, this lease continuing in full
force and effect, but the rent to
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be proportionately reduced to the same extent and subject to the same conditions
as hereinabove provided in Section 18.01 of this Article; or: (2) give notice to
Tenant at any time within sixty (60) days after such damage terminating this
lease as of the date specified in such notice, which date shall be no less than
thirty (30) and no more than sixty (60) days after the giving of such notice. In
the event of giving such notice, this lease shall expire and all interest of the
Tenant in the premises shall terminate on the date so specified in such notice
and the rent, proportionately reduced to the same extent and subject to the same
conditions as hereinabove provided in Section 18.01 of this Article, shall be
paid up to date of such termination.
18.03. Notwithstanding anything to the contrary contained in
this Article, Landlord shall not have any obligation whatsoever to repair,
reconstruct or restore the premises when the damage resulting from any casualty
covered under this Article occurs during the last twelve (12) months of the term
of this lease or any extension thereof.
18.04. Landlord shall not be required to repair any injury or
damage by fire or other cause to, or to make repairs or replacement of any
property installed in the premises by or at the request or direction of Tenant,
including without limitation panels, decoration, office fixtures, railings,
floor covering, and partitions. Furthermore, in no event, and without regard to
whomsoever installed such property, shall Landlord be required to repair any
injury or damage, or to make any repairs or replacement of property installed in
the premises to the extent the aggregate cost of such repairs or replacements
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totals an amount in excess of basic tenant improvements allowed to
Tenant by Landlord.
18.05. Tenant shall not be entitled to any compensation or
damages from Landlord for loss of the use of the whole or any part of the
premises, Tenant's personal property or any inconvenience or annoyance
occasioned by such damage, repair, reconstruction or restoration.
18.06. Tenant waives the provisions of Civil Code Section
1932(2) and Civil Code Section 1933(4) with respect to the destruction of the
premises, and the building in which such premises are located.
ARTICLE 19
Eminent Domain
19.01. If the whole of the premises or so much thereof as to
render the balance unusable by Tenant shall be taken under power of eminent
domain or conveyed under threat of the exercise of such power, this lease shall
automatically terminate as of the date of such condemnation, or as of the date
possession is taken by the condemning authority, whichever is earlier. No award
for any partial or entire taking shall De apportioned, and Tenant hereby assigns
to Landlord any award which may be made in such taking or condemnation, together
with any and all rights of Tenant now or hereafter arising in or to the same or
any part thereof; provided, however, that nothing contained herein shall be
deemed to give Landlord any interest in or to require Tenant to assign to
Landlord any award made to Tenant for the taking of personal property and
fixtures belonging to Tenant and/or for the
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interruption of or damage to Tenant's business and/or for Tenant's unamortized
cost of leasehold improvements.
19.02. In the event of a partial taking which does not result
in a termination of this lease, rent shall be abated in proportion to the part
of the premises unusable by Tenant. Tenant and Landlord each waives the
provisions of Code of Civil Procedure Section 1265.130 allowing either party to
petition the Superior Court to terminate this lease in the event of a partial
taking of the premises.
19.03. No temporary taking of the premises and/or of Tenant's
rights therein or under this lease lasting less than 180 consecutive days shall
terminate this lease or give Tenant any right to any abatement of rent
hereunder; any award made to Tenant by reason of any such temporary taking shall
belong entirely to Tenant and Landlord shall not be entitled to share therein.
ARTICLE 20
Relocation
20.01. If the premises contain less than one thousand (1,000)
square feet of rentable area, Landlord shall have the right, at its option, upon
at least thirty (30) days' written notice to Tenant, to relocate Tenant and to
substitute for the premises described above other spaces in the building
containing at least as much rentable area as the original premises. Such
substituted premises shall be improved by Landlord at its expense, with
decorations and improvements at least equal in quantity and quality to those in
the original premises. Landlord shall pay the expenses reasonably incurred by
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Tenant in connection, with such substitution of premises, including but not
limited to costs of moving, door lettering, telephone relocation and reasonable
quantities of new stationery.
ARTICLE 21
Defaults; Remedies
21.01. The occurrence of any one or more of the following
events shall constitute a default and breach of this lease by Tenant:
A. Failure to pay rent or any other required payment when due,
if the failure continues for five (5) days after notice has been given to
Tenant; provided, however, that any such notice shall be in lieu of, and not in
addition to, any notice required under Section 1161, et seq., of the California
Code of Civil Procedure;
B. Abandonment of the premises;
C. The failure by Tenant to observe or perform any other
covenants, conditions or provisions of this lease to be observed or performed by
Tenant where (except where a different period of time is specified in this
lease) such failure shall continue for a period of thirty (30) 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
Section 1161 et seq., of the California Code of Civil Procedure. If the nature
of Tenant's default is such that more than thirty (30) days is reasonably
required for its cure, then tenant shall not be deemed to be in default
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if Tenant commences such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion;
D. The filing or occurrence of:
(1) a petition in bankruptcy by or against the Tenant, unless
cured or removed within sixty (60) days;
(2) a petition or answer by Tenant seeking a reorganization,
arrangement, composition, readjustment, liquidation, dissolution or other relief
of the same or different kind under any provision of the Bankruptcy Act;
(3) adjudication of Tenant as a bankrupt or insolvent;
(4) an assignment of all or substantially all of Tenants
assets for the benefit of creditors;
(5) a petition or other proceeding, except by Landlord, its
agents or affiliates, by or against Tenant, for, or the appointment of, a
trustee, receiver, or liquidator of Tenant with respect to all or substantially
all of its property; provided, however, that Tenant shall not be in default if
Tenant cures or removes such a petition or proceeding within sixty (60) days;
(6) a petition or other proceeding by or against Tenant for
its dissolution or liquidation, or the taking of possession of the property of
Tenant by any governmental authority in connection with dissolution or
liquidation, provided, however, that Tenant shall not be in
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default if Tenant cures or removes such a petition or proceeding within
sixty (60) days;
(7) the taking or attachment by any person, except by Landlord
or its agents or affiliates, of the leasehold created hereby or any part thereof
upon execution, or other process of law or equity; or
(8) the general failure of Tenant to pay its debts as they
become due, as such phrase is construed in connection with 11 U.S.C.Section
303(h)(1).
E. Except during such periods as renovations or reconstruction
is in active progress, or as the premises are rendered unsafe or unusable,
failure to make use of the premises for more than forty-five (45) days in any
ninety (90) day period.
21.02. Notices given under Section 21.01 above shall specify
the alleged default and the applicable lease provisions, and shall demand that
Tenant perform the provisions of this lease or pay the rent that is in arrears,
as the case may be, within the applicable period of time, or quit the premises.
No such notice shall be deemed a forfeiture or a termination of this lease
unless Landlord specifically so elects in the notice.
21.03. Landlord shall have the following remedies without
further notice to Tenant if Tenant commits a default. These remedies are not
exclusive; they are cumulative and in addition to any remedies now or later
allowed by law:
A. Landlord can continue this lease in full force and effect,
and the lease will continue in effect as Landlord does not terminate
Tenant's
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right to possession, and Landlord shall have the right to collect rent when due.
During the period Tenant is in default, Landlord can enter the premises and
relet them, or any part of them, to third parties for Tenant's account. Tenant
shall be liable immediately to Landlord for all costs Landlord incurs in
reletting the premises, including, without limitation, brokers' commissions,
expenses of remodeling the premises required by the reletting, and like costs.
Reletting can be for a period shorter or longer than the remaining term of this
lease. Tenant shall pay to Landlord the rent due under this lease on the dates
the rent is due, less the rent Landlord receives from any reletting. No act by
Landlord allowed by this section shall terminate this lease unless Landlord
notifies Tenant that Landlord elects to terminate this lease.
B. Landlord can terminate Tenant's right to possession of the
premises at any time. No act by Landlord other than the giving of written notice
to Tenant shall terminate this lease. Acts of maintenance, efforts to relet the
premises, or the appointment of a receiver on Landlord's initiative to protect
Landlord's interest under this lease shall not constitute a termination of
Tenant's right to possession. On termination, Landlord has the right to recover
from Tenant:
(1) The worth, at the time of the award of the unpaid rent
that had been earned at the time of termination of this lease;
(2) The worth, at the time of the award of the amount by
which the unpaid rent that
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would have been earned after the date of termination of this lease until the
time of award exceeds the amount of the loss of rent that Tenant proves could
have been reasonably avoided;
(3) The worth, at the time of the award of the amount by which
the unpaid rent for the balance of the term after the time of award exceeds the
amount of the loss of rent that Tenant proves could have been reasonably
avoided; and
(4) Any other amount, including court costs and attorneys'
fees, necessary to compensate Landlord for all detriment proximately caused by
Tenant's default.
"The worth, at the time of the award," as used in (1) and (2) of this paragraph
B is to be computed by allowing interest at that rate equal to the average
weighted discount rate applied by the Federal Reserve Bank of San Francisco
during the time period in question, plus 1%, or the maximum amount allowed by
law, whichever is less. "The worth, at the time of the award," as referred to in
(3) of this paragraph B is to be computed by discounting the amount at the
discount rate applied by the Federal Reserve Bank of San Francisco at the time
of the award, plus 1%.
21.04. Landlord, at any time after Tenant commits a default,
may, but is under no obligation to, cure the default at Tenant's cost. If
Landlord at any time, by reason of Tenant's default, pays any sum or does any
act that requires the payment of any sum, the sum paid by Landlord shall be due
immediately from Tenant to Landlord at the same time the sum is paid and, if
paid at
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a later date, shall bear interest from the date the sum is paid by Landlord
until Landlord is reimbursed by Tenant at that rate equal to the weighted
average discount rate applied by the Federal Reserve Bank of San Francisco
during the relevant time period plus 1%, or the maximum amount allowed by law,
whichever is less.
ARTICLE 22
Surrender of Premises; Removal of Property
22.01. The voluntary or other surrender of this lease by
Tenant shall not work a termination hereof, shall not work a merger, but shall
at the option of Landlord, operate as an assignment to it of any or all
subleases or subtenancies affecting the premises.
22.02. Upon the expiration of the term of this lease, or upon
any earlier termination of this lease, Tenant shall quit and surrender
possession of the premises to Landlord in as good order and condition as the
same are now or hereafter may be improved by Landlord or Tenant, reasonable wear
and tear and repairs which are Landlord's obligation excepted, and shall,
without expense to Landlord, remove or cause to be removed from the premises all
debris and rubbish, all furniture, equipment, business and trade fixtures,
free-standing cabinet work, movable partitioning and other articles of personal
property owned by Tenant or installed or placed by Tenant at its expense in the
premises (exclusive of any items described in Section 22.04 below) and all
similar articles of any other persons claiming under Tenant unless Landlord
exercises its option to have any subleases or subtenancies assigned
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to it, and Tenant shall repair all damages to the premises resulting
from such removal.
20.03. Whenever Landlord shall re-enter the premises as
provided in Section 21.03 hereof, or as otherwise provided in this lease, any
property of Tenant not removed by Tenant upon the expiration of the term of this
lease (or within forty-eight (48) hours after a termination by reason of
Tenant's default), as provided in this lease, shall be considered abandoned and
Landlord may remove any or all of such items and dispose of the same in any
manner or store the same in a public warehouse or elsewhere for the account and
at the expense and risk of Tenant, and if Tenant shall fail to pay the cost of
storing any such property after it has been stored for a period of ninety (90)
days or more, Landlord may sell any or all of such property at public or private
sale, in such manner and at such times and places as Landlord, in its sole
discretion, may deem proper, without notice to or demand upon Tenant, for the
payment of all or any part of such charges or the removal of any such property,
and shall apply the proceeds of such sale first to the cost and expenses of such
sale, including reasonable attorneys' fees actually incurred; second, to the
payment of the cost of or charges for storing any such property; third, to the
payment of any other sums of money which may then or thereafter be due to
Landlord from Tenant under any of the terms hereof; and fourth, the balance, if
any, to Tenant.
22.04. All fixtures, equipment, alterations, additions,
improvements and/or appurtenances attached to or built into the premises prior
to or during the term, whether by landlord at its expense or at the expense of
Tenant or both, shall be and remain part of the premises
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and shall not be removed by Tenant at the end of the term unless otherwise
expressly provided for in this lease or unless such removal is required by
Landlord pursuant to the provisions of Article 10 above. Such fixtures,
equipment, alterations, additions, improvements and/or appurtenances shall
include but not be limited to all floor coverings, drapes, paneling, molding,
doors, vaults (exclusive of vault doors), plumbing systems, electrical systems,
lighting systems, silencing equipment, security systems, communication systems,
all fixtures and outlets for the systems mentioned above and for all telephone
(but excluding telephone instruments, central processing units, and other
telephone system components which may be removed without structural damage to
the premises), radio, telegraph and television purposes, and any special
flooring or ceiling installations.
22.05. Tenant shall, at least ninety (90) days before the last day of
the term hereof, give to Landlord a written notice of intention to surrender the
premises on that date, but nothing contained herein shall be construed as an
extension of the term hereof or as consent of Landlord to any holding over by
Tenant.
ARTICLE 23
Waiver of Damages for Reentry
23.01. Tenant hereby waives all claims for damages that may be caused
by Landlord's reentering and taking possession of the premises or removing and
storing the property of Tenant as herein provided, and Tenant shall save
Landlord harmless thereby, and no such reentry shall be considered or construed
to be a forcible entry.
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ARTICLE 24
Costs of Suit
24.01. In the event suit is brought to enforce or interpret
any part of this lease, the prevailing party shall be entitled to recover as an
element of his costs of suit, and not as damages, a reasonable attorneys' fee to
be fixed by the court. The "prevailing party" shall be the party who is entitled
to recover his costs of suit, whether or not the suit proceeds to final
judgment. A party not entitled to recover his costs shall not recover attorneys'
fees. No sum for attorneys' fees shall be counted in calculating the amount of a
judgment for purposes of determining whether a party is entitled to recover his
costs or attorneys' fees.
24.02. Should Landlord, without fault on Landlord's part, be
made party to any litigation instituted by Tenant or by any third party against
Tenant, or for the foreclosure of any lien for labor or material furnished to or
for Tenant or any such other person or otherwise arising out of or resulting
from any act or transaction of Tenant or of any such other person, Tenant
covenants to save and hold Landlord harmless from any judgment rendered against
Landlord or the premises or any part thereof, and all costs and expenses,
including reasonable attorneys' fees, incurred by Landlord in or in connection
with such litigation.
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ARTICLE 25
Waiver
25.01. The waiver by Landlord or Tenant of any breach of
any term, covenant or condition herein contained shall not be deemed to be a
waiver of such term, covenant or condition as to any subsequent breach of the
same or any other term, covenant or condition herein contained. The subsequent
acceptance of rent hereunder by Landlord shall not be deemed to be a waiver of
any preceding breach by Tenant of any term, covenant or condition of this lease,
other than the failure of Tenant to pay the particular rental so accepted,
regardless of Landlords knowledge of such preceding breach at the time of
acceptance of such rent. No waiver of any term, covenant or condition herein
contained, or of any breach thereof, shall be effective unless contained in a
writing referencing this lease agreement and the term, covenant, condition or
breach to be waived, and signed by the party to be bound or its authorized
representative.
ARTICLE 26
Holding Over
26.01. If Tenant holds over after the term hereof, with or
without the express or implied consent of Landlord, such tenancy shall be from
month to month only, and not a renewal hereof or any extension for any further
term, and in such case rent shall be payable in the amount and at the time
specified in Articles 2, 4 and 5 hereof, and such month-to-month tenancy shall
be subject to every other term, covenant and agreement contained herein.
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Nothing contained in this Article shall be construed as consent by Landlord to
any holding over by Tenant and Landlord expressly reserves the right to require
Tenant to surrender possession of the premises to Landlord as provided in
Article 22, above, forthwith upon the expiration of the term of this lease or
other termination of this lease.
ARTICLE 27
Subordination; Estoppel
27.01. On Landlord's demand, Tenant shall subordinate its
rights hereunder to the lien of any mortgages, deed(s) of trust, ground lease(s)
or any other method of financing or refinancing now or hereafter placed against
all or any part of the facility including all advances made or to be made
thereunder, and all renewals, replacements, consolidations and extensions
thereof, if Landlord first obtains from any prospective lender a written
agreement that provides substantially the following:
"As long as Tenant performs its obligations under this lease,
no foreclosure of, deed given in lieu of foreclosure of, or
sale under, the encumbrance, and no steps or procedures taken
under the encumbrance, shall affect Tenant's rights under this
lease. The provisions of this lease concerning the disposition
of insurance proceeds on destruction of the premises, and the
provisions concerning the disposition of any condemnation
award, shall prevail over any conflicting provisions in the
encumbrance."
27.02. Tenant shall attorn to any purchaser at any foreclosure
sale, or to any grantee or transferee designated in any deed given in lieu of
foreclosure. Tenant shall execute upon demand any and all documents required by
lender(s) to accomplish the purpose of this section.
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ARTICLE 28
Rules and Regulations
28.01. The Rules and Regulations attached hereto as Exhibit B
are, by this reference, hereby incorporated herein and made a part hereof.
Tenant agrees to abide by and comply with said Rules and Regulations and any
reasonable and nondiscriminatory amendments, modifications and/or additions
thereto as may hereafter be adopted and published by written notice to tenants
by Landlord for the safety, care, security, good order, and/or cleanliness of
the premises and/or the building. Landlord shall not be liable to Tenant for any
violation of such rules and regulations by any other tenant.
ARTICLE 29
Miscellaneous
29.01. Time is of the essence of each provision of this
lease.
29.02. If either party is a corporation, that party shall
deliver to the other party on execution of this lease a certified copy of a
resolution of its board of directors authorizing the execution of this lease and
naming the officers that are authorized to execute this lease on behalf of the
corporation.
29.03 This lease shall be binding on and inure to the benefit
of the parties and their successors, except as provided in Article 16.
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29.04. Each party represents that it has not had dealings with
any real estate broker, finder, or other person, with respect to this lease in
any manner. Each party shall hold harmless the other party from all damages
resulting from any claims that may be asserted against the other party by any
broker, finder, or other person, with whom the other party has or purportedly
has dealt.
29.05. All exhibits referred to are attached to
this lease and incorporated by reference.
29.06. All provisions, whether covenants or conditions, on
the part of Tenant shall be deemed to be both covenants and conditions.
29.07. Except for other collateral documents executed
concurrently herewith, this lease contains all the agreements of the parties and
cannot be amended or modified except by a written agreement.
29.08. The captions of this lease shall have no effect on
its interpretation.
29.09. When required by the context of this lease, the
singular shall include the plural.
29.10. The unenforceability, invalidity, or illegality of
any provision shall not render the other provisions unenforceable,
invalid, or illegal.
29.11. This Lease Agreement shall be governed in all respects
by the internal law (and not the laws pertaining to conflict of law) of the
State of California. The sole forum for adjudicating disputes hereunder shall be
the Municipal or Superior Court for the County of Los Angeles, State of
California or the Federal District Court for the Central District of California.
The parties hereto consent to the jurisdiction of such courts to any disputes
hereunder.
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29.12. Rent and all other sums payable under this lease
agreement must be paid in lawful money of the United States of America.
ARTICLE 30
Tenant's Improvements
30.01. Tenant has arranged for and, as of the date of
execution of this lease, has completed its tenant improvements for the
premises. Landlord is indebted to Tenant in the sum of $______ representing that
portion of tenant improvement allowance not previously reimbursed to Tenant.
Tenant is hereby credited in said sum against next-accruing rent installments
hereunder.
ARTICLE 31
Rent Not Paid When Due; Late Charge
31.01. Except as provided in Section 21.03 B, rent not paid
when due shall bear interest at that rate equal to the weighted average discount
rate applied by the Federal Reserve Bank of San Francisco during the period rent
is overdue and not paid, plus 1%, or the maximum rate allowed by law, whichever
is less; provided, however, that this provision shall not be deemed to
constitute any consent by Landlord to or waiver of Tenant's obligation to pay
rent immediately when due or of Tenant's default with respect to the overdue
amount, or to prevent Landlord from exercising any right or remedy available to
Landlord hereunder or under applicable law.
31.02. Tenant acknowledges that late payment by Tenant to
Landlord of rent will cause Landlord to incur costs not contemplated by this
lease, the exact amount of such costs being extremely difficult and impractical
to fix. Such costs include, without limitation, processing and accounting
charges, and late
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charges that may be imposed on Landlord by the terms of any encumbrance and note
secured by any encumbrance covering the premises, or the real property of which
the premises are a part. Therefore, if any installment of rent due from Tenant
is not received by Landlord when due, Tenant shall pay to Landlord an additional
sum of ten percent (10%) of the overdue rent as a late charge. The parties agree
that this late charge represents a fair and reasonable estimate of the costs
that Landlord will incur by reason of late payment by Tenant. Acceptance of any
late charge shall not constitute a waiver of Tenant's default with respect to
the overdue amount, nor prevent Landlord from exercising any of the other rights
and remedies available to Landlord. Notwithstanding any provision in this lease
to the contrary, each payment received by Landlord within five (5) days of its
due date shall be deemed to have been paid when due.
ARTICLE 32
Notices
32.01. All notices which Landlord or Tenant may require or may
desire to serve on the other may be served, as an alternative to personal
service, by mailing the same by registered or certified mail, return receipt
requested, postage prepaid, addressed as set forth in Item 13 of the Basic Lease
Provisions, or, from and after the commencement date, to the Tenant at the
premises whether or not
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Tenant has departed from, abandoned or vacated the premises, or addressed to
such other address or addresses as either Landlord or Tenant may from time to
time designate to the other in writing.
ARTICLE 33
Quiet Enjoyment
33.01. Landlord covenants and agrees that Tenant, upon paying
the basic rent, additional rent and all other charges herein provided for and
upon observing and keeping the covenants, agreements and conditions of this
lease on its part to be kept, shall lawfully and quietly hold, occupy and enjoy
the premises during the term of this lease without hindrance or molestation of
anyone lawfully claiming by, through or under Landlord, subject, however, to the
matters herein set forth.
ARTICLE 34
Estoppel Certificates
34.01. Tenant agrees at any time and from time to time upon
not less than twenty (20) days' prior notice by Landlord to execute, acknowledge
and deliver to Landlord a statement in writing certifying that this lease is
unmodified and in full force and effect (or if there have been modifications,
that the same is in full force and effect as modified and stating the
modifications), and the dates to which the basic rent, additional rent and other
charges have been paid in advance, if any, and stating whether or not to the
best knowledge of the signer of such certificate, Landlord is in default in
performance
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of any covenant, agreement or condition contained in this lease, and if so,
specifying each such default of which the signer may have knowledge, it being
intended that any such statement delivered pursuant to this Section may be
relied upon by any prospective purchaser of the fee of the building or any
mortgagee thereof or any assignee of any mortgage upon the fee of the building.
34.02. Landlord agrees at any time and from time to time upon
not less than twenty (20) days' prior notice by Tenant to execute, acknowledge
and deliver to Tenant a statement in writing certifying that this lease is
unmodified and in full force and effect (or if there shall have been
modifications, that the same is in full force and effect as modified and stating
the modifications) and the dates to which the basic rent, additional rent and
other charges have been paid in advance, if any, and stating whether or not to
the best knowledge of the signer of such certificate Tenant is in default in the
performance of any covenant, agreement or condition contained in this lease and,
if so, specifying each such default of which the signer may have knowledge, it
being intended that any such statement delivered pursuant to this Section may be
relied upon by any prospective assignee of the Tenant's interest in this lease.
ARTICLE 35
Access; Changes in Building Facilities, Name
35.01. All except the inside surfaces of all walls, windows
and doors bounding the premises (including exterior building walls, core
corridor walls and doors and any core corridor entrance), and any space in or
adjacent
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to the premises used for shafts, stacks, pipes, conduits, fan rooms, ducts,
electric or other utilities, sinks or other building facilities, and the use
thereof, as well as access thereto through the premises for the purposes of
operation, maintenance, decoration and repair, are reserved to Landlord.
35.02. Tenant shall permit Landlord to install, use and
maintain pipes, ducts and conduits within the demising walls bearing columns and
ceilings of the premises.
35.03. Landlord reserves the right, at any time before or
after completion of the Building, without incurring any liability to Tenant
therefor, to make such changes in or to the building and the fixtures and
equipment thereof, as well as in or to the street entrances, halls, passages,
concourse, elevators, escalators, stairways and other improvements thereof, as
it may deem necessary or desirable.
35.04. Landlord may adopt any name for the building and
Landlord reserves the right to change the name and/or address of the building at
any time.
ARTICLE 36
Building Directory
36.01. Landlord at its cost shall place, construct, and
maintain a directory or bulletin board, which shall be located in the
lobby of the building in which the premises are located, exclusively
for the display of the names of tenants in the building and their
respective suite numbers. Tenant shall be entitled to display its
trade name and the individual names of its
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authorized representatives in the directory or bulletin board without
additional cost to Tenant.
36.02. If requested, Landlord shall paint, attach, or affix
Tenant's trade name and the individual names of its authorized representatives
to or near the door that is the principal entry to the premises, the cost of the
sign and its installation to be paid by Tenant.
36.03. Landlord has the sole right to determine the type of
directory, bulletin board, and sign, and the content of each (including, without
limitation, size of letters, style, color, and whether affixed or painted).
36.04. The Landlord shall have the right to use the exterior
walls, grounds and roof of the Building for such signs as it may determine.
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ARTICLE 38
Agreement Not To Discriminate
38.01. Tenant hereby covenants and agrees by and for Tenant
and its heirs, executors, administrators and assigns, and all persons claiming
under or through Tenant, and this Lease is made and accepted upon and subject to
the condition that there shall be no discrimination against or segregation of
any person or group of persons, on account of race, color, creed, religion, sex,
marital status, age, handicaps, national origin or ancestry, in the subleasing,
transferring, use, occupancy, tenure or enjoyment of the Building nor shall the
Tenant, or any person claiming under or through Tenant, establish or permit any
such practice or practices of discrimination or segregation with reference to
the selection, location, number, use or occupancy of sublessees, subtenants or
vendees in the Building.
ARTICLE 39
Option to Extend Term
39.01. Provided Tenant is not in default in any of the terms,
conditions, covenants, and provisions of this lease, either at the time of
exercise or at the time the renewal term otherwise would commence, it shall have
two (2) successive options to renew and extend the original twenty (20) year
term of this lease for periods of five (5) years each, upon all of the same
terms and conditions, except that there shall be no further options to extend
the term and except that the basic monthly rental for each such option period
will be the rate established pursuant to Sections 39.02 and 39.03 below. Tenant
shall exercise each such option to renew and extend the term of this lease by
notifying Landlord in writing of its decision to do so at least one (1) year
prior to the expiration of the original term of this lease or the then current
renewal term, as the case may be.
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39.02. The basic monthly rent for the first year of each
option period shall be the fair market rental for the premises at the
commencement date of each option period. All additional rental and charges due
under the terms of this lease shall also be payable by Tenant. The fair market
rental for the premises for the first year of each option period shall be
determined through good faith negotiations between Landlord and Tenant. In
determining such fair market rental for the premises, no consideration shall be
given to or placed upon any improvements, additions or fixtures which Tenant has
the right to remove upon termination of this lease. In the event that Landlord
and Tenant shall not have successfully negotiated the basic annual rental for
the first year of each such option period within the first sixty (60) days after
the date upon which notice of election to exercise such option is required to be
given, then the fair market rental shall be determined by arbitration conducted
in the manner described in 39.04 below.
39.03. The basic monthly rental for the second through fifth
years of any option period shall be adjusted in the manner described in Article
5 of the Additional Lease Provisions for the last 18 years of the initial lease
term, i.e., monthly rent for each twelve month period shall be increased to
reflect percentage increase in the Consumer Price Index, or 7, whichever is
lesser.
39.04. If arbitration is required to determine the basic
annual rental, such arbitration shall be conducted in the following manner:
(a) Within the first ninety (90) days after the date upon
which notice of election to exercise such option is required to be given,
Landlord shall appoint in writing an arbitrator, who must be a qualified MAI
appraiser with at least ten years' experience and a member of the American
Arbitration Association, and give written notice thereof to Tenant,
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and within ten (10) days after the service of such notice, Tenant may in like
manner appoint such an arbitrator and give written notice thereof to Landlord,
or in case of the failure of either party hereto to so do, the other party shall
have the right to apply to the Superior Court of Los Angeles County, California,
to appoint such an arbitrator to represent the defaulting party. The two
arbitrators thus appointed (in either manner) shall select and appoint in
writing a third such arbitrator and give written notice thereof to Landlord and
Tenant, or if within ten (10) days after the appointment of said second
arbitrator, the two arbitrators shall fail to appoint a third, then either party
hereto shall have the right to make application to said Superior Court to
appoint such third arbitrator.
(b) The three arbitrators so appointed (in either manner)
shall promptly fix a convenient time and place in the County of Los Angeles for
hearing the matter to be arbitrated and shall give written notice thereof to
each party hereto at least five (5) days prior to the date so fixed, and said
arbitrators shall with reasonable diligence hear and determine the matter in
accordance with the provisions hereof and of the statutes and judicial decisions
of the State of California at the time applicable thereto, and shall execute and
acknowledge their award thereon in writing and cause a copy thereof to be
delivered to each of the parties hereto.
(c) The award of a majority of said arbitrators (or, if a
majority cannot agree as to amount, then the average of the two awards nearest
in amount) shall determine the question arbitrated, and a judgment may be
rendered by said Superior Court confirming said award, or the same may be
vacated, modified or corrected by said court, at the instance of either of the
parties hereto, in accordance with the then existing statutes of the State of
California applicable to arbitrations, the provisions of which statutes shall
apply hereto as fully as though incorporated herein.
57
<PAGE> 60
(d) Each of the parties hereto shall pay for the services of
its appointee and one-half of the fee charged by the arbitrator selected by
their appointees and of all other proper costs of arbitration, with exception of
attorneys' fees and witnesses' fees.
(e) If the fair market rental of the premises has not been
determined by the commencement of an extended term, Tenant shall continue to pay
the basic monthly rent in effect immediately prior to the commencement of the
extended term until such fair market rental has been determined; the rent for
such elapsed period of time shall be adjusted retroactively to the commencement
of such extended term.
58
<PAGE> 61
EXHIBIT A
Drawings of Premises
<PAGE> 62
EXHIBIT B
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside
or inside of the building without the written consent of Landlord first had
and obtained and Landlord shall have the right to remove any such sign,
placard, picture, advertisement, name or notice without notice to and at
the expense of Tenant.
All approved signs or lettering on or near entry doors shall be printed,
painted, affixed or inscribed at the expense of Tenant by a person approved
of by Landlord.
Tenant shall not place anything or allow anything to be placed near the
glass of any window, door, partition or wall which may appear unsightly
from outside the premises; provided, however, that Landlord may furnish and
install a building standard window covering at all exterior windows. Tenant
shall not without prior written consent of Landlord cause or otherwise
sunscreen any window.
2. The sidewalks, halls, passages, exits, entrances, elevators and stairways
shall not be obstructed by any of the tenants or used by them for any
purpose other than for ingress and egress from their respective premises.
3. Tenant shall not alter any lock or install any new or additional locks or
any bolts on any doors or windows of the premises.
4. The toilet rooms, urinals, wash bowls and other apparatus shall not be used
for any purpose other than that for which they were constructed and no
foreign substance of any kind whatsoever shall be thrown therein and the
expense of any breakage, stoppage or damage resulting from the violation of
this rule shall be borne by the tenant who, or whose employees or invitees
shall have caused it.
5. Tenant shall not overload the floor of the premises or in any way deface
the premises or any part thereof.
6. No furniture, freight or equipment of any kind shall be brought into or
removed from 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. Landlord shall have the right to
prescribe the weight, size and position of all safes and other heavy
equipment brought into the building and also the times and manner of moving
the same in and out of the building. Safes or other heavy objects shall,
if considered necessary by Landlord,
1
<PAGE> 63
stand on supports of such thickness as is necessary to properly distribute
the weight. Landlord will not be responsible for loss or damage to any such
safe or property from any cause and all damage done to the building by
moving or maintaining any such safe or other property shall be repaired at
the expense of Tenant.
7. Tenant shall not use, keep or permit to be used or kept any foul or noxious
gas or substance in the premises, or permit or suffer the premises to be
occupied or used in a manner offensive or objectionable to the Landlord or
other occupants of the building by reason of noise, odors and/or
vibrations, or interfere in any way with other tenants or those having
business therein, nor shall any animals or birds be brought in or kept in
or about the premises or the building.
8. No cooking shall be done or permitted by any Tenant on the premises, nor
shall the premises be used for the storage of merchandise, for washing
clothes, for lodging, or for any improper, objectionable or immoral
purposes.
9. Tenant shall not use or keep in the premises or the building any kerosene,
gasoline or inflammable or combustible fluid or material or use any method
of heating or air conditioning other than that supplied by Landlord.
10. Landlord will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for wires will
be allowed without the consent of Landlord. The locations of telephones,
call boxes and other office equipment affixed to the premises shall be
subject to the approval of Landlord.
11. On Saturdays, Sundays and legal holidays, and on other days between the
hours of 6:00 p.m. and 8:00 a.m. the following day, access to the building,
or to the halls, corridors, elevators or stairways in the building, or to
the premises may be refused unless the person seeking access is known to
the person or employee of the building in charge and has a pass or is
properly identified. The Landlord shall in no case be liable for damages
for any error with regard to the admission to or exclusion from the
building of any person. In case of invasion, mob, riot, public excitement,
or other commotion, the Landlord reserves the right to prevent access to
the building during the continuance of the same by closing of the doors or
otherwise, for the safety of the tenants and protection of property in the
building and the premises.
12. Landlord reserves the right to exclude or expel from the building any
person who, in the judgment of the Landlord, is intoxicated or under the
influence of liquor or drugs, or who shall in any manner do any act in
violation of any of the rules and regulations of the building.
2
<PAGE> 64
13. No vending machine or machines of any description shall be installed,
maintained or operated upon the premises without the written consent of the
Landlord.
14. Landlord shall have the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the building
of which the premises are a part.
15. Tenant shall not disturb, solicit, or canvass any occupant of the building
and shall cooperate to prevent same.
16. Without the written consent of Landlord, Tenant shall not use the name of
the building in connection with or in promoting or advertising the business
of Tenant except as Tenant's address.
17. Landlord shall have the right to control and operate the public portions of
the building, and the public facilities, and heating and air conditioning,
as well as facilities furnished for the common use of the tenants, in such
manner as it deems best for the benefit of the tenants generally.
18. All entrance doors in the premises shall be left locked when the premises
are not in use, and all doors opening to public corridors shall be kept
closed except for normal ingress and egress from the premises.
3
<PAGE> 1
EXHIBIT 10.4
THE IRVINE COMPANY
LEASE
THIS LEASE is made this 20th day of March, 1980, between THE IRVINE
COMPANY, a Michigan corporation, hereinafter called "Lessor," and TORONTO
DOMINION BANK OF CALIFORNIA, a California banking corporation, hereinafter
called "Lessee."
BASIC LEASE PROVISIONS
1. LESSEE'S TRADE NAME: TORONTO DOMINION BANK OF CALIFORNIA
2. LOCATION OF PREMISES: Ground floor of building to be
constructed at SE Corner of
Main and Redhill Avenues
Irvine, California
3. USE OF PREMISES: Commercial retail bank, including
drive-up teller facilities, and
general office
4.(a) INITIAL LEASE TERM: Twenty-five (25) Lease Years
(b) OPTIONS TO EXTEND: One ten (10) year period, and one
five (5) year period.
5. INITIAL ANNUAL
MINIMUM RENT: (a) Retail bank space- $21.60 per
net rentable sq. ft. per year
(b) Office space- $12.96 per net
rentable sq. ft. per year
6. FURTHER RENTAL
ADJUSTMENT: Adjustment at expiration of every
5th Lease Year: Retail bank space
rent adjusted to fair rental value;
Office space rent adjusted to
fair rental value.
<PAGE> 2
7. PREMISES REAL PROPERTY TAXES, MAINTENANCE AND INSURANCE, AND
COMMON FACILITIES MAINTENANCE
CHARGES: Pro rata share as provided in the
Lease, Sections 4.01, 6.03, 8.01,
8.02, 9.01 and 10.01.
8. INITIAL DEPOSIT: Irrevocable Letter of Credit in
amount of $60,000.00 upon execution
of Lease.
9. ESTIMATED ACTUAL FLOOR
AREA OF PREMISES: (a) Retail bank space - Approximately
8,000 net rentable square feet
(b) Office space - Approximately
14,570 net rentable square feet.
10. BROKER: J. Harold Street, Coldwell Banker
Brokerage
11. LEASE EXECUTION AND ADDRESS FOR
PAYMENTS AND NOTICES:
THE IRVINE COMPANY TORONTO DOMINION BANK OF CALIFORNIA
550 Newport Center Drive 114 Sansome Street
Newport Beach, CA 92660 San Francisco, CA 94104
IN WITNESS WHEREOF, the parties hereto have executed this Lease,
consisting of the foregoing provisions And Articles I through XXIII which
follow, as of the date first above written.
THE IRVINE COMPANY TORONTO DOMINION BANK OF CALIFORNIA
By_____________________ By_________________________________
By_____________________ By_________________________________
"Lessor" "Lessee"
<PAGE> 3
ARTICLE I. GRANT AND TERM
SECTION 1.01. LEASED PREMISES. Lessor, in consideration of the rent to
be paid and the covenants to be performed by Lessee, does hereby lease to
Lessee, and Lessee hereby rents from Lessor those certain premises (the
"Premises"), containing approximately 22,570 net rentable square feet, to be
located on the ground floor of an office building (the "Building") of not less
than two (2) stories in height, which Lessor is to construct for the occupancy
of Lessee and other tenants. The Building shall be situated on a parcel (the
"Building Parcel") generally shown as the area outlined in red on Exhibit A
attached hereto and more particularly described in Exhibit B hereto, lying
within a certain development (the "Development") as outlined in green on Exhibit
A hereto, all located at the intersection of Main Street and Redhill Avenue in
the City of Irvine, County of Orange, State of California.
The annual Minimum Rent payable hereunder is based on the assumption
that no less than 8,000 net rentable square feet of space within the Premises
shall be devoted to the operation of Lessee's retail branch banking business
(hereinafter "Bank Space"), and shall be subject to the rental rate shown in
Item 5(a) of the Basic Lease Provisions, notwithstanding the amount of net
rentable square feet actually devoted to Bank Space at any given time; and that
the balance of the space within the Premises, consisting of approximately 14,570
net rentable square feet, shall be devoted to general office use (hereinafter
"Office Space") and shall be subject to the rental rate shown in Item 5(b) of
the Basic Lease Provisions. Any additional space within the Premises used for
the operation of Lessee's retail branch banking business in excess of 8,000 net
rentable square feet shall also be considered as Bank Space and shall be subject
to the rental rate set forth in Item 5(a) of the Basic Lease Provisions. Space
within the Premises shall be deemed to be "used for the operation of Lessee's
retail branch banking business" and therefore "Bank Space" only if such space is
used exclusively or principally for the conduct of Lessee's retail branch
banking business on the Premises. "Bank Space" shall include areas open to the
use and enjoyment of customers of the Bank, such as lobbies, safety deposit box
areas and conference rooms, and areas used for Lessee's branch banking
operations, such as staff offices, lounges and other areas, vault areas and
storage and file rooms.
As an illustration of the foregoing, assume first that upon taking
possession of the Premises Lessee was to actually use only 4,000 net rentable
square feet of space within the Premises for the operation of Lessee's retail
branch banking business, i.e., Bank Space; and the remaining 18,570 net rentable
square feet for general office purposes, i.e., Office Space (such as space for
offices, for escrow and loan services, and for storage and file rooms not used
for branch banking operations). Lessee's rent would nonetheless be based on
8,000 net rentable square feet of Bank Space, with the balance of the net
rentable area of the Premises
<PAGE> 4
being considered Office Space. If Lessee were to later add another 5,000 net
rentable square feet of Bank Space, then its total Bank Space would consist of
9,000 net rentable square feet (the first 4,000 square feet plus the newly added
5,000 square feet) and would be subject to the rental set forth in Item 5(a) of
the Basic Lease Provisions; and the remaining net rentable area of the Premises
would be considered Office Space and would be subject to the rental set forth in
Item 5(b) of the Basic Lease Provisions. If Lessee later were to add still more
net rentable square feet of Bank Space, Lessee would thereafter continue (until
the next rental adjustment period as provided in Section 2.02 below) to pay
rental at the rate shown in Item 5(a) of the Basic Lease Provisions on the
expanded Bank Space, even if that space were later used or sublet by Lessee for
general office use. At any time after the commencement of the next such rental
adjustment period, however, Lessee shall have the right to reduce the net
rentable square feet of Bank Space and thereby reduce the amount of rent payable
for Bank Space, but only if written notice, showing the amount of any proposed
reduction in Bank Space to a minimum of 8,000 net rentable square feet, has been
given to Lessor at least twelve (12) months prior to the commencement of such
rental adjustment period.
Exhibit "C-1" hereto represents a preliminary floor layout of the
Premises. On or before completion of Lessor's and Lessee's Improvements as
provided under Article III hereof, Lessor shall have prepared a new Exhibit
"C-1" showing the exact dimensions and net rentable square footage of the Bank
Space and Office Space, and the parties hereto shall enter into an amendment to
this Lease for the purposes of adding such new Exhibit "C-1". Said amendment
shall revise, if necessary, the net rentable square footage of the Bank Space
and Office Space as shown in Item 9 and the respective Initial Annual Minimum
Rent for each (but only if actual Bank Space exceeds 8,000 net rentable square
feet) as shown in Item 5 of the Basic Lease Provisions. For purposes of this
Lease, the dimensions and floor area of the total Premises shall be shown on
said Exhibit "C-1" and the failure or refusal of either party to execute such
amendment shall not affect the validity of this Lease in any manner whatsoever.
Lessor hereby reserves all rights to the exterior walls and the roof
of the Premises and the area above and beneath the Premises (together with the
right to locate, both vertically and horizontally, install, maintain, use,
repair and replace pipes, utility lines, ducts, conduits, flues, refrigerant
lines, drains, sprinkler mains and valves, access panels, wires and structural
elements leading through the Premises and serving other parts of the
Development, provided that the exercise of any such right shall not unreasonably
interfere with Lessee's use and enjoyment of the Premises).
SECTION 1.02. COMMENCEMENT AND EXPIRATION OF TERM. The initial term of
this Lease ("Initial Term"), subject to extension as provided in Section 1.03
hereof, shall be for a period of twenty-five (25) full Lease Years, commencing
as of the date of
<PAGE> 5
completion of the Premises as provided in Section 3.05 hereof (which
commencement date shall be hereinafter referred to as "Commencement Date"), plus
any partial month following the Commencement Date if that date is other than the
first day of a month.
The term "Lease Year" as used herein is defined as a period consisting
of twelve (12) consecutive calendar months, the first of which shall commence on
the first day of the calendar month immediately succeeding the Commencement
Date, if such Commencement Date is other than the first day of a month.
Within thirty (30) days following the Commencement Date, Lessor and
Lessee shall execute and acknowledge an Addendum in the form attached hereto as
Exhibit D, setting forth the Commencement Date and the expiration date of this
Lease, and the rental commencement date provided; however, that failure of
Lessee to execute such Addendum shall not affect the commencement or duration of
the actual term of this Lease in accordance with the provisions of this Section
1.02.
SECTION 1.03. OPTIONS TO EXTEND TERM.
(a) Provided Lessee is not then in default, Lessee shall have the
right to extend the term of this Lease for two (2) successive periods, the first
of which shall be for ten (10) full Lease Years commencing on the day following
the expiration date of the Initial Term of this Lease, and the second of which
shall be for five (5) full Lease Years commencing on the day following the
expiration of the first extended term, in the event such first option has been
exercised by Lessee.
(b) Each such option shall be exercised, if at all, by written notice
given by Lessee to Lessor no earlier than twelve (12) months and no later than
six (6) months prior to the commencement date of each respective option period.
Within thirty (30) days after the exercise of any such option by Lessee, Lessor
shall provide Lessee with Lessor's initial determination of the rental
adjustment to be effective during the extension period as provided in Section
2.02 below, subject to the arbitration provisions of Section 2.06 below if
Lessee disagrees with such initial determination within thirty (30) days after
receipt thereof. Within thirty (30) days after final determination of such
rental adjustment (whether by mutual agreement or by arbitration), Lessee may
elect to terminate this Lease and thereby cancel its exercise of such option to
extend by giving written notice to Lessor, said termination to be effective on
(i) the day the Initial Term or first extended term, as the case may be, expires
or (ii) on the 180th day following the giving of said notice, whichever last
occurs. Pending the determination of the rental adjustment and, in the event
Lessee exercises its right to terminate after final determination of the rental
adjustment, prior to the effective date of such termination, the monthly rent
being paid by Lessee immediately before the rental adjustment shall continue to
be paid
<PAGE> 6
by Lessee to Lessor, and any difference in the monthly rent actually paid and
that due for any period subsequent to the expiration of the Initial Term or
first extended term, as the case may be, shall, when determined, be paid
promptly to Lessor. In the event this Lease shall have expired or been
terminated, Lessee shall thereafter have no right or privilege of extending this
Lease, and notwithstanding anything to the contrary contained in this Section
1.03, the failure of Lessee to exercise the option for the first extension
period shall be conclusively presumed to be a waiver by Lessee of its rights to
exercise the option for any subsequent extension period.
(c) All of the terms, covenants and conditions provided herein with
respect to the Initial Term shall apply during each such extension period,
including without limitation, the adjustment of the annual Minimum Rent upon the
expiration of each fifth (5th) Lease Year as provided in Section 2.02 below.
SECTION 1.04. DEPOSIT. IN CONSIDERATION OF THE COVENANTS TO BE
PERFORMED BY LESSOR WITH RESPECT TO THE CONSTRUCTION OF "LESSOR'S
IMPROVEMENTS" AND ANY OTHER IMPROVEMENTS AS PROVIDED IN ARTICLE III OF THIS
LEASE, LESSEE HAS DEPOSITED WITH LESSOR UPON EXECUTION OF THIS LEASE AN
IRREVOCABLE LETTER OF CREDIT, PAYABLE TO LESSOR IN THE SUM OF $60,000.00. UPON
RECEIPT BY LESSOR OF WRITTEN NOTICE FROM LESSEE TERMINATING THE LEASE AS
PROVIDED IN SECTION 3.04(c)(i) HEREOF, LESSOR MAY AND SHALL PRESENT FOR
NEGOTIATION DRAFTS FOR THE FULL $60,000.00, AND SAID SUM SHALL BE RETAINED BY
LESSOR AS LIQUIDATED DAMAGES FOR ALL COSTS, EXPENSES, FEES, CHARGES AND
LIABILITIES PAID OR INCURRED BY LESSOR IN CONNECTION WITH THE PREPARATION OF
CONSTRUCTION DRAWINGS AND SPECIFICATIONS FOR THE BUILDING AND PREMISES.
THEREAFTER, NEITHER LESSOR NOR LESSEE SHALL HAVE ANY FURTHER LIABILITY TO THE
OTHER BY REASON OF THIS LEASE.
SUBJECT TO THE PROVISIONS OF SECTION 1.05 BELOW, IF LESSOR SHALL NOT
HAVE DRAWN OR MADE CLAIM ON THE LETTER OF CREDIT IN ACCORDANCE WITH THE
FOREGOING PROVISIONS WITHIN FIVE (5) DAYS FOLLOWING THE 15-DAY NOTICE PERIOD
PROVIDED FOR IN SECTION 3.04 (c) HEREOF, THEN THE LETTER OF CREDIT SHALL DULY
EXPIRE AND SHALL BE RETURNED BY LESSOR TO LESSEE ON SUCH DATE, AND LESSOR'S
REMEDIES FOR ANY DEFAULT UNDER THIS LEASE THEREAFTER SHALL BE AS SET FORTH
ELSEWHERE IN THIS LEASE.
----------------- -----------------
LESSEE'S INITIALS LESSOR'S INITIALS
<PAGE> 7
SECTION 1.05. UPSET DATE. Notwithstanding anything to the contrary
contained herein, either Lessee or Lessor may, at its option, terminate this
Lease without liability in the event that Lessor is unable to commence the
construction of Lessor's Improvements (as defined in Section 3.01 hereof) prior
to December 31, 1980, such right of termination to be exercised by giving the
other party written notice thereof within twenty (20) days after December 31,
1980. Upon any such termination, Lessor shall promptly return to Lessee the
letter of credit deposited under Section 1.04 hereof in consideration of such
early termination. Lessor shall have the right to extend such date for
commencement of construction for a period not to exceed three (3) months, up to
and including March 31, 1981, on account of delays caused by reason of matters
of force majeure described in Section 22.04 hereof, provided that prior to
December 31, 1980, Lessor gives Lessee written notice of such extension together
with reasonable details of those matters causing such delays. Lessor shall
exercise due diligence in obtaining the construction bids required under Section
3.03 hereof and all applicable governmental permits and approvals necessary to
commence construction of Lessor's Improvements, and in performing all other
requirements on Lessor's part to be performed hereunder. For purposes of this
Section 1.05, "commencement of construction" shall mean the completion of
substantial grading and the pouring of all or a substantial portion of the
footings and foundations for the Building (which need not necessarily include
the ground floor slab).
In addition to the foregoing, Lessee may terminate this Lease without
liability if construction of the Premises is not completed, as provided in
Section 3.05 hereof, prior to March 31, 1982.
SECTION 1.06. COMMENCEMENT OF RENTAL AND TAXES. Lessee's obligation
for payment of rent as set forth in Section 2.01 hereof, taxes as provided in
Section 4.01 hereof, common facilities expenses as provided in Section 6.03
hereof, and all other payments required hereunder, shall commence upon the later
of (i) ninety (90) days following the Commencement Date, as defined in Section
1.02 hereof, or (ii) substantial completion of that portion of the
"common-facilities" described in Section 6.01 hereof located within or upon the
Building Parcel.
ARTICLE II. RENT
SECTION 2.01. ANNUAL MINIMUM RENT. Lessee shall pay to Lessor for each
full Lease Year the annual Minimum Rent as specified in Item 5 of the Basic
Lease Provisions, subject to adjustment as provided below. The annual Minimum
Rent shall be payable in twelve (12) equal monthly installments in advance on
the first day of each calendar month whether or not Lessor makes any demand
therefor, and without any deductions or offset whatsoever commencing as provided
in Section 1.06 hereof. The Minimum Rent for any fractional part of a calendar
month from the rental commencement date to the first day of the next succeeding
calendar
<PAGE> 8
month or at the end of the Lease term shall be prorated daily on the basis of
1/360th of the annual Minimum Rent per day.
SECTION 2.02. RENTAL ADJUSTMENT. Upon the expiration of each fifth
(5th) Lease Year during the entire term of this Lease, and any extension
thereof, the annual Minimum Rent payable with respect to the Bank Space and
Office Space for the following five (5) lease year period ("Adjustment Period"),
shall be adjusted as follows:
(a) Bank Space: The annual Minimum Rent for the Bank Space shall be
adjusted to the fair rental value thereof, as initially determined by Lessor
using as comparables the current rentals for retail bank space in the so-called
"Airport Area," located in the general vicinity immediately surrounding Campus
Drive and MacArthur Boulevard in the Cities of Irvine and Newport Beach.
(b) Office Space: The annual Minimum Rent for the Office Space shall
be adjusted to the fair rental value thereof, as initially determined by Lessor
using as comparables Lessor's scheduled rental rate then in effect for office
space located within the boundaries of the Development shown on Exhibit A and
also within Lessor's development of an area located at the intersection of Main
Street and MacArthur in the City of Irvine; provided, however, in the event that
the total office space within the above two developments shall be less than
200,000 square feet of rentable office space, the current rentals for office
space in the so-called "Airport Area", located in the general vicinity
immediately surrounding Campus Drive and MacArthur Boulevard in the Cities of
Irvine and Newport Beach, shall be used as comparables for purposes of
determining the fair rental value of the Office Space.
(c) Preceding Annual Minimum Rent. Subject to any decrease in the net
rentable square footage of Bank Space pursuant to Section 1.01 hereof, the
annual Minimum Rent for any Adjustment Period, determined under subsections (a)
and (b) above, shall not be less than the annual Minimum Rent payable during the
immediately preceding five (5) lease year period.
(d) Notice of Adjustment; Arbitration. Lessor shall promptly give
Lessee written notice of Lessor's initial determination of the adjustment of
annual Minimum Rent in accordance with subsections (a) and (b) above. If Lessee
disagrees with Lessor's initial determination of the adjustment of annual
Minimum Rent for any Adjustment Period and gives Lessor written notice thereof
within sixty (60) days after receipt of such notice of initial determination
from Lessor, then the annual Minimum Rent shall be determined by arbitration as
provided in Section 2.06 hereof. In determining the fair rental value of the
Bank Space and Office Space, whether by mutual agreement or by arbitration,
Lessee's Improvements and any additional leasehold improvements made during the
term of this Lease at the cost and expense of
<PAGE> 9
Lessee (exclusive of any allowance or contribution of Lessor), shall not be
considered a part of or included within said Space.
SECTION 2.03. ADDITIONAL PAYMENTS. All sums of money or charges
whatsoever (other than rent, which shall be payable in the manner elsewhere
provided in this Lease) required to be paid by Lessee under this Lease shall be
due and payable fifteen (15) days after demand, without any deductions or offset
whatsoever. Lessee's direct payment obligations (other than the payment of rent)
include, but are not limited to, those provided in Section 4.01 (taxes and
assessments), Section 6.03 (common facilities expenses, including reimbursement
to Lessor for maintenance provided under Section 8.01 and for insurance provided
under Section 9.02), and Section 10.01 (utility charges). Lessee's failure to
pay any such amounts or charges when due shall carry with it the same
consequences as Lessee's failure to pay rent.
SECTION 2.04. PLACE OF PAYMENT; LATE PAYMENTS. Lessee agrees to pay
the rental and other charges herein reserved to Lessor at the address specified
in Item 11 of the Basic Lease Provisions or to such other person and/or at such
other place as Lessor may from time to time designate in writing. For each
payment of rent or additional charges not paid when due regardless of any grace
period allowed under Section 17.01 hereof, Lessee shall pay to Lessor a lease
administration charge in the amount of Fifty Dollars ($50.00) to reimburse
Lessor for its actual costs and expenses in processing such delinquent payment.
All payments hereunder shall be made in lawful money of the United States. All
payments requiring proration shall be prorated on the basis of thirty (30) day
months.
SECTION 2.05. INTEREST ON PAST DUE OBLIGATIONS. Any amount due from
Lessee to Lessor hereunder which is not paid when due (including, without
limitation, amounts due as reimbursement to Lessor for costs incurred by Lessor
in performing obligations of Lessee hereunder upon Lessee's failure to so
perform) regardless of any grace period allowed under Section 17.01 hereof,
shall bear simple interest at the rate of ten percent (10%) per annum, but in no
event in excess of the highest rate then allowed under the usury laws of the
State of California, accruing from and after the due date thereof until paid,
unless otherwise specifically provided herein, but the payment of such interest
shall not excuse or cure any default by Lessee under this Lease.
SECTION 2.06. ARBITRATION OF RENTAL ADJUSTMENT.
If arbitration proceedings are required to determine the annual
Minimum Rent for any Adjustment Period, the same shall be conducted in
the following manner:
(a) Within sixty (60) days prior to the expiration of the initial rent
period and any succeeding Adjustment Period thereafter, Lessor shall appoint in
writing, as an arbitrator, a qualified independent MAI appraiser with at least
ten years experience, and give written notice thereof to Lessee, and within
<PAGE> 10
ten (10) days after the service of such notice, Lessee may in like manner
appoint such an arbitrator and give written notice thereof to Lessor, or in case
of the failure of Lessee so to do, Lessor shall have the right to cause its
appointed arbitrator to proceed alone to determine such rental. If two
arbitrators are thus appointed, they shall select and appoint in writing a third
such arbitrator and give written notice thereof to Lessor and Lessee, or if
within ten (10) days after the appointment of said second arbitrator, the two
arbitrators shall fail to appoint a third, then either party hereto shall have
the right to make application to the Superior Court of Orange County, California
to appoint such third arbitrator. Lessor and Lessee shall each be entitled to be
present and heard respecting any such appointment of the third arbitrator.
(b) The three arbitrators so appointed (in either manner) shall
promptly fix a convenient time and place in the County of Orange, California,
for hearing the matter to be determined and shall give written notice thereof to
each party hereto at least ten (10) days prior to the date so fixed, and said
arbitrators shall with reasonable diligence hear and determine the matter in
accordance with the provisions hereof and of the statutes and judicial
decisions of the State of California at the time applicable thereto, and shall
execute and acknowledge their determination thereof in writing and cause a copy
thereof to be delivered to each of the parties hereto.
(c) The determination of a majority of said arbitrators (or, if a
majority cannot agree as to amount, then the average of the two determinations
nearest in amount) shall determine the question, and a judgment may be rendered
by said Superior Court confirming said determination, or the same may be
vacated, modified or corrected by said court, at the instance of either of the
parties hereto, in accordance with the then existing statutes of the State of
California applicable to arbitrations, the provisions of which shall apply
hereto as fully as though incorporated herein.
(d) Each of the parties hereto shall pay for the services of its
arbitrator and one-half of the fee charged by the third arbitrator and of all
other proper costs of reaching a determination, with the exception of attorney's
fees and witness' fees.
ARTICLE III. CONSTRUCTION OF LEASED PREMISES
SECTION 3.01. DESCRIPTION OF IMPROVEMENTS. The following
described improvements shall be constructed in accordance with the
provisions set forth below:
(a) Lessor's Improvements. Lessor agrees to and shall construct on the
Building Parcel described in Section 1.01 hereof (i) the Building Shell as
defined in Exhibit C hereto, but excluding Lessee's specialized requirements
affecting structural work as provided in Section 3.02(a) below, and (ii) all
common
<PAGE> 11
facilities and on-site improvements as described in Section 6.01 hereof, but
excluding drive-up teller facilities as provided in Section 3.02(a) below. A
description of the items of work to be performed by Lessor (hereinafter
collectively "Lessor's Improvements") is contained in Exhibit C attached
hereto and made a part of this Lease.
(b) Lessee's Improvements. Lessee shall be responsible for the
acquisition, installation and construction of (i) all additional improvements to
be made by Lessee within the Premises and (ii) any structural work in the
Building Shell specifically required by Lessee and shown on plans and
specifications approved by Lessor and Lessee in accordance with the provisions
of Section 3.02 hereof (whether or not such work is done by Lessor or Lessee as
provided in Section 3.03 hereof). A description of the improvements to be
acquired, installed and constructed by or for Lessee (hereinafter referred to as
"Lessee's Improvements") is set forth in Exhibit C attached hereto.
SECTION 3.02. PLANS AND SPECIFICATIONS
(a) Lessee's Requirements. Within forty (40) days after the later of
(i) execution of this Lease or (ii) receipt from Lessor of full and complete
preliminary site and floor plans for the Building Shell, Lessee shall cause its
architect to communicate and submit to Lessor's architect Lessee's general
design criteria and requirements for the Premises, including but not limited to
(i) rough-in mechanical, plumbing and electrical requirements and structural
requirements for the vault envelope and related security devices, and (ii)
drive-up teller facilities, including ingress and egress lanes therefor. Within
ninety (90) days after receipt from Lessor's architect of working drawings for
the Building Shell, Lessee shall cause its architect to communicate and submit
to Lessor's architect Lessee's general design criteria and requirements for
proposed interior partitions, lighting and electrical outlets and all other
pertinent data with respect to the proposed interior layout of the Premises, but
not including any trade fixtures, equipment, personal property, or specialized
Lessee improvements not affecting structural construction of the Building Shell
or the interior of the Premises.
(b) Approval of Plans and Specifications. Before Lessor commences with
the preparation of construction contract documents for Lessor's Improvements and
Lessee's Improvements or any part thereof, Lessor shall deliver to Lessee for
its approval two (2) complete sets of preliminary plans and specifications
showing each of the categories of work described in Section 3.02(a) above,
architectural treatment, materials and color palette, location of the Building
Shell on the site, and such other detail as is necessary to define and
illustrate the scope of such work. Small or trivial deviations from the design
or plans and specifications shall not be subject to Lessee's approval.
Lessor shall control the exterior design, elevation and
<PAGE> 12
architectural style of the Building Shell to insure that such is in good taste
and of a quality and style befitting the area.
Approval of preliminary plans and specifications shall in each case be
endorsed by Lessee upon the documents submitted within thirty (30) days from the
receipt thereof, one (1) set of which shall be retained by it; provided that if
Lessee has neither approved or disapproved said documents within said thirty
(30) day period, the same shall be deemed approved. If Lessee disapproves such
documents, Lessee shall within thirty (30) days from the receipt thereof notify
Lessor of its reasons for disapproval; Lessor shall within thirty (30) days of
such notice of disapproval submit to Lessee for its approval documents
incorporating such modifications as are mutually acceptable to Lessor and
Lessee.
SECTION 3.03. CONSTRUCTION COST BIDS. As soon as it is reasonably
possible following approval of the preliminary plans and specifications, Lessor
shall prepare construction contract documents, including working drawings and
specifications based on the approved preliminary plans and specifications, and
shall call for two or more separate firm bids thereon (from independent
contractors and based on plans and specifications approved by Lessor and Lessee
as provided in Section 3.02 above) for all direct costs of construction of (i)
the Building Shell ("Shell Costs" under Exhibit C hereto) including a separate
breakdown of costs for structural work specifically required by Lessee and
identified on such drawings and specifications, (ii) Lessee's Improvements
within the Premises, (iii) the drive-up teller facilities, including the ingress
and egress lanes therefor, and (iv) all improvements within the common
facilities as described in Section 6.01 below, other than the drive-up teller
facilities described in item (iii) above ("On-Site Costs" under Exhibit C
hereto).
Lessor shall promptly submit to Lessee separate construction bid
breakdowns for each of the foregoing items, and failure by Lessee to disapprove
items (i), (ii) and (iii) above within twenty (20) days after the receipt
thereof shall be deemed approval. If Lessee disapproves the bid submitted as to
item (i), its only recourse shall be to submit to Lessor along with such
disapproval revised specific requirements relating to the Building Shell
construction. Thereafter, Lessor and Lessee shall each use its best efforts and
good faith to prepare and resubmit mutually acceptable revised construction
documents for a new firm construction bid as provided above, but within
forty-five (45) days after Lessee's receipt of the first such bid. If the
parties are unable to so agree on such revisions, then Lessor shall be entitled
to proceed with construction based on the first bid.
If Lessee disapproves the bid submitted as to either (ii) or (iii)
above within such twenty (20) day period, then Lessee may submit revised
requirements to Lessor and proceed to request a new construction bid within the
same forty-five (45) day period and in the manner provided above as to item (i).
If the parties are unable to so agree on such revisions or if Lessee is still
not
<PAGE> 13
satisfied with the new construction bid, or if Lessee does not wish to obtain a
new bid from Lessor's contractor, then Lessee may obtain its own separate bid or
bids from another contractor or contractors and proceed with its own
construction, subject to prior approval by Lessor of such contractor and of any
further revisions in the construction plans and specifications to be used (which
approval shall not be unreasonably withheld or delayed).
Lessee shall have no right to approve or disapprove item (iv) above,
but shall receive the same for its information and review.
Lessor shall furnish Lessee with properly substantiated evidence of
the estimated total costs after the contracts have been bid. For the purposes of
calculating the estimated costs of Lessor's Improvements as shown on Exhibit C
attached, the costs of construction for each of the categories of work shall
include all direct and indirect costs including, but not limited to, the amount
of all contracts for work as set forth above, a construction supervision fee to
be charged by Lessor equal to five percent (5%) of all construction costs
(including without limitation legal and accounting fees, general overhead and
office administration cost), all outside construction, architectural,
engineering and other consultant fees, plan check and permit fees, excise taxes,
utility meters and hookup charges, cost of materials and performance bonds, cost
of insurance and of taxes and assessments levied by governmental agencies
during the course of construction, cost of inspection and testing, cost of
reproduction of plans, specifications and other contract documents, applicable
charges or assessments levied by public utility companies or districts, the then
prevailing cost of obtaining construction financing, and all other costs
directly or indirectly attributable to the applicable category of such work.
SECTION 3.04. PAYMENT OF CONSTRUCTION COSTS.
(a) Lessor's Improvements. Lessor shall construct all of Lessor's
Improvements, as described on Exhibit C hereto, and shall pay all costs and
expenses incurred in the construction of Lessor's Improvements, subject only to
Lessee's payment obligations provided in subsection (c) below.
(b) Lessee's Improvements. Lessor shall contribute an amount equal to
$14.00 for each square foot within the Premises towards the cost of Lessee's
Improvements as described in Exhibit C attached. In addition, if the total costs
of Lessor's Improvements are less than $66.00 per square foot, then the
difference between such costs and $66.00 shall be added to Lessor's contribution
towards Lessee's Improvements. All other costs of Lessee's Improvements shall be
paid by Lessee.
(c) Payment of Estimated Excess Costs and Option to Terminate. If the
total estimated costs of Lessor's Improvements shall exceed $66.00 per square
foot, Lessee shall within fifteen (15) days following receipt of adequate cost
evidence from Lessor,
<PAGE> 14
notify Lessor, in a writing executed and acknowledged by the President and any
Vice- President of Lessee, of Lessee's election to do one of the following:
(i) Lessee may cancel and terminate this Lease, in which event Lessee
shall pay to Lessor as liquidated damages the sum evidenced by the letter of
credit deposited with Lessor under Section 1.04 hereof, unless the total
estimated costs of Lessor's Improvements shall exceed $78.50 per square foot in
which event the letter of credit shall be returned promptly to Lessee, and
Lessee shall be released from any and all liability hereunder; or
(ii) Lessee may request that Lessor proceed with construction of
Lessor's Improvements on the basis of the figures submitted to Lessee, in which
event Lessee shall, upon demand, pay to Lessor in cash its prorata share, as
shown on Exhibit C, of the total estimated costs of Lessor's Improvements in
excess of $66.00 per square foot; or
(iii) Lessee may request that Lessor proceed with construction of
Lessor's Improvements on the basis provided in subsection (ii) above, except
that payment by Lessee of its prorata share, as shown on Exhibit C, of the total
estimated costs of Lessor's Improvements in excess of $66.00 per square foot (up
to a maximum of $78.50 per square foot) shall be payable over the Initial Term
of this Lease at a constant annual rate of $0.200281 per square foot for each
dollar of excess costs so payable by Lessee, and shall be payable as additional
rental by Lessee to Lessor at the time and in the manner provided for (but in
addition to) payment of annual Minimum Rental; provided, however, such
additional rental payable under the terms of this subsection (iii) shall not be
subject to adjustment as provided in Section 2.02 hereof with respect to annual
Minimum Rent. In the event such estimated total costs shall exceed $78.50 per
square foot and Lessee elects to utilize the payment mechanism provided for in
this subsection (iii), then Lessee shall immediately pay to Lessor in cash, upon
demand, its prorata share, as shown on Exhibit C hereto, of the excess of such
estimated total costs of construction over $78.50 per square foot.
If Lessee should fail to make any of the foregoing written elections
within the fifteen (15) day period provided above, then Lessee shall be deemed
to have elected the option set forth in subsection (iii) above. Failure to pay
Lessor any amount as required above shall be a breach under this Lease,
providing Lessor with the same rights and remedies that would result from
Lessee's nonpayment of annual Minimum Rent.
(d) Changes in Documents. After approval by Lessor and Lessee of the
preliminary plans and specifications and the construction bid breakdowns under
Sections 3.02(b) and 3.03 hereof, no substantial changes shall be made to the
same by Lessor without the written approval of Lessee. In the event Lessee
shall, during the course of construction, request changes to be made to the
<PAGE> 15
preliminary plans and specifications and construction bid breakdowns previously
approved by Lessor and Lessee, such changes shall be subject to the approval of
Lessor. Any additional costs incurred on account of such requested and approved
changes, together with architectural and other indirect and directly related
costs, shall be added to the total estimated costs of Lessor's Improvements
under subsection (c) above, and Lessee's liability for payment, if any, shall be
in accordance with the provisions set forth in subsection (c)(ii) or (iii)
above, as elected by Lessee.
(e) Excess or Reduced Construction Costs. In the event the actual
costs of constructing Lessor's Improvements shall, for any reason whatsoever,
other than changes requested by Lessee under subsection (d) above, exceed the
total estimated costs thereof under subsection (c) above, Lessor shall pay any
and all such excess costs it being understood that Lessee shall not have any
obligation or liability with respect thereto. If such actual costs should be
less than such total estimated costs, however, Lessee shall have no claim or
rights whatsoever against Lessor by reason thereof (including but not limited to
any claim for refund or reduction in rent).
SECTION 3.05. COMPLETION. The Premises shall be deemed completed when
(i) Lessor has substantially completed construction of the Building Shell,
Lessee's vault envelope and security devices, and any Lessor's Improvements
within the Premises (other than any such work which Lessor determines cannot be
performed by Lessor until such time as Lessee completes work in its Premises
which has not been included in Lessor's Improvements) and (ii) Lessor gives
Lessee written notice of such completion setting forth the date thereof. Until
such time as such notification is provided Lessee by Lessor, the right of Lessee
to enter upon the Premises shall be solely for the purpose of inspection,
measurement and obtaining information necessary for construction of Lessee's
work, if any, and the right of possession by Lessee shall not occur until the
date upon which Lessor notifies Lessee that it has completed construction of
Lessor's Improvements as provided hereinabove. It is agreed that by occupying
the Premises as a tenant following completion of all work to be performed
therein by Lessor, Lessee formally accepts the same and acknowledges that the
Premises are in the condition called for hereunder, except for defects in
workmanship or materials. Lessee shall cause Lessee's work, if any, to be
performed by a licensed general contractor, or contractors, approved by Lessor,
in accordance with working drawings and specifications approved by Lessor.
ARTICLE IV. TAXES AND ASSESSMENTS.
SECTION 4.01. LESSEE'S OBLIGATION FOR TAXES AND ASSESSMENTS.
(a) Lessee shall be responsible for, and agrees to pay, prior
to delinquency, any and all taxes, assessments, levies, fees and other
governmental charges of every kind or nature (hereinafter collectively called
"taxes") levied or assessed by municipal,
<PAGE> 16
county, state, federal or other taxing or assessing authority upon, against or
with respect to (i) the Premises or any leasehold interest therein, (ii) all
furniture, fixtures, equipment and any other personal property of any kind owned
by Lessee placed, installed or located within, upon or about the Premises, (iii)
all alterations, additions or improvements of whatsoever kind of nature, if any,
made to the Premises, and (iv) rentals or other charges payable by Lessee to
Lessor (such taxes, assessments, levies, fees and other charges being measured
as though such rentals and charges were the only income of Lessor subject
thereto), irrespective of whether any of the items described in clauses (i)
through (iv) above are assessed as real or personal property, and irrespective
of whether any of such items are assessed to or against Lessor or Lessee, but
expressly excluding any general net income, franchise, inheritance or ad valorem
tax levied upon or payable by Lessor. If at any time during the term of this
Lease any of such taxes are not levied and assessed separately and directly to
Lessee (for example, if the same are levied or assessed to Lessor, or upon or
against the Building containing the Premises and the land underlying said
Building), Lessee shall pay to Lessor Lessee's proportionate share of all taxes
levied or assessed against or with respect to all buildings and land thereunder
from time to time constituting the Development; and Lessee's proportionate share
shall be that portion thereof which the number of square feet of net rentable
area within the Premises bears to the total number of square feet of net
rentable area of all buildings from time to time constituting the Development.
In the event the ultimate development of the balance of the Development shall
consist of substantial industrial, retail or other uses dissimilar to office
use, then Lessee shall pay to Lessor Lessee's proportionate share of all taxes
levied or assessed against or with respect to all buildings and land thereunder
located within the Building Parcel; and Lessee's proportionate share shall be
that portion thereof which the number of square feet of net rentable area in the
Premises bears to the total number of square feet of net rentable area of the
buildings located within the Building Parcel. To the extent that taxes in common
facilities are the obligation of Lessee under Section 6.03 hereof, the same
shall not be includable in Lessee's proportionate share of taxes levied or
assessed against or with respect to buildings and land constituting the
Development pursuant to this Section 4.01. The taxes payable by Lessee pursuant
to this subsection (a) which are levied or assessed for the fiscal tax year in
which the term of this Lease commences and for the fiscal tax year in which the
term of this Lease ends shall be prorated.
(b) Should the United States of America, State of California or any
political subdivision thereof or any other governmental authority having
jurisdiction (by way of substitution for all or any part of the "taxes"
otherwise required to be paid in whole or in part by Lessee pursuant to this
Section 4.01 or Section 6.03, or in addition thereto), either (i) impose a
capital levy or a tax, assessment and/or surcharge of any kind or nature upon,
against, in connection with or with respect to the rentals or other
<PAGE> 17
charges payable to Lessor by Lessee or other tenants in or occupants of the
Development or on Lessor's ownership of the Development or any portion thereof
or interest therein, other than on the value of real and personal property
comprising the Development (but in computing any such levy, tax, assessment or
surcharge, the same shall be measured as though said rentals, charges and
ownership interest were the only income or property subject thereto) and/or (ii)
impose a tax or surcharge of any kind or nature upon, against or with respect to
the parking area or the number of parking spaces in the Development, but
expressly excluding from either (i) or (ii) above any general net income,
franchise, inheritance or ad valorem tax levied upon or payable by Lessor, then,
in any such case, such tax, assessment and/or surcharge shall be deemed to
constitute a tax and/or assessment against the buildings constituting the
Development and Lessee shall pay to Lessor its proportionate share thereof
pursuant to this Section 4.01, as billed by Lessor.
(c) In the event Lessor contests any taxes levied or assessed during
the term hereof upon, against or with respect to the Development, or any portion
thereof or interest therein, Lessee agrees to pay to Lessor that proportion of
all costs incurred by Lessor in connection therewith computed in the manner
provided in Section 4.01(a) above.
(d) Upon Lessor's receipt of assessment notices and/or tax statements
or bills covering any or all of the taxes payable by Lessee hereunder for any
fiscal tax year, Lessor shall bill Lessee for its proportionate share. The
failure of Lessee to pay any tax or other amount payable directly to the taxing
authority or to Lessor under this Section 4.01 either prior to delinquency (in
the case of taxes payable by Lessee directly to the taxing authority) or within
ten (10) days after receipt by Lessee from Lessor of a statement therefor (in
all other cases) shall carry with it the same consequences as Lessee's failure
to pay rent.
ARTICLE V. CONDUCT OF BUSINESS BY LESSEE.
SECTION 5.01. USE OF PREMISES. Lessee shall use the Premises for the
purpose of conducting and carrying on a banking business, for general office
purposes, and for uses normally incident to the foregoing, and for no other
purpose without the prior written consent of Lessor. Lessee may not, however,
sublet the Bank Space for non-banking purposes without the prior consent of
Lessor under Section 12.01 hereof.
SECTION 5.02. OPERATION OF BUSINESS. Lessee agrees to use its best
efforts to keep substantially all of the Premises open and occupied during the
entire term of this Lease following completion of Lessor's and Lessee's
Improvements, unless prevented from doing so because of fire, accident or acts
of God, and agrees to conduct its business in a first class and reputable
manner. Nothing contained in this Lease shall be construed as implying a
covenant on the part of Lessee to maintain its banking business
<PAGE> 18
within the Premises during the term of this Lease or any portion thereof, or to
keep any portion of the Premises open as a bank during any particular hours or
days; it being expressly understood and agreed that such matters shall be
determined solely by Lessee.
Lessee, at Lessee's expense, shall promptly comply with all present
and future laws, ordinances, orders, rules, regulations and requirements of all
governmental authorities having jurisdiction affecting or applicable to the
Premises or the cleanliness, safety, occupancy or use of the same, whether or
not any such law, ordinance, order, rule, regulation or requirement is
substantial, or foreseen or unforeseen, or ordinary or extraordinary, provided
Lessee shall not be required to make any structural alterations or changes to
the Premises, except as may be required because of Lessee's operations within
the Premises under this Lease. Lessee shall not do or permit anything to be done
in or about the Premises, nor bring anything therein, which will in any way
conflict with any such law, ordinance, order, rule, regulation or requirement
affecting the occupancy or use of the Premises or the Development which is or
may hereafter be enacted or promulgated by governmental authorities, or in any
way obstruct or interfere with the rights of others, nor shall Lessee use or
allow the Premises to be used for any improper, immoral or objectionable
purposes. No auction, liquidation, going out of business, fire or bankruptcy
sales may be conducted in the Premises. Lessee shall have absolute freedom to
determine its own prices and business practices. Lessee will conduct its
business in good faith so as not to tend, in Lessor's opinion, to injure the
reputation of the Development. Lessee shall not permit noise or odors in the
Premises which are objected to by Lessor or by any tenant or occupant of the
Development and, upon written notice from Lessor, Lessee shall immediately cease
and desist from causing such noise or odor, and failing of which Lessor may deem
the same a material breach of this Lease. Lessee shall not permit the operation
of any coin operated or vending machines or pay telephones on the Premises,
other than in the areas reserved solely for the use of Lessee's employees.
Except as to drive-up and walk-up teller facilities, Lessee shall not use the
areas adjacent to the Premises for business purposes. Lessee shall not store
anything in service or exit corridors. Lessee agrees that all receiving and
delivery of goods and merchandise, and all removal of merchandise, supplies,
equipment, trash and garbage, and all storage of trash and garbage, shall be
made only by way of or in the areas provided therefor by Lessor. Lessee shall
not use or permit the use of any portion of the Premises as sleeping quarters,
lodging rooms, or for any unlawful purposes. Lessee shall not install any radio
or television or other similar device exterior to the Premises and shall not
erect any aerial on the roof or exterior walls of any building within the
Development.
SECTION 5.03. CARE OF PREMISES. Lessee, at Lessee's expense, shall at
all times keep the Premises (including windows and signs) orderly, neat, safe,
clean and free from rubbish and dirt, and shall store all trash, garbage and
other solid waste
<PAGE> 19
within the Premises. Lessee shall not burn any trash or garbage at any time in
or about the Development. Lessor may require the use of solid waste disposal
contractors and of pest extermination contractors, at such intervals as Lessor
deems appropriate. If Lessor shall provide any services or facilities for solid
waste pickup, then Lessee shall be obligated to use the same and shall pay a
proportionate share of the cost thereof within ten (10) days after being billed
therefor. If Lessor does not provide such services, Lessee shall arrange for the
regular pickup of all solid waste.
ARTICLE VI. COMMON FACILITIES
SECTION 6.01. OPERATION AND MAINTENANCE OF COMMON FACILITIES. Lessor
agrees to cause to be constructed all common facilities for the Development and,
during the term of this Lease, to operate and maintain the same in a good, clean
and safe condition and manner, normal wear and tear excepted. Lessee's
obligation for its prorata share of operating and maintenance costs for the
common facilities shall be as provided in Section 6.03 below. All areas within
the exterior boundaries of the Development which are not now or hereafter held
for exclusive use by persons entitled to occupy floor space in the Development,
shall be deemed "common facilities", including, without limiting the generality
of the foregoing, parking areas, driveways, truckways, delivery passages,
loading docks, sidewalks, ramps, open and enclosed courts and malls, landscaped
and planted areas, central identification signs, bus stops, retaining walls, and
other areas and improvements provided by Lessor for the common use of Lessor and
tenants and their respective employees and invitees. Lessor may make changes at
any time and from time to time in the size, shape, location, number and extent
of the common facilities or any of them, and no such change shall entitle Lessee
to any abatement of rent; provided, however, that such changes or alterations
shall not unreasonably interfere with Lessee's reasonable use and enjoyment of
the Premises, and provided further that Lessee shall have the right of prior
approval of any changes in the size or shape of the Building Parcel described in
Exhibit "B", which approval shall not be unreasonably withheld.
SECTION 6.02. USE OF COMMON FACILITIES.
(a) The use and occupancy by Lessee of the Premises shall include the
use of the common facilities in common with Lessor and with all others for which
convenience and use the common facilities have been or may hereafter be provided
by Lessor, subject, however, to reasonable rules and regulations for the use
thereof as prescribed from time to time by Lessor. Lessor shall operate, manage,
equip, light, repair, clean and maintain the common facilities in a good, clean
and safe condition and manner, except for normal wear and tear. Nothing
contained herein shall be deemed to create liability upon Lessor for any damage
to motor vehicles of customers or employees or from loss of property from within
such motor vehicles. Lessor may temporarily close any common facility for
repairs or alterations, to prevent a dedication
<PAGE> 20
thereof or the accrual of prescriptive rights therein, or for any other reason
deemed sufficient by Lessor.
(b) Except for those eight parking spaces designated for Lessee's
visitors within the areas outlined in blue on Exhibit "A" and such additional
spaces and in such locations as Lessee may reasonably determine to be necessary
for its banking operations and mutually agreed upon (as to which Lessee may post
signs for such use, provided that Lessor shall not be responsible for preventing
or supervising any conflicting uses), Lessor shall at all times during the term
of this Lease have the sole and exclusive control of the automobile parking
areas now or hereafter made available by Lessor for the Building, or the
Premises, all exterior stairways, elevators, and all other building areas
provided by Lessor for the common use of Lessor and tenants, their employees and
invitees, driveways, entrances and exits and the sidewalks, pedestrian
passageways and other common facilities, and may at any time and from time to
time during the term hereof restrain or restrict any use or occupancy thereof,
and may impose reasonable parking charges upon Lessee and its employees with
respect thereto, all in accordance with reasonable rules and regulations for the
use of such areas established by Lessor from time to time. The rights of Lessee
in and to the common facilities shall at all times be subject to the rights of
Lessor and the other tenants of Lessor to use the same in common with Lessee,
and Lessee shall keep said facilities free and clear of any obstructions created
or permitted by Lessee or resulting from Lessee's operations in the Premises. If
in the opinion of Lessor, unauthorized persons are using any of said facilities
by reason of the presence of Lessee in the Development, Lessee, upon demand of
Lessor, shall restrain such unauthorized use by appropriate proceedings. Nothing
herein shall affect the right of Lessor at any time to remove any such
unauthorized person from the common facilities nor to prohibit the use of any
said facilities by unauthorized persons. Lessee and its employees shall park
their vehicles only in those portions of the parking areas from time to time
designated for that purpose by Lessor. Lessee shall furnish Lessor with a list
of its and its employees' vehicle license numbers within fifteen (15) days after
taking possession of the Premises and Lessee shall thereafter notify Lessor of
any change in such list within five (5) days after such change occurs. Lessee
agrees to assume responsibility for compliance by its employees with the parking
provisions contained herein. If Lessee or its employees park in other than such
designated parking areas then Lessor may charge Lessee, as an additional charge,
Ten Dollars ($10.00) per day for each day or partial day each such vehicle is
parked in any part of the common facilities other than that designated. Lessee
hereby authorizes Lessor to tow away from the Development any vehicle belonging
to Lessee or Lessee's employees parked in violation of these provisions, and/or
to attach violation stickers or notices to such vehicle. In the event Lessor
elects or is required to limit or control parking by customers or invitees of
the Development, whether by validation of parking tickets, parking meters or any
other method of assessment, or any program for free or reduced cost
<PAGE> 21
transportation, Lessee agrees to participate in such validation, assessment or
transportation program (as the same pertains to its employees) under such
reasonable rules and regulations as are from time to time established by Lessor
with respect hereto.
SECTION 6.03. LESSEE'S PRO RATA SHARE OF EXPENSES.
(a) Lessee shall pay to Lessor during the term of this Lease,
in the manner and at the time provided below, Lessee's proportionate share, as
defined below, of all costs and expenses incurred by Lessor in the operation and
maintenance of the common facilities described in Section 6.01 hereof, other
than those contained within or as part of any building within the Development,
including Lessor's costs and expenses of providing the insurance described in
Section 9.02 below as to such common facilities. Such costs and expenses shall
include, without limiting the generality of the foregoing, gardening,
landscaping, repaving, cost of public liability, property damage, vandalism and
malicious mischief, and other insurance, real property taxes (as defined in
Section 4.01 but applicable to the common facilities), repairs, painting,
lighting, cleaning, trash removal, depreciation of equipment, security, fire
protection, and similar items, and an amount equal to fifteen percent (15%) of
all such costs and expenses to cover Lessor's administrative and overhead
expense. Such costs and expenses shall not include any allowance for
depreciation of common facilities, but shall include replacements and all
charges, surcharges and other levies of whatsoever nature imposed by, and all
costs (whether or not capital in nature) of compliance with the requirements of
any federal, state or local governmental agency regulating the environmental,
health and safety aspects of the Development.
(b) The proportionate share of such common facilities, costs and
expenses to be paid by Lessee with respect to the developed portion of the total
Development from time to time shall be 60% of that proportion thereof which the
number of square feet contained in the Building Parcel described in Exhibit "B"
attached bears to the total number of square feet in the developed portion of
the total Development shown on Exhibit "A". In the event the ultimate
development of the balance of the Development shall consist of substantial
industrial, retail or other uses dissimilar to general office use, then Lessee
shall only be required to pay its proportionate share of the costs and expenses
of operating, repairing and maintaining common facilities within the Building
Parcel, such proportionate share to be 60% of such costs and expenses.
Lessee shall pay its proportionate share of such common facilities,
costs and expenses as estimated and billed therefor by Lessor, in advance, from
time to time, but not more often than monthly. The failure of Lessee to pay any
such amount to Lessor within ten (10) days after receipt by Lessee from Lessor
of a bill therefor shall carry with it the same consequences as failure to pay
rent. Subsequent to the end of each calendar or fiscal year (at Lessor's
option), Lessor shall furnish Lessee with a statement
<PAGE> 22
of the actual amount of Lessee's proportionate share of such costs and expenses
for such period. If the total amount paid by Lessee under this Section 6.03 for
any year shall be less than the actual amount due from Lessee for such year as
shown on such statement, Lessee shall pay to Lessor the difference between the
amount paid by Lessee and the actual amount due, such deficiency to be paid
within ten (10) days after the furnishing of such statement, and if the total
amount paid by Lessee hereunder for any such year shall exceed such actual
amount due from Lessee for such year, such excess shall be credited against the
next billing by Lessor of estimated costs and expenses due by Lessee under this
Section 6.03, provided that if such billing is not received within eighty-five
(85) days after the end of such period, then Lessee may thereafter credit such
excess against the next installment of rent becoming due from Lessee to Lessor
under this Lease.
ARTICLE VII. ALTERATIONS, CHANGES AND ADDITIONS
SECTION 7.01. INSTALLATION BY LESSEE. Lessee shall not make or cause
to be made any structural or other substantial alterations, additions or
improvements to the Premises, including but not limited to the installation of
any signs, partitions, interior or exterior lighting, plumbing fixtures, shades,
canopies or awnings, electronic detection devices, antennas, mechanical,
electrical or sprinkler systems, or make any changes to the exterior of the
Premises without the prior written approval of Lessor, which approval shall not
be unreasonably withheld. Lessee shall present to Lessor complete plans and
specifications for such work at the time approval is sought. As used herein,
"substantial" shall mean an alteration, addition or improvement exceeding in
cost the sum of $10,000.
SECTION 7.02. REMOVAL BY LESSEE. All alterations, decorations,
additions and improvements made by Lessee shall be deemed to have attached to
the realty and to have become the property of Lessor upon the expiration of the
term hereof or upon the expiration of any renewal of the term hereof or upon
sooner termination. Lessee shall not remove any of such alterations,
decorations, additions and improvements, except that Lessee may designate by
written notice to Lessor those removable improvements, trade fixtures, equipment
and furnishings (including, but not limited to vault doors, bank counters,
safety deposit boxes, bank night depositories, walk-up and drive-up teller
facility equipment and fixtures, security devices, and equipment), which Lessee
desires to remove at Lessee's expense at the expiration or termination of the
Lease, and Lessee shall promptly remove the same and repair any damage to the
Premises caused by such removal.
SECTION 7.03. CHANGES AND ADDITIONS BY LESSOR. Lessor hereby reserves
the right at any time, and from time to time, to make alterations or additions
to any building in the Development, to construct other buildings and
improvements in the Development, to enlarge or reduce the Development and to
make alterations therein or additions thereto, to build additional stories on
any
<PAGE> 23
building or buildings within the Development, to construct decks or elevated
parking facilities, and to sell or lease any part of the land comprising the
Development for the construction thereon of buildings which may or may not be
part of the Development. Lessor reserves the right at any time to relocate any
building, parking areas and common facilities, and to add or delete buildings
and areas to or from the Development as defined for purposes of this Lease,
provided that Lessor shall not unreasonably interfere with Lessee's reasonable
use and enjoyment of the Premises except as to temporary inconvenience caused
during the course of such work.
ARTICLE VIII. MAINTENANCE OF LEASED PREMISES
SECTION 8.01. LESSOR'S OBLIGATIONS FOR MAINTENANCE. Lessor shall keep
and maintain in good repair the roof (including the structural integrity
thereof), the exterior surfaces of the exterior walls and structural elements of
all buildings (exclusive of doors, door frames, door checks, other entrances,
windows and window frames which are not part of common facilities, and
suitefronts), exterior stairways, elevators, restrooms within a building but not
within the premises of any tenant, subject to Section 8.02 below, and the
structural, electrical and mechanical systems (including sprinkler systems,
heating, ventilation and air-conditioning) serving the Premises, whether located
inside or outside the Premises, and other building areas and improvements
provided by Lessor for the common use of Lessee and tenants, their employees and
invitees, except that Lessor shall not be called upon to make any such repairs
occasioned by the act or negligence of Lessee, its agents, employees, invitees,
licensees or contractors. Lessor shall not be called upon to make any other
improvements or repairs of any kind upon the Premises and appurtenances, except
as may be required under Articles XV and XVI hereof, and nothing contained in
this Section 8.01 shall limit Lessor's right to reimbursement from Lessee for
maintenance, repair costs and replacement costs conferred elsewhere in this
Lease. Except for those costs and expenses to be paid solely by Lessee as
provided in Section 8.02(a) below, Lessee shall reimburse Lessor for Lessee's
pro rata share of all expenses incurred by Lessor under this Section 8.01.
Lessee's pro rata share shall be that proportion of such total expenses which
the net rentable area of the Premises bears to the net rentable area of all
premises within the Building, and shall be paid upon receipt of Lessor's
periodic invoices therefor. Lessor shall have the right to employ or designate
any reputable person or firm to perform the service, repair and maintenance
functions described in this Section 8.01, and the fees and charges of any person
or firm so employed or designated shall be reimbursed to Lessor as above
provided.
SECTION 8.02. LESSEE'S OBLIGATIONS FOR MAINTENANCE.
(a) Except as provided in Section 8.01 of this Lease and
except for normal wear and tear, Lessee, at Lessee's expense, shall keep and
maintain in first-class appearance and in good order,
<PAGE> 24
condition and repair as determined by Lessor (including replacement of parts and
equipment, if necessary) the Premises and every part thereof and any and all
appurtenances thereto wherever located, including, but without limitation, the
interior surfaces of the exterior walls, the exterior and interior portion of
all doors, door frames, door checks, other entrances, windows, window frames,
plate glass, suitefronts, signs, walls, floors and ceilings, and all other work
performed by or on behalf of Lessee pursuant to Section 3.01 and Section 7.01
hereof, and all other repairs, replacements, renewals and restorations thereof.
In addition, Lessee shall reimburse Lessor or otherwise pay for the costs of
repair and maintenance of all sprinkler systems, heating, ventilation, air
conditioning and electrical systems, and plumbing and sewage facilities located
within the Premises, including free flow up to the main sewer line.
(b) Lessee shall keep and maintain the Premises in a clean, sanitary
and safe condition in accordance with the laws of the State of California and in
accordance with all directions, rules and regulations of the health officer,
fire marshall, building inspector, or other proper officials of the governmental
agencies having jurisdiction, and Lessee shall comply with all requirements of
laws, ordinances and regulations pertaining to Lessee's use of and operations
within the Premises, all at the sole cost and expense of Lessee (but excluding
compliance with any laws, ordinances or regulations requiring structural
alterations to the Premises). At the time of the expiration of the tenancy
created herein, Lessee shall surrender the Premises in good order, condition and
repair, reasonable wear and tear excepted.
(c) Lessee shall keep the Premises and all other parts of the
Development free from any and all liens arising out of any work performed,
materials furnished or obligations incurred by or for Lessee, and agrees to bond
against or discharge any mechanic's or materialmen's lien within ten (10) days
after written request therefor by Lessor. Lessee shall give Lessor at least
fifteen (15) days notice prior to commencing or causing to be commenced any work
on the Premises (whether prior or subsequent to the commencement of the lease
term), so that Lessor shall have reasonable opportunity to file and post notices
of non-responsibility for Lessee's work. Lessee shall reimburse Lessor for any
and all costs and expenses which may be incurred by Lessor by reason of the
filing of any such liens and/or the removal of same, such reimbursement to be
made within ten (10) days after receipt by Lessee from Lessor of a statement
setting forth the amount of such costs and expenses.
(d) Lessee, at its own expense, shall install and maintain fire
extinguishers and other fire protection devices as may be required from time to
time by any agency having jurisdiction and/or by the insurance underwriters
insuring the building in which the Premises are located.
<PAGE> 25
(e) Lessee expressly waives all rights to make repairs at the expense
of Lessor as provided for in any statute or law in effect during the term of
this Lease.
(f) In the event that Lessee fails, refuses or neglects to commence
and complete repairs promptly and adequately, to remove any lien, to pay any
cost or expense, to reimburse Lessor, or otherwise to perform any act or fulfill
any obligation required of Lessee pursuant to this Section 8.02, Lessor may, but
shall not be required to do so, make or complete any such repairs, remove such
lien, pay such cost or perform such act or the like without prior notice to, but
at the sole cost and expense of, Lessee; Lessee shall reimburse Lessor for all
costs and expenses of Lessor thereby incurred within ten (10) days after receipt
by Lessee from Lessor of a statement setting forth the amount of such costs and
expenses. The failure by Lessee so to reimburse Lessor within such ten-day
period shall carry with it the same consequences as failure to pay rent.
Lessor's rights and remedies pursuant to this subsection (f) shall be in
addition to any and all other rights and remedies provided under this Lease or
at law.
ARTICLE IX. INSURANCE AND INDEMNITY
SECTION 9.01. LESSEE'S INSURANCE.
(a) Lessee, at its sole cost and expense, shall, commencing on the
date Lessee is given access to the Premises for any purpose, and continuing for
the balance of term hereof, procure, pay for and keep in full force and effect:
(i) comprehensive general liability insurance with respect to the Premises and
the operations of or on behalf of Lessee in, or on about the Premises,
specifically including owned and non-owned automobile liability, personal
injury, blanket contractual, owner's protective, broad form property damage and
product/completed operations liability coverage (if applicable) for not less
than One Million Dollars ($1,000,000.00) combined single limit for bodily
injury, death, and property damage liability per occurrence; (ii) worker's
compensation coverage as required by law, together with employers liability
coverage; (iii) with respect to improvements, alterations, and the like required
or permitted to be made by Lessee hereunder, contingent liability and builder's
risk insurance, in amounts satisfactory to Lessor; (iv) insurance against fire,
vandalism, malicious mischief and such other additional perils as now are or
hereafter may be included in a standard special extended coverage endorsement
insuring Lessee's leasehold improvements, trade fixtures, furnishings, equipment
and other items of personal property of Lessee located on or in the Premises, in
an amount equal to not less than ninety percent (90%) of the actual replacement
cost thereof; and (v) plate glass insurance, at full replacement value.
(b) All policies of insurance required to be carried by Lessee
pursuant to this Section 9.01 shall be written by responsible insurance
companies authorized to do business in the State of California. Any such
insurance required of Lessee
<PAGE> 26
hereunder may be furnished by Lessee under any blanket policy carried by it or
under a separate policy therefor. A copy of each paid up policy evidencing such
insurance (appropriately authenticated by the insurer) or a certificate of the
insurer, certifying that such policy has been issued, providing the coverage
required by this Section and containing provisions specified herein, shall be
delivered to Lessor prior to the date Lessee is given the right of possession of
the Premises, and upon renewals, not less than thirty (30) days prior to the
expiration of such coverage. Lessor may, at any time, and from time to time,
inspect and/or copy any and all insurance policies required to be procured by
Lessee hereunder.
(c) Each policy evidencing insurance required to be carried by Lessee
pursuant to this Section 9.01 shall contain the following provisions and/or
clauses: (i) a cross-liability clause; (ii) a provision that such policy and the
coverage evidenced thereby shall be primary and that any coverage carried by
Lessor shall be excess insurance and non-contributing with respect to any
policies carried by Lessor; (iii) a provision including Lessor and any other
parties in interest designated by Lessor as an additional insured; (iv) a waiver
by the insurer of any right to subrogation against Lessor, its agents, employees
and representatives which arises or might arise by reason of any payment under
such policy or by reason of any act or omission of Lessor, its agents, employees
or representatives; (v) a severability clause; (vi) a provision that the insurer
will not cancel or change the coverage provided by such policy without first
giving Lessor thirty (30) days prior written notice.
(d) Lessee may satisfy any or all of the insurance obligations
contained herein by self-insurance; provided, however, that:
(i) Lessee shall at all times maintain a net worth
in excess of Five Million Dollars ($5,000,000);
(ii) Lessee shall at all times maintain sufficient funds available
to provide the same coverages, protection and payments by way of
self-insurance as would be provided if Lessee were to obtain the types of
insurance pursuant to all other insurance provisions set forth above;
(iii) Lessee shall provide Lessor at least once annually or
whenever reasonably required by Lessor, with certificates of compliance
executed by a responsible financial officer of Lessee setting forth the
types of coverage or protection then being provided by self-insurance and
assuring Lessor of the existence and maintenance of such required net worth
and the continuing availability of funds during the full period of any
self-insurance;
(iv) All funds maintained for self-insurance purposes shall be
subject to all provisions contained in this
<PAGE> 27
Lease with respect to the use, application, distribution or other
disposition of insurance proceeds; and
(v) All indemnity, hold harmless and defense provisions contained
in this Lease shall be cumulative and in addition to all self-insurance
provisions hereof, for the protection of Lessor, its officers, directors,
employees, agents and representatives.
Without the prior written consent of Lessor, the right to self-insure
given to Lessee under this subsection (d) shall not be available to any
successor or assign of Lessee, other than a parent, subsidiary or surviving
corporation to which an assignment of this Lease may be made under Section
12.01(a)(i) and (ii) hereof.
(e) In the event that Lessee fails to procure, maintain and/or pay for
at the times and for the durations specified in this Section 9.01, any insurance
required by this Section (including self-insurance as provided above), or fails
to carry insurance as required by law or governmental regulation, Lessor may
(but without obligation to do so) at any time or from time to time, and without
notice, procure such insurance and pay the premiums therefor, in which event
Lessee shall repay Lessor all sums so paid by Lessor, together with interest
thereon as provided elsewhere herein and any costs or expenses incurred by
Lessor in connection therewith, within ten (10) days following Lessor's written
demand to Lessee for such payment.
(f) Lessee shall not carry any stock of goods or do anything in or
about the Premises which will in any way tend to increase the insurance rates on
the Development, the Premises and/or the building of which they are a part
and/or the contents thereof.
SECTION 9.02. LESSOR'S INSURANCE. Lessor shall, with respect to the
Development, keep in full force and effect comprehensive general liability
insurance and owner's broad form property damage liability coverage for bodily
injury, death and property damage in an amount not less than One Million Dollars
($1,000,000) combined single limit for bodily injury, death and property damage
liability per occurrence; and Lessor shall, with respect to the Building of
which the Premises are a part, keep in full force and effect insurance against
fire, vandalism, malicious mischief and such other additional perils as now are
or hereafter may be included in a standard fire and special extended coverage
endorsement, in an amount equal to the full insurable value of the Building.
Each policy evidencing insurance required to be carried by Lessor pursuant to
this Section 9.02 shall contain a waiver by the insurer of any right of
subrogation against Lessee, its agents, employees and representatives which
arises or might arise by reason of any payment under such policy or by reason of
any act or omission of Lessee, its agents, employees or representatives. In
<PAGE> 28
addition, Lessor shall have the right, but shall not be required, to provide
such other insurance for the Building (if any), with or without deductible and
in such amounts and coverages as may be determined by Lessor in Lessor's sole
judgment and discretion.
SECTION 9.03. COVENANT TO HOLD HARMLESS. Lessee covenants to indemnify
Lessor, and save it harmless from and against any and all claims, actions,
damages, liability and expenses, including attorneys' fees, in connection with
loss of life, bodily injury and/or damage to property arising from or out of any
occurrence in, upon or at the Premises, or the occupancy or use by Lessee of the
Premises or any part thereof, or arising from or out of Lessee's failure to
comply with any provision of this Lease or otherwise occasioned wholly or in
part by any act or omission of Lessee, its agents, representatives, contractors,
employees, servants, customers or licensees; provided, however, that Lessee
shall not indemnify Lessor against any loss of life, bodily injury and/or damage
to property arising from Lessor's willful acts or active negligence. For the
purpose of this Section 9.03, the Premises shall include the common areas
adjacent to the same. In case Lessor shall, without fault on its part, be made a
party to any litigation commenced by or against Lessee, then Lessee shall
protect and hold it harmless and shall pay all costs, expenses and reasonable
attorney's fees incurred or paid by Lessor in connection with such litigation.
Lessor may, at its option, require Lessee to assume Lessor's defense in any
action covered by this Section through counsel satisfactory to Lessor.
SECTION 9.04. EXEMPTION OF LESSOR. Lessor shall not be liable for
injury or damage which may be sustained by the person, goods, wares, merchandise
or property of Lessee, its employees, invitees or customers or any person in or
about the Premises caused by or resulting from fire, steam, electricity, gas,
water or rain, which may leak or flow from or into any part of the Premises, or
from the breakage, leakage, obstruction or other defects of the pipes,
sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures
of the same, whether the said damage or injury results from conditions arising
upon the Premises or upon other portions of the Building of which the Premises
are a part, or from other sources, except as to Lessor's willful acts or active
negligence. Lessor shall not be liable for any damages arising from any act or
neglect of any other tenant of the Development.
SECTION 9.05. WAIVER OF SUBROGATION. Each party hereto does hereby
waive, remise, release and discharge the other party hereto and any officer,
agent, employee or representative of such other party, of and from any liability
whatsoever hereafter arising from loss, damage or injury caused by fire or other
casualty for which insurance (permitting waiver of subrogation) is carried or
required to be carried by such party under the provisions of this Lease.
ARTICLE X. UTILITY CHARGES
<PAGE> 29
SECTION 10.01. UTILITY CHARGES. Lessee shall pay all charges for gas,
water, sewer, electricity, telephone and other utility services used in the
Premises during the term of this Lease. If any such charges are not paid when
due Lessor may pay the same, and any amount so paid by Lessor shall thereupon
become due to Lessor from Lessee as additional rent. To the extent that any such
utility service to the Premises is not separately metered or billed to Lessee,
Lessee shall reimburse Lessor monthly for Lessee's proportionate share of the
total charge for such utility service to all premises served in common with the
Premises as provided in Section 8.02 above. If Lessor reasonably determines that
Lessee's usage of any utility service so provided in common with other premises
is excessive, whether due to longer than normal hours of operation, equipment
other than normal office machines, or otherwise, then Lessor may establish an
additional charge to be paid by Lessee for such excessive use. If Lessor shall
elect to furnish any utility services to the Premises, Lessee shall purchase its
requirements thereof from Lessor so long as the rates charged therefor by Lessor
do not exceed those which Lessee would be required to pay if such services were
furnished it directly by a public utility. Lessor shall not be liable in damages
or otherwise for any failure or interruption of any utility service being
furnished the Premises, except where such failure or interruption is due to
Lessor's willful acts or active negligence, and no such failure or interruption
shall entitle Lessee to terminate this Lease, or to an abatement of the annual
Minimum Rent, additional rent or other charges due hereunder.
ARTICLE XI. OFF-SET STATEMENT, ATTORNMENT
AND SUBORDINATION
SECTION 11.01. OFF-SET STATEMENT. Lessee shall, at any time and from
time to time upon not less than ten (10) days' prior written notice from Lessor,
execute, acknowledge and deliver to Lessor a statement in writing (i) certifying
that this Lease is unmodified and in full force and effect (or, if modified,
stating the nature of such modification and certifying that this Lease, as so
modified, is in full force and effect) and the dates to which the annual Minimum
Rent and other charges are paid in advance, if any, and (ii) acknowledging that
there are not, to Lessee's knowledge, any uncured defaults on the part of Lessor
hereunder, or specifying such defaults if any are claimed. Any such statement
may be relied upon by any prospective purchaser or encumbrancer of the Premises
or of all or any portion of the real property of which the Premises are a part.
Lessee's failure to deliver such statement within such time shall be conclusive
upon Lessee (i) that this Lease is in full force and effect, without
modification except as may be represented by Lessor, (ii) that there are not
uncured defaults in Lessor's performance, and (iii) that not more than one
month's rent has been paid in advance.
SECTION 11.02. ATTORNMENT. In the event any proceedings are brought
for the foreclosure of, or in the event of the
<PAGE> 30
conveyance by deed in lieu of foreclosure of, or in the event of exercise of the
power of sale under, any mortgage and/or deed of trust made by Lessor, covering
the Premises, or in the event Lessor sells, conveys or otherwise transfers its
interest in the Premises, Lessee hereby attorns to, and covenants and agrees to
execute an instrument in writing reasonably satisfactory to the new owner
whereby Lessee attorns to, such successor in interest and recognizes such
successor as the Lessor under this Lease.
SECTION 11.03. SUBORDINATION. Lessee agrees that this Lease shall, at
the request of the Lessor, be subordinate to any mortgages or deeds of trust
that may hereafter be placed upon the Premises and to any and all advances to be
made thereunder, and to the interest thereon, and all renewals, replacements and
extensions thereof, provided the mortgagees or beneficiaries named in said
mortgages or trust deeds shall agree to recognize the interest and rights of
Lessee under this Lease and not to disturb Lessee's possession of the Premises
in the event of foreclosure, whether by judicial proceeding or by exercise of
power of sale, if Lessee is not then in default hereunder. Lessee also agrees
that any mortgage or beneficiary may elect to have this Lease constitute a prior
lien to its mortgage or deed of trust, and, in the event of such election and
upon notification by such mortgagee or beneficiary to Lessee to that effect,
this Lease shall be deemed prior in lien to such mortgage or deed of trust,
whether this Lease is dated prior to or subsequent to the date of said mortgage
or deed of trust. Lessee agrees that upon the request of Lessor, or any
mortgagee or beneficiary, Lessee shall execute whatever instruments may be
required to carry out the intent of this Section 11.03.
SECTION 11.04. REMEDIES. Failure of Lessee to execute any statements
or instruments necessary or desirable to effectuate the foregoing provisions of
Section 11.03 within ten (10) days after written request so to do by Lessor,
shall constitute a breach of this Lease. In the event of such failure, Lessor,
in addition to any other rights or remedies it might have, shall have the right,
by not less than ten (10) days notice to Lessee to declare this Lease terminated
and the term ended, in which event this Lease shall cease and terminate on the
date specified in such notice; upon such termination Lessee shall vacate and
surrender the Premises, but shall remain liable as provided in this Lease by
reason of said breach.
ARTICLE XII. ASSIGNMENT AND SUBLETTING
SECTION 12.01. ASSIGNMENT AND SUBLETTING.
(a) Prohibition and Exceptions.
Notwithstanding any provision herein to the contrary or reference
herein to concessionaires or subtenants or otherwise, neither Lessee nor any
trustee, receiver or other successor to Lessee may assign or in any manner
transfer this Lease or any
<PAGE> 31
estate or interest therein, or sublet the Premises or any part or parts thereof
or any right or privilege appurtenant thereto, or allow anyone to conduct
business at, upon or from the Premises (whether as franchisee, licensee,
permittee, subtenant, operator or otherwise), or to come in, by, through or
under it, in all cases either by voluntary or involuntary act or by operation of
law or otherwise, without the prior written consent of Lessor. Lessor has
entered into this Lease with Lessee in order to obtain for the benefit of the
entire Development the unique attraction of Lessee's trade name set forth in
Item 1 of the Basic Lease Provisions and the services associated with Lessee's
business as described in Item 3 of the Basic Lease Provisions, and the foregoing
restriction on assignment or subletting is expressly agreed to by Lessee in
consideration of that fact. If Lessee is a corporation which, under the then
current guidelines published by the Commissioner of Corporations of the State of
California, is not deemed a public corporation, or is an unincorporated
association or partnership, the transfer, assignment or hypothecation of any
stock or interest in such corporation, association or partnership in the
aggregate in excess of twenty-five percent (25%) (other than by transfer (i) to
the parent of Lessee or any subsidiary of Lessee or Lessee's parent or (ii) to a
corporation into which Lessee may merge or consolidate provided that the
surviving corporation shall have a net worth at least equal to Lessee), whether
in one transaction or a series of transactions, shall be deemed an assignment
within the meaning and provisions of this Article XII. Lessee agrees to
reimburse Lessor for Lessor's reasonable costs and attorney's fees incurred in
connection with the processing and documentation of any such requested
assignment, subletting, transfer, change of ownership or hypothecation of this
Lease or Lessee's interest in and to the Premises.
(b) Required Information.
If Lessee desires at any time to assign this Lease or to sublet the
Premises or any portion thereof, Lessee shall first notify Lessor of its desire
to do so and shall submit in writing to Lessor: (i) the name of the proposed
subtenant or assignee; (ii) the nature of the proposed subtenant's or assignee's
business to be carried on in the Premises; (iii) the terms and provisions of the
proposed sublease or assignment; and (iv) such reasonable information as Lessor
may request concerning the proposed subtenant or assignee, including, but not
limited to, a balance sheet of the proposed subtenant or assignee as of a date
within ninety (90) days of the request for Lessor's consent, statements of
income or profit and loss of the proposed subtenant or assignee for the two-year
period preceding the request for Lessor's consent and a written statement in
reasonable detail as to the business experience of the proposed subtenant or
assignee during the five (5) years preceding the request for Lessor's consent.
(c) Elections of Lessor.
At any time within thirty (30) days after Lessor's receipt of the
information specified in Section 12.01 (b) above, Lessor may, by written notice
to Lessee, elect to (i) consent to
<PAGE> 32
the subletting or assignment upon the terms and to the subtenant or assignee
proposed; (ii) refuse to give its consent, specifying in reasonable detail the
reason(s) therefor; (iii) sublease the Premises or the Lessee's leasehold estate
hereunder or such part thereof as shall be specified in said notice upon the
same financial terms (excluding terms relating to merchandise, inventory, supply
contracts, the use of Lessee's name or the continuation of Lessee's business) as
those offered to the proposed subtenant or assignee, as the case may be; or (iv)
terminate this Lease as to the portion (up to all) of the Premises so proposed
to be subleased or assigned with a proportionate abatement in the rent payable
hereunder. Unless Lessor exercises its rights under clauses (iii) or (iv) above,
Lessor shall not unreasonably withhold its consent provided that the occupancy
resulting therefrom will not violate any rights theretofore given to any other
tenant of the Development and that substantially the same class and quality of
management and financial soundness is maintained and will continue to be
furnished in a manner compatible with the high standards contemplated under this
Lease, and, provided, further, at each and every covenant, condition or
obligation imposed upon Lessee by this Lease and each and every right, remedy or
benefit afforded Lessor by this Lease, is not thereby impaired or diminished. If
Lessor consents to such assignment or subletting, Lessee may thereafter within
ninety (90) days after the expiration of said thirty (30) day period enter into
a valid assignment or sublease of the Premises or portion thereof, upon the
terms and conditions described in the information required to be furnished by
Lessee to Lessor pursuant to Section 12.01(b) above or other terms not less
favorable to Lessee, provided, however, that any material change in the terms of
such subletting or assignment from those approved by Lessor shall be subject to
Lessor's consent as provided in this Section 12.01.
(d) No Release From Liability.
No subletting or assignment, even with the consent of Lessor, shall
relieve Lessee of its obligation to pay the rent and to perform all of the other
obligations to be performed by Lessee hereunder. The acceptance by Lessor of any
payment due hereunder from any other person shall not be deemed to be a waiver
by Lessor of any provision of this Lease or to be a consent to any assignment or
subletting. Consent by Lessor to one or more assignments of this Lease or to one
or more sublettings of the Premises shall not operate to exhaust Lessor's rights
under this Article XII.
(e) Right to Sublease Office Space.
Notwithstanding the provisions set forth above in this Article XII,
Lessee may sublease all or any portion of the Office Space (but not the Bank
Space) contained within the Premises from time to time, without the prior
written approval of Lessor, provided that each sublease meets the following
criteria:
(i) The sublease is upon a standard form approved in advance in
writing by Lessor, or any changes or deviations from such standard form
have been approved in advance in
<PAGE> 33
writing by Lessor;
(ii) Each sublease provides rent on a proportionate square footage
basis at least equal to rent hereunder or, if such rent on a proportionate
square footage basis is not at least equal to the rent hereunder, Lessor
approves the proposed use to which the Premises would be put and quality of
tenant (exclusive of financial suitability) after Lessee has provided the
information described in (v) below. In no event shall any such sublease relieve
Lessee of responsibility of full performance as to all terms, covenants and
conditions of this Lease with respect to such subleased area, including, without
limitation, full payment by Lessee to Lessor of the applicable annual Minimum
Rental then existing as provided herein;
(iii) Each sublease shall contain a provision that all plans and
specifications for tenant improvements within the interior of the subleased
area, and all structural alterations, modifications or repairs, shall be subject
to the prior approval of Lessor;
(iv) Each sublease shall include a provision permitting Lessor, at
its option, either to require attornment by sublessee or termination of the
sublease in the event of default by Lessee hereunder;
(v) Prior to executing any such sublease, Lessee shall identify
in reasonable detail, on a form submitted or approved by Lessor, the name of the
prospective sublessee, its principal place of business and mailing address, the
nature and extent of its business, and its principals; and
(vi) Promptly upon such subletting, Lessee shall provide Lessor
with a copy of the fully executed sublease.
ARTICLE XIII. WASTE
SECTION 13.01. WASTE OR NUISANCE. Lessee shall not commit or suffer to
be committed any waste upon the Premises, and shall not place a load upon any
floor of the Premises which exceeds the floor load per square foot which such
floor was designed to carry. Lessee shall not commit or suffer to be committed
any nuisance or other act or thing which may disturb the quiet enjoyment of any
other tenant of the Development. Lessee shall not use or permit to be used any
medium that might constitute a nuisance, such as loud speakers, sound
amplifiers, phonographs, radios, televisions, or any other sound producing or
other device which will carry sound or odors outside the Premises. Lessee agrees
that business machines and mechanical equipment used by Lessee which cause
vibration or noise that may be transmitted to the Building or buildings
comprising the Development, to such a degree as to be reasonably objectionable
to Lessor or to any tenant shall be placed and maintained by Lessee at its
expense in setting
<PAGE> 34
of cork, rubber or spring-type vibration isolators sufficient to eliminate such
vibrations or noise.
ARTICLE XIV. SIGNS; ADVERTISING
SECTION 14.01. SIGNS, ADVERTISING. Lessee shall have the right to
affix a sign to the exterior surface of the Premises and to place a monument
sign on the Building Parcel, which signs Lessee shall maintain in good condition
and repair during the entire term of this Lease. Said signs shall be in
substantially the location and of substantially the character, design and size
depicted on Exhibit F hereto, and shall otherwise conform to the general
criteria for signs established by Lessor. Except as hereinabove mentioned,
Lessee shall not, without the prior consent of Lessor, which consent will not be
unreasonably withheld, place or cause to be placed, erected or maintained on any
exterior door, wall, window or the roof of the Premises, or on the glass of any
window or door of the Premises, or on any sidewalk or other location outside the
Premises, or within any display window space in the Premises , or within twelve
(12) inches of the front of the leaseline of the Premises, whether or not there
is display window space in the Premises, or within any entrance to the Premises,
any sign, decal, placard, decoration, flashing, moving or hanging lights,
lettering or any other advertising matter of any kind or description; if Lessee
places or causes to be placed or maintained any of the foregoing without the
required consent of Lessor, the same may be removed by Lessor or Lessor's
representative without notice and without such removal constituting a breach of
this Lease or entitling Lessee to claim damages on account thereof. Lessor
acknowledges that Lessee intends to place on entrance doors to the Premises, on
walk-up facilities and night depositories, and on or in the location of drive-up
teller facilities, signs pertaining to (i) identification of entrances and
exits, (ii) hours of operation, (iii) instructions with respect to operation of
walk-up and drive-up teller facilities and night depositories and (iv)
information required by state and federal regulatory authorities; and Lessor
agrees that it will not unreasonably withhold its consent to such signs.
No symbol, design, name, mark or insignia adopted by Lessor for the
Development shall be used by Lessee without the prior written consent of Lessor.
No illuminated sign located in the interior of the Premises and which is visible
from the outside thereof shall be permitted without the prior written approval
of Lessor. All signs located in the interior of the Premises shall be in good
taste so as not to detract from the general appearance of the Premises and
Development. Lessee shall not, without the prior written approval of Lessor,
display or sell merchandise in, or otherwise obstruct, any area outside of the
Premises, nor solicit business in the parking or other common areas, nor
distribute any hand bills or other advertising matter in the parking area or in
other common areas.
<PAGE> 35
SECTION 14.02. ADVERTISED NAME AND ADDRESS. Lessee shall use the name
of the Development as its advertised business address. Lessee shall not use the
name of the Development for any purpose other than as the address of the
business to be conducted by Lessee in the Premises, and Lessee shall not acquire
any property right in or to any name which contains said word combination as a
part thereof. Any permitted use by Lessee of the name of the Development during
the term of this Lease shall not permit Lessee to use, and Lessee shall not use,
such words either after the termination of this Lease or at any other location.
ARTICLE XV. DESTRUCTION OF LEASED PREMISES
SECTION 15.01. RECONSTRUCTION OF DAMAGED PREMISES.
(a) If the Premises shall be partially or totally destroyed by
fire or other casualty, then the damage to the Premises shall be promptly
repaired by Lessor (unless Lessor shall elect not to rebuild as hereinafter
provided), whereupon, until the damage is so repaired, the annual Minimum Rent
shall be abated based on the extent to which such damage deprives Lessee of or
interferes with Lessee's reasonable use and enjoyment of the Premises or any
portion thereof. In no event shall Lessor be required to repair or replace
Lessee's merchandise, trade fixtures, furnishings or equipment.
(b) If (i) more than thirty-five percent (35%) of the Floor Area of
the Building in which the premises are located shall be damaged or destroyed by
fire or other casualty, (ii) during the last three (3) years of the term hereof,
more than fifteen percent (15%) of the Floor Area of the Premises or of the
Building in which the Premises are located shall be damaged or destroyed by fire
or other casualty, or (iii) all or any part of the Development or said Building
or the Premises are damaged or destroyed at any time by the occurrence of any
risk not fully insurable against under the standard form of fire and extended
coverage insurance policy in use in Orange County, California, then Lessor may
elect either to repair or restore the Building and/or Premises, as the case may
be, or, at its sole option, to terminate this Lease by giving written notice to
Lessee of Lessor's election to so terminate, such notice to be given within
ninety (90) days after the occurrence of such damage or destruction. If Lessor
is required or elects to repair or restore, Lessee, at Lessee's sole cost, shall
repair or replace Lessee's leasehold improvements, trade fixtures, furnishings
and equipment in a manner and to at least a condition equal to that prior to the
damage or destruction thereof. During the making of such repairs and restoration
by Lessor, the annual Minimum Rent shall be equitably abated based on the extent
to which such damage or destruction deprives Lessee of the reasonable use and
enjoyment of all or any portion of the Premises.
ARTICLE XVI. EMINENT DOMAIN
SECTION 16.01. TOTAL CONDEMNATION OF PREMISES. If the
<PAGE> 36
whole of the Premises shall be taken by any public authority under the power of
eminent domain or sold to public authority under threat or in lieu of such a
taking, then the term of this Lease shall cease as of the day possession shall
be taken by such public authority, and the rent shall be paid up to that day
with a proportionate refund by Lessor of such rent and other charges as may have
been paid in advance for a period subsequent to the date of the taking.
SECTION 16.02. PARTIAL CONDEMNATION. (a) If less than the whole but
more than twenty percent (20%) of the Premises or more than twenty percent (20%)
of the common facilities shall be so taken under eminent domain, or sold to
public authority under threat or in lieu of such a taking, Lessee shall have the
right either to terminate this Lease and declare the same null and void as of
the day possession is taken by public authority, or, subject to Lessor's right
of termination as set forth in Section 16.02(b), to continue in the possession
of the remainder of the Premises. Lessee shall notify Lessor in writing within
ten (10) days after such taking of Lessee's intention either to terminate this
Lease or to continue in possession of the remainder of the Premises. In the
event Lessee elects to remain in possession, all of the terms herein provided
shall continue in effect, except that as of the day possession is taken by
public authority, the annual Minimum Rent shall be reduced in proportion to the
amount of the Premises taken. Thereafter, Lessor shall, at its own cost and
expense, make all the necessary repairs or alterations to the Building and
Premises, so as to constitute the remaining Premises a complete architectural
unit, and Lessee, at Lessee's sole cost, shall similarly act with respect to
Lessee's improvements, trade fixtures, furnishings and equipment.
(b) If twenty percent (20%) or less of the Premises shall be so taken,
the Lease term shall cease only with respect to the part so taken as of the day
possession shall be taken by such public authority, and Lessee shall pay rent up
to that day, with appropriate refund by Lessor of such rent and other charges as
may have been paid in advance for a period subsequent to the date of the taking;
and thereafter the annual Minimum Rent shall be reduced in proportion to the
amount of the Premises taken. Lessor shall, at its expense, make all necessary
repairs or alterations to the Building and Premises, so as to constitute the
remaining Premises a complete architectural unit, and Lessee, at Lessee's sole
cost, shall similarly act with respect to Lessee's improvements, trade fixtures,
furnishings and equipment.
(c) If more than fifty percent (50%) of the Building in which the
Premises are located, or more than fifty percent (50%) of the Premises, or more
than fifty percent (50%) of the common facilities, shall be taken under power of
eminent domain, or sold to public authority under threat or in lieu of such a
taking, Lessor may, by written notice to Lessee delivered on or before the tenth
(10th) day following the date of surrendering possession to the public
authority, terminate this Lease as of the day possession
<PAGE> 37
is taken by public authority. The rent shall be paid up to the day possession is
taken by the public authority, with an appropriate refund by Lessor of such rent
and other charges as may have been paid in advance for a period subsequent to
that date.
SECTION 16.03. LESSOR'S AND LESSEE'S DAMAGES. All damages awarded for
such taking under the power of eminent domain or sale under threat or in lieu of
such a taking, whether for the whole or in a part of the Premises, shall belong
to and be paid to Lessor, except that Lessee shall be entitled to receive from
the award the following:
(a) A sum attributable to improvements or alterations made to the
Premises by or at the cost of Lessee;
(b) A sum attributable to any excess of the market value of the
Premises, exclusive of improvements or alterations for which
Lessee is compensated under this Section 16.03, for the remainder
of the term, over the present value at the date of taking of the
annual Minimum Rent payable for the remainder of the term of this
Lease; and
(c) A sum attributable to that portion of the award constituting
severance damages for the restoration of any improvements,
alterations and trade fixtures made to the Premises by or at the
cost of Lessee.
ARTICLE XVII. DEFAULTS; REMEDIES
SECTION 17.01. DEFAULTS. The occurrence of any one or more
of the following events shall constitute a default hereunder by Lessee:
(a) The abandonment of the Premises by Lessee. Abandonment shall
mean any absence by Lessee from the Premises for five (5) days or longer while
in default of any provision of this Lease.
(b) The failure by Lessee to make any payment of rent, additional rent
or other payment required to be made by Lessee hereunder, as and when due, where
such failure continues for at least ten (10) days after written notice thereof
by Lessor to Lessee; 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, et seq., as amended.
(c) The failure by Lessee to observe or perform any of the express or
implied covenants or provisions of this Lease to be observed or performed by
Lessee, other than as specified in (a) or (b) above, where such failure shall
continue for a period of thirty (30) days after written notice thereof from
Lessor to Lessee; 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 as amended;
<PAGE> 38
provided further, that if the nature of Lessee's default is such that more than
thirty (30) days are reasonably required for its cure, then Lessee shall not be
deemed to be in default if Lessee shall commence such cure within said thirty
(30) day period and thereafter diligently prosecute such cure to completion.
(d) Lessee's (i) application for, consent to, or suffering of, the
appointment of a receiver, trustee or liquidator or all or for a substantial
portion of its assets; (ii) making a general assignment for the benefit of
creditors; (iii) admitting in writing its inability to pay its debt or its
willingness to be adjudged a bankrupt; (iv) becoming unable to or failing to pay
its debts as they mature; (v) being adjudged a bankrupt; (vi) filing a voluntary
petition or suffering an involuntary petition under any bankruptcy, arrangement,
reorganization or insolvency law (unless in the case of involuntary petition,
the same is dismissed within thirty (30) days of such filing); (vii) convening a
meeting of its creditors or any class thereof for purposes of effecting a
moratorium, extension or composition of its debts; or (viii) suffering or
permitting to continue unstayed and in effect for ten (10) consecutive days any
attachment, levy, execution or seizure of all or a substantial portion of
Lessee's assets or of Lessee's interest in this Lease.
SECTION 17.02. REMEDIES.
(a) In the event of any default by Lessee as defined herein, Lessor
may exercise the following remedies:
(1) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession of the Premises to Lessor. In such event
Lessor shall be entitled to recover from Lessee:
(i) The worth at the time of award of the unpaid rent and
additional rent which had been earned at the time of termination;
(ii) The worth at the time of award of the amount by which the
unpaid rent and additional rent which would have been earned after
termination until the time of award exceeds the amount of such loss that
Lessee proves could have been reasonably avoided;
(iii) The worth at the time of award of the amount by which the
unpaid rent and additional rent for the balance of the term after the time
of award exceeds the amount of such loss that Lessee proves could be
reasonably avoided; and
(iv) Any other amount necessary to compensate Lessor for all the
detriment proximately caused by Lessee's failure to perform its obligations
under this Lease or which, in the ordinary course of things, would be
likely to result therefrom, including, but not limited to, the cost of
recovering possession of the Premises, expenses of reletting, including
necessary repair, renovation and alteration of the
<PAGE> 39
Premises, reasonable attorneys' fees, and any other reasonable costs.
The "worth at the time of award" of the amounts referred to in
subparagraphs (i) and (ii) above shall be computed by allowing interest at ten
percent (10%) per annum from the dates such amounts accrued to Lessor. The worth
at the time of award of the amount referred to in subparagraph (iii) above shall
be computed by discounting such amount at one (1) percentage point above the
discount rate of the Federal Reserve Bank of San Francisco at the time of award.
(2) Without terminating or affecting a forfeiture of this Lease
or otherwise relieving Lessee of any obligation hereunder, in the absence of
express written notice of Lessor's election to do so, Lessor may, but need not,
relet the Premises or any portion thereof at any time or from time to time and
for such terms and upon such conditions and rental as Lessor in its sole
discretion may deem proper. Whether or not the Premises are relet, Lessee shall
pay to Lessor all amounts required by Lessee hereunder up to the date that
Lessor terminates Lessee's right to possession of the Premises. Such payments by
Lessee shall be due at the times provided in this Lease, and Lessor need not
wait until the termination of this Lease to recover them by legal action or in
any other manner. If Lessor relets the Premises or any portion thereof, such
reletting shall not relieve Lessee of any obligation hereunder, except that
Lessor shall apply the rent or other proceeds actually collected by it for such
reletting against amounts due from Lessee hereunder to the extent such proceeds
compensate Lessor for non-performance of any obligation of Lessee hereunder.
Lessor may execute any lease made pursuant hereto in its own name, and the
Lessee thereunder shall be under no obligation to see to the application by
Lessor of any proceeds to Lessor, nor shall Lessee have any right to
collect any such proceeds. Lessor shall not by any re-entry or other act be
deemed to have accepted any surrender by Lessee of the Premises or Lessee's
interest therein, or be deemed to have terminated this Lease, or to have
relieved Lessee of any obligation hereunder, unless Lessor shall have given
Lessee express written notice of Lessor's election to do so as set forth herein.
(3) Lessor may terminate this Lease by express written notice to
Lessee of its election to do so. Such termination shall not relieve Lessee of
any obligation hereunder which has accrued prior to the date of such
termination. In the event of such termination, Lessor shall be entitled to
recover from Lessee the amounts determined pursuant to paragraph (1) above.
(b) Lessor shall be under no obligation to observe or perform any
covenant of this Lease on its part to be observed or performed which accrues
after the date of any default by Lessee hereunder.
(c) In any action for unlawful detainer commenced by Lessor against
Lessee by reason of any default hereunder, the
<PAGE> 40
reasonable rental value of the Premises for the period of the unlawful detainer
shall be deemed to be the amount of rent, additional rent and other charges
reserved in this Lease for such period, unless Lessor or Lessee shall prove to
the contrary by competent evidence.
(d) The rights and remedies reserved to Lessor herein, including those
not specifically described, shall be cumulative, and, except as provided by
California statutory law in effect at the time, Lessor may pursue any or all of
such rights and remedies at the same time or otherwise.
(e) No delay or omission of Lessor to exercise any right or remedy
shall be construed as a waiver of any such right or remedy or of any default by
Lessee hereunder. The acceptance by Lessor of rent or any additional rent
hereunder shall not be a waiver of any preceding breach or default by Lessee of
any provision hereof, other than the failure of Lessee to pay the particular
rent or any additional rent accepted, regardless of Lessor's knowledge of such
preceding breach or default at the time of acceptance of such rent or any
additional rent, or a waiver of Lessor's right to exercise any remedy available
to Lessor by virtue of such breach or default. The acceptance of any payment
from a debtor in possession, a trustee, a receiver or any other person acting on
behalf of Lessee of Lessee's estate shall not waive or cure a default under
Section 17.01(d) hereof.
SECTION 17.03. LEGAL EXPENSES. If either party incurs any expense,
including reasonable attorneys' fees, in connection with any action or
proceeding instituted by either party by reason of any default or alleged
default of the other party hereunder, the party prevailing in such action or
proceeding shall be entitled to recover its reasonable expenses from the other
party. For purposes of this Section 17.03, in any unlawful detainer or other
action or proceeding instituted by Lessor based upon any default or alleged
default by Lessee hereunder, Lessor shall be deemed the prevailing party if (a)
judgment is entered in favor of Lessor or (b) prior to trial or judgment Lessee
shall pay all or any portion of the rent and charges claimed by Lessor,
eliminate the condition(s), cease the act(s) or otherwise cure the omission(s)
claimed by Lessor to constitute a default by Lessee hereunder.
ARTICLE XVIII. ACCESS BY LESSOR
SECTION 18.01. RIGHT OF ENTRY. Lessor and its agents shall have free
access to the Premises (other than vaults or similar high security areas
therein) during all reasonable hours for the purposes of examining the same to
ascertain if they are in good repair, making reasonable repairs or installations
which Lessor may be required or permitted to make hereunder and exhibiting the
same to prospective purchasers or tenants.
<PAGE> 41
ARTICLE IX. HOLDING OVER
SECTION 19.01. HOLDING OVER. Any holding over after the expiration of
the term hereof with the consent of Lessor shall be construed to be a tenancy
from month to month (at 150% of the highest monthly rental herein specified,
including adjustments applicable at the date of expiration), and shall otherwise
be on the same terms and conditions herein specified.
ARTICLE XX. RULES AND REGULATIONS
SECTION 20.01. RULES AND REGULATIONS. Lessee agrees to comply with and
observe the rules and regulations set forth in Exhibit "E" attached hereto, as
well as such reasonable rules and regulations as may hereafter be established by
Lessor from time to time, provided the same shall apply uniformly to all tenants
of the Building. Lessee's failure to keep and observe said rules and regulations
shall constitute a breach of the terms of this Lease in the same manner as if
the rules and regulations were contained herein as covenants. In the case of any
conflict between said rules and regulations and this Lease, this Lease shall be
controlling.
ARTICLE XXI. QUIET ENJOYMENT
SECTION 21.01. LESSOR'S COVENANT. Upon payment by Lessee of the rents
herein provided, and upon the observance and performance of all the covenants,
terms and conditions on Lessee's part to be observed and performed, Lessee shall
peaceably and quietly hold and enjoy the Premises, for the term hereby demised
and subject to all of the terms and conditions hereof, without hindrance or
interruption by Lessor or any other person or persons lawfully or equitably
claiming by, through or under Lessor.
ARTICLE XXII. MISCELLANEOUS
SECTION 22.01. WAIVER. One or more waivers of any covenant or
condition by Lessor shall not be construed as a waiver of any subsequent breach
of the same covenant or condition, and the consent or approval by Lessor to or
of any act by Lessee requiring Lessor's consent or approval shall not be deemed
to render unnecessary Lessor's consent or approval to or of any subsequent
similar act by Lessee. No breach by Lessee of a covenant or condition of this
Lease shall be deemed to have been waived by Lessor unless such waiver is in
writing signed by Lessor. The rights and remedies of Lessor under this Lease
shall be cumulative and in addition to any and all other rights and remedies
which Lessor has or may have.
SECTION 22.02. ENTIRE AGREEMENT. This Lease and the Exhibits hereto
cover in full each and every agreement of every kind or nature whatsoever
between the parties hereto concerning the
<PAGE> 42
Premises, the Building and the Development, and all preliminary negotiations and
agreements of whatsoever kind with respect to the Premises, the Building and the
Development, except those contained herein, are superseded and of no further
force or effect; no person, firm or corporation has at any time had any
authority from Lessor to make any representations or promises on behalf of
Lessor and Lessee expressly agrees that if any such representations or promises
have been made by Lessor or others, Lessee hereby waives all right to rely
thereon. No verbal agreement or implied covenant shall be held to vary the
provisions hereof, any statute, law, or custom to the contrary notwithstanding.
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.
SECTION 22.03. RELATIONSHIP OF PARTIES, USE OF PRONOUNS. Nothing
contained herein shall be deemed or construed by the parties hereto, nor by any
third party, as creating the relationship of principal and agent or of
partnership or of joint venture between the parties hereto, it being understood
and agreed that neither the method of computation of rent, nor any other
provision contained herein, nor any acts of the parties herein, shall be deemed
to create any relationship between the parties hereto other than the
relationship of Lessor and Lessee. Whenever herein the singular number is used
the same shall include the plural, and the masculine gender shall include the
feminine and neuter genders.
SECTION 22.04. DELAYS. In the event that either party hereto shall be
delayed or hindered in or prevented from the performance of any work or in
performance any act required hereunder by reason of: strikes; lockouts; labor
troubles; inability to procure materials, labor or energy; failure of power;
disruption, reduction, interruption, curtailment or failure of utility, solid
waste disposal or other services; restrictive governmental laws or regulations
or other actions; court injunctions; voluntary or involuntary participation, at
the request of a governmental agency or otherwise, in any plan or program
involving allocations, priorities, limitations or restraints regarding water,
fuel or other energy, or otherwise; riots; insurrection; war; fires; floods;
earthquakes; storms; droughts; other acts of God; or any other reason of a
similar or dissimilar nature not the fault of the party delayed in performing
work or doing acts required under the terms of this Lease, then the performance
of such work or the doing of such act shall be excused for the period of the
delay, and the period for the performance of any work or the doing of such act
shall be extended for a period equivalent to the period of such delay. The
provisions of this Section 22.04 shall not operate to excuse Lessee from prompt
payment of annual Minimum Rent or any other payments required by the terms of
this Lease. Further, neither (i) Lessor's reduction of heat, light, air
conditioning, or any other services whatsoever to the Building because of any
similar or dissimilar event constituting a cause of excusable delay hereunder
nor (ii) the occurrence of any event constituting a cause for excusable delay,
<PAGE> 43
shall relieve Lessee from its obligations under Article V of this Lease.
SECTION 22.05. NOTICES. Any notice required or permitted to be given
hereunder shall be in writing and may be served personally or by mail; if served
by mail it shall be addressed as specified in Item 11 of the Basic Lease
Provisions. Any notice so given by mail shall be deemed effectively given when
deposited in the United States mail registered or certified, postage prepaid and
addressed as specified above. Either party may be written notice to the other
party specify a different address for notice purposes.
SECTION 22.06. CAPTIONS AND SECTION NUMBERS. The captions, section
numbers, article numbers, and index appearing in this Lease are inserted only as
a mater of convenience and in no way define, limit, construe, or describe the
scope or intent of such sections or articles of this Lease nor in any way affect
this Lease.
SECTION 22.07. BROKER'S COMMISSION. Lessee warrants that it has had no
dealings with any real estate broker or agent in connection with the negotiation
of this Lease except as specifically stated to the contrary in Item 10 of the
Basic Lease Provisions. Lessor and Lessee each agrees to indemnify the other
party and hold it harmless from all liabilities arising from any claim by any
other broker or finder allegedly representing the indemnifying party, including,
without limitation, the cost of attorneys' fees in connection therewith. Such
agreement shall survive the termination of this Lease.
SECTION 22.08. RECORDING. Lessor represents and warrants to Lessee
that no portion of the Building or the land on which the Building is to be
located is presently subject to any mortgage or deed of trust and agrees that
before any such mortgage or trust deed is executed or recorded with respect to
the Building and/or said land, Lessor and Lessee shall execute and record a
"short form" or memorandum of this Lease in form and substance reasonably
satisfactory to both parties.
SECTION 22.09. FURNISHING OF FINANCIAL STATEMENTS. Lessee shall
furnish Lessor, from time to time, with its published annual report, including
financial statements reflecting Lessee's current financial condition.
SECTION 22.10. TRANSFER OF LESSOR'S INTEREST. Subject to Section 23
hereof, Lessor may assign, hypothecate, or otherwise transfer all or any portion
of Lessor's interest in this Lease, the Premises, the Building or the Building
Parcel without Lessee's consent. In the event of any transfer or transfers of
Lessor's interest in the Premises, including a so-called sale-leaseback, the
transferor shall be automatically relieved of any and all obligations on the
part of Lessor accruing under this Lease from
<PAGE> 44
and after the date of such transfer, provided that the interest of the
transferor, as Lessor, in any funds then in the hands of Lessor in which Lessee
has an interest shall be turned over, subject to such interest, to the then
transferee and the transferee assumes all obligations on the part of Lessor
accruing under this Lease from and after the date of such transfer. No holder of
a mortgage and/or deed of trust to which this Lease is or may be subordinate,
and no lessor under a so-called saleleaseback, shall be responsible in
connection with the security deposited hereunder, unless such mortgagee or
holder of such deed of trust or lessor shall have actually received the security
deposited hereunder.
SECTION 22.11. FLOOR AREA. "Floor Area" as used in this Lease means,
with respect to any leasable area in the Development, the aggregate number of
square feet of floor space of the ground floor level therein, including
mezzanine space (if any), measured from (i) the outside faces of all perimeter
walls thereof other than any party wall separating such premises from other
leasable premises, (ii) the centerline of any such party wall, (iii) the outside
face of any interior wall, and (iv) the building and/or lease line adjacent to
any entrance to such premises. No deduction or exclusion from Floor Area shall
be made by reason of columns, ducts, or other interior construction or equipment
within the leasable area. "Net rentable" area or square feet as used in this
Lease shall include the Floor Area, exclusive of any common areas serving the
entire Building, such as public stairways, lobbies and the like.
SECTION 22.12. ACCORD AND SATISFACTION. No payment by Lessee or
receipt by Lessor of a lesser amount than the rent herein stipulated shall be
deemed to be other than on account of the earliest due stipulated 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 Lessor shall
accept such check or payment without prejudice to Lessor's right to recover the
balance of such rent or pursue any other remedy in this Lease provided.
SECTION 22.13. EXECUTION OF LEASE: NO OPTION. The submission of this
Lease to Lessee shall be for examination purposes only, and does not and shall
not constitute a reservation of or option for Lessee to lease, or otherwise
create any interest by Lessee in, the Premises. Execution of this Lease by
Lessee and return to Lessor shall not be binding upon Lessor notwithstanding any
time interval, until Lessor has in fact executed and delivered this Lease to
Lessee.
SECTION 22.14. CONTROLLING LAW. This Lease shall be governed by and
construed in accordance with the laws of the State of California. If any
provision of this Lease or the application thereof to any person or
circumstances shall, to any extent, be invalid or unenforceable, the remainder
of this Lease shall not be affected thereby and each provision of this Lease
shall be valid and enforceable to the fullest extent permitted by the law.
<PAGE> 45
SECTION 22.15. SUCCESSORS. All rights and liabilities herein given to,
or imposed upon, the respective parties hereto shall extend to and bind the
several respective heirs, executors, administrators, successors, and assigns of
the parties; and if there shall be more than one Lessee, they shall all be bound
jointly and severally by the terms, covenants and agreements herein. No rights,
however, shall inure to the benefit of any assignee of Lessee unless the
assignment to such assignee has been approved by Lessor in writing as provided
in Section 12.01 hereof.
SECTION 22.16. SPECIFIC PERFORMANCE OF LESSOR'S RIGHTS. Nothing
contained in this Lease shall be construed as or shall have the effect of
abridging the right of Lessor to obtain specific performance of any and all of
the covenants or obligations of Lessee under this Lease.
SECTION 22.17. CERTAIN RULES OF CONSTRUCTION. Time is of the essence
of this Lease. Lessee shall be fully responsible and liable for the observance
and compliance by its subtenants of and with all the terms and conditions shall
be applicable to such subtenants as fully as if they were the Lessee hereunder;
any failure by a subtenant of Lessee to fully observe and comply with the terms
and conditions of this Lease shall constitute a default hereunder by Lessee.
Nothing contained in the preceding sentence shall constitute a consent by Lessor
to any subletting or other arrangement proscribed by Section 12.01.
SECTION 22.18. CORPORATE AUTHORITY. Each individual executing this
Lease on behalf of each corporate party represents and warrants that he or she
is duly authorized to execute and deliver this Lease on behalf of said
corporation, and that this Lease is binding upon said corporation in accordance
with its terms. Lessee shall, at Lessor's requests, deliver a certified copy of
its board of directors' resolution authorizing such execution.
SECTION 22.19. SAFETY AND HEALTH. Lessee covenants at all times during
the term of this Lease to comply with the requirements of the Occupational
Safety and Health Act of 1970, 29 U.S.C. Section 651 et seq and any analogous
legislation in California (collectively the ("Act"), to the extent that the Act
applies to Lessee's operations within the Premises.
SECTION 22.20. SURRENDER OR CANCELLATION. The voluntary or other
surrender of this Lease by Lessee, or a mutual cancellation thereof, shall not
work a merger, and shall terminate all or any existing subleases, unless Lessor
elects to treat such surrender or cancellation as an assignment to Lessor of any
or all of such subleases.
SECTION 22.21. NONDISCLOSURE OF LEASE TERMS. Lessee acknowledges and
agrees that the terms of this Lease are confidential and constitute proprietary
information. Disclosure of the terms hereof could adversely affect the ability
of Lessor to
<PAGE> 46
negotiate other Leases with respect to the Development or other
projects and impair Lessor's relationship with other tenants of the Development
or other projects. Lessee agrees that it, and its officers, directors, employees
and attorneys shall not disclose the terms and conditions of this Lease to any
other person without the prior written consent of Lessor. It is understood and
agreed that damages would be an inadequate remedy for the breach of this
provision by any party hereto and, each of the parties hereto shall have the
right to specific performance of this provision and to injunctive relief to
prevent its breach or continued breach.
SECTION 22.22. INTERSTATE LAND SALES ACT. Lessor, recognizing that the
Premises consist of space in a building and that the Premises are either
completed or that Lessor has herein obligated itself to complete construction of
the Premises within a two-year period from the date of this Lease (except for
such work, furniture, furnishings and fixtures as Lessee is to supply), believes
that this Lease is exempt from the Interstate Land Sales Full Disclosure Act
(the "Act") Pursuant to the exemption provided by paragraph 1403(a)(3) of the
Act which reads as follows:
"The provisions of this chapter shall not apply (to) . . . (3)
the sale or lease of any improved land on which there is a residential,
commercial, or industrial building, or to the sale or lease of land under a
contract obligating the seller to erect such a building thereon within a
period of two years,"
Lessee, by its signature hereto, acknowledges that it has read and understands
such section.
SECTION 22.23. CHANGES REQUESTED BY LENDER. Neither Lessor nor Lessee
shall unreasonably withhold its consent to changes or amendments to this Lease
requested by any lender on Lessor's fee interest or on Lessee's leasehold
interest, as the case may be, so long as such changes do not alter the basic
business terms of this Lease or otherwise materially diminish the rights or
materially increase the obligations of the party from whom consent to such
change or amendment is requested.
ARTICLE XXIII. RIGHT OF FIRST REFUSAL.
SECTION 23.01. RIGHT OF FIRST REFUSAL. During the Initial Term of this
Lease, but provided that this Lease is still in effect, Lessee shall have the
right to acquire both the Building and the Building Parcel from Lessor, whether
by purchase or exchange, upon the same terms and conditions as are contained in
an offer made to Lessor by a bona fide third party which is independent and
not affiliated with Lessor, which offer has been accepted by Lessor subject only
to the exercise by Lessee of the right of
<PAGE> 47
first refusal granted under this Section 23.01. Lessee shall give Lessor notice
of exercise of such right of first refusal within fifteen (15) days after Lessor
shall give Lessee prompt written notice of any such third party offer. If Lessee
fails to give such notice, or if Lessee gives such notice but thereafter fails
to comply fully with all terms and conditions of such offer, the foregoing right
of first refusal shall entirely cease and terminate, and Lessor may thereafter
sell such property free of the foregoing right of first refusal. In addition,
Lessor may sell, exchange or otherwise transfer (collectively, "transfer") to a
bona fide third party either the Building or Building Parcel, separate and apart
from the other, or may transfer either or both of them either together with
additional properties as part of the same transaction, or as a direct exchange
with another owner of property in a two-party exchange transaction, whereupon in
any such event the foregoing right of first refusal shall cease and terminate.
Any such transfer of the Building or Building Parcel or both to an entity
controlled by or under common control with Lessor shall be free of the foregoing
rights, but shall thereafter be subject to such rights with respect to any
subsequent transfer to a third party. The foregoing rights shall not apply to
any Lease of the entire Building, the Building Parcel or both. Lessee's rights
of first refusal with respect to an exchange transaction shall only apply, if at
all, to a three-party transaction wherein Lessor may require a prospective
purchaser to acquire certain property designated by Lessor and owned by a third
party, for exchange with Lessor for both the Building and Building Parcel, on
all the same terms and conditions acceptable to Lessor as provided above.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease as of the day and
year first above written.
THE IRVINE COMPANY
By_________________________________
By_________________________________
TORONTO DOMINION BANK OF CALIFORNIA
By_________________________________
By_________________________________
<PAGE> 48
78369
LEGAL DESCRIPTION
BUILDING PARCEL
That portion of Parcel 1 in the City of Irvine, County of Orange, State of
California, as shown on the Map filed in Book 112, Pages 29 and 30, of Parcel
Maps in the Office of the County Recorder of said County, described as follows:
Beginning at the most Easterly corner of said Parcel 1; thence South
28(degree)48'10" West 138.00 feet along the Southeasterly line of said Parcel 1;
thence North 61(degree)11'50" West 49.00 feet; thence North 16(degree)ll'50"
West 115.00 feet; thence North 61(degree)11'50" West 72.00 feet; thence South
73(degree)48'10" West 46.50 feet; thence South 16(degree)11'50" East 51.00 feet;
thence South 73(degree)48'10" West 56.00 feet; thence North 61(degree)11'50"
West 60.00 feet; thence South 28(degree)48'10" West 142.00 feet; thence North
61(degree)11'50" West 39.00 feet; thence South 73(degree)48'10" West 82.00 feet;
thence North 61(degree)11'50" West 187.00 feet; thence North 16(degree)11'50"
West 114.00 feet; thence North 61(degree)11'50" West 21.86 feet to the
Northwesterly line of said Parcel 1; thence along said Northwesterly line of
Parcel 1 and the Northeasterly line of said Parcel l the following courses:
North 38(degree)57'58" East 39.60 feet, North 36(degree)26'20" East 273.71 feet,
North 85(degree)38'10" East 38.19 feet, South 49(degree)21'28" East 23.01 feet
to the beginning of a tangent curve, concave Northeasterly having a radius of
2050.00 feet, Southeasterly 447.10 feet along said curve through a central angle
of 12(degree)29'46", and South 61(degree)51'14" East 143.26 feet to the point of
beginning.
Containing an area of 166,617 square feet, more or less.
Subject to covenants, conditions, reservations, restrictions, rights of way and
easements, if any, of record.
<PAGE> 49
TORONTO DOMINION BANK
EXHIBIT "C"
LESSOR'S AND LESSEE'S IMPROVEMENTS
1. LESSOR'S IMPROVEMENTS:
Lessor will provide, at its cost, the following work performed to customary
standards for first-class office buildings.
(a) Finished exterior walls, exterior doors and windows.
(b) Building lobby and public areas to be used in common with other
tenants. Building lobby shall be finished with quality architectural
materials comparable to first-class office buildings owned by Lessor
in Executive Park located at MacArthur Blvd., in the City of Irvine,
California.
(c) Required stairways and enclosures for stairways to be used in common
with other tenants. Common stairwell walls shall be finished and
painted.
(d) All on-site construction, including but not limited to, side walks,
paving, curbs and exterior landscaping within the limits of the
Building Parcel, but excluding Lessee's drive-up teller units and
ingress and egress lanes therefor.
(e) All electrical panels sized for Lessee's Improvements connected to
centrally located equipment room.
(f) All telephone back board spaces provided for Lessee's Improvements
connected to centrally located equipment room.
(g) Variable air volume main duct system with economizer system and hot
water piping loop for Lessee's Improvements.
(h) Rough plumbing for development of restrooms in the leased Premises.
(i) Separate meters for all Lessee's utilities except heating and air
conditioning.
(j) Structural columns, beams, floor and ceiling slabs.
Structural frame shall be so designed as to accommodate structural
requirements of the normal office type usage. Any revisions to the
structure required by Lessee for vault, night depositories, etc., will
be borne by Lessee pursuant to Section 3(b) below.
<PAGE> 50
All of the above Lessor's Improvements listed, excluding Item (d), shall
constitute the Building Shell.
2. LESSEE'S IMPROVEMENTS:
Lessee will provide, at its cost, the following work:
(a) Paneling, interior partitions with doors and hardware.
(b) Development of restrooms, electrical, mechanical and janitor rooms for
exclusive use of Lessee, including but not limited to walls, ceiling,
doors, ceramic tile, toilet partitions, finish fixtures and other
accessories.
(c) All fixtures and partitions within the Premises.
(d) All vault structures, door, vault equipment, protective equipment and
burglar alarms, and night depositories.
(e) Ceilings and light fixtures.
(f) Floor coverings and drapes.
(g) Electrical and air conditioning distribution in the leased Premises.
(h) All other items required by Lessee and not included in Lessor's
Improvements above.
(i) Drive-up teller units and ingress and egress lanes therefor, together
with any special structural requirements to the Building Shell
necessary for the operation of the teller units.
Lessor shall contribute an amount equal to $14.00 per net square foot of
Lessee's leased Premises towards the total cost of Lessee's Improvements.
In the event Lessor shall construct Lessee's Improvements, all costs in
excess of $14.00 per net square foot shall be payable by Lessee to Lessor
upon demand. In the event Lessee elects to construct Lessee's Improvements,
Lessor's contribution provided above shall be paid by Lessor to Lessee when
Lessee opens for business in the Premises.
3. PAYMENT OF CONSTRUCTION COSTS - Lessee's Share
For purposes of Section 3.04 of the Lease, Lessee's percentage share or
prorata percentage share of Shell Costs, Lessee's Improvements Costs and
On-Site Costs (as defined in Section 3.03 of the Lease) shall be as
follows:
<PAGE> 51
(a) 52.6% of all Shell Costs excluding matters covered in (b) below
(estimated percentage, subject to adjustment based on actual square
footage of the Premises as reflected on Exhibit "C-1" referred to in
Section 1.01 of the Lease);
(b) 100% of all Shell Costs for the ground floor of the Building which are
directly attributable to Lessee's specific structural requirements;
(c) 100% of all Lessee's Improvements Costs, including drive up teller
facilities and ingress and egress lanes therefor;
(d) 60% of all On-Site Costs (based on Lessee's prorata share of estimated
parking area, plus land area beneath drive-up teller units and car
lanes therefor within the common facilities).
<PAGE> 52
EXHIBIT "D"
ADDENDUM FOR ACTUAL
TERM OF COMMENCEMENT DATE
Pursuant to Section 1.02 of that certain Lease dated ______________,
19 _, between THE IRVINE COMPANY, a Michigan corporation, as Lessor, and TORONTO
DOMINION BANK OF CALIFORNIA, as Lessee, the parties hereby agree as follows:
1. The Initial Term of said Lease commenced
as of ___________________.
2. The Expiration Date of the term shall be
____________________.
3. Date of commencement of Minimum Rent shall be
____________________.
IN WITNESS WHEREOF, the parties hereto have executed this Addendum as
of _____________, 19___.
THE IRVINE COMPANY TORONTO DOMINION BANK OF
550 Newport Center Drive CALIFORNIA
Newport Beach, CA 92663 114 Sansome Street
San Francisco, CA 94104
By______________________ By______________________
By______________________ By______________________
"Lessor" "Lessee"
<PAGE> 53
EXHIBIT "E"
RULES AND REGULATIONS
ATTACHED TO AND MADE A PART OF OFFICE SPACE LEASE
1. Except with the prior written consent of the Lessor, no Lessee
shall sell, or permit the sale at retail, of newspapers, magazines, periodicals,
or theater tickets, in or from the Premises, nor shall any Lessee carry on, or
permit or allow any employee or other person to carry on, the business of
stenography, typewriting or any similar business in or from the Premises for the
service or accommodation of occupants of any other portion of the building, or
any manufacturing of any kind, or the business of a public barber shop, beauty
parlor, or a manicuring and chiropodist business, or any business other than
that specifically provided for in the Lessee's lease.
2. No Lessee shall obtain for use upon the Premises ice, towel and
other similar services, or accept barbering or boot-blacking services in the
Premises, except from persons authorized by the Lessor and at hours and under
regulations fixed by the Lessor.
3. The sidewalks, halls, passages and stairways shall not be
obstructed by any of the Lessees or used by them for any purpose other than for
ingress to and egress from their respective Premises. The halls, passages,
entrances, stairways, balconies and roof are not for the use of the general
public, and the Lessor shall in all cases retain the right to control and
prevent access thereto of all persons whose presence in the judgment of the
Lessor shall be prejudicial to the safety, character, reputation and interests
of the building and its lessees, provided that nothing herein contained shall be
construed to prevent such access to persons with whom the Lessee normally deals
in the ordinary course of business unless such persons are engaged in illegal
activities. No Lessee and no employees of any Lessee shall go upon the roof of
the building without the written consent of the Lessor.
4. The sashes, sash doors, windows, glass lights, and any lights or
skylights that reflect or admit light into the rooms, halls or other places of
the building shall not be covered or obstructed. The toilet rooms, water and
wash closets and other water apparatus shall not be used for any other purpose
other than that for which they were constructed, and no foreign substance of any
kind whatsoever shall be thrown therein, and the expense of any breakage,
stoppage or damage resulting from the violation of this rule shall be borne by
the Lessee who, or whose clerks, agents, employees, or visitors, shall have
caused it.
5. No sign, advertisement or notice visible from the exterior of the
Premises shall be inscribed, painted or affixed by the Lessee on any part of the
building or the Premises without the
<PAGE> 54
prior written consent of the Lessor. If the Lessor shall have given such consent
at any time, whether before or after the execution of the lease, such consent
shall in no way operate as a waiver or release of any of the provisions hereof
or of this lease, and shall be deemed to relate only to the particular sign,
advertisement or notice so consented to by the Lessor and shall not be
construed as dispensing with the necessity of obtaining the specific written
consent of the Lessor with respect to each and every such sign, advertisement or
notice other than the particular sign, advertisement or notice, as the case may
be, so consented to by the Lessor. If the Lessor, by a notice in writing to the
Lessee, shall object to any curtain, blind, shade or screen attached to, or hung
in, or used in connection with, any window or door of the Premises, such use of
such curtain, blind, shade or screen shall be forthwith discontinued by the
Lessee. No awnings shall be permitted on any part of the Premises.
6. The Lessee shall not do or permit anything to be done in the
Premises, or bring or keep anything therein, which shall in any way increase the
rate of fire insurance on the building, or on the property kept therein, or
obstruct or interfere with the rights of other lessees, or in any way injure or
annoy them; or conflict with the regulations of the Fire Department or the fire
laws, or with any insurance policy upon the building, or any part thereof, or
with any rules and ordinances established by the Board of Health or other
governmental authority.
7. The Lessor shall have power to prescribe the weight and position of
safes or other large or heavy objects which shall, if considered necessary by
the Lessor, stand on three-inch thick wood strips to distribute the weight. The
moving of safes shall occur only between such hours as may be designated by, and
only upon previous notice to, the manager of the building and the persons
employed to move safes in or out of the building must be acceptable to the
Lessor. No freight, furniture or bulky matter of any description shall be
received into the building except during hours and in a manner approved by the
Lessor.
8. The Lessee shall clean the Premises as provided in Section 8.02 of
Article VIII of the lease and, except with the written consent of the Lessor, no
person or persons other than those approved by the Landlord will be permitted to
enter the building for such purpose.
9. No lessee shall sweep or throw or permit to be swept or thrown from
the Premises any dirt or other substance into any of the corridors or halls, or
out of the doors or windows or stairways of the building, and the Lessee shall
not use, keep or permit to be used or kept any foul or noxious gas or substance
in the Premises, or permit or suffer the Premises to be occupied or used in a
manner offensive or objectionable to the Lessor or other occupants of the
building by reason of noise, odors and/or vibrations, or interfere in any way
with other lessees or those having business therein, nor shall any animals or
birds be kept in or about the building.
<PAGE> 55
10. No cooking shall be done or permitted by Lessee on the Premises,
nor shall offices in the building be used for the storage of merchandise or for
lodging.
11. The Lessee shall not use or keep in the building any kerosene,
gasoline, or inflammable fluid or any other illuminating material, or use any
method of heating other than that supplied by the Lessor.
12. If the Lessee desires telephone or telegraph connections, the
Lessor will direct electricians as to where and how the wires are to be
introduced. No boring or cutting for wires or otherwise shall be made without
directions from the Lessor.
13. Each Lessee upon the termination of the tenancy, shall deliver to
the Lessor all the keys of offices, rooms and toilet rooms which shall have been
furnished the Lessee or which the Lessee shall have had made, and in the event
of loss of any keys so furnished, shall pay the Lessor therefor.
14. No Lessee shell lay linoleum 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 or other similar floor covering to the
floor, as well as the method of affixing carpets or rugs to the Premises, shall
be subject to approval by the Lessor. The expense of repairing any damage
resulting from a violation of this rule shall be borne by the Lessee by whom, or
by whose agents, clerks, employees or visitors, the damage shall have been
caused.
15. No furniture, packages or merchandise will be received in the
building except between such hours as shall be designated by the Lessor.
16. On Saturdays, Sundays and legal holidays, and on other days
between the hours of 6 p.m. and 8 a.m., access to the building, or to the halls,
corridors, or stairways in the building, or to the Premises may be refused
unless the person seeking access is known to the building watchman, if any, in
charge and has a pass or is properly identified. The Lessor shall in no case be
liable for damages for the admission to or exclusion from the building of any
person whom the Lessor has the right to exclude under Rule 3 above. In case of
invasion, mob, riot, public excitement, or other commotion, the Lessor reserves
the right to prevent access to the building during the continuance of the same
by closing the doors or otherwise, for the safety of the Lessees and protection
of property in the building.
17. Lessee shall see that the windows, transoms and doors of the
Premises are closed and securely locked before leaving the building and must
observe strict care not to leave windows open
<PAGE> 56
when it rains and Lessee shall exercise extraordinary care and caution that all
water faucets or water apparatus are entirely shut off before Lessee or Lessee's
employees leave the building, and that all electricity, gas or air shall
likewise be carefully shut off, so as to prevent waste or damage, and for any
default or carelessness Lessee shall make good all injuries sustained by other
lessees or occupants of the building or Lessor.
18. The Lessee shall not alter any lock or install a new or additional
lock or any bolt on any door of the Premises without prior written consent of
the Lessor. If the Lessor shall give its consent, the Lessee shall in each case
furnish the Lessor with a key for any such lock.
19. Lessee shall not install equipment such as but not limited to
electronic tabulating or computer equipment, requiring electrical or
air-conditioning service in excess of those to be provided by Lessor under
Section 8.01 of the Lease.
<PAGE> 57
EXHIBIT "F"
ADDENDUM to Article 14, Section 14.01 - Signs and Advertising.
Subject to the prior approval of any governmental agency having jurisdiction,
and prior approval by Lessor, Lessee may place, or cause to be placed, the
following identification signs, or monuments as indicated. All of such signs, or
monuments shall be of a color, size, material, type, appearance and style
conforming to the established aesthetic standards governing signs for the entire
Development.
1. Redhill elevation on second story as depicted in attached
drawings identified as Exhibit "F-a" on the east end of the
elevation.
a. "TORONTO DOMINION BANK" - Individual illuminated letters of the same
height of comparable signs in the Development, but Lessor may not
require that they be less than 18".
2. Main Street elevation on second story as depicted in attached drawings
identified as Exhibit "F-a" on the south end of the elevation.
a. "TORONTO DOMINION BANK" - Individual illuminated letters of same height,
of comparable signs in the Development, but Lessor may not require that
they be less than 18".
b. Provided Lessor does not locate its Development Monument sign on the
Building Parcel at the corner of Redhill and Main Streets, Lessee may
locate its monument sign on the landscaped strip along the Main Street
elevation.
3. Southwest elevation.
a. "TORONTO DOMINION BANK" - Individual illuminated letters approximately
6" in height built into the design of the main entrance to provide
identification from the Development. This sign may include Toronto
Dominion logo.
b. The following signs on the built-in units only:
"Walk-up Teller"
"Night Depository"
"24-Hour Banking"
Signs necessary to identify these elements will be incorporated in the
design of the southwest elevation.
4. Motor Banking Facility.
a. "Toronto Dominion Bank Motor Banking" - (or similar wording)
<PAGE> 58
The size of individual illuminated letters for the above shall be compatible
with the approved design of the drive-up facility.
b. Directional Signs.
Directional signs shall be provided either by the Lessee or under the
Development's graphics program to clearly and adequately direct
customers to the motor banking facility from the Main Street entrance to
the Development.
5. General.
In all cases, Toronto Dominion Bank reserves the right to add "of
California" to any sign if required by the State Banking Commission. It is the
intention of Lessee that if this is required, these letters will be smaller than
the main sign and shall not be illuminated, all as subject to the prior approval
of Lessor.
<PAGE> 1
EXHIBIT 10.5
OFFICE LEASE
HARBOR BANK
(Plaza Level)
This lease is made on MARCH 11 , 1983, between GOLDEN SHORE PROFESSIONAL
BUILDING, a partnership ("Landlord") and HARBOR BANK, a banking corporation
("Tenant").
LEASE OF PREMISES
Landlord hereby leases to Tenant and Tenant hereby hires from Landlord,
subject to all of the terms and conditions hereinafter set forth, those certain
premises (hereinafter called the "premises") shown in the drawing attached
hereto as Exhibit A and located on the ground floor of that certain office
structure constructed on certain land, all as set forth in Item 1 of the Basic
Lease Provisions, which land has also been improved with landscaping, parking
facilities and other improvements, all of which, together with the office
structure and underlying land, are referred to collectively herein as "the
Building".
BASIC LEASE PROVISIONS
1. Building Name: GOLDEN SHORE PROFESSIONAL BUILDING
Address: 11 Golden Shore Drive
Long Beach, CA 90802
2. Tenant's Rentable Area: 7,456 square feet
3. (a) Tenant's Proportionate Share (Percentage): 7.16%
(Tenant's Rentable Area divided by 104,129
square feet)
(b) Tenant's Proportionate Share of HVAC
(Percentage): 7.16%
4. Basic Monthly Rent $12,451.52 ($1.67 per square foot)
5. Landlord's estimate of Tenant's share of Building Operating Expenses
during the first year of occupancy $5.00 per sq. ft. rentable area.
(See Section 4.04, this is an estimate only and is subject to
adjustment.)
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6. Term: 20 years and 1 month.
Commencement Date: 12-1-82
Expiration Date: 12-31-2002
7. Security Deposit: $ 12,451.52
Liability Insurance: $1,000,000 CSL, $3,000,000 umbrella.
8. Address for Payment and Notices:
Landlord: c/o Aspen Pacific
11 Golden Shore Dr., Suite 220
Long Beach, CA 90802
Tenant: Office of the President
Harbor Bank
11 Golden Shore Dr., Suite 600
Long Beach, CA 90802
IN WITNESS WHEREOF, the parties hereto have executed this lease, consisting
of the foregoing provisions and Article 1 through 38 which follow, as of the
date written above.
GOLDEN SHORE PROFESSIONAL BUILDING,
a partnership
By /s/ KENT HEYL
--------------------------------
By /s/ GEORGE M. MURCHISON
--------------------------------
"Landlord"
HARBOR BANK, a banking corporation
By /s/ ROBERT TURICCHI
--------------------------------
By /s/ JANE J. NETHERTON
--------------------------------
"Tenant"
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ADDITIONAL LEASE PROVISIONS
ARTICLE 1
Term
The term of this lease is shown in Item 6 of the Basic Lease Provisions.
This lease is effective retroactive to the commencement date shown in Item 6.
ARTICLE 2
Rent
2.01. Tenant shall pay a basic monthly rent for the premises in the amount
shown in Item 4 of the Basic Lease Provisions payable on the first day of each
month in advance, except that if the commencement date occurs on a day other
than the first day of a month, then the basic monthly rent for the fraction of
the month starting with the commencement date shall be paid on said commencement
date, prorated on the basis of a 30-day month. If the term hereof ends on a day
other than the last day of a month, then the basic monthly rent for the month
during which termination or expiration occurs shall be prorated on the basis of
a 30-day month. In addition to said basic monthly rent, Tenant agrees to pay
additional rent as and when hereinafter provided in this lease. Said basic
monthly rent and additional rent are hereinafter sometimes referred to
collectively as the "rent". The rent shall be payable to landlord without
deduction or offset, in lawful money of the United States of America at the
address for Landlord as shown in Item 8 of the Basic Lease Provisions, or to
such other person or at such other place as Landlord may from time to time
designate in writing.
ARTICLE 3
Definitions of Certain Terms Relating To
Operating Expense Adjustment
For purposes of this lease, the following definitions shall apply:
3.01. "Full Floor Rentable Area" is the total square footage of the floor
area of a full floor, of the Building measured from glass lines to glass lines,
less only elevator shafts, stair shafts, and smoke and mechanical shafts serving
the entire Building.
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3.02. "Building Chargeable Area" shall be the sum of the Full Floor
Rentable Areas of Floors 2 through 6, plus the Ground Floor Chargeable Area.
3.03. "Ground Floor Chargeable Area" shall be the Full Floor Rentable Area
of the ground floor of the Building, excluding the ground floor Building lobby;
3.04. "Tenant's Rentable Area" is the area of Tenant's bank suite, measured
from the glass line to the office side of adjacent corridors and/or lobby and to
the center line of demising walls without deduction for columns or partitions,
plus that portion of the area of the telephone room on the ground floor
multiplied by a fraction, the numerator of which is the area of Tenant's bank
suite and the denominator of which is the Ground Floor Chargeable Area.
3.05. "Tenant's Proportionate Share" is that percentage shown in Item 3a of
the Basic Lease Provisions, and is computed by dividing Tenant's Rentable Area
by the Building Chargeable Area.
3.06. "Building Operating Expenses" are defined as those expenses necessary
to operate and maintain the building in a manner deemed reasonable and
appropriate and for the best interests of the tenants in the building, including
the following:
A. Wages, salaries and fringe benefits of all employees engaged in the
operation and maintenance of the building; employer's social security taxes,
unemployment taxes or insurance, and any other taxes which may be levied on such
wages and salaries; the cost of disability and hospitalization insurance and
pension or retirement benefits for such employees;
B. All supplies and materials used in operation and
maintenance of the building;
C. Except as to those assessments for electricity which are
specifically covered by Sections 4.01 and 4.02 below, cost of all utilities used
in connection with the Building including water, heating, air conditioning and
ventilating the Building and of waste, trash and sewage disposal;
D. Cost of replacement of equipment and all maintenance and
service agreements on equipment, including, without limitation, alarm
service, building mechanical equipment, window cleaning and elevator
maintenance;
E. Cost of casualty and liability insurance applicable to the
building and Landlord's personal property used in connection therewith;
F. Cost of repairs, general maintenance, including, without
limitation, all janitorial services and supply contracts
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and all other service and maintenance contracts pertaining to the Building;
however, if Tenant furnishes its own janitorial services to the premises, only
that percentage of charges for janitorial services attributable to the "common
facilities" (as that term is defined in Section 4.02 infra) shall be included
for purposes of this definition; provided that any janitorial services furnished
by Tenant shall be reasonably acceptable to Landlord, shall conform to building
standards respecting maintenance, and shall be performed only during the hours
when the building is generally available for janitorial services;
G. Any capital improvements made or installed after completion of the
building for purposes of saving labor or otherwise reducing applicable operating
costs, with annual charges not to exceed the aggregate estimated cost savings
annualized on a straight line basis over the useful life of the capital improve-
ments as determined by Landlord in accordance with generally accepted accounting
principles and practices in effect at the time of acquisition of the capital
item;
H. All taxes and assessments and governmental charges whether by
federal, state, county or municipal taxing districts or authorities or by
others, subsequently created or otherwise, and any other taxes and assessments
attributable to the Building, or its operation, including, without limitation,
any tax or other levy, however denominated, on or measured by the rental
collected by Landlord with respect to the Building, on Landlord's business or
leasing the Building or on the number of persons employed and/or working in the
Building, but excluding federal and state taxes on income. If Tenant and other
tenants in the Building, who together occupy more than 50% of the Building
Chargeable Area, at any time request that Landlord seek a reduction in the
assessed valuation of the Building, or contest any real property taxes levied or
assessed against the Building, Landlord shall seek such reduction in valuation,
or contest such levy or assessment, in accordance with the following:
1. Landlord shall not be required to withhold payment of any levy or
assessment if at any time any part of the Building is in immediate danger of
being forfeited or sold because of nonpayment of any levy or assessment.
2. The tenants requesting the contest shall pay all of the costs
associated with the contest including, without limitation, attorneys' fees and
expenses associated therewith.
I. Cost of all accounting and other professional fees incurred
in connection with the operation of the building; and
J. A management fee, not to exceed four percent(4%) of the
gross income from the building, which may be payable to landlord.
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Notwithstanding the foregoing, Building Operating Expenses shall not include
expenses for which the Landlord is reimbursed or indemnified other than pursuant
to Article 4 below; expenses incurred in leasing space or procuring tenants
(including, without limitation, lease commissions, advertising expenses, legal
expenses, and expenses of renovating space for tenants); legal expenses arising
out of disputes with tenants or the enforcement of the provisions of any lease
of space in the building; interest or amortization payments on any mortgage or
mortgages, and rental under any ground or underlying lease or leases (except
that such portion of said lease payments equal to taxes imposed upon the Land,
or upon the rental collected, or upon the business of leasing real property, or
any other tax, however denominated, imposed in addition to or in lieu of such
taxes, other than federal or state income taxes, shall be included as a part of
the operating costs); wages, salaries or other compensation paid to any
executive employees above the rank of building manager; the cost of any work or
service performed for or facilities furnished to a tenant at the tenant's cost;
the cost of correcting defects (latent or otherwise) in the construction of the
building or in the building equipment, except those conditions (not occasioned
by construction defects) resulting from ordinary wear and tear shall not be
deemed defects; the cost of installing, operating and maintaining any specialty
improvement including, without limitation, any observatory or broadcasting
facility, cafeteria or dining facility, or athletic, luncheon or recreational
club, and any costs or expenses representing an amount paid to a related entity
which is in excess of the amount which would be paid in the absence of such
relationship; cost of capital improvements and depreciation or amortization
(except as otherwise provided in Section 3.06G above or elsewhere herein.)
ARTICLE 4
Utilities, Services, Operating Expenses
4.01. So long as Tenant is not in default hereunder, Landlord shall furnish
to the premises between the hours of 7:00 a.m. and 7:00 p.m., Monday through
Friday, and between the hours of 8:00 a.m. and 1:00 p.m. Saturday, except legal
holidays, such amounts of air conditioning, heating and ventilation as may be
reasonably required for the use and occupation of the premises, taking into
consideration at any given time the availability of energy resources and prudent
energy conservation practices. Tenant shall reimburse Landlord monthly for the
percentage of all costs of air conditioning, heating and ventilation provided to
all premises in the Building shown in Item 3b of the Basic Lease Provisions.
This percentage is based upon the estimated differential heat load and cubic air
volume required for the premises and all other premises in the Building. If any
lights, machines or equipment (including but not limited to computers) are used
by Tenant in the premises
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which materially affect the temperature otherwise maintained by the air
conditioning system, or generates substantially more heat in the premises than
would be generated by the Building Standards lights and usual fractional
horsepower office equipment, Landlord shall have the right to install any
machinery and equipment which Landlord reasonably deems necessary to restore
temperature balance, including but not limited to modifications to the standard
air conditioning equipment, and the cost thereof, including the cost of
installation and any additional cost of operation and maintenance occasioned
thereby, shall be paid by Tenant to Landlord upon demand by landlord. During
other hours Landlord will provide such air conditioning, heating and ventilation
upon not less than 24 hours advance notice from Tenant to Landlord, and Tenant,
upon presentation of a bill therefor, shall pay Landlord for such service on an
hourly basis at the then prevailing rates therefor as established by Landlord.
If such service is not a continuation of that furnished during regular business
hours, Tenant shall pay for a minimum of three (3) hours of such service. The
premises shall be separately metered for all electric current provided to the
premises; the cost of any such meter and of installation, maintenance and repair
thereof shall be paid for by Tenant and Tenant agrees to pay Landlord promptly
upon demand by Landlord for all such electric current consumed for any such use
as shown by said meter, at the rates charged for such services by the local
public utility furnishing the same, plus any additional expense incurred in
keeping account of the electric current so consumed. Tenant shall pay all
charges for such utility service to the premises. If any such charges are not
paid when due, Landlord may pay the same, and any amount so paid by Landlord
shall thereupon become due to Landlord from Tenant as additional rent. Landlord
may impose a reasonable charge for any utilities or services required to be
provided by Landlord by reason of any substantial recurrent use of the premises
at any times other than the hours of 7:00 a.m. to 7:00 p.m. Monday through
Friday, and 8:00 a.m. to 1:00 p.m. Saturday, excluding legal holidays. Landlord
shall not be liable for, and Tenant shall not be entitled to terminate the lease
or to any reduction of the rental provided for hereunder, by reason of
Landlord's failure to furnish any of the foregoing or by reason of any reduction
in the amount or level of any of the foregoing when such failure or reduction is
caused or mandated by accident, breakage, repairs, strikes, lockouts or other
labor disturbances or labor disputes of any character, or any law, regulation,
rules, ordinance or court order limiting or restricting the usability or
consumption of utility items such as gas, water or electricity or by any other
cause, similar or dissimilar, beyond the reasonable control of Landlord.
Landlord shall not be liable under any circumstances for any loss of or injury
to property, business or goodwill, however occurring, through or in connection
with or incidental to failure to furnish any of the foregoing.
4.02. So long as Tenant is not in default hereunder, Landlord agrees to
operate and maintain during the term of this
<PAGE> 8
lease all common facilities within the Building. All areas within the exterior
boundaries of the Building which are not now or hereafter held for exclusive use
by persons entitled to occupy floor space in the Building, including, without
limiting the generality of the foregoing, parking areas, driveways, truckways,
delivery passages, loading docks, sidewalks, ramps, landscaped and planted
areas, exterior stairways, hallways and interior stairwells not located within
the premises of any tenant, elevators, bus stops, retaining walls, restrooms not
located within the premises of any tenant, and other areas and improvements
provided by Landlord for the common use of Landlord and tenants and their
respective employees and invitees, shall be deemed "common facilities". Landlord
may make changes at any time and from time to time in the size, shape, location,
number and extent of the common facilities or any of them, and no such change
shall entitle Tenant to any abatement of rent. Tenant shall reimburse Landlord
monthly for Tenant's Proportionate Share of all electric current provided to the
common facilities. If the same is not separately metered, that percentage of
total charges for all electric current consumed in the Building (excluding
Tenant's separately metered charges) estimated from time to time by the Southern
California Edison Company, or Landlord's electrical engineer (at Landlord's
election) as attributable to the common facilities shall be used in making this
computation Obligations of Tenant under Section 4.01 and this Section shall be
paid together with payment of Tenant's Proportionate Share of Building Operating
Expenses as provided below in this Article 4.
4.03. With respect to each calendar year during the lease term, Tenant
shall pay in the installments provided below in Sections 4.04 and 4.05 as
additional rent, and in addition to the basic rent specified in Article 2 above,
(i) the charges provided in Sections 4.01 and 4.02 above and (ii) an amount
equal to Tenant's Proportionate Share of the amount of the Building Operating
Expenses for such calendar year. Notwithstanding anything to the contrary below,
Tenant shall not pay less than the basic monthly rent specified in Article 2
above in any calendar month.
4.04. Landlord shall provide to Tenant a written estimate of Building
Operating Expenses at least thirty (30) days prior to the start of each
succeeding calendar year of the lease term. With respect to each calendar year
during the lease term, the Tenant shall pay to Landlord, with each installment
of basic monthly rent, (i) one-twelfth (1/12) of Tenant's Proportionate Share of
said estimated Building Operating Expenses for such year and (ii) the actual
amount of the charges provided in Sections 4.01 and 4.02 for the prior month.
4.05. Within one hundred twenty (120) days after the end of every calendar
year during the lease term, commencing with the first year after the base year,
the Landlord shall provide Tenant with a written statement of the Actual
Building Operating Expenses
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for such year. If Tenant's Proportionate Share of Actual Building Operating
Expenses should exceed the estimated amount previously paid by Tenant with
respect to such year, then Tenant shall pay Landlord the additional amount due
to Landlord within thirty (30) days, and, if Tenant's Proportionate Share of
Actual Building Operating Expenses should be less than the estimated amount paid
by Tenant with respect to such year, then Landlord shall credit against future
additional rent due under this Article the amount of overpayment by Tenant.
4.06. Landlord and Tenant shall each from time to time upon request of the
other sign a written memorandum confirming the amount of the additional rent as
adjusted from time to time hereunder.
4.07. Upon termination, any increase in Building Operating Expenses for any
calendar year during the term of this lease shall be apportioned so that Tenant
shall pay at termination its proportionate share of the increase for such year
as falls within the term, as then estimated by Landlord.
4.08. In the event this lease shall commence other than on the first day of
any calendar year, Tenant shall pay monthly its pro rata share of the operating
expense increase for such year.
4.09. If any special assessments are included as part of the real estate
taxes and such assessment may be paid in installments, Tenant shall be obligated
to pay only Tenant's Proportionate Share of the installment falling within the
term whether or not landlord pays such assessment in installments.
ARTICLE 5
Rent Adjustment
5.01. Basic monthly rent shall be adjusted in accordance with the
provisions of this Article. As used herein:
A. "Index" shall mean the Consumer Price Index for All Urban
Consumers, Los Angeles/Long Beach/Anaheim, California, 1967=100, published
by the Bureau of Labor Statistics of the United States Department of Labor;
B. "Base Date" shall be that date four calendar months prior to the
month in which the Commencement Date occurs;
C. "Adjustment Calculation Date" shall mean the second anniversary of
the Base Date, and thereafter, each anniversary or such Base Date;
D. "Rent Adjustment Date" shall mean the second
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anniversary of the first day of the calendar month in which the
Commencement Date occurs, and thereafter, each anniversary thereof;
E. As to each rent Adjustment Date other than the first Rent
Adjustment Date, "Percentage Increase Of Index" shall mean that percentage
of increase in the index on the immediately preceding Adjustment
Calculation Date equal to a fraction, the numerator of which shall be the
index on such Adjustment Calculation Date less the index on the last prior
Adjustment Calculation Date, and the denominator of which shall be the
index on the last prior Adjustment Calculation Date. In the case of the
first Rent Adjustment Date, such percentage shall be calculated by treating
the Base Date as the last prior Adjustment Calculation Date;
F. "Adjusted Monthly Rent" shall mean the monthly rent paid by Tenant
during the month immediately preceding any Adjustment Date, exclusive of
any operating expense adjustment.
5.02. Each Rent Adjustment Date, the monthly rent to be paid by Tenant
pursuant to Article 2 shall be increased as follows:
A. On the first Rent Adjustment Date, the Basic Monthly Rent set
forth in Item 4 of the Basic Lease Provisions shall be increased by an
amount equal to the lesser of the Percentage Increase Of Index or 14.49%.
B. On each Rent Adjustment Date thereafter, the Adjusted Monthly Rent
shall be increased by an amount equal to the lesser of the Percentage
Increase Of Index or 7%.
C. In each case, the rent adjustment shall be effective as of the
Rent Adjustment Date, whether or not the precise amount of such adjustment
has been calculated by Landlord. Tenant agrees to pay, in one payment and
immediately upon notice of such calculation, the entire amount of the
increased rent accrued and owing as of the date of such notice.
5.03. In the event the Percentage Increase Of Index is a negative amount,
the Percentage Increase Of Index shall, for purposes of subparagraph 5.02, be
deemed to be equal to zero (0).
5.04 In the event the Index shall hereafter be converted to a different
standard reference base or otherwise revised, the determination of the
Percentage Increase Of Index shall be made with the use of such conversion
factor, formula or table for converting the Index as may be published by the
Bureau of Labor Statistics, or if the Bureau shall not publish the same, then
with
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the use of such conversion factor, formula or table as may be published by
the Irving Fisher Index or such other nationally recognized publisher of similar
statistical information as may be selected by the Landlord, in Landlord's sole
discretion
ARTICLE 6
Security Deposit
6.01. Tenant has deposited with Landlord the sum set forth in Item 7 of the
Basic Lease Provisions as security for the full and faithful performance of
every provision of this lease to be performed by Tenant. If Tenant defaults with
respect to any provision of this lease, including but not limited to the
provisions relating to the payment of rent, the repair of damage to the premises
caused by Tenant and/or the cleaning the premises upon termination of this
lease, Landlord may to the full extent permitted by law use, apply or retain all
or any part of this security deposit for the payment of any rent or of any other
sum in default, for the repair of such damage to the premises, to the cost of
such cleaning or for the payment of any other amount or amounts as Landlord may
spend or become obligated to spend by reason of Tenant's default or to
compensate Landlord for any other loss or damage which Landlord may suffer by
reason of Tenant's default. If any portion of said deposit is so used or
applied, Tenant shall, within ten (10) days after written demand therefor,
deposit cash with Landlord in an amount sufficient to restore the security
deposit to its original amount and Tenant's failure to do so shall be a material
breach of this lease. Landlord's obligations with respect to the security
deposit are those of a debtor and not a trustee. Landlord shall not be required
to keep this security deposit separate from its general funds, and Tenant shall
not be entitled to interest on such deposit. If Tenant shall fully and
faithfully perform every provision of this lease to be performed by it, the
security deposit or any balance thereof shall be returned to Tenant (or, at
Landlord's option, to the last assignee of Tenant's interest hereunder) at the
expiration of the lease term.
ARTICLE 7
Parking
7.01. Tenant and its employees, customers and invitees shall have a
nonexclusive right to use of the parking and other common areas, subject to
reasonable rules and regulations from time to time established by Landlord
governing such use, including reasonable validation requirements applied on a
nondiscriminatory
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basis. Landlord may make changes at any time and from time to time in the size,
shape and appearance of the parking and common areas, provided that throughout
the term of this lease Landlord shall provide at least ninety percent (90%) of
the number of parking spaces initially provided, at no materially greater
distance from the premises, and shall at all times be available for use by
Tenant and its employees, customers and invitees. Additional provisions for
parking appear in Exhibit "P" hereto.
7.02. So long as Tenant continues to occupy the premises, the Building may
be identified as the HARBOR BANK BUILDING, or by the name of any successor
banking institution to Tenant by way of merger, consolidation or purchase of
substantially all assets or by such other name as Tenant may adopt as its name.
Landlord reserves the right to also identify the Building as the GOLDEN SHORE
PROFESSIONAL BUILDING in any literature existing as of the date of execution of
this lease. Subject to ordinances of the City of Long Beach and to all
covenants, conditions and restrictions applicable to the premises and the
Building, and subject to Landlord's reasonable approval thereof, Tenant shall
have the right to install, operate and maintain at Tenant's sole cost and
expense, building identification signing on the ground floor, and parapet
elevation identity signing. Said signs shall be installed, operated, and
maintained at Tenant's sole cost and expense. Tenant shall in addition have the
right, subject to Landlord's reasonable approval, to install exterior signs
designating Tenant's place of business as shown in the Work Letter. Tenant shall
be responsible and shall pay for the installation (including a meter for
electric current and any additional construction cost for work required to be
done by Landlord in excess of that shown in the Work Letter),maintenance,
insurance and utilities for all of its signs, shall see to their compliance with
applicable laws and insurance requirements, and shall remove the same at the end
of the term hereof and repair any damage caused to the Building by such removal.
ARTICLE 8
Use of Premises
8.01. Tenant shall use and occupy the premises only for banking purposes
and incidental thereto, other lines of business customarily engaged in by
banking institutions from time to time. Tenant shall not use or occupy the
premises for any other purpose, including without limiting the generality of the
foregoing any medical or dental office, clinic, laboratory or similar business,
without the prior written consent of Landlord. Tenant shall not use or occupy
the premises in violation of law and shall, upon five (5) days' written notice
from Landlord, discontinue any use of
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premises which is declared by any governmental authority having jurisdiction to
be a violation of law. Tenant, at its sole cost and expense, shall comply with
any direction of any governmental authority having jurisdiction which shall
impose any duty upon Tenant or Landlord with respect to the premises or the use
or occupation thereof, by reason of the nature of Tenant's use or occupancy of
the premises. Tenant shall not do or permit to be done anything which would
invalidate or increase the cost of any fire and extended coverage insurance
policy covering the building and/or any property located therein. Tenant shall
promptly upon demand reimburse Landlord for any additional premium charged for
such policy by reason of Tenant's failure to comply with the provisions of this
Article.
8.02. Landlord covenants that it shall lease no space in the Building to
any other commercial banking facility so long as this lease is operative.
Nothing herein shall be deemed to preclude leasing space in the Building to a
Savings and Loan Association, Thrift and Loan, loan broker or mortgage banker,
or securities brokerage firm, or similar business not licensed as a bank.
ARTICLE 9
Acceptance of Premises
9.01. Tenant acknowledges that neither Landlord nor any agent of Landlord
has made any representation or warranty with respect to the premises or the
building or with respect to the suitability or fitness of either for the conduct
of Tenant's business or for any other purpose. The taking of possession or use
of the premises by Tenant for any purpose other than construction shall
conclusively establish that the premises and the building were at such time in
satisfactory condition (except for latent defects) and in conformity with the
provisions of this lease in all respects, except as to any items as to which
Tenant shall give Landlord written notice in reasonable detail within fifteen
(15) days after Tenant takes such possession, commences such use of the premises
or the term of this lease otherwise commences as provided in Article 1 above,
whichever shall first in time occur. Nothing contained in this Article 9 shall
affect the commencement of the term of this lease or the obligation of Tenant to
pay rent hereunder as provided in Article 2 above. Landlord shall promptly
correct any actual defects of which it is notified as provided above.
<PAGE> 14
ARTICLE 10
Alterations and Equipment
10.01. Tenant shall make no alterations, additions or improvements to the
premises, other than usual decorating work, without the prior written consent of
Landlord, and Landlord may impose as a condition to such consent such
requirements as Landlord in its sole discretion may deem necessary or desirable,
including, without limiting the generality of the foregoing, requirements as to
the manner in which, and the time or times at which, such work shall be done.
Landlord shall also have the right, in its sole discretion, to approve or
disapprove the contractor selected by Tenant to perform such work. All such
alterations, additions or improvements shall upon any termination hereof become
the property of the Landlord and shall be surrendered with the premises, as a
part thereof, upon any termination hereof, except that Landlord may, by written
notice to Tenant give at least thirty (30) days prior to the end of term or
within 30 days of any earlier termination hereof, require Tenant to remove all
partitions, counters, railings and the like installed by Tenant, and to repair
any damage to the premises for such removal, all at Tenant's sole cost and
expense.
10.02. All articles of personal property and all business and trade
fixtures, machinery and equipment, cabinet work, furniture and movable
partitions owned by Tenant or installed by Tenant at its expense in the premises
shall be and remain the property of Tenant and may be removed by Tenant at any
time during the lease term so long as Tenant is not in default hereunder,
provided that Tenant repairs any damage to the premises or the building caused
by such removal. On the expiration of the term of this lease, or on any earlier
termination of this lease, Tenant shall remove all such personal property, etc.,
in accordance with the provisions of Article 22 below.
ARTICLE 11
Liens
11.01. Tenant shall keep the premises and the building free from any
mechanic's or other liens arising out of any work performed, materials furnished
or obligations incurred by Tenant, and agrees to defend, indemnify and hold
harmless Landlord from and against any such lien or claim or action thereon,
together with costs of suit and reasonable attorney's fees incurred by Landlord
in connection with any such claim or action.
<PAGE> 15
ARTICLE 12
Tax on Tenant's Property
12.01. Tenant shall be liable for and shall pay not later than ten (10)
days before delinquency, all taxes levied against any personal property or trade
fixtures placed by Tenant in or about the premises. If any such taxes on
Tenant's personal property or trade fixtures are levied against Landlord or
Landlord's property, or if the assessed value of Landlord's property is
increased by the inclusion therein of a value placed upon such personal property
or trade fixtures, Landlord shall have the right, but not the obligation, to pay
the taxes caused by such inclusion or increase in assessed value (the "Added
Tax"). If Landlord elects in its sole discretion to pay and does pay such added
tax, Landlord shall have the right to offset such payment against the security
deposit or, at its sole election, to assess Tenant for such added tax, in which
case Tenant shall within ten (10) days of such assessment pay the full amount
thereof to Landlord. The Landlord shall have the right, as provided herein, to
make such payment regardless of the validity of such levy, but agrees to give
not less than ten (10) days, notice to Tenant of its intention to make such
payment and shall, if so requested by Tenant and if properly and to Landlord's
full and complete satisfaction indemnified by Tenant, make such payment under
protest. If added taxes are so paid under protest, Tenant shall have the right,
in the name of the Landlord and with Landlord's full cooperation, to bring suit
in any court of competent jurisdiction to recover the amount of any such taxes
so paid under protest; provided, however, that such suit may not be brought or
commenced until Landlord has been provided with assurance reasonable to it that
Tenant shall pay all costs of such suit and that Landlord shall incur no cost or
expense in connection with such suit. So long as the Tenant has properly
reimbursed Landlord for the added taxes paid by Landlord, and for Landlord's
costs and expenses in making such payment under protest and for cooperating with
any litigation or other proceeding relating to such protested payment, including
without limitation attorney's fees, any amount so recovered shall belong to
Tenant.
12.02. If the Tenant improvements in the premises, whether installed and/or
paid for by Landlord or Tenant and whether or not affixed to the real property
so as to become a part thereof, are assessed for real property tax purposes at a
valuation higher than the valuation at which Tenant improvements conforming to
Landlord's "building standard" in other space in the building are assessed, then
the real property taxes and assessments levied against Landlord or Landlord's
property by reason of such excess assessed valuation shall be deemed to be taxes
levied against the personal property of Tenant and shall be governed by the
provisions of Section 12.01 above.
<PAGE> 16
ARTICLE 13
Maintenance and Repair
13.01. Subject to the provisions of Section 13.02 below, Tenant shall take
good care of the premises and the fixtures therein, and subject to the
provisions of Article 18 below, shall reimburse Landlord for all repairs thereto
or to the building which are made necessary as a result of any misuse or neglect
by Tenant or any of its officers, agents, employees, contractors, permittees,
licensees, visitors, guests or invitees.
13.02. Subject to the provisions of Article 6 and Article 18 hereof,
Landlord shall repair and maintain the building structure and public areas, and
the plumbing, air conditioning and electrical systems serving the premises.
Landlord shall not be liable for any failure to make any repairs or to perform
any maintenance unless such failure shall persist for an unreasonable time after
written notice of the need for such repairs or maintenance is given to Landlord
by Tenant. Except as provided in Article 18 hereof, there shall be no abatement
of rent or lease termination by the Tenant, and no liability of Landlord by
reason of any injury to or interference with Tenant's business, arising from the
making of any repairs, alterations or improvements in or to any portion therein;
provided, however, that in making such repairs, alterations or improvements,
Landlord shall interfere as little as reasonably practicable with the conduct of
Tenant's business in the premises.
ARTICLE 14
Entry and Inspection
14.01. Tenant will permit Landlord and its agents at all reasonable times
during normal business hours and at any time in case of emergency, in such
manner as to cause as little disturbance to Tenant as reasonably practicable,
(1) to enter into and upon the premises for the purpose of inspecting the same,
or for the purpose of protecting the interest therein of Landlord, and (2) to
take all required materials and equipment into the premises, and perform all
required work therein, including without limitation the erection of scaffolding,
props, or other mechanical devices, for the purpose of making alterations,
repairs or additions to the premises or to any other portion of the building in
which the premises are situated as may be provided for by this lease or as may
be mutually agreed upon by the parties or as Landlord may be required to make by
law or for maintaining any service provided by Landlord to Tenant hereunder,
including window cleaning and janitor service, without any abatement of rent to
Tenant for any loss of occupancy or quiet
<PAGE> 17
enjoyment of the premises, or damage, injury or inconvenience thereby
occasioned. Tenant shall also permit Landlord and its agents, upon request, to
enter and/or pass through the premises or any part thereof, at reasonable times
during normal business hours, to show the premises to holders of encumbrances on
the interest of Landlord under the lease, or to prospective purchasers,
mortgagees or lessees of the building as an entirety, and during the period
beginning six (6) months prior to the expiration date of this lease, Landlord
may exhibit the premises to prospective tenants. Landlord shall also have the
right to enter on and/or pass through the premises, or any part thereof, at such
times as such entry shall be required by circumstances of emergency affecting
the premises or any other portion of the building in which the premises are
located. If during the last month of the term hereof Tenant shall have removed
substantially all of Tenant's property and personnel from the premises, Landlord
may enter the premises and repair, alter and redecorate the same, without
abatement of rent and without liability to Tenant, and such acts shall have no
effect on this lease.
ARTICLE 15
Hold Harmless and Non-Liability
15.01. This lease is made upon the express condition that Landlord is to be
free from all liability and claims for damages (except for breach of lease by
Landlord or that portion of any claim or damage resulting exclusively from
Landlord's negligence, willful conduct or omission), resulting from or arising
out of any injury to any person or persons, including Tenant, or to property of
any kind whatsoever or to whomsoever belonging, including that of Tenant, from
any cause or causes, while in, upon, adjacent to, in the vicinity of or in any
way connected with the premises or any portion thereof, during the term of this
lease, or any extension hereof, or during any other occupancy of the premises by
Tenant. Subject to the terms of this lease (and except for breach of this lease
by Landlord or that portion of any claim or damage resulting exclusively from
Landlord's willful conduct or omission), Tenant hereby agrees to indemnify and
save Landlord harmless from and against any and all claims, demands,
obligations, liabilities, cause or causes of action resulting from or arising
out of the condition during the term of this lease of the premises (including
the building in which the premises are located) and the parking area.
15.02. Tenant hereby agrees that Landlord shall not be liable (except for
Landlord's breach of this lease or that portion of any damage incurred solely as
a result of Landlord's negligence, willful conduct or omission) for injury to
Tenant's business or any
<PAGE> 18
loss of income therefrom or for damages to the property of Tenant, or of
Tenant's officers, agents, employees, contractors, permittees, licensees,
visitors, guests or invitees, or any other person in or about the premises or
the building, nor shall Landlord be liable for injury to the person of Tenant,
Tenant's officers, agents, employees, contractors, permittees, licensees,
visitors, guests, invitees or to the person of any other person in or about the
premises or the building. This shall be true regardless of whether such damage
or injury is caused by or results from, without limitation, fire, steam,
electricity, gas, water or rain, or from the breakage, leakage or obstruction of
or other defects in the pipes, sprinklers, wires, appliances, plumbing, air
conditioning or lighting fixtures of the same, or from any other cause,
regardless of whether the said damage or injury results from conditions arising
upon the premises, the building in which the premises are located, or elsewhere
and whether the cause of such damage or injury or the means of repairing the
same is inaccessible to Tenant.
15.03. Tenant shall at its own cost take out and keep in force during the
term of this lease, public liability and property damage insurance, in an amount
not less than that set forth in Item 11 of the Basic Lease Provisions, insuring
against all liability of Tenant and its authorized representatives arising out
of and in connection with Tenant's use or occupancy of the premises, and
insuring Landlord with respect to the ownership, maintenance, operation and use
or occupancy of the premises. All such insurance shall insure performance by
Tenant of the indemnity provisions of this Section. Both parties shall be named
as additional insureds, and the policy shall contain cross-liability, personal
injury and contractual liability endorsements. The insurance requirements
imposed on Tenant shall not impute to Landlord any responsibility for the
sufficiency or adequacy of the insurance carried by Tenant, and Landlord shall
have no liability to Tenant or to any third party for Tenant's failure to obtain
proper or sufficient insurance.
15.04. Tenant shall, during the term of this lease, continually maintain
insurance coverage as required by the State Banking Department.
15.05. To the extent, but only to the extent, claims are in fact paid under
such policies, the parties release each other, and their respective authorized
representatives, from any claims for damage to any person or to the premises and
the building and other improvements in which the premises are located and to the
fixtures, personal property, Tenant's improvements and alterations of either
Landlord or Tenant in or on the premises and the Building that are caused by or
result from risks insured against under any insurance policies carried by the
parties and in force at the time of any such damage. To the extent, but only to
the extent, claims are in fact paid under such policies, neither party shall be
liable to the
<PAGE> 19
other for any damage caused by fire or any of the risks insured against under
any insurance policy required by this lease.
15.06. All the insurance required under this lease shall:
A. Be issued by insurance companies authorized to do business in the
State of California, with a policyholders and financial rating of at least
A:Class X1 status as rated in the most recent edition of Best's Key-Rating
Guide;
B. Be issued as a primary policy; however, Tenant may carry the
insurance under blanket policy if the policy specifically provides that the
amount of insurance required under this lease will be in no way prejudiced
by other losses covered by the policy; and
C. Contain an endorsement requiring thirty (30) days' written notice
from the insurance company to both parties and Landlord's lender before
cancellation or change in the coverage, scope, or amount of any policy.
15.07. Each policy, or a certificate of the policy together with evidence
of payment of premiums, shall be deposited with Landlord at the commencement
date, and, on renewal of the policy, not less than twenty (20) days before
expiration of the term of the policy.
ARTICLE 16
Assignment and Subletting
16.01. Tenant shall not, either voluntarily or by operation of law, assign,
sell, encumber, pledge, or otherwise transfer all or any part of Tenant's
leasehold estate hereunder, or permit the premises to be occupied by anyone
other than Tenant or Tenant's employees or sublet the premises or any portion
thereof, without Landlord's prior written consent in each instance, which
Landlord agrees not to unreasonably withhold. Consent by Landlord to one or more
assignments of this lease or to one or more sublettings of the premises shall
not operate to exhaust Landlord's rights under this Section. The voluntary or
other surrender of this lease by Tenant or a mutual cancellation hereof shall
not work a merger, and shall at Landlord's sole option, either terminate such
subleases or subtenancies or operate as an assignment to Landlord of subleases
or subtenancies as the Landlord may designate. If Tenant is a corporation which,
under the then current guidelines published by the Commissioner of Corporations
of the State of California, is not deemed a public corporation, or is an
unincorporated association or partnership, the transfer, assignment or
hypothecation of any stock or interest in such corporation, association or
partnership in the aggregate in excess of twenty-five percent (25%) shall be
deemed an
<PAGE> 20
assignment within the meaning and provisions of this Article. Tenant agrees to
reimburse Landlord for Landlord's reasonable costs and attorneys' fees incurred
in connection with the processing and documentation of any such requested
assignment, subletting, transfer, change of ownership or hypothecation of this
lease or Tenant's interest in and to the premises.
16.02. If Tenant desires at any time to assign this lease or to sublet the
premises or any portion thereof, it shall first notify Landlord of its desire to
do so and shall, within ninety (90) days of the request for Landlord's consent,
submit in writing to Landlord (1) the name of the proposed subtenant or
assignee; (2) the nature of the proposed subtenant's or assignee's business to
be carried on in the premises; (3) the terms and provisions of the proposed
sublease or assignment; and (4) such reasonable financial information as
Landlord may request concerning the proposed subtenant.
16.03. At any time within fifteen (15) days after Landlord's receipt of the
information specified in Section 16.02 above, Landlord may by written notice to
Tenant elect to (1) consent to the subletting or assignment upon the terms and
to the subtenant or assignee proposed; (2) refuse to give its consent; (3)
sublease the premises or the portion thereof so proposed to be subleased by
Tenant or take an assignment of Tenant's leasehold estate hereunder or such part
thereof as shall be specified in said notice upon the same terms (excluding
terms relating to the use of Tenant's name or the continuation of Tenant's
business) as those offered to the proposed subtenant or assignee, as the case
may be; or (4) terminate this lease as to the portion (including all) of the
premises so proposed to be subleased or assigned with a proportionate abatement
in the rent payable hereunder. Landlord agrees not to exercise any option set
forth in clauses (2) through (4) above unless its refusal to consent is not
unreasonable, taking into account the information furnished Landlord pursuant to
Section 16.02. And in the event Landlord elects to exercise any options set
forth in clauses (2) through (4) above, it shall in its notice to Tenant specify
its reasons for withholding consent to the requested subletting or assignment.
Tenant further agrees that no assignment or subletting consented to by Landlord
shall impair or diminish any covenant, condition or obligation imposed upon
Tenant by this lease or any right, remedy or benefit afforded Landlord by this
lease. If Landlord consents to such assignment or subletting, Tenant may,
within (90) days after the date of Landlord's consent, enter into a valid
assignment or sublease of the premises or portion thereof upon the terms and
conditions described in the information required to be furnished by Tenant to
Landlord pursuant to Section 16.02 above, or upon other terms not more favorable
to Tenant; provided, however, that any material change in such terms shall be
subject to Landlord's consent as provided in this Article 16. Failure of
Landlord to exercise any option set forth in clauses (1) through (4) above
within such
<PAGE> 21
fifteen (15) day period shall be deemed consent by Landlord to the proposed
subletting or assignment.
16.04. Not withstanding the provisions of this Article 16 above, Tenant
shall have the right, without Landlord's consent, to assign this lease to a
corporation with which it may merge or consolidate, to any parent or subsidiary
of Tenant, or subsidiary of Tenant's parent, or to a purchaser of substantially
all of Tenant's assets, if the assignee executes an agreement in form required
by Landlord assuming Tenant's obligations under this lease.
16.05. No subletting or assignment, even with the consent of Landlord or
pursuant to Section 16.04, shall relieve Tenant of its obligation to pay the
rent and to perform all of the other obligations to be performed by Tenant
hereunder. The acceptance by Landlord of any payment due hereunder from any
other person shall not be deemed to be a waiver by Landlord of any provisions of
this lease or to be a consent to any assignment or subletting.
ARTICLE 17
Transfer of Landlord's Interest
17.01. Tenant acknowledges that this lease agreement and the rents paid or
payable hereunder may be assigned by Landlord, without notice to Tenant, and
agrees, upon written demand by Landlord and by the holder of any mortgage, deed
of trust and/or assignment of rents encumbering the Building (hereinafter
referred to as "mortgagee") to pay all rents due and payable hereunder as so
directed by such mortgagee.
17.02. In the event of any transfer or transfers of Land- Landlord's
interest in the premises or in the real property of which the premises are a
part, other than a transfer for security purposes only, the transferor shall be
automatically relieved of any and all obligations and liabilities on the part of
Landlord accruing from and after the date of such transfer, including without
limitation the obligation of Landlord under Article 5 above to return the
security deposit as provided therein, provided such obligations and liabilities
are assumed in writing by the transferee.
ARTICLE 18
Damage or Destruction
18.01. In the event the premises or the Building of which the premises are
a part are damaged by fire or other perils covered by extended coverage
insurance, Landlord agrees, to the extent
<PAGE> 22
insurance proceeds actually paid and received allow, to forthwith repair the
same, and this lease shall remain in full force and effect, except that Tenant
shall be entitled to a proportionate reduction of the rent while such repairs
are being made, such proportionate reduction to be based upon the extent to
which the making of such repairs materially interferes with the business carried
on by Tenant in the premises. If, however, the damage is due in whole or in
substantial part to the fault or neglect of Tenant or its officers, agents,
employees, contractors (independent or otherwise), permittees, licensees,
guests, visitors or invitees, there shall be no abatement of rent.
18.02. In the event the premises or the Building are damaged in an amount
exceeding the insurance proceeds or by perils not covered by fire and extended
coverage insurance, Landlord shall forthwith repair the same, provided the
extent of the total destruction is no greater than the lesser of Seventy-Five
Thousand ($75,000) Dollars or ten percent (10%) of the then full replacement
cost of the premises (such lesser figure shall be referred to herein as
"Landlord's Repair Obligation Limit"). In the event the destruction is to an
extent greater than Landlord's Repair Obligation Limit, then Landlord shall
have the option (1) to repair or restore such damage, this lease continuing in
full force and effect, but the rent to be proportionately reduced to the same
extent and subject to the same conditions as hereinabove provided in Section
18.01 of this Article; or (2) give notice to Tenant at any time within sixty
(60) days after such damage terminating this lease as of the date specified in
such notice, which date shall be no less than thirty (30) and no more than sixty
(60) days after the giving of such notice. In the event of giving such notice,
this lease shall expire and all interest of the Tenant in the premises shall
terminate on the date so specified in such notice and the rent, proportionately
reduced to the same extent and subject to the same conditions as hereinabove
provided in Section 18.01 of this Article, shall be paid up to date of such
termination.
18.03. Notwithstanding anything to the contrary contained in this Article,
Landlord shall not have any obligation whatsoever to repair, reconstruct or
restore the premises when the damage resulting from any casualty covered under
this Article occurs during the last twelve (12) months of the term of this lease
or any extension thereof.
18.04. Landlord shall not be required to repair any injury or damage by
fire or other cause to, or to make repairs or replacement of any property
installed in the premises by or at the request or direction of Tenant, including
without limitation panels, decoration, office fixtures, railings, floor
covering, and partitions. Furthermore, in no event, and without regard to
whomsoever installed such property, shall Landlord be required to repair any
injury or damage, or to make any repairs or replacement of property installed in
the premises to the extent the aggregate cost of such repairs or replacements
totals an amount in excess of basic tenant improvements allowed to Tenant by
Landlord.
<PAGE> 23
18.05. Tenant shall not be entitled to any compensation or damages from
Landlord for loss of the use of the whole or any part of the premises, Tenant's
personal property or any inconvenience or annoyance occasioned by such damage,
repair, reconstruction or restoration.
18.06. Tenant waives the provisions of Civil Code Section 1932(2) and Civil
Code Section 1933(4) with respect to the destruction of the premises, and the
building in which such premises are located.
ARTICLE 19
Eminent Domain
19.01. If the whole of the premises or so much thereof as to render the
balance unusable by Tenant shall be taken under power of eminent domain or
conveyed under threat of the exercise of such power, this lease shall
automatically terminate as of the date of such condemnation, or as of the date
possession is taken by the condemning authority, whichever is earlier. No award
for any partial or entire taking shall be apportioned, and Tenant hereby assigns
to Landlord any award which may be made in such taking or condemnation, together
with any and all rights of Tenant now or hereafter arising in or to the same or
any part thereof; provided, however, that nothing contained herein shall be
deemed to give Landlord any interest in or to require Tenant to assign to
Landlord any award made to Tenant for the taking of personal property and
fixtures belonging to Tenant and/or for the interruption of or damage to
Tenant's business and/or for Tenant's unamortized cost of leasehold
improvements.
19.02. In the event of a partial taking which does not result in a
termination of this lease, rent shall be abated in proportion to the part of the
premises unusable by Tenant. Tenant and Landlord each waives the provisions of
Code of Civil Procedure Section 1265.130 allowing either party to petition the
Superior Court to terminate this lease in the event of a partial taking of the
premises.
19.03. No temporary taking of the premises and/or of Tenant's rights
therein or under this lease lasting less than 180 consecutive days shall
terminate this lease or give Tenant any right to any abatement of rent
hereunder; any award made to Tenant by reason of any such temporary taking shall
belong entirely to Tenant and Landlord shall not be entitled to share therein.
<PAGE> 24
ARTICLE 20
Option to Extend Term
20.01. Provided Tenant is not in default in any of the terms, conditions,
covenants, and provisions of this lease, either at the time of exercise or at
the time the renewal term otherwise would commence, it shall have two (2)
successive options to renew and extend the original twenty (20) year term of
this lease for periods of five (5) years each, upon all of the same terms and
conditions, except that there shall be no further options to extend the term and
except that the basic monthly rental for each such option period will be the
rate established pursuant to Sections 20.02 and 20.03 below. Tenant shall
exercise each such option to renew and extend the term of this lease by
notifying Landlord in writing of its decision to do so at least one (1) year
prior to the expiration of the original term of this lease or the then current
renewal term, as the case may be.
20.02. The basic monthly rent for the first year of each option period
shall be the fair market rental for the premises at the commencement date of
each option period. All additional rental and charges due under the terms of
this lease shall also be payable by Tenant. The fair market rental for the
premises for the first year of each option period shall be determined through
good faith negotiations between Landlord and Tenant. In determining such fair
market rental for the premises, no consideration shall be given to or placed
upon any improvements, additions or fixtures which Tenant has the right to
remove upon termination of this lease. In the event that Landlord and Tenant
shall not have successfully negotiated the basic annual rental for the first
year of each such option period within the first sixty (60) days after the date
upon which notice of election to exercise such option is required to be given,
then the fair market rental shall be determined by arbitration conducted in
the manner described in 20.04 below.
20.03. The basic monthly rental for the second through fifth years of any
option period shall be adjusted in the manner described in Article 5 of the
Additional Lease Provisions for the last 18 years of the initial lease term,
i.e., monthly rent for each twelve month period shall be increased to reflect
percentage increase in the Consumer Price Index, or 7%, whichever is lesser.
20.04. If arbitration is required to determine the basic annual rental,
such arbitration shall be conducted in the following manner:
(a) Within the first ninety (90) days after the date upon which notice
of election to exercise such option is required to be given, Landlord shall
appoint in writing an arbitrator, who must be a qualified MAI appraiser with at
least ten years experience and a member of the American Arbitration
Association, and
<PAGE> 25
give written notice thereof to Tenant, and within ten (10) days after the
service of such notice, Tenant may in like manner appoint such an arbitrator and
give written notice thereof to Landlord, or in case of the failure of either
party hereto to so do, the other party shall have the right to apply to the
Superior Court of Los Angeles County, California, to appoint such an arbitrator
to represent the defaulting party. The two arbitrators thus appointed (in either
manner) shall select and appoint in writing a third such arbitrator and give
written notice thereof to Landlord and Tenant, or if within ten (10) days after
the appointment of said second arbitrator, the two arbitrators shall fail to
appoint a third, then either party hereto shall have the right to make
application to said Superior Court to appoint such third arbitrator.
(b) The three arbitrators so appointed (in either manner) shall
promptly fix a convenient time and place in the County of Los Angeles for
hearing the matter to be arbitrated and shall give written notice thereof to
each party hereto at least five (5) days prior to the date so fixed, and said
arbitrators shall with reasonable diligence hear and determine the matter in
accordance with the provisions hereof and of the statutes and judicial decisions
of the State of California at the time applicable thereto, and shall execute
and acknowledge their award thereon in writing and cause a copy thereof to be
delivered to each of the parties hereto.
(c) The award of a majority of said arbitrators (or, if a majority
cannot agree as to amount, then the average of the two awards nearest in amount)
shall determine the question arbitrated, and a judgment may be rendered by
said Superior Court confirming said award, or the same may be vacated, modified
or corrected by said court, at the instance of either of the parties hereto, in
accordance with the then existing statutes of the State of California applicable
to arbitrations, the provisions of which statutes shall apply hereto as fully as
though incorporated herein.
(d) Each of the parties hereto shall pay for the services of its
appointee and one half of the fee charged by the arbitrator selected by their
appointees and of all other proper costs of arbitration, with exception of
attorneys' fees and witnesses' fees.
(e) If the fair market rental of the premises has not been determined
by the commencement of an extended term, Tenant shall continue to pay the basic
monthly rent in effect immediately prior to the commencement of the extended
term until such fair market rental has been determined; the rent for such
elapsed period of time shall be adjusted retroactively to the commencement of
such extended term.
<PAGE> 26
ARTICLE 21
Defaults; Remedies
21.01. The occurrence of any one or more of the following events
shall constitute a default and breach of this lease by Tenant:
A. Failure to pay rent or any other required payment when due, if the
failure continues for five (5) days after notice has been given to Tenant;
provided, however, that any such notice shall be in lieu of, and not in
addition to, any notice required under Section 1161, et seq., of the
California Code of Civil Procedure;
B. Abandonment of the premises;
C. The failure by Tenant to observe or perform any other covenants,
conditions or provisions of this lease to be observed or performed by
Tenant where (except where a different period of time is specified in this
lease) such failure shall continue for a period of thirty (30) 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 Section 1161, et seq., of the California Code of Civil
Procedure. If the nature of Tenant's default is such that more than thirty
(30) days is reasonably required for its cure, then Tenant shall not be
deemed to be in default if Tenant commences such cure within said thirty
(30) day period and thereafter diligently prosecutes such cure to
completion;
D. The filing or occurrence of:
(1) a petition in bankruptcy by or against the Tenant, unless
cured or removed within sixty (60) days;
(2) a petition or answer by Tenant seeking a reorganization,
arrangement, composition, readjustment, liquidation, dissolution or
other relief of the same or different kind under any provision of the
Bankruptcy Act;
(3) adjudication of Tenant as a bankrupt or insolvent;
(4) an assignment of all or substantially all of Tenant's assets
for the benefit of creditors;
(5) a petition or other proceeding, except by Landlord, its
agents or affiliates, by or against Tenant, for, or the appointment
of, a trustee, receiver, or liquidator of Tenant with respect to all
or substantially all of its property; provided, however, that Tenant
shall
<PAGE> 27
not be in default if Tenant cures or removes such a petition or
proceeding within sixty (60) days;
(6) a petition or other proceeding by or against Tenant for its
dissolution or liquidation, or the taking of possession of the
property of Tenant by any governmental authority in connection with
dissolution or liquidation, provided, however, that Tenant shall not
be in default if Tenant cures or removes such a petition or
proceeding within sixty (60) days;
(7) the taking or attachment by any person, except by Landlord or
its agents or affiliates, of the leasehold created hereby or any part
thereof upon execution, or other process of law or equity; or
(8) the general failure of Tenant to pay its debts as they become
due, as such phrase is construed in connection with 11 U.S.C. Section
303(h)(1).
E. Except during such periods as renovations or reconstruction is in
active progress, or as the premises are rendered unsafe or unusable,
failure to make use of the premises for more than forty-five (45) days in
any ninety (90) day period.
21.02. Notices given under Section 21.01 above shall specify the alleged
default and the applicable lease provisions, and shall demand that Tenant
perform the provisions of this lease or pay the rent that is in arrears, as the
case may be, within the applicable period of time, or quit the premises. No such
notice shall be deemed a forfeiture or a termination of this lease unless
Landlord specifically so elects in the notice.
21.03. Landlord shall have the following remedies without further notice to
Tenant if Tenant commits a default. These remedies are not exclusive; they are
cumulative and in addition to any remedies now or later allowed by law:
A. Landlord can continue this lease in full force and effect, and the
lease will continue in effect as long as Landlord does not terminate
Tenant's right to possession, and Landlord shall have the right to collect
rent when due. During the period Tenant is in default, Landlord can enter
the premises and relet them, or any part of them, to third parties for
Tenant's account. Tenant shall be liable immediately to Landlord for all
costs Landlord incurs in reletting the premises, including, without
limitation, brokers' commissions, expenses of remodeling the premises
required by the reletting, and like costs. Reletting can be for a period
shorter or longer than the remaining term of this lease. Tenant shall pay
to Landlord the rent due under this lease on the dates the rent is due,
less the rent Landlord receives from any reletting. No act by Landlord
allowed by this section shall terminate
<PAGE> 28
this lease unless Landlord notifies Tenant that Landlord elects to
terminate this lease.
B. Landlord can terminate Tenant's right to possession of the
premises at any time. No act by Landlord other than the giving of written
notice to Tenant shall terminate this lease. Acts of maintenance, efforts
to relet the premises, or the appointment of a receiver on Landlord's
initiative to protect Landlord's interest under this lease shall not
constitute a termination of Tenant's right to possession. On termination,
Landlord has the right to recover from Tenant:
(1) The worth, at the time of the award of the unpaid rent that
had been earned at the time of termination of this lease;
(2) The worth, at the time of the award of the amount by which
the unpaid rent that would have been earned after the date of
termination of this lease until the time of award exceeds the amount
of the loss of rent that Tenant proves could have been reasonably
avoided;
(3) The worth, at the time of the award of the amount by which
the unpaid rent for the balance of the term after the time of award
exceeds the amount of the loss of rent that Tenant proves could have
been reasonably avoided; and
(4) Any other amount, including court costs and attorneys' fees,
necessary to compensate Landlord for all detriment proximately caused
by Tenant's default.
"The worth, at the time of the award," as used in (1) and (2) of this paragraph
B is to be computed by allowing interest at that rate equal to the average
weighted discount rate applied by the Federal Reserve Bank of San Francisco
during the time period in question, plus 1%, or the maximum amount allowed by
law, whichever is less. "The worth, at the time of the award,"as referred to in
(3) of this paragraph B is to be computed by discounting the amount at the
discount rate applied by the Federal Reserve Bank of San Francisco at the time
of the award, plus 1%.
21.04. Landlord, at any time after Tenant commits a default, may, but is
under no obligation to, cure the default at Tenant's cost. If Landlord at any
time, by reason of Tenant's default, pays any sum or does any act that requires
the payment of any sum, the sum paid by Landlord shall be due immediately from
Tenant to Landlord at the same time the sum is paid and, if paid at a later
date, shall bear interest from the date the sum is paid by Landlord until
Landlord is reimbursed by Tenant at that rate equal to the weighted average
discount rate applied by the Federal Reserve Bank of San Francisco during the
relevant time period plus 1%, or the maximum amount allowed by law, whichever is
less.
<PAGE> 29
ARTICLE 22
Surrender of Premises; Removal of Property
22.01. The voluntary or other surrender of this lease by Tenant shall not
work a termination hereof, shall not work a merger, but shall at the option of
Landlord, operate as an assignment to it of any or all subleases or subtenancies
affecting the premises.
22.02. Upon the expiration of the term of this lease, or upon any earlier
termination of this lease, Tenant shall quit and surrender possession of the
premises to Landlord in as good order and condition as the same are now or
hereafter may be improved by Landlord or Tenant, reasonable wear and tear and
repairs which are Landlord's obligation excepted, and shall, without expense to
Landlord, remove or cause to be removed from the premises all debris and
rubbish, all furniture, equipment, business and trade fixtures, free-standing
cabinet work, movable partitioning and other articles of personal property owned
by Tenant or installed or placed by Tenant at its expense in the premises
(exclusive of any items described in Section 22.04 below) and all similar
articles of any other persons claiming under Tenant unless Landlord exercises
its option to have any subleases or subtenancies assigned to it, and Tenant
shall repair all damages to the premises resulting from such removal.
22.03. Whenever Landlord shall re-enter the premises as provided in Section
21.03 hereof, or as otherwise provided in this lease, any property of Tenant not
removed by Tenant upon the expiration of the term of this lease (or within
forty-eight (48) hours after a termination by reason of Tenant's default), as
provided in this lease, shall be considered abandoned and Landlord may remove
any or all of such items and dispose of the same in any manner or store the same
in a public warehouse or elsewhere for the account and at the expense and risk
of Tenant, and if Tenant shall fail to pay the cost of storing any such property
after it has been stored for a period of ninety (90) days or more, Landlord may
sell any or all of such property at public or private sale, in such manner and
at such times and places as Landlord, in its sole discretion, may deem proper,
without notice to or demand upon Tenant, for the payment of all or any part of
such charges or the removal of any such property, and shall apply the proceeds
of such sale first to the cost and expenses of such sale, including reasonable
attorneys' fees actually incurred; second, to the payment of the cost of or
charges for storing any such property; third, to the payment of any other sums
of money which may then or thereafter be due to Landlord from Tenant under any
of the terms hereof; and fourth, the balance, if any, to Tenant.
22.04. All fixtures, equipment, alterations, additions, improvements and/or
appurtenances attached to or built into the
<PAGE> 30
premises prior to or during the term, whether by Landlord at its expense or at
the expense of Tenant or both, shall be and remain part of the premises and
shall not be removed by Tenant at the end of the term unless otherwise expressly
provided for in this lease or unless such removal is required by Landlord
pursuant to the provisions of Article 10 above. Such fixtures, equipment,
alterations, additions, improvements and/or appurtenances shall include but not
be limited to all floor coverings, drapes, paneling, molding, doors, vaults
(exclusive of vault doors), plumbing systems, electrical systems, lighting
systems, silencing equipment, security systems, communication systems, all
fixtures and outlets for the systems mentioned above and for all telephone (but
excluding telephone instruments, central processing units, and other telephone
system components which may be removed without structural damage to the
premises), radio, telegraph and television purposes, and any special flooring or
ceiling installations.
22.05. Tenant shall, at least ninety (90) days before the last day of the
term hereof, give to Landlord a written notice of intention to surrender the
premises on that date, but nothing contained herein shall be construed as an
extension of the term hereof or as consent of Landlord to any holding over by
Tenant.
ARTICLE 23
Waiver of Damages for Re-entry
23.01. Tenant hereby waives all claims for damages that may be caused by
Landlord's re-entering and taking possession of the premises or removing and
storing the property of Tenant as herein provided, and Tenant shall save
Landlord harmless thereby, and no such re-entry shall be considered or construed
to be a forcible entry.
ARTICLE 24
Costs of Suit
24.01. In the event suit is brought to enforce or interpret any part of
this lease, the prevailing party shall be entitled to recover as an element of
his costs of suit, and not as damages, a reasonable attorneys' fee to be fixed
by the court. The "prevailing party" shall be the party who is entitled to
recover his costs of suit, whether or not the suit proceeds to final judgment. A
party not entitled to recover his costs shall not recover attorneys' fees. No
sum for attorneys' fees shall be counted in calculating the amount of a judgment
for purposes of determining whether a party is entitled to recover his costs or
attorneys' fees.
<PAGE> 31
24.02. Should Landlord, without fault on Landlord's part, be made party to
any litigation instituted by Tenant or by any third party against Tenant, or for
the foreclosure of any lien for labor or material furnished to or for Tenant or
any such other person or otherwise arising out of or resulting from any act or
transaction of Tenant or of any such other person, Tenant covenants to save and
hold Landlord harmless from any judgment rendered against Landlord or the
premises or any part thereof, and all costs and expenses, including reasonable
attorneys' fees, incurred by Landlord in or in connection with such litigation.
ARTICLE 25
Waiver
25.01. The waiver by Landlord or Tenant of any breach of any term, covenant
or condition herein contained shall not be deemed to be a waiver of such term,
covenant or condition as to any subsequent breach of the same or any other term,
covenant or condition herein contained. The subsequent acceptance of rent
hereunder by Landlord shall not be deemed to be a waiver of any preceding breach
by Tenant of any term, covenant or condition of this lease, other than the
failure of Tenant to pay the particular rental so accepted, regardless of
Landlord's knowledge of such preceding breach at the time of acceptance of such
rent. No waiver of any term, covenant or condition herein contained, or of any
breach thereof, shall be effective unless contained in a writing referencing
this lease agreement and the term, covenant, condition or breach to be waived,
and signed by the party to be bound or its authorized representative.
ARTICLE 26
Holding Over
26.01. If Tenant holds over after the term hereof, with or without the
express or implied consent of Landlord, such tenancy shall be from month to
month only, and not a renewal hereof or any extension for any further term, and
in such case rent shall be payable in the amount and at the time specified in
Articles 2, 4 and 5 hereof, and such month-to-month tenancy shall be subject to
every other term, covenant and agreement contained herein.
<PAGE> 32
Nothing contained in this Article shall be construed as consent by Landlord to
any holding over by Tenant and Landlord expressly reserves the right to require
Tenant to surrender possession of the premises to Landlord as provided in
Article 22, above, forthwith upon the expiration of the term of this lease or
other termination of this lease.
ARTICLE 27
Subordination; Estoppel
27.01. On Landlord's demand, Tenant shall subordinate its rights hereunder
to the lien of any mortgages, deed(s) of trust, ground lease(s) or any other
method of financing or refinancing now or hereafter placed against all or any
part of the facility including all advances made or to be made thereunder, and
all renewals, replacements, consolidations and extensions thereof, if Landlord
first obtains from any prospective lender a written agreement that provides
substantially the following:
"As long as Tenant performs its obligations under this lease, no
foreclosure of, deed given in lieu of foreclosure of, or sale under, the
encumbrance, and no steps or procedures taken under the encumbrance, shall
affect Tenant's rights under this lease. The provisions of this lease
concerning the disposition of insurance proceeds on destruction of the
premises, and the provisions concerning the disposition of any condemnation
award, shall prevail over any conflicting provisions in the encumbrance."
27.02. Tenant shall attorn to any purchaser at any foreclosure sale, or to
any grantee or transferee designated in any deed given in lieu of foreclosure.
Tenant shall execute upon demand any and all documents required by lender(s) to
accomplish the purpose of this section.
ARTICLE 28
Rules and Regulations
28.01. The Rules and Regulations attached hereto as Exhibit B are, by this
reference, hereby incorporated herein and made a part hereof. Tenant agrees to
abide by and comply with said Rules and Regulations and any reasonable and
non-discriminatory amendments, modifications and/or additions thereto as may
hereafter be adopted and published by written notice to tenants by Landlord for
the
<PAGE> 33
safety, care, security, good order, and/or cleanliness of the premises and/or
the building. Landlord shall not be liable to Tenant for any violation of such
rules and regulations by any other tenant.
ARTICLE 29
Miscellaneous
29.01. Time is of the essence of each provision of this lease.
29.02. If either party is a corporation, that party shall deliver to the
other party on execution of this lease a certified copy of a resolution of its
board of directors authorizing the execution of this lease and naming the
officers that are authorized to execute this lease on behalf of the corporation.
29.03. This lease shall be binding on and inure to the benefit of the
parties and their successors, except as provided in Article 16.
29.04. Each party represents that it has not had dealings with any real
estate broker, finder, or other person, with respect to this lease in any
manner. Each party shall hold harmless the other party from all damages
resulting from any claims that may be asserted against the other party by any
broker, finder, or other person, with whom the other party has or purportedly
has dealt.
29.05. All exhibits referred to are attached to this lease and incorporated
by reference.
29.06. All provisions, whether covenants or conditions, on the part of
Tenant shall be deemed to be both covenants and conditions.
29.07. Except for other collateral documents executed concurrently
herewith, this lease contains all the agreements of the parties and cannot be
amended or modified except by a written agreement.
29.08. The captions of this lease shall have no effect on its
interpretation.
29.09. When required by the context of this lease, the singular
shall include the plural.
29.10. The unenforceability, invalidity, or illegality of any
provision shall not render the other provisions unenforceable, invalid,
or illegal.
<PAGE> 34
29.11. This Lease Agreement shall be governed in all respects by the
internal law (and not the laws pertaining to conflict of law) of the State of
California. The sole forum for adjudicating disputes hereunder shall be the
Municipal or Superior Court for the County of Los Angeles, State of California
or the Federal District Court for the Central District of California. The
parties hereto consent to the jurisdiction of such courts to any disputes
hereunder.
29.12. Rent and all other sums payable under this lease agreement must be
paid in lawful money of the United States of America.
ARTICLE 30
Tenant's Improvements
30.01. Tenant has arranged for and, as of the date of execution of this
lease, has completed its tenant improvements for the premises. Landlord is
indebted to Tenant in the sum of $_______ representing that portion of tenant
improvement allowance not previously reimbursed to Tenant. Tenant is hereby
credited in said sum against next-accruing rent installments hereunder.
ARTICLE 31
Rent Not Paid When Due; Late Charge
31.01. Except as provided in Section 21.03B, rent not paid when due shall
bear interest at that rate equal to the weighted average discount rate applied
by the Federal Reserve Bank of San Francisco during the period rent is overdue
and not paid, plus 1%, or the maximum rate allowed by law, whichever is less;
provided, however, that this provision shall not be deemed to constitute any
consent by Landlord to or waiver of Tenant's obligation to pay rent immediately
when due or of Tenant's default with respect to the overdue amount, or to
prevent Landlord from exercising any right or remedy available to Landlord
hereunder or under applicable law.
31.02. Tenant acknowledges that late payment by Tenant to Landlord of rent
will cause Landlord to incur costs not contemplated by this lease, the exact
amount of such costs being extremely difficult and impractical to fix. Such
costs include, without limitation, processing and accounting charges, and late
charges that may be imposed on Landlord by the terms of any encumbrance and note
secured by any encumbrance covering the premises or the real property of which
the premises are a part. Therefore, if any
<PAGE> 35
installment of rent due from Tenant is not received by Landlord when due, Tenant
shall pay to Landlord an additional sum of ten percent (10%) of the overdue rent
as a late charge. The parties agree that this late charge represents a fair and
reasonable estimate of the costs that Landlord will incur by reason of late
payment by Tenant. Acceptance of any late charge shall not constitute a waiver
of Tenant's default with respect to the overdue amount, nor prevent Landlord
from exercising any of the other rights and remedies available to Landlord.
Notwithstanding any provision of this lease to the contrary, each payment
received by landlord within five (5) days of its due date shall be deemed to be
paid when due.
ARTICLE 32
Notices
32.01. All notices which Landlord or Tenant may require or may desire to
serve on the other may be served, as an alternative to personal service, by
mailing the same by registered or certified mail, return receipt requested,
postage prepaid, addressed as set forth in Item 8 of the Basic Lease Provisions,
or, from and after commencement date, to the Tenant at the premises whether or
not of any covenant, agreement or condition contained in this lease and, if so,
specifying each such default of which the signer may have knowledge, it being
intended that any such statement delivered pursuant to this Section may be
relied upon by any prospective purchaser of the fee of the building or any
mortgagee thereof or any assignee of any mortgage upon the fee of the building.
ARTICLE 34
Estoppel Certificates
34.01. Tenant agrees at any time and from time to time upon not less than
twenty (20) days prior notice by Landlord to execute, acknowledge and deliver to
Landlord a statement in writing certifying that this lease is unmodified and in
full force and effect (or if there have been modifications, that the same is in
full force and effect as modified and stating the modifications), and the dates
to which the basic rent, additional rent and other charges have been paid in
advance, if any, and stating whether or not to the best knowledge of the signer
of such certificate, Landlord is in default in performance to the premises
used for shafts, stacks, pipes, conduits, fan rooms, ducts, electric or other
utilities, sinks or other building facilities, and the use thereof, as well as
access thereto through the premises for the purposes of operation, maintenance,
decoration and repair, are reserved to Landlord.
<PAGE> 36
34.02. Landlord agrees at any time and from time to time upon not less than
twenty (20) days prior notice by Tenant to execute, acknowledge and deliver to
Tenant a statement in writing certifying that this lease is unmodified and in
full force and effect (or if there shall have been modifications, that the same
is in full force and effect as modified and stating the modifications) and the
dates to which the basic rent, additional rent and other charges have been paid
in advance, if any, and stating whether or not to the best knowledge of the
signer of such certificate Tenant is in default in the performance of any
covenant, agreement or condition contained in this lease and, if so, specifying
each such default of which the signer may have knowledge, it being intended that
any such statement delivered pursuant to this Section may be relied upon by any
prospective assignee of the Tenant's interest in this lease.
ARTICLE 35
Access; Changes in Building Facilities, Name
35.01. All except the inside surfaces of all walls, windows and doors
bounding the premises (including exterior building walls, core corridor walls
and doors and any core corridor entrance), and any space in or adjacent Tenant
has departed from, abandoned or vacated the premises, or addressed to such other
address or addresses as either Landlord or Tenant may from time to time desig-
nate to the other in writing.
35.02. Tenant shall permit Landlord to install, use and maintain pipes,
ducts and conduits within the demising walls bearing columns and ceilings of the
premises.
35.03. Landlord reserves the right, at any time before or after completion
of the Building, without incurring any liability to Tenant therefor, to make
such changes in or to the building and the fixtures and equipment thereof, as
well as in or to the street entrances, halls, passages, concourse, elevators,
escalators, stairways and other improvements thereof, as it may deem necessary
or desirable.
ARTICLE 36
Building Directory
36.01. Landlord at its cost shall place, construct, and maintain a
directory or bulletin board, which shall be located in the lobby of the building
in which the premises are located, exclusively for the display of the names of
tenants in the building and their respective suite numbers. Tenant shall be
entitled to display its trade name and the individual names of its authorized
<PAGE> 37
representatives in the directory or bulletin board without additional cost to
Tenant.
36.02. If requested, Landlord shall paint, attach, or affix Tenant's trade
name and the individual names of its authorized representatives to or near the
door that is the principal entry to the premises, the cost of the sign and its
installation to be paid by Tenant.
36.03. Landlord has the sole right to determine the type of directory,
bulletin board, and sign, and the content of each (including, without
limitation, size of letters, style, color, and whether affixed or painted).
36.04. The Landlord shall have the right to use the exterior walls, grounds
and roof of the building for such signs as it may determine.
ARTICLE 38
Agreement Not To Discriminate
38.01. Tenant hereby covenants and agrees by and for Tenant and its heirs,
executors, administrators and assigns, and all persons claiming under or through
Tenant, and this Lease is made and accepted upon and subject to the condition
that there shall be no discrimination against or segregation of any person or
group of persons, on account of race, color, creed, religion, sex, marital
status, age, handicaps, national origin or ancestry, in the subleasing,
transferring, use, occupancy, tenure or enjoyment of the Building nor shall the
Tenant, or any person claiming under or through Tenant, establish or permit any
such practice or practices of discrimination or segregation with reference to
the selection, location, number, use or occupancy of sublessees, subtenants or
vendees in the Building.
<PAGE> 38
EXHIBIT A
DRAWINGS OF PREMISES
<PAGE> 39
EXHIBIT B
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside
or inside of the building without the written consent of Landlord first had
and obtained and Landlord shall have the right to remove any such sign,
placard, picture, advertisement, name or notice without notice to and at
the expense of Tenant.
All approved signs or lettering on or near entry doors shall be printed,
painted, affixed or inscribed at the expense of Tenant by a person approved
of by Landlord.
Tenant shall not place anything or allow anything to be placed near the
glass of any window, door, partition or wall which may appear unsightly
from outside the premises; provided, however, that Landlord may furnish and
install a building standard window covering at all exterior windows. Tenant
shall not without prior written consent of Landlord cause or otherwise
sunscreen any window.
2. The sidewalks, halls, passages, exits, entrances, elevators and stairways
shall not be obstructed by any of the tenants or used by them for any
purpose other than for ingress and egress from their respective premises.
3. Tenant shall not alter any lock or install any new or additional locks or
any bolts on any doors or windows of the premises.
4. The toilet rooms, urinals, wash bowls and other apparatus shall not be used
for any purpose other than that for which they were constructed and no
foreign substance of any kind whatsoever shall be thrown therein and the
expense of any breakage, stoppage or damage resulting from the violation of
this rule shall be borne by the tenant who, or whose employees or invitees
shall have caused it.
5. Tenant shall not overload the floor of the premises or in any way deface
the premises or any part thereof.
6. No furniture, freight or equipment of any kind shall be brought into or
removed from 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. Landlord shall have the right to
prescribe the weight, size and position of all safes and
<PAGE> 40
other heavy equipment brought into the building and also the times and
manner of moving the same in and out of the building. Safes or other heavy
objects shall, if considered necessary by Landlord, stand on supports of
such thickness as is necessary to properly distribute the weight. Landlord
will not be responsible for loss or damage to any such safe or property
from any cause and all damage done to the building by moving or maintaining
any such safe or other property shall be repaired at the expense of Tenant.
7. Tenant shall not use, keep or permit to be used or kept any foul or noxious
gas or substance in the premises, or permit or suffer the premises to be
occupied or used in a manner offensive or objectionable to the Landlord or
other occupants of the building by reason of noise, odors and/or
vibrations, or interfere in any way with other tenants or those having
business therein, nor shall any animals or birds be brought in or kept in
or about the premises or the building.
8. No cooking shall be done or permitted by any Tenant on the premises, nor
shall the premises be used for the storage of merchandise, for washing
clothes, for lodging, or for any improper, objectionable or immoral
purposes.
9. Tenant shall not use or keep in the premises or the building any kerosene,
gasoline or inflammable or combustible fluid or material or use any method
of heating or air conditioning other than that supplied by Landlord.
10. Landlord will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for wires will
be allowed without the consent of Landlord. The locations of telephones,
call boxes and other office equipment affixed to the premises shall be
subject to the approval of Landlord.
11. On Saturdays, Sundays and legal holidays, and on other days between the
hours of 6:00 p.m. and 8:00 a.m. the following day, access to the building,
or to the halls, corridors, elevators or stairways in the building, or to
the premises may be refused unless the person seeking access is known to
the person or employee of the building in charge and has a pass or is
properly identified. The Landlord shall in no case be liable for damages
for any error with regard to the admission to or exclusion from the
building of any person. In case of invasion, mob, riot, public excitement,
or other commotion, the Landlord reserves the right to prevent access to
the building during the continuance of the same by closing of the doors or
otherwise, for the safety of the tenants and protection of property in the
building and the premises.
<PAGE> 41
12. Landlord reserves the right to exclude or expel from the building any
person who, in the judgment of the Landlord, is intoxicated or under the
influence of liquor or drugs, or who shall in any manner do any act in
violation of any of the rules and regulations of the building.
13. No vending machine or machines of any description shall be installed,
maintained or operated upon the premises without the written consent of the
Landlord.
14. Landlord shall have the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the building
of which the premises are a part.
15. Tenant shall not disturb, solicit, or canvass any occupant of the building
and shall cooperate to prevent same.
16. Without the written consent of Landlord, Tenant shall not use the name of
the building in connection with or in promoting or advertising the business
of Tenant except as Tenant's address.
17. Landlord shall have the right to control and operate the public portions of
the building, and the public facilities, and heating and air conditioning,
as well as facilities furnished for the common use of the tenants, in such
manner as it deems best for the benefit of the tenants generally.
18. All entrance doors in the premises shall be left locked when the premises
are not in use, and all doors opening to public corridors shall be kept
closed except for normal ingress and egress from the premises.
<PAGE> 1
EXHIBIT 23.0
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated January 31, 1997, in the Registration
Statement (Form 10-SB with a filing date of June 20, 1997) of Harbor Bancorp and
subsidiaries for the registration of its common stock.
/s/ Ernst & Young LLP
------------------------------------
Los Angeles, CA
June 13, 1997
