UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________________ to __________________.
Commission File #0-12874
COMMERCE BANCORP, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-2433468
(State of other jurisdiction of incorporation (I.R.S. Employee
or organization) Identification Number)
Commerce Atrium
1701 Route 70 East 08034-5400
Cherry Hill, New Jersey (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: 609-751-9000
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Securities registered pursuant to Section 12(b) of the Act:
Common Stock New York Stock Exchange
Title of Class Name of Each Exchange on Which Registered
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periodthat the
registrant was required to file such report(s), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
Registrant is $757,008,600.(1)
APPLICABLE ONLY TO CORPORATE ISSUERS:
------------------------------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the last practicable date.
Common Stock $1.5625 Par Value 17,637,688
Title of Class No. of Shares Outstanding as of 3/6/98
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DOCUMENTS INCORPORATED BY REFERENCE
Parts II and IV incorporate certain information by reference from the
Registrant's Annual Report to Shareholders for the fiscal year ended December
31, 1997 (the "Annual Report"). Part III incorporatescertain information by
reference from the Registrant's Proxy Statement for the 1998 Annual Meeting of
Shareholders.
(1) The aggregate dollar amount of the voting stock set forth equals the number
of shares of the Registrant's Common Stock outstanding, reduced by the amount of
Common Stock held by officers, directors, and shareholders owning in excess of
10% of the Registrant's Common Stock multiplied by the last sale price for the
Registrant's Common Stock on March 6, 1998. The information provided shall in no
way be construed as an admission that the officer, director, or 10% shareholder
in the Registrant may be deemed an affiliate of the Registrant or that he is the
beneficial owner of the shares reported as being held by him, and any such
inference is hereby disclaimed. The information provided herein is included
solely for the recordkeeping purpose of the Securities and Exchange Commission.
<PAGE>
COMMERCE BANCORP, INC.
FORM 10-K CROSS-REFERENCE INDEX
The preceding Annual Report and Form 10-K incorporates into a single
document the requirements of the accounting profession and the Securities and
Exchange Commission. There has been no action by the Commission, however, to
approve or disapprove or pass upon the accuracy or adequacy of the Annual Report
and Form 10-K.
Page
Part I
Item 1. Business ..........................................................59
Item 2. Properties ........................................................59
Item 3. Legal Proceedings .................................................65
Item 4. Submission of Matters to a Vote of Security Holders
(This item is omitted since no matters were submitted
for security vote during the fourth quarter of 1997.)
Part II
Item 5. Market for the Registrant's Common Stock and Related
Stockholders Matters ..............................................28
Item 6. Selected Financial Data ............................................1
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations .........................................17
Item 7A.Quantitative and Qualitative Disclosures About Market Risk.........26
Item 8. Financial Statements and Supplementary Financial Data .............30
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
(This item is omitted since it is not applicable)
Part III
Item 10.Directors and Executive Officers of the Registrant
Item 11.Executive Compensation
Item 12.Security Ownership of Certain Beneficial Owners and Management
Item 13.Certain Relationships and Related Transactions
(The information required by the items in this
part has been omitted since it will be
contained in the definitive proxy statement to
be filed pursuant to Regulation 14A.)
Part IV
Item 14.Exhibits, Financial Statement Schedules and Reports on Form 8-K ...56
(a) (3) - Exhibits:
2.1 Agreement and Plan of Reorganization, dated October 15,
1996 by and between Commerce Bancorp, Inc. and
Independence Bancorp, Inc. The Schedules to this
agreement are not filed as an exhibit hereto pursuant to
Regulation S-K, Item 601 (b) (2); however, the
Registrant will furnish a copy of these Schedules to the
Commision upon its request. (K)
2.2 Agreement and Plan of Merger, dated October 15, 1996 by
and between Commerce Bancorp, Inc., and Independence
Bancorp, Inc. (K)
3.1 Restated Certificate of Incorporation of the Company, as
amended. (I)
3.2 Certificate of Amendment to the Restated Certificate of
Incorporation of the Company, setting forth the
preferences, limitations and relative rights of the
Company's Series C ESOP Cumulative Convertible Preferred
Stock. (I)
3.3 By-laws of the Company, as amended. (L)
4.1 Form of Trust Indenture, dated July 15, 1993, between
the Company and United Jersey Bank, with respect to the
Company's $23,000,000 8 3/8% Subordinated Notes due July
15, 2003. (I)
4.2 Form of Indenture between the Company and Wilmington
Trust Company, as Debenture Trustee. (N)
4.3 Certificate of Trust of Commerce Capital Trust I. (N)
4.4 Form of Amended and Restated Declaration of Trust of
Commerce Capital Trust I. (N)
4.5 Form of Capital Security Certificate for Commerce
Capital Trust I (included in Exhibit 4.4). (N)
4.6 Form of Guarantee Agreement. (N)
10.1 Ground lease, dated July 1, 1984, between Commerce NJ
and Group Four Equities, relating to the branch office
in Gloucester Township, New Jersey. (A)
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10.2 Ground lease, dated April 15, 1986, between Commerce NJ
and Mount Holly Equities, relating to Commerce NJ's
branch office in Mt. Holly, New Jersey. (C)
*10.3 The Company's 1984 Incentive Stock Option Plan. (A)
*10.4 The Company's Employee Stock Ownership Plan. (F)
10.5 Lease, dated March 29, 1985, between Commerce PA and
Devon Properties (Ltd.), and lease dated September 4,
1985, between Commerce PA and Devon Properties (Ltd.),
relating to Commerce PA's branch office in Devon,
Pennsylvania. (B)
10.6 Assignment of Lease and Assumption Agreement dated
November 30, 1987, between the Company and Commerce PA,
relating to Commerce PA's branch office in Devon,
Pennsylvania. (C)
10.7 Lease between the Company and Astoria Associates,
relating to the Company's and Commerce NJ's headquarters
facilities. (B)
10.8 Ground lease, dated April 15, 1986, between Commerce NJ
and U.S. Equities, relating to one of Commerce NJ's
branch offices in Washington Township, New Jersey. (D)
10.9 Ground lease, dated February 1, 1988, between Commerce
NJ and Diversified Properties of New Jersey, relating to
one of Commerce NJ's branch offices in Washington
Township, New Jersey. (D)
10.10 Ground lease, dated February 15, 1988, between Commerce
NJ and Diversified Properties of New Jersey, relating to
one of Commerce NJ's branch offices in Cherry Hill, New
Jersey. (D)
*10.11 The Company's 1989 Stock Option Plan for Non-Employee
Directors. (E)
*10.12 A copy of employment contracts with Vernon W. Hill, II,
C. Edward Jordan, Jr., and Peter Musumeci, Jr., dated
January 2, 1992. (G)
*10.13 A copy of the Retirement Plan for Outside Directors of
Commerce Bancorp, Inc. (H)
*10.14 The Company's 1994 Employee Stock Option Plan. (J)
10.15 Term Loan Agreement between Commerce Bancorp, Inc.
Employee Stock Ownership Trust and Mellon Bank, N.A.
dated as of November 29, 1994. (J)
*10.16 The Company's 1997 Employee Stock Option Plan. (M)
*10.17 A copy of employment contracts with Dennis M. DiFlorio
and Robert D. Falese dated January 1, 1998.
10.18 Ground lease, dated June 1, 1994, between Commerce NJ
and Absecon Associates, L.L.C., relating to Commerce
NJ's branch office in Absecon, New Jersey.
10.19 Ground lease, dated September 11, 1995, between Commerce
Shore and Whiting Equities, L.L.C., relating to Commerce
Shore's branch office in Manchester Township, New
Jersey.
10.20 Ground lease, dated November 1, 1995, between Commerce
NJ and Evesboro Associates, L.L.C., relating to Commerce
NJ's branch office in Evesham Township, New Jersey.
10.21 Ground lease, dated October 1, 1996, between Commerce NJ
and Triad Equities, L.L.C., relating to one of Commerce
NJ's branch offices in Gloucester Township, New Jersey.
10.22 Ground lease, dated October 11, 1996, between Commerce
PA and Plymouth Equities, L.L.C., relating to Commerce
PA's branch office in Plymouth Township, PA.
11.1 Computation of Net Income Per Share .................44
13.1 The Registrant's Annual Report to Shareholders for its
fiscal year ended December 31, 1997.
21.1 Subsidiaries of the Company (incorporated by reference
from PART I, Item 1. "Business" of this Report
on Form 10-K.) ......................................59
23.1 Consent of Ernst & Young LLP.
27.1 The Registrant's Financial Data Schedule.
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(A) Incorporated by reference from the Company's
Registration Statement on Form S-1, and Amendments Nos.
1 and 2 thereto (Registration No. 2-94189).
(B) Incorporated by reference from the Company's
Registration Statement on Form S-2 (Registration No
33-12603).
(C) Incorporated by reference from the Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 1987.
(D) Incorporated by reference from the Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 1988.
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(E) Incorporated by reference from the Company's
Registration Statement on Form S-2, and Amendments Nos.
1 and 2 thereto (Registration No. 33-31042).
(F) Incorporated by reference from the Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 1989.
(G) Incorporated by reference from the Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 1991.
(H) Incorporated by reference from the Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 1992.
(I) Incorporated by reference from the Company's
Registration Statement on Form S-2 and Amendments Nos. 1
and 2 thereto (Registration No. 33-62702).
(J) Incorporated by reference from the Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 1994.
(K) Incorporated by reference from the Company's Current
Report on Form 8-K dated October 21, 1996 (Exhibits 3
and 4).
(L) Incorporated by reference from the Company's
Registration Statement on Form S-4 (Registration No.
333-10771).
(M) Incorporated by reference from the Company's Definitive
Proxy Statement for its 1997 Annual Meeting of
Shareholders, Exhibit A thereto.
(N) Incorporated by reference from the Company's
Registration Statement on Form S-3 (Registration No.
333-28311).
* Management contract or compensation plan or arrangement.
(b) There were no reports on Form 8-K filed in the fourth quarter of
1997.
(c)(d) Exhibits and Financial Statement Schedules - All other
exhibits and schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instruction or are inapplicable and,
therefore, have been omitted.
Item 15. Signatures ..................................................66
58
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PART I
Item 1. Business
General
Commerce Bancorp, Inc. (the "Company") is a New Jersey business corporation
which is registered as a bank holding company under the Bank Holding Company Act
of 1956, as amended (the "Holding Company Act"). The Company was incorporated on
December 9, 1982 and became an active bank holding company on June 30, 1983
through the acquisition of 100% of the outstanding shares of Commerce Bank, N.A.
("Commerce NJ"). On January 2, 1987, the Company acquired all of the outstanding
shares of Commerce Bank/Pennsylvania, N.A. ("Commerce PA"). On December 31, 1988
the Company acquired all of the outstanding shares of Citizens State Bank of New
Jersey, Forked River, which was subsequently converted to a national charter and
renamed Commerce Bank/Shore, N.A. ("Commerce Shore"). On September 30, 1993, the
Company acquired all of the outstanding shares of The Coastal Bank, Ocean City,
New Jersey, ("Coastal") which was merged into Commerce NJ.
Effective January 21, 1997, the Company acquired Independence Bancorp,
Inc., a bank holding company headquarted in Bergen County, New Jersey.
Independence Bancorp, Inc.'s wholly-owned state-chartered bank subsidiary,
Independence Bank of New Jersey, was subsequently renamed Commerce Bank/North
("Commerce North"). At the time of acquisition, Independence Bank of New Jersey
had eight branches in Bergen and Passaic Counties, New Jersey, and had
approximately $377 million in assets.
On November 15, 1996, two insurance brokerage agencies, Keystone National
Companies, Inc., Cherry Hill, New Jersey, and Morales, Potter & Buckelew, Inc.,
t/a Buckelew & Associates, Toms River, New Jersey, were acquired by the Company
and thereafter merged to form Commerce National Insurance Services, Inc.
("Commerce Insurance"). Commerce Insurance is currently a wholly-owned
subsidiary of Commerce North.
Effective December 1, 1996, a third insurance brokerage agency, Chesley &
Cline, Inc., Mount Holly, New Jersey was merged with and into Commerce
Insurance. Effective January 1, 1997, a fourth insurance brokerage agency,
Colkate, Inc., t/a The Morrissey Agency, Mt. Laurel, New Jersey, was merged with
and into Commerce Insurance. Effective December 1, 1997, Joseph J. Reinhart and
Associates, Inc., Cherry Hill, NJ, a risk/loss management and loss investigation
consulting firm, and Associated Insurance Management, Inc., Haddonfield, NJ, an
employee and executive benefit consulting firm, were merged with and into
Commerce Insurance.
On June 9, 1997, the Company issued $57,500,000 of 83/4% Trust Capital
Securities through Commerce Capital Trust I, a newly formed Delaware business
trust subsidiary of the Company.
Except as otherwise indicated, all references herein to the Company include
Commerce NJ, Commerce PA, Commerce Shore,Commerce North, Commerce Capital Trust
I, and Commerce Insurance.
The Company's principal executive offices are located at Commerce Atrium,
1701 Route 70 East, Cherry Hill, New Jersey 08034-5400, and its telephone number
is (609) 751-9000.
The total number of full-time equivalent persons employed by the Company
was 2,160 as of December 31, 1997. The Company believes that its relationship
with its employees is good.
Commerce NJ
Commerce NJ provides retail and commercial banking services through 40
retail branch offices in Camden, Burlington, Gloucester, Atlantic, and Cape May
Counties in Southern New Jersey. It currently has six offices in Cherry Hill,
three offices in Washington Township, two offices each in Gloucester Township,
Marlton, Medford and Moorestown, and one office each in Absecon, Atco, Bellmawr,
Berlin, Brigantine, Cinnaminson, Evesham Township, Glassboro, Haddonfield,
Hammonton, Lumberton, Marmora, Mount Holly, Mullica Hill, Northfield, Ocean
City, Sicklerville, Somers Point, Stratford, Voorhees, West Deptford,
Williamstown, and Woodbury. Commerce NJ's deposits are insured by the Federal
Deposit Insurance Corporation ("FDIC").
As of December 31, 1997, Commerce NJ had total assets of $2.719 billion,
total deposits of $2.177 billion, and total stockholders' equity of $163.4
million.
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Service Area
Commerce NJ's primary service area includes Burlington, Camden, Gloucester,
Atlantic and Cape May Counties, New Jersey. Commerce NJ has attempted to locate
its branches in the fastest growing communities within its service area. Retail
deposits gathered through these focused branching activities are used to support
Commerce NJ's lending throughout Southern New Jersey.
Retail Banking Activities
Commerce NJ provides a broad range of retail banking services and products,
including free checking accounts (subject to minimum balances) and savings
programs, money market accounts, negotiable orders of withdrawal ("NOW")
accounts, certificates of deposit, safe deposit facilities, consumer loan
programs (including installment loans for home improvement and the purchase of
consumer goods and automobiles), home equity and Visa Gold card revolving lines
of credit, overdraft checking and automated teller facilities. Commerce NJ also
offers construction loans and permanent mortgages for houses.
Trust Activities
Commerce NJ offers trust services primarily focusing on corporate trust
activities, particularly as bond trustee, paying agent, and registrar for
municipal bond offerings.
Commercial Banking Activities
Commerce NJ offers a broad range of commercial banking services, including
free checking accounts (subject to minimum balance), night depository
facilities, money market accounts, certificates of deposit, short-term loans for
seasonal or working capital purposes, term loans for fixed assets and expansion
purposes, revolving credit plans and other commercial loans to fit the needs of
its customers. Commerce NJ also finances the construction of business properties
and makes real estate mortgage loans on completed buildings. Where the needs of
a customer exceed Commerce NJ's legal lending limit for any one customer
(approximately $26.3 million as of December 31, 1997), Commerce NJ may
participate with other banks, including Commerce PA, Commerce Shore, and
Commerce North, in making a loan.
Commerce PA
In 1987, the Company acquired all of the issued and outstanding shares of
capital stock of Commerce PA. As a result of this transaction, Commerce PA
became a wholly-owned subsidiary of the Company.
Commerce PA was organized as a national bank on December 28, 1983 and
commenced operations on June 29, 1984. As of December 31, 1997, Commerce PA had
total assets of $475.5 million, total deposits of $443.0 million and total
stockholders' equity of $29.0 million.
Commerce PA provides retail and commercial banking services through 16
retail branch offices in Philadelphia, Chester, Delaware and Montgomery Counties
in Southeastern Pennsylvania. It currently has one office in Center City
Philadelphia, one in West Philadelphia, one in South Philadelphia, and one
office each in the Philadelphia suburbs of Brookhaven, Chichester, Collegeville,
Devon, Haverford, Lawrence Park, Media, Newtown Square, Plymouth Township,
Springfield, Trooper, Wayne and Whitpain. Commerce PA's deposits are insured by
the FDIC.
Commerce PA generally provides the same retail and commercial banking
services and products as Commerce NJ, Commerce Shore, and Commerce North.
Commerce PA offers trust services similar to those offered by Commerce NJ.
Commerce Shore
In 1988, the Company acquired all of the issued and outstanding shares of
capital stock of Commerce Shore. As a result of this transaction, Commerce Shore
became a wholly-owned subsidiary of the Company.
Commerce Shore was organized as a state-chartered bank on December 8, 1972
and commenced operations on January 29, 1973. In 1989, Commerce Shore converted
to a national charter. As of December 31, 1997, Commerce Shore had total assets
of $398.9 million, total deposits of $349.1 million and total stockholders'
equity of $26.8 million.
Commerce Shore provides retail and commercial banking services through 10
retail branch offices in Ocean County, New Jersey. It currently has two offices
in Toms River, and one office each in Barnegat, Bayville, Forked River, Jackson
Township, Long Beach Island, Manahawkin, Manchester Township, and Stafford.
Commerce Shore's deposits are insured by the FDIC.
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Commerce Shore generally provides the same retail and commercial banking
services and products as Commerce NJ, Commerce PA, and Commerce North. Commerce
Shore does not offer trust services.
Commerce North
In 1997, the Company acquired Independence Bancorp, Inc. As a result of
this transaction, Independence Bancorp Inc.'s wholly-owned state-chartered bank
subsidiary, Independence Bank of New Jersey, became a wholly-owned subsidiary of
the Company, and was subsequently renamed Commerce North.
Commerce North was organized as a state-chartered bank in 1974 and
commenced operations in 1975. As of December 31, 1997, Commerce North had total
assets of $516.9 million, total deposits of $467.4 million, and total
stockholders' equity of $35.2 million.
Commerce North provides retail and commercial banking services through 10
retail branch offices in Bergen and Passaic Counties, New Jersey. It currently
has two offices in Ramsey, and one office each in Allendale, Hackensack,
Hawthorne, Mahwah, Montvale, Park Ridge, Ridgewood, and Westwood. Commerce
North's deposits are insured by the FDIC.
Commerce North generally provides the same retail and commercial banking
services and products as Commerce NJ, Commerce PA, and Commerce Shore. Commerce
North does not offer trust services.
Commerce Insurance
Commerce Insurance operates as a regional insurance brokerage firm
concentrating on commercial property, casualty and surety as well as personal
lines. In addition, Commerce Insurance offers a line of employee benefit
programs including both group as well as individual medical, life, disability
and pension. Commerce Insurance currently operates out of eight locations in New
Jersey. Commerce Insurance places insurance for clients in multiple states,
primarily New Jersey and Pennsylvania.
Commerce Capital Markets, Inc.
In November, 1997, the Company reached an agreement in principle to acquire
A. H. Williams & Co., Inc., (Williams) Philadelphia, PA, a public finance
investment firm. The Company anticipates the acquisition will close by March 31,
1998, and plans to combine Williams with Commerce Capital, the bank securities
dealer division of Commerce NJ, to form Commerce Capital Markets, Inc., a
wholly-owned nonbank subsidiary of the Company engaging in certain securities
activities permitted under Section 20 of the Glass-Steagall Act. The acquisition
will be completed by the issuance of common stock of the Company totaling
approximately 330,000 shares. The transaction will be accounted for as a pooling
of interests. However, the Company does not expect to restate the financial
statements of the periods prior to the acquisition, as the changes, in the
aggragate, would be immaterial.
Other Activities
Commerce NJ Equities Corporation, a New Jersey corporation, is a
wholly-owned subsidiary of Commerce NJ which purchases, holds and sells
investments of Commerce NJ. Commerce Shore Equities Corporation, a New Jersey
corporation, is a wholly-owned subsidiary of Commerce Shore which purchases,
holds and sells investments of Commerce Shore. Independence Asset Management, a
Delaware corporation, is a wholly-owned subsidiary of Commerce North which
purchases, holds, and sells investments of Commerce North.
As part of the Commerce Network, the Company has an equity investment in
Commerce Bank/Harrisburg, Camp Hill, Pennsylvania (15.42% beneficial ownership).
The Commerce Network provides certain marketing support and technical support
services to its members.
Competition
The Company's service area is characterized by intense competition in all
aspects and areas of its business from commercial banks, savings and loan
associations, mutual savings banks and other financial institutions. Other
competitors, including credit unions, consumer finance companies, factors,
insurance companies and money market mutual funds, compete with certain lending
and deposit gathering services offered by the Company. Many competitors have
substantially greater financial resources and larger lending limits and larger
branch systems than those of the Company.
In commercial transactions, Commerce NJ's, Commerce PA's, Commerce Shore's,
and Commerce
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North's legal lending limit to a single borrower (approximately $26.3
million, $4.7 million, $4.3 million, and $5.8 million, respectively, as of
December 31, 1997) enables them to compete effectively for the business of
smaller and mid-sized businesses. However, these legal lending limits are
considerably lower than that of various competing institutions and thus may act
as a constraint on Commerce NJ's, Commerce PA's and Commerce Shore's
effectiveness in competing for financing in excess of these limits.
The Company believes that it is able to compete on a substantially equal
basis with larger financial institutions because it offers longer hours of
operation than those offered by most of its competitors, free checking accounts
for customers maintaining certain minimum balances and competitive interest
rates on savings and time accounts with low minimum deposit requirements.
The Company seeks to provide personalized services through management's
knowledge and awareness of its market area, customers and borrowers. The Company
believes this knowledge and awareness provides a business advantage in serving
the retail depositors and the small and mid-sized commercial borrowers that
comprise the Company's customer base.
Supervision and Regulation
THE FOLLOWING DISCUSSION SETS FORTH CERTAIN OF THE MATERIAL ELEMENTS OF THE
REGULATORY FRAMEWORK APPLICABLE TO BANK HOLDING COMPANIES AND THEIR SUBSIDIARIES
AND PROVIDES CERTAIN SPECIFIC INFORMATION RELEVANT TO THE COMPANY. THE
REGULATORY FRAMEWORK IS INTENDED PRIMARILY FOR THE PROTECTION OF DEPOSITORS,
OTHER CUSTOMERS AND THE FEDERAL DEPOSIT INSURANCE FUNDS AND NOT FOR THE
PROTECTION OF SECURITY HOLDERS. TO THE EXTENT THAT THE FOLLOWING INFORMATION
DESCRIBES STATUTORY AND REGULATORY PROVISIONS, IT IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE PARTICULAR STATUTORY AND REGULATORY PROVISIONS. A CHANGE IN
APPLICABLE STATUTES, REGULATIONS OR REGULATORY POLICY MAY HAVE A MATERIAL EFFECT
ON THE BUSINESS OF THE COMPANY.
The Company
The Company is registered as a bank holding company under the Bank Holding
Company Act of 1956, as amended ("Holding Company Act"), and is therefore
subject to supervision and regulation by the Board of Governors of the Federal
Reserve System ("FRB"). The Company is also regulated by the New Jersey and
Pennsylvania Departments of Banking.
Under the Holding Company Act, the Company is required to secure the prior
approval of the FRB before it can merge or consolidate with any other bank
holding company or acquire all or substantially all of the assets of any bank or
acquire direct or indirect ownership or control of any voting shares of any bank
that is not already majority owned by it, if after such acquisition it would
directly or indirectly own or control more than 5% of the voting shares of such
bank. See "Interstate Banking."
The Company is generally prohibited under the Holding Company Act from
engaging in, or acquiring direct or indirect ownership or control or more than
5% of the voting shares of any company engaged in nonbanking activities unless
the FRB, by order or regulation, has found such activities to be so closely
related to banking or managing or controlling banks as to be a proper incident
thereto. In making such a determination, the FRB considers whether the
performance of these activities by a bank holding company can reasonably be
expected to produce benefits to the public which outweigh the possible adverse
effects. The FRB has by regulation determined that certain activities are
closely related to banking within the meaning of the Holding Company Act. These
activities include, among others, operating a mortgage, finance, credit card or
factoring company; performing certain data processing operations, providing
investment and financial advice; acting as an insurance agent for certain types
of credit-related insurance; leasing property on a full-payout, non-operating
basis; and certain stock brokerage and investment advisory services.
Satisfactory financial condition, particularly with regard to capital
adequacy, and satisfactory Community Reinvestment Act ratings are generally
prerequisites to obtaining federal regulatory approval to make acquisitions. All
of the Company's subsidiary banks are currently rated "satisfactory" under the
Community Reinvestment Act.
In addition, under the Holding Company Act, the Company is required to file
periodic reports of its operations with, and is subject to examination by, the
FRB.
The Company is under the jurisdiction of the Securities and Exchange
Commission ("SEC") and various state securities commissions for matters relating
to the offering and sale of its securities and is subject to the SEC's rules and
regulations relating to periodic reporting, reporting to shareholders, proxy
solicitation and insider trading.
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There are various legal restrictions on the extent to which the Company and
its nonbank subsidiaries can borrow or otherwise obtain credit from its banking
subsidiaries. In general, these restrictions require that any such extensions of
credit must be secured by designated amounts of specified collateral and are
limited, as to any one of the Company or such nonbank subsidiaries, to ten
percent of the lending bank's capital stock and surplus, and as to the Company
and all such nonbank subsidiaries in the aggregate, to 20 percent of such
lending bank's capital stock and surplus. Further, a bank holding company and
its subsidiaries are prohibited from engaging in certain tie-in arrangements in
connection with any extension of credit, lease or sale of property or furnishing
of services.
The Financial Institutions Reform, Recovery and Enforcement Act ("FIRREA")
contains a "cross-guarantee" provision that could result in any insured
depository institution owned by the Company being assessed for losses incurred
by the FDIC in connection with assistance provided to, or the failure of, any
other depository institution owned by the Company. Also, under FRB policy, the
Company is expected to act as a source of financial strength to each of its
banking subsidiaries and to commit resources to support each such bank in
circumstances where such bank might not be in a financial position to support
itself.
A discussion of capital guidelines and capital is included in the section
entitled "Stockholders' Equity and Dividends" contained within Management's
Discussion and Analysis of Financial Condition and Results of Operations on page
28 of the Company's Annual Report to Shareholders for the fiscal year ended
December 31, 1997, which page of the Annual Report appears elsewhere herein.
Commerce NJ, Commerce PA, Commerce Shore and Commerce North
Commerce NJ, Commerce PA and Commerce Shore, as national banks, are subject
to the National Bank Act. Each is also subject to the supervision of, and is
regularly examined by, the Office of the Comptroller of the Currency ("OCC") and
is required to furnish quarterly reports to the OCC. The approval of the OCC is
required for the establishment of additional branch offices by any national
bank, subject to applicable state law restrictions.
Commerce North, as a New Jersey state-chartered bank, is subject to the New
Jersey Banking Act. Commerce North is also subject to the supervision of, is
regularly examined by, the New Jersey Department of Banking and Insurance
("Department") and the FDIC, and is required to furnish quarterly reports to
each agency. The Approval of the Department and FDIC is necessary for the
establishment of any additional branch offices by any New Jersey state-chartered
bank, subject to applicable state law restrictions.
Under present New Jersey law, Commerce NJ, Commerce Shore and Commerce
North would be permitted to operate offices at any location in New Jersey,
subject to prior regulatory approval.
Under present Pennsylvania law, Commerce PA would be permitted to operate
offices within any county in Pennsylvania, subject to prior regulatory approval.
Under the Community Reinvestment Act, as amended ("CRA"), a bank has a
continuing and affirmative obligation consistent with its safe and sound
operation to help meet the credit needs of its entire community, including low-
and moderate-income neighborhoods. CRA does not establish specific lending
requirements or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with CRA. CRA
requires that the applicable regulatory agency to assess an institution's record
of meeting the credit needs of its community and to take such record into
account in its evaluation of certain applications by such institution. The CRA
requires public disclosure of an institution's CRA rating and requires that the
applicable regulatory agency provide a written evaluation of an institution's
CRA performance utilizing a four-tiered descriptive rating system. An
institution's CRA rating is considered in determining, whether to grant
charters, branches and other deposit facilities, relocations, mergers,
consolidations and acquisitions. Performance less than satisfactory may be the
basis for denying an application. In addition, under applicable regulations a
bank having a less than satisfactory rating is not entitled to participate on
the bid list for FDIC offerings. In 1997, Commerce NJ, Commerce PA, Commerce
Shore and Commerce North each received a "satisfactory" rating.
Commerce NJ, Commerce PA, Commerce Shore and Commerce North are also
members of the FDIC and, except for Commerce North, members of the FRB and,
therefore, are subject to additional regulation by these agencies. Some of the
aspects of the lending and deposit business of Commerce NJ, Commerce PA,
Commerce Shore and Commerce North which are regulated by these agencies include
personal lending, mortgage lending and reserve requirements. The operation of
Commerce NJ, Commerce PA, Commerce Shore and Commerce North are also subject to
numerous federal, state and local laws and regulations which set forth specific
restrictions and procedural requirements with respect to interest rates on
loans, the extension of credit, credit practices, the disclosure of credit terms
and discrimination in credit transactions.
Commerce NJ, Commerce PA, Commerce Shore and Commerce North are subject to
certain limitations on the amount of cash dividends that they can pay. See Note
18 of the Company's Notes to Consolidated Financial Statements which appears
elsewhere herein.
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The OCC has authority under the Financial Institutions Supervisory Act to
prohibit national banks from engaging in any activity which, in the OCC's
opinion, constitutes an unsafe or unsound practice in conducting their
businesses. The Federal Reserve Board has similar authority with respect to the
Company and the Company's non-bank subsidiaries. The FDIC has similar authority
with respect to Commerce North.
Substantially all of the deposits of the banking subsidiaries are insured
up to applicable limits by the Bank Insurance Fund ("BIF") of the FDIC and are
subject to deposit insurance assessments to maintain the BIF. The insurance
assessments are based upon a matrix that takes into account a bank's capital
level and supervisory rating. Effective January 1, 1996, the FDIC reduced the
insurance premiums it charged on bank deposits insured by the BIF to the
statutory minimum of $2,000 annually for "well capitalized" banks. On September
30, 1996, the Deposit Insurance Funds Act of 1996 ("DIFA") was enacted and
signed into law. DIFA reduced the amount of FDIC insurance premiums for savings
association deposits acquired by banks to the same levels assessed for deposits
insured by BIF. DIFA further provides for assessments to be imposed on all
insured depository institutions with respect to deposits to pay for the cost of
Financing Corporation bonds; however, banks are assessed for this purpose at
only one-fifth the rate of the assessment on savings associations until December
31, 1999. As a result of these changes, the deposit insurance assessment for
banks and for thrifts has been nearly equalized and will be identical for
comparably rated institutions after January 1, 2000, at which time banks will
share equally in the FICO assessment and the BIF and SAIF funds will be merged.
Interstate Banking
On September 29, 1994, the President signed into law the "Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994" (the "Interstate Act").
Among other things, the Interstate Act permits bank holding companies to acquire
banks in any state after September 29, 1995. Beginning June 1, 1997, a bank may
merge with a bank in another state so long as both states have not opted out of
interstate branching between the date of enactment of the Interstate Act and May
31, 1997. States may enact laws opting out of interstate branching before June
1, 1997, subject to certain conditions. States may also enact laws permitting
interstate merger transactions before June 1, 1997, and host states may impose
conditions on a branch resulting from an interstate merger transaction that
occurs before June 1, 1997, if the conditions do not discriminate against
out-of-state banks, are not preempted by Federal law and do not apply or require
performance after May 31, 1997. New Jersey and Pennsylvania have enacted laws
opting in immediately to interstate merger and interstate branching
transactions. Interstate acquisitions and mergers would both be subject, in
general, to certain concentration limits and state entry rules relating to the
age of the bank.
Under the Interstate Act, the Federal Deposit Insurance Act is amended to
permit the responsible Federal regulatory agency to approve the acquisition of a
branch of an insured bank by an out-of-state bank or bank holding company
without the acquisition of the entire bank or the establishment of a "de novo"
branch only if the law of the state in which the branch is located permits
out-of-state banks to acquire a branch of a bank without acquiring the bank or
permits out-of-state banks to establish "de novo" branches. Pennsylvania and New
Jersey have each passed such a law. However, the New Jersey law does not
authorize establishment of interstate branches other than by means of acquiring
such branches from another institution.
Commerce Insurance/Commerce Capital Markets
Commerce Insurance, a nonbank subsidiary of Commerce North, is currently
subject to supervision, regulation and examination by the New Jersey Department
of Banking and Insurance. Commerce Capital Markets, a nonbank subsidiary of the
Company, engages in certain securities activities permitted to bank holding
company subsidiaries under Section 20 of the Glass-Steagall Act and is regulated
by the SEC. Commerce Capital Markets is also subject to rules and regulations
promulgated by the National Association of Securities Dealers, Inc., the
Securities Investors Protection Corporation and various state securities
commissions and with respect to public finance activities the Municipal
Securities Rulemaking Board.
Both Commerce Insurance and Commerce Capital Markets are also subject to
various state laws and regulations in which they do business. These laws and
regulations are primarily intended to benefit clients and generally grant
supervisory agencies broad administrative powers, including the power to limit
or restrict the carrying on of business for failure to comply with such laws and
regulations. In such event, the possible sanctions which may be imposed include
the suspension of individual employees, limitations on engaging in business for
specific periods, censures and fines.
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National Monetary Policy
In addition to being affected by general economic conditions, the earnings
and growth of the Company, Commerce NJ, Commerce PA, Commerce Shore, and
Commerce North are affected by the policies of regulatory authorities, including
the OCC, the FRB and the FDIC. An important function of the FRB is to regulate
the money supply and credit conditions. Among the instruments used to implement
these objectives are open market operations in U.S. Government securities,
setting the discount rate, and changes in reserve requirements against bank
deposits. These instruments are used in varying combinations to influence
overall growth and distribution of credit, bank loans, investments and deposits,
and their use may also affect interest rates charged on loans or paid on
deposits.
The monetary policies and regulations of the FRB have had a significant
effect on the operating results of commercial banks in the past and are expected
to continue to do so in the future. The effects of such policies upon the future
business, earnings and growth of the Company, Commerce NJ, Commerce PA, Commerce
Shore, and Commerce North cannot be predicted.
Legal Proceedings
Other than routine litigation incidental to its business, none of the
Company, Commerce NJ, Commerce PA, Commerce Shore, Commerce North, Commerce
Capital Trust I, Commerce National Insurance Services, or Commerce Capital
Markets, Inc., or any of their properties is subject to any material legal
proceedings, nor are any such proceedings known to be contemplated.
Employee Stock Ownership Plan
Effective January 1, 1989, the Company's Board of Directors approved the
restatement of the Company's Stock Bonus Plan to an Employee Stock Ownership
Plan ("ESOP"). The ESOP is intended to be a qualified retirement plan
established and maintained in accordance with the Employee Retirement Income
Security Act of 1974 for the benefit of the Company's and its bank subsidiaries'
eligible employees. The ESOP is intended to invest primarily in "Qualifying
Employer Securities" (i.e., common stock or preferred stock which is convertible
into common stock). The assets of the ESOP are held in a trust fund pursuant to
a Trust Agreement. The trustees under the Trust Agreement are authorized to
invest up to 100% of the trust fund in Qualifying Employer Securities. The
trustees are also authorized to borrow money for the purpose of purchasing
Qualifying Employer Securities.
Generally, each participant in the ESOP is entitled to direct the trustees
with respect to the voting rights, if any, of the Qualifying Employer Securities
allocated to the participant's account. In other cases (i.e., unallocated
shares), the voting of shares held by the ESOP is determined by the trustees.
The current trustees are Vernon W. Hill, II and C. Edward Jordan, Jr., the
trustees under the Company's former Stock Bonus Plan.
The Company is responsible for the operation and administration of the
ESOP. The Company determines investment policies under which the trustees act.
These duties are carried out by a committee appointed by the Board of Directors.
The Board of Directors has the sole responsibility to appoint and remove members
of the committee of trustees, to determine the amount of contributions to the
ESOP by the Company and its subsidiary banks, and to amend or terminate, in
whole or in part, the ESOP or the Trust Agreement.
The Company's Board of Directors approved the creation of a new series of
cumulative convertible preferred stock known as "Series C ESOP Cumulative
Convertible Preferred Stock." On January 31, 1990, the ESOP borrowed $7.5
million from another financial institution to complete the purchase of 417,000
shares of Series C ESOP Cumulative Convertible Preferred Stock from the Company,
at $18.00 per share, with an annual dividend rate of $1.35. This loan was
guaranteed by the Company. During 1994, the loan was refinanced with another
financial institution, also with the guarantee of the Company. The balance of
the loan at December 31, 1997 was $2,308,000.
Effective March 1, 1998, the Trustees of the ESOP exercised their right to
convert all 417,000 shares of Series C ESOP Cumulative Convertible Preferred
Stock held by the ESOP into 646,904 shares of the Company's common stock. The
unallocated shares of common stock the ESOP Trust held of record as of March 1,
1998 was approximately 1.13% of the Company's common stock.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Commerce Bancorp, Inc.
By /s/ Vernon W. Hill, II
Vernon W. Hill, II
Chairman of the Board and President
Date: March 30, 1998
Pursuant to the requirements of the Securities and 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.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Vernon W. Hill, II Chairman of the Board and President March 30, 1998
Vernon W. Hill, II (Principal Executive Officer)
/s/ C. Edward Jordan Jr. Executive Vice President and Director March 30, 1998
C. Edward Jordan Jr. (Principal Financial and Accounting Officer)
/s/ Robert C. Beck Secretary and Director March 30, 1998
Robert C. Beck
/s/ David Baird, IV Director March 30, 1998
David Baird, IV
/s/ Jack R Bershad Director March 30, 1998
Jack R Bershad
/s/ Morton N. Kerr Director March 30, 1998
Morton N. Kerr
/s/ Steven M. Lewis Director March 30, 1998
Steven M. Lewis
/s/ Daniel J. Ragone Director March 30, 1998
Daniel J. Ragone
/s/ Joseph T. Tarquini Jr. Director March 30, 1998
Joseph T. Tarquini Jr.
/s/ Joseph Buckelew Director March 30, 1998
Joseph Buckelew
</TABLE>
EMPLOYMENT AGREEMENT
AGREEMENT dated as of this 1st day of January, 1998, by and between
COMMERCE BANCORP, INC. ("Commerce"), a New Jersey business corporation, and
ROBERT D. FALESE ("Employee").
B A C K G R 0 U N D
Employee is the Executive Vice President of Commerce and Executive Vice
President of Commerce Bank, N.A. ("CB"), a national banking association and a
wholly-owned subsidiary of Commerce. The Board of Directors of Commerce (the
"Board") has determined that the future services of Employee in these capacities
will be of value to Commerce, CB and Commerce's other present and future
subsidiaries and accordingly the Board wishes to have Employee's services
available to Commerce for at least the next three years and to provide
supplemental benefits to Employee should his employment with Commerce terminate
under certain circumstances or should he die or become disabled prior to the
termination of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and intending to be legally bound hereby, the parties agree as
follows:
1. Employment and Term of Employment.
1.1 Commerce offers Employee employment, and Employee hereby accepts
such employment, subject to all the terms and conditions of this Agreement, for
a term of three years beginning on the date hereof, subject, however, to
automatic renewal and extension as set forth below and to Commerce's and
Employee's right to terminate his employment hereunder as set forth herein.
Notwithstanding anything herein provided to the contrary, on each anniversary
date of this Agreement, this Agreement and Employee's employment hereunder shall
automatically be renewed and extended (upon the same terms and conditions) for a
new three year term unless written notice by either party is given pursuant to
Section 1.2 hereof. As used hereinafter "Term" includes the original three year
period as well as any renewed or extended periods as provided for herein.
1.2 Either party may terminate this Agreement on any anniversary date
of this Agreement by giving to the other party written notice thereof at least
thirty days prior to any such anniversary date. As a
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result of the foregoing notice being given to either party hereunder, the Term
will have two years remaining from the applicable anniversary date, subject to
the terms and conditions set forth herein.
2. Services and Duties.
Commerce agrees to employ Employee during the Term as Executive
Vice President of Commerce. Subject to the approval of the CB Board of
Directors, Employee shall during the Term also serve as the Executive Vice
President of CB and, subject to the approval of the respective Boards of
Directors, Employee shall during the Term also serve as an officer and/or
director of such other subsidiaries of Commerce as such Board of Directors, with
the consent of Employee, shall designate. Employee shall have such powers and
duties as may from time to time be prescribed by the respective chief executive
officers and Boards of Directors. Employee agrees to accept such employment, and
to devote his full time and efforts to the business and affairs of Commerce and
its subsidiaries, and to use his best efforts to promote the interests of
Commerce and its subsidiaries.
3. Compensation.
3.1 Commerce shall pay Employee for all services to be rendered by him
hereunder and for all positions held by him during the Term, the following
compensation, payable at regular intervals in accordance with Commerce's normal
payroll practices now or hereafter in effect. During the term of his employment,
Employee shall be paid a "base salary" at the rate of not less than $300,000 per
year, subject to an annual review and subject to such upward adjustments as may
be deemed appropriate by the Board or a designated Committee thereof. For
purposes of this Agreement, a "year" shall be deemed to commence on January 1,
1998, and on January 1 of each calendar year hereafter; compensation for a
portion of a year shall be prorated. The Board or such Committee may recommend
an increase in salary for Employee hereunder, but shall have no obligation to do
so. Base salary once increased by the Board or a Committee thereof may not be
decreased.
3.2 Commerce will, during the term of his employment, reimburse
Employee for all expenses incurred by Employee which Commerce determines to be
reasonable and necessary (in accordance with its normal reimbursement practices
now or hereafter in effect) for Employee to carry out his duties under this
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Agreement.
4. Plans and Fringe Benefits.
4.1 During the term of his employment, Employee shall be entitled to
participate in any bonus programs, incentive compensation plans, stock option
plans or similar benefit or compensation programs now or hereafter in effect
which are generally made available from time to time to executive officers of
Commerce. For any period less than a full year during the Term, Employee shall
receive an amount equal to the pro rated portion of the compensation payable
pursuant to such plan or program.
4.2 During the term of his employment, Employee shall also be entitled
(a) to participate in all fringe benefits as in effect from time to time which
are generally available to Commerce's salaried officers including, without
limitation, medical and hospitalization coverage, life insurance coverage and
disability coverage, and (b) to such other fringe benefits as the Board, or a
Committee thereof, shall deem appropriate provided such benefits are consistent
with those that he currently enjoys including without limitation use of an
automobile and paid holidays and vacations.
5. Termination by Commerce for Cause.
5.1 Commerce shall have the right at any time to terminate Employee's
employment hereunder, for cause, on thirty days' prior written notice to
Employee. For purposes of this Agreement, the term "for cause" shall be deemed
to mean only the following:
(i) If at any time during the Term, Employee is indicted for,
convicted of or enters a plea of guilty or nolo contendere to, a felony, a crime
of falsehood or a crime involving fraud, moral turpitude or dishonesty; or
(ii) If at any time during the Term, Employee willfully
violates any of the covenants or provisions of this Agreement including without
limitation the willful failure of Employee to perform his duties hereunder or
the instructions of the Board after written notice of such instructions (other
than any such failure resulting from Employee's incapacity due to illness or
disability) or Employee engages in any conduct materially harmful to Commerce's
business, and in either case fails to cease such conduct or correct such
conduct, as the case may be, within thirty days subsequent to receiving written
notice from the Board advising
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Employee of same (which conduct shall be specifically set forth in such notice).
If Employee's employment shall terminate for cause, Commerce shall pay
Employee his full base salary through the date of termination at the rate in
effect at the time notice of termination is given and Commerce shall have no
further obligations to Employee under this Agreement other than to pay Employee
such other compensation as may be due Employee pursuant to Sections 4.1 and 4.2
hereof.
6. Disability and Death.
6.1 If Employee becomes permanently disabled during the Term while
employed hereunder, Commerce shall compensate Employee for the balance of the
Term at a rate equal to 70% of his base annual salary at the time he became
permanently disabled. Commerce agrees that it will make the payments due under
this Section 6.1 on the first day of each month, commencing with the first day
of the month following the month in which Employee is deemed to be permanently
disabled, in an amount equal to 1/12 of 70% of Employee's base annual salary at
the time he is deemed to be permanently disabled. Such payments shall be reduced
each month, however, by the amount of any disability payments made to Employee
under any Commerce-sponsored disability insurance plan. The amount of the
reduction under the preceding sentence shall be computed as if Employee had
elected to receive monthly payments of disability benefits (regardless of the
actual payment frequency). If Employee becomes permanently disabled as provided
in this Section 6, he shall nonetheless continue, after becoming so disabled
until the end of the Term, to be entitled to receive at Commerce's expense such
group hospitalization coverage, life insurance coverage and disability coverage
as is generally made available from time to time to executive officers of
Commerce, if and to the extent permitted by the respective insurers of such
coverage. Until such time as Employee is deemed to be permanently disabled,
Employee shall continue to receive his full base salary and other compensation
and fringe benefits due him under Sections 4.1 and 4.2 hereof.
6.2 For purposes of this Agreement, Employee shall be deemed to have
become "permanently disabled" upon his failure to render services of the
character contemplated by this Agreement, because of his physical or mental
illness or other incapacity beyond his control, other than his death, for a
continuous period of 6 months, or for shorter periods aggregating more than 9
months in any 18 consecutive months.
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6.3 If Employee dies during the Term while employed hereunder, then his
employment and his rights to compensation hereunder shall automatically
terminate at the close of the calendar week in which death occurs, and in
addition to his full base salary to the date of termination and any compensation
due him as provided in Section 4.1 hereof, Commerce shall pay to such person as
Employee shall designate in a notice filed with Commerce or, if no such person
shall be designated, to his estate, as a lump sum death benefit, an amount equal
to the product of (A) Employee's average annual base salary in effect during the
twenty-four months immediately preceding his death and (B) two. The foregoing
death benefit shall be in addition to any amount payable under any group life
insurance program maintained by Commerce or any of its subsidiaries.
7. Termination by Commerce without Cause and Termination for Good
Reason.
7.1 If Commerce shall terminate Employee's employment other than for
cause or as provided in Section 1.2 hereof then:
(i) Commerce shall pay to Employee his full base salary
through the date of termination and any compensation when due him as provided in
Section 4.1 hereof; and
(ii) In lieu of any further salary payments to Employee for a
period subsequent to the date of termination, Commerce shall pay as severance
pay to Employee a lump sum severance payment (the "Severance Payment") equal to
the amount of Employee's base salary which is in effect on the date of
termination and which would have been paid to Employee between the date of
termination and the end of the then Term had Employee continued to be employed
by Commerce to the end of the then Term.
7.2 If Employee shall terminate his employment hereunder for "Good
Reason" (as defined in Section 8.2 hereof) then:
(i) Commerce shall pay to Employee his full base salary
through the date of termination and any compensation when due him as provided in
Section 4.1 hereof; and
(ii) In lieu of any further salary payments to Employee for a
period subsequent to the date of termination, Commerce shall pay as severance
pay to Employee a lump sum severance payment (the "Severance Payment") equal to
four times Employee's average annual base salary in effect during the
twenty-four months immediately preceding such termination.
7.3 Upon termination of Employee's employment as set forth in either
Section 7.1 or 7.2 hereof, Commerce shall promptly determine the aggregate
present value pursuant to Section 280G(d)(4) of the Internal Revenue Code of
1986, as amended (the "Code") of all amounts payable to Employee under this
Agreement, and of all other amounts payable to Employee upon or by reason of his
termination which are determined in good faith by Commerce to be "parachute
payments" (as defined in Section 280G(b)(2) of the Code and the regulations
promulgated thereunder) made pursuant to agreements or plans which are subject
to Section 280G. Commerce's determination of present value and of other amounts
constituting "parachute payments" is binding; provided that if Employee obtains
an opinion of counsel satisfactory to Commerce or an Internal Revenue Service
ruling to the effect that the method of determining present value was improper
or that specified payments did not constitute "parachute payments," calculations
will be made in accordance with such opinion or ruling. In the event the
aggregate present value of all benefits under this Agreement and other
"parachute payments" is equal to or in excess of 300% of Employee's "base
amount" as defined in Section 280G(b)(3)(A) and the regulations thereunder,
Employee waives the right to "parachute payments" sufficient to reduce the
present value of all such payments below 300% of the "base amount." Employee
shall have the right to designate those benefits which shall be waived or
reduced in order to comply with this provision but failing designation by
Employee, Commerce may designate those benefits which may be waived or reduced.
If it is established pursuant to a final determination of a court of competent
jurisdiction or an Internal Revenue Service proceeding that, notwithstanding the
good faith of Employee and Commerce in applying the terms of this Section 7, the
aggregate "parachute payments" paid to or for Employee's benefit are in an
amount that would result in any portion of such "parachute payments" not being
deductible by Commerce or any affiliate by reason of Section 280G of the Code,
then Employee shall have an obligation to pay Commerce upon demand an amount
equal to the sum of (i) the excess of the aggregate "parachute payments" paid to
or for Employee's benefit without any portion of such "parachute payments" not
being deductible by reason of Section 280G of the Code and (ii) interest on the
amount set forth in clause (i) above at the applicable federal rate (as defined
in Section 1274(d) of the Code) from the date of Employee's receipt
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of such excess until the date of such payment.
7.4 In addition to the other compensation set forth in either Section
7.1 or 7.2 hereof, upon termination of Employee's employment as set forth in
either Section 7.1 or 7.2 hereof, Employee shall be entitled to the following
benefits from Commerce:
(i) Following the date of termination, Employee shall be
entitled to participate in all Commerce medical, disability, hospitalization and
life insurance benefits for a period of three years except that should
subsequent employment be accepted during the three year period following the
date of termination, continuation of any medical, disability, hospitalization
and life insurance benefits will be offset by coverages provided through
Employee's subsequent employer.
7.5 Except as provided in this Section 7, nothing herein contained
shall affect or have any bearing on Employee's entitlement to other benefits
under any plan or program providing benefits by reason of termination of
employment.
7.6 Employee shall have the right to terminate his employment hereunder
for "Good Reason" if he shall first give Commerce not less than thirty days
written notice of his intention to so terminate his employment specifying the
reason(s) for such termination and the date of termination, and thereafter
Commerce shall not have cured or remedied the reason(s) for such termination
prior to the date of termination set forth in such notice.
7.7 Anything in this Agreement to the contrary notwithstanding,
Employee shall not be required to mitigate the amount of any payment provided
for in this Agreement by seeking other employment.
8. Change in Control and Good Reason.
8.1 For purposes of this Agreement, a "change of control" of Commerce
shall mean a change in control of Commerce or CB of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as enacted and enforced on the date hereof, whether or not
Commerce or CB is subject to such reporting requirement; provided that without
limitation such a change in control shall have been deemed to conclusively occur
when any of the following events shall have occurred without Employee's prior
written
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consent:
(i) within any period of two consecutive years during the
Term, a change in at least a majority of the members of the Board or the
addition of five or more new members to the Board unless such change or addition
occurs with the affirmative vote in writing of Employee in his capacity as a
director or a shareholder; or
(ii) a Person or group acting in concert as described in
Section 13(d)(2) of the Exchange Act holds or acquires beneficial ownership
within the meaning of Rule 13d-3 promulgated under the Exchange Act of a number
of common shares of Commerce which constitutes either (a) more than fifty
percent of the shares which voted in the election of directors of Commerce at
the shareholders' meeting immediately preceding such determination or (b) more
than thirty percent of Commerce's outstanding common shares. For purposes of
this Section 8.1(ii)(b) hereof, unexercised warrants or options or unconverted
nonvoting securities shall count, for this purpose, as constituting beneficial
ownership of Commerce's common shares into which the warrants or options are
exercisable or the nonvoting convertible securities are convertible,
notwithstanding anything to the contrary contained in Rule 13d-3 of the Exchange
Act.
8.2 For purposes of this Agreement, "Good Reason" shall mean (i) a
change in control of Commerce (as defined in Section 8.1 hereof) and within
three years thereafter, without Employee's consent, the nature and scope of
Employee's authority with Commerce or a surviving or acquiring Person are
materially reduced to a level below that which he enjoys on the date hereof, the
duties and responsibilities assigned to Employee are materially inconsistent
with that which he has on the date hereof, the fringe benefits which Commerce
provides Employee on the date hereof or at any time hereafter are materially
reduced, Employee's position or title with Commerce or the surviving or
acquiring Person is reduced from his current position or title with Commerce, or
any relocation or transfer of Commerce's principal executive offices to a
location more than fifty miles from Employee's principal residence on the date
hereof without Employee's consent; (ii) Commerce materially breaches this
Agreement; or (iii) the failure or refusal of any successor to Commerce to
assume all duties and obligations of Commerce under this Agreement.
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9. Confidential Information and Non-Competition.
9.1 Employee covenants and agrees that he will not, during the term of
his employment or at any time thereafter, except with the express prior written
consent of the Board, directly or indirectly disclose, communicate or divulge to
any Person, or use for the benefit of any Person, any knowledge or information
with respect to the conduct or details of Commerce's business which he, acting
reasonably, believes or should believe to be of a confidential nature and the
disclosure of which to not be in Commerce's interest.
9.2 Employee covenants and agrees that he will not, during the term of
his employment hereunder, except with the express prior written consent of the
Board, directly or indirectly, whether as employee, owner, partner, consultant,
agent, director, officer, shareholder or in any other capacity, engage in or
assist any Person to engage in any act or action which he, acting reasonably,
believes or should believe would be harmful or inimical to the interests of
Commerce.
9.3 (A) Employee covenants and agrees that he will not, except with the
express prior written consent of the Board, in any capacity (including, but not
limited to, owner, partner, shareholder, consultant, agent, employee, officer,
director or otherwise), directly or indirectly, for his own account or for the
benefit of any Person, establish, engage or participate in or otherwise be
connected with any commercial banking business which conducts business in any
geographic area in which Commerce and its subsidiaries is then conducting such
business except that the foregoing shall not prohibit Employee from owning as a
shareholder less than 5% of the outstanding voting stock of an issuer whose
stock is publicly traded.
(B) The provisions of Section 9.3(A) shall be applicable commencing
on the date of this Agreement and ending on one of the following periods, as
applicable:
(i) If this Agreement is terminated by Commerce in accordance
with the provisions of Section 1.2 of this Agreement, the effective date of
termination of this Agreement;
(ii) If this Agreement is terminated by Employee in accordance
with the provisions of Section 1.2 of this Agreement, one year following the
effective date of termination of this Agreement;
(iii) If Commerce terminates this Agreement in accordance with
the provisions of Section 5.1 of this Agreement or the Employee voluntarily
terminates his employment hereunder, one year
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following the effective date of termination of this Agreement; or
(iv) If this Agreement is terminated in accordance with the
provisions of either Section 7.1 or 7.2 of this Agreement, one year following
the effective date of termination of this Agreement.
9.4 The parties agree that any breach by Employee of any of the
covenants or agreements contained in this Section 9 will result in irreparable
injury to Commerce for which money damages could not adequately compensate
Commerce and therefore, in the event of any such breach, Commerce shall be
entitled (in addition to any other rights and remedies which it may have at law
or in equity) to have an injunction issued by any competent court enjoining and
restraining Employee and/or any other Person involved therein from continuing
such breach. The existence of any claim or cause of action which Employee may
have against Commerce or any other Person (other than a claim for Commerce's
breach of this Agreement for failure to make payments hereunder) shall not
constitute a defense or bar to the enforcement of such covenants. In the event
of any alleged breach by Employee of any of the covenants or agreements
contained in this Section 9, Commerce shall continue any and all of the payments
due Employee under this Agreement until such time as a Court shall enter a final
and unappealable order finding such a breach; provided, that the foregoing shall
not preclude a Court from ordering Employee to repay such payments made to him
for the period after the breach is determined to have occurred or from ordering
that payments hereunder be permanently terminated in the event of a material and
willful breach.
9.5 If any portion of the covenants or agreements contained in this
Section 9, or the application hereof, is construed to be invalid or
unenforceable, the other portions of such covenant(s) or agreement(s) or the
application thereof shall not be affected and shall be given full force and
effect without regard to the invalid or unenforceable portions to the fullest
extent possible. If any covenant or agreement in this Section 9 is held to be
unenforceable because of the area covered, the duration thereof, or the scope
thereof, then the court making such determination shall have the power to reduce
the area and/or duration and/or limit the scope thereof, and the covenant or
agreement shall then be enforceable in its reduced form.
9.6 For purposes of this Section 9, the term "Commerce" shall include
Commerce, any successor of Commerce under Section 10 hereof, and all present and
future direct and indirect subsidiaries and affiliates
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of Commerce including, but not limited to, CB.
10. Successors and Assigns.
This Agreement shall inure to the benefit of and be binding
upon any corporate or other successor of Commerce which will acquire, directly
or indirectly, by merger, consolidation, purchase, or otherwise, all or
substantially all of the assets of Commerce, and shall otherwise inure to the
benefit of and be binding upon the parties hereto and their respective heirs,
executors, administrators, successors and assigns. Upon the death of Employee,
any payments or benefits otherwise due Employee hereunder shall be paid to or be
for the benefit of Employee's legal representatives. Nothing in the Agreement
shall preclude Commerce from consolidating or merging into or with or
transferring all or substantially all of its assets to another Person. In that
event, such other Person shall assume this Agreement and all obligations of
Commerce hereunder. Upon such a consolidation, merger, or transfer of assets and
assumption, the term "Commerce" as used herein, shall mean such other Person and
this Agreement shall continue in full force and effect.
11. Assignment.
Neither this Agreement nor any rights to receive payments
hereunder shall be voluntarily or involuntarily assigned, transferred,
alienated, encumbered or disposed of, in whole or in part, without Commerce's
prior written consent and approval, and shall not be subject to anticipation,
levy, execution, garnishment, attachment by, or interference or control of, any
creditor.
12. Source of Payment and Timing.
12.1 All payments provided under this Agreement shall be paid in cash
from the general funds of Commerce, no special or separate fund shall be
required to be established and Employee shall have no right, title or interest
whatsoever in or to any investment which Commerce may make to aid Commerce in
meeting its obligations hereunder except to the extent that Commerce shall, in
its sole and absolute discretion, choose to designate any of its rights it may
have under one or more life insurance policies it may obtain to cover any of its
obligations under this Agreement. Nothing contained in this Agreement, and no
action taken pursuant to its provisions, shall create or be construed to create
a trust of any kind or fiduciary relationship between
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Commerce and Employee or any other Person.
12.2 All payments due Employee under Sections 5.1, 6.3, 7.1 or 7.2
hereof shall be made not later than the thirtieth day following the date of
termination of employment.
13. Interest.
In the event any benefits due to Employee are not paid when due
hereunder, Employee shall be entitled (in addition to his other rights and
remedies) to interest on the past due amounts at a rate equal to two percentage
points above the prime rate charged from time to time by CB, such interest to
commence on the date a benefit was due hereunder.
14. Reimbursement of Enforcement Expenses.
If Commerce fails to pay or provide Employee any of the amounts
due him hereunder or fails to provide Employee with any of the other benefits
due him under this Agreement, and provided Commerce does not cure any such
failure within thirty days after having received written notice from Employee of
such failure, Employee shall be entitled to full reimbursement from Commerce for
all costs and expenses (including reasonable attorneys' fees and costs) incurred
by Employee in enforcing his rights under this Agreement.
15. Notices.
All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered by
hand or mailed, certified or registered mail, return receipt requested, with
postage prepaid, to the following addresses or to such other address as either
party may designate by like notice:
A. If to Employee, to:
Robert D. Falese
1017 Riverton Road
Moorestown, New Jersey 08057
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B. If to Commerce, to
Commerce Bancorp, Inc.
Commerce Atrium
1701 Route 70 East
Cherry Hill, New Jersey 08034-5400
Attn: Chairman, Personnel Committee, Board of Directors.
and to such other or additional person or persons as either party shall have
designated to the other party in writing by like notice.
16. General provisions.
16.1 This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof, and supersedes and replaces
all prior agreements between the parties. No amendment, waiver or termination of
any of the provisions hereof shall be effective unless in writing and signed by
the party against whom it is sought to be enforced. Any written amendment,
waiver or termination hereof executed by Commerce and Employee (or his legal
representatives) shall be binding upon them and upon all other Persons, without
the necessity of securing the consent of any other Person including, but not
limited to, Employee's wife, and no Person shall be deemed to be a third party
beneficiary under this Agreement except to the extent provided under Section
12.1 hereof.
16.2 CB or any other subsidiary of Commerce may make payments to
Employee hereunder in lieu of payments to be made by Commerce, and to the extent
such payments are so made, Commerce shall be released of its obligations to make
such payments.
16.3 The benefits provided under this Agreement shall be in addition to
and shall not affect the proceeds payable to Employee's beneficiaries under
group life insurance policies which Commerce may be carrying on Employee's life.
16.4 "Person" as used in this Agreement means a natural person, joint
venture, corporation, sole proprietorship, trust, estate, partnership,
cooperative, association, non-profit organization or any other legal entity.
16.5 This Agreement may be executed in one or more counterparts, each
of which shall be
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deemed an original, but all of which taken together shall constitute one and the
same Agreement.
16.6 Except as otherwise expressly set forth herein, no failure on the
part of any party hereto to exercise and no delay in exercising any right, power
or remedy hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, power or remedy hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
16.7 Commerce and Employee consent to the exclusive jurisdiction of the
courts of the State of New Jersey and the United States District Court for the
District of New Jersey in any and all actions arising hereunder and irrevocably
consent to service of process as set forth in Section 15 hereof.
16.8 The headings of the sections of this Agreement have been inserted
for convenience of reference only and shall in no way restrict or modify any of
the terms or provisions hereof.
16.9 This Agreement shall be governed and construed and the legal
relationships of the parties determined in accordance with the laws of the State
of New Jersey applicable to contracts executed and to be performed solely in the
State of New Jersey.
COMMERCE BANCORP, INC.
(Corporate Seal) By: _____________________________
Attest: _____________________________
ROBERT D. FALESE
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EMPLOYMENT AGREEMENT
AGREEMENT dated as of this 1st day of January, 1998, by and between
COMMERCE BANCORP, INC. ("Commerce"), a New Jersey business corporation, and
DENNIS M. DIFLORIO ("Employee").
B A C K G R 0 U N D
Employee is the Executive Vice President of Commerce and Executive Vice
President of Commerce Bank, N.A. ("CB"), a national banking association and a
wholly-owned subsidiary of Commerce. The Board of Directors of Commerce (the
"Board") has determined that the future services of Employee in these capacities
will be of value to Commerce, CB and Commerce's other present and future
subsidiaries and accordingly the Board wishes to have Employee's services
available to Commerce for at least the next three years and to provide
supplemental benefits to Employee should his employment with Commerce terminate
under certain circumstances or should he die or become disabled prior to the
termination of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and intending to be legally bound hereby, the parties agree as
follows:
1. Employment and Term of Employment.
1.1 Commerce offers Employee employment, and Employee hereby accepts
such employment, subject to all the terms and conditions of this Agreement, for
a term of three years beginning on the date hereof, subject, however, to
automatic renewal and extension as set forth below and to Commerce's and
Employee's right to terminate his employment hereunder as set forth herein.
Notwithstanding anything herein provided to the contrary, on each anniversary
date of this Agreement, this Agreement and Employee's employment hereunder shall
automatically be renewed and extended (upon the same terms and conditions) for a
new three year term unless written notice by either party is given pursuant to
Section 1.2 hereof. As used hereinafter "Term" includes the original three year
period as well as any renewed or extended periods as provided for herein.
1.2 Either party may terminate this Agreement on any anniversary date
of this Agreement by giving to the other party written notice thereof at least
thirty days prior to any such anniversary date. As a
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result of the foregoing notice being given to either party hereunder, the Term
will have two years remaining from the applicable anniversary date, subject to
the terms and conditions set forth herein.
2. Services and Duties.
Commerce agrees to employ Employee during the Term as
Executive Vice President of Commerce. Subject to the approval of the CB Board of
Directors, Employee shall during the Term also serve as the Executive Vice
President of CB and, subject to the approval of the respective Boards of
Directors, Employee shall during the Term also serve as an officer and/or
director of such other subsidiaries of Commerce as such Board of Directors, with
the consent of Employee, shall designate. Employee shall have such powers and
duties as may from time to time be prescribed by the respective chief executive
officers and Boards of Directors. Employee agrees to accept such employment, and
to devote his full time and efforts to the business and affairs of Commerce and
its subsidiaries, and to use his best efforts to promote the interests of
Commerce and its subsidiaries.
3. Compensation.
3.1 Commerce shall pay Employee for all services to be rendered by him
hereunder and for all positions held by him during the Term, the following
compensation, payable at regular intervals in accordance with Commerce's normal
payroll practices now or hereafter in effect. During the term of his employment,
Employee shall be paid a "base salary" at the rate of not less than $300,000 per
year, subject to an annual review and subject to such upward adjustments as may
be deemed appropriate by the Board or a designated Committee thereof. For
purposes of this Agreement, a "year" shall be deemed to commence on January 1,
1998, and on January 1 of each calendar year hereafter; compensation for a
portion of a year shall be prorated. The Board or such Committee may recommend
an increase in salary for Employee hereunder, but shall have no obligation to do
so. Base salary once increased by the Board or a Committee thereof may not be
decreased.
3.2 Commerce will, during the term of his employment, reimburse
Employee for all expenses incurred by Employee which Commerce determines to be
reasonable and necessary (in accordance with its normal reimbursement practices
now or hereafter in effect) for Employee to carry out his duties under this
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Agreement.
4. Plans and Fringe Benefits.
4.1 During the term of his employment, Employee shall be entitled to
participate in any bonus programs, incentive compensation plans, stock option
plans or similar benefit or compensation programs now or hereafter in effect
which are generally made available from time to time to executive officers of
Commerce. For any period less than a full year during the Term, Employee shall
receive an amount equal to the pro rated portion of the compensation payable
pursuant to such plan or program.
4.2 During the term of his employment, Employee shall also be entitled
(a) to participate in all fringe benefits as in effect from time to time which
are generally available to Commerce's salaried officers including, without
limitation, medical and hospitalization coverage, life insurance coverage and
disability coverage, and (b) to such other fringe benefits as the Board, or a
Committee thereof, shall deem appropriate provided such benefits are consistent
with those that he currently enjoys including without limitation use of an
automobile and paid holidays and vacations.
5. Termination by Commerce for Cause.
5.1 Commerce shall have the right at any time to terminate Employee's
employment hereunder, for cause, on thirty days' prior written notice to
Employee. For purposes of this Agreement, the term "for cause" shall be deemed
to mean only the following:
(i) If at any time during the Term, Employee is indicted for,
convicted of or enters a plea of guilty or nolo contendere to, a felony, a crime
of falsehood or a crime involving fraud, moral turpitude or dishonesty; or
(ii) If at any time during the Term, Employee willfully
violates any of the covenants or provisions of this Agreement including without
limitation the willful failure of Employee to perform his duties hereunder or
the instructions of the Board after written notice of such instructions (other
than any such failure resulting from Employee's incapacity due to illness or
disability) or Employee engages in any conduct materially harmful to Commerce's
business, and in either case fails to cease such conduct or correct such
conduct, as the case may be, within thirty days subsequent to receiving written
notice from the Board advising
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Employee of same (which conduct shall be specifically set forth in such notice).
If Employee's employment shall terminate for cause, Commerce shall pay
Employee his full base salary through the date of termination at the rate in
effect at the time notice of termination is given and Commerce shall have no
further obligations to Employee under this Agreement other than to pay Employee
such other compensation as may be due Employee pursuant to Sections 4.1 and 4.2
hereof.
6. Disability and Death.
6.1 If Employee becomes permanently disabled during the Term while
employed hereunder, Commerce shall compensate Employee for the balance of the
Term at a rate equal to 70% of his base annual salary at the time he became
permanently disabled. Commerce agrees that it will make the payments due under
this Section 6.1 on the first day of each month, commencing with the first day
of the month following the month in which Employee is deemed to be permanently
disabled, in an amount equal to 1/12 of 70% of Employee's base annual salary at
the time he is deemed to be permanently disabled. Such payments shall be reduced
each month, however, by the amount of any disability payments made to Employee
under any Commerce-sponsored disability insurance plan. The amount of the
reduction under the preceding sentence shall be computed as if Employee had
elected to receive monthly payments of disability benefits (regardless of the
actual payment frequency). If Employee becomes permanently disabled as provided
in this Section 6, he shall nonetheless continue, after becoming so disabled
until the end of the Term, to be entitled to receive at Commerce's expense such
group hospitalization coverage, life insurance coverage and disability coverage
as is generally made available from time to time to executive officers of
Commerce, if and to the extent permitted by the respective insurers of such
coverage. Until such time as Employee is deemed to be permanently disabled,
Employee shall continue to receive his full base salary and other compensation
and fringe benefits due him under Sections 4.1 and 4.2 hereof.
6.2 For purposes of this Agreement, Employee shall be deemed to have
become "permanently disabled" upon his failure to render services of the
character contemplated by this Agreement, because of his physical or mental
illness or other incapacity beyond his control, other than his death, for a
continuous period of 6 months, or for shorter periods aggregating more than 9
months in any 18 consecutive months.
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6.3 If Employee dies during the Term while employed hereunder, then his
employment and his rights to compensation hereunder shall automatically
terminate at the close of the calendar week in which death occurs, and in
addition to his full base salary to the date of termination and any compensation
due him as provided in Section 4.1 hereof, Commerce shall pay to such person as
Employee shall designate in a notice filed with Commerce or, if no such person
shall be designated, to his estate, as a lump sum death benefit, an amount equal
to the product of (A) Employee's average annual base salary in effect during the
twenty-four months immediately preceding his death and (B) two. The foregoing
death benefit shall be in addition to any amount payable under any group life
insurance program maintained by Commerce or any of its subsidiaries.
7. Termination by Commerce without Cause and Termination for Good
Reason. 7.1 If Commerce shall terminate Employee's employment other
than for cause or as provided in
Section 1.2 hereof then:
(i) Commerce shall pay to Employee his full base salary
through the date of termination and any compensation when due him as provided in
Section 4.1 hereof; and
(ii) In lieu of any further salary payments to Employee for a
period subsequent to the date of termination, Commerce shall pay as severance
pay to Employee a lump sum severance payment (the "Severance Payment") equal to
the amount of Employee's base salary which is in effect on the date of
termination and which would have been paid to Employee between the date of
termination and the end of the then Term had Employee continued to be employed
by Commerce to the end of the then Term.
7.2 If Employee shall terminate his employment hereunder for "Good
Reason" (as defined in Section 8.2 hereof) then:
(i) Commerce shall pay to Employee his full base salary
through the date of termination and any compensation when due him as provided in
Section 4.1 hereof; and
(ii) In lieu of any further salary payments to Employee for a
period subsequent to the date of termination, Commerce shall pay as severance
pay to Employee a lump sum severance payment (the "Severance Payment") equal to
four times Employee's average annual base salary in effect during the
twenty-four months immediately preceding such termination.
7.3 Upon termination of Employee's employment as set forth in either
Section 7.1 or 7.2 hereof, Commerce shall promptly determine the aggregate
present value pursuant to Section 280G(d)(4) of the Internal Revenue Code of
1986, as amended (the "Code") of all amounts payable to Employee under this
Agreement, and of all other amounts payable to Employee upon or by reason of his
termination which are determined in good faith by Commerce to be "parachute
payments" (as defined in Section 280G(b)(2) of the Code and the regulations
promulgated thereunder) made pursuant to agreements or plans which are subject
to Section 280G. Commerce's determination of present value and of other amounts
constituting "parachute payments" is binding; provided that if Employee obtains
an opinion of counsel satisfactory to Commerce or an Internal Revenue Service
ruling to the effect that the method of determining present value was improper
or that specified payments did not constitute "parachute payments," calculations
will be made in accordance with such opinion or ruling. In the event the
aggregate present value of all benefits under this Agreement and other
"parachute payments" is equal to or in excess of 300% of Employee's "base
amount" as defined in Section 280G(b)(3)(A) and the regulations thereunder,
Employee waives the right to "parachute payments" sufficient to reduce the
present value of all such payments below 300% of the "base amount." Employee
shall have the right to designate those benefits which shall be waived or
reduced in order to comply with this provision but failing designation by
Employee, Commerce may designate those benefits which may be waived or reduced.
If it is established pursuant to a final determination of a court of competent
jurisdiction or an Internal Revenue Service proceeding that, notwithstanding the
good faith of Employee and Commerce in applying the terms of this Section 7, the
aggregate "parachute payments" paid to or for Employee's benefit are in an
amount that would result in any portion of such "parachute payments" not being
deductible by Commerce or any affiliate by reason of Section 280G of the Code,
then Employee shall have an obligation to pay Commerce upon demand an amount
equal to the sum of (i) the excess of the aggregate "parachute payments" paid to
or for Employee's benefit without any portion of such "parachute payments" not
being deductible by reason of Section 280G of the Code and (ii) interest on the
amount set forth in clause (i) above at the applicable federal rate (as defined
in Section 1274(d) of the Code) from the date of Employee's receipt
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of such excess until the date of such payment.
7.4 In addition to the other compensation set forth in either Section
7.1 or 7.2 hereof, upon termination of Employee's employment as set forth in
either Section 7.1 or 7.2 hereof, Employee shall be entitled to the following
benefits from Commerce:
(i) Following the date of termination, Employee shall be
entitled to participate in all Commerce medical, disability, hospitalization and
life insurance benefits for a period of three years except that should
subsequent employment be accepted during the three year period following the
date of termination, continuation of any medical, disability, hospitalization
and life insurance benefits will be offset by coverages provided through
Employee's subsequent employer.
7.5 Except as provided in this Section 7, nothing herein contained
shall affect or have any bearing on Employee's entitlement to other benefits
under any plan or program providing benefits by reason of termination of
employment.
7.6 Employee shall have the right to terminate his employment hereunder
for "Good Reason" if he shall first give Commerce not less than thirty days
written notice of his intention to so terminate his employment specifying the
reason(s) for such termination and the date of termination, and thereafter
Commerce shall not have cured or remedied the reason(s) for such termination
prior to the date of termination set forth in such notice.
7.7 Anything in this Agreement to the contrary notwithstanding,
Employee shall not be required to mitigate the amount of any payment provided
for in this Agreement by seeking other employment.
8. Change in Control and Good Reason.
8.1 For purposes of this Agreement, a "change of control" of Commerce
shall mean a change in control of Commerce or CB of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as enacted and enforced on the date hereof, whether or not
Commerce or CB is subject to such reporting requirement; provided that without
limitation such a change in control shall have been deemed to conclusively occur
when any of the following events shall have occurred without Employee's prior
written
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consent:
(i) within any period of two consecutive years during the
Term, a change in at least a majority of the members of the Board or the
addition of five or more new members to the Board unless such change or addition
occurs with the affirmative vote in writing of Employee in his capacity as a
director or a shareholder; or
(ii) a Person or group acting in concert as described in
Section 13(d)(2) of the Exchange Act holds or acquires beneficial ownership
within the meaning of Rule 13d-3 promulgated under the Exchange Act of a number
of common shares of Commerce which constitutes either (a) more than fifty
percent of the shares which voted in the election of directors of Commerce at
the shareholders' meeting immediately preceding such determination or (b) more
than thirty percent of Commerce's outstanding common shares. For purposes of
this Section 8.1(ii)(b) hereof, unexercised warrants or options or unconverted
nonvoting securities shall count, for this purpose, as constituting beneficial
ownership of Commerce's common shares into which the warrants or options are
exercisable or the nonvoting convertible securities are convertible,
notwithstanding anything to the contrary contained in Rule 13d-3 of the Exchange
Act.
8.2 For purposes of this Agreement, "Good Reason" shall mean (i) a
change in control of Commerce (as defined in Section 8.1 hereof) and within
three years thereafter, without Employee's consent, the nature and scope of
Employee's authority with Commerce or a surviving or acquiring Person are
materially reduced to a level below that which he enjoys on the date hereof, the
duties and responsibilities assigned to Employee are materially inconsistent
with that which he has on the date hereof, the fringe benefits which Commerce
provides Employee on the date hereof or at any time hereafter are materially
reduced, Employee's position or title with Commerce or the surviving or
acquiring Person is reduced from his current position or title with Commerce, or
any relocation or transfer of Commerce's principal executive offices to a
location more than fifty miles from Employee's principal residence on the date
hereof without Employee's consent; (ii) Commerce materially breaches this
Agreement; or (iii) the failure or refusal of any successor to Commerce to
assume all duties and obligations of Commerce under this Agreement.
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9. Confidential Information and Non-Competition.
9.1 Employee covenants and agrees that he will not, during the term of
his employment or at any time thereafter, except with the express prior written
consent of the Board, directly or indirectly disclose, communicate or divulge to
any Person, or use for the benefit of any Person, any knowledge or information
with respect to the conduct or details of Commerce's business which he, acting
reasonably, believes or should believe to be of a confidential nature and the
disclosure of which to not be in Commerce's interest.
9.2 Employee covenants and agrees that he will not, during the term of
his employment hereunder, except with the express prior written consent of the
Board, directly or indirectly, whether as employee, owner, partner, consultant,
agent, director, officer, shareholder or in any other capacity, engage in or
assist any Person to engage in any act or action which he, acting reasonably,
believes or should believe would be harmful or inimical to the interests of
Commerce.
9.3 (A) Employee covenants and agrees that he will not, except with the
express prior written consent of the Board, in any capacity (including, but not
limited to, owner, partner, shareholder, consultant, agent, employee, officer,
director or otherwise), directly or indirectly, for his own account or for the
benefit of any Person, establish, engage or participate in or otherwise be
connected with any commercial banking business which conducts business in any
geographic area in which Commerce and its subsidiaries is then conducting such
business except that the foregoing shall not prohibit Employee from owning as a
shareholder less than 5% of the outstanding voting stock of an issuer whose
stock is publicly traded.
(B) The provisions of Section 9.3(A) shall be applicable
commencing on the date of this Agreement and ending on one of the following
periods, as applicable:
(i) If this Agreement is terminated by Commerce in
accordance with the provisions of Section 1.2 of this Agreement, the effective
date of termination of this Agreement;
(ii) If this Agreement is terminated by Employee in
accordance with the provisions of Section 1.2 of this Agreement, one year
following the effective date of termination of this Agreement;
(iii) If Commerce terminates this Agreement in
accordance with the provisions of Section 5.1 of this Agreement or the Employee
voluntarily terminates his employment hereunder, one year
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following the effective date of termination of this Agreement; or
(iv) If this Agreement is terminated in accordance
with the provisions of either Section 7.1 or 7.2 of this Agreement, one year
following the effective date of termination of this Agreement.
9.4 The parties agree that any breach by Employee of any of the
covenants or agreements contained in this Section 9 will result in irreparable
injury to Commerce for which money damages could not adequately compensate
Commerce and therefore, in the event of any such breach, Commerce shall be
entitled (in addition to any other rights and remedies which it may have at law
or in equity) to have an injunction issued by any competent court enjoining and
restraining Employee and/or any other Person involved therein from continuing
such breach. The existence of any claim or cause of action which Employee may
have against Commerce or any other Person (other than a claim for Commerce's
breach of this Agreement for failure to make payments hereunder) shall not
constitute a defense or bar to the enforcement of such covenants. In the event
of any alleged breach by Employee of any of the covenants or agreements
contained in this Section 9, Commerce shall continue any and all of the payments
due Employee under this Agreement until such time as a Court shall enter a final
and unappealable order finding such a breach; provided, that the foregoing shall
not preclude a Court from ordering Employee to repay such payments made to him
for the period after the breach is determined to have occurred or from ordering
that payments hereunder be permanently terminated in the event of a material and
willful breach.
9.5 If any portion of the covenants or agreements contained in this
Section 9, or the application hereof, is construed to be invalid or
unenforceable, the other portions of such covenant(s) or agreement(s) or the
application thereof shall not be affected and shall be given full force and
effect without regard to the invalid or unenforceable portions to the fullest
extent possible. If any covenant or agreement in this Section 9 is held to be
unenforceable because of the area covered, the duration thereof, or the scope
thereof, then the court making such determination shall have the power to reduce
the area and/or duration and/or limit the scope thereof, and the covenant or
agreement shall then be enforceable in its reduced form.
9.6 For purposes of this Section 9, the term "Commerce" shall include
Commerce, any successor of Commerce under Section 10 hereof, and all present and
future direct and indirect subsidiaries and affiliates of Commerce including,
but not limited to, CB.
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10. Successors and Assigns.
This Agreement shall inure to the benefit of and be binding
upon any corporate or other successor of Commerce which will acquire, directly
or indirectly, by merger, consolidation, purchase, or otherwise, all or
substantially all of the assets of Commerce, and shall otherwise inure to the
benefit of and be binding upon the parties hereto and their respective heirs,
executors, administrators, successors and assigns. Upon the death of Employee,
any payments or benefits otherwise due Employee hereunder shall be paid to or be
for the benefit of Employee's legal representatives. Nothing in the Agreement
shall preclude Commerce from consolidating or merging into or with or
transferring all or substantially all of its assets to another Person. In that
event, such other Person shall assume this Agreement and all obligations of
Commerce hereunder. Upon such a consolidation, merger, or transfer of assets and
assumption, the term "Commerce" as used herein, shall mean such other Person and
this Agreement shall continue in full force and effect.
11. Assignment.
Neither this Agreement nor any rights to receive payments
hereunder shall be voluntarily or involuntarily assigned, transferred,
alienated, encumbered or disposed of, in whole or in part, without Commerce's
prior written consent and approval, and shall not be subject to anticipation,
levy, execution, garnishment, attachment by, or interference or control of, any
creditor.
12. Source of Payment and Timing.
12.1 All payments provided under this Agreement shall be paid in cash
from the general funds of Commerce, no special or separate fund shall be
required to be established and Employee shall have no right, title or interest
whatsoever in or to any investment which Commerce may make to aid Commerce in
meeting its obligations hereunder except to the extent that Commerce shall, in
its sole and absolute discretion, choose to designate any of its rights it may
have under one or more life insurance policies it may obtain to cover any of its
obligations under this Agreement. Nothing contained in this Agreement, and no
action taken pursuant to its provisions, shall create or be construed to create
a trust of any kind or fiduciary relationship between Commerce and Employee or
any other Person.
12.2 All payments due Employee under Sections 5.1, 6.3, 7.1 or 7.2
hereof shall be made not later
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<PAGE>
than the thirtieth day following the date of termination of employment.
13. Interest.
In the event any benefits due to Employee are not paid when
due hereunder, Employee shall be entitled (in addition to his other rights and
remedies) to interest on the past due amounts at a rate equal to two percentage
points above the prime rate charged from time to time by CB, such interest to
commence on the date a benefit was due hereunder.
14. Reimbursement of Enforcement Expenses.
If Commerce fails to pay or provide Employee any of the
amounts due him hereunder or fails to provide Employee with any of the other
benefits due him under this Agreement, and provided Commerce does not cure any
such failure within thirty days after having received written notice from
Employee of such failure, Employee shall be entitled to full reimbursement from
Commerce for all costs and expenses (including reasonable attorneys' fees and
costs) incurred by Employee in enforcing his rights under this Agreement.
15. Notices.
All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand or mailed, certified or registered mail, return receipt
requested, with postage prepaid, to the following addresses or to such other
address as either party may designate by like notice:
A. If to Employee, to:
Dennis M. DiFlorio
19 Stockton Place
Voorhees, NJ 08043
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<PAGE>
B. If to Commerce, to
Commerce Bancorp, Inc.
Commerce Atrium
1701 Route 70 East
Cherry Hill, New Jersey 08034-5400
Attn: Chairman, Personnel Committee, Board of Directors.
and to such other or additional person or persons as either party shall have
designated to the other party in writing by like notice.
16. General provisions.
16.1 This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof, and supersedes and replaces
all prior agreements between the parties. No amendment, waiver or termination of
any of the provisions hereof shall be effective unless in writing and signed by
the party against whom it is sought to be enforced. Any written amendment,
waiver or termination hereof executed by Commerce and Employee (or his legal
representatives) shall be binding upon them and upon all other Persons, without
the necessity of securing the consent of any other Person including, but not
limited to, Employee's wife, and no Person shall be deemed to be a third party
beneficiary under this Agreement except to the extent provided under Section
12.1 hereof.
16.2 CB or any other subsidiary of Commerce may make payments to
Employee hereunder in lieu of payments to be made by Commerce, and to the extent
such payments are so made, Commerce shall be released of its obligations to make
such payments.
16.3 The benefits provided under this Agreement shall be in addition to
and shall not affect the proceeds payable to Employee's beneficiaries under
group life insurance policies which Commerce may be carrying on Employee's life.
16.4 "Person" as used in this Agreement means a natural person, joint
venture, corporation, sole proprietorship, trust, estate, partnership,
cooperative, association, non-profit organization or any other legal entity.
16.5 This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original, but all of which taken together shall
constitute one and the same Agreement.
16.6 Except as otherwise expressly set forth herein, no failure on the
part of any party hereto to exercise and no delay in exercising any right, power
or remedy hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, power or remedy hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
16.7 Commerce and Employee consent to the exclusive jurisdiction of the
courts of the State of
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<PAGE>
New Jersey and the United States District Court for the District of New Jersey
in any and all actions arising hereunder and irrevocably consent to service of
process as set forth in Section 15 hereof.
16.8 The headings of the sections of this Agreement have been inserted
for convenience of reference only and shall in no way restrict or modify any of
the terms or provisions hereof.
16.9 This Agreement shall be governed and construed and the legal
relationships of the parties determined in accordance with the laws of the State
of New Jersey applicable to contracts executed and to be performed solely in the
State of New Jersey.
COMMERCE BANCORP, INC.
(Corporate Seal) By: _____________________________
Attest: _____________________________
DENNIS M. DIFLORIO
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LEASE
from
ABSECON ASSOCIATES, L.L.C.
to
COMMERCE BANK, N.A.
ARTICLE I
Reference Data and Exhibits
DATE June l,1994
LOCATION OF PREMISES Route 30 and Mill Road
Absecon, New Jersey
Block 8; Lots 1,2, and 4
LANDLORD Absecon Associates, L.L.C.
ORIGINAL ADDRESS OF: 17000 Horizon Way
Suite 200
Mt. Laurel, New Jersey
TENANT Commerce Bank, N.A.
ORIGINAL ADDRESS OF 1701 Route 70 East
Cherry Hill, New Jersey
LEASE TERM Twenty Years
ANNUAL FIXED RENT RATE Yr. 1 - 5: $45,000.00
6-10: $51,750.00
11-15: $59,512.50
16- 20: $68,439.38
<PAGE>
1.2 Table of Content
<TABLE>
<CAPTION>
ARTICLE I - Reference Data and Exhibits PAGE
<S> <C>
1.1 Data ..........................................................................................1
1.2 Table of Contents .............................................................................2
ARTICLE II - Premises and Term
2.1 Premises ......................................................................................4
2.2 Term ..........................................................................................4
2.3 Option to Extend ..............................................................................4
ARTICLE III - Improvements
3.1 Construction of Improvements ..................................................................5
3.2 Contractor ....................................................................................5
3.3 Signs .........................................................................................5
ARTICLE IV - Rent
4.1 The Rent, Minimum Fixed and Percentage ........................................................5
ARTICLE V - Real Estate Taxes
5.1 Real Estate Taxes .............................................................................5
5.2 Taxes .........................................................................................6
5.3 Method of Payment .............................................................................6
ARTICLE VI - Utilities and Services
6.1 Utilities and Charges Therefore ...............................................................6
ARTICLE Vil - TENANT'S Additional Covenants
7.1 Affirmative Covenants ....................................................................7
7.1.1 Use ........................................................................7
7.1.2 Compliance with Law ........................................................7
7.1.3 Payment of TENANT'S Work ...................................................7
7.1.4 Indemnity and Liability Insurance ..........................................8
7.1.5 LANDLORD'S Right to Enter ..................................................8
7.1.6 Personal Property at TENANTS Risk ..........................................8
7.1.7 Payment of LANDLORD'S Cost of Enforcement ..................................9
7.1.8 Yield Up ...................................................................9
7.1.9 Maintenance ................................................................9
7.1.10 Insurance ..................................................................9
7.2 Negative Comments ........................................................................10
7.2.1 Overloading, Nuisance, etc .........................................................10
7.2.2 Installation, Alteration or Additions ..............................................10
ARTICLE VIII - LANDLORDS Additional Covenants
8.1 Warranty on Use ...............................................................................10
8.2 Competing Use .................................................................................10
ARTICLE IX - Casualty or Taking
9.1 TENANT to Repair or Rebuild in the Event of Casualty ....................................11
9.2 Right to Terminate in Event of Casualty .................................................11
9.3 Eminent Domain ..........................................................................11
<PAGE>
PAGE
ARTICLE X - Defaults
10.1 Events of Default ..........................................................................12
10.2 Remedies ...................................................................................13
10.3 Remedies Cumulative ........................................................................14
10.4 LANDLORD'S and TENANT'S Right to Cure Defaults .............................................14
10.5 Effect of Waivers of Default ...............................................................14
ARTICLE XI - Miscellaneous Provisions
11.1 Assignment, Subletting, etc ................................................................14
11.2 Notice from One Party to Other .............................................................15
11.3 Quiet Enjoyment ............................................................................15
11.4 Recording ..................................................................................16
11.5 Acts of God ................................................................................16
11.6 Waiver of Subrogation ......................................................................16
11.7 No Accord and Satisfaction .................................................................16
11.7.1 .....................................................................................16
11.7.2 No Accord and Satisfaction ..........................................................17
11.8 Applicable Law and Construction ............................................................17
11.9 Security Deposit ...........................................................................17
ARTICLE XII - Tenant's Contingencies
12.1 Approval Contingencies .........................................................................17
12.2 Engineering Tests ..............................................................................18
ARTICLE XIII - Net Lease
13.1 Net Lease ......................................................................................18
ARTICLE XIV
14.1 Limitation of Landlord's Liability .............................................................18
ARTICLE V
15.1 Holdover ...................................................................................18
</TABLE>
<PAGE>
ARTICLE II
Premises and Term
2.1 Premises - LANDLORD hereby leases to TENANT and TENANT hereby leases
from LANDLORD, subject to and with the benefit of the terms, covenants,
conditions and provisions of this Lease, the premises shown on Exhibit A and
described in Exhibit B, both annexed hereto and made a part hereof, together
with any and all Improvements, appurtenances, rights, privileges and easements
befitting, belonging or pertaining thereto.
2.2 TERM - TO HAVE AND TO HOLD for a term beginning at the earlier of
(a) Ninety (90) days (inclusive of the time for objectors to appeal from any
approval) after TENANT has obtained the approvals for the construction of the
branch bank as set forth in Article 12 (notwithstanding TENANT may not have
commenced construction) and continuing for the Lease term unless sooner
terminated as hereinafter provided. When dates of the beginning and end of the
Lease term have been determined, such dates shall be evidenced by a document in
form for recording, executed by LANDLORD and TENANT and delivered each to the
other.
2.3 Option to Extend - So long as TENANT is not in default hereunder,
TENANT shall have the right to extend this Lease for four (4) five (5) year
terms under the same terms, conditions and provisions as in the original term,
at the following rentals:
Option Years 1-5: $78,705.28
6-10: $90,511.07
11-15: $104,087.73
16-20: $119,700.89
TENANT shall give written notice of its intention to exercise each
extension option not less than Ninety (90) days prior to the expiration of the
then current term.
ARTICLE III
Improvements
3.1 Construction of Improvements - TENANT agrees to construct, at its
sole cost, a branch banking facility, pursuant to the attached Site Plan,
subject to reasonable approval by LANDLORD of the building plans and
specifications.
3.2 Contractor - TENANT shall have the right to select and approve the
contractor to complete the construction, which shall be subject to the approval
of the LANDLORD.
3.3 Signs - TENANT shall have the fight to erect such signs as
permitted by applicable zoning ordinances within the leased area.
<PAGE>
ARTICLE IV
RENT
4.1 The Rent. Minimum Fixed - TENANT covenants and agrees to pay rent to
LANDLORD at the original address of LANDLORD or such other place as LANDLORD may
by notice in writing to TENANT from time to time direct, at the following rates
and times,
(a) TENANT agrees to pay to LANDLORD base annual fixed rent for the
Premises in accordance with and in the amount set forth in Paragraph 1.1 "Data".
The base annual fixed rent shall be paid in equal monthly Installments in
advance on the first (1st) day of each month beginning on the Commencement
Date. In addition to the base annual fixed rent, TENANT shall pay as and when
the same become due and owing as additional rents, all other monies provided for
in the Lease. It is the parties intention that all charges and assessments
charged to or assessed against the Premises shall be the responsibility of the
TENANT, such that the Lease shall be "net, net, net" to the LANDLORD, excepting
only interest and principal on any mortgage made by the LANDLORD and effecting
the Premises.
(b) For purposes of this Lease, the scheduled increases in the base
annual fixed rent shall occur on the first day of the sixth (6th), eleventh
(11th) and sixteenth (16th) years of the Initial Term as same is determined
pursuant to paragraph 2.2 and on the first day of the sixth (6th), eleventh
(11th), sixteenth (16th), years of the Option Terms.
(c) It any installment under this lease is not paid within fifteen (15)
days of the time and at the place and in the manner specified, then LANDLORD may
at its option declare TENANT in default.
ARTICLE V
Real Estate Taxes
5.1 Real Estate Taxes - As additional rent, TENANT agrees to pay all
taxes levied upon the Premises Improvements located on the Premises, the
leasehold estate, or any subleasehold estate of any nature including special
assessments. The payment by TENANT of all real estate taxes shall commence
simultaneously with the rentals hereunder.
5.2 Taxes - TENANT agrees to pay all taxes levied upon personal
property, including trade fixtures and inventory, kept on the demised Premises,
as well as all taxes levied against the land and the building and improvements
situated thereon during the term of the Lease, after presentation to TENANT by
LANDLORD of statements from the taxing jurisdiction which said property is
located. TENANT, however, will pay only the lowest discounted amount and will
not be required to pay any penalty, interest or cost occurring by reason of
LANDLORD'S failure to secure said tax statements in a timely fashion from the
taxing authorities.
LANDLORD may, however, direct the taxing authorities to send the
statements directly to TENANT. "In the event LANDLORD directs the taxing
authorities to send a statement directly to TENANT, TENANT shall make all such
payments directly to the taxing authority at least ten (10) days
<PAGE>
before any delinquency and before any fine, interest or penalty shall become due
or be imposed by operation of law for their nonpayment. Further, TENANT shall
furnish to LANDLORD within ten (10) days of the date when any tax, assessment or
charge would become delinquent, receipts or other satisfactory evidence
establishing the timely payment of said taxes or charges." LANDLORD further
agrees that TENANT, in the name of LANDLORD, but at TENANTS sole expense, may
protest any assessment before any taxing authority or board or maintain any
necessary legal action in reference to said assessment or for the recovery of
any taxes paid thereon. Nothing herein contained shall require TENANT to pay any
income or excess profits, taxes assessed against LANDLORD or any corporation,
capital stock, or franchise tax Imposed upon LANDLORD.
5.3 Method of Payment- LANDLORD shall give written notice advising
TENANT of the amount of real estate taxes, together with a copy of the tax bill,
and TENANT shall pay such amount to LANDLORD within thirty (30) days after
receipt of such notice. If this Lease shall terminate during a tax year, TENANT
shall pay to LANDLORD a prorated portion of the amount that would have been due
for the full tax year based on the number of days of said tax year expired on
the date of termination.
ARTICLE VI
Utilities and Services
6.1 Utilities and Charges Therefore - TENANT agrees to pay directly to
the authority charged with the collection thereof, all charges for water, gas,
electricity, sanitary sewer and sprinkler changes, telephone and other utilities
used or consumed in the Premises and shall make its own arrangements for such
utilities. In the event any such services cannot be reasonably procured form any
public agency, and LANDLORD provides any such services, TENANT shall reimburse
LANDLORD for its proportionate share of any such services used or consumed in
the Demised Premises as additional rental.
ARTICLE VII
TENANTS Additional Covenants
7.1 Affirmative Covenants - TENANT covenants at its expense at all times
during the Lease term and such further time as TENANT occupies the Promises or
any part thereof.
7.1.1 Use - TENANT shall use and permit the use of the Premises and the
Improvements to be constructed thereon primarily for the operation of a branch
bank, provided that (subject to the other terms and conditions of this Lease),
TENANT may at any time use the Premises and the building and other improvements
to be constructed thereon, or permit them to be used, for any other lawful
commercial purposes. Neither TENANT nor it's subtenants, if any, shall commit
any nuisance; nor permit the emission of any objectionable noise or odor; nor
bring on, deposit or allow to be brought on or deposited on the
<PAGE>
Premises any asbestos materials or any other Hazardous Substance or materials as
the same may be defined by Federal, State or local laws, rules, statutes or
regulations or in the Environmental Rider annexed hereto, nor use the property
In such a manner which negatively effects the reversion.
7.1.2 Compliance with Law - To make all repairs, alterations, additions
or replacements to the Premises required by any law or ordinance or any order or
regulation of any public authority because of TENANT'S use of the Premises; to
keep the Premises equipped with all safety appliances so required because of
such use: to pay all municipal, county or state taxes assessed against the
personal property of any kind owned by or placed in, upon or about the premises
by TENANT; and to comply with the orders and regulations of all governmental
authorities, as well as all Insurance Carriers and Underwriters.
7.1.2 (A) TENANT has the right to contest by appropriate judicial or
administrative proceeding, without cost or expense to the LANDLORD, the validity
or application of any law, ordinance, order, rule, regulation or requirement
("law") which the TENANT legitimately deems invalid and TENANT shall not be in
default for failure to comply with such law until the legally permitted time
following final determination of TENANT'S contest expires; provided, however, if
LANDLORD gives notice of request, TENANT shall first furnish LANDLORD a bond,
satisfactory to LANDLORD in form and insurer, guarantying compliance by TENANT
with the contested law and indemnifying LANDLORD against all liability that
LANDLORD may sustain by reason of TENANTS failure or delay in complying with the
law. LANDLORD may, but is not required to, contest any such law independent of
TENANT. On TENANT'S notice of request LANDLORD may join in TENANT'S contest.
7.1.3 Payment for TENANT'S Work - To pay promptly when due the entire
cost of any work to the Premises undertaken by TENANT and to bond against or
discharge any liens for labor or materials within ten (10) days after written
request by LANDLORD; to procure all necessary permits before undertaking such
work; and to do all of such work in a good and workmanlike manner, employing new
materials of good quality and complying with all governmental requirements.
7.1.4 Indemnity and Liability Insurance - To defend with counsel, save
harmless and indemnify LANDLORD from all claims or damage to or of any person or
property while on the premises unless arising from any omission, fault,
negligence or other misconduct of LANDLORD, and from all claims or damage to or
of any person or property occasioned by any omission, fault, neglect or other
misconduct of TENANT; to maintain in responsible companies qualified to do
business In the state in which the premises is located and if good standing
therein, public liability insurance covering the promises Insuring LANDLORD, as
well as TENANT, with limits at least equal to those stated in Section 1.1,
workmen's compensation insurance with statutory limits, covering all of TENANT'S
employees working in the premises, and to deposit promptly with LANDLORD
certificates for such insurance and all renewals thereof, bearing the
endorsement that the policies will not be cancelled until after ten (10) days
written notice to LANDLORD. TENANT'S obligations hereunder may be satisfied
through a blanket insurance policy covering other interets; of the TENANT.
<PAGE>
7.1.5 LANDLORD'S Right to Enter - To perrnit LANDLORD and its agents to
examine the premises at reasonable times and to show the premises to prospective
purchasers and lenders, provided such entry shall not unreasonably interfere
with TENANTS occupancy of its business in the Demised Premises.
7.1.6 Personal Property at TENANTS Risk - That all of the furnishings,
fixtures, equipment, effects and property of every kind, nature and description
of TENANT and of all persons claiming under TENANT, may be on the Premises,
shall be at the sole risk and hazard of TENANT, and if the whole or any part
thereof shall be destroyed or damaged by fire, water, or otherwise, or by the
leakage or bursting of water pipes, steam pipes or other pipes, by theft or from
any other cause, no part of said loss or damage is to be charged to or be borne
by LANDLORD, except that LANDLORD shall in no event be indemnified or hold
harmless or exonerated from any liability resulting from its sole negligence,
failure to perform any of its obligations under this Lease or to any extent
prohibited by law.
7.1.7 Payment of LANDLORD'a Cost of Enforcement - To pay on demand
LANDLORD'S expenses, including reasonable attorney's fees, incurred in enforcing
any obligation of TENANT under this Lease or in curing any default by TENANT
under this Lease as provided in Section 10.4, provided LANDLORD shall prevail in
any judicial proceedings in respect to such enforcement.
7.1.8 Yield Up - At the expiration of the Lease term or earlier
termination of this Lease; TENANT shall remove all trade fixtures and personal
property, to repair any damage caused by such removal, to remove all TENANTS
signs wherever located and to surrender all keys to the Premises and yield up
the Premises, broom clean and in the same good order and repair in which TENANT
is obligated to keep and maintain the Premises by the provisions of this Lease,
reasonable wear and tear and insured damage by fire, casualty, or taking
excepted. Any property not so removed shall be deemed abandoned and may be
removed and disposed of by LANDLORD in such manner as LANDLORD shall determine,
without any obligation on the part of LANDLORD to account to TENANT for any
proceeds there from, all of which shall become the property of LANDLORD. Any
holdover by TENANT will not be deemed an extension of this Lease, and TENANT
shall indemnify LANDLORD against all losses and damages from a failure to
surrender.
7.1.9 Maintenance - Throughout the term, TENANT shall, at TENANT'S sole
cost and expense maintain the Premises and all Improvements thereon In good
condition and repair, ordinary wear and tear excepted, and In accordance with
all applicable laws, rules, ordinances, orders and regulations of (1) Federal,
State, county, municipal, and other governmental agencies and bodies having or
claiming jurisdiction and all of their respective departments, bureaus and
officials; (2) the insurance underwriting board or Insurance inspection bureau
having or claiming jurisdiction; and (3) all Insurance companies Insuring all or
any part of the Premises or the Improvements located thereon, or both. except as
provided
<PAGE>
below and subject only to the provisions of Paragraph 9.2, TENANT shall promptly
and diligently repair, restore and replace as required to maintain the Premises
and the Improvements in the condition set forth above, or to remedy all damage
to or destruction of all or any part of the Improvements.
(A) The completed work of maintenance, compliance, repair, restoration
or replacement shall be equal in value, quality, and use to the condition of the
Improvements before the event giving rise to the work, unless otherwise provided
for in this Lease. LANDLORD shall not be required to furnish any services or
facilities or to make any repairs or alterations of any kind in or upon or on
the Promises. LANDLORD'S election to perform any obligations of the TENANT under
this provision on TENANT'S failure or refusal to do so shall not constitute a
waiver of any right or remedy for TENANT'S default and TENANT shall promptly
reimburse, defend and indemnify LANDLORD against all liability, loss, cost and
expense arising from it.
7.1.10 Insurance - TENANT shall maintain in full force and effect, at
its own cost, insurance covering the demised premises (and all improvements for
the full insurable value) against loss or damage by fire or casualty, with the
usual extended coverage endorsements, together with endorsements protecting
against loss or damage resulting from malicious mischief, sprinkler leakage and
vandalism all in amounts not less than replacement value above foundation walls.
All insurance policies shall name the LANDLORD as its interest may appear.
7.2 Negative Covenant5 - TENANT covenants at all times during the lease
term and such further times as TENANT occupies the Premises or any part
thereof.
7.2.1 Overloading, Nuisance, etc. - Not to injure, overload, deface or
otherwise harm the Promises; not commit any nuisance; nor make any use of the
premises which is improper, offensive or contrary to any law or ordinance.
7.2.2 Installation, Alteration or Additions - Not to make any
installations, alterations or additions (except only the installation of
fixtures necessary for the conduct of its business), without on each occasion
obtaining prior written consent of LANDLORD, LANDLORD'S consent not to be
unreasonably withheld. No consent shall be required for nonstructural
alterations not exceeding $10,000.00 in cost.
ARTICLE VIII
LANDLORD'S Additional Covenants
8.1 Warranty on Use - LANDLORD warrants and represents that at the
commencement of construction it will be the Owner in Fee of the Land shown on
Exhibit "A" and described In Exhibit "B";. LANDLORD has no knowledge of and
TENANT requires that there be no zoning regulations, restrictive agreements,
leases or other instruments which prevent the use of the Premises for the
purpose intended herein, nor otherwise conflict with any of the provisions of
this Lease. TENANTS sole and conclusive
<PAGE>
remedy for a beach of this warranty shall be its right, at its election, to
terminate the lease prior to commencement of construction.
8.2 Competing Use - During the term of this Lease, provided TENANT is
not in default, LANDLORD agrees not to lease or sell any portion of the project,
of which the leased premises is a part, to a commercial bank, savings bank,
savings and loan or credit union.
ARTICLE IX
Casualty or Taking
9.1 TENANT to Repair or Rebuild in the Event of Casualty - In case the
Premises or any part thereof shall be damaged or destroyed by fire or other
casualty, taken (which term or reference to eminent domain action generally, for
the purposes of this article shall include as sale in lieu of the exercise of
the right of eminent domain) or ordered to be demolished by the action of any
public authority in consequence of a fire or other casualty, this Lease shall,
unless it is terminated as provided below in Section 9.2 or 9.3, remain in full
force and effect, and TENANT shall, at its expense, proceed with all reasonable
dispatch, to repair or rebuild the Premises and the improvements, or what may
remain thereof, so as to restore them as nearly as practicable to the condition
they were in immediately prior to such damage or destruction.
9.2 Right to Terminate in Event of Casualty - In case of any damage or
destruction occurring in the last five years of the original term of this Lease
or during any extension of the term, to the extent of 50% or more of the
insurable value of the building, TENANT may at its option, to be evidenced by
notice in writing given to the LANDLORD within seven (7) days after the
occurrence of such damage or destruction, in lieu of repairing or replacing the
Building, elect to terminate this Lease as of the date of said damage or
destruction. In the event the TENANT shall so terminate the lease all insurance
proceeds shall become the property of the LANDLORD.
9.3 Eminent Domain - If the whole, or any part of the demised prernises
shall be taken or condemned by any competent authority for any public use or
purpose during the term of this lease, TENANT reserves unto itself the right to
prosecute its claim for an award based upon its leasehold interest for such
taking, without impairing any rights of LANDLORD for the taking of or injury to
the reversion.
In the event that a part of the demised promises shall be taken or
condemned that (a) the part so taken includes the building on the demised
premises or any part thereof or (b) the part so taken shall remove from the
premises 20% or more of the front depth of the parking areas thereof or (c) the
part so taken shall consist of 25% or more of the total parking area or (d) such
partial taking shall result in cutting off direct access from the demised
premises to any adjacent public street or highway, then and in any such event,
the TENANT may at any time either prior to or within a period of sixty (60) days
after the date when possession of the premises shall be required by the
condemning authority elect to terminate this Lease
<PAGE>
or, if any option to purchase the promises is conferred upon the TENANT by any
other provision of this Lease, may as an alternative to such termination of this
Lease elect to purchase the demised premises in accordance with such purchase
option, except that there shall be deducted from the purchase price to be paid
for the premises all of the LANDLORD'S award from the condemnation proceeding.
In the event that TENANT shall fail to exercise any such option to terminate
this Lease or to purchase the premises or in the event that a part of the
demised premises shall be taken or condemned under circumstances under which
the TENANT will have no such option, then and in either such event the LANDLORD
shall, with reasonable promptness, make necessary repairs to and alterations of
the Improvements on the demised premises for the purpose of restoring the same
to an economic architectural unit, susceptible to the same use as that which was
in effect immediately prior to such taking, to the extent that may have been
necessary by such condemnation, subject to a pro-rata reduction in rental. Any
dispute resulting from Section 9.3 of this Lease shall be submitted to the
American Arbitration Society, whose decision shall be binding on the parties
hereto.
ARTICLE X
Defaults
10.1 Events of Default - If (a) TENANT shall default in the performance
of any of its obligations to pay rent or additional rents hereunder and if such
default shall continue for (10) days after written notice from LANDLORD
designating such default or if within thirty (30) days after written notice from
LANDLORD to TENANT specifying any other non-monetary default or defaults, TENANT
has not commenced diligently to correct the default or defaults so specified or
has not thereafter diligently pursued such correction to completion, or (b) any
assignment shall be made by TENANT for the benefit of creditors, or (c) if
TENANT'S leasehold interest shall be taken on execution, attached, levied upon
or (d) if a petition is filed by TENANT for adjudication as a bankrupt, or for
reorganization or an arrangement under any provision of the Bankruptcy Act as
then in force and effect, or (e) if an Involuntary petition under any of the
provisions of said Bankruptcy Act is filed against TENANT and such involuntary
petition is not dismissed within sixty (60) days thereafter, then, and in any of
such cases, LANDLORD lawfully may exercise all defaults rights available to it
under law, including repossession of the leased property, termination of the
lease, acceleration of all future rental payments, and such other rights as may
be lawfully permitted.
10.2 Remedies - In the event that this Lease is terminated under any of
the provisions contained in Section 10. 1 or shall be otherwise terminated for
breach of any obligation of TENANT, TENANT covenants to pay punctually to
LANDLORD all the sums and perform all the obligations which TENANT covenants in
this Lease to pay and to perform in the same manner and to the same extent and
at the same time as if this Lease had not been terminated so long as such
obligations shall have not been rendered unnecessary or impossible of
performance by the subsequent re-letting or other occupancy
<PAGE>
permitted by LANDLORD. In calculating the amounts to be paid by TENANT under the
foregoing covenant, TENANT shall be credited with the not proceeds of any rent
or the value of other considerations obtained by LANDLORD by re-letting the
Premises, after deducting all LANDLORD'S expenses in connection with such
re-letting. Including, without limitation, all repossession costs, brokerage
commissions, fees for legal services and expenses of preparing the premises for
such reletting, it being agreed by TENANT that LANDLORD may (1) re-let the
premises or any part or parts thereof, for a term or terms which may at
LANDLORDS option be equal to or less than or exceed the period which would
otherwise have constituted the balance of the Lease term, and (11) make such
alterations, repairs and decorations in the Premises as LANDLORD in its sold
judgment considers advisable or necessary to re-let the same.
Nothing contained in this Lease shall, however, limit or prejudice the
right of LANDLORD to prove for and obtain in proceedings for bankruptcy or
Insolvency by reason of the termination of this Lease, an amount equal to the
maximum allowed by any statute or rule of law in effect at the time when, and
governing the proceedings in which, the damages are to be proved, whether or not
the amount be greater, equal to, or less than the amounts of the loss or damages
referred to above.
10.3 Remedies Cumulative - Any and all rights and remedies which
LANDLORD may have under this Lease, and at law and equity, shall be cumulative
and shall not be deemed inconsistent with each other, and any two or more of all
such rights and remedies may be exercised at the same time insofar as permitted
by law.
10.4 LANDLORD'S and TENANTS Right to Cure Defaults. - LANDLORD may, but
shall not be obligated to, cure at any time, following ten (10) days prior
written notice to TENANT, except in cases of emergency when no notice shall be
required, any default by TENANT under this Lease; and whenever LANDLORD so
elects, all costs and expenses incurred by LANDLORD, including reasonable
attorney's fees, in curing a default shall be paid by TENANT to LANDLORD as
additional rent on demand. TENANT shall have a like right to cure any default of
LANDLORD, and TENANT may reimburse itself for the cost thereof out of succeeding
rental payments.
10.5 Effect of Waivers on Default -No consent or waiver, express or
implied, by either party to or of any breach of any covenants, conditions or
duty of the other shall be construed as a consent or waiver to or of any other
breach of the same of any other covenant, condition or duty.
ARTICLE XI
Miscellaneous Provisions
11.1 Assignment. Subletting, etc, -Consent shall not be required for any
assignment, transfer or subletting. Upon assignment in accordance with the
foregoing, the TENANT shall remain liable for the full and faithful performance
of the lease and all its terms and conditions.
<PAGE>
11.2 Notice from One Party to the Other - Any notice from LANDLORD to
TENANT or from TENANT to LANDLORD shall be deemed duly served if mailed by
registered or certified mail, return receipt requested, postage prepaid,
addressed, if to TENANT, at the original address of TENANT or such other address
as TENANT shall have last designated by notice in writing to LANDLORD, and if to
LANDLORD, at the original address of LANDLORD or such other address as LANDLORD
shall have last designated by notice in writing to TENANT.
11.3 Quiet Enjoyment - LANDLORD agrees that upon TENANT'S paying the
rent and performing and observing the agreements, conditions and other
provisions on its part to be performed and observed, TENANT shall and may
peaceably and quietly have, hold and enjoy the Demised Premises during the
Lease term without any manner of hindrance or molestation from LANDLORD or
anyone claiming under LANDLORD, subject to the covenants and conditions of this
Lease.
11.4 Recording - TENANT agrees not to record this Lease, but each party
hereto agrees on request of the other, to execute a Notice or Short Form of this
Lease in recordable form in compliance with applicable statutes, and reasonably
satisfactory to LANDLORD'S and TENANTS attorneys. In no event shall such
document set forth the rental or other charges payable by TENANT under this
Lease; and any such document shall expressly state that it is executed pursuant
to the provisions contained in this Lease, and is not intended to vary the terms
and conditions of this Lease. In the event LANDLORD and/or TENANT believe that
the Lease has been lawfully terminated, abandoned or otherwise of no force and
effect and the other party will not voluntarily execute a Discharge of
Memorandum of Lease, the party seeking the Discharge of Memorandum of Lease may
move summarily before the Superior Court of New Jersey for a determination of
whether or not the Memorandum of Lease should be discharged. The other party
consents to the jurisdiction of the Superior Court of New Jersey and agrees to
proceed in a summary manner. It is expressly understood and agreed that in
addition to the relief provided herein, the parties will have such additional
cumulative remedies as are available to it at law or in equity for damages
suffered by reason of a wrongful refusal to execute and deliver a Discharge of
Memorandum of Lease.
11.5 Acts of God - In any case where either party hereto is required to
do any act, delays caused by or resulting from Acts of God, war, civil
commotion, fire or other casualty, labor difficulties, shortages of labor,
materials or equipment, government regulations, or other causes beyond such
party's reasonable control shall not be counted in determining the time during
which work shall be completed, whether such time be designated by a fixed date,
a fixed time or "a reasonable time".
11.6 Waiver of Subrogation - All Insurance which is carried by either
party with respect to the Demised Premises, whether or not required, shall
include provisions which either designates the other party as one of the insured
or deny to the insurer acquisition by subrogation of rights of recovery against
the other party. Each party shall be entitled to have duplicates or certificates
of any policies containing such provisions. Each party hereby waives all rights
of recovery against the other for loss or injury against which the waiving party
is protected by insurance containing said provisions.
<PAGE>
11.7 Rights of Mortgagee and 5ubordination-
11.7.1 This Lease is subject and is hereby subordinated to all present
and future mortgages, deeds of trust, and other encumbrances affecting the
Premises or the property of which said Premises are a part; provided, however,
that an agreement or Instrument affecting such subordination shall be executed
by the mortgagee or other Lender, be recorded with such mortgage or other
security agreement, and a copy delivered to the TENANT and contain provisions,
to the effect that (i) so long as TENANT observes the terms and provision of
the Lease and notwithstanding the Lease may be foreclosed, TENANT will not be
effected or disturbed by the mortgagee in the exercise of any of its rights
under the mortgage or other security agreement, or the bond, note or debt
secured thereby; (ii) In the event the mortgagee comes into possession or
ownership of the Premises by foreclosing or otherwise, TENANTS use, occupancy
and quiet enjoyment of the Premises shall not be disturbed by any such
proceedings; (iii) In the event the Premises are sold or otherwise disposed of
pursuant to any right or power contained in the mortgage or other security
agreement, or the bond or note secured thereby,or as a result of proceedings
thereon, the purchaser shall take title subject to this Agreement of Non
Disturbance, and all of the rights of TENANT hereunder; (iv) in the event the
buildings and Improvements upon the Premises are damaged by fire and other
casualty, for which loss the proceeds payable under any Insurance policy or
policies are payable to the mortgagee, such Insurance funds, when paid, shall be
made available for the purpose of repair and restoration as provided in this
Lease; and (v) the agreement shall be binding upon the LANDLORD, mortgagee and
their respective heirs, executors, administrators, successors and assigns. The
TENANT agrees to execute, at no expense to the LANDLORD, any instrument which
may be deemed necessary or desirable by the LANDLORD to further effect the
subordination of this lease to any such mortgage, deed of trust or encumbrance.
11.7.2 No Accord and Satisfaction - No acceptance by LANDLORD of lesser
sum than the rent or any other charges then due shall be deemed to be other than
on account of the earliest installment of such rent or charge due, nor shall any
endorsement or statement on any check or nay letter accompanying any check or
payment as rent or other charge be deemed an accord and satisfaction, and
LANDLORD may accept such check or payment without prejudice to LANDLORD'S right
to recover and balance of such Installments or pursue any other remedy in this
Lease provided.
11.8 Applicable Law and Construction - This Lease shall be governed by
and construed in accordance with the laws of the state in which the premised is
located, and if any provisions of this Lease shall to any extent be invalid, the
remainder of this Lease shall not be affected thereby. There are no oral or
written agreements between LANDLORD and TENANT affecting this Lease. This Lease
maybe amended only by instruments in writing executed by LANDLORD and TENANT.
LANDLORD shall not be deemed in any way or for any purpose, to have become, by
the execution of this Lease or any action taken thereunder, a partner of TENANT
in it business or otherwise a joint venturer or member of any
<PAGE>
enterprises of TENANT. The titles of the several Articles and Sections contained
herein are for convenience only and shall not be considered in construing this
Lease. Unless repugnant to the context, the words 'LANDLORD and TENANT'
appearing in this Lease shall be construed to mean those names above in their
respective heirs, executors, administrators, successors and assigns, and those
claiming through or under them respectively.
11.9 Security Deposit - TENANT agrees to pay to LANDLORD security
deposit for the Premises In accordance with and in the amount set forth in
Paragraph 1.1 "Data". TENANT shall make payment upon signing of this lease. Upon
expiration of this lease, provide TENANT is not in default, security deposit
will be returned to TENANT.
ARTICLE XII
Permits and Approvals
12.1 TENANTS Obligations - The obligations of TENANT hereunder are
contingent upon TENANT securing on or before December l, 1994 the following
approvals:
A . All State and Federal regulatory approvals for the construction and
operation of a branch bank.
B. All municipal and governmental approvals required for the
construction of TENANT'S proposed building other than the issuance of a building
permit. ("Permit and Approvals")
12.2 Approvals- In the event TENANT has not obtained its Permits and
Approvals on or before December 1, 1994, and TENANT has not waived the
contingencies of Permits and Approvals, TENANT will be entitled to One (1)
extension of time of sixty (60) days until February 1, 1995 to obtain the
Permits and Approvals; provided full and complete applications for all necessary
permits and approvals are then pending, all notice requirements have been
satisfied and at least one hearing has been held on each of the permits and
applications for approvals.
12.3 Easements- TENANT shall have absolutely no right to grant any
easements with regard to the Premises other than such easements to public
entities or public service corporations for the purpose of serving only the
Promises, rights-of-way or easements on or over the Premises for poles or
conduits, or both, for telephone, electricity, water, sanitary or storm sewers
or both and for other utilities and municipal or special district services.
ARTICLE XIII
Net, Net, Net Lease
13.1 Net, Net, Net Lease- It is the Intention of LANDLORD and TENANT that the
rental herein specified shall be net to LANDLORD in each lease year, that all
costs, expenses, and obligations of every kind relating to the premises which
may arise during the term of this lease shall be paid by TENANT, and that
LANDLORD shall be Indemnified by TENANT against any such costs, expenses, and
obligations.
<PAGE>
ARTICLE XIV
14.1 Limitation of Landlord's Liability-- TENANT shall look solely to the
estate and properly of LANDLORD in the Premises, in all events subject to the
prior rights of any and all mortgagees, for the collection of any judgement,
claim or demand (or any other judicial process) requiring the payment or
expenditure of money by LANDLORD in the event of any uncured default or breach
by LANDLORD with respect to any of the terms, covenants and conditions of this
Lease to be observed or performed by TENANT, and no other assets of LANDLORD or
any one or more of the principals of LANDLORD shall be subject to execution or
other process or procedure for the satisfaction of TENANT's remedles.
ARTICLE XV
15.1 Holdover- In the event that TENANT continues in use and occupancy and holds
over in possession of the Premises after the expiration of the Initial Term or,
properly exercised, the Option Term, in addition to all other damages to which
LANDLORD may be entitled, the monthly rent during the period of holdover shall
be in a sum equal to double the amount of the monthly installment of base annual
fixed rent during the last month of the term which has just expired. Said
holdover rent shall be in addition to all additional rents for which the TENANT
shall be responsible during the holdover period.
ARTICLE XVI
16.1 Purchase- Landlord has the right to purchase from the Tenant, the fee
interest in the demised premises for the purchase price, expanded by the Tenant
for the acquisition of the property.
<PAGE>
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
this day and year first written above
COMMERCE BANK, N.A.
BY:
Attest: C. Edward Jordan, Jr.
Executive Vice President
ABSECON ASSOCIATES, L.L.C.
BY: /s/ John P. Silvestri
Attest: John P. Silvestri, President
9/11/95
LEASE
from
WHITING EQUITIES, L.L.C.
A New Jersey Limited Liability Corporation
to
COMMERCE BANK, SHORE N.A.
ARTICLE 1
Reference Data and Exhibits
1.1 Data
DATE September 11, 1995
LOCATION OF PREMISES Lacey Road
Manchester Township
Ocean County, N.J.
Block 86, Lot 2.01
LANDLORD Whiting Equities, L.L.C.
ORIGINAL ADDRESS OF: 17000 Horizon Way
Suite 200
Mt. Laurel, NJ 08054
TENANT Commerce Bank/ Shore N.A.
ORIGINAL ADDRESS OF Route 9 and Lacey Road
Forked River, New Jersey 07831-0536
LEASE TERM Twenty Years
ANNUAL FIXED RENT RATE Yr. 1 - 5: $40,000.00
6-10: $46,000.00
11-15: $52,900.00
16-20: $60,835.00
<PAGE>
9/11/95
1.2 Table of Contents
<TABLE>
<CAPTION>
ARTICLE I - Reference Data and Exhibits PAGE
<S> <C>
1.1 Data ..............................................................................................1
1.2 Table of Contents .................................................................................2
ARTICLE II - Premises and Term
2.1 Premises ..........................................................................................4
2.2 Term ..............................................................................................4
2.3 Option to Extend ..................................................................................4
ARTICLE III - Improvements
3.1 Construction of Improvements ......................................................................4
3.2 Contractor ........................................................................................4
3.3 Signs .............................................................................................4
ARTICLE IV - Rent
4.1 The Rent, Minimum Fixed and Percentage ............................................................5
ARTICLE VII - Real Estate Taxes
5.1 Real Estate Taxes .................................................................................5
5.2 Taxes .............................................................................................5
5.3 Method of Payment .................................................................................6
ARTICLE VI. - Utilities and Services
6.1 Utilities and Charges Therefore ...................................................................6
ARTICLE VII - TENANT'S Additional Covenants
7.1 Affirmative Covenants .......................................................................6
7.1.1 Use ............................................................................6
7.1.2 Compliance with Law ............................................................7
7.1.3 Payment of TENANT'S Work .......................................................7
7.1.4 Indemnity and Liability Insurance ..............................................7
7.1.5 LANDLORD'S Right to Enter ......................................................8
7.1.6 Personal Property at TENANTS Risk ..............................................8
7.1.7 Payment of LANDLORD'S Cost of Enforcement ......................................8
7.1.8 Yield Up .......................................................................8
7.1.9 Maintenance ....................................................................8
7.1.10 Insurance ......................................................................9
7.2 Negative Comments ............................................................................9
7.2.1 Overloading, Nuisance, etc ..........................................................9
7.2.2 Installation, Alteration or Additions ...............................................9
ARTICLE VIII - LANDLORD'S Additional Covenants
8.1 Warranty on Use ...................................................................................9
8.2 Competing Use ....................................................................................10
ARTICLE IX - Casualty or Taking
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9.1 TENANT to Repair or Rebuild in the Event of Casualty ......................................10
9.2 Right to Terminate in Event of Casualty ...................................................10
9.3 Eminent Domain ............................................................................10
PAGE
ARTICLE X - Defaults
10.1 Events of Default ..........................................................................11
10.2 Remedies ...................................................................................11
10.3 Remedies Cumulative ........................................................................12
10.4 LANDLORD'S and TENANT'S Right to Cure Defaults .............................................12
10.5 Effect of Waivers of Default ...............................................................12
ARTICLE XL- Miscellaneous Provisions
11.1 Assignment, Subletting, etc ................................................................13
11.2 Notice from One Party to Other .............................................................13
11.3 Quiet Enjoyment ............................................................................13
11.4 Recording ..................................................................................13
11.5 Acts of God ................................................................................13
11.6 Waiver of Subrogation ......................................................................13
11.7 No Accord and Satisfaction .................................................................14
11.7.1 ..................................................................................14
11.7.2 No Accord and Satisfaction ..........................................14
11.8 Applicable Law and Construction ................................................................14
11.9 Security Deposit ...............................................................................15
ARTICLE X11 - Tenant's Contingencies
12.1 Approval Contingencies .........................................................................15
12.2 Engineering Tests ..............................................................................15
12.3 Easements ......................................................................................15
ARTICLE XIII - Net Lease
13.1 Net Lease ......................................................................................15
ARTICLE XIV-
14.1 Tenant's right to renew ........................................................................16
14.2 Right of first refusal .........................................................................16
ARTICLE XV-
15.1 Holdover .......................................................................................16
</TABLE>
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ARTICLE II
Premises and Term
2.1 Premises - LANDLORD hereby leases to TENANT and TENANT hereby leases
from LANDLORD, subject to and with the benefit of the terms, covenants,
conditions and provisions of this Lease, the premises shown on Exhibit A and
described in Exhibit B, both annexed hereto and made a part hereof, together
with any and all improvements, appurtenances, rights, privileges and easements
befitting, belonging or pertaining thereto.
2.2 Term - TO HAVE AND TO HOLD for a term beginning at the earlier of
(a) Ninety (90) days (inclusive of the time for objectors to appeal from any
approval) after TENANT has obtained the approvals for the construction of the
branch bank as set forth in Article 12 (notwithstanding TENANT may not have
commenced construction) and continuing for the Lease term unless sooner
terminated as hereinafter provided. When dates of the beginning and end of the
Lease term have been determined, such dates shall be evidenced by a document in
form for recording, executed by LANDLORD and TENANT and delivered each to the
other.
2.3 Option to Extend- So long as TENANT is not in default hereunder,
TENANT shall have the right to extend this Lease for four (4) five (5) year
terms under the same terms, conditions and provisions as in the original term,
at the following annual rentals:
Option Years 1-5: $69,960.25
6-10: $80,454.29
11-15: $92,522.43
16-20: $106,400.80
TENANT shall give written notice of its intention to exercise each
extension option not less than Ninety (90) days prior to the expiration of the
then current term.
ARTICLE III
Improvements
3.1 Construction of Improvements - TENANT agrees to construct, at its
sole cost, a branch banking facility, pursuant to the attached Site Plan,
subject to reasonable approval by LANDLORD of the building plans and
specifications.
3.2 Contractor - TENANT shall have the right to select and approve the
contractor to complete the construction, which shall be subject to the approval
of the LANDLORD.
3.3 Signs - TENANT shall have the right to erect such signs as
permitted by applicable zoning ordinances within the leased area.
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9/11/95
ARTICLE IV
Rent
4.1 The Rent, Minimum Fixed - TENANT covenants and agrees to pay rent to
LANDLORD at the original address of LANDLORD or such other place as LANDLORD may
by notice in writing to TENANT from time to time direct, at the following rates
and times,
(a) TENANT agrees to pay to LANDLORD base annual fixed rent for the
Premises in accordance with and in the amount set forth in Paragraph 1.1 "Data".
The base annual fixed rent shall be paid in equal monthly installments in
advance on the first (1st) day of each month beginning on the Commencement
Date. In addition to the base annual fixed rent, TENANT shall pay as and when
the same become due and owing as additional rents, all other monies provided for
in the Lease. It is the parties intention that all charges and assessments
charged to or assessed against the Premises shall be the responsibility of the
TENANT, such that the Lease shall be "net, net, net" to the LANDLORD, excepting
only interest and principal on any mortgage made by the LANDLORD and effecting
the Premises.
(b) For purposes of this Lease, the scheduled increases in the base
annual fixed rent shall occur on the first day of the sixth (6th), eleventh
(11th) and sixteenth (16th) years of the Initial Term as same is determined
pursuant to paragraph 2.2 and on the first day of the sixth (6th), eleventh
(11th), sixteenth (16th), years of the Option Terms.
(c) If any installment under this lease is not paid within fifteen (15)
days of the time and at the place and in the manner specified, then LANDLORD may
at its option declare TENANT in default.
ARTICLE V
Real Estate Taxes
5.1 Real Estate Taxes - As additional rent, TENANT agrees to pay all
taxes levied upon the Premises improvements located on the Premises, the
leasehold estate, or any subleasehold estate of any nature including special
assessments. The responsibility for payment by TENANT of all real estate taxes
shall commence simultaneously with the rentals hereunder.
5.2 Taxes - TENANT agrees to pay all taxes levied upon real estate,
rents and personal property, including trade fixtures and inventory, kept on the
Demised Premises, as well as all taxes levied against the land and the building
and improvements situated thereon during the term of the Lease, after
presentation to TENANT by LANDLORD of statements from the taxing jurisdiction in
which said property is located.- TENANT, however, will pay only the lowest
discounted amount and will not be required to pay any penalty, interest or cost
occurring by reason of LANDLORD'S failure to secure said tax statements in a
timely fashion from the taxing authorities or any delay in delivering said
statements to tenant.
LANDLORD may, however, direct the taxing authorities to send the
statements directly to TENANT. "In the event LANDLORD directs the taxing
authorities to send a statement directly to
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TENANT, TENANT shall make all such payments directly to the taxing authority at
least ten (10) days before any delinquency and before any fine, interest or
penalty shall become due or be imposed by operation of law for their nonpayment.
Further, TENANT shall furnish to LANDLORD within ten (10) days of the date when
any tax, assessment or charge would become delinquent, receipts or other
satisfactory evidence establishing the timely payment of said taxes or charges."
LANDLORD further agrees that TENANT, in the name of LANDLORD, but at TENANTS
sole expense, may protest any assessment before any taxing authority or board or
maintain any necessary legal action in reference to said assessment or for the
recovery of any taxes paid thereon. Nothing herein contained shall require
TENANT to pay any income or excess profits, taxes assessed against LANDLORD or
any corporation, capital stock, or franchise tax imposed upon LANDLORD.
5.3 Method of Payment - LANDLORD shall give written notice advising
TENANT of the amount of real estate taxes, together with a copy of the tax bill,
and TENANT shall pay such amount to LANDLORD within thirty (30) days after
receipt of such notice. If this Lease shall terminate during a tax year, TENANT
shall pay to LANDLORD a prorated portion of the amount that would have been due
for the full tax year based on the number of days of said tax year expired on
the date of termination.
ARTICLE VI
Utilities and Services
6.1 Utilities and Charges Therefore - TENANT agrees to pay directly to
the authority charged with the collection thereof, all charges for water, gas,
electricity, sanitary sewer and sprinkler changes, telephone and other utilities
used or consumed in the Premises and shall make its own arrangements for such
utilities. In the event any such services cannot be reasonably procured from any
public agency, and LANDLORD provides any such services, TENANT shall reimburse
LANDLORD for its proportionate share of any such services used or consumed in
the Demised Premises as additional rental.
ARTICLE VII
TENANT'S Additional Covenants
7.1 Affirmative Covenants - TENANT covenants at its expense at all times
during the Lease term and such further time as TENANT occupies the Premises or
any part thereof.
7.1.1 -Use - TENANT shall use and permit the use of the Premises and
the improvements to be constructed thereon primarily for the operation of a
branch bank, provided that (subject to the other terms and conditions of this
Lease), TENANT may at any time use the Premises and the building and other
improvements to be constructed thereon, or permit them to be used, for any other
lawful commercial purposes. Neither TENANT nor it's subtenants, if any, shall
commit any nuisance; nor permit the
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emission of any objectionable noise or odor; nor bring on, deposit or allow to
be brought on or deposited on the Premises any asbestos materials or any other
Hazardous Substance or materials as the same may be defined by Federal, State or
local laws, rules, statutes or regulations or in the Environmental Rider annexed
hereto, nor use the property in such a manner which negatively effects the
reversion.
7.1.2 Compliance with Law - To make all repairs, alterations, additions
or replacements to the Premises required by any law or ordinance or any order or
regulation of any public authority because of TENANTS use of the Premises; to
keep the Premises equipped with all safety appliances so required because of
such use; to pay all municipal, county or state taxes assessed against the
personal property of any kind owned by or placed in, upon or about the premises
by TENANT; and to comply with the orders and regulations of all governmental
authorities, as well as all Insurance Carriers and Underwriters.
7.1.2 (A) TENANT has the right to contest by appropriate judicial or
administrative proceeding, without cost or expense to the LANDLORD, the validity
or application of any law, ordinance, order, rule, regulation or requirement
("law") which the TENANT legitimately deems invalid and TENANT shall not be in
default for failure to comply with such law until the legally permitted time
following final determination of TENANT'S contest expires; provided, however, if
LANDLORD gives notice of request, TENANT shall first furnish LANDLORD a bond,
satisfactory to LANDLORD in form and insurer, guarantying compliance by TENANT
with the contested law and indemnifying LANDLORD against all liability that
LANDLORD may sustain by reason of TENANT'S failure or delay in complying with
the law. LANDLORD may, but is not required to, contest any such law independent
of TENANT. On TENANT'S notice of request LANDLORD may join in TENANT'S contest.
7.1.3 Payment for TENANTS Work - To pay promptly when due the entire
cost of any work to the Premises undertaken by TENANT and to bond against or
discharge any liens for labor or materials within ten (10) days after written
request by LANDLORD; to procure all necessary permits before undertaking such
work; and to do all of such work in a good and workmanlike manner, employing new
materials of good quality and complying with all governmental requirements.
7.1.4 Indemnity and Liability Insurance - To defend with counsel,
save harmless and indemnify LANDLORD from all claims or damage to or of any
person or property while on the premises unless arising from any omission,
fault, negligence or other misconduct of LANDLORD, and from all claims or damage
to or of any person or property occasioned by any omission, fault, neglect or
other misconduct of TENANT; to maintain in responsible companies qualified to do
business in the state in which the premises is located and in good standing
therein, public liability insurance covering the premises insuring LANDLORD, as
well as TENANT, with limits at least equal to those stated in Section 1.1,
workmen's compensation insurance with statutory limits, covering all of TENANT'S
employees working in the premises, and to deposit promptly with LANDLORD
certificates for such insurance and all renewals thereof, bearing the
endorsement that the policies will not be canceled until after ten (10) days
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written notice to LANDLORD. TENANT'S obligations hereunder may be satisfied
through a blanket insurance policy covering other interests of the TENANT.
7.1.5 LANDLORD'S Right to Enter - To permit LANDLORD and its agents to
examine the premises at reasonable times and to show the premises to prospective
purchasers and lenders, provided such entry shall not unreasonably interfere
with TENANT'S operation of its business in the Demised Premises.
7.1.6 Personal Property at TENANT'S Risk - That all of the furnishings,
fixtures, equipment, effects and property of every kind, nature and description
of TENANT and of all persons claiming under TENANT, may be on the Premises,
shall be at the sole risk and hazard of TENANT, and if the whole or any part
thereof shall be destroyed or damaged by fire, water, or otherwise, or by the
leakage or bursting of water pipes, steam pipes or other pipes, by theft or from
any other cause, no part of said loss or damage is to be charged to or be borne
by LANDLORD, except that LANDLORD shall in no event be indemnified or held
harmless or exonerated from any liability resulting from its sole negligence,
failure to perform any of its obligations under this Lease or to any extent
prohibited by law.
7.1.7 Payment of LANDLORD'S Cost of Enforcement - To pay on demand
LANDLORD'S expenses, including reasonable attorney's fees, incurred in enforcing
any obligation of TENANT under this Lease or in curing any default by TENANT
under this Lease as provided in Section 10.4, provided LANDLORD shall prevail in
any judicial proceedings in respect to such enforcement.
7.1.8 Yield Up - At the expiration of the Lease term or earlier
termination of this Lease; TENANT shall remove all trade fixtures and personal
property, to repair any damage caused by such removal, to remove all TENANT'S
signs wherever located and to surrender all keys to the Premises and yield up
the Premises, broom clean and in the same good order and repair in which TENANT
is obligated to keep and maintain the Premises by the provisions of this Lease,
reasonable wear and tear and insured damage by fire, casualty, or taking
excepted. Any property not so removed shall be deemed abandoned and may be
removed and disposed of by LANDLORD in such manner as LANDLORD shall determine,
without any obligation on the part of LANDLORD to account to TENANT for any
proceeds there from, all of which shall become the property of LANDLORD. Any
holdover by TENANT will not be deemed an extension of this Lease, and TENANT
shall indemnify LANDLORD against all losses and damages from a failure to
surrender.
7.1.9 Maintenance- Throughout the term, TENANT shall, at TENANT'S sole
cost and expense maintain the Premises and all Improvements thereon in good
condition and repair, ordinary wear and tear excepted, and in accordance with
all applicable laws, rules, ordinances, orders and regulations of (1) Federal,
State, county, municipal, and other governmental agencies and bodies having or
claiming jurisdiction and all of their respective departments, bureaus and
officials; (2) the insurance underwriting
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board or insurance inspection bureau having or claiming jurisdiction; and (3)
all insurance companies insuring all or any part of the Premises or the
Improvements located thereon, or both. except as provided below and subject only
to the provisions of Paragraph 9.2, TENANT shall promptly and diligently repair,
restore and replace as required to maintain the Premises and the improvements in
the condition set forth above, or to remedy all damage to or destruction of all
or any part of the Improvements.
(A) The completed work or maintenance, compliance, repair, restoration
or replacement shall be equal in value, quality, and use to the condition of the
Improvements before the event giving rise to the work, unless otherwise provided
for in this Lease. LANDLORD shall not be required to furnish any services or
facilities or to make any repairs or alterations of any kind in or upon or on
the Premises. LANDLORD'S election to perform any obligations of the TENANT under
this provision or TENANT'S failure or refusal to do so shall not constitute a
waiver of any right or remedy for TENANT'S default and TENANT shall promptly
reimburse LANDLORD for all reasonable expense arising from it.
7.1.10 Insurance -- TENANT shall maintain in full force and effect, at
its own cost, full replacement cost coverage insurance covering the demised
premises (and all improvements for the full insurable value) against loss or
damage by fire or casualty, with the usual extended coverage endorsements,
together with endorsements protecting against loss or damage resulting from
malicious mischief, sprinkler leakage and vandalism all in amounts not less than
replacement value above foundation walls. All insurance policies shall name the
LANDLORD as its interest may appear.
7.2 Negative Covenants - TENANT covenants at all times during the lease
term and such further times as TENANT occupies the Premises or any part thereof.
7.2.1 Overloading, Nuisance, etc. - Not to injure, overload, deface or
otherwise harm the Premises; not commit any nuisance; nor make any use of the
premises which is improper, offensive or contrary to any law or ordinance.
7.2.2 Installation. Alteration or Additions - Not to make any
installations, alterations or additions (except only the installation of
fixtures necessary for the conduct of its business), without on each occasion
obtaining prior written consent of LANDLORD, LANDLORD'S consent not to be
unreasonably withheld. No consent shall be required for nonstructural
alterations not exceeding $10,000.00 in cost.
ARTICLE VIII
LANDLORD'S Additional Covenants
8.1 Warranty on Use - LANDLORD warrants and represents that at the
commencement of construction it will be the Owner in Fee of the Land shown on
Exhibit "A" and described in Exhibit "B";. LANDLORD has no knowledge of and
TENANT requires that there be no zoning regulations, restrictive agreements,
leases or other instruments which prevent the use of the Premises for the
purpose intended herein, nor otherwise conflict with any of the provisions of
this Lease. TENANTS sole and conclusive
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remedy for a beach of this warranty shall be its right, at its election, to
terminate the lease prior to commencement of construction.
8.2 Competing Use- During the term of this Lease, provided TENANT is not
in default, LANDLORD agrees not to lease or sell any portion of the project, of
which the leased premises is a part, to a commercial bank, savings bank, savings
and loan or credit union.
ARTICLE IX
Casualty or Taking
9.1 TENANT to Repair or Rebuild in the Event of Casualty - In case the
Premises or any part thereof shall be damaged or destroyed by fire or other
casualty, taken (which term or reference to eminent domain action generally, for
the purposes of this article shall include as sale in lieu of the exercise of
the right of eminent domain ) or ordered to be demolished by the action of any
public authority in consequence of a fire or other casualty, this Lease shall,
unless it is terminated as provided below in Section 9.2 or 9.3, remain in full
force and effect, and TENANT shall, at its expense, proceed with all reasonable
dispatch, to repair or rebuild the Premises and the improvements, or what may
remain thereof, so as to restore them as nearly as practicable to the condition
they were in immediately prior to such damage or destruction.
9.2 Right to Terminate in Event of Casualty - In case of any damage or
destruction occurring in the last five years of the original term of this Lease
or during any extension of the term, to the extent of 50% or more of the
insurable value of the building, TENANT may at its option, to be evidenced by
notice in writing given to the LANDLORD within twenty (20) days after the
occurrence of such damage or destruction, in lieu of repairing or replacing the
Building, elect to terminate this Lease as of the date of said damage or
destruction. In the event the TENANT shall so terminate the lease all insurance
proceeds shall become the property of the LANDLORD.
9.3 Eminent Domain - If the whole, or any part of the demised premises
shall be taken or condemned by any competent authority for any public use or
purpose during the term of this lease, TENANT reserves unto itself the right to
prosecute its claim for an award based upon its leasehold interest for such
taking, without impairing any rights of LANDLORD for the taking of or injury to
the reversion.
In the event that a part of the demised premises shall be taken
or condemned and (a) the part so taken includes the building on the demised
premises or any part thereof or (b) the part so taken shall remove from the
premises 20% or more of the front depth of the parking areas thereof or (c) the
part so taken shall consist of 25% or more of the total parking area or (d) such
partial taking shall result in cutting off direct access from the demised
premises to any adjacent public street or highway, then and in any such event,
the TENANT may at any time either prior to or within a period of sixty (60) days
after the
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date when possession of the premises shall be required by the condemning
authority elect to terminate this Lease or, if any option to purchase the
premises is conferred upon the TENANT by any other provision of this Lease, may
as an alternative to such termination of this Lease elect to purchase the
demised premises in accordance with such purchase option, except that there
shall be deducted from the purchase price to be paid for the premises all of the
LANDLORD'S award from the condemnation proceeding. In the event that TENANT
shall fail to exercise any such option to terminate this Lease or to purchase
the premises or in the event that a part of the demised premises shall be taken
or condemned under circumstances under which the TENANT will have no such
option, then and in either such event the LANDLORD shall, with reasonable
promptness, make necessary repairs to and alterations of the improvements on the
demised premises for the purpose of restoring the same to a comparable
architectural unit, susceptible to the same use as that which was in effect
immediately prior to such taking, subject to a pro-rata reduction in rental. Any
dispute arising under Section 9.3 of this Lease shall be submitted to the
American Arbitation Society, whose decision shall be binding on the parties
hereto.
ARTICLE X
Defaults
10.1 Events of Default - If (a) TENANT shall default in the performance
of any of its obligations to pay rent or additional rents hereunder and if such
default shall continue for (10) days after written notice from LANDLORD
designating such default or if within thirty (30) days after written notice from
LANDLORD to TENANT specifying any other non-monetary default or defaults, TENANT
has not commenced diligently to correct the default or defaults so specified or
has not thereafter diligently pursued such correction to completion, or (b) any
assignment shall be made by TENANT for the benefit of creditors, or (c) if
TENANT'S leasehold interest shall be taken on execution, attached, levied upon
or (d) if a petition is filed by TENANT for adjudication as a bankrupt, or for
reorganization or an arrangement under any provision of the Bankruptcy Act as
then in force and effect, or (e) if an involuntary petition under any of the
provisions of said Bankruptcy Act is filed against TENANT and such involuntary
petition is not dismissed within sixty (60) days thereafter, then, and in any of
such cases, LANDLORD lawfully may exercise all remedies available to it under
law, including repossession of the leased property, pursuant to applicable law,
termination of the lease, acceleration of all future rental payments, and such
other rights as may be lawfully permitted.
10.2 Remedies - In the event that this Lease is terminated under any of
the provisions contained in Section 10.1 or shall be otherwise terminated for
breach of any obligation of TENANT, TENANT covenants to pay punctually to
LANDLORD all the sums and perform all the obligations which TENANT covenants in
this Lease to pay and to perform in the same manner and to the same extent and
at the same time as if this Lease had not been terminated so long as such
obligations shall have not been
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rendered unnecessary or impossible of performance by the subsequent re-letting
or other occupancy permitted by LANDLORD. In calculating the amounts to be paid
by TENANT under the foregoing covenant, TENANT shall be credited with the net
proceeds of any rent or the value of other considerations obtained by LANDLORD
by re-letting the Premises, after deducting all LANDLORD'S expenses in
connection with such re-letting, including, without limitation, all repossession
costs, brokerage commissions, reasonable fees for legal services and expenses of
recovering the premises, it being agreed by TENANT that LANDLORD may (i) re-let
the Premises or any part or parts thereof, for a term or terms which may at
LANDLORD'S option be equal to or less than or exceed the period which would
otherwise have constituted the balance of the Lease term, and (ii) make such
alterations, repairs and decorations in the Premises as LANDLORD in its sold
judgment reasonably considers advisable or necessary to re-let the same.
Nothing contained in this Lease shall, however, limit or prejudice the
right of LANDLORD to prove for and obtain in proceedings for bankruptcy or
insolvency by reason of the termination of this Lease, an amount equal to the
maximum allowed by any statute or rule of law in effect at the time when, and
governing the proceedings in which, the damages are to be proved, whether or not
the amount be greater, equal to, or less than the amounts of the loss or damages
referred to above.
10.3 Remedies Cumulative - Any and all rights and remedies which
LANDLORD may have under this Lease, and at law and equity, shall be cumulative
and shall not be deemed inconsistent with each other, and any two or more of all
such rights and remedies may be exercised at the same time insofar as permitted
by law.
10.4 LANDLORD'S and TENANTS Right to Cure Defaults - LANDLORD may, but
shall not be obligated to, cure at any time, following ten (10) days prior
written notice to TENANT, except in cases of emergency when no notice shall be
required, any default by TENANT under this Lease; and whenever LANDLORD so
elects, all reasonable costs and expenses incurred by LANDLORD, including
reasonable attorney's fees, in curing a default shall be paid by TENANT to
LANDLORD as additional rent on demand. TENANT shall have a like right to cure
any default of LANDLORD, and TENANT may reimburse itself for the cost thereof
out of succeeding rental payments.
10.5 Effect of Waivers on Default - No consent or waiver, express or
implied, by either party to or of any breach of any covenants, conditions or
duty of the other shall be construed as a consent or waiver to or of any other
breach of the same of any other covenant, condition or duty.
ARTICLE XI
Miscellaneous Provisions
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11.1 Assignment, Subletting, etc. - Consent shall not be required for
any assignment, transfer or subletting. Upon assignment in accordance with the
foregoing, the TENANT shall remain liable for the full and faithful performance
of the lease and all its terms and conditions.
11.2 Notice from One Party to the Other - Any notice from LANDLORD to
TENANT or from TENANT to LANDLORD shall be deemed duly served if mailed by
registered or certified mail, return receipt requested, postage prepaid,
addressed, if to TENANT, Commerce Bank/Shore 106 North Main St.,Forked River
08731 or such other address as TENANT shall have last designated by notice in
writing to LANDLORD, and if to LANDLORD, at the original address of LANDLORD or
such other address as LANDLORD shall have last designated by notice in writing
to TENANT.
11.3 Quiet Enjoyment - LANDLORD agrees that upon TENANTS paying the rent
and performing and observing the agreements, conditions and other provisions on
its part to be performed and observed, TENANT shall and may peaceably and
quietly have, hold and enjoy the Demised Premises during the Lease term without
any manner of hindrance or molestation from LANDLORD or anyone claiming under
LANDLORD, subject to the covenants and conditions of this Lease.
11.4 Recording TENANT agrees not to record this Lease, but each party
hereto agrees on request of the other, to execute a Notice or Short Form of this
Lease in recordable form in compliance with applicable statutes, and reasonably
satisfactory to LANDLORD'S and TENANTS attorneys. In no event shall such
document set forth the rental or other charges payable by TENANT under this
Lease; and any such document shall expressly state that it is executed pursuant
to the provisions contained in this Lease, and is not intended to vary the terms
and conditions of this Lease. In the event LANDLORD and/or TENANT believe that
the Lease has been lawfully terminated, abandoned or otherwise of no force and
effect and the other party will not voluntarily execute a Discharge of
Memorandum of Lease, the party seeking the Discharge of Memorandum of Lease may
move summarily before the Superior Court of New Jersey for a determination of
whether or not the Memorandum of Lease should be discharged. The other party
consents to the jurisdiction of the Superior Court of New Jersey and agrees to
proceed in a summary manner. It is expressly understood and agreed that in
addition to the relief provided herein, the parties will have such additional
cumulative remedies as are available to it at law or in equity for damages
suffered by reason of a wrongful refusal to execute and deliver a Discharge of
Memorandum of Lease.
11.5 Acts of God - In any case where either party hereto is required to
do any act, delays caused by or resulting from Acts of God, war, civil
commotion, fire or other casualty, labor difficulties, shortages of labor,
materials or equipment, government regulations, or other causes beyond such
party's reasonable control shall not be counted in determining the time during
which work shall be completed, whether such time be designated by a fixed date,
a fixed time or "a reasonable time".
11.6 Waiver of Subrogation - All insurance which is carried by either
party with respect to the Demised Premises, whether or not required, shall
include provisions which either designates the other party as one of the insured
or deny to the insurer acquisition by subrogation of rights of recovery against
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the other party. Each party shall be entitled to have duplicates or certificates
of any policies containing such provisions,. Each party hereby waives all rights
of recovery against the other for loss or injury against which the waiving party
is protected by insurance containing said provisions.
11.7 Rights of Mortgagee and Subordination:
11.7.1 This Lease is subject and is hereby subordinated to all present
and future mortgages, deeds of trust, and other encumbrances affecting the
Premises or the property of which said Premises are a part; provided, however,
that an agreement or instrument affecting such subordination shall be executed
by the mortgagee or other Lender, be recorded with such mortgage or other
security agreement, and a copy delivered to the TENANT and contain provisions,
to the effect that (i) so long as TENANT observes the terms and provision of the
Lease and notwithstanding the Lease may be foreclosed, TENANT will not be
effected or disturbed by the mortgagee in the exercise of any of its rights
under the mortgage or other security agreement, or the bond, note or debt
secured thereby; (ii) in the event the mortgagee comes into possession or
ownership of the Premises by foreclosing or otherwise, TENANTS use, occupancy
and quiet enjoyment of the Premises shall not be disturbed by any such
proceedings; (iii) in the event the Premises are sold or otherwise disposed of
pursuant to any right or power contained in the mortgage or other security
agreement, or the bond or note secured thereby, or as a result of proceedings
thereon, the purchaser shall take title subject to this Agreement of Non
Disturbance, and all of the rights of TENANT hereunder; (iv) in the event the
buildings and improvements upon the Premises are damaged by fire and other
casualty, for which loss the proceeds payable under any insurance policy or
policies are payable to the mortgagee, such insurance funds, when paid, shall be
made available for the purpose of repair and restoration as provided in this
Lease; and (v) the agreement shall be binding upon the LANDLORD, mortgagee and
their respective heirs, executors, administrators, successors and assigns. The
TENANT agrees to execute, at no expense to the LANDLORD, any instrument which
may be deemed necessary or desirable by the LANDLORD to further effect the
subordination of this lease to any such mortgage, deed of trust or encumbrance.
11.7.2 No Accord and Satisfaction - No acceptance by LANDLORD of lesser
sum than the rent or any other charges then due shall be deemed to be other than
on account of the earliest installment of such rent or charge due, nor shall any
endorsement or statement on any check or nay letter accompanying any check or
payment as rent or other charge be deemed an accord and satisfaction, and
LANDLORD may accept such check or payment without prejudice to LANDLORD'S right
to recover and balance of such installments or pursue any other remedy in this
Lease provided.
11.8 Applicable Law and Construction - This Lease shall be governed by
and construed in accordance with the laws of the state in which the premised is
located, and if any provisions of this Lease shall to any extent be invalid, the
remainder of this Lease shall not be affected thereby. There are no oral or
written agreements between LANDLORD and TENANT affecting this Lease. This Lease
maybe
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amended only by instruments in writing executed by LANDLORD and TENANT. LANDLORD
shall not be deemed in any way or for any purpose, to have become, by the
execution of this Lease or any action taken thereunder, a partner of TENANT in
it business or otherwise a joint venturer or member of any enterprises of
TENANT. The titles of the several Articles and Sections contained herein are for
convenience only and shall not be considered in construing this Lease. Unless
repugnant to the context, the words'LANDLORD and TENANT" appearing in this Lease
shall be construed to mean those names above in their respective heirs,
executors, administrators, successors and assigns, and those claiming through or
under them respectively.
ARTICLE XII
Permits and Approvals
12.1 TENANT'S Obligations - The obligations of TENANT hereunder are
contingent upon TENANT securing on or before July 6, 1996 the following
approvals:
A. All State and Federal regulatory approvals for the construction and
operation of a branch bank.
B. All municipal and other governmental approvals required for the
construction of TENANT'S proposed building sufficiency's to allow the issuance
of a building permit. ("Permit and Approvals")
12.2 Approvals - In the event TENANT has not obtained its Permits and
Approvals on or before July 6, 1996 and TENANT has not waived the contingencies
of Permits and Approvals, TENANT will be entitled to One (1) extension of time
of sixty (60) days until September 6, 1996 to obtain the Permits and Approvals;
provided full and complete applications for all necessary permits and approvals
are then pending, all notice requirements have been satisfied and at least one
hearing has been held on each of the permits and applications for approvals.
12.3 Easements- TENANT shall have absolutely no right to grant any
easements with regard to the Premises other than such easements to public
entities or public service corporations for the purpose of serving only the
Premises, rights-of-way or easements on or over the Premises for poles or
conduits, or both, for telephone, electricity, water, sanitary or storm sewers
or both and for other utilities and municipal or special district services.
ARTICLE XIII
Net, Net, Net Lease
13.1 Net, Net, Net Lease- It is the intention of LANDLORD and TENANT that the
rental herein specified shall be net to LANDLORD in each lease year, that all
costs, expenses, and obligations of every
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kind relating to the premises which may arise during the term of this lease
shall be paid by TENANT, and that LANDLORD shall be indemnified by TENANT
against any such costs, expenses, and obligations.
ARTICLE XIV
14.1 Tenant's Right to Renew - In the event LANDLORD desires to offer the
Premises for lease after the expiration of the final option term LANDLORD shall
so notify TENANT in writing at least one hundred eighty (180) days prior to
expiration of the final option term. TENANT shall have the first right and
option to extend this lease for an additional five (5) year term under the same
terms and conditions as contained in this lease subject to such adjustment in
rent as shall be reasonably warranted upon applying current market conditions
affecting the leased premises. TENANT shall notify LANDLORD in writing of its
intention to extend the lease as set forth in this paragraph within thirty (30)
days of receipt of LANDLORD'S notice.
14.2 Right of first refusal to purchase- TENANT shall have the right of first
refusal to purchase the demised premises as hereinafter set forth. If at any
time during the term as extended, LANDLORD shall receive a bona fide offer from
a third person for the purchase of the demised premises, which offer LANDLORD
shall desire to accept, LANDLORD shall promptly deliver to TENANT a copy of such
offer, and TENANT may, within fifteen (15) days therafter, elect to purchase the
demised premises on the same terms as those set forth in such offer, excepting
that TENANT shall be credited , against the purchase price to be paid by the
TENANT with a sum equal to the amount of any brokerage commission, if any, which
LANDLORD shall save by a sale to TENANT. If LANDLORD shall receive an offer for
the purchase of the demised premises, which is not consummated by delivering a
deed to the offerer, the TENANT'S right of first refusal to purchase shall
remain applicable to subsequent offers. If LANDLORD shall sell the demised
premises after failure of TENANT to exercise its right of first refusal such
sale shall be subject to this lease, and the right of first refusal shall
continue and shall be applicable to subsequent sales of the demised premises.
ARTICLE XV
15.1 Holdover- In the event that TENANT continues in use and occupancy and holds
over in possession of the Premises after the expiration of the Initial Term or,
properly exercised, the Option Term, the monthly rent during the period of
holdover shall be in a sum equal to double the amount of the monthly installment
of base annual fixed rent during the last month of the term which has just
expired. Said holdover rent shall be in addition to all additional rents for
which the TENANT shall be responsible during the holdover period.
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IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
this day and year first written above
COMMERCE BANK, SHORE N.A.
BY: /s/ Thomas H. Arasz
Attest: Thomas H. Arasz
Senior Vice President/
Real Estate Officer
WHITING EQUITIES, L.L.C.
BY: /s/ John P. Silvestri
Attest: Whiting Equities, L.L.C.
John P. Silvestri, President
17
LEASE
from
EVESBORO ASSOCIATES, L.L.C.
A New Jersey Limited Liability Corporation
to
COMMERCE BANK, N.A.
ARTICLE I
Reference Data and Exhibits
1.1 Data
DATE November 1, 1995
LOCATION OF PREMISES Greentree Road and Evesboro
-Medford Road
Evesham Township, New Jersey
Block 8, Lots 1,2, and 4
LANDLORD Evesboro Associates, L.L.C.
ORIGINAL ADDRESS OF: 17000 Horizon Way
Suite 200
Mt. Laurel, NJ 08054
TENANT Commerce Bank, N.A.
ORIGINAL ADDRESS OF 1701 Route 70 East
Cherry Hill, NJ 08003
LEASE TERM Twenty Years
ANNUAL FIXED RENTAL RATE Yr. 1 - 5: $45,000.00
6-10: $51,750.00
11-15: $59,512.50
16- 20: $68,439.38
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1.2 Table of Contents
ARTICLE I - Reference Data and Exhibits Page
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1.1 Data ............................................................................................1
1.2 Table of Contents ...............................................................................2
ARTICLE II - Premises and Term
2.1 Premises ........................................................................................4
2.2 Term ............................................................................................4
2.3 Option to Extend ................................................................................4
ARTICLE III - Improvements
3.1 Construction of Improvements ...........................................: .......................4
3.2 Contractor ......................................................................................4
3.3 Signs ...........................................................................................4
ARTICLE IV - Rent
4.1 The Rent, Minimum Fixed and Percentage ..........................................................5
ARTICLE V - Real Estate
5.1 Real Estate Taxes ...............................................................................5
5.2 Taxes ...........................................................................................5
5.3 Method of Payment ...............................................................................6
ARTICLE VI - Utilities and Services
6.1 Utilities and Charges Therefore .................................................................6
ARTICLE VII - TENANT'S Additional Covenants
7.1 Affirmative Covenants .....................................................................6
7.1.1 Use ..........................................................................6
7.1.2 Compliance with Law ..........................................................7
7.1.3 Payment of TENANT'S Work .....................................................7
7.1.4 Indemnity and Liability Insurance ............................................7
7.1.5 LANDLORD'S Right to Enter ....................................................8
7.1.6 Personal Property at TENANT'S Risk ...........................................8
7.1.7 Payment of LANDLORD'S Cost of Enforcement ....................................8
7.1.8 Yield Up .....................................................................8
7.1.9 Maintenance ..................................................................8
7.1.10 Insurance ....................................................................9
7.2 Negative Comments ..........................................................................9
7.2.1 Overloading, Nuisance, etc ........................................................9
7.2.2 Installation, Alteration or Additions .............................................9
ARTICLE VII.1 - LANDLORD'S Additional Covenants
8.1 Warranty on Use .................................................................................9
8.2 Competing Use ..................................................................................10
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ARTICLE IX - Casualty or Taking Page
9.1 TENANT to Repair or Rebuild in the Event of Casualty ..........................................10
9.2 Right to Terminate in Event of Casualty .......................................................10
9.3 Eminent Domain ................................................................................10
ARTICLE X - Defaults
10.1 Events of Default .......................................................................11
10.2 Remedies ................................................................................11
10.3 Remedies Cumulative .....................................................................12
10.4 LANDLORD'S and TENANT'S Right to Cure Defaults ..........................................12
10.5 Effect of Waivers of Default ............................................................12
ARTICLE XI.- Miscellaneous Provisions
11.1 Assignment, Subletting, etc .............................................................13
11.2 Notice from One Party to Other ..........................................................13
11.3 Quiet Enjoyment .........................................................................13
11.4 Recording ...............................................................................13
11.5 Acts of God .............................................................................13
11.6 Waiver of Subrogation ...................................................................14
11.7 Rights of Mortgagee and Subordination ...................................................14
11.7.1 Rights ...........................................................................14
11.7.2 No Accord and Satisfaction .......................................................14
11.8 Applicable Law and Construction .........................................................15
11.9 Security Deposit ........................................................................15
ARTICLE Xll- Permits and Approvals
12.1 TENANT's Obligations .........................................................................15
12.2 Approvals ....................................................................................15
12.3 Easements ....................................................................................15
ARTICLE XIII - Net Lease
13.1 Net Lease ....................................................................................16
ARTICLE XIV- Renewal Provisions
14.1 Right to Renewal .............................................................................16
14.2 Right of First Refusal .......................................................................16
ARTICLE XV-
15.1 Holdover ................................................................................17
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ARTICLE II
Premises and Term
2.1 Premises - LANDLORD hereby leases to TENANT and TENANT hereby leases
from LANDLORD, subject to and with the benefit of the terms, covenants,
conditions and provisions of this Lease, the premises shown on Exhibit A and
described in Exhibit B, both annexed hereto and made a part hereof, together
with any and all improvements, appurtenances, rights, privileges and easements
befitting, belonging or pertaining thereto.
2.2 Term - TO HAVE AND TO HOLD for a term beginning Thirty (30) days
after TENANT has obtained Development Approvals for a branch bank as set forth
in Article 12 (notwithstanding TENANT may not have commenced construction) and
continuing for the Lease term unless sooner terminated as hereinafter provided.
When dates of the beginning and end of the Lease term have been determined, such
dates shall be evidenced by a document in form for recording, executed by
LANDLORD and TENANT and delivered each to the other.
2.3 Option to Extend - So long as TENANT is not in default hereunder,
TENANT shall have the right to extend this Lease for four (4) five (5) year
terms under the same terms, conditions and provisions as in the original term,
at the following annual rentals:
Option Years 1-5: $78,705.28
6-10: $90,511.07
11-15: $104,087.73
16-20: $119,700.89
TENANT shall give written notice of its intention to exercise each
extension option not less than Ninety (90) days prior to the expiration of the
then current term.
ARTICLE III
Improvements
3.1 Construction of Improvements - TENANT agrees to construct, at its
sole cost, a branch banking facility, pursuant to the attached Site Plan,
subject to reasonable approval by LANDLORD of the building plans and
specifications.
3.2 Contractor - TENANT shall have the right to select and approve the
contractor to complete the construction, which shall be subject to the approval
of the LANDLORD.
3.3 Signs - TENANT shall have the right to erect such signs as
permitted by applicable zoning ordinances within the leased area.
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ARTICLE IV
Rent
4.1 The Rent, Minimum Fixed - TENANT covenants and agrees to pay rent to
LANDLORD at the original address of LANDLORD or such other place as LANDLORD may
by notice in writing to TENANT from time to time direct, at the following rates
and times,
(a) TENANT agrees to pay to LANDLORD base annual fixed rent for the
Premises in accordance with and in the amount set forth in Paragraph 1.1 "Data".
The base annual fixed rent shall be paid in equal monthly installments in
advance on the first (1st) day of each month beginning on the Commencement
Date. In addition to the base annual fixed rent, TENANT shall pay as and when
the same become due and owing as additional rents, all other monies provided for
in the Lease. It is the parties intention that all charges and assessments
charged to or assessed against the Premises shall be the responsibility of the
TENANT, such that the Lease shall be "net, net, net" to the LANDLORD, excepting
only interest and principal on any mortgage made by the LANDLORD and effecting
the Premises.
(b) For purposes of this Lease, the scheduled increases in the base
annual fixed rent shall occur on the first day of the sixth (6th), eleventh
(11th) and sixteenth (16th) years of the Initial Term as same is determined
pursuant to paragraph 2.2 and on the first day of the sixth (6th), eleventh
(11th), sixteenth (16th), years of the Option Terms.
(c) If any installment under this lease is not paid within fifteen (15)
days of the time and at the place and in the manner specified, then LANDLORD may
at its option declare TENANT in default.
ARTICLE V
Real Estate Taxes
5.1 Real Estate Taxes - As additional rent, TENANT agrees to pay all
taxes levied upon the Premises improvements located on the Premises, the
leasehold estate, or any subleasehold estate of any nature including special
assessments. The responsibility for payment by TENANT of all real estate taxes
shall commence simultaneously with the rentals hereunder.
5.2 Taxes - TENANT agrees to pay all taxes levied upon real estate,
rents and personal property, including trade fixtures and inventory, kept on the
demised Premises, as well as all taxes levied against the land and the building
and improvements situated thereon during the term of the Lease, after
presentation to TENANT by LANDLORD of statements from the taxing jurisdiction in
which said property is located. TENANT, however, will pay only the lowest
discounted amount and will not be required to pay any penalty, interest or cost
occurring by reason of LANDLORD'S failure to secure said tax statements in a
timely fashion from the taxing authorities or any delay in delivering said
statements to Tenant.
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LANDLORD may, however, direct the taxing authorities to send the
statements directly to TENANT. "In the event LANDLORD directs the taxing
authorities to send a statement directly to TENANT, TENANT shall make all such
payments directly to the taxing authority at least ten (10) days before any
delinquency and before any fine, interest or penalty shall become due or be
imposed by operation of law for their nonpayment. Further, TENANT shall furnish
to LANDLORD within ten (10) days of the date when any tax, assessment or charge
would become delinquent, receipts or other satisfactory evidence establishing
the timely payment of said taxes or charges." LANDLORD further agrees that
TENANT, in the name of LANDLORD, but at TENANT'S sole expense, may protest any
assessment before any taxing authority or board or maintain any necessary legal
action in reference to said assessment or for the recovery of any taxes paid
thereon. Nothing herein contained shall require TENANT to pay any income or
excess profits, taxes assessed against LANDLORD or any corporation, capital
stock, or franchise tax imposed upon LANDLORD.
5.3 Method of Payment - LANDLORD shall give written notice advising
TENANT of the amount of real estate taxes, together with a copy of the tax bill,
and TENANT shall pay such amount to LANDLORD within thirty (30) days after
receipt of such notice. If this Lease shall terminate during a tax year, TENANT
shall pay to LANDLORD a prorated portion of the amount that would have been due
for the full tax year based on the number of days of said tax year expired on
the date of termination.
ARTICLE VI
Utilities and Services
6.1 Utilities and Charges Therefore - TENANT agrees to pay directly to
the authority charged with the collection thereof, all charges for water, gas,
electricity, sanitary sewer and sprinkler changes, telephone and other utilities
used or consumed in the Premises and shall make its own arrangements for such
utilities. In the event any such services cannot be reasonably procured from any
public agency, and LANDLORD provides any such services, TENANT shall reimburse
LANDLORD for its proportionate share of any such services used or consumed in
the Demised Premises as additional rental.
ARTICLE VII
TENANT'S Additional Covenants
7.1 Affirmative Covenants - TENANT covenants at its expense at all times
during the Lease term and such further time as TENANT occupies the Premises or
any part thereof.
7. 1.1 Use - TENANT shall use and permit the use of the Premises and
the improvements to be constructed thereon primarily for the operation of a
branch bank, provided that (subject to the other terms and conditions of this
Lease), TENANT may at any time use the Premises and the building and other
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improvements to be constructed thereon, or permit them to be used, for any other
lawful commercial purposes. Neither TENANT nor it's subtenants, if any, shall
commit any nuisance; nor permit the emission of any objectionable noise or
odor; nor bring on, deposit or allow to be brought on or deposited on the
Premises any asbestos materials or any other Hazardous Substance or materials as
the same may be defined by Federal, State or local laws, rules, statutes or
regulations or in the Environmental Rider annexed hereto, nor use the property
in such a manner which negatively effects the reversion.
7.1.2 Compliance with Law - To make all repairs, alterations, additions
or replacements to the Premises required by any law or ordinance or any order or
regulation of any public authority because of TENANT'S use of the Premises; to
keep the Premises equipped with all safety appliances so required because of
such use; to pay all municipal, county or state taxes assessed against the
personal property of any kind owned by or placed in, upon or about the premises
by TENANT; and to comply with the orders and regulations of all governmental
authorities, as well as all Insurance Carriers and Underwriters.
7.1.2 (A) TENANT has the right to contest by appropriate judicial or
administrative proceeding, without cost or expense to the LANDLORD, the validity
or application of any law, ordinance, order, rule, regulation or requirement
("law") which the TENANT legitimately deems invalid and TENANT shall not be in
default for failure to comply with such law until the legally permitted time
following final determination of TENANT'S contest expires; provided, however, if
LANDLORD gives notice of request, TENANT shall first furnish LANDLORD a bond,
satisfactory to LANDLORD in form and insurer, guarantying compliance by TENANT
with the contested law and indemnifying LANDLORD against all liability that
LANDLORD may sustain by reason of TENANT'S failure or delay in complying with
the law. LANDLORD may, but is not required to, contest any such law independent
of TENANT. On TENANT'S notice of request LANDLORD may join in TENANT'S contest.
7.1.3 Payment for TENANT'S Work - To pay promptly when due the entire
cost of any work to the Premises undertaken by TENANT and to bond against or
discharge any liens for labor or materials within ten (10) days after written
request by LANDLORD; to procure all necessary permits before undertaking such
work; and to do all of such work in a good and workmanlike manner, employing new
materials of good quality and complying with all governmental requirements.
7.1 .4 Indemnity and Liability Insurance - To defend with counsel, save
harmless and indemnify LANDLORD from all claims or damage to or of any person or
property while on the premises unless arising from any omission, fault,
negligence or other misconduct of LANDLORD, and from all claims or damage to or
of any person or property occasioned by any omission, fault, neglect or other
misconduct of TENANT; to maintain in responsible companies qualified to do
business in the state in which the premises is located and in good standing
therein, public liability insurance covering the premises insuring LANDLORD, as
well as TENANT, with limits at least equal to those stated in Section 1.1,
workmen's compensation insurance with statutory limits, covering all of
TENANT'S employees working in the premises, and to deposit promptly with
LANDLORD certificates for such insurance and all renewals
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thereof, bearing the endorsement that the policies will not be cancelled until
after ten (10) "days written" notice to LANDLORD. TENANT'S obligations hereunder
may be satisfied through a blanket insurance policy covering other interests of
the TENANT.
7.1.5 LANDLORD'S Right to Enter - To permit LANDLORD and its agents to
examine the premises at reasonable times and to show the premises to prospective
purchasers and lenders, provided such entry shall not unreasonably interfere
with TENANT'S operation 1 of its business in the Demised Premises.
7.1.6 Personal Property at TENANT'S Risk - That all of the furnishings,
fixtures, equipment, effects and property of every kind, nature and description
of TENANT and of all persons claiming under TENANT, may be on the Premises,
shall be at the sole risk and hazard of TENANT, and if the whole or any part
thereof shall be destroyed or damaged by fire, water, or otherwise, or by the
leakage or bursting of water pipes, steam pipes or other pipes, by theft or from
any other cause, no part of said loss or damage is to be charged to or be borne
by LANDLORD, except that LANDLORD shall in no event be indemnified or held
harmless or exonerated from any liability resulting from its sole negligence,
failure to perform any of its obligations under this Lease or to any extent
prohibited by law.
7.1.7 Payment of LANDLORD'S Cost of Enforcement - To pay on demand
LANDLORD'S expenses, including reasonable attorney's fees, incurred in enforcing
any obligation of TENANT under this Lease or in curing any default by TENANT
under this Lease as provided in Section 10.4, provided LANDLORD shall prevail in
any judicial proceedings in respect to such enforcement.
7.1.8 Yield Up - At the expiration of the Lease term or earlier
termination of this Lease; TENANT shall remove all trade fixtures and personal
property, to repair any damage caused by such removal, to remove all TENANT'S
signs wherever located and to surrender all keys to the Premises and yield up
the Premises, broom clean and in the same good order and repair in which TENANT
is obligated to keep and maintain the Premises by the provisions of this Lease,
reasonable wear and tear and insured damage by fire, casualty, or taking
excepted. Any property not so removed shall be deemed abandoned and may be
removed and disposed of by LANDLORD in such manner as LANDLORD shall determine,
without any obligation on the part of LANDLORD to account to TENANT for any
proceeds there from, all of which shall become the property of LANDLORD, Any
holdover by TENANT will not be deemed an extension of this Lease, and TENANT
shall indemnify LANDLORD against all losses and damages from a failure to
surrender.
7.1.9 Maintenance~ Throughout the term, TENANT shall, at TENANT'S sole
cost and expense maintain the Premises and all Improvements thereon in good
condition and repair, ordinary wear and tear excepted, and in accordance with
all applicable laws, rules, ordinances, orders and regulations of (1) Federal,
State, county, municipal, and other governmental agencies and bodies having or
claiming jurisdiction and all of their respective departments, bureaus and
officials; (2) the insurance underwriting board or insurance inspection bureau
having or claiming jurisdiction; and (3) all insurance companies
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insuring all or any part of the Premises or the Improvements located thereon, or
both. except as provided below and subject only to the provisions of Paragraph
9.2, TENANT shall promptly and diligently repair, restore and replace as
required to maintain the Premises and the improvements in the condition set
forth above, or to remedy all damage to or destruction of all or any part of the
Improvements.
(A) The completed work or maintenance, compliance, repair, restoration
or replacement shall be equal in value, quality, and use to the condition of the
Improvements before the event giving rise to the work, unless otherwise provided
for in this Lease. LANDLORD shall not be required to furnish any services or
facilities or to make any repairs or alterations of any kind in or upon or on
the Premises. LANDLORD'S election to perform any obligations of the TENANT under
this provision or TENANT'S failure or refusal to do so shall not constitute a
waiver of any right or remedy for TENANT'S default and TENANT shall promptly
reimburse for all reasonable LANDLORD expense arising from it.
7.1.10 Insurance- TENANT shall maintain in full force and
effect, at its own cost, full replacement cost coverage insurance covering the
demised premises (and all improvements for the full insurable value) against
loss or damage by fire or casualty, with the usual extended coverage
endorsements, together with endorsements protecting against loss or damage
resulting from malicious mischief, sprinkler leakage and vandalism all in
amounts not less than replacement value above foundation walls.
All insurance policies shall name the LANDLORD as its interest may appear.
7.2 Negative Covenants - TENANT covenants at all times during the lease
term and such further times as TENANT occupies the Premises or any part thereof.
7.2.1 Overloading. Nuisance, etc. - Not to injure, overload,
deface or otherwise harm the Premises; not commit any nuisance; nor make any use
of the premises which is improper, offensive or contrary to any law or
ordinance.
7.2.2 Installation. Alteration or Additions - Not to make any
installations, alterations or additions (except only the installation of
fixtures necessary for the conduct of its business), without on each occasion
obtaining prior written consent of LANDLORD, LANDLORD'S consent not to be
unreasonably withheld. No consent shall be required for nonstructural
alterations not exceeding $10,000.00 in cost.
ARTICLE VIII
LANDLORD's Additional Covenants
8.1 Warranty on Use - LANDLORD warrants and represents that at the
commencement of construction it will be the Owner in Fee of the Land shown on
Exhibit "A" and described in Exhibit "B";. LANDLORD has no knowledge of and
TENANT requires that there be no zoning regulations, restrictive agreements,
leases or other instruments which prevent the use of the Premises for the
purpose intended herein, nor otherwise conflict with any of the provisions of
this Lease. TENANTS sole and conclusive
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remedy for a beach of this warranty shall be its right, at its election, to
terminate the lease prior to commencement of construction.
8.2 Competinq Use- During the term of this Lease, provided TENANT is not
in default, LANDLORD agrees not to lease or sell any portion of the project, of
which the leased premises is a part, to a commercial bank, savings bank, savings
and loan or credit union.
ARTICLE IX
Casualty or Taking
9.1 TENANT to Repair or Rebuild in the Event of Casualty - In case the
Premises or any part thereof shall be damaged or destroyed by fire or other
casualty, taken (which term or reference to eminent domain action generally, for
the purposes of this article shall include as sale in lieu of the exercise of
the right of eminent domain ) or ordered to be demolished by the action of any
public authority in consequence of a fire or other casualty, this Lease shall,
unless it is terminated as provided below in Section 9.2 or 9.3, remain in full
force and effect, and TENANT shall, at its expense, proceed with all reasonable
dispatch, to repair or rebuild the Premises and the improvements, or what may
remain thereof, so as to restore them as nearly as practicable to the condition
they were in immediately prior to such damage or destruction.
9.2 Right to Terminate in Event of Casualty - In case of any damage or
destruction occurring in the last five years of the original term of this Lease
or during any extension of the term, to the extent of 50% or more of the
insurable value of the building, TENANT may at its option, to be evidenced by
notice in writing given to the LANDLORD within twenty (20) days after the
occurrence of such damage or destruction, in lieu of repairing or replacing the
Building, elect to terminate this Lease as of the date of said damage or
destruction. In the event the TENANT shall so terminate the lease all insurance
proceeds shall become the property of the LANDLORD.
9.3 Eminent Domain - If the whole, or any part of the demised premises
shall be taken or condemned by any competent authority for any public use or
purpose during the term of this lease, TENANT reserves unto itself the right to
prosecute its claim for an award based upon its leasehold interest for such
taking, without impairing any rights of LANDLORD for the taking of or injury to
the reversion.
In the event that a part of the demised premises shall be taken
or condemned and (a) the part so taken includes the building on the demised
premises or any part thereof or (b) the part so taken shall remove from the
premises 20% or more of the front depth of the parking areas thereof or (c) the
part so taken shall consist of 25% or more of the total parking area or (d) such
partial taking shall result in cutting off direct access from the demised
premises to any adjacent public street or highway, then and in any such event,
the TENANT may at any time either prior to or within a period of sixty (60) days
after the date when possession of the premises shall be required by the
condemning authority elect to terminate this Lease or, if any option to purchase
the premises is conferred upon the TENANT by any other
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provision of this Lease, may as an alternative to such termination of this Lease
elect to purchase the demised premises in accordance with such purchase option,
except that there shall be deducted from the purchase price to be paid for the
premises all of the LANDLORD'S award from the condemnation proceeding. In the
event that TENANT shall fail to exercise any such option to terminate this Lease
or to purchase the premises or in the event that a part of the demised premises
shall be taken or condemned under circumstances under which the TENANT will have
no such option, then and in either such event the LANDLORD shall, with
reasonable promptness, make necessary repairs to and alterations of the
improvements on the demised premises for the purpose of restoring the same to a
comparable architectural unit, susceptible to the same use as that which was in
effect immediately prior to such taking, subject to a pro-rata reduction in
rental. Any dispute arising under Section 9.3 of this Lease shall be submitted
to the American Arbitration Society, whose decision shall be binding on the
parties hereto.
ARTICLE X
Defaults
10.1 Events of Default - If (a) TENANT shall default in the performance
of any of its obligations to pay rent or additional rents hereunder and if such
default shall continue for (10) days after written notice from LANDLORD
designating such default or if within thirty (30) days after written notice from
LANDLORD to TENANT specifying any other non-monetary default or defaults, TENANT
has not commenced diligently to correct the default or defaults so specified or
has not thereafter diligently pursued such correction to completion, or (b) any
assignment shall be made by TENANT for the benefit of creditors, or (c) if
TENANT'S leasehold interest shall be taken on execution, attached, levied upon
or (d) if a petition is filed by TENANT for adjudication as a bankrupt, or for
reorganization or an arrangement under any provision of the Bankruptcy Act as
then in force and effect, or (e) if an involuntary petition under any of the
provisions of said Bankruptcy Act is filed against TENANT and such involuntary
petition is not dismissed within sixty (60) days thereafter, then, and in any of
such cases, LANDLORD lawfully may exercise all remedies available to it under
law, including repossession of the leased property, pursuant to applicable law,
termination of the lease, acceleration of all future rental payments, and such
other rights as may be lawfully permitted.
10.2 Remedies - in the event that this Lease is terminated under any of
the provisions contained in Section 10. 1 or shall be otherwise terminated
for breach of any obligation of TENANT, TENANT covenants to pay punctually to
LANDLORD all the sums and perform all the obligations which TENANT covenants in
this Lease to pay and to preform in the same manner and to the same extent and
at the same time as if this Lease had not been terminated so long as such
obligations shall have not been rendered unnecessary or impossible of
performance by the subsequent re-letting or other occupancy permitted by
LANDLORD. In calculating the amounts to be paid by TENANT under the foregoing
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covenant, TENANT shall be credited with the net proceeds of any rent or the
value of other considerations obtained by LANDLORD by re-letting the Premises,
after deducting all LANDLORD'S expenses in connection with such re-letting,
including, without limitation, all repossession costs, brokerage commissions,
reasonable fees for legal services and expenses of recovering the premises, it
being agreed by TENANT that LANDLORD may (i) re-let the Premises or any part or
parts thereof, for a term or terms which may at LANDLORD'S option be equal to or
less than or exceed the period which would otherwise have constituted the
balance of the Lease term, and (ii) make such alterations, repairs and
decorations in the Premises as LANDLORD in its sold judgment reasonably
considers advisable or necessary to re-let the same.
Nothing contained in this Lease shall, however, limit or prejudice the
right of LANDLORD to prove for and obtain in proceedings for bankruptcy or
insolvency by reason of the termination of this Lease, an amount equal to the
maximum allowed by any statute or rule of law in effect at the time when, and
governing the proceedings in which, the damages are to be proved, whether or not
the amount be greater, equal to, or less than the amounts of the loss or damages
referred to above.
10.3 Remedies Cumulative - Any and all rights and remedies which
LANDLORD may have under this Lease, and at law and equity, shall be cumulative
and shall not be deemed inconsistent with each other, and any two or more of all
such rights and remedies may be exercised at the same time insofar as permitted
by law.
10.4 LANDLORD'S and TENANT'S Right to Cure Defaults - LANDLORD may, but
shall not be obligated to, cure at any time, following ten (10) days prior
written notice to TENANT, except in cases of emergency when no notice shall be
required, any default by TENANT under this Lease; and whenever LANDLORD so
elects, all reasonable costs and expenses incurred by LANDLORD, including
reasonable attorney's fees, in curing a default shall be paid by TENANT to
LANDLORD as additional rent on demand. TENANT shall have a like right to cure
any default of LANDLORD, and TENANT may reimburse itself for the cost thereof
out of succeeding rental payments.
10.5 Effect of Waivers on Default - No consent or waiver, express or
implied, by either party to or of any breach of any covenants, conditions or
duty of the other shall be construed as a consent or waiver to or of any other
breach of the same of any other covenant, condition or duty.
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ARTICLE XI
Miscellaneous Provisions
11.1 Assignment, Subletting, etc. -Consent shall not be required for
any assignment, transfer or subletting. Upon assignment in accordance with the
foregoing, the TENANT shall remain liable for the full and faithful performance
of the lease and all its terms and conditions.
11.2 Notice from One Party to the Other - Any notice from LANDLORD to
TENANT or from TENANT to LANDLORD shall be deemed duly served if mailed by
registered or certified mail, return receipt requested, postage prepaid,
addressed, if to TENANT, at the original address of TENANT or such other address
as TENANT shall have last designated by notice in writing to LANDLORD, and if to
LANDLORD, at the original address of LANDLORD or such other address as LANDLORD
shall have last designated by notice in writing to TENANT.
11.3 Quiet Enjoyment - LANDLORD agrees that upon TENANTS paying the
rent and performing and observing the agreements, conditions and other
provisions on its part to be performed and observed, TENANT shall and may
peaceably and quietly have, hold and enjoy the Demised Premises during the
Lease term without any manner of hindrance or molestation from LANDLORD or
anyone claiming under LANDLORD, subject to the covenants and conditions of this
Lease.
11.4 Recording - TENANT agrees not to record this Lease, but each party
hereto agrees on request of the other, to execute a Notice or Short Form of this
Lease in recordable form in compliance with applicable statutes, and reasonably
satisfactory to LANDLORD'S and TENANT'S attorneys. In no event shall such
document set forth the rental or other charges payable by TENANT under this
Lease; and any such document shall expressly state that it is executed pursuant
to the provisions contained in this Lease, and is not intended to vary the terms
and conditions of this Lease. In the event LANDLORD and/or TENANT believe that
the Lease has been lawfully terminated, abandoned or otherwise of no force and
effect and the other party will not voluntarily execute a Discharge of
Memorandum of Lease, the party seeking the Discharge of Memorandum of Lease may
move summarily before the Superior Court of New Jersey for a determination of
whether or not the Memorandum of Lease should be discharged. The other party
consents to the jurisdiction of the Superior Court of New Jersey and agrees to
proceed in a summary manner. It is expressly understood and agreed that in
addition to the relief provided herein, the parties will have such additional
cumulative remedies as are available to it at law or in equity for damages
suffered by reason of a wrongful refusal to execute and deliver a Discharge of
Memorandum of Lease.
11.5 Acts of God - In any case where either party hereto is required to
do any act, delays caused by or resulting from Acts of God, war, civil
commotion, fire or other casualty, labor difficulties, shortages of labor,
materials or equipment, government regulations, or other causes beyond such
party's reasonable control shall not be counted in determining the time during
which work shall be completed, whether such time be designated by a fixed date,
a fixed time or "a reasonable time".
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11.6 Waiver of Subrogation - All insurance which is carried by either
party with respect to the Demised Premises, whether or not required, shall
include provisions which either designates the other party as one of the insured
or deny to the insurer acquisition by subrogation of rights of recovery against
the other party. Each party shall be entitled to have duplicates or certificates
of any policies containing such provisions,. Each party hereby waives all rights
of recovery against the other for loss or injury against which the waiving party
is protected by insurance containing said provisions.
11.7 Rights of Mortgagee and Subordination
11.7.1 This Lease is subject and is hereby subordinated to all
present and future mortgages, deeds of trust, and other encumbrances affecting
the Premises or the property of which said Premises are a part; provided,
however, that an agreement or instrument affecting such subordination shall be
executed by the mortgagee or other Lender, be recorded with such mortgage or
other security agreement, and a copy delivered to the TENANT and contain
provisions, to the effect that (i) so long as TENANT observes the terms and
provision of the Lease and notwithstanding the Lease may be foreclosed, TENANT
will not be effected or disturbed by the mortgagee in the exercise of any of its
rights under the mortgage or other security agreement, or the bond, note or debt
secured thereby; (ii) in the event the mortgagee comes into possession or
ownership of the Premises by foreclosing or otherwise, TENANT'S use, occupancy
and quiet enjoyment of the Premises shall not be disturbed by any such
proceedings; (iii) in the event the Premises are sold or otherwise disposed of
pursuant to any right or power contained in the mortgage or other security
agreement, or the bond or note secured thereby, or as a result of proceedings
thereon, the purchaser shall take title subject to this Agreement of Non
Disturbance, and all of the rights of TENANT hereunder; (iv) in the event the
buildings and improvements upon the Premises are damaged by fire and other
casualty, for which loss the proceeds payable under any insurance policy or
policies are payable to the mortgagee, such insurance funds, when paid, shall be
made available for the purpose of repair and restoration as provided in this
Lease; and (v) the agreement shall be binding upon the LANDLORD, mortgagee and
their respective heirs, executors, administrators, successors and assigns. The
TENANT agrees to execute, at no expense to the LANDLORD, any instrument which
may be deemed necessary or desirable by the LANDLORD to further effect the
subordination of this lease to any such mortgage, deed of trust or encumbrance.
11.7.2 No Accord and Satisfaction - No acceptance by LANDLORD of
lesser sum than the rent or any other charges then due shall be deemed to be
other than on account of the earliest installment of such rent or charge due,
nor shall any endorsement or statement on any check or nay letter accompanying
any check or payment as rent or other charge be deemed an accord and
satisfaction, and LANDLORD may accept such check or payment without prejudice to
LANDLORD'S right to recover and balance of such installments or pursue any other
remedy in this Lease provided.
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11.8 Applicable Law and Construction - This Lease shall be governed by
and construed in accordance with the laws of the state in which the premised is
located, and if any provisions of this Lease shall to any extent be invalid, the
remainder of this Lease shall not be affected thereby. There are no oral or
written agreements between LANDLORD and TENANT affecting this Lease. This Lease
maybe amended only by instruments in writing executed by LANDLORD and TENANT.
LANDLORD shall not be deemed in any way or for any purpose, to have become, by
the execution of this Lease or any action taken thereunder, a partner of TENANT
in it business or otherwise a joint venturer or member of any enterprises of
TENANT. The titles of the several Articles and Sections contained herein are for
convenience only and shall not be considered in construing this Lease. Unless
repungant to the context, the words "LANDLORD and TENANT" appearing in this
Lease shall be construed to mean those names above in their respective heirs,
executors, administrators, successors and assigns, and those claiming through or
under them respectively.
ARTICLE XII
Permits and Approvals
12.1 TENANT'S Obligations - The obligations of TENANT hereunder are
contingent upon TENANT securing on or before June 14, 1996 the following
approvals:
A. All State and Federal regulatory approvals for the construction and
operation of a branch bank.
B. All municipal and other governmental approvals required for the
construction of TENANT'S proposed building sufficient to allow the issuance of a
building permit. ("Permit and Approvals")
12.2 Approvals- In the event TENANT has not obtained its Permits and
Approvals on or before June 1, 1996 and TENANT has not waived the contingencies
of Permits and Approvals, TENANT will be entitled to One (1) extension of sixty
(60) days to obtain the Permits and Approvals; provided full and complete
applications for all necessary permits and approvals are then pending, all
notice requirements have been satisfied and at least one hearing has been held
on each of the permits and applications for approvals.
12.3 Easements- TENANT shall have absolutely no right to grant any
easements with regard to the Premises other than such easements to public
entities or public service corporations for the purpose of serving only the
Premises, rights-of-way or easements on or over the Premises for poles or
conduits, or both, for telephone, electricity, water, sanitary or storm sewers
or both and for other utilities and municipal or special district services.
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ARTICLE XIII
Net Lease
13.1 Net Lease it is the intention of LANDLORD and TENANT that the rental herein
specified shall be net to LANDLORD in each lease year, that all costs, expenses,
and obligations of every kind relating to the premises which may arise during
the term of this lease shall be paid by TENANT, and that LANDLORD shall be
indemnified by TENANT against any such costs, expenses, and obligations.
ARTICLE XIV
Rights of Renewal
14.1 TENANT's Right to Renew - In the event Landlord desires to offer the
Premises for lease after expiration of the final option term LANDLORD shall so
notify TENANT in writing at least 180 days prior to expiration of the final
option term. TENANT shall have the first right and option to extend this Lease
for an additional five (5) year term under the same terms and conditions as
contained in this Lease subject to such adjustment in rent as shall be
reasonably warranted upon applying current market conditions affecting the
Leased Premises. TENANT shall notify LANDLORD in writing of its intention to
extend the lease as set forth in this paragraph within thirty (30) days of
receipt of LANDLORD'S notice.
14.2 Right of First Refusal to Purchase - TENANT shall have the right of first
refusal to purchase the demised premises as hereinafter set forth. If at any
time during the term as extended, LANDLORD shall receive a bona fide offer from
a third person for the purchase of the demised premises, which offer LANDLORD
shall desire to accept, LANDLORD shall promptly deliver to TENANT a copy of such
offer, and TENANT may, within 15 days thereafter, elect to purchase the demised
premises on the same terms as those set forth in such offer, excepting that
TENANT shall be credited, against the purchase price to be paid by the TENANT,
with a sum equal to the amount of any brokerage commission, if any, which
LANDLORD shall save by a sale to TENANT. If LANDLORD shall receive an offer for
the purchase of the demised premises, which is not consummated by delivering a
deed to the offerer, the TENANT's right of first refusal to purchase shall
remain applicable to subsequent offers. If LANDLORD shall sell the demised
premises after a failure of TENANT to exercise its right of first refusal and
the right of first refusal, such shall be subject to this lease and shall
continue and be applicable to subsequent sales of the demised premises.
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ARTICLE XV
Holdover
15.1 Holdover- In the event that TENANT continues in use and occupancy and holds
over in possession of the Premises after the expiration of the Initial Term or,
properly exercised, the Option Term, the monthly rent during the period of
holdover shall be in a sum equal to double the amount of the monthly installment
of base annual fixed rent during the last month of the term which has just
expired. Said holdover rent shall be in addition to all additional rents for
which the TENANT shall be responsible during the holdover period.
IN WITNESS WHEREOF, the parties have hereunto set their hands and
seals this day and year first written above
TENANT:
COMMERCE BANK, N.A.
BY: /s/ Thomas H. Arasz
Attest: Thomas H. Arasz
Senior Vice President/
Real Estate Officer
LANDLORD:
EVESBORO ASSOCIATES, L.L.C.
BY: /s/ John P. Silvestri
Attest: John P. Silvestri, Managing Member
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EXHIBIT "A"
MAP
[GRAPHIC OMITTED]
<PAGE>
EXHIBIT "B"
Leased premises is a certain tract of land of +/- one (1) acre, located
at the corner of Evesboro-Mt. Laurel Road (Burlington County Route 674) and the
relocated Evesboro-Medford Road in Evesham Township, Burlington County, New
Jersey.
Premises is being leased by Commerce Bank, N.A. pursuant to a mutually
acceptable development plan to be developed in conjunction with Evesboro
Associates, L. L. C.
11/26/96
LEASE
from
TRIAD EQUITIES, L.L.C.
A New Jersey Limited Liability Corporation
to
COMMERCE BANK, N.A.
ARTICLE 1
Reference Data and Exhibits
1.1 Data
DATE :October 1, 1996
LOCATION OF PREMISES :College Drive and Erial Road
Gloucester Township, New Jersey
LANDLORD Triad Equities, L.L.C.
ORIGINAL ADDRESS OF: 17000 Horizon Way
Suite 200
Mt. Laurel, NJ 08054
TENANT Commerce Bank, N.A.
ORIGINAL ADDRESS OF 1701 Route 70 East
Cherry Hill, New Jersey
LEASE TERM Twenty Years
ANNUAL FIXED RENT RATE Yr. 1 - 5: $55,000.00
6 - 10: $63,250.00
11 - 15: $72,737.50
16 - 20: $83,698.13
SECURITY DEPOSIT
<PAGE>
11/26/96
<TABLE>
<CAPTION>
1.2 Table of Contents
ARTICLE I - Reference Data and Exhibits PAGE
<S> <C>
1.1 Data ............................................................................................1
1.2 Table of Contents ...............................................................................2
ARTICLE II - Premises and Term
2.1 Premises ........................................................................................4
2.2 Term ............................................................................................4
2.3 Option to Extend ................................................................................4
ARTICLE III - Improvements
3.1 Construction of Improvements ....................................................................4
3.2 Contractor ......................................................................................4
3.3 Signs ...........................................................................................4
ARTICLE IV - Rent
4.1 The Rent, Minimum Fixed and Percentage ..........................................................5
ARTICLE V.- Real Estate Taxes
5.1 Real Estate Taxes ...............................................................................5
5.2 Taxes ...........................................................................................5
5.3 Method of Payment ...............................................................................6
ARTICLE VI - Utilities and Services
6.1 Utilities and Charges Therefore .................................................................6
ARTICLE VI - TENANTS Additional Covenants
7.1 Affirmative Covenants ......................................................................6
7.1.1 Use ..........................................................................6
7.1.2 Compliance with Law ..........................................................7
7.1.3 Payment of TENANTS Work ......................................................7
7.1.4 Indemnity and Liability Insurance ............................................7
7.1.5 LANDLORD'S Right to Enter ....................................................8
7.1.6 Personal Property at TENANTS Risk ............................................8
7.1.7 Payment of LANDLORD'S Cost of Enforcement ....................................8
7.1.8 Yield Up .....................................................................8
7.1.9 Maintenance ..................................................................8
7.1.10 Insurance ....................................................................9
7.2 Negative Comments .........................................................................9
7.2.1 Overloading, Nuisance, etc ..........................................................9
7.2.2 Installation, Alteration or Additions ...............................................9
ARTICLE VIII - LANDLORD'S Additional Covenants
8.1 Warranty on Use .................................................................................9
8.2 Competing Use ...................................................................................10
ARTICLE I - Casualty or Taking
9.1 TENANT to Repair or Rebuild in the Event of Casualty ............................................10
9.2 Right to Terminate in Event of Casualty .........................................................10
9.3 Eminent Domain ..................................................................................10
<PAGE>
11/26/96
Page
ARTICLE X - Defaults
10.1 Events of Default ...........................................................................11
10.2 Remedies ....................................................................................11
10.3 Remedies Cumulative .........................................................................12
10.4 LANDLORD'S and TENANTS Right to Cure Defaults ...............................................12
10.5 Effect of Waivers of Default ................................................................12
ARTICLE XI - Miscellaneous Provisions
11.1 Assignment, Subletting, etc .................................................................13
11.2 Notice from One Party to Other ..............................................................13
11.3 Quiet Enjoyment .............................................................................13
11.4 Recording ...................................................................................13
11.5 Acts of God .................................................................................13
11.6 Waiver of Subrogation .......................................................................14
11.7 No Accord and Satisfaction ..................................................................14
11.7.1 ......................................................................................14
11.7.2 No Accord and Satisfaction ...........................................................14
11.8 Applicable Law and Construction .............................................................14
ARTICLE XII - Tenants Contingencies
12.1 Approval Contingencies ..........................................................................15
12.2 Engineering Tests ...............................................................................15
12.3 Easements .......................................................................................15
ARTICLE XIII - Net Lease
13.1 Net Lease .......................................................................................15
ARTICLE XIV-
14.1 Limitation of Landlord's Liability ..............................................................16
14.2 Right of First Refusal to Lease .................................................................16
14.3 Right of First Refusal to Purchase ..............................................................16
ARTICLE XV-
15.1 Holdover ........................................................................................17
ARTICLE XVI
16.1 Landlord Environmental Indemnification ..........................................................17
</TABLE>
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11/26/96
ARTICLE II
Premises and Term
2.1 Premises - LANDLORD hereby leases to TENANT and TENANT hereby leases
from LANDLORD, subject to and with the benefit of the terms, covenants,
conditions and provisions of this Lease, the premises shown on Exhibit A and
described in Exhibit B, both annexed hereto and made a part hereof, together
with any and all improvements, appurtenances, rights, privileges and easements
befitting, belonging or pertaining thereto.
2.2 Term - TO HAVE AND TO HOLD for a term beginning at the earlier of
(a) Ninety (90) days (inclusive of the time for objectors to appeal from any
approval) after TENANT has obtained the approvals for the construction of the
branch bank as set forth in Article 12 (notwithstanding TENANT may not have
commenced construction) and continuing for the Lease term unless sooner
terminated as hereinafter provided. When dates of the beginning and end of the
Lease term have been determined, such dates shall be evidenced by a document in
form for recording, executed by LANDLORD and TENANT and delivered each to the
other.
2.3 Option to Extend - So long as TENANT is not in default hereunder,
TENANT shall have the right to extend this Lease for four (4) five (5) year
terms under the same terms, conditions and provisions as in the original term,
at the following rentals:
Option Years 1-5: $ 96,195.34
6-10: $110,624.65
11-15: $127,218.34
16-20: $146,301.09
TENANT shall give written notice of its intention to exercise each
extension option not less than Ninety (90) days prior to the expiration of the
then current term.
ARTICLE III
Improvements
3.1 Construction of Improvements - TENANT agrees to construct, at its
sole cost, a branch banking facility, pursuant to the attached Site Plan,
subject to reasonable approval by LANDLORD of the building plans and
specifications.
3.2 Contractor - TENANT shall have the right to select and approve the
contractor to complete the construction, which shall be subject to the approval
of the LANDLORD.
3.3 Signs - TENANT shall have the right to erect such signs as permitted
by applicable zoning ordinances within the leased area, or as may be approved by
local authority.
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11/26/96
ARTICLE IV
4.1 The Rent, Minimum Fixed - TENANT covenants and agrees to pay rent
to LANDLORD at the original address of LANDLORD or such other place as LANDLORD
may by notice in writing to TENANT from time to time direct, at the following
rates and times,
(a) TENANT agrees to pay to LANDLORD base annual fixed rent for the
Premises in accordance with and in the amount set forth in Paragraph 1.1
"Data". The base annual fixed rent shall be paid in equal monthly installments
in advance on the first (1st) day of each month beginning on the Commencement
Date. In addition to the base annual fixed rent, TENANT shall pay as and when
the same become due and owing as additional rents, all other Moines provided for
in the Lease. It is the parties intention that all charges and assessments
charged to or assessed against the Premises shall be the responsibility of the
TENANT, such that the Lease shall be "net, net, net" to the LANDLORD, excepting
only interest and principal on any mortgage made by the LANDLORD and effecting
the Premises.
(b) For purposes of this Lease, the scheduled increases in the base
annual fixed rent shall occur on the first day of the sixth (6th), eleventh (11
th) and sixteenth (16th) years of the Initial Term as same is determined
pursuant to paragraph 2.2 and on the first day of the sixth (6th), eleventh
(11th), sixteenth (16th), years of the Option Terms.
(c) If any installment under this lease is not paid within fifteen (15)
days of the time and at the place and in the manner specified, Then LANDLORD may
at its option declare TENANT in default.
ARTICLE V
Real Estate Taxes
5.1 Real Estate Taxes - As additional rent, TENANT agrees to pay all
taxes levied upon the Premises improvements located on the Premises, the
leasehold estate, or any subleasehold estate of any nature including special
assessments. The payment by TENANT of all real estate taxes shall commence
simultaneously with the rentals hereunder.
5.2 Taxes - TENANT agrees to pay all taxes levied upon real estate,
rents and personal property, including trade fixtures and inventory, kept on the
Demised Premises, as well as all taxes levied against the land and the building
and Improvements situated thereon during the term of the Lease, after
presentation to TENANT by LANDLORD of statements from the taxing jurisdiction
which said property is located. TENANT, however, will pay only the lowest
discounted amount and will not be required to pay any penalty, interest or cost
occurring by reason of LANDLORD'S failure to secure said tax statements in a
timely fashion from the taxing authorities.
LANDLORD may, however, direct the taxing authorities to send the
statements directly to TENANT. "In the event LANDLORD directs the taxing
authorities to send a statement directly to
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11/26/96
TENANT, TENANT shall make all such payments directly to the taxing authority at
least ten (10) days before any delinquency and before any fine, interest or
penalty shall become due or be imposed by operation of law for their nonpayment.
Further, TENANT shall furnish to LANDLORD within ten (10) days of the date when
any tax, assessment or charge would become delinquent, receipts or other
satisfactory evidence establishing the timely payment of said taxes or charges."
LANDLORD further agrees that TENANT, in the name of LANDLORD, but at TENANTS
sole expense, may protest any assessment before any taxing authority or board or
maintain any necessary legal action in reference to said assessment or for the
recovery of any taxes paid thereon. Nothing herein contained shall require
TENANT to pay any income or excess profits, taxes assessed against LANDLORD or
any corporation, capital stock, or franchise tax imposed upon LANDLORD.
5.3 Method of Payment - LANDLORD shall give written notice advising
TENANT of the amount of real estate taxes, together with a copy of the tax bill,
and TENANT shall pay such amount to LANDLORD within thirty (30) days after
receipt of such notice. If this Lease shall terminate during a tax year, TENANT
shall pay to LANDLORD a prorated portion of the amount that would have been due
for the full tax year based on the number of days of said tax year expired on
the date of termination.
ARTICLE VI
Utilities and Services
6.1 Utilities and Charges Therefore - TENANT agrees to pay directly to
the authority charged with the collection thereof, all charges for water, gas,
electricity, sanitary sewer and sprinkler changes, telephone and other utilities
used or consumed in the Premises and shall make its own arrangements for such
utilities. In the event any such services cannot be reasonably procured form any
public agency, and LANDLORD provides any such services, TENANT shall reimburse
LANDLORD for its proportionate share of any such services used or consumed in
the Demised Premises as additional rental.
ARTICLE VII
TENANT'S Additional Covenants
7.1 Affirmative Covenants TENANT covenants at its expense at all times
during the Lease term and such further time as TENANT occupies the Premises or
any part thereof.
7.1.1 Use - TENANT shall use and permit the use of the Premises and
the improvements to be constructed thereon primarily for the operation of a
branch bank, provided that (subject to the other terms and conditions of this
Lease), TENANT may at any time use the Premises and the building and other
improvements to be constructed thereon, or permit them to be used, for any other
lawful commercial purposes. Neither TENANT nor its subtenants, if any, shall
commit any nuisance; nor permit the emission
6
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11/26/96
of any objectionable noise or odor; nor bring on, deposit or allow to be brought
on or deposited on the Premises any asbestos materials or any other Hazardous
Substance or materials as the same may be defined by Federal, State or local
laws, rules, statutes or regulations or in the Environmental Rider annexed
hereto, nor use the property in such a manner which negatively effects the
reversion.
7.1.2 Compliance with Law - To make all repairs, alterations. additions
or replacements to the Premises required by any law or ordinance or any order or
regulation of any public authority because of TENANT'S use of the Premises; to
keep the Premises equipped with all safety appliances so required because of
such use; to pay all municipal, county or state taxes assessed against the
personal property of any kind owned by or placed in, upon or about the premises
by TENANT; and to comply with the orders and regulations of all governmental
authorities, as well as all Insurance Carriers and Underwriters.
7.1.2 (A) TENANT has the right to contest by appropriate judicial or
administrative proceeding, without cost or expense to the LANDLORD, the validity
or application of any law, ordinance, order, rule, regulation or requirement
("law") which the TENANT legitimately deems invalid and TENANT shall not be in
default for failure to comply with such law until the legally permitted time
following final determination of TENANT'S contest expires; provided, however, if
LANDLORD gives notice of request, TENANT shall first furnish LANDLORD a bond,
satisfactory to LANDLORD in form and insurer, guarantying compliance by TENANT
with the contested law and indemnifying LANDLORD against all liability that
LANDLORD may sustain by reason of TENANT'S failure or delay in complying with
the law. LANDLORD may, but is not required to, contest any such law independent
of TENANT. On TENANT'S notice of request LANDLORD may join in TENANT'S contest.
7.1.3 Payment for TENANTS Work - To pay promptly when due the entire
cost of any work to the Premises undertaken by TENANT and to bond against or
discharge any liens for labor or materials within ten (10) days after written
request by LANDLORD; to procure all necessary permits before undertaking such
work; and to do all of such work in a good and workmanlike manner, employing new
materials of good quality and complying with all governmental requirements.
7.1 .4 Indemnity and Liability Insurance - To defend with counsel,
save harmless and indemnify LANDLORD from all claims or damage to or of any
person or property while on the premises unless arising from any omission,
fault, negligence or other misconduct of LANDLORD, and from all claims or damage
to or of any person or property occasioned by any omission, fault, neglect or
other misconduct of TENANT; to maintain in responsible companies qualified to do
business in the state in which the premises is located and if good standing
therein, public liability insurance covering the premises insuring LANDLORD, as
well as TENANT, with limits at least equal to those stated in Section 1.1,
workmen's compensation insurance with statutory limits, covering all of TENANTS
employees working in the premises, and to deposit promptly with LANDLORD
certificates for such insurance and all renewals thereof, bearing the
endorsement that the policies will not be canceled until after ten (10) days
written
7
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11/26/96
notice to LANDLORD. TENANTS obligations hereunder may be satisfied through a
blanket insurance policy covering other interests of the TENANT.
7.1.5 LANDLORD'S Right to Enter - To permit LANDLORD and its agents to
examine the premises at reasonable times and to show the premises to prospective
purchasers and lenders, provided such entry shall not unreasonably interfere
with TENANTS occupancy or conducts of its business in the demised Premises.
7.1.6 Personal Propedy at TENANTS Risk - That all of the furnishings,
fixtures, equipment, effects and property of every kind, nature and description
of TENANT and of all persons claiming under TENANT, that may be on the Premises,
shall be at the sole risk and hazard of TENANT, and if the whole or any part
thereof shall be destroyed or damaged by fire, water, or otherwise, or by the
leakage or bursting of water pipes, steam pipes or other pipes, by theft or from
any other cause, no part of said loss or damage is to be charged to or be borne
by LANDLORD, except that LANDLORD shall in no event be indemnified or held
harmless or exonerated from any liability resulting from its sole negligence,
failure to perform any of its obligations under this Lease or to any extent
prohibited by law.
7.1.7 Payment of LANDLORD'S Cost of Enforcement - To pay on demand
LANDLORD'S expenses, including reasonable attorney's fees, incurred in enforcing
any obligation of TENANT under this Lease or in curing any default by TENANT
under this Lease as provided in Section 10.4, provided LANDLORD shall prevail in
any judicial proceedings in respect to such enforcement.
7.1.8 Yield Up - At the expiration of the Lease term or earlier
termination of this Lease; TENANT shall remove all trade fixtures and personal
property, to repair any damage caused by such removal, to remove all TENANTS
signs wherever located and to surrender all keys to the Premises and yield up
the Premises, broom clean and in the same good order and repair in which TENANT
is obligated to keep and maintain the Premises by the provisions of this Lease,
reasonable wear and tear and insured damage by fire, casualty, or taking
excepted. Any property not so removed shall be deemed abandoned unless TENANT
shall notify LANDLORD in writing of reasonable efforts being made by TENANT to
immediately remove such remaining property and assests, and may be removed and
disposed of by LANDLORD in such manner as LANDLORD shall determine, without any
obligation on the part of LANDLORD to account to TENANT for any proceeds there
from, all of which shall become the property of LANDLORD. Any holdover by TENANT
will not be deemed an extension of this Lease, and TENANT shall indemnify
LANDLORD against all losses and damages from a failure to surrender.
7.1.9 Maintenance~ Throughout the term, TENANT shall, at TENANTS sole
cost and expense maintain the Premises and all Improvements thereon in good
condition and repair, ordinary wear and tear excepted, and in accordance with
all applicable laws, rules, ordinances, orders and regulations of (1) Federal,
State, county, municipal, and other governmental agencies and bodies having or
claiming
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jurisdiction and all of their respective departments, bureaus and officials; (2)
the insurance underwriting board or insurance inspection bureau having or
claiming jurisdiction; and (3) all insurance companies insuring all or any part
of the Premises or the Improvements located thereon, or both. except as provided
below and subject only to the provisions of Paragraph 9.2, TENANT shall promptly
and diligently repair, restore and replace as required to maintain the Premises
and the improvements in the condition set forth above, or to remedy all damage
to or destruction of all or any part of the Improvements.
(A) The completed work of maintenance, compliance, repair, restoration
or replacement shall be equal in value, quality, and use to the condition of the
Improvements before the event giving rise to the work, unless otherwise provided
for in this Lease. LANDLORD shall not be required to furnish any services or
facilities or to make any repairs or alterations of any kind in or upon or on
the Premises. LANDLORD'S election to perform any obligations of the TENANT under
this provision on TENANT'S failure or refusal to do so shall not constitute a
waiver of any right or remedy for TENANT'S default and TENANT shall promptly
reimburse, defend and indemnify LANDLORD against all liability, loss, cost and
expense arising from it.
7.1.10 Insurance - TENANT shall maintain in full force and effect, at
its own cost, full replacement cost coverage insurance covering the demised
premises (and all improvements for the full insurable value) against loss or
damage by fire or casualty, with the usual extended coverage endorsements,
together with endorsements protecting against loss or damage resulting from
malicious mischief, sprinkler leakage and vandalism all in amounts not less than
replacement value above foundation walls. All insurance policies shall name the
LANDLORD as its interest may appear.
7.2 Negative Covenants - TENANT covenants at all times during the lease
term and such further times as TENANT occupies the Premises or any part thereof.
7.2.1 Overloading, Nuisance, etc, - Not to injure, overload, deface or
otherwise harm the Premises; not commit any nuisance; nor make any use of the
premises which is improper, offensive or contrary to any law or ordinance.
7.2.2 Installation, Alteration or Additions - Not to make any
installations, alterations or additions (except only the installation of
fixtures necessary for the conduct of its business), without on each occasion
obtaining prior written consent of LANDLORD, LANDLORD'S consent not to be
unreasonably withheld. No consent shall be required for nonstructural
alterations not exceeding $100,000.00 in cost.
ARTICLE VIII
LANDLORD'S Additional Covenants
8.1 Warranty on Use - LANDLORD warrants and represents that at the
commencement of construction it will be the Owner in Fee of the Land shown on
Exhibit "A" and described in Exhibit "B";. LANDLORD has no knowledge of and
TENANT requires that there be no zoning regulations, restrictive
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agreements, leases or other instruments which prevent the use of the Premises
for the purpose intended herein, nor otherwise conflict with any of the
provisions of this Lease. TENANTS sole and conclusive remedy for a beach of this
warranty shall be its right, at its election, to terminate the lease prior to
commencement of construction.
8.2 Competing Use - During the term of this Lease, provided TENANT is
not in default, LANDLORD agrees not to lease or sell any portion of the project,
of which the leased premises is a part, to a commercial bank, savings bank,
savings and loan or credit union.
ARTICLE IX
Casualty or Taking
9.1 TENANT to Repair or Rebuild in the Event of Casualty - In case the
Premises or any part thereof shall be damaged or destroyed by fire or other
casualty, taken (which term or reference to eminent domain action generally, for
the purposes of this article shall include as sale in lieu of the exercise of
the right of eminent domain ) or ordered to be demolished by the action of any
public authority in consequence of a fire or other casualty, this Lease shall,
unless it is terminated as provided below in Section 9.2 or 9.3, remain in full
force and effect, and TENANT shall, at its expense, proceed with all reasonable
dispatch, to repair or rebuild the improvements, or what may remain thereof, so
as to restore them as nearly as practicable to the condition they were in
immediately prior to such damage or destruction.
9.2 Right to Terminate in Event of Casualty - In case of any damage or
destruction occurring in the last five years of the original term of this Lease
or during any extension of the term, to the extent of 50% or more of the
insurable value of the building, TENANT may at its option, to be evidenced by
notice in writing given to the LANDLORD within seven (7) days after the
occurrence of such damage or destruction, in lieu of repairing or replacing the
Building, elect to terminate this Lease as of the date of said damage or
destruction. In the event the TENANT shall so terminate the lease all insurance
proceeds allocated to the Premises shall become the property of the LANDLORD.
9.3 Eminent Domain - If the whole, or any part of the demised premises
shall be taken or condemned by any competent authority for any public use or
purpose during the term of this lease, TENANT reserves unto itself the right to
prosecute its claim for an award based upon its leasehold interest for such
taking, without impairing any rights of LANDLORD for the taking of or injury to
the reversion.
In the event that a part of the demised premises shall be taken
or condemned that (a) the part so taken includes the building on the demised
premises or any part thereof or (b) the part so taken shall remove from the
premises 20% or more of the front depth of the parking areas thereof or (c) the
part so taken shall consist of 25% or more of the total parking area or (d) such
partial taking shall result in cutting off direct access from the demised
premises to any adjacent public street or highway, then and in any such event,
the TENANT may at any time either prior to or within a period of sixty (60) days
after the
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date when possession of the premises shall be required by the condemning
authority elect to terminate this Lease or, if any option to purchase the
premises is conferred upon the TENANT by any other provision of this Lease, may
as an alternative to such termination of this Lease elect to purchase the
demised premises in accordance with such purchase option, except that there
shall be deducted from the purchase price to be paid for the premises all of the
LANDLORD'S award from the condemnation proceeding. In the event that TENANT
shall fail to exercise any such option to terminate this Lease or to purchase
the premises or in the event that a part of the demised premises shall be taken
or condemned under circumstances under which the TENANT will have no such
option, then and in either such event the LANDLORD shall, with reasonable
promptness, make necessary repairs to and alterations of the improvements on the
demised premises for the purpose of restoring the same to an economic
architectural unit, susceptible to the same use as that which was in effect
immediately prior to such taking, to the extent that may have been necessary by
such condemnation, subject to a pro-rata reduction in rental. Any dispute
resulting from Section 9.3 of this Lease shall be submitted to the American
Arbitration Society, whose decision shall be binding on the parties hereto.
ARTICLE X
Defaults
10.1 Events of Default - If (a) TENANT shall default in the performance
of any of its obligations to pay rent or additional rents hereunder and if such
default shall continue for (10) days after written notice from LANDLORD
designating such default or if within thirty (30) days after written notice from
LANDLORD to TENANT specifying any other non-monetary default or defaults, TENANT
has not commenced diligently to correct the default or defaults so specified or
has not thereafter diligently pursued such correction to completion, or (b) any
assignment shall be made by TENANT for the benefit of creditors, or (c) if
TENANTS leasehold interest shall be taken on execution, attached, levied upon or
(d) if a petition is filed by TENANT for adjudication as a bankrupt, or for
reorganization or an arrangement under any provision of the Bankruptcy Act as
then in force and effect, or (e) if an involuntary petition under any of the
provisions of said Bankruptcy Act is filed against TENANT and such involuntary
petition is not dismissed within sixty (60) days thereafter, then, and in any of
such cases, LANDLORD lawfully may exercise all defaults rights available to it
under law, including repossession of the leased property, termination of the
lease, acceleration of all future rental payments, and such other rights as may
be lawfully permitted.
10.2 Remedies - In the event that this Lease is terminated under any of
the provisions contained In Section 10.1 or shall be otherwise terminated for
breach of any obligation of TENANT, TENANT covenants to pay punctually to
LANDLORD all the sums and perform all the obligations which TENANT covenants in
this Lease to pay and to perform in the same manner and to the same extent and
at the same time as if this Lease had not been terminated so long as such
obligations shall have not been
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rendered unnecessary or impossible of performance by the subsequent re-letting
or other occupancy permitted by LANDLORD. In calculating the amounts to be paid
by TENANT under the foregoing covenant, TENANT shall be credited with the net
proceeds of any rent or the value of other considerations obtained by LANDLORD
by re-letting the Premises, after deducting all LANDLORD'S expenses in
connection with such re-letting, including, without limitation, all repossession
costs, brokerage commissions, fees for legal services and expenses of preparing
the premises for such re-letting, it being agreed by TENANT that LANDLORD may
(i) re-let the Premises or any part or parts thereof, for a term or terms which
may at LANDLORD'S option be equal to or less than or exceed the period which
would otherwise have constituted the balance of the Lease term, and (ii) make
such alterations, repairs and decorations in the Premises as LANDLORD in its
sold judgment considers advisable or necessary to re-let the same.
Nothing contained in this Lease shall, however, limit or prejudice the
right of LANDLORD to prove for and obtain in proceedings for bankruptcy or
insolvency by reason of the termination of this Lease, an amount equal to the
maximum allowed by any statute or rule of law in effect at the time when, and
governing the proceedings in which, the damages are to be proved, whether or not
the amount be greater, equal to, or less than the amounts of the loss or damages
referred to above.
10.3 Remedies Cumulative - Any and all rights and remedies which
LANDLORD may have under this Lease, and at law and equity, shall be cumulative
and shall not be deemed inconsistent with each other, and any two or more of all
such rights and remedies may be exercised at the same time insofar as permitted
by law.
10.4 LANDLORD'S and TENANTS Right to Cure Defaults - LANDLORD may, but
shall not be obligated to, cure at any time, following ten (10) days prior
written notice to TENANT, except in cases of emergency when no notice shall be
required, any default by TENANT under this Lease; and whenever LANDLORD so
elects, all costs and expenses incurred by LANDLORD, including reasonable
attorney's fees, in curing a default shall be paid by TENANT to LANDLORD as
additional rent on demand. TENANT shall have a like right to cure any default of
LANDLORD, and TENANT may reimburse itself for the cost thereof out of succeeding
rental payments.
10.5 Effect of Waivers on Default - No consent or waiver, express or
implied, by either party to or of any breach of any covenants, conditions or
duty of the other shall be construed as a consent or waiver to or of any other
breach of the same of any other covenant, condition or duty.
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ARTICLE XI
Miscellaneous Provisions
11.1 Assignment. Subletting, etc. - Consent shall not be required for
any assignment, transfer or subletting. Upon assignment in accordance with the
foregoing, the TENANT shall remain liable for the full and faithful performance
of the lease and all its terms and conditions.
11.2 Notice from One Party to the Other - Any notice from LANDLORD to
TENANT or from TENANT to LANDLORD shall be deemed duly served if mailed by
registered or certified mail, return receipt requested, postage prepaid,
addressed, if to TENANT, at the original address of TENANT or such other address
as TENANT shall have last designated by notice in writing to LANDLORD, and if to
LANDLORD, at the original address of LANDLORD or such other address as LANDLORD
shall have last designated by notice in writing to TENANT.
11.3 Quiet Enjoyment - LANDLORD agrees that upon TENANT'S paying the
rent and performing and observing the agreements, conditions and other
provisions on its part to be performed and observed, TENANT shall and may
peaceably and quietly have, hold and enjoy the Demised Premises during the
Lease term without any manner of hindrance or molestation from LANDLORD or
anyone claiming under LANDLORD, subject to the covenants and conditions of this
Lease.
11.4 Recording - TENANT agrees not to record this Lease, but each party
hereto agrees on request of the other, to execute a Notice or Short Form of this
Lease in recordable form in compliance with applicable statutes, and reasonably
satisfactory to LANDLORDS and TENANT'S attorneys. In no event shall such
document set forth the rental or other charges payable by TENANT under this
Lease; and any such document shall expressly state that it is executed pursuant
to the provisions contained in this Lease, and is not intended to vary the terms
and conditions of this Lease. In the event LANDLORD and/or TENANT believe that
the Lease has been lawfully terminated, abandoned or otherwise of no force and
effect and the other party will not voluntarily execute a Discharge of
Memorandum of Lease, the party seeking the Discharge of Memorandum of Lease may
move summarily before the Superior Court of New Jersey for a determination of
whether or not the Memorandum of Lease should be discharged. The other party
consents to the jurisdiction of the Superior Court of New Jersey and agrees to
proceed in a summary manner. It is expressly understood and agreed that in
addition to the relief provided herein, the parties will have such additional
cumulative remedies as are available to it at law or in equity for damages
suffered by reason of a wrongful refusal to execute and deliver a Discharge of
Memorandum of Lease.
11.5 Acts of God - In any case where either party hereto is required to
do any act, delays caused by or resulting from Acts of God, war, civil
commotion, fire or other casualty, labor difficulties, shortages of labor,
materials or equipment, government regulations, or other causes beyond such
party's reasonable control shall not be counted in determining the time during
which work shall be completed, whether such time be designated by a fixed date,
a fixed time or "a reasonable time".
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11.6 Waiver of Subrogation - All insurance which is carried by either
party with respect to the Demised Premises, whether or not required, shall
include provisions which either designates the other party as one of the insured
or deny to the insurer acquisition by subrogation of rights of recovery against
the other party. Each party shall be entitled to have duplicates or certificates
of any policies containing such provisions,. Each party hereby waives all rights
of recovery against the other for loss or injury against which the waiving party
is protected by insurance containing said provisions.
11.7 Rights of Mortgagee and Subordination
11.7.1 This Lease is subject and is hereby subordinated to all present
and future mortgages, deeds of trust, and other encumbrances affecting the
Premises or the property of which said Premises are a part; provided, however,
that an agreement or instrument affecting such subordination shall be executed
by the mortgagee or other Lender, be recorded with such mortgage or other
security agreement, and a copy delivered to the TENANT and contain provisions,
to the effect that (i) so long as TENANT observes the terms and provision of the
Lease and notwithstanding the Lease may be foreclosed, TENANT will not be
effected or disturbed by the mortgagee in the exercise of any of its rights
under the mortgage or other security agreement, or the bond, note or debt
secured thereby; (ii) in the event the mortgagee comes into possession or
ownership of the Premises by foreclosing or otherwise, TENANTS use, occupancy
and quiet enjoyment of the Premises shall not be disturbed by any such
proceedings; (iii) in the event the Premises are sold or otherwise disposed of
pursuant to any right or power contained in the mortgage or other security
agreement, or the bond or note secured thereby, or as a result of proceedings
thereon, the purchaser shall take title subject to this Agreement of Non
Disturbance, and all of the rights of TENANT hereunder, (iv) in the event the
buildings and improvements upon the Premises are damaged by fire and other
casualty, for which loss the proceeds payable under any insurance policy or
policies are payable to the mortgagee, such insurance funds, when paid, shall be
made available for the purpose of repair and restoration as provided in this
Lease; and (v) the agreement shall be binding upon the LANDLORD, mortgagee and
their respective heirs, executors, administrators, successors and assigns. The
TENANT agrees to execute, at no expense to the LANDLORD, any instrument which
may be deemed necessary or desirable by the LANDLORD to further effect the
subordination of this lease to any such mortgage, deed of trust or encumbrance.
11.7.2 No Accord and Satisfaction -No acceptance by LANDLORD of lesser
sum than the rent or any other charges then due shall be deemed to be other than
on account of the earliest installment of such rent or charge due, nor shall any
endorsement or statement on any check or nay letter accompanying any check or
payment as rent or other charge be deemed an accord and satisfaction, and
LANDLORD may accept such check or payment without prejudice to LANDLORD'S right
to recover and balance of such installments or pursue any other remedy in this
Lease provided.
11.8 Applicable Law and Construction - This Lease shall be governed by
and construed in accordance with the laws of the state in which the premised is
located, and if any provisions of this Lease
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shall to any extent be invalid, the remainder of this Lease shall not be
affected thereby. There are no oral or written agreements between LANDLORD and
TENANT affecting this Lease. This Lease maybe amended only by instruments in
writing executed by LANDLORD and TENANT. LANDLORD shall not be deemed in any way
or for any purpose, to have become, by the execution of this Lease or any action
taken thereunder, a partner of TENANT in it business or otherwise a joint
venture or member of any enterprises of TENANT. The titles of the several
Articles and Sections contained herein are for convenience only and shall not be
considered in construing this Lease. Unless repugnant to the context, the
words'LANDLORD and TENANT' appearing in this Lease shall be construed to mean
those names above in their respective heirs, executors, administrators,
successors and assigns, and those claiming through or under them respectively.
ARTICLE XII
Permits and Approvals
12.1 TENANT'S Obligations - The obligations of TENANT hereunder are
contingent upon TENANT securing on or before December 31, 1994 the following
approvals:
A. All State and Federal regulatory approvals for the construction and
operation of a branch bank.
B. All municipal and governmental approvals required for the
construction of TENANT'S proposed building other than the issuance of a building
permit. ("Permit and Approvals")
12.2 Approvals In the event TENANT has not obtained its Permits and
Approvals on or before December 31, 1996, and TENANT has not waived the
contingencies of Permits and Approvals, TENANT will be entitled to One (1)
extension of time of sixty (60) days until February 28, 1997 to obtain the
Permits and Approvals; provided full and complete applications for all necessary
permits and approvals are then pending, all notice requirements have been
satisfied and at least one hearing has been held on each of the permits and
applications for approvals.
12.3 Easements- TENANT shall have absolutely no right to grant any
easements with regard to the Premises other than such easements to public
entities or public service corporations for the purpose of serving only the
Premises, rights-of-way or easements on or over the Premises for poles or
conduits, or both, for telephone, electricity, water, sanitary or storm sewers
or both and for other utilities and municipal or special district services.
ARTICLE XIII
Net, Net, Net Lease
13.1 Net, Net, Net Lease- It is the intention of LANDLORD and TENANT
that the rental herein specified shall be net to LANDLORD in each lease year,
that all costs, expenses, and obligations of every
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kind relating to the premises which may arise during the term of this lease
shall be paid by TENANT, and that LANDLORD shall be indemnified by TENANT
against any such costs, expenses, and obligations.
ARTICLE XIV
14.1 Limitation of Landlord's Liabilily- TENANT shall look solely to
the estate and property of LANDLORD in the Premises, in all events subject to
the prior rights of any and all mortgagees, for the collection of any judgment,
claim or demand (or any other judicial process) requiring the payment or
expenditure of money by LANDLORD in the event of any uncurled default or breach
by LANDLORD with respect to any of the terms, covenants and conditions of this
Lease to be observed or performed by TENANT, and no other assets of LANDLORD or
any one or more of the principals of LANDLORD shall be subject to execution or
other process or procedure for the satisfaction of TENANT'S remedies.
14.2 Right of First Refusal to Lease - If during the term of this
Lease or within one hundred eighty (180) days before its conclusion, LANDLORD
shall desire to accept a bona fide offer received by it to lease any part of the
Premises effective at the conclusion of this Lease and all options, LANDLORD
shall notify TENANT of such a desire in the manner provided in this Lease for
the giving of notice, and TENANT shall have the right of first refusal to lease
said Premises within ten (10) days upon the terms contained in the notice. This
provision shall only be effective after the termination, expiration or
conclusion of the original lease term and all options, and shall not affect the
Premises during the term of this Lease.
14.3 Right of First Refusal to Purchase - TENANT shall have the right
of first refusal to purchase the Demised Premises as hereinafter set forth. If
at any time during the term as extended, LANDLORD shall receive a bona fide
offer from a third person for the purchase of the Demised Premises, which offer
LANDLORD shall promptly deliver to TENANT a copy of such offer, and TENANT may,
within fifteen (15) days thereafter, elect to purchase the Demised Premises on
the same terms as those set forth I such offer, excepting that TENANT shall be
credited against the purchase price to be paid by TENANT, with a sum equal to
the amount of any brokerage commission, if any, which LANDLORD shall save by a
sale to TENANT. If LANDLORD shall receive an offer for the purchase of the
Demised Premises, which is not consummated by delivering a deed to the offerer,
the TENANTS right of first refusal to purchase shall remain applicable to
subsequent offers. If LANDLORD shall sell the Demised Premises, after a failure
of TENANT to exercise its right of first refusal, such shall be subject to the
Lease and shall continue to be applicable to subsequent sales of the Demised
Premises. Not withstanding the foregoing, TENANT'S right of first refusal shall
not apply or extend to any sales or transfers between LANDLORD and any
affiliates in which the principals of the LANDLORD are the majority shareholders
to any family trusts or to the heirs of the principals of LANDLORD. LANDLORD
shall be entitled to net the same amount under any right of first refusal
exercise.
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ARTICLE XV
15.1 Holdover- In the event that TENANT continues in use and occupancy
and holds over in possession of the Premises after the expiration of the Initial
Term or, properly exercised, the Option Term, in addition to all other damages
to which LANDLORD may be entitled, the monthly rent during the period of
holdover shall be in a sum equal to double the amount of the monthly installment
of base annual fixed rent during the last month of the term which has just
expired. Said holdover rent shall be in addition to all additional rents for
which the TENANT shall be responsible during the holdover period.
ARTICLE XVI
Environmental Matters
16.1 A. LANDLORD represents, warrants and covenants as follows:
(1) LANDLORD represents and warrants that any handling, transpiration,
storage, treatment or usage of hazardous or toxic substances (as defined by any
applicant government authority hereinafter being referred to as "Hazardous
Materials") that has occurred or will occur on the Demised Premises shall be in
compliance with all applicable federal, state and local laws, regulations and
ordinances. TENANT represents and warrants that any handling, transportation,
storage, treatment or usage of Hazardous Materials by TENANT at the Demised
Premises shall be in compliance with all applicable federal, state and local
laws. LANDLORD further represents and warrants that no leak, spill, discharge,
emission or disposal of Hazardous Materials has occurred or will occur on the
Demised Premises and that the soil, groundwater, soil vapor on or under the
Demised Premises is or will be free of Hazardous Materials as of the date
hereof;
(ii) LANDLORD has disclosed or will disclose to TENANT, and provide to
tenant, all accounts and complete copies of all information, data, documents,
reports, notices, and other materials whether in draft form or final form,
exclusive of duplication, regarding Substances, at, on, in or under the Premises
or any property adjacent to or in the vicinity of the Premises which may impact
the Premises (the "Reports"), including all Reports in LANDLORD'S al or
constructive possession or control, whether prepared for LANDLORD or for others,
and all other Reports of which LANDLORD has or should have knowledge after due
inquiry;
(iii) Except as set forth in writing in the Reports which have been
disclosed to TENANT, if any, LANDLORD has no actual knowledge of any Release or
threatened Release of Substances, at, on, in or under the Premises, or any
property adjacent to or in the vicinity-of the Premises which may impact the
Premises. LANDLORD shall promptly notify TENANT in writing if LANDLORD obtains
any such knowledge after the date hereof and shall promptly deliver to TENANT
copies of all Reports which LANDLORD obtains, or of which LANDLORD obtains
knowledge, after the date hereof,
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(iv) Except as previously disclosed to TENANT in writing by LANDLORD,
LANDLORD has no actual knowledge that there are not now, and have never been,
any underground storage tanks (including but not limited to underground storage
tanks for the storage or petroleum or petroleum products) (A) at the Premises
or, (B) to the best of LANDLORD'S knowledge, information and belief after due
inquiry, on any property adjacent to the Premises; and
(v) LANDLORD has no actual knowledge that there are wells or septic
tanks on the Premises which serve or have at any time served the Premises; no
wells or septic tanks on the Premises which serve or have at any time served any
other property; and no wells or septic tanks on any other property which serve
or have at any time served the Premises except as provided above.
(B) LANDLORD Indemnification:
The representations, warranties and covenants of the Section are
continuing. If at any time of the representations, warranties or covenants made
by LANDLORD in this Section shall become untrue or are breached to the knowledge
of LANDLORD, then LANDLORD shall immediately notify TENANT of the facts that
render such representations, warranties or covenants untrue or breached.
LANDLORD shall immediately notify TENANT of any audit, inquiry, test,
investigation, claim or enforcement proceeding relating to the Premises or by or
against LANDLORD involving any Release or threatened Release. Within five (5)
business days after receipt by LANDLORD, LANDLORD shall provide TENANT the
results of any audit, inquiry or investigation regarding Substances at, on, in
or under the Premises or any property adjacent to or in the vicinity of the
Premises that may impact the Premises. LANDLORD shall indemnify, defend, and
hold harmless TENANT (and its employees, agents, officers, directors,
successors, assigns) from all claims, actions, suits, proceedings, judgments,
losses, costs, damages, penalties, fines, liabilities, it being understood that
LANDLORD shall defend any such claims set forth at LANDLORD'S sole cost and
direction (including, without limitation, reasonable attorney's fees and
consultants' fees, investigation, engineering, and laboratory fees, court costs
and litigation expenses, including experts' fees) ("Claims") directly or
indirectly resulting from, arising out of, or based upon a Release or threatened
Release of Substances at, on, in or under Premises (including, without
limitation, Releases originating or emanating from any property adjacent to or
in the vicinity of the Premises that may impact the Premises or from
groundwater) or the violation of any Environmental Laws, or under or on account
of the Environmental Laws. This indemnity shall include without limitation, (A)
any damage, liability, fine penalty or punitive damage arising from or out of
any claim, action, suit or proceeding for personal injury (including, without
limitation, sickness, disease, or death or fear of same), tangible property
damage, nuisance, pollution, contamination, leak, spill, release, or other
effect on the environment, and (B) at LANDLORD'S direction, the cost of any
required, necessary or appropriate response, investigation, repair, clean-up,
treatment, removal, redemption, or detoxification or the Premises or other
properties affected by such Release or threatened Release, and the preparation
and implementation of any other required, necessary or appropriate actions in
connection with the Premises or other properties affected by such Release or
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threatened Release. Notwithstanding anything to the contrary contained herein,
LANDLORD shall not be liable to TENANT for indemnification with regard to any
claims relating to a Release or threatened Release at the Premises that is
caused by TENANT. Upon the occurrence of a Release of threatened Release (other
than Releases caused by TENANT), whether or not the same originates or emanates
form the Premises or any adjacent property for form groundwater, LANDLORD shall
at LANDLORD'S sole cost and expense promptly, and in any event within thirty
(30) days after the occurrence of the Release, commence and diligently pursue
any and all lawful actions as are necessary or advisable (including any
necessary of advisable investigation, repair, clean-up, treatment, or
appropriate response, redemption, or detoxification) in order to abate the
Release or threatened Release, remove the Substances, and minimize, mitigate and
remedy nay resulting environmental harm, regardless or whether such abatement,
removal, minimization, mitigation or redemption is required by the Environmental
Laws and regardless or whether such actions are required by any governmental
authority. If LANDLORD shall fail to comply with any of the requirements of the
preceding sentence, or any of the requirements of the Environmental Laws, within
any applicable time period, TENANT may, in addition to TENANT'S other rights
under this Lease, terminate this Lease by written notice to LANDLORD.
C. Phase I Environmental Survey:
A condition precedent to this Lease shall be TENANT'S
satisfactory review of the report (the "Phase I Environmental Survey") on the
environmental condition of the land on which the Demised Premises is located.
LANDLORD agrees to provide TENANT with a Phase I Environmental Survey of the
land on which the Demised Premises is located. In the event that TENANT shall
discover in its review of the Phase I Environmental Survey that any Hazardous
Materials may be present in the soil, groundwater or soil vapor on or under the
Demised Premises, TENANT may, upon written notice to LANDLORD within ten (10)
days after the date TENANT received the Phase I Environmental Survey, terminate
this Lease.
D. Rent Abatement:
If during the term of this Lease any governmental authority
requires the redemption of hazardous Materials from the Demised Premises or the
Shopping Center and such redemption substantially affects TENANT'S business
operations, then TENANT shall be entitled to an equitable abatement of rent form
the date such interference or safety hazard occurs to the date such interference
and safety hazard are not longer present
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16.2 TENANT agrees to indemnify LANDLORD and its officers, employees
and agents harmless from any claims, judgments, damages, fines, penalties,
costs, liabilities (including sums paid in settlement of claims) or loss
including attorney's fees, consultant's fees and expert's fees which arise
during or after the Primary Term or any Renewal Term in connection with the
presence of toxic or Hazardous Substances in the soil, ground water or soil
vapor on or under the Demised Premises to the extent such presence is caused by
the acts of TENANT, its officers, employees and agents.
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IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
this day and year first written above
COMMERCE BANK, N.A.
BY: /s/ Thomas H. Arasz
Attest: Thomas H. Arasz
Assistant Secretary Senior Vice President/
Real Estate Office
TRIAD EQUITIES, L.L.C.
BY: /s/ John P. Silvestri
Attest: John P. Silvestri, Managing Partner
21
FIRST LEASE AMENDMENT
WHEREBY, PLYMOUTH EQUITIES, LLC (Landlord) and Commerce
Bank/Pennsylvania, N.A. (Tenant) entered into a lease dated November 26, 1996
for a parcel of land at Walton and Township Line Roads, Plymouth Township,
Montgomery County, PA.
WHEREAS, Landlord and Tenant as of April 25, 1997 hereby
agree that Landlord and Tenant wish to amend the existing lease as follows:
2.3 Option to Extend: There shall only be two options to
extend. The first option shall be for five years and the second option be for
four years, eleven months.
All other terms and conditions of the lease shall remain in
full force and effect.
Witness PLYMOUTH EQUITIES, LLC
(Landlord)
Witness Commerce Bank/ Pennsylvania,
N.A.
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11/26/96
LEASE
from
PLYMOUTH EQUITIES, L.L.C.
A New Jersey Limited Liability Corporation
to
COMMERCE BANK/PENNSYLVANIA, N.A.
ARTICLE 1
Reference Data and Exhibits
1.1 DATE October 11, 1996
LOCATION OF PREMISES Corner of Township Line Road
and Walton Road
Plymouth Township
Montgomery County, PA
Block 28, Lots 2,4,6
LANDLORD Plymouth Equities, L.L.C.
ORIGINAL ADDRESS OF: 17000 Horizon Way
Suite 200
Mt. Laurel, NJ 08054
TENANT Commerce Bank, N.A./
PENNSYLVANIA, N.A.
c/o Commerce Bancorp, Inc.
ORIGINAL ADDRESS OF TENANT 1701 Route 70 East
Cherry Hill, New Jersey
LEASE TERM Twenty Years
ANNUAL FIXED RENT RATE Yr. 1 - 5: $50,000.00
6-10: $57,500.00
11-15: $66,125.00
16-20: $76,044.00
SECURITY DEPOSIT $0.00
USE: Bank Branch
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<TABLE>
<CAPTION>
1.2 Table of Contents
ARTICLE I - Reference Data and Exhibits Page
<S> <C>
1.1 Data ............................................................................................1
1.2 Table of Contents ...............................................................................2
ARTICLE II - Premises and Term
2.1 Premises ........................................................................................4
2.2 Term ............................................................................................4
2.3 Option to Extend ................................................................................4
ARTICLE III - Improvements
3.1 Construction of Improvements ....................................................................4
3.2 Contractor ......................................................................................4
3.3 Signs ...........................................................................................4
ARTICLE IV - Rent
4.1 The Rent, Minimum Fixed and Percentage ..........................................................5
ARTICLE V - Real Estate Taxes
5.1 Real Estate Taxes ...............................................................................5
5.2 Taxes ...........................................................................................5
5.3 Method of Payment ...............................................................................6
ARTICLE VI - Utilities and Services
6.1 Utilities and Charges Therefore .................................................................6
ARTICLE VII - TENANTS Additional Covenants
7.1 Affirmative Covenants .....................................................................6
7.1.1 Use ..........................................................................6
7.1.2 Compliance with Law ..........................................................7
7.1.3 Payment of TENANTS Work ......................................................7
7.1.4 Indemnity and Liability Insurance ............................................7
7.1.5 LANDLORD'S Right to Enter ....................................................8
7.1.6 Personal Property at TENANTS Risk ............................................8
7.1.7 Payment of LANDLORD'S Cost of Enforcement ....................................8
7.1.8 Yield Up .....................................................................8
7.1.9 Maintenance ..................................................................8
7.1.10 Insurance ....................................................................9
7.2 Negative Comments ..........................................................................9
7.2.1 Overloading, Nuisance, etc ........................................................9
7.2.2, Installation, Alteration or Additions ............................................9
ARTICLE VIII - LANDLORD'S Additional Covenants
8.1 Warranty on Use .................................................................................9
8.2 Competing Use ...................................................................................10
ARTICLE IX - Casualty or Taking
9.1 TENANT to Repair or Rebuild in the Event of Casualty ............................................10
9.2 Right to Terminate in Event of Casualty .........................................................10
9.3 Eminent Domain ..................................................................................10
2
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ARTICLE X - Defaults Page
10.1 Events of Default ...............................................................................11
10.2 Remedies ........................................................................................11
10.3 Remedies Cumulative .............................................................................12
10.4 LANDLORD'S and TENANTS Right to Cure Defaults ...................................................12
10.5 Effect of Waivers of Default ....................................................................12
ARTICLE XI - Miscellaneous Provisions
11.1 Assignment, Subletting, etc .....................................................................12
11.2 Notice from One Party to Other ..................................................................13
11.3 Quiet Enjoyment .................................................................................13
11.4 Recording .......................................................................................13
11.5 Acts of God .....................................................................................13
11.6 Waiver of Subrogation ...........................................................................13
11.7 No Accord and Satisfaction ......................................................................14
11.7.1 ...............................................................................................14
11.7.2 No Accord and Satisfaction ....................................................................14
11.8 Applicable Law and Construction .................................................................14
11.9 Security Deposit ................................................................................15
ARTICLE X11 --Tenant's Contingencies
12.1 Approval Contingencies ..........................................................................15
12.2 Engineering Tests ...............................................................................15
ARTICLE XIII - Net Lease
13.1 Net Lease .......................................................................................16
ARTICLE XIV-
14.1 Limitation of Landlord's Liability ..............................................................16
14.2 Right of First Refusal to Lease .................................................................16
14.3 Right of First Refusal to Purchase ..............................................................16
ARTICLE XV-
15.1 Holdover ........................................................................................17
ARTICLE XVI - Environmental Matters
16.1 Landlord ........................................................................................17
</TABLE>
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ARTICLE II
Premises and Term
2.1 Premises - LANDLORD hereby leases to TENANT and TENANT hereby leases
from LANDLORD, subject to and with the benefit of the terms, covenants,
conditions and provisions of this Lease, the unimproved land premises shown on
Exhibit A and described in Exhibit B, both annexed hereto and made a part
hereof, together with any and all improvements, appurtenances, rights,
privileges and easements befitting, belonging or pertaining thereto.
2.2 Term - TO HAVE AND TO HOLD for a term beginning at the earlier of
(a) Ninety (90) days (inclusive of the time for objectors to appeal from any
approval) after TENANT has obtained the approvals for the construction of the
branch bank as set forth in Article 12 (notwithstanding TENANT may not have
commenced construction) or (b) date Tenant commences construction, and
continuing for the Lease term unless sooner terminated as hereinafter provided.
When dates of the beginning and end of the Lease term have been determined, such
dates shall be evidenced by a document in form for recording, executed by
LANDLORD and TENANT and delivered each to the other.
2.3 Option to Extend - So long as TENANT is not in default hereunder,
TENANT shall have the right to extend this Lease for four (4) five (5) year
terms under the same terms, conditions and provisions as in the original term,
at the following rentals:
Option Years 1-5: $ 87,450.00
6-10: $100,568.00
11-15: $115,858.00
16-20: $133,000.00
TENANT shall give written notice of its intention to exercise each
extension option not less than Ninety (90) days prior to the expiration of the
then current term.
ARTICLE III
Improvements
3.1 Construction of Improvements - TENANT agrees to construct, at its
sole cost, a branch banking facility, pursuant to the attached Site Plan,
subject to reasonable approval by LANDLORD of the building plans and
specifications.
3.2 Contractor - TENANT shall have the right to select and approve the
contractor to complete the construction, which shall be subject to the approval
of the LANDLORD.
3.3 Signs - TENANT shall have the right to erect such signs as permitted
by applicable zoning ordinances within the leased area, or as may be approved by
local authority.
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ARTICLE IV
Rent
4.1 The Rent. Minimum Fixed - TENANT covenants and agrees to pay rent to
LANDLORD at the original address of LANDLORD or such other place as LANDLORD may
by notice in writing to TENANT from time to time direct, at the following rates
and times,
(a) TENANT agrees to pay to LANDLORD base annual fixed rent for the
Premises in accordance with and in the amount set forth in Paragraph 1.1
"Data". The base annual fixed rent shall be paid in equal monthly installments
in advance on the first (1st) day of each month beginning on the Commencement
Date. In addition to the base annual fixed rent, TENANT shall pay as and when
the same become due and owing as additional rents, all other Moines provided for
in the Lease. It is the parties intention that all charges and assessments
charged to or assessed against the Premises shall be the responsibility of the
TENANT, such that the Lease shall be "net, net, net" to the LANDLORD, excepting
only interest and principal on any mortgage made by the LANDLORD and effecting
the Premises.
(b) For purposes of this Lease, the scheduled increases in the base
annual fixed rent shall occur on the first day of the sixth (6th), eleventh
(11th) and sixteenth (16th) years of the Initial Term as same is determined
pursuant to paragraph 2.2 and on the first day of the sixth (6th), eleventh
(11th), sixteenth (16th), years of the Option Terms.
(c) If any installment under this lease is not paid within fifteen (15)
days of the time and at the place and in the manner specified, then LANDLORD may
at its option declare TENANT in default.
ARTICLE V
Real Estate Taxes
5.1 Real Estate Taxes - As additional rent, TENANT agrees to pay all
taxes levied upon the Premises improvements located on the Premises, the
leasehold estate, or any subleasehold estate of any nature including special
assessments. The payment by TENANT of all real estate taxes shall commence
simultaneously with the rentals hereunder.
5.2 Taxes - TENANT agrees to pay all taxes levied upon real estate,
rents and personal property, including trade fixtures and inventory, kept on the
Demised Premises, as well as all taxes levied against the land and the building
and improvements situated thereon during the term of the Lease, after
presentation to TENANT by LANDLORD of statements from the taxing jurisdiction
which said property is located. TENANT, however, will pay only the lowest
discounted amount and will not be required to pay any penalty, interest or cost
occurring by reason of LANDLORD'S failure to secure said tax statements in a
timely fashion from the taxing authorities.
LANDLORD may, however, direct the taxing authorities to send the
statements directly to TENANT. In the event LANDLORD directs the taxing
authorities to send a statement directly to TENANT,
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TENANT shall make all such payments directly to the taxing authority at least
ten (10) days before any delinquency and before any fine, interest or penalty
shall become due or be imposed by operation of law for their nonpayment Further,
TENANT shall furnish to LANDLORD within ten (10) days of the date when any tax,
assessment or charge would become delinquent, receipts or other satisfactory
evidence establishing the timely payment of said taxes or charges." LANDLORD
further agrees that TENANT, in the name of LANDLORD, but at TENANTS sole
expense, may protest any assessment before any, taxing authority or board or
maintain any necessary legal action in reference to said assessment or for the
recovery of any taxes paid thereon. Nothing herein contained shall require
TENANT to pay any income or excess profits, taxes assessed against LANDLORD or
any corporation, capital stock, or franchise tax imposed upon LANDLORD.
5.3 Method of Payment - LANDLORD shall give written notice advising
TENANT of the amount of real estate taxes, together with a copy of the tax bill,
and TENANT shall pay such amount to LANDLORD within thirty (30) days after
receipt of such notice. If this Lease shall terminate during a tax year, TENANT
shall pay to LANDLORD a prorated portion of the amount that would have been due
for the full tax year based on the number of days of said tax year expired on
the date of termination.
ARTICLE VI
Utilities and Services
6.1 Utilities and Charges Therefore - TENANT agrees to pay directly to
the authority charged with the collection thereof, all charges for water, gas,
electricity, sanitary sewer, telephone and other utilities used or consumed in
the Premises and shall make its own arrangements for such utilities. In the
event any such services cannot be reasonably procured form any public agency,
and LANDLORD provides any such services, TENANT shall reimburse LANDLORD for its
proportionate share of any such services used or consumed in the Demised
Premises as additional rental.
ARTICLE VII
TENANT'S Additional Covenants
7.1 Affirmative Covenants - TENANT covenants at its expense at all times
during the Lease term and such further time as TENANT occupies the Premises or
any part thereof.
7.1.1 Use - TENANT shall use and permit the use of the Premises and
the improvements to be constructed thereon primarily for the operation of a
branch bank, provided that (subject to the other terms and conditions of this
Lease), TENANT may at any time use the Premises and the building and other
improvements to be constructed thereon, or permit them to be used, for any other
lawful commercial purposes. Neither TENANT nor it's subtenants, if any, shall
commit any nuisance; nor permit the emission
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of any objectionable noise or odor, nor bring on, deposit or allow to be brought
on or deposited on the Premises any asbestos materials or any other Hazardous
Substance or materials as the same may be defined by Federal, State or local
laws, rules, statutes or regulations or in the Environmental Rider annexed
hereto, nor use the property in such a manner which negatively effects the
reversion.
7.1.2 Compliance with Law - To make all repairs, alterations. additions
or replacements to the Premises required by any law or ordinance or any order or
regulation of any public authority because of TENANT'S use of the Premises; to
keep the Premises equipped with all safety appliances so required because of
such use; to pay all municipal, county or state taxes assessed against the
personal property of any kind owned by or placed in, upon or about the premises
by TENANT; and to comply with the orders and regulations of all governmental
authorities, as well as all Insurance Carriers and Underwriters.
7.1.2 (A) TENANT has the right to contest by appropriate judicial or
administrative proceeding, without cost or expense to the LANDLORD, the validity
or application of any law, ordinance, order, rule, regulation or requirement
("law") which the TENANT legitimately deems invalid and TENANT shall not be in
default for failure to comply with such law until the legally permitted time
following final determination of TENANTS contest expires; provided, however, if
LANDLORD gives notice of request, TENANT shall first furnish LANDLORD a bond,
satisfactory to LANDLORD in form and insurer, guarantying compliance by TENANT
with the contested law and indemnifying LANDLORD against all liability that
LANDLORD may sustain by reason of TENANTS failure or delay in complying with the
law. LANDLORD may, but is not required to, contest any such law independent of
TENANT. On TENANT'S notice of request LANDLORD may join in TENANTS contest.
7.1.3 Payment for TENANTS Work - To pay promptly when due the entire
cost of any work to the Premises undertaken by TENANT and to bond against or
discharge any liens for labor or materials within ten (10) days after written
request by LANDLORD; to procure all necessary permits before undertaking such
work; and to do all of such work in a good and workmanlike manner, employing new
materials of good quality and complying with all governmental requirements.
7.1.4 Indemnity and Liability Insurance - To defend with counsel, save
harmless and indemnify LANDLORD from all claims or damage to or of any person or
property while on the premises unless arising from any omission, fault,
negligence or other misconduct of LANDLORD, and from all claims or damage to or
of any person or property occasioned by any omission, fault, neglect or other
misconduct of TENANT; to maintain in responsible companies qualified to do
business in the state in which the premises is located and if good standing
therein, public liability insurance covering the premises insuring LANDLORD, as
well as TENANT, with limits at least equal to those stated in Section 1.1,
workmen's compensation insurance with statutory limits, covering all of TENANTS
employees working in the premises, and to deposit promptly with LANDLORD
certificates for such insurance and all renewals thereof, bearing the
endorsement that the policies will not be canceled until after ten (10) days
written
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notice to LANDLORD. TENANT'S obligations hereunder may be satisfied through a
blanket insurance policy covering other interests of the TENANT.
7.1.5 LANDLORD'S Right to Enter - To permit LANDLORD and its agents to
examine the premises at reasonable times and to show the premises to prospective
purchasers and lenders, provided such entry shall not unreasonably Interfere
with TENANTS occupancy or conduct of its business in the Demised Premises.
7.1.6 Personal Property at TENANT'S Risk - That all of the furnishings,
fixtures, equipment, effects and property of every kind, nature and description
of TENANT and of all persons claiming under TENANT, that may be on the Premises,
shall be at the sole risk and hazard of TENANT, and if the whole or any part
thereof shall be destroyed or damaged by fire, water, or otherwise, or by the
leakage or bursting of water pipes, steam pipes or other pipes, by theft or from
any other cause, no part of said loss or damage is to be charged to or be borne
by LANDLORD, except that LANDLORD shall in no event be indemnified or held
harmless or exonerated from any liability resulting from its sole negligence,
failure to perform any of its obligations under this Lease or to any extent
prohibited by law.
7.1.7 Payment of LANDLORD'S Cost of Enforcement - To pay on demand
LANDLORD'S expenses, including reasonable attorney's fees, incurred in enforcing
any obligation of TENANT under this Lease or in curing any default by TENANT
under this Lease as provided in Section 10.4, provided LANDLORD shall prevail in
any judicial proceedings in respect to such enforcement.
7.1.8 Yield Up - At the expiration of the Lease term or earlier
termination of this Lease; TENANT shall remove all trade fixtures and personal
property, to repair any damage caused by such removal, to remove all TENANT'S
signs wherever located and to surrender all keys to the Premises and yield up
the Premises, broom clean and in the same good order and repair in which TENANT
is obligated to keep and maintain the Premises by the provisions of this Lease,
reasonable wear and tear and insured damage by fire, casualty, or taking
excepted. Any property not so removed shall be deemed abandoned unless Tenant
shall notify Landlord in writing of reasonable efforts being made by Tenant to
immediately remove such remaining property and assets, and may be removed and
disposed of by LANDLORD in such manner as LANDLORD shall determine, without any
obligation on the part of LANDLORD to account to TENANT for any proceeds there
from, all of which shall become the property of LANDLORD. Any holdover by TENANT
will not be deemed an extension of this Lease, and TENANT shall indemnify
LANDLORD against all losses and damages from a failure to surrender.
7.1.9 Maintenance- Throughout the term, TENANT shall, at TENANTS sole
cost and expense maintain the Premises and all Improvements thereon in good
condition and repair, ordinary wear and tear excepted, and in accordance with
all applicable laws, rules, ordinances, orders and regulations of (1) Federal,
State, county, municipal, and other governmental agencies and bodies having or
claiming
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jurisdiction and all of their respective departments, bureaus and officials; (2)
the insurance underwriting board or insurance inspection bureau having or
claiming jurisdiction; and (3) all insurance companies insuring all or any part
of the Premises or the Improvements located thereon, or both. except as provided
below and subject only to the provisions of Paragraph 9.2, TENANT shall promptly
and diligently repair, restore and replace as required to maintain the Premises
and the improvements In the condition set forth above, or to remedy all damage
to or destruction of all or any part of the Improvements.
(A) The completed work of maintenance, compliance, repair, restoration
or replacement shall be equal in value, quality, and use to the condition of the
Improvements before the event giving rise to the work, unless otherwise provided
for in this Lease. LANDLORD shall not be required to furnish any services or
facilities or to make any repairs or alterations of any kind in or upon or on
the Premises. LANDLORD'S election to perform any obligations of the TENANT under
this provision on TENANTS failure or refusal to do so shall not constitute a
waiver of any right or remedy for TENANT'S default and TENANT shall promptly
reimburse, defend and indemnify LANDLORD against all liability, loss, cost and
expense arising from it.
7.1.10 Insurance - TENANT shall maintain in full force and effect, at
its own cost, full replacement cost coverage insurance covering the demised
premises (and all improvements for the full insurable value) against loss or
damage by fire or casualty, with the usual extended coverage endorsements,
together with endorsements protecting against loss or damage resulting from
malicious mischief, sprinkler leakage and vandalism all in amounts not less than
replacement value above foundation walls. All insurance policies shall name the
LANDLORD as its interest may appear.
7.2 Negative Covenants - TENANT covenants at all times during the lease
term and such further times as TENANT occupies the Premises or any part thereof.
7.2.1 Overloading. Nuisance. etc, - Not to injure, overload, deface or
otherwise harm the Premises; not commit any nuisance; nor make any use of the
premises which is improper, offensive or contrary to any law or ordinance.
7.2.2 Installation. Alteration or Additions - Not to make any
installations, alterations or additions (except only the installation of
fixtures necessary for the conduct of its business), without on each occasion
obtaining prior written consent of LANDLORD, LANDLORD'S consent not to be
unreasonably withheld. No consent shall be required for nonstructural
alterations not exceeding $100,000.00 in cost.
ARTICLE VIII
LANDLORD'S Additional Covenants
8.1 Warranty on Use - LANDLORD warrants and represents that at the
commencement of construction it will be the Owner in Fee of the Land shown on
Exhibit "A" and described in Exhibit "B";. LANDLORD has no knowledge of and
TENANT requires that there be no zoning regulations, restrictive
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agreements, leases or other instruments which prevent the use of the Premises
for the purpose intended herein, nor otherwise conflict with any of the
provisions of this Lease. TENANTS sole and conclusive remedy for a beach of this
warranty shall be its right, at its election, to terminate the lease prior to
commencement of construction.
8.2 Competing Use,- During the term of this Lease, provided TENANT is
not in default, LANDLORD agrees not to lease or sell any portion of the project,
of which the leased premises is a part, to a commercial bank, savings bank,
savings and loan or credit union.
ARTICLE IX
Casualty or Taking
9.1 TENANT to Repair or Rebuild In the Event of Casualty - In case the
Premises or any part thereof shall be damaged or destroyed by fire or other
casualty, taken (which term or reference to eminent domain action generally, for
the purposes of this article shall include as sale in lieu of the exercise of
the right of eminent domain ) or ordered to be demolished by the action of any
public authority in consequence of a fire or other casualty, this Lease shall,
unless it is terminated as provided below in Section 9.2 or 9.3, remain in full
force and effect, and TENANT shall, at its expense, proceed with all reasonable
dispatch, to repair or rebuild the improvements, or what may remain thereof, so
as to restore them as nearly as practicable to the condition they were in
immediately prior to such damage or destruction.
9.2 Right to Terminate in Event of Casualty - In case of any damage or
destruction occurring in the last five years of the original term of this Lease
or during any extension of the term, to the extent of 50% or more of the
insurable value of the building, TENANT may at its option, to be evidenced by
notice in writing given to the LANDLORD within seven (7) days after the
occurrence of such damage or destruction, in lieu of repairing or replacing the
Building, elect to terminate this Lease as of the date of said damage or
destruction. In the event the TENANT shall so terminate the lease all insurance
proceeds allocated to the premises shall become the property of the LANDLORD.
9.3 Eminent Domain - If the whole, or any part of the demised premises
shall be taken or condemned by any competent authority for any public use or
purpose during the term of this lease, TENANT reserves unto itself the right to
prosecute its claim for an award based upon its leasehold interest for such
taking, without impairing any rights of LANDLORD for the taking of or injury to
the reversion.
In the event that a part of the demised premises shall be taken
or condemned that (a) the part so taken includes the building on the demised
premises or any part thereof or (b) the part so taken shall remove from the
premises 20% or more of the front depth of the parking areas thereof or (c) the
part so taken shall consist of 25% or more of the total parking area or (d) such
partial taking shall result in cutting off direct access from the demised
premises to any adjacent public street or highway, then and in any such event,
the TENANT may at any time either prior to or within a period of sixty (60) days
after the
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date when possession of the premises shall be required by the condemning
authority elect to terminate this Lease or, if any option to purchase the
premises is conferred upon the TENANT by any other provision of this Lease, may
as an alternative to such termination of this Lease elect to purchase the
demised premises in accordance with such purchase option, except that there
shall be deducted from the purchase price to be paid for the premises all of the
LANDLORD'S award from the condemnation proceeding. In the event that TENANT
shall fall to exercise any such option to terminate this Lease or to purchase
the premises or in the event that a part of the demised premises shall be taken
or condemned under circumstances under which the TENANT will have no such
option, then and in either such event the LANDLORD shall, with reasonable
promptness, make necessary repairs to and alterations of the improvements on the
demised premises for the purpose of restoring the same to an economic
architectural unit, susceptible to the same use as that which was in effect
immediately prior to such taking, to the extent that may have been necessary by
such condemnation, subject to a pro-rata reduction in rental. Any dispute
resulting from Section 9.3 of this Lease shall be submitted to the American
Arbitration Society, whose decision shall be binding on the parties hereto.
ARTICLE X
Defaults
10.1 Events of Default- If (a) TENANT shall default in the performance
of any of its obligations to pay rent or additional rents hereunder and if such
default shall continue for (10) days after written notice from LANDLORD
designating such default or if within thirty (30) days after written notice from
LANDLORD to TENANT specifying any other non-monetary default or defaults, TENANT
has not commenced diligently to correct the default or defaults so specified or
has not thereafter diligently pursued such correction to completion, or (b) any
assignment shall be made by TENANT for the benefit of creditors, or (c) if
TENANT'S leasehold interest shall be taken on execution, attached, levied upon
or (d) if a petition is filed by TENANT for adjudication as a bankrupt, or for
reorganization or an arrangement under any provision of the Bankruptcy Act as
then in force and effect, or (e) if an involuntary petition under any of the
provisions of said Bankruptcy Act is filed against TENANT and such involuntary
petition is not dismissed within sixty (60) days thereafter, then, and in any of
such cases, LANDLORD lawfully may exercise all defaults rights available to it
under law, including repossession of the leased property, termination of the
lease, acceleration of all future rental payments, and such other rights as may
be lawfully permitted.
10.2 Remedies - In the event that this Lease is terminated under any of
the provisions contained in Section 10. 1 or shall be otherwise terminated for
breach of any obligation of TENANT, TENANT covenants to pay punctually to
LANDLORD all the sums and perform all the obligations which TENANT covenants in
this Lease to pay and to perform in the same manner and to the same extent and
at the same time as if this Lease had not been terminated so long as such
obligations shall have not been
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rendered unnecessary or impossible of performance by the subsequent re-letting
or other occupancy permitted by LANDLORD. In calculating the amounts to be paid
by TENANT under the foregoing covenant, TENANT shall be credited with the net
proceeds of any rent or the value of other considerations obtained by LANDLORD
by re-letting the Premises, after deducting all LANDLORD'S expenses in
connection with such re-letting, including, without limitation, all repossession
costs, brokerage commissions, fees for legal services and expenses of preparing
the premises for such re-letting, it being agreed by TENANT that LANDLORD may
(i) re-let the Premises or any part or parts thereof, for a term or terms which
may at LANDLORD'S option be equal to or less than or exceed the period which
would otherwise have constituted the balance of the Lease term, and (ii) make
such alterations, repairs and decorations in the Premises as LANDLORD in its
sold judgment considers advisable or necessary to re-let the same.
Nothing contained in this Lease shall, however, limit or prejudice the
right of LANDLORD to prove for and obtain in proceedings for bankruptcy or
insolvency by reason of the termination of this Lease, an amount equal to the
maximum allowed by any statute or rule of law in effect at the time when, and
governing the proceedings in which, the damages are to be proved, whether or not
the amount be greater, equal to, or less than the amounts of the loss or damages
referred to above.
10.3 Remedies Cumulative - Any and all rights and remedies which
LANDLORD may have under this Lease, and at law and equity, shall be cumulative
and shall not be deemed inconsistent with each other, and any two or more of all
such rights and remedies may be exercised at the same time insofar as permitted
by law.
10.4 LANDLORD'S and TENANTS Right to Cure Defaults - LANDLORD may, but
shall not be obligated to, cure at any time, following ten (10) days prior
written notice to TENANT, except in cases of emergency when no notice shall be
required, any default by TENANT under this Lease; and whenever LANDLORD so
elects, all costs and expenses incurred by LANDLORD, including reasonable
attorney's fees, in curing a default shall be paid by TENANT to LANDLORD as
additional rent on demand. TENANT shall have a like right to cure any default of
LANDLORD, and TENANT may reimburse itself for the cost thereof out of succeeding
rental payments.
10.5 Effect of Waivers on Default - No consent or waiver, express or
implied, by either party to or of any breach of any covenants, conditions or
duty of the other shall be construed as a consent or waiver to or of any other
breach of the same of any other covenant, condition or duty.
ARTICLE XI
Miscellaneous Provisions
11.1 Assignment, Subletting, etc. - Consent shall not be required for
any assignment, transfer or subletting. Upon assignment in accordance with the
foregoing, the TENANT shall remain liable for the full and faithful performance
of the lease and all its terms and conditions.
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11.2 Notice from One Party to the Other - Any notice from LANDLORD to
TENANT or from TENANT to LANDLORD shall be deemed duly served if mailed by
registered or certified mail, return receipt requested, postage prepaid,
addressed, if to TENANT, at the original address of TENANT or such other address
as TENANT shall have last designated by notice in writing to LANDLORD, and if to
LANDLORD, at the original address of LANDLORD or such other address as LANDLORD
shall have last designated by notice in writing to TENANT.
11.3 Quiet Enjoyment- LANDLORD agrees that upon TENANTS paying the rent
and performing and observing the agreements, conditions and other provisions on
its part to be performed and observed, TENANT shall and may peaceably and
quietly have, hold and enjoy the Demised Premises during the Lease term without
any manner of hindrance or molestation from LANDLORD or anyone claiming under
LANDLORD, subject to the covenants and conditions of this Lease.
11.4 Recording TENANT agrees not to record this Lease, but each party
hereto agrees on request of the other, to execute a Notice or Short Form of this
Lease in recordable form in compliance with applicable statutes, and reasonably
satisfactory to LANDLORD'S and TENANTS attorneys. In no event shall such
document set forth the rental or other charges payable by TENANT under this
Lease; and any such document shall expressly state that it is executed pursuant
to the provisions contained in this Lease, and is not intended to vary the terms
and conditions of this Lease. In the event LANDLORD and/or TENANT believe that
the Lease has been lawfully terminated, abandoned or otherwise of no force and
effect and the other party will not voluntarily execute a Discharge of
Memorandum of Lease, the party seeking the Discharge of Memorandum of Lease may
move summarily before the Superior Court of New Jersey for a determination of
whether or not the Memorandum of Lease should be discharged. The other party
consents to the jurisdiction of the Superior Court of New Jersey and agrees to
proceed in a summary manner. It is expressly understood and agreed that in
addition to the relief provided herein, the parties will have such additional
cumulative remedies as are available to it at law or in equity for damages
suffered by reason of a wrongful refusal to execute and deliver a Discharge of
Memorandum of Lease.
11.5 Acts of God - In any case where either party hereto is required to
do any act, delays caused by or resulting from Acts of God, war, civil
commotion, fire or other casualty, labor difficulties, shortages of labor,
materials or equipment, government regulations, or other causes beyond such
party's reasonable control shall not be counted in determining the time during
which work shall be completed, whether such time be designated by a fixed date,
a fixed time or "a reasonable time".
11.6 Waiver of Subrogation - All insurance which is carried by either
party with respect to the Demised Premises, whether or not required, shall
include provisions which either designates the other party as one of the insured
or deny to the insurer acquisition by subrogation of rights of recovery against
the other party. Each party shall be entitled to have duplicates or certificates
of any policies containing such provisions,. Each party hereby waives all rights
of recovery against the other for loss or injury against which the waiving party
is protected by insurance containing said provisions.
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11.7 Rights of Mortgagee and Subordination
11.7.1 This Lease is subject and is hereby subordinated to all present
and future mortgages, deeds of trust, and other encumbrances affecting the
Premises or the property of which said Premises are a part; provided, however,
that an agreement or Instrument affecting such subordination shall be executed
by the mortgagee or other Lender, be recorded with such mortgage or other
security agreement, and a copy delivered to the TENANT and contain provisions,
to the effect that (1) so long as TENANT observes the terms and provision of the
Lease and notwithstanding the Lease may be foreclosed, TENANT will not be
effected or disturbed by the mortgagee in the exercise of any of its rights
under the mortgage or other security agreement, or the bond, note or debt
secured thereby; (ii) in the event the mortgagee comes into possession or
ownership of the Premises by foreclosing or otherwise, TENANT'S use, occupancy
and quiet enjoyment of the Premises shall not be disturbed by any such
proceedings; (iii) in the event the Premises are sold or otherwise disposed of
pursuant to any right or power contained in the mortgage or other security
agreement, or the bond or note secured thereby, or as a result of proceedings
thereon, the purchaser shall take title subject to this Agreement of Non
Disturbance, and all of the rights of TENANT hereunder, (iv) in the event the
buildings and improvements upon the Premises are damaged by fire and other
casualty, for which loss the proceeds payable under any insurance policy or
policies are payable to the mortgagee, such insurance funds, when paid, shall be
made available for the purpose of repair and restoration as provided in this
Lease; and (v) the agreement shall be binding upon the LANDLORD, mortgagee and
their respective heirs, executors, administrators, successors and assigns. The
TENANT agrees to execute, at no expense to the LANDLORD, any instrument which
may be deemed necessary or desirable by the LANDLORD to further effect the
subordination of this lease to any such mortgage, deed of trust or encumbrance.
11.7.2 No Accord and Satisfaction - No acceptance by LANDLORD of lesser
sum than the rent or any other charges then due shall be deemed to be other than
on account of the earliest installment of such rent or charge due, nor shall any
endorsement or statement on any check or nay letter accompanying any check or
payment as rent or other charge be deemed an accord and satisfaction, and
LANDLORD may accept such check or payment without prejudice to LANDLORD'S right
to recover and balance of such, installments or pursue any other remedy in this
Lease provided.
11.8 Applicable Law and Construction - This Lease shall be governed by
and construed in accordance with the laws of the state in which the premised is
located, and if any provisions of this Lease shall to any extent be invalid, the
remainder of this Lease shall not be affected thereby. There are no oral or
written agreements between LANDLORD and TENANT affecting this Lease. This Lease
maybe amended only by instruments in writing executed by LANDLORD and TENANT.
LANDLORD shall not be deemed in any way or for any purpose, to have become, by
the execution of this Lease or any action taken thereunder, a partner of TENANT
in it business or otherwise a joint venturer or member of any
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enterprises of TENANT. The titles of the several Articles and Sections contained
herein are for convenience only and shall not be considered in construing this
Lease. Unless repugnant to the context, the words'LANDLORD and TENANT'appearing
in this Lease shall be construed to mean those names above in their respective
heirs, executors, administrators, successors and assigns, and those claiming
through or under them respectively.
11.9 Security Deposit - TENANT agrees to pay to LANDLORD security
deposit for the Premises in accordance with and in the amount set forth in
Paragraph 1.1 "Data". TENANT shall make payment upon signing of this lease. Upon
expiration of this lease, provide TENANT is not in default, security deposit
will be returned to TENANT.
ARTICLE XII
Permits and Approvals
12.1 TENANTS Obligations - The obligations of TENANT hereunder are
contingent upon TENANT securing on or before March 31, 1997. All costs for
approvals shall be the responsibility of Tenant:
A. All State and Federal regulatory approvals for the construction and
operation of a branch bank.
B. All municipal and governmental approvals required for the
construction of TENANTS proposed building other than the issuance of a building
permit ("Permit and Approvals")
12.2 Approvals In the event TENANT has not obtained its Permits and
Approvals on or before March 31, 1997, and TENANT has not waived the
contingencies of Permits and Approvals, TENANT will be entitled to One (1)
extension of time of sixty (60) days until May 30, 1997 to obtain the Permits
and Approvals; provided full and complete applications for all necessary permits
and approvals are then pending, all notice requirements have been satisfied and
at least one hearing has been held on each of the permits and applications for
approvals.
12.3 Easements- TENANT shall have absolutely no right to grant any
easements with regard to the Premises other than such easements to public
entities or public service corporations for the purpose of serving only the
Premises, rights-of-way or easements on or over the Premises for poles or
conduits, or both, for telephone, electricity, water, sanitary or storm sewers
or both and for other utilities and municipal or special district services.
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ARTICLE XIII
Net Lease
13.1 Net Lease- It is the intention of LANDLORD and TENANT that the
rental herein specified shall be net to LANDLORD in each lease year, that all
costs, expenses, and obligations of every kind relating to the premises which
may arise during the term of this lease shall be paid by TENANT, and that
LANDLORD shall be indemnified by TENANT against any such costs, expenses, and
abligations.
ARTICLE XIV
14.1 Limitation of Landlord's Liability- TENANT shall look solely to
the estate and property of LANDLORD in the Premises, in all events subject to
the prior rights of any and all mortgagees, for the collection of any judgment,
claim or demand (or any other judicial process) requiring the payment or
expenditure of money by LANDLORD in the event of any uncurled default or breach
by LANDLORD with respect to any of the terms, covenants and conditions of this
Lease to be observed or performed by TENANT, and no other assets of LANDLORD or
any one or more of the principals of LANDLORD shall be subject to execution or
other process or procedure for the satisfaction of TENANTS remedies.
14.2 Right of First Refusal to Lease - If during the term of this
Lease or within one hundred eighty (180) days before its conclusion, LANDLORD
shall desire to accept a bona fide offer received by it to lease any part of the
Premises effective at the conclusion of this Lease and all options, LANDLORD
shall notify TENANT of such a desire in the manner provided in this Lease for
the giving of notice, and TENANT shall have the right of first refusal to lease
said Premises within ten (10) days upon the terms contained in the notice. This
provision shall only be effective after the termination, expiration or
conclusion of the original lease term and all options, and shall not affect the
Premises during the term of this Lease.
14.3 Right of First Refusal to Purchase - TENANT shall have the right
of first refusal to purchase the Demised Premises as hereinafter set forth. If
at any time during the term as extended, LANDLORD shall receive a bona fide
offer from a third person for the purchase of the Demised Premises, which offer
LANDLORD shall promptly deliver to TENANT a copy of such offer, and TENANT may,
within fifteen (15) days thereafter, elect to purchase the Demised Premises on
the same terms as those set forth I such offer, excepting that TENANT shall be
credited against the purchase price to be paid by TENANT, with a sum equal to
the amount of any brokerage commission, if any, which LANDLORD shall save by a
sale to TENANT. If LANDLORD shall receive an offer for the purchase of the
Demised Premises, which is not consummated by delivering a deed to the offerer,
the TENANTS right of first refusal to purchase shall remain applicable to
subsequent offers. If LANDLORD shall sell the Demised Premises, after a failure
of TENANT to exercise its right of first refusal, such shall be subject to the
Lease and shall continue to be applicable to subsequent sales of the Demised
Premises. Not withstanding the foregoing, TENANTS right of first refusal shall
not apply or extend to any sales or transfers between LANDLORD and any
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affiliates in which the principals of the LANDLORD are the majority shareholders
to any family trusts or to the heirs of the principals of LANDLORD. LANDLORD
shall be entitled to net the same amount under any right of first refusal
exercise.
ARTICLE XV
15.1 Holdover- In the event that TENANT continues in use and occupancy
and holds over in possession of the Premises after the expiration of the Initial
Term or, properly exercised, the Option Term, in addition to all other damages
to which LANDLORD may be entitled, the monthly rent during the period of
holdover shall be in a sum equal to double the amount of the monthly installment
of base annual fixed rent during the last month of the term which has just
expired. Said holdover rent shall be in addition to all additional rents for
which the TENANT shall be responsible during the holdover period.
ARTICLE XVI
Environmental Indemnification
16.1 A. LANDLORD represents, warrants and covenants as follows:
(i) LANDLORD represents and warrants that any handling,
transpiration, storage, treatment or usage of hazardous or toxic substances (as
defined by any applicant government authority hereinafter being referred to as
"Hazardous Materials") that has occurred or will occur on the Demised Premises
shall be in compliance with all applicable federal, state and local laws,
regulations and ordinances. TENANT represents and warrants that any handling,
transportation, storage, treatment or usage of Hazardous Materials by TENANT at
the Demised Premises shall be in compliance with all applicable federal, state
and local laws. LANDLORD further represents and warrants that no leak, spill,
discharge, emission or disposal of Hazardous Materials has occurred or will
occur on the Demised Premises and that the soil, groundwater, soil vapor on or
under the Demised Premises is or will be free of Hazardous Materials as of the
date hereof,
(ii) LANDLORD has disclosed or will disclose to TENANT, and
provide to tenant, all accounts and complete copies of all information, data,
documents, reports, notices, and other materials whether in draft form or final
form, exclusive of duplication, regarding Substances, at, on, in or under the
Premises or any property adjacent to or in the vicinity of the Premises which
may impact the Premises (the "Reports"), including all Reports in LANDLORD'S al
or constructive possession or control, whether prepared for LANDLORD or for
others, and all other Reports of which LANDLORD has or should have knowledge
after due inquiry;
(iii) Except as set forth in writing in the Reports which
have been disclosed to TENANT, if any, LANDLORD has no actual knowledge of any
Release or threatened Release of
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Substances, at, on, in or under the Premises, or any property adjacent to or in
the vicinity of the Premises which may impact the Premises. LANDLORD shall
promptly notify TENANT in writing if LANDLORD obtains any such knowledge after
the date hereof and shall promptly deliver to TENANT copies of all Reports which
LANDLORD obtains, or of which LANDLORD obtains knowledge, after the date hereof,
(iv) Except as previously disclosed to TENANT in writing by
LANDLORD, LANDLORD has no actual knowledge that there are not now, and have
never been, any underground storage tanks (including but not limited to
underground storage tanks for the storage or petroleum or petroleum products)
(A) at the Premises or, (B) to the best of LANDLORD'S knowledge, information and
belief after due inquiry, on any property adjacent to the Premises; and
(v) LANDLORD has no actual knowledge that there are wells or
septic tanks on the Premises which serve or have at any time served the
Premises; no wells or septic tanks on the Premises which serve or have at any
time served any other property; and no wells or septic tanks on any other
property which serve or have at any time served the Premises except as provided
above.
(B) LANDLORD Indemnification:
The representations, warranties and covenants of the Section are
continuing. If at any time of the representations, warranties or covenants made
by LANDLORD in this Section shall become untrue or are breached to the knowledge
of LANDLORD, then LANDLORD shall immediately notify TENANT of the facts that
render such representations, warranties or covenants untrue or breached.
LANDLORD shall immediately notify TENANT of any audit, inquiry, test,
investigation, claim or enforcement proceeding relating to the Premises or by or
against LANDLORD involving any Release or threatened Release. Within five (5)
business days after receipt by LANDLORD, LANDLORD shall provide TENANT the
results of any audit, inquiry or investigation regarding Substances at, on, in
or under the Premises or any property adjacent to or in the vicinity of the
Premises that may impact the Premises. LANDLORD shall indemnify, defend, and
hold harmless TENANT (and its employees, agents, officers, directors,
successors, assigns) from all claims, actions, suits, proceedings, judgments,
losses, costs, damages, penalties, fines, liabilities, it being understood that
LANDLORD shall defend any such claims set forth at LANDLORD'S sole cost and
direction (including, without limitation, reasonable attorney's fees and
consultants' fees, investigation, engineering, and laboratory fees, court costs
and litigation expenses, including experts' fees) ("Claims") directly or
indirectly resulting from, arising out of, or based upon a Release or threatened
Release of Substances at on, in or under Premises (including, without
limitation, Releases originating or emanating from any property adjacent to or
in the vicinity of the Premises that may impact the Premises or from
groundwater) or the violation of any Environmental Laws, or under or on account
of the Environmental Laws. This indemnity shall include without limitation, (A)
any damage, liability, fine penalty or punitive damage arising from or out of
any claim, action, suit or proceeding for personal injury (including, without
limitation, sickness, disease, or death or fear of same), tangible property
damage, nuisance, pollution, contamination, leak, spill, release, or other
effect on the environment, and (B) at LANDLORD'S direction,
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the cost of any required, necessary or appropriate response, investigation,
repair, clean-up, treatment, removal, redemption, or detoxification or the
Promises or other properties affected by such Release or threatened Release, and
the preparation and implementation of any other required, necessary or
appropriate actions in connection with the Premises or other properties affected
by such Release or threatened Release. Notwithstanding anything to the contrary
contained herein, LANDLORD shall not be liable to TENANT for indemnification
with regard to any claims relating to a Release or threatened Release at the
Premises that is caused by TENANT. Upon the occurrence of a Release of
threatened Release (other than Releases caused by TENANT), whether or not the
same, originates or emanates form the Premises or any adjacent property for form
groundwater, LANDLORD shall at LANDLORD'S sole cost and expense promptly, and in
any event within thirty (30) days after the occurrence of the Release, commence
and diligently pursue any and all lawful actions as are necessary or advisable
(including any necessary of advisable investigation, repair, clean-up,
treatment, or appropriate response, redemption, or detoxification) in order to
abate the Release or threatened Release, remove the Substances, and minimize,
mitigate and remedy nay resulting environmental harm, regardless or whether such
abatement, removal, minimization, mitigation or redemption is required by the
Environmental Laws and regardless or whether such actions are required by any
governmental authority. If LANDLORD shall fail to comply with any of the
requirements of the preceding sentence, or any of the requirements of the
Environmental Laws, within any applicable time period, TENANT may, in addition
to TENANTS other rights under this Lease, terminate this Lease by written notice
to LANDLORD.
C. Phase I Environmental Survey:
A condition precedent to this Lease shall be TENANT'S
satisfactory review of the report (the "Phase I Environmental Survey") on the
environmental condition of the land on which the Demised Premises is located.
LANDLORD agrees to provide TENANT with a Phase I Environmental Survey of the
land on which the Demised Premises is located. In the event that TENANT shall
discover in its review of the Phase I Environmental Survey that any Hazardous
Materials may be present in the soil, groundwater or soil vapor on or under the
Demised Premises, TENANT may, upon written notice to LANDLORD within ten (10)
days after the date TENANT received the Phase I Environmental Survey, terminate
this Lease.
D. Rent Abatement
If during the term of this Lease any governmental authority
requires the redemption of hazardous Materials from the Demised Premises or the
Shopping Center and such redemption substantially affects TENANTS business
operations, then TENANT shall be entitled to an equitable abatement of rent form
the date such interference or safety hazard occurs to the date such interference
and safety hazard are not longer present.
16.2 TENANT agrees to indemnify LANDLORD and its officers, employees
and agents harmless from any claims, judgments, damages, fines, penalties,
costs, liabilities (including sums paid in settlement of claims) or loss
including attomey's fees, consultants' fees and experts fees which arise during
or after
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the Primary Term of any Renewal Term in connection with the presence of toxic or
Hazardous Substances In the soil, groundwater, or soil vapor on or under the
Demised Premises to the extent which presence is caused by the acts of TENANT,
its officers, employees and agents.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
this day and year first written above
LANDLORD:
PLYMOUTH EQUITIES, L.L.C.
BY: /s/ John P. Silvestri
Attest: Plymouth Equities, L.L.C.
John P. Silvestri,
Managing Partner
TENANT:
Commerce Bank/Pennsylvania N.A.
BY: /s/ Thomas H. Arasz
Attest: Thomas H. Arasz
Assistant Secretary Senior Vice President/
Real Estate Officer
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[GRAPHIC OMITTED - MAP]
Commerce Bancorp, Inc. and Subsidiaries
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- -----------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------
Income Statement Data:
<S> <C> <C> <C> <C> <C>
Net interest income $147,140 $125,413 $109,899 $102,997 $81,432
Provision for loan losses 4,668 4,857 2,774 5,224 8,616
Noninterest income 57,374 32,776 23,623 19,591 20,677
Noninterest expense 137,929 109,031 89,316 82,734 68,785
Income before income taxes 61,917 44,301 41,432 34,630 24,708
Net income 40,325 28,250 26,652 22,145 15,824
Balance Sheet Data:
Total assets $3,938,967 $3,232,152 $2,738,587 $2,571,704 $2,291,545
Loans (net) 1,390,028 1,248,880 1,032,801 916,437 811,580
Securities available for sale 1,315,120 767,487 571,553 126,437 191,881
Securities held to maturity 874,032 837,512 772,999 1,257,551 1,001,040
Trading securities 7,911 15,327 8,843
Federal funds sold 26,975 42,370 18,300 23,675
Deposits 3,369,404 2,919,670 2,529,186 2,099,247 1,989,598
Long-term debt 25,308 26,333 27,359 28,385 28,954
Trust preferred securities 57,500
Stockholders' equity 250,760 203,964 179,695 126,582 112,810
Per Share Data:
Net income-basic $2.40 $1.91 $1.82 $1.75 $1.27
Net income-diluted 2.25 1.70 1.68 1.57 1.17
Cash dividends 0.76 0.63 0.55 0.50 0.39
Book value 14.53 12.36 12.39 10.03 8.69
Average shares outstanding:
Basic 16,554 14,374 14,010 11,714 10,812
Diluted 17,918 16,562 15,760 13,994 13,364
Selected Ratios:
Performance
Return on average assets 1.13% 0.96% 1.01% 0.89% 0.79%
Return on average equity 18.18 15.43 16.57 18.54 15.55
Net interest margin 4.55 4.72 4.58 4.51 4.50
Liquidity and Capital
Average loans to average deposits 42.42% 42.84% 41.92% 43.24% 44.23%
Dividend payout 31.75 32.85 30.48 28.81 30.48
Stockholders' equity to total assets 6.37 6.31 6.56 4.92 4.92
Risk-based capital:
Tier 1 15.66 12.57 12.64 10.04 9.13
Total 17.73 15.09 15.49 13.08 12.20
Leverage capital 7.81 6.46 6.43 4.93 4.59
Asset Quality
Non-performing assets to total
year-end assets 0.44% 0.60% 0.81% 1.05% 1.48%
Net charge-offs to average loans
outstanding 0.10 0.25 0.14 0.35 1.19
Non-performing loans to total
year-end loans 0.82 0.89 0.97 1.64 1.44
Allowance for loan losses to total
year-end loans 1.51 1.42 1.53 1.58 1.52
Allowance for loan losses to non-
performing loans 183.46 159.88 156.72 96.26 105.53
</TABLE>
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Company analyzes the major elements of the Company's
consolidated balance sheets and statements of income. This section should be
read in conjunction with the Company's consolidated financial statements and
accompanying notes. The former Independence Bancorp Inc. (Independence), Bergen
County, New Jersey, was merged into the Company on January 21, 1997 and its
wholly-owned subsidiary bank, Independence Bank of New Jersey, was thereafter
renamed Commerce Bank/North. The transaction was accounted for as a pooling of
interests. The Company's originally reported results of operations have been
restated herein to include Commerce North's results of operations for all
periods presented.
1997 Overview
In 1997, the Company posted increases in net income, deposits, loans, and
assets. The increase in net income was due to increases in net interest income
and noninterest income, which offset increased noninterest expenses. Loan growth
totaled 11% for 1997, and deposit growth totaled 15%. At December 31, 1997, the
Company had total assets of $3.9 billion, total loans of $1.4 billion, total
investment securities of $2.2 billion, and total deposits of $3.4 billion.
Average Balances and Net Interest Income
The table on page 19 sets forth balance sheet items on a daily average basis for
the years ended December 31, 1997, 1996, and 1995 and presents the daily average
interest rates earned on assets and the daily average interest rates paid on
liabilities for such periods. During 1997, average interest earning assets
totaled $3.27 billion, an increase of $583.8 million, or 22% over 1996. This
increase resulted primarily from the increase in the average balance of loans,
which rose $187.3 million, and the average balance of investment securities,
which rose $425.4 million during 1997. The growth in the average balance of
interest earning assets was funded primarily by an increase in the average
balance of deposits (including noninterest-bearing demand deposits) of $468.3
million. The growth in interest earning assets was also partly funded by an
increase in other borrowed money, which rose $66.5 million to $91.3 million
during 1997, and an increase in long-term debt, which rose $32.5 million to
$55.5 million, reflecting the issuance of $57.5 million of Trust Capital
Securities in June, 1997.
Net Interest Income and Net Interest Margin
Net interest margin on a tax-equivalent basis was 4.55% for 1997, a decrease of
17 basis points from 1996.
Net interest income on a tax-equivalent basis (which adjusts for the tax-exempt
status of income earned on certain loans and investments to express such income
as if it were taxable) for 1997 was $148.5 million, an increase of $22.0
million, or 17%, over 1996. Interest income on a tax-equivalent basis increased
to $245.5 million from $203.8 million, or 20%. This increase was primarily
related to volume increases in the loan and investment portfolios. Interest
expense for 1997 rose $19.7 million to $97.0 million, from $77.3 million in
1996. This increase was primarily related to increases in the Company's
interest-bearing liabilities.
The tax-equivalent yield on interest earning assets during 1997 was 7.52%, a
decrease of eight basis points from 7.60% in 1996. The decrease resulted
primarily from lower yields in the loan portfolio due to the level and timing of
changes in general market interest rates during 1997 as compared to 1996.
The cost of interest-bearing liabilities increased 15 basis points in 1997 to
3.63% from 3.48% in 1996. The increase resulted primarily from increased levels
of other borrowed money and long-term debt, which bear interest at higher rates
than the Company's deposits. The cost of total funding sources increased nine
basis points in 1997 to 2.97% from 2.88%.
17
<PAGE>
The following table presents the major factors that contributed to the changes
in net interest income for the years ended December 31, 1997 and 1996 as
compared to the respective previous periods.
<TABLE>
<CAPTION>
1997 vs. 1996 1996 vs. 1995
Increase (Decrease) Increase (Decrease)
Due to Changes in (1) Due to Changes in (1)
Volume Rate Total Volume Rate Total
(dollars in thousands)
Interest on
investments:
<S> <C> <C> <C> <C> <C> <C>
Taxable $26,681 $610 $27,291 $4,663 $(806) $3,857
Tax-exempt 983 (416) 567 1,556 (7) 1,549
Trading 49 (91) (42) 132 49 181
Federal
funds sold (1,577) 197 (1,380) (121) (475) (596)
Interest on
loans:
Mortgage &
construction 6,337 (713) 5,624 6,489 (1,678) 4,811
Commercial 3,233 53 3,286 4,025 (856) 3,169
Consumer 6,704 (616) 6,088 5,559 (1,049) 4,510
Tax-exempt 297 (2) 295 (301) (17) (318)
- -----------------------------------------------------------------------------------------------------
Total interest
income 42,707 (978) 41,729 22,002 (4,839) 17,163
- -----------------------------------------------------------------------------------------------------
Interest expense:
Regular
savings 2,260 1,252 3,512 928 (630) 298
N.O.W
accounts (5,843) 535 (5,308) (1,257) (1,028) (2,285)
Money
market plus 10,796 (506) 10,290 5,173 (1,055) 4,118
Time
deposits 1,404 192 1,596 3,643 454 4,097
Public funds 3,388 (415) 2,973 452 (534) (82)
Other borrowed
money 3,735 55 3,790 (4,122) (921) (5,043)
Long-term
debt 2,860 2 2,862
- -----------------------------------------------------------------------------------------------------
Total interest
expense 18,600 1,115 19,715 4,817 (3,714) 1,103
- -----------------------------------------------------------------------------------------------------
Net increase $24,107 $(2,093) $22,014 $17,185 $(1,125) $16,060
- -----------------------------------------------------------------------------------------------------
<FN>
(1) Changes due to both volume and rate have been allocated to volume or rate
changes in proportion to the absolute dollar amounts of the change in each.
</FN>
</TABLE>
Noninterest Income
For 1997, noninterest income totaled $57.4 million, an increase of $24.6 million
or 75% from 1996. The increase was due primarily to increased other operating
income, which rose $18.7 million from 1996, including an increase of $15.3
million in revenues (to $16.5 million in 1997) from Commerce National Insurance
Services, Inc. (Commerce Insurance), the insurance brokerage subsidiary formed
in the fourth quarter of 1996. In addition, deposit charges and service fees
increased $5.3 million over 1996 due to higher transaction volumes, and net
investment securities gains were $610 thousand higher in 1997 than the prior
year.
Noninterest Expenses
Noninterest expenses totaled $137.9 million for 1997, an increase of $28.9
million, or 27% over 1996. Contributing to this increase was the addition of
nine new branches during 1997, and the formation of Commerce Insurance. With the
addition of these new offices and the insurance business, staff, facilities,
marketing, and related expenses rose accordingly. Audit and regulatory fees and
assessments were $1.6 million lower in 1997 than the prior year, which resulted
primarily from 1996 reflecting the one-time special assessment to recapitalize
the Savings Association Insurance Fund (SAIF) of approximately $1.3 million.
Other noninterest expenses rose $3.5 million to $17.8 million in 1997. This
increase resulted primarily from higher bank-card related service charges,
increased legal expenses, and increased provisions for non-credit-related
losses.
A key industry productivity measure is the operating efficiency ratio. This
ratio expresses the relationship of noninterest expenses (excluding other real
estate expenses and, in 1996, the SAIF assessment) to net interest income plus
noninterest income (excluding non-recurring gains). Over the last three years,
this ratio equaled 67.31%, 66.95% and 64.81% in 1997, 1996 and 1995,
respectively. The Company's efficiency ratio remains above its peer group
primarily due to its aggressive growth expansion activities and investments in
technology.
18
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries Average Balances and Net Interest Income
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
(dollars in thousands) Average Average Average Average Average Average
Earning Assets Balance Interest Rate Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities
Taxable $1,831,692 $120,792 6.59% $1,427,098 $ 93,501 6.55% $1,355,932 $ 89,644 6.61%
Tax-exempt 50,940 2,532 4.97 31,163 1,965 6.31 6,494 416 6.41
Trading 6,766 321 4.74 5,740 363 6.32 3,649 182 4.99
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment securities 1,889,398 123,645 6.54 1,464,001 95,829 6.55 1,366,075 90,242 6.61
Federal funds sold 27,206 1,487 5.47 56,050 2,867 5.12 58,420 3,463 5.93
Loans
Mortgage and construction 694,405 62,653 9.02 624,168 57,029 9.14 553,144 52,218 9.44
Commercial 248,958 23,432 9.41 214,604 20,146 9.39 171,732 16,977 9.89
Consumer 395,769 33,271 8.41 316,017 27,183 8.60 251,385 22,673 9.02
Tax-exempt 10,193 1,035 10.15 7,269 740 10.18 10,230 1,058 10.34
- -----------------------------------------------------------------------------------------------------------------------------------
Total loans 1,349,325 120,391 8.92 1,162,058 105,098 9.04 986,491 92,92 9.42
- -----------------------------------------------------------------------------------------------------------------------------------
Total earning assets $3,265,929 $245,523 7.52% $2,682,109 $203,794 7.60% $2,410,986 $186,631 7.74%
- -----------------------------------------------------------------------------------------------------------------------------------
Sources of Funds
Interest-bearing liabilities
Regular savings $670,074 $ 16,419 2.45% $577,824 $ 12,907 2.23% $ 536,289 $ 12,609 2.35%
N.O.W. accounts 112,421 2,569 2.29 368,120 7,877 2.14 426,846 10,162 2.38
Money market plus 880,357 22,255 2.53 453,284 11,965 2.64 257,299 7,847 3.05
Time deposits 590,866 30,587 5.18 563,752 28,991 5.14 492,920 24,894 5.05
Public funds 273,445 15,194 5.56 212,468 12,221 5.75 204,61 12,303 6.01
- -----------------------------------------------------------------------------------------------------------------------------------
Total deposits 2,527,163 87,024 3.44 2,175,448 73,961 3.40 1,917,971 67,815 3.54
Other borrowed money 91,308 5,126 5.61 24,782 1,336 5.39 101,240 6,379 6.30
Long-term debt 55,452 4,887 8.81 23,000 2,025 8.80 23,000 2,025 8.80
- -----------------------------------------------------------------------------------------------------------------------------------
Total deposits and interest-
bearing liabilities 2,673,923 97,037 3.63 2,223,230 77,322 3.48 2,042,211 76,219 3.73
Noninterest-bearing
funds (net) 592,006 458,879 368,775
- -----------------------------------------------------------------------------------------------------------------------------------
Total sources to fund
earning assets $3,265,929 97,037 2.97 $2,682,109 77,322 2.88 $2,410,986 76,219 3.16
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income and
margin tax-equivalent basis 148,486 4.55 126,472 4.72 110,412 4.58
Tax-exempt adjustment 1,345 1,059 513
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income and margin $147,141 4.51% $125,413 4.68% $109,899 4.56%
- -----------------------------------------------------------------------------------------------------------------------------------
Other Balances
Cash and due from banks $ 154,375 $147,768 $130,693
Other assets 168,818 141,848 122,913
Total assets 3,568,566 2,954,851 2,648,625
Demand deposits
(noninterest-bearing) 653,626 537,079 435,311
Other liabilities 19,153 11,488 10,302
Stockholders' equity 221,864 183,055 160,801
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes--Weighted average yields on tax-exempt obligations have been computed on a
tax-equivalent basis assuming a federal tax rate of 35%.
--Non-accrual loans have been included in the average loan balance.
--Investment securities includes investments available for sale.
--Mortgage and construction loans include mortgage loans held for sale.
19
<PAGE>
Income Taxes
The provision for federal and state income taxes for 1997 was $21.6 million
compared to $16.1 million in 1996 and $14.8 million in 1995.
The increase in 1997 total tax expense was the result of an increase in income
before income taxes. The effective tax rate was 34.9%, 36.2% and 35.7% in 1997,
1996, and 1995, respectively.
Net Income
Net income for 1997 was $40.3 million, an increase of $12.0 million, or 43% over
the $28.3 million recorded for 1996. The increase in net income was due to
increases in net interest income and noninterest income, which offset increased
noninterest expenses.
Diluted net income per share of common stock for 1997 was $2.25, or 32% above
the $1.70 per common share for 1996.
Return on Average Equity and Average Assets
Two industry measures of the performance by a banking institution are its return
on average assets and return on average equity. Return on average assets ("ROA")
measures net income in relation to total average assets and indicates a
company's ability to employ its resources profitably. For 1997, the Company's
ROA was 1.13%, compared to .96% in 1996. Return on average equity ("ROE") is
determined by dividing annual net income by average stockholders' equity and
indicates how effectively a company can generate net income on the capital
invested by its stockholders. For 1997, the Company's ROE was 18.18% compared to
15.43% for 1996.
Loan Portfolio
The following table summarizes the loan portfolio of the Company by type of loan
as of December 31, for each of the years 1993 through 1997.
<TABLE>
<CAPTION>
December 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
(dollars in thousands)
Commercial real estate:
Owner-occupied $221,788 $167,702 $149,258 $151,420 $157,452
Other 287,510 288,733 250,782 215,063 171,282
Construction 57,182 52,372 52,593 53,792 49,811
- ------------------------------------------------------------------------------------
566,480 508,807 452,633 420,275 378,545
Commercial:
Term 152,115 153,793 126,120 106,536 117,649
Line of credit 101,134 91,418 68,372 54,379 41,329
Demand 442 529 407 766 1,118
- ------------------------------------------------------------------------------------
253,691 245,740 194,899 161,681 160,096
Consumer:
Mortgages
(1-4 family
residential) 167,979 153,615 133,893 111,689 92,049
Installment 63,448 54,548 44,781 32,447 28,012
Home equity 347,903 293,591 212,845 195,362 155,206
Credit lines 11,788 10,554 9,764 9,649 10,187
- ------------------------------------------------------------------------------------
591,118 512,308 401,283 349,147 285,454
- ------------------------------------------------------------------------------------
Total loans $1,411,289 $1,266,855 $1,048,815 $931,103 $824,095
- ------------------------------------------------------------------------------------
</TABLE>
The Company manages risk associated with its loan portfolio through
diversification, underwriting policies and procedures which are reviewed and
updated on at least an annual basis, and ongoing loan monitoring efforts. The
commercial real estate portfolio includes owner-occupied (owner occupies greater
than 50% of the property), other commercial real estate, and construction loans.
Owner-occupied and other commercial real estate loans generally have five year
call provisions and bear the personal guarantees of the principals involved.
Construction loans are primarily used for single family residential properties.
Financing is provided against firm agreements of sale, with speculative
construction limited to one sample per project. The commercial loan portfolio is
comprised primarily of amortizing loans to small businesses in the New
Jersey/Southeastern Pennsylvania market area. These loans are generally secured
by business assets, personal guarantees, and/or personal assets of the borrower.
The consumer loan portfolio is comprised primarily of loans secured by first and
second mortgage liens on residential real estate. Such loans comprised
approximately 87% of consumer loans at December 31, 1997.
20
<PAGE>
The maturity ranges of the loan portfolio and the amount of loans with
predetermined interest rates and floating rates in each maturity range, as of
December 31, 1997, are summarized in the following table.
December 31, 1997
Due in One Due in One to Due in Over
Year or Less Five Years Five Years Total
(dollars in thousands)
Real estate:
Commercial $93,270 $359,443 $56,585 $509,298
Construction 44,607 12,575 57,182
- --------------------------------------------------------------------------------
137,877 372,018 56,585 566,480
Commercial:
Term 55,021 87,244 9,850 152,115
Line of credit 99,034 2,100 101,134
Demand 412 30 442
- --------------------------------------------------------------------------------
154,467 89,374 9,850 253,691
Consumer:
Mortgages
(1-4 family
residential) 11,088 31,886 125,005 167,979
Installment 23,924 38,765 759 63,448
Home equity 37,178 132,948 177,777 347,903
Credit lines 4,053 7,735 11,788
- --------------------------------------------------------------------------------
76,243 211,334 303,541 591,118
- --------------------------------------------------------------------------------
Total loans $368,587 $672,726 $369,976 $1,411,289
- --------------------------------------------------------------------------------
Interest rates:
Predetermined $132,447 $449,755 $237,380 $819,582
Floating 236,140 222,971 132,596 591,707
- --------------------------------------------------------------------------------
Total loans $368,587 $672,726 $369,976 $1,411,289
- --------------------------------------------------------------------------------
During 1997, loans increased $144.4 million, or 11% from $1.3 billion to $1.4
billion. At December 31, 1997, loans represented 42% of total deposits and 36%
of total assets. Growth in the loan portfolio was reflected primarily in
commercial real estate and consumer loans. The Company has traditionally been an
active provider of commercial real estate loans to creditworthy local borrowers,
with such loans secured by properties within the Company's primary trade area.
At December 31, 1997, $221.8 million, or 44%, of commercial real estate loans
(other than construction) were secured by owner-occupied properties. Growth in
consumer loans was due primarily to loans secured by one to four family
residential properties, including home equity loans and home equity lines of
credit.
Commercial real estate construction loans increased $4.8 million to $57.2
million in 1997. At December 31, 1997, construction loans for 1-4 family
residential dwellings totaled $0.5 million and construction loans secured by
commercial properties amounted to $13.2 million. The balance of $43.5 million
was for land development, of which $40.6 million was residential. As of December
31, 1997, there were no concentrations of loans to any one type of industry
exceeding 10% of total loans nor were there any loans classified as highly
leveraged transactions.
Non-Performing Loans and Assets
Non-performing assets (non-performing loans and other real estate, excluding
loans past due 90 days or more and still accruing interest) at December 31, 1997
were $17.4 million or 0.44% of total assets, as compared to $19.5 million or
0.60% of total assets at December 31, 1996.
Total non-performing loans (non-accrual loans, and restructured loans excluding
loans past due 90 days or more and still accruing interest) at December 31, 1997
were $11.6 million as compared to $11.3 million a year ago. The Company
generally places a loan on non-accrual status and ceases accruing interest when
loan payment performance is deemed unsatisfactory. Generally loans past due 90
days are placed on non-accrual status, unless the loan is both well secured and
in the process of collection. At December 31, 1997, loans past due 90 days or
more and still accruing interest amounted to $226 thousand, compared to $259
thousand at December 31, 1996. Additional loans considered as potential problem
loans ($13.1 million at December 31, 1997) by the Company's internal loan review
department have been evaluated as to risk exposure in determining the adequacy
of the allowance for loan losses.
Other real estate (ORE) totaled $5.8 million at December 31, 1997 as compared to
$8.3 million at December 31, 1996. These properties have been written down to
the lower of cost or fair value less disposition costs.
The Company has on an ongoing basis updated appraisals on loans secured by real
estate, particularly those categorized as non-performing loans and potential
problem loans. In those instances where updated appraisals reflect reduced
collateral values, an evaluation of the borrowers' overall financial condition
is made to determine the need, if any, for possible writedowns or appropriate
additions to the allowance for loan losses.
21
<PAGE>
The following summary presents information regarding non-performing loans and
assets as of December 31, 1993 through 1997.
Year Ended December 31,
1997 1996 1995 1994 1993
(dollars in thousands)
Non-accrual loans(1):
Commercial $1,816 $ 1,263 $ 1,623 $ 3,925 $ 6,109
Consumer 703 1,145 978 1,755 2,109
Real estate
Construction 1,345 2,156 1,787 955 866
Mortgage 7,706 6,157 5,308 8,025 4,881
- -------------------------------------------------------------------------------
Total non-accrual
loans 11,570 10,721 9,696 14,660 13,965
- -------------------------------------------------------------------------------
Restructured loans(1):
Commercial 19 21 161 143 84
Consumer 29 60 29
Real estate
Construction
Mortgage 481 301 404 84
-------------------------------------------------------------------------------
Total restructured
loans 19 531 522 576 168
- -------------------------------------------------------------------------------
Total non-performing
loans 11,589 11,252 10,218 15,236 14,133
- -------------------------------------------------------------------------------
Other real estate 5,845 8,252 11,862 11,739 19,825
- -------------------------------------------------------------------------------
Total non-performing
assets $17,434 $19,504 $22,080 $26,975 $33,958
- -------------------------------------------------------------------------------
Non-performing
assets as a percent
of total assets 0.44% 0.60% 0.81% 1.05% 1.48%
- -------------------------------------------------------------------------------
Loans past due 90 days
or more and still
accruing interest $226 $259 $159 $400 $450
- -------------------------------------------------------------------------------
(1)Interest income of approximately $1,361,000, $1,226,000, $1,079,000,
$1,496,000, and $912,000 would have been recorded in 1997, 1996, 1995, 1994 and
1993 respectively, on non-performing loans in accordance with their original
terms. Actual interest recorded on these loans amounted to $323,000 in 1997,
$262,000 in 1996, $299,000 in 1995, $317,000 in 1994, and $270,000 in 1993.
Allowance for Loan Losses
The allowance for loan losses is a reserve established through charges to
earnings in the form of a provision for loan losses. Management has established
a loan loss reserve which it believes is adequate for estimated losses in its
loan portfolio. Based on an evaluation of the loan portfolio, management
presents a quarterly review of the loan loss reserve to the Board of Directors,
indicating any changes in the reserve since the last review and any
recommendations as to adjustments in the reserve. In making its evaluation,
management considers the results of recent regulatory examinations, the effects
on the loan portfolio of current economic indicators and their probable impact
on borrowers, the amount of charge-offs for the period, the amount of
non-performing loans and related collateral security, and the evaluation of its
loan portfolio by the internal loan review department. Charge-offs occur when
loans are deemed to be uncollectible.
During 1997, net charge-offs amounted to $1.4 million, or 0.10% of average loans
outstanding for the year, compared to $2.9 million or 0.25% of average loans
outstanding for 1996. During 1997, the Company recorded provisions of $4.7
million to the allowance for loan losses compared to $4.9 million for 1996. At
December 31, 1997, the allowance aggregated $21.3 million or 1.51% of total
loans and provided coverage of 183% of non-performing loans, as compared to
$18.0 million, 1.42%, and 160%, respectively, at December 31, 1996.
The following table presents, for the periods indicated, an analysis of the
allowance for loan losses and other related data.
Allocation of the Allowance for Loan Losses
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995 1994 1993
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning
of period $17,975 $16,014 $14,666 $12,515 $12,239
Provisions charged to
operating expenses 4,668 4,857 2,774 5,224 8,616
- ----------------------------------------------------------------------------------------------------------
22,643 20,871 17,440 17,739 20,855
- ----------------------------------------------------------------------------------------------------------
Recoveries of loans
previously charged-off:
Commercial 348 286 486 335 545
Consumer 406 274 243 247 408
Real estate 144 95 292 23 133
- ----------------------------------------------------------------------------------------------------------
Total recoveries 898 655 1,021 605 1,086
- ----------------------------------------------------------------------------------------------------------
Loans charged-off:
Commercial (964) (1,202) (1,253) (2,608) (7,501)
Consumer (1,170) (1,046) (771) (683) (1,917)
Real estate (146) (1,303) (423) (387) (1,008)
Total charged-off (2,280) (3,551) (2,447) (3,678) (10,426)
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Net charge-offs (1,382) (2,896) (1,426) (3,073) (9,340)
- ----------------------------------------------------------------------------------------------------------
Allowance for loan losses
acquired bank 1,000
- ----------------------------------------------------------------------------------------------------------
Balance at end of period $21,261 $17,975 $16,014 $14,666 $12,515
- ----------------------------------------------------------------------------------------------------------
Net charge-offs as a
percentage of average
loans outstanding 0.10% 0.25% 0.14% 0.35% 1.19%
- ----------------------------------------------------------------------------------------------------------
Allowance for loan losses
as a percentage of
year-end loans 1.51% 1.42% 1.53% 1.58% 1.52%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
The following table details the allocation of the allowance for loan losses to
the various categories. The allocation is made for analytical purposes and it is
not necessarily indicative of the categories in which future loan losses may
occur. The total allowance is available to absorb losses from any segment of
loans.
<TABLE>
<CAPTION>
(dollars in thousands)
Allowance for Loan Losses at December 31,
1997 1996 1995 1994 1993
% Gross % Gross % Gross % Gross %Gross
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $4,054 18% $3,375 19% $3,364 19% $3,105 18% $ 3,247 19%
Consumer 11,628 42 4,081 41 3,321 38 2,707 37 2,360 35
Real estate 5,579 40 10,519 40 9,329 43 8,854 45 6,908 46
- -------------------------------------------------------------------------------------------------------------------------
$21,261 100% $17,975 100% $16,014 100% $14,666 100% $12,515 100%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Investment Securities
The following table summarizes the book value of securities available for sale
and securities held to maturity by the Company as of the dates shown.
December 31,
1997 1996 1995
(dollars in thousands)
U.S. Government agency
and mortgage-backed
obligations $1,252,693 $707,316 $555,813
Obligations of state and
political subdivisions 23,515 15,743
Equity securities 11,364 3,994 2,896
Other 27,548 40,434 12,844
- ---------------------------------------------------------------------
Securities available
for sale $1,315,120 $767,487 $571,553
- ---------------------------------------------------------------------
U.S. Government agency
and mortgage-backed
obligations $834,228 $798,345 $738,511
Obligations of state and
political subdivisions 20,940 22,674 17,597
Other 18,864 16,493 16,891
- ---------------------------------------------------------------------
Securities held to
maturity $874,032 $837,512 $772,999
- ---------------------------------------------------------------------
Consistent with accounting and regulatory pronouncements, the Company has
segregated a portion of its investment portfolio as securities available for
sale. The balance of the investment portfolio (excluding trading securities) is
categorized as securities held to maturity. Investment securities are classified
as available for sale if they might be sold in response to changes in interest
rates, prepayment risk, the Company's income tax position, the need to increase
regulatory capital, liquidity needs or other similar factors. These securities
are carried at fair market value. Investment securities are classified as held
to maturity when the Company has the intent and ability to hold those securities
to maturity. Securities held to maturity are carried at cost and adjusted for
accretion of discounts and amortization of premiums.
In total, investment securities increased $576.7 million from $1.6 billion to
$2.2 billion at December 31, 1997. Net security purchases of approximately
$856.4 million were partially offset by maturities and prepayments on
mortgage-backed securities in the existing portfolio. These security purchases
were funded primarily through deposit growth and an increase in other borrowed
money in 1997.
On November 15, 1995, the FASB issued a special report, "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities." In accordance with provisions in that report, management
reclassified $83.8 million of investment securities from held to maturity to
available for sale during the first quarter of 1997 in connection with its
acquisition of Independence.
23
<PAGE>
The Company's investment portfolio consists almost entirely of U.S. Government
agency and mortgage-backed obligations. These securities have little, if any
credit risk since they are either backed by the full faith and credit of the
U.S. Government or their principal and interest payments are guaranteed by an
agency of the U.S. Government. These investment securities carry fixed coupons
whose rate does not change over the life of the securities. Since most
securities are purchased at premiums or discounts, their yield will change
depending on any change in the estimated rate of prepayments. The Company
amortizes premiums and accretes discounts over the estimated average life of the
securities. Changes in the estimated average life of the investment portfolio
will lengthen or shorten the period in which the premium or discount must be
amortized or accreted, thus affecting the Company's investment yields.
For the year ended December 31, 1997, the yield on the investment portfolio was
6.54%, a decrease of one basis point from 6.55% in fiscal 1996. At December 31,
1997, the average life and duration of the investment portfolio were
approximately 5.4 years and 4.2 years, respectively, as compared to 6.2 years
and 4.6 years, respectively, at December 31, 1996.
At December 31, 1997 the yield on the portfolio was 6.52%, comparable to 6.53%
at December 31, 1996. At December 31, 1997, the unrealized appreciation in
securities available for sale included in stockholders' equity totaled $3.8
million, net of tax, compared to unrealized depreciation of $5.8 million, net of
tax, at December 31, 1996. The increase in the market value of the investment
portfolio resulted primarily from general market interest rates being lower at
year-end 1997 as compared to year-end 1996.
The contractual maturity distribution and weighted average yield of the
Company's investment portfolio (excluding equity and trading securities) at
December 31, 1997, are summarized in the following table. Weighted average yield
is calculated by dividing income within each maturity range by the outstanding
amount of the related investment and has been tax effected on tax-exempt
obligations.
<TABLE>
<CAPTION>
(dollars in thousands)
December 31, 1997
Due Under Due Over
1 Year Due 1-5 Years Due 5-10 Years 10 Years Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available for sale:
U.S. Government agency and
mortgage-backed obligations $40,628 5.38% $172,937 6.42% $184,085 6.30% $855,043 6.74% $1,252,693 6.59%
Obligations of state and
political subdivisions 889 7.75 7,643 7.60 14,307 7.45 676 7.46 23,515 7.51
Other securities 25,548 4.51 2,000 9.25 27,548 4.85
- ---------------------------------------------------------------------------------------------------------------------------------
$67,065 5.08% $180,580 6.47% $198,392 6.39% $ 857,719 6.74% $1,303,756 6.57%
- ---------------------------------------------------------------------------------------------------------------------------------
Securities held to maturity:
U.S. Government agency and
mortgage-backed obligations $ 892 6.28% $ 89,752 6.63% $ 743,584 6.60% $ 834,228 6.60%
Obligations of state and
political subdivisions $ 20,627 6.05% 313 8.01 20,940 6.08
Other securities 17,610 6.00 995 9.50 259 7.03 18,864 6.20
- ---------------------------------------------------------------------------------------------------------------------------------
$38,237 6.03% $ 1,205 6.73% $ 90,747 6.66% $ 743,843 6.60% $ 874,032 6.58%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
Deposits
Total deposits averaged $3.2 billion for 1997, an increase of $468.3 million or
17% above the 1996 average. The Company remains a deposit-driven financial
institution with emphasis on core deposit accumulation and retention as a basis
for sound growth and profitability. The Company regards core deposits as all
deposits other than certificates of deposit, retail and public, in excess of
$100 thousand. Of the $449.7 million increase in total deposits at year end
1997, $412.9 million was in the various core categories. The average balance of
noninterest-bearing demand deposits in 1997 was $653.6 million, an $116.5
million or 22% increase over the average balance for 1996. The average total
balance of savings accounts increased $92.3 million, or 16% compared to the
prior year. The average balance of interest-bearing demand accounts (money
market and N.O.W. accounts) for 1997 was $992.8 million, a $171.4 million or 21%
increase over the average balance for the prior year. The average balance of
time deposits for 1997 was $864.3 million, an $88.1 million or 11% increase over
the average balance for 1996. For 1997, the cost of total deposits was 2.74% as
compared to 2.73% in 1996.
The Company believes that its record of sustaining core deposit growth is
reflective of the Company's retail approach to banking which emphasizes a
combination of free checking accounts (subject to a small minimum balance
requirement) convenient branch locations, extended hours of operation, quality
service, and active marketing.
The average balances and weighted average rates of deposits for each of the
years 1997, 1996, and 1995 are presented below.
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand deposits:
Noninterest-bearing $653,626 $537,079 $435,311
Interest-bearing (money market
and N.O.W. accounts) 992,778 2.50% 821,404 2.42% 684,145 2.63%
Savings deposits 670,074 2.45 577,824 2.23 536,289 2.35
Time deposits 864,311 5.29 776,220 5.31 697,537 5.33
- ---------------------------------------------------------------------------------------------------------------------
Total deposits $3,180,789 $2,712,527 $2,353,282
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The remaining maturity of certificates of deposit for $100,000 or more as of
December 31, 1997, 1996, and 1995 is presented below:
Maturity 1997 1996 1995
(dollars in thousands)
3 months or less $271,765 $240,188 $192,341
3 to 6 months 32,017 30,767 8,276
6 to 12 months 12,249 7,297 31,918
Over 12 months 1,153 2,071 2,488
- --------------------------------------------------------------------
Total $317,184 $280,323 $235,023
- --------------------------------------------------------------------
25
<PAGE>
Interest Rate Sensitivity and Liquidity
The Company's risk of loss arising from adverse changes in the fair market value
of financial instruments, or market risk, is composed primarily of interest rate
risk. The primary objective of the Company's asset/liability management
activities is to maximize net interest income while maintaining acceptable
levels of interest rate risk. The Company's Asset/Liability Committee (ALCO) is
responsible for establishing policies to limit exposure to interest rate risk,
and to ensure procedures are established to monitor compliance with these
policies. The guidelines established by ALCO are reviewed by the Company's Board
of Directors.
An interest rate sensitive asset or liability is one that, within a defined time
period, either matures or experiences an interest rate change in line with
general market interest rates. Historically, the most common method of
estimating interest rate risk was to measure the maturity and repricing
relationships between interest-earning assets and interest-bearing liabilities
at specific points in time ("GAP"), typically one year. Under this method, a
company is considered liability sensitive when the amount of its
interest-bearing liabilities exceeds the amount of its interest-earning assets
within the one year horizon. However, assets and liabilities with similar
repricing characteristics may not reprice at the same time or to the same
degree. As a result, the Company's GAP does not necessarily predict the impact
of changes in general levels of interest rates on net interest income.
The following table illustrates the GAP position of the Company as of December
31, 1997.
<TABLE>
<CAPTION>
Interest Rate Sensitivity Gaps
December 31, 1997
1-90 91-180 181-365 1-5 Beyond
Days Days Days Years 5 Years Total
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Rate Sensitive:
Interest-earning
assets
Loans $600.8 $36.2 $68.0 $449.9 $252.3 $1,407.2
Investment
securities 87.8 64.0 126.6 731.6 1,187.1 2,197.1
- --------------------------------------------------------------------------------------------------------------
Total interest-
earning assets 688.6 100.2 194.6 1,181.5 1,439.4 3,604.3
- --------------------------------------------------------------------------------------------------------------
Interest-bearing
liabilities
Transaction
accounts 597.1 1,220.1 1,817.2
Time deposits 368.7 109.9 108.9 201.7 0.1 789.3
Other borrowed
money 223.3 223.3
Long-term debt 23.0 57.5 80.5
- --------------------------------------------------------------------------------------------------------------
Total interest-
bearing
liabilities 1,189.1 109.9 108.9 224.7 1,277.7 2,910.3
- --------------------------------------------------------------------------------------------------------------
Period gap (500.5) (9.7) 85.7 956.8 161.7 $694.0
- --------------------------------------------------------------------------------------------------------------
Cumulative gap $(500.5) $(510.2) $(424.5) $532.3 $694.0
- --------------------------------------------------------------------------------------------------------------
Cumulative gap as a
percentage of total
interest-earning
assets (13.9)% (14.2)% (11.8)% 14.8% 19.3%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Management believes that the simulation of net interest income in different
interest rate environments provides a more meaningful measure of interest rate
risk. Income simulation analysis captures not only the potential of all assets
and liabilities to mature or reprice, but also the probability that they will do
so. Income simulation also attends to the relative interest rate sensitivities
of these items, and projects their behavior over an extended period of time.
Finally, income simulation permits management to assess the probable effects on
the balance sheet not only of changes in interest rates, but also of proposed
strategies for responding to them.
The Company's income simulation model analyzes interest rate sensitivity by
projecting net income over the next 24 months in a flat rate scenario versus net
income in alternative interest rate scenarios. Management continually reviews
and refines its interest rate risk management process in response to the
changing economic climate. Currently, the Company's model projects a
proportionate 200 basis point change during the next year, with rates remaining
constant in the second year.
The Company's ALCO policy has established that interest income sensitivity will
be considered acceptable if net income in the
26
<PAGE>
above interest rate scenario is within 15% of net income in the flat rate
scenario in the first year and within 30% over the two year time frame. At
December 31, 1997, the Company's income simulation model indicates net income
would increase by 0.7% and decrease by 2.7% in the first year and over a two
year time frame, respectively, if rates decreased as described above. The model
projects that net income would decrease by 6.7% and 8.8% in the first year and
over a two year time frame, respectively, if rates increased as described above.
All of these forecasts are within an acceptable level of interest rate risk per
the policies established by ALCO.
In the event the model indicates an unacceptable level of risk, the Company
could undertake a number of actions that would reduce this risk, including the
sale of a portion of its available for sale investment portfolio, the use of
risk management strategies such as interest rate swaps and caps, or the
extension of the maturities of its short-term borrowings.
Management also monitors interest rate risk by utilizing a market value of
equity model. The model assesses the impact of a change in interest rates on the
market value of all the Company's assets and liabilities, as well as any off
balance sheet items. The model calculates the market value of the Company's
assets and liabilities in excess of book value in the current rate scenario, and
then compares the excess of market value over book value given an immediate 200
basis point change in rates. The Company's ALCO policy indicates that the level
of interest rate risk is unacceptable if the immediate 200 basis point change
would result in the loss of 60% or more of the excess of market value over book
value in the current rate scenario. At December 31, 1997, the market value of
equity indicates an acceptable level of interest rate risk.
The market value of equity model reflects certain estimates and assumptions
regarding the impact on the market value of the Company's assets and liabilities
given an immediate 200 basis point change in interest rates. One of the key
assumptions is the market value assigned to the Company's core deposits, or the
core deposit premium. In 1996 the Company completed a comprehensive core deposit
study in order to assign its own core deposit premiums as permitted by
regulation. The study resulted in core deposit premiums which are significantly
higher than the core deposit premiums supplied by the Office of Thrift
Supervision, which the Company utilized in its market value of equity model in
prior years. The study confirmed management's assertion that the Company's core
deposits have stable balances over long periods of time, and are generally
insensitive to changes in interest rates. Thus, these core deposit balances
provide an internal hedge to market value fluctuations in the Company's
mortgage-backed securities portfolio. The data utilized in the core deposit
study is updated on a quarterly basis. Management believes the core deposit
premiums produced by its core deposit study and utilized in its market value of
equity model at December 31, 1997 provide a more accurate assessment of the
Company's interest rate risk.
Liquidity involves the Company's ability to raise funds to support asset growth
or reduce assets to meet deposit withdrawals and other borrowing needs, to
maintain reserve requirements and to otherwise operate the Company on an ongoing
basis. The Company's liquidity needs are primarily met by growth in core
deposits, its cash and federal funds sold position, and cash flow from its
amortizing investment and loan portfolios. If necessary, the Company has the
ability to raise liquidity through collateralized borrowings, FHLB advances, or
the sale of its available for sale investment portfolio. During 1997, deposit
growth and the increased utilization of short-term borrowings were used to fund
growth in the loan portfolio and purchase additional investment securities.
Short-Term Borrowings
Short-term borrowings, or other borrowed money, consist primarily of securities
sold under agreement to repurchase, and were used in 1997 to meet short-term
funding needs. For 1997, short-term borrowings averaged $91.3 million as
compared to $24.8 million in 1996. The average rate on the Company's short-term
borrowings was 5.61% and 5.39% during 1997 and 1996, respectively. As of
December 31, 1997, short-term borrowings included $178.3 million of securities
sold under agreements to repurchase at an average rate of 6.22% and $45.0
million of federal funds purchased at an average rate of 6.00%.
Long-Term Debt
A $23 million public offering of capital-qualifying 8.375% subordinated debt was
completed in July 1993. Proceeds from this debt offering were used for general
corporate purposes, including additional capitalization of existing banking
subsidiaries and possible acquisitions.
On June 9, 1997, the Company issued $57.5 million of 8.75% Trust Capital
Securities through Commerce Capital Trust I, a newly formed Delaware business
trust subsidiary of the
27
<PAGE>
Company. All $57.5 million of the Trust Capital Securities qualify as Tier I
capital for regulatory capital purposes. Proceeds of this offering were
earmarked for general corporate purposes, including additional capitalization of
existing banking subsidiaries and possible acquisitions.
Stockholders' Equity and Dividends
At December 31, 1997, stockholders' equity totaled $250.8 million, up $46.8
million or 23% over stockholders' equity of $204.0 million at December 31, 1996.
This increase was primarily due to the Company's net income for the year.
Stockholders' equity as a percent of total assets was 6.37% at December 31,
1997, as compared to 6.31% at December 31, 1996.
Risk-based capital standards issued by bank regulatory authorities in the United
States attempt to relate a banking company's capital to the risk profile of its
assets and provide the basis for which all banking companies and banks are
evaluated in terms of capital adequacy. The risk-based capital standards require
all banks to have Tier 1 capital of at least 4% and total capital, including
Tier 1 capital, of at least 8% of risk-adjusted assets. Tier 1 capital includes
common stockholders' equity and qualifying perpetual preferred stock together
with related surpluses and retained earnings. Total capital may be comprised of
limited life preferred stock, qualifying subordinated debt instruments, and the
reserve for possible loan losses.
Banking regulators have also issued leverage ratio requirements. The leverage
ratio requirement is measured as the ratio of Tier 1 capital to adjusted average
assets. The following table provides a comparison of the Company's risk-based
capital ratios and leverage ratio to the minimum regulatory requirements for the
periods indicated.
Minimum
Regulatory
December 31, Requirements
1997 1996 1997 1996
Risk-Based Capital Ratios:
Tier 1 15.66% 12.57% 4.00% 4.00%
Total 17.73 15.09 8.00 8.00
Leverage Capital Ratio 7.81 6.46 3.00-5.00 3.00-5.00
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"),
which became law in December of 1991, required each federal banking agency
including the Board of Governors of the Federal Reserve System ("FRB"), to
revise its risk-based capital standards to ensure that those standards take
adequate account of interest rate risk, concentration of credit risk and the
risks of non-traditional activities, as well as reflect the actual performance
and expected risk of loss on multi-family mortgages. This law also requires each
federal banking agency, including the FRB, to specify, by regulation, the levels
at which an insured institution would be considered "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized,
or "critically undercapitalized." At December 31, 1997, the Company's
consolidated capital levels and each of the Company's banking subsidiaries met
the regulatory definition of a "well capitalized" financial institution, i.e., a
leverage capital ratio exceeding 5%, a Tier 1 risk-based capital ratio exceeding
6%, and a total risk-based capital ratio exceeding 10%.
Effective September 26, 1996, the Company's common stock was listed for trading
on the New York Stock Exchange under the symbol CBH. Prior to that date, the
Company's common stock traded on the NASDAQ Stock Market under the symbol COBA.
The quarterly market price ranges and dividends declared per common share for
each of the last two years are shown in the table below. The prices and
dividends per share have been adjusted to reflect common stock dividends of 5%
with record dates of January 7, 1998, January 8, 1997, and January 12, 1996. As
of February 28, 1998, there were approximately 15,000 holders of record of the
Company's common stock.
Common Share Data
Sale Prices Cash Dividends
High Low Per Share
1997 Quarter Ended
December 31 $49.05 $35.78 $0.1905
September 30 38.63 34.28 0.1905
June 30 36.91 26.31 0.1905
March 31 30.47 26.19 0.1814
1996 Quarter Ended
December 31 $30.05 $23.36 $0.1587
September 30 25.39 19.05 0.1587
June 30 22.45 18.38 0.1587
March 31 20.75 18.25 0.1512
Effective March 1, 1998, the Trustees of the Company's Employee Stock Ownership
Plan (ESOP) exercised their right to convert all 417,000 shares of Series C
ESOPCumulative Convertible Preferred Stock held by the ESOP into 646,904 shares
of the Company's common stock.
The Company offers a Dividend Reinvestment and Stock Purchase Plan by which
dividends on the Company's Common Stock and optional cash payments of up to
$5,000 per quarter may be invested in Common Stock at a 3% discount to the
market price and without payment of brokerage commissions.
28
<PAGE>
Results of Operations - 1996 versus 1995
Net income for 1996 was $28.3 million compared to $26.7 million in 1995. Diluted
net income per common share was $1.70 compared to $1.68 per common share for the
prior year. Net income and net income per share for 1996 were impacted by a
one-time special assessment of approximately $1.3 million from a legislative
mandate to recapitalize the Savings Association Insurance Fund (SAIF). This
assessment impacted after tax net income by approximately $850 thousand. Net
income per share for 1995 was impacted by the issuance of 1,725,000 shares of
common stock via an underwritten public offering in the first quarter of 1995.
Net interest income on a tax-equivalent basis for 1996 amounted to $126.5
million, an increase of $16.1 million, or 15% over 1995.
Interest income on a tax-equivalent basis increased $17.2 million or 9% to
$203.8 million in 1996. This increase was primarily related to volume increases
in the loan and investment portfolios. Interest expense for 1996 rose only $1.1
million to $77.3 million from $76.2 million in 1995.
The provision for loan losses was $4.9 million in 1996 compared to $2.8 million
in the prior year.
For 1996, noninterest income totaled $32.8 million, an increase of $9.2 million
from 1995. Deposit charges and service fees increased $4.2 million due primarily
to transaction volumes. The $3.4 million increase in other operating income to
$9.3 million was partly due to revenues from Commerce Insurance, the insurance
brokerage subsidiary formed during 1996. Also, this increase reflected higher
levels of bank card fees in 1996. Securities gains increased to $1.7 million in
1996 from $106 thousand in 1995.
Noninterest expenses totaled $109.0 million for 1996, an increase of $19.7
million, or 22% over 1995. Contributing to this increase was the addition of
nine new branches and the formation of Commerce Insurance during 1996. With the
addition of these new offices and the insurance business, staff, facilities, and
related expenses rose accordingly. Audit and regulatory fees and assessments for
1996 decreased $548 thousand or 15% to $3.2 million in spite of the one-time
SAIF assessment of approximately $1.3 million. Other real estate expenses
totaled $2.3 million, a decrease of $519 thousand from 1995, reflecting lower
levels of other real estate for 1996. Other noninterest expenses rose $3.1
million to $14.3 million in 1996. Higher bank card related service charges,
higher provisions for non-credit-related losses, and merger related expenses
contributed to the increase.
Year 2000
The Company began the process of preparing its computer systems and applications
for the Year 2000 in 1996. The process includes directing its external service
providers to take the appropriate action to ensure Year 2000 compliance, as well
as, to a lesser extent, modifying or replacing certain hardware and software
maintained by the Company. The Company expects to have substantially all of the
necessary changes in place before the end of 1998, and believes it is taking the
appropriate steps to address all Year 2000 issues. The Company estimates the
total cost of the Year 2000 compliance process, including internal and external
personnel and any required hardware and software modifications, will not exceed
$1.0 million.
Mergers and Acquisitions
In November, 1997, the Company reached an agreement in principle to acquire A.
H. Williams & Co., Inc., (Williams) Philadelphia, PA, a public finance
investment firm. The Company anticipates the acquisition will close by March 31,
1998, and plans to combine Williams with Commerce Capital, the bank securities
dealer division of Commerce NJ, to form Commerce Capital Markets, Inc., a
wholly-owned nonbank subsidiary of the Company engaging in certain securities
activities permitted under Section 20 of the Glass-Steagall Act. The acquisition
will be completed by the issuance of common stock of the Company totaling
approximately 330,000 shares. The transaction will be accounted for as a pooling
of interests. However, the Company does not expect to restate the financial
statements of the periods prior to the acquisition, as the changes, in the
aggregate, would be immaterial.
29
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
(dollars in thousands) 1997 1996
<S> <C> <C>
Assets Cash and due from banks $167,900 $181,858
Federal funds sold 26,975
---------- ----------
Cash and cash equivalents 167,900 208,833
Mortgages held for sale 7,260 1,314
Trading securities 7,911 15,327
Securities available for sale 1,315,120 767,487
Securities held to maturity 874,032 837,512
(market value 1997-$869,815; 1996-$815,888)
Loans 1,411,289 1,266,855
Less allowance for loan losses 21,261 17,975
---------- ----------
1,390,028 1,248,880
Bank premises and equipment, net 111,759 94,339
Other assets 64,957 58,460
---------- ----------
$3,938,967 $3,232,152
---------- ----------
Liabilities Deposits:
Demand:
Interest-bearing $1,111,302 $884,310
Noninterest-bearing 762,843 626,664
Savings 705,906 638,660
Time 789,353 770,036
---------- ----------
Total deposits 3,369,404 2,919,670
Other borrowed money 223,300 70,000
Other liabilities 12,695 12,185
Obligation to Employee Stock Ownership Plan (ESOP) 2,308 3,333
Trust Capital Securities -
Commerce Capital Trust I 57,500
Long-term debt 23,000 23,000
---------- ----------
3,688,207 3,028,188
---------- ----------
Stockholders' Common stock, 16,999,824 shares issued
Equity (16,490,839 shares in 1996) 25,309 23,546
Series C preferred stock,
417,000 shares authorized,
issued and outstanding
(liquidating preference:
$18.00 per share totaling $7,506) 7,506 7,506
Series A preferred stock 30
Capital in excess of par or stated value 167,529 144,551
Retained earnings 54,348 36,086
---------- ----------
254,692 211,719
Less commitment to ESOP 2,308 4,403
Less treasury stock, at cost, 100,159 shares in 1997
(267,378 in 1996) 1,624 3,352
---------- ----------
Total stockholders' equity 250,760 203,964
---------- ----------
$3,938,967 $3,232,152
---------- ----------
</TABLE>
See accompanying notes
30
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year Ended December 31,
(dollars in thousands, except per share amounts) 1997 1996 1995
<S> <C> <C> <C>
Interest Interest and fees on loans $120,028 $104,842 $ 92,558
income Interest on investment securities 122,662 95,026 90,097
Other interest 1,487 2,867 3,463
-------- -------- --------
Total interest income 244,177 202,735 186,118
-------- -------- --------
Interest Interest on deposits:
expense Demand 24,824 19,842 18,009
Savings 16,419 12,907 12,609
Time 45,781 41,212 37,197
-------- -------- --------
Total interest on deposits 87,024 73,961 67,815
Interest on other borrowed money 5,126 1,336 6,379
Interest on long-term debt 4,887 2,025 2,025
-------- -------- --------
Total interest expense 97,037 77,322 76,219
-------- -------- --------
Net interest income 147,140 125,413 109,899
Provision for loan losses 4,668 4,857 2,774
-------- -------- --------
Net interest income after provision for loan losses 142,472 120,556 107,125
-------- -------- --------
Noninterest Deposit charges and service fees 27,110 21,850 17,661
income Other operating income 27,979 9,251 5,856
Net investment securities gains 2,285 1,675 106
-------- -------- --------
Total noninterest income 57,374 32,776 23,623
-------- -------- --------
Noninterest Salaries 52,166 37,668 30,768
expense Benefits 12,161 9,389 8,153
Occupancy 14,223 12,418 10,144
Furniture and equipment 18,374 14,336 10,783
Office 13,712 10,646 8,318
Audit and regulatory fees and assessments 1,611 3,173 3,721
Marketing 6,069 4,777 3,409
Other real estate (net) 1,814 2,329 2,848
Other 17,799 14,295 11,172
-------- -------- --------
Total noninterest expenses 137,929 109,031 89,316
-------- -------- --------
Income before income taxes 61,917 44,301 41,432
Provision for federal and state income taxes 21,592 16,051 14,780
-------- -------- --------
Net income 40,325 28,250 26,652
Dividends on preferred stocks 563 842 1,122
-------- -------- --------
Net income applicable to common stock $ 39,762 $ 27,408 $ 25,530
-------- -------- --------
Net income per common and common equivalent share:
Basic $2.40 $1.91 $1.82
-------- -------- --------
Diluted $2.25 $1.70 $1.68
-------- -------- --------
Average common and common equivalent shares outstanding:
Basic 16,554 14,374 14,010
-------- -------- --------
Diluted 17,918 16,562 15,760
-------- -------- --------
Cash dividends declared, common stock $0.76 $0.63 $0.55
-------- -------- --------
</TABLE>
See accompanying notes.
31
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Consolidated Statements Of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Year Ended December 31,
(dollars in thousands) 1997 1996 1995
<S> <C> <C> <C>
Operating Net income $ 40,325 $ 28,250 $ 26,652
activities Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 4,668 4,857 2,774
Provision for depreciation, amortization
and accretion 17,438 16,156 14,423
Gains on sales of securities available for sale (2,285) (1,675) (106)
Proceeds from sales of mortgages held for sale 22,626 23,683 18,343
Originations of mortgages held for sale (28,572) (19,555) (21,522)
Net loan (chargeoffs) (1,382) (2,896) (1,426)
Net decrease (increase) in trading securities 7,416 (6,484) (8,843)
(Increase) decrease in other assets (12,575) 524 (9,530)
Increase (decrease) in other liabilities 2,551 9,823 (1,576)
Deferred income tax (benefit) expense (2,041) 161 (823)
-----------------------------------------------------------------------------------------
Net cash provided by operating activities 48,169 52,844 18,366
Investing Proceeds from the sales of securities available 223,217 107,666 146
activities for sale
Proceeds from the maturity of securities available
for sale 162,892 187,120 32,052
Proceeds from the maturity of securities held
to maturity 123,496 125,283 113,762
Purchase of securities available for sale (835,005) (497,926) (52,623)
Purchase of securities held to maturity (244,503) (192,168) (51,432)
Net increase in loans (154,454) (227,331) (124,410)
Proceeds from sales of loans 10,020 9,291 6,698
Purchases of premises and equipment (31,235) (25,766) (24,878)
-----------------------------------------------------------------------------------------
Net cash used by investing activities (745,572) (513,831) (100,685)
Financing Net increase in demand and savings deposits 430,417 330,095 242,354
activities Net increase in time deposits 19,317 60,389 187,585
Net increase (decrease) in other borrowed money 153,300 70,000 (312,895)
Issuance of common stock 6,859 25,774
Dividends paid (12,484) (9,298) (7,773)
Proceeds from issuance of Trust Capital Securities 57,500
Proceeds from issuance of common stock under
dividend reinvestment and other stock plans 6,876 4,288 2,728
Purchase of treasury stock (352)
Other 1,544 (2,370) 189
-----------------------------------------------------------------------------------------
Net cash provided by financing activities 656,470 459,963 137,610
(Decrease) increase in cash and cash equivalents (40,933) (1,024) 55,291
Cash and cash equivalents at beginning of year 208,833 209,857 154,566
-----------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 167,900 $ 208,833 $ 209,857
-----------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 98,217 $ 75,731 $ 76,254
Income taxes 23,632 14,449 14,165
Other noncash activities
Transfer of securities to securities available
for sale 83,773 401,826
-----------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
32
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31, 1997, 1996 and 1995 Capital in
Excess of
Common Preferred Par or Retained Commitment Treasury
(in thousands, except per share amounts) Stock Stock Stated Value Earnings to ESOP Stock Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1995 $15,241 $8,283 $92,967 $18,547 $(6,692) $(1,764) $126,582
Net income 26,652 26,652
5% common stock dividend and cash paid
in lieu of fractional shares (419 shares) 655 7,244 (7,869) 30
Cash dividends, common stock
($0.55 per share) (6,638) (6,638)
Common stock issued in connection with
incentive stock option plan (108 shares) 169 899 (352) 716
Cash dividends, preferred stock (1,122) (1,122)
Decrease in obligation to ESOP 1,139 1,139
Common stock issued (1,725 shares) 2,695 23,079 25,774
Tax benefit from ESOP dividends 197 197
Proceeds from issuance of common stock
under dividend reinvestment plan
(89 shares) 134 1,525 1,659
Fair value adjustment on available for
sale securities, net of tax 4,706 4,706
- ------------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1995 18,894 8,283 125,911 34,276 (5,553) (2,116) 179,695
Acquisition of Commerce National
Insurance Services (749 shares) 1,114 (1,135) (21)
- ------------------------------------------------------------------------------------------------------------------------------------
As adjusted balance at January 1, 1996 20,008 8,283 124,776 34,276 (5,553) (2,116) 179,674
Net income 28,250 28,250
5% common stock dividend and cash paid
in lieu of fractional shares (534 shares) 834 10,388 (11,244) (22)
Cash dividends, common stock
($0.63 per share) (8,430) (8,430)
Common stock issued in connection with
incentive stock option plan (78 shares) 121 622 743
Cash dividends, preferred stock (845) (845)
Decrease in obligation to ESOP 1,150 1,150
Common stock issued pursuant to rights
offering (727 shares) 1,136 5,465 6,601
Tax benefit from ESOP dividends 197 197
Proceeds from issuance of common stock
under dividend reinvestment plan
(175 shares) 264 3,281 3,545
Conversion and redemption of preferred stock 1,183 (747) (178) 258
Purchase of common stock of former
Independence shareholders (1,236) (1,236)
Fair value adjustment on available for
sale securities, net of tax (5,921) (5,921)
- ------------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1996 23,546 7,536 144,551 36,086 (4,403) (3,352) 203,964
Acquisition of insurance brokerage
agencies (223 shares) 332 (55) 277
- ------------------------------------------------------------------------------------------------------------------------------------
As adjusted balance at January 1, 1997 23,878 7,536 144,496 36,086 (4,403) (3,352) 204,241
Net income 40,325 40,325
5% common stock dividend and cash paid
in lieu of fractional shares (611 shares) 955 18,134 (19,113) (24)
Cash dividends, common stock
($0.76 per share) (11,897) (11,897)
Common stock issued in connection with
incentive stock option plan (306 shares) 478 2,139 2,617
Cash dividends, preferred stock (563) (563)
Decrease in obligation to ESOP 2,095 2,095
Tax benefit from ESOP dividends 197 197
Proceeds from issuance of common stock
under dividend reinvestment plan
(128 shares) 201 4,058 4,259
Retirement of Treasury shares (203) (30) (1,495) 1,728 0
Fair value adjustment on available for
sale securities, net of tax 9,510 9,510
- ------------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1997 $25,309 $7,506 $167,529 $54,348 $(2,308) $(1,624) $250,760
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
33
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial
Statements
1. Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Commerce Bancorp,
Inc. (the Company) and its wholly-owned subsidiaries (Banks), Commerce Bank,
N.A. (Commerce NJ), Commerce Bank/Pennsylvania, N.A. (Commerce PA) Commerce
Bank/Shore, N.A. (Commerce Shore), Commerce Bank/North ( Commerce North), and
Commerce Capital Trust I. All material intercompany transactions have been
eliminated. Certain amounts from prior years have been reclassified to conform
with 1997 presentation. All common stock per share information has been adjusted
for the 5% common stock dividend declared on December 16, 1997.
The Company is a multi-bank holding company headquartered in Cherry Hill, New
Jersey, operating primarily in the metropolitan Philadelphia, Southern New
Jersey and Northern New Jersey markets. Through its subsidiaries, the Company
provides retail and commercial banking services, corporate trust services,
municipal bond underwriting services, and insurance brokerage services.
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 financial statements and accompanying notes.
Actual results could differ from those estimates.
Investment Securities
Trading account securities are carried at market value. Gains and losses, both
realized and unrealized, are included in other operating income.
Investment securities are classified as held to maturity when the Company has
the intent and ability to hold those securities to maturity. Securities held to
maturity are stated at cost and adjusted for accretion of discounts and
amortization of premiums.
Those securities that might be sold in response to changes in market interest
rates, prepayment risk, the Companys income tax position, the need to increase
regulatory capital, or similar other factors are classified as available for
sale. Available for sale securities are carried at fair value, with unrealized
gains and losses, net of tax, reported as a component of stockholders equity.
The amortized cost of debt securities in this category is adjusted for accretion
of discounts and amortization of premiums. Realized gains and losses are
determined on the specific certificate method and are included in noninterest
income.
Loans
Loans are stated at principal amounts outstanding, net of deferred loan
origination fees and costs. Interest income on loans is accrued and credited to
interest income monthly as earned. Loan origination fees are generally
considered as adjustments of interest rate yields and are amortized into
interest income on loans over the terms of the related loans.
Loans are placed on a non-accrual status and cease accruing interest when loan
payment performance is deemed unsatisfactory. However, all loans past due 90
days are placed on non-accrual status, unless the loan is both well secured and
in the process of collection.
Allowance for Loan Losses
The allowance for loan losses is increased by provisions charged to expense and
reduced by loan charge-offs net of recoveries. Based upon managements evaluation
of the loan portfolio, the allowance is maintained at a level considered
adequate to absorb estimated inherent losses in the Banks loan portfolios.
34
<PAGE>
Bank Premises and Equipment
Bank premises and equipment are carried at cost less accumulated depreciation.
Depreciation and amortization is determined on the straight-line method for
financial reporting purposes, and accelerated methods for income tax purposes.
Other Real Estate (ORE)
Real estate acquired in satisfaction of a loan is reported in other assets at
the lower of cost or fair value less disposition costs. Properties acquired by
foreclosure or deed in lieu of foreclosure are transferred to ORE and recorded
at the lower of cost or fair value less disposition costs based on their
appraised value at the date actually or constructively received. Losses arising
from the acquisition of such property are charged against the allowance for loan
losses. Subsequent adjustments to the carrying values of ORE properties are
charged to operating expense.
Intangible Assets
The excess of cost over fair value of net assets acquired (goodwill) is included
in other assets and is being amortized on a straight-line basis over the period
of expected benefit, which approximates 15 years. Goodwill amounted to
$3,082,000 and $3,377,000 at December 31, 1997 and 1996, respectively. Other
intangible assets are amortized on a straight-line basis over 10- to 15-year
lives. Other intangibles amounted to $2,471,000 and $2,923,000 at December 31,
1997 and 1996, respectively.
Income Taxes
The provision for income taxes is based on current taxable income. When income
and expenses are recognized in different periods for book purposes, deferred
taxes are provided.
Restriction on Cash and Due From Banks
The Banks are required to maintain reserve balances with the Federal Reserve
Bank. The weighted average amount of the reserve balances for 1997 and 1996 were
approximately $10,059,000 and $34,649,000, respectively.
Recent Accounting Statements The Financial Accounting Standards Board (FASB) in
June 1997 issued Statement No. 130 Reporting Comprehensive Income (FAS 130). FAS
130 establishes new standards for reporting comprehensive income, which includes
net income as well as certain other items which result in a change in equity
during the period. FAS130 requires that all items that are recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. FAS 130 is effective with the Companys 1998 interim
reporting. The disclosure standards of FAS 130 will have no impact on the
Companys financial position or results of operations.
Also in June 1997, the FASBissued Statement 131 Disclosures About Segments of an
Enterprise and Related Information (FAS 131). FAS 131 requires disclosure of
financial and descriptive information about an enterprises operating segments
that meet certain quantitative thresholds. Operating segments are
revenue-producing components of the enterprise for which separate financial
information is produced internally and the performance of which is subject to
evaluation by the chief operating decision maker, as defined, in determining
resource allocation. This statement is effective for fiscal years beginning
after December 15, 1997, but is not required to be applied for interim reporting
in the initial year of application. The Company is currently evaluating the
impact of FAS 131 on the disclosures included in its annual and interim period
financial statements.
35
<PAGE>
2. Mergers and Acquisitions
On November 15, 1996, two insurance brokerage agencies, Keystone National
Companies, Inc., Cherry Hill, New Jersey, and Morales, Potter & Buckelew, Inc.,
t/a Buckelew & Associates, Toms River, New Jersey, were acquired by the Company
and thereafter merged to form Commerce National Insurance Services, Inc.
(Commerce Insurance). Effective December 1, 1996, a third insurance brokerage
agency, Chesley & Cline, Inc., Mount Holly, New Jersey, was merged with and into
Commerce Insurance. The Company issued approximately 749,000 shares of common
stock in exchange for all of the outstanding shares of these agencies. Effective
January 1, 1997, a fourth insurance brokerage agency, Colkate, Inc., t/a The
Morrissey Agency , Mt. Laurel, New Jersey, was merged with and into Commerce
Insurance. Effective December 1, 1997, Joseph J. Reinhart and Associates, Inc.,
Cherry Hill, NJ, a risk/loss management and loss investigation consulting firm,
and Associated Insurance Management, Inc., Haddonfield, NJ, an employee and
executive benefit consulting firm, were merged with and into Commerce Insurance.
The Company issued approximately 223,000 shares of common stock in exchange for
all of the outstanding shares of the agencies acquired in 1997. All of these
transactions were accounted for as poolings of interests. However, financial
statements of the periods prior to the acquisitions have not been restated, as
the changes, in the aggregate, would be immaterial.
The former Independence Bancorp, Inc. (Independence), Bergen County, New Jersey,
was merged into Commerce Bancorp, Inc. on January 21, 1997 and its wholly-owned
subsidiary bank, Independence Bank of New Jersey, was thereafter renamed
Commerce Bank/North. The Company issued approximately 2,793,000 shares of common
stock to shareholders of Independence based on an exchange ratio of .98175 of a
share of the Companys common stock for each share of Independence common stock.
The transaction was accounted for as a pooling of interests. The Companys
originally reported results of operations have been restated herein to include
Commerce Norths results of operations for all periods presented. No
restructuring charges were recorded in connection with this acquisition.
In November, 1997, the Company reached an agreement in principle to acquire A.
H. Williams & Co., Inc., (Williams) Philadelphia, PA, a public finance
investment firm. The Company anticipates the acquisition will close by March 31,
1998, and plans to combine Williams with Commerce Capital, the bank securities
dealer division of Commerce NJ, to form Commerce Capital Markets, Inc., a
wholly-owned nonbank subsidiary of the Company engaging in certain securities
activities permitted under Section 20 of the Glass-Steagall Act. The acquisition
will be completed by the issuance of common stock of the Company totaling
approximately 330,000 shares. The transaction will be accounted for as a pooling
of interests. However, the Company does not expect to restate the financial
statements of the periods prior to the acquisition, as the changes, in the
aggregate, would be immaterial.
36
<PAGE>
3. Investment Securities
A summary of the amortized cost and market value of securities available for
sale and securities held to maturity (in thousands) at December 31, 1997 and
1996 follows:
<TABLE>
<CAPTION>
December 31,
1997 1996
Gross Gross Gross Gross
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Cost Gains Losses Value Cost Gains Losses Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government agency and
mortgage-backed obligations $1,250,977 $5,028 $(3,312) $1,252,693 $717,560 $108 $(10,352) $707,316
Obligations of state and
political subdivisions 23,085 430 23,515 15,670 73 15,743
Equity securities 7,679 3,685 11,364 2,832 1,162 3,994
Other 27,548 27,548 40,434 40,434
- ----------------------------------------------------------------------------------------------------------------------------------
Securities available for sale $1,309,289 $9,143 $(3,312) $1,315,120 $776,496 $1,343 $(10,352) $767,487
- ----------------------------------------------------------------------------------------------------------------------------------
U.S. Government agency and
mortgage-backed obligations $834,228 $3,976 $(8,198) $830,006 $798,345 $218 $(21,860) $776,703
Obligations of state and
political subdivisions 20,940 20,940 22,674 19 (1) 22,692
Other 18,864 5 18,869 16,493 16,493
- ----------------------------------------------------------------------------------------------------------------------------------
Securities held to maturity $874,032 $3,981 $(8,198) $869,815 $837,512 $237 $(21,861) $815,888
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and estimated market value of investment securities (in
thousands) at December 31, 1997, by contractual maturity are shown below.
Expected maturities will differ from contractual maturities because obligors
have the right to repay obligations without prepayment penalties.
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C> <C> <C> <C>
Due in one year or less $67,141 $67,065 $38,237 $38,237
Due after one year through five years 168,443 168,659 313 313
Due after five years through ten years 39,973 40,305 995 995
Due after ten years 3,164 3,155 259 264
Mortgage-backed securities 1,022,889 1,024,572 834,228 830,006
Equity securities 7,679 11,364
- --------------------------------------------------------------------------------------------------
$1,309,289 $1,315,120 $874,032 $869,815
- --------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales of securities available for sale during 1997, 1996 and 1995
were $223,217,000, $107,666,000 and $146,000, respectively. Gross gains of
$2,669,000, $1,675,000 and $106,000 were realized on the sales in 1997, 1996 and
1995, respectively, and gross losses of $384,000 were realized in 1997.
At December 31, 1997 and 1996, investment securities with a carrying value of
$324,717,000 and $269,617,000, respectively, were pledged to secure deposits of
public funds.
On November 15, 1995, the FASB issued a special report, A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities. In accordance with the provisions of that report,
management reclassified $401,800,000 of investment securities from the held to
maturity category to the available for sale category as of December 31, 1995.
Unrealized losses on those securities transferred were $861,000. In connection
with the acquisition of Independence, management reclassified $83.8 million of
investment securities from held to maturity to available for sale in the first
quarter of 1997. Unrealized losses on those securities transferred were
$840,000.
37
<PAGE>
At December 31, 1997, the unrealized appreciation in securities available for
sale included in retained earnings totaled $3,756,000, net of tax, compared to
unrealized depreciation of $5,755,000, net of tax, at December 31, 1996.
4. Loans
The following is a summary of loans outstanding (in thousands) at December 31,
1997 and 1996:
December 31,
1997 1996
Commercial real estate:
Owner-occupied $221,788 $167,702
Other 287,510 288,733
Construction 57,182 52,372
---------- ----------
566,480 508,807
Commercial loans:
Term 152,115 153,793
Line of credit 101,134 91,418
Demand 442 529
---------- ----------
253,691 245,740
Consumer:
Mortgages (1-4 family residential) 167,979 153,615
Installment 63,448 54,548
Home equity 347,903 293,591
Credit lines 11,788 10,554
---------- ----------
591,118 512,308
---------- ----------
$1,411,289 $1,266,855
---------- ----------
At December 31, 1997 and 1996, loans of approximately $8,308,000 and $7,118,000,
respectively, were outstanding to certain of the Companys and the Banks
directors and officers, and approximately $25,584,000 and $17,015,000,
respectively, of loans were outstanding from companies in which certain of the
Companys and the Banks directors and officers are associated, exclusive of loans
to any such person and associated companies which in aggregate did not exceed
$60,000. The terms of these loans are substantially the same as those prevailing
at the time for comparable unrelated transactions. A summary (in thousands) of
the related party loans outstanding at December 31, 1997 is as follows:
1997
Balance, January 1 $24,133
New loans 17,387
Loan payments 7,628
Balance, December 31 $33,892
The Company engaged in certain activities with entities affiliated with
directors of the Company. The Company received real estate appraisal services
from a company owned by a director of the Company. Such real estate appraisal
services amounted to $183,000 in 1997, $195,000 in 1996, and $222,500 in 1995.
The Company received legal services from two law firms of which two directors of
the Company are partners. Such aggregate legal services amounted to $1,439,000
in 1997, $1,243,000 in 1996 and $1,371,000 in 1995.
38
<PAGE>
5. Allowances for Loan Losses
The following is an analysis of changes in the allowance for loan losses (in
thousands) for 1997, 1996, and 1995:
1997 1996 1995
Balance, January 1 $17,975 $16,014 $14,666
Provision charged to
operating expense 4,668 4,857 2,774
Recoveries of loans
previously charged off 898 655 1,021
Loan charge-offs (2,280) (3,551) (2,447)
------- ------- -------
Balance, December 31 $21,261 $17,975 $16,014
------- ------- -------
6. Non-accrual and Restructured Loans and Other Real Estate
The total of non-performing loans (non-accrual and restructured loans) was
$11,589,000 and $11,252,000 at December 31, 1997 and 1996, respectively.
Non-performing loans of $2,320,000, $1,758,000, and $5,664,000 net of charge
offs of $47,000, $250,000, and $103,000 were transferred to other real estate
during 1997, 1996, and 1995, respectively. Other real estate ($5,845,000 and
$8,252,000 at December 31, 1997 and 1996, respectively) is included in other
assets.
At December 31, 1997 and 1996, the recorded investment in loans considered to be
impaired under FASB Statement No. 114 Accounting by Creditors for Impairment of
a Loan totaled $9,700,000 and $8,628,000, respectively, all of which are
included in non-performing loans. As permitted, all homogenous smaller balance
consumer and residential mortgage loans are excluded from individual review for
impairment. The majority of impaired loans were measured using the fair market
of collateral. No portion of the allowance for loan losses for 1997 or 1996 was
allocated to these loans. During 1997 and 1996, impaired loans averaged
approximately $9,126,000 and $8,288,000, respectively. Interest income of
approximately $1,361,000 and $1,226,000 would have been recorded on
non-performing loans (including impaired loans) in accordance with their
original terms in 1997 and 1996, respectively. Actual interest income recorded
on these loans amounted to $323,000 and $262,000 during 1997 and 1996,
respectively.
7. Bank Premises, Equipment, and Leases
A summary of bank premise and equipment (in thousands) is as follows:
December 31,
1997 1996
Land $22,707 $20,291
Buildings 49,101 44,230
Leasehold improvements 9,293 9,763
Furniture, fixtures and equipment 68,238 49,751
Leased property under capital leases 124 124
-------- --------
149,463 124,159
Less accumulated depreciation
and amortization 37,704 29,820
-------- --------
$111,759 $ 94,339
-------- --------
At December 31, 1997, Commerce NJ leased one of its branches under a capital
lease with an unrelated party. All other branch leases are accounted for as
operating leases with the related rental payments being expensed ratably over
the life of the lease.
39
<PAGE>
The Company leases its headquarters building from a limited partnership in which
the Company is a limited partner at December 31, 1997. The lease is accounted
for as an operating lease with an annual rent of $1,200,000. The lease expires
in 2001 and is renewable for five additional terms of five years each. The
Company leases its operations facility from a limited partnership in which the
Company is a limited partner at December 31, 1997. The lease is accounted for as
an operating lease with an annual rent of $572,000. The lease expires in 2004
and is renewable for two additional terms of five years each.
At December 31, 1997, the Company leased from related parties under separate
operating lease agreements the land on which it has constructed 10 branch
offices. The aggregate annual rental under these related party leases for 1997
was approximately $375,000, and was approximately $250,000 in 1996 and 1995.
These leases expire periodically through 2017 but are renewable through 2037.
Aggregate annual rentals escalate to $501,000 in 2007. The Company leases land
to a limited partnership partially comprised of the directors of Commerce PA and
Commerce NJ. The initial lease term is 25 years, with two successive 10-year
options. As of December 31, 1997, the future minimum lease payments to be
received by the Company amount to approximately $55,000 for each of the next two
years and $432,000 thereafter for the remainder of the initial lease term. In
accordance with the provision of the land lease, the limited partnership
constructed and owns the office building located on the land. Commerce PA leases
the building as a branch facility through 2010. Commerce North leases one of its
branches from a director and its headquarters facility from a partnership in
which a director has a substantial interest. The aggregate annual rental under
these related party leases for 1997, 1996, and 1995 was approximately $432,000,
$503,000, and $554,000, respectively. The leases expire in 2007 and 2017.
Total rent expense charged to operations under operating leases was
approximately $4,334,000 in 1997, $3,706,000 in 1996 and $3,834,000 in 1995.
The future minimum rental commitments, by year, under the non-cancelable leases
are as follows (in thousands) at December 31, 1997:
Capital Operating
1998 $12 $4,489
1999 12 4,050
2000 12 3,757
2001 12 3,470
2002 12 2,663
Later years 144 23,937
-----------------------------------------------------
Net minimum lease payment $204 $42,366
-----------------------------------------------------
Less amount representing interest 102
-----------------------------------------------------
Present value of net minimum
lease payments $102
-----------------------------------------------------
The Company obtained interior design and general contractor services for
$916,000, $642,000, and $596,000 in 1997, 1996, and 1995, respectively, from a
business owned by the spouse of the Chairman of the Board of the Company.
Additionally, the business received commissions of approximately $1,464,000,
$990,0000, and $931,000 in 1997, 1996 and 1995, respectively, on furniture and
facility purchases made directly by the Company.
40
<PAGE>
8. Deposits
The aggregate amount of time certificates of deposits in denominations of
$100,000 or more was $317,184,000 and $280,323,000 at December 31, 1997 and
1996, respectively.
9. Other Borrowed Money
Other borrowed money consisted primarily of securities sold under agreements to
repurchase, which ranged up to three months in maturity. The following table
represents information for other borrowed money.
December 31,
1997 1996
Average Average
Amount Rate Amount Rate
Securities sold under
agreements to repurchase $178,300 6.22% $70,000 6.33%
Federal funds purchased 45,000 6.00
-----------------------------------------------------------------------
$223,300 $70,000
-----------------------------------------------------------------------
Average amount outstanding $91,308 5.61% $24,782 5.39%
Maximum month-end balance 223,300 70,000
As of December 31, 1997, the Company had a line of credit of $360,749,000
available from the Federal Home Loan Bank of New York.
10. Long-Term Debt
On July 15, 1993, the Company issued $23,000,000 of 8 3/8% subordinated notes
due 2003. Interest on the debt is payable semi-annually on January 15 and July
15 of each year. The notes may be redeemed in whole or in part at the option of
the Company after July 15, 2000 at a price from 102% to 100% of the principal
plus accrued interest, if any, to the date fixed for redemption, subject to
certain conditions. A portion of the notes qualify for total risk-based capital
for regulatory purposes, subject to certain limitations.
On June 9, 1997, the Company issued $57,500,000 of 8 3/4% Trust Capital
Securities through Commerce Capital Trust I, a newly formed Delaware business
trust subsidiary. The Trust Capital Securities evidence a preferred ownership
interest in the Trust of which 100% of the common equity is owned by the
Company. The proceeds from the issuance of the Trust Capital Securities were
invested in substantially similar Junior Subordinated Debt of the Company. The
Trust Capital Securities are unconditionally guaranteed by the Company. Interest
on the debt is payable quarterly in arrears on March 31, June 30, September 30,
and December 31 of each year. The Trust Capital Securities are scheduled to
mature on June 30, 2027. The Trust Capital Securities may be redeemed in whole
or in part at the option of the Company on or after June 30, 2002 at 100% of the
principal plus accrued interest, if any, to the date fixed for redemption,
subject to certain conditions. All $57,500,000 of the Trust Capital Securities
qualify as Tier I capital for regulatory capital purposes.
11. Income Taxes
The provision for income taxes consists of the following (in thousands):
1997 1996 1995
Current:
Federal $21,980 $15,026 $14,618
State 1,653 864 985
Deferred:
Federal (1,733) 106 (707)
State (308) 55 (116)
------- ------- -------
$21,592 $16,051 $14,780
------- ------- -------
The above provision includes income taxes related to securities gains of
$800,000, $586,000 and $37,000 for 1997, 1996 and 1995, respectively.
41
<PAGE>
The provision for income taxes differs from the expected statutory provision as
follows:
1997 1996 1995
Expected provision at statutory rate: 35.0% 35.0% 35.0%
Difference resulting from:
Tax-exempt interest on loans (0.3) (0.3) (0.4)
Tax-exempt interest on securities (0.8) (1.0) (0.3)
Purchase accounting adjustments 0.2 0.3 0.2
Other 0.8 2.2 1.2
---- ---- ----
34.9% 36.2% 35.7%
---- ---- ----
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
The significant components of the Companys deferred tax liabilities and assets
as of December 31, 1997 and 1996 are as follows (in thousands):
1997 1996
Deferred tax assets:
Loan loss reserves $7,525 $5,221
Other reserves 651 436
Fair value adjustment, available
for sale securities 2,333
Other 1,775 913
------ ------
Total deferred tax assets 9,951 8,903
------ ------
Deferred tax liabilities:
Depreciation 1,252 1,564
Intangibles 167 227
Fair value adjustment, available
for sale securities 2,075
Other 1,924 1,101
------ ------
Total deferred tax liabilities 5,418 2,892
------ ------
Net deferred assets $4,533 $6,011
------ ------
12. Commitments and Letters of Credit
In the normal course of business, there are various outstanding commitments to
extend credit, such as letters of credit, which are not reflected in the
accompanying financial statements. These arrangements have credit risk
essentially the same as that involved in extending loans to customers and are
subject to the Companys normal credit policies. Collateral is obtained based on
managements credit assessment of the borrower. At December 31, 1997, the Banks
had outstanding standby letters of credit in the amount of $18,619,000.
In addition, the Banks are committed as of December 31, 1997 to advance
$81,204,000 on construction loans, $126,828,000 on home equity lines of credit
and $86,043,000 on lines of credit. All other commitments total approximately
$121,705,000. The Company anticipates no material losses as a result of these
transactions.
42
<PAGE>
13. Common Stock and Preferred Stock
At December 31, 1997, the Companys common stock had a par value of $1.5625. The
Company had 50,000,000 shares authorized as of this date.
At December 31, 1997 the Company had 417,000 shares of Series C ESOP Cumulative
Convertible Preferred Stock authorized and issued without par value (stated
value of $1.00 per share), which were converted to the Companys common stock
effective March 1, 1998 (see Note 14). These shares have been issued to the
Companys Employee Stock Ownership Plan (see Note 15).
On October 16, 1992, the Company issued 776,875 shares of non-voting Series A 9%
cumulative convertible preferred stock. Each share of the Series A preferred
stock gave the holder thereof the option to purchase one share of common stock
for $9.60 per share, subject to adjustment in certain events. During 1996, the
Company exercised its option to redeem all outstanding shares of the Series A
preferred stock. 30,000 of the redeemed shares were converted into 30,000 shares
of non-convertible non-voting preferred stock, which were held in treasury by
the Company at December 31, 1996, and then retired in 1997.
In conjunction with the redemption, approximately 727,000 shares of common stock
were issued upon the exercise of the attached purchase options. Net proceeds to
the Company were approximately $6.6 million.
On December 16, 1997, the Board of Directors declared a cash dividend of $0.24
for each share of common stock outstanding and a 5% stock dividend payable
January 21, 1998 to stockholders of record on January 7, 1998. Payment of the
stock dividend resulted in the issuance of 801,672 additional common shares
and cash of $38,539 in lieu of fractional shares.
14. Earnings Per Share
In February, 1997, the FASB issued statement No. 128 Earnings Per Share (FAS
128) which became effective for the Company as of December 31, 1997. FAS 128
changes the method used to compute earnings per share, and replaces the former
primary and fully-diluted earnings per share with basic and diluted earnings per
share, respectively. Under the new requirements for calculating basic earnings
per share, the dilutive effect of stock options is excluded. For purposes of
comparability, all prior period earnings per share data has been restated.
43
<PAGE>
The calculation of earnings per share follows (in thousands, except for per
share amounts):
Year Ended December 31,
(dollars in thousands) 1997 1996 1995
Basic:
Net income $40,325 $28,250 $26,652
Preferred stock dividends 563 842 1,122
------- ------- -------
Net income applicable to common stock $39,762 $27,408 $25,530
------- ------- -------
Average common shares outstanding 16,554 14,374 14,010
------- ------- -------
Net income per common share basic $2.40 $1.91 $1.82
------- ------- -------
Diluted:
Net income $40,325 $28,250 $26,652
Additional ESOP contribution
under the if-converted method 46 102 133
------- ------- -------
Net income applicable to common stock
on a diluted basis $40,279 $28,148 $26,519
------- ------- -------
Average common shares outstanding 16,554 14,374 14,010
Additional shares considered in diluted
computation assuming:
Exercise of stock options/rights 717 1,541 1,103
Conversion of preferred stock 647 647 647
------- ------- -------
Average common shares outstanding
on a diluted basis 17,918 16,562 15,760
------- ------- -------
Net income per common share - diluted $2.25 $1.70 $1.68
------- ------- -------
Effective March 1, 1998 the Trustees of the Company's Employee Stock Ownership
Plan exercised their right to convert all 417,000 shares of Series C ESOP
Cumulative Convertible Preferred Stock held by the ESOPinto 646,904 shares of
the Company's common stock.
15. Benefit Plans
Employee Stock Option Plan
The Company has the 1997 Employee Stock Option Plan (the Plan) for the officers
and employees of the Company and the Banks as well as a plan for its
non-employee directors. The Plan authorizes the issuance of up to 2,625,000
shares of common stock (as adjusted for stock dividends) upon the exercise of
options. 605,745 options have been issued under the Plan. The option price for
options issued under the Plan must be at least equal to 100% of the fair market
value of the Companys common stock as of the date the option is granted. These
options generally become exercisable to the extent of 25% annually beginning one
year from the date of grant, although the amount exercisable beginning one year
from the date of grant may be greater depending on the employees length of
service. The options expire not later than 10 years from the date of grant.
44
<PAGE>
Information concerning option activity for the periods indicated is as follows:
Shares Under Weighted Average
Option Exercise Price
Balance at January 1, 1996 1,233,528 $11.66
Options granted 746,196 23.17
Options exercised 90,232 10.99
Options canceled 27,238 15.82
Balance at December 31, 1996 1,862,254 16.32
-----------------------------------------------------
Options granted 623,070 44.16
Options exercised 353,938 11.38
Options canceled 20,463 16.61
Balance at December 31, 1997 2,110,923 25.47
-----------------------------------------------------
Information concerning options outstanding as of December 31, 1997 is as
follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted-Average Weighted- Weighted-
Range of Number Remaining Average Number Average
exercise prices Outstanding Contractural Life Exercise Price Exercisable Exercise Price
<S> <C> <C> <C> <C> <C>
$4.44 to $19.99 1,067,641 7.56 $14.24 968,248 $13.97
$20.00 and greater 1,043,282 9.99 36.95 350,238 26.23
</TABLE>
All shares and per share prices have been adjusted for the 5% common stock
dividend declared on December 16, 1997.
The Company has elected not to adopt the recognition provisions of FASB
Statement No. 123, Accounting for Stock-Based Compensation (FAS 123), which
requires a fair value based method of accounting for all employee stock
compensation plans. The Company will continue to follow APB Opinion No. 25,
Accounting for Stock Issued to Employees and related Interpretations to account
for its stock-based compensation plans. If the Company had accounted for stock
options granted in 1997, 1996, and 1995 under the fair value provisions of FAS
123, net income and earnings per share would have been as follows (in thousands,
except per share amounts):
1997 1996 1995
Pro forma net income $38,558 $27,257 $26,014
Pro forma earnings per share:
Basic $2.30 $1.84 $1.78
Diluted 2.16 1.65 1.65
Due to the inclusion of only options granted in 1997, 1996, and 1995, the pro
forma effects of applying FAS 123 in 1997 and 1996 may not be representative of
the pro forma impact in future years.
The fair value of options granted in 1997, 1996, and 1995 was estimated at the
date of grant using a Black-Scholes option pricing model with the following
weighted average assumptions: risk-free interest rates of 5.57% to 6.70%,
dividend yields of 3% to 4%, volatility factors of the expected market price of
the Companys common stock of .215 to .332, and a weighted average expected life
of the options of four years.
45
<PAGE>
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Companys stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in managements opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its stock options.
Employee Stock Ownership Plan
As of December 31, 1997 the Company maintains an Employee Stock Ownership Plan
(ESOP) for the benefit of its officers and employees who meet age and service
requirements. The ESOP held 417,000 shares of Series C ESOP Cumulative
Convertible Preferred Stock, purchased at a price of $18.00 per share. The
Company guarantees a loan outstanding held by the ESOP. The loan is payable in
quarterly installments with the final payment due January 28, 2000. The loan
currently bears interest at a variable rate, although the rate can be fixed at
future repricing dates in accordance with the loan agreement. The preferred
stock was pledged as security to the loan and paid an annual dividend of $1.35
per share, which the ESOP applied to its obligations under the loan. Effective
March 1, 1998, the Trustees of the ESOP exercised their right to convert all
417,000 shares of the preferred stock into 646,904 shares of the Companys common
stock, a portion of which is pledged as security for the loan.
Employer contributions are determined at the discretion of the Board of
Directors but will be sufficient to enable the ESOP to discharge current
obligations, including interest, under the loan. The total contribution expense
associated with the Plan for 1997, 1996 and 1995 was $1,177,000, $885,000 and
$934,000, respectively.
In addition, Commerce NJ had a loan outstanding to the Employee Stock Ownership
Plan of Independence totaling $1,070,000 at December 31, 1996. This amount was
recorded as a deduction from stockholders equity. The loan was paid off in May,
1997. After receiving a positive ruling from the Internal Revenue Service, the
Independence ESOP was terminated during 1997. No contribution expense was
recorded related to the Independence ESOP in 1997.
Post-employment or Post-retirement Benefits
The Company offers no post-employment or post-retirement benefits.
16. Fair Value of Financial Instruments
FASB Statement No. 107, Disclosures about Fair Value
of Financial Instruments (FAS 107), requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value. 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. FAS 107
excludes certain financial instruments and all non-financial instruments from
its disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
46
<PAGE>
The following table represents the carrying amounts and fair values of the
Companys financial instruments at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
December 31,
1997 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $167,900 $167,900 $208,833 $208,833
Mortgages held for sale 7,260 7,260 1,314 1,314
Trading securities 7,911 7,911 15,327 15,327
Investment securities 2,189,152 2,184,935 1,604,999 1,583,375
Loans (net) 1,390,028 1,416,151 1,248,880 1,270,178
Financial liabilities:
Deposits 3,369,404 3,375,949 2,919,670 2,931,212
Other borrowed money 223,300 223,300 70,000 70,000
Obligation to ESOP 2,308 2,308 3,333 3,333
Long-term debt 80,500 85,266 23,000 24,610
--------- --------- --------- ---------
Off-balance sheet instruments:
Standby letters of credit $(186) $(153)
Commitments to extend credit (520) (550)
</TABLE>
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash and cash equivalents, mortgages held for sale and trading securities: The
carrying amounts reported approximate those assets fair value.
Investment securities: Fair values for investment securities are based on quoted
market prices, where available. If quoted market prices are not available, fair
values are based on quoted market prices of comparable instruments.
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 receivable were estimated using discounted cash flow analyses,
using interest rates currently being offered for loans with similar terms to
borrowers of similar credit quality. Loans with significant collectibility
concerns were fair valued on a loan-by-loan basis utilizing a discounted cash
flow method. The carrying amount of accrued interest approximates its fair
value.
Deposit liabilities: The fair values disclosed for demand deposits (e.g.,
interest-bearing and noninterest-bearing 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). 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
of deposit to a schedule of aggregated expected monthly maturities on time
deposits.
47
<PAGE>
Other borrowed money: The carrying amounts reported approximate fair value.
Obligation to ESOP: The fair value of the guarantee of the ESOP
obligation is estimated using a discounted cash flow calculation that applies
interest rates currently being offered to obligations of a similar maturity.
Long-term debt: Current quoted market prices were used to estimate fair value.
Off-balance sheet instruments:
Off-balance sheet instruments of the Company consist of letters of credit, loan
commitments and unfunded lines of credit. Fair values for the Companys
off-balance sheet instruments are based on fees currently charged to enter into
similar agreements, taking into account the remaining terms of the agreements
and the counterparties credit standing.
17. Quarterly Financial Data (Unaudited)
The following represents summarized unaudited quarterly financial data of the
Company which, in the opinion of management, reflects adjustments (comprising
only normal recurring accruals) necessary for fair presentation (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended
December 31 September 30 June 30 March 31
1997
<S> <C> <C> <C> <C>
Interest income $65,375 $64,315 $59,148 $55,339
Interest expense 26,735 26,735 22,694 20,873
Net interest income 38,640 37,580 36,454 34,466
Provision for loan losses 574 1,142 1,326 1,626
Net investment securities gains 568 1,717
Provision for federal and state
income taxes 5,166 5,719 5,558 5,149
Net income 10,480 10,377 10,034 9,434
Net income applicable to
common stock 10,339 10,236 9,894 9,293
Net income per common share:
Basic $0.62 $0.61 $0.60 $0.57
Diluted 0.58 0.58 0.56 0.53
1996
Interest income $54,479 $51,874 $49,093 $47,289
Interest expense 20,785 19,695 18,526 18,316
Net interest income 33,694 32,179 30,567 28,973
Provision for loan losses 2,309 980 774 794
Net investment securities gains 820 36 48 771
Provision for federal and state
income taxes 4,127 3,877 4,107 3,940
Net income 6,445 7,134 7,510 7,161
Net income applicable to
common stock 6,305 6,993 7,230 6,880
Net income per common share:
Basic $0.42 $0.48 $0.52 $0.49
Diluted 0.37 0.43 0.46 0.44
</TABLE>
48
<PAGE>
18. Condensed Financial Statements of the Parent Company and Other Matters
Balance Sheets
December 31,
(dollars in thousands) 1997 1996
Assets
Cash $62,457 $8,294
Securities available for sale 11,451 8,374
Securities held to maturity 41 77
Investment in Banks 254,407 209,335
Other assets 10,042 8,713
-------- --------
$338,398 $234,793
-------- --------
Liabilities
Other liabilities $4,830 $4,496
Trust Capital Securities 57,500
Long-term debt 23,000 23,000
Obligation to Employee Stock
Ownership Plan (ESOP) 2,308 3,333
-------- --------
87,638 30,829
-------- --------
Stockholders equity
Common stock 25,309 23,546
Series C preferred stock 7,506 7,506
Series A preferred stock 30
Capital in excess of par or stated value 167,529 144,551
Retained earnings 54,348 36,086
-------- --------
254,692 211,719
Less commitment to ESOP 2,308 4,403
Less treasury stock 1,624 3,352
-------- --------
Total stockholders equity 250,760 203,964
-------- --------
$339,898 $234,793
-------- --------
<TABLE>
<CAPTION>
Statements of Income
Year Ended December 31,
(dollars in thousands) 1997 1996 1995
<S> <C> <C> <C>
Income:
Dividends from Banks $14,448 $11,406 $8,203
Interest income 248 728 207
Other 491 173 325
------ ------- -------
15,187 12,307 8,735
------ ------- -------
Expenses:
Interest expense 4,961 2,025 2,025
Operating expenses 2,426 1,911 1,479
------ ------- -------
7,387 3,936 3,504
Income before income taxes and equity
in undistributed income of Banks 7,800 8,371 5,231
Income tax benefit (2,141) (975) (956)
------ ------- -------
9,941 9,346 6,187
Equity in undistributed income of Banks 30,384 18,904 20,465
------ ------- -------
Net income 40,325 28,250 26,652
Dividends on preferred stock 563 842 1,122
------ ------- -------
Net income applicable to common stock $39,76 $27,408 $25,530
------ ------- -------
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
Statements of Cash Flows
Year Ended December 31,
(dollars in thousands) 1997 1996 1995
<S> <C> <C> <C>
Operating activities:
Net income $40,325 $28,250 $26,652
Adjustments to reconcile net income to net
cash provided by operating activities:
Undistributed income of Banks (30,384) (18,904) (20,465)
Gains on sales of securities available for sale (301) (106)
(Increase) decrease in other assets (1,329) 137 429
Increase in other liabilities 359 1,428 706
------- ------- -------
Net cash provided by operating activities 8,670 10,911 7,216
Investing activities:
Investment in Banks (2,000) (3,000) (25,925)
Proceeds from sale of securities available for sale 1,090 189
Purchase of equity securities (5,636) (1,572) (918)
Other (50) 69 18
------- ------- -------
Net cash used by investing activities (6,596 (4,503) (26,636)
Financing activities:
Net proceeds from common stock offering 25,774
Tax benefit from ESOP dividends 197 197 197
Proceeds from issuance of common stock
under dividend reinvestment plan 4,259 3,397 1,612
Cash dividends (12,484) (8,430) (7,116)
Proceeds from exercise of stock options 2,617 743 1,068
Purchase of treasury stock (352)
Proceeds from issuance of long-term debt 57,500
------- ------- -------
Net cash (used) provided by financing
activities 52,089 (4,093) 21,183
Increase in cash and cash equivalents 54,163 2,315 1,763
Cash and cash equivalents at beginning of year 8,294 5,979 4,216
------- ------- -------
Cash and cash equivalents at end of year $62,457 $8,294 $5,979
------- ------- -------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $4,809 $1,926 $1,926
Income taxes 21,377 11,905 12,245
------- ------- -------
</TABLE>
50
<PAGE>
Holders of common stock of the Company are entitled to receive dividends when
declared by the Board of Directors out of funds legally available. Under the New
Jersey Business Corporation Act, the Company may pay dividends only if it is
solvent and would not be rendered insolvent by the dividend payment and only to
the extent of surplus (the excess of the net assets of the Company over its
stated capital).
The approval of the Comptroller of the Currency is required for a national bank
to pay dividends if the total of all dividends declared in any calendar year
exceeds net profits (as defined) for that year combined with its retained net
profits for the preceding two calendar years. Under this formula, Commerce NJ,
Commerce PA, Commerce Shore, and Commerce North can declare dividends in 1998
without approval of the Comptroller of the Currency of approximately
$26,229,000, $5,885,000, $8,106,000, and $8,017,000, respectively, plus an
additional amount equal to each banks net profit for 1998 up to the date of any
such dividend declaration.
The Federal Reserve Act requires the extension of credit by Commerce NJ,
Commerce PA, Commerce Shore, and Commerce North to certain affiliates, including
Commerce Bancorp, Inc. (parent), be secured by readily marketable securities,
that extension of credit to any one affiliate be limited to 10% of the capital
and capital in excess of par or stated value, as defined, and that extensions of
credit to all such affiliates be limited to 20% of capital and capital in excess
of par or stated value. At December 31, 1997 and 1996, the Company complies with
these guidelines.
The Company and its subsidiaries 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 Companys financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Company must meet specific guidelines that involve quantitative measures of
the Companys assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Companys capital amounts
and classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and its subsidiaries to maintain minimum amounts and ratios
of total and Tier I capital (as defined in the regulations) to risk-based assets
(as defined) and of Tier I capital to average assets (as defined), or leverage.
Management believes, as of December 31, 1997, that the Company and its
subsidiaries meet all capital adequacy requirements to which they are subject.
51
<PAGE>
The following table presents the Companys and Commerce NJs risk-based and
leverage capital ratios at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
Per Regulatory Guidelines
Actual Minimum Well Capitalized
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
December 31, 1997
Company
Risk based capital ratios:
Tier 1 $299,191 15.66% $76,439 4.00% $114,658 6.00%
Total capital 338,852 17.73 152,878 8.00 191,097 10.00
Leverage ratio 299,191 7.81 114,971 3.00 191,619 5.00
Commerce NJ Risk based capital ratios:
Tier 1 $161,621 12.55% $51,494 4.00% $77,241 6.00%
Total capital 175,617 13.64 102,988 8.00 128,735 10.00
Leverage ratio 161,621 6.27 77,270 3.00 128,784 5.00
December 31, 1996
Company
Risk based capital ratios:
Tier 1 $203,898 12.57% $64,908 4.00% $97,362 6.00%
Total capital 244,873 15.09 129,816 8.00 162,269 10.00
Leverage ratio 203,898 6.46 94,684 3.00 157,807 5.00
Commerce NJ Risk based capital ratios:
Tier 1 $146,226 13.61% $42,984 4.00% $64,475 6.00%
Total capital 157,735 14.68 85,967 8.00 107,459 10.00
Leverage ratio 146,226 7.06 62,165 3.00 103,609 5.00
</TABLE>
52
<PAGE>
The Board of Directors and Stockholders
Commerce Bancorp, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Commerce
Bancorp, Inc. and Subsidiaries as of December 31, 1997 and 1996 and the related
consolidated statements of income, changes in stockholders equity, and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of Independence Bancorp,
Inc. a wholly-owned subsidiary, which statements reflect total assets
constituting 11.6% in 1996, and net interest income constituting 13.6% in 1996
and 13.4% in 1995, of the related consolidated totals. Those statements were
audited by other auditors whose reports have been furnished to us, and our
opinion, insofar as it relates to data included for Independence Bancorp, Inc.,
is based solely on the reports of other auditors.
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 and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Commerce Bancorp, Inc. and Subsidiaries
at December 31, 1997 and 1996, and the consolidated results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997 in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
January 26, 1998
53
<PAGE>
Corporate Information
Headquarters
Commerce Bancorp, Inc.
Commerce Atrium
1701 Route 70 East
Cherry Hill, New Jersey 08034-5400
Annual Shareholders' Meeting
Commerce Bancorp, Inc.'s annual shareholders' meeting will be held on Monday,
June 29, 1998 at 5:30 p.m. at Commerce University, 17000 Horizon Way at
Springdale Road, Mt. Laurel, New Jersey.
Dividend Reinvestment and Stock Purchase Plan
Commerce Bancorp, Inc. offers its shareholders a convenient plan to increase
their investment in the company. Through the Dividend Reinvestment and Stock
Purchase Plan, holders of common stock may have their quarterly dividends and
optional cash payments of up to $5,000 per quarter reinvested in additional
common shares at a 3% discount from the market price and without brokerage fees,
commissions, or service charges. Shareholders not enrolled in this plan, as well
as brokers and custodians who hold stock for clients, may receive a plan
prospectus and enrollment card by contacting ChaseMellon Shareholder Services,
L.L.C. at (800) 526-0801, or Cathy L. Lowther, Assistant Secretary, at
(609)751-9000.
Contacts
Analysts, portfolio managers, and others seeking financial information about
Commerce Bancorp, Inc. should contact C. Edward Jordan Jr., Executive Vice
President, at (609) 751-9000.
News media representatives and others seeking general corporate information
should contact John J. Cunningham Jr., Senior Vice President, at (609) 751-9000.
Shareholders seeking assistance should contact Cathy L. Lowther, Assistant
Secretary, at (609)751-9000. For assistance with stock records, please contact
ChaseMellon Shareholder Services, L.L.C. at (800) 526-0801.
Annual Report and Form 10-K
Additional copies of Commerce Bancorp, Inc.'s Annual Report and Form 10-K are
available without charge by writing:
Commerce Bancorp, Inc.
Shareholder Relations
1701 Route 70 East
Cherry Hill, New Jersey 08034-5400.
New York Stock Exchange Symbol
Shares of Commerce Bancorp, Inc.'s common stock are traded on the New York Stock
Exchange under the symbol CBH. Commerce Capital Trust I's Trust Capital
Securities are traded on the New York Stock Exchange under the symbol CBHPrT.
Transfer and Dividend Paying Agent/Registrar
ChaseMellon Shareholder Services, L.L.C.
85 Challenger Road
Overpeck Centre
Ridgefield Park, NJ 07660
67
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-3 No. 33-40465 and Form S-4 No. 33-10771) of Commerce Bancorp, Inc. and
the related Prospectuses, and in the Registration Statement (Form S-8 No.
33-82742) pertaining to the Stock Option Plans of Commerce Bancorp, Inc. of our
report dated January 26, 1998 with respect to the consolidated financial
statements of Commerce Bancorp, Inc. and Subsidiaries included in this Annual
Report (Form 10-K) for the year ended December 31, 1997.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
March 27, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 167,900
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 7,911
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