As filed with the Securities and Exchange Commission on February 8 , 1996
Registration No. 333-00119
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AMWEST INSURANCE GROUP, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 6351 95-2672141
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification code number) ID No.)
6320 Canoga Avenue, Suite 300
Woodland Hills, California 91367
(Address, including zip code, and telephone
number, including area code, of registrant's
principal executive offices)
-----------------------------
Steven R. Kay
Senior Vice President, Chief Financial Officer and Treasurer
Amwest Insurance Group, Inc.
6320 Canoga Avenue
Woodland Hills, California 91367
(818) 704-1111
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-----------------------------
The Commission is requested to send copies of all
communications to:
Jonathan K. Layne Stephen E. Newton
Gibson, Dunn & Crutcher Kindel & Anderson L.L.P.
333 South Grand Avenue 555 South Flower Street, 29th Floor
Los Angeles, California 90071-3197 Los Angeles, California 90071-2498
Approximate date of commencement of proposed sale to the public: As
soon as practicable following the effective date of the Registration
Statement and the satisfaction or waiver of all other conditions to the
merger described in the enclosed Proxy Statement/Prospectus.
- --------------------------------------------------------------------------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
Title of Number of Proposed Maximum Proposed Maximum
Each Class of Shares Offering Aggregate
Securities to be to be Price Per Offering Registration
Registered Registered Share Price Fee
Common Stock,
$.01 par value (1) 992,000 shares $15.25 (2) $15,128,000(2) $ 5,216.55 (3)
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(1) Includes an equal number of Preferred Stock Purchase Rights pursuant to
the Registrant's Stockholders' Rights Agreement dated May 10, 1989.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f) and based on the average of the high and low
prices of the Common Stock of Amwest Insurance Group, Inc. on the
American Stock Exchange on January 4, 1996 of $15.25.
(3) Amount previously remitted with the S-4 Registration Statement
filing on January 9, 1996 was $3,025.60. Amount remitted with
this Pre-effective Amendment No. 1 is $2,190.95.
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The Registrant hereby amends the Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
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<PAGE>
AMWEST INSURANCE GROUP, INC.
CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(b) OF REGULATION S-K SHOWING
LOCATIONS IN THE PROSPECTUS OF
THE INFORMATION REQUIRED BY PART 1 OF FORM S-4
<TABLE>
<CAPTION>
Form S-4 Caption Caption in Prospectus
<S> <C>
1. Forepart of the Registration Statement and Forepart of Registration Statement; Cross-Reference Sheet;
Outside Front Cover Page of Prospectus Outside Front Cover Page.
2. Inside Front and Outside Back Cover Pages of Inside Front Cover Page; Available Information;
Prospectus Incorporation by Reference; Table of Contents.
3. Risk Factors, Ratio of Earnings to Fixed Summary; Risk Factors.
Charges, and Other Information
4. Terms of the Transaction Summary; General Information; The Proposal to Approve and
Adopt the Agreement and Plan of Merger; The
Merger Agreement; Certain Other Agreements; Description
of Capital Stock of Amwest; Comparison of Stockholder
Rights; Incorporation by Reference.
5. Pro Forma Financial Information Unaudited Pro Forma Condensed Combined Financial
Statements.
6. Material Contacts With the Company Being Acquired The Proposal to Approve and Adopt the Agreement and Plan
of Merger.
7. Additional Information Required For Reoffering Not applicable.
by Persons and Parties Deemed to Be Underwriters
8. Interests of Named Experts and Counsel The Proposal to Approve and Adopt the Agreement and Plan
of Merger; -- Opinion of Jefferies; -- Opinion
of Wedbush Morgan; Legal Matters; Experts.
9. Disclosure of Commission Position on Not applicable.
Indemnification For Securities Act Liabilities
10. Information With Respect to S-3 Registrants Incorporation by Reference; Summary; Unaudited Pro Forma
Condensed Combined Financial Statements.
11. Incorporation of Certain Information by Reference Incorporation by Reference.
12. Information With Respect to S-2 or S-3 Not applicable.
Registrants
13. Incorporation of Certain Information by Reference Not applicable.
14. Information With Respect to Registrants Other Not applicable.
Than S-3 or S-2 Registrants
15. Information With Respect to S-3 Companies Incorporation by Reference; Summary; Unaudited Pro Forma
Condensed Combined Financial Statements.
16. Information With Respect to S-2 or S-3 Companies Not applicable.
17. Information With Respect to Companies Other Than Not applicable.
S-2 or S-3 Companies
18. Information if Proxies, Consents or Summary; General Information; The Condor Special Meeting;
Authorizations Are to be Solicited The Amwest Special Meeting; The Proposal to Approve and
Adopt the Agreement and Plan of Merger; The Merger
Agreement; Certain Other Agreements; Dissenters' Rights;
Management of Amwest after the Merger; Description of
Capital Stock of Amwest; Comparison of Stockholder
Rights; Incorporation by Reference.
19. Information if Proxies, Consents or Not applicable.
Authorizations Are not to be Solicited or in an
Exchange Offer
</TABLE>
<PAGE>
AMWEST INSURANCE GROUP, INC.
6320 Canoga Avenue, Suite 300
Woodland Hills, California 91367
February 13, 1996
Dear Stockholder:
You are cordially invited to attend the Special Meeting of
Stockholders of Amwest Insurance Group, Inc. ("Amwest") to be held at 9:00
a.m. on Thursday, March 14, 1996, at the Warner Center Hilton, 6360
Canoga Avenue, Woodland Hills, California 91367.
At this important meeting, you will be asked to consider and vote upon
a proposal to approve and adopt an Agreement and Plan of Merger, dated as of
November 30, 1995 (the "Merger Agreement"), by and between Amwest and Condor
Services, Inc. ("Condor"), pursuant to which Condor will be merged with and into
Amwest (the "Merger"), and all transactions contemplated by the Merger,
including the issuance of shares of Amwest Common Stock pursuant to the Merger
Agreement. Your Board of Directors believes that the combination of Amwest and
Condor will create a stronger, more efficient and better diversified company.
Pursuant to the Merger, each outstanding share of Condor common stock
will be converted into the right to receive 0.5 of a share of Amwest common
stock, $0.01 par value per share (subject to adjustment if the Base Period
Trading Price of Amwest common stock is less than $12.50 or more than $17.50 per
share), including the corresponding percentage of rights to purchase Amwest's
Series A Junior Participating Preferred Stock. The proposed Merger is described
in the accompanying Joint Proxy Statement/Prospectus, the forepart of which
includes a summary of the terms of the Merger and certain other information
relating to the proposed transaction.
In addition, you will be asked to consider and vote upon a proposal to
amend the Amwest Insurance Group, Inc. Stock Option Plan (the "Amwest Stock
Option Plan") to permit the grant of Non-Incentive Options at exercise prices
less than the fair market value of Amwest's common stock on the date of grant in
order to effectuate the cancellation of Condor stock options and issuance of
Amwest stock options to Condor employees pursuant to the Merger Agreement.
YOUR BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS FAIR TO, AND IN THE
BEST INTERESTS OF, AMWEST AND ITS STOCKHOLDERS. THE BOARD HAS UNANIMOUSLY
APPROVED THE TERMS OF THE MERGER AND RECOMMENDS THAT YOU VOTE TO APPROVE AND
ADOPT THE MERGER AGREEMENT. THE BOARD ALSO UNANIMOUSLY RECOMMENDS A VOTE FOR THE
APPROVAL OF THE AMENDMENT TO THE AMWEST STOCK OPTION PLAN AS WELL AS FOR THE
RATIFICATION OF THE ENTIRE PLAN.
It is important that your shares be represented at the Special Meeting,
regardless of the number you hold. Therefore, please sign, date and return your
proxy card as soon as possible, whether or not you plan to attend the Special
Meeting. This will not prevent you from voting your shares in person if you
subsequently choose to attend the Special Meeting.
Sincerely,
Richard H. Savage
Chairman of the Board and Co-Chief
Executive Officer
<PAGE>
AMWEST INSURANCE GROUP, INC.
6320 Canoga Avenue, Suite 300
Woodland Hills, California 91367
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held March 14, 1996
A Special Meeting of Stockholders of Amwest Insurance Group, Inc., a
Delaware corporation ("Amwest"), will be held at the Warner Center Hilton, 6360
Canoga Avenue, Woodland Hills, California 91367 at 9:00 , Thursday, March 14 ,
1996 for the following purposes:
1. To approve and adopt an Agreement and Plan of Merger,
dated as of November 30, 1995 (the "Merger Agreement"),
between Amwest and Condor Services, Inc. ("Condor"),
pursuant to which each outstanding share of Condor common
stock, $0.01 par value per share (other than shares owned by
Condor as treasury stock or by Amwest or its subsidiaries,
all of which shall be canceled), will be converted into th
right to receive 0.5 of a share of Amwest common stock, $0.01
par value per share (subject to adjustment if the Base
Period Trading Price of Amwest common stock is less than
$12.50 or more than $17.50 per share), including the
corresponding percentage of rights to purchase Amwest's
Series A Junior Participating Preferred Stock. A copy of
the Merger Agreement is attached as Annex A to the Joint
Proxy Statement/Prospectus accompanying this Notice.
2. To approve an amendment to and ratify Amwest's Stock Option
Plan regarding the permitted exercise price of Non-Incentive
Options under the plan.
3. To transact such other business as may properly be
brought before the meeting and any adjournment thereof.
The Board of Directors has fixed the close of business on February 12,
1996 as the record date for the determination of the holders of Amwest's common
stock entitled to notice of, and to vote at, the meeting. The Merger and other
related matters are more fully described in the accompanying Joint Proxy
Statement/Prospectus, and the annexes thereto, which form a part of this notice.
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING. TO
ENSURE YOUR REPRESENTATION AT THE MEETING, HOWEVER, YOU ARE URGED TO COMPLETE,
DATE, SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE. A POSTAGE-PRE-
PAID ENVELOPE IS ENCLOSED FOR THAT PURPOSE. ANY STOCKHOLDER ATTENDING THE
MEETING MAY VOTE IN PERSON EVEN IF THAT STOCKHOLDER HAS RETURNED A PROXY.
By order of the Board of Directors,
Richard H. Savage
Chairman of the Board and Co-Chief
Executive Officer
Dated: February 13, 1996
<PAGE>
CONDOR SERVICES, INC.
AND
AMWEST INSURANCE GROUP, INC.
JOINT PROXY STATEMENT
------------------
AMWEST INSURANCE GROUP, INC.
PROSPECTUS
------------------
This Joint Proxy Statement/Prospectus ("Proxy Statement/Prospectus")is
being furnished to the holders of common stock, par value $0.01 per share (the
"Condor Common Stock"), of Condor Services, Inc., a Delaware corporation
("Condor"), in connection with the solicitation of proxies by the Board of
Directors of Condor for use at a Special Meeting of Stockholders of Condor to be
held at the Radisson Park Hotel - LAX South, 1400 Park View Avenue, Manhattan
Beach , California, on March 14, 1996, at 9:00 a.m., and any and all
adjournments or postponements thereof (the "Condor Special Meeting").
This Proxy Statement/Prospectus is also being furnished to the holders
of common stock, par value $0.01 per share (the "Amwest Common Stock"), of
Amwest Insurance Group, Inc., a Delaware corporation ("Amwest"), in connection
with the solicitation of proxies by the Board of Directors of Amwest for use at
a Special Meeting of Stockholders of Amwest to be held at the Warner Center
Hilton, 6360 Canoga Avenue, Woodland Hills, California, on March 14, 1996, at
9:00 a.m., and any and all adjournments or postponements thereof (the "Amwest
Special Meeting").
This Proxy Statement/Prospectus relates, among other things, to the
proposed merger (the "Merger") of Condor into Amwest pursuant to an Agreement
and Plan of Merger, dated as of November 30, 1995 (the "Merger Agreement"), by
and between Amwest and Condor. Upon consummation of the Merger, the separate
existence of Condor shall thereupon cease. In the Merger, each outstanding share
of Condor Common Stock (other than shares owned by Condor as treasury stock or
by Amwest or its subsidiaries, all of which shall be canceled) will be converted
into the right to receive 0.5 of a share of Amwest Common Stock (subject to
adjustment if the Base Period Trading Price of Amwest Common Stock is less than
$12.50 or more than $17.50 per share). No fractional shares of Amwest Common
Stock will be issued in the Merger. Consummation of the Merger is subject to
various conditions, including the approval of the Merger by a majority of the
outstanding shares of Condor Common Stock at the Condor Special Meeting and the
approval of the Merger by a majority of the outstanding shares of Amwest Common
Stock at the Amwest Special Meeting.
In addition, Amwest is soliciting proxies with respect to the approval
of a proposal to amend and ratify the Amwest Insurance Group, Inc. Stock Option
Plan (the "Amwest Stock Option Plan") to change the permitted exercise price of
Non-Incentive Options under the Amwest Stock Option Plan.
Amwest has filed a Registration Statement on Form S-4 (such
Registration Statement and all exhibits relating thereto and any amendments
thereof, the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with the Securities and Exchange Commission (the
"Commission") covering the shares of Amwest Common Stock to be issued in
connection with the Merger. This Proxy Statement/Prospectus along with the
documents and portions of documents incorporated herein by reference also
constitutes the prospectus of Amwest filed as part of the Registration Statement
relating to approximately 992,000 shares of Amwest Common Stock expected to be
issued to Condor stockholders in connection with the Merger.
Amwest Common Stock is traded on the American Stock Exchange (the
"AMEX") under the symbol "AMW". On February 12, 1996, the closing sales price
for Amwest Common Stock as reported on AMEX was $___ per share.
All information contained in this Proxy Statement/Prospectus with
respect to Condor has been provided by Condor. All information contained in this
Proxy Statement/Prospectus with respect to Amwest has been provided by Amwest.
This Proxy Statement/Prospectus and the accompanying forms of proxy are
first being mailed to stockholders of Amwest and Condor on or about February 13,
1996. A stockholder who has given a proxy may revoke it at any time prior to its
exercise. See "The Condor Special Meeting - Record Date; Voting Rights; Proxies"
and "The Amwest Special Meeting - Record Date; Voting Rights; Proxies".
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is February 13, 1996.
<PAGE>
No person has been authorized to give any information or to make any
representation not contained or incorporated by reference in this Proxy
Statement/Prospectus and, if so given or made, such information or
representation not contained herein must not be relied upon as having been
authorized. This Proxy Statement/Prospectus does not constitute an offer to
sell, or a solicitation of an offer to purchase, any of the securities offered
by this Proxy Statement/Prospectus, or the solicitation of a proxy, in any
jurisdiction to or from any person to or from whom it is unlawful to make such
offer or solicitation of an offer, or proxy solicitation in such jurisdiction.
Neither the delivery of this Proxy Statement/Prospectus nor the issuance or sale
of any securities hereunder shall under any circumstances create any implication
that there has been no change in the information set forth herein since the date
hereof or incorporated by reference herein since the date hereof.
AVAILABLE INFORMATION
Amwest and Condor each are subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, each files reports, proxy statements and other information
with the Commission. Such reports, proxy statements and other information filed
may be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and should also be available for inspection and copying at the
regional offices of the Commission located at the Jacob K. Javits Federal
Building, 75 Park Place, New York, New York 10278 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such information may be
obtained at prescribed rates from the Public Reference Section of the Commission
at Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549. In addition,
material filed by Amwest can be inspected at the offices of the AMEX, 86 Trinity
Place, New York, New York 10006-1881, and the Pacific Stock Exchange
Incorporated, Additional Listing Department, 301 Pine Street, San Francisco,
California 94104, on which the shares of Amwest Common Stock are listed.
This Proxy Statement/Prospectus does not contain all the information
set forth in the Registration Statement of which this Proxy Statement/Prospectus
is a part, and which Amwest has filed with the Commission under the Securities
Act. For further information with respect to Amwest and the securities to be
issued in the Merger, reference is made to the Registration Statement.
Statements contained herein concerning the provisions of documents are
necessarily summaries of such documents and each such statement is qualified in
its entirety by reference to the copy of the applicable documents filed with the
Commission or attached as an annex hereto.
INCORPORATION BY REFERENCE
Amwest and Condor hereby incorporate by reference into this Proxy
Statement/Prospectus the following documents previously filed with the
Commission pursuant to the Exchange Act:
(1) Amwest's Annual Report on Form 10-K for the year ended
December 31, 1994;
(2) Amwest's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1995, June 30, 1995 and September 30, 1995;
(3) Amwest's Current Reports on Form 8-K dated December 12,
1995, December 21, 1995 and January 30, 1996.
(4) The description of Amwest's common stock in Amwest's
Registration Statement on Form S-1, Number 33-21498, dated May
19, 1988.
(5) Condor's Annual Report on Form 10-K for the year ended
December 31, 1994;
(6) Condor's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1995, June 30, 1995 and September 30, 1995;
(7) Condor's Current Report on Form 8-K dated April 25, 1995.
All reports and other documents filed by Amwest and Condor pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Proxy Statement/Prospectus and prior to the date of the Amwest Special Meeting
and the Condor Special Meeting shall be deemed to be incorporated by reference
into this Proxy Statement/Prospectus and to be a part hereof from the date of
filing of such reports and documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Proxy Statement/Prospectus and
the Registration Statement of which it is a part to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Proxy
Statement/Prospectus.
This Proxy Statement/Prospectus incorporates documents by reference
which are not presented herein or delivered herewith. Copies of any such
documents, other than exhibits to such documents which are not specifically
incorporated by reference therein, are available without charge to any person,
including any Condor Stockholder, to whom this Proxy Statement/Prospectus is
delivered upon written or oral request to Amwest Insurance Group, Inc.,
Attention: Corporate Secretary, P.O. Box 4500, Woodland Hills, California
91365-4500, telephone number (818) 704-1111. In order to ensure timely delivery
of the documents, any request should be made before March 4, 1996.
--------------------------------
<PAGE>
TABLE OF CONTENTS
AVAILABLE INFORMATION..................................................... iii
INCORPORATION BY REFERENCE................................................ iii
SUMMARY ................................................................. 1
The Companies.................................................... 1
The Special Meetings............................................. 2
Effective Time of the Merger..................................... 3
Surrender of Stock Certificates.................................. 3
Recommendations of the Boards of Directors....................... 4
Opinions of Investment Banking Firms............................. 4
The Merger....................................................... 4
Interests of Certain Persons in the Merger....................... 6
Certain Considerations........................................... 6
Certain Federal Income Tax Consequences.......................... 6
Dissenters' Rights............................................... 7
Comparative Rights of Stockholders............................... 7
Comparative Per Share Prices..................................... 7
Certain Other Agreements ........................................ 8
Selected Historical and Pro Forma Combined Financial Data........ 8
Recent Developments.............................................. 10
GENERAL INFORMATION....................................................... 11
RISK FACTORS.............................................................. 12
Proposition 103.................................................. 12
Regulatory Environment........................................... 13
Dependence on Key Personnel ..................................... 13
Risks of the Insurance Industry ................................. 13
THE CONDOR SPECIAL MEETING............................................... 14
Purpose of the Condor Special Meeting........................... 14
Record Date; Voting Rights; Proxies.............................. 14
Solicitation of Proxies.......................................... 14
Quorum........................................................... 14
Required Vote.................................................... 15
THE AMWEST SPECIAL MEETING................................................ 16
Purpose of the Amwest Special Meeting............................ 16
Record Date; Voting Rights; Proxies.............................. 16
Solicitation of Proxies.......................................... 16
Quorum........................................................... 17
Required Vote.................................................... 17
THE PROPOSAL TO APPROVE AND ADOPT THE AGREEMENT AND PLAN OF MERGER........ 18
General.......................................................... 18
Effective Time................................................... 18
Conversion of Shares- Procedures for Exchange of Certificates.... 18
History of the Merger............................................ 19
Recommendation of the Board of Directors of Amwest; Reasons for
the Merger....................................................... 21
Recommendation of the Board of Directors of Condor; Reasons for
the Merger....................................................... 22
Opinion of Jefferies............................................. 24
Opinion of Wedbush Morgan........................................ 27
Certain Considerations........................................... 33
Interests of Certain Persons in the Merger....................... 33
Certain Federal Income Tax Consequences.......................... 34
Anticipated Accounting Treatment................................. 35
Effect on Employee Benefit Plans................................. 36
Regulatory Approvals............................................. 36
Insurance Department Regulatory Approvals........................ 36
Federal Securities Law Consequences.............................. 36
Stock Exchange Listing........................................... 37
THE MERGER AGREEMENT...................................................... 38
The Merger....................................................... 38
Effective Time................................................... 38
Terms of the Merger.............................................. 38
Fractional Shares................................................ 39
Surrender and Payment............................................ 39
Conditions to Consummation of the Merger......................... 40
Representations and Warranties................................... 42
Conduct of Business Pending the Merger........................... 42
Certain Other Covenants.......................................... 43
Other Potential Acquirors........................................ 44
Indemnification and Insurance.................................... 44
Termination and Abandonment...................................... 44
Amendment; Waiver................................................ 45
CERTAIN OTHER AGREEMENTS.................................................. 46
DISSENTERS' RIGHTS........................................................ 47
MANAGEMENT OF AMWEST AFTER THE MERGER..................................... 48
Directors and Executive Officers After the Merger................ 48
Security Ownership of Management................................. 49
Post Merger Dividend Policy...................................... 49
Principal Stockholders of Condor................................. 49
Principal Stockholders of Amwest................................. 50
Principal Stockholders of Amwest - Pro Forma..................... 52
COMPARATIVE PER SHARE PRICES AND DIVIDENDS................................ 54
CAPITALIZATION............................................................ 56
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS............... 58
DESCRIPTION OF CAPITAL STOCK OF AMWEST.................................... 70
General.......................................................... 70
Common Stock..................................................... 70
Preferred Stock.................................................. 70
COMPARISON OF STOCKHOLDER RIGHTS.......................................... 71
Stockholder Vote Required for Certain Transactions............... 71
Special Meetings of Stockholders................................. 71
Cumulative Voting................................................ 72
Rights Plans..................................................... 72
PROPOSAL TO AMEND THE AMWEST INSURANCE GROUP, INC. STOCK OPTION PLAN...... 73
Description of the Amwest Stock Option Plan...................... 73
Section 16(b) of the Exchange Act................................ 74
Federal Income Tax Treatment..................................... 74
Option Grants.................................................... 76
OTHER MATTERS............................................................. 78
LEGAL MATTERS............................................................. 78
EXPERTS ................................................................. 78
ANNEX A - Agreement and Plan of Merger
ANNEX B - Stockholder Agreement
ANNEX C - Opinion Jefferies & Company, Inc.
ANNEX D - Opinion Wedbush Morgan Securities
ANNEX E - Amwest Insurance Group, Inc. Stock Option Plan
(as Proposed to be Amended)
<PAGE>
SUMMARY
The following is a brief summary of certain information included
elsewhere in this Joint Proxy Statement/Prospectus and the Annexes hereto (the
"Proxy Statement/Prospectus"). This Summary does not contain a complete
statement of all material information relating to the Merger Agreement and the
Merger and is subject to, and is qualified in its entirety by, the more detailed
information and financial statements contained or incorporated by reference in
this Proxy Statement/Prospectus. Stockholders of Condor and Amwest should read
carefully this Proxy Statement/Prospectus in its entirety. Certain capitalized
terms used in this summary are defined elsewhere in this Proxy
Statement/Prospectus.
The Companies
Business of Condor - Condor, an insurance holding company incorporated
in the State of Delaware, is engaged through its wholly-owned subsidiaries,
Condor Insurance Company ("Condor Insurance") and Raven Claims Services, Inc.
("Raven Claims") in providing certain property and casualty insurance coverages
and services in California and Arizona. Condor Insurance writes insurance
packages which consist principally of commercial automobile liability and
physical damage coverage and, to a lesser extent, general liability and other
related coverages (excluding hazardous waste and environmental impairment except
with respect to policies written for the intermodal trucking industry) for
insureds involved in general trucking including solid waste disposal, sand,
gravel, transit mix, logging, farm to market, intermodal trucking, less than
total load, newspaper distribution, tow truck and limousine services industries.
Insurance coverages are written for members of the Waste Industry Loss
Prevention and Safety Association, d.b.a. The Safety Association. An applicant
for a commercial policy written by Condor Insurance must become a member of The
Safety Association. Condor Insurance offers automobile private passenger
coverage in Arizona.
As used herein, the term "Condor" refers to Condor Services, Inc. and
its subsidiaries, unless the context otherwise requires. The principal executive
offices of Condor are located at 2361 Rosecrans Avenue, El Segundo, California
90245, and its telephone number is (310) 322-7344.
Business of Amwest - Amwest is an insurance holding company engaged, through
its two wholly-owned subsidiaries, Amwest Surety Insurance Company ("Amwest
Surety") and Far West Insurance Company ("Far West"), in underwriting surety
bonds. In December 1995, Amwest Surety and Far West redomesticated under the
laws of the State of Nebraska. Amwest operates through 33 branch offices, 8 of
which are located in California and the balance of which are located in 20 other
states. Amwest obtains business principally through approximately 14,000
independent agents and brokers.
Amwest underwrites a wide variety of surety bonds, generally
concentrating on principals who are unable to meet "standard" underwriting
criteria. Generally, "standard" surety underwriting involves larger multi-line
property and casualty insurance companies writing larger bond amounts for larger
principals on an uncollateralized basis. "Specialty" surety underwriting
typically involves smaller property and casualty companies, smaller bond
amounts, smaller principals, and bonds are underwritten using a variety of
factors, including the acceptance of partial or full collateral.
Amwest's major products are: (1) Contract performance bonds, which guarantee
the performance of specific contractual obligations between the principal and
the obligee and/or payments to labor and material suppliers; (2) Court bonds,
which guarantee that the principal will adequately discharge the obligations set
by a court; (3) Contractor's license bonds, which guarantee that the principal
will meet the licensing requirements of state or local laws applicable to
contractors; (4) Small Business Administration ("SBA") bonds, which are contract
performance bonds on which the SBA has guaranteed to the insurer reimbursement
of a portion of any loss in exchange for a portion of the premium; and (5)
Miscellaneous bonds, which guarantee a variety of non- classifiable obligations
including, but not limited to, license and permit, sales tax, income tax and
utility bonds.
Amwest individually analyzes the risk associated with each application
it receives, except for selected categories of miscellaneous bonds. This
underwriting evaluation includes verifying the credit history and financial
resources of the applicant. Amwest maintains control of the underwriting process
through the use of authority limits for each underwriter, through committee
underwriting of larger risks and through a system of limited delegation. Amwest
requires many contract bonds to be collateralized and will occasionally require
collateral on other types of bonds based upon risk characteristics. Collateral
can consist of irrevocable letters of credit, certificates of deposit, cash,
savings accounts, publicly traded securities and trust deeds or mortgages on
real property. The principal form of collateral accepted by Amwest currently
consists of irrevocable letters of credit and certificates of deposit.
As used herein, the term "Amwest" refers to Amwest Insurance Group,
Inc. and its subsidiaries, unless the context otherwise requires. The principal
executive offices of Amwest are located at 6320 Canoga Avenue, Woodland Hills,
California 91367, and its telephone number is (818) 704-1111.
The Special Meetings
Time, Place and Date
A Special Meeting of the stockholders of Condor will be held on March
14, 1996, at 9:00 a.m., local time, at the Radisson Plaza Hotel - LAX South,
1400 Park View Avenue, Manhattan Beach, California (including any and all
adjournments or postponements thereof, the "Condor Special Meeting").
A Special Meeting of the Stockholders of Amwest will be held on March
14, 1996, at 9:00 a.m., local time, at the Warner Center Hilton, 6360 Canoga
Avenue, Woodland Hills, California (including any and all adjournments or
postponements thereof, the "Amwest Special Meeting").
Purpose of the Special Meetings
At the Condor Special Meeting, holders of Condor's common stock, par
value $0.01 per share (the "Condor Common Stock"), will consider and vote upon a
proposal to approve and adopt an Agreement and Plan of Merger, dated as of
November 30, 1995, by and between Condor and Amwest, a copy of which is attached
as Annex A to this Proxy Statement/Prospectus (the "Merger Agreement"),
providing for the merger of Condor into Amwest (the "Merger"). As a result of
the Merger, the separate existence of Condor will thereupon cease. In the
Merger, each outstanding share of Condor Common Stock will be converted into the
right to receive 0.5 of a share (the "Conversion Number") of Amwest common
stock, par value $0.01 per share (the "Amwest Common Stock") (the shares of
Amwest Common Stock into which each share of Condor Common Stock is converted
shall be referred to as the "Merger Consideration"), subject to adjustment as
described below. If the average daily closing price per share of Amwest Common
Stock as reported on the American Stock Exchange (the "AMEX") for the 30
consecutive trading days ending on the second trading day preceding the date of
the closing of the Merger (the "Base Period Trading Price") is less than $12.50,
the Merger Consideration per share of Condor Common Stock shall be increased by
a factor of 12.5 divided by the Base Period Trading Price, and if the Base
Period Trading Price is greater than $17.50, the Merger Consideration per share
shall be decreased by a factor of 17.5 divided by the Base Period Trading Price.
Adjustment of the Conversion Number is subject to the right of Amwest not to
consummate the Merger if the Conversion Number, as adjusted, would exceed 0.6
and the right of Condor not to consummate the Merger if the Conversion Number,
as adjusted, would be less than 0.4. Stockholders of Condor will also consider
and vote upon any other matter that may properly come before the meeting.
At the Amwest Special Meeting, holders of Amwest Common Stock will
consider and vote upon a proposal to approve and adopt the Merger Agreement and
all transactions contemplated thereby, including the issuance of Amwest Common
Stock pursuant to the Merger Agreement. Stockholders will also be asked to
approve an amendment to the Amwest Insurance Group, Inc. Stock Option Plan (the
"Amwest Stock Option Plan") to permit the grant of Non-Incentive Options at
exercise prices less than the fair market value of Amwest's common stock on the
date of grant in order to effectuate the cancellation of Condor stock options
and issuance of Amwest stock options to Condor employees pursuant to the Merger
Agreement.
At the effective time of the Merger, as described in
"Summary--Effective Time of the Merger", each outstanding option to purchase
shares of Condor Common Stock ("Condor Stock Option"), other than those held by
non-employee directors of Condor shall be canceled and the holder shall receive
an option ("Amwest Stock Option") to purchase the same number of shares of
Amwest Common Stock as the holder would have been entitled to receive in the
Merger had the option been exercised in full immediately prior to the effective
time, as described below. The Amwest Stock Option will be granted at a price per
share equal to (i) the per share exercise price for the shares of Condor Common
Stock otherwise purchasable pursuant to such Condor Stock Option divided by (ii)
0.5, as appropriately adjusted pursuant to the Merger Agreement. These grants of
Non-Incentive Options will require an amendment to the Amwest Stock Option Plan.
The entire Amwest Stock Option Plan, including the proposed amendment, is set
forth in Annex E to this Proxy Statement/Prospectus.
Stockholders of Amwest will also consider and vote upon any other
matter that may properly come before the meeting.
Votes Required; Record Date
The Merger will require approval and adoption of the Merger Agreement
by the affirmative vote of the holders of a majority of the outstanding shares
of Condor Common Stock entitled to vote thereon. Each outstanding share of
Condor Common Stock is entitled to one vote at the Condor Special Meeting. Only
holders of record of Condor Common Stock at the close of business on February 9,
1996 (the "Condor Record Date") will be entitled to notice of and to vote at the
Condor Special Meeting. See "The Condor Special Meeting." At the close of
business on the Condor Record Date, ________ shares of Condor Common Stock were
issued and outstanding. As of the Condor Record Date, directors and executive
officers of Condor and their affiliates were beneficial owners of approximately
___% of the outstanding shares of Condor Common Stock.
The Merger will require approval and adoption of the Merger Agreement
by the affirmative vote of the holders of a majority of the outstanding shares
of Amwest Common Stock entitled to vote thereon. Each outstanding share of
Amwest Common Stock is entitled to one vote at the Amwest Special Meeting. Only
holders of record of Amwest Common Stock at the close of business on February
12, 1996 (the "Amwest Record Date") will be entitled to notice of and to vote at
the Amwest Special Meeting. See "The Amwest Special Meeting." At the close of
business on the Amwest Record Date, ________ shares of Amwest Common Stock were
issued and outstanding. As of the Amwest Record Date, directors and executive
officers of Amwest and their affiliates were beneficial owners of approximately
__% of the outstanding shares of Amwest Common Stock. See "Management of Amwest
After the Merger --Security Ownership of Management".
Effective Time of the Merger
The Merger will become effective upon the filing of a Certificate of
Merger with the Secretary of State of Delaware, (the "Effective Time"). The
Effective Time is currently expected to occur on or shortly after March 14,
1996, subject to approval by the stockholders of Amwest and Condor of the
matters described herein and satisfaction or waiver of the conditions precedent
to the Merger set forth in the Merger Agreement. See "The Proposal to Approve
and Adopt the Agreement and Plan of Merger -- Effective Time" and "The Merger
Agreement -- Conditions to the Consummation of the Merger."
Surrender of Stock Certificates
As soon as practicable after the Effective Time, The American Stock
Transfer & Trust Company, or another person designated by Amwest and reasonably
acceptable to Condor, in its capacity as exchange agent for the Merger (the
"Exchange Agent"), will send a transmittal letter to each Condor stockholder.
The transmittal letter will contain instructions with respect to the surrender
of certificates representing Condor Common Stock to be exchanged for Amwest
Common Stock and cash in lieu of fractional shares. Holders of certificates
which prior to the Effective Time represented Condor Common Stock will not be
entitled to receive any payment of dividends or other distributions with respect
to Amwest Common Stock until such certificates have been surrendered for
certificates representing Amwest Common Stock. See "The Proposal to Approve and
Adopt the Agreement and Plan of Merger--Conversion of Shares- Procedures for
Exchange of Certificates."
CONDOR STOCKHOLDERS SHOULD NOT FORWARD CERTIFICATES FOR CONDOR COMMON
STOCK TO THE EXCHANGE AGENT UNTIL THEY HAVE RECEIVED TRANSMITTAL LETTERS. CONDOR
STOCKHOLDERS SHOULD NOT RETURN STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
Recommendations of the Boards of Directors
The Boards of Directors of Condor and Amwest believe that the terms of
the Merger are fair to and in the best interests of their respective
stockholders and have unanimously approved the Merger Agreement and the related
transactions. The Boards of Directors of Condor and Amwest each unanimously
recommend that its stockholders approve and adopt the Merger Agreement and the
transactions contemplated thereby, including the issuance of Amwest Common Stock
pursuant to the Merger Agreement. See "The Proposal to Approve and Adopt the
Agreement and Plan of Merger--History of the Merger," "--Recommendation of the
Board of Directors of Condor; Reasons for the Merger," "--Recommendation of the
Board of Directors of Amwest; Reasons for the Merger" and "--Interests of
Certain Persons in the Merger."
Opinions of Investment Banking Firms
Wedbush Morgan Securities ("Wedbush Morgan") has delivered its written
opinion to the Board of Directors of Condor that, as of November 30, 1995, the
consideration to be received by the Condor stockholders was fair, from a
financial point of view, to the public stockholders of Condor.
Jefferies & Company, Inc. ("Jefferies") has delivered its written
opinion to the Board of Directors of Amwest that, as of November 30, 1995, the
Conversion Number was fair, from a financial point of view, to the stockholders
of Amwest.
For information on the assumptions made, matters considered and limits
of the reviews undertaken by Jefferies and Wedbush Morgan see "The Proposal to
Approve and Adopt the Agreement and Plan of Merger Merger--Opinion of Wedbush
Morgan," and " --Opinion of Jefferies." Stockholders' are urged to read in their
entirety the opinions of Jefferies and Wedbush Morgan attached as Annexes C and
D, respectively, to this Proxy Statement/Prospectus.
The Merger
Merger Consideration
In the Merger, each outstanding share of Condor Common Stock (other
than shares owned by Condor as treasury stock or by Amwest or its subsidiaries,
all of which shall be canceled) will be automatically converted into the right
to receive 0.5 of a share of Amwest Common Stock (subject to adjustment, as
described below, if the Base Period Trading Price of Amwest Common Stock is less
than $12.50 or more than $17.50 per share. Adjustment of the Conversion Number
is subject to the right of Amwest not to consummate the Merger if the Conversion
Number, as adjusted, would exceed 0.6 and the right of Condor not to consummate
the Merger if the Conversion Number, as adjusted, would be less than 0.4). Cash
will be paid in lieu of fractional shares. Upon consummation of the Merger,
Condor will be merged with and into Amwest and the separate existence of Condor
shall thereupon cease. See "The Merger Agreement--Terms of the Merger."
At the Effective Time, each outstanding ("Condor Stock Option, other
than those held by non-employee directors, shall be canceled and the holder
shall receive an Amwest Stock Option to purchase the same number of shares of
Amwest Common Stock as the holder would have been entitled to receive in the
Merger had the option been exercised in full immediately prior to the Effective
Time. The Amwest Stock Options will have substantially the same terms and
conditions as the Condor Stock Options, and the exercise price of each Amwest
Stock Option will be economically equivalent to the exercise price of the Condor
Stock Option being replaced. All Condor Stock Options held by non-employee
directors outstanding at the Effective Time will be canceled. It is anticipated
that such options will be exercised prior to the Effective Time.
Conditions to the Merger, Termination
The obligations of Amwest and Condor to consummate the Merger are
subject to various conditions, including, but not limited to: (i) obtaining
requisite stockholder and regulatory approvals; (ii) the absence of any
preliminary or permanent injunction or other order by any federal or state court
which prevents the consummation of the Merger; (iii) approval for listing on the
AMEX subject to official notice of issuance, of the Amwest Common Stock to be
issued in connection with the Merger; (iv) receipt of opinions of counsel at the
closing of the Merger covering such matters and in the form and substance agreed
upon; and (v) the absence of material adverse changes in the business of Amwest
or Condor that would have a material adverse effect on Amwest or Condor. See
"The Merger Agreement--Conditions to Consummation of the Merger."
The Merger Agreement may be terminated at any time prior to the
Effective Time, (a) by mutual written consent of Amwest and Condor; (b) by
either Amwest or Condor if the Merger has been enjoined by a court or if the
Merger shall not have been consummated on or before June 30, 1996 provided that
the terminating party's failure to fulfill its obligations under the Merger
Agreement is not the reason that the Effective Time shall not have occurred on
or before said date. The Merger Agreement may also be terminated by Condor in
the event the Condor Board of Directors, in the exercise of its fiduciary
duties, determines that termination is in the best interests of Condor and its
stockholders to enable Condor to accept an offer which the Board of Directors
has determined to be superior to the Merger (a "Superior Proposal"). The Merger
Agreement may also be terminated under certain other circumstances, see "The
Merger Agreement--Termination and Abandonment."
Termination Fee
Condor will be required to pay Amwest a fee of $700,000 (the
"Termination Fee") in the event that Condor terminates the Merger Agreement in
order to accept a Superior Proposal. Condor will also be required to pay the
Termination Fee if the Merger Agreement is terminated by Amwest (i) for breach
of any of Condor's representations, warranties or covenants or because Condor
engages in negotiations which continue for more than 20 business days with a
third party seeking to acquire Condor (a "Third Party Acquisition") and, within
12 months of such termination, Condor enters into an agreement for, or
consummates, a Third Party Acquisition under certain circumstances, or (ii)
because the Condor Board of Directors has withdrawn, modified or changed its
recommendation of the Merger, has recommended a Third Party Acquisition or has
failed to call, give notice of, convene or hold a stockholders' meeting to
approve the Merger or because the Merger is not approved by the requisite vote
of the Condor Stockholders at the Condor Special Meeting. If the Merger
Agreement is terminated by Amwest under conditions requiring the payment of the
Termination Fee, Amwest will also be entitled to be reimbursed by Condor for its
reasonable expenses incurred in connection with the Merger. If the Merger
Agreement is terminated by Condor because of a breach by Amwest of its
representations, warranties or covenants or because the Merger is not approved
by the requisite vote at the Amwest Special Meeting, Condor will be entitled to
be reimbursed by Amwest for its reasonable expenses incurred in connection with
the Merger. In all other cases, Amwest and Condor will each bear their own
expenses.
Listing
It is a condition to the Merger that the shares of Amwest Common Stock
to be issued in the Merger be authorized for listing on the AMEX, subject to
official notice of issuance.
Regulatory Approvals Required
The Merger is subject to the pre-merger notification requirements of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"). Amwest
and Condor have both filed pre-merger notification forms with the Federal Trade
Commission and the Department of Justice under the HSR Act. Early termination of
the required waiting period was granted on January 5, 1996. See "The Proposal to
Approve and Adopt the Agreement and Plan of Merger-- Regulatory Approvals."
The Merger and transactions contemplated thereby require approvals of
the Commissioners of the California Department of Insurance and the Arizona
State Department of Insurance. Amwest has filed a Form A with the California
Department of Insurance on January 16, 1996. See "The Proposal to Approve and
Adopt the Agreement and Plan of Merger-- Insurance Department Regulatory
Approvals."
Directors of Amwest After the Merger
Pursuant to an Agreement with Guy A. Main and the Main Family Trust,
Guy A. Main, currently Chairman of the Board, President and the Chief Executive
Officer of Condor, will be elected to the Amwest Board of Directors effective as
of the Effective Time. Upon the appointment of Mr. Main, the Amwest Board will
consist of 11 directors, 10 of whom were directors of Amwest as of the date of
the Merger Agreement.
Interests of Certain Persons in the Merger
In considering the recommendation of the Condor Board of Directors with
respect to the Merger Agreement and the transactions contemplated thereby,
stockholders should be aware that certain members of Condor management and the
Condor Board of Directors have certain interests in the Merger that are in
addition to the interests of stockholders of Condor generally. Amwest will issue
substitute Amwest Stock Options to all holders of Condor Stock Options (other
than non-employee directors), including officers and management. Amwest has
agreed, subject to certain limitations, to indemnify each officer and director
of Condor from all losses, claims, damages, costs, expenses and liabilities
arising out of or related to the Merger or the Merger Agreement. Employees of
Condor who continue as employees after the Effective Time, including officers
and management will participate in Amwest Employee Benefit Plans. Mr. Main will
be employed by Amwest under a four year employment agreement, will be eligible
for bonuses under the Amwest Annual Executive Incentive Plan and will become a
member of the Board of Directors of Amwest. See "The Proposal to Approve and
Adopt the Agreement and Plan of Merger--Interests of Certain Persons in the
Merger."
Certain Considerations
In deciding whether to approve and adopt the Merger Agreement and the
transactions contemplated thereby stockholders of Amwest and Condor should
carefully evaluate the matters set forth under "The Proposal to Approve and
Adopt the Agreement and Plan of Merger--Certain Considerations" and "Risk
Factors." Factors to be considered include: (i) the relative stock prices of
Amwest Common Stock and Condor Common Stock at the Effective Time may vary
significantly from the prices as of the date of execution of the Merger
Agreement or the date of this Proxy Statement/Prospectus or the date on which
stockholders vote on the Merger; and (ii) the Conversion Number is fixed at 0.5
Amwest shares for each Condor share, subject to adjustment if the Base Period
Trading Price of Amwest Common Stock is less than $12.50 or more than $17.50.
See "The Proposal to Approve and Adopt the Agreement and Plan of Merger--Certain
Considerations."
Certain Federal Income Tax Consequences
If the Merger qualifies as a "reorganization" as more fully described
under "The Proposal to Approve and Adopt the Agreement and Plan of
Merger--Certain Federal Income Tax Consequences," no gain or loss will be
recognized by Condor stockholders for federal income tax purposes on the
conversion of their Condor Common Stock into Amwest Common Stock, except with
respect to cash received in lieu of fractional shares, and no gain or loss will
be recognized by Amwest or Condor. See "The Proposal to Approve and Adopt the
Agreement and Plan of Merger--Certain Federal Income Tax Consequences."
Dissenters' Rights
Pursuant to Section 262(b) of the Delaware General Corporation Law,
Condor stockholders are not entitled to dissenters' or appraisal rights in
connection with the Merger, because: (i) shares of Condor Common Stock were, at
the Condor Record Date, designated as a NASDAQ National Market security; (ii)
Condor stockholders will not be required to accept anything in exchange for
their Condor Common Stock other than Amwest Common Stock (i.e., shares of stock
of the corporation surviving the Merger) and cash in lieu of fractional shares
of such stock; and (iii) the Certificate of Incorporation of Condor does not
otherwise provide Condor stockholders with dissenters' or appraisal rights
applicable to the Merger. Amwest stockholders are also not entitled to
dissenters' or appraisal rights with respect to the Merger. See "Dissenters'
Rights."
Comparative Rights of Stockholders
The rights of stockholders of Condor currently are governed by Delaware
law, Condor's Certificate of Incorporation and Condor's Bylaws. Upon
consummation of the Merger, stockholders of Condor will become stockholders of
Amwest, which is also a Delaware corporation, and their rights as stockholders
of Amwest will be governed by Delaware law, Amwest's Certificate of
Incorporation, Amwest's Bylaws and the Amwest Rights Agreement (as hereinafter
defined). For a discussion of various differences between the rights of
stockholders of Condor and the rights of stockholders of Amwest, see "Comparison
of Stockholder Rights."
Comparative Per Share Prices
The following table sets forth the high, low and last sales prices as
reported on the AMEX and NASDAQ Composite Tapes of the companies' common shares
on November 30, 1995, the last trading day before the announcement of the
execution of the Merger Agreement.
Condor
Amwest Condor Equivalent(a)
High $17 5/8 (b) $3 1/2 $8 3/4
Low 17 1/2 (b) 3 1/2 8 3/4
Last 17 5/8 (b) 3 1/2 8 3/4
On February 12, 1996, the last day before the printing of this Proxy
Statement/Prospectus the last sales prices of Amwest Common Stock and Condor
Common Stock as reported on the AMEX and NASDAQ NMS, were as follows:.
Condor
Amwest Condor Equivalent(a)
High $ $ $
Low
Last
(a) The Condor equivalent market value is computed by multiplying the high, low
and last sales price per share of Amwest Common Stock by the Conversion Number,
assuming the Conversion Number is 0.5.
(b) There were no trades for Amwest Common Stock on the AMEX on November 30,
1995. Therefore, the sales prices as reported on the AMEX on November 29, 1995
are shown.
See "Comparative Per Share Prices and Dividends."
Certain Other Agreements
In connection with the Merger Agreement, Amwest has entered or will
enter into certain agreements with various persons. Amwest, the Main Family
Trust and Mr. Main have entered into a Stockholder Agreement pursuant to which
the Main Family Trust (which holds 957,310 shares of Condor Common Stock for the
benefit of Mr. Main and his family) and Mr. Main have (i) agreed not to sell or
otherwise transfer any shares of Condor Common Stock prior to the Effective Time
or the termination of the Merger Agreement, (ii) agreed to vote all shares of
Condor Common Stock which they hold in favor of the Merger and against any
proposal in opposition to or in competition with the Merger, (iii) agreed to
call a special meeting of Condor Stockholders to consider and approve the Merger
if such a meeting has not taken place on or before May 1, 1996; and (iv) granted
an option to Amwest to purchase 825,000 shares of Condor Common Stock for a
price equivalent to the Merger Consideration exercisable at any time during the
period commencing with the termination of the Merger Agreement.
The directors and officers of Condor have executed and delivered to
Amwest an Affiliates Letter and Certificate of Continuity of Interest in which
they have made certain representations about their intentions to hold the shares
of Amwest Common stock to be received in the Merger and agreed to certain
restrictions on resales of such shares. The representations and restrictions of
resales are intended to preserve the characterization of the Merger for federal
income tax purposes as a reorganization, to comply with the requirements for
"pooling of interests" accounting treatment and to comply with restrictions on
resales of securities imposed by federal securities laws.
At the Effective Time, Amwest, the Main Family Trust and Mr. Main will
enter into an agreement pursuant to which Mr. Main will be elected a director of
Amwest as long as he remains a member of the management executive committee of
Amwest. The agreement will also include certain provisions which become
effective only in the event that the Merger does not qualify for "pooling of
interests" accounting treatment, including an agreement not to sell any Amwest
Common Stock received in the Merger for two years and an agreement to grant a
right of first refusal to Amwest to purchase any shares of Amwest Common Stock
received in the Merger. Amwest, the Main Family Trust and Mr. Main will also
enter into a Registration Rights Agreement pursuant to which Amwest will agree
to register shares of Amwest Common Stock received by the Main Family Trust in
the Merger for resale under the Securities Act of 1933.
At the Effective Time, Amwest and Mr. Main will also enter into an
Employment Agreement pursuant to which Mr. Main will be employed for four years
as Executive Vice President of Amwest and President of Condor Insurance. Mr.
Main will receive a base salary of $253,000, subject to annual review, and will
be eligible for bonuses under the Amwest Annual Executive Incentive Plan and
entitled to other benefits available to other Amwest officers generally,
including an automobile allowance.
Selected Historical and Pro Forma Combined Financial Data
The following table presents selected historical financial data of
Amwest and Condor, and selected pro forma combined financial data after giving
effect to the Merger under the "pooling of interests" method of accounting.
Amwest's historical financial data for each of the annual periods presented have
been derived from its audited consolidated financial statements previously filed
with the Commission. Condor's historical financial data for each of the annual
periods presented also have been derived from its financial statements
previously filed with the Commission. The selected historical financial data for
both companies for the nine-month periods ended September 30, 1994 and 1995 have
been prepared in accordance with generally accepted accounting principles
applicable to interim financial information and, in the opinions of Amwest's and
Condor's respective managements, include all adjustments necessary for a fair
presentation of results for such interim periods.
The selected pro forma combined financial data have been derived from,
or prepared on a basis consistent with, the unaudited pro forma condensed
combined financial statements included herein. This data is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred or that will occur after
consummation of the Merger.
<PAGE>
<TABLE>
<CAPTION>
As of or for the
nine months ended
As of or for the year ended December 31, September 30,
--------------------------------------------------- -------------------
1990 1991 1992 1993 1994 1994 1995
<S> <C> <C> <C> <C> <C> <C> <C>
Amwest Insurance Group, Inc. - Historical:
Net premiums earned $ 46,858 $ 48,487 $ 48,254 $ 50,090 $ 61,829 $ 44,074 $ 50,478
Net income from continuing operations (a) 5,158 3,493 3,398 4,041 4,588 1,834 2,937
Earnings per common share: (a)
Net income from continuing operations 2.16 1.42 1.44 1.70 1.91 0.76 1.22
Net income $ 2.16 $ 1.42 $ 1.44 $ 1.60 $ 1.91 $ 0.76 $ 1.22
Cash dividends declared per common share (b)$ 0.24 $ 0.28 $ 0.28 $ 0.28 $ 0.36 $ 0.27 $ 0.30
Weighted average shares outstanding 2,391 2,461 2,360 2,375 2,408 2,411 2,402
Total assets $112,652 $122,684 $134,404 $140,692 $146,713 $153,344 $150,761
Bank indebtedness 13,193 12,228 12,264 12,500 12,500 12,500 12,500
Stockholders' equity 25,981 28,885 31,749 36,383 35,994 34,536 42,002
Stockholders' equity per common share $ 10.87 $ 12.16 $ 13.52 $ 15.43 $ 15.42 $ 14.58 $ 17.80
Condor Services, Inc. - Historical:
Net premiums earned $ 18,266 $ 14,297 $ 15,289 $ 21,995 $ 19,460 $ 15,865 $ 13,229
Net income from continuing operations (362) 1,061 1,627 241 453 (21) 786
Earnings per common share:
Net income from continuing operations (0.15) 0.51 0.82 0.12 0.23 (0.01) 0.40
Net income $ (0.15) $ 0.51 $ 0.82 $ 0.12 $ 0.23 $ (0.01) $ 0.40
Cash dividends declared per common share -- -- -- -- -- -- --
Weighted average shares outstanding 2,342 2,060 1,976 1,978 1,981 1,983 1,967
Total assets $ 32,530 $ 35,904 $ 38,477 $ 55,164 $ 40,032 $ 48,253 $ 37,123
Stockholders' equity 8,087 8,876 10,435 11,964 10,163 10,037 12,127
Stockholders' equity per common share $ 4.22 $ 4.93 $ 5.29 $ 6.03 $ 5.16 $ 5.05 $ 6.22
Pro Forma Combined (d):
Net premiums earned $ 65,124 $ 62,784 $ 63,543 $ 72,085 $ 81,289 $ 59,939 $ 63,707
Net income from continuing operations 4,796 4,554 5,025 3,947 5,041 1,813 3,723
Earnings per common share: (c)
Net income from continuing operations 1.39 1.38 1.55 1.20 1.50 0.54 1.12
Net income $ 1.39 $ 1.38 $ 1.55 $ 1.12 $ 1.50 $ 0.54 $ 1.12
Cash dividends declared per common share $ 0.24 $ 0.28 $ 0.28 $ 0.28 $ 0.36 $ 0.27 $ 0.30
Weighted average shares outstanding 3,440 3,291 3,242 3,299 3,350 3,354 3,337
Total assets $130,480 $142,273 $172,030 $195,296 $186,514 $201,317 $187,470
Bank indebtedness 13,193 12,228 12,264 12,500 12,500 12,500 12,500
Stockholders' equity 33,705 37,351 41,500 47,921 46,005 44,332 53,311
Stockholders' equity per common share $ 10.37 $ 11.75 $ 12.89 $ 14.52 $ 14.07 $ 13.38 $ 16.26
</TABLE>
The above information should be read in conjunction with the companies'
historical and pro forma combined financial statements and notes thereto,
either incorporated by reference or included herein. See "Unaudited Pro Forma
Condensed Combined Financial Statements."
Notes to Selected Historical and Pro Forma Combined Financial Data
(a) For 1993, Amwest's net income from continuing operations excludes an
extraordinary loss from early extinguishment of debt of $249,000, net
of income tax benefit of $128,000 due to the refinancing of $12,300,000
of bank indebtedness which was completed in August 1993.
(b) Pro forma dividends are assumed to be the same as the historical cash
dividend declarations of Amwest. Amwest has no present intention to
alter its current quarterly dividend subsequent to the Merger. However,
any determination to increase or decrease the per share cash dividend
amount is at the sole discretion of Amwest's Board of Directors,
subject to restrictions which may be imposed by law or contract.
(c) Pro forma combined earnings per share is based upon the combined
historical weighted average shares outstanding, after adjustment of
Condor's historical number of shares by the Conversion Number and
excluding any Condor shares held in treasury or owned by Amwest.
(d) The pro forma combined statements of income excludes investment
banking, legal, accounting and miscellaneous transaction costs and
expenses of the Merger, currently estimated to be $600,000. However,
the pro forma combined balance sheet as of September 30, 1995 includes
the adjustment, net of related taxes, of $396,000 for the above
estimated amount of transaction costs related to the Merger.
Recent Developments
Amwest: On Wednesday, February 7, 1996 Amwest announced results for the
quarter and year ended December 31, 1995. Amwest reported a loss of $24,000 or
$.01 per share on premiums written of $15,781,000 for the quarter ended December
31, 1995 as compared to net income of $2,754,000 or $1.15 per share on premiums
written of $16,780,000 for the quarter ended December 31, 1994. The results for
the quarter ended December 31, 1995 included a pre-tax charge of $2,000,000
related to Amwest's estimated rollback obligation pursuant to the California
Supreme Court's decision of December 14, 1995 which removed the surety insurance
industry's exemption from the rollback provisions of Proposition 103. See "Risk
Factors--Proposition 103". Excluding the effects of the Proposition 103 charge,
Amwest would have earned $1,296,000 or $.53 per share for the quarter ended
December 31, 1995.
Amwest reported net income of $2,916,000 or $1.22 per share on premiums
written of $69,854,000 for the year ended December 31, 1995 as compared to of
$4,588,000 or $1.91 per share on premiums written of $70,485,000 for the year
ended December 31, 1994. Excluding the previously mentioned charge for the
estimated Proposition 103 rollback liability, Amwest would have earned
$4,236,000 or $1.76 per share for the year ended December 31, 1995. Amwest also
announced that stockholder's equity increased to a record $42,982,000 or $18.15
per share at December 31, 1995. A summary of the reported results is as follows:
<TABLE>
<CAPTION>
As of or for the As of or for the
three months ended year ended
December 31, December 31,
------------------------- ------------------------
1994 1995 1994 1995
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net premiums earned $ $ $ $
17,754 16,818 61,829 67,297
Net income from continuing operations 2,754 (24) 4,588 2,916
Earnings per common share:
Net income from continuing operations $ 1.15 $ (.01) $ 1.91 $ 1.22
Net income (loss) $ 1.15 $ (.01) $ 1.91 $ 1.22
Cash dividends declared per common share $ 0.09 $ 0.10 $ 0.36 $ 0.40
Weighted average shares outstanding 2,397 2,433 2,408 2,409
Total assets $ 146,713 $ 147,456 $ 146,713 $ 147,456
Bank indebtedness 12,500 12,500 12,500 12,500
Stockholders' equity 35,994 42,982 35,994 42,982
Stockholders' equity per common share $ 15.42 $ 18.15 $ 15.42 $ 18.15
</TABLE>
Condor: Condor anticipates announcing results for the quarter and year
ended December 31, 1995 in mid-to-late February 1996. It is expected that a
supplement to this Proxy Statement/Prospectus setting forth such results will be
distributed to each person who was an Amwest or Condor stockholder as of the
Amwest Record Date and the Condor Record Date, respectively.
<PAGE>
GENERAL INFORMATION
This Proxy Statement/Prospectus is being furnished to stockholders of
each of Condor and Amwest in connection with the solicitation of proxies by and
on behalf of the Boards of Directors of Condor and Amwest, as the case may be,
for use at the Condor Special Meeting and the Amwest Special Meeting, as the
case may be. The Condor Special Meeting will be held at 9:00 a.m. on Thursday,
March 14, 1996 at the Radisson Plaza Hotel LAX South, 1400 Park View Avenue,
Manhattan Beach, California. The Amwest Special Meeting will be held at 9:00
a.m. on Thursday, March 14, 1996 at the Warner Center Hilton, 6360 Canoga
Avenue, Woodland Hills, California. This Proxy Statement/Prospectus and the
related form of proxy for each of Condor and Amwest are first being mailed to
their respective stockholders on or about February 13, 1996.
<PAGE>
RISK FACTORS
In connection with the Merger, the Amwest stockholders are being asked
to approve and adopt the Merger Agreement and all transactions contemplated
thereby, including the issuance of Amwest Common Stock pursuant to the Merger
Agreement. If the Merger is consummated, the holders of Amwest Common Stock will
be subject to certain risks inherent to Condor's business, several of which are
also applicable to Amwest's business. Amwest stockholders should carefully
consider the following risk factors in evaluating whether to approve the Merger
Agreement and the issuance of Amwest Common Stock pursuant thereto.
The Condor stockholders are being asked to approve and adopt the Merger
Agreement. Pursuant to the Merger Agreement, the Condor stockholders will become
holders of Amwest Common Stock and should carefully consider the following risk
factors in connection therewith. Several of the risks set forth below are
applicable to Condor's business as well.
Proposition 103
In November 1988, California voters passed Proposition 103, an
insurance initiative which required a rollback in insurance rates for policies
(and bonds) written or renewed during the twelve month period beginning November
8, 1988 and provided that changes in insurance premiums after November 8, 1988
must be submitted for approval of the California Insurance Commissioner prior to
implementation. While the Proposition has the most significant impact on
automobile insurance, its provisions, as written, also apply to other property
and casualty insurers including surety insurers.
On August 26, 1991, The State of California enacted Insurance Code
Section 1861.135 ("Section 1861.135") exempting surety insurance from the rate
rollback and prior approval provisions of Proposition 103. Section 1861.135 does
not affect Proposition 103's prohibition against excessive, inadequate or
discriminatory rates. Due to the enactment of Section 1861.135, Amwest
terminated a previously established reserve for potential premium rebates.
Subsequently, the Department of Insurance ("Department") and Voter
Revolt brought a motion for writ of mandate challenging the validity of Section
1861.135. On March 21, 1992, the Los Angeles Superior Court concluded that
Section 1861.135 did not violate the California Constitution or the provisions
of Proposition 103. The Department and Voter Revolt appealed. On December 7,
1994, the Second District Court of Appeal overturned Section 1861.135 by a 2-1
vote. On February 24, 1994, the California Supreme Court agreed to hear Amwest's
petition for review, thereby staying the Court of Appeals opinion. On December
14, 1995, the Supreme Court of the State of California affirmed the decision of
the Second District Court of Appeal, overturning Insurance Code Section
1861.135, which exempted the surety insurance industry from major provisions of
Proposition 103. Accordingly, Amwest will no longer be exempted from the rate
rollback and prior approval provisions contained in Proposition 103.
To date, Amwest has not received any calculations from the California
Department of Insurance regarding Amwest's Proposition 103 rollback amount.
Amwest accrued $2,000,000 during the quarter ended December 31, 1995
representing Amwest's best estimate of its rollback obligations pursuant to
Proposition 103, the exact amount of which has not yet been determined. Such
estimate was based on a variety of factors, including but not limited to, the
profitability of Amwest in California during 1989 (the rollback period), a
review of the various regulations promulgated by the Department of Insurance,
and a review of rollback obligations of other insurance companies, including a
surety company. Pursuant to the provisions of Proposition 103, the rollback
amount will ultimately be determined by complex California Department of
Insurance formulas but is statutorily limited to a maximum of 20% of California
written premiums during 1989, plus accrued interest thereon. In the event that
Amwest's rollback obligation were eventually determined to be the statutory
maximum, it could approximate $7,500,000 which is $5,500,000 in excess of
Amwest's best estimate of its ultimate rollback liability. While the current
accrual represents management's best estimate of Amwest's Proposition 103
rollback obligations, no assurances can be given that a final settlement with
the California Department of Insurance will not result in a rollback amount
which could have a significant adverse impact on Amwest's future earnings,
although it is not anticipated that such result would materially adversely
impact Amwest's financial position. Until a final settlement is reached with the
California Department of Insurance, no assurances can be given as to the
ultimate amount of premiums to be refunded to policyholders. The matters
discussed in this paragraph are forward looking statements based upon partial
information and management assumptions and involve certain risks and
uncertainties as described above.
Regulatory Environment
The insurance industry is highly regulated. Both Amwest and Condor are
subject to the rules and regulation of and oversight by the various Departments
of Insurance and other regulatory authorities in the jurisdictions in which
Condor and Amwest operate.
Dependence on Key Personnel
The success of Condor is dependent upon Mr. Guy A. Main, its President,
whose loss or unavailability would have a material, adverse affect on its
operations. If the Merger is completed, Amwest will execute a four year
Employment Agreement with Mr. Main, pursuant to which Mr. Main will agree to
devote substantially all of his time to the business of Amwest.
Risks of the Insurance Industry
The profitability of both Amwest and Condor are subject to many
factors, including rate competition, the severity and frequency of claims,
defaults of reinsurers, interest rates, inflation, general business conditions,
regulatory measures and court decisions that define and expand the extent of
coverage and the amount of compensation due to claimants. The profitability of
Amwest and Condor may be adversely affected by such factors.
<PAGE>
THE CONDOR SPECIAL MEETING
Purpose of the Condor Special Meeting
At the Condor Special Meeting, holders of Condor Common Stock will
consider and vote upon a proposal to approve and adopt the Merger Agreement and
such other matters as may properly be brought before the meeting.
The Board of Directors of Condor has unanimously approved the Merger
Agreement and recommends a vote FOR approval and adoption of the Merger
Agreement.
Record Date; Voting Rights; Proxies
The Condor Board of Directors has fixed the close of business on
February 9, 1996 as the Condor Record Date for determining holders entitled to
notice of and to vote at the Condor Special Meeting.
As of the Condor Record Date, there were ________ shares of Condor
Common Stock issued and outstanding, each of which entitles the holder thereof
to one vote. All shares of Condor Common Stock represented by properly executed
proxies will, unless such proxies have been previously revoked, be voted in
accordance with the instructions indicated in such proxies. If no instructions
are indicated, such shares of Condor Common Stock will be voted in favor of the
Merger. Shares voted to abstain on a matter will be treated as entitled to vote
on the matter and will thus have the same effect as "no" votes. Broker non-votes
are not counted as entitled to vote on a matter in determining the number of
affirmative votes required for approval of the matter, but are counted as
present for quorum purposes. The term "broker non-votes" refers to shares held
by a broker in street name which are present by proxy but are not voted on a
matter pursuant to rules prohibiting brokers from voting on non-routine matters,
such as approval and adoption of the Merger Agreement, without instructions from
the beneficial owner of the shares.
Condor does not know of any matters other than as described in the
Notice of Special Meeting that are to come before the Condor Special Meeting. If
any other matter or matters are properly presented for action at the Condor
Special Meeting, the persons named in the enclosed form of proxy and acting
thereunder will have the discretion to vote on such matters in accordance with
their best judgment, unless such authorization is withheld. A stockholder who
has given a proxy may revoke it at any time prior to its exercise by giving
written notice thereof to the Secretary of Condor, by signing and returning a
later dated proxy, or by voting in person at the Condor Special Meeting;
however, mere attendance at the Condor Special Meeting will not in and of itself
have the effect of revoking the proxy.
Solicitation of Proxies
Condor will bear its own cost of solicitation of proxies. Solicitations
will be made by mail, telephone or telegram and personally by directors,
officers and other employees of Condor, but such persons will not receive
compensation for such services over and above their regular salaries. Brokerage
houses, fiduciaries, nominees and others will be reimbursed for their reasonable
charges and out-of-pocket expenses in forwarding proxy materials to beneficial
owners of stock held in their names.
Quorum
The presence in person or by properly executed proxy of holders of a
majority of the issued and outstanding shares of Condor Common Stock is
necessary to constitute a quorum at the Condor Special Meeting.
Required Vote
Approval and adoption of the Merger Agreement requires the affirmative
vote of the holders of a majority of the outstanding shares of Condor Common
Stock.
THE MATTERS TO BE CONSIDERED AT THE CONDOR SPECIAL MEETING ARE OF GREAT
IMPORTANCE TO THE STOCKHOLDERS OF CONDOR. ACCORDINGLY, STOCKHOLDERS ARE URGED TO
READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS PROXY STATEMENT,
AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
<PAGE>
THE AMWEST SPECIAL MEETING
Purpose of the Amwest Special Meeting
At the Amwest Special Meeting, holders of Amwest Common Stock will
consider and vote upon proposals to approve and adopt the Merger Agreement and
the transactions contemplated thereby, to approve an amendment to the Amwest
Stock Option Plan regarding the permitted exercise price of Non-Incentive
Options and such other matters as may properly be brought before the meeting.
Stockholder approval and adoption of the Merger Agreement and all of the
transactions contemplated thereby will constitute the approval required by the
AMEX for the Merger Agreement and all of the transactions contemplated thereby,
including the issuance of the Amwest Common Stock in connection with the Merger.
The Board of Directors of Amwest has unanimously approved the Merger
Agreement and the amendment and ratification of the Amwest Stock Option Plan and
recommends a vote FOR approval and adoption of the Merger Agreement and such
amendment and ratification.
Record Date; Voting Rights; Proxies
The Amwest Board of Directors has fixed the close of business on
February 12, 1996 as the Amwest Record Date for determining holders entitled to
notice of and to vote at the Amwest Special Meeting.
As of the Amwest Record Date there were _________ shares of Amwest
Common Stock issued and outstanding, each of which entitles the holder thereof
to one vote.
All shares of Amwest Common Stock represented by properly executed
proxies will, unless such proxies have been previously revoked, be voted in
accordance with the instructions indicated in such proxies. If no instructions
are indicated, such shares of Amwest Common Stock will be voted in favor of the
Merger and the proposal to amend and ratify the Amwest Stock Option Plan. Shares
voted to abstain on a matter will be treated as entitled to vote on the matter
and will thus have the same effect as "no" votes. Broker non-votes are not
counted as entitled to vote on a matter in determining the number of affirmative
votes required for approval of the matter, but are counted as present for quorum
purposes. The term "broker non-votes" refers to shares held by a broker in
street name which are present by proxy but are not voted on a matter pursuant to
rules prohibiting brokers from voting on non-routine matters, such as approval
and adoption of the Merger Agreement and amendment and ratification of the
Amwest Stock Option Plan, without instructions from the beneficial owner of the
shares. Amwest does not know of any matters other than as described in the
Notice of Special Meeting that are to come before the Amwest Special Meeting. If
any other matter or matters are properly presented for action at the Amwest
Special Meeting, the persons named in the enclosed form of proxy and acting
thereunder will have the discretion to vote on such matters in accordance with
their best judgment, unless such authorization is withheld. A stockholder who
has given a proxy may revoke it at any time prior to its exercise by giving
written notice thereof to the Secretary of Amwest by signing and returning a
later dated proxy, or by voting in person at the Amwest Special Meeting;
however, mere attendance at the Amwest Special Meeting will not in and of itself
have the effect of revoking the proxy. Votes cast by proxy or in person at the
Amwest Special Meeting will be tabulated by the election inspectors appointed
for the meeting who will also determine whether or not a quorum is present.
Solicitation of Proxies
Amwest will bear its own cost of solicitation of proxies. Brokerage
houses, fiduciaries, nominees and others will be reimbursed for their
out-of-pocket expenses in forwarding proxy materials to beneficial owners of
stock held in their names.
Quorum
The presence in person or by properly executed proxy of holders of a
majority of all of the shares of Amwest Common Stock entitled to vote is
necessary to constitute a quorum at the Amwest Special Meeting.
Required Vote
The approval of the Merger Agreement and amendment and ratification of
the Amwest Stock Option Plan requires the affirmative vote by the holders of a
majority of the outstanding shares of Amwest Common Stock.
THE MATTERS TO BE CONSIDERED AT THE AMWEST SPECIAL MEETING ARE OF GREAT
IMPORTANCE TO THE STOCKHOLDERS OF AMWEST. ACCORDINGLY, STOCKHOLDERS ARE URGED TO
READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS PROXY STATEMENT,
AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
<PAGE>
PROPOSAL TO APPROVE AND ADOPT THE AGREEMENT AND
PLAN OF MERGER
This section of the Proxy Statement/Prospectus as well as the next
section of the Proxy Statement/Prospectus entitled "The Merger Agreement"
describe certain aspects of the proposed Merger. To the extent that it relates
to the Merger Agreement, the following description does not purport to be
complete and is qualified in its entirety by reference to the Merger Agreement
which is attached as Annex A to this Proxy Statement/Prospectus and is
incorporated herein by reference. All stockholders are urged to read the Merger
Agreement in its entirety.
General
The Merger Agreement provides that the Merger will be consummated if
the approvals of the Condor and Amwest stockholders required therefor are
obtained and all other conditions to the Merger are satisfied or waived. Upon
consummation of the Merger, Condor will be merged with and into Amwest and the
separate existence of Condor will thereupon cease. Condor subsidiaries will
become wholly owned subsidiaries of Amwest. Amwest will, by operation of law,
succeed to all of the assets and become subject to all of the liabilities of
Condor.
Upon consummation of the Merger, each outstanding share of Condor
Common Stock (other than shares owned by Condor as treasury stock or by Amwest
or its subsidiaries all of which shall be canceled) will be automatically
converted into the right to receive 0.5 of a share of Amwest Common Stock
(subject to adjustment if the average daily closing price per share of Amwest
Common Stock as reported on the AMEX for the 30 consecutive trading days ending
on the close of trading on the second trading day preceding the closing date is
less than $12.50 per share, in which event the Conversion Number will be
increased by a factor of 12.5 divided by the Base Period Trading Price, or
greater than $17.50 per share, in which event the Conversion Number will be
decreased by a factor of 17.5 divided by the Base Period Trading Price.
Adjustment of the Conversion Number is subject to the right of Amwest not to
consummate the Merger if the Conversion Number, as adjusted, would exceed 0.6
and the right of Condor not to consummate the Merger if the Conversion Number,
as adjusted, would be less than 0.4). Based upon the capitalization of Amwest
and Condor as of November 30, 1995, the stockholders of Condor will own
approximately 28% of the outstanding Amwest Common Stock following consummation
of the Merger. Such percentage could change depending on whether an adjustment
under the Conversion Number adjustment mechanism is required and whether shares
of Condor Common Stock and Amwest Common Stock issuable upon exercise of
outstanding Condor and Amwest stock options are issued.
Effective Time
The Merger will become effective upon the filing of a Certificate of
Merger (the "Certificate of Merger") with the Secretary of State of the State of
Delaware (the "Effective Time"). The filing of the Certificate of Merger will
occur on the date of the closing of the Merger. The Merger Agreement may be
terminated by either party if the Merger has not been consummated on or before
June 30, 1996 and under certain other conditions. (See "The Merger
Agreement--Conditions to Consummation of the Merger" and "--Termination and
Abandonment".)
Conversion of Shares - Procedures for Exchange of Certificates
The conversion at the Conversion Number of Condor Common Stock into the
right to receive Amwest Common Stock will occur automatically at the Effective
Time. As soon as practicable after the Effective Time, a form transmittal letter
will be mailed by the Exchange Agent to each stockholder of Condor, informing
such stockholder of the procedures to follow in forwarding his or her Condor
stock certificates to the Exchange Agent. Upon receipt of such Condor stock
certificates, the Exchange Agent will deliver certificates representing whole
shares of Amwest Common Stock to such stockholder and cash in lieu of any
fractional share pursuant to the terms of the Merger Agreement and in accordance
with the transmittal letter, together with any dividends or other distributions
to which such stockholder may be entitled.
If a transfer of ownership of Condor Common Stock has not been
registered in the transfer records of Condor, a certificate representing the
proper number of whole shares of Amwest Common Stock and cash in lieu of
fractional shares, if any, and any dividends and distributions will be issued to
a transferee upon surrender of the certificate representing such Condor Common
Stock accompanied by all documents required to evidence such transfer and by
evidence that any stock transfer taxes have been paid.
After the Effective Time and until surrendered, shares of Condor Common
Stock will be deemed to represent only the right to receive upon such surrender
the certificate representing the number of whole shares of Amwest Common Stock
and any cash in lieu of any fractional shares as contemplated by the Merger
Agreement. No dividends or other distributions, if any, payable to holders of
Amwest Common Stock will be paid to the holders of any certificates for shares
of Condor Common Stock until such certificates are surrendered. Upon surrender
of such certificates, all such declared dividends and distributions which shall
have become payable with respect to such Amwest Common Stock, in respect of a
record date after the Effective Time, will be paid to the holder of record of
the whole shares of Amwest Common Stock represented by the certificate issued in
exchange therefor, without interest.
CONDOR STOCKHOLDERS SHOULD NOT FORWARD STOCK CERTIFICATES TO THE
EXCHANGE AGENT UNTIL THEY HAVE RECEIVED TRANSMITTAL LETTERS. CONDOR STOCKHOLDERS
SHOULD NOT RETURN STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
History of the Merger
In March 1990 Amwest's then investment manager brought Condor to the
attention of Amwest senior management. At the time, Condor's shares had fallen
significantly in value from previous levels. After reviewing the investment
opportunity, Amwest senior management concluded that the shares of Condor were
undervalued and that purchases of Condor shares in the open market would be a
good equity investment for Amwest. At various times during the remainder of the
year, Amwest acquired Condor shares and ultimately became one of its larger
stockholders.
From 1990 through early 1995, senior management of Amwest monitored the
results of Condor and met with Mr. Main on several occasions in order to
appropriately monitor Amwest's equity investment. During this period of time,
senior management of both Amwest and Condor became better acquainted and were
able to gain better understandings of the operations of both companies.
In 1993, Condor wrote off $1,870,022 related to the misappropriation of
premiums written for its private passenger automobile coverage line of business
in Arizona, and incurred associated legal expenses. On July 14, 1994, Condor was
awarded a judgment in the Superior Court of Arizona for approximately $1,947,000
against a former agent and an individual who represented that agent. The
individual against whom Condor has a judgment, filed for bankruptcy in Las Vegas
in December 1994. Condor has also initiated proceedings to collect its judgment
in the Las Vegas bankruptcy. The write-off related to the misappropriation of
premiums and other related losses and expenses has had a significant impact on
Condor's capital surplus and has limited Condor's ability to expand its business
by writing additional insurance.
On June 16, 1995, a member of Amwest's senior management met with
Condor's Chairman and Chief Executive Officer. The Amwest executive expressed
Amwest's intent to diversify beyond the surety market place and indicated that
because of its familiarity with Condor and Condor's focus on its specialty
transportation programs, Condor might be a good candidate to help Amwest achieve
its strategic diversification objectives. Condor's Chairman replied that Condor
was not interested in an affiliation or business combination at that time, that
Condor was anticipating a major recovery in the Las Vegas bankruptcy proceeding
which would replenish its capital and expand its underwriting capacity and that
it was planning to move its headquarters to Carlsbad, California to achieve cost
savings. There was no further contact between Amwest and Condor regarding a
possible affiliation or business combination until September 1995.
In August 1995, the Las Vegas bankruptcy court postponed until 1996 any
further action on the Las Vegas bankruptcy proceeding in which Condor is seeking
a recovery and it became apparent that there would be no recovery in 1995 other
than the separate legal action which resulted in an $890,000 recovery from a
financial institution in April of 1995.. The Condor Board of Directors decided
that in the absence of such recovery, Condor should not proceed to move its
headquarters in order to avoid significant moving expense.
Based on the foregoing events, Condor's Chairman decided in early
September 1995 to inquire as to whether Amwest still maintained an interest in
discussing a business combination. On September 5, 1995, a member of Amwest
senior management met with Condor's Chairman to discuss the operations of the
two companies and the possible benefits of combining the two companies.
On September 26, 1995, during a general strategy session of Amwest
executive management, the possibility of merging with Condor was discussed and
it was determined that, based on the information received to such date, the
possibility of a merger with Condor should be further investigated on a highly
confidential basis. At this time, it was agreed that a meeting with Amwest's and
Condor's executive management teams should be held to further explore the
possibility of a merger.
At an October 18, 1995 meeting between Amwest's Co-Chief Executive
Officers and Condor's Chairman, discussions were held regarding the benefits of
a combined entity and how the organization would operate going forward. At this
time, Condor's Chairman discussed with management of Amwest a possible
transaction whereby Condor might be acquired in a stock for stock transaction,
wherein each share of Condor Common Stock would be exchanged for 0.5 of a share
of Amwest Common Stock. At the conclusion of the meeting, management of Amwest
indicated that it would study the benefits of a proposed merger with Condor with
members of Amwest's Board of Directors. No agreements, understandings or
arrangements were reached regarding a transaction.
On November 1, 1995, Condor senior executives met with Amwest's
management executive committee to discuss both Condor's and Amwest's operations
in greater detail. Amwest management indicated that it would develop a
recommendation for Amwest's Board of Directors. In subsequent conversations,
Amwest's management indicated that it would recommend a Merger of Condor and
Amwest.
On November 9, 1995, the Board of Directors of Amwest held a meeting to
discuss the potential merger of Condor with and into Amwest. At this meeting,
the Board of Directors indicated that it was interested in pursuing a merger
with Condor, but that it needed more time to evaluate the proposed Conversion
Number and other matters. Additionally, at this meeting, one of the Co-Chief
Executive Officers was authorized to engage an investment banking firm for the
purpose of rendering an opinion as to the fairness of the proposed transaction
to Amwest stockholders. These conclusions were reported to Condor's Chairman on
November 9, 1995.
On November 11, 1995, the Condor Board of Directors met and discussed a
possible merger with Amwest, the terms which were under discussion and the
potential advantages to Condor and its stockholders. The conclusions of the
Board of Directors were that there were significant growth opportunities
available to Condor which could be exploited if it had access to greater capital
resources, that given Condor's current stock prices, the cost of raising equity
capital appeared excessive, and that merger with or acquisition by a larger
company with greater capital resources would allow Condor to expand its business
and reduce operating costs. The Board of Directors authorized the engagement of
an investment banking firm to furnish an opinion to the Condor Board of
Directors as to the fairness, from a financial point of view, to the public
stockholders of Condor of the consideration to be received by them in a
transaction that might be proposed by Amwest.
On November 14, 1995 Amwest engaged the services of Jefferies, in order
to advise Amwest as to the fairness of the proposed transaction with respect to
Amwest stockholders. On November 20, 1995, Condor engaged the services of
Wedbush Morgan, who advised the Condor Board of Directors as to the fairness,
from a financial point of view, to the public stockholders of Condor of the
consideration to be received by them in the proposed transaction. During this
time frame, representatives of Condor and Amwest and their respective counsel
held negotiations with respect to the proposed Merger.
On November 15, 1995, Amwest and Condor entered into a Confidentiality
Agreement, began to exchange certain information related to each other in order
to determine whether and on what basis a merger might be possible and began to
negotiate the structure and terms of the Merger.
A meeting of the Condor Board of Directors was held on November 16,
1995 to discuss in detail the terms that were proposed by Amwest, the structure
of the transaction and the status of the negotiations and to receive a briefing
from Wedbush Morgan as to the procedures it would follow in forming an opinion
as to the fairness, from a financial point of view, to the public stockholders
of Condor of the consideration to be received by them in the transaction.
On November 20, 1995, the Board of Directors of Amwest held a meeting
to review the proposed transaction and to receive a preliminary report from
Jefferies, regarding its analysis and progress in order to be in a position to
deliver an opinion as to the fairness of the transaction to Amwest stockholders.
The Board of Directors of Amwest authorized executive management to continue
negotiations with Condor.
On November 21, 1995 the Condor Board of Directors met to review and
discuss the progress that had been made in negotiating the terms of the
transaction, consider certain issues on which agreement had not yet been reached
between Condor and Amwest and receive a preliminary report from Wedbush Morgan
as to its work to date and the expected timing for reaching a conclusion. On
November 29, 1995, three members of Condor's Board of Directors had an informal
conference with Condor's counsel to discuss various issues still under
negotiation.
The negotiations between Amwest and Condor culminated in separate
meetings of the Boards of Directors of Amwest and Condor on November 30, 1995 at
which the Merger Agreement and related matters were approved by both Boards of
Directors. Thereafter on November 30, 1995, after the securities markets for
Amwest Common Stock and Condor Common Stock closed for the day, Amwest and
Condor entered into the Merger Agreement and related agreements. The terms of
the proposed Merger were announced in a joint press release issued prior to the
opening of securities markets on December 1, 1995.
Recommendation of the Board of Directors of Amwest; Reasons for the Merger
The Board of Directors of Amwest has unanimously approved the Merger
Agreement and has determined that the Merger is advisable and fair and in the
best interests of Amwest and its stockholders and unanimously recommends that
holders of shares of Amwest Common Stock vote FOR approval and adoption of the
Merger Agreement.
In reaching a decision to approve the Merger Agreement and to recommend
that Amwest stockholders vote to approve the Merger Agreement, Amwest's Board of
Directors considered among other things the following factors:
Amwest's knowledge of the business, operations, management and
financial results of Condor, gained as a result of its ongoing
stock ownership in Condor since 1990, together with information
gleaned during the negotiation process.
The compatibility of Condor's focused transportation programs
with Amwest's stated objective of diversifying beyond the business
of surety insurance.
The future prospects of Condor, subsequent to the Merger,
including the ability of Condor to expand its operations with
additional capital.
The opinion of Jefferies as to the fairness, from a financial
point of view, of the Conversion Number to stockholders of Amwest.
See "Opinion of Jefferies."
The terms of the Merger agreement which were the product of
extensive negotiations.
The compatibility of the executive management teams of Amwest and
Condor.
In view of the wide variety of factors considered by the Board in
connection with its evaluation of the Merger, the Board did not find it
practicable to quantify or otherwise attempt to assign relative weight to the
specific factors considered in making its determination, nor did it evaluate
whether such factors were of equal weight.
Recommendation of the Board of Directors of Condor; Reasons for the Merger
The Board of Directors of Condor has unanimously approved the Merger
Agreement and has determined that the Merger is fair to and in the best interest
of Condor and its stockholders and unanimously recommends that the Condor
stockholders vote FOR approval and adoption of the Merger Agreement.
In reaching its decision to approve the Merger Agreement and to
recommend that Condor stockholders vote to approve the Merger Agreement,
Condor's Board of Directors considered among other things the following factors:
The surplus position of Condor and the relative leverage of
premiums to surplus, which currently make it difficult for Condor
to expand its transportation programs.
The excess surplus position of Amwest and the ability to improve
the leverage of premium to surplus thus permitting Condor to
expand its transportation programs.
Knowledge about the stability of Amwest, together with Amwest
resources which can be utilized to assist Condor in expanding its
transportation programs.
The cost savings attributable to combining certain back-office
functions of Condor, together with reduced reinsurance costs as a
result of merging with a larger entity.
The opinion of Wedbush Morgan as to the fairness, from a
financial point of view, of the consideration to be received by
the public stockholders of Condor in the Merger. See "Opinion of
Wedbush Morgan."
The terms of the Merger Agreement, which were the product of
extensive negotiations.
The historical trading prices and dividend rates for Amwest
Common Stock.
The premium which the Conversion Number will represent over
recent trading prices of Condor Common Stock.
The compatibility of Condor and Amwest executive management
teams.
The opportunity for Condor stockholders to participate as holders
of Amwest Common Stock in a larger dividend paying company, of
which Condor would become a significant part, and to do so by
means of a transaction in which Condor stockholders will not
recognize gain or loss for Federal income tax purposes on the
exchange of their Condor Common Stock for Amwest Common Stock.
In reaching its conclusion that the holders of Condor Common Stock will
receive fair value in the form of shares of Amwest Common Stock pursuant to the
Merger, the Condor Board of Directors considered the opinion of Wedbush Morgan,
as to the fairness, from a financial point of view, to the public stockholders
of Condor of the Merger Consideration, and the Board's knowledge of Condor's
business and its prospects. The Condor Board of Directors also considered recent
and current market prices of both Condor Common Stock and Amwest Common Stock on
which the Conversion Number was based and concluded that Amwest Common Stock was
trading in a reasonable range prior to announcement of the transaction.
Additional value was seen in the diverse product lines and efficiencies and cost
savings to be experienced by the combined Condor/Amwest operations resulting
from the Merger, as compared to those of either Amwest or Condor alone.
In considering the fairness of the Merger, the Condor Board of
Directors considered the Proposition 103 potential premium rollback (the
"Proposition 103 Rollback"), the range of possible effects on Amwest's financial
position if the California Supreme Court decided the matter adversely to Amwest,
the effect of the outcome considered most likely by Amwest in such event and the
effect on the combined operations of Condor and Amwest going forward in the
event of various outcomes. The Condor Board of Directors also noted that the
Wedbush Morgan fairness opinion was based on the assumption that the outcome of
the Proposition 103 Rollback would not have a material adverse effect on the
financial position of Amwest. The Condor Board of Directors concluded that,
while the amount of Amwest surplus available to expand Condor's transportation
programs would be less than currently expected and could limit the future growth
of the combined entities if the outcome considered to be the "worst case"
occurred, the merger nevertheless represented a highly favorable improvement to
Condor stockholders in the value of their holdings. Based on that conclusion and
considering the possibility that the Proposition 103 Rollback could be resolved
more favorably than on a "worst case" basis, the Condor Board of Directors
concluded that the Merger was fair and in the best interests of the Condor
stockholders in spite of the uncertainties of the Proposition 103 Rollback and
that the risk of a "worst case" outcome was a reasonable risk to run in view of
the belief that the Merger would still, in such event, result in a highly
favorable increase in value to Condor stockholders.
The Condor Board of Directors also believed that certain terms of the
Merger Agreement, which were extensively negotiated, contributed to their
determination that the Merger is fair and in the best interests of Condor
Stockholders. Among such provisions are those which permit Condor to engage in
discussions with other potential acquirors who make unsolicited inquiries if the
Board of Directors determines, in the exercise of its fiduciary
responsibilities, that such discussions are appropriate and permit Condor to
terminate the Merger Agreement, subject to the payment of the Termination Fee,
if the Board of Directors determines that it is in the best interests of the
stockholders to accept a Superior Proposal. Another such provision is the
condition that Condor is not obligated to consummate the Merger if the Exchange
Ratio is less than 0.4.
In addition, the Condor Board of Directors considered that the
transaction was structured so that, except for cash paid in lieu of fractional
shares, Condor stockholders would not recognize a gain or loss for federal
income tax purposes as a result of the Merger and that Condor's Chief Executive
Officer was to be included on Amwest's Board of Directors and Management
Executive Committee.
Prior to commencing merger discussions with Amwest, Condor received two
casual inquiries, one direct and one indirect, as to its interest in being
acquired by other parties. Because Condor at the time was not interested in
being acquired, it did not follow up on such inquiries. While Condor was engaged
in merger discussions with Amwest, one of the earlier inquirers contacted Condor
to inquire again as to its interest in an acquisition. Condor management
questioned the inquirer about business acquisitions it had made in the past,
prices paid in such acquisitions and its experience in and knowledge of Condor's
business. Condor management also obtained from third party sources certain
information on the acquisition experience and practices of the other inquirer.
The Condor Board of Directors determined not to entertain discussions with the
entities that had made inquiries or to seek alternative offers to the Amwest
proposal for the following reasons: the confidential nature of the negotiations
with Amwest and the circumstances under which they occurred; Amwest's stated
refusal to continue negotiations if Condor were to seek alternative proposals;
the significant premium which the Amwest proposal represented over trading
prices for Condor Common Stock; information received by the Board of Directors
as to prices offered by the inquiring entities in other acquisitions which were
significantly less on a relative basis than the Amwest proposal; information
received by the Board of Directors as to prices commonly paid for small
insurance companies which led it to believe that a significantly superior
alternative offer was unlikely; the particular benefits that would result from a
Merger with Amwest; the terms of the Merger Agreement which allow Condor to
terminate it to accept a Superior Proposal; the Board of Directors belief that
the Termination Fee is not unreasonably high and would not constitute a
significant obstacle to receipt of a Superior Proposal; and the Board of
Directors high level of confidence, based on Amwest's strongly expressed desire
to acquire Condor, that the Merger with Amwest could be concluded on a timely
basis.
The Condor Board of Directors belief that the Merger is fair and in the
best interests of the Condor stockholders is supported by the fact that Condor
has received no inquiries from other potential acquirors since the public
announcement of the terms of the Merger.
The foregoing discussion of the information and factors considered and
weight given by the Condor Board of Directors is not intended to be exhaustive.
In view of the variety of factors considered in connection with its evaluation
of the Merger, the Condor Board of Directors did not find it practicable to and
did not quantify or otherwise assign relative weights to the specific factors
considered in reaching its determination.
Opinion of Jefferies
Amwest retained Jefferies & Company, Inc. ("Jefferies") to act as its
financial advisor in connection with the Merger. Jefferies was selected by
Amwest's Board of Directors to act as Amwest's financial advisor, based on
Jefferies' qualifications, expertise and reputation.
Jefferies has rendered to Amwest's Board of Directors, its written
opinion, dated November 30, 1995 (the "Opinion"), that based upon and subject to
the various considerations set forth in the Opinion, on November 30, 1995, the
Conversion Number was fair from a financial point of view to the holders of
outstanding Common Stock of Amwest. No limitations were imposed by the Amwest
Board of Directors upon Jefferies with respect to the investigations made or
procedures followed by it in rendering its Opinion.
The Conversion Number was determined through negotiations among Amwest
and Condor, and Jefferies did not participate in such negotiations. Jefferies'
fairness opinion was only one factor considered by the Amwest Board of Directors
in making its determination to approve the Merger. The Amwest Board of Directors
requested the opinion of Jefferies, and Jefferies agreed to furnish its opinion
so that the Board would have the assistance of Jefferies in evaluating the
proposed transaction and in fulfilling the duties of the Board to Amwest
stockholders. Jefferies has consented to the references to its opinion in this
Proxy Statement/Prospectus, but has disclaimed any obligation to the Amwest
stockholders. The Opinion states that it is intended to be for the benefit of
the Amwest Board of Directors, and not for the benefit of stockholders or any
other third parties.
The full text of the Opinion, which sets forth assumptions made,
matters considered and limitations on the review undertaken is attached as Annex
C to this Proxy Statement/Prospectus. Amwest stockholders are urged to read the
Opinion carefully and in its entirety for information with respect to procedures
followed, assumptions made and matters considered by Jefferies in rendering its
Opinion.
In arriving at its Opinion, Jefferies did not ascribe a specific range
of fair value to the Common Stock, but made its determination on the basis of
financial and comparative analyses, including (without limitation) those
described below. The Opinion is based on economic, monetary and market
conditions prevailing, and stock prices and other circumstances and conditions
existing, on the date thereof, and Jefferies did not express any opinion as to
the market value of the Condor Common Stock or Amwest Common Stock, or the price
or trading range at which Amwest Common Stock will trade following consummation
of the Merger.
The Opinion is directed only to the Amwest Board of Directors and does
not constitute a recommendation to any stockholder of Amwest as to how such
stockholder should vote at the Special Meeting of Stockholders of Amwest. The
summary of the Opinion set forth in this Proxy Statement is qualified in its
entirety by reference to the full text of such Opinion. In addition, Jefferies
was not requested to opine as to, and its Opinion did not address, the
underlying business decision of the Amwest Board of Directors to proceed with or
to effect the Merger.
In rendering its Opinion, Jefferies reviewed, among other things, the
draft of the Merger Agreement dated November 30, 1995 and certain financial and
other information about each of Amwest and Condor that was in each case publicly
available or furnished to Jefferies by Amwest or Condor, as the case may be,
including certain internal analyses, financial forecasts, an actuarial report
dated October 17, 1995 on the loss and loss adjustment reserves of Condor
Insurance Company as of September 30, 1995, reports and other information
prepared by Amwest and Condor Management. Jefferies also held discussions with
members of senior management of both Amwest and Condor concerning each company's
historical and current operations, financial conditions and prospects, as well
as the strategic and operating benefits anticipated from the business
combination. In addition, Jefferies conducted such financial studies, analyses
and investigations and reviewed such other factors as were deemed appropriate
for purposes of their Opinion. Jefferies assumed and relied upon without
independent investigation or verification, the accuracy, completeness and
fairness of all financial and other information reviewed by Jefferies for
purposes of rendering its Opinion, and their Opinion is expressly conditioned
upon all such information (whether written or oral) being accurate, complete and
fair in all respects.
With regard to the financial projections examined by Jefferies (the
"Projections"), which were provided by Amwest and Condor, Jefferies assumed that
they were reasonably prepared on bases reflecting the best currently available
estimates and good faith judgments of the respective managements of Amwest and
Condor as to the future performance of each company and, although Jefferies
performed sensitivity analyses thereon, in rendering its Opinion, Jefferies
assumed that each such company will perform in accordance with such projections
for all periods specified therein. Jefferies also assumed that the Merger will
be a tax free reorganization accounted for as a pooling of interests and that
all consents and authorizations necessary to consummate the Merger have been, or
will be, obtained without material expense. Jefferies has disclaimed any
undertaking or obligation to advise any person of any change in any fact or
matter affecting its Opinion of which it becomes aware after the date of the
Opinion. Jefferies was not requested to, and did not, participate in the
structuring or negotiation of the Merger, solicit third party indications of
acquiring all or any part of Amwest, or make any independent evaluation or
appraisal of the assets or liabilities, contingent or otherwise, of Amwest or
Condor, nor were they furnished with any such evaluation or appraisals, other
than the actuarial report previously described.
The following is a brief summary of the report presented by Jefferies
to the Amwest Board of Directors on November 30, 1995. The following does not
purport to be a complete description of the analyses performed, or the matters
considered, by Jefferies in arriving at the Opinion.
The preparation of a fairness opinion involves various determinations
as to the most appropriate and relevant methods of financial analyses and the
application of those methods to particular circumstances and, therefore, such an
opinion is not readily susceptible to summary description. Furthermore, in
arriving at its Opinion, Jefferies did not attribute any particular weight to
any analysis or factor considered by it, but rather made qualitative judgments
as to the significance and relevance of each analysis and factor. Accordingly,
Jefferies' analyses must be considered as a whole. Considering any portion of
such analyses and of the factors considered, without considering all analyses
and factors, could create a misleading or incomplete view of the process
underlying the Opinion. In its analyses, Jefferies made many assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of the merging companies.
Any estimates contained in these analyses are not necessarily indicative of
actual values or predicting of future results or values, which may be
significantly more or less favorable than as set forth therein. In addition,
analyses relating to the value of businesses do not purport to be appraisals or
to reflect the prices at which businesses actually may be sold.
Analysis of Comparable Publicly Traded Companies
As part of its analysis, Jefferies compared the financial information
of Amwest and Condor with a group of fifteen publicly traded insurance
companies. Among other things, Jefferies studied latest twelve month ("LTM") and
estimated December 1995 and 1996 price to earnings ratios ("P/E"s), market
capitalization divided by last fiscal year Generally Accepted Accounting
Principals ("GAAP") and statutory net income, price to GAAP and statutory book
values and price to GAAP tangible book values, as defined below. The multiples
and market capitalizations for Condor were calculated using an assumed stock
price reflecting the acquisition value of Condor assuming Amwest Common Stock
trades at $17.50 or above per share during the relevant calculation period. GAAP
tangible book values are calculated as book value less deferred acquisition
costs and other intangibles.
The range of comparables for the latest twelve months P/E ratios showed
a low of 8.5x, a high of 34.3x earnings, with an average 15.0x, compared to a
P/E ratio for Condor of 30.2x. With respect to estimated 1995 P/E ratios, the
low was 6.8x, the high was 29.2x, the average 14.3x, compared to 29.2x for
Condor. The range of comparables for estimated December 1996 P/E ratios was a
low of 5.6x, a high of 18.2x and an average of 10.9x, compared to 7.8x for
Condor.
The range of comparables for the ratio of market capitalization to last
fiscal year GAAP net income showed a low of 8.4x (7.6x based on statutory net
income), a high of 36.9x (36.4x based on statutory net income), and an average
of 15.8x (18.4x based on statutory net income), compared to 33.9x (57.0x based
on statutory net income) for Condor.
The price to GAAP book value for the comparables ranged from a low of
0.9x to a high of 2.8x, with an average of 1.5x, compared to 1.4x for Condor.
The price to GAAP tangible book value ranged from a low of 1.1x to a high of
6.3x with an average of 2.2x, compared to 1.4x for Condor. The ratio of price to
statutory book value ranged from a low of 0.9x to a high of 5.1x, with an
average of 2.2x, compared to 2.6x for Condor.
None of the companies used in the above analysis is identical to either
of the merger companies or to the surviving corporation. Consequently, an
appropriate use of a comparable company analysis in this instance necessarily
involves qualitative judgments concerning, among other things, differences
between the financial and operating characteristics of the merging companies and
the selected comparable companies that would affect the public trading values of
the merging companies and the selected comparable companies.
Contribution Analysis
Jefferies analyzed the contribution of each of Amwest and Condor to the
pro forma combined company if the Merger were to be consummated. Such analysis
was based on historical financial data provided by the managements of Amwest and
Condor. Such analysis showed that, based on LTM data, Condor would contribute
approximately 20% of net premiums earned, 10% of EBIT and 10% of net income of
the combined company, before taking into account any cost savings or other
synergies that may be achieved if the Merger were consummated. Based on data as
of September 30, 1995, Condor would contribute approximately 22% of GAAP book
value, 30% of GAAP tangible book value and 29% of Statutory Accounting
Principals ("SAP") book value of the combined company. Based on a price per
Amwest share of $12.50 to $17.50, during the calculation period, Condor would
receive approximately 28% of the equity and 24% of the total enterprise value
(equity plus debt) of the combined company.
Pro Forma Earnings Per Share Analysis
Jefferies analyzed certain pro forma effects of the Merger on the
earnings of the combined company. These analyses were based on the projections
provided by Amwest and Condor senior managements regarding the financial
performance of Amwest and Condor, respectively, as well as the estimate of cost
savings and other synergies provided by Amwest management. Jefferies expressed
no view on whether the savings could be obtained. Based on such analysis,
Jefferies observed that, after taking into account such estimated cost savings
and other synergies, the Merger would initially be dilutive to earnings per
share, but could be accretive for Amwest stockholders as early as 1996.
Merger and Acquisition Transactions
Jefferies examined fourteen mergers and acquisitions of property and
casualty insurance companies as screened by Securities Data Corporation that
have occurred since March 1990 where the percentage of shares acquired was
greater than 50% and offering ratios were available. For each transaction,
Jefferies studied the ratios of offer price to LTM earnings and offer price to
book value. Excluding the highest and lowest values, the P/E ratio of the
comparables ranged from a low of 6.8x to a high of 21.0x, with an average of
14.6x, compared to 30.2x for Condor, and the ratio of price to book value ranged
from a low of 0.8x to a high of 2.7x, with an average of 1.5x, compared to 1.4x
for Condor. Once again, the analyses assumed Amwest Common Stock will trade at
$17.50 or above per share during the calculation period. Jefferies noted that
the bid premium in the Merger is 145.6% of the closing market price of Condor
Common Stock on November 28, 1995 and that, on average, bid premiums for
publicly traded companies are approximately 25-35%.
Because the reasons for and circumstances surrounding each of the
transactions analyzed were diverse and because of the inherent differences
between the operations of the merging companies and the companies engaged in the
selected transaction, an appropriate use of a comparable transaction analysis in
this instance necessarily involves qualitative judgments concerning, among other
things, differences between the characteristics of these transactions and the
Merger that would affect the acquisition value of the transaction comparables
and the merging companies.
Discounted Cash Flow Analysis
In performing its evaluation of the Merger, Jefferies also relied on a
discounted cash flow analysis. Using the Projections and other financial
information supplied by Amwest and Condor, Jefferies analyzed the sum of (i) the
present value of tax-effected operating cash flow for the years 1996 to 2000,
using discount rates of 12.3% to 14.3%, plus (ii) the estimated "terminal value"
of the appropriate entity based upon a range of multiples of 0.8x to 1.2x
projected 2000 capitalization, discounted to the present, less (iii) net debt of
the appropriate entity at September 30, 1995. The discounted cash flow analysis
implies a value of Condor of $9.6 million to $24.3 million, compared to an
acquisition valuation of Condor of $16.9 million, assuming Amwest Common Stock
trades at $17.50 during the relevant calculation period.
Other Matters
Pursuant to an engagement letter dated November 20, 1995 between Amwest
and Jefferies, Amwest has paid Jefferies a fee of $100,000 for delivering its
Opinion and shall reimburse Jefferies for out-of-pocket expenses incurred in
connection with rendering its services. Amwest has also agreed to indemnify
Jefferies against certain liabilities, including liability under the Federal
Securities Laws. The fee paid to Jefferies was payable upon delivery of a
fairness opinion, regardless of the conclusions contained therein. In the
ordinary course of its business, Jefferies may actively trade securities of
Amwest and Condor for its own account and for the accounts of its customers and,
accordingly, may at any time hold a long or short position in such securities.
Opinion of Wedbush Morgan
The Board of Directors of Condor retained Wedbush Morgan to furnish an
opinion to the Board as to the fairness, from a financial point of view, to the
Public Stockholders of Condor of the Merger Consideration to be received by the
Public Stockholders in the Merger. The term "Public Stockholders" as used herein
refers to all stockholders of Condor other than Amwest and other than those that
are "affiliates" of Condor as that term is used in Rule 12b-2 under the
Securities Exchange Act of 1934. Wedbush Morgan is an investment banking firm
and a member of the New York Stock Exchange and other principal stock exchanges
in the United States, and is regularly engaged as part of its business in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, private placements, secondary
distributions of listed and unlisted securities, and valuations for corporate,
estate and other purposes. The Condor Board of Directors retained Wedbush Morgan
based upon the firm's overall qualifications and reputation in the industry, and
its experience in valuation of securities and in furnishing opinions in
connection with mergers and acquisitions.
The Merger Consideration to be paid to the Public Stockholders was
determined through negotiations among Condor and Amwest, and Wedbush Morgan did
not participate in such negotiations. Wedbush Morgan's fairness opinion was only
one factor considered by the Condor Board of Directors in making its
determination to approve the Merger. The Condor Board of Directors requested the
opinion of Wedbush Morgan, and Wedbush Morgan agreed to furnish its opinion so
that the Board would have the assistance of Wedbush Morgan in evaluating the
proposed transaction and in fulfilling the duties of the Board to Condor Public
Stockholders. Wedbush Morgan has consented to the references to its opinion in
this Proxy Statement/Prospectus, but has disclaimed any obligation to the Condor
Public Stockholders. The Wedbush Morgan fairness opinion should not be viewed as
having been a recommendation in favor of merging Condor with Amwest in lieu of
Condor remaining as an independent entity or pursuing other alternative
transactions. The Wedbush Morgan opinion states that it is intended to be for
the benefit of the Condor Board of Directors, and not for the benefit of
stockholders or any other third parties. Whether this disclaimer would be upheld
by a court in a lawsuit by Condor Public Stockholders or others is uncertain.
On November 30, 1995, Wedbush Morgan delivered its written opinion to
the Condor Board of Directors to the effect that, as of that date and based upon
the factors described in its opinion, the Merger Consideration is fair, from a
financial point of view, to the Public Stockholders. The full text of the
Wedbush Morgan opinion, dated November 30, 1995, which sets forth the
assumptions made, the matters considered, and the nature of the review
undertaken by Wedbush Morgan in arriving at its opinion is attached to this
Proxy Statement/Prospectus as Annex D. All Condor Stockholders are urged to read
the opinion in its entirety. The summary opinion of Wedbush Morgan set forth in
this Proxy Statement/Prospectus is qualified in its entirety by reference to the
full text of such opinion.
In arriving at its opinion, Wedbush Morgan reviewed, among other
things, the Merger Agreement; the Stockholder Agreement by and between Amwest,
Mr. Main and the Main Family Trust; the Affiliates Letter and Continuity of
Interest Certificates executed by certain members of Condor Management; the
Agreement With Guy A. Main and Main Family Trust to be entered into by and
between such parties and Amwest; the Registration Rights Agreement to be entered
into between Mr. Main the Main Family Trust and Amwest; the Annual Report on
Form 10-K of Condor for the fiscal year ended December 31, 1994; Quarterly
Reports on Form 10-Q of Condor for the quarters ended June 30, 1995 and
September 30, 1995; financial statements and analyses of Condor prepared by
Condor Management for the fiscal years ended December 31, 1989 through December
31, 1993; the Proxy Statement for Annual Meeting of Stockholders of Condor dated
April 26, 1995; Quarterly Statement of Statutory Results of Condor as of
September 30, 1995; forecast and projections prepared by Condor with respect to
Condor for the five fiscal years ended December 31, 1999; Actuarial Report on
the Loss and Loss Adjustment Expense Reserves of Condor as of September 30,
1995, prepared by Timothy B. Perr & Company, Consulting Actuaries; the Annual
Report to Stockholders of Amwest for the fiscal year ended December 31, 1994;
the Annual Report on Form 10-K of Amwest for the fiscal year ended December 31,
1994; historical audited financial statements for the fiscal years ended
December 31, 1990 through December 31, 1993 of Amwest; Quarterly Report on Form
10-Q of Amwest for the quarter ended September 30, 1995; Proxy Statement for the
Annual Meeting of Stockholders of Amwest dated April 13, 1995; financial
forecast of Amwest alone for the five fiscal years ending December 3l, 1999 and
of Amwest combined with Condor for the five fiscal years ending December 31,
1999, prepared by Amwest Management.
Wedbush Morgan also held discussions with certain members of the senior
management of Condor regarding the past and current business operations,
financial condition, future prospects and projected operations and performance
of Condor. Wedbush Morgan held discussions with certain members of the senior
management of Amwest regarding the past and current business operations,
financial condition, future prospects and projected operations and performance
of Amwest and of the combined entities. Wedbush Morgan toured the headquarters
of Condor in El Segundo, California and the headquarters of Amwest in Woodland
Hills, California. In addition Wedbush Morgan reviewed the reported price and
trading activity of the Condor Common Stock and of Amwest Common Stock, compared
certain statistical and financial information for Condor and Amwest
respectively, with similar information for certain other companies in the same
industries as Condor and Amwest, respectively, reviewed and compared statistical
and financial data for recent acquisitions in the same industry as Condor and
conducted such other financial studies, analyses and inquiries and considered
such other matters as Wedbush Morgan deemed necessary and appropriate for its
opinion.
Wedbush Morgan did not undertake any obligation to verify independently
the accuracy or completeness of financial information or other information
furnished to Wedbush Morgan by Condor or Amwest orally or in writing, or other
information obtained from publicly available sources and reviewed by Wedbush
Morgan for purposes of its opinion. Wedbush Morgan was provided with information
represented to Wedbush Morgan as the best currently available estimates, in the
judgment of the management of Condor and Amwest, as to the expected future
financial and operating performance of Condor and Amwest, and Wedbush Morgan did
not undertake any responsibility for the accuracy of such forecasts, estimates,
or judgments, nor did it undertake any obligation to verify independently the
underlying assumptions made in connection with such forecasts, estimates or
judgments. In addition, Wedbush Morgan did not make an independent evaluation or
appraisal of any particular assets or liabilities of Condor or Amwest and was
not furnished with any such evaluation or appraisal.
The Wedbush Morgan fairness opinion notes that under Section 7.03(g) of
the Merger Agreement, the obligations of Condor to effect the Merger are subject
to the receipt at or prior to the date of the closing of the Merger of an
opinion of Amwest's consulting actuary, addressed to Condor, as of December 31,
1995, opining that as of such date the reserves for loss and loss adjustment
expense reflected on the balance sheet of Amwest and its affiliates entities
have been established in conformity with generally accepted actuarial principles
and practices consistently applied, that such reserves were established in
conformity with the requirements of the California Department of Insurance, and
that such reserves make a reasonable provision for all unpaid loss and loss
adjustment expense obligations of Amwest under the terms of its policies and
agreements. The Wedbush Morgan opinion was based in part on Condor's ability to
obtain such assurances and is subject to receipt of such an actuarial opinion.
Wedbush Morgan's experience is in financial analyses of the kind customary in
the investment banking profession, and Wedbush Morgan did not undertake any
obligation to conduct or to supervise any actuarial analyses or review of the
quality of the reserves of Amwest or of Condor.
The Wedbush Morgan fairness opinion notes that Amwest is a party to
certain legal proceedings, which at the time such opinion was furnished were
pending before the California Supreme Court, regarding the validity of Section
1861.135 of the California Insurance Code. Section 1861.135 purported to exempt
surety insurance from the rate roll back and prior approval provisions of
Proposition 103, the insurance initiative adopted by California voters. On
December 14, 1995, the Supreme Court of the State of California affirmed the
decision of the Second District Court of Appeal overturning Insurance Code
Section 1861.135. Accordingly, the surety insurance industry will no longer be
exempted from the rate rollback and prior approval provisions contained in
Proposition 103.
The Wedbush Morgan opinion is based on the assumption that the outcome
of such legal proceedings will not have a material adverse effect (as such term
is defined in the Merger Agreement) on the financial position of Amwest. The
Wedbush Morgan opinion assumed that all relevant factors and circumstances, as
they existed as of the date of its opinion, would remain substantially unchanged
through the time the Merger is completed. Wedbush Morgan did not undertake to
update its fairness opinion for any changes occurring between the date of such
opinion and the Merger.
Certain financial analyses performed by Wedbush Morgan in connection
with the preparation of its opinion letter and reviewed with the Board are
summarized below.
These include public market comparable company analysis; discounted
cash flow analysis; merger and acquisition comparables valuation; pro forma
merger analysis; and contribution analysis. While the following summaries
describe all analyses and examinations that Wedbush Morgan deems material to its
opinion, they are not a comprehensive description of all analyses and
examinations actually conducted by Wedbush Morgan. The preparation of a fairness
opinion is not susceptible to partial analysis or summary description. Wedbush
Morgan believes that such analyses must be considered as a whole and that
selecting portions of such analysis and of the factors considered, without
considering all such analyses and factors, would create an incomplete view of
the process underlying the analyses set forth in its presentation to Condor's
Board of Directors. The ranges of valuations resulting from any particular
analysis described below should not be taken to be Wedbush Morgan's view of the
actual value of Condor. It is not possible to assign exact weight given by
Wedbush Morgan to the various forms of analysis.
In performing its analyses, Wedbush Morgan made numerous assumptions
with respect to industry performance and general business and economic
conditions such as industry growth, inflation, interest rates and many other
matters, many of which are beyond the control of Condor and/or Amwest. Any
estimates contained in Wedbush Morgan's analyses are not necessarily indicative
of actual values or future results, which may be significantly more or less
favorable than suggested by such analyses. Such analyses were prepared solely as
part of Wedbush Morgan's analysis of the fairness of the Merger Consideration to
the Condor Public Stockholders. Additionally, indications of the values of
businesses and securities set forth below do not purport to be appraisals of the
assets or market values of Condor or Amwest or the company formed by the
combination of Condor and Amwest, or their respective securities, nor do they
necessarily reflect the prices at which such businesses or securities may
actually be sold.
Amwest and Condor Market Values
Wedbush Morgan noted that the closing price of Amwest's Common Stock on
November 28, 1995 was $17.75, which implied an aggregate value of the
consideration for Condor of $16.9 million, and a per share value of $8.75, based
on 1.935 million fully diluted Condor Common Shares then outstanding. Wedbush
Morgan noted that the proposed Merger Consideration would represent the
following range of multiples of the then current market price of Condor Common
Stock of $4.00, based on a range of Amwest stock prices:
Consideration as a Multiple
Amwest Stock Price of $4.00 Condor Stock Price
------------------ ---------------------------
$10.50 1.6x
$11.50 1.6x
$12.50 1.6x
$13.50 1.7x
$14.50 1.8x
$15.50 1.9x
$16.50 2.1x
$17.50 2.2x
$18.50 2.2x
$19.50 2.2x
$20.50 2.2x
Public Market Comparables Valuation
Using publicly available information, Wedbush Morgan compared selected
financial data of Condor and Amwest with similar data of selected publicly
traded companies engaged in businesses considered by Wedbush Morgan to be
comparable to those of Condor and Amwest. An analysis of comparable companies is
not purely mathematical; rather it involves complex considerations and judgments
concerning similarities and differences in financial, operational and other
characteristics of potentially comparable companies. It is a subject as to which
differences in professional judgment may well arise. In this regard, Wedbush
Morgan noted that although the companies selected were considered similar to
Condor or Amwest, none of the companies has the same management makeup, size or
combination of business as Condor or Amwest, as the case may be. For purposes of
this analysis, Wedbush Morgan treated the following companies as comparable to
Condor (the "Condor Comparable Companies"): Acceptance Insurance Cos., American
Eagle Group, Baldwin & Lyons, EMC Insurance Group, Guaranty National Corp., Home
State Holdings, MCM Corp. and Philadelphia Consolidated Holding Corp. For
purposes of this analysis, Wedbush Morgan considered the following companies as
comparable to Amwest (the "Amwest Comparable Companies"): Acmat Corp., Capsure
Holdings Corp. and Frontier Insurance Group.
Wedbush Morgan determined that for the Condor Comparable Companies, the
multiple range and median multiple of "market value" (defined as the number of
shares outstanding times the closing stock price on November 28, 1995) to
publicly reported latest twelve months ("LTM") net operating income (defined as
pre-tax income less any realized gains, losses and extraordinary items) were
5.8x to 24.6x and 8.8x, respectively, with the median multiple implying a
valuation of $3.59 per share of Condor Common Stock. Wedbush Morgan determined
that the multiple range and median multiple of market value (as defined above)
to 1996 estimated earnings per share ("EPS") (which estimates reflected a
composite of research analysts' estimates as reported by the Institutional
Brokers Estimate Service ("IBES")), were 4.9x to 10.5x and 7.6x, respectively,
with the median multiple implying a valuation (based on Condor management
projections) of $5.62 per share of Condor Common Stock. Wedbush Morgan
determined that the multiple range and median multiple of market value (as
defined above) to latest publicly reported book value of stockholders' equity
were 1.0x to 1.6x and 1.1x, respectively, with the median multiple implying a
valuation of $6.80 per share of Condor Common Stock. Wedbush Morgan determined
that the multiple range and median multiple of the market value (as defined
above) plus net debt to LTM premiums earned were 0.5x to 2.7x and 1.0x,
respectively, with the median multiple implying a valuation of $8.44 per share
of Condor Common Stock. Wedbush Morgan also compared Condor to the Condor
Comparable Companies in terms of certain financial ratios, including: (a) the
average "loss ratio" (defined as loss and loss adjustment expenses divided by
net earned premiums) over the last three fiscal year period, (b) the average
"combined ratio" (defined as the sum of loss and loss adjustment expenses plus
underwriting expenses, divided by net earned premiums) over the last three
fiscal year period, and (c) the average over the last three fiscal year period
of operating return on average equity (defined as net operating income divided
by the average book value of stockholders' equity for the period). Based on the
median multiples described above for the Condor Comparable Companies, the
Wedbush Morgan public market comparables valuation as a whole indicates an
implied value reference range for Condor of between $3.59 and $8.44 per share of
Condor Common Stock.
Wedbush Morgan determined that for the Amwest Comparable Companies the
multiple range and median multiple of market value (as defined above) to LTM net
operating income were 4.5x to 10.2x and 7.5x, respectively, with the median
multiple implying a valuation of $19.56 per share of Amwest Common Stock.
Wedbush Morgan determined that the multiple range and median multiple of market
value (as defined above) to LTM net income were 10.5x to 13.9x and 12.8x,
respectively, with the median multiple implying a valuation of $30.46 per share
of Amwest Common Stock. Wedbush Morgan determined that the multiple range and
median multiple of market value (as defined above) to 1995 and 1996 estimated
EPS (as reported by IBES) were 10.6x to 13.6x and 12.4x, respectively for 1995
and 9.5x to 11.7x and 11.6x, respectively, for 1996. The median multiples imply
valuations (based on Amwest management projections) of $23.79 (1995) and $23.04
(1996) per share of Amwest Common Stock. Wedbush Morgan determined that the
multiple range and median multiple of market value (as defined above) to latest
publicly reported book value of stockholders' equity were 0.9x to 2.0x and 1.1x,
respectively, with the median multiple implying a valuation of $19.99 per share
of Amwest Common Stock. Wedbush Morgan also compared Amwest to the Amwest
Comparable Companies in terms of certain financial ratios, including (a) the
average loss ratio over the last three fiscal year period, (b) the average
combined ratio over the last three fiscal year period, and (c) the average over
the last three fiscal year period of operating returns on average equity. Based
on the median multiples described above for the Amwest Comparable Companies, the
Wedbush Morgan public market comparables valuation as a whole indicates an
implied value reference range for Amwest of between $19.56 and $30.46 per share
of Amwest Common Stock.
Although, as noted above, Wedbush Morgan believes that the analyses
conducted must be considered as a whole in determining fairness, Wedbush Morgan
regards the results of its public market comparables valuation overall as
supporting the conclusion expressed in its opinion.
Discounted Cash Flow
Wedbush Morgan analyzed the value of each of Condor and Amwest
utilizing a discounted cash flow analysis. Each of these analyses was based upon
projected financial information prepared or provided by the management of Condor
and Amwest, as the case may be. As part of its analyses, Wedbush Morgan also
considered certain sensitivity tests to evaluate the impact of changes in
certain variables on overall valuation, including, among other things, changes
in loss ratios and expense experiences.
Wedbush Morgan calculated ranges of equity values for Condor based upon
the discount to present value of Condor's projected four-year stream of
after-tax cash flows (as represented by GAAP net income) and its fiscal 1999
terminal values based upon a range of multiples of Condor's projected net
income. Wedbush Morgan utilized discount rates ranging from 19% to 24% and
terminal value multiples of 1999 net income ranging from 9.25x to 10.75x. Based
on the foregoing, Wedbush Morgan indicated a discounted cash flow implied value
reference range for Condor of between $5.11 and $6.49 per share of Condor Common
Stock.
Wedbush Morgan calculated ranges of equity values for Amwest based upon
the discount to present value of Amwest's projected four-year stream of
after-tax cash flows (as represented by GAAP net income) and its fiscal 1999
terminal values based upon a range of multiples of Amwest's projected net
income. Wedbush Morgan utilized discount rates ranging from 15% to 20% and
terminal value multiples of 1999 net income ranging from 9.25x to 10.75x. Based
on the foregoing, Wedbush Morgan indicated a discounted cash flow implied value
reference range for Amwest of between $19.96 and $25.80 per share of Amwest
Common Stock.
Wedbush Morgan calculated ranges of equity values on a pro forma basis
for the combined entity after the Merger based upon the discount to present
value of the projected pro forma four-year stream of after-tax cash flows (as
represented by GAAP net income) and fiscal 1999 terminal values based upon a
range of multiples of projected pro forma net income. Wedbush Morgan utilized
discount rates ranging from 20% to 25% and terminal value multiples of 1999 net
income ranging from 9.25x to 10.75x. Wedbush Morgan based these analyses on
management projections and on sensitivity projections which gave effect to the
enhanced growth rate expected as a result of the Merger and to the projected
cost savings resulting from the Merger, as estimated by management. No
assurances can be given that such projected growth or cost savings in the amount
estimated will be realized as a result of the Merger. Based on the foregoing,
Wedbush Morgan indicated a discounted cash flow implied value reference range
for the combined entity on a pro forma basis of between $20.50 and $26.32 per
share of Amwest Common Stock.
In determining the discount rates used in the discounted cash flow
analyses of Condor and Amwest, Wedbush Morgan noted, among other things, factors
such as inflation, prevailing market interest rates, the business risk inherent
to each of Condor and Amwest, the historical weighted average cost of capital
for each of Condor and Amwest, and the historical weighted average cost of
capital for public companies Wedbush Morgan deemed comparable to each of Condor
and Amwest. In determining the range of terminal value multiples used in the
discounted cash flow analyses of Condor and Amwest, Wedbush Morgan noted, among
other things, the multiples at which each of the Condor Common Stock and Amwest
Common Stock historically traded, the multiples at which public companies
Wedbush Morgan deemed comparable to each of Condor and Amwest historically
traded and the multiples observed in mergers and acquisitions which Wedbush
Morgan deemed relevant.
Although as noted above, Wedbush Morgan believes that the analyses
conducted must be considered as a whole in determining fairness, Wedbush Morgan
regards the results of its discounted cash flow valuation as supporting the
conclusion expressed in its opinion.
Merger and Acquisition Comparables Valuation
Wedbush Morgan reviewed certain publicly available information
regarding selected merger and acquisition transactions involving companies
engaged in similar businesses to Condor occurring since November 1992. The
selection of comparable transactions, like the selection of comparable companies
for purposes of the public market comparables valuation, involves complex
considerations and judgments concerning similarities and differences in
financial, operational and other characteristics of potentially comparable
companies. None of the acquired companies utilized in the selected merger and
acquisition comparables valuation was identical to Condor or to Amwest and none
of the transactions was identical to the Merger. The transactions deemed
comparable (the "Condor Comparable Transactions") and the date each Condor
Comparable Transaction was announced were as follows: the acquisition of Leader
National Insurance Co. by Penn Central Corp. (March 1993); the acquisition of
Economy Fire & Casualty Co. by The St. Paul Cos. (August 1993); the acquisition
of American Ambassador Casualty by GRE Plc. (November 1993); the acquisition of
Bankers & Shippers Insurance by Integon Corp. (August 1994); the acquisition of
Victoria Financial by USF&G Corp. (December 1994); the acquisition of Viking
Insurance Holdings by Guaranty National Corp. (April 1995); and the acquisition
of Hoosier Insurance by General Casualty Co. (June 1995).
Wedbush Morgan determined that for the Condor Comparable Transactions,
the multiple range and median multiple of transaction value to LTM revenues were
0.7x to 1.2x and 0.8x respectively, with the median multiple implying a value of
$8.43 per share of Condor Common Stock. Wedbush Morgan determined that the
multiple range and median multiple of transaction value to LTM premium earned
were 0.4x to 1.3x and 0.9x, respectively, with the median multiple implying a
value of $8.09 per share of Condor Common Stock. Wedbush Morgan determined that
the multiple range and median multiple of transaction value to LTM net income
were 11.3x to 36.9x and 21.0x, respectively, with the median multiple implying a
value of $5.85 per share of Condor Common Stock. Wedbush Morgan determined that
the multiple range and median multiple of transaction value to book value were
1.1x to 2.2x and 1.4x, respectively, with the median multiple implying a value
of $8.62 per share of Condor Common Stock. Based on the foregoing median
multiples for the Condor Comparable Transactions, Wedbush Morgan indicated an
implied value reference range for Condor of between $5.85 and $8.62 per share of
Condor Common Stock.
Although as noted above, Wedbush Morgan believes that the analyses
conducted must be considered as a whole in determining fairness, Wedbush Morgan
regards the results of its merger and acquisition comparables valuation as
supporting the conclusion expressed in its opinion.
Pro Forma Merger Analysis
Wedbush Morgan analyzed the changes in the per share amount of net
income, book value of stockholders' equity and indicated dividend represented by
one share of Condor Common Stock after the Merger. The analysis was performed on
the basis of financial information for both companies as of and for the last
twelve months ended September 30, 1995. The analysis indicated, among other
things, that exchanging one share of Condor Common Stock for an assumed 0.5 of a
share of Amwest Common Stock on a pro forma basis would have resulted in a 237%
increase in net income per share for each share of Condor Common Stock, a 23%
increase in projected 1996 net income per share for each share of Condor Common
Stock, a 30% increase in book value per share for each share of Condor Common
Stock and an increase in dividends per share from zero to $. 14 for each share
of Condor Common Stock based on Condor's and Amwest's indicated annual dividend
rate as of September 30, 1995.
Although, as noted above, Wedbush Morgan believes that the analyses
conducted must be considered as a whole in determining fairness, Wedbush Morgan
regards the results of its pro forma merger analysis as supporting the
conclusion expressed in its opinion.
Contribution Analysis
Wedbush Morgan analyzed the contribution of each of Condor and Amwest
to, among other things, the premiums earned, net investment income, net
operating income, net income, total investments, total assets and total book
value of stockholders' equity of the combined pro forma company. This analysis
showed that for the last twelve months ended September 30, 1995, among other
factors, Condor would have contributed 19.8% of the premiums earned of the pro
forma combined company, 20.3% of the net investment income, 11.4% of the net
operating income, 8.8% of the net income, 19.7% of the total investments, 19.8%
of the total assets, and 22.4% of the total book value of stockholders' equity
compared with a proposed ownership of 29.1% of the combined company to be owned
by holders of Condor Common Stock.
Although, as noted above, Wedbush Morgan believes that the analyses
conducted must be considered as a whole in determining fairness, Wedbush Morgan
regards the results of its contribution analysis as supporting the conclusion
expressed in its opinion.
For furnishing its opinion, Wedbush Morgan received from Condor a fee
of $75,000 as follows: (a) a non-refundable retainer of $37,500, payable when
Wedbush Morgan was retained: (b) a further fee of $37,500, payable at the time
Wedbush Morgan notified the Condor Board of Directors that it was prepared to
deliver an oral or written opinion to the Board. Condor has also agreed to pay
all of Wedbush Morgan's expenses (including, but not limited to the fees and
expenses of Wedbush Morgan's legal counsel) reasonably incurred in connection
with its engagement. The amount of the fee payable to Wedbush Morgan was not
contingent on its conclusion regarding the fairness of the Merger Consideration
to the Condor Public Stockholders. Condor also has agreed to indemnify Wedbush
Morgan against certain potential liabilities, including liabilities under the
Federal securities laws.
Certain Considerations
In considering whether to approve the Merger Agreement and the
transactions contemplated thereby, stockholders should consider, among other
factors, the following: (i) the relative stock prices of the Amwest Common Stock
and the Condor Common Stock at the Effective Time may vary significantly from
the prices as of the date of execution of the Merger Agreement or the date
hereof or the date on which stockholders vote on the Merger due to changes in
the business, operations and prospects of Amwest or Condor, market assessments
of the likelihood that the Merger will be consummated and the timing thereof,
the effect of any conditions or restrictions imposed on or proposed with respect
to the combined companies by regulatory agencies in connection with or following
consummation of the Merger, general market and economic conditions, and other
factors; and (ii) the Conversion Number is fixed at 0.5 Amwest shares for each
share of Condor Common Stock unless the value of Amwest Common Stock is less
than $12.50, in which event the Merger Consideration will be increased by a
factor of 12.5 divided by the Base Period Trading Price, or more than $17.50, in
which event the Merger Consideration will be increased by a factor of 17.5
divided by the Base Period Trading Price, during the 30 consecutive trading days
ending on the second trading day preceding the date of the closing of the
Merger. Adjustment of the Conversion Number is subject to the right of Amwest
not to consummate the Merger if the Conversion Number, as adjusted, would exceed
0.6 and the right of Condor not to consummate the Merger if the Conversion
Number, as adjusted, would be less than 0.4.
Interests of Certain Persons in the Merger
Pursuant to the Agreement with Guy A. Main and the Main Family Trust,
Mr. Main will become a member of the Amwest Board of Directors. See "Management
of Amwest After the Merger."
At the Effective Time, Amwest will enter into an employment agreement
with Guy A. Main for a four year term at compensation levels consistent with the
compensation of comparable Amwest executives. The Employment Agreement will
provide that Guy A. Main will serve as Executive Vice President of Amwest and
President of Condor Insurance Company during the term of his employment, will
receive base compensation of $253,000 per year subject to annual review, will be
eligible for bonuses and will be entitled to participate in employee benefits
available to management generally. Under his employment agreement with Condor,
Mr. Main received base compensation for the year ended December 31, 1995 of
$310,589 (which is subject to consumer price index increases in future years),
is eligible for bonuses, receives certain other employee benefits and an
automobile allowance.
At the Effective Time, each outstanding option to purchase shares of
Condor Common Stock granted by Condor ("Condor Stock Option") shall be canceled
and, in lieu thereof, Amwest shall issue to each holder thereof (other than
non-employee directors) an option ("Amwest Stock Option"), to acquire, on
substantially the same terms and subject to substantially the same conditions as
were applicable under such Condor Stock Option, the same number of shares of
Amwest Common Stock as the holder of such Condor Stock Option would have been
entitled to receive pursuant to the Merger had such holder exercised such option
in full immediately prior to the Effective Time, at an aggregate exercise price
equal to the aggregate exercise price for the shares of Condor Common Stock
otherwise purchasable pursuant to such Condor Stock Option; provided, however,
that the number of shares of Amwest Common Stock that may be purchased upon
exercise of any Amwest Stock Option shall not include any fractional share and,
upon exercise of the Amwest Stock , a cash payment shall be made for any
fractional share based upon the closing price of a share of Amwest Common Stock
on AMEX on the trading day immediately preceding the date of exercise. Condor
Stock Options issued to non-employee directors of Condor which remain
outstanding as of the Effective Time shall be automatically canceled as of the
Effective Time. It is anticipated that Condor Stock Options held by non-employee
directors will be exercised prior to the Effective Time.
The Merger Agreement provides that, after the Effective Time, Amwest
will indemnify and hold harmless the directors, officers and employees of Condor
against any losses, claims, damages, expenses or obligations arising out of the
transactions contemplated by the Merger Agreement. Amwest agreed in the Merger
Agreement that all rights to indemnification existing in favor of directors,
officers, or employees of Condor as provided in Condor's Certificate of
Incorporation or Bylaws, in effect on the date of the Merger Agreement with
respect to matters occurring through the Effective Time, shall survive the
Merger and shall continue in full force and effect for a period of three years
from the Effective Time. The indemnification provided by Amwest pursuant to the
Merger Agreement shall not, however, exceed the coverage provided by the
insurance currently provided the indemnified parties by Condor. See "The Merger
Agreement--Indemnification and Insurance."
At November 30, 1995, Steven R. Kay, Senior Vice President, Chief
Financial Officer and Director of Amwest, beneficially owned 1,550 shares of
Condor Common Stock and Edgar L. Fraser, Director of Amwest, beneficially owned
20,680 shares of Condor Common Stock (including 17,600 shares of Condor Common
Stock that may be acquired by Mr. Fraser upon exercise of outstanding stock
options).
Certain Federal Income Tax Consequences
The following description of certain federal income tax consequences of
the Merger is general in nature, is for general informational purposes only and
is not tax advice. This discussion does not cover all aspects of federal income
taxation that may be relevant to Amwest, Condor or Condor stockholders, nor does
the discussion deal with tax issues peculiar to certain types of taxpayers
(including but not limited to life insurance companies, S corporations,
financial institutions, tax-exempt organizations or retirement accounts and
foreign taxpayers). No aspect of foreign, state, local or estate and gift
taxation is addressed. Therefore, the following summary is not a substitute for
careful tax planning and advice based upon the individual circumstances of each
stockholder of Amwest and Condor.
The following summary is based on the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury Regulations promulgated and proposed thereunder,
judicial decisions and published administrative rulings and pronouncements of
the Internal Revenue Service ("IRS"), as in effect on the date hereof. Changes
in or additions to such rules, or new interpretations thereof, may have
retroactive effect and therefore could significantly affect the consequences
described below.
Treatment of Amwest, Condor and Their Stockholders Upon the Exchange of Condor
Common Stock for Amwest Common Stock
It is anticipated that Gibson, Dunn & Crutcher, counsel for Amwest, and
Kindel & Anderson, L.L.P., counsel for Condor (collectively "Counsel"), will
render opinions to Amwest and Condor, respectively, at the closing of the Merger
that the Merger will qualify as a "reorganization" within the meaning of Section
368(a) of the Code. If the Merger qualifies as a "reorganization" within the
meaning of Section 368(a) of the Code:
No gain or loss will be recognized by Amwest or Condor
stockholders as a result of the Merger (other than gain or
loss attributable to cash received by Condor stockholders in
lieu of fractional shares). See "Cash in Lieu of Fractional
Shares" below;
The basis of each share of Amwest Common Stock received by
each Condor stockholder will be the same as the basis of his
or her Condor Common Stock exchanged therefor, reduced by any
basis attributable to a fractional share of Amwest Common
Stock for which the stockholder receives cash; See "Cash in
Lieu of Fractional Shares" below. The holding period of the
shares of Amwest Common Stock received by each Condor
stockholder will include the stockholder's holding period for
his or her Condor Common Stock exchanged therefor, provided
the Condor Common Stock was held as a capital asset by the
Condor stockholder; and
Neither Amwest nor Condor will recognize taxable gain or loss
as a result of the Merger, and the tax basis of Condor's
assets in the hands of Amwest will be the same as Condor's tax
basis in those assets prior to the Merger.
It should be noted that no rulings or opinions have been requested from
the IRS with respect to any of the tax aspects of the Merger, and an opinion of
counsel is not binding on the IRS. Moreover, the opinions of Counsel will be
based on certain factual representations and assumptions which, if untrue or
incorrect, could affect the discussion set forth herein. In particular, in order
to qualify as a reorganization, among other things, the historic Condor
stockholders must maintain a sufficient "continuity of interest" in Amwest
following the Merger. The IRS has indicated in published rulings that the
continuity of interest requirement will be satisfied if the historic
stockholders of the acquired entity (i.e., Condor) receive and retain, in the
aggregate, 50% of the value of the stock of the acquired entity in the form of
stock of the acquiring corporation (i.e., Amwest). Shares received by
stockholders who at the time of receipt have an intention to sell or otherwise
dispose of such shares generally are treated as not having been retained for
purposes of this requirement. Moreover, Amwest Common Stock issued in exchange
for Condor Common Stock acquired in contemplation of the Merger may, in certain
cases, be treated as property other than stock for this purpose.
Condor stockholders holding approximately 58% of the Condor Common
Stock prior to the Merger have represented to Amwest that they have no current
plan or intention to sell, exchange, transfer, distribute, pledge, dispose or
otherwise engage in a transaction (a "Sale") that reduces those stockholders'
risk of ownership, whether directly or indirectly with respect to the Amwest
Common Stock received in the Merger. These stockholders are not, however,
prohibited from engaging in a Sale of Amwest Common Stock following the Merger,
other than as described below under "Certain Other Agreements ." These
restrictions alone are not sufficient to ensure that the continuity of interest
requirement will be satisfied with respect to the Merger. If Condor stockholders
undertake substantial Sales of Condor Common Stock in anticipation of the Merger
or substantial Sales of Amwest Common Stock after the Merger, pursuant to a plan
or intention existing at or around the time of the Merger which, when combined
with Amwest Common Stock converted to cash in lieu of the issuance of fractional
shares, exceed 50% of the value of the Condor Common Stock immediately prior to
the Merger, the continuity of interest test may not be met and the Merger may
not qualify as a reorganization within the meaning of Section 368(a) of the
Code.
If the IRS were to successfully challenge the status of the Merger as a
"reorganization" under Section 368(a) of the Code (based on a failure to satisfy
the "continuity of interest" requirement or otherwise), a Condor stockholder
would be treated as recognizing gain or loss as a result of the Merger equal to
the difference between the stockholder's tax basis in his or her shares of
Condor Common Stock and the fair market value of the Amwest Common Stock as of
the Effective Time. In such event, the stockholder's aggregate basis in the
Amwest Common Stock so received would equal the fair market value of such stock
as of the Effective Time, and the stockholder's holding period for the Amwest
Common Stock would begin the day after the Merger. In addition, if the Merger
were to not qualify as a "reorganization" under Section 368(a) of the Code, the
Merger would be treated as a taxable sale by Condor of its assets. The tax
liability from such treatment would have a material and adverse effect on
Amwest, as successor to the assets and liabilities of Condor pursuant to the
Merger.
Cash in Lieu of Fractional Shares
Any stockholder of Condor who receives cash in lieu of a fractional
share of Amwest Common Stock will recognize income or loss for federal income
tax purposes equal to the difference between the cash received and the basis
which would otherwise be allocable to the fractional share of Amwest Common
Stock. For this purpose, the basis of a fractional share of Amwest Common Stock
will be determined as if such stockholder had received such fractional share of
Amwest Common Stock in the Merger. Any gain or loss likely will be treated as
capital gain or loss, provided the Condor Common Stock was held as a capital
asset by the Condor stockholder.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY. STOCKHOLDERS OF AMWEST AND CONDOR SHOULD CONSULT THEIR
OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER APPLICABLE TO
THEM, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN
TAX LAWS.
Anticipated Accounting Treatment
The Merger is expected to qualify as a "pooling of interests" for
accounting and financial reporting purposes. Under this method of accounting,
the recorded assets and liabilities of Amwest and Condor will be carried forward
to the combined corporation at their recorded amounts, subject to any
adjustments required to conform the accounting policies of the companies; income
of the combined corporation will include income of Amwest and Condor for the
entire fiscal year in which the Merger occurs; and the reported income of the
separate corporations for prior periods will be combined and restated as income
of the combined corporation.
The Merger Agreement does not, however, provide that qualification for
"pooling of interests" accounting treatment is a condition to the consummation
of the Merger.
Effect on Employee Benefits Plans
Condor maintains a number of employee benefit plans and compensation
arrangements in which eligible employees of Condor and certain of its affiliates
participate. These programs will be discontinued following the Merger and
service with Condor and its Affiliated Entities and their predecessors prior to
the Effective Time will be taken into account for eligibility and vesting
purposes in connection with any benefit or payroll plan, practices, policy or
agreement of Amwest or any of its affiliates in which any employee of Condor or
an affiliated entity may become entitled to participate at or after the
Effective Time.
The Condor Stock Plan for Non-Employee Directors (the Non-Employee
Director Plan) shall be terminated at the Effective Time. Condor Stock Options
issued to non-employee directors of Condor which remain outstanding as of the
Effective Time shall be automatically canceled as of the Effective Time.
Regulatory Approvals
Pursuant to the requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), on December 18, 1995,
Condor and Amwest each filed a Notification and Report Form for review under the
HSR Act with the Federal Trade Commission (the "FTC") and the Antitrust Division
of the Department of Justice (the "Antitrust Division"). Early termination of
the waiting period under the HSR Act with respect to such filing was granted on
January 5, 1996. Even though the HSR Act waiting has expired , the FTC or the
Antitrust Division could take such action under the antitrust laws as it deems
necessary or desirable in the public interest, including seeking divestiture of
substantial assets of Condor or Amwest. Consummation of the Merger is
conditioned upon, among other things, the absence of any preliminary or
permanent injunction or other order issued by any federal or state court in the
United States which prevents the consummation of the Merger. There can be no
assurance that a challenge to the Merger on antitrust grounds will not be made
or, if such a challenge is made, of the result.
Insurance Department Regulatory Approvals
The Merger and transactions contemplated thereby require approvals by
the Commissioners of the California Department of Insurance and the Arizona
State Department of Insurance. Amwest filed a Form A with the California
Department of Insurance on January 16, 1996. Receipt of such approvals is a
condition of the Merger.
Federal Securities Law Consequences
All Amwest Common Stock issued in connection with the Merger will be
freely transferable, except that any Amwest Common Stock received by persons who
are deemed to be "affiliates" (as such term is defined under the Securities Act)
of Condor or Amwest prior to the Merger may be sold by them only in transactions
permitted by the resale provisions of Rule 145 under the Securities Act with
respect to affiliates of Condor, or Rule 144 under the Securities Act with
respect to persons who are or become affiliates of Amwest, or as otherwise
permitted under the Securities Act. Persons who may be deemed to be affiliates
of Condor or Amwest generally include individuals or entities that control, are
controlled by, or are under common control with, such party and may include
certain officers and directors of such party as well as principal stockholders
of such party.
Affiliates of Condor may not sell their shares of Amwest Common Stock
acquired in connection with the Merger, except pursuant to an effective
registration under the Securities Act covering such shares or in compliance with
Rule 145 (or Rule 144 under the Securities Act in the case of persons who become
affiliates of Amwest) or another applicable exemption from the registration
requirements of the Securities Act. In general, under Rule 145, for two years
following the Effective Time an affiliate of Condor (together with certain
related persons) would be entitled to sell shares of Amwest Common Stock
acquired in the Merger only through unsolicited "broker transactions" or in
transactions directly with a "market maker," as such terms are defined in Rule
144. Additionally, the number of shares to be sold by an affiliate of Condor
(together with certain related persons and certain persons acting in concert)
within any three-month period for purposes of Rule 145 may not exceed the
greater of 1% of the outstanding shares of Amwest Common Stock or the average
weekly trading volume of such stock during the four calendar weeks preceding
such sale. Rule 145 will only remain available, however, to affiliates of Condor
if Amwest remains current with its informational filings with the Commission
under the Exchange Act. Two years after the Effective Time, an affiliate of
Condor would be able to sell such Amwest Common Stock without such manner of
sale or volume limitations, provided that Amwest was current with its Exchange
Act informational filings and such affiliate was not then an affiliate of
Amwest. Three years after the Effective Time, an affiliate would be able to sell
such shares of Amwest Common Stock without any restrictions so long as such
affiliate had not been an affiliate of Amwest for at least three months prior
thereto.
Stock Exchange Listing
It is a condition to the Merger that the shares of Amwest Common Stock
to be issued in connection with the Merger be authorized for listing on the
AMEX, subject to official notice of issuance.
<PAGE>
THE MERGER AGREEMENT
The following description of the Merger Agreement does not purport to
be complete and is qualified in its entirety by reference to the Merger
Agreement, a copy of which is attached hereto as Annex A and incorporated herein
by reference. Stockholders of Condor and Amwest are urged to read the Merger
Agreement in its entirety.
The Merger
The Merger Agreement provides that, subject to the approval of the
Merger by the stockholders of Condor and Amwest and the satisfaction or waiver
of the other conditions to the Merger, Condor will be merged with and into
Amwest in accordance with Delaware law and the separate existence of Condor
shall thereupon cease. Amwest will possess all of the rights, privileges, powers
and franchises and be subject to all of the restrictions, disabilities and
duties of each of Amwest and Condor. At the Effective Time, the conversion of
Condor Common Stock into the right to receive shares of Amwest Common Stock
pursuant to the Merger Agreement will be effected as described in "Terms of the
Merger", below. Condor's subsidiaries shall become wholly-owned subsidiaries of
Amwest.
Effective Time
Following the adoption of the Merger Agreement by the stockholders of
Amwest and Condor and subject to satisfaction or waiver of certain other terms
and conditions, including conditions to closing, contained in the Merger
Agreement, the Merger will become effective at such date and time as the
Certificate of Merger is duly filed with the Secretary of State of Delaware. The
date and time of such filing is herein referred to as "Effective Time". The
filing of the Certificate of Merger will be made immediately after all
conditions contemplated by the Merger Agreement have been satisfied or waived.
Terms of the Merger
At the Effective Time, by the virtue of the Merger and without any
action on the part of the holder:
(i) each share of Condor Common Stock held by Condor as treasury stock
or owned by Amwest or any subsidiary of Amwest at the Effective Time will be
canceled, and no payment will be made with respect thereto; and
(ii) each remaining outstanding share of Condor Common Stock shall be
converted into the right to receive 0.5 of a share of Amwest Common Stock
(subject to adjustment as described below).
If the average daily closing price per share of Amwest Common Stock as
reported on AMEX for the 30 consecutive trading days ending on the close of
trading on the second trading day preceding the date the Merger and the
transactions contemplated thereby are consummated (the "Closing Date") (the
"Base Period Trading Price") is less than $12.50, the Merger Consideration per
share of Condor Common Stock shall be increased by a factor of 12.5 divided by
the Base Period Trading Price, and if the Base Period Trading Price is greater
than $17.50, the Merger Consideration per share shall be decreased by a factor
of 17.5 divided by the Base Period Trading Price. Adjustment of the Conversion
Number is subject to the right of Amwest not to consummate the Merger if the
Conversion Number, as adjusted, would exceed 0.6 and the right of Condor not to
consummate the Merger if the Conversion Number, as adjusted, would be less than
0.4.
Each share of Amwest Common Stock issued to Condor stockholders in the
Merger will include a right, under certain specified conditions, to purchase one
one-hundredth of a share of Amwest Series A Junior Participating Preferred Stock
pursuant to the Amwest Rights Agreement (as hereinafter defined). See
"Comparison of Stockholder Rights---Rights Plan."
As of the Effective Time, present holders of Condor Common Stock will
cease to have any rights as holders of such shares, but will have the right to
receive shares of Amwest Common Stock and any cash in lieu of fractional shares.
After the Effective Time, the stock transfer books of Condor will be closed and
there shall be no further transfers of Condor Common Stock. See "The Proposal to
Approve and Adopt the Agreement and Plan of Merger--Conversion of Shares-
Procedures for Exchange of Certificates" and "Comparison of Stockholder Rights."
Condor stockholders are not entitled to dissenters' or appraisal rights
in connection with the Merger Amwest stockholders are also not entitled to
dissenters' or appraisal rights with respect to the Merger. See "Dissenters'
Rights."
Fractional Shares
Fractional shares of Amwest Common Stock will not be issued in
connection with the Merger. In lieu of any such fractional share, each holder of
Condor Common Stock who would otherwise have been entitled to a fraction of a
share of Amwest Common Stock upon surrender of certificates, would be entitled
to receive an amount of cash (without interest) equal to the Base Period Trading
Price multiplied by the fractional share interest to which such holder would
otherwise be entitled.
Surrender and Payment
The Merger Agreement provides that as of the Effective Time, Amwest
will deposit with The American Stock Transfer & Trust Company, or such other
bank or trust company reasonably satisfactory to Condor, ( the "Exchange Agent")
certificates representing the appropriate number of shares of Amwest Common
Stock and cash to be paid in lieu of fractional shares in connection with the
Merger. As soon as practicable after the Effective Time, each holder of Condor
Common Stock will be entitled to receive, upon surrender to the Exchange Agent
of one or more certificates representing such stock for cancellation,
certificates representing the number of shares of Amwest Common Stock into which
such shares are converted in the Merger and cash in consideration of fractional
shares. Amwest Common Stock into which Condor Common Stock will be converted in
the Merger shall be deemed to have been issued at the Effective Time.
No dividends or other distributions that are declared or made on Amwest
Common Stock will be paid to persons entitled to receive certificates
representing Amwest Common Stock until such persons surrender their certificates
representing such Condor Common Stock. Upon such surrender, there shall be paid
to the person in whose name the certificates representing such Amwest Common
Stock shall be issued any dividends or other distributions which shall have
become payable with respect to such Amwest Common Stock in respect of a record
date after the Effective Time. In no event shall the person entitled to receive
such dividends be entitled to receive interest on such dividends or
distributions. In the event that any certificates representing shares of Amwest
Common Stock are to be issued in a name other than that in which the
certificates representing shares of Condor Common Stock surrendered in exchange
therefor are registered, it shall be a condition of such exchange that the
person requesting such exchange presents to the Exchange Agent such certificates
with all documents required to evidence and effect such transfer and evidence
that any applicable stock transfer taxes have been paid. Notwithstanding the
foregoing, neither Amwest nor Condor shall be liable to any holder of shares of
Condor Common Stock, or Amwest Common Stock, as the case may be, for any shares
of Amwest Common Stock (or dividends or distributions with respect thereto) or
cash in lieu of fractional shares delivered to a public official pursuant to any
applicable abandoned property, escheat or similar laws.
Detailed instructions, including a transmittal letter, will be mailed
to Condor stockholders promptly following the Effective Time as to the method of
exchanging certificates formerly representing shares of Condor Common Stock for
certificates representing shares of Amwest Common Stock. See "The Proposal to
Approve and Adopt the Agreement and Plan of Merger--Conversion of Shares-
Procedures for Exchange of Certificates." Stockholders of Condor should not send
certificates representing their shares to Condor or to the Exchange Agent prior
to receipt of the transmittal letter.
Conditions to Consummation of the Merger
The respective obligations of Amwest and Condor to effect the Merger
are subject to fulfillment at or prior to the date of the Closing of the
following conditions:
(a) any waiting period (and any extension thereof) applicable to the
Merger under the HSR Act shall have expired or been terminated, and any other
governmental or regulatory notices or approvals required with respect to the
transactions contemplated by the Merger Agreement shall have been either filed
or received; (b) the Merger shall have been approved by the requisite vote of
the stockholders of Condor required by the Delaware General Corporation Law
("DGCL") , NASD and Condor's Certificate of Incorporation and Bylaws; (c) the
Merger shall be been approved by the requisite vote of the stockholders of
Amwest required by the DGCL, AMEX and Amwest's Articles of Incorporation and
Bylaws; (d) the Registration Statement shall have become effective and no stop
order suspending the effectiveness thereof shall be in effect and no proceedings
for such purpose shall be pending or threatened before the Commission; (e) the
shares of Amwest Common Stock issuable in the Merger shall be approved for
listing on the AMEX upon official notice of issuance; (f) no order, statute,
rule, regulation, executive order, stay, decree, judgment, or injunction shall
have been enacted, entered, issued, promulgated or enforced by any court or
governmental authority which prohibits or restricts the effectuation of the
Merger; (g) no governmental action or proceeding shall have been commenced or
threatened seeking any injunction, restraining or other order which seeks to
prohibit, restrain, invalidate or set aside the effectuation of the Merger; (h)
the Merger and the transactions contemplated thereby shall have been approved by
the Commissioners of the California Department of Insurance and the Arizona
State Department of Insurance; and (i) Amwest shall have received from Union
Bank a written waiver with respect to consummation of the Merger and the
transactions contemplated thereby.
The obligations of Condor to effect the Merger are also subject to the
fulfillment at or prior to the date of the Closing of the following additional
conditions:
(a) Amwest shall have performed and complied in all material respects
with the agreements and obligations contained in the Merger Agreement that are
required to be performed and complied with by them at or prior to the date of
the Closing; (b) the representations and warranties of Amwest contained in the
Merger Agreement shall be true and correct in all material respects as of the
date of the Merger Agreement and shall be deemed to have been made again at and
as of the date of the Closing and shall then be true and correct in all material
respects except on each date, for breaches or inaccuracies, the combination of
which would not constitute a Material Adverse Effect (as defined below) on
Amwest; (c) all corporate actions on the part of Amwest necessary to authorize
the execution, delivery and performance of the Merger Agreement and the
consummation of the transactions contemplated thereby shall have been duly and
validly taken; (d) Condor shall have received the opinion of counsel from
Gibson, Dunn & Crutcher, counsel to Amwest, covering such matters and in the
form and substance agreed upon; (e) there shall have been no material adverse
change in, and no event, occurrence or development in the business of Amwest
that, taken together with other events, occurrences and developments with
respect to such business, would have or would reasonably be expected to have a
Material Adverse Effect on Amwest, as defined below; (f) Condor shall have
received such certificates of officers of Amwest and such certificate of others
to evidence compliance with the conditions to the Merger Agreement as may be
reasonably requested by Condor; (g) Amwest shall have delivered to Condor an
opinion of Amwest's consulting actuary as of December 31, 1995, opining that as
of such date the reserves for loss and loss adjustment expense reflected on such
balance sheet of Amwest and its Affiliated Entities (which term includes each
direct or indirect subsidiary of Condor or Amwest, as the case may be, and each
business entity in which Condor or Amwest, as the case may be, has any direct or
indirect interest and for which it accounts on the equity method of accounting)
have been established in conformity with generally accepted actuarial principles
and practices consistently applied, that such reserves were established in
conformity with the requirements of the California Department of Insurance and
that such reserves make a reasonable provision for all unpaid loss and loss
adjustment expense obligations of Amwest under the terms of its policies and
agreements; and (h) the Conversion Number shall not be less than 0.4. "Material
Adverse Effect" means any change or effect (i) that is or is reasonably likely
to be materially adverse to the properties, business, results of operations,
condition (financial or otherwise) or prospects of Condor or Amwest or both
taken together, as the case may be, and any Affiliated Entity, taken as a whole,
other than any change or effect arising out of general economic conditions
unrelated to any businesses in which such party is engaged or (ii) that may
impair the ability of such party to consummate the transactions contemplated by
the Merger Agreement.
The obligations of Amwest to effect the Merger are also subject to the
fulfillment at or prior to the date of the Closing of the following additional
conditions:
(a) Condor shall have performed and complied in all material respects
with the agreements and obligations contained in the Merger Agreement that are
required to be performed and complied with by it at or prior to the date of the
Closing; (b) the representations and warranties of Condor contained in the
Merger Agreement shall be true and correct in all material respects, as of the
date of the Merger Agreement, and shall be deemed to have been made again at and
as of the date of the Closing and shall then be true and correct in all material
respects except on each date, for breaches or inaccuracies, the combination of
which would not constitute a Material Adverse Effect on Condor; (c) all
corporate actions on the part of Condor necessary to authorize the execution,
delivery and performance of the Merger Agreement and the consummation of the
transactions contemplated thereby shall have been duly and validly taken; (d)
Condor shall have received consents to the Merger from all persons from whom
such consent or waiver is required; (e) Amwest shall have received the opinions
of Kindel & Anderson L.L.P., counsel to Condor, covering such matters and in the
form and substance agreed upon; (f) Amwest shall have received such certificates
of officers of Condor and such certificates of others to evidence compliance
with the conditions to the Merger Agreement as may be reasonably requested by
Amwest; (g) there shall have been no material adverse change in, and no event,
occurrence or development in the business of Condor that, taken together with
other events, occurrences and developments with respect to such business, would
have or would reasonably be expected to have a Material Adverse Effect on
Condor; (h) Condor shall deliver to Amwest an agreement of stockholder, executed
by the principal stockholder of Condor (the "Condor Stockholder"); (i) the
Conversion Number shall not exceed 0.6; (j) Condor shall have delivered to
Amwest an opinion of Condor's consulting actuary as of the most recently
completed quarterly period of which actuarial information is available prior to
that date of Closing, opining that as of such date the reserves for loss and
loss adjustment expense reflected on such balance sheet of Condor and its
Affiliated Entities have been established in conformity with generally accepted
actuarial principles and practices consistently applied, that such reserves were
established in conformity with the requirements of the California Department of
Insurance and that such reserves make a reasonable provision for all unpaid loss
and loss adjustment expense obligations of Condor under the terms of its
policies and agreements; (k) Amwest shall have received from its consulting
actuary, an opinion of actuary as of the most recently completed monthly period
of which actuarial information is available prior to the date of Closing,
opining that as of such date the reserves for loss and loss adjustment expense
reflect on such balance sheet of Condor and its Affiliated Entities have been
established in conformity with generally accepted actuarial principles and
practices consistently applied, that such reserves were established in
conformity with the requirements of the California Department of Insurance and
that such reserves make a reasonable provision for all unpaid loss and loss
adjustment expense obligations of Condor under the terms of its policies and
agreements; (l) Guy A. Main and all members of the Condor Board of Directors and
any other person deemed an Affiliate shall have performed his obligations under
the Affiliates Letter and Continuity of Interest Certificate, and Amwest shall
have received a certificate signed by such persons to such effect; (m) A.M. Best
Company's ratings for each of Amwest Surety Insurance Company and Far West
Insurance Company shall not, as of the Effective Time (and after taking into
account the Merger and the transactions contemplated thereby), be lower than "A"
(Excellent); (n) Amwest shall have received an Officers' Certificate Regarding
Certain Tax Matters from the Chief Financial Officer and the Chief Executive
Officer of Condor; and (o) Amwest shall have received from Condor a
certification of non-foreign status described in Treasury Regulation Section
1.1445-2(c)(2), and shall have received from Condor and each Affiliated Entity
owned directly by Condor a certification that such entities are not and have not
been "United States real property holding corporations" during the periods set
forth in, and in the form described in, Treasury Regulation Section
1.1445-2(c)(3).
Representations and Warranties
The Merger Agreement contains various representations and warranties of
Amwest and Condor relating to, among other things, the following matters (which
representations and warranties are subject, in certain cases, to specified
exceptions as detailed in the Merger Agreement): (i) the due organization, power
and standing of, and similar corporate matters with respect to, each of Condor
and Amwest and the absence of any conflict with each of Condor's and Amwest's
certificate of incorporation and bylaws and compliance with applicable laws;
(ii) the authorization, execution, delivery, performance and enforceability of
the Merger Agreement by each such party and of the transactions contemplated
thereby; (iii) each of Condor's and Amwest's capitalization; (iv) disclosure of
Affiliated Entities and commitments to invest funds in any other entity or
business; (v) reports and other documents filed with the Commission and other
regulatory authorities and the accuracy of the information contained therein;
(vi) the absence of any change or event having a Material Adverse Effect on
Condor or Amwest; (vii) the absence of any governmental or regulatory
authorization, consent or approval required to consummate the Merger; (viii) the
absence of any material undisclosed liabilities; (ix) compliance with tax laws
and regulations, including the absence of any tax delinquencies of Condor or
Amwest; (x) the compliance by each insurance subsidiary with the requirements of
the insurance laws and regulations of any applicable jurisdiction; (xi) the
right of Condor to use, to the extent they are now using, all proprietary
rights; (xii) the absence of any litigation that would have a Material Adverse
Effect on Condor or Amwest; (xiii) the validity of all material insurance
policies of Condor; (xiv) compliance in all material respects with laws and
regulations, a violation of which could have a Material Adverse Effect on Condor
or Amwest; (xv) the disclosure of all employee benefit plans and compliance with
statutes governing their administration; (xvi) absence of any employment related
agreements at Condor; (xvii) the absence of any collective bargaining agreements
at Condor; (xviii) compliance with environmental laws and the absence of
environmental claims which could have a material adverse impact on Condor or
Amwest; (xix) the absence of brokerage or finders fees associated with the
Merger; (xx) the absence of any misleading representation or warranty in any
document received from Condor or Amwest; (xxi) the proper recognition of
post-retirement and post-employment benefit obligations; (xxii) the absence of
any material untrue statements or omissions of material facts in the
Registration Statement and the Proxy Statement/Prospectus; (xxiii) the absence
of any questionable payments by either Condor, Amwest, Affiliated Entities or
directors, officers, agents or employees thereof; (xxiv) the absence of
guarantees for any liability or obligation other than for Affiliated Entities;
(xxv) the disclosure, validity and enforceability of all material contracts;
(xxvi) the validity of insurance contracts and the premium rates utilized on all
policies of insurance issued by Condor and Amwest; (xxvii) the disclosure and
validity of all reinsurance contracts of Amwest and Condor; (xxviii) the
adequacy of the loss and loss adjustment expense reserves established by Amwest
and Condor; and (xxix) the receipt of fairness opinions of Condor's and Amwest's
investment bankers. The representations and warranties of Amwest and Condor will
not survive the Effective Time.
Conduct of Business Pending the Merger
Prior to the Effective Time, unless the other party shall otherwise
agree in writing, Condor and Amwest have agreed, among other things, to and to
cause their Affiliated Entities to, carry on their respective businesses in the
ordinary course of business and use their best efforts to preserve intact their
present business organizations, keep available the services of their present
officers and employees and maintain satisfactory relationships with customers,
suppliers and others having advantageous business dealings with them. Neither
Condor or any of its Affiliated Entities, nor Amwest or any of it Affiliated
Entities without prior written consent of the other party (subject in certain
cases to specified exceptions) shall, among other things: (a) amend its Articles
or Certificates of Incorporation or Bylaws; (b) split, combine or reclassify any
shares of its capital stock or declare or pay any dividends other than Amwest's
regular quarterly dividend; (c) authorize for issuance, sell or deliver any of
its capital stock; (d) incur any material obligation other than in the ordinary
course of business; (e) adopt or amend any employment related agreement; (f)
acquire any other business organization for an amount in excess of $50,000; (g)
pay, discharge or satisfy any material claim, liability or obligation other than
in the normal course of business; (h) acquire any material assets or properties
other than in the ordinary course of business; (i) waive release grant or
transfer any material right; (j) change accounting principles except as a result
of a change in law or GAAP; (k) materially revalue any assets; (l) make or
revoke any tax election or settle or compromise any material tax liability; (m)
settle or compromise any pending or threatened suit relating to the transactions
contemplated by the Merger Agreement; (n) settle or compromise any pending or
threatened suit in the ordinary course of business, except Amwest may settle,
compromise and make payment with respect to its existing litigation relating to
California Proposition 103; or (o) take any action or agree to take action which
would make any representation or warranty in the Merger Agreement untrue or
incorrect.
Certain Other Covenants
Amwest and Condor have agreed to use all reasonable efforts to take, or
cause to be taken, all appropriate action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by the Merger
Agreement, including using all reasonable efforts to obtain all necessary
waivers, consents and approvals and to effect all necessary registrations,
filings and stock listings.
Amwest and Condor have agreed to consult with each other before issuing
any press release or other public statements with respect to the Merger
Agreement or transactions contemplated thereby.
Amwest and Condor have agreed to give prompt notice to one another of
any event which would be likely to cause any of their respective representations
or warranties to be untrue or inaccurate in any material respect or any
condition to closing to become impossible or unlikely to be fulfilled and of any
failure to comply with any covenant contained in the Merger Agreement.
Prior to the date of Closing, Condor has agreed to deliver to Amwest a
letter identifying all persons who are, at the time the Merger Agreement is
submitted for approval by the Condor Stockholders, "affiliates" of Condor for
purposes of Rule 145 under the Securities Act (the "Affiliates"). Condor agrees
to use its best efforts to cause each Affiliate to deliver to Amwest on or prior
to the date of Closing an agreement that such Affiliate will not sell or in any
other way reduce such Affiliate's interest in or risk relative to any Amwest
Common Stock received in the Merger until such time as financial results
covering at least 30 days of post-Merger operations have been published.
Amwest has agreed to use its best efforts to list the Amwest Common
Stock issued pursuant to the Merger or on the exercise of Amwest Stock Options
to be issued pursuant to the Merger Agreement on the AMEX.
Amwest has also agreed to enter into an employment agreement with Mr.
Main and an additional agreement with Mr. Main and the Main Family Trust
pursuant to which Amwest will agree to cause Mr. Main to be appointed to
Amwest's Board of Directors. See "The Proposal to Approve and Adopt the
Agreement and Plan of Merger --Interests of Certain Persons in the Merger."
Amwest and Condor agree to take such action as is necessary under
federal or state securities laws, the HSR Act, or the California or Arizona
Insurance Code in connection with the Merger and the transactions contemplated
by the Merger Agreement , and to use their best efforts to have declared
effective or approved all documents and notifications with the Commission, the
California Department of Insurance, the Arizona State Department of Insurance
and other appropriate regulatory bodies.
Condor shall take no action which would jeopardize the characterization
of the Merger as a reorganization within the meaning of Section 368(a)(I)(A) of
the Code and neither Condor nor Amwest shall take any action which could prevent
the Merger from being accounted for as a "pooling of interests" for accounting
purposes.
Amwest shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Amwest Common Stock for delivery upon
exercise of Amwest Stock Options to be issued to replace certain Condor Stock
Options which will be terminated at the Effective Time. See "The Proposal to
Approve and Adopt the Agreement and Plan of Merger-- Interest of Certain Persons
in the Merger." As soon as practicable after the Effective Time, Amwest shall
file a registration statement on Form S-3 or Form S-8, as the case may be (or
any successor or other appropriate forms), or another appropriate form with
respect to the shares of Amwest Common Stock subject to such Amwest Stock
Options and shall use its best efforts to maintain the effectiveness of such
registration statement or registration statements (and maintain the current
status of the prospectus or prospectuses contained therein) for so long as such
options remain outstanding.
Other Potential Acquirors
Subject to the fiduciary duties of the Board of Directors of Condor, as
advised by outside counsel, neither Condor nor any of its Affiliated Entities
shall take nor shall Condor authorize or permit any of its or their officers,
directors, employees, representatives or agents to, directly or indirectly
encourage, solicit, participate in or initiate discussions or negotiations with,
or provide any information to any corporation, person, partnership or other
entity or group, other than Amwest or its Affiliated Entities or designees,
concerning any merger, sale of assets, sale of shares of capital stock or
similar transactions involving Condor or any Affiliated Entity or division
thereof. Condor will promptly provide to Amwest a copy of any written proposal
and a summary of any oral proposal received by Condor regarding such a
transaction and the terms of any proposal or inquiry, and thereafter keep Amwest
promptly advised of any development with respect thereto.
Further, the Condor Board of Directors shall not approve or recommend
or cause Condor to enter into any agreement with respect to any acquisition of
Condor by a third party of more than 30% of Condor's assets or outstanding
shares, or pursuant to a merger or other transaction, unless, after consultation
with counsel, the Condor Board of Directors determines that it is necessary to
do so in order to comply with its fiduciary duties to stockholders under
applicable law.
Indemnification and Insurance
The Merger Agreement provides that, after the Effective Time, Amwest
will indemnify and hold harmless the directors, officers and employees of Condor
against all losses, expenses, claims, damages or liabilities, including those
arising out of the transactions contemplated by the Merger Agreement, to the
fullest extent permitted or required under applicable law. All rights to
indemnification existing in favor of directors, officers, or employees of Condor
as provided in Condor's Certificate of Incorporation or Bylaws in effect on the
date of the Merger Agreement, with respect to matters occurring prior to the
Effective Time, shall survive the Merger and shall continue in full force and
effect for a period of three years from the Effective Time. The Merger Agreement
provides that, with respect to matters occurring prior to the Effective Time,
Amwest will indemnify Condor for three years provided that such indemnification
shall not exceed the coverage provided by the insurance currently provided the
indemnified parties by Condor.
Termination and Abandonment
The Merger Agreement may be terminated at any time prior to the
Effective Time: (i) by mutual written consent of Amwest and Condor or (ii) by
either Amwest or Condor if the Merger has been enjoined by a court or the Merger
shall not have been consummated on or before June 30, 1996 (provided the
terminating party's failure to fulfill its obligations under the Merger
Agreement is not the reason that the Merger has not been consummated).
The Merger Agreement may be terminated by Condor if (i) any
representation or warranty of Amwest is breached or becomes untrue and cannot be
cured by June 30, 1996, (ii) a breach of the Merger Agreement by Amwest which
could have a Material Adverse Effect on Amwest or materially adversely affect or
delay the consummation of the Merger has not been cured within 20 business days
after notice by Condor, (iii) Condor enters into a definitive agreement to be
acquired by a third party and pays the Termination Fee or (iv) the Merger
Agreement is not approved by the requisite vote at the Amwest Special Meeting.
The Merger Agreement may be terminated by Amwest if (i) any representation or
warranty of Condor is breached or becomes untrue and cannot be cured by June 30,
1996, (ii) a breach of the Agreement by Condor which could have a Material
Adverse Effect on Condor or materially adversely affect or delay the
consummation of the Merger has not been cured within 20 business days after
notice by Amwest, (iii) Condor engages in negotiations which continue for more
than 20 days with a third party seeking to acquire Condor, (iv) the Condor Board
of Directors has withdrawn, modified or changed its recommendation of the
Merger, has recommended an acquisition by a third party or has failed to call,
give notice of, convene or hold a stockholders meeting to approve the Merger,
(v) the Merger is not approved by the requisite vote at the Amwest Special
Meeting or (vi) the Merger is not approved by the requisite vote at the Condor
Special Meeting.
Condor will be required to pay Amwest a fee of $700,000 (the
"Termination Fee") in the event that Condor terminates the Merger Agreement in
order to accept a Superior Proposal. Condor will also be required to pay the
termination fee if the Merger Agreement is terminated by Amwest (i) for breach
of any of Condor's representations, warranties or covenants or because Condor
engages in negotiations which continue for more than 20 business days with a
third party seeking to acquire Condor and, within 12 months of such termination,
Condor enters into an agreement for, or consummates, an acquisition with a third
party under certain circumstances, or (ii) because the Condor Board of Directors
has withdrawn, modified or changed its recommendation of the Merger, has
recommended an acquisition with a third party or has failed to call, give notice
of, convene or hold a stockholders meeting to approve the Merger or because the
Merger is not approved by the requisite vote of the Condor Stockholders at the
Condor Special Meeting.
If the Merger Agreement is terminated by Amwest under conditions
requiring the payment of the termination fee or because of a breach by Condor of
its representations, warranties or covenants, as described above, Amwest will
also be entitled to be reimbursed by Condor for its reasonable expenses incurred
in connection with the Merger. If the Merger Agreement is terminated by Condor
because of a breach by Amwest of its representations, warranties or covenants,
as described above, or because the Merger is not approved by the requisite vote
at the Amwest Special Meeting, Condor will be entitled to be reimbursed by
Amwest for its reasonable expenses incurred in connection with the Merger. In
all other cases, Amwest and Condor will each bear their own expenses.
Amendment; Waiver
The Merger Agreement provides that it may be amended, modified or
supplemented only by written agreement of the parties thereto, at any time prior
to the Effective Time except that after approvals by the stockholders of Condor
and Amwest, the amount or form of consideration to be received by Condor
Stockholders may not be decreased or altered without the approval of such
stockholders.
Any failure of Amwest, on the one hand, or Condor on the other hand, to
comply with any obligation, covenant, agreement or condition in the Merger
Agreement may be waived in writing by Amwest or Condor, respectively, but such
waiver or failure to insist upon strict compliance with such obligation,
covenant, agreement or condition shall not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure. Whenever the Merger Agreement
requires or permits consent by or on behalf of Amwest or Condor, such consent
shall be given in writing.
<PAGE>
CERTAIN OTHER AGREEMENTS
In connection with the Merger Agreement, Amwest has entered or will
enter into certain agreements with various persons. Amwest, the Main Family
Trust and Mr. Main have entered into a Stockholder Agreement pursuant to which
the Main Family Trust (which holds shares of Condor Common Stock for the benefit
of Mr. Main and his family) and Mr. Main have (i) agreed not to sell or
otherwise transfer any shares of Condor Common Stock prior to the Effective Time
or the termination of the Merger Agreement, (ii) agreed to vote all shares of
Condor Common Stock which they hold in favor of the Merger and against any
proposal in opposition to or competition with the Merger, and (iii) granted an
option to Amwest to purchase 825,000 shares of Condor Common Stock for a price
equivalent to the Merger Consideration exercisable at any time during the period
commencing with the termination of the Merger Agreement.
The directors and officers of Condor have executed and delivered to
Amwest an Affiliates Letter and Certificate of Continuity of Interest in which
they have made certain representations about their intentions to hold the shares
of Amwest Common stock to be received in the Merger and agreed to certain
restrictions on resales of such shares. The representations and restrictions of
resales are intended to preserve the characterization of the Merger for federal
income tax purposes as a reorganization, to comply with the requirements for
pooling-of-interest accounting treatment and to comply with restrictions on
resales of securities imposed by federal securities laws.
At the Effective Time, Amwest, the Main Family Trust and Mr. Main will
enter into an agreement pursuant to which Mr. Main will be elected a director of
Amwest as long as he remains a member of the management executive committee of
Amwest. The agreement will also include certain provisions which become
effective only in the event that the Merger does not qualify for pooling-of
- -interest accounting treatment, including agreements not to sell any Amwest
Common Stock received in the Merger for two years and to grant a right of first
refusal to Amwest to purchase any shares of Amwest Common Stock received in the
Merger. Amwest, the Main Family Trust and Mr. Main will also enter into a
Registration Rights Agreement pursuant to which Amwest will agree to register
shares of Amwest Common Stock received by the Main Family Trust in the Merger
for resale under the Securities Act of 1933.
At the Effective Time, Amwest and Mr. Main will also enter into an
Employment Agreement pursuant to which Mr. Main will be employed for four years
as Executive Vice President of Amwest and President of Condor Insurance. Mr.
Main will receive a base salary of $253,000, subject to annual review, and will
be eligible for bonuses under the Amwest Annual Executive Incentive Plan and
entitled to other benefits available to other Amwest officers generally,
including an automobile allowance.
<PAGE>
DISSENTERS' RIGHTS
Pursuant to Section 262(b) of the Delaware General Corporation Law,
Condor stockholders are not entitled to dissenters' or appraisal rights in
connection with the Merger, because: (i) shares of Condor Common Stock were, at
the Condor Record Date, designated as a NASDAQ National Market security; (ii)
Condor stockholders will not be required to accept anything in exchange for
their Condor Common Stock other than Amwest Common Stock (i.e., shares of stock
of the corporation surviving the Merger) and cash in lieu of fractional shares
of such stock; and (iii) the Certificate of Incorporation of Condor does not
otherwise provide Condor stockholders with dissenters' or appraisal rights
applicable to the Merger. Amwest stockholders are also not entitled to
dissenters' or appraisal rights with respect to the Merger.
<PAGE>
MANAGEMENT OF AMWEST AFTER THE MERGER
Directors and Executive Officers After the Merger
Pursuant to the Agreement with Guy A. Main and the Main Family Trust,
Mr. Main will become a member of the Amwest Board of Directors. Upon the
appointment of such persons, the Amwest Board will consist of 11 directors, 10
of whom were directors of Amwest as of the date of the Merger Agreement.
Set forth below is certain information about each person who is
expected to be a member of the Board of Directors or an executive officer of
Amwest as of the Effective Time with the information expected to be true on the
Effective Time.
Year
Became A
Name Director Age
Richard H. Savage. . . . . . . . . . . . . . . . . . . . . 1970 76
Chairman of the Board, Co-Chief Executive Officer and
Director
John E. Savage. . . . . . . . . . . . . . . . . . . . . . 1976 43
Co-Chief Executive Officer, President, Chief Operating
Officer and Director
Steven R. Kay. . . . . . . . . . . . . . . . . . . . . . . 1992 42
Senior Vice President, Chief Financial Officer,
Treasurer and Director
Arthur F. Melton. . . . . . . . . . . . . . . . . . . . . 1986 41
Senior Vice President and Director
Guy A. Main *. . . . . . . . . . . . . . . . . . . . . . . 1996 59
Executive Vice President and Director
Neil F. Pont. . . . . . . . . . . . . . . . . . . . . . . 1994 50
Senior Vice President and Director
Thomas R. Bennett. . . . . . . . . . . . . . . . . . . . . 1985 68
Director
Edgar L. Fraser. . . . . . . . . . . . . . . . . . . . . . 1985 77
Director
Jonathan K. Layne. . . . . . . . . . . . . . . . . . . . . 1989 42
Director
Bruce A. Bunner. . . . . . . . . . . . . . . . . . . . . . 1995 62
Director
Charles L. Schultz. . . . . . . . . . . . . . . . . . . . 1995 67
Director
- ---------------
* Became a Director of Condor in 1988 (and of its predecessor in 1974).
Except as set forth below, each of the directors has served in the
capacity indicated in the above table for the past five years. Mr. Kay joined
Amwest in April 1992. From 1977 he served in various positions with KPMG Peat
Marwick and served as an Audit Partner for KPMG Peat Marwick from 1987 until
April 1992. Mr. Pont joined Amwest in November 1991 as a Senior Vice
President. During 1991, he served as a retained consultant following his
tenure from 1987 until 1991 with Imperial Corporation of America, where he
served in various executive management positions, including Executive Vice
President Retail Banking, board member of First Imperial Investor Services,
an investment broker dealer, and Imperial Insurance Agency. Mr. Bunner
retired in 1994 as Chairman of Centre Reinsurance Company of New York.
Previously, he served with KPMG Peat Marwick for 22 years. In addition, Mr.
Bunner served as California State Insurance Commissioner from 1983 to 1986.
Mr. Bunner is also a member of the Board of Directors of Mercury Insurance
Group, Inc., a property and casualty insurer specializing in automobile
coverages. Mr. Schultz is currently a Director of U.S. Facilities Corporation
of Costa Mesa, California. He retired in 1993 as Senior Vice President, Finance
and Chief Financial Officer of Farmers Group, Inc. where he had served for 19
years in various capacities. Previously, Mr.Schultz had been with Great American
Insurance Company in senior management positions from 1950 to 1974.
Mr. Fraser, who was on the Board of Directors of both Amwest and
Condor, resigned from the Condor Board effective November 13, 1995 in light of
discussions between the two companies.
Additional information about directors as of December 31, 1994 is
contained in Amwest's and Condor's Proxy Statements for their respective 1995
Annual Meetings of Stockholders, relevant portions of which are incorporated by
reference in this Proxy Statement/Prospectus from Amwest's and Condor's Annual
Reports on Form 10-K for the years ended December 31, 1994. See "Incorporation
by Reference" and "Available Information."
Security Ownership of Management
As of the Amwest Record Date directors and executive officers of Amwest
and their affiliates were beneficial owners of approximately ___% of the
outstanding shares of Amwest Common Stock. As of the Condor Record Date,
directors and executive officers of Condor and their affiliates were beneficial
owners of approximately ___ % of the outstanding shares of Condor Common Stock.
Post-Merger Dividend Policy
It is the current intention of the Board of Directors of Amwest to
declare dividends on the Amwest Common Stock following the Merger initially in
the amount of $0.11 per quarter or $0.44 per year, in each case per share.
Stockholders should note that no such dividends have been declared and that
future dividends will be determined solely by Amwest's Board of Directors in
light of the earnings and financial condition of Amwest and its subsidiaries and
other factors.
Principal Stockholders of Condor
The following table sets forth certain information as to the ownership
of Condor Common Stock on February 7, 1996, by (i) each person who is known to
own beneficially more than 5% of the outstanding shares of the Condor Common
Stock, (ii) each director of Condor, (iii) certain executive officers and (iv)
all executive officers and directors as a group.
Number of Shares Percentage
Name Beneficially Owned (1) Ownership
Guy A. Main 988,510 (2) 50.3%
William A. Clary 26,100 (3) 1.3%
Robert W. Kleinschmidt 62,200 (4) 3.2%
William J. Van Beurden 114,017 (5) 5.8%
Zondra L. Hendrix 37,272 (6) 1.9%
All executive officers and
directors as a group (5 persons) 1,288,099 (7) 63.7%
Other Principal Stockholders:
Amwest Insurance Group, Inc. 97,350 5.03%
(1) Unless otherwise indicated, each executive officer and
director has sole voting and investment power with respect to
the shares listed.
(2) Includes (a) 13,200 shares of Condor Common Stock that may be
acquired by Mr. Main upon exercise of outstanding stock
options, (b) 18,000 shares of Condor Common Stock held by the
Condor Services, Inc. Profit Sharing Plan, of which Mr. Main
is co-trustee with Ms. Hendrix, as to which Mr. Main shares
voting and investment power and as to which he disclaims
beneficial ownership, and (c) 957,310 shares of Condor Common
Stock held by the Main Family Trust, of which Mr. Main and his
wife share voting and investment power. The address of Mr.
Main is 2361 Rosecrans Avenue, El Segundo, California 90245.
(3) Includes 18,700 shares of Condor Common Stock that may be
acquired by Mr.Clary upon exercise of outstanding stock
options.
(4) Includes 13,200 shares of Condor Common Stock that may be
acquired by Mr. Kleinschmidt upon exercise of outstanding
stock options.
(5) Includes (a) 9,900 shares of Condor Common Stock that may be
acquired by Mr. Van Beurden upon exercise of outstanding stock
options, and (b) 100,000 shares of Condor Common Stock held by
Van Beurden Insurance Services, Inc., of which Mr. Van Beurden
is the President and a shareholder, as to which Mr. Van
Beurden shares voting and investment power and as to which he
disclaims beneficial ownership. The address of Mr. Van Beurden
is 1600 Draper Street, Kingsburg, California 93631.
(6) Includes (a) 18,500 shares of Condor Common Stock that may be
acquired by Ms. Hendrix upon exercise of outstanding stock
options, (b) 792 shares of Common Stock held by her husband,
as to which Ms. Hendrix disclaims beneficial ownership, and
(c) 18,000 shares of Condor Common Stock held by the Condor
Services, Inc. Profit Sharing Plan, of which Ms. Hendrix is
co-trustee with Mr. Main, as to which Ms. Hendrix shares
voting and investment power.
(7) Includes 73,500 shares of Condor Common Stock that may be
acquired upon exercise of outstanding stock options.
Principal Stockholders of Amwest
The following table sets forth certain information as to the ownership
of Amwest Common Stock on February 7, 1996, by (i) each person who is known to
own beneficially more than 5% of the outstanding shares of the Amwest Common
Stock, (ii) each director of Amwest, (iii) certain executive officers and (iv)
all executive officers and directors as a group.
Number of Shares Percentage
Name Beneficially Owned (1) Ownership (15)
---- ---------------------- --------------
Directors:
Richard H. Savage 823,115 (2)(3)(4) 34.76%
John E. Savage 158,941 (5) 6.55%
Steven R. Kay 25,075 (6) 1.05%
Arthur F. Melton 39,225 (7) 1.64%
Neil F. Pont 14,505 (8) (16)
Thomas R. Bennett 11,550 (9) (16)
Bruce A. Bunner 0 (16)
Edgar L. Fraser 7,830 (10) (16)
Jonathan K. Layne 7,600 (11) (16)
Charles L. Schultz 0 (16)
All executive officers and
directors as a group(10 persons) 1,087,841 43.31%
Other Principal Stockholders:
Savage Family Trust 126,274 (3)(4) 5.33%
Savage Diversified, Inc. 696,841 (4) 29.43%
Dimensional Fund Advisors Inc. 154,200 (12) 6.51%
Markel Corporation 178,300 (13) 7.53%
Heartland Advisors, Inc. 244,900 (14) 10.34%
(1) Based on information furnished by the persons named. The
persons in the table have sole voting and investment power
with respect to all shares of Amwest Common Stock shown as
beneficially owned by them, except as otherwise stated.
(2) Of the shares beneficially owned by Richard H. Savage: (1)
126,274 shares represent shares owned by the Savage Family
Trust for which Mr. Savage serves as Trustee; and (2)
696,841 shares represent shares owned by Savage Diversified,
Inc. a California corporation, all the voting stock of which
is owned by the Savage Family Trust. Mr. Savage, as Trustee,
has sole voting power over shares owned by such trust.
(3) The Savage Family Trust owns 126,274 shares of Amwest Common
Stock. Richard H. Savage is the Trustee of the Savage Family
Trust, and as such, exercises sole voting and investment power
with respect to shares owned by the Trust. These shares are
included in the number of shares beneficially owned by Richard
H. Savage as set forth in Note 2. The address of the Savage
Family Trust is 6320 Canoga Avenue, Suite 300, Woodland Hills,
California 91367.
(4) Of the shares beneficially owned by Richard H. Savage, 696,841
shares are owned by Savage Diversified, Inc., a California
corporation, all the voting stock of which is owned by the
Savage Family Trust. Richard H. Savage, as Trustee, has sole
voting power over shares owned by such trust. These shares are
included in the number of shares beneficially owned by Richard
H. Savage as set forth in Note 2. The address of Savage
Diversified, Inc. is 6320 Canoga Avenue, Suite 300, Woodland
Hills, California 91367.
(5) John E. Savage serves as Trustee of the following Trusts: (1)
Savage Family Stock Trust FBO Sandra Lee Savage which owns
19,478 shares of Common Stock; (2) Savage Family Stock Trust
FBO Lorraine Ann Savage which owns 19,478 shares of Common
Stock; and (3) Savage Family Stock Trust FBO Geraldine K.
Thuresson which owns 19,479 shares of Common Stock. Mr. Savage
owns 40,606 shares of Common Stock. In addition, 59,900 shares
shown as beneficially owned by Mr. Savage represent shares
which may be acquired by Mr. Savage upon exercise of
outstanding stock options.
(6) Of the shares beneficially owned by Steven R. Kay: (1) 3,500
shares represent shares that are directly owned by Mr. Kay;
(2) 500 shares represent shares that are indirectly held
through his wife; (3) 200 shares represent shares that are
indirectly held through his son; and (4) 20,875 shares
represent shares which may be acquired by Mr. Kay upon
exercise of outstanding stock options.
(7) Of the shares beneficially owned by Arthur F. Melton: (1)
9,050 shares represent shares that are jointly owned by Mr.
Melton and his wife; (2) 1,350 shares represent shares that
are directly owned by Mr. Melton; and (3) 28,825 shares
represent shares which may be acquired by Mr. Melton upon
exercise of outstanding stock options.
(8) Of the shares beneficially owned by Neil F. Pont: (1) 3,005
shares represent shares that are directly owned by Mr. Pont;
and (2)11,500 shares represent which may be acquired by Mr.
Pont upon exercise of outstanding stock options.
(9) Of the shares beneficially owned by Thomas R. Bennett: (1)
1,200 shares represent shares that are directly owned by Mr.
Bennett; (2) 2,550 shares represent shares that are jointl
owned by Mr. Bennett and his wife; (3) 300 shares represent
shares that are indirectly held through his wife; and (4)
7,500 shares represent shares which may be acquired by Mr.
Bennett upon exercise of outstanding stock options.
(10) Of the shares beneficially owned by Edgar L. Fraser: (1) 330
shares represent shares that are directly owned by Mr. Fraser;
and (2) 7,500 shares represent shares which may be acquired by
Mr. Fraser upon exercise of outstanding stock options.
(11) Of the shares beneficially owned by Jonathan K. Layne: (1)
100 shares represent shares that are directly owned by Mr.
Layne; and (2) 7,500 shares represent shares which may be
acquired by Mr. Layne upon exercise of outstanding stock
options.
(12) Dimensional Fund Advisors Inc. ("Dimensional"), a registered
investment advisor, is deemed to have beneficial ownership of
154,200 shares of Amwest Insurance Group, Inc., all of which
shares are held in portfolios of DFA Investments Dimensions
Group Inc., a registered open-end investment company, or in a
series of the DFA Investment Trust Company, a Delaware
business trust, or the DFA Group Trust and DFA Participation
Group Trust, investment vehicles for qualified employee
benefit plans, all of which Dimensional Fund Advisors Inc.
serves as investment manager. Dimensional disclaims beneficial
ownership of all such shares. The address of Dimensional is
1299 Ocean Avenue, 11th Floor, Santa Monica, California 90401.
(13) Reflects the beneficial ownership of Markel Corporation
("Markel"), as set forth in Markel's filing with Amwest of a
Schedule 13G dated February 1, 1994. The filing states that
Markel has sole voting power over 148,500 shares, sole
dispositive power over 148,500 shares and shared dispositive
power over 29,800 shares. The address of Markel is 4551 Cox
Road, Glen Allen, Virginia 23060.
(14) Heartland Advisors, Inc. ("Heartland Advisors"), a registered
investment advisor, is deemed to have beneficial ownership of
244,900 shares of Amwest Common Stock pursuant to a filing on
Schedule 13G dated August 9, 1995. The filing states that
Heartland Advisors has sole voting power over 20,300 shares
and sole dispositive power over 244,900 shares. Of these total
shares beneficially owned by Heartland Advisors, 200,000
shares may be deemed beneficially owned by Heartland Group,
Inc. ("Heartland Group"), a registered investment company. The
Heartland Group has sole voting power over all 200,000 shares.
The address of Heartland Advisors is 790 North Milwaukee
Street, Milwaukee, Wisconsin 53202.
(15) Based on 2,367,964 shares of Amwest Common Stock outstanding
as of February 7, 1996.
(16) Less than 1% of the shares of Amwest Common Stock outstanding.
Principal Stockholders of Amwest - Pro Forma
The following table sets forth certain information as to the ownership
of Amwest Common Stock on February 7, 1996, by (i) each person who is known to
own beneficially more than 5% of the outstanding shares of the Amwest Common
Stock, (ii) each director of Amwest, (iii) certain executive officers and (iv)
all executive officers and directors as a group.
Number of Shares Percentage
Name Beneficially Owned (1)(2) Ownership (6)
Directors:
Richard H. Savage 823,115 25.04%
John E. Savage 158,941 4.75%
Steven R. Kay 25,850 (3) (7)
Guy A. Main 495,155 (4) 15.03%
Arthur F. Melton 39,225 1.18%
Neil F. Pont 14,505 (7)
Thomas R. Bennett 11,550 (7)
Bruce A. Bunner 0 (7)
Edgar L. Fraser 18,170 (5) (7)
Jonathan K. Layne 7,600 (7)
Charles L. Schultz 0 (7)
All executive officers and
directors as a group
(11 persons) 1,594,111 46.26%
Other Principal Stockholders:
Savage Family Trust 126,274 3.84%
Savage Diversified, Inc. 696,841 21.20%
Dimensional Fund Advisors Inc. 154,200 4.69%
Markel Corporation 178,300 5.42%
Heartland Advisors, Inc. 244,900 7.45%
(1) Unless otherwise noted below, the footnotes provided under
"Principal Stockholders of Amwest" are applicable to the table
above.
(2) Based on information furnished by the persons named. The
persons in the table have sole voting and investment power
with respect to all shares of Amwest Common Stock shown as
beneficially owned by them, except as otherwise stated.
(3) Of the shares beneficially owned by Steven R. Kay: (1) 4,275
shares represent shares that are directly owned by Mr. Kay;
(2) 500 shares represent shares that are indirectly held
through his wife; (3) 200 shares represent shares that are
indirectly held through his son; and (4) 20,875 shares
represent shares which may be acquired by Mr. Kay upon
exercise of outstanding stock options.
(4) Includes (a) 6,600 shares of Amwest Common Stock that may be
acquired by Mr. Main upon exercise of outstanding stock
options, (b) 9,000 shares of Amwest Common Stock held by the
Condor Services, Inc. Profit Sharing Plan, of which Mr. Main
is co-trustee with Zondra Hendrix, as to which Mr. Main shares
voting and investment power and as to which he disclaims
beneficial ownership, and (c) 479,555 shares of Amwest Common
Stock held by the Main Family Trust, of which Mr. Main and his
wife share voting and investment power. The address of Mr.
Main is 2361 Rosecrans Avenue, El Segundo, California 90245.
(5) Of the shares beneficially owned by Edgar L. Fraser: (1)
1,870 shares represent shares that are directly owned by
Mr. Fraser; and (2) 16,300 shares represent shares which
may be acquired by Mr. Fraser upon exercise of outstanding
stock options.
(6) Based on 3,286,942 shares of Amwest Common Stock outstanding
as of February 7, 1996.
(7) Less than 1% of the shares of Amwest Common Stock outstanding.
<PAGE>
COMPARATIVE PER SHARE PRICES AND DIVIDENDS
Amwest Common Stock is listed on the AMEX. Condor Common Stock is
quoted on the NASDAQ. The following table sets forth the high and low sales
prices per share of the Amwest Common Stock and Condor Common Stock as reported
on the AMEX Composite Tape and NASDAQ NMS, respectively and the dividends paid
on such Amwest Common Stock and Condor Common Stock, for the below quarterly
periods, which correspond to the companies' respective quarterly fiscal periods
for financial reporting purposes.
<TABLE>
<CAPTION>
Amwest Common Stock Condor Common Stock
Period High Low Dividend High Low Dividend
- ------ ---- --- -------- ---- --- --------
<S> <C> <C> <C> <C> <C> <C>
1993
First Quarter $11 1/2 $9 3/8 $.07 $9 1/2 $4 3/4 $.00
Second Quarter 11 3/8 9 3/4 .07 7 3/4 5 5/8 .00
Third Quarter 11 1/8 9 3/4 .07 7 1/8 4 1/2 .00
Fourth Quarter 13 1/4 10 3/8 .07 6 4 5/8 .00
1994
First Quarter $14 1/2 $12 $.09 $3 1/8 $2 1/4 $.00
Second Quarter 14 1/4 12 1/2 .09 4 7/8 2 1/2 .00
Third Quarter 13 7/8 12 1/8 .09 5 5/8 4 3/8 .00
Fourth Quarter 12 3/8 11 1/8 .09 7 4 1/2 .00
1995
First Quarter $15 1/4 $11 3/4 $.10 $6 1/4 $2 1/4 $.00
Second Quarter 15 14 1/8 .10 5 3/4 4 1/8 .00
Third Quarter 15 1/8 14 1/4 .10 5 1/2 4 1/8 .00
Fourth Quarter 18 14 14 7/8 .10 7 3/4 3 1/2 .00
1996
First Quarter (through
February 12, 1996) $ $ $ $ $ $
</TABLE>
The following table sets forth the high, low and last sales prices as
reported on the AMEX and NASDAQ Composite Tapes of the companies' common shares
on November 30, 1995. The public announcement of the Merger Agreement occurred
after the close of trading on that date and before trading commenced on December
1, 1995.
Condor
Amwest Condor Equivalent(a)
High $17 5/8 (b) $3 1/2 $8 3/4
Low 17 1/2 (b) 3 1/2 8 3/4
Last 17 5/8 (b) 3 1/2 8 3/4
On February 12, 1996, the last day before the printing of this Proxy
Statement/Prospectus the last sales prices of Amwest Common Stock and Condor
Common Stock as reported on the AMEX and NASDAQ NMS, were as follows:.
Condor
Amwest Condor Equivalent(a)
High $ $ $
Low
Last
(a) The Condor equivalent market value is computed by multiplying the high, low
and last sales price per share of Amwest Common Stock by the Conversion Number,
assuming the Conversion Number is 0.5.
(b) There were no trades for Amwest Common Stock on the AMEX on November 30,
1995. Therefore, the sales prices as reported on the AMEX on November 29, 1995
are shown.
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Amwest and
Condor as of September 30, 1995, and as adjusted to give effect to the Merger
and related transactions. See "The Merger Agreement--Terms of the Merger."
<TABLE>
<CAPTION>
"As of September 30, 1995"
(In thousands)
-----------------------------------------------------------------
Historical Pro Forma (a)
------------------------------ ---------------------------
Amwest Condor Adjustments Combined
<S> <C> <C> <C> <C>
Bank indebtedness $ 12,500 0 0 $ 12,500
----------- ------ ---- ---------
Stockholders' equity
Preferred stock, $.01 par value; Amwest- authorized:
1,000,000 shares, issued and outstanding: none;
Condor- authorized: 200,000 shares, issued and
outstanding: none 0 0 0 0
Common stock, $.01 par value; Amwest- authorized:
10,000,000 shares, issued and outstanding: 2,367,964;
Condor- authorized: 3,800,000 shares, issued and
outstanding: 1,935,306 24 19 (10) 33
Additional paid-in capital 9,358 7,810 10 17,178
Net unrealized appreciation of investments carried
at market, net of income taxes 1,554 307 (164) 1,697
Retained earnings 31,066 3,991 (654) 34,403
----------- ------ ---- ---------
Total stockholders' equity 42,002 12,127 (818) 53,311
----------- ------ ---- ---------
Total capitalization $ 54,502 12,127 (818) $ 65,811
=========== ====== ==== =========
</TABLE>
(a) The pro forma adjustments and resulting combined amounts reflect
actions to be taken at the Effective Time of the Merger to (i) cancel
all Condor Common Stock issued but held in Treasury, (ii) retire all
Condor Common Stock indirectly owned by Amwest, and (iii) convert all
other issued and outstanding shares of Condor Common Stock into 0.5 of
a share of Amwest Common Stock. In addition, as of the Effective Time,
all rights with respect to shares issuable pursuant to Condor employee
stock option awards shall immediately convert to equivalent rights with
respect to Amwest shares, utilizing the Conversion Number.
(b) For this table, the approximate number of shares of Amwest Common Stock
assumed exchanged in the Merger was based upon 1,837,956 Condor shares
issued and outstanding as of November 30, 1995, as adjusted by the
Conversion Number. Shares potentially issuable pursuant to Amwest's or
Condor's stock option plans are excluded .
(c) Additional paid in capital is adjusted for the effects of the
conversion of all issued and outstanding shares of Condor Common Stock
into 0.5 of a share of Amwest Common Stock.
(d) Net unrealized appreciation of investments carried at market, net of
income taxes is adjusted for the net unrealized gain of $164,000
associated with the equity investment of 97,350 shares of Condor Common
Stock owned by Amwest Surety Insurance Company, a wholly-owned
subsidiary of Amwest.
(e) The net decrease in retained earnings is attributed to the pro forma
adjustments made to retire the 97,350 shares of Condor Common Stock
owned by a wholly-owned subsidiary of Amwest, the increased dividend
accrual associated with the assumed issuance of approximately 919,000
shares and the $396,000 after-tax effect for the estimate for
transaction costs associated with the Merger.
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements give
effect to the Merger of Amwest Insurance Group, Inc. ("Amwest") and Condor
Services, Inc. ("Condor") under the "pooling of interests" method of accounting.
These pro forma financial statements are presented for illustrative purposes
only, and therefore are not necessarily indicative of the operating results and
financial position that might have been achieved had the Merger occurred as of
an earlier date, nor are they necessarily indicative of operating results and
financial position which may occur in the future.
A pro forma combined balance sheet is provided as of September 30,
1995, giving effect to the Merger as though it had been consummated on that
date. Pro forma combined income statements are provided for the nine-month
periods ended September 30, 1995 and 1994, and the years ended December 31,
1994, 1993 and 1992, giving effect to the Merger as though it had occurred at
the beginning of the earliest period presented.
The historical statements of income for annual periods are derived from
the historical consolidated financial statements of Amwest and Condor, and
should be read in conjunction with the companies' separate 1994 Annual Reports
on Form 10-K. The historical financial statements as of or for the nine months
ended September 30, 1995 and 1994 have been prepared in accordance with
generally accepted accounting principles applicable to interim financial
information and, in the opinions of Amwest's and Condor's respective
managements, include all adjustments necessary for a fair presentation of
financial information for such interim periods.
<PAGE>
Unaudited Pro Forma Combined Balance Sheet
As of September 30, 1995
(In thousands)
<TABLE>
<CAPTION>
Historical Pro Forma
-------------------------- -------------------------
<S> <C> <C> <C> <C>
Amwest Condor Adjustments Combined
ASSETS
Investments:
Fixed maturities, held to maturity, at amortized cost $ 15,473 $ 15,473
Fixed maturities, available for sale, at market value 82,165 21,879 104,044
Equity securities, available for sale, at market value 7,439 3,555 (414) 10,580
Equity securities, trading, at market value 473 473
Other invested assets 333 333
Short-term investments 1,059 217 1,276
---------- ------ ---- ---------
Total investments 106,469 26,124 (414) 132,179
Cash and cash equivalents 5,028 85 5,113
Accrued investment income 1,267 332 1,599
Agents balances and premiums receivable 9,311 1,161 10,472
Reinsurance recoverable:
Paid loss and loss adjustment expenses 1,078 205 1,283
Unpaid loss and loss adjustment expenses 768 5,768 6,536
Ceded unearned premiums 2,959 2,959
Deferred policy acquisition costs 14,393 296 14,689
Furniture, equipment and improvements, net 2,324 855 3,179
Current Federal income taxes 668 145 813
Deferred Federal income taxes 1,229 1,229
Other assets 6,496 923 7,419
---------- ------ ---- ---------
Total assets $ 150,761 37,123 (414) $ 187,470
========== ====== ==== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Unpaid losses and loss adjustment expenses $ 10,207 20,814 $ 31,021
Unearned premiums 34,431 1,188 35,619
Funds held as collateral 41,435 41,435
Commissions payable 280 280
Reinsurance funds held 106 106
Amounts due to reinsurers 345 1,793 2,138
Bank indebtedness 12,500 12,500
Current Federal income taxes 0
Deferred Federal income taxes 4,010 (288) 3,722
Deferred tax liability on holding gains on fixed
maturities and equity securities 158 158
Other liabilities 5,831 657 692 7,180
---------- ------ ---- ---------
Total liabilities 108,759 24,996 404 134,159
Stockholders' equity:
Preferred stock, $.01 par value
Common stock, $.01 par value 24 19 (10) 33
Additional paid-in capital 9,358 7,810 10 17,178
Net unrealized appreciation (depreciation) of
investments carried at market, net of income taxes 1,554 307 (164) 1,697
Retained earnings 31,066 3,991 (654) 34,403
---------- ------ ---- ---------
Total stockholders equity 42,002 12,127 (818) 53,311
---------- ------ ---- ---------
Total liabilities and stockholders'equity $ 150,761 37,123 (414) $ 187,470
========== ====== ==== =========
</TABLE>
See accompanying notes to pro forma combined financial statements.
<PAGE>
Unaudited Pro Forma Combined Statement of Income
For the nine months ended September 30, 1995
(In thousands, except per share data)
<TABLE>
<CAPTION>
Historical Pro Forma
-------------------------- ----------------------------
Amwest Condor Adjustments Combined
<S> <C> <C> <C> <C>
Underwriting revenues:
Net premiums written $ 49,928 13,229 $ 63,157
Net change in unearned premiums 550 550
-------- ------ ---------
Net premiums earned 50,478 13,229 63,707
Underwriting expenses:
Net losses and loss adjustment expenses 16,440 9,368 25,808
Policy acquisition costs 25,302 3,392 28,694
General operating costs 8,927 2,099 11,026
-------- ------ ---------
Total underwriting expenses 50,669 14,859 65,528
-------- ------ ---------
Underwriting income (loss) (191) (1,630) (1,821)
Net investment income 4,787 1,211 5,998
Net unrealized gains (losses) on trading securities 73 73
Net realized investment gains (losses) 1,229 14 1,243
Interest expense (805) (805)
Collateral interest expense (1,305) (1,305)
Recovery on misappropriation of funds 890 890
Commissions and fees 453 453
Other revenue (6) (6)
-------- ------ ---------
Income before provision for income taxes 3,715 1,005 4,720
Provision for income taxes 778 219 997
-------- ------ ---------
Net income from continuing operations $ 2,937 786 $ 3,723
======== ====== =========
Earnings per common share, primary:
Net income from continuing operations $ 1.22 0.40 $ 1.12
======== ====== =========
Weighted average number of
common shares outstanding 2,402 1,967 3,337
======== ====== =========
Earnings per common share, assuming full dilution:
Net income from continuing operations $ 1.22 0.40 $ 1.11
======== ====== =========
Weighted average number of
common shares outstanding 2,405 1,967 3,340
======== ====== =========
</TABLE>
See accompanying notes to pro forma combined financial statements.
<PAGE>
Unaudited Pro Forma Combined Statement of Income
For the nine months ended September 30, 1994
(In thousands, except per share data)
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------- --------------------------
Amwest Condor Adjustments Combined
<S> <C> <C> <C> <C>
Underwriting revenues:
Net premiums written $ 51,507 15,865 $ 67,372
Net change in unearned premiums (7,433) (7,433)
---------- ------ ----------
Net premiums earned 44,074 15,865 59,939
Underwriting expenses:
Net losses and loss adjustment expenses 11,023 12,471 23,494
Policy acquisition costs 23,120 3,859 26,979
General operating costs 9,452 2,188 11,640
---------- ------ ----------
Total underwriting expenses 43,595 18,518 62,113
---------- ------ ----------
Underwriting income (loss) 479 (2,653) (2,174)
Net investment income 4,104 1,208 5,312
Net unrealized gains (losses) on trading securities (30) (30)
Net realized investment gains (losses) (214) 366 152
Interest expense (597) (597)
Collateral interest expense (1,507) (1,507)
Commissions and fees 772 772
Other revenue 31 31
---------- ------ ----------
Income before provision for income taxes 2,265 (306) 1,959
Provision for income taxes 431 (285) 146
---------- ------ ----------
Net income from continuing operations $ 1,834 (21) $ 1,813
========== ====== ==========
Earnings per common share, primary:
Net income from continuing operations $ 0.76 (0.01) $ 0.54
========== ====== ==========
Weighted average number of
common shares outstanding 2,411 1,983 3,354
========== ====== ==========
Earnings per common share, assuming full dilution:
Net income from continuing operations $ 0.76 (0.01) $ 0.54
========== ====== ==========
Weighted average number of
common shares outstanding 2,411 1,983 3,354
========== ====== ==========
</TABLE>
See accompanying notes to pro forma combined financial statements.
<PAGE>
Unaudited Pro Forma Combined Statement of Income
For the year ended December 31, 1994
(In thousands, except per share data)
<TABLE>
<CAPTION>
Historical Pro Forma
-------------------------- ----------------------------
Amwest Condor Adjustments Combined
<S> <C> <C> <C> <C>
Underwriting revenues:
Net premiums written $ 66,975 19,460 $ 86,435
Net change in unearned premiums (5,146) (5,146)
--------- ------ ---------
Net premiums earned 61,829 19,460 81,289
Underwriting expenses:
Net losses and loss adjustment expenses 14,095 14,633 28,728
Policy acquisition costs 31,755 4,709 36,464
General operating costs 12,734 3,034 15,768
--------- ------ ---------
Total underwriting expenses 58,584 22,376 80,960
--------- ------ ---------
Underwriting income (loss) 3,245 (2,916) 329
Net investment income 5,737 1,629 7,366
Net unrealized gains (losses) on trading securities (80) (80)
Net realized investment gains (losses) (269) 385 116
Interest expense (840) (840)
Collateral interest expense (1,921) (1,921)
Commissions and fees 1,379 1,379
Other revenue 44 44
--------- ------ ---------
Income before income taxes 5,952 441 6,393
Provision for income taxes 1,364 (12) 1,352
--------- ------ ---------
Net income from continuing operations $ 4,588 453 $ 5,041
========= ====== =========
Earnings per common share, primary:
Net income from continuing operations $ 1.91 0.23 $ 1.50
========= ====== =========
Weighted average number of
common shares outstanding 2,408 1,981 3,350
========= ====== =========
Earnings per common share, assuming full dilution:
Net income from continuing operations $ 1.91 0.23 $ 1.50
========= ====== =========
Weighted average number of
common shares outstanding 2,408 1,981 3,350
========= ====== =========
</TABLE>
See accompanying notes to pro forma combined financial statements.
<PAGE>
Unaudited Pro Forma Combined Statement of Income
For the year ended December 31, 1993
(In thousands, except per share data)
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------ --------------------------
Amwest Condor Adjustments Combined
<S> <C> <C> <C> <C>
Underwriting revenues:
Net premiums written $ 54,331 21,995 $ 76,326
Net change in unearned premiums (4,241) (4,241)
--------- ------ --------
Net premiums earned 50,090 21,995 72,085
Underwriting expenses:
Net losses and loss adjustment expenses 11,909 16,456 28,365
Policy acquisition costs 25,077 4,176 29,253
General operating costs 11,387 2,838 14,225
Loss on broker misappropriation of funds 1,870 1,870
--------- ------ --------
Total underwriting expenses 48,373 25,340 73,713
--------- ------ --------
Underwriting income (loss) 1,717 (3,345) (1,628)
Net investment income 4,989 1,471 6,460
Net unrealized gains (losses) on trading securities (3) (3)
Net realized investment gains (losses) 1,810 1,052 (508) 2,354
Interest expense (1,050) (1,050)
Collateral interest expense (2,027) (2,027)
Commissions and fees 815 815
Other revenue 27 27
--------- ------ --------
Income before income taxes 5,439 17 (508) 4,948
Provision for income taxes 1,398 (224) (173) 1,001
--------- ------ --------
Net income from continuing operations $ 4,041 241 (335) $ 3,947
========= ====== ========
Earnings per common share, primary:
Net income from continuing operations $ 1.70 0.12 $ 1.20
========= ====== ========
Weighted average number of
common shares outstanding 2,375 1,978 3,299
========= ====== ========
Earnings per common share, assuming full dilution:
Net income from continuing operations $ 1.70 0.12 $ 1.20
========= ====== ========
Weighted average number of
common shares outstanding 2,376 1,978 3,300
========= ====== ========
</TABLE>
See accompanying notes to pro forma combined financial statements.
<PAGE>
Unaudited Pro Forma Combined Statement of Income
For the year ended December 31, 1992
(In thousands, except per share data)
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------- --------------------------
Amwest Condor Adjustments Combined
<S> <C> <C> <C> <C>
Underwriting revenues:
Net premiums written $ 46,697 15,289 $ 61,986
Net change in unearned premiums 1,557 1,557
---------- ------ ----------
Net premiums earned 48,254 15,289 63,543
Underwriting expenses:
Net losses and loss adjustment expenses 10,955 9,923 20,878
Policy acquisition costs 25,016 2,889 27,905
General operating costs 10,871 3,012 13,883
---------- ------ ----------
Total underwriting expenses 46,842 15,824 62,666
---------- ------ ----------
Underwriting income (loss) 1,412 (535) 877
Net investment income 5,607 1,456 7,063
Net unrealized gains (losses) on trading securities 0
Net realized investment gains (losses) 728 222 950
Interest expense (1,359) (1,359)
Collateral interest expense (1,992) (1,992)
Commissions and fees 585 585
Other revenue 198 198
---------- ------ ----------
Income before income taxes 4,396 1,926 6,322
Provision for income taxes 998 299 1,297
---------- ------ ----------
Net income from continuing operations $ 3,398 1,627 $ 5,025
========== ====== ==========
Earnings per common share, primary:
Net income from continuing operations $ 1.44 0.82 $ 1.55
========== ====== ==========
Weighted average number of
common shares outstanding 2,360 1,976 3,242
========== ====== ==========
Earnings per common share, assuming full dilution:
Net income from continuing operations $ 1.44 0.82 $ 1.55
========== ====== ==========
Weighted average number of
common shares outstanding 2,361 1,976 3,243
========== ====== ==========
</TABLE>
See accompanying notes to pro forma combined financial statements.
<PAGE>
Unaudited Pro Forma Combined Statement of Income
For the year ended December 31, 1991
(In thousands, except per share data)
<TABLE>
<CAPTION>
Historical Pro Forma
---------------------------- ---------------------------
Amwest Condor Adjustments Combined
<S> <C> <C> <C> <C>
Underwriting revenues:
Net premiums written $ 50,812 14,297 $ 65,109
Net change in unearned premiums (2,325) (2,325)
------------ ------ ------------
Net premiums earned 48,487 14,297 62,784
Underwriting expenses:
Net losses and loss adjustment expenses 9,871 10,374 20,245
Policy acquisition costs 26,598 2,493 29,091
General operating costs 12,505 3,838 16,343
------------ ------ ------------
Total underwriting expenses 48,974 16,705 65,679
------------ ------ ------------
Underwriting income (loss) (487) (2,408) (2,895)
Net investment income 5,096 1,544 6,640
Net unrealized gains (losses) on trading securities 0
Net realized investment gains (losses) 2,217 2,217
Interest expense (1,357) (1,357)
Collateral interest expense (1,784) (1,784)
Commissions and fees 1,965 1,965
Other revenue 38 38
------------ ------ ------------
Income before income taxes 3,685 1,139 4,824
Provision for income taxes 192 78 270
------------ ------ ------------
Net income from continuing operations $ 3,493 1,061 $ 4,554
============ ====== ============
Earnings per common share, primary:
Net income from continuing operations $ 1.42 0.57 $ 1.38
============ ====== ============
Weighted average number of
common shares outstanding 2,461 1,873 3,301
============ ====== ============
Earnings per common share, assuming full dilution:
Net income from continuing operations $ 1.42 0.57 $ 1.38
============ ====== ============
Weighted average number of
common shares outstanding 2,461 1,873 3,301
============ ====== ============
</TABLE>
See accompanying notes to pro forma combined financial statements.
<PAGE>
Unaudited Pro Forma Combined Statement of Income
For the year ended December 31, 1990
(In thousands, except per share data)
<TABLE>
<CAPTION>
Historical Pro Forma
-------------------------- ---------------------------
Amwest Condor Adjustments Combined
<S> <C> <C> <C> <C>
Underwriting revenues:
Net premiums written $ 48,479 18,266 $ 66,745
Net change in unearned premiums (1,621) (1,621)
------------ ------ ------------
Net premiums earned 46,858 18,266 65,124
Underwriting expenses:
Net losses and loss adjustment expenses 7,966 17,683 25,649
Policy acquisition costs 24,421 1,215 25,636
General operating costs 11,019 3,739 14,758
------------ ------ ------------
Total underwriting expenses 43,406 22,637 66,043
Underwriting income (loss) 3,452 (4,371) (919)
Net investment income 5,135 1,242 6,377
Net unrealized gains (losses) on trading securities 0
Net realized investment gains (losses) (8) (8)
Interest expense (1,335) (1,335)
Collateral interest expense (1,477) (1,477)
Commissions and fees 2,415 2,415
Other revenue 297 297
------------ ------ ------------
Income before income taxes 5,767 (417) 5,350
Provision for income taxes 609 (55) 554
------------ ------ ------------
Net income from continuing operations $ 5,158 (362) $ 4,796
============ ====== ============
Earnings per common share, primary:
Net income from continuing operations $ 2.16 (0.17) $ 1.39
============ ====== ============
Weighted average number of
common shares outstanding 2,391 2,129 3,440
============ ====== ============
Earnings per common share, assuming full dilution:
Net income from continuing operations $ 2.16 (0.17) $ 1.39
============ ====== ============
Weighted average number of
common shares outstanding 2,391 2,129 3,440
============ ====== ============
</TABLE>
See accompanying notes to pro forma combined financial statements.
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. Basis of Presentation
The unaudited pro forma combined financial statements are presented for
illustrative purposes only, giving effect to the Merger of Amwest Insurance
Group, Inc. and Condor Services, Inc. as accounted for by the "pooling of
interests" method. In accordance with Commission reporting rules, the pro forma
combined statements of income, and the historical statements from which they are
derived, present only income from continuing operations and, therefore, do not
include discontinued operations, extraordinary items, and the cumulative effects
of accounting changes.
Because the transaction has not been completed and transition plans are
currently being developed, transaction costs of the Merger and nonrecurring
costs and expenses expected to be incurred in connection with the integration of
the companies' business operations can only be estimated at this time. The pro
forma combined statements of income excludes investment banking, legal and
miscellaneous transaction costs and expenses of the Merger, currently estimated
to be $600,000. However, the pro forma combined balance sheet as of September
30, 1995 includes the adjustment, net of related taxes, of $396,000, for the
above estimated amount of transaction costs related to the Merger.
2. Pro Forma Adjustments
Pro Forma Combined Balance Sheet
Equity securities, available for sale, at market value; deferred Federal income
taxes
Amwest Surety Insurance Company, a wholly owned subsidiary of Amwest,
currently owns 97,350 shares of Condor which is classified as an equity
investment in the historical balances for Amwest. These shares will be retired
pursuant to the Merger Agreement. Based on the market value of this investment
at September 30, 1995, a decrease of $414,000 is reflected in the pro forma
combined balance sheet as of September 30, 1995.
Deferred Federal Income Taxes
The pro forma balance sheet at September 30, 1995 reflects an
adjustment of $288,000 which is attributed to the deferred taxes associated with
the gross unrealized gain of $247,000 on the equity investment in Condor (as
explained above), or $84,000 coupled with the deferred taxes associated with the
$600,000 estimate for transaction costs, or $204,000.
Other Liabilities
The pro forma balance sheet at September 30, 1995 reflects an
adjustment of $692,000 which is attributed to the $600,000 estimate for
transaction costs coupled with an increase in the cash dividend accrual
associated with the assumed issuance of approximately 919,000 shares as further
explained under Stockholder's Equity below. Amwest declared a cash dividend of
$.10 per share payable to stockholders of record as of September 30, 1995.
Stockholders' Equity
Stockholders' equity as of September 30, 1995 has been adjusted to
reflect the following:
Common Stock, $.01 par value, has been adjusted to reflect
the assumed issuance of approximately 919,000 shares of Amwest
Insurance Group, Inc. Common Stock, $.01 par value, in
exchange for 1,837,956 (net of 14,500 shares held by Condor in
treasury) shares of Condor Services, Inc. Common Stock issued
and outstanding as of November 30, 1995, utilizing the
exchange rate of 0.5 share of Amwest for each share of Condor
(and assuming that the 97,350 shares of Condor Common Stock
indirectly owned by Amwest will be retired). The number of
shares of Amwest Common Stock to be issued at consummation of
the Merger will be based upon the actual number of shares of
Condor Common Stock outstanding at that time.
Paid in capital is adjusted for the effects of the
aforementioned issuance of approximately 919,000 shares of
Amwest Common Stock having a par value of $.01 per share in
exchange for Condor Common Stock.
Net unrealized appreciation (depreciation) of investments
carried at market, net of income taxes is adjusted for the net
unrealized gain of $164,000 associated with the equity
investment of 97,350 shares of appreciated Condor Common Stock
owned by a wholly-owned subsidiary of Amwest.
The net decrease in retained earnings is attributed to the
pro forma adjustments made to retire the 97,350 shares of
Condor Common Stock owned by a wholly-owned subsidiary of
Amwest, the increased dividend accrual associated with the
assumed issuance of approximately 919,000 shares and the
$396,000 after-tax effect for the estimate for transaction
costs associated with the Merger.
Pro Forma Combined Statements of Income
Net realized investment gains
The pro forma results for net realized investment gains were adjusted
for the year ended December 31, 1993 pursuant to sale transactions of Condor
Common Stock made by a wholly-owned subsidiary of Amwest. For the year ended
December 31, 1993, the investment in Condor Common Stock was reduced from
212,850 shares at January 1, 1993 to 97,350 shares at December 31, 1993
resulting in realized investment gains, net of income taxes of $335,000.
Earnings per common share
To arrive at pro forma combined net income, adjustments have been made
as necessary to reflect such income on both a primary and fully diluted basis.
Pro forma weighted average number of common shares outstanding for the nine
month periods ended September 30, 1995 and 1994 and for the years ended December
31, 1994, 1993 and 1992 are based upon Amwest's and Condor's combined historical
weighted average shares, after adjustment of Condor's historical number of
shares by the Conversion Number and excluding any Condor shares held in treasury
or owned by Amwest.
3. Proposition 103
On December 14, 1995, the Supreme Court of the State of California
affirmed the decision of the Second District Court of Appeal overturning
Insurance Code Section 1861.135 which exempted the surety insurance industry
from major provisions of Proposition 103. Accordingly, the surety insurance
industry will no longer be exempted from the rate rollback and prior approval
provisions contained in Proposition 103.
To date, Amwest has not received any calculations from the California
Department of Insurance regarding Amwest's Proposition 103 rollback amount.
Amwest accrued $2,000,000 during the quarter ended December 31, 1995
representing Amwest's best estimate of its rollback obligations pursuant to
Proposition 103, the exact amount of which has not yet been determined. Such
estimate was based on a variety of factors, including but not limited to, the
profitability of Amwest in California during 1989 (the rollback period), a
review of the various regulations promulgated by the Department of Insurance,
and a review of rollback obligations of other insurance companies, including a
surety company. Pursuant to the provisions of Proposition 103, the rollback
amount will be ultimately determined by complex California Department of
Insurance formulas but is statutorily limited to a maximum of 20% of California
written premiums during 1989, plus accrued interest thereon. In the event that
Amwest's rollback obligation were eventually determined to be the statutory
maximum, it could approximate $7,500,000 which is $5,500,000 in excess of
Amwest's best estimate of its ultimate rollback liability. While the current
accrual represents management's best estimate of Amwest's Proposition 103
rollback obligations, no assurances can be given that a final settlement with
the California Department of Insurance will not result in a rollback amount
which could have a significant adverse impact on Amwest's future earnings,
although it is not anticipated that such result would materially adversely
impact Amwest's financial position. Until a final settlement is reached with the
California Department of Insurance, no assurances can be given as to the
ultimate amount of premiums to be refunded to policyholders. The matters
discussed in this paragraph are forward looking statements based upon partial
information and management assumptions and involve certain risks and
uncertainties as described above.
<PAGE>
DESCRIPTION OF CAPITAL STOCK OF AMWEST
General
The authorized capital stock of Amwest consists of 10,000,000 shares of
Common Stock, par value $.01 per share, of which 2,367,964 shares are issued and
outstanding, and 1,000,000 shares of Preferred Stock, par value $.01 per share,
none of which are issued or outstanding.
Common Stock
The outstanding shares of Amwest Common Stock are, and the shares to be
issued in connection with this offering will be, validly issued, fully paid and
nonassessable. Holders of Amwest Common Stock are entitled to one vote for each
share held of record on all matters submitted to a vote of the stockholders. The
shares of Amwest Common Stock have cumulative voting rights with respect to the
election of directors. Holders of Common Stock do not have any preemptive rights
or rights to subscribe for additional securities of Amwest. The Amwest Common
Stock is neither redeemable nor convertible into other securities, and there are
no sinking fund provisions. Subject to the preferences applicable to any shares
of Preferred Stock outstanding at the time, holders of Amwest Common Stock are
entitled to dividends if, when and as declared by the Board of Directors from
funds legally available therefor and are entitled, in the event of liquidation,
to share ratably in all assets remaining after payment of liabilities and
Preferred Stock preferences, if any.
Each outstanding share of Amwest Common Stock is accompanied by a right
to purchase one one-hundredth of a share of Amwest Series A Junior Participating
Preferred Stock, $0.01 par value per share. Each Right becomes exercisable on
the tenth business day after a person or group (other than Amwest and certain
related parties) has acquired or commenced a tender or exchange offer to acquire
20% or more of Amwest's Common Stock, or upon consummation of certain mergers,
business combinations or sales of Amwest's assets. If the Rights become
exercisable, a holder will be entitled to purchase in certain cases (i) one
one-hundredth of a share of Series A Junior Participating Preferred Stock, $.01
par value, at the then current exercise price (initially $50), (ii) shares of
common stock, $.01 par value, having a market price equal to two times the then
current exercise price, or (iii) in case of a merger, common stock of the
acquiring corporation having a market value equal to two times the then current
exercise price.
Amwest is entitled to redeem the Rights at $.01 per Right under certain
circumstances. The rights do not have voting or dividend rights, and cannot be
traded independently from Amwest's Common Stock until such time as they become
exercisable. See "Comparison of Stockholder Rights--Rights Plans."
The registrar and transfer agent for the Amwest Common Stock is the
American Stock Transfer & Trust Company.
Preferred Stock
There are 1,000,000 shares of Amwest Preferred Stock authorized for
issuance. There are currently no Amwest Preferred Stock outstanding.
<PAGE>
COMPARISON OF STOCKHOLDER RIGHTS
The following is a summary of material differences between the rights
of holders of Condor Common Stock and the rights of holders of Amwest Common
Stock. As each of Condor and Amwest is organized under the laws of Delaware,
these differences arise from various provisions of the Certificate of
Incorporation and By-laws of each of Condor and Amwest and the Amwest Rights
Agreement (as defined below).
Stockholder Vote Required for Certain Transactions
Certain Business Combinations. Condor's Certificate of Incorporation
contains provisions for the approval or authorization of any business
combination that has not been approved in advance by a majority of the Board of
Directors. These provisions require the affirmative vote of the holders of not
less than 66 2/3% of the shares of voting stock then outstanding. These
provisions are not applicable to the Merger because of action taken by the
Condor Board of Directors in connection with approving the Merger Agreement.
Amwest's Certificate of Incorporation contains similar provisions,
however, the affirmative vote of the holders of not less than 75% of the shares
of voting stock then outstanding is required.
Election of Directors for Vacant Positions. Condor's Certificate of
Incorporation provides that a Board vacancy resulting from the death,
resignation or removal of a director shall be filled by a person designated by
the majority of the remaining directors.
Amwest's Certificate of Incorporation contains similar provisions,
however, the person designated may be determined by the majority of the
remaining directors or, under certain circumstances, the affirmative vote of the
holders of not less than 75% of the shares of voting stock then outstanding.
Removal of Directors. Condor's Certificate of Incorporation provides
that directors may be removed from office with or without cause at any time, but
only by the affirmative vote of the holders of a majority of the shares of
voting stock then outstanding.
Amwest's Certificate of Incorporation provides that directors may be
removed from office at any time, but only (1) for cause, and (2) by the
affirmative vote of the holders of a majority of the voting stock.
Amendments to Certificate of Incorporation. Condor's Certificate of
Incorporation contains provisions for the alteration, amendment, repeal or
recission of any provision of the Certificate of Incorporation. These provisions
require the approval of a majority of the directors of the corporation then in
office and the affirmative vote of the holders of a majority of the voting stock
then outstanding. Certain provisions of the Certificate of Incorporation require
the approval of the majority of the authorized number of directors and the
affirmative vote of the holders of not less than 66 2/3% of the shares of voting
stock then outstanding.
Amwest's Certificate of Incorporation contains similar provisions,
however, for certain provisions of the Certificate of Incorporation, the
approval of the majority of the authorized number of directors and the
affirmative vote of the holders of not less than 75% of the shares of voting
stock then outstanding is required.
Special Meetings of Stockholders
Condor's Certificate of Incorporation provides that a special meeting
of stockholders may be called for any purpose or purposes at any time by a
majority of the members of the Board of Directors or, under certain
circumstances, by the holders of not less than 10% of the shares of voting stock
then outstanding.
Amwest's Certificate of Incorporation provides that a special meeting
of stockholders may be called for any purpose or purposes at any time by a
majority of the members of the Board of Directors. Amwest stockholders are not
permitted to call a special meeting of stockholders or to require that the Board
call such a special meeting.
Cumulative Voting
Condor's Certificate of Incorporation does not include a provision for
cumulative voting in the election of members of the Board of directors.
Amwest's Certificate of Incorporation includes a provision for
cumulative voting such that, in any election of directors of the corporation, a
holder of any class or series of stock then entitled to vote in such election
shall be entitled to as many votes as shall equal (i) the number of votes which
he would be entitled to cast for the election of directors with respect to his
shares of stock multiplied by (ii) the number of directors to be elected in the
election in which his class or series of shares is entitled to vote, and each
stockholder may cast all of such votes for a single director or for any two or
more of them as he may see fit.
Rights Plans
On May 10, 1989, the Board of Directors of Amwest adopted a Stockholder
Rights Plan and declared a dividend of one Stock Purchase Right (a "Right") for
each share of common stock outstanding on May 22, 1989. Each Right becomes
exercisable on the tenth business day after a person or group (other than Amwest
and certain related parties) has acquired or commenced a tender or exchange
offer to acquire 20% or more of Amwest's Common Stock, or upon consummation of
certain mergers, business combinations or sales of Amwest's assets. If the
Rights become exercisable, a holder will be entitled to purchase in certain
cases (i) one one-hundredth of a share of Series A Junior Participating
Preferred Stock, $.01 par value, at the then current exercise price (initially
$50), (ii) shares of common stock, $.01 par value, having a market price equal
to two times the then current exercise price, or (iii) in case of a merger,
common stock of the acquiring corporation having a market value equal to two
times the then current exercise price.
Amwest is entitled to redeem the Rights at $.01 per Right under certain
circumstances. The rights do not have voting or dividend rights, and cannot be
traded independently from Amwest's common stock until such time as they become
exercisable.
The Merger does not trigger the Stockholder Rights Plan because it has
been approved by the Board of Directors and to Amwest's knowledge, no
stockholder will own more than 20% of Amwest after the Merger, other than
previously excepted persons.
<PAGE>
PROPOSAL TO AMEND AND RATIFY THE
AMWEST STOCK OPTION PLAN
At the Special Meeting of Stockholders, the stockholders of Amwest will
be asked to approve an amendment to the Amwest Stock Option Plan as described
below.
At the Effective Time, each outstanding Condor Stock Option, other than
those held by non-employee directors of Condor shall be canceled and the holder
shall receive an Amwest Stock Option to purchase the same number of shares of
Amwest Common Stock as the holder would have been entitled to receive in the
Merger had the option been exercised in full immediately prior to the Effective
Time. The Amwest Stock Option will be granted at a price per share equal to (i)
the per share exercise price for the shares of Condor Common Stock otherwise
purchasable pursuant to such Condor Stock Option divided by (ii) 0.5, as
appropriately adjusted pursuant to the Merger Agreement. These grants of
Non-Incentive Options will require an amendment to the Amwest Stock Option Plan
since the Plan currently provides that no options of and kind under the plan
(including Non-Incentive Options) may be granted with exercise prices of less
than fair market value on the date of grant.
The Amwest Stock Option Plan provides that no action may be taken to
reduce the minimum permissible exercise price without the approval of the
stockholders of Amwest. Thus, the stockholders of Amwest will be asked at the
Special Meeting, among other things, to approve an amendment to the Amwest Stock
Option Plan regarding the permitted exercise price of Non-Incentive Options
under the Amwest Stock Option Plan. The entire Amwest Stock Option Plan,
including the proposed amendment, is set forth in Annex E to this Proxy
Statement.
Description of the Amwest Stock Option Plan
The Amwest Stock Option Plan provides for the reservation of 476,000
shares of Amwest Common Stock, subject to adjustment for reorganizations,
recapitalizations, stock splits or similar events, for issuance upon the
exercise of options to be granted under the Amwest Stock Option Plan. Shares of
Amwest Common Stock subject to the unexercised portions of any options granted
under the Amwest Stock Option Plan which expire, terminate or are canceled may
again be subject to options under the Amwest Stock Option Plan. Salaried
employees, including directors who are employees, and consultants are currently
eligible to receive options under the Amwest Stock Option Plan. Based on current
company policy, 20 persons are eligible as of February 7, 1996.
The Amwest Stock Option Plan was amended by the stockholders of Amwest
at the 1987, 1988, 1990 and 1994 Annual Meetings of Stockholders. These
amendments brought the Amwest Stock Option Plan into compliance with Rule 16b-3
(promulgated by the Securities and Exchange Commission under the Securities Act
of 1934) and increased the number of shares subject to the Amwest Stock Option
Plan. See "Proposal to Amend and Ratify Amwest's Stock Option Plan".
The Amwest Stock Option Plan is administered by a committee (the
"Compensation and Stock Option Committee") of directors who are neither
employees of nor consultants to Amwest or its subsidiaries, and who are
appointed by the Board of Directors of Amwest. The Compensation and Stock Option
Committee has the full power to construe the Amwest Stock Option Plan, to
determine which persons are eligible to receive options under the Amwest Stock
Option Plan, the vesting of such options and which of the eligible persons, if
any, shall be granted options under the Amwest Stock Option Plan.
The Amwest Stock Option Plan provides for options which qualify as
incentive stock options ("Incentive Options") under Section 422 of the Internal
Revenue Code (the "Code") as well as options which do not so qualify
("Non-Incentive Options") and for the grant of stock appreciation rights ("Stock
Appreciation Rights") to be associated with stock options. The Stock
Appreciation Rights permit the optionee to elect to receive, in lieu of
exercising the related option, an amount equal to the difference between the
value of the shares subject to the option and the exercise price of the option.
The per share exercise price of Incentive Options under the Amwest Stock Option
Plan may not be less than 100% of the fair market value of the underlying Amwest
Common Stock on the date of grant of the option (110% of such fair market value
with respect to Incentive Options granted to an individual who owns more than
10% of the total combined voting power of all classes of stock of Amwest or any
subsidiary corporation). On February 12, 1996, the closing sales price of
Amwest's Common Stock as reported on the American Stock Exchange was $ .
The Amwest Stock Option Plan provides that the aggregate fair market
value of the stock with respect to which Incentive Options are exercisable for
the first time by each employee during any calendar year (under the Amwest Stock
Option Plan or similar plans) shall not exceed $100,000. No Incentive Option
granted under the Amwest Stock Option Plan may be exercised more than ten years
after its date of grant, except that an Incentive Option granted to an
individual owning more than 10% of the total combined voting power of all
classes of stock of Amwest or any subsidiary or parent corporation shall expire
no later than five (5) years from the date the option was granted. No
Non-Incentive Option granted under the Amwest Stock Option Plan may be exercised
more than eleven (11) years after its date of grant.
Section 16(b) of the Exchange Act
The acquisition and disposition of shares of Amwest Common Stock by
officers, directors, and more than 10% stockholders of Amwest ("Insiders")
pursuant to awards granted to them under the Amwest Stock Option Plan may be
subject to the provisions of Section 16(b) of the Securities Exchange Act of
1934 (the "Exchange Act"), under which a purchase of shares of Amwest Common
Stock within six months before or after a sale of Amwest Common Stock could
result in recovery by Amwest of all or a portion of any amount by which the sale
proceeds exceed the purchase price. Insiders are required to file reports of
changes in beneficial ownership under Section 16(a) of the Exchange Act upon
acquisitions and dispositions of shares. Rule 16b-3 provides an exemption from
Section 16(b) liability for certain transactions pursuant to employee benefit
plans.
Federal Income Tax Treatment
The following is a brief description of the federal income tax
treatment which will generally apply to awards made under the Amwest Stock
Option Plan, based on federal income tax laws in effect on the date hereof. The
exact federal income tax treatment of awards will depend on the specific nature
of the award. Such an award may, depending on the conditions applicable to the
award, be taxable as an option, as restricted or unrestricted stock, as a cash
payment, or otherwise. Because the following is only a brief summary of the
general federal income tax rules, recipients of awards should not rely thereon
for individual tax advice, as each taxpayer's situation and the consequences of
any particular transaction will vary depending upon the specific facts and
circumstances involved. Each taxpayer is advised to consult with his or her own
tax advisor for particular federal, as well as state and local, income and any
other tax advice.
Incentive Options. Pursuant to the Amwest Stock Option Plan, employees
may be granted options which are intended to qualify as incentive stock options
("Incentive Options") under the provisions of Section 422 of the Internal
Revenue Code (the "Code"). Generally, the optionee is not taxed and Amwest is
not entitled to a deduction on the grant or the exercise of an Incentive Option,
provided the participant was an employee of Amwest or a subsidiary at all times
from the date the option was granted to the date three months (in the case of a
disabled employee, one year) before the date of exercise. If the optionee
disposes of the acquired stock after the later of (I) one year after the date
the stock is transferred to the optionee pursuant to the exercise of the option
or (ii) two years after the date of the option grant, the participant will
recognize capital gain or loss equal to the difference between the amount
realized from such disposition over the option price, and the company will not
be entitled to a deduction. However, if the optionee sells the shares acquired
upon the exercise of an Incentive Option at any time those one-year or two-year
periods, then the optionee will recognize ordinary income in an amount equal to
the excess, if any, of the lesser of the sale price of the shares of Amwest
Common Stock or the fair market value of the shares of Amwest Common Stock on
the date of exercise over the exercise price of such Incentive Option. Any gain
recognized by the optionee on the disposition in excess of the amount taxable as
ordinary income, or any loss recognized if the shares are sold for less than the
exercise price, will be treated as capital gain or loss, long term or short term
depending on whether the common stock has been held for more than one year.
Amwest will generally be entitled to a tax deduction in an amount equal to the
amount of ordinary income recognized by such optionee.
The amount by which the fair market value of the shares of Amwest
Common Stock received upon exercise of an Incentive Option exceeds the exercise
price will be included as a positive adjustment in the calculation of an
optionee's "alternative minimum taxable income" ("AMTI") in the year of
exercise. The "alternative minimum tax" imposed on individual taxpayers is
generally equal to the amount by which 28% of the taxpayer's AMTI (26% for AMTI
below certain amounts), reduced by certain exemption amounts, exceeds his or her
regular income tax liability for the year.
Non-Incentive Options. The grant of an option or other similar right to
acquire stock which does not qualify for treatment as an Incentive Option (a
"Non-Incentive Option") is generally not a taxable event for the optionee. Upon
exercise of the option, the optionee will generally recognize ordinary income in
an amount equal to the excess of the fair market value of the stock acquired
upon exercise (determined as of the date of exercise) over the exercise price of
such option, and Amwest will be entitled to a tax deduction equal to such
amount. See "Special Rules for Awards Granted to Insiders," below.
Special Rules for Awards Granted to Insiders. If an optionee is a
director, officer or stockholder subject to Section 16 of the Exchange Act (an
"Insider") and exercises an option within six months of the date of grant, the
timing of the recognition of any ordinary income should be deferred until (and
the amount of ordinary income should be determined based on the fair market
value (or sales price in the case of a disposition) of the shares of Amwest
Common Stock upon) the earlier of the following two dates: (i) six months after
the date of grant or (ii) a disposition of the shares of Amwest Common Stock,
unless the Insider makes an election under Section 83(b) of the Code (an "83(b)
Election") within 30 days after exercise to recognize ordinary income based on
the value of the Amwest Common Stock on the date of exercise. In addition,
special rules apply to an Insider who exercises an option having an exercise
price greater than the fair market value of the underlying shares on the date of
exercise. Insiders should consult their tax advisors to determine the tax
consequences to them of exercising options granted to them pursuant to the
Amwest Stock Option Plan.
Miscellaneous Tax Issues. Awards may be granted under the Amwest Stock
Option Plan which do not fall clearly into the categories described above. The
federal income tax treatment of these awards will depend upon the specific terms
of such awards. Generally, Amwest will be required to make arrangements for
withholding applicable taxes with respect to any ordinary income recognized by a
participant in connection with awards made under the Amwest Stock Option Plan.
With certain exceptions, an individual may not deduct
investment-related interest to the extent such interest exceeds the individual's
net investment income for the year. Investment interest generally includes
interest paid on indebtedness incurred to purchase shares of Amwest Common
Stock. Interest disallowed under this rule may be carried forward to an deducted
in later years, subject to the same limitations.
A holder's tax basis in Amwest Common Stock acquired pursuant to the
Amwest Stock Option Plan generally will equal the amount paid for the Amwest
Common Stock plus any amount recognized as ordinary income with respect to such
stock. Other than ordinary income recognized with respect to the Amwest Common
Stock and included in basis, any subsequent gain or loss upon the disposition of
such stock generally will be capital gain or loss (long-term or short-term,
depending on the holder's holding period).
Special rules will apply in cases where a recipient of any award pays
the exercise or purchase price of the award or applicable withholding tax
obligations under the Amwest Stock Option Plan by delivering previously owned
shares of Amwest Common Stock or by reducing the amount of shares otherwise
issuable pursuant to the award. The surrender of withholding of such shares will
in certain circumstances result in the recognition of income with respect to
such shares or a carryover basis in the shares acquired.
The terms of the agreements pursuant to which specific awards are made
to optionees under the Amwest Stock Option Plan may provide for accelerated
vesting or payment of an award in connection with a change in ownership or
control of Amwest. In that event and depending upon the individual circumstances
of the optionee, certain amounts with respect to such awards may constitute
"excess parachute payments" under the "golden parachute" provisions of the Code.
Pursuant to these provisions, a recipient will be subject to a 20% excise tax on
any "excess parachute payments" and Amwest will be denied any deduction with
respect to such payment. Optionees should consult their tax advisors as to
whether accelerated vesting of an award in connection with a change of ownership
or control of Amwest would give rise to an excess parachute payment.
The Code limits to $1,000,000 per person the amount that Amwest may
deduct for compensation paid to any of its most highly compensated officers,
including deductions arising from the exercise of options. Thus, there can be no
assurances that all amounts treated as compensation to optionees as described
above will be deductible by Amwest.
The Board of Directors of Amwest unanimously recommends a vote FOR
approval of the amendment to the Amwest Stock Option Plan as well as a vote FOR
the ratification of the entire Amwest Stock Option Plan as set forth in Annex E
to this Proxy Statement/Prospectus.
<PAGE>
Option Grants
Shown below is certain information on grants of stock options pursuant
to the Amwest Stock Option Plan during the fiscal year 1995. No stock
appreciation rights have been granted in connection with options.
OPTION/SAR GRANTS TABLE
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Value at Assumed Annual
Rates of Stock Price
Appreciation for Option
Individual Grants Term (1)
- --------------------------------------------------------------------------------------------------- -----------------------------
Number of % of Total
Securities Options/SARs Exercise
Underlying Granted to or Base
Options/SARs Employees in Price Expiration
Name Granted (2) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- ----------------------------------- --------------- --------------- --------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Richard H. Savage __-- -- -- -- -- --
Chairman of the Board
and Co-Chief Executive Officer
John E. Savage 10,000 (3) 10.2% 14.250 April 4, 2005 89,617 227,108
Co-Chief Executive Officer,
President and Chief
Operating Officer
Steven R. Kay 7,500 (3) 7.6% 14.250 April 4, 2005 67,213 170,331
Senior Vice President, Chief 10,000 (4) 10.2% 14.250 April 4, 2000 39,370 86,998
Financial Officer and Treasurer
Arthur F. Melton 7,500 (3) 7.6% 14.250 April 4, 2005 67,213 170,331
Senior Vice President 10,000 (4) 10.2% 14.250 April 4, 2000 39,370 86,998
Neil F. Pont 7,500 (3) 7.6% 14.250 April 4, 2005 67,213 170,331
Senior Vice President 10,000 (4) 10.2% 14.250 April 4, 2000 39,370 86,998
</TABLE>
(1) Potential realizable value is based on an assumption that the stock
price of the Common Stock appreciates at the annual rate shown above
(compounded annually) from the date of grant until the end of the five
or ten year option term. These numbers are calculated based on the
requirements promulgated by the Securities and Exchange Commission and
do not reflect the Company's estimate of future stock price growth.
(2) The Plan is administered by the Compensation and Stock Option Committee
of the Board of Directors. The committee determines the eligibility of
employees, the number of shares to be granted and the terms of such
grants.
(3) Options were granted on April 4, 1995 at fair market value and become
exercisable at the rate of 25 percent on the first, second, third
and fourth anniversary of the grant date, and have a term of 10
years.
(4) Options were granted on April 4, 1995 at fair market value and become
exercisable at the rate of 20 percent on the date of grant and the
first, second, third and fourth anniversary of the grant date, and have
a term of 5 years.
<PAGE>
OTHER MATTERS
It is not expected that any matters other than those described in this
Proxy Statement will be brought before the Condor Special Meeting or the Amwest
Special Meeting. If any other matters are presented, however, it is the
intention of the persons named in the Condor proxy and Amwest proxy to vote the
proxy in accordance with the discretion of the persons named in such proxy.
LEGAL MATTERS
Certain legal matters with respect to the validity of the securities
offered hereby and the Merger, and with respect to the discussion under the
heading "The Proposal to Approve and Adopt the Agreement and Plan of
Merger--Certain Federal Income Tax Consequences," will be passed upon for Amwest
by Gibson, Dunn & Crutcher, 333 South Grand Avenue, Los Angeles, California
90071-3197. Jonathan K. Layne, who is a member of Amwest's Board of Directors,
is a partner of Gibson, Dunn & Crutcher. Certain legal matters in connection
with the Merger will be passed upon for Condor by Kindel & Anderson LLP, 555
South Flower Street, Los Angeles, California 90071-2498.
EXPERTS
The consolidated financial statements of Amwest Insurance Group, Inc.
and Condor Services, Inc. as of December 31, 1994 and 1993, and for each of the
years in the three year period ended December 31, 1994, have been incorporated
by reference herein and in the registration statement in reliance upon the
reports of KPMG Peat Marwick, LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in auditing and accounting.
The report of KPMG Peat Marwick LLP on the December 31, 1994 financial
statements of Condor Services, Inc. contains an explanatory paragraph that
states that Condor adopted the provisions of Financial Accounting Standards
Board's Statement of Financial Accounting Standard No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" in 1993.
<PAGE>
AMWEST INSURANCE GROUP, INC.
AND
CONDOR SERVICES, INC.
Annexes to the Joint Proxy Statement/Prospectus
Annex A -- Merger Agreement
Annex B -- Stockholder Agreement
Annex C --Opinion of Jefferies and Company
Annex D --Opinion of Wedbush Morgan
Annex E -- Amwest Insurance Group, Inc. Stock Option Plan
(as Proposed to be Amended)
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law, as amended,
provides that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation or is or was serving at its request in such capacity in another
corporation or business association against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interest of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 102(b)(7) of the Delaware General Corporation Law, as amended,
permits a corporation to provide in its certificate of incorporation that a
director of the corporation shall not be personally liable to the corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived an improper personal
benefit.
As permitted by Section 145 of the Delaware General Corporation Law,
the Bylaws of the Registrant provide: (i) the Registrant is required to
indemnify its directors, officers and employees and persons serving in such
capacities in other business enterprises (including, for example, subsidiaries
of the Registrant) at the Registrant's request, who are or were a party to, or
is threatened to be made a party to, any threatened, pending or completed
action, suit or proceeding, whether or not by or in the right of the Registrant,
and whether civil, criminal, administrative, investigative or otherwise, to the
fullest extent permitted by Delaware law; (ii) the Registrant shall pay all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement and, in the manner provided by law, any such expenses may be paid by
the Registrant in advance of the final disposition of such action, suit or
proceeding.); (iii) the rights conferred in the Bylaws are not exclusive and the
Registrant is authorized to enter into indemnification agreements with any other
person for any such expenses to the fullest extent permitted by law; (iv) the
Registrant may purchase and maintain insurance on behalf of any such person
against any liability which may be asserted against such person.; and (v) the
Registrant may not retroactively amend the Bylaw provisions in a way that is
adverse to such directors, officers, employees and agents. The Registrant has
also entered into an agreement with its directors and certain of its officers
indemnifying them to the fullest extent permitted by the foregoing. These
indemnification provisions, and the Indemnification Agreements entered into
between the Registrant and its directors and certain of its officers, may be
sufficiently broad to permit indemnification of the Registrants' officers and
directors for liabilities arising under the Securities Act.
The Registrant's Stock Plan, as amended, provides for indemnification
by the Registrant of any committee member, officer or director administering or
interpreting such plan for actions not undertaken in bad faith or fraud.
<PAGE>
Item 21. Exhibits and Financial Statement Schedules.
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C>
2.1 Agreement and Plan of Merger dated as of November 30, 1995 by
and between Amwest Insurance Group, Inc. and Condor Services,
Inc., including Exhibits and Disclosure Schedules (incorporated
hereby by reference to Exhibit 2 to Amwest's Form 8-K dated
November 30, 1995).
3.1 Restated Certificate of Incorporation of Amwest as amended to date (incorporated hereby by
reference to Exhibit 3(3)(a) to Amwest's Form 8-B Registration Statement No. 1-9580).
3.2 Bylaws of Amwest (incorporated hereby by reference to Exhibit 3.2 of Registrant's Annual
Report on Form 10-K for the year ended December 31, 1990.)
4.1 Specimen Common Stock Certificate (incorporated hereby by reference to Exhibit 3(4) to
Amwest's Form 8-B Registration Statement No. 1-9580.)
5.1 * Opinion of Gibson, Dunn & Crutcher Regarding Legality of Shares Being Registered.
8.1 * Opinion of Gibson, Dunn & Crutcher Regarding Tax Matters.
10.1 Lease Agreement dated April 1, 1986, by and between Amwest Insurance Group, Inc. and
Trillium/Woodland Hills. (Incorporated by reference to exhibit 10.9 to Amwest's 1986 Form
10-K.)
10.2 First amendment to Lease Agreement dated January 30, 1987, by and between Amwest Insurance
Group, Inc. and Trillium/Woodland Hills. (Incorporated by reference to 10.13 to Amwest's 1987
Form 10-K.)
10.3 Second amendment to Lease Agreement dated June 11, 1987, by and between Amwest Insurance
Group, Inc. and Trillium/Woodland Hills. (Incorporated by reference to 10.14 to Amwest's 1987
Form 10-K.)
10.4 Third amendment to Lease Agreement dated September 1, 1988, by and between Amwest Insurance
Group, Inc. and Trillium/Woodland Hills. (Incorporated by reference to 10.15 to Amwest's 1988
Form 10-K.)
10.5 Fourth amendment to Lease Agreement dated November 20, 1989, by and between Amwest Insurance
Group, Inc. and Trillium/Woodland Hills. (Incorporated by reference to 10.15 to Amwest's 1989
Form 10-K.)
10.6 Fifth amendment to Lease Agreement dated December 20, 1989, by and between Amwest Insurance
Group, Inc. and Trillium/Woodland Hills. (Incorporated by reference to 10.16 to Amwest's 1989
Form 10-K.)
10.7 Sixth amendment to Lease Agreement dated December 31, 1989, by and between Amwest Insurance
Group, Inc. and Trillium/Woodland Hills. (Incorporated by reference to 10.17 to Amwest's 1989
Form 10-K.)
10.8 Contract between Amwest and Hewlett-Packard Company, dated
September 16, 1991. (Incorporated by reference to 10.22 to
Amwest's 1991 Form 10-K.)
10.9 Lease Agreement dated June 16, 1992 by and between Amwest Insurance Group, Inc. and
Hewlett-Packard Company. (Incorporated by reference to 10.18 to Amwest's 1992 Form 10-K.)
10.10 First Excess of Loss Reinsurance Contract effective October 1,
1992 issued to Amwest Surety Insurance Company and Far West
Insurance Company by a syndicate of reinsurers lead by Kemper
Reinsurance Company. (Incorporated by reference to 10.19 to
Amwest's 1992 Form 10-K.)
10.11 Investment Management Agreement between Amwest and AAM Advisors,
Inc., dated August 11, 1992. (Incorporated by reference to 10.21
to Amwest's 1992 Form 10-K.)
10.12 Contract between Amwest and Scudder, Stevens & Clark, Inc.,
dated August 13, 1992. (Incorporated by reference to 10.22 to
Amwest's 1992 Form 10-K.)
10.13 Revolving Credit Agreement dated August 6, 1993 between Amwest Insurance Group, Inc. and Union
Bank. (Incorporated by reference to 10.13 to Amwest's 1993 Form 10-K.)
10.14 First Amendment to the First Excess of Loss Reinsurance Contract effective October 1, 1993.
(Incorporated by reference to 10.14 to Amwest's 1993 Form 10-K.)
10.15 Semiautomatic Bond Quota Share Reinsurance Contract effective
October 1, 1993 issued to Amwest Surety Insurance Company by
Kemper Reinsurance Company and Underwriters Reinsurance Company.
(Incorporated by reference to 10.15 to Amwest's 1993 Form 10-K.)
10.16 First Excess of Loss Reinsurance Contract effective October 1,
1994 issued to Amwest Surety Insurance Company and Far West
Insurance Company by a syndicate of reinsurers lead by Kemper
Reinsurance Company. (Incorporated by reference to 10.16 to
Amwest's 1994 Form 10-K.)
10.17 Semiautomatic Contract Surety Reinsurance Agreement effective
March 1, 1994 issued to Amwest Surety Insurance Company and Far
West Insurance Company by a syndicate of reinsurers lead by
Kemper Reinsurance Company. (Incorporated by reference to 10.17
to Amwest's 1994 Form 10-K.)
10.18 Stock Option Plan of Amwest, as amended. (Incorporated by reference to Exhibit 4.1 to
Amwest's Form S-8 Registration Statement No. 33-82178.)
10.19 Form of Indemnity Agreement between Amwest and Individual Directors and Certain Officers
Designated by Amwest's Board of Directors. (Incorporated by reference to Exhibit 3(10) to
Amwest's Form 8-B Registration Statement No. 1-9580.)
10.20 Form of Senior Executive Severance Agreement entered into by
Amwest and certain officers. (Incorporated by reference to 10.20
to Amwest's 1989 Form 10-K.)
10.21 Rights Agreement dated as of May 10, 1989 executed by Amwest and
Bankers Trust Company of California, N.A., as rights agent.
(Incorporated by reference to Exhibit 10.1 to Amwest's
Registration Statement on Form 8-A dated May 11, 1989.)
10.22 Non-Employee Director Stock Option Plan of Amwest. (Incorporated by reference to Exhibit 4.2
to Amwest's Form S-8 Registration Statement No. 33-82178.)
10.23 First Amendment to Revolving Credit Agreement. (Incorporated by reference to
Exhibit 19.1 to the Amwest's March 31, 1995 Form 10-Q.)
10.24 * Lease Agreement dated January 24, 1996, by and between Amwest Insurance Group, Inc. and ACD2,
a California Corporation.
10.25 * Option Agreement dated January 24, 1996, by and between Amwest Insurance Group, Inc. and ACD2,
a California Corporation.
13.1** Amwest's 1994 Annual Report on Form 10-K.
13.2** Amwest's March 31, 1995 Quarterly Report on Form 10-Q.
13.3** Amwest's June 30, 1995 Quarterly Report on Form 10-Q.
13.4** Amwest's September 30, 1995 Quarterly Report on Form 10-Q.
21.1 List of Subsidiaries of Registrant (incorporated hereby by reference to Exhibit 3(22) to
Amwest's Form 8-B Registration Statement No. 1-9580.)
23.1 * Consent of KPMG Peat Marwick LLP.
23.2 * Consent of Gibson, Dunn & Crutcher (included as part of the Opinion submitted as Exhibit 5.1
hereto).
24.1 ** Power of Attorney (contained on page II-7 of the Registration Statement).
99.1 * Proxy Card For Amwest Insurance Group, Inc.
</TABLE>
* Filed herewith.
** Previously filed.
*** To be filed by amendment.
<PAGE>
Item 22. Undertakings.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing
of the registrant's annual report pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d)
of the Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(b) The undersigned registrant hereby undertakes to deliver or cause to
be delivered with the prospectus, to each person to whom the prospectus
is sent or given, the latest annual report, to security holders
that is incorporated by reference in the prospectus and furnished
pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3
under the Securities Exchange Act of 1934; and, where interim financial
information required to be presented by Article 3 of Regulation S-X
is not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or
given, the latest quarterly report that is specifically incorporated
by reference in the prospectus to provide such interim financial
information.
(c) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement;
(i) To include any prospectus required by Section 10(a)
(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(d) (1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by
any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be
deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(2) The registrant undertakes that every prospectus:
(i) that is filed pursuant to paragraph (1) immediately
preceding, or
(ii) that purports to meet the requirements of Section
10(a)(3) of the Act and is used in
connection with an offering of securities subject
to Rule 415, will be filed as a part of an amendment
to the registration statement and will not be used
until such amendment is effective, and that, for
purposes of determining any liability under the
Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration
statement relating to the securities offered
therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide
offering thereof.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11, or 13 of this form, within one business
day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to
the request.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject
of and included in the registration statement when it became effective.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this pre-effective amendment to registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Woodland Hills, State of California, on the 13th day
of February, 1996.
AMWEST INSURANCE GROUP, INC.
By: /s/ Steven R. Kay
Steven R. Kay
Senior Vice President, Chief
Financial Officer and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 to registration statement has been signed by the
following persons in the capacities and on the dates indicated.
Signature Title Date
Chairman of the Board and Co-Chief
Executive Officer (Principal
/s/RICHARD H. SAVAGE * Executive Officer) 2/13/96
Richard H. Savage
President, Chief Operating Officer,
/s/JOHN E. SAVAGE * Co-Chief Executive Officer and Director 2/13/96
John E. Savage
Senior Vice President, Chief Financial
Officer, Treasurer and Director
(Principal Financial and Principal
/s/STEVEN R. KAY Accounting Officer) 2/13/96
Steven R. Kay
/s/ARTHUR F. MELTON * Senior Vice President and Director 2/13/96
Arthur F. Melton
/s/NEIL F. PONT * Senior Vice President and Director 2/13/96
Neil F. Pont
/s/THOMAS R. BENNETT * Director 2/13/96
Thomas R. Bennett
/s/BRUCE A. BUNNER * Director 2/13/96
Bruce A. Bunner
/s/EDGAR L. FRASER * Director 2/13/96
Edgar L. Fraser
/s/JONATHAN K. LAYNE * Director 2/13/96
Jonathan K. Layne
/s/CHARLES L. SCHULTZ * Director 2/13/96
Charles L. Schultz
* By: /s/STEVEN R. KAY
Steven R. Kay
Attorney-in-fact
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Sequential Page
Number Description Number
------ ----------- -------
<S> <C> <C>
2.1 Agreement and Plan of Merger dated as of November 30, 1995 by and between
Amwest Insurance Group, Inc. and Condor Services, Inc., including Exhibits
and Disclosure Schedules (incorporated hereby by reference to Exhibit 2 to
Amwest's Form 8-K dated November 30, 1995).
3.1 Restated Certificate of Incorporation of Amwest as amended to date
(incorporated hereby by reference to Exhibit 3(3)(a) to Amwest's Form 8-B
Registration Statement No. 1-9580).
3.2 Bylaws of Amwest (incorporated hereby by reference to Exhibit
3.2 of Registrant's Annual Report on Form 10-K for the year
ended December 31, 1990.)
4.1 Specimen Common Stock Certificate (incorporated hereby by reference to
Exhibit 3(4) to Amwest's Form 8-B Registration Statement No. 1-9580.)
5.1 * Opinion of Gibson, Dunn & Crutcher Regarding Legality of Shares Being
Registered.
8.1 * Opinion of Gibson, Dunn & Crutcher Regarding Tax Matters.
10.1 Lease Agreement dated April 1, 1986, by and between Amwest Insurance Group,
Inc. and Trillium/Woodland Hills. (Incorporated by reference to exhibit 10.9
to Amwest's 1986 Form 10-K.)
10.2 First amendment to Lease Agreement dated January 30, 1987, by and between
Amwest Insurance Group, Inc. and Trillium/Woodland Hills. (Incorporated by
reference to 10.13 to Amwest's 1987 Form 10-K.)
10.3 Second amendment to Lease Agreement dated June 11, 1987, by and between Amwest
Insurance Group, Inc. and Trillium/Woodland Hills. (Incorporated by reference
to 10.14 to Amwest's 1987 Form 10-K.)
10.4 Third amendment to Lease Agreement dated September 1, 1988, by and between
Amwest Insurance Group, Inc. and Trillium/Woodland Hills. (Incorporated by
reference to 10.15 to Amwest's 1988 Form 10-K.)
10.5 Fourth amendment to Lease Agreement dated November 20, 1989, by and between
Amwest Insurance Group, Inc. and Trillium/Woodland Hills. (Incorporated by
reference to 10.15 to Amwest's 1989 Form 10-K.)
10.6 Fifth amendment to Lease Agreement dated December 20, 1989, by and between
Amwest Insurance Group, Inc. and Trillium/Woodland Hills. (Incorporated by
reference to 10.16 to Amwest's 1989 Form 10-K.)
10.7 Sixth amendment to Lease Agreement dated December 31, 1989, by and between
Amwest Insurance Group, Inc. and Trillium/Woodland Hills. (Incorporated by
reference to 10.17 to Amwest's 1989 Form 10-K.)
10.8 Contract between Amwest and Hewlett-Packard Company, dated
September 16, 1991. (Incorporated by reference to 10.22 to
Amwest's 1991 Form 10-K.)
10.9 Lease Agreement dated June 16, 1992 by and between Amwest Insurance Group,
Inc. and Hewlett-Packard Company. (Incorporated by reference to 10.18 to
Amwest's 1992 Form 10-K.)
10.10 First Excess of Loss Reinsurance Contract effective October 1,
1992 issued to Amwest Surety Insurance Company and Far West
Insurance Company by a syndicate of reinsurers lead by Kemper
Reinsurance Company. (Incorporated by reference to 10.19 to
Amwest's 1992 Form 10-K.)
10.11 Investment Management Agreement between Amwest and AAM Advisors,
Inc., dated August 11, 1992. (Incorporated by reference to 10.21
to Amwest's 1992 Form 10-K.)
10.12 Contract between Amwest and Scudder, Stevens & Clark, Inc.,
dated August 13, 1992. (Incorporated by reference to 10.22 to
Amwest's 1992 Form 10-K.)
10.13 Revolving Credit Agreement dated August 6, 1993 between Amwest Insurance
Group, Inc. and Union Bank. (Incorporated by reference to 10.13 to Amwest's
1993 Form 10-K.)
10.14 First Amendment to the First Excess of Loss Reinsurance Contract effective
October 1, 1993. (Incorporated by reference to 10.14 to Amwest's 1993 Form
10-K.)
10.15 Semiautomatic Bond Quota Share Reinsurance Contract effective
October 1, 1993 issued to Amwest Surety Insurance Company by
Kemper Reinsurance Company and Underwriters Reinsurance Company.
(Incorporated by reference to 10.15 to Amwest's 1993 Form 10-K.)
10.16 First Excess of Loss Reinsurance Contract effective October 1,
1994 issued to Amwest Surety Insurance Company and Far West
Insurance Company by a syndicate of reinsurers lead by Kemper
Reinsurance Company. (Incorporated by reference to 10.16 to
Amwest's 1994 Form 10-K.)
10.17 Semiautomatic Contract Surety Reinsurance Agreement effective
March 1, 1994 issued to Amwest Surety Insurance Company and Far
West Insurance Company by a syndicate of reinsurers lead by
Kemper Reinsurance Company. (Incorporated by reference to 10.17
to Amwest's 1994 Form 10-K.)
10.18 Stock Option Plan of Amwest, as amended. (Incorporated by reference to
Exhibit 4.1 to Amwest's Form S-8 Registration Statement No. 33-82178.)
10.19 Form of Indemnity Agreement between Amwest and Individual Directors and
Certain Officers Designated by Amwest's Board of Directors. (Incorporated by
reference to Exhibit 3(10) to Amwest's Form 8-B Registration Statement No.
1-9580.)
10.20 Form of Senior Executive Severance Agreement entered into by
Amwest and certain officers. (Incorporated by reference to 10.20
to Amwest's 1989 Form 10-K.)
10.21 Rights Agreement dated as of May 10, 1989 executed by Amwest and
Bankers Trust Company of California, N.A., as rights agent.
(Incorporated by reference to Exhibit 10.1 to Amwest's
Registration Statement on Form 8-A dated May 11, 1989.)
10.22 Non-Employee Director Stock Option Plan of Amwest. (Incorporated by reference
to Exhibit 4.2 to Amwest's Form S-8 Registration Statement No. 33-82178.)
10.23 First Amendment to Revolving Credit Agreement. (Incorporated by
reference to Exhibit 19.1 to the Amwest's March 31, 1995 Form 10-Q.)
10.24 * Lease Agreement dated January 24, 1996, by and between Amwest Insurance Group,
Inc. and ACD2, a California Corporation.
10.25 * Option Agreement dated January 24, 1996, by and between Amwest Insurance
Group, Inc. and ACD2, a California Corporation.
13.1 ** Amwest's 1994 Annual Report on Form 10-K.
13.2 ** Amwest's March 31, 1995 Quarterly Report on Form 10-Q.
13.3 ** Amwest's June 30, 1995 Quarterly Report on Form 10-Q.
13.4 ** Amwest's September 30, 1995 Quarterly Report on Form 10-Q.
21.1 List of Subsidiaries of Registrant (incorporated hereby by reference to
Exhibit 3(22) to Amwest's Form 8-B Registration Statement No. 1-9580.)
23.1 * Consent of KPMG Peat Marwick LLP.
23.2 * Consent of Gibson, Dunn & Crutcher (included as part of the
Opinion submitted as Exhibit 5.1 hereto).
24.1 ** Power of Attorney (contained on page 112 of the Registration Statement).
99.1 * Proxy Card for Amwest Insurance Group, Inc.
</TABLE>
* Filed herewith.
** Previously filed.
*** To be filed by amendment
<PAGE>
ANNEX A
AGREEMENT
AND
PLAN OF MERGER
BY AND BETWEEN
AMWEST INSURANCE GROUP, INC.
AND
CONDOR SERVICES, INC.
DATED
November 30, 1995
<PAGE>
TABLE OF CONTENTS
Page(s)
CONTENTS
ARTICLE I THE MERGER......................................................... 1
Section 1.01 The Merger ................................................ 1
Section 1.02 Effective Time............................................. 1
Section 1.03 Certificate of Incorporation and Bylaws of the Surviving
Corporation........................................................ 2
Section 1.04 Board of Directors and Officers............................ 2
Section 1.05 Conversion of Shares....................................... 2
Section 1.06 Surrender of Certificates; Payment for and Exchange
of Shares.......................................................... 3
ARTICLE II RELATED MATTERS................................................... 5
Section 2.01 Treatment of Stock Options................................. 5
Section 2.02 Stockholder Approval....................................... 6
Section 2.03 Other Securities Matters................................... 7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF CONDOR......................... 7
Section 3.01 Corporate Organization..................................... 7
Section 3.02 Authorization.............................................. 8
Section 3.03 Capitalization............................................. 8
Section 3.04 Affiliated Entities........................................ 8
Section 3.05 Financial Statements....................................... 9
Section 3.06 Absence of Certain Changes or Events....................... 10
Section 3.07 Consents and Approvals; No Violation....................... 10
Section 3.08 No Undisclosed Liabilities................................. 11
Section 3.09 Taxes ..................................................... 11
Section 3.10 Insurance: Licenses, Permits and Filings................... 15
Section 3.11 Patents, Trademarks, and Other Intellectual Property....... 16
Section 3.12 Litigation ................................................ 16
Section 3.13 Insurance ................................................. 17
Section 3.14 Compliance with Laws....................................... 17
Section 3.15 Employee Benefit Plans..................................... 17
Section 3.16 Employment Related Agreements.............................. 18
Section 3.17 Labor Agreements and Controversies......................... 18
Section 3.18 Environmental Matters...................................... 19
Section 3.19 Certain Fees............................................... 19
Section 3.20 Disclosure ................................................ 19
Section 3.21 Post-Retirement and Post-Employment Benefit Obligations.... 20
Section 3.22 Registration Statement and Proxy Statement................. 20
Section 3.23 Absence of Questionable Payments........................... 20
Section 3.24 Guaranties................................................. 21
Section 3.25 Material Contracts......................................... 21
Section 3.26 Insurance Contracts and Rates.............................. 22
Section 3.27 Reinsurance................................................ 22
Section 3.28 Loss Reserves; Solvency.................................... 22
Section 3.29 Opinion of Financial Advisor............................... 23
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF AMWEST.......................... 23
Section 4.01 Corporate Organization..................................... 23
Section 4.02 Authorization.............................................. 23
Section 4.03 Capitalization............................................. 24
Section 4.04 Financial Statements and Reports........................... 24
Section 4.05 Absence of Certain Changes................................. 25
Section 4.06 Consents and Approvals; No Violations...................... 25
Section 4.07 Litigation ................................................ 26
Section 4.08 Compliance with Laws....................................... 26
Section 4.09 Proxy Statement, Etc....................................... 26
Section 4.10 No Undisclosed Liabilities................................. 27
Section 4.11 Disclosure ................................................ 27
Section 4.12 Post-Retirement and Post-Employment Benefit Obligations.... 27
Section 4.13 Employee Benefit Plans..................................... 27
Section 4.14 Environmental Matters...................................... 28
Section 4.15 Absence of Questionable Payments........................... 29
Section 4.16 Certain Fees............................................... 30
Section 4.17 Taxes ..................................................... 30
Section 4.18 Affiliated Entities........................................ 33
Section 4.19 Reinsurance................................................ 33
Section 4.20 Insurance: Licenses, Permits and Filings................... 34
Section 4.21 Guaranties................................................. 35
Section 4.22 Material Contracts......................................... 35
Section 4.23 Insurance Contracts and Rates.............................. 36
Section 4.24 Loss Reserves; Solvency.................................... 36
ARTICLE V COVENANTS.......................................................... 37
Section 5.01 Conduct of Business of Condor and Amwest................... 37
Section 5.02 Access to Information...................................... 39
Section 5.03 All Reasonable Efforts..................................... 40
Section 5.04 Public Announcements....................................... 40
Section 5.05 Notification of Certain Matters............................ 40
Section 5.06 Indemnification and Insurance.............................. 40
Section 5.07 Regulatory Approvals....................................... 42
Section 5.08 Employee Matters........................................... 42
Section 5.09 No Actions Inconsistent With Tax-Free Reorganization....... 42
Section 5.10. Other Potential Acquirors................................. 42
Section 5.11 Letter of Condor's Accountants............................. 44
Section 5.12 Stock Exchange Listing..................................... 44
Section 5.13 Pooling of Interests....................................... 44
Section 5.14 Employment Agreement....................................... 44
Section 5.15 Condor Affiliates.......................................... 45
Section 5.16 Agreement with Guy A. Main................................. 45
ARTICLE VI CLOSING........................................................... 45
Section 6.01 Time and Place............................................. 45
Section 6.02 Deliveries at the Closing.................................. 45
ARTICLE VII CONDITIONS TO THE MERGER......................................... 45
Section 7.01 Conditions to the Obligations of Amwest and Condor......... 45
Section 7.02 Additional Conditions to the Obligations of Amwest......... 46
Section 7.03 Additional Conditions to the Obligations of Condor......... 48
ARTICLE VIII TERMINATION AND ABANDONMENT..................................... 49
Section 8.01 Termination................................................ 49
Section 8.02 Effect of Termination...................................... 50
Section 8.03 Fees and Expenses.......................................... 51
ARTICLE IX GENERAL PROVISIONS................................................ 52
Section 9.01 Amendment and Modification................................. 52
Section 9.02 Waiver of Compliance; Consents............................. 52
Section 9.03 Validity .................................................. 52
Section 9.04 Parties in Interest........................................ 53
Section 9.05 Survival of Representations, Warranties, Covenants and
Agreements......................................................... 53
Section 9.06 Notices ................................................... 53
Section 9.07 Governing Law.............................................. 54
Section 9.08 Counterparts............................................... 54
Section 9.09 Table of Contents and Headings............................. 54
Section 9.10 Entire Agreement........................................... 54
Section 9.11 Arbitration; Attorneys' Fees and Expenses.................. 54
Section 9.12 Miscellaneous.............................................. 55
EXHIBIT A STOCKHOLDER AGREEMENT.............................................. 57
EXHIBIT B AFFILIATES LETTER AND CONTINUITY OF INTEREST CERTIFICATE........... 61
EXHIBIT C AGREEMENT WITH GUY A. MAIN AND MAIN FAMILY TRUST................... 65
APPENDIX A TO EXHIBIT C...................................................... 73
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of November 30,
1995 (the "Agreement"), is between Amwest Insurance Group, Inc., a Delaware
corporation ("Amwest") and Condor Services, Inc., a Delaware corporation
("Condor").
RECITALS
A. Condor will be merged into Amwest pursuant to the terms of
this Agreement (the "Merger") and Condor will cease to exist as a separate
entity.
B. The Merger will be accomplished and will have the effects
set forth in this Agreement and as a result the shares of Condor common stock
will be converted into shares of common stock of Amwest.
C. A stockholder of Condor (the "Condor Stockholder") and
Amwest have entered into an agreement (the "Stockholder Agreement")
substantially in the form of Exhibit A to this Agreement by which the Condor
Stockholder has, among other things, consented to the Merger and agreed to vote
his shares in favor of the Merger.
ARTICLE I
THE MERGER
Section 1.01 The Merger
Upon the terms and subject to the satisfaction or, if
permissible, waiver of the conditions of this Agreement, at the Effective Time
(as defined in Section 1.02 hereof), Condor shall be merged with and into Amwest
in accordance with the applicable provisions of Delaware law and the separate
existence of Condor shall thereupon cease, and Amwest, which shall be and which
is hereinafter referred to as the "Surviving Corporation", shall continue its
corporate existence under the laws of the State of Delaware under the name
"Amwest Insurance Group, Inc." From and after the Effective Time, Amwest shall
possess all of the rights, privileges, powers and franchises of a public as well
as of a private nature, and be subject to all the restrictions, disabilities and
duties of each of the constituent corporations, all as set forth in Section 259
of the General Corporation Law of the State of Delaware (the "DGCL").
Section 1.02 Effective Time
On the date of the closing of the Merger referred to in
Section 6.01 hereof, a Certificate of Merger in such form as required by, and
executed in accordance with, the relevant provisions of the DGCL shall be filed
with the Secretary of State of Delaware. The Merger shall become effective at
the date and time specified in such filing, and the date and time of such filing
is hereinafter referred to as the "Effective Time."
Section 1.03 Certificate of Incorporation and Bylaws of
the Surviving Corporation
The Certificate of Incorporation and Bylaws of Amwest, as in
effect immediately prior to the Effective Time, shall be the Certificate of
Incorporation and Bylaws of the Surviving Corporation until thereafter changed
or amended as provided therein or by law.
Section 1.04 Board of Directors and Officers
The directors and officers of Amwest immediately prior to the
Effective Time shall be the directors and officers of the Surviving Corporation,
each of such directors and officers to hold office, subject to the applicable
provisions of the Certificate of Incorporation and Bylaws of the Surviving
Corporation, until their successors are duly elected and qualified, or their
earlier death, resignation or removal.
Section 1.05 Conversion of Shares
At the Effective Time, by virtue of the Merger and without any
action on the part of the holder thereof and subject to the conditions set forth
in Sections 7.02(i) and 7.03(h):
(a)......each share of Common Stock, par value $.01 per share,
of Condor (collectively, the "Condor Common Stock") then owned by Amwest or any
direct or indirect subsidiary of Amwest and each share of Condor Common Stock
then held in the treasury of Condor shall be canceled, and no payment shall be
made nor other consideration paid with respect thereto;
(b)......each then remaining outstanding share of Condor
Common Stock shall be converted into the right to receive 0.5 of a share
(subject to adjustment pursuant to Section 1.05(c) below, the "Conversion
Number") of common stock, par value $.01 per share, of Amwest (the "Amwest
Common Stock") (the shares of Amwest Common Stock into which each share of
Condor Common Stock is converted shall be referred to herein as the "Merger
Consideration"); and
(c)......(i) if the average daily Closing Price per share (as
defined in Section 2.01(a) below) of Amwest Common Stock as reported on the
American Stock Exchange ("ASE") for the 30 consecutive trading days ending on
the close of trading on the second trading day preceding the Closing Date (the
"Base Period Trading Price") is less than $12.50, the Merger Consideration per
share of Condor Common Stock shall be increased by a factor of 12.5 divided by
the Base Period Trading Price and (ii) if the Base Period Trading Price is
greater than $17.50, the Merger Consideration per Share shall be decreased by a
factor of 17.5 divided by the Base Period Trading Price.
Section 1.06 Surrender of Certificates; Payment for and
Exchange of Shares
(a)......As of the Effective Time, Amwest shall deposit with
American Stock Transfer & Trust Company, or another bank or trust company
designated by Amwest and reasonably acceptable to Condor (the "Exchange Agent"),
for the benefit of the holders of Condor Common Stock, for exchange in
accordance with this Article I, through the Exchange Agent: (i) certificates
representing the appropriate number of shares of Amwest Common Stock and (ii)
cash to be paid in lieu of fractional shares of Amwest Common Stock (such shares
of Amwest Common Stock and such cash are hereinafter referred to as the
"Exchange Fund") issuable pursuant to Section 1.06(f) in exchange for
outstanding Condor Common Stock.
(b)......As soon as reasonably practicable after the Effective
Time, the Exchange Agent shall mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding Condor Common Stock (the "Certificates") whose shares were converted
into the right to receive shares of Amwest Common Stock pursuant to Section
1.05: (i) a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Exchange Agent and shall be in such form and
have such other provisions as Amwest and Condor may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for certificates representing shares of Amwest Common Stock. Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by Amwest, together with such letter of transmittal,
duly executed, the holder of such Certificate shall be entitled to receive in
exchange therefor a certificate representing that number of whole shares of
Amwest Common Stock and, if applicable, a check representing the cash
consideration to which such holder may be entitled on account of a fractional
share of Amwest Common Stock, which such holder has the right to receive
pursuant to the provisions of this Article I, and the Certificate so surrendered
shall forthwith be canceled. In the event of a transfer of ownership of Condor
Common Stock which is not registered in the transfer records of Condor, a
certificate representing the proper number of shares of Amwest Common Stock,
together with a check, if applicable, for cash payable in lieu of a fractional
share, will be issued to a transferee if the Certificate representing such
Condor Common Stock is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 1.06, each Certificate shall be deemed at any time
after the Effective Time to represent only the right to receive upon such
surrender the certificate representing shares of Amwest Common Stock and cash in
lieu of any fractional shares of Amwest Common Stock as contemplated by this
Section 1.06.
(c)......No dividends or other distributions declared or made
after the Effective Time with respect to Amwest Common Stock with a record date
after the Effective Time shall be paid to the holder of any unsurrendered
Certificate with respect to the shares of Amwest Common Stock represented
thereby and no cash payment in lieu of fractional shares shall be paid to any
such holder pursuant to Section 1.06(f) until the holder of record (or a valid
transferee) of such Certificate shall surrender such Certificate. Subject to the
effect of applicable laws, following surrender of any such Certificate, there
shall be paid to the record holder of the certificates representing whole shares
of Amwest Common Stock issued in exchange therefor, without interest, (i) at the
time of such surrender, the amount of any cash payable in lieu of a fractional
share of Amwest Common Stock to which such holder is entitled pursuant to
Section 1.06(f) and the amount of dividends or other distributions with a record
date after the Effective Time theretofore paid with respect to such whole shares
of Amwest Common Stock, and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective Time but
prior to surrender and a payment date subsequent to surrender payable with
respect to such whole shares of Amwest Common Stock.
(d)......In the event that any certificate for Condor Common
Stock shall have been lost, stolen or destroyed, the Exchange Agent shall issue
in exchange therefor, upon the making of an affidavit of that fact by the holder
thereof such shares of Amwest Common Stock and cash in lieu of fractional
shares, if any, as may be required pursuant to this Agreement provided, however,
that Amwest may, in its discretion, require the delivery of a suitable bond or
indemnity.
(e)......All shares of Amwest Common Stock issued upon the
surrender for exchange of Condor Common Stock in accordance with the terms
hereof (including any cash paid pursuant to Section 1.06(c) or 1.06(f)) shall be
deemed to have been issued in full satisfaction of all rights pertaining to such
Condor Common Stock, subject, however, to the Surviving Corporation's obligation
to pay any dividends or make any other distributions with a record date prior to
the Effective Time which may have been declared or made by Condor on such Condor
Common Stock in accordance with the terms of this Agreement or prior to the date
hereof and which remain unpaid at the Effective Time, and there shall be no
further registration of transfers on the stock transfer books of the Surviving
Corporation of the Condor Common Stock which were outstanding immediately prior
to the Effective Time. If, after the Effective Time, Certificates are presented
to the Surviving Corporation for any reason, they shall be canceled and
exchanged as provided in this Article I.
(f)......No fractions of a share of Amwest Common Stock shall
be issued in the Merger, but in lieu thereof each holder of Condor Common Stock
otherwise entitled to a fraction of a share of Amwest Common Stock shall, upon
surrender of his or her certificate or certificates, be entitled to receive an
amount of cash (without interest) determined by multiplying the Base Period
Trading Price by the fractional share interest to which such holder would
otherwise be entitled. The parties acknowledge that payment of the cash
consideration in lieu of issuing fractional shares was not separately bargained
for consideration but merely represents a mechanical rounding off for purposes
of simplifying the corporate and accounting problems which would otherwise be
caused by the issuance of fractional shares.
(g)......Any portion of the Exchange Fund which remains
undistributed to the stockholders of Condor for six months after the Effective
Time shall be delivered to Amwest, upon demand, and any stockholders of Condor
who have not theretofore complied with this Article I shall thereafter look only
to Amwest for payment of their claim for Amwest Common Stock, as the case may
be, any cash in lieu of fractional shares of Amwest Common Stock and any
dividends or distributions with respect to Amwest Common Stock.
(h)......Neither Amwest nor Condor shall be liable to any
holder of Condor Common Stock, or Amwest Common Stock, as the case may be, for
such shares (or dividends or distributions with respect thereto) or cash from
the Exchange Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
ARTICLE II
RELATED MATTERS
Section 2.01 Treatment of Stock Options
(a)......At or immediately prior to the Effective Time, each
holder of a then outstanding option to purchase shares of Condor Common Stock,
other than those options held by non-employee directors of Condor, (whether or
not then currently exercisable) granted by Condor ("Condor Stock Option") as set
forth in Section 2.01 of the Condor Disclosure Schedule to this Agreement
executed by Condor and delivered simultaneously herewith (the "Condor Disclosure
Schedule") shall be canceled and, in lieu thereof, Amwest shall issue to each
holder thereof an option ("Amwest Option"), to acquire, on substantially the
same terms and subject to substantially the same conditions as were applicable
under such Condor Stock Option, the same number of shares of Amwest Common Stock
as the holder of such Condor Stock Option would have been entitled to receive
pursuant to the Merger had such holder exercised such option in full immediately
prior to the Effective Time, at a price per share equal to (y) the per share
exercise price for the shares of Condor Common Stock otherwise purchasable
pursuant to such Condor Stock Option divided by (z) .5 as appropriately adjusted
pursuant to subsection (c) of Section 1.05; provided, however, that the number
of shares of Amwest Common Stock that may be purchased upon exercise of any
Amwest Option shall not include any fractional share and, upon exercise of the
Amwest Option, a cash payment shall be made for any fractional share based upon
the Closing Price (as hereinafter defined) of a share of Amwest Common Stock on
the trading day immediately preceding the date of exercise. "Closing Price"
shall mean, on any day, the last reported sale price for one share of Amwest
Common Stock on the ASE. Condor Stock Options issued to non-employee directors
of Condor which remain outstanding as of the Effective Time shall be
automatically canceled as of the Effective Time.
(b)......Amwest shall take all corporate action necessary to
reserve for issuance a sufficient number of shares of Amwest Common Stock for
delivery upon exercise of Amwest Options assumed in accordance with this Section
2.01. As soon as practicable after the Effective Time, Amwest shall file a
registration statement on Form S-3 or Form S-8, as the case may be (or any
successor or other appropriate forms), or another appropriate form with respect
to the shares of Amwest Common Stock subject to such options and shall use its
best efforts to maintain the effectiveness of such registration statement or
registration statements (and maintain the current status of the prospectus or
prospectuses contained therein) for so long as such options remain outstanding.
Section 2.02 Stockholder Approval
(a)......(i) As promptly as practicable, Amwest will cause a
meeting of its stockholders to be duly called and will give notice of, convene
and hold such meeting as soon as practicable for the purpose of obtaining
approval of the Merger. The stockholder vote required for such approvals will be
no greater than that required by the applicable requirements of the DGCL and the
applicable rules of the ASE and the applicable requirements of Amwest's
Certificate of Incorporation and Bylaws. Amwest will solicit such approvals by
its stockholders and recommend that its stockholders vote in favor of such
approvals.
(ii) As promptly as practicable, Condor will cause a
meeting of its stockholders to be duly called and will give notice of, convene
and hold such meeting as soon as practicable for the purpose of obtaining
approval of the Merger. The stockholder vote required for such approvals will be
no greater than that required by the applicable requirements of the DGCL and the
applicable rules of the National Association of Securities Dealers ("NASD") and
the applicable requirements of Condor's Certificate of Incorporation and Bylaws.
Condor will solicit such approvals by its stockholders and recommend that its
stockholders vote in favor of such approvals.
(b)......In connection with any solicitations of approval of
the Merger by Amwest's and Condor's stockholders, Amwest and Condor will each
file with the Securities and Exchange Commission (the "Commission" or the "SEC")
under the Securities Exchange Act of 1934 (the "Exchange Act"), and will use all
reasonable efforts to have cleared by the Commission, and promptly thereafter
will mail to its respective stockholders proxy solicitation materials (including
a proxy statement and appropriate related forms of proxies) with respect to such
meeting. Except as provided in Section 9.12(b), such proxy statement of Amwest
will also constitute a prospectus of Amwest with respect to the shares of Amwest
Common Stock to be issued in the Merger and will be a part of a registration
statement filed by Amwest with the Commission for purposes of registering the
public offering of such shares under the Securities Act of 1933 (the "Securities
Act"). Amwest will promptly so file such registration statement and will use all
reasonable efforts to have it declared effective by the Commission. The term
"Proxy Materials" shall mean such proxy statement together with the related
forms of proxies and other proxy solicitation materials at the time initially
mailed to stockholders and all amendments or supplements thereto, if any,
similarly filed and mailed. The term "Registration Statement" shall mean the
registration statement of Amwest containing, as a part thereof, a prospectus in
the form of such proxy statement of Amwest, at the time it is declared effective
by the Commission.
(c)......The information provided and to be provided by Amwest
and Condor for use in the Registration Statement and the Proxy Materials will
not, in the case of the Registration Statement, on the date the Registration
Statement becomes effective and, in the case of the Proxy Materials, on the
respective dates on which either (i) the Proxy Materials are mailed to
stockholders of Amwest or Condor, as the case may be, or (ii) approval of the
Merger by Amwest's or Condor's stockholders, as the case may be, is obtained,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Amwest and Condor agree promptly to correct any such information
which shall have become false or misleading in any material respect and take all
steps necessary to file with the Commission and have declared effective or
cleared by the Commission any amendment or supplement to the Registration
Statement or the Proxy Materials so as to correct the same and to cause the
Proxy Materials as so corrected to be disseminated to their respective
stockholders, in each case as to the extent required by applicable law. The
Registration Statement and the Proxy Materials will comply as to form in all
material respects with the provisions of the Securities Act and the Exchange Act
and other applicable law and will contain the recommendation of the Board of
Directors of Amwest and of Condor that Amwest's and Condor's stockholders vote
in favor of or consent to such approvals.
Section 2.03 Other Securities Matters
Amwest shall promptly prepare and file with respect to the
shares of Amwest Common Stock to be issued in the Merger any action required to
be taken under state blue sky or securities laws in connection with the issuance
of shares of Amwest Common Stock in the Merger and Condor shall furnish Amwest
with all information and shall take such other action as Amwest may reasonably
request in connection with any such action.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CONDOR
Condor represents and warrants to Amwest as follows:
Section 3.01 Corporate Organization
Condor is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, with all requisite
corporate power and authority to own, operate and lease its properties and to
carry on its business as now being conducted, and is duly qualified or licensed
to do business and is in good standing in each jurisdiction in which its
ownership or leasing of property or conduct of business requires such licensing
or qualification, except where the failure to be so qualified would not have a
Material Adverse Effect (as defined below) on Condor. Condor has delivered to
Amwest complete and correct copies of its Certificate of Incorporation and
Bylaws as in effect on the date hereof. "Material Adverse Effect" means any
change or effect (i) that is or is reasonably likely to be materially adverse to
the properties, business, results of operations, condition (financial or
otherwise) or prospects of Condor or Amwest or both taken together, as the case
may be, and any Affiliated Entity (as defined in Section 3.04 hereof), taken as
a whole, other than any change or effect arising out of general economic
conditions unrelated to any businesses in which such party is engaged or (ii)
that may impair the ability of such party to consummate the transactions
contemplated hereby.
Section 3.02 Authorization
Condor has the requisite corporate power and authority to
enter into this Agreement and to carry out its obligations hereunder. The
execution and delivery by Condor of this Agreement, the performance by Condor of
its obligations hereunder and the consummation by Condor of the transactions
contemplated hereby have been duly authorized by Condor's Board of Directors
and, except for the approval of the stockholders of Condor Common Stock, no
other corporate proceeding on the part of Condor is necessary for the execution
and delivery thereof, and this Agreement is a legal, valid and binding
obligation of Condor, enforceable against it in accordance with its terms.
Section 3.03 Capitalization
The authorized capital stock of Condor and the ownership
thereof as well as the number of issued and outstanding shares of each class of
capital stock of Condor is as set forth in Section 3.03 of the Condor Disclosure
Schedule. All of such outstanding shares have been duly and validly issued, were
not issued in violation of any preemptive rights and are fully paid and
non-assessable with no personal liability attaching to the ownership thereof.
Except as set forth on Section 3.03 of the Condor Disclosure Schedule, there are
no options, warrants, subscriptions, conversion or other rights, agreements,
commitments, arrangements or understandings with respect to (i) the issuance of
shares of capital stock of Condor or any other securities convertible into,
exchangeable for or evidencing the right to subscribe for any such shares, (ii)
obligating Condor to purchase shares of Condor Common Stock or any security
convertible into Condor Common Stock or (iii) obligating any of Condor
stockholders to purchase, sell or transfer any Condor Common Stock. Section 3.03
of the Condor Disclosure Schedule lists all stock options granted by Condor,
true and correct copies of which have been provided by Condor to Amwest.
Section 3.04 Affiliated Entities
(a)......Except as set forth in Section 3.04(a) of the Condor
Disclosure Schedule, Condor has no direct or indirect "Affiliated Entities"
(which term includes each direct or indirect subsidiary of Condor or Amwest, as
the case may be, and each business entity in which Condor or Amwest, as the case
may be, has any direct or indirect interest and for which it accounts on the
equity method of accounting). Each Affiliated Entity of Condor listed on Section
3.04(a) of Condor Disclosure Schedule is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, with all requisite corporate power and authority to own, operate
and lease its properties and to carry on its business as now being conducted,
and is duly qualified or licensed to do business and is in good standing in each
jurisdiction in which its ownership or leasing of property or conduct of
business requires such qualification or licensing, except where the failure to
be so qualified would not have a Material Adverse Effect on Condor. Condor has
delivered to Amwest complete and correct copies of the Articles or Certificate
of Incorporation and Bylaws of each such Affiliated Entity as in effect on the
date hereof.
(b)......Except as set forth in Section 3.04(b) of the Condor
Disclosure Schedule, Condor is, directly or indirectly, the record and
beneficial owner of all of the outstanding shares of capital stock of each of
its Affiliated Entities, and all of the outstanding shares of capital stock of
each such Affiliated Entity are duly and validly issued, were not issued in
violation of any preemptive rights, are fully paid and non-assessable and are
owned free and clear of any claim, lien, encumbrance or agreement with respect
thereto. Except as and to the extent set forth in Section 3.04(b) of the Condor
Disclosure Schedule, there are not any options, warrants, subscriptions,
conversion or other rights, agreements, or commitments, arrangements or
understandings with respect to the issuance of capital stock of any Affiliated
Entity of Condor or any other securities convertible into, exchangeable for or
evidencing the right to subscribe for any such shares.
(c)......Except as set forth in Section 3.04(c) of the Condor
Disclosure Schedule, Condor does not own, directly or indirectly, any capital
stock or other equity securities of any corporation, limited liability company
or limited partnership, other than of its Affiliated Entities, does not have any
direct or indirect equity or ownership interest in any other business or entity,
and does not have any direct or indirect obligation or any commitment to invest
any funds in any corporation or other business or entity other than investments
previously made in its Affiliated Entities.
Section 3.05 Financial Statements
Since January 1, 1994, Condor has filed with the SEC all
reports, registration statements and all other filings required to be filed with
the SEC under the rules and regulations of the SEC (collectively, the "Required
Condor Reports"), all of which, as of their respective effective dates, complied
in all material respects with all applicable requirements of the Securities Act
and the Exchange Act. Condor has delivered to Amwest true and complete copies of
(i) Condor's Annual Report on Form 10-K for the fiscal year ended December 31,
1994, as filed with the SEC, (ii) Quarterly Reports on Form 10-Q for the three
months ended March 31, 1995, June 30, 1995 and September 30, 1995, as filed with
the SEC, (iii) proxy statements relating to all meetings of Condor's
stockholders (whether annual or special) held or scheduled to be held since
January 1, 1994, (iv) all other forms, reports, statements and documents filed
by Condor with the SEC since January 1, 1994 and (v) all reports, statements and
other information provided by Condor to its stockholders since January 1, 1994
(collectively, the "Condor SEC Filings"). Except as set forth in Section 3.05 of
the Condor Disclosure Schedule, as of their respective dates, none of the
Required Condor Reports or Condor SEC Filings contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Except as set forth in
Section 3.05 of the Condor Disclosure Schedule, the consolidated financial
statements of Condor included or incorporated by reference in the Condor SEC
Filings were prepared in accordance with generally accepted accounting
principles applied on a consistent basis ("GAAP") (except as otherwise stated in
such financial statements or, in the case of audited statements, the related
report thereon of independent certified public accountants), and present fairly
the financial position and results of operations, cash flows and changes in
stockholders' equity of Condor and its consolidated Affiliated Entities as of
the dates and for the periods indicated, subject, in the case of unaudited
interim financial statements, to the absence of notes and to normal year-end
adjustments, and are consistent with the books and records of Condor.
Section 3.06 Absence of Certain Changes or Events
Except as set forth in Condor SEC Filings or in Section 3.06
of the Condor Disclosure Schedule, since December 31, 1994, Condor and its
Affiliated Entities have conducted their respective businesses only in the
ordinary and usual course and there has not been any event, change or
development which has had or will have a Material Adverse Effect on Condor.
Section 3.07 Consents and Approvals; No Violation
There is no requirement applicable to Condor or any of its
Affiliated Entities to make any filing with, or to obtain any permit,
authorization, consent or approval of, any governmental or regulatory authority
as a condition to the lawful consummation of the transactions contemplated by
this Agreement, other than (i) requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act"), (ii) requirements of the California
Insurance Code (the "Insurance Code"), (iii) filings with the SEC pursuant to
the Securities Act and the Exchange Act, (iv) such filings and approvals as may
be required under the "blue sky," takeover or securities laws of various states,
(v) compliance with the requirements of the NASD, or (vi) where the failure to
make any such filing, or to obtain such permit, authorization, consent or
approval, would not prevent or delay consummation of the Merger or would not
otherwise prevent Condor from performing its obligations under this Agreement.
Except as set forth in Section 3.07 of the Condor Disclosure Schedule, neither
the execution and delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, will (a) result in the acceleration of, or the
creation in any party of any right to accelerate, terminate, modify or cancel
any indenture, contract, lease, sublease, loan agreement, note or other
obligation or liability to which Condor or any Affiliated Entity is a party or
by which any of them is bound or to which any of their assets is subject, except
as would not have a Material Adverse Effect on Condor, (b) conflict with or
result in a breach of or constitute a default under any provision of the
Certificate of Incorporation or Bylaws (or other charter documents) of Condor or
any Affiliated Entity, or, except as would not have a Material Adverse Effect on
Condor, a default under or violation of any restriction, lien, encumbrance,
indenture, contract, lease, sublease, loan agreement, note or other obligation
or liability to which any of them is a party or by which any of them is bound or
to which any of their assets is subject or result in the creation of any lien or
encumbrance upon any of said assets, or (c) violate or result in a breach of or
constitute a default under any judgment, order, decree, rule or regulation of
any court or governmental agency to which Condor or any Affiliated Entity is
subject.
Section 3.08 No Undisclosed Liabilities
Except as and to the extent set forth on the consolidated
balance sheet of Condor as of December 31, 1994, included in the Required Condor
Reports, neither Condor nor any Affiliated Entities had, at such date, any
liabilities or obligations (absolute, accrued, contingent or otherwise) greater
than $50,000, taken as a whole and since that date neither Condor nor any
Affiliated Entities has incurred any liabilities or obligations material to
Condor and Affiliated Entities taken as a whole except those incurred in the
ordinary and usual course of business and consistent with past practice or in
connection with or as a result of the transactions contemplated by this
Agreement to which Condor is or is to be a party.
Section 3.09 Taxes
(a)......For purposes of this Agreement: (i) the term "Taxes"
means (A) all federal, state, local, foreign and other net income, gross income,
gross receipts, sales, use, ad valorem, value added, intangible, unitary,
capital gain, transfer, franchise, profits, license, lease, service, service
use, withholding, backup withholding, payroll, employment, estimated, excise,
severance, stamp, occupation, premium, property, prohibited transactions,
windfall or excess profits, customs, duties or other taxes, fees, assessments or
charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts with respect thereto, (B) any liability
for payment of amounts described in clause (A) whether as a result of transferee
liability, of being a member of an affiliated, consolidated, combined or unitary
group for any period, or otherwise through operation of law and (C) any
liability for the payment of amounts described in clauses (A) or (B) as a result
of any tax sharing, tax indemnity or tax allocation agreement or any other
express or implied agreement to indemnify any other person; and the term "Tax"
means any one of the foregoing Taxes; and (ii) the term "Returns" means all
returns, declarations, reports, statements and other documents required to be
filed in respect of Taxes; and the term "Return" means any one of the foregoing
Returns.
(b)......Section 3.09 of the Condor Disclosure Schedule sets
forth: (i) the taxable years of Condor and Tax Affiliates as to which the
respective statutes of limitations on the assessment of United States federal
income and any applicable state, local or foreign income, franchise and premium
Taxes have not expired, and (ii) with respect to such taxable years sets forth
those years for which examinations by the Internal Revenue Service or the state,
local or foreign taxing authority have been completed, those years for which
examinations by such agencies are presently being conducted, those years for
which notice of pending or threatened examination or adjustment has been
received, those years for which examinations by such agencies have not been
initiated, and those years for which required Returns for such Taxes have not
yet been filed. Except to the extent indicated in Section 3.09 of the Condor
Disclosure Schedule, all deficiencies asserted or assessments made as a result
of any examinations by the Internal Revenue Service or state, local or foreign
taxing authority have been fully paid, or are fully reflected as a liability in
the Required Condor Reports, or are set forth in Section 3.09 of the Condor
Disclosure Schedule, are being contested and an adequate reserve therefor has
been established and is fully reflected in the Required Condor Reports to the
extent required by GAAP. Section 3.09 of the Condor Disclosure Schedule sets
forth all Returns not otherwise described above that are presently under
examination with respect to Taxes and all assessments and deficiencies with
respect to the Returns that are presently being contested by Condor and Tax
Affiliates.
(c)......Condor represents and warrants to Amwest that, except
as described in Section 3.09 of the Condor Disclosure Schedule:
(i) Condor, its Affiliated Entities and every member of a consolidated,
combined,unitary, or other similar group for federal, state or local income tax
purposes(for the period during which Condor or Amwest, as the case may be, or
any of such Affiliated Entities were included in that group) (all such
Affiliated Entities and other entities collectively referred to herein
as "Tax Affiliates"), have filed on a timely basis all Returns required to
have been filed by it and have paid on a timely basis all Taxes shown thereon
as due. All such Returns are true, complete and correct in all material
respects. The provisions for taxes in the Required Condor Reports set forth
in all material respects the maximum liability of Condor and the Affiliated
Entities for Taxes relating to periods covered thereby. No liability for Taxes
has been incurred by Condor and the Affiliated Entities since the dates of
the Required Condor Reports other than in the ordinary course of their
business. No director, officer or employee of Condor or any of the
Affiliated Entities having responsibility for Tax matters has reason to
believe that any Taxing authority has valid grounds to claim or assess any
material additional Tax with respect to Condor or the Tax Affiliates in excess
of the amounts shown on the Required Condor Reports for the periods covered
thereby.
(ii) With respect to all amounts in respect of Taxes imposed upon Condor or
Tax Affiliates, or for which Condor or Tax Affiliates are or could be liable,
whether to taxing authorities (as, for example, under law) or to other persons
or entities (as, for example, under tax allocation agreements), and with respect
to all taxable periods or portions of periods ending on or before the Effective
Time, all applicable Tax laws and agreements have been fully complied with, and
all such amounts required to be paid by Condor and Tax Affiliates to taxing
authorities or others have been paid, in all material respects.
(iii) None of the Returns required to be filed by Condor and Tax Affiliates
contains, or were required to contain (in order to avoid the imposition of a
penalty), a disclosure statement under Section 6662 (or any predecessor
provision) of the Internal Revenue Code of 1986, as amended (the "Code"), or any
similar provision of state, local or foreign law;
(iv) Neither Condor nor any Tax Affiliate has received notice that the
Internal Revenue Service ("IRS") or any other taxing authority has asserted
against Condor or such Tax Affiliate any deficiency or claim for additional
Taxes in connection with any Return, and no issues have been raised (and are
currently pending) by any taxing authority in connection with any Return.
Neither Condor nor any Tax Affiliate has received notice that it is or may be
subject to Tax in a jurisdiction in which it has not filed or does not currently
file Returns;
(v) There is no pending or, to Condor's Knowledge, threatened action, audit,
proceeding, or investigation with respect to (i) the assessment or collection of
Taxes or (ii) a claim for refund made, of or by Condor and Tax Affiliates with
respect to Taxes;
(vi) All Tax deficiencies asserted or assessed against Condor and Tax
Affiliates have been paid or finally settled with no further amounts owed;
(vii) All amounts that were required to be collected or withheld by Condor and
Tax Affiliates have been duly collected or withheld in all material respects,
and all such amounts that were required to be remitted to any taxing authority
have been duly remitted in all material respects;
(viii) Condor and Tax Affiliates have not requested an extension of time to file
any Return not yet filed, and have not granted any waiver of any statute of
limitations with respect to, or any extension of a period for the assessment of,
any Tax. No power of attorney granted by Condor or Tax Affiliates with respect
to Taxes is in force;
(ix) Condor and Tax Affiliates have not taken any action not in accordance
with past practice that would have the effect of deferring any material Tax
liability of Condor or any Tax Affiliate from any taxable period ending on or
before or including the Effective Time to any subsequent taxable period;
(x) Other than the Affiliated Entities, Condor has had no Tax Affiliates
during any period with respect to which the applicable statue of limitations on
the assessment of Taxes remains open;
(xi) Condor was not acquired in a "qualified stock purchase" under Section
338(d)(3) of the Code and no elections under Section 338(g) of the Code,
protective carryover basis elections, offset prohibition elections or similar
election are applicable to Condor or any Tax Affiliate;
(xii) Neither Condor nor any Tax Affiliate is required to include in income any
adjustment pursuant to Sections 481 or 263A of the Code (or similar provisions
of other law or regulations) by reason of a change in accounting method or
otherwise, following the Effective Time, and Condor has no Knowledge that the
IRS (or other taxing authority) has proposed, or is considering, any such change
in accounting method or other adjustment;
(xiii) There are no liens for Taxes (other than for current Taxes not yet due
and payable) upon the assets of Condor or the Affiliated Entities;
(xiv) Neither Condor nor any of the Affiliated Entities are party to any
agreement, contract, arrangement or plan that has resulted or would result,
separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of Section 280G of the Code, whether by reason of
the Merger or otherwise;
(xv) Neither Condor nor any Affiliated Entity is, and has not been, a United
States real property holding corporation (as defined in Section 897(c)(2) of the
Code) during the applicable period specified in Section 897(c)(1)(A)(ii) of the
Code (or any corresponding provision of state, local or foreign Tax law);
(xvi) Neither Condor nor any of the Affiliated Entities has or has had a
permanent establishment in any foreign country, as defined in any applicable Tax
treaty or convention between the United States of America and such foreign
country and neither Condor nor any of the Affiliated Entities has engaged in a
trade or business within any foreign country;
(xvii) Condor and the Affiliated Entities are not party to any joint venture,
partnership, or other arrangement or contract which could be treated as a
partnership for federal income tax purposes;
(xviii)Neither Condor nor any of the Affiliated Entities has not made a "waters
edge election" pursuant to California Revenue and Taxation Code Section 25110;
(xix) There are no excess loss accounts, deferred intercompany gains or losses,
or intercompany items, as such terms are defined in the Treasury Regulations,
that will be required to be recognized or otherwise taken into account as a
result of the acquisition of the Condor Common Stock pursuant to this Agreement;
(xx) Neither Condor nor any of the Affiliated Entities has filed a consent
under Section 341(f) of the Code (or any corresponding provision of state, local
or foreign Tax law); and
(xxi) Neither Condor nor any of the Affiliated Entities is a party to or bound
by any Tax sharing agreement nor has any current or contingent contractual
obligation to indemnify any other person with respect to Taxes, other than
obligations to indemnify a lessor for property Taxes, sales/use Taxes or gross
receipts Taxes (but not income, franchise or premium Taxes) imposed on lease
payments arising from terms that are customary for leases of similar property.
Section 3.10 Insurance: Licenses, Permits and Filings
Condor is duly organized and registered as a California
insurance holding company, and each Affiliated Entity which engages in an
insurance business ("Insurance Subsidiary") is duly organized and licensed as an
insurance company in California and is duly licensed or authorized as an insurer
or reinsurer in any other jurisdiction where it is required to be so licensed or
authorized to conduct its business, or is subject to no liability or disability
that would have a Material Adverse Effect by reason of the failure to be so
licensed or authorized in any such jurisdiction. Since January 1, 1994, Condor
has made all required filings under applicable insurance holding company
statutes. Each of Condor and its Insurance Subsidiaries has all other necessary
authorizations, approvals, orders, consents, certificates, permits,
registrations or qualifications of and from the California Department of
Insurance (the "Department") and any other applicable insurance regulatory
authorities (the "Insurance Licenses") to conduct their businesses as currently
conducted and all such Insurance Licenses are valid and in full force and
effect, except such Insurance Licenses which the failure to have or to be in
full force and effect individually or in the aggregate would not have a Material
Adverse Effect. Section 3.10 of the Condor Disclosure Schedule lists each order
and written understanding or agreement of or with the Department currently in
effect and applicable to Condor or any of its Insurance Subsidiaries. Neither
Condor nor any Affiliated Entity has received any notification (which
notification has not been withdrawn or otherwise resolved prior to the date of
this agreement) from the Department or any other insurance regulatory authority
to the effect that any additional Insurance License from such insurance
regulatory authority is needed to be obtained by Condor or any Affiliated Entity
in any case where it could be reasonably expected that (x) Condor or any
Affiliated Entity would in fact be required either to obtain any such additional
Insurance License, or cease or otherwise limit writing certain business and (y)
obtaining such Insurance License or the limiting of such business would have a
Material Adverse Effect. Each Insurance Subsidiary is in compliance with the
requirements of the insurance laws and regulations of California and the
insurance laws and regulations of any other jurisdiction which are applicable to
such Insurance Subsidiary, and has filed all notices, reports, documents or
other information required to be filed thereunder or in any such case is subject
to no Material Adverse Effect by reason of the failure to so comply or file.
Section 3.11 Patents, Trademarks, and Other
Intellectual Property
Except as set forth in Section 3.11 of the Condor Disclosure
Schedule, Condor and its Affiliated Entities possess or have the right to use to
the extent they are now using, all proprietary rights (including, without
limitation, patents, trade secrets, technology, know-how, copyrights,
trademarks, tradenames, and rights to any of the foregoing), the failure to
possess which would have a Material Adverse Effect on Condor or would prevent
Condor from carrying on its business and completing the development of new
products as currently contemplated ("Proprietary Rights"), and the consummation
of the transactions contemplated hereby will not alter or impair any such
rights. Set forth in Section 3.11 the of Condor Disclosure Schedule is a list of
all Proprietary Rights consisting of patents, patent applications, trademarks,
trademark applications, trade names and service marks owned or utilized by
Condor or its Affiliated Entities. Section 3.11 of the Condor Disclosure
Schedule also lists all licenses or other contracts related to Propriety Rights,
other than those entered into in the ordinary course. With respect to such
Proprietary Rights, and except as set forth in Section 3.11 of the Condor
Disclosure Schedule, (i) Condor has no Knowledge of any claim asserted by any
person challenging such Proprietary Rights which could have a Material Adverse
Effect on the business of Condor and its Affiliated Entities, (ii) to the
Knowledge of Condor, none of the aforesaid infringes or otherwise violates the
rights of others or is being infringed by others, and (iii) except for sales and
licenses in the ordinary course of business, no licenses, sublicenses or
agreements pertaining to any of the aforesaid have been granted by Condor or any
Affiliated Entity.
Section 3.12 Litigation
Except as set forth in Section 3.12 of the Condor Disclosure
Schedule, there is no Proceeding (as defined below) pending or, to the Knowledge
of Condor, threatened against or involving Condor or any of its Affiliated
Entities or any of their respective properties, assets, rights or obligations
before any court, arbitrator or administrative or governmental body, nor is
there any judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or arbitrator outstanding
against Condor or any of its Affiliated Entities involving sums in excess of
$75,000. Neither Condor nor any of its Affiliated Entities is in violation of
any term of any judgment, decree, injunction or order outstanding against it.
There are no Proceedings pending or, to the Knowledge of Condor, threatened
against Condor or any of its Affiliated Entities arising out of or in any way
related to this Agreement or any of the transactions contemplated hereby. As
used in this Agreement, "Proceeding" means any action, suit, hearing,
arbitration or governmental investigation (whether public or private). None of
the Proceedings set forth in Section 3.12 of the Condor Disclosure Schedule
could result in any Material Adverse Effect.
Section 3.13 Insurance
All material policies of fire, liability, workmen's
compensation and other similar forms of insurance owned or held by Condor and
each Affiliated Entity are in full force and effect, and no notice of
cancellation or termination has been received with respect to any such policy.
Such policies are valid, outstanding and enforceable policies, and will not in
any way be affected by, or terminate or lapse by reason of, the transactions
contemplated by this Agreement. Such policies, together with the self-insurance
reserves, if any, reflected on the most recent Condor SEC Filings, and such
other policies and reserves added since such date, provide, to the Knowledge of
Condor, insurance coverage that is adequate for the assets and operations of
Condor. Since January 1, 1994, Condor and its Affiliated Entities have been
covered by insurance in scope and amount customary and reasonable for business
in which it has engaged during such period.
Section 3.14 Compliance with Laws
Condor and each Affiliated Entity have complied in all
material respects with the laws and regulations of federal, state, local and
foreign governments and all agencies thereof which are applicable to the
business or properties of Condor or any Affiliated Entity, a violation of which
would result in a Material Adverse Effect on Condor. Except for all licenses,
permits, consents, authorizations and orders contained in Section 3.10, Condor
holds such licenses, permits, consents, authorizations and orders of such
governmental or regulatory authorities as are necessary to carry on its business
as currently being conducted and as anticipated to be conducted, the failure to
hold which could have a Material Adverse Effect on Condor, and such licenses,
permits, consents, authorizations and orders are in full force and effect and
have been and are being fully complied with by Condor.
Section 3.15 Employee Benefit Plans
(a)......Except as set forth in Section 3.15(a) to the Condor
Disclosure Schedule, (i) neither Condor nor any entity that together with Condor
is treated as a single employer pursuant to Section 414(b) or (c) of the Code or
Section 3(5) or 4001(b) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") (an "ERISA Affiliate"), maintains or in the past has
maintained any Employee Benefit Plan, as defined in ERISA, under which Condor or
any of its Affiliated Entities has any present or future obligation or liability
or under which any present or former employee of Condor or its Affiliated
Entities has any present or future rights to benefits, (ii) each Employee
Benefit Plan listed in Section 3.15(a) of the Condor Disclosure Schedule has
been administered in accordance with the applicable requirements of ERISA and
the Code, and in the case of any such Plan that is funded for purposes of ERISA
and the Code, has not incurred any federal income or excise tax liability which
would have a Material Adverse Effect on Condor, (iii) all material reports and
information required to be filed with the United States Department of Labor,
Internal Revenue Service or Pension Benefit Guaranty Corporation, or distributed
to participants and their beneficiaries with respect to each Employee Benefit
Plan listed in Section 3.15(a) of the Condor Disclosure Schedule, has been
timely filed or distributed and, with respect to each Employee Benefit Plan for
which an Annual Report has been filed, no change has occurred with respect to
the matters covered by the Annual Report since the date of the most recent such
Annual Report which could reasonably be expected to have a Material Adverse
Effect on Condor, and (iv) there have been no non-exempt "prohibited
transactions" (as that term is defined in the Code or in ERISA) with respect to
any Employee Benefit Plan listed in Section 3.15(a) of the Condor Disclosure
Schedule and no material penalty or tax under ERISA or the Code has been imposed
upon Condor or any of its Affiliated Entities and there are no pending or, to
Condor's Knowledge, threatened claims by or on behalf of any Employee Benefit
Plan listed in Section 3.15(a) of the Condor Disclosure Schedule, by any
employee or beneficiary covered by Employee Benefit Plan listed in Section
3.15(a) of the Condor Disclosure Schedule, or otherwise involving an Employee
Benefit Plan listed in Section 3.15(a) of the Condor Disclosure Schedule, other
than claims for benefits in the ordinary course and other than claims which
would not have a Material Adverse Effect on Condor.
(b)......Each Employee Benefit Plan listed in Section 3.15(a)
of the Condor Disclosure Schedule which is an "employee pension benefit plan,"
as defined in ERISA and which is intended to be "qualified" within the meaning
of Section 401(a) of the Code, is so qualified, and, except as set forth in
Section 3.15(b) of the Condor Disclosure Schedule, a favorable determination
letter has been issued by the Internal Revenue Service with respect to such plan
and no such plan has been amended since the issuance of the most recent
determination letter issued by the Internal Revenue Service with respect
thereto. No Employee Benefit Plan listed in Section 3.15(a) of the Condor
Disclosure Schedule is subject to Title IV of ERISA or Section 412 of the Code.
(c)......Condor or its Affiliated Entities has not maintained
or contributed to, or been obligated or required to contribute to, a
"multiemployer plan," as such term is defined in Section 3(37) of ERISA.
Section 3.16 Employment Related Agreements
Except as described in Section 3.03, 3.15 or 3.16 of the
Condor Disclosure Schedule, neither Condor nor any of its Affiliated Entities is
a party to any bonus, profit sharing, stock option, incentive, pension,
retirement, deferred compensation, consulting, severance, indemnification,
employment or similar arrangement or agreement with officers, directors or
employees of Condor or any of its Affiliated Entities ("Employment Related
Agreements").
Section 3.17 Labor Agreements and Controversies
Neither Condor nor any of its Affiliated Entities is a party
to any collective bargaining agreement nor are there any union representation
proceedings or labor controversies pending or, to the Knowledge of Condor,
threatened against Condor or any of its Affiliated Entities.
Section 3.18 Environmental Matters
(a)......Except as disclosed in Section 3.18 of the Condor
Disclosure Schedule, Condor is in full compliance with all laws, rules,
regulations, and other legal requirements relating to the prevention of
pollution and the protection of human health or the environment, including all
such legal requirements pertaining to human health and safety (collectively,
"Environmental Laws"), except for noncompliance that could not reasonably be
expected to have a Material Adverse Effect on Condor; and Condor possesses and
can transfer to Amwest all permits, licenses, and similar authorizations
required under Environmental Laws. Except as disclosed in Section 3.18 of the
Condor Disclosure Schedule, Condor or an Affiliated Entity has not received
written notice of, or, to the best Knowledge of Condor, is the subject of, any
action, cause of action, claim, investigation, demand or notice by any person or
entity alleging liability under or noncompliance with any Environmental Law (an
"Environmental Claim") that could reasonably be expected to have a Material
Adverse Effect on Condor; and to the best Knowledge of Condor, there are no
circumstances that are reasonably likely to prevent or interfere with such
material compliance in the future.
(b)......Except as disclosed in Section 3.18 of the Condor
Disclosure Schedule, there are no Environmental Claims which could reasonably be
expected to have a Material Adverse Effect on Condor or an Affiliated Entity
that are pending or, to the best Knowledge of Condor, threatened against Condor
or an Affiliated Entity or, to the best Knowledge of Condor, against any person
or entity whose liability for any Environmental Claim Condor or an Affiliated
Entity has or may have retained or assumed either contractually or by operation
of law.
Section 3.19 Certain Fees
Neither Condor, nor any of its Affiliated Entities nor any of
their directors, officers or stockholders has employed any broker or finder or
incurred any liability for any financial advisory, brokerage or finders' fees or
similar fees or commissions in connection with the transactions contemplated by
this Agreement.
Section 3.20 Disclosure
To the best of Condor's Knowledge, no representation or
warranty by Condor in this Agreement and no statement contained in any document,
certificate or other writing furnished or to be furnished by Condor to Amwest or
Amwest contains or will contain any untrue statement of a material fact or omits
or will omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
Section 3.21 Post-Retirement and Post-Employment
Benefit Obligations
All obligations associated with the benefits to be provided to
present and former employees after retirement or termination have been properly
recognized as liabilities on Condor's balance sheet at December 31, 1994 in
accordance with Financial Accounting Standards Board Statements No. 106 and 112.
Section 3.22 Registration Statement and Proxy Statement
None of the information with respect to Condor or any
affiliate or associate of Condor that has been supplied by Condor or any of its
accountants, counsel or other authorized representatives in writing (the "Condor
Information") specifically for use in the Proxy Materials or the Registration
Statement will, at the time the Registration Statement becomes effective,
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading.
Section 3.23 Absence of Questionable Payments
(a)......Neither Condor nor any Affiliated Entity nor any
director, officer, agent or employee or any other person authorized to act on
behalf of Condor nor any Affiliated Entity has used any corporate or other funds
on behalf of Condor or any Affiliated Entity in any significant amount for
unlawful contributions, payments, gifts or entertainment, or made any unlawful
expenditures in any significant amount relating to political activity,
government officials or others and neither Condor nor any Affiliated Entity nor
any director, officer, agent or employee or any other person authorized to act
on behalf of Condor or any Affiliated Entity has accepted or received any
unlawful contributions, payments, gifts or expenditures in any significant
amount.
(b)......Neither Condor nor any director, officer, employee or
agent of Condor acting in such person's capacity as such, or any Affiliated
Entity (1) has solicited or received any remuneration (including any kickback,
bribe, rebate or other payment, whether in cash or in kind), directly or
indirectly, overtly or covertly in return for (A) referring a Person to another
Person in connection with the furnishing or arranging for the furnishing of any
item, product or service or (B) purchasing, leasing, ordering or arranging for
or recommending the purchase, lease or order of any good, facility, service or
item, where any of the foregoing has violated, or could be deemed to violate,
any applicable law, (2) has offered or paid any such remuneration directly or
indirectly, overtly or covertly, to any person to induce such Person to so refer
a Person or to so purchase, lease, order, arrange for or recommend, and (3) is a
party to any agreement or arrangement, written or oral, that may result in any
of the events described in clauses (1) or (2).
Section 3.24 Guaranties.
Other than risks or liabilities assumed pursuant to insurance
policies or contracts issued by any of Condor's Affiliated Entities, neither
Condor nor any of its Affiliated Entities is a guarantor or otherwise liable for
any liability or obligation of any other person other than Condor and the
Affiliated Entities.
Section 3.25 Material Contracts.
(a)......Section 3.25(a) of the Condor Disclosure Schedule
lists all of the following contracts not otherwise listed on the Condor
Disclosure Schedule to which Condor is a party or by which any of its properties
or assets are bound: (i) employment, consulting, non-competition, severance,
golden parachute or indemnification contract (including, without limitation, any
contract to which Condor is a party involving employees of Condor, but excluding
any insurance policies issued by Condor's Affiliated Entities); (ii) material
licensing, merchandising or distribution agreements; (iii) contracts granting a
right of first refusal or first negotiation; (iv) partnership or joint venture
agreements; (v) agreements for the acquisition, sale or lease of material
properties or assets of Condor (by merger, purchase or sale of assets or stock
or otherwise) entered into since January 1, 1993; (vi) contracts or agreements
with any governmental entity; (vii) other contracts which materially affect the
business, properties or assets of Condor and its Affiliated Entities taken as a
whole and are not otherwise disclosed in this Agreement or were entered into
other than in the ordinary course of business; and (viii) all commitments and
agreements to enter into any of the foregoing (collectively, for purposes of
this Section 3.25 only, the "Contracts"). Condor has delivered or otherwise made
available to Amwest true, correct and complete copies of the Contracts listed in
Section 3.25(a) of the Condor Disclosure Schedule, together with all amendments,
modifications and supplements thereto and all side letters to which Condor is a
party affecting the obligations of any party thereunder.
(b)......Except as set forth in Section 3.25(b) of the Condor
Disclosure Schedule:
...........................(i) Each of the Contracts is valid and enforceable in
accordance with its terms, and there is no material default under any Contract
so listed either by Condor or, to the Knowledge of Condor, by any other party
thereto, and no event has occurred that with the lapse of time or the giving of
notice or both would constitute a material default thereunder by Condor or, to
the Knowledge of Condor, any other party.
...........................(ii) No party to any such Contract has given
notice to Condor of or made aclaim against Condor with respect to any material
breach or material default thereunder.
(c)......With respect to those Contracts that were assigned or
subleased to Condor by a third party, all necessary consents to such assignments
or subleases have been obtained.
Section 3.26 Insurance Contracts and Rates.
All contracts, agreements, leases, policies or agreements of
insurance or reinsurance, contracts, notes, mortgages, indentures, arrangements
or other commitments or obligations, whether written or oral ("Insurance
Contracts") regarding insurance, written or issued by Condor or any of its
Insurance Subsidiaries as now in force are in all material respects, to the
extent required under applicable law, on forms approved by applicable insurance
regulatory authorities or which have been filed and not objected to by such
authorities within the period provided for objection, and such forms comply in
all material respects with the insurance statutes, regulations and rules
applicable thereto. True, complete and correct copies of such forms have been
furnished or made available to Amwest and there are no other forms of Insurance
Contracts used in connection with Condor's and its Insurance Subsidiaries'
business. Premium rates established by Condor or its Insurance Subsidiaries
which are required to be filed with or approved by insurance regulatory
authorities have been so filed or approved, the premiums charged conform thereto
in all material respects, and such premiums comply in all material respects with
the insurance statutes, regulations and rules applicable thereto.
Section 3.27 Reinsurance.
Section 3.27 of the Condor Disclosure Schedule contains a list
of all reinsurance or coinsurance treaties or agreements, including
retrocessional agreements, to which Condor or any Insurance Subsidiary is a
party or under which Condor or any Insurance Subsidiary has any existing rights,
obligations or liabilities. All reinsurance and coinsurance treaties or
agreements, including retrocessional agreements, to which Condor or any
Insurance Subsidiary is a party or under which Condor or any Insurance
Subsidiary has any existing rights, obligations or liabilities are in full force
and effect. Neither Condor nor any Insurance Subsidiary, nor, to the knowledge
of Condor, any other party to a reinsurance or coinsurance treaty or agreement
to which Condor or any Insurance Subsidiary is a party, is in default in any
material respect as to any provision thereof, and no such agreement contains any
provision providing that the other party thereto may terminate such agreement by
reason of the transactions contemplated by this Agreement. Condor has not
received any notice to the effect that the financial condition of any other
party to any such agreement is impaired with the result that a default
thereunder may reasonably be anticipated, whether or not such default may be
cured by the operation of any offset clause in such agreement.
Section 3.28 Loss Reserves; Solvency.
Except as set forth in Section 3.28 of the Condor Disclosure
Schedule, the reserve for loss and loss adjustment expense liabilities set forth
in the most recent Condor SEC Filing and subsequent Condor SEC Filings provided
to Amwest after the date hereof was or will be determined in accordance with
generally accepted actuarial standards and principles consistently applied, is
fairly stated in accordance with sound actuarial principles and statutory
accounting principles and meets the requirements of the insurance statutes, laws
and regulations of the State of California. Except as disclosed in Section 3.28
of the Condor Disclosure Schedule, the reserves for loss and loss adjustment
expense liabilities reflected in the most recent Condor SEC Filing and
subsequent Condor SEC Filings provided to Amwest after the date hereof and
established on the books of Condor for all future insurance and reinsurance
losses, claims and expenses make or will make a reasonable provision for all
unpaid loss and loss adjustment expense obligations of Condor and its Insurance
Subsidiaries under the terms of its policies and agreements. Condor and each of
its Insurance Subsidiaries owns assets which qualify as admitted assets under
California state insurance laws in an amount at least equal to the sum of all of
their respective required insurance reserves and minimum statutory capital and
surplus as required by Sections 700.01 through 700.05 of the Insurance Code. The
value of the assets of Condor and its Affiliated Entities at their present fair
saleable value is greater than their total liabilities, including contingent
liabilities, and Condor and its Affiliated Entities have assets and capital
sufficient to pay their liabilities, including contingent liabilities, as they
become due.
Section 3.29 Opinion of Financial Advisor
Wedbush Morgan Securities (the "Condor Financial Advisor") has
delivered to the Condor board of directors its written opinion, dated the date
of this Agreement, to the effect that, as of such date, the Merger Consideration
is fair to the public holders of Condor Common Stock from a financial point of
view, a signed, true and complete copy of which opinion has been delivered to
Amwest, and such opinion has not been withdrawn or modified.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
AMWEST
Amwest represents and warrants to Condor as follows:
Section 4.01 Corporate Organization
Amwest is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, with all requisite
corporate power and authority to own, operate and lease its properties and to
carry on its business as now being conducted, and is duly qualified or licensed
to do business and is in good standing in each jurisdiction in which its
ownership or leasing of property or conduct of business requires such licensing
or qualification, except where the failure to be so qualified would not have a
Material Adverse Effect on Amwest. Amwest has delivered to Condor complete and
correct copies of its Certificate of Incorporation and Bylaws as in effect on
the date hereof.
Section 4.02 Authorization
Amwest has the requisite corporate power and authority to
enter into this Agreement and to carry out its obligations hereunder. The
execution and delivery by Amwest of this Agreement and the performance by it of
its obligations hereunder and the consummation by it of the transactions
contemplated hereby have been duly authorized by its Board of Directors and,
except for the approval of the stockholders of Amwest Common Stock contemplated
herein, no other corporate proceeding is necessary for the execution and
delivery thereof, and the performance of Amwest's obligations hereunder, and the
consummation by it of the transactions contemplated hereby. This Agreement is a
legal, valid and binding obligation of Amwest enforceable against Amwest in
accordance with its terms.
Section 4.03 Capitalization
The authorized capital stock of Amwest as well as the number
of issued and outstanding shares of each class of capital stock of Amwest is as
set forth on Section 4.03 of the Amwest Disclosure Schedule to this Agreement
executed by Amwest and delivered to Condor simultaneously with the execution of
this Agreement (the "Amwest Disclosure Schedule"). All of such outstanding
shares have been duly and validly issued, were not issued in violation of any
preemptive rights and are fully paid and non-assessable with no personal
liability attaching to the ownership thereof. Except as set forth on Section
4.03 of the Amwest Disclosure Schedule, there are no options, warrants,
subscriptions, conversion or other rights, agreements, commitments, arrangements
or understandings with respect to (i) the issuance of shares of capital stock of
Amwest or any other securities convertible into, exchangeable for or evidencing
the right to subscribe for any such shares, (ii) obligating Amwest to purchase
shares of Amwest Common Stock or any security convertible into Amwest Common
Stock, or (iii) obligating any of the stockholders of Amwest to purchase, sell
or transfer any Amwest Common Stock. Section 4.03 of Amwest Disclosure Schedule
lists each of Amwest's stock option plans and other stock award plans, true and
correct copies of which have been provided by Amwest to Condor.
Section 4.04 Financial Statements and Reports
Since January 1, 1994, Amwest has filed with the SEC all
reports, registration statements and all other filings required to be filed with
the SEC under the rules and regulations of the SEC (collectively, the "Required
Amwest Reports"), all of which, as of their respective effective dates, complied
in all material respects with all applicable requirements of the Securities Act
and the Exchange Act. Amwest has delivered to Condor true and complete copies of
(i) Amwest's Annual Report on Form 10-K for the fiscal years ended December 31,
1994, as filed with the SEC, (ii) Quarterly Reports on Form 10-Q for the three
months ended March 31, 1995, June 30, 1995 and September 30, 1995, as filed with
the SEC, (iii) proxy statements relating to all meetings of Amwest's
stockholders (whether annual or special) held or scheduled to be held since
January 1, 1994, (iv) all other forms, reports, statements and documents filed
by Amwest with the SEC since January 1, 1994 and (v) all reports, statements and
other information provided by Amwest to its stockholders since January 1, 1994
(collectively, the "Amwest SEC Filings"). As of their respective dates, none of
the Required Amwest Reports or Amwest SEC Filings contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The consolidated
financial statements of Amwest included or incorporated by reference in the
Amwest SEC Filings were prepared in accordance with GAAP applied on a consistent
basis (except as otherwise stated in such financial statements or, in the case
of audited statements, the related report thereon of independent certified
public accountants), and present fairly the financial position and results of
operations, cash flows and changes in stockholders' equity of Amwest and its
consolidated Affiliated Entities as of the dates and for the periods indicated,
subject, in the case of unaudited interim financial statements, to the absence
of notes and to normal year-end adjustments, and are consistent with the books
and records of Amwest.
Section 4.05 Absence of Certain Changes
Except as set forth in Amwest SEC Filings or in Section 4.05
of the Amwest Disclosure Schedule, since December 31, 1994, Amwest, and each
Affiliated Entity, have conducted their respective businesses only in the
ordinary and usual course and there has not been any event, change or
development which has had or will have a Material Adverse Effect on Amwest.
Section 4.06 Consents and Approvals; No Violations
There is no requirement applicable to Amwest or any of its
Affiliated Entities to make any filing with, or to obtain any permit,
authorization, consent or approval of, any governmental or regulatory authority
as a condition to the lawful consummation of the transactions contemplated by
this Agreement, other than (i) requirements of the HSR Act, (ii) requirements of
the Insurance Code, the Arizona State Department of Insurance and applicable
Arizona insurance code provisions and regulations thereunder, and any other
applicable insurance regulatory authorities and applicable insurance code
provisions and regulations thereunder, (iii) filings with the SEC pursuant to
the Securities Act and the Exchange Act, (iv) such filings and approvals as may
be required under the "blue sky," takeover or securities laws of various states,
(v) compliance with the requirements of the ASE, (vi) the written consent from
Union Bank regarding the Merger and the transactions contemplated thereby, or
(vii) where the failure to make any such filing, or to obtain such permit,
authorization, consent or approval, would not prevent or delay consummation of
the Merger or would not otherwise prevent Amwest from performing its obligations
under this Agreement. Except as set forth in Section 4.06 of the Amwest
Disclosure Schedule, neither the execution and delivery of this Agreement, nor
the consummation of the transactions contemplated hereby, will (a) result in the
acceleration of, or the creation in any party of any right to accelerate,
terminate, modify or cancel any indenture, contract, lease, sublease, loan
agreement, note or other obligation or liability to which Amwest or any
Affiliated Entity is a party or by which any of them is bound or to which any of
their assets is subject, except as would not have a Material Adverse Effect on
Amwest, (b) conflict with or result in a breach of or constitute a default under
any provision of the Certificate of Incorporation or Bylaws (or other charter
documents) of Amwest or any Affiliated Entity, or, except as would not have a
Material Adverse Effect on Amwest, a default under or violation of any
restriction, lien, encumbrance, indenture, contract, lease, sublease, loan
agreement, note or other obligation or liability to which any of them is a party
or by which any of them is bound or to which any of their assets is subject or
result in the creation of any lien or encumbrance upon any of said assets, or
(c) violate or result in a breach of or constitute a default under any judgment,
order, decree, rule or regulation of any court or governmental agency to which
Amwest or any Affiliated Entity is subject.
Section 4.07 Litigation
Except as set forth in Section 4.07 of the Amwest Disclosure
Schedule, there is no action, proceeding or investigation pending or, to the
Knowledge of Amwest, threatened against or involving Amwest or any of its
Affiliated Entities or any of their respective properties, assets, rights or
obligations before any court, arbitrator or administrative or governmental body
nor is there any judgment, decree, injunction, rule or order of any court,
governmental department, commission, agency, instrumentality or arbitrator
outstanding against Amwest or any of its Affiliated Entities in which a decision
could have a Material Adverse Effect on Amwest. Neither Amwest nor any of its
Affiliated Entities is in violation of any term of any judgment, decree,
injunction or order outstanding against it. There are no actions, suits or
proceedings pending or, to the Knowledge of Amwest, threatened against Amwest or
any of its Affiliated Entities arising out of or in any way related to this
Agreement or any of the transactions contemplated hereby.
Section 4.08 Compliance with Laws
Amwest and each Affiliated Entity have complied in all
material respects with the laws and regulations of federal, state, local and
foreign governments and all agencies thereof which are applicable to the
business or properties of Amwest or any Affiliated Entity, a violation of which
would result in a Material Adverse Effect on Amwest, including the provisions of
the Insurance Code.
Section 4.09 Proxy Statement, Etc.
The Proxy Statement and Registration Statement (as defined in
Section 2.02) and all amendments and supplements thereto will comply as to form
in all material respects with the provisions of the Exchange Act, the Securities
Act and the rules and regulations promulgated thereunder. The Proxy Statement,
the Registration Statement and any amendments thereof or supplements thereto,
will not, on the date the Proxy Statement and Registration Statement are first
mailed to stockholders of Condor, at the time the meeting of the stockholders of
Amwest referred to in Section 2.02 hereof is convened or at the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
provided, however, that Amwest makes no representation or warranty with respect
to any information furnished to it by Condor or any of their accountants,
counsel or other authorized representatives in writing specifically for
inclusion in the Proxy Statement or the Registration Statement.
Section 4.10 No Undisclosed Liabilities
Except as set forth in Section 4.10 of the Amwest Disclosure
Schedule, and except as and to the extent set forth on the consolidated balance
sheet of Amwest as of December 31, 1994 (including those liabilities and
potential liabilities referred to in the financial footnotes thereto), included
in the Required Amwest Reports, neither Amwest nor any Affiliated Entities had,
at such date, any liabilities or obligations (absolute, accrued, contingent or
otherwise) greater than $100,000, taken as a whole and since that date neither
Amwest nor any Affiliated Entities has incurred any liabilities or obligations
material to Amwest and Affiliated Entities taken as a whole except those
incurred in the ordinary and usual course of business and consistent with past
practice or in connection with or as a result of the transactions contemplated
by this Agreement to which Amwest is or is to be a party.
Section 4.11 Disclosure
To the best of Amwest's knowledge, no representation or
warranty by Amwest in this Agreement and no statement contained or to be
contained in any document, certificate or other writing furnished or to be
furnished by Amwest to Condor, contains or will contain any untrue statement of
a material fact or omits or will omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
Section 4.12 Post-Retirement and Post-Employment
Benefit Obligations
Except as described in Section 4.12 of the Amwest Disclosure
Schedule, all obligations associated with benefits to be provided to present and
former employees after retirement or termination have been properly recognized
as liabilities on Amwest's balance sheet at December 31, 1994 in accordance with
Financial Accounting Standards Board Statements Nos. 106 and 112.
Section 4.13 Employee Benefit Plans
(a)......Except as set forth in Section 4.13(a) to the Amwest
Disclosure Schedule, (i) neither Amwest nor any entity that together with Amwest
is treated as a single employer pursuant to Section 414(b) or (c) of the Code or
Section 3(5) or 4001(b) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") (an "ERISA Affiliate"), maintains or in the past has
maintained any Employee Benefit Plan, as defined in ERISA, under which Amwest or
any of its Affiliated Entities has any present or future obligation or liability
or under which any present or former employee of Amwest or its Affiliated
Entities has any present or future rights to benefits, (ii) each Employee
Benefit Plan listed in Section 4.13(a) of the Amwest Disclosure Schedule has
been administered in accordance with the applicable requirements of ERISA and
the Code, and in the case of any Employee Benefit Plan listed in Section 4.13(a)
of the Amwest Disclosure Schedule that is funded for purposes of ERISA and the
Code, has not incurred any federal income or excise tax liability which would
have a Material Adverse Effect on Amwest, (iii) all material reports and
information required to be filed with the United States Department of Labor,
Internal Revenue Service or Pension Benefit Guaranty Corporation, or distributed
to participants and their beneficiaries with respect to each Employee Benefit
Plan listed in Section 4.13(a) of the Amwest Disclosure Schedule, has been
timely filed or distributed and, with respect to each Employee Benefit Plan for
which an Annual Report has been filed, no change has occurred with respect to
the matters covered by the Annual Report since the date of the most recent such
Annual Report which could reasonably be expected to have a Material Adverse
Effect on Amwest, and (iv) there have been no non-exempt "prohibited
transactions" (as that term is defined in the Code or in ERISA) with respect to
any Employee Benefit Plan listed in Section 4.13(a) of the Amwest Disclosure
Schedule and no material penalty or tax under ERISA or the Code has been imposed
upon Amwest or any of its Affiliated Entities and there are no pending or, to
Amwest's Knowledge, threatened claims by or on behalf of any Employee Benefit
Plan listed in Section 4.13(a) of the Amwest Disclosure Schedule, by any
employee or beneficiary covered by Employee Benefit Plan listed in Section
4.13(a) of the Amwest Disclosure Schedule, or otherwise involving an Employee
Benefit Plan listed in Section 4.13(a) of the Amwest Disclosure Schedule, other
than claims for benefits in the ordinary course and other than claims which
would not have a Material Adverse Effect on Amwest.
(b)......Each Employee Benefit Plan listed in Section 4.13(a)
of the Amwest Disclosure Schedule which is an "employee pension benefit plan,"
as defined in ERISA and which is intended to be "qualified" within the meaning
of Section 401(a) of the Code, is so qualified, and, except as set forth in
Section 4.13(b) of the Amwest Disclosure Schedule, a favorable determination
letter has been issued by the Internal Revenue Service with respect to such plan
and no such plan has been amended since the issuance of the most recent
determination letter issued by the Internal Revenue Service with respect
thereto. No Employee Benefit Plan listed in Section 4.13(a) of the Amwest
Disclosure Schedule is subject to Title IV of ERISA or Section 412 of the Code.
(c)......Amwest has not maintained or contributed to, or been
obligated or required to contribute to, a "multiemployer plan," as such term is
defined in Section 3(37) of ERISA.
Section 4.14 Environmental Matters
(a)......Except as disclosed in Section 4.14 of the Amwest
Disclosure Schedule, Amwest is in full compliance with all laws, rules,
regulations, and other legal requirements relating to the prevention of
pollution and the protection of human health or the environment, including all
such legal requirements pertaining to human health and safety (collectively,
"Environmental Laws"), except for noncompliance that could not reasonably be
expected to have a Material Adverse Effect on Amwest, which compliance includes,
but is not limited to, the possession by Amwest of all material permits, and
other governmental authorizations required under applicable Environmental Laws,
and compliance with the terms and conditions thereof. Except as disclosed in
Section 4.14 of the Amwest Disclosure Schedule, Amwest or an Affiliated Entity
has not received written notice of, or, to the best Knowledge of Amwest, is the
subject of, an Environmental Claim that could reasonably be expected to have a
Material Adverse Effect on Amwest; and to the best Knowledge of Amwest, there
are no circumstances that are reasonably likely to prevent or interfere with
such material compliance in the future.
(b)......Except as disclosed in Section 4.14 of the Amwest
Disclosure Schedule, there are no Environmental Claims which could reasonably be
expected to have a Material Adverse Effect on Amwest or an Affiliated Entity
that are pending or, to the best Knowledge of Amwest, threatened against Amwest
or an Affiliated Entity or, to the best Knowledge of Amwest, against any person
or entity whose liability for any Environmental Claim Amwest or an Affiliated
Entity has or may have retained or assumed either contractually or by operation
of law.
Section 4.15 Absence of Questionable Payments
(a)......Neither Amwest nor any Affiliated Entity nor any
director, officer, agent or employee or any other person authorized to act on
behalf of Amwest nor any Affiliated Entity has used any corporate or other funds
on behalf of Amwest or any Affiliated Entity in any significant amount for
unlawful contributions, payments, gifts or entertainment, or made any unlawful
expenditures in any significant amount relating to political activity,
government officials or others and neither Amwest nor any Affiliated Entity nor
any director, officer, agent or employee or any other person authorized to act
on behalf of Amwest or any Affiliated Entity has accepted or received any
unlawful contributions, payments, gifts or expenditures in any significant
amount.
(b)......Neither Amwest, nor any director, officer, employee
or agent of Amwest acting in such person's capacity as such, or any Affiliated
Entity (1) has solicited or received any remuneration (including any kickback,
bribe, rebate or other payment, whether in cash or in kind), directly or
indirectly, overtly or covertly in return for (A) referring a Person to another
Person in connection with the furnishing or arranging for the furnishing of any
item, product or service or (B) purchasing, leasing, ordering or arranging for
or recommending the purchase, lease or order of any good, facility, service or
item, where any of the foregoing has violated, or could be deemed to violate,
any applicable law, (2) has offered or paid any such remuneration directly or
indirectly, overtly or covertly, to any Person to induce such Person to so refer
a Person or to so purchase, lease, order, arrange for or recommend, and (3) is a
party to any agreement or arrangement, written or oral, that may result in any
of the events described in clauses (1) or (2).
Section 4.16 Certain Fees
Neither Amwest, nor any of its Affiliated Entities nor any of
their directors, officers or stockholders has employed any broker or finder or
incurred any liability for any financial advisory, brokerage or finders' fees or
similar fees or commissions in connection with the transactions contemplated by
this Agreement.
Section 4.17 Taxes
(a)......Section 4.17 of the Amwest Disclosure Schedule sets
forth: (i) the taxable years of Amwest and Tax Affiliates as to which the
respective statutes of limitations on the assessment of United States federal
income and any applicable state, local or foreign income, franchise and premium
Taxes have not expired, and (ii) with respect to such taxable years sets forth
those years for which examinations by the Internal Revenue Service or the state,
local or foreign taxing authority have been completed, those years for which
examinations by such agencies are presently being conducted, those years for
which notice of pending or threatened examination or adjustment has been
received, those years for which examinations by such agencies have not been
initiated, and those years for which required Returns for such Taxes have not
yet been filed. Except to the extent indicated in Section 4.17 of the Amwest
Disclosure Schedule, all deficiencies asserted or assessments made as a result
of any examinations by the Internal Revenue Service or state, local or foreign
taxing authority have been fully paid, or are fully reflected as a liability in
the Required Amwest Reports, or are set forth in Section 4.17 of the Amwest
Disclosure Schedule, are being contested and an adequate reserve therefor has
been established and is fully reflected in the Required Amwest Reports to the
extent required by GAAP. Section 4.17 of the Amwest Disclosure Schedule sets
forth all Returns not otherwise described above that are presently under
examination with respect to Taxes and all assessments and deficiencies with
respect to the Returns that are presently being contested by Amwest and Tax
Affiliates.
(b)......Amwest represents and warrants to Condor that, except
as described in Section 4.17 of the Amwest Disclosure Schedule:
(i) Amwest and its Tax Affiliates have filed on a timely basis all Returns
required to have been filed by it and have paid on a timely basis all Taxes
shown thereon as due. All such Returns are true, complete and correct in all
material respects. The provisions for taxes in the Required Amwest Reports set
forth in all material respects the maximum liability of Amwest and the
Affiliated Entities for Taxes relating to periods covered thereby. No liability
for Taxes has been incurred by Amwest and the Affiliated Entities since the
dates of the Required Amwest Reports other than in the ordinary course of their
business. No director, officer or employee of Amwest or any of the Affiliated
Entities having responsibility for Tax matters has reason to believe that any
Taxing authority has valid grounds to claim or assess any material additional
Tax with respect to Amwest or the Tax Affiliates in excess of the amounts shown
on the Required Amwest Reports for the periods covered thereby.
(ii) With respect to all amounts in respect of Taxes imposed upon Amwest or
Tax Affiliates, or for which Amwest or Tax Affiliates are or could be liable,
whether to taxing authorities (as, for example, under law) or to other persons
or entities (as, for example, under tax allocation agreements), and with respect
to all taxable periods or portions of periods ending on or before the Effective
Time, all applicable Tax laws and agreements have been fully complied with, and
all such amounts required to be paid by Amwest and Tax Affiliates to taxing
authorities or others have been paid, in all material respects.
(iii) None of the Returns required to be filed by Amwest and Tax Affiliates
contains, or were required to contain (in order to avoid the imposition of a
penalty), a disclosure statement under Section 6662 (or any predecessor
provision) of the Code, or any similar provision of state, local or foreign law;
(iv) Neither Amwest nor any Tax Affiliate has received notice that the IRS or
any other taxing authority has asserted against Amwest or such Tax Affiliate any
deficiency or claim for additional Taxes in connection with any Return, and no
issues have been raised (and are currently pending) by any taxing authority in
connection with any Return. Neither Amwest nor any Tax Affiliate has received
notice that it is or may be subject to Tax in a jurisdiction in which it has not
filed or does not currently file Returns;
(v) There is no pending or, to Amwest's Knowledge, threatened action, audit,
proceeding, or investigation with respect to (i) the assessment or collection of
Taxes or (ii) a claim for refund made, of or by Amwest and Tax Affiliates with
respect to Taxes;
(vi) All Tax deficiencies asserted or assessed against Amwest and Tax
Affiliates have been paid or finally settled with no further amounts owed;
(vii) All amounts that were required to be collected or withheld by Amwest and
Tax Affiliates have been duly collected or withheld in all material respects,
and all such amounts that were required to be remitted to any taxing authority
have been duly remitted in all material respects;
(viii) Amwest and Tax Affiliates have not requested an extension of time to file
any Return not yet filed, and have not granted any waiver of any statute of
limitations with respect to, or any extension of a period for the assessment of,
any Tax. No power of attorney granted by Amwest or Tax Affiliates with respect
to Taxes is in force;
(ix) Amwest and Tax Affiliates have not taken any action not in accordance
with past practice that would have the effect of deferring any material Tax
liability of Amwest or any Tax Affiliate from any taxable period ending on or
before or including the Effective Time to any subsequent taxable period;
(x) Other than the Affiliated Entities, Amwest has had no Tax Affiliates
during any period with respect to which the applicable statue of limitations on
the assessment of Taxes remains open;
(xi) Amwest was not acquired in a "qualified stock purchase" under Section
338(d)(3) of the Code and no elections under Section 338(g) of the Code,
protective carryover basis elections, offset prohibition elections or similar
election are applicable to Amwest or any Tax Affiliate;
(xii) Neither Amwest nor any Tax Affiliate is required to include in income any
adjustment pursuant to Sections 481 or 263A of the Code (or similar provisions
of other law or regulations) by reason of a change in accounting method or
otherwise, following the Effective Time, and Amwest has no Knowledge that the
IRS (or other taxing authority) has proposed, or is considering, any such change
in accounting method or other adjustment;
(xiii)There are no liens for Taxes (other than for current Taxes not yet due
and payable) upon the assets of Amwest or the Affiliated Entities;
(xiv) Neither Amwest nor any of the Affiliated Entities are party to any
agreement, contract, arrangement or plan that has resulted or would result,
separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of Section 280G of the Code, whether by reason of
the Merger or otherwise;
(xv) Neither Amwest nor any Affiliated Entity is, and has not been, a United
States real property holding corporation (as defined in Section 897(c)(2) of the
Code) during the applicable period specified in Section 897(c)(1)(A)(ii) of the
Code (or any corresponding provision of state, local or foreign Tax law);
(xvi) Neither Amwest nor any of the Affiliated Entities has or has had a
permanent establishment in any foreign country, as defined in any applicable Tax
treaty or convention between the United States of America and such foreign
country and neither Amwest nor any of the Affiliated Entities has engaged in a
trade or business within any foreign country;
(xvii)Amwest and the Affiliated Entities are not party to any joint venture,
partnership, or other arrangement or contract which could be treated as a
partnership for federal income tax purposes;
(xviii)Neither Amwest nor any of the Affiliated Entities has not made a "waters
edge election" pursuant to California Revenue and Taxation Code Section 25110;
(xix) There are no excess loss accounts, deferred intercompany gains or losses,
or intercompany items, as such terms are defined in the Treasury Regulations,
that will be required to be recognized or otherwise taken into account as a
result of the acquisition of the Amwest Common Stock pursuant to this Agreement;
(xx) Neither Amwest nor any of the Affiliated Entities has filed a consent
under Section 341(f) of the Code (or any corresponding provision of state, local
or foreign Tax law); and
(xxi) Neither Amwest nor any of the Affiliated Entities is a party to or bound
by any Tax sharing agreement nor has any current or contingent contractual
obligation to indemnify any other person with respect to Taxes, other than
obligations to indemnify a lessor for property Taxes, sales/use Taxes or gross
receipts Taxes (but not income, franchise or premium Taxes) imposed on lease
payments arising from terms that are customary for leases of similar property.
Section 4.18 Affiliated Entities
(a)......Except as set forth in Section 4.18(a) of the Amwest
Disclosure Schedule, Amwest has no direct or indirect Affiliated Entities. Each
Affiliated Entity of Amwest listed on Section 4.18(a) of Amwest Disclosure
Schedule is a corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation, with all requisite
corporate power and authority to own, operate and lease its properties and to
carry on its business as now being conducted, and is duly qualified or licensed
to do business and is in good standing in each jurisdiction in which its
ownership or leasing of property or conduct of business requires such
qualification or licensing, except where the failure to be so qualified would
not have a Material Adverse Effect on Amwest. Amwest has delivered to Condor
complete and correct copies of the Articles or Certificate of Incorporation and
Bylaws of each such Affiliated Entity as in effect on the date hereof.
(b)......Except as set forth in Section 4.18(b) of the Amwest
Disclosure Schedule, Amwest is, directly or indirectly, the record and
beneficial owner of all of the outstanding shares of capital stock of each of
its Affiliated Entities, and all of the outstanding shares of capital stock of
each such Affiliated Entity are duly and validly issued, were not issued in
violation of any preemptive rights, are fully paid and non-assessable and are
owned free and clear of any claim, lien, encumbrance or agreement with respect
thereto. Except as and to the extent set forth in Section 4.18(b) of the Amwest
Disclosure Schedule, there are not any options, warrants, subscriptions,
conversion or other rights, agreements, or commitments, arrangements or
understandings with respect to the issuance of capital stock of any Affiliated
Entity of Amwest or any other securities convertible into, exchangeable for or
evidencing the right to subscribe for any such shares.
Section 4.19 Reinsurance.
Section 4.19 of the Amwest Disclosure Schedule contains a list
of all reinsurance or coinsurance treaties or agreements, including
retrocessional agreements, to which Amwest or any Insurance Subsidiary is a
party or under which Amwest or any Insurance Subsidiary has any existing rights,
obligations or liabilities. All reinsurance and coinsurance treaties or
agreements, including retrocessional agreements, to which Amwest or any
Insurance Subsidiary is a party or under which Amwest or any Insurance
Subsidiary has any existing rights, obligations or liabilities are in full force
and effect. Neither Amwest nor any Insurance Subsidiary, nor, to the knowledge
of Amwest, any other party to a reinsurance or coinsurance treaty or agreement
to which Amwest or any Insurance Subsidiary is a party, is in default in any
material respect as to any provision thereof, and no such agreement contains any
provision providing that the other party thereto may terminate such agreement by
reason of the transactions contemplated by this Agreement. Amwest has not
received any notice to the effect that the financial condition of any other
party to any such agreement is impaired with the result that a default
thereunder may reasonably be anticipated, whether or not such default may be
cured by the operation of any offset clause in such agreement.
Section 4.20 Insurance: Licenses, Permits and Filings
Amwest is duly organized and registered as a California
insurance holding company, and each Insurance Subsidiary is duly organized and
licensed as an insurance company in California and is duly licensed or
authorized as an insurer or reinsurer in any other jurisdiction where it is
required to be so licensed or authorized to conduct its business, or is subject
to no liability or disability that would have a Material Adverse Effect by
reason of the failure to be so licensed or authorized in any such jurisdiction.
Since January 1, 1994, Amwest has made all required filings under applicable
insurance holding company statutes. Each of Amwest and its Insurance
Subsidiaries has all other necessary Insurance Licenses to conduct their
businesses as currently conducted and all such Insurance Licenses are valid and
in full force and effect, except such Insurance Licenses which the failure to
have or to be in full force and effect individually or in the aggregate would
not have a Material Adverse Effect. Section 4.20 of the Amwest Disclosure
Schedule lists each order and written understanding or agreement of or with the
Department currently in effect and applicable to Amwest or any of its Insurance
Subsidiaries. Neither Amwest nor any Affiliated Entity has received any
notification (which notification has not been withdrawn or otherwise resolved
prior to the date of this agreement) from the Department or any other insurance
regulatory authority to the effect that any additional Insurance License from
such insurance regulatory authority is needed to be obtained by Amwest or any
Affiliated Entity in any case where it could be reasonably expected that (x)
Amwest or any Affiliated Entity would in fact be required either to obtain any
such additional Insurance License, or cease or otherwise limit writing certain
business and (y) obtaining such Insurance License or the limiting of such
business would have a Material Adverse Effect. Each Insurance Subsidiary is in
compliance with the requirements of the insurance laws and regulations of
California and the insurance laws and regulations of any other jurisdiction
which are applicable to such Insurance Subsidiary, and has filed all notices,
reports, documents or other information required to be filed thereunder or in
any such case is subject to no Material Adverse Effect by reason of the failure
to so comply or file.
Section 4.21 Guaranties.
Other than risks or liabilities assumed pursuant to insurance
policies or contracts issued by any of Amwest's Affiliated Entities, neither
Amwest nor any of its Affiliated Entities is a guarantor or otherwise liable for
any liability or obligation of any other person other than Amwest and the
Affiliated Entities.
Section 4.22 Material Contracts.
(a)......Section 4.22(a) of the Amwest Disclosure Schedule
lists all of the following contracts not otherwise listed on the Amwest
Disclosure Schedule to which Amwest is a party or by which any of its properties
or assets are bound: (i) employment, consulting, non-competition, severance,
golden parachute or indemnification contract (including, without limitation, any
contract to which Amwest is a party involving employees of Amwest, but excluding
any insurance policies issued by Amwest's Affiliated Entities); (ii) material
licensing, merchandising or distribution agreements; (iii) contracts granting a
right of first refusal or first negotiation; (iv) partnership or joint venture
agreements; (v) agreements for the acquisition, sale or lease of material
properties or assets of Amwest (by merger, purchase or sale of assets or stock
or otherwise) entered into since January 1, 1993; (vi) contracts or agreements
with any governmental entity; (vii) other contracts which materially affect the
business, properties or assets of Amwest and its Affiliated Entities taken as a
whole and are not otherwise disclosed in this Agreement or were entered into
other than in the ordinary course of business; and (viii) all commitments and
agreements to enter into any of the foregoing (collectively, for purposes of
this Section 4.22 only, the "Contracts"). Amwest has delivered or otherwise made
available to Condor true, correct and complete copies of the Contracts listed in
Section 4.22(a) of the Amwest Disclosure Schedule, together with all amendments,
modifications and supplements thereto and all side letters to which Amwest is a
party affecting the obligations of any party thereunder.
(b)......Except as set forth in Section 4.22(b) of the Amwest
Disclosure Schedule:
...........................(i) Each of the Contracts is valid and enforceable in
accordance with its terms, and there is no material default under any Contract
so listed either by Amwest or, to the Knowledge of Amwest, by any other party
thereto, and no event has occurred that with the lapse of time or the giving of
notice or both would constitute a material default thereunder by Amwest or, to
the Knowledge of Amwest, any other party.
...........................(ii) No party to any such Contract has given
notice to Amwest of or made aclaim against Amwest with respect to any material
breach or material default thereunder.
(c)......With respect to those Contracts that were assigned or
subleased to Amwest by a third party, all necessary consents to such assignments
or subleases have been obtained.
Section 4.23 Insurance Contracts and Rates.
All Insurance Contracts regarding insurance, written or issued
by Amwest or any of its Insurance Subsidiaries as now in force are in all
material respects, to the extent required under applicable law, on forms
approved by applicable insurance regulatory authorities or which have been filed
and not objected to by such authorities within the period provided for
objection, and such forms comply in all material respects with the insurance
statutes, regulations and rules applicable thereto. True, complete and correct
copies of such forms have been furnished or made available to Condor and there
are no other forms of Insurance Contracts used in connection with Amwest's and
its Insurance Subsidiaries' business. Premium rates established by Amwest or its
Insurance Subsidiaries which are required to be filed with or approved by
insurance regulatory authorities have been so filed or approved, the premiums
charged conform thereto in all material respects, and such premiums comply in
all material respects with the insurance statutes, regulations and rules
applicable thereto.
Section 4.24 Loss Reserves; Solvency.
Except as set forth in Section 4.24 of the Amwest Disclosure
Schedule, the reserve for loss and loss adjustment expense liabilities set forth
in the most recent Amwest SEC Filing and subsequent Amwest SEC Filings provided
to Condor after the date hereof was or will be determined in accordance with
generally accepted actuarial standards and principles consistently applied, is
fairly stated in accordance with sound actuarial principles and statutory
accounting principles and meets the requirements of the insurance statutes, laws
and regulations of the State of California. Except as disclosed in Section 4.24
of the Amwest Disclosure Schedule, the reserves for loss and loss adjustment
expense liabilities reflected in the most recent Amwest SEC Filing and
subsequent Amwest SEC Filings provided to Condor after the date hereof and
established on the books of Amwest for all future insurance and reinsurance
losses, claims and expenses make or will make a reasonable provision for all
unpaid loss and loss adjustment expense obligations of Amwest and its Insurance
Subsidiaries under the terms of its policies and agreements. Amwest and each of
its Insurance Subsidiaries owns assets which qualify as admitted assets under
California state insurance laws in an amount at least equal to the sum of all of
their respective required insurance reserves and minimum statutory capital and
surplus as required by Sections 700.01 through 700.05 of the Insurance Code. The
value of the assets of Amwest and its Affiliated Entities at their present fair
saleable value is greater than their total liabilities, including contingent
liabilities, and Amwest and its Affiliated Entities have assets and capital
sufficient to pay their liabilities, including contingent liabilities, as they
become due.
ARTICLE V
COVENANTS
Section 5.01 Conduct of Business of Condor and Amwest
Except as contemplated by this Agreement or to the extent that
the other party to this Agreement shall otherwise consent in writing, during the
period from the date of this Agreement to the Effective Time, Condor and its
Affiliated Entities and Amwest and its Affiliated Entities, respectively, will
conduct their respective operations only in, and Condor and its Affiliated
Entities and Amwest and its Affiliated Entities, respectively, will not take any
action, except in the ordinary course of business, and Condor and its Affiliated
Entities and Amwest and its Affiliated Entities, respectively, will use all
reasonable efforts to preserve intact in all material respects their respective
business organizations, assets, prospects and advantageous business
relationships, to keep available the services of their respective officers and
key employees and to maintain satisfactory relationships with their respective
licensors, licensees, suppliers, contractors, distributors, customers and others
having advantageous business relationships with them. Without limiting the
generality of the foregoing, except as contemplated by this Agreement, neither
Condor or any of its Affiliated Entities nor Amwest or any of its Affiliated
Entities, respectively, will, without the prior written consent of the other
parties to this Agreement:
(a)......amend its Articles or Certificate of Incorporation or
Bylaws or change its authorized number of directors, except that each of Amwest
Surety Insurance Company and its subsidiary, Far West Insurance Company, may
reincorporate or redomesticate under the laws of the State of Nebraska;
(b)......split, combine or reclassify any shares of its
capital stock, declare, pay or set aside for payment any dividend or other
distribution in respect of its capital stock, or directly or indirectly, redeem,
purchase or otherwise acquire any shares of its capital stock or other
securities, except that Amwest may pay regular quarterly cash dividends in
accordance with past practice;
(c)......authorize for issuance, issue, sell or deliver or
agree or commit to issue, sell, or deliver (whether through the issuance or
granting of any options, warrants, commitments, subscriptions, rights to
purchase or otherwise) any of its capital stock or any securities convertible
into or exercisable or exchangeable for shares of its capital stock, other than
the issuance by Condor or Amwest of shares of its Common Stock pursuant to the
exercise of employee stock options and other rights set forth in the Condor or
Amwest Disclosure Schedule;
(d)......other than in the ordinary course of business, incur
any material liability or obligation (absolute, accrued, contingent or
otherwise) or issue any debt securities or assume, guarantee, endorse or
otherwise as an accommodation become responsible for, the obligations of any
other individual or entity, or change any assumption underlying, or methods of
calculating, any bad debt, contingency or other reserve;
(e)......enter into, adopt or, except as determined by Condor
or Amwest to be necessary to comply with applicable law or maintain tax-favored
status (and any nonmaterial changes incidental thereto), amend any Employment
Related Agreement or Employee Benefit Plan or grant, or become obligated to
grant, any increase in the compensation payable or to become payable to any of
their officers or directors or any general increase in the compensation payable
or to become payable to their employees (including, in each case, any such
increase pursuant to any Employment Related Agreement or Employee Benefit Plan,
other than an increase pursuant to the terms of such an Employment Related
Agreement or Employee Benefit Plan in effect on the date of this Agreement and
reflected on the Condor or Amwest Disclosure Schedule), other than in connection
with individual performance reviews in the ordinary course of business and
consistent with past practice;
(f)......acquire (by merger, consolidation, or acquisition of
stock or assets) any corporation, partnership or other business organization or
division thereof or make any investment either by purchase of stock or
securities, contributions to capital, property transfer, or purchase of an
amount in excess of $50,000 individually, or in the aggregate, of properties or
assets of any other individual or entity, provided, however, Condor and Amwest
may each continue to make investment portfolio purchases and sales at their
respective subsidiary levels in the ordinary course of their respective
businesses and provided, further, that Amwest may make additional investments or
acquisitions in an aggregate amount not to exceed $5 million;
(g)......pay, discharge or satisfy any material claims,
liabilities or obligations (absolute, accrued, contingent or otherwise), other
than the payment, discharge or satisfaction in the ordinary course of business
of liabilities reflected or reserved against on Condor's or Amwest's Latest
Balance Sheet, or subsequently incurred in the ordinary course of business, or
disclosed pursuant to this Agreement;
(h)......acquire (including by lease) any material assets or
properties or dispose of, mortgage or encumber any material assets or
properties, other than in the ordinary course of business, except that Amwest
may enter into a new real property lease or purchase agreement for a new
corporate headquarters facility and that Amwest may purchase from Amwest Surety
Insurance Company shares of Condor Common Stock;
(i)......waive, release, grant or transfer any material rights
or modify or change in any material respect any material existing license,
lease, contract or other document, other than in the ordinary course of business
and consistent with past practice, except that Amwest may amend or modify its
existing real property lease for its existing corporate headquarters facility;
(j)......except as may be required as a result of a change in
law or in generally acceptedaccounting principles, change any of the accounting
principles or practices used by it;
(k)......revalue in any material respect any of its assets,
including, without limitation, writing down the value of inventory or
writing-off notes or accounts receivable other than in the ordinary course of
business;
(l)......make or revoke any Tax election or settle or
compromise any material Tax liability or change (or make a request to any taxing
authority to change) any material aspect of its method of accounting for Tax
purposes;
(m)......settle or compromise any pending or threatened suit,
action or claim relating tothe transactions contemplated hereby;
(n)......settle or compromise any pending or threatened suit,
action or claim in the ordinary course of Amwest's or Condor's respective
businesses, except that Amwest may settle, compromise or make payments with
respect to its existing litigation relating to California Proposition 103; or
(o)......take any action or agree, in writing or otherwise, to
take any of the foregoing actions or any action which would at any time make any
representation or warranty in Article III (other than Section 3.09 solely as it
relates to payment, Sections 3.12 with respect to the defense of any litigation,
arbitration or claim, and Section 3.13) or Article IV (other than Section 4.17
solely as it relates to payment and Section 4.07 with respect to the defense of
any litigation, arbitration or claim) untrue or incorrect.
Section 5.02 Access to Information
(a)......Between the date of this Agreement and the Effective
Time, Amwest and Condor will upon reasonable notice give to each other and the
other's authorized representatives access during regular business hours to all
of its personnel, plants, offices, warehouses and other facilities and to all of
its books and records and will permit the other to make such inspections as it
may require and will cause its officers and those of its Affiliated Entities to
furnish the other with such financial and operating data and other information
with respect to its business and properties as the other may from time to time
reasonably request.
(b)......Information obtained by the parties hereto pursuant
to this Section 5.02 shall be subject to the provisions of the confidentiality
agreement between Amwest and Condor dated November 15, 1995, which agreement
remains in full force and effect. If this Agreement is terminated, each party
will (i) deliver to the other all documents, work papers and other material
(including copies) obtained by such party or on its behalf from the other party
as a result of this Agreement or in connection herewith, and (ii) destroy or
provide to outside counsel for retention all material working papers reflecting
any of the confidential information contained in such documents, work papers and
other material. In addition, if this Agreement is terminated neither party shall
disclose, except as required by law, the basis or reason for such termination,
without the consent of the other party.
Section 5.03 All Reasonable Efforts
Upon the terms and subject to the conditions hereof, and
subject to the fiduciary duties of the Board of Directors of Condor and of
Amwest under applicable law, Amwest and Condor each agree to use all reasonable
efforts promptly to take, or cause to be taken, all appropriate action and to
do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement and will use all reasonable efforts
to obtain all waivers, permits, consents and approvals and to effect all
registrations, filings and notices with or to third parties or governmental or
public bodies or authorities which are in the opinion of Amwest or Condor
necessary or desirable in connection with the transactions contemplated by this
Agreement, including, without limitation, filings and approvals to the extent
required under the DGCL, the Securities Act, the Exchange Act, the Insurance
Code and the HSR Act or any rule of the ASE or NASD. If at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement, the proper officers or directors of Amwest and
Condor will take such action.
Section 5.04 Public Announcements
Amwest, on the one hand, and Condor, on the other hand, will
consult with each other before issuing any press release or otherwise making any
public statements with respect to this Agreement or the transactions
contemplated hereby and will not issue any such press release or make any such
public statement prior to such consultation. Notwithstanding the foregoing,
Amwest and Condor shall not be prohibited from issuing any press release or
making any public statement as may be required under applicable law, but in any
such event, Amwest or Condor, as the case may be, shall notify the other party
prior to taking such action.
Section 5.05 Notification of Certain Matters
Amwest and Condor will give prompt notice to one another of
(i) the occurrence, or failure to occur, of any event which occurrence or
failure would or would be likely to cause any of their respective
representations or warranties contained in this Agreement to be untrue or
inaccurate in any material respect or would or would likely cause any condition
in Article VII to become impossible to fulfill, or unlikely to be fulfilled, at
any time from the date hereof to the Effective Time, and (ii) any failure on its
part or on the part of any of their respective officers, directors, employees,
representatives or agents to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by them under this Agreement;
provided, however, that no such notification will alter or otherwise affect such
representations, warranties, covenants, conditions or agreements.
Section 5.06 Indemnification and Insurance
(a)......From and after the Effective Time, Amwest shall
indemnify, defend and hold harmless each person who is now, or has been at any
time prior to the date hereof or who becomes prior to the Effective Time, an
officer or director of Condor or any Affiliated Entity or a holder of Condor
Common Stock (the "Indemnified Parties") against (i) all losses, claims,
damages, costs, expenses (including attorney's fees), liabilities or judgments
or amounts that are paid in settlement (which settlement shall require the prior
written consent of Amwest, which consent shall not be unreasonably withheld) of
or in connection with any claim, action, suit, proceeding or investigation (a
"Claim") in which an Indemnified Party is, or is threatened to be made, a party
or a witness based in whole or in part on or arising in whole or in part out of
the fact that such person is or was an officer, director or employee of Condor
or any Affiliated Entity, whether such Claim pertains to any matter or fact
arising, existing or occurring at or prior to the Effective Time (including,
without limitation, the Merger and other transactions contemplated by this
Agreement), regardless of whether such Claim is asserted or claimed prior to, at
or after the Effective Time (the "Indemnified Liabilities"), and (ii) all
Indemnified Liabilities based in whole or in part on, or arising in whole or in
part out of, or pertaining to this Agreement or the transactions contemplated
hereby; in each case to the full extent Condor would have been permitted under
Delaware law and its Certificate of Incorporation and Bylaws to indemnify such
person (and Amwest shall pay expenses in advance of the final disposition of any
such action or proceeding to each Indemnified Party to the full extent permitted
by law and under such Certificate of Incorporation or Bylaws, upon receipt of
any undertaking required by such Certificate of Incorporation, Bylaws or
applicable law). Any Indemnified Party wishing to claim indemnification under
this Section 5.06(a), upon learning of any Claim, shall notify Amwest (but the
failure to so notify Amwest shall not relieve it from any liability which Amwest
may have under this Section 5.06(a) except to the extent such failure prejudices
Amwest) and shall deliver to Amwest any undertaking required by such Certificate
of Incorporation, Bylaws or applicable law. Amwest shall use its best efforts to
assure, to the extent permitted under applicable law, that all limitations of
liability existing in favor of the Indemnified Parties as provided in Condor's
Certificate of Incorporation and Bylaws, as in effect as of the date hereof,
with respect to claims or liabilities arising from facts or events existing or
occurring prior to the Effective Time (including, without limitation, the
transactions contemplated by this Agreement), shall survive the Merger. The
obligations of Amwest described in this Section 5.06(a) shall continue in full
force and effect, without any amendment thereto, for a period of three years
from the Effective Time; provided, however, that all rights to indemnification
in respect of any Claim asserted or made within such period shall continue until
the final disposition of such Claim; and provided further that nothing in this
Section 5.06(a) shall be deemed to modify applicable Delaware law regarding
indemnification of former officers and directors. Notwithstanding anything
contained in this Section 5.06, the indemnification provided hereunder shall not
exceed the coverage provided by the insurance currently provided the Indemnified
Parties by Condor.
(b)......The obligations of Amwest under this Section 5.06 are
intended to benefit, and be enforceable against Amwest directly by the
Indemnified Parties, and shall be binding on all respective successors of
Amwest.
Section 5.07 Regulatory Approvals
Condor and Amwest will take all such action as may be
necessary under federal or state securities laws or the HSR Act or the
California Insurance Code applicable to or necessary for, and will file and, if
appropriate, use their best efforts to have declared effective or approved all
documents and notifications with the SEC, the California Department of
Insurance, the Arizona State Department of Insurance and other governmental or
regulatory bodies which they deem necessary or appropriate for, the consummation
of the Merger and the transactions contemplated hereby, and each party shall
give the other information reasonably requested by such other party pertaining
to it and Affiliated Entities to enable such other party to take such actions,
and Condor and Amwest shall file in a timely manner all reports and documents
required to be so filed by or under the Exchange Act or the Insurance Code which
they deem necessary or appropriate in relation to the Merger.
Section 5.08 Employee Matters
(a)......Amwest will cause service with Condor and its
Affiliated Entities and their predecessors prior to the Effective Time to be
taken into account for eligibility and vesting purposes in connection with any
benefit or payroll plan, practice, policy or agreement of Amwest or any of its
affiliates in which any employee of Condor or an Affiliated Entity may become
entitled to participate at or after the Effective Time.
(b)......Amwest hereby assumes and agrees to perform and pay
or cause to be performed and paid all of Condor's duties and obligations under
the employment and option agreements listed in Section 3.03 of the Condor
Disclosure Schedule, to the extent they have not been terminated prior to the
Effective Time.
(c)......The obligations of Amwest under Sections 5.08(a) and
5.08(b) are intended to benefit, and be enforceable against Amwest directly by,
the parties (other than Condor) to such agreements and the participants or
former participants in such plans and their respective beneficiaries and other
successors in interest, and shall be binding on all successors of Amwest.
Section 5.09 No Actions Inconsistent With Tax-Free
Reorganization
Condor shall take no action with respect to its capital stock,
assets or liabilities that would cause the Merger not to qualify as a
"reorganization" within the meaning of Sections 368(a)(1)(A) of the Code.
Section 5.10. Other Potential Acquirors
(a)......Condor, its Affiliated Entities and their respective
officers, directors, employees, representatives and agents shall immediately
cease any existing discussions or negotiations, if any, with any parties
conducted heretofore with respect to any acquisition of all or any material
portion of the assets of, or any equity interest in, Condor or its Affiliated
Entities or any business combination with Condor or its Affiliated Entities.
Condor may, directly or indirectly, furnish information and access, in each case
only in response to unsolicited requests therefor, to any corporation,
partnership, person or other entity or group pursuant to confidentiality
agreements, and may participate in discussions and negotiate with such entity or
group concerning any merger, sale of assets, sale of shares of capital stock or
similar transaction involving Condor or any Affiliated Entity or division of
Condor, if such entity or group has submitted a written proposal to the Condor
board of directors (the "Condor Board") relating to any such transaction and the
Condor Board by a majority vote determines in its good faith judgment, after
consultation with and based upon the advice of outside legal counsel that it is
required to do so to comply with its fiduciary duties to stockholders under
applicable law. The Condor Board shall provide a copy of any such written
proposal and a summary of any oral proposal to Amwest immediately after receipt
thereof and thereafter keep Amwest promptly advised of any development with
respect thereto. Except as set forth above, neither Condor nor any of its
Affiliated Entities shall, nor shall Condor authorize or permit any of its or
their respective officers, directors, employees, representatives or agents to
directly or indirectly, encourage, solicit, participate in or initiate
discussions or negotiations with, or provide any information to, any
corporation, partnership, person or other entity or group (other than Amwest,
any Affiliated Entity of Amwest or any designee of Amwest) concerning any
merger, sale of assets, sale of shares of capital stock or similar transaction
involving Condor or any Affiliated Entity or division of Condor; provided,
however, that nothing herein shall prevent the Condor Board from taking, and
disclosing to Condor's stockholders, a position contemplated by Rules 14d-9 and
14e-2 promulgated under the Exchange Act with regard to any tender offer;
provided, further, that nothing herein shall prevent the Condor Board from
making such disclosure to Condor's stockholders as, in the good faith judgment
of the Condor Board, after consultation with and based upon the advice of
outside legal counsel, is required to comply with its fiduciary duties to
stockholders under applicable law.
(b)......Except as set forth in this Section 5.10, the Condor
Board shall not approve or recommend, or cause Condor to enter into any
agreement with respect to, any Third Party Acquisition (as defined below).
Notwithstanding the foregoing, if the Condor Board, after consultation with and
based upon the advice of outside legal counsel, determines in good faith that it
is necessary to do so in order to comply with its fiduciary duties to
stockholders under applicable law, the Condor Board may withdraw, modify or
change its approval or recommendation of this Agreement or the Merger and
approve or recommend a Superior Proposal (as defined below) or cause Condor to
enter into an agreement with respect to a Superior Proposal, but in each case
only (i) after providing reasonable written notice to Amwest (a "Notice of
Superior Proposal") advising Amwest that the Condor Board has received a
Superior Proposal and identifying the person making such Superior Proposal and
(ii) if Amwest does not make within seven business days of Amwest's receipt of
the Notice of Superior Proposal, an offer which the Condor Board, after
consultation with its financial advisors, determines is superior to such
Superior Proposal. In addition, if Condor proposes to enter into an agreement
with respect to any Third Party Acquisition, it shall concurrently with entering
into such an agreement pay, or cause to be paid, to Amwest the fee required by
Section 8.03(a) hereof. For purposes of this Agreement, a "Superior Proposal"
means any bona fide proposal to acquire, directly or indirectly, for
consideration consisting of cash and/or securities, more than 50% of the Condor
Common Stock then outstanding or all or substantially all the assets of Condor
or any merger or similar transaction involving Condor or any Affiliated Entity
or division of Condor and otherwise on terms which the Condor Board determines
in its good faith judgment (based on the advice of a financial advisor of
nationally recognized reputation) to be more favorable to Condor's stockholders
than the Merger.
Section 5.11 Letter of Condor's Accountants
Condor shall use its best efforts to cause to be delivered to
Amwest a letter from KPMG Peat Marwick, Condor's independent auditors, dated a
date within two business days before the date on which the S-4 shall become
effective and addressed to Amwest, in form and substance reasonably satisfactory
to Amwest and customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the S-4.
Section 5.12 Stock Exchange Listing
Amwest shall use all reasonable efforts to cause the shares of
Amwest Common Stock to be issued in the Merger and the shares of Amwest Common
Stock to be reserved for issuance upon exercise of Amwest Options granted
pursuant to Section 2.01(a) to be approved for listing on the ASE, subject to
official notice of issuance, prior to the date of Closing.
Section 5.13 Pooling of Interests
Condor and Amwest each agrees that it will not take any action
which could prevent the Merger from being accounted for as a
"pooling-of-interests" for accounting purposes and each of Condor and Amwest
will bring to the attention of the other any actions which could reasonably
likely prevent Amwest from accounting for the Merger as a
"pooling-of-interests."
Section 5.14 Employment Agreement
Amwest shall, as of or prior to the Effective Time, enter into
an employment agreement with Guy Main on substantially the terms set forth in
the form of Employment Agreement agreed to as of the date hereof. Pursuant to
the Employment Agreement, Guy Main will be employed by Amwest for a four year
term at compensation levels consistent with the compensation for comparable
Amwest executives. The employment agreement will provide that Guy Main will have
the titles of Executive Vice President of Amwest and President of Condor
Insurance Company during the term of his employment.
Section 5.15 Condor Affiliates
Prior to the date of Closing, Condor shall deliver to Amwest a
letter identifying all persons who are, at the time this Agreement is submitted
for approval to the stockholders of Condor, "affiliates" of Condor for purposes
of Rule 145 under the Securities Act. Condor shall use its best efforts to cause
each such person to deliver to Amwest on or prior to the date of Closing a
written agreement, substantially in the form attached as Exhibit B hereto.
Section 5.16 Agreement with Guy A. Main
Condor and Amwest agree that, as of the Effective Time, Amwest
and Guy Main will enter into an Agreement substantially in the form attached as
Exhibit C hereto.
ARTICLE VI CLOSING
Section 6.01 Time and Place
Subject to the provisions of Articles VII and VIII, the
consummation of the transactions contemplated by this Agreement (the "Closing")
will take place at the offices of Gibson, Dunn & Crutcher, 333 S. Grand Avenue,
Los Angeles, California 90071, immediately after the approvals by stockholders
of Amwest and Condor referred to in Section 2.02 hereof and the fulfillment of
the other conditions to the Merger set forth in Article VII hereof has been
obtained or at such other place or at such other time as may be mutually agreed
upon by Amwest and Condor.
Section 6.02 Deliveries at the Closing
Subject to the provisions of Articles VII and VIII, at the
Closing:
(a)......There will be delivered to Amwest and Condor the
certificates and other documents and instruments the delivery of which is
contemplated under Article VII; and
(b)......Amwest and Condor will cause appropriate documents
necessary to effect the Merger to be filed in accordance with the provisions of
Section 251 of the DGCL and shall take any and all other lawful actions and do
any and all other lawful things necessary to cause the Merger to become
effective.
ARTICLE VII
CONDITIONS TO THE MERGER
Section 7.01 Conditions to the Obligations of Amwest
and Condor
The respective obligations of Amwest and Condor to effect the
Merger are subject to fulfillment at or prior to the date of the Closing of the
following conditions:
(a)......Any waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have expired or been
terminated, and any other governmental or regulatory notices or approvals
required with respect to the transactions contemplated hereby shall have been
either filed or received;
(b)......The Merger shall have been approved by the requisite
vote of the stockholders of Condor required by the DGCL, NASD and Condor's
Certificate of Incorporation and Bylaws;
(c)......The Merger shall have been approved by the requisite
vote of the stockholders of Amwest required by the DGCL, ASE and Amwest's
Articles of Incorporation and Bylaws;
(d)......The Registration Statement shall have become
effective and no stop order suspending the effectiveness thereof shall be in
effect and no proceedings for such purpose shall be pending or threatened before
the Commission;
(e)......The shares of Amwest Common Stock issuable in the
Merger shall be approved for quotation on the ASE upon notice of issuance;
(f)......No order, statute, rule, regulation, executive order,
stay, decree, judgment, or injunction shall have been enacted, entered, issued,
promulgated or enforced by any court or governmental authority which prohibits
or restricts the effectuation of the Merger;
(g)......No governmental action or proceeding shall have been
commenced or threatened seeking any injunction, restraining or other order which
seeks to prohibit, restrain, invalidate or set aside the effectuation of the
Merger;
(h)......The Merger and the transactions contemplated thereby
shall have been approved by the Commissioners of the California Department of
Insurance and the Arizona State Department of Insurance; and
(i)......Amwest shall have received from Union Bank a written
waiver with respect to consummation of the Merger and the transactions
contemplated thereby.
Section 7.02 Additional Conditions to the Obligations
of Amwest
The obligations of Amwest to effect the Merger are also
subject to the fulfillment at or prior to the date of the Closing of the
following additional conditions:
(a)......Condor shall have performed and complied in all
material respects with the agreements and obligations contained in this
Agreement that are required to be performed and complied with by it at or prior
to the date of the Closing;
(b)......The representations and warranties of Condor
contained in this Agreement shall be true and correct in all material respects,
as of the date hereof and shall be deemed to have been made again at and as of
the date of the Closing and shall then be true and correct in all material
respects except on each date, for breaches or inaccuracies, the combination of
which would not constitute a Material Adverse Effect on Condor;
(c)......All corporate actions on the part of Condor necessary
to authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby or thereby shall have been
duly and validly taken;
(d)......Condor shall have received consents to the Merger
from all persons from whom such consent or waiver is required, as referred to in
Section 4.06;
(e)......Amwest shall have received the opinions of counsel
from Kindel & Anderson, counsel to Condor covering such matters and in the form
and substance agreed upon as of the date hereof;
(f)......Amwest shall have received such certificates of
officers of Condor and such certificates of others to evidence compliance with
the conditions set forth in this Section 7.02 and in Section 7.01 as may be
reasonably requested by Amwest;
(g)......Since the date of this Agreement, there shall have
been no material adverse change in, and no event, occurrence or development in
the business of Condor that, taken together with other events, occurrences and
developments with respect to such business, would have or would reasonably be
expected to have a Material Adverse Effect on Condor;
(h)......Condor shall deliver to Amwest an agreement of
stockholder in the form ofExhibit A, executed by the Condor Stockholder;
(i)......The Conversion Number shall not exceed 0.6;
(j)......Condor shall have delivered to Amwest an opinion of
Condor's consulting actuary, executed by Tim Perr, as of the most recently
completed monthly period of which actuarial information is available prior to
the date of Closing, opining that as of such date the reserves for loss and loss
adjustment expense reflected on such balance sheet of Condor and its Affiliated
Entities have been established in conformity with generally accepted actuarial
principles and practices consistently applied, that such reserves were
established in conformity with the requirements of the California Department of
Insurance and that such reserves make a reasonable provision for all unpaid loss
and loss adjustment expense obligations of Condor under the terms of its
policies and agreements;
(k)......Amwest shall have received from its consulting
actuary, an opinion of actuary as of the most recently completed monthly period
of which actuarial information is available prior to the date of Closing,
opining that as of such date the reserves for loss and loss adjustment expense
reflected on such balance sheet of Condor and its Affiliated Entities have been
established in conformity with generally accepted actuarial principles and
practices consistently applied, that such reserves were established in
conformity with the requirements of the California Department of Insurance and
that such reserves make a reasonable provision for all unpaid loss and loss
adjustment expense obligations of Condor under the terms of its policies and
agreements;
(l)......Guy Main and all members of the Condor Board and any
other person deemed an Affiliate shall have performed his obligations under the
Affiliates Letter and Continuity of Interest Certificate in the form of Exhibit
B hereto, and Amwest shall have received a certificate signed by such persons to
such effect;
(m)......A.M. Best Company's ratings for each of Amwest Surety
Insurance Company and Far West Insurance Company shall not, as of the Effective
Time (and after taking into account the Merger and the transactions contemplated
thereby), be lower than "A" (Excellent);
(n)......Amwest shall have received an Officers' Certificate
Regarding Certain Tax Mattersfrom the Chief Financial Officer and the Chief
Executive Officer of Condor; and
(o)......Amwest shall have received from Condor a
certification of non-foreign status described in Treasury Regulation Section
1.1445-2(c)(2), and shall have received from Condor and each Affiliated Entity
owned directly by Condor a certification that such entities are not and have not
been "United States real property holding corporations" during the periods set
forth in, and in a the form described in, Treasury Regulation Section
1.1445-2(c)(3).
Section 7.03 Additional Conditions to the Obligations
of Condor
The obligations of Condor to effect the Merger are also
subject to the fulfillment at or prior to the date of the Closing of the
following additional conditions:
(a)......Amwest shall have performed and complied in all
material respects with the agreements and obligations contained in this
Agreement that are required to be performed and complied with by them at or
prior to the date of the Closing;
(b)......The representations and warranties of Amwest
contained in this Agreement shall be true and correct in all material respects
as of the date hereof and shall be deemed to have been made again at and as of
the date of the Closing and shall then be true and correct in all material
respects except on each date, for breaches or inaccuracies, the combination of
which would not constitute a Material Adverse Effect on Amwest;
(c)......All corporate actions on the part of Amwest necessary
to authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby and thereby shall have been
duly and validly taken;
(d)......Condor shall have received the opinion of counsel
from Gibson, Dunn & Crutcher, counsel to Amwest, covering such matters and in
the form and substance agreed upon as of the date hereof;
(e) Since the date of this Agreement, there shall have been no
material adverse change in, and no event, occurrence or development in the
business of Amwest that, taken together with other events, occurrences and
developments with respect to such business, would have or would reasonably be
expected to have a Material Adverse Effect on Amwest;
(f)......Condor shall have received such certificates of
officers of Amwest and such certificates of others to evidence compliance with
the conditions set forth in this Section 7.03 and in Section 7.01 as may be
reasonably requested by Condor;
(g)......Amwest shall have delivered to Condor an opinion of
Amwest's consulting actuary as of December 31, 1995, opining that as of such
date the reserves for loss and loss adjustment expense reflected on such balance
sheet of Amwest and its Affiliated Entities have been established in conformity
with generally accepted actuarial principles and practices consistently applied,
that such reserves were established in conformity with the requirements of the
California Department of Insurance and that such reserves make a reasonable
provision for all unpaid loss and loss adjustment expense obligations of Amwest
under the terms of its policies and agreements; and
(h)......The Conversion Number shall not be less than 0.4.
ARTICLE VIII
TERMINATION AND ABANDONMENT
Section 8.01 Termination
This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time:
(a)......by mutual written consent of Amwest and Condor;
(b)......by Amwest or Condor if (i) any court of competent
jurisdiction in the United States or other United States governmental authority
shall have issued a final order, decree or ruling or taken any other final
action restraining, enjoining or otherwise prohibiting the Merger and such
order, decree, ruling or other action is or shall have become nonappealable or
(ii) the Merger has not been consummated by June 30, 1996; provided that no
party may terminate this Agreement pursuant to this clause (ii) if such party's
failure to fulfill any of its obligations under this Agreement shall have been
the reason that the Effective Time shall not have occurred on or before said
date;
(c)......by Condor if (i) there shall have been a breach of
any representation or warranty on the part of Amwest set forth in this
Agreement, or if any representation or warranty of Amwest shall have become
untrue, in either case such that the conditions set forth in Section 7.03(b)
would be incapable of being satisfied by June 30, 1996 (or as otherwise
extended), (ii) there shall have been a breach by Amwest of any of its covenants
or agreements hereunder having a Material Adverse Effect on Amwest or materially
adversely affecting (or materially delaying) the consummation of the Merger, and
Amwest has not cured such breach within twenty business days after notice by
Condor thereof, provided that Condor has not breached any of its obligations
hereunder, (iii) Condor enters into a definitive agreement relating to a
Superior Proposal in accordance with Section 5.10(b), provided that such
termination under this clause (iii) shall not be effective until payment of the
fee required by Section 8.03(a) hereof, or (iv) Amwest shall have convened a
meeting of its stockholders to vote upon the Merger and shall have failed to
obtain the requisite vote of its stockholders; or
(d)......by Amwest if (i) there shall have been a breach of
any representation or warranty on the part of Condor set forth in this
Agreement, or if any representation or warranty of Condor shall have become
untrue, in either case such that the conditions set forth in Section 7.02(b)
would be incapable of being satisfied by June 30, 1996 (or as otherwise
extended), (ii) there shall have been a breach by Condor of its covenants or
agreements hereunder having a Material Adverse Effect on Condor or materially
adversely affecting (or materially delaying) the consummation of the Merger, and
Condor has not cured such breach within twenty business days after notice by
Amwest thereof, provided that Amwest has not breached any of its obligations
hereunder, (iii) Condor shall engage in negotiations with any entity or group
(other than Amwest) that has proposed a Third Party Acquisition (as defined
below) and such negotiations shall have continued for more than 20 business days
after Condor has first furnished information to such entity or group or
commenced negotiations with such party (whichever is earlier), (iv) the Condor
Board shall have withdrawn, modified or changed its approval or recommendation
of this Agreement or the Merger, shall have recommended to the Condor
stockholders a Third Party Acquisition or shall have failed to call, give notice
of, convene or hold a stockholders' meeting to vote upon the Merger, or shall
have adopted any resolution to effect any of the foregoing, (v) Amwest shall
have convened a meeting of its stockholders to vote upon the Merger and shall
have failed to obtain the requisite vote of its stockholders or (vi) Condor
shall have convened a meeting of its stockholders to vote upon the Merger and
shall have failed to obtain the requisite vote of its stockholders.
"Third Party Acquisition" means the occurrence of any of the
following events (i) the acquisition of Condor by merger or otherwise by any
person (which includes a "person" as such term is defined in Section 13(d)(3) of
the Exchange Act) or entity other than Amwest or any affiliate thereof (a "Third
Party"); (ii) the acquisition by a Third Party of more than 30% of the total
assets of Condor and its Affiliated Entities, taken as a whole; or (iii) the
acquisition by a Third Party of 30% or more of the outstanding Shares.
Section 8.02 Effect of Termination
In the event of the termination and abandonment of this
Agreement pursuant to Section 8.01, this Agreement shall forthwith become void
and have no effect, without any liability on the part of any party hereto or its
affiliates, directors, officers or stockholders, other than the provisions of
this Section 8.02 and Sections 5.02(b), 5.04, 8.03 and Article IX hereof.
Nothing contained in this Section 8.02 shall relieve any party from liability
for any breach of this Agreement.
Section 8.03 Fees and Expenses
(a)......In the event that this Agreement shall be terminated
pursuant to:
(i) Section 8.01(c)(iii);
(ii) Sections 8.01(d)(i), (ii) or (iii) and, within
twelve months thereafter, Condor enters into an agreement with
respect to a Third Party Acquisition, or a Third Party
Acquisition occurs, involving any party (or any affiliate
thereof) (x) with whom Condor (or its agents) had negotiations
with a view to a Third Party Acquisition, (y) to whom Condor
(or its agents) furnished information with a view to a Third
Party Acquisition or (z) who had submitted a proposal or
expressed an interest in a Third Party Acquisition, in the
case of each of clauses (x), (y) and (z) after the date hereof
and prior to such termination;
(iii) Section 8.01(d)(iv); or
(iv) Section 8.01(d)(vi);
Amwest would suffer direct and substantial damages, which damages cannot be
determined with reasonable certainty. To compensate Amwest for such damages,
Condor shall pay to Amwest the amount of $700,000 in cash as liquidated damages
immediately upon such a termination. It is specifically agreed that the amount
to be paid pursuant to this Section 8.03(a) represents liquidated damages and
not a penalty.
(b)......Upon the termination of this Agreement pursuant to
Sections 8.01(d)(i), (ii), (iii), (iv) or (vi), Condor shall reimburse Amwest
and its affiliates (not later than ten business days after submission of
statements therefor) for all actual documented out-of-pocket fees and expenses,
actually and reasonably incurred by any of them or on their behalf in connection
with the Merger and the consummation of all transactions contemplated by this
Agreement (including, without limitation, fees payable to investment bankers,
counsel to any of the foregoing, and accountants). Amwest shall have provided
Condor with an estimate of the amount of such fees and expenses and, if Amwest
shall have submitted a request for reimbursement hereunder, will provide Condor
in due course with invoices or other reasonable evidence of such expenses upon
request. Condor shall in any event pay the amount requested within ten business
days of such request, subject to Condor's right to demand a return of any
portion as to which invoices are not received in due course.
(c)......Upon the termination of this Agreement pursuant to
Sections 8.01(c)(i), (ii) or (iv), Amwest shall reimburse Condor and its
affiliates (not later than ten business days after submission of statements
therefor) for all actual documented out-of-pocket fees and expenses, actually
and reasonably incurred by any of them or on their behalf in connection with the
Merger and the consummation of all transactions contemplated by this Agreement
(including, without limitation, fees payable to investment bankers, counsel to
any of the foregoing, and accountants). Condor shall have provided Amwest with
an estimate of the amount of such fees and expenses and, if Condor shall have
submitted a request for reimbursement hereunder, will provide Amwest in due
course with invoices or other reasonable evidence of such expenses upon request.
Amwest shall in any event pay the amount requested within ten business days of
such request, subject to Amwest's right to demand a return of any portion as to
which invoices are not received in due course.
(d)......Except as specifically provided in this Section 8.03,
each party shall bear its own expenses in connection with this Agreement and the
transactions contemplated hereby.
ARTICLE IX
GENERAL PROVISIONS
Section 9.01 Amendment and Modification
Subject to applicable law, this Agreement may be amended,
modified or supplemented only by written agreement of Amwest and Condor at any
time prior to the Effective Time with respect to any of the terms contained
herein except that after the approvals by stockholders contemplated by Section
2.02, the amount or form of consideration to be received by the holders of
voting shares of Condor may not be decreased or altered without the approval of
such holders.
Section 9.02 Waiver of Compliance; Consents
Any failure of Amwest, on the one hand, or Condor on the other
hand, to comply with any obligation, covenant, agreement or condition herein may
be waived in writing by Amwest or Condor, respectively, but such waiver or
failure to insist upon strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure. Whenever this Agreement requires or
permits consent by or on behalf of Amwest or Condor, such consent shall be given
in writing in a manner consistent with the requirements for a waiver of
compliance as set forth in this Section 9.02.
Section 9.03 Validity
The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
Section 9.04 Parties in Interest
This Agreement shall be binding upon and inure solely to the
benefit of Amwest and Condor, and nothing in this Agreement (except the
provisions of Sections 5.06 and 5.08), express or implied, is intended to confer
upon any other person any rights or remedies of any nature whatsoever under or
by reason of this Agreement.
Section 9.05 Survival of Representations, Warranties,
Covenants and Agreements
Except as provided in the following sentence, the respective
representations and warranties of Amwest and Condor shall not survive the
Effective Time, but covenants that specifically relate to periods, activities or
obligations subsequent to the Merger shall survive the Merger. If this Agreement
is terminated pursuant to Section 8.01, the covenants contained in Sections
5.02(b), 5.04 and 8.03 shall survive such termination.
Section 9.06 Notices
All notices and other communications hereunder shall be in
writing and shall be deemed given on the date of delivery, if delivered
personally or faxed during normal business hours of the recipient, or three days
after deposit in the U.S. Mail, postage prepaid, if mailed by registered or
certified mail (return receipt requested) as follows:
(a)....if to Amwest or to Condor after the Effective Time, to:
Amwest Insurance Group, Inc.
6320 Canoga Avenue, Suite 300
Woodland Hills, California 91367
Attention: Co-Chief Executive Officers
and Chief Financial Officer
with a copy to:
Gibson, Dunn & Crutcher
333 South Grand Avenue
Los Angeles, CA 90071-3197
Attention: Jonathan K. Layne, Esq.
(b)....if to Condor prior to the Effective Time, to:
Condor Services, Inc.
2361 Rosecrans Avenue
El Segundo, California 90245
Attention: Chief Executive Officer
with a copy to:
Kindel & Anderson
555 S. Flower St., 29th Fl.
Los Angeles, California 90071-2498
Attention: Stephen E. Newton, Esq.
Section 9.07 Governing Law
The Agreement shall be governed by and construed in accordance
with the law of the State of Delaware without regard to the conflicts of law
rules thereof.
Section 9.08 Counterparts
This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same agreement.
Section 9.09 Table of Contents and Headings
The table of contents and article and section headings
contained in this Agreement are solely for the purpose of reference, are not
part of the agreement of the parties and shall not affect in any way the meaning
or interpretation of this Agreement.
Section 9.10 Entire Agreement
This Agreement, including the exhibits and schedules hereto
and the documents and instruments referred to herein or executed
contemporaneously herewith, embodies the entire agreement and understanding of
Amwest and Condor in respect of the subject matter contained herein and
supersedes all prior agreements and understandings among them with respect to
such subject matter.
Section 9.11 Arbitration; Attorneys' Fees and Expenses
Any controversy, dispute, or claim arising out of, in
connection with, or in relation to, the interpretation, performance or breach of
this Agreement, including, without limitation, the validity, scope and
enforceability of this Section 9.11, may at the election of any party, be solely
and finally settled by arbitration conducted in California, by and in accordance
with the then existing rules for commercial arbitration of the American
Arbitration Association, or any successor organization. Judgment upon any award
rendered by the arbitrator(s) may be entered by the state or federal court
having jurisdiction thereof. Any of the parties may demand arbitration by
written notice to the other and to the American Arbitration Association ("Demand
for Arbitration"). Any Demand for Arbitration pursuant to this Section 9.11
shall be made before the earlier of (i) the expiration of the applicable statute
of limitations with respect to such claim, or (ii) 60 days from the date on
which a lawsuit is brought by any other party with respect to such claim. The
parties intend that this agreement to arbitrate be valid, enforceable and
irrevocable. Time is of the essence in the resolution of any such dispute, and
the parties agree to instruct the arbitrator to institute accelerated procedures
to resolve any dispute. The losing party shall reimburse the prevailing party in
such arbitration, or in any legal proceeding arising out of, in connection with
or in relation to this Agreement, including this Section 9.11, in any state or
federal court, for the prevailing party's legal fees and expenses reasonably
incurred in connection with such arbitration or proceeding. The parties being
represented by counsel hereby waive any and all rights to punitive or special
damages arising from or relating to this Agreement or the transactions
contemplated herein.
Section 9.12 Miscellaneous
(a) For purposes of this Agreement, the term "Knowledge" of an
entity means knowledge actually possessed by any Director or officer of such
entity.
(b) If the SEC does not allow or the parties believe the SEC
will not allow the use of a Registration Statement on Form S-4 to register
Amwest Common Stock being issued to Stockholders or Condor believes it is no
longer in the interest of Stockholders to use Form S-4, Condor may elect to
require Amwest to file and maintain in effect for a two-year period a
Registration Statement on Form S-3 as soon as is practicable after the Effective
Time to register such shares, subject to a limitation that no stockholder
receiving such shares may, pursuant to such registration, sell more than 1% of
the amount of Amwest Common Stock Outstanding during any calendar quarter.
<PAGE>
IN WITNESS WHEREOF, Amwest and Condor have caused this
Agreement to be signed on their behalf by their respective duly authorized
officers on the date first above written.
AMWEST INSURANCE GROUP, INC.
By:___________________________________
Richard H. Savage
Chairman of the Board and
Co-Chief Executive Officer
CONDOR SERVICES, INC.
By:___________________________________
Guy A. Main
Chairman of the Board, President
and Chief Executive Officer
<PAGE>
ANNEX B
STOCKHOLDER AGREEMENT
This Stockholder Agreement (this "Agreement") dated as of
November 30, 1995, is entered into by and between Amwest Insurance Group, Inc.,
a Delaware corporation ("Amwest") and the undersigned stockholder (the
"Stockholder") of Condor Services, Inc., a Delaware corporation ("Condor").
RECITALS
A........Concurrently with the execution of this Agreement,
Condor is entering into an Agreement and Plan of Merger with Amwest dated
November 30, 1995 (the "Merger Agreement"), pursuant to which, among other
things, Condor shall merge with and into Amwest (the "Merger"), as a result of
which the stockholders of Condor immediately prior to such merger shall become
stockholders of Amwest.
B........As a condition to the execution of the Merger
Agreement, the Stockholder is willing to enter into and be bound by this
Agreement.
C........As of the date hereof, the Stockholder owns in the
aggregate 957,310 shares of Condor common stock, $.01 par value per share (the
"Main Shares").
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, and intending to be
legally bound hereby, the parties agree as follows:
1........AGREEMENT TO RETAIN SHARES.
1.1 Transfer and encumbrances. The Stockholder agrees not to
transfer (except as may be specifically required by court order), sell,
exchange, pledge or otherwise dispose of or encumber any of the Main
Shares, or to make any offer or agreement relating thereto, at any time
prior to the Expiration Date. As used herein, the term "Expiration
Date" shall mean the earlier to occur of (i) such date and time as the
Merger shall become effective in accordance with the terms and
provisions of the Merger Agreement and (ii) such date and time as the
Merger Agreement shall be terminated pursuant to the terms thereof.
2........AGREEMENT TO VOTE SHARES AND CALL STOCKHOLDER
MEETING. At every meeting of the stockholders of Condor called with respect to
any of the following, and at every adjournment thereof, and on every action or
approval by written consent of the stockholders of Condor on or before the
Expiration Date with respect to any of the following, the Stockholder shall vote
the Main Shares: (i) in favor of approval of the Merger Agreement and the Merger
and any matter that could reasonably be expected to facilitate the Merger; and
(ii) against approval of any proposal made in opposition to or competition with
consummation of the Merger and against any liquidation or winding up of Condor
(each of the foregoing is referred to as a "Opposing Proposal"). In the event a
meeting of Condor stockholders to consider and approve the Merger and the
transactions contemplated thereby has not taken place on or before May 1, 1996,
Stockholder agrees to immediately call and cause to occur a special meeting of
Condor stockholders to consider and approve the Merger and to vote in favor of
same as provided in Section 2(i) above.
3........OPTION TO PURCHASE SHARES. The Stockholder hereby
grants to Amwest the irrevocable option to purchase 825,000 of the Main Shares
at a per share exercise price equal to the Merger Consideration as defined and
subject to comparable adjustments as set forth in the Merger Agreement. The
option granted hereby is exercisable for the period commencing immediately upon
the termination of the Merger Agreement, if any, and ending on December 31,
1996. Amwest shall in no event be obligated to exercise such option at any time.
4........REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
STOCKHOLDER. The Stockholder hereby represents, warrants and covenants to
Amwest as follows:
4.1 Ownership of shares. The Stockholder (i) is the beneficial
owner of the Main Shares, which at the date hereof and at all times up
until the Expiration Date will be free and clear of any liens, claims,
options, charges or other encumbrances; and (ii) has full power and
authority to make, enter into and carry out the terms of this
Agreement.
4.2 No proxy solicitations. The Stockholder will not, and will
not permit any entity under the Stockholder's control to: (i) solicit
proxies or become "participants" in a "solicitation" (as such terms are
defined in Regulation 14A under the Exchange Act) with respect to an
Opposing Proposal or otherwise encourage or assist any party in taking
or planning any action that would compete with, restrain or otherwise
serve to interfere with or inhibit the timely consummation of the
Merger in accordance with the terms of the Merger Agreement; (ii)
initiate a stockholders' vote or action by consent of Condor
stockholders with respect to an Opposing Proposal; or (iii) become a
member of a "group" (as such term is used in Section 13(d) of the
Exchange Act) with respect to any voting securities of Condor with
respect to an Opposing Proposal. Notwithstanding the above, the
Stockholder may take any actions in such Stockholder's role as director
and/or officer of Condor permitted under the Merger Agreement.
5........ADDITIONAL DOCUMENTS. The Stockholder hereby
covenants and agrees to execute and deliver any additional documents necessary
or desirable, in the reasonable opinion of Amwest to carry out the intent of
this Agreement.
6........CONSENT AND WAIVER. The Stockholder hereby gives any
consents or waivers that are reasonably required for the consummation of the
Merger under the terms of any agreements to which the Stockholder is a party or
pursuant to any rights Stockholder may have; provided that this Section 6 shall
not be deemed a consent of Stockholder in lieu of a meeting as contemplated by
Section 228 of the Delaware General Corporation Law.
7........TERMINATION. This Agreement shall terminate and shall
have no further force or effect after the later of: (i) the Expiration Date and,
(ii) the expiration of the option granted pursuant to Section 3 hereof.
8........MISCELLANEOUS.
8.1 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, void or unenforceable, then the remainder
of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
8.2 Binding effect and assignment. This Agreement and all of
the provisions hereof shall be binding with respect to the specific
matters set forth herein and shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and
permitted assigns, but, except as otherwise specifically provided
herein, neither this Agreement nor any of the rights, interests or
obligations of the Stockholder may be assigned by the Stockholder
without the prior written consent of the others.
8.3 Amendments and modification. This Agreement may not be
modified, amended, altered or supplemented except upon the execution
and delivery of a written agreement executed by the party against whom
enforcement is sought.
8.4 Specific performance; injunctive relief. The parties
hereto acknowledge that a violation of any of the covenants or
agreements of one party set forth herein will result in the other
parties being irreparably harmed (such other parties hereafter referred
to as an "Injured Party") and will leave an Injured Party with no
adequate remedy at law. Therefore, it is agreed that, in addition to
any other remedies that may be available to an Injured Party upon any
such violation, an Injured Party shall have the right to enforce such
covenants and agreements by specific performance, injunctive relief or
by any other means available to an Injured Party at law or in equity.
8.5 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given on the date of delivery,
if delivered personally or faxed during normal business hours of the
recipient, or three days after deposit in the U.S. Mail, postage
prepaid, if mailed by registered or certified mail (return receipt
requested) as follows:
If to Amwest: Amwest Insurance Group, Inc.
6320 Canoga Avenue, Suite 300
Woodland Hills, California 91367
Attention: Co-Chief Executive Officers
and Chief Financial Officer
With a copy to: Gibson, Dunn & Crutcher
333 South Grand Avenue
Los Angeles, California 90071
Attention: Jonathan K. Layne
If to the Stockholder: c/o Condor Services, Inc.
2361 Rosecrans Avenue
El Segundo, California 90245
or to such other address as any party may have furnished to the other
in writing in accordance herewith, except that notices of change of
address shall only be effective upon receipt.
8.6 Governing law. This Agreement shall be governed by, and
construed and enforced in accordance with, the internal laws of the
State of Delaware.
8.7 Entire agreement. This Agreement contains the entire
understanding of the parties in respect of the subject matter hereof,
and supersedes all prior negotiations and understandings between the
parties with respect to such subject matter.
8.8 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which
together shall constitute one and the same agreement.
8.9 Effect of headings. The section headings herein are for
convenience only and shall not affect the construction of
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Stockholder
Agreement to be duly executed on the day and year first above written.
AMWEST INSURANCE GROUP, INC.
By:______________________________
Richard H. Savage
Chairman of the Board and
Co-Chief Executive Officer
STOCKHOLDER:
_________________________________
Guy A. Main
MAIN FAMILY TRUST:
By:_______________________________
Guy A. Main
Trustee
By:_______________________________
Freda Main
Trustee
<PAGE>
ANNEX C
OPINION JEFFERIES & COMPANY, INC.
November 30, 1995
The Board of Directors
AMWEST INSURANCE GROUP, INC.
6320 Canoga Avenue, Suite 300
Woodland Hills, CA 91367
Re: The proposed merger (the "Merger") of Condor Services, Inc. ("Condor")
with and into Amwest Insurance Group, Inc. ("Amwest" or the "Company").
Gentlemen:
You have asked us to advise you on the fairness, from a financial point
of view, to the holders of the outstanding shares of common stock, par value
$.01 per share (the "Amwest Common Stock"), of the Company (the "Stockholders")
of the Exchange Rate (defined below) contemplated by the Merger.
You have informed us that pursuant to the Merger, each outstanding
share of Common Stock, par value $.01 per share ("Condor Common Stock"), of
Condor (other than shares held by Amwest or its subsidiaries that will be
canceled pursuant to the Merger), will be converted into the right to receive
0.5 shares of Amwest Common Stock (the "Exchange Rate"), subject to an
adjustment as described in Section 1.05 of the draft of the Agreement and Plan
of Merger (the "Merger Agreement"), dated November 30, 1995, to be entered into,
by and between Amwest and Condor. The terms and conditions of the Merger,
including the adjustment, are more fully set forth in the Merger Agreement. We
note that the Merger has not yet been consummated. Any change in the Exchange
Rate or in the final form of the Merger Agreement could change the conclusions
expressed herein.
Jefferies & Company, Inc. ("Jefferies"), as part of its investment
banking activities, is regularly engaged in the evaluation of capital
structures. In addition, Jefferies performs valuations of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements, and other financial services. As you are aware, Jefferies
has been engaged by the Company to render, and has received a fee for rendering,
this opinion.
In connection with our opinion, we have, reviewed, among other things,
the draft of the Merger Agreement and certain financial and other information
about each of Amwest and Condor, that was, in each case, publicly available or
furnished to us by the Company or Condor, as the case may be, including certain
internal financial analyses, financial forecasts, the actuarial report on the
loss and loss adjustment reserves of Condor Insurance Company dated October 17,
1995, reports and other information prepared by Company and Condor management.
We have held discussions with members of senior management of the Company and
Condor concerning each company's historical and current operations, financial
conditions and prospects, as well as the strategic and operating benefits
anticipated from the business combination. In addition, we have conducted such
financial studies, analyses and investigations and reviewed such other factors
as we deemed appropriate for purposes of this opinion.
In rendering this opinion, we have relied, without independent
investigation or verification, on the accuracy, completeness and fairness of all
financial and other information reviewed by us and this opinion is conditioned
upon such information (whether written or oral), including, without limitation,
the information referred to in the preceding paragraph, being accurate, complete
and fair in all respects. You have informed us, and we have assumed, with your
permission, that all projections examined by us were reasonably prepared on
bases reflecting the best currently available estimates and good faith judgments
of the respective management of the Company and Condor as to the future
performance of each company. In addition, although we performed sensitivity
analysis thereon, in rendering this opinion we have assumed, with your
permission, that each such company will perform in accordance with such
projections for all periods specified therein. Although such projections did not
form the principal basis for our opinion, but rather was one among many items
employed, changes thereto could affect the opinion rendered herein. We have
assumed, with your permission, that the Merger will be a accounted for under the
"pooling of interest" accounting method.
We have not been requested to, and did not: (a) participate in the
structuring or negotiating of the Merger; (b) solicit third party indications of
interest in acquiring all or any part of the Company; or (c) make any
independent evaluation or appraisal of the assets or liabilities, contingent or
otherwise, of the Company or Condor, nor have we been furnished with any such
evaluation or appraisals, other than the actuarial report described herein.
We have assumed, with your permission, that all consents and
authorizations necessary to consummate the Merger have been, or will be
obtained, without material expense. Our opinion is addressed solely to the
fairness, from a financial point of view, of the Exchange Rate on the assumption
that the Company and its Board of Directors have determined that, from the
standpoint of its business and prospects, it is appropriate and desirable to
consummate the Merger. Our opinion is based on economic, monetary and market
conditions prevailing, and stock prices and other circumstances and conditions
existing, on the date of this letter, and we do not express any opinion as to
the market value of the Condor Common Stock or Amwest Common Stock, or the price
or trading range at which shares of Amwest Common Stock will trade following
consummation of the Merger. Without limiting the foregoing, we expressly
disclaim any undertaking or obligation to advise any person of any change in any
fact or matter affecting our opinion of which we become aware after the date
hereof.
In the ordinary course of Jefferies business, we may actively trade
securities of the Company and Condor for our own account and for the accounts of
our customers and, accordingly, may at any time hold a long or short position in
such securities.
It is understood that this letter is for the use of the Board of
Directors of the Company only and may not be used for any other purpose without
Jefferies prior, written consent, except that, the Company may include this
letter, in its entirety, and a description thereof, in any proxy statement,
registration statement or similar document distributed to the stockholders of
the Company in connection with the Merger. Without limiting the foregoing, this
letter does not constitute a recommendation to any stockholder of the Company as
to how such stockholder should vote with respect to the Merger.
Based upon and subject to the foregoing, it is our opinion that the
Exchange Rate is fair, from a financial point of view, to the Stockholders of
Amwest.
Very truly yours,
JEFFERIES & COMPANY, INC.
<PAGE>
ANNEX D
OPINION WEDBUSH MORGAN SECURITIES
November 30, 1995
Personal and Confidential
Board of Directors of Condor Services, Inc.
2041 Rosecrans Avenue
El Segundo, CA 90245
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the Public Shareholders of Condor Services, Inc. (the "Company") of the
consideration (the "Merger Consideration") to be received by the Public
Shareholders in the proposed merger (the "Merger") contemplated by the Agreement
and Plan of Merger dated November 30, 1995, by and between Amwest Insurance
Group, Inc. ("Amwest") and the Company (the "Merger Agreement"). The term
"Public Shareholders" as used herein refers to all shareholders of the Company
other than Amwest and other than those that are "affiliates" of the Company as
that term is used in Rule 12b-2 under the Securities Exchange Act of 1934.
The Merger Agreement defines the Merger Consideration as follows. At the
effective time of the Merger, each outstanding share of Condor Common Stock held
by a Public Shareholder shall be converted into the right to receive 0.5 of a
share (subject to adjustment pursuant to the following two sentences) of Amwest
Common Stock. If the average daily Closing Price (as defined in the Merger
Agreement) of Amwest Common Stock as reported on the American Stock Exchange for
the 30 consecutive trading days ending on the close of trading on the second
trading day preceding the closing date of the Merger (the "Base Period Trading
Price") is less than $12.50, the Merger Consideration would be increased by a
factor of 12.5 divided by the Base Period Trading Price. If the Base Period
Trading Price is greater than $17.50, the Merger Consideration would be
decreased by a factor of 17.5 divided by the Base Period Trading Price. In the
event that the portion of a share of Amwest Common Stock into which each share
of Condor Common Stock would be converted based upon the foregoing would be less
than four-tenths of a share (.4), Condor would have the right to terminate the
Merger Agreement without liability. In the event that the portion of a share of
Amwest Common Stock into which each share of Condor Common Stock would be
converted based upon the foregoing would exceed six-tenths of a share (.6),
Amwest would have the right to terminate the Merger Agreement without liability.
Wedbush Morgan Securities is an investment banking firm and a member of the New
York Stock Exchange and other principal stock exchanges in the United States,
and is regularly engaged as part of its business in the valuation of businesses
and their securities in connection with mergers and acquisitions, negotiated
underwritings, private placements, secondary distributions of listed and
unlisted securities, and valuations for corporate, estate and other purposes.
In arriving at our opinion set forth below, we have reviewed, among other
things, the Merger Agreement; the Stockholder Agreement by and between Amwest,
Guy A. Main, and the Main Family Trust; the Affiliates Letter and Continuity of
Interest Certificates executed by certain members of Condor management; the
Agreement With Guy A. Main and Main Family Trust to be entered into by and
between such parties and Amwest; the Registration Rights Agreement to be entered
into between Guy A. Main, the Main Family Trust and Amwest; the Annual Report on
Form 10-K of the Company for the fiscal year ended December 31, 1994; Quarterly
Reports on Form 10-Q of the Company for the quarters ended June 30, 1995 and
September 30, 1995; financial statements and analyses of the Company prepared by
Condor management for the fiscal years ended December 31, 1989 through December
31, 1993; the Proxy Statement for Annual Meeting of Stockholders of Condor dated
April 26, 1995; Quarterly Statement of Statutory Results of Condor as of
September 30, 1995; forecasts and projections prepared by Condor with respect to
Condor for the five fiscal years ending December 31, 1999; Actuarial Report on
the Loss and Loss Adjustment Expense Reserves of Condor as of September 30,
1995, prepared by Timothy B. Perr & Company, Consulting Actuaries; the
Annual Report to Shareholders of Amwest for the fiscal year ended December 31,
1994; Annual Reports on Form 10-K of Amwest for the fiscal year ended December
31, 1994; historical audited financial statements for the fiscal years ended
December 31, 1990 through December 31, 1993; Quarterly Report on Form 10-Q of
Amwest for the quarter ended September 30, 1995; Proxy Statement for Annual
Meeting of Stockholders of Amwest dated April 17,, 1995; financial forecasts of
Amwest alone for the five fiscal years ending December 31, 1999 and of Amwest
combined with Condor for the five fiscal years ending December 31, 1999 prepared
by Amwest management.
We have held discussions with certain members of the senior management of the
Company regarding the past and current business operations, financial condition,
future prospects and projected operations and performance of the Company. We
have held discussions with certain members of the senior management of Amwest
regarding the past and current business operations, financial condition, future
prospects and projected operations and performance of Amwest and of the combined
entities. We toured the headquarters of the Company in El Segundo, California
and the headquarters of Amwest in Canoga Park. In addition, we have reviewed the
reported price and trading activity of the Company Common Stock and of Amwest
Common Stock, compared certain statistical and financial information for the
Company and Amwest, respectively, with similar information for certain other
companies in the same industries as the Company and Amwest, respectively,
reviewed and compared statistical and financial data for recent acquisitions in
the same industry as the Company and conducted such other financial studies,
analyses and inquiries and considered such other matters as Wedbush deemed
necessary and appropriate for this opinion.
We note that under Section 7.03(g) of the Merger Agreement, the obligations of
the Company to effect the Merger are also subject to the receipt at or prior to
the date of the closing of the Merger of an opinion of Peat Marwick, consulting
actuary to Amwest, addressed to the Company, as of December 31, 1995, opining
that as of such date the reserves for loss and loss adjustment expense reflected
on such balance sheet of Amwest and its affiliated entities have been
established in conformity with generally accepted actuarial principles and
practices consistently applied, that such reserves were established in
conformity with applicable insurance regulatory requirements, and that such
reserves make a reasonable provision for all unpaid loss and loss adjustment
expense obligations of Amwest under the terms of its policies and agreements.
Our opinion is based in part on the Company's ability to obtain such assurances
and is subject to receipt of such an actuarial opinion. We note in this
connection that our experience is in financial analyses of the kind customary in
the investment banking profession and that we have not undertaken any obligation
to conduct or to supervise any actuarial analysis or review of the quality of
the reserves of Amwest or of the Company.
We further note that Amwest is a party to certain legal proceedings, currently
before the California Supreme Court, regarding the validity of Section 1861.135
of the California Insurance Code. Section 1861.135 exempts surety insurance from
the rate rollback and prior approval provisions of Proposition 103, the
insurance initiative adopted by California Voters. Our opinion is based on the
assumption that the outcome of such legl proceedings will not have a material
adverse effect on the financial position of Amwest.
We have not undertaken any obligation independently to verify the accuracy or
completeness of financial information or other information furnished to us by
the Company or Amwest orally or in writing, or other information obtained from
publicly available sources and reviewed by us for purposes of this opinion. We
were provided with information represented to us as the best currently available
estimates and judgments of the management of the Company and Amwest, as to the
expected future financial and operating performance of the Company and Amwest,
and we have not undertaken any responsibility for the accuracy of such
forecasts, estimates or judgments nor have we undertaken any obligation
independently to verify the underlying assumptions made in connection with such
forecasts, estimates or judgments. In addition, we have not made an independent
evaluation or appraisal of any particular assets or liabilities of the Company
or Amwest, and we have not been furnished with any such evaluation or appraisal.
We have not negotiated, or participated in any way in the negotiation of, the
terms of the Merger or advised you regarding strategic alternatives. We have not
been asked to consider, and this opinion does not address, the relative merits
of the Merger as compared to any alternative business strategies that might
exist for the Company or the effect of any other transaction in which the
Company might engage.
Based upon and subject to the foregoing and based upon such other matters as we
consider relevant, it is our opinion that, as of the date hereof, the Merger
Consideration is fair, from a financial point of view, to the Public
Shareholders.
This opinion is intended for the use of the Board of Directors of the Company in
connection with its consideration of the Merger. We recognize that the Company
may be required to disclose this opinion in any proxy statement related to the
Merger, and agree that the Company may do so, provided that the full text of the
opinion is attached to such proxy statement and that the descriptions of Wedbush
and the opinion in such proxy statement are approved by us in advance. We note,
however, that the opinion is intended to be for the benefit of the Board of
Directors, and not for the benefit of shareholders or any other third parties.
Our agreement to allow disclosure of the opinion in the Company's proxy
statement is intended solely to facilitate compliance by the Company with its
legal obligations, and should not be construed as (1) authorizing reliance on
such opinion by any shareholder of the Company or any other person, (2)
recommending to any shareholder how to vote regarding the Merger, or (3)
implying that Wedbush is, within the meaning of Section 7 or Section 11 of the
Securities Act of 1933, an "accountant, engineer, or appraiser, or any person
whose profession gives authority to a statement made by him, who has with his
consent been named as having prepared or certified" any part of any proxy
statement or registration statement in which such opinion may be included, or
any report or valuation used in connection therewith. Except as provided in this
paragraph, this opinion is not to be used, circulated, quoted or otherwise
referred to for any purpose, except in accordance with our prior written
consent.
Very truly yours,
WEDBUSH MORGAN SECURITIES
<PAGE>
ANNEX E
AMWEST INSURANCE GROUP, INC.
STOCK OPTION PLAN
(As Proposed to be Amended)
1. Purpose of the Plan. Under this Stock Option Plan (the "Plan") of Amwest
Insurance Group, Inc., a Delaware corporation (the "Company"), options may be
granted to eligible persons, as set forth in Section 3, to purchase shares of
the Company's common stock ("Common Stock"). The Plan is designed to enable the
Company to attract, retain and motivate such persons by providing for or
increasing their proprietary interest in the Company. The Plan provides for
options which qualify as incentive stock options ("Incentive Options") under
Section 422A of the Internal Revenue Code (the "Code") as well as options which
do not so qualify ("Non-Incentive Options"), and for the grant of stock
appreciation rights ("Stock Appreciation Rights") to be associated with stock
options.
2. Stock Subject to Plan. The maximum number of shares that may be subject
to options granted hereunder shall be 676,000 shares of Common Stock, subject to
adjustments under Section 8. Shares of Common Stock subject to the unexercised
portions of any options granted under this Plan which expire, terminate or are
canceled may again be subject to options under this Plan.
3. Eligible Persons. The persons eligible to be considered for the grant of
Incentive Options hereunder are any persons employed by the Company or its
parent or subsidiaries on a salaried basis including directors who are
employees. Such persons, as well as directors who are also employees or
consultants of the Company or its parent or subsidiaries shall be eligible for
the grant of "Non-Incentive Options." Directors who are neither employees nor
consultants of the Company or its parent or subsidiaries are not eligible for
the grant of Incentive Options or Non-Incentive Options under this Plan.
4. Incentive Stock Option Limitation. The aggregate fair market value
(determined at the time each Incentive Option is granted) of the stock with
respect to which Incentive Options are exercisable for the first time by each
employee during any calendar year (under all such plans of the Company and its
parent and subsidiary corporations) shall not exceed $100,000.
5. Payment. Payment for Common Stock purchased upon any exercise of any
option granted hereunder shall be made in full in cash concurrently with such
exercise, except that, if the Committee (as defined in Section 12 below) shall
have authorized it and if the Company is not then prohibited from purchasing or
acquiring shares of stock, such payment may be made in whole or in part with
shares of stock of the Company delivered in lieu of cash concurrently with such
exercise, the shares so delivered to be valued on the basis of their fair market
value on the date of exercise. If the Company is required to withhold an amount
on account of any federal or state income tax imposed as a result of such
exercise, the optionee shall pay such amount to the Company by check or in cash
concurrently with the exercise of the option.
6. Exercise Price. The exercise price for each Incentive Option granted
hereunder shall not be less than 100% of the fair market value of the Common
Stock at the date of the grant of such option, provided, however, the option
price of an Incentive Option shall not be less than 110% of the fair market
value of such Common Stock on the date such option is granted to an individual
then owning (after the application of the family and other attribution rules of
Section 425(d) of the Code), more than 10% of the total combined voting power of
all classes of stock of the Company or any subsidiary or parent corporation.
7. Nontransferability. Any option granted under this Plan shall by its
terms be nontransferable by the optionee otherwise than by will or the laws of
descent and distribution, and shall be exercisable, during the optionee's
lifetime, only by the optionee.
8. Adjustment. If the outstanding shares of stock of the class then subject
to this Plan are increased or decreased, or are changed into or exchanged for a
different number or kind of shares or securities, as a result of one or more
reorganizations, recapitalizations, stock splits, reverse stock splits, stock
dividends, and the like, appropriate adjustments shall be made in the number
and/or type of shares or securities for which options may thereafter be granted
under this Plan and for which options then outstanding under this Plan may
thereafter be exercised. Any such adjustments in outstanding options shall be
made without changing the aggregate exercise price applicable to the unexercised
portions of such options.
9. Maximum Option Term. No Incentive Option granted under this Plan may be
exercised in whole or in part more than ten years after its date of grant,
provided, however, that an Incentive Option granted to an individual owning
(after the application of the family and other attribution rules of Section
425(d) of the Code), at the time such option was granted, more than 10% of the
total combined voting power of all classes of stock of the Company or any
subsidiary or parent corporation shall expire no later than five years from the
date the option was granted. No Non-Incentive Option granted under this Plan may
be exercised in whole or in part more than eleven years after its date of grant.
10. Stock Appreciation Rights. The Committee may, under such terms and
conditions as it deems appropriate, grant to the optionee the conditional right
to surrender all or part of an unexercised option and to receive payment of any
amount less than or equal to the excess of the fair market value of the
underlying shares on the date of surrender over the option exercise price. Such
payment may be made in shares of stock valued at their fair market value on the
date of surrender of the option or in cash, or partly in shares and partly in
cash. The exercise of a Stock Appreciation Right and the manner of payment shall
be in the discretion of the Committee, provided, however, that any Stock
Appreciation Right shall be subject to the condition that the Committee may at
any time in its absolute discretion not allow the exercise of a Stock
Appreciation Right and instead require that the optionee exercise any option
granted under this Plan as if there were no Stock Appreciation Rights with
respect to such option. The Committee may further impose such conditions on the
exercise of Stock Appreciation Rights as may be required to comply with Rule
16b-3 under the Securities Exchange Act of 1934.
11. Plan Duration. Options may not be granted more than ten years after
the date of the adoption of this Plan by the Board of Directors of the Company
(the "Board"), or of stockholder approval thereof, whichever is earlier.
12. Administration. The Plan shall be administered by the Board or, of the
Board so decides, by a Committee (the "Committee") of the Board which shall
consist of not less than three Directors of the Company, appointed for this
purpose by the Board. The Board may from time to time add to or remove members
from the Committee, and shall have the sole authority to fill vacancies on the
Committee. Subject to the express terms and conditions of the Plan and the terms
of any option outstanding under the Plan, the Committee shall have full power to
construe the Plan and the terms of any option granted under the Plan, to
prescribe , amend and rescind rules and regulations relating to the Plan or such
options and to make all other determinations necessary or advisable for the
administration of the Plan, including, without limitation, the power to
determine which persons meet the requirements of Section 3 hereof for selection
as participants in the Plan, and to which of the eligible persons, if any,
options shall be granted under the Plan and, subject to the provisions of this
Plan, to establish the terms and conditions required or permitted to be included
in option agreements and to impose such conditions on the exercise of stock
options as may be required to comply with Rule 16b-3 under the Securities
Exchange Act of 1934.
13. Amendment and Termination. The Board may alter, amend, suspend, or
terminate this Plan, provided that no such action shall deprive any optionee,
without his consent, of any option granted to the optionee pursuant to this Plan
or of any of his rights under such option. Except as herein provided, no such
action of the Board, unless taken with the approval of the stockholders of the
Company, may:
(a) increase the maximum number of shares that may be subject to options
under this Plan;
(b) reduce the minimum permissible exercise price;
(c) extend the ten-year duration of this Plan set forth herein; or
(d) alter the class of employees eligible to receive Incentive Options or
the class of persons eligible to receive Non-Incentive Options under
the Plan.
IN TESTIMONY WHEREOF, Amwest Insurance Group, Inc. has executed this Stock
Option Plan by its officers thereunto duly authorized.
AMWEST INSURANCE GROUP, INC.
Richard H. Savage
Chairman of the Board and
Co-Chief Executive Officer
ATTEST:
Richard H. Busch
Secretary
EXHIBIT 5.1
Amwest Insurance Group, Inc.
6320 Canoga Avenue, Suite 300
Woodland Hills, CA 91367
Re: Amwest Insurance Group, Inc. -
Form S-4 Registration Statement
Gentlemen:
We have acted as counsel to Amwest Insurance Group, Inc., a
Delaware corporation (the "Company"), in connection with the registration by the
Company on Form S-4 Registration Statement No.333-00119 (the "Registration
Statement") under the Securities Act of 1933, as amended, of 992,000 shares of
the Company's common stock, $.01 par value (the "Shares"). The Shares are being
offered to the stockholders of Condor Services, Inc. ("Condor") by the Company
as consideration pursuant to the Agreement and Plan of Merger dated as of
November 30, 1995, by and between the Company and Condor (the "Merger
Agreement").
On the basis of such investigation as we have deemed
necessary, we are of the opinion that the Shares, when issued in accordance with
the terms of the Merger Agreement, will be validly issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference to this firm under the
heading "Legal Matters" contained in the prospectus that forms a part of the
Registration Statement.
Very truly yours,
GIBSON, DUNN & CRUTCHER
JKL/DMM LA960340.010/1 +
EXHIBIT 8.1
Amwest Insurance Group, Inc.
6320 Canoga Avenue, Suite 300
Woodland Hills, California 91367
Re: Amwest Insurance Group, Inc. -
Form S-4 Registration Statement
Gentlemen:
We have acted as counsel to Amwest Insurance Group, Inc., a
Delaware corporation (the "Company"), in connection with the registration by the
Company on Form S-4 Registration Statement No. 333-00119 under the Securities
Act of 1933, as amended (the "Registration Statement"), of 992,000 shares of the
Company's common stock, $.01 par value (the "Shares"). The Shares are being
offered to the stockholders of Condor Services, Inc. ("Condor") by the Company
as consideration for a merger (the "Merger") of Condor with and into the Company
to be effected pursuant to the Agreement and Plan of Merger dated as of November
30, 1995, by and between the Company and Condor. In connection with the
Registration Statement, you have requested our opinion concerning the summary of
certain federal income tax issues set forth in the prospectus (the "Prospectus")
that forms a part of the Registration Statement under the heading "The
Merger--Certain Federal Income Tax Consequences."
The discussion set forth in the Prospectus under the heading
"The Merger--Certain Federal Income Tax Consequences" states that it is
anticipated that counsel for the Company and counsel for Condor will render an
opinion to the Company and to Condor, respectively, at the closing of the Merger
(the "Closing"), that the Merger will qualify as a "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Codeof 1986, as amended. This
letter does not constitute such an opinion, and does not constitute an opinion
regarding the likelihood that such an opinion will be rendered. Such opinions,
if rendered, will be rendered at the Closing and will be based on certain
factual representations and assumptions made at or around the Closing which, if
untrue or incorrect, could affect the discussion set forth in the Prospectus.
We are opining herein as to the effect of the federal income
tax laws of the United States on the Merger as of the date hereof, and we
express no opinion with respect to the applicability thereto, or the effect
thereon, of other federal laws, the laws of any other jurisdiction or as to any
matters of municipal law or the laws of any other local agencies within any
state.
Based on the foregoing and our understanding of the pertinent
facts, in our opinion, the discussion in the Prospectus under the heading "The
Merger--Certain Federal Income Tax Consequences," is an accurate summary of the
United States federal income tax consequences of the Merger that are likely to
be material to the stockholders of Amwest and Condor.
This opinion is rendered only to you and is solely for your
benefit in connection with filing the Registration Statement and Prospectus with
the Securities and Exchange Commission. This opinion may not be relied upon by
you for any other purpose, or furnished to, quoted to, or relied upon by any
other person, firm or corporation for any purpose, without our prior written
consent.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference to this firm under the
heading "Legal Matters" contained in the Prospectus.
Very truly yours,
GIBSON, DUNN & CRUTCHER
PSI: SLT
LT960370028/2+
EXHIBIT 10.24
OFFICE BUILDING LEASE
BETWEEN
ACD2,
a California corporation,
LANDLORD
AND
AMWEST INSURANCE GROUP, INC.
a Delaware corporation,
TENANT
CALABASAS COMMERCE CENTER, BUILDING 6
<PAGE>
TABLE OF CONTENTS
Page
1. CERTAIN TERMS AND DEFINITIONS 1
2. PREMISES, COMMON AREAS & EXPANSION SPACE 5
2.1 Premises 5
2.2 Confirmation of RSF 5
2.3 Common Areas 6
2.4 Expansion Space 7
2.5 Quality of Construction - Standard for
Maintenance, Repairs and Operation 8
3. TERM AND OPTION TERM 9
3.1 Initial Term 9
3.2 Option to Extend Term 10
3.3 Cancellation Option 12
3.4 Possession 12
3.5 Early Entry into Premises 13
4. NONDISTURBANCE AGREEMENT 13
5. MONTHLY BASIC RENT 14
6. ADDITIONAL RENT 15
7. CONSTRUCTION OF THE TENANT IMPROVEMENTS
AND THE BASE BUILDING. 25
8. USE 25
9. PAYMENTS AND NOTICES 26
10. BROKERS AND REPRESENTATIVES 27
11. HOLDING OVER 27
12. TAXES ON TENANT'S PROPERTY 27
13. CONDITION OF PREMISES 28
14. ALTERATIONS 30
15. REPAIRS 32
16. LIENS 35
17. ENTRY BY LANDLORD 35
18. UTILITIES AND SERVICES 36
18.1 Services 36
19. BANKRUPTCY 37
20. INDEMNIFICATION AND EXCULPATION 37
21. DAMAGE TO TENANT'S PROPERTY 39
22. INSURANCE 39
23. DAMAGE OR DESTRUCTION 42
23.1 Definitions 42
23.2 Partial Damage - Insured Loss 42
23.3 Partial Damage - Uninsured Loss 43
23.4 Total Destruction 43
23.5 Damage Near End of Term 43
23.6 Notice of Repair Time 44
23.7 Abatement of Rent; Tenant's Remedies 44
23.8 Inconsistent Statutes 45
24. EMINENT DOMAIN 45
25. DEFAULTS AND REMEDIES 46
26. ASSIGNMENT AND SUBLETTING 48
27. SUBORDINATION 51
28. ESTOPPEL CERTIFICATE 51
29. SIGNS 52
30. RULES AND REGULATIONS 53
31. BANKRUPTCY 54
32. SECURITY 54
33. SURRENDER OF PREMISES 54
34. PERFORMANCE BY TENANT 54
35. MORTGAGE AND SENIOR LESSOR PROTECTION 55
36. DEFINITION OF LANDLORD 55
37. PARKING 55
38. OPTION TO PURCHASE 57
39. FORCE MAJEURE 57
40. LIMITATION ON LIABILITY 57
41. MODIFICATION FOR LENDER 57
42. ACCESS. 58
43. QUIET ENJOYMENT 58
44. CONFIDENTIALITY 58
45. CONSENT/DUTY TO ACT REASONABLY 58
46. CONFLICT OF LAWS 59
47. SUCCESSORS AND ASSIGNS 59
48. ATTORNEYS' FEES 59
49. WAIVER 59
50. SEVERABILITY 59
51. TERMS AND HEADINGS 60
52. TIME 60
53. PRIOR AGREEMENT; AMENDMENTS 60
54. TENANT AS CORPORATION 60
55. APPROVALS 60
56. NO PARTNERSHIP OR JOINT VENTURE 60
57. RULE AGAINST PERPETUITIES 60
58. RIGHT TO TERMINATE 60
59. INTEREST RATE 61
60. REFERENCES 61
61. RECOVERY AGAINST LANDLORD 62
62. MEMORANDUM OF LEASE AND OPTION AGREEMENT 62
EXHIBIT A-I PRELIMINARY FLOOR PLAN 1
EXHIBIT A-II SITE PLAN 2
EXHIBIT A-III RENTABLE SQUARE FOOTAGE OF BUILDING FLOORS 3
EXHIBIT C FORM OF NOTICE OF LEASE TERM DATES,
PREMISES SQUARE FOOTAGE AND TENANT'S
PERCENTAGE 1
EXHIBIT D SERVICES 1
EXHIBIT E SAMPLE FORM OF TENANT ESTOPPEL
CERTIFICATE 1
EXHIBIT F RULES AND REGULATIONS 1
EXHIBIT G PARKING RULES AND REGULATIONS 1
EXHIBIT H SUBORDINATION, NON-DISTURBANCE AND
ATTORNMENT AGREEMENT 1
EXHIBIT I OPTION AGREEMENT 1
EXHIBIT J MEMORANDUM OF LEASE AND OPTION AGREEMENT 1
<PAGE>
THIS OFFICE BUILDING LEASE ("Lease") is made as of the 24th day of
January, 1996, by and between ACD2, a California corporation, and AMWEST
INSURANCE GROUP, INC., a Delaware corporation.
1. CERTAIN TERMS AND DEFINITIONS. For the purposes of this Lease,
the following terms shall have the following definitions and meanings:
(a) "LandLord": ACD2, a California corporation
(b) "Landlord's address":
ACD2
Department 713
4900 Rivergrade Road
Irwindale, California 91706
Attention: Mr. Robert Noble
With copies to:
Christine Langenfeld-Minasian, Esq.,
Senior Counsel, Legal
Home Savings of America, FSB
4900 Rivergrade Road #2560
Irwindale, California 91706
Copies of all notices pertaining to any Tenant Delay, Landlord
Delay or any Event of Default applicable to Lessee shall be
sent, in the same manner and at the same time, to:
Paul, Hastings, Janofsky & Walker
555 South Flower Street
23rd Floor
Los Angeles, California 90071
Attention: M. Guy Maisnik, Esq.
(c) "Tenant": AMWEST INSURANCE GROUP, INC., a Delaware corporation
(d) "Tenant's Address before Commencement Date":
Amwest Insurance Group
6320 Canoga Avenue
Suite 300
Woodland Hills, California
"Tenant's Address after Commencement Date":
All notices after the Commencement Date shall be sent to the
address of the Premises:
Attention: Chief Financial Officer
Copies of all notices pertaining to any Tenant Delay, Landlord
Delay or any Event of Default applicable to Lessee shall be
sent, in the same manner and at the same time, to:
Pillsbury Madison & Sutro
725 South Figueroa Street
Suite 1200
Los Angeles, California 90017
Attn.: Michael E. Meyer, Esq.
(e) "Building": The three (3) story building to be constructed
by Landlord under the terms of the Work Agreement attached
hereto as Exhibit B (and referred to therein as the "Base
Building") and commonly known as Building 6. The parties
anticipate that the Building shall contain approximately
75,709 rentable square feet ("RSF"). The Building is part of a
larger business park known as Calablasas Commerce Center
("Project"), as shown on the Site Plan attached hereto as
Exhibit A-II, which Project has not as of the date of this
Lease been completed. Tenant acknowledges that because the
Project has not yet been completed, that the Site Plan is not
an accurate representation of the completed Project and that
Landlord shall have the right to modify the Project from time
to time without the consent of Tenant, provided that Landlord
does not reduce or alter Tenant's parking rights as set forth
herein. The RSF of the Building shall be computed from
dimensioned drawings of Landlord's architect or space
planner in accordance with the criteria established by the
Building Owners and Managers Association ("BOMA Guidelines")
as American National Standard Z65.1-1989. The parties shall
attach Exhibit A-III to this Lease when the RSF for each floor
in the Building have been determined. Exhibit A-III shall
state the RSF of each floor in the Building.
(f) "Premises":Approximately 63,091 RSF encompassing the entire
second and third floors and approximately fifty percent
(50%) of the ground floor of the Building, as depicted on
Exhibit A-1, which amount shall be expanded pursuant to
Subparagraph 2.4 below. The Premises as initially leased by
Tenant, exclusive of any Expansion Space, is sometimes
referred to as the "Initial Premises".
(g) "Term":Fifteen (15) Lease Years commencing on the Commencement
Date (as defined in Subparagraph 1(j) below), plus any
extensions pursuant to Subparagraph 3.2 below if exercised
by Tenant pursuant to the terms set forth in the Lease.
The first fifteen (15) Lease Years of the Term is sometimes
referred to as the "Initial Term." The phrase "Lease Year"
means each 365-day period during the Term commencing on the
Commencement Date and each anniversary thereof and terminating
on the date immediately prior to the next succeeding
anniversary of the Commencement Date and each anniversary
thereof.
(h) "Tenant Improvement Allowance": Twenty-five Dollars ($25.00)
per RSF of the Initial Premises.
(i) "Tenant Improvements":All improvements, fixtures and equipment
installed by Tenant in connection with the Premises for
Tenant's occupancy thereof pursuant to the Work Agreement.
(j) "Commencement Date": The earlier of (i) the date of Occupancy
for Business (defined in Subparagraph 1(y) below) by Tenant
or (ii) one hundred-twenty (120) days ("Construction Period")
following (x) Substantial Completion of the Building (defined
in Subparagraph 1(k) below) and (y) the Delivery Date
(defined in Subparagraph 1(l) below). The Target Commencement
Date is estimated by Landlord to be May 1, 1997; however such
estimate is for informational purposes only, and neither party
shall rely on such estimate. The Construction Period shall be
extended one (1) day for each day Tenant is delayed in
designing and constructing its Tenant Improvements and moving
into its Premises because of Landlord Delays or Force Majeure
Delays (as such terms are defined in Sections 2.2 and 4.4 of
the Work Agreement hereto); provided, however, that Tenant's
notice to be given as a prerequisite to the effectiveness of
any Landlord Delay or Force Majeure Delay shall specifically
state that Tenant is actually being delayed in constructing
its Tenant Improvements and/or moving into its Premises as a
result thereof.
(k) "Substantial Completion of the Building":
When each of the following conditions has been satisfied or
would have been satisfied but for Tenant Delays (as defined in
the Work Agreement):
(1) Landlord has substantially completed the Base
Building, consistent with the standards of a
first-class Comparable Building as defined in
Subparagraph 2.5 below (which the parties agree shall
be the case if constructed in accordance with the
Base Building Plans as defined in the Work
Agreement), including all of the following, with the
exception of normal punch-list items or other items
which remain uncompleted but which do not materially
interfere with Tenant's safe and convenient use,
access and occupancy of the Building and Parking Area
(as defined in Subparagraph 2.1 below):
(i) common areas in the Building to the extent
reasonably necessary for Tenant's
use and access to the Premises;
(ii) pedestrian and service entrances to the
Building to the extent reasonably necessary
for Tenant's access to the Building;
(iii) all systems and equipment to the extent
necessary for the proper operation of the
Building Systems and Building Structure (as
such terms are defined in Subparagraph 15(b)
herein) as required hereunder to be
furnished by Landlord to Tenant for the
Premises;
2) Tenant and its visitors shall have adequate and safe
access to the lobbies of the Building and to the
Premises through the lobbies of the Building to the
bank of elevators serving the Premises, and the
Building's life safety system to the extent
reasonably necessary for Tenant's use of the Building
and the Premises are operating in a normal manner;
(3) Landlord has completed the Base Building Improvements
to the extent that Tenant shall be able to obtain a
certificate of occupancy or a temporary certificate
of occupancy or the equivalent pursuant to which the
City of Calabasas permits occupancy of the Initial
Premises when Tenant has completed the Tenant
Improvements;
(4) Landlord has made the Premises available to Tenant
free and clear of any other occupancy or tenancy
(other than contractors and other workers to complete
punchlist items);
(5) all of the elevators intended to service the Premises
are available for Tenant's use; and
(6) Landlord has caused the Parking Area for the Building
to be available to Tenant to the extent reasonably
necessary for Tenant's initial space requirements and
are sufficient to accommodate the users of such
Parking Area.
(l) "Delivery Date": Five (5) business days after the date on
which Landlord has provided a factually correct notice to
Tenant ("Landlord's Delivery Notice") that Landlord has
substantially completed the Base Building to the extent
necessary for Tenant to begin constructing the Tenant
Improvements, with the exception of normal punchlist items or
other items which remain uncompleted but which do not
materially interfere with Tenant's safe and convenient access
and use of the Building and Parking Area for the purpose of
constructing the Tenant Improvements. Landlord's Delivery
Notice shall be deemed true and correct if Tenant does not
otherwise object thereto within ten (10) business days
following Tenant's receipt of Landlord's Delivery Notice.
(m) "Expiration Date": The last day of the Term, as identified on
the Commencement Notice.
(n) "Effective Date": This Lease shall become effective on the
date Landlord and Tenant mutually execute this Lease.
(o) "Annual Basic Rent" payable on a triple net basis for Lease
Years:
Initial Term
Lease Years 1-5 $13.68 per RSF.
Lease Years 6-10 $15.73 per RSF.
Lease Years 11-15 $18.09 per RSF.
Option Period
Lease Years 16-20 "Fair Market Rental Rate" (as defined in
Subparagraph 3.2(v)(i) below).
Lease Years 21-25 Fair Market Rental Rate.
(p) "Monthly Basic Rent": Annual Basic Rent divided by twelve(12).
(q) "Tenant's Percentage": A fraction whose numerator is the
number of RSF of the Premises and whose denominator is the
number of RSF within the Building.
(r) (i) "Security Deposit": None.
(ii) "Prepaid Rent": None
(s) (i) "Landlord's Broker":
Cushman & Wakefield of California, Inc.
(c/o Hal Cook and Ronald Wade)
(ii) "Tenant's Representative":
Julien J. Studley, Inc.
(c/o Seth Dudley and Mark Sullivan)
(t) "Landlord's Construction Representative":
Lowe Enterprises Commercial Group
(c/o Richard Newman or Jeffrey Allen)
(u) "Use of Premises": General office use and other related
legally permitted uses consistent and compatible with the uses
in the Building and Project (as defined herein) and other
first-class low rise office buildings in the Calabasas area.
(v) "Exhibits": A through K, inclusive, which Exhibits are
attached to this Lease and are incorporated herein by this
reference.
(w) "Guarantor": None.
(x) "Commencement Notice": A memorandum in the form of Exhibit "C"
specifying the Lease Term, Commencement Date, Expiration Date,
Tenant's Percentage, the total RSF of each floor of the
Premises, and the total RSF of the Building.
(y) "Occupancy for Business by Tenant": Occupancy of almost all of
the Premises by Tenant (i.e. 75% or more of the total RSF of
the Premises) for the purpose of Tenant's employees conducting
its business therein, excluding occupancy or use to construct
Tenant Improvements, to monitor construction of Tenant
Improvements, to construct, install or move in Tenant's
furniture, fixtures and equipment, or to install or retrieve
business records. Provided, however, if Tenant occupies a
portion of any floor of the Premises (but occupies less than a
almost all of the entire Premises) for the purpose of
conducting business therein, Tenant shall pay Rent to
Landlord, commencing as of the date Tenant so occupies such
portion of any floor and continuing until the Commencement
Date, at the rate of $0.0375 (Three and three quarter cents)
per RSF of floor space contained within (i) the entire floor
so occupied, if Tenant occupies more than fifty percent (50%)
of any floor, or (ii) fifty percent (50%) of the floor so
occupied, if Tenant occupies fifty percent (50%) or less or
such floor, per day ("Daily Basic Rent"). (For example, if
the second floor contains 25,000 RSF, and if Tenant, prior to
the Commencement Date, occupies for business 10,000 RSF on
such floor, then Tenant would be required to pay Daily Basic
Rent, in the time and manner provided herein, at the rate of
$0.0375 per RSF based on 12,500 RSF, until the Commencement
Date; in the alternative, if at any time prior to the
Commencement Date Tenant were to occupy for business more than
12,500 RSF of such floor, then Tenant would be required to pay
Daily Basic Rent at the rate of $.0375 per RSF based on 25,000
RSF, until the Commencement Date). The total Daily Basic Rent
owed by Tenant shall be paid to Landlord on the Commencement
Date, except that if the Commencement Date shall not have
occurred within thirty (30) days following the date on which
Tenant took occupancy of a portion of any floor, the Daily
Basic Rent shall be payable on the last day of each calendar
month prior to the Commencement Date, with the final payment
due to Landlord on the Commencement Date. Nothing under this
Subparagraph 1(y) shall be construed as granting Tenant a free
rent period.
(z) "Parking Ratio": 3.6 non-tandem parking spaces in the Parking
Area per 1,000 RSF of the Premise. All such non-tandem parking
spaces shall be designated as "reserved." Landlord shall use
good faith efforts to provide Tenant with at least ten (10)
covered parking spaces as set forth in Subparagraph 37(a).
2. PREMISES, COMMON AREAS & EXPANSION SPACE.
2.1 Premises. Landlord hereby leases to Tenant and Tenant hereby
leases from Landlord on the terms and provisions set forth in
this Lease the Premises designated in Subparagraph 1(f) above,
outlined on the Preliminary Floor Plan attached hereto and
marked Exhibit "A-I" (which shall be deemed adjusted to fit
the actual Premises once the Building is Substantially
Completed) located in the Building described in Subparagraph
1(e) which, together with its related parking facilities
("Parking Area"), is located on the parcel or parcels of real
property described in the legal description attached hereto as
Exhibit "A-IV" ("Land"), all as outlined on the Site Plan
attached hereto as Exhibit "A-II". The parties acknowledge
that because this Lease is being signed before the Building,
Project or Development (as such terms are defined herein) have
been completed, that the Site Plan is not a precisely accurate
representation of the Building, Project or Development
(defined below), and that neither Landlord shall be in
default, nor shall this Lease be voidable or terminable by
Tenant if the Building, Project or Development is not
precisely as shown on the Site Plan. The Premises shall be
improved by Tenant with Tenant Improvements to be constructed
by Tenant in accordance with the Work Agreement. The Premises
being agreed, for the purposes of this Lease, to have an area
approximately the number of RSF designated in Subparagraph
1(f) above (the exact number to be determined in accordance
with Subparagraph 2.2) and being situated on the floors
designated in Subparagraph 1(f) above. The Building, together
with the Land, the Common Areas (as defined in Subparagraph
2.3 below), and all other easements, rights-of-way, and
licenses are known as and shall be referred to herein as the
"Development." The Development constitutes a portion of the
Project, as defined above.
2.2 Confirmation of RSF.
(a) Prior to the Commencement Date, Landlord shall
deliver to Tenant a certificate from the space
planner or architect who measured the space in the
Base Building shell and core stating the RSF of the
Building and the Premises in accordance with BOMA
Guidelines and setting forth the calculations
thereof, including the aggregating of all Common
Areas. If Tenant agrees with the calculations set
forth in the architect's or space planner's
certificate, then Landlord and Tenant shall initial
the certificate and attach it to this Lease and the
calculations in the certificate shall be deemed to
replace the RSF figures in Subparagraphs 1(e) and
1(f). If Tenant disagrees with such calculations,
then Tenant shall, within sixty (60) days of
receiving the architect's or space planner's
certificate, give Landlord written notice of the
opinion of Tenant's architect or space planner as to
the RSF of the Building and the Premises in
accordance with BOMA Guidelines. As a condition to
the delivery of such notice, Tenant's space planner
or architect shall have been actively engaged in the
measurement of space in office buildings for a
continuous period of at least three (3)years ending
on the date of his or her appointment. If Tenant
does not deliver such written notice to Landlord
within the sixty(60) day period, then Tenant shall be
deemed to have agreed with the calculations set forth
in Landlord's architect's or space planner's
certificate.
(b) Where Tenant has so disagreed with Landlord's
architect's or space planner's calculations, and
Tenant and Landlord cannot, together with their
respective space planners or architects, agree within
fifteen (15) days from and after Landlord's receipt
of Tenant's architect's or space planner's opinion of
the RSF of the Building and the Premises ("Discussion
Period"), Tenant may request by written notice to
Landlord that such disagreement be resolved by
arbitration. If Tenant does not make such request
within five (5) business days from and after the end
of the Discussion Period, Tenant shall be deemed to
have accepted Landlord's RSF figures for the
Premises and the Building.
(c) If Tenant does so request to have the RSF figures
determined through binding arbitration, the matter
shall be submitted for decision to an independent
arbitrator. Not later than fifteen (15) days from and
after Landlord's receipt of Tenant's written request
for arbitration, Tenant's and Landlord's space
planners and/or architects shall select an arbitrator
who shall have the same qualifications required for
Tenant's architect or space planner, as provided
herein, but shall not have performed work for either
party or any of their respective principals. The
determination of the arbitrator shall be limited
solely to the issue of whether Landlord's or Tenant's
calculations of the RSF for the Premises and the
Building is closest to the actual RSF determined by
the arbitrator. The arbitrator shall within fifteen
(15) days of his or her appointment reach a decision
as to whether the parties shall use Landlord's or
Tenant's calculations of the RSF of the Building and
the Premises, and shall notify Landlord and Tenant
thereof. The decision of the arbitrator shall be
binding upon Landlord and Tenant. The cost of the
arbitrator shall be shared by Landlord and
Tenant equally.
(d) If the arbitrator has not determined the RSF of the
Building and the Premises prior to the Commencement
Date, Tenant shall pay Monthly Basic Rent and
Tenant's Percentage of Operating Expenses based upon
the RSF calculations set forth in Landlord's
architect's or space planner's certificate until such
time as the arbitrator determines the RSF of the
Building and the Premises. If the arbitrator selects
Tenant's calculations, the next Monthly Installments
of Rent shall be equitably adjusted.
2.3 Common Areas. Tenant shall have the non-exclusive right,
subject to the Rules and Regulations referred to in Section 30
below, any CC&Rs and/or any REA's (as such terms are defined
in Subparagraph 13(e) hereunder) to use in common with other
tenants in the Building and the Development, as the case may
be, the following areas ("Common Areas") appurtenant to the
Development:
(a) The Building's common entrances, lobbies, restrooms,
freight and passenger elevators, escalators,
stairways and accessways, loading docks, ramps,
drives and platforms and any passageways and
serviceways thereto, and the common pipes, conduits,
shafts, wires and appurtenant equipment serving the
Premises; and
(b) Loading and unloading areas, trash areas, parking
areas, roadways, sidewalks, walkways, parkways,
driveways, landscaped areas and similar areas and
facilities appurtenant to the Building.
The parties acknowledge that certain of the foregoing
items listed in Subparagraph 2.3(i) shall be located
on full floors leased by Tenant, in which case, such
items shall be deemed a part of the RSF of the
Premises pursuant to BOMA Guidelines but shall
nevertheless be constructed by Landlord in accordance
with the Base Building Plans.
Landlord reserves the right from time to time as
Landlord reasonably deems necessary, consistent with
the quality of a first-class low rise office building
complex:
(1) To make changes to the Common Areas,
including, without limitation, changes in
the location, size, shape and number of
driveways, entrances, parking spaces,
parking areas, (including construction of a
parking structure), loading and unloading
areas, ingress, egress, direction of
traffic, landscaped areas and walkways, so
long as Tenant's reserved parking spaces and
other parking privileges are not materially
and adversely affected thereby, the number
of Tenant's parking spaces are not reduced
and access to the Premises and Tenant's
parking spaces are not materially and
adversely affected;
(2) To close temporarily any of the Common Areas
for maintenance purposes so long as
reasonable access to the Premises and the
Parking Area remains available;
(3) To use the Common Areas while engaged in
making additional improvements, repairs or
alterations to the Building or the
Development, or any portion thereof,
provided Tenant's use and occupancy of the
Premises are not materially and adversely
affected;
(4) To add additional improvements to the Common
Areas of the Development (other than to the
Building unless required by Applicable Law
or, without any obligation to do so, to make
the Building safer or more efficient); and
(5) To do and perform such other acts and make
such other changes in, to or with respect to
the Common Areas, the Building or the
Development as Landlord may, in the exercise
of sound business judgment, deem to be
appropriate, provided Tenant's use and
occupancy of the Premises and the Parking
Area are not materially and adversely
affected.
2.4 Expansion Space.
(a) As a material inducement for Landlord entering into this Lease,
Tenant agrees that it shall be obligated in accordance with the
terms of this paragraph to lease from Landlord, upon the same
terms and conditions as those contained in this Lease, except
with respect to the Tenant Improvement Allowance, which shall be
determined as set forth below, the remainder of the Building not
then leased by Tenant (the "Expansion Space"). Landlord shall
deliver the Expansion Space to Tenant at any time between the
sixty-first (61st) and seventieth (70th) months of the Term, with
all Base Building improvements completed to the extent necessary
for Tenant to begin constructing the Tenant Improvements, and
with such additional improvements or alterations as Landlord may
reasonably elect, provided that such improvements are in good
condition and are at all times consistent with a general office
use ("Required Condition"). The Expansion Space Delivery Date
shall be five (5) business days after Tenant has received a
factually correct notice from Landlord that the Expansion Space
is in the Required Condition and available for Tenant's immediate
and exclusive use. Tenant's Monthly Basic Rent, Tenant's
Percentage of Operating Expenses and any other monetary
obligations of Tenant which are based on the RSF of the Premises
shall be equitably adjusted, and Tenant shall pay such increased
rental amounts beginning on the earlier of (i) the date of
Occupancy for Business in the Expansion Space, or (ii) one
hundred twenty (120) days (also the "Construction Period")
following the Expansion Space Delivery Date of the Expansion
Premises (the "Expansion Space Commencement Date"). Tenant's
Monthly Basic Rent for the Expansion Premises shall be the same
as the Monthly Basic Rent Tenant is paying for the Initial
Premises as of the Expansion Space Commencement Date (i.e. $15.73
per RSF), and the term of the Expansion Space shall be
coterminous with the Lease Term. The Construction Period will be
extended one day for each day Tenant is delayed in designing,
constructing and moving into the Expansion Space because of Force
Majeure Delays or Landlord Delays as defined in Exhibit B.
(b) As of the Expansion Space Commencement Date, Tenant shall be
entitled to additional parking spaces at the ratio stated in
Subparagraph 1(z) above; however, Tenant shall not be entitled to
any additional covered parking spaces.
(c) In the event that Landlord delivers the Expansion Premises to
Tenant previously improved for another tenant's occupancy, then
Tenant shall be entitled to a Tenant Improvement Allowance of
$12.50 per RSF for the design, construction and fixturizing of
the Expansion Space. If, however, Landlord delivers the space to
Tenant not previously improved for another tenant's occupancy
(other than the Building Base shell and core work), then Tenant
shall be entitled to a Tenant Improvement Allowance of $25.00 per
RSF for the design, construction and fixturizing of the Expansion
Space. Landlord shall pay the Tenant Improvement Allowance to
Tenant at the time and in the manner specified in the Work
Agreement attached hereto, to the extent applicable to the
Expansion Space. The provisions of Sections 2, 3 and 4 of the
Work Agreement to the extent applicable and to the extent not
inconsistent with this Lease, shall apply to the design and
construction of the Tenant Improvements in the Expansion Space.
(d) Following the Expansion Space Commencement Date, all references
herein to the "Premises" (other than those specifically
addressing the original construction of the Initial Premises
and/or the Building) shall mean and include the Initial Premises
as expanded by the Expansion Space, unless specifically stated
otherwise herein.
2.5 Quality of Construction - Standard for Maintenance, Repairs
and Operation. Landlord hereby covenants that the Building
will be constructed and operated in a first-class manner
comparable to that of Comparable Buildings, free of all
asbestos containing materials ("ACM") and in full compliance
with all governmental regulations, ordinances, and laws
("Applicable Laws") to the extent such Applicable Laws are in
existence and enforced in the manner and degree at the time of
construction, including, but not limited to, laws pertaining
to disabled access and laws pertaining to hazardous
substances, in order to make the Premises, the Building and
the Project suitable for business offices. In its obligation
to comply with Applicable Laws, Landlord will be fully
responsible for making all alterations and repairs to the
Premises and the Building at its cost, which shall not be
included as Operating Expenses (as defined in Subparagraph
6(a)(1) of the Lease), (a) required in order to comply
with the Americans with Disabilities Act of 1990, 42 U.S.C.
12101 et seq., as amended (the "ADA") (for purposes of this
Lease, Landlord shall be deemed to have complied with ADA once
Landlord has substantially completed Landlord's Work based
upon plans for which a valid building permit was issued),
(b) required to remove any and all ACM discovered at any
time to have existed in the Premises as of the Commencement
Date, or (c) resulting from or necessitated by the
failure by Landlord and/or Landlord's contractor to comply
with the Applicable Laws, including from Landlord's and/or
Landlord's contractor's utilization of hazardous substances.
Landlord's obligation to perform such work in accordance with
Applicable Laws as provided above shall exist and continue
even though the time for performance under such Applicable
Laws was contingent on (1) the passage of time or (2) the
expenditure of money. Accordingly, with respect to any costs
that Tenant incurs in connection with the construction of the
initial Tenant Improvements, which Tenant would not have had
to incur if the Building and Premises, to the extent of
Landlord's Work as expressly set forth in the Base Building
Plans were constructed in full compliance with the laws
applicable to new construction as provided above, then
Landlord shall reimburse Tenant for such increased costs.
Otherwise, Landlord shall, subject to Tenant's repair
obligations set forth in the Lease, maintain and operate the
Building in a first class manner, keep the Building Structure
and the Building Systems in first class condition and repair,
maintain and provide services and security (without any
liability whatsoever because of a breakdown in security, or
the failure of security devices or personnel to adequately
perform) to the Building in a first-class manner comparable to
other first-class low rise tilt-up concrete office buildings
in the City of Calabasas ("Comparable Building") the cost of
which (except for capital improvements and repairs, as more
specifically set forth in Section 6 of the Lease) shall be
included in Operating Expenses, or paid for directly by Tenant
(for maintenance and repair of the Premises only to the extent
required by this Lease) if not normally included in Operating
Expenses. Notwithstanding the foregoing, Landlord and Tenant
agree that in no event shall Landlord's obligations be
increased, nor shall Landlord be required to incur any cost or
expense, beyond Landlord's obligations in the Base Building
Plans as a result of any improvements, alterations or repairs
made by or at the direction of Tenant.
3. TERM AND OPTION TERM.
3.1 Initial Term. The Term shall be for the period designated in
Subparagraph 1(g) above, commencing on the Commencement Date
and ending on the Expiration Date, unless the Term shall be
sooner terminated as provided herein. Landlord shall deliver
the Commencement Notice to Tenant within thirty (30) days
after the Commencement Date and Tenant shall make such
corrections, if any, as are appropriate, and sign and return
the notice to Landlord within ten (10) business days of the
Tenant's receipt thereof. In the event that Landlord shall
fail to so deliver said Commencement Notice to Tenant within
said thirty (30) day period, and following Tenant's ten (10)
day prior written request for the same, then Tenant shall have
the right to deliver the Commencement Notice to Landlord, and
Landlord shall make such corrections, if any, as are
appropriate, and sign and return the notice to Tenant within
ten (10) business days of the Landlord's receipt thereof.
3.2 Option to Extend Term.
(1) Landlord hereby grants to Tenant two (2) options (each an
"Option") to extend the Term for a period of five (5) years
each ("First Option Term" and "Second Option Term",
respectivley, and generally, "Option Term"), provided that
such extension (x) shall be for all or any contiguous portion
of the Premises that includes either the ground, second and/or
third floor then leased by Tenant, and (y) shall not be for
less than all the space then leased by Tenant on any given
floor, such that Tenant shall not be entitled herein to lease
only a portion of any given floor.
(2) Each Option must be exercised by written notice
received by Landlord ("Extension Notice") not less
than one hundred twenty (120) days prior to the
expiration of the Initial Term (or the First Option
Term, if the Second Option Term is being exercised).
(3) Provided Tenant has properly and timely exercised the
applicable Option, the Term shall be extended by the
applicable Option Term and all terms, covenants and
conditions of this Lease shall remain unmodified and
in full force and effect, except that the Annual
Basic Rent shall be modified as set forth in
Subparagraph 3.2(iv)below, and all economic "tenant
concessions" granted to Tenant hereunder, if any,
shall be
inapplicable except to the extent the same are
included as part of the Fair Market Rental Rate if
determination thereof is applicable. In connection
therewith, Tenant shall be entitled to an additional
tenant improvement allowance (to be used solely for
the purposes provided herein) at the commencement of
each Option Term equal in amount to that which other
tenants of comparable spaces in Comparable Buildings
are then receiving (taking into account the relevant
factors listed below in Subparagraph 3.2(5)(i));
accordingly, the amount of such tenant improvement
allowance shall be taken into account when
determining the Fair Market Rental Rate (defined in
Subparagraph 3.2(5)(i) below) applicable to the
subject Option Term. If Tenant shall exercise its
Option herein, the tenant improvement allowance shall
be disbursed to Tenant in the same manner and on the
same conditions as set forth in the Work Agreement,
to the extent applicable to the Option Term. The
tenant improvement allowance shall be used for the
cost of renovating or redesigning the existing Tenant
Improvements, or for the construction and design of
new tenant improvements to the Premises, including
without limitation, materials and labor, space
planning and design, consultants' fees, permits,
voice and data wiring, security, and signage, but not
including the purchase, design or construction of
Tenant's personal property.
(4) Subject to the limitations set forth in the
provisions of Subparagraph 3.2(5) below, the Annual
Basic Rent payable for the First and Second Option
Terms shall be equal to the then Fair Market Rental
Rate (as defined hereunder) for the Premises.
(5) Landlord shall provide notice of Landlord's
determination of the Fair Market Rental Rate (as
defined hereinbelow) of the Premises for the
applicable Option Term within thirty (30) days after
receipt of Tenant's Extension Notice. Tenant shall
have fifteen (15)days ("Tenant's Extension Review
Period") after receipt of Landlord's notice within
which to
accept Landlord's determination of the Fair Market
Rental Rate for the Premises or to object reasonably
thereto in writing. If Tenant so objects, Landlord
and Tenant shall attempt in good faith to agree upon
such Fair Market Rental Rate, using their best good
faith efforts. If Landlord and Tenant fail to reach
agreement within fifteen (15) days from and after
Tenant's Extension Review Period ("Outside Agreement
Extension Date"),
then each party's determination shall be submitted to
arbitration consistent with the procedures outlined
below. Failure of Tenant to so elect in writing
within such period shall be deemed its rejection of
the Fair Market Rental Rate for the Premises as
determined by Landlord.
The arbitration procedure for calculating the Fair
Market Rental Rate for any Option Term where the
parties are unable to agree upon the Annual Basic
Rent shall be as follows:
(i) Not later than fifteen (15) days from and after the Outside
Agreement Extension Date, Landlord and Tenant shall each appoint
one arbitrator who shall by profession be a real estate
appraiser, which appointee shall have been active over the five
(5) year period ending on the date of such appointment in the
appraisal of first-class, office buildings in the Calabasas area.
The determination of the third arbitrator described below shall
be limited solely to the issue of whether Landlord's or Tenant's
submitted Fair Market Rental Rate for the applicable Option Term
is the closest to the actual Fair Market Rental Rate for such
Option Term, as determined by the arbitrator, based upon what a
willing, comparable tenant would pay and a willing, comparable
landlord would accept at arm's length, for a new five (5) year
lease on non-renewal but not first generation space for delivery
on or about the expiration of the Initial Term or the First
Option Term, as applicable, for comparable space in other
comparable low rise office buildings in the Calabasas area
similarly improved, giving appropriate consideration to the
annual rental rates per rentable square foot, the type of
escalation clauses (including, without limitation, operating
expenses, real estate tax allowance and/or Consumer Price Index
rental adjustments), rent concessions, if any, brokerage
commissions, the length of the lease term, size and location of
the premises being leased (including the floor level), quality
and location of the project, tenant improvement allowances, if
any, lease takeover payments, the then existing tenant
improvements, the extent of services to be provided to the leased
premises, the date as of which the Fair Market Rental Rate is to
become effective and other generally applicable terms and
conditions of tenancy for comparable sized space ("Fair Market
Rental Rate").
(ii) The two arbitrators so appointed shall within fifteen (15)
days of the date of the appointment of the last appointed
arbitrator agree upon and appoint a third arbitrator who shall be
qualified under the same criteria set forth hereinabove for
qualification of the initial two arbitrators. Upon appointment of
the third arbitrator, Landlord and Tenant shall each submit to
the other and to the third arbitrator sealed envelopes containing
their respective determinations of the Fair Market Rental Rate.
If Landlord's and Tenant's determination are within five percent
(5%) of each other, the third arbitrator shall average the
determination. If such determinations are not within five percent
(5%) of each other, the third arbitrator shall choose the
determination closer to his own determination.
(iii) The third arbitrator shall within thirty
(30) days of his appointment reach a
decision as to whether the parties shall use
Landlord's or Tenant's submitted Fair Market
Rental Rate, or, if Landlord's and Tenant's
determination are within five percent (5%)
of each other, the average of the two, and
shall notify Landlord and Tenant thereof.
(iv) The decision of the third arbitrator shall
be binding upon Landlord and Tenant.
(v) If either Landlord or Tenant fails to
appoint an arbitrator within fifteen (15)
days after the Outside Agreement Extension
Date, the arbitrator timely appointed by one
of them shall reach a decision, notify
Landlord and Tenant thereof, and such
arbitrator's decision shall be binding upon
Landlord and Tenant.
(vi) If the two arbitrators fail to agree upon
and appoint a third arbitrator, both
arbitrators shall be dismissed and the
matter to be decided shall be forthwith
submitted to arbitration under the
provisions of the American Arbitration
Association, but subject to the instructions
set forth herein.
(vii) The cost of arbitration shall be paid by
Landlord and Tenant equally.
(viii) If the Fair Market Rental Rate for the
applicable Option Term has not been
determined by the commencement of such
Option Term, then until the time the Fair
Market Rental Rate is determined in
accordance with Subparagraph 3.2(5), Tenant
shall pay as Annual Basic Rent the greater
of (a) the Annual Basic Rent on a RSF basis
as it is then obligated to pay immediately
prior to the commencement of such Option
Term as increased by the percentage increase
in the Consumer Price Index (All Urban
Consumers, Los Angeles-Anaheim-Riverside
Metropolitan Area, as published by the
United States Department of Labor, Bureau of
Labor Statistics; "CPI" herein), over that
period beginning on the date of the last
increase in the Annual Basic Rent and ending
on the date of the commencement of such
Option Term, but not to exceed Landlord's
determination of the Fair Market Rental
Rate, or (b) an amount equal to the sum of
Landlord's and Tenant's determination of the
Fair Market Rental Rate for the applicable
Option Term divided by two (2). If the
arbitration procedure results in a higher
Annual Basic Rent than that paid by Tenant
prior to date of the arbitrators'
determination, Tenant shall make up the
difference and pay such amount to Landlord
along with the next installment of Monthly
Basic Rent due. If the arbitration procedure
results in a lower Annual Basic Rent than
that paid by Tenant prior to the date of the
arbitrators' determination, Tenant shall
receive a credit against any next succeeding
installment(s) of Monthly Basic Rent to the
extent of such overpayment.
Notwithstanding the foregoing, an Option
shall not be deemed properly exercised, if,
as of the date of the Option Notice, or at
the end of the then current Option Term,
Landlord has given Tenant notice that Tenant
is in monetary default or other material
default under this Lease and any applicable
cure period has lapsed without Tenant's
curing such default, and the period within
which the Option may be exercised shall not
be extended by reason of Tenant's inability
to exercise such Option as a result thereof.
3.3 Cancellation Option. Notwithstanding the foregoing, Tenant
shall have the option to cancel this Lease upon 30 days'
notice to Landlord in the event that the Delivery Date has not
occurred by July 1, 1997, except to the extent due to Tenant
Delays. Landlord shall not be liable for any damages suffered
by Tenant as a result of Landlord's failure to timely deliver
the Base Building by the date hereinabove described, and
Tenant's remedies in connection therewith shall be limited to:
(i) canceling this Lease, or (ii) suing for specific
performance.
3.4 Possession. Tenant agrees that if the Delivery Date has not
occurred by July 1, 1997, or any Expansion Space has not been
delivered to Tenant by the date otherwise anticipated by the
parties, as applicable, this Lease shall not be void or
voidable, except as expressly set forth in Subparagraph 3.3
above, nor shall Landlord be liable to Tenant for any loss or
damage resulting therefrom.
3.5 Early Entry into Premises. Tenant, upon providing Landlord
with at least two (2) business days' prior notice, may enter
the Premises after the execution and delivery of this Lease by
Landlord and Tenant in order to commence design work in
connection with the construction of the Tenant Improvements;
provided, however, that (i) prior to Substantial Completion of
the Building (as such term is defined in Subparagraph 1(k)
above), Tenant's early entry shall not interfere with
Landlord's construction of the Base Building, and to the
extent Tenant's early entry does interfere with Landlord's
construction activities, such interference shall constitute a
Tenant Delay (as defined in Section 1.4 of the Work
Agreement), (ii) Landlord shall not be responsible for, and
Tenant is required to obtain insurance covering, any loss
caused by Tenant or those entering the Premises on behalf of
Tenant to design or construct the Tenant Improvements,
including theft, damage or destruction to any work or material
installed or stored by Tenant or any contractor or individual
involved in the construction of the Tenant Improvements, or
for any injury to Tenant or Tenant's employees, agents,
contractors, licensees, directors, officers, partners,
trustees, visitors or invitees (collectively, "Tenant's
Employees") or to any other person; and (iii) Landlord shall
have the right to post the appropriate notices of
non-responsibility and to require Tenant to provide Landlord
with evidence that Tenant has fulfilled its obligation to
provide insurance pursuant to Section 22 hereof.
4. NONDISTURBANCE AGREEMENT.
4.1 Landlord warrants that on the date of this Lease Landlord owns
the Development free and clear of the interest of any ground
lessor or mortgage holder, and as a result, Tenant shall not
need a non-disturbance agreement (as defined below) to protect
its leasehold interest against such interests. Tenant
acknowledges that Landlord has provided Tenant with a copy of
that certain Preliminary Title Report issued by Chicago Title
Company, dated January 10, 1996, with respect to the
Development, and that it has satisfied itself that, as of the
date of this Lease, no monetary liens exist thereon for which
Tenant would require a non-disturbance agreement from any
holder thereof.
4.2 As a condition to Tenant's obligation to subordinate its
interest under the Lease to the interest of any lien holder,
Landlord shall first provide Tenant with commercially
reasonable non-disturbance agreement(s) substantially in the
form of Exhibit "H" attached to the Lease in favor of Tenant
from any mortgage holder, ground lessor or other lien holder
(each, "Superior Mortgagee") of Landlord who later come(s)
into existence at any time prior to the expiration of the Term
of the Lease, as it may be extended. Said non-disturbance
agreements shall be in recordable form and may be recorded at
Tenant's election and expense.
4.3 Notwithstanding anything to the contrary set forth in this
Lease, in the event that Landlord fails to pay to Tenant the
Tenant Improvement Allowance (including allowances, if any,
for expansions, renewals, initial construction, remodeling or
refurbishing), the Superior Mortgagee or such other successor
to the interests of Landlord and/or the Superior Mortgagee
shall pay to Tenant, together with interest at the Interest
Rate (as defined in Section 59 below), such unpaid amounts and
shall recognize and honor any remaining credit of Base Rent
and/or Operating Expenses. With respect to all such payments,
interest thereon shall be computed from the date such amounts
should have been paid until the date such amounts are in fact
paid.
4.4 All commercially reasonable non-disturbance agreements shall
acknowledge that, and Landlord hereby independently agrees
that, to the extent Landlord has failed to fulfill its
obligations with respect to the payment of any Tenant
Improvement Allowance (including allowances for expansions,
renewals, initial construction, remodeling or refurbishing),
or the cost incurred by Tenant of constructing or completing
the Tenant Improvements which were required to be constructed
or completed by Landlord at Landlord's expense ("Key
Obligations"), Tenant may deduct the amount of the Key
Obligation which Landlord has not paid, together with interest
thereon at the Interest Rate, from the Rent (defined in
Subparagraph 5(a) below) next coming due and payable, from
time to time, under the Lease.
In addition to the foregoing, Landlord agrees that if Landlord
has failed to pay the Tenant Improvement Allowance in
accordance with Landlord's obligations, Tenant may deduct the
amount thereof which Landlord has not paid, together with
interest at the Interest Rate, from the Rent next coming due
and payable, from time to time, under the Lease.
5. MONTHLY BASIC RENT.
(a) Tenant agrees to pay Landlord as Annual Basic Rent for the
Premises the Annual Basic Rent designated in Subparagraph 1(n) in
equal monthly installments of Monthly Basic Rent (collectively,
"Monthly Installments") each in advance on the first day of each
calendar month during the Term. Rent for any partial calendar
month during the Term shall be prorated and payable in the
proportion that the number of days this Lease is in effect during
such calendar month bears to thirty (30). In addition to the
Annual Basic Rent, Tenant agrees to pay as additional rent the
amount of rental adjustments and other occupancy costs required
expressly by Section 6 below and generally by any other terms of
this Lease. The terms "rental" "rent" or "Rent" have identical
meanings and include all monetary obligations of Tenant under
this Lease, including additional rent unless the context clearly
or specifically implies that only Annual Basic Rent is
referenced. All Rent shall be paid to Landlord when due, without
prior demand or notice and without any abatement (except as
expressly provided herein), deduction or offset, in lawful money
of the United States of America, at the address of Landlord
designated in Subparagraph 1(b) hereof or to such other person or
at such other place as Landlord may from time to time designate.
(b) Tenant hereby acknowledges that late payment by Tenant to
Landlord of rent, including, without limitation, any Monthly
Installment and all other additional charges to be paid to
Landlord in accordance with this Lease, will cause Landlord to
incur costs not contemplated in the agreement of the monetary and
other terms of this Lease, the exact amount of which are
presently anticipated to be extremely difficult to ascertain.
Such costs may include, without limitation, processing and
accounting charges and late charges which may be imposed on
Landlord by the terms of any mortgage or deed of trust covering
the Land and other expenses of a similar or dissimilar nature.
Accordingly, on the first occasion within a Lease Year in which
Tenant fails to make any Rent payment when due, and Tenant
further fails to make payment of the same within ten (10) days
after Landlord's delivery of written notice to Tenant that the
same is past due, in addition to such Rent payment, Tenant shall
pay to Landlord a late charge equal to two percent (2%) of the
overdue Rent. After such first occasion, Tenant shall incur a
late charge equal to two percent (2%) of the overdue Rent on any
further rent payments not made within two (2) business days of
Tenant's receipt of a notice from Landlord that such Rental
payment is past due, without the necessity of any further notice.
The parties agree that this late charge represents a fair and
reasonable estimate of the costs that Landlord will incur by
reason of late payment to Tenant. In addition, and unless
expressly stated otherwise herein, any payment, including,
without limitation, any Monthly Installment or additional charges
called for under this Lease, is not paid when due hereunder, the
amount unpaid shall bear interest from the date due, until the
same have been fully paid, at the Interest Rate (as defined in
Subparagraph 59 below). The payment of said late charge or such
interest shall not constitute waiver of, nor excuse or cure, any
default under this Lease, nor prevent Landlord or Tenant from
exercising any other rights and remedies available to Landlord or
Tenant. Notwithstanding the foregoing, Landlord shall not assess
a late charge against Tenant for the first late payment hereunder
during each Lease Year unless such late payment is not paid in
full to Landlord within five (5) business days after notice of
such late payment by Landlord to Tenant.
6. ADDITIONAL RENT.
(a) For the purposes of this Subparagraph 6(a), the following
terms are defined as follows:
(1) Operating Expenses: Operating Expenses shall consist
of all costs, expenses and disbursements of
ownership, management, maintenance, operation,
administration and repair of the Building, Common
Areas, Development and Project and related off-site
areas ("Operating Expenses"), including the following
costs by way of illustration, but not
limitation: any and all assessments Landlord must pay
for the Building and other improvements pursuant to
any CC&Rs, REAs (as such terms are defined in
Subparagraph 13(e)), tenancy-in-common agreements or
similar restrictions and agreements affecting the
Development or the Project; real property taxes
(defined below) and assessments and any taxes or
assessments hereafter imposed in lieu thereof; rent
taxes, gross receipt taxes (whether assessed against
Landlord or assessed against Tenant and paid by
Landlord, or both; water, water management, and sewer
charges (including without limitation, maintenance
and repair of private sewer lines and sewer hook-ups
for the Building or the Premises); accounting, legal
and other consulting fees; the net cost and expense
of insurance for which Landlord is responsible
hereunder or which Landlord or any first mortgagee
with a lien affecting the Premises reasonably deems
necessary in connection with the operation of the
Building (including deductible amounts thereof,
exclusive of any portion of the deductible paid under
a policy of earthquake insurance); utilities
(including, without limitation any utilities serving
off-site Mitigation Area); window washing; security;
labor; utilities surcharges, or any other costs
levied, assessed or imposed by, or at the direction
of, or resulting from statutes or regulations or
interpretations thereof, promulgated by any federal,
state, regional, municipal or local government
authority in connection with the use or occupancy of
the Project or the Premises or the parking facilities
serving the Project or premises (collectively,
"Governmental Required Expenditures"); any financing
costs of same obtained by Landlord on financing
of any repairs, alterations, replacements and
improvements where Landlord is entitled to pass
through the cost thereof under this Lease; repairs,
alterations, replacements and improvements made for
safety of persons or property in or about the
Project or Common Areas (colectively, "Safety
Expenditures"); the costs of any other capital
expenditures to the extent of any reduction in
Operating Expenses ("Efficiency Expenditures"); costs
reasonably required to maintain the Development
and Project in first class condition and repair as
existing on the Commencement Date ("Maintenance
Expenditures"); costs incurred in the management of
the Building, if any (including supplies, wages and
salaries of employees to the extent used in the
management, operation and maintenance of the
Building, and payroll taxes and similar governmental
charges with respect thereto); any exaction,
assessment, fee, charge or other cost relating to any
and all governmentally mandated transportation system
management programs and other transportation and
traffic measures applying to the Development and
Project; Building management office rental, not to
exceed the fair market rental value of such office
and provided such office is not materially larger
than necessary and only for the portion devoted
exclusively to management of the Development and/or
Project; a management fee not to exceed that payable
to first class managers of Comparable Buildings who
are not owned, controlled or affiliated with the
Landlord; air conditioning; waste disposal; heating;
ventilating; elevator maintenance; supplies;
materials; equipment; tools; warranties; repair and
maintenance of the structural portions of the
Building, including the plumbing, heating,
ventilating, air conditioning and electrical systems
installed or furnished by Landlord; maintenance
costs, including utilities and payroll expenses,
rental of personal property used in maintenance, and
all other upkeep of all Parking Area and Common
Areas; costs and expenses of gardening and
landscaping; maintenance of signs (other than
Tenant's signs which shall be the sole responsibility
of Tenant); personal property taxes levied on or
attributable to personal property used in connection
with the Project; reasonable audit or verification
fees; costs and expenses of repairs, resurfacing,
repairing, maintenance, painting, lighting, cleaning,
refuse removal, security and similar items; and costs
and expenses incurred in connection with the leasing
and management of any parking facility used in
connection with the Project, including, but not
limited to, the cost for payroll for clerks,
attendants and other persons, including payroll taxes
and benefits, payroll processing, bookkeeping,
janitorial and cleaning services, striping and
painting of parking spaces, repair and maintenance of
parking equipment, and traffic signs.
The term "Operating Expenses" shall additionally
include all costs of operation, management,
maintenance and repair (collectively, "Maintenance")
of the Project Common Areas to the extent (i) such
Maintenance is performed with respect to the Project
as a whole (including the Development) and is not
separately allocable to any single building or parcel
in the Project (e.g. costs of security personnel
patrolling the entire Project), or (ii) such
Maintenance is performed pursuant to any recorded
declarations, CC&Rs, REAs or the like, affecting the
Project. "Operating Expenses" shall further include
the cost of landscaping, maintaining and repairing
that area designated on the attached Site Plan as the
"Mitigation Area." Notwithstanding anything herein to
the contrary, Tenant's Percentage of the additional
Operating Expenses described in this paragraph only
shall equal the proportion that the RSF of the
Premises bears to the total RSF of all buildings in
the Project.
Because Tenant agrees that Tenant shall be solely
responsible, at its sole cost, for providing its own
janitorial services and utilities for the Premises,
Operating Expenses shall not include any janitorial
expenses or utility use charges provided to any other
tenants.
If the Building and/or Project is not fully
constructed and completed and/or does not have at
least one hundred percent (100%) of the RSF of the
Building and/or Project occupied during any calendar
year period, then the variable portion of the
Operating Expenses for such period shall be deemed to
be equal to the total of (i) the Operating Expenses,
other than real property taxes, which would have been
incurred by Landlord if the Building and/or Project
had been fully constructed and completed and one
hundred percent (100%) of the RSF of the Building
and/or Project had been occupied for the entirety of
such calendar year and (ii) the actual real property
taxes as defined below. The annual amortization of
costs shall be determined by dividing the original
cost of such capital expenditure by the number of
years useful life of the capital item acquired, which
useful life shall be reasonably determined by
Landlord. Operating Expenses shall be computed
according to the cash or accrual basis of accounting,
as Landlord may elect in accordance with standard and
reasonable accounting principles employed by
Landlord. Landlord further agrees that since one of
the purposes of Operating Expenses and the gross up
provision is to allow Landlord to require Tenant to
pay for the costs attributable to its Premises,
Landlord agrees that (i) Landlord will not be
entitled to charge Tenant more than Tenant's
Percentage of one hundred percent (100%) of the
Operating Expenses actually paid by Landlord in
connection with the operation of the Building, and
(ii) Landlord shall make no profit from Landlord's
collections of Operating Expenses from Tenant.
Notwithstanding anything to the contrary in the
definition of Operating Expenses and real property
taxes, Operating Expenses and real property taxes
shall not include the following except to the extent
specifically permitted by a specific exception to the
following:
(i) any ground lease rental;
(ii) capital expenditures of Landlord in
initially constructing the Development;
(iii) all costs of a capital nature (including, without
limitation, capital repairs, replacements, improvements and
equipment), as determined in accordance with generally accepted
accounting principles ("GAAP"), consistently applied "Capital
Items"), if applicable, other than Governmental Required
Expenditures incurred by Landlord after the Commencement Date for
any capital improvements to the extent installed or paid for by
Landlord and required by any new (or change in) laws, rules or
regulations of any governmental or quasi-governmental authority
which are enacted after the Commencement Date (or enacted before
the Commencement Date, but enforced in a different manner after
the Commencement Date), Efficiency Expenditures (provided the
annual amortized costs of any Efficiency Expenditures do not
exceed the actual cost savings realized and such savings do not
redound primarily to the benefit of any particular tenant),
Maintenance Expenditures or Safety Expenditures. Any allowed
costs of a capital nature (including interest costs thereon)
included in Operating Expenses shall be amortized as provided
above;
(iv) costs incurred by Landlord for the repair of
damage to the Building to the extent that
Landlord is reimbursed by insurance
proceeds, governmental agencies or entities
or any tenant of the Development and costs
of all capital repairs, regardless of
whether such repairs are covered by
insurance;
(v) costs, including permit, license and
inspection costs, incurred with respect to
the installation of tenant or other occupant
improvements made for tenants in the
Development or incurred in renovating or
otherwise improving, decorating, painting or
redecorating vacant office and retail space
(i.e., other than Common Areas) for tenants
or other occupants of the Development;
(vi) depreciation, amortization and interest payments, except as
provided herein, and except on materials, tools, supplies and
vendor-type equipment purchased by Landlord to enable Landlord to
supply services Landlord might otherwise contract for with a
third party where such depreciation, amortization and interest
payments would otherwise have been included in the charge for
such third party's services, all as determined in accordance with
GAAP, consistently applied, if applicable and when depreciation
or amortization is permitted or required, the item shall be
amortized over its reasonably anticipated useful life;
(vii)
leasing commissions, attorneys' fees, marketing costs,
advertising expenses, payments, credits, free rent, lease
takeover obligations, other inducements and other costs and
expenses incurred in connection with the leasing of space, or
negotiations and preparation of letters, deal memos, letters of
intent, leases, subleases, and/or assignments, space planning
costs and other costs and expenses incurred in connection with
lease, sublease and/or assignment, negotiations and transactions
or disputes with present or prospective tenants or other
occupants of the Development concerning their particular leased
premises;
(viii) expenses in connection with services or
other benefits which are not offered to
Tenant or for which Tenant or any other
tenant is charged directly but are not
offered to another tenant or occupant of the
Building;
(ix) costs incurred by Landlord due to the
violation by Landlord or any tenant of the
terms and conditions of any lease of space
in the Development;
(x) costs paid to Landlord or to subsidiaries or
affiliates of Landlord for services in the
Building to the extent the same exceeds the
costs of such services rendered by
unaffiliated third parties on a competitive
basis;
(xi) except for Governmental Required
Expenditures Efficiency Expenditures, Safety
Expenditures and Maintenance Expenditures,
interest, principal, points and fees on
debts or amortization on any mortgage or
mortgages or any other debt instrument
(including refinancings) encumbering the
Development or the Land (except as permitted
in Subsection (iii) above);
(xii) Landlord's general corporate overhead and
general and administrative expenses or costs
for which Landlord has been compensated by a
management fee and any management fee in
excess of those management fees which are
normally and customarily charged by
comparable landlords of Comparable
Buildings;
(xiii) costs of, including compensation paid to clerks,
attendants or other persons, in excess of revenues from,
commercial concessions operated by Landlord serving the
Development where such concessions are operated for a profit or
in the Parking Area of the Building or wherever Tenant is granted
its parking privileges and/or all fees paid to any parking
facility operator (and/or of the Project) provided, however, that
if Landlord provides such parking to Tenant free of charge or at
a reduced rate, to the extent that Tenant's Proportionate Share
of such expenses exceeds an amount paid by Tenant for such
parking, those expenses may be included as part of Operating
Expenses;
(xiv) except for making repairs or keeping
permanent systems in operation while repairs
are being made, rentals and other related
expenses incurred in leasing air
conditioning systems, elevators or other
equipment ordinarily considered to be of a
capital nature, or not reasonably necessary
or appropriate to operate or maintain the
Building in a first class manner, other than
Governmental Required Expenditures, Safety
Expenditures, Efficiency Expenditures and
Maintenance Expenditures;
(xv) all items and services for which Tenant or
any other tenant in the Building reimburses
Landlord or which Landlord provides
selectively to one or more tenants (other
than Tenant) without reimbursement;
(xvi) advertising and promotional expenditures and
purchasing, constructing, repairing,
maintaining or removing costs of signs, or
any legal expenses incurred in connection
with securing any required governmental
approvals therefor in or on the Building,
identifying the owner of the Building;
(xvii) utility costs for which Tenant or any tenant
directly contracts with the local
public service company;
(xviii) interest or penalties incurred as a result
of Landlord's inability or unwillingness to
make payments and/or to file any tax or
informational returns when due;
(xix) costs for sculpture, paintings or other art
work;
(xx) costs for off-site personnel, including
accounting services, to the extent
such personnel do not perform services for
the Development;
(xxi) costs to acquire, finance, construct, equip
and complete the Development, the cost of
utilities consumed in connection with the
construction and completion of the
Development or any space therein, any costs
to complete "punchlist"
matters in the common areas, Premises or any
other portions of the Development, and costs
incurred in connection with replacing any
defective portion of such original
construction;
(xxii) costs (other than tax increases) in
connection with the purchase or sale of the
Development or Landlord or any portion of or
interest (direct or indirect) in either;
(xxiii) unreimbursed expenditures by Landlord for
(i) HVAC provided to other tenants to the
extent such tenants receive such HVAC at
costs below those charged to Tenant under
this Lease and (ii) the cost of providing
janitorial services to other tenants to the
extent such tenants receive janitorial
services in excess of that provided to
Tenant under this Lease, or the cost of any
non-common area janitorial expenses if
Tenant provides its own janitorial services;
(xxiv) costs arising from Landlord's charitable or
political contributions;
(xxv) costs to repair latent defects in the Base
Building or improvements or repairs
made by Landlord;
(xxvi) all assessments and premiums which are not specifically
charged to Tenant because of what Tenant has done, which can be
paid by Landlord in installments, shall be paid by Landlord in
the maximum number of installments permitted by law and not
included as Operating Expenses except in the year in which the
assessment or premium installment is actually paid; provided,
however, that it is the prevailing practice in Comparable
Buildings to pay such assessments or premiums on an earlier basis
and Landlord pays on such basis, such assessments or premiums
shall be included in Operating Expenses as paid by Landlord;
(xxvii) any compensation fee (as opposed to a reimbursement or
pass-through charge) payable to the parking operator of the
Parking Area;
(xxviii) cost, including penalties or damages
incurred due to such non-compliance, to
correct Landlord's failure to comply and
conform with the Americans With Disabilities
Act or any other Applicable Law on the date
the building permit was issued for the
construction of the Base Building, provided
such Applicable Law was routinely enforced
in the manner and degree being enforced on
the date the building permit therefor was
issued;
(xxix) except for making repairs or keeping
permanent Building Systems in operation
while repairs are being made, rentals and
other related expenses incurred in leasing,
air-conditioning systems, elevators or other
equipment ordinarily considered to be of a
capital nature except equipment not affixed
to the Building which is used in providing
janitorial or similar services;
(xxx) rentals for items (except when needed in
connection with normal repairs and
maintenance of permanent systems) which if
purchased, rather than rented, would
constitute a Capital Item which is
specifically excluded in Subsection (ii)
above (excluding, however, Capital Items
where the costs thereof is permitted to be
passed through as an Operating Expense under
this Lease as provided above or permitted
equipment not affixed to the Building which
is used in providing janitorial or similar
services);
(xxxi) Overhead and profit increments paid to
Landlord or to subsidiaries or affiliates of
Landlord for goods and/or services in or to
Building to the extent the same exceeds the
costs of such goods and/or services rendered
by substantially all unaffiliated third
parties on a competitive basis;
(xxxii) To the extent that Tenant will be paying
directly for electricity, gas, and other
utilities used within its Premises
(collectively, "Separately Metered
Utilities"), and so long as Tenant will be
providing janitorial services for its own
Premises, Landlord shall not include in
Operating Expenses the cost of such
utilities or janitorial services which are
provided to any other tenant in the
Building; or
(xxxiii) water services provided and costs incurred
in connection with the operation of the
retail and restaurant operations in the
Building, except to the extent the square
footage of such operations are included in
the RSF of the Building and to the extent
the services and tax costs do not exceed
that which would have been incurred had the
retail and/or restaurant space been used for
general office purposes.
(b) "Real property taxes" shall include any form of assessment,
license fee, license tax, business license fee, commercial
rental tax, levy, charge, penalty, tax or similar imposition,
imposed by any authority having the direct power to tax,
including without limitation any city, county, state or
federal government, or any school, agricultural, lighting,
drainage or other improvement or special assessment district
thereof, as against any legal or equitable interest of
Landlord in the Development, including, but not limited to,
the following:
(1) any tax on Landlord's "right" to rent or "right" to
other income from the Development or as against
Landlord's business of leasing the Development;
(2) any assessment, tax, fee, levy or charge in
substitution, partially or totally, of any
assessment, tax, fee, levy or charge previously
included within the definition of real estate tax,
including but not limited to, any assessments, taxes,
fees, levies and charges that may be imposed by any
governmental agencies for such services as fire
protection, street, sidewalk and road maintenance,
transportation management, utility or water
regulations, refuse removal and for other
governmental services formerly provided without
charge to property owners or occupants. It is the
intention of Tenant and Landlord that all such new
and increased assessments, taxes, fees, levies and
charges be included within the definition of "real
property taxes" for the purpose of this Lease;
(3) any assessment, tax, fee, levy or charge allocable to
or measured by the area of the Development or rent
payable hereunder, including, without limitation, any
gross income tax or excise tax levied by the state,
city or federal government, or any political
subdivision thereof, with respect to the receipt of
such rent, or upon or with respect to the possession,
leasing, operating, management, maintenance,
alteration, repair, use or occupancy by Tenant of the
Premises, or any portion thereof;
(4) any assessment, tax, fee, levy or charge upon this
transaction or any document to which Tenant is a
party creating or transferring an interest or an
estate in the Premises;
(5) any assessment, tax, fee, levy or charge by any
governmental agency related to any transportation
plan, fund or system instituted within the geographic
area of which the Development is a part; and
(6) reasonable legal fees and other professional fees,
costs and disbursements incurred in connection with
proceedings to contest, determine or reduce real
property taxes.
If the tax assessor does not specifically identify
tenant improvements in its assessment, Landlord shall
pay any real property taxes associated with the
tenant improvements of all tenants and include such
taxes in Operating Expenses. If the tax assessor does
specifically identify tenant improvements in its
assessment, any real property taxes associated with
tenant improvements based on tenant improvements
being valued at an amount not to exceed Twenty-five
Dollars ($25.00) per RSF shall be included in
Operating Expenses and Tenant shall be responsible
for all real property taxes associated with the
Tenant Improvements above such amount pursuant to
Subparagraph 12(b).
Notwithstanding any provision of this Subparagraph
6(b) expressed or implied to the contrary: (1) "real
property taxes" shall not include Landlord's federal
or state income, franchise, gift, capital stock,
transfer, inheritance or estate taxes; (2) Tenant's
Percentage of real property taxes included in
Operating Expenses shall be based on the actual real
property taxes payable for the Development, and
Tenant shall pay real property taxes as they are paid
by Landlord directly to the appropriate taxing
authority or into an impound account as required by
the holder of a beneficial interest of a deed of
trust or mortgage encumbering the Building, which
shall be on the later of (i) ten (10) days after
notice to Tenant stating the amount due and, if no
such impounds are required to be paid, a copy of the
tax bill or (ii) five (5) days before payment is due;
(3) real property taxes shall not be adjusted by
Landlord to represent a fully assessed building,
until so assessed by the appropriate taxing
authority; and (4) Tenant shall not be liable for any
share of late fees or penalties due to Landlord's
failure to pay real property taxes on time. In
addition, Landlord agrees that to the extent that the
real property tax component of the Operating Expenses
is increased due to the first sale of the Building
during the initial Term (i.e., prior to any Option
Term), Tenant's Operating Expenses shall not be
increased as a result thereof during the initial
Lease Term to the extent such increase exceeds the
increase that would have occurred had no such sale or
transfer taken place. Following such first sale, if
any event shall occur which causes a reassessment,
and thereby causes an increase in real property
taxes, the real property taxes payable by Tenant
shall be increased accordingly without regard to any
prior limitation on increases in real property taxes
agreed to above. The foregoing exclusions from real
property taxes are not intended to exclude any annual
increases in real property taxes. Notwithstanding the
foregoing, Tenant shall be liable for all taxes,
assessments or governmental charges attributable to a
Change of Ownership Assessment resulting from a sale,
transfer or other change in ownership, which sale,
transfer or change in ownership occurs subsequent to
the first sale of the Development.
Tenant may attempt to have the assessed valuation of
all or part of the Development or Tenant's personal
property reduced or may initiate proceedings to
contest the real property taxes or personal property
taxes. Upon Tenant's request, or if required by
applicable law, Landlord shall reasonably join in the
proceedings brought by Tenant. However, Tenant shall
pay all costs of the proceedings, including any
reasonable costs or fees reasonably incurred by
Landlord in connection therewith. Within thirty (30)
days after the final determination of any proceeding
or contest, Tenant shall pay the taxes due, together
with all costs, charges, interest and penalties
incidental to the proceedings. Notwithstanding the
foregoing and provided Tenant pays such taxes when
required by the taxing authority, Tenant shall pay
the taxes (and such other amounts, as applicable)
under protest, whether or not such payment under
protest is necessary to contest the amount of taxes
or to prevent the sale of the Development under a
"tax sale" or similar enforcement proceeding. If any
contest of taxes with respect to the Development
results in a reimbursement by one or more taxing
authorities of some or all of the tax payments
previously made by Tenant with respect to the
Development, Tenant shall be entitled to the full
amount of such reimbursement to the extent of any
payment by Tenant.
(c) (1) At least forty-five (45) days prior to the Commencement
Date, Landlord shall endeavor to deliver to Tenant an estimate
of Tenant's Percentage of Operating Expenses for the first
year of the Lease Term (i.e., the period commencing on the
Commencement Date and expiring on December 31 of said calandar
year) ("First Year Estimate",
and Tenant shall pay to Landlord concurrently with the first
payment of Monthly Basic Rent after the Commencement Date, and
then monthly thereafter together with each regular payment of
Monthly Basic Rent until the revised Estimate Statement takes
effect, the amount set forth in the First Year Estimate
Statement multiplied by a fraction, such fraction being the
number of calendar months remaining in such calendar year from
and after the Commencement Date divided by 12.
(2) By the end of each calendar year during the Term,
Landlord shall endeavor to deliver to Tenant a statement
("Estimate Statement") wherein Landlord shall estimate the
Operating Expenses (except for any portion attributable to real
property taxes) for the immediately following calendar year.
Not more often than once in any calendar year, if Landlord
determines that Tenant's Percentage of the Operating Expenses
for such calendar year exceeds (or is less than) that set
forth in the Estimate Statement, and such excess is
substantial, extraordinary and non-budgeted (or any expected
substantial expense does not occur) then Landlord shall
deliver to Tenant, as appropriate, a revised Estimate
Statement and Tenant shall pay to Landlord, or Landlord shall
credit Tenant's next monthly Rental payments coming due or pay
to Tenant, as appropriate, within fifteen (15) days of the
delivery of such revised Estimate Statement, the difference
between such revised Estimate Statement and the original
Estimate Statement for the portion of the current calendar
year which has then expired, and pursuant to Landlord's notice
to Tenant, Tenant shall either (a) pay during the balance of
such current calendar year a fraction of the balance of such
difference as would fully amortize such excess over the
remaining months of the then current calendar year or (b)
reduce its monthly payment during the balance of such current
calendar year by an amount to account for the revised Estimate
Statement's being less than the original Estimate Statement,
as appropriate.
(3) If Landlord has not given Tenant an Estimate Statement
before December 31 for the immediately following calendar
year, then during the immediately following calendar year,
until such Estimate Statement is given to Tenant, Tenant shall
continue to pay its Percentage Share of Operating Expenses at
the same rate as for the immediately preceding calendar year.
Once such Estimate Statement is rendered, it shall be
considered a revised Estimate Statement, as provided under
(ii) above, and Tenant shall pay Landlord Tenant's Percentage
of Operating Expenses for such calendar year accordingly.
(4) The Operating Expenses (excluding real property taxes)
estimated in the Estimate Statement shall be divided into
twelve (12) equal monthly installments, and Tenant shall pay
to Landlord, concurrently with the regular monthly Rent
payment next due following the receipt of such statement, an
amount equal to one (1) monthly installment multiplied by the
number of months from January in the calendar year in which
said statement is submitted to the month of such payment, both
months inclusive. Subsequent installments shall be paid
concurrently with the regular monthly Rent payments for the
balance of the calendar year and shall continue until the next
calendar year's Estimate Statement is rendered.
(5) By the first day of April of each succeeding calendar
year during the Term, Landlord shall endeavor to deliver to
Tenant a statement ("Actual Statement") wherein Landlord shall
state the actual Operating Expenses for the preceding calendar
year, certified
by Landlord. If the Actual Statement reveals a greater
increase in Tenant's Percentage of Operating Expenses than was
estimated by Landlord in the Estimated Statement (as revised)
delivered as provided herein, then within thirty (30) days
after receipt of the Actual Statement from Landlord, Tenant
shall pay a lump sum equal to said total increase. If the
Actual Statement reveals a lesser increase (or a decrease) in
Tenant's Percentage of Operating Expenses than was estimated
by Landlord in the Estimated Statement (as revised), then upon
receipt of Landlord's Actual Statement, any overpayment made
by Tenant on the monthly installment basis provided above
shall be credited toward the next monthly Rent falling due and
the monthly installment of Tenant's Percentage of Operating
Expenses to be paid pursuant to the then current Estimate
Statement shall be adjusted to reflect such lower expenses
from the most recent calendar year, or if this Lease has been
terminated, such excess shall be credited against any amount
which Tenant owes Landlord pursuant to this Lease and, to the
extent all amounts which Tenant owes Landlord pursuant to this
Lease have been paid, Landlord shall within ten (10) business
days of receipt by Tenant of the Actual Statement pay such
excess to Tenant. Any delay or failure by Landlord in
delivering any estimate or statement pursuant to this Section
6 shall not constitute a waiver of its right to require an
increase in rent nor shall it relieve Tenant of its
obligations pursuant to this Section 6, except that Tenant
shall not be obligated to make any payments based on such
estimate or statement until ten (10) days after receipt of
such estimate or statement.
(6) In the event Tenant shall dispute the amount set forth in
the Actual Statement described above in this Subparagraph 6(c)
and/or the amount due as Operating Expenses pursuant to Lease
Section 6, Tenant shall have the right not later than two (2)
years following receipt of such Actual Statement to cause
Landlord's books and records with respect to the preceding
calendar year (and previous years if necessary to review or
audit properly Landlord's books and records with respect to
such actual statement in question) to be reviewed and
photocopied by Tenant or its representatives or to be audited
by an accountant who shall be at least of a quality consistent
with accountants typically hired by nationally recognized
public accounting firms at Landlord's office. If after
reviewing and photocopying Landlord's books and records,
Tenant disagrees with the calculations set forth in the Actual
Statement and/or the amount due as Operating Expenses pursuant
to Lease Section 6, then Tenant shall, not later than two (2)
year from and after receiving the Actual Statement, give
Landlord written notice of Tenant's opinion of the Operating
Expenses for the Building for such calendar year. If Tenant
does not deliver such written notice to Landlord within the
two (2) year period, then Tenant shall be deemed to have
agreed with the calculations set forth in the Actual
Statement. If Landlord and Tenant disagree over the Actual
Statement, either party may submit the matter to arbitration
in accordance with the rules and regulations of the American
Arbitration Association. In no event, however, shall Tenant
have the right to withhold payment of all or any portion of
the amount stated as due in such Actual Statement. The amounts
payable under this Subparagraph 6(c) by Landlord to Tenant or
by Tenant to Landlord, as the case may be, shall be
appropriately adjusted on the basis of such audit. The cost of
such review or audit shall be borne by Tenant; provided,
however, that if upon resolution of the dispute it is
determined that Landlord's originally delivered Actual
Statement overstated Operating Expenses (excluding real
property taxes) for the Development by more than five percent
(5%), Landlord shall pay Tenant within thirty (30) days of
such determinations Tenant's actual and reasonable audit
expenses incurred in auditing such Actual Statement.
(7) Neither the accounting firm or Lessee's employees shall be
compensated on a contingent fee, commission or bonus basis,
but must only be compensated on a flat salary, fee or hourly
basis.
(8) Landlord shall maintain in a safe and orderly manner all
of its records pertaining to the additional rent payable
pursuant to this Section 6 for a period of three (3) years
after the completion of each calendar year. Landlord shall
maintain such records on a current basis and in sufficient
detail to permit adequate audit and review thereof and, at all
reasonable times, in reasonable coordination with Landlord's
schedule, during Landlord's regular business hours, copies of
such records, at Tenant's expense, shall be available to
Tenant or its representatives for such purposes at the office
of the Building.
(d) Even though the Term has expired and Tenant has vacated the
Premises, when the final determination is made of Tenant's
Percentage of Operating Expenses for the year in which this
Lease terminates, Tenant shall pay any increase due over the
estimated expenses paid within thirty (30) days after receipt
of such final determination and, conversely, any overpayment
made in the event said expenses decrease shall be rebated by
Landlord to Tenant within thirty (30) days after receipt of
such final determination.
(e) Each time Landlord provides Tenant with an actual and/or
estimated statement of Operating Expenses, such statement
shall be itemized on a line item by line item basis, showing
the applicable expense for the applicable year and the year
prior to the applicable year.
(f) In the event Tenant ceases, and has given Landlord written
notice that Tenant has ceased, to occupy one (1) or more
floors of the Premises (and provided Tenant is still leasing
and paying Monthly Basic Rent on the same), Tenant shall
receive a credit against Operating Expenses equal to the
actual reduction in the use of utilities (excluding Separately
Metered Utilities) and services in the Building resulting from
Tenant's vacancy of such portion of the Premises.
7. CONSTRUCTION OF THE TENANT IMPROVEMENTS AND THE BASE BUILDING.
Construction of the Tenant Improvements and the Building shall be done
in accordance with the terms of the Work Agreement attached hereto as
Exhibit "B."
8. USE.
(a) Tenant shall use the Premises for general office use and
other related legally permitted uses consistent with a
first-class office building in the Calabasas area, and shall not
use or permit the Premises to be used for any other purpose
without the prior written consent of Landlord, which consent
shall not be unreasonably withheld, conditioned or delayed.
Nothing contained herein shall be deemed to give Tenant any
exclusive right to such use in the Building, nor grant any use or
access right therein to the general public or any person other
than those employed by or invitees of Tenant. Tenant shall not
use or occupy the Premises in violation of (i) any Applicable
Law, (ii) any recorded CC&R or REA affecting the Development, or
(iii) the certificate of occupancy issued for the Building, and
Tenant shall, upon receipt of written notice from Landlord or any
governmental authority having jurisdiction, immediately
discontinue any use of the Premises which is declared by any such
governmental authority to be a violation of Applicable Law or of
said CC&Rs, REAs or certificate of occupancy.
(b) Tenant shall comply at Tenant's cost and expense with any
direction of any governmental authority having jurisdiction which
shall, by reason of the nature of Tenant's use or occupancy of
the Premises or Tenant's Work, impose any duty upon Tenant or
Landlord with respect to the Premises or with respect to the use
or occupation thereof. Tenant shall comply with all rules,
orders, regulations and requirements of the Pacific Fire Rating
Bureau or its successor, or any other organization performing a
similar function. Provided, however, notwithstanding any
provision in this Lease to the contrary, Tenant shall not be
obligated to make any modifications to the Building Structure or
Building Systems except to the extent of a Tenant Related Cause.
A "Tenant Related Cause" means any alteration, improvement or
other work required by Applicable Law or standard building
practices to be made to the Building including, without
limitation, the ADA on account of Tenant's particular use, manner
of use, occupancy or manner of occupancy of the Premises,
Building and/or Parking Area in excess of that necessary to use
the Premises for general office uses typical of tenants of
Comparable Buildings (e.g., the Premises having private exclusive
washrooms or kitchens or any other similar Tenant-caused-reason
which triggers such compliance and/or upgrades and is not
necessary for general office use) or the particular type of
improvements, alterations or additions made by or at the
direction of Tenant, which would not be required to use the
Premises for general office use. In addition, Tenant acknowledges
that Tenant shall be responsible for complying with all
Applicable Laws within the Premises (exclusive of any Building
Structure or Building Systems (each defined below) unless
modifications are required to be made to the Building Structure
or Building Systems on account of a Tenant Related Cause). Tenant
shall promptly upon demand, reimburse Landlord for any additional
premium charged for such policy by reason of Tenant's failure to
comply with the provisions of this Section 8. Consistent
herewith, Tenant shall participate in and comply with all
governmentally mandated water management and rationing programs
or other environmental or safety programs applicable to the
Development from time to time. Furthermore, Tenant shall
participate in and comply with any and all governmentally
mandated transportation system management and transportation
demand management programs and other transportation and traffic
measures applicable to the Development from time to time.
(c) Tenant shall not do or permit anything to be done in or about
the Premises which will in any material way obstruct or
interfere with the rights of other tenants or occupants of the
Building or the Development, or injure or annoy them, or use
or allow the Premises to be used for any unlawful purpose, nor
shall Tenant cause, maintain or permit any nuisance in, on or
about the Premises. Tenant shall not commit or suffer to be
committed any waste in or upon the Premises and shall keep the
Premises in first class repair, normal wear and tear excepted,
at Tenant's cost and expense.
(d) Landlord reserves the right to prescribe the weight and
position of all files, safes and heavy equipment which Tenant
desires to place in the Premises if required to properly
distribute the weight thereof. However, if Tenant designates the
location of the areas to be reinforced on a timely basis,
Landlord shall complete such reinforcement as part of the Base
Building improvements and only charge Tenant actual,
out-of-pocket costs for performing such work and ordering extra
materials. Tenant's business machines and mechanical equipment
which cause vibration or noise that may be transmitted to the
Building Structure or to any other space in the Building and
noticeable by a person outside the Premises shall be so
installed, maintained and used by Tenant as to eliminate such
vibration or noise. Except as provided in this Subparagraph 8(d),
Tenant shall be responsible at Tenant's cost and expense for all
structural engineering and other engineering and consultants
required to determine structural load, vibration and noise
related to Tenant's furnishing and equipment.
(e) During the entire Term of the Lease, the Premises shall not
be used as or for any retail uses, mission, restaurant, food
operations (except for an employee and guest cafeteria and
executive dining facility as specifically permitted under this
Lease), school, clubhouse, church, auction, "boiler-room",
tanning salon or any use which creates pedestrian or vehicular
traffic beyond that created by normal office use in a first class
office building. Notwithstanding the foregoing and subject to
Tenant's compliance with Applicable Laws (the cost of which shall
be borne entirely by Tenant), Tenant shall have the right, during
all times when Tenant is leasing the entire RSF of the Building,
to use the Premises, or any portion thereof, for a government
office and/or consulate.
9. PAYMENTS AND NOTICES.
All rents and other sums payable by Tenant to Landlord hereunder shall
be paid to Landlord at the address first set forth in Subparagraph 1(b)
above or at such other place as Landlord may hereunder designate in
writing. Any notice, consent, approval, election, demand or other
communication required or permitted to be given hereunder shall be in
writing and shall be delivered by hand, sent by reputable air courier,
sent by prepaid registered or certified United States mail with return
receipt requested, or sent by facsimile, and shall be deemed to have
been given upon the earliest of (i) receipt, (ii) one business day
after delivery in the United States to a reputable air courier for
overnight expedited delivery service for delivery within the Unites
States, (iii) three (3) business days after the date upon which it has
been deposited in the United States mail, registered or certified, with
postage prepaid and return receipt requested (provided that such return
receipt must indicate receipt at the address specified), or (iv) on the
next business day (in the place of its destination) after its
transmission by facsimile, subject to having in fact been received in
legible form, and addressed as appropriate to the addresses (or to such
other or further addresses or facsimile numbers as the parties may
designate by like notice similarly sent) stated in Section 1.
10. BROKERS AND REPRESENTATIVES.
Each party warrants and represents to the other party that neither it
nor any of its affiliates has had dealings with any real estate broker,
agent or finder in connection with the negotiation of this Lease,
except for the broker or representative named in Subparagraphs 1(s)(1)
and (2) whose commission or fee shall be payable by Landlord by
separate agreement, and that it knows of no other real estate broker,
agent, finder or representative who is or might be entitled to a
commission or fee in connection with this Lease. If a party to this
Lease, or its affiliate, has dealt with any other person or firm with
respect to leasing or renting space in the Building and that is
claiming a fee or commission, such party shall be solely responsible
for the payment of any fee or commission due said person or firm and
shall indemnify, defend and hold the other party free and harmless from
and against any liability in respect thereto, including reasonable
attorneys' fees and costs.
11. HOLDING OVER.
If Tenant holds over after the expiration or earlier termination of the
Term without the express written consent of Landlord, Tenant shall
become a month to month tenant, at a rental rate equal to one hundred
twenty-five percent (125%) of the rental rate then in effect as of the
Expiration Date, and otherwise subject to the terms, covenants and
conditions herein specified, so far as applicable. Acceptance by
Landlord of rent after such expiration or earlier termination shall not
result in a renewal of this Lease. The foregoing provisions of this
Section 11 are in addition to and do not affect Landlord's right of
reentry or any rights of Landlord hereunder or as otherwise provided by
law. If Tenant fails to surrender the Premises upon the expiration of
this Lease despite demand to do so by Landlord, Tenant shall indemnify
and hold Landlord harmless from all loss or liability, including
without limitation, any claim made by any succeeding tenant founded on
or resulting from such failure to surrender and any reasonable
attorneys' fees and costs.
12. TAXES ON TENANT'S PROPERTY.
Tenant shall be liable for and shall pay, before delinquency all taxes
levied against any personal property or trade fixtures placed by Tenant
in or about the Premises. If any such taxes on Tenant's personal
property or trade fixtures are levied against Landlord or Landlord's
property or if the assessed value of the Premises is increased by the
inclusion therein of a value placed upon such personal property or
trade fixtures of Tenant and if Landlord, after written notice to
Tenant, pays the taxes based upon such increased assessment, which
Landlord shall have the right to do regardless of the validity thereof,
but only under proper protest if requested by Tenant, Tenant shall,
within ten (10) days after Landlord has delivered written notice to
Tenant, repay Landlord the taxes so levied against Landlord, or the
portion of such taxes resulting from such increase in the assessment.
13. CONDITION OF PREMISES.
(a) Landlord covenants to construct the Base Building and Tenant
covenants to construct the Tenant Improvements in a first-class
manner and in full compliance with all Applicable Laws applicable
to new construction, including ADA, pursuant to the Work
Agreement. In addition, neither Landlord nor Tenant, nor either
of their respective contractors shall use asbestos or unlawful
amounts of substances determined by Applicable Law as of the date
of this Lease to be hazardous substances (collectively,
"Hazardous Substances"). If Hazardous Substances are found in the
Development, Premises or Building, then to the extent required by
law, Landlord shall remove, or cause to be removed, any and all
Hazardous Substances from the Development, Premises and the
Building (except the existence of Hazardous Substances which is
caused by Tenant, in which case, Tenant shall immediately remove
such Hazardous Substances at Tenant's sole cost and expense). The
conduct of such removal shall be in accordance with all
Applicable Laws.
(b) Tenant and Landlord shall not transport, use, store,
maintain, generate, manufacture, handle, dispose, release or
discharge any "Hazardous Material" upon or about the Building,
nor permit their respective employees, agents, invitees or
contractors to engage in such activities upon or about the
Building. However, the foregoing provisions shall not prohibit
the transportation to and from, and the use, storage, maintenance
and handling within, the Premises of substances customarily used
in connection with normal office use provided: (i) such
substances shall be used and maintained only in such quantities
as are reasonably necessary for the permitted use of the Premises
set forth in this Lease strictly in accordance with Applicable
Laws and the manufacturers' instructions therefor; (ii) such
substances shall not be disposed of, released or discharged on
the Building or the Project, and shall be transported to and from
the Premises in compliance with all Applicable Laws, and as
Landlord shall reasonably require; (iii) if any Applicable Law or
Landlord's trash removal contractor requires that any such
substances be disposed of separately from ordinary trash, Tenant
shall make arrangements at Tenant's expense for such disposal
directly with a qualified and licensed disposal company at a
lawful disposal site (subject to scheduling and approval by
Landlord, which approval shall not be unreasonably withheld,
conditioned or delayed), and shall ensure that disposal occurs
frequently enough to prevent unnecessary storage of such
substances in the Premises; and (iv) any remaining such
substances shall be completely, properly and lawfully removed
from the Building upon expiration or earlier termination of this
Lease.
(c) Landlord shall construct the Base Building to enable Tenant
to commence the lawful construction of its Tenant Improvements
and, when completed, to obtain a Certificate of Occupancy (or
temporary certificate of occupancy or other governmental approval
(in any such case, "Occupancy Permit") that shall permit Tenant
to use and occupy the Premises) for the Premises ("Delivery
Condition"). If, however, Tenant is able to obtain a building
permit for the commencement of construction of the Tenant
Improvements but is not able to obtain an Occupancy Permit until
Landlord has caused the Base Building to comply with Applicable
Laws for new construction, then Delivery Condition shall
nevertheless be deemed to have occurred; provided, however, that
the Commencement Date shall be delayed until Landlord has
complied with its obligations under this Section 13 and/or the
Work Agreement to the extent necessary to enable Tenant to obtain
an Occupancy Permit. Notwithstanding anything herein to the
contrary, Tenant covenants to perform all alterations,
improvements and other work resulting from a Tenant Upgrade
Cause, as hereinafter defined. A "Tenant Upgrade Cause" means any
alteration, improvement or other work required by Applicable Law
to be made to the Building including, without limitation, the ADA
on account of Tenant's particular use, manner of use, occupancy
or manner of occupancy of the Premises, Building and/or
Development in excess of that of any general office use or the
particular type of tenant improvements Tenant is requiring, and
would not necessarily be used by all office tenants. In addition,
Tenant acknowledges that Tenant shall be responsible for
complying with all Applicable Laws within the Premises (exclusive
of the Building Systems and Building Structure unless
modifications are required to be made to the Base Building on
account of a Tenant Upgrade Cause) once the Premises are
delivered in the Delivery Condition to Tenant on the Delivery
Date.
(d) Except as expressly stated in Subparagraph 2.5 and
Subparagraph 13(a) above, Tenant acknowledges that neither
Landlord nor any agent of Landlord has made any representation or
warranty with respect to the Development, Premises or the
Building, or with respect to the suitability of either for the
conduct of Tenant's business. The taking of possession of the
Premises by Tenant shall be presumptive evidence, as against
Tenant, that Tenant accepts the same in its then "as is"
condition subject to all defects existing on the Commencement
Date, except for (i) "punchlist" items, (ii) defects caused by
Landlord or Landlord's contractor of which Landlord receives
notice during the first ninety (90) calendar days from and after
the Commencement Date, (iii) latent defects (i.e., defects which
are not discoverable upon a reasonably diligent inspection of the
Premises within one (1) year from and after the Commencement
Date), and (iv) warranty items during warranty periods from
contractors with respect to the Premises. In no event shall
Landlord be liable to Tenant for any consequential damages
including lost profits. Tenant acknowledges and accepts that
various minor start-up inconveniences which shall not materially
impair Tenant's use and occupancy of the Premises may be
associated with the use of the Building's Common Areas, including
certain construction obstacles such as scaffolding, delays in use
of freight elevator service, certain elevators not being
available to Tenant, the passage of work crews using elevators,
uneven air conditioning services and other typical conditions
incident to recently constructed office buildings. Further,
Tenant acknowledges, in light of the practical impossibility of
ensuring that every floor slab has been installed with absolutely
no deflection, that all wood floor coverings, wood paneling and
similar interior Tenant Improvements may have to be designated to
accommodate the actual floor slab deflection (such deflection,
however, shall not be greater than what is customary in
Comparable Buildings).
(e) Tenant acknowledges that the Development is subject to all
reciprocal easements and/or operation and easement agreements
affecting the Development, as modified from time to time,
hereinafter collectively referred to as "REAs", and all
covenants, conditions and restrictions affecting the Development,
and as modified from time to time, hereinafter collectively
referred to as "CCRs." This Lease is and shall remain subject and
subordinate to the REAs and CCRs, as the same may hereafter be
supplemented, modified or amended, and Tenant agrees to execute
any commercially reasonable documents required to effectuate
and/or affirm such subordination; provided, however, that
Tenant's subordination shall be conditioned upon Tenant's prior
approval of all such supplements, modifications or amendments
which materially decrease Tenant's rights or materially increase
Tenant's obligations hereunder. The terms and provisions of the
CCRs and REAs are hereby incorporated into this Lease by this
reference, as applicable.
14. ALTERATIONS.
(a) Without Landlord's prior consent, but subject to the terms
and provisions herein, Tenant may make such interior,
non-structural alterations, additions and improvements to the
Premises as Tenant deems appropriate, provided such alterations
do not in any manner cause or create the potential for affecting
any Building Systems or for a Design Problem, as defined below,
and do not in any instance exceed Ten Thousand Dollars ($10,000).
Otherwise, Tenant shall not make or permit to be made any
alterations, additions or improvements in or to the Premises
after the Commencement Date without Landlord's prior written
consent, which consent shall not be unreasonably withheld,
conditioned or delayed.
(b) Unless Landlord's consent is not required or Landlord is not
requiring plans and specifications for any proposed work, Tenant
shall submit to Landlord plans and specifications for any
proposed alterations, additions or improvements, and may not make
such alterations, additions or improvements until Landlord has
approved of such plans and specifications. Tenant shall pay
Landlord's reasonably incurred Actual Costs to review Tenant's
plans and specifications, except as may otherwise be provided in
the Work Agreement. Landlord shall respond to any submittal of
plans and specifications within ten (10) business days by
approving them or disapproving them based upon Landlord's
reasonable determination that such alterations and/or
improvements would cause a Design Problem, as defined below.
Tenant shall construct such alterations, additions or
improvements in accordance with the plans and specifications
approved by Landlord, and shall not amend or modify such plans
and specifications without Landlord's prior approval, which
approval shall not be unreasonably withheld, conditioned or
delayed.
(c) Tenant shall have the right to make alterations and
improvements to the Premises, as long as (a) Tenant pays for the
entire cost of such alterations and improvements, (b) Tenant
agrees to remove said alterations and improvements upon the
expiration or termination of this Lease, unless (i) such
improvements and/or alterations are Standard Alterations
described in Section 14(f) below, or (ii) Landlord has otherwise
agreed in writing at the time the alterations and improvements
are approved by Landlord, and (c) such alterations and
improvements will not (i) adversely affect the Building Structure
or Building Systems, (ii) affect or change the exterior
appearance of the Building or the exterior appearance of the
Premises (provided, however, this restriction will not be
applicable once Tenant leases the entire Building), (iii)
unreasonably interferes with any other occupants' customary
business operations, (iv) violate any Applicable Law, (v) require
that Landlord make any alterations, improvements or repairs to
the Building except to the extent Tenant agrees to pay and
actually pays for such alterations, improvements or repairs or
(vi) increase Landlord's cost to operate the Building, unless
Tenant agrees to pay for such increased cost (individually and
collectively a "Design Problem"). In no event shall Tenant be
permitted to create a Design Problem.
(d) All work by Tenant or Tenant's contractors shall be done at
such times and in such manner as does not materially and
adversely affect other tenants. Tenant covenants and agrees that
all work done by Tenant shall be performed in full compliance
with all Applicable Laws and the rules, regulations and
requirements of the Pacific Fire Rating Bureau (or its
successor), and of any similar body. Tenant shall at all times
comply with all rules and regulations of Landlord, and Tenant
shall cause all work to be performed in a good and first class
workmanlike manner, using materials and equipment at least equal
in quality and class to the original installations of the
Building.
(e) Before commencing any work (except for de minimis work for
decoration purposes), whether or not Landlord's consent is
required, Tenant shall give Landlord at least twenty (20) days'
written notice of the proposed commencement of such work. Where
reasonably required by Landlord, Tenant or its contractor shall
obtain a policy of builder's all-risk insurance covering fire and
the broad form of extended coverage, and other risks as Landlord
may reasonably determine, in an amount equal to the replacement
value of that portion of the Premises undergoing work if other
insurance carried by Tenant does not provide adequate protection.
Any liability insurance of Tenant shall include coverage of acts
of Tenant's employees, contractors, agents and other invitees,
and shall conform to the general requirements of Subparagraph
22(b). Tenant shall not install and make part of the Premises any
materials, fixtures or articles which are subject to liens,
conditional sales contracts or chattel mortgages. Tenant further
covenants and agrees that any mechanic's lien filed against the
Premises or against the Building for work claimed to have been
done for, or materials claimed to have been furnished to Tenant,
will be discharged by Tenant, by bond or other means satisfactory
to Landlord, within ten (10) days after the filing thereof, at
the cost and expense of Tenant.
(f) All alterations, additions or improvements upon the Premises
made by either party, including, without limiting the generality
of the foregoing, all Tenant Improvements, all wall-covering,
built-in cabinet work, paneling and the like, shall, unless
Landlord elects or has agreed otherwise, become the property of
Landlord, and shall remain upon, and be surrendered with the
Premises, as a part thereof, at the end or earlier termination of
the Term. Tenant shall, upon the expiration or sooner termination
of the Term, surrender the Premises to Landlord in substantially
the same condition as when received, with Tenant Improvements and
other alterations approved by Landlord or those not requiring
Landlord's approval, normal wear and tear and damage by fire or
other casualty, or by Landlord excepted, except as otherwise
expressly stated herein. At the expiration of the Term, Tenant
shall deliver to Landlord an amount equal to the proceeds of any
insurance (including any self-insurance) which Tenant carries or
is required to carry hereunder and to which Tenant is entitled to
(or would have been entitled to if carried pursuant to the terms
of this Lease) on account of any damage to the Tenant
Improvements in the Premises. However, at the election of
Landlord (unless such election has been waived as hereinafter
provided or if not required pursuant to 14(c) above), exercisable
by written notice to Tenant, Tenant shall, at Tenant's sole cost
and expense, prior to the expiration of the Term, except as
otherwise provided in the Work Agreement and as provided in the
last sentence of this Subparagraph 14(f), remove from the
Premises Tenant's alterations, additions and improvements (other
than floor coverings, paint, ceilings, light fixtures and
controls, built-in cabinets and office demising walls, doors,
door fixtures and trim, HVAC distribution and fixtures related
thereto, to the extent the same are normal and customary for
general business office purposes), and repair all damage to the
Premises caused by such removal and return the Premises to
Landlord's standard build out condition. Prior to making any
alterations, additions or improvements to the Premises, Tenant
shall have the right to request in writing Landlord's consent to
Tenant's not removing any alterations, additions and improvements
that Tenant intends to make. If Landlord fails to respond to such
Tenant's request within fifteen (15) days after Landlord's
receipt of said notice, Landlord shall be deemed to have waived
its right to elect that such alterations, additions and
improvements be so removed, provided that in such Tenant's
request Tenant specifically states in such notice in bold face
print that Landlord shall be deemed to have waived Landlord's
right to require Tenant to remove such alterations, additions or
improvements if Landlord fails to respond to such request within
such fifteen (15) day period. Landlord's failure to require
Tenant to remove any particular alterations, additions or
improvements shall not be construed as a waiver of any prior
election of Landlord or release Tenant from its obligations to
remove any other alterations, additions or improvements.
Notwithstanding any of the foregoing, Landlord specifically
agrees that it shall not require that Tenant remove any
alterations, additions and improvements made subsequent to the
initial construction of the Tenant Improvements consisting of
normal Building standard type items which are customary for a
general office use (i.e., ceiling tiles, 2x4 fluorescent light
fixtures, partitions, door frames and hardware) (collectively,
"Standard Alterations").
(g) All articles of personal property, including all business and
trade fixtures, movable machinery and equipment, furniture and
movable partitions owned by Tenant or installed by or on behalf
of Tenant in the Premises shall be and remain the property of
Tenant and may be removed by Tenant at any time. All of Tenant's
personal property shall be completely removed by Tenant prior to
the expiration of the Term. Provided, however, that Tenant shall
repair all damage caused by such removal prior to the expiration
of the Term.
(h) Landlord reserves the right at any reasonable time and from
time to time and without the same constituting an actual or
constructive eviction, and without incurring any liability to
Tenant therefor or otherwise affecting Tenant's obligations under
this Lease, to make such changes, alterations, additions,
improvements, repairs or replacements in or to the Development or
the Building and the fixtures and equipment thereof, as well as
in or to the street entrances, halls, passages and stairways
thereof, provided access to the Parking Area, lobbies and
Premises is not materially adversely affected and the Building
Systems (including, without limitation, HVAC, elevators, life
safety and security) are not materially and adversely affected.
Nothing contained in this Section 14 shall be deemed to relieve
Tenant of any duty, obligation or liability with respect to
making any repair, replacement or improvement or complying with
any law, order or requirement of any government or other
authority (but Tenant shall not have to make any modification to
the Building Structure or Building Systems except to the extent
of a Tenant Related Cause, and nothing contained in this Section
14 shall be deemed or construed to impose upon Landlord any
obligation, responsibility or liability whatsoever for the care,
supervision or repair of the Building or any part other than as
otherwise provided in this Lease.
15. REPAIRS.
(a) Tenant shall keep, maintain and preserve the Premises other
than the Building Systems and Building Structure (except as
otherwise specifically provided herein) in a first class
condition and repair, normal wear and tear excepted, and shall,
when and if needed, at Tenant's sole cost and expense, make all
repairs to the Premises and every part thereof except as required
by Landlord as specifically provided herein. In that regard,
Tenant shall maintain and repair at its sole cost and expense,
and with maintenance contractors approved by Landlord, all
non-Base Building facilities within the Premises, including to
the extent same were not part of the Base Building lavatory,
shower, toilet, wash basin and kitchen facilities and HVAC
systems, including all plumbing connected to said facilities or
systems installed by or on behalf of Tenant, and all Tenant
Improvements. Landlord shall have no obligation to alter,
remodel, improve, repair, decorate or paint the Premises or any
part thereof, except as stated in Subparagraph 15(b) below.
(b) Except as otherwise provided in this Lease, Landlord shall
repair and maintain at all times during the Term of this Lease
(i) the structural portions of the Base Building, including the
foundation, floor/ceiling slabs, roof, curtain walls, exterior
glass and mullions, columns, beams, shafts (including elevator
shafts), common area stairwells, common area elevator cabs,
common area escalators, common area plazas, common area art work,
sculptures and washrooms, common area mechanical, electrical and
telephone closets and all other Common Areas (collectively,
"Building Structure"), and (ii) the mechanical, electrical, life
safety, plumbing, sprinkler systems (connected to the core) of
the Base Building (as opposed to any particular premises (e.g.,
executive washrooms) and HVAC systems (including primary and
secondary loops connected to the core) ("Building Systems") in
first class condition and repair and shall operate the Building
as a first class Comparable Building. Notwithstanding anything in
the Lease to the contrary, Tenant shall not be required to make
any repair to, modification of, or addition to the Building
Structure and/or the Building Systems except and to the extent of
a Tenant Related Cause. Tenant may request that repairs and
maintenance having a material effect on Tenant's use of the
Premises be performed during non-business hours, and Landlord
shall comply with such request to the extent compliance does not
increase Landlord's costs (unless Tenant agrees to pay for such
increased costs). All of Landlord's costs under this Subparagraph
(b) shall be passed through to Tenant as an Operating Expense,
unless expressly excluded in this Lease and subject to the
amortization requirements.
(c) In the event Tenant is prevented from using, and does not
use, the Premises or any portion thereof, for five (5)
consecutive business days or twelve (12) days in any twelve (12)
month period ("Eligibility Period") as a result of (a) any damage
or destruction to the Base Building, the Parking Area and/or the
Premises, (b) any repair, maintenance or alteration performed by
Landlord after the Commencement Date and required by this Lease
which substantially interferes with Tenant's use of the Premises,
the Parking Area and/or the Building, (c) any failure by Landlord
to provide Tenant with services that Landlord is expressly
required by this Lease to provide or access to the Premises, the
Parking Area and/or the Building, (d) because of an eminent
domain proceeding, or (e) because of the presence of Hazardous
Substances in, on or around the Building, the Premises and/or the
Project which could pose a health risk to occupants of the
Premises, then Tenant's Rent shall be abated or reduced, as the
case may be, after expiration of the Eligibility Period for such
time that Tenant continues to be so prevented from using, and
does not use, the Premises or a portion thereof, in the
proportion that the rentable area of the portion of the Premises
that Tenant is prevented from using, and does not use, bears to
the total rentable area of the Premises. However, in the event
that Tenant is prevented from conducting, and does not conduct,
its business in any portion of the Premises for a period of time
in excess of the Eligibility Period, and the remaining portion of
the Premises is not sufficient to allow Tenant to conduct in a
reasonable manner its business therein, and if Tenant does not
conduct its business from such remaining portion, then for such
time after expiration of the Eligibility Period during which
Tenant is so prevented from conducting in a reasonable manner its
business therein, the Rent for the entire Premises shall be
abated; provided, however, if Tenant reoccupies and conducts its
business from any portion of the Premises during such period, the
Rent allocable to such reoccupied portion, based on the
proportion that the rentable area of such reoccupied portion of
the Premises bears to the total rentable area of the Premises,
shall be payable by Tenant from the date such business operations
commence. If Tenant's right to abatement occurs because of an
eminent domain taking and/or because of damage or destruction to
the Premises or the Building or the Parking Area or Tenant's
property, if expressly permitted herein, Tenant's abatement
period shall continue until Tenant has been given sufficient time
as reasonably determined by Landlord's contractor and sufficient
access to the Premises, the Parking Area and/or the Building, to
rebuild such portion it is required to rebuild (including the
Tenant Improvements) and to install its property, furniture,
fixtures, and equipment to the extent the same shall have been
removed as a result of such damage or destruction, plus a move-in
period equal to one (1) weekend. To the extent Tenant is entitled
to abatement without regard to the Eligibility Period, because of
an event covered by Lease Sections 23 or 24, then the Eligibility
Period shall not be applicable.
(d) Unless expressly provided in this Lease, Landlord shall not
be liable for any failure to make any repairs or to perform any
maintenance. Except as expressly provided in this Lease, there
shall be no abatement of rent and no liability of Landlord by
reason of any injury to or interference with Tenant's business
arising from the making of any repairs, alterations or
improvements in or to any portion of the Building or the Premises
or in or to fixtures, appurtenances and equipment therein. Tenant
waives the right to make repairs at Landlord's expense under any
law, statute or ordinance now or hereafter in effect.
Notwithstanding any provision set forth in the Lease to the
contrary, if Tenant provides written notice (or oral notice in
the event of an emergency such as damage or destruction to or of
the Building Structure and/or the Building Systems) to Landlord
of an event or circumstance which by the express terms of this
Lease requires the action of Landlord with respect to repair
and/or maintenance, and Landlord fails to provide such action
within a reasonable period of time, given the circumstances,
after the receipt of such notice, but in any event not later than
twenty-one (21) days after receipt of such notice, then Tenant
may proceed to take the required action upon delivery of an
additional ten (10) business days' notice to Landlord specifying
that Tenant is taking such required action (provided, however,
that neither of such notices shall be required in the event of an
emergency which threatens life or where there is imminent danger
of damage to property), and if such action was required under the
terms of the Lease to be taken by Landlord and was not taken by
Landlord within such ten (10) day period, and Landlord does not
give Tenant written notice disputing the same within such ten
(10) day period, then Tenant shall be entitled to prompt
reimbursement by Landlord of Tenant's reasonable costs and
expenses payable to third parties in taking such action plus
interest thereon at the Interest Rate as defined below. If
Landlord shall fail to promptly reimburse Tenant as and when
expressly provided above, and Tenant obtains a final judgment
against Landlord as a result of Landlord's default in the payment
thereof, then the amount of the award (which shall include
interest at the Interest Rate from the time of each expenditure
by Tenant until the date Tenant receives such amount by payment
or offset and reasonable attorneys' fees and related costs) may
be deducted by Tenant from the Rents next due and owing under the
Lease. In the event Tenant takes such action, and such work will
affect the Building Structure and/or the Building Systems, Tenant
shall use only those contractors used by Landlord in the Building
for work on such Building Structure or Building Systems unless
such contractors are unwilling or unable to perform, or timely
and competitively perform, such work, in which event Tenant may
utilize the services of any other qualified contractor which
normally and regularly performs similar work in Comparable
Buildings exercising its due care in the same manner and
standards as required of Landlord under this Lease.
16. LIENS.
Tenant shall not permit any mechanics', materialmen's or other liens to
be filed against the Building nor against Tenant's leasehold interest
in the Premises. Landlord shall have the right at all reasonable times
to post and keep posted on the Premises any notices which it deems
necessary for protection from such liens. If any such liens are filed,
Tenant shall cause such liens to be released within the earlier of
fifteen (15) days or within the time period required by the holder of
any mortgage or deed of trust encumbering the Building after Tenant's
receipt of actual notice of such liens. If Tenant fails to cause such
liens to be released within said period of time, Landlord shall have
the right to obtain and post a bond in order to remove such liens of
record or to obtain a title insurance policy for one and one-half times
the amount of such lien, and Tenant shall on demand reimburse Landlord
as additional rent for Landlord's costs thereof including interest at
the Interest Rate.
17. ENTRY BY LANDLORD.
Landlord reserves and shall have the right to enter the Premises to
inspect the same upon one (1) business day's prior notice (except in
case of an emergency where notice is not reasonably practical), to
supply services to be provided by Landlord to Tenant hereunder at
reasonable times (which service may be provided after Building Business
Hours, as defined in Subparagraph 18.2 below), to show the Premises to
prospective purchasers or tenants upon one (1) business day's prior
notice (but only during the last 12 months of the Term as to
prospective tenants) and at reasonable times, to post notices of
non-responsibility, to alter, improve or repair the Premises or any
other portion of the Building, all without being deemed guilty of any
eviction of Tenant and without abatement of rent except as provided in
Section 15. If Tenant reasonably requests that Landlord enter at
another time, Landlord shall if feasible comply with such request.
Landlord may, in order to carry out such purposes, erect scaffolding
and other necessary structures where reasonably required by the
character of the work to be performed. Tenant hereby waives any claim
for damages for any injury or inconvenience to or interference with
Tenant's business, any loss of occupancy or quiet enjoyment of the
Premises, and any other loss in, upon and about the Premises due to an
entry allowed hereunder except to the extent of Landlord's indemnity
obligations in Section 20. Landlord shall at all times have and retain
a key with which to unlock all doors in the Premises, excluding
Tenant's vaults and safes and areas that Tenant has reasonably
designated. Landlord shall have no liability with respect to such areas
to which Tenant does not permit Landlord to access. In any event, any
such entry shall be accomplished as expeditiously as reasonably
possible and in a manner so as to cause as little interference to
Tenant as reasonably possible. Landlord shall have the right to use any
and all means which Landlord may deem proper to open said doors in an
emergency, without any liability whatsoever therefore to obtain entry
to the Premises. Any entry to the Premises obtained by Landlord by any
of said means shall not be construed or deemed to be a forcible or
unlawful entry into the Premises, or an eviction of Tenant from the
Premises or any portion thereof. It is understood and agreed that no
provision of this Lease shall be construed as obligating Landlord to
perform any repairs, alterations or decorations except as otherwise
expressly agreed herein by Landlord. Landlord shall attempt in the
exercise of its rights under this Section 17 to minimize any
disturbance to Tenant's use and possession of the Premises and to
provide as much notice to Tenant as may be reasonably possible prior to
any such exercise of Landlord's rights under this Section 17.
18. UTILITIES AND SERVICES.
18.1 Services. Landlord shall provide or cause to be provided the
services described in Exhibit "D" subject to the conditions
and in accordance with the terms set forth herein.
(a) Tenant agrees to keep and cause to be kept closed all doors
from the Premises leading to Common Areas, and Tenant agrees to
reasonably cooperate fully at all times with Landlord and to
abide by all reasonable regulations and requirements which
Landlord may prescribe for the proper functioning and protection
of the HVAC systems. Tenant shall not install or use in the
Premises, any equipment which would generate heat so as to
adversely and materially affect the normal operations of the HVAC
systems; provided, however, that subject to the provisions of
this Lease concerning the right of Tenant to make alterations,
repairs, additions, improvements and/or replacements, with
Landlord's consent (which consent shall not be unreasonably
withheld, conditioned or delayed) Tenant may install, at Tenant's
expense, supplemental HVAC equipment to allow for the use of heat
generating equipment that would otherwise adversely affect the
normal HVAC systems. Landlord, throughout the Term, shall have
free access to any and all mechanical installations of Landlord
or Tenant, including, without limitation, air conditioning, fan,
ventilating and machine rooms, telephone rooms, electrical
closets and any other areas in the Building containing mechanical
installations or utility lines or connections thereto. Tenant
agrees that there shall be no construction of partitions or other
obstructions which interfere with Landlord's free access thereto,
or interfere with the moving of Landlord's equipment to or from
the enclosures containing said installations. Tenant further
agrees that neither Tenant, nor its employees, agents, licensees
or invitees shall at any time enter the said enclosures or tamper
with, adjust, touch or otherwise in any manner affect Landlord's
mechanical installations.
(b) As part of the construction of the Tenant Improvements,
submeters or other equipment shall be installed to determine the
actual amount of electricity, and gas which Tenant shall utilize
from time to time in the Premises. Tenant shall pay directly to
the appropriate utility company, to the extent the same are
separately metered, all costs attributable to electricity, gas
and other utility usage in the Premises. Utilities by other
tenants in their premises shall not be passed through to Tenant
in whole or in part. At all times, Tenant's use of electrical
current shall not exceed that to which Tenant is entitled by
Applicable Law or the capacity of the feeders to the Building or
the risers or wiring installation.
(c) Tenant shall have the right to retain a consultant to conduct
a technical analysis of the telephone, electrical, and HVAC
requirements for the Initial Premises. Tenant has approved the
HVAC specifications for the Base Building and is satisfied that
HVAC system is capable of providing to the Premises, on a
connected load basis, sufficient amount of wattage and live load
power per for Tenant's comfortable use. Landlord shall work with
Tenant and its consultant, if any, to maximize the electricity
provided to satisfy Tenant's power and HVAC needs within the
Title 24 regulations for the Building.
18.2 HVAC and Utility Operation. To the extent provided for in the
Base Building Plans, Tenant shall have access within the
Premises to separate controls (including climate control and
on/off switches) in connection with the HVAC service to the
Premises. In the event Tenant requires utilities (other than
Separately Metered Utilities) and/or services in excess of the
amount that Landlord is required to provide, or at times other
than during the hours of 8:00 a.m. to 6:00 p.m., Monday
through Friday (except nationally recognized holidays), and
8:00 a.m to 2:00 p.m Saturdays (excluding nationally
recognized holidays) (collectively, "Business Hours"),
Landlord agrees to provide such extra utilities and services,
and Tenant agrees to reimburse to Landlord its actual costs of
providing such extra utilities and services, without a profit
to or administration, depreciation or overhead charge by
Landlord ("Actual Costs").
18.3 Tenant's Obligations. Tenant shall at all times maintain at
its own cost and expense all non-Base Building plumbing
facilities and equipment attached thereto within the Premises
in good order, condition and repair to the satisfaction of
Landlord. Tenant hereby indemnifies Landlord against any and
all claims, liabilities, losses, damages, costs and expenses
whatsoever (including, without limitation, reasonable
attorneys' fees, costs, disbursements and expenses but
specifically excluding consequential damages) whether suffered
by Landlord or other occupants or persons in the Building, the
Development or any of the areas used in connection with the
operation thereof arising out of Tenant's failure to satisfy
its obligations under this Subparagraph 18.3. Landlord shall
not be obligated to clean or provide supplies for any such
plumbing facilities or equipment attached thereto. Nothing
herein contained shall be construed to confer upon Tenant the
right to install any plumbing facilities without the prior
written consent of Landlord, which consent shall not be
unreasonably withheld, conditioned or delayed
18.4 Interruption of Services. Landlord reserves the right to stop
service of the elevator, plumbing, heating, ventilating, air
conditioning and electric or other mechanical systems, or
cleaning services, when necessary, by reason of accident or
emergency or for inspection, repairs, alterations,
decorations, additions or improvements, which in the
reasonable judgment of Landlord are desirable or necessary to
be made, until same shall have been completed, and Landlord
shall have no responsibility or liability, and there shall be
no abatement of rent, except as expressly stated in this
Lease, for failure to supply any of such services in such
instance. In the event of any failure, stoppage or
interruption of said services, Landlord shall use its
commercially reasonable efforts to cause the resumption of
such service as soon as reasonably possible.
19. BANKRUPTCY. [Intentionally omitted.]
20. INDEMNIFICATION AND EXCULPATION.
(a) Subject to the provisions of Sections 23 and 24, and to the
extent not covered by insurance required to be carried by
Landlord, Tenant shall indemnify, protect, defend and hold
Landlord harmless from all loss, cost, liability, damage or
expense (including, but not limited to, penalties, fines,
reasonable attorneys' fees or costs (but not lost profits or
consequential damages)) (collectively, "Claims") to any
person, property or entity arising from Tenant's use of the
Premises or the conduct of its business therein or from any
activity, work or thing done or permitted to be done by
Tenant, or any of Tenant's agents, employees or contractors
in or about the Premises, the Building or Common Areas.
Tenant shall further indemnify, protect, defend and hold
Landlord harmless from all claims arising from any breach or
default in the performance of any obligation to be performed
by Tenant under the express terms of this Lease for which
Tenant has received the prior written notice of such default
by Tenant required under this Lease and has had a reasonable
period of time within which to cure such default pursuant to
the provisions hereof, or arising from the willful
misconduct or negligence of Tenant or of its agents,
contractors, invitees or employees and from and against all
costs, reasonable attorneys' fees, expenses and liabilities
(but not lost profits or consequential damages) incurred in
or about such claim or any action or proceeding brought
thereon. In case any action or proceeding shall be brought
against Landlord by reason of any such claim, Tenant, upon
notice from Landlord, shall defend the same at Tenant's
expense by counsel approved in writing by Landlord.
Notwithstanding any of the foregoing, however, in no event
whatsoever shall Tenant be liable for Landlord's lost
profits or Landlord's consequential damages beyond the rent
payable by Tenant under this Lease or rent payable by other
tenants in the Project.
(b) Subject to the provisions of Sections 23 and 24, and to the
extent not covered by insurance required to be carried by
Tenant, Landlord shall indemnify, protect, defend and hold
harmless Tenant, its Affiliates and their respective
officers, directors, partners, agents and employees from all
Claims to any person, property or entity arising from or in
connection with Landlord's activities in the Building
(except for damage to the Tenant Improvements and Tenant's
personal property, fixtures, furniture and equipment in the
Premises, to the extent Tenant is required to obtain the
requisite insurance coverage pursuant to the Lease) or the
Project and any default in the performance of any obligation
on Landlord's part to be performed under the express terms
of this Lease for which Landlord has received at least
thirty (30) days prior written notice of such default by
Landlord and has had a reasonable period of time within
which to cure such default pursuant to the provisions
hereof, or arising from the willful misconduct or negligence
of Landlord or its agents, employees, invitees or
contractors or arising from any noncompliance of the
Building and/or the Project with any laws relating to
disable access, or Claims arising from the presence in the
Premises, the Building and/or the Project of hazardous
substances, except to the extent such hazardous substances
were placed in or on the Premises, the Building and/or the
Project by Tenant (Landlord's indemnity hereunder will
survive the expiration of the Term of, or any termination of
the Lease) and from and against all costs, reasonable
attorneys' fees, expenses and liabilities incurred in or
about such claim or any action or proceeding brought
thereon. In case any action or proceeding shall be brought
against Tenant by reason of any such claim, Landlord upon
notice from Tenant shall defend the same at Landlord's
expense by counsel approved in writing by Tenant.
Notwithstanding any of the foregoing, however, in no event
whatsoever shall Landlord be liable for Tenant's lost
profits or Tenant's consequential damages.
(c) Notwithstanding any of the foregoing, because Tenant is
required to insure fully all of its own personal property
and Tenant Improvements, neither Landlord nor any agent,
employee or contractor of Landlord shall be liable to Tenant
for any loss, injury or damage to any personal property of
Tenant or of agent, employee, contractor or invitee of
Tenant. In addition, except to the extend required to be
covered by Landlord's insurance under this Lease, neither
Landlord nor any agent, employee or contractor of Landlord
shall be liable for any damage caused by other lessees or
persons in or about the Building. Similarly, Tenant shall
not be responsible for any damage to the Building, Building
Structure and/or Building Systems to the extent covered by
insurance that Landlord carries or is required to carry
under this Lease.
(d) The indemnities set forth in this Section 20 shall not apply
to the extent any liability or damage is covered by
insurance maintained by Tenant or Landlord. Tenant's
agreement to indemnify and hold Landlord harmless pursuant
to Subparagraph 20(a) and Landlord's agreement to indemnify
and hold Tenant harmless pursuant to Subparagraph 20(c) is
not intended to and shall not relieve any insurance carrier
of its obligations under policies required to be or actually
carried by Landlord or Tenant pursuant to this Lease to the
extent that such policies cover the results of such acts,
omissions or willful misconduct. Failure by Landlord or
Tenant to carry required insurance shall automatically be
deemed to be the covenant and agreement of Landlord or
Tenant, respectively, to self-insure such required coverage,
with full waiver of subrogation.
(e) Notwithstanding anything to the contrary in this Lease,
Tenant's and Landlord's obligations under this Section 20
shall survive the expiration or earlier termination of this
Lease.
21. DAMAGE TO TENANT'S PROPERTY.
Subject to the provisions of Section 20 above and the insurance
provisions of Section 22, Landlord or its agents shall not be liable
for (i) any damage to any property entrusted to employees of the
Building, (ii) loss or damage to any property by theft or otherwise,
(iii) any injury or damage to persons or property resulting from
insurrection, riots, military activity, fire, explosion, falling
plaster, steam, gas, electricity, water or rain which may leak from any
part of the Building or from the pipes, appliances or plumbing work
therein or from the roof, street or subsurface or from any other place
or resulting from dampness or any other cause whatsoever, except as
otherwise provided in this Lease. Neither Landlord nor its agents shall
be liable for any interference with or diminution of light, air, view
or other incorporeal hereditaments, whatever the cause. The occurrence
of any such interference or diminution shall not entitle Tenant to any
reduction in any rents or charges due Landlord hereunder. Tenant shall
give prompt notice to Landlord in case of fire or accidents in the
Premises or in the Building or of defects therein.
22. INSURANCE.
(a) Tenant shall during the Term and during all other times Tenant
or its agents, employees or contractors are on the Premises,
including during the period of Tenant's construction of the
Tenant Improvements, at Tenant's sole cost and expense, keep
in full force and effect the following insurance:
(1) Standard form property insurance insuring against the
perils of fire, extended coverage, vandalism,
malicious mischief ("All-Risk"), sprinkler leakage,
flood and earthquake. This insurance policy shall be
upon the Tenant
Improvements, all property owned by Tenant or that
was installed at Tenant's expense, and which is
located in the Building including, without
limitation, furniture, fittings, installations,
fixtures, and any other personal property, in an
amount not less than one hundred percent (100%) of
the full replacement cost thereof. Neither Landlord
nor Landlord's mortgagee shall incur any liability
whatsoever if such insurance does not cover
sufficiently ninety percent (90%) of the full
replacement cost of such property. Such policy shall
name Landlord and any mortgagees of Landlord of which
Tenant has notice as insured parties loss payees, as
their respective interests may appear.
(2) Commercial General Liability Insurance insuring
Tenant against any liability arising out of the
lease, use, occupancy or maintenance of the Premises
and all areas appurtenant thereto. Such insurance
shall be in the amount of Two Million Dollars
($2,000,000) Combined Single Limit for injury to, or
death of one or more persons in an occurrence, and
for damage to tangible property (including loss of
use) in an occurrence, with such liability amount to
be adjusted from year to year (but not more often
than once a year) to reflect increases in the CPI;
provided, however, in no event shall such increases
require Tenant to carry a greater amount of insurance
than is generally carried by Comparable Tenants of
Comparable Buildings. The policy shall insure the
hazards of the Premises and Tenant's operations
thereon, independent contractors and contractual
liability (covering the indemnity contained in
Section 20 above) and shall name Landlord and
Landlord's interested parties as an additional
insured.
(3) Worker's Compensation and Employer's Liability
insurance of not less than One Million
Dollars ($1,000,000).
(4) Such other insurance as is generally carried by
Comparable Tenants of Comparable Buildings.
(b) All policies required to be carried by Tenant or Landlord
hereunder shall: (1) be taken out with insurance companies
holding a General Policyholders Rating of "A-" and a
Financial Rating of "IX" or better, as set forth in the most
current issue of Best's Insurance Guide (or the equivalent
under any substitute guide produced by Best); (2) contain a
cross-liability provision; and (3) contain a provision that
the insurance provided hereunder shall be primary and
non-contributing with any other insurance. On or before the
Commencement Date, each party shall deliver to the other
party copies of policies or certificates evidencing the
existence of the amounts and forms of coverage. No such
policy shall be cancelable or reducible in coverage except
after thirty (30) days' prior written notice to the other
party. Except Tenant shall, within thirty (30) days prior to
the expiration of such policies, furnish the Landlord with
renewals or "binders" thereof. Nothing in this Lease shall
prevent Tenant from taking out the insurance required
hereunder under a blanket insurance policy or policies
covering other properties as well as the Premises provided
that the total amount and quality of insurance allocated to
the Premises are not less than that required hereunder and
the insurance benefits to the Building and Landlord are not
reduced thereby. Nothing contained in this Section 22 shall
be construed as a limitation of Tenant's liability
hereunder.
(c) During the Term, Landlord shall insure the Base Building
(including the Building Structure and Building Systems and
Common Areas of the Building) (excluding any property which
Tenant is obligated to insure under Subparagraphs 22(a) and
(b) above) and the Common Areas of the remainder of the
Project (to the extent exclusively controlled by Landlord)
against damage with All-Risk insurance in an amount not less
than one hundred percent (100%) of the full replacement
value of the Development and Project Common Areas (to the
extent exclusively controlled by Landlord) and related
offsite improvements, commercial general liability insurance
covering Landlord against claims for bodily injury or death
or property damage occurring in, upon or about the
Development with a combined single limit of not less than
$5,000,000 per occurrence, and employer's liability
insurance with coverage of not less than $1,000,000 and
workers' compensation insurance covering Landlord's
employees in an amount not less than that required by
applicable laws or regulations. In addition to the
foregoing, Landlord shall insure against all risks and all
other hazards as are customarily insured against, in
Landlord's reasonable judgment, by others similarly situated
and developing or operating like properties, including,
without limitation, insurance against business interruption
and rent loss, insurance against loss, damage or destruction
caused by machinery breakdown, by fire and the perils
specified in the standard extended coverage endorsement,
vandalism and malicious mischief, and by sprinkler, gas,
water, steam and sewage leakage, and for such amounts and
upon such terms and conditions as would a prudent owner of
property similar to the Development in Landlord's reasonable
judgment. Landlord shall reevaluate the levels of insurance
required hereunder no less frequently than once every two
(2) years. Landlord may, but shall not be obligated to,
obtain and carry any other form or forms of insurance as it
or Landlord's mortgagees may determine advisable. Tenant
acknowledges that it has no right to receive any proceeds
from any insurance policies carried by Landlord in
connection with any incident in the Common Areas for which
there is liability to third parties except to the extent
Tenant is not covered under insurance it is required to
obtain pursuant to Subparagraph 22(a)(ii), and provided
Landlord (and any mortgagee of Landlord) has received
insurance proceeds adequate to cover all of Landlord's
liabilities, costs and expenses in connection with said
incident. Landlord is not required to carry insurance of any
kind on Tenant's furniture or furnishings or on any
fixtures, equipment, improvements or appurtenances of Tenant
under this Lease, and Landlord shall not be obligated to
repair any damages thereto or replace the same except as
specifically provided for in this Lease.
(d) Tenant will not keep, use, sell or offer for sale in or upon
the Premises any article which may be prohibited by any
insurance policy periodically in force covering the
Building. If Tenant's occupancy or business in, or on, the
Premises, whether or not Landlord has consented to the same,
results in any increase in premiums above what would be
required by general and customary tenants for the insurance
periodically carried by Landlord with respect to the
Building, then Tenant shall pay any such increase in
premiums as additional rent within thirty (30) days after
being billed therefor by Landlord. Landlord shall use its
commercially reasonable efforts to obtain from Landlord's
insurer written notice that the increase in premiums is
attributable to Tenant or Tenant's use of the Premises.
Absent such written notice from Landlord's insurer, a
schedule issued by the organization computing the insurance
rates on the Building or the Tenant Improvements showing the
various components of such rate, shall be conclusive
evidence of the several items and charges which make up such
rate. Tenant shall promptly comply with all reasonable
requirements of the insurance authority or any present or
future insurer relating to the Premises provided Tenant has
received prior written notice of such requirements.
(e) If any of Landlord's insurance policies shall be canceled or
cancellation shall be threatened in writing or the coverage
thereunder reduced or threatened in writing to be reduced in
any way because of the use of the Premises or any part
thereof, other than the uses expressly permitted hereunder,
by Tenant or any assignee or subtenant of Tenant or by
anyone Tenant permits on the Premises and, if Tenant fails
to remedy the condition giving rise to such cancellation,
threatened cancellation, reduction of coverage or threatened
reduction of coverage, increase in premiums, or threatened
increase in premiums, within two (2) business days after
notice thereof, Landlord may, at its option, enter upon the
Premises and attempt to remedy such condition, and Tenant
shall promptly pay the cost thereof to Landlord as
additional rent. Landlord shall not be liable for any damage
or injury caused to any property of Tenant or of others
located on the Premises resulting from such entry except to
the extent caused by Landlord's active negligence or willful
misconduct. If Landlord is unable, or elects not to remedy
such condition, then Landlord shall have all of the remedies
provided for in this Lease in the event of a default by
Tenant.
(f) Landlord and Tenant hereby release and relieve the other and
waive their entire right of recovery against the other for
loss or damage arising out of or incident to the perils
insured against, or required to be insured against, under
this Section 22, which perils occur in, on or about the
Project, whether due to the negligence of Landlord or Tenant
or their respective agents, employees, contractors and/or
invitees. Landlord and Tenant shall, upon obtaining the
policies of insurance required hereunder, give notice to
their insurer that this mutual waiver of subrogation is
provided in this Lease and shall thereafter obtain and
provide evidence of the waiver by their respective insurance
carriers of any right of subrogation against the other. If
any such policy can be obtained with a waiver of subrogation
only upon payment of an additional premium, the party whose
duty it is to pay for such insurance shall pay such
additional premium.
(g) If the Lease is terminated because of damage to or
destruction of the Building pursuant to Section 23, and the
Premises have also been damaged, Tenant will pay to
Landlord, within thirty (30) days of its receipt of the
same, all of its insurance proceeds, if any, to the extent
relating to the Tenant Improvements and alterations paid for
by Landlord (but not to Tenant Improvements and alterations
paid for by Tenant, Tenant's removable trade fixtures,
equipment, furniture or other personal property of Tenant)
in the Premises.
23. DAMAGE OR DESTRUCTION.
23.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or
destruction to all or any portion of the Premises
which is not Premises Total Destruction. "Building
Partial Damage" shall mean damage or destruction to
the Building which is not Building Total Destruction.
(b) "Premises Total Destruction" shall mean damage or
destruction to all or any portion of the Premises or
Building to the extent that 50% or more of the
Premises are rendered unusable and untenantable for
twelve (12) months or more. "Building Total
Destruction" shall herein mean damage or destruction
to the Building to the extent that either (i) the
cost of repair is 25% or more of the then replacement
cost of the Building as a whole; or (ii) the Building
cannot be restored to substantially the same
condition as it was in prior to such damage or
destruction.
(c) "Insured Loss" shall herein mean damage or
destruction to the Development which was caused by an
event covered by insurance or required by this Lease
to be covered by insurance or for which the uninsured
cost to repair (including the deductible) is less
than $50,000.
(d) "Uninsured Loss" shall mean damage or destruction to
the Development which was caused by an event not
covered by or not required to be covered by insurance
and for which the uninsured cost to repair is equal
to or greater than $50,000. Such $50,000 amounts
above shall be increased or decreased annually from
and after the Commencement Date by a percentage
equivalent to the aggregate percentage change in the
CPI from and after such date, or if no such index
exists, by a mutually agreeable method of adjusting
such amount to reflect the equivalency of
Commencement Date dollars.
23.2 Partial Damage - Insured Loss. Subject to the provisions of
Subparagraphs 23.4 and 23.5, if at any time during the Term
there is damage which is an Insured Loss and which falls into
the classification of Premises Partial Damage or Building
Partial Damage, Landlord shall, at Landlord's expense,
diligently proceed to repair such damage, but not the Tenant
Improvements or Tenant's personal property. Tenant shall, at
Tenant's expense, diligently proceed to repair the Tenant
Improvements and Tenant's personal property and this Lease
shall continue in full force and effect; provided, that
Landlord shall pay to Tenant all insurance proceeds received
by Landlord, if any, relating to the Tenant Improvements.
Tenant's repair of the Tenant Improvements shall be treated as
a Tenant alteration for purposes of Landlord's approval of
such repair except to the extent there are no changes to the
Tenant Improvements.
23.3 Partial Damage - Uninsured Loss. Subject to the provisions of
Subparagraphs 23.4 and 23.5, if at any time during the Term
there is damage which is an Uninsured Loss and which falls
within the classification of Premises Partial Damage or
Building Partial Damage, Landlord may at Landlord's option
either (i) repair such damage (other than the Tenant
Improvements and Tenant's personal property) as soon as
reasonably possible at Landlord's expense, in which event this
Lease shall continue in full force and effect, or (ii) if
Landlord does not elect to repair such damage, give notice to
Tenant within fifty (50) days after the date of the occurrence
of such damage of Landlord's intention to terminate this
Lease, as of the date of the occurrence of such damage with
respect to any unoccupyable portions of the Premises and
effective four (4) months after receipt by Tenant of such
notice for the balance of the Premises. If Landlord elects to
give such notice of Landlord's intention to terminate this
Lease, Tenant shall have the right within thirty (30) days
after the receipt of such notice to give notice to Landlord of
Tenant's intention to reimburse Landlord for the repair of
such damage without contribution or reimbursement from
Landlord, in which event this Lease shall continue in full
force and effect, and Landlord shall proceed to make such
repairs as soon as reasonably possible following its receipt
of adequate funding or assurances to Landlord's reasonable
satisfaction of the same from Tenant. If Tenant does not give
such notice within such thirty (30) day period, this Lease
shall be canceled and terminated as of the date of the
occurrence of such damage with respect to the unoccupyable
portions of the Premises and effective four (4) months after
receipt by Tenant of such notice for the balance of the
Premises. If Landlord elects to repair such damage, Tenant
shall promptly repair and restore the Tenant Improvements.
23.4 Total Destruction. If at any time during the Term there is
damage, whether or not an Insured Loss (including destruction
required by any authorized public authority), which falls into
the classification of Building Total Destruction or Premises
Total Destruction, Landlord or Tenant shall have the right to
terminate this Lease by notice to the other within ninety (90)
days after the date of the occurrence of such damage as of the
date of the destruction, effective four (4) months after
receipt by Tenant of such notice for the balance of the
Premises. If neither Landlord nor Tenant exercises the right
to so terminate, Landlord shall, at Landlord's expense, repair
such damage, other than the Tenant Improvements and Tenant's
personal property, as soon as reasonably possible.
23.5 Damage Near End of Term.
(a) In addition to any other right of termination which either
party may have under this Section 23, but subject to
Subparagraph 23.5(b), if at any time during the last
twenty-four (24) months of the Term there is damage, whether
or not an Insured Loss, which affects any floor of the
Premises such that fifty percent (50%) or more of such floor
cannot be occupied for business purposes, and repair or
restoration of such damage would take, in Landlord's
reasonable judgment, more than the shorter of twelve (12)
months or one-half of the time left in the Term from the
date of the occurrence of the damage, Landlord or Tenant may
at its option terminate this Lease as to such floor or
floors as of the date of occurrence of such damage by giving
notice to the other party of its election to do so within
thirty (30) days after the date of occurrence of such
damage; provided further, if such damage makes thirty-five
percent (35%) or more of the Premises unusable and
untenantable and repairs or restoration of such damage would
take, in Landlord's reasonable judgment, more than the
shorter of six (6) months or one-half of the time left in
the Term from the date of the occurrence of the damage,
Landlord or Tenant may, at its option, terminate this Lease
as of the date of occurrence of such damage by giving notice
to the other party of its election to do so within thirty
(30) days after the date of occurrence of such damage.
(b) Notwithstanding Subparagraph 23.5(a), if Tenant has an
option to extend this Lease, and the time within which said
option may be exercised has not yet expired, Tenant may
exercise such option, if it is to be exercised at all, no
later than thirty (30) days after receipt of the notice
pursuant to Subparagraph 23.5(a). If Tenant duly exercises
such option during such 30-day period, Landlord shall, if
otherwise required under this Section 23, at Landlord's
expense, repair such damage affecting the portion of the
Premises damaged as soon as reasonably possible and this
Lease shall continue in full force and effect. If Tenant
fails to exercise such option during such 30-day period,
then such option shall automatically expire and this Lease
shall terminate on the expiration of such 30-day period
notwithstanding any term or provisions in the option to the
contrary. The percentages with respect to the Premises as
stated in this Section 23 are intended to exclude any
expansion space or other space which Tenant may have the
right to lease but which are not part of the Premises at the
time of the damage or destruction.
23.6 Notice of Repair Time. Within sixty (60) days after the date
of occurrence of any damage, Landlord shall notify Tenant,
upon Tenant's request for such notice, whether or not repair
of such damage will require more than twelve (12) months.
23.7 Abatement of Rent; Tenant's Remedies.
(a) Intentionally omitted.
(b) If there is damage described in Subparagraphs 23.2 or 23.3,
and Landlord repairs or restores the Premises, Building or
the Development (other than the Tenant Improvements and
Tenant's personal property), Landlord shall (i) diligently
prosecute insurance claims and diligently seek all necessary
governmental permits and authorizations necessary for such
repair or restoration; (ii) commence such repair or
restoration as soon as practicable; and (iii) diligently
proceed to complete such repair or restoration. Landlord
shall repair or restore in a workmanlike manner, using
materials and workmanship consistent with the original
construction of the Development.
(c) If Landlord shall be obligated or shall elect to repair or
restore the Premises under the provisions of this Section 23
and (i) shall not diligently prosecute insurance claims and
diligently seek all necessary governmental permits and
authorizations or (ii) shall not commence such repair or
restoration (commencement for purposes of the foregoing
meaning actually beginning new construction and not merely
the removal of damaged items or debris) within sixty (60)
days after insurance claims have been settled, insurance
proceeds have been received or set aside for such repair or
restoration and all necessary governmental permits and
authorizations have been obtained, or (iii) shall not
provide Tenant with notice within fifteen (15) days after
Tenant's written request therefor of Landlord's good faith
reasons for not proceeding with the prosecution of such
insurance claims or the commencement of such construction
(and including within said request a statement that Tenant
has the right to terminate this Lease if Tenant does not
receive a good faith response from Landlord within such
fifteen (15) day period), or (iv) the repair has not been
completed within twelve (12) months from the date of damage,
Tenant may at Tenant's option terminate this Lease by giving
Landlord notice of Tenant's election to do so at any time
prior to the commencement of such repair or restoration. In
such event, this Lease shall terminate as of the date of
such notice.
23.8 Inconsistent Statutes. The provisions of this Lease, including
this Section 23, constitute an express agreement between
Landlord and Tenant with respect to any and all damages to, or
destruction of, all or any part of the Premises, Building or
the Development and any statute or regulation of the State of
California, including without limitation Sections 1932(2) and
1933(4) of the California Civil Code, with respect to any
rights or obligations concerning damage or destruction in any
absence of an express agreement between the parties, and any
similar statute or regulation now or hereafter in effect,
shall have no application to this Lease or to any damage to or
destruction of all or any part of the Premises, the Building
or the Development. In addition, Tenant hereby waives the
provisions of Sections 1941 and 1942 of the California Civil
Code, which Sections permit Tenant to make repairs at
Landlord's expense.
24. EMINENT DOMAIN.
(a) In case all of the Premises or such part thereof as shall
substantially interfere with Tenant's use and occupancy of
the Premises shall be taken for any public or quasi-public
purpose by any lawful power or authority by exercise of the
right of appropriation, condemnation or eminent domain
(generally referred to herein as a "taking"), or sold to
prevent such taking, either party shall have the right to
terminate this Lease effective as of the date possession is
required to be surrendered to said authority. Tenant shall
not assert any claim against Landlord for any compensation
because of such taking, and Landlord shall be entitled to
receive the entire amount of any award without deduction for
any estate or interest of Tenant except that Tenant's right
to receive compensation or damages from the condemning
authority for Tenant's personal property and fixtures and
reasonable moving expenses and the right to recover from the
condemning authority one hundred percent (100%) of the
"Bonus Value" of the leasehold estate which shall be equal
to the difference between the Rental Rate payable by Tenant
under the Lease and the rate established by the condemning
authority as an award for compensation purposes shall not be
affected in any manner hereby. In the event the amount of
property or the type of estate taken shall not substantially
interfere with the conduct of Tenant's business, Landlord
shall be entitled to the entire amount of the award without
deduction for any estate or interest of Tenant, Landlord
shall restore the Premises to substantially their same
condition prior to such partial taking, and a proportionate
rent abatement shall be made corresponding to the time
during which, and to the part of the Premises of which,
Tenant shall be so deprived on account of such taking and
restoration. Nothing contained in this Subparagraph shall be
deemed to give Landlord any interest in any award made to
Tenant for the taking of personal property and fixtures
belonging to Tenant.
(b) In the event of a taking of the Premises or any part thereof
for temporary use, (i) this Lease shall be and remain
unaffected thereby and rent shall not abate, except as
expressly provided herein, and (ii) Tenant shall be entitled
to receive for itself such portion or portions of any award
made for such use with respect to the period of the taking
which is within the Term, provided that if such taking shall
remain in force at the expiration or earlier termination of
this Lease, Tenant shall then pay to Landlord a sum equal to
the reasonable cost of performing Tenant's obligations under
Section 15 above with respect to surrender of the Premises
and upon such payment shall be excused from such
obligations.
(c) Landlord may, with prior written notice to Tenant, agree to
sell and/or convey to any condemnor presenting a bona fide
threat of condemnation or eminent domain of the Premises, the
Building, the Development or any portion thereof sought by
condemnor, free from this Lease and the rights of Tenant
hereunder without first requiring that any action or
proceeding be instituted or, if instituted, pursued to a
judgment. Nothing herein is intended to affect Tenant's rights
of recovering from any condemnor the value of Tenant's
personal property and movable trade fixtures and the cost of
Tenant's moving expenses.
(d) In the event of a taking that does not result in a termination
of this Lease as to the entire Premises, the Annual Basic Rent
and Operating Expenses shall abate in proportion to the
portion of the Premises taken or rendered untenantable by such
taking. Tenant and Landlord hereby waive and release their
rights under Section 1265.130 of the California Code of Civil
Procedure or any similar statute now or hereafter in effect.
25. DEFAULTS AND REMEDIES.
(a) The occurrence of any one or more of the following events
shall constitute a default hereunder by Tenant:
(1) The failure by Tenant to make any payment of rent or
additional rent or any other payment required to be
made by Tenant hereunder, within seven (7) calendar
days after written notice thereof from Landlord to
Tenant that such payment was not paid when due. Any
such notice shall be in addition to, and not in lieu
of, any notice required under California Code of
Civil Procedure Section 1161 et. seq. regarding
unlawful detainer actions.
(2) The failure by Tenant to observe or perform any
provision of this Lease to be observed or performed
by Tenant, other than as stated in Subparagraph
25(a)(1) or Subparagraph 26(a), where such failure
continues for twenty (20) days after written notice
thereof from Landlord to Tenant; provided, however,
if the nature of Tenant's failure is such that more
than twenty (20) days are reasonably required for its
cure, then Tenant shall not be deemed to be in
default if Tenant shall commence such cure within
twenty (20) days after notice of such failure is
given to Tenant, and Tenant thereafter diligently and
continuously prosecutes such cure to completion. Any
such notice shall be in addition to, and not in lieu
of, any notice required under California Code of
Civil Procedure Section 1161 et. seq. regarding
unlawful detainer actions.
(b) In the event of any such default by Tenant, in addition to any
other remedies available to Landlord at law or in equity,
Landlord shall have the immediate option to terminate this
Lease and all rights of Tenant hereunder. In the event that
Landlord shall elect to so terminate this Lease then Landlord
may recover from Tenant:
(1) the worth at the time of award of any unpaid rent
which had been earned at the time of
such termination; plus
(2) the worth at the time of award of the amount by which
the unpaid rent which would have been earned after
termination until the time of award exceeds the
amount of such rental loss that Tenant proves could
have been reasonably avoided; plus
(3) the worth at the time of award of the amount by which
the unpaid rent for the balance of the term after the
time of award exceeds the amount of such rental loss
that Tenant proves could be reasonably avoided; plus
(4) any other amount necessary to compensate Landlord for
all the detriment proximately caused by Tenant's
failure to perform Tenant's obligations under this
Lease or which in the ordinary course of things would
be likely to result therefrom (including without
limitation reasonable attorneys' and accountants'
fees, costs of alterations of the Premises, interest
costs and brokers' fees incurred upon any reletting
of the Premises);
As used in Subparagraphs 25(b)(1) and (2) above, the
"worth at the time of award" is computed by allowing
interest at the maximum rate permitted by law. As
used in Subparagraph 25(b)(3) above, the "worth at
the time of award" is computed by discounting such
amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of award plus one
percent (1%).
(c) In the event of any such default by Tenant, Landlord shall
additionally have the right, with or without terminating this
Lease, to reenter the Premises and remove all persons and
property from the Premises; such property may be removed and
stored in a public warehouse or elsewhere at the cost of and
for the account of Tenant. No reentry or taking possession of
the Premises by Landlord pursuant to this Subparagraph 25(c)
shall be construed as an election to terminate this Lease
unless a written notice of such intention is given to Tenant
or unless the termination thereof is decreed by a court of
competent jurisdiction.
If Landlord does not elect to terminate this Lease as provided
above, Landlord may from time to time, without terminating
this Lease, either recover all rent as it becomes due or relet
the Premises or any part thereof for the Term on terms and
conditions as Landlord in its good faith judgment may deem
advisable with the right to make alterations and repairs to
the Premises.
In the event that Landlord shall elect to so relet, then
rentals received by Landlord from such reletting shall be
applied: first, to the payment of any indebtedness other than
rent due hereunder from Tenant to Landlord; second, to the
payment of any cost of such reletting; third, to the payment
of the cost, including interest expense, of any alterations
and repairs to the Premises; fourth, to the payment of rent
due and unpaid hereunder and the residue, if any, shall be
held by Landlord and applied to payment of future rent as the
same may become due and payable hereunder. Should that portion
of such rentals received from such reletting during any month,
which is applied to the payment of rent hereunder, be less
than the rent payable during that month by Tenant hereunder,
then Tenant shall pay such deficiency to Landlord within
thirty (30) days after demand therefor by Landlord. Such
deficiency shall be calculated and paid monthly. Tenant shall
also pay to Landlord, as soon as ascertained, any costs and
expenses incurred by Landlord in such reletting or in making
such alterations and repairs not covered by the rentals
received from such reletting.
(d) Tenant hereby expressly waives any and all rights to
possession of the Premises granted by or under any present or
future Applicable Law in the event of Tenant's being lawfully
physically evicted or dispossessed, or in the event Landlord's
lawfully obtaining actual possession of the Premises, by
reason of the violation by Tenant of any of the terms,
covenants, conditions, provisions or agreements of this Lease.
(e) All rights, options and remedies of Landlord contained in
this Lease shall be construed and held
to be cumulative, and no one of them shall be exclusive of
the other, and Landlord shall have the right to pursue any
one or all of such remedies or any other remedy or relief
which may be provided by law, whether or not stated in this
Lease. No waiver of any default of Tenant hereunder shall be
implied from any acceptance by Landlord of any rent or other
payments due hereunder or any omission by Landlord to take
any action on account of such default if such default
persists or is repeated, and no express waiver shall affect
defaults other than as specified in said waiver. The consent
or approval of Landlord to or of any act by Tenant requiring
Landlord's consent or approval shall not be deemed to waive
or render unnecessary Landlord's consent or approval to or
of any subsequent similar acts by Tenant.
In the event of a breach or threatened breach by Tenant or
Landlord of any of the terms, covenants, conditions,
provisions or agreements of this Lease, Tenant or Landlord, as
the case may be, shall, in addition to all of their respective
rights and remedies, have the right of injunction, and where
it is determined by judicial authority that a breach of this
Lease has or was about to have occurred, the breaching party
shall pay the premium for any bond required in connection with
such injunction.
26. ASSIGNMENT AND SUBLETTING.
(a) Except as expressly stated below, Tenant shall not voluntarily
assign or encumber its interest in this Lease or in the
Premises or sublease all or any part of the Premises, or allow
any other person or entity to occupy or use all or any part of
the Premises. Any assignment, encumbrance or sublease which
does not comply with the terms and provisions of this Section
26 shall be voidable at Landlord's election, and, if Landlord
shall have notified Tenant of Landlord's disapproval of such
assignment, encumbrance or sublease, then such assignment,
encumbrance or sublease by Tenant shall constitute a default.
(1) Without Landlord's consent, Tenant may assign this
Lease in its entirety or sublet all or any portion of
the Premises to: (w) any entity resulting from a
merger or consolidation with Tenant or any
organization purchasing all or substantially all of
Tenant's assets; or (x) any entity succeeding to all
or substantially of the business or assets of Tenant;
or (y) any entity which acquires all or substantially
all of Tenant or (z) any Affiliate of Tenant, as
defined below (collectively, "Permitted Assignee");
provided, that in each of the foregoing instances,
such other entity shall assume in writing all of
Tenant's obligations hereunder; provided further,
that such assignment or subletting will not cause a
material denigration of Tenant's financial condition,
which in Landlord's reasonable opinion would affect
Tenant's ability to fulfill its respective
obligations as they become due. The term "Affiliate",
means any entity directly or indirectly, through one
or more intermediaries, controlling, " as used in
the immediately preceding sentence, means the right
to the exercise, directly or
indirectly, of more than fifty percent (50%) of the
voting rights attributable to the interest in the
controlled entity. No consent to an assignment,
encumbrance or sublease shall constitute a further
waiver of the provisions of this Section 26. In the
event of an assignment or subletting pursuant to this
Subparagraph 26(a)(i), Tenant shall retain 100% of
any and all Net Profits (as defined below).
(2) Subject to the terms and conditions stated herein,
Tenant may assign or sublease any portion of the
Premises to any entity which is not a Permitted
Assignee with Landlord's prior written approval,
which approval shall not be unreasonably withheld,
conditioned or delayed beyond the later of thirty
(30) days after Landlord's receipt of Tenant's
request or ten (10) days after Landlord's receipt of
all information reasonably requested by Landlord and
information provided herein required in connection
with such assignment or sublease. No consent to any
such assignment or sublease shall constitute a
further waiver of the provisions of this Section 26.
In such event, Tenant and Landlord shall evenly
divide any and all Net Profits applicable to the
Term.
"Net Profits" means the gross revenue, including
without limitation, any and all rent, fees, charges
and other consideration received by Tenant from any
assignee or sublessee with respect to the space
covered by the sublease or the assignment during the
sublease term or during the assignment ("Transferred
Space") (as opposed to the sale of its business but
based on the then Fair Market Rental Rate of the
Transferred Space) less: (a) the gross revenue paid
to Landlord by Tenant during the period of the
sublease term or during the assignment with respect
to the Transferred Space; (b) the gross revenue as to
the Transferred Space paid to Landlord by Tenant for
all days the Transferred Space was vacated from the
date that Tenant first vacated the Transferred Space
until the date the assignee or sublessee was to pay
Rent; (c) any improvement allowance or other economic
concession (planning allowance, moving expenses,
etc.), paid by Tenant to sublessee or assignee; (d)
brokers' commissions; (e) attorneys' fees; (f) lease
takeover payments; (g) costs of advertising the space
for sublease or assignment; and (h) unamortized cost
of initial and subsequent improvements to the
Premises by Tenant; provided, however, under no
circumstance shall Landlord be paid any Profits until
Tenant has recovered all the items set forth in
subparts (a) through (h) for such Transferred Space,
it being understood that if in any year the gross
revenues, less the deductions set forth in subparts
(a) through (i) ("Net Revenues"), are less than any
and all costs actually paid in assigning or
subletting the affected space (collectively,
"Transaction Costs"), the amount of the excess
Transaction Costs shall be carried over to the next
year and then deducted from Net Revenues with the
procedure repeated until a Profit is achieved.
(3) It is agreed that fifty percent (50%) of all Net
Profits are expressly reserved from the grant of
Tenant's leasehold estate hereunder except to the
extent otherwise expressly provided above. Landlord
shall have the right to fifty percent (50%) of Net
Profits regardless of whether (i) the instrument
effecting any assignment or sublease provides the
right to Landlord, or (ii) Landlord has approved such
an instrument which fails to provide such right to
Landlord.
(4) During the Term, Landlord shall not have the right to
recapture any portion of the Premises that Tenant
proposes to assign or sublease.
(b) In connection with any assignment or sublease where
Landlord's consent or approval is required, Tenant shall
notify Landlord in writing of Tenant's intent to assign,
encumber or sublease this Lease, the name of the proposed
assignee or sublessee, information concerning the financial
responsibility of the proposed assignee or sublessee and the
terms of the proposed assignment or subletting. Where
Landlord's approval of an assignment or sublease is
required, Landlord's disapproval shall be deemed reasonable
if it is based on Landlord's analysis of (1) the proposed
assignee's or sublessee's credit character and business or
professional standing or, (2) whether the assignee's or
sublessee's use and occupancy of the Premises will be
consistent with Subparagraph 1(u) and Section 8 above;
provided, however, that the basis for Landlord's disapproval
shall not be limited to those set forth in clauses (1) and
(2) above, but Landlord's approval shall not be unreasonably
withheld. Notwithstanding the foregoing, it shall be
unreasonable for Landlord to withhold its consent herein on
the basis that the proposed transferee is an existing or
prospective tenant of the Building or the Project.
Furthermore, Landlord shall not withhold its consent, if
such consent is otherwise required of Landlord, to any
assignment or sublease which Tenant has successfully
negotiated with any other tenant or occupant of the Building
or the Project, provided Tenant is the transferee.
(c) As a condition for granting its consent to any assignment,
encumbrance or sublease, Landlord may require that the
assignee or sublessee remit directly to Landlord on a
monthly basis, all monies due to Tenant by said assignee or
sublessee if Landlord has a reasonable and good faith reason
for the requirement of such condition based on circumstances
relating to Tenant or the transferee. A condition to
Landlord's consent to any assignment, transfer or
hypothecation of this Lease shall be the delivery to
Landlord of a true copy of the fully executed instrument of
assignment, transfer or hypothecation, and the delivery to
Landlord of an agreement executed by the assignee in form
and substance satisfactory to Landlord and expressly
enforceable by Landlord, whereby the assignee assumes and
agrees to be bound by all the applicable terms and
provisions of this Lease and to perform all of the
applicable obligations of Tenant hereunder. As a condition
to Landlord's consent to any sublease, such sublease shall
provide that it is subject and subordinate to this Lease and
to all mortgages; that Landlord shall have the right to
enforce the terms and provisions of this Lease directly
against such sublease to the extent applicable to the
sublease space; that Landlord may enforce the provisions of
the sublease, including collection of rent; that in the
event of termination of this Lease for any reason, including
without limitation a voluntary surrender by Tenant, or in
the event of any reentry or repossession of the Premises by
Landlord, Landlord may, at its option, either (i) terminate
the sublease, unless Landlord has entered into a
non-disturbance agreement with such sublessee, or (ii) take
over all of the right, title and interest of Tenant, as
sublessor, under such sublease, in which case such sublessee
shall attorn to Landlord and Landlord shall recognize such
sublease at the rate per RSF that is equal to the higher of
the rate per RSF in this Lease or the rate per RSF in the
Sublease, but that nevertheless Landlord shall not (1) be
liable for any previous act or omission of Tenant under such
sublease, (2) be subject to any defense or offset previously
accrued in favor of the sublessee against Tenant, or (3) be
bound by any previous modification of any sublease made
without Landlord's written consent, or by any previous
prepayment by sublessee of more than one month's rent. Such
sublessee shall execute a written agreement with Landlord
acknowledging such sublessee's agreement to the foregoing.
Landlord's rights to so enforce the terms of this Lease and
such sublease as against such sublessee shall not in any way
be construed as expanding or adding to any of the rights of
such sublessee under any such sublease, nor a waiver or
release of Tenant's obligations under the terms of this
Lease.
(d) Landlord's waiver or consent to any assignment or subletting
shall not relieve Tenant or any assignee or sublessee from any
obligation under this Lease whether or not accrued. No consent
to an assignment, encumbrance or sublease shall constitute a
further waiver of the provisions of this Section 26.
(e) Notwithstanding anything to the contrary in the Lease, Tenant
shall not be deemed to have waived any of its rights under
California Civil Code Section 1995.310, except to the extent
inconsistent with the terms and provisions of this Section 26.
(f) Tenant may allow any person or company which is a client or
customer of Tenant or which is providing service to Tenant
or one of Tenant's clients to occupy as a permittee certain
portions of the Premises without such occupancy being deemed
an assignment or subleasing (or otherwise constituting a
leasehold interests) as long as no new demising walls are
constructed to accomplish such occupancy, such relationship
was not created as a subterfuge to avoid the obligations set
forth in this Section 26, such person or company, together
with all other such persons or companies occupying the
Premises, do not occupy in the aggregate more than fifteen
percent (15%) of the total RSF of the Premises, and such
person or company is not making any payment of rent or other
fee (other than utility or other reimbursable charges such
as photocopy, telephone and food charges) for the use of
such space.
27. SUBORDINATION.
(a) Subject to Section 4, without the necessity of any additional
document being executed by Tenant for the purpose of effecting
a subordination, and at the election of Landlord or any
mortgagee with a lien on the Building or any ground lessor
with respect to the Building, this Lease shall be subject and
subordinate at all times to:
(1) all ground leases or underlying leases which may now
exist or hereafter be executed affecting the Building
or the land upon which the Building is situated or
both; and
(2) the lien of any mortgage or deed of trust which may
now exist or hereafter be executed in any amount for
which the Building, land, ground leases or underlying
leases, or Landlord's interest or estate in any of
said items is specified as security.
(b) Subject to Section 4, Landlord shall have the right to
subordinate or cause to be subordinated any such ground
leases or underlying leases or any such liens to this Lease.
In the event that any ground lease or underlying lease
terminates for any reason or any mortgage or deed of trust
is foreclosed or a conveyance in lieu of foreclosure is made
for any reason, Tenant shall, notwithstanding any
subordination, attorn to and become the Tenant of the
successor-in-interest to Landlord, and, in such event,
Tenant's right to possession of the Premises shall not be
disturbed except in accordance with the terms of this Lease.
Tenant covenants and agrees to execute and deliver, upon
demand by Landlord and consistent with the form attached
hereto as Exhibit "H" (and including therein such other
provisions reasonably required by the ground lessor or
holder of lien) evidencing the priority or subordination of
this Lease with respect to any such ground leases or
underlying leases or the lien of any such mortgage or deed
of trust. Should Tenant fail to sign and return any such
documents within ten (10) business days of request, Tenant
shall be deemed to have fully approved, executed and
delivered such documents, and such documents shall be
binding upon and enforceable against Tenant as if Tenant had
actually duly signed and delivered the same.
28. ESTOPPEL CERTIFICATE.
(a) Within ten (10) business days from and after any written
request which Landlord or Tenant may make from time to time,
the other party shall execute and deliver to the requesting
party a statement, in a form substantially similar to the
form of Exhibit "E" certifying: (i) the date of commencement
of this Lease; (ii) the fact that this Lease is unmodified
and in full force and effect (or, if there have been
modifications hereto, that this Lease is in full force and
effect, and stating the date and nature of such
modifications); (iii) the date to which the rental and other
sums payable under this Lease have been paid; (iv) that
there are no current defaults under this Lease by either
Landlord or Tenant except as specified in the replying
party's statement; and (v) such other commercially
reasonable matters requested by the requesting party.
Landlord and Tenant intend that any statement delivered
pursuant to this Section 28 may be relied upon by any
mortgagee, beneficiary, purchaser or prospective purchaser
of the Building or any interest therein or by any
prospective assignee or sublessee of the Premises.
(b) The non-requesting party's failure to deliver such statement
within such time shall be conclusive upon the non-requesting
party (i) that this Lease is in full force and effect, without
modification except as may be represented by the requesting
party, (ii) that there are no uncured defaults in the
requesting party's performance, and (iii) that not more than
one (1) month's rental has been paid in advance.
29. SIGNS.
29.1 Tenant, at Tenant's sole cost and expense, may initially
install the following signage:
(a) professionally designed identification signs on all
main entrances to the Premises, on each floor that is
open to the general public, and on corridor and/or
exterior doors which open into the Premises.
(b) on the Building directory information board;
(c) top of Building signage provided Tenant at all times
leases and occupies at least two (2) full floors of
the Building;
(d) a non-exclusive exterior monument sign indicating Tenant's
corporate name on the existing monument sign at the Mureau
Road entrance to the Project, as depicted on the Site Plan
as "Monument Sign "A""; Tenant shall be entitled to the top
tenant position thereon, and all other tenant identification
panels and lettering on said Monument Sign "A" shall be no
larger in size than the maximum size which Tenant is allowed
under the terms of this Lease (or under Applicable Law) for
such identification panels and lettering. To the extent
available, Tenant shall have the limited right to place
identification signage on the monument sign at the Las
Virgenes Road entrance to the Project, as depicted on the
Site Plan as "Monument Sign "B,"" once the same is
constructed; provided, however, Tenant's signage on Monument
Sign "B," if any, shall be subordinate to all other signs
thereon which identify the Project, building 7 and/or the
restaurant and retail tenants of the Project, and the size
and location of Tenant's signage on said Monument Sign "B"
shall be subject to Landlord's reasonable approval. Tenant's
signage rights herein shall be at all times subject to
compliance with Applicable Law.
(e) once and for so long as Tenant leases the entire
Building, any other sign or signs that Tenant elects
to install on the Building to the extent permitted by
Applicable Law.
Tenant's signage rights shall be subject to
restrictions imposed by Applicable Law, and shall
otherwise be reasonably satisfactory to Landlord.
29.2 Tenant, at Tenant's sole expense, shall maintain and keep in
good repair all of its signs and connections and shall pay for
all charges required to keep them in good repair and clean
condition. Upon termination of this Lease, Tenant shall
promptly remove all such signs (leaving monument intact) and
repair any damage caused by such removal, at its own expense.
Tenant shall be responsible for all costs associated with the
fabrication, installation, maintenance and repair of the
signage. If Tenant shall fail to keep its exterior signage in
good condition and repair, then Landlord shall have the right
to perform the same after providing Tenant with at least five
(5) business days' notice. If Tenant has not commenced
performance within such five (5) business day period and
thereafter diligently pursued the same to completion, then
Landlord may perform the same at Tenant's sole cost and
expense, which amount shall be payable as "rent" under this
Lease within thirty (30) days after written demand is made on
Tenant.
29.3 Landlord shall use its commercially reasonable efforts to
cooperate with Lessee in obtaining all necessary governmental
approvals and permits for the installation of Tenant's signage
on the Building Project. Tenant shall be responsible for all
materials, labor, installation, maintenance and utility costs
with respect to such signs. At the termination of this Lease,
unless Landlord otherwise requires, Tenant shall remove such
signs and repair any damage to the Building caused thereby at
Tenant's sole cost and expense.
29.4 Provided Tenant leases at least two (2) entire floors of the
Building, Tenant shall have the sole and exclusive sign rights
attributable to the Building and Landlord shall not permit any
other signs in or on the Building except directional signs and
signs required by law. If Tenant leases at least one (1)
entire floor of the Building, but less than two (2) entire
floors, Tenant shall have the non-exclusive right to place its
signs in and on the Building in proportion to the RSF then
leased by Tenant in the Building over the total RSF of the
Building. In the event that Tenant leases less than one (1)
entire floor of the Building, then Tenant shall immediately
remove, at Tenant's sole cost and expense, the exterior
building signs constructed pursuant hereto, promptly repair
any damage caused thereby, and Tenant shall no longer be
entitled to place identification signage on the Building
exterior, unless otherwise approved by Landlord in writing,
which approval may be withheld at Landlord's sole discretion.
29.5 No sign shall be placed on the Building (except for the
Building directory) which identifies any person, company or
entity which is a "competitor" of Tenant (as hereinafter
defined). Under no circumstances shall the Building be named
after or referred to utilizing the name of a competitor of
Tenant. Tenant may transfer such sign rights to any assignee
or sublessee. For purposes of the Lease, a "competitor" of
Tenant shall be a person or entity whose primary business is
sale of insurance.
30. RULES AND REGULATIONS.
(a) Tenant shall faithfully observe and comply with the "Rules
and Regulations," a copy of which is attached hereto and
marked Exhibit "F", and all reasonable and nondiscriminatory
modifications thereof and additions thereto from time to
time put into effect by Landlord provided Tenant has
received such modifications and additions in writing, to the
extent not inconsistent with the express terms of this
Lease. Landlord covenants that it will use its commercially
reasonable efforts to enforce the Rules and Regulations
against all tenants and in a uniform manner which shall
unreasonably interfere with the normal and customary use of
the Premises by Tenant for normal and customary business
office operations permitted under Subparagraph 1(u).
Landlord shall not be responsible to Tenant for the
violation or non-performance by any other tenant or occupant
of the Building of any of said Rules and Regulations, unless
such other tenant or party is the Landlord, and/or its
agents or its employees, and then only to the extent
expressly provided in this Lease.
(b) Landlord agrees that the Rules and Regulations of the
Building, attached to and made a part of this Lease, shall not
be changed or revised or enforced in any unreasonable way by
Landlord nor enforced or changed by Landlord in such a way as
to interfere with the uses expressly permitted under this
Lease.
31. BANKRUPTCY. In the event that the obligations of Landlord under this
Lease are not performed during the pendency of a bankruptcy or
insolvency proceeding involving Landlord as the debtor, or following
the rejection of this Lease in accordance with Section 365 of the
United States Bankruptcy Code, then notwithstanding any provision of
this Lease to the contrary, Tenant shall have the right to set off
against Rents next due and owing under this Lease (a) any and all
damages caused by such non-performance of Landlord's obligations under
this Lease by Landlord, debtor-in-possession, or the bankruptcy
trustee, and (b) any and all damages caused by the non-performance of
Landlord's obligations under this Lease following any rejection of
this Lease in accordance with Section 365 of the United States
Bankruptcy Code.
32. SECURITY. Landlord shall provide at Tenant's sole cost, risk and
expense, building security, equipment, personnel, procedures and
systems as Tenant may require, except that the cost of drive-by
security and a key entrance system shall be maintained as an Operating
Expense under Section 6 above. In all events, unless expressly
provided herein, Landlord shall not be liable to Tenant, and Tenant
hereby waives any claim against Landlord, for any unauthorized or
criminal entry of third parties into the Premises or the Building,
including, without limitation, the parking areas of the Development,
and/or for any damage to persons, including, without limitation,
Tenant, its employees, agents, licensees and/or invitees or loss of
property in and about the Premises, the Building, the Development, the
parking area and the approaches, entrances, streets, sidewalks or
corridors thereto, by or from any unauthorized or criminal acts of
third parties, regardless of any action, inaction, failure, breakdown,
malfunction and/or insufficiency of the security measures, practices
or equipment provided by Landlord. Landlord acknowledges that Tenant
shall be permitted at its sole cost and expense to install its own
security system in the Premises subject to the approval of Landlord,
which approval shall not be unreasonably withheld, conditioned or
delayed. Tenant hereby agrees to indemnify and hold Landlord harmless
from and against any and all loss, costs and/or obligations relating
to Tenant's own security system, unless expressly provided herein.
33. SURRENDER OF PREMISES. The voluntary or other surrender of this Lease
by Tenant, or a mutual cancellation thereof, shall not work a merger,
and shall, at the option of Landlord, terminate any or all existing
subleases or subtenancies, or may, at the option of Landlord operate
as an assignment to it of any or all subleases or subtenancies. Upon
the expiration or termination of this Lease, Tenant shall peaceably
surrender the Premises and all alterations and additions thereto,
broom clean the Premises, leave the Premises in good order, repair and
condition, reasonable wear and tear and damage from casualty excepted,
and comply with the provisions of Section 15 above. No act or thing
done by either party or such party's agents during the Term shall be
deemed a surrender of the Premises except by written agreement signed
by both parties. No employee of either party shall have any power to
accept or deliver the keys of the Premises prior to the expiration or
earlier termination of this Lease. Upon the expiration or earlier
termination of this Lease, Tenant shall have the right to remove its
personal property and fixtures provided Tenant repairs any damage to
the Premises or the Building as a result thereof.
34. PERFORMANCE BY TENANT. All covenants and agreements to be performed by
Tenant under any of the terms of this Lease shall be performed by
Tenant at Tenant's sole cost and expense and without any abatement of
rent, unless expressly provided otherwise herein. If Tenant shall fail
to pay any sum of money owed to any party other than Landlord, for
which it is liable hereunder, or if Tenant shall fail to perform any
other act on its part to be performed hereunder, and such failure
shall continue for thirty (30) days (or shorter time if reasonably
required) after notice thereof by Landlord, Landlord may, without
waiving or releasing Tenant from obligations of Tenant, but shall not
be obligated to, make any such payment or perform any such other act
to be made or performed by Tenant. All sums so paid by Landlord and
all necessary incidental costs together with interest thereon at the
Interest Rate, from the date of such payment by Landlord, shall be
payable to Landlord as additional rent on demand. Tenant covenants to
pay any such sums, and Landlord shall have (in addition to any other
right or remedy of Landlord) all rights and remedies in the event of
the nonpayment thereof as in the case of default by Tenant in the
payment of rent.
35. MORTGAGE AND SENIOR LESSOR PROTECTION. No act or failure to act on the
part of Landlord which would entitle Tenant under the terms of this
Lease, or by law, to be relieved of Tenant's obligations hereunder or
to terminate this Lease, shall result in a release of such obligations
or a termination of this Lease, unless Tenant has satisfied the
provisions set forth on Exhibit "H" concerning the rights of the
beneficiary of any deed of trust or mortgage covering the Premises and
to the lessor under any master or ground lease covering the Building or
the Development or interest therein and whose identity and address
shall have been furnished to Tenant.
36. DEFINITION OF LANDLORD. The term "Landlord," as used in this Lease, so
far as covenants or obligations on the part of Landlord are concerned,
shall be limited to mean and include only the owner or owners, at the
time in question, of the fee title of the Premises or the lessees
under any ground lease, if any. In the event of any transfer,
assignment or other conveyance or transfers of any such title,
Landlord herein named (and in case of any subsequent transfers or
conveyances, the then grantor) shall be automatically freed and
relieved from and after the date of such transfer, assignment or
conveyance of all liability as respects the performance of any
covenants or obligations on the part of Landlord contained in this
Lease thereafter to be performed provided the transferee of such title
shall have assumed and agreed to observe and perform any and all
obligations of Landlord hereunder. Landlord may transfer its interest
in the Premises without the consent of Tenant and such transfer or
subsequent transfer shall not be deemed a violation on Landlord's part
of any of the terms and conditions of this Lease.
37. PARKING.
(a) Tenant shall have the exclusive right to the use of the parking
spaces within the Parking Area, as shown on the Parking Plan
attached hereto as Exhibit "A-IV." Tenant's use of the Parking
Area for parking purposes shall be at no additional charge to
Tenant (except for Operating Expenses relating thereto). All of
such parking spaces shall be designated as "reserved." Landlord
agrees to use its good faith efforts (without the requirement of
Landlord to expend money or commence legal or administrative
action, unless Tenant agrees to bear the cost thereof, and
further agrees to indemnify, protect, defend and hold Landlord
harmless from any liability, cost, expense or loss incurred in
connection therewith) to provide to Tenant up to ten (10) covered
parking spaces (such spaces to be included in the calculation of
the Parking Ratio set forth in Subparagraph 1(z)), provided that
(i) "covered parking" shall be construed to mean covered by a
non-structural awning, canopy, or otherwise, but not enclosed or
underground parking, and (ii) all costs and expenses of providing
such covered parking, including without limitation, design,
construction and permitting costs and expenses, and all insurance
costs related thereto, shall be borne entirely by Tenant. Upon
receipt of Landlord's invoice, or partial invoices, for the same,
Tenant shall either promptly reimburse Landlord for the cost
thereof or elect to reduce the Tenant Improvement Allowance by
such cost.
(b) At any time during the Term where Tenant does not have the
exclusive use of all parking spaces in the Development:
(i) Landlord may assign any unreserved and unassigned
parking spaces and/or make all or a portion of such
spaces reserved, if it determines in its sole
discretion that it is necessary for orderly and
efficient parking, provided it does not reduce
Tenant's overall parking below that of 3.6 spaces per
1,000 RSF of the Premises.
(ii) Tenant shall use its commercially reasonable efforts
to prohibit any vehicles that belong to or are
controlled by Tenant or Tenant's employees,
suppliers, shippers, customers or invitees to be
loaded, unloaded or parked in areas other than those
designated by Landlord for such activities.
(c) The use by Tenant, its employees and invitees, of the Parking
Area of the Development shall be on the terms and conditions set
forth in Exhibit "G" attached hereto, and shall be subject to
such other agreement between Landlord and Tenant as may
hereinafter be established. Landlord reserves the right to
modify, add to, or delete from time to time such Parking Rules
and Regulations as it deems reasonably necessary for the
operation of said parking provided Tenant has received such
modification, addition and deletions in writing; provided,
however, that Tenant shall always have the right to use the
Parking Area twenty-four (24) hours a day, seven (7) days a week,
every day of the year; provided, however, that Tenant
acknowledges that during construction of the Project or for
safety reasons, Landlord may require temporarily that Tenant not
use a certain portion of the parking area, provided Tenant's lack
of use shall not materially and adversely impact Tenant's overall
access and use of the Parking Area or access to the Premises.
Landlord covenants that it will use its commercially reasonable
efforts to enforce such Parking Rules and Regulations against all
users of the parking facilities and in a uniform manner. Landlord
may refuse to permit any person who frequently violates the
Parking Rules and Regulations to park in the Development Parking
Area, and frequent and notified violations shall be subject to
car removal.
(d) Tenant shall submit a written notice in a form reasonably
specified by Landlord, containing the names, office address
and office telephone numbers of those persons who are
authorized by Tenant to use the parking spaces (the
"Authorized Users") and shall use its commercially reasonable
efforts to identify each automobile by make, model and license
number. Such notice shall be served upon Landlord prior to the
beginning of the Term. Such notice, as amended from time to
time, is hereafter referred to as the "Parking Notice."
(e) Notwithstanding the foregoing, Tenant's parking rights shall
be subject to all federal, state and local laws and ordinances
pertaining to reserve parking, including, without limitation,
traffic management ordinances and regulations established by
regulatory agencies having jurisdiction over the Development,
and Tenant agrees to fully cooperate with Landlord in its
observance of such laws and ordinances.
(f) Landlord shall have the one-time right, at its election and
upon ten (10) days' prior notice to Tenant, to relocate up to
twenty (20) of Tenant's parking spaces within the Parking Area
from the area designated as location "1" on the Parking Plan
to the area designated as location "2" on said Parking Plan.
38. OPTION TO PURCHASE.
(a) In consideration for Tenant's execution hereof, Tenant shall
have the option to purchase ("Purchase Option") the
Development, including the Building, Parking Area, and any
improvements and appurtenances thereof, as more particularly
described in that certain Option Agreement attached hereto as
Exhibit I.
(b) Notwithstanding the foregoing, no exercise of any of Tenant's
rights under this Section 38 shall be valid unless and until
Tenant shall have cured, in the time and manner required under
this Lease, any valid notice of default given to Tenant under the
terms of this Lease, and which cure must be effected as a
condition to any purchase under the Purchase Option. Tenant
acknowledges and agrees that no exercise of Tenant's rights
pursuant to the Purchase Option shall affect or limit Landlord's
rights or remedies if Tenant is in default under this Lease.
Accordingly, any rent due but not yet paid on the date fee title
to the Development is conveyed to Tenant is expressly reserved
from such conveyance.
39. FORCE MAJEURE. "Force Majeure" shall mean any actual delay due to
strike, other labor trouble, governmental preemption of priorities or
other controls in connection with a national or other public
emergency, weather conditions, or shortages of fuel, supplies,
construction materials or labor resulting therefrom, or any other
cause, whether similar or dissimilar to the above, beyond a party's
reasonable control (but specifically excluding governmental delays
encountered by Tenant in connection with the issuance of all necessary
permits, certificates and approvals required as a condition to
Tenant's construction and/or completion of the Tenant Improvements, or
Tenant's occupancy of the Premises or any portion thereof). Except as
to Tenant's obligation to pay rent at the times and in the manner
stated in this Lease, neither party ("Nonperforming Party") shall
incur any liability whatsoever to the other party, and the
Nonperforming Party's obligations hereunder shall be extended on
account of Force Majeure. Except as to Tenant's obligations to pay
rent at the times and in the manner stated in this Lease, if this
Lease specifies a time period for performance of an obligation of the
Nonperforming Party, that time period for performance shall be
extended by the period of any delay in the Nonperforming Party's
performance caused by any of the events of Force Majeure described
above.
40. LIMITATION ON LIABILITY.
In consideration of the benefits accruing hereunder, Tenant and all
successors and assigns covenant and agree that, in the event of any
actual or alleged failure, breach or default hereunder by Landlord the
sole and exclusive remedy shall be against the Landlord's interest in
the Building. The obligations of Landlord under this Lease do not
constitute personal obligations of the individual directors, officers
or shareholders of Landlord, and Tenant shall not seek recourse against
the individual directors, officers or shareholders of Landlord or any
of their personal assets for satisfaction of any liability in respect
to this Lease. These covenants and agreements are enforceable both by
Landlord and also by any directors, officers or shareholders of
Landlord.
41. MODIFICATION FOR LENDER.
If, in connection with obtaining construction, interim or permanent
financing for the Building and/or the Development, any lender of
Landlord shall request reasonable modifications in this Lease as a
condition to such financing, Tenant will not unreasonably withhold,
delay or defer its consent thereto, provided that such modifications do
not increase Tenant's rent obligations hereunder or materially increase
Tenant's non-rent obligations hereunder or adversely affect Tenant's
right to quiet enjoyment of its leasehold created hereunder.
42. ACCESS.
Subject to emergency or other causes outside of the reasonable control
of Landlord, Tenant shall be granted access to the Building, the
Premises, and the Parking Area twenty-four (24) hours per day, seven
(7) days per week, every day of the year. Tenant acknowledges and
agrees that although Landlord provides security to the Building during
normal business hours, and that Landlord uses its good faith
commercially reasonable efforts to keep the Building and users thereof
reasonably safe, that, notwithstanding anything to the contrary in this
Lease, Landlord shall have no responsibility or liability to Tenant or
its employees, agents, consultants, guests or contractors for any
failure of or break down in security in the Building, or for any damage
or injury to person or property.
43. QUIET ENJOYMENT. Landlord covenants and agrees with Tenant that upon
Tenant's paying the rent required under this Lease and paying all other
charges and performing all of the covenants and provisions aforesaid on
Tenant's part to be observed and performed under this Lease, Tenant
shall and may lawfully, peaceably and quietly have, hold and enjoy the
Premises in accordance with this Lease without hindrance, disturbance
or ejection by Landlord or any other person claiming through Landlord.
44. CONFIDENTIALITY. Landlord and Tenant agree to keep the terms of this
Lease confidential except as reasonably necessary or appropriate in
connection with development, construction and operation of the
Development, and as each party may disclose to its professionals,
consultants and affiliates. Further, Landlord and Tenant expressly
agree that they and their respective agents and representatives are not
authorized to announce this Lease until Landlord and Tenant have
reviewed and approved any press releases or similar items to be
released by Landlord, its agents and representatives.
45. CONSENT/DUTY TO ACT REASONABLY. Whenever the consent of Landlord or
Tenant is required under the Lease, such consent shall not be
unreasonably withheld or delayed, unless another standard is
specifically stated otherwise herein. Notwithstanding anything in this
Lease to the contrary, Tenant acknowledges that Landlord may withhold
its consent and/or approval in its sole and absolute discretion with
respect to any proposed Tenant action which: (a) would have an adverse
effect on the structural integrity of the Building Structure (as
defined below); (b) is visible from the exterior of the Premises; (c)
would have an adverse effect on the Building Systems to abate or
reduce noise or vibrations which could affect other tenants in the
Building; (d) in Landlord's reasonable judgment might materially and
adversely affect the other tenant's use of the Common Areas or other
tenants in the Building or the Project or increase Landlord's cost to
operate the Building or Development, unless Tenant agrees to pay for
such increased costs; (e) would result in a violation of Applicable
Law, any recorded CC&Rs and/or REAs, or any Rules and Regulations
promulgated by Landlord from time to time, subject to the restrictions
set forth herein whereupon in each such case Landlord's duty is to act
in good faith and in compliance with the Lease.
Except as otherwise provided, whenever the Lease grants Landlord or
Tenant the right to take action, exercise discretion, establish rules
and regulations, or make an allocation or other determination (other
than decisions to exercise expansion, contraction, cancellation,
termination or renewal options), Landlord and Tenant shall reasonably
act in good faith and take no action which might result in the
frustration of the other party's reasonable expectations concerning the
benefits to be enjoyed under the Lease.
46. CONFLICT OF LAWS. This Lease shall be governed by and construed
pursuant to the laws of the State of California.
47. SUCCESSORS AND ASSIGNS. Except as otherwise provided in this Lease,
all of the covenants, conditions and provisions of this Lease shall be
binding upon and shall inure to the benefit of the parties hereto and
their respective heirs, personal representatives, successors and
assigns.
48. ATTORNEYS' FEES. If either party becomes a party to any litigation
concerning this Lease, the Premises, or the Development, by reason of
any act or omission of the other party or its authorized
representatives, and not by reason of any act or omission of the party
that becomes a party to that litigation, or any act or omission of its
authorized representatives, the prevailing party shall be entitled to
have and recover from the losing party reasonable attorneys' fees and
court costs. If either party commences any action against the other
party arising out of or in connection with this Lease, or institutes
any proceeding in a bankruptcy or similar court which has jurisdiction
over the other party or any or all of its property or assets, or
appeals from any judgment in favor of the other party, the prevailing
party shall be entitled to have and recover from the losing party
reasonable attorneys' fees and court costs.
49. WAIVER. The failure of either party to seek redress of, or to insist
upon the strict performance of, any term, covenant, condition or
agreement in this Lease or in the Rules and Regulations shall not be
deemed to be a waiver by such party of such breach or violation or
prevent a subsequent act by the other party from having the same force
and effect of any original violation or be deemed a waiver of any
subsequent breach of the same or any other term, covenant, condition
or agreement herein contained, nor shall any custom or practice which
may grow up between the parties in the administration of the terms
hereof be deemed a waiver of or in any way affect the right of any
party to insist upon the performance by the other party in strict
accordance with terms of this Lease. The subsequent acceptance of rent
hereunder by Landlord shall not be deemed to be a waiver of any
preceding breach by Tenant of any term, covenant or condition of this
Lease, other than the failure of Tenant to pay the particular rent so
accepted, regardless of Landlord's knowledge of such preceding breach
at the time of acceptance of such rent. No acceptance by Landlord of a
lesser sum than the basic rental and additional rent or other sum then
due shall be deemed to be other than on account of the earliest
installment of such rent or other amount due, nor shall any
endorsement or statement on any check or any letter accompanying any
check be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover
the balance of such installment or other amount or pursue any other
remedy in this Lease provided.
50. SEVERABILITY. Any provision of this Lease which shall prove to be
invalid, void or illegal in no way affects, impairs or invalidates any
other provision hereof, and such other provisions shall remain in full
force and effect.
51. TERMS AND HEADINGS. The words "Landlord" and "Tenant" as used herein
shall include the plural as well as the singular. Words used in one
gender include the other gender. The paragraph headings of this Lease
are not a part of this Lease and shall have no effect upon the
construction or interpretation of any part hereof.
52. TIME. Time is of the essence with respect to the performance of every
provision of this Lease in which time of performance is a factor.
Unless expressly stated otherwise, all reference to days means
calendar days.
53. PRIOR AGREEMENT; AMENDMENTS. This Lease contains all of the agreements
of the parties hereto with respect to any matter covered or mentioned
in this Lease, and no prior agreement or understanding pertaining to
any such matter shall be effective for any purpose. No provision of
this Lease may be amended or added to except by an agreement in writing
signed by the parties hereto or their respective
successors-in-interest.
54. TENANT AS CORPORATION. If Tenant executes this Lease as a corporation,
then Tenant and the persons executing this Lease on behalf of Tenant
represent and warrant that the individuals executing this Lease on
Tenant's behalf are duly authorized to execute and deliver this Lease
on its behalf in accordance with a duly adopted resolution of the board
of directors of Tenant, a copy of which is to be delivered to Landlord
on execution hereof, and in accordance with the bylaws of Tenant, and
that this Lease is binding upon Tenant in accordance with its terms.
55. APPROVALS. The submission of this Lease to Tenant or its broker or
other agent does not constitute an offer to Tenant to Lease the
Premises. This instrument shall have no force and effect until this
Lease has been executed and delivered by Tenant to Landlord and
executed by Landlord.
56. NO PARTNERSHIP OR JOINT VENTURE. Nothing in this Lease shall be deemed
to constitute Landlord and Tenant as partners or joint venturers. It
is the express intent of the parties hereto that their relationship
with regard to this Lease be and remain that of landlord and tenant.
57. RULE AGAINST PERPETUITIES. Anything in this Lease to the contrary
notwithstanding, all of the transactions and transfers contemplated by
this Lease, must be consummated, if at all, within the time permitted
by the rule against perpetuities, including codification thereof,
enforced in the State of California.
58. RIGHT TO TERMINATE.
58.1 Notwithstanding anything in either Lease Sections 23 or 24 to
the contrary, and except as expressly set forth in Subsection
(b) below, in the event that Tenant is notified or becomes
aware of the fact that:
(i) damage or destruction to the Premises, the Parking
Area and/or the Building or any part thereof so as to
interfere substantially with Tenant's use of the
Premises, the Parking Area and/or the Building;
(ii) a taking by eminent domain or exercise of other
governmental authority of the Premises, the Parking
Area and/or the Building or any part thereof so as to
interfere substantially with Tenant's use of the
Premises, the Parking Area and/or the Building;
(iii) the inability of Landlord to provide services to the
Premises, the Parking Area and/or the Building so as
to interfere substantially with Tenant's use of the
Premises, the Parking Area and/or the Building; or
(iv) any discovery of hazardous substances in, on or
around the Premises, the Building and/or the Project
not placed in, on or around the Premises, the
Building and/or the Project by Tenant, that may,
considering the nature and amount of the substances
involved, interfere with Tenant's use of the Premises
or which present a health risk to any occupants of
the Premises) (each of the items set forth in
provision (a)(i),(ii), (iii) and (iv) being referred
to herein as a "Trigger Event"), and as a result
thereof, Tenant cannot, within twelve (12) months
("Non-Use Period") of the occurrence of the Trigger
Event, be given reasonable use of, and access to, a
fully repaired and restored (subject to changes
required by Applicable Law) Premises,the Parking Area
and Building (except for minor "punch-list" items
(i.e., items which are not so substantial that they
prevent Tenant from having reasonable use and access
to the Premises, Parking Area or Building) which will
be repaired promptly thereafter), and the utilities
and services pertaining to the Premises, the Parking
Area and the Building, all suitable for the efficient
conduct of Tenant's business therefrom, and Tenant
does not use the Premises, Parking Area and Building
during such Non-Use Period, then Tenant may elect to
exercise an ongoing right to terminate the Lease upon
ten (10) days' written notice sent to Landlord at any
time following the expiration of the Non-Use Period.
58.2 In the event of any Trigger Event occurring during the last
year of the Lease Term (as may be extended by any option to
extend granted herein), should the Non-Use Period continue for
sixty (60) days, Tenant may elect to exercise an on-going
right to terminate the Lease upon ten (10) days' written
notice sent to Landlord at any time following the expiration
of the Non-Use Period.
59. INTEREST RATE. The "Interest Rate" is defined as the lesser of (a) (2%)
in excess of the prime reference rate of interest established for
commercial loans announced publicly by Bank of America at its San
Francisco Headquarters, adjusted monthly on the first (1st) business
day of each month to the then effective rate, such adjustment to be
effective for the following month (or, if such bank ceases to exist,
the rate publicly announced from time to time, by the largest (as
measured by deposits) chartered bank operating in California as its
Prime Rate, Reference Rate or other similar benchmark, plus two percent
(2%)); or (b) the maximum rate permitted by law.
60. REFERENCES. All personal pronouns used in this Lease, whether used in
the masculine, feminine or neuter gender, shall include all other
genders; the singular shall include the plural, and vice versa, and
references to "party" or "parties" shall refer solely to the parties
signatory hereto except where otherwise specifically provided. All
references in this Lease to Sections or Subparagraphs shall refer to
the corresponding Section or Subparagraph of this Lease unless
specific reference is made to another document or instrument. The use
herein of the words "including" or "include" when following any
general statement, term or matter shall not be construed to limit such
statement, term or matter to the specific items or matters set forth
immediately following such word or to similar items or matters,
whether or not nonlimiting language (such as "without imitation," or
"but not limited to," or words of similar import) is used with
reference thereto, but rather shall be deemed to refer to all other
items or matters that would reasonably fall within the broadest
possible scope of such general statement, term or matter. The term
"and/or" when used herein shall be construed to include every possible
construction with "and" alone and every possible construction with
"or" alone. All references to "mortgage" and "mortgagee" shall include
deeds of trust and beneficiaries under deeds of trust, respectively.
All Exhibits referenced herein and attached to this Lease are hereby
incorporated in this Lease by this reference. If there is more than
one Tenant, the obligations under this Lease imposed on Tenant shall
be joint and several. The captions preceding the Sections and
Subparagraphs of this Lease have been inserted solely as a matter of
convenience and such captions in no way define or limit the scope or
intent of any provision of this Lease.
61. RECOVERY AGAINST LANDLORD. Tenant shall look solely to Landlord's
interest in the Building for the recovery of any judgment against
Landlord. Landlord, or if Landlord is a partnership, its partners
whether general or limited, or if Landlord is a corporation, its
directors, officers and shareholders, shall never be personally liable
for any such judgment. Any lien obtained to enforce any such judgment
and any levy of execution thereon shall be subject and subordinate to
all ground leases, or underlying leases, and the liens of all mortgages
or deeds of trust referred to herein.
62. MEMORANDUM OF LEASE AND OPTION AGREEMENT. Concurrently with the
execution of this Lease, Landlord shall execute and have its signature
notarized on, a "Memorandum of Lease and Option Agreement" in the form
of Exhibit "J" attached hereto and incorporated herein. Tenant shall
also execute and notarize the Memorandum of Lease and Option Agreement,
and shall cause the same to be recorded in the Official Records of Los
Angeles County.
IN WITNESS WHEREOF, the parties have executed this Lease as of the date
first above written.
LANDLORD:ACD2, a California corporation
By:___________________________
Print name: _______________
Title: ____________________
TENANT: AMWEST INSURANCE GROUP, INC.,
a Delaware corporation
By:___________________________
Print name: _______________
Title: ____________________
By:___________________________
Print name: _______________
Title: ____________________
EXHIBIT 10.25
OPTION AGREEMENT
BETWEEN
ACD2,
a California corporation,
OPTIONOR
AND
AMWEST INSURANCE GROUP, INC.,
a Delaware corporation
OPTIONEE
CALABASAS COMMERCE CENTER, BUILDING 6
<PAGE>
TABLE OF CONTENTS
Page
1. Grant of Option 1
2. Exercise of Option 2
3. Property Information, Access and Inspection 3
4. Purchase Price 8
5. Escrow Instructions 10
A. Opening of Escrow 10
B. Documents and Funds to be Delivered 10
C. Conditions to Close 13
D. Recordation and Transfer 14
E. Close of Escrow 15
F. Title Insurance Policy 15
G. Prorations 15
H. Optionor's Cooperation With Optionee 16
I. Costs 16
J. Failure to Close 16
6. Nominee/Assignment 17
7. Optionor's Representations and Warranties 17
A. Power and Authority of Optionor 17
B. Validity of Agreement 18
C. Leases and Rent Roll 18
D. Contracts 18
E. Hypothecation of Property Income 18
F. Operating Statements. 18
G. Hazardous Substances 19
H. Litigation 19
I. Compliance with Laws. 20
J. Land Use Regulations 20
K. Other Written Contracts 20
L. True Copies 20
M. Insolvency 21
N. Personal Property; Intangible Rights
and Warranties 21
O. Optionor's Knowledge 21
8. Optionee's Representations and Warranties 21
A. Power of Authority of Optionee 22
B. Validity of Agreement 22
9. Change in Condition of Property 22
10. Covenants of Optionor and Optionee 23
A. Covenants of Optionor 23
B. Sale of Property 24
11. Recordation of Memorandum of Option 24
12. Waiver of Performance 24
13. Section Headings 25
14. Notices 25
15. Property "As Is" 26
A. Side Letter Agreement 26
B. No Other Side Agreements of
Representations 26
C. AS IS CONDITION 26
16. Governmental Approvals 27
17. Determination of Land Value 28
18. Counterparts 30
19. Governing Law 30
20. Attorneys' Fees and Costs 30
21. Prior Agreements 30
22. Further Assurances 30
23. Successors and Assigns 30
24. Possession. 30
25. Severability 31
26. Performance Due on Non-Business Day 31
27. Amendments 31
EXHIBITS
Exhibit A Legal Description of the Land
Exhibit B Estoppel Certificate
Exhibit C Purchase Price Calculation
Exhibit D Grant Deed
Exhibit E Assignment of Leases
Exhibit F Bill of Sale
Exhibit G Assignment and Assumption of Service Contracts
Exhibit H Assignment of Intangible Property
Exhibit I ss.1445 Affidavit
Exhibit J California Real Estate Withholding Exemption Certificate
Exhibit K Title Insurance Commitment
Exhibit L Side Letter Agreement
<PAGE>
OPTION AGREEMENT
THIS OPTION AGREEMENT (this "Agreement") is executed as of the
24th day of January, 1996 by ACD2, a California corporation ("Optionor"), and
AMWEST INSURANCE GROUP, INC., a Delaware corporation ("Optionee"), with
reference to the following facts:
A. Optionor, as Landlord, and Optionee, as Tenant, are
concurrently herewith entering into that certain Office Building Lease (the
"Lease"), pursuant to which Optionee has agreed to lease initially from Optionor
approximately 64,543 rentable square feet (the "Premises") in Building 6 (the
"Building") to be constructed by Optionor together with the exclusive right to
the use of certain parking spaces in the parking facilities related to the
Building (the "Parking Area") and the non-exclusive right to use, in common with
other tenants in the Building and the Development (as defined below), the Common
Areas (as defined in the Lease) on the land described on Exhibit "A" attached
hereto (the "Land") and which will be part of a larger business park known as
the Calabasas Commerce Center (the "Project") in Calabasas, California. The
Building, together with the Land, the Common Areas and all other easements,
rights-of-way and licenses are known as and shall be referred to herein as the
"Development". The Development is a portion of the Project. All capitalized
terms used but not defined herein shall have the meaning given thereto in the
Lease.
B. Optionee is to enter into possession of the Premises for an
initial lease term of fifteen (15) years (the "Initial Term"), with two (2) five
(5) year extension options. The Initial Term and any extension options exercised
by Optionee are collectively referred to herein as the "Lease Term."
C. Optionor now desires to grant to Optionee and Optionee
desires to accept an option to acquire the Property (as defined in Section 1
below) on the terms and conditions contained herein. It is the intention of the
parties hereto that, upon exercise of the option granted herein, this Agreement
shall act as the purchase agreement for the sale of the Property to Optionee.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein and for other good and valuable consideration, the receipt
of which is hereby acknowledged, the parties hereto agree as follows:
1. Grant of Option.
In consideration of One Hundred and No/100 Dollars ($100.00)
and other good and valuable consideration, receipt of which is hereby
acknowledged, Optionor grants to Optionee the exclusive right and option (the
"Option") to purchase the following:
(a) The Land;
(b) All rights, privileges, easements and rights of
way appurtenant to the Land, including, without limitation, all
mineral, oil and gas and other subsurface rights, development rights,
air rights, and water rights (the "Appurtenances");
(c) All improvements, fixtures and personal property
located on the Land at the time of the exercise of the Option owned by
Optionor, including, without limitation, the Building, the Parking Area
and related landscaping, all apparatus, equipment and appliances owned
by Optionor and used in connection with the operation or occupancy
thereof, such as heating and air conditioning systems and facilities
used to provide any utility services, parking services, refrigeration,
ventilation, trash disposal, recreation or other services thereto
(collectively, the "Improvements");
(d) All of the interest of Optionor in any and all
contracts, rights, warranties, guaranties, agreements, utility
contracts and deposits, approvals (governmental or otherwise), surveys,
plans and specifications, other rights relating to the construction,
ownership, use and operation of all or any part of the Land and
Improvements and any agreements, covenants or indemnifications received
by Optionor from a prior owner or any other third party relating to the
Land, Appurtenances or Improvements (collectively, the "Intangible
Property"), all to the extent assignable and to the extent approved by
Optionee, all of which shall be assigned to Optionee pursuant to an
assignment described herein below; and
(e) All of the interest of Optionor in all leases,
lease amendments, exhibits, addenda and riders thereto including,
without limitation, any contracts, operating leases, rental agreements,
licenses or similar instruments creating a possessory interest in the
Property (as defined below), lease guaranties, work letter agreements
which will survive the Close of Escrow (as hereinafter defined), side
letter agreements, improvement agreements, subleases, assignments,
licenses, concessions and other agreements which will survive the Close
of Escrow (collectively, the "Leases") with all persons leasing, using
or occupying the Land or the Improvements or any part thereof.
The Land, the Appurtenances, the Improvements, the
Intangible Property and the Leases are hereinafter collectively referred
to as the "Property."
2. Exercise of Option.
(a) Exercise of Option by Optionee. The Option may be
exercised by Optionee at any time between the thirty-sixth (36th) and
forty-second (42nd) months of the Initial Term (the "Option Period") by
delivering written notice of such exercise to Optionor in accordance
with Section 14 hereof (the "Option Exercise Notice") along with
Optionee's determination of "Land Value" as defined and described in
Section 17 below. The Close of Escrow (as defined in Section 5.E.
below) shall occur one hundred twenty (120) days from the date Optionee
delivers the Option Exercise Notice, or such other date as mutually
agreed in writing by Optionor and Optionee. Notwithstanding the
foregoing, in the event Optionor and Optionee are unable to agree upon
a Land Value by the "Outside Agreement Date" (as defined in Section 17
below), the Close of Escrow shall occur on the later to occur of: (i)
the one hundred twentieth (120th) day following the date Optionee
delivers the Option Exercise Notice; or (ii) the thirtieth (30th) day
following the date the Land Value is determined following arbitration
proceedings as described in Section 17 below ("Land Value Determination
Date"), or such other date as mutually agreed in writing by Optionor
and Optionee.
(b) Exercise of Put Option by Optionor. If Optionor
intends to sell the Property to a third party at any time following the
Commencement Date and prior to expiration of the Option Period,
Optionor shall have the right to "put" the Option to Optionee by giving
written notice to Optionee of such intention ("Put Notice") along with
Optionor's determination of Land Value and Optionee shall have thirty
(30) days after the Land Value Determination Date in which to elect to
exercise the Option in accordance with Section 14 hereof (the
"Put/Option Exercise Notice"). If Optionee elects to so exercise the
Option, the Close of Escrow shall occur sixty (60) days following
delivery by Optionee to Optionor of the Put/Option Exercise Notice. If
Optionee fails to elect to exercise the Option within such thirty (30)
day period, Optionor shall have one hundred eighty (180) days from the
Land Value Determination Date to close a sale of the Property to a
third party buyer unaffiliated with Optionor on terms acceptable to
Optionor. If Optionor fails to close such a sale within said one
hundred eighty (180) day period, Optionee shall again have the Option
under all of the same terms and conditions set forth herein.
3. Property Information, Access and Inspection.
In order to assist Optionee in determining whether to exercise
the Option:
(a) Optionor shall promptly deliver to Optionee, upon
written request, at any time between the thirty-second (32nd) and
forty-second (42nd) months of the Initial Term or following delivery of
a Put Notice, the following information (or an update of such
information if previously delivered to Optionee):
(i) A current CLTA preliminary title report
with a full legal description of the Land and legible
copies of all documents referred to therein
(collectively the "PTR") from Chicago Title Company
(the "Title Company").
(ii) To the extent in Optionor's possession,
or readily available to Optionor, true and complete
copies of the following as they relate to the
Property:
(A) surveys;
(B) site plans, parking plans,
as-built plans, grading plans, and the
plans, specifications and design documents
related to the Improvements;
(C) drawings, specifications,
engineering and architectural studies and
similar documents, maps, topographical maps,
soils reports and construction testing
documents:
(D) warranties and guarantees,
provided same are in full force and effect;
(E) draft and final studies,
reports, surveys and assessments relating to
the environmental condition of the Property
or any property within the vicinity of the
Property, including, without limitation, any
soils, toxics and hazardous waste
(including, without limitation, asbestos)
reports;
(F) correspondence, applications,
permits and other communications to or from
any governmental or quasi-governmental
agency in connection with any Hazardous
Substances (as hereinafter defined) or the
environmental condition of the Property or
any property within the vicinity of the
Property;
(G) notifications required by
applicable law to be provided to any tenant
or any other party as a result of the
condition of the Property, if applicable
(including, without limitation, notices
relating to Hazardous Substances on or near
the Property; and
(H) building, occupancy and use
permits and approvals and any other
governmental licenses, permits or approvals
for the Property or the equipment used in
connection with the Property;
(iii) a list setting forth (as of the time
the list is prepared):
(A) to the best of Optionor's actual
knowledge, all current and past uses of the
Property by Optionor or any tenant, licensee
or occupant of the Property during
Optionor's ownership or occupancy of the
Property;
(B) to the best of Optionor's actual
knowledge, all uses of the Property by any
prior "Owner or Operator" of the Property
(as that phrase is defined in CERCLA (as
hereinafter defined);
(C) to the best of Optionor's actual
knowledge, all Hazardous Substances
currently or previously used, generated,
stored, transported to, transported from, or
disposed of on the Property by any current
or prior "Owner or Operator" of the Property
or any other person (whether legal or
illegal, accidental or intentional);
(D) to the best of Optionor's actual
knowledge, the location or former location
on or under the Property of all storage
tanks, leach pits, clarifier pits and other
storage or treatment facilities, if any;
(E) to the best of Optionor's actual
knowledge, the location of any Hazardous
Substances disposed of on the Property by
Optionor, if any (whether legal or illegal,
accidental or intentional);
(F) to the best of Optionor's actual
knowledge, the location of any Hazardous
Substances from the Property disposed of
off-site, if any (whether legal or illegal,
accidental or intentional);
(G) to the best of Optionor's actual
knowledge, the location of any release (as
that term is defined under the Environmental
Laws (as hereinafter defined)) of any
Hazardous Substances either on the Property
or on property located within two thousand
(2,000) feet of the Property;
(iv) a list and complete copies (as of the
time prepared) of all written contracts, agreements
or other documents affecting the Property which would
survive the Close of Escrow including, without
limitation, service contracts, maintenance contracts,
management contracts, employment contracts, union
contracts, retirement plans (including information
relating to unfunded obligations), warranties and
indemnity agreements;
(v) a schedule setting forth an inventor
of any personal property which would be delivered to
Optionee at the Close of Escrow;
(vi) any and all Leases and proposed leases
(if any) currently being negotiated (collectively,
the "Proposed Leases") affecting the Property which
would not be terminated prior to the Close of Escrow,
including all amendments and supplements thereto;
(vii) complete copies of the property tax
bills for the Property for the most recent three (3)
years or, if Optionor has not owned the Property for
three (3) years, then for the period of Optionor's
ownership;
(viii) a rent roll for the Property (the
"Rent Roll"), current up through the date it is
delivered, certified to be true and correct by
Optionor, which shall set forth the following
information: (a) the commencement date of each Lease;
(b) the name and location of the tenant under each
Lease and any guarantor thereof; (c) the monthly
rental and all adjustments to the basic rent,
including any free rent periods; (d) any option
rights, including, without limitation, any right to
renew, extend or terminate; (e) any expansion or
contraction rights and information relating thereto
including, without limitation, conditions precedent
to the exercise of such rights, and the term and
scope of such rights; (f) the base year and relevant
percentage, if any, for purposes of calculating
additional rent based upon operating costs, as well
as the number of rentable square feet leased by each
tenant that is used in calculating such percentage
and the basis upon which such rentable square footage
is calculated; (g) whether the tenant is current in
its payment of rental or, to the best of Optionor's
knowledge, is otherwise in material default; (h) the
name of any broker entitled to any commission under
any of the Leases as a result of rentals, the
exercise of options or otherwise and the amount of
commissions payable thereto and the dates upon which
such commissions are payable; (i) the expiration date
of the term of each Lease; (j) the number and
location of any parking spaces allocated to any
tenant and the rate paid therefor (if any); (k) the
amount of any security deposits, prepaid rent or
other deposits; and (l) the amount of rentable square
footage in the Improvements not occupied by tenants
and the basis upon which such rentable square footage
is calculated;
(ix) Annual operating statements for the
Property from the date of completion of the
Improvements to date, or the last three (3) years,
whichever is shorter, covering all items of operation
of the Property, including, without limitation,
taxes, common area maintenance fees (if any), and
utilities, and the source and nature of all income
from operations of the Property for such periods,
together with all appropriate back-up information
reasonably requested by Optionee, and a schedule of
all Improvements made and capital costs incurred; and
(x) such other documents or information
regarding the Property in Optionor's possession or
readily available to Optionor as Optionee reasonably
requests. Notwithstanding any provision in this
Section 3(a), Optionor shall not be obligated to
disclose to Optionee any proprietary, privileged or
confidential information of Optionor relating to the
Property, including but not limited to, Optionor's
internal financial analyses, Optionor's credit
analyses and collection plans, and any documents or
communications subject to the attorney/client
privilege. Furthermore, it is understood by the
parties hereto that Optionor does not make any
representation or warranty, express or implied, as to
the accuracy or completeness of any information
contained in Optionor's files or in the documents or
lists produced by Optionor which were not prepared by
Optionor, including, without limitation, documents or
lists prepared by unaffiliated third party
consultants, such as environmental audits or reports.
Optionee acknowledges that Optionor and Optionor's
affiliates shall have no responsibility for the
contents and accuracy of such disclosures from
parties other than Optionor, and Optionee agrees that
the obligations of Optionor in connection with the
purchase of the Property shall be governed by this
Agreement and the documents and certifications
prepared by Optionor and delivered to Optionee
pursuant to this Agreement irrespective of the
contents of any such disclosures from documents
prepared by parties other than Optionor or the timing
or delivery thereof.
(b) In the event Optionee desires to assess whether
or not to exercise the Option, Optionee may inspect and approve the
physical condition of the Property, at Optionee's sole cost and
expense, prior to the expiration of the Option Period. The parties
agree that Optionee shall have the right to inspect the Property and to
make the investigations set forth herein. Subject to the rights of
tenants in possession, Optionee and its agents, employees and
contractors shall be afforded full access to any portion of the
Property during normal business hours following at least three (3)
calendar days' prior notice from Optionee to Optionor for the purpose
of making such investigations as Optionee deems prudent with respect to
the physical condition of the Property, including, without limitation,
engineering studies, seismic tests, environmental studies (including,
without limitation, surface and subsurface tests, borings, samplings
(including, without limitation, soil, groundwater and asbestos
sampling) and measurements) and a survey of the Property.
Notwithstanding the foregoing, no invasive testing or boring shall be
done without the prior notification of Optionor and Optionor's written
permission of the same, which permission shall not be unreasonably
withheld, conditioned or delayed by Optionor. Optionee may conduct such
feasibility studies as Optionee deems reasonably necessary and
investigate all matters relating to the zoning, use and compliance with
other applicable laws which relate to the use and occupancy of the
Property and any proposed impositions, assessments or governmental
regulations affecting the Property. Optionor shall reasonably cooperate
to assist Optionee in completing such inspections, provided, however,
Optionor shall not be obligated to incur any costs or expenses in
connection with such cooperation. Optionee shall promptly repair any
damage to the Property caused by its inspections and investigations.
Optionee shall hold harmless, defend and indemnify Optionor and
Optionor's officers, directors, shareholders, participants, affiliates,
employees, representatives, invitees, agents and contractors
(collectively, "Indemnified Parties") from and against all claims,
damages, liens, stop notices, liabilities, losses, costs and expenses,
including reasonable attorneys' fees and court costs arising from any
such entry and activities on the Property by Optionee, its agents,
employees and contractors. Notwithstanding the foregoing, Optionee
shall not be liable to Indemnified Parties, nor shall Optionee have any
obligation to hold harmless, defend or indemnify Indemnified Parties
from any liability, costs, damage or claims (including, without
limitation, claims that the Property has declined in value) which are
related to (i) pre-existing adverse conditions affecting the Property
except such pre-existing adverse conditions as were caused by Optionee
as a tenant of the Property, (ii) Optionor's negligence or willful
misconduct, or (iii) Optionee's discovery of any information
potentially having a negative impact on the Property (including,
without limitation, any claims arising out of, resulting from or
incurred in connection with the discovery of any Hazardous Substances
on or about the Property). The Optionee's indemnification obligations
set forth herein shall survive the termination of this Agreement shall
survive the Close of Escrow and shall not be merged with any grant
deed. Furthermore, Optionee shall obtain or cause its consultants to
obtain, at Optionee's sole cost and expense prior to any investigative
activities relating to the Property, a policy of commercial general
liability insurance covering any and all liability of Optionee and
Optionor with respect to or arising out of any investigative
activities. Such insurance policy shall be in form and substance and
issued by an insurance company reasonably satisfactory to Optionor and
contain liability limits in an amount reasonably satisfactory to
Optionor.
(c) If there are any tenants of the Property other
than Optionee, upon written request by Optionee, Optionor shall use its
best efforts to cause each such other tenant to deliver to Optionee a
full and complete estoppel certificate (or an update thereof if
previously delivered to Optionee), in the form attached hereto as
Exhibit "B" (the "Estoppel Certificate"), executed by each such other
tenant. If Optionor is unable to obtain the Estoppel Certificate from
all such other tenants, Optionor shall deliver to Optionee a landlord
estoppel certificate for any such other tenant certifying to the
matters which would have been contained in the Estoppel Certificate.
4. Purchase Price.
The total purchase price ("Purchase Price") for the Property
shall be an amount equal to:
(i) the lesser of:
(y) the actual cost of constructing the
Building shell and core and Tenant Improvements (as
defined in the Lease), including applicable plans,
permits and fees, as qualified and quantified in the
attached Exhibit "C" ("Project Cost") or (z)
$7,572,482,
less
(a) the amount, if any, by which $25.00 per
rentable square foot of Expansion Premises (as
defined in the Lease) exceeds the actual amount
expended on real property tenant improvements in the
Expansion Premises approved by Optionee;
less
(b) the actual costs and expenses, if any,
of removing Hazardous Substances or remediating any
condition relating to the presence or release of
Hazardous Substances on or about the Property which
were known by Optionor to exist as of the
Commencement Date (as defined in the Lease) and which
have not been removed or remediated as of the Land
Value Determination Date;
plus
(ii) Land Value, as determined pursuant to
Section 17 below;
plus
(iii) the actual costs and expenses of Optionor
(which are not covered or reimbursed by any insurance coverage on the
Property), if any, of repairing, restoring or reconstructing the
Property following a fire, earthquake, flood, accident or other
casualty;
plus
(iv) the actual costs and expenses of Optionor, if
any, of repairing, upgrading, or improving the Property after the
completion of the Improvements and the issuance of a Certificate of
Occupancy, which are required by the adoption or implementation of any
law, regulation, or policy of any governmental entity or authority or
are agreed to by Optionee;
plus
(v) the actual costs and expenses, if any, of
removing Hazardous Substances or remediating any condition relating to
the presence or release of Hazardous Substances on or about the
Property which either Optionor did not know to exist as of the
Commencement Date or which were not directly caused by Optionor.
Upon the Commencement Date, Optionor shall calculate
the Purchase Price for the Property (except for Land Value) and deliver
a detailed accounting of such calculation to Optionee, in form and
substance acceptable to Optionee. Furthermore, Optionor shall
recalculate the Purchase Price for the Property (except for Land Value)
concurrently with its delivery of any Put Notice and on or before the
date the Option Period commences, and Optionor shall deliver a detailed
accounting of such calculation to Optionee, in form and substance
acceptable to Optionee. In the event Optionor incurs any costs and
expenses after the date of the commencement of the Option Period, or
following delivery of a Put Notice to Optionee, which entitles Optionor
to adjust the Purchase Price, Optionor shall promptly recalculate the
Purchase Price for the Property (except for Land Value) and deliver a
detailed accounting of such calculation to Optionee, in form and
substance acceptable to Optionee. Optionee, at its sole cost and
expense, may cause the books, records, receipts and expenses of
Optionor to be audited in connection with the determination of the
Purchase Price. If Optionee disagrees with Optionor's determination of
the Purchase Price (except for Land Value) and the parties cannot reach
an agreement, then upon written notice from Optionee to Optionor the
determination of the Purchase Price (including Land Value) shall be
decided by binding arbitration as provided in Section 17 below and the
qualifications of the arbitrators shall include at least five (5) years
experience in the appraisal of first class office buildings in the
Calabasas area. The cost of such arbitration shall be split between the
parties equally. Optionee shall have the right, in its sole and
absolute discretion, to elect whether or not to exercise its Option to
purchase the Property or to complete its acquisition of the Property,
whichever is applicable, if the Purchase Price is not acceptable to
Optionee.
5. Escrow Instructions.
A. Opening of of Escrow. As soon as
reasonably practicable following determination of the Land Value and
Optionee's election to close the transaction, the parties shall open an
escrow (the "Escrow") at Chicago Title Company located at 700 South
Flower Street, Suite 900, Los Angeles, California 90017 or at such
other escrow company as the parties shall mutually select (the "Escrow
Holder"), in order to consummate the purchase in accordance with the
terms and provisions hereof. A copy of this Agreement shall be
deposited in the Escrow and the provisions hereof shall constitute
joint primary escrow instructions to the Escrow Holder; provided,
however, that the parties shall execute such additional instructions as
requested by the Escrow Holder not inconsistent with the provisions
hereof.
B. Documents and Funds to be
and Funds to be Delivered. The following shall be delivered into the
Escrow in connection with the transfer of the Property:
(1) Delivery by Optionor. At least two (2)
business days prior to the Closing Date (as
hereinafter defined), Optionor shall deposit into
Escrow:
(a) a grant deed (the "Deed") to the
Land, Appurtenances and Improvements in
recordable form, duly executed by Optionor
and acknowledged and in substantially the
same form as set forth in Exhibit "D"
attached hereto;
(b) If there are any tenants of the
Property other than Optionee, three (3)
originals of an assignment and assumption of
Leases and security deposits (the "Lease
Assignment"), duly executed in counterpart
by Optionor assigning to Optionee Optionor's
interest and rights, as lessor, under all of
the Leases and security deposits in
substantially the same form as set forth in
Exhibit "E" attached hereto;
(c) three (3) originals of a bill of
sale (the "Bill of Sale"), duly executed by
Optionor, pursuant to which Optionor shall
quitclaim, without any representations or
warranties, except as otherwise provided in
this Agreement all of Optionor's right,
title and interest, if any, in all personal
property, owned by Optionor used exclusively
in connection with the Property in
substantially the same form as set forth in
Exhibit "F" attached hereto;
(d) three (3) originals of an
assignment and assumption of service
contracts (the "Service Contracts
Assignment"), duly executed in counterpart
by Optionor, assigning to Optionee, without
any representations or warranties except as
otherwise provided in this Agreement, and
subject to the right of consent of any third
parties where consent is necessary to the
transfer thereof, Optionor's right, title
and interest, if any, in all service
contracts which will remain in effect after
the Close of Escrow in substantially the
same form as set forth in Exhibit "G"
attached hereto;
(e) three (3) originals of an
assignment of intangible property (the
"Assignment of Intangible Property"), duly
executed in counterpart by Optionor,
conveying to Optionee, without any
representations or warranties except as
otherwise provided in this Agreement, all of
Optionor's right, title and interest in and
to the Intangible Property in substantially
the same form as set forth in Exhibit "H"
attached hereto;
(f) three (3) originals of an
affidavit from Optionor which satisfies the
requirements of Section 1445 of the Internal
Revenue Code, as amended (the "Section 1445
Affidavit") in substantially the same form
as set forth in Exhibit "I" attached hereto;
(g) An original California Real
Estate Withholding Exemption Certificate
("California Affidavit") in substantially
the same form as set forth in Exhibit "J"
attached hereto;
(h) a certificate reconfirming
Optionor's representations and warranties as described in
Section 7 below; and
(i) such other instruments and
documents as may be reasonably requested by
Escrow Holder or Optionee and are reasonably
required to transfer the Property to
Optionee in accordance with this Agreement.
(2) Delivery by Optionee. At least one
(1) business day prior to the Closing Date,
Optionee shall deposit into Escrow:
(a) If applicable, three (3)
originals of the Lease Assignment, duly
executed in counterpart by Optionee,
assuming Optionor's interest and obligations
as lessor under the Leases;
(b) If applicable, three (3)
originals of the Service Contracts
Assignment, duly executed in counterpart by
Optionee, assuming Optionor's interest and
obligations under the service contracts
which will remain in effect after the Close
of Escrow;
(c) three (3) originals of the
Assignment of Intangible Property, duly
executed in counterpart by Optionee,
assuming Optionor's interest in and
obligations with respect to the Intangible
Property;
(d) a certificate reconfirming
Optionee's representations and warranties as
described in Section 8 below; and
(e) such other instruments and
documents as may be reasonably requested by
Escrow Holder or Optionor and are reasonably
required to transfer the Property to
Optionee in accordance with this Agreement.
(3) Further Delivery by Optionee. Upon the
Closing Date, Optionee shall deliver into Escrow by
certified or cashier's check if acceptable to Escrow
Holder (or a wire transfer of immediately available
funds) the amount of the Purchase Price as adjusted
and prorated herein, plus such additional sums as
shall be necessary to pay the expenses payable by
Optionee hereunder.
(4) Closing Statement. At least five (5)
business days prior to the Close of Escrow, Escrow
Holder shall deliver to Optionor and Optionee a pro
forma closing statement which sets forth the
prorations and other credits and debits contemplated
by this Agreement, which closing statement shall be
subject to the approval of Optionor and Optionee
prior to the Close of Escrow.
C. Conditions to Close.
(1) Optionee. Escrow shall not close unless
and until the following conditions precedent and contingencies
have been satisfied or waived in writing by Optionee:
(a) All instruments described
in this Section 5 have been delivered to the
Escrow Holder;
(b) On the Closing Date, Optionor
shall not be in material default in the
performance of any material covenant or
agreement to be performed by Optionor under
this Agreement or the Lease;
(c) On the Closing Date, all
material representations and warranties made
by Optionor in Section 7 hereof shall be
true and correct as if made on and as of the
Closing Date;
(d) The Title Company is in a
position to issue to Optionee an ALTA policy
of title insurance for the Property as set
forth in Subsection E below;
(2) Optionor. Escrow shall not close unless
and until the following conditions precedent and contingencies
have been satisfied or waived in writing by Optionor:
(a) All funds and instruments
described in this Section 5 have been
delivered to the Escrow Holder;
(b) On the Closing Date, Optionee
shall not be in material default in the
performance of any material covenant or
agreement to be performed by Optionee under
this Agreement or the Lease; and
(c) On the Closing Date, all
material representations and warranties made
by Optionee in Section 8 hereof shall be
true and correct as if made on and as of the
Closing Date.
D. Recordation and and
Transfer. Upon satisfaction of the conditions set forth in Section 5
above, Escrow Holder shall transfer the Property as follows:
(1) Cause the Grant Deed to be recorded
in the Official Records of Los Angeles County, California;
(2) Deliver to (a) Optionee at least one
fully executed original of the Lease Assignment (if any), the
Service Contracts Assignment, the Bill of Sale, the Assignment
of Intangible Property, the Section 1445 Affidavit, the
California Affidavit and at least one conformed copy of the
recorded Grant Deed, (b) Optionor at least one fully executed
original of the Lease Assignment (if any), the Service
Contracts Assignment, the Bill of Sale, the Assignment of
Intangible Property, the Section 1445 Affidavit, the
California Affidavit and at least one conformed copy of the
recorded Grant Deed, and (c) the parties entitled thereto any
other closing documents;
(3) Disburse all funds deposited with Escrow
Holder by Optionee in payment of the Purchase Price for the
Property as follows:
(a) to the extent that Optionor is a
foreign person pursuant to Section 1445 of
the Internal Revenue Code of 1986, as
amended, and is not otherwise exempt from
such section's withholding requirements,
withhold the cash equivalent of ten percent
(10%) of the Purchase Price (unless some
lesser amount is authorized by the Internal
Revenue Service);
(b) to the extent that Optionor is a
non-California resident pursuant to Revenue
and Taxation Code Sections 18805 and 26131,
and is not otherwise exempted from such
sections withholding requirements, withhold
the cash equivalent of three and one-third
percent (3-1/3%) of the Purchase Price
(unless some lesser amount is authorized by
the Franchise Tax Board);
(c) deduct the amount of all
items chargeable to the account of Optionor
pursuant hereto;
(d) deliver to Optionor the
remaining portion of the Purchase Price
pursuant to instructions to be delivered by
Optionor to Escrow Holder;
(e) deduct the amounts of all
items chargeable to Optionee;
(f) disburse the remaining balance
of the funds deposited by Optionee to
Optionee promptly upon the Close of Escrow
pursuant to instructions to be delivered by
Optionee to Escrow Holder;
(4) If appropriate, deliver the
California Affidavit to the California
Franchise Tax Board.
E. Close of of Escrow. Subject to the
terms and provisions of this Agreement, the transaction contemplated by
this Agreement shall close ("Close of Escrow or Closing Date") on or
before the date set forth in Section 2(a) or 2(b) above, whichever is
applicable, unless otherwise extended pursuant to the terms of this
Agreement or in writing by mutual agreement between Optionee and
Optionor. If the Closing Date does not fall on a Tuesday, Wednesday or
Thursday, Escrow shall close on the Tuesday following such date. Upon
the Close of Escrow, the Lease shall automatically terminate.
F. Title Insurance Insurance Policy. Upon
the transfer of the Property, title to the Property shall be insured by
an ALTA policy of title insurance issued by the Title Company with
liability in the amount of the Purchase Price and including title
endorsement nos. 103.3 and 103.7, insuring title to the Property to be
vested in Optionee or Optionee's nominee, subject only to current real
estate taxes not delinquent, exceptions to title described on
Optionee's title insurance commitment dated as of January 23, 1996
issued by Title Company (the "Option Policy"), a copy of which is
attached hereto as Exhibit "K", and all other matters of record
approved in writing by Optionee.
G. Prorations.
(1) As of the Close of Escrow, all real and
personal property taxes based on the most recent property tax
bills available, rents, issues and profits from the Property,
utilities, and such other matters as the parties shall agree
to be prorated.
(2) All bonds or special assessments against
the Property due before the Close of Escrow shall be paid by
Optionor and all bonds or special assessments due after the
Close of Escrow, which relate to events occurring prior to the
Close of Escrow, shall be prorated as of the Close of Escrow.
(3) All past due rent (including operating
expense pass throughs) shall for purposes of proration be
deemed received by Optionor except rent due by Optionee or its
affiliates for which Optionor shall receive a credit at Close
of Escrow; provided, however, Optionee agrees to use its good
faith efforts (without litigation) to obtain and promptly
deliver to Optionor all past due rents accrued prior to the
Close of Escrow from any tenants of the Property other than
Optionee.
(4) Rentals and operating expense pass
throughs received by Optionee shall first be credited to
current obligations, and when those are satisfied, then to
past due obligations owed to Optionor which shall be promptly
paid to Optionor by Optionee.
(5) Any supplementary tax bills received by
Optionee following the Close of Escrow relating to a period
prior to the Close of Escrow shall be prorated by the parties
as if said tax bills had been available at the Close of
Escrow.
(6) Security and other deposits and unused
portions of advance rentals, if any, actually paid by any
tenant and received by Optionor under any of the Leases shall
be transferred to Optionee upon the Close of Escrow without
additional consideration by Optionee.
(7) Prepaid expenses, the benefits of which
are enjoyed by Optionee after Close of Escrow, such as
advertising expenses and utility charges.
H. Optionor's Cooperation With Optionee
Optionor agrees to cooperate with Optionee
in providing for an orderly transition in utility service for the
Property. In this connection, Optionor agrees, upon receipt of a
request from Optionee, to continue the utility service for the Property
in Optionor's name but at Optionee's expense for a period not to exceed
five (5) business days following the Close of Escrow.
I. Costs. Optionor and Optionee shall each pay
one half (1/2) of the Escrow fees. Optionor shall pay for the costs of
obtaining a CLTA policy of title insurance, all documentary or other
transfer taxes, sales taxes, deed preparation and recordation charges.
Optionee shall pay for the cost of the premium for the difference
between an ALTA policy of title insurance and a CLTA policy of title
insurance, any survey prepared for Optionee in connection with the
issuance of an ALTA policy of title insurance, and any endorsements
requested by Optionor in connection with any title insurance coverage
for the Property not described in Sub-Section F above. Each party shall
pay its own attorneys' fees and other expenses incurred by it in
connection herewith. Each party shall pay for any and all other title
or closing charges necessary to close Escrow pursuant to the local
customs of the County of Los Angeles. Concurrently with the execution
of this Agreement, the Title Company has issued to Optionee the Option
Policy at Optionee's sole expense. Optionee shall receive a credit
against the Purchase Price for any credit given by the Title Company
against the title insurance premium which otherwise would be owed by
Optionor under this Sub-Section I.
J. Failure to Close. If for any
reason this transaction fails to close after Optionee exercises the
Option including, without limitation, due to a failure of any condition
set forth above, except for a default by Optionee under this Agreement,
then this Agreement shall remain in full force and effect and Optionee
may elect to exercise the Option at a future date so long as Optionee
exercises the Option between the thirty-sixth (36th) and forty-second
(42nd) months of the Initial Term.
6. Nominee/Assignment.
Optionee shall have the right to designate a nominee to take
title to the Property, or assign its rights hereunder, by delivering written
notice thereof to Optionor at least five (5) business days prior to the Closing;
provided, however, (i) such assignee or nominee shall be an affiliate of
Optionee or such other entity which has succeeded to the rights of Optionee
under this Agreement and/or under the Lease and (ii) such assignment or
substitution shall not relieve Optionee of its obligations hereunder.
7. Optionor's Representations and Warranties.
Optionor hereby covenants that the following representations
and warranties of Optionor are true as of the date of this Agreement and shall
be true and correct as of the Closing. Representations and warranties as to
Improvements, Intangible Property, Leases and the operation of the Improvements
shall only be applicable and shall be true and correct as of the completion of
the Improvements and as of the Closing. It is hereby expressly understood and
agreed that all liability of Optionor for breach of the representations and
warranties contained in this Section 7 shall terminate if no written claim of
breach, specifying the representation or warranty allegedly breached and the
supporting evidence for the alleged breach, shall be delivered to Optionor on or
prior to the date which is one (1) year following the Closing Date. Optionor
shall reconfirm the following representations and warranties as of the Closing
or disclose in writing to Optionee any exceptions thereto which exist as of the
date of the new certificate. The sale of the Property to Optionee pursuant to
this Agreement shall be, except as provided in this Agreement, "as-is,"
"where-is," "with all faults" and without warranties, implied or expressed.
A. Power and Authority of Optionor.
Optionor is a corporation duly organized and validly
existing under the laws of the State of California and duly qualified
to conduct business activities in the State of California. Optionor has
the requisite right, power and authority to enter into and carry out
the terms of this Agreement and the execution and delivery hereof and
of all other instruments referred to herein. The performance by
Optionor of Optionor's obligations hereunder will not violate or
constitute an event of default under the terms and provisions of any
material agreement, document or instrument to which Optionor is a party
or by which Optionor is bound. All proceedings required to be taken by
or on behalf of Optionor to authorize it to make, deliver and carry out
the terms of this Agreement have been duly and properly taken. No
further consent of any person or entity is required in connection with
the execution and delivery of, or performance by Optionor of its
obligations under this Agreement, including, without limitation, the
consent or approval of any bankruptcy or other court having
jurisdiction over Optionor or the Property.
B. Validity of Agreement.
This Agreement is a valid and binding obligation of Optionor,
enforceable against Optionor in accordance with its terms.
C. Leases and Rent Roll. The
copies of the Leases delivered to Optionee pursuant to this Agreement
are true and correct copies thereof. The Leases are in full force and
effect. The Leases are the only leases affecting the Property which
will not be terminated as of the Closing and the tenants under the
Leases are the only tenants thereof. To the best of Optionor's actual
knowledge, there are no other agreements, written or oral, with respect
to the tenancies, or the Improvements. There are no material defaults
by Optionor under any of the Leases nor have events occurred which with
notice or passage of time, or both, would constitute a material event
of default by Optionor thereunder. Except as disclosed to Optionee in
writing, there are no material defaults by any tenant under any of the
Leases which is known to Optionor, nor have events occurred which with
notice or the passage of time, or both, would constitute a material
event of default by such tenant thereunder which is known to Optionor.
Optionor has not made any previous assignment, transfer or other
disposition of all or any part of its interest in any of the Leases
(except in connection with financing the Property and which has been
disclosed to Optionee) and there are no encumbrances by Optionor
covering the Leases that will survive the Closing. The information
contained in the Rent Roll is true, complete and correct as of the date
the Rent Roll was delivered to Optionee and shall be revised as
necessary to be true, complete and correct as of the Closing. The Rent
Roll shall specify the amount of the Property's operating expenses
which are passed through to the Property's tenant(s) in accordance with
generally accepted accounting principles consistently applied.
D. Contracts. The copies of the contracts,
if any, delivered to Optionee pursuant to this Agreement are true,
complete and correct copies of all such contracts and to the best of
Optionor's actual knowledge there are no other contracts relating to
the Property. To the best of Optionor's actual knowledge, there are no
defaults thereunder by Optionor or, by any other parties thereto which
is known to Optionor except as disclosed to Optionee in writing, and
there exists no condition that, with the passage of time, the giving of
notice, or both, would constitute such a default by Optionor or, by any
other parties thereto which is known to Optionor except as disclosed to
Optionee in writing.
E. Hypothecation
of Property Income. Optionor has not hypothecated the rents or income
from the Property in any manner other than in accordance with the terms
of any loans (which loans shall be discharged in full by Optionor at
the Closing).
F. Operating Statements.
The copies of the operating statements for the Property delivered by
Optionor to Optionee are true, complete and correct copies of the
originals thereof, and accurately show all income and expenses of the
Property in all material respects, for the periods indicated.
G. Hazardous Substances. To the
best of Optionor's actual knowledge, except as disclosed to Optionee in
writing or otherwise discovered by Optionee prior to the Closing Date:
(i) no Hazardous Substances are present in, on or under the Property;
and (ii) Optionor has never used the Property or any part thereof, and
has never permitted any person to use the Property or any part thereof,
for the production, processing, manufacture, generation, treatment,
handling, storage or disposal of Hazardous Substances, and no
underground storage tanks of any kind are located in, on or under the
Property, nor, were any underground storage tanks previously located
in, on or under the Property; and (iii) no notice of any order,
directive, complaint or other written communication, has been made or
issued by any governmental or quasi-governmental agency nor has
Optionor received a written notice from any other third party alleging
the occurrence of any activity on the Property in violation of any
applicable Environmental Laws (as hereinafter defined) or demanding
payment or contribution for environmental damage or injury to the
Property.
As used in this Agreement, the following definitions
shall apply: "Environmental Laws" shall mean all federal, state and
local laws, ordinances, rules and regulations now or hereafter in
force, as amended from time to time, in any way relating to or
regulating human health or safety, or industrial hygiene or
environmental conditions, or protection of the environment, or
pollution or contamination of the air, soil, surface water or
groundwater, and includes, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42
U.S.C. ss. 9601, et seq. ("CERCLA"), the Resource Conservation and
Recovery Act, 42 U.S.C. ss. 6901, et seq., the Clean Water Act, 33
U.S.C. ss. 1251, et seq. "Hazardous Substance(s)" shall mean any
substance or material that is described as a toxic or hazardous
substance, waste or material or a pollutant or contaminant or
infectious waste, or words of similar import, in any of the
Environmental Laws, and includes asbestos, petroleum or petroleum
products (including crude oil or any fraction thereof, natural gas,
natural gas liquids, liquefied natural gas, or synthetic gas usable for
fuel, or any mixture thereof), polychlorinated biphenyls, urea
formaldehyde, radon gas, radioactive matter, medical waste, and
chemicals which may cause cancer or reproductive toxicity. "Release"
shall mean any spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching, dumping or disposing into
the environment including continuing migration, of Hazardous Substances
into or through soil, air, surface water or groundwater.
H. Litigation. To the best of Optionor's
actual knowledge, except as disclosed to Optionee in writing or
otherwise discovered by Optionee prior to the Closing Date, there are
no pending or, to the best of Optionor's actual knowledge, contemplated
actions, suits, arbitrations, claims or proceedings, at law or in
equity, affecting all or any portion of the Property or in which
Optionor is or will be a party by reason of its ownership of the
Property, including, without limitation, judicial, municipal or
administrative proceedings in eminent domain, unlawful detainer or
tenant evictions, collections, alleged building code, health and safety
or zoning violations, personal injuries or property damages alleged to
have occurred on the Property or by reason of the condition or use of
the Property.
I. Compliance with Laws. To the
best of Optionor's actual knowledge, except as disclosed to Optionee in
writing or otherwise discovered by Optionee prior to the Closing Date,
(i) the Property is being operated in full compliance with all federal,
state and local building, zoning, planning, handicapped (including,
without limitation, the Americans with Disabilities Act), parking,
health and insurance laws and regulations and (ii) no notices of
violation of or exemptions from governmental regulations relating to
the Property or Optionor have been issued to, served upon, received by
or entered against Optionor.
J. Land Use Regulations. To the
best of Optionor's actual knowledge, except as disclosed to Optionee in
writing or otherwise discovered by Optionee prior to the Closing Date,
Optionor has not received any written notice of any condemnation,
environmental, planning, zoning or other land use regulation adversely
affecting the Property or any part thereof.
K. Other Written Contracts.
To the best of Optionor's actual knowledge, Optionor has not entered
into any other contracts for the sale of the Property, nor do there
exist any rights of first refusal or options to purchase the Property.
L. True Copies. To the best of Optionor's
actual knowledge, all documents to be submitted to Optionee for
Optionee's approval pursuant to this Agreement will be true, correct
and complete copies thereof as of the date of submission thereof and as
of the Close of Escrow, and all supplements or additions will be true,
correct and complete copies thereof as of the date submitted and as of
the Close of Escrow. Optionor has no actual knowledge of any material
error, misrepresentation or inconsistency with any of the documents or
supplemental documents delivered to Optionee pursuant to this
Agreement. Notwithstanding any of the foregoing, Optionor makes no
representation or warranty, express or implied, as to the accuracy or
completeness of any document prepared by any party other than Optionor,
including, without limitation, unaffiliated third party consultants.
M. Insolvency. This Agreement is the
product of an arms-length transaction. Optionor has not taken any
action relating to the Property which would invalidate this transaction
or the transfer of the Property to Optionee. Optionor is currently
solvent, and shall not be rendered insolvent by virtue of the sale of
the Property to Optionee, and Optionor has not otherwise taken any
action which may subject Optionor to applicable bankruptcy or similar
laws affecting the rights of creditors generally.
N. Personal Property; Intangible Rights and
Warranties. Except
in connection with the financing of the Property or as disclosed to
Optionee in writing or otherwise discovered by Optionee prior to the
Closing Date, Optionor has not made any previous assignments, sales or
conveyances of any personal property covered by this Agreement and
there are no encumbrances covering any such personal property which
will survive the Closing. Except in connection with the financing of
the Property and as disclosed to Optionee in writing or otherwise
discovered by Optionee prior to the Closing Date, Optionor has not made
any previous assignment, transfer or disposition of all or any part of
its interest in the Intangible Property or any warranties relating to
the Property (the "Warranties").
O. Optionor's Knowledge. As used
anywhere in this Agreement the term "to the best of Optionor's actual
knowledge" refers to the actual knowledge of Richard G. Newman, Vice
President of Lowe Development Company, and Robert Noble, Executive Vice
President of Home Savings of America (collectively, "Seller's
Representatives") without the obligation to undertake any investigation
or inquiry. Optionor represents that each of Seller's Representatives
has been involved with the Property for approximately the past two (2)
years.
The representations and warranties set forth in this
Section 7 are solely for the benefit of Optionee and/or the nominee or
assignee of Optionee as described in Section 6 above.
8. Optionee's Representations and Warranties.
Optionee hereby covenants that the following representations
and warranties of Optionee are true and shall be true and correct as of the
Closing. It is expressly understood and agreed that all liability of Optionee
for breach of the representations and warranties contained in this Section 8
shall terminate if no written claim of breach, specifying the representation or
warranty allegedly breached and the supporting evidence for the alleged breach,
shall be delivered to Optionee on or prior to the date which is one (1) year
following the Closing Date. Optionee shall reconfirm the following
representations and warranties as of the Closing or disclose in writing to
Optionor any exceptions thereto which exist as of the date of the new
certificate:
A. Power of Authority
of Optionee. Optionee is a corporation duly organized and existing
under the laws of the State of Delaware and duly qualified to conduct
business activities in the State of California. Optionee has the
requisite power and authority to enter into and carry out the terms of
this Agreement and the execution, performance and delivery hereof and
of all other agreements and instruments referred to herein to be
executed, performed or delivered by Optionee and the performance by
Optionee of Optionee's obligations hereunder will not violate or
constitute an event of default under the terms and provisions of any
material agreement, document or instrument to which Optionee is a party
or by which Optionee is bound. All proceedings required to be taken by
or on behalf of Optionee to authorize it to make, deliver and carry out
the terms of this Agreement have been duly and properly taken. No
further consent of any person or entity is required in connection with
the execution and delivery of, or performance by Optionee of its
obligations under this Agreement.
B. Validity of Agreement. This
Agreement is a valid and binding obligation of Optionee, enforceable
against Optionee in accordance with its terms, subject to the effect of
applicable bankruptcy, insolvency, reorganization, or other similar
laws affecting the rights of creditors generally.
9. Change in Condition of Property.
Optionor covenants and agrees to advise Optionee of any
material change in the physical condition of the Property (ordinary wear and
tear excepted), or of any damage or destruction to the Property, or upon receipt
of any notice regarding the condemnation of the Property or any portion thereof
("Change in Condition").
In the event that, after the exercise of the Option and prior
to the Closing any material portion of the Property is destroyed or damaged,
Optionor shall immediately notify Optionee of such damage and inform Optionee if
it intends to repair such damage. If Optionor elects to repair the damage, the
Closing shall be extended until the repairs are completed. If Optionor notifies
Optionee that it does not intend to repair such damage, Optionee shall have the
right, exercisable by giving notice of such decision to Optionor within fifteen
(15) calendar days after receiving such written notice from Optionor, to elect
not to acquire the Property, in which case this Agreement shall terminate. If
Optionee elects to accept the Property in its then condition, all proceeds of
insurance payable to Optionor by reason of such damage or destruction shall be
paid or assigned to Optionee.
If, after the exercise of the Option, Optionor receives notice
of any pending action by any federal, state, local or other agency concerning
any material violation of any law, statute, ordinance or regulation affecting
the Property, (a) Optionor may elect to correct such violation at Optionor's
expense prior to the Closing, and shall notify Optionee of such violation and
Optionor's intended action within ten (10) calendar days after receipt of such
notice; (b) if Optionor desires to correct such violation but if such correction
cannot be accomplished prior to the Closing, Optionor shall notify Optionee of
such violation and its desire to correct such violation and shall thereupon
commence and diligently prosecute the same to completion, at Optionor's sole
cost and expense, as promptly as possible and the Closing shall be delayed until
completion of such correction, or (c) Optionor shall submit such notice to
Optionee and notify Optionee that Optionor does not intend to correct such
violation. Within ten (10) calendar days of receipt of such notice not to cure,
Optionee may elect to acquire the Property subject to such violation or such
matters or requirements, respectively, or Optionee may elect not to acquire the
Property, in which case this Agreement shall terminate. Any work required to be
performed by Optionor pursuant to the terms of this Agreement shall be performed
in accordance with all applicable laws in effect at the time such work is
performed.
If, after the exercise of the Option and prior to the Closing,
Optionor receives written notice of a pending condemnation proceeding concerning
any portion of the Property, Optionor shall promptly deliver to Optionee written
notice of such pending condemnation. In such event, Optionee shall have the
option to acquire the Property upon written notice to Optionor delivered not
later than ten (10) days after receipt of Optionor's notice. If Optionee does
not elect to acquire the Property, this Agreement shall terminate. In the event
Optionee does elect to acquire the Property, Optionor shall assign and turn over
to Optionee all awards for the taking by eminent domain which accrue to Optionor
pursuant to an assignment between Optionor, as assignor, and Optionee, as
assignee, and containing terms and conditions reasonably acceptable to Optionee,
and the parties shall proceed to the Closing pursuant to the terms hereof,
without modification of the terms of this Agreement and without any reduction in
the Purchase Price.
10. Covenants of Optionor and Optionee.
A. Covenants of Optionor. From
and after the date hereof and until the Closing or the earlier
expiration of the Option or termination of this Agreement, Optionor
shall do the following, in addition to the covenants set forth
elsewhere in this Agreement:
(i) Not permit or suffer to exist any
encumbrance, charge or lien to be placed or claimed upon the
Property unless such encumbrance, charge or lien has been
approved in writing by Optionee or unless such monetary
encumbrance, charge or lien would be removed by Optionor prior
to the Closing;
(ii) Promptly notify Optionee in writing if
any of the representations and warranties set forth in this
Agreement are no longer true and correct in any material
respect; and
(iii) Not sell, lease, convey, assign,
transfer or otherwise dispose of the Property including,
without limitation, the Leases, and the Improvements, or any
part thereof or interest therein, without the prior written
consent of Optionee, which consent shall not be unreasonably
withheld by Optionee with respect to a new Lease for the
Expansion Premises but which may be withheld by Optionee in
its sole and absolute discretion with respect to a sale of all
or a portion of the Property unless Optionor exercises its
"put" right under Section 2 of this Agreement with respect to
such sale.
B. Sale of Property. Subject to
subsection (iii) above, if Optionee consents to the sale of all or any
portion of the Property, then (i) such sale shall be made subject to
the Option and this Agreement, (ii) the Purchase Price shall not
include any of the costs incurred by Optionor or such purchaser in
connection with the sale of the Property and (iii) such purchaser shall
be bound by the terms of this Agreement. Following any such approved
sale, the Purchase Price shall continue to be calculated as provided in
this Agreement. Prior to the sale of the Property to such purchaser,
Optionor shall deliver to Optionee all of the documentation and
information described in Section 3 above. Upon sale of the Property to
such purchaser, Optionor and Optionee shall calculate the Purchase
Price as of such date and such purchaser shall be bound by the agreed
amount of costs and expenses incurred by Optionor and agreed to by
Optionee as of such date.
11. Recordation of Memorandum of Option.
As soon as reasonably practicable following mutual execution
of this Agreement, the parties shall record a memorandum of this Agreement in a
form reasonably acceptable to Optionor and Optionee, in the Official Records of
the Los Angeles County Recorder's Office.
12. Waiver of Performance.
Either party may waive the satisfaction or performance of any
conditions or agreements in this Agreement which have been inserted for its own
and exclusive benefit, so long as the waiver is signed (unless the Agreement
provides for a non-written waiver) and specifies the waived condition or
agreement and is delivered to the other party hereto and the Escrow Holder.
13. Section Headings.
The section headings of this Agreement are for the purposes of
reference only and shall not be used for limiting or interpreting the meaning of
any section.
14. Notices.
All notices under this Agreement shall be in writing and shall
be effective upon receipt whether delivered by personal delivery or recognized
overnight delivery service, telecopy, or sent by United States registered or
certified mail, return receipt requested, postage prepaid, addressed to the
respective parties as follows:
If to Optionor:
ACD2
c/o Ahmanson Commercial Development Company
4900 Rivergrade Road
Department 713
Irwindale, California 91706
Attention: Mr. Robert Noble
With a copy to:
Paul Hastings Janofsky & Walker
555 South Flower Street, 23rd Floor
Los Angeles, California 90071
Attention: M. Guy Maisnik, Esq.
If to Optionee:
Amwest Insurance Group, Inc.
6320 Canoga Avenue, Suite 300
Woodland Hills, CA 91365-4500
Attention: Steven R. Kay
Senior Vice President
Chief Financial Officer
With a copy to:
Pillsbury Madison & Sutro LLP
725 South Figueroa Street, Suite 1200
Los Angeles, California 90017
Attention: John W. Whitaker, Esq.
Any party can notify the other party of their change of
address by notifying the other party in writing of the new address.
15. Property "As Is"
A. Side Letter Agreement.
Attached hereto as Exhibit "L" and incorporated herein by this
reference is a copy of the Side Letter Agreement of even date herewith
(the "Side Letter Agreement") between Optionor and Optionee clarifying
certain matters relating to the Declaration of Covenants, Conditions
and Restrictions for Calabasas Commerce Center II which affects the
Property.
B. No Other Side Agreements of Representations.
No person acting on behalf of
Optionor is authorized to make, and by execution hereof, Optionee
acknowledges that no person has made any representation, agreement,
statement, warranty, guarantee or promise regarding the Property or the
transaction contemplated herein or the zoning, construction, physical
condition or other status of the Property except as set forth in the
Side Letter Agreement or as may be expressly set forth in this
Agreement. No representation, warranty, agreement, statement, guarantee
or promise, if any, made by any person acting on behalf of Optionor
which is not contained in this Agreement or the Side Letter Agreement
will be valid or binding on Optionor.
C. AS IS CONDITION. OPTIONEE
ACKNOWLEDGES AND AGREES THAT, EXCEPT AS SPECIFICALLY PROVIDED IN
SECTION 7 HEREIN OR IN THE SIDE LETTER AGREEMENT, OPTIONOR HAS NOT
MADE, DOES NOT MAKE AND SPECIFICALLY NEGATES AND DISCLAIMS ANY
REPRESENTATIONS, WARRANTIES, PROMISES, COVENANTS, AGREEMENTS OR
GUARANTIES OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS OR
IMPLIED, ORAL OR WRITTEN, PAST, PRESENT OR FUTURE, OF, AS TO,
CONCERNING OR WITH RESPECT TO (I) VALUE; (II) THE INCOME TO BE DERIVED
FROM THE PROPERTY; (III) THE SUITABILITY OF THE PROPERTY FOR ANY AND
ALL ACTIVITIES AND USES WHICH OPTIONEE MAY CONDUCT THEREON, INCLUDING
THE POSSIBILITIES FOR FUTURE DEVELOPMENT OF THE PROPERTY; (IV) THE
HABITABILITY, MERCHANTABILITY, MARKETABILITY, PROFITABILITY OR FITNESS
FOR A PARTICULAR PURPOSE OF THE PROPERTY; (V) THE MANNER, QUALITY,
STATE OF REPAIR OR LACK OF REPAIR OF THE PROPERTY; (VI) THE NATURE,
QUALITY OR CONDITION OF THE PROPERTY, INCLUDING, WITHOUT LIMITATION,
THE WATER, SOIL AND GEOLOGY; (VII) THE COMPLIANCE OF OR BY THE PROPERTY
OR ITS OPERATION WITH ANY LAWS, RULES, ORDINANCES OR REGULATIONS OF ANY
APPLICABLE GOVERNMENTAL AUTHORITY OR BODY; (VIII) THE MANNER OR QUALITY
OF THE CONSTRUCTION OR MATERIALS, IF ANY, INCORPORATED INTO THE
PROPERTY; (IX) COMPLIANCE WITH ANY ENVIRONMENTAL PROTECTION, POLLUTION
OR LAND USE LAWS, RULES, REGULATION, ORDERS OR REQUIREMENTS, INCLUDING
BUT NOT LIMITED TO, TITLE III OF THE AMERICANS WITH DISABILITIES ACT OF
1990, CALIFORNIA HEALTH & SAFETY CODE, THE FEDERAL WATER POLLUTION
CONTROL ACT, THE FEDERAL RESOURCE CONSERVATION AND RECOVERY ACT, THE
U.S. ENVIRONMENTAL PROTECTION AGENCY REGULATIONS AT 40 C.F.R., PART
261, THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND
LIABILITY ACT OF 1980, AS AMENDED, THE RESOURCE CONSERVATION AND
RECOVERY ACT OF 1976, THE CLEAN WATER ACT, THE SAFE DRINKING WATER ACT,
THE HAZARDOUS MATERIALS TRANSPORTATION ACT, THE TOXIC SUBSTANCE CONTROL
ACT, AND REGULATIONS PROMULGATED UNDER ANY OF THE FOREGOING; (X) THE
PRESENCE OR ABSENCE OF HAZARDOUS MATERIALS AT, ON, UNDER, OR ADJACENT
TO THE PROPERTY; (XI) THE CONTENT, COMPLETENESS OR ACCURACY OF THE DUE
DILIGENCE MATERIALS DISCLOSED BY OR ON BEHALF OF OPTIONOR TO OPTIONEE
OR PRELIMINARY TITLE REPORT REGARDING TITLE; (XII) THE CONFORMITY OF
THE IMPROVEMENTS TO ANY PLANS OR SPECIFICATIONS FOR THE PROPERTY,
INCLUDING ANY PLANS AND SPECIFICATIONS THAT MAY HAVE BEEN OR MAY BE
PROVIDED TO OPTIONEE; (XIII) THE CONFORMITY OF THE PROPERTY TO PAST,
CURRENT OR FUTURE APPLICABLE ZONING OR BUILDING REQUIREMENTS; (XIV)
DEFICIENCY OF ANY UNDERSHORING; (XV) DEFICIENCY OF ANY DRAINAGE; (XVI)
THE FACT THAT ALL OR A PORTION OF THE PROPERTY MAY BE LOCATED ON OR
NEAR AN EARTHQUAKE FAULT LINE; (XVII) THE EXISTENCE OF VESTED LAND USE,
ZONING OR BUILDING ENTITLEMENTS AFFECTING THE PROPERTY; OR (XVIII) WITH
RESPECT TO ANY OTHER MATTER. OPTIONEE FURTHER ACKNOWLEDGES AND AGREES
THAT HAVING BEEN GIVEN THE OPPORTUNITY TO INSPECT THE PROPERTY AND
REVIEW INFORMATION AND DOCUMENTATION AFFECTING THE PROPERTY, EXCEPT AS
SPECIFICALLY PROVIDED IN SECTION 7 HEREIN OR IN THE SIDE LETTER
AGREEMENT OPTIONEE IS RELYING SOLELY ON ITS OWN INVESTIGATION OF THE
PROPERTY AND REVIEW OF SUCH INFORMATION AND DOCUMENTATION, AND NOT ON
ANY INFORMATION PROVIDED OR TO BE PROVIDED BY OPTIONOR. OPTIONEE
FURTHER ACKNOWLEDGES AND AGREES THAT CERTAIN INFORMATION MADE AVAILABLE
TO OPTIONEE WITH RESPECT TO THE PROPERTY WAS OBTAINED FROM UNAFFILIATED
THIRD PARTY CONSULTANTS AND THAT OPTIONOR HAS NOT MADE ANY INDEPENDENT
INVESTIGATION OR VERIFICATION OF SUCH INFORMATION AND MAKES NO
REPRESENTATIONS AS TO THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION.
OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT TO THE MAXIMUM EXTENT
PERMITTED BY LAW, EXCEPT AS SPECIFICALLY PROVIDED IN SECTION 7 HEREIN
OR IN THE SIDE LETTER AGREEMENT THE SALE OF THE PROPERTY AS PROVIDED
FOR HEREIN IS MADE ON AN "AS IS" CONDITION AND BASIS WITH ALL FAULTS,
AND THAT OPTIONOR HAS NO OBLIGATIONS TO MAKE REPAIRS, REPLACEMENTS OR
IMPROVEMENTS EXCEPT AS MAY OTHERWISE BE EXPRESSLY STATED HEREIN OR IN
THE LEASE.
------------------------- ----------------------------
OPTIONOR'S INITIALS OPTIONEE'S INITIALS
16. Governmental Approvals. Nothing
contained in this Agreement shall be construed as authorizing Optionee to apply
for a zone change, variance, subdivision maps, lot line adjustment, or other
discretionary governmental act, approval or permit with respect to the Property
prior to the Close of Escrow, and Optionee agrees not to do so without
Optionor's prior written approval, which approval may be withheld in Optionor's
sole and absolute discretion. Optionee agrees not to submit any reports, studies
or other documents, including, without limitation, plans and specifications,
impact statements for water, sewage, drainage or traffic, environmental review
forms, or energy conservation checklists to any governmental agency, or any
amendment or modification to any such instruments or documents prior to the
Close of Escrow unless first approved by Optionor, which approval Optionor may
withhold in Optionor's reasonable discretion. Optionee's obligation to purchase
the Property shall not be subject to or conditioned upon Optionee's obtaining
any variances, zoning amendments, subdivision maps, lot line adjustment or other
discretionary governmental act, approval or permit.
17. Determination of Land Value.
Optionee shall provide notice of Optionee's determination of Land Value (as
defined below) concurrently with its delivery to Optionor of the Option Exercise
Notice. Optionor shall have fifteen (15) days ("Optionor's Review Period") after
receipt of Optionee's notice within which to accept Optionee's determination of
Land Value or to object reasonably thereto in writing and set forth Optionor's
determination of Land Value. If Optionor so objects, Optionee and Optionor shall
attempt in good faith to agree upon such Land Value, using their best good faith
efforts. If Optionee and Optionor fail to reach agreement within fifteen (15)
days from and after Optionor's Review Period ("Outside Agreement Date"), then
each party's determination shall be submitted to arbitration consistent with the
procedures outlined below. Failure of Optionor to so elect in writing within
such period shall be deemed its acceptance of the Land Value as determined by
Optionee.
The procedure shall be reversed in the event Optionor delivers
to Optionee a Put Notice. Optionor shall provide to Optionee Optionor's
determination of Land Value concurrently with its delivery to Optionee of the
Put Notice, and Optionee shall have fifteen (15) days ("Optionee's Review
Period") after receipt of the Put Notice and Optionor's determination of Land
Value within which to accept Optionor's determination of Land Value or to object
reasonably thereto in writing and set forth Optionor's determination of Land
Value. If Optionee so objects, Optionee and Optionor shall attempt in good faith
to agree upon such Land Value, using their best good faith efforts. If Optionee
and Optionor fail to reach agreement within fifteen (15) days from and after
Optionee's Review Period (also known as the "Outside Agreement Date"), each
party's determination shall be submitted to arbitration consistent with the
procedures outlined below. Failure of Optionee to so elect in writing within
such period shall be deemed its acceptance of the Land Value as determined by
Optionor.
The arbitration procedure for calculating Land Value where the
parties are unable to agree upon Land Value shall be as follows:
(i) Not later than fifteen (15) days from and after
the applicable Outside Agreement Date, Optionor and Optionee shall each
appoint one arbitrator who shall by profession be a real estate
appraiser, which appointee shall have been active over the five (5)
year period ending on the date of such appointment in the appraisal of
unimproved land in the Calabasas area. The determination of the third
arbitrator described below shall be limited solely to the issue of
whether Optionor's or Optionee's submitted Land Value is the closest to
the actual Land Value, as determined by the arbitrator, based upon what
a willing purchaser would pay and a willing seller would accept at
arm's length, for the Land as if it were unimproved land and not
subject to the Lease or the Option ("Land Value").
(ii) The two arbitrators so appointed shall within
fifteen (15) days of the date of the appointment of the last appointed
arbitrator agree upon and appoint a third arbitrator who shall be
qualified under the same criteria set forth herein above for
qualification of the initial two arbitrators. Upon appointment of the
third arbitrator, Optionor and Optionee shall each submit to the third
arbitrator in a sealed envelope their respective determinations of the
Land Value as previously submitted to the other together with any
relevant supporting documentation.
(iii) The third arbitrator shall make an independent
appraisal of the Land Value, shall then review the determination of
Land Value and supporting documentation submitted by Optionor and
Optionee in the sealed envelopes and within sixty (60) days of his
appointment reach a decision as to whether the parties shall use
Optionor's or Optionee's submitted Land Value, and shall notify
Optionor and Optionee thereof. The determination of Land Value shall
conform with the then generally accepted appraisal standards, which is
currently evidenced by the Uniform Standards of Professional Appraisal
Practice promulgated by the Appraisal Standards Board of the Appraisal
Foundation, except that comparable unimproved land located in
Calabasas, Agoura Hills and Westlake Village shall be emphasized to the
extent such comparables are available.
(iv) The decision of the third arbitrator shall be
binding upon Optionor and Optionee.
(v) If either Optionor or Optionee fails to appoint
an arbitrator within fifteen (15) days after the applicable Outside
Agreement Date, the arbitrator timely appointed by one of them shall
reach a decision, notify Optionor and Optionee thereof, and such
arbitrator's decision shall be binding upon Optionor and Optionee.
(vi) If the two arbitrators fail to agree upon and
appoint a third arbitrator within the required fifteen (15) day period,
or if the third arbitrator fails to reach a decision within sixty (60)
days of his appointment, at the election of either party prior to the
date that a decision is made, both arbitrators shall be dismissed,
Optionor and Optionee within fifteen (15) days thereafter shall each
appoint another arbitrator with the same qualifications as are set
forth in subparagraph (i) above and the above process shall again take
place until a third arbitrator reaches a decision within sixty (60)
days of his appointment.
(vii) The cost of arbitration shall be paid by
Optionor and Optionee equally.
18. Counterparts.
This Agreement may be executed in several counterparts and all
such executed counterparts shall constitute one agreement, binding on all of the
parties hereto, notwithstanding that all of the parties hereto are not
signatories to the original or to the same counterpart. This Agreement shall not
be binding unless and until all parties hereto have executed the Agreement.
19. Governing Law.
The validity, construction and operational effect of
this Agreement shall be governed by the laws of the State of California.
20. Attorneys' Fees and Costs.
In any action between the parties hereto seeking the
enforcement of any of the terms and provisions of this Agreement, or in
connection with the Property, the prevailing party in such action shall be
awarded, in addition to damages, injunctive or other relief, its reasonable
costs and expenses, and reasonable attorneys' fees.
21. Prior Agreements.
This Agreement supersedes any and all oral or written
agreements between the parties hereto regarding the acquisition of the Property
which are prior in time to this Agreement. Neither Optionee nor Optionor shall
be bound by any prior understanding, agreement, promise, representation or
stipulation, express or implied, not specified herein.
22. Further Assurances.
Optionee and Optionor agree to execute all documents and
instruments reasonably required in order to consummate the purchase and sale
herein contemplated.
23. Successors and Assigns.
This Agreement shall be binding upon and shall inure to the
benefit of permitted successors and assigns of the parties hereto.
24. Possession.
Optionor shall deliver possession of the Property to Optionee
as of the Closing, including all keys in Optionor's possession and originals of
documents delivered hereunder, such possession being subject only to rights of
tenants in possession under the Leases.
25. Severability.
If any portion of this Agreement is held to be unenforceable
by a court of competent jurisdiction, the remainder of this Agreement shall
remain in full force and effect.
26. Performance Due on Non-Business Day
If the time period for the performance of any act called for
under this Agreement expires on a Saturday, Sunday, or any other day in which
banking institutions in the State of California are authorized or obligated by
law or executive order to close ("Holiday"), the act in question may be
performed on the next succeeding day that is not a Saturday, Sunday or a
Holiday.
27. Amendments.
This Agreement may be amended only by written agreement signed
by both of the parties hereto.
IN WITNESS WHEREOF, Optionor and Optionee have executed this
Agreement as of the date first above written.
Optionee:
AMWEST INSURANCE COMPANY,
a Delaware corporation
By: ______________________
Title: ___________________
Optionor:
ACD2,
a California corporation
By:_______________________
Title: ___________________
EXHIBIT 23.1
The Board of Directors
Amwest Insurance Group, Inc.:
We consent to the use of our reports incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus.
Los Angeles, California
February 7, 1996
EXHIBIT 23.2
(Included in Exhibit 5.1)
EXHIBIT 24.1
(Included on Signature Page)
PROXY AMWEST INSURANCE GROUP, INC.
PROXY
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS, MARCH 14, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS for the
Special Meeting of Stockholders to be held on March 14, 1996 at 9:00 A.M., Los
Angeles time, at the Warner Center Hilton, 6360 Canoga Avenue, Woodland Hills,
California 91367.
The undersigned hereby acknowledges receipt of the Notice of Special
Meeting of Stockholders and the accompanying Joint Proxy Statement/Prospectus of
Amwest Insurance Group, Inc. ("Amwest") and Condor Services, Inc. ("Condor"),
each dated February 13, 1996, and revoking all prior proxies, appoints Richard
H. Savage, John E. Savage, Steven R. Kay, Arthur F. Melton and Neil F. Pont, and
each or any of them, with full power of substitution in each, the proxies of the
undersigned to represent the undersigned and vote all shares of Common Stock of
the undersigned in Amwest Insurance Group, Inc., at the Special Meeting of
Stockholders to be held on March 14, 1996 and any adjournments or postponements
thereof upon the following matters and in the manner designated on the reverse
side:
(Continued and to be signed on reverse side)
<PAGE>
(Continued from other side)
AMWEST INSURANCE GROUP, INC.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE FOR THE FOLLOWING PROPOSALS.
1. TO APPROVE AND ADOPT THE MERGER AGREEMENT BY AND BETWEEN AMWEST AND CONDOR
PURSUANT TO WHICH CONDOR WILL BE MERGED WITH AND INTO AMWEST
___ FOR ___ AGAINST ___ ABSTAIN
2. APPROVAL OF AN AMENDMENT TO AND THE RATIFICATION OF THE COMPANY'S STOCK
OPTION PLAN
___ FOR ___ AGAINST ___ ABSTAIN
3. TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR
ANY ADJOURNMENT OR POSTPONEMENT THEREOF AND AS TO WHICH THE UNDERSIGNED
HEREBY CONFERS DISCRETIONARY AUTHORITY.
THIS PROXY WILL BE VOTED FOR ITEMS 1 AND 2 UNLESS OTHERWISE SPECIFIED
Please sign as name(s) appears.
Executors, administrators, guardians,
officers of corporations, and others
signing in a fiduciary capacity should
state their full titles as such.
Date: _________________________ , 1996
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PLEASE MARK, DATE, SIGN AND MAIL THIS PROXY CARD PROMPTLY
IN THE ENCLOSED ENVELOPE
