<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark one): [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 0-14087
FIRST COASTAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 06-1177661
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
36 Thomas Drive, Westbrook, Maine 04092
(Address of principal executive offices) (Zip Code)
(207) 774-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date, is:
Class: Common Stock, Par Value $1.00 per share
Outstanding at November 10, 1999: 1,343,593 shares
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INDEX
FIRST COASTAL CORPORATION AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
---------------------
<TABLE>
<CAPTION>
Page
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<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited) as of September 30,
1999 and December 31, 1998 3
Condensed Consolidated Statements of Operations (Unaudited) for the
three and nine months ended September 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows (Unaudited) for the
nine months ended September 30, 1999 and 1998 6
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
for the three and nine months ended September 30, 1999 and 1998 7
Notes to Condensed Consolidated Financial Statements (Unaudited),
September 30, 1999 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 22
PART II - OTHER INFORMATION
-----------------
Item 1. Legal Proceedings 23
Item 2. Changes in Securities and Use of Proceeds 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 24
</TABLE>
2
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PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
- -----------------------------
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
First Coastal Corporation and Subsidiary September 30, December 31,
------------- ------------
(in thousands) 1999 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Noninterest earning deposits and cash $ 6,820 $ 4,509
Interest earning deposits 4,616 28,118
--------------- ------------
Cash and cash equivalents 11,436 32,627
Investment securities:
Available for sale (at market value; amortized cost: 1999 $55,244; 1998 $47,037) 54,092 47,048
Federal Home Loan Bank stock (at cost) 1,315 1,315
Loans held for sale 233 83
Loans 118,842 105,873
Less: Deferred loan fees, net (52) (97)
Allowance for loan losses (2,832) (2,735)
--------------- ------------
115,958 103,041
Premises and equipment 2,518 2,554
Accrued interest receivable 1,074 1,132
Real estate owned and repossessions - 15
Deferred tax asset 2,832 3,354
Other assets 311 244
--------------- ------------
TOTAL ASSETS $189,769 $191,413
=============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $139,665 $148,545
Federal Home Loan Bank borrowings 23,952 22,545
Savings Bank Notes 2,367 2,600
Secured borrowings 6,149 967
Accrued expenses and other liabilities 268 442
--------------- ------------
TOTAL LIABILITIES 172,401 175,099
STOCKHOLDERS' EQUITY
Preferred Stock, $1.00 par value; Authorized 1,000,000 shares, none outstanding - -
Common Stock, $1.00 par value; Authorized 6,700,000 shares, issued as of September
30, 1999 and December 31, 1998 - 1,360,527 shares 1,361 1,361
Paid-in-capital 31,751 31,751
Retained earnings (deficit) (14,939) (16,805)
Accumulated other comprehensive income (loss) (749) 7
Treasury stock (At September 30, 1999 - 5,800 shares) (56) -
--------------- ------------
TOTAL STOCKHOLDERS' EQUITY 17,368 16,314
--------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $189,769 $191,413
=============== ============
</TABLE>
See notes to condensed consolidated financial statements.
3
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<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
First Coastal Corporation and Subsidiary Three Months Ended September 30,
--------------------------------
(in thousands, except share and per share amounts) 1999 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Interest and Dividend Income
Interest and fees on loans $ 2,562 $ 2,450
Interest and dividends on investment securities 830 595
Other interest income 69 328
------------- -------------
Total Interest and Dividend Income 3,461 3,373
Interest Expense
Deposits 1,263 1,478
Borrowings:
Federal Home Loan Bank 308 190
Savings Bank Notes 59 81
Secured borrowings 27 2
------------- -------------
Total Interest Expense 1,657 1,751
------------- -------------
Net Interest Income Before Provision for Loan Losses 1,804 1,622
Provision for loan losses - -
------------- -------------
Net Interest Income After Provision for Loan Losses 1,804 1,622
Noninterest Income
Services charges on deposit accounts 129 139
Gain on investment securities transactions - 68
Gain on sales of mortgage loans 32 51
Gain on sale of assets - 539
Other 50 33
------------- -------------
211 830
------------- -------------
Operating Expenses
Salaries and employee benefits 724 797
Occupancy 139 95
Net cost of operations of real estate owned and repossessions 1 7
Other 626 594
------------- -------------
1,490 1,493
------------- -------------
INCOME BEFORE INCOME TAXES 525 959
Income Taxes 185 338
------------- -------------
NET INCOME $ 340 $ 621
============= =============
PER SHARE AMOUNTS
Basic earnings per share:
Weighted average shares outstanding 1,359,159 1,360,527
Net income per share $ 0.25 $ 0.46
============= =============
Diluted earnings per share:
Weighted average shares outstanding 1,373,093 1,378,264
Net income per share $ 0.25 $ 0.45
============= =============
</TABLE>
See notes to condensed consolidated financial statements.
4
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<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
First Coastal Corporation and Subsidiary Nine Months Ended September 30,
-------------------------------------------
(in thousands, except share and per share amounts) 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest and Dividend Income
Interest and fees on loans $ 7,357 $ 7,441
Interest and dividends on investment securities 2,494 1,403
Other interest income 450 656
-------------- --------------
Total Interest and Dividend Income 10,301 9,500
Interest Expense
Deposits 3,964 3,817
Borrowings:
Federal Home Loan Bank 898 593
Savings Bank Notes 208 251
Secured borrowings 59 12
-------------- --------------
Total Interest Expense 5,129 4,673
-------------- --------------
Net Interest Income Before Provision for Loan Losses 5,172 4,827
Provision for loan losses - -
-------------- --------------
Net Interest Income After Provision for Loan Losses 5,172 4,827
Noninterest Income
Services charges on deposit accounts 364 379
Gain on investment securities transactions 22 104
Gain on sales of mortgage loans 549 67
Gain on sale of assets 1,110 539
Other 95 93
-------------- --------------
2,140 1,182
-------------- --------------
Operating Expenses
Salaries and employee benefits 2,107 2,074
Occupancy 448 354
Net cost of operations of real estate owned and repossessions 5 9
Other 1,881 1,717
-------------- --------------
4,441 4,154
-------------- --------------
INCOME BEFORE INCOME TAXES 2,871 1,855
Income Taxes 1,005 657
-------------- --------------
NET INCOME $ 1,866 $ 1,198
============== ==============
PER SHARE AMOUNTS
Basic earnings per share:
Weighted average shares outstanding 1,360,066 1,359,790
Net income per share $ 1.37 $ 0.88
============== ==============
Diluted earnings per share:
Weighted average shares outstanding 1,374,146 1,380,013
Net income per share $ 1.36 $ 0.87
============== ==============
</TABLE>
See notes to condensed consolidated financial statements.
5
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<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
First Coastal Corporation and Subsidiary Nine Months Ended September 30,
--------------------------------------
(in thousands) 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net Income $ 1,866 $ 1,198
Adjustments to reconcile net income to net cash provided by operating activities:
Writedowns of REO 5 -
Gain on sales of REO - (5)
Depreciation and amortization 331 299
Amortization of investment securities premiums 166 83
Realized investment securities gains (22) (104)
Realized gains on assets held for sale (549) (67)
Loans originated and acquired for sale (3,973) (9,599)
Sales of loans originated and acquired for sale 4,372 11,182
Decrease in interest receivable 58 20
Increase in interest payable 33 7
Net change in other assets 465 918
Net change in other liabilities (207) (90)
---------- ----------
Net cash provided by operating activities 2,545 3,842
---------- ----------
Investing Activities
Sales and maturities of securities available for sale 11,310 4,542
Maturities of securities held to maturity - 10,000
Purchases of investment securities available for sale (19,254) (30,630)
Purchases of investment securities held to maturity - (3,193)
Net change in loans (12,917) 74
Net sales (purchases) of premises and equipment (295) 665
---------- ----------
Net cash used by investing activities (21,156) (18,542)
---------- ----------
Financing Activities
Net change in deposits (8,880) 30,469
Proceeds from borrowings 3,000 4,000
Payments on borrowings (1,826) (4,758)
Net change in secured borrowings 5,182 710
Repurchase of common stock (56) -
Proceeds from issuance of common stock options - 7
---------- ----------
Net cash (used) provided by financing activities (2,580) 30,428
---------- ----------
Increase (decrease) in cash and cash equivalents (21,191) 15,728
Cash and cash equivalents at beginning of period 32,627 7,554
---------- ----------
Cash and cash equivalents (interest and noninterest bearing) at end of period $ 11,436 $ 23,282
========== ==========
Noncash Investing Activities
Change in unrealized holding gains (losses) on investment securities available
for sale, net of income taxes $ (756) $ 246
Transfer of loans to real estate owned and repossessions - 121
</TABLE>
See notes to condensed consolidated financial statements.
6
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<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
First Coastal Corporation and Subsidiary Three Months Ended September 30,
-----------------------------------
(dollars in thousands) 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Income $ 340 $ 621
Other comprehensive income:
Unrealized holding gains (losses) arising during the period, net of income taxes
(taxes equaled: 1999 - $(118); 1998 - $160) (201) 311
Reclassification adjustment for realized gains included in net income, net of
income taxes (taxes equaled: 1999 - $0; 1998 - $(23)) - (45)
---------- ----------
(201) 266
---------- ----------
Comprehensive income $ 139 $ 887
========== ==========
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
First Coastal Corporation and Subsidiary Nine Months Ended September 30,
------------------------------
(dollars in thousands) 1999 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Income $1,866 $1,198
Other comprehensive income:
Unrealized holding gains (losses) arising during the period, net of income
taxes (taxes equaled: 1999 - $(396); 1998 - $162) (741) 315
Reclassification adjustment for realized gains included in net income, net of
income taxes (taxes equaled: 1999 - $(7); 1998 - $(35) ) (15) (69)
-------------- -------------
(756) 246
-------------- -------------
Comprehensive income $1,110 $1,444
============== =============
</TABLE>
See notes to condensed consolidated financial statements.
7
<PAGE>
FIRST COASTAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 1999
NOTE A BASIS OF PRESENTATION
---------------------
The accompanying unaudited condensed consolidated financial statements of First
Coastal Corporation (the "Company") and its subsidiary, Coastal Bank ("Coastal
Bank" or the "Bank"), have been prepared in conformity with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and
Exchange Commission. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results and other data for the three and nine months
ended September 30, 1999 are not necessarily indicative of the results that may
be expected for the year ending December 31, 1999. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1998
and other documents filed by the Company with the Securities and Exchange
Commission.
Subsequent Event
On October 29, 1999, the Company announced that the Bank had entered into a
lease agreement, subject to certain terms and conditions, with respect to the
relocation of the Company's and the Bank's headquarters (including the branch
and operations center of the Bank), to a new facility currently under
construction at 1198 Congress Street, Portland, Maine. Such lease agreement is
for 18,757 rentable square feet and consists of the first two floors of a three-
story building. The facility will include a branch and three-lane drive-through,
ATM, commercial and retail banking offices and space to support the Bank's loan,
deposit and computer operations. Occupancy is expected to take place early in
the second quarter of 2000. The new facility is expected to improve customer
accessibility, provide increased market awareness of Coastal Bank, result in
enhanced overall service for existing and prospective customers and provide
space for growth. The new facility will result in increased operating expenses
of approximately $300,000 on an annual basis as compared to the Company's
current 12,500 square foot facility. The Bank is negotiating an extension of the
lease on its current headquarters, branch and operations center to extend the
term from March 15, 2000 to July 15, 2000.
Savings Bank Notes
On August 4, 1999, the Company entered into the First Amendment to Loan
Agreement (the "First Amendment to Loan Agreement") amending the terms of the
Loan Agreement, dated as of July 24, 1996 (the "Loan Agreement"), between the
Company and a group of four Maine savings banks (the "Four Savings Banks").
Pursuant to the Loan Agreement, the Company borrowed a total of $4.0 million
evidenced by promissory notes (the "Savings Bank Notes") in the amount of $1.0
million to each of the Four Savings Banks. Prior to the effective date of such
modification to the Loan Agreement, the Savings Bank Notes bore interest,
payable quarterly, at an annual rate of 10.85%, with semi-annual principal
payments of $200,000 beginning in June 1998. The original maturity date was
December 31, 2001. Pursuant to the First Amendment to Loan Agreement and the
amended Savings Bank Notes (the "Amended Savings Bank Notes"), the term loan
(balance $2.4 million) bears interest at an annual rate of 8.0% until August 4,
2002, at which time the interest rate will convert to the Prime Rate as
published in The Wall Street Journal (the "WSJ"), adjustable daily, until the
new maturity date of August 4, 2004. In addition, the Company is entitled to
draw against a working capital line of credit up to a combined aggregate limit,
including the balance
8
<PAGE>
outstanding at any time of the term loan, of $4.0 million. The interest rate on
the line of credit is equal to the Prime Rate as published in the WSJ, adjusted
daily and the maturity date is August 4, 2004.
In addition to reducing the interest rate, extending the maturity date, and
providing the Company with a line of credit, the First Amendment to Loan
Agreement modified or eliminated certain covenants and conditions contained in
the Loan Agreement, including among other things: (i) limitations on borrowing
by the Company and the Bank; (ii) prohibitions on transfers of assets of the
Company or any subsidiary; (iii) prohibition of capital expenditures over
$500,000 in any fiscal year; and (iv) certain provisions providing that it was a
default by the Company not to make certain reports or payments within specified
time frames, which provisions have been made generally less restrictive as to
time or amount. In addition, the First Amendment to Loan Agreement modified the
prohibition on the payment of cash dividends by the Company contained in the
Loan Agreement when the Company's debt-to-equity ratio on a parent only-basis
exceeds 30% to increase the permissible ratio threshold to 50%.
In connection with the Amended Savings Bank Notes, one of the Four Savings Banks
notes was purchased by one of the remaining three lenders. There is no
prepayment penalty associated with the Amended Savings Bank Notes. Other terms
and conditions, including the pledge of all of the Company's stock in the Bank
as collateral, were affirmed and remain in effect.
Stock Repurchase Program
On May 18, 1999, the Company announced that its Board of Directors authorized a
stock repurchase program pursuant to which the Company could repurchase up to
68,026 shares of its common stock, representing approximately 5% of the
1,360,527 shares then outstanding. The common stock may be purchased by the
Company from time to time in the open market or privately negotiated
transactions. The shares repurchased will be held as treasury stock to be used
for general corporate purposes. The stock repurchase program will be in effect
for a total of approximately twelve months, or until June 2000. Under the
program no shares knowingly will be purchased from officers or directors of the
Company or from persons who hold in excess of 5% of its outstanding common
stock. At September 30, 1999, the Company had repurchased 5,800 shares of its
common stock under the program. In addition, the Company repurchased 11,134
shares of its common stock on November 9, 1999.
Computation of Earnings per Share
Financial Accounting Standards Board ("FASB") Statement of Financial Accounting
Standard ("SFAS") No. 128, Earnings Per Share, provides reporting standards for
basic and diluted earnings per share. Basic earnings per share is computed by
dividing income available to common stockholders by the weighted-average number
of common shares outstanding for the period. Diluted earnings per share reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or resulted in
the issuance of common stock that then shared in the earnings of the entity.
There is no adjustment made to income used to calculate basic and diluted
earnings per share. The table below sets forth the approximate number of shares
used to calculate basic and diluted earnings per share ("EPS") for the three and
nine months ended September 30, 1999 and 1998.
9
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<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ -------------------------
1999 1998 1999 1998
----------- --------- --------- ----------
<S> <C> <C> <C> <C>
Weighted average shares outstanding for basic EPS 1,359,159 1,360,527 1,360,066 1,359,790
Effect of dilutive stock options /(1)/ 13,934 17,737 14,080 20,223
----------- --------- --------- ----------
Weighted average shares outstanding for diluted
EPS 1,373,093 1,378,264 1,374,146 1,380,013
=========== ========= ========= =========
</TABLE>
/(1)/ Shares considered anti-dilutive and therefore excluded from the
calculation of the Company's weighted average shares outstanding for
diluted EPS equaled 39,500 and 36,000 for the three and nine months ended
September 30, 1999, respectively, and 22,000 and 18,000 for the three and
nine months ended September 30, 1998, respectively.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
BUSINESS
First Coastal Corporation (the "Company"), a Delaware corporation, is a bank
holding company whose sole operating subsidiary is Coastal Bank (the "Bank"), a
Maine chartered bank currently headquartered in Westbrook, Maine. The Bank was
formed in 1981 through the consolidation of Brunswick Savings Institution and
York County Savings Bank, which were organized in 1858 and 1860, respectively.
The Company has no separate operations and its business consists of the business
of the Bank. The Bank is engaged in customary banking activities, including
attracting deposits and various lending activities, and conducts its business
from seven offices in the counties of Cumberland, Sagadahoc and York. The Bank's
deposits are insured by the Federal Deposit Insurance Corporation up to the
limits provided by law.
This Quarterly Report on Form 10-Q, including statements made in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations, contains certain "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Certain, but not
necessarily all, of such forward-looking statements can be identified by the use
of forward-looking terminology, such as "believes," "expects," "may," "will,"
"should," "estimates," or "anticipates" or the negative thereof or other
variations thereof or comparable terminology. All forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual transactions, results, performance or achievements of the Company to
be materially different from those expressed or implied by such forward-looking
statements. Although the Company has made such statements based on assumptions
which it believes to be reasonable, there can be no assurance that the actual
transactions, results, performance or achievements will not differ materially
from the Company's expectations. For example, there are a number of important
factors with respect to such forward-looking statements that could materially
and adversely affect such forward-looking statements, such as (i) the impact of
changes in market rates of interest, economic conditions, or competitive factors
on the Company's deposit products and loan demand; (ii) the possibility that
certain transactions, such as the successful relocation and transition to a
suitable new headquarters, branch and operations center, the opening of new
branches, the introduction of new banking products or other planned or
contemplated events, may not occur; (iii) the possibility that operating
expenses may be higher than anticipated; (iv) the effect of changes in the
general economic and competitive conditions in markets in which the Company
operates; (v) the Company's ability to continue to control its provision for
loan losses, noninterest expense and to maintain its margin; (vi) the level of
demand for new and existing products; and (vii) legislative and regulatory
changes, changes in tax policies, rates and regulations and
10
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changes in accounting principles, policies or guidelines. Should one or more of
these risks or other uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those described in the
forward-looking statements. The Company does not intend to update forward-
looking statements. Investors are also directed to other information related to
the Company in documents filed by the Company with the Securities and Exchange
Commission.
RESULTS OF OPERATIONS
Overview
The Company reported net income of $340,000 and $1,866,000 for the three and
nine months ended September 30, 1999, compared to net income of $621,000 and
$1,198,000 for the same periods in 1998. Net income for the nine months ended
September 30, 1999 was positively impacted by after-tax gains of approximately
$733,000 and $300,000 recorded during the first six months of 1999, resulting
from the sale of the Bank's Kennebunk branch and the sale of the Bank's
residential mortgage servicing portfolio, respectively. Net income for the three
and nine months ended September 30, 1998 included an after-tax gain of
approximately $356,000 received from the sale of real estate located in
Westbrook, Maine, which currently serves as the Bank's headquarters branch and
operations center, offset in part by an after-tax pension expense accrual of
approximately $99,000.
Net Interest Income
Net interest income increased by $182,000 and $345,000 for the three and nine
months ended September 30, 1999 as compared to the same periods in 1998. The
increase in net interest income for the nine months ended September 30, 1999 is
primarily attributable to increased average securities balances of $24.8 million
as compared to the same period in 1998, resulting in an increase in interest
income attributable to securities of $1.1 million as compared to the same period
in 1998. The increase in interest income attributable to higher securities
balances was offset in part by increases in borrowing and deposit expenses
resulting from higher balances, as well as lower yields on securities and other
interest earning assets. Though average loan balances were $5.6 million higher
for the nine month period ended September 30, 1999 as compared to the same
period in 1998, interest income from loans declined $84,000 during the most
recent period as a result of a 0.57% decline in the average yield on loans. The
average yield on loans equaled 8.78% for the nine months ended September 30,
1999 as compared to 9.35% for the nine months ended September 30, 1998.
The increase in net interest income for the three months ended September 30,
1999 is primarily attributable to higher average loan balances of $11.2 million
as compared to the same period in 1998 and lower deposit expenses, which
declined primarily as a result of a reduction in the interest rates paid on High
Rise Savings accounts and due to lower deposit balances resulting from the sale
of the Bank's Kennebunk branch in May 1999. These increases in net interest
income were offset in part by a decline in the yield on average earning assets
of 0.30% for the three months ended September 30, 1999 as compared to the same
period in 1998. For more information see below under the caption "Interest
Income" and "Interest Expense."
Changes in net interest income are caused by changes in the amount and
composition of interest earning assets and interest bearing liabilities,
interest rate movements and the repricing of assets and liabilities as a result
of these movements, changes in the level of noninterest earning assets and
noninterest bearing liabilities and income recognition and income reversals
related to interest earning assets which become noninterest earning assets.
11
<PAGE>
The following table sets forth, for the periods indicated, information regarding
(i) the total dollar amount of interest income from interest-earning assets and
the resultant average yields, (ii) the total dollar amount of interest expense
on interest-bearing liabilities and the resultant average cost, (iii) net
interest income, (iv) interest rate spread, and (v) net interest margin.
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
----------------------------------------------------------------------------------
1999 1998
--------------------------------------------- ----------------------------------
Average Average
Balance Interest Yield /(1)/ Balance Interest Yield /(1)/
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest earning cash $ 12,157 $ 450 4.88% $ 15,836 $ 656 5.46%
Investments 53,768 2,494 6.20 28,971 1,403 6.47
Loans /(2)/ /(3)/
Residential real estate mortgages 32,008 1,912 7.96 35,582 2,290 8.58
Commercial real estate mortgages 59,738 4,068 9.10 51,152 3,715 9.71
Commercial and industrial loans 7,043 476 9.03 5,274 387 9.82
Consumer loans 13,206 901 9.12 14,417 1,049 9.73
-------- ------- -------- ------
Total loans 111,995 7,357 8.78 106,425 7,441 9.35
Total interest earnings assets 177,920 10,301 7.74 151,232 9,500 8.40
Noninterest earning assets 8,813 10,203
-------- --------
Total assets $186,733 $161,435
======== ========
Liabilities:
Deposits
Savings $ 63,812 1,755 3.68 $ 48,734 1,320 3.62
NOW and money market accounts 19,340 334 2.31 18,045 313 2.32
Certificates of deposit 49,622 1,875 5.05 54,347 2,184 5.37
-------- ------- -------- ------
Total interest bearing deposits 132,774 3,964 3.99 121,126 3,817 4.21
Borrowings 24,275 1,106 6.09 16,420 844 6.87
Secured borrowings 1,910 59 4.09 377 12 4.16
-------- ------- -------- ------
Total interest bearing liabilities 158,959 5,129 4.31 137,923 4,673 4.53
Noninterest bearing deposits 11,313 7,706
Noninterest bearing liabilities 207 105
Stockholders' equity 16,254 15,701
-------- --------
Total liabilities and stockholders' equity $186,733 $161,435
======== ========
Net interest income $ 5,172 $4,827
======= ======
Net interest rate spread /(4)/ 3.43% 3.87%
Net interest rate margin /(5)/ 3.89% 4.27%
</TABLE>
/(1)/ Annualized.
/(2)/ For purposes of these computations, loans held for sale and nonaccrual
loans are included in the average loan amounts outstanding.
/(3)/ Fees from loans are included in interest income from loans.
/(4)/ Return on interest earning assets less cost of interest bearing
liabilities.
/(5)/ Net interest income divided by average interest earning assets.
12
<PAGE>
The Company's net interest rate spread for the nine months ended September 30,
1999 decreased to 3.43% as compared to 3.87% for the same period in 1998, and
the net interest rate margin for the nine months ended September 30, 1999
decreased to 3.89% as compared to 4.27% for the same period in 1998. However,
for the three months ended September 30, 1999, the Company's net interest rate
spread and net interest rate margin increased to 3.59% and 4.06%, as compared to
3.48% and 3.89% for the three months ended September 30, 1998.
The following table sets forth, for the periods indicated, information regarding
the Company's ratios of net interest rate spread and net interest rate margin:
<TABLE>
<CAPTION>
For the Three Months Ended
------------------------------------------------------------
9/30/99 6/30/99 3/31/99 12/31/98 9/30/98 6/30/98
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Rate
Spread 3.59% 3.67% 3.06% 3.40% 3.48% 3.91%
Net Interest Rate
Margin 4.06% 4.11% 3.50% 3.86% 3.89% 4.29%
</TABLE>
Interest Income
Interest income increased $801,000 for the nine months ended September 30, 1999
as compared to the same period in 1998. This increase is primarily attributable
to an increase in average earning assets of $26.7 million, including increases
in the average balance on investment securities ($24.8 million) and loan
balances ($5.6 million), offset by a decline in interest earning cash ($3.7
million). The increase in interest earning assets was primarily the result of an
increase in total funding balances, largely attributable to the introduction of
the Bank's High Rise Savings product in March 1998, and increases in Federal
Home Loan Bank ("FHLB") borrowings. Savings deposit (including High Rise) and
borrowings average balances increased $15.1 million and $9.4 million,
respectively, for the nine months ended September 30, 1999 as compared to the
nine months ended September 30, 1998. The increase in securities balances, which
averaged 28.8% of total average assets for the nine months ended September 30,
1999 as compared to 17.9% for the nine months ended September 30, 1998, in
combination with a decline in interest rates for all of the interest bearing
asset categories, resulted in a 0.66% decline in the average yield on total
interest earning assets, to 7.74% for the nine months ended September 30, 1999
as compared to 8.40% for the nine months ended September 30, 1998. Average loan
balances equaled $112.0 million for the nine months ended September 30, 1999 and
ending loan balances equaled $118.8 million at September 30, 1999, an increase
of $13.0 million (12.3%) over ending loan balances at December 31, 1998. The
increase in loan balances is primarily attributable to approximately $26 million
in new commercial loan volume generated during 1999, largely consisting of
commercial real estate loans.
Interest income increased $88,000 for the three months ended September 30, 1999
as compared to the same period in 1998. This increase is largely attributable to
an increase in average loan balances of approximately $11.2 million, offset in
part by a 0.52% decline in loan yields, from a yield of 9.28% for the three
months ended September 30, 1998 to a yield of 8.76% for the three months ended
September 30, 1999.
Interest Expense
Interest expense increased $456,000 for the nine months ended September 30, 1999
as compared to the same period in 1998. This increase is largely attributable to
a $309,000 increase in interest expense on borrowings, which is the result of an
increase in average balances of $9.4 million, offset in part by a 0.86%
reduction in yield. Additionally, deposit expense increased $147,000,
attributable to a $11.6 million increase in average
13
<PAGE>
balances, offset in part by a 0.22% decline in yield. The Company's cost of
funds for the nine months ended September 30, 1999 was 4.31% as compared to
4.53% for the same period in 1998.
Interest expense for the three months ended September 30, 1999 decreased $94,000
as compared to the same period in 1998. This decline is primarily attributable
to a decrease in interest expense on deposits of $215,000, offset by a $118,000
increase in interest expense on FHLB borrowings. The decline in interest expense
on deposits is the result of a 0.47% decline in overall deposit costs, from
4.35% to 3.88% for the three months ended September 30, 1999 as compared to the
three months ended September 30, 1998. The decline in deposit yields is the
result of a 0.54% decline in interest rates paid on savings accounts, primarily
High Rise Savings. Additionally, average interest bearing deposit balances
declined $4.9 million, primarily the result of the sale of the Bank's Kennebunk
branch in the second quarter of 1999, which included $12.5 million in deposits.
As competitive pressures continue, the cost of funds to financial institutions
may rise relative to market interest rates, thereby narrowing the spread on
interest earning assets as compared to interest bearing liabilities.
Provision for Loan Losses
There was no provision for loan losses expense for the nine months ended
September 30, 1999 and 1998. The absence of a provision for loan losses in 1999
and 1998 is primarily attributable to the continued low level of nonperforming
loans and potential problem loans (as compared to historical levels), and from
the result of management's review of the portfolio and determination of the
adequacy of the allowance for loan losses at September 30, 1999.
Noninterest Income
Noninterest income increased $958,000 for the nine months ended September 30,
1999 as compared to the same period in 1998. This increase is attributable to a
$1.1 million pre-tax gain on the sale of the Bank's Kennebunk branch in the
second quarter of 1999 and a $460,000 pre-tax gain received on the sale of the
Bank's residential mortgage servicing portfolio in the first quarter of 1999.
Income for the nine months ended September 30, 1998 included a $539,000 pre-tax
gain received on the sale of the Bank's real estate located in Westbrook, Maine.
Noninterest income declined $619,000 for the three months ended September 30,
1999 as compared to the same period in 1998. This decline is attributable to a
$539,000 pre-tax gain received on the sale of the Bank's real estate located in
Westbrook. Additionally, there were no securities gains for three months ended
September 30, 1999 as compared to $68,000 for the same period in 1998.
Operating Expenses
Operating expense increased $287,000 for the nine months ended September 30,
1999 as compared to the same period in 1998. The increase in operating expenses
was primarily the result of additional costs associated with several business
initiatives implemented by the Bank during the first and second quarters of
1998, and the sale and leaseback of the Bank's headquarters branch and
operations center in the third quarter of 1998. The business initiatives include
the opening of the Portland branch, the development and implementation of an
Internet banking program for businesses, the development and introduction of a
new line of cash management services for businesses, and additional staffing
resulting from increased commercial lending activity. The increase in salaries
and benefits was primarily attributable to changes in staffing levels (including
additional staff at the new Portland office) and annual salary increases. The
increase in operating expenses was partially offset by the elimination of
operating expenses associated with the Bank's former
14
<PAGE>
branch in Kennebunk, which was sold in the second quarter of 1999. Management
anticipates operating expenses for the balance of 1999, 2000 and 2001 to further
increase as a result of several additional business initiatives that are
currently contemplated or underway, including (i) the Bank's lease of a new
headquarters, branch and operations center and related furniture, fixtures and
equipment expenses, which is estimated to increase the Company's occupancy
expense approximately $300,000 annually, (ii) the opening of additional branches
over the next several years in the Greater Portland market, (iii) the
introduction of a number of new retail banking products, and (iv) the Bank's
continued expansion of its commercial lending activities.
FINANCIAL CONDITION
Total Assets
At September 30, 1999, total assets equaled $189.8 million, representing a
decrease of $1.6 million (or 0.9%) from total assets of $191.4 million at
December 31, 1998. This decline was the result of a $21.2 million decline in
cash and cash equivalents, partially offset by increases in loan balances ($12.9
million) and investment securities ($7.0 million). Deposits declined $8.9
million, largely as a result of the sale of the Bank's Kennebunk branch, which
consisted of $12.5 million in deposits at the time of the sale on May 14, 1999.
The decline in deposit balances was partially offset by a $5.2 million increase
in secured borrowings and a $1.4 million increase in FHLB borrowings.
Investments
The Company's investment portfolio is comprised primarily of U.S. government and
agency obligations. Total investment securities at September 30, 1999 were $54.1
million compared to $47.0 million at December 31, 1998. This increase is
primarily attributable to the purchase of $8.4 million in U.S. government
obligations (of which $4.0 million are Treasury Inflation Indexed Bonds), $3.0
million in U.S. government agency notes and $8.0 million in mortgage-backed
securities, partially offset by the sale of $2.9 million in U.S. government
obligations, $2.0 million in government agency notes and $6.2 million in
prepayments and amortization on mortgage-backed securities and amortization of
premiums or discounts on investment securities. Investment securities classified
as available for sale are reported at fair value, with unrealized gains and
losses excluded from earnings and reported in a separate component of
stockholders' equity.
The following table sets forth the amortized cost and fair value of investment
securities for each major security type at September 30, 1999.
<TABLE>
<CAPTION>
September 30, 1999
----------------------------------------------
Gross Gross Fair
Amortized Unrealized Unrealized Market
(in thousands) Cost Gain Loss Value
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
U.S. government obligations $19,846 - $ 470 $19,376
U.S. government agency notes 1,000 - 54 946
Mortgage backed securities 33,926 $70 698 33,298
Equity securities 472 - - 472
--------- --------- -------- ---------
$55,244 $70 $1,222 $54,092
========= ========= ======== =========
</TABLE>
The after-tax unrealized gain (loss) on investment securities classified as
available for sale was $(749,000) and $7,000, at September 30, 1999 and December
31, 1998, respectively.
15
<PAGE>
The following table represents the contractual maturities for investments in
debt securities for each major security type at September 30, 1999.
<TABLE>
<CAPTION>
September 30, 1999
-------------------------------------------
Maturing
-------------------------------------------
After One
Within But within After
(in thousands) One Year Five Five Years Total
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
U.S. government obligations $523 $2,067 $16,786 $19,376
U.S. government agency - - 946 946
Mortgage backed securities - - 33,298 33,298
------ ------- -------- -------
$523 $2,067 $51,030 $53,620
====== ====== ======== =======
</TABLE>
Loans Held for Sale
Loans held for sale equaled $233,000 at September 30, 1999 as compared to
$83,000 at December 31, 1998, an increase of $150,000. The outstanding dollar
amount of loans held for sale can vary greatly from period to period, affected
by such factors as mortgage origination levels, the timing and delivery of loan
sales, changes in market interest rates and asset/liability management
strategies.
Loans
Loans consisted of the following:
<TABLE>
<CAPTION>
September 30, December 31,
-----------------------------
(in thousands) 1999 1998
- -----------------------------------------------------------------------------
<S> <C> <C>
Real estate mortgage loans:
Residential $ 29,034 $ 32,555
Commercial 66,150 52,747
Real estate construction 1,472 1,384
Commercial and industrial 9,218 5,872
Consumer and other 12,968 13,315
---------- ----------
Total $118,842 $105,873
========== ==========
</TABLE>
Loans increased $13.0 million (or 12.3%) at September 30, 1999 as compared to
December 31, 1998. The increase is attributable to a $13.4 million increase in
commercial real estate loans and $3.3 million in commercial and industrial
loans, partially offset by decreases in residential and consumer loans. The
increase in commercial loans is the result of the Company's strategic focus on
developing a strong commercial banking team and growth in commercial loan volume
and loan balances.
Allowance for Loan Losses ("Allowance")
The Company's Allowance was $2.8 million at September 30, 1999 and $2.7 million
at December 31, 1998. The Allowance increased during the nine month period as a
result of loan recoveries of $103,000 exceeding charged-off loans of $6,000.
There was no provision for loan losses during the nine months ended September
30, 1999. The Allowance represented 2.4% and 2.6% of total loans at September
30, 1999 and December 31, 1998, respectively. Management believes that in
accordance with the Bank's Allowance for Loan Loss Policy, the Allowance is
adequate at September 30, 1999. However, future additions to the
16
<PAGE>
Allowance may be necessary based on changes in the financial condition of
various borrowers, new information that becomes available relative to various
borrowers and loan collateral, growth in the size or changes in the mix or
concentration risk of the loan portfolio, problems that borrowers may experience
with regard to Year 2000 computer related issues, as well as changes in local,
regional or national economic conditions. In addition, various regulatory
authorities, as an integral part of their examination process, periodically
review the Bank's Allowance. Such authorities may require the Bank to increase
the Allowance based upon information available to them and their judgments at
the time of their examination.
Nonperforming Assets
Information with respect to nonperforming assets is set forth below:
<TABLE>
<CAPTION>
September 30, December 31,
-----------------------------
(in thousands) 1999 1998
- ----------------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans $ 373 $ 430
Accruing loans past due 90 days or more 244 121
Restructured loans - -
Real estate owned and repossessions - 15
------ ------
Total $ 617 $ 566
====== ======
</TABLE>
Nonperforming assets increased $51,000 at September 30, 1999 as compared to
December 31, 1998. While the current level of nonperforming assets is low
compared to historical levels, the Bank continues to hold a large concentration
of commercial real estate loans. The collateral coverage for these loans, should
they become nonperforming, may not be adequate to protect the Bank from
potential losses. Deterioration in the local economy or real estate market, or
upward movements in interest rates could adversely impact the performance and/or
value of the underlying collateral for these loans and could have an adverse
impact on the Bank's loan portfolio, and in particular, currently performing
commercial real estate loans. In addition, deterioration in the local economy or
adverse changes in the financial condition of various borrowers could have an
impact on the Bank's entire loan portfolio (including commercial real estate).
These factors could result in an increased incidence of loan defaults and, as a
result, an increased level of nonperforming loans and assets. In addition, while
the current level of nonperforming assets is encouraging, this level is
considered by management to be so low that it is unlikely to be sustained.
Impaired Loans
Management identifies impaired loans on a loan by loan basis. Though the
measurement of impaired loans is generally based on the present value of
expected future cash flows discounted at the historical effective interest rate,
all of the Company's impaired loans are collateral-dependent, which are measured
for impairment based on the fair value of the collateral. At September 30, 1999
and December 31, 1998, the recorded investment in loans for which impairment has
been recognized in accordance with SFAS No. 114 totaled $373,000 and $439,000,
respectively. The corresponding portion of the Allowance allocated against the
total recorded investment in loans was $25,000 and $55,000 as of September 30,
1999 and December 31, 1998, respectively. All of the impaired loans were
classified as nonaccrual at September 30, 1999. At December 31, 1998, an amount
equal to $430,000 of the $439,000 total impaired loans was classified as
nonaccrual or troubled debt restructures and the remaining $9,000 was classified
as potential problem loans. The income recorded on a cash basis relating to
impaired loans equaled $9,000 for the nine months ended September 30, 1999 and
$22,000 for the year ended December 31, 1998. The average balance of outstanding
impaired loans was $315,000 and $414,000 at September 30, 1999 and December 31,
1998, respectively.
17
<PAGE>
Real Estate Owned ("REO")
REO consists of properties acquired through mortgage loan foreclosure
proceedings, repossessions or in full or partial satisfaction of outstanding
loan obligations. At September 30, 1999, the Bank had no REO properties as
compared to $15,000 at December 31, 1998.
Liquidity - Bank
Deposits totaled $139.7 million at September 30, 1999, a decrease of $8.9
million (or 6.0%) from the level of $148.6 million at December 31, 1998.
Deposit balances were as follows:
<TABLE>
<CAPTION>
September 30, December 31,
-----------------------------
(in thousands) 1999 1998
- ------------------------------------------------------------------
<S> <C> <C>
Noninterest bearing demand deposits $ 11,691 $ 10,447
Interest bearing demand deposits 19,727 21,680
Savings and escrow deposits 61,014 63,393
Time deposits 47,233 53,025
------------- ------------
Total $139,665 $148,545
============= ============
</TABLE>
The decline in deposit levels is attributable to the sale of the Bank's
Kennebunk branch, with deposits totaling $12.5 million at the time of the sale
on May 14, 1999. This decrease was partially offset by increases in the Bank's
other interest and non-interest bearing demand deposits and savings deposits.
Liquidity - Company
On a parent company only basis ("parent"), the Company conducts no separate
operations. Its business consists of the operations of its banking subsidiary.
In addition to debt service relating to the Amended Savings Bank Notes in the
aggregate principal amount of $2.4 million at September 30, 1999, the Company's
expenses consist primarily of Delaware franchise taxes associated with the
Company's authorized capital stock and various other expenses. These expenses,
including legal, certain audit and other professional fees, insurance and other
expenses, are allocated between the Bank and the Company based upon the relative
benefits derived.
On May 18, 1999, the Company's Board of Directors authorized a stock repurchase
program pursuant to which the Company could repurchase up to 68,026 shares of
its common stock, representing approximately 5% of the 1,360,527 shares then
outstanding. At September 30, 1999, the Company had repurchased 5,800 shares of
its common stock under the program. In addition, the Company repurchased 11,134
shares of its common stock on November 9, 1999. The stock repurchase program
will be in effect for a total of approximately twelve months, or until June
2000.
Payment of dividends by the Company on its stock is subject to various
restrictions. Among these restrictions is a requirement under Delaware corporate
law that dividends may be paid by the Company only out of its surplus or, in the
event there is no surplus, out of its net profits for the fiscal year in which
the dividend is declared and/or the preceding fiscal year.
The principal source of cash for the Company would normally be a dividend from
the Bank; however, certain restrictions also exist regarding the ability of the
Bank to transfer funds to the Company in the form of cash dividends, loans or
advances. Maine corporate law generally provides that dividends may only be paid
out
18
<PAGE>
of unreserved and unrestricted earned surplus or unreserved and unrestricted net
earnings of the current fiscal year and the next preceding fiscal year taken as
a single period. Maine banking law also imposes certain restrictions, including
the requirement that the Bank establish and maintain adequate levels of capital
as set forth in rules adopted by the Maine Bureau of Banking.
The Loan Agreement, as amended pursuant to the First Amendment to Loan
Agreement, contains certain terms, restrictions and covenants, such as
restrictions regarding the conditions under which cash dividends may be paid by
the Company (including a prohibition on the payment of cash dividends to its
stockholders as long as the Company's debt-to-equity ratio on a parent-only
basis exceeds 50%), and a requirement that the Company and the Bank maintain
certain minimum capital ratios. At September 30, 1999, the Company's debt-to-
equity ratio and regulatory capital ratios would have permitted the payment of a
dividend by the Company under the terms of the First Amendment to Loan
Agreement.
On December 22, 1998, September 23, 1998 and March 25, 1998, the Bank paid the
Company cash dividends of $680,000, $500,000 and $500,000, respectively. At
September 30, 1999, the parent's cash and cash equivalents totaled $977,000.
The Company suspended the payment of cash dividends to its stockholders in the
fourth quarter of 1989 and has not paid any cash dividends to its stockholders
since that time.
Capital - Bank
The table below sets forth the regulatory capital requirements and capital
ratios for the Bank at September 30, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
(dollars in thousands) September 30, 1999 December 31, 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Tier 1 capital (Leverage) to total assets /(1)/ ratio
Qualifying capital $ 16,809 $ 14,709
Actual % 9.23% 7.90%
Minimum requirements for capital adequacy % 4.00% 4.00%
Average quarterly assets $182,090 $186,077
Tier 1 capital to risk-weighted assets
Qualifying capital $ 16,809 $ 14,709
Actual % 15.91% 14.33%
Minimum requirements for capital adequacy % 4.00% 4.00%
Total capital to risk-weighted assets (Tier 1 and Tier 2)
Qualifying capital $ 18,148 $ 16,010
Actual % 17.18% 15.60%
Minimum requirement for capital adequacy % 8.00% 8.00%
Risk-weighted assets $105,643 $102,612
</TABLE>
/(1)/ Calculated on an average quarterly basis
19
<PAGE>
Capital - Company
The table below sets forth the regulatory capital requirements and capital
ratios for the Company at September 30, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
(dollars in thousands) September 30, 1999 December 31, 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Tier 1 capital (Leverage) to total assets /(1)/ ratio
Qualifying capital $ 15,785 $ 13,453
Actual % 8.66% 7.20%
Minimum requirements for capital adequacy % 4.00-5.00% 4.00-5.00%
Average quarterly assets $ 182,289 $ 186,757
Tier 1 capital to risk-weighted assets
Qualifying capital $ 15,785 $ 13,453
Actual % 14.92% 13.05%
Minimum requirements for capital adequacy % 4.00% 4.00%
Total capital to risk-weighted assets (Tier 1 and Tier 2)
Qualifying capital $ 17,126 $ 14,759
Actual % 16.19% 14.32%
Minimum requirement for capital adequacy % 8.00% 8.00%
Risk-weighted assets $ 105,797 $ 103,071
</TABLE>
/(1)/ Calculated on an average quarterly basis less disallowed portion of the
deferred tax asset.
Year 2000 Issue
The Company is aware of potential problems that may be experienced with
computerized and other electronic systems at the turn of the millennium,
beginning January 1, 2000. These problems exist because many systems rely on two
digit fields instead of four digit fields to store the year of date sensitive
information. An example of the type of problem that may arise is that some
systems will interpret the 00 in its year field to mean 1900 instead of 2000.
This problem will not only affect software programs but hardware as well, and
could result in a system failure or miscalculations causing disruptions of
operations including, among other things, a temporary inability to process
transactions or engage in normal business activities.
The Company's State of Readiness. The Federal Financial Institutions Examination
Council (FFIEC) has issued several statements providing guidance on the Year
2000 issue. The statements address key phases of the Year 2000 project
management process, outline specific responsibilities of senior management and
the Board of Directors to address these risks, assist financial institutions in
developing prudent risk controls to manage risks related to the Year 2000 and
outline the due diligence process that financial institutions should adopt to
manage these risks. In response, the Company formed a Year 2000 Action Committee
which is comprised of various members of the Bank's senior and middle
management. The Committee has developed a detailed plan for mitigating Year 2000
risk as it relates to the Bank's Information Technology systems and Non-
Information Technology systems. In accordance with FFIEC guidelines, the Year
2000 project management process has five phases, which include Awareness,
Assessment, Renovation, Validation and Implementation of all systems.
Awareness Phase. During the Awareness phase, the Company is required to (i)
define the Year 2000 problem as it relates to specific circumstances and gain
executive support for the resources necessary to
20
<PAGE>
perform compliance work, (ii) establish a Year 2000 Committee, and (iii) develop
an overall strategy that encompasses in-house systems, service bureaus for
systems that are outsourced, vendors, auditors, customers and suppliers
(including correspondents).
The Company has completed activities related to the Awareness Phase. As stated
previously, the Company formed a Year 2000 Committee which developed and
implemented a strategy to minimize the impact of Year 2000 technology problems.
The Committee provides regular updates to the Company's Board of Directors and
Executive management.
Assessment Phase. As part of the Assessment phase, the Company is required to
(i) assess the size and complexity of issues related to the Year 2000 issue,
(ii) detail the magnitude of effort and resources necessary to address Year 2000
issues, (iii) identify all hardware, software, networks, automated teller
machines, other various processing platforms, and customer and vendor
dependencies affected by the Year 2000 date change, and (iv) develop a
contingency plan for the items addressed in the action plan. The assessment
phase must go beyond information systems and include facilities and
environmental systems that are dependent on embedded microchips, such as
security systems, elevators and vaults.
The Company has completed the Assessment phase, which included assessing all
Information Technology (i.e. computer software, hardware, third party vendors
and other electronic devices) and non-Information Technology systems (i.e.
vaults, security and environmental systems) for compliance with the Year 2000.
The Committee prioritized each item to determine if non-compliance with the Year
2000 date change would adversely impact customers, shareholders or employees.
During this assessment, 19% of the Bank's IT system applications and services
met this criteria and were classified as mission critical.
Renovation Phase. As part of the Renovation Phase, the Company is required to
prioritize work based on information gathered during the Assessment phase, and
includes code enhancements, hardware and software upgrades, system replacements,
vendor certification and other associated changes. For institutions relying on
outside services or third-party software providers, ongoing discussions and
monitoring of vendor progress is necessary.
The Company has completed all activities related to the renovation phase. A
majority of the Company's systems are supplied by third-party vendors and are
being renovated by the vendors. The Company has been provided with a Year 2000
ready release by its primary data processing vendor. This release has already
been installed and has been validated by the Year 2000 Action Committee for
future date processing accuracy.
Validation Phase. The Validation Phase includes actual testing of incremental
changes to hardware and software components. In addition to testing upgraded
components, connections with other systems must be verified, and all changes
should be accepted by internal and external users. The Company should also
establish controls to assure the effective and timely completion of all hardware
and software testing prior to final implementation.
The Company's Year 2000 Action Committee is responsible for testing the primary
data processing systems and all mission critical server-based applications for
Year 2000 readiness. Validation and testing of updates supplied by the Company's
third-party vendors have been completed. Primary functional transaction types
such as deposits, withdrawals, payments, maturities, interest postings,
inquiries on deposit and loan accounts, and other typical business processes,
continue to be tested for key date validity and accuracy. Key dates include
dates before, during and after the century change and the century leap year. The
Company has completed all necessary validation testing.
21
<PAGE>
Implementation Phase. During the Implementation Phase, systems should be
certified as Year 2000 compliant and be accepted by the business users. For any
system failing certification, the business effect must be assessed clearly and
the Company's contingency plans should be implemented. In addition, this phase
must ensure that any new systems or subsequent changes to verified systems are
compliant with Year 2000 requirements.
A significant number of the Company's mission critical applications are supplied
by third party vendors. Each vendor is responsible for making revisions to its
software, performing testing and providing the updates to the Company. Software
updates, where necessary, have been provided and installed by the Company's
third-party vendors. As a result, the implementation phase has been completed
for all necessary software and hardware applications.
Costs Related to the Year 2000 Issue
Management does not expect the costs associated with the Year 2000 issues to
have a material effect on the Company's financial statements. To date, the
Company has incurred approximately $23,000 in external costs for its Year 2000
program, which have been expensed as incurred. The Company does not anticipate
incurring additional expenses in excess of $5,000 related to Year 2000
compliance between now and December 31, 1999.
Risks Related to the Year 2000 Issue
Though the Company is diligently working to ensure that there is no disruption
in its operations due to Year 2000 systems problems, and believes it will be
successful in this regard, there can be no guarantee that all of the systems
critical to the operational performance of the Bank will be Year 2000 compliant
and fully functional at the turn of the millennium. While management is working
diligently to protect the Company against such an occurrence, it is possible
that a vendor upon whom the Bank is reliant could, despite possible assurances
to the contrary, ultimately fail to provide Year 2000 compliant services to the
Company, or said services could prove incompatible with the Company's systems. A
significant systems failure could have a material adverse impact on the
financial condition of the Company.
Contingency Plan
A Year 2000 contingency plan has been completed and incorporated into the
Company's overall contingency plan to address potential worst case scenarios
relating to the Year 2000 issue. The Company has developed alternative solutions
for business resumption and approaches to minimize the impact of different
scenarios. Possible alternatives to address these scenarios include increasing
cash reserves, designating existing branch locations as emergency regional
offices (with alternative power sources and alternative communication methods),
increasing customer and community awareness, and having staff available on site
during the turn of the millennium.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- --------------------------------------------------------------------
Not applicable.
22
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------
As of September 30, 1999, there were various claims and lawsuits pending
against the Company incidental to the ordinary course of business. In the
opinion of management, after consultation with legal counsel, resolution of
these matters is not expected to have a material effect on the Company's
consolidated financial position or results of operations.
Item 2. Changes in Securities and Use of Proceeds
- --------------------------------------------------
Not applicable.
Item 3. Defaults Upon Senior Securities
- ---------------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
Not applicable.
Item 5. Other Information
- -------------------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) The exhibits that are filed with this Form 10-Q are set forth below:
10.1 Lease Agreement, dated as of October 26, 1999, between
Coastal Bank and Olympia Equity Investors III, L.P.
27.1 Financial Data Schedule.
(b) No Reports on Form 8-K were filed by the Company during the third quarter
of 1999.
23
<PAGE>
FIRST COASTAL CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
FIRST COASTAL CORPORATION
Date: November 12, 1999 By: /s/ Gregory T. Caswell
----------------------------------------
Gregory T. Caswell
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Date: November 12, 1999 By: /s/ Gregory T. Caswell
-----------------------------------------
Gregory T. Caswell
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 12, 1999 By: /s/ Dennis D. Byrd
----------------------------------------
Dennis D. Byrd
Vice President and Treasurer
(Principal Financial and Accounting Officer)
24
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
- ----------- ----------------------
10.1 Lease Agreement, dated as of October 26, 1999, between Coastal
Bank and Olympia Equity Investors III, L.P. (filed herewith).
27.1 Financial Data Schedule (filed herewith).
<PAGE>
Exhibit 10.1
------------
LEASE AGREEMENT
THIS LEASE AGREEMENT (herein called the "Lease") is made this 26th day of
October, 1999, by and between Olympia Equity Investors III, L.P., a Maine
limited partnership with a place of business in Bangor, Penobscot County, Maine
("Landlord"), and mailing address of 500 Main Street, Bangor, Maine 04401, and
Coastal Bank, a Maine banking corporation with a place of business at 36 Thomas
Drive, Westbrook, Cumberland County, Maine ("Tenant"), and mailing address of
P.O. Box 8550, Portland, Maine 04104.
Landlord and Tenant agree as follows:
SECTION 1.0. BASIC DATA; CONDITIONS
-----------------------------------
1.1 Basic Data
Each reference in this Lease to any of the terms contained in this Section
or otherwise defined herein shall be construed to incorporate the definitions or
data stated under that term.
Premises Address: Lot 3, DoubleTree Hotel site, Congress Street, Portland,
Maine
Term: Initial Term: 10 Lease Years
Extended Term: 4 options for 5 additional Lease
Years each
Rent: Lease Year P.S.F. Annually Monthly
1-10 $14.80 ("Base Rent") $277,603.60 $23,133.63
per square foot of
Gross Rentable Area
11-15 Base Rent per square foot of Rentable Area of
the Premises shall be annually adjusted to
equal the lesser of the Base Rent for the
previous year multiplied by (a) 1.02 or (b)
the CPI Change (as defined herein) between
January 1 of the Lease Year and January 1 of
the prior year.
16-20 Base Rent per square foot of Rentable Area of
the Premises shall be annually adjusted to
equal the lesser of the Base Rent for the
previous year multiplied by (a) 1.02 or (b)
the CPI Change (as defined herein) between
January 1 of the Lease Year and January 1 of
the prior year.
21-25 Fixed for five years at 95% of fair market
rental value on
<PAGE>
the first day of the extension period; if
Landlord and Tenant cannot agree on fair
market rental value, each choose an appraiser
which in turn appoints a third appraiser, as
more particularly specified in Section 4.0 of
this Lease.
26-30 Fixed for five years at 95% of fair market
rental value on the first day of the
extension period; if Landlord and Tenant
cannot agree on fair market rental value,
each choose an appraiser which in turn
appoints a third appraiser, as more
particularly specified in Section 4.0 of this
Lease.
Tenant Address: Coastal Bank
P.O. Box 8550
Portland, Maine 04104
Attention: President & CEO
With a copy to:
Eric F. Saunders, Esq.
Bernstein, Shur, Sawyer & Nelson, P.A.
100 Middle Street, West Tower
P.O. Box 9729
Portland, ME 04104-5029
Landlord Address: Olympia Equity Investors III, L.P.
500 Main Street
Bangor, ME 04401
Attention: Kevin P. Mahaney
With a copy to:
George F. Eaton II, Esq.
Rudman & Winchell LLC
84 Harlow Street
P.O. Box 1401
Bangor, ME 04402
Building: A three story office building comprising approximately 29,111
square feet of Gross Rentable Area, as more particularly
specified hereinbelow.
Construction
Representatives: Landlord: Gary R. Guerette, Alliance
Construction Incorporated
160 Pleasant Hill Road
Scarborough, ME 04074
-2-
<PAGE>
Tenant: Edmond Theriault
Theriault/Landmann Associates
118 Congress Street
Portland, ME 04101
Final Specifications Date: November 8, 1999
Delivery Date: April 1, 2000
Outside Delivery Date: May 1, 2000
1.2. Definitions
For purposes of this Lease, the following terms have the following
meanings, unless the context clearly requires otherwise.
Building means the building to be constructed on the Premises pursuant to
Section 2.0.
Commencement Date means the date that Landlord delivers complete and
exclusive actual possession of the Premises to Tenant under Section 2.3.1.
CPI means the Consumer Price Index - All Urban Workers (CPI-U) - All
Items - U.S. City Average (1982-84=100) (not seasonally adjusted), as reported
by the U.S. Department of Labor, Bureau of Labor Statistics for January of the
respective year. In the event that the CPI as defined is no longer available,
the parties will substitute the most directly comparable index then available.
The CPI Change is calculated by taking the CPI for January of the current
year and subtracting the CPI for January of the prior year to obtain the index
point change. The index point change is divided by the CPI for January of the
prior year, and 1.0 is added to the result.
Excess Rental Proceeds means proceeds of certain subleases by Tenant during
an Extended Term, as described in Section 4.1.
Gross Rentable Area means the square footage amount calculated to exist in
the Building as described in Schedule 1.1.
Hazardous Material means any and all materials or substances which are
defined as "hazardous waste" or "hazardous substance" under any state, federal,
or local law, and includes asbestos, waste oil, and petroleum products.
Landlord means Olympia Equity Investors III, L.P., or any party succeeding
to the rights and responsibilities of Landlord under this Lease.
-3-
<PAGE>
Landlord's Work means the work to be performed by Landlord as described in
Section 2.4, as further described in Exhibit C and in plans and specifications
provided for herein.
Lease means this Lease Agreement.
Lease Year means the one-year period from the Commencement Date to one day
prior to the first anniversary of the Commencement Date, and each succeeding
following year during the term of this Lease, including any extension or renewal
hereof.
Premises means the Gross Rentable Area in the Building leased to Tenant
under this Lease, together with all appurtenances and rights granted with
respect to the Premises, the Building and the Site, as provided in Section 2.0.
Site means the certain tract of land in Portland, Maine shown on Exhibit A
and the legal description for which tract appears as Exhibit B.
Tenant's Work means the work to be performed by Tenant as described in
Section 2.5, as further described in Exhibit D.
1.3. Conditions to the Tenant's Obligations
The Tenant's obligations under this Lease are subject to the following
conditions. If the following conditions are not satisfied by the Final
Specifications Date (or such other date as specified therein), the Tenant may
terminate its obligations under this Lease by written notice to the Landlord,
whereupon each party shall thereafter be released from any further obligations
to the other hereunder:
a. Landlord, at Landlord's expense, obtaining all municipal, state and
federal approvals to construct the Building; Tenant's right to terminate its
obligations under this paragraph shall expire if not exercised by the earlier of
the receipt of all required approvals or midnight, November 8, 1999.
b. Interior design for Tenant's space shall be Tenant's responsibility,
subject to Landlord's approval, which shall not be unreasonably withheld, and
unless otherwise agreed shall be completed on or before November 8, 1999.
c. Exterior design shall be conditioned on mutual approval of Landlord and
Tenant prior to the Final Specifications Date.
d. Site plan shall be jointly designed and approved by Landlord and Tenant,
prior to the Final Specifications Date, at Landlord's expense, including
location and size of Building footprint, branch entrance, parking, and drive
through facility as well as traffic circulation.
e. Tenant shall have the exclusive right to 23 parking spaces on site
(including all 18 spaces adjacent to the West entrance to the Building),
exclusive rights to 29 of the 50 spaces
-4-
<PAGE>
immediately South of the Site, which Tenant may designate by signs or striping
as exclusive to Tenant (the "Exclusive Off-Site Spaces"), and rights in common
with other tenants of the Building to 42 other parking spaces on the adjacent
DoubleTree Hotel parking lot (the "Non-Exclusive Off-Site Spaces"), as generally
designated on Schedule 2.2, together with customer access to the Site from
Sewall Street or other entry points to the DoubleTree Hotel (as they may change
from time to time) without charge. The designated Exclusive Off-Site Spaces
shall be reserved by signage for the Tenant's exclusive use during business
hours, 7:30 a.m. to 5:30 p.m. each day that the Tenant is open for business. A
sublease with respect to the Off-Site Spaces and access to the Site across
property of the DoubleTree Hotel will be provided without cost covering the
duration of this Lease and all renewals, provided that Tenant shall be
responsible for an equitable portion of the cost of maintaining parking areas on
DoubleTree property reserved for Tenant's primary use and shall carry
appropriate property and liability insurance naming the owner of the DoubleTree
as a co-insured in connection with such spaces. The sublease with respect to the
parking spaces on and access across the DoubleTree premises shall be in a form
satisfactory to Tenant and executable by Tenant and Landlord on or before the
Final Specifications Date.
f. Landlord shall provide satisfactory evidence of financial capacity of
Landlord and Landlord's contractor to complete construction of the Building, and
Landlord, Tenant and Landlord's mortgage holder(s) shall enter into a non-
disturbance and recognition agreement on or before Landlord closes construction
financing for construction of the Building, in a form reasonably satisfactory to
Tenant, providing for recognition of Tenant's tenancy pursuant to the Lease and
the right of Landlord to use condemnation and insurance proceeds as required
under the Lease.
1.4. Conditions to the Landlord's Obligations
The Landlord's obligations under this Lease may be terminated in the event
that Landlord does not receive from Tenant approvals for exterior design and the
Site Plan by the Final Specifications Date, and Tenant's final proposed interior
designs by November 8, 1999. Such termination must be exercised by November 8,
1999, unless extended by mutual written agreement of the Landlord and Tenant.
SECTION 2.0 LEASE OF PREMISES
-----------------------------
2.1. Premises.
2.1.1. Description. In consideration of the mutual covenants and
agreements herein contained, Landlord hereby leases to Tenant premises of
approximately 18,757 square feet of Gross Rentable Area, encompassing the entire
first and second floors of the Building to be located at the Premises Address,
together with all appurtenances and the rights granted with respect to the
Premises, including without limitation parking, access, and exclusive rights to
the drive-through banking facility and access and egress thereto to be specified
on Schedule 2.1 or elsewhere in this Lease (collectively the "Premises").
-5-
<PAGE>
2.1.2. Additional Space. Tenant shall have the first right at any time to
lease under the terms of this Lease any other space that becomes available in
the Building following the Commencement Date, whether by expiration or breach of
other leases, expansion of the Building, or otherwise. This option must be
exercised in writing by Tenant within thirty (30) days after the date Tenant
receives written notice from Landlord that space is available, which notice
shall be given by Landlord no earlier than one year prior to the expiration or
termination of the lease for the subject option space. The Tenant's option
shall expire if not exercised within said thirty (30) day period.
2.2. Building and Site. The building to be constructed on the Premises (the
"Building") is or will be located on that certain entire tract of land, which is
shown approximately on Exhibit A and legally described on Exhibit B (the
"Site"). There is appurtenant to the Site for the purposes hereof the leased
parking rights granted by adjacent property owners as specified on Schedule 2.2.
The Building upon delivery to Tenant and all appurtenances and parking rights
shall be considered a part of the Premises.
During construction of the Building, no sign identifying a mortgagee or
other financial institution shall be permitted on the Site. Subject to
applicable law, Tenant at its option and cost may place a sign or signs at the
Site identifying it as the future headquarters of Tenant. Placement of the sign
or signs shall be determined by agreement of Landlord and Tenant so as to ensure
adequate visibility without interfering with construction.
2.3. Possession
2.3.1. Delivery of Possession. Upon completion of Landlord's Work in
accordance with the requirements of this Lease, Landlord will put Tenant in
complete and exclusive actual possession of the Premises in the condition and on
the terms set forth herein. The date of delivery of possession shall be the
"Commencement Date."
2.3.2. Date of Delivery. Landlord will use its commercially
reasonable efforts to complete Landlord's Work and to deliver possession by the
Delivery Date. If, for any reason other than an event set forth in Section 26,
Landlord fails to deliver possession by the Delivery Date, then except as
provided in the penultimate sentence of this paragraph, Tenant shall be given
one day of Base Rent and additional charges free for every day after the
Delivery Date Landlord fails to so deliver possession. If, for any reason
Landlord fails to deliver possession by the Outside Delivery Date, Tenant may,
at its option, take possession of the Premises in their then current condition
(which shall not relieve Landlord of its obligation to complete Landlord's
Work), or terminate this Lease by notice any time prior to Landlord's actual
delivery of possession, all without prejudice to Tenant's other remedies. In the
event that Tenant elects to occupy the Building after the Outside Delivery Date
but prior to completion of Landlord's Work, (a) Tenant's obligation for rent
shall be limited to fifty percent (50%) of the Base Rent attributable to the
Gross Rentable Area actually occupied by the Tenant until completion of
Landlord's Work with respect to such portion, and (b) Tenant shall be given one
day of Base
-6-
<PAGE>
Rent and additional charges free for the remaining portion of the Premises not
actually occupied by Tenant until completion of Landlord's Work with respect to
such portion. With Landlord's consent, Tenant may occupy a portion of the
Premises prior to the Commencement Date upon payment of rent in an amount
mutually agreed upon by Landlord and Tenant.
2.3.3. Condition of Premises. Landlord warrants that upon delivery of
possession (i) Landlord's Work shall be complete; and (ii) all improvements to
the Site as shown on Exhibit A or contained in the Final Specifications will
have been completed and will have been constructed in a good and workmanlike
manner, in conformance with the Final Specifications, except that if delivery of
possession is made during the winter months, certain seasonal work (such as
final paving or landscaping) may be deferred until the earliest practicable time
in accordance with customary development practices, provided that such work
would not restrict or inhibit Tenant's intended use and quiet enjoyment of the
Premises.
2.3.4. Failure to Deliver. Additionally, and in addition to and
without limitation or waiver of any of Tenant's other rights and remedies under
the Lease or at law or equity, if for any reason Landlord fails to deliver
possession of the Premises by the Outside Delivery Date, then Landlord shall be
considered in default of this Lease. Tenant may, in its sole discretion, elect
to take possession of the Premises, Site and Building and complete the
Landlord's Work by giving written notice of such election to Landlord. Upon the
receipt of such written notice, Landlord shall assign to Tenant all of the
development permits, approvals, licenses and contracts (including without limit,
building permits, governmental approvals, contracts with construction managers
and contractors) (collectively, the "Development Documents") as are necessary in
Tenant's opinion to permit Tenant to complete the unfinished portions of the
Landlord's Work.
Tenant is hereby granted the absolute right and easement to access and use
of the Site and Building as is necessary to complete Landlord's Work in
accordance with this Section and such entry shall not be deemed to constitute
possession of the Premises or to obligate Tenant to pay Base Rent or any other
charges under the Lease, such entry and use to be free of charge, and subject
further to Tenant's offset and deduction rights.
Subject to any conditional assignments to Landlord's construction lender,
Landlord hereby agrees to and hereby does absolutely assign, transfer and
deliver to Tenant all existing and future Development Documents and all
Landlord's right, title and interest therein and agrees to evidence this
assignment by separate agreement(s) and to take other steps reasonably deemed
necessary by Tenant to effectuate Tenant's rights under this section (including
without limit obtaining the consent and agreement of all governmental
authorities, contractors and consultants to this assignment and to the
substitute performance by Tenant under the Development Documents) upon request
of Tenant. With respect to any Development Documents which require the consent
of Landlord to their assignment as aforesaid, this Section shall be deemed to
constitute such consent. Notwithstanding the foregoing assignment, Tenant shall
refrain from performing any of Landlord's Work except in accordance with the
provisions of this Section of the Lease. Landlord specifically agrees that its
indemnification and hold harmless obligations under this Lease include all the
costs, liens, damages, expenses, fees (including without limit legal and
attorneys' fees), rents, and other items or harms suffered or incurred by Tenant
and
-7-
<PAGE>
related to Landlord's default in its performance of Landlord's Work and in its
obligation to timely deliver the Premises in accordance with this Lease and/or
related to the performance by Tenant of Landlord's Work, and in the event
Landlord defaults in such indemnification obligations, Tenant shall have the
continuing right to offset against and deduct from its rental obligations
hereunder until repaid in full all the foregoing described costs, damages,
expenses, etc.
In the event that Tenant elects to proceed under this Section to complete
or arrange completion of Landlord's Work, then the Commencement Date shall occur
upon completion of such Landlord's Work and acceptance by Tenant of possession
of the Premises. The remaining terms of this Lease shall apply, subject to such
rights of offset and other Tenant remedies provided for by this Section.
Tenant by exercising its rights under this Section shall not be deemed to
waive any of Tenant's other rights and remedies hereunder and at law or equity.
The arbitration provisions of this Lease shall not apply to Tenant's exercise of
its rights under this Section or disputes related to such exercise or related to
the conduct of Landlord's Work by Tenant. This section shall not be considered
to obligate Tenant in any way to perform Landlord's Work and shall not be deemed
to create any rights or causes of action in favor of any third party.
2.4. Landlord's Work. Prior to the delivery of possession, Landlord shall
perform the work described in this Section 2.4 as follows ("Landlord's Work"):
2.4.1. Plans and Specifications. Landlord shall perform the work
described on Exhibit C, including the work contemplated by the schedule of
preliminary specifications and preliminary plans (collectively the "Preliminary
Specifications"). Prior to the Final Specifications Date, Landlord will submit
for Tenant's approval detailed plans, working drawings and detailed
specifications ("Final Specifications"), which Final Specifications shall be in
conformity with the Preliminary Specifications. Tenant agrees to approve or
comment upon any such submittals by Landlord within 10 days after submission
thereof to Tenant. If Tenant does not so approve or comment upon such submittals
within 5 days after notice to Tenant that the aforesaid 10-day period has
expired, the same shall constitute a "Tenant Delay" with the Delivery Date, and
the Outside Delivery Date being extended one day for each day after the
expiration of said 5-day period that Tenant fails to so approve or comment upon
such submittals and with delivery of possession being deemed to have occurred
one day earlier than Landlord's actual delivery of possession for each day after
the expiration of said 5-day period that Tenant fails to so approve or comment
upon such submittals. The Final Specifications shall become a part of this Lease
upon approval by Tenant.
2.4.2. Landlord's Work Schedule; Permits. Landlord's Work will be
commenced within 10 days after mutual approval of the Final Specifications and
receipt of all necessary permits and approvals for Landlord's Work, which
permits and approvals Landlord shall diligently proceed to obtain. All building
permits, temporary and permanent certificates of occupancy and other
governmental approvals required to construct and to permit occupancy of the
Premises for Tenant's intended use shall be obtained by Landlord at Landlord's
expense
-8-
<PAGE>
(except for particular licenses or use permits normally obtained by Tenant for
the conduct of its business, including but not limited to signage permits for
Tenant).
2.4.3. Performance of Work. Landlord's Work will be prosecuted to
completion with due diligence and will be done at Landlord's expense, except
that any increase in the cost to Landlord caused by changes made by Tenant after
approval by Tenant of the Final Specifications shall be borne by Tenant and
shall be paid to Landlord as and when bills are rendered therefor. Landlord's
Work shall not be commenced until after the Final Specifications for such work
have been approved, shall be performed in a good and workmanlike manner in
compliance with the Final Specifications (as modified with the approval of
Tenant and subject to field modifications of a minor nature which are due to
field conditions and do not materially affect the utility or appearance of the
Premises), and shall be in compliance with all building codes and other
applicable laws and regulations of governmental authorities or boards of fire
insurance underwriters or the like.
2.4.4. Tenant's Access. Tenant may enter the Premises to inspect the
progress of Landlord's Work, to perform Tenant's Work, and to determine if
Landlord's Work is being performed in accordance with the requirements of the
Lease without being deemed to have taken possession or having obligated itself
to pay Base Rent, additional charges or other charges, provided, however, that
Tenant agrees that it shall not unreasonably interfere with Landlord's Work.
2.4.5. Acceptance of the Premises. Subject to Section 2.4.6,
Landlord's Work will be deemed accepted by Tenant 90 days after the Commencement
Date except for items (i) which are not completed or do not conform to the
requirements and standards set forth in this Lease, and (ii) as to which Tenant
has so notified Landlord provided such items could reasonably be discovered
within such 90 day period, which items Landlord agrees to promptly complete or
remedy at no cost to Tenant following notice from Tenant. The foregoing shall
not limit Tenant's rights under the Landlord's Guarantee in (S)2.4.6.
2.4.6. Landlord's Guarantee of Construction. Landlord agrees to
correct, at no cost to Tenant, any defects in Landlord's Work provided Tenant
gives written notice of such defects to Landlord prior to the first anniversary
of the Commencement Date. This time limitation shall not apply to latent defects
in Landlord's Work which Tenant did not discover prior to the expiration of such
time period. Landlord shall maintain on file warranties and guaranties
pertaining to contractors' work and the mechanical systems of the Premises.
Landlord shall assign (to the extent assignable) all guaranties and warranties
to Tenant which relate to equipment and other portions of the Premises Tenant is
to maintain.
2.5. Tenant's Work. Tenant shall have the right to perform the work to be
done by Tenant to ready the Premises for the Tenant's business ("Tenant's
Work"), including without limitation the installation of fixtures and other
equipment, and erection of signs, all as described on Exhibit D. Tenant shall
use reasonable efforts to obtain all governmental permits and approvals required
for Tenant's Work (including conforming same (including signage) to applicable
codes). Tenant's Work shall be done in a good and workmanlike manner and in
compliance with all
-9-
<PAGE>
applicable laws. Tenant shall keep the Premises free of liens. Tenant may enter
upon the Premises prior to delivery of possession to perform Tenant's Work and
to prepare the Premises for Tenant's use provided Tenant will not unreasonably
interfere with Landlord's Work. Such action shall not be deemed or construed to
constitute delivery or acceptance of possession of the Premises by Tenant. Prior
to the commencement of any of Tenant's Work and upon Landlord's request, Tenant
will submit evidence of the insurance required pursuant to this Lease and
evidence of workmen's compensation insurance.
2.6. Construction Representatives. Each party authorizes the other to rely
in connection with plans and construction upon approval and other actions on the
party's behalf by its respective Construction Representative or any other or
additional persons hereafter designated.
SECTION 3.0 TERM. This Lease shall be for a term of ten (10) years
----------------
commencing on the Commencement Date and terminating on the tenth anniversary of
the Commencement Date (the "Initial Term"). Tenant shall have no payment or
performance obligations hereunder until the Commencement Date. Provided the
Lease is in full force and effect and Tenant is not then in default hereunder
(after notice and the expiration of the applicable cure period), Tenant may
extend the Term for the Extended Term by giving Landlord notice of its election
to do so no less than one year prior to the beginning of the first Extended Term
and not less than one year prior to the beginning of each succeeding Extended
Term. If Landlord fails to notify Tenant that Tenant has failed to make such
election, Tenant shall retain its rights to extend the term until, and (unless
Tenant shall elect to extend the term) the term of the Lease shall be deemed to
have been extended by one year from, the later to occur of (a) five (5) business
days response time after the delivery of such notice by Landlord, or (b) the
express waiver of the right to extend by Tenant. During such one-year extension
following expiration of the normal term, all other provisions with respect to
the Extended Term shall apply.
SECTION 4.0 RENT. Tenant agrees to pay to Landlord at Landlord's mailing
----------------
address identified above, or at such other place as Landlord shall from time to
time designate in writing, Base Rent as specified in Section 1, in equal monthly
installments, and proportionately at such rate for any partial month, which Base
Rent shall be paid monthly in advance on the first day of each and every
calendar month during the term and any Extended Term hereof. Fair market rental
value for purposes of determining Base Rent for Lease Years 21-25 and 26-30
shall be the annual rental charge as of the commencement date of the then
applicable renewal Term for new leases then being negotiated or executed for
comparable space in the greater Portland, Maine area for terms commencing on or
about the date of commencement and ending as of the expiration of the applicable
renewal Term (including further Extension Terms). Landlord and Tenant shall in
good faith attempt to agree in writing on the Base Rent within 30 days after
Landlord's receipt of Tenant's notice of its exercise of the renewal option. If
Landlord and Tenant cannot so agree, Base Rent shall be determined by
appraisers, one each to be chosen by Landlord and Tenant, and, if necessary, a
third to be selected as provided below. All appraisers shall be MAI certified,
familiar with commercial space, leases and rents in the greater Portland, Maine
area, and shall have at least 10 years experience in making real estate
appraisals. Landlord and Tenant shall notify each other of its selected
appraiser within 5 days following the expiration of such 30 day period, The
initial appraisers shall render their written appraisals of Base Rent
-10-
<PAGE>
within 30 days after their appointment. If such appraisals are less than 5%
apart, then Base Rent shall be deemed to be the average of the two appraisals.
Otherwise, the initial appraisers shall promptly select a third appraiser who
shall submit its appraisal to Landlord and Tenant within 21 days after its
appointment. The appraisal falling between the other two appraisals shall be
binding upon Landlord and Tenant. The cost of each of the initial appraisers
shall be paid by the party selecting such appraiser and the cost of the third
appraiser shall be shared equally between Landlord and Tenant.
Landlord and Tenant agree that the Base Rent includes the right of Tenant to the
parking spaces described in (S)1.3(e) without payment of additional rent
(subject to Tenant's responsibility for repair and maintenance charges as
provided herein and in a sublease with respect to certain of the parking
spaces). In the event that Tenant becomes obligated to pay to Landlord's
lessor, or to any other party, rent with respect to such parking spaces, Tenant
shall be entitled to set off such payments against the Base Rent provided
herein.
4.1 Excess Rental Proceeds. During any Extended Term of this Lease, Tenant
shall pay Landlord seventy percent (70%) of "Excess Rental Proceeds" received
from subleases by Tenant to third parties (excluding the Landlord or its
affiliates). Excess Rental Proceeds are any rental proceeds, regardless of how
denominated, in excess of the rental amount then payable to Landlord, net of all
of Tenant's verifiable costs associated with subletting the subject space.
Excess Rental Proceeds shall not include (1) actual common area maintenance
charges calculated in proportion to Gross Rentable Area in the Building; (2)
amounts paid to Tenant by a corporation or entity controlled by, or under common
control with, the Tenant; or (3) amounts paid to Tenant by a third party under a
space lease arrangement where the third party provides financial services to
Tenant's banking customers at Tenant's offices. Excess Rental Proceeds shall be
calculated cumulatively based on each entire option period exercised. Cumulative
Excess Rental Proceeds shall be deposited in Tenant's account and shall
accumulate interest at Coastal Bank's or its successor's prime rate. At its sole
option, Tenant may remit all or part of the Excess Rental Proceeds earlier or at
shorter intervals. The balance of said Excess Rental Proceeds, together with
interest earned thereon, shall be transferred to Landlord at the expiration of
the exercised option period. Tenant shall notify Landlord after the end of each
exercised option year of the current balance in the Excess Rental Proceeds
account.
4.2 Additional Rent. In addition to the aforesaid rent, Tenant agrees to
pay as additional rent all such sums as are due and payable by Tenant to or on
behalf of Landlord pursuant to any of the subsequent provisions of this Lease,
and the failure of Tenant to pay any sums required hereunder shall be deemed as
a failure to pay rent. Landlord appoints Tenant the attorney-in-fact of Landlord
for the purpose of making all payments to be made by Tenant pursuant to any of
the provisions of this Lease to persons other than Landlord.
4.3 Net Lease. This Lease is intended as a net lease, and the minimum
rent, additional rent, and all other sums payable hereunder to or on behalf of
Landlord shall be paid by Tenant without notice or demand, and without set-off,
abatement, suspension, deduction, or defense, except as set forth herein. Under
no circumstances or conditions whether now existing or hereinafter arising, or
whether within or beyond the present contemplation of the parties shall
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Landlord or Landlord's successors or assigns be expected or required to make any
payment of any kind whatsoever, or be under any other obligation or liability
hereunder, except as specifically and expressly provided in this Lease. This
Lease shall always be construed in order to effectuate the foregoing declared
intent of the parties.
SECTION 5.0 SECURITY DEPOSIT. There shall be no security deposit in
----------------------------
connection with this Lease.
SECTION 6.0 USE. Tenant shall initially utilize the Premises for a retail
---------------
and commercial bank office of Coastal Bank, including three drive-through lanes,
office space and open office operations space. As long as Tenant is utilizing at
least the first floor of the Premises as a retail and commercial bank office
with offices (including herein any use by subtenants of portions of the first
floor to provide financial and related services incidental to Tenant's banking
services), upon written notice to the Landlord which shall include a copy of the
proposed sublease, Tenant shall have the right to sublease portions of the
Premises for such general office (including but not limited to professional
medical offices) and first floor retail uses as Tenant reasonably deems to be
compatible with the principal bank branch/general office purpose and character
of the Building and Site. In the event Tenant discontinues use of at least the
first floor of the Premises as a retail and commercial bank office with offices
(including herein any use by subtenants of portions of the first floor to
provide financial and related services incidental to Tenant's banking services),
upon written notice to the Landlord which shall include a copy of the proposed
sublease, Tenant and its subtenants shall have the right to sublet the Premises
for first floor retail and for general office purposes (including but not
limited to professional medical offices), provided the business of any proposed
subtenant shall not consist of a restaurant or food service, and is consistent
with the other uses and the standards of the Premises as determined in the
Landlord's reasonable judgment. Tenant shall obtain, at Tenant's expense, all
permits, licenses, and approvals required by any federal, state, or local
authority in connection with said use. Tenant shall not permit any nuisance on
the Premises, nor use or permit any use of the Premises which is contrary to any
law or ordinance, nor permit any use which will invalidate any policy of
insurance or materially or adversely affect the value of the Premises.
SECTION 7.0 COVENANT OF QUIET ENJOYMENT. So long as Tenant is not in
---------------------------------------
default hereunder, Tenant shall have the peaceful and quiet use and possession
of the Premises during the term hereof, subject to the terms and provisions of
this Lease; but it is understood and agreed that this covenant and any and all
other covenants of Landlord contained in this Lease shall be binding upon
Landlord and Landlord's successors only with respect to breaches occurring
during Landlord's and Landlord's successors' respective ownership of the
Landlord's interest in the Premises.
SECTION 8.0 UTILITIES. Tenant shall adequately heat and air condition the
---------------------
Premises and shall pay all charges for all utilities furnished to the Premises,
including but not limited to gas, steam, water, electricity and sewer and
telephone service. Tenant will make its own arrangements for delivery of all
necessary heating fuel to the Premises and will pay when due all charges for
such fuel. Landlord shall in no event be liable for any interruption or failure
of utilities or other services on the Premises, except if caused by Landlord's
negligence.
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SECTION 9.0 TAXES.
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9.1. Landlord shall pay, or cause to be paid, before the same become
delinquent, all real estate taxes, including assessments for local improvements
and any and all other governmental levies or charges of any kind that are levied
upon or assessed against or with respect to the Building and the Site, or any
part thereof, during the term of this Lease. Tenant shall establish for the
benefit of Landlord a tax escrow account in a federally insured depository
institution, which may at Tenant's election be the Tenant, and shall make
monthly payments into such tax escrow account in an amount reasonably calculated
by Tenant to total (as of the next due date for payment of such taxes) the real
estate taxes apportioned to Tenant under this Lease. Any interest on such tax
escrow account shall be payable to Tenant. Landlord shall be entitled to a
monthly accounting of the tax escrow account. Tenant shall reimburse Landlord,
within 10 business days of being invoiced therefor, for a portion of such taxes
equal to Tenant's proportionate share of the Gross Rentable Area of the
Building. Tenant's liability shall be further pro-rated with respect to any
portion of a tax year in which Tenant leases a portion of the Building.
9.2. Without postponing payment or otherwise adversely affecting Landlord,
Tenant may prosecute appropriate proceedings in the name of Landlord or Tenant
or both, but at the sole cost and expense of Tenant, to contest the validity or
amount of any such taxes or assessments, or to recover payments therefor, and
shall indemnify and save Landlord harmless from all costs and expenses in
connection therewith. Landlord shall cooperate with Tenant with respect to such
proceedings so far as reasonably necessary, provided that Landlord shall not be
obligated to incur any expense in connection with such cooperation. Such
contests by appropriate proceedings by the Tenant of any such tax assessments
shall be undertaken only with the prior express written consent of Landlord,
which consent shall not be unreasonably withheld, conditioned or delayed.
9.3. Tenant shall also pay all personal property taxes assessed or imposed
upon all fixtures and equipment or other personal property of every type owned
by Tenant and situated in or upon the Premises, and Tenant shall pay all license
fees or other governmental charges which may be imposed upon the Premises or the
activities of Tenant.
9.4. The foregoing provisions are predicated upon the present system of
taxation in the State of Maine. If taxes upon rentals shall be substituted, in
whole or in part, for the present ad valorem real estate taxes, then Tenant
agrees to pay such additional taxes on rentals whether the same shall be in
addition to or substitute for present ad valorem real estate taxes. Further, if
there is any other change in the system of taxation which is in substitution or
in addition to the present system, Tenant agrees to pay all such taxes.
9.5. Landlord shall cooperate with and assist the Tenant (at Tenant's
cost) in applying for Tax Increment Financing (TIF) to abate Tenant's share of
real estate taxes with the City of Portland. A reduction in taxes associated
with a successful TIF application shall be passed through to the Tenant and
Landlord on a 90%/10% basis, respectively.
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SECTION 10.0 PERSONAL PROPERTY.
------------------------------
10.1. Tenant may install equipment, machinery, and trade fixtures
necessary to carry on Tenant's business on the Premises. All such equipment,
machinery, and trade fixtures shall remain the personal property of Tenant, and
may be removed by Tenant at any time before the end of the term of this Lease,
provided that any damage to the Premises by such removal is promptly repaired by
Tenant at Tenant's own expense.
10.2. All trade fixtures, and personal property of any kind in the
Premises shall be at Tenant's sole risk, and Landlord shall not be liable for
any loss or damage to property of Tenant or others arising from theft, fire,
explosion, breakage of water pipes, steam pipes or other pipes, or by leaking
roofs, or by any other cause whatsoever unless resulting from the willful act of
Landlord.
SECTION 11.0 REPAIRS OR MAINTENANCE.
-----------------------------------
11.1. Tenant shall, at Tenant's sole cost and expense, maintain the
Premises in at least as good condition and repair (reasonable wear and tear
excepted) as they are in at the Commencement Date of this Lease or as they may
be put in thereafter. Tenant shall not permit the Premises to be overloaded,
damaged, stripped or defaced, or suffer any waste. Tenant's duty to maintain and
repair the Building and Site includes, without limitation, all mechanical,
heating, plumbing and electrical components located within or exclusively
serving the Premises, and except as specifically provided in Section 11.4 below,
all structural and nonstructural, interior and exterior portions of the Premises
including glass, vestibules and exterior doors located within or exclusively
serving the Premises and whether constructed or installed by Landlord or by
Tenant.
11.2. All alterations or repairs required by public authorities with
respect to Tenant's use of the Premises shall be made by Tenant at Tenant's
expense, except those required due to the Landlord's failure to comply with any
law, code or standard applicable, as of the Commencement Date, to Landlord's
Work on the Building or Site, unless such failure is attributable to Tenant's
design and engineering work.
11.3. With respect to repairs to the Premises which are Tenant's
obligation, if Tenant fails to commence such repairs and complete the same with
reasonable dispatch after notice from Landlord, Landlord may (but shall not be
required to) make or cause such repairs to be made and shall not be responsible
to Tenant for any loss or damage that may accrue to Tenant's business by reason
thereof. All costs and expenses incurred by Landlord in making any such repairs
shall be considered additional rent and shall be payable to Landlord upon
demand. With respect to repairs to the Premises which are Landlord's
obligation, if Landlord fails to commence such repairs and complete the same
with reasonable dispatch after notice from Tenant, Tenant may (but shall not be
required to) make or cause such repairs to be made and shall not be responsible
to Landlord for any loss or damage that may accrue to Landlord by reason
thereof. All costs and expenses incurred by Tenant in making any such repairs
shall be payable to Tenant upon
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demand.
11.4. Landlord shall maintain all mechanical, heating, plumbing and
electrical components other than located within or exclusively serving the
Premises, all exterior areas and landscaping in and about the Site, keep any
lawn areas mowed, and keep all driveways, walks, and parking and loading areas
within the Site in good repair and reasonably free of snow and ice. Landlord
shall be responsible for maintaining and keeping reasonably free of snow and ice
parking areas on the adjacent DoubleTree Hotel property reserved for Tenant's
primary use. Costs of the maintenance provided under this paragraph, other than
capital expenditures or charges that relate to the warranty of Landlord's Work,
shall be chargeable pro rata to tenants of the Building according to their
proportionate share of the Gross Rentable Area of the Building.
Landlord also agrees to maintain, at its sole cost and expense, the
structural portions of the Building in good order and repair, including
repairing and replacing foundations, structural aspects of floors, structural
supports, roofs (including maintaining the roof in a water-tight condition),
roof structures, structural aspects of walls, exterior wall surfaces, and
structural aspects of canopies. Landlord shall not be responsible for
maintaining and repairing plate glass and other window units, vestibules or
exterior doors serving the Building. Nothing in this section shall be construed
to eliminate or alter Landlord's obligations (including without limitation
warranty obligations) with respect to Landlord's Work.
11.5. Effective upon the Commencement Date, Landlord appoints Tenant as
its building manager for the Building. The building manager shall attend to the
day to day performance of Landlord's obligations hereunder, including without
limitation landscaping, mowing, common area maintenance and snow and ice
removal. Tenant may perform building management services directly, or may
contract with a third party for such services. Each tenant in the Building
shall pay to the building manager its pro rata share of expenses not chargeable
to the Landlord, together with a management fee not to exceed four percent
(4.0%) of the Base Rent then payable by such tenant. So long as the Tenant
serves as building manager, Tenant shall owe no management fee, but shall be
entitled to collect such fees and charges from the remaining tenants. If such
fees and charges are not paid to Tenant within 5 business days of demand, such
non-payment shall constitute a breach of such tenant's lease, for which the
building manager shall be entitled to, with five (5) business days' prior notice
to Landlord, declare a default under the respective lease and bring appropriate
legal proceedings, including an action for forcible entry and detainer, against
the tenant. The Landlord may waive the default or direct the building manager
not to proceed against any tenant, provided, however, that in that event, Tenant
shall be reimbursed by Landlord or have an offset against its rent for the
amount of fees and charges owing from each such tenant.
In the event that Tenant is unwilling to assume or continue building
management responsibilities, then it may relinquish that responsibility to
Landlord. In the event that Landlord holds management responsibilities
(directly or using a contractor), Landlord shall be entitled to the fees and
charges set forth in the preceding paragraph as additional rent.
SECTION 12.0 ALTERATIONS. Tenant will not make any structural alterations
------------------------
or
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<PAGE>
material changes to the Premises or any part thereof, without first obtaining
Landlord's written approval, which approval will not be unreasonably withheld,
conditioned or delayed. All work done on the Premises, whether by Landlord,
Tenant or any other tenant, shall meet the following requirements, which
requirements shall be incorporated in any lease or sublease by Landlord or
Tenant:
12.1. The work will not adversely affect the structural strength or
integrity of the Premises;
12.2. All remodeling shall be done in full conformity with plans and
specifications approved in writing by Landlord and, if visible from the exterior
of the Building, or if a part of a common area, approved in writing by Tenant;
12.3. All window treatments for the third floor, and any furnishings,
signs or improvements to the common areas shall be subject to Tenant's review
and approval for aesthetic and other purposes; for so long as Tenant exercises
its right to exclusive signature signage of the Building, Tenant shall retain
absolute discretion over aesthetic matters in all public surfaces and common
areas of the Building;
12.4. All structural improvements and alterations made by Tenant shall
immediately become the property of Landlord and shall remain on the Premises in
the absence of a written agreement to the contrary;
12.5. All work shall be done in a good and first-class workmanlike manner;
12.6. Tenants shall abide by all applicable laws, ordinances, regulations,
and insurance requirements including, without limitation, all applicable
requirements for access by disabled persons under the Maine Human Rights Law and
the Americans with Disabilities Act and shall indemnify and hold Landlord
harmless from any loss, cost, or expense arising from such tenant's failure to
comply with such requirements;
12.7. Tenants shall not permit any mechanics liens, or similar liens, to
remain upon the Premises in connection with any work performed or claimed to
have been performed at the direction of such tenant and shall cause any such
lien to be released of record forthwith (through the filing of a bond or
otherwise) without cost to Landlord.
SECTION 13.0 INDEMNIFICATION; INSURANCE.
----------------------------------------
13.1 Indemnity. Tenant and Landlord each agree to indemnify and save the
other harmless from and against all claims of whatever nature arising from any
act, omission or negligence of the indemnifying party, or its contractors,
licensees, agents, servants or employees, or arising from any accident, injury,
or damage whatsoever caused to any person or to the property of any person
occurring during the term hereof in or about the Premises. This indemnity and
hold harmless agreement shall include indemnity against all costs, expenses, and
liabilities of any kind whatsoever incurred in or in connection with any such
claim or proceeding brought
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<PAGE>
thereon, and the defense thereof.
13.2 Liability Insurance. Tenant shall maintain in full force during the
term hereof a policy of public liability and property damage insurance under
which Landlord and Tenant are named as insureds, indemnifying Landlord and
Tenant against all claims, expense and liability for injury to or death of
persons or damage to property which may be claimed to have occurred upon the
Premises. Each such policy shall be noncancelable with respect to Landlord
without (10) days' written notice to Landlord, by certified mail. The minimum
limits of liability of such insurance shall be $2,000,000 for injury or death to
persons, and $2,000,000 with respect to damage to property. Each of the
foregoing limits of insurance may be reasonably increased by Landlord, as
necessary to protect Landlord's interests.
13.3 Casualty Insurance. Tenant shall, at Tenant's own expense, maintain
fire and casualty insurance providing for insurance to the replacement value of
the Premises, or such lesser amount as is acceptable to Landlord, with extended
coverage on the Building and all improvements located on the Premises and with
carriers and in amounts approved by Landlord and any mortgagee under a mortgage
on the Premises (the "Lender"), such insurance to be payable to Landlord,
Lender, and Tenant, as their interests may appear. Tenant shall be entitled to
apply the proceeds of such insurance to repair or replace the Building.
13.4 Release and Waiver of Subrogation. Insofar as and to the extent that
the following provisions may be effective without invalidating or making it
impossible to secure insurance coverage obtainable from responsible insurance
companies doing business in the State of Maine (even though extra premium may
result therefrom), Landlord and Tenant mutually agree that with respect to any
loss which is covered by insurance then being carried by them respectively, the
one carrying such insurance and suffering such loss, releases the other of and
from any and all claims with respect to such loss, to the extent of the
insurance proceeds paid under such policies, and Landlord and Tenant mutually
agree that their respective insurance companies shall have no right of
subrogation against the other on account thereof. In the event that extra
premium is payable by either party as a result of this provision, the other
party shall reimburse the party paying such premium in the amount of such extra
premium. If, at the request of one party, this release and non-subrogation
provision is waived, then the obligation of reimbursement shall cease for such
period of time as such waiver shall be effective, but nothing contained in this
section shall be deemed to modify or otherwise affect releases elsewhere herein
contained of either party from liability for claims.
13.5 Flood Insurance. If at any time the Premises or any part thereof is
in an area which is identified by the Secretary of the United States Department
of Housing and Urban Development as having special flood hazards and in which
the sale of flood insurance is available under the National Flood Insurance Act,
Tenant shall obtain flood insurance in an amount and form satisfactory to
Landlord.
13.6 Policies. At or prior to the date Tenant commences Tenant's Work on
the Premises, and thereafter not less than ten (10) days prior to the expiration
date of each expiring policy, original copies or certificates of all insurance
policies required hereunder setting forth in
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<PAGE>
full the provisions thereof, together with satisfactory evidence of the payment
of all premiums then due therefore, shall be delivered by Tenant to Landlord and
shall, upon request of Landlord, also be delivered by Tenant to the holder of
any mortgage affecting the Premises. All such insurance shall be placed with a
responsible insurance company satisfactory to Landlord and authorized to
transact business in the State of Maine.
SECTION 14.0 COMPLIANCE WITH APPLICABLE LAWS. Tenant shall, throughout the
--------------------------------------------
term of this Lease and at Tenant's sole expense, promptly observe, comply with
and execute all laws and regulations of all federal, state and municipal
governments and appropriate departments, commissions, boards and officers
thereof and the orders and regulations of the National Board of Fire
Underwriters or any other body now or hereafter exercising similar functions
which may be applicable. Tenant shall keep the Premises equipped with all safety
appliances so required because of Tenant's use of the Premises; and shall
procure any licenses and permits required for any such use. Tenant shall comply
with all governmental laws and regulations from time to time applicable to the
Premises, including but not limited to the requirements of the Americans with
Disabilities Act and the Maine Human Rights Act and any other laws and
regulations relating to providing access and accommodation to persons with
disabilities, and Tenant shall indemnify and hold Landlord harmless from any
loss, cost or liability incurred by Landlord as a result of Tenant's failure to
comply with such requirements. The provisions of this (S)14 shall be subject to
the limitations and provisions of (S)11.
SECTION 15.0 HAZARDOUS MATERIALS. Landlord warrants and covenants to
--------------------------------
Tenants, its officers, directors, and shareholders, that as of the Commencement
Date the Premises shall not contain any Hazardous Materials, as defined herein,
except in small amounts incidental to their permitted use. Landlord shall
defend, indemnify and hold harmless Tenant from and against any loss, claims,
penalties, fines, liabilities, settlements, damages, costs, or expenses
(including, without limitation, attorney and consultant fees, court costs and
litigation expenses) arising as a result of any violation by Landlord of the
terms of this Section, or any contamination of the Premises by Hazardous
Materials as a result of action by Landlord or Landlord's agents, employees,
contractors, or invitees.
15.1 Except in small amounts incidental to their permitted use, Tenant
shall not cause or permit any Hazardous Material to be stored, generated,
brought upon, kept, or used in or about the Premises by Tenant, its agents,
employees, contractors or invitees, without first obtaining Landlord's written
consent.
15.2 Any Hazardous Material permitted on the Premises, and all containers
therefor, shall be used, kept, stored and disposed of in a manner that complies
with all federal, state and local laws or regulations applicable to any such
Hazardous Material.
15.3 Tenant will in no event permit or cause any disposal of Hazardous
Materials in or about the Premises.
15.4 Tenant shall give immediate notice to Landlord of any violation or
potential violation of the provisions of this Section and will at all reasonable
times, upon prior notice as
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provided elsewhere in this Lease, permit Landlord or its agents to enter the
Premises to inspect the same for compliance with this section.
15.5 Tenant shall defend, indemnify and hold harmless Landlord from and
against any loss, claims, penalties, fines, liabilities, settlements, damages,
costs, or expenses (including, without limitation, attorney and consultant fees,
court costs and litigation expenses) arising during or after the Lease term as a
result of any violation by Tenant of the terms of this Section, or any
contamination of the Premises or any other land of Landlord by Hazardous
Materials as a result of action by Tenant or Tenant's agents, employees,
contractors, or invitees.
15.6 The provisions of this section shall be in addition to any other
obligations and liabilities Tenant may have to Landlord at law or equity and
shall survive the transactions contemplated herein and shall survive the
termination of this Lease.
SECTION 16.0 SIGNS. Provided this Lease is in effect, Tenant shall have the
------------------
exclusive use of exterior signage on the Building, which is anticipated to equal
approximately 425 square feet, and Landlord shall have the right to place pylon
signage substantially equivalent to that shown on Exhibit E. Tenant shall be
allowed the maximum amount of "anchor" signage on the top exterior of the
Building, which is anticipated to equal approximately 365 square feet. Tenant
shall be responsible for sign design and location, subject to municipal approval
and subject to Landlord approval, which shall not be unreasonably withheld.
Landlord will assist Tenant with regard to municipal anchor signage approvals.
Tenant shall be responsible for all of the costs and expenses associated with
the design, permitting, construction, installation and operation of its signage.
Landlord and Tenant shall jointly ensure that the design and construction of the
mechanical penthouse structure are reasonably suitable and accessible for the
installation and maintenance of Tenant's signs.
SECTION 17.0 EMINENT DOMAIN. In the case of any taking by eminent domain of
---------------------------
either the whole or such lesser portion of the Premises as to preclude the use
of the Premises by Tenant for the purpose for which leased, then this Lease
shall terminate on the date of such taking. If only a portion of the Premises is
taken, and such taking does not unreasonably impair the use of the Premises for
the purpose for which leased, the Base Rent shall be reduced for the remainder
of the term, proportionately to the relative value of the portion of the
Premises so taken. No adjustment to the Base Rent shall be payable hereunder to
Tenant for the anticipated cession to or taking by the City of Portland of land
at or near the Site incidental to the widening of Congress Street, which
widening was made a condition of the approval of the initial site development by
the Planning Board of the City of Portland.
17.1 Condemnation Award. Should the Premises or any part thereof be taken
by eminent domain, the sums received in payment for the property so taken shall
be paid in their entirety to Landlord, free of any claim by Tenant, except that
Tenant shall be entitled to receive and retain any amount which may be
specifically awarded to Tenant in a condemnation proceeding because of the
taking of any machinery, equipment, trade fixtures, or other property owned by
Tenant on the Premises. To the extent of such proceeds, Landlord shall be
obligated to reconfigure the Building or the Site to address any material
diminution in access or utility
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occasioned thereby.
SECTION 18.0 DAMAGE OR DESTRUCTION. In the event of damage to or
----------------------------------
destruction of the Premises or any part thereof from fire or other casualty, at
any time during the term of this Lease prior to the final year of any term,
Landlord, subject to the rights of Landlord's mortgagees, with all reasonable
diligence shall reconstruct, repair, replace or restore the Premises to a
condition such that the value lost by the casualty is substantially restored and
the Premises are capable of continued use, and this obligation shall not be
limited in any way by the amount of available insurance proceeds, provided that
all Tenant's insurance proceeds attributable to the real estate are paid to the
Landlord. Tenant shall be entitled to an abatement of rent during any period
that a substantial portion of the Building or the Site is incapable of suitable
use. In the event that such reconstruction or repair shall not be completed
within 120 days of the damage, Tenant shall have the right, at its sole option,
to terminate the Lease.
SECTION 19.0 ASSIGNMENT OR SUBLETTING. Subject to the other conditions
-------------------------------------
specified in this Lease, and upon written notice to Landlord including a copy of
the proposed sublease, Tenant shall have the right to sublease all or a portion
of the Premises, provided that unless Landlord shall release Tenant, Tenant
shall remain fully liable to Landlord for all of the obligations imposed upon
Tenant under this Lease, including without limitation, the obligation to pay the
rent and other charges.
SECTION 20.0 ACCESS BY LANDLORD. Landlord or any person designated by
-------------------------------
Landlord shall have the right to enter the Premises at any reasonable time
during normal business hours, upon 48 hours prior notice (except in case of
emergency), for the purpose of inspecting the Premises or to make repairs. For a
period commencing one year prior to the end of the term of this Lease, Landlord
shall have the right to enter the Premises at any reasonable times, for the
purpose of exhibiting the same to prospective tenants or purchasers and shall
have the right to erect a suitable sign on the Premises indicating that the
Premises are available for sale or lease. Landlord's right of entry shall be
conditioned upon Landlord's agreement to use its best efforts not to
unreasonably disturb Tenant's business, customers or operations.
SECTION 21.0 SUBORDINATION. This Lease is and shall be subject and
--------------------------
subordinate to any mortgages that may now exist or hereafter be placed upon the
Premises by Landlord, and to any and all advances to be made thereunder, and all
renewals, replacements, and extensions thereof. Tenant shall, upon request,
execute and deliver any documents to confirm this subordination, as may be
desired by holders of such mortgages, and if requested by the mortgagee, to
agree not to prepay rent more than ten (10) days in advance, provided that the
holder of such mortgage enters into a non-disturbance agreement with Tenant by
the terms of which such holder agrees not to disturb Tenant's possession of the
Premises so long as Tenant continues to perform all obligations under this
Lease, and, in the event of acquisition of title by such holder through
foreclosure proceedings or otherwise, to accept Tenant as tenant of the Premises
under the terms and conditions of this Lease and to perform Landlord's
obligations under this Lease (but only while owner of the Premises), and to
permit the use of insurance and condemnation proceeds according to the terms of
this Lease regardless of the terms of the mortgage, and Tenant agrees to attorn
to and recognize such holder or any other person acquiring
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title to the Premises as Landlord.
SECTION 22.0 ESTOPPEL CERTIFICATES. Tenant agrees, upon at least ten (10)
----------------------------------
days prior written request by Landlord from time to time, to execute,
acknowledge, and deliver to Landlord a written statement certifying that this
Lease is unmodified and in full force and effect (or that the same is in full
force and effect as modified, listing the modifications), the date to which rent
and other charges have been paid, and whether or not to the best of Tenant's
knowledge Landlord is in default hereunder (and if so, specifying the nature of
the default), it being intended that any such statement delivered pursuant to
this section may be relied upon by a prospective purchaser or mortgagee of
Landlord's interest in the Premises.
SECTION 23.0 DEFAULT. The following events shall be deemed to be events of
--------------------
default by Tenant under this Lease:
23.1 Tenant shall fail to pay any installment of rent or any other
payment to Landlord or other parties required herein, when due, and such failure
shall continue for a period of five (5) days following written demand, or Tenant
shall fail to pay two installments of rent when due within a twelve-month
period;
23.2 Tenant shall become insolvent or make a transfer in fraud of
creditors;
23.3 A petition shall be filed against Tenant under any state or federal
bankruptcy or insolvency laws or under any similar law or statute of the United
States or any state, and not discharged within sixty (60) days after such
filing, or Tenant shall file such petition, or Tenant shall be adjudged bankrupt
or insolvent in any proceeding;
23.4 Any assignment shall be made of the property of Tenant for the
benefit of creditors, or a receiver, guardian, conservator, trustee in
involuntary bankruptcy or other similar officer shall be appointed to take
charge of all or any substantial part of Tenant's property, or the estate hereby
created shall be taken on execution or by other process of law;
23.5 Tenant shall fail to comply with any covenant, term, or provision of
this Lease (other than the payment of rent and other charges) and shall not cure
such failure within ten (10) days after written notice thereof to Tenant, or
such additional time as is reasonably required to correct such failure.
Upon the occurrence of any of the foregoing events of default, Landlord
may, immediately or at any time thereafter and without demand or notice, enter
into and upon the Premises or any part thereof in the name of the whole and
repossess the same as of Landlord's former estate, and expel Tenant and those
claiming through or under Tenant and remove all personal property and effects,
forcibly if necessary, without being deemed guilty of any manner of trespass and
without prejudice to any remedies which might otherwise be used for arrears of
rents or preceding breach of covenant, and upon entry as aforesaid this Lease
shall terminate. Notwithstanding any entry or re-entry by Landlord whether by
summary proceedings, termination or otherwise, Tenant shall remain liable for
and agrees to pay, on the days originally
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<PAGE>
fixed herein for the payment thereof, amounts equal to the several installments
of rent and other charges reserved as they would, under the terms of this Lease,
become due if this Lease had not been terminated or if Landlord had not entered
or re-entered as aforesaid, and whether the Premises be relet or remain vacant
in whole or in part or for a period less than the remainder of the term, but in
the event the Premises be relet by Landlord for the benefit of Tenant, Tenant
shall be entitled to a credit in the net amount of rent received by Landlord
after deduction of all expenses incurred in reletting (including, without
limitation, remodeling costs, attorneys' and brokerage fees, and the like).
SECTION 24.0 DEFAULT BY LANDLORD. In the event of any default by Landlord
--------------------------------
in the observance or performance of any obligation on Landlord's part to be
observed or performed under this Lease (including, without limitation,
Landlord's Work, Tenant's Work or any item on the Punch List) (as the case may
be, a "Landlord Default"), Tenant shall give Landlord written notice specifying
such Landlord Default with particularity and Landlord shall thereupon have
thirty (30) days in which cure any such Landlord Default; provided, however,
that if the nature of the Landlord Default is such that more than thirty (30)
days are required for its cure, then Landlord shall not be defaulted if Landlord
commences performance within said thirty (30) days and thereafter diligently
prosecutes the same to completion. If Landlord fails to cure any Landlord
Default after such notice and cure period, Tenant may remedy the breach or
default and deduct the reasonable cost, including interest thereon at the Prime
Rate reported in The Wall Street Journal, from the charges and rent due
hereunder and Tenant may additionally pursue any other legal or equitable remedy
for which it is entitled. Excepted from the cure periods provided in this
section are Landlord defaults related to the conduct or completion of Landlord's
Work in accordance with the Lease, for which there shall be no cure periods and
for which there shall be no notice requirements except as specifically required
or provided for in other sections of this Lease.
SECTION 25.0 REIMBURSEMENT FOR COSTS, ATTORNEYS' FEES. Landlord or Tenant
-----------------------------------------------------
mutually agree to pay to and indemnify the other against all legal costs and
charges, including attorneys' fees reasonably incurred, in enforcing any
obligation or covenant of the indemnifying party. If either party or any of its
agents or employees shall become a party to or participate in any judicial or
administrative proceeding brought against the other party, and which arises as a
result of it being a party to this Lease, that litigant shall pay and indemnify
the first party against all costs and charges, including reasonable attorneys'
fees, which it or its agents or employees shall incur.
SECTION 26.0 FORCE MAJEURE. Provided the delayed party uses reasonable
--------------------------
efforts and all due diligence to effect the required performance, in any case
where either party hereto is required to do any act, delays caused by or
resulting from Act of God, war, civil commotion, fire or other casualty, labor
difficulties, general shortages of labor, materials or equipment, government
regulations or other causes beyond such party's reasonable control (other than
causes related to such party's financial condition) shall not be counted in
determining the time when the performance of such act must be completed, whether
such time be designated by a fixed time, a fixed period of time or a "reasonable
time." The provisions of this Section 26 shall not be applicable with respect to
payment of money, or obligations under Sections 4, 8, 9, 13, 14, and 15.
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<PAGE>
SECTION 27.0 RECORDING. This Lease shall not be recorded in any registry of
----------------------
deeds or other public office, but each party agrees to execute, acknowledge, and
deliver, at the request of the other party, a memorandum of this Lease in
appropriate form for recording, in accordance with Maine statute. Such
memorandum will not set forth the rental or other charges payable by Tenant
under this Lease, and shall expressly state that it is not intended to vary the
terms or conditions of this Lease.
SECTION 28.0 NOTICES. Whenever by the terms of this Lease notice shall or
--------------------
be given to either party, such notice shall be in writing and shall be sent by
registered or certified mail, postage prepaid, to the addresses set forth on the
first page of this Lease, or such other address or addresses as either party may
from time to time hereafter designate by written notice to the other.
SECTION 29.0 SEVERABILITY. If any term or provision of this Lease, or the
-------------------------
application thereof to any person or circumstance shall to any extent be invalid
or unenforceable for any reason, then the remainder of this Lease, or the
application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable, shall not be affected
thereby, and each term or provision of this Lease shall be valid and enforced to
the fullest extent permitted by law.
SECTION 30.0 SUCCESSORS AND ASSIGNS. The conditions, covenants and
-----------------------------------
agreements in this Lease contained to be kept and performed by the parties
hereto shall be binding upon and inure to the benefit of said respective
parties, their legal representatives, successors and assigns. The term
"Landlord" as used in this Lease means only the owner for the time being of the
land and the buildings of which the Premises are a part, so that in the event of
any sale or transfer of such land and buildings or of this Lease, Landlord shall
be and hereby is entirely released of all covenants and obligations of Landlord
hereunder.
SECTION 31.0 RIGHT OF FIRST REFUSAL. If Landlord, or any person or entity
-----------------------------------
succeeding to Landlord's interests, during the Initial Term or any Renewal Term,
elects to sell all or any portion of the Premises, Tenant shall have the right
of first refusal to meet any bona fide offer of sale on the same terms and
conditions of such offer. If Tenant fails to make its offer or make a substitute
offer to Landlord that is substantially equal in value (including any value
attributable to landlord's tax considerations) to the value of any non-cash
offer received by Landlord within 30 days after notice thereof from Landlord,
including the complete terms of the bona fide offer, Landlord may sell the
premises or portion thereof to such offeror in accordance with the terms and
conditions of the offer.
SECTION 32.0 DISPUTE RESOLUTION. All controversies arising out of this
-------------------------------
agreement, or concerning the alleged breach hereof, except monetary claims for
rental, shall be submitted to binding arbitration with the American Arbitration
Association (the Association). Notwithstanding the provisions of this paragraph,
either party may seek appropriate injunctive relief for any threatened conduct.
Judgment upon the award rendered may be entered in any court of competent
jurisdiction. The procedure for arbitration shall be in accordance with the
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<PAGE>
Association's then existing rules, except that each party may select one
arbitrator, and the two selected arbitrators shall choose a third arbitrator. If
either party fails to select an arbitrator within ten days after arbitration is
sought, or the two arbitrators fail to select a third arbitrator within 15 days
after arbitration is sought, the Association shall make the selection.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals, in
any number of counterparts, the day and year first above written.
WITNESS: OLYMPIA EQUITY INVESTORS III, L.P.
By: ERIN MANAGEMENT GROUP II,
a Maine corporation, its sole general partner
/s/William E. Saufley By: /s/Kevin P. Mahaney
-----------------------------------------
Kevin P. Mahaney
Its President
Hereunto duly authorized
LANDLORD
COASTAL BANK
/s/William E. Saufley. By: /s/Gregory T. Caswell
--------------------------------------------
Gregory T. Caswell
Its President & CEO
Hereunto duly authorized
TENANT
LIST OF EXHIBITS:
A: Plan of Site
B: Legal Description of Site
C: Landlord's Work
D: Tenant's Work
E: Free-Standing Signage
LIST OF SCHEDULES:
1.1 Calculation of Rentable Area
2.1 Description of Premises; Appurtenances and rights granted with the Premises
2.2 Specification of parking areas on adjacent property
-24-
<PAGE>
EXHIBIT A
Plan of Site
[Diagram]
<PAGE>
EXHIBIT B
Legal Description of Land
Lease between Coastal Bank
and Olympia Equity Investors III, L.P.
Certain real property, together with any improvements thereon, located on the
southerly side of Congress Street in the City of Portland, County of Cumberland,
State of Maine, bounded and described as follows:
Beginning at a point on the southerly sideline of Congress Street at the
northeasterly corner of Lot #3 as it is delineated on a plan entitled,
"PLAN OF LAND IN PORTLAND, MAINE FOR CSR ASSOCIATES", dated September 24,
1973 and recorded in the Cumberland County Registry of Deeds in Plan Book
104, Page 33 and plan entitled "Amended Subdivision Plan in Portland, Maine
for CSR Associates" recorded February 12, 1997 in said Registry of Deeds in
Plan Book 197, Page 32 (the "Subdivision Plan");
Thence South 23(degrees) 05' 30" West along the I-295 right of way and
along land now or formerly of CSR Management, Inc. 228.00 feet to a point;
Thence North 65(degrees) 40' 00" West along said CSR Management, Inc. land
150.00 feet to a point;
Thence North 21(degrees) 36' 20" East along said CSR Management, Inc. land
and across land of the Grantor herein 250.00 feet to a point on the
southerly sideline of Congress Street;
Thence South 62(degrees) 07' 20" East along said sideline of Congress
Street 0.59 feet to a point;
Thence South 27(degrees) 42' 53" West along said sideline of Congress
Street 1.46 feet to a point;
Thence South 58(degrees) 17' 00" East along said sideline of Congress
Street 157.76 feet to the point of beginning containing 36,452 square feet
and being delineated on a plan entitled "ALTA/ACSM LAND TITLE SURVEY ON
CONGRESS STREET & SEWALL STREET PORTLAND, MAINE MADE FOR OLYMPIA EQUITY
INVESTORS I, L.P.", dated January 24, 1997 by Owen Haskell, Inc. ("the
Survey").
<PAGE>
Meaning and intending to convey and hereby conveying Lot #3 as depicted on
the Subdivision Plan.
Also granting an easement in common with others, for pedestrian and
vehicular ingress, egress and passage over and across the following
described property:
Commencing at the southeasterly corner of Lot 2 depicted on the Subdivision
Plan; thence North 17(degrees) 52' 40" East by Lot 2 142 feet, more or
less, to the southerly side of Congress Street; thence South 62(degrees) 7'
20" East by the southerly side of Congress Street 50.19 feet, more or less,
to the northwesterly corner of Lot 3 depicted on the Subdivision Plan;
thence South 21(degrees) 36' 20" West by said Lot 3 150 feet to a point;
thence North 49(degrees) 39' 40" West 42.93 feet, more or less, to the
point of beginning (the "Access Easement").
For Landlord's source of title reference is made to a deed from Olympia Equity
Investors I, L.P. to Olympia Equity Investors III, L.P. dated June 11, 1998
recorded in Book 13907, Page 46 of the Cumberland County Registry of Deeds.
SUBJECT TO all items of record in the Cumberland County Registry of Deeds.
Together with the benefit of the following easements and covenants:
(1) Access: A non-exclusive, perpetual easement, for the purpose of vehicular
and pedestrian ingress, egress and access to and from Lot 3 and Congress Street,
over, upon, across and through the area described above as the "Access
Easement." The owner of Lot 3 shall have the right, but not the obligation, to
perform necessary maintenance in the Access Easement area and the right to enter
upon such other portions of land adjoining the Access Easement area as are
necessary for the purpose of maintaining said Access Easement area (subject
however to the rights of the owner of Lot 2 on the Subdivision Plan).
(2) Parking: A non-exclusive, perpetual easement, for the purpose of vehicular
parking, over, upon, across and through an area within the Access Easement area
within 15 feet of the westerly line of Lot 3 (subject to the rights of the owner
of Lot 2 on the Subdivision Plan).
(3) Second Parking Easement: A non-exclusive, perpetual easement, for purposes
of parking (for not more than twenty (20) cars) over the parking areas on Lot 1
on the Subdivision Plan adjoining and to the south of Lot 3. No buildings,
fences, curbs or other obstructions prohibiting access between Lot 3, the Access
Easement, the Parking Easement, and the Second Parking Easement shall be
constructed without the prior written approval of the owner of Lot 3. The owner
of Lot 1 reserves the right at any time to relocate and reconfigure the Second
Parking Easement provided however that the
<PAGE>
rights of the owner of Lot 3 will continue in effect with respect to such
relocated and reconfigured area and the number of parking spaces available for
the non-exclusive use by the owner of Lot 3 in the location adjacent to Lot 3
shall not be reduced below twenty (20) spaces without the prior written approval
of the owner of Lot 3. The owner of Lot 1 shall be obligated to adequately
maintain the Second Parking Easement.
(4) Secondary Access Easement: A non-exclusive, perpetual easement, for purposes
of vehicular and pedestrian ingress and egress to and from Lot 3 over such
driveway and walkway areas as may exist from time to time within Lot 1, provided
that the owner of Lot 3 agrees not to use the driveways on Lot 1 for heavy truck
traffic except as may be reasonably necessary on a temporary basis for
development of Lot 3 and the owner of Lot 1 will use all reasonable efforts to
cause ingress and egress by vehicles making deliveries to the business operation
on Lot 3 to be made by way of the Access Easement area described above rather
than over the Secondary Access Easement. The owner of Lot 1 shall adequately
maintain the Secondary Access Easement areas and the owner of Lot 3 will have no
right to place signage or do any construction or maintenance in the Secondary
Access Easement. The owner of Lot 1 will have the unrestricted right at any time
and from time to time to relocate and reconfigure all driveways and sidewalks
within Lot 1 provided that the rights of the owner of Lot 3 will continue in
effect with respect to such relocated and reconfigured areas and such relocation
or reconfiguration will not unreasonably interfere with access to and from Lot 3
over Lot 1 to Sewall and Congress Streets.
(5) Surface Drainage: A non-exclusive, perpetual easement for the purpose of
surface draining any and all storm water run-off from Lot 3 and the improvements
which may, from time to time, be constructed, altered, modified and maintained
thereon, over, upon and across Lot 1, and no change of grade elevation or
excavation shall be made on Lot 1 which shall interfere with or obstruct the
drainage from Lot 3.
For Landlord's source of title for items (1) - (5) see a deed from Olympia
Equity Investors I, L.P. dated June 11, 1998 recorded in Book 13907, Page 46 of
the Cumberland County Registry of Deeds.
(6) Additional Access Easements: All rights and privileges granted to Olympia
Equity Investors III, L.P as set forth in a Mutual Easement Deed dated October
14, 1999 by and between Olympia Equity Investors I, L.P.; Olympia Equity
Investors II, LLC; Olympia Equity Investors III, L.P. and Joseph F. Dugas,
Trustee of the Merrimack Industrial Trust, said deed being recorded in Book
_____, Page ________ of the Cumberland County Registry of Deeds.
<PAGE>
EXHIBIT C
LANDLORD'S WORK
Landlord's Work shall consist of:
(1) Site improvements (including without limitation, installation of traffic
signals, construction and wiring of the stone wall suitable for free-
standing signage shown on Exhibit E, final paving, striping, and
landscaping) at and surrounding the Site, as set forth in Exhibit A; and
(2) Construction of the Building according to the Preliminary Specifications
set forth in the plans appended hereto from Alliance Construction Co.
Inc. as amended to the date hereof, wiring and other preparation for
building signage as provided in the specifications of Neokraft Signs Inc.
appended hereto, and, as to interior design and finish, plans of
Theriault/Landmann Associates, as amended to the date hereof, as each may
be modified in the Final Specifications and by subsequent change orders.
Shared Costs. Notwithstanding Landlord's responsibility to complete Landlord's
Work, Landlord and Tenant agree to share costs of the following portions of the
construction of the Building as follows:
(A) Landlord will provide Tenant an allowance of $38,766 with respect to
carpeting and installation, provided that Tenant shall select
carpeting with an installed cost of not less than $26 per square
yard. Costs in excess of the allowance are Tenant's responsibility.
In the event that the carpeting selected by Tenant shall have an
installed cost less than $26 per square yard, the savings shall be
apportioned equally between Landlord and Tenant.
(B) Landlord will provide Tenant an allowance with respect to the
interior glazing specified in the final Theriault/Landmann Associates
plan, with interior glazing costs in excess of that allowance to be
paid by Tenant. The allowance shall be equal to $15,000, so long as
the installed cost of the glazing shall be equal to or greater than
$75,000, but less than $85,000. If the installed cost shall equal or
exceed $85,000, the allowance shall equal $20,000.
(C) Landlord will provide Tenant an allowance of $15,000 with respect to
the ornamental staircase between the first and second floors
specified in the final Theriault Landmann Associates plan, with costs
in excess of that allowance to be paid by Tenant. In the event that
the staircase shall have an installed cost below $27,000, the
allowance shall be reduced by fifty cents for each dollar that the
actual cost falls below $27,000.
(D) With respect to the HVAC systems made part of the Final
Specifications, Landlord and Tenant have agreed to evenly divide the
incremental cost of the system over the cost of the system originally
specified by the contractor, provided that the total incremental cost
shall not exceed $120,000 unless
C-1
<PAGE>
mutually agreed by Landlord and Tenant, and therefore, the additional
contribution of each party shall not exceed $60,000.
(E) In view of Tenant's cost-saving modifications to the original
interior design with respect to wall coverings, Landlord shall
provide a credit to Tenant of $10,458, to be applied to: (a) the
$2,810 incremental cost associated with the showers contained in the
final plans, and (b) the remaining $7,648 to Tenant's obligations
under the foregoing paragraphs.
(F) In recognition of the incremental costs to be incurred by Tenant for
holding over at its current facility, Landlord shall provide to
Tenant an additional credit equal to one month's rent, or $23,133.63,
toward the shared costs provided in this Exhibit C, which credit
shall be recognized at settlement of the shared cost items following
the Commencement Date.
Escrow Account. On or before the Final Specifications Date, Tenant shall
establish for the benefit of Landlord an escrow account in a federally insured
depository institution, which may at Tenant's election be the Tenant, and shall
make payment into such escrow account in an amount the amount of $79,597,
representing one-half of Tenant's anticipated contributions toward Landlord's
Work. Any interest on such tax escrow account shall be payable to Tenant.
Landlord shall be entitled to an accounting of the escrow account. The escrow
agent shall reimburse Landlord, within ten (10) business days of being invoiced
therefor, for Tenant's proportionate share of each of the shared cost items
described in this Exhibit C. Within ten (10) business days following the
Commencement Date, Landlord shall account to Tenant with respect to all
expenditures made for the shared cost items under this Exhibit C, and within ten
(10) business days following the actual receipt by Tenant of such accounting,
Tenant shall pay to Landlord Tenant's remaining share of such expenses. In the
event that there remain additional escrow funds at such time, the escrow funds
shall be applied in full or partial satisfaction of Tenant's responsibility for
payment, and any remaining funds shall be repaid to Tenant.
C-2
<PAGE>
Preliminary Sign Requirements
From Neokraft Signs Inc.
"Penthouse" dimensions: Rooftop mechanicals enclosure must provide adequate
access for installation of sign. Minimum dimensions of the enclosure should be
9'8" high by 35' long on East and West facing walls; slight narrowing on North
and South facing surfaces as required by design.
Electrical requirements: Up to three (3) building top signs installed on the
mechanicals penthouse may draw as much as 85 amps (120v) per set.
Other signs' electrical requirements to be specified later.
C-3
<PAGE>
EXHIBIT D
TENANT'S WORK
Tenant's Work shall consist of:
(1) Installation of rooftop, free-standing and other signage on the
Building and Site identifying Coastal Bank connecting to structures
and wiring completed as part of Landlord's Work; and
(2) Installation of trade fixtures and equipment, including without
limitation automated teller machines, high density filing systems and
security equipment, and principal UL-rated modular bank vault (in
Landlord-prepared receptacles); and
(3) Computer and telephone systems installation and connections; and
(4) Connection of alarm devices to wiring installed by Landlord; and
(5) Set-up of systems furniture.
D-1
<PAGE>
EXHIBIT E
FREE-STANDING SIGNAGE
Pursuant to the plans for the Building, Landlord will construct a stone wall for
a free-standing sign near the Congress Street entrance to the site, and provide
the base and wiring for a sign to be attached to the stone wall by Tenant.
Pursuant to this lease, the design for the sign is to be by Tenant, subject to
Landlord and municipal approval. The following design (detail of stone wall
omitted) is expressly approved by Landlord; and substantial change from this
design is subject to future approval by Landlord, which may not be unreasonably
delayed or withheld.
[DIAGRAM]
E-1
<PAGE>
SUBLEASE
--------
This Sublease (hereinafter "Lease"), made this 26th day of October, 1999,
is between OLYMPIA EQUITY INVESTORS III, L.P. ("Lessor") and COASTAL BANK
("Lessee").
WITNESSETH, that the Lessor hereby leases to the Lessee, and the Lessee
hereby leases and takes from the Lessor, the following:
The non-exclusive right to sixty-five (65) parking spaces, twenty-three
(23) of said parking spaces being located in the area designated as "Area
A" on Exhibit A attached hereto and made a part hereof. The remainder of
the parking spaces being located generally in the area designated as "Area
B" on Exhibit A attached hereto and made a part hereof (Lessee's collective
rights in the 65 parking spaces being referred to herein as the "leased
premises").
This Lease is subject to the following terms and conditions:
ARTICLE ONE
-----------
TERM OF LEASE
-------------
1.01 The term shall begin on the Commencement Date of a certain lease
between Lessor and Lessee (the "Bank Lease") and continue for a period of ten
(10) years. Lessee shall also have the option to renew this lease for four
additional terms of five (5) years each. Lessee may exercise its option to
renew only if it renews the Bank Lease according to its terms. Renewal shall be
effective automatically upon renewal or extension of the Bank Lease, unless
Lessee provides written notice to Lessor at least 60 days prior to the
conclusion of each lease term.
ARTICLE TWO
-----------
EXPENSES, CHARGES AND OBLIGATIONS
---------------------------------
2.01 Lessor shall be responsible for completion of the parking area in
accordance with Final Specifications under the Bank Lease and conformity with
the requirements of the Site Plan approval, including without limitation
landscaping, final paving and striping. Lessee agrees that it will be
responsible for all expenses associated with maintaining, repairing, and
servicing Area A of the leased premises thereafter. Lessor shall calculate
Lessee's required contribution by multiplying the average monthly expense
associated with maintaining and repairing Area A and associated landscaping by a
fraction; the numerator of which shall be 23 (the number of parking spaces
leased to Lessee), the denominator of which shall be the total number of spaces
in the subject parking lot (currently 277). Lessor shall bill Lessee on an
annual basis for its required contribution. Lessee shall remit payment with 14
days of receipt of such bill.
2.02 Lessor shall retain the right to reconfigure all driveways, parking
lots, and sidewalks within Area A and Area B, provided that such reconfiguration
does not reduce the number of parking spaces or unreasonably reduce access to
and from the leased premises. Except as set forth herein, Lessee shall continue
to have the rights set forth above with respect to any reconfiguration of the
parking area.
1
<PAGE>
ARTICLE THREE
-------------
USE
---
3.01 Lessee shall have the right to use the leased premises for vehicular
parking for employees, customers, and tenants of the Lessee and for no other
purpose. The Parties contemplate that a majority of Lessee's use of the leased
premises will be between the hours of 7:30 am and 5:30 pm Monday through Friday
("normal business hours".) Lessee shall also have the right to place a sign or
signs reading "Parking for Coastal Bank customers, employees and tenants
7:30 am -5:30 pm" in such place or places as may be reasonably necessary to
provide Lessee with the primary use of 50 parking spaces during normal business
hours. The design and location of the signs referred to herein shall be subject
to Lessor's reasonable approval and shall conform to all applicable laws and
regulations .
ARTICLE FOUR
------------
INDEMNIFICATION AND LOSS-LIABILITY OF LESSOR
--------------------------------------------
4.01 Lessee covenants and agrees, at its sole cost and expense, to
indemnify and save harmless and defend Lessor against and from any and all loss
or liability resulting from claims by or on behalf of any person, firm,
corporation or governmental authority, arising from the occupation, use,
possession, conduct or management of or from any work or thing whatsoever done
in or about the leased premises during the lease term, or arising from any act
or negligence of Lessee, or any of Lessee's agents, contractors, servants,
tenants, employees or licensees, or arising from any accident, injury or damage
whatsoever caused to persons, firms or corporations, including any tenant of the
Lessee occurring during the lease term, in or about the leased premises, and
from and against all costs, reasonable counsel fees, expenses and liabilities
incurred in or about any such claim, action or proceeding brought thereon; and
in case any action or proceeding be brought against Lessor by reason of any such
claim, Lessee, upon notice from Lessor, covenants to resist or defend such
action or proceeding by counsel satisfactory to Lessor, unless such action or
proceeding is resisted or defended by counsel for any carrier of public
liability insurance; provided, however, that this indemnification shall not be
applicable to any claims by any person, firms or corporation for injuries or
damages resulting from (a) matters unrelated to covenants of Lessee under the
terms of this Lease and resulting from Lessor's sole negligence; or (b) use of
the leased premises by parties other than tenants, customers and employees of
Lessee.
ARTICLE FIVE
------------
INSURANCE
----------
5.01 General Liability Insurance. Lessee will general and other liability
---------------------------
insurance as will fully protect Lessee and Lessor against any and all damages as
a result of any injury or alleged injury to any person or any property arising
out of activities of Lessee on the leased premises. Lessee will obtain such
insurance from reputable insurers, acceptable to Lessor and licensed to do
business in the state of Maine. Such insurance policies shall be written,
naming Lessee and Lessor as the insured, in the amount of $2,000,000 for
personal injury or death and $2,000,000 aggregate per policy year for property
damage.
2
<PAGE>
Said policy shall contain an endorsement that the policy cannot be
canceled, materially changed or reduced, or not renewed for any reason until the
Insurer has given the Lessor at least ten (10) days' written notice of such
proposed action.
At five year intervals during the term of this Lease, Lessor may request
Lessee to revise said liability coverage, both as to amounts and type of
coverage, and Lessee will promptly so revise said coverage provided that the
coverage as requested has been considered to be a generally accepted standard in
connection with the operation of parking lots.
ARTICLE SIX
-----------
DAMAGES/CONDEMNATION
--------------------
6.01 In the event that casualty partially destroys the Leased Premises or
if all any part of the Leased Premises shall be taken or condemned in eminent
domain proceedings for any public or quasi-public use, Lessee shall have the
option to terminate this lease. Should Lessee elect to continue this lease, the
parking spaces available to Lessee may be reduced as reasonably necessary by
Lessor. Upon any such reduction the portion of maintenance and other expenses
paid by Lessee shall be proportionally reduced as well.
6.02 Lessor and Lessee each agree that they will cooperate with the other,
to such extent as such other party may reasonably require, in connection with
the prosecution or defense of any action or proceeding arising out of, or for
the collection of any insurance monies that may be due in the event of, any loss
or damage, and that each will execute and deliver to such other party such
instruments as may be required to facilitate the recovery of any insurance
monies, but the costs and expenses of all such action and proceeding shall be
paid by Lessee.
6.03 If, during the Lease term, the whole or any part of the Leased
Premises shall be taken or condemned in eminent domain proceedings for any
public or quasi-public use, the total award made with respect to the Leased
Premises shall be the sole property of Lessor. At the time of the termination of
this Lease pursuant to this Section, this Lease shall cease and terminate on the
date on which Lessee relinquishes possession of the leased premises due to such
condemnation.
ARTICLE SEVEN
-------------
ASSIGNMENT, SUBLETTING
-----------------------
7.01 Lessee shall not assign or sublet this Lease without the express
written consent of Lessor.
ARTICLE EIGHT
-------------
EXECUTION OF MEMORANDUM OF LEASE
--------------------------------
8.01 After the execution of this Lease, and at the request of either
party, Lessor and Lessee shall execute a Memorandum of Lease for recording
purposes setting forth only such details therein as shall be necessary to
satisfy local recording requirements.
3
<PAGE>
ARTICLE NINE
------------
NOTICES
-------
9.01 All notices, demands and request of either party to the other shall
be in writing and shall be personally served or sent by United States registered
or certified mail, return receipt requested, postage prepaid, to the Lessor at
500 Maine Street, Bangor, Maine 04401 and to the Lessee at P.O. Box 8550,
Portland, Maine 04104. The place for the mailing of such notice may be changed
by either party by said party giving notice in like manner and fashion to the
other party and designating a new address for the mailing of any such notices to
said other party.
ARTICLE TEN
-----------
GOVERNING LAW
-------------
10.01 This Lease shall be interpreted in accordance with the laws of the
State of Maine.
ARTICLE ELEVEN
--------------
INVALIDITY OF PARTICULAR PROVISION
----------------------------------
11.01 If any term or provision of this Lease or the application thereof to
any person or circumstances shall to any extent be invalid or unenforceable, the
remainder of this Lease, or the application of such terms or provisions to
persons or circumstances other than those as to which it is invalid or
unenforceable, shall not be affected thereby and each term of the Lease shall be
valid and shall be enforced to the fullest extent permitted by law.
ARTICLE TWELVE
--------------
BINDING EFFECT
--------------
12.01 The terms, conditions, covenants, provisions and agreements herein
contained shall be binding upon, and inure to the benefit of, the parties
hereto, and to their respective successors and assigns.
ARTICLE THIRTEEN
----------------
QUIET ENJOYMENT
---------------
13.01 Lessor covenants and warrants that Lessor is seized of and has good
and marketable leasehold title to the leased premises, free and clear of all
liens, easements and encumbrances of any nature, except for such minor defects
and irregularities of title as do not materially or adversely affect the value
of the leased premises or impair Lessee's intended use of the leased premises.
Lessor covenants and warrants that it will defend such title thereto and will
indemnify the Lessee against any damage or expense which Lessee may suffer by
reason of any defect in the title or the description herein of the leased
premises. Lessor further warrants that it has full right and authority to enter
into this Lease and perform all the provisions hereof, and the execution and
delivery of this Lease by Lessor's general partner has been fully authorized and
approved by Lessor. Lessor further covenants and warrants that if Lessee shall
discharge its obligations hereunder, Lessee, its successors in interest, and its
lessees which are not in default of
4
<PAGE>
their leases, shall have and enjoy during the term hereof the quiet undisturbed
possession and enjoyment of the Premises without hindrance from Lessor, its
assignees, affiliates or any party under Lessor's control.
13.02 If Lessor shall be in default of its obligations to its own lessor,
Lessee shall be entitled, at its sole discretion, to perform the obligations of
Lessor with respect to its lease, in whole or in part. In such event, Lessee
shall be entitled to set off any funds it may expend in connection with the
performance of such obligations against any obligation to Lessor, including
without limitation Lessee's obligation to pay rent under the Bank Lease.
IN WITNESS WHEREOF, the parties have caused this Lease to be executed as of
the day and year first above written by their undersigned duly authorized legal
representatives.
WITNESSES: LESSOR:
OLYMPIA EQUITY INVESTORS III, L.P.
By: ERIN MANAGEMENT GROUP II,
a Maine corporation, its sole general partner
/s/William E. Saufley By: /s/Kevin P. Mahaney
----------------------------------------------
Kevin P. Mahaney
Its President, hereunto duly authorized
LESSEE:
COASTAL BANK
/s/William E. Saufley By: /s/Gregory T. Caswell
----------------------------------------------
Gregory T. Caswell
Its President, hereunto duly authorized
5
<PAGE>
Schedule 1.1
CALCULATION OF RENTABLE AREA
Prepared By Matthew Baird Design
First Floor: 7,456 square feet
Where "rentable square footage" is determined by the gross area minus (2)
firestairs and the lobby, elevator, and machine room of the secondary core.
Second Floor: 11,301 square feet
Where "rentable square footage" is determined by the gross area minus (2)
firestairs and secondary elevator.
Third floor: 10,354 square feet
Where "rentable square footage" is determined by the gross area minus (2)
firestairs plus second floor secondary elevator and first floor secondary
elevator, machine room and lobby.
Total rentable square footage is 29,211 square feet.
Total gross square footage is 30,103 square feet.
In all cases, gross areas are determined by measuring square footages to the
outside of the exterior walls. Interior elevators and firestairs are measured
at the centerline of walls. Elevator and firestair walls that extend to the
perimeter walls are measured from the centerline of the interior wall segments
to the outside face of the exterior wall.
<PAGE>
Schedule 2.1
Description of Premises
Appurtenances and Rights Granted with the Premises
In summary of the provisions contained elsewhere in the Lease, and not in
limitation, thereof, the Premises are described generally as follows:
(1) The entire Gross Rentable Area (as described in Schedule 1.1) on the
first and second floors of the Building, calculated to equal 18,757
square feet, together with any additional Gross Rentable Area that may
be added from time to time;
(2) Rights to use of common areas and facilities with other tenants of the
Building, including without limitation, fire stairs, lobbies,
elevators, and machine rooms;
(3) Exclusive rights to the drive-through banking facilities;
(4) Signage rights as provided in Section 16.0 of the Lease;
(5) All pedestrian or vehicular access rights appurtenant to the Site,
whether currently existing or created hereafter;
(6) Exclusive parking rights to 23 parking spaces on site and 29 spaces
immediately South of the Site, and rights in common with other tenants
of the Building to 42 other spaces, as generally described in Schedule
2.2, subject to increase or decrease in the event that the Gross
Rentable Area subject to this Lease is increased above or decreased
below 18,757 square feet; and
(7) All other rights of Tenant in the Site or the Building arising under
the Lease or by operation of law.
Trade fixtures and equipment of the Tenant shall not be deemed to become part of
the Premises by virtue of being affixed to the Building or the Site, and Tenant
shall retain all rights of ownership to such fixtures or equipment, subject to
the terms of Section 10.0 of the Lease.
Sch 2.1-1
<PAGE>
Schedule 2.2
Specifications of parking areas on adjacent property
[DIAGRAM]
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 6,820
<INT-BEARING-DEPOSITS> 4,616
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 55,407
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 118,790
<ALLOWANCE> 2,832
<TOTAL-ASSETS> 189,769
<DEPOSITS> 139,665
<SHORT-TERM> 6,149
<LIABILITIES-OTHER> 268
<LONG-TERM> 26,319
0
0
<COMMON> 1,361
<OTHER-SE> 16,007
<TOTAL-LIABILITIES-AND-EQUITY> 189,769
<INTEREST-LOAN> 7,357
<INTEREST-INVEST> 2,494
<INTEREST-OTHER> 450
<INTEREST-TOTAL> 10,301
<INTEREST-DEPOSIT> 3,964
<INTEREST-EXPENSE> 1,165
<INTEREST-INCOME-NET> 5,172
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 22
<EXPENSE-OTHER> 4,441
<INCOME-PRETAX> 2,871
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,866
<EPS-BASIC> 1.37
<EPS-DILUTED> 1.36
<YIELD-ACTUAL> 7.74
<LOANS-NON> 373
<LOANS-PAST> 244
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,092
<ALLOWANCE-OPEN> 2,735
<CHARGE-OFFS> 6
<RECOVERIES> 103
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</TABLE>
