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As filed with the Securities and Exchange Commission on April 30, 1998
Registration No. __________
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
UNDER SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934
INLAND NORTHWEST BANCORPORATION, INC.
(Name of Small Business Issuer in its charter)
WASHINGTON 91-1574174
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
421 WEST RIVERSIDE, SUITE 113 99201-0403
SPOKANE, WASHINGTON (Zip Code)
(Address of principal executive offices)
Issuer's telephone number: (509) 456-8888
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
NONE NONE
Securities to be registered pursuant to Section 12(g) of the Act:
COMMON STOCK, WITHOUT PAR VALUE PER SHARE
(Title of class)
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PART I
(ALTERNATIVE 2)
DESCRIPTION OF BUSINESS
BUSINESS DEVELOPMENT
Inland Northwest Bancorporation, Inc. ("the Company") was incorporated as a
Washington corporation on December 10, 1991. It was formed at the request of
the Board of Directors of Inland Northwest Bank, a Washington state - chartered
commercial bank (the "Bank"), for the purpose of eventually becoming the bank
holding company parent of the Bank and any other subsidiaries which might be
established from time to time.
In 1993, the Company became the bank holding company parent of the Bank by
acquiring all the outstanding shares of common stock of the Bank in exchange for
an equal number of shares of common stock of the Company pursuant to a Plan of
Exchange dated March 23, 1993, as amended April 1, 1993, between the Company and
the Bank (the "Plan of Exchange"). The Board of Governors of the Federal
Reserve System approved the Company's application for permission to act as a
bank holding company on March 23, 1993. The shareholders of the Bank approved
the transaction on May 10, 1993. The State of Washington, Division of Banking,
approved the transaction on May 13, 1993, as a reorganization of the Bank into a
wholly-owned subsidiary of the Company, and the State of Washington issued a
Certificate of Reorganization as of that date to effect the transaction. In
accordance with the provisions of the Plan of Exchange, the transaction did not
become effective until June 10, 1993. Since then, the Bank has been a wholly-
owned subsidiary of the Company.
The Bank initially commenced operations on October 2, 1989 as a Washington
state-chartered commercial bank. During 1995, it transferred its corporate
domicile and state bank charter to Idaho in order to implement branching
activity in that state. During 1997, it re-transferred its corporate domicile
and state bank charter to Washington.
On February 27, 1998, the Company established a second subsidiary by
acquiring all of the outstanding common stock of Hege Company, Inc., a
Washington corporation doing business as Creative Mortgages and is engaged in
business as a non-supervised mortgage loan correspondent, in exchange for 2,385
shares of common stock of the Company. The shares were considered to have an
agreed market value of $28 per share, for total consideration of $66,780, plus
an additional cash payment of $145,567. The Stock Purchase Agreement is dated
February 23, 1998 between the Company, Hege Company, Inc. and its shareholders.
The Board of Governors of the Federal Reserve System approved the Company's
application to make the acquisition on February 27, 1998. In connection with
the acquisition, the mortgage broker subsidiary's name was changed to INB
Mortgage Company ("INB Mortgage"). Since the acquisition, INB Mortgage has been
a wholly-owned subsidiary of the Company.
The acquisition is being accounted for by the Company under the purchase
method of accounting, and the Company will recognize goodwill of $198,498 as a
result of the acquisition. After the acquisition, the Company increased the
capitalization of INB Mortgage by making an additional capital contribution of
$300,000 on March 3, 1998 in order to qualify INB Mortgage
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under applicable regulations to engage in additional types of correspondent
mortgage loan business. In connection with the acquisition, the Company arranged
for a $500,000 non-revolving line of credit with Key Bank of Washington. The
purpose of the line is to provide funding for the acquisition and the increased
capitalization of INB Mortgage. The line is priced at 91% of Key Bank Prime Rate
and calls for interest-only payments during the first year. Principal payments
begin two years after the date of origination and are due in four, equal, annual
installments.
Since the acquisition occurred after the Company's most recent fiscal year
ended December 31, 1997, the historical financial and other information about
the Company and its subsidiaries contained in this Form 10-SB do not reflect
that acquisition. In addition, since the acquisition is not material to the
Company under applicable accounting principles and requirements, the Company
will not be preparing pro forma financial statements for the acquisition.
GENERAL
THE COMPANY. The Company was formed because a bank holding company can
engage in certain types of financial activities not available to a commercial
bank. Over recent years, the Company has grown through the growth of the Bank,
its only subsidiary during this period. The Company recently expanded its
business through the acquisition of its INB Mortgage subsidiary. Although the
Company's management continues to consider the possibility of providing local
loan servicing for real estate mortgages or providing data processing services
for other financial institutions or other business opportunities, the Company's
Board of Directors currently has not authorized and the Company currently has
not established, any independent business activity apart from acting as the
holding company parent of the Bank and INB Mortgage. At least some of the costs
and expenses associated with any new business activity initially will need to be
funded through dividends received by the Company from the Bank or INB Mortgage.
Consequently, the Company may not be able to engage in any new business activity
if the associated costs and expenses would require the payment of a dividend
from the Bank or INB Mortgage that would adversely affect the Bank's ability to
conduct its banking activities or INB Mortgage's ability to conduct its mortgage
loan activities.
Since the primary asset of the Company currently continues to be the common
stock of the Bank, the Bank's operating results, financial position, and power
and ability to provide dividends to the Company will directly and materially
affect the operating results, financial position and liquidity of the Company.
The operating results of the Bank depend primarily on its net interest and
dividend income, which is the difference between (i) interest and dividend
income on earnings assets, primarily loans and investment securities, and (ii)
interest expense on interest bearing liabilities, which primarily consist of
deposits and borrowings. Also affecting the Bank's operating results are the
level of the provision for loan losses; the level of other operating income,
such as service charges on deposits and gains or losses on the sale of
investment securities; the level of operating expenses; and income taxes. With
the acquisition of INB Mortgage and at such time as the Company may engage in
any other business activities, the success or failure of these business
activities and the associated costs and expenses would be additional factors
affecting the operating results, financial position and liquidity of the
Company. Consequently, the position of a holding company with more diverse
business activities will be different from the position of a holding company
with a single bank subsidiary.
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THE BANK. The Bank's principal office and main branch is located in the
downtown business core of Spokane, Washington, and it has nine other branches
located in the Spokane, Washington, Coeur d'Alene, Idaho and Post Falls, Idaho
areas. The Bank considers eastern Washington and northern Idaho to be its
primary market area.
Banking Services. The Bank offers a variety of commercial and retail
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banking services. The Bank strives to occupy a niche market wherein it
specializes in the delivery of depository, cash management, and lending
arrangements to professionals in business and medical related services and to
small businesses employing from several to 150 or more employees.
More specifically, these services include a full range of deposit accounts
typically available in most banks, including checking accounts, savings
accounts, and other time deposits of various types. Transaction accounts and
time certificates are offered at rates competitive in the primary market area.
In addition, retirement accounts such as Individual Retirement Accounts are also
available. All deposit accounts are insured by the FDIC up to the maximum
amount.
The Bank also offers a full range of short-to medium-term commercial and
personal loans. These credit services include:
To businesses:
(1) Operating loans and lines;
(2) Equipment loans;
(3) Commercial real estate and construction loans;
(4) Guaranteed or subsidized loan programs for small businesses; and
(5) Accounts receivable factoring.
To individuals:
(1) Installment loans for vehicle, professional services, and personal
lines of credit;
(2) Home loans (conventional and insured);
(3) Home improvement and rehabilitation loans;
(4) Guaranteed or subsidized loan programs; and
(5) National credit card (Visa, Mastercard, etc.).
Other services that the Bank offers include cash management services,
investment services, wire transfers, direct deposit of payroll and social
security checks, automated teller machine access, and automatic drafts and
transfers to and from various accounts.
INB MORTGAGE. The principal office of INB Mortgage is located near the
downtown business core of Spokane, Washington. At the time of its acquisition
by the Company, this was the only office of the predecessor mortgage company,
which had ten employees. As a subsidiary of the Company, however, INB Mortgage
will have a larger presence in the market. The downtown location is currently
being remodeled and employment is expected to increase to fifteen at that
facility. A branch office is also in the process of being established in the
Spokane Valley,
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which will employ four. Additionally, as qualified candidates are identified,
the intent is to place mortgage loan officers in four branch locations of the
Bank. With the exception of one loan officer to be located in Coeur d'Alene,
Idaho, all of the employees of INB Mortgage will be located in the greater
Spokane area. It is anticipated that the full complement of twenty-three
employees will be in place in the third quarter of 1998.
INB Mortgage offers virtually every mortgage product available in the
market. It specializes in Conventional, FHA & VA home loans for purchase or
refinance of 1-4 family residential living units. Additionally, it provides
second mortgage loans for home improvement, bill consolidation, and other
purposes. INB Mortgage also processes loans requiring special credit
considerations, that is, subprime loans. Substantially all loans produced by
INB Mortgage are sold to third party investors, including servicing rights. INB
Mortgage will consider establishment of a loan servicing operation at some point
in the future if production provides to be adequate to profitably engage in that
type of activity.
The predecessor mortgage company was established in Spokane in 1906. The
principal employees have worked together for in excess of ten years and,
generally, have in excess of twenty years experience in the mortgage industry in
Spokane.
INB Mortgage is licensed to do business throughout the States of Washington
and Idaho; and it also solicits second mortgage business by mail outside of its
primary market areas of Spokane County, Washington and Kootenai County, Idaho.
As its core business solidifies in its primary market area, expansion to
additional markets may provide further opportunities.
COMPETITION
THE BANK. Competition in the banking and financial services industry is
significant and has intensified in recent years. Competitors include financial
institutions within the traditional banking system, such as commercial banks,
savings banks, savings and loan associations and credit unions. Furthermore,
financial institutions from outside the traditional banking system, such as
investment banking and brokerage firms, insurance companies, credit card
issuers, mortgage companies, and related industries offering bank-like products,
has widened the competition. With liberalization of interstate banking
limitations and other financial institution regulations, increased competition
and consolidation in the overall financial services industry, and other recent
developments, it is anticipated that competition will increase in the future.
The banking industry in the Bank's primary market area is characterized by
a mix of local, independent community-based banks and financial institutions and
branch offices of larger, out-of-area banks and financial institutions,
including regional and money center banks.
The branch offices of these larger, out-of-area banks and financial
institutions may have certain competitive advantages over the Bank, including
the following. With their greater size, they have high or public visibility and
are able to maintain advertising and marketing activity on a much larger scale
than the Bank is able to do. Also, since many are part of large holding company
structures, they are also able to offer, either directly or through their
affiliates, a wider array of services and products, including traditional bank
services (such as trust services and international banking services) which the
Bank does not offer at this time as well as non-traditional
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bank services (such as investment services). Since single borrower lending
limits imposed by banking regulations are dependent upon the capital of the
banking institution, the branch offices of larger institutions with substantial
capital bases have an advantage with respect to loan applications which are in
excess of the Bank's legal lending limits.
At present, there are 10 other local, independent community-based banks
operating in the Bank's primary market area which offer services similar to, and
which are in direct competition with, the Bank. One of these community-based
competitors is of a significantly larger size than the Bank and may have some or
all of the competitive advantages enjoyed by the branch offices of larger, out-
of-area institutions.
Based on industry information there are 13 commercial banks, savings banks
and savings and loan associations in Spokane County, Washington, having a total
of 102 locations and with an estimated total of $2,988 million in deposits as of
June 30, 1997, the most recent date for which information is readily available.
Based on the same information there are 10 commercial banks, savings banks and
savings and loan associations in Kootenai County, Idaho having a total of 31
locations and with an estimated total of $785 million in deposits.
The Bank also faces numerous non-bank competitors, which have some or all
of the competitive advantages enjoyed by branch offices of larger, out-of-area
institutions and may have further competitive advantages because they are not
subject to the extensive bank regulatory structure and restrictive policies
which apply to the Bank.
Despite some possible competitive advantages of the Bank's competitors, to
date the Bank has been able to compete effectively for business, in accordance
with its general business plan, because of its community-based philosophy, the
local character of its business, its focus on its identified niche market (which
the Bank believes is under served), its emphasis on offering personalized
service, and its ability to build and maintain a loyal customer base. Since
commencing operations in 1989, the Bank's total assets have grown to over
$120,000,000, and in the two most recent fiscal years ended December 31, 1997
and 1996, the Bank has experienced increases in total assets of 28.7% and 17.7%,
respectively.
INB MORTGAGE. There are approximately 120 competitors in the Spokane
market, ranging from one person mortgage brokerage offices to branch offices of
the nation's largest private mortgage lender. The Company believes INB Mortgage
can compete effectively in its market through personalized service,
technological advantages made possible by investment in state of the art
mortgage lending software and hardware, referrals generated through its
affiliation with the Bank, and by identifying and employing the most effective
mortgage loan officers in the area.
REGULATION
GENERAL. Bank holding companies such as the Company and banks such as the
Bank are extensively regulated under both federal and state law. Mortgage loan
correspondents such as INB Mortgage are subject to other federal and state
regulations. The following information describes certain aspects of regulations
applicable to the Company and its subsidiaries (including the Bank and INB
Mortgage), but does not purport to be complete and is qualified in its entirety
by reference to the particular provisions of these regulations. In addition,
federal and state
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regulations are subject to future changes that may have significant impact on
the way in which bank holding companies and their subsidiaries (including banks)
may conduct business. The likelihood and potential effects of such changes
cannot be predicted. Legislation enacted in recent years has substantially
increased the level of competition among commercial banks, savings banks, thrift
institutions and non-banking companies, including insurance companies,
securities brokerage firms, mutual funds, investment banks and major retailers.
Recent legislation also has broadened the regulatory powers of the federal
banking agencies in a number of areas.
THE COMPANY. As a bank holding company, the Company is subject to various
regulations, including the following.
Bank Holding Company Regulation. The Company is subject to the Bank
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Holding Company Act of 1956, as amended (the "BHC Act"), and related federal
statutes, and is subject to supervision, regulation and inspection by the Board
of Governors of the Federal Reserve System and the Federal Reserve Bank of San
Francisco (collectively, the "Federal Reserve"). The Company is required to
file with the Federal Reserve an annual report and any additional information as
the Federal Reserve may require pursuant to the BHC Act. The Federal Reserve
possesses cease and desist powers over bank holding companies and their non-bank
subsidiaries if their actions represent unsafe or unsound practices.
Bank Acquisitions. The BHC Act requires, among other things, the prior
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approval of the Federal Reserve in any case where the Company proposes to (i)
acquire all or substantially all the assets of any bank, (ii) acquire direct or
indirect ownership or control of more than 5% of the voting shares of any bank,
or (iii) merge or consolidate with any other bank holding company. The BHC Act
currently permits bank holding companies from any state to acquire banks and
bank holding companies located in any other state, subject to certain
conditions, including certain nationwide and state-imposed concentration limits.
The establishment of new interstate branches also will be possible in those
states with laws that expressly permit it. Interstate branches will be subject
to certain laws of the states in which they are located. Competition may
increase further as banks branch across state lines and enter new markets.
Non-Bank Acquisitions. The BHC Act also prohibits a bank holding company,
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with certain exceptions, from acquiring or retaining direct or indirect
ownership or control or more than 5% of the voting shares of any company that is
not a bank or bank holding company, and from engaging in any activities other
than those of banking, managing or controlling banks, or activities which the
Federal Reserve has determined to be so closely related to the business of
banking or managing or controlling banks as to be a proper incident thereto.
Restrictions on the Acquisition of the Company. The acquisition of 10% or
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more of the Company's outstanding shares by any person or group of persons may,
in certain circumstances, be subject to the provisions of the Change in Bank
Control Act of 1978, as amended, and the acquisition of control of the Company
by another company would be subject to regulatory approval under the BHC Act.
Source of Strength Policy. Under Federal Reserve policy, a bank holding
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company is expected to act as a source of financial strength to each of its
subsidiary banks and to commit resources to support each such bank. Consistent
with its "source of strength" policy for subsidiary
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banks, the Federal Reserve has stated that, as a matter of prudent banking, a
bank holding company generally should not maintain a rate of cash dividends
unless its net income available to common shareholders has been sufficient to
fund fully the dividends, and the prospective rate of earnings retention appears
to be consistent with the corporation's capital needs, asset quality and overall
financial condition.
Securities Regulation. Following the effective date of this registration
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statement for the Company's common stock with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the proxy and tender offer rules, periodic reporting
requirements and insider trading restrictions and reporting requirements, as
well as certain other requirements of the Exchange Act, will be applicable to
the Company. The Company also may, from time to time, be subject to regulation
by various state securities commissions with respect to the offer and sale of
its securities.
THE BANK. As a Washington state-chartered commercial bank the deposits of
which are insured by the Bank Insurance Fund (the "BIF") of the Federal Deposit
Insurance Corporation (the "FDIC"), the Bank is subject to various regulations,
including the following.
Bank Regulation. The Bank is subject to supervision, regulation and
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examination by the Divisions of Banking of the States of Washington and Idaho
and by the FDIC. The Bank is subject to various requirements and restrictions
under federal and state law, including (i) requirements to maintain reserves
against deposits, (ii) restrictions on the types, amount and terms and
conditions of loans that may be granted, (iii) limitations on the types of
investments that may be made, the activities that may be engaged in, and the
types of services that may be offered, and (iv) standards relating to asset
quality, earnings, and employee compensation. The approval of a Bank's primary
regulator is required prior to any merger or consolidation or the establishment
or relocation of any office. Various consumer laws and regulations also affect
the operations of the Banks.
Affiliate Transactions. The Bank is subject to federal laws that limit the
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transactions by subsidiary banks to or on behalf of their parent company and to
or on behalf of any non-bank subsidiaries. Such transactions by a subsidiary
bank to its parent company or to any non-bank subsidiary are limited to 10% of a
bank subsidiary's capital and surplus and, with respect to such parent company
and all such non-bank subsidiaries, to an aggregate of 20% of such bank
subsidiary's capital and surplus. Further, loans and extensions of credit
generally are required to be secured by eligible collateral in specified
amounts. Federal law also prohibits banks from purchasing "low-quality" assets
from affiliates.
FDIC Assessments. The deposits of the Banks are insured by the BIF up to a
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maximum of $100,000 per depositor and are subject to FDIC insurance assessments.
The amount of FDIC assessments paid by individual insured depository
institutions is based on their relative risk as measured by regulatory capital
ratios and certain other factors. During 1995, the FDIC's Board of Directors
significantly reduced premium rates assessed on deposits insured by the BIF. In
1996, legislation was enacted that provides that the Financing Corporation
("FICO") bond repayment obligations would be shared by institutions insured by
the BIF and the Savings Association Insurance Fund ("SAIF"). For the years 1997
through 1999, BIF-assessable deposits will be assessed at a FICO premium rate of
1/5 of the rate imposed on SAIF-assessable deposits. The
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FICO premiums for BIF and SAIF are 1.3 and 6.4 basis points, respectively, from
January 1, 1997.
Prompt Corrective Action. Federal banking agencies possess broad powers to
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take corrective action as deemed appropriate for an insured depository
institution and its holding company. The extent of these powers depends on
whether the institution in question is considered "well capitalized",
"adequately capitalized", "undercapitalized", "significantly undercapitalized"
or "critically undercapitalized". The required Tier 1 capital to average assets
ratio, Tier 1 capital to risk-weighted assets ratio for classification as
"adequately capitalized" are 4.0%, 4.0% and 8.0%, respectively. (See discussion
of the components of these ratios in "The Company and the Bank - Risk-Based
Capital Requirements" below.) The required Tier 1 capital to average assets
ratio, Tier 1 capital to risk-weighted assets ratio and total capital to risk-
weighted assets ratio for classification as "well-capitalized" are 5.0%, 6.0%
and 10.0%, respectively. As of December 31, 1997, the Bank exceeded the
required Tier 1 capital to average assets ratio, Tier 1 capital to risk-weighted
assets ratio and total capital to risk-weighted assets ratio for classification
as "well capitalized", with ratios of 8.46%, 10.98% and 12.26%, respectively.
The classification of depository institutions is primarily for the purpose of
applying the federal banking agencies' prompt corrective action powers and is
not intended to be, and should not be interpreted as, a representation of the
overall financial condition or prospects of any financial institution. The
agencies' prompt corrective action powers can include, among other things,
requiring an insured depository institution to adopt a capital restoration plan
which cannot be approved unless guaranteed by the institution's parent company;
placing limits on asset growth and restrictions on activities, including
restrictions on transactions with affiliates; restricting the interest rate the
institution may pay on deposits; prohibiting the payment of principal or
interest on subordinated debt; prohibiting the holding company from making
capital distributions without prior regulatory approval and, ultimately,
appointing a receiver for the institution. Among other things, only a "well
capitalized" depository institution may accept brokered deposits without prior
regulatory approval and only an "adequately capitalized" depository institution
may accept brokered deposits with prior regulatory approval.
Federal Home Loan Bank. The Bank is a member of the Federal Home Loan Bank
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of Seattle (the "FHLB"), which is one of twelve regional Federal Home Loan
Banks. The FHLB serves as a reserve or central bank for its members and makes
advances to its members in accordance with the FHLB's policies and procedures.
As s member of the FHLB, the Bank is required to purchase and hold stock in the
FHLB. As of December 31, 1997, the Bank held stock in the FHLB in the amount of
$309,200.
THE COMPANY AND THE BANK. As a bank holding company and state-chartered
bank, the Company and the Bank are also subject to the following further
regulation.
Risk-Based Capital Requirements. Under the risk-based capital guidelines
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applicable to the Company and the Bank, the minimum guideline for the ratio of
total capital to risk-weighted assets (including certain off-balance-sheet
activities) is 8.0%. At least half of the total capital must be "Tier 1"
capital, which primarily includes common shareholders' equity and qualifying
preferred stock, less goodwill and other disallowed tangibles. "Tier 2" capital
includes, among other items, certain cumulative and limited-life preferred
stock, qualifying subordinated debt and
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the allowance for credit losses, subject to certain limitations, less required
deductions as prescribed by regulation.
In addition, the federal bank regulators established leverage ratio (Tier 1
capital to total adjusted average assets) guidelines providing for a minimum
leverage ratio of 3.0% for bank holding companies and banks meeting certain
specified criteria, including that such institutions have the highest regulatory
examination rating and are not contemplating significant growth or expansion.
Institutions not meeting these criteria are expected to maintain a ratio which
exceeds the 3.0% minimum by at least 100 to 200 basis points. The federal bank
regulatory agencies may, however, set higher capital requirements when
particular circumstances warrant. Under the federal banking laws, failure to
meet the minimum regulatory capital requirements could subject a bank to a
variety of enforcement remedies available to federal bank regulatory agencies,
including the termination of deposit insurance by the FDIC and seizure of the
institution.
The required Tier 1 capital to average assets ratio, Tier 1 capital to
risk-weighted assets ratio for classification as "adequately capitalized" are
4.0%, 4.0% and 8.0%, respectively. (See discussion of the components of these
ratios in "The Company and the Bank - Risk-Based Capital Requirements" below.)
The required Tier 1 capital to average assets ratio, Tier 1 capital to risk-
weighted assets ratio and total capital to risk-weighted assets ratio for
classification as "well-capitalized" are 5.0%, 6.0% and 10.0%, respectively. As
of December 31, 1997, the Bank exceeded the required Tier 1 capital to average
assets ratio, Tier 1 capital to risk-weighted assets ratio and total capital to
risk-weighted assets ratio for classification as "well-capitalized," with ratios
of 8.46%, 10.98% and 12.26%, respectively.
Community Reinvestment. Bank holding companies and their subsidiary banks
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are also subject to the provisions of the Community Reinvestment Act of 1977, as
amended ("CRA"). Under the terms of the CRA, a bank's record in meeting the
credit needs of the community served by the bank, including low- and moderate-
income neighborhoods, is generally annually assessed by the bank's primary
federal regulator. When a bank holding company applies for approval to acquire a
bank or other bank holding company, the Federal Reserve will review the
assessment of each subsidiary bank of the applicant bank holding company, and
such records may be the basis for denying the application. As of December 31,
1997, the Bank was rated "Satisfactory" with respect to CRA.
Other Regulations. The policies of regulatory authorities, including the
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Federal Reserve and the FDIC, have had a significant effect on the operating
results of financial institutions in the past and are expected to do so in the
future. An important function of the Federal Reserve is to regulate aggregate
national credit and money supply through such means as open market dealings in
securities, establishment of the discount rate on bank borrowings and changes in
reserve requirements against bank deposits. Policies of these agencies may be
influenced by many factors, including inflation, unemployment, short-term and
long-term changes in the international trade balance and fiscal policies of the
United States government. Supervision, regulation or examination of the Company
by these regulatory agencies is not intended for the protection of the Company's
shareholders.
INB MORTGAGE. As a qualified FHA Direct Endorsement lender, INB Mortgage is
governed by all of the regulations established by the Department of Housing and
Urban
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Development (HUD) and is subject to their audit criteria and quality control
requirements. The same is true for loans originated under the rules of the
United States Veterans Administration. Conventional loans are produced under
rules and requirements established by the Federal National Mortgage Association
(FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). Additionally,
each investor that purchases mortgage loans from INB Mortgage may have its own
lending criteria and may reserve the right to audit procedures in place at INB
Mortgage. INB Mortgage holds a mortgage broker's license from the State of Idaho
and is subject to rules and regulations attendant to the Idaho Mortgage Brokers
Practices Act. As a subsidiary of the Company, INB Mortgage is exempt from the
requirement to hold a mortgage broker's license in the State of Washington;
however, it is subject to regulation and review through the examination
procedures established by the regulators of the Bank and as described elsewhere
in this filing.
SUMMARY PERFORMANCE INFORMATION
Certain summary recent performance information for the Bank is set forth
below. All information in this section should be read in conjunction with the
Company's consolidated financial statements and notes thereto contained in Part
F/S of this Form 10-SB.
The Bank has experienced growth in total assets of 28.7% and 17.7% for the
fiscal years ended December 31, 1997 and 1996, respectively. Net loan growth was
16.7% and 20.9% for these same periods. Also for these same periods, loan losses
net of recoveries were $47,994 and $148,766, respectively. The Bank continues to
provide for anticipated future losses through increases in the allowance for
loan loss reserve, which was at $1,085,374, or 1.39% of outstanding loans, on
December 31, 1997 and $908,368, or 1.36% of outstanding loans, on December 31,
1996. For information on the Bank's capital ratios as of December 31, 1997, see
"Regulation - The Bank - Prompt Corrective Action" and "Regulation - The Company
and the Bank - Risk-Based Capital Requirements" above.
STATISTICAL DISCLOSURE
Certain statistical and other information is set forth below. All
information in this sub-section should be read in conjunction with the Company's
consolidated financial statements and notes thereto contained in Part F/S of
this Form 10-SB.
All references in this sub-section to historical statistical and other
information are to the historical consolidated information of the Company and
the Bank for the two most recently ended fiscal years, but do not reflect the
Company's recent acquisition of INB Mortgage since the acquisition occurred
after the end of the Company's most recent fiscal year ended December 31, 1997.
I. DISTRIBUTION OF ASSETS, LIABILITIES AND STOCK EQUITY; INTEREST RATES
AND INTEREST DIFFERENTIAL. The following table sets forth comparisons of
average interest earning assets and interest bearing liabilities, and interest
income and interest expense expressed as a percentage of the related asset or
liability, for the last two fiscal years.
AVERAGE BALANCE/INTEREST INCOME AND EXPENSES RATES
(Dollars in Thousands)
Page 11 of 57
<PAGE>
<TABLE>
<CAPTION>
===========================================================================================================
1997 1996
- -----------------------------------------------------------------------------------------------------------
Avg
Interest Avg Yield Interest Yield
Average Income/ Earned/ Average Income/ Earned/
Balance Expense Rate Paid Balance Expense Rate Paid
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investment Securities:
Taxable investments $ 20,477 $1,258 6.14% $17,188 $1,051 6.11%
Nontaxable investments 78 4 5.13% 1,052 45 4.28%
-------- ------ ---- ------- ------ ----
Total investment securities $ 20,555 $1,262 6.14% $18,240 $1,096 6.01%
- -----------------------------------------------------------------------------------------------------------
Interest-bearing deposits with banks $ 285 $ 13 4.56% $ 111 $ 4 3.60%
Fed funds sold 6,798 367 5.40% 3,408 176 5.16%
-------- ------ ---- ------- ------ ----
Total investments $ 27,638 $1,642 5.94% $21,759 $1,276 5.86%
- -----------------------------------------------------------------------------------------------------------
Real estate loans $ 23,296 $2,221 9.53% $18,168 $1,718 9.46%
Consumer loans 7,417 642 8.66% 6,878 606 8.81%
VISA/MC 1,066 104 9.76% 1,008 96 9.52%
Commercial loans 39,553 3,767 9.52% 33,993 3,191 9.39%
-------- ------ ---- ------- ------ ----
Total loans $ 71,332 $6,734 9.44% $60,047 $5,611 9.34%
-------- ------ ---- ------- ------ ----
Total earnings assets $ 98,970 $8,376 8.46% $81,806 $6,887 8.42%
Less reserve for possible loan losses ($1,025) ($835)
Cash and due from banks $ 5,831 $ 5,118
Other non-earning assets 6,119 3,210
-------- -------
Total assets $109,895 $89,299
======== =======
- -----------------------------------------------------------------------------------------------------------
LIABILITIES AND
STOCKHOLDERS' EQUITY
NOW accounts $ 4 842 $ 89 1.84% $ 4,228 $ 90 2.13%
Money market accounts 23,689 994 4.20% 17,898 763 4.26%
Savings accounts 2,641 66 2.50% 3,215 81 2.52%
Other time deposits 38,954 2,209 5.67% 33,651 1,957 5.82%
-------- ------ ---- ------- ------ ----
Total interest-bearing deposits $ 70,126 $3,358 4.79% $58,992 $2,891 4.90%
Securities sold under
Repurchase agreements 9,718 472 4.86% 5,723 270 4.72%
-------- ------ ---- ------- ------ ----
Total interest-bearing liabilities $ 79,844 $3,830 4.80% $64,715 $3,161 4.88%
- -----------------------------------------------------------------------------------------------------------
Demand deposits $ 21,158 $17,860
Other liabilities 930 569
Stockholders' equity 7,963 6,155
-------- -------
Total liabilities and
stockholders' equity $109,895 $89,299
======== =======
- -----------------------------------------------------------------------------------------------------------
Net interest income $ 4,546 $ 3,726
Net avg. yield on interest- 4.59% 4.55%
bearing assets
===========================================================================================================
</TABLE>
Page 12 of 57
<PAGE>
COMMENTS
1. There were no out-of-period adjustments.
2. Loan fees are not included in interest income.
3. The Bank was not involved in any foreign activities.
The following table presents changes in interest and dividend income,
interest expense, and net interest income which are attributable to changes
in the average amounts of interest earning assets and interest bearing
liabilities and/or changes in rates earned or paid thereon, for the last
two fiscal years.
AVERAGE BALANCE/INTEREST INCOME AND EXPENSE RATES
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996
Change Net
in change
Change income/ in
in Difference expense income/
income/ in income/ due to expense
expense expense of change due to
due to 1996 volume in rate rate and
1996 change Change due to rate and volume
1997 1996 VARIANCE RATE in volume in rate change volume changes
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Loans $71,332 $60,047 $11,285 9.34% $ 1,054 0.10% $ 60 $ 11 $1,125
Securities $20,555 $18,240 $ 2,315 6.01% $ 139 0.13% $ 24 $ 3 $ 166
Fed Funds Sold $ 7,083 $ 3,519 $ 3,564 5.16% $ 182 0.25% $ 9 $ 9 $ 200
------- ------
Net Change in income on total earning assets $17,164 $1,491
======= ======
LIABILITIES
NOW Accounts $ 4,842 $ 4,228 $ 614 2.13% $ 13 -.29% ($ 12) ($ 2) ($ 1)
Money Market Accounts $23,689 $17,898 $ 5,791 4.26% $ 247 -.06% ($ -13) ($ 4) $ 230
Savings Accounts $ 2,641 $ 3,215 ($ 574) 2.52% ($ 14) -.02% ($ 1) $ 0 ($ 15)
Other Time Deposits $38,954 $33,651 $ 5,303 5.82% $ 308 -.15% ($ 49) ($ 7) $ 253
Securities Sold under $ 9,718 $ 5,723 $ 3,995 4.72% $ 188 .14% $ 8 $ 6 $ 203
Repurchase Agreements ------
Net change in expense on total interest bearing $ 670
deposits ------
Net increase in net interest income, excluding $ 821
loan fees
</TABLE>
II. INVESTMENT PORTFOLIO.
Securities. The book value of the major classifications of investment
----------
securities were as follows.
Page 13 of 57
<PAGE>
<TABLE>
<CAPTION>
December 31
-----------
(Dollars in Thousands)
----------------------
1997 1996
<S> <C> <C>
U.S. Treasury $ 5,055 $ 6,568
U.S. Government 16,976 11,121
Agencies
State and Political 970 1,573
Subdivisions
Other Securities $ 757 969
------- -------
Totals $23,758 $20,231
======= =======
</TABLE>
Analysis of Investment Securities. The following table sets forth the
---------------------------------
maturities of investment securities as of December 31, 1997.
<TABLE>
<CAPTION>
Within 1 Weighted After 1 yr. Weighted After 5 yr. but Weighted After 10 Weighted
year Average but within 5 Average within 10 yr. Average yr. Average
Maturity Yield yr. Maturity Yield Maturity Yield Maturity Yield
-------- --------- ------------ --------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury $ 0 n/a $ 4.050 6.39% $1,005 6.92% $ 0 n/a
U.S. Government
Agencies 1,768 5.32% 11,301 6.61% 1,999 6.82% 1,908 7.97%
State and Political
Subdivisions 375 4.40% 595 4.41% 0 n/a 0 n/a
Other Securities 504 6.15% 253 5.76% 0 n/a 0 n/a
------ ---- ------- ---- ------ ---- ------ ----
Totals $2,647 5.34% $16,199 6.46% $3,004 6.86% $1,908 7.97%
====== ==== ======= ==== ====== ==== ====== ====
</TABLE>
III. LOAN PORTFOLIO. The gross amounts of loans (including deferred loan
fees of $267m in 1997 and $247m in 1996) outstanding as of the and of the last
two fiscal years are shown in the following table according to type of loan.
<TABLE>
<CAPTION>
December 31
-----------
(Dollars in Thousands)
1997 1996
<S> <C> <C>
Commercial $48,289 $39,345
Real Estate Loans 21,112 18,530
Installment 3,852 3,913
Consumer and Other 4,623 4,907
------- -------
Totals $77,876 $66,695
======= =======
</TABLE>
An essential part of lending is to recognize that various risks are
associated with the lending process in general and with specific types of loans
in particular. In general, the Bank
Page 14 of 57
<PAGE>
monitors the state of the economy, local, regional, and national, comments
resulting from examinations conducted by its internal and external (including
regulatory) auditors; developing trends in loan loss experience; consumer debt
loads, concentration of loans by industry and category, rapidity of growth of
the loan portfolio; and so on. Allocation to the loan loss reserve reflects
management's best estimate of losses that are likely to be inherent in the
portfolio as a result of its analysis of the various types of risk.
In addition to the various general risks associated with the loan process,
various types of loans exhibit specific risk characteristics. Risk
characteristics typical of the following types of loans include:
Commercial Loans: Lending to small business typically entails working with
financially unsophisticated owners who may fail to maintain disciplines in the
management of their companies that the Bank would find appropriate.
Additionally, with relatively unsophisticated borrowers, the Bank may find it
difficult to maintain control of such borrowers through enforcement of various
terms and conditions of loan agreements. Many small businesses lack the
resources to deal with adverse circumstances over a prolonged period of time.
Obligations that the business may incur, exclusive of bank borrowings, may
utilize resources that had been intended to fund repayment of bank obligations.
Collateral pledged to provide an alternate source of repayment in the event of
business failure may be dissipated through sale without application of proceeds,
by becoming obsolete, due to the lack of a viable market, due to the creation of
intervening or undiscovered liens, or for a variety of other reasons. The Bank
also provides accounts receivable factoring; that is, it buys accounts
receivable from certain businesses rather than providing the business with a
line of credit. While factoring is commonplace in certain industries (such as
the fashion industry), and may not be indicative of any particular financial
weakness in the company selling its receivables, the Bank is typically extending
this facility to companies that would not otherwise qualify for commercial bank
funding. The companies that the Bank funds through its factoring program
typically exhibit one or more of the following financial weaknesses: they may be
undercapitalized; they may not have significant assets to pledge as collateral;
the guarantee of their owners may not add strength to the relationship due to
nominal net worth; the company and/or its owners may have a history of poor
credit or prior financial failure; access to capital may not be adequate to
properly fund significant growth opportunities; or, the company may be new, with
little evidence of a successful history that would support extension of
traditional bank funding. On the other hand, these companies may provide
products and services of high quality to very reputable buyers. Many of our
factoring clients, in fact, sell to regional and national firms with good
financial qualifications. The accounts receivable generated are also of
good quality; and, the Bank can provide immediate cash flow to its factoring
clients by purchasing these receivables at a discount. Risk entailed in
factoring are different in scope and nature than risks attendant to traditional
commercial bank lending. Because there is, normally, no secondary source of
repayment (collateral) the Bank needs to exercise very tight controls over the
invoices it purchases. The Bank may audit the books of its factoring clients on
a regular basis; invoices purchased may be verified by phone or by mail in order
to insure that they are legitimate receivables; and, all payments come directly
to, and bookkeeping is performed by, the bank. Additionally, because the Bank
may not have good information about the parties that our customers have sold to,
the Bank purchases "default" insurance on a significant portion of the invoices
it buys. In spite of being very labor intensive, the factoring program provides
financial return to the Bank several times higher than does traditional
commercial lending activity.
Real Estate Loans: For all real estate loans the secondary source of
repayment is sale of collateral. In a down real estate market the Bank faces the
risk of inadequate collateral value at the same time that borrowers have the
least reason, and perhaps the least ability, to retain ownership and service
debt. Owner occupied commercial real estate loans carry an additional risk in
that repayment typically relies on satisfactory financial results of the tenant
business. In the event of business failure the property may prove not to be able
to generate adequate lease income to service debt because it is of a single or
limited purpose nature suited primarily to the needs of
Page 15 of 57
<PAGE>
its current occupant. The primary risk in loans to finance non-owner occupied or
income property, as well as in lending to finance multifamily housing projects,
is the volatile nature of the rental market. Single-family residential lending
carries the risk of declining property values and abandonment of the property to
the Bank with a deficiency balance.
Real Estate Construction Loans: These loans carry the same risks as other
real estate loans; plus, the risk of cost overruns during the construction
process, poor quality construction, discovery of adverse site conditions after
initiation of construction process, intervening liens resulting from disputes
between the property owner and contractors, and failure of an identified takeout
lender to meet its obligations upon completion of the project. In addition, in
the case of non-owner occupied real estate construction loans, the project may
prove to be less marketable than anticipated at inception, resulting in high
carrying costs or inadequate proceeds upon sale to satisfy all obligations.
Installment/Consumer Loans: Loans secured by titled vehicles typically have
an alternate source of repayment provided by sale of collateral. Most other
consumer loans are either unsecured or secured by collateral with little
liquidation value. Consequently, the primary risk in consumer lending is that of
default without an identified secondary source of repayment. Default may be the
result of overextension of credit by multiple creditors, a loss of income due to
general economic slowdown or reduction in force by specific employers, personal
issues such as illness or death in the family, divorce, legal issues, and
increased acceptance of bankruptcy as a means of avoiding monetary obligations.
VISA and MasterCard loans, once extended, tend to remain available to borrowers
over prolonged periods of time during which personal financial conditions can
adversely change, without the knowledge of the Bank.
The following table shows the amounts and maturity analysis of commercial
and real estate construction loans outstanding as of December 31, 1997.
<TABLE>
<CAPTION>
After 5 yr. but
Within 1 yr. After 1 yr. but within within 10 yr.
Maturity 5 yr. Maturity Maturity TOTAL
-------- -------- -------- -----
<S> <C> <C> <C> <C>
Commercial $16,627 $ 9,804 $21,858 $48,289
Real Estate Loans 5,666 3,630 11,816 21,112
Installment 381 2,122 1,349 3,852
Consumer and Other 4,447 36 140 4,623
------- ------- ------- -------
$27,121 $15,592 $35,163 $77,876
</TABLE>
<TABLE>
<CAPTION>
Loans maturing after one year After 1 yr. but within After 5 yr.
with: 5 yr. Maturity Maturity
-------- --------
<S> <C> <C>
Fixed rates $ 9,420
Variable rates 6,172 $19,450
------- 15,713
Totals $15,592 -------
</TABLE> $35,163
Loans are placed in a non-accrual status when they are not adequately
collateralized and when, in the opinion of management, the collection of
interest is questionable.
Page 16 of 57
<PAGE>
Thereafter, no interest is taken into income unless received in cash or
until such time as the borrower demonstrates the ability to resume payments of
principal and interest. Interest previously accrued but not collected, is
reversed and charged against income at the time the loan is placed on non-
accrual status.
The following tables set forth information regarding non-performing loans
as of the end of the two most recent fiscal years.
<TABLE>
<CAPTION>
December 31
----------------------
(Dollars in Thousands)
1997 1996
----- -----
<S> <C> <C>
Loans accounted for on a non- $ 136 $ 528
accrual basis
Loans contractually past due $ 220 $ 97
ninety days or more as to
interest or principal
Impaired loans $ 717 $ 336
Gross interest income which $ 36 $ 15
would have been recorded under
original terms
Gross interest income recorded $ 37 $ 13
during the period
</TABLE>
As of the end of the most recent fiscal year ended December 31, 1997,
management has no knowledge of additional loans in which the financial condition
of its borrower is likely to result in the inability of the borrower to comply
with current loan repayment terms. All such credits known to management are
identified in the table above, and any identified potential loss has already
been recognized by charge to the Loan Loss Reserve.
IV. SUMMARY OF LOAN LOSS EXPERIENCE. The following table provides an
analysis of net losses by loan type for the two most recent fiscal years.
<TABLE>
<CAPTION>
Fiscal Years Ended
------------------
(Dollars in Thousands)
1997 1996
------- -------
<S> <C> <C>
Total loans net of deferred fees
at end of period $77,609 $66,447
Monthly average net loans 71,332 60,047
Balance of allowance for possible loan
losses at beginning of period 908 765
Loan charge-offs:
Commercial 11 91
Real estate 48
Installment 52 28
------- -------
Total charge-offs $ 63 $ 167
</TABLE>
Page 17 of 57
<PAGE>
<TABLE>
<S> <C> <C>
Recoveries of loans previously
charged-off:
Commercial 14 12
Real Estate 0 0
Installment 1 6
------- -------
Total recoveries $ 15 $ 18
------- -------
Net charge-offs (48) (149)
Provision charged to expense 225 292
Balance of allowance for possible
loan losses at end of period 1,085 908
Ratio of net charge-offs during
period to average loans outstanding 0.07% 0.25%
</TABLE>
The following table shows a breakdown of the allowance for possible loan
losses as of the end of the two most recent fiscal years.
Breakdown of Allowance for Possible Loan Losses
-----------------------------------------------
<TABLE>
<CAPTION>
December 31
-----------
(Dollars in Thousands)
----------------------
1997 1996
-------- -------
% of Loans to % of Loans to
Amount Total Loans Amount Total Loans
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
Risk Category 1 (Excellent) $ 1 0.28% $ 1 1.15%
Risk Category 2 (Good) 4 1.83% 2 1.36%
Risk Category 3 (Pass)
Commercial 229 58.20% 230 64.23%
Consumer 86 21.09% 69 19.55%
Risk Category 4 (Pass/Monitor) 74 9.51% 49 7.30%
Risk Category 5 (Watch) 17 1.47% 24 2.43%
Risk Category 6 (Substandard) 259 2.22% 133 1.34%
Risk Category 7 (Doubtful) 0 0.00% 7 0.02%
SBA Loans Sold (Retained 18 0.47% 35 1.04%
Portion)
Bankcard Loans 54 1.39% 26 1.58%
Specifically Identified Potential 227 3.54% n/a n/a
Losses
Commitments to Lend under
Lines of Credit 76 n/a 70 n/a
Supplementary Allowance Not
Specifically Allocated 40 n/a 262 n/a
------ ------ ---- ------
</TABLE>
Page 18 of 57
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
$1,085 100.00% $908 100.00%
</TABLE>
V. DEPOSITS. The average amount of deposits and average rates paid on
such deposits is summarized for the periods indicated in the following table.
<TABLE>
<CAPTION>
Fiscal Years Ended December 31
--------------------------------
(Dollars in Thousands)
1997 1996
-------- ---------
Rate Amount Rate
---- ------ ----
<S> <C> <C> <C> <C>
Non-interest bearing demand deposits $21,158 n/a $17,860 n/a
------- ---- ------- ----
Interest bearing deposits:
NOW Accounts 4,842 1.84% 4,228 2.13%
Money Market Accounts 23,689 4.20% 17,898 4.26%
Savings Accounts 2,641 2.50% 3,215 2.52%
Other Time Deposits 38,954 5.67% 33,651 5.82%
------- ---- ------- ----
Total interest bearing deposits $70,126 4.79% $58,992 4.90%
======= ==== ======= ====
</TABLE>
Maturities of time certificates of deposit over $100,000 as of the end of
the two most recent fiscal years are shown below.
<TABLE>
<CAPTION>
December 31
-----------
(Dollars in Thousands)
1997 1996
<S> <C> <C> <C>
Maturities
----------
3 months or less $ 5,442 $3,218
Over 3 through 6 months 3,802 4,083
Over 6 through 12 months 2,397 1,137
Over 1 year through 5 years 977 719
Over 5 years 0 0
------- ------
Total $12,618 $9,157
======= ======
</TABLE>
VI. RETURN ON EQUITY AND ASSETS. Certain ratios for the two most recent
fiscal years are as follows.
<TABLE>
<CAPTION>
Fiscal Year Ended December 31
------------------------------
Ratio 1997 1996
- ----- ----- ----
<S> <C> <C>
Return on average assets 0.75% 0.64%
Return on average equity 10.42% 9.23%
Equity to average assets 7.26% 6.89%
</TABLE>
Page 19 of 57
<PAGE>
<TABLE>
<S> <C> <C>
Dividend payout 0 0
</TABLE>
VII SHORT-TERM BORROWINGS. None.
FORWARD-LOOKING STATEMENTS
The section, as well as certain other sections of this Form 10-SB, may
contain forward-looking statements regarding, among other possible items,
anticipated trends in the Company's business. These forward-looking statements
are based on the Company's current expectations and are subject to a number of
risks and uncertainties, certain of which are beyond the Company's control.
Actual results could differ materially from these forward-looking statements as
a result of various factors, including, among other possible ones, competition,
regulatory, economic and business influences, services and products, business
and growth plans and strategies, and other relevant market conditions. In light
of these risks and uncertainties, there can be no assurance that the forward-
looking statements contained in this section or other sections of this Form 10-
SB will in fact transpire or prove to be accurate.
EMPLOYEES
As of December 31, 1997, the Company had no compensated employees and the
Bank had a total of 73 full-time equivalent employees. See "General - INB
Mortgage" above for information about the number of employees of INB Mortgage.
The employees are not represented by any collective bargaining unit, and
relations between management and employees are considered good.
YEAR 2000
The Company is aware of the issues associated with the programming code in
existing computer systems as the millennium ("Year 2000") approaches. The Year
2000 problem is pervasive and complex as virtually every computer operation will
be affected in some way by the rollover of the two digit year value to 00. The
issue is whether computer systems will properly recognize date sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail.
It is anticipated that all reprogramming efforts and initial testing will
be completed by September 30, 1998. Additional testing will take place
throughout the remainder of 1998 and all of 1999 to further determine that
enhancements made to the bank's data processing system are fully functional
beyond the end of the century. Substantially all of the Bank's programs operate
within a software package that was written within the last five years with the
Year 2000 issue in mind and with the capability to store data information in a
Year 2000 compliant format. The software vendor has completed testing and has
certified its software fully compliant. On site testing, utilizing Bank
hardware, operating and application software, and peripherals, will be
substantially complete by the end of September. Some minor third party software
applications, not critical to the continued smooth operation of the bank, will
not be available until year-end 1998 which means additional testing will
continue into 1999. The Bank has established a budget in excess of $300,000 in
support of its Year 2000 efforts. Nearly half that amount represents purchase
of new equipment that replaces equipment that was slated for replacement
irrespective of Year 2000 concerns. Another third of the Year 2000 budget
represents the value of time spent by Bank personnel dealing with the issue.
While Year 2000 personnel expenses do not impact Bank earnings, as the
individuals involved would have been paid the same amount regardless, the time
spent on Year 2000 issues is time that cannot be spent on other opportunities
available to the bank. Actual out of pocket cost directly related to Year 2000
concerns is anticipated to be less than $50,000 and relates to replacement of a
small number of personal computers and upgrade of commercially available
software products, such as word processing and spreadsheets.
Page 20 of 57
<PAGE>
DESCRIPTION OF PROPERTY
The Company does not own or lease any real property and does not own any
personal property other than the stock of its subsidiaries, but utilizes the
premises and equipment of the Bank.
The Bank owns the branch (the Northpointe branch) located in north Spokane,
Washington. The Bank also owns the building for the branch (the South Hill
branch) located in south Spokane, Washington, constructed on leased land.
The Bank leases its principal office and main branch located (at the
Paulsen Center) in downtown Spokane, Washington. The Bank also leases
additional, adjacent space which is used for a drive-through banking station and
parking facilities.
The Bank leases a total of six other branches situated inside retail
grocery stores. The Bank leases an additional branch in Coeur d'Alene, Idaho
(the Sherman Avenue branch). Four are located in or around Spokane, Washington,
including the Spokane Valley, Airway Heights and north Spokane (the Spokane
Valley branch, the Airway Heights branch, the North Foothills branch and the
Indian Trail branch). The remaining branches in leased facilities are located
in Post Falls, Idaho (the Post Falls branch) and Coeur d'Alene, Idaho (the
Appleway branch).
In addition to the one owned location, the Bank has made significant
building improvements in the one ground-leased location and leasehold
improvements in the eight leased locations. As of December 31, 1997, the total
net book value of the Company's consolidated premises and equipment was
$2,434,792.
INB Mortgage leases its sole office located in downtown Spokane,
Washington.
Page 21 of 57
<PAGE>
DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
DIRECTORS
The Board of Directors of the Company currently consists of thirteen
members and is divided into three classes. Directors within each class are
elected to three-year terms, meaning that under ordinary circumstances, at any
given time, approximately one-third of the Board would be in its second year of
service and another one-third would be in its third year of service. The same
persons currently serve as directors of the Bank and are elected in the same
manner.
Dwight B. Aden, Jr. - Mr. Aden is 55 and was elected as a director of the
Bank and the Company on May 20, 1996. His term as a director will be up for
election at the annual meeting of shareholders to be held in 1999. During the
past five years, Mr. Aden has been a senior member and an owner of Jones &
Mitchell Insurance Co., an insurance brokerage firm in Spokane, Washington.
Jimmie T.G. Coulson - Mr. Coulson is 64 and has been a director of the Bank
since its incorporation on May 26, 1989. He has been a director of the Company
since March 30, 1992. Mr. Coulson's current term as director of the Bank will be
up for election at the annual meeting of shareholders to be held in 1999.
During the past five years, Mr. Coulson has been the President and Chief
Executive Officer of The Coeur d'Alene's Company, a steel service center and
fabrication facility located in Spokane, Washington.
Harlan D. Douglass - Mr. Douglass is 61 and has been a director of the Bank
since May 26, 1989. He has been a director of the Company since March 30, 1992.
Mr. Douglass' current term as a director of the Bank will be up for election at
the annual meeting of shareholders to be held in 1999. Mr. Douglass' primary
business activities consist of the management of a diversified real estate
business, including multifamily and commercial projects.
Freeman B. Duncan - Mr. Duncan is 51 and was elected as a director of the
Bank and the Company on May 20, 1996. His term as a director will be up for
election at the annual meeting of shareholders to be held in 1999. Mr. Duncan
is an attorney specializing in real estate matters.
Donald A. Ellingsen, M.D. - Dr. Ellingsen is 61 and was elected as a
director of the Bank and the Company on May 20, 1996. His term as a director
will be up for election at the annual meeting of shareholders to be held in
1999. Dr. Ellingsen is an ophthalmologist and a member of the Spokane Eye
Clinic, Spokane, Washington.
Clark H. Gemmill - Mr. Gemmill is 55. He has been a director of the Bank
since its incorporation on May 26, 1989 and a director of the Company since
March 30, 1992. Mr. Gemmill's current term as a director will be up for
election at the annual meeting of shareholders to be held in 1998. During the
past five years, he has been a Vice President with Paine Webber (successor in
interest to Kidder, Peabody Inc.), a financial investment firm with a branch
office in Spokane, Washington.
Bryan S. Norby - Mr. Norby is 41. He has been a director of the Bank since
August 15, 1989, and a director of the Company since March 30, 1992. Mr.
Norby's current term as a director of the Bank will be up for election at the
Annual Meeting of the Shareholders to be held in 2000. Mr. Norby is a certified
public accountant and is Treasurer and Financial Analyst for a Boise, Idaho
based business enterprise.
Richard H. Peterson - Mr. Peterson is 63 and has been a director of the
Bank since its incorporation on May 26, 1989. He has been a director of the
Company since March 30, 1992. Mr. Peterson's current term as a director of the
Bank will be up for election at the annual meeting of the shareholders to be
held in 2000. During the past five years, Mr. Peterson has been the
Page 22 of 57
<PAGE>
President and Chief Executive Officer of Peterson & Company, an independent
investment securities firm in Spokane, Washington until 1994 and, thereafter, a
vice president of Everen Securities at its branch in Spokane.
Hubert F. Randall - Mr. Randall is 69. He has been a director of the Bank
since its incorporation on May 26, 1989 and has been a director of the Company
since March 30, 1992. Mr. Randall's current term as a director of the Bank will
be up for election at the annual meeting of the shareholders to be held in 2000.
Mr. Randall retired as the Executive Vice President and Chief Executive Officer
of Kim Hotstart Manufacturing Company, Inc., a Spokane company specializing in
the design and manufacture of heating systems for industrial engines, during
July 1990.
Phillip L. Sandberg - Mr. Sandberg is 65 and has been a director of the
Bank since its incorporation on May 26, 1989. He has been a director of the
Company since March 30, 1992. Mr. Sandberg's current term as a director of the
Bank will be up for election at the annual meeting of the shareholders to be
held in 1999. During the past five years, Mr. Sandberg has been the President
and Chief Executive Officer of Sandberg Securities, an independent investment
services firm in Spokane, Washington.
Frederick M. Schunter - Mr. Schunter is 61; he is a director, President and
Chief Executive Officer of the Bank. He has fulfilled those capacities with the
Bank since its incorporation on May 26, 1989 and he has been a director of the
Company since December 10, 1991. Mr. Schunter's term as a director will be up
for election at the annual meeting of shareholders to be held in 1998.
William E. Shelby - Mr. Shelby is 59 and has been a director of the Bank
since its incorporation on May 26, 1989. He has been a director of the Company
since March 30, 1992. Mr. Shelby's current term as a director of the Bank will
be up for election at the annual meeting of shareholders to be held in 1998.
Mr. Shelby is employed as the Vice President of Store Development for U.R.M.
Stores, Inc.
James R. Walker - Mr. Walker is 64 and has been a director of the Bank
since its incorporation on May 26, 1989. He has been a director of the Company
since March 30, 1992. Mr. Walker's current term as a director of the Bank will
be up for election at the annual meeting of the shareholders to be held in 1998.
Mr. Walker was the President and Chief Executive Officer of Hazen & Clark, Inc.,
a general contracting firm, from 1968 until his retirement in 1995.
OFFICERS
In addition to Mr. Schunter, the officers of the Bank are:
Jennifer L. Johnson - Ms. Johnson is 37 and is the Secretary, Treasurer and
Cashier of the Bank. She also is the Secretary of the Company. She has been
employed by the Bank from 1989 to date.
Christopher C. Jurey - Mr. Jurey is 48 and has been an officer of the Bank
since 1991. Prior to that time, Mr. Jurey was a Commercial Loan Officer; he
currently is an Executive Vice President.
Randall L. Fewel - Mr. Fewel is 49 and joined the Bank as a Vice President
and Senior Loan Officer in March 1994. He currently is an Executive Vice
President.
There are no family relationships among these directors and executive
officers.
Page 23 of 57
<PAGE>
REMUNERATION OF DIRECTORS AND OFFICERS
The following table sets forth information as to remuneration received by
the three highest paid employees or officers of the Bank in the 1997 fiscal
year. No officer or director of the Company has received any remuneration or
indirect financial benefit to date.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Aggregate annual
Name of individual or Capacities in remuneration remuneration
identity of group was received for last fiscal year
- --------------------------------------------------------------------------------
<S> <C> <C>
Frederick M. Schunter President and Chief Executive $155,477.87(1)
Officer
- --------------------------------------------------------------------------------
Christopher C. Jurey Executive Vice President $ 94,472.49
- --------------------------------------------------------------------------------
Randall L. Fewel Executive Vice President $102,312.32
- --------------------------------------------------------------------------------
</TABLE>
(1) Does not include benefits under a retirement plan for Mr. Schunter which
is further described below. The net post-retirement cost recognized for
this plan in fiscal year 1997 was $35,000.
Directors of the Bank receive an attendance fee in the amount of $200 per
meeting and $75 per committee meeting. Directors also receive 100 shares of
Common Stock of the Company annually. A compensation arrangement has not been
established for the directors of the Company as yet. The aggregate annual
remuneration of officers and directors of the Bank as a group was $501,969.86
for fiscal 1997.
The Bank and Frederick M. Schunter entered into an Employment Agreement
dated January 1, 1991. This employment agreement has been amended, effective
January 1, 1994. The employment term has been changed to a continuous period
until such time as the Bank notifies the employee that the Bank will establish
an employment term of three years commencing with the date of receipt of the
notice by the employee. At that time, the Bank also has the right to terminate
the employee without cause. The agreement provides that the directors will set
the Fixed Salary each year. The amended agreement also contains a covenant not
to compete providing, essentially, that the employee may not compete with the
Bank during a term of employment or for a period of three years following a
voluntary termination of employment; if there has been a change in control, as
defined by that agreement, then the covenant not to compete will be for a period
of two years. Mr. Schunter's current Fixed Salary is $130,000.
The Bank has entered into employment agreements with Mr. Jurey; Mr. Fewel
and Ms. Johnson; these employment agreements provide for a continuous employment
term until such time as the Bank notifies the employee that the Bank will
establish an employment term of one (1) year commencing with the date of receipt
of notice by the employee. The Fixed Salary for Christopher C. Jurey currently
is $85,910, the Fixed Salary for Randall L. Fewel currently is $85,910 and the
Fixed Salary for Jennifer L. Johnson is $66,000.
The Bank has purchased and maintains a term life insurance policy for the
benefit of the Chief Executive Officer during the employment term in the
aggregate amount of $250,000. The Bank is the owner and beneficiary of life
insurance policies on Mr. Schunter with a total face value of $226,274 and
cash surrender value of $95,379 and $66,390 at December 31, 1997 and 1996,
respectively.
Mr. Schunter also has an unfunded retirement plan which vests in full at
retirement. The plan provides for monthly payments to the executive upon his
retirement or termination of employment and, alternatively, to his designated
beneficiary in the event of his death, for a period of fifteen years following
retirement at age 65. At December 31, 1997 and 1996, $99,764 and $64,764,
respectively, has been accrued under this plan. This liability is recognized in
accrued interest and other liabilities in the financial statements. The present
value at retirement of the retirement benefit obligation is approximately
$220,173. The unfunded benefit is being expensed
Page 24 of 57
<PAGE>
over the period of service through his expected retirement age. The net post-
retirement benefit cost recognized during the years ended December 31, 1997 and
1996, was $35,000 and $33,000, respectively.
Both the Bank and the Company are and will be highly dependent upon the
services of Mr. Schunter, Mr. Jurey, Mr. Fewel, and Ms. Johnson. Other than the
Employment Agreements described herein, neither the Bank nor the Company have
any specific arrangement with these individuals to assure that they will remain
with the Bank or the Company and not compete upon termination of their
employment.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITY HOLDERS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
(1) (2) (3) (4)
Title of Class Name and address of owner Amount owned Percent of Class
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock F. M. Schunter
421 West Riverside, Suite 113 17,521 3.3%/(1)/
Spokane, WA 99201-0403
- ---------------------------------------------------------------------------------
Common Stock Christopher C. Jurey 5,367 1.0% /(2)/
421 West Riverside, Suite 113
Spokane, WA 99201-0403
- ---------------------------------------------------------------------------------
Common Stock Randall L. Fewel 1,457 .27%/(3)/
421 West Riverside, Suite 113
Spokane, WA 99201-0403
- ---------------------------------------------------------------------------------
Common Stock Jennifer L. Johnson 400 .07%/(4)/
421 West Riverside, Suite 113
Spokane, WA 99201-0403
- ---------------------------------------------------------------------------------
</TABLE>
/(1)/ Mr. Schunter holds warrants to purchase an additional 8,834 shares of
Common Stock of the Company for which, if exercised, he will receive
2,924 additional shares due to stock dividends declared since issuance
and the appreciation rights established within the terms of the warrant
certificate. He also has options to purchase an additional 4,000 shares
at option prices ranging between $21.00 and $25.00. An option to
purchase an additional 1,000 shares with a ten-year term was granted for
fiscal year 1997 at an option price of $26.00, subject to a vesting
schedule of 20% per year after the first year.
/(2)/ Mr. Jurey has options to purchase 1,500 shares of common stock of the
Company at option prices ranging between $24.50 and $25.00. An option to
purchase an additional 500 shares with a ten-year term was granted for
fiscal year 1997 at an option price of $26.00, subject to a vesting
schedule of 20% per year after the first year.
/(3)/ Mr. Fewel has options to purchase 1,500 shares of common stock of the
Company at option prices ranging between $24.50 and $25.00. An option to
purchase an additional 500 shares with a ten-year term was granted for
fiscal year 1997 at an option price of $26.00, subject to a vesting
schedule of 20% per year after the first year.
/(4)/ Ms. Johnson has options to purchase 1,900 shares at option prices
ranging between $21.00 to $25.00. An option to purchase an additional
500 shares was granted for fiscal year 1997 at an option price of
$26.00, subject to a vesting schedule of 20% per year after the first
year.
The stock options referred to above are accounted for under AB25-
Accounting for Stock Issued to Employees. Accordingly, no compensation cost has
been recognized by the Company related to these stock options.
Officers and directors as a group own of record, to knowledge of the
Company, 113,780 shares of common stock of the Company, representing 21.25% of
the outstanding shares of
Page 25 of 57
<PAGE>
common stock. Directors as a group hold warrants to purchase an additional
75,142 shares of common stock. No shareholder presently owns more than ten
percent (10%) of the outstanding shares of common stock of the Company.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Title and amount of
securities called for
by options, warrants
Name of holder or rights Exercise price Date of Expiration
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
F.M. Schunter option - 1000 $21.00 December 20, 1998
option - 1000 24.50 January 1, 2000
option - 1000 25.00 January 2, 2001
option - 1000 25.00 January 2, 2007
option - 1000 26.00 January 1, 2008
warrants - 11,758 11.27 January 16, 2000
(as adjusted)
- -----------------------------------------------------------------------------------
Officers and 86,542 As stated above As stated above
Directors as a
group
- -----------------------------------------------------------------------------------
</TABLE>
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
The Bank has had, and may be expected to have in the future, deposits and
loans in the ordinary course of business with directors, officers, their
immediate families and affiliated companies in which they are principal
shareholders, all of which have been, in the opinion of management, on the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable banking transactions with others. The loan balance of any one
related party is not material. The aggregate loan balances with related parties
at December 31, 1997 was $970,036.
SECURITIES BEING REGISTERED
Each holder of shares of the Company's common stock has equal rights to
receive dividends, if any, declared thereon by the Board of Directors. Each
holder of shares of the Company's common stock has equal voting rights on
matters on which they are entitled to vote under the Washington Business
Corporation Act and the Company's Articles of Incorporation and such holders do
not have cumulative voting rights in the election of directors. Under the
Company's Articles of Incorporation, shareholders do not have preemptive rights
to acquire additional shares of common stock or other securities of the Company.
Under the Company's Articles of Incorporation, the Board of Directors has
the authority to authorized the issuance of shares of preferred stock and to
establish the rights, preferences and privileges thereof without shareholder
approval.
Under the Company's Articles of Incorporation and Bylaws, the Board of
Directors is divided into three classes with staggered three-year terms, which
could have the effect of delaying, deferring or preventing a change in control.
Page 26 of 57
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
MARKET INFORMATION
There is no established public trading market for the Company's shares of
common stock. Transactions take place from time to time and the Company becomes
aware of those transactions if certificates are presented for transfer.
Quotations are published in a daily newspaper in Spokane, Washington, but those
quotations are not reflective necessarily of actual transactions. The quotations
are prepared by a registered broker as a guide to shareholders intending to
engage in a transaction. The high and low range of those quotations by quarters
for the Company's last two fiscal years is set forth below.
<TABLE>
<CAPTION>
1997* 1996
High Low High Low
<S> <C> <C> <C> <C>
January 1 - March 31 $25.0000 $24.0000 $26.0000 $24.8750
April 1 - June 30 $25.0000 $25.0000 $25.2500 $25.2500
July 1 - September 30 $25.0000 $25.0000 $25.2500 $25.2500
October 1 - December 31 $27.0000 $25.0000 $26.0000 $25.2500
</TABLE>
* In January 1997 the Company declared a 10% stock dividend. In June 1997
existing shareholders were allowed to purchase one additional share for each
five shares owned. The exercise price on the "Rights" offering was well below
market, at $16.00 per share. The quotations listed above have not been adjusted
to reflect the effect that the issuance of additional shares, some of which were
below market, may have had on actual transaction values or quotations.
The above quotations also do not reflect inter-dealer prices and should not
be considered over-the-counter market quotations as that term is customarily
used. To the best knowledge of the Company, the highest and lowest prices per
share paid in actual transactions during the quarter ended December 31, 1997 was
$27.00 and $25.00, respectively.
HOLDERS
As of December 31, 1997, there were approximately 398 holders of record of
the Company's common stock, including shares held, to the best knowledge of the
Company, by non-affiliated depositories. The Company has relied upon
information received from those depositories in determining the number of record
holders.
DIVIDENDS
In the last two fiscal years, the Company has not declared or paid any cash
dividends on its common stock.
Under the Washington Business Corporation Act, dividends may not be paid
if, after the payment is made, the corporation would not be able to pay its
debts as they become due in the usual course of business, or the corporation's
total assets would be less than the sum of its total liabilities (plus the
amount that would be needed, if the corporation were to be dissolved at the
Page 27 of 57
<PAGE>
time of the distribution, to satisfy the preferential rights upon dissolution of
shareholders, if any, whose preferential rights are superior to those receiving
the distribution).
The principal source of the Company's revenue and cash flow is dividends
from the Bank and other subsidiaries. The Bank is subject to various statutory
and regulatory restrictions on its ability to pay dividends or otherwise make
distributions or supply funds to the Company. In addition, bank regulators may
have authority to prohibit a bank subsidiary from paying dividends, depending on
the bank subsidiary's financial condition, if such payment is deemed to
constitute an unsafe or unsound practice.
Earnings appropriated to bad debt reserves for losses and deducted for
federal income tax purposes are not available for dividends without the payment
of taxes at the current income tax rates on the amount used.
ITEM 2. LEGAL PROCEEDINGS
Outside of proceedings undertaken in the ordinary course of business, there
are no pending legal proceedings in which the Company or the Bank is a party or
any of their respective properties is subject. There are no pending legal
proceedings in which any director, officer or affiliate of the Company, any
owner of record or beneficially of more than 5% of the common stock of the
Company, or any security holder of the Company is a party adverse to the Company
or its subsidiaries or has a material interest adverse to the Company or its
subsidiaries.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
During the Company's two most recent fiscal years, there has been no
resignation (or declination to stand for re-election) or dismissal of the
principal independent accountant of the Company or any significant subsidiary.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
During the last three fiscal years, the Company has sold the following
securities without registering them under the Securities Act of 1933, as
amended; (the "Securities Act"): (1) the Company issued a total 117,872 shares
of common stock on July 16, 1997 at a purchase price per share of $16.00 for
total proceeds (before costs) of $1,885,952 in a rights offering to existing
security holders pursuant to the exemption under Regulation A of the Securities
Act; (2) the Company declared a stock dividend of 10% of the outstanding shares
of common stock to shareholders of record on January 15, 1997 with a total of
37,480 shares being issued on February 14, 1997 pursuant to the exemption
under Section 2(3) of the Securities Act that registration is not required for
securities which are not issued "for value"; (3) the Company declared a stock
dividend of 10% of the outstanding shares of common stock to shareholders of
record on December 1, 1994 with a total of 33,894 shares being issued on
January 15, 1995 pursuant to the same exemption; (4) the number of shares of
common stock purchasable under outstanding warrants was increased by a total of
16,392 and 14,901 shares, respectively, in connection with the two stock
dividends referred to above as a result of anti-dilution adjustment provisions
in such warrants, which warrants were issued pursuant to the general private
placement exemption under Section 4(2) of the Securities Act; (5) the Company
issued a total of 2,633 shares of common stock on August 29, 1997 and October
20, 1997 at an average exercise price of $11.39 per share for total proceeds
(before costs) of $30,000 upon exercise of certain of such warrants; (6) the
Company issued a total of 1,400 shares of common stock on January 15, 1997 at an
average exercise of $17.50 for total proceeds (before costs) of $24,500 upon
exercise of outstanding options, which options were issued pursuant to the
general private placement exemption under Section 4(2) of the Securities Act;
and (7) the Company issued a total of 1,300 shares of common stock on June 9,
1997 and a total of 800 shares of common stock on September 30, 1996 and
April 22, 1996 to directors as part of the Company's director compensation
package pursuant to the general private placement exemption under Section 4(2)
of the Securities Act. The foregoing information regarding sales of unregistered
securities during the last three fiscal years does not include securities issued
in connection with the acquisition of INB Mortgage since that acquisition
occurred after the end of the Company's most recent fiscal year.
ITEM 5. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Article IV of the Company's Articles of Incorporation, as amended,
("Articles") provides as follows:
Limitation on Liability. To the full extent that the
Washington Business Corporation Act, as it exists on the date
hereof or may hereafter be amended, permits the limitation or
elimination or the liability of Directors, a Director of this
Corporation shall not be liable to this Corporation or its
shareholders for monetary damages for conduct as a Director,
except for:
a. Acts or omissions of the Director finally adjudged
to be intentional misconduct or a knowing violation of law
by the Director;
Page 28 of 57
<PAGE>
b. Conduct of the Director finally adjudged to be in
violation of RCW 23B.08.310 (which involves certain
distributions by the Corporation); or
c. Any transaction with respect to which it was
finally adjudged that such Director personally received a
benefit in money, property, or services to which the
Director was not legally entitled.
If the Washington Business Corporation Act is amended to
authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director
of the Corporation shall be eliminated or limited to the fullest
extent permitted by the Washington business Corporation Act, as
so amended. Any repeal or modification of the foregoing paragraph
by the shareholders of the Corporation shall not adversely effect
any right or protection of a director of the Corporation with
respect to any acts or omissions of such director occurring prior
to such repeal or modification.
This limitation shall not apply to any act or omission
occurring before the effective date of this paragraph.
The Corporation shall have the power to indemnify any
directors, officers, or former directors or officers of the
Corporation, or any person who may have served at the
Corporations's request as a director or officer of another
corporation, against expenses actually and reasonable incurred by
such person in connection with the defense of any action, suit or
proceeding, civil or criminal, in which he becomes a party by
reason of being or having been such director or officer, to the
full extend permitted by the laws of the State of Washington, as
such laws at any time may be in force and effect.
The Corporation also, to the full extent permitted by the
laws of the State of Washington, shall have the power to enter
into an agreement to advance expenses and litigation costs of any
director or former director, without making any determination of
the director's good faith, reasonable beliefs, or beliefs with
regard to the lawfulness of his or her activity and without
following the provisions of RCW 23B.08.550 or any subsequent or
similar provision of Washington law. The indemnification so
authorized shall not protect or purport to protect any director
against any liability to the Corporation or the shareholders to
which he or she otherwise would be subject by reason of
intentional misconduct, knowing violation of law, any violation
of RCW 23B.08.320, or in connection with any transaction with
respect to which it is finally adjudged that such director
personally received a benefit in money, property or services to
which that director was not legally entitled. The indemnification
so authorized shall continue in effect as it relates to all acts
or omissions committed while the director held his or her
position, notwithstanding his or her subsequent resignation or
removal from that position, and the indemnification shall inure
to the benefit of the heirs, executors, and administrators of
that person or his or her estate.
Article IV of the Company's Bylaws, as amended, provides as
follows:
Section 1. Right to Indemnification. Each individual who was
--------- ------------------------
or is made a party or is threatened to be made a party to or is
otherwise involved (including, without limitation, as a witness)
in any actual or threatened action, suit or proceeding, whether
civil, criminal, administrative or investigative and whether
formal or informal (hereinafter a "proceeding"), by reason of the
fact that he or she is or was a Director or officer of the
Corporation or, that while serving as a
Page 29 of 57
<PAGE>
Director or officer of the Corporation, he or she is or was also
serving at the request of the Corporation as a Director, officer,
partner, trustee, employee or agent of another foreign or
domestic corporation or of a foreign or domestic partnership,
joint venture, trust, employee benefit plan or other enterprise
(hereinafter an "indemnitee"), whether the basis of a proceeding
is alleged action in an official capacity as such a Director,
officer, employee, partner, trustee, or agent or in any other
capacity while serving as such a Director, officer, employee,
partner, trustee, or agent, shall be indemnified and held
harmless by the Corporation to the full extent permitted by the
Articles of Incorporation and by applicable law as then in
effect, against all expense, liability, and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts to be paid in settlement) actually and
reasonably incurred or suffered by such indemnitee in connection
therewith, and such indemnification shall continue as to an
indemnitee who has ceased to be a Director, officer, employee,
partner, trustee, or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators; provided,
however, that no indemnification shall be provided to any such
indemnitee if the Corporation is prohibited by the Articles of
Incorporation or by the Washington Business Corporation Act or
other applicable law as then in effect from paying such
indemnification; and provided, further, that except as provided
in Section 2 of this Article with respect to proceedings seeking
to enforce rights to indemnification, the Corporation shall
indemnify any such indemnitee in connection with a proceeding (or
part thereof) initiated by such indemnitee only if a proceeding
(or part thereof) was authorized or ratified by the Board. The
right to indemnification conferred in this Section 1 shall be a
contract right and shall include the right to be paid by the
Corporation the expenses incurred in defending any proceeding in
advance of its final disposition (hereinafter an "advancement of
expenses"). Any advancement of expense" shall be made only upon
delivery to the Corporation of an undertaking (hereinafter an
"undertaking"), by or on behalf of such indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final
judicial decision from which there is no further right to appeal
that such indemnitee is not entitled to be indemnified for such
expenses under this Section 1 and upon delivery to the
Corporation of a written affirmation (hereinafter an
"affirmation") by the indemnitee of his or her good faith belief
that such indemnitee has met the standard of conduct necessary
for indemnification by the Corporation pursuant to this Article.
Section 2. Right of Indemnitee to Bring Suit. If a claim
--------- ---------------------------------
under Section 1 of this Article is not paid in full by the
Corporation within sixty (60) days after a written claim has been
received by the Corporation, except in the case of a claim for an
advancement of expenses, in which case the applicable period
shall be twenty (20) days, the indemnitee may at any time
thereafter bring suit against the Corporation to recover the
unpaid amount of the claim. If successful in whole or in part, in
any such suit or in a suit brought by the Corporation to recover
an advancement of expenses pursuant to the terms of an
undertaking, the indemnitee shall be entitled to be paid also the
expense of prosecuting or defending such suit. The indemnitee
shall be presumed to be entitled to indemnification under this
Article upon submission of a written claim (and, in an action
brought to enforce a claim for an advancement of expenses, where
the required undertaking and affirmation have been tendered to
the Corporation) and thereafter the Corporation shall have the
burden of proof to overcome the presumption that the indemnitee
is so entitled. Neither the failure of the Corporation (including
the Board, independent legal counsel or the shareholders) to have
made a determination prior to the commencement of such suit that
indemnification of the indemnitee is proper in the circumstances
nor an actual determination by the Corporation (including the
Page 30 of 57
<PAGE>
Board, independent legal counsel or the shareholders) that the
indemnitee is not entitled to indemnification shall be a defense
to the suit or create a presumption that the indemnitee is not so
entitled.
Section 3. Nonexclusivity of Rights. The right to
--------- ------------------------
indemnification and the advancement of expenses conferred in this
Article shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, provision
of the Articles of Incorporation or Bylaws of the Corporation,
general or specific action of the Board, contract or otherwise.
Section 4. Insurance, Contracts and Funding. The Corporation
--------- --------------------------------
may maintain insurance, at its expense, to protect itself and any
individual who is or was a Director, officer, employee or agent
of the Corporation or who, while a Director, officer, employee or
agent of the Corporation is or was serving at the request of the
Corporation as a Director, officer, partner, trustee, employee or
agent of another foreign or domestic corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise
against any expense, liability or loss asserted against or
incurred by the individual in that capacity or arising from the
individual's status as a Director, officer, employee or agent,
whether or not the Corporation would have the power to indemnify
such person against such expense, liability or loss under the
Washington Business Corporation Act. The Corporation may enter
into contracts with any Director, officer, employee or agent of
the Corporation in furtherance of the provisions of this Article
and may create a trust fund, grant a security interest or use
other means (including, without limitation, a letter of credit)
to ensure the payment of such amounts as may be necessary to
effect indemnification as provided in this Section.
Section 5. Indemnification of Employees and Agents of the
--------- ----------------------------------------------
Corporation. The Corporation may, by action of the Board, grant
-----------
rights to indemnification and advancement of expenses to
employees and agents of the Corporation with the same scope and
effect as the provisions of this Article with respect to the
indemnification and advancement of expenses of Directors and
officers of the Corporation or pursuant to rights granted
pursuant to, or provided by, the Washington Business Corporation
Act or otherwise.
Section 6. Persons Serving Other Entities. Any individual
--------- ------------------------------
who is or was a Director, officer or employee of the Corporation
who, while a Director, officer or employee of the Corporation, is
or was serving (a) as a Director or officer of another foreign or
domestic corporation of which a majority of the shares entitled
to vote in the election of its Directors is held by the
Corporation or (b) in an executive or management capacity in a
foreign or domestic partnership, joint venture, trust or other
enterprise of which the Corporation or a wholly owned subsidiary
of the Corporation is a general partner or has a majority
ownership shall be deemed to be so serving at the request of the
Corporation and entitled to indemnification and advancement of
expenses under Section 1 of this Article.
The Company has entered into indemnification agreements with each director
as contemplated in the foregoing indemnification provisions.
Insurance is maintained on a regular basis against liabilities arising on
the part of directors and certain officers out of their performance in such
capacities or arising on the part of the Company out of the foregoing
indemnification provisions, subject to certain exclusions and to policy limits.
Page 31 of 57
<PAGE>
Reference is made to Revised Code of Washington Section 23B.08.510 et.
seq., which sets forth the extent to which indemnification and maintenance of
insurance is permitted under the Washington Business Corporation Act.
Page 32 of 57
<PAGE>
PART F/S
INLAND NORTHWEST BANCORPORATION, INC.AND SUBSIDIARY
1997 FINANCIAL STATEMENTS
Table of Contents
INDEPENDENT AUDITOR'S REPORT ON CONSOLIDATED
FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
CONSOLIDATED STATEMENTS OF INCOME
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 33 of 57
<PAGE>
[McFarland & Alton, P.S. Letterhead]
Independent Auditor's Report
----------------------------
To the Board of Directors
Inland Northwest Bancorporation, Inc.
Spokane, Washington
We have audited the accompanying consolidated statements of financial condition
of Inland Northwest Bancorporation, Inc. and subsidiary as of December 31, 1997
and 1996, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Inland
Northwest Bancorporation, Inc. and subsidiary as of December 31, 1997 and 1996,
and the results of its operations and its cash flows for the years then ended,
in conformity with generally accepted accounting principles.
As discussed in Notes 1, 2, and 20 to the consolidated financial statements, the
Corporation changed its method of accounting for earnings per share effective
January 1, 1997, to conform with Statement of Financial Accounting Standards No.
128.
/s/ McFarland & Alton, P.S.
January 13, 1998, except for Note 22
as to which the date is January 20, 1998
Page 34 of 57
<PAGE>
ASSETS
<TABLE>
<CAPTION>
-----------------------------
1997 1996
-----------------------------
<S> <C> <C>
Cash and due from banks $ 7,404,503 $ 7,614,850
Federal funds sold 7,947,500 2,725,000
Securities available-for-sale (Note 3) 23,035,683 18,697,374
Securities held-to-maturity (Note 3) 969,770 1,573,089
Federal Home Loan Bank (FHLB) stock, at cost 309,200 267,900
Loans receivable, net of allowance for loan losses
1997 $1,085,374; 1996, $908,368 (Note 4) 76,523,949 65,538,949
Premises and equipment (Note 5) 2,434,792 1,909,172
Accrued interest receivable 700,979 655,013
Foreclosed real estate, net of allowances of 1997 $85,681;
and 1996 $-0- (Note 6) 566,941 -
Other assets (Notes 12 and 13) 459,293 554,948
------------ -----------
TOTAL ASSETS $120,352,610 $99,536,295
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (Note 7) $101,711,216 $87,230,017
Securities sold under repurchase agreements (Notes 3 and 9) 8,434,126 5,209,616
Accrued interest and other liabilities (Note 12) 684,362 548,403
Federal Home Loan Bank advances (Note 8) 62,684 -
------------ -----------
TOTAL LIABILITIES 110,892,388 92,988,036
------------ -----------
COMMITMENTS AND CONTINGENCIES
(Notes 5, 10, 11, and 13)
STOCKHOLDERS'' EQUITY
Common stock, no par value, authorized
1,000,000 shares; issued 535,398 and 412,113 shares
(Notes 14 and 15) 8,064,281 6,113,286
Retained earnings (Note 15) 1,234,762 408,441
Net unrealized gain on securities available-for-sale,
net of tax 1997 $86,788; 1996, $13,668 161,179 26,532
------------ -----------
TOTAL STOCKHOLDERS' EQUITY 9,460,222 6,548,259
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $120,352,610 $99,536,295
------------ -----------
</TABLE>
The accompanying notes are an integral part of these statements.
Page 35 of 57
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
--------------------------
1997 1996
--------------------------
Interest Income:
<S> <C> <C>
Loans receivable, including fees $7,329,813 $5,998,979
Investment securities:
U.S. Treasury securities 315,491 387,082
U.S. government agency securities 821,359 556,851
Other securities 138,379 155,719
Federal funds sold 366,522 175,857
------------- -----------
TOTAL INTEREST INCOME 8,971,564 7,274,488
------------- -----------
Interest Expense:
Deposits 3,358,491 2,891,233
Repurchase agreements 471,863 269,670
------------- -----------
TOTAL INTEREST EXPENSE 3,830,354 3,160,903
------------- -----------
NET INTEREST INCOME 5,141,210 4,113,585
Provision for loan losses (Note 4) 225,000 291,600
------------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 4,916,210 3,821,985
------------- -----------
Noninterest income:
Service charges on deposits 542,748 389,082
Other income 214,430 100,683
------------- -----------
757,178 489,765
------------- -----------
Noninterest expense:
Salaries and employee benefits 2,358,453 1,953,130
Occupancy expense 329,183 279,263
Equipment expense 446,977 300,370
Losses on foreclosed real estate (Note 6) 107,450 -
Other operating expenses 1,175,078 919,877
------------- -----------
4,417,141 3,452,640
------------- -----------
INCOME BEFORE INCOME TAXES 1,256,247 859,110
Federal income tax expense (Note 12) 426,843 291,112
------------- -----------
NET INCOME $ 829,404 $ 567,998
------------- -----------
Earnings per share (Notes 2 and 20) $1.72 $1.27
------------- -----------
Earnings per share assuming full dilution (Notes 2 and 20) $1.43 $1.04
------------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
Page 36 of 57
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Common Stock Retained Net Unrealized Total
Earnings Gain (Loss) on
Securities
Available-
For-Sale
(Note 3)
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1995 $5,440,010 $ 493,879 $ 29,298 $5,963,187
Net income for 1996 - 567,998 - 567,998
Other - (160) - (160)
Issuance of stock to Directors,
800 shares (Note 15) 20,000 - - 20,000
Net change in unrealized gain
(loss) on securities available
for sale - - (2,766) (2,766)
10% stock dividend 37,480
shares of common stock
(Note 15) 653,276 (653,276) - -
------------- ---------- ---------- ---------
Balance, December 31, 1996 6,113,286 408,441 26,532 6,548,259
Net income for 1997 - 829,404 - 829,404
Exercise of 1,400 stock options 24,500 - - 24,500
Exercise of 2,663 stock warrants 30,000 - - 30,000
Issuance of stock to Directors,
1,350 shares (Note 15) 33,750 - - 33,750
Net change in unrealized gain
(loss) on securities available
for sale - - 134,647 134,647
Fractional shares issued in cash (3,083) - (3,083)
Sale of 117,872 shares of stock 1,862,745 - - 1,862,745
------------- ---------- ---------- ---------
Balance, December 31, 1997 $8,064,281 $1,234,762 $161,179 $9,460,222
------------- ---------- ---------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
Page 37 of 57
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
----------------------------
1997 1996
----------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 829,404 $ 567,998
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 295,791 256,058
Amortization 4,209 4,209
Provision for loan losses 225,000 291,600
Provision for losses on foreclosed real estate 85,681 -
Accretion of securities discounts (34,304) (37,841)
Amortization of securities premiums 147,695 239,906
Loss on disposal of assets 97,017 412
Loss on sale of foreclosed real estate 21,769 -
Stock dividends received (15,900) (19,323)
Deferred income taxes 133,290 (53,281)
(Increase) decrease in:
Accrued interest receivable (45,966) (127,791)
Other assets (13,583) (38,371)
Increase in:
Accrued interest and other liabilities 135,959 17,397
------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,866,062 1,100,973
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of FHLB stock (25,400) (41,613)
Net (increase) decrease in federal funds sold (5,222,500) 2,635,000
Securities available-for-sale:
Proceeds from maturities or principal payments 5,287,519 6,822,819
Purchases (9,518,133) (9,463,295)
Securities held-to-maturity:
Proceeds from maturities or principal payments 815,000 -
Purchases (225,000) (250,000)
Purchases of premises and equipment (918,428) (307,310)
Proceeds from sale of foreclosed real estate (50,690) -
Net increase in loans (11,935,082) (11,635,618)
------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (21,792,714) (12,240,017)
------------- --------------
</TABLE>
Page 38 of 57
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOW (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
---------------------------------
1997 1996
---------------------------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits $ 14,481,199 $ 16,143,242
Net increase (decrease) in securities sold under
repurchase agreements 3,224,510 (1,767,958)
Proceeds from issuance of capital stock 1,950,995 20,000
Payments on fractional shares (3,083) -
Proceeds of long term debt 62,684 -
--------------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 19,716,305 14,395,284
--------------- --------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (210,347) 3,256,240
Cash and due from banks, beginning of year 7,614,850 4,358,610
--------------- --------------
Cash and due from banks, end of year $ 7,404,503 $ 7,614,850
--------------- --------------
SUPPLEMENTAL CASH FLOWS INFORMATION
Cash paid during the year for:
$ 3,730,911 $ 3,149,283
Interest --------------- --------------
Income taxes $ 488,836 $ 374,547
--------------- --------------
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING ACTIVITIES
Net change in unrealized gain (loss) on securities
available-for-sale $ 207,767 $ (2,766)
--------------- --------------
Acquisition of real estate in settlement of loans $ 725,082 $ -
--------------- --------------
</TABLE>
The accompanying notes are an integral part of these statements.
Page 39 of 57
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION:
The consolidated financial statements include the accounts of Inland Northwest
Bancorporation, Inc. (the Corporation) and its wholly owned subsidiary, Inland
Northwest Bank (the Bank). All significant intercompany balances and
transactions have been eliminated in consolidation.
NATURE OF BUSINESS:
Inland Northwest Bank, the wholly owned subsidiary of Inland Northwest
Bancorporation, is a state chartered commercial bank under the laws of the state
of Washington, and provides banking services primarily throughout eastern
Washington and northern Idaho. The Corporation and its subsidiary are subject to
competition from other financial institutions, as well as nonfinancial
intermediaries. The Corporation and its subsidiary are also subject to the
regulations of certain federal and state agencies and undergo periodic
examinations by those regulatory agencies.
BASIS OF FINANCIAL STATEMENT PRESENTATION:
The financial statements have been prepared in accordance with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of certain assets and liabilities as of the date of the
statement of financial condition and certain revenues and expenses for the
period. Actual results could differ, either positively or negatively, from
those estimates.
Material estimates that are particularly susceptible to significant change in
the near-term relate to the determination of the allowance for loan losses, and
the valuation of real estate acquired in connection with foreclosures, or in
satisfaction of loans. In connection with the determination of the allowances
for loan losses and other real estate owned, management obtains independent
appraisals for significant properties.
Management believes that the allowance for loan losses and other real estate
owned are adequate. While management uses currently available information to
recognize losses on loans and other real estate (when owned), future additions
to the allowances may be necessary based on changes in economic conditions. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review the Bank's allowance for loan losses and other real
estate owned. Such agencies may require the Bank to recognize additions to the
allowances based on their judgments of information available to them at the time
of their examination.
SECURITIES HELD-TO-MATURITY:
Bonds, notes, and debentures for which the Bank has the positive intent and
ability to hold to maturity are reported at cost, adjusted for premiums and
discounts that are recognized in interest income using the interest method over
the period to maturity.
SECURITIES AVAILABLE-FOR-SALE:
Securities available-for-sale consist of bonds, notes, and debentures not
classified as securities held-to-maturity. Unrealized holding gains and losses,
net of tax, on securities available-for-sale are reported as a net amount in a
separate component of stockholders' equity until realized. Gains and losses on
the sale of securities available-for-sale are determined using the specific-
identification method. Premiums and discounts are recognized in interest income
using the interest method over the period to maturity.
LOANS:
Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or pay-off are reported at their outstanding principal
adjusted for any charge offs, the allowance for loan losses, and any deferred
fees or costs on originated loans.
Page 40 of 57
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Loan origination fees and certain direct origination costs are capitalized and
recognized as an adjustment of the yield of the related loan.
The accrual of interest on impaired loans is discontinued when, in management's
opinion, the borrower may be unable to meet payments as they become due. When
interest accrual is discontinued, all unpaid accrued interest is reversed.
Interest income is subsequently recognized only to the extent cash payments are
received.
The allowance for loan losses is increased by charges to income and decreased by
charge offs (net of recoveries). Management's periodic evaluation of the
adequacy of the allowance is based on the Bank's past loan loss experience,
known and inherent risks in the portfolio, adverse situations that may affect
the borrower's ability to repay, the estimated value of any underlying
collateral, and current economic conditions.
Interest is calculated by using the simple interest method on daily balances of
the principal amount outstanding.
PREMISES AND EQUIPMENT:
Land is carried at cost. Bank premises, furniture and equipment, and leasehold
improvements are carried at cost, less accumulated depreciation and amortization
computed principally by the straight-line method. Normal costs of maintenance
and repairs are charged to expense as incurred.
FORECLOSED REAL ESTATE:
Real estate properties acquired through, or in lieu of, loan foreclosure are to
be sold and are initially recorded at fair value at the date of foreclosure
establishing a new cost basis. After foreclosure, valuations are periodically
performed by management and the real estate is carried at the lower of carrying
amount or fair value less cost to sell. An allowance for impairment losses is
used for fluctuations in estimated fair value.
INCOME TAXES:
The Corporation and its subsidiary file a consolidated federal income tax
return. The income tax related to the individual entities is generally computed
as if each one had filed a separate tax return.
Provisions for income taxes are based on taxes payable or refundable for the
current year (after exclusion of nontaxable income such as interest on state and
municipal securities) and deferred taxes on temporary differences between the
amount of taxable income and pretax financial income and between the tax bases
of assets and liabilities and their reported amounts in the consolidated
financial statements. Deferred tax assets and liabilities are included in the
consolidated financial statements at currently enacted income tax rates
applicable to the period in which the deferred tax assets and liabilities are
expected to be realized or settled. As changes in tax laws or rates are enacted,
deferred tax assets and liabilities are adjusted through the provision for
income taxes.
EARNINGS PER SHARE:
Earnings per share were computed by dividing net income by the total weighted
average common shares outstanding and the additional dilutive effect of stock
warrants during the respective periods. The dilutive effect of stock warrants
are considered using the treasury stock method. Per share data reflects the
stock dividend declared December 17, 1996.
RECLASSIFICATIONS:
Certain December 31, 1996, balances have been reclassified to conform with the
December 31, 1997, presentation. The reclassifications had no effect on net
income or retained earnings as previously presented.
RECENT ACCOUNTING PRONOUNCEMENTS:
In June 1997, FASB issued SFAS No. 130, Reporting Comprehensive Income. SFAS
No. 130 establishes standards for reporting and display of comprehensive income
and its components in the
Page 41 of 57
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
financial statement. SFAS No. 130 is effective for fiscal years beginning
after December 15, 1997. Reclassification of financial statements for earlier
periods provided for comparative purposes is required. Inland Northwest
Bancorporation is in the process of determining its preferred format. The
adoption of SFAS No. 130 will have no impact on the consolidated statement of
financial condition, statement of income, or cash flows.
NOTE 2. ACCOUNTING CHANGE
Effective January 1, 1997, the Corporation adopted SFAS No. 128, Earnings Per
Share (EPS). Under the SFAS earnings per share is presented for basic and
diluted EPS on the face of the income statement. Basic EPS excludes dilution
and is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock
(see Note 20).
NOTE 3. INVESTMENTS IN SECURITIES
Securities held by the Corporation have been classified in the consolidated
statements of financial condition according to management's intent. The
amortized cost of securities and their approximate fair values at December 31,
1997 and 1996, were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
---------- ------------ ----------- ------------
SECURITIES AVAILABLE-FOR-SALE:
<S> <C> <C> <C> <C>
U.S. government agency
securities $16,068,048 $126,963 $(4,471) $16,190,540
U.S. treasury securities 5,054,917 107,312 (4,079) 5,158,150
Corporate debt obligations 756,982 445 (902) 756,525
Mortgage backed security 907,770 22,698 - 930,468
----------- -------- -------- -----------
$22,787,717 $257,418 $(9,452) $23,035,683
----------- -------- -------- -----------
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
------------- ----------- ---------- ---------------
SECURITIES AVAILABLE-FOR-SALE:
<S> <C> <C> <C> <C>
U.S. government agency
securities $10,148,659 $36,141 $(21,168) $10,163,632
U.S. treasury securities 6,567,867 45,380 (19,729) 6,593,518
Corporate debt obligations 968,843 851 (3,737) 965,957
Mortgage backed security 971,805 2,462 - 974,267
----------- ------- --------- -----------
$18,657,174 $84,834 $(44,634) $18,697,374
----------- ------- --------- -----------
</TABLE>
Page 42 of 57
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
----------------------------------------------------
SECURITIES HELD-TO-MATURITY:
<S> <C> <C> <C> <C>
State and municipal securities $969,770 $9,944 $ - $979,714
========== ========== =========== ==============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
---------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
---------------------------------------------------
SECURITIES HELD-TO-MATURITY:
<S> <C> <C> <C> <C>
State and municipal securities $1,573,089 $5,353 $(7,342) $1,571,100
========== ========== =========== ===========
</TABLE>
The scheduled maturities of securities held-to-maturity and securities
available-for-sale (other than equity securities) at December 31, 1997, are as
follows:
<TABLE>
<CAPTION>
Held-to-maturity Available-for-sale
-------------------- ----------------------
Amortized Amortized
Cost Fair Value Cost Fair Value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Due in one year or less $375,000 $379,028 $ 2,272,159 $ 2,270,650
Due from one year to five years 594,770 600,686 15,603,848 15,685,375
Due from five to ten years - - 3,003,616 3,126,990
Due after ten years - - 1,000,324 1,022,200
Mortgage backed securities - - 907,770 930,468
--------- -------- ----------- -----------
$969,770 $979,714 $22,787,717 $23,035,683
========= ======== =========== ===========
</TABLE>
At December 31, 1997 and 1996, securities available-for-sale with an amortized
cost of $11,772,200 and $7,444,075, were pledged to secure the Bank's
performance of its obligations under repurchase agreements. Approximate market
value of these securities was $11,958,968 and $7,446,000 at December 31, 1997
and 1996. Securities available-for-sale with an amortized cost of $1,481,005 and
$1,021,649 at December 31, 1997 and 1996, were pledged to secure public deposits
for purposes required or permitted by law. The approximate market value of these
securities was $1,498,900 and $1,020,626 at December 31, 1997 and 1996,
respectively.
NOTE 4. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
The components of loans in the consolidated statements of financial condition
were as follows:
<TABLE>
<CAPTION>
December 31,
1997 1996
------------- ------------
<S> <C> <C>
Commercial $48,288,589 $39,345,254
Real Estate 21,112,199 18,529,737
Installment 3,852,485 3,913,269
Consumer and other 4,622,926 4,906,450
------------- -----------
</TABLE>
Page 43 of 57
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C>
77,876,199 66,694,710
Allowance for loan losses (1,085,374) (908,368)
Net deferred loan fees (266,876) (247,393)
----------- -----------
$76,523,949 $65,538,949
=========== ===========
</TABLE>
An analysis of the change in the allowance for loan losses follows:
<TABLE>
<CAPTION>
December 31,
1997 1996
---------- ---------
<S> <C> <C>
Balance, beginning of year $ 908,368 $ 765,534
Provision charged to operations 225,000 291,600
Loans charged off, net of recoveries (47,994) (148,766)
---------- ---------
Balance, end of year $1,085,374 $ 908,368
========== =========
</TABLE>
Maturities for each loan category are summarized as follows:
<TABLE>
<CAPTION>
December 31,
1997 1996
----------- -----------
<S> <C> <C>
Commercial loans:
Maturing one year or less $16,626,583 $21,779,838
Maturing one to five years 9,803,535 7,049,521
Maturing five years or more 21,858,471 10,515,895
----------- -----------
48,288,589 39,345,254
----------- -----------
Real estate loans:
Maturing one year or less 5,666,595 7,181,213
Maturing one to five years 3,629,838 4,031,016
Maturing five years or more 11,815,766 7,317,508
----------- -----------
21,112,199 18,529,737
----------- -----------
Installment loans:
Maturing one year or less 381,616 631,100
Maturing one to five years 2,121,700 2,241,226
Maturing five years or more 1,349,169 1,040,943
----------- -----------
3,852,485 3,913,269
----------- -----------
Consumer and other loans:
Maturing one year or less 4,447,374 4,820,571
Maturing five years or more 35,552 85,879
Maturing five years or more 140,000 -
----------- -----------
4,622,926 4,906,450
----------- -----------
$77,876,199 $66,694,710
=========== ===========
</TABLE>
Page 44 of 57
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The loans fall into the following fixed and variable components:
<TABLE>
<CAPTION>
December 31,
1997 1996
----------- -----------
<S> <C> <C>
Fixed rate loans $43,764,028 $35,098,896
Variable rate loans 34,112,171 31,595,814
----------- -----------
$77,876,199 $66,694,710
=========== ===========
</TABLE>
Impairment of loans having recorded investments of $716,860 and $335,679 at
December 31, 1997 and 1996, has been recognized in conformity with FASB
Statement No. 114 as amended by FASB Statement No. 118. The total allowance for
loan losses related to these loans was $254,674 and $50,352 at December 31, 1997
and 1996. The Bank is not committed to lend additional funds to debtors whose
loans have been modified. The average recorded investment in impaired loans
during the years ended December 31, 1997 and 1996, was $281,749 and $102,344,
respectively. Interest income on impaired loans of $37,465 and $13,010 was
recognized for cash payments received in 1997 and 1996, respectively.
NOTE 5. PREMISES AND EQUIPMENT
Components of premises and equipment included in the consolidated statements of
financial condition at December 31, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
December 31,
1997 1996
---------- ----------
<S> <C> <C>
Land $ 269,204 $ 269,204
Furniture, equipment, and building 1,982,974 1,654,092
Leasehold improvements 972,962 682,848
Vault 48,483 48,483
Land improvements 313,098 138,609
---------- ----------
TOTAL COST 3,586,721 2,793,236
Less accumulated depreciation 1,151,929 884,064
---------- ----------
NET BOOK VALUE $2,434,792 $1,909,172
========== ==========
</TABLE>
Depreciation expense was $295,791 and $256,058 for the years ended December 31,
1997 and 1996, respectively.
The Bank leases its main office and eight of its nine branches under lease
agreements that expire on various dates through 2017. The lease agreements have
various renewal options.
The following is a schedule by years of future minimum rental payments required
under operating leases that have initial or remaining noncancellable lease terms
in excess of one year as of December 31, 1997:
Page 45 of 57
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
Year ending December 31,
<S> <C>
1998 $ 269,023
1999 227,542
2000 146,014
2001 61,095
2002 58,095
Thereafter 286,360
----------
TOTAL MINIMUM PAYMENTS REQUIRED $1,048,129
==========
</TABLE>
Total lease payments under the above mentioned operating leases and other month-
to-month rentals for the years ended December 31, 1997 and 1996, were $226,851
and $185,849, respectively.
NOTE 6. FORECLOSED REAL ESTATE
An allowance for losses on foreclosed real estate was established in 1997,
activity in the account is as follows:
<TABLE>
<S> <C>
Balance at January 1, 1997 $ -
Provision charged to income 107,450
Charge-offs, net of recoveries (21,769)
--------
Balance at December 31, 1997 $85,681
========
</TABLE>
Included in the losses on foreclosed real estate in the statement of income for
the year ended December 31, 1997, are impairment losses of $85,681 on real
estate held for sale at December 31, 1997, and $21,769 of actual losses on sales
of real estate during 1997.
NOTE 7. DEPOSITS
Major classifications of deposits at December 31, 1997 and 1996, were as
follows:
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Demand deposits $ 24,316,238 $22,393,938
Money Market 24,597,471 21,144,623
NOW accounts 6,116,414 5,597,708
Savings deposits 2,727,396 2,859,168
Time deposits, $100,000 and over 12,618,384 9,157,652
Other time deposits 31,335,313 26,076,928
------------ -----------
$101,711,216 $87,230,017
============ ===========
</TABLE>
Maturities for time deposits at December 31, 1997, are summarized as follows:
<TABLE>
<S> <C>
Maturing one year or less $33,195,218
Maturing one to five years 10,741,057
Maturing after five years 17,422
-----------
$43,953,697
===========
</TABLE>
Page 46 of 57
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. FEDERAL HOME LOAN BANK ADVANCES
At December 31, 1997, FHLB advances were scheduled to mature as follows:
<TABLE>
<CAPTION>
Weighted
Average
Rate Amount
-------- -------
<S> <C> <C>
Years ending December 31,
2001 and thereafter 6.60% $62,684
======== =======
</TABLE>
NOTE 9. OTHER BORROWED FUNDS
Securities sold under agreements to repurchase generally mature within one to
four days from the transaction date. Securities underlying the agreements are
presented in Note 3.
Information concerning securities sold under agreements to repurchase at
December 31, 1997, is summarized as follows:
<TABLE>
<S> <C>
Average balance during the year $ 9,743,337
===========
Average interest rate during the year 4.84%
===========
Maximum month-end balance during the year $11,086,711
===========
</TABLE>
NOTE 10. COMMITMENTS AND CONTINGENCIES
The Bank is a party to various legal collection actions normally associated with
financial institutions, the aggregate effect of which, in management's and legal
counsel's opinion, would not be material to the financial condition of Inland
Northwest Bancorporation.
The Bank has unsecured operating lines of credit with Key Bank of Washington for
$2,000,000, U.S. Bank for $1,200,000, and Federal Home Loan Bank for $4,976,500.
There were no outstanding balances at December 31, 1997 and 1996.
In the ordinary course of business, the Corporation, through its Bank subsidiary
makes various commitments and incurs certain contingent liabilities which are
not reflected in the accompanying financial statements. These commitments and
contingent liabilities include various commitments to extend credit and standby
letters of credit. At December 31, 1997 and 1996, commitments under "standby"
letters of credit approximated $312,609 and $137,660 and firm loan commitments
approximated $20,350,039 and $18,856,569, respectively. The Corporation does
not anticipate any material losses as a result of these commitments.
NOTE 11. CONCENTRATIONS OF CREDIT RISK
All of the Bank's loans, commitments, and standby letters of credit have been
granted to customers in the Bank's market area, which is the eastern Washington
and northern Idaho area. Substantially all such customers are depositors of the
Bank. The concentrations of credit by type of loan are set forth in Note 4.
The distribution of commitments to extend credit approximates the distribution
of loans outstanding. Commercial and standby letters of credit were granted
primarily to commercial borrowers.
Page 47 of 57
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Bank places its cash with high credit quality institutions. The amount on
deposit fluctuates, and at times exceeds the insured limit by the U.S. Federal
Deposit Insurance Corporation, which potentially subjects the Bank to credit
risk.
NOTE 12. FEDERAL INCOME TAXES
The components of federal income tax expense are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Current tax expense $293,553 $344,393
Deferred tax expense (credit) 133,290 (53,281)
-------- --------
FEDERAL INCOME TAX EXPENSE $426,843 $291,112
======== ========
</TABLE>
The components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- ---------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $349,711 $291,645
Deferred compensation 34,917 22,667
Other 5,677 5,931
-------- ---------
390,305 320,243
-------- ---------
Deferred tax liabilities:
Accumulated depreciation 186,270 69,567
Conversion from accrual to cash basis method of accounting for
tax purposes 17,843 26,764
Deferred loan fees 87,491 -
Net unrealized loss on securities available-for-sale 86,788 13,668
Other 18,365 10,286
-------- ---------
396,757 120,285
-------- ---------
NET DEFERRED TAX ASSET (LIABILITY) $ (6,452) $199,958
======== =========
</TABLE>
The net deferred tax asset (liability) is included in other assets on the
consolidated statements of financial condition.
At December 31, 1997 and 1996, a prepaid federal income tax refund of $61,993
and $6,927, respectively, was included in other assets on the consolidated
statement of financial condition.
The effective tax rate differs from the statutory federal tax rate for the years
presented as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Federal income tax at statutory rate $434,112 $296,973
Effect of tax-exempt interest income (8,850) (13,406)
Effect of tax-exempt interest expense 3,014 3,577
Effect of nondeductible expenses 1,383 4,106
Other (2,816) (138)
-------- --------
FEDERAL INCOME TAX EXPENSE $426,843 $291,112
======== ========
</TABLE>
Page 48 of 57
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. EXECUTIVE RETIREMENT PLAN
Inland Northwest Bank maintains an unfunded supplemental executive retirement
plan for the benefit of the Bank's chief executive officer which vests in full
at retirement. The plan provides for monthly payments to the executive upon his
retirement or termination of employment and, alternatively, to his designated
beneficiary in the event of his death, for a period of fifteen years following
retirement at age 65.
At December 31, 1997 and 1996, $99,764 and $64,764, respectively, has been
accrued under this plan. This liability is recognized in accrued interest and
other liabilities in the financial statements. The present value at retirement
of the retirement benefit obligation is approximately $220,173. The unfunded
benefit is being expensed over the period of service through his expected
retirement age.
The net post-retirement benefit cost recognized during the years ended December
31, 1997 and 1996, was $35,000 and $33,000, respectively.
The Bank is the owner and beneficiary of life insurance policies on this officer
with a total face value of $226,274 and cash surrender value of $95,379 and
$66,390 at December 31, 1997 and 1996, respectively. The cash surrender value
is included in the statements of financial condition in Other Assets.
NOTE 14. COMMON STOCK PURCHASE WARRANTS AND STOCK OPTION PLAN
In 1989, Inland Northwest Bank issued one common stock purchase warrant to
individuals defined as founders for each share purchased in the initial offering
or 115,145 warrants. Additionally, 19,000 warrants were issued to the Pre-
Organization Steering Committee. During 1993, those warrants were transferred
to Inland Northwest Bancorporation, Inc., and as a result thereof, the
Corporation has issued warrants to the founders group to purchase 178,314 shares
of common stock adjusted for stock dividends. The warrants expire on January
16, 2000. As of December 31, 1997, 3,763 of the warrants have been exercised.
These warrants are detachable and nontransferable. The warrants entitle the
holder to acquire shares of the Bank's common stock at the initial offering
price of $15 per share; as the warrants are adjusted for stock dividends, the
actual price per share decreases and the quantity subject to purchase increases.
During 1992, the Board of Directors of the Bank authorized key employees of the
Bank to be eligible to participate in a nonqualified stock option plan. Under
the Plan, the Board of Directors may grant options to purchase shares of common
stock of the Corporation, not to exceed 40,000 shares. The per option price for
options granted shall be the fair market value of said share on the date the
option is granted. The options granted after 1995 are eligible for stock
dividends.
A summary of the status of the Bank's stock option plans and changes during the
years ending on those dates is presented below:
<TABLE>
<CAPTION>
1997 1996
-------------------------- -------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
SHARES EXERCISE SHARES EXERCISE
ACTUAL PRICE ACTUAL PRICE
------- ---------------- ------- ----------------
<S> <C> <C> <C> <C>
Outstanding options at beginning of year 11,300 $20.99 8,300 $19.54
Granted 4,500 $26.00 3,000 $25.00
Exercised (1,400) $17.50 - -
Forfeited - - - -
------- -------
</TABLE>
Page 49 of 57
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C> <C>
Outstanding at end of year 14,400 - 11,300 $20.99
====== ======
Options exercisable at year-end 7,500 8,300
====== ======
Weighted average fair value of options
====== $ 13.74
granted during the year $10.45 ======
======
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Exercisable Options
------------------------------------ ---------------------------------
Weighted
Number Average Weighted Number Weighted
Outstanding Remaining Average Exercisable Average
at End of Contractual Exercise at End of Exercise
Exercise Prices Year Life Price Year Price
----------- ------------ --------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
All price ranges
($21.00 through
$26.00) 14,400 7.1 years $24.84 7,500 $24.09
=========== ============ ========= ============ ================
</TABLE>
The pro forma effect on net income as reported, if the fair value of accounting
for stock options had been adopted by the Corporation, is not significantly
different than net income as reported on the statement of income. The fair
value assumptions are based on a risk-free interest rate of 6%, 9 year and 10
year expected lives for the options granted in 1996 and 1997, respectively, and
assumes no annual cash dividends.
NOTE 15. COMMON STOCK
On December 17, 1996, the Board of Directors declared a 10% stock dividend,
effective to stockholders of record January 15, 1997 and issued February 15,
1997. All amounts per share and weighted average shares outstanding for all
periods presented have been retroactively adjusted to reflect the stock
dividends. The Corporation recorded a transfer from retained earnings to common
stock for the book value of the additional shares issued at December 31, 1996.
Stock options granted in 1996 also received the 10% stock dividend.
In December 1996, the Board of Directors voted to authorize a stock rights offer
in the amount of one right for every five shares, warrants, or options held by a
shareholder. The offering resulted in the issuance of an additional 117,872
shares for $1,862,745, net of offering costs.
During 1997 and 1996, the Board of Directors voted to issue 100 and 50 shares,
respectively, of common stock to each Director in lieu of increasing Director's
fees. Total shares issued during 1997 and 1996 were 1,300 and 650,
respectively. Additionally, during 1997 and 1996 the Corporation issued a total
of 50 shares and 150 shares, respectively, of common stock to retiring Directors
as authorized by the Board of Directors.
NOTE 16. PROFIT SHARING PLAN
The Bank has a 401(k) profit sharing plan covering all employees who meet the
eligibility requirements. The Plan provides for employees to elect up to 15% of
their compensation to be paid into the fund. The Bank's policy is to match
contributions equal to 50% of the participant's
Page 50 of 57
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
contribution not to exceed 5% of the participant's compensation. Vesting occurs
equally at 20% each year for five years. The Bank's contribution was $35,550 and
$23,553 for years ended December 31, 1997 and 1996.
NOTE 17. RELATED PARTY TRANSACTIONS
The Corporation, through its Bank subsidiary has had, and may be expected to
have in the future, banking transactions in the ordinary course of business with
directors, principal officers, their immediate families, and affiliated
companies in which they are principal stockholders. Aggregate loan balances
with related parties at December 31, 1997 and 1996, were $725,562 and
$2,065,021, respectively, all of which have been made, in the opinion of
management, on the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with others.
NOTE 18. RESTRICTIONS ON DIVIDENDS AND RETAINED EARNINGS
Dividends paid by the Bank subsidiary are the primary source of funds available
to the Corporation. Statutes and regulations impose restrictions on the amount
of dividends that may be declared by the Bank subsidiary. Aggregate dividends
of approximately $1,234,762 can be declared by the Bank subsidiary without prior
regulatory approval.
NOTE 19. REGULATORY CAPITAL REQUIREMENTS
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory - and possibly additional discretionary - actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines on the
regulatory framework for prompt corrective action, the Bank must meet specific
capital adequacy guidelines that involve quantitative measures of the Bank's
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Bank's capital classification is also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
following table) of Tier 1 capital (as defined in the regulations) to total
average assets (as defined), and minimum ratios of Tier 1 and total capital (as
defined) to risk-weighted assets (as defined). Under the regulatory framework
for prompt corrective action, the Bank must maintain minimum Tier 1 leverage,
Tier 1 risk-based, and total risk-based ratios as set forth in the table.
As of December 31, 1996, the most recent notification from the Bank's regulator
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, the Bank must
maintain minimum capital ratios as set forth in the following table. There are
no conditions or events since that notification that management believes have
changed the institution's category.
The Bank's actual capital amounts and ratios are also presented in the table:
Page 51 of 57
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
To be Adequately
Capitalized Under
Prompt Corrective
Action Purposes
-------------------
Actual
Amount Ratio Amount Ratio
---------- ------- -------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Tier 1 capital (to average assets) $ 9,299,043 8.46% more than $4,397,778 more than 4.0%
Tier 1 capital (to risk-weighted assets) $ 9,299,043 10.98% more than $3,388,200 more than 4.0%
Total capital (to risk-weighted assets) $10,384,417 12.26% more than $6,776,400 more than 8.0%
DECEMBER 31, 1996
Tier 1 capital (to average assets) $ 6,521,727 7.09% more than $3,681,897 more than 4.0%
Tier 1 capital (to risk-weighted assets) $ 6,521,727 8.93% more than $2,825,560 more than 4.0%
Total capital (to risk-weighted assets) $ 7,404,727 10.48% more than $5,651,120 more than 8.0%
<CAPTION>
To be Well Capitalized
Under Prompt Corrective
Action Provisions
--------------------------------------
Amount Ratio
------------------ -----------------
<S> <C> <C>
DECEMBER 31, 1997
Tier 1 capital (to average assets) more than $5,497,223 more than 5.0%
Tier 1 capital (to risk-weighted assets) more than $5,082,300 more than 6.0%
Total capital (to risk-weighted assets) more than $8,470,500 more than 10.0%
DECEMBER 31, 1996
Tier 1 capital (to average assets) more than $4,602,371 more than 5.0%
Tier 1 capital (to risk-weighted assets) more than $4,238,340 more than 6.0%
Total capital (to risk-weighted assets) more than $7,063,900 more than 10.0%
</TABLE>
NOTE 20. EARNINGS PER SHARE
The calculation of earnings per share and earnings per share assuming full
dilution is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
PER
INCOME SHARES SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------ ------------- ---------
<S> <C> <C> <C>
BASIC EPS
Income available to common stockholders $829,404 481,131 $1.72
----------- ----------- =========
EFFECT OF DILUTIVE SECURITIES
Stock warrants 96,829
Stock options 269
---------
DILUTED EPS
Income available to common stockholders
plus assumed conversions $829,404 578,229 $1.43
=========== =========== =========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1996
Income Shares Per Share
(Numerator) (Denominator) Amount
-----------------------------------------
<S> <C> <C> <C>
BASIC EPS
Income available to common stockholders $567,998 447,207 $1.27
-------- =======
EFFECT OF DILUTIVE SECURITIES
Stock warrants 98,525
Stock options 853
-------
</TABLE>
Page 52 of 57
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C> <C>
DILUTED EPS
Income available to common stockholders
plus assumed conversions $567,998 546,585 $1.04
-------- ------- ------
</TABLE>
Options to purchase 14,400 and 11,300 shares of common stock at prices ranging
from $21 to $26 and $17.50 to $25 per share were outstanding for the periods
ended December 31, 1997 and 1996, respectively. The Bank's stock is quoted only
locally over the counter and traded on a limited basis. The average market
price per share used in the determination of the dilutive effect of stock
options and warrants was the average price of month end closing market values.
NOTE 21. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Bank's financial instruments were as follows at
December 31, 1997:
<TABLE>
<CAPTION>
Carrying Estimated
Amount Fair Value
----------- ------------
<S> <C> <C>
Financial Assets:
Cash and due from banks $ 7,404,503 $ 7,404,503
Federal funds sold 7,947,500 7,947,500
Securities available-for-sale 23,035,683 23,035,683
Securities held-to-maturity 969,770 979,714
Loans receivable 77,876,199 79,166,025
Accrued interest receivable 700,979 700,979
Financial Liabilities:
Federal Home Loan Bank advance 62,684 62,684
Deposits 101,711,216 101,166,971
Accrued interest liabilities 404,143 404,143
</TABLE>
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
CASH AND DUE FROM BANKS, FEDERAL FUNDS SOLD, AND SECURITIES SOLD UNDER
REPURCHASE AGREEMENTS:
The carrying amount approximates fair value because of the short maturity of
these investments.
SECURITIES AVAILABLE-FOR-SALE, SECURITIES HELD-TO-MATURITY, AND OTHER
INVESTMENTS:
The fair values of marketable securities are based on quoted market prices or
dealer quotes. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities. Federal Home Loan
Bank stock fair value is based on current redemption values.
LOANS RECEIVABLE:
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as commercial, real estate,
consumer, credit card, and other. Each loan category is further segmented into
fixed and adjustable rate interest terms. The fair values for fixed-rate loans
are estimated by discounting the future cash flows using the current rates at
which similar loans would be made to borrowers with similar credit ratings and
for the same remaining maturities. For variable rate loans that reprice
frequently and have no significant change in credit risk, fair values are based
on carrying values.
Page 53 of 57
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DEPOSITS:
The fair value of demand deposits, savings accounts, NOW, and money market
deposits is the amount payable on demand at the reporting date. The fair value
of fixed-maturity time deposits is estimated using the rates currently offered
for deposits of similar remaining maturities.
FEDERAL HOME LOAN BANK ADVANCES:
The fair values of the Bank's long-term debt are estimated using discounted cash
flow analyses based on the Bank's current incremental borrowing rates for
similar types of borrowing arrangements.
ACCRUED INTEREST:
The carrying amounts of accrued interest approximate their fair values.
OFF-BALANCE-SHEET INSTRUMENTS:
Fair values for off-balance-sheet lending commitments are based on fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the counterparties' credit standings. The
fair value of the fees at December 31, 1997, was insignificant. See Note 10 for
the notional amount of the commitments to extend credit.
NOTE 22. SUBSEQUENT EVENT
On January 20, 1998, a letter of intent was signed to acquire a business
operating as a mortgage company. The holding company will pay cash and stock
for all outstanding shares, and the transaction will be accounted for under the
purchase method of accounting. Any premium paid is not expected to be
significant to the financial condition or results of operations in future
periods.
Page 54 of 57
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No.*** Description
- ----------- -----------
<S> <C>
EX-3.1.1 Articles of Incorporation
EX-3.1.2 Amendment to Articles of Incorporation
EX-3.1.3 Amendment to Articles of Incorporation
EX-3.2 Bylaws
EX-4 See Exhibits Nos. EX-3.1.1 through EX-3.2 above
EX-10.1.1 Lease Agreement Dated 08/01/89 And Amendment Dated 07/13/95 - The
Paulsen Center (Main Branch)*
EX-10.1.2 Lease - 15111 East Sprague Avenue
(Valley Branch)*
EX-10.1.3 Lease - 12825 - 14th Avenue
(Airway Heights Branch)*
EX-10.1.4 Lease - East 210 N. Foothills Drive
(North Foothills Dr. Branch)*
EX-10.1.5 Lease - 805 East Polston Ave., Post Falls, Idaho
(Post Falls Branch)*
EX-10.1.6 Ground Lease Dated 09/24/96** and Amendment Dated August 12, 1997
For South Hill Branch
EX-10.1.7 Lease - 3321 W. Indian Trail Road
(Indian Trail Branch)*
EX-10.1.8 Lease - 225 West Appleway, Coeur d'Alene, Idaho
(Appleway Branch)
EX-10.1.9 Lease - 622 Sherman Avenue, Coeur d'Alene, Idaho
(Sherman Avenue Branch)
EX-10.2.1 F.M. Schunter Employment Agreement Dated 01/01/94*
EX-10.2.2 Unfunded Supplemental Executive Retirement Plan For F.M. Schunter*
</TABLE>
Page 55 of 57
<PAGE>
<TABLE>
<S> <C>
EX-10.2.3 Non-Qualified Stock Option Plan*
EX-10.2.4 Christopher C. Jurey Employment Agreement Dated 01/01/94*
EX-10.2.5 Jennifer L. Johnson Employment Agreement Dated 01/01/94*
EX-10.2.6 Randall L. Fewel Employment Agreement Dated 03/14/94*
EX-23.1 Consent Of Accountant
</TABLE>
_________
* Previously filed (in paper format) as an Exhibit to the Company's Form 1-A
Offering Statement Under Regulation A (Registration No. 24-3714) and
incorporated herein by reference.
** Ground Lease previously filed (in paper format) as an Exhibit to the
Company's Form 1-A Offering Statement Under Regulation A (Registration No.
24-3714) and incorporated herein by reference; only Amendment being filed
(in electronic format) with this Form 10-SB.
*** Exhibit numbers determined by reference to Regulation S-T Exhibit numbering
requirements, rather than Exhibit numbering requirements of Part III of Form
10-SB and/or Part III of Form 1-A as cross-referred to in Part III of 10-SB.
Included Exhibits respond to Exhibits required under Part III of Form 10-SB
and/or Part III of Form 1-A as cross-referred to in Part III of Form 10-SB,
specifically those documents required to be filed as Exhibit nos. 2, 3, 5, 6
and 7 in Part III of Form 1-A.
Page 56 of 57
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
INLAND NORTHWEST BANCORPORATION, INC.
Date: April 29, 1998 By: /s/ Frederick M. Schunter
-------- -------------------------------------------
Frederick M. Schunter, President and
Chief Executive Officer
Page 57 of 57
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No.*** Description
- ----------- -----------
<S> <C>
EX-3.1.1 Articles of Incorporation
EX-3.1.2 Amendment to Articles of Incorporation
EX-3.1.3 Amendment to Articles of Incorporation
EX-3.2 Bylaws
EX-4 See Exhibits Nos. EX-3.1.1 through EX-3.2 above
EX-10.1.1 Lease Agreement Dated 08/01/89 And Amendment Dated 07/13/95 - The
Paulsen Center (Main Branch)*
EX-10.1.2 Lease - 15111 East Sprague Avenue
(Valley Branch)*
EX-10.1.3 Lease - 12825 - 14th Avenue
(Airway Heights Branch)*
EX-10.1.4 Lease - East 210 N. Foothills Drive
(North Foothills Dr. Branch)*
EX-10.1.5 Lease - 805 East Polston Ave., Post Falls, Idaho
(Post Falls Branch)*
EX-10.1.6 Ground Lease Dated 09/24/96** and Amendment Dated August 12, 1997
For South Hill Branch
EX-10.1.7 Lease - 3321 W. Indian Trail Road
(Indian Trail Branch)*
EX-10.1.8 Lease - 225 West Appleway, Coeur d'Alene, Idaho
(Appleway Branch)
EX-10.1.9 Lease - 622 Sherman Avenue, Coeur d'Alene, Idaho
(Sherman Avenue Branch)
EX-10.2.1 F.M. Schunter Employment Agreement Dated 01/01/94*
EX-10.2.2 Unfunded Supplemental Executive Retirement Plan For F.M. Schunter*
</TABLE>
<PAGE>
<TABLE>
<S> <C>
EX-10.2.3 Non-Qualified Stock Option Plan*
EX-10.2.4 Christopher C. Jurey Employment Agreement Dated 01/01/94*
EX-10.2.5 Jennifer L. Johnson Employment Agreement Dated 01/01/94*
EX-10.2.6 Randall L. Fewel Employment Agreement Dated 03/14/94*
EX-23.1 Consent Of Accountant
</TABLE>
_________
* Previously filed (in paper format) as an Exhibit to the Company's Form 1-A
Offering Statement Under Regulation A (Registration No. 24-3714) and
incorporated herein by reference.
** Ground Lease previously filed (in paper format) as an Exhibit to the
Company's Form 1-A Offering Statement Under Regulation A (Registration No.
24-3714) and incorporated herein by reference; only Amendment being filed
(in electronic format) with this Form 10-SB.
*** Exhibit numbers determined by reference to Regulation S-T Exhibit numbering
requirements, rather than Exhibit numbering requirements of Part III of Form
10-SB and/or Part III of Form 1-A as cross-referred to in Part III of 10-SB.
Included Exhibits respond to Exhibits required under Part III of Form 10-SB
and/or Part III of Form 1-A as cross-referred to in Part III of Form 10-SB,
specifically those documents required to be filed as Exhibit nos. 2, 3, 5, 6
and 7 in Part III of Form 1-A.
<PAGE>
EXHIBITS
EXHIBIT 3.1.1
ARTICLES OF INCORPORATION
INLAND NORTHWEST BANCORPORATION, INC.
* * * * *
KNOW ALL MEN BY THESE PRESENTS: That the undersigned, being of legal age
and a citizen of the United States of America and the State of Washington, does
this day form a corporation under the general laws of the State of Washington,
and does hereby make, certify, execute, acknowledge and deliver the following
Articles of Incorporation:
ARTICLE I.
The name of this corporation shall be: INLAND NORTHWEST BANCORPORATION,
INC.
ARTICLE II.
The general nature of the business of this corporation and the objects and
purposes proposed to be transacted, promoted and carried on by the corporation
are as follows:
(a) To purchase, acquire, own, or hold the securities of any type or
nature issued by a commercial bank or any other type of financial
institution.
(b) To purchase or otherwise acquire, the whole or any part of the
undertaking and business of any person, firm or corporation, engaged in any
business of any nature, and the property and liabilities, including the
good will, assets and stock in trade thereof, and to pay for the same
either in cash or in shares, or partly in cash and partly in shares.
(c) To purchase, take, receive, lease, or otherwise acquire, own,
hold, improve, use and otherwise deal in and with, real or personal
property, or any interest therein, which property may be located either in
the United States of America or in a foreign country.
(d) To acquire by purchase, subscription, or otherwise, and to hold
for investment or otherwise, and to use, sell, assign, transfer, mortgage,
pledge or otherwise deal with or dispose of stocks, bonds, or any
obligations or securities of any corporation or corporations; and to merge
or consolidate with any corporation in such manner as may be provided by
law.
(e) To borrow money, and to make and issue notes, bonds, debentures,
obligations and evidences of indebtedness of all kind, whether secured by
mortgage, pledge
1
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or otherwise, without limit as to amount, except as may be prohibited by
statute, and to mortgage, pledge, hypothecate, convey in trust, or
otherwise, any and all property of the corporation as security for the
payment of any such indebtedness, and generally to make and perform
agreements and contracts of every kind and description; and to lend money
for corporate purposes, invest and reinvest its funds and take and hold
real and personal property as security for the payment of funds so loaned
or invested.
(f) To purchase, take, receive or otherwise acquire, hold, own,
pledge, transfer or otherwise dispose of its own shares.
(g) To do all and everything necessary, suitable and proper for the
accomplishment of any of the purposes, or the attainment of any of the
objects, or the furtherance of any of the powers hereinabove set forth,
either alone or in association with other corporations, firms or
individuals, and do every act or acts, thing or things incidental or
appurtenant to or growing out of or connected with the aforesaid business
or powers, or any part or parts thereof; and to have and to exercise all
the powers conferred by the laws of the State of Washington, as such laws
may now be in effect or as they may at any time hereafter be amended.
The foregoing statement of purposes shall be construed as a statement of
both purposes and powers, and the purposes and powers stated in each clause
shall be in no way limited or restricted by reference to or inference from the
terms or provisions of any other clause, but shall be regarded as independent
purposes and powers.
ARTICLE III.
A director of this corporation shall not be disqualified by his office from
dealing or contracting with this corporation, nor shall any transaction or
contract of this corporation be void or voidable by reason of the fact that any
director or any firm of which any director in a member or any corporation of
which any director is a shareholder, officer, or director, is in any way
interested in such transaction or contract provided that, after such interest
shall have been disclosed, such transaction or contract is, or shall be
authorized, ratified or approved either (1) by a vote of a majority of a
quorum of the Board of Directors without counting in Such majority or quorum any
director so interested, or any director who is a member of a firm so interested,
or a shareholder, officer or director of a corporation so interested, or (2) by
the written consent, or by a vote at any stockholders' meeting of the holders of
record of a majority of all the outstanding shares of stock
2
<PAGE>
of this corporation entitled to vote; nor shall any director be liable to
account to this corporation for any profits realized from such transaction or
contract, authorized, ratified or approved as aforesaid.
ARTICLE IV.
A Director of the Corporation shall not be liable for monetary damages for
his or her conduct as a Director of the Corporation provided, however, that a
Director shall remain liable for acts or omissions involving intentional
misconduct, a knowing violation of law, conduct violating RCW 23B.08.37.0 as
shall be in effect at the time of the alleged violation, or for any transaction
from which the Director personally will receive a benefit in money, property or
services to which the Director is not legally entitled.
The Corporation shall have the power to indemnify any directors, officers,
or former directors or officers of the Corporation, or any person who may have
served at the Corporation's request as a director or officer of another
corporation, against expenses actually and reasonably incurred by such person in
connection with the defense of any action, suit or proceeding, civil or
criminal, in which he becomes a party by reason of being or having been such
director or officer, to the full extent permitted by the laws of the State of
Washington, as such laws at any time may be in force and effect.
The Corporation also, to the full extent permitted by the laws of the State
of Washington, shall have the power to enter into an agreement to advance
expenses and litigation costs of any director or former director, without making
any determination of the director's good faith, reasonable beliefs, or beliefs
with regard to the lawfulness of his or her activity and without following the
provisions of RCW 23B.08.550 or any subsequent or similar provision of
Washington law. The indemnification so authorized shall not protect or purport
to protect any director against any liability to the Corporation or to the
shareholders to which he or she otherwise would be subject by reason of
intentional misconduct, knowing violation of law, any violation of RCW
23B.08.320, or in connection with any transaction with respect to which it is
finally adjudged that such director personally received a benefit in money,
property or services to which that director was not legally entitled. The
indemnification so authorized shall continue in effect as it relates to all acts
or omissions committed while the director held his or her position,
notwithstanding his or her subsequent resignation or removal from that position,
and the indemnification shall inure to the benefit of the heirs, executors, and
administrators of that person or his or her estate.
3
<PAGE>
ARTICLE V.
The corporation shall have perpetual existence.
ARTICLE VI.
The registered office of the corporation shall be the office of the
corporation, The Paulsen Center, 421 West Riverside Avenue, Spokane, Washington
9920', and the registered agent of this corporation shall be Frederick M.
Schunter at the address of the corporation.
ARTICLE VII.
The aggregate number of shares which the corporation shall have authority to
issue is one million (1,000,000) shares of common stock, which shares shall be
issued without par value and five hundred thousand (500,000) shares of preferred
stock having such par value per share, if any, as the directors may determine.
No shareholder shall be entitled as of right to purchase or subscribe for any
shares of this corporation authorized but unissued at this time or for any
shares, debentures, bonds, or other certificates of indebtedness of whatever
kind and nature which may hereafter be authorized and issued. The shareholders
of this corporation shall not be entitled to exercise the right of cumulative
voting in the election of directors.
The shares of preferred stock may be issued from time to time in one or more
series, with each series to have a distinctive designation or title as may be
fixed by the Board of Directors prior to the issuance of any shares thereof.
The Board of Directors may authorize the issuance of preferred stock in
accordance with the provisions of RCW 23B.06.020. The Board of Directors is
expressly authorized in the resolution or resolutions providing for the issuance
of any wholly unissued series of preferred stock, to fix and determine the
powers, rights, designations, preferences, qualifications, limitations, voting
rights and restrictions on any such series. The Board of Directors is also
expressly authorized to fix the number of shares constituting any series and to
increase or decrease the number of shares of such series but not below the
number of shares of such series then outstanding. The Board of Directors further
shall have all powers granted to a Board of Directors by applicable provisions
of laws of the State of Washington, as they may be amended from time to time or
superseded or replaced by a similar provision or provisions.
ARTICLE VIII.
The management of this corporation shall be vested in a Board of Directors,
which Board shall not be less than the minimum number required by law, and the
number, qualifications,
4
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compensation, terms of office, manner of election, time and place of meeting,
powers and duties of the directors shall be such as are prescribed by the Bylaws
of the corporation. The authority to make Bylaws for the corporation is hereby
expressly vested in the Board of Directors of this corporation, and said Board
may adopt, alter, amend or repeal such Bylaws and provisions for the regulation
and management of the affairs of the corporation as shall be consistent with the
laws of the State of Washington and these Articles of Incorporation.
ARTICLE IX.
The corporation reserves the right to amend, alter, change or repeal any
provisions contained in these Articles of Incorporation in the manner now or
hereafter prescribed by statute, and all rights conferred on the stockholders
herein are granted subject to thin reservation.
ARTICLE X.
The names and post office addresses of the directors who shall first manage
the affairs of this corporation are as follows:
Name Post Office Address
---- -------------------
Frederick M. Schunter The Paulsen Center
West 421 Riverside Avenue
Spokane, WA 99201
and each of said directors shall hold office until 1992, or until his successor
has been elected and qualified in the manner prescribed by law.
ARTICLE XI.
Frederick M. Schunter shall be the incorporator of this corporation. The
address of the incorporator is The Paulsen Center, West 421 Riverside Avenue,
Spokane, WA 99203.
IN WITNESS WHEREOF, the incorporator has hereunto set his hand this 5 day of
-
December, 1991.
/s/ Frederick M. Schunter
-------------------------------------------
Frederick M. Schunter, Incorporator
STATE OF. WASHINGTON )
) ss.
County of Spokane )
I, the undersigned, a Notary Public in and for the above named County and
State, do hereby certify that on the 5th day of December, 1991, personally
---
appeared before me FREDERICK M. SCHUNTER, to me known to be the individual and
incorporator described in and who executed
5
<PAGE>
the foregoing instrument, and acknowledged that he signed and sealed the same as
his free and voluntary act and deed for the uses and purposes therein mentioned.
GIVEN under my hand and official seal the day and year last above written.
/s/
----------------------------------------------
Notary Public in and for the State of
Washington, residing at Spokane
My Commission Expires: 8-1-95
-------
6
<PAGE>
EXHIBIT 3.1.2
CERTIFICATE OF AMENDMENT TO
ARTICLES OF INCORPORATION
OF
INLAND NORTHWEST BANCORPORATION, INC.
KNOW ALL MEN BY THESE PRESENTS, that we, Frederick M. Schunter and Jennifer L.
Johnson, President and Secretary, respectively, of Inland Northwest
Bancorporation, Inc., a Washington corporation, do hereby certify as follows:
I.
At a regular meeting of the Board of Directors held on January 19, 1993, the
Board was asked to consider adoption of an amendment to the Articles of
Incorporation to limit or eliminate the liability of officers and directors, to
the fullest extent permitted by the Washington Business Corporation Act. Upon
motion duly made and seconded, and after discussion, the following amendment to
the Articles of Incorporation was unanimously adopted:
The first paragraph of Article IV of the Articles of Incorporation of
thin Corporation is hereby amended in its entirety to read as follows:
ARTICLE IV.
Limitation on Liability. To the full extent that the Washington
Business Corporation Act, as it exists on the date hereof or may hereafter
be amended, permits the limitation or elimination of the liability of
Directors, a Director of this Corporation shall not be liable to this
Corporation or its shareholders for monetary damages for conduct as a
Director, except for:
a. Acts or omissions of the Director finally adjudged to be
intentional misconduct or a knowing violation of law by the Director;
b. Conduct of the Director finally adjudged to be in violation of
RCW 23B.08.310 (which involves certain distributions by the Corporation);
or
c. Any transaction with respect to which it was finally adjudged
that such Director personally received a benefit in money, property, or
services to which the Director was not legally entitled.
If the Washington Business Corporation Act is amended to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Washington
Business Corporation Act, as so amended. Any repeal or modification of the
foregoing paragraph by the shareholders of the Corporation shall not
adversely effect any right or protection of a director of the Corporation
with
1
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respect to any acts or omissions of such director occurring prior to such
repeal or modification.
This limitation shall not apply to any act or omission occurring
before the effective date of this paragraph.
II.
Pursuant to (S)23B.10.050 of the Washington Business Corporation Act, the
Board adopted this Amendment to the Corporation's Articles of Incorporation
without Shareholder action, because the Corporation has not yet issued shares.
IN WITNESS WHEREOF, the President and Secretary have hereunto set their hands
on this 28 day of January, 1993.
-- -------
INLAND NORTHWEST CORPORATION, INC.
By: /s/ Frederick M. Schunter
----------------------------------------
Frederick M. Schunter, President
ATTEST:
/s/ Jennifer L. Johnson
- ----------------------------------
Jennifer L. Johnson, Secretary
STATE OF WASHINGTON )
) ss.
County of Spokane )
On this 28 day of January, 1993, before me, the undersigned Notary Publish
-- -------
personally appeared FREDERICK M. SCHUNTER and JENNIFER L. JOHNSON, to me known
to be the President and Secretary, respectively, of INLAND NORTHWEST
BANCORPORATION, INC., and executed the foregoing Certificate of Amendment to the
Articles of Incorporation as the free and voluntary act of said corporation for
the uses and purposes mentioned in the instrument.
Given under my hand and official seal the day and year first above written.
/s/
----------------------------------------------
Notary Public in and for the State
of Washington, residing at Spokane
My Commission Expires: 9-26-95
-----------------------
2
<PAGE>
EXHIBIT 3.1.3
CERTIFICATE OF AMENDMENT TO
ARTICLES OF INCORPORATION
OF
INLAND NORTHWEST BANCORPORATION, INC.
KNOW ALL MEN BY THESE PRESENTS, that we, Frederick M. Schunter and Jennifer L.
Johnson, President and Secretary, respectively, of Inland Northwest
Bancorporation, Inc., a Washington corporation, do hereby certify as follows:
I.
At a regular meeting of the Board of Directors held on March 23, 1993, the
Directors were asked to consider adoption of an amendment to the Articles of
Incorporation to provide for staggered terms for the election of Directors. Upon
motion duly made and seconded, and after discussion, the following amendment to
the Articles of Incorporation was adopted unanimously:
Article VIII of the Articles of Incorporation of this Corporation is hereby
amended by adding the following paragraph:
At the 1994 Annual Meeting of Shareholders, the Directors shall be divided
into three classes, as nearly equal in number as possible, with the term of
office of the first class to expire at the 1995 Annual Meeting of
Shareholders, the term of office of the second class to expire at the 1996
Annual Meeting of Shareholders and the term of office of the third class to
expire at the 1997 Annual Meeting of Shareholders. At each Annual Meeting of
Shareholders following such initial classification on election, Directors
elected to succeed those Directors whose terms expire shall be elected for a
term of office to expire at the third succeeding Annual Meeting of
Shareholders after their election.
II.
Pursuant to (S)23B.10.050 of the Washington Business Corporation Act, this
Amendment was adopted to the Articles of Incorporation without Shareholder
action, as the Corporation has not yet issued shares of common stock.
IN WITNESS WHEREOF, the President and Secretary have hereunto set their hands
on this 23rd day of March, 1993.
----
INLAND NORTHWEST BANCORPORATION, INC.
By: /s/ Frederick M. Schunter
--------------------------------------------
Frederick M. Schunter, President
ATTEST:
/s/ Jennifer L. Johnson
- ----------------------------------
Jennifer L. Johnson, Secretary
1
<PAGE>
STATE OF WASHINGTON )
) ss.
County of Spokane )
On this 23rd day of March, 1993, before me, the undersigned Notary Public,
---- -----
personally appeared FREDERICK M. SCHUNTER and JENNIFER L. JOHNSON, to me known
to be the President and Secretary, respectively, of INLAND NORTHWEST
BANCORPORATION, INC., and executed the foregoing Certificate of Amendment to the
Articles of Incorporation as the free and voluntary act of said Corporation for
the uses and purposes mentioned in the instrument.
Given under my hand and official seal the day and year first above written.
/s/
------------------------------------------
Notary Public in and for the State
of Washington, residing at Spokane
My commission expires: 4-26-95
-------
2
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
INLAND NORTHWEST BANCORPORATION, INC.
(As revised May 21, 1996)
ARTICLE I
Stockholders' Meetings
----------------------
Section 1. Annual meeting. The annual meeting of the shareholders shall be
--------- --------------
held on the third Tuesday in the month of Nay in each year (or on the next
business day if that day be a legal holiday) at the hour of 7:30 p.m., or such
other date and time an the directors deem appropriate for the election of
directors and the transaction of such other business as may come before the
meeting. The failure to hold an annual meeting at the time stated in thin
Article does not effect the validity of any corporate action.
Section 2. Special Meeting. Special meetings of the shareholders may be called
--------- ---------------
at any time by the President or by resolution adopted by more than fifty percent
(50%) of the entire Board of Directors. Upon receipt of a written request from
shareholders holding in the aggregate one-tenth (1/10) of the number of shares
entitled to vote on any issue proposed to be considered at the meeting, it shall
be the duty of the Secretary or other person duly authorized, to call a special
meeting of shareholders to be held at the principal office of the Corporation at
such time as the Secretary or other duly authorized person may fix; the notice
of such meeting shall comply with the requirements set forth in Section 4 of
this Article and shall further state the purpose or purposes for which the
meeting is called. If the Secretary or other duly authorized person shall
neglect or refuse to issue such call, the shareholders making the request may do
so.
Section 3. Place of Meeting. The annual meeting of shareholders or any special
--------- ----------------
meeting of shareholders shall be held at the principal office of the Corporation
in Spokane, Washington or at such other place either within or without the State
of Washington as may be determined by the Board of Directors.
Section 4. Notice of Meetings. Except as otherwise required or permitted by
--------- ------------------
the laws of the State of Washington, notice of the time and place of each
meeting of shareholder, whether annual or special, shall be given to each
shareholder of record entitled to vote at such meeting not less than ten (10)
(unless a greater period of notice is required by law in a particular case) nor
more than sixty (60) days before the date of such meeting, by mailing such
notice in a postage-prepaid
1
<PAGE>
envelope addressed to the shareholder at the address appearing on the stock
transfer books of the Corporation.
Section 5. Waivers of Notice. A shareholder may waive any notice required to
--------- -----------------
be given by these Bylaws, or the Articles of Incorporation of this Corporation
or any of the corporate laws of the State of Washington, before or after the
meeting that is the subject of such notice. A valid waiver is created by any of
the following three (3) methods:
(a) In writing, signed by the shareholder entitled to the notice and
delivered to the Corporation for inclusion in its corporate records;
(b) Attendance at the meeting, unless the shareholder at the beginning of
the meeting objects to holding the meeting or transacting business at the
meeting; or
(c) Failure to object at the time of presentation of a matter not within
the purpose or purposes described in the meeting notice.
Section 6. Quorum. Unless otherwise provided in the Articles of Incorporation,
--------- ------
the presence in person or by proxy duly authorized, of the holders of the
majority of the shares entitled to vote on a matter shall constitute a quorum of
that voting group for action on that matter; if a quorum exists, action on a
matter is approved by a voting group if the votes cast within the voting group
favoring the action exceed the votes cast within the voting group opposing the
action, unless the question is one upon which by express provision of law or of
the Articles of Incorporation or of these Bylaws a different vote is required.
If there is less than a quorum, the holders of a majority of the shares so
represented may adjourn the meeting from time to time.
Once a share is represented at a meeting, other than to object holding the
meeting or transacting business, it is deemed to be present for quorum purposes
for the remainder of the meeting and for any adjournment of that meeting unless
a new record date is or must be set for the adjourned meeting. At such
reconvened meeting, any business may be transacted which might have been
transacted at the meeting as originally notified.
Section 7. Voting, Proxies, and Record Date. Unless otherwise provided in the
--------- --------------------------------
Articles of Incorporation or in the rights, preferences and designations adopted
for any shares of preferred stock that may be issued, every shareholder of
record shall be entitled to one (1) vote per share on each matter submitted to a
vote at any meeting of shareholders. No proxy shall be valid after eleven (11)
months from the date of its execution, unless such proxy provides for a longer
period. The Board of Directors may fix in advance a record date for the
determination of shareholders
2
<PAGE>
entitled to vote at such meeting, or for any other purpose. No share of stock
shall be voted at any meeting which shall have been transferred on the records
of the Corporation subsequent to the record date fixed herein and prior to the
date of the meeting. When a determination of the shareholders entitled to vote
at any meeting of shareholders has been made, such determination shall apply to
any adjournment thereof.
The Board of Directors, or, if the Board shall not have made the appointment,
the Chairman presiding at any meeting of shareholders, shall have power to
appoint two (2) or more persons to act as inspectors or tellers, to receive,
canvass, and report the votes cast by the stockholders at such meeting; but no
candidate for the office of director shall be appointed as inspector or teller
at any meeting for the election of directors.
Section 8. Notice of Shareholder Business. At an annual meeting of the
--------- ------------------------------
shareholders, only such business shall be conducted as shall have been brought
before the meeting (a) by or at the direction of the Board of Directors or (b)
by any shareholder of the Corporation who complies with the notice procedures
set forth in this Article I, Section 8. For business to be properly brought
before an annual meeting by a shareholder, the shareholder must have given
timely notice thereof in writing to the Secretary of the Corporation. To be
timely, a shareholders notice must be delivered to or mailed and received at the
principal executive offices of the Corporation, not less than thirty (30) days
nor more than sixty (60) days prior to the meeting; provided, however, that in
the event that less than forty (40) days' notice or prior public disclosure of
the date of the meeting is given or made to shareholders, notice by the
shareholder to be timely must be received not later than the close of business
on the 10th day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure was made. A shareholder's notice to
the Secretary shall set forth as to each matter the shareholder proposes to
bring before the annual meeting (a) a brief description of the business desired
to be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (b) the name and address, as they appear on the
Corporation's books, of the shareholder proposing such business, (c) the class
and number of shares of the Corporation which are beneficially owned by the
shareholder and (d) any material interest of the shareholder in such business.
Notwithstanding anything in the Bylaws to the contrary, no business shall be
conducted at an annual meeting except in accordance with the procedures set
forth in this Article I, Section 8. The Chairman of an annual meeting shall, if
the facts warrant, determine and declare to the meeting that business was not
properly brought before
3
<PAGE>
the meeting and in accordance with the provisions of this Article I, Section 8,
and if he should 80 determine, he shall 80 declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.
Section 9. Notice of Shareholder Nominees. Only persons who are nominated in
--------- ------------------------------
accordance with the procedures set forth in the Bylaws shall be eligible for
election as Directors. Nominations of persons for election to the Board of
Directors of the Corporation may be made at a meeting of shareholders (a) by or
at the direction of the Board of Directors or (b) by any shareholder of the
Corporation entitled to vote for the election of Director. at the meeting who
complies with the notice procedures set forth in this Article I, Section 9. Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation. To be timely, a shareholder's notice shall be delivered to
or mailed and received at the principal executive offices of the Corporation not
less than thirty (30) days nor more than sixty (60) days prior to the meeting;
provided, however, that in the event that less than forty (40) days' notice or
prior public disclosure of the date of the meeting is given or made to
shareholders, notice by the shareholder to be timely must be so received not
later than the close of business on the 10th day following the date on which
such notice of the date of the meeting was mailed or such public disclosure was
made. Such shareholder's notice shall set forth (a) as to each person whom the
shareholder proposes to nominate for election or re-election as a Director, all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of Directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (including such person's written consent to being named in the proxy
statement as a nominee and to serving an a Director if elected); and (b) as to
the shareholder giving the notice (i) the name and address, an they appear on
the Corporation's books, of such shareholder and (ii) the class and number of
shares of the Corporation which are beneficially owned by such shareholder. At
the request of the Board of Directors, any person nominated by the Board of
Directors for election as a Director shall furnish to the Secretary of the
Corporation that information required to be net forth in a shareholder's notice
of nomination which pertains to the nominee. No person shall be eligible for
election an a Director of the Corporation unless nominated in accordance with
the procedures set forth in the Bylaws. The Chairman of the meeting shall, if
the facts warrant' determine and declare to the meeting that a nomination was
not made in accordance with the procedures prescribed by the
4
<PAGE>
Bylaws, and if he should so determine, he shall so declare to the meeting and
the defective nomination shall be disregarded.
ARTICLE II
Board of Directors
------------------
Section 1. Powers of Directors. All corporate powers shall be exercised by or
--------- -------------------
under the authority of, and the business and affairs of the Corporation shall be
managed under the direction of, the Board of Directors.
Section 2. Number and Term of Office. The business affairs and property of the
--------- -------------------------
Corporation shall be managed under the direction of the Board of Directors; the
number of directors shall be determined by the directors and shall be not less
than nine (9) nor more than fifteen (15). The number of directors may at any
time be increased or decreased by the Board of Directors at any regular or
special meeting. The directors shall be elected for a term of three (3) years
with the directors divided into three (3) classes, approximately equal in
number. One class of directors shall be elected at each annual shareholder
meeting in accordance with the procedure for staggered terms set forth in
Article VII of the Articles of Incorporation. Each director shall continue in
office until his successor shall have been elected and qualified, or until
death, resignation or removal. A person will not be qualified for election as a
director if he or she will attain the age of seventy-five (75) prior to the end
of the term.
Section 3. Place of Meeting. Meetings of the Board of Directors may be held
--------- ----------------
either within or without the State of Washington.
Section 4. Regular Meetings. A regular meeting of the Board of Directors shall
--------- ----------------
be held on the third Tuesday of each month at the hour of 3:00 p.m. at the
conference room of the Corporation or at such other time and place as a majority
of the directors may determine. The Board of Directors may, by resolution
adopted by the affirmative vote of a majority of the whole Board, from time to
time, appoint the time and place for holding regular meetings of the Board if it
be deemed advisable and such regular meetings shall be held at the time and
place so appointed, without the giving of any special notice with regard
thereto. In case the day appointed for a regular meeting shall fall upon a legal
holiday, such meeting shall be held on the next following day not a legal
holiday, at the regularly appointed hour. Except as otherwise provided in the
Bylaws, any type of business may be transacted at any regular meeting. Any
director who fails to attend nine (9) regular meetings in any twelve (12) month
period will be asked to resign.
5
<PAGE>
Section 5. Special Meetings. Special meetings of the Board of Directors shall
--------- ----------------
be held whenever called by the President, or by a majority of the directors.
Notice of any such meeting or any adjournment thereof shall be mailed to each
director, addressed to him or her at his or her residence or usual place of
business, not later than five (5) days before the day on which the meeting is to
be held, or shall be sent to him or her at such place by telegraph, or be
delivered personally or by telephone, not later than three (3) days prior to
such day of meeting. Notice of any meeting of the Board need not, however, be
given to any director if notice in waived in writing or if the director shall be
present at the meeting. Any meeting of the Board of Directors shall be a legal
meeting without any notice thereof having been given if all the members shall be
present thereat except as otherwise provided in the Bylaws or as may be
indicated in the notice thereof, and any and all business may be transacted at
any special meeting.
Section 6. Quorum and Manner of Acting. A majority of the number of directors
--------- ---------------------------
shall constitute a quorum for the transaction of business. The act of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors. In the absence of a quorum, a
majority of the Directors present may adjourn any meeting, from time to time,
until a quorum is present.
Section 7. Resignations. Any director of the Corporation may resign at any
--------- ------------
time by giving written notice thereof to the President or Secretary. Such
resignation shall take effect at the time specified therefor; and, unless
otherwise specified with respect thereto, the acceptance of such resignation
shall not be necessary to make it effective.
Section 8. Vacancies. Whenever any vacancy shall occur in the Board of
--------- ---------
Directors, by reason of death, resignation, or increase in the number of
directors or otherwise, it may be filled by a majority of the remaining
directors, though less than a quorum, for the balance of the term except that,
in the case of an increase in the number of directors, such vacancy may be
filled only until the next annual meeting of shareholders, at which time the
vacancy shall be filled by vote of the shareholders.
Section 9. Compensation. The Board of Directors shall have the power to
--------- ------------
determine compensation of officers. The directors shall receive such
compensation for their services as directors and as members of any committee
appointed by the Board as may be prescribed by the Board of Directors and shall
be reimbursed by the Corporation for ordinary and reasonable
6
<PAGE>
expenses incurred in the performance of their duties, as shall be authorized in
advance by the Board of Directors.
Section 10. Presumption of Assent. A director of this Corporation who is
---------- ---------------------
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless:
(a) The director objects at the beginning of the meeting, or promptly
upon the director's arrival, to holding it or transacting business at the
meeting;
(b) The director's dissent or abstention from the action taken is entered
in the minutes of the meeting; or
(c) Unless the director shall file written dissent or abstention with the
presiding officer of the meeting before its adjournment or to the Corporation
within a reasonable time after adjournment of the meeting.
The right of dissent or abstention is not available to a director who votes in
favor of the action taken.
Section 11. Meetings. At meetings of the Board of Directors, the Chairman
---------- --------
shall preside, or the President if the Chairman cannot be present. Meetings of
the Board of Directors or of any committees thereof may be held by conference
telephone or similar communication equipment so long as all participants can
hear each other and participate in discussion without restriction. Action also
may be taken by written consent, in the absence of a meeting, in accordance with
applicable provisions of the laws of the State of Washington.
Section 12. Committees. The Board of Directors, by resolution adopted by a
---------- ----------
majority of the Board of Directors, may designate from among its members an
Audit Committee, Nominating Committee, Investment Committee, Loan Committee,
Compensation Committee, Executive Committee, and one or more other committees,
each of which, to the extent provided in such resolution, shall have and may
exercise all the authority of the Board of Directors on those matters referred
to such committee. An employee of the Corporation may not serve as a member of
the Audit or Compensation Committees. A majority of the Nominating Committee
shall consist of directors who are not employees of the Corporation. The
President and Chairman
shall be ex officio members of all committees. No such committee shall have the
authority to (1) authorize distributions or the issuance of shares, unless a
resolution of the Board of Directors, or these Bylaws, or Articles of
Incorporation expressly so provide; (2) approve or recommend to
7
<PAGE>
shareholders actions or proposals required by the statute to be approved by
shareholders; (3) fill vacancies on the Board of Directors or any committee
thereof; (4) amend the Bylaws; (5) fix compensation of any Director for serving
on the Board of Directors or on any committee; (6) approve a plan of merger,
consolidation, or exchange of shares not requiring shareholder approval; (7)
appoint other committees of the Board of Directors or the members thereof; or
(8) adopt resolutions to amend the Articles of Incorporation.
ARTICLE III
Officers
--------
The officers of the Corporation shall be the Chairman of the Board of
Directors, a President (who shall also be Chief Executive Officer), a Cashier-
Treasurer, and a Secretary. Persons elected to those offices by the Board of
Directors shall serve at the will of the Board of Directors and continue in
office until such time as their successors are elected and qualified. Any two
(2) of the foregoing officers may be united in one (1) person except President
and Secretary. A Vice President or Vice Presidents may be added from time to
time as determined by the Board of Directors who may also appoint one (1) or
more Assistant Secretaries and one (1) or more Assistant Treasurers.
The Chairman of the Board of Directors shall preside at all meetings of the
shareholders and of the Board of Directors and shall have such further duties
and responsibilities as the Board of Directors may determine. The President,
subject to the general supervision and control of the Board of Directors, shall
be responsible for the affairs of the Corporation and shall perform such other
duties as may be assigned to that office from time to time by the Board of
Directors.
The Secretary shall issue notices for all meetings, shall have charge of the
seal and the corporate books, shall sign with the President such instruments as
require such signature and shall perform such other duties as are incident to
that office or are particularly required of that office by the Board of
Directors.
The Cashier-Treasurer shall have the custody of monies and securities of the
Corporation and shall perform all duties incident to this office or that are
particularly required of this office by the Board of Directors.
The Vice Presidents, Assistant Secretaries and Assistant Treasurers shall
perform the duties of the President, Secretary or Cashier-Treasurer during their
inability to act; such officer shall
8
<PAGE>
have such other and further powers and perform such other and further duties as
may be assigned to that officer or them, respectively, by the Board of
Directors.
ARTICLE IV
Indemnification
---------------
Section 1. Right to Indemnification. Each individual who was or is made a
--------- ------------------------
party or is threatened to be made a party to or is otherwise involved
(including, without limitation, as a witness) in any actual or threatened
action, suit or proceeding, whether civil, criminal, administrative or
investigative and whether formal or informal (hereinafter a "proceeding"), by
reason of the fact that he or she is or was a Director or officer of the
Corporation or, that while serving as a Director or officer of the Corporation,
he or she is or was; also serving at the request of the Corporation as a
Director, officer, partner, trustee, employee or agent of another foreign or
domestic corporation or of a foreign or domestic partnership, Joint venture,
trust, employee benefit plan or other enterprise (hereinafter an "indemnitee"),
whether the basis of a proceeding is alleged action in an official capacity as
much a Director, officer, employee, partner, trustee, or agent or in any other
capacity while serving as such a Director, officer, employee, partner, trustee,
or agent, shall be indemnified and held harmless by the Corporation to the full
extent permitted by the Articles of Incorporation and by applicable law as then
in effect, against all expense, liability, and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts to be paid in
settlement) actually and reasonably incurred or suffered by such indemnitee in
connection therewith, and such indemnification shall continue as to an
indemnitee who has ceased to be a Director, officer, employee, partner, trustee,
or agent and shall inure to the benefit of the indemnitee's heirs, executors and
administrators; provided, however, that no indemnification shall be provided to
any such indemnitee if the Corporation is prohibited by the Articles of
Incorporation or by the Washington Business Corporation Act or other applicable
law as then in effect from paying such indemnification; and provided, further,
that except as provided in Section 2 of this Article with respect to proceedings
seeking to enforce rights to indemnification, the Corporation shall indemnify
any such indemnitee in connection with a proceeding (or part thereof) initiated
by such indemnitee only if a proceeding (or part thereof) was authorized or
ratified by the Board. The right to indemnification conferred in this Section 1
shall be a contract right and shall include the right to be paid by the
Corporation the expenses incurred in defending any proceeding in advance of its
final disposition (hereinafter an "advancement of
9
<PAGE>
expenses"). Any advancement of expenses shall be made only upon delivery to the
Corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of
such indemnitee, to repay all amounts no advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal that such indemnitee is not entitled to be indemnified for such expenses
under this Section 1 and upon delivery to the Corporation of a written
affirmation (hereinafter an "affirmation") by the indemnitee of his or her good
faith belief that such indemnitee has met the standard of conduct necessary for
indemnification by the Corporation pursuant to this Article.
Section 2. Right of Indemnitee to Bring Suit. If a claim under Section 1 of
--------- ---------------------------------
this Article is not paid in full by the Corporation within sixty (60) days after
a written claim has been received by the Corporation, except in the case of a
claim for an advancement of expenses, in which case the applicable period Shall
be twenty (20) days, the indemnitee may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim. If successful
in whole or in part, in any such suit or in a suit brought by the Corporation to
recover an advancement of expenses pursuant to the terms of an undertaking, the
indemnitee Shall be entitled to be paid also the expense of prosecuting or
defending such suit. The indemnitee shall be presumed to be entitled to
indemnification under this Article upon submission of a written claim (and, in
an action brought to enforce a claim for an advancement of expenses, where the
required undertaking and affirmation have been tendered to the Corporation) and
thereafter the Corporation shall have the burden of proof to overcome the
presumption that the indemnitee is 80 entitled. Neither the failure of the
Corporation (including the Board, independent legal counsel or the Shareholders)
to have made a determination prior to the commencement of such suit that
indemnification of the indemnitee is proper in the circumstances nor an actual
determination by the Corporation (including the Board, independent legal counsel
or the Shareholders) that the indemnitee is not entitled to indemnification
shall be a defense to the suit or create a presumption that the indemnitee is
not so entitled.
Section 3. Nonexclusivity of Rights. The right to indemnification and the
--------- ------------------------
advancement of expenses conferred in this Article shall not be exclusive of any
other right which any person may have or hereafter acquire under any statute,
provision of the Articles of Incorporation or Bylaws of the Corporation, general
or specific action of the Board, contract or otherwise.
Section 4. Insurance, Contracts and Funding. The Corporation may maintain
--------- --------------------------------
insurance, at its expense, to protect itself and any individual who is or was a
Director, officer, employee or agent
10
<PAGE>
of the Corporation or who, while a Director, officer, employee or agent of the
Corporation is or was serving at the request of the Corporation as a Director,
officer, partner, trustee, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise against any expense, liability or loss asserted against or incurred
by the individual in that capacity or arising from the individual's status as a
Director, officer, employee or agent, whether or not the Corporation would have
the power to indemnify such person against such expense, liability or loss under
the Washington Business Corporation Act. The Corporation may enter into
contracts with any Director, officer, employee or agent of the Corporation in
furtherance of the provisions of this Article and may create a trust fund, grant
a security interest or use other means (including, without limitation, a letter
of credit) to ensure the payment of such amounts as may be necessary to effect
indemnification as provided in this Section.
Section 5. Indemnification of Employees and Agents of the Corporation. The
--------- ----------------------------------------------------------
Corporation may, by action of the Board, grant rights to indemnification and
advancement of expenses to employees and agents of the Corporation with the same
scope and effect as the provisions of this Article with respect to the
indemnification and advancement of expenses of Directors and officers of the
Corporation or pursuant to rights granted pursuant to, or provided by, the
Washington Business Corporation Act or otherwise.
Section 6. Persons Serving Other Entities. Any individual who is or was a
--------- ------------------------------
Director, officer or employee of the Corporation who, while a Director, officer
or employee of the Corporation, is or was serving (a) as a Director or officer
of another foreign or domestic corporation of which a majority of the shares
entitled to vote in the election of its Directors is held by the Corporation or
(b) in an executive or management capacity in a foreign or domestic partnership,
joint venture, trust or other enterprise of which the Corporation or a wholly
owned subsidiary of the Corporation is a general partner or has a majority
ownership shall be deemed to be 80 serving at the request of the Corporation and
entitled to indemnification and advancement of expenses under Section 1 of this
Article.
ARTICLE V
Stock and Transfer of Stock
---------------------------
Section 1. Stock Certificate. Every shareholder shall be entitled to a
--------- -----------------
certificate signed by the President or Vice President and the Secretary or
Assistant Secretary of the Corporation, certifying
11
<PAGE>
the number of shares owned by the shareholder in the Corporation. The seal of
the Corporation shall be affixed to the certificate.
Section 2. Transfers of Stock. Shares of stock may be transferred by delivery
--------- ------------------
of the certificates therefor, accompanied either by an assignment in writing on
the back of the certificates or by written power of attorney to sell, assign,
and transfer the same, signed by the record holder thereof; but no transfer
shall affect the right of the Corporation to pay any dividend upon the stock to
the holder of record thereof or to treat the holder of record as the holder in
fact thereof for all purposes, and no transfer shall be valid, except between
the parties thereto, until such transfer shall have been made upon the books of
the Corporation.
Section 3. Lost Certificates. In case any certificates of stock shall be lost,
--------- -----------------
stolen, or destroyed, the Board of Directors, in its discretion, may authorize
the issuance of a substitute certificate in place of the certificate 80 lost,
stolen or destroyed; provided, that in each such case, the applicant for a
substitute certificate shall furnish to the Corporation evidence satisfactory to
the Corporation, in its discretion, of the loss, theft, or destruction of such
certificate and of the ownership thereof, and also such security, or indemnity,
as may be by it required.
Section 4. Record Date. The Board of Directors is authorized, from time to
--------- -----------
time, to fix in advance a date, not more than seventy (70) nor less than ten
(10) days preceding the date of any meeting of shareholders or the date for the
payment of any dividend or the date of the allotment of rights or the date when
any change or conversion or exchange of stock shall go into effect, as a record
date for the determination of the shareholders entitled to notice and to vote at
such meeting or entitled to receive payment of any such dividend, or to any such
allotment of right or to exercise the rights with respect to any much change,
conversion or exchange of stock, as the case may be; and, in such case, such
shareholders, and only such shareholders as shall be shareholders of record on
the date so fixed, shall be entitled to notice of and to vote at such meeting,
or to receive payment of such and to vote at such meeting, or to receive payment
of such dividend, or to receive such allotment of rights or to exercise such
rights, as the case may be, notwithstanding any transfer of any stock on the
books of the Corporation after any such record date fixed as aforesaid.
The Board of Directors is also authorized, from time to time, when by it
deemed necessary or advisable for the purpose, to prescribe a period of not more
than seventy (70) nor less than ten
12
<PAGE>
(10) days at any one time during which no transfer of stock on the books of the
Corporation may be made.
ARTICLE VI
Amendments
----------
These Bylaws may be repealed or amended and new Bylaws adopted at any regular
meeting or special meeting of the Board of Directors. The Board of Directors may
adopt, alter, amend or repeal such Bylaws as shall be necessary for the
regulation and management of the affairs of the Corporation and which shall be
consistent with the laws of the State of Washington and the Articles of
Incorporation.
13
<PAGE>
EXHIBIT 10.1.6
SECOND AMENDMENT TO GROUND LEASE
This Second Lease Amendment is made this _______ day of August, 1997, by
and between John C. Young, Lessor, and Inland Northwest Bank, Lessee.
WHEREAS the parties entered into a Ground Lease dated September 24, 1996,
for the lease by the Lessor to the Lessee of certain real property described on
Exhibit "A" to said lease and incorporated herein by this reference; and
WHEREAS the parties made a Lease Amendment regarding the initial term and
option periods of the lease; and
WHEREAS the parties desire to further amend the Lease to provide for a
right of first refusal by the Lessee, the following is set forth as additional
covenants of the ground lease.
1. John C. Young and Inland Northwest Bank hereby agree that Inland
Northwest Bank shall have a first right of refusal to purchase the real property
described on Exhibit "A", under the following terms and conditions.
2. During the term of this lease or any option to renew which has been
exercised by Lessee, and in the further event that Lessee is not then in
default under any material term of the lease, lessee shall have the right to
purchase the premises on the same terms and conditions as any bona fide offer
received from a third party by the
Page - 1
<PAGE>
Lessor which offer the Lessor intends to otherwise accept. If and in the event
the Lessor receives a bona fide third party offer for purchase on terms
acceptable to the Lessor, Lessor shall within seven days, provide a notice to
Lessee of the purchase price, terms and conditions of the offer. Lessee shall
have fourteen (14) days from the date of mailing of notice to Lessee, to deliver
written Notice of Intent to exercise right of first refusal, to Lessor. If and
in the event that the third party offer includes a 1031 Exchange or other
payment in kind, Lessee may exercise the right of first refusal and purchase the
property on identical terms or in payment of cash equivalent of the exchange.
In the event Lessee properly gives written notice of intent to exercise
right of first refusal, then closing shall occur within thirty (30) days of
notice to Lessor or such later time as may be mutually agreed in writing by and
between the parties.
3. Nothing herein shall create an option to purchase by Lessee.
4. If and in the event the Lessee receives notice of bona fide third
party offer from Lessor and in the further that Lessee does not deliver written
notice to Lessor within fourteen (14) days of mailing that Lessee intends to
exercise said right, then Lessor shall be free to consummate the sale
transaction with the third party. In
<PAGE>
the event the sale transaction is not consummated, this right of first refusal
shall survive during the remainder of the term of the lease and options to
renew, but not otherwise.
5. The rights and duties as set forth above shall be binding on the heirs,
successors and assigns of each party.
/s/ John C. Young
________________________________________
JOHN C. YOUNG
INLAND NORTHWEST BANK
/s/ Frederick M. Schunter
________________________________________
By:_____________________________________
Its:____________________________________
STATE OF WASHINGTON )
) ss.
County of Spokane )
I certify that I know or have satisfactory evidence that JOHN C. YOUNG
signed this instrument and acknowledged it to be his free and voluntary act for
the uses and purposes mentioned in the instrument.
DATED this 12 day of August, 1997.
----
/s/
________________________________________
Notary Public in and for
the State of Washington
Residing at Spokane.
My Commission Expires: 11-18-98
____________
Page - 3
<PAGE>
STATE OF WASHINGTON )
) ss.
County of Spokane )
I certify that I know or have satisfactory evidence that Frederick M.
Schunter signed this instrument, on oath stated that he/she was authorized to
execute the instrument and acknowledged it as the President of Inland Northwest
Bank to be the free and voluntary act of such party for the uses and purposes
mentioned in the instrument.
DATED this 7th day of August, 1997.
[NOTARY SEAL OF A. ROSE KEYS] /s/ A. Rose Keys
------------------------------------
Notary Public in and for
the State of Washington
Residing at Spokane.
My Commission Expires: 9-12-98
Page - 4
<PAGE>
EXHIBIT 10.1.8
LEASE
ROSAUERS SUPERMARKETS, INC. - LESSOR
INLAND NORTHWEST BANK - LESSEE
COEUR D'ALENE, IDAHO
THIS LEASE is made and entered into as of the 16th day of December, 1997,
by and between ROSAUERS SUPERMARKETS, INC., lessee of the entire premises and
sublessor of the demised premises, hereinafter referred to as the "Lessor", and
INLAND NORTHWEST BANK, sublessee of the demised premises, hereinafter referred
to as the "Lessee".
1. LEASED PREMISES - DESCRIPTION AND ADDITIONAL AREA. The Lessor hereby
leases to the Lessee, and the Lessee leases from the Lessor on the terms and
conditions hereinafter set forth, office space in the Lessor's store building at
225 West Appleway in the City of Coeur d'Alene, Kootenai County, Idaho,
consisting of approximately 1017 square feet, (and constituting approximately
1.67% of the improved ground floor area of the Lessor's building), hereinafter
referred to as the "premises", "leased premises", or "demised premises", and
which premises are a part of the "entire premises" (the "Shopping Center")
described on Exhibit "A", and which leased premises are described by dimension
and location as heavily outlined in red on the Site Plan attached hereto as
Exhibit "B". (Each of the aforesaid Exhibits are attached to and incorporated
herein by reference.) In addition, the Lessor hereby leases to the Lessee, for
the benefit of the Lessee, its customers, invitees, agents and employees, the
right to use in common with others entitled thereto the driveways, sidewalks,
and parking areas in the Shopping Center, as are depicted on the Site Plan of
the entire premises attached hereto as Exhibit "B", and such other common
facilities as may be designated from time to time by the Lessor, subject,
however, to the terms and conditions of this Lease, the Primary Lease, and to
the reasonable rules and
-1-
<PAGE>
regulations for the use thereof prescribed form time to time by the Lessor. In
addition thereto, the restroom and lounge area provided for employees of the
Lessor shall be available for the use of the Lessee's employees.
2. TERM. The leasehold interest hereby conveyed shall be for a term of
five (5) years, commencing on the bank opening date and terminating at 12:01
a.m. of the day which is five (5) years after the commencement date, unless
earlier terminated by either party as hereinafter provided. The bank opening
date shall be designated the "commencement date" as referred to in this Lease.
3. RENT. In consideration of this Lease, the Lessee agrees to pay the
Lessor as rental at the time and the place where rent is payable as hereinafter
specified, monthly rental as follows:
a. Monthly Rent. One Thousand Two Hundred Seventy-One and 25/100
($1,271.25) Dollars per month, plus 1.67% of the estimated monthly costs of
common tenancy for the Lessor's building payable under the Primary Lease,
which costs for the first lease year are estimated on Exhibit "C" as
attached hereto for reference. Installments of rent shall be paid in
advance on the commencement date and on the first day of each month
thereafter from commencement date through the lease term.
b. Annual Adjustment of Costs. The portion of the monthly rent due
as a 1.67% pro rata share of the costs of common tenancy, as estimated on
Exhibit "C", shall be adjusted from time to time to reflect the increases
or decreases in said costs, and annually on the commencement date of this
Lease, adjustments shall be made by lump sum payment or reimbursement to
reflect any excess or deficit in such payments during the year, it being
the intent of the parties that the Lessee pay 1.67% of the Lessor's actual
cost for these expenses.
c. Tax on Rentals. Should there presently be in effect or should
there be enacted during the term of this Lease any law, statue or
ordinance
-2-
<PAGE>
levying a tax (other than federal or state income taxes) on rents, the Lessee
shall reimburse the Lessor monthly and at the same time as monthly rental
payments are due hereunder for the actual amounts of all such taxes paid on
rents payable by the Lessee hereunder.
4. LIABILITY INSURANCE - INDEMNIFICATION.
a. Indemnification of Lessor. The Lessee will indemnify the Lessor and
save it harmless from and against any and all lien claims, actions, damages,
liability and expense in connection with loss of life, personal injury, and/or
damage to property occasioned by the occupancy or use by the Lessee of the
leased premises or any part thereof, or occasioned wholly or in part by any act
or omission of the Lessee, its agents, contractors, employees or servants. In
case the Lessor shall, without fault on its part, be made a party to any
litigation commenced by or against the Lessee, then the Lessee shall protect and
hold the Lessor harmless and shall pay all costs, expenses and reasonable
attorney fees incurred or paid by the Lessor in connection with such
litigation.
b. Liability Insurance. The Lessee agrees that, at its own expense and
cost, it shall procure and continue in force, in the names of the Lessor and the
Lessee, general liability insurance against any and all claims for injuries to
persons and/or property occurring in, upon or about the demised premises, such
insurance at all times to be in an amount not less than One Million Dollars
($1,000,000.00) for bodily injury to any person and One Million Dollars
($1,000,000.00) for bodily injury arising out of any one occurrence, and not
less than Three Hundred Fifty Thousand Dollars ($350,000.,00) for property
damage arising out of any said occurrence. Such insurance shall be written in a
sound company, or companies authorized to engage in the business of general
liability insurance in the States of Washington or Idaho, and there shall be
delivered to the Lessor
-3-
<PAGE>
certificates issued by said company or companies evidencing that such insurance
coverage exists and payment of premiums has been made. The coverage provided for
herein shall be for a period of not less than one (1) year; it being understood
and agreed that fifteen (15) days prior to the expiration of any such insurance
the Lessee will deliver to the Lessor a renewal or new certificate to take the
place of the certificate expiring, with the further understanding that, should
the Lessee fail to furnish said coverage as evidenced by the certificate as is
required by this Lease and at the time herein provided, the lessor may obtain
such insurance and the premiums on such insurance shall be paid by the Lessee to
the Lessor upon demand, with interest at twenty percent (20%), per annum, and
the Lessor shall have the same rights and remedies as in the case of the
Lessee's failure to pay the rental herein reserved.
5. MAINTENANCE AND REPAIR.
a. Lessee's Duties. The Lessee shall keep the leased premises including
the interior thereof in good, clean and presentable appearance, in good order
and in a good condition of maintenance and repair, including interior paint, and
wall surfaces, floors and floor coverings, ceilings, signs and fixtures
throughout the term of this Lease and any extension or renewal thereof,
reasonable wear and tear, fire and other insured casualty excepted. The Lessee
shall indemnify the Lessor and hold it harmless against any claim, demand and/or
judgment for loss, damage or injury to property or persons, resulting or
accruing by reason of the failure of the Lessee to perform the requirements of
this paragraph, except as otherwise provided herein.
b. Lessor's Duties. The Lessor shall repair and maintain in good order
and condition the structural portion of the leased premises, including the roof,
outside and inside of exterior walls, foundations, and structural
-4-
<PAGE>
portions and members thereof, the heating and air conditioning system, and
no other portion of the leased premises, except as hereinafter specifically
set forth; however, any repairs required to be made to those things or
items required to be kept in repair by the Lessor, where such repairs are
necessitated by a fault or negligence of the Lessee, its licensees,
servants, or employees, shall be made by the Lessee at its own cost and
expense.
6. USE OF PREMISES, WASTE. The Lessee shall use the premises for
conducting therein the business of operating a state chartered bank branch, and
for no other business or purpose without first obtaining the written consent of
the Lessor. The Lessee shall not use the premises in such manner as to violate
any applicable law, rule, ordinance or regulation of any governing body, or any
provision of the Primary Lease. The Lessee will permit no waste, damage or
injury to the premises.
7. EXCLUSIVE USE. During the term of this Lease, the Lessor shall not
allow any tenant, nor shall the Lessor directly or indirectly engage in or
compete with the business of the Lessee within the Lessor's building.
8. USE OF PARKING LOT. It is understood that the Lessee shall have the
non-exclusive use of the parking area within the Shopping Center. This use is
granted with the express understanding that the Lessor and any other tenants of
the Shopping Center and other tenants and property owners in the retail complex,
of which the Shopping Center is a part, may use these facilities and may use the
parking area for their customers. The matter, however, of allocation of parking
space between the various occupants of the entire premises and of the allocation
of said parking space as between occupants and their officers and employees on
the one hand and invitees and customers on the other hand shall be subject to
the sole uncontrolled discretion of the Lessor. When necessary, because of peak
days or peak hours, the Lessee's employees shall refrain from
-5-
<PAGE>
parking in the parking lot or shall park in areas designated for employees of
tenants, and will cooperate fully with the Lessor in seeing that this clause is
carried out.
9. GOVERNMENTAL FEES. All license, inspection or other fees due any
governmental agency as a result of activities carried on at the leased premises
shall be promptly paid by the Lessee as and when such sums become due.
10. LIMITATIONS. The Lessor does not acquire by this Lease any right,
title or interest in or to any property of the Lessee. The Lessor is not and
never shall be liable to any creditor of the Lessee or to any claimant against
the estate or property of the Lessee for any debt, loss, contract or other
obligation of the Lessee. The relationship between the Lessor and the Lessee is
solely that of landlord and tenant, neither has any right of ownership or
control over the business or affairs of the other, and the relationship is not
and never shall be deemed a partnership or joint venture. Neither party to this
Agreement has any right to control or direct the activities of the employees or
agents of the other party, and neither party shall act as or be deemed to act
as the agent or representative of the other.
11. ACCESS TO PREMISES. The Lessor or its agents shall have access to the
demised premises at reasonable times in the company of agents of the Lessee for
the purpose of examining and inspecting the same to assure compliance with the
terms of this Lease and to make necessary repairs or improvements thereto.
12. SERVICES AND UTILITIES. The Lessor agrees to supply heat,
electricity, gas, water, janitorial services, parking lot and planting
maintenance for the operation of the building, including the demised premises,
during the term of this Lease.
13. SIGNS. Signs identifying the Lessee may be placed on the walls of the
leased premises, or upon any exterior part of the building by the Lessee
-6-
<PAGE>
subject to the approval of the Lessor, which approval shall not be unreasonably
withheld, and shall be so placed upon the understanding and agreement that the
Lessee will remove the same at the termination of the tenancy herein created
and repair any damage or injury to the leased premises caused thereby.
14. LESSEE'S DUTY TO INSURE FIXTURES & EQUIPMENT. The Lessee shall
procure and maintain insurance on its fixtures and equipment with an acceptable
company, with standard extended coverage endorsements, to the extent of the full
replacement value thereof; the proceeds of which as long as this Lease is in
effect shall be for the repair or replacement of the fixtures so insured.
15. WAIVER OF SUBROGATION.
a. By Lessor. Provided that the Lessee has fully performed its
obligations under the paragraph entitled "LESSEE'S DUTY TO INSURE FIXTURE &
EQUIPMENT", the Lessor hereby releases the Lessee of and from every and all
right, claim and demand that the Lessor may hereafter have against the
Lessee, its successors or assigns, arising out of or in connection with any
loss or losses occasioned by fire or other casualties as are included under
the insurance coverage required of the Lessee under said paragraph, and
does hereby waive all rights of subrogation in favor of insurance carriers
against the Lessee arising out of any losses occasioned by causes so
insured against as are included under the terms and conditions of said
insurance policies, and sustained by the Lessor in or to the building,
including the demised premises.
b. By Lease. The Lessee hereby releases the Lessor from any and
every right, claim and demand that the Lessee may have against the Lessor,
its successors or assigns, arising out of or in connection with any loss or
losses occasioned by fire and/or other casualties as are included under the
normal extended coverage clauses of fire insurance policies, and does
hereby waive all rights of subrogation in favor of insurance carriers
against
-7-
<PAGE>
the Lessor arising out of any losses occasioned by fire and such items as
are included under the normal extended coverage clauses of fire insurance
policies, and sustained by the Lessee to its trade fixtures, equipment and
other personal property in the leased premises.
16. DAMAGE OR DESTRUCTION OF PREMISES. If at any time after the
commencement of the term of this Lease, any of the improvements on the demised
premises or the Lessor's building are substantially damaged or destroyed by
insured or uninsured casualty, then in that event either party may give notice
to the other (pursuant to the paragraph herein entitled "NOTICE AND DEMANDS"),
of intention to terminate this Lease. Such notice, to be effective, must be
given within fifteen (15) days after the occurrence of said casualty and shall
specify that, effective upon the expiration of thirty (30) days after the giving
of notice, this Lease and all rights and liabilities of the parties hereunder
shall cease and terminate, excepting any cause or claim existing prior to said
damage or destruction. If during an interim period of reconstruction or repair
the facility is inoperable, rent will abate until normal tenant activities can
be resumed. Lessee agrees to pay Common Tenancy Expenses through the
reconstruction/repair period. There shall be no abatement of Rent if the damage
was caused in whole or in part by the act or omission of the Lessee, its agents,
employees, licensees, contractors or invitees. Rent shall not abate during any
period of notice required above, but the obligation to pay rent, except as noted
herein, shall continue until termination of this Lease.
17. LESSOR'S LIABILITY FOR DAMAGE. The Lessor shall not be liable to the
Lessee or to any other person whomsoever for any damage occasioned by plumbing,
gas, water, steam, gasoline, sprinkler or other pipe, boiler, tank, storage or
delivery system, or sewage system, or by the bursting, running or leaking of any
tank, container, hose or other pipes in or about the premises, nor for any
damage occasioned by water being upon or coming through the roof,
-8-
<PAGE>
skylight, vent, trapdoor or otherwise, or for any damage arising from any acts
or neglect of co-tenants or other occupants of the Shopping Center or of
adjacent property, or the public for any failure to furnish, or interruption of
service of any water, gas or electricity.
18. LESSOR'S INDEMNITY. Except as otherwise provided in the preceding
paragraph and in the paragraph entitles "WAIVER OF SUBROGATION", the Lessor
agrees to indemnify the Lessee against and save the Lessee harmless from all
demands, claims, causes of action or judgment, and all reasonable expenses
incurred in investigation or resisting the same, for injury to person, loss of
life, or damage to property occurring on the leased premises or on any common
areas caused by the negligent act of the Lessor, its officers, agents or
employees.
19. ASSIGNMENT AND SUBLETTING. Except as otherwise may be permitted in
this Lease, the Lessee shall not allow or permit any transfer of this Lease or
any interest under it or any lien upon the Lessee's interest by operation of
law, or assign or convey this Lease or any interest under it, or sublet the
premises or any part thereof, or permit the use or occupancy of the premises or
any part thereof by any one other than the Lessee, except with regard to
affiliated companies which will not occupy more than twenty-five percent (25%)
of the available space, without the prior written consent of the Lessor, which
shall not be unreasonably withheld.
20. ATTORNMENT. The Lessee shall, in the event of sale or assignment of
the Lessor's interest, or in the event any proceedings are brought for the
foreclosure of, or in the event of exercise of the power of sale under any
mortgage made by the Lessor covering the leased premises, attorn to the
purchaser upon any such sale, assignment, foreclosure, or sale and recognize
such purchaser as the Lessor under this Lease.
21. OFFSET STATEMENT. Within ten (10) days after request therefor by the
Lessor, or in the event of any sale, assignment or hypothecation of the
-9-
<PAGE>
leased premises and/or the land thereunder by the Lessor, an offset statement
shall be required from the Lessee. The Lessee agrees to deliver in recordable
form a certificate to a proposed mortgagor or purchaser, or to the Lessor,
certifying (if such be the case) that this lease is in full force and effect and
that there are no defenses or offsets thereto, or stating those claimed by the
Lessee.
22. FORCE MAJEURE. In the event that either party hereto shall be delayed
or hindered in, or prevented from the performance of any act required hereunder
by reason of strikes, walk-outs, labor trouble, inability to procure materials,
failure of power, restrictive governmental laws or regulations, riots,
insurrection, war, or other reason of a like nature not the fault of the parties
performing work or doing acts required under the terms of this Lease, then
performance of such shall be excused for the period of such delay. The
provisions of this section shall not operate to excuse the Lessee from prompt
payment of rent, or any other payments required by the terms of this Lease,
except as may be otherwise provided.
23. EMINENT DOMAIN. In the event any part of the demised premises, the
Lessor's building, or a substantial portion of the parking or access areas of
the entire premises shall be appropriated or taken under the power of eminent
domain by any public or quasi-public authority, this Lease, upon thirty (30)
days notice by either party to the other given pursuant to the paragraph herein
entitled "NOTICE AND DEMANDS". shall terminate and expire as of the date of such
taking, and each party shall thereupon be released from any liability thereafter
accruing hereunder, excepting claims existing prior to said taking. In the event
of partial taking and neither party elects to terminate this Lease, then this
Lease shall continue in full force and effect as to the part not taken, on the
same terms and conditions, including rental, as set forth in this Lease.
24. ALTERATIONS AND IMPROVEMENTS. The Lessee may from time to time and at
its own expense, make repairs, replacements, additions,
-10-
<PAGE>
improvements, alterations or changes necessary or appropriate for the proper and
suitable use of the leased premises; provided always, that such repairs,
modifications, replacements, additions, improvements, alterations or changes
will not lessen the then value of such premises or other improvements, and shall
be in accordance with the plans and specifications prepared by the Lessee and
submitted to the Lessor for approval, which approval shall not be unreasonably
withheld. The provisions of the preceding sentence with respect to submitting
plans and specifications to the Lessor shall not apply if the change to be made
is not structural and involves an expense of less than One Thousand Dollars
($1,000.00). If the Lessor shall fail to object to such plans and specifications
within thirty (30) days after such submission the same shall be deemed approved.
All work shall be done in a good and workmanlike manner, and when completed be
free and clear of all claims for liens by mechanics or materialmen for or on
account of labor and materials furnished in and about such premises.
25. REMEDIES ON DEFAULT. In the event the Lessee does not pay the rents
reserved herein as and when the same are due, and within ten (10) days after
written notice of said default shall have been given to the Lessee, or the
Lessee's failure to perform any other of the terms, conditions or covenants of
this Lease to be observed or performed by the Lessee for more than thirty (30)
days after written notice of such default shall have been given to the Lessee,
or if the Lessee or any agent of the Lessee shall falsify any report required to
be furnished to the Lessor pursuant to the terms of this Lease, or if the Lessee
shall abandon said premises, or suffer this Lease to be taken under any writ of
execution, then the Lessor besides other rights or remedies it may have, shall
have the immediate right of re-entry and may remove all persons and property
from the leased premises and such property may be removed and stored in a public
warehouse or elsewhere at the cost of and for the account of the Lessee, all
without service of notice except as provided above; or resort to legal process
-11-
<PAGE>
and without being deemed guilty of trespass, or becoming liable for any loss or
damage which may be occasioned thereby. The Lessor may, however, retain for
satisfaction of the Lessee's obligations only, so much of said personal property
as is necessary to cure the default of the Lessee as authorized by this Lease.
Should the Lessor at any time terminate this Lease for any breach, in addition
to any other remedies it may have, it may recover from the Lessee all damages it
may incur by reason of such breach, including the cost of recovering the leased
premises and reasonable attorney's fees, all of which amount shall be
immediately due and payable from the Lessee to the Lessor.
26. EXPIRATION - SURRENDER OF POSSESSION. Upon the expiration of this
Lease at the end of the term thereof, or upon termination of this Lease in any
other manner permitted or required herein, the Lessee will quietly yield and
surrender possession of the demised premises including the building erected
thereon, in as good condition as the same now is, reasonable wear and tear
excepted.
27. FIXTURES. Any trade fixtures, or other personal property installed in
the leased premises by the Lessee shall remain the property of the Lessee, and
may be removed by the Lessee at any time during the term of this Lease,
provided that the Lessee is not in default under the terms of this Lease. All
such trade fixtures and other personal property shall be removed by the Lessee
upon termination of this Lease. Upon removal of such trade fixtures or equipment
the Lessee shall promptly, at its sole cost and expense, repair all damage to
any part of the leased premises occasioned by the installation or removal
thereof.
28. HOLDOVER. If the Lessee remains in possession of the leased premises
after the expiration of this Lease with the permission of the Lessor and without
execution of a new Lease, it shall be deemed to be occupying said premises as
tenant from month to month.
-12-
<PAGE>
29. NOTICE AND DEMANDS - PLACE OF PAYMENT OF RENT. Any notices or demands
required or permitted by law or any provisions of this Lease, shall be in
writing.
a. Lessor. Any such notices or demands and all rent or other
payments required by this Lease shall be sent to the Lessor by first class
United States Mail, postage prepaid, and addressed to the Lessor at PO Box
9000, Spokane, Washington 99209-9000, or at such other address as the
Lessor may designate in writing pursuant to this paragraph.
b. Lessee. Any such notices or demands to be served upon the Lessee
shall be in writing and shall be sent by first class United States Mail,
postage prepaid, addressed to the Lessee at 421 West Riverside, Spokane,
Washington 99201, or such other address as the Lessee may designate in
writing pursuant to this paragraph.
30. ATTORNEY FEES. If the Lessor shall without any fault on the part of
the Lessor be made a party to any litigation commenced by or against the Lessee
growing out of or having relation to the leased premises or to this Lease, then
the Lessee shall defend the Lessor on demand from the Lessor at the Lessee's
sole cost. In the event of any action brought by the Lessor to recover any rent
due and unpaid hereunder or to recover possession of the leased premises, or in
the event any action is brought by the Lessor or the Lessee for enforcement of
this agreement, or for the breach of any of the terms, covenants, or conditions
contained in this Lease, the prevailing party shall be entitled to recover
reasonable attorney's fees to be fixed by the Court, together with costs of suit
there incurred. This paragraph shall apply to such fees and costs at all stages
of the proceedings and shall survive termination, early termination or
cancellation of this Lease.
31. JURISDICTION. This Lease shall be construed and enforced in
accordance with the laws of the state wherein the demised premises are located.
-13-
<PAGE>
In the event any covenant, condition or provision herein contained is held to be
invalid by final judgment of any court of competent jurisdiction, the validity
of such covenant, condition or provision shall not affect any other covenant,
condition or provision herein contained.
32. NONWAIVER OR BREACH. No waiver of any breach of this Lease, be either
the Lessor or the Lessee, shall be considered to be a waiver of any other or
subsequent breach.
33. MEMORANDUM OF LEASE. The parties agree that only a memorandum of this
Lease may be recorded, said memo to contain only reference to the names of the
parties, legal description of the premises, the terms of the Lease, and
extension or options (if any), and the parties agree to prepare and execute such
memo Lease at the request of either party.
34. NAMES. The words "Lessor" and "Lessee", wherever used in this Lease,
shall, unless the context requires a different construction, be construed to
mean and include, respectively, all the Lessors and all the Lessees in each case
in which there is more than one Lessor and Lessee, and in each case in which the
Lessor or the Lessee is a woman or a corporation or two or more parties, all
necessary grammatical changes in number and gender shall be deemed made. The
headings of sections are for convenience only and do not define, limit or
construe the content of the section.
35. WARRANTY OF QUIET ENJOYMENT. The Lessor warrants as follows: That as
of commencement date the Lessee shall have peaceful and quiet possession during
the term of this Lease and any extension thereof; that the Lessor has full power
and authority to make this Lease subject to the terms and conditions of prior
leases to the entire premises as hereinafter identified.
36. ACKNOWLEDGMENT OF LIMITATIONS OF LESSOR'S INTEREST. The Lessee
acknowledges that the Lessor's and the Lessee's interest in the entire premises
is limited as follows:
-14-
<PAGE>
a. Primary Lease. A lease of and to the entire premises was entered into
pursuant to that certain Lease Agreement, dated as of July 25, 1990, between
RSM, INC., a Washington corporation, as the Lessor, and ROSAUERS SUPERMARKETS,
INC., as the Lessee. Said Lease Agreement, referred to herein as the "Primary
Lease", is and shall remain controlling in the event of any conflict between
this Lease and said Primary Lease, and the Lessee's rights herein are subject
to any such conflicting provisions.
b. Subordination. This Lease shall at all times be subject, subordinate
and inferior in lien with respect to any first mortgage that may be placed upon
the demised premises or any part hereof, given to any institutional or
individual lender, and the recording of such mortgage shall be deemed prior in
lien to this Lease, irrespective of the date of recording of such mortgage, and
the Lessee will, upon demand, execute any instrument necessary to effectuate
such subordination, provided however, that such subordination shall not affect
the Lessee's right to possession, use and occupancy of the leased premises so
long as the Lessee shall not be in default under any of the terms of this Lease.
c. The Lessee, by its execution of this Lease, hereby unconditionally
acknowledges and agrees as follows:
(1) Lessee has received a copy of the Primary Lease and
(2) This Lease represents a sublease of the Lessor's rights, and the
rights of the Lessee hereunder are in all respects subject and subordinate
to the Primary Lease.
37. TIME OF ESSENCE. Time is of the essence of this Lease, and of each
and every covenant, term, condition and provision hereof.
38. SUCCESSORS AND ASSIGNS. This Lease and the terms and conditions
herein contained shall inure to the benefit of and bind not only the parties
hereto, but also their respective successors in interest and assigns, except as
otherwise limited herein.
-15-
<PAGE>
39. TERMINATION OPTION. Any provision herein to the contrary
notwithstanding, either party hereto may cause early termination of this Lease
by giving to the other one hundred eighty (180) days notice of its intention to
terminate. Such notice shall provide for termination one hundred eight (180)
days from the first day of the month following mailing of said notice, unless
the parties mutually agree to a lesser period of time. Notice shall be given as
provided in the paragraph entitled "NOTICE AND DEMANDS". Upon expiration of the
last day of said notice period, this Lease shall be canceled and neither party
hereto shall have further right, duty or liability hereunder, excepting claims
or causes existing prior to said termination.
IN WITNESS WHEREOF the parties have executed this Lease the day and year
first above written.
"LESSOR:" "LESSEE":
ROSAUERS SUPERMARKETS, INC., INLAND NORTHWEST BANK
a Washington corporation a State Chartered Bank
By /s/ L.D. Geller By /s/ Frederick M. Schunter
-------------------------------- -----------------------------------
L.D. Geller Frederick M. Schunter
President President
/s/ C.J. McElderry
- ----------------------------------
C.J. McElderry
Secretary
-16-
<PAGE>
STATE OF WASHINGTON )
) ss.
County of Spokane )
I certify that I know or have satisfactory evidence that L. D. GELLER and
C. J. McELDERRY signed this instrument, on oath stated that they were authorized
to execute the instrument, and acknowledged it as the President and Secretary of
ROSAUERS SUPERMARKETS, INC., to be the free and voluntary act of such party for
the uses and purposes mentioned in the instrument.
DATED this 16th day of December , 1997.
------ ------------------
[NOTARY SEAL APPEARS HERE] /s/ Eileen M. Hendon
(Seal or Stamp) --------------------------------
NOTARY PUBLIC
My appointment expires 3/1/98
----------
STATE OF WASHINGTON )
) SS.
County of )
I certify that I know or have satisfactory evidence that Frederick M.
Schunter signed this instrument, on oath stated that he was authorized to
execute the instrument, and acknowledged it as the President of INLAND NORTHWEST
BANK, to be the free and voluntary act of such party for the uses and purposes
mentioned in the instrument.
DATED this 18th day of December , 1997.
------ ------------------
[NOTARY SEAL APPEARS HERE] /s/ Anita L. Kuhn
(Seal or Stamp) --------------------------------
NOTARY PUBLIC
My appointment expires 7/31/01
----------
-17-
<PAGE>
EXHIBIT A
Real Property the street address of which is West 225 Appleway, Coeur d'Alene,
Idaho, more particularly described as follows:
Tracts 10, 11, 12 and 13, FRUITLAND ADDITION, according to the plat recorded in
the office of the County Recorder in Book C of Plats at Page 12, records of
Kootenai County, Idaho.
EXCEPTING THEREFROM that portion of said Tract 13 described in the deed to the
State of Idaho recorded October 28, 1970 in Book 242 of Deeds at Page 8, records
of Kootenai County, Idaho.
ALSO EXCEPTING THEREFROM a portion of said Tracts 11, 12 and 13 all oil, gas and
other hydrocarbon substances and all minerals in, under and that may be produced
from a depth below 500 feet of the surface of the above described real property,
but without the right of entry upon the service thereof, as reserved in the deed
from Phillips Petroleum Company recorded June 23, 1972 in Book 257 of Deeds at
Page 263, records of Kootenai County, Idaho.
ALSO EXCEPTING THEREFROM a portion of said Tracts 11 and 12 all oil, gas and
minerals as reserved in the deed from Phillips Petroleum Company recorded
April 30, 1975 in Book 271 of Deeds at Page 146, records of Kootenai County,
Idaho.
<PAGE>
[ROSAUERS SITE PLAN]
EXHIBIT 'B'
<PAGE>
EXHIBIT C
ESTIMATED ANNUAL COSTS*
COMMON TENANCY EXPENSES
STORE #28 - COUER D'ALENE, ID
<TABLE>
<CAPTION>
ESTIMATED
ANNUAL LESSEE'S
ESTIMATED COMMON PRORATION
TOTAL PERCENTAGE TENANCY USING -
ANNUAL COSTS APPLIED COSTS 1.67%
------------ ---------- ----------- ---------
<S> <C> <C> <C> <C>
Gas Heat $ 18,361.69 10% $ 1,836.17 $ 30.66
Water & Sewer 11,434.42 15% 1,715.16 28.64
Refuse 16,598.30 15% 2,489.75 41.58
Electricity 145.739.00 55% 80,156.45 1,338.61
Janitorial Labor 12,230.12 55% 6,726.57 112.33
Janitorial Contract 62,815.00 55% 34,548.25 576.96
Janitorial Supplies 26,542.87 55% 14,598.58 243.80
Parking Lot 19,728.69 100% 19,728.69 329.47
Pest Control 928.63 100% 928.63 15.51
Interior Bldg. Repair 0.00 100% 0.00 0.00
Exterior Bldg. Repair 1,792.66 100% 1,792.66 29.94
Bldg. Fire Insurance 1,484.00 100% 1,484.00 24.78
Real Property Taxes 56,648.88 100% 56,648.88 946.04
----------- ----------- ---------
Totals $374,304.26 $222,653.79 $3,718.32
Lessee's estimated monthly cost of common area maintenance $ 309.86
=========
</TABLE>
* BASED ON FY 1997 ACTUAL
<PAGE>
EXHIBIT 10.1.9
STANDARD INDUSTRIAL SUBLEASE
American Industrial Real Estate Association
1. PARTIES. This Sublease, dated, for reference purpose only. September 1,
-----------
1997, is made by and between Farmers Merchants Bank (herein called "Sublessor")
- ---- ----------------------
and Inland Northwest Bank (herein called "Sublessee").
---------------------
2. PREMISES. Sublessor hereby subleases to Sublessee and Sublessee hereby
subleases from Sublessor for the term, at the rental, and upon all of the
conditions set forth herein, that certain real property situated in the County
of Kootenai State of Idaho, commonly known as 622 Sherman Avenue and described
-------- ------------------
as an approximate 1800 sq.ft. building
-----------------------------------
Said real property, including the land and all improvements thereon, is
hereinafter called the "Premises".
3. TERM.
3.1 Term. The term of this Sublease shall be for 16 Months commencing on
---------
September 1, 1997 and ending on December 31, 1998 unless sooner terminated
- ----------------- -----------------
pursuant to any provision hereof.
3.2 Delay in Commencement. Notwithstanding said commencement date, if for
any reason Sublessor cannot deliver possession of the Premises to Sublessee on
said date. Sublessor shall not be subject to any liability therefore, nor shall
such failure affect the validity of this Lease or the obligations of Sublessee
hereunder or extend the term hereof, but in such case Sublessee shall not be
obligated to pay rent until possession of the Premises is tendered to Sublessee;
provided, however, that if Sublessor shall not have delivered possession of the
Premises within sixty (60) days from said commencement date, Sublessee may, at
Sublessee's option, by notice in writing to Sublessor within ten (10) days
thereafter, cancel this Sublease, in which event the parties shall be discharged
from all obligations thereunder. If Sublessee occupies the Premises prior to
said commencement date, such occupancy shall be subject to all provisions
hereof, such occupancy shall not advance the termination date and Sublessee
shall pay rent for such period at the initial monthly rates set forth below.
4. RENT. Sublessee shall pay to Sublessor as rent for the Premises equal
monthly payments of $ 1800.00, in advance, on the 1st day of each month of the
------- ---
term hereof. Sublessee shall pay Sublessor upon the execution hereof $1800.00
-------
as rent for the month of October 1997. Rent for any period during the term
-------------------------
hereof which is for less than one month shall be a prorata portion of the
monthly installment. Rent shall be payable in lawful money of the United States
to Sublessor at the address stated herein or to such other persons or at such
other places as Sublessor may designate in writing.
5. SECURITY DEPOSIT. Sublessee shall deposit with Sublessor upon execution
hereof $ 1800.00 as security for Sublessee's faithful performance of
Sublessee's obligations hereunder, if Sublessee fails to pay rent or other
charges due hereunder, or otherwise defaults with respect to any provision of
this Sublease, Sublessor may use, apply or retain all or any portion of said
deposit for the payment of any rent or other charge in default or for the
payment of any other sum to which Sublessor may become obligated by reason of
Sublessee's default, or to compensate Sublessor for any loss or damage which
Sublessor may suffer thereby. If Sublessor so uses or applies all or any
portion of said deposit. Sublessee shall within ten (10) days after written
demand therefore deposit cash with Sublessor in an amount sufficient to restore
said deposit to the full amount hereinabove stated and Sublessee's failure to do
so shall be a material breach of this Sublease. Sublessor shall not be required
to keep said deposit separate from its general accounts. If Sublessee performs
all of Sublessee's obligations hereunder, said deposit, or so much thereof as
has not theretofore been applied by Sublessor, shall be returned, without
payment of interest or other increment for its use to Sublessee (or at
Sublessor's option, to the last assignee, if any, of Sublessee's interest
hereunder) at the expiration of the term hereof, and after Sublessee has vacated
the Premises. No trust relationship is created herein between Sublessor and
Sublessee with respect to said Security Deposit.
6. USE.
6.1 Use. The Premises shall be used and occupied only for Bank and for no
----
other purpose.
6.2 Compliance with Law.
(a) Sublessor warrants to Sublessee that the Premises, in its existing
state, but without regard to the use for which Sublessee will use the Premises,
does not violate any applicable building code regulation or ordinance at the
time that this Sublease is executed. In the event that it is determined that
this warranty has been violated, then it shall be the obligation of the
Sublessor, after written notice from Sublessee, to promptly, at Sublessor's sole
cost and expense, rectify any such violation. In the event that Sublessee does
not give to Sublessor written notice of the violation of this warranty within 1
year from the commencement of the term of this Sublease, it shall be
conclusively deemed that such violation did not exist and the correction of the
same shall be the obligation of the Sublessee.
(b) Except as provided in paragraph 6.2(a). Sublessee shall, at
Sublessee's expense, comply promptly with all applicable statutes, ordinances,
rules, regulations, orders, restrictions of record, and requirements in effect
during the term or any part of the term hereof regulating the use by Sublessee
of the Premises. Sublessee shall not use or permit the use of the Premises in
any manner that will tend to create waste or a nuisance or, if there shall be
more than one tenant of the building containing the Premises, which shall tend
to disturb such other tenants.
6.3 Condition of Premises. Except as provided in paragraph 6.2(a)
Sublessee hereby accepts the Premises in their condition existing as of the date
of execution hereof, subject to all applicable zoning, municipal, county and
state laws, ordinances, and regulations governing and regulating the use of the
Premises, and accepts this Sublease subject thereto and to all matters disclosed
thereby and by any exhibits attached herein Sublessee acknowledges that neither
Sublessor nor Sublessor's agents have made any representation or warranty as to
the suitability of the Premises for the conduct of Sublessee's business.
7. MASTER LEASE.
7.1 Sublessor is the lessee of the Premises by virtue of a lease,
hereinafter referred to as the "Master Lease", a copy of which is attached
hereto marked Exhibit 1, dated April 10, 1996 wherein Jim Schindler is the
-------------- -------------
lessor, hereinafter referred to as the "Master Lessor".
7.2 This Sublease is and shall be at all times subject and subordinate to
the Master Lease.
7.3 The terms, conditions and respective obligations of Sublessor and
Sublessee to each other under this Sublease shall be the terms and conditions of
the Master Lease except for those provisions of the Master Lease which are
directly contradicted by this Sublease in which event the terms of this Sublease
document shall control over the Master Lease. Therefore, for the purpose of
this Sublease, wherever in the Master Lease the word "Lessor" is used it shall
be deemed to mean the Sublessor herein and wherever in the Master Lease the word
"Lessee" is used it shall be deemed to mean the Sublessee herein.
7.4 During the term of this Sublease and for all periods subsequent for
obligations which have arisen prior to the termination of this Sublease.
Sublessee does hereby expressly assume and agree to perform and comply with, for
the benefit of Sublessor and Master Lessor, each and every obligation of
Sublessor under the Master Lease except for the following paragraphs which are
excluded therefrom: _____________________ Paragraphs 1, 2, & 3 of the Addendum
to Master lease dated April 10, 1997.
<PAGE>
7.5 The obligations that Sublessee has assumed under paragraph 7.4 hereof
are hereinafter referred to as the "Sublessee's Assumed Obligations". The
obligations that Sublessee has not assumed under paragraph 7.4 hereof are
hereinafter referred to as the "Sublessor's Remaining Obligations".
7.6 Sublessee shall hold Sublessor free and harmless of and from all
liability, judgments, costs, damages, claims or demands, including reasonable
attorneys fees, arising out of Sublessee's failure to comply with or perform
Sublessee's Assumed Obligations.
7.7 Sublessor agrees to maintain the Master Lease during the entire term
of this Sublease, subject, however, to any earlier termination of the Master
Lease without the fault of the Sublessor, and to comply with or perform
Sublessor's Remaining Obligations and to hold Sublessee free and harmless of and
from all liability, judgments, costs, damages, claims or demands arising out of
Sublessor's failure to comply with or perform Sublessor's Remaining Obligations.
7.8 Sublessor represents to Sublessee that the Master Lease is in full
force and effect and that no default exists on the part of any party to the
Master Lease.
8. ASSIGNMENT OF SUBLEASE AND DEFAULT.
8.1 Sublessor hereby assigns and transfers to Master Lessor the Sublessor's
interest in this Sublease and all rentals and income arising therefrom, subject
however to terms of Paragraph 8.2 hereof.
8.2 Master Lessor, by executing this document, agrees that until a default
shall occur in the performance of Sublessor's Obligations under the Master
Lease, that Sublessor may receive, collect and enjoy the rents accruing under
this Sublease. However, if Sublessor shall default in the performance of its
obligations to Master Lessor then Master Lessor may, at its option, receive and
collect, directly from Sublessee, all rent owing and to be owed under this
Sublease. Master Lessor shall not, by reason of this assignment of the Sublease
nor by reason of the collection of the rents from the Sublessee, be deemed
liable to Sublessee for any failure of the Sublessor to perform and comply with
Sublessor's Remaining Obligations.
8.3 Sublessor hereby irrevocably authorizes and directs Sublessee, upon
receipt of any written notice from the Master Lessor stating that a default
exists in the performance of Sublessor's obligations under the Master Lease, to
pay to Master Lessor the rents due and to become due under the Sublease.
Sublessor agrees that Sublessee shall have the right to rely upon any such
statement and request from Master Lessor, and that Sublessee shall pay such
rents to Master Lessor without any obligation or right to inquire as to whether
such default exists and notwithstanding any notice from or claim from Sublessor
to the contrary and Sublessor shall have no right or claim against Sublessee for
any such rents so paid by Sublessee.
8.4 No changes or modifications shall be made to this Sublease without the
consent of Master Lessor.
9. CONSENT OF MASTER LESSOR
9.1 In the event that the Master Lease requires that Sublessor obtain the
consent of Master Lessor to any subletting by Sublessor then, this Sublease
shall not be effective unless, within 10 days of the date hereof, Master Lessor
signs this Sublease thereby giving its consent to this Subletting.
9.2 In the event that the obligations of the Sublessor under the Master
Lease have been guaranteed by third parties then this Sublease, nor the Master
Lessor's consent, shall not be effective unless, within 10 days of the date
hereof, said guarantors sign this Sublease thereby giving guarantors consent to
this Sublease and the terms thereof.
9.3 In the event that Master Lessor does give such consent then:
(a) Such consent will not release Sublessor if its obligations or alter the
primary liability of Sublessor to pay the rent and perform and comply with all
of the obligations of Sublessor to be performed under the Master Lease.
(b) The acceptance of rent by Master Lessor from Sublessee or any one else
liable under the Master Lease shall not be deemed a waiver by Master Lessor of
any provisions of the Master Lease.
(c) The consent to this Sublease shall not constitute a consent to any
subsequent subletting or assignment.
(d) In the event of any default of Sublessor under the Master Lease, Master
Lessor may proceed directly against Sublessor, any guarantors or any one else
liable under the Master Lease or this Sublease without first exhausting Master
Lessor's remedies against any other person or entity liable thereon to
Master Lessor.
(e) Master Lessor may consent to subsequent sublettings and assignments of
the Master Lease or this Sublease or any amendments or modifications thereto
without notifying Sublessor nor any one else liable under the Master Lease and
without obtaining their consent and such action shall not relieve such persons
from liability.
(f) In the event that Sublessor shall default in its obligations under the
Master Lease, then Master Lessor, at its option and without being obligated to
do so, may require Sublessee to attorn to Master Lessor in which event Master
Lessor shall undertake the obligations of Sublessor under this Sublease from the
time of the exercise of said option to termination of this Sublease but Master
Lessor shall not be liable for any prepaid rents nor any security deposit paid
by Sublessee, nor shall Master Lessor be liable for any other defaults of the
Sublessor under the Sublease.
9.4 The signatures of the Master Lessor and any Guarantors of Sublessor at
the end of this document shall constitute their consent to the terms of this
Sublease.
9.5 Master Lessor acknowledges that, to the best of Master Lessor's
knowledge, no default presently exists under the Master Lease of obligations to
be performed by Sublessor and that the Master Lease is in full force and effect.
9.6 In the event that Sublessor defaults under its obligations to be
performed under the Master Lease by Sublessor, Master Lessor agrees to deliver
to Sublessee a copy of any such notice of default. Sublessee shall have the
right to cure any default of Sublessor described in any notice of default within
ten days after service of such notice of default on Sublessee. It such default
is cured by Sublessee then Sublessee shall have the right of reimbursement and
offset from and against Sublessor.
10. BROKERS FEE.
10.1 Upon execution hereof by all parties, Sublessor shall pay to separate
--------
agreement paid by FMB, a licensed real estate broker, (herein called "Broker"),
- ---------------------
a fee as set forth in a separate agreement between Sublessor and Broker, or in
the event there is no separate agreement between Sublessor and Broker, the sum
of $ ___________________ for brokerage services rendered by Broker to Sublessor
in this transaction.
10.2 Sublessor agrees that if Sublessee exercises any option or right of
first refusal granted by Sublessor herein, or any option or right substantially
similar thereto, either to extend the term of this Sublease, to renew this
Sublease, to purchase the Premises, or to lease or purchase adjacent property
which Sublessor may own or in which Sublessor has an interest, or if Broker is
the procuring cause of any lease, sublease, or sale pertaining to the Premises
or any adjacent property wich Sublessor may own or in which Sublessor has an
interest, then as to any of said transactions Sublessor shall pay to Broker a
fee, in cash, in accordance with the schedule of Broker in effect at the time of
the execution of this Sublease. Notwithstanding the foregoing, Sublessor's
obligation under this Paragraph 10.2 is limited to a transaction in which
Sublessor is acting as a sublessor, lessor or seller.
10.3 Master Lessor agrees, by its consent to this Sublease, that if Sublessee
shall exercise any option or right of first refusal granted to Sublessee by
Master Lessor in connection with this Sublease, or any option or right
substantially similar thereto, either to extend the Master Lease, to renew the
Master Lease, to purchase the Premises or any part thereof, or to lease or
purchase adjacent property which Master Lessor may own or in which Master Lessor
has an interest, or if Broker is the procuring cause of any other lease or sale
entered into between Sublessee and Master Lessor pertaining to the Premises, any
part thereof, or any adjacent property which Master Lessor owns or in which it
has an interest, then as to any of said transactions Master Lessor shall pay to
Broker a fee, in cash, in accordance with the schedule of Broker in effect at
the time of its consent to this Sublease.
10.4 Any fee due from Sublessor or Master Lessor hereunder shall be due and
payable upon the exercise of any option to extend or renew, as to any extension
or renewal; upon the execution of any new lease, as to a new lease transaction
or the exercise of a right of first refusal to lease; or at the close of
escrow, as to the exercise of any option to purchase or other sale transaction.
10.5 Any transferee of Sublessor's interest in this Sublease, or of Master
Lessor's interest in the Master Lease, by accepting an assignment thereof, shall
be deemed to have assumed the respective obligations of Sublessor or Master
Lessor under this Paragraph 10. Broker shall be deemed to be a third-party
beneficiary of this paragraph 10.
11. ATTORNEY'S FEES. If any party or the Broker named herein brings an action
to enforce the terms hereof or to declare rights hereunder, the prevailing party
in any such action, on trial and appeal, shall be entitled to his reasonable
attorney's fees to be paid by the losing party as fixed by the Court. The
provision of this paragraph shall inure to the benefit of the Broker named
herein who seeks to enforce a right hereunder.
<PAGE>
12. Additional Provisions. (If there are no additional provisions draw a line
from this point to the next printed word after the space left here. If there are
additional provisions place the same here.)
A. Base Rent: The base monthly rent shall be fixed at $1,800 per month and
paid directly to Jim Schindler (Master Lessor) who's address is North 6315
Campbell RD., Otis Orchards, WA 99027.
B. Farmers Merchants Bank agrees to pay Jim Schindler the sum of $4920.00
which represents the balance of the monthly base rent due for the remaining
term of the lease. Said balance of base rent shall be paid upon execution
of this Sublease. Jim Schindler agrees to accept the base rent of $1,800
per month directly from the Sublessee (INB) as total monthly rent due for
the remainder of the lease term.
C. Tenant Improvements: Farmers Merchants Bank shall reseal and stripe parking
lot.
D. Tenant Improvement Allowance: Farmers Merchants Bank shall pay for
September 1997 Base Rent which represents a $1,800 tenant improvement
allowance in favor of the Sublessee. The Sublessee agrees to take
possession of the property in its current condition and agrees to pay for
any and all other tenant improvements or maintenance of the property.
E. Insurance: Jim Schindler and Farmers Merchants Bank will each be named as
Loss Payee's on the Fire Insurance Policy provided by Sublessee.
Jim Schindler and Farmers Merchants Bank will each be named additional
insured as it relates to Liability Insurance Policy provided by Sublessee.
F. Exhibit "A" Attached: Exhibit "A" attached is Master Lessor's approval of
this Sublease.
G. Insuring Party: As it relates to Section 1. paragraph 1.9. of the Master
Lease attached.
Inland Northwest Bank Shall be the Insuring Party.
IF THIS SUBLEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR
SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE REAL ESTATE BROKER OR ITS AGENTS OR
EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCE OF THIS SUBLEASE OR THE TRANSACTION RELATING THERETO.
Executed Farmers Merchant Bank
------------------------------- -------------------------------------
on By /s/ R. Odegaard EVP
------------------------------------- ----------------------------------
address By
------------------------------- ----------------------------------
- --------------------------------------- "Sublessor" (Corporate Seal)
Executed at
--------------------------- Inland Northwest Bank
-------------------------------------
on
------------------------------------ By /s/ Frederick M. Shunter Pres
----------------------------------
address
------------------------------- By
----------------------------------
- ---------------------------------------
Executed at "Subleasee" (Corporate Seal)
---------------------------
on -------------------------------------
------------------------------------
By
address ----------------------------------
-------------------------------
By
- --------------------------------------- ----------------------------------
Executed at
--------------------------- "Master Lessor" (Corporate seal)
on
------------------------------------ -------------------------------------
address
------------------------------- -------------------------------------
- --------------------------------------- -------------------------------------
"Guarantors"
For these forms call the American Industrial Real Estate Association, (213)
687-8977
<PAGE>
EXHIBIT "A"
Master Lessor's Approval of Sublease
12. Additional Provisions. (If there are no additional provisions draw a line
from this point to the next printed word after the space left here. If there are
additional provisions place the same here.)
A. Base Rent: The base monthly rent shall be fixed at $1,800 per month and
paid directly to Jim Schindler (Master Lessor) who's address is North 63th
Campbell RD., Otis Orchards, WA 99027.
B. Farmers Merchants Bank agrees to pay Jim Schindler the sum of $4920.00
which represents the balance of the monthly base rent due for the remaining
term of the lease. Said balance of base rent shall be paid upon execution
of this Sublease. Jim Schindler agrees to accept the base rent of $1,900
per month directly from the Sublessee (INB) as total monthly rent due for
the remainder of the lease term.
C. Tenant Improvements: Farmers Merchants Bank shall reseal and stripe parking
lot.
D. Tenant Improvement Allowance: Farmers Merchants Bank shall pay for
September 1997 Base Rent which represents a $1,800 tenant improvement
allowance in favor of the Sublessee. The Sublessee agrees to take
possession of the property in its current condition and agrees to pay for
any and all other tenant improvements or maintenance of the property.
E. Insurance: Jim Schindler and Farmers Merchants Bank will each be named as
Loss Payee's on the Fire Insurance Policy provided by Sublessee.
Jim Schindler and Farmers Merchants Bank will each be named additional
insured as it relates to Liability Insurance Policy provided by Sublessee.
F. Insuring Party: As it relates to Section 1. paragraph 1.9 of the Master
Lease attached.
Inland Northwest Bank Shall be the Insuring Party.
IF THIS SUBLEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR
SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE REAL ESTATE BROKER OR ITS AGENTS OR
EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS SUBLEASE OR THE TRANSACTION RELATING THERETO.
Executed at -----------------------------------
------------------------------
on By /s/ [SIGNATURE ILLEGIBLE]
--------------------------------------- --------------------------------
address By
---------------------------------- --------------------------------
"Sublessor" (Corporate Seal)
- -----------------------------------------
Executed at /s/ [SIGNATURE ILLEGIBLE]
------------------------------ -----------------------------------
on By
--------------------------------------- --------------------------------
address By
---------------------------------- --------------------------------
"Sublessee" (Corporate Seal)
- -----------------------------------------
Executed at -----------------------------------
------------------------------
on By /s/ J. Schindler
--------------------------------------- ---------------------------------
address By
---------------------------------- --------------------------------
"Master Lessor" (Corporate Seal)
- -----------------------------------------
Executed at -----------------------------------
------------------------------
on -----------------------------------
---------------------------------------
address -----------------------------------
----------------------------------
"Guarantors"
- -----------------------------------------
For these forms call the American Industrial Real Estate Association,
(213) 687-8777
<PAGE>
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE-NET
(Do not use this form for Multi-Tenant Property)
1. Basic Provisions ("Basic Provisions")
1.1 Parties: This Lease ("Lease"), dated for reference purposes only.
April 10, 1996 is made by and between Jim Schindler ("Lessor") and Farmers
- -------------- ------------- -------
Merchant Bank ("Lessee"), (collectively the "Parties," or individually a
"Party").
1.2 Premises: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known by the street address of 622 Sherman Avenue, located in the County of
------------------
Kootenai State of Idaho, and generally described as (describe briefly the
- -------- -----
nature of the property) Approximately 1800 sq. ft. bank building ("Premises").
----------------------------------------
(See Paragraph 2 for further provisions.)
1.3 Term: Two (2) years and nine (9) months ("Original Term") commencing
------- -------
May 1, 1996 ("Commencement Date") and ending December 31, 1998 ("Expiration
- ----------- -----------------
Date"). (See Paragraph 3 for further provisions.)
1.4 Early Possession: ("Early Possession Date").
------------------------
(See Paragraphs 3.2 and 3.3 for further provisions.)
1.5 Base Rent: $ see addendum per month ("Base Rent"), payable on the 1st
------------ ---
day of each month commencing May 1,1996. (See Paragraph 4 for further
----------
provisions.)
[X] If this box is checked, there are provisions in this Lease for the Base Rent
to be adjusted.
1.6 Base Rent Paid Upon Execution: $1,600 as Base Rent for the period May 1,
----- -----
1996.
- ----
1.7 Security Deposit: $1,800 ("Security Deposit"). (See Paragraph 5 for
------
further provisions.)
1.8 Permitted Use: Bank (See Paragraph 6 for further provisions.)
----
1.9 Insuring Party: Lessor is the "Insuring Party" unless otherwise stated
herein. (See Paragraph 8 for further provisions.)
1.10 Real Estate Brokers: The following real estate brokers (collectively,
the "Brokers")and brokerage relationships exist in this transaction and are
consented to by the Parties (check applicable boxes):
Acuff Northwest inc. represents
- ---------------------------------------------------------------------
[X] Lessor exclusively ("Lessor's Broker"); [_] both Lessor and Lessee, and
Farmers Merchant Bank represent themselves represents
- -------------------------------------------------------------------
[_] Lessee exclusively ("Lessee's Broker"); [_] both Lessee and Lessor. (See
Paragraph 15 for further provisions.)
1.11 Guarantor. The obligations of the Lessee under this Lease are to be
guaranteed by N/A ("Guarantor"). (See Paragraph 37 for further provisions.)
----
1.12 Addenda. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 1 through 4 and Exhibits and Rent Adjustment Addendum all of which
--- --- ----------------------------
constitute a part of this Lease.
2. PREMISES.
2.1 Letting. Lessor hereto leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used in calculating rental, is an approximation which Lessor and
Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 Condition. Lessor shall deliver the Premises to Lessee clean and free
debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any, in the Premises, other than those constructed by Lessee,
shall be in good operating condition on the Commencement Date. If a non-
compliance with said warranty exists as of the Commencement Date, Lessor shall,
except as otherwise provided in this Lease, promptly after receipt of written
notice from Lessee setting forth with specificity the nature and extent of such
non-compliance, rectify same at Lessor's expense. If Lessee does not give Lessor
written notice of a non-compliance with this warranty within thirty (30) days
after the Commencement Date, correction of that non-compliance shall be the
obligation of Lessee at Lessee's sole cost and expense.
2.3 Compliance with Covenants, Restrictions and Building Code. Lessor
warrants to Lessee that the improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or
to be made by Lessee. If the Premises do not comply with said warranty, Lessor
shall except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify the same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within six (6)
months following the Commencement Date, correction of that non-compliance shall
be the obligation of Lessee at Lessee's sole cost and expense.
2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it has been
advised by the Brokers to satisfy itself with respect to the condition of the
Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, compliance with Applicable Law, as
defined in Paragraph 6.3) and the present and future suitability of the Premises
for Lessee's intended use, (b) that Lessee has made such investigation as it
deems necessary with reference to such matters and assumes all responsibility
therefor as the same related to said Lessee's occupancy of the Premises and/or
the term of this Lease, and (c) that neither Lessor nor any of Lessor's agents,
has made any oral or written representations or warranties with respect to the
said matters other than as set forth in this Lease.
2.5 Lessee Prior Owner/Occupant. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such
event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
3. TERM.
3.1 Term. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2 Early Possession. If Lessee totally or partially occupies the Premises
prior to the Commencement Date, the obligation to pay Base Rent shall be abated
for the period of such early possession. All other terms of this Lease,
however, (including but not limited to the obligations to pay Real Property
Taxes and Insurance premiums and to maintain the Premises) shall be in effect
during such period. Any such early possession shall not affect nor advance the
Expiration Date of the Original Term.
PAGE 1
<PAGE>
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver
possession of the Premises to Lessee as agreed herein by the Early Possession
Date. If one is specified in Paragraph 1.4, or, if no Early Possession Date is
specified, by the Commencement Date, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease, or
the obligations of Lessee hereunder, or extend the term hereof, but in such
case, Lessee shall not, except as otherwise provided herein, be obligated to pay
rent or perform any other obligation of Lessee under the terms of this Lease
until Lessor delivers possession of the Premises to Lessee. If possession of the
Premises is not delivered to Lessee within sixty (60) days after the
Commencement Date, Lessee may, at its option, by notice in writing to Lessor
within ten (10) days thereafter, cancel this Lease. In which event the Parties
shall be discharged from all obligations hereunder; provided, however, that if
such written notice by Lessee is not received by Lessor within said ten (10) day
period, Lessee's right to cancel this Lease shall terminate and be of no further
force or effect. Except as may be otherwise provided, and regardless of when the
term actually commences, if possession is not tendered to Lessee when required
by this Lease and Lessee does not terminate this Lease, as aforesaid, the period
free of the obligation to pay Base Rent, if any, that Lessee would otherwise
have enjoyed shall run from the date of delivery of possession and continue for
a period equal to what Lessee would otherwise have enjoyed under the terms
hereof, but minus any days of delay caused by the acts, changes or omissions of
Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by Lessor
in lawful money of the United States, without offset or deduction, on or before
the day on which it is due under the terms of this Lease. Base Rent and all
other rent and charges for any period during the term hereof which is for less
than one (1) full calendar month shall be prorated based upon the actual number
of days of the calendar month involved. Payment of Base Rent and other charges
shall be made to Lessor at its address stated herein or to such other persons or
at such other addresses as Lessor may from time to time designate in writing to
Lessee.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorney's fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefor
deposit moneys with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Any time the Base Rent increases during the
term of this Lease, Lessee shall, upon written request from Lessor, deposit
additional moneys with Lessor sufficient to maintain the same ratio between the
Security Deposit and the Base Rent as those amounts are specified in the Basic
Provisions. Lessor shall not be required to keep all or any part of the Security
Deposit separate from its general accounts. Lessor shall, at the expiration or
earlier termination of the term hereof and after Lessee has vacated the
Premises, return to Lessee (or, at Lessor's option to the last assignee, if any,
of Lessee's interest herein), that portion of the Security Deposit not used or
applied by Lessor. Unless otherwise expressly agreed in writing by Lessor, no
part of the Security Deposit shall be considered to be held in trust, to bear
interest or other increment for its use, or to be prepayment for any moneys to
be paid by Lessee under this Lease.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the purposes
set forth in Paragraph 1.8, or any other use which is comparable thereto, and
for no other purpose. Lessee shall not use or permit the use of the Premises in
a manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCE"
as used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect either, by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for liability of Lessor to any governmental agency
or third party under any applicable statute or common law theory. Hazardous
Substance shall include, but not be limited to, hydrocarbons, petroleum,
gasoline, crude oil or any products by-products or fractions thereof. Lessee
shall not engage in any activity in, on or about the Premises which constitutes
a Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner (at
Lessee's sole cost and expense) with all Applicable Law (as defined in Paragraph
6.3). "REPORTABLE USE" shall mean (i) the installation or use of any above or
below ground storage tank, (ii) the generation, possession, storage, use,
transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority. Reportable Use shall
also include Lessee's being responsible for the presence in, on or about the
Premises of a Hazardous Substance with respect to which any Applicable Law
requires that a notice be given to persons entering or occupying the Premises or
neighboring properties. Notwithstanding the foregoing, Lessee may, without
Lessor's prior consent, but in compliance with all Applicable Law, use any
ordinary and customary materials reasonably required to be used by Lessee in the
normal course of Lessee's business permitted on the Premises, so long as such
use is not a Reportable Use and does not expose the Premises or neighboring
properties to any meaningful risk of contamination or damage or expose Lessor to
any liability therefor. In addition, Lessor may (but without any obligation to
do so) condition its consent to the use or presence of any Hazardous Substance,
activity or storage tank by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefrom or therefor, including, but
not limited to, the installation (and removal on or before Lease expiration or
earlier termination) of reasonably necessary protective modifications to the
Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance, or a condition involving or resulting from
same, has come to be located in, on, under or about the Premises, other than as
previously consented to by Lessor. Lessee shall immediately give written notice
of such fact to Lessor. Lessee shall also immediately give Lessor a copy of any
statement, report, notice, registration, application, permit, business plan,
license, claim, action or proceeding given to, or received from, any
governmental authority or private party, or persons entering or occupying the
Premises, concerning the presence, spill, release, discharge of, or exposure to,
any Hazardous Substance or contamination in, on, or about the Premises,
including but not limited to all such documents as may be involved in any
Reportable Uses involving the Premises.
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits and
attorney's and consultant's fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee or under
Lessee's control. Lessee's obligations under this Paragraph 6 shall include, but
not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered by Lessee, and the cost of
investigation (including consultant's and attorney's fees and testing), removal,
remediation, restoration and/or abatement thereof, or of any contamination
therein involved, and shall survive the expiration of earlier termination of
this Lease. No termination, cancellation or release agreement entered into by
Lessor and Lessee shall release Lessee from its obligations under this Lease
with respect to Hazardous Substances or storage tanks, unless specifically so
agreed by Lessor in writing at the time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in this
Lease Lessee shall at Lessee's sole cost and expense fully diligently an in a
timely manner comply with all "APPLICABLE LAW," which term is used in this Lease
to include all laws, rules, regulations, ordinances, directive covenants,
easements and restrictions of record permits the requirements of any applicable
fire insurance underwriter or rating bureau and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises (including
but not limited to matters pertaining to (i) industrial hygiene, (ii)
environmental conditions on, in, under or about the Premises, including soil and
groundwater conditions, and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill or release of
any Hazardous Substance or storage tank), now in effect or which may hereafter
come into effect, and whether or not reflecting a change in policy from any
previously existing policy. Lessee shall, within five (5) days after receipt of
Lessor's written request, provide Lessor with copies of all documents and
information including, but not limited to, permits, registrations, manifests,
applications, reports and certificates, evidencing Lessee's compliance with any
Applicable Law specified by Lessor, and shall immediately upon receipt, notify
Lessor in writing (with copies of any documents involved) of any threatened or
actual claim, notice, citation, warning, complaint report pertaining to or
involving failure by Lessee or the Premises to comply with any Applicable Law.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender(s) (as defined in
Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in the
case of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to
employ experts and/or consultants in connection therewith and/or to advise
Lessor with respect to Lessee's activities, including but not limited to the
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable Law, or a
contamination, caused or materially contributed to by Lessee is found to exist
or be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In any such case, Lessee shall upon request reimburse Lessor
or Lessor's Lender, as the case may be, for the costs an expenses of such
inspections.
7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as
to condition), 2.3 (Lessor's warranty as to compliance with covenants, etc), 7.2
(Lessor's obligations to repair), 9 (damage and destruction), and 14
(condemnation), Lessee shall, at Lessee's sole cost and expense and at all times
keep the Premises and every part thereof in good order, condition and repair,
structural and non-structural (whether or not such portion of the Premises
requiring repair, or the means of repairing the same, are reasonably or readily
accessible to Lessee, and whether or not the need for such repairs occurs,
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as a result of Lessee's use, any prior use, the elements or the age of such
portion of the Premises), including, without limiting the generality of the
foregoing, all equipment or facilities serving the Premises, such as plumbing,
heating, air conditioning, ventilating, electrical, lighting facilities,
boilers, fired or unfired pressure vessels, fire sprinkler and/or standpipe and
hose or other automatic fire extinguishing system, including fire alarm and/or
smoke detection systems and equipment, fire hydrants, fixtures, walls (interior,
ceilings, floors, windows, doors, plate glass, skylights, landscaping,
driveways, parking lots, fences, retaining walls, signs, sidewalks and parkways
located in, on, about, or adjacent to the Premises. Lessee shall not cause or
permit any Hazardous Substance to be spilled or released in, on, under or about
the Premises (including through the plumbing or sanitary sewer system) and shall
promptly, at Lessee's expense, take all investigatory and/or remedial action
reasonably recommended, whether or not formally ordered or required, for the
cleanup of any contamination of, and for the maintenance, security and/or
monitoring of, the Premises, the elements surrounding same, or neighboring
properties, that was caused or materially contributed to by Lessee, or
pertaining to or involving any Hazardous Substance and/or storage tank brought
onto the Premises by or for Lessee or under its control. Lessee, in keeping the
Premises in good order, condition and repair, shall exercise and perform good
maintenance practices. Lessee's obligations shall include restorations,
replacements or renewals when necessary to keep the Premises and all
improvements thereon or a part thereof in good order, condition and state of
repair. If Lessee occupies the Premises for seven (7) years or more, Lessor may
require Lessee to repaint the exterior of the buildings on the Premises as
reasonably required, but not more frequently than once every seven (7) years.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain contracts, with copies to Lessor, in customary form and substance for,
and with contractors specializing and experienced in, the inspection,
maintenance and service of the following equipment and improvements, if any,
located on the Premises: (i) heating, air conditioning and ventilation
equipment, (ii) boiler, fired and unfired pressure vessels, (iii) fire sprinkler
and/or standpipe and hose or other automatic fire extinguishing systems,
including fire alarm and/or smoke detection, (iv) landscaping and irrigation
systems, (v) roof covering and drain maintenance and (vi) asphalt and parking
lot maintenance.
7.2 LESSOR'S OBLIGATIONS. Except for the warranties and agreements of
Lessor contained in Paragraphs 4 of attached addendum (maintenance) 2.2
(relating to condition of the Premises), 2.3 (relating to compliance with
convenants, restrictions and building code), 9 (relating to destruction of the
Premises) and 14 (relating to condemnation of the Premises), it is intended by
the Parties hereto that Lessor have no obligation, in any manner whatsoever, to
repair and maintain the Premises, the improvements located thereon, or the
equipment therein, whether structural or non structural, all of which
obligations are intended to be that of the Lessee under Paragraph 7.1 hereof. It
is the intention of the Parties that the terms of this Lesse govern the
respective obligations of the Parties as to maintenance and repair of the
Premises. Lessee and Lessor expressly waive the benefit of any statute now or
hereafter in effect to the extent it is inconsistent with the terms of this
Lease with respect to, or which affords Lessee the right to make repairs at the
expense of Lessor or to terminate this Lease by reason of, any needed repairs.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "Utility Installations" is
used in this Lease to refer to all carpeting, window coverings, air lines, power
panels, electrical distribution, security, fire protection systems,
communication systems, lighting fixtures, heating, ventilating, and air
conditioning equipment, plumbing, and fencing in, on or about the Premises. The
term "Trade Fixtures" shall mean Lessee's machinery and equipment that can be
removed without doing material damage to the Premises. The term "Alterations"
shall mean any modification of the improvements on the Premises from that which
are provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures, whether by addition or deletion. "LESSEE OWNED
ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as Alterations and/or
Utility Installations made by Lessee that are not yet owned by Lessor as defined
in Paragraph 7.4(a). Lessee shall not make any Alterations or Utility
Installations, in, on, under or about the Premises without Lessor's prior
written consent. Lessee may, however, make non-structural Utility Installations
to the interior of the Premises (excluding the roof), as long as they are not
visible from the outside, do not involve puncturing, relocating or removing the
roof or any existing walls, and the cumulative cost thereof during the term of
this Lease as extended does not exceed $25,000.
(b) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with proposed detailed plans. All consents
given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific
consent, shall be deemed conditioned upon: (i) Lessee's acquiring all
applicable permits required by governmental authorities, (ii) the furnishing of
copies of such permits together with a copy of the plans and specifications for
the Alteration or Utility Installation to Lessor prior to commencement of the
work thereon, and (iii) the compliance by Lessee with all conditions of said
permits in a prompt and expeditious manner. Any Alterations or Utility
installations by Lessee during the term of this Lease shall be done in a good
and workmanlike manner, with good and sufficient materials, and in compliance
with all Applicable Law. Lessee shall promptly upon completion thereof furnish
Lessor with as-built plans and specifications therefor. Lessor may (but without
obligation to do so) condition its consent to any requested Alteration or
Utility Installation that costs $10,000 or more upon Lessee's providing Lessor
with a lien and completion bond in an amount equal to one and one-half times
the estimated cost of such Alteration or Utility Installation and/or upon
Lessee's posting an additional Security Deposit with Lessor under Paragraph 36
hereof.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee at or
for use on the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense defend and protect itself, Lessor
and the Premises against the same and shall pay and satisfy any such adverse
judgment that may be rendered thereon before the enforcement thereof against the
Lessor or the Premises. If Lessor shall require, Lessee shall furnish to Lessor
a surety bond satisfactory to Lessor in an amount equal to one and one-half
times the amount of such contested lien claim or demand, indemnifying Lessor
against liability for the same, as required by law for the holding of the
Premises free from the effect of such lien or claim. In addition, Lessor may
require Lessee to pay Lessor's attorney's fees and costs in participating in
such action if Lessor shall decide it is to its best interest to do so.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Additions made to the Premises by Lessee shall be the
property of and owned by Lessee, but considered a part of the Premises. Lessor
may, at any time and at its option, elect in writing to Lessee to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
and be surrendered by Lessee with the Premises.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the
end of the last day of the Lease term or any earlier termination date, with all
of the improvements, parts and surfaces thereof clean and free of debris and in
good operating order, condition and state of repair, ordinary wear and tear
excepted. "Ordinary wear and tear" shall not include any damage or deterioration
that would have been prevented by good maintenance practice or by Lessee
performing all of its obligations under this Lease. Except as otherwise agreed
or specified in writing by Lessor, the Premises, as surrendered, shall include
the Utility Installations. The obligation of Lessee shall include the repair of
any damage occasioned by the installation, maintenance or removal of Lessee's
Trade Fixtures, furnishings, equipment, and Alterations and/or Utility
Installations, as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by Applicable
Law and/or good practice. Lessee's Trade Fixtures shall remain the property of
Lessee and shall be removed by Lessee subject to its obligation to repair and
restore the Premises per this Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT FOR INSURANCE. Regardless of whether the Lessor or Lessee is
the Insuring Party, Lessee shall pay for all insurance required under this
Paragraph 8 except to the extent of the cost attributable to liability insurance
carried by Lessor in excess of $1,000,000 per occurrence. Premiums for policy
periods commencing prior to or extending beyond the Lease term shall be prorated
to correspond to the Lease term. Payment shall be made by Lessee to Lessor
within ten (10) days following receipt of an invoice for any amount due.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee and Lessor (as an additional insured) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant thereto. Such insurance shall be on an occurrence basis
providing single limit coverage in an amount not less than $1,000,000 per
occurrence with an "Additional Insured-Managers or Lessors of Premises"
Endorsement and contain the "Amendment of the Pollution Exclusion" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not contain
any intra-insured exclusions as between insured persons or organizations, but
shall include coverage for liability assumed under this Lease as an "insured
contract" for the performance of Lessee's indemnity obligations under this
Lease. The limits of said insurance required by this Lease or as carried by
Lessee shall not, however, limit the liability of Lessee nor relieve Lessee of
any obligation hereunder. All insurance to be carried by Lessee shall be primary
to and not contributory with any similar insurance carried by Lessor, whose
insurance shall be considered excess insurance only.
(b) CARRIED BY LESSOR. In the event Lessor is the Insuring Party,
Lessor shall also maintain liability insurance described in Paragraph 8.2(a),
above, in addition to, and not in lieu of, the insurance required to be
maintained by Lessee. Lessee shall not be named as an additional insured
therein.
8.3 PROPERTY INSURANCE-BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring
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or damage to the Premises. The amount of such insurance shall be equal to the
full replacement cost of the Premises, as the same shall exist from time to
time, or the amount required by Lenders, but in no event more than the
commercially reasonable and available insurable value thereof if, by reason of
the unique nature or age of the improvements involved, such latter amount is
less than full replacement cost if Lessor is the Insuring Party, however, Lessee
Owned Alterations and Utility Installations shall be insured by Lessee under
Paragraph 8.4 rather than by Lessor. If the coverage is available and
commercially appropriate, such policy or policies shall insure against all risks
of direct physical loss or damage (except the perils of flood and/or earthquake
unless required by a Lender), including coverage for any additional costs
resulting from debris removal and reasonable amounts of coverage for the
enforcement of any ordinance or law regulating the reconstruction or replacement
of any undamaged sections of the Premises required to be demolished or removed
by reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered cause of loss. Said policy or policies shall also
contain an agreed valuation provision in lieu of any coinsurance clause, waiver
of subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located. If such insurance coverage has a
deductible clause, the deductible amount shall not exceed $1,000 per occurrence,
and Lessee shall be liable for such deductible amount in the event of an Insured
Loss, as delined in Paragraph 9.1(c).
(b) RENTAL VALUE. The Insuring Party shall, in addition, obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and Lender(s), insuring the loss of the full
rental and other charges payable by Lessee to Lessor under this Lease for one
(1) year (including all real estate taxes, insurance costs, and any scheduled
rental increases). Said insurance shall provide that in the event the Lease is
terminated by reason of an insured loss, the period of Indemnity for such
coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income,
property taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period. Lessee shall be liable
for any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. If the Premises are part of a larger building,
or if the Premises are part of a group of buildings owned by Lessor which are
adjacent to the Premises, the Lessee shall pay for any increase in the premiums
for the property insurance of such building or buildings if said increase is
caused by Lessee's acts, omissions, use or occupancy of the Premises.
(d) TENANT'S IMPROVEMENTS. If the Lessor is the Insuring Party, the
Lessor shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease. If Lessee is the Insuring Party, the policy
carried by Lessee under this Paragraph 8.3 shall insure Lessee Owned Alterations
and Utility Installations.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Lessee Owned Alterations and Utility
Installations in, on, or about the Premises similar in coverage to that carried
by the Insuring Party under Paragraph 8.3. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for the
replacement of personal property or the restoration of Lessee Owned Alterations
and Utility Installations. Lessee shall be the Insuring Party with respect to
the insurance required by this Paragraph 8.4 and shall provide Lessor with
written evidence that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policyholders Rating" of at
least B+, V, or such other rating as may be required by a Lender having a lien
on the Premises, as set forth in the most current issue of "Best's Insurance
Guide." Lessee shall not do or permit to be done anything which shall invalidate
the insurance policies referred to in this Paragraph 8. If Lessee is the
Insuring Party, Lessee shall cause to be delivered to Lessor certified copies of
policies of such insurance or certificates evidencing the existance and amounts
of such insurance with the insureds and loss payable clauses as required by this
Lease. No such policy shall be cancellable or subject to modification except
after thirty (30) days prior written notice to Lessor. Lessee shall at least
thirty (30) days prior to the expiration of such policies, furnished Lessor with
evidence of renewals or "insurance binders" evidencing renewal thereof, or
Lessor may order such insurance and charge the cost thereof to Lessee, which
amount shall be payable by Lessee to Lessor upon demand. If the Insuring Party
shall fill to procure and maintain the insurance required to be carried by the
Insuring Party under this Paragraph 8, the other Party may, but shall not be
required to, procure and maintain the same, but at Lessee's expense.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies,
Lessee and Lessor ("Waiving Party") each hereby release and relieve the other,
and waive their entire right to recover damages (whether in contract or in tort)
against the other, for loss or damage to the Waiving Party's property arising
out of or incident to the perils required to be insured against under Paragraph
8. The effect of such releases and waivers of the right to recover damages shall
not be limited by the amount of insurance carried or required, or by any
deductibles applicable thereto.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, permits, attorney's and consultant's fees,
expenses and/or liabilities arising out of, involving, or in dealing with, the
occupancy of the Premises by Lessee, the conduct of Lessee's business, any act,
omission or neglect of Lessee, its agents, contractors, employees or invitees,
and out of any Default or Breach by Lessee in the performance in a timely manner
of any obligation on Lessee's part to be performed under this Lease. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any action or proceeding involved therein, and whether or not (in the
case of claims made against Lessor) litigated and/or reduced to judgment, and
whether well founded or not. In case any action or proceeding be brought against
Lessor by reason of any of the foregoing matters, Lessee upon notice from Lessor
shall defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not
have first paid any such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or Injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects or pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said injury or damage results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places, and regardless of whether the cause of
such damage or injury or the means of repairing the same is accessible or not.
Lessor shall not be liable for any damages arising from any act or neglect of
any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of
this Lease, Lessor shall under no circumstances be liable for injury to Lessee's
business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than 50%
of the then Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility Installations the
repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "INSURED LOSS" shall mean damage or destruction to improvements on
the Premises, other than Lessee Owned Alterations and Utility Installations,
which was caused by an event required to be covered by the insurance described
in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits
involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PARTIAL DAMAGE-INSURED LOSS. If a Premises Partial Damage that is an
Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage
(but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect; provided, however, that Lessee shall, at Lessor's
election, make the repair of any damage or destruction the total cost to repair
of which is $10,000 or less, and, in such event, Lessor shall make the insurance
proceeds available to Lessee on a reasonable basis for that purpose.
Notwithstanding the foregoing, if the required insurance was not in force or the
insurance proceeds are not sufficient to effect such repair, the Insuring Party
shall promptly contribute the shortage in proceeds (except as to the deductible
which is Lessee's responsibility) as and when required to complete said repairs.
In the event, however, the shortage in proceeds was due to the fact that, by
reason of the unique nature of the improvements, full replacement cost insurance
coverage was not commercially reasonable and available. Lessor shall have no
obligation to pay for the shortage in insurance proceeds or to fully restore the
unique aspects of the Premises unless Lessee provides Lessor with the funds to
cover same, or adequate assurance thereof, within ten (10) days following
receipt of written notice of such shortage and request therefor. If Lessor
receives sale funds or adequate assurance thereof within said ten (10) day
period, the party responsible for making the repairs shall complete them as soon
as reasonably possible and this Lease shall remain in full force and effect. If
Leassor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If in such case Lessor does not so elect, then this Lease
shall terminate sixty (60) days following the occurrence of the damage or
destruction. Unless otherwise agreed, Lessee shall in no event have any right to
reimbursement from Lessor for any funds contributed by Lessee to repair any such
damage or destruction. Premises Partial Damage due to flood or earthquake shall
be subject to Paragraph 9.3 rather than Paragraph 9.2, notwithstanding that
there may be some insurance coverage, but the net proceeds of any such insurance
shall be made available for the repairs if made by either Party.
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9.3 PARTIAL DAMAGE-UNINSURED LOSS. If a Premises Partial Damage that is
not an insured Loss occurs, unless caused by an negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option, either: (i) repair
such damage as soon as reasonably possible at Lessor's expense. In which event
this Lessee shall continue in full force and effect, or (ii) give written notice
to Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such damage of Lessor's desire to terminate this Lease as of the
date sixty (60) days following the giving of such notice. In the event Lessor
elects to give such notice of Lessor's intention to terminate this Lease, Lessee
shall have the right within ten (10) days after the receipt of such notice to
give written notice to Lessor of Lessee's commitment to pay for the repair of
such damage totally at Lessee's expense and without reimbursement from Lessor,
Lessee shall provide Lessor with the required funds or satisfactory assurance
thereof within thirty (30) days following Lessee's said commitment. In such
event this Lease shall continue in full force and effect, and Lessor shall
proceed to make such repairs as soon as reasonably possible and the required
funds are available. If Lessee does not give such notice and provide the funds
or assurance thereof within the times specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 8.6
9.5 DAMAGE NEAR END OF TERM. If at any time during the six (6) months of
the term of this Lease there is damage for which the cost to repair exceeds one
(1) month's Base Rent, whether or not an Insured Loss, Lessor's option,
terminate this Lease effective sixty (60) days following the date of occurrence
of such damage by giving written notice to Lessee of Lessor's election to do so
within thirty (30) days after the date of occurrence of such damage. Provided,
however, if Lessee at that time has an exercisable option to extend this
Leasae or to purchase the Premises, then Lessee may preserve this Lease by,
within twenty (20) days following the occurrence of the damage, or before the
expiration of the time provided in such option for its exercise, whichever is
earlier ("EXERCISE PERIOD"), (i) exercising such option and (ii) providing
Lessor with any shortage in insurance proceeds (or adequate assurance thereof)
needed to make the repairs. If Lessee duly exercises such option during said
Exercise Period and provides Lessor with funds (or adequate assurance thereof)
to cover any shortage in insurance proceeds, Lessor shall, at Lessor's expense
repair such damage as soon as reasonably possible and this Lease shall continue
in full force and effect. If Lessee fails to exercise such option and provide
such funds or assurance during said Exercise Period, then Lessor may at Lessor's
option terminate this Lease as of the expiration of said sixty (60) day period
following the occurrence of such damage by giving written notice to Lessee of
Lessor's election to do so within ten (10) days after the expiration of the
Exercise Period, notwithstanding any term or provision in the grant of option to
the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in Paragraph 9.2 (Partial
Damage-Insured), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, Insurance premiums, and other
charges, if any, payable by Lessee hereunder for the period during which such
damage, its repair or the restoration continues (not to exceed the period for
which rental value insurance is required under Paragraph 8.3(b)), shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of Base Rent, Real Property Taxes, Insurance
premiums, and other charges, if any, as aforesaid, all other obligations of
Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim
against Lessor for any damage suffered by reason of any such repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence in a substantial
and meaningful way, the repair or restoration of the Premises within ninety (90)
days after such obligation shall accrue, Lessee may, at any time prior to the
commencement of such repair or restoration, give written notice to Lessor and to
any Lenders of which Lessee has actual notice of Lessee's election to terminate
this Lease on a date not less than sixty (60) days following the giving of such
notice. If Lessee gives such notice to Lessor and such Lenders and such repair
or restoration is not commenced within thirty (30) days after receipt of such
notice, this Leasae shall terminate as of the date specified in said notice. If
Lessor or a Lender commences the repair or restoration of the Premises within
thirty (30) days after receipt of such notice, this Lease shall continue in full
force and effect. "Commence" as used in the Paragraph shall mean either the
unconditional authorization of the preparation of the required plans, or the
beginning of the actual work on the Premises, whichever first occurs.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Conditions
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable Law
and this Leasae shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option either (i) investigate
and remediate such Hazardous Substance Condition, if required, as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) if the estimated cost to investigate
and remediate such condition exceeds twelve (12) times the then monthly Base
Rent or $100,000, whichever is greater, give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
Hazardous Substance Condition of Lessor's desire to terminate this Lease as of
the date sixty (60) days following the giving of such notice. In the event
Lessor elects to give such notice of Lessor's intention to terminate this Lease,
Lessee shall have the right within (10) days after the receipt of such notice to
give written notice to Lessor of Lessee's commitment to pay for the
investigation and remediation of such Hazardous Substance Condition totally at
Lessee's expense and without reimbursement from Lessor except to the extent of
an amount equal to twelve (12) times the then monthly Base Rent or $100,000,
whichever is greater. Lessee shall provide Lessor with the funds required of
Lessee or satisfactory assurance thereof within thirty (30) days following
Lessee's said commitment. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such investigation and remediation
as soon as reasonably possible and the required funds are available. If Lessee
does not give such notice and provide the required funds or assurance thereof
within the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination. If a Hazardous Substance Condition
occurs for which Lessee is not legally responsible, there shall be abatement of
Lessee's obligation under this Lease to the same extent as provided in Paragraph
9.6(a) for a period of not to exceed twelve months.
9.8 TERMINATION-ADVANCE PAYMENTS. Upon termination of this Lease pursuant
to this Paragraph 9, an equitable adjustment shall be made concerning advance
Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall,
in addition, return to Lessee so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 WAIVE STATUES. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of any
present or future statue to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 (a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes,
as defined in Paragraph 10.2, applicable to the Premises during the term of this
Lease. Subject to Paragraph 10.1(b), all such payments shall be made at least
ten (10) days prior to the delinquency date of the applicable installment.
Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes
have been paid. If any such taxes to be paid by Lessee shall cover any period of
time prior to or after the expiration or earlier termination of the term hereof,
Lessee's share of such taxes shall be equitably prorated to cover only the
period of time within the tax fiscal year this Leasae is in effect, and Lessor
shall reimburse Lessee for any overpayment after such proration. If Lessee shall
fail to pay any Real Property Taxes required by this Lease to be paid by Lessee,
Lessor shall have the right to pay the same, and Lessee shall reimburse Lessor
therefor upon demand.
(b) ADVANCE PAYMENT. In order to insure payment when due and
before delinquency of any or all of Real Property Taxes, Lessor reserves the
right, at Lessor's option, to estimate the current Real Property Taxes
applicable to the Premises, and to require such current year's Real Property
Taxes to be paid in advance to Lessor by Lessee, either: (i) in a lump sum
amount equal to the installment due, at least twenty (20) days prior to the
applicable delinquency date, or (ii) monthly in advance with the payment of the
Base Rent. If Lessor elects to require payment monthly in advance, the monthly
payment shall be that equal monthly amount which, over the number of months
remaining before the month in which the applicable tax installment would become
delinquent (and without interest thereon), would provide a fund large enough to
fully discharge before delinquency the estimated installment of taxes to be
paid. When the actual amount of the applicable tax bill is known, the amount of
such equal monthly advance payment shall be adjusted as required to provide the
fund needed to pay the applicable taxes before delinquency. If the amounts paid
to Lessor by Lessee under the provisions of this Paragraph are insufficient to
discharge the obligations of Lessee to pay such Real Property Taxes as the same
become due, Lessee shall pay to Lessor, upon Lessor's demand, such additional
sums as are necessary to pay such obligations. All moneys paid to Lessor under
this Paragraph may be intermingled with other moneys of Lessor and shall not
bear interest. In the event of a Breach by Lessee in the performance of the
obligations of Lessee under this Lease, then any balance of funds paid to Lessor
under the provisions of this Paragraph may, subject to proration as provided in
Paragraph 10.1(a), at the option of Lessor, be treated as an additional Security
Deposit under Paragraph 5.
10.2 Definition of "REAL PROPERTY TAXES". As used herein, the term "REAL
PROPERTY TAXES" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises by any authority
having the direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage or
other improvement district thereof, levied against any legal or equitable
interest of Lessor in the Premises or in the real property of which the Premises
are a part, Lessor's right to rent or other income therefrom, and/or Lessor's
business of leasing the Premises. The term "REAL PROPERTY TAXES" shall also
include any tax, fee, levy, assessment or charge, or any increase therein.
Imposed by reason of events occurring, or changes in applicable law taking
effect, during the term of this Lease, including but not limited to a change in
the ownership of the Premises or in the improvements thereon, the execution of
this Lease, or any modification, amendment or transfer thereof, and whether or
not contemplated by the Parties.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be equitable proportion of the Real Property Taxes for
all of the land and improvements included within the tax parcel assessed, such
proportion to be determined by Lessor from the respective valuations assigned in
the assessor's work sheets of such other information as may be reasonably
available. Lessor's reasonable determination thereof, in good faith, shall be
conclusive.
PAGE 5
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10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its Trade Fixtures, furnishings, equipment and all other personal property
to be assessed and billed separately from the real property of Lessor. If any of
Lessee's said personal property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee within ten (10) days
after receipt of a written statement setting forth the taxes applicable to
Lessee's property or, at Lessor's option, as provided in Paragraph 10.1(b).
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all changes jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer or encumber (collectively, "assignment") or sublet all or any part of
Lessee's interest in this Lease or in the Premises without Lessor's prior
written consent given under and subject to the terms of Paragraph 36.
(d) An assignment of subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1(c), or a noncurable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a noncurable Breach, Lessor
shall have the right to either: (i) terminate this Lease, or (ii) upon thirty
(30) days written notice ("Lessor's Notice") increase the monthly Base Rent to
fair market rental value or one hundred ten percent (110%) of the Base Rent then
in effect, whichever is greater. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and market value
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
(without the Lease being considered an encumbrance or any deduction for
depreciation or obsolescence, and considering the Premises at its highest and
best use and in good condition), or one hundred ten percent (110%) of the price
previously in effect, whichever is greater, (ii) any index-ordered rental or
price adjustment formulas contained in this Lease shall be adjusted to require
that the base index be determined with reference to the index applicable to the
time of such adjustment, and(iii) any fixed rental adjustments scheduled during
the remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the market
value adjustment.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting shall
not: (i) be effective without the express written assumption by such assignee or
sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of
any obligations hereunder, or (iii) after the primary liability of Lessee for
the payment of Base Rent and other sums due Lessor hereunder or for the
performance of any other obligations to be performed by Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or modifications thereto without notifying Lessee or
anyone else liable on the Lease or sublease and without obtaining their consent,
and such action shall not relieve such persons from liability under this Lease
or sublease.
(d) In the event of any Default or Breach of Lessee's obligations
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
any one else responsible for the performance of the Lessee's obligations under
this Lease, including the sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall be
in writing, accompanied by information relevant to Lessor's determination as to
the financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any. Lessee agrees to provide Lessor
with such other or additional information and/or documentation as may be
reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(h) Lessor, as a condition to giving its consent to any assignment or
subletting, may require that the amount and adjustment structure of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment structure for property similar to the Premises as then constituted.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may
collect such rent and income and apply same toward Lessee's obligations under
this Lease: provided, however, that until a Breach (as defined in Paragraph
13.1) shall occur in the performance of Lessee's obligations under this Lease,
Lessee may, except as otherwise provided in this Lease, receive, collect and
enjoy the rents accruing under such sublease. Lessor shall not, by reason of
this or any other assignment of such sublease to Lessor, nor by reason of the
collection of the rents from a sublease, be deemed liable to the sublessee for
any failure of Lessee to perform and comply with any of Lessee's obligations to
such sublease under such sublease. Lessee hereby irrevocably authorizes and
directs any such sublease, upon receipt of a written notice from Lessor stating
that a Breach exists in the performance of Lessee's obligations under this
Lease, to pay to Lessor the rents and other charges due and to become due under
the sublease. Sublessee shall reply upon any such statement and request from
Lessor and shall pay such rents and other charges to Lessor without any
obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against said sublessee, or, until the Breach has
been cured, against Lessor, for any such rents and other charges so paid by said
sublease to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior Defaults
or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right of reimbursement and offset from and against Lessee for any such
Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said Default. A "Default" is defined as a
failure by the Lessee to observe, comply with or perform any of the terms,
covenants, conditions or rules applicable to Lessee under this Lease. A "Breach"
is defined as the occurrence of any one or more of the following Defaults, and,
where a grace period for cure after notice is specified herein, the failure by
Lessee to cure such Default prior to the expiration of the applicable grace
period, and shall entitle Lessor to pursue the remedies set forth in Paragraphs
13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
<PAGE>
(b) Except as expressly otherwise provided in this Lease, the failure by
Lessee to make any payment of Base Rent or any other monetary payment required
to be made by Lessee hereunder, whether to Lessor or to a third party, as and
when due, the failure by Lessee to provide Lessor with reasonable evidence of
insurance or surety bond required under this Lease, or the failure of Lessee to
fulfill any obligation under this Lease which endangers or threatens life or
property, where such failure continues for a period of three (3) days following
written notice thereof by or on behalf of Lessor or Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure by
Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, if applicable) of (i) compliance with applicable law per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the rescission of an authorized assignment or
subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or
37, (v) the subordination or non-subordination of this Lease per Paragraph
30,(vi) the guaranty of the performance of Lessee's obligations under this Lease
if required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this Lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor of Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than those
described in subparagraphs (a), (b), or (c), above, where such Default continues
for a period of thirty (30) days after written notice thereof by or on behalf of
Lessor to Lessee; provided, however, that if the nature of Lessee's Default is
such that more than thirty (30) days are reasonably required for its cure, then
it shall not be deemed to be a Breach of the Lease by Lessee if Lessee commences
such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The making by Lessee
of any general arrangement or assignment for benefit of creditors; (ii) Lessee's
becoming a "debtor" as defined in 11 U.S.C (S)101 or any other successor
statute thereto (unless, in the case of a petition filed against Lessee, the
same is dismissed within sixty (60) days; (iii) the appointment of a trustee or
receiver to take possession of substantially all of Lessee's assets located at
the Premises or of Lessee's interest in this Lease, where possession is not
restored to Lessee within thirty (30) days; or (iv) the attachment, execution or
other judicial seizure of substantially all of Lessee's assets located at the
Premises or of Lessee's interest in this Lease, where such seizure is not
discharged within thirty (30) days; provided, however, in the event that any
provision of this subparagraph (e) is contrary to any applicable law, such
provision shall be of no force or effect, and not affect the validity of the
remaining provisions.
(f) The discovery by Lessor that any financial statement given to Lessor by
Lessee or any Guarantor of Lessee's obligations hereunder was materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a guarantor, (ii) the termination of a guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a
guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurance or security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and guarantors that existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its option,
may require all future payments to be made under this Lease by Lessee to be made
only by cashier's check. In the event of a Breach of this Lease by Lessee, as
defined in Paragraph 13.1, with or without further notice or demand, and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the premises by any lawful
means, in which case this Lease and the term hereof shall terminate and Lessee
shall immediately surrender possession of the Premises to Lessor. In such event
Lessor shall be entitled to recover from Lessee: (i) the worth at the time of
award of the unpaid rent which had been earned at the time of termination; (ii)
the worth at the time of award of the amount by which the unpaid rent would
have been earned after termination until the time of award exceeds the amount
of such rental loss that the Lessee proves could have been reasonably avoided;
(iii) the worth at the time of award of the amount by which the unpaid rent for
the balance of the term after the time of award exceeds the amount of such
rental loss that the Lessee proves could be reasonably avoided; and (iv) any
other amount necessary to compensate Lessor for all the detriment proximately
caused by the Lessee's failure to perform its obligations under this Lease or
which in the ordinary course of things would be likely to result therefrom,
including but not limited to the cost of recovering possession of the Premises,
expenses of reletting, including necessary renovation and alteration of the
Premises, reasonable attorney's fees, and that portion of the leasing
commission paid by Lessor applicable to the unexpired term of this Lease. The
worth at the time of award of the amount referred to in provision (iii) of the
prior sentence shall be computed by discounting such amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of award plus one
percent. Efforts by Lessor to mitigate damages caused by Lessee's Default or
Breach of this Lease shall not waive Lessor's right to recover in such
proceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve therein the right to recover all or any part thereof in a separate suit
for such rent and/or damages. If a notice and grace period required under
subparagraphs 13.1(b), (c) or (d) was not previously given, a notice to pay rent
or quit, or to perform or quit, as the case may be, given to Lessee under any
statute authorizing the forfeiture of leases for unlawful detainer shall also
constitute the applicable notice for grace period purposes required by
subparagraphs 13.1(b), (c) or (d). In such case, the applicable grace period
under subparagraphs 13.1(b), (c) or (d) and under the unlawful detainer statute
shall run concurrently after one such statutory notice, and the failure of
Lessee to cure the Default within the greater of the two such grace periods
shall constitute both an unlawful detainer and a Breach of this Lease entitling
Lessor to the remedies provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach and
abandonment and recover the rent as it becomes due, provided Lessee has the
right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver to
protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under the
laws or judicial decisions of the state wherein the Premises are located.
(d) The expiration or termination of this Lease and/or the termination of
Lessee's right to possession shall not relieve Lessee from liability under any
indemnity provisions of this Lease as to matters occurring or accruing during
the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "INDUCEMENT PROVISIONS", shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph shall not be deemed a waiver by Lessee of the provisions of this
Paragraph unless specifically so stated in writing by Lessor at the time of such
acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledged that late payment by Lessee to
Lessor of rent and other sums due hereunder will cause Lessor to incur costs not
contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within five (5) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease
unless Lessor falls within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by the holders of any ground lease, mortgage or deed of trust covering the
Premises whose name and address shall have been furnished Lessee in writing
for such purpose, of written notice specifying wherein such obligation of Lessor
has not been performed; provided, however, that if the nature of Lessor's
obligation is such that more than thirty (30) days after such notice are
reasonably required for its performance, then Lessor shall not be in breach of
this Lease if performance is commenced within such thirty (30) day period and
thereafter diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain of sold under the threat of the exercise of said power
(all of which are herein called "CONDEMNATION"), this Lease shall terminate as
to the part so taken as of the date of condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the land area
not occupied by any building, is taken by condemnation. Lessee may, at Lessee's
option, to be exercised in writing within ten (10) days after Lessor shall have
given Lessee written notice of such taking (or in the absence of such notice,
within ten (10) days after the condemning authority shall
<PAGE>
have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease
in accordance with the foregoing, this Lease shall remain in full force and
effect as to the portion of the Promises remaining, except that the Base Rent
shall be reduced in the same proportion as the rentable floor area of the
Premises taken bears to the total rentable floor area of the building located on
the Premises. No reduction of Base Rent shall occur if the only portion of the
Premises taken is land on which there is no building. Any award for the taking
of all or any part of the Premises under the power of eminent domain or any
payment made under threat of the exercise of such power shall be the property of
Lessor, whether such award shall be made as compensation for diminution in value
of the leasehold or for the taking of the fee, or as severance damages:
provided, however, that Lessee shall be entitled to any compensation, separately
awarded to Lessee for Lessee's relocation expenses and/or loss of Lessee's
Trade Fixtures. In the event that this Lease is not terminated by reason of such
condemnation, Lessor shall to the extent of its net severance damages received,
over and above the legal and other expenses incurred by Lessor in the
condemnation matter, repair any damage to the Premises caused by such
condemnation, except to the extent that Lessee has been reimbursed therefor by
the condemning authority. Lessee shall be responsible for the payment of any
amount in excess of such net severance damages required to complete such repair.
15. BROKER'S FEE.
15.1 The Brokers named in Paragraph 1.10 are the procuring causes of this
Lease.
15.2 Upon execution of this Lease by both Parties, Lessor shall pay to
said Brokers jointly, or in such separate shares as they may mutually designate
in writing, a fee as set forth in a separate written agreement between Lessor
and said Brokers (or in the event there is no separate written agreement between
Lessor and said Brokers, the sum of $_________) for brokerage services rendered
by said Brokers to Lessor in this transaction.
15.3 Unless Lessor and Brokers have otherwise agreed in writing. Lessor
further agrees that: (a) if Lessee exercises any Option (as defined in Paragraph
39.1) or any Option subsequently granted which is substantially similar to an
Option granted to Lessee in this Lease, or (b) if Lessee acquires any rights to
the Premises or other premises described in this Lease which are substantially
similar to what Lessee would have acquired had an Option herein granted to
Lessee been exercised, or (c) if Lessee remains in possession of the Premises,
with the consent of Lessor, after the expiration of the term of this Lease after
having failed to exercise an Option, or (d) if said Brokers are the procuring
cause of any other lease or sale entered into between the Parties pertaining to
the Premises and/or any adjacent property in which Lessor has an interest, or
(e) if Base Rent is increased, whether by agreement or operation of an
escalation clause herein, then as to any of said transactions, Lessor shall pay
said Brokers a fee in accordance with the schedule of said Brokers in effect at
the time of the execution of this Lease.
15.4 Any buyer or transferee of Lessor's interest in this Lease, whether
such transfer is by agreement or by operation of law shall be deemed to have
assumed Lessor's obligation under this Paragraph 15. Each Broker shall be a
third party beneficiary of the provisions of this Paragraph 15 to the extent of
its interest in any commission arising from this Lease and may enforce that
right directly against Lessor and its successors.
15.5 Lessee and Lessor each represent and warrant to the other that it has
had no dealings with any person, firm, broker or finder (other than the Brokers.
If any named in Paragraph 1.10) in connection with the negotiation of this Lease
and/or the consummation of the transaction contemplated hereby, and that no
broker or other person, firm or entity other than said named Brokers is entitled
to any commission or finders fee in connection with said transactions. Lessee
and Lessor do each herby agree to indemnify, protect, defend and hold the other
harmless from and against liability for compensation or charges which may be
claimed by any such unnamed brooker, finder or other similar party by reason of
any dealings or actions of the indemnifying Party, including any costs,
expenses, attorneys' fees reasonably incurred with respect thereto.
15.6 Lessor and Lessee hereby consent to and approve all agency
relationships, including any dual agencies, indicated in Paragraph 1.10.
16. TENANCY STATEMENT.
16.1 Each Party (as "Responding Party") shall within ten (10) days after
written notice from the other Party (the "Requesting Party") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "Tenancy Statement" from published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any
part thereof, or the building of which the Premises are a part. Lessee and all
Guarantors of i performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such of Lessee and such Guarantors as
may be reasonably required by such lender or purchaser. Including but not
limited to Lessee's for the past three (3) years. All such "Public Statement of
Condition" shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" are used herein shall mean the owner
or owners at the time in question of the fee title to the Premises, or, if this
is a sublease, of the Lessee's interest in the prior lease. In the event of a
transfer of Lessor's title or interest in the Premises or in this Lease. Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor at the time of such transfer or assignment.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON POST-DUE OBLIGATIONS. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within thirty (30)
days following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no respect
thereto or with respect to any default or breach hereof by either Party.
23. NOTICES.
23.1 All notices required or permitted by this Lease shall be in writing
and may be delivered in person (by hand or by messenger or courier service) or
may be sent by regular, certified or registered mail or U.S. Postal Service
Express Mail, with postage prepaid, or by facsimile transmission, and shall be
deemed sufficiently given if served in a manner specified in this Paragraph 23.
The addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by written notice
to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or it no delivery date is shown, the postmark theron. If sent by regular
mail the notice shall be deemed given forty-eight (48) hours after the same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United States Express Mail or overnight courier that guarantees next day
delivery shall be deemed given twenty-four(24) hours after delivery of the same
to the United States Postal Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same be deemed served or delivered
upon telephone confirmation of receipt of the transmission thereof, provided a
copy is also delivered via delivery or mail. If notice is received on a Sunday
or legal holiday. It shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or of any other form, covenant or condition hereof. Lessor's
consent to, or approval of, any act shall not be deemed to render unnecessary
the obtaining of Lessor's consent to, or approval of any subsequent or similar
act by Lessee, or be construed as the basis of an estoppel to enforce the
provision or provisions of this Lense requiring such consent. Regardless of
Lessor's knowledge of a Default or Breach at the time of accepting rent, the
acceptance of rent by Lessor shall not be a waiver of any preceding Default or
Breach by Lessee of any provision hereof, other than the failure of Lessee to
pay the particular rent so accepted. Any payment given Lessor by Lessee may be
accepted by Lessor on account of moneys or damages due Lessor, notwithstanding
any qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
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28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the parties,
their personal representatives, successors and assigns and be governed by the
laws of the State in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before invoking any remedies Lessee may have by reason thereof.
If any Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. ATTORNEY'S FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) or Broker in any such proceeding, action, or appeal thereon,
shall be entitled to reasonable attorney's fees. Such fees may be awarded in the
same suit or recovered in a separate suit, whether or not such action or
proceeding is pursued to decision or judgment. The term, "Prevailing Party"
shall include, without limitation, a Party or Broker who substantially obtains
or defeats the relief sought, as the case may be, whether by compromise,
settlement, judgment, or the abandonment by the other Party or Broker of its
claim or defense. The attorney's fee award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorney's fees reasonably incurred. Lessor shall be entitled to attorney's
fees, costs and expenses incurred in the preparation and service of notices of
Default and consultations in connection therewith, whether or not a legal action
is subsequently commenced in connection with such Default or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall
have the right to enter the Premises at any time. In the case of an emergency,
and otherwise at reasonable times for the purpose of showing the same to
prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the building of which
they are a part, as Lessor may reasonably deem necessary. Lessor may at any time
place on or about the Premises or building any ordinary "For Sale" signs and
Lessor may at any time during the last one hundred twenty (120) days of the term
hereof place on or about the Premises any ordinary "For Lease" signs. All such
activities of Lessor shall be without abatement of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises, except that Lessee
may, with Lessor's prior written consent, install such signs as are reasonably
required to advertise Lessee's own business. The installation of any sign on the
Premises by or for Lessee shall be subject to the provisions of Paragraph 7
(Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations).
Unless otherwise expressly agreed herein, Lessor reserves all rights to the use
of the roof and the right to install, and all revenues from the installation of,
such advertising signs on the Premises, including the roof, as do not
unreasonably interfere with the conduct of Lessee's business.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor
upon receipt of an invoice and supporting documentation therefor. Subject to
Paragraph 12.2(e) (applicable to assignment or subletting), Lessor may, as a
condition to considering any such request by Lessee, require that Lessee deposit
with Lessor an amount of money (in addition to the Security Deposit held under
Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will
incur in considering and responding to Lessee's request. Except as otherwise
provided, any unused portion of said deposit shall be refunded to Lessee without
interest. Lessor's consent to any act, assignment of this Lease or subletting of
the Premises by Lessee shall not constitute an acknowledgment that no Default or
Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver
of any then existing Default or Breach, except as may be otherwise specifically
stated writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. GUARANTOR
37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11,
the form of the guaranty to be executed by each such Guarantor shall be in the
form most recently published by the American Industrial Real Estate Association,
and each said Guarantor shall have the same obligations as Lessee under this
Lease, including but not limited to the obligation to provide the Tenancy
Statement and Information called for by Paragraph 16.
37.2 It shall constitute a Default of the Lessee under this Lease if any
such Guarantor fails or refuses, upon reasonable request by Lessor to give: (a)
evidence of the due execution of the guaranty called for by this Lease,
including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and including
in the case of a corporate Guarantor, a certified copy of a resolution of its
board of directors authorizing the making of such guaranty, together with a
certificate of incumbency showing the signatures of the persons authorized to
sign on its behalf, (b) current financial statements of Guarantor as may from
time to time be requested by Lessor, (c) a Tenancy Statement, or (d) written
confirmation that the guaranty is still in effect.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. OPTIONS.
39.1 Definition. As used in this Paragraph 39 the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 Options Personal To Original Lessee. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee is in full and
actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any multiple Options to
extend or renew this Lease, a later option cannot be exercised unless the prior
Options to extend or renew this Lease have been validly exercised.
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39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), of (iii) during the time Lessee is in
Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three
(3) or more notices of Default under Paragraph 13.1, whether or not the Defaults
are cured, during the twelve (12) month period immediately preceding the
exercise of the Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three or more notices of Default under Paragraph 13.1 during any twelve
month period, whether or not the Defaults are cured, or (iii) if Lessee commits
a Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, care, and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred in
connection therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
46. OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to lease to Lessee.
This Lease is not intended to be binding until executed by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be joint and several responsibility
of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF
ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE
LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE
ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA,
AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE
CONSULTED.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at Executed at Spokane, Washington
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on on June 3, 1996
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by LESSOR: by LESSEE: FARMERS AND MERCHANTS BANK
/s/ J. Schindler /s/ Duane L. Brandenberger
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EXECUTIVE VICE PRESIDENT
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By By
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Name Printed: Name Printed:
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Title: Title:
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By By
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Name Printed: Name Printed:
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Title: Title:
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Address: Address:
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Tel. No.( ) Fax No.( ) Tel. No.( ) Fax No.( )
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NET PAGE 10
NOTICE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the
most current form: American Industrial Real Estate Association, 345
South Figueroa Street, Suite M-1, Los Angeles, CA 90071.
(213) 687-6777. Fax No. (213) 687-8618.
<PAGE>
ADDENDUM TO STANDARD INDUSTRIAL/COMMERICAL SINGLE TENANT LEASE NET DATED
4/10/96 BY AND BETWEEN FARMERS MERCHANT BANK (LESSEE) AND JIM SCHINDLER (LESSOR)
ON THE PROPERTY KNOWN AS 622 SHERMAN AVENUE, COEUR D'ALENE, IDAHO.
1. Cancellation of Lease: The Lessee may cancel this lease at any time during
the first (4) four months of the lease term; (May 1, 1996 to August 31, 1996)
only if Lessee is not able to, or, decides not to locate in North Idaho. The
Lessee must notify the Lessor by August 31, 1996 of his/hers intent to terminate
said lease. Such notice must be in writing and received by Lessor by August 31,
1996 or the termination option will expire. The Lessee may cancel this lease
with (3) three months advanced notice to Lessor during the period of 1/31/97
through 12/31/98, only if action is taken by unknown individuals resulting in
Lessee's loss of charter or branch certificate of the ability to acquire an
Idaho State Charter.
2. Base Rent: May 15, 1996 thru August 31, 1996 the base monthly rent shall
be $1,600.00 per month. NNN expenses and utilities shall be
paid by Lessor during May 1, 1996 thru August 31, 1996
September 1, 1996 or upon occupancy thru December 31, 1996 the
base monthly rent shall be $1,800 NNN per month. All other
terms and conditions of the lease shall apply.
January 1, 1997 thru December 31, 1997 the base monthly rent
shall be $2,000 NNN per month. All other terms and conditions
of the lease shall apply.
January 1, 1998 thru December 31, 1998 the base monthly rent
shall be $2,160 NNN per month. All other terms and conditions
of the lease shall apply.
3. Option To Renew Lease: The Lessor grants Lessee (2) two (5) five year
options two renew lease at same terms and conditions, except
base rent shall be increased as per attached Rent Adjustment
Addendum paragraph 49. COST OF LIVING ADJUSTMENT (COL) Base
Rent for second five year option to renew lease shall be at a
then market rent as per attached Rent Adjustment Addendum
paragraph 49. MARKET RENTAL VALUE ADJUSTMENT (MVR)
4. Building Maintenance: In the event the HVAC System requires repair. The
Lessee agrees to pay up to $250.00 of the cost of repair per
repair occurrence. The Lessor shall be responsible for the cost
of repairs over $250.00 per repair occurrence. The Lessor shall
be responsible for the cost of repair or replacement of roof,
foundation, any water lines that may exist under the building
slab, and exterior walls, excluding plate glass windows of the
building during the term of the lease and any options. All
other terms and conditions of lease shall apply.
AGREED AND ACCEPTED:
LESSEE: FARMERS AND MERCHANTS DATE: June 3, 1996
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BANK OF ROCKFORD
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/s/ Duane L. Brandenburger
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Executive Vice President
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LESSEE:_____________________________ DATE:_____________
LESSOR: /s/ J. Schindler DATE:6/3/96
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LESSOR:____________________________ DATE:_____________
LESSOR:____________________________ DATE:_____________
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the inclusion in and incorporation by reference in the
registration statement on Form 10-SB of Inland Northwest Bancorporation, Inc. of
our report dated January 13, 1998, except for Note 22 as to which the date is
January 20, 1998, on our audit of the financial statements and financial
statement schedules of Inland Northwest Bancorporaton, Inc. as of and for the
years ended December 31, 1997 and 1996. we also consent to reference to our firm
in such registration statement.
/s/ McFarland & Alton, P.S.
Spokane, Washington
April 29, 1998
