<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER , 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
UNITED COMMUNITY BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MINNESOTA 6712 41-1380239
- --------------------------- -------------------------- ---------------------
(State or jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or Industrial Classification Identification
organization) Code) Number)
</TABLE>
2600 EAGAN WOODS DRIVE, SUITE 155
EAGAN, MINNESOTA 55121
(612) 552-2828
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------
R. SCOTT JONES, CHAIRMAN
GALEN T. PATE, PRESIDENT
UNITED COMMUNITY BANCSHARES, INC.
2600 EAGAN WOODS DRIVE, SUITE 155
EAGAN, MINNESOTA 55121
(612) 552-2828
(Name address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
Lynn M. Gardin, Esq. David B. Miller, Esq.
Fredrikson & Byron, P.A. Faegre & Benson, LLP
900 Second Avenue South, Suite 1100 2200 Norwest Center
Minneapolis, Minnesota 55402 Minneapolis, Minnesota 55402
(612) 347-7000 (612) 336-3000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box: / /
If this Form is filed to register additional securities of an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE (1) PRICE (1) FEE
<S> <C> <C> <C> <C>
% Cumulative Perpetual
Preferred Stock, Series A,
$25 Stated Value............ 440,000 $25.00 $11,000,000 $3,334
Total Registration Fee....... $3,334
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933, as amended.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS SUBJECT TO COMPLETION DATED OCTOBER , 1996
DATED , 1997
440,000 SHARES
[UNITED COMMUNITY BANCSHARES LOGO]
% CUMULATIVE PERPETUAL PREFERRED STOCK, SERIES A
The shares being offered hereby are 440,000 shares of % Cumulative Perpetual
Preferred Stock, Series A (the "Series A Preferred Stock") of United Community
Bancshares, Inc. ("United" or the "Company"). The Series A Preferred Stock has a
liquidation preference of $25.00 per share, plus accrued and unpaid dividends to
the date fixed for liquidation. See "Description of Securities -- Series A
Preferred Stock -- Liquidation Preference."
Dividends on the Series A Preferred Stock are cumulative and are payable, when,
as and if declared by United's Board of Directors, quarterly in arrears on the
15th day of January, April, July and October in each year, commencing April 15,
1997, at an annual rate of $ per share. See "Description of Securities --
Series A Preferred Stock -- Dividends."
The Series A Preferred Stock is intended to qualify as Tier 1 capital of United
under applicable federal regulations. See "Supervision and Regulation."
The Series A Preferred Stock ranks senior to United's common stock, $0.01 par
value (the "Common Stock"), with respect to both cash dividend rights and rights
upon liquidation, dissolution or winding up. As long as the Series A Preferred
Stock is outstanding, United is not permitted to declare or pay any cash
dividend on, or redeem or repurchase, any shares of its Common Stock unless
United has declared or paid, respectively, all accrued and unpaid dividends at
the stated rate on the Series A Preferred Stock. See "Description of Securities
- -- Series A Preferred Stock."
The Series A Preferred Stock is redeemable at any time commencing January 15,
2000, at the option of United, in whole or in part, at the declining redemption
amounts set forth in this Prospectus, plus accrued and unpaid dividends to the
date fixed for redemption and without interest. See "Description of Securities
- -- Series A Preferred Stock -- Redemption at the Option of United."
United does not intend to list the Series A Preferred Stock on any securities
exchange or include it for quotation on the Nasdaq National Market or any other
quotation system. Although the Underwriter has indicated an intention to make a
market in the Series A Preferred Stock, the Underwriter is not obligated to make
a market in the Series A Preferred Stock, and any market making may be
discontinued at any time at the sole discretion of such Underwriter. There can
be no assurance that a market will develop for the Series A Preferred Stock. See
"Risk Factors -- Limited Trading Market" and "Underwriting." Concurrently with
this offering, United is offering by separate Prospectus up to 56,600 shares of
its Common Stock. See "Description of Securities -- Common Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR
HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE ISSUANCE AND SALE OF THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM, THE OFFICE
OF THE COMPTROLLER OF THE CURRENCY (THE "OCC"), THE FEDERAL DEPOSIT INSURANCE
CORPORATION (THE "FDIC"), OR THE MINNESOTA DEPARTMENT OF COMMERCE (THE
"DEPARTMENT"), NOR HAS THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM, THE
OCC, THE FDIC, OR THE DEPARTMENT, PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. THESE SECURITIES ARE NOT DEPOSITS AND WILL NOT BE INSURED BY THE
FDIC OR ANY OTHER GOVERNMENT AGENCY.
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public Discount (1) United (2)
<S> <C> <C> <C>
Per Share......................... $25.00 $ $
Total............................. $ $ $
</TABLE>
(1) United will also pay an advisory fee equal to 1% of the gross proceeds of
the offering to the Underwriter (the "Advisory Fee"). United has also agreed
to indemnify the Underwriter against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses payable by United estimated to be $270,000.
The shares of Series A Preferred Stock are being offered by the Underwriter
subject to prior sale when, as and if delivered to and accepted by the
Underwriter. It is expected that delivery of the certificates for the Series A
Preferred Stock will be made at the offices of Piper Jaffray Inc. in
Minneapolis, Minnesota, on or about January , 1997.
PIPER JAFFRAY INC.
<PAGE>
------------------------
UNITED COMMUNITY BANCHARES, INC.
OFFICE LOCATIONS
[MAP]
------------------------
The Company intends to furnish to its stockholders annual reports containing
financial statements audited by an independent auditing firm and quarterly
reports for the first three quarters of each fiscal year containing unaudited
financial information.
------------------------
Information contained in this Prospectus contains "forward looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995,
which can be identified by the use of forward-looking terminology such as "may,"
"will," "expect," anticipate," "estimate," or "continue" or the negative thereof
or other variations thereon or comparable terminology. The statements in "Risk
Factors" beginning on page 8 of the Prospectus constitute cautionary statements
identifying important factors, including certain risks and uncertainties, with
respect to such forward-looking statements that could cause actual results to
differ materially from those reflected in such forward-looking statements.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY EFFECT TRANSACTIONS WHICH
STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES A PREFERRED STOCK AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
SUMMARY
THE FOLLOWING IS A BRIEF SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE
IN THIS PROSPECTUS. THIS SUMMARY DOES NOT CONTAIN A COMPLETE STATEMENT OF SUCH
INFORMATION OR OF ALL MATERIAL FEATURES OF THE PROPOSED OFFERING AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, AND SHOULD BE READ IN CONJUNCTION
WITH, THE DETAILED INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO
CONTAINED HEREIN.
THE COMPANY
United Community Bancshares, Inc. ("United" or the "Company"), a bank
holding company with $429 million in assets as of June 30, 1996, operates Signal
Bank, Inc. ("Signal Bank") and The Goodhue County National Bank ("Goodhue Bank")
(collectively, Signal Bank and Goodhue Bank are referred to as the "Banks").
Signal Bank is a state-chartered bank with offices in Eagan, Savage and West St.
Paul, Minnesota. Goodhue Bank is a national bank with offices in Red Wing,
Lanesboro and Rushford, Minnesota. In addition to the Banks, United also
operates Consumers Credit Corporation ("CCC"), a consumer finance company with
offices in Hastings, Northfield, Red Wing and West St. Paul, Minnesota.
COMMUNITY BANKING PHILOSOPHY. United's operating strategy for the Banks has
emphasized relationship banking for owner-operated small-to-medium-sized
businesses, nonprofit organizations, professionals and consumers in market areas
surrounding the Banks' offices. Management of each Bank believes that a
significant number of its commercial customers prefer to bank with locally
managed institutions which provide a full-service banking relationship covering
the customer's commercial banking business and the personal needs of its
management and employees. United provides its Banks with the advantages of
affiliation with a multi-bank holding company, including services such as data
processing services, credit policy formulation, accounting services, investment
portfolio management and specialized staff support while generally granting
substantial autonomy to management of the Banks with respect to the day-to-day
operations and customer service decisions. The Company believes this autonomy
allows the Banks to better serve customers in their respective communities and
thereby enhances the Banks' business opportunities and operations. The Company
also maintains local bank charters and boards of directors, as well as
encourages all of its personnel to become active in community groups and
projects.
ACQUISITION OF PARK BANK. United has entered into a Merger Agreement, dated
October 7, 1996 (the "Merger Agreement") with Park Financial Corporation
("PFC"), a bank holding company which owns Park National Bank ("Park Bank"), a
national bank with assets of approximately $203 million as of June 30, 1996 (the
"Park Acquisition"). Park Bank operates its principal office in St. Louis Park,
Minnesota and a branch in New Hope, Minnesota. Park Bank provides a wide range
of commercial and consumer services primarily to owner-operated
small-to-medium-sized businesses, professionals and consumers principally in the
western and northwestern portions of the seven-county Minneapolis-St. Paul
metropolitan area. The cash purchase price of approximately $46 million will be
obtained from the proceeds of this Offering, together with the proceeds from the
concurrent sale of United's common stock in the approximate minimum amount of $5
million (net of estimated offering expenses), a loan from Firstar Bank
Milwaukee, N.A. in the approximate amount of $24 million and cash on hand of
approximately $7 million. As of the date of this Prospectus, all conditions
precedent to the consummation of the Park Acquisition have been satisfied or
waived, with the only remaining condition being the consummation of the sale of
the Series A Preferred Stock offered hereby. The Park Acquisition will be
accounted for under the purchase method of accounting and will close
concurrently with this Offering. See "Acquisition of Park."
GROWTH STRATEGIES. United's strategy is to continue to grow by acquiring
other financial institutions and financial service providers, expanding existing
bank and consumer finance businesses internally, and pursuing other financial
service opportunities. United's acquisition strategy is to identify banks with
at least $50 million in assets in Minnesota and Wisconsin communities within a
100 mile radius of the Minneapolis-St. Paul metropolitan area. In assessing
acquisitions, United focuses on credit quality, past performance of the bank,
management strengths and weaknesses, location, community demographics, relative
health of the local economy, organizational structure of the bank and
consideration for and terms of the acquisition.
3
<PAGE>
Management believes there are a number of community banks which meet United's
criteria and whose owners would be interested in selling their banks to a
community-based organization like United. United will continue to expand its
current business operations by identifying products or services which have been
successful in one or more of its offices and expanding these products or
services to other offices. For example, Signal Bank is a "preferred lender" with
the Small Business Administration ("SBA"), and its expertise in making SBA loans
will be utilized by other United subsidiary banks. Similarly, Goodhue Bank's
lease financing experience will allow the United subsidiary banks to participate
in more equipment financing transactions. In addition, United's strategy is to
grow CCC's loan portfolio by building CCC's indirect and direct consumer finance
business and by the acquisition or start-up of new offices.
The Company is a Minnesota corporation and its principal executive offices
are located at 2600 Eagan Woods Drive, Suite 155, Eagan, Minnesota 55121, and
its telephone number is (612) 552-2828. United was formed on January 1, 1994
through the merger of Goodhue County Financial Corporation ("Goodhue"), the
former holding company for Goodhue Bank, into Signal Bancshares, Inc.
("Signal"), the former holding company for Signal Bank. Upon consummation of the
merger, the name of the Company was changed to United Community Bancshares, Inc.
References to United or the Company means United and its subsidiaries unless the
context otherwise requires.
THE OFFERING
<TABLE>
<S> <C>
Securities offered................ 440,000 shares of % Cumulative Perpetual Preferred
Stock, Series A, $25.00 stated value per share (the
"Series A Preferred Stock"). See "Description of
Securities -- Series A Preferred Stock."
Dividends......................... Cash dividends are cumulative from the date of issue and
are payable quarterly in arrears on the 15th day of
January, April, July and October in each year,
commencing April 15, 1997, at an annual rate of $ per
share (the "Series A Dividend Amount"), when, as and if
declared by United's Board of Directors. See
"Description of Securities -- Series A Preferred Stock
-- Dividends."
Maturity.......................... The Series A Preferred Stock is perpetual.
Redemption at option of United.... The Series A Preferred Stock may not be redeemed prior
to January 15, 2000. Thereafter the Series A Preferred
Stock may be redeemed in whole or in part, at the option
of United, at any time upon not less than 30 days' but
not more than 60 days' prior written notice, at the
following per share redemption amounts, plus accrued and
unpaid dividends up to the date fixed for redemption,
without interest: $25.75, if the redemption date is
within the 12-month period beginning January 15, 2000;
$25.38, if the redemption date is within the 12-month
period beginning January 15, 2001; and $25.00, if the
redemption date is on or after January 15, 2002.
Redemption by United is subject to prior regulatory
approval. See "Description of Securities -- Series A
Preferred Stock -- Redemption at the Option of United."
Ranking........................... The Series A Preferred Stock ranks senior to United's
Common Stock with respect to both cash dividend rights
and rights upon liquidation, dissolution or winding up.
See "Description of Securities -- Series A Preferred
Stock."
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Voting rights..................... The Series A Preferred Stock is non-voting, except that
the holders of the Series A Preferred Stock will have
the right to vote in certain limited circumstances
described herein. See "Description of Securities --
Series A Preferred Stock -- Limited Voting Rights."
Liquidation preference............ In the event of any voluntary or involuntary liquidation
of United, holders of the Series A Preferred Stock are
entitled to be paid $25.00 per share, plus accrued and
unpaid dividends up to the date fixed for liquidation,
before any distribution is made to holders of the Common
Stock or any other class or series of capital stock of
United ranking junior to the Series A Preferred Stock
with respect to distributions upon liquidation. See
"Description of Securities -- Series A Preferred Stock
-- Liquidation Preference."
Listing........................... United does not intend to list the Series A Preferred
Stock on any securities exchange or include it for
quotation on the Nasdaq National Market or any other
quotation system. See "Risk Factors -- Limited Public
Market" and "Underwriting."
Use of proceeds................... United will use all of the net proceeds of the Offering
to provide a portion of the financing for the Park
Acquisition and to increase United's qualifying "Tier 1"
capital in order for United to have sufficient capital
to consummate the Park Acquisition. See "Use of
Proceeds."
</TABLE>
5
<PAGE>
SUMMARY FINANCIAL DATA
The summary financial information presented below reflects certain financial
information of United on an historical basis as of and for the periods indicated
and on an unaudited pro forma basis (i) as of and for the year ended December
31, 1993 taking into account the merger of Goodhue and Signal, which was
accounted for using the purchase method of accounting effective January 1, 1994,
as if such transaction had occurred on January 1, 1993, (ii) as of and for the
six months ended June 30, 1996 giving effect to the Park Acquisition (including
related equity and debt financing transactions), which will be consummated
concurrently with the closing of this Offering and will be accounted for using
the purchase method of accounting, as if such transaction had occurred on
January 1, 1996, and (iii) as of and for the six months ended June 30, 1995 and
the year ended December 31, 1995 giving effect to the Park Acquisition
(including related equity and debt financing transactions), which will be
consummated concurrently with the closing of this Offering and will be accounted
for using the purchase method of accounting, as if such transaction had occurred
on January 1, 1995. This data should be read in conjunction with each of
United's, Goodhue's and PFC's Consolidated Financial Statements and related
notes included herein and in conjunction with the unaudited Pro Forma Combined
Financial Statements and related notes included herein. See "Index to Financial
Information," "Selected Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
AS OF AND FOR THE AS OF AND FOR THE
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
-------------------- ---------------------------------
1996 1995 1995 1994 1993(1)
--------- --------- --------- --------- -----------
(PRO FORMA)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
UNITED
OPERATING DATA
Interest income.......................................... $ 16,451 $ 14,843 $ 31,206 $ 25,516 $ 23,930
Interest expense......................................... 6,875 6,013 12,848 9,159 9,035
--------- --------- --------- --------- -----------
Net interest income...................................... 9,576 8,830 18,358 16,357 14,895
Provision for loan and lease losses...................... 95 20 61 234 605
--------- --------- --------- --------- -----------
Net interest income after provision for loan and lease
losses.................................................. 9,481 8,810 18,297 16,123 14,290
Noninterest income....................................... 2,390 1,938 3,919 3,837 3,947
Noninterest expense...................................... 8,556 8,208 16,531 16,131 14,995
--------- --------- --------- --------- -----------
Income before income taxes and cumulative effect of
change in accounting principle.......................... 3,315 2,540 5,685 3,829 3,242
Income tax expense....................................... 1,034 897 2,056 1,396 1,138
--------- --------- --------- --------- -----------
Income before cumulative effect of change in accounting
principle............................................... 2,281 1,643 3,629 2,433 2,104
Cumulative effect of change in accounting principle
(2)..................................................... -- -- -- -- 181
--------- --------- --------- --------- -----------
Net income............................................... $ 2,281 $ 1,643 $ 3,629 $ 2,433 $ 2,285
--------- --------- --------- --------- -----------
--------- --------- --------- --------- -----------
BALANCE SHEET DATA
Total assets............................................. $ 428,933 $ 402,356 $ 421,841 $ 383,984 $ 347,687
Net loans and leases..................................... 272,965 252,948 263,006 244,125 217,317
Investment securities.................................... 104,523 92,238 101,837 83,434 82,610
Deposits................................................. 340,225 317,874 340,723 312,947 291,590
Securities sold under repurchase agreements.............. 29,283 29,160 23,173 27,747 15,321
Notes payable and other borrowings....................... 16,097 19,664 15,762 12,412 10,549
Total stockholders' equity............................... 38,500 30,998 36,969 27,525 26,745
KEY RATIOS
Return on average assets (3)(4).......................... 1.08% 0.85% 0.91% 0.68% 0.61%
Return on average equity (3)(4).......................... 12.43 11.47 11.65 9.22 8.22
Average stockholders' equity to average assets........... 8.69 7.43 7.79 7.34 7.48
Net interest margin (3).................................. 5.08 5.17 5.13 5.12 5.01
Operating efficiency ratio............................... 71.50 76.22 74.21 79.88 79.58
Nonperforming loans/total loans and leases............... 0.43 0.34 0.28 0.27 0.64
Allowance for loan and lease losses/total loans and
leases.................................................. 1.08 1.14 1.09 1.16 1.24
Allowance for loan and lease losses/nonperforming loans
and leases.............................................. 250.63 339.28 385.51 423.74 192.99
Common stock dividend payout ratio (5)................... 0.00 0.00 0.00 0.00 10.37
Ratio of earnings to fixed charges and preferred stock
dividends: (6)
Including interest on deposits, FHLB advances, federal
funds purchased and securities sold under repurchase
agreements (7)........................................ 1.48x 1.42x 1.44x 1.42x 1.36x
Excluding interest on deposits, FHLB advances, federal
funds purchased and securities sold under repurchase
agreements (7)........................................ 19.94x 9.25x 12.24x 6.94x 50.88x
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
AS OF AND FOR
AS OF AND FOR THE THE
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
-------------------- ----------------
1996 1995 1995
--------- --------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
PRO FORMA
OPERATING DATA
Interest income.......................................................... $ 24,135 $ 21,776 $ 45,818
Interest expense......................................................... 10,708 9,446 20,113
--------- --------- --------
Net interest income...................................................... 13,427 12,330 25,705
Provision for loan and lease losses...................................... 334 380 781
--------- --------- --------
Net interest income after provision for loan and lease losses............ 13,093 11,950 24,924
Noninterest income....................................................... 3,213 2,754 5,578
Noninterest expense...................................................... 12,253 12,124 24,265
--------- --------- --------
Income before income taxes............................................... 4,053 2,580 6,237
Income tax expense....................................................... 1,578 1,161 2,784
--------- --------- --------
Net income............................................................... $ 2,475 $ 1,419 $ 3,453
--------- --------- --------
--------- --------- --------
BALANCE SHEET DATA
Total assets............................................................. $ 652,143 $ 605,359 $ 636,731
Net loans and leases..................................................... 386,011 359,085 372,868
Investment securities.................................................... 177,182 151,556 163,302
Deposits................................................................. 506,668 471,700 506,477
Securities sold under repurchase agreements.............................. 46,491 39,942 33,839
Notes payable and other borrowings....................................... 38,989 41,395 37,489
Total stockholders' equity............................................... 53,758 46,257 52,228
KEY RATIOS
Return on average assets (3)(4).......................................... 0.79% 0.50% 0.59%
Return on average equity (3)(4).......................................... 13.49 9.91 11.09
Average stockholders' equity to average assets........................... 5.84 7.71 7.88
Net interest margin (3).................................................. 4.72 4.82 4.80
Operating efficiency ratio............................................... 73.64 80.38 77.57
Nonperforming loans/total loans and leases............................... 1.01 0.69 0.53
Allowance for loan and lease losses/total loans and leases............... 1.39 1.35 1.40
Allowance for loan and lease losses/nonperforming loans and leases....... 137.76 195.16 264.26
Common stock dividend payout ratio (5)................................... 0.00 0.00 0.00
Ratio of earnings to fixed charges and preferred stock dividends: (6)
Including interest on deposits, FHLB advances, federal funds purchased
and securities sold under repurchase agreements (7)................... 1.27x 1.17x 1.20x
Excluding interest on deposits, FHLB advances, federal funds purchased
and securities sold under repurchase agreements (7)................... 2.70x 1.86x 2.13x
</TABLE>
- ------------------------------
(1) Combines the results of operations and financial condition of Signal and
Goodhue.
(2) Cumulative effect of change in accounting principle in 1993 represents the
adoption of Statement of Financial Accounting Standard ("SFAS") No. 109
Accounting for Income Taxes.
(3) Annualized for the six months ended June 30, 1996 and 1995.
(4) Computed using income before cumulative effect of change in accounting
principle.
(5) Dividends per common share divided by net income per common share.
(6) For the purpose of calculating the ratio of earnings to fixed charges and
preferred stock dividends, earnings consist of earnings before income taxes
and fixed charges. Fixed charges consist of one-third rent expense and
interest expense. Preferred stock dividends are assumed to equal the amount
of pre-tax income that would be necessary to pay such dividends.
(7) FHLB advances are Federal Home Loan Bank advances.
7
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE FOLLOWING
FACTORS IN CONNECTION WITH THE DECISION TO PURCHASE SHARES OF SERIES A PREFERRED
STOCK.
PAYMENTS ON SERIES A PREFERRED STOCK
As a holding company without significant assets other than its equity
interest in its subsidiary banks, United's ability to pay dividends on the
Series A Preferred Stock depends primarily upon the cash dividends it receives
from the subsidiary banks. Dividend payments from the subsidiary banks are
subject to regulatory limitations, generally based on current and retained
earnings, imposed by the various regulatory agencies with authority over the
respective subsidiary banks. Payment of dividends is also subject to regulatory
restrictions if such dividends would impair the capital of the subsidiary banks.
Payment of subsidiary bank dividends is also subject to the bank's
profitability, financial condition and capital expenditures and other cash flow
requirements. No assurance can be given that the subsidiary banks will be able
to pay dividends at past levels, or at all, in the future. See "Supervision and
Regulation."
Dividends on the Series A Preferred Stock are payable when, as and if
declared by the Board of Directors of United. Under Minnesota corporate law,
United may declare and pay dividends if United will be able to pay its debts in
the ordinary course of business after making the distribution. The final
determination of the timing, amount and payment of dividends on the Series A
Preferred Stock will depend on conditions then existing, including dividends
received from United's subsidiary banks, United's profitability, financial
condition and capital requirements and certain restrictions included in United's
financing from Firstar Bank Milwaukee, N.A. ("Firstar"). See "Acquisition of
Park -- Financing."
The Federal Reserve Board (the "FRB") has issued a policy statement on the
payment of cash dividends by bank holding companies. In the policy statement,
the FRB expressed its view that a bank holding company experiencing earnings
weaknesses should not pay cash dividends which exceed its net income or which
could only be funded in ways that would weaken its financial health, such as by
borrowing. The FRB also may impose limitations on the payment of dividends as a
condition to its approval of certain applications, including applications for
the approval of mergers and acquisitions. Increased leverage and goodwill levels
arising from the Park Acquisition are anticipated to reduce United's regulatory
Tier 1 risk-based capital and leverage ratios immediately following the Park
Acquisition to levels only somewhat above regulatory minimums for a
"well-capitalized" institution and United's total risk-based capital ratio to a
level above "adequately capitalized" but below "well-capitalized." Accordingly,
United will be deemed "adequately capitalized" for purposes of various federal
banking regulations applicable to a bank holding company. There can be no
assurance that the FRB will not impose limitations on the payment of dividends
to the Company's stockholders, including holders of the Series A Preferred
Stock, if United were to experience further decreases in tangible capital. See
"Supervision and Regulation."
Following the Park Acquisition, covenants in the Company's loan agreement
with Firstar will require, among other things, that each of Signal Bank, Goodhue
Bank and Park Bank maintains a ratio of total tangible stockholders' equity plus
allowance for loan losses to total assets of 7% or greater. As of June 30, 1996,
such ratio was 8.8% at Signal Bank, 8.1% at Goodhue Bank, and, after giving pro
forma effect to the Park Acquisition, 8.8% at Park Bank. In the event a
subsidiary bank fails to maintain its minimum capital level, that bank will be
restricted from paying dividends to United. In addition, the terms of any future
financing arrangements could limit the ability of United to pay dividends on the
Series A Preferred Stock. See "Acquisition of Park -- Financing."
Substantially all of the consolidated assets of United are held by its
subsidiary banks, and, in the event of liquidation of both United and any of its
subsidiary banks, creditors of such banks, including depositors, would have
first claim to such assets before holders of the Series A Preferred Stock. At
June 30, 1996, after giving pro forma effect to the Park Acquisition, United
would have outstanding indebtedness and other liabilities, including deposits,
of $598 million. See "Description of Securities -- Series A Preferred Stock --
Liquidation Preferences."
8
<PAGE>
RISKS INVOLVED IN ACQUISITION STRATEGY; ACQUISITION OF PARK
United believes the majority of its growth will come from acquisitions of
banks and other financial institutions. Such acquisitions involve risks of
adversely changing results of operations, changes in capital structure,
including increased reliance on debt, unforeseen liabilities relating to the
acquired institution or arising out of the acquisition transaction, or asset
quality problems of the acquired entity and other conditions not within the
control of United, such as adverse personnel relations, loss of customers
because of change of identity, deterioration in local economic conditions and
other risks affecting the acquired institution. Acquisition candidates may not
be available or available on terms favorable to United in the future. United
must compete with a variety of individuals and institutions, including major
regional bank holding companies, for suitable acquisition candidates. Such
competition could affect United's ability to make acquisitions and increase the
price that United pays for certain acquisitions.
Concurrently with the closing of this Offering, the Company will consummate
the Park Acquisition. The Park Acquisition is the Company's first acquisition
since the merger with Goodhue in 1994. Available earnings and cash flow to pay
dividends on the Series A Preferred Stock will be dependent in part on the
successful integration of Park Bank with United. Among other things, the Park
Acquisition will involve a significant increase in the Company's long-term
indebtedness and interest expense due to the addition of approximately $24
million of long-term debt financing in connection with the Park Acquisition.
This indebtedness requires the dedication of an increased portion of cash flow
to the payment of principal and interest, thereby reducing funds available for
Series A Preferred Stock dividends, capital expenditures and other cash flow
requirements. In addition, Park Bank's percentage of nonperforming loans to
total loans is somewhat greater than the Banks' percentage of nonperforming
loans to total loans, and as a result United's overall percentage of
nonperforming loans to total loans will increase over its current level. The
Park Acquisition will also result in a decrease from the historical regulatory
capital ratios of the Company. Following completion of the Park Acquisition, it
is anticipated that United's Tier 1 risk-based capital and leverage ratios will
be only somewhat above regulatory minimums for a "well-capitalized" institution,
and that United's total risk-based capital ratio will be above the regulatory
minimum for an "adequately capitalized" institution but below the regulatory
minimum for a "well-capitalized" institution. Accordingly, United will be deemed
"adequately capitalized" for purposes of various federal banking regulations
applicable to United. These lower capital ratios could inhibit the Company's
ability to effect certain acquisitions in the future or result in other
regulatory limitations, especially if the Company should experience adverse
results of operations or other events causing further decreases in tangible
capital. There can be no assurance that either the subsidiary banks or United
will be able to maintain capital at levels which will not result in adverse
operating or financial restrictions or that access to adequate capital or
capital on terms satisfactory to United will exist in the event capital
restoration is necessary or desirable. See "Acquisition of Park"; "Supervision
and Regulation."
GOVERNMENT REGULATION
The banking industry is highly regulated by both federal and state
regulatory authorities. United and its subsidiaries are subject to supervision
and regular examinations by agents of the Federal Reserve Board, the Office of
the Comptroller of the Currency, the Federal Deposit Insurance Corporation or
the Minnesota Department of Commerce. Under federal and state banking law,
United and its subsidiaries are subject to substantial supervision and
limitations with respect to making loans, extending credit, purchasing
securities, paying dividends, making acquisitions, branching and many other
aspects of the banking business. Regulation includes among other things, capital
reserve requirements, dividend limitations, limitations on products and services
offered, geographical limits, consumer credit regulations, community investment
requirements and restrictions on transactions with affiliated parties. Financial
institution regulation has been the subject of significant legislation in recent
years, is subject to currently pending legislation, and may be the subject of
further significant legislation in the future, none of which is within the
control of United. This regulation substantially affects the business and
financial results of all financial institutions and holding companies,
9
<PAGE>
including United and the subsidiary banks, and United is not able to predict the
impact of changes in such regulations on United's business and profitability,
some of which may be materially adverse to United. See "Supervision and
Regulation."
INTEREST RATE RISK
United's ability to pay any dividends is substantially dependent on each
subsidiary bank's cash flow and net income. The net income of each bank depends
to a great extent upon its net interest rate spread, which is the difference
between the average interest rate earned by the bank on its loans, securities
and other interest-earning assets, and the average interest rate it pays on
deposits and other interest-bearing liabilities. Interest rates are highly
sensitive to many factors beyond the control of the banks, including general
economic conditions and policies of various governmental and regulatory
authorities. Increases or decreases in interest rates may cause significant
decreases in the net interest income and net income of the banks. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Asset/ Liability Management -- Interest Rate Sensitivity."
LOCAL ECONOMIC CONDITIONS
The success of United depends to a great extent upon general economic
conditions in the communities it serves, primarily the Minneapolis-St. Paul
metropolitan area and southeastern Minnesota, and particularly conditions
affecting small and medium sized businesses which are a significant portion of
United's borrowers. A decline in the economy of these areas could have an
adverse effect on United's business, including the demand for new loans,
refinancing activity, the ability of borrowers to repay outstanding loans and
the value of loan collateral, and could adversely affect the Banks' and Park
Bank's net income. See "Business -- Banks" and "Business -- Lending and
Investments."
COMPETITION
The financial services industry is rapidly changing and highly competitive.
United competes with the system banks of two large multi-bank holding companies,
as well as numerous other banks, savings and loan associations, credit unions,
securities brokerage firms and other financial services companies. Some of these
competitors have greater financial and other resources than United. No assurance
can be given that United will be able to continue to compete successfully in
these markets. In addition, recent legislation permitting nationwide interstate
banking and branching could increase competition by both in-state and
out-of-state banking or other financial institutions, and as a result could
adversely affect United's business. See "Business -- Competition."
DEPENDENCE UPON KEY PERSONNEL
The continued success of United is substantially dependent upon the efforts
of the directors and executive officers of United, in particular, R. Scott
Jones, Chairman and Galen T. Pate, President. The success of United depends in
large part on the retention of present key management personnel, and upon the
ability to hire and retain additional qualified personnel in the future when
needed. United does not have employment contracts with any management personnel
or any key-person life insurance coverage on any management personnel. See
"Management."
CONCENTRATION OF OWNERSHIP IN MANAGEMENT
Assuming they do not purchase shares in the offering of United's Common
Stock occurring concurrently with this Offering, following completion of such
Common Stock offering, the directors and officers of United, the principal
executive officers of United's subsidiaries and the United Employee Stock
Ownership Plan will hold approximately 43.8% (assuming the minimum number of
shares of Common Stock are sold in the concurrent offering) of the United Common
Stock then outstanding. In addition, senior management has received, and may in
the future receive, stock options under the 1994 Stock Option Plan, which if
exercised would increase the number of shares of United Common Stock held by
management. Because of
10
<PAGE>
such share ownership, these individuals may be able to exercise significant
influence in the election of members of United's Board of Directors and the
outcome of other corporate actions. See "Management" and "Principal
Shareholders."
LIMITED TRADING MARKET
United does not intend to list the Series A Preferred Stock on any
securities exchange, or include the Series A Preferred Stock for quotation on
the Nasdaq National Market or any other market system. There is no existing
public market for the Series A Preferred Stock, and there can be no assurance
that an active or liquid trading market for the Series A Preferred Stock will
develop following the Offering, or that, if such a market does develop, it will
continue. The Underwriter has indicated an intention to make a market in the
Series A Preferred Stock, although the Underwriter has no obligation to make a
market and, if such a market is made, there can be no assurance that an active
trading market will develop or that any such market making which does take place
will not be discontinued at any time at the sole discretion of the Underwriter.
If the shares of Series A Preferred Stock are traded after their original
issuance, they may trade at a discount to their stated value. See
"Underwriting."
LIMITED VOTING RIGHTS
Holders of the Series A Preferred Stock will not have any voting rights,
except in very limited circumstances. See "Description of Securities -- Series A
Preferred Stock -- Limited Voting Rights."
POSSIBLE LACK OF AVAILABLE INFORMATION
The Company anticipates that it will not be required to register the Series
A Preferred Stock pursuant to the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and does not presently intend voluntarily to effect such a
registration. Following the offering, the Company will be subject to the
periodic and other reporting requirements of the Exchange Act for the 1997
calendar year pursuant to Section 15(d) thereof. Thereafter, provided the Series
A Preferred Stock is then held by less than 300 holders of record at the
beginning of any subsequent fiscal year the Company could cease to be subject to
the obligation to file such reports with respect to such fiscal year. The
Company anticipates that the Series A Preferred Stock will be held by less than
300 holders of record at the end of 1997, and therefore that it will then cease
to be subject to the reporting requirements of the Exchange Act at that time.
The Company intends to provide quarterly and annual financial information to its
shareholders even if not required to do so pursuant to the Exchange Act. See
"Additional Information."
ACQUISITION OF PARK
THE INFORMATION CONTAINED IN THIS PROSPECTUS WITH RESPECT TO THE PARK
ACQUISITION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPLETE TEXT OF
THE MERGER AGREEMENT, A COPY OF WHICH HAS BEEN FILED AS AN EXHIBIT TO THE
REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART.
GENERAL
United's wholly-owned subsidiary, PFC Acquisition Corp. ("Newco") and PFC
have entered into the Merger Agreement, pursuant to which Newco will merge into
PFC, with PFC as the surviving corporation (the "Merger"). All conditions to the
Merger, including receipt of applicable regulatory approvals, have been
satisfied or waived, with the only remaining condition being the consummation of
the sale of the Series A Preferred Stock offered hereby. It is expected that the
Merger will be consummated concurrently with the closing of this Offering.
Following the Merger, United expects to continue operations of Park Bank in a
manner substantially consistent with past practice and plans to retain the
existing management of Park Bank.
PFC began operations as a one-bank holding company on October 1, 1975. PFC
owns all of the issued and outstanding capital stock of Park Bank, formerly
known as Park National Bank of St. Louis Park, which was chartered in 1963. Park
Bank, with assets of approximately $203 million as of June 30, 1996, engages in
commercial and consumer banking activities primarily in the western and
northwestern portions of the
11
<PAGE>
seven-county Minneapolis-St. Paul metropolitan area. Management of United
believes that the acquisition of Park Bank will (i) broaden the base of
operations for the entire United consolidated group and could diversify risk
that may exist in each market area; (ii) result in economies of scale due to the
combination of resources; (iii) result in a larger organization that should
better enable management to attract well-qualified employees and provide
opportunities to broaden access to capital markets and acquisition
opportunities; and (iv) allow each of United's subsidiary banks to access the
products, services, talents and capabilities of the other subsidiary banks and
their management and employees. See "Business -- Growth Strategies."
BUSINESS OF PARK BANK
Park Bank provides a wide range of commercial and consumer banking products
and services for small-to-medium-sized businesses, consumers and professionals.
Park Bank has a market niche focused on the lending and cash management needs of
owner-operated businesses in light manufacturing, wholesale/ distribution and
service industries with sales of $250,000 to $25 million. At June 30, 1996, 79%
of Park Bank's loans were commercial, commercial real estate or commercial
construction loans, with the real estate loans primarily placed on
owner-occupied facilities. The commercial lending activities are principally in
the western and northwestern portions of the seven-county Minneapolis-St. Paul
metropolitan area.
Park Bank provides its consumer customers with a competitive variety of
deposit products and services, installment and home equity line of credit loans,
discount brokerage services, and other customary banking services. A majority of
Park Bank's consumer business is originated within a two-to-three mile radius of
its banking offices in St. Louis Park and New Hope, Minnesota.
Park Bank competes with the system banks of two large multi-bank holding
companies, as well as numerous other banks, savings and loan associations,
credit unions, securities brokerage firms and other financial services
companies. Management believes that the experience and reputation of Park Bank
in the small-to-medium-sized business market is very complementary to that of
Signal Bank, which will enhance the ability of both banks to compete more
effectively through the sharing of resources and expertise, such as SBA loan
programs.
Park Bank presently leases its main office, consisting of approximately
27,000 square feet located at 5353 Wayzata Boulevard, St. Louis Park, Minnesota,
under a lease which expires on October 31, 2004, with several options to renew.
Park Bank operates a branch office in an approximately 5,200 square foot
detached building owned by Park Bank and located at 7001 Bass Lake Road, New
Hope, Minnesota. Management believes that Park Bank's facilities are adequate to
meet its foreseeable needs. As of June 30, 1996, PFC and Park Bank employed 80
persons, 65 on a full-time basis and 15 on a part-time basis.
TERMS OF THE PARK ACQUISITION
In connection with the Merger, the shareholders of PFC will receive
aggregate cash consideration estimated to be approximately $46 million (the
actual consideration will be based on the November 30, 1996 book value of PFC
plus a premium plus a fixed daily accrual representing earnings from November
30, 1996 through the closing date of the Park Acquisition). Following the Park
Acquisition, United will own all of the issued and outstanding stock of PFC
which in turn owns all of the issued and outstanding stock of Park Bank. For
accounting purposes, the Park Acquisition will be accounted for under the
purchase method for business combinations, which requires adjusting the assets
and liabilities of Park Bank to their fair value and the recording of goodwill
at an amount equal to the difference between the aggregate cash payment and the
fair value of the tangible assets and liabilities. The Park Acquisition is
subject to various conditions, including bank regulatory approval, all of which
have been satisfied or waived with the only remaining condition being the
consummation of the sale of the Series A Preferred Stock offered hereby.
In the Merger Agreement, PFC and the Park Financial Corporation Common Stock
Revocable Trust (the "Trust"), a majority shareholder of PFC, have made various
representations and warranties relating to the due organization of PFC and Park
Bank, authorization of PFC to enter into the Merger Agreement, capitalization
and financial statements of PFC and Park Bank and other matters customary in
transactions of
12
<PAGE>
this type. The Merger Agreement includes covenants obligating PFC and Park Bank
to conduct their operations pending closing of the Merger in the ordinary course
of business and in compliance with various restrictions intended to protect the
financial condition of PFC and Park Bank and customary in transactions of this
type.
Pursuant to a separate Indemnification Agreement, the Trust and certain
beneficiaries of the Trust (the "Indemnifying Parties") have agreed to indemnify
United, the surviving corporation of the Merger, and Park Bank from and against
any and all claims, losses, damages, liabilities or expenses arising or incurred
within six years after the Merger as a result of any claims, actions or
proceedings made or brought against United, the surviving corporation of the
Merger, and Park Bank by the Indemnifying Parties or the other shareholders of
PFC for any or no reason. There will be no indemnification for claims brought by
third parties, or for claims based upon inaccuracies of the representations and
warranties made by PFC and the Trust in the Merger Agreement.
FINANCING
The aggregate financing for the Park Acquisition will come from the proceeds
from this Offering, the proceeds from the sale of United's Common Stock
occurring concurrently with this Offering in the approximate minimum amount of
$5 million (after deducting offering expenses), cash on hand in the aggregate
amount of $7 million, and a loan from Firstar in the amount of $24 million. In
addition to providing financing for the Park Acquisition, the net proceeds from
the sale of the Series A Preferred Stock and the net proceeds from the sale of
the Common Stock will also be used to increase United's qualifying "Tier 1"
capital. United and Firstar have entered into a Loan Agreement, under which
Firstar is providing a loan of up to an aggregate amount of $27 million, of
which $24 million will enable United to complete the Park Acquisition. The loan
is for a five-year term, with interest payable quarterly and principal (based on
a ten-year amortization) payable annually. Interest will accrue at a rate equal
to 140 basis points in excess of the three-month LIBOR Rate. All indebtedness of
United to Firstar under the loan will be secured by a pledge of all of the stock
of Park Bank, Signal Bank and Goodhue Bank.
USE OF PROCEEDS
The net proceeds from the sale of the Series A Preferred Stock offered
hereby are estimated to be $ net of estimated underwriting discount and
other estimated offering expenses. United intends to use all the proceeds from
this Offering, together with the proceeds from the offering of United's Common
Stock occurring concurrently with this Offering, to provide a portion of the
financing for the Park Acquisition and to increase United's qualifying "Tier 1"
capital in order for United to have sufficient capital to consummate the Park
Acquisition. See "Supervision and Regulation."
In addition to the net proceeds from the Series A Preferred Stock offered
hereby, United will receive an approximate minimum amount of $5 million from the
sale of its Common Stock occurring concurrently with this Offering and $24
million from the proceeds of a loan from Firstar, and will obtain $7 million
from cash-on-hand, to provide the financing for the Park Acquisition, estimated
to be $46 million in the aggregate. See "Acquisition of Park."
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of United as of June 30,
1996, and pro forma capitalization of United after giving effect to the Park
Acquisition, the sale of the Series A Preferred Stock offered in this Offering,
the sale of the minimum number of shares of Common Stock offered by United
concurrently with this Offering and the proceeds from the financing from
Firstar. See "Acquisition of Park." In addition, certain capital ratios are also
presented. The table should be read in conjunction with the financial statements
and related notes contained elsewhere herein.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
------------------------
ACTUAL PRO FORMA (1)
--------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Long-term Debt.......................................................................... $ 3,150 $ 26,042
Stockholders' Equity
Series A Preferred Stock, $25.00 stated value; 440,000 shares authorized; no shares
issued and outstanding (actual); 440,000 shares issued and outstanding (pro forma)... -- 11,000
Common Stock, $.01 par value; 5,000,000 shares authorized; 546,686 shares issued and
outstanding (actual); 593,846 shares issued and outstanding (pro forma).............. 5 6
Additional paid-in capital............................................................ 21,016 25,274
Retained earnings..................................................................... 17,795 17,795
Unrealized loss on securities available for sale...................................... (316) (316)
--------- -------------
Total stockholders' equity.......................................................... 38,500 53,759
--------- -------------
Total Capitalization.................................................................... $ 41,650 $ 79,801
--------- -------------
--------- -------------
Regulatory capital ratios:
Tier 1 risk-based capital............................................................. 13.6% 7.0%
Total risk-based capital.............................................................. 14.7% 8.4%
Leverage.............................................................................. 8.3% 4.8%
</TABLE>
- ------------------------
(1) The pro forma information set forth above as of June 30, 1996 may not be
indicative of the financial condition of the Company on the date of the Park
Acquisition which is expected to close in January, 1997. Earnings from the
operations of Park Bank during the period from July 1, 1996 to the date of
the Park Acquisition are expected to increase the cash merger consideration
requiring United to increase long-term debt to be incurred of $22.9 million
as shown above to the $24.0 million amount set forth elsewhere herein. See
"Acquisition of Park" and "Use of Proceeds."
14
<PAGE>
SELECTED FINANCIAL DATA
The following tables presented below reflect certain consolidated financial
information of United on an historical basis as of and for the dates indicated
and on an unaudited pro forma basis as of and for the year ended December 31,
1993 giving effect to the merger of Goodhue and Signal which was accounted for
using the purchase method of accounting (appearing in Table 1); certain
financial information of PFC on an historical basis as of and for the dates
indicated (appearing in Table 2); and certain unaudited pro forma consolidated
financial information of United giving effect to the Park Acquisition (including
related debt and equity transactions) using the purchase method of accounting
(appearing in Table 3). For a description of the purchase method of accounting
with respect to the merger with Goodhue and the Park Acquisition and the related
effects on the historical financial statements of United, see unaudited Pro
Forma Consolidated Financial Statements of United included elsewhere herein. The
historical consolidated financial data as of and for the five years ended
December 31, 1995 (except United as of and for the year ended December 31,
1993), are derived from audited consolidated financial statements of United and
PFC. The historical consolidated financial data as of and for the six months
ended June 30, 1996 and 1995 are derived from the unaudited historical financial
statements of United and PFC and reflect, in the opinions of management of
United and PFC, all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of such data. The results of
operations for the six months ended June 30, 1996 may not be indicative of
results of operations to be obtained for the entire fiscal year. The selected
consolidated financial and other data should be read in conjunction with each of
United's, Goodhue's and PFC's Consolidated Financial Statements and related
notes included herein and in conjunction with the unaudited Pro Forma
Consolidated Financial Statements and related notes included herein. See "Index
to Financial Information" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
15
<PAGE>
<TABLE>
<CAPTION>
AS OF AND FOR THE
SIX MONTHS ENDED AS OF AND FOR THE
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------------------------------
1996 1995 1995 1994 1993 (1) 1992 (2) 1991 (2)
--------- --------- --------- --------- ----------- --------- ---------
(PRO FORMA)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
UNITED -- TABLE 1
OPERATING DATA
Interest income................ $ 16,451 $ 14,843 $ 31,206 $ 25,516 $ 23,930 $ 11,276 $ 12,783
Interest expense............... 6,875 6,013 12,848 9,159 9,035 4,334 6,470
--------- --------- --------- --------- ----------- --------- ---------
Net interest income............ 9,576 8,830 18,358 16,357 14,895 6,942 6,313
Provision for loan and lease
losses........................ 95 20 61 234 605 488 2,000
--------- --------- --------- --------- ----------- --------- ---------
Net interest income after
provision for loan and lease
losses........................ 9,481 8,810 18,297 16,123 14,290 6,454 4,313
Noninterest income............. 2,390 1,938 3,919 3,837 3,947 2,419 1,808
Noninterest expense............ 8,556 8,208 16,531 16,131 14,995 6,537 5,609
--------- --------- --------- --------- ----------- --------- ---------
Income before income taxes and
cumulative effect of change in
accounting principle.......... 3,315 2,540 5,685 3,829 3,242 2,336 512
Income tax expense............. 1,034 897 2,056 1,396 1,138 725 171
--------- --------- --------- --------- ----------- --------- ---------
Income before cumulative effect
of change in accounting
principle..................... 2,281 1,643 3,629 2,433 2,104 1,611 341
Cumulative effect of change in
accounting principle (3)...... -- -- -- -- 181 -- --
--------- --------- --------- --------- ----------- --------- ---------
Net income..................... $ 2,281 $ 1,643 $ 3,629 $ 2,433 $ 2,285 $ 1,611 $ 341
--------- --------- --------- --------- ----------- --------- ---------
--------- --------- --------- --------- ----------- --------- ---------
BALANCE SHEET DATA
Total assets................... $ 428,933 $ 402,356 $ 421,841 $ 383,984 $ 347,687 $ 155,095 $ 152,370
Net loans and leases........... 272,965 252,948 263,006 244,125 217,317 92,516 83,262
Investment securities.......... 104,523 92,238 101,837 83,434 82,610 40,938 43,886
Deposits....................... 340,225 317,874 340,723 312,947 291,590 140,446 139,317
Securities sold under
repurchase agreements......... 29,283 29,160 23,173 27,747 15,321 -- --
Notes payable and other
borrowings.................... 16,097 19,664 15,762 12,412 10,549 1,572 1,144
Total stockholders' equity..... 38,500 30,998 36,969 27,525 26,745 11,943 10,674
KEY RATIOS
Return on average assets
(4)(5)........................ 1.08% 0.85% 0.91% 0.68% 0.61% 1.10% 0.23%
Return on average equity
(4)(5)........................ 12.43 11.47 11.65 9.22 8.22 14.55 3.24
Average stockholders' equity to
average assets................ 8.69 7.43 7.79 7.34 7.48 7.59 7.20
Net interest margin (4)........ 5.08 5.17 5.13 5.12 5.01 5.23 4.72
Operating efficiency ratio..... 71.50 76.22 74.21 79.88 79.58 69.83 69.12
Nonperforming loans/total loans
and leases.................... 0.43 0.34 0.28 0.27 0.64 0.45 2.72
Allowance for loan and lease
losses/total loans and
leases........................ 1.08 1.14 1.09 1.16 1.24 1.53 2.57
Allowance for loan and lease
losses/ nonperforming loans
and leases.................... 250.63 339.28 385.51 423.74 192.99 336.07 94.32
Common stock dividend payout
ratio (6)..................... 0.00 0.00 0.00 0.00 10.37 0.00 0.00
Ratio of earnings to fixed
charges and preferred stock
dividends: (7)
Including interest on
deposits, FHLB advances,
federal funds purchased and
securities sold under
repurchase agreements....... 1.48x 1.42x 1.44x 1.42x 1.36x 1.53x 1.08x
Excluding interest on
deposits, FHLB advances,
federal funds purchased and
securities sold under
repurchase agreements....... 19.94x 9.25x 12.24x 6.94x 50.88x 16.57x 3.75x
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
AS OF AND FOR THE
SIX MONTHS ENDED AS OF AND FOR THE
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
PFC -- TABLE 2
OPERATING DATA
Interest income........................ $ 7,844 $ 7,074 $ 14,969 $ 11,663 $ 9,744 $ 10,549 $ 12,907
Interest expense....................... 3,036 2,637 5,672 3,538 2,927 4,229 6,604
--------- --------- --------- --------- --------- --------- ---------
Net interest income.................... 4,808 4,437 9,297 8,125 6,817 6,320 6,303
Provision for loan and lease losses.... 240 360 720 740 552 678 1,974
--------- --------- --------- --------- --------- --------- ---------
Net interest income after provision for
loan and lease losses................. 4,568 4,077 8,577 7,385 6,265 5,642 4,329
Noninterest income..................... 823 817 1,659 1,556 2,102 2,824 2,894
Noninterest expense.................... 2,990 3,228 6,338 6,076 6,234 6,557 6,862
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes and
cumulative effect of change in
accounting principle.................. 2,401 1,666 3,898 2,865 2,133 1,909 361
Income tax expense..................... 925 630 1,497 1,030 659 579 228
--------- --------- --------- --------- --------- --------- ---------
Income before cumulative effect of
change in accounting principle and
extraordinary credit.................. 1,476 1,036 2,401 1,835 1,474 1,330 133
Cumulative effect of change in
accounting principle (3).............. -- -- -- -- 850 -- --
Tax benefit arising from carry forward
of prior year operating loss.......... -- -- -- -- -- 93 62
--------- --------- --------- --------- --------- --------- ---------
Net income............................. $ 1,476 $ 1,036 $ 2,401 $ 1,835 $ 2,324 $ 1,423 $ 195
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
BALANCE SHEET DATA
Total assets........................... $ 208,230 $ 186,705 $ 200,570 $ 181,505 $ 157,650 $ 153,524 $ 156,092
Net loans and leases................... 115,080 108,298 113,499 102,882 94,368 82,035 87,187
Investment securities.................. 75,738 61,802 63,765 55,632 45,468 46,941 43,510
Deposits............................... 166,443 153,827 165,754 156,704 135,363 132,037 136,151
Total stockholders' equity............. 23,684 21,156 22,888 19,237 18,152 15,640 14,557
KEY RATIOS
Return on average assets (4)(5)........ 1.43% 1.13% 1.27% 1.08% 0.99% 0.94% 0.13%
Return on average equity (4)(5)........ 12.63 10.22 11.35 9.72 8.90 9.22 1.35
Average stockholders' equity to average
assets................................ 11.29 11.03 11.19 11.14 11.13 10.18 9.44
Net interest margin (4)................ 4.99 5.21 5.24 5.14 4.95 4.68 4.39
Operating efficiency ratio............. 53.10 61.43 57.85 62.76 69.90 71.71 74.61
Nonperforming loans/total loans and
leases................................ 2.35 1.28 1.07 1.69 1.25 4.38 5.95
Allowance for loan and lease
losses/total loans and leases......... 2.18 1.85 2.14 1.93 1.61 1.74 1.78
Allowance for loan and lease losses/
nonperforming loans and leases........ 92.77 144.28 199.20 113.93 129.18 39.78 29.85
Common stock dividend payout ratio
(6)................................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Ratio of earnings to fixed charges and
preferred stock dividends: (7)
Including interest on deposits, FHLB
advances, federal funds purchased
and securities sold under repurchase
agreements.......................... 1.78x 1.62x 1.66x 1.77x 1.68x 1.43x 1.05x
Excluding interest on deposits, FHLB
advances, federal funds purchased
and securities sold under repurchase
agreements.......................... 45.46x 32.43x 21.52x 15.84x 10.78x 5.49x 1.65x
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
AS OF AND FOR THE AS OF AND FOR
SIX MONTHS ENDED THE
JUNE 30, YEAR ENDED
-------------------- DECEMBER 31,
1996 1995 1995
--------- --------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
PRO FORMA -- TABLE 3(8)
OPERATING DATA
Interest income.......................................................... $ 24,135 $ 21,776 $ 45,818
Interest expense......................................................... 10,708 9,446 20,113
--------- --------- --------
Net interest income...................................................... 13,427 12,330 25,705
Provision for loan and lease losses...................................... 334 380 781
--------- --------- --------
Net interest income after provision for loan and lease losses............ 13,093 11,950 24,924
Noninterest income....................................................... 3,213 2,754 5,578
Noninterest expense...................................................... 12,253 12,124 24,265
--------- --------- --------
Income before income taxes............................................... 4,053 2,580 6,237
Income tax expense....................................................... 1,578 1,161 2,784
--------- --------- --------
Net income............................................................... $ 2,475 $ 1,419 $ 3,453
--------- --------- --------
--------- --------- --------
BALANCE SHEET DATA
Total assets............................................................. $ 652,143 $ 605,359 $ 636,731
Net loans and leases..................................................... 386,011 359,085 372,868
Investment securities.................................................... 177,182 151,556 163,302
Deposits................................................................. 506,668 471,700 506,477
Securities sold under repurchase agreements.............................. 46,491 39,942 33,839
Notes payable and other borrowings....................................... 38,989 41,395 37,489
Total stockholders' equity............................................... 53,758 46,257 52,228
KEY RATIOS
Return on average assets (4)............................................. 0.79% 0.50% 0.59%
Return on average equity (4)............................................. 13.49 9.91 11.09
Average stockholders' equity to average assets........................... 5.84 7.71 7.88
Net interest margin (4).................................................. 4.72 4.82 4.80
Operating efficiency ratio............................................... 73.64 80.38 77.57
Nonperforming loans/total loans and leases............................... 1.01 0.69 0.53
Allowance for loan and lease losses/total loans and leases............... 1.39 1.35 1.40
Allowance for loan and lease losses/nonperforming loans and leases....... 137.76 195.16 264.26
Common stock dividend payout ratio (6)................................... 0.00 0.00 0.00
Ratio of earnings to fixed charges and preferred stock dividends: (7)
Including interest on deposits, FHLB advances, federal funds purchased
and securities sold under repurchase agreements....................... 1.27x 1.17x 1.20x
Excluding interest on deposits, FHLB advances, federal funds purchased
and securities sold under repurchase agreements....................... 2.70x 1.86x 2.13x
</TABLE>
- ------------------------------
(1) Combines the results of operations and financial condition of Signal and
Goodhue.
(2) Includes the accounts of Signal only.
(3) Cumulative effect of change in accounting principle in 1993 represents the
adoption of Statement of Financial Accounting Standard (SFAS) No. 109
Accounting for Income Taxes.
(4) Annualized for the six months ended June 30, 1996 and 1995.
(5) Computed using income before cumulative effect of change in accounting
principle.
(6) Dividends per share divided by net income per share.
(7) For the purpose of calculating the ratio of earnings to fixed charges and
preferred stock dividends, earnings consist of earnings before income taxes
and fixed charges. Fixed charges consist of one-third rent expense and
interest expense. Preferred stock dividends are assumed to equal the amount
of pre-tax income that would be necessary to pay such dividends.
(8) Combines the results of operations and financial condition of United and
PFC.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BASIS OF PRESENTATION
The following discussion and analysis provides information regarding
United's historical results of operations and financial condition for the years
ended December 31, 1995, 1994 and 1993 and for the six months ended June 30,
1996 and 1995. This discussion and analysis should be read in conjunction with
United's Consolidated Financial Statements and the notes thereto and the other
financial information included herein.
The comparison of 1994 data to 1993 data is substantially affected by the
merger of Goodhue into Signal on January 1, 1994. For comparative purposes, an
unaudited pro forma consolidated balance sheet and statement of income of Signal
and Goodhue as of December 31, 1993 and for the year then ended, prepared as
though the Signal and Goodhue merger had occurred on January 1, 1993, have been
included elsewhere herein. See "Index to Financial Information." Pro forma
results do not purport to represent what United's results of operations or
financial condition would actually have been if the transactions had occurred on
the dates indicated, and do not project United's results or financial condition
for or to any future period or date. For purposes of this Management's
Discussion and Analysis, 1994 financial data will be compared to the pro forma
1993 financial data. The financial data for 1992 and 1991 include the financial
information of Signal only.
The Park Acquisition, which will be consummated concurrently with completion
of this Offering, will substantially affect United's future operations and will
have a significant impact on comparisons of income, expense and balance sheet
items for 1997 periods to 1996 periods. United expects the Park Acquisition will
be completed in January, 1997. United intends to account for the Park
Acquisition using the purchase method of accounting. As a result of the Park
Acquisition, among other things, United will incur a substantial increase in
long-term debt and related interest expense and in goodwill and related goodwill
amortization. Although management believes that following the Park Acquisition
the Company will be "adequately capitalized" for purposes of various federal
banking regulations, the recording of the goodwill in connection with the Park
Acquisition will result in a significant decrease in tangible capital and in
regulatory capital ratios from those in existence prior to the Park Acquisition.
OVERVIEW
United's net income for the six months ended June 30, 1996 increased
$638,000 or 38.8% to $2.3 million from $1.6 million for the six months ended
June 30, 1995. Net income for the year ended December 31, 1995 increased $1.2
million or 49.3% to $3.6 million from $2.4 million in 1994. Net income before
the cumulative effect of change in accounting principle in 1994 increased
$329,000 or 15.6% from $2.1 million in 1993.
Total assets at June 30, 1996 increased $7.1 million or 1.7% to $428.9
million from $421.8 million at December 31, 1995. Total assets at December 31,
1995 increased $37.8 million or 9.8% from $384.0 million at December 31, 1994
which was an increase of $36.3 million or 10.4% over the total assets at
December 31, 1993.
The annualized return on average assets was 1.08% for the six months ended
June 30, 1996 compared with .85% for the six months ended June 30, 1995. The
return on average assets using income before the cumulative effect of change in
accounting principle was .91% for the year ended December 31, 1995 compared with
.68% and .61% for the years ended December 31, 1994 and pro forma 1993,
respectively.
The annualized return on average equity was 12.43% for the six months ended
June 30, 1996 compared with 11.47% for the six months ended June 30, 1995. The
return on average equity using income before the cumulative effect of change in
accounting principle was 11.65% for the year ended December 31, 1995 compared
with 9.22% and 8.22% for the years ended December 31, 1994 and pro forma 1993,
respectively.
19
<PAGE>
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income is interest earned on loans and other earning assets
less interest paid on deposits and other borrowed funds. Earning assets are
categorized as federal funds sold, investment securities and
loans and leases. Interest-bearing liabilities are categorized as deposits,
federal funds purchased and securities sold under repurchase agreements, Federal
Home Loan Bank ("FHLB") advances, and notes payable.
Net interest income for the six months ended June 30, 1996 increased
$746,000 or 8.4% to $9.6 million from $8.8 million for the six months ended June
30, 1995. Net interest income was positively impacted by an increase of $35.9
million or 10.4% in average interest-earning assets to $380.1 million at June
30, 1996 from $344.2 million at June 30, 1995, and by an increase of .03% in
average yields on average interest-earning assets to 8.73% for the six months
ended June 30, 1996 from 8.70% for the six months ended June 30, 1995. Average
interest-earning assets were impacted by an 8.0% increase in average loans and
leases due to continued loan demand and a 20.3% increase in average taxable
investment securities resulting from increased deposit growth in excess of loan
demand. The positive impact to net interest income was partially offset by the
increase of $24.6 million or 8.4% in average interest-bearing liabilities to
$316.6 million at June 30, 1996 from $292.0 million at June 30, 1995 and an
increase in the rate paid on average interest-bearing liabilities of .23% to
4.38% for the six months ended June 30, 1996 from 4.15% for the six months ended
June 30, 1995. Average interest-bearing liabilities increased due primarily to
an increase of $39.0 million or 61.4% in money market deposit accounts resulting
from marketing a new money market product that the Company featured as its prime
interest-bearing deposit account. The money market deposit increase partially
resulted in a decrease of $15.5 million in the savings and time deposit accounts
between the periods. The Company also utilized increased FHLB advances of $7.5
million to fund a portfolio of fixed-rate residential real estate loans, while
notes payable were reduced by $4.1 million using proceeds from a stock offering.
The net interest spread declined 0.20% to 4.35% for the six months ended June
30, 1996 from 4.55% for the six months ended June 30, 1995 while net interest
margin declined to 5.08% from 5.17%. United expects its overall cost of funds to
increase after the Park Acquisition due to the additional interest expense
incurred on long-term debt.
Net interest income for 1995 increased $2.0 million or 12.2% to $18.4
million from $16.4 million for 1994. Net interest income was positively impacted
by an increase of $38.4 million or 12.0% in average interest-earning assets to
$357.8 million for the year ended December 31, 1995 from $319.4 for the year
ended December 31, 1994 and by an increase of .73% in average yields on average
interest-earning assets to 8.72% for 1995 compared to 7.99% for 1994. This
increase was due to a general rising rate environment during 1995. Average
interest-earning assets were impacted by a 9.3% increase in average loans and
leases and a 13.4% increase in average taxable investment securities. The
positive impact to net interest income was partially offset by the increase of
$30.9 million or 11.4% in average interest-bearing liabilities to $301.1 million
for the year ended December 31, 1995 from $270.2 million for the year ended
December 31, 1994 and an increase in the rate paid on average interest-bearing
liabilities of .88% to 4.27% for 1995 from 3.39% for 1994. Average
interest-bearing liabilities increased primarily due to an increase of $35.0
million or 86.4% in money market deposit accounts resulting from marketing a new
money market product that the Company featured as its prime interest-bearing
deposit account. This increase partially resulted in a decrease of $12.0 million
in the savings and time deposit accounts between the periods. The Company
utilized increased FHLB advances of $5.4 million to fund a portfolio of
fixed-rate residential real estate loans. Securities sold under repurchase
agreements increased $5.9 million or 25.1% due to commercial customer demand. As
a result of greater increases in the rates paid on average interest-bearing
liabilities than the increase in yields on average interest-earning assets, the
net interest spread was reduced .15% to 4.45% for 1995 from 4.60% for 1994. Net
interest margin was not impacted by the decrease in spread due to the net
increase in average interest-earning assets.
Net interest income for 1994 increased $1.5 million or 10.1% to $16.4
million from $14.9 for pro forma 1993. Net interest income was positively
impacted by an increase of $22.0 million or 7.4% in average interest-
20
<PAGE>
earning assets to $319.4 million for the year ended December 31, 1994 from
$297.4 million for the pro forma year ended December 31, 1993 and offset by a
decrease of .06% in average yields on average interest-earning assets to 7.99%
for 1994 from 8.05% for pro forma 1993. Average interest-earning assets were
impacted by a 13.3% increase in average loans and by a 7.4% decrease in average
taxable investment securities. The net positive impact to net interest income
was partially offset by the increase of $8.6 million or 3.3% increase in average
interest-bearing liabilities to $270.2 million at December 31, 1994 from $261.6
for the pro forma year ended December 31, 1993 and enhanced by a decrease in the
rate paid on average interest-bearing liabilities of .06% to 3.39% for 1994 from
3.45% for pro forma 1993. Average interest-bearing liabilities increased
primarily due to an increase of $11.0 million or 88.0% in securities sold under
repurchase agreements resulting from increased marketing of this product. Net
interest spread did not change from 1993 to 1994. Net interest margin increased
from 5.01% in 1993 to 5.12% in 1994 due to the net increase in average
interest-earning assets.
The following table presents the changes in net interest income by volume
and rate and the total thereof for the periods indicated. Changes in net
interest income due to both volume and rate have been included in changes due to
rate.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1996 VS. 1995 1995 VS. 1994
--------------------------------------- ---------------------------------------
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO CHANGE IN DUE TO CHANGE IN
--------------------------------------- ---------------------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Federal funds sold..................... $ (1) $ (36) $ (37) $ 246 $ 190 $ 436
Taxable investment securities.......... 458 38 496 517 589 1,106
Non-taxable investment securities...... 7 (3) 4 69 (7) 62
Loans and leases....................... 968 177 1,145 1,956 2,130 4,086
----------- ----- ----------- ----------- ----------- -----------
Total interest-earning assets........ $ 1,432 $ 176 $ 1,608 $ 2,788 $ 2,902 $ 5,690
----------- ----- ----------- ----------- ----------- -----------
----------- ----- ----------- ----------- ----------- -----------
INTEREST-BEARING LIABILITIES:
Deposits -- interest-bearing:
Interest-bearing demand deposits..... $ 3 $ (22) $ (19) $ (32) $ 7 $ (25)
Savings.............................. (84) (30) (114) (259) 7 (252)
Money market......................... 839 50 889 919 1,325 2,244
Time................................. (193) 252 59 (42) 984 942
----------- ----- ----------- ----------- ----------- -----------
Total interest-bearing deposits.... 565 250 815 586 2,323 2,909
Federal funds purchased and securities
sold under repurchase agreements...... (62) 32 (30) 210 402 612
FHLB advances.......................... 225 -- 225 312 17 329
Notes payable.......................... (149) 1 (148) (36) (125) (161)
----------- ----- ----------- ----------- ----------- -----------
Total interest-bearing liabilities... $ 579 $ 283 $ 862 $ 1,072 $ 2,617 $ 3,689
----------- ----- ----------- ----------- ----------- -----------
----------- ----- ----------- ----------- ----------- -----------
CHANGE IN NET INTEREST INCOME............ $ 853 $ (107) $ 746 $ 1,716 $ 285 $ 2,001
----------- ----- ----------- ----------- ----------- -----------
----------- ----- ----------- ----------- ----------- -----------
<CAPTION>
YEAR ENDED
DECEMBER 31,
1994 VS. 1993 (1)
---------------------------------------
INCREASE (DECREASE)
DUE TO CHANGE IN
---------------------------------------
VOLUME RATE TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST-EARNING ASSETS:
Federal funds sold..................... $ (62) $ 19 $ (43)
Taxable investment securities.......... (333) (307) (640)
Non-taxable investment securities...... 135 (75) 60
Loans and leases....................... 2,506 (297) 2,209
----------- ----- -----------
Total interest-earning assets........ $ 2,246 $ (660) $ 1,586
----------- ----- -----------
----------- ----- -----------
INTEREST-BEARING LIABILITIES:
Deposits -- interest-bearing:
Interest-bearing demand deposits..... $ 10 $ (84) $ (74)
Savings.............................. (30) (112) (142)
Money market......................... (152) 12 (140)
Time................................. 189 (257) (68)
----------- ----- -----------
Total interest-bearing deposits.... 17 (441) (424)
Federal funds purchased and securities
sold under repurchase agreements...... 334 130 464
FHLB advances.......................... 25 (2) 23
Notes payable.......................... (47) 108 61
----------- ----- -----------
Total interest-bearing liabilities... $ 329 $ (205) $ 124
----------- ----- -----------
----------- ----- -----------
CHANGE IN NET INTEREST INCOME............ $ 1,917 $ (455) $ 1,462
----------- ----- -----------
----------- ----- -----------
</TABLE>
- --------------------------
(1) Combines Signal and Goodhue.
21
<PAGE>
The following table presents, for the periods and as of the dates indicated,
information regarding United's average balance sheet. Ratio, yield and rate
information are based on average daily balances during the six months ended June
30, 1996 and 1995 and the years ended December 31, 1995, 1994 and 1993.
Non-accrual loans are included in the average balances for loans and leases,
net, for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------------------------------------------
1996 1995
------------------------------- -------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
--------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Federal funds sold........ $ 11,121 $ 294 5.33% $ 11,144 $ 331 5.99%
Taxable investment
securities............... 93,390 2,754 5.95% 77,635 2,258 5.87%
Non-taxable investment
securities(2)............ 8,306 213 5.17% 8,054 209 5.23%
Loans and leases(3)....... 267,237 13,190 9.95% 247,378 12,045 9.82%
--------- --------- --------- ---------
Total interest-earning
assets................. 380,054 16,451 8.73% 344,211 14,843 8.70%
Noninterest-earning
assets................... 42,417 41,226
--------- ---------
Total assets............ $ 422,471 $ 385,437
--------- ---------
--------- ---------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing
liabilities:
Deposits --
interest-bearing:
Interest bearing demand
deposits............... $ 33,640 $ 176 1.06% $ 33,201 195 1.18%
Savings................. 30,075 288 1.93% 37,990 402 2.13%
Money market............ 102,588 2,256 4.43% 63,560 1,367 4.34%
Time.................... 108,570 3,015 5.60% 116,168 2,956 5.13%
--------- --------- --------- ---------
Total interest-bearing
deposits............. 274,873 5,735 4.21% 250,919 4,920 3.95%
Federal funds purchased
and securities sold under
repurchase agreements.... 25,797 635 4.96% 28,457 665 4.71%
FHLB advances............. 12,000 362 6.08% 4,541 137 6.08%
Notes payable............. 3,941 143 7.32% 8,053 291 7.29%
--------- --------- --------- ---------
Total interest-bearing
liabilities............ 316,611 6,875 4.38% 291,970 6,013 4.15%
Noninterest-bearing
liabilities.............. 69,163 64,818
--------- ---------
Total liabilities....... 385,774 356,788
Stockholders' equity...... 36,697 28,649
--------- ---------
Total liabilities and
stockholders' equity... $ 422,471 $ 385,437
--------- ---------
--------- ---------
Net interest income....... $ 9,576 $ 8,830
Net interest spread....... 4.35% 4.55%
Net interest margin....... 5.08% 5.17%
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------
1995 1994 1993(1)
---------------------------- ---------------------------- ----------------------------
AVERAGE AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- -------- -------- -------- -------- -------- -------- --------
(PRO FORMA)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Federal funds sold........ $ 13,011 $ 761 5.85% $ 7,404 $ 325 4.39% $ 8,917 $ 368 4.13%
Taxable investment
securities............... 83,441 4,949 5.93% 73,555 3,843 5.22% 79,450 4,483 5.64%
Non-taxable investment
securities(2)............ 7,924 406 5.12% 6,593 344 5.22% 4,473 284 6.35%
Loans and leases(3)....... 253,398 25,090 9.90% 231,809 21,004 9.06% 204,553 18,795 9.19%
-------- -------- -------- -------- -------- --------
Total interest-earning
assets................. 357,774 31,206 8.72% 319,361 25,516 7.99% 297,393 23,930 8.05%
Noninterest-earning
assets................... 41,798 39,978 44,722
-------- -------- --------
Total assets............ $399,572 $359,339 $342,115
-------- -------- --------
-------- -------- --------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing
liabilities:
Deposits --
interest-bearing:
Interest bearing demand
deposits............... $ 32,679 $ 364 1.11% $ 35,636 $ 389 1.09% $ 34,895 $ 463 1.33%
Savings................. 34,441 818 2.38% 45,436 1,070 2.35% 46,603 1,212 2.60%
Money market............ 75,567 3,307 4.38% 40,538 1,063 2.62% 46,413 1,203 2.59%
Time.................... 113,905 5,949 5.22% 114,863 5,007 4.36% 110,746 5,075 4.58%
-------- -------- -------- -------- -------- --------
Total interest-bearing
deposits............. 256,592 10,438 4.07% 236,473 7,529 3.18% 238,657 7,953 3.33%
Federal funds purchased
and securities sold under
repurchase agreements.... 29,343 1,454 4.96% 23,487 842 3.58% 12,510 378 3.03%
FHLB advances............. 8,351 504 6.04% 3,000 175 5.83% 2,573 152 5.91%
Notes payable............. 6,794 452 6.65% 7,216 613 8.50% 7,893 552 6.99%
-------- -------- -------- -------- -------- --------
Total interest-bearing
liabilities............ 301,080 12,848 4.27% 270,176 9,159 3.39% 261,633 9,035 3.45%
Noninterest-bearing
liabilities.............. 67,354 62,778 54,901
-------- -------- --------
Total liabilities....... 368,434 332,954 316,534
Stockholders' equity...... 31,138 26,385 25,581
-------- -------- --------
Total liabilities and
stockholders' equity... $399,572 $359,339 $342,115
-------- -------- --------
-------- -------- --------
Net interest income....... $18,358 $16,357 $14,895
Net interest spread....... 4.45% 4.60% 4.60%
Net interest margin....... 5.13% 5.12% 5.01%
</TABLE>
- ----------------------------------
(1) Combines Signal and Goodhue.
(2) Yields are calculated using stated rates, not tax-equivalent rates.
(3) Includes loan fees $546,942 and $417,720 for the six months ended June 30,
1996 and 1995, respectively and $883,416, $806,104 and $807,639 for the
years ended December 31, 1995, 1994 and pro forma 1993, respectively.
22
<PAGE>
PROVISION FOR LOAN AND LEASE LOSSES
The provision for loan and lease losses was $95,000 for the six months ended
June 30, 1996, an increase of $75,000 over the provision for loan and lease
losses of $20,000 for the six months ended June 30, 1995. The provision for loan
and lease losses was $61,000 for the year ended December 31, 1995, a decrease of
$173,000 or 73.9% from the year ended December 31, 1994 amount. The provision
for loan and lease losses was $234,000 for the year ended December 31, 1994, a
decrease of $371,000 or 61.3% from the pro forma provision for loan and lease
losses of $605,000 for the year ended December 31, 1993. Annual fluctuations in
the provision for loan and lease losses result from management's regular
assessment of the adequacy of the allowance for loan and lease losses. See
"Allowance for Loan and Lease Losses" below. The amount of loan and lease loss
provision to be taken in future periods will depend on management's assessment
of the adequacy of the allowance for loan and lease losses in relation to the
entire loan portfolio.
NONINTEREST INCOME
The following table presents the components of noninterest income for the
periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
-------------------- ---------------------------------
1996 1995 1995 1994 1993 (1)
--------- --------- --------- --------- -----------
(PRO FORMA)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Service charges and other fees................... $ 1,612 $ 1,414 $ 2,923 $ 2,963 $ 3,097
Net investment securities gains (losses)......... -- (18) (32) 79 285
Earnings on cash surrender value life
insurance....................................... 198 194 377 462 385
Gain on sale of assets........................... 293 240 599 333 38
Interest on tax refunds.......................... 277 -- -- -- --
Other............................................ 10 108 52 -- 142
--------- --------- --------- --------- -----------
$ 2,390 $ 1,938 $ 3,919 $ 3,837 $ 3,947
--------- --------- --------- --------- -----------
--------- --------- --------- --------- -----------
</TABLE>
- ------------------------
(1) Combines Signal and Goodhue.
Noninterest income consists mainly of service charges on deposit accounts
and other service fees, earnings on cash surrender value of life insurance and
gain on sale of assets. Noninterest income was $2.4 million for the six months
ended June 30, 1996, an increase of $452,000 or 23.3% over noninterest income of
$1.9 million for the six months ended June 30, 1995. Approximately $200,000 of
the increase was primarily due to increased service charges and overdraft fees.
The remaining increase was primarily due to the interest received on the tax
refunds resulting from the favorable determination of a tax lawsuit for the
years 1979 through 1983. Noninterest income was $3.9 million for the year ended
December 31, 1995, an increase of $82,000 or 2.1% over the year ended December
31, 1994. This increase was primarily due to an increase of $266,000 in gain on
sales of assets offset by a reduction of $111,000 in net investment securities
gains (losses) from a gain of $79,000 for the year ended December 31, 1994 to a
loss of $32,000 for the year ended December 31, 1995 and a decrease of $85,000
in earnings on cash surrender value of life insurance. Noninterest income was
$3.8 million for the year ended December 31, 1994, a decrease of $110,000 or
2.8% from pro forma noninterest income of $3.9 million for the year ended
December 31, 1993. This decrease was due primarily to the reduction in net
investment securities gains from $285,000 for the pro forma year ended December
31, 1993 to $79,000 for the year ended December 31, 1994, and a reduction of
$134,000 in service charges and other fees, and offset by an increase of
$295,000 in gain on sale of assets.
23
<PAGE>
NONINTEREST EXPENSE
The following table presents the components of noninterest expense for the
periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
-------------------- ---------------------------------
1996 1995 1995 1994 1993 (1)
--------- --------- --------- --------- -----------
(PRO FORMA)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits................. $ 4,965 $ 4,519 $ 9,292 $ 8,510 $ 7,642
Occupancy...................................... 445 485 1,208 1,060 958
Depreciation................................... 755 588 1,253 1,216 899
Amortization of intangibles.................... 378 412 824 562 562
FDIC assessment................................ 3 339 351 644 690
Data processing................................ 374 279 497 543 488
Professional fees.............................. 190 124 297 468 865
Other real estate expenses..................... 6 9 9 507 414
Other.......................................... 1,440 1,453 2,800 2,621 2,477
--------- --------- --------- --------- -----------
$ 8,556 $ 8,208 $ 16,531 $ 16,131 $ 14,995
--------- --------- --------- --------- -----------
--------- --------- --------- --------- -----------
</TABLE>
- ------------------------
(1) Combines Signal and Goodhue.
Noninterest expense was $8.6 million for the six months ended June 30, 1996,
an increase of $348,000 or 4.2% over noninterest expense of $8.2 million for the
six months ended June 30, 1995. Noninterest expense was $16.5 million for the
year ended December 31, 1995, an increase of $400,000 or 2.5% over noninterest
expense of $16.1 million for the year ended December 31,1994. Noninterest
expense was $16.1 million for the year ended December 31,1994, an increase of
$1.1 million or 7.3% over noninterest expense of $15.0 million for the pro forma
year ended December 31, 1993.
Salaries and employee benefits expense was $5.0 million for the six months
ended June 30, 1996, an increase of $446,000 or 9.9% over salaries and employee
benefits expense of $4.5 million for the six months ended June 30, 1995. This
increase was due primarily to increased staffing and scheduled salary
adjustments as well as an increased bonus accrual.
Salaries and employee benefits expense was $9.3 million for the year ended
December 31, 1995, an increase of $782,000 or 9.2% over salaries and employee
benefits expense of $8.5 million for the year ended December 31, 1994. This
increase was due to increased staffing and scheduled salary adjustments.
Salaries and employee benefits expense was $8.5 million for the year ended
December 31, 1994, an increase of $868,000 or 11.4% over salaries and employee
benefits expense of $7.6 million for the pro forma year ended December 31, 1993.
This increase was due primarily to the installation of a formula based incentive
plan and scheduled salary adjustments.
Occupancy expense was $445,000 for the six months ended June 30, 1996, a
decrease of $40,000 or 8.2% from occupancy expense of $485,000 for the six
months ended June 30, 1995. This decrease was due to the receipt of property tax
refunds for certain property tax valuations that had been contested. Occupancy
expense was $1.2 million for the year ended December 31, 1995, an increase of
$148,000 or 13.5% over occupancy expense of $1.1 million for the year ended
December 31, 1994. This increase was due to additional space leased in 1995 to
house the operations of the data processing subsidiary, Unitech. Occupancy
expense was $1.1 million for the year ended December 31, 1994, an increase of
$102,000 or 10.2% over occupancy expense of $1.0 million for the pro forma year
ended December 31, 1993. This increase was due to additional space leased in
1994 to house the operations of the holding company.
Depreciation expense was $755,000 for the six months ended June 30, 1996, an
increase of $167,000 or 28.4% over depreciation expense of $588,000 for the six
months ended June 30, 1995. This increase was due to the acceleration of the
amortization of leasehold improvements resulting from terminating a lease for
24
<PAGE>
Signal Bank's operations center in the Signal Hills Center effective January 31,
1997. Depreciation expense was $1.3 million for the year ended December 31,
1995, an increase of $37,000 or 3.1% over depreciation expense of $1.2 million
for the year ended December 31, 1994. This increase was due to the amortization
of leasehold improvements relating to additional space leased and depreciation
of equipment purchased. Depreciation expense was $1.2 million for the year ended
December 31, 1994, an increase of $317,000 or 35.3% over depreciation expense of
$899,000 for the pro forma year ended December 31, 1993. This increase was due
primarily to additional computer equipment purchased in 1994 to process data for
both Banks.
Historically, intangible amortization has related to goodwill and other
intangibles resulting from the merger of Signal with Goodhue. Amortization of
intangibles expense was $378,000 for the six months ended June 30, 1996, a
decrease of $34,000 or 8.3% from amortization of intangibles expense of $412,000
for the six months ended June 30, 1995. Amortization of intangibles expense was
$824,000 for the year ended December 31, 1995, an increase of $262,000 or 46.6%
over amortization of intangibles expense of $562,000 for the year ended December
31, 1994. The fluctuation between the six month and twelve month periods is due
to the difference in amortization periods assigned to various assets and
liabilities which were adjusted to fair market value at the time of the merger.
Amortization of intangibles expense was $562,000 for the year ended December 31,
1994 equal to the amortization of intangibles expense of $562,000 for the pro
forma year ended December 31, 1993. Due to purchase accounting and resulting
goodwill, United expects amortization of intangible expense to increase after
the Park Acquisition by approximately $1.4 million annually.
FDIC assessment expense was $3,000 for the six months ended June 30, 1996, a
decrease of $336,000 or 99.1% from FDIC assessment expense of $339,000 for the
six months ended June 30, 1995. This reduction was due to the FDIC lowering the
assessment rate to $750 per Bank per quarter from 4 cents per $100 of deposits.
FDIC assessment expense was $351,000 for the year ended December 31, 1995, a
decrease of $293,000 or 45.5% from FDIC assessment expense of $644,000 for the
year ended December 31, 1994. This decrease was due to the FDIC lowering the
assessment rate from 23 cents per $100 of deposits to 4 cents per $100 of
deposits. FDIC assessment expense was $644,000 for the year ended December 31,
1994, a decrease of $46,000 or 6.7% from FDIC assessment expense of $690,000 for
the pro forma year ended December 31, 1993. This decrease was due to a reduction
in the FDIC assessment rate from 26 cents per $100 of deposits to 23 cents per
$100 of deposits in 1994. The increase in the FDIC assessment rate resulting
from the merger of the Bank Insurance Fund and the Savings Association Insurance
Fund in the amount of 1.29 cents per $100 of deposits for each of the years in
the 3-year period commencing in 1997, will not have a material impact on
United's financial results.
Professional fees expense was $190,000 for the six months ended June 30,
1996, an increase of $66,000 or 53.2% over professional fees expense of $124,000
for the six months ended June 30, 1995. This increase is primarily due to costs
associated with the Park Acquisition. Professional fees expense was $297,000 for
the year ended December 31, 1995, a decrease of $171,000 or 36.5% from
professional fees expense of $468,000 for the year ended December 31, 1994. This
decrease was primarily due to the decrease in nonrecurring merger expenses
associated with the Goodhue merger. Professional fees expense was $468,000 for
the year ended December 31, 1994, a decrease of $397,000 or 45.9% from
professional fees expense of $865,000 for the pro forma year ended December 31,
1993. This decrease was due to the decreased use of outside consultants in
Goodhue Bank and the decrease in nonrecurring merger related expenses associated
with the Goodhue merger.
Other real estate expenses are immaterial for the six months ended June 30,
1996 and 1995 and the year ended December 31, 1995 due to little activity with
respect to other real estate owned. Other real estate expenses for the years
ended December 31, 1994 and pro forma 1993 reflect loss on disposal of the other
real estate owned and associated expenses.
INCOME TAX EXPENSE
Income tax expense was $1.0 million for the six months ended June 30, 1996,
an increase of $137,000 or 15.3% over income tax expense of $897,000 for the six
months ended June 30, 1995. The effective tax rate
25
<PAGE>
decreased from 35.3% for the six months ended June 30, 1995 to 31.2% for the six
months ended June 30, 1996 primarily due to the favorable determination of a tax
lawsuit for the years 1979 through 1983. Income tax expense was $2.1 million for
the year ended December 31, 1995, an increase of $660,000 or 47.3% over income
tax expense of $1.4 million for the year ended December 31, 1994. The effective
tax rate decreased from 36.5% for the year ended December 31, 1994 to 36.2% for
the year ended December 31, 1995. Income tax expense was $1.4 million for the
year ended December 31, 1994, an increase of $258,000 or 22.7% over income tax
expense of $1.1 million for the pro forma year ended December 31, 1993. The
effective tax rate increased from the 1993 pro forma ratio of 35.1% to 36.5% for
the year ended December 31, 1994. United expects its effective tax rate to
increase after the Park Acquisition due primarily to the nondeductibility of the
goodwill amortization. The effective tax rate for the pro forma December 31,
1995 statement of income was 44.6%. The effective tax rate for the pro forma
June 30, 1996 statement of income was 38.9%. This decrease was due to the
favorable determination of a tax lawsuit for the years 1979 through 1983 and
resulting non-taxable income.
FINANCIAL CONDITION
LOANS AND LEASES
United's lending activities are presently guided by the general loan
policies established by the subsidiaries' Boards of Directors. United is
establishing a system-wide credit policy to assist local management and to
maintain system-wide credit standards. United has continued its strategy to seek
out small business and leasing opportunities to expand its loan portfolio. Total
loans were $276.0 million at June 30, 1996, an increase of $10.1 million or 3.8%
over the December 31, 1995 amount. Total loans were $265.9 million at December
31, 1995, an increase of $18.9 million or 7.7% over the December 31, 1994
amount. Total loans were $247.0 million at December 31, 1994, an increase of
$27.0 million or 12.3% over the pro forma December 31, 1993 amount of $220.0
million.
The following table presents a summary of United's loan portfolio as of June
30, 1996 and December 31, 1995, 1994, pro forma 1993 and historical 1992 and
1991:
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------
AMOUNT PERCENT
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Commercial and
agricultural............ $162,438 58.9%
Residential real
estate.................. 66,038 23.9
Consumer................. 35,940 13.0
Leases................... 11,539 4.2
-------- --------
Totals loans and
leases................ $275,955 100.0%
-------- --------
-------- --------
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------------------------------------
1995 1994 1993 (1) 1992 (2) 1991 (2)
------------------ ------------------ ------------------ ------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(PRO FORMA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and
agricultural............ $149,859 56.3% $143,227 58.0% $112,790 51.3% $ 67,831 72.2% $ 57,997 67.9%
Residential real
estate.................. 69,577 26.2 58,828 23.8 66,834 30.4 13,539 14.4 14,373 16.8
Consumer................. 35,897 13.5 35,655 14.4 33,920 15.4 12,581 13.4 13,085 15.3
Leases................... 10,572 4.0 9,271 3.8 6,498 2.9 -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Totals loans and
leases................ $265,905 100.0% $246,981 100.0% $220,042 100.0% $ 93,951 100.0% $ 85,455 100.0%
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
</TABLE>
- ----------------------------------
(1) Combines Signal and Goodhue
(2) Includes the financial information of Signal only
The loan mix in United's portfolio indicates the trend toward commercial and
agricultural loans. This trend has resulted from a focus on growing the
commercial loan portfolio. United expects this trend to continue with the
addition of Park Bank.
COMMERCIAL AND AGRICULTURAL LOANS
Commercial and agricultural loans principally include loans to
manufacturing, wholesale, retail and agricultural businesses, including loans
secured by commercial real estate. Commercial loans are made on the financial
strength and repayment ability of the borrower as well as the collateral
securing the loans. As of June 30, 1996, commercial loans represented the
largest class of loans at $162.4 million or 58.9% of total loans up from $149.9
million or 56.3% of total loans at December 31, 1995.
26
<PAGE>
RESIDENTIAL REAL ESTATE LOANS
Residential real estate loans principally include residential real estate
first mortgages and home equity lines of credit. As of June 30, 1996,
residential real estate loans were $66.0 million or 23.9% of total loans down
from $69.6 million or 26.2% of total loans at December 31, 1995.
CONSUMER
Consumer loans include automobile and home improvement loans, personal lines
of credit and overdrafts. As of June 30, 1996, consumer loans were $35.9 million
or 13.0% of total loans which was little changed from $35.9 million or 13.5% of
total loans at December 31, 1995.
LEASES
Leases principally include leases on equipment to manufacturing, retail and
wholesale businesses. As of June 30, 1996, leases were $11.5 million or 4.2% of
total loans up from $10.6 million or 4.0% of total loans at December 31, 1995.
MATURITY DISTRIBUTION AND INTEREST RATE SENSITIVITY OF LOANS
The following table presents a distribution of the maturity of loans and,
for those loans due after one year, the sensitivity of loans to interest rate
changes as of June 30, 1996. The amounts exclude residential real estate loans,
consumer loans and leases.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996, MATURING IN
------------------------------------------------
ONE YEAR ONE TO OVER
OR LESS FIVE YEARS FIVE YEARS TOTAL
---------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial and agricultural....................................... $ 128,277 $ 27,233 $ 6,928 $ 162,438
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
</TABLE>
<TABLE>
<CAPTION>
INTEREST SENSITIVITY
--------------------------
FIXED RATE VARIABLE RATE
----------- -------------
(IN THOUSANDS)
<S> <C> <C>
Commercial and agricultural loans due
after one year with:.................................................................. $ 25,996 $ 8,165
----------- ------
----------- ------
</TABLE>
27
<PAGE>
NONPERFORMING ASSETS
United reports all loans which are 90 days or more past due as nonaccrual
loans, excluding those loans which in management's opinion are well
collateralized or exhibit other characteristics which make them fully
collectible. United does not return a loan to accrual status until it is brought
current with respect to both principal and interest and future principal
payments are no longer in doubt. When a loan is placed on nonaccrual status, any
previously accrued and uncollected interest is reversed. United adopted FASB
Statement No. 114, Accounting by Creditors for Impairment of a Loan on January
1, 1995. United defines a loan as impaired when it is probable that United will
be unable to collect all principal and interest payments due in accordance with
the terms of the loan agreement. The effect of adopting Statement No. 114 was
not significant to United.
The following table presents the nonperforming assets as of June 30, 1996
and December 31, 1995, 1994, pro forma 1993, and historical 1992 and 1991:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -----------------------------------------------------
1996 1995 1994 1993(1) 1992(2) 1991(2)
----------- --------- --------- --------- --------- ---------
(PRO FORMA)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Nonaccrual loans......................................... $ 721 $ 403 $ 459 $ 722 $ 61 $ 1,482
Accrual loans which are past due 90 days or more as to
principal or interest................................... 338 249 104 573 102 364
Troubled debt restructurings............................. 134 100 111 117 264 479
----------- --------- --------- --------- --------- ---------
Total nonperforming loans and leases................... 1,193 752 674 1,412 427 2,325
Other real estate owned.................................. -- -- 355 1,182 1,223 810
----------- --------- --------- --------- --------- ---------
Total nonperforming assets............................... $ 1,193 $ 752 $ 1,029 $ 2,594 $ 1,650 $ 3,135
----------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- ---------
Total nonperforming loans and leases/total loans and
leases.................................................. .43% .28% .27% .64% .45% 2.72%
Total nonperforming assets/total assets.................. .28% .18% .27% .75% 1.06% 2.06%
</TABLE>
- ------------------------
(1) Combines Signal and Goodhue
(2) Includes the financial information of Signal only
Nonperforming loans as a percentage of total loans and leases outstanding
increased as of June 30, 1996 to .43% compared with .28% and .27% as of December
31, 1995 and 1994, respectively. This increase was primarily due to an increase
in nonaccrual loans of $318,000 as of June 30, 1996. This increase was largely
the result of one new loan of $207,000 being placed on nonaccural pending the
sale of a business which occurred in August, 1996. The substantial majority of
the increase in nonperforming loans and leases in 1993 relates to the pro forma
inclusion of the Goodhue Bank. The overall improvement over the periods
presented is largely due to the Banks' increased monitoring of the loan
portfolios and collection efforts as well as the strengthening of the economy.
The effect of the nonaccrual of interest on these nonperforming loans and leases
was not significant to the results of operations during the periods. The
combined nonperforming loans of United and Park Bank approximate $4.0 million as
of June 30, 1996. The pro forma total nonperforming loans and leases/total loans
and leases would be 1.01% and the pro forma total nonperforming assets/total
assets would be .61% as of June 30, 1996 on a pro forma basis combining the
nonperforming loans and assets of United and Park Bank.
28
<PAGE>
ALLOWANCE FOR LOAN AND LEASE LOSSES
The current level of the allowance for loan and lease losses is a result of
management's assessment of the risks within the portfolio based on the
information revealed in the credit review processes. United utilizes a
risk-rating system on all loans and a quarterly review and reporting process
which results in the calculation of the guideline reserves based on the risk
within the portfolio. This assessment of risk takes into account the composition
of the loan portfolio, previous loan loss experience, current economic
conditions and other factors that in management's opinion deserve special
recognition.
The following table presents a summary of United's allowance for loan and
lease losses for the periods shown:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------------
1996 1995 1995 1994 1993 (1) 1992 (2) 1991 (2)
--------- --------- --------- --------- ----------- ----------- -----------
(PRO FORMA)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, beginning of period.... $ 2,899 $ 2,856 $ 2,856 $ 2,725 $ 2,766 $ 2,193 $ 1,195
Charge-offs:
Commercial and agricultural... 146 31 167 176 810 1,578 943
Residential real estate....... -- -- -- 15 25 -- 6
Consumer...................... 142 35 135 196 109 83 162
Leases........................ 7 24 35 61 26 -- --
--------- --------- --------- --------- ----------- ----------- -----------
Total charge-offs........... 295 90 337 448 970 1,661 1,111
--------- --------- --------- --------- ----------- ----------- -----------
Recoveries:
Commercial and agricultural... 202 88 214 212 215 342 68
Residential real estate....... -- -- 1 5 5 32 12
Consumer...................... 89 36 77 127 104 41 29
Leases........................ -- 18 27 1 -- -- --
--------- --------- --------- --------- ----------- ----------- -----------
Total recoveries............ 291 142 319 345 324 415 109
--------- --------- --------- --------- ----------- ----------- -----------
Net charge-offs (recoveries).... 4 (52) 18 103 646 1,246 1,002
Provision for loan and lease
losses......................... 95 20 61 234 605 488 2,000
--------- --------- --------- --------- ----------- ----------- -----------
Balance, end of period.......... $ 2,990 $ 2,928 $ 2,899 $ 2,856 $ 2,725 $ 1,435 $ 2,193
--------- --------- --------- --------- ----------- ----------- -----------
--------- --------- --------- --------- ----------- ----------- -----------
Net charge-offs
(recoveries)/average loans
outstanding.................... 0.00% (0.02%) 0.01% 0.04% 0.32 % 1.42 % 1.12 %
Allowance for loan and lease
losses/total loans and
leases......................... 1.08% 1.14% 1.09% 1.16% 1.24 % 1.53 % 2.57 %
Nonperforming loans and
leases/total loans and
leases......................... 0.43% 0.34% 0.28% 0.27% 0.64 % 0.45 % 2.72 %
Allowance for loan and lease
losses/ nonperforming loans and
leases......................... 250.63% 339.28% 385.51% 423.74% 192.99 % 336.07 % 94.32 %
</TABLE>
- ------------------------------
(1) Combines Signal and Goodhue.
(2) Includes the financial information of Signal only.
29
<PAGE>
ALLOCATED ALLOWANCE FOR LOAN AND LEASE LOSSES
While the allowance for loan and lease losses is available to absorb credit
losses in the entire portfolio, the table below presents an estimate of the
allowance for loan and lease losses allocated by loan type. The unallocated
portion of the allowance for loan or lease losses represents allowance available
for the entire portfolio as well as reserves identified for qualitative factors,
unfunded commitments, and letters of credit. In 1993, management changed the
methodology of allocating the allowance for loan and lease losses. Prior to
1993, the allowance was allocated primarily based on the percentage of loan type
to total loans applied to the calculated allowance for loan and lease losses. In
1993, management enhanced the analysis of the adequacy of the allowance for loan
and lease losses by allocating specific reserves to specific criticized loans,
an allocation to the remaining criticized loans, an allocation based on
historical loss experience and a specific allocation to the lease portfolio.
This change in allocation reflects the decrease in allocation to residential
real estate loans and the increase in the unallocated portion of the allowance.
Although the residential real estate loans approximate twenty-five percent of
the loan portfolio, actual net charge-offs have been minimal, hence a minimal
allocation to the residential real estate portfolio. A significant portion of
the allowance for loan and lease losses is allocated to the commercial and
agriculture loan portfolios due to their higher degree of risk as well as their
historical loan loss experience.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------------------------------
JUNE 30, 1996 1995 1994 1993 (1) 1992 (2) 1991 (2)
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
PERCENT PERCENT PERCENT PERCENT PERCENT PERCENT
OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS
TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ --------
(PRO FORMA)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and
agricultural... $1,527 58.9% $1,718 56.3% $1,786 58.0% $1,263 51.3% $ 997 72.2% $1,650 67.9%
Residential
real estate... 8 23.9 14 26.2 15 23.8 272 30.4 236 14.4 239 16.8
Consumer....... 225 13.0 212 13.5 185 14.4 333 15.4 191 13.4 275 15.3
Leases......... 210 4.2 230 4.0 190 3.8 199 2.9 -- -- -- --
Unallocated.... 1,020 -- 725 -- 680 -- 658 -- 11 -- 29 --
------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ --------
Total........ $2,990 100.0% $2,899 100.0% $2,856 100.0% $2,725 100.0% $1,435 100.0% $2,193 100.0%
------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ --------
------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ --------
</TABLE>
- ------------------------------
(1) Combines Signal and Goodhue.
(2) Includes the financial information of Signal only.
30
<PAGE>
INVESTMENT SECURITIES
United's investment portfolio is managed to meet United's liquidity needs
while maximizing investment income. Additionally, management augments the
quality of the loan portfolio by maintaining a high quality investment portfolio
oriented toward U.S. Treasury securities and U.S. government agency securities.
The portfolio also provides the opportunity to structure maturities and
repricing time tables in a flexible manner and to meet applicable requirements
for pledging securities in connection with deposits of states and political
subdivisions and securities sold under repurchase agreements. The portfolio is
comprised of U.S. Treasury securities, U.S. government agency instruments,
mortgage-backed securities, obligations of states and political subdivisions and
a modest amount of equity securities including Federal Reserve Stock and FHLB
stock. Federal funds sold are additional investments which are not classified as
investment securities. All investment securities are classified as available for
sale and recorded at fair value. Unrealized gains or losses, net of the deferred
tax effect, are reported as increases or decreases in stockholders' equity.
The following table presents a summary of United's investment portfolio as
of June 30, 1996 and December 31, 1995, 1994 and pro forma 1993:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------------
JUNE 30, 1996 1995 1994 1993 (1)
---------------------- ---------------------- ------------------------ ------------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
--------- ----------- --------- ----------- ----------- ----------- ----------- -----------
(PRO FORMA)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S.
government agencies......... $ 59,255 56.7% $ 60,135 59.0% $ 49,122 58.9% $ 40,397 48.9%
Obligations of states and
political subdivisions...... 10,912 10.4 7,757 7.6 8,023 9.6 5,490 6.7
Mortgage-backed securities... 32,281 30.9 31,956 31.4 23,796 28.5 30,682 37.1
Equity securities............ 2,075 2.0 1,989 2.0 2,493 3.0 6,041 7.3
--------- ----- --------- ----- ----------- ----- ----------- -----
Total investment
securities................ $ 104,523 100.0% $ 101,837 100.0% $ 83,434 100.0% $ 82,610 100.0%
--------- ----- --------- ----- ----------- ----- ----------- -----
--------- ----- --------- ----- ----------- ----- ----------- -----
</TABLE>
- ------------------------------
(1) Combines Signal and Goodhue.
Investment securities were $104.5 million at June 30, 1996, an increase of
$2.7 million or 2.7% over the December 31, 1995 amount. During 1996, management
placed greater emphasis on the purchase of nontaxable municipal securities due
to the favorable tax treatment of these securities, making their tax-equivalent
yields more attractive than the yield on taxable U.S. government securities.
Investment securities were $101.8 million at December 31, 1995, an increase of
$18.4 million or 22.1% over the December 31, 1994 amount. During 1995,
management was faced with excess deposits to invest over loan demand. Management
invested amounts in U.S. government securities necessary to maintain sufficient
pledgeable securities for the securities sold under repurchase agreements and
invested the remaining funds into mortgage-backed securities to increase yield.
Investment securities were $83.4 million at December 31, 1994, an increase of
$824,000 or 1.0% over the pro forma December 31, 1993 amount of $82.6 million.
During 1994, management altered the mix of the investment portfolio, decreasing
the mortgage-backed securities portfolio and increasing the U.S. government
securities portfolio to achieve the desired asset/liability structure. The
investment portfolio as a percent of total assets has remained fairly stable at
approximately 24%, except for 1994 when it fell to approximately 22% due to high
loan demand.
31
<PAGE>
MATURITY OF DEBT INVESTMENT SECURITIES
As of June 30, 1996, debt investment securities had the following maturity
and yield characteristics:
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996 MATURING IN
-------------------------------------------------------------------------------------------------------
OVER ONE YEAR OVER 5 YEARS
ONE YEAR OR LESS THROUGH 5 YEARS THROUGH 10 YEARS OVER 10 YEARS TOTAL
------------------- ------------------- ------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
-------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S.
government agencies........ $22,437 5.03% $35,789 6.65% $ 1,029 8.00% $ -- -- % $ 59,255 6.06%
Obligations of states and
political subdivisions
(1)........................ 551 7.48 1,881 7.60 6,675 7.63 1,805 7.89 10,912 7.66
Mortgage-backed securities
(2)........................ -- -- -- -- -- -- -- -- 32,281 6.20
Equity securities (2)....... -- -- -- -- -- -- -- -- 2,075 --
-------- --- -------- --- -------- --- -------- --- -------- ---
Total Investment
Securities............... $22,988 5.10% $37,670 6.69% $ 7,704 7.68% $ 1,805 7.89% $104,523 6.28%
-------- --- -------- --- -------- --- -------- --- -------- ---
-------- --- -------- --- -------- --- -------- --- -------- ---
</TABLE>
- ------------------------------
(1) Yields are presented on a tax-equivalent basis to reflect the tax-exempt
nature of these securities. The incremental tax rate applied is 34%.
(2) Anticipated maturities on mortgage-backed securities are not readily
determinable since they may be prepaid without penalty and equity securities
do not have stated maturity dates.
DEPOSITS
United emphasizes developing relationships with individuals and business
customers in order to increase its core deposit base. United has numerous
deposit products, including checking accounts, money market accounts, savings
accounts and certificates of deposit, designed to meet the individual needs of
its customers. The following table sets forth the distribution of United's
deposits by type as of June 30, 1996 and December 31, 1995, 1994 and pro forma
1993:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------
JUNE 30, 1996 1995 1994 1993 (1)
---------------------- ---------------------- ---------------------- ----------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
--------- ----------- --------- ----------- --------- ----------- --------- -----------
(PRO FORMA)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest-bearing
demand..................... $ 65,234 19.2% $ 70,872 20.8% $ 69,261 22.1% $ 61,962 21.3%
Interest-bearing demand..... 34,030 10.0 34,032 10.0 35,499 11.3 35,854 12.3
Money market accounts....... 105,997 31.2 80,034 23.5 47,109 15.1 39,408 13.5
Savings deposits............ 27,459 8.1 47,735 14.0 42,956 13.7 50,205 17.2
Time certificates of
deposit:
Less than $100,000........ 93,050 27.3 93,960 27.6 100,321 32.1 89,893 30.8
Over $100,000............. 14,455 4.2 14,090 4.1 17,801 5.7 14,268 4.9
--------- ----- --------- ----- --------- ----- --------- -----
$ 340,225 100.0% $ 340,723 100.0% $ 312,947 100.0% $ 291,590 100.0%
--------- ----- --------- ----- --------- ----- --------- -----
--------- ----- --------- ----- --------- ----- --------- -----
</TABLE>
- ------------------------------
(1) Combines Signal and Goodhue.
Total deposits were $340.2 million as of June 30, 1996, a decrease of
$498,000 or .1% from the December 31, 1995 amount. This decrease is normal and
seasonal. Deposits were $340.7 million as of December 31, 1995, an increase of
$27.8 million or 8.9% over the December 31, 1994 amount. Deposits were $312.9
million as of December 31, 1994, an increase of $21.3 million or 7.3% over the
December 31, 1993 pro forma amount of $291.6 million. Money market accounts have
increased due to the Banks' introduction of a new money market account product,
which has caused some customers to move their deposits from savings and time
deposit accounts to the new money market account.
32
<PAGE>
The following table presents a maturity distribution of time certificates of
deposit of $100,000 or more at June 30, 1996:
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------
(IN THOUSANDS)
<S> <C>
Time Certificates of Deposits of $100,000 or more
Three months or less................................................ $ 2,072
Over three months to six months..................................... 3,047
Over six months to twelve months.................................... 1,341
Over twelve months.................................................. 7,995
-------
Total............................................................. $ 14,455
-------
-------
</TABLE>
SHORT-TERM BORROWINGS
Borrowings with original maturities of one year or less are classified as
short-term. The following table presents a summary of United's short-term
borrowings for the six months ended June 30, 1996 and the years ended December
31, 1995, 1994 and pro forma 1993:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ---------------------------------
1996 1995 1994 1993 (1)
--------- --------- --------- -----------
(PRO FORMA)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Securities sold under repurchase agreements
outstanding at period end.................. $ 24,308 $ 23,173 $ 27,747 $ 15,321
Weighted average rate at period end......... 4.87% 5.17% 4.22% 2.63%
Daily average outstanding for the period.... $ 24,482 $ 29,343 $ 22,854 $ 11,827
Weighted average rate for the period........ 4.97% 4.96% 3.56% 3.01%
Highest outstanding at any month end........ $ 28,324 $ 34,268 $ 31,343 $ 18,809
</TABLE>
- ------------------------
(1) Combines Signal and Goodhue.
NOTES PAYABLE AND OTHER BORROWINGS
Notes payable and other borrowings consist primarily of a term note payable
to a bank due January 3, 1999 with annual installments of $500,000 and interest
at LIBOR plus 1.80% (6.96% at June 30, 1996) and four advances from the Federal
Home Loan Bank of Des Moines due between May 12, 1997 and June 5, 1998 with
interest rates between 5.67% and 6.61%. The following table presents a summary
of United's notes payable and other borrowings as of June 30, 1996 and December
31, 1995, 1994 and pro forma 1993:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ---------------------------------
1996 1995 1994 1993 (1)
--------- --------- --------- -----------
(PRO FORMA)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Line of credit to bank........................ $ 425 $ -- $ 500 $ --
Term note payable to bank..................... 3,150 3,400 8,550 7,182
FHLB advances................................. 12,000 12,000 3,000 3,000
Unsecured term notes payable to certain
individuals.................................. 371 362 362 367
Note payable to Minnesota Department of
Agriculture.................................. 151 -- -- --
--------- --------- --------- -----------
$ 16,097 $ 15,762 $ 12,412 $ 10,549
--------- --------- --------- -----------
--------- --------- --------- -----------
</TABLE>
- ------------------------
(1) Combines Signal and Goodhue.
The advances from the FHLB were obtained to match fund certain pools of
fixed rate residential mortgage loans held in United's portfolio, and to provide
asset/liability management tools to the affiliate Banks. See "Asset/Liability
Management."
33
<PAGE>
Principal reduction on the term note payable to bank has been accelerated
due to the proceeds of two stock offerings in 1994 and 1995. The term note
payable is with Firstar. United intends to refinance this note with Firstar at a
reduced rate, at the same time financing is obtained from Firstar in connection
with the Park Acquisition. United will incur additional indebtedness of
approximately $24 million to finance the Park Acquisition. See "Acquisition of
Park."
Advances on the line of credit and the unsecured term notes payable to
certain individuals were primarily obtained to fund the working capital of CCC.
CAPITAL MANAGEMENT
Stockholders' equity as of June 30, 1996 increased $7.5 million or 24.2% to
$38.5 million from $31.0 million as of June 30, 1995. This increase was due to a
$3.7 million common stock offering occurring in the second half of 1995, the
retention of current period earnings and the net change in unrealized gains on
securities available for sale.
Stockholders' equity as of December 31, 1995 increased $9.5 million or 34.5%
to $37.0 million from $27.5 million as of December 31, 1994. This increase was
due to the retention of current year earnings, a $3.7 million common stock
offering and the net change in unrealized gains on securities available for
sale.
Stockholders' equity as of December 31, 1994 increased $780,000 or 2.9% to
$27.5 million from $26.7 million as of pro forma December 31, 1993. This
increase was due to the retention of current year earnings offset by the net
change in unrealized loss on securities available for sale.
Risk-based capital guidelines established by regulatory agencies set minimum
capital standards based on the risk associated with a financial institution's
assets. See "Supervision and Regulation -- Regulatory Capital Requirements." The
primary component of such capital standards is Tier 1 capital which is defined
as stockholders' equity less intangible assets. United has increased its Tier 1
capital since its merger with Goodhue through earnings and two common stock
offerings totaling $8.1 million. Below is a comparison of United's June 30, 1996
risk-based capital ratios on an historical basis and on a pro forma basis giving
effect to the Park Acquisition and the related equity and debt financing with
the minimum requirements for well capitalized and adequately capitalized banks,
as defined by the federal regulatory agencies' Prompt Corrective Action Rules:
<TABLE>
<CAPTION>
MINIMUM REQUIREMENTS
JUNE 30, 1996 ------------------------------
---------------------------- WELL ADEQUATELY
CAPITAL CATEGORY ACTUAL PRO FORMA CAPITALIZED CAPITALIZED
- ------------------------------------------- ----------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Tier 1 risk-based capital.................. 13.6% 7.0% 6.0% 4.0%
Total risk-based capital................... 14.7% 8.4% 10.0% 8.0%
Leverage ratio............................. 8.3% 4.8% 5.0% 4.0%
</TABLE>
Although substantially reduced from historical levels due to additional debt
and goodwill incurred in connection with the Park Acquisition, Tier 1 risk-based
capital and leverage ratios of United immediately following the Park Acquisition
are anticipated to be above pro forma June 30, 1996 levels and at or above "well
capitalized" minimums, while United's total risk-based capital ratio is
anticipated to be above the "adequately capitalized" minimum. As a result,
United would be deemed "adequately capitalized" for purposes of federal banking
regulations.
34
<PAGE>
ASSET/LIABILITY MANAGEMENT
LIQUIDITY MANAGEMENT
Liquidity management is an effort of management to provide a continuing flow
of funds to meet its financial commitments, customer borrowing needs and deposit
withdrawal requirements. The liquidity position of United and its subsidiary
banks is monitored by Asset/Liability Committees of each of the Banks in
consultation with United's staff. United adjusts its investments in liquid
assets based upon management's assessment of (i) expected loan demand, (ii)
expected deposit flows, (iii) yields available on interest-bearing deposits and
(iv) the objective of its asset/liability management program. The largest
category of assets representing a ready source of liquidity for United is its
short-term financial instruments which include federal funds sold and investment
securities maturing within one year. Liquidity is also provided through the
regularly scheduled maturities of assets. The liquidity position of United is
also greatly enhanced by its significant base of core deposits. United also
maintains available lines of Federal funds borrowing from non-affiliated
financial institutions, and is a member of the FHLB. Excess liquidity is
generally invested in interest-bearing overnight deposits and other short-term
government and agency obligations. United anticipates it will have sufficient
funds available to meet its current loan commitments. At June 30, 1996, United
had outstanding commitments to extend credit amounting to $25 million.
INTEREST RATE SENSITIVITY
Effective asset/liability management also includes minimizing the impact of
future interest rate changes on net interest income. Management of interest rate
sensitivity is accomplished through the composition of loans and investments,
and by adjusting the maturities on interest-earning assets and interest-bearing
liabilities. Interest rate sensitivity indicates a financial institution's
potential earnings exposure to fluctuating interest rates. Rate sensitivity and
liquidity are related since both are affected by maturing assets and
liabilities. However, interest rate sensitivity also takes into consideration
those assets and liabilities with interest rates that are subject to change
prior to maturity. While no single measure can completely identify the impact of
changes in interest rates on net interest income, one traditional gauge of
interest rate sensitivity is to measure, over a variety of time periods, the
differences in the amounts of United's rate sensitive assets and rate sensitive
liabilities. These differences, or "gaps," provide an indication of the extent
that net interest income may be affected by future changes in interest rates.
A positive gap exists when rate sensitive assets exceed rate sensitive
liabilities and indicates that a greater volume of assets than liabilities will
reprice during a given time period. This mismatch may enhance earnings in a
rising rate environment and may inhibit earnings when interest rates decline.
Conversely, when rate sensitive liabilities exceed rate sensitive assets, a
negative gap results, indicating that a greater volume of liabilities than
assets will reprice during the period. In this case, a rising rate environment
may inhibit earnings and declining rates may enhance earnings.
The following table presents United's interest rate gap analysis as of June
30, 1996. The table also presents the gap between interest rate sensitive assets
and liabilities as a percentage of total assets as of June 30, 1996. In
calculating the gap values, amortization flows are based on contractual
characteristics of the loans and investment securities, as well as the
anticipated prepayment characteristics. Prepayment rates for mortgages and
mortgage-related investments reflect expectations based on national assumptions,
and
35
<PAGE>
prepayments on consumer loans reflect United's historical experience.
Non-maturity deposit balances are positioned in the one year or less category
based on expected repricing behavior given historical experience and
management's expectations.
<TABLE>
<CAPTION>
REPRICING IN OR MATURING IN:
-----------------------------------------------------
ONE YEAR ONE TO FIVE OVER FIVE
OR LESS YEARS YEARS TOTAL
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Federal funds sold............................................ $ 3,425 $ -- $ -- $ 3,425
Investment securities......................................... 37,621 53,268 13,634 104,523
Loans and leases.............................................. 184,181 66,469 25,305 275,955
----------- ----------- ----------- -----------
Total rate sensitive assets................................. $ 225,227 $ 119,737 $ 38,939 $ 383,903
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Savings, money market and interest-bearing checking........... $ 167,486 $ -- $ -- $ 167,486
Time deposits................................................. 60,117 45,818 1,570 107,505
Short-term borrowings......................................... 25,319 3,964 -- 29,283
Notes payable and other borrowings............................ 6,639 9,458 -- 16,097
----------- ----------- ----------- -----------
Total rate sensitive liabilities............................ $ 259,561 $ 59,240 $ 1,570 $ 320,371
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Rate sensitive gap............................................ $ (34,334) $ 60,497 $ 37,369 $ 63,532
Cumulative rate sensitive gap................................. $ (34,334) $ 26,163 $ 63,532
Rate sensitive gap % to total assets.......................... (8.0)% 14.1% 8.7% 14.8%
Cumulative rate sensitive gap % to total assets............... (8.0)% 6.1% 14.8%
</TABLE>
Gap analysis attempts to capture interest rate risk which is attributable to
the mismatching of interest rate sensitive assets and liabilities. However,
varying interest rate environments often create unexpected changes in interest
rate sensitivity, for example changing loan prepayments. These unexpected
changes are not captured very well in most gap analyses and, as a result, a gap
report may not provide a complete assessment of United's interest rate risk.
Therefore, United primarily utilizes simulation software and duration analyses
under rising, falling and the most likely interest rate forecasts to model net
interest income and the market value of portfolio equity at the subsidiary bank
levels. The modeling estimates changes in net interest income in response to
increases or decreases in market interest rates. The model uses the rates and
maturities of the Banks' existing portfolios of interest-earning assets and
interest-bearing liabilities and revises each portfolio based on how the market
interest rates move and how the specific Bank products would respond to changes
in rates. The structuring of the Banks' balance sheets are targeted to ensure
that earnings do not exhibit large variations. At June 30, 1996, the Banks'
computer simulations under the most likely interest rate scenario provided by an
independent forecaster indicate that the projected earnings are within
acceptable parameters. Given the Banks' current interest rate risk profile,
management's response to increase in interest rates is to promote variable rate
deposit products and loans.
CASH FLOW
United's principal sources of funds are deposits, scheduled loan repayments
and prepayments of loan principal, borrowings, maturities of investment
securities, mortgage-backed securities and short-term investments and
operations. While scheduled loan repayments and maturing investments are
relatively predictable, deposit flows and early loan repayments are more
influenced by interest rates, general economic conditions, and competition.
United generally manages the pricing of its deposits to maintain a steady
deposit balance.
The primary source of cash from operating activities is net income.
The primary investing activities of United are lending and purchasing
investment securities. For the six months ended June 30, 1996, investment
activities used a net $9 million. Loan originations, net of principal repayments
accounted primarily for this use. If general interest rates decline, United
would expect to experience an increase in prepayments, particularly in its fixed
rate loans. The increased funds from this
36
<PAGE>
source could not necessarily be re-invested at yields and terms to maintain the
net interest margins United has experienced during the last three fiscal years.
For the year ended December 31, 1995, investment activities used a net $35
million. Loan originations and purchases of investment securities accounted
primarily for this use.
For the six months ended June 30, 1996, financing activities provided a net
$6 million. Historically, the primary financing activity of United has been
deposits and securities sold under repurchase agreements. Deposits decreased
$500,000 for the six months ended June 30, 1996 and securities sold under
repurchase agreements increased $6.1 million for the six months ended June 30,
1996. For the year ended December 31, 1995, financing activities provided a net
$30 million. Deposits increased $27.9 million, securities sold under repurchase
agreements decreased $4.6 million, net proceeds from notes payable provided $3.3
million and a common stock offering provided $3.5 million.
EMERGING ACCOUNTING STANDARDS
TRANSFER AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENT OF
LIABILITIES: FASB Statement No. 125, ACCOUNTING FOR TRANSFERS AND SERVICING OF
FINANCIAL ASSETS AND EXTINGUISHMENT OF LIABILITIES, establishes new standards
for transfers and servicing of financial assets and extinguishments of
liabilities. The new standard will require the Company to recognize the
servicing of assets it controls and liabilities incurred after a transfer of
financial assets. This statement will require, among other things, that the
Company record an asset or liability for servicing rights when it sells loans
and retains the servicing and then amorize the asset or liability over the
period during which servicing income is expected to be received. This statement
is effective for transactions occurring after December 31, 1996. In management's
opinion, the adoption of this statement will not have a material effect on
United's financial statements.
LONG-LIVED ASSETS: FASB Statement No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF, establishes new
accounting standards for the impairment of long-lived assets, certain
intangibles, and goodwill related to those assets to be held and used and for
long-lived assets and certain identified intangibles to be disposed of. This
statement is effective for United's year ending December 31, 1996. In
management's opinion, the adoption of this statement will not have a material
effect on United's financial statements.
STOCK-BASED COMPENSATION: FASB Statement No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, provides a choice of accounting methods for valuing
stock-based compensation plans and requires certain disclosures about the effect
on net income and earnings per share regardless of the method used to account
for them. This statement is effective for United's year ending December 31,
1996. In management's opinion, the adoption of this statement will not have a
material effect on United's financial statements.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related data presented herein have
been prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollars without considering changes in the relative purchasing power
of money over time due to inflation.
Substantially all of the assets and liabilities of United are monetary in
nature. As a result, interest rates have more impact on United's performance
than the effects of general levels of inflation. Interest rates do not
necessarily move in the same direction or in the same magnitude as the prices of
goods and services. The liquidity and the maturity structure of United's assets
and liabilities are important to the maintenance of acceptable performance
levels. United discloses the estimated fair values of its financial instruments
in accordance with FASB Statement No. 107.
37
<PAGE>
BUSINESS
GENERAL
United is a bank holding company with $429 million in assets as of June 30,
1996, which operates Signal Bank and Goodhue Bank. Signal Bank is a
state-chartered bank with offices in Eagan, Savage and West St. Paul, Minnesota.
Goodhue Bank is a national bank with offices in Red Wing, Lanesboro and
Rushford, Minnesota. In addition to the Banks, United also operates Consumers
Credit Corporation ("CCC"), a consumer finance company with offices in Hastings,
Northfield, Red Wing and West St. Paul, Minnesota. United has entered into a
Merger Agreement, dated October 7, 1996 with PFC, a bank holding company which
owns Park Bank, a national bank with assets of approximately $203 million as of
June 30, 1996. The Park Acquisition will close concurrently with this Offering.
HISTORY
United is the product of a merger, effective January 1, 1994, of Signal and
Goodhue. Signal, formed in 1980, was the holding company for Signal Bank, a
Minnesota state bank organized and chartered in 1963. Goodhue, formed in 1983,
was the holding company for Goodhue Bank, a national bank organized and
chartered in 1874. United was formed with a view to developing a multi-bank
holding company owning banks rooted in their communities, each sharing its
particular strengths with other banks in the group. United believes that the
advantages of holding company affiliation can be combined with a high-level of
customer service by allowing each bank to manage on an autonomous basis, the
day-to-day business of the bank and service to its customers. Total assets of
the Company were $348 million as of the date of the merger of Signal and
Goodhue. Total assets of United have increased $81 million since January 1, 1994
to $429 million at June 30, 1996. At December 31, 1995, United ranked ninth in
total assets among all Minnesota-based bank holding companies owning banks in
Minnesota.
COMMUNITY BANKING PHILOSOPHY
United's Banks operate a total of four offices in the Minneapolis/St. Paul
metropolitan area as well as five offices in rural southeastern Minnesota. The
Company believes that this diversity of markets brings strength to the Company's
overall balance sheet. The Banks are community banks which provide a full range
of services to consumers and businesses in all of the communities which United
serves. The Banks generally operate with significant local autonomy, with
general oversight and support from United. The Company believes this autonomy
allows the Banks to better serve the customers in their respective communities,
and thus enhances the Banks' business opportunities and operations. The Company
has maintained, and in connection with future acquisitions intends to generally
maintain, local charters, existing management and boards of directors.
Generally, Banks' management operates independently of the Company when making
human resource, credit, pricing, new product development, and other decisions
relative to how the Bank operates in its market. United fosters an environment
of cooperation and collaboration among its Banks and CCC. Affiliates are
encouraged to share expertise in order to bring a broader array of products and
services to the Company's customers. The individual Banks have strengths which
are leveraged throughout the Company in areas such as SBA lending and leasing
products which do not need to be replicated in each subsidiary bank because of
this sharing philosophy.
United believes strongly that the community banks which it owns should
invest a portion of their financial and human resources back into the
communities within which they operate. The Banks of United are consistent
winners of the "Keystone Award" which is given to corporations in the state of
Minnesota that contribute at least two percent of their pre-tax income to
charitable organizations and community activities. United also believes that
community banks benefit from strong boards of directors consisting of
individuals who are also actively involved in their communities. The Banks'
directors not only represent the community interests but also serve to increase
the Banks' visibility in the community thereby enhancing the Banks' marketing
efforts and growth strategies.
38
<PAGE>
BANKS
Signal Bank had total assets of $217 million as of June 30, 1996 and offices
located in the southern and southeastern portions of the Minneapolis-St. Paul
metropolitan area. This area is home to a wide variety of commercial, nonprofit,
cultural and entertainment enterprises, including a significant number of
small-to-medium-sized businesses. The extensive small-to-medium-sized business
experience of Signal Bank permits it to develop its commercial customers
throughout this entire area. Signal Bank's status as a preferred lender with the
SBA (see "Business -- Lending and Investments") enables it to provide expedited
service to its customers when making loans guaranteed under the SBA programs and
because of this, it obtains referrals throughout the seven-county metropolitan
area.
Signal Bank offers a full range of financial services to its commercial
customers, including short- and medium-term loans, revolving credit facilities,
inventory and accounts receivable financing, equipment financing, commercial
mortgage lending, installment loans, safe deposit box services, cash management
services, and various savings accounts, money market accounts, time certificates
of deposit and checking accounts. Since 1991, Signal has increasingly emphasized
the origination of SBA loans. Other services provided include night depository
services, automated teller machines and brokerage services through an
affiliation with a brokerage service provider.
Signal Bank serves the banking needs of its consumer customers located
primarily in the rapidly growing communities of Savage, Eagan, Inver Grove
Heights and Burnsville and the more mature communities of West St. Paul, Mendota
Heights and South St. Paul by providing a complete range of retail products.
These products include checking and savings accounts, money market accounts,
certificates of deposit, personal installment loans, home improvement loans,
home equity lines of credit, loans for the purchase or refinancing of principal
residences or second homes, safe deposit box services, and brokerage services
through an affiliation with a brokerage service provider.
Goodhue Bank (with total assets of $206 million as of June 30, 1996) is the
largest bank in Red Wing, Minnesota. Red Wing is a community of approximately
15,500 and is the county seat of Goodhue County (population approximately
41,600), located approximately fifty miles from the Minneapolis-St. Paul
metropolitan area. Over 30 industries provide jobs in this area, including the
Treasure Island Casino, Red Wing Shoe Company, Northern States Power Company,
Jostens, and Reidell Shoes, Inc. Tourism has also developed into a major sector
of the area's economy in recent years.
Goodhue Bank provides a complete range of commercial and consumer banking
services from its two offices within the community. These services include
checking, savings, money market deposit accounts, and time certificates of
deposit, safe deposit box services, cash management services and brokerage
services through an affiliation with a brokerage service provider. The Bank
makes a full range of loans to its commercial and consumer customers. Goodhue's
leasing department provides equipment financing alternatives to a variety of
industries. Its location in an agricultural section of southeastern Minnesota
involves the Bank in agricultural lending, including livestock loans, dairy
production, crop loans and loans for buildings and equipment. The Bank has
offices in the communities of Rushford and Lanesboro, which are located in
Filmore County in the extreme southern part of Minnesota. This market is
primarily an agricultural area which is also developing a strong tourism
industry. The banking services provided by these two offices parallel those of
the other offices of the Bank.
See also "Acquisition of Park" for a description of Park Bank, its market
area and business.
ADMINISTRATION OF THE BANKS
United administers its Banks under a philosophy called "Earned Autonomy."
"Earned Autonomy" means that the Company cedes operating authority to the
individual member Banks. Ongoing financial performance and asset quality targets
are set in a collaborative process between the Banks and the staff of United.
Provided that the Banks perform within these targets, the Banks are free to
operate in their markets
39
<PAGE>
as they choose (with assistance from the Company as needed). United believes
that the Banks know their markets better than United's staff and therefore know
best how to deploy human and financial resources in an effort to increase their
market share.
Although each of the Banks operates with a significant level of autonomy and
independence, United has centralized operations for certain functions, and makes
available its corporate staff and centralized resources for other functions upon
request. United's Strategic Plan calls for continuing emphasis to be placed on
improving the Company's efficiency ratio. The Company continues to emphasize the
consolidation of certain functions where economies of scale can be achieved such
as:
DATA PROCESSING. United's wholly-owned subsidiary, Unitech Services, Inc.
("Unitech"), provides all of United's and the Banks' data processing
requirements. Unitech performs such data processing services through the use of
computer hardware it owns and maintains and software it licenses.
ACCOUNTING. United provides all accounting services, including general
ledger administration, budgeting, internal and external reporting, and accounts
payable processing.
INVESTMENTS. Although each Bank makes its own investment decisions, United
provides administrative and analytical support to the Banks in the management of
their investment portfolios in order to increase efficiencies and consistency.
CREDIT POLICY FORMULATION. Customer credit decisions are made by the local
management of each Bank under comprehensive credit policies approved by the
Board of Directors of each Bank. To assist local management and to maintain
system-wide credit standards, United is establishing a system-wide credit
policy. See "Lending and Investments" below. In addition, United's corporate
staff will provide individual Banks with assistance on credit review and
collection upon request.
SPECIALIZED STAFF SUPPORT. United provides the Banks with legal and
compliance services, internal auditing, asset/liability modeling, and retirement
plan administration. In addition, United is planning to provide other services
for the benefit of the Banks such as marketing assistance, human resource
services and benefits administration, and centralized purchasing of supplies.
United believes that centralizing these services promotes efficiency and cost
savings for the Banks without interfering with their community-oriented
management.
LENDING AND INVESTMENTS
The Banks offer short-term and long-term loans for business and personal
purposes. The Banks focus their lending activities on individuals and
small-to-medium-sized businesses in their market areas. Lending has been
primarily focused within the seven-county Minneapolis-St. Paul metropolitan area
and southeastern Minnesota, with the leasing operations at Goodhue Bank covering
a broader geographical area. The markets of the Banks include a wide variety of
businesses; therefore, United does not believe it is unduly exposed to problems
in any particular industry group.
United believes that it can best serve its customers, and thereby enhance
United's business, operations and profitability, by maximizing local autonomy in
credit decisions. Generally, each Bank's management operates independently of
the Company in making credit decisions within comprehensive credit policies
approved by the Bank's Board of Directors. These separate credit policies are
each tailored to maximize the safety and soundness of the Banks and still be
responsive to the particular credit needs of the communities which the Banks
serve. The policies both provide specific lending authorities to Bank officers,
reflecting their individual experience and level of authority, type of loan and
collateral, and establish thresholds at which loan requests must be approved by
a committee comprised of officers or Board members. United is currently
developing a uniform credit policy, to be implemented in 1997, which will retain
the flexibility of local Bank management to respond to local market conditions,
while at the same time providing for uniformity of basic lending policies among
all of United's subsidiary banks and facilitating overline lending among the
banks.
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Signal Bank participates in many of the SBA programs and is one of six bank
"preferred lenders" in Minnesota. Preferred lender status is granted to a lender
who has made a certain number of SBA loans, and who in the opinion of the SBA
has staff who are qualified and experienced in this area. As a preferred lender,
Signal Bank has the authority to authorize, on behalf of the SBA, the SBA
guaranty on loans under the 7A program. This can represent a substantial time
savings in serving a customer's needs. Signal Bank has experienced significant
growth in its SBA lending division since its inception in 1991. The Bank
utilizes both the 504 program, which is focused toward longer-term financing of
buildings, and other long-term assets, and the 7A program which is primarily
used for financing of the equipment, inventory and working capital needs of
eligible businesses generally over a three- to seven-year term. The Bank's
collateral position in the SBA loans is enhanced by the SBA guaranty in the case
of 7A loans, and by lower loan-to-value ratios under the 504 program.
COMMERCIAL AND AGRICULTURAL LOANS. Loans in this category principally
include loans to manufacturing, wholesale, retail and agricultural businesses
including loans secured by commercial real estate. At June 30, 1996,
approximately 58.9% of loans outstanding were in this category, of which 88.5%
were classified as commercial and 11.5% were classified as agricultural. The
Banks provide loans and lines of credit for the operations and expansion needs
of local businesses. These loans generally have prime-based adjustable interest
rates and maturities of seven years or less. While the Banks look to a
borrower's business operations as the principal source of repayment, they also
generally obtain mortgages on real estate, security interests in inventory,
accounts receivable and other personal property, and personal guaranties as
collateral support for the loans. Goodhue Bank provides loans to the
agricultural industry in many of the communities it serves. Goodhue Bank's
agricultural loans relate to a variety of agricultural credit needs, including
crop loans, livestock loans, dairy production loans, and building and equipment
loans.
RESIDENTIAL REAL ESTATE LOANS. These loans include residential real estate
first mortgages and home equity lines of credit. At June 30, 1996, these loans
represented approximately 24% of loans outstanding. The Banks originate variable
and fixed rate first real estate mortgages, in accordance with the guidelines of
the Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC"), which are most often sold servicing retained
into the secondary market. The Banks also originate first and second real estate
mortgages which are retained in the Banks' portfolios. Generally these loans are
underwritten in accordance with the FNMA and FHLMC guidelines, with the
exception of being shorter in term and having variable rates. Loan to values
reflect industry standards of 80% or less and up to 95% with mortgage insurance.
The Banks continue to experience increases in home equity lines of credit, which
are made on both a fixed-rate and variable-rate basis and generally have
maturities of five to seven years and are generally secured by second mortgages
on the borrower's home.
CONSUMER LOANS. Loans in this category include automobile loans, home
improvement loans and personal lines of credit. At June 30, 1996, approximately
13% of total loans were consumer loans, which generally are on an installment
basis, carry an adjustable-rate of interest, and have maturities of three to
five years, and are secured by automobiles, boats, and other types of personal
property.
LEASES. Leases are made on equipment to manufacturing, retail and wholesale
businesses on a fixed rate basis, having maturities of three to five years. At
June 30, 1996, approximately 4% of total loans were leases made by Goodhue Bank.
OTHER INVESTMENTS. United maintains a diversified portfolio of investments,
primarily consisting of U.S. Treasury securities, obligations of U.S. government
corporations and agencies, and obligations of states and their political
subdivisions. United attempts to balance its portfolio to meet its liquidity
needs while endeavoring to maximize investment income. United also attempts to
maximize tax advantages in balancing its portfolio. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Investment
Securities."
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<PAGE>
DEPOSITS
Each of the Banks offers the usual and customary range of depository
products provided by commercial banks, including checking, savings and money
market accounts, and certificates of deposit. Deposits at each Bank are insured
by the Federal Deposit Insurance Corporation up to statutory limits. Local
managements of the Banks determine the type, mix and pricing of the depository
products offered to best compete in a Bank's particular marketplace.
OTHER CUSTOMER SERVICES AND PRODUCTS
Other aspects of the business of the Banks include cash management services
such as payroll processing, ACH originations and lock box services, safe deposit
box services, night depository services, wire transfers and automated teller
machines. The Banks have established "Investment Centers" which offer securities
brokerage services, annuities and mutual funds through an affiliation with a
brokerage service provider.
CONSUMER FINANCE BUSINESS
CCC, a wholly-owned subsidiary of United, engages in consumer credit
activities, and offers loans to consumers who are not traditional bank customers
for a variety of reasons including personal preferences, inability to obtain
small loans from traditional banks, blemished credit history, inability to
provide income verification data or lack of established credit history. CCC's
loan portfolio has grown from approximately $2.1 million as of December 31, 1993
to $5.9 million at June 30, 1996. Loans originated by CCC primarily range in
size from $500 to $5,000 with terms of two to five years and various rates of
interest generally ranging from 15% to 21%. Most loans are secured by
automobiles, recreational vehicles or other personal property and are originated
directly by CCC. CCC operates from four leased offices located in Red Wing
(since 1985), Hastings (since 1994), Northfield (since 1995) and West St. Paul
(since 1996).
GROWTH STRATEGIES
United's strategy is to continue to grow by acquiring other financial
institutions and financial product and service providers, expanding existing
bank and consumer finance businesses internally, and pursuing other financial
service opportunities.
INTERNAL GROWTH. United intends to continue to grow its existing
businesses, in large part by identifying products or services which have been
successful in one or more subsidiary banks and expanding these products and
services to other subsidiary banks. Goodhue Bank and Park Bank will utilize
Signal Bank's status as a "preferred lender" with the SBA to increase their SBA
lending. Signal Bank's mortgage department will enable the subsidiary banks to
increase their mortgage lending. Goodhue Bank's lease financing experience will
allow the subsidiary banks to increase lease financing transactions. In
addition, the subsidiary banks are constantly developing and evaluating
different deposit products to meet the needs of their customers. The subsidiary
banks, with the assistance of United, will evaluate the needs of their
respective customers to determine which of the many delivery systems they will
use, including personal computers and automated teller machines. United intends
to expand CCC's lending activity by building a referral network among
automobile, boat and other recreational vehicle dealerships, and by the
acquisition and start-up of new offices.
ACQUISITIONS. An equally important strategy is to continue to grow by
acquiring other financial institutions and financial service providers. United's
acquisition strategy is to identify banks with at least $50 million in assets in
Minnesota and Wisconsin communities within a 100-mile radius of the
Minneapolis-St. Paul metropolitan area. In assessing acquisitions, United
focuses on credit quality, past performance of the bank, management strengths
and weaknesses, location, community demographics, relative health of the local
economy, organizational structure of the entity, and consideration for and terms
of the acquisition. Management believes there are a number of community banks
which meet United's criteria and whose owners would be interested in selling
their banks to a community-based organization like United. The Company believes
that the reputation of its principal officers, its community banking experience
and its philosophy of permitting significant autonomy and independence in
management of its Banks, position United well to take advantage of future
expansion opportunities. Management believes that by standardizing
42
<PAGE>
certain products, services and systems and providing appropriate holding company
services, the bank officers and personnel can concentrate on individual customer
service and community relations. Management also believes services provided by
United should benefit the individual banks by lowering expenses through
centralization of administration and data processing services, by streamlining
credit policy formation and supervision and by facilitating compliance with the
requirements of multiple-layered banking regulations. Ultimately, such
standardization and centralization is intended to contribute to United's
acquisition strategy by improving the results of operations of acquired banks.
Concurrently with the closing of this offering, United will close the Park
Acquisition and acquire 100% ownership of Park Bank. See "Acquisition of Park."
COMPETITION
United's Banks and CCC face significant competition from providers of
financial services throughout the Minneapolis-St. Paul metropolitan area and in
out-state Minnesota in all aspects of their business. The local financial
services industry is rapidly changing and highly competitive, dominated by
numerous banks of First Bank System and Norwest Corporation, and by TCF, fsb. In
addition, United competes with numerous banks, savings and loan associations,
securities brokerage firms and other financial services companies. Commercial
credit and leasing firms, consumer and commercial finance companies, factors,
and mortgage banks, also have some competitive effect on United. Some of these
entities and institutions are not subject to the same regulatory restrictions as
United. Many competitors of United have much greater financial resources,
greater name recognition and more offices with attendant personnel.
Management believes that each of United's Banks and CCC will be able to
continue to compete successfully in its respective communities. United believes
its competitive strengths include the reputation it has for developing and
continuing banking relationships, responsiveness to customer needs and
individualized customer service, and skilled and resourceful personnel. The
factors affecting competition include banking and financial services provided,
customer convenience and office location. United further believes that the
community commitment and involvement of its personnel and its commitment to
providing quality banking and financial services are factors that should allow
it to continue to maintain and improve its competitive position.
Legislation permitting full nationwide interstate banking and branching was
recently enacted by Congress. The Minnesota legislature has passed a law
permitting interstate branching (the acquisition of a bank in Minnesota by an
out-of-state bank without the requirement of maintaining a Minnesota banking
charter) as of June 1, 1997. These new laws may offer out-of-state banks an
enhanced opportunity to compete in United's markets. See "Supervision and
Regulation -- Recent Legislation."
United also faces competition in acquiring institutions. Minnesota has
recently experienced a significant consolidation of its banking industry, and
many large holding companies with greater resources than United (including
several out-of-state holding companies) are actively pursuing acquisitions in
Minnesota. This competition affects the acquisition opportunities for United and
can affect the cost of such acquisitions.
FACILITIES
United presently leases its principal office, consisting of approximately
3,860 square feet located at 2600 Eagan Woods Drive, Suite 155, Eagan,
Minnesota. The lease will expire July 31, 1999.
Signal Bank presently leases (i) its main office, consisting of
approximately 9,150 square feet plus an approximately 2,400 square foot
leasehold improvement, located at 100 Signal Hills, West St. Paul, Minnesota,
under a lease which will expire December 31, 2000; and (ii) two areas in the
Signal Hills Center which is located adjacent to Signal Bank's main office under
a lease which Signal Bank has terminated effective January 31, 1997, at which
time those employees will move to Signal Bank's main office. In addition, Signal
Bank operates branch offices in West St. Paul, Eagan and Savage, Minnesota. The
West St. Paul branch office is located in an approximately 4,000 square foot
detached building owned by Signal Bank and located at 2060 South Robert Street.
The Eagan branch office is located in an approximately 16,000 square foot
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detached building owned by Signal Bank and located at 1270 Yankee Doodle Road,
Eagan, Minnesota. The Savage branch office is located in an approximately 6,000
square foot detached building owned by Signal Bank and located at 12302
Princeton Avenue South.
Goodhue Bank owns (i) its main office, consisting of approximately 38,000
square feet, located at 222 Bush Street, Red Wing, Minnesota (approximately
6,700 square feet are leased to non-bank tenants); (ii) a detached drive-up
facility, located at Bush and Fourth Street, Red Wing, Minnesota, consisting of
an auto bank with open office area, teller area and 7 drive-up lanes covered by
a canopy on a lot totalling 27,360 square feet; and (iii) a 5,250 square foot
office building, located at 421 West 4th Street, Red Wing, Minnesota, which is
currently occupied by non-bank tenants. In addition, Goodhue Bank owns three
branches in Rushford and Lanesboro, Minnesota. The Rushford Branches consist of
a 9,800 square foot bank building located at 101 West Jessie Street and a
drive-up facility located on Mill Street in Rushford. The Lanesboro Branch
consists of a 3,200 square foot building on the corner of 2nd and E Streets in
Lanesboro.
CCC leases a 1,200 square foot office at 432 West Third Street in Red Wing,
under a lease which expires December 31, 1998; a 1,400 square foot office in the
County Crossroads Center in Hastings, Minnesota, under a lease which expires
September 30, 1998; and a 1,700 square foot office located at 1014 South Highway
3, Northfield, Minnesota, under a lease which expires July 31, 1999.
Unitech leases a 6,120-square foot office located in 5400 Babcock Trail,
Inver Grove Heights, Minnesota, under a lease which expires September 30, 1999
(with an option to renew the lease for an additional five-year period).
EMPLOYEES
As of June 30, 1996, United and its subsidiaries employed 234 persons, 194
on a full-time basis and 40 on a part-time basis. Following the Park
Acquisition, United and its subsidiaries will employ approximately 314 persons,
259 on a full-time basis and 55 on a part-time basis.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The names, ages and positions of the executive officers and directors of
United, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------- --- -----------------------------------------------------------------
<S> <C> <C>
R. Scott Jones 52 Director and Chairman of the Board
Galen T. Pate 57 Director and President
Marcia L. O'Brien 40 Executive Vice President and Chief Financial Officer
John H. LeMay 57 Executive Vice President and Corporate Counsel
Donald M. Davies 50 Executive Vice President
Arlin A. Albrecht 59 Director
Larry C. Barenbaum 49 Director
Spencer A. Broughton 68 Director
James P. Fritz 56 Director
John W. Johnson 65 Director
Ora G. Jones 79 Director
Louis J. Langer 71 Director
John C. Dorsey 57 President of Signal Bank
Thomas W. Longlet 45 President of Goodhue Bank
</TABLE>
R. SCOTT JONES has served as Chairman of the Board and a director of United
since January 1, 1994. Mr. Jones had served as a director and Chief Executive
Officer of Goodhue from 1983 until the merger with Signal. Mr. Jones has been a
director (since 1975), Chairman (since 1993), Chief Executive Officer (since
1983) and President (from 1983 to 1993) of Goodhue Bank. Mr. Jones has been a
director of Signal Bank since July, 1992. Mr. Jones has been a director of CCC
since 1986. Mr. Jones has held various positions with the American Bankers
Association, a national trade association located in Washington, D.C., and was
recently elected First Vice President, from which office he is expected to
advance to President in October of 1998. R. Scott Jones is the son of Ora G.
Jones (see below) and is the spouse of Anne E. Jones, a director of Goodhue
Bank.
GALEN T. PATE has served as President and a director of United since January
1, 1994. Mr. Pate, a founder of Signal, had served as a director of Signal from
its inception in 1980 until the merger with Goodhue and had been Chairman and
President of Signal from 1989 until the merger with Goodhue. Mr. Pate has been
Chairman (since 1988) and Chief Executive Officer (from 1988 to 1995) and
President (from 1975 to 1988) of Signal Bank. Mr. Pate has been a director of
Goodhue Bank since 1992. Mr. Pate has been a director of CCC since 1994. Mr.
Pate is currently the Chairman and President of BancInsure, Inc., a captive
insurance company insuring banks in 26 states. Mr. Pate is also a director of
the Bank Marketing Association, a national trade association located in
Washington, D.C.
MARCIA L. O'BRIEN has served as Executive Vice President and Chief Financial
Officer of United since January 1, 1994. She has been Chief Financial Officer of
Signal Bank since 1986 and Senior Vice President of Signal Bank since 1988. Ms.
O'Brien was employed by KPMG Peat Marwick as a Senior Manager from 1983 to 1986.
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JOHN H. LEMAY has served as Executive Vice President and Corporate Counsel
of United since 1995. He has been Corporate Counsel of Signal Bank since 1985
and Senior Vice President since 1990. Mr. LeMay was a partner in the law firm of
Sweeney, O'Connor & LeMay from 1976 to 1985.
DONALD M. DAVIES has served as Executive Vice President of United since
January 1, 1994. From 1992 to 1994 Mr. Davies served as Chief Financial Officer
and Treasurer of Goodhue. From 1992, Mr. Davies has been Treasurer and Secretary
of CCC. From 1990 to 1992, Mr. Davies was self-employed as a consultant to
various community banks in Minnesota. From 1989 to 1990, Mr. Davies held various
positions with Norwest Corporation, including Vice President -- Community Bank
Acquisitions, and Chief Administrative Officer of the Greater Minnesota
Community Banks. From 1976 to 1989, Mr. Davies was the Chief Financial Officer
of The Bank Group, Inc., a $350 million community banking organization located
in Wayzata, Minnesota.
ARLIN A. ALBRECHT has served as a director of United since January 1, 1994
and was director of Goodhue from 1986 until the merger with Signal. Mr. Albrecht
has been a director of Goodhue Bank since 1986. Since 1960, Mr. Albrecht has
held various positions with Red Wing Publishing Company and has been President
and Chief Executive Officer since 1992. Red Wing Publishing owns 16 newspapers
throughout the states of Minnesota and Wisconsin. Mr. Albrecht is a director and
the Chairman of River Region Health Services, a health services company located
in Red Wing, Minnesota.
LARRY C. BARENBAUM has served as a director of United since January 1, 1994
and has been a director of Signal Bank since 1980. Since 1992, Mr. Barenbaum has
been the owner and President of LCB Enterprises, Inc., a company located in
Minneapolis, Minnesota engaged in sales representation and acquisitions of small
businesses. Since 1994, Mr. Barenbaum has been President and a director of ACII
Corp., a jewelry wholesaler. In addition, Mr. Barenbaum is a director of Brauns,
a ready-wear retail store in Minneapolis, Minnesota.
SPENCER A. BROUGHTON has served as a director of United since January 1,
1994 and was a director of Goodhue from 1983 until the merger with Signal. Mr.
Broughton has been a director of Goodhue Bank since 1969. From 1962 to 1996, Mr.
Broughton held various positions with Citizens Security Group, a property and
casualty insurance company located in Red Wing, Minnesota including Chairman and
Chief Executive Officer from 1970 to 1996 and was a director from 1963 to 1996.
He now serves as a consultant to the Meridian Insurance Group of Indianapolis,
Indiana. In addition, Mr. Broughton is a director of Alliance of American
Insurers, a national trade association; and a director of Insurance Federation
of Minnesota, a state trade association.
JAMES P. FRITZ has served as a director of United since January 1, 1994. Mr.
Fritz, a founder of Signal, had served as a director of Signal from its
inception in 1980 until the merger with Goodhue. Mr. Fritz also has been a
director of Signal Bank since 1980. Mr. Fritz has been President and Chairman of
Fritz Company, Inc., a candy and tobacco distributor in Newport, Minnesota,
since 1982.
JOHN W. JOHNSON has served as a director of United since 1995. Mr. Johnson
has been President and Chief Executive Officer of Community Bank Spring Green,
Spring Green, Wisconsin, since its formation in 1996. Mr. Johnson was Chairman
of M & I Bank Southwest from June 1994 until 1995 and President and Chief
Executive Officer of Valley Bank Southwest from 1986 until 1994. Mr. Johnson was
also Senior Vice President -- West Region and a director of Valley
Bancorporation from 1986 to 1994. Mr. Johnson is Secretary/Treasurer and a
director of BancInsure, Inc., a captive insurance company insuring banks in 26
states.
ORA G. JONES has served as a director of United since January 1, 1994 and
was a director of Goodhue from 1983 until the merger with Signal. Since 1943,
Mr. Jones has been a director of Goodhue Bank and was the Chairman from 1958 to
1993. Mr. Jones has been a director of CCC since 1986. Ora G. Jones is the
father of R. Scott Jones (see above).
LOUIS J. LANGER has served as a director of United since January 1, 1994.
Mr. Langer, a founder of Signal, had served as a director of Signal from its
inception in 1980 until the merger with Goodhue. Mr. Langer has
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served as a director of Signal Bank from 1967 to 1996. From 1946 until 1995 Mr.
Langer was Chairman of Langer Construction Co., a general building contractor in
West St. Paul, Minnesota and was President from 1946 to 1991.
JOHN C. DORSEY has served as Chief Executive Officer of Signal Bank since
January, 1996 and as President and a director since 1988. From 1983 to 1987 he
was Executive Vice President of Signal Bank.
THOMAS W. LONGLET has served as President, Chief Operating Officer and a
director of Goodhue Bank since 1995. Mr. Longlet was President of the Highland
Bank, St. Paul, Minnesota from 1991 until 1995. Mr. Longlet was Senior Vice
President of Norwest Commercial Insurance Services, Minneapolis, Minnesota from
1990 until 1991. Mr. Longlet was President and Managing Officer of two Norwest
Banks from 1986 until 1990.
Each of the directors of United named above serve terms of varying length as
determined by United's shareholders.
United's Board has an Audit Committee consisting of Spencer A. Broughton,
James P. Fritz, Ora G. Jones and Louis J. Langer. The responsibilities of the
Audit Committee are to review the results and scope of the audits and other
services provided by the Company's independent auditors, as well as the
Company's accounting principles and its system of internal controls, and report
the results of its review to the Board.
United's Board has a Compensation Committee consisting of Arlin A. Albrecht,
Larry C. Barenbaum and James P. Fritz. The responsibilities of the Compensation
Committee are to make recommendations concerning executive compensation and
incentive compensation, subject to ratification by the Board, and administer the
Company's 1994 Stock Option Plan.
OFFICER AND DIRECTOR COMPENSATION
The following table sets forth certain information regarding compensation
paid for services performed in 1995 to United's chief executive officers, and
the four highest paid executive officers of United and its subsidiaries whose
total salary and bonuses earned during 1995 exceeded $100,000.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
----------------------------------------- AWARDS/SHARES UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OTHER (1) OPTIONS (# OF SHARES) (2)
- --------------------------------------------- ---------- ---------- ----------------- -------------------------
<S> <C> <C> <C> <C>
R. Scott Jones, Chairman..................... $ 192,400 $ 185,000 $ 9,373 3,000
Galen T. Pate, President..................... $ 192,400 $ 185,000 $ 8,407 3,000
Marcia L. O'Brien, Executive
Vice President and Chief Financial
Officer..................................... $ 83,200 $ 70,000 $ 8,053 2,000
John H. LeMay, Executive Vice President and
Corporate Counsel........................... $ 94,120 $ 55,000 $ 7,435 2,000
Donald M. Davies, Executive Vice President... $ 83,200 $ 55,000 $ 7,276 2,000
John C. Dorsey, President of Signal Bank..... $ 135,200 $ 82,000 $ 6,516 1,500
</TABLE>
- ------------------------
(1) Represents noncash value attributed to personal use of Company automobiles.
(2) See "Management -- 1994 Stock Option Plan."
Directors of United receive an annual fee of $5,000 for their services. In
1995, directors of United were each granted an option to acquire 333 1/3 shares
of United's Common Stock, which becomes exercisable as to twenty percent (20%)
of the shares on each of the first five anniversaries of the date of grant.
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<PAGE>
Signal Bank has entered into Executive Salary Continuation Agreements with
each of Galen T. Pate, Marcia L. O'Brien, John H. LeMay, and John C. Dorsey and
United has entered into an Executive Salary Continuation Agreement with Donald
M. Davies, pursuant to which each such officer, or a designated beneficiary,
will receive $40,000 annually upon such officer's retirement at age 65 for a
period of 13 years. Under the agreement, the companies indicate they intend to
adjust the amount payable under the agreements to reflect 50% of each such
officer's then current salary, however, the companies are not obligated to make
any such adjustment. In the event of such officer's death before retirement at
age 65, the companies will pay to the officer's beneficiary $40,000 per year for
10 years. In the event of such officer's disability before retirement at age 65,
the companies will pay the officer a lump sum ranging from $12,611 to $290,398
as provided on a vesting schedule attached to each agreement.
1994 STOCK OPTION PLAN
United's Board of Directors adopted the 1994 Stock Option Plan (the "1994
Stock Plan") in April, 1994, which was approved by United's stockholders in
April, 1995. The purpose of the 1994 Stock Plan is to attract and retain
officers and directors, and to motivate them to produce a superior return to the
shareholders of United by offering such persons an opportunity to realize stock
appreciation, by facilitating stock ownership, and by rewarding them for
achieving a high level of corporate financial performance.
The 1994 Stock Plan is administered by the Compensation Committee (the
"Committee"), which is appointed by the Board of Directors. Subject to the
provisions of the 1994 Stock Plan, the Committee has the exclusive power to make
awards under the 1994 Stock Plan, to determine when and to whom awards will be
granted, and the form, amount and other terms and conditions of each award. The
types of awards that may be granted under the 1994 Stock Plan include incentive
and non-qualified stock options. Subject to certain restrictions applicable to
incentive stock options, awards will be exercisable by the recipients at such
times as are determined by the Committee.
Options may be granted to recipients at such exercise prices as the
Committee may determine but not less than their fair market value as of the date
the option is granted. Stock options may be granted and exercised at such times
as the Committee may determine, except that, unless applicable federal tax laws
are modified, (1) no incentive stock option may be granted at less than fair
market value, (2) no incentive stock option may be granted more than ten years
after the effective date of the 1994 Stock Plan, (3) an incentive stock option
shall not be exercisable more than ten years after the date of grant, and (4)
the aggregate fair market value of the shares of Common Stock with respect to
which incentive stock options may first become exercisable in any calendar year
for any employee may not exceed $100,000 under the 1994 Stock Plan or any other
plan of United. Additional restrictions apply to an incentive stock option
granted to an individual who beneficially owns more than ten percent of the
combined voting power of all classes of stock of United.
As of May 1, 1994, the effective date of the 1994 Stock Plan, the total
number of shares of United Common Stock available for distribution under the
1994 Stock Plan was 100,000 (subject to adjustment for future stock splits,
stock dividends and similar changes in the capitalization of United). As of the
date of this Prospectus, options to purchase an aggregate of 69,527 shares of
Common Stock were outstanding and an aggregate of 30,473 shares of Common Stock
were available for future grants of awards under the 1994 Stock Plan. Options
granted pursuant to United's 1994 Stock Plan are exercisable at an exercise
price equal to the fair market value as determined by the Board of Directors on
the date of grant. Options outstanding have a per share exercise price ranging
from $73.46 to $94.20, and expire ten years from the date of grant of the option
(unless exercised prior to that time).
The 1994 Stock Plan will remain in effect until all stock subject to it is
distributed or all awards have expired or lapsed, whichever occurs later. The
1994 Stock Plan also gives the Board the right to terminate, suspend or modify
the 1994 Stock Plan, except that amendments to the 1994 Stock Plan are subject
to shareholder approval if needed to comply with Rule 16b-3 under the Securities
Exchange Act of 1934, as amended, the incentive stock option provisions of the
Internal Revenue Code of 1986, as amended, their successor provisions, or any
other applicable law or regulation.
48
<PAGE>
The following table summarizes option grants made during 1995 to the
executive officers of United and its subsidiaries:
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF POTENTIAL REALIZABLE
SHARES TOTAL OPTIONS VALUE AT ASSUMED
UNDERLYING GRANTED TO ALL EXERCISE ANNUAL RATES (2)
THE EMPLOYEES IN PRICE PER EXPIRATION ----------------------
NAME OPTIONS (1) 1995 SHARE DATE 5% 10%
- ----------------------------- ------------- ----------------- ----------- ------------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
R. Scott Jones............... 3,000 14.1% $ 79.80 January 31, 2005 $ 150,570 $ 381,540
Galen T. Pate................ 3,000 14.1% 79.80 January 31, 2005 150,570 381,540
Marcia L. O'Brien............ 2,000 9.4% 79.80 January 31, 2005 100,380 254,360
John H. LeMay................ 2,000 9.4% 79.80 January 31, 2005 100,380 254,360
Donald M. Davies............. 2,000 9.4% 79.80 January 31, 2005 100,380 254,360
John C. Dorsey............... 1,500 7.0% 79.80 January 31, 2005 75,285 190,770
</TABLE>
- ------------------------
(1) Each option becomes exercisable as to twenty percent of the shares on each
of the first five anniversaries of the date of grant. Each option has a term
of ten years, subject to earlier termination in the event of the optionee's
cessation of service with United.
(2) The potential realizable value is based on a 10-year term of each option at
the time of grant. Assumed stock price appreciation of 5% and 10% is
mandated by rules of the Securities and Exchange Commission and is not
intended to forecast actual future financial performance or possible future
appreciation. The potential realizable value is calculated by assuming that
the deemed fair value of United's Common Stock for financial statement
presentation purposes on the date of grant appreciates at the indicated rate
for the entire term of the option and that the option is exercised at the
exercise price and sold on the last day of its term at the appreciated
price.
The following table provides information related to the number and value of
options held at December 31, 1995 by the named executive officers. No options
were exercised during 1995. The Company does not have any outstanding stock
appreciation rights ("SARs").
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT FY-END(#) AT FY-END ($) (1)
---------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
R. Scott Jones............................................ 1,800 4,200 $ 48,360 $ 106,500
Galen T. Pate............................................. 5,800 10,200 $ 164,280 $ 280,380
Marcia L. O'Brien......................................... 1,200 2,800 $ 32,240 $ 71,000
John H. LeMay............................................. 720 2,080 $ 18,330 $ 50,134
Donald M. Davies.......................................... 1,200 2,800 $ 32,240 $ 71,000
John C. Dorsey............................................ 900 2,100 $ 24,180 $ 53,250
</TABLE>
- ------------------------
(1) Article 7 of United's Bylaws establishes a formula to determine the price at
which United is entitled to exercise its right of first refusal relating to
proposed transfers by United shareholders. As of June 30, 1996 the price
determined by the formula was $102.44. Value is calculated on the basis of
$102.44 minus the option exercise price and multiplying the result by the
number of shares of common stock underlying the option.
CERTAIN TRANSACTIONS
Total loans to all directors and executive officers of United, the principal
executive officers of Signal Bank and Goodhue Bank and principal holders of
United Common Stock (including their affiliates) as a
49
<PAGE>
group (14 individuals) at June 30, 1996 and at December 31, 1995 were $5,339,738
and $5,395,229, respectively. United believes that such loans are made in the
ordinary course of business with normal credit terms, including interest rate
and collateralization, and do not represent more than a normal risk of
collection.
United owns 5% of the issued and outstanding stock of Community Bank Spring
Green, and John W. Johnson (a director of United) is a director, the President,
and a minority shareholder of Community Bank Spring Green.
Galen T. Pate (the President and a director of United) is Chairman and
President of BancInsure, Inc., and John W. Johnson (a director of United) is a
director and the Secretary/Treasurer of BancInsure, Inc. The Company paid
approximately $117,000 in premiums to BancInsure, Inc. during 1995 and
anticipates that premiums to be paid in 1996 will be approximately the same.
In March 1996, United Community Bancshares, Inc. Employee Stock Ownership
Plan (the "United ESOP") purchased 2,150 shares of common stock for an aggregate
purchase price of $200,079. Trustees of the ESOP include: R. Scott Jones, a
director and Chairman of the Board of United, Galen T. Pate, a director and
President of United, Marcia L. O'Brien, Executive Vice President and Chief
Financial Officer of United, John H. LeMay, an Executive Vice President and
Corporate Counsel of United, and Donald M. Davies, an Executive Vice President
of United.
UNITED EMPLOYEE STOCK OWNERSHIP PLAN AND UNITED 401(K) PROFIT SHARING PLAN
United sponsors an employee stock ownership plan for the benefit of certain
of its employees, called the "United Community Bancshares, Inc. Employee Stock
Ownership Plan" (the "United ESOP"). The United ESOP is a qualified retirement
plan designed to invest primarily in United capital stock. The United ESOP
currently holds 67,948 shares of United Common Stock, or 12.4% of the United
Common Stock outstanding, which has been allocated to individual participant
accounts in the United ESOP. The trustees of the United ESOP are R. Scott Jones,
Galen T. Pate, Marcia L. O'Brien, John H. LeMay and Donald M. Davies, and the
trustees are entitled to vote the shares of United Common Stock held by the ESOP
in connection with most matters brought before the United shareholders. These
individuals also serve as trustees of the United Community Bancshares, Inc.
401(k) Profit Sharing Plan.
United also sponsors a 401(k) plan, called the "United Community Bancshares,
Inc. 401(k) Profit Sharing Plan" (the "United 401(k) Plan"), a qualified
retirement plan maintained for the benefit of certain of its employees.
Contributions to the United 401(k) Plan are made by participants through pre-tax
salary deductions. United may make matching contributions in such amount as
determined by United's Board of Directors. Participants may direct the
investment of their contributions in one or more investment funds under the
401(k) Plan, which include a choice of seven mutual funds. The United 401(k)
Plan does not presently invest in United stock.
The United ESOP and United 401(k) Plan cover all eligible employees of
United and its subsidiaries. The provisions of the United ESOP are as follows.
New employees enter the ESOP on the first entry date after completing one year
of service. United's Board of Directors may, in its discretion, elect to make a
contribution to the ESOP for a year, in such amount as the Board determines. The
ESOP contribution for a year, if any, will be allocated pro rata on the basis of
compensation to the accounts of those participants who have completed 1,000
hours of service with United and are employed on the last day of the plan year,
December 31. It is anticipated that the Trustees of the ESOP will continue to
invest contributions primarily in United Common Stock. Participants will become
vested in the amounts in their accounts under a graduated vesting schedule (100%
vested upon completing 6 years of vesting service, 80% vested after 5 years, 60%
vested after 4 years, 40% vested after 3 years, 20% vested after 2 years, and 0%
vested prior to completing 2 years of service). A participant who terminates
employment before completing the number of years of vesting service to become
100% vested will forfeit the portion of his or her account that is not vested.
The United 401(k) Plan provisions are as follows. New employees enter the
United 401(k) Plan on the first entry date after completing one year of service.
Three types of contributions are permitted. First,
50
<PAGE>
participants may make 401(k) contributions through pre-tax salary deductions of
up to 15% of their qualifying compensation. Second, United will match 50% of up
to the first 5% of pay which is contributed as a 401(k) contribution made by
each participant. Third, United's Board of Directors may, in its discretion,
elect to make a profit sharing contribution to the United 401(k) Plan for a
year, in such amount as the Board determines. The profit sharing contribution
for a year, if any, will be allocated pro rata on the basis of compensation to
the accounts of those participants who have completed 1,000 hours of service
with United and are employed on the last day of the plan year, December 31.
Participants will become vested in the amounts in their accounts under a
graduated vesting schedule (100% vested upon completing 6 years of vesting
service, 80% vested after 5 years, 60% vested after 4 years, 40% vested after 3
years, 20% vested after 2 years, and 0% vested prior to completing 2 years of
service). A participant who terminates employment before completing the number
of years of vesting service to become 100% vested will forfeit the portion of
his or her account that is not vested.
PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding the beneficial
ownership of United's Common Stock, as of October 1, 1996 and as adjusted to
give effect to the offering of United's Common Stock occurring concurrently with
this Offering, by each shareholder known to United to own beneficially more than
5% of the outstanding United Common Stock, by each director or executive officer
of United, and by all such directors and officers (14 individuals) as a group:
<TABLE>
<CAPTION>
PERCENTAGE OF UNITED
COMMON STOCK OWNED
NUMBER OF PERCENTAGE OF UNITED AFTER OFFERING (1)
NAME AND ADDRESS UNITED SHARES OWNED PRIOR --------------------------
OF BENEFICIAL OWNER OWNED TO OFFERING MINIMUM MAXIMUM
- ------------------------------------------------------ ------------- --------------------- ------------ ------------
<S> <C> <C> <C> <C>
Arlin A. Albrecht (2) 9,775 1.79% 1.65% 1.62%
2600 Eagan Woods Drive, Suite 155
Eagan, MN 55121
Larry C. Barenbaum (2) 15,507 2.84% 2.61% 2.57%
2600 Eagan Woods Drive, Suite 155
Eagan, MN 55121
Spencer A. Broughton (2) 1,725 * * *
2600 Eagan Woods Drive, Suite 155
Eagan, MN 55121
Donald M. Davies (3) 1,800 * * *
2600 Eagan Woods Drive, Suite 155
Eagan, MN 55121
John C. Dorsey (4) 2,900 * * *
2600 Eagan Woods Drive, Suite 155
Eagan, MN 55121
James P. Fritz (2) 50,213 9.18% 8.45% 8.32%
2600 Eagan Woods Drive, Suite 155
Eagan, MN 55121
John W. Johnson (5) 67 * * *
2600 Eagan Woods Drive, Suite 155
Eagan, MN 55121
Ora G. Jones, Jr. (2) 15,509 2.84% 2.61% 2.57%
2600 Eagan Woods Drive, Suite 155
Eagan, MN 55121
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF UNITED
COMMON STOCK OWNED
NUMBER OF PERCENTAGE OF UNITED AFTER OFFERING (1)
NAME AND ADDRESS UNITED SHARES OWNED PRIOR --------------------------
OF BENEFICIAL OWNER OWNED TO OFFERING MINIMUM MAXIMUM
- ------------------------------------------------------ ------------- --------------------- ------------ ------------
<S> <C> <C> <C> <C>
R. Scott Jones (6) 58,860 10.73% 9.88% 9.73%
2600 Eagan Woods Drive, Suite 155
Eagan, MN 55121
Louis J. Langer (2) 21,379 3.91% 3.60% 3.54%
2600 Eagan Woods Drive, Suite 155
Eagan, MN 55121
John H. LeMay (7) 1,966 * * *
2600 Eagan Woods Drive, Suite 155
Eagan, MN 55121
Marcia L. O'Brien (3) 2,180 * * *
2600 Eagan Woods Drive, Suite 155
Eagan, MN 55121
Galen T. Pate (8) 15,800 2.86% 2.66% 2.62%
2600 Eagan Woods Drive, Suite 155
Eagan, MN 55121
United ESOP
2600 Eagan Woods Drive, Suite 155 67,948 12.43% 11.44% 11.26%
Eagan, MN 55121 (9)
All executive officers and directors as a group (14 198,138 35.36% 32.61% 32.12%
individuals) (10)
</TABLE>
- ------------------------
* Less than 1.0%.
(1) Assuming that none of such individuals purchases any shares of Common Stock
in the offering; to the extent such individuals purchase shares of Common
Stock in the offering, the number of shares and percentage owned by such
individual, and by all executive officers and directors as a group, will
exceed the amounts and percentages stated.
(2) Includes 200 shares of Common Stock issuable upon exercise of currently
exercisable stock options.
(3) Includes 1,200 shares of Common Stock issuable upon exercise of currently
exercisable stock options.
(4) Includes 900 shares of Common Stock issuable upon exercise of currently
exercisable stock options.
(5) Includes 67 shares of Common Stock issuable upon exercise of currently
exercisable stock options.
(6) Includes 1,800 shares of Common Stock issuable upon exercise of currently
exercisable stock options.
(7) Includes 720 shares of Common Stock issuable upon exercise of currently
exercisable stock options.
(8) Includes 5,800 shares of Common Stock issuable upon exercise of currently
exercisable stock options.
(9) Trustees of the United ESOP are: R. Scott Jones, Galen T. Pate, Marcia L.
O'Brien, John H. LeMay and Donald M. Davies.
(10) Includes 13,667 shares of Common Stock issuable upon exercise of currently
exercisable stock options.
52
<PAGE>
SUPERVISION AND REGULATION
THE FOLLOWING DISCUSSION OF STATUTES AND REGULATIONS AFFECTING BANK HOLDING
COMPANIES AND BANKS IS A SUMMARY THEREOF AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH STATUTES AND REGULATIONS.
GENERAL
Commercial banking is highly regulated at both the federal and state level.
Deposits, reserves, investments, loans, consumer law compliance, issuance of
securities, payment of dividends, mergers and consolidations, electronic funds
transfers, management practices and other aspects of a holding company's and a
bank's operations are subject to regulation. This regulation is designed
primarily to protect depositors and not to benefit holders of securities of the
holding company or the bank. The highly regulated environment in which
commercial banks operate is subject to frequent change. Federal banking bills
are currently under consideration in Congress which, if enacted, could have a
variety of effects on this regulatory environment. In general, pending
legislation would repeal portions of the Glass-Steagall Act and would broaden
the permissible range of affiliations between commercial banks and investment
banks. In addition, these bills could limit the authority of the Office of the
Comptroller of the Currency to authorize new insurance activities for banks, and
could provide relief from a variety of federal banking regulations. United
cannot fully predict the nature or the extent of any effects which these
proposed regulatory changes or other possible regulatory changes may have on its
business and earnings. Such changes may have the effect of increasing or
decreasing the cost of doing business, modifying permissible activities, or
enhancing the competitive position of other financial institutions.
BANK HOLDING COMPANY REGULATION
In addition to a variety of generally applicable state and federal laws
governing businesses and employers, United is extensively regulated by special
laws applicable only to financial institutions. Virtually all aspects of
United's operations are subject to specific requirements or restrictions and
general regulatory oversight. With few exceptions, state and federal banking
laws have as their principal objective either the maintenance of the safety and
soundness of the financial institution and the federal deposit insurance system
or the protection of consumers or classes of consumers, rather than the specific
protection of shareholders of United.
SUPERVISION. As a bank holding company, United is subject to regulation by
the Federal Reserve Board under the BHC Act and various regulations adopted by
the Federal Reserve Board. United is required to file with the Federal Reserve
Board quarterly and annual reports and such additional information as the
Federal Reserve Board may require pursuant to the BHC Act. The Federal Reserve
Board also may examine United. United was examined most recently in August,
1996. United is not subject to any formal or informal enforcement actions by any
bank regulatory office as a result of such examination or for any other reason.
The Federal Reserve Board also has authority, in certain circumstances, to
approve or disapprove stock redemptions, changes in ownership or control, and
dividend payments. The Federal Reserve Board may also require that United
terminate an activity or terminate control of or liquidate or divest certain
non-bank subsidiaries or affiliates when the Federal Reserve Board believes the
activity or the control of the subsidiary or affiliate constitutes a significant
risk to the financial safety, soundness or stability of any of its banking
subsidiaries. Under the BHC Act and regulations adopted by the Federal Reserve
Board, a bank holding company and its non-banking subsidiaries are prohibited
from requiring certain tie-in arrangements in connection with any extension of
credit, lease or sale of property or furnishing of services. Further, United is
required by the Federal Reserve Board to maintain certain levels of capital.
PAYMENT OF DIVIDENDS BY UNITED. Federal Reserve Board policy strongly
discourages a bank holding company from declaring or paying a cash dividend
which would impose undue pressure on the capital of subsidiary banks or would be
funded only through borrowings or other arrangements that might adversely affect
the holding company's financial position.
53
<PAGE>
ACTIVITY LIMITATIONS. The BHC Act, in general, limits the activities that
may be engaged in by a bank holding company and its subsidiaries to those so
closely related to banking, managing or controlling banks as to be a proper
incident thereto. The Federal Reserve Board, in making such determinations,
considers whether performance of the activities by a bank holding company can
reasonably be expected to produce benefits to the public without any adverse
effects such as undue concentration of resources, decreased or unfair
competition, conflicts of interest or unsound banking practices. A bank holding
company may engage, subject to Federal Reserve Board guidelines and approvals,
in such closely-related activities as: (1) making or acquiring loans and other
extensions of credit of the type made by mortgage, finance, credit card, or
factoring companies; (2) operating an industrial bank; (3) servicing loans and
other extensions of credit; (4) performing the functions of a trust company; (5)
acting as an investment or financial advisor; (6) leasing certain real estate or
personal property; (7) making investments to promote community welfare; (8)
providing data processing and data transmission services; (9) acting as an
underwriter for credit life insurance and credit health and accident insurance
directly related to extensions of credit by the holding company system; (10)
providing courier services for checks and certain other instrument exchanges
among banks and for audit and accounting media of a banking or financial nature;
(11) providing certain kinds of management consulting advice; (12) selling, at
retail, money orders, travelers' checks and U.S. savings bonds; (13) performing
real estate appraisals; (14) arranging commercial real estate equity financing;
(15) providing securities brokerage services; (16) underwriting or dealing in
government obligations and money market instruments; (17) engaging in foreign
exchange advisory and transnational services; and (18) acting as a futures
commission merchant. The Federal Reserve Board recently proposed amendments to
its regulations defining the scope of permissible bank holding company
activities which will, if adopted, broaden the scope of such activities. United
may, in the future, if appropriate opportunities arise, engage in the
acquisition of additional banks, subject to the approval of the Federal Reserve
Board. See "Business -- Growth Strategies -- Acquisitions." For the near future,
the business of United will essentially be the operation of Signal Bank, Goodhue
Bank, CCC and Unitech, and, following completion of the Park Acquisition, Park
Bank.
Under the BHC Act, United must obtain prior Federal Reserve approval before
it acquires direct or indirect ownership or control of any voting shares of any
bank or other bank holding company if, after such acquisition, it will own or
control directly or indirectly more than 5% of the voting stock of the entity,
unless it already owns a majority of the voting stock of the entity. United also
must obtain prior Federal Reserve approval before it acquires all or
substantially all of the assets of a bank or merges or consolidates with another
bank holding company. United will be, with limited exceptions, prohibited from
acquiring direct or indirect ownership or control of a company which is not a
bank or a bank holding company, and must engage in the business of banking or
managing or controlling banks or furnishing services to or performing services
for its subsidiary Banks. The Federal Reserve, by order or regulation, may
authorize United to engage in or acquire stock in a company engaged in
activities so closely related to banking or managing or controlling banks as to
be a proper incident thereto. In reviewing any application or proposal by
United, the Federal Reserve is required to consider the financial and managerial
resources and future prospects of United and the banks concerned, the
convenience and needs of the community to be served, as well as the probable
effect of the transaction upon competition. Recent decisions by the Federal
Reserve under the BHC Act have underscored the importance placed by the Federal
Reserve upon the record of the applicant and its subsidiary banks in meeting the
credit needs of its community in accordance with the Community Reinvestment Act
of 1977. See "Community Reinvestment Act and Other Consumer Protection Statutes"
below.
BANK REGULATION
The continued earnings and growth of United's Banks will be influenced by
general economic conditions, the monetary and fiscal policies of the federal
government and the policies of regulatory agencies, particularly the Federal
Reserve Board. The Federal Reserve Board implements national monetary policies
by its open-market operations in United States Government securities, by
adjusting the required level of reserves for financial institutions subject to
its reserve requirement and by varying the discount rate applicable to
borrowings by banks which are members of the Federal Reserve System. The actions
of the
54
<PAGE>
Federal Reserve Board in these areas influence the growth of bank loans,
investments and deposits and also affect interest rates charged on loans and
deposits. The nature and impact of any future changes in monetary policies
cannot be predicted.
SUPERVISION. Signal Bank, as a state chartered banking corporation, is
subject to primary supervision, examination and regulation by the Minnesota
Department of Commerce and the Federal Deposit Insurance Corporation. Each of
Goodhue Bank and Park Bank, as a national chartered banking corporation, is
subject to primary supervision, examination and regulation by the Office of the
Comptroller of the Currency (the "OCC"). Various requirements and restrictions
under the laws of the State of Minnesota and the United States also affect the
operation of United's subsidiary banks. These statutes and regulations relate to
many aspects of the operations of United's subsidiary banks, including reserves
against deposits, loans, investments, mergers and acquisitions, borrowings,
dividends and locations of branch offices. Some of these statutes and
regulations and their effect on United's subsidiary banks are discussed below.
Moreover, from time to time, legislation is enacted which has the effect of
increasing the cost of doing business, limiting or expanding permissible
activities or affecting the competitive balance between banks and other
financial intermediaries. Proposals to change the laws and regulations governing
the operations and taxation of banks, bank holding companies and other financial
intermediaries are frequently made. The likelihood of any major changes and the
impact of such changes are impossible to predict.
PAYMENT OF DIVIDENDS BY THE BANKS. There are state and federal statutory
and regulatory requirements limiting the amount of dividends which may be paid
to United by its subsidiary banks. Generally, a bank may pay cash dividends out
of current operating earnings to the extent that the current rate of earnings
retention is consistent with the bank's capital needs, asset quality and overall
financial condition. The governing regulatory agency has the authority to
prohibit a bank from engaging in business practices which the governing
regulatory agency considers to be unsafe or unsound. It is possible, depending
upon the financial condition of United's subsidiary banks, that the governing
regulatory agency may assert that the payment of dividends to United by any one
or more of the banks might, under some circumstances, be such an unsafe and
unsound practice.
COMMON LIABILITY. Under federal law, a depository institution insured by
the FDIC can be held liable for any loss incurred by, or reasonably expected to
be incurred by, the FDIC in connection with the default of a commonly controlled
FDIC-insured depository institution or any assistance provided by the FDIC to a
commonly controlled FDIC-insured institution in danger of default. These
provisions can have the effect of making subsidiary banks of United responsible
for FDIC-insured losses at another subsidiary bank.
AFFILIATE TRANSACTION LIMITATIONS. Financial institutions are subject to
certain restrictions imposed by federal law on any extensions of credit to, or
the issuance of a guarantee or letter of credit on behalf of, United or other
affiliates, the purchase of or investment in stock or other securities thereof,
the taking of such securities as collateral for loans and the purchase of assets
from United or other affiliates. Such restrictions prevent United and such other
affiliates from borrowing from Signal Bank, Goodhue Bank and any other
subsequently acquired bank unless the loans are secured by marketable
obligations of specified amounts. Further, such secured loans, investments and
other transactions between any of the subsidiary banks and United or any other
affiliate are limited to 10% of any subsidiary bank's capital and surplus (as
defined by federal regulations) and such secured loans, investments and other
transactions are limited, in the aggregate, to 20% of any subsidiary bank's
capital and surplus (as defined by federal regulations). Such transactions must
also comply with regulations prohibiting terms that would be preferential to
United or other affiliates of the banks. All affiliate transactions are in
compliance with these provisions.
REGULATORY CAPITAL REQUIREMENTS.
Each of United's subsidiary banks is required to comply with capital
adequacy standards set by the respective primary federal regulatory agency. The
regulations may establish higher minimum requirements if, for example, a bank
has previously received special attention or has a high susceptibility to
interest rate risk. Banks with capital ratios below the required minimum are
subject to certain administrative actions.
55
<PAGE>
More than one capital adequacy standard applies, and all applicable standards
must be satisfied for an institution to be considered to be in compliance. There
are two basic measures of capital adequacy: a risk-based capital measure, and a
Tier 1 leverage measure.
The risk-based capital measure was adopted to assist in the assessment of
capital adequacy of financial institutions by, (i) making regulatory capital
requirements more sensitive to differences in risk profiles among organizations;
(ii) introducing off-balance-sheet items into the assessment of capital
adequacy; (iii) reducing the disincentive to holding liquid, low-risk assets;
and (iv) achieving greater consistency in evaluation of capital adequacy of
major banking organizations throughout the world. The risk-based guidelines
include both a definition of capital and a framework for calculating
risk-weighted assets by assigning assets and off-balance-sheet items to broad
risk categories. An institution's risk-based capital ratios are calculated by
dividing its qualifying capital by its risk-weighted assets.
Qualifying capital consists of two types of capital components: "core
capital elements" ("Tier 1" capital) and "supplementary capital elements" ("Tier
2" capital). Tier 1 capital is generally defined as the sum of core capital
elements less goodwill and other intangibles. Core capital elements consist of
(i) common shareholders' equity, (ii) qualifying perpetual preferred stock,
subject to certain limitations, and (iii) minority interests in the equity
accounts of consolidated subsidiaries. Supplementary capital ("Tier 2" capital)
consists of such additional capital elements as (i) allowance for loan and lease
losses (subject to limitations); (ii) perpetual preferred stock which does not
qualify as Tier 1 capital (subject to certain conditions); (iii) hybrid capital
instruments, perpetual debt and mandatory convertible debt securities; and (iv)
term subordinated debt and intermediate-term preferred stock (subject to
limitations). The maximum amount of Tier 2 capital that may be included in
qualifying total capital is limited to 100% of Tier 1 capital (net of goodwill).
Under current capital adequacy standards, financial institutions must meet a
minimum ratio of qualifying capital to risk-weighted assets of 8%. Of that
ratio, at least half, or 4%, must be in the form of Tier 1 capital. At June 30,
1996, Signal Bank had a Tier 1 risk-based capital ratio of 10.7%, Goodhue Bank
had a Tier 1 risk-based capital ratio of 12.2%, and Park Bank had a Tier 1
risk-based capital ratio of 11.2%.
The Banks also must maintain an allowable leverage ratio. The minimum
leverage ratio is defined as the ratio of Tier 1 capital to average total
assets. Under current capital adequacy standards, financial institutions must
meet a minimum leverage ratio of 4%. Each of Signal Bank, Goodhue Bank and Park
Bank is in compliance with all capital standards currently applicable.
As a result of the FDIC Improvement Act of 1991, the federal bank regulatory
agencies are directed to adopt regulations defining banks as "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized"
and "critically undercapitalized." Under the law, depending upon the bank's
classification, a bank may be directed to prepare and implement a capital
restoration plan, to be guaranteed by its parent bank holding company. Further,
banks are subject to increased restrictions upon activities and heightened
regulatory management as capital classifications decline.
Generally, under regulations adopted by all of the bank federal regulatory
agencies, "well capitalized" has been defined as an institution with a total
capital to risk-based asset ratio of 10%, a Tier 1 capital to risk-based asset
ratio of 6% and a Tier 1 leverage ratio of 5%. The regulations further provide
that an "adequately capitalized" institution must have a total capital to
risk-based asset ratio of at least 8%, a Tier 1 capital to risk-based asset
ratio of 4% and a Tier 1 leverage ratio of 4%. Institutions not satisfying the
requirements for "adequately capitalized" will be deemed "undercapitalized."
Institutions with a total capital to risk-based asset ratio of 6% or less, a
Tier 1 capital to risk-based asset ratio of 3% or less, or a Tier 1 leverage
ratio of 3% or less will be deemed "significantly undercapitalized." Finally,
the regulations provide that an institution with a Tier 1 leverage ratio of less
than 2% will be deemed "critically undercapitalized." Federal bank regulatory
agencies, including the FDIC, are authorized to down-grade a financial
56
<PAGE>
institution from one capital category to the next if an examination reveals that
the asset quality, management, earnings or liquidity of that institution are
less than satisfactory. Under the regulations, each of Signal Bank, Goodhue Bank
and Park Bank would be deemed a "well capitalized" institution based upon its
equity capital as of June 30, 1996.
Signal Bank was examined most recently in April 1996. Goodhue Bank was
examined most recently in August 1996. Park Bank was examined most recently in
January 1996. Such regulatory examinations by the OCC, the FDIC or Minnesota
Department of Commerce, as the case may be, are not audits and are conducted
solely for the benefit of the bank regulators in the discharge of their
supervisory responsibilities. Neither Signal Bank nor Goodhue Bank nor Park Bank
is subject to any formal or informal enforcement actions by any bank regulatory
office as a result of such examinations or for any other reason.
ACQUISITIONS AND BRANCHING. On September 29, 1994, the Riegle-Neal
Interstate Banking and Branching Act of 1994 (the "RNA") became effective,
creating a federal scheme for interstate banking and branching. The RNA
authorizes, for "well-capitalized" institutions, bank holding company
acquisitions of banks anywhere in the nation. The RNA will also permit
subsidiaries of the same bank holding company to act as agents for one another
in receiving and renewing deposits, closing and servicing loans, and accepting
loan payments. RNA will permit nationwide branching through acquisition or
consolidation no later than June 1997. States, through legislative action taken
prior to June 1997, may opt out of the interstate branching provisions of the
RNA or opt in to allow interstate branching prior to June 1997. Banking
organizations located in states which opt out of this portion of the RNA will
not be able to branch interstate. Of those states that have considered and acted
upon the state branching provisions of the RNA to date, the vast majority have
opted in. The Minnesota legislature has taken action to opt in and has
authorized interstate branching effective June 1, 1997. The RNA could present
acquisition and branching opportunities to United, and could allow out-of-state
banks easy access to markets currently served by United thereby increasing
competition. See "Business -- Competition."
COMMUNITY REINVESTMENT ACT AND OTHER CONSUMER PROTECTION STATUTES
The Community Reinvestment Act of 1977 ("CRA") requires a financial
institution to help meet the credit needs of its entire community, including
low-income and moderate-income areas. On May 3, 1995, the federal banking
agencies issued final regulations which change the manner in which they measure
a bank's compliance with its CRA obligations. The final regulations adopt a
performance-based evaluation system which bases CRA ratings on an institution's
actual lending, service and investment performance, rather than the extent to
which the institution conducts needs assessments, documents community outreach
or complies with other procedural requirements. Federal banking agencies may
take CRA compliance into account when regulating and supervising bank and
holding company activities; for example, CRA performance may be considered in
approving proposed bank acquisitions. The Banks are also subject to a variety of
consumer protection laws and fair lending laws. Violations of these laws may
cause regulators to impose substantial penalties or take other administrative
action. Goodhue Bank has received an "outstanding" CRA rating, and each of
Signal Bank and Park Bank have received a "satisfactory" CRA rating.
RECENT LEGISLATION
The deposits of Signal Bank, Goodhue Bank and Park Bank are insured by the
Bank Insurance Fund ("BIF") which is administered by the FDIC. The FDIC also
administers the Savings Association Insurance Fund ("SAIF"). Each insurance fund
has the same designated reserve ratio; however, the BIF has met its designated
reserve ratio and the SAIF has not, resulting in a significant deposit insurance
premium disparity between financial institutions insured by SAIF and BIF.
Recently passed legislation has provided for a merger of the two funds and
clarified responsibility for financial obligations resulting from the failure of
savings and loan associations. The financial impact on United of the assessments
mandated by this legislation is not material.
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DESCRIPTION OF SECURITIES
GENERAL
The Company's Restated Articles of Incorporation, as amended (the "Restated
Articles") authorize the issuance of 6,000,000 shares of which 5,000,000 are
designated Common Stock, par value $.01 per share solely for the purpose of a
statute or regulation imposing a tax or fee based upon the capitalization of the
Company, and 1,000,000 are undesignated. As of June 30, 1996, 546,686 shares of
Common Stock were issued and outstanding.
The Restated Articles authorize the Board to provide, without further
shareholder action, for the issuance of one or more classes or series from the
undesignated shares as it may determine from time to time by a resolution
setting forth the designation of the class or series and fixing the relative
rights and preferences of the class or series; provided however, that the common
shares of the corporation shall be the only class or series of stock of the
corporation entitled to vote, and the right to vote shall not accrue to any
other class or series of stock except as otherwise required by law. Pursuant to
this authority, the Board of Directors has designated 440,000 shares as %
Cumulative Perpetual Preferred Stock, Series A (the "Series A Preferred Stock"),
$25.00 stated value per share. The rights, preferences, privileges,
qualifications, restrictions and limitations of the Series A Preferred Stock are
described in a Statement of Designation to be filed with the Minnesota Secretary
of State ("Statement of Designation"). For a complete legal description of the
Company's securities, reference is made to the Company's Restated Articles and
the Statement of Designation, both of which have been filed as exhibits to the
Registration Statement of which this Prospectus is a part.
SERIES A PREFERRED STOCK
GENERAL. United has designated 440,000 shares of Series A Preferred Stock.
Prior to the current offering of the Series A Preferred Stock, no shares of any
class or series of preferred stock were outstanding. The Board of Directors of
United has the authority, without shareholder approval (except as may be
required by the Minnesota Business Corporation Act (the "MBCA")), to issue the
remaining undesignated shares with conversion, liquidation, dividend and other
rights which could be senior to or on a parity with the Series A Preferred
Stock. In addition, future issuances of additional shares of preferred stock
could under certain circumstances have the effect of delaying or preventing a
change of control of United. See "Description of Securities -- Anti-Takeover
Provisions."
The following statements are brief summaries of certain provisions relating
to the Series A Preferred Stock and are qualified in their entirety by the
Statement of Designation.
DIVIDENDS. Holders of shares of the Series A Preferred Stock will receive,
when, as and if declared by the Board of Directors of United, dividends which
will accrue from the date of issue at an annual amount equal to $ per share
(the "Series A Dividend Amount") and which will be payable quarterly in arrears
on January 15, April 15, July 15 and October 15 of each year, commencing April
15, 1997. Under the MBCA, United may declare and pay dividends on the Series A
Preferred Stock only if United will be able to pay its debts in the ordinary
course of business after making the distribution. In addition, United's primary
source of cash to make dividend payments is dividends that United receives from
its subsidiary banks, which may be unable to make payments to United under
various applicable regulations. See "-- Dividend Policy" and "Supervision and
Regulation." If United had no cash, it would be unable to pay the scheduled
dividends on the Series A Preferred Stock. Unpaid dividends would accumulate and
be payable when United next had the ability to pay them. Dividends will be
payable to holders of record of the Series A Preferred Stock as they appear on
the books of United on such respective dates, not exceeding 60 days preceding
such dividend payment date, as may be fixed by the Board of Directors of United
in advance of the payment of each particular dividend.
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The Company has received a commitment for additional debt financing for the
Park Acquisition and plans to enter into a loan agreement with respect to such
financing on or before the closing of the Park Acquisition. This loan agreement
may require United to maintain certain ratios or impose other restrictions which
could directly or indirectly restrict United's ability to pay dividends.
The Series A Preferred Stock will rank prior to the Common Stock as to
dividends and upon liquidation. Before any dividends (other than dividends
payable in Common Stock) on any class or series of stock of United ranking
junior to the Series A Preferred Stock as to dividends or upon liquidation shall
be declared or paid or set apart for payment, the holders of shares of the
Series A Preferred Stock shall be entitled to receive cumulative cash dividends,
but only when and as declared by the Board of Directors. No dividends shall be
declared on any class or series of stock ranking on a parity with the Series A
Preferred Stock as to dividends in respect of any dividend period unless there
shall likewise be or have been declared on the Series A Preferred Stock
dividends at the Series A Dividend Amount for all quarterly periods coinciding
with or ending before such quarterly period. If United is in default with
respect to any dividends payable on, or any obligation to retire shares of, its
Series A Preferred Stock, United may not declare or pay or set apart for payment
any dividends or make any distribution in cash or other property on, or redeem,
purchase or otherwise acquire, any other class or series of stock ranking junior
to or on a parity with the Series A Preferred Stock either as to dividends or
upon liquidation, except actions consistent with the preceding sentence with
respect to preferred stock ranking on a parity with the Series A Preferred
Stock. Accruals of dividends will not bear interest. When dividends are not paid
in full upon the Series A Preferred Stock and any other series or class of stock
ranking on a parity with the Series A Preferred Stock as to dividends, all
dividends declared upon the Series A Preferred Stock and such other series or
class of stock will be declared pro rata so that the amount of dividends
declared per share on the Series A Preferred Stock and such other series or
class of stock will in all cases bear the same ratio that accrued dividends per
share on the Series A Preferred Stock, and on such other series or class of
stock, bear to each other.
The amount of dividends payable per share for each dividend period shall be
computed by dividing the Series A Dividend Amount by four. The amount of
dividends payable for the initial dividend period or any period shorter than a
full dividend period shall be computed on the basis of a 360-day year comprised
of twelve 30-day months commencing as of the issuance of the Series A Preferred
Stock.
NO CONVERSION RIGHTS. The holders of Series A Preferred Stock will not be
entitled at any time to convert their shares of Series A Preferred Stock into
shares of Common Stock or into any other shares of the capital stock of United.
REDEMPTION AT THE OPTION OF UNITED. At any time on and after January 15,
2000, the Series A Preferred Stock may be redeemed, in whole or in part, by
United at its sole option (with prior Federal Reserve Board approval), on any
date upon not less than 30 days' and not more than 60 days' prior written notice
at the following per share redemption amounts: $25.75, if the redemption date is
within the 12-month period beginning January 15, 2000; $25.38, if the redemption
date is within the 12-month period beginning January 15, 2001; and $25.00, if
the redemption date is on or after January 15, 2002; plus in each case accrued
and unpaid dividends to the date fixed for redemption. United shall, on or prior
to the date fixed for redemption, but not earlier than 45 days prior to the
redemption date, deposit in a separate account a sum sufficient to redeem the
shares called for redemption, and United shall pay from such account to the
holders of shares called for redemption the redemption price upon surrender of
their certificates. Such deposit shall be deemed to constitute full payment of
such shares to their holders and from and after the date of such deposit,
notwithstanding that any certificates for such shares shall not have been
surrendered for cancellation, the shares represented thereby shall no longer be
deemed outstanding, the right to receive dividends and distributions shall cease
to accrue from and after the redemption date, and all rights of the holders of
the Series A Preferred Stock called for redemption as shareholders of United
shall cease and terminate, except the right to receive the redemption price,
without interest, upon the surrender of their respective certificates.
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Unless full accumulated dividends on all outstanding shares of the Series A
Preferred Stock shall have been or contemporaneously are declared and paid or
set apart for payment for all past dividend periods, the Series A Preferred
Stock may not be redeemed unless all the outstanding Series A Preferred Stock is
redeemed, and United may not purchase any shares of the Series A Preferred Stock
otherwise than pursuant to a purchase offer made on the same terms to all
holders of Series A Preferred Stock, provided that United may complete the
purchase or redemption of shares of Series A Preferred Stock for which a
purchase contract was entered into, or notice of redemption of which was
initially given, prior to such default.
Notice of redemption shall be mailed to each holder of Series A Preferred
Stock to be redeemed at the address shown on the books of United not less than
30 days nor more than 60 days prior to the redemption date. If less than all of
the outstanding shares of Series A Preferred Stock are to be redeemed, United
will select the shares to be redeemed by lot, pro rata (as nearly as may be), or
in such other equitable manner as the Board of Directors of United may
determine.
United is required to obtain the approval of the Federal Reserve Board for
any redemption of any shares of the Series A Preferred Stock. Because redemption
of the Series A Preferred Stock would reduce United's regulatory capital,
redemption could be effected only if United had sufficient excess capital to
meet applicable guidelines after the redemption. The Federal Reserve generally
does not favor substantial reductions of capital even if excess capital exists.
LIMITED VOTING RIGHTS. The Series A Preferred Stock has no voting rights,
except as indicated herein or otherwise provided by the MBCA. The MBCA provides
the Series A Preferred Stock with certain rights to vote on amendments to the
Articles of Incorporation, notwithstanding any provisions of the Articles of
Incorporation to the contrary, in certain circumstances that would affect the
holders or attributes of the Series A Preferred Stock. The MBCA also provides
certain voting rights to the Series A Preferred Stock in approving certain plans
of merger if any provision of the plan, if included in an amendment to the
Articles of Incorporation, would entitle the stock to such voting rights.
So long as any shares of the Series A Preferred Stock are outstanding,
United will not, without the consent of the holders of a majority of the
outstanding shares of Series A Preferred Stock, voting separately as a class,
(i) amend, alter or repeal or otherwise change any provision of the Restated
Articles or the Statement of Designation authorizing the Series A Preferred
Stock, if such amendment, alteration or repeal would materially and adversely
affect the rights, preferences, powers or privileges of the Series A Preferred
Stock; or (ii) create, authorize or issue, or increase the number of authorized
or issued shares of, any class or series of capital stock of United, or any
warrants, options or other rights convertible or exchangeable into any class or
series of capital stock of United, ranking prior to the Series A Preferred Stock
either as to cash dividend rights or rights on liquidation, dissolution or
winding up or ranking on a parity with the Series A Preferred Stock either as to
cash dividend rights or rights upon liquidation.
Whenever dividends on the Series A Preferred Stock shall be in arrears in an
amount equal to at least six quarterly dividends, the holders of Series A
Preferred Stock (voting as a class and with all other series of preferred stock
ranking on a parity with the Series A Preferred Stock either as to dividends or
upon liquidation and upon which like voting rights have been conferred and are
exercisable) will be entitled to vote for the election of two additional
directors on the terms set forth below until, in the case of the Series A
Preferred Stock, all past dividends in arrears on the Series A Preferred Stock
shall have been paid in full. Holders of all series of preferred stock which are
granted such voting rights (which rank on a parity with the Series A Preferred
Stock) will vote as a class, and each holder of such preferred stock will have
one vote for each share of stock held. In such case, the Board of Directors of
United will be increased by two directors, and the holders of such series of
preferred stock will have the exclusive right as a class, as outlined above, to
elect two directors at the next annual meeting of shareholders, subject to the
extent required by regulation or statute and to prior notification to the
Federal Reserve Board. Such directors may be removed only by a vote
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of the majority of holders of preferred stock which were entitled to elect such
directors. Upon any termination of the right of the holders of such series of
preferred stock as a class to vote for directors, the term of office of all
directors then in office elected by such series of preferred stock shall
automatically terminate.
LIQUIDATION PREFERENCE. In the event of any liquidation, dissolution or
winding-up of United, whether voluntary or involuntary, before any payment or
distribution of the assets of United, or proceeds thereof, shall be made to or
set apart for the holders of any class or series of stock of United ranking
junior to the Series A Preferred Stock upon liquidation, the holders of the
Series A Preferred Stock shall be entitled to receive $25.00 per share of Series
A Preferred Stock, plus an amount equal to all dividends (whether or not earned
or declared) accrued and unpaid to the date of final distribution, but such
holders shall not be entitled to any further payment. If, upon any liquidation,
dissolution or winding-up of United, the assets of United, or proceeds thereof,
distributable among the holders of shares of the Series A Preferred Stock and
any other class or series of preferred stock ranking on a parity with the Series
A Preferred Stock as to payments upon liquidation, dissolution or winding-up
shall be insufficient to pay in full such preferential amount, then such assets,
or the proceeds thereof, shall be distributed among all holders of the Series A
Preferred Stock and any other class or series ranking on parity with the Series
A Preferred Stock ratably in accordance with the respective amounts that would
be payable on such shares if all amounts payable thereon were paid in full. The
voluntary sale, conveyance, lease, exchange or transfer (for cash, shares of
stock, securities or other consideration) of all or substantially all the
property or assets of United or a consolidation, merger or plan of exchange of
United with one or more other corporations whether or not United is the
corporation surviving in such consolidation or merger (in which consolidation or
merger or plan of exchange any stockholders of United receive distributions of
cash or securities or other property) will be deemed to be a liquidation,
dissolution or winding-up of United.
TRANSFER AGENT AND REGISTRAR. The transfer agent, dividend disbursing agent
and registrar for the Series A Preferred Stock is United.
COMMON STOCK
GENERAL. United is currently authorized to issue 5,000,000 shares of Common
Stock, $.01 par value solely for the purpose of a statute or regulation imposing
a tax or fee based on the capitalization of the Company. As of June 30, 1996,
546,686 shares of Common Stock were issued and outstanding. No share of Common
Stock is entitled to preference over any other share and each such share is
equal to other shares of Common Stock in all respects. In any distribution of
capital assets, whether voluntary or involuntary, holders of Common Stock are
entitled to receive pro rata the assets remaining after creditors and holders,
if any, of stock with a liquidation preference have been paid in full.
VOTING. Common shareholders are entitled to one vote for each share held of
record on each matter submitted to a vote of the common shareholders.
DIVIDENDS, DISTRIBUTIONS AND REDEMPTIONS. Subject to the preferential
dividend rights of the Series A Preferred Stock, and any subsequent classes or
series of stock with such rights and preferences superior to the Common Stock as
the Board of Directors may designate, and the restrictions described below with
respect to United's creditors, the Common Stock shareholders are entitled to
receive dividends as and when declared by the Board of Directors of United.
However, dividends on United's Common Stock are not contemplated in the
foreseeable future. See "Description of Securities -- Dividend Policy." United's
ability to pay dividends on the Common Stock is subject to the same provisions
of the MBCA applicable to the Series A Preferred Stock. See "Description of
Securities -- Series A Preferred Stock -- Dividends."
Federal and state banking laws regulate United's ability to pay dividends
and redeem its equity securities. No redemptions of any equity securities are
permitted without the approval of the Federal Reserve Board if the aggregate
amount of such redemptions exceeds 10% of the net worth of United over a
12-month period. In addition, no redemption of or dividend on the Common Stock
is permitted if it would constitute an unsafe or unsound practice according to
the Federal Reserve Board.
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If United were liquidated, the common stockholders would be entitled to
receive, pro rata, all assets available for distribution to them after
satisfaction of United's liabilities and any payment applicable to the Series A
Preferred Stock, and any other preferred stock, then outstanding. See "Series A
Preferred Stock -- Liquidation Rights" above.
RIGHT OF FIRST REFUSAL. Article 7 of the Company's Bylaws grants the
Company the option to purchase the shares of Common Stock held by a stockholder
or such stockholder's estate in the event of the stockholder's death,
insolvency, or desire to sell or transfer shares. If the Company does not
exercise its option to purchase the available shares within 60 days, the other
stockholders may acquire the shares in proportion to their ownership of the
Company. The Company's ESOP may acquire all remaining shares of stock not
purchased by other stockholders.
NO CUMULATIVE VOTING
The Restated Articles of Incorporation of United provide that United
shareholders will not have cumulative voting rights in the electing of
directors. Under cumulative voting, a shareholder could cast that number of
votes equal to such shareholder's shares multiplied by the number of directors
to be elected in favor of one candidate or among several candidates. Cumulative
voting makes it possible for less than a majority of the shareholders to elect
one or more members of the board of directors. Under non-cumulative voting, a
majority of the shareholders can elect the entire board of directors.
NO PREEMPTIVE RIGHTS
The Restated Articles of Incorporation of United provide that United
shareholders will not have any preemptive rights to subscribe for or purchase
additional shares of United capital stock. This means that a United shareholder
will not be entitled to acquire a certain fraction of the unissued securities or
rights to purchase securities of United before United may offer them to other
persons. Preemptive rights enable a shareholder to maintain the shareholder's
proportional voting power and proportional rights to receive dividends and other
distributions by the company.
LIMITATION OF DIRECTOR LIABILITY; INDEMNIFICATION
The MBCA permits Minnesota corporations, in their Articles of Incorporation,
to limit or eliminate the personal liability of directors to corporations and
their shareholders for monetary damages for breach of directors' fiduciary duty
of care. The duty of care requires that, when acting on behalf of a corporation,
directors must exercise an informed business judgment based on all material
information reasonably available to them. Absent the limitations authorized by
the MBCA, directors are accountable to corporations and their shareholders for
monetary damages for conduct constituting gross negligence in the exercise of
their duty of care. Although the MBCA provision does not change directors' duty
of care, it enables corporations to limit available relief to equitable remedies
such as injunction or rescission.
United's Restated Articles of Incorporation limit the liability of the
directors to the fullest extent permitted by the MBCA. Specifically, directors
of United will not be personally liable for monetary damages for breach of their
fiduciary duty as a director, except for liability for (i) any breach of the
director's duty of loyalty to United or its shareholders, (ii) acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) corporate distributions which are in contravention of restrictions
in the MBCA, United's Restated Articles of Incorporation or Bylaws, or any
agreement to which United is a party, (iv) violations of the Minnesota
securities laws, (v) any transaction from which the director derives an improper
personal benefit, or (vi) any act or omission occurring prior to the effective
date of the provision in United's Restated Articles of Incorporation eliminating
or limiting liability. This provision will not change the liability of United's
directors under the federal securities laws. United's Restated Articles of
Incorporation also provide that if the MBCA is later amended, then the liability
of the directors of United will be eliminated or limited to the fullest extent
permitted by the MBCA, as so amended. The inclusion of this provision in the
Restated Articles of Incorporation may have the effect of reducing the
likelihood of
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derivative litigation against directors and may discourage or deter shareholders
or management from bringing a lawsuit against directors for breach of their duty
of care, even though such an action, if successful, might otherwise have
benefitted United and its shareholders.
Minnesota Statutes Section 302A.521 provides that officers and directors of
United have the right to indemnification from United for liability arising out
of certain actions. United has included in its Bylaws a provision to indemnify
its directors and officers for expenses and liabilities to the fullest extent
permitted by Minnesota law.
ANTI-TAKEOVER PROVISIONS
Certain provisions of Minnesota law and United's Restated Articles of
Incorporation described below could have an anti-takeover effect. These
provisions are intended to provide management flexibility to enhance United
shareholder value, the likelihood of continuity and stability in the composition
of United's Board of Directors and in the policies formulated by the Board and
to discourage an unsolicited takeover of United, if the Board determines that
such a takeover is not in the best interests of United and its shareholders.
However, these provisions could have the effect of discouraging certain attempts
to acquire United which could deprive United's shareholders of opportunities to
sell their shares of Common Stock at prices higher than prevailing market
prices.
Section 302A.671 of the Minnesota Statutes applies, with certain exceptions,
to any acquisitions of voting stock of United (from a person other than United,
and other than in connection with certain mergers and exchanges to which United
is a party) resulting in the beneficial ownership of 20% or more of the voting
stock then outstanding. Section 302A.671 requires approval of the granting of
voting rights for the shares received pursuant to any such acquisition by a
majority vote of the shareholders of United. In general, shares acquired without
such approval are denied voting rights and are redeemable at their then fair
market value by United within 30 days after the acquiring person has failed to
deliver a timely information statement to United or the date the shareholders
voted not to grant voting rights to the acquiring person's shares.
Section 302A.673 of the Minnesota Statutes generally prohibits any business
combination by United, or any subsidiary of United, with any shareholder who
purchases 10% or more of United's voting shares (an "interested shareholder")
within four years following such interested shareholder's share acquisition
date, unless the business combination is approved by a committee of all of the
disinterested members of the Board of Directors of United before the interested
shareholder's share acquisition date.
In addition, the existence of undesignated stock in the Restated Articles of
Incorporation allows the Board of Directors of United, without further
shareholder action, to issue preferred stock in amounts that could have the
effect of making it more difficult for a third party to acquire, or of
discouraging a third party from acquiring, control of United.
DIVIDEND POLICY
Funds available to United for the payment of dividends, redemption of stock
and operating expenses will consist principally of tax benefit payments and
dividends received by United from Signal Bank and Goodhue Bank, and, following
the Park Acquisition, Park Bank. See "Supervision and Regulation." Payment of
dividends on United's Series A Preferred Stock is also subject to certain
regulatory restrictions. Payment of dividends on United's Common Stock is also
subject to certain regulatory restrictions and will be at the discretion of
United's Board of Directors; however, dividends on United's Common Stock are not
contemplated in the foreseeable future and, if ever declared, would be subject
to the prior payment of all accrued and unpaid dividends on United's Series A
Preferred Stock and any other class or series of stock having preferential
dividend rights.
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UNDERWRITING
Piper Jaffray Inc. (the "Underwriter"), has agreed, subject to the terms and
conditions of a Purchase Agreement to be entered into by the Underwriter and
United to purchase from United 440,000 shares of the Series A Preferred Stock.
The Underwriter is committed to purchase and pay for all such shares if any are
purchased.
The Underwriter has advised United that it proposes to offer the shares of
Series A Preferred Stock directly to the public initially at the public offering
price set forth on the cover page of this Prospectus. The Underwriter may allow
a concession not in excess of $ per share to certain other brokers and dealers.
After the public offering, the public offering price and other selling terms may
be changed by the Underwriter.
United does not intend to list the Series A Preferred Stock on any
securities exchange or include it for quotation on the Nasdaq National Market or
any other quotation system, and no active trading market is expected to develop.
Although the Underwriter has indicated an intention to make a market in the
Series A Preferred Stock, the Underwriter is not obligated to make a market in
the Series A Preferred Stock, and any market making may be discontinued at any
time in the sole discretion of the Underwriter. If the Series A Preferred Stock
is traded after the original issuance, it may trade at a discount to its issue
price.
United has agreed to indemnify the Underwriter and its controlling persons
against certain liabilities, including liabilities under the Securities Act of
1933, as amended, or to contribute to payments the Underwriter may be required
to make in respect thereof.
The Underwriter has advised United that it does not intend to confirm sales
to any account over which it exercises discretionary authority in excess of 5%
of the number of shares of Series A Preferred Stock offered hereby.
LEGAL MATTERS
Fredrikson & Byron, P.A., Minneapolis, Minnesota, will pass on the validity
of the stock offered hereunder for United. Certain legal matters in connection
with this Offering will be passed upon for the Underwriter by Faegre & Benson
LLP, Minneapolis, Minnesota.
EXPERTS
The consolidated financial statements of United as of December 31, 1995 and
1994 and for the years then ended included in this Prospectus have been audited
by McGladrey & Pullen, LLP, independent auditors, as stated in their report
appearing herein, and such financial statements are included in reliance upon
such report given upon the authority of said firm as experts in accounting and
auditing.
The consolidated statements of income, stockholders' equity and cash flows
of United for the year ended December 31, 1993 included in this Prospectus have
been audited by Leininger & Leininger, Ltd., independent auditors, as stated in
their report appearing herein, and such financial statements are included in
reliance upon such report given upon the authority of said firm as experts in
accounting and auditing.
The consolidated financial statements of Goodhue as of December 31, 1993 and
1992 and for the years then ended included in this Prospectus have been audited
by KPMG Peat Marwick LLP, independent auditors, as stated in their report
appearing herein, and such financial statements are included in reliance upon
such report given upon the authority of said firm as experts in accounting and
auditing.
The consolidated financial statements of PFC as of December 31, 1995, 1994
and 1993 and for the years then ended included in this Prospectus have been
audited by Larson, Allen, & Weishair & Co., LLP, independent auditors, as stated
in their report appearing herein, and such financial statements are included in
reliance upon such report given upon the authority of said firm as experts in
accounting and auditing.
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ADDITIONAL INFORMATION
United has filed with the Securities and Exchange Commission, Washington,
D.C. 20549, a Registration Statement (the "Registration Statement") under the
Securities Act of 1933, as amended, with respect to the stock offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to United and such stock, reference is made to the
Registration Statement and the schedules and exhibits filed as a part thereof.
Statements contained in this Prospectus regarding the contents of any contract
or any other document are not necessarily complete and, in each instance,
reference is hereby made to the copy of such contract or document filed as an
exhibit to the Registration Statement, and the full text of each such statement
is qualified in its entirety by reference to such contract or document. The
Registration Statement, including exhibits thereto, may be inspected without
charge at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices at Northwestern Atrium Center, 500 West
Madison Street, Room 1400, Chicago, IL 60661, and 7 World Trade Center, Suite
1300, New York, NY 10048. Copies of such material can also be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web site
that contains reports, proxy statements and other information filed by the
Company at (http://www.sec.gov).
65
<PAGE>
INDEX TO FINANCIAL INFORMATION
UNITED COMMUNITY BANCSHARES, INC.
Independent Auditor's Reports............................................. F-2
Consolidated Balance Sheets as of June 30, 1996 (unaudited) and December
31, 1995 and 1994........................................................ F-4
Consolidated Statements of Income for the Six Months Ended June 30, 1996
and 1995 (unaudited) and for the Years Ended December 31, 1995, 1994 and
1993..................................................................... F-5
Consolidated Statements of Stockholders' Equity for the Six Months Ended
June 30, 1996 (unaudited) and for the Years Ended December 31, 1995, 1994
and 1993................................................................. F-6
Consolidated Statements of Cash Flows for the Six Months Ended June 30,
1996 and 1995 (unaudited) and for the Years Ended December 31, 1995, 1994
and 1993................................................................. F-7
Notes to Consolidated Financial Statements................................ F-8
GOODHUE COUNTY FINANCIAL CORPORATION
Independent Auditors' Report.............................................. F-31
Consolidated Balance Sheets as of December 31, 1993 and 1992.............. F-32
Consolidated Statements of Income for the Years Ended
December 31, 1993 and 1992............................................... F-33
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1993 and 1992............................................... F-34
Consolidated Statements of Cash Flows for the Years Ended December 31,
1993 and 1992............................................................ F-35
Notes to Consolidated Financial Statements................................ F-36
PARK FINANCIAL CORPORATION
Independent Auditor's Report.............................................. F-49
Consolidated Balance Sheets as of June 30, 1996 (unaudited) and December
31, 1995 and 1994........................................................ F-50
Consolidated Statements of Income for the Six Months Ended June 30, 1996
and 1995 (unaudited) and for the Years Ended December 31, 1995, 1994 and
1993..................................................................... F-51
Consolidated Statements of Stockholders' Equity for the Six Months Ended
June 30, 1996 (unaudited) and for the Years Ended December 31, 1995, 1994
and 1993................................................................. F-52
Consolidated Statements of Cash Flows for the Six Months Ended June 30,
1996 and 1995 (unaudited) and for the Years Ended December 31, 1995, 1994
and 1993................................................................. F-53
Notes to Consolidated Financial Statements................................ F-54
UNAUDITED PRO FORMA FINANCIAL INFORMATION
Unaudited Pro Forma Consolidated Financial Statements of United and PFC... F-66
Unaudited Pro Forma Consolidated Balance Sheet as of June 30, 1996........ F-67
Unaudited Pro Forma Consolidated Statement of Income for the Year Ended
December 31, 1995........................................................ F-68
Unaudited Pro Forma Consolidated Statement of Income for the Six Months
Ended June 30, 1996...................................................... F-69
Unaudited Pro Forma Consolidated Statement of Income for the Six Months
Ended June 30, 1995...................................................... F-70
Note to the Unaudited Pro Forma Consolidated Financial Statements......... F-71
Unaudited Pro Forma Consolidated Financial Statements of United and
Goodhue.................................................................. F-73
Unaudited Pro Forma Consolidated Balance Sheet as of December 31, 1993.... F-74
Unaudited Pro Forma Consolidated Statement of Income for the Year Ended
December 31, 1993........................................................ F-75
Note to the Unaudited Pro Forma Consolidated Financial Statements......... F-76
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
United Community Bancshares, Inc.
and Subsidiaries
Eagan, Minnesota
We have audited the accompanying consolidated balance sheets of United
Community Bancshares, Inc. and Subsidiaries as of December 31, 1995 and 1994,
and the related consolidated statements of income, stockholders' equity, and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of United
Community Bancshares, Inc. and Subsidiaries as of December 31, 1995 and 1994,
and the results of their operations and their cash flows for the years then
ended, in conformity with generally accepted accounting principles.
McGLADREY & PULLEN, LLP
St. Paul, Minnesota
February 23, 1996
F-2
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
United Community Bancshares, Inc.
and Subsidiary
Eagan, Minnesota
We have audited the accompanying consolidated statements of income,
stockholders' equity, and cash flows for United Community Bancshares, Inc. and
Subsidiary (formerly Signal Bancshares, Inc. and Subsidiary) for the year ended
December 31, 1993. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of United Community
Bancshares, Inc. and Subsidiary's operations and their cash flows for the year
ended December 31, 1993, in conformity with generally accepted accounting
principles.
LEININGER & LEININGER, LTD.
Minneapolis, Minnesota
February 18, 1994
F-3
<PAGE>
UNITED COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
JUNE 30 -------------------------------
1996 1995 1994
-------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and due from banks............................ $ 19,245,954 $ 20,513,154 $ 19,351,643
Federal funds sold................................. 3,425,000 8,725,000 7,975,000
-------------- -------------- --------------
Investment securities available for sale........... 104,523,116 101,836,962 70,278,070
Investment securities held to maturity............. -- -- 13,156,388
-------------- -------------- --------------
Total investment securities.................... 104,523,116 101,836,962 83,434,458
-------------- -------------- --------------
Loans and leases................................... 275,955,203 265,904,636 246,981,259
Allowance for loan and lease losses................ (2,989,690) (2,899,165) (2,856,288)
-------------- -------------- --------------
Net loans and leases........................... 272,965,513 263,005,471 244,124,971
-------------- -------------- --------------
Property and equipment, net........................ 10,537,048 10,654,578 10,991,515
Accrued interest receivable........................ 3,408,007 3,180,346 2,742,358
Cash surrender value of life insurance............. 9,314,969 9,116,888 8,485,485
Intangible assets, net............................. 3,852,457 4,188,801 4,861,489
Other assets....................................... 1,660,722 619,375 2,016,584
-------------- -------------- --------------
Total assets................................... $ 428,932,786 $ 421,840,575 $ 383,983,503
-------------- -------------- --------------
-------------- -------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits......................................... $ 340,225,090 $ 340,723,249 $ 312,946,989
Securities sold under repurchase agreements...... 29,282,911 23,173,292 27,746,565
Accrued expenses and other liabilities........... 4,828,164 5,213,321 3,352,717
Notes payable and other borrowings............... 16,097,095 15,762,119 12,412,281
-------------- -------------- --------------
Total liabilities.............................. 390,433,260 384,871,981 356,458,552
-------------- -------------- --------------
COMMITMENTS, CONTINGENCIES, AND CREDIT RISK
STOCKHOLDERS' EQUITY
Common stock, par value $0.01 per share;
5,000,000 shares authorized; 546,686, 544,750,
and 502,317, shares issued...................... 5,466 5,448 5,023
Additional paid-in capital....................... 21,015,602 20,837,567 17,288,552
Retained earnings................................ 17,794,504 15,513,033 11,884,002
Unrealized gain (loss) on securities available
for sale........................................ (316,046) 612,546 (1,652,626)
-------------- -------------- --------------
Total stockholders' equity..................... 38,499,526 36,968,594 27,524,951
-------------- -------------- --------------
Total liabilities and stockholders' equity..... $ 428,932,786 $ 421,840,575 $ 383,983,503
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
UNITED COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30 YEAR ENDED DECEMBER 31
----------------------------- ---------------------------------------------
1996 1995 1995 1994 1993
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans and leases................................ $ 13,190,219 $ 12,046,404 $ 25,089,584 $ 21,004,079 $ 9,069,781
Investment securities -- taxable................ 2,754,299 2,257,788 4,949,453 3,843,603 2,098,870
Investment securities -- tax exempt............. 212,938 208,657 405,726 343,892 139,757
Federal funds sold.............................. 293,714 330,644 760,820 324,871 115,164
------------- ------------- ------------- ------------- -------------
Total interest income......................... 16,451,170 14,843,493 31,205,583 25,516,445 11,423,572
------------- ------------- ------------- ------------- -------------
INTEREST EXPENSE:
Deposits........................................ 5,734,866 4,919,770 10,438,601 7,529,696 3,367,221
Federal funds purchased and securities sold
under repurchase agreements.................... 634,696 664,735 1,453,699 841,693 106,567
Notes payable and other borrowings.............. 505,302 428,090 955,752 788,064 197,037
------------- ------------- ------------- ------------- -------------
Total interest expense........................ 6,874,864 6,012,595 12,848,052 9,159,453 3,670,825
------------- ------------- ------------- ------------- -------------
Net interest income........................... 9,576,306 8,830,898 18,357,531 16,356,992 7,752,747
PROVISION FOR LOAN AND LEASE LOSSES............... 94,648 20,203 60,999 234,454 300,000
------------- ------------- ------------- ------------- -------------
Net interest income after provision for loan
and lease losses............................. 9,481,658 8,810,695 18,296,532 16,122,538 7,452,747
------------- ------------- ------------- ------------- -------------
NONINTEREST INCOME:
Service charges and other fees.................. 1,611,671 1,413,543 2,922,664 2,962,662 1,770,532
Net investment securities gains (losses)........ -- (18,584) (32,329) 79,351 75,194
Other........................................... 778,411 542,684 1,028,650 795,321 302,721
------------- ------------- ------------- ------------- -------------
Total noninterest income...................... 2,390,082 1,937,643 3,918,985 3,837,334 2,148,447
------------- ------------- ------------- ------------- -------------
NONINTEREST EXPENSE:
Salaries and employee benefits.................. 4,964,532 4,519,089 9,291,893 8,510,365 3,687,963
Occupancy....................................... 444,598 485,221 1,208,300 1,060,089 436,175
Depreciation.................................... 754,866 587,666 1,252,682 1,215,848 490,090
Amortization of intangibles..................... 378,047 411,800 824,140 561,882 83,196
FDIC assessment................................. 3,000 338,735 350,856 643,845 352,542
Other........................................... 2,010,815 1,865,652 3,603,063 4,139,114 2,366,160
------------- ------------- ------------- ------------- -------------
Total noninterest expense..................... 8,555,858 8,208,163 16,530,934 16,131,143 7,416,126
------------- ------------- ------------- ------------- -------------
Income before income taxes and cumulative
effect of change in accounting principle..... 3,315,882 2,540,175 5,684,583 3,828,729 2,185,068
INCOME TAX EXPENSE................................ 1,034,411 896,726 2,055,552 1,395,772 725,224
------------- ------------- ------------- ------------- -------------
Income before cumulative effect of change in
accounting principle......................... 2,281,471 1,643,449 3,629,031 2,432,957 1,459,844
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE........................................ -- -- -- -- 106,168
------------- ------------- ------------- ------------- -------------
Net income.................................... $ 2,281,471 $ 1,643,449 $ 3,629,031 $ 2,432,957 $ 1,566,012
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
AVERAGE SHARES OUTSTANDING........................ 557,284 514,784 528,787 513,167 313,994
------------- ------------- ------------- ------------- -------------
EARNINGS PER SHARE BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE................... $ 4.09 $ 3.19 $ 6.86 $ 4.74 $ 4.65
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE........................................ -- -- -- -- 0.34
------------- ------------- ------------- ------------- -------------
Earnings per share after cumulative effect of
change in accounting principle............... $ 4.09 $ 3.19 $ 6.86 $ 4.74 $ 4.99
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
DIVIDENDS PER SHARE............................... $ -- $ -- $ -- $ -- $ 0.45
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
UNITED COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1995, 1994, and 1993 and Six Months Ended June 30, 1996
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
COMMON STOCK ADDITIONAL ON SECURITIES
--------------------- PAID-IN RETAINED AVAILABLE
SHARES PAR VALUE CAPITAL EARNINGS FOR SALE TOTAL
--------- ---------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1992............ 296,383 $ 296,383 $ 3,620,194 $ 8,026,171 $ -- $ 11,942,748
Net income.......................... -- -- -- 1,566,012 -- 1,566,012
Common stock issued................. 7,126 7,126 377,678 -- -- 384,804
Common stock repurchased............ (763) (763) (42,171) -- -- (42,934)
Dividends........................... -- -- -- (141,138) -- (141,138)
--------- ---------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1993............ 302,746 302,746 3,955,701 9,451,045 -- 13,709,492
Change in par value from $1.00 to
$0.01 per share.................... -- (299,719) 299,719 -- -- --
Net income.......................... -- -- -- 2,432,957 -- 2,432,957
Common stock issued:
For acquisition of GCFC........... 138,067 1,381 8,851,475 -- -- 8,852,856
In stock offering................. 61,504 615 4,181,657 -- -- 4,182,272
Net change in unrealized loss on
securities available for sale...... -- -- -- -- (1,652,626) (1,652,626)
--------- ---------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1994............ 502,317 5,023 17,288,552 11,884,002 (1,652,626) 27,524,951
Net income.......................... -- -- -- 3,629,031 -- 3,629,031
Common stock issued................. 44,010 440 3,692,229 -- -- 3,692,669
Common stock repurchased............ (1,577) (15) (143,214) -- -- (143,229)
Net change in unrealized gain on
securities available for sale...... -- -- -- -- 2,265,172 2,265,172
--------- ---------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1995............ 544,750 5,448 20,837,567 15,513,033 612,546 36,968,594
Net income (unaudited).............. -- -- -- 2,281,471 -- 2,281,471
Common stock issued (unaudited)..... 2,467 24 226,419 -- -- 226,443
Common stock repurchased
(unaudited)........................ (531) (6) (49,653) -- -- (49,659)
Net change in unrealized loss on
securities available for sale
(unaudited)........................ -- -- -- -- (928,592) (928,592)
Tax effect of stock options
exercised (unaudited).............. -- -- 1,269 -- -- 1,269
--------- ---------- ------------- ------------- ------------- -------------
BALANCE, JUNE 30, 1996 (UNAUDITED).... 546,686 $ 5,466 $ 21,015,602 $ 17,794,504 $ (316,046) $ 38,499,526
--------- ---------- ------------- ------------- ------------- -------------
--------- ---------- ------------- ------------- ------------- -------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
UNITED COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30 YEAR ENDED DECEMBER 31
----------------------- -------------------------------------
1996 1995 1995 1994 1993
---------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................. $2,281,471 $ 1,643,449 $ 3,629,031 $ 2,432,957 $ 1,566,012
Adjustments to reconcile net income to net
cash flows from operating activities:
Cumulative effect of accounting change.... -- -- -- -- (106,168)
Net investment securities (gains)
losses................................... -- 18,584 32,329 (79,351) (75,194)
Net amortization and accretion of bond
premiums and discounts................... (79,219) (51,595) (310,582) 222,538 101,403
Provision for loan and lease losses....... 94,648 20,203 60,999 234,454 300,000
Depreciation.............................. 754,866 587,666 1,252,682 1,215,848 490,090
Amortization of intangibles............... 378,047 411,800 824,140 561,882 83,196
Earnings on cash surrender value of life
insurance................................ (198,081) (193,857) (377,103) (462,453) (249,871)
Net (gain) on sale of loans............... (229,594) (210,196) (485,626) (195,048) --
Net (gain) loss on sale of other real
estate................................... (49,657) (1,737) (63,247) (67,674) 9,951
Net gain on sale of property and
equipment................................ (13,439) (28,312) (49,923) (70,718) --
Provision for deferred income taxes....... (200,000) 12,475 24,950 (232,134) (97,572)
Other, net................................ (796,105) 207,071 912,636 (244,419) 885,553
---------- ----------- ----------- ----------- -----------
Net cash flows from operating
activities............................. 1,942,937 2,415,551 5,450,286 3,315,882 2,907,400
---------- ----------- ----------- ----------- -----------
CASH FLOWS USED FOR INVESTING ACTIVITIES
Net (increase) decrease in federal funds
sold....................................... 5,300,000 (2,525,000) (750,000) (2,525,000) (500,000)
Net cash flows (used for) from investment
securities................................. (4,159,348) (6,010,007) (14,396,539) (3,859,963) 1,315,307
Net increase in loans and leases............ (9,887,934) (8,616,042) (18,513,417) (26,999,676) (20,366,731)
Purchases of property and equipment......... (671,767) (401,084) (1,028,111) (2,350,262) (402,918)
Proceeds from sales of property and
equipment.................................. 25,400 52,000 117,349 409,934 --
Proceeds from sales of other real estate
owned...................................... 49,657 57,973 327,160 1,116,100 263,801
Purchase of cash surrender value of life
insurance.................................. -- -- (254,300) (156,450) --
Acquisition of other assets................. -- -- -- (1,500,000) --
Cash paid, net of cash acquired upon
purchase of subsidiaries................... -- -- -- (3,032,859) --
---------- ----------- ----------- ----------- -----------
Net cash flows used for investing
activities............................. (9,343,992) (17,442,160) (34,497,858) (38,898,176) (19,690,541)
---------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits......... (488,583) 4,978,459 27,879,916 21,791,336 7,071,058
Net increase (decrease) in securities sold
under repurchase agreements................ 6,109,619 1,413,587 (4,573,273) 12,421,478 6,766,347
Proceeds from notes payable and other
borrowings................................. 1,336,035 9,003,000 9,003,000 9,532,420 3,242,000
Payments made on notes payable and other
borrowings................................. (1,000,000) (1,750,000) (5,650,000) (1,084,420) (1,211,721)
Net proceeds from issuance of common
stock...................................... 176,784 161,472 3,549,440 4,182,272 341,870
Dividends paid.............................. -- -- -- -- (141,138)
---------- ----------- ----------- ----------- -----------
Net cash flows from financing
activities............................. 6,133,855 13,806,518 30,209,083 46,843,086 16,068,416
---------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................ (1,267,200) (1,220,091) 1,161,511 11,260,792 (714,725)
CASH AND CASH EQUIVALENTS
Beginning................................... 20,513,154 19,351,643 19,351,643 8,090,851 8,805,576
---------- ----------- ----------- ----------- -----------
Ending...................................... $19,245,954 $18,131,552 $20,513,154 $19,351,643 $ 8,090,851
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements
(Additional Cash Flow Information -- Note 18).
F-7
<PAGE>
UNITED COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION:
United Community Bancshares, Inc. (United) was formerly known as Signal
Bancshares, Inc. On January 1, 1994, Signal Bancshares, Inc. amended and
restated its Articles of Incorporation to change its name to United Community
Bancshares, Inc. Also on January 1, 1994, United acquired Goodhue County
Financial Corporation (GCFC) and its wholly-owned subsidiaries, Goodhue County
National Bank and Consumers Credit Corporation.
United Community Bancshares, Inc. and its subsidiaries provide a full range
of financial services. The accompanying consolidated financial statements for
1995 and 1994 include the accounts of United Community Bancshares, Inc. and its
wholly-owned subsidiaries, Signal Bank, Inc. (Signal), Goodhue County National
Bank (GCNB), Consumers Credit Corporation (CCC), and Unitech Services, Inc.
(Unitech). The accompanying consolidated financial statements for 1993 include
the accounts of Signal Bancshares, Inc. and its wholly-owned subsidiary, Signal
Bank, Inc. These entities are collectively referred to herein as the Company.
All significant intercompany balances and transactions have been eliminated in
consolidation.
BASIS OF FINANCIAL STATEMENT PRESENTATION AND ACCOUNTING ESTIMATES:
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the dates of the balance sheet
and revenues and expenses for the years then ended. Actual results could differ
from those estimates.
CASH, CASH EQUIVALENTS, AND CASH FLOWS:
For purposes of reporting cash flows, cash and cash equivalents includes
cash on hand and amounts due from banks. Cash flows from loans, federal funds
purchased and sold, deposits, and securities sold under repurchase agreements
are reported net.
INVESTMENT SECURITIES:
The Company accounts for debt and marketable equity securities in accordance
with Financial Accounting Standards Board (FASB) Statement No. 115. This
statement requires that management determine the appropriate classification of
securities at the date of adoption and thereafter as each individual security is
acquired. In addition, the appropriateness of such classification is reassessed
at each balance sheet date. The classifications and related accounting policies
under FASB Statement No. 115 are as follows:
HELD-TO-MATURITY SECURITIES: Securities classified as held-to-maturity are
those debt securities the Company has both the intent and ability to hold to
maturity regardless of changes in market conditions, liquidity needs, or changes
in general economic conditions. These securities are carried at cost adjusted
for amortization of premiums and accretion of discounts, computed by the
interest method over their contractual lives.
AVAILABLE-FOR-SALE SECURITIES: Securities classified as available-for-sale
are those debt securities that the Company intends to hold for an indefinite
period of time, but not necessarily to maturity. Any decision to sell a security
classified as available-for-sale would be based on various factors, including
significant movements in interest rates, changes in the maturity mix of the
Company's assets and liabilities, liquidity needs, regulatory capital
considerations, and other similar factors. Securities available for sale are
carried at fair value. Unrealized gains or losses, net of the related deferred
tax effect, are reported as increases or decreases in stockholders' equity.
Realized gains or losses, determined on the basis of the cost of specific
securities sold, are included in earnings.
LOANS AND ALLOWANCE FOR LOAN LOSSES:
Loans are stated at the amount of unpaid principal, reduced by an allowance
for loan losses.
F-8
<PAGE>
UNITED COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes that collectibility of the principal is
unlikely. The allowance is an amount that management believes will be adequate
to absorb estimated losses on existing loans that may become uncollectible,
based on evaluation of the collectibility of loans and prior loan loss
experience. This evaluation also takes into consideration such factors as
changes in the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans, and current economic conditions that
may affect the borrower's ability to pay. While management uses the best
information available to make its evaluation, future adjustments to the
allowance may be necessary if there are significant changes in economic
conditions.
On January 1, 1995, the Company adopted FASB Statement No. 114, ACCOUNTING
BY CREDITORS FOR IMPAIRMENT OF A LOAN. Statement No. 114 has been amended by
FASB Statement No. 118, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN--INCOME
RECOGNITION AND DISCLOSURES. Statement No. 114, as amended, defines a loan as
impaired when it is probable the Company will be unable to collect all principal
and interest payments due in accordance with the terms of the loan agreement.
The statement further requires that the impairment of loans that have been
separately identified for evaluation be measured based on the present value of
expected future cash flows or, alternatively, the observable market price of the
loans or the fair value of the collateral. However, for those loans that are
collateral dependent (that is, if repayment of those loans is expected to be
provided solely by the underlying collateral) and for which management has
determined foreclosure is probable, the measure of impairment of those loans is
to be based on the fair value of the collateral. The effect of adopting
Statement No. 114 was not significant to the Company.
Interest on loans is recognized over the terms of the loans and is
calculated using the simple-interest method on principal amounts outstanding.
For impaired loans, accrual of interest is discontinued on a loan when
management believes, after considering collection efforts and other factors,
that the borrower's financial condition is such that collection of interest is
doubtful. Cash collections on impaired loans are credited to the loan receivable
balance, and no interest income is recognized on those loans until the principal
balance has been collected.
Loan origination, commitment, and other fees and costs incurred to extend
credit are not significant and are recorded in the income statement when
received or incurred.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is provided principally by the straight-line method
over the estimated useful lives of the assets. Leasehold improvements are
amortized over the terms of the respective leases.
CASH SURRENDER VALUE OF LIFE INSURANCE:
The Company maintains life insurance contracts which are informally related
to certain deferred compensation, salary continuation, and key executive life
insurance agreements with officers and directors of the Company. The Company's
investment in cash surrender value of life insurance is recorded at the amount
that can be realized under the insurance contracts.
INTANGIBLE ASSETS:
Intangible assets include costs in excess of net assets acquired and certain
covenants not to compete, resulting from the acquisition of Goodhue County
Financial Corporation (GCFC) on January 1, 1994, and a deposit base premium
resulting from the acquisition of certain branches in 1988. These intangible
assets are being amortized over the expected period of benefit from 3 to 15
years.
F-9
<PAGE>
UNITED COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OTHER REAL ESTATE OWNED:
Real estate acquired through foreclosure or insubstance foreclosure is
recorded in other assets at the lower of cost or fair value of the asset less
the estimated costs to sell the asset. When a property is acquired, any excess
of the recorded loan balance over its estimated fair value is charged against
the allowance for loan losses. Any subsequent declines in fair value and
operating expenses are recorded in other expenses. Property is evaluated
regularly to ensure that the recorded amount is supported by its current fair
value.
INCOME TAXES:
The Company files a consolidated federal and a unitary state income tax
return. Deferred taxes are provided on an asset and liability method whereby
deferred tax assets are recognized for deductible temporary differences and
operating loss or tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the amounts of assets and liabilities recorded for income
tax and financial reporting purposes. Deferred tax assets are reduced by a
valuation allowance when management determines that it is more likely than not
that some portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes in
tax laws and rates on the date of enactment.
During 1993, the Company adopted the provisions of FASB Statement No. 109,
ACCOUNTING FOR INCOME TAXES, which supersedes Accounting Principles Board
Opinion No. 11, the basis of the Company's accounting for income taxes prior to
the change. The effect of the adjustments as of January 1, 1993, to adopt FASB
Statement No. 109 has been reflected in the consolidated statements of income as
a cumulative effect of change in accounting principle.
EARNINGS PER SHARE:
Earnings per share data is computed based on the weighted average number of
shares outstanding. Pursuant to Securities and Exchange Commission Staff
Accounting Bulletin No. 83, stock issued and to be issued for consideration
below the initial public offering price during the 12-month period preceding the
date of the initial filing of the registration statement has been included in
the calculation of shares outstanding, as if they were outstanding for all
periods presented up through the date of the initial public offering.
EMPLOYEE BENEFIT PLANS:
EMPLOYEE STOCK OWNERSHIP PLAN: The Company provides a noncontributory
employee stock ownership plan (ESOP) covering substantially all employees
eligible as to age and length of service. The amount of the contribution to the
ESOP trust is determined annually at the discretion of the Board of Directors
and complies with the requirements of the plan agreement.
401(K) PROFIT SHARING PLAN: The Company also provides a 401(k) profit
sharing plan beginning January 1, 1994, which covers substantially all of the
Company's employees who are eligible as to age and length of service. A
participant may elect to make contributions of up to 15 percent of the
participant's annual compensation. The Company makes a matching contribution of
50 percent of each participant's contribution, up to a maximum matching
contribution of 2 1/2 percent of compensation. The Company also may make a
discretionary profit sharing contribution determined annually by the Board of
Directors.
INTEREST SWAP:
The Company engages in interest rate swap transactions to manage its
interest rate risk. Income or expense on swaps is recorded as an adjustment to
interest income or expense.
F-10
<PAGE>
UNITED COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS:
FASB Statement No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL
INSTRUMENTS, requires disclosure of fair value information about financial
instruments, whether or not recognized in the balance sheet, for which it is
practicable to estimate that value. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques. Fair value estimates are made at a specific point in time,
based on relevant market information and information about the financial
instruments. These estimates do not reflect any premium or discount that could
result from offering for sale at one time the Company's entire holdings of a
particular financial instrument. Because no market exists for a significant
portion of the Company's financial instruments, fair value estimates are based
on judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and other
factors. These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and, therefore, cannot be determined with
precision. Changes in assumptions could significantly affect the estimates. In
addition, the tax ramifications related to the realization of the unrealized
gains can have a significant effect on market value estimates and have not been
considered in the estimates. The derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, could not
be realized in immediate settlement of the instruments. Statement No. 107
excludes certain financial instruments and all nonfinancial instruments from its
disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Company.
The following methods and assumptions were used by the Company in estimating
the fair value of its financial instruments:
CASH AND DUE FROM BANKS: Fair value of cash and due from banks is based on
the carrying value reported on the consolidated balance sheets.
FEDERAL FUNDS SOLD: Fair value of federal funds sold is based on the
carrying value reported on the consolidated balance sheets.
INVESTMENT SECURITIES: Fair values for all securities are based on quoted
market prices, where available. If quoted market prices are not available, fair
values are based on quoted market prices of comparable instruments.
LOANS: For variable-rate loans that reprice frequently and that have
experienced no significant change in credit risk, fair values are based on
carrying values. Fair values for all other loans are estimated based on
discounted cash flows, using interest rates currently being offered for loans
with similar terms to borrowers with similar credit quality.
CASH SURRENDER VALUE OF LIFE INSURANCE: Fair value of cash surrender value
of life insurance is based on the carrying value reported on the consolidated
balance sheets.
DEPOSITS: Fair values of demand, savings, and NOW accounts are based on the
carrying values reported on the consolidated balance sheets. Fair values for
fixed-rate certificates of deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on certificates
of deposit of similar remaining maturities.
SECURITIES SOLD UNDER REPURCHASE AGREEMENTS: Fair value of securities sold
under repurchase agreements is based on the carrying value reported on the
consolidated balance sheets.
F-11
<PAGE>
UNITED COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NOTES PAYABLE AND OTHER BORROWINGS: Fair values of variable-rate, long-term
borrowings are based on carrying values. Fair value of fixed-rate long-term debt
is estimated by discounting the future cash flows using interest rates currently
being offered on debt of similar remaining maturity.
ACCRUED INTEREST RECEIVABLE AND PAYABLE: Fair values of both accrued
interest receivable and payable are based on the carrying values reported on the
consolidated balance sheets.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS: Fair value of interest rate swaps
are based on quoted market prices. Loan commitments and standby letter of credit
fees are not material. As such, there are no carrying amounts or fair value
disclosures related to these financial instruments.
MORTGAGE SERVICING RIGHTS: FASB Statement No. 122, ACCOUNTING FOR MORTGAGE
SERVICING RIGHTS, establishes a new standard for capitalizing mortgage servicing
rights. This standard will require the Company to record an asset for mortgage
servicing rights when it sells mortgages and retains the servicing, and then
amortize this asset over the period during which servicing income is expected to
be received. This statement is effective for the Company's year ending December
31, 1996. In management's opinion, this statement will not have a material
effect on the Company's financial statements.
LONG-LIVED ASSETS: FASB Statement No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, establishes new
accounting standards for the impairment of long-lived assets, certain
intangibles, and goodwill related to those assets to be held and used and for
long-lived assets and certain identified intangibles to be disposed of. This
statement is effective for the Company's year ending December 31, 1996. In
management's opinion, the adoption of this statement will not have a material
effect on the Company's financial statements.
STOCK-BASED COMPENSATION: In October 1995, the FASB issued Statement No.
123, ACCOUNTING FOR STOCK-BASED COMPENSATION. FASB Statement No. 123 provides a
choice of accounting methods for valuing stock-based compensation plans and
requires certain disclosures about the effect on net income and earnings per
share regardless of the method used to account for them. This statement is
effective for the Company's year ending December 31, 1996. In management's
opinion, this statement will not have a material effect on the Company's
financial statements.
RECLASSIFICATIONS:
Certain of the 1994 and 1993 amounts have been reclassified to conform with
the 1995 presentation. These reclassifications had no effect on net income or
stockholders' equity.
INTERIM FINANCIAL INFORMATION (UNAUDITED):
The accompanying consolidated financial statements as of June 30, 1996, and
for the six-month periods ended June 30, 1996 and 1995, are unaudited but, in
the opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for fair presentation of the financial position
and results of operations. The operating results for the interim periods are not
necessarily indicative of the operating results to be expected for a full year
or for other interim periods.
NOTE 2. ACQUISITION
On January 1, 1994, the Company acquired Goodhue County Financial
Corporation (GCFC), a bank holding company headquartered in Red Wing, Minnesota.
F-12
<PAGE>
UNITED COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. ACQUISITION (CONTINUED)
A summary of the assets acquired, liabilities assumed, and purchase price
paid in connection with the acquisition are as follows:
<TABLE>
<S> <C>
Assets acquired:
Cash and cash equivalents................................. $ 6,231,125
Loans, net of allowance for loan losses of $1,223,931..... 104,734,005
Federal funds sold........................................ 4,950,000
Investments............................................... 43,013,653
Property and equipment.................................... 5,938,643
Other assets.............................................. 4,834,005
Cost in excess of net assets acquired....................... 3,292,310
--------------
Total assets................................................ $ 172,993,741
--------------
--------------
Liabilities assumed:
Deposits.................................................. $ 144,069,164
Other liabilities......................................... 1,882,552
Securities sold under repurchase agreements............... 8,558,740
Notes payable............................................. 366,445
--------------
Total liabilities........................................... 154,876,901
--------------
Purchase price:
Issuance of common stock by United........................ 8,852,856
Cash paid by United....................................... 9,263,984
--------------
Total purchase price........................................ 18,116,840
--------------
$ 172,993,741
--------------
--------------
</TABLE>
The acquisition was accounted for as a purchase and, accordingly, the
results of operations of GCFC are included in the accompanying consolidated
financial statements for periods subsequent to the acquisition date.
To facilitate this transaction, and provide operating funds, the Company
issued 61,504 additional shares of its common stock for cash proceeds totaling
$4,182,272 and incurred acquisition indebtedness of $6.8 million. United also
issued 138,067 shares of its common stock totaling $8.8 million and paid cash
totaling $9.3 million to the shareholders of GCFC in exchange for their shares
of GCFC common and preferred stock.
The Company also entered into two noncompete agreements with management of
GCFC totaling $1,500,000, which were paid in full during 1994, recorded as a
prepaid expense, and are being amortized over a three- to five-year period.
F-13
<PAGE>
UNITED COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. ACQUISITION (CONTINUED)
The unaudited pro forma consolidated results of operations for the year
ended December 31, 1993, as though the acquisition of GCFC had occurred on
January 1, 1993, is as follows:
<TABLE>
<S> <C>
Net interest income......................................... $ 14,894,908
Provision for loan and lease losses......................... 604,628
--------------
Net interest income after provision for loan and lease
losses..................................................... 14,290,280
Noninterest income.......................................... 3,947,242
Noninterest expense......................................... 14,994,719
--------------
Income before income taxes and cumulative effect of change
in accounting principle.................................... 3,242,803
Income tax expense.......................................... 1,138,533
--------------
Income before cumulative effect of change in accounting
principle.................................................. 2,104,270
Cumulative effect of change in accounting principle......... 181,168
--------------
Net income.................................................. $ 2,285,438
--------------
--------------
Average shares outstanding.................................. 513,565
--------------
Earnings per share before cumulative effect of change in
accounting principle....................................... $ 4.10
Cumulative effect of change in accounting principle......... 0.35
--------------
Earnings per share after cumulative effect of change in
accounting principle....................................... $ 4.45
--------------
--------------
</TABLE>
NOTE 3. RESTRICTIONS ON CASH AND CASH EQUIVALENTS
The subsidiary banks are required to maintain reserve balances, in cash or
on deposit with the Federal Reserve Bank, based upon a percentage of deposits.
The total required reserve balances as of December 31, 1995 and 1994, were
approximately $3,092,000 and $2,534,000, respectively.
F-14
<PAGE>
UNITED COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. INVESTMENT SECURITIES AVAILABLE FOR SALE
SUMMARY OF SECURITIES:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------------- ------------ ----------- --------------
<S> <C> <C> <C> <C>
U.S. Treasury securities............................. $ 29,648,393 $ 293,400 $ (100,502) $ 29,841,291
U.S. government corporations and agencies............ 29,745,481 548,338 -- 30,293,819
Obligations of states and political subdivisions..... 7,592,217 184,799 (20,400) 7,756,616
Mortgage-backed securities........................... 31,836,062 209,427 (88,903) 31,956,586
Corporate equity securities.......................... 1,988,650 -- -- 1,988,650
-------------- ------------ ----------- --------------
$ 100,810,803 $ 1,235,964 $ (209,805) $ 101,836,962
-------------- ------------ ----------- --------------
-------------- ------------ ----------- --------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
--------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
U.S. Treasury securities................................ $ 43,038,726 $ 1,468 $ (1,291,575) $ 41,748,619
U.S. government corporations and agencies............... 7,425,437 -- (52,042) 7,373,395
Mortgage-backed securities.............................. 20,024,787 3,754 (1,365,759) 18,662,782
Corporate equity securities............................. 2,555,017 -- (61,743) 2,493,274
------------- ----------- ------------- -------------
$ 73,043,967 $ 5,222 $ (2,771,119) $ 70,278,070
------------- ----------- ------------- -------------
------------- ----------- ------------- -------------
</TABLE>
CONTRACTUAL MATURITIES:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------------
AMORTIZED COST FAIR VALUE
-------------- --------------
<S> <C> <C>
Due in one year or less.......................................................... $ 20,366,550 $ 20,328,311
Due after one year through five years............................................ 41,660,447 42,362,872
Due after five years through ten years........................................... 3,856,410 4,049,502
Due after ten years.............................................................. 1,102,684 1,151,041
-------------- --------------
66,986,091 67,891,726
Mortgage-backed securities....................................................... 31,836,062 31,956,586
Corporate equity securities...................................................... 1,988,650 1,988,650
-------------- --------------
$ 100,810,803 $ 101,836,962
-------------- --------------
-------------- --------------
</TABLE>
Anticipated maturities on mortgage-backed securities are not readily
determinable since they may be prepaid without penalty, and corporate equity
securities do not have stated maturity dates.
REALIZED GAINS AND LOSSES:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------
1995 1994 1993
---------- ---------- ---------
<S> <C> <C> <C>
Gross gains.................................................................... $ 40,980 $ 88,146 $ 75,194
Gross losses................................................................... (73,309) (8,795) --
---------- ---------- ---------
$ (32,329) $ 79,351 $ 75,194
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
F-15
<PAGE>
UNITED COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. INVESTMENT SECURITIES AVAILABLE FOR SALE (CONTINUED)
PLEDGED SECURITIES:
Investment securities available for sale with a carrying value of
$74,161,604 and $56,422,299 at December 31, 1995 and 1994, respectively, were
pledged to secure public deposits and for other purposes as required or
permitted by law.
CHANGES IN THE NET UNREALIZED GAIN (LOSS) ON SECURITIES AVAILABLE FOR SALE
INCLUDED IN EQUITY:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Balance, beginning................................................... $ (1,652,626) $ -- $ --
Initial unrealized gain on date of adoption of Statement No. 115,
net of related deferred tax effect................................ -- 121,767 --
Unrealized gain (loss) during the year, net........................ 3,792,056 (2,970,444) --
Deferred tax effect related to unrealized gain (loss).............. (1,526,884) 1,196,051 --
------------- ------------- -------------
Balance, ending...................................................... $ 612,546 $ (1,652,626) $ --
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
NOTE 5. INVESTMENT SECURITIES HELD TO MATURITY
SUMMARY OF SECURITIES:
<TABLE>
<CAPTION>
DECEMBER 31, 1994
------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Mortgage-backed securities................................ $ 5,133,212 $ 2,684 $ (225,274) $ 4,910,622
Obligations of states and political subdivisions.......... 8,023,176 16,463 (269,113) 7,770,526
------------- ----------- ----------- -------------
$ 13,156,388 $ 19,147 $ (494,387) $ 12,681,148
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>
RECLASSIFICATIONS:
Upon adoption of FASB Statement No. 115, certain securities were initially
classified as held-to-maturity due to uncertainty as to the regulatory treatment
of unrealized gains and losses. This uncertainty was resolved in 1994, and as
permitted by Financial Accounting Standards Board Special Report -- A GUIDE TO
IMPLEMENTATION OF STATEMENT NO. 115 ON ACCOUNTING FOR CERTAIN INVESTMENTS IN
DEBT AND EQUITY SECURITIES, held-to-maturity securities with an amortized cost
of $11,972,456 and a fair value of $12,295,565 were reclassified as
available-for-sale on December 31, 1995. These securities were transferred to
allow more flexibility in managing the Company's assets.
The reclassification was made at fair value, and the difference between the
amortized cost and fair value on the date of transfer, net of the related
deferred tax effect, was recognized as an increase in the unrealized gain on
available-for-sale securities in stockholders' equity.
PLEDGED SECURITIES:
Investment securities held to maturity with a carrying value of $2,995,814
at December 31, 1994, were pledged to secure public deposits and for other
purposes as required or permitted by law.
F-16
<PAGE>
UNITED COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. SECURITIES HELD FOR INVESTMENT AND ACCOUNTING CHANGE
As of January 1, 1994, the Company changed its method of accounting for debt
and equity securities in accordance with FASB Statement No. 115. The January 1,
1994, balance of stockholders' equity was increased by $204,547, net of the
$82,780 related deferred tax effect, to recognize the net unrealized holding
gain on securities available for sale at that date.
NOTE 7. LOANS AND LEASES
COMPOSITION OF LOANS AND LEASES:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
Commercial....................................................................... $ 70,543,465 $ 70,360,974
Commercial real estate........................................................... 62,730,992 58,782,276
Agricultural..................................................................... 10,582,438 11,025,108
Agricultural real estate......................................................... 6,002,566 3,058,571
-------------- --------------
Total commercial and agricultural................................................ 149,859,461 143,226,929
Residential real estate.......................................................... 69,576,597 58,828,211
Consumer......................................................................... 35,896,609 35,654,852
Leases........................................................................... 12,119,437 10,737,398
Less unearned income............................................................. (1,547,468) (1,466,131)
-------------- --------------
265,904,636 246,981,259
Less allowance for loan and lease losses......................................... (2,899,165) (2,856,288)
-------------- --------------
Net loans and leases............................................................. $ 263,005,471 $ 244,124,971
-------------- --------------
-------------- --------------
</TABLE>
ALLOWANCE FOR LOAN AND LEASE LOSSES:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30 YEAR ENDED DECEMBER 31
-------------------------- ----------------------------------------
1996 1995 1995 1994 1993
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Balance, beginning......................... $ 2,899,165 $ 2,856,288 $ 2,856,288 $ 1,500,870 $ 1,435,374
Provision charged to operations.......... 94,648 20,203 60,999 234,454 300,000
Loans charged off........................ (295,272) (91,702) (337,079) (447,987) (475,424)
Recoveries............................... 291,149 143,894 318,957 345,020 240,920
Allowance for loan losses acquired....... -- -- -- 1,223,931 --
------------ ------------ ------------ ------------ ------------
Balance, ending............................ $ 2,989,690 $ 2,928,683 $ 2,899,165 $ 2,856,288 $ 1,500,870
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
IMPAIRED LOANS:
The Company had no impaired loans at December 31, 1995.
NONACCRUAL LOANS:
Nonaccrual loans totaled $459,388 at December 31, 1994. The effect of
nonaccrual loans was not significant to the results of operations.
F-17
<PAGE>
UNITED COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1995 1994
------------- -------------
<S> <C> <C>
Land............................................................................... $ 1,474,391 $ 1,474,391
Buildings and improvements......................................................... 8,080,458 8,065,593
Equipment.......................................................................... 8,924,949 8,563,263
Leasehold improvements............................................................. 1,458,058 1,407,587
------------- -------------
19,937,856 19,510,834
Less accumulated depreciation and amortization..................................... 9,283,278 8,519,319
------------- -------------
Property and equipment, net........................................................ $ 10,654,578 $ 10,991,515
------------- -------------
------------- -------------
</TABLE>
NOTE 9. DEPOSITS
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
Noninterest-bearing demand deposits.............................................. $ 70,871,849 $ 69,261,369
NOW and money market accounts.................................................... 114,066,189 82,607,658
Savings deposits................................................................. 47,735,468 42,955,654
Time certificates, $100,000 or more.............................................. 14,090,029 17,801,590
Other time deposits.............................................................. 93,959,714 100,320,718
-------------- --------------
Total............................................................................ $ 340,723,249 $ 312,946,989
-------------- --------------
-------------- --------------
</TABLE>
NOTE 10. NOTES PAYABLE AND OTHER BORROWINGS
NOTES PAYABLE:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1995 1994
------------- -------------
<S> <C> <C>
Term note payable to a bank, interest at LIBOR plus 1.8% (7.75% at December 31,
1995), due January 3, 1999, with annual installments of $500,000, secured by all
the common stock of Signal, GCNB, and CCC......................................... $ 3,400,000 $ 8,550,000
Advances from the Federal Home Loan Bank of Des Moines, principal due between May
12, 1997 and June 5, 1998, plus interest payable monthly at rates between 5.67%
and 6.61%, secured by blanket pledge agreements totaling $46,167,000 of
residential real estate mortgage loans............................................ 12,000,000 3,000,000
Unsecured term notes payable to certain individuals, interest varies from 6.0% to
10.0%, payable semiannually, notes had original maturities of three to five
years............................................................................. 362,119 362,281
------------- -------------
Total.............................................................................. $ 15,762,119 $ 11,912,281
------------- -------------
------------- -------------
</TABLE>
The term note payable to a bank includes certain covenants including
maintenance of certain ratios, including capital to assets and average return on
assets.
F-18
<PAGE>
UNITED COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. NOTES PAYABLE AND OTHER BORROWINGS (CONTINUED)
FUTURE ANNUAL MATURITIES:
<TABLE>
<S> <C>
Years ending December 31:
1996...................................................... $ 573,119
1997...................................................... 6,673,000
1998...................................................... 6,616,000
1999...................................................... 1,900,000
--------------
$ 15,762,119
--------------
--------------
</TABLE>
LINE OF CREDIT:
The Company has an open line of credit with a bank for $750,000. The
agreement has an expiration date of April 3, 1996. The line of credit was unused
at December 31, 1995. Borrowings under this line of credit are secured by all
the common stock of Signal, GCNB, and CCC.
NOTE 11. INCOME TAXES AND CHANGE IN ACCOUNTING PRINCIPLE
The cumulative tax effects of the primary temporary differences are shown in
the following table:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1995 1994
------------- -------------
<S> <C> <C>
Deferred tax assets:
Loan loss allowances.............................................................. $ 666,351 $ 684,118
Deferred compensation accruals.................................................... 403,326 322,159
Unrealized loss on securities available for sale.................................. -- 1,113,271
Amortization of intangible assets................................................. 47,061 --
Other............................................................................. -- 23,732
------------- -------------
Total deferred tax assets........................................................... 1,116,738 2,143,280
------------- -------------
Deferred tax liabilities:
Property and equipment............................................................ (233,031) (218,664)
Acquisition adjustment............................................................ (808,250) (869,582)
Amortization of intangible assets................................................. -- (96,659)
Unrealized gain on securities available for sale.................................. (413,613) --
Other............................................................................. (400,758) (145,455)
------------- -------------
Total deferred tax liabilities...................................................... (1,855,652) (1,330,360)
------------- -------------
Net deferred tax assets (liabilities)............................................... $ (738,914) $ 812,920
------------- -------------
------------- -------------
</TABLE>
The Company evaluated the available evidence supporting the realization of
its deferred tax assets and determined it is more likely than not that the
assets will be realized.
The provision for income taxes charged to operations consists of the
following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------
1995 1994 1993
------------ ------------ ----------
<S> <C> <C> <C>
Current tax expense....................................................... $ 2,030,602 $ 1,627,906 $ 822,796
Deferred tax expense (benefit)............................................ 24,950 (232,134) (97,572)
------------ ------------ ----------
$ 2,055,552 $ 1,395,772 $ 725,224
------------ ------------ ----------
------------ ------------ ----------
</TABLE>
F-19
<PAGE>
UNITED COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. INCOME TAXES AND CHANGE IN ACCOUNTING PRINCIPLE (CONTINUED)
The income tax provision differs from the amount of income tax determined by
applying the U.S. federal income tax rate to pretax income as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------
1995 1994 1993
------------ ------------ -----------
<S> <C> <C> <C>
Computed "expected" tax expense.......................................... $ 1,989,604 $ 1,340,055 $ 742,923
Increase (decrease) in income taxes resulting from:
State income taxes, net of federal tax benefit......................... 355,473 245,489 125,192
Tax-exempt interest income (net of disallowed expenses)................ (354,330) (324,612) (160,485)
Intangible asset amortization.......................................... 76,821 76,821 --
Other.................................................................. (12,016) 58,019 17,594
------------ ------------ -----------
$ 2,055,552 $ 1,395,772 $ 725,224
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
As discussed in Note 1, effective January 1, 1993, the Company adopted the
provisions of FASB Statement No. 109. This resulted in the recognition of
$106,168 of deferred tax assets at January 1, 1993, which was included in the
consolidated statement of income as a cumulative effect of a change in
accounting principle.
NOTE 12. COMMITMENTS, CONTINGENCIES, AND CREDIT RISK
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK:
The Company is party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. They involve, to varying degrees, elements of credit risk in
excess of amounts recognized on the consolidated balance sheets.
The Company's exposure to credit loss in the event of nonperformance by the
other parties to the financial instruments for these commitments is represented
by the contractual amounts of the instruments. The Company uses the same credit
policies in making commitments as it does for on-balance sheet instruments.
These commitments were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1995 1994
------------- -------------
<S> <C> <C>
Commitments to extend credit....................................................... $ 21,224,000 $ 20,860,000
Standby letters of credit.......................................................... 2,976,000 2,468,000
------------- -------------
$ 24,200,000 $ 23,328,000
------------- -------------
------------- -------------
</TABLE>
COMMITMENTS TO EXTEND CREDIT: Commitments to extend credit are agreements
to lend to a customer as long as there is no violation of any condition
established in the contract. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis. If deemed necessary upon extension of
credit, the amount of collateral obtained is based on management's credit
evaluation of the party. Collateral held varies, but may include accounts
receivable, inventory, equipment, and real estate.
STANDBY LETTERS OF CREDIT: Standby letters of credit are conditional
commitments issued by the Company to guarantee the performance of a customer to
a third party. Those guarantees are primarily issued to
F-20
<PAGE>
UNITED COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12. COMMITMENTS, CONTINGENCIES, AND CREDIT RISK (CONTINUED)
support public and private borrowing arrangements. The credit risk involved in
issuing letters of credit is essentially the same as that involved in extending
loan facilities to customers. Collateral held varies as specified above and is
required in instances which the Company deems necessary.
INTEREST RATE SWAPS: Interest rate swaps involve the contractual exchange
of fixed and floating rate interest payment obligations based on a notional
principal amount. The Company enters into interest rate swap contracts to manage
interest rate risk caused by fluctuations in interest rates. At December 31,
1995, interest rate swaps totaling $4,480,000 hedged the note payable to a bank
and a commercial loan. At December 31, 1994, the interest rate swap totaling
$7,000,000 hedged the note payable to a bank. Activity with respect to interest
rate swap contracts was as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
Notional amount outstanding at beginning of year:..................................... $ 7,000,000 $ --
Additions........................................................................... 1,480,000 7,000,000
Terminations........................................................................ (4,000,000) --
------------ ------------
Notional amount outstanding at end of year............................................ $ 4,480,000 $ 7,000,000
------------ ------------
------------ ------------
Unrealized gain (loss)................................................................ $ (30,172) $ 605,000
------------ ------------
------------ ------------
</TABLE>
The Company is a receiver of floating-rate interest and a payer of
fixed-rate interest. The weighted average interest rate paid was 5.45 and 5.32
percent and the weighted average interest rate received was 6.13 and 4.39
percent, during 1995 and 1994, respectively. The swaps terminate in January,
1999.
Interest rate swap contracts will result in gains and losses subsequent to
the date of the contract, due to interest rate movements. The Company amortizes
the gain or loss on terminated contracts over the original life of the hedge if
the hedged item remains outstanding. There were no unamortized gains or losses
at December 31, 1995.
LEASE COMMITMENTS:
At December 31, 1995, the Company was obligated under noncancelable leases
for office space, with terms including renewal options from three to five years.
The following is a schedule of future minimum rental payments under the
noncancelable operating leases:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31:
<S> <C>
1996............................................................ $ 239,161
1997............................................................ 206,129
1998............................................................ 207,565
1999............................................................ 167,527
2000............................................................ 85,000
---------
$ 905,382
---------
---------
</TABLE>
Total rent expense under these leases for the years ended December 31, 1995,
1994, and 1993, was $241,527, $184,384, and $59,424, respectively.
F-21
<PAGE>
UNITED COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12. COMMITMENTS, CONTINGENCIES, AND CREDIT RISK (CONTINUED)
FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT RISK:
The Banks originate loans to customers who are primarily located in the
Minneapolis-St. Paul seven-county metropolitan area and Goodhue County. Although
the Banks' loan portfolios are diversified, a substantial portion of their
borrowers' ability to repay their loans is dependent on the economic strength of
these areas.
NOTE 13. BENEFIT PLANS
EMPLOYEE STOCK OWNERSHIP PLAN:
Contributions to the plan were $309,362, $199,208, and $269,296 in 1995,
1994, and 1993, respectively.
401(K) PROFIT SHARING PLAN:
Contributions to the plan were $127,143, $311,726, and $-0- in 1995, 1994,
and 1993, respectively.
NOTE 14. STOCK OPTION PLAN
In April 1994, the Company's Board of Directors approved the 1994 Stock
Option Plan, which authorizes the issuance of up to 100,000 shares of the
Company's common stock to key employees and directors of the Company. The plan
extends through April 30, 2004. The plan provides for the granting of
nonqualified stock options and incentive stock options to purchase common stock
of the Company at 100 percent of the repurchase price on the dates of grant.
Under the plan, options become exercisable over a five-year period beginning
one year after date of grant and expire ten years from date of grant. There are
no charges or credits to income in connection with the grant or exercise of
options. The number and exercise price of options under this plan were as
follows:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE EXERCISE PRICE
OPTIONS OPTIONS PER SHARE
----------- ------------- ----------------
<S> <C> <C> <C>
December 31, 1993................................. 0 0 $ 0
-----
-----
Options granted May 1, 1994..................... 27,500 73.46
----------- ----------------
December 31, 1994................................. 27,500 0 73.46
-----
-----
Options granted February 1, 1995................ 21,333 79.80
Options Canceled................................ (1,440) 73.46 - 79.80
----------- ----------------
December 31, 1995................................. 47,393 5,500 $ 73.46 - 79.80
----------- ----- ----------------
----------- ----- ----------------
</TABLE>
NOTE 15. COMMON STOCK REPURCHASE AGREEMENT
Article 7 of the Company's bylaws grants the Company the option to purchase
the shares of common stock held by a stockholder or his estate in the event of
the stockholder's death, insolvency, or desire to sell or transfer shares. If
the Company does not exercise its option to purchase the available shares within
60 days, the other stockholders may acquire the shares in proportion to their
ownership of the Company. The Company's Employee Stock Ownership Plan may
acquire all remaining shares of stock not purchased by other stockholders.
The repurchase price of common stock shall be equal to one hundred fifty
percent (150%) of the adjusted consolidated tangible book value of the Company.
This is defined to include all equity accounts of the Company but shall not
include any cumulative unrealized gain or loss on investment securities
available for sale, less the adjusted intangible assets recorded, divided by the
number of shares outstanding. The per share repurchase price as of December 31,
1995, was $93.06.
F-22
<PAGE>
UNITED COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 16. LOANS AND OTHER TRANSACTIONS WITH RELATED PARTIES
Stockholders of the Company, and officers and directors, including their
families and companies of which they are principal owners, are considered to be
related parties. These related parties were loan customers of, and had other
transactions with, the Company in the ordinary course of business. In
management's opinion, these loans and transactions were on the same terms as
those for comparable loans and transactions with nonrelated parties. Total loans
to related parties were approximately $11,902,788 and $9,693,885 at December 31,
1995 and 1994, respectively. Activity with respect to related-party loans was as
follows:
<TABLE>
<S> <C>
Balance, December 31, 1994.................................. $ 9,693,885
New loans advanced........................................ 4,757,846
Repayments................................................ (2,548,943)
--------------
Balance, December 31, 1995.................................. $ 11,902,788
--------------
--------------
</TABLE>
NOTES 17. REGULATORY CAPITAL REQUIREMENTS
The Federal Reserve Board and other bank regulatory agencies have adopted
risk-based capital guidelines for banks and bank holding companies. The main
objectives of the risk-based capital framework are to provide a more consistent
system for comparing capital positions of banking organizations and to take into
account the different risks among banking organizations' assets and off-balance
sheet items. Bank regulatory agencies have supplemented the risk-based capital
standard with a leverage ratio for Tier 1 capital to total reported assets. The
minimum leverage ratio standard is 3 percent. Depending upon the judgment of the
various regulatory agencies, a greater leverage ratio may be required based upon
the relative risk of the organization.
Below is a comparison of the Company's 1995 actual with the minimum
requirements for well capitalized and adequately capitalized banks, as defined
by the federal regulatory agencies' Prompt Corrective Action Rules:
<TABLE>
<CAPTION>
MINIMUM REQUIREMENTS
------------------------------
1995 WELL ADEQUATELY
ACTUAL CAPITALIZED CAPITALIZED
----------- ------------- ---------------
<S> <C> <C> <C>
Tier 1 risk-based capital........................................... 12.63% 6.0% 4.0%
Total risk-based capital............................................ 13.75 10.0 8.0
Leverage ratio...................................................... 8.15 5.0 4.0
</TABLE>
Banking regulations restrict the amount of dividends that may be paid by the
Banks without prior approval of bank supervisory authorities.
F-23
<PAGE>
UNITED COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 18. ADDITIONAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
NET CASH FLOWS USED FOR INVESTMENT SECURITIES:
Available-for-sale securities:
Maturities................................................... $ 47,854,796 $ 13,974,815 $ --
Sales........................................................ 7,666,148 7,985,749 --
Purchases.................................................... (70,933,314) (24,072,986) --
Held-to-maturity securities:
Maturities................................................... 1,232,302 3,484,667 --
Purchases.................................................... (216,471) (5,232,208) --
Investment securities:
Maturities................................................... -- -- 24,501,156
Sales........................................................ -- -- 1,972,318
Purchases.................................................... -- -- (25,158,167)
-------------- -------------- --------------
Net cash flows (used for) from investment securities............. $ (14,396,539) $ (3,859,963) $ 1,315,307
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------
1995 1994 1993
------------- --------------- ------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for interest....................................... $ 12,260,709 $ 8,753,626 $ 3,765,777
Cash payments for income taxes................................... 1,884,820 2,216,337 398,472
------------- --------------- ------------
------------- --------------- ------------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Securities held for investment reclassified to:
Held-to-maturity securities.................................... $ -- $ 11,447,407 $ --
Available-for-sale securities.................................. -- 71,162,630 --
Held-to-maturity securities transferred to available-for-sale
(Note 4)........................................................ 11,972,456 -- --
Net change in unrealized gain (loss) on securities
available-for-sale.............................................. 2,265,172 (1,652,626) --
Other real estate acquired in settlement of loans................ -- 221,258 --
------------- --------------- ------------
------------- --------------- ------------
ACQUISITION OF SUBSIDIARIES:
Fair value of assets acquired, principally customer loans,
investments, property and equipment, and cost in excess of net
assets acquired, excluding net cash acquired $ -- $ 166,762,616 $ --
Fair value of deposits and other liabilities assumed............. -- (154,876,901) --
Common stock issued for acquisition of GCFC...................... -- (8,852,856) --
------------- --------------- ------------
Net cash paid...................................................... -- 3,032,859 --
Cash acquired...................................................... -- 6,231,125 --
------------- --------------- ------------
Cash paid.......................................................... $ -- $ 9,263,984 $ --
------------- --------------- ------------
------------- --------------- ------------
</TABLE>
F-24
<PAGE>
UNITED COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 19. FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------------------------------------
1995 1994
------------------------------ ------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks...................... $ 20,513,154 $ 20,513,154 $ 19,351,643 $ 19,351,643
Federal funds sold........................... 8,725,000 8,725,000 7,975,000 7,975,000
Investment securities available for sale..... 101,836,962 101,836,962 70,278,070 70,278,070
Investment securities held to maturity....... -- -- 13,156,388 12,681,148
Loans and leases............................. 265,904,636 265,669,636 246,981,259 240,395,330
Less allowance for loan and lease losses..... (2,899,165) -- (2,856,288) --
Accrued interest receivable.................. 3,180,346 3,180,346 2,742,358 2,742,358
Cash surrender value of life insurance....... 9,116,888 9,116,888 8,485,485 8,485,485
Financial liabilities:
Deposits..................................... 340,723,249 341,692,249 312,946,989 312,523,082
Securities sold under repurchase
agreements.................................. 23,173,292 23,173,292 27,746,565 27,746,565
Accrued interest payable..................... 2,163,556 2,163,556 1,576,213 1,576,213
Notes payable and other borrowings........... 15,762,119 15,801,470 12,412,281 12,182,983
Off-balance sheet financial instruments:
Interest rate swaps in a net gain (loss)
position.................................... -- (30,172) -- 605,000
</TABLE>
F-25
<PAGE>
UNITED COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 20. PARENT COMPANY FINANCIAL INFORMATION
Condensed financial information for United Community Bancshares, Inc.
(parent company only) follows:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------
JUNE 30, 1996 1995 1994
-------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Assets:
Cash and due from banks............................. $ 7,612 $ 112,503 $ 36,869
Advances to nonbank subsidiaries.................... 1,175,000 600,000 --
Property and equipment, net......................... 217,902 215,098 1,257,782
Accrued interest receivable......................... 6,690 3,548 --
Cash surrender value of life insurance.............. 712,823 696,709 1,433,883
Intangible assets, net.............................. 575,000 760,000 1,130,000
Other assets........................................ 600,414 231,521 1,141,876
Investment in bank subsidiaries..................... 36,370,543 35,672,594 30,696,843
Investment in nonbank subsidiaries.................. 2,883,032 2,723,190 1,531,224
-------------- -------------- --------------
Total assets.......................................... $ 42,549,016 $ 41,015,163 $ 37,228,477
-------------- -------------- --------------
-------------- -------------- --------------
Liabilities and stockholders' equity:
Accrued expenses and other liabilities.............. $ 474,490 $ 646,569 $ 653,526
Notes payable....................................... 3,575,000 3,400,000 9,050,000
-------------- -------------- --------------
Total liabilities..................................... 4,049,490 4,046,569 9,703,526
Stockholders' equity.................................. 38,499,526 36,968,594 27,524,951
-------------- -------------- --------------
Total liabilities and stockholders' equity............ $ 42,549,016 $ 41,015,163 $ 37,228,477
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
F-26
<PAGE>
UNITED COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 20. PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
YEAR ENDED DECEMBER 31
----------------------------- ---------------------------------------------
1996 1995 1995 1994 1993
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Dividend income from bank subsidiaries............ $ 1,300,000 $ 1,100,000 $ 2,100,000 $ 1,550,000 $ 800,000
Management fee income from bank subsidiaries...... 268,800 207,600 450,800 855,573 --
Management fee income from nonbank subsidiaries... 32,400 11,700 23,400 16,232 --
Interest income from nonbank subsidiaries......... 31,920 -- 11,012 -- --
Other income...................................... 19,587 15,139 35,614 67,030 --
------------- ------------- ------------- ------------- -------------
Total income...................................... 1,652,707 1,334,439 2,620,826 2,488,835 800,000
------------- ------------- ------------- ------------- -------------
Interest expense.................................. 126,500 277,477 424,533 583,964 45,357
Salaries and employee benefits.................... 915,731 658,341 1,467,509 1,136,502 25,655
Occupancy......................................... 35,087 21,230 55,214 205,342 --
Depreciation...................................... 38,150 35,214 69,863 229,680 --
Amortization of intangibles....................... 185,000 185,000 370,000 370,000 --
Other............................................. 103,195 77,270 180,979 402,908 178,400
------------- ------------- ------------- ------------- -------------
Total expenses.................................... 1,403,663 1,254,532 2,568,098 2,928,396 249,412
------------- ------------- ------------- ------------- -------------
Income (loss) before income tax benefit and equity
in undistributed earnings of subsidiaries........ 249,044 79,907 52,728 (439,561) 550,588
Income tax benefit................................ 423,087 418,900 831,565 787,410 100,776
------------- ------------- ------------- ------------- -------------
Income before equity in undistributed earnings of
subsidiaries..................................... 672,131 498,807 884,293 347,849 651,364
Equity in undistributed earnings of bank
subsidiaries..................................... 1,626,542 1,131,732 2,710,578 2,050,046 914,648
Equity in undistributed earnings/(loss) of nonbank
subsidiaries..................................... (17,202) 12,910 34,160 35,062 --
------------- ------------- ------------- ------------- -------------
Net income........................................ $ 2,281,471 $ 1,643,449 $ 3,629,031 $ 2,432,957 $ 1,566,012
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
F-27
<PAGE>
UNITED COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 20. PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
YEAR ENDED DECEMBER 31
----------------------------- ---------------------------------------------
1996 1995 1995 1994 1993
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income....................................... $ 2,281,471 $ 1,643,449 $ 3,629,031 $ 2,432,957 $ 1,566,012
Adjustments to reconcile net income to net cash
flows from operating activities:
Equity in undistributed earnings of
subsidiaries.................................. (1,609,340) (1,144,642) (2,744,738) (2,085,108) (914,648)
Depreciation................................... 38,150 35,214 69,863 229,680 --
Amortization of intangibles.................... 185,000 185,000 370,000 370,000 --
Earnings on cash surrender value of life
insurance..................................... (16,114) (14,859) (29,764) (66,906) --
Other, net..................................... (542,845) 351,116 899,849 (357,944) 22,101
------------- ------------- ------------- ------------- -------------
Net cash flows from operating activities........... 336,322 1,055,278 2,194,241 522,679 673,465
------------- ------------- ------------- ------------- -------------
Cash flows from investing activities:
Advances to nonbank subsidiaries................. (575,000) -- (600,000) -- --
Purchases of property and equipment.............. (40,954) (22,081) (83,374) (1,487,462) --
Transfer of property and equipment............... -- 1,056,195 1,056,195 -- --
Purchase of cash surrender value of life
insurance....................................... -- -- (36,450) (36,450) --
Transfer of cash surrender value of life
insurance....................................... -- 803,388 803,388 (1,330,527) --
Investments in subsidiaries, net................. (177,043) (1,157,806) (1,157,806) (17,622,846) --
Acquisition of other assets...................... -- -- -- (1,500,000) --
------------- ------------- ------------- ------------- -------------
Net cash flows (used for)/from investing
activities........................................ (792,997) 679,696 (18,047) (21,977,285) --
------------- ------------- ------------- ------------- -------------
Cash flows from financing activities:
Proceeds from notes payable...................... 1,175,000 -- -- 9,532,420 242,000
Payments made on notes payable................... (1,000,000) (1,750,000) (5,650,000) (1,084,420) (1,211,721)
Net proceeds from issuance of common stock....... 176,784 161,472 3,549,440 13,035,128 341,870
Dividends paid................................... -- -- -- -- (141,138)
------------- ------------- ------------- ------------- -------------
Net cash flows (used for)/from financing
activities........................................ 351,784 (1,588,528) (2,100,560) 21,483,128 (768,989)
------------- ------------- ------------- ------------- -------------
Net increase/(decrease) in cash.................... (104,891) 146,446 75,634 28,522 (95,524)
Cash
Beginning........................................ 112,503 36,869 36,869 8,347 103,871
------------- ------------- ------------- ------------- -------------
Ending........................................... $ 7,612 $ 183,315 $ 112,503 $ 36,869 $ 8,347
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
Federal law prevents United from borrowing from its subsidiary banks unless
the loans are secured by specific assets. Such secured loans by any subsidiary
bank are generally limited to 10 percent of the subsidiary banks' capital and
surplus, and aggregate loans to United and its nonbank subsidiaries are limited
to 20 percent of the subsidiary banks' capital and surplus.
The payment of dividends to United by the subsidiary banks is subject to
various federal and state regulatory limitations. A national bank must obtain
the approval of the Comptroller of the Currency if the total of all dividends
declared in any calendar year exceeds that bank's net profits for that year
combined with its retained net profits for the preceding two calendar years. A
Minnesota state-chartered bank must obtain the approval of the Minnesota
Department of Commerce if the total of all dividends declared in any calendar
year exceeds 50 percent of the bank's net profits for the preceding year.
F-28
<PAGE>
UNITED COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 21. ACQUISITION (UNAUDITED)
On October 7, 1996, United entered into an agreement with Park Financial
Corporation (PFC), a bank holding company headquartered in St. Louis Park,
Minnesota, to merge PFC and PFC Acquisition Corp., a wholly-owned subsidiary of
United. The merger is subject to the receipt of regulatory approvals and the
absence of any material adverse change in the condition of PFC or Park National
Bank. United anticipates that the necessary regulatory approvals will be
received and the merger will occur in January 1997.
The aggregate estimated purchase price of $46 million will be obtained from
the net proceeds of an $11 million preferred stock offering, the proceeds of a
$5 million common stock offering, additional debt financing of $24 million, and
cash on hand of $7 million.
The merger will be accounted for under the purchase method of accounting
and, accordingly, the assets and liabilities of Park National Bank will be
recorded at their fair values, with any remaining purchase price being allocated
to goodwill.
The purchase price of PFC is the November 30, 1996, book value of PFC, plus
a premium, plus a fixed daily accrual representing earnings from November 30,
1996, through the closing date.
The following is an unaudited summary of PFC's balance sheet as of June 30,
1996 and December 31, 1995, and unaudited results of operations for the year
ended December 31, 1995:
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, 1996 1995
-------------- --------------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
Assets:
Cash and due from banks........................................................ $ 11,306,786 $ 13,169,628
Interest-bearing deposits with banks........................................... 1,161,000 876,000
Federal funds sold............................................................. -- 4,900,000
Investment securities.......................................................... 74,144,977 63,764,635
Loans, net..................................................................... 116,673,197 113,498,772
Property and equipment, net.................................................... 2,071,075 2,130,254
Other assets................................................................... 2,872,679 2,230,636
-------------- --------------
Total assets..................................................................... $ 208,229,714 $ 200,569,925
-------------- --------------
-------------- --------------
Liabilities and stockholders' equity:
Deposits....................................................................... $ 166,443,237 $ 165,753,622
Securities sold under repurchase agreements.................................... 17,208,342 10,665,906
Accrued expenses and other liabilities......................................... 894,073 1,262,022
-------------- --------------
Total liabilities................................................................ 184,545,652 177,681,550
Stockholders' equity............................................................. 23,684,062 22,888,375
-------------- --------------
Total liabilities and stockholders' equity....................................... $ 208,229,714 $ 200,569,925
-------------- --------------
-------------- --------------
</TABLE>
F-29
<PAGE>
UNITED COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 21. ACQUISITION (UNAUDITED) (CONTINUED)
CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
DECEMBER 31,
1995
-------------
<S> <C>
(UNAUDITED)
Interest income.................................................................................... $ 14,968,748
Interest expense................................................................................... 5,671,616
-------------
Net interest income................................................................................ 9,297,132
Provision for loan losses.......................................................................... 720,000
-------------
Net interest income after provision for loan losses................................................ 8,577,132
Noninterest income................................................................................. 1,658,712
Noninterest expense................................................................................ 6,337,773
-------------
Income before income taxes......................................................................... 3,898,071
Income tax expense................................................................................. 1,497,263
-------------
Net income......................................................................................... $ 2,400,808
-------------
-------------
</TABLE>
F-30
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Goodhue County Financial Corporation:
We have audited the accompanying consolidated balance sheets of Goodhue
County Financial Corporation and subsidiaries (the Corporation) as of December
31, 1993 and 1992 and the related consolidated statements of income,
shareholders' 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 consolidated 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 financial position of Goodhue
County Financial Corporation and subsidiaries at December 31, 1993 and 1992 and
the results of their operations and cash flows for the years then ended, in
conformity with generally accepted accounting principles.
As discussed in note 2 to the consolidated financial statements, the
Corporation changed its method of accounting for income taxes in 1993 to adopt
the provisions of the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES.
KPMG PEAT MARWICK LLP
March 4, 1994
Minneapolis, Minnesota
F-31
<PAGE>
GOODHUE COUNTY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1993 and 1992
<TABLE>
<CAPTION>
1993 1992
-------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks........................................................... $ 6,160,289 8,681,770
Interest-bearing deposits in other banks.......................................... 70,836 4,236,138
Federal funds sold................................................................ 4,950,000 5,600,000
-------------- -------------
Cash and cash equivalents................................................... 11,181,125 18,517,908
Investment securities available for sale (market value of $43,013,653 in 1993 and
$49,049,234 in 1992)............................................................. 42,817,189 48,449,936
Loans and leases, net of unearned income.......................................... 104,395,435 101,875,239
Allowance for credit losses....................................................... (1,223,931) (1,331,434)
-------------- -------------
Net loans and leases........................................................ 103,171,504 100,543,805
Property and equipment, net....................................................... 5,039,918 4,871,036
Accrued income receivable......................................................... 1,282,300 1,220,915
Other assets...................................................................... 3,551,705 3,542,133
-------------- -------------
Total Assets................................................................ $ 167,043,741 177,145,733
-------------- -------------
-------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest bearing........................................................... $ 25,883,806 26,797,587
Interest bearing.............................................................. 117,597,967 130,039,263
-------------- -------------
Total deposits.............................................................. 143,481,773 156,836,850
Securities sold under repurchase agreements....................................... 8,554,941 6,405,592
Notes payable..................................................................... 357,000 357,000
Accrued interest payable.......................................................... 596,475 732,113
Accrued expenses and other liabilities............................................ 462,961 569,888
-------------- -------------
153,453,150 164,901,443
-------------- -------------
Shareholders' equity:
12% cumulative preferred stock $25 par value, 15,000 shares authorized, 11,050
shares issued and outstanding.................................................. 276,244 276,244
18% noncumulative preferred stock $100 par value, 33,000 shares authorized,
25,574 shares issued and outstanding........................................... 2,557,363 2,557,363
-------------- -------------
Total preferred shareholders' equity........................................ 2,833,607 2,833,607
-------------- -------------
Common stock -- $10 par value, 15,000 shares authorized, 11,050 shares issued
and outstanding.............................................................. 110,497 110,497
Additional paid-in capital.................................................... 171,450 171,450
Retained earnings............................................................. 10,475,037 9,128,736
-------------- -------------
Total common shareholders' equity........................................... 10,756,984 9,410,683
-------------- -------------
Total shareholders' equity.................................................. 13,590,591 12,244,290
-------------- -------------
Total liabilities and shareholders' equity.................................. $ 167,043,741 177,145,733
-------------- -------------
-------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-32
<PAGE>
GOODHUE COUNTY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1993 and 1992
<TABLE>
<CAPTION>
1993 1992
------------- ------------
<S> <C> <C>
Interest income:
Interest and fees on loans and leases.............................................. $ 9,725,971 10,488,456
Interest on federal funds sold..................................................... 145,786 109,461
Interest on deposits in other banks................................................ 107,343 164,434
Interest on investment securities:
Taxable.......................................................................... 2,383,653 2,877,589
Exempt from federal income tax................................................... 143,973 204,859
------------- ------------
Total interest on investment securities........................................ 2,527,626 3,082,448
------------- ------------
Total interest income.......................................................... 12,506,726 13,844,799
------------- ------------
Interest expense:
Interest on deposits............................................................... 4,585,589 5,948,507
Interest on short-term borrowings.................................................. 272,392 259,202
Interests on notes payable......................................................... 31,552 33,135
------------- ------------
Total interest expense......................................................... 4,889,533 6,240,844
------------- ------------
Net interest income............................................................ 7,617,193 7,603,955
Provisions for credit losses......................................................... 304,628 242,984
------------- ------------
Net interest income after provision for credit losses.......................... 7,312,565 7,360,971
------------- ------------
Noninterest income:
Service charges on deposit accounts................................................ 943,514 873,049
Investment securities transactions................................................. 210,256 11,290
Annuity and investment commissions................................................. 107,628 145,909
Other.............................................................................. 537,397 574,297
------------- ------------
Total noninterest income....................................................... 1,798,795 1,604,545
------------- ------------
Noninterest expense:
Salaries and employee benefits..................................................... 3,954,059 3,708,259
Occupancy expenses, net............................................................ 931,063 818,998
Data processing.................................................................... 202,514 195,907
Professional services.............................................................. 545,658 291,321
Federal deposit insurance expense.................................................. 336,996 336,304
Marketing.......................................................................... 161,904 135,117
Other.............................................................................. 967,716 877,648
------------- ------------
Total noninterest expense...................................................... 7,099,910 6,363,554
------------- ------------
Income before income taxes and cumulative effect of change in accounting
principle..................................................................... 2,011,450 2,601,962
Provision for income taxes........................................................... 707,000 924,000
------------- ------------
Income before cumulative effect of change in accounting principle.............. 1,304,450 1,677,962
------------- ------------
Cumulative effect of change in accounting principle.................................. 75,000 0
------------- ------------
Net income..................................................................... $ 1,379,450 1,677,962
------------- ------------
------------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-33
<PAGE>
GOODHUE COUNTY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 1993 and 1992
<TABLE>
<CAPTION>
12% CUMULATIVE ADDITIONAL
PREFERRED 18% NONCUMULATIVE COMMON PAID-IN RETAINED
STOCK PREFERRED STOCK STOCK CAPITAL EARNINGS TOTAL
-------------- ----------------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1991............... $ 285,244 2,670,183 114,097 687,424 7,496,710 11,253,658
Net income.............................. 0 0 0 0 1,677,962 1,677,962
Stock issued............................ 800 7,828 320 24,031 0 32,979
Stock redeemed.......................... (9,800) (120,648) (3,920) (540,005) 0 (674,373)
Preferred stock dividends declared...... 0 0 0 0 (45,936) (45,936)
-------------- ----------------- --------- ----------- ------------ ------------
Balance December 31, 1992............... 276,244 2,557,363 110,497 171,450 9,128,736 12,244,290
Net income.............................. 0 0 0 0 1,379,450 1,379,450
Preferred stock dividends declared...... 0 0 0 0 (33,149) (33,149)
-------------- ----------------- --------- ----------- ------------ ------------
Balance December 31, 1993............... $ 276,244 2,557,363 110,497 171,450 10,475,037 13,590,591
-------------- ----------------- --------- ----------- ------------ ------------
-------------- ----------------- --------- ----------- ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-34
<PAGE>
GOODHUE COUNTY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1993 and 1992
<TABLE>
<CAPTION>
1993 1992
-------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income....................................................................... $ 1,379,450 1,677,962
Adjustments to reconcile net income to net cash flows from (used in) operating
activities:
Provision for credit losses.................................................... 304,628 242,984
Depreciation and amortization.................................................. 409,320 555,093
Investment securities transactions............................................. (210,256) (11,290)
FHLB stock dividends........................................................... (28,900) (60,730)
Deferred income taxes.......................................................... (79,000) (62,000)
Accrued income receivable...................................................... (61,385) 294,654
Accrued interest payable....................................................... (135,638) (257,666)
Other assets, net.............................................................. (12,572) (578,632)
Accrued expenses and other liabilities, net.................................... (27,927) (6,095,406)
-------------- -------------
Net cash flows from (used in) operating activities........................... 1,537,720 (4,295,031)
-------------- -------------
Cash flows used in investing activities:
Proceeds from sales of investment securities..................................... 9,145,845 302,251
Proceeds from maturities of investment securities................................ 39,980,168 34,978,370
Purchases of investment securities............................................... (43,125,000) (28,257,209)
Loans and leases, net............................................................ (2,932,327) (4,785,836)
Purchases of property and equipment, net......................................... (704,312) (473,522)
-------------- -------------
Net cash flows from investing activities..................................... 2,364,374 1,764,054
-------------- -------------
Cash flows from financing activities:
Deposits, net.................................................................... (13,355,077) 6,545,628
Securities sold under repurchase agreements, net................................. 2,149,349 751,734
Stock issued..................................................................... 0 32,979
Stock redeemed................................................................... 0 (674,373)
Dividends paid................................................................... (33,149) (45,936)
-------------- -------------
Net cash flows from (used in) financing activities........................... (11,238,877) 6,610,032
-------------- -------------
Net (decrease) increase in cash and cash equivalents......................... (7,336,783) 4,079,055
Cash and cash equivalents:
Beginning of year................................................................ 18,517,908 14,438,853
-------------- -------------
End of year...................................................................... $ 11,181,125 18,517,908
-------------- -------------
-------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-35
<PAGE>
GOODHUE COUNTY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993 and 1992
(1) BUSINESS
Goodhue County Financial Corporation and subsidiaries (the Corporation)
provide a full range of banking and financial services to individual and
commercial customers who are primarily located in southeastern Minnesota and
western Wisconsin. The Corporation is subject to competition from other
financial institutions. The Corporation is subject to the regulations of certain
federal agencies and undergoes periodic examinations by those regulatory
authorities.
(2) SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of the Corporation are prepared in
conformity with generally accepted accounting principles and prevailing
practices in the banking industry. The following summarizes significant
accounting policies used in preparing the consolidated financial statements.
CONSOLIDATION
The consolidated financial statements of the Corporation include the
accounts of Goodhue County Financial Corporation (the Parent), The Goodhue
County National Bank of Red Wing (the Bank) and Consumers Credit Corporation, a
consumer finance company. All material intercompany accounts and transactions
have been eliminated.
BASIS OF FINANCIAL STATEMENT PRESENTATION
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and revenue and expenses for the
period. Actual results may differ from those estimates.
Material estimates include the determination of the allowance for credit
losses. Management believes that the allowance for credit losses is adequate.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the purpose of the consolidated statements of cash flows, cash and due
from banks, interest-bearing deposits in other banks and federal funds sold are
considered to be cash and cash equivalents. Cash payments for interest expense
and income taxes were approximately $5,025,000 and $344,000, respectively, for
the year ended December 31, 1993 and $6,499,000 and $1,406,000 respectively, for
the year ended December 31, 1992.
INVESTMENT SECURITIES AVAILABLE FOR SALE
Investment securities available for sale are carried at the lower of
aggregate amortized cost or market value. Gains and losses on sales of
investment securities are computed on a specific-identification basis.
LOANS AND LEASES
Loans are carried at the principal amount outstanding. Recognition of
interest income on loans is suspended when collectibility of principal or
interest is uncertain or principal or interest payments are 90 or more days
delinquent, unless, in the opinion of management, the loan is both well secured
and in process of collection. When loans are placed on a cash basis
(nonaccrual), any accrued interest receivable is charged against interest income
of the current year, or the allowance for credit losses, if accrued in a prior
year.
Payments of principal or interest received on cash-basis loans are applied
to reduce loan principal or reported as interest income, depending on the
judgment of management as to the ultimate collectibility of
(Continued)
F-36
<PAGE>
GOODHUE COUNTY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993 and 1992
the remaining loan amount. A cash-basis loan may be returned to accrual basis
when principal and interest payments are fully current and, in the opinion of
management, the collection of all future principal and interest payments is
reasonably assured.
The Bank provides equipment financing to lessees through finance leasing
arrangements. Leases are carried at the aggregate of lease rental payments
receivable, estimated residual values and unearned income. Unearned income,
including investment tax credits, is amortized over the lease terms by methods
producing level rates of return on net investments in leases. Estimated residual
values are recorded based on estimates by management of future equipment values
at the maturity of the leases.
ALLOWANCE FOR CREDIT LOSSES
An allowance for credit losses is maintained which is considered adequate to
absorb losses inherent in the loan and lease portfolios. A judgment is made by
management as to the adequacy of the allowance considering credit losses charged
to the allowance during the period, changes in the size, nature and risk of
credit portfolios, and general economic and business conditions. While
management uses information currently available to recognize losses on loans and
leases, future additions to the allowance may be necessary based upon changes in
economic conditions.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed on accelerated methods for assets placed in service
prior to 1984 and a straight-line method for assets placed in service thereafter
over the estimated useful lives of the assets.
INCOME TAXES
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES (SFAS No.
109), effective for fiscal years beginning after December 15, 1992. The
Corporation implemented SFAS No. 109 for the year ended December 31, 1993 and
the impact was an increase in the net deferred tax asset of approximately
$75,000.
The Corporation files a consolidated federal and a unitary state income tax
return.
DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, DISCLOSURES ABOUT FAIR
VALUE OF FINANCIAL INSTRUMENTS (SFAS No. 107), requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on estimates
using discounted cash flow analysis or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that regard, the derived
fair value estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate settlement of the
instrument. SFAS No. 107 excludes all nonfinancial instruments from its
disclosure requirements. Accordingly, the aggregate fair value amounts presented
in note 15 do not represent the underlying value of the Bank.
RECLASSIFICATIONS
The prior year's financial statements are reclassified to conform with any
significant changes in current financial statement presentation.
(Continued)
F-37
<PAGE>
GOODHUE COUNTY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993 and 1992
(3) INVESTMENT SECURITIES AVAILABLE FOR SALE
Amortized cost and estimated market value of investment securities available
for sale at December 31, 1993 were:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES MARKET VALUE
------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities.......................... $ 16,049,556 52,727 36,345 16,065,938
U.S. agency securities............................ 6,836,865 886 20,426 6,817,325
States and political subdivisions................. 2,048,939 84,153 8,970 2,124,122
Corporate securities.............................. 3,255,946 152,854 0 3,408,800
------------- ----------- ----------- ------------
28,191,306 290,620 65,741 28,416,185
------------- ----------- ----------- ------------
Mortgage-backed securities:
Federal agencies................................ 12,046,881 10,036 46,952 12,009,965
Collateralized mortgage obligations............. 1,779,302 33,862 25,361 1,787,803
------------- ----------- ----------- ------------
Total mortgage-backed securities.............. 13,826,183 43,898 72,313 13,797,768
Federal Reserve stock............................. 52,500 0 0 52,500
FHLB stock........................................ 746,700 0 0 746,700
Other stock....................................... 500 0 0 500
------------- ----------- ----------- ------------
$ 42,817,189 334,518 138,054 43,013,653
------------- ----------- ----------- ------------
------------- ----------- ----------- ------------
</TABLE>
The amortized cost and estimated market value of U.S. Treasury, U.S. agency,
state and political subdivision, and corporate securities at December 31, 1993,
by contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
COST VALUE
------------- ------------
<S> <C> <C>
Due in one year or less.................................................... $ 4,960,919 5,023,035
Due after one year through five years...................................... 22,135,945 22,255,325
Due after five years through ten years..................................... 725,528 720,597
Due after ten years........................................................ 368,914 417,228
------------- ------------
$ 28,191,306 28,416,185
------------- ------------
------------- ------------
</TABLE>
(Continued)
F-38
<PAGE>
GOODHUE COUNTY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993 and 1992
Amortized cost and estimated market value of investment securities available
for sale at December 31, 1992 were:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES MARKET VALUE
------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities.......................... $ 4,004,805 49,958 0 4,054,763
U.S. agency securities............................ 4,971,645 0 0 4,971,645
States and political subdivisions................. 2,269,634 93,103 852 2,361,885
Corporate securities.............................. 4,271,056 184,200 0 4,455,256
------------- ----------- ----- ------------
15,517,140 327,261 852 15,843,549
------------- ----------- ----- ------------
Mortgage-backed securities:
Federal agencies................................ 29,452,659 256,150 3,128 29,705,681
Collateralized mortgage obligations............. 2,709,337 19,867 0 2,729,204
------------- ----------- ----- ------------
Total mortgage-backed securities.............. 32,161,996 276,017 3,128 32,434,885
Federal Reserve stock............................. 52,500 0 0 52,500
FHLB stock........................................ 717,800 0 0 717,800
Other stock....................................... 500 0 0 500
------------- ----------- ----- ------------
$ 48,449,936 603,278 3,980 49,049,234
------------- ----------- ----- ------------
------------- ----------- ----- ------------
</TABLE>
Proceeds from the sale of investment securities during 1993 were $9,145,845.
Gross gains of $210,256 were realized on the sale. Proceeds from the sale of
investment securities during 1992 were $302,251. Gross gains of $11,290 were
realized on the sale.
At December 31, 1993 and 1992, the Corporation held no obligations of states
(including political subdivisions of such states) which exceeded 10% of
shareholders' equity.
Investment securities carried at approximately $26 million and $29 million
were pledged at December 31, 1993 and 1992, respectively, to secure certain
deposits and securities sold under repurchase agreements.
In May 1993 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 115, ACCOUNTING FOR CERTAIN
INVESTMENTS IN DEBT AND EQUITY SECURITIES, which will be adopted by the Company
on January 1, 1994. The statement requires that securities be classified into
one of three categories: trading account securities, securities available for
sale, or securities held to maturity. Securities classified as available for
sale must be reported at fair value with unrealized gains and losses reported,
net of tax, as a separate component of stockholders' equity. As of December 31,
1993, net unrealized gains related to securities classified as available for
sale on adoption of SFAS No. 115 were $196,464 before income taxes.
(Continued)
F-39
<PAGE>
GOODHUE COUNTY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993 and 1992
(4) LOANS AND LEASES
The carrying amount of loans and leases at December 31, consisted of:
<TABLE>
<CAPTION>
1993 1992
-------------- -------------
<S> <C> <C>
Commercial and agricultural loans............................. $ 38,824,168 35,522,003
Real estate loans............................................. 38,435,645 39,668,676
Less unearned income........................................ (80,579) (63,623)
Consumer loans................................................ 21,096,234 20,453,389
Less unearned income........................................ (378,069) (369,809)
Lease financing............................................... 7,542,674 7,780,529
Less unearned income........................................ (1,044,638) (1,115,926)
-------------- -------------
$ 104,395,435 101,875,239
-------------- -------------
-------------- -------------
</TABLE>
The Bank originates loans to individual and commercial customers who are
primarily located in southeastern Minnesota and western Wisconsin. Although the
Bank has a diversified loan portfolio, a substantial portion of its borrowers'
ability to honor their loans is dependent on the economic strength of
southeastern Minnesota and western Wisconsin.
Certain directors and executive officers of the Parent and Bank, including
their immediate families and companies in which they are principal owners, are
loan customers of the Bank. These loans were made in the ordinary course of
business at normal credit terms and do not represent more than a usual risk of
collection. The amounts of these loans outstanding at December 31, 1993 and 1992
were approximately $3,958,000 and $2,572,000, respectively.
(5) ALLOWANCE FOR CREDIT LOSSES
A summary of transactions affecting the allowance for credit losses for the
years ended December 31 is as follows:
<TABLE>
<CAPTION>
1993 1992
------------ ----------
<S> <C> <C>
Balance at beginning of year....................................... $ 1,331,434 1,320,509
Provision for credit losses........................................ 304,628 242,984
Credit losses...................................................... (495,541) (310,467)
Recoveries of credit losses........................................ 83,410 78,408
------------ ----------
Net credit losses.............................................. (412,131) (232,059)
------------ ----------
Balance at end of year............................................. $ 1,223,931 1,331,434
------------ ----------
------------ ----------
</TABLE>
Nonperforming assets at December 31 were:
<TABLE>
<CAPTION>
1993 1992
---------- ---------
<S> <C> <C>
Cash-basis loans....................................................... $ 576,021 225,728
Other real estate owned................................................ 232,936 141,003
---------- ---------
$ 808,957 366,731
---------- ---------
---------- ---------
</TABLE>
There were no material commitments to lend funds to customers whose loans
were classified as nonperforming at December 31, 1993.
(Continued)
F-40
<PAGE>
GOODHUE COUNTY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993 and 1992
In 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 114, ACCOUNTING BY CREDITORS FOR
IMPAIRMENT OF A LOAN, which must be adopted for the Corporation's 1995 financial
statements. It requires that impaired loans, as defined within SFAS No. 114, be
measured based on the present value of expected future cash flow discounted at
the loan's effective rate, at the loan's market price, or the fair value of the
collateral if the loan is collateral dependent. The adoption of SFAS No. 114 is
not expected to have a material effect on the Corporation's consolidated
financial statements.
(6) PROPERTY AND EQUIPMENT
Property and equipment at December 31 consisted of:
<TABLE>
<CAPTION>
1993 1992
------------- -----------
<S> <C> <C>
Land, buildings and improvements................................. $ 5,483,780 5,318,435
Furniture and equipment.......................................... 3,663,028 3,159,406
Accumulated depreciation......................................... (4,106,890) (3,606,805)
------------- -----------
$ 5,039,918 4,871,036
------------- -----------
------------- -----------
</TABLE>
(7) DEPOSITS AND RESERVE REQUIREMENTS
Deposits at December 31 consisted of:
<TABLE>
<CAPTION>
1993 1992
-------------- -------------
<S> <C> <C>
Deposits without stated maturity:
Demand and other noninterest bearing........................ $ 25,883,806 25,797,587
Regular savings............................................. 14,081,428 13,148,999
NOW accounts................................................ 12,212,093 14,046,451
Super NOW accounts.......................................... 2,611,595 1,985,865
Money market deposit accounts............................... 25,701,247 34,363,929
-------------- -------------
Total deposits without stated maturity.................... 80,490,169 90,342,831
Savings certificates.......................................... 56,037,921 63,197,934
Certificates of deposit of $100,000 or more................... 6,953,683 3,296,085
-------------- -------------
$ 143,481,773 156,836,850
-------------- -------------
-------------- -------------
</TABLE>
Interest expense on certificates of deposit of $100,000 or more for the
years ended December 31, 1993 and 1992 was approximately $97,000 and $176,000,
respectively.
The Bank is required by Federal Reserve Board regulations to maintain
certain average minimum reserve balances. The amount of the required reserve
balance is included in cash and due from banks and at December 31, 1993 was
$200,000.
(Continued)
F-41
<PAGE>
GOODHUE COUNTY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993 and 1992
(8) SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
Securities sold under repurchase agreements are U.S. Treasury and federal
agency securities and generally mature in 30 to 90 days. Details of these
borrowings for the years ended December 31 were:
<TABLE>
<CAPTION>
1993 1992
--------------- -------------
<S> <C> <C>
Balance as of December 31.................................... $ 8,554,941 6,405,592
Average interest rate as of December 31...................... 2.69% 3.70%
Average annual balance....................................... $ 8,553,851 5,729,604
Average annual interest rate................................. 3.12% 4.52%
Highest balance at any month end............................. $ 12,813,116 6,405,592
</TABLE>
(9) NOTES PAYABLE
Notes payable at December 31 related to consumer finance company operations.
The notes are 6.00% to 11.50% unsecured notes payable to certain individuals
with original maturities of three to five years. The notes provide for
semiannual payments of interest. Principal maturities of notes payable at
December 31, 1993 were:
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
1994.............................................................................. $ 172,000
1995.............................................................................. 114,000
1996.............................................................................. 71,000
----------
$ 357,000
----------
----------
</TABLE>
(10) SHAREHOLDERS' EQUITY
The holders of the 12% cumulative preferred stock are entitled to one and
one-half votes per share. The 12% cumulative preferred stock is redeemable at
the option of the Corporation at $26.25 per share together with any accrued and
unpaid dividends. In the event of liquidation of the Corporation, the holders of
the 12% preferred stock are entitled to the stock's par value ($25 per share)
together with any accrued and unpaid dividends. If insufficient assets exist to
provide the holders of both classes of preferred stock the respective stock's
par value, then any accrued and unpaid dividends on the 12% preferred stock
shall be paid first and any remaining assets shall be used to pay the respective
par value of the two classes of preferred stock without preference. The
Corporation declared dividends of $3 per share on the 12% cumulative preferred
stock in 1993 and 1992.
The 18% noncumulative preferred stock is redeemable at the Corporation's
option at $118 per share together with any dividends declared but unpaid. In the
event of liquidation of the Corporation, the holders of the 18% noncumulative
preferred stock are entitled to the stock's par value ($100 per share) together
with any declared but unpaid dividends. The 18% noncumulative preferred stock
has preference upon liquidation over the common stock. If insufficient assets
exist in the event of liquidation, then the order of preference is as provided
above. The Corporation declared no dividend in 1993 and dividends of $.50 per
share on the 18% noncumulative preferred stock in 1992.
All cumulative dividends on the 12% cumulative preferred stock must be paid
prior to any payment of dividends on the 18% noncumulative preferred stock. No
cash dividends may be declared on the common stock in any year unless an 18%
dividend has been declared in that year on the 18% noncumulative preferred
stock.
(Continued)
F-42
<PAGE>
GOODHUE COUNTY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993 and 1992
(11) RESTRICTION OF DIVIDENDS FROM BANK
National banking laws restrict the payment of dividends by the Bank. The
prior approval of the Comptroller of the Currency is required if dividends
declared in any calendar year by a national bank exceed the total of its net
income, as defined, for the current year and retained earnings for the two
preceding years. Under this limitation and considering regulatory capital
requirements, additional dividends of up to approximately $1,875,000 could be
declared by the Bank at December 31, 1993 without prior regulatory approval.
(12) INCOME TAXES
The components of income tax expense (benefit) for the years ended December
31 were:
<TABLE>
<CAPTION>
1993 1992
---------- ---------
<S> <C> <C>
Current:
Federal.............................................................. $ 531,500 756,000
State................................................................ 179,500 230,000
---------- ---------
Total current...................................................... 711,000 986,000
---------- ---------
Deferred:
Federal.............................................................. (9,000) (57,000)
State................................................................ 5,000 (5,000)
---------- ---------
Total deferred..................................................... (4,000) (62,000)
---------- ---------
$ 707,000 924,000
---------- ---------
---------- ---------
</TABLE>
Deferred tax liabilities (assets) at December 31 included the following
temporary differences:
<TABLE>
<CAPTION>
1993 1992
----------- ----------
<S> <C> <C>
Provisions for credit losses......................................... $ (328,666) (214,200)
Leasing transactions................................................. 0 48,045
Depreciation......................................................... 125,159 57,165
FHLB stock dividend.................................................. 36,047 31,336
Real estate taxes.................................................... 49,296 0
Other, net........................................................... 9,020 (599)
----------- ----------
$ (109,144) (78,253)
----------- ----------
----------- ----------
</TABLE>
A reconciliation from the statutory federal income tax rate to the effective
tax rate for the years ended December 31 follows:
<TABLE>
<CAPTION>
1993 1992
------------ ------------
<S> <C> <C>
Statutory federal income tax rate........................................ 34.0% 34.0%
State income taxes, net of federal income tax benefit.................... 6.1 5.7
Tax-exempt income, net of nondeductible expense.......................... (2.8) (2.6)
Increase in cash value of life insurance................................. (1.7) (2.0)
Other, net............................................................... (.5) .4
--- ---
Effective tax rate..................................................... 35.1% 35.5%
--- ---
--- ---
</TABLE>
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES (SFAS No.
109). Under the asset and liability method of
(Continued)
F-43
<PAGE>
GOODHUE COUNTY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993 and 1992
SFAS No. 109, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS No. 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
The Company adopted the provisions of SFAS No. 109 without restating prior
years' financial statements, resulting in an increase of the net deferred tax
asset of approximately $75,000 as of January 1, 1993. This amount was reported
separately as a cumulative effect of a change in the method of accounting for
income taxes in the consolidated statement of income for the year ended December
31, 1993.
The Bank has determined that it is not required to establish a valuation
reserve for the deferred tax asset. Management believes it is more likely than
not that the federal portion of the deferred tax asset will be realized through
carryback to taxable income in prior years or future reversals of existing
taxable temporary differences. Based on the Bank's historical level of taxable
income and their projections for future taxable income over the periods the
state portion of the deferred tax asset is deductible, management also believes
it is more likely than not that the state portion of the deferred tax asset will
be realized through future taxable income. There can be no assurance, however,
that the Bank will generate any specific level of earnings in the future.
(13) PROFIT SHARING PLAN
The Corporation maintains a defined contribution profit sharing plan which
covers all full-time employees meeting certain minimum employment service
requirements. Profit sharing plan expense for the years ended December 31 was
$140,738 and $324,459 for 1993 and 1992, respectively.
(14) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank is party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments involve, to varying degrees, elements of credit,
market (interest rate), or liquidity risk in excess of the amount recognized in
the balance sheet.
The Bank makes contractual commitments to extend credit and lines of credit,
which are subject to the Bank's credit approval and monitoring procedures. At
December 31, 1993 and 1992 the outstanding commitments to extend credit and
lines of credit totaled $6,856,000 and $7,196,000, respectively.
The Bank guarantees the performance by certain customers of their
obligations by issuing standby letters of credit. The risk involved in issuing
standby letters of credit is essentially the same as the credit risk involved in
extending loan facilities to customers and they are subject to the same credit
evaluations. At December 31, 1993 and 1992 the outstanding letters of credit
totaled $1,311,000 and $591,000, respectively.
(15) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107 requires that the Corporation disclose estimated fair values
for its financial instruments. Fair value estimates, methods and assumptions are
set forth below for the Corporation's financial instruments as of December 31.
CASH AND DUE FROM BANKS, INTEREST-BEARING DEPOSITS IN OTHER BANKS, AND
FEDERAL FUNDS SOLD
The carrying amount reported in the balance sheet for cash and short-term
instruments is a reasonable estimate of fair value.
(Continued)
F-44
<PAGE>
GOODHUE COUNTY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993 and 1992
INVESTMENT SECURITIES AVAILABLE FOR SALE
Fair values for investment securities are based on quoted market prices,
where available. If quoted market prices are not available, fair values are
based on quoted market prices of comparable instruments. See note 3 for fair
values of investment securities.
LOANS AND LEASES
The fair values of loans and leases are estimated using discounted cash flow
analyses on a portfolio basis, using interest rates currently being offered for
loans with similar terms to borrowers of similar credit quality. The carrying
amount of accrued interest approximates its fair value. The carrying amounts
(shown net of unearned income) and fair values of loans and leases at December
31 were:
<TABLE>
<CAPTION>
1993 1992
----------------------------- ----------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Commercial and agricultural loans........ $ 38,824,168 38,945,384 35,522,003 35,515,311
Real estate loans, net................... 38,355,066 39,672,826 39,605,053 40,354,070
Consumer loans, net...................... 20,718,165 20,792,149 20,083,580 20,143,632
Lease financing, net..................... 6,498,036 6,547,577 6,664,603 6,739,399
-------------- ------------- ------------- -------------
Total loans.......................... $ 104,395,435 105,957,936 101,875,239 102,752,412
-------------- ------------- ------------- -------------
-------------- ------------- ------------- -------------
</TABLE>
ACCRUED INTEREST RECEIVABLE
The carrying amount of accrued interest receivable approximates its fair
value.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
Loan commitment and standby letter of credit fees are not material. As such,
there are no carrying amount or fair value disclosures related to these
off-balance-sheet financial instruments.
(Continued)
F-45
<PAGE>
GOODHUE COUNTY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993 and 1992
DEPOSITS
The fair values of deposits without a stated maturity are equal to the
amount payable on demand at the reporting date (that is, carrying value). Fair
values for certificates of deposit are estimated using discounted cash flow
analysis using interest rates currently being offered on certificates. The
carrying amount and fair value of deposits at December 31 were:
<TABLE>
<CAPTION>
1993 1992
----------------------------- ----------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Deposits without stated maturity:
Demand and other noninterest bearing... $ 25,883,806 25,883,806 26,797,587 26,797,587
Regular savings........................ 14,081,428 14,081,428 13,148,999 13,148,999
NOW accounts........................... 12,212,093 12,212,093 14,046,451 14,046,451
Super NOW accounts..................... 2,611,595 2,611,595 1,985,865 1,985,865
Money market deposit accounts.......... 25,701,247 25,701,247 34,363,929 34,363,929
-------------- ------------- ------------- -------------
Total deposits without stated
maturity............................ 80,490,169 80,490,169 90,342,831 90,342,831
Savings certificates..................... 56,037,921 56,582,293 63,197,934 63,781,993
Certificates of deposit of $100,000 or
more.................................... 6,953,683 6,996,702 3,296,085 3,308,135
-------------- ------------- ------------- -------------
Total deposits....................... $ 143,481,773 144,069,164 156,836,850 157,432,959
-------------- ------------- ------------- -------------
-------------- ------------- ------------- -------------
</TABLE>
SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
The carrying amounts of overnight repurchase agreements approximate their
fair values. Fair values for other repurchase agreements are estimated using
discounted cash flow analysis using interest rates currently being offered on
repurchase agreements with similar maturities. The carrying amount and fair
value of repurchase agreements at December 31 were:
<TABLE>
<CAPTION>
1993 1992
------------------------ ----------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Overnight repurchase agreement........... $ 6,612,941 6,612,941 1,180,330 1,180,330
Other repurchase agreements.............. 1,942,000 1,945,799 5,225,262 5,244,365
------------ ---------- ---------- ----------
Total repurchase agreements.............. $ 8,554,941 8,558,740 6,405,592 6,424,695
------------ ---------- ---------- ----------
------------ ---------- ---------- ----------
</TABLE>
ACCRUED INTEREST PAYABLE
The carrying amount of accrued interest payable approximates its fair value.
NOTES PAYABLE
Fair values of notes payable related to consumer finance company operations
are estimated using discounted cash flow analysis using interest rates currently
offered for renewing notes. The carrying amount and fair value of notes payable
at December 31, 1993 and 1992 were $357,000 and $366,445, and $357,000 and
$377,653, respectively.
(Continued)
F-46
<PAGE>
GOODHUE COUNTY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993 and 1992
(16) PARENT COMPANY FINANCIAL INFORMATION
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1993 1992
------------- ------------
<S> <C> <C>
Assets:
Cash............................................................................... $ 533,922 242,190
Investments in subsidiaries........................................................ 13,096,601 11,894,795
Other assets....................................................................... 18,447 160,425
------------- ------------
Total assets..................................................................... $ 13,648,970 12,297,410
------------- ------------
------------- ------------
Liabilities and shareholders' equity:
Accrued expenses and other liabilities............................................. $ 58,379 53,120
Shareholders' equity............................................................... 13,590,591 12,244,290
------------- ------------
Total liabilities and shareholders' equity....................................... $ 13,648,970 12,297,410
------------- ------------
------------- ------------
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
1993 1992
------------ ----------
<S> <C> <C>
Income:
Dividends from subsidiaries.......................................................... $ 750,000 820,000
Management fees from subsidiaries.................................................... 111,610 74,370
------------ ----------
Total income....................................................................... 861,610 894,370
Expenses:
Salaries and employee benefits....................................................... 116,348 112,186
Other................................................................................ 183,618 4,463
------------ ----------
Total expenses..................................................................... 299,966 116,649
------------ ----------
Income before income taxes and equity in undistributed earnings of subsidiaries.... 561,644 777,721
Income tax benefit..................................................................... (16,000) (17,000)
------------ ----------
Income before equity in undistributed earnings of subsidiaries..................... 577,644 794,721
Equity in undistributed earnings of subsidiaries....................................... 801,806 883,241
------------ ----------
Net income......................................................................... $ 1,379,450 1,677,962
------------ ----------
------------ ----------
</TABLE>
(Continued)
F-47
<PAGE>
GOODHUE COUNTY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993 and 1992
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
1993 1992
------------ ----------
<S> <C> <C>
Cash flows from operating activities:
Net income........................................................................... $ 1,379,450 1,677,962
Adjustments to reconcile net income to net cash flows from operating activities:
Equity in undistributed earnings of subsidiaries................................... (801,806) (883,241)
Other assets, net.................................................................. 141,978 (135,366)
Accrued expenses and other liabilities, net........................................ 5,259 (1,975)
------------ ----------
Net cash flow from operating activities.......................................... 724,881 657,380
------------ ----------
Cash flows from investing activities:
Advances to subsidiaries............................................................. (400,000) 0
------------ ----------
Net cash flow used in investing activities....................................... (400,000) 0
------------ ----------
Cash flows from financing activities:
Stock issued......................................................................... 0 32,979
Stock redeemed....................................................................... 0 (674,373)
Dividends paid....................................................................... (33,149) (45,936)
------------ ----------
Net cash flow used in financing activities....................................... (33,149) (687,330)
------------ ----------
Net increase (decrease) in cash.................................................. 291,732 (29,950)
Cash:
Beginning of year.................................................................... 242,190 272,140
------------ ----------
End of year.......................................................................... $ 533,922 242,190
------------ ----------
------------ ----------
</TABLE>
(17) SUBSEQUENT EVENT
Effective on January 1, 1994 the Corporation merged into Signal Bancshares,
Inc., a single-bank holding company (sole owner of Signal Bank, Inc. located in
West St. Paul, Minnesota), to form United Community Bancshares, Inc., a
multibank holding company. As a result of the merger transaction, all
Corporation stock was converted into United Common Stock, cash, or a combination
of United Common Stock and cash.
(Continued)
F-48
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Park Financial Corporation and Subsidiary
Minneapolis, Minnesota
We have audited the accompanying consolidated balance sheets of Park
Financial Corporation (a Minnesota corporation) and Subsidiary at December 31,
1995 and 1994, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated 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 financial position of Park
Financial Corporation and Subsidiary at December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally accepted
accounting principles.
As described in Note 1 to the consolidated financial statements and as
required by generally accepted accounting principles, the Company changed its
method of accounting for investments in debt securities in 1994 and income taxes
in 1993.
LARSON, ALLEN, WEISHAIR, & CO., LLP
Minneapolis, Minnesota
January 31, 1996
F-49
<PAGE>
PARK FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -------------------------------
1996 1995 1994
-------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and Due from Banks............................ $ 11,306,786 $ 13,169,628 $ 10,383,932
Interest Bearing Deposits with Banks............... 1,161,000 876,000 --
Federal Funds Sold................................. -- 4,900,000 7,600,000
Commercial Paper................................... 1,593,001 1,570,357 2,281,129
Securities:
Available-for-Sale............................... 72,658,567 61,044,394 52,837,500
Held-to-Maturity................................. 1,486,410 1,149,884 513,559
Loans (Less Allowance for Loan Losses of $2,565,670
in 1996, $2,481,705 in 1995 and $2,019,723 in
1994)............................................. 115,080,196 113,498,772 102,882,230
Land, Buildings, Leasehold Improvements and
Equipment (Less Accumulated Depreciation and
Amortization)..................................... 2,071,075 2,130,254 2,225,913
Other Assets....................................... 2,872,679 2,230,636 2,780,933
-------------- -------------- --------------
Total Assets................................. $ 208,229,714 $ 200,569,925 $ 181,505,196
-------------- -------------- --------------
-------------- -------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS
Demand........................................... $ 45,152,021 $ 46,810,324 $ 46,295,507
Money Market Demand and NOW Accounts............. 14,029,246 15,456,490 14,991,459
Regular Savings.................................. 11,116,218 10,197,306 12,695,656
Money Market Savings............................. 39,724,092 38,356,160 32,696,892
Savings Certificates and Other Time.............. 56,421,660 54,933,342 50,024,887
-------------- -------------- --------------
$ 166,443,237 $ 165,753,622 $ 156,704,401
Securities Sold Under Repurchase Agreements........ 17,208,342 10,665,906 4,354,251
Accrued Interest Payable and Other Liabilities..... 894,073 1,262,022 1,209,228
-------------- -------------- --------------
Total Liabilities............................ $ 184,545,652 $ 177,681,550 $ 162,267,880
-------------- -------------- --------------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Common Stock, Par Value $1 Per Share; 5,000,000
Shares Authorized; 650,000 Shares Issued........ $ 650,000 $ 650,000 $ 650,000
Additional Contributed Capital................... 1,198,497 1,198,497 1,198,497
Retained Earnings................................ 23,510,215 22,033,841 19,633,033
Net Unrealized Gain (Loss) on Available-for-Sale
Securities...................................... (178,496) 502,191 (702,815)
-------------- -------------- --------------
Total........................................ $ 25,180,216 $ 24,384,529 $ 20,778,715
Less: Common Stock in Treasury (at Cost); 177,290
Shares in 1996 and 1995 and 178,490 Shares in
1994............................................ 1,496,154 1,496,154 1,541,399
-------------- -------------- --------------
Total Stockholders' Equity................... $ 23,684,062 $ 22,888,375 $ 19,237,316
-------------- -------------- --------------
Total Liabilities and Stockholders' Equity... $ 208,229,714 $ 200,569,925 $ 181,505,196
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-50
<PAGE>
PARK FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
JUNE 30, DECEMBER 31,
------------------------- ------------------------------------
1996 1995 1995 1994 1993
----------- ----------- ----------- ----------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans................. $5,512,547 $5,298,164 $11,268,722 $ 8,833,418 $7,110,961
Interest on Investment Securities:
U.S. Treasury Securities................. 661,431 694,725 1,273,402 1,153,539 456,010
Obligations of Other U.S. Government
Agencies and Corporations............... 642,093 438,826 918,354 574,718 1,061,439
Obligations of States and Political
Subdivisions............................ 344,186 130,557 313,653 379,287 641,937
Other Securities......................... 522,168 325,740 831,094 449,920 320,451
Interest on Federal Funds Sold and Interest
Bearing Deposits.......................... 161,577 185,608 363,523 272,043 153,652
----------- ----------- ----------- ----------- ----------
Total Interest Income.................. 7,844,002 7,073,620 14,968,748 11,662,925 9,744,450
----------- ----------- ----------- ----------- ----------
INTEREST EXPENSE
Interest on Deposits....................... 2,712,324 2,462,046 5,171,989 3,361,568 2,820,531
Interest on Federal Funds Purchased and
Securities Sold Under Repurchase
Agreements................................ 323,781 174,408 499,627 176,035 106,727
----------- ----------- ----------- ----------- ----------
Total Interest Expense................. 3,036,105 2,636,454 5,671,616 3,537,603 2,927,258
----------- ----------- ----------- ----------- ----------
NET INTEREST INCOME.......................... 4,807,897 4,437,166 9,297,132 8,125,322 6,817,192
PROVISION FOR LOAN LOSSES.................... 240,000 360,000 720,000 740,227 552,000
----------- ----------- ----------- ----------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES...................................... 4,567,897 4,077,166 8,577,132 7,385,095 6,265,192
----------- ----------- ----------- ----------- ----------
OTHER INCOME
Service Fees............................... 782,230 745,889 1,529,870 1,404,965 1,358,658
Investment Securities Gains................ 1,000 -- 39,125 68,902 430,726
Other...................................... 39,917 70,564 89,717 81,965 312,407
----------- ----------- ----------- ----------- ----------
Total Other Income..................... 823,147 816,453 1,658,712 1,555,832 2,101,791
----------- ----------- ----------- ----------- ----------
OTHER EXPENSE
Salaries................................... 1,330,361 1,413,550 3,174,566 3,015,073 2,829,026
Profit Sharing and Other Employee
Benefits.................................. 296,785 148,021 315,196 297,794 252,311
Net Occupancy Expenses..................... 307,812 296,293 595,766 596,926 689,163
Equipment Expenses......................... 272,905 285,694 522,021 491,051 526,182
Other Operating Expenses................... 782,235 1,084,229 1,730,224 1,674,680 1,937,104
----------- ----------- ----------- ----------- ----------
Total Other Expense.................... 2,990,098 3,227,787 6,337,773 6,075,524 6,233,786
----------- ----------- ----------- ----------- ----------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGES IN ACCOUNTING PRINCIPLE... 2,400,946 1,665,832 3,898,071 2,865,403 2,133,197
PROVISION FOR INCOME TAX EXPENSE............. 924,572 629,553 1,497,263 1,030,415 659,104
----------- ----------- ----------- ----------- ----------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE......................... 1,476,374 1,036,279 2,400,808 1,834,988 1,474,093
Cumulative Effect of Change in Accounting
Principle................................... -- -- -- -- 850,221
----------- ----------- ----------- ----------- ----------
NET INCOME................................... $1,476,374 $1,036,279 $ 2,400,808 $ 1,834,988 $2,324,314
----------- ----------- ----------- ----------- ----------
----------- ----------- ----------- ----------- ----------
PER SHARE OF COMMON STOCK
Income Before Cumulative Effect of Change
in Accounting Principle................... $ 3.12 $ 2.19 $ 5.09 $ 3.89 $ 3.15
Cumulative Effect of Change in Accounting
Principle................................. -- -- -- -- 1.81
----------- ----------- ----------- ----------- ----------
$ 3.12 $ 2.19 $ 5.09 $ 3.89 $ 4.96
----------- ----------- ----------- ----------- ----------
----------- ----------- ----------- ----------- ----------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-51
<PAGE>
PARK FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET
UNREALIZED
GAIN (LOSS) ON
ADDITIONAL AVAILABLE-
COMMON CONTRIBUTED RETAINED FOR-SALE TREASURY
STOCK CAPITAL EARNINGS SECURITIES STOCK TOTAL
---------- ------------ ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1992................ $ 650,000 $ 1,198,497 $ 15,473,731 $ -- $ (1,682,298) $ 15,639,930
2,600 Shares of Common Stock Purchased
for Treasury........................... -- -- -- -- (86,870) (86,870)
8,225 Shares of Common Stock Sold from
Treasury............................... -- -- -- -- 274,962 274,962
Net Income for the Year................. -- -- 2,324,314 -- -- 2,324,314
---------- ------------ ------------- -------------- ------------- -------------
BALANCE, DECEMBER 31, 1993................ 650,000 1,198,497 17,798,045 -- (1,494,206) 18,152,336
5,000 Shares of Common Stock Purchased
for Treasury........................... -- -- -- -- (196,890) (196,890)
3,900 Shares of Common Stock Sold from
Treasury............................... -- -- -- -- 149,697 149,697
Net Change in Unrealized Gain (Loss) on
Securities Available-for-Sale, Net of
Taxes.................................. -- -- -- (702,815) -- (702,815)
Net Income for the Year................. -- -- 1,834,988 -- -- 1,834,988
---------- ------------ ------------- -------------- ------------- -------------
BALANCE, DECEMBER 31, 1994................ 650,000 1,198,497 19,633,033 (702,815) (1,541,399) 19,237,316
1,200 Shares of Common Stock Sold from
Treasury............................... -- -- -- -- 45,245 45,245
Net Change in Unrealized Gain (Loss) on
Securities Available-for-Sale, Net of
Taxes.................................. -- -- -- 1,205,006 -- 1,205,006
Net Income for the Year................. -- -- 2,400,808 -- -- 2,400,808
---------- ------------ ------------- -------------- ------------- -------------
BALANCE, DECEMBER 31, 1995................ 650,000 1,198,497 22,033,841 502,191 (1,496,154) 22,888,375
Net Change in Unrealized Gain (Loss) on
Securities Available-for-Sale, Net of
Taxes.................................. -- -- -- (680,687) -- (680,687)
Net Income for the Six Months........... -- -- 1,476,374 -- -- 1,476,374
---------- ------------ ------------- -------------- ------------- -------------
BALANCE, JUNE 30, 1996
(UNAUDITED)............................... $ 650,000 $ 1,198,497 $ 23,510,215 $ (178,496) $ (1,496,154) $ 23,684,062
---------- ------------ ------------- -------------- ------------- -------------
---------- ------------ ------------- -------------- ------------- -------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-52
<PAGE>
PARK FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
JUNE 30, DECEMBER 31,
------------------------------- ------------------------------------------------
1996 1995 1995 1994 1993
-------------- -------------- -------------- -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net Income................................. $ 1,476,374 $ 1,036,279 $ 2,400,808 $ 1,834,988 $ 2,324,314
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Cumulative Effect of Change.............. -- -- -- -- (850,221)
Depreciation and Amortization............ 174,463 160,273 318,006 323,460 362,047
Deferred Income Taxes.................... 166,367 (32,671) 48,642 72,309 108,217
Investment Premium Amortization (Net).... 76,623 114,199 210,731 201,264 412,489
Provision for Loan Losses................ 240,000 360,000 720,000 740,227 552,000
(Gain) Loss on Sale of Other Real Estate
and Equipment, Net...................... -- -- -- -- 42,431
Securities Gains......................... (1,000) -- (39,125) (68,902) (430,726)
(Increase) Decrease in Interest and Fees
Receivable.............................. (317,580) (97,561) (317,378) (438,304) 93,829
(Increase) Decrease in Prepaid Expenses
and Other Assets........................ (37,038) (79,921) 47,074 (66,338) 55,693
Increase (Decrease) in Interest
Payable................................. (4,255) (104,714) (53,511) 127,225 (73,727)
Increase (Decrease) in Other
Liabilities............................. (363,694) (233,751) 74,924 229,179 (186,022)
-------------- -------------- -------------- -------------- --------------
Net Cash Provided by Operating
Activities............................ 1,410,260 1,122,133 3,410,171 2,955,108 2,410,324
-------------- -------------- -------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of Available-for-Sale
Securities................................ (26,911,685) (9,910,037) (22,110,843) (34,334,524) (23,866,396)
Proceeds from Sales, Maturities or Called
Available-for-Sale Securities............. 13,750,884 5,300,000 16,254,248 22,866,982 25,356,770
Purchase of Held-to-Maturity Securities.... -- -- (1,149,884) -- --
Net Increase in Interest Bearing Deposits
with Banks................................ (285,000) (396,000) (876,000) -- --
Net Increase in Loans...................... (1,821,424) (5,775,557) (11,336,542) (6,973,296) (11,297,959)
Proceeds from the Sale of Other Real
Estate.................................... -- -- -- -- 192,190
Net (Increase) Decrease in Commercial
Paper..................................... (22,644) (203,202) 710,772 (2,281,129) --
Purchase of Properties and Equipment....... (115,284) (146,173) (222,347) (287,310) (154,825)
-------------- -------------- -------------- -------------- --------------
Net Cash Used by Investing
Activities............................ (15,405,153) (11,130,969) (18,730,596) (21,009,277) (9,770,220)
-------------- -------------- -------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Demand Deposits, NOW
Accounts, Savings Accounts, and
Certificates of Deposits.................. 689,615 (2,877,889) 9,049,221 21,341,090 3,326,146
Net Increase (Decrease) in Short-Term
Borrowings................................ 6,542,436 6,427,251 6,311,655 1,072,953 (1,433,819)
Sales of Treasury Stock.................... -- -- 45,245 149,697 274,962
Purchase of Treasury Stock................. -- -- -- (196,890) (86,870)
-------------- -------------- -------------- -------------- --------------
Net Cash Provided by Financing
Activities............................ 7,232,051 3,549,362 15,406,121 22,366,850 2,080,419
-------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................. (6,762,842) (6,459,474) 85,696 4,312,681 (5,279,477)
Cash and Cash Equivalents -- Beginning of
Year........................................ 18,069,628 17,983,932 17,983,932 13,671,251 18,950,728
-------------- -------------- -------------- -------------- --------------
CASH AND CASH EQUIVALENTS -- END OF YEAR..... $ 11,306,786 $ 11,524,458 $ 18,069,628 $ 17,983,932 $ 13,671,251
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Paid During the Year for:
Interest................................... $ 3,040,360 $ 2,637,501 $ 5,725,127 $ 3,410,378 $ 3,000,985
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
Income Taxes............................... $ 916,316 $ 617,425 $ 1,422,747 $ 917,608 $ 750,949
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-53
<PAGE>
PARK FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and 1995 (Unaudited)
and December 31, 1995, 1994 and 1993
1 NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF ACTIVITIES
Park Financial Corporation is a one-bank holding company providing bank and
bank-related services through its subsidiary, Park National Bank. The majority
of the subsidiary bank's business activity is with customers located within the
immediate area of the subsidiary bank.
A summary of the Company's significant accounting and reporting policies
consistently applied in the preparation of the accompanying consolidated
financial statements follows:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, Park National Bank. All significant
intercompany accounts and transactions have been eliminated in preparing the
consolidated financial statements.
STATEMENTS OF CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, amounts due from banks and federal funds sold. Generally, federal funds
are sold and purchased for one day periods. Cash flows for loans originated by
the Company, deposits and securities sold under agreement to repurchase are
reported net. In 1993, other real estate of $1,586,378 was transferred to loans.
CONCENTRATION OF CREDIT RISK
Substantially all of the Company's loans, commitments to extend credit and
standby letters of credit have been granted to customers in the Bank's market
area. Investments in securities issued by State and political subdivisions (see
Note 2) involve diverse governmental entities. The concentration of credit by
type of loan is set forth in Note 3. Standby letters of credit were granted
primarily to commercial customers.
INVESTMENT SECURITIES
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT
AND EQUITY SECURITIES. This statement requires that management determine the
appropriate classification of securities at the date of adoption and thereafter
as each individual security is acquired. In addition, the appropriateness of
such classification is reassessed at each balance sheet date. The
classifications and related accounting policies under SFAS No. 115 are as
follows:
HELD-TO-MATURITY SECURITIES
Held to maturity securities consist of bonds, notes and debentures for
which the Company has the positive intent and ability to hold to maturity.
Held-to-maturity securities are reported at cost, adjusted for premiums and
discounts that are recognized in interest income using the interest method
over the period to maturity.
AVAILABLE-FOR-SALE SECURITIES
Available-for-sale Securities consist of bonds, notes, and debentures
not classified as held-to-maturity securities. Unrealized holding gains and
losses, net of tax, on available-for-sale securities are reported as a net
amount in a separate component of stockholders' equity until realized. Gains
and losses on the sale of available-for-sale securities are determined using
the specific-identification method.
F-54
<PAGE>
PARK FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 and 1995 (Unaudited)
and December 31, 1995, 1994 and 1993
1 NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
TRADING ACCOUNT SECURITIES
Debt and equity securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading account
securities and are reported at fair value. Gains or losses on sales of
trading account securities, adjustments to fair values, and other
noninterest income are included in trading account profits and commissions.
The Company had no investments it classified as trading at December 31, 1995
and 1994.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company and its bank subsidiary have not invested in instruments which
are typically described as derivative financial instruments, and have no current
plans to do so, for trading, investing, hedging or other purposes.
LOANS AND ALLOWANCES FOR LOSSES
Loans are stated at the amount of unpaid principal. Interest on loans is
calculated by using the simple interest method on daily balances of the
principal amount outstanding.
Loans are reduced by an allowance for losses, which is established through
provisions for loan losses charged to expense. Loans are charged against the
allowance for losses when management believes that the collectibility of the
principal is unlikely. The allowance is an amount that management believes will
be adequate to absorb possible losses on existing loans that may become
uncollectible, based on evaluations of collectibility and prior loss experience.
The evaluations take into consideration such factors as changes in the nature
and volume of the loan portfolio, overall quality, review of specific problem
loans and current economic conditions that may affect the borrowers' ability to
pay. Accrual of interest is discontinued when management believes, after
consideration of economic and business conditions and collection efforts, that
the borrowers' financial condition is such that collection of interest is
doubtful. Interest on these loans is recognized only when actually paid by the
borrower if collection of the principal is likely to occur.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates may affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could vary from the estimates that
were used.
BUILDINGS, LEASEHOLD IMPROVEMENTS AND EQUIPMENT
Buildings and equipment are stated at cost, less accumulated depreciation.
Depreciation is provided on the straight-line method for financial reporting
purposes at rates sufficient to absorb the cost over the estimated useful life
of each asset which range from 3 to 32 years. For income tax reporting purposes,
depreciation is provided using accelerated methods. Leasehold improvements are
amortized over the term of the lease or the estimated useful lives of the
improvements, whichever is shorter.
INCOME TAXES
In 1993, the Company began providing for income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109 (SFAS 109). In
accordance with SFAS 109, the asset and liability approach is used to determine
deferred income taxes. The asset and liability approach requires recognition of
deferred tax liabilities and assets for the expected future consequences of
temporary differences between the financial reporting basis and tax basis of
assets and liabilities. A valuation allowance is provided when it is
F-55
<PAGE>
PARK FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 and 1995 (Unaudited)
and December 31, 1995, 1994 and 1993
1 NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
more likely than not that a deferred tax asset will not be realized. The effect
of the adjustment as of January 1, 1993 to adopt SFAS 109 has been reflected in
the income statement as a cumulative effect of an accounting change and
increased 1993 net earnings by $850,221.
The Company and its subsidiary bank file consolidated federal and unitary
state income tax returns.
EMPLOYEE BENEFIT PLAN
The Company has established a 401(k) defined contribution profit sharing
plan covering substantially all officers and employees. The Company matches
employee contributions in accordance with the plan agreement. Additional annual
contributions by the Company are voluntary and made at the discretion of the
Board of Directors. Contributions of $64,275, $69,931 and $65,481 were made to
the plan at December 31, 1995, 1994 and 1993, respectively.
TREASURY STOCK
The Company records the purchase of its common stock at cost. Gains or
losses on the sale of treasury stock are based on the net proceeds and the cost
basis of the common stock using the last-in, first-out method.
NET INCOME PER SHARE OF COMMON STOCK
Net income per share of common stock is calculated on the basis of the
weighted average number of shares outstanding during the year which totaled
471,540, 471,931 and 468,692 shares in 1995, 1994 and 1993, respectively.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1994 and 1993 financial
statements in order to conform to the 1995 presentation. These reclassifications
had no effect on net income or stockholders' equity as originally presented.
F-56
<PAGE>
PARK FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 and 1995 (Unaudited)
and December 31, 1995, 1994 and 1993
2 SECURITIES
The amortized cost and estimated market values of investments in debt and
equity securities at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995
------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Available-For-Sale:
U.S. Government Obligations.................... $ 18,045,014 $ 104,094 $ (14,323) $ 18,134,785
Obligations of Federal Agencies................ 16,928,813 284,297 (39,150) 17,173,960
Obligations of States and Political
Subdivisions.................................. 10,267,585 155,872 (19,516) 10,403,941
Corporate Securities........................... 12,914,844 376,325 (9,974) 13,281,195
Mortgage-Backed Securities..................... 2,001,654 0 (641) 2,001,013
Other Securities............................... 49,500 0 0 49,500
------------- ----------- ----------- -------------
$ 60,207,410 $ 920,588 $ (83,604) $ 61,044,394
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
Held-to-Maturity:
Obligations of Federal Agencies................ $ 1,149,884 $ 0 $ 0 $ 1,149,884
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>
<TABLE>
<CAPTION>
1994
--------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Available-For-Sale:
U.S. Government Obligations................. $ 29,195,538 $ 0 $ (653,597) $ 28,541,941
Obligations of Federal Agencies............. 12,970,556 0 (289,994) 12,680,562
Obligations of States and Political
Subdivisions............................... 6,033,104 55,289 (111,134) 5,977,259
Corporate Securities........................ 3,750,581 0 (116,974) 3,633,607
Mortgage-Backed Securities.................. 2,009,581 0 (54,950) 1,954,631
Other Securities............................ 49,500 0 0 49,500
------------- ----------- ------------- -------------
$ 54,008,860 $ 55,289 $ (1,226,649) $ 52,837,500
------------- ----------- ------------- -------------
------------- ----------- ------------- -------------
Held-to-Maturity:
Obligations of States and Political
Subdivisions............................... $ 513,559 $ 0 $ (48,872) $ 464,687
------------- ----------- ------------- -------------
------------- ----------- ------------- -------------
</TABLE>
During 1995, the Bank transferred a held-to-maturity security of $512,307 to
available-for-sale.
F-57
<PAGE>
PARK FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 and 1995 (Unaudited)
and December 31, 1995, 1994 and 1993
2 SECURITIES (CONTINUED)
The amortized cost and estimated market value of securities at December 31,
1995, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties. Mortgage-backed
securities are included below at their stated maturity date.
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE HELD-TO-MATURITY
---------------------------- --------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Due in One Year or Less................................ $ 20,105,750 $ 20,108,571 $ 1,149,884 $ 1,149,884
Due after One Year through Five Years.................. 30,374,477 31,097,515 0 0
Due after Five Years through Ten Years................. 5,515,537 5,617,695 0 0
Due After Ten Years.................................... 4,211,646 4,220,613 0 0
------------- ------------- ------------ ------------
Total.............................................. $ 60,207,410 $ 61,044,394 $ 1,149,884 $ 1,149,884
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
</TABLE>
Gross gains from sales of securities available-for-sale were $39,125,
$68,902 and $430,726 for 1995, 1994 and 1993, respectively.
Investment securities with a carrying amount of $32,595,000 and $31,864,222
at December 31, 1995 and 1994, respectively, were pledged to secure public
deposits and securities sold under repurchase agreements and for other purposes
required or permitted by law.
3 LOANS
Major classifications of loans at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Commercial............................................................. $ 70,905,502 $ 61,320,880
Consumer............................................................... 11,113,783 13,107,442
Real Estate............................................................ 33,151,994 29,580,177
Ready Reserve.......................................................... 549,627 568,641
Other.................................................................. 259,571 324,813
-------------- --------------
Total.............................................................. $ 115,980,477 $ 104,901,953
Less: Allowance for Loan Losses........................................ 2,481,705 2,019,723
-------------- --------------
Loans (Net)........................................................ $ 113,498,772 $ 102,882,230
-------------- --------------
-------------- --------------
</TABLE>
The impairment of loans having carrying values of $1,889,581 in 1995 have
been recognized in conformity with FASB Statement No. 114, ACCOUNTING BY
CREDITORS FOR IMPAIRMENT OF A LOAN. The total allowance for credit losses
related to these loans was $849,341 in 1995. For impairment recognized in
conformity with FASB Statement No. 114, the entire change in present value of
expected cash flows is reported as bad debt expense in the same manner which
impairment initially was recognized or as a reduction in the amount of bad debt
expense that otherwise would be reported.
F-58
<PAGE>
PARK FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 and 1995 (Unaudited)
and December 31, 1995, 1994 and 1993
3 LOANS (CONTINUED)
Changes in the allowance for loan losses as of December 31, 1995, 1994 and
1993 were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Balance, Beginning of Year.................................... $ 2,019,723 $ 1,545,320 $ 1,455,760
Provision Charged to Operations............................. 720,000 740,227 552,000
Loans Charged Off........................................... (380,882) (429,094) (632,066)
Recoveries.................................................. 122,864 163,270 169,626
------------ ------------ ------------
Balance, End of Year.......................................... $ 2,481,705 $ 2,019,723 $ 1,545,320
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
In the ordinary course of business, the Company and its subsidiary bank have
granted loans to certain directors, officers, employees and stockholders and the
companies with which they are associated. The approximate aggregate amount of
all such loans at December 31, 1995 and 1994 was $1,805,534 and $2,078,120,
respectively.
4 LAND, BUILDINGS, LEASEHOLD IMPROVEMENTS AND EQUIPMENT
Major classifications of these assets at December 31, 1995 and 1994 are
summarized as follows:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Buildings and Improvements........................................ $ 981,364 $ 981,364
Leasehold Improvements............................................ 733,251 733,251
Equipment......................................................... 2,717,230 2,556,028
Other............................................................. 21,111 21,111
------------ ------------
$ 4,452,956 $ 4,291,754
Less: Accumulated Depreciation and Amortization................... 2,808,792 2,551,931
------------ ------------
$ 1,644,164 $ 1,739,823
Land.............................................................. 486,090 486,090
------------ ------------
Total......................................................... $ 2,130,254 $ 2,225,913
------------ ------------
------------ ------------
</TABLE>
5 OTHER ASSETS
Other assets consist of the following at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Accrued Interest and Fees Receivable.............................. $ 1,785,362 $ 1,467,984
Deferred Taxes.................................................... 297,943 1,118,544
Prepaid Expenses and Other........................................ 147,331 194,405
------------ ------------
Total......................................................... $ 2,230,636 $ 2,780,933
------------ ------------
------------ ------------
</TABLE>
6 NOTE PAYABLE
At December 31, 1995 and 1994, the Company had $3,000,000 and $6,000,000,
respectively, available for use under a one year revolving promissory note with
an unrelated bank. Interest which is payable monthly was at the federal funds
rate plus 2.25% in 1995 and at the lenders prime rate in 1994 (effective rate of
7.63% on December 31, 1995 and 8.5% on December 31, 1994). The promissory notes
are collateralized by all of the outstanding shares of common stock of Park
National Bank. No borrowings were outstanding under the line at December 31,
1995 and 1994.
F-59
<PAGE>
PARK FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 and 1995 (Unaudited)
and December 31, 1995, 1994 and 1993
7 INCOME TAXES
The provision for income tax expense in the statements of income for the
years ended December 31, 1995, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ----------
<S> <C> <C> <C>
Current......................................................... $ 1,448,621 $ 958,106 $ 550,887
Deferred........................................................ 48,642 72,309 108,217
------------ ------------ ----------
Total....................................................... $ 1,497,263 $ 1,030,415 $ 659,104
------------ ------------ ----------
------------ ------------ ----------
</TABLE>
Deferred tax expense results from temporary differences in the recognition
of revenue and expense for financial reporting and income tax purposes. The
principal sources of these differences are the provision for loan losses for tax
purposes which differs from the provision for financial reporting purposes, from
using accelerated methods of depreciation for tax purposes only, and the
benefits of alternative minimum tax credit carryforwards.
The Company has alternative minimum tax credit carryforwards of $-0- and
$352,014 at December 31, 1995 and 1994, respectively.
Income tax expense differs from income tax expense computed by applying the
statutory federal income tax rate. The reasons for these differences are as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------------------------- -------------------------- -------------------------
PERCENT PERCENT PERCENT
OF PRETAX OF PRETAX OF PRETAX
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
----------- ------------- ----------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Income Tax Expense at Statutory
Rate........................... $ 1,325,344 34.0% $ 974,237 34.0% $ 725,287 34.0%
State Taxes, Net of Federal Tax
Benefit........................ 253,107 6.5 186,089 6.5 135,615 6.4
Exempt Interest from Investments
and Loans...................... (105,080) (2.7) (123,355) (4.3) (209,000) (9.8)
Other........................... 23,892 0.6 (6,556) (0.2) 7,202 0.3
----------- --- ----------- --- ---------- ---
Income Tax Expense............ $ 1,497,263 38.4% $ 1,030,415 36.0% $ 659,104 30.9%
----------- --- ----------- --- ---------- ---
----------- --- ----------- --- ---------- ---
</TABLE>
8 COMMITMENTS AND CONTINGENT LIABILITIES
The Company conducts the majority of its operations in leased facilities. In
addition to basic rent, the Company is obligated to pay a percentage of
insurance, real estate taxes, and other building operating and maintenance
costs. The lease, which expires on October 31, 2004 includes a mark to market
clause which allows the landlord to adjust the rent to market once during the
period beginning on November 1, 1999 until the end of the lease. The lease
includes options to renew for three additional successive ten year periods under
similar terms. The Bank has also entered into sublease agreements with various
tenants. These subleases call for base rental payments and operating expenses
payable to Park National Bank and expire in 1998.
F-60
<PAGE>
PARK FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 and 1995 (Unaudited)
and December 31, 1995, 1994 and 1993
8 COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
The approximate minimum annual rental commitments as of December 31, 1995
are as follows:
<TABLE>
<CAPTION>
GROSS SUBLEASE NET
YEAR ENDING DECEMBER 31, AMOUNT AMOUNT AMOUNT
- ---------------------------------------------------------------- ------------ ---------- ------------
<S> <C> <C> <C>
1996............................................................ $ 307,000 $ (44,000) $ 263,000
1997............................................................ 312,000 (44,000) 268,000
1998............................................................ 315,000 (11,000) 304,000
1999............................................................ 263,000 0 263,000
------------ ---------- ------------
Total....................................................... $ 1,197,000 $ (99,000) $ 1,098,000
------------ ---------- ------------
------------ ---------- ------------
</TABLE>
The total rental expense under all lease agreements was $570,568, $578,057
and $652,839 in 1995, 1994 and 1993, respectively.
In the normal course of business there are outstanding various commitments
and contingent liabilities, such as commitments to extend credit, items held for
collections, and unsold travelers checks, which are not reflected in the
accompanying financial statements. The subsidiary bank does not anticipate
losses as a result of these transactions.
9 FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company's subsidiary bank is a party to financial instruments with
off-balance sheet risk in the normal course of business to meet the financing
needs of its customers. These financial instruments include commitments to
extend credit and standby letters of credit. The instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amounts
recognized in the balance sheets. The contract or notional amounts of these
instruments reflect the extent of involvement the subsidiary bank has in
particular classes of financial instruments.
The subsidiary bank's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to extend credit
and standby letters of credit is represented by the contractual notional amount
of these instruments. The subsidiary bank uses the same credit policies in
making commitments and conditional obligations as it does for on-balance sheet
instruments.
The contract or notional amount of financial instruments whose contract
amounts represent credit risk were approximately $32,434,688 and $25,513,751 for
commitments to extend credit and $1,211,354 and $3,321,931 for standby letters
of credit at December 31, 1995 and 1994, respectively.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The subsidiary bank evaluates each
customer's credit worthiness on a case-by-case basis. The amount of collateral
obtained if deemed necessary by the subsidiary bank upon extension of credit is
based on management's credit evaluation. Collateral held varies but may include
accounts receivable, inventory, property, plant and equipment, and
income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the
subsidiary bank to guarantee the performance of a customer to a third party. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. The subsidiary bank
holds appropriate collateral supporting those commitments for which collateral
is deemed necessary.
F-61
<PAGE>
PARK FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 and 1995 (Unaudited)
and December 31, 1995, 1994 and 1993
10 JUMBO CERTIFICATES OF DEPOSIT
Certificate of deposits equal to or in excess of $100,000 totaled
approximately $14,560,270 and $17,633,692 at December 31, 1995 and 1994,
respectively. Interest expense related to these deposits totaled approximately
$317,000 and $762,000 at December 31, 1995 and 1994, respectively.
11 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
CASH AND DUE FROM BANKS, INTEREST-BEARING DEPOSITS IN BANKS,
FEDERAL FUNDS SOLD, AND COMMERCIAL PAPER
For these short-term instruments, the carrying amount is a reasonable
estimate of fair value.
ACCRUED INTEREST RECEIVABLE AND ACCRUED INTEREST PAYABLE
For these short-term receivables and payables, the carrying value is a
reasonable estimate of fair value.
INVESTMENT SECURITIES
For securities held as investments, fair value equals quoted market price,
if available. If a quoted market price is not available, fair value is estimated
using quoted market prices for similar securities.
LOANS
The fair value of loans is 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.
DEPOSIT LIABILITIES
The fair value of demand deposits, savings accounts, and certain money
market deposits is the amount payable on demand at the reporting date. The fair
value of fixed-maturity certificates of deposit is estimated using the rates
currently offered for deposits of similar remaining maturities.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
For these short-term instruments, the carrying amount is a reasonable
estimate of fair value.
OTHER BORROWINGS
Rates currently available to the Company for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt.
F-62
<PAGE>
PARK FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 and 1995 (Unaudited)
and December 31, 1995, 1994 and 1993
11 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
COMMITMENTS TO EXTEND CREDIT, LINE-OF-CREDIT ARRANGEMENTS,
CREDIT CARD ARRANGEMENTS, AND LETTERS OF CREDIT
For these commitments, the carrying amount is a reasonable estimate of fair
value, since the stated fees and interest rates charged on these arrangements
does not significantly vary from the terms currently being offered.
<TABLE>
<CAPTION>
1995 1994
------------------------------ ------------------------------
CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Financial Assets:
Investment Securities........................ $ 62,194,278 $ 62,194,278 $ 53,351,059 $ 53,302,187
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Loans........................................ $ 115,980,477 $ 104,901,953
Less: Allowance for Loan Losses.............. 2,481,705 2,019,723
-------------- --------------
Net Loans.................................. $ 113,498,772 $ 115,485,449 $ 102,882,230 $ 104,084,659
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Financial Liabilities:
Deposits..................................... $ 165,753,622 $ 165,915,248 $ 156,704,401 $ 157,155,168
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
12 REGULATORY CAPITAL REQUIREMENTS
Federal regulatory agencies have adopted various capital standards for
financial institutions, including risk-based capital standards. The primary
objectives of the risk-based capital framework are to provide a more consistent
system for comparing capital positions of financial institutions' assets and
off-balance-sheet items.
Risk-based capital standards have been supplemented with requirements for a
minimum Tier 1 capital to asset ratio (leverage ratio). In addition, regulatory
agencies consider the published capital levels as minimum levels and may require
a financial institution to maintain capital at higher levels.
A comparison of the capital of the Company's bank subsidiary as of December
31, 1995, with the minimum requirements is presented below:
<TABLE>
<CAPTION>
WELL ADEQUATELY
ACTUAL CAPITALIZED CAPITALIZED
----------- ------------- ---------------
<S> <C> <C> <C>
Total Risk-Based Capital................................... 12.2% 10% 8%
Tier 1 Risk-Based Capital.................................. 10.6% 6% 4%
Leverage Ratio............................................. 8.1% 5% 4%
</TABLE>
Banking regulations restrict the amount of dividends that may be paid
without prior approval of Bank supervisory authorities.
F-63
<PAGE>
PARK FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 and 1995 (Unaudited)
and December 31, 1995, 1994 and 1993
13 PARENT COMPANY FINANCIAL INFORMATION
Condensed financial information for Park Financial Corporation (parent
Company only) follows:
BALANCE SHEETS (in 000's)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
ASSETS
Interest-Bearing Deposits with Subsidiary Bank.............................................. $ 15 $ 1,642
Investments Held to Maturity................................................................ 1,150 0
Commercial Paper............................................................................ 1,570 2,281
Loans (Less Allowance for Loan Losses $101 in 1995 and 1994)................................ 3,501 1,086
Investment in Bank Subsidiary............................................................... 16,553 14,237
Other Assets................................................................................ 137 56
--------- ---------
Total Assets............................................................................ $ 22,926 $ 19,302
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Other Liabilities........................................................................... $ 38 $ 65
Stockholders' Equity........................................................................ 22,888 19,237
--------- ---------
Total Liabilities and Stockholders' Equity.............................................. $ 22,926 $ 19,302
--------- ---------
--------- ---------
</TABLE>
INCOME STATEMENT (in 000's)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Dividend Income from Bank Subsidiary................................................. $ 1,150 $ 1,000 $ 1,000
Interest............................................................................. 394 223 271
Other................................................................................ 47 166 248
--------- --------- ---------
Total Income..................................................................... $ 1,591 $ 1,389 $ 1,519
Expenses............................................................................. 208 272 385
--------- --------- ---------
Income before Income Taxes, Equity in Undistributed Earnings of Subsidiary and
Cumulative Effect of Change in Accounting Principle................................. $ 1,383 $ 1,117 $ 1,134
Provision for Income Taxes........................................................... 94 47 54
--------- --------- ---------
Income before Equity in Undistributed Earnings of Bank Subsidiary and Cumulative
Effect of Change in Accounting Principle............................................ $ 1,289 $ 1,070 $ 1,080
Equity in Undistributed Earnings of Bank Subsidiary.................................. 1,112 765 1,264
--------- --------- ---------
Income before Cumulative Effect of Change in Accounting Principle.................... $ 2,401 $ 1,835 $ 2,344
Cumulative Effect of Change in Accounting Principle.................................. 0 0 (20)
--------- --------- ---------
NET INCOME........................................................................... $ 2,401 $ 1,835 $ 2,324
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-64
<PAGE>
PARK FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 and 1995 (Unaudited)
and December 31, 1995, 1994 and 1993
13 PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
STATEMENTS OF CASH FLOWS (in 000's)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Net Income....................................................................... $ 2,401 $ 1,835 $ 2,324
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Equity in Undistributed Earnings of Subsidiary................................. (1,112) (765) (1,264)
(Increase) Decrease in Prepaid Expenses and Other Assets....................... (81) 129 481
Increase (Decrease) in Other Liabilities....................................... (26) (30) (58)
--------- --------- ---------
Net Cash Provided by Operating Activities.................................... $ 1,182 $ 1,169 $ 1,483
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of Held to Maturity Securities......................................... $ (1,150) $ 0 $ 0
Net (Increase) Decrease in Loans................................................. (2,415) 1,132 2,193
Net (Increase) Decrease in Commercial Paper...................................... 711 (795) (1,487)
--------- --------- ---------
Net Cash Provided (Used) by Investing Activities............................. $ (2,854) $ 337 $ 706
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Decrease in Short-Term Borrowings............................................ $ 0 $ 0 $ (2,225)
Sales of Treasury Stock.......................................................... 45 150 275
Purchase of Treasury Stock....................................................... 0 (197) (87)
--------- --------- ---------
Net Cash Provided (Used) by Financing Activities............................. $ 45 $ (47) $ (2,037)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS....................................................................... $ (1,627) $ 1,459 $ 152
Cash and Cash Equivalents -- Beginning of Year..................................... 1,642 183 31
--------- --------- ---------
CASH AND CASH EQUIVALENTS -- END OF YEAR........................................... $ 15 $ 1,642 $ 183
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Paid During the Year for:
Interest......................................................................... $ 25 $ 0 $ 54
--------- --------- ---------
--------- --------- ---------
Income Taxes Paid (Refund)....................................................... $ 156 $ 105 $ (71)
--------- --------- ---------
--------- --------- ---------
</TABLE>
Federal law prevents the corporation from borrowing from its subsidiary bank
unless the loans are secured by specified assets. Such secured loans by any
subsidiary bank are generally limited to 10 percent of the subsidiary bank's
capital and surplus.
The payment of dividends to the corporation by subsidiary banks is subject
to various federal and state regulatory limitations. The bank must obtain the
approval of the Comptroller of the Currency if the total of all dividends
declared in any calendar year exceeds the bank's net profits for that year
combined with its retained net profits for the preceding two calendar years.
F-65
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS OF UNITED AND PFC
The Unaudited Pro Forma Consolidated Balance Sheet is derived from the
unaudited balance sheets of United and PFC as of June 30, 1996 included
elsewhere herein and assumes that the transactions were consummated on June 30,
1996. The Unaudited Pro Forma Consolidated Statement of Income for the Year
Ended December 31, 1995 is derived from the audited Consolidated Statements of
Income of United and PFC included elsewhere herein and assumes that the
transactions were consummated on January 1, 1995. The Unaudited Pro Forma
Consolidated Statements of Income for the Six Months Ended June 30, 1996 and
1995 are derived from the unaudited Consolidated Statements of Income of United
and PFC included elsewhere herein and assumes that the transactions were
consummated on January 1, 1996, and January 1, 1995, respectively.
The Unaudited Pro Forma Consolidated Financial Statements do not purport to
represent what United's results of operations or financial condition would
actually have been if the transactions had occurred on the dates indicated, and
do not project United's results or financial condition for or to any future
period or date. The Unaudited Pro Forma Consolidated Financial Statements are
presented for comparative purposes only. The pro forma adjustments, as discussed
in Note 1, are based on available information and certain assumptions that
management believes are reasonable.
The acquisition will be accounted for using the purchase method of
accounting. The purchase price of the acquisition will be allocated to the
tangible assets and liabilities of PFC based upon management's preliminary
estimates of their fair value with the remainder allocated to goodwill. The
allocation of purchase price for the acquisition is subject to revision when
additional information concerning asset and liability valuations are obtained.
In the opinion of United's management, and assuming a stable interest rate
environment, the asset and liability valuations for the acquisition will not be
materially different from the Unaudited Pro Forma Consolidated Financial
Statements presented.
F-66
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET OF UNITED AND PFC
JUNE 30, 1996
<TABLE>
<CAPTION>
COMMON AND PRO FORMA
PREFERRED CONSOLIDATED
STOCK UNITED BALANCE
UNITED OFFERING PRO FORMA PFC ADJUSTMENTS SHEET
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks..... $ 19,245,954 $ 15,258,960(a) $ 34,504,914 $ 12,467,786 $(44,377,258)(c) $ 30,450,690
22,892,354(d)
4,962,894(e)
Federal funds sold.......... 3,425,000 3,425,000 -- 3,425,000
Investment securities
available for sale......... 104,523,116 104,523,116 72,658,567 177,181,683
Investment securities held
to maturity................ -- -- 1,486,410 (1,486,410)(e) --
------------- ------------- ------------- ------------- -------------
Total investment
securities............. 104,523,116 104,523,116 74,144,977 (1,486,410) 177,181,683
------------- ------------- ------------- ------------- -------------
Loans and leases............ 275,955,203 275,955,203 119,238,867 (3,593,476)(e) 391,465,594
(135,000)(c)
Allowance for loan and
lease losses........... (2,989,690) (2,989,690) (2,565,670) 101,000(e) (5,454,360)
------------- ------------- ------------- ------------- -------------
Net loans and
leases............... 272,965,513 272,965,513 116,673,197 (3,627,476) 386,011,234
------------- ------------- ------------- ------------- -------------
Property and equipment,
net........................ 10,537,048 10,537,048 2,071,075 (12,414)(e) 12,595,709
Cash surrender value of life
insurance.................. 9,314,969 9,314,969 -- 9,314,969
Intangible assets, net...... 3,852,457 3,852,457 -- 21,369,496(c) 25,221,953
Other assets................ 5,068,729 5,068,729 2,872,679 7,941,408
------------- ------------- ------------- ------------- ------------- -------------
Total assets............ $ 428,932,786 $ 15,258,960 $444,191,746 $ 208,229,714 $ (278,814) $652,142,646
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits.................. $ 340,225,090 $340,225,090 $ 166,443,237 $506,668,327
Securities sold under
repurchase agreements.... 29,282,911 29,282,911 17,208,342 46,491,253
Accrued expenses and other
liabilities.............. 4,828,164 4,828,164 894,073 595,300(b) 6,235,131
(28,406)(e)
(54,000)(c)
Notes payable and other
borrowings............... 16,097,095 16,097,095 -- 22,892,354(d) 38,989,449
------------- ------------- ------------- ------------- ------------- -------------
Total liabilities....... 390,433,260 -- 390,433,260 184,545,652 23,405,248 598,384,160
------------- ------------- ------------- ------------- ------------- -------------
Stockholders' equity:
Preferred stock........... -- 11,000,000(a) 11,000,000 -- 11,000,000
Common stock.............. 5,466 472(a) 5,938 650,000 (650,000)(c) 5,938
Additional paid-in
capital.................. 21,015,602 (740,000)(a) 25,274,090 1,198,497 (1,198,497)(c) 25,274,090
4,998,488(a)
Retained earnings......... 17,794,504 17,794,504 23,510,215 (22,914,915)(c) 17,794,504
(595,300)(b)
Unrealized loss on
securities available
for sale............... (316,046) (316,046) (178,496) 178,496(c) (316,046)
Less treasury stock..... -- -- (1,496,154) 1,496,154(c) --
------------- ------------- ------------- ------------- ------------- -------------
Total stockholders'
equity............... 38,499,526 15,258,960 53,758,486 23,684,062 (23,684,062) 53,758,486
------------- ------------- ------------- ------------- ------------- -------------
Total liabilities and
stockholders'
equity............... $ 428,932,786 $ 15,258,960 $444,191,746 $ 208,229,714 $ (278,814) $652,142,646
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
See Note to the Unaudited Pro Forma Consolidated Financial Statements
F-67
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME OF UNITED AND PFC
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRO FORMA
CONSOLIDATED
STATEMENT OF
UNITED PFC ADJUSTMENTS INCOME
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Interest income:
Loans and leases.............................. $ 25,089,584 $ 11,268,722 $ 27,000(f) $ 36,142,994
(242,312)(h)
Investment securities......................... 5,355,179 3,336,503 (140,917 )(h) 8,550,765
Federal funds sold............................ 760,820 363,523 1,124,343
------------- ------------- -------------- -------------
Total interest income....................... 31,205,583 14,968,748 (356,229 ) 45,818,102
------------- ------------- -------------- -------------
Interest expense:
Deposits...................................... 10,438,601 5,171,989 15,610,590
Federal funds purchased and securities sold
under repurchase agreements.................. 1,453,699 499,627 1,953,326
Notes payable and other borrowings............ 955,752 -- 1,593,308(g) 2,549,060
------------- ------------- -------------- -------------
Total interest expense...................... 12,848,052 5,671,616 1,593,308 20,112,976
------------- ------------- -------------- -------------
Net interest income........................... 18,357,531 9,297,132 (1,949,537 ) 25,705,126
Provision for loan and lease losses............. 60,999 720,000 -- 780,999
------------- ------------- -------------- -------------
Net interest income after provision for loan (1,949,537 )
and lease losses........................... 18,296,532 8,577,132 24,924,127
Noninterest income:
Service charges and other fees................ 2,922,664 1,529,870 4,452,534
Net investment securities gains............... (32,329) 39,125 6,796
Other......................................... 1,028,650 89,717 1,118,367
------------- ------------- -------------- -------------
Total noninterest income.................... 3,918,985 1,658,712 -- 5,577,697
------------- ------------- -------------- -------------
Noninterest expense:
Salaries and employee benefits................ 9,291,893 3,489,762 12,781,655
Occupancy..................................... 1,208,300 595,766 1,804,066
Depreciation.................................. 1,252,682 522,021 (28,813 )(h) 1,745,890
Other......................................... 4,778,059 1,730,224 1,424,633(f) 7,932,916
------------- ------------- -------------- -------------
Total noninterest expense................... 16,530,934 6,337,773 1,395,820 24,264,527
------------- ------------- -------------- -------------
Income before income taxes...................... 5,684,583 3,898,071 (3,345,357 ) 6,237,297
Income tax expense.............................. 2,055,552 1,497,263 (768,290 )(i) 2,784,525
------------- ------------- -------------- -------------
Net income.................................... 3,629,031 2,400,808 (2,577,067 ) 3,452,772
Dividends on preferred stock.................. -- -- 1,017,500(j) 1,017,500
------------- ------------- -------------- -------------
Net income applicable to common equity...... $ 3,629,031 $ 2,400,808 $(3,594,567 ) $ 2,435,272
------------- ------------- -------------- -------------
------------- ------------- -------------- -------------
Earnings per common share..................... $ 6.86 $ 5.09 $ 4.23
Weighted average common shares outstanding.... 528,787 471,540 575,947
</TABLE>
See Note to the Unaudited Pro Forma Consolidated Financial Statements
F-68
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME OF UNITED AND PFC
SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
PRO FORMA
CONSOLIDATED
STATEMENT OF
UNITED PFC ADJUSTMENTS INCOME
------------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
Interest income:
Loans and leases............................... $ 13,190,219 $ 5,512,547 $ 13,500(f) $ 18,618,243
(98,023)(h)
Investment securities.......................... 2,967,237 2,169,878 (75,554 )(h) 5,061,561
Federal funds sold............................. 293,714 161,577 455,291
------------- ------------ -------------- -------------
Total interest income........................ 16,451,170 7,844,002 (160,077 ) 24,135,095
------------- ------------ -------------- -------------
Interest expense:
Deposits....................................... 5,734,866 2,712,324 8,447,190
Federal funds purchased and securities sold
under repurchase agreements................... 634,696 323,781 958,477
Notes payable and other borrowings............. 505,302 -- 796,654(g) 1,301,956
------------- ------------ -------------- -------------
Total interest expense....................... 6,874,864 3,036,105 796,654 10,707,623
------------- ------------ -------------- -------------
Net interest income.......................... 9,576,306 4,807,897 (956,731 ) 13,427,472
Provision for loan and lease losses.............. 94,648 240,000 -- 334,648
------------- ------------ -------------- -------------
Net interest income after provision for loan (956,731 )
and lease losses............................ 9,481,658 4,567,897 13,092,824
Noninterest income:
Service charges and other fees................. 1,611,671 782,230 2,393,901
Net investment securities gains................ -- 1,000 1,000
Other.......................................... 778,411 39,917 818,328
------------- ------------ -------------- -------------
Total noninterest income..................... 2,390,082 823,147 -- 3,213,229
------------- ------------ -------------- -------------
Noninterest expense:
Salaries and employee benefits................. 4,964,532 1,627,146 6,591,678
Occupancy...................................... 444,598 307,812 752,410
Depreciation................................... 754,866 272,905 (5,151 )(h) 1,022,620
Other.......................................... 2,391,862 782,235 712,317(f) 3,886,414
------------- ------------ -------------- -------------
Total noninterest expense.................... 8,555,858 2,990,098 707,166 12,253,122
------------- ------------ -------------- -------------
Income before income taxes....................... 3,315,882 2,400,946 (1,663,897 ) 4,052,931
Income tax expense............................... 1,034,411 924,572 (380,632 )(i) 1,578,351
------------- ------------ -------------- -------------
Net income..................................... 2,281,471 1,476,374 (1,283,265 ) 2,474,580
Dividends on preferred stock................... -- -- 508,750(j) 508,750
------------- ------------ -------------- -------------
Net income applicable to common equity....... $ 2,281,471 $ 1,476,374 $(1,792,015 ) $ 1,965,830
------------- ------------ -------------- -------------
------------- ------------ -------------- -------------
Earnings per common share...................... $ 4.09 $ 3.12 $ 3.25
Weighted average common shares outstanding..... 557,284 472,710 604,444
</TABLE>
See Note to the Unaudited Pro Forma Consolidated Financial Statements
F-69
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME OF UNITED AND PFC
SIX MONTHS ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
PRO FORMA
CONSOLIDATED
STATEMENT OF
UNITED PFC ADJUSTMENTS INCOME
------------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
Interest income:
Loans and leases............................... $ 12,046,404 $ 5,298,164 $ 13,500(f) $ 17,276,246
(81,822)(h)
Investment securities.......................... 2,466,445 1,589,848 (72,653 )(h) 3,983,640
Federal funds sold............................. 330,644 185,608 516,252
------------- ------------ -------------- -------------
Total interest income........................ 14,843,493 7,073,620 (140,975 ) 21,776,138
------------- ------------ -------------- -------------
Interest expense:
Deposits....................................... 4,919,770 2,462,046 7,381,816
Federal funds purchased and securities sold
under repurchase agreements................... 664,735 174,408 839,143
Notes payable and other borrowings............. 428,090 -- 796,654(g) 1,224,744
------------- ------------ -------------- -------------
Total interest expense....................... 6,012,595 2,636,454 796,654 9,445,703
------------- ------------ -------------- -------------
Net interest income.......................... 8,830,898 4,437,166 (937,629 ) 12,330,435
Provision for loan and lease losses.............. 20,203 360,000 -- 380,203
------------- ------------ -------------- -------------
Net interest income after provision for loan (937,629 )
and lease losses............................ 8,810,695 4,077,166 11,950,232
Noninterest income:
Service charges and other fees................. 1,413,543 745,889 2,159,432
Net investment securities (losses)............. (18,584) -- (18,584)
Other.......................................... 542,684 70,564 613,248
------------- ------------ -------------- -------------
Total noninterest income..................... 1,937,643 816,453 -- 2,754,096
------------- ------------ -------------- -------------
Noninterest expense:
Salaries and employee benefits................. 4,519,089 1,561,571 6,080,660
Occupancy...................................... 485,221 296,293 781,514
Depreciation................................... 587,666 285,694 (23,662 )(h) 849,698
Other.......................................... 2,616,187 1,084,229 712,317(f) 4,412,733
------------- ------------ -------------- -------------
Total noninterest expense.................... 8,208,163 3,227,787 688,655 12,124,605
------------- ------------ -------------- -------------
Income before income taxes....................... 2,540,175 1,665,832 (1,626,284 ) 2,579,723
Income tax expense............................... 896,726 629,553 (365,587 )(i) 1,160,692
------------- ------------ -------------- -------------
Net income..................................... 1,643,449 1,036,279 (1,260,697 ) 1,419,031
Dividends on preferred stock................... -- -- 508,750(j) 508,750
------------- ------------ -------------- -------------
Net income applicable to common equity....... $ 1,643,449 $ 1,036,279 $(1,769,447 ) $ 910,281
------------- ------------ -------------- -------------
------------- ------------ -------------- -------------
Earnings per common share...................... $ 3.19 $ 2.19 $ 1.62
Weighted average common shares outstanding..... 514,784 472,710 561,944
</TABLE>
See Note to the Unaudited Pro Forma Consolidated Financial Statements
F-70
<PAGE>
NOTE TO THE UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS OF UNITED AND PFC
NOTE 1: PRO FORMA ADJUSTMENTS
Management's assumptions and the related pro forma adjustments are as
follows:
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(a) Reflects the sale of $11,000,000 of preferred stock and approximately
$5,000,000 of common stock. A total of 47,160 shares of the common stock are
assumed to be sold at a price of $106.00 per share. A total of 440,000
shares of preferred stock are assumed to be sold at a price of $25.00 per
share. Total offering costs of the preferred and common stock offerings are
estimated to be $740,000.
(b) Reflects a $1,000,000 appreciation bonus granted to employees of PFC by the
former owner. The after-tax effect is estimated to be $595,300, resulting in
an increase in accrued liabilities and a reduction in equity.
(c) Reflects the allocation of the purchase price and the elimination of PFC's
equity. The purchase price is $21,110,000 plus the equity of PFC excluding
the unrealized loss on securities available for sale. The investment
securities are recorded at fair value, therefore no adjustments are
required. The fair value adjustment to loans was a decrease of $135,000.
This adjustment to loans was based on discounted cash flows, using interest
rates currently being offered for loans with similar terms to borrowers with
similar credit quality. Management determined that no fair value adjustment
was necessary for deposits based on a discounted cash flow calculation that
applies interest rates currently being offered on certificates of deposit of
similar remaining maturities to the existing certificate of deposit
portfolio.
The following table summarizes the purchase price in excess of book value:
<TABLE>
<S> <C>
Bonus, net of tax effect....................................... $ (595,300)
Fair value adjustment to loans................................. (135,000)
Deferred taxes on loan adjustment.............................. 54,000
Goodwill....................................................... 21,369,496
----------
Purchase price in excess of book value......................... $20,693,196
----------
----------
</TABLE>
(d) Reflects the additional proceeds received from bank financing to be obtained
from Firstar in conjunction with the Park Acquisition.
(e) Reflects the cash liquidation and extinguishment of PFC's parent
company-only assets and liabilities (excluding its investment in Park Bank).
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
(f) Reflects the effect of push-down accounting to goodwill resulting in
additional amortization of $1,424,633 and $712,317 for the year ended
December 31, 1995 and for the six months ended June 30, 1996 and 1995,
respectively. Goodwill will be amortized over 15 years. A further effect of
push-down accounting is to accrete to income the loan fair value adjustment
over the estimated life of the respective portfolio. The accretion for the
year ended December 31, 1995 and for each of the six months ended June 30,
1996 and 1995 is $27,000 and $13,500, respectively.
(g) Reflects the additional interest expense incurred as a result of the
additional financing of $22,892,354 required to complete the Park
Acquisition. The interest rate is assumed to be 140 basis points over the 90
day LIBOR rate or 6.96%. The actual interest rate may be higher or lower
than this rate. A change of 0.125% in the interest rate would change the pro
forma interest expense by approximately $29,000 for the year ended December
31, 1995 and by approximately $14,500 for each of the six months ended June
30, 1996 and 1995, respectively.
F-71
<PAGE>
(h) Reflects the reduction of interest income and depreciation assuming PFC's
loans, investment securities and property and equipment were assumed to be
sold on January 1, 1995 and January 1, 1996, respectively. The amounts
eliminated reflect actual interest income and depreciation expense recorded
for the periods.
(i) Reflects the tax effect of the taxable pro forma adjustments. The goodwill
amortization is not tax deductible. The effective tax rate is assumed to be
forty percent for the year ended December 31, 1995 and for the six months
ended June 30, 1996 and 1995 resulting in decreased income tax expense of
$768,290, $380,632 and $365,587 respectively.
(j) Reflects the dividends paid on the preferred stock at an assumed rate of
9.25% per annum paid quarterly on $11,000,000 of preferred stock.
F-72
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS OF UNITED AND GOODHUE
On January 1, 1994 Signal merged with Goodhue and changed its name to
United. Goodhue shareholders converted their Goodhue common or preferred shares
for common stock of United pursuant to an established conversion ratio for cash
or for a combination of both cash and common stock. In addition to the merger of
United and Goodhue, a noncompete agreement aggregating $1,500,000 was entered
into with the majority stockholders of Goodhue. A total of $8,852,856 worth of
Goodhue stock was converted for United stock and $9,263,984 worth of Goodhue
stock was exchanged for cash. United raised $4,182,272 in equity from a common
stock offering, the proceeds of which were used to reduce a portion of the debt
incurred with the merger.
The Unaudited Pro Forma Consolidated Balance Sheet is derived from the
audited balance sheets of United as of December 31, 1993 which is not included
herein and Goodhue as of December 31, 1993 which is included herein and assumes
that the transactions were consummated on December 31, 1993. The Unaudited Pro
Forma Consolidated Statement of Income for the year ended December 31, 1993 is
derived from the audited Consolidated Statements of Income of United and Goodhue
included elsewhere herein and assumes that the transactions were consummated on
January 1, 1993.
The Unaudited Pro Forma Consolidated Financial Statements do not purport to
represent what United's results of operations or financial condition would
actually have been if the transactions had occurred on the dates indicated. The
unaudited Pro Forma Consolidated Financial Statements are presented for
comparative purposes only. The pro forma adjustments, as discussed in Note 1,
are based on available information and certain assumptions that management
believes are reasonable.
The unaudited pro forma information with respect to the purchase of Goodhue
was based on the historical financial statements of Goodhue. The acquisition has
been accounted for using the purchase method of accounting. The purchase price
for the acquisition has been allocated to the tangible assets and liabilities of
Goodhue based upon management's estimates of their fair value with the remainder
allocated to goodwill.
F-73
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET OF UNITED AND GOODHUE
DECEMBER 31, 1993
<TABLE>
<CAPTION>
PRO FORMA
CONSOLIDATED
UNITED GOODHUE ADJUSTMENTS BALANCE SHEET
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks...................... $ 8,090,851 $ 6,231,125 $ (9,263,984)(b) $ 14,320,667
(1,500,000)(d)
10,762,675(e)
Federal funds sold........................... 500,000 4,950,000 5,450,000
Investment securities........................ 39,596,384 42,817,189 196,464(a) 82,610,037
Loans and leases............................. 114,083,609 104,395,435 1,562,501(a) 220,041,545
Allowance for loan and lease losses........ (1,500,870) (1,223,931) (2,724,801)
-------------- -------------- -------------- --------------
Net loans and leases..................... 112,582,739 103,171,504 1,562,501 217,316,744
-------------- -------------- -------------- --------------
Property and equipment, net.................. 4,302,610 5,039,918 898,725(a) 10,241,253
Other assets................................. 8,122,217 4,834,005 3,292,310(a) 17,748,532
1,500,000(d)
-------------- -------------- -------------- --------------
Total assets............................. $ 173,194,801 $ 167,043,741 $ 7,448,691 $ 347,687,233
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits................................... $ 147,516,564 $ 143,481,773 $ 591,190(a) $ 291,589,527
Securities sold under repurchase 6,766,347 8,554,941 15,321,288
agreements................................
Accrued expenses and other liabilities..... 1,600,398 1,059,436 823,116(a) 3,482,950
Notes payable and other borrowings......... 3,602,000 357,000 9,445(a) 10,548,848
10,762,675(e)
(4,182,272)(f)
-------------- -------------- -------------- --------------
Total liabilities........................ 159,485,309 153,453,150 8,004,154 320,942,613
-------------- -------------- -------------- --------------
Stockholders' equity:
Preferred stock............................ -- 2,833,607 (2,833,607)(b) --
Common stock............................... 302,746 110,497 (110,497)(b) 5,023
1,381(b)
(299,719)(c)
615(f)
Additional paid-in capital................... 3,955,701 171,450 (171,450)(b) 17,288,552
8,851,475(b)
299,719(c)
4,181,657(f)
Retained earnings............................ 9,451,045 10,475,037 4,526,249(a) 9,451,045
(15,001,286)(b)
-------------- -------------- -------------- --------------
Total stockholders' equity............... 13,709,492 13,590,591 (555,463) 26,744,620
-------------- -------------- -------------- --------------
Total liabilities and stockholders' $ 173,194,801 $ 167,043,741 $ 7,448,691 $ 347,687,233
equity..................................
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
See Note to the Unaudited Pro Forma Consolidated Financial Statements
F-74
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME OF UNITED AND GOODHUE
YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
PRO FORMA
CONSOLIDATED
STATEMENT OF
UNITED GOODHUE ADJUSTMENTS INCOME
------------ ------------ -------------- ------------
<S> <C> <C> <C> <C>
Interest income:
Loans and leases..................................... $ 9,069,781 $ 9,725,971 $18,795,752
Investment securities -- taxable..................... 2,098,870 2,383,653 4,482,523
Investment securities -- tax exempt.................. 139,757 143,973 283,730
Federal funds sold................................... 115,164 253,129 368,293
------------ ------------ -------------- ------------
Total interest income.............................. 11,423,572 12,506,726 -- 23,930,298
------------ ------------ -------------- ------------
Interest expense:
Deposits............................................. 23,367,221 4,585,589 7,952,810
Federal funds purchased and securities sold under
repurchase agreements............................... 106,567 272,392 378,959
Notes payable and other borrowings................... 197,037 31,552 475,032(h) 703,621
------------ ------------ -------------- ------------
Total interest expense............................. 3,670,825 4,889,533 475,032 9,035,390
------------ ------------ -------------- ------------
Net interest income.................................. 7,752,747 7,617,193 (475,032) 14,894,908
Provision for loan and lease losses.................... 300,000 304,628 -- 604,628
------------ ------------ -------------- ------------
Net interest income after provision for loan and (475,032 )
lease losses........................................ 7,452,747 7,312,565 14,290,280
Noninterest income:
Service charges and other fees....................... 1,770,532 1,326,777 3,097,309
Net investment securities gains...................... 75,194 210,256 285,450
Other................................................ 302,721 261,762 564,483
------------ ------------ -------------- ------------
Total noninterest income........................... 2,148,447 1,798,795 -- 3,947,242
------------ ------------ -------------- ------------
Noninterest expense:
Salaries and employee benefits....................... 3,687,963 3,954,059 7,642,022
Occupancy and depreciation........................... 926,265 931,063 1,857,328
219,487 (g)
(110,804)(g)
Other................................................ 2,801,898 2,214,788 370,000(i) 5,495,369
------------ ------------ -------------- ------------
Total noninterest expense.......................... 7,416,126 7,099,910 478,683 14,994,719
------------ ------------ -------------- ------------
Income before income taxes and cumulative effect of (953,715)
change in accounting principle...................... 2,185,068 2,011,450 3,242,803
Income tax expense................................... 725,224 707,000 (293,691 )(j) 1,138,533
------------ ------------ -------------- ------------
Income before cumulative effect of change in (660,024 )
accounting principle.............................. 1,459,844 1,304,450 2,104,270
Cumulative effect of change in accounting --
principle......................................... 106,168 75,000 181,168
------------ ------------ -------------- ------------
Net income....................................... $ 1,566,012 $ 1,379,450 $ (660,024 ) $ 2,285,438
------------ ------------ -------------- ------------
------------ ------------ -------------- ------------
Earnings per share before cumulative effect of change
in accounting principle............................... $ 4.65 $ 11.80 $ 4.10
Cumulative effect of change in accounting principle.... .34 .68 .35
------------ ------------ ------------
Earnings per share after cumulative effect of change in
accounting principle.................................. $ 4.99 $ 12.48 $ 4.45
------------ ------------ ------------
------------ ------------ ------------
Average shares outstanding............................. 313,994 110,497 513,565
</TABLE>
F-75
<PAGE>
NOTE TO THE UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS OF UNITED AND GOODHUE
NOTE 1: PRO FORMA ADJUSTMENTS
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(a) Reflects the allocation of the purchase price based on estimated fair values
of the tangible assets and liabilities of Goodhue with the remaining
purchase price being allocated to goodwill.
(b) Reflects the exchange or redemption of Goodhue preferred and common stock
for United stock or cash.
(c) Reflects the change in par value of United stock from $1 per share to $.01
per share.
(d) Reflects the noncompete agreement.
(e) Reflects the additional proceeds received from bank financing obtained to
complete the merger.
(f) Reflects the application of the common stock offering proceeds to the debt.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(g) Reflects the effect of push-down accounting to goodwill resulting in
additional amortization of $219,487 for the year ended December 31, 1993.
The effect of push-down accounting to the tangible assets and liabilities
resulted in accretion of $110,804 for the year ended December 31, 1993.
(h) Reflects the additional interest expense incurred as a result of the
additional financing obtained to complete the merger (net of the repayment
from proceeds of the common stock offering). The interest rate used was
7.12%, the rate actually in effect.
(i) Reflects the amortization of the noncompete agreements.
(j) Reflects the tax effect of the taxable pro forma adjustments. The goodwill
amortization is not tax deductible. The effective tax rate is assumed to be
forty percent for the year ended December 31, 1993 resulting in decreased
income tax expense of $293,691.
F-76
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY UNITED OR BY THE UNDERWRITER. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF UNITED SINCE THE
DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE OF THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
- -------------------------------------------------------------------------- ----
<S> <C>
Summary................................................................... 3
Risk Factors.............................................................. 8
Acquisition of Park....................................................... 11
Use of Proceeds........................................................... 13
Capitalization............................................................ 14
Selected Financial Data................................................... 15
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 19
Business.................................................................. 38
Management................................................................ 45
Principal Shareholders.................................................... 51
Supervision and Regulation................................................ 53
Description of Securities................................................. 58
Underwriting.............................................................. 64
Legal Matters............................................................. 64
Experts................................................................... 64
Additional Information.................................................... 65
Index to Financial Information............................................ F-1
</TABLE>
UNTIL , 1997 ( DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE SERIES A PREFERRED STOCK COVERED HEREBY,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS.
440,000 SHARES
[UNITED COMMUNITY BANCSHARES LOGO]
% CUMULATIVE
PERPETUAL PREFERRED STOCK,
SERIES A
-----------------
P R O S P E C T U S
-----------------
PIPER JAFFRAY INC.
, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following expenses will be paid by the Registrant in connection with the
distribution of the securities registered hereby and do not include the
underwriting discount to be paid to the Underwriters. All of such expenses,
except for the SEC registration fee and NASD fee are estimated.
<TABLE>
<S> <C>
SEC Registration Fee................................................ $ 3,334
NASD Fee............................................................ 1,600
Registrant's Legal Fees............................................. *
Underwriter's Advisory Fee.......................................... *
Accountants' Fees and Expenses...................................... *
Printing Expenses................................................... *
Blue Sky Fees and Expenses.......................................... *
Miscellaneous....................................................... *
---------
Total............................................................... $ *
---------
---------
</TABLE>
- ------------------------
* To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 302A.521, subd. 2, of the Minnesota Statutes requires the Registrant
to indemnify a person made or threatened to be made a party to a proceeding by
reason of the former or present official capacity of the person with respect to
the Registrant, against judgments, penalties, fines, including, without
limitation, excise taxes assessed against the person with respect to an employee
benefit plan, settlements, and reasonable expenses, including attorneys' fees
and disbursements, incurred by the person in connection with the proceeding with
respect to the same acts or omissions if such person (1) has not been
indemnified by another organization or employee benefit plan for the same
judgments, penalties or fines; (2) acted in good faith; (3) received no improper
personal benefit, and statutory procedure has been followed in the case of any
conflict of interest by a director; (4) in the case of a criminal proceeding,
had no reasonable cause to believe the conduct was unlawful; and (5) in the case
of acts or omissions occurring in the person's performance in the official
capacity of director or, for a person not a director, in the official capacity
of officer, board committee member or employee, reasonably believed that the
conduct was in the best interests of the Registrant, or, in the case of
performance by a director, officer or employee of the Registrant involving
service as a director, officer, partner, trustee, employee or agent of another
organization or employee benefit plan, reasonably believed that the conduct was
not opposed to the best interests of the Registrant. In addition, Section
302A.521, subd. 3, requires payment by the Registrant, upon written request, of
reasonable expenses in advance of final disposition of the proceeding in certain
instances. A decision as to required indemnification is made by a disinterested
majority of the Board of Directors present at a meeting at which a disinterested
quorum is present, or by a designated committee of the Board, by special legal
counsel, by the shareholders, or by a court.
Provisions regarding indemnification of officers and directors of the
Registrant are contained in Bylaw Section 5.1 of the Registrant's Bylaws
(Exhibit 3.2 to this Registration Statement).
Under Section of the Underwriting Agreement, filed as Exhibit 1.1
hereto, the Underwriter agrees to indemnify, under certain conditions, the
Registrant, its directors, certain of its officers and persons who control the
Registrant within the meaning of the Securities Act of 1933, as amended (the
"Act"), against certain liabilities.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On January 1, 1994, United issued 138,067 shares of its Common Stock to
shareholders of Goodhue in exchange for the conversion of the outstanding
Goodhue shares in connection with the merger of Signal and Goodhue, in reliance
upon an exemption under Rule 506 of Regulation D. Concurrently with that merger
transaction, United issued 61,504 shares of its Common Stock to investors in
exchange for an aggregate purchase price of $4,182,272, in reliance upon an
exemption under Rule 506 of Regulation D. Based upon Letter of Investment Intent
and Subscription Agreements, United believes the former Goodhue shareholders and
the purchasing investors were "sophisticated investors" and they were either
"accredited" investors or did not exceed an aggregate of 35 nonaccredited
investors.
In March, 1995, United issued 2,103 shares to the United Community
Bancshares, Inc. Employee Stock Ownership Plan in exchange for an aggregate
purchase price of $164,938, in reliance upon Section 4(2) of the Act.
In August, 1995, United issued 41,907 shares of its Common Stock to
investors in exchange for an aggregate purchase price of $3,527,731, in reliance
upon an exemption under Section 3(a) (11) of the Act and Rule 147 thereunder.
Based upon Letter of Investment Intent and Subscription Agreements, United
believes that all of the investors were residents of the State of Minnesota, the
state in which United is incorporated.
In January, 1996, United issued 160 shares upon exercise of a stock option
granted to a former employee in exchange for an aggregate purchase price of
$11,754, in reliance upon an exemption under Section 4(2) of the Act.
Also in January, 1996, United issued 50 shares to an accredited investor in
exchange for an aggregate purchase price of $4,653, in reliance upon an
exemption under Section 4(2) of the Act.
In March, 1996, United issued 2,150 shares to the United Community
Bancshares, Inc. Employee Stock Ownership Plan in exchange for an aggregate
purchase price of $200,079, in reliance upon an exemption under Section 4(2) of
the Act.
In April, 1996, United issued 107 shares to an accredited investor in
exchange for an aggregate purchase price of $9,957, in reliance upon an
exemption under Section 4(2) of the Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement*
2.1 Merger Agreement with Park Financial Corporation dated October 7, 1996
2.2 Indemnification Agreement with the Park Financial Corporation Revocable Trust dated October 7, 1996
3.1 Restated Articles of Incorporation
3.2 Bylaws
4.1 Statement of Designation*
4.2 Form of Common Stock Certificate*
4.3 Form of Series A Preferred Stock Certificate*
4.4 Restated Articles of Incorporation (filed as Exhibit 3.1)
4.5 Bylaws (filed as Exhibit 3.2)
5.1 Opinion and Consent of Fredrikson & Byron, P.A.*
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.1 1994 Stock Option Plan**
10.2 Executive Salary Continuation Agreement between Signal Bank and Galen T. Pate**
10.3 Executive Salary Continuation Agreement between Signal Bank and Marcia L. O'Brien**
10.4 Executive Salary Continuation Agreement between Signal Bank and John H. LeMay**
10.5 Executive Salary Continuation Agreement between Signal Bank and John C. Dorsey**
10.6 Executive Salary Continuation Agreement between United and Donald M. Davies**
10.7 Lease Agreement between United and Whitewood (Minneapolis) Limited Partnership, dated September 7, 1995,
respecting 2600 Eagan Woods Drive, Suite 155, Eagan, Minnesota.
10.8 Lease Agreement between Signal Bank and Signal Hills Company (a Minnesota corporation), dated January 1,
1976, as amended, respecting 100 Signal Hills, West St. Paul, Minnesota.
10.9 Lease Agreement between Signal Bank and Signal Hills Company (a Minnesota general partnership), dated
January 29, 1993, respecting an area in the Signal Hills Center.
10.10 Lease Agreement between Signal Bank and Signal Hills Company (a Minnesota general partnership), dated
July 20, 1986, respecting an area in the Signal Hills Center.
10.11 Lease Agreement between United and ELPO Partnership, dated January 1, 1996, respecting 432 West Third
Street, Red Wing, Minnesota.
10.12 Lease Agreement between CCC and County Crossroads Center United Partnership, dated August 27, 1993,
respecting the County Crossroads Center, Hastings, Minnesota.
10.13 Lease Agreement between CCC and Lubbers' Properties Inc., dated June 8, 1994, respecting 1014 South
Highway 3, Northfield, Minnesota.
10.14 Sublease Agreement between United and CENEX, Inc., dated August, 1994, as amended, respecting 5400
Babcock Trail, Inver Grove Heights, Minnesota.
12.1 Statement Regarding Computation of Ratios
23.1 Consent of Fredrikson & Byron, P.A. (included in Exhibit 5.1)
23.2 Consent of McGladrey & Pullen, LLP, independent auditors
23.3 Consent of Leininger & Leininger, Ltd., independent auditors
23.4 Consent of KPMG Peat Marwick LLP, independent auditors
23.5 Consent of Larson, Allen & Weishair & Co., LLP, independent auditors
24 Power of Attorney (included on signature page of the Registration Statement)
27 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment.
** Management agreement or compensatory plan or arrangement.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such
II-3
<PAGE>
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
The undersigned Registrant further undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) It will provide to the underwriter at the closing specified in the
underwriting agreement certificates in such denominations and registered in such
names as required by the underwriter to permit prompt delivery to each
purchaser.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Minneapolis, State of
Minnesota, on October 21, 1996.
UNITED COMMUNITY BANCSHARES, INC.
By /s/ R. SCOTT JONES
------------------------------------------
R. Scott Jones, CHAIRMAN
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature to this
Registration Statement appears below hereby constitutes and appoints R. Scott
Jones and Galen T. Pate, and each of them, as his or her true and lawful
attorney-in-fact and agent, with full power of substitution, to sign on his or
her behalf individually and in the capacity stated below and to perform any acts
necessary to be done in order to file all amendments and post-effective
amendments to this Registration Statement, and any and all instruments or
documents filed as part of or in connection with this Registration Statement or
the amendments thereto, and each of the undersigned does hereby ratify and
confirm all that said attorney-in-fact and agent, or his or her substitutes,
shall do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ------------------------------------ -------------------
<C> <S> <C>
/s/ R. SCOTT JONES Chairman and Director (principal
------------------------------------------- executive officer) October 21, 1996
R. Scott Jones
/s/ GALEN T. PATE President and Director (principal
------------------------------------------- executive officer) October 21, 1996
Galen T. Pate
/s/ MARCIA L. O'BRIEN Executive Vice President and Chief
------------------------------------------- Financial Officer (principal October 21, 1996
Marcia L. O'Brien financial and accounting officer)
/s/ ARLIN A. ALBRECHT
------------------------------------------- Director October 21, 1996
Arlin A. Albrecht
/s/ LARRY C. BARENBAUM
------------------------------------------- Director October 21, 1996
Larry C. Barenbaum
/s/ SPENCER A. BROUGHTON
------------------------------------------- Director October 21, 1996
Spencer A. Broughton
</TABLE>
Signatures continued on following page
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ------------------------------------ -------------------
<C> <S> <C>
/s/ JAMES P. FRITZ
------------------------------------------- Director October 21, 1996
James P. Fritz
/s/ JOHN W. JOHNSON
------------------------------------------- Director October 21, 1996
John W. Johnson
/s/ ORA G. JONES
------------------------------------------- Director October 21, 1996
Ora G. Jones
/s/ LOUIS J. LANGER
------------------------------------------- Director October 21, 1996
Louis J. Langer
</TABLE>
II-6
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
UNITED COMMUNITY BANCSHARES, INC.
EXHIBIT INDEX TO FORM S-1
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement*
2.1 Merger Agreement with Park Financial Corporation dated October 7, 1996
2.2 Indemnification Agreement with the Park Financial Corporation Revocable Trust dated October 7, 1996
3.1 Restated Articles of Incorporation
3.2 Bylaws
4.1 Statement of Designation*
4.2 Form of Common Stock Certificate*
4.3 Form of Series A Preferred Stock Certificate*
4.4 Restated Articles of Incorporation (filed as Exhibit 3.1)
4.5 Bylaws (filed as Exhibit 3.2)
5.1 Opinion and Consent of Fredrikson & Byron, P.A.*
10.1 1994 Stock Option Plan**
10.2 Executive Salary Continuation Agreement between Signal Bank and Galen T. Pate**
10.3 Executive Salary Continuation Agreement between Signal Bank and Marcia L. O'Brien**
10.4 Executive Salary Continuation Agreement between Signal Bank and John H. LeMay**
10.5 Executive Salary Continuation Agreement between Signal Bank and John C. Dorsey**
10.6 Executive Salary Continuation Agreement between United and Donald M. Davies**
10.7 Lease Agreement between United and Whitewood (Minneapolis)Limited Partnership, dated September 7, 1995,
respecting 2600 Eagan Woods Drive, Suite 155, Eagan, Minnesota.
10.8 Lease Agreement between Signal Bank and Signal Hills Company (a Minnesota corporation), dated January 1,
1976, as amended, respecting 100 Signal Hills, West St. Paul, Minnesota.
10.9 Lease Agreement between Signal Bank and Signal Hills Company (a Minnesota general partnership), dated
January 29, 1993, respecting an area in the Signal Hills Center.
10.10 Lease Agreement between Signal Bank and Signal Hills Company (a Minnesota general partnership), dated
July 20, 1996, respecting an area in the Signal Hills Center.
10.11 Lease Agreement between United and ELPO Partnership, dated January 1, 1996, respecting 432 West Third
Street, Red Wing, Minnesota.
10.12 Lease Agreement between CCC and County Crossroads Center United Partnership, dated August 27, 1993,
respecting the County Crossroads Center, Hastings, Minnesota.
10.13 Lease Agreement between CCC and Lubbers' Properties Inc., dated June 8, 1994, respecting 1014 South
Highway 3, Northfield, Minnesota.
10.14 Sublease Agreement between United and CENEX, Inc., dated August, 1994, as amended, respecting 5400
Babcock Trail, Inver Grove Heights, Minnesota.
12.1 Statement regarding computation of ratios
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
23.1 Consent of Fredrikson & Byron, P.A. (included in Exhibit 5.1)
23.2 Consent of McGladrey & Pullen, LLP, independent auditors
23.3 Consent of Leininger & Leininger, Ltd., independent auditors
23.4 Consent of KPMG Peat Marwick LLP, independent auditors
23.5 Consent of Larson, Allen & Weishair & Co., LLP, independent auditors
24 Power of Attorney (included on signature page of the Registration Statement)
27 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment.
** Management agreement or compensatory plan or arrangement.
<PAGE>
EXHIBIT 2.1
MERGER AGREEMENT
DATE: October 7, 1996
PARTIES: PFC Acquisition Corp.
2600 Eagan Woods Drive
Suite 155
Eagan, MN 55121 ("PFC Acquisition")
United Community Bancshares, Inc.
2600 Eagan Woods Drive
Suite 155
Eagan, MN 55121 ("United")
Park Financial Corporation
5353 Wayzata Boulevard
St. Louis Park, MN 55416 (the "Company")
The Park Financial Corporation Common
Stock Revocable Trust, Under Agreement
Dated May 28, 1980
c/o J. Kevin Costley, Esq.
Lindquist & Vennum P.L.L.P.
4200 IDS Center
80 South 8th Street
Minneapolis, MN 55402-2205 (the "Trust")
RECITALS:
A. United is a corporation organized and existing under the laws of the
State of Minnesota and is a registered bank holding company under the Bank
Holding Company Act of 1956, as amended, and owns 100% of the issued and
outstanding capital stock of PFC Acquisition, a Minnesota corporation.
B. The Company is a corporation organized and existing under the laws of
the State of Minnesota and is a registered bank holding company under the Bank
Holding Company Act of 1956, as amended.
C. The Company currently owns 130,000 shares (which represents 100%) of
the issued and outstanding capital stock of Park National Bank ("Bank"), a
banking corporation organized and existing under the laws of the United States
of America and having its principal place of business in St. Louis Park,
Minnesota.
D. The Trust currently owns 340,000 shares (which represent 70.07% on a
fully-diluted basis) of the issued and outstanding capital stock of the Company.
E. If the conditions for the merger contemplated herein are satisfied,
the parties desire that PFC Acquisition be merged with and into the Company (the
"Merger"), such that all current shareholders of the Company receive cash (but
no stock) in connection with the Merger, pursuant to this Agreement.
<PAGE>
F. The Board of Directors of each of PFC Acquisition and of the Company
has determined that it would be in the best interests of such party and its
shareholders, for PFC Acquisition to merge with and into the Company.
G. The Board of Directors of each of PFC Acquisition and of the Company
has approved this Agreement and the Plan of Merger attached hereto as Exhibit A
(the "Plan of Merger"), has authorized the execution, delivery and performance
of this Agreement and the Plan of Merger on behalf of such party, and has
directed the submission of the terms of this Agreement and the Plan of Merger to
the shareholders of such party.
AGREEMENTS:
IN CONSIDERATION for the mutual covenants set forth herein and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. DEFINITIONS.
(a) SPECIFIC DEFINITIONS. For purposes of this Agreement, the
following terms shall have the following meanings:
"AGREEMENT" means this Merger Agreement.
"ARTICLES OF MERGER" means the Articles of Merger in the form
attached hereto as Exhibit B.
"BANK" means Park National Bank.
"CLOSING" and "CLOSING DATE" are defined in Section 4.
"COMPANY" means Park Financial Corporation.
"COMPANY BOOK VALUE" means that amount equal to the sum of the
Company's capital, surplus and undivided profits account, plus
year-to-date earnings through the Valuation Date, but excluding the
net unrealized gains or losses on available-for-sale securities
(recorded under the provisions of FASB 115), calculated in accordance
with GAAP, or as required by regulatory accounting principles,
consistently applied.
"EMPLOYEE PLAN" is defined in Section 5(p).
"FINANCIAL STATEMENT" is defined in Section 5(k).
"GAAP" means generally accepted accounting principles.
"MBCA" means the Minnesota Business Corporation Act, as currently
in effect and as it may be hereafter amended.
"MERGER" means the merger of PFC Acquisition with and into the
Company as contemplated herein.
"MERGER CONSIDERATION" is defined in Section 3(c).
"MERGER EFFECTIVE TIME" is defined in Section 4.
<PAGE>
"PFC ACQUISITION" means PFC Acquisition Corp., a Minnesota
corporation and a wholly-owned subsidiary of United.
"PLAN OF MERGER" means the Plan of Merger in the form attached
hereto as Exhibit A.
"SHARES" means all of the issued and outstanding capital stock of
the Company, consisting of an aggregate of 485,210 shares of common
stock on a fully-diluted basis, owned by Company shareholders other
than PFC Acquisition.
"SURVIVING CORPORATION" means the Company following the Merger.
"TRUST" means The Park Financial Corporation Common Stock
Revocable Trust, Under Agreement Dated May 28, 1980.
"UNITED" means United Community Bancshares, Inc., a Minnesota
corporation.
"VALUATION DATE" means the close of business on November 30,
1996.
"VALUATION DATE FINANCIAL STATEMENTS" is defined in Section 3(c).
"XYZ LOAN AMOUNT" and "XYZ LOAN AGENT" are each defined in
Section 9(f).
(b) OTHER DEFINITIONAL PROVISIONS.
(i) The words "hereof," "herein," and "hereunder" and words of
similar import, when used in this Agreement, shall refer to this
Agreement as a whole and not to any particular provisions of this
Agreement.
(ii) Terms defined in the singular shall have a comparable
meaning when used in the plural, and vise versa.
(iii) References to an "Exhibit" or to a "Schedule" are,
unless otherwise specified, to one of the Exhibits or Schedules
attached to or referenced in this Agreement, and references to a
"Recital" or a "Section" are, unless otherwise specified, to one of
the Recitals or Sections of this Agreement.
2. MERGER. At the Merger Effective Time, pursuant to the provisions of
this Agreement and the Plan of Merger and pursuant to the provisions of the
MBCA, PFC Acquisition shall be merged with and into the Company, which shall be
the surviving corporation in the Merger (the "Surviving Corporation"), and the
separate existence of PFC Acquisition shall thereupon cease. After the Merger
Effective Time, the existence and corporate organization of Park Financial
Corporation shall continue in effect as the Surviving Corporation. The name of
the Surviving Corporation shall be "Park Financial Corporation."
(a) ARTICLES OF INCORPORATION OF SURVIVING CORPORATION. At the
Merger Effective Time, the Articles of Incorporation of the Company then in
effect shall constitute and be the Articles of Incorporation of the
Surviving Corporation until amended or changed as provided therein or by
law.
(b) BYLAWS OF SURVIVING CORPORATION. At the Merger Effective Time,
the Bylaws of the Company then in effect shall constitute and be the Bylaws
of the Surviving Corporation until amended or changed as provided therein
or by law.
<PAGE>
(c) BOARD OF DIRECTORS OF SURVIVING CORPORATION. At the Merger
Effective Time and continuing thereafter, the members of the Board of
Directors of the Surviving Corporation shall be: R. Scott Jones, Galen T.
Pate, Marcia L. O'Brien, John H. LeMay, and Donald M. Davies, until such
board may be changed or reconstituted as provided by the Articles of
Incorporation or Bylaws of the Surviving Corporation, or by law.
(d) OFFICERS OF SURVIVING CORPORATION. At the Merger Effective Time
and continuing thereafter, the individuals holding officer positions in the
Surviving Corporation shall be: Galen T. Pate as Chairman, R. Scott Jones
as President, Marcia L. O'Brien as Chief Financial Officer, Donald M.
Davies as Vice President, and John H. LeMay as Secretary, until such
officers may be changed as provided by the Articles of Incorporation or
Bylaws of the Surviving Corporation, or by law.
(e) CERTAIN EFFECTS OF THE MERGER. At the Merger Effective Time, the
Surviving Corporation shall succeed to and possess all the rights,
privileges, powers, franchises and immunities of a public as well as of a
private nature, and be subject to all liabilities, restrictions,
disabilities, and duties of both of PFC Acquisition and the Company; and
all and singular, the rights, privileges, powers, franchises and immunities
of both of PFC Acquisition and the Company and all properties, real,
personal and mixed, and all other things in action of or belonging to
either of PFC Acquisition or the Company on whatever account, shall be
vested in the Surviving Corporation; and all properties, assets, rights,
privileges, powers, franchises, immunities and all and every other interest
shall be thereafter as effectively the property of the Surviving
Corporation as they were or would be of PFC Acquisition and the Company or
either of them; and title to any real estate or any interest therein vested
by deed or otherwise in either of PFC Acquisition and the Company shall not
revert or be in any way impaired by any reason of the Merger; provided,
however, that all rights of creditors and all liens upon any property of
either of PFC Acquisition or the Company shall be preserved unimpaired,
limited in lien to the property affected by such liens at the Merger
Effective Time, and all debts, liabilities and duties of either of PFC
Acquisition or the Company shall thenceforth become those of the Surviving
Corporation and may be enforced against the Surviving Corporation to the
same extent as if such debts, liabilities and duties had been incurred or
contracted by the Surviving Corporation.
(f) FURTHER ASSURANCES. If at any time after the Merger Effective
Time the Surviving Corporation shall consider or be advised that any
instruments of further assurance are desirable in order to evidence the
vesting in it of the title of either of PFC Acquisition or the Company to
any of the property rights of PFC Acquisition or the Company, the
appropriate officers or directors of PFC Acquisition or of the Company, as
the case may be, are hereby authorized to execute, acknowledge and deliver
all such instruments of further assurance and to do all other acts or
things, either in the name of PFC Acquisition, in the name of the Company,
or in the name of the Surviving Corporation, as may be requisite or
desirable to carry out the provisions of this Agreement and the Plan of
Merger.
3. CONVERSION OF SHARES. The manner and basis of converting the shares
of stock of PFC Acquisition into shares of stock of the Surviving Corporation,
and the manner and basis of converting the shares of stock of the Company into
money and the payment therefor, in the Merger, shall be as follows:
(a) PFC ACQUISITION SHARES. At the Merger Effective Time, each share
of Common Stock of PFC Acquisition then outstanding shall, by virtue of the
Merger and without any further action on the part of the holder thereof, be
converted into and thereafter shall constitute one issued and outstanding
share of the Common Stock of the Surviving Corporation.
(b) THE COMPANY SHARES. At the Merger Effective Time, each share of
Common Stock of the Company then outstanding (and held by a shareholder
other than PFC Acquisition) shall, by virtue of the Merger and without any
further action on the part of the holder thereof, be converted into and
thereafter shall constitute the right to receive a cash payment equal to
(i) the Merger Consideration less the XYZ Loan Amount, divided by (ii) the
number of Shares.
<PAGE>
(c) MERGER CONSIDERATION. The total merger consideration for the
Shares (the "Merger Consideration") shall be the sum of:
(i) the Company Book Value as of the Valuation Date;
(ii) plus a premium of $21,110,000.00;
(iii) plus $8,000 per day from the Valuation Date through
December 31, 1996;
(iv) plus $9,500 per day from January 1, 1997 through the Closing
Date.
On or before December 11, 1996, the Company shall deliver to PFC
Acquisition the Company's balance sheet as of, and the Company's income
statement for the period ending on, the Valuation Date (the "Valuation Date
Financial Statements"). Any objection by PFC Acquisition to the Valuation
Date Financial Statements must be raised in a written notice delivered to
the Company on or before December 20, 1996. In the event any such
objection is raised, the parties will work together in good faith to
resolve the dispute as promptly as possible. Promptly upon receipt of
undisputed Valuation Date Financial Statements or, if there is any dispute,
upon resolution of such dispute, the parties will cooperate to calculate
the Merger Consideration. The Valuation Date Financial Statements shall
reflect the exercise of the options referred to in Section 9(j).
(d) PAYMENT. The Merger Consideration for the Shares shall be paid
as follows:
(i) XYZ LOAN AMOUNT. An amount equal to the XYZ Loan Amount
shall be paid to the XYZ Loan Agent on the Closing Date, all as
described in Section 9(f).
(ii) FINAL CASH PAYMENT. The Merger Consideration, reduced by
the amount specified in (i) above, shall be paid to the Company's
shareholders entitled thereto on the Closing Date, by certified or
bank cashier's check, or in the case of the Trust, by wire transfer to
an account or accounts designated by the Trust.
(e) COMPANY DISSENTING SHARES. Each Share outstanding immediately
prior to the Merger Effective Time, the holder of which has perfected such
holder's dissenters' rights (under MBCA Section 302A.471 ET SEQ.) to be
paid fair value for such holder's shares, and as of the Closing Date has
continued to preserve such holder's right to exercise such rights (such
shares referred to as "Company Dissenting Shares"), shall not represent a
right to receive the cash payment pursuant to Section 3(b). The holders of
Company Dissenting Shares shall be entitled only to such rights as are
granted by MBCA Section 302A.471 ET SEQ. Each holder of Company Dissenting
Shares who becomes entitled to payment for such holder's Shares pursuant to
MBCA Section 302A.471 ET SEQ. shall receive payment therefor from the
Surviving Corporation (but only pursuant to the MBCA or as otherwise agreed
upon by such holder and the Surviving Corporation). Company Dissenting
Shares shall be considered as being outstanding immediately prior to the
Valuation Date for purposes of calculating the Merger Consideration.
4. EFFECTIVE TIME; CLOSING. The Merger shall become effective on the
later of (a) the close of business on the date of filing of the executed
Articles of Merger with the Secretary of State of Minnesota in the manner
described in MBCA Section 302A.011, Subd. 11 and MBCA Section 302A.615, Subd. 2,
and (b) 12:01 a.m. January 16, 1997 (the "Merger Effective Time"). The parties
acknowledge that United is conducting a public offering of its securities, and
in connection therewith the parties intend to pre-file the Articles of Merger on
January 13, 1997, which is the date the underwriter intends to price the
securities. The closing ("Closing") of the transaction contemplated by this
Agreement will take place in the offices of Fredrikson & Byron, P.A., 1100
International Centre, 900 Second Avenue South, Minneapolis, Minnesota 55402, at
10:00 a.m. on January 16, 1997, or on such other day or at such other time or
place as may mutually agreed upon by the Company and PFC Acquisition ("Closing
Date").
<PAGE>
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE TRUST. As an
inducement to United and PFC Acquisition to enter into this Agreement, each of
the Company and the Trust, jointly and severally, makes the following
representations and warranties to United and to PFC Acquisition which shall be
true and correct as of the date hereof and as of the Closing Date.
(a) ORGANIZATION OF THE COMPANY. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Minnesota with the requisite power and authority necessary or
required by law to carry on the business activity in which it is presently
engaged. There have been no acts or omissions which may, and there are no
pending proceedings or actions to, limit or impair any of the Company's
powers, rights and privileges. The Company has no subsidiaries other than
the Bank and is not a partner in any partnership or a party to any joint
venture.
(b) ORGANIZATION OF THE BANK. The Bank is an association duly
organized, validly existing and in good standing under the laws of the
United States of America with all requisite power and authority necessary
or required by law to carry on the business activity in which it is
presently engaged. The Bank is not in default under its charter, the
effect of which might materially adversely affect its right to conduct its
business as presently conducted. There have been no acts or omissions
which may, and there are no pending proceedings or actions to, limit or
impair any of the Bank's powers, rights and privileges. The Bank has no
subsidiaries and is not a partner in any partnership or a party to any
joint venture.
(c) AUTHORITY FOR AGREEMENT. The Company and the Trust has the
requisite power and authority to execute and deliver, and perform the
Company's and the Trust's respective obligations under, this Agreement.
This Agreement has been duly executed and delivered by the Company and by
the Trust and constitutes the valid and legally binding obligation of the
Company and the Trust and is enforceable in accordance with its terms. The
execution, delivery and performance of this Agreement by the Company and by
the Trust, and the consummation of the transactions contemplated hereby,
will not conflict with or result in any violation of or default under (i)
the Articles of Incorporation or Bylaws of the Company, (ii) the Articles
of Association or Bylaws of the Bank, or (iii) any trust, guardianship,
custody or other agreement, or any understanding, instrument or order to
which the Trust, the Company or the Bank is a party or by which the Shares
or the property of the Trust, the Company or the Bank is bound. No
consent, approval, order or authorization of, or registration, declaration
or filing with, any governmental authority is required in connection with
the execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby, except in connection
with applications or notices which United and PFC Acquisition must file for
the prior approval of all necessary state and federal bank regulatory
agencies.
(d) CAPITALIZATION. The Company has authorized capital consisting of
5,000,000 shares of $1.00 per share par value common stock, of which no
more than 485,210 shares are issued and outstanding on a fully-diluted
basis (472,710 shares are issued and outstanding on the date hereof, and
12,500 shares are issuable upon exercise of outstanding stock options); and
all shareholders and optionholders and their respective addresses and the
number of Shares or stock options owned by each are set forth on Schedule
5(d). The Bank has authorized capital consisting of 130,000 shares of
$1.00 per share par value stock, of which no more than 130,000 shares are
issued and outstanding. There are no other classes of stock, and except as
disclosed on Schedule 5(d) there are no options, warrants, conversion
privileges or other rights, agreements, arrangements or commitments
obligating the Trust, the Company or the Bank to issue, sell, purchase or
redeem any shares of stock of the Company or the Bank or securities or
obligations of any kind convertible into or exchangeable for any shares of
stock of the Company or the Bank, nor are there any stock appreciation,
phantom or similar rights outstanding based upon the book value or any
other attribute of the Company's or the Bank's stock. As of the Closing
Date, there will be no options, warrants, conversion privileges or other
rights, agreements, arrangements or commitments obligating the Trust, the
Company or the Bank to issue, sell, purchase or redeem any shares of stock
of the Company or the Bank or securities or obligations of any kind
convertible into or exchangeable for any shares of stock of the Company or
the Bank, nor on the
<PAGE>
Closing Date will there be any stock appreciation, phantom or similar
rights outstanding based upon the book value or any other attribute of the
Company's or the Bank's stock.
(e) OWNERSHIP. All of the Shares have been duly authorized and
validly issued and are fully paid and nonassessable. The Company has good
and marketable title to 130,000 shares (100%) of the issued and outstanding
stock of the Bank, all of which have been duly authorized and validly
issued and are fully paid and nonassessable.
(f) INSURED STATUS. The Bank is an insured bank under the provisions
of Chapter 16 of Title XII of the United States Code relating to the
Federal Deposit Insurance Corporation ("FDIC"). No act, default or event
has occurred which could adversely affect the status of the Bank as an
insured bank under federal law.
(g) LITIGATION. Except as disclosed in Schedule 5(g), there is no
pending or threatened litigation or proceeding before any court, arbitrator
or federal, state or other governmental commission, board or other agency
against or affecting the Company or the Bank; and there is no judgment,
decree, order, writ, or injunction of any court or governmental department,
board, agency or instrumentality against or affecting the Company or the
Bank.
(h) RECORD BOOKS. The minute books and stock record books of the
Company and the Bank are complete and correct in all respects and reflect
all transactions required to be recorded under any and all applicable state
and federal laws or regulations.
(i) TAXES. The Company and the Bank have filed all federal, state
and local tax returns and all other returns with respect to taxes which are
required to be filed by the Company or the Bank on or before the date
hereof, and have paid all taxes as set forth on such returns. All such
returns were accurately prepared, and no amounts will become due and
payable in the event of an audit of any such tax return by any state or
federal agency. All other taxes, assessments and other governmental
charges due on or before the date hereof upon the Company or the Bank, or
upon any of their income, properties or assets, have been duly paid or will
be paid within the statutory filing periods. The Company and the Bank have
not received any notice of deficiency or assessment of additional taxes.
The Company and the Bank have not granted any waiver of any statute of
limitation with respect to, or any extension of a period for the assessment
of, any federal, state or other tax. The Company and the Bank have
withheld proper and accurate amounts from their employees and deposited
such sums in full and complete compliance with the tax withholding
provisions of applicable federal and state laws, and have maintained
adequate accruals and reserves to cover the liability of the Company and
the Bank for all federal and state income and other taxes.
(j) CONSOLIDATED STATUS. The Company and the Bank have filed
consolidated federal income tax returns and unitary or bank-affiliate state
income tax returns, have entered into a consolidated income tax sharing
agreement (a complete copy of which has been provided to PFC Acquisition)
and have made all required elections in compliance with all applicable
sections of the Internal Revenue Code and all regulations issued
thereunder, qualifying the Company and the Bank as members of a
consolidated group for purposes of the Internal Revenue Code. The
consolidated income tax sharing agreement between the Company and the Bank
complies with the Federal Reserve Board's policy statement concerning tax
sharing agreements and no tax or benefit payments have been made by the
Bank to the Company or any local, state or federal tax authority in
violation of such policy statement and no amounts are owed by the Company
to the Bank as a result of any such payment.
(k) FINANCIAL STATEMENTS. The Bank's Consolidated Reports of
Condition and Reports of Income for the periods ending December 31, 1994
and December 31, 1995; the Bank's daily statement as of June 30, 1996; the
Company's Annual Report of Bank Holding Companies (FR Y-6) for the period
ending December 31, 1995; and the Company's audited consolidated financial
statements for the periods ending December 31, 1994 and December 31, 1995,
true and correct copies of which are
<PAGE>
attached hereto as Schedule 5(k), and any subsequent Consolidated Report of
Condition and Report of Income of the Bank, Annual Report of Bank Holding
Companies (FR Y-6) of the Company, Semi-Annual Report of Bank Holding
Companies (FR Y-9SP) and any subsequent quarterly or monthly report
prepared by or on behalf of the Company or the Bank, copies of which are
delivered by the Company to PFC Acquisition in accordance with this
Agreement (collectively referred to hereinafter as the "Financial
Statements"), have been prepared in accordance with GAAP, except as
otherwise required by bank regulatory accounting principles, in a manner
consistently applied and present fairly the financial condition of the
Company and the Bank as of the date indicated. As of the date of each of
the Financial Statements, the Company and the Bank have no liabilities or
obligations of any nature, whether absolute, accrued, contingent or
otherwise, and whether due or to become due, which are not reflected or
reserved against in the Financial Statements, or have otherwise been
accepted by United and PFC Acquisition in other provisions of this
Agreement or in the acceptance of the December 31, 1995 Company Book Value.
(l) TITLE TO PROPERTIES AND ASSETS. The Company and the Bank have
good and marketable title to all of the real and personal property recorded
on their books and records, free and clear of all mortgages, pledges,
leases, charges, liens, encumbrances, defects or rights of third parties
with the exception of (i) liens for taxes, assessments or other
governmental charges not yet delinquent, and (ii) such imperfections of the
title and minor easements, defects, exceptions and encumbrances, if any, as
do not detract from the value of, or interfere with the intended use of,
such properties and assets. All Company and Bank property is in good and
usable condition and is maintained in accordance with and complies with all
applicable laws, ordinances, codes, rules and regulations. All property
and assets held by the Company and the Bank under leases are held under
valid and enforceable leases, the Company and the Bank are not in default
in any respect under any such lease, each lease will continue in full force
and effect immediately after the consummation of the transactions
contemplated by this Agreement, and there is no dispute between the Company
and the Bank, on the one hand, and other parties to such leases or the
owners of the leased property, on the other hand.
(m) ENVIRONMENTAL COMPLIANCE. All real property owned or operated by
the Company or the Bank has been operated in compliance with all applicable
federal, state and local environmental laws, ordinances, rules and
regulations, relating to the handling, storage and disposal of hazardous,
toxic or contaminating wastes or substances. The Company's or the Bank's
operation of any real property is in compliance with all such environmental
laws, ordinances, rules and regulations, including but not limited to the
maintenance of all required permits and approvals. The Company and the
Bank have not used or stored hazardous, toxic or contaminating wastes or
substances on any real property nor has the Company or the Bank discharged
or released any such substances upon any real property, including, but not
limited to, underground injection of such substances, in violation of any
federal, state or local environmental law, ordinance, rule or regulation.
To the best knowledge of the Company and the Trust, no other party has
engaged in any such use, storage, discharge or release on real property
owned or controlled by the Bank or Company. All real property held by the
Company or the Bank is free of any petroleum products, underground storage
tanks and wells. To the best knowledge of the Company and the Trust, the
Bank has not "controlled" or "directed" any borrower such that the Bank
would be subject to any liability with respect to any environmental matters
in connection with any borrower or any borrower's property.
(n) NOTES AND OTHER EVIDENCES OF INDEBTEDNESS. All loans, leases and
loan commitments extended by the Bank (the "Loans") have been made and
maintained in the ordinary course of business, in accordance with the
Bank's customary lending standards and policies and in compliance with all
applicable laws and regulations. The Bank's loan files contain all notes,
leases and other evidences of any indebtedness or lease arrangement,
including without limitation all loan agreements, loan participation
agreements and certificates, security agreements, mortgages, guarantees,
UCC financing statements and similar documents evidencing collateral or
other financial accommodations relating to the Loans ("Loan Documents"),
other than any minor Loan Document the absence of which does not adversely
affect the collectability of any Loan. All Loan Documents are correct in
amount, genuine as
<PAGE>
to signatures of every party thereto, including, but not limited to
lessees, makers and endorsers, and were given for valid consideration and
to the best knowledge of the Company and the Trust are enforceable in
accordance with their respective terms, and none of the obligations
represented by the Loan Documents have been modified, altered, forgiven,
discharged or otherwise disposed of except as indicated by the Loan
Documents or as a result of bankruptcy or other debtor's relief laws of
general application. To the best knowledge of the Company and the Trust,
none of the Loans is subject to any offsets or claims of offset, or claims
of other liability on the part of the Bank. No Loans have been sold
subject to an agreement to repurchase. Notwithstanding the foregoing,
except as expressly provided in the second sentence of this paragraph, no
representation or warranty is made with respect to the collectability of
any Loan.
(o) REGULATORY FILINGS. The Company and the Bank have filed all
applicable reports, returns, information and data with state or federal
banking authorities and regulatory agencies which are required by state or
federal law or regulations or as may be requested by such authorities or
agencies.
(p) EMPLOYEE PLANS. Except as disclosed on Schedule 5(p), the
Company and the Bank have not established any oral or written Employee Plan
for the directors, officers or employees of the Company or the Bank. For
purposes of this Agreement, "Employee Plan" means any pension, retirement,
disability, medical, dental or other health insurance plan, life insurance
or other death benefit plan, profit sharing, deferred compensation, stock
option, bonus or other incentive plan, vacation policy, severance plan, or
other employee benefit plan or arrangement, including, without limitation,
any "pension plan" or "welfare plan" as defined by the Employee Retirement
Income Security Act of 1974, as amended from time to time ("ERISA"), which
has been established or operated by the Company or the Bank or offered to
any directors, officers or employees of the Company or the Bank. Each
Employee Plan has been administered to date or terminated, as the case may
be, in compliance with the requirements of the Internal Revenue Code and
ERISA. Where applicable, each Employee Plan is fully funded on a
termination basis, no prohibited transactions or reportable events have
occurred, and all reports required by any government agency with respect to
any Employee Plan have been timely filed. Notwithstanding anything to the
contrary contained in an Employee Plan, all benefits, liabilities and
obligations of the Company or the Bank under an Employee Plan have been
fully accrued as of the date hereof and are reflected on the Financial
Statements.
(q) INSURANCE POLICIES. The Company and the Bank have continually
maintained insurance policies and bonds insuring the Company and the Bank
against losses relating to all real and personal property owned by the
Company or the Bank, as the case may be, and any acts of dishonesty by its
employees, officers and directors (the "Insurance"). All of the Insurance
is for such amounts as are reasonable and customary for institutions of a
similar size and is currently in full force and effect. No application
filed for the Insurance contains any misstatement of fact or fails to state
any fact which may adversely affect the coverage provided. The Company and
the Bank have properly and adequately notified all insurance carriers of
any and all claims known to the Company or the Bank with respect to the
employees, operations and properties of the Company or the Bank for which
the Company or the Bank is insured, have complied with all other
requirements and conditions of the Insurance, and have received no notice
of cancellation of the Insurance.
(r) DATA PROCESSING EQUIPMENT AND OPERATIONS. The Bank has good and
marketable title to all of the computer hardware and software used in the
Bank's data processing operations and located on the Bank's premises.
(s) COMPLIANCE WITH LAWS. The Company and the Bank have complied in
all respects with all applicable laws and regulations of foreign, federal,
state and local governments and all agencies thereof which affect the
business or any owned or leased properties of the Company or the Bank and
to which the Company or the Bank may be subject (including without
limitation the Occupational Safety and Health Act of 1970, and all other
state or federal acts, including rules and regulations thereunder,
<PAGE>
regulating or otherwise affecting employee health and safety), and there
are no currently pending claims by any such governments or agencies against
the Company or the Bank alleging a violation of any such law or regulation.
(t) CONTRACTS AND OTHER AGREEMENTS. Except as disclosed on Schedule
5(t), neither the Company nor the Bank is a party to or bound by any
written or oral (i) contract with any labor union, (ii) employment, agency,
consulting or similar contract, (iii) material lease, whether as lessor or
lessee, with respect to any real or personal property, (iv) material
contract or commitment, (v) guaranty, suretyship, indemnification or
contribution agreement, other than its obligations to indemnify its
officers and directors in accordance with their Articles of Incorporation
or Association and Bylaws, (vi) other contract not made in the ordinary
course of business, (vii) contract for the purchase or sale of real or
personal property other than in the ordinary course of business, or (viii)
contracts for the sale of credit life or disability insurance policies.
For purposes of this Section 5(t), any agreement or lease involving an
amount in excess of $10,000 or a remaining term extending beyond twelve
(12) months from the date of this Agreement, shall be deemed material.
(u) CREDIT AGREEMENTS. Neither the Company nor the Bank is a party
to or bound by any written or oral long-term debt agreement, credit
agreement, sale-leaseback agreement, revolving credit agreement, financing
agreement or mortgage on real property, in which the Company or the Bank,
as the case may be, is named debtor or mortgagor.
(v) CONTRACTUAL DEFAULTS. Neither the Company nor the Bank is in
default, and no event has occurred which, with the passage of time or the
giving of notice, or both, would constitute a default on its part, in any
respect under any agreement, indenture, loan agreement or other instrument
to which it is a party or by which it or any of its assets is bound or to
which any of its assets is subject, the result of which would have an
adverse effect upon the Company or the Bank, and to the best knowledge of
the Company and the Trust, all parties with whom the Company and the Bank
have leases, agreements or contracts or who owe obligations to the Company
and the Bank (other than under the Loan Documents) are in compliance
therewith in all respects.
(w) AFFILIATE AND INSIDER TRANSACTIONS. Except as disclosed on
Schedule 5(w), no executive officer or director of the Company or the Bank,
trustee of any trust holding Company or Bank stock, beneficial owner who,
together with such beneficial owner's immediate family, owns 10% or more of
the outstanding common stock of the Company or the Bank ("Principal
Shareholder"), member of the immediate family of any such executive
officer, director or Principal Shareholder, or entity in which any of such
persons own any beneficial interest (other than a publicly-held corporation
with stock traded on a national securities exchange or in the
over-the-counter market and less than 5% of the stock of which is
beneficially owned by any such persons) (collectively the "Insiders"), has
any loan agreement, note or borrowing arrangement or any other agreement
with the Company or the Bank (other than normal employment arrangements
complying with all applicable laws and regulations) or any interest in any
property, real, personal or mixed, tangible or intangible, used and/or
pertaining to the business of the Company or the Bank. For purposes of
this paragraph, (i) "executive officer" means an officer designated as an
executive officer by the Company's or Bank's Board of Directors and (ii)
the members of the immediate family of any executive officer, director or
Principal Shareholder will consist of the spouse, minor children and adult
children (residing at the residence) of such executive officer, director or
Principal Shareholder.
(x) FIDUCIARY DUTIES. The Bank has properly administered all
accounts for which it acts as a fiduciary, including but not limited to
accounts for which it serves as trustee, agent, custodian, personal
representative, guardian or investment advisor, in accordance with the
terms of the documents governing such relationships, applicable state and
federal laws and regulations and common law. Neither the Bank nor any of
its directors, officers and employees has committed any breach of trust
with respect to any such fiduciary account and the accountings for each
such fiduciary account are true and correct statements and accurately
reflect the assets of such fiduciary account.
<PAGE>
(y) NO BROKER'S OR FINDER'S FEES. There are no claims for broker's
commissions, finder's fees, investment advisory fees or similar
compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement made by or on behalf of the
Trust, the Company or the Bank except such fees and commissions payable by
the Trust or the Company, as the case may be.
(z) ADVERSE CHANGE. There has been no adverse change in the
business, properties, assets or condition, financial or otherwise, of the
Company or the Bank since April 30, 1996.
For purposes of the representations and warranties contained in this Section 5,
the personal knowledge of each of the executive officers of the Company is
attributed to, and shall be deemed to constitute the knowledge of, the Company;
and the personal knowledge of each of the Trustees and the beneficiaries of the
Trust is attributed to, and shall be deemed to constitute the knowledge of, the
Trust. The representations and warranties contained in this Section 5 shall
survive from the date of this Agreement through the Closing Date, and shall be
true and correct on the Closing Date, but shall automatically terminate on the
Closing Date following completion of the Closing. The Company and the Trust
shall have no indemnification obligations whatsoever after the Closing Date.
All claims, if any, against the Company and/or the Trust must be resolved prior
to the Closing Date.
6. COMPLETENESS OF DISCLOSURES. No representation or warranty of the
Company or the Trust in this Agreement or the Schedules hereto, and no
statement, certificate or Schedule furnished or to be furnished by or on behalf
of the Trust, the Company or the Bank to United or PFC Acquisition or their
agents pursuant hereto or in connection with the transactions contemplated by
this Agreement, including, without limitation, the Financial Statements,
contains or will contain any untrue statement of material fact or omits or will
omit to state a material fact necessary in order to make the statements
contained herein or therein not misleading. All Schedules to this Agreement,
including without limitation the Financial Statements, completely and correctly
present in all material respects the information required by this Agreement to
be set forth therein.
7. REPRESENTATIONS AND WARRANTIES OF UNITED AND PFC ACQUISITION. As an
inducement to the Trust and the Company to enter into this Agreement, each of
United and PFC Acquisition, jointly and severally, makes the following
representations and warranties to the Trust and to the Company, which shall be
true and correct as of the date hereof and as of the Closing Date.
(a) AUTHORITY FOR AGREEMENT. Each of United and PFC Acquisition has
all requisite power and authority to execute and deliver this Agreement and
to carry out its obligations hereunder, subject to prior approval by
applicable bank regulatory agencies. This Agreement has been duly executed
and delivered by each of United and PFC Acquisition and constitutes the
valid and legally binding obligation of United and PFC Acquisition
enforceable in accordance with its terms. The execution, delivery and
performance of this Agreement by United and by PFC Acquisition, and the
consummation of the transactions contemplated hereby, will not conflict
with or result in any violation of or default under any agreement,
understanding, instrument or order to which United or PFC Acquisition is a
party or by which United's or PFC Acquisition's property is bound. No
consent, approval, order or authorization of, or registration, declaration
or filing with, any governmental authority is required in connection with
the execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby, except for the
receipt of all necessary state and federal bank regulatory approvals.
(b) NO BROKER'S OR FINDER'S FEES. There are no claims for broker's
commissions, finder's fees, investment advisory fees or similar
compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement made by or on behalf of
United or PFC Acquisition, except those which are payable by United or PFC
Acquisition, as the case may be.
(c) ACCOUNTING POLICIES AND PRACTICES. Each of United and PFC
Acquisition has reviewed the accounting policies and practices of the
Company and the Bank utilized in connection with the
<PAGE>
calculation of Company Book Value and agrees that Company Book Value is
calculated to be $22,386,184 as of December 31, 1995. The Company's
accounting policies and practices as utilized for the calculation of
Company Book Value as of December 31, 1995 are acceptable to United and PFC
Acquisition, except for any personal holding company tax matters.
(d) PERSONAL HOLDING COMPANY TAX MATTERS. United and PFC Acquisition
will not seek indemnification from the Trust or the Company with respect to
any personal holding company tax matters. Each of United and PFC
Acquisition agrees to waive any objection it may have to the Company's or
the Bank's financial records or otherwise with respect to any personal
holding company tax matters.
(e) FINANCING. United has received a commitment letter from Firstar
Bank Milwaukee, N.A. to provide up to $24 million in debt financing which
is contingent upon United raising satisfactory equity, no adverse change in
United's business or financial condition, and United's executing loan
documents customary in debt transactions of this type, and United will
diligently pursue the same. United and PFC Acquisition have investigated
the availability of equity financing in an amount sufficient to enable
United and PFC Acquisition to consummate the transaction contemplated
hereunder, and have no reason to believe such equity financing will not be
obtained, and United and PFC Acquisition will diligently pursue the same.
(f) DISCOVERIES. Each of United and PFC Acquisition acknowledges
that in the course of its due diligence review to date, United and PFC
Acquisition have not discovered anything contrary to the representations
and warranties of the Trust and the Company contained in Section 5, other
than any personal holding company tax matters.
The representations and warranties contained in this Section 7 shall survive
from the date of this Agreement through the Closing Date, and shall be true and
correct on the Closing Date, but shall automatically terminate on the Closing
Date following completion of the Closing. United and PFC Acquisition shall have
no indemnification obligations whatsoever after the Closing Date. All claims,
if any, against United and/or PFC Acquisition must be resolved prior to the
Closing Date.
8. OPERATIONS PENDING CLOSING.
(a) OPERATING COVENANTS. The Company and the Trust, jointly and
severally, hereby covenants and agrees with United and PFC Acquisition
that, from the date of this Agreement through the Closing Date or the
earlier termination of this Agreement, except with the prior written
consent of United and PFC Acquisition, the Company or the Bank will not:
(i) Declare or pay any dividends or distributions with respect
to any shares of their capital stock, except that the Bank shall
declare and pay a dividend to the Company in an amount consistent with
past practice;
(ii) Borrow any amount or incur or become subject to any
liability, except liabilities incurred in the ordinary course of
business, but in no event shall the Company or the Bank enter into any
long-term borrowings or obligations, other than deposit obligations;
(iii) Discharge or satisfy any lien or encumbrance on the
properties or assets of the Company or the Bank or pay any liability,
other than in the ordinary course of business;
(iv) Sell, assign or transfer any tangible assets, except in the
ordinary course of business and for fair and reasonable consideration;
(v) Amend their Articles of Association or Incorporation or
Bylaws;
<PAGE>
(vi) Cancel any debt or claim or waive any right of value, except
in the ordinary course of business and for fair and reasonable
consideration;
(vii) Repurchase or enter into any agreement to repurchase
all or any portion of any loan previously participated to any other
financial institution;
(viii) Originate any loan which is thereafter participated to
another financial institution providing for payment upon default on
any basis other than pro rata;
(ix) Except in the ordinary course of business and consistent
with the Bank's current loan policies and safe and sound banking
practices, make or commit to make any further advances on any loan
which is either in default or classified, whether such classification
is a result of a federal bank regulatory examination or internal
classification by the Bank's officers or directors, unless the Bank is
under a legal obligation to do so;
(x) Except in the ordinary course of business and consistent
with the Bank's current loan policies and safe and sound banking
practices, release or agree to release any collateral securing any
loan, except where the collateral released is replaced by collateral
with an equal or greater value or where the Bank is under a legal
obligation to do so;
(xi) Make, renew or agree to make or renew any loan or advance on
any existing loan, except in substantial conformity with the Bank's
current loan policies and safe and sound banking practices (where any
nonconformity has been approved by the Bank's loan committee);
(xii) Pay or incur any obligation or liability with respect
to capital expenditures which exceed $100,000 in the aggregate;
(xiii) Fail to timely pay and discharge all federal and state
taxes and other accounts payable for which it is liable, provided that
the Company or the Bank may deposit an amount equal to any such taxes,
in lieu of the payment thereof, into a reserve account from which such
taxes will be paid when and to the extent they are found to be
properly due and payable;
(xiv) Pay or commit to pay any additional salary or other
compensation to any of the Company or the Bank's officers, directors
or employees, other than normal pay raises in the ordinary course of
business and an appreciation bonus to the employees of the Bank in an
amount calculated by a formula approved by the parties hereto (which
amount shall be inclusive of the bonus plus the matching 401(k)
contributions with respect to the bonus plus the FICA payroll taxes
relating to the bonus) that will be fully accrued on the books of the
Company or the Bank prior to the Valuation Date and an incentive bonus
to the employees of the Bank in an amount calculated by a formula
approved by the parties hereto that will be fully accrued on the books
of the Bank prior to the Valuation Date;
(xv) Make or grant any increase in any Employee Plan, amend or
terminate any existing Employee Plan, or adopt any new Employee Plan,
except as required by law;
(xvi) Make any investments, including derivatives or
structured notes, except in the ordinary course of business and
consistent with prior practices, or sell or agree to sell any
investment securities prior to maturity;
(xvii) Incur or permit to be entered against the Company or
the Bank any default judgment, or permit any unsatisfied judgment to
remain unsatisfied, provided, however, that the Company or the Bank
may deposit an amount equal to any such judgment, in lieu of the
payment thereof, into a reserve account from which such judgments will
be paid when and to
<PAGE>
the extent they are found to be properly due and payable and upon
exhaustion of the Company's or the Bank's rights to appeal or seek
review of such judgments;
(xviii) Take any other action or enter into any other
transaction or agreement, other than in the ordinary course of
business; or
(xix) Fail to conduct its business in, and only in, the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted and in accordance with the terms and conditions
of this Agreement.
(b) OPERATING REPRESENTATIONS. The Company and the Trust, jointly
and severally, represents and warrants to United and to PFC Acquisition
that, except as disclosed on Schedule 8(b), for the period from April 30,
1996 through the date of this Agreement, the Company and the Bank have not
acted or failed to act in a manner which would constitute a violation of
Section 8(a) if such action or inaction occurred after the date of this
Agreement.
9. AFFIRMATIVE COVENANTS.
(a) COOPERATION WITH UNITED AND PFC ACQUISITION. The Trust and the
Company shall, and shall cause the Bank to, cooperate with United and PFC
Acquisition in support of United's and PFC Acquisition's applications for
prior approval of the merger contemplated by this Agreement.
(b) DELIVERY OF FINANCIAL STATEMENTS. The Company shall, and shall
cause the Bank to, deliver copies of each Consolidated Report of Condition
and Report of Income of the Bank, the Semi-Annual Report of Bank Holding
Companies (FR Y-9SP) and each quarterly or monthly report prepared by or on
behalf of the Company or the Bank after the date of this Agreement to
United and PFC Acquisition within ten (10) days after such reports have
been prepared.
(c) NOTIFICATION OF CERTAIN MATTERS. Each party shall give prompt
notice to the others of (i) the occurrence or nonoccurrence of any event,
act or omission or the discovery of any information which would be likely
to cause any representation or warranty on its part and contained in this
Agreement, the Financial Statements or Schedules to be materially untrue or
inaccurate when made, or at any time on or before the Closing Date and (ii)
any material failure of any such party to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder.
(d) CONSULTATION. The Company shall cause John Woodhead (or a person
designated by John Woodhead) to confer on a regular and frequent basis with
Don Davies (or a person designated by United and PFC Acquisition) (as
representative of United and PFC Acquisition) to report operational matters
and the general status of the ongoing operations of the Company and the
Bank.
(e) LOAN LOSS PROVISIONS. For the period from January 1, 1996
through the Valuation Date, the Company shall cause the Bank to continue to
make its budgeted $40,000 monthly provisions to its Loan Loss Reserve
consistent with the Bank's policies and past practices, which will result
in a total provision for the period of Four Hundred Forty Thousand Dollars
($440,000) or such greater amount as may be recommended by any federal or
state regulatory agency, exclusive of the amount of any recoveries received
or charge-offs made by the Bank, and continue to charge off loans on the
books of the Bank as a loss or as uncollectible, in accordance with the
Bank's loan policies and as required by any federal or state bank
regulations, policy statements or bulletins.
(f) XYZ LOANS. Simultaneous with the Closing, a portion of the
aggregate Merger Consideration equal to the sum of (1) the book value of
that certain loan identified by the parties hereto (referred to herein as
the "XYZ Loan") held by the Bank (calculated as the aggregate outstanding
principal amount plus all accrued but unpaid interest less the loan loss
reserve amount for such loan, all as reflected in the Valuation Date
Financial Statements), and (2) the book value of that certain loan
<PAGE>
identified by the parties hereto (referred to herein as the "XYZ Loan")
held by the Company (calculated as the aggregate outstanding principal
amount plus all accrued but unpaid interest, all as reflected in the
Valuation Date Financial Statements) (collectively, the "XYZ Loan Amount")
shall be paid to an entity mutually acceptable to the Company and PFC
Acquisition as escrow agent (the "XYZ Loan Agent"). The XYZ Loan Agent
shall then immediately purchase the XYZ Loan held by the Bank and the XYZ
Loan held by the Company at an aggregate purchase price equal to the XYZ
Loan Amount. Upon receipt of the XYZ Loan Amount, the Bank and the Company
shall assign and endorse, all without recourse, to the XYZ Loan Agent each
and every loan document in their possession relating to the XYZ Loans.
(g) PURCHASE OF DESIGNATED LOANS. On or before the Valuation Date,
the Trust shall purchase from the Bank each Designated Loan. As used
herein, a "Designated Loan" means any loan or any commitment to make a loan
or any increase in any line of credit (but does not mean a renewal of an
existing loan, commitment or line of credit [provided such renewal is made
consistent with the Bank's current loan policies and safe and sound banking
practices], nor a draw down on an existing line of credit), in the amount
of $250,000 or more, made or entered into or increased after the date of
this Agreement which PFC Acquisition did not consent to in writing at the
time the loan was made or the commitment was entered into or the line of
credit increased. The parties agree that in connection with any potential
Designated Loan, the Trust shall provide PFC Acquisition with the
information required by the form attached hereto as Exhibit D (the "Consent
Form"), and PFC Acquisition will attend the loan committee meeting where
such loan will be discussed. Following the presentation of such loan, PFC
Acquisition will indicate its consent to, or the withholding of its consent
to, such loan on the Consent Form. If PFC Acquisition receives two (2)
business days advance written notice of a regularly scheduled loan
committee meeting where any Designated Loan will be discussed, and PFC
Acquisition fails to attend such loan committee meeting, then PFC
Acquisition shall be deemed to have consented to the Designated Loan as
described in such notice.
(h) COMPANY SHAREHOLDER MEETING. On or before November 6, 1997, the
Company shall duly call and hold a special shareholder's meeting for the
purpose of voting upon the Plan of Merger pursuant to notice duly given in
accordance with MBCA Section 302A.613, Subd. 1 (which notice shall inform
each shareholder of the right to dissent as provided in MBCA Section
302A.473, Subd. 2). At such special shareholder's meeting, the Trust shall
vote all of the shares of stock of the Company owned of record by it
approving and authorizing the execution and delivery of this Merger
Agreement and the Plan of Merger, and approving each other transaction
contemplated by this Agreement.
(i) CAMBRIDGE TAX REFUND CLAIM. On or before the Valuation Date, the
Company shall cause the Bank to assign to all of the Company's shareholders
all of the Bank's right, title and interest in and to any refund of
Minnesota income taxes for the years 1979 through 1983 for which a claim
for refund may be submitted relating to the "Cambridge" case (the
"Cambridge Tax Refund Claim"). Simultaneous with such assignment, the
Trust shall deliver to the Bank an agreement by the Trust's beneficiaries
to indemnify the Bank for any costs, expenses, interest, penalties or fines
that may be assessed against the Bank in the event that any taxing
authority deems the Cambridge Tax Refund Claim "received" by the Bank. In
the event that the Trust requests the Bank to provide information to the
Trust to enable the Trust to pursue the Cambridge Tax Refund Claim, the
Trust shall reimburse the Bank for the cost and expense of providing such
information at a rate of $50 per hour per person on the Bank's staff
compiling the information, any actual out-of-pocket costs paid by the Bank
to professionals engaged by the Bank to provide such information and the
Bank's then customary copying charges. The reimbursement amount shall be
due and payable upon delivery to the Trust of the requested information.
(j) EXERCISE OF STOCK OPTIONS. On or before the Valuation Date, the
Company shall cause the holder of each outstanding stock option described
in Section 5(d) to exercise such option. The holder of such option shall
pay the exercise price specified in such option in cash or in a note
payable to the Company (such note to carry a prevailing market rate of
interest). The Surviving
<PAGE>
Corporation shall have the right to apply the Merger Consideration payable
to the holder for such holder's Shares in prepayment of the note and
accrued interest thereon.
10. ACCESS TO INFORMATION AND PRE-CLOSING EXAMINATION.
(a) The Company shall permit and shall cause the Bank to permit
United and PFC Acquisition reasonable access upon reasonable advance notice
to the Company's and the Bank's properties, board of directors and outside
consultants, including attendance at board of directors' and loan committee
meetings, and shall disclose and make available (together with the right to
copy) to United and PFC Acquisition and to the internal auditors, loan
review officers, employees, attorneys, accountants and other
representatives of United and PFC Acquisition, all books, papers and
records relating to the assets, stock, properties, operations, obligations
and liabilities of the Company and the Bank including, but not limited to,
all books of account (including the general ledger), tax records, minute
books of directors' and shareholders' meetings, organizational documents,
bylaws, contracts and agreements, filings with any regulatory authority,
accountants' work papers, litigation files including legal research
memoranda, documents relating to assets, titles, abstracts, plans affecting
employees, securities transfer records, shareholder lists and other assets,
business activities or prospects in which United and PFC Acquisition may
have a reasonable interest. Absent a writing to the contrary executed by
an authorized representative of United and PFC Acquisition, United's and
PFC Acquisition's investigation or lack thereof shall not result in a
waiver of any of United's and PFC Acquisition's rights or claims against
the Trust or the Company arising as a result of such breach. In addition,
the Company shall instruct, and shall cause the Bank to instruct, its
officers, employees, counsel and accountants to be available for, and
respond to any questions of, such representatives of United and PFC
Acquisition.
(b) All information furnished to United and PFC Acquisition pursuant
hereto or as otherwise provided to United and PFC Acquisition by the Trust,
the Company, the Bank or their representatives will be treated as
confidential in accordance with the provisions of that certain
Confidentiality Agreement, dated as of April 2, 1996, a copy of which is
attached hereto as Exhibit F. The Trust and the Company acknowledges that
United will be preparing a securities disclosure document in connection
with the equity financing described in Section 7(e). To the extent such
disclosure document includes confidential information, United will provide
the Trust and the Company with an opportunity to review the relevant
portions of the disclosure document and the Trust and the Company shall
promptly provide reasonable comments to United with respect to such
portions.
11. Intentionally omitted.
12. CLOSING CONTINGENT UPON OBTAINING REGULATORY APPROVAL. As soon as
practicable, but in no event later than ten (10) days after the date all of the
parties have executed this Agreement, United and PFC Acquisition shall file
notices and applications with the appropriate bank regulatory agencies, for
prior approval of the proposed Merger as required by applicable laws and
regulations, and use its best efforts to obtain such approvals. United and PFC
Acquisition shall provide the Company with copies of all applications and
notices filed pursuant to this Section. The Company agrees to provide United
and PFC Acquisition with any information regarding the Company and the Bank that
United and PFC Acquisition may request in the preparation of such application.
All applications submitted by United and PFC Acquisition shall be prepared in
accordance with all written state and federal policies and regulations relating
thereto. Except as otherwise provided herein, all of United's or PFC
Acquisition's obligations under this Agreement are contingent upon successfully
obtaining all necessary regulatory approvals for the Merger.
13. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY. All of the
agreements and obligations of the Company under this Agreement are subject to
the fulfillment, on or prior to the Closing Date, of the following conditions
precedent, any or all of which may be waived in whole or in part in writing by
the Company:
<PAGE>
(a) The representations and warranties of United and PFC Acquisition
set forth in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing Date as if
made at and as of each of such dates;
(b) Each of United and PFC Acquisition shall have materially
performed and complied with all of the agreements, covenants and conditions
required by this Agreement to be performed or complied with by it on or
prior to the Closing Date;
(c) All necessary state and federal bank regulatory agencies have
approved the Merger and all waiting and appeal periods prescribed by
applicable law or regulation shall have expired; and
(d) No court or governmental authority of competent jurisdiction
shall have issued a permanent order restraining, enjoining or otherwise
prohibiting the consummation of the transactions contemplated by this
Agreement.
14. CONDITIONS PRECEDENT TO OBLIGATIONS OF UNITED AND PFC ACQUISITION.
All of the agreements and obligations of United and PFC Acquisition under this
Agreement are subject to the fulfillment, on or prior to the Closing Date, of
the following conditions precedent, any or all of which may be waived in whole
or in part in writing by United and PFC Acquisition:
(a) The representations and warranties of the Trust and the Company
set forth in this Agreement and all of the Schedules hereto shall have been
true and correct in all material respects as of the date hereof and as of
the Closing Date as if made at and as of each of such dates;
(b) The Trust and the Company shall each have materially performed
and complied with all of the agreements, covenants and conditions required
by this Agreement to be performed or complied with by it on or prior to the
Closing Date;
(c) United and PFC Acquisition shall have received approval by all
state and federal bank regulatory agencies as may be required by law for
the Merger and all waiting and appeal periods prescribed by applicable law
or regulation shall have expired, such approvals shall be consistent with
the applications as described in Section 12, and no approval, licenses or
consent granted by any regulatory authority shall contain any requirement,
covenant or condition which materially alters or impairs the consummation
of this transaction, as described in the applications, or which in the
reasonable judgment of United and PFC Acquisition would be unduly
burdensome to United and PFC Acquisition;
(d) United and PFC Acquisition shall have received a favorable
opinion of the Company's special counsel as of the Closing Date in form and
substance satisfactory to counsel for United and PFC Acquisition, to the
effect that:
(i) The Company is duly organized, validly existing and in good
standing under the laws of the State of Minnesota; and
(ii) The Bank is duly organized, validly existing and in good
standing under the laws of the United States, is in good standing
under the laws of the State of Minnesota, and has the requisite
banking association power and authority to carry on the business of
banking; and
(iii) The execution, delivery and performance of this
Agreement by the Company and consummation by the Company of the
transactions contemplated by this Agreement will not constitute a
default by the Company or the Bank under their Articles of
Incorporation or Association or Bylaws;
<PAGE>
(iv) The Shares are fully paid and nonassessable; and
(v) The Company has properly and completely complied with the
provisions of MBCA Section 302A.613, Subd. 1 and MBCA Section
302A.473, Subd. 2;
(e) No court or governmental authority of competent jurisdiction
shall have issued a permanent order restraining, enjoining or otherwise
prohibiting the consummation of the transactions contemplated by this
Agreement;
(f) The Company shall have delivered to PFC Acquisition evidence
satisfactory to PFC Acquisition that the Company has good and marketable
title to the Bank's building and premises located at 7001 Bass Lake Road,
New Hope, Minnesota;
(g) As of the Valuation Date, the Company Book Value will not be less
than Twenty-Three Million Eight Hundred Thousand Dollars ($23,800,000); and
(h) The Company shall have caused the repayment or sale of each and
every loan and lease and the termination of each and every agreement or
arrangement described on Schedule 5(w) and designated by PFC Acquisition in
writing at least sixty (60) days prior to the Closing Date for repayment or
termination.
15. DELIVERY OF DOCUMENTS. On the Closing Date, PFC Acquisition and the
Company shall execute and/or deliver to the other party the following documents,
instruments and agreements, together with such other documents, instruments and
agreements as the other party (or its/their counsel) may reasonably request to
consummate the Merger contemplated hereby:
(a) BY PFC ACQUISITION:
(i) Cash, certified or bank cashier's checks, or confirmation of
the wire transfer of the amounts set forth in Section 3(d).
(b) BY THE COMPANY:
(i) Stock certificate issued to United representing shares of
stock in the Surviving Corporation.
(ii) Stock Certificates duly endorsed for transfer representing
the Shares held by the Trust and other nondissenting shareholders; and
(iii) The minute book and other corporate records of the
Company and the Bank as may be requested by PFC Acquisition.
16. TERMINATION; LIQUIDATED DAMAGES. This Agreement may be terminated and
the transactions contemplated hereby abandoned at any time prior to the Closing
Date:
(a) By mutual written consent of the Company, the Trust, PFC
Acquisition and United.
(b) At the written election of United and PFC Acquisition in the
event of any material breach of any of the representations, warranties or
covenants of the Company or the Trust contained in this Agreement which is
not cured within thirty (30) days following United's and PFC Acquisition's
written notice to the Company and the Trust specifying such breach (or such
longer period of time as may be reasonably necessary to cure such breach
provided the Company and the Trust are diligently pursuing such cure).
<PAGE>
(c) At the written election of the Company and the Trust in the event
of any material breach of any of the representations, warranties or
covenants of United or PFC Acquisition contained in this Agreement which is
not cured within thirty (30) days following the Company and the Trust's
written notice to United and PFC Acquisition specifying such breach (or
such longer period of time as may be reasonably necessary to cure such
breach provided United and PFC Acquisition is diligently pursuing such
cure).
As used in subparagraph (b) above, "material breach" shall mean (i) the failure
of the Company to deliver the items listed in Sections 15(b)(i) and (ii), free
and clear of all liens, claims and encumbrances, on the Closing Date (January
16, 1997 or such other date as agreed to by the parties pursuant to Section 4),
(ii) the Company Book Value is less than Twenty-Three Million Eight Hundred
Thousand Dollars ($23,800,000) as of the Valuation Date, or (iii) any other
breach, which either alone or when combined with other then existing breaches,
would or could result in a loss, cost or liability in excess of $250,000 which
loss, cost or liability is not reflected on the Valuation Date Financial
Statements.
As used in subparagraph (c) above, "material breach" shall mean (i) the failure
of United or PFC Acquisition to deliver the Merger Consideration to the Trust
and other nondissenting shareholders of the Company, as provided in Section 3(d)
on the Closing Date (January 16, 1997 or such other date agreed to by the
parties pursuant to Section 4), even if such failure is attributable to United's
or PFC Acquisition's failure to obtain any required regulatory approvals, or
(ii) any other breach, which either alone or when combined with other then
existing breaches, would or could result in a loss, cost or liability in excess
of $250,000.
The parties acknowledge that Firstar Bank of Milwaukee, N.A. has issued its
irrevocable letter of credit for the account of United and PFC Acquisition, in
favor of the Company, in the aggregate amount of $1,000,000, a copy of which
letter of credit is attached hereto as Exhibit G (the "Letter of Credit"). The
Company shall be entitled to make one draw, if any, under the Letter of Credit
only as follows: (1) in the event that the Company terminates this Agreement in
accordance with Section 16(c) and United or PFC Acquisition has not obtained
binding commitments for the debt and equity financing necessary to enable United
or PFC Acquisition to consummate the transaction contemplated by this Agreement,
then the Company shall be entitled to draw under the Letter of Credit in the
amount of $1,000,000; or (2) in the event that the Company terminates this
Agreement in accordance with Section 16(c) and United or PFC Acquisition has
obtained binding commitments for the debt and equity financing necessary to
enable United or PFC Acquisition to consummate the transaction contemplated by
this Agreement, then the Company shall be entitled to draw under the Letter of
Credit in the amount of $500,000; or (3) in the event that this Agreement is
terminated in accordance with Section 16(a) or United or PFC Acquisition
terminates this Agreement in accordance with Section 16(b), then the Company
shall not be entitled to any draw under the Letter of Credit.
As used herein, a "binding commitment for the debt and equity financing
necessary to enable United or PFC Acquisition to consummate the transaction"
shall mean legally enforceable agreements whereby United and/or PFC Acquisition
could contractually require third parties to purchase at least $15,000,000 of
United's or PFC Acquisition's equity securities and to lend United or PFC
Acquisition enough money to consummate the transaction contemplated by this
Agreement.
If this Agreement is terminated, as provided in this Section 16, this Agreement
will become void and there will be no liability or further obligation hereunder
on the part of United or PFC Acquisition or the Trust or the Company, except
pursuant to Section 10(b). Without in any way limiting the generality of the
foregoing, EACH OF THE TRUST AND THE COMPANY ACKNOWLEDGES AND AGREES THAT THE
TRUST'S AND THE COMPANY'S SOLE REMEDY AND UNITED'S AND PFC ACQUISITION'S SOLE
LIABILITY IN THE EVENT OF ANY TERMINATION OF THIS AGREEMENT BY THE TRUST, THE
COMPANY OR BY UNITED OR PFC ACQUISITION SHALL BE THE COMPANY'S ENTITLEMENT TO
MAKE A DRAW UNDER THE LETTER OF CREDIT AS EXPRESSLY PROVIDED ABOVE, AND THAT
UNITED AND/OR PFC ACQUISITION SHALL NOT BE LIABLE FOR ANY DAMAGES OF ANY KIND,
WHETHER DIRECT OR INDIRECT, INCLUDING, WITHOUT LIMITATION, ANY SPECIAL,
INCIDENTAL OR CONSEQUENTIAL DAMAGES.
<PAGE>
17. CONFIDENTIALITY. Except where United or PFC Acquisition or the
Company or the Trust may be advised by counsel that disclosure is required under
applicable law, United or PFC Acquisition or the Company or the Trust shall not
make, and shall advise their agents and the Company's and the Bank's directors,
officers, representatives and agents not to make, any public statement
concerning the transactions contemplated by this Agreement without first
consulting with, and obtaining the approval of, the other parties hereto.
18. AMENDMENT. No amendment, modification, termination or waiver of any
provision of this Agreement will be effective unless in writing and signed by
all parties hereto.
19. SUCCESSORS IN INTEREST. This Agreement will be binding upon and inure
to the benefit of the parties hereto and their respective successors, heirs and
permitted assigns.
20. PARTIAL INVALIDITY. Any provision of this Agreement which is
prohibited or unenforceable will be ineffective only to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof.
21. ENTIRE AGREEMENT. Except as otherwise specified herein, this
Agreement contains the entire agreement between the parties hereto with respect
to the Merger contemplated hereby and supersedes all prior agreements and
understandings among the parties, if any, with respect to such Merger.
22. HEADINGS. The headings of Sections herein are for purpose of
reference only and shall not limit or otherwise affect the meaning hereof.
23. GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of Minnesota.
24. EXPENSES. Each party shall each pay their respective expenses
incurred in connection with the negotiation and preparation of this Agreement
and the consummation of the transactions contemplated hereby, including, without
limitation, their respective legal fees, expenses, commissions and filing fees
regardless of whether such transactions are consummated.
25. WAIVERS. No failure or delay on the part of any party in exercising
any right, power or remedy hereunder will operate as a waiver thereof, nor will
any single or partial exercise of any right, power or remedy preclude any other
or further exercise thereof or the exercise of any other right, power or remedy
hereunder.
26. ASSIGNABILITY. No party may assign any of their rights, liabilities
or obligations under this Agreement without the prior written consent of the
other parties hereto.
27. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given when
personally delivered or deposited in the United States Mail, mailed first class,
certified and return receipt requested, addressed as indicated at the beginning
of this Agreement. Any party may, by notice so given to the other party, change
the address to which notices shall thereafter be sent. In all events, the
postmark date of such notice or notices shall be deemed the effective date of
such notice for all purposes hereunder.
28. NO SHOP. Prior to the Closing Date, or earlier termination of this
Agreement, neither the Trust nor the Company will directly or indirectly
solicit, initiate or encourage the submission of inquiries, proposals or offers
from any person or entity relating to any acquisition or purchase of assets of,
or any equity interest in, the Company and/or the Bank, or any tender offer,
exchange offer, merger, consolidation, business combination, sale of substantial
assets or of a material amount of assets, sale of securities, recapitalization,
liquidation, dissolution or similar transactions involving the Company and/or
the Bank.
<PAGE>
29. SPECIFIC PERFORMANCE. The Company and the Trust each acknowledges and
agrees that irreparable damage would occur to United and PFC Acquisition in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. Accordingly,
the Company and the Trust each agrees that United and PFC Acquisition shall be
entitled to obtain an injunction or other equitable relief to prevent breaches
of this Agreement and to enforce specifically the terms and provisions hereof,
in addition to any other remedy to which United and PFC Acquisition is entitled
in law or in equity.
30. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[THE SIGNATURE PAGES FOLLOW].
<PAGE>
SIGNATURE PAGE
to
MERGER AGREEMENT
dated as of October 7, 1996
Respecting Park Financial Corporation
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
PFC ACQUISITION CORP.
By /s/
-------------------------------
Its
---------------------------
and
By /s/
-------------------------------
Its
---------------------------
PARK FINANCIAL CORPORATION
By /s/
-------------------------------
Its
---------------------------
THE PARK FINANCIAL CORPORATION
COMMON STOCK REVOCABLE TRUST,
UNDER AGREEMENT DATED MAY 28, 1980
By /s/
-------------------------------
Paul Klaverkamp
A Trustee
and
By /s/
-------------------------------
Edith Darling Ries
A Trustee
[Page 1 of 2]
<PAGE>
UNITED COMMUNITY BANCSHARES, INC.
By /s/
-------------------------------
Its
---------------------------
and
By /s/
-------------------------------
Its
---------------------------
[Page 2 of 2]
<PAGE>
LIST OF EXHIBITS
Exhibit A: Plan of Merger
Exhibit B: Form of Articles of Merger
Exhibit C: Intentionally Omitted
Exhibit D: Form of Consent for New Credit Accommodations exceeding $250,000
Exhibit E: Intentionally Omitted
Exhibit F: Confidentiality Agreement
Exhibit G: Letter of Credit
LIST OF SCHEDULES
Schedule 5(d) - Capitalization
Schedule 5(g) - Litigation
Schedule 5(k) - Financial Statements
Schedule 5(p) - Employee Plans
Schedule 5(t) - Contracts
Schedule 5(w) - Affiliate Transactions
Schedule 8(b) - Operating Representations
<PAGE>
EXHIBIT A
PLAN OF MERGER
<PAGE>
PLAN OF MERGER
OF
PFC ACQUISITION CORP.
INTO
PARK FINANCIAL CORPORATION
ARTICLE 1.
THE MERGER
1.1) SURVIVING CORPORATION. In accordance with the provisions of this Plan
and the applicable laws of the State of Minnesota, at the Effective Time (as
defined in Section 1.2), PFC Acquisition Corp. ("PFC Acquisition") shall be
merged with and into Park Financial Corporation ("Park Financial"), and Park
Financial shall be the Surviving Corporation and shall continue its corporate
existence and organization under the laws of the State of Minnesota, and the
separate existence of PFC Acquisition shall thereupon cease. The name of the
Surviving Corporation shall be Park Financial Corporation.
1.2) EFFECTIVE TIME. As used in this Agreement, the term "Effective Time"
shall be the later of (a) the close of business on the date of filing of the
Articles of Merger with the Minnesota Secretary of State in the manner described
in Minnesota Statutes Section 302A.011, Subd. 11 and Section 302A.615, Subd. 2
and (b) 12:01 a.m. January 16, 1997.
1.3) ARTICLES OF INCORPORATION. At the Effective Time, the Articles of
Incorporation of Park Financial then in effect shall constitute and be the
Articles of Incorporation of the Surviving Corporation until amended or changed
as provided therein or by law.
1.4) BYLAWS. At the Effective Time, the Bylaws of Park Financial then in
effect shall constitute and be the Bylaws of the Surviving Corporation until
amended or changed as provided therein or by law.
1.5) BOARD OF DIRECTORS. The Board of Directors of the Surviving
Corporation shall consist of five members as follows: R. Scott Jones, Galen T.
Pate, Marcia L. O'Brien, John H. LeMay, and Donald M. Davies. Such directors
shall serve until such board may be changed or reconstituted as provided by the
Articles of Incorporation or Bylaws of the Surviving Corporation, or by law.
1.6) OFFICERS. The officers of the Surviving Corporation shall consist of:
Galen T. Pate as Chairman; R. Scott Jones as President; Marcia L. O'Brien as
Chief Financial Officer; Donald M. Davies as Vice President; and John H. LeMay
as Secretary. Such officers shall serve until such officers may be changed as
provided by the Articles of Incorporation or Bylaws of the Surviving
Corporation, or by law.
1.7) CERTAIN EFFECTS OF THE MERGER. At the Effective Time, the Surviving
Corporation shall succeed to and possess all the rights, privileges, powers,
franchises and immunities of a public as well as of a private nature, and be
subject to all liabilities, restrictions, disabilities, and duties of both of
PFC Acquisition and Park Financial (collectively the "Constituent
Corporations"); and all and singular, the rights, privileges, powers, franchises
and immunities of both of the Constituent Corporations and all properties, real,
personal and mixed, and all other things in action of or belonging to either of
the Constituent Corporations on whatever account, shall be vested in the
Surviving Corporation; and all properties, assets, rights, privileges, powers,
franchises, immunities and all and every other interest shall be thereafter as
effectively the property of the Surviving Corporation as they were or would be
of the Constituent Corporations or either of them; and title to any real estate
or any interest therein vested by deed or otherwise in either of the Constituent
Corporations shall not revert or be in any way impaired by any reason of the
Merger; provided, however, that all rights of creditors and all liens upon any
property of either of the Constituent Corporations shall be preserved
unimpaired, limited in lien to the property affected by such liens at the
Effective Time, and all debts, liabilities and duties of either of the
Constituent Corporations shall thenceforth become those of the Surviving
Corporation and may be enforced against the Surviving Corporation to the same
extent as if such debts, liabilities and duties had been incurred or contracted
by the Surviving Corporation.
<PAGE>
1.8) FURTHER ASSURANCES. If at any time after the Effective Time the
Surviving Corporation shall consider or be advised that any instruments of
further assurance are desirable in order to evidence the vesting in it of the
title of either of the Constituent Corporations to any of the property rights of
the Constituent Corporations, the appropriate officers or directors of PFC
Acquisition or of Park Financial, as the case may be, are hereby authorized to
execute, acknowledge and deliver all such instruments of further assurance and
to do all other acts or things, either in the name of PFC Acquisition, in the
name of Park Financial, or in the name of the Surviving Corporation, as may be
requisite or desirable to carry out the provisions of this Plan.
ARTICLE 2.
MANNER AND BASIS OF CONVERTING SHARES
2.1) PFC ACQUISITION SHARES. At the Effective Time, each share of Common
Stock of PFC Acquisition then outstanding shall, by virtue of the Merger and
without any further action on the part of the holder thereof, be converted into
and thereafter shall constitute one issued and outstanding share of Common Stock
of the Surviving Corporation.
2.2) PARK FINANCIAL SHARES. At the Effective Time, each share of Common
Stock of Park Financial then outstanding (and held by shareholders other than
PFC Acquisition) shall, by virtue of the Merger and without any further action
on the part of the holder thereof, be converted into and thereafter shall
constitute the right to receive a cash payment of $ .*
--------------
* TO BE COMPLETED FOLLOWING THE VALUATION DATE AND CALCULATION OF THE MERGER
CONSIDERATION AS SET FORTH IN THE MERGER AGREEMENT.
<PAGE>
EXHIBIT B
FORM OF ARTICLES OF MERGER
<PAGE>
ARTICLES OF MERGER
OF
PFC ACQUISITION CORP.
INTO
PARK FINANCIAL CORPORATION
Pursuant to the provisions of Minnesota Statutes Section 302A.615, Subd. 1,
the following Articles of Merger are executed on the date hereinafter set forth:
FIRST: The names of the corporations which are parties to the merger are
PFC Acquisition Corp., a Minnesota corporation ("PFC Acquisition"), and Park
Financial Corporation, a Minnesota corporation and the surviving corporation
("Park Financial").
SECOND: The Plan of Merger attached hereto has been duly approved by each
of PFC Acquisition and Park Financial pursuant to Section 302A.613 of Minnesota
Statutes.
The undersigned swears that the foregoing is true and accurate and that
they have the authority to sign these Articles of Merger on behalf of PFC
Acquisition and Park Financial.
Dated: , 1997 PFC ACQUISITION CORP.
--------------
By
-------------------------------
Its Chief Executive Officer
PARK FINANCIAL CORPORATION
By
-------------------------------
Its Chief Executive Officer
<PAGE>
EXHIBIT C
INTENTIONALLY OMITTED
<PAGE>
EXHIBIT D
FORM OF CONSENT FOR NEW CREDIT
ACCOMMODATIONS EXCEEDING $250,000
<PAGE>
<TABLE>
<CAPTION>
PARK NATIONAL BANK
COMMERCIAL LOAN CONSENT FORM
MEETING DATE:
---------------
Proposed APPROVED
Type of Risk Credit Credit United
Credit Rating Extension Extension Initials
------ ------ --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Borrower
-------------------------------
Purpose $ $
------------------------------- ------------- ------------ ----------- ------------ -----------
Borrower
-------------------------------
Purpose $ $
------------------------------- ------------- ------------ ----------- ------------ -----------
Borrower
-------------------------------
Purpose $ $
------------------------------- ------------- ------------ ----------- ------------ -----------
Borrower
-------------------------------
Purpose $ $
------------------------------- ------------- ------------ ----------- ------------ -----------
Borrower
-------------------------------
Purpose $ $
------------------------------- ------------- ------------ ----------- ------------ -----------
Borrower
-------------------------------
Purpose $ $
------------------------------- ------------- ------------ ----------- ------------ -----------
Borrower
-------------------------------
Purpose $ $
------------------------------- ------------- ------------ ----------- ------------ -----------
</TABLE>
PFC ACQUISITION CONSENT*
---------------------------- -------------------
signature date
*PFC Acquisition's consent to the foregoing shall in no way be deemed or
construed as, participation in such loan approval activity, and shall in
no way result in, or be deemed or construed as, a waiver of any
representation or warranty, or any other covenant, of the Company or the
Trust under the Merger Agreement (other than for the limited purpose
specified in Section 9(g)).
<PAGE>
EXHIBIT E
INTENTIONALLY OMITTED
<PAGE>
EXHIBIT F
CONFIDENTIALITY AGREEMENT
<PAGE>
LARSON
ALLEN
WEISHAIR
& CO.
Suite 1000
612-376-4500 220 South Sixth Street
Fax 376-4850 Minneapolis, MN 55402-4505
April 2, 1996
CONFIDENTIALITY AGREEMENT
Park Financial Corporation
c/o Terry A. Enger
Larson, Allen, Weishair & Co., LLP
Suite 1000, 220 S. Sixth Street
Minneapolis, MN 55402
Gentlemen:
In connection with our possible interest in acquiring Park Financial Corporation
("Company") and its subsidiary bank, Park National Bank ("Bank") you are
furnishing us with a Confidential Descriptive Memorandum which contains certain
information relating to the Company and Bank which is either nonpublic,
confidential or proprietary in nature. This Memorandum and any additional
information you may furnish to us in the course of our investigation of the
Company and Bank, together with all analyses, compilations, forecasts, studies,
and other documents prepared by us or our representatives (including our agents,
attorneys, accountants, financing sources, and financial advisors) or employees
which contain, summarize or otherwise reflect such information or our review of
the Company and Bank, is hereinafter referred to as the "Information." In
consideration of your furnishing us with the Information we agree that:
1. The Information will be kept confidential and will not, without your prior
written consent, be disclosed by us, or by our representatives or
employees, in any manner whatsoever, directly or indirectly, in whole or in
part, and will not be used by us, our representatives or employees,
directly or indirectly, for any purpose other than evaluating the
transaction described above. Moreover, we agree to reveal the Information
only to those of our employees and representatives who need to know the
Information for the purpose of evaluating the transaction described above,
who are informed by us of the confidential nature of the Information and
who shall agree to be bound by and to act only in accordance with the terms
and conditions of this Confidentiality Agreement ("Agreement"). We shall
be responsible for any breach of the Agreement by our affiliates,
employees, or representatives.
2. Without your prior written consent, except as required by law, and then
only after prompt notice to you of our intention to disclose, we and our
representatives and employees will not disclose to any person the fact that
the Information has been made available, that discussions or negotiations
are taking place or have taken place concerning a possible transaction
involving us and the Company and Bank or the fact or nature of any offer
made or any of the terms, conditions or other facts with respect to any
such possible transaction, including the status thereof.
3. All copies of the Information, except for that portion of the Information
which consists of our analyses, compilations, forecasts will be returned to
you immediately upon your request. That portion of the Information which
consists of our analyses, compilations, forecasts, studies or other
documents prepared by us, our representatives or employees, will be held by
us and kept confidential and subject to the terms of this Agreement, or
shall be destroyed immediately upon the request of the Company, and any
oral Information will continue to be subject to the terms of this
Agreement. (Such destruction will be confirmed in writing at the Company's
request.)
<PAGE>
CONFIDENTIALITY AGREEMENT
April ____, 1996
Page Two
4. We acknowledge that neither you nor any of your representatives or
affiliates have made any express or implied representation or warranty as
to the accuracy or completeness of the Information, and each of you
expressly disclaims any and all liability that may be based on the
Information, errors therein or omissions therefrom. We agree that we are
not entitled to rely on the accuracy or completeness of the Information and
that we shall be entitled to rely solely on the representations and
warranties made to us by the Company and/or its shareholders in the final
written acquisition.
5. In the event that we or anyone to whom we directly or indirectly transmit
Information pursuant to this Agreement becomes legally compelled to
disclose any of the Information, we will provide you with prompt notice so
that you may seek a protective order or other appropriate remedy and/or
waive compliance with the provisions of the Agreement. In the event that
such protective order or other remedy is not obtained, or that the Company
expressly in writing waives compliance with the provision of the Agreement,
we will furnish only that portion of the Information that we are advised by
opinion of counsel is legally required and will exercise our best efforts
to obtain reliable assurances that confidential treatment will be accorded
the Information.
6. We understand and agree that no contract or agreement regarding a possible
acquisition shall be deemed to exist between us unless and until a final
definitive acquisition agreement has been executed. We hereby waive, in
advance, any claims (including, without limitation, claims for breach of
contract) in connection with the transaction described above unless and
until we shall have entered into a final definitive acquisition agreement
with respect thereto. We also agree that unless and until a final
definitive acquisition agreement has been executed, you do not have any
legal obligation to negotiate exclusively with us, or any legal obligation
of any kind whatsoever by virtue of this Agreement except for the matters
specifically agreed to herein.
7. Without the Company's prior written consent, for a period of one year from
and after the date of this Agreement, neither we nor any of our affiliates
will directly or indirectly solicit for employment, employ, or otherwise
contract for the services of any person who is now employed (either as an
employee or full-time consultant) by the Company or Bank.
8. We agree that we will have no discussions, correspondence or other contact
with the Company or any of its customers, employees or shareholders for the
purpose of obtaining information concerning any of the Company's or Bank's
businesses or assets except with the Company's designated representatives.
9. We acknowledge that remedies at law may be inadequate to protect against
breach of the Agreement, and we hereby in advance agree to the granting of
injunctive relief in your favor without proof of actual damages. We agree
to save and hold you harmless from and against actual damages, losses,
liabilities, judgments, costs, and attorney's fees arising out of our
breach of this Agreement.
10. This Agreement shall be governed by and construed in accordance with the
Laws of the State of Minnesota applicable to agreements made and to be
performed within such state.
<PAGE>
CONFIDENTIALITY AGREEMENT
April ____, 1996
Page Two
Sincerely,
UNITED COMMUNITY BANCSHARES, INC.
By: /s/
----------------------------------
Its: PRESIDENT
----------------------------
Date: 4/2/96
--------------------------------
Agreed and accepted on behalf of
PFC COMMON STOCK REVOCABLE TRUST
on April 8, 1996.
By: /s/
----------------------------------
Its: AGENT
----------------------------
<PAGE>
EXHIBIT G
LETTER OF CREDIT
<PAGE>
[FORM OF LETTER OF CREDIT]
THIS LETTER OF CREDIT REPLACES CREDIT ISSUES AUGUST 29, 1996
OCTOBER 7, 1996
BENEFICIARY: APPLICANT:
PARK FINANCIAL CORPORATION UNITED COMMUNITY BANCSHARES, INC.
C/O J. KEVIN COSTLEY, ESQUIRE AND PFC ACQUISITION CORP.
LINDQUIST & VENNUM P.L.L.P. 2600 EAGAN WOODS DRIVE
4200 IDS CENTER SUITE 155
80 SOUTH 8TH STREET EAGAN, MN 55121
MINNEAPOLIS, MN 55402-2225 ATTN: MS. MARCIA O'BRIEN
EXECUTIVE VICE PRESIDENT
EXPIRY DATE: THE EARLIER OF CONSUMMATION OF
THE MERGER AGREEMENT BETWEEN PARK FINANCIAL
CORPORATION AND PFC ACQUISITION CORP.
OUR IRREVOCABLE STANDBY LETTER OF CREDIT NO. S102182
GENTLEMEN/MADAM:
WE HEREBY ESTABLISH IN YOUR FAVOR, OUR IRREVOCABLE STANDBY LETTER OF CREDIT FOR
ACCOUNT AND BY ORDER OF THE APPLICANT, NOT EXCEEDING A TOTAL AMOUNT OF
1,000,000.00 U.S. DOLLARS (ONE MILLION 00/100 U.S. DOLLARS).
PAYMENT UNDER THIS LETTER OF CREDIT IS AVAILABLE BY YOUR DRAFT AT SIGHT ON
FIRSTAR BANK MILWAUKEE, N.A., MILWAUKEE, WI IN THE AMOUNT OF $1,000,000.00
ACCOMPANIED BY A SIGNED STATEMENT FROM THE BENEFICIARY HEREOF, CERTIFYING THAT
IT HAS TERMINATED THAT CERTAIN MERGER AGREEMENT DATED OCTOBER 7, 1996 AMONG
UNITED COMMUNITY BANCSHARES, INC., PFC ACQUISITION CORP., THE PARK FINANCIAL
CORPORATION COMMON STOCK REVOCABLE TRUST, UNDER AGREEMENT DATED MAY 28, 1980 AND
PARK FINANCIAL CORPORATION, (HEREINAFTER REFERRED TO AS THE "AGREEMENT"), IN
ACCORDANCE WITH PARAGRAPH 16(C) OF THE AGREEMENT AND THAT PFC ACQUISITION CORP.
OR UNITED COMMUNITY BANCSHARES, INC. HAS NOT OBTAINED BINDING COMMITMENTS FOR
THE DEBT AND EQUITY FINANCING NECESSARY TO ENABLE PFC ACQUISITION CORP. AND
UNITED COMMUNITY BANCSHARES, INC. TO CONSUMMATE THE TRANSACTION CONTEMPLATED BY
SAID AGREEMENT.
****CONTINUED ON NEXT PAGE****
<PAGE>
OUR REF. NO. S102182 PAGE 2
OR IN THE ALTERNATIVE
BY A DRAFT AT SIGHT DRAWN ON FIRSTAR BANK MILWAUKEE, N.A., MILWAUKEE, WI IN THE
AMOUNT OF $500,000.00 ACCOMPANIED BY A SIGNED STATEMENT FROM THE BENEFICIARY
HEREOF, CERTIFYING THAT IT HAS TERMINATED THAT CERTAIN MERGER AGREEMENT DATED
OCTOBER 7, 1996 AMONG UNITED COMMUNITY BANCSHARES, INC., PFC ACQUISITION CORP.,
THE PARK FINANCIAL CORPORATION COMMON STOCK REVOCABLE TRUST, UNDER AGREEMENT
DATED MAY 28, 1980 AND PARK FINANCIAL CORPORATION, (HEREINAFTER REFERRED TO AS
THE "AGREEMENT"), IN ACCORDANCE WITH PARAGRAPH 16(C) OF THE AGREEMENT.
SPECIAL CONDITIONS:
BENEFICIARY SHALL BE ENTITLED TO ONLY ONE DRAWING UNDER THIS LETTER OF CREDIT
AND A DRAWING MADE UNDER EITHER OF THE ALTERNATIVES SET FORTH ABOVE SHALL ALSO
BE ACCOMPANIED BY COPIES OF THE APPROPRIATE NOTICE OF DEFAULT GIVEN BY PARK
FINANCIAL CORPORATION TO UNITED COMMUNITY BANCSHARES, INC. AND PFC ACQUISITION
CORP. AS REQUIRED IN SAID AGREEMENT.
THE AMOUNT OF ANY DRAFT(S) DRAWN UNDER THIS CREDIT MUST BE ENDORSED ON THE
REVERSE OF THE ORIGINAL CREDIT. ALL DRAFTS MUST BE MARKED "DRAWN UNDER FIRSTAR
BANK MILWAUKEE, N.A. STANDBY LETTER OF CREDIT NUMBER S102182 DATED OCTOBER 7,
1996."
WE HEREBY AGREE WITH YOU THAT DRAFTS DRAWN UNDER AND IN COMPLIANCE WITH THE
TERMS OF THIS CREDIT WILL BE DULY HONORED ON PRESENTATION AND DELIVERY OF
DOCUMENTS, AS SPECIFIED, TO FIRSTAR BANK MILWAUKEE, N.A., LETTER OF CREDIT
DEPARTMENT, P.O. BOX 532, MILWAUKEE, WI 53201, IF DRAWN AND NEGOTIATED, OR IF
DRAWN AND PRESENTED AT THIS OFFICE ON OR BEFORE EXPIRY DATE AS INDICATED ABOVE.
****CONTINUED ON NEXT PAGE****
<PAGE>
OUR REF. NO. S102182 PAGE 3
THIS CREDIT IS SUBJECT TO THE UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY
CREDITS (1993 REVISION), INTERNATIONAL CHAMBER OF COMMERCE PUBLICATION NO. 500.
VERY TRULY YOURS,
/s/ /s/
- -------------------------- --------------------------
AUTHORIZED SIGNATURE AUTHORIZED SIGNATURE
<PAGE>
INDEX
SCHEDULES TO STOCK PURCHASE AGREEMENT
PARK FINANCIAL CORPORATION
1. SCHEDULE 5(d) - CAPITALIZATION
2. SCHEDULE 5(g) - LITIGATION
3. SCHEDULE 5(k) - FINANCIAL STATEMENTS
4. SCHEDULE 5(p) - EMPLOYEE PLANS
5. SCHEDULE 5(t) - CONTRACTS
6. SCHEDULE 5(w) - AFFILIATE TRANSACTIONS
7. SCHEDULE 8(b) - OPERATING REPRESENTATIONS
<PAGE>
ATTACHMENT TO MERGER AGREEMENT
PARK FINANCIAL CORPORATION STOCKHOLDER LISTING
SCHEDULE 5(d) CAPITALIZATION
As Of: October 7, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Certificate
Owner Certificate Shareholder Shareholder Shareholder Zip ------------- Percent
ID Date Name Address City ST Code # Shares O/S
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
[Detail listing of shareholders follows]
</TABLE>
<PAGE>
PARK FINANCIAL CORPORATION
ATTACHMENT TO MERGER AGREEMENT
ACHEDULE 5(G) LITIGATION
[Detail of any litigation concerns follows]
<PAGE>
PARK FINANCIAL CORPORATION
ATTACHMENTS TO MERGER AGREEMENT
SCHEDULE 5(K) FINANCIAL STATEMENTS
INDEX
12/31/95 Bank's Consolidated Reports of Condition and Income A1
12/31/94 Bank's Consolidated Reports of Condition and Income A2
Bank's Daily Statement as of June 30, 1996 B
Company's Annual Report of Bank Holding Companies (FR Y-6) C
for the Period Ending December 31, 1995
Audited Consolidated Financial Statements December 31, 1995 & 1994 D
<PAGE>
ATTACHMENT TO MERGER AGREEMENT
SCHEDULE 5(p) EMPLOYEE PLANS
Following is a summary of employee plans as defined by this agreement:
[Listing of employee plans follows]
<PAGE>
ATTACHMENT TO MERGER AGREEMENT
SCHEDULE 5(t) CONTRACTS AND OTHER AGREEMENTS
<TABLE>
<CAPTION>
Description Term Amount Comment
- -------------------------------------- ---------------- -------------- -----------------------------------------
<S> <C> <C> <C>
PARK NATIONAL BANK
[Listing of contracts and other agreements follows]
PARK FINANCIAL CORPORATION
None
</TABLE>
<PAGE>
ATTACHMENT TO MERGER AGREEMENT
SCHEDULE 5(w) AFFILIATE AND INSIDER TRANSACTIONS
- ------------------------------------------- ---------------------------------
Nature of Affiliate Loan Agreement
or Insider Relationship or Borrowing Arrangement
--------------------- -------------------------------
NAME PFC PNB LOAN NAME LOAN # LOAN BALANCE
- ------------------------------------------- ---------------------------------
[Listing of affiliate/insider relationships and loan agreements or borrowing
arrangements follow]
Note: The names listed above represent executive officers, directors, majority
shareholder, trustees and their related interests as of October 7, 1996.
For the purpose of this schedule, there are no other agreements or
interests in property pertaining to the business of the Company or Bank.
<PAGE>
ATTACHMENT TO MERGER AGREEMENT
SCHEDULE 8(b) OPERATING REPRESENTATIONS
Purchase
Description Date Amount
- --------------------------------------------- ------------ ----------
In relation to Section 8(a)(xii), the
following capital expenditures should
be noted:
[Listing of material capital expenditures follows]
<PAGE>
INDEMNIFICATION AGREEMENT
DATE: October 7, 1996
PARTIES: PFC Acquisition Corp.
2600 Eagan Woods Drive
Suite 155
Eagan, MN 55121 ("PFC Acquisition")
United Community Bancshares, Inc.
2600 Eagan Woods Drive
Suite 155
Eagan, MN 55121 ("United")
The Park Financial Corporation Common
Stock Revocable Trust, Under Agreement
Dated May 28, 1980
c/o J. Kevin Costley, Esq.
Lindquist & Vennum P.L.L.P.
4200 IDS Center
80 South 8th Street
Minneapolis, MN 55402-2205 (the "Trust")
Edith Darling Ries
[home address
is listed]
Cynthia R. Darling
[home address
is listed]
Andrew D. Darling, Jr.
[home address
is listed]
Michael Darling
[home address
is listed]
Bonnie Darling McKinney
[home address
is listed]
<PAGE>
RECITALS:
A. Edith Darling Ries, Cynthia R. Darling, Andrew D. Darling, Jr.,
Michael Darling and Bonnie Darling McKinney are all of the beneficiaries of the
Trust.
B. The Trust currently owns 340,000 shares (which represent 70.07% on a
fully-diluted basis) of the issued and outstanding capital stock of Park
Financial Corporation, a Minnesota corporation (the "Company").
C. PFC Acquisition, United, the Trust and the Company are all parties to
that certain Merger Agreement dated the date hereof (the "Merger Agreement").
D. To induce PFC Acquisition and United to enter into the Merger
Agreement, the Trust and its beneficiaries agreed to provide PFC Acquisition and
United with certain indemnification rights as provided in this Agreement.
AGREEMENTS:
IN CONSIDERATION of the premises, and the mutual covenants set forth herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
1. DEFINED TERMS. All capitalized terms used herein and not otherwise
defined herein have the same meanings as ascribed to them in the Merger
Agreement.
2. LIMITED INDEMNIFICATION. The Trust, Edith Darling Ries, Cynthia R.
Darling, Andrew D. Darling, Jr., Michael Darling and Bonnie Darling McKinney
(collectively the "Indemnifying Parties"), jointly and severally, agree to
indemnify and hold harmless United, PFC Acquisition, the Surviving Corporation
and/or the Bank, as the case may be, from and against any and all claims,
losses, damages, liabilities or expenses (including reasonable attorneys' fees
and expenses, expert fees and other litigation costs) arising or incurred within
six years after the Merger Effective Time, as a result of any claims, actions or
proceedings made or brought against United, PFC Acquisition, the Surviving
Corporation and the Bank, or any one or more of them, by the Indemnifying
Parties (or any related parties and affiliates of the Indemnifying Parties), and
the other shareholders of the Company, or any one or more of them, for any or no
reason. Notwithstanding the foregoing, the Indemnifying Parties shall have no
obligation to indemnify United and PFC Acquisition with respect to any claim,
action or proceeding which is finally determined by a court of competent
jurisdiction to have resulted solely from United's or PFC Acquisition's breach
of the Merger Agreement.
3. NOTICE AND OPPORTUNITY TO DEFEND. United, PFC Acquisition, the
Surviving Corporation and/or the Bank, as the case may be, shall promptly, and
in all events within ninety (90) days of obtaining actual knowledge thereof (the
"Notifying Party"), notify the Indemnifying Parties of the existence of any
claim, demand or other matter requiring a defense to which the Indemnifying
Parties' obligations under Section 2 would apply. The Notifying Party shall
give the Indemnifying Parties a reasonable opportunity to defend the claim,
demand or matter at the Indemnifying Parties' own expense and with counsel
selected by the Indemnifying Parties and satisfactory to the Notifying Party;
provided that the
<PAGE>
Notifying Party shall at all times also have the right to fully participate in
the defense at its own expense. Any such claim, demand or other matter shall
not be settled or compromised without the consent of the Notifying Party;
provided, however, if the Notifying Party does not consent to such settlement or
compromise, such claim, demand or other matter shall not be settled or
compromised, but the Indemnifying Parties' obligation to indemnify with respect
hereto shall be limited to the amount for which such claim, demand or other
matter could have been settled or compromised, together with the cost of defense
through the date such matter could have been settled or compromised. If the
Indemnifying Parties shall, within a reasonable time after receipt of notice,
fail to defend, the Notifying Party shall have the right, but not the
obligation, to undertake the defense, and to compromise or settle, exercising
reasonable business judgment, the claim, demand or other matter on behalf, for
the account and at the risk of the Indemnifying Parties.
4. PAYMENT INTO ESCROW. The Trust hereby agrees that if any one or more
of the Indemnifying Parties has failed to execute and deliver to PFC Acquisition
and United the separate signature page to this Indemnification Agreement on or
before November 30, 1996, then an amount equal to Three Hundred Thousand Dollars
($300,000) of the Merger Consideration payable to the Trust shall be placed and
held in escrow with a third party escrow agent for such period of time as may be
necessary to provide funds to pay any indemnification claims which may be made
under this Indemnification Agreement. In the event that each and every
Indemnifying Party has executed and delivered to PFC Acquisition and United a
separate signature page to this Agreement on or before November 30, 1996, then
the provisions of this Section 4 shall be of no further force and effect.
5. ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties hereto with respect to the indemnification contemplated
hereby and supersedes all prior agreements and understandings among the parties,
if any, with respect to such indemnification. The parties acknowledge and agree
that this Indemnification Agreement is a separate agreement from the Merger
Agreement, and in the event of any inconsistency between the provisions of the
Merger Agreement and this Agreement, the provisions of this Agreement shall
control.
6. HEADINGS. The headings of Sections herein are for purpose of
reference only and shall not limit or otherwise affect the meaning hereof.
7. AMENDMENT. No amendment, modification, termination or waiver of any
provision of this Agreement will be effective unless in writing and signed by
all parties hereto.
8. SUCCESSORS IN INTEREST. This Agreement will be binding upon and inure
to the benefit of the parties hereto and their respective successors, heirs and
permitted assigns.
9. PARTIAL INVALIDITY. Any provision of this Agreement which is
prohibited or unenforceable will be ineffective only to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof.
10. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given when
personally delivered or
<PAGE>
deposited in the United States Mail, mailed first class, certified and return
receipt requested, addressed as indicated at the beginning of this Agreement.
Any party may, by notice so given to the other party, change the address to
which notices shall thereafter be sent. In all events, the postmark date of
such notice or notices shall be deemed the effective date of such notice for all
purposes hereunder.
11. WAIVERS. No failure or delay on the part of any party in exercising
any right, power or remedy hereunder will operate as a waiver thereof, nor will
any single or partial exercise of any right, power or remedy preclude any other
or further exercise thereof or the exercise of any other right, power or remedy
hereunder.
12. GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of Minnesota.
13. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[THE SIGNATURE PAGES FOLLOW].
<PAGE>
SIGNATURE PAGE
to
INDEMNIFICATION AGREEMENT
dated as of October 7, 1996
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
PFC ACQUISITION CORP.
By /s/
--------------------------------
Its Chairman
and
By /s/
--------------------------------
Its President
UNITED COMMUNITY BANCSHARES, INC.
By /s/
--------------------------------
Its Chairman
and
By /s/
--------------------------------
Its President
<PAGE>
THE PARK FINANCIAL CORPORATION
COMMON STOCK REVOCABLE TRUST,
UNDER AGREEMENT DATED MAY 28, 1980
By /s/
--------------------------------
Paul Klaverkamp
A Trustee
and
By /s/
--------------------------------
Edith Darling Ries
A Trustee
and
By
--------------------------------
Cynthia R. Darling
A Trustee
/s/
-----------------------------------
Edith Darling Ries
-----------------------------------
Cynthia R. Darling
-----------------------------------
Andrew D. Darling, Jr.
-----------------------------------
Michael Darling
-----------------------------------
Bonnie Darling McKinney
<PAGE>
EXHIBIT 3.1
RESTATED ARTICLES OF INCORPORATION
OF
UNITED COMMUNITY BANCSHARES, INC.
ARTICLE 1 - NAME
1.1) The name of the corporation shall be United Community Bancshares, Inc.
ARTICLE 2 - REGISTERED OFFICE
2.1) The registered office of the corporation is located at 100 Signal
Hills, West St. Paul, Minnesota 55118-2385.
ARTICLE 3 - CAPITAL STOCK
3.1) AUTHORIZED SHARES. The aggregate number of shares the corporation has
authority to issue shall be 5,000,000 common shares, which shall have a par
value of $.01 per share solely for the purpose of a statute or regulation
imposing a tax or fee based upon the capitalization of the corporation.
3.2) ISSUANCE OF SHARES. The Board of Directors of the corporation is
authorized from time to time to accept subscriptions for, issue, sell and
deliver shares of any class or series of the corporation to such persons, at
such times and upon such terms and conditions as the Board shall determine,
valuing all nonmonetary consideration and establishing a price in money or other
consideration, or a minimum price, or a general formula or method by which the
price will be determined.
3.3) ISSUANCE OF RIGHTS TO PURCHASE SHARES. The Board of Directors is
further authorized from time to time to grant and issue rights to subscribe for,
purchase, exchange securities for, or convert securities into, shares of the
corporation of any class or series, and to fix the terms, provisions and
conditions of such rights, including the exchange or conversion basis or the
price at which such shares may be purchased or subscribed for.
ARTICLE 4 - RIGHTS OF SHAREHOLDERS
4.1) NO PREEMPTIVE RIGHTS. No shares of any class or series of the
corporation shall entitle the holders to any preemptive rights to subscribe for
or purchase additional shares of that class or series or any other class or
series of the corporation now or hereafter authorized or issued.
4.2) NO CUMULATIVE VOTING RIGHTS. There shall be no cumulative voting by
the shareholders of the corporation.
ARTICLE 5 - WRITTEN ACTION BY DIRECTORS
5.1) Any action required or permitted to be taken at a Board meeting may be
taken by written action signed by all of the directors or, in cases where the
action need not be approved by the shareholders, by written action signed by the
number of directors that would be required to take the same action at a meeting
of the Board at which all directors were present.
<PAGE>
ARTICLE 6 - MERGER, EXCHANGE, SALE OF ASSETS AND DISSOLUTION
6.1) Where approval of shareholders is required by law, the affirmative
vote of the holders of at least a majority of the voting power of all shares
entitled to vote shall be required to authorize the corporation (i) to merge
into or with one or more other corporations, (ii) to exchange its shares for
shares of one or more other corporations, (iii) to sell, lease, transfer or
otherwise dispose of all or substantially all of its property and assets,
including its goodwill, or (iv) to commence voluntary dissolution.
ARTICLE 7 - AMENDMENT OF ARTICLES OF INCORPORATION
7.1) Any provision contained in these Articles of Incorporation may be
amended, altered, changed or repealed by the affirmative vote of the holders of
at least a majority of the voting power of all shares entitled to vote or such
greater percentage as may be otherwise prescribed by the laws of the State of
Minnesota.
ARTICLE 8 - LIMITATION OF DIRECTOR LIABILITY
8.1) To the fullest extent permitted by Chapter 302A, Minnesota Statutes,
as the same exists or may hereafter be amended, a director of this corporation
shall not be personally liable to the corporation or its shareholders for
monetary damages for breach of fiduciary duty as a director.
<PAGE>
ARTICLES OF AMENDMENT OF
ARTICLES OF INCORPORATION
OF
UNITED COMMUNITY BANCSHARES, INC.
Pursuant to the provisions of Minnesota Statutes, Section 302A.135,
amendments to the Articles of Incorporation of United Community Bancshares, Inc.
in the form attached hereto as Exhibit A were adopted by the shareholders of the
corporation at a meeting duly convened and held on July 19, 1996, which
amendments supersede the original Section 3.1 in its entirety and add a new
Section 3.4, all as set forth on Exhibit A.
I swear that the foregoing is true and accurate and that I have the
authority to sign this document on behalf of the corporation.
Dated: July 19, 1996 /s/
--------------------------------
Galen T. Pate, President
<PAGE>
EXHIBIT A
Amendments to United Community Bancshares, Inc.'s
Articles of Incorporation
Section 3.1 of the Restated Articles of Incorporation of United Community
Bancshares, Inc. is hereby amended in its entirety to read as follows:
3.1) AUTHORIZED SHARES. The aggregate number of shares of all classes
of stock which the corporation has authority to issue shall be 6,000,000
shares, consisting of (A) 5,000,000 common shares, which shall have a par
value of $.01 per share solely for the purpose of a statute or regulation
imposing a tax or fee based upon the capitalization of the corporation, and
(B) 1,000,000 undesignated shares. The Board is authorized to establish
one or more classes or series from the undesignated shares as it may
determine from time to time by a resolution setting forth the designation
of the class or series and fixing the relative rights and preferences of
the class or series; provided, however, that the common shares of the
corporation shall be the only class or series of stock of the corporation
entitled to vote, and the right to vote shall not accrue to any other class
or series of stock except as otherwise required by law.
The Restated Articles of Incorporation of United Community Bancshares, Inc. is
hereby further amended by adding thereto a new Section 3.4, which shall read as
follows:
3.4) ISSUANCE OF SHARES TO HOLDERS OF ANOTHER CLASS OR SERIES. The
Board is further authorized to issue shares of one class or series to
holders of that class or series or to holders of another class or series to
effectuate share dividends, divisions, combinations or splits.
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
UNITED COMMUNITY BANCSHARES, INC.
ARTICLE 1.
OFFICES
1.1) OFFICES. The address of the registered office of the corporation
shall be designated in the Articles of Incorporation, as amended from time to
time. The principal executive office of the corporation shall initially be
located at 100 Signal Hills, West St. Paul, Minnesota 55118-2385, and the
corporation may have offices at such other places within or without the State of
Minnesota as the Board of Directors shall from time to time determine or the
business of the corporation requires.
ARTICLE 2.
MEETINGS OF SHAREHOLDERS
2.1) REGULAR MEETINGS. Regular meetings of the shareholders of the
corporation entitled to vote shall be held on an annual or other less frequent
basis as shall be determined by the Board of Directors or by the chief executive
officer; provided, that if a regular meeting has not been held during the
immediately preceding 15 months, a shareholder or shareholders holding three
percent (3%) or more of the voting power of all shares entitled to vote may
demand a regular meeting of shareholders by written notice of demand given to
the chief executive officer or chief financial officer of the corporation. At
each regular meeting, the shareholders, voting as provided in the Articles of
Incorporation and these Bylaws, shall elect qualified successors for directors
who serve for an indefinite term or whose terms have expired or are due to
expire within six months after the date of the meeting, and shall transact such
other business as shall come before the meeting. No meeting shall be considered
a regular meeting unless specifically designated as such in the notice of
meeting or unless all the shareholders entitled to vote are present in person or
by proxy and none of them objects to such designation.
2.2) SPECIAL MEETINGS. Special meetings of the shareholders entitled to
vote may be called at any time by the Chairman of the Board, the chief executive
officer, the chief financial officer, two or more directors, or a shareholder or
shareholders holding ten percent (10%) or more of the voting power of all shares
entitled to vote who shall demand such special meeting by giving written notice
of demand to the chief executive officer or the chief financial officer
specifying the purposes of the meeting.
2.3) MEETINGS HELD UPON SHAREHOLDER DEMAND. Within thirty (30) days after
receipt by the chief executive officer or the chief financial officer of a
demand from any shareholder or shareholders entitled to call a regular or
special meeting of shareholders, the Board of Directors shall cause such meeting
to be called and held on notice no later than ninety (90) days after receipt of
such demand. If the Board of Directors fails to cause such a meeting to be
called and held, the shareholder or shareholders making the demand may call the
meeting by giving notice as provided in Section 2.5 hereof at the expense of the
corporation.
2.4) PLACE OF MEETINGS. Meetings of the shareholders shall be held at the
principal executive office of the corporation or at such other place, within or
without the State of Minnesota, as is designated by the Board of Directors,
except that a regular meeting called by or at the demand of a shareholder shall
be held in the county where the principal executive office of the corporation is
located.
2.5) NOTICE OF MEETINGS. Except as otherwise specified in Section 2.6 or
required by law, a written notice setting out the place, date and hour of any
regular or special meeting shall be given to each holder of shares entitled to
vote not less than two (2) days nor more than sixty (60) days prior to the date
of the meeting; provided, that notice of a meeting at which there is to be
considered a proposal (i) to dispose of all, or substantially all, of
<PAGE>
the property and assets of the corporation or (ii) to dissolve the corporation
shall be given to all shareholders of record, whether or not entitled to vote;
and provided further, that notice of a meeting at which there is to be
considered a proposal to adopt a plan of merger or exchange shall be given to
all shareholders of record, whether or not entitled to vote, at least fourteen
(14) days prior thereto. Notice of any special meeting shall state the purpose
or purposes of the proposed meeting, and the business transacted at all special
meetings shall be confined to the purposes stated in the notice.
2.6) WAIVER OF NOTICE. A shareholder may waive notice of any meeting
before, at or after the meeting, in writing, orally or by attendance.
Attendance at a meeting by a shareholder is a waiver of notice of that meeting
unless the shareholder objects at the beginning of the meeting to the
transaction of business because the meeting is not lawfully called or convened,
or objects before a vote on an item of business because the item may not be
lawfully considered at such meeting and does not participate in the
consideration of the item at such meeting.
2.7) QUORUM AND ADJOURNED MEETING. The holders of a majority of the voting
power of the shares entitled to vote at a meeting, represented either in person
or by proxy, shall constitute a quorum for the transaction of business at any
regular or special meeting of shareholders. If a quorum is present when a duly
called or held meeting is convened, the shareholders present may continue to
transact business until adjournment, even though the withdrawal of a number of
shareholders originally present leaves less than the proportion or number
otherwise required for a quorum. In case a quorum is not present at any
meeting, those present shall have the power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until the requisite
number of shares entitled to vote shall be represented. At such adjourned
meeting at which the required amount of shares entitled to vote shall be
represented, any business may be transacted which might have been transacted at
the original meeting.
2.8) VOTING. At each meeting of the shareholders, every shareholder having
the right to vote shall be entitled to vote in person or by proxy duly appointed
by an instrument in writing subscribed by such shareholder. Each shareholder
shall have one (1) vote for each share having voting power standing in each
shareholder's name on the books of the corporation except as may be otherwise
provided in the terms of the share. Upon the demand of any shareholder, the
vote for directors or the vote upon any question before the meeting shall be by
ballot. All elections shall be determined and all questions decided by a
majority vote of the number of shares entitled to vote and represented at any
meeting at which there is a quorum except in such cases as shall otherwise be
required by statute or the Articles of Incorporation.
2.9) ORDER OF BUSINESS. The suggested order of business at any regular
meeting and, to the extent appropriate, at all other meetings of the
shareholders shall, unless modified by the presiding chairman, be:
(a) Call of roll
(b) Proof of due notice of meeting or waiver of notice
(c) Determination of existence of quorum
(d) Reading and disposal of any unapproved minutes
(e) Reports of officers and committees
(f) Election of directors
(g) Unfinished business
(h) New business
(i) Adjournment.
ARTICLE 3.
DIRECTORS
3.1 GENERAL POWERS. Except as authorized by the shareholders pursuant to
a shareholder control agreement or unanimous affirmative vote, the business and
affairs of the corporation shall be managed by or under the direction of a Board
of Directors.
<PAGE>
3.2) NUMBER, TERM AND QUALIFICATIONS. The Board of Directors shall consist
of one or more members. At each regular meeting, the shareholders shall
determine the number of directors; provided, that between regular meetings the
authorized number of directors may be increased or decreased by the shareholders
or increased by the Board of Directors. Each director shall serve for such
fixed term (not to exceed five years) as may be specified by the shareholders or
the Board of Directors, as the case may be, that expires at the regular meeting
of shareholders for the year in which such fixed term expires or, if a fixed
term is not specified, for an indefinite term that expires at the next regular
meeting of shareholders, and until such director's successor is elected and
qualified, or until such director's earlier death, resignation,
disqualification, or removal as provided by statute.
3.3) VACANCIES. Vacancies on the Board of Directors may be filled by the
affirmative vote of a majority of the remaining members of the Board, though
less than a quorum; provided, that newly created directorships resulting from an
increase in the authorized number of directors shall be filled by the
affirmative vote of a majority of the directors serving at the time of such
increase. Persons so elected shall be directors until their successors are
elected by the shareholders, who may make such election at the next regular or
special meeting of the shareholders.
3.4) QUORUM AND VOTING. A majority of the directors currently holding
office shall constitute a quorum for the transaction of business. In the
absence of a quorum, a majority of the directors present may adjourn a meeting
from time to time until a quorum is present. If a quorum is present when a duly
called or held meeting is convened, the directors present may continue to
transact business until adjournment even though the withdrawal of a number of
directors originally present leaves less than the proportion or number otherwise
required for a quorum. Except as otherwise required by law or the Articles of
Incorporation, the acts of a majority of the directors present at a meeting at
which a quorum is present shall be the acts of the Board of Directors.
3.5) BOARD MEETINGS; PLACE AND NOTICE. Meetings of the Board of Directors
may be held from time to time at any place within or without the State of
Minnesota that the Board of Directors may designate. In the absence of
designation by the Board of Directors, Board meetings shall be held at the
principal executive office of the corporation, except as may be otherwise
unanimously agreed orally, or in writing, or by attendance. Any director may
call a Board meeting by giving twenty-four (24) hours notice to all directors of
the date and time of the meeting. The notice need not state the purpose of the
meeting, and may be given by mail, telephone, telegram, telefax, or in person.
If a meeting schedule is adopted by the Board, or if the date and time of a
Board meeting has been announced at a previous meeting, no notice is required.
3.6) WAIVER OF NOTICE. A director may waive notice of any meeting before,
at or after the meeting, in writing, orally or by attendance. Attendance at a
meeting by a director is a waiver of notice of that meeting unless the director
objects at the beginning of the meeting to the transaction of business because
the meeting is not lawfully called or convened and does not participate
thereafter in the meeting.
3.7) ABSENT DIRECTORS. A director may give advance written consent or
opposition to a proposal to be acted on at a Board meeting. If the director is
not present at the meeting, consent or opposition to a proposal does not
constitute presence for purposes of determining the existence of a quorum, but
consent or opposition shall be counted as a vote in favor of or against the
proposal and shall be entered in the minutes of the meeting, if the proposal
acted on at the meeting is substantially the same or has substantially the same
effect as the proposal to which the director has consented or objected.
3.8) COMPENSATION. Directors shall receive such fixed sum and expenses per
meeting attended or such fixed annual sum or both as shall be determined from
time to time by resolution of the Board of Directors. Nothing herein contained
shall be construed to preclude any director from serving this corporation in any
other capacity and receiving proper compensation therefor.
3.9) COMMITTEES. The Board of Directors may, by resolution approved by
affirmative vote of a majority of the Board, establish committees having the
authority of the Board in the management of the business of the corporation only
to the extent provided in the resolution. Committees may include a special
litigation committee consisting of one or more independent directors or other
independent persons to consider legal rights or
<PAGE>
remedies of the corporation and whether those rights and remedies should be
pursued. Each such committee shall consist of one or more natural persons (who
need not be directors) appointed by the affirmative vote of a majority of the
directors present, and shall, other than special litigation committees, be
subject at all times to the direction and control of the Board. A majority of
the members of a committee present at a meeting shall constitute a quorum for
the transaction of business.
3.10) ORDER OF BUSINESS. The suggested order of business at any
meeting of the Board of Directors shall, to the extent appropriate and unless
modified by the presiding chairman, be:
(a) Roll call
(b) Proof of due notice of meeting or waiver of notice, or unanimous
presence and declaration by presiding chairman
(c) Determination of existence of quorum
(d) Reading and disposal of any unapproved minutes
(e) Reports of officers and committees
(f) Election of officers
(g) Unfinished business
(h) New business
(i) Adjournment.
ARTICLE 4.
OFFICERS
4.1) NUMBER AND DESIGNATION. The corporation shall have one or more
natural persons exercising the functions of the offices of chief executive
officer and chief financial officer. The Board of Directors may elect or
appoint such other officers or agents as it deems necessary for the operation
and management of the corporation including, but not limited to, one or more
Chairmen of the Board, one or more Presidents, one or more Vice Presidents, a
Secretary and a Treasurer, each of whom shall have the powers, rights, duties
and responsibilities set forth in these Bylaws unless otherwise determined by
the Board. Any of the offices or functions of those offices may be held by the
same person.
4.2) ELECTION, TERM OF OFFICE AND QUALIFICATION. At the first meeting of
the Board following each election of directors, the Board shall elect officers,
who shall hold office until the next election of officers or until their
successors are elected or appointed and qualify; provided, however, that any
officer may be removed with or without cause by the affirmative vote of a
majority of the Board of Directors present (without prejudice, however, to any
contract rights of such officer).
4.3) RESIGNATION. Any officer may resign at any time by giving written
notice to the corporation. The resignation is effective when notice is given to
the corporation, unless a later date is specified in the notice, and acceptance
of the resignation shall not be necessary to make it effective.
4.4) VACANCIES IN OFFICE. If there be a vacancy in any office of the
corporation, by reason of death, resignation, removal or otherwise, such vacancy
may, or in the case of a vacancy in the office of chief executive officer or
chief financial officer shall, be filled for the unexpired term by the Board of
Directors.
4.5) CHIEF EXECUTIVE OFFICER. Unless provided otherwise by a resolution
adopted by the Board of Directors, the chief executive officer (a) shall have
general active management of the business of the corporation; (b) shall, when
present and in the absence of the Chairman of the Board, preside at all
meetings of the shareholders and Board of Directors; (c) shall see that all
orders and resolutions of the Board are carried into effect; (d) shall sign
and deliver in the name of the corporation any deeds, mortgages, bonds,
contracts or other instruments pertaining to the business of the corporation,
except in cases in which the authority to sign and deliver is required by law
to be exercised by another person or is expressly delegated by the Articles,
these Bylaws or the Board to some other officer or agent of the corporation;
(e) may maintain records of and certify proceedings of the Board
<PAGE>
and shareholders; and (f) shall perform such other duties as may from time to
time be assigned to the chief executive officer by the Board. In the event
that there are co-chief executive officers, each co-chief executive officer
may exercise all of the powers and functions of the office of chief executive
officer jointly with the other co-chief executive officer or alone, unless
provided otherwise by a resolution adopted by the Board of Directors.
4.6) CHIEF FINANCIAL OFFICER. Unless provided otherwise by a resolution
adopted by the Board of Directors, the chief financial officer (a) shall keep
accurate financial records for the corporation; (b) shall deposit all monies,
drafts and checks in the name of and to the credit of the corporation in such
banks and depositories as the Board of Directors shall designate from time to
time; (c) shall endorse for deposit all notes, checks and drafts received by
the corporation as ordered by the Board, making proper vouchers therefor; (d)
shall disburse corporate funds and issue checks and drafts in the name of the
corporation, as ordered by the Board; (e) shall render to the chief executive
officer and the Board of Directors, whenever requested, an account of all
transactions undertaken as chief financial officer and of the financial
condition of the corporation; and (f) shall perform such other duties as may
be prescribed by the Board of Directors or the chief executive officer from
time to time.
4.7) CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside at
all meetings of the shareholders and of the Board and shall exercise general
supervision and direction over the more significant matters of policy
affecting the affairs of the corporation, including particularly its
financial and fiscal affairs. In the event that there are Co-Chairmen of the
Board, each Co-Chairman may exercise all of the powers and functions of the
office of Chairman of the Board jointly with the other Co-Chairman or alone,
unless provided otherwise by a resolution adopted by the Board of Directors.
4.8) PRESIDENT. Unless otherwise determined by the Board, the
President(s) shall be the chief executive officer(s). If an officer other
than the President is designated chief executive officer, the President shall
perform such duties as may from time to time be assigned to the President by
the Board. If the office of Chairman of the Board is not filled, the
President shall also perform the duties set forth in Section 4.7.
4.9) VICE PRESIDENT. Each Vice President shall have such powers and
shall perform such duties as may be specified in these Bylaws or prescribed
by the Board of Directors. In the event of absence or disability of the
President, the Board of Directors may designate a Vice President or Vice
Presidents to succeed to the power and duties of the President.
4.10) SECRETARY. The Secretary shall, unless otherwise determined by the
Board, be secretary of and attend all meetings of the shareholders and Board
of Directors, and may record the proceedings of such meetings in the minute
book of the corporation and, whenever necessary, certify such proceedings.
The Secretary shall give proper notice of meetings of shareholders and shall
perform such other duties as may be prescribed by the Board of Directors or
the chief executive officer from time to time.
4.11) TREASURER. Unless otherwise determined by the Board, the Treasurer
shall be the chief financial officer of the corporation. If an officer other
than the Treasurer is designated chief financial officer, the Treasurer shall
perform such duties as may be prescribed by the Board of Directors or the
chief executive officer from time to time.
4.12) DELEGATION. Unless prohibited by a resolution approved by the
affirmative vote of a majority of the directors present, an officer elected
or appointed by the Board may delegate in writing some or all of the duties
and powers of such officer to other persons.
ARTICLE 5.
INDEMNIFICATION
5.1) INDEMNIFICATION. The corporation shall indemnify such persons, for
such expenses and liabilities, in such manner, under such circumstances, and
to such extent, as permitted by Minnesota Statutes, Section 302A.521, as now
enacted or hereafter amended.
<PAGE>
ARTICLE 6.
SHARES AND THEIR TRANSFER
6.1) CERTIFICATE OF STOCK. Every owner of stock of the corporation
shall be entitled to a certificate, in such form as the Board of Directors
may prescribe, certifying the number of shares of stock of the corporation
owned by such shareholder. The certificates for such stock shall be numbered
(separately for each class) in the order in which they are issued and shall,
unless otherwise determined by the Board, be signed by the chief executive
officer, the chief financial officer, or any other officer of the
corporation. A signature upon a certificate may be a facsimile.
Certificates on which a facsimile signature of a former officer, transfer
agent or registrar appears may be issued with the same effect as if such
person were such officer, transfer agent or registrar on the date of issue.
6.2) STOCK RECORD. As used in these Bylaws, the term "shareholder"
shall mean the person, firm or corporation in whose name outstanding shares
of capital stock of the corporation are currently registered on the stock
record books of the corporation. The corporation shall keep, at its
principal executive office or at another place or places within the United
States determined by the Board, a share register not more than one year old
containing the names and addresses of the shareholders and the number and
classes of shares held by each shareholder. The corporation shall also keep
at its principal executive office or at another place or places within the
United States determined by the Board, a record of the dates on which
certificates representing shares were issued. Every certificate surrendered
to the corporation for exchange or transfer shall be cancelled and no new
certificate or certificates shall be issued in exchange for any existing
certificate until such existing certificate shall have been so cancelled
(except as provided for in Section 6.4 of this Article 6).
6.3) TRANSFER OF SHARES. Transfer of shares on the books of the
corporation may be authorized only by the shareholder named in the
certificate (or the shareholder's legal representative or duly authorized
attorney-in-fact) and upon surrender for cancellation of the certificate or
certificates for such shares. The shareholder in whose name shares of stock
stand on the books of the corporation shall be deemed the owner thereof for
all purposes as regards the corporation; provided, that when any transfer of
shares shall be made as collateral security and not absolutely, such fact, if
known to the corporation or to the transfer agent, shall be so expressed in
the entry of transfer; and provided, further, that the Board of Directors may
establish a procedure whereby a shareholder may certify that all or a portion
of the shares registered in the name of the shareholder are held for the
account of one or more beneficial owners.
6.4) LOST CERTIFICATE. Any shareholder claiming a certificate of stock
to be lost or destroyed shall make an affidavit or affirmation of that fact
in such form as the Board of Directors may require, and shall, if the
directors so require, give the corporation a bond of indemnity in form and
with one or more sureties satisfactory to the Board of at least double the
value, as determined by the Board, of the stock represented by such
certificate in order to indemnify the corporation against any claim that may
be made against it on account of the alleged loss or destruction of such
certificate, whereupon a new certificate may be issued in the same tenor and
for the same number of shares as the one alleged to have been destroyed or
lost.
ARTICLE 7.
RESTRICTIONS ON TRANSFER OF SHARES
7.1) OPTION RIGHT OF CORPORATION. The corporation shall have, and each
shareholder who accepts certificates evidencing capital stock of the
corporation hereby grants, upon the conditions and for the price specified in
this Article 7, the option to purchase the corporation's capital stock owned
by any shareholder upon the happening of any one of the following events:
(a) the desire or compulsion of such shareholder to sell or otherwise
transfer the corporation's stock, other than a sale, gift, testamentary
disposition or other transfer of the corporation's stock by such
shareholder to the spouse or a natural or adopted child of such shareholder
or a trust for the benefit of such
<PAGE>
shareholder or spouse or child of such shareholder, so long as the
transferee agrees to be bound by the terms, conditions and stock transfer
restrictions contained in this Article 7, or
(b) the bankruptcy or insolvency of such shareholder.
Such option shall become exercisable upon the happening of the event giving rise
thereto and shall be exercised within the manner and within the time hereinafter
provided.
7.2) OPTION RIGHT OF SHAREHOLDERS. In the event that the corporation shall
not exercise its option to purchase all of such shares, then, and in such event,
the other shareholders shall have, and are hereby granted, upon the conditions
and for the price specified in this Article 7, the option to purchase the shares
of the corporation's stock owned by the affected shareholder and not purchased
by the corporation. Such option shall become exercisable upon the corporation's
failure to exercise, or partial exercise of, its option under Section 7.1 and
shall be exercised within the manner and within the time hereinafter provided.
Except as otherwise provided in Section 7.4, each shareholder having the right
to exercise an option under this Article 7 (herein referred to as "purchaser" or
"purchasers") shall be entitled to purchase that portion of the seller's stock
which is equal to the ratio of the number of shares of stock of the corporation
owned by such purchaser to the total number of shares of such stock owned by
those entitled to purchase.
7.3) NOTICE. Written notice of the occurrence of the event giving rise to
the option provided in this Article 7 shall be forthwith given by the person
whose stock is subject to such option (said person being herein designated
"seller") or by the seller's legally constituted representative, as the case may
be, to the Secretary of the corporation; provided, however, that if the
Secretary of the corporation is the seller or the legally constituted
representative of the seller, such notice shall be given to the President or a
Vice President, or such other officer of the corporation who is neither the
seller nor the seller's legally constituted representative. Within a reasonable
time after receipt of such notice to sell or from the time the corporation is
apprised of an event specified in Section 7.1, the Secretary of the corporation
or the corporation's officer to whom such notice is directed, shall give written
notice to the other shareholders if an option is exercisable by the other
shareholders. If the notice hereinabove provided for is not given to the
corporation, the option to purchase shall, nevertheless, be exercisable from and
after the event giving rise thereto, but the time limits hereinafter prescribed
for exercise of such option and making payments therefor shall not begin until
such notice is given.
7.4) EXERCISE OF OPTION BY CORPORATION. The corporation's option shall
be exercised by the corporation not later than sixty (60) days from receipt
by the corporation of the notice specified in Section 7.3, except and unless
the corporation has within the previous twelve (12) month period purchased
such additional stock in the corporation from other shareholders in such
amounts which, when combined with the present proposed purchase, would exceed
10% of the shares of the corporation issued and outstanding as of the
beginning of said period and the consummation of said proposed purchase would
be in violation of the then existing statutory and regulatory sanctions
concerning purchase of stock by a corporation. The corporation may by
written notice to the seller, said notice to be delivered within sixty (60)
days after receipt of the notice specified in Section 7.3, notify the seller
of the corporation's desire to purchase said stock and further advise the
seller as to what date the corporation would be legally able to consummate
said purchase, which date shall not be more than three (3) years from the
date of said notice by the corporation. The notice of the corporation to
exercise its option to purchase on a delayed basis shall constitute an
exercise of its option and preclude further action pursuant to Article 7
concerning the sale or transfer of said stock by a seller.
7.5) EXERCISE OF OPTION BY SHAREHOLDERS. In the event the option is not
fully exercised by the corporation within such period, or the corporation
determines prior to the expiration of such period that it does not intend to
exercise such option, the option provided for hereunder for the other
shareholders of the corporation shall be exercised by such shareholder(s) by
giving written notice of such shareholder's election to exercise the option
to the corporation not later than ninety (90) days after the notice to the
other shareholders provided for in Section 7.3 has been given.
<PAGE>
7.6) FAILURE TO EXERCISE OPTION. Should any party entitled to be a
purchaser hereunder fail to exercise such purchaser's option within the time
period prescribed, or thereafter fail to deposit within the time period
herein prescribed the full purchase price of the shares of stock such
purchaser is entitled to purchase, then this corporation's Employee Stock
Ownership Plan (the "ESOP") shall have the right to purchase all then
available shares of stock not purchased by the other shareholders. The ESOP
shall be entitled to thirty (30) days notice of the availability of said
shares and within that time period shall tender to the corporation, the
purchase price as established herein in payment for said stock. Should the
ESOP fail to complete the exercise of its option within the time prescribed,
then each of the shareholders shall again have the right to purchase such
shares in the same ratio as each exercising purchaser's shares bears to the
total number of shares held by all exercising purchasers. Within five (5)
days after expiration of the ESOP option exercise period, the corporation
shall give written notice to all electing purchasers of the "secondary"
option created hereunder, setting forth the number of additional shares
subject to such secondary option and the date within which such option may be
exercised. Such "secondary" option shall be exercised by written notice
thereof given to the corporation not later than fifteen (15) days after the
notice of such "secondary" option has been given.
7.7) DEPOSIT OF CERTIFICATE(S). Within ten (10) days after notice of
the event giving rise to the sale is given or upon demand by the corporation
if no such notice is given, the seller, or the seller's legally constituted
representative, as the case may be, shall deposit the certificate or
certificates representing the seller's stock in the corporation, duly
endorsed or duly assigned in blank, with the corporation, as a depository,
and shall by such deposit vest in the corporation, as a depository, the
authority to deliver such certificate or certificates and the shares
represented thereby to the purchasers upon full payment of the purchase
price. Any shares not purchased hereunder shall be forthwith returned by the
corporation to the seller. Until the shares held by the corporation as
depository are delivered to the purchasers, the seller shall for all purposes
other than transfer be treated as the owner of such shares.
7.8) PURCHASE PRICE CALCULATION. The purchase price to be paid for each
share of stock purchased hereunder, regardless of whether the purchaser is
the corporation or any other shareholder, shall be an amount equal to One
Hundred Fifty Percent (150%) of the "Total Adjusted Consolidated Tangible
Book Value" of such stock as of the most recent quarter ended prior to
receipt of written notice from the seller indicating a desire to sell the
corporation's stock. As used herein, "Total Adjusted Consolidated Tangible
Book Value" begins with the "Adjusted Consolidated Book Value" which includes
all equity accounts of the corporation, but shall not include any cumulative
unrealized gain or loss resulting from the subsidiary banks' compliance with
the Statement of Financial Accounting Standards No. 115 issued by the
Financial Accounting Standards Board. Intangible assets incurred PRIOR to the
merger of this corporation's predecessor corporations (that is, the merger of
Goodhue County Financial Corporation with and into Signal Bancshares, Inc.,
as provided in that certain Merger Agreement dated as of May 31, 1993, as
amended, the "Merger Agreement") are then subtracted from the "Adjusted
Consolidated Book Value of Company" to reflect "Adjusted Consolidated Book
Value of Company Prior to Goodhue Merger Adjustments." The Goodhue Merger
Adjustments which include any recorded goodwill and/or fair market value
adjustments in connection with the Goodhue merger that are unamortized,
unaccreted or not depreciated, as determined in accordance with generally
accepted accounting principles, are subtracted to the extent of the ratio of
the "Goodhue Conversion Value" exchanged for stock divided by the total
"Aggregate Goodhue Conversion Value." As used herein, "Goodhue Conversion
Value" shall mean the sum of the Goodhue Common Stock Conversion Value, the
12% Preferred Conversion Value and the 18% Preferred Conversion Value, each
as defined in the Merger Agreement. As used herein, "Aggregate Goodhue
Conversion Value" shall mean the sum of the Goodhue Common Stock Aggregate
Conversion Value, the 12% Preferred Aggregate Conversion Value and the 18%
Preferred Aggregate Conversion Value, each as defined in the Merger
Agreement. The formula to be used would be:
Consolidated Book Value of Company $
Subtract: Cumulative Unrealized Gains ( )
Resulting from FASB 115
Add: Cumulative Unrealized Losses
Resulting from FASB 115
------
Adjusted Consolidated Book Value of Company $
<PAGE>
Subtract Intangible Assets Incurred Prior to Goodhue
Merger
(a) Core Deposit Intangible - Signal ( )
------
Adjusted Consolidated Book Value of Company Prior to Goodhue $
Merger Adjustments
Subtract Pro Rata Portion of Goodhue Push-Down
Accounting Merger Adjustments
(a) Unamortized Goodwill $
(b) Unamortized Fair Market Value
Adjustments Related to Merger
(Push-Down Accounting) ------
Total Goodhue Merger Related Adjustments $
Multiply by Percent of Goodhue Conversion Value
Exchanged for Stock x % ( )
------ ------
Total Adjusted Consolidated Tangible Book Value of Company $
Multiply by 150 percent x 1.50
------
Total Purchase Price Calculation $
Divide by Number of Shares Outstanding ------
Purchase Price Per Share $
------
------
The Chief Financial Officer or other competent officer of the corporation shall
cause the foregoing determination of the purchase price to be promptly made and
written notice thereof shall be given to all interested parties as provided in
Section 7.3.
7.9) DEPOSIT/PAYMENT OF PURCHASE PRICE. Within ten (10) days after an
election to exercise an option hereunder has been made, except for the
delayed purchase by the corporation as provided for in Section 7.4, such
purchasing party shall deliver to the corporation cash for the account of the
seller, or the seller's legally constituted representative, as the case may
be, an amount to equal the full purchase price of that portion of said stock
being purchased by such purchasing party. Upon receipt of the purchase price
for all of the shares being sold, the corporation shall forthwith pay over
such proceeds to the seller and shall deliver a certificate or certificates
for the shares sold to the purchasers as their interests may appear.
Thereafter, the corporation shall have no further obligation with respect to
the sale.
7.10) TERMINATION OF OPTION. Any option granted hereunder shall
terminate forthwith upon the failure of the party to whom such option is
granted to exercise the same within the time and in the manner herein
specified. If, with respect to any stock in the corporation, all options
hereunder are terminated, then, and in such event, the seller shall have the
full right to sell such stock on the market or to any third person, or
persons, and upon any such sale there shall be issued to the purchaser or
purchasers a certificate or certificates covering the stock so sold and there
shall be incorporated in or set forth on such certificate or certificates the
legend provided in Section 7.13.
7.11) AMENDMENT OF ARTICLE 7. This Article 7 shall remain in force and
effect until such time as the holders of 66.66% of the outstanding shares of
common stock of the corporation terminate or amend it by affirmative vote.
7.12) RESTRICTION ON TRANSFER; BINDING EFFECT. No stock of the
corporation held by any shareholder shall be transferred on the books thereof
and no sale, transfer or other disposition of any of said stock shall be
effective unless the same be done in conformity with the applicable terms and
conditions of this Article 7. Should any shareholder violate this Article 7
by attempting to transfer or otherwise dispose of any or all of such
shareholder's stock in the corporation without first complying with the terms
of this Article 7, any holder of any option to purchase such stock or any
part thereof shall have the right to compel the transferee to transfer and
deliver at the
<PAGE>
price and pursuant to the provisions of such option all such stock as may have
been transferred to said transferee. The provisions of Article 7 shall be
binding upon all of the corporation's shareholders and their respective heirs,
representatives, successors and assigns, and upon such additional persons as may
become shareholders by acquiring stock of the corporation.
7.13) CERTIFICATE LEGEND. Each certificate evidencing the ownership of
shares of stock in the corporation shall contain a reference to the terms of
this Article 7 so as to give notice thereof to any purchaser/transferee by
having the following legend endorsed on the face thereof as is or may
hereafter be provided by law:
"The shares of stock represented by this certificate are subject to certain
purchase options in the corporation and others as set forth in Article 7 of
the Bylaws, which Bylaws are available for inspection at the principal
office of the corporation."
7.14) PLEDGE OF STOCK. Nothing herein contained shall be construed to
prevent any shareholder from pledging any or all of such shareholder's stock
as security for a debt or obligation, but the pledgee of such stock shall
hold the same subject to the terms and rights to purchase to which such
pledged stock is subject and said option shall become immediately exercisable
upon receipt of written notice of said foreclosure as herein provided and the
party or parties having such option or options shall be entitled to purchase
the stock at the price and according to the terms herein provided.
7.15) SUBSIDIARY BANK STOCK. No shares of subsidiary bank stock shall
be sold by the corporation unless such sale has been authorized by the holders
of 66.66% of the corporation's shares at a meeting duly called for such purpose.
The corporation shall cause the subsidiary banks to issue no shares to persons
other than the corporation, except for qualifying shares for directors which
shall be subject to repurchase by the corporation upon the retirement,
voluntarily or involuntarily, of such persons from the Board.
7.16) MANNER OF GIVING NOTICE. All notices required or provided for
hereunder shall be in writing and shall be deemed given when delivered
personally or when deposited in the United States mails, postage prepaid,
addressed to the last known address of the party to whom mailed.
7.17) REGULATORY APPROVAL. Notwithstanding any other provision of this
Article 7 to the contrary, it is expressly agreed and understood that: (i)
closing of any sale/purchase of stock under this Article 7 is contingent upon
receipt of all necessary regulatory approvals for such sale/purchase; (ii)
closing of any such sale/purchase will be delayed as needed to obtain all
necessary regulatory approvals; and (iii) the parties shall be under no
obligation to consummate any sale/purchase for which regulatory approval has not
been received. A party exercising such party's option to acquire shares under
this Article 7 shall submit any necessary regulatory applications, in
conjunction with such proposed purchase, within thirty (30) days of such
exercise. The purchasing party agrees to submit any required Notification of
Change in Control, pursuant to federal and state law, in conjunction with that
purchasing party's exercise of such option within twenty-one (21) days of such
exercise. The corporation and/or the purchasing shareholder, as the case may
be, agree to inform the seller within fifteen (15) days of receipt of any
regulatory notification pursuant to this Section 7.17.
7.18) AUTOMATIC TERMINATION OF ARTICLE 7. This Article 7 of these
Bylaws shall automatically terminate without any action by any party upon the
successful completion of an initial public offering of any of the corporation's
securities pursuant to a Registration Statement under the Securities Act of
1933, as amended.
ARTICLE 8.
GENERAL PROVISIONS
8.1) RECORD DATES. In order to determine the shareholders entitled to
notice of and to vote at a meeting, or entitled to receive payment of a
dividend or other distribution, the Board of Directors may fix a record date
which shall not be more than sixty (60) days preceding the date of such
meeting or distribution. In the absence of action by the Board, the record
date for determining shareholders entitled to notice of and to vote at a
meeting shall be at the close of business on the day preceding the day on
which notice is given, and the record date for
<PAGE>
determining shareholders entitled to receive a distribution shall be at the
close of business on the day on which the Board of Directors authorizes such
distribution.
8.2) DISTRIBUTIONS; ACQUISITIONS OF SHARES. Subject to the provisions of
law, the Board of Directors may authorize the acquisition of the corporation's
shares and may authorize distributions whenever and in such amounts as, in its
opinion, the condition of the affairs of the corporation shall render it
advisable.
8.3) FISCAL YEAR. The fiscal year of the corporation shall be established
by the Board of Directors.
8.4) SEAL. The corporation shall have no corporate seal.
8.5) SECURITIES OF OTHER CORPORATIONS.
(a) VOTING SECURITIES HELD BY THE CORPORATION. Unless otherwise ordered
by the Board of Directors, the chief executive officer shall have full
power and authority on behalf of the corporation (i) to attend and to vote
at any meeting of security holders of other companies in which the
corporation may hold securities; (ii) to execute any proxy for such meeting
on behalf of the corporation; and (iii) to execute a written action in lieu
of a meeting of such other company on behalf of this corporation. At such
meeting, by such proxy or by such writing in lieu of meeting, the chief
executive officer shall possess and may exercise any and all rights and
powers incident to the ownership of such securities that the corporation
might have possessed and exercised if it had been present. The Board of
Directors may from time to time confer like powers upon any other person or
persons.
(b) PURCHASE AND SALE OF SECURITIES. Unless otherwise ordered by the
Board of Directors, the chief executive officer shall have full power and
authority on behalf of the corporation to purchase, sell, transfer or
encumber securities of any other company owned by the corporation which
represent not more than 10% of the outstanding securities of such issue,
and may execute and deliver such documents as may be necessary to
effectuate such purchase, sale, transfer or encumbrance. The Board of
Directors may from time to time confer like powers upon any other person or
persons.
8.6) SHAREHOLDER AGREEMENTS. In the event of any conflict or inconsistency
between these Bylaws, or any amendment thereto, and any shareholder control
agreement as defined in Minnesota Statutes, Section 302A.457, whenever adopted,
such shareholder control agreement shall govern.
ARTICLE 9.
MEETINGS
9.1) TELEPHONE MEETINGS AND PARTICIPATION. A conference among directors by
any means of communication through which the directors may simultaneously hear
each other during the conference constitutes a Board meeting, if the same notice
is given of the conference as would be required for a meeting, and if the number
of directors participating in the conference would be sufficient to constitute a
quorum at a meeting. Participation in a meeting by that means constitutes
presence in person at the meeting. A director may participate in a Board
meeting not heretofore described in this paragraph, by any means of
communication through which the director, other directors so participating, and
all directors physically present at the meeting may simultaneously hear each
other during the meeting. Participation in a meeting by that means constitutes
presence in person at the meeting. The provisions of this section shall apply
to committees and members of committees to the same extent as they apply to the
Board and directors.
9.2) AUTHORIZATION WITHOUT MEETING. Any action of the shareholders, the
Board of Directors, or any committee of the corporation which may be taken at a
meeting thereof, may be taken without a meeting if authorized by a writing
signed by all of the holders of shares who would be entitled to vote on such
action, by all of the directors (unless less than unanimous action is permitted
by the Articles of Incorporation), or by all of the members of such committee,
as the case may be.
<PAGE>
ARTICLE 10.
AMENDMENTS OF BYLAWS
10.1) AMENDMENTS. Unless the Articles of Incorporation provide
otherwise, these Bylaws may be altered, amended, added to or repealed by the
affirmative vote of a majority of the members of the Board of Directors.
Such authority in the Board of Directors is subject to the power of the
shareholders to change or repeal such Bylaws, and the Board of Directors
shall not make or alter any Bylaws fixing a quorum for meetings of
shareholders, prescribing procedures for removing directors or filling
vacancies on the Board, or fixing the number of directors or their
classifications, qualifications or terms of office, but the Board may adopt
or amend a Bylaw to increase the number of directors.
The undersigned, Galen T. Pate, Co-Chief Executive Officer and Secretary of
United Community Bancshares, Inc., hereby certifies that the foregoing Bylaws
were duly adopted as the Bylaws of the corporation by its shareholders to be
effective as of January 1, 1994.
/s/
-----------------------------------------
Galen T. Pate, Co-Chief Executive Officer
and Secretary
Attest:
/s/
- -------------------------------------------
R. Scott Jones, Co-Chief Executive Officer
and Chief Financial Officer
<PAGE>
Bylaws Amendments
Approved April 30, 1996
7.1) OPTION RIGHT OF CORPORATION. The corporation shall have, and each
shareholder who accepts certificates evidencing capital stock of the corporation
hereby grants, upon the conditions and for the price specified in this Article
7, the option to purchase the corporation's capital stock owned by any
shareholder upon the happening of any one of the following events:
(a) the desire or compulsion of such shareholder to sell or otherwise
transfer the corporation's stock, other than:
(x) a sale, gift, testamentary disposition or other transfer of
the corporation's stock by such shareholder to:
(i) the spouse or a natural or adopted child or grandchild
of such shareholder; or,
(ii) a trust for the benefit of such shareholder or spouse
or natural or adopted child or grandchild of such shareholder,
(y) a gift or testamentary disposition of the corporate stock to
a charitable organization or private foundation as defined in the
applicable sections of the Internal Revenue Code of 1986 as amended
and the Regulations of the Secretary of the Treasury promulgated
thereunder,
so long as the transferee agrees in writing to be bound by the terms,
conditions and stock transfer restrictions contained in this Article 7, or
(b) the bankruptcy or insolvency of such shareholder.
Such option shall become exercisable upon the happening of the event giving rise
thereto and shall be exercised within the manner and within the time hereinafter
provided.
7.8) STOCK TRANSFER PRICE CALCULATION. The transfer price to be paid for
each share of stock transferred hereunder, regardless of whether the transferee
is the corporation or any other shareholder, shall be an amount equal to One
Hundred Fifty Percent (150%) of the "Total Adjusted Consolidated Tangible Book
Value" plus One Hundred Percent (100%) of the "Total Consolidated Intangible
Book Value" of such stock as of the most recent quarter ended prior to receipt
of written notice from the seller indicating a desire to sell the corporation's
stock. As used herein, "Total Adjusted Consolidated Tangible Book Value" is
defined as "Adjusted Consolidated Book Value" (which is defined as Total
Stockholders' Equity of the corporation excluding any cumulative unrealized gain
or loss resulting from the subsidiary bank's compliance with the Statement of
Financial Accounting Standards No. 115 issued by the Financial Accounting
Standards Board) less "Consolidated Intangible Book Value" (defined as the
balance of Intangible Assets that are unamortized, unaccreted or not
depreciated, as determined in accordance with generally accepted accounting
principles). The formula shall be as follows:
Consolidated Stockholders' Equity $
Subtract FASB 115 Unrealized Gains ( )
Add FASB Unrealized Losses ------------------
Adjusted Consolidated Book Value $
Less Con Multiply by 150% ( )
------------------
Adjusted Consolidated Tangible Book Value $
x 1.50
------------------
<PAGE>
Consolidated Tangible Transfer Value $
Plus Consolidated Intangible Book Value +
------------------
Total Stock Transfer Price Calculation $
Divide by Outstanding Shares ------------------
Stock Transfer Price Per Share $
------------------
------------------
The Chief Financial Officer of the corporation or designee shall cause the
foregoing determination of the purchase price to be promptly made and written
notice thereof shall be given to all interested parties as provided in Section
7.3.
<PAGE>
EXHIBIT 10.1
UNITED COMMUNITY BANCSHARES, INC.
1994 STOCK OPTION PLAN
SECTION 1.
DEFINITIONS
As used herein, the following terms shall have the meanings indicated
below:
(a) "Affiliates" shall mean a Parent or Subsidiary of the Company.
(b) "Committee" shall mean a Committee of two or more directors who shall
be appointed by and serve at the pleasure of the Board. In the event the
Company's securities are registered pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended, each of the members of the
Committee shall be a "disinterested" person within the meaning of Rule
16b-3, or any successor provision, as then in effect, of the General Rules
and Regulations under the Securities Exchange Act of 1934, as amended. As
of the effective date of the Plan, a "disinterested" person under Rule
16b-3 generally means a person who, among other things, has not been, at
any time within one year prior to his or her appointment to the Committee
(or, if shorter, during the period beginning with the initial registration
of the Company's equity securities under Section 12 of the Securities
Exchange Act of 1934, as amended, and ending with the director's
appointment to the Committee) and who will not be, while serving on such
Committee, granted or awarded options under the Plan, or under any other
plan of the Company or any of its Affiliates entitling participants to
acquire stock, stock options, stock appreciation rights or similar rights
that have an exercise or conversion privilege or a value derived from
equity securities issued by the Company or its Affiliate, except to the
extent permitted by Rule 16b-3, or any successor provision.
(c) The "Company" shall mean UNITED COMMUNITY BANCSHARES, INC., a
Minnesota corporation.
(d) "Fair Market Value," as of any applicable date, shall mean (a) if the
Company's Common Stock is reported in the NASDAQ National Market System or
is listed upon an established exchange or exchanges, the reported closing
price of such stock in such NASDAQ National Market System or on such stock
exchange or exchanges on the date the option is granted or, if no sale of
such stock shall have occurred on that date, on the next preceding day on
which there was a sale of stock; (b) if the Company's Common Stock is not
so reported in the NASDAQ National Market System or listed upon an
exchange, the average of the closing "bid" and "asked" prices quoted on the
NASDAQ Small-Cap Market on the date the option is granted, or if there are
no such quoted "bid" and "asked" prices on such date, on the next preceding
date for which there are such quotes; (c) if the Company's Common Stock is
not listed or traded on any securities exchange, the NASDAQ National Market
System or the NASDAQ Small-Cap Market, the per share value determined by a
market maker of the Company's Common Stock on the date the option is
granted or, if there is no such market maker, the per share value
determined by the Board or the Committee, in its sole discretion, by
applying principles of valuation with respect to all such options, which
determination may take into account the formula price set forth in Section
7.8 of the Company's bylaws.
(e) The "Internal Revenue Code" is the Internal Revenue Code of 1986, as
amended from time to time.
(f) "Option Stock" shall mean Common Stock of the Company (subject to
adjustment as described in Section 12) reserved for options pursuant to
this Plan.
<PAGE>
(g) The "Optionee" for purposes of Section 9 is an employee of the Company
or any Subsidiary to whom an incentive stock option has been granted under
the Plan. For purposes of Section 10, the "Optionee" is the consultant or
advisor to or director, employee or officer of the Company or any
Subsidiary to whom a nonqualified stock option has been granted.
(h) "Parent" shall mean any corporation which owns, directly or indirectly
in an unbroken chain, fifty percent (50%) or more of the total voting power
of the Company's outstanding stock.
(i) The "Plan" means the United Community Bancshares, Inc. 1994 Stock
Option Plan, as amended hereafter from time to time, including the form of
Option Agreements as they may be modified by the Board from time to time.
(j) A "Subsidiary" shall mean any corporation of which fifty percent (50%)
or more of the total voting power of outstanding stock is owned, directly
or indirectly in an unbroken chain, by the Company.
SECTION 2.
PURPOSE
The purpose of the Plan is to promote the success of the Company and its
Subsidiaries by facilitating the employment and retention of competent personnel
and by furnishing incentive to officers, directors, employees, consultants, and
advisors upon whose efforts the success of the Company and its Subsidiaries will
depend to a large degree.
It is the intention of the Company to carry out the Plan through the
granting of stock options which will qualify as "incentive stock options" under
the provisions of Section 422 of the Internal Revenue Code, or any successor
provision, and through the granting of "non- qualified stock options" pursuant
to Section 10 of this Plan. Adoption of this Plan shall be and is expressly
subject to the condition of approval by the shareholders of the Company;
provided, however, that if shareholder approval is not obtained within twelve
(12) months after the adoption of the Plan by the Board of Directors, the
provisions of this Plan relating to incentive stock options, including but not
limited to Section 9, shall be of no force or effect, and any incentive stock
options previously granted shall be revoked. In no event shall any incentive
stock options be exercisable prior to the date this Plan is approved by the
shareholders of the Company.
SECTION 3.
EFFECTIVE DATE OF PLAN
The Plan shall be effective upon its adoption by the Board of Directors of
the Company, subject to approval by the shareholders of the Company as required
in Section 2.
SECTION 4.
ADMINISTRATION
The Plan shall be administered by the Board of Directors of the Company
(hereinafter referred to as the "Board") or by a Committee which may be
appointed by the Board from time to time. The Board or the Committee, as the
case may be, shall have all of the powers vested in it under the provisions of
the Plan, including but not limited to exclusive authority (where applicable and
within the limitations described herein) to determine, in its sole discretion,
whether an incentive stock option or nonqualified stock option shall be granted,
the individuals
<PAGE>
to whom, and the time or times at which, options shall be granted, the number of
shares subject to each option and the option price and terms and conditions of
each option. The Board, or the Committee, shall have full power and authority
to administer and interpret the Plan, to make and amend rules, regulations and
guidelines for administering the Plan, to prescribe the form and conditions of
the respective stock option agreements (which may vary from Optionee to
Optionee) evidencing each option and to make all other determinations necessary
or advisable for the administration of the Plan. The Board's, or the
Committee's, interpretation of the Plan, and all actions taken and
determinations made by the Board or the Committee pursuant to the power vested
in it hereunder, shall be conclusive and binding on all parties concerned. No
member of the Board or the Committee shall be liable for any action taken or
determination made in good faith in connection with the administration of the
Plan.
In the event the Board appoints a Committee as provided hereunder, any
action of the Committee with respect to the administration of the Plan shall be
taken pursuant to a majority vote of the Committee members or pursuant to the
written resolution of all Committee members.
SECTION 5.
PARTICIPANTS
The Board or the Committee, as the case may be, shall from time to time, at
its discretion and without approval of the shareholders, designate those
employees, directors, officers, consultants, and advisors of the Company or of
any Subsidiary to whom nonqualified stock options shall be granted under this
Plan; provided, however, that consultants or advisors shall not be eligible to
receive stock options hereunder unless such consultant or advisor renders bona
fide services to the Company or Subsidiary and such services are not in
connection with the offer or sale of securities in a capital raising
transaction. The Board or the Committee, as the case may be, shall, from time
to time, at its discretion and without approval of the shareholders, designate
those employees of the Company or any Subsidiary to whom incentive stock options
shall be granted under this Plan. The Board or the Committee may grant
additional incentive stock options or nonqualified stock options under this Plan
to some or all participants then holding options or may grant options solely or
partially to new participants. In designating participants, the Board or the
Committee shall also determine the number of shares to be optioned to each such
participant. The Board may from time to time designate individuals as being
ineligible to participate in the Plan.
SECTION 6.
STOCK
The Stock to be optioned under this Plan shall consist of authorized but
unissued shares of Option Stock. One Hundred Thousand (100,000) shares of
Option Stock shall be reserved and available for options under the Plan;
provided, however, that the total number of shares of Option Stock reserved for
options under this Plan shall be subject to adjustment as provided in Section 12
of the Plan. In the event that any outstanding option under the Plan for any
reason expires or is terminated prior to the exercise thereof, the shares of
Option Stock allocable to the unexercised portion of such option shall continue
to be reserved for options under the Plan and may be optioned hereunder.
SECTION 7.
DURATION OF PLAN
Incentive stock options may be granted pursuant to the Plan from time to
time during a period of ten (10) years from the effective date as defined in the
Plan. Nonqualified stock options may be granted pursuant to the Plan from time
to time after the effective date of the Plan and until the Plan is discontinued
or terminated by the Board.
<PAGE>
SECTION 8.
PAYMENT
Optionees may pay for shares upon exercise of options granted pursuant to
this Plan (i) with cash or certified check, (ii) by the transfer of previously
owned shares of Common Stock of the Company valued at such stock's Fair Market
Value on the business day immediately preceding the effective exercise of the
option, (iii) through installments, (iv) in the form of a promissory note to the
Company, or (v) in such other form of payment as may be authorized by the Board
or the Committee. For purposes of this Section 8, "previously owned shares of
Common Stock" shall mean shares that are already owned by the Optionee at the
time of exercise. The Board or the Committee may, in its sole discretion, limit
the forms of payment available to the Optionee and may exercise such discretion
any time prior to the termination of the Option granted to the Optionee or upon
any exercise of the Option by the Optionee.
SECTION 9.
TERMS AND CONDITIONS OF INCENTIVE STOCK OPTIONS
Each incentive stock option granted pursuant to the Plan shall be evidenced
by a written stock option agreement (the "Option Agreement"). The Option
Agreement shall be in such form as may be approved from time to time by the
Board or the Committee and may vary from Optionee to Optionee; provided,
however, that each Optionee and each Option Agreement shall comply with and be
subject to the following terms and conditions:
(a) NUMBER OF SHARES AND OPTION PRICE. The Option Agreement shall state
the total number of shares covered by the incentive stock option. To the
extent required to qualify the option as an incentive stock option under
Section 422 of the Internal Revenue Code, or any successor provision, the
option price per share shall not be less than one hundred percent (100%) of
the Fair Market Value of the Common Stock per share on the date the Board
or the Committee, as the case may be, grants the option; provided, however,
that if an Optionee owns stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or
of its Parent or any Subsidiary, the option price per share of an incentive
stock option granted to such Optionee shall not be less than one hundred
ten percent (110%) of the Fair Market Value of the Common Stock per share
on the date of the grant of the option. The Board or the Committee, as the
case may be, shall have full authority and discretion in establishing the
option price and shall be fully protected in so doing.
(b) TERM AND EXERCISABILITY OF INCENTIVE STOCK OPTION. The term during
which any incentive stock option granted under the Plan may be exercised
shall be established in each case by the Board or the Committee, as the
case may be. Except as otherwise provided in the Option Agreement, in no
event shall any incentive stock option be exercisable during a term of less
than five (5) nor more than ten (10) years after the date on which it is
granted; provided, however, that if an Optionee owns stock possessing more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company or of its Parent or any Subsidiary, the incentive
stock option granted to such Optionee shall be exercisable during a term of
not more than five (5) years after the date on which it is granted. The
Option Agreement shall state when the incentive stock option becomes
exercisable and shall also state the maximum term during which the option
may be exercised. In the event an incentive stock option is exercisable
immediately, the manner of exercise of the option in the event it is not
exercised in full immediately shall be specified in the Option Agreement.
The Board or the Committee, as the case may be, may accelerate the exercise
date of any incentive stock option granted hereunder which is not
immediately exercisable as of the date of grant.
(c) OTHER PROVISIONS. The Option Agreement authorized under this Section
9 shall contain such other provisions as the Board or the Committee, as the
case may be, shall deem advisable. Any such Option Agreement shall contain
such limitations and restrictions upon the exercise of the option as shall
be
<PAGE>
necessary to ensure that such option will be considered an "incentive stock
option" as defined in Section 422 of the Internal Revenue Code or to
conform to any change therein.
SECTION 10.
TERMS AND CONDITIONS OF NONQUALIFIED STOCK OPTIONS
Each nonqualified stock option granted pursuant to the Plan shall be
evidenced by a written stock option agreement (also an "Option Agreement"). The
Option Agreement shall be in such form as may be approved from time to time by
the Board or the Committee and may vary from Optionee to Optionee; provided,
however, that each Optionee and each Option Agreement shall comply with and be
subject to the following terms and conditions:
(a) NUMBER OF SHARES AND OPTION PRICE. The Option Agreement shall state
the total number of shares covered by the nonqualified stock option.
Unless otherwise determined by the Board or the Committee, as the case may
be, the option price per share shall be one hundred percent (100%) of the
Fair Market Value of the Common Stock per share on the date the Board or
the Committee grants the option.
(b) TERM AND EXERCISABILITY OF NONQUALIFIED STOCK OPTION. The term during
which any nonqualified stock option granted under the Plan may be exercised
shall be established in each case by the Board or the Committee, as the
case may be. Except as otherwise provided in the Option Agreement, in no
event shall any nonqualified stock option be exercisable during a term of
less than five (5) nor more than ten (10) years after the date on which it
is granted. The Option Agreement shall state when the nonqualified stock
option becomes exercisable and shall also state the maximum term during
which the option may be exercised. In the event a nonqualified stock
option is exercisable immediately, the manner of exercise of the option in
the event it is not exercised in full immediately shall be specified in the
Option Agreement. The Board or the Committee, as the case may be, may
accelerate the exercise date of any nonqualified stock option granted
hereunder which is not immediately exercisable as of the date of grant.
(c) WITHHOLDING. The Company or its Subsidiary shall be entitled to
withhold and deduct from future wages of the Optionee all legally required
amounts necessary to satisfy any and all federal, state and local
withholding and employment-related taxes attributable to the Optionee's
exercise of a nonqualified stock option. In the event the Optionee is
required under the Option Agreement to pay the Company, or make
arrangements satisfactory to the Company respecting payment of, such
federal, state and local withholding and employment-related taxes, the
Board or the Committee, as the case may be, may, in its discretion and
pursuant to such rules as it may adopt, permit the Optionee to satisfy such
obligation, in whole or in part, by electing to have the Company withhold
shares of Common Stock otherwise issuable to the Optionee as a result of
the option's exercise equal to the amount required to be withheld for tax
purposes. Any stock elected to be withheld shall be valued at its Fair
Market Value as of the date the amount of tax to be withheld is determined
under applicable tax law. The Optionee's election to have shares withheld
for this purpose shall be made on or before the date the option is
exercised or, if later, the date that the amount of tax to be withheld is
determined under applicable tax law. Such election shall also comply with
such rules as may be adopted by the Board or the Committee to ensure
compliance with Rule 16b-3, or any successor provision, as then in effect,
of the General Rules and Regulations under the Securities Exchange Act of
1934, as amended, if applicable.
(d) OTHER PROVISIONS. The Option Agreement authorized under this Section
10 shall contain such other provisions as the Board, or the Committee, as
the case may be, shall deem advisable.
<PAGE>
SECTION 11
TRANSFER OF OPTION
No option shall be transferable, in whole or in part, by the Optionee other
than by will or by the laws of descent and distribution and, during the
Optionee's lifetime, the option may be exercised only by the Optionee or the
Optionee's legal representative. If the Optionee shall attempt any transfer of
any option granted under the Plan during the Optionee's lifetime, such transfer
shall be void and the option, to the extent not fully exercised, shall
terminate.
SECTION 12.
RECAPITALIZATION, SALE, MERGER, EXCHANGE
OR LIQUIDATION
In the event of an increase or decrease in the number of shares of Common
Stock resulting from a subdivision or consolidation of shares or the payment of
a stock dividend or any other increase or decrease in the number of shares of
Common Stock effected without receipt of consideration by the Company, the
number of shares of Option Stock reserved under Section 6 hereof and the number
of shares of Option Stock covered by each outstanding option and the price per
share thereof shall be adjusted by the Board or the Committee, as the case may
be, to reflect such change. Additional shares which may be credited pursuant to
such adjustment shall be subject to the same restrictions as are applicable to
the shares with respect to which the adjustment relates.
Unless otherwise provided in the Option Agreement, in the event of the sale
by the Company of substantially all of its assets and the consequent
discontinuance of its business, or in the event of a merger, consolidation,
exchange, reorganization, reclassification, extraordinary dividend, divestiture
(including a spin-off) or liquidation of the Company (collectively referred to
as a "transaction"), the Board may, in connection with the Board's adoption of
the plan for such transaction, provide for one or more of the following: (i)
the equitable acceleration of the exercisability of any outstanding options
hereunder; (ii) the complete termination of this Plan and cancellation of
outstanding options not exercised prior to a date specified by the Board (which
date shall give Optionees a reasonable period of time in which to exercise the
options prior to the effectiveness of such transaction) and (iii) the
continuance of the Plan with respect to the exercise of options which were
outstanding as of the date of adoption by the Board of such plan for such
transaction and provide to Optionees holding such options the right to exercise
their respective options as to an equivalent number of shares of stock of the
corporation succeeding the Company by reason of such transaction. The grant of
an option pursuant to the Plan shall not limit in any way the right or power of
the Company to make adjustments, reclassifications, reorganizations or changes
of its capital or business structure or to merge, exchange or consolidate or to
dissolve, liquidate, sell or transfer all or any part of its business or assets.
SECTION 13.
INVESTMENT PURPOSE
No shares of Common Stock shall be issued pursuant to the Plan unless and
until there has been compliance, in the opinion of Company's counsel, with all
applicable legal requirements, including without limitation, those relating to
securities laws and stock exchange listing requirements. As a condition to the
issuance of Option Stock to Optionee, the Board or the Committee may require
Optionee to (a) represent that the shares of Option Stock are being acquired for
investment and not resale and to make such other representations as the Board,
or the Committee, as the case may be, shall deem necessary or appropriate to
qualify the issuance of the shares as exempt from the Securities Act of 1933, as
amended, and any other applicable securities laws, and (b) represent that
Optionee shall not dispose of the shares of Option Stock in violation of the
Securities Act of 1933, as amended,
<PAGE>
or any other applicable securities laws. The Company reserves the right to
place a legend on any stock certificate issued upon exercise of an option
granted pursuant to the Plan to assure compliance with this Section 13.
SECTION 14.
RIGHTS AS A SHAREHOLDER
An Optionee (or the Optionee's permitted successor or successors) shall
have no rights as a shareholder with respect to any shares covered by an option
until the date of the issuance of a stock certificate evidencing such shares.
No adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property), distributions or other rights for which the
record date is prior to the date such stock certificate is actually issued
(except as otherwise provided in Section 12 of the Plan).
SECTION 15.
AMENDMENT OF THE PLAN
The Board or the Committee, as the case may be, may from time to time,
insofar as permitted by law, suspend or discontinue the Plan or revise or amend
it in any respect; provided, however, that no such revision or amendment, except
as is authorized in Section 12, shall impair the terms and conditions of any
option which is outstanding on the date of such revision or amendment to the
material detriment of the Optionee without the consent of the Optionee; and
provided, further that any revisions or amendments adopted by the Committee
shall be subject to the approval of the Board. Notwithstanding the foregoing,
no such revision or amendment shall (i) materially increase the number of shares
subject to the Plan except as provided in Section 12 hereof, (ii) change the
designation of the class of employees eligible to receive options, (iii)
decrease the price at which options may be granted, or (iv) materially increase
the benefits accruing to Optionees under the Plan, unless such revision or
amendment is approved by the shareholders of the Company. Furthermore, the Plan
may not, without the approval of the shareholders, be amended in any manner that
will cause incentive stock options to fail to meet the requirements of Section
422 of the Internal Revenue Code.
SECTION 16.
NO OBLIGATION TO EXERCISE OPTION
The granting of an option shall impose no obligation upon the Optionee to
exercise such option. Further, the granting of an option hereunder shall not
impose upon the Company or any Subsidiary any obligation to retain the Optionee
in its employ for any period.
<PAGE>
EXHIBIT 10.2
AMENDMENT TO
EXECUTIVE SALARY CONTINUATION AGREEMENT
This Amendment, made and entered into this 16th day of May, 1989, amends the
Executive Salary Continuation Agreement dated August 20, 1985, by and between
Signal Bank, Inc., a corporation organized under the laws of the State of
Minnesota (hereinafter called the Corporation), and Galen T. Pate (hereinafter
called the Executive).
WHEREAS, the Executive remains in the employ of the Corporation, and both the
Corporation and the Executive desire to amend the Salary Continuation Agreement
dated August 20, 1985 (hereinafter Agreement);
NOW THEREFORE, in consideration of the services to be performed in the future as
well as the mutual promises and covenants contained in the Agreement, the
provisions of the Agreement are hereby modified as follows:
Article 2., paragraph 2.2 is deleted in its entirety and replaced by the
following paragraph:
Payment-The Corporation agrees that upon such retirement it will pay to the
Executive the annual sum of Forty thousand Dollars ($40,000), payable monthly on
the first day of each month following such retirement until he attains the age
of seventy-eight (78); subject to the conditions and limitations hereinafter set
forth. It is the intent of the Corporation to adjust the above stated income
amount from time to time, to reflect 50% of the Executive's then current salary.
However, the Bank is not obligated hereunder to make any such adjustment.
All other terms and conditions of the Agreement remain unchanged and are hereby
ratified by the Corporation and the Executive.
SIGNAL BANK, INC.
By: /s/
-------------------------------------
Its: Chairman
By: /s/
-------------------------------------
Its: Secretary
EXECUTIVE: /s/
--------------------------------
Galen T. Pate
<PAGE>
EXECUTIVE SALARY CONTINUATION AGREEMENT
THIS AGREEMENT, made and entered into this 8/20 day of 1985, by and
between Signal Bank, Inc., a corporation organized and existing under the
laws of the State of Minnesota (hereinafter called the Corporation), and
Galen T. Pate (hereinafter called the Executive).
W I T N E S S E T H:
WHEREAS, the Executive is in the employ of the Corporation serving as its
President; and
WHEREAS, the experience of the Executive, his knowledge of the affairs of
the Corporation, his reputation and contacts in the industry are so valuable
that assurance of his continued service is essential for the future growth and
profits of the Corporation and it is in the best interests of the Corporation to
arrange terms of continued employment for the Executive so as to reasonably
assure his remaining in the Corporation's employment during his lifetime or
until the age of retirement; and
WHEREAS, the Executive is willing to continue in the employ of the
Corporation provided the Corporation agrees to pay to him or his beneficiaries
certain benefits in accordance with the terms and conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the services to be performed in the
future as well as the mutual promises and covenants herein contained, it is
agreed as follows:
ARTICLE 1.
1.1) EMPLOYMENT - The Corporation agrees to employ the Executive in such
capacity as the Corporation may from time to time determine. The Executive will
continue in the employ of the Corporation in such capacity and with such duties
and responsibilities as may be assigned to him, and with such compensation as
may be determined from time to time by the Board of Directors of the
Corporation.
1.2) FULL EFFORTS - The Executive agrees to devote his full time and
attention exclusively to the business and affairs of the Corporation, except
during vacation periods, and to use his best efforts to furnish faithful and
satisfactory services to the Corporation.
1.3) FRINGE BENEFITS - The salary continuation benefits provided by this
Agreement are granted by the Corporation as a fringe benefit to the Executive
and are not part of any salary reduction plan or any arrangement deferring a
bonus or a salary increase. The Executive has no option to take any current
payment or bonus in lieu of these salary continuation benefits.
ARTICLE 2.
2.1) RETIREMENT - If the Executive shall continue in the employment of the
Corporation until he attains the age of sixty-five (65), he may retire from
active daily employment as of the first day of the month next following
attainment of age sixty-five (65) or upon such later date as may be mutually
agreed upon by the Executive and the Corporation.
2.2) PAYMENT - The Corporation agrees that upon such retirement it will pay
to the Executive the annual sum of Forty thousand Dollars ($40,000), payable
monthly on the first day of each month following such retirement until he
attains the age of seventy-eight (78); subject to the conditions and limitations
hereinafter set forth. The Forty thousand Dollars ($40,000) annual payment
amount may be adjusted as of the first year in which it is to be paid to reflect
changes in the federally determined cost-of-living index and may be adjusted
annually for
<PAGE>
each payment year thereafter to reflect further changes in said federally
determined cost-of-living index. However, the Corporation is not obligated
hereunder to make any such adjustment.
2.3) DEATH BENEFIT - The Corporation agrees that if the Executive shall so
retire, but shall die before receiving the full amount of monthly payments to
which he is entitled hereunder, it will continue to make such monthly payments
to the Executive's designated beneficiary for the remaining period. If the
Executive is not survived by any designated beneficiary said payments shall be
made to the duly qualified personal representative, executor or administrator of
his estate.
ARTICLE 3.
3.1) CONSULTING - It is mutually agreed that during the thirteen (13) year
period following retirement from active daily employment upon attainment of age
sixty-five (65) or such later date as may be mutually agreed upon, the Executive
shall, at the option and request of the Corporation, be available at reasonable
times and places as may be mutually agreed upon, to render services to the
senior executives of the Corporation at its offices in an advisory or consulting
capacity.
3.2) INFORMED - The Executive will keep himself informed concerning the
affairs of the Corporation through reports which the Corporation will supply,
and such other means as may be agreed upon. The Executive shall not be required
to travel from whatever place he may be then living or staying for the purposes
of such consultation unless all expense incurred by him shall be paid by the
Corporation.
3.3) DISABILITY - Breach of this condition shall not be considered to have
occurred if the Executive is unable to consult because of his mental or physical
disability.
3.4) NOT EMPLOYEE - In furnishing such consultative services, the Executive
shall not be an employee of the Corporation, but shall act in the capacity of an
independent contractor.
3.5) NO COMPETITION - In the event the Corporation exercises its option to
have the Executive perform consulting services as provided in paragraph 3.1
hereof then during the said thirteen (13) year period following retirement from
active daily employment, the Executive shall not become the owner of, nor
engage, directly or indirectly, in any business which is substantially similar
to or competes with the business of the Corporation, either as proprietor,
partners, stockholder, officer, director, employee or otherwise, within an area
of one hundred (100) miles from the City of Minneapolis, Minnesota, unless the
Corporation has first consented in writing thereto.
3.6) FORFEITURE - The payments provided under Article 2 are conditioned
upon the Executive fulfilling the foregoing requirements of this Article 3 and,
in the event the Executive shall at any time materially breach the foregoing
requirement, the Board of Directors of the Corporation may, by a Resolution, at
any regular or special meeting, suspend or eliminate payment during the period
of such breach. What constitutes a material breach shall be within the sole
determination of the Board of Directors.
3.7) TERMINATION OF PAYMENTS - In the event the Board of Directors by such
a Resolution terminates further payments to the Executive as provided in this
Article 3, all amounts then remaining unpaid under this Agreement shall be
forfeited and the Corporation shall have no further liability to the Executive
or any other persons hereunder.
ARTICLE 4.
4.1) DEATH PRIOR TO RETIREMENT - In the event the Executive should die
while actively employed by the Corporation at anytime after the date of this
Agreement but prior to his attaining the age of sixty-five (65) years, the
Corporation will pay the annual sum of Forty thousand Dollars ($40,000) per
year, to the Executive's designated beneficiary in equal monthly installments
for a period of one hundred twenty (120) months. If the Executive is not
survived by any designated beneficiary, said payment shall be made to the
duly qualified personal representative, executor or administrator of his
estate. The said monthly payments shall begin the first day of the month
following the month of the decease of the Executive. The Corporation's
obligation to make payments under
<PAGE>
this paragraph is contingent upon the Corporation receiving the insurance
benefits payable as a result of the Executive's death.
4.2) DISABILITY PRIOR TO RETIREMENT - In the event the Executive should
become disabled while actively employed by the Corporation at any time after the
date of this Agreement but prior to his attaining the age of sixty-five (65)
years, the Executive will be considered to be one hundred percent (100%) vested
in the amount set forth in Schedule A attached hereto and made a part hereof.
Said amount shall be paid to the Executive in a lump sum within three (3) months
of the determination of disability. Said payment shall be in lieu of any other
retirement benefits under this Agreement. For purposes of this paragraph, the
definition of the term "disability" shall be the same as required for
eligibility for disability payments under the Social Security Act.
ARTICLE 5.
5.1) VOLUNTARY TERMINATION OF SERVICE OR DISCHARGE - In the event that the
employment of the Executive shall be terminated, either voluntarily or
involuntarily, as a result of any illegal or fraudulent actions or any voluntary
actions determined to be detrimental to the interests of the Corporation, which
determination shall be made in the sole discretion of the Board of Directors,
prior to his attaining the age of sixty-five (65) years, this Agreement shall
terminate upon the date of such termination of employment and no benefits or
payments of any kind shall be made hereunder.
5.2) OTHER TERMINATION OF SERVICE - The Corporation reserves the right to
terminate the employment of the Executive at any time prior to retirement. In
the event that the employment of the Executive shall terminate prior to his
attaining age sixty-five (65), other than for reasons stated in Section 5.1
hereof, or by reason of his disability or his death, then this Agreement shall
terminate upon the date of such termination of employment. Provided, however,
that the Executive shall be entitled to the following benefits under the
following circumstances:
(01) If the Executive has been employed by the Corporation for a period of
at least three (3) continuous years, the Executive will be considered to be
vested in thirty percent (30%) of the amount set forth in Schedule A
attached hereto and made a part hereof and shall become vested in an
additional ten percent (10%) of said amount for each succeeding year
thereafter until he becomes one hundred percent (100%) vested. If the
Executive's employment is terminated under the provisions of this Section
5.2, the Corporation will pay the Executive's vested amount upon such terms
and conditions and commencing at such time as the Corporation shall
determine, but in no event commencing later than age sixty-five (65).
(02) Anything hereinabove to the contrary notwithstanding, if the Executive
is not fully vested in the amount to which he is entitled under this plan,
he will become fully vested in the event of a transfer in the controlling
ownership or sale of the Corporation or its parent corporation and shall be
entitled to the full amount, upon the terms and conditions hereof, if
termination of employment thereafter occurs under this Section 5.2.
ARTICLE 6.
6.1) TERMINATION OF AGREEMENT BY REASON OF CHANGES IN LAW - The Corporation
is entering into this Agreement upon the assumption that certain tax laws will
continue in effect in substantially their current form. In the event of any
changes in federal law relating to and allowing the tax-free accumulation of
earnings within a life insurance policy, the income tax-free payment of proceeds
from life insurance policies or the deduction from income of interest payments
on certificates of deposit issued by banking institutions, the Corporation shall
have an option to terminate or modify this Agreement. Provided, however, that
the Executive shall be entitled to at least the same amount as he would have
been entitled to under Section 4.2 relating to disability. The payment of said
amount shall be made upon such terms and conditions and at such time as the
Corporation shall determine, but in no event commencing later than age sixty-
five (65).
<PAGE>
ARTICLE 7.
7.1) ALIENABILITY - Neither the Executive, his spouse, nor any other
beneficiary under this Agreement shall have any power or right to transfer,
assign, anticipate, hypothecate, mortgage, commute, modify, or otherwise
encumber in advance any of the benefits payable hereunder, nor shall any of said
benefits be subject to seizure for the payment of any debts, judgements, alimony
or separate maintenance, owned by the Executive or his beneficiary or any of
them, or be transferable by operation of law in the event of bankruptcy,
insolvency or otherwise. In the event the Executive or any beneficiary attempts
assignment, commutation, hypothecation, transfer, or disposal of the benefit
hereunder, the Corporation's liabilities shall forthwith cease and terminate.
ARTICLE 8.
8.1) PARTICIPATION IN OTHER PLANS - Nothing contained in this Agreement
shall be construed to alter, abridge, or in any manner affect the rights and
privileges of the Executive to participate in and be covered by any pension,
profit sharing, group insurance, bonus or similar employee plans which the
Corporation may now or hereafter have.
ARTICLE 9.
9.1) FUNDING - The Corporation reserves the absolute right, at its sole and
exclusive discretion, either to fund the obligations of the Corporation
undertaken by this Agreement or to refrain from funding the same, and to
determine the extent, nature, and method of such funding. Should the
Corporation elect to fund this Agreement, in whole or in part, through the
medium of life insurance or annuities, or both, the Corporation shall be the
owner and beneficiary of the policy. The Corporation reserves the absolute
right, in its sole discretion, to terminate such life insurance or annuities, as
well as any other funding program, at any time, in whole or in part. At no time
shall the Executive be deemed to have any right, title, or interest in or to any
specified assets or assets of the Corporation, including but not by way of
restriction, any insurance or annuity contract or contracts or the proceeds
therefrom.
9.2) UNSECURED - Any such policy shall not in any way be considered to be
security for the performance of the obligations of this Agreement. It shall be,
and remain, a general, unpledged, unrestricted asset of the Corporation.
9.3) COOPERATION - If the Corporation purchases a life insurance or annuity
policy on the life of the Executive, he agrees to sign any papers that may be
required for that purpose and to undergo any medical examination or tests which
may be necessary.
9.4) RIGHT AS CREDITOR - This Agreement shall not be construed as giving
the Executive or his beneficiary any greater rights than those of any other
unsecured creditor of the Corporation.
ARTICLE 10.
10.1) REORGANIZATION - The Corporation shall not merge or consolidate into
or with another corporation, or reorganize, or sell substantially all of its
assets to another corporation, firm, or person unless and until such succeeding
or continuing corporation, firm, or person agrees to assume and discharge the
obligations of the Corporation under this Agreement. Upon the occurrence of
such event, the term "Corporation" as used in this Agreement shall be deemed to
refer to such successor or survivor corporation.
ARTICLE 11.
11.1) BENEFITS AND BURDENS - This Agreement shall be binding upon and inure
to the benefit of the Executive and his personal representatives, and the
Corporation and any successor organization which shall succeed to substantially
all of its assets and business.
<PAGE>
ARTICLE 12.
12.1) NOT A CONTRACT OF EMPLOYMENT - This Agreement shall not be deemed to
constitute a contract of employment between the parties hereto, nor shall any
provision hereof restrict the right of the Corporation to discharge the
Executive, or restrict the right of the Executive to terminate his employment.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be duly
executed by its President and its corporate seal affixed, duly attested by its
Secretary, and the Executive has hereunto set his hand and seal at Minneapolis,
Minnesota the day and year first above written.
BANK:
By: /s/
-------------------------------------
Its: President
By: /s/
--------------------------------------
Its: Secretary
EXECUTIVE
--------------------------------
/s/
------------------------------------------
Galen T. Pate
<PAGE>
SCHEDULE A
GALEN T. PATE
Year of Termination Amount in Which Vesting Occurs
1 $ 5,398
2 11,361
3 17,948
4 25,226
5 33,265
6 42,146
7 51,957
8 62,796
9 74,769
10 87,996
11 102,608
12 118,750
13 136,583
14 156,283
15 178,046
16 202,087
17 228,646
18 257,986
19 290,398
<PAGE>
EXHIBIT 10.3
EXECUTIVE SALARY CONTINUATION AGREEMENT
THIS AGREEMENT, made and entered into this 16th day of May 1989, by and between
Signal Bank, Inc. a corporation organized and existing under the laws of the
State of Minnesota, (hereinafter called the Corporation), and Marcia
Christianson (hereinafter called the Executive).
W I T N E S S E T H:
WHEREAS, the Executive is in the employ of the Corporation serving as its Senior
Vice President; and
WHEREAS, the experience of the Executive, his knowledge of the affairs of the
Corporation, his reputation and contacts in the industry are so valuable that
assurance of his continued service is essential for the future growth and
profits of the Corporation and it is in the best interests of the Corporation to
arrange terms of continued employment for the Executive so as to reasonably
assure his remaining in the Corporation's employment during his lifetime or
until the age of retirement; and
WHEREAS, the Executive is willing to continue in the employ of the Corporation
provided the Corporation agrees to pay him or his beneficiaries certain benefits
in accordance with the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the services to be performed in the future
as well as the mutual promises and covenants herein contained, it is agreed as
follows:
ARTICLE 1.
1.1) EMPLOYMENT - The Corporation agrees to employ the Executive in such
capacity as the Corporation may from time to time determine. The Executive will
continue in the employ of the Corporation in such capacity and with such duties
and responsibilities as may be assigned to him, and with such compensation as
may be determined from time to time by the Board of Directors of the
Corporation.
1.2) FULL EFFORTS - The Executive agrees to devote his full time and attention
exclusively to the business and affairs of the Corporation, except during
vacation periods, and to use his best efforts to furnish faithful and
satisfactory services to the Corporation.
1.3) FRINGE BENEFIT - The salary continuation benefits provided by this
Agreement are granted by the Corporation as a fringe benefit to the Executive
and are not part of any salary reduction plan or any arrangement deferring a
bonus or a salary increase. The Executive has no option to take any current
payment or bonus in lieu of these salary continuation benefits.
ARTICLE 2.
2.1) RETIREMENT - If the Executive shall continue in the employment of the
Corporation until he attains the age of sixty-five (65), he may retire from
active daily employment as of the first day of the month next following
attainment of age sixty-five (65) or upon such later date as may be mutually
agreed upon by the Executive and the Corporation.
2.2) PAYMENT - The Corporation agrees that upon such retirement it will pay to
the Executive the annual sum of Forty thousand Dollars ($40,000), payable
monthly on the first day of each month following such retirement until he
attains the age of seventy-eight (78); subject to the conditions and limitations
hereinafter set forth. It is the intent of the Corporation to adjust the above
stated income amount from time to time, to reflect fifty (50) percent of the
Executive's then current salary. However, the Corporation is not obligated
hereunder to make any such adjustment.
<PAGE>
2.3) DEATH BENEFIT - The Corporation agrees that if the Executive shall so
retire, but shall die before receiving the full amount of monthly payments to
which he is entitled hereunder, it will continue to make such monthly payments
to the Executive's designated Beneficiary for the remaining period. If the
Executive is not survived by any designated beneficiary, said payments shall be
made to the duly qualified personal representative, executor or administrator of
his estate.
ARTICLE 3.
3.1) CONSULTING - It is mutually agreed that during the thirteen (13) year
period following retirement from active daily employment upon attainment of age
sixty-five (65) or such later date as may be mutually agreed upon, the Executive
shall, at the option and request of the Corporation, be available at reasonable
times and places as may be mutually agreed upon, to render services to the
senior executives of the Corporation at its offices in an advisory or consulting
capacity.
3.2) INFORMED - The Executive will keep himself informed concerning the affairs
of the Corporation through reports which the Corporation will supply, and such
other means as may be agreed upon. The Executive shall not be required to travel
from whatever place he may be then living or staying for the purposes of such
consultation unless all expense incurred by him shall be paid by the
Corporation.
3.3) DISABILITY - Breach of this condition shall not be considered to have
occurred if the Executive is unable to consult because of his mental or physical
disability.
3.4) NOT EMPLOYEE - In furnishing such consultative services, the Executive
shall not be an employee of the Corporation, but shall act in the capacity of an
independent contractor.
3.5) NO COMPETITION - In the event the Corporation exercises its option to have
the Executive perform consulting services as provided in paragraph 3.1 hereof
then during the said thirteen (13) year period following retirement from active
daily employment, the Executive shall not become the owner of, nor engage,
directly or indirectly, in any business which is substantially similar to or
competes with the business of the Corporation, either as proprietor, partners,
stockholder, officer, director, employee or otherwise, within an area of one
hundred (100) miles from the City of Minneapolis, Minnesota, unless the
Corporation has first consented in writing thereto.
3.6) FORFEITURE - The payments provided under Article 2 are conditioned upon the
Executive fulfilling the foregoing requirements of the Article 3 and, in the
event the Executive shall at any time materially breach the foregoing
requirement, the Board of Directors of the Corporation may, by a Resolution, at
any regular or special meeting, suspend or eliminate payment during the period
of such breach. What constitutes a material breach shall be within the sole
determination of the Board of Directors.
3.7) TERMINATION OF PAYMENTS - In the event the Board of Directors by such a
Resolution terminates further payments to the Executive as provided in this
Article 3, all amounts then remaining unpaid under this Agreement shall be
forfeited and the Corporation shall have no further liability to the Executive
or any other persons hereunder.
ARTICLE 4.
4.1) DEATH PRIOR TO RETIREMENT - In the event the Executive should die while
actively employed by the Corporation at any time after the date of this
Agreement but prior to his attaining the age of sixty-five (65) years, the
Corporation will pay the annual sum of Forty thousand Dollars ($40,000) per
year, to the Executive's designated Beneficiary in equal monthly installments
for a period of one hundred twenty (120) months. If the Executive is not
survived by any designated beneficiary, said payments shall be made to the duly
qualified personal representative, executor or administrator of his estate. The
said monthly payments shall begin the first day of the month following the month
of the decease of the Executive. The Corporation's obligation to make payments
under this paragraph is contingent upon the Corporation receiving the insurance
benefits payable as a result of the Executive's death.
<PAGE>
4.2) DISABILITY PRIOR TO RETIREMENT - In the event the Executive should become
disabled while actively employed by the Corporation at any time after the date
of this Agreement but prior to his attaining the age of sixty-five (65) years,
the Executive will be considered to be one hundred percent (100%) vested in the
amount set forth in Schedule A attached hereto and made a part hereof. Said
amount shall be paid to the Executive in a lump sum within three (3) months of
the determination of disability. Said payment shall be in lieu of any other
retirement or death benefit under this Agreement. For purposes of this
paragraph, the definition of the term "disability" shall be the same as required
for eligibility for disability payments under the Social Security Act.
ARTICLE 5.
5.1) VOLUNTARY TERMINATION OF SERVICE OR DISCHARGE - In the event that the
employment of the Executive shall be terminated, either voluntarily or
involuntarily, as a result of any illegal or fraudulent actions or any voluntary
actions determined to be detrimental to the interests of the Corporation, which
determination shall be made in the sole discretion of the Board of Directors,
prior to his attaining the age of sixty-five (65) years, this Agreement shall
terminate upon the date of such termination of employment and no benefits or
payments of any land shall be made hereunder.
5.2) OTHER TERMINATION OF SERVICE - The Corporation reserves the right to
terminate the employment of the Executive at any time prior to retirement. In
the event that the employment of the Executive shall terminate prior to his
attaining age sixty-five (65), other than for reasons stated in Section 5.1
hereof, or by reason of his disability or his death, then this Agreement shall
terminate upon the date of such termination of employment. Provided, however,
that the Executive shall be entitled to the following benefits under the
following circumstances:
(01) If the Executive has been employed by the Corporation for a period of
at least three (3) continuous years, the Executive will be considered to be
vested in thirty percent (30%) of the amount set out in Schedule A attached
hereto and made a part hereof and shall become vested in an additional ten
percent (10%) of said amount for each succeeding year thereafter until he
becomes one hundred percent (100%) vested. If the Executive's employment is
terminated under the provisions of this Section 5.2, the Corporation will
pay the Executive's vested amount upon such terms and conditions and
commencing at such time as the Corporation shall determine, but in no event
commencing later than age sixty-five (65).
(02) Anything to the contrary notwithstanding, if the Executive is not
fully vested in the amount to which he is entitled under this plan, he will
become fully vested in said amount in the event of a transfer in the
controlling ownership or sale of the Corporation or its parent corporation
and shall be entitled to the full amount set forth in Schedule A, upon the
terms and conditions hereof, if termination of employment thereafter occurs
under this Section 5.2.
ARTICLE 6.
6.1) TERMINATION OF AGREEMENT BY REASON OF CHANGES IN LAW - The Corporation is
entering into this Agreement upon the assumption that certain existing tax laws
will continue in effect in substantially their current form. In the event of any
changes in federal law relating to and allowing the tax-free accumulation of
earnings within a life insurance policy, the income tax-free payment of proceeds
from life insurance policies or the deduction from income of interest payments
on certificates of deposit issued by banking institutions, the Corporation shall
have an option to terminate or modify this Agreement. Provided, however, that
the Executive shall be entitled to at least the same amount as he would have
been entitled to under Section 4.2 relating to disability. The payment of said
amount shall be made upon such terms and conditions and at such time as the
Corporation shall determine, but in no event commencing later that age sixty-
five (65).
ARTICLE 7.
7.1) ALIENABILITY - Neither the Executive, his spouse, nor any other beneficiary
under this Agreement shall have any power or right to transfer, assign,
anticipate, hypothecate, mortgage, commute, modify, or otherwise encumber in
advance any of the benefits payable hereunder, nor shall any of said benefits be
subject to seizure for the payment
<PAGE>
of any debts, judgements, alimony or separate maintenance, owed by the Executive
or his beneficiary or any of them, or be transferable by operation of law in the
event of bankruptcy, insolvency or otherwise. In the event the Executive or any
beneficiary attempts assignment, commutation, hypothecation, transfer, or
disposal of the benefit hereunder, the Corporation's liabilities shall forthwith
cease and terminate.
ARTICLE 8.
8.1) PARTICIPATION IN OTHER PLANS - Nothing contained in this Agreement shall be
construed to alter, abridge, or in any manner affect the rights and privileges
of the Executive to participate in and be covered by any pension, profit
sharing, group insurance, bonus or similar employee plans which the Corporation
may now or hereafter have.
ARTICLE 9.
9.1) FUNDING - The Corporation reserves the absolute right, at its sole and
exclusive discretion, either to fund the obligations of the Corporation
undertaken by this Agreement or to refrain from funding the same, and to
determine the extent, nature, and method of such funding. Should the Corporation
elect to fund this Agreement, in whole or in part, through the medium of life
insurance or annuities, or both, the Corporation shall be the owner and
beneficiary of the policy. The Corporation reserves the absolute right, in its
sole discretion, to terminate such life insurance or annuities, as well as any
other funding program, at any time, in whole or in part. At no time shall the
Executive be deemed to have any right, title, or interest in or to any specified
assets or assets of the Corporation, including but not by way of restriction,
any insurance or annuity contract or contracts or the proceeds therefrom.
9.2) UNSECURED - Any such policy shall not in anyway be security for the
performance of the obligations of this Agreement. It shall be, and remain, a
general, unpledged, unrestricted asset of the Corporation.
9.3) COOPERATION - If the Corporation purchases a life insurance or annuity
policy on the life of the Executive, he agrees to sign any papers that may be
required for that purpose and to undergo any medical examination or tests which
may be necessary.
9.4) RIGHT AS CREDITOR - This Agreement shall not be construed as giving the
Executive or his beneficiary any greater rights than those of any other
unsecured creditor of the Corporation.
ARTICLE 10.
10.1) REORGANIZATION - The Corporation shall not merge or consolidate into or
with another corporation, or reorganize, or sell substantially all of its assets
to another corporation, firm, or person unless and until such succeeding or
continuing corporation, firm, or person agrees to assume and discharge the
obligations of the Corporation under this Agreement. Upon the occurrence of such
event, the term "Corporation" as used in this Agreement shall be deemed to refer
to such successor or survivor corporation.
ARTICLE 11.
11.1) BENEFITS AND BURDENS - This Agreement shall be binding upon and inure to
the benefit of the Executive and his personal representatives, and the
Corporation and any successor organization which shall succeed to substantially
all of its assets and business.
ARTICLE 12.
12.1) NOT A CONTRACT OF EMPLOYMENT - This Agreement shall not be deemed to
constitute a contract of employment between the parties hereto, nor shall any
provision hereof restrict the right of the Corporation to discharge the
Executive, or restrict the right of the Executive to terminate his employment.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be duly
executed by its President and its corporate seal affixed, duly attested by its
Secretary, and the Executive has hereunto set his hand and seal at Minneapolis,
Minnesota the day and year first above written.
BANK:
By: /s/
------------------------------------
Its: Chairman
By: /s/
------------------------------------
Its: Secretary
EXECUTIVE:
/s/
--------------------------------------
<PAGE>
SCHEDULE A
Plan Year Amount in Which Vesting Occurs
1 1,310
2 2,758
3 4,356
4 6,123
5 8,074
6 10,230
7 12,611
8 15,242
9 18,148
10 21,359
11 24,905
12 28,824
13 33,152
14 37,934
15 43,216
16 49,051
17 55,498
18 62,619
19 70,487
20 79,178
21 88,779
22 99,385
23 111,102
24 124,046
25 138,346
26 154,143
27 171,593
28 190,872
29 212,169
30 235,696
31 261,686
32 290,398
<PAGE>
EXHIBIT 10.4
EXECUTIVE SALARY CONTINUATION AGREEMENT
THIS AGREEMENT, made and entered into this 16th day of May 1989, by and between
Signal Bank, Inc. a corporation organized and existing under the laws of the
State of Minnesota, (hereinafter called the Corporation), and John H. Lemay
(hereinafter called the Executive).
WITNESSETH:
WHEREAS, the Executive is in the employ of the Corporation serving as its
Corporate Legal Counsel; and
WHEREAS, the experience of the Executive, his knowledge of the affairs of the
Corporation, his reputation and contacts in the industry are so valuable that
assurance of his continued service is essential for the future growth and
profits of the Corporation and it is in the best interests of the Corporation to
arrange terms of continued employment for the Executive so as to reasonably
assure his remaining in the Corporation's employment during his lifetime or
until the age of retirement; and
WHEREAS, the Executive is willing to continue in the employ of the Corporation
provided the Corporation agrees to pay him or his beneficiaries certain benefits
in accordance with the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the services to be performed in the future
as well as the mutual promises and covenants herein contained, it is agreed as
follows:
ARTICLE 1.
1.1) EMPLOYMENT - The Corporation agrees to employ the Executive in such
capacity as the Corporation may from time to time determine. The Executive will
continue in the employ of the Corporation in such capacity and with such duties
and responsibilities as may be assigned to him, and with such compensation as
may be determined from time to time by the Board of Directors of the
Corporation.
1.2) FULL EFFORTS - The Executive agrees to devote his full time and attention
exclusively to the business and affairs of the Corporation, except during
vacation periods, and to use his best efforts to furnish faithful and
satisfactory services to the Corporation.
1.3) FRINGE BENEFIT - The salary continuation benefits provided by this
Agreement are granted by the Corporation as a fringe benefit to the Executive
and are not part of any salary reduction plan or any arrangement deferring a
bonus or a salary increase. The Executive has no option to take any current
payment or bonus in lieu of these salary continuation benefits.
ARTICLE 2.
2.1) RETIREMENT - If the Executive shall continue in the employment of the
Corporation until he attains the age of sixty-five (65), he may retire from
active daily employment as of the first day of the month next following
attainment of age sixty-five (65) or upon such later date as may be mutually
agreed upon by the Executive and the Corporation.
2.2) PAYMENT - The Corporation agrees that upon such retirement it will pay to
the Executive the annual sum of Forty thousand Dollars ($40,000), payable
monthly on the first day of each month following such retirement until he
attains the age of seventy-eight (78); subject to the conditions and limitations
hereinafter set forth. It is the intent of the Corporation to adjust to above
stated income amount from time to time, to reflect fifty (50) percent of the
Executive's then current salary. However, the Corporation is not obligated
hereunder to make any such adjustment.
<PAGE>
2.3) DEATH BENEFIT - The Corporation agrees that if the Executive shall so
retire, but shall die before receiving the full amount of monthly payments to
which he is entitled hereunder, it will continue to make such monthly payments
to the Executive's designated Beneficiary for the remaining period. If the
Executive is not survived by any designated beneficiary, said payments shall be
made to the duly qualified personal representative, executor, or administrator
of his estate.
ARTICLE 3.
3.1) CONSULTING - It is mutually agreed that during the thirteen (13) year
period following retirement from active daily employment upon attainment of age
sixty-five (65) or such later date as may be mutually agreed upon, the Executive
shall, at the option and request of the Corporation, be available at reasonable
times and places as may be mutually agreed upon, to render services to the
senior executives of the Corporation at its offices in an advisory or consulting
capacity.
3.2) INFORMED - The Executive will keep himself informed concerning the affairs
of the Corporation through reports which the Corporation will supply, and such
other means as may be agreed upon. the Executive shall not be required to
travel from whatever place he may be then living or staying for the purposes of
such consultation unless all expense incurred by him shall be paid by the
Corporation.
3.3) DISABILITY - Breach of this condition shall not be considered to have
occurred if the Executive is unable to consult because of his mental or physical
disability.
3.4) NOT EMPLOYEE - In furnishing such consultative services, the Executive
shall not be an employee of the Corporation, but shall act in the capacity of an
independent contractor.
3.5) NO COMPETITION - In the event the Corporation exercises its option to have
the Executive perform consulting services as provided in paragraph 3.1 hereof
then during the said thirteen (13) year period following retirement from active
daily employment, the Executive shall not become the owner of, nor engage,
directly or indirectly, in any business which is substantially similar to or
competes with the business of the Corporation, either as proprietor, partners,
stockholder, officer, director, employee or otherwise, within an area of one
hundred (100) mile from the City of Minneapolis, Minnesota, unless the
Corporation has first consented in writing thereto.
3.6) FORFEITURE - The payments provided under Article 2 are conditioned upon the
Executive fulfilling the foregoing requirements of the Article 3 and, in the
event the Executive shall at any time materially breach the foregoing
requirement, the Board of Directors of the Corporation may, by a Resolution, at
any regular or special meeting, suspend or eliminate payment during the period
of such breach. What constitutes a material breach shall be within the sole
determination of the Board of Directors.
3.7) TERMINATION OF PAYMENTS - In the event the Board of Directors by such a
Resolution terminates further payments to the Executive as provided in this
Article 3, all amounts then remaining unpaid under this Agreement shall be
forfeited and the Corporation shall have no further liability to the Executive
or any other persons hereunder.
ARTICLE 4.
4.1) DEATH PRIOR TO RETIREMENT - In the event the Executive should die while
actively employed by the Corporation at any time after the date of this
Agreement but prior to his attaining the age of sixty-five (65) years, the
Corporation will pay the annual sum of Forty thousand Dollars ($40,000) per
year, to the Executive's designated Beneficiary in equal monthly installments
for a period of one hundred twenty (120) months. If the Executive is not
survived by any designated beneficiary, said payments shall be made to the duly
qualified personal representative, executor or administrator of his estate. The
said monthly payments shall begin the first day of the month following the month
of the decease of the Executive. The Corporation's obligation to make payments
under this paragraph is contingent upon the Corporation receiving the insurance
benefits payable as result of the Executive's death.
<PAGE>
4.2) DISABILITY PRIOR TO RETIREMENT - In the event the Executive should become
disabled while actively employed by the Corporation at any time after the date
of this Agreement but prior to his attaining the age of sixty-five (65) years,
the Executive will be considered to be one hundred percent (100%) vested in the
amount set forth in Schedule A attached hereto and made a part hereof. Said
amount shall be paid to the Executive in a lump sum within three (3) months of
the determination of disability. Said payment shall be in lieu of any other
retirement or death benefit under this Agreement. For purposes of this
paragraph, the definition of the term "disability" shall be the same as required
for eligibility for disability payments under the Social Security Act.
ARTICLE 5.
5.1) VOLUNTARY TERMINATION OF SERVICE OR DISCHARGE - In the event that the
employment of the Executive shall be terminated, either voluntarily or
involuntarily, as a result of any illegal or fraudulent actions or any voluntary
actions determined to be detrimental to the interests of the Corporation, which
determination shall be made in the sole discretion of the Board of Directors,
prior to his attaining the age of sixty-five (65) years, this Agreement shall
terminate upon the date of such termination of employment and no benefits or
payments of any kind shall be made hereunder.
5.2) OTHER TERMINATION OF SERVICE - The Corporation reserves the right to
terminate the employment of the Executive at any time prior to retirement. In
the event that the employment of the Executive shall terminate prior to his
attaining age sixty-five (65), other than for reasons stated in Section 5.1
hereof, or by reason of his disability or his death, then this Agreement shall
terminate upon the date of such termination of employment. Provided, however,
that the Executive shall be entitled to the following benefits under the
following circumstances:
(01) If the Executive has been employed by the Corporation for a
period of at least three (3) continuous years, the Executive will be
considered to be vested in thirty percent (30%) of the amount set out
in Schedule A attached hereto and made a part hereof and shall become
vested in an additional ten percent (10%) of said amount for each
succeeding year thereafter until he becomes one hundred percent (100%)
vested. If the Executive's employment is terminated under the
provisions of this Section 5.2, the Corporation will pay the
Executive's vested amount upon such terms and conditions and
commencing at such time as the Corporation shall determine, but in no
event commencing later than age sixty-five (65).
(02) Anything to the contrary notwithstanding, if the Executive is not
fully vested in the amount to which he is entitled under this plan, he
will become fully nested in said amount in the event of a transfer in
the controlling ownership or sale of the Corporation or its parent
corporation and shall be entitled to the full amount set forth in
Schedule A, upon the terms and conditions hereof, if termination of
employment thereafter occurs under this Section 5.2.
ARTICLE 6.
6.1) TERMINATION OF AGREEMENT BY REASON OF CHANGES IN LAW - The Corporation is
entering into this Agreement upon the, assumption that certain tax laws will
continue in effect in substantially their current form. In the event of any
changes in federal law relating to and allowing the tax-free accumulation of
earnings within a life insurance policy, the income tax-free payment of proceeds
from life insurance policies or the deduction from income of interest payments
on certificates of deposit issued by banking institutions, the Corporation shall
have an option to terminate or modify this Agreement. Provided, however, that
the Executive shall be entitled to at least the same amount as he would have
been entitled to under Section 4.2 relating to disability. The payment of said
amount shall be made upon such terms and conditions and at such time as the
Corporation shall determine, but in no event commencing later than age sixty-
five (65).
<PAGE>
ARTICLE 7.
7.1) ALIENABILITY - Neither the Executive, his spouse, nor any other beneficiary
under this Agreement shall have any power or right to transfer, assign,
anticipate, hypothecate, mortgage, commute, modify, or otherwise encumber in
advance any of the benefits payable hereunder, nor shall any of said benefits be
subject to seizure for the payment of any debts, judgements, alimony or separate
maintenance, owned by the Executive or his beneficiary or any of them, or be
transferable by operation of law in the event of bankruptcy, insolvency or
otherwise. In the event the Executive or any beneficiary attempts assignment,
commutation, hypothecation, transfer, or disposal of the benefit hereunder, the
Corporation's liabilities shall forthwith cease and terminate.
ARTICLE 8.
8.1) PARTICIPATION IN OTHER PLANS - Nothing contained in this Agreement shall be
construed to alter, abridge, or in any manner affect the rights and privileges
of the Executive to participate in and be covered by any pension, profit
sharing, group insurance, bonus or similar employee plans which the Corporation
may now or hereafter have.
ARTICLE 9.
9.1) FUNDING - The Corporation reserves the absolute right, at its sole and
exclusive discretion, either to fund the obligations of the Corporation
undertaken by this Agreement or to refrain from funding the same, and to
determine the extent, nature, and method of such funding. Should the
Corporation elect to fund this Agreement, in whole or in part, through the
medium of life insurance or annuities, or both, the Corporation shall be the
owner and beneficiary of the policy. The Corporation reserves the absolute
right, in its sole discretion, to terminate such life insurance or annuities, as
well as any other funding program, at any time, in whole or in part. At no time
shall the Executive be deemed to have any right, title, or interest in or to any
specified assets or assets of the Corporation, including but not by way of
restriction, any insurance or annuity contract or contracts or the proceeds
therefrom.
9.2) UNSECURED - Any such policy shall not in any way be considered to be
security for the performance of the obligations of this Agreement. It shall be,
and remain, a general, unpledged, unrestricted asset of the Corporation.
9.3) COOPERATION - If the Corporation purchases a life insurance or annuity
policy on the life of the Executive, he agrees to sign any papers that may be
required for that purpose and to undergo any medical examination or tests which
may be necessary.
9.4) RIGHT AS CREDITOR - This Agreement shall not be construed as giving the
Executive or his beneficiary any greater rights than those of any other
unsecured creditor of the Corporation.
ARTICLE 10.
10.1) REORGANIZATION - The Corporation shall not merge or consolidate into or
with another corporation, or reorganize, or sell substantially all of its assets
to another corporation, firm, or person unless and until such succeeding or
continuing corporation, firm, or person agrees to assume and discharge the
obligations of the Corporation under this Agreement. Upon the occurrence of
such event, the term "Corporation" as used in this Agreement shall be deemed to
refer to such successor or survivor corporation.
ARTICLE 11.
11.1) BENEFITS AND BURDENS - This Agreement shall be binding upon and inure to
the benefit of the Executive and his personal representatives, and the
Corporation and any successor organization which shall succeed to substantially
all of its assets and business.
<PAGE>
ARTICLE 12.
12.1) NOT A CONTRACT OF EMPLOYMENT - This Agreement shall not be deemed to
constitute a contract of employment between the parties hereto, nor shall any
provision hereof restrict the right of the Corporation to discharge the
Executive, or restrict the right of the Executive to terminate his employment.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be duly
executed by its President and its corporate seal affixed, duly attested by its
Secretary, and the Executive has hereunto set his hand and seal at Minneapolis,
Minnesota the day and year first above written.
BANK:
By: /s/
-------------------------------------
Its: President
By: /s/
-------------------------------------
Its: Secretary
EXECUTIVE:
/s/
----------------------------------------
<PAGE>
SCHEDULE A
Plan Year Amount in Which Vesting Occurs
1 $ 7,757
2 16,326
3 25,792
4 36,249
5 47,802
6 60,564
7 74,662
8 90,237
9 107,443
I0 126,450
11 147,448
12 170,644
13 196,269
14 224,578
15 255,851
16 290,398
<PAGE>
EXHIBIT 10.5
AMENDMENT TO
EXECUTIVE SALARY CONTINUATION AGREEMENT
This Amendment, made and entered into this 5/16 day of 1989, amends the
Executive Salary Continuation Agreement dated August 20, 1985, by and between
Signal Bank, Inc., a corporation organized under the laws of the State of
Minnesota (hereinafter called the Corporation), and John C. Dorsey (hereinafter
called the Executive).
WHEREAS, the Executive remains in the employ of the Corporation, and both the
Corporation and the Executive desire to amend the Salary Continuation Agreement
dated August 20, 1985 (hereinafter Agreement);
NOW THEREFORE, in consideration of the services to be performed in the future as
well as the mutual promises and covenants contained in the Agreement, the
provisions of the Agreement are hereby modified as follows:
Article 2., paragraph 2.2 is deleted in its entirety and replaced by the
following paragraph:
Payment - The Corporation agrees that upon such retirement it will pay to the
Executive the annual sum of Forty thousand Dollars ($40,000), payable monthly on
the first day of each month following such retirement until he attains the age
of seventy-eight (78); subject to the conditions and limitations hereinafter set
forth. It is the intent of the Corporation to adjust the above stated income
amount from time to time, to reflect 50% of the Executive's then current salary.
However, the Bank is not obligated hereunder to make any such adjustment.
All other terms and conditions of the Agreement remain unchanged and are hereby
ratified by the Corporation and the Executive.
BANK:
By: /s/
-------------------------------------
Its Chairman
By: /s/
-------------------------------------
Its Secretary
EXECUTIVE:
/s/
----------------------------------------
<PAGE>
EXECUTIVE SALARY CONTINUATION AGREEMENT
THIS AGREEMENT, made and entered into this 8/20 day of 1985, by and between
Signal Bank, Inc., a corporation organized and existing under the laws of the
State of Minnesota (hereinafter called the Corporation), and John C. Dorsey
(hereinafter called the Executive).
W I T N E S S E T H:
WHEREAS, the Executive is in the employ of the Corporation serving as its
Executive Vice President; and
WHEREAS, the experience of the Executive, his knowledge of the affairs of
the Corporation, his reputation and contacts in the industry are so valuable
that assurance of his continued service is essential for the future growth and
profits of the Corporation and it is in the best interests of the Corporation to
arrange terms of continued employment for the Executive so as to reasonably
assure his remaining in the Corporation's employment during his lifetime or
until the age of retirement; and
WHEREAS, the Executive is willing to continue in the employ of the
Corporation provided the Corporation agrees to pay to him or his beneficiaries
certain benefits in accordance with the terms and conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the services to be performed in the
future as well as the mutual promises and covenants herein contained, it is
agreed as follows:
ARTICLE 1.
1.1) Employment - The Corporation agrees to employ the Executive in such
capacity as the Corporation may from time to time determine. The Executive will
continue in the employ of the Corporation in such capacity and with such duties
and responsibilities as may be assigned to him, and with such compensation as
may be determined from time to time by the Board of Directors of the
Corporation.
1.2) FULL EFFORTS - The Executive agrees to devote his full time and
attention exclusively to the business and affairs of the Corporation, except
during vacation periods, and to use his best efforts to furnish faithful and
satisfactory services to the Corporation.
1.3) FRINGE BENEFITS - The salary continuation benefits provided by this
Agreement are granted by the Corporation as a fringe benefit to the Executive
and are not part of any salary reduction plan or any arrangement deferring a
bonus or a salary increase. The Executive has no option to take any current
payment or bonus in lieu of these salary continuation benefits.
ARTICLE 2.
2.1) RETIREMENT - If the Executive shall continue in the employment of the
Corporation until he attains the age of sixty-five (65), he may retire from
active daily employment as of the first day of the month next following
attainment of age sixty-five (65) or upon such later date as may be mutually
agreed upon by the Executive and the Corporation.
2.2) PAYMENT - The Corporation agrees that upon such retirement it will pay
to the Executive the annual sum of Forty thousand Dollars ($ 40,000 ) payable
monthly on the first day of each month following such retirement until he
attains the age of seventy-eight (78); subject to the conditions and limitations
hereinafter set forth. The Forty thousand Dollars ($ 40,000 ) annual payment
amount may be adjusted as of the first year in which it is to be paid to reflect
changes in the federally determined cost-of-living index and may be adjusted
annually
<PAGE>
for each payment year thereafter to reflect further changes in said federally
determined cost-of-living index. However, the Corporation is not obligated
hereunder to make any such adjustment.
2.3) DEATH BENEFIT - The Corporation agrees that if the Executive shall so
retire, but shall die before receiving the full amount of monthly payments to
which he is entitled hereunder, it will continue to make such monthly payments
to the Executive's designated beneficiary for the remaining period. If the
Executive is not survived by any designated beneficiary said payments shall be
made to the duly qualified personal representative, executor or administrator of
his estate.
ARTICLE 3.
3.1) CONSULTING - It is mutually agreed that during the thirteen (13) year
period following retirement from active daily employment upon attainment of age
sixty-five (65) or such later date as may be mutually agreed upon, the Executive
shall, at the option and request of the Corporation, be available at reasonable
times and places as may be mutually agreed upon, to render services to the
senior executives of the Corporation at its offices in an advisory or consulting
capacity.
3.2) INFORMED - The Executive will keep himself informed concerning the
affairs of the Corporation through reports which the Corporation will supply,
and such other means as may be agreed upon. The Executive shall not be required
to travel from whatever place he may be then living or staying for the purposes
of such consultation unless all expense incurred by him shall be paid by the
Corporation.
3.3) DISABILITY - Breach of this condition shall not be considered to have
occurred if the Executive is unable to consult because of his mental or physical
disability.
3.4) NOT EMPLOYEE - In furnishing such consultative services, the Executive
shall not be an employee of the Corporation, but shall act in the capacity of an
independent contractor.
3.5) NO COMPETITION - In the event the Corporation exercises its option to
have the Executive perform consulting services as provided in paragraph 3.1
hereof then during the said thirteen (13) year period following retirement from
active daily employment, the Executive shall not become the owner of, nor
engage, directly or indirectly, in any business which is substantially similar
to or competes with the business of the Corporation, either as proprietor,
partners, stockholder, officer, director, employee or otherwise, within an area
of one hundred (100) miles from the City of Minneapolis, Minnesota, unless the
Corporation has first consented in writing thereto.
3.6) FORFEITURE - The payments provided under Article 2 are conditioned
upon the Executive fulfilling the foregoing requirements of this Article 3 and,
in the event the Executive shall at any time materially breach the foregoing
requirement, the Board of Directors of the Corporation may, by a Resolution, at
any regular or special meeting, suspend or eliminate payment during the period
of such breach. What constitutes a material breach shall be within the sole
determination of the Board of Directors.
3.7) TERMINATION OF PAYMENTS - In the event the Board of Directors by such
a Resolution terminates further payments to the Executive as provided in this
Article 3, all amounts then remaining unpaid under this Agreement shall be
forfeited and the Corporation shall have no further liability to the Executive
or any other persons hereunder.
ARTICLE 4.
4.1) DEATH PRIOR TO RETIREMENT - In the event the Executive should die
while actively employed by the Corporation at anytime after the date of this
Agreement but prior to his attaining the age of sixty-five (65) years, the
Corporation will pay the annual sum of Forty thousand Dollars ($ 40,000 ) per
year, to the Executive's designated beneficiary in equal monthly installments
for a period of one hundred twenty (120) months. If the Executive is not
survived by any designated beneficiary, said payment shall be made to the duly
qualified personal representative, executor or administrator of his estate. The
said monthly payments shall begin the first day of the month following the month
of the decease of the Executive. The Corporation's obligation to make payments
under
<PAGE>
this paragraph is contingent upon the Corporation receiving the insurance
benefits payable as a result of the Executive's death.
4.2) DISABILITY PRIOR TO RETIREMENT - In the event the Executive should
become disabled while actively employed by the Corporation at any time after the
date of this Agreement but prior to his attaining the age of sixty-five (65)
years, the Executive will be considered to be one hundred percent (100%) vested
in the amount set forth in Schedule A attached hereto and made a part hereof.
Said amount shall be paid to the Executive in a lump sum within three (3) months
of the determination of disability. Said payment shall be in lieu of any other
retirement benefits under this Agreement. For purposes of this paragraph, the
definition of the term "disability" shall be the same as required for
eligibility for disability payments under the Social Security Act.
ARTICLE 5.
5.1) VOLUNTARY TERMINATION OF SERVICE OR DISCHARGE - In the event that the
employment of the Executive shall be terminated, either voluntarily or
involuntarily, as a result of any illegal or fraudulent actions or any voluntary
actions determined to be detrimental to the interests of the Corporation, which
determination shall be made in the sole discretion of the Board of Directors,
prior to his attaining the age of sixty-five (65) years, this Agreement shall
terminate upon the date of such termination of employment and no benefits or
payments of any kind shall be made hereunder.
5.2) OTHER TERMINATION OF SERVICE - The Corporation reserves the right to
terminate the employment of the Executive at any time prior to retirement. In
the event that the employment of the Executive shall terminate prior to his
attaining age sixty-five (65), other than for reasons stated in Section 5.1
hereof, or by reason of his disability or his death, then this Agreement shall
terminate upon the date of such termination of employment. Provided, however,
that the Executive shall be entitled to the following benefits under the
following circumstances:
(01) If the Executive has been employed by the Corporation for a period of
at least three (3) continuous years, the Executive will be considered to be
vested in thirty percent (30%) of the amount set forth in Schedule A
attached hereto and made a part hereof and shall become vested in an
additional ten percent (10%) of said amount for each succeeding year
thereafter until he becomes one hundred percent (100%) vested. If the
Executive's employment is terminated under the provisions of this Section
5.2, the Corporation will pay the Executive's vested amount upon such terms
and conditions and commencing at such time as the Corporation shall
determine, but in no event commencing later than age sixty-five (65).
(02) Anything hereinabove to the contrary notwithstanding, if the Executive
is not fully vested in the amount to which he is entitled under this plan,
he will become fully vested in the event of a transfer in the controlling
ownership or sale of the Corporation or its parent corporation and shall be
entitled to the full amount, upon the terms and conditions hereof, if
termination of employment thereafter occurs under this Section 5.2.
ARTICLE 6.
6.1) TERMINATION OF AGREEMENT BY REASON OF CHANGES IN LAW - The Corporation
is entering into this Agreement upon the assumption that certain tax laws will
continue in effect in substantially their current form. In the event of any
changes in federal law relating to and allowing the tax-free accumulation of
earnings within a life insurance policy, the income tax-free payment of proceeds
from life insurance policies or the deduction from income of interest payments
on certificates of deposit issued by banking institutions, the Corporation shall
have an option to terminate or modify this Agreement. Provided, however, that
the Executive shall be entitled to at least the same amount as he would have
been entitled to under Section 4.2 relating to disability. The payment of said
amount shall be made upon such terms and conditions and at such time as the
Corporation shall determine, but in no event commencing later than age
sixty-five (65).
<PAGE>
ARTICLE 7.
7.1) ALIENABILITY - Neither the Executive, his spouse, nor any other
beneficiary under this Agreement shall have any power or right to transfer,
assign, anticipate, hypothecate, mortgage, commute, modify, or otherwise
encumber in advance any of the benefits payable hereunder, nor shall any of said
benefits be subject to seizure for the payment of any debts, judgements, alimony
or separate maintenance, owned by the Executive or his beneficiary or any of
them, or be transferable by operation of law in the event of bankruptcy,
insolvency or otherwise. In the event the Executive or any beneficiary attempts
assignment, commutation, hypothecation, transfer, or disposal of the benefit
hereunder, the Corporation's liabilities shall forthwith cease and terminate.
ARTICLE 8.
8.1) PARTICIPATION IN OTHER PLANS - Nothing contained in this Agreement
shall be construed to alter, abridge, or in any manner affect the rights and
privileges of the Executive to participate in and be covered by any pension,
profit sharing, group insurance, bonus or similar employee plans which the
Corporation may now or hereafter have.
ARTICLE 9.
9.1) FUNDING - The Corporation reserves the absolute right, at its sole and
exclusive discretion, either to fund the obligations of the Corporation
undertaken by this Agreement or to refrain from funding the same, and to
determine the extent, nature, and method of such funding. Should the
Corporation elect to fund this Agreement, in whole or in part, through the
medium of life insurance or annuities, or both, the Corporation shall be the
owner and beneficiary of the policy. The Corporation reserves the absolute
right, in its sole discretion, to terminate such life insurance or annuities, as
well as any other funding program, at any time, in whole or in part. At no time
shall the Executive be deemed to have any right, title, or interest in or to any
specified assets or assets of the Corporation, including but not by way of
restriction, any insurance or annuity contract or contracts or the proceeds
therefrom.
9.2) UNSECURED - Any such policy shall not in any way be considered to be
security for the performance of the obligations of this Agreement. It shall be,
and remain, a general, unpledged, unrestricted asset of the Corporation.
9.3) COOPERATION - If the Corporation purchases a life insurance or annuity
policy on the life of the Executive, he agrees to sign any papers that may be
required for that purpose and to undergo any medical examination or tests which
may be necessary.
9.4) RIGHT AS CREDITOR - This Agreement shall not be construed as giving
the Executive or his beneficiary any greater rights than those of any other
unsecured creditor of the Corporation.
ARTICLE 10.
10.1) REORGANIZATION - The Corporation shall not merge or consolidate into
or with another corporation, or reorganize, or sell substantially all of its
assets to another corporation, firm, or person unless and until such succeeding
or continuing corporation, firm, or person agrees to assume and discharge the
obligations of the Corporation under this Agreement. Upon the occurrence of
such event, the term "Corporation" as used in this Agreement shall be deemed to
refer to such successor or survivor corporation.
ARTICLE 11.
11.1) BENEFITS AND BURDENS - This Agreement shall be binding upon and
inure to the benefit of the Executive and his personal representatives, and the
Corporation and any successor organization which shall succeed to substantially
all of its assets and business.
<PAGE>
ARTICLE 12.
12.1) NOT A CONTRACT OF EMPLOYMENT - This Agreement shall not be
deemed to constitute a contract of employment between the parties hereto, nor
shall any provision hereof restrict the right of the Corporation to discharge
the Executive, or restrict the right of the Executive to terminate his
employment.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
duly executed by its President and its corporate seal affixed, duly attested by
its Secretary, and the Executive has hereunto set his hand and seal at
Minneapolis, Minnesota, the day and year first above written.
BANK:
By: /s/
-------------------------------------
Its: President
By: /s/
-------------------------------------
Its: Executive Vice President
EXECUTIVE:
/s/
----------------------------------------
John C. Dorsey
<PAGE>
SCHEDULE A
Year of Termination Amount in Which Vesting Occurs
1 $ 5,398
2 11,361
3 17,948
4 25,226
5 33,265
6 42,146
7 51,957
8 62,796
9 74,769
10 87,996
11 102,608
12 118,750
13 136,583
14 156,283
15 178,046
16 202,087
17 228,646
18 257,986
19 290,398
<PAGE>
EXHIBIT 10.6
EXECUTIVE SALARY CONTINUATION AGREEMENT
THIS AGREEMENT, made and entered into this 1st day of January, 1995, by and
between United Community Bancshares, Inc. a corporation organized and existing
under the laws of the State of Minnesota, (hereinafter called the Corporation),
and Donald M. Davies (hereinafter called the Executive).
W I T N E S S E T H:
WHEREAS, the Executive is in the employ of the Corporation serving as its
Executive Vice President; and
WHEREAS, the experience of the Executive, his knowledge of the affairs of the
Corporation, his reputation and contacts in the industry are so valuable that
assurance of his continued service is essential for the future growth and
profits of the Corporation and it is in the best interests of the Corporation to
arrange terms of continued employment for the Executive so as to reasonably
assure his remaining in the Corporation's employment during his lifetime or
until the age of retirement; and
WHEREAS, the Executive is willing to continue in the employ of the Corporation
provided the Corporation agrees to pay him or his beneficiaries certain benefits
in accordance with the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the services to be performed in the future
as well as the mutual promises and covenants herein contained, it is agreed as
follows:
ARTICLE 1.
1.1) EMPLOYMENT - The Corporation agrees to employ the Executive in such
capacity as the Corporation may from time to time determine. The Executive will
continue in the employ of the Corporation in such capacity and with such duties
and responsibilities as may be assigned to him, and with such compensation as
may be determined from time to time by the Board of Directors of the
Corporation.
1.2) FULL EFFORTS - The Executive agrees to devote his full time and attention
exclusively to the business and affairs of the Corporation, except during
vacation periods, and to use his best efforts to furnish faithful and
satisfactory services to the Corporation.
1.3) FRINGE BENEFIT - The salary continuation benefits provided by this
Agreement are granted by the Corporation as a fringe benefit to the Executive
and are not part of any salary reduction plan or any arrangement deferring a
bonus or a salary increase. The Executive has no option to take any current
payment or bonus in lieu of these salary continuation benefits.
ARTICLE 2.
2.1) RETIREMENT - If the Executive shall continue in the employment of the
Corporation until he attains the age of sixty-five (65), he may retire from
active daily employment as of the first day of the month next following
attainment of age sixty-five (65) or upon such later date as may be mutually
agreed upon by the Executive and the Corporation.
2.2) PAYMENT - The Corporation agrees that upon such retirement it will pay to
the Executive the annual sum of Forty thousand Dollars ($40,000), payable
monthly on the first day of each month following such retirement until he
attains the age of seventy-eight (78); subject to the conditions and limitations
hereinafter set forth. It is the intent of the Corporation to adjust the above
stated income amount from time to time, to reflect fifty (50) percent of the
Executive's then current salary. However, the Corporation is not obligated
hereunder to make any such adjustment.
<PAGE>
2.3) DEATH BENEFIT - The Corporation agrees that if the Executive shall so
retire, but shall die before receiving the full amount of monthly payments to
which he is entitled hereunder, it will continue to make such monthly payments
to the Executive's designated Beneficiary for the remaining period. If the
Executive is not survived by any designated beneficiary, said payments shall be
made to the duly qualified personal representative, executor or administrator of
his estate.
ARTICLE 3.
3.1) CONSULTING - It is mutually agreed that during the thirteen (13) year
period following retirement from active daily employment upon attainment of age
sixty-five (65) or such later date as may be mutually agreed upon, the Executive
shall, at the option and request of the Corporation, be available at reasonable
times and places as may be mutually agreed upon, to render services to the
senior executives of the Corporation at its offices in an advisory or consulting
capacity.
3.2) INFORMED - The Executive will keep himself informed concerning the affairs
of the Corporation through reports which the Corporation will supply, and such
other means as may be agreed upon. The Executive shall not be required to travel
from whatever place he may be then living or staying for the purposes of such
consultation unless all expense incurred by him shall be paid by the
Corporation.
3.3) DISABILITY - Breach of this condition shall not be considered to have
occurred if the Executive is unable to consult because of his mental or physical
disability.
3.4) NOT EMPLOYEE - In furnishing such consultative services, the Executive
shall not be an employee of the Corporation, but shall act in the capacity of an
independent contractor.
3.5) NO COMPETITION - In the event the Corporation exercises its option to have
the Executive perform consulting services as provided in paragraph 3.1 hereof
then during the said thirteen (13) year period following retirement from active
daily employment, the Executive shall not become the owner of, nor engage,
directly or indirectly, in any business which is substantially similar to or
competes with the business of the Corporation, either as proprietor, partners,
stockholder, officer, director, employee or otherwise, within an area of one
hundred (100) miles from the City of Minneapolis, Minnesota, unless the
Corporation has first consented in writing thereto.
3.6) FORFEITURE - The payments provided under Article 2 are conditioned upon the
Executive fulfilling the foregoing requirements of the Article 3 and, in the
event the Executive shall at any time materially breach the foregoing
requirement, the Board of Directors of the Corporation may, by a Resolution, at
any regular or special meeting, suspend or eliminate payment during the period
of such breach. What constitutes a material breach shall be within the sole
determination of the Board of Directors.
3.7) TERMINATION OF PAYMENTS - In the event the Board of Directors by such a
Resolution terminates further payments to the Executive as provided in this
Article 3, all amounts then remaining unpaid under this Agreement shall be
forfeited and the Corporation shall have no further liability to the Executive
or any other persons hereunder.
ARTICLE 4.
4.1) DEATH PRIOR TO RETIREMENT - In the event the Executive should die while
actively employed by the Corporation at any time after the date of this
Agreement but prior to his attaining the age of sixty-five (65) years, the
Corporation will pay the annual sum of Forty thousand Dollars ($40,000) per
year, to the Executive's designated Beneficiary in equal monthly installments
for a period of one hundred twenty (120) months. If the Executive is not
survived by any designated beneficiary, said payments shall be made to the duly
qualified personal representative, executor or administrator of his estate. The
said monthly payments shall begin the first day of the month following the month
of the decease of the Executive. The Corporation's obligation to make payments
under this paragraph is contingent upon the Corporation receiving the insurance
benefits payable as a result of the Executive's death.
<PAGE>
4.2) DISABILITY PRIOR TO RETIREMENT - In the event the Executive should become
disabled while actively employed by the Corporation at any time after the date
of this Agreement but prior to his attaining the age of sixty-five (65) years,
the Executive will be considered to be one hundred percent (100%) vested in the
amount set forth in Schedule A attached hereto and made a part hereof. Said
amount shall be paid to the Executive in a lump sum within three (3) months of
the determination of disability. Said payment shall be in lieu of any other
retirement or death benefit under this Agreement. For purposes of this
paragraph, the definition of the term "disability" shall be the same as required
for eligibility for disability payments under the Social Security Act.
ARTICLE 5.
5.1) VOLUNTARY TERMINATION OF SERVICE OR DISCHARGE - In the event that the
employment of the Executive shall be terminated, either voluntarily or
involuntarily, as a result of any illegal or fraudulent actions or any voluntary
actions determined to be detrimental to the interests of the Corporation, which
determination shall be made in the sole discretion of the Board of Directors,
prior to his attaining the age of sixty-five (65) years, this Agreement shall
terminate upon the date of such termination of employment and no benefits or
payments of any land shall be made hereunder.
5.2) OTHER TERMINATION OF SERVICE - The Corporation reserves the right to
terminate the employment of the Executive at any time prior to retirement. In
the event that the employment of the Executive shall terminate prior to his
attaining age sixty-five (65), other than for reasons stated in Section 5.1
hereof, or by reason of his disability or his death, then this Agreement shall
terminate upon the date of such termination of employment. Provided, however,
that the Executive shall be entitled to the following benefits under the
following circumstances:
(01) If the Executive has been employed by the Corporation for a period of
at least three (3) continuous years, the Executive will be considered to be
vested in thirty percent (30%) of the amount set out in Schedule A attached
hereto and made a part hereof and shall become vested in an additional ten
percent (10%) of said amount for each succeeding year thereafter until he
becomes one hundred percent (100%) vested. If the Executive's employment is
terminated under the provisions of this Section 5.2, the Corporation will
pay the Executive's vested amount upon such terms and conditions and
commencing at such time as the Corporation shall determine, but in no event
commencing later than age sixty-five (65).
(02) Anything to the contrary notwithstanding, if the Executive is not
fully vested in the amount to which he is entitled under this plan, he will
become fully vested in said amount in the event of a transfer in the
controlling ownership or sale of the Corporation or its parent corporation
and shall be entitled to the full amount set forth in Schedule A, upon the
terms and conditions hereof, if termination of employment thereafter occurs
under this Section 5.2.
ARTICLE 6.
6.1) TERMINATION OF AGREEMENT BY REASON OF CHANGES IN LAW - The Corporation
is entering into this Agreement upon the assumption that certain existing tax
laws will continue in effect in substantially their current form. In the
event of any changes in federal law relating to and allowing the tax-free
accumulation of earnings within a life insurance policy, the income tax-free
payment of proceeds from life insurance policies or the deduction from income
of interest payments on certificates of deposit issued by banking
institutions, the Corporation shall have an option to terminate or modify
this Agreement. Provided, however, that the Executive shall be entitled to at
least the same amount as he would have been entitled to under Section 4.2
relating to disability. The payment of said amount shall be made upon such
terms and conditions and at such time as the Corporation shall determine, but
in no event commencing later that age sixty-five (65).
ARTICLE 7.
7.1) ALIENABILITY - Neither the Executive, his spouse, nor any other
beneficiary under this Agreement shall have any power or right to transfer,
assign, anticipate, hypothecate, mortgage, commute, modify, or otherwise
encumber in advance any of the benefits payable hereunder, nor shall any of
said benefits be subject to seizure for the payment
<PAGE>
of any debts, judgements, alimony or separate maintenance, owed by the
Executive or his beneficiary or any of them, or be transferable by operation
of law in the event of bankruptcy, insolvency or otherwise. In the event the
Executive or any beneficiary attempts assignment, commutation, hypothecation,
transfer, or disposal of the benefit hereunder, the Corporation's liabilities
shall forthwith cease and terminate.
ARTICLE 8.
8.1) PARTICIPATION IN OTHER PLANS - Nothing contained in this Agreement shall be
construed to alter, abridge, or in any manner affect the rights and privileges
of the Executive to participate in and be covered by any pension, profit
sharing, group insurance, bonus or similar employee plans which the Corporation
may now or hereafter have.
ARTICLE 9.
9.1) FUNDING - The Corporation reserves the absolute right, at its sole and
exclusive discretion, either to fund the obligations of the Corporation
undertaken by this Agreement or to refrain from funding the same, and to
determine the extent, nature, and method of such funding. Should the
Corporation elect to fund this Agreement, in whole or in part, through the
medium of life insurance or annuities, or both, the Corporation shall be the
owner and beneficiary of the policy. The Corporation reserves the absolute
right, in its sole discretion, to terminate such life insurance or annuities,
as well as any other funding program, at any time, in whole or in part. At no
time shall the Executive be deemed to have any right, title, or interest in
or to any specified assets or assets of the Corporation, including but not by
way of restriction, any insurance or annuity contract or contracts or the
proceeds therefrom.
9.2) UNSECURED - Any such policy shall not in anyway be security for the
performance of the obligations of this Agreement. It shall be, and remain, a
general, unpledged, unrestricted asset of the Corporation.
9.3) COOPERATION - If the Corporation purchases a life insurance or annuity
policy on the life of the Executive, he agrees to sign any papers that may be
required for that purpose and to undergo any medical examination or tests which
may be necessary.
9.4) RIGHT AS CREDITOR - This Agreement shall not be construed as giving the
Executive or his beneficiary any greater rights than those of any other
unsecured creditor of the Corporation.
ARTICLE 10.
10.1) REORGANIZATION - The Corporation shall not merge or consolidate into or
with another corporation, or reorganize, or sell substantially all of its
assets to another corporation, firm, or person unless and until such
succeeding or continuing corporation, firm, or person agrees to assume and
discharge the obligations of the Corporation under this Agreement. Upon the
occurrence of such event, the term "Corporation" as used in this Agreement
shall be deemed to refer to such successor or survivor corporation.
ARTICLE 11.
11.1) BENEFITS AND BURDENS - This Agreement shall be binding upon and inure to
the benefit of the Executive and his personal representatives, and the
Corporation and any successor organization which shall succeed to substantially
all of its assets and business.
ARTICLE 12.
12.1) NOT A CONTRACT OF EMPLOYMENT - This Agreement shall not be deemed to
constitute a contract of employment between the parties hereto, nor shall any
provision hereof restrict the right of the Corporation to discharge the
Executive, or restrict the right of the Executive to terminate his employment.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be duly
executed by its President and its corporate seal affixed, duly attested by its
Secretary, and the Executive has hereunto set his hand and seal at Minneapolis,
Minnesota the day and year first above written.
BANK:
By: /s/
---------------------------------
Its: Co-Chairman
By: /s/
---------------------------------
Its: Executive Vice President
EXECUTIVE:
/s/
-----------------------------------
<PAGE>
EXHIBIT 10.7
FORM
LEASE AGREEMENT
THIS LEASE AGREEMENT made and entered into between WHITEWOOD (MINNEAPOLIS)
LIMITED PARTNERSHIP, a Minnesota limited partnership ("Landlord") and UNITED
COMMUNITY BANCSHARES, INC. ("Tenant").
WITNESSETH:
1. PREMISES AND TERM.
(a) In consideration of the obligation of Tenant to pay rent as herein
provided, and in consideration of the other terms, provisions, and covenants
hereof, Landlord hereby demises and leases to Tenant, and Tenant hereby accepts
and leases from Landlord, the following described space, to wit:
Approximately 3,860 rentable square feet identified as Suite 155
as crosshatched on the plan attached hereto as Exhibit "A" (the "Leased
Premises") which is located in the building commonly known as 2600 Eagan Woods
(the "Building"), situated on the real property described in Exhibit "B"
attached hereto (the "Property"). The Leased Premises shall be used for the
following purposes and no others:
General Office
TO HAVE AND TO HOLD the same for a term (the "Lease Term") of 48 months
commencing on August 1, 1995, and ending July 31, 1999, unless terminated or
extended pursuant to any provision hereof. Tenant acknowledges hat no
representations as to the repair of the Leased Premises, nor promises to alter,
remodel or improve the Leased Premises have been made by Landlord, unless such
are expressly set forth in this Lease.
(b) If this Lease is executed before the Leased Premises become vacant or
otherwise available and ready for occupancy, or if any present tenant or
occupant of the Leased Premises holds over, and Landlord cannot, using good
faith efforts, acquire possession of the Leased Premises prior to the date above
recited as the commencement date of this Lease, Landlord shall not be deemed to
be in default, nor in any way liable to Tenant because of such failure, and
Tenant agrees to accept possession of the Leased Premises at such time as
Landlord is able to tender the same. The Lease Term shall commence (the
"Commencement Date") upon the earlier to occur of the following two events: (i)
the taking of possession of the Leased Premises by Tenant; or (ii) the date upon
which construction of the Leased Premises has been substantially completed in
accordance with the plans and specifications of Landlord and possession thereof
has been tendered to Tenant. In the event the Commencement Date occurs after
the date first hereinabove provided, the term of this Lease shall automatically
be extended so as to include the full number of months hereinbefore provided,
except that if the Commencement Date is other than the first day of a calendar
month, such term shall also be extended for the remainder of the calendar month
in which possession is tendered. Landlord hereby waives payment of rent
(including such portion of the additional rent which is related to Tenant's use
of occupancy of the Leased Premises) covering any period prior to the
Commencement Date.
(c) Notwithstanding the foregoing, in the event that Tenant's possession
is delayed because Landlord has not sufficiently completed the Building or the
Leased Premises, the Commencement Date shall be the date upon which the
Building, other improvements on the Property and the Leased Premises have been
substantially completed in accordance with the plans and specifications of
Landlord (other than any work which
<PAGE>
cannot be completed on such date, provided such incompletion will not
substantially interfere with Tenant's use of the Leased Premises); provided,
however, that if Landlord shall be delayed in such substantial completion as
a result of: (i) Tenant's failure to agree to plans and specifications; (ii)
Tenant's request for materials, finishes or installations other than
Landlord's standard; (iii) Tenant's changes in plans; or (iv) the performance
or completion by a party employed by Tenant, the Commencement Date and the
payment of rent hereunder shall be accelerated by the number of days of such
delay. Landlord shall notify Tenant in writing as soon as Landlord deems the
Building, other improvements, and the Leased Premises to be completed and
ready for occupancy as aforesaid. In the event that the Building, other
improvements, or the Leased Premises have not in fact been substantially
completed as aforesaid, Tenant shall notify Landlord in writing of its
objections within five (5) days after Tenant receives the aforesaid notice
from Landlord. Landlord shall have a reasonable time after delivery of such
notice in which to take such corrective action as Landlord deems necessary
and shall notify Tenant in writing as soon as it deems such corrective
action, if any, has been completed so that the Building, other improvements,
and the Leased Premises are completed and ready for occupancy.
(d) The taking of possession by Tenant shall be presumptive evidence that
the Building, other improvements, and the Leased Premises have been completed in
accordance with the plans and specifications and are in good and satisfactory
condition as of when possession was so taken (except for such items as Landlord
is permitted to complete at a later date, which items shall be specified by
Landlord to Tenant in writing). Upon such "Commencement Date" Tenant shall
execute and deliver to Landlord a letter of acceptance of delivery of the Leased
Premises that is reasonable in form. In the event of any dispute as to when and
whether the work performed or required to be performed by Landlord has been
substantially completed, the certificate of an A.I.A. registered architect or a
temporary or final certificate of occupancy issued by the local governmental
authority shall be presumptive evidence of such completion, effective on the
date of the delivery of a copy of any such certificate to Tenant.
2. BASE RENT AND SECURITY DEPOSIT.
(a) Tenant agrees to pay, without demand, counterclaim, offset or
deduction, to Landlord for the Leased Premises in lawful money of the United
States base rent (the "Base Rent") for the entire term hereof at the following
rates:
MONTHLY
BASE RENT
-----------
8/1/95 - 7/31/96 $3,297.08
8/1/96 - 7/31/97 $3,377.50
8/1/97 - 7/31/98 $3,457.92
8/1/98 - 7/31/99 $3,538.33
Said Base Rent will be payable per month, in advance, except that the monthly
installment which otherwise shall be due on the Commencement Date shall be due
and payable on the date hereof. Thereafter, one such monthly installment shall
be due and payable, without demand, counterclaim, offset or deduction, on or
before the first day of each calendar month succeeding the month in which the
Commencement Date occurs; further provided, that the rental payment for any
fractional calendar month at the commencement or end of the lease term shall be
prorated.
3. TAXES.
(a) Landlord agrees to pay all real estate taxes, installments of special
assessments and other governmental charges of any kind and nature whatsoever
(collectively the "Taxes") lawfully levied or assessed against the Property, the
Building, and the grounds, parking areas, driveways and alleys around the
Building and any fixtures, machinery and equipment owned by Landlord and located
on or about the Property, Building and the grounds, parking areas, driveways and
alleys around the Building; provided, all such Taxes shall be included as
"Operating Costs" (as hereafter defined).
<PAGE>
(b) If at any time during the term of this Lease, the present method of
taxation shall be changed so that, in lieu of the whole or any part of any
Taxes, levied, assessed or imposed on real estate and the improvements thereon,
there shall be levied, assessed or imposed on Landlord a capital levy or other
tax directly on the rents received therefrom and/or a franchise tax, assessment,
levy or charge measured by or based, in whole or in part, upon such rents for
the present or any future building on the Property, then all such taxes,
assessments, levies or charges, or the part thereof so measured or based, shall
be deemed to be included within the term "Taxes" for the purposes hereof.
Tenant shall not protest the assessed valuation of the Building without
Landlord's prior written consent.
4. OPERATING COSTS. Tenant shall, for the entire Lease Term, pay to
Landlord as additional rent, without counterclaim, setoff or deduction
therefrom, its Proportionate Share of Operating Costs which Landlord may incur.
(a) As used in this Lease, Tenant's 'Proportionate Share' shall mean a
fraction, the numerator of which is the gross rentable area of the Leased
Premises and the denominator of which is the gross rentable area contained in
the Building, in each case as reasonably determined by Landlord. For purposes
hereof, the numerator of said fraction is 3,860 the denominator is 81,243 and
Tenant's Proportionate Share is 4.751%.
(b) As used in this Lease, the term "Operating Costs" shall mean any and
all expenses, costs and disbursements of any kind and nature whatsoever incurred
by Landlord in connection with the ownership, leasing, management, maintenance,
protection, operation, replacement and repair of the Building or the Property or
any improvements situated on the Property (including, without limitation, the
costs of maintaining and repairing parking lots, parking structures and
easements, property management fees, salaries, fringe benefits and related
costs, insurance costs of every kind and nature, heating and air conditioning
costs, electricity and other utility costs, the costs of repairs, maintenance
and decorating for the Building, landscape maintenance, snow removal, Taxes (as
defined in Paragraph 3 hereof) and costs and expenses incurred by Landlord in
protesting any assessments, levies or the Taxes which Landlord shall pay or
become obligated to pay in respect of a calendar year (regardless of when such
Operating Costs were incurred), the Building's pro rata share (as reasonably
determined by Landlord) of the cost of operating, maintaining and repairing any
areas, facilities or easements which are common to the Building and any other
building sharing common facilities with the Building owned or operated by
Landlord or its successor (such as, but not limited to, snow plowing,
landscaping, common area and street lighting, insurance, taxes, security and
management), except the following: (i) costs of alterations of tenants'
premises; (ii) costs of capital improvements and costs of curing construction
defects; (iii) depreciation; (iv) interest and principal payments on mortgages,
and other debt costs; (v) real estate brokers' leasing commissions or
computation; (vi) any cost or expenditure (or portion thereof) for which
Landlord is reimbursed, whether by insurance proceeds or otherwise; and (vii)
cost of any service furnished to any other occupant of the Building which
Landlord does not provide to Tenant hereunder. Notwithstanding anything
contained herein to the contrary, depreciation of any capital improvements made
after the date of this Lease which are intended to reduce Operating Costs or
which are required under any governmental laws, regulations or ordinances which
were not applicable to the Building at the time it was constructed, shall be
included in Operating Costs. The useful life of any such improvement shall be
reasonably determined by Landlord. In addition, interest on the undepreciated
cost of any such improvement (at the prevailing construction loan rate available
to Landlord on the date the cost of such improvement was incurred) shall also be
included in Operating Costs.
In the event during all or any portion of any calendar year the Building is
not fully rented and occupied, Landlord may elect to make an appropriate
adjustment in Operating Costs for such year, employing sound accounting and
management principles to determine Operating Costs that would have been paid or
incurred by Landlord had the Building been fully rented and occupied and the
amount so determined shall be deemed to have been Operating Costs for such year.
(c) Promptly after the commencement of this Lease and during December of
each year or as soon thereafter as practicable, Landlord shall give Tenant
written notice of its estimate of the amount of Operating Costs payable for the
ensuing calendar year. On or before the first day of each month thereafter,
Tenant shall
<PAGE>
pay to Landlord, as additional rent and without demand, counterclaim, offset
or deduction one/twelfth (1/12th) of such estimated amounts, provided that if
such notice is not given in December, Tenant shall continue to pay on the
basis of the prior year's estimate until the first day of the month after the
month in which such notice is given. If at any time it appears to Landlord
that the amounts payable for the then current calendar year will vary from
its estimate by more than five percent (5%), Landlord may, by written notice
to Tenant, revise its estimate for such year, and subsequent payments by
Tenant for such year shall be based upon such revised estimate. Within ninety
(90) days after the close of each calendar year or as soon thereafter as
practicable, Landlord shall deliver to Tenant a statement showing the total
amount of Operating Costs payable in the preceding calendar year and Tenant's
proportionate share thereof. If such statement shows an amount due from
Tenant that is less than the estimated payments previously paid by Tenant, it
shall be accompanied by a refund of the excess to Tenant. If such statement
shows an amount due from Tenant that is more than the estimated payments
previously paid by Tenant, Tenant shall pay the deficiency to Landlord, as
additional rent, within thirty (30) days after delivery of the statement.
(d) Notwithstanding the foregoing, Landlord reserves the right to install
a separate electrical meter for any or all of the electrical service used by
Tenant in the Leased Premises for lighting, convenience outlets and other direct
uses. In the event of such separate metering for all of Tenant's electrical
service, Tenant's proportionate share of Operating Costs shall not include any
charge for similar electrical use by other tenants for their leased premises,
but will include electrical charges for common areas, heat, air-conditioning and
other building services.
5. ELECTRIC SERVICE. If Tenant shall desire electric current in excess
of that which is reasonably obtainable from existing electric outlets and normal
for use of the Leased Premises as general office space, then Tenant shall first
procure the consent of Landlord (which consent will not be unreasonably
withheld). Tenant shall pay all costs incurred in connection with the purchase
and installation of all facilities necessary to furnish such excess capacity and
to accommodate such increased usage of electricity. Interruptions of any
utility service resulting in whole or in part from any cause or causes shall not
be deemed an eviction or disturbance of Tenant's use and possession of the
Leased Premises or any part thereof, or render Landlord liable for damages by
abatement of rent or otherwise or relieve Tenant from the performance of
Tenant's obligations under this Lease.
6. ALTERATIONS. Landlord agrees to install at Landlord's cost and
expense the improvements as described in Exhibit "C" attached hereto. All other
improvements to the Leased Premises shall be installed at the cost and expense
of Tenant (which cost shall be payable to Landlord on demand as additional
rent), but only in accordance with plans and specifications which have been
previously submitted to and approved in writing by Landlord, and only by
Landlord or by contractors and subcontractors approved in writing by Landlord
(which approval shall not be unreasonably withheld). All alterations,
additions, improvements and partitions erected by Tenant shall be and remain the
property of Tenant during the term of this Lease and Tenant shall, unless
Landlord otherwise elects as hereinafter provided, remove all alterations,
additions, improvements and partitions erected by Tenant and restore the Leased
Premises to its original condition by the date of termination of this Lease or
upon earlier vacating of the Leased Premises; provided however, that if upon
such termination or vacation Landlord so elects such alterations, additions,
improvements and partitions shall become the property of Landlord and title to
such property shall thereupon pass to Landlord under this Lease as by a bill of
sale. All such removals and restoration shall be accomplished in a good and
workmanlike manner by contractors approved in writing by Landlord so as not to
damage the primary structure or structural qualities of the Building and with
such insurance Landlord may reasonably require. All alterations, additions or
improvements proposed by Tenant shall be constructed in accordance with all
governmental laws, ordinances, rules and regulations and Tenant shall, prior to
construction, provide such assurances to Landlord, as Landlord shall require to
assure payment of the costs thereof and to protect Landlord against any loss
from any mechanics', laborers', materialmen's or other liens. If such
improvements are not being performed by Landlord, Tenant shall permit Landlord,
if Landlord so desires, to supervise construction operations in connection with
such work. In no event will such supervision or right to supervise by Landlord,
or shall any approvals given by Landlord under this Lease, constitute any
warranty by Landlord to Tenant of the adequacy of the design, workmanship or
<PAGE>
quality of such work or materials to Tenant's intended use or impose any
liability upon Landlord in connection with the performance of such work.
7. SERVICE. Landlord agrees to furnish Tenant, as long as Tenant is not
in default under the covenants of this Lease, water, hot, cold and refrigerated
at those points of supply provided for general use of tenants; heated and
refrigerated air conditioning in season at such times as Landlord normally
furnishes these services to all tenants of the Building, and at such
temperatures and in such amounts as are in accordance with any applicable
statutes, such service at other times and on Saturday, Sunday and holidays to be
optional on the part of Landlord (Landlord hereby reserves the right to charge
Tenant for any such optional service requested by Tenant on such basis as
Landlord, in its sole discretion, determines); janitor service to the Leased
Premises on weekdays other than holidays and such window washing as may from
time to time in the Landlord's judgment be reasonably required; operatorless
passenger elevators for ingress and egress to the floor on which the Leased
Premises are located, provided Landlord may reasonably limit the number of
elevators to be in operation on Saturdays, Sundays and holidays; but failure to
any extent to furnish, or any stoppage or interruption of, these defined
services, resulting from any cause, shall not render Landlord liable in any
respect for damages to any person, property, or business, nor be construed as an
eviction of Tenant or work an abatement of rent, nor relieve Tenant from
fulfillment of any covenant or agreement hereof unless the same is deemed to
constitute a constructive eviction by a court of competent jurisdiction. Should
any equipment or machinery furnished by Landlord cease to function properly,
Landlord shall use reasonable diligence to repair the same promptly, but Tenant
shall have no claim for rebate of rent or damages on account of any
interruptions in service occasioned thereby or resulting therefrom. Whenever
heat generating machines or equipment are used by Tenant in the Leased Premises
which affect the temperature otherwise maintained by the air conditioning
equipment, Landlord reserves the right to install supplementary air conditioning
units in the Leased Premises (or for the use of the Leased Premises) and the
expense of such purchase, installation, maintenance, operation and repair shall
be paid by Tenant upon demand as additional rent.
8. USE OF PREMISES.
(a) Tenant will not occupy or use, nor permit any portion of Leased
Premises to be occupied or used, for any business or purpose other than that
described above in paragraph 1(a) or for any use or purpose which is unlawful in
part or in whole or deemed to be disreputable in any manner, or extra hazardous
on account of fire, nor permit anything to be done which will render void or in
any way increase the rate of fire insurance on the Building or its contents.
(b) Tenant shall at its own cost and expense promptly obtain any and all
licenses and permits necessary for any permitted use. Tenant shall comply with
all governmental laws, ordinances and regulations (state, federal, municipal and
other public or private bodies with competent jurisdiction or authority)
applicable to its use and occupancy of the Leased Premises and in the discharge
of its obligations hereunder. If, as a result of any change in the governmental
laws, ordinances, and regulations, the Leased Premises must be altered to
lawfully accommodate Tenant's use and occupancy, such alterations shall be made
by Tenant at its sole cost but only with the prior consent of Landlord;
provided, that, the necessity of Landlord's consent shall in no way create any
liability against Landlord for failure of Tenant to comply with such laws,
ordinances and regulations. Without limiting the general application of the
foregoing, Tenant shall be responsible for compliance of the Leased Premises,
including, without limitation, any alterations it may make to the Leased
Premises, with the requirements of the Americans with Disabilities Act (42
U.S.C. Section 12101 et seq.) and the regulations and Accessibility Guidelines
for Buildings and Facilities issued pursuant thereto, as the same may be amended
from time to time.
(c) Tenet will maintain the Leased Premises (including all fixtures
installed by Tenant and plate glass) in good repair, reasonable wear and tear
excepted, and in a clean and healthful condition. Any repairs or replacements
shall be with materials and workmanship of the same character, kind and quality
as the original. Tenant shall not provide any janitorial services without
Landlord's written consent and then only subject to supervision of Landlord and
by a janitorial contractor or employees at all times satisfactory to Landlord.
Any such services provided by Tenant shall be Tenant's sole risk and
responsibility. Tenant shall not, without the
<PAGE>
prior written consent of Landlord, paint, install lighting or decorations of
any type on or about the Leased Premises. Any sign, window or door
lettering, or advertising media of any type which is visible from the
exterior of the Leased Premises shall be at Tenant's expense and subject to
prior written approval by Landlord.
(d) Tenant will conduct its business and control its agents, employees and
invitees in such a manner as not to create any nuisance, nor interfere with,
annoy, or disturb other tenants in their enjoyment of, or Landlord in the
management of, the Building.
(e) Tenant shall comply fully with all rules and regulations of the
Building and the Property which are described in Exhibit "D" attached hereto.
Landlord shall at all times have the right to change such rules and regulations
or to promulgate other rules and regulations in such reasonable manner as may be
deemed advisable for the safety, care and cleanliness of the Property and for
the preservation of good order therein. Copies of all rules and regulations,
changes, and amendments will be forwarded to Tenant in writing and shall be
carried out and observed by Tenant. Tenant shall further be responsible for the
compliance with such rules and regulations by Tenant's employees, agents and
invitees.
(f) Upon the termination of this Lease, whether by the expiration of its
term or otherwise, Tenant shall deliver up the Leased Premises with all
improvements located thereon (except as herein provided) in good repair and
condition, reasonable wear and tear excepted, broom clean and free of all
debris.
(g) The term "Hazardous Substances," as used in this Lease, shall mean
pollutants, oil, contaminants, toxic or hazardous wastes or any other
substances, the removal of which is required or the use of which is restricted,
prohibited or penalized by any "Environmental Law," which term shall mean any
federal, state or local law or ordinance relating to pollution or the protection
of the environment. Tenant hereby agrees that (i) no activity will be conducted
on the Leased Premises that will produce any Hazardous Substance, except for
such activities that are incidental to the ordinary course of Tenant's business
(the "Permitted Activities"), provided said Permitted Activities are conducted
in accordance with all Environmental Laws and have been approved in advance in
writing by Landlord; (ii) the Leased Premises will not be used in any manner for
the storage of any Hazardous Substances, except for the temporary storage of
such materials that are used in the ordinary course of and incidental to
Tenant's business (the "Permitted Materials"), provided such Permitted Materials
are properly stored in a manner and location meeting all Environmental Laws and
approved in advance in writing by Landlord; (iii) Tenant will not permit any
Hazardous Substances to be brought onto the Leased Premises, except for
Permitted Materials, and if so brought or found located thereon, the same shall
be immediately removed, with proper disposal, and all required cleanup
procedures shall be diligently undertaken pursuant to all Environmental Laws.
If, at any time during or after the term of the Lease, the Leased Premises is
found to have been so contaminated by Tenant or subject to said conditions
created by Tenant, or at Tenant's instance, Tenant shall indemnify and hold
Landlord harmless from all claims, demands, actions, liabilities, costs,
expenses, damages and obligations of any nature, including reasonable attorneys'
fees, arising from or as a result of such conditions or use of the Leased
Premises. The foregoing indemnification shall survive the termination or
expiration of this Lease.
9. INSPECTIONS. Landlord shall have the right to enter the Leased
Premises at any reasonable time, for the following purposes: (i) to ascertain
the condition of the Leased Premises; (ii) to determine whether Tenant is
diligently fulfilling Tenant's responsibilities under this Lease; (iii) to clean
and to make such repairs as may be required or permitted to be made by Landlord
under the terms of this Lease; or (iv) to do any other act or thing which
Landlord deems reasonable to preserve the Leased Premises and the Building.
During the six (6) months prior to the end of the term hereof and at any time
Tenant is in default hereunder, Landlord shall have the right to enter the
Leased Premises at any reasonable time during business hours for the purpose of
showing the Premises. Tenant shall give notice to Landlord, and shall arrange
to meet with Landlord for a joint inspection of the Leased Premises prior to
vacating. In the event of Tenant's failure to give such notice or arrange such
joint inspection, Landlord's inspection at or after Tenant's vacating the Leased
Premises shall be presumptive evidence concerning its condition.
<PAGE>
10. ASSIGNMENT AND SUBLETTING.
(a) Tenant shall not have the right to assign, pledge, mortgage or
otherwise transfer this Lease or to sublet (which term shall include without
limitation granting of licenses, concessions and the like) the whole or any part
of the Leased Premises, whether voluntarily or by operation of law, directly or
indirectly, or permit the use or occupancy of the Leased Premises by anyone
other than Tenant, without the prior written consent of Landlord, and such
restrictions shall be binding upon any assignee or subtenant to which Landlord
has consented. Any assignment of this Lease or subletting of the whole or any
part of the Leased Premises by Tenant without Landlord's express consent shall
be invalid, void and of no force or effect. This prohibition includes, without
limitation, any assignment, subletting, or other transfer which would occur by
operation of law, merger, consolidation, reorganization, acquisition, transfer,
or other change of Tenant's corporate or proprietary structure, including a
change in the partners of any partnership, and the sale, pledge, or other
transfer of any of the issued or outstanding capital stock of any corporate
Tenant (unless such stock is publicly traded on a recognized security exchange
or over-the-counter market). It shall be a condition of the validity of any
permitted assignment or subletting that the assignee or sublessee agree directly
with Landlord, in form satisfactory to Landlord, to be bound by all Tenant
obligations hereunder, including, without limitation, the obligation to pay all
Base Rent and other amounts provided for under this Lease and the covenant
against further assignment or other transfer or subletting. In the event Tenant
desires to sublet the Leased Premises, or any portion thereof, or assign this
Lease, Tenant shall give written notice thereof to Landlord within a reasonable
time prior to the proposed commencement date of such subletting or assignment,
which notice shall set forth the name of the proposed subtenant or assignee, the
relevant terms of any sublease and copies of financial reports and other
relevant financial information of the proposed subtenant or assignee. Unless
expressly provided by Landlord in its consent to any such permitted assignment
or subletting, Tenant shall at all times remain directly, primarily and fully
responsible and liable for the payment of the rent herein specified and for
compliance with all of its other obligations under the terms, provisions and
covenants of this Lease. In the event of the occurrence of an "Event of
Default" (as hereinafter defined), during the period in which the Tenant's
interest in the Leased Premises or any part thereof is then assigned or sublet,
Landlord, in addition to any other remedies herein provided or provided by law,
may, at its option, collect directly from such assignee or subtenant all rents
due and becoming due to Tenant under such assignment or sublease and apply such
rent against any sums due to Landlord from Tenant hereunder, and no such
collection shall be construed to constitute a novation or release of Tenant from
the further performance of Tenant's obligations hereunder.
(b) If Landlord grants its consent to any sublease or assignment, Tenant
shall pay Landlord as additional Base Rent, an amount equal to fifty percent
(50%) of the difference between the sum of the total amount of any Base Rent
plus Operating Costs payable to Tenant under such sublease or assignment minus
the sum of the total amount of Base Rent plus Operating Costs payable by Tenant
to Landlord hereunder during the same period as such assignment or sublease.
Regardless of whether Landlord grants its consent to any proposed sublease or
assignment, Tenant shall pay all of the reasonable administrative and attorneys'
fees incurred by Landlord with respect to such proposed assignment or sublease.
If Tenant has any options to extend the term of this Lease, such options shall
not be available to any subtenant, directly or indirectly.
(c) In addition to, but not in limitation of, Landlord's right to approve
of any subtenant or assignee, Landlord shall have the option, in its sole
discretion, in the event of any proposed subletting or assignment, to terminate
this Lease, or in the case of a proposed subletting of less than the entire
Leased Premises, to recapture the portion of the Leased Premises to be sublet,
as of the date the subletting or assignment is to be effective. The option
shall be exercised, if at all, by Landlord giving Tenant written notice thereof
within sixty (60) days following Landlord's receipt of Tenant's written notice
as required above. If this Lease shall be terminated with respect to the entire
Leased Premises pursuant to this Paragraph, the term of this Lease shall end on
the date stated in Tenant's notice as the effective date of the sublease or
assignment as if that date had been originally fixed in this Lease for the
expiration of the term hereof. If Landlord recaptures under this Paragraph only
a portion of the Leased Premises, the rent during the unexpired term shall abate
proportionately based on the rent contained in this Lease as of the date
immediately prior to such recapture. In the event of termination in respect of
a portion of the Leased Premises, the portion so eliminated shall be delivered
to Landlord on the date specified in good order and condition in the manner
required under this Lease
<PAGE>
at the end of the term hereof and thereafter, to the extent necessary in
Landlord's judgment, Landlord, at Tenant's sole cost and expense, may have
access to and may make modification to the Leased Premises so as to make such
portion a self-contained rental unit with access to common areas, elevators
and the like. The provisions of this paragraph 10 shall apply to each and
every assignment of this Lease and each and every subletting of all or a
portion of the Leased Premises.
11. FIRE AND CASUALTY DAMAGE.
(a) If the Building, improvements, or Leased Premises are rendered
partially or wholly untenantable by fire or other casualty, and if such damage
cannot, in Landlord's reasonable estimation, be materially restored within sixty
(60) days of such damage, then Landlord may, at its sole option, terminate this
Lease as of the date of such fire or casualty. Landlord shall exercise its
option provided herein by written notice to Tenant within sixty (60) days of
such fire or other casualty. For purposes hereof, the Building, improvements,
or Leased Premises shall be deemed "materially restored" if they are in such
condition as would not prevent or materially interfere with Tenant's use of the
Leased Premises for the purpose for which it was then being used.
(b) If this Lease is not terminated pursuant to Paragraph 11(a), then
Landlord shall proceed with all due diligence but only to the extent of
insurance proceeds received by Landlord to repair and restore the Building,
improvements or Leased Premises, as the case may be (except that Landlord may
elect not to rebuild if such damage occurs during the last year of the term
exclusive of any option which is unexercised at the date of such damage).
(c) If this Lease shall be terminated pursuant to this Paragraph 11, the
term of this Lease shall end on the date of such damage as if that date had been
originally fixed in this Lease for the expiration of the term hereof. If this
Lease shall not be terminated by Landlord pursuant to this Paragraph 11 and if
the Leased Premises is untenantable in whole or in part following such damage,
the rent payable during the period in which the Leased Premises is untenantable
shall be reduced to such extent, if any, as may be fair and reasonable under all
of the circumstances. In the event that Landlord should fail to complete such
repairs and material restoration within one hundred fifty (150) days after the
date of such damage, Tenant may, at its option and as its sole remedy, terminate
this Lease by delivering written notice to Landlord, whereupon the Lease shall
end on the date of such notice as if the date of such notice were the date
originally fixed in this Lease for the expiration of the term hereof; provided
however, that if construction is delayed because of changes, deletions or
additions in construction requested by Tenant, strikes, lockouts, casualties,
acts of God, war, material or labor shortages, governmental regulation or
control of other causes beyond the reasonable control of Landlord, the period
for restoration, repair or rebuilding shall be extended for the amount of time
Landlord is so delayed. In no event shall Landlord be required to rebuild,
repair or replace any part of the partitions, fixtures, additions and other
improvements which may have been placed in or about the Leased Premises by
Tenant. Any insurance which may be carried by Landlord or Tenant against loss
or damage to the Building or Leased Premises shall be for the sole benefit of
the party carrying such insurance and under its sole control.
(d) Notwithstanding anything herein to the contrary, in the event the
holder of any indebtedness secured by a mortgage or deed of trust covering the
Leased Premises, Building or Property requires that any insurance proceeds be
applied to such indebtedness, then Landlord shall have the right to terminate
this Lease by delivering written notice of termination to Tenant within fifteen
(15) days after such requirement is made by any such holder, whereupon the Lease
shall end on the date of such damage as if the date of such damage were the date
originally fixed in this Lease for the expiration of the term hereof.
(e) In the event of any damage or destruction to the Building or the
Leased Premises by any peril contemplated by the provisions of this Paragraph
11, or in the event of condemnation as contemplated in Paragraph 12 hereof,
Tenant shall, upon notice from Landlord, remove forthwith, at its sole cost and
expense, the property belonging to Tenant from such portion of the Building as
Landlord shall request and Tenant hereby waives any and all claims it may have,
now or in the future, against Landlord arising in connection with damage
<PAGE>
to such property occurring as a result of any alleged failure to properly
secure the Leased Premises prior to such removal.
(f) Notwithstanding any contrary provision herein, Tenant hereby waives
any claims against Landlord relating to, and Landlord shall not be liable to
Tenant for, any damage to any equipment, inventory, tenant fixture or other
property situated in the Leased Premises or in, on or about the Property due to
any condition, design or defect in the Building or leakage of the roof, windows
and pipes, or of damage from gas, oil, water, steam, smoke or electricity, or
due to any other cause whatsoever, including Landlord's negligence, and Tenant
assumes all risks of damage to such property.
12. CONDEMNATION.
(a) If any substantial part of the Building, improvements, or Leased
Premises should be taken for any public or quasi-public use under governmental
law, ordinance or regulation, or by right of eminent domain, or by private
purchase in lieu thereof and the taking would prevent or materially interfere
with the use of the Building or Leased Premises for the purpose for which it is
then being used, at the sole option of Landlord, this Lease shall terminate
effective when the condemning authority acquires possession in the same manner
as if the date of such taking were the date originally fixed in this Lease for
the expiration of the term hereof.
(b) If part of the Building or Leased Premises shall be taken by right of
eminent domain, or by private purchase in lieu thereof, and this Lease is not
terminated as provided in subparagraph 12(a) above, this Lease shall not
terminate but the rent payable hereunder during the unexpired portion of this
Lease shall be reduced to such extent, if any, as may be fair and reasonable
under all of the circumstances. In such event, Landlord shall promptly after
the determination of Landlord's award on account thereof, expend so much as may
be necessary of the net amount which may be awarded to Landlord in such
condemnation proceedings in restoring the Leased Premises to the extent
reasonably feasible under all the circumstances to an architectural unit that is
reasonably suitable to the uses of Tenant permitted hereunder. Should the net
amount so awarded to Landlord be insufficient to cover the cost of so restoring
the Leased Premises, in the reasonable estimate of Landlord, Landlord may, but
shall have no obligation to, supply the amount of such insufficiency and restore
the Leased Premises to such an architectural unit, with all reasonable
diligence, or Landlord may terminate this Lease by giving notice to Tenant
within a reasonable time after Landlord has determined the estimated cost of
such restoration. Further, Landlord shall not be obligated in any event to make
any repairs or perform any restoration work to any alterations, additions, or
improvements to the Leased Premises performed by or for the benefit of Tenant
(all of which Tenant shall repair and restore) or to any fixtures in or portions
of the Leased Premises or the Building which were constructed or installed by or
for some party other than Landlord or which are not the property of Landlord.
(c) Upon any such taking or purchase, Landlord shall be entitled to
receive and retain the entire award or consideration for the affected lands and
improvements, subject to the rights of the holder of any mortgage of Landlord's
interest in the Property or the Building, and Tenant shall not have nor advance
any claim against Landlord or the condemning authority for the value of its
property or its leasehold estate for the unexpired Lease Term, or for costs of
removal or relocation, or business interruption expense or any other damages
arising out of such taking or purchase. Nothing herein shall preclude Tenant
from seeking and recovering on its own account from the condemning authority any
separate award or compensation attributable solely to the taking or purchase of
Tenant's chattels or trade fixtures or attributable to Tenant's relocation
expenses provided that any such separate claim by Tenant shall not reduce or
adversely affect the amount of Landlord's award. If any such award made or
compensation paid to either party specifically includes an award or amount for
the other, the party first receiving the same shall promptly account therefor to
the other.
13. INDEMNIFICATION. Subject to the provisions of the immediately
succeeding paragraph, Tenant shall indemnify Landlord from and against any and
all demands and liabilities (a) arising directly or indirectly from any default
or breach by Tenant or Tenant's contractors, licensees, agents, servants, or
employees under any of the terms or covenants of this Lease (including without
limitation any violation of Landlord's rules and regulations and any failure to
maintain or repair equipment or installations to be maintained or repaired by
<PAGE>
Tenant hereunder) or the failure of Tenant or such persons to comply with any
rule, order, regulation, or lawful direction now or hereafter in force of any
public authority, in each case to the extent the same are related, directly or
indirectly, to the Leased Premises or the Building, or Tenant's use thereof; or
(b) arising directly or indirectly from any accident, injury, or damage, however
caused, to any person or property, on or about the Leased Premises; or (c)
arising directly or indirectly from any accident, injury, or damage to any
person or property occurring outside the Leased Premises but within the Building
or on the Property, where such accident, injury, or damage results, or is
claimed to have resulted, from any act, omission, or negligence on the part of
Tenant, or Tenant's contractors, licensees, agents, servants, employees, or
customers, or anyone claiming by or through Tenant. Subject to the provisions
of the immediately succeeding paragraph, Landlord shall indemnify Tenant from
and against any and all demands and liabilities for or relating to injury or
loss of life to persons or damage to or loss of property to the extent arising
from Landlord's gross negligence or intentional misconduct in and around that
portion of the Building other than the Leased Premises. The duties to indemnify
contemplated hereby include the duty to pay all reasonable and necessary
attorneys' fees and costs incurred by the indemnitee in connection with any such
proceedings and shall survive the termination of the Lease; provided, such
duties shall only be applicable to the extent that they are not limited by the
waiver of claims provision in the immediately succeeding paragraph.
Insofar as and to the extent that the following provisions may be effective
without invalidating or making it impossible to secure insurance coverage from
responsible insurance companies doing business in the State of Minnesota (even
though extra premium may result therefrom): Landlord and Tenant mutually agree
that with respect to any loss which is covered by insurance then being carried
by them, the one carrying such insurance and suffering said loss releases the
other of and from any and all claims with respect to such loss to the extent of
insurance proceeds received thereunder; and they further mutually agree that
their insurance companies shall have no right of subrogation against the other
on account thereof. In the event that an additional premium is payable by
either parry as a result of this provision, the other parry shall reimburse the
party paying such premium the amount of such extra premium. If, at the written
request of one party, this release and non-subrogation provision is waived, then
the obligation of reimbursement shall cease for such period of time as such
waiver shall be effective, but nothing contained in this paragraph shall be
deemed to modify or otherwise affect any releases elsewhere contained in this
Lease.
14. TENANT'S INSURANCE.
(a) LIABILITY INSURANCE. Tenant shall, at its sole cost and expense,
maintain in effect at all times during the Lease Term a "Commercial General
Liability Insurance" policy (Insurance Service Office form title), providing
coverage on an "occurrence" rather than on a "claims made" basis, with a total
combined policy limit of at least $3,000,000.00, which policy shall include, but
not be limited to, coverages for Bodily Injury, Property Damage, Personal Injury
and Contractual Liability (applying to this Lease), or an equivalent form (or
forms), so long as such equivalent form (or forms) affords coverage which is at
least as broad. An Insurance Services Office "Comprehensive General Liability"
policy which includes a Broad Form Endorsement GL 0404 (Insurance Services
Office designation) shall be considered to be an equivalent policy form.
Tenant's liability insurance coverage may be subject to a deductible,
"retention" or "participation" (or other similar provision) requiring the Tenant
to remain responsible for a stated amount or percentage of each covered loss;
provided, however, that such deductible, retention or participation amount shall
not exceed $10,000.00 for each occurrence. Such policy shall name Landlord and
its mortgagees and managing agent as an Additional Insured thereunder.
(b) PROPERTY INSURANCE. Tenant shall, at its sole cost and expense,
maintain in effect at all times during the term of the Lease insurance covering
all of Tenant's improvements, fixtures and property in the Leased Premises
against loss by fire and other hazards covered by the so-called "all-risk" form
of policy, and including earthquake coverage, in an amount equal to the actual
replacement cost thereof, without deduction for physical depreciation. Such
insurance shall include demolition and increased cost to rebuild coverages;
Valuable Papers and Records coverage, providing for Reproduction Costs measure
of recovery; and coverage for damage to Electronic Data Processing Equipment and
Media, including coverage of the perils of mechanical breakdown and electronic
disturbance. If the Tenant's property in the Leased Premises includes steam
boilers or other
<PAGE>
equipment excluded from coverage pursuant to a Boiler and Machinery
exclusion, such insurance policy shall include Boiler and Machinery insurance
in an amount reasonably satisfactory to Landlord.
(c) POLICY PROVISIONS. Policies for the liability and property insurance
coverages contemplated by this Paragraph shall be in a form and with an insurer
reasonably acceptable to Landlord and shall require at least thirty (30) days
prior written notice to Landlord and, if requested by Landlord, Landlord's
mortgagee(s), of termination or material alteration. The liability insurance
under subparagraph 14(a) shall be primary with respect to Landlord and its
agents and not participating with any other available insurance. Tenant shall
deliver on the commencement date and on each anniversary thereof to Landlord
insurer-certified copies of such policies, or other evidence reasonably
satisfactory to Landlord, confirming the terms of such insurance, confirming
that premiums thereon have been paid at least one (1) year in advance and
confirming that the policies are in full force and effect Landlord may from time
to time, but not more often than every 3 years, require a contents inventory or
an insurance appraisal reasonably satisfactory to Landlord confirming the
replacement cost of the insured property. If Tenant has a blanket insurance
policy in force providing coverage for several properties of Tenant, including
the Leased Premises, Landlord will accept certificate of such insurance,
together with a copy of such blanket insurance policy; provided, the certificate
sets forth the amounts of insurance and coverage, such amounts are at least
equal to the amounts required hereinabove, and otherwise such policy complies
with the requirements hereof.
15. HOLDING OVER. Tenant will, at the termination of this Lease by lapse
of time or otherwise, yield up immediate possession of the Leased Premises to
Landlord. If Tenant retains possession of the Leased Premises, or any part
thereof after such termination, then Landlord may, at its option, serve written
notice upon Tenant that such holding over constitutes the creation of a month to
month tenancy, upon the terms and conditions set forth in this Lease; provided,
however, that the monthly rental shall, in addition to all other sums which are
to be paid by Tenant hereunder, whether or not as additional rent, be equal to
double the rental being paid monthly to Landlord under this Lease immediately
prior to such termination. Tenant shall also pay to Landlord all damages
sustained by Landlord resulting from such retention of possession by Tenant,
including those arising as a consequence of the loss of any proposed subsequent
tenant for any portion of the Leased Premises.
16. QUIET ENJOYMENT. Subject to the terms and provisions of this Lease
and on payment of the Base Rent, additional rent, and other sums due hereunder
and compliance with all of the terms and provisions of this Lease, Tenant shall
lawfully, peaceably, and quietly have, hold, occupy, and enjoy the Leased
Premises during the term hereof, without hindrance or ejection by Landlord or by
any persons claiming under Landlord; the foregoing covenant of quiet enjoyment
is in lieu of any other covenant, express or implied. In the event this Lease
is a sublease, then Tenant agrees to take the Leased Premises subject to the
provisions of the prior leases.
17. EVENTS OF DEFAULT. The following events shall be deemed to be events
of default (referred to herein as "events of default" or "Events of Default") by
Tenant under this Lease:
(a) Tenant shall fail to pay when or before due any sum of money becoming
due to be paid to Landlord hereunder, whether such sum be any installment of the
rent herein reserved, any other amount treated as additional rent hereunder, or
any other payment or reimbursement to Landlord required herein, whether or not
treated as additional rent hereunder, and such failure shall continue for a
period of five (5) days from the date such payment was due; or
(b) Tenant shall fail to comply with any term, provision or covenant of
this Lease other than by failing to pay when or before due any sum of money
becoming due to be paid to Landlord hereunder, and shall not cure such failure
within twenty (20) days (forthwith, if the default involves a hazardous
condition) after written notice thereof to Tenant; or
(c) Tenant shall abandon or vacate any substantial portion of the Leased
Premises; or
<PAGE>
(d) Tenant shall fail to vacate the Leased Premises immediately upon
termination of this Lease, by lapse of time or otherwise, or upon termination of
Tenant's right to possession only; or
(e) The leasehold interest of Tenant shall be levied upon under execution
or be attached by process of law or Tenant shall fail to contest diligently the
validity of any lien or claimed lien and give sufficient security to Landlord to
insure payment thereof or shall fail to satisfy any judgment rendered thereon
and have the same released, and such default shall continue for ten (10) days
after written notice thereof to Tenant; or
(f) Tenant shall become insolvent, make an assignment for the benefit of,
or "bulk sale" of assets to, creditors, make a transfer in fraud of creditors,
apply for or consent to the appointment of a receiver of itself or of the whole
or any substantial part of its property, or file a petition or file an answer
under the federal bankruptcy laws, as now in effect or hereafter amended, or any
other applicable law or statute of the United States or any state thereof; or
(g) A court of competent jurisdiction shall enter an order, judgment or
decree adjudicating Tenant a bankrupt, or appointing a receiver of Tenant, or of
the whole or any substantial part of its property, without the consent of
Tenant, or approving a petition filed against Tenant seeking reorganization or
arrangement of Tenant under the bankruptcy laws of the United States, as now in
effect or hereafter amended, or any state thereof, and such order, judgment or
decree shall not be vacated or set aside or stayed within thirty (30) days from
the date of entry thereof.
18. REMEDIES. Upon the occurrence of any of such events of default
described in Paragraph 17 hereof or elsewhere in this Lease, Landlord shall have
the option to pursue any one or more of the following remedies without any
notice or demand whatsoever:
(a) Landlord may, at its election and upon written notice, terminate this
Lease or terminate Tenant's right to possession only, without terminating the
Lease. In either such event, Tenant shall immediately vacate the Leased
Premises and deliver immediate possession thereof to Landlord.
(b) Upon any termination of Tenant's right to possession whether with or
without termination of the Lease, Landlord may, at Landlord's option, enter into
the Leased Premises, remove Tenant's signs and other evidences of tenancy and
its property, and take and hold possession thereof without such entry and
possession terminating the Lease if Landlord so elects or releasing Tenant, in
whole or in part, from any obligation, including Tenant's obligation to pay the
rent, including any amounts treated as additional rent, hereunder for the full
term. Landlord may, but need not relet the Leased Premises or any part thereof
for such rent and upon such terms as Landlord in its sole discretion shall
determine (including the right to relet the Leased Premises for a greater or
lesser term than that remaining under this Lease, the right to relet the Leased
Premises as part of a larger area, and the right to change the character or use
made of the Leased Premises) and Landlord shall not be required to accept any
tenant offered by Tenant or to observe any instructions given by Tenant about
such reletting. Landlord shall in no event be liable in any way whatsoever for
failure to re-let the Leased Premises, or, in the event that the Leased Premises
are re-let, for failure to collect the rent under such reletting, and Tenant
hereby waives, to the extent permitted by applicable law, any obligation
Landlord may have to mitigate Tenant's damages. In any such case, Landlord may
make repairs, alterations and additions in or to the Leased Premises, and
redecorate the same to the extent Landlord deems necessary or desirable, and
Tenant shall, upon demand, pay the cost thereof, together with Landlord's
expenses of reletting including, without limitation, any broker's commission and
attorneys' fees incurred by Landlord. If the consideration collected by
Landlord upon any such reletting plus any sums previously collected from Tenant
are not sufficient to pay the full amount of all rent, including any amounts
treated as additional rent hereunder and other sums reserved in this Lease for
the remaining term hereof, together with the costs of repairs, alterations,
additions, redecorating, and Lessor's expenses of reletting and the collection
of the rent accruing therefrom (including attorneys' fees and brokers'
commissions), Tenant shall pay to Landlord the amount of such deficiency on the
days originally fixed herein for the payment thereof and as additional rent
hereunder.
<PAGE>
(c) Upon any termination of this Lease, if Landlord so elects as an
alternative to the amounts set forth in (b) above, Tenant shall pay forthwith to
Landlord a sum as at the time of such as termination represents the amount of
the excess, if any, of the then value of the total Base Rent and other benefits
which would have accrued to Landlord under this Lease for the remainder of the
Lease Term if the lease terms had been fully complied with by Tenant over and
above the then cash rental value (in advance) of the Leased Premises for what
would be the then unexpired Lease Term if the same remained in effect. For
purposes of this subparagraph, if Landlord elects to require Tenant to pay
damages in accordance with immediately preceding sentence, the total amount due
shall be computed by assuming that Tenant's Proportionate Share of Operating
Costs would be, for the balance of such unexpired term, the amount thereof for
the lease year in which such termination shall occur.
(d) Any and all property which may be removed from the Leased Premises by
Landlord pursuant to the authority of the Lease or of law, to which Tenant is or
may be entitled, may be handled, removed and stored, as the case may be, by or
at the direction of Landlord at the risk, cost and expense of Tenant, and
Landlord shall in no event be responsible for the value, preservation or
safekeeping thereof. Tenant shall pay to Landlord, upon demand, any and all
expenses incurred in such removal and all storage charges against such property
so long as the same shall be in Landlord's possession or under Landlord's
control. Unless otherwise provided by statute or hereunder, any such property
of Tenant not retaken by Tenant from storage within thirty (30) days after
removal from the Leased Premises shall, at Landlord's option, be deemed conveyed
by Tenant to Landlord under this Lease as by a bill of sale without further
payment or credit by Landlord to Tenant.
(e) In the event Tenant fails to pay any installment of rent, including
any amount treated as additional rent hereunder, or other sums hereunder as and
when such installment or other charge is due, Tenant shall pay to Landlord on
demand a late charge in an amount equal to five percent (5%) of such installment
or other charge overdue in any month and two percent (2%) each month thereafter
until paid in full to help defray the additional cost to Landlord for processing
such late payments, and such late charge shall be additional rent hereunder and
the failure to pay such late charge within ten (10) days after demand therefor
shall be an additional Event of Default hereunder. The provision for such late
charge shall be in addition to all of Landlord's other rights and remedies
hereunder or at law and shall not be construed as liquidated damages or as
limiting Landlord's remedies in any manner.
(f) Pursuit of any of the foregoing remedies shall not preclude pursuit of
any of the other remedies herein provided or any other remedies provided by law
or at equity (all such remedies being cumulative), nor shall pursuit of any
remedy herein provided constitute a forfeiture or waiver of any rent due to
Landlord hereunder or of any damages accruing to Landlord by reason of the
violation of any of the terms, provisions and covenants herein contained. No
act or thing done by Landlord or its agents during the term hereby granted shall
be deemed a termination of this Lease or an acceptance of the surrender of the
Leased Premises, and no agreement to terminate this Lease or accept a surrender
of said Premises shall be valid unless in writing signed by Landlord. No waiver
by Landlord of any violation or breach of any of the terms, provisions and
covenants herein contained shall be deemed or construed to constitute a waiver
of any other or future violation or breach of any of the terms, provisions and
covenants herein contained. Landlord's acceptance of the payment of rental or
other payments hereunder after the occurrence of an Event of Default shall not
be construed as a waiver of such default, unless Landlord so notifies Tenant in
writing. Tenant agrees to pay all costs, including reasonable attorneys' fees,
incurred by Landlord in enforcing or defending any of Landlord's rights or
remedies granted herein or by applicable law. In the event of any action or
litigation to enforce the terms hereof, Landlord shall be entitled an award of
its reasonable attorneys' fees and costs.
19. LANDLORD'S LIEN. In addition to any statutory lien for rent in
Landlord's favor, Landlord shall have and Tenant hereby grants to Landlord a
continuing security interest for all rentals and other sums of money becoming
due hereunder from Tenant, upon all goods, wares, equipment, fixtures,
furniture, inventory, accounts, contract rights, chattel paper and other
personal property of Tenant situated on the Leased Premises, all additions and
replacements of such property, the proceeds thereof of such property and all
after-acquired property of Tenant located on the Leased Premises. Such property
shall not be removed therefrom without the consent of Landlord until all
arrearages in rent as well as any and all other sums of money then due to
Landlord
<PAGE>
hereunder shall first have been paid and discharged. In the event of a
default under this Lease, Landlord shall have, in addition to any other remedies
provided herein or by law or at equity, all rights and remedies under the
Uniform Commercial Code, including without limitation the right to sell the
property described in this Paragraph 19 at public or private sale upon five (5)
days notice to Tenant. Tenant hereby agrees to execute such financing
statements and other instruments necessary or desirable in Landlord's discretion
to perfect the security interest hereby created. Any statutory lien for rent is
not hereby waived, the express contractual lien herein granted being in addition
and supplementary thereto.
20. MORTGAGES. Tenant accepts this Lease subject and subordinate to any
mortgage(s) and/or deed(s) of trust now or at any time hereafter constituting a
first lien or charge upon the Property, or the improvements situated thereon,
provided, however, that if the mortgagee, trustee, or holder of any such
mortgage or deed of trust elects to have Tenant's interest in this Lease
superior to any such instrument, then by notice to Tenant from such mortgagee,
trustee or holder, this Lease shall be deemed superior to such lien whether this
Lease was executed before or after said mortgage or deed of trust. Tenant shall
at any time hereafter on demand execute any instruments, releases or other
documents which may be required by any such mortgagee for the purpose of
subjecting and subordinating this Lease to the lien of any such mortgage or for
the purpose of evidencing the superiority of this Lease to the lien of any such
mortgage, as may be the case.
21. LANDLORD'S LIABILITY. The Tenant agrees to look solely to Landlord's
then equity interest in the Building and the Property at the time owned, or in
which Landlord holds an interest as ground lessee, for recovery of any judgment
from Landlord; it being specifically agreed that neither Landlord (whether
Landlord be an individual, partnership, firm, corporation, trustee, or other
fiduciary) nor any partner, policyholder, officer, shareholder, beneficiary or
director of Landlord, nor any trust of which any person holding Landlord's
interest is trustee nor any successor in interest to any of the foregoing shall
ever be personally liable for any such judgment, or for the payment of any
monetary obligation to Tenant. The covenants of Landlord contained in this
Lease shall be binding upon Landlord and Landlord's successors only with respect
to breaches occurring during Landlord's and Landlord's successors' respective
periods of ownership of Landlord's interest hereunder. It shall be a condition
precedent to Tenant's right to maintain any lawsuit or other action against
Landlord that Tenant first obtain an order authorizing such action from the
Hennepin County District Court.
22. MECHANIC'S AND OTHER LIENS. Tenant shall have no authority, express
or implied, to create or place any lien or encumbrance of any kind or nature
whatsoever upon, or in any manner to bind, the interest of Landlord in the
Leased Premises or to change the rentals payable hereunder for any claim in
favor of any person dealing with Tenant, including those who may furnish
materials or perform labor for any construction or repairs, and each such claim
shall affect and each such lien shall attach to, if at all, only the leasehold
interest granted to Tenant by this Lease. Tenant covenants and agrees that it
will pay or cause to be paid all sums legally due and payable by it on account
of any labor performed or materials furnished in connection with any work
performed on the Leased Premises on which any lien is or can be validly and
legally asserted against its leasehold interest in the Leased Premises and that
it will save and hold Landlord harmless from any and all loss, liability, cost
or expense, including reasonable attorneys' fees, based on or arising out of
asserted claims or liens against the Tenant's leasehold estate or against the
right, title and interest of the Landlord in the Leased Premises or the
Building. If any such lien shall remain in force and effect for twenty (20)
days after the filing, or Landlord's receipt, of the mechanic's lien statement
or notice, Landlord shall have the right to pay and discharge the same or any
portion thereof without inquiry as to the validity thereof, and any amounts so
paid, including expenses and interest, shall be payable by Tenant to Landlord as
additional rent hereunder upon demand. Notwithstanding the foregoing, Tenant
shall have the right to contest any such lien in good faith and with all due
diligence so long as any such contest, or action taken in connection therewith,
adequately protects the interest of Landlord and Landlord's mortgagee in the
Leased Premises, and Landlord and any such mortgagee are, by the expiration of
said twenty (20) day period, furnished such security against any loss,
liability, cost or expense related to any such lien and the contest thereof as
are satisfactory to Landlord and any such mortgagee.
<PAGE>
23. NOTICES. Each provision of this Lease or of any applicable
governmental laws, ordinances, regulations and other requirements with reference
to the sending, mailing or delivery of any notice or the making of any payment
shall be deemed to be complied with when and if the following steps are taken:
(a) All rent and other payments required to be made by Tenant to Landlord
hereunder shall be payable to:
Whitewood (Minneapolis) Limited Partnership
P.O. Box 630802
Baltimore, Maryland 21263-0802
or to such other entity at such other address as Landlord may specify from time
to time by written notice delivered in accordance herewith.
(b) Any notice or other document required or permitted to be delivered
hereunder shall be in writing and shall be deemed to be delivered whether
actually received or not when deposited in the continental United States Mail,
postage prepaid, certified or registered mail, addressed to the parties hereto
at the respective addresses set out below, or at such other address as they have
theretofore specified by written notice delivered in accordance herewith:
LANDLORD TENANT
UNITED PROPERTIES CORPORATION UNITED COMMUNITY
3500 West 80th Street BANCSHARES, INC.
Bloomington, Minnesota 55431 2600 Eagan Woods Drive
Suite 135
MR. FRANK MCBREARITY Eagan, Minnesota 55121
McBrearity & Co., Inc.
27 Turtleback Lane East
New Canaan, Connecticut 06840
All parties included within the terms "Landlord" and "Tenant",
respectively, shall be bound by notices given in accordance with the provisions
of this Paragraph to the same effect as if each had received such notice.
24. MISCELLANEOUS.
(a) Words of any gender used in this Lease shall be held and construed to
include any other gender, and words in the singular number shall be held to
include the plural, unless the context otherwise requires.
(b) The terms, provisions and covenants and conditions contained in this
Lease shall apply to, inure to the benefit of, and be binding upon, the parties
hereto and upon their respective heirs, legal representatives, successors and
permitted assigns, except as otherwise expressly provided herein. Landlord
shall have the right to assign any of its rights and obligations under this
Lease and Landlord's grantee or Landlord's successor shall upon such assignment,
become "Landlord" hereunder, thereby freeing and relieving the grantor or
assignor of all covenants and obligations of "Landlord" hereunder accruing after
the date of such transfer; provided, however, that no successor Landlord shall
be responsible for the return of any security deposit provided for pursuant to
Paragraph 2(b) unless such successor receives the deposit. Tenant agrees to
furnish promptly upon demand, a corporate resolution, proof of due authorization
by partners, or other appropriate documentation evidencing the due authorization
of Tenant to enter into this Lease. Nothing herein contained shall give any
other Tenant in the Building any enforceable rights either against Landlord or
Tenant as a result of the covenants and obligations of either party set forth
herein.
<PAGE>
(c) The captions inserted in this Lease are for convenience only and in no
way define, limit or otherwise describe the meaning and effect of the provisions
hereof.
(d) Tenant shall at any time and from time to time within ten (10) days
after written request from Landlord execute and deliver to Landlord a sworn and
acknowledged estoppel certificate in form reasonably satisfactory to Landlord
certifying and stating as follows: (i) this Lease has not been modified or
amended (or if modified or amended, setting forth such modifications or
amendments); (ii) this Lease (as so modified or amended) is in full force and
effect (or if not in full force and effect, the reasons therefor); (iii) the
Tenant has no offsets or defenses to its performance of the terms and provisions
of this Lease, including the payment of rent (or if there are any such defenses
or offsets, specifying the same); (iv) Tenant is in possession of the Leased
Premises, if such be the case; (v) if an assignment of rents or leases has been
served upon Tenant by a mortgagee or prospective mortgagee, Tenant has received
such assignment and agrees to be bound by the provisions thereof, and (vi) any
other accurate statements reasonably required by Landlord or its mortgagee or
prospective mortgagee or purchaser. It is intended that any such statement
delivered pursuant to this subsection may be relied upon by any prospective
purchaser or mortgagee and their respective successors and assigns and Tenant
shall, to the fullest extent required at law or in equity, indemnify Landlord
and such mortgagee and/or purchaser from and against all loss, cost and expense,
including reasonable attorneys' fees, arising as a result of any material
misstatement contained in such estoppel certificate. Tenant hereby irrevocably
appoints Landlord as attorney-in-fact for the Tenant with full power and
authority to execute and deliver in the name of Tenant such estoppel certificate
if Tenant fails to deliver the same within such ten (10) day period and such
certificate as signed by Landlord shall be fully binding on Tenant, if Tenant
fails to deliver a contrary certificate within five (5) days after receipt by
Tenant of a copy of the certificate executed by Landlord on behalf of Tenant.
(e) This Lease may not be amended except by an instrument in writing
signed by both parties hereto.
(f) All obligations of Tenant hereunder not fully performed as of the
expiration or earlier termination of the term of this Lease shall survive the
expiration or earlier termination of the term hereof, including without
limitation, all payment obligations with respect to Operating Costs and all
obligations concerning the condition of the Premises. Upon the expiration or
earlier termination of the term hereof, Tenant shall pay to Landlord the amount,
as estimated by Landlord, necessary: (i) to repair and restore the Leased
Premises as provided herein; and (ii) to discharge Tenant's obligation for
Operating Costs or other amounts due Landlord. All such amounts shall be used
and held by Landlord for payment of such obligations of Tenant, with Tenant
being liable for any additional costs upon demand by Landlord, or with any
excess to be returned to Tenant after all such obligations have been determined
and satisfied. Any security deposit held by Landlord shall be credited against
the amount payable by Tenant under this Paragraph 25(f).
(g) If any clause, phrase, provision or portion of this Lease or the
application thereof to any person or circumstance shall be invalid or
unenforceable under applicable law, such event shall not affect, impair or
render invalid or unenforceable the remainder of this Lease nor any other
clause, phrase, provision or portion hereof, nor shall it affect the application
of any clause, phrase, provision or portion hereof to other persons or
circumstances, and it is also the intention of the parties to this Lease that in
lieu of each such clause, phrase, provision or portion of this Lease that is
invalid and unenforceable, there be added as a part of this Lease contract a
clause, phrase, provision or portion as similar in terms to such invalid or
unenforceable clause, phrase, provision or portion as maybe possible and be
valid and enforceable.
(h) Submission of this Lease shall not be deemed to be a reservation of
the Leased Premises or an offer to lease. Landlord shall not be bound hereby
until its delivery to Tenant of an executed copy hereof signed by Landlord,
already having been signed by Tenant, and until such delivery Landlord
reserves the right to exhibit and lease the Leased Premises to other
prospective tenants. Notwithstanding anything contained herein to the
contrary, Landlord may withhold delivery of possession of the Leased Premises
from Tenant until such time as Tenant has paid to Landlord the security
deposit required by Paragraph 2(b) hereof, the first month's rent as set
forth in Paragraph 2(a) hereof, and any sum owed pursuant to Paragraph 6
hereof.
<PAGE>
(i) Whenever a period of time is herein prescribed for action to be taken
by Landlord, Landlord shall not be liable or responsible for, and there shall be
excluded from the computation for any such period of time, any delays due to
causes of any kind whatsoever which are beyond the control of Landlord. In no
event shall Landlord ever be liable to Tenant for any special, indirect or
consequential damages.
(j) The execution of this Lease shall be subject to approval, if required,
by Landlord's lenders for the Building.
(k) If there be more than one Tenant, the obligations hereunder imposed
upon Tenant shall be joint and several. Any indemnification of, or option
granted to, Landlord shall also include or be exercisable by Landlord's
partners, officers, agents and employees, as the case may be.
(l) Each of the parties (i) represents and warrants to the other that it
has not dealt with any broker or finder in connection with this Lease, except as
described on Exhibit "E" attached hereto; and (ii) indemnities and holds the
other harmless from any and all losses, liability, costs, or expenses (including
attorneys' fees) incurred as a result of an alleged breach of the foregoing
warranty.
(m) This Lease shall be construed in accordance with the laws of the State
in which the Leased Premises is situated.
25. SUBSTITUTION OF PREMISES. At any time after the date of execution of
this Lease, Landlord may substitute for the Leased Premises, other premises in
the Building (the "New Premises"), in which event the New Premises shall be
deemed to be the Leased Premises for all purposes under this Lease, provided:
(i) the New Premises shall be similar to the Leased Premises in area and
appropriateness for the conduct of Tenant's permitted use; (ii) said
substitution shall be made in order to put into the Leased Premises a major
tenant of the Building who then occupies, or as a result of such move will
occupy, all or a substantial part of the floor in which the Leased Premises is
located; (iii) if Tenant is then occupying the Leased Premises, Landlord shall
pay the expense of moving Tenant, its property and equipment to the New Premises
and such moving shall be done at such time and in such manner so as to cause the
least inconvenience to Tenant; (iv) Landlord shall give to Tenant not less than
thirty (30) days' prior written notice of such substitution; and (v) Landlord
shall, at its sole cost, improve the New Premises with improvements
substantially similar to those located in the Leased Premises.
26. CERTAIN RIGHTS RESERVED TO THE LANDLORD. The Landlord reserves and
may exercise the following rights without affecting Tenant's obligations
hereunder:
(a) to change the name or street address of the Building;
(b) to install and maintain a sign or signs on the exterior of the
Building;
(c) to have access for the Landlord and the other tenants of the Building
to any mail chutes located on the Leased Premises according to the rules of the
United States Post Office;
(d) to designate all sources furnishing sign painting and lettering, ice,
drinking water, towels, coffee cart service and toilet supplies, lamps and bulbs
used on the Leased Premises;
(e) to retain at all times passkeys to the Leased Premises;
(f) to grant to anyone the exclusive right to conduct any particular
business or undertaking in the Building;
(g) to close the Building after regular working hours and on the legal
holidays subject, however, to Tenant's right to admittance, under such
reasonable regulations as Landlord may prescribe from time to time, which may
include by way of example but not of limitation, that persons entering or
leaving the Building
<PAGE>
identify themselves to a watchman by registration or otherwise and that said
persons establish their right to enter or leave the Building; and
(h) to take any and all measures, including inspections, repairs,
alterations, decorations, additions and improvements to the Leased Premises or
to the Building, as may be necessary or desirable for the safety or operation of
the Leased Premises or the Building.
The Landlord may enter upon the Leased Premises and may exercise any or all
of the foregoing rights hereby reserved without abatement of rent or affecting
any of the Tenant's obligations hereunder.
27. SELF-HELP BY LANDLORD. If Tenant shall at any time default in the
performance of any obligation under this Lease, Landlord shall have the right,
but not the obligation, to enter upon the Leased Premises and/or to perform such
obligation, notwithstanding the fact that no specific provision for such
substituted performance by Landlord is made in this Lease with respect to such
default. In performing any such obligations, Landlord may make any payment of
money or perform any other act. All sums so paid by Landlord and all necessary
incidental costs and expenses in connection with the performance of any such act
by Landlord, shall be deemed to be additional rent under this Lease and shall be
payable to Landlord immediately on demand. Landlord may exercise the foregoing
rights without waiving any other of its rights or releasing Tenant from any of
its obligations under this Lease.
28. ADDITIONAL PROVISIONS. See attached Paragraphs ____ through _____.
EXECUTED the 7th day of September, 1995.
LANDLORD:
WHITEWOOD (MINNEAPOLIS)
LIMITED PARTNERSHIP, a Minnesota
limited partnership
By: IBUS WHITEWOOD, INC., a
Minnesota corporation, its general
partner
By: /s/
---------------------------------
Name: Frank B. McBrearity, Jr.
Title: Vice President
TENANT:
UNITED COMMUNITY BANCSHARES,
INC.
By: /s/
---------------------------------
Title: Executive Vice President
<PAGE>
EXHIBIT A
[plan: first floor]
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EXHIBIT B
LOT 1, BLOCK 1
EAGAN WOODS OFFICE PARK
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EXHIBIT C
[plan: blowup of first floor - 3 pages]
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EXHIBIT D
RULES AND REGULATIONS
1. The sidewalks, halls, passages, elevators and stairways shall not be
obstructed by Tenant or used for any purpose other than for ingress to and
egress from the leased premises. The halls, passages, entrances, elevators,
stairways, balconies and roof are not for the use of the general public, and
Landlord shall in all cases retain the right to control and prevent access
thereto of all persons whose presence in the judgement of Landlord shall be
prejudicial to the safety, character, reputation and interests of the Building
and its tenants, provided, that nothing herein contained shall be construed to
prevent such access to persons with whom Tenant normally deals in the ordinary
course of its business unless such persons are engaged in illegal activities.
Tenant and its employees shall not go upon the roof of the Building without the
written consent of the Landlord.
2. The sashes, sash doors, windows, glass lights, and any lights or
skylights that reflect or admit light into the halls or other places of the
Buildings shall not be covered or obstructed. The toilet rooms, water and wash
closets and other water apparatus shall not be used for any purpose other than
that for which they were constructed, and no foreign substance of any kind
whatsoever shall be thrown therein, and the expense of any breakage, stoppage or
damage, resulting from the violation of this rule shall be borne by the tenant
who, or whose clerk, agents, servants, or visitors, shall have caused it.
3. If Landlord, by a notice in writing to Tenant, shall object to any
curtain, blind, shade or screen attached to, or hung in, or used in connection
with, any window or door of the leased premises, such use of such curtain,
blind, shade or screen shall be discontinued forthwith by Tenant. No awnings
shall be permitted on any part of the leased premises.
4. No safes or other objects heavier than the lift capacity of the
freight elevators of the Building shall be brought into or installed on the
leased premises. Tenant shall not place a load upon any floor of the leased
premises which exceeds the load per square foot which such floor was designed to
carry and which is allowed by law. The moving of safes shall occur only between
such hours as may be designated by, and only upon previous notice to, the
manager of the Building, and the persons employed to move safes in or out of the
Building must be acceptable to Landlord. No freight, furniture or bulky matter
of any description shall be received into the Building or carried into the
elevators except during hours and in a manner approved by Landlord.
5. Tenant shall not use, keep, or permit to be used or kept any foul or
noxious gas or substance in the leased premises, or permit or suffer the leased
premises to be occupied or used in a manner offensive or objectionable to
Landlord or other occupants of the Building by reason of noise, odors, and/or
vibrations, or interfere in any way with other tenants or those having business
therein, nor shall any animals or birds (except Seeing eye dogs) be brought into
or kept in or about the Building. Tenant shall not place or install any
antennae or aerials or similar devices outside of the leased premises.
6. Tenant shall not use or keep in the Building any inflammables,
including but not limited to kerosene, gasoline, naphtha and benzine (except
cleaning fluids in small quantities and when in containers approved by the Board
of Underwriters), or explosives or any other articles of intrinsically dangerous
nature, or use any method of heating other than that supplied by Landlord.
7. If Tenant desires telephone or telegraph connections or alarm systems,
Landlord will direct electricians as to where and how the wires are to be
introduced. No boring or cutting for wires or otherwise shall be made without
specific directions from Landlord.
8. Tenant, upon the termination of the tenancy, shall deliver to the
Landlord all the keys of offices, rooms and toilet rooms which shall have been
furnished Tenant or which Tenant shall have had made, and in the event of loss
of any keys so furnished shall pay the Landlord therefor.
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9. Tenant shall not put down any floor covering in the leased premises
without the Landlord's prior approval of the manner and method of applying such
floor covering.
10. On Sundays and legal holidays, and on other days between the hours of
6 p.m. and 8 a.m., access to the Building, or to the halls, corridors, elevators
or stairways in the Building, or to the leased premises may be refused unless
the person seeking access is known to the watchman of the Building in charge and
has a pass or is properly identified. Landlord shall in no case be liable for
damages for the admission to or exclusion from the Building of any person whom
the Landlord has the right to exclude under Rule 1 above. In case of invasion,
mob, riot, public excitement, or other commotion, Landlord reserves the right to
prevent access to the Building during the continuance of the same by closing the
doors or otherwise, for the safety of the tenants or Landlord and protection of
property in the Building.
11. Tenant assumes full responsibility for protecting its space from
theft, robbery and pilferage which includes keeping doors locked and windows and
other means of entry to the leased premises closed.
12. Tenant shall not alter any lock or install a new or additional lock or
any bolt on any door of the leased premises without prior written consent of
Landlord. If Landlord shall give its consent, Tenant shall in each case furnish
Landlord with a key for any such lock.
13. In advertising or other publicity, without Landlord's prior written
consent, Tenant shall not use the name of the Building except as the address of
its business and shall not use pictures of the Building.
14. Tenant shall not make any room-to-room canvass to solicit business
from other tenants in the Building; and shall not exhibit, sell or offer to
sell, use, rent or exchange in or from the leased premises unless ordinarily
embraced within the Tenant's use of the leased premises specified herein.
15. Tenant shall not waste electricity, water or air conditioning and
agrees to cooperate fully with Landlord to assure the most effective operation
of the Building's heating and air conditioning, and shall not allow the
adjustment (except by Landlord's authorized building personnel) of any controls
other than room thermostats installed for Tenant's use. Tenant shall keep
corridor doors closed and shall not open any windows except that if the air
circulation shall not be in operation, windows which are openable may be opened
with Landlord's consent.
16. Tenant shall not do any cooking in the leased premises or engage any
coffee cart service.
17. Any wallpaper or vinyl fabric materials which Tenant may install on
painted walls shall be applied with a stripable adhesive. The use of
nonstripable adhesives will cause damage to the walls when materials are
removed, and repairs made necessary thereby shall be made by Landlord at
Tenant's expense.
18. Tenant shall provide and maintain hard surface protective mats under
all desk chairs which are equipped with casters to avoid excessive wear and tear
to carpeting. If Tenant fails to provide such mats, the cost of carpet repair
or replacement made necessary by such excessive wear and tear shall be charged
to and paid for by Tenant.
19. Tenant will refer all contractor's representatives and installation
technicians, rendering any service to Tenant, to Landlord for Landlord's
supervision, approval, and control before performance of any contractual
service. This provision shall apply to all work performed in the Building
including installations of telephones, telegraph equipment, electrical devices
and attachments and installations of any nature affecting floors, walls,
woodwork, trim, windows, ceilings, equipment or any other physical portion of
the Building.
20. Movement in or out of the Building of furniture, office equipment or
other bulky materials, or movement through the Building entrances or lobby shall
be restricted to hours designated by Landlord. All such movements shall be
under supervision of Landlord and in the manner agreed between Tenant and
Landlord by prearrangement before performance. Such prearrangement initiated by
Tenant will include determination by
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Landlord and subject to his decision and control, of the time, method and
routing of movement, limitations imposed by safety or other concerns which
may prohibit any article, equipment or any other item from being brought into
the Building. Tenant is to assume all risk as to damage to articles moved
and injury to persons or public engaged or not engaged in such movement,
including equipment, property, and personnel or Landlord if damaged or
injured as a result of acts in connection with such service performed for
Tenant and Tenant hereby agrees to indemnify and hold harmless Landlord from
and against any such damage, injury or loss, including attorney's fees.
21. No portion of Tenant's area or any other part of the Building shall at
any time be used or occupied as sleeping or lodging quarters.
22. Landlord will not be responsible for lost or stolen personal property,
equipment, money, or jewelry from Tenant's area or any public rooms regardless
of whether such loss occurs when such area is locked against entry or not.
23. Employees of Landlord shall not receive or carry messages for or to
any tenant or other person, nor contract with or render free or paid services to
any tenant or tenant's employees, or invitees; in the event any of Landlord's
employees perform any such services, such employee shall be deemed the agent of
Tenant regardless of whether or how payment is arranged for services and
Landlord is expressly relieved from any and all liability in connection with any
such services and any associated injury or damage to person or property.
24. Tenant and its employees, agents, and invitees shall observe and
comply with the driving and parking signs and markers on the property
surrounding the Building.
25. Tenant shall not place, install, or operate on the leased premises or
in any part of the Building, any coffee making device or equipment without the
prior consent of Landlord.
26. Tenant shall give prompt notice to Landlord of any accidents to or
defects in plumbing, electrical fixtures, or heating apparatus so that such
accidents or defects may be attended to promptly.
27. The directories of the Building shall be used exclusively for the
display of the name and location of the tenants only and will be provided at the
expense of Landlord. Any additional names requested by Tenant to be displayed
in the directories must be approved by Landlord and, if approved, will be
provided at the sole expense of Tenant.
28. No vending machines of any description shall be installed, maintained
or operated in any part of the Building without the written consent of Landlord.
29. Landlord reserves the right to make such other and reasonable rules
and regulations as in its judgment may from time to time be needed for the
safety, care and cleanliness of the Building, and for the preservation of good
order therein.
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EXHIBIT 10.8
LEASE
WHEREAS, SIGNAL HILLS COMPANY, a Minnesota corporation, as "Landlord", and
SIGNAL HILLS STATE BANK, as "Tenant", entered into a lease agreement dated the
26th day of June, 1969; and
WHEREAS, the demised premises subsequent thereto were conveyed to Signal
Hills Co., a partnership; and
WHEREAS, the shopping center premises commonly known and called "Signal
Hills Shopping Center" formerly owned by Landlord has been sold and conveyed to
others; and
WHEREAS, by this lease agreement the parties intend to wholly amend and
supersede the lease agreement of June 26, 1969;
NOW, THEREFORE, the parties do hereby agree as follows:
I
PREMISES
Landlord hereby leases to Tenant and Tenant hereby rents from Landlord
those certain premises described in Exhibit "A", attached hereto, located in the
City of West Saint Paul, County of Dakota, State of Minnesota.
II
TERM
The term of this lease is for a period of twenty (20) years commencing as
of the 1st day of January, 1976, and ending on the 31st day of December, 1995,
unless extended or sooner terminated pursuant to the provisions of this lease.
III
RENT
3.1 RENT. Tenant shall pay to Landlord as rent for the premises in
advance on the first day of each calendar month of the term of this lease
without deduction, offset, prior notice or demand, in lawful money of the United
States, the sum of Two Thousand Five Hundred Twenty-five Dollars ($2,525.00).
3.2 ADDITIONAL MONETARY SUMS. This lease is entered into by Landlord
for the express purpose of providing Landlord with net income from rent, free
and clear of any and all expenses, charges, taxes, liens or impositions of
any kind. In addition to the rent reserved by Section 3.1, Tenant shall pay
all real estate taxes, impositions, insurance premiums, operating and
maintenance charges, construction costs, and any other charges, costs and
expenses which arise during the term of this lease. For the purpose of real
estate taxes, real estate taxes shall be deemed to arise on the date they
become due and payable. In the event of the nonpayment of all or any portion
of such charges, costs and expenses, Landlord shall have the same rights and
remedies as provided in this lease for failure of Tenant to pay rent. The
parties agree this lease is not terminable for any reason by Tenant; Tenant
in no event to be entitled to any abatement for reduction of rent or other
monetary sums payable hereunder, except as expressly herein provided,
notwithstanding any present or future law to the contrary.
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IV
TAXATION
4.1 Should after the year 1975, there be levied or assessed against the
premises any special assessments for local improvements, then for and during the
calendar year in which such installments or any such special assessments are
payable, Tenant shall pay as additional rent after each installment which is due
and payable during the term of this lease the amount thereof to the Landlord.
Landlord undertakes and agrees to use its best efforts to give or cause to be
given Tenant notice of any proposed improvement which might result in the
imposition of a special assessment as soon as practicable.
V
USE
5.1 The premises shall be used and occupied by the Tenant only for the
purpose of operating a bank or other financial institution and for ancillary
office and rental office use and for no other purpose whatsoever without
obtaining the prior written consent of Landlord.
5.2 Tenant shall not use the premises or permit anything to be done in or
about the premises which will in any way conflict with any law, statute, zoning
restriction, ordinance or governmental rule or regulation or requirements or
duly constituted public authorities now in force or which may hereafter be
enacted or promulgated. Tenant shall at its sole cost and expense promptly
comply with all laws, statutes, ordinances and governmental rules, regulations
or requirements now in force or which may hereafter be in force and with the
requirements of any board of fire underwriters or other similar body now or
hereafter constituted relating to or affecting the condition, use or occupancy
of the premises. The judgment of any court of competent jurisdiction against
Tenant whether Landlord be a party thereto or not, that Tenant has violated any
law, statute, ordinance or governmental rule, regulation or requirement, shall
be conclusive of that fact as between Landlord and Tenant.
VI
UTILITIES
Tenant shall pay prior to delinquency for all water, gas, heat, light,
power, telephone, sewage, air conditioning and ventilating, scavenger,
janitorial, landscaping and all other materials and utilities supplied to the
premises.
VII
MAINTENANCE AND REPAIRS, ALTERATIONS AND ADDITIONS
7.1 TENANT'S OBLIGATIONS. Throughout the term of this lease, Tenant shall
keep in good order, condition and repair the premises and every part thereof,
structural or nonstructural, and all adjacent sidewalks, landscaping, driveways,
parking lots, fences, and signs located adjacent to or included within the
premises. Landlord shall incur no expense nor have any obligation of any kind
whatsoever in connection with maintenance of the premises, and Tenant expressly
waives the benefits of any statute now or hereafter in effect which would
otherwise afford Tenant the right to make repairs at Landlord's expense or to
terminate this lease because of Landlord's failure to keep the premises in good
order. Tenant shall do all acts required to comply with all applicable laws,
ordinances, regulations and rules of any public authority relating to its
maintenance obligation as set forth herein.
7.2 SURRENDER. Upon the expiration or earlier termination of this lease,
Tenant shall surrender the premises in the same condition as received, broom
clean, ordinary wear and tear excepted. Tenant, at its sole cost and expense,
agrees to repair any damage to the premises caused by or in connection with the
removal of any articles of personal property, business or trade fixtures,
machinery, equipment, cabinetwork, furniture, movable partition, or permanent
improvements or addition, including without limitation thereto, repairing the
floor and patching and painting the walls where required by Landlord to
Landlord's reasonable satisfaction.
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Tenant shall indemnify the Landlord against any loss or liability resulting
from delay by Tenant in so surrendering the premises, including without
limitation, any claims made by any succeeding tenant founded on such delay.
7.3 LANDLORD'S RIGHTS. In the event Tenant fails to perform Tenant's
obligations under this Article VII, Landlord shall give Tenant notice to do such
acts as are reasonably required to so maintain the premises; if Tenant shall
fail to commence such work and diligently prosecute it to completion, then
Landlord shall have the right but not the obligation to do such acts and expend
such funds at the expense of Tenant as are reasonably required to perform such
work. Any amount so expended by Landlord shall be paid by Tenant promptly after
demand with interest at ten percent (10%) per annum from the date of such work.
Landlord shall have no liability to Tenant for any damage, inconvenience or
interference with the use of the Premises by Tenant as a result of performing
any such work.
7.4 ALTERATIONS AND ADDITIONS.
A. Tenant shall not, without Landlord's prior written consent, make
any alterations, additions, improvements or utility installations in, on or
about the premises, except for nonstructural alterations not exceeding Fifteen
Thousand Dollars ($15,000.00) in cost. As used in this Section 7.4, the term
"utility installations" shall include ducting, power panels, fluorescent
fixtures, space heaters, conduit and wiring. As a condition to giving such
consent, Landlord may require that Tenant agree to remove any such alterations,
additions, improvements or utility installations at the expiration of the term
and to restore the premises to their prior condition. As a further condition to
giving such consent, Landlord may require Tenant to provide Landlord, at
Tenant's sole cost and expense, a lien and completion bond in an amount equal to
one and one-half times the estimated cost of such improvements, to insure
Landlord against any liability for mechanics' and materialmen's liens and to
insure completion of the work.
B. Unless Landlord requires their removal, as set forth in Paragraph
7.4-A, all alterations, additions, improvements and utility installations
(whether or not such utility installations constitute trade fixtures of Tenant),
which may be made on the premises, shall at the expiration or earlier
termination of the lease become the property of Landlord and remain upon and be
surrendered with the premises. Notwithstanding the provisions of this Paragraph
7.4-B, personal property, business and trade fixtures, cabinetwork, furniture,
movable partitions, machinery and equipment, other than that which is affixed to
the premises so that it cannot be removed without material damage to the
premises, shall remain the property of Tenant and may be removed by Tenant
subject to the provisions of Paragraph 7.2, at any time during the term of this
Lease when Tenant is not in default.
VIII
ENTRY BY LANDLORD
Landlord and Landlord's agents shall have the right at reasonable times to
enter the premises to inspect the same or to maintain or repair, or to show the
premises to prospective purchasers, tenants or lenders. Landlord may at any
time during the last ninety (90) days of the term of the lease place on or about
the premises any ordinary "for sale" or "for lease" signs. Tenant hereby waives
any claim for abatement of rent or for damages for any injury or inconvenience
to or interference with Tenant's business, any loss of occupancy or quiet
enjoyment of the premises, and any other loss occasioned thereby.
IX
LIENS
Tenant shall keep the premises and any building of which the premises are a
part free from any liens arising out of work performed, materials furnished or
obligations incurred by Tenant and shall indemnify, hold harmless and defend
Landlord from any liens and encumbrances arising out of any work performed or
materials furnished by or at the direction of Tenant. In the event that Tenant
shall not, within twenty (20) days following the imposition of any such lien,
cause such lien to be released of record by payment or posting of a proper
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bond, Landlord shall have, in addition to all other remedies provided herein
and by law, the right, but not the obligation, to cause the same to be
released by such means as it shall deem proper, including payment of the
claim giving rise to such lien. All such sums paid by Landlord and all
expenses incurred by it in connection therewith including attorneys' fees and
costs shall be payable to Landlord by Tenant on demand with interest at the
rate of ten percent (10%) per annum. Landlord shall have the right at all
times to post and keep posted on the premises any notices permitted or
required by law, or which Landlord shall deem proper, for the protection of
Landlord and the premises, and any other party having an interest therein,
from mechanics' and materialmen's liens, and Tenant shall give to Landlord at
least ten (10) business days prior written notice of the expected date of
commencement of any work relating to alterations or additions to the premises.
X
INDEMNITY
10.1 INDEMNITY. Tenant shall indemnify and hold Landlord harmless from and
against any and all claims of liability for any injury or damage to any person
or property arising from Tenant's use of the premises, or from the conduct of
Tenant's business, or from any activity, work or thing done, permitted or
suffered by Tenant in or about the premises or elsewhere. Tenant shall further
indemnify and hold Landlord harmless from and against any and all claims arising
from any breach or default in the performance of any obligation on Tenant's part
to be performed under this lease, or arising from any negligence of Tenant or
Tenant's agents, contractors or employees, and from and against all costs,
attorneys' fees, expenses and liabilities incurred in the defense of any such
claim or any action or proceeding brought thereon. In the event any action or
proceeding is brought against Landlord by reason of any such claim, Tenant upon
notice from Landlord shall defend same at Tenant's expense by counsel
satisfactory to Landlord. Tenant, as a material part of the consideration to
Landlord, hereby assumes all risk of damage to property or injury to persons in,
upon or about the premises arising from any cause and Tenant hereby waives all
claims in respect thereof against Landlord.
10.2 EXEMPTION OF LANDLORD FROM LIABILITY. Landlord shall not be liable
for injury to Tenant's business or loss of income therefrom or for damage which
may be sustained by the person, goods, wares, merchandise or property of Tenant,
its employees, invitees, customers, agents or contractors or any other person in
or about the premises, caused by or resulting from fire, steam, electricity,
gas, water or rain, which may leak or flow from or into any part of the
premises, or from the breakage, leakage, obstruction or other defects of the
pipes, wires, appliances, plumbing, air conditioning or lighting fixtures of the
same, whether the said damage or injury results from conditions arising upon the
premises or upon other portions of the building of which the premises are a
part, or from other sources or places and regardless of whether the cause of
such damage or injury or the means of repairing the same is inaccessible to
Tenant.
XI
INSURANCE
11.1 LIABILITY INSURANCE. Tenant shall, at Tenant's expense, procure and
maintain at all times during the term of this lease a policy of comprehensive
public liability insurance insuring Landlord and Tenant against any liability
arising out of the ownership, use, occupancy, or maintenance of the premises and
appurtenant areas. Such insurance shall at all times be in an amount of not
less than Three Hundred Thousand Dollars ($300,000.00) for injury to or death of
any one person in any one accident or occurrence and in an amount of not less
than Five Hundred Thousand Dollars ($500,000.00) for injury to or death of more
than one person in any one accident or occurrence, and in amount of not less
than Fifty Thousand Dollars ($50,000.00) for liability for property damage. The
limits of such insurance shall not limit the liability of Tenant. If the
premises are part of a larger property, said insurance shall have a Landlord's
Protective Liability endorsement attached hereto. All insurance required
hereunder shall be with companies rated AAA or better in "Best's Insurance
Guide". Tenant shall deliver to Landlord certificates of insurance evidencing
the existence and amounts of such insurance with loss payable clauses
satisfactory to Landlord, provided that in the event Tenant fails to procure and
maintain such insurance, Landlord may (but shall not be required to) procure
same at Tenant's expense after ten (10) days prior written notice. No such
policy shall be cancelable or subject to reduction of coverage or other
modification except after thirty (30) days' prior written notice to Landlord by
the
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insurer. All such policies shall be written as primary policies, not
contributing with and not in excess of coverage which the Landlord may carry.
Tenant shall, within twenty (20) days prior to the expiration of such
policies, furnish Landlord with renewals or binders or Landlord may order
such insurance and charge the cost to Tenant, which amount shall be payable
by Tenant upon demand. Tenant shall have the right to provide such insurance
coverage pursuant to blanket policies obtained by Tenant provided such
blanket policies expressly afford coverage to the premises and to Tenant as
required by this lease.
11.2 PROPERTY INSURANCE. Landlord shall, at Tenant's expense, procure and
maintain at all times during the term of this lease a policy or policies of
insurance covering loss or damage to the premises in the amount of the full
replacement value thereof (exclusive of Tenant's trade fixtures and equipment)
providing protection against all perils included within the classification of
fire, extended coverage, vandalism, malicious mischief, sprinkler leakage and
special extended peril (all-risk). Tenant shall pay such annual insurance
premiums to Landlord within fifteen (15) days after receipt by Tenant of a copy
of the premium statement or other reasonably satisfactory evidence of the amount
due, which shall include the method of calculation of Tenant's share thereof if
the insurance covers other improvements than the premises. Such insurance shall
provide for payment of loss thereunder to Landlord or the holder of a first
mortgage or deed of trust on the premises.
11.3 WAIVER OF SUBROGATION. Landlord and Tenant each hereby waive any and
all rights of recovery against the other or against the officers, employees,
agents and representatives of the other, on account of loss or damage occasioned
to such waiving party of its property or the property of others under its
control caused by fire or any of the extended coverage risks described above to
the extent that such loss or damage is insured against under any insurance
policy in force at the time of such loss or damage. The insuring party shall,
upon obtaining the policies of insurance required under this lease, give notice
to the insurance carrier or carriers that the foregoing mutual waiver of
subrogation is contained in this lease.
XII
DAMAGE OF DESTRUCTION
12.1 OBLIGATION TO REBUILD. In the event the improvements on the premises
are damaged or destroyed, partially or totally, from any cause whatsoever,
whether or not covered by insurance, the Tenant shall repair, restore and
rebuild the premises to their condition prior to such damage or destruction and
this lease shall continue in full force and effect. Such repair, restoration
and rebuilding (hereinafter "repair") shall be commenced within a reasonable
time after such damage or destruction and shall be diligently prosecuted to
completion. The rental due hereunder shall be abated in proportion to the
portion of the premises rendered untenantable for the period reasonably
necessary to restore the premises.
12.2 AVAILABILITY OF INSURANCE PROCEEDS. If the damage or destruction
results from risk against which insurance is to be provided pursuant to Section
11.2, then the proceeds of such insurance shall be made available to Tenant for
payment of the cost and expense of the repair. Landlord may make such proceeds
available to Tenant subject to reasonable conditions, including without
limitation thereto, a requirement of architect's certification of costs,
retention of a percentage of such proceeds pending final notice of completion, a
lien and completion bond to be provided solely at Tenant's expense to insure
against mechanics' or materialmen's liens arising out of the repair and to
insure completion of the repair. In the event that the insurance proceeds are
insufficient to cover the cost of repair, then any amounts in excess thereof
required to complete the repair shall be paid by Tenant. In the event such
insurance proceeds are not made available to Tenant within ninety (90) days
after such damage or destruction Tenant shall have the option for thirty (30)
days commencing on the expiration of such ninety (90) day period, to cancel this
lease by written notice to Landlord within said thirty (30) day period. If
Tenant shall exercise such option, Tenant shall have no further obligation
hereunder and shall have no further claim against Landlord or the insurance
proceeds, provided, however, that Landlord shall promptly return to Tenant so
much of Tenant's security deposit as has not applied by Landlord.
12.2 DAMAGE NEAR END OF THE TERM. Notwithstanding anything to the contrary
contained in this lease, if the damage or destruction occurs during the last
year of the term of this lease to an extent greater than
<PAGE>
twenty-five percent (25%) of the then replacement value of the improvements
on the premises, Tenant may elect not to restore, such election on the part
of Tenant to be given by notice to Landlord within thirty (30) days after the
date of damage or destruction. In the event Tenant so elects to terminate,
then this lease shall be terminated as of the later of the date of giving of
such notice or the date Tenant completes its vacation from the premises. In
the event of such termination, all proceeds of insurance carried in
connection with the premises shall be payable to the Landlord.
XIII
CONDEMNATION
A. If the premises or any portion thereof are taken under the power
of eminent domain, or sold by Landlord under the threat of the exercise of said
power (all of which is herein referred to as "condemnation"), this lease shall
terminate as to the part so taken as of the date the condemning authority takes
title or possession, whichever occurs first. If any of the floor area of any
buildings on the premises, or more than ten percent (10%) of the land area of
the premises not covered with buildings, is taken by condemnation, either
Landlord or Tenant may terminate this lease, as of the date the condemning
authority takes possession, by notice in writing of such election within twenty
(20) days after Landlord shall have notified Tenant of the taking, or in the
absence of such notice then within twenty (20) days after the condemning
authority shall have taken possession.
B. If this lease is not terminated by either Landlord or Tenant,
then it shall remain in full force and effect as to the portion of the premises
remaining, provided the rent shall be reduced in the proportion that the floor
area of the buildings taken within the premises bears to the total floor area of
all buildings located on the premises. In the event this lease is not so
terminated then Landlord agrees, at Landlord's sole cost, to restore the
premises to a complete unit of like quality and character as existed prior to
the condemnation as soon as reasonably possible. All awards for the taking of
any part of the premises or any payment made under the threat of the exercise of
power of eminent domain shall be the property of Landlord, whether made as
compensation for diminution of value of a leasehold or for the taking of the fee
or as severance damages; provided, however, that Tenant shall be entitled to any
award for loss of or damage to Tenant's trade fixtures and removable personal
property. In the event that this lease is not terminated by reason of such
condemnation, Landlord shall, to the extent of severance damages received by
Landlord in connection with such condemnation, repair any damage to the premises
caused by such condemnation except to the extent that Tenant has been reimbursed
therefor by the condemning authority. Tenant shall pay any amount in excess of
such severance damages required to complete such repair.
XIV
ASSIGNMENT AND SUBLETTING
14.1 LANDLORD'S CONSENT REQUIRED. Tenant shall not assign, transfer,
mortgage, pledge, hypothecate or encumber this lease or any interest therein,
and shall not sublet the premises or any part thereof, without the prior written
consent of Landlord and any attempt to do so without such consent being first
had and obtained shall be wholly void and shall constitute a breach of this
lease.
14.2 REASONABLE CONSENT. If Tenant complies with the following conditions,
Landlord shall not unreasonably withhold its consent to the subletting of the
premises or any portion thereof. Tenant shall submit in writing to Landlord:
(a) the name, and legal composition of the proposed subtenant; (b) the nature of
the proposed subtenant's business to be carried on in the premises; (c) the
terms and provisions of the proposed sublease; (d) such reasonable financial
information as Landlord may request concerning the proposed subtenant.
14.3 NO RELEASE OF TENANT. No consent by Landlord to any assignment or
subletting by Tenant shall relieve Tenant of any obligation to be performed by
the Tenant under this lease, whether occurring before or after such consent,
assignment or subletting. The consent by Landlord to any assignment or
subletting shall not relieve Tenant from the obligation to obtain Landlord's
express written consent to any other assignment or subletting. The acceptance
of rent by Landlord from any other person shall not be deemed to be a waiver by
<PAGE>
Landlord of any provision of this lease or to be a consent to any assignment,
subletting or other transfer. Consent to one assignment, subletting or other
transfer shall not be deemed to constitute consent to any subsequent assignment,
subletting or other transfer.
14.4 ATTORNEYS' FEES. In the event Landlord shall consent to a sublease or
assignment under this Article XIV, Tenant shall pay Landlord's reasonable
attorneys' fees not to exceed Five Hundred Dollars ($500.00) incurred in
connection with giving such consent.
XV
SUBORDINATION
15.1 SUBORDINATION. This lease at Landlord's option shall be subject and
subordinate to all ground or underlying leases which now exist or may hereafter
be executed affecting the premises or the land upon which the premises are
situated or both, and to the lien of any mortgages or deeds of trust in any
amount or amounts whatsoever now or hereafter placed on or against the land or
improvements or either thereof, of which the premises are a part, or on or
against Landlord's interest or estate therein, or on or against any ground or
underlying lease, without the necessity of the execution and delivery of any
further instruments on the part of Tenant to effectuate such subordination. If
any mortgagee, trustee or ground lessor shall elect to have this lease prior to
the lien of its mortgage, deed of trust or ground lease, and shall give written
notice thereof to Tenant, this lease shall be deemed prior to such mortgage,
deed of trust or ground lease, whether this lease is dated prior or subsequent
to the date of said mortgage, deed of trust or ground lease or the date of the
recording thereof.
15.2 SUBORDINATION AGREEMENTS. Tenant covenants and agrees to execute and
deliver upon demand without charge therefor, such further instruments evidencing
such subordination of this lease to such ground or underlying leases and to the
lien of any such mortgages or deeds of trust as may be required by Landlord.
Tenant hereby appoints Landlord as Tenant's attorney-in-fact, irrevocably, to
execute and deliver any such agreements, instruments, releases or other
documents.
15.3 QUIET ENJOYMENT. Landlord covenants and agrees with Tenant that upon
Tenant paying rent and other monetary sums due under the lease and performing
its covenants and conditions, Tenant shall and may peaceably and quietly have,
hold and enjoy the premises for the term, subject, however, to the terms of the
lease and of any of the aforesaid ground leases, mortgages or deeds of trust
described above.
15.4 ATTORNMENT. In the event any proceedings are brought for default
under any ground or underlying lease or in the event of foreclosure or the
exercise of the power of sale under any mortgage or deed of trust made by the
Landlord covering the premises, the Tenant shall attorn to the purchaser upon
any such foreclosure or sale and recognize such purchaser as the Landlord under
this lease; provided said purchaser expressly agrees in writing to be bound by
the terms of the lease.
XVI
DEFAULT; REMEDIES
16.1 DEFAULT. The occurrence of any of the following shall constitute a
material default and breach of this lease by Tenant:
A. Any failure by Tenant to pay the rent or any other monetary sums
required to be paid hereunder (where such failure continues for three (3) days
after written notice thereof by Landlord to Tenant);
B. The abandonment or vacation of the premises by Tenant;
C. A failure by Tenant to observe and perform any other provision of
this lease to be observed or performed by Tenant, where such failure continues
for twenty (20) days after written notice thereof by Landlord to Tenant;
provided, however, that if the nature of such default is such that the same
cannot
<PAGE>
reasonably be cured within such twenty (20) day period, Tenant shall not be
deemed to be in default if Tenant shall within such period commence such cure
and thereafter diligently prosecute the same to completion;
D. The making by Tenant of any general assignment or general
arrangement for the benefit of creditors; the filing by or against Tenant of a
petition to have Tenant adjudged a bankrupt or of a petition for reorganization
or arrangement under any law relating to bankruptcy (unless, in the case of a
petition filed against Tenant, the same is dismissed within sixty (60) days);
the appointment of a trustee or receiver to take possession of substantially all
of Tenant's assets located at the premises or of Tenant's interest in this
lease, where possession is not restored to Tenant within thirty (30) days; or
the attachment, execution or other judicial seizure of substantially all of
Tenant's assets located at the premises or of Tenant's interest in this lease,
where such seizure is not discharged within thirty (30) days.
16.2 REMEDIES. In the event of any such material default or breach by
Tenant, Landlord may at any time thereafter, with or without notice and demand
and without limiting Landlord in the exercise of any right or remedy at law or
in equity which Landlord may have by reason of such default or breach:
A. Maintain this lease in full force and effect and recover the rent
and other monetary charges as they become due, without terminating Tenant's
right to possession, irrespective of whether Tenant shall have abandoned the
premises. In the event Landlord elects to not terminate the lease, Landlord
shall have the right to attempt to relet the premises at such rent and upon such
conditions and for such a term, and to do all acts necessary to maintain or
preserve the premises as Landlord deems reasonable and necessary without being
deemed to have elected to terminate the lease including removal of all persons
and property from the premises; such property may be removed and stored in a
public warehouse or elsewhere at the cost of and for the account of Tenant. In
the event any such reletting occurs, this lease shall terminate automatically
upon the new tenant taking possession of the premises. Notwithstanding that
Landlord fails to elect to terminate the lease initially, Landlord at any time
during the term of this lease may elect to terminate this lease by virtue of
such previous default of Tenant.
B. Terminate Tenant's right to possession by any lawful means, in
which case this lease shall terminate and Tenant shall immediately surrender
possession of the premises to Landlord, in such event Landlord shall be entitled
to recover from Tenant all damages incurred by Landlord by reason of Tenant's
default including, without limitation thereto, the following: (i) The worth at
the time of award of any unpaid rent which has been earned at the time of such
termination; plus (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that is proved could have been
reasonably avoided; plus (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 is proved could be reasonably
avoided; plus (iv) any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform its obligations
under this lease or which in the ordinary course of things would be likely to
result therefrom; plus (v) at Landlord's election, such other amounts in
addition to or in lieu of the foregoing as may be permitted from time to time by
applicable state law. Upon any such re-entry Landlord shall have the right to
make any reasonable repairs, alterations or modifications to the premises, which
Landlord in its sole discretion deems reasonable and necessary. As used in
Subparagraph (i) above, the "worth at the time of award" is computed by allowing
interest at the rate of ten percent (10%) per annum from the date of default.
As used in Subparagraphs (ii) and (iii) the "worth at the time of award" is
computed by discounting such amount at the discount rate of the U.S. Federal
Reserve Bank at the time of award plus one percent (1%). The term "rent", as
used in this Article XVI, shall be deemed to be and to mean the rent to be paid
pursuant to Article III and all other monetary sums required to be paid by
Tenant pursuant to the terms of this lease.
16.3 LATE CHARGES. Tenant hereby acknowledges that late payment by Tenant
to Landlord of rent and other sums due hereunder will cause Landlord 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 on
Landlord by the terms of any mortgage or trust deed covering the premises.
Accordingly, if any installment of rent or any other sum due from Tenant
<PAGE>
shall not be received by Landlord or Landlord's designee within ten (10) days
after such amount shall be due, Tenant shall pay to Landlord a late charge
equal to ten percent (10%) of such overdue amount. The parties hereby agree
that such late charge represents a fair and reasonable estimate of the costs
Landlord will incur by reason of late payment by Tenant. Acceptance of such
late charge by Landlord shall in no event constitute a waiver of Tenant's
default with respect to such overdue amount, nor prevent Landlord from
exercising any of the other rights and remedies granted hereunder.
16.4 DEFAULT BY LANDLORD. Landlord shall not be in default unless Landlord
fails to perform obligations required of Landlord within a reasonable time, but
in no event later than thirty (30) days after written notice by Tenant to
Landlord and to the holder of any first mortgage or deed of trust covering the
premises whose name and address shall have theretofore been furnished to Tenant
in writing, specifying wherein Landlord has failed to perform such obligation;
provided, however, that if the nature of Landlord's obligation is such that more
than thirty (30) days are required for performance, then Landlord shall not be
in default if Landlord commences performance within such thirty (30) day period
and thereafter diligently prosecutes the same to completion.
XVII
MISCELLANEOUS
17.1 ESTOPPEL CERTIFICATE.
A. Tenant shall at any time upon not less than ten (10) days' prior
written notice from Landlord execute, acknowledge and deliver to Landlord a
statement in writing (i) certifying that this lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification and
certifying that this lease, as so modified, is in full force and effect) and the
date to which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to Tenant's knowledge, any uncured defaults on
the part of Landlord hereunder, or specifying such defaults if any are claimed.
Any such statement may be conclusively relied upon by a prospective purchaser or
encumbrancer of the premises.
B. Tenant's failure to deliver such statement within such time shall
be conclusive upon Tenant (i) that this lease is in full force and effect,
without modification except as may be represented by Landlord, (ii) that there
are no uncured defaults in Landlord's performance, and (iii) that not more than
one month's rent has been paid in advance.
C. If Landlord desires to finance or refinance said premises, or any
part thereof, Tenant hereby agrees to deliver to any lender designated by
Landlord such financial statements of Tenant as may be reasonably required by
such lender. Such statements shall include the past three (3) years' financial
statements of Tenant. All such financial statements shall be received by
Landlord in confidence and shall be used only for the purposes herein set forth.
17.2 TRANSFER OF LANDLORD'S INTEREST. In the event of a sale or conveyance
by Landlord of Landlord's interest in the premises other than a transfer for
security purposes only, Landlord shall be relieved from and after the date
specified in such notice of transfer of all obligations and liabilities accruing
thereafter on the part of the Landlord, provided that any funds in the hands of
Landlord at the time of transfer in which Tenant has an interest, shall be
delivered to the successor of Landlord. This lease shall not be affected by any
such sale and Tenant agrees to attorn to the purchaser or assignee provided all
Landlord's obligations hereunder are assumed in writing by the transferee.
17.3 CAPTIONS; ATTACHMENTS; DEFINED TERMS.
A. The captions of the paragraphs of this lease are for convenience
only and shall not be deemed to be relevant in resolving any question of
interpretation or construction of any section of this lease.
<PAGE>
B. Exhibits attached hereto, and addendums and schedules initialed
by the parties, are deemed by attachment to constitute part of this lease and
are incorporated herein.
C. The words "Landlord" and "Tenant", as used herein, shall include
the plural as well as the singular. Words used in neuter gender include the
masculine and feminine and words in the masculine or feminine gender include the
neuter. If there be more than one Landlord or Tenant, the obligations hereunder
imposed upon Landlord or Tenant shall be joint and several. If the Tenants are
husband and wife, the obligations shall extend individually to their sole and
separate property as well as to their community property. The term "landlord"
shall mean only the owner or owners at the time in question of the fee title or
a tenant's interest in a ground lease of the premises. The obligations
contained in this lease to be performed by Landlord shall be binding on
Landlord's successors and assigns only during their respective periods of
ownership.
17.4 ENTIRE AGREEMENT. This instrument, along with any exhibits and
attachments hereto, constitutes the entire agreement between Landlord and Tenant
relative to the premises and this agreement and the exhibits and attachments may
be altered, amended, or revoked only by an instrument in writing signed by both
Landlord and Tenant. Landlord and Tenant agree hereby that all prior or
contemporaneous written or oral agreements between and among themselves and
their agents or representatives relative to the leasing of the premises are
merged in or revoked by this agreement.
17.5 SEVERABILITY. If any term or provision of this lease shall, to any
extent, be determined by a court of competent jurisdiction to be invalid or
unenforceable, the remainder of this lease shall not be affected thereby, and
each term and provision of this lease shall be valid and be enforceable to the
fullest extent permitted by law.
17.6 COSTS OF SUIT.
A. If Tenant or Landlord shall bring any action for any relief
against the other, declaratory or otherwise, arising out of this lease,
including any suit by Landlord for the recovery of rent or possession of the
premises, the losing party shall pay the successful party a reasonable sum for
attorneys' fees which shall be deemed to have accrued on the commencement of
such action and shall be paid whether or not such action is prosecuted to
judgment.
B. Should Landlord, without fault on Landlord's part, be made a
party to any litigation instituted by Tenant or by any third party against
Tenant, or by or against any person holding under or using the premises by
license of Tenant, or for the foreclosure of any lien for labor or material
furnished to or for Tenant or any such other person or otherwise arising out of
or resulting from any act or transaction of Tenant or of any such other person,
Tenant covenants to save and hold Landlord harmless from any judgment rendered
against Landlord or the premises or any part thereof, and all costs and
expenses, including reasonable attorneys' fees, incurred by Landlord in or in
connection with such litigation.
17.7 TIME; JOINT AND SEVERAL LIABILITY. Time is of the essence of this
lease and each and every provision hereof, except as to the conditions relating
to the delivery of possession of the premises to Tenant. All the terms,
covenants and conditions contained in this lease to be performed by either
party, if such party shall consist of more than one person or organization,
shall be deemed to be joint and several, and all rights and remedies of the
parties shall be cumulative and nonexclusive of any other remedy at law or in
equity.
17.8 BINDING EFFECT; CHOICE OF LAW. The parties hereto agree that all the
provisions hereof are to be construed as both covenants and conditions as though
the words importing such covenants and conditions were used in each separate
paragraph hereof; subject to any provisions hereof restricting assignment or
subletting by Tenant and subject to Paragraph 17.2, all of the provisions hereof
shall bind and inure to the benefit of the parties hereto and their respective
heirs, legal representatives, successors and assigns. This lease shall be
governed by the laws of the State of Minnesota.
<PAGE>
17.9 WAIVER. No covenant, term or condition or the breach thereof shall be
deemed waived, except by written consent of the party against whom the waiver is
claimed, and any waiver or the breach of any covenant, term or condition shall
not be deemed to be a waiver of any preceding or succeeding breach of the same
or any other covenant, term or condition. Acceptance by Landlord of any
performance by Tenant after the time the same shall have become due shall not
constitute a waiver by Landlord of the breach or default of any covenant, term
or condition unless otherwise expressly agreed to by Landlord in writing.
17.10 SURRENDER OF PREMISES. The voluntary or other surrender of this
lease by Tenant, or a mutual cancellation thereof, shall not work a merger, and
shall, at the option of the Landlord, terminate all or any existing subleases or
subtenancies, or may, at the option of Landlord, operate as an assignment to it
of any or all such subleases or subtenancies.
17.11 HOLDING OVER. If Tenant remains in possession of all or any part
of the premises after the expiration of the term hereof, with or without the
express or implied consent of Landlord, such tenancy shall be from month to
month only, and not a renewal hereof or an extension for any further term, and
in such case, rent and other monetary sums due hereunder shall be payable in the
amount and at the time specified in this lease and such month to month tenancy
shall be subject to every other term, covenant and agreement contained herein.
17.12 SIGNS AND AUCTIONS. Tenant shall not place any sign upon the
premises or conduct any auction thereon without Landlord's prior written
consent. Provided, however, that Tenant may place any sign, placard, statement
or notice required by bank supervisory and regulatory agencies without
Landlord's prior written consent.
17.13 REASONABLE CONSENT. Except as limited elsewhere in this lease,
wherever in this lease Landlord or Tenant is required to give its consent or
approval to any action on the part of the other, such consent or approval shall
not be unreasonably withheld. In the event of failure to give any such consent,
the other party shall be entitled to specific performance at law and shall have
such other remedies as are reserved to it under this lease, but in no event
shall Landlord or Tenant be responsible in monetary damages for failure to give
consent unless said failure is withheld maliciously or in bad faith.
17.14 INTEREST ON PAST DUE OBLIGATIONS. Except as expressly herein
provided, any amount due to Landlord not paid when due shall bear interest at
eight percent (8%) per annum from the due date.
17.15 RECORDING. Tenant shall not record this lease without Landlord's
prior written consent, and such recordation shall, at the option of Landlord
constitute a noncurable default of Tenant hereunder. Either party shall, upon
request of the other, execute, acknowledge and deliver to the other a "short
form" memorandum of this lease for recording purposes.
17.16 NOTICES. All notices or demand of any kind required or desired
to be given by Landlord or Tenant hereunder shall be in writing and shall be
deemed delivered forty-eight (48) hours after depositing the notice or demand in
the United States mail, certified or registered, postage prepaid, addressed to
the Landlord or Tenant respectively at the addresses set forth after their
signatures at the end of this lease.
17.17 TAKEOVER BY SUPERVISORY AUTHORITY. In the event that Tenant is
closed and is taken over by the banking authority of the State of Minnesota or
other bank supervisory authority, at the option of the receiver or other legal
representative of the bank, the maximum claim of Landlord for damages or
indemnity for injury resulting from the rejection or abandonment of the
unexpired lease shall in no event be an amount exceeding the rent reserved by
the lease, without acceleration, for the year next succeeding the date of the
surrender of the premises to the Landlord or the date of re-entry of the
Landlord, whichever first occurs, whether before or after the closing of the
bank, plus an amount equal to the unpaid rent accrued.
<PAGE>
XVIII
OPTION TO EXTEND TERM OF LEASE
Subject to the conditions hereinafter specified, there is hereby granted to
and reserved in Tenant the option to extend the time of this lease upon the same
terms and conditions as are herein contained for two (2) successive five (5)
year periods; provided, however, that:
A. The option to extend the original term for a first additional
period of five (5) years shall be exercised no later than one hundred eighty
(180) days prior to the expiration of the original term, and if not exercised by
said Tenant, the option herein granted shall in all things expire;
B. If the original term is fully extended for a period of five (5)
years, then the option to extend the term of this lease for a second additional
period of five (5) years shall become operative and shall be exercised not later
than one hundred eighty (180) days prior to the expiration of the terms as
extended and if not exercised by such time, shall expire;
C. Should Tenant elect to exercise the option herein granted for a
first additional period of five (5) years or, after having exercised the option
for such first additional period of five (5) years, then elect to exercise the
option for a second additional period of five (5) years, Tenant shall in either
event at the time of the exercise of the applicable option notify Landlord in
writing of his intention and desire to extend the term of this lease for a first
additional or a second additional period, as the case may be;
D. The option to extend whether for a first additional period or a
second additional period (such periods to be successive in point of time) shall
not be exercised nor shall any such notice be effective for any purpose if at
the time of the giving of such notice and the attempted exercise of said option
Tenant shall be in default as to any of his obligations under this lease,
written notice of any such default having been theretofore given Tenant by
Landlord.
Upon the exercise by Tenant of the option herein granted and the giving of
the prescribed notice within the time herein specified, all in conformity with
the foregoing provisions of this Article, the terms of this lease shall be
extended for a period of five (5) years, or for two (2) successive periods of
five (5) years each, as the case may be, and all of the terms, provisions and
conditions of this lease shall govern and apply to such extended term.
XIX
OPTION TO PURCHASE
A. Tenant shall have and is hereby given an option to purchase the
premises, said option becoming exercisable January 1, 1979, and expiring one (1)
year prior to the expiration of the lease term or extended lease term should the
tenant have exercised its extension rights hereunder or either of them.
B. Exercise of said option shall be by written notice of such
exercise given to Landlord specifying a closing date not less than ninety (90)
nor more than one hundred eighty (180) days after the date of such notice.
C. The purchase price shall be an amount agreed upon between the
Landlord and Tenant, and absent such agreement shall be the price determined
by a majority of a Board of Appraisal consisting of three (3) MAI (or
equivalent) appraisers, one of whom shall be appointed by the Landlord, one
by the Tenant, and one by the two appraisers so selected. The price
determined by said appraisers shall be binding on the parties hereto, but in
no event shall it be less than Three Hundred Fifty Thousand Dollars
($350,000.00). Said appraisers shall give the Landlord and Tenant written
notice of their determination not less than twenty (20) days after the
appointment of the last of said appraisers. The expense of such appraisal
shall be borne equally by Landlord and Tenant.
<PAGE>
If Landlord and Tenant cannot agree upon a purchase price and if the
purchase price shall be in excess of Three Hundred Fifty Thousand Dollars
($350,000.00), Tenant shall have the right to rescind its election to purchase
by giving written notice of such rescission to Landlord within ten (10) days of
receipt of the written notice from the appraisers. In the event Tenant shall
elect such rescission, the full appraisal expense shall be borne by Tenant. Any
exercise and rescission of such option shall not affect the Tenant's right to
later elect to exercise such option as long as such option shall not have
expired pursuant to the provisions of Paragraph A of this Article.
D. Not less than thirty (30) days prior to the closing date,
Landlord shall furnish to Tenant an abstract of title, or registered property
abstract certified to date, to include proper searches covering bankruptcies,
and state and federal judgments and liens. Tenant shall be allowed twenty (20)
days after receipt thereof for examination of said title and the making of any
objections thereto, said objections to be made in writing or deemed to be
waived. If any objections are so made, the Landlord shall be allowed one
hundred twenty (120) days to make such title marketable. Pending correction of
title, the closing hereunder shall be postponed. If said title is not
marketable and is not made so within one hundred twenty (120) days from the date
of written objections thereto as above provided, the exercise of the option
shall be deemed null and void, and Tenant shall have no obligation to complete
the purchase. Provided, however, that the option to purchase on the part of
Tenant shall not be extinguished, but could be exercised later by Tenant within
the time limitation hereinbefore provided. This provision shall not deprive
either party of the right of enforcing specific performance of the sale provided
it shall not be terminated as aforesaid, and provided action to enforce such
specific performance shall be commenced within six (6) months after such right
of action shall arise.
E. At the closing, a warranty deed to the premises shall be
delivered to Tenant and cash or bank funds equal to the purchase price shall be
delivered to Landlord.
F. Tenant shall have and is hereby given the right to assign its
right to purchase the premises, but only after the election to purchase has been
exercised and the time for rescission thereof as permitted in Paragraph C of
this Article has expired. Any such assignment shall be in writing and an
executed copy thereof delivered to Landlord.
IN WITNESS WHEREOF, the Landlord and Tenant have executed this lease the
day and year first above written.
SIGNAL HILLS COMPANY
By /s/
--------------------------------------
Its Partner
-----------------------------------
Address:
c/o Robert J. Callahan
49 Signal Hills
West St. Paul, Minnesota 55118
Or such other address as Landlord may in
writing specify to Tenant
Landlord
(Signatures continued
on following page)
<PAGE>
SIGNAL HILLS STATE BANK
By /s/
-------------------------------------
Its President
---------------------------------
Address:
100 Signal Hills
West St. Paul, Minnesota 55118
Tenant
<PAGE>
EXHIBIT "A"
The North 313.0 feet of the East 200.0 feet of the West
three-quarters Northwest Quarter Southwest Quarter of
Section 17, Township 28 North, Range 22 West, Dakota County,
Minnesota, subject to an easement over the South 22 feet of
the North 105.0 feet thereof.
<PAGE>
AGREEMENT TO AMEND LEASE
THIS AGREEMENT made this 9th day of October, 1980, between Signal Hills
Co., a Minnesota Partnership, of West St. Paul, Minnesota, hereinafter referred
to as "Landlord", and Signal Hills State Bank, a Minnesota Banking Corporation,
of West St. Paul, Minnesota, hereinafter referred to as "Tenant";
WHEREAS, Landlord and Tenant are parties to that certain Lease dated June
26, 1969, and amended effective January 1, 1976, pursuant to which Landlord
leases the premises described therein and commonly described as 100 Signal
Hills, West St. Paul, Minnesota, to the Tenant (hereinafter referred to as
"Lease"), and
WHEREAS, parties desire to amend certain terms of Lease concerning (a) the
appraisal methods to be used in valuation of the premises for purchase by
Tenant, and (b) additions to the building located on the premises by the Tenant,
and
WHEREAS, Tenant has requested, and Landlord has granted, permission to
Tenant to construct an addition to the premises, said permission being granted
by Landlord in a separate written instrument,
NOW, THEREFORE, in consideration of the foregoing premises, the parties
hereto agree as follows:
1. In the event Tenant gives notice of intent to exercise its option to
purchase the premises according to the terms of Paragraph XIX of said Lease, and
the parties are not able to agree on a purchase price so as to give rise to that
portion of XIX (c) providing for the appointment of appraisers to determine a
purchase price: (a) the parties hereby agree that the appraisers so appointed
shall not for the purposes of arriving at their individual or collective
valuation thereof, include the rental rate of the Lease as a comparable rental
indicator in the valuation technique commonly referred to as the "Income
Approach". It being here agreed that said rental rate would have little
relationship to the actual market rate for comparable properties at the time
said valuation is being made, because of the length of the term of the Lease;
(b) the parties further agree that the appraisers so appointed will be
instructed to value the building for purposes of establishing said purchase
price, excluding the value of the addition made by and at the expense of the
Tenant, which addition was commenced on or about September 29, 1980, and
approved by Landlord on or about September 29, 1980. The parties acknowledge
that Tenant is constructing said addition at its sole cost and expense and agree
that it would be inequitable to require Tenant to essentially pay for said costs
and increased value thereof a second time in the event Tenant purchases said
premises at a later date. This paragraph shall not, however, be construed to
imply any obligation on the Landlord to pay Tenant for the increased value added
as a result of the addition, if the Lease is terminated during its term or if
Tenant does not choose to exercise its option to purchase and the Lease expires.
3. All other terms and conditions of said Lease, not hereinabove modified
or amended are hereby affirmed by the parties; and parties agree to attach
executed copies of this "Agreement to Amend Lease" to and as a part of the Lease
referred to hereinabove.
IN WITNESS WHEREOF, the Landlord and Tenant have caused these presents to
be executed this 9th day of October, 1980.
LANDLORD: SIGNAL HILLS CO.
By: /s/
-----------------------------------------
A Partner
By: /s/
-----------------------------------------
A Partner
TENANT: SIGNAL HILLS STATE BANK
By: /s/
-----------------------------------------
Its President
<PAGE>
SECOND AMENDMENT TO LEASE
THIS SECOND AMENDMENT TO LEASE is entered into this 19th day of December,
1995, by and between SIGNAL HILLS COMPANY, a Minnesota corporation ("Landlord")
and SIGNAL BANK, INC., formerly known as Signal Hills State Bank, a Minnesota
banking corporation ("Tenant").
RECITALS:
A. Landlord and Tenant entered into a lease dated June 26, 1969, amended
and superseded by an agreement dated January 1, 1976, further amended by an
amendment dated October 9, 1980 (the "First Amendment") (together, the Lease and
its amendments are referred to herein as the "Lease"), for property located at
100 Signal Hills, West St. Paul, Minnesota, legally described as the North 313
feet of the East 200 feet of the West 3/4 NW 1/4 SW 1/4 of Section 17, Township
28 North, Range 22 West, Dakota County, Minnesota, subject to an easement over
the South 22 feet of the North 105 feet thereto.
B. Landlord and Tenant now desire to amend the lease under the terms and
conditions set out below.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the parties hereto agree as follows:
1. The term of the Lease is extended to December 31, 2000.
2. Section 3.1 of the Lease is replaced in its entirety as follows:
3.1 RENT. Tenant shall pay to Landlord as rent for the premises
in advance on the first day of each calendar month of the term of this
Lease without deduction, offset, prior notice or demand, in lawful
money of the United States as follows:
January 1, 1996 through December 31, 1996 $5,416.67
January 1, 1997 through December 31, 1997 $5,833.33
January 1, 1998 through December 31, 1998 $6,250.00
January 1, 1999 through December 31, 1999 $6,666.67
January 1, 2000 through December 31, 2000 $7,083.33
3. Article XVIII, OPTION TO EXTEND TERM OF LEASE, Article XIV, OPTION TO
PURCHASE, and the First Amendment are hereby deleted in their entirety.
4. Article 4, Taxation, shall be amended to add the following language:
Tenant shall have the right to contest property taxes and assessments
due and payable during the term of the Lease. Any settlement or
adjudication of an action regarding the property taxes which fixes the
value of the premises following the lease term requires the consent of
the Landlord. Landlord shall, at no cost to Landlord, fully cooperate
with Tenant in any action brought by Tenant to reduce property taxes,
including providing affidavits and testimony as necessary.
5. All other terms and conditions of the Lease not specifically modified
or amended herein are hereby affirmed by the parties and shall remain in full
force and effect.
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have caused this Second Amendment
to Lease to be executed as of the day and year first above written.
LANDLORD: SIGNAL HILLS COMPANY
By /s/
----------------------------------
Richard P. Hurley, a Partner
TENANT: SIGNAL BANK, INC., f/k/a Signal
Hills State Bank
By /s/
----------------------------------
Its Executive Vice President
<PAGE>
EXHIBIT 10.9
LEASE AGREEMENT
FOR PREMISES IN
SIGNAL HILLS SHOPPING CENTER
BETWEEN
SIGNAL BANK, INC.
-----------------
(TENANT)
AND
SIGNAL HILLS COMPANY
--------------------
(LANDLORD)
<PAGE>
LEASE AGREEMENT
SIGNAL HILLS SHOPPING CENTER
THIS LEASE AGREEMENT ("Lease"), entered into effective as of the 29th day
of January, 1993, by and between SIGNAL HILLS COMPANY, a Minnesota General
Partnership ("Lessor") and SIGNAL BANK, INC. ("Tenant").
Lessor, for and in consideration of the rent, covenants and agreements
hereinafter set forth to be paid, kept, and performed by Tenant, hereby demises
and leases to Tenant and Tenant hereby hires and rents from Lessor, the leased
premises hereinafter described, for the period, at the rent, upon the terms and
conditions, and consistent with the Data Sheet hereinafter set forth.
DATA SHEET
LEASED PREMISES: The area outlined on Exhibit "A," attached hereto and
made a part hereof. For the purposes of this Lease, the leased premises shall
be deemed to contain seven hundred thirty-eight (738) square feet. The street
address is 35A Signal Hills, West St. Paul, Minnesota 55118.
TERM: Five (5) years, Zero (0) months, and Zero (0) days, commencing on
February 1, 1993 and continuing to and including January 31, 1998 ("termination
date").
PERMITTED USE: The leased premises shall be used by the Tenant solely for:
Activities incidental to banking operations or holding company functions.
MINIMUM GUARANTEED ANNUAL RENT: Four Thousand Four Hundred Twenty-Eight
Dollars ($4,428.00), payable in equal consecutive monthly installments of Three
Hundred Sixty-Nine Dollars ($369.00).
TENANT NAME: Tenant shall conduct its business in the leased
premises under the name Signal Bank, Inc.
Each reference in this Lease to any of the data contained in this Data
Sheet shall be construed to incorporate the data stated under the applicable
heading in this Data Sheet.
<PAGE>
SUMMARY OF CONTENTS
PARAGRAPH PAGE
- --------- ----
DATA SHEET. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
1. THE LEASED PREMISES; USE OF COMMON AREAS. . . . . . . . . . . . . . . . 1
2. ACCEPTANCE OF LEASED PREMISES . . . . . . . . . . . . . . . . . . . . . 1
3. LESSOR'S PROPERTY; TENANT'S PROPERTY. . . . . . . . . . . . . . . . . . 1
4. USE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
5. CONDUCT OF BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . 2
6. TERM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
7. HOLD-OVER TENANCY . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
8. CONTINUANCE OF LEASE. . . . . . . . . . . . . . . . . . . . . . . . . . 3
9. QUIET ENJOYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
10. MINIMUM GUARANTEED RENT . . . . . . . . . . . . . . . . . . . . . . . . 3
11. PERCENTAGE RENT -- Intentionally omitted. . . . . . . . . . . . . . . . 4
12. RADIUS -- Intentionally omitted . . . . . . . . . . . . . . . . . . . . 4
13. REQUIRED PAYMENTS ARE "RENT." . . . . . . . . . . . . . . . . . . . . . 4
14. UTILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
15. JANITOR SERVICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
16. REAL ESTATE TAXES AND ASSESSMENTS . . . . . . . . . . . . . . . . . . . 5
17. PERSONAL PROPERTY AND LEASEHOLD TAXES . . . . . . . . . . . . . . . . . 6
18. RENTAL TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
19. LICENSE FEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
20. TENANT'S INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
21. WAIVER OF SUBROGATION . . . . . . . . . . . . . . . . . . . . . . . . . 7
22. RELEASE OF LESSOR . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
23. INDEMNIFICATION OF LESSOR . . . . . . . . . . . . . . . . . . . . . . . 8
24. MERCHANT'S ASSOCIATION. . . . . . . . . . . . . . . . . . . . . . . . . 8
25. ADVERTISING -- Intentionally omitted. . . . . . . . . . . . . . . . . . 8
26. COMMON AREAS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
<PAGE>
27. OPERATING EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
28. SIGNS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
29. REPAIRS AND MAINTENANCE . . . . . . . . . . . . . . . . . . . . . . . . 10
30. ALTERATIONS AND IMPROVEMENTS. . . . . . . . . . . . . . . . . . . . . . 11
31. MECHANICS LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
32. LESSOR'S RIGHT TO INSPECT AND REPAIR. . . . . . . . . . . . . . . . . . 12
33. CONDITION OF LEASED PREMISES AND LESSOR'S PROPERTY AT TERMINATION . . . 12
34. DAMAGE BY FIRE OR OTHER CASUALTY. . . . . . . . . . . . . . . . . . . . 12
35. EMINENT DOMAIN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
36. ASSIGNMENT OR SUBLEASE BY TENANT. . . . . . . . . . . . . . . . . . . . 15
37. SALE BY LESSOR; NOVATION. . . . . . . . . . . . . . . . . . . . . . . . 15
38. SUBORDINATION; ATTORNMENT AND NON-DISTURBANCE . . . . . . . . . . . . . 15
39. ESTOPPEL CERTIFICATE. . . . . . . . . . . . . . . . . . . . . . . . . . 16
40. REMEDIES OF LESSOR. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
41. RESERVATION OF RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . 21
42. LENDER REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 21
43. RELATIONSHIP OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . . 21
44. SHORT FORM LEASE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
45. NOTICES; PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
46. IMPORTANCE OF EACH COVENANT . . . . . . . . . . . . . . . . . . . . . . 23
47. WAIVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
48. ACCORD AND SATISFACTION . . . . . . . . . . . . . . . . . . . . . . . . 23
49. BROKERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
50. INVALIDITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
51. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
52. DEFINITION OF LESSOR, TENANT AND GUARANTOR - JOINT AND SEVERAL
LIABILITY -- Intentionally omitted. . . . . . . . . . . . . . . . . . . 24
53. CORPORATE TENANT OR GUARANTOR . . . . . . . . . . . . . . . . . . . . . 24
54. HEADINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
<PAGE>
55. PARTIES IN INTEREST; NEGATION OF LESSOR'S PERSONAL LIABILITY. . . . . . 24
56. ENTIRE AGREEMENT; EXHIBITS; RIDER . . . . . . . . . . . . . . . . . . . 24
57. SUBMISSION OF LEASE; SECURITY AND DAMAGE DEPOSIT -- Intentionally
omitted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
58. COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
59. REPRESENTATION AND/OR PROMISES. . . . . . . . . . . . . . . . . . . . . 25
60. ENTIRE AGREEMENT AND AMENDMENTS . . . . . . . . . . . . . . . . . . . . 25
EXHIBIT "A"
LEGAL DESCRIPTION OF CENTER . . . . . . . . . . . . . . . . . . . . . . . . 27
EXHIBIT "B"
OUTLINE OF LEASED PREMISES. . . . . . . . . . . . . . . . . . . . . . . . . 28
EXHIBIT "C" - SIGN CRITERIA -- Intentionally omitted. . . . . . . . . . . . 29
EXHIBIT "D"
RIDER ADDENDUM TO LEASE AGREEMENT . . . . . . . . . . . . . . . . . . . . . 30
EXHIBIT "E" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
<PAGE>
IT IS AGREED:
1. THE LEASED PREMISES; USE OF COMMON AREAS. Subject to the terms and
conditions of this Lease and subject to all reasonable rules and regulations
prescribed by Lessor from time to time with respect to the operations of the
Center and its common areas, which Tenant shall observe, Lessor leases to
Tenant and Tenant rents of and from Lessor the premises as set forth on the
Data Sheet ("leased premises") located in Signal Hills Shopping Center
("Center") which Center is legally described on Exhibit "B," attached hereto
and made a part hereof, West St. Paul, Dakota County, Minnesota.
Additionally, Tenant shall have the non-exclusive use, in common with
Lessor, other tenants of the Center, others entitled to use the same, and their
respective agents, employees, contractors, invitees, and customers, of the
common areas.
2. ACCEPTANCE OF LEASED PREMISES. Tenant accepts the leased premises in
"as is" condition. Tenant, at its cost and expense and with no right of
reimbursement from Lessor, shall do all work and make all installations
necessary for Tenant's use and occupancy, subject to the provisions of Paragraph
30.
3. LESSOR'S PROPERTY; TENANT'S PROPERTY. Tenant acknowledges hereby that
all partitions erected in the leased premises; all improvements affixed to the
leased premises; all fixtures, other than movable trade fixtures of Tenant; and
all heating, air conditioning, plumbing and electrical equipment, pipes, wiring,
connections and fittings, which are necessary to the mechanical, plumbing and
electrical operation and maintenance of the leased premises, shall become
immediately and remain the property of Lessor, without compensation to Tenant,
whether owned by Lessor at the commencement of the term, subsequently purchased
or constructed by Lessor, or purchased or constructed by Tenant in accordance
with any of Tenant's obligations under the terms of this Lease.
Tenant, at its cost and expense, shall provide certain furniture, trade
fixtures and/or trade equipment necessary for Tenant's use and occupancy of the
leased premises. Notwithstanding the fact that such items may be attached to or
affixed to the realty, such furniture, movable trade fixtures and/or trade
equipment, and replacements thereof or additions thereto, as well as movable
furniture and other movable personal property put in at the expense of Tenant,
shall be the property of Tenant, and may be removed by Tenant at termination of
this Lease, provided, Tenant is not in default hereunder, and provided further,
the leased premises are restored as hereinafter set forth. All of the property
removable pursuant to this paragraph shall be removed on or before the last day
of the term hereof, or upon the earlier termination of the term, and all
property not so removed shall be deemed abandoned by Tenant to Lessor. To the
extent Tenant's property is removed pursuant to this paragraph, Tenant, at its
cost and expense, shall repair any damage caused to the leased premises by such
removal. If Tenant chooses not to remove its property, Lessor may require
Tenant, at Tenant's cost and expense, to remove its property and restore the
leased premises to good condition and repair.
4. USE. Tenant, and no other person or entity, shall use the leased
premises solely for the purpose of conducting and operating the business as set
forth on the Data Sheet. Tenant shall continuously occupy and use the leased
premises during the term hereof for said purpose; provided, however, Tenant may
close for necessary repairs for a reasonable period of time, but without
abatement of rent unless specifically provided for herein. Tenant shall not
use, permit or suffer the use of, the leased premises for any other business
purpose. All uses not specifically granted herein are reserved to Lessor and
other tenants in the Center, but Tenant's use shall be non-exclusive.
In the event that the use of the leased premises increases the premium rate
for insurance carried by Lessor on the improvements of which the leased premises
are a part, Tenant shall pay Lessor, upon demand, the amount of such premium
increase.
5. CONDUCT OF BUSINESS. Tenant shall not use, occupy, suffer or permit
any use of, the leased premises which would (a) violate any law, ordinance, or
regulations; provided, however, Tenant shall have the right to contest the
validity of any law, ordinance or regulation adversely affecting its use of the
leased premises, but shall
<PAGE>
hold Lessor harmless from the consequences of violation of any such law,
ordinance or regulation; (b) constitute a nuisance; (c) constitute an
extra-hazardous use; or (d) violate, suspend or void any policy or policies
of insurance of either Lessor or any other tenant in the Center.
Tenant acknowledges that there are in effect federal, state, and local
laws, regulations and guidelines, and that additional and other laws,
regulations, and guidelines may hereafter be enacted or go into effect, relating
to or affecting the leased premises and/or the Center, and concerning the impact
on the environment and/or energy sources, construction, land use, the
maintenance and operation of structures, and the conduct of business. Tenant
shall not cause, or permit to be caused any act or practice, by negligence,
omission, or otherwise, that would adversely affect the environment, waste
energy, do anything or permit anything to be done that would violate any of said
laws, regulations, or guidelines. In the event of violation of this covenant,
Lessor, at its option, may treat such violation as an event of default
constituting a breach by Tenant of this Lease. Tenant shall have no claim
against Lessor by reason of any physical or operational changes Lessor may make
in the Center or the leased premises pursuant to said laws, regulations, and
guidelines.
As indicated in paragraph 1 hereof, the leasing to Tenant is subject to all
reasonable rules and regulations prescribed by Lessor from time to time with
respect to the leased premises, common areas and the operation of he Center, and
any part or parts thereof. Tenant shall abide by such rules and regulations,
which shall be uniformly applied, and shall cooperate in the observance of such
rules and regulations. The rules and regulations which are effective as of the
date of this Lease are set forth in Exhibit "C" attached hereto and made a part
hereof, and any amendments or additions thereto which may be made form time to
time shall be effective and become binding upon Tenant upon delivery of a copy
to Tenant of such rules and regulations and amendment or additions thereto;
provided, however, such amendments or additions shall not impose a substantially
greater burden upon Tenant or materially restrict the use of the leased premises
as contemplated under the terms of this Lease at its inception.
Tenant shall keep the leased premises open for business to the public
during all regular and customary days and hours for such type of business, and
consistent with the days and hours reasonably established by Lessor.
6. TERM. The term of this Lease shall be as set forth on the Data Sheet.
If the leased premises are not available for occupancy on the commencement
date, the term shall commence on the date when the leased premises are available
for occupancy, or the date Tenant accepts occupancy of the leased premises,
whichever date first occurs ("extended commencement date"). Accordingly, the
termination date shall be extended to a date ("extended termination date") which
corresponds with the period elapsed between the commencement date and the
extended commencement date plus the number of the days remaining in that month
if said extended termination date is a date other than the last day of the
month. If Tenant is unable to occupy the leased premises at the commencement
date because the leased premises are not ready for occupancy or as a result of
any cause beyond the direct control of Lessor, Lessor shall not be liable in any
manner to Tenant; but during the period Tenant is unable to occupy the leased
premises, the rent and all other charges shall abate.
"Lease year" shall mean in the case of the first lease year, that period
from the commencement date or extended commencement date to the first succeeding
January 31; thereafter, "lease year" shall mean each successive twelve (12)
calendar month period following the expiration of the first lease year, except
that in the event the termination date or extended termination date is any date
other than January 31, then the last lease year shall be the period from the end
of the preceding lease year to the termination date or extended termination
date.
7. HOLD-OVER TENANCY. If Tenant remains in possession of the leased
premises, without written consent of Lessor, after the expiration of the term of
this Lease, such holding over, if rent is accepted by Lessor for any period
after expiration of such term, shall create a tenancy from month to month, at a
rent equal to one hundred twenty percent (120%) of the last monthly rent payable
hereunder, and otherwise upon the terms and conditions of this Lease, terminable
in accordance with Minnesota law governing month to month tenancies.
8. CONTINUANCE OF LEASE. If the use of the lease premises is prohibited
or prevented by any reason, other than herein provided for, at any time during
the term of this Lease, this Lease shall not be terminated
<PAGE>
thereby nor shall Tenant be entitled by reason thereof to surrender the
leased premises, or to any abatement or reduction in rent, nor shall the
respective obligations of Lessor and Tenant be affected.
9. QUIET ENJOYMENT. Subject to Tenant's performance of all of its
obligations under this Lease, Tenant shall have the peaceful and quiet use of
the leased premises for the permitted use set forth in the Data Sheet, without
hindrance on the part of Lessor, and Lessor shall defend Tenant in such peaceful
and quiet use against the lawful claims of all persons claiming by, through or
under Lessor, subject to any mortgage, agreement or encumbrance to which this
Lease is or may be subordinated.
10. MINIMUM GUARANTEED RENT. Tenant shall pay to Lessor as rent,
exclusive of any other charge provided for in this Lease to be paid by Tenant,
the sum of FOUR THOUSAND FOUR HUNDRED TWENTY EIGHT DOLLARS ($4,428.00) per year,
payable THREE HUNDRED SIXTY NINE DOLLARS ($369.00) each month, in advance, on
the first day of each month throughout the term of this Lease.
If the commencement date or extended commencement date is a date other than
the first day of the month, Tenant shall pay to Lessor on the day of taking
occupancy for the number of days remaining in such month, including said first
day, a prorata monthly rent calculated in the ratio that the actual number of
days of occupancy by Tenant during such month bears to the total number of days
in such month.
11. PERCENTAGE RENT -- Intentionally omitted.
12. RADIUS -- Intentionally omitted.
13. REQUIRED PAYMENTS ARE "RENT." In addition to minimum guaranteed rent
and percentage rent, all other payments required to be paid by tenant under the
provisions of this Lease shall be deemed to be and shall become additional rent,
whether or not the same be designated as such; provided, however, all provisions
dealing with abatement of rent shall be construed to permit the abatement of
minimum guaranteed rent only and not percentage rent or any other payment
required hereunder. All payments required to be paid by Tenant under the
provisions of this Lease shall bear interest at a rate which is the lesser of
the maximum allowable legal rate, or eighteen percent (18%) per annum commencing
five (5) days after the due date of each payment and continuing until the date
actually paid by Tenant.
14. UTILITIES. Tenant shall pay, as they become due and payable and
before they become delinquent, all charges for electricity, heat, air
conditioning, water, gas, fuel, telephone, sewage usage or rental, garbage
disposal, refuse removal, telephone and any other utility service furnished to
the leased premises during the term of this Lease.
If Lessor elects to furnish any of the foregoing utility services or other
services, Tenant shall purchase the same from Lessor, provided, the charge to
Tenant for such utility services or other services furnished or caused to be
furnished by Lessor shall not exceed the rate which Tenant would be required to
pay to a utility company or service company furnishing comparable services to
Tenant.
Tenant, at Tenant's sole cost and expense, shall provide and install all
lamps, tubes, bulbs, starters, ballasts, transformers and like items used or
required in the leased premises.
Tenant shall not make any alternations in or additions to the electrical
equipment and/or appliances in the leased premises without the prior written
consent of Lessor in each instance. Tenant's use of electrical current shall not
exceed at any time the capacity of the electric distribution system, and Tenant
shall not make any alteration or addition to the electric distribution system
without the prior written consent of Lessor in each instance. In the event that
at any time during the term of this Lease, Tenant desires to connect or install
any additional electric fixtures, equipment, or appliances to the electric
distribution system, and such fixtures, equipment or appliances require
additional electric current which, in combination with Tenant's existing
electrical requirements, exceed the capacity of the electric distribution
system, Lessor, upon written request of Tenant, shall install any additional
riser or risers and all other equipment necessary and proper in connection
therewith to supply Tenant's electric requirements, at
<PAGE>
the sole cost and expense of Tenant, but only if such riser or risers and
such other equipment, if any, are necessary to supply Tenant with the
electric current required by it, and will not cause damage or injury to the
leased premises or the Center, or cause or create a dangerous or hazardous
condition, or entail excessive or unreasonable alterations, repairs, expense
or interference with or disturbance of other tenants or occupancy of the
Center.
Lessor reserves the right to cut off and discontinue any or all utility
services in an emergency and/or when necessary to make repairs, but with as
little interruption to the business of Tenant as is reasonable under the
circumstances. No such action by Lessor shall be construed as an eviction, or
disturbance of possession, or as an election by Lessor to terminate this Lease,
nor shall such action by Lessor subject Lessor to any liability to Tenant or any
other person or entity. In no event shall Lessor be liable to Tenant or any
other person or entity for any loss, damage or expense which may be sustained
for any interruption or failure in the supply of such utilities caused by fire,
other casualty, accident, riot, strike, act of God, the making of necessary
repairs, or by any cause beyond Lessor's control.
Lessor may reduce the quantity and quality of all utility services and
impose such regulations as Lessor deems necessary in order to conserve energy,
if such action is pursuant to any governmental regulation, requirement,
directive or request, or if Lessor deems such action to be for the benefit of
our national interest or the general public. "Utility services" include, but is
not limited to, heat, cooling, electricity, water, and all of the sources of
energy needed to provide same.
15. JANITOR SERVICE. Tenant shall provide and pay for any and all janitor
service required in the leased premises.
16. REAL ESTATE TAXES AND ASSESSMENTS. Subject to payment by Tenant, as
hereinafter provided, Lessor shall pay all real estate taxes and all
installments of assessments, and any taxes in lieu thereof, which may be levied
upon or assessed (collectively "taxes") against the land and improvements,
including the common areas, constituting the Center. Tenant, in addition to all
other payments to Lessor by Tenant required hereunder, shall pay to Lessor in
each year during the term of the Lease, Tenant's proportionate share, as
hereinafter defined, of said taxes. "Proportionate share" of Tenant, for
purposes of this paragraph, shall be equal to the product obtained by
multiplying the taxes due for the period for which payment is required or for
which the estimate is made by a fraction, the numerator of which shall be the
total square footage of the leased premises, and the denominator of which shall
be the gross leasable area in the building(s) of the Center, excluding therefrom
the common areas and all lower level areas not leased solely for retail
purposes, and determined as of the applicable time. The proportionate share of
the taxes to be paid hereunder by Tenant shall be paid in full by Tenant to
Lessor in an amount necessary so that Lessor will have collected Tenant's
proportionate share thirty (30) days prior to the date the taxes are due and
payable on an installment basis by Lessor to the taxing authorities before
interest or penalty accrues thereon. However, Lessor reserves the right to
estimate Tenant's proportionate share of the taxes, and Tenant shall pay monthly
to Lessor to be necessary to be billed monthly so that Lessor will have
collected Tenant's proportionate share thirty (30) days prior to the date the
taxes are due and payable on an installment basis by Lessor to the taxing
authorities before interest or penalty accrues thereon. In the event Lessor
exercise its right to estimate Tenant's proportionate share of the taxes, and
bills Tenant monthly therefor, within thirty (30) days after receipt by Lessor
of the applicable tax statement, Lessor shall render a billing to Tenant
adjusting the estimated payments received to the actual payments required, and
setting forth the difference between the total amount collected on an estimated
basis and the total amount which should have been collected on an actual basis.
In the event Tenant has underpaid Tenant's proportionate share up to the date of
such billing, based upon the applicable tax statement, Tenant shall pay any
shortage to Lessor within ten (10) days after delivery of such billing to Tenant
by Lessor; and, correspondingly, Lessor shall refund to Tenant the amount of any
overpayment within ten (10) days after delivery of such billing to Tenant by
Lessor, provided, Tenant is not in default under this Lease. Thereafter, for
the balance of the applicable period, the monthly billing by Lessor to Tenant
shall be based upon Tenant's actual proportionate share of the applicable tax
statement to be paid. In the event the taxing authorities include in such real
estate taxes and installments of assessments the value of any improvements made
by Tenant, or of machinery, equipment, fixtures, inventory or other personal
property or assets of Tenant, then Tenant shall pay all of the taxes
attributable to such items in addition to its proportionate share of said real
estate taxes and installments of assessments. A photostatic copy of the tax
statement received by Lessor and submitted by Lessor to Tenant shall
<PAGE>
be sufficient evidence of the amount of the taxes assessed or levied against
the land and improvements constituting the Center, as well as the items taxed.
17. PERSONAL PROPERTY AND LEASEHOLD TAXES. If at any time during the term
of this Lease, under federal, state or local law or any political subdivision
thereof, a tax, charge or excise, however described, is levied or assessed
against Tenant's leasehold interest in this Lease or against the fixtures,
equipment, merchandise and other personal property located in, upon, about or
affixed to the leased premises, Tenant shall pay such tax, charge or levy as it
is due and payable, and before it becomes delinquent.
18. RENTAL TAXES. If at anytime during the term of this Lease, under
federal or state law or any political subdivision thereof, a tax, charge,
capital levy or excise on rents (fixed, guaranteed or additional), or other tax
(except income tax), however described, shall be levied against Lessor on
account of the rent payable herein, such tax, charge, capital levy, or excise on
rents or other taxes shall be paid by Tenant, or reimbursed to Lessor by Tenant
if such tax, charge, capital levy, or excise on rents or other taxes is advanced
by Lessor, the choice to be at the option of Lessor. If the amounts required to
be paid pursuant to the provisions of this paragraph are payable monthly, such
amounts shall be paid by Tenant to Lessor in addition to the monthly rent
provided for herein. If the amounts required to be paid pursuant to the
provisions of this paragraph are payable annually, such amounts shall be paid by
Tenant to Lessor annually on demand. A photostatic copy of the statement
received for such amounts shall be sufficient evidence of the amounts due and
payable.
19. LICENSE FEES. Tenant shall pay, as they become due and payable and
before they become delinquent, all fees, charges and expenses required for
licenses and/or permits, if any, required for Tenant's permitted use of the
leased premises, as set forth in the Data Sheet, during the term of this Lease.
20. TENANT'S INSURANCE. Tenant shall obtain and keep in force, at
Tenant's expense, for the term of this Lease, and any extension or renewal
thereof, the following insurance:
(a) Fire and extended coverage insurance, covering fire and extended
coverage perils, including, in addition to other standard provisions,
protection against theft, vandalism, malicious mischief, water damage
and sprinkler leakage. Said policy shall cover Tenant's stock in
trade, fixtures, furniture, equipment, signs, and all other
installations, improvements and betterments made by or for Tenant, on
or about the leased premises, on the basis of ninety percent (90%) of
replacement cost; and shall provide for allowance of complete waiver
of subrogation.
(b) Comprehensive general liability insurance, with combined single limit
of One Million Dollars ($1,000,000.00) for each occurrence, or such
higher limits as determined reasonably by Lessor. Said policy shall
name Tenant as a named insured, and Lessor as an additional insured;
shall cover the leased premises, including, any elevators, boilers or
pressure vessels therein; shall contain a broad form hold harmless
endorsement identifying Lessor; and shall cover contractual
agreements.
(c) Any other standard insurance policy as may be required reasonably by
Lessor from time to time, upon such terms and conditions as may be
required reasonably by Lessor from time to time, including, but not
limited to, plate glass insurance.
Said insurance required pursuant to the provisions of this paragraph shall
be issued by an insurance company legally authorized to do business in the State
of Minnesota; shall be in a form satisfactory to Lessor; and shall provide for
at least thirty (30) days' notice, by certified mail, return receipt requested,
to Lessor before cancellation, termination, nonrenewal or change of such
insurance. Evidence of said insurance, and any renewals thereof, shall be
delivered to and may remain in the possession of Lessor.
21. WAIVER OF SUBROGATION. Lessor waives its right of subrogation for
damage to the building of which the leased premises are a part, contents
therein, loss of use thereof, and/or loss of income, up to the amount of
insurance proceeds collected; and Tenant waives its rights of subrogation for
damage to property in the leased premises, loss of use thereof, loss of income
and/or accounts receivable, including, cash or checks of Tenant
<PAGE>
held by Lessor as an accommodation to Tenant, up to the amount of insurance
proceeds collected. Lessor and Tenant, on behalf of their respective
insurance companies, waive any right of subrogation either may have against
the other where such waiver of subrogation is not invalidated by state law.
In the event the insurance premiums of Lessor are increased due to the
obtaining of such waiver of subrogation, Tenant shall reimburse Lessor for
the cost thereof forthwith upon receipt of a statement therefor from Lessor.
22. RELEASE OF LESSOR. All property of any kind that may be on or at the
leased premises shall be at the sole risk of Tenant, or those claiming through
or under Tenant. Lessor shall not be liable to Tenant, or to any other person
or entity due to any of the following: (a) damage, loss or injury, either to
person or persons; (b) loss of property sustained by Tenant, or by any other
person, persons or entities in or upon the leased premises or the Center; (c)
equipment, fixtures, appliances or machinery in or upon the leased premises or
the building of which the leased premises are a part, or the halls, passageways,
areas, sidewalks or streets adjoining or appurtenant to the leased premises or
the building of which the leased premises are a part, being or becoming out of
repair or defective; (d) the happening of any accident, however occurring; (e)
any act or neglect of Tenant, of any other tenant or occupant of the Center, or
of any other person, persons or entities; (f) water, snow, rain, backing up of
watermains or sewers, frost, steam, sewage, illuminating gas, sewer gas, odors,
electricity or electric current, bursting, stoppage or leaking of pipes,
radiators, plumbing, sinks and fixtures in or about the leased premises or the
building of which the leased premises are a part; (g) the use or misuse of any
instrumentality or agency in or connected with the leased premises or the
Center; or (h) any nuisance made or suffered in, on or at the leased premises.
23. INDEMNIFICATION OF LESSOR. Except to the extent that any of the
following shall result from act or omission of Lessor, its agents, employees or
contractors, or failure on the part of Lessor to perform its covenants or
agreements under this Lease, Tenant shall indemnify and save harmless Lessor
against all liabilities, damages, claims, fines, penalties, costs and other
expenses, including, reasonable attorney's fees, which may be imposed upon,
incurred by, or asserted against lessor by reason of all or any of the matters
and things referred to in Paragraph 22, and including all of the following: (a)
any use or condition of the leased premises or any part thereof; (b) any
personal injury or property damage occurring on the leased premises; (c) any
negligence on the part of Tenant, its agents, contractors, licensees or
invitees; (d) any failure to comply with any requirement of any governmental
authority; (e) any prosecution or defense of any suit or other proceeding in
discharging the leased premises or any part thereof from any liens, judgments or
encumbrances created upon or against the same or against Tenant's leasehold
estate; (f) any proceedings in obtaining possession of the leased premises after
the termination of this Lease by forfeiture or otherwise; (g) any litigation
commenced by or against Tenant to which Lessor is made a party without any fault
on the part of Lessor; and (h) any failure on the part of Tenant to perform or
comply with any covenant or agreement required to be performed or complied with
by Tenant hereunder.
24. MERCHANT'S ASSOCIATION.
25. ADVERTISING -- Intentionally omitted.
26. COMMON AREAS. "Common areas" shall consist of all parts of the Center
not under lease exclusively to Tenant hereunder or to other tenants, including,
but not limited to, parking areas, access roads and facilities, driveways,
sidewalks and other walkways, stairways, loading areas, malls (if any),
landscaped areas, and such other areas and improvements provided for common use
and benefit. Lessor and Tenant, and their customers, invitees, officers,
employees, agents, sublessees, licensees, concessionaires and contractors, shall
have common and non-exclusive rights to the use of said common areas, subject,
however, to Lessor's exclusive right to establish, modify and enforce reasonable
rules and regulations with respect to all common areas and facilities; to
construct, maintain, and operate lighting facilities on all said areas and
improvements; to police the common areas; from time to time to change the area,
level, location and arrangement of parking areas and other facilities; to
restrict parking by tenants, their officers, employees, agents, sublessees,
licensees, concessionaires and contractors to employee parking areas; to enforce
parking charges, by operation of meters or otherwise, with appropriate
provisions for free parking ticket validation by tenants; to close all or any
portion of said areas or facilities to such extent as may, in the opinion of
Lessor's counsel, be legally sufficient to prevent a dedication thereof or the
accrual of any rights to any person or the public therein; to close temporarily
all or any portion of the parking areas or facilities; to
<PAGE>
discourage noncustomer parking; and to do and perform such other acts in and
to said areas and improvements as, in the use of good business judgment,
Lessor shall determine to be advisable with a view to the improvement of the
convenience and use thereof. Lessor shall operate and maintain the common
areas and facilities in such manner as Lessor, in its sole discretion, shall
determine from time to time. Without limiting the scope of such discretion,
Lessor shall have the full right and authority to employ all personnel and to
make all rules and regulations pertaining to and necessary for the proper
operation and maintenance of the common areas and facilities. Landlord
reserves the unrestricted right to include the service, maintenance, repair
and replacement of the heating, ventilating and air conditioning (HVAC)
equipment and roof into the common area of the shopping center by giving
notice in writing to Tenant of the Landlord's decision to take such action.
Lessor shall be responsible for repairs and maintenance of the common
areas, and lighting therefor, with payment of the expenses incident thereto as
hereinafter provided for.
27. OPERATING EXPENSES. Tenant, in addition to all other payments to
Lessor by Tenant required hereunder, shall pay to Lessor, in each year during
the term or this Lease, Tenant's proportionate share, as hereinafter defined, of
the operating expenses for operating, managing and maintaining the Center and
the common areas related thereto. The term "operating expenses" hereby is
defined to mean all expenses which for federal income tax purposes may be
deducted as an expense, including, but not limited to, the following: costs and
expenses of repairing, maintaining, cleaning and operating the common areas and
certain equipment and systems, including, but not limited to, heating,
ventilating, air conditioning, plumbing and electrical; common area electricity,
heating, air conditioning, water and utilities; common area real estate taxes
and installments of assessments; landscaping; painting and decorating; rental of
signs and equipment; pest control; operation of loud speakers and public address
systems; depreciation of machinery and equipment; repair or replacement of
paving, curbs and walkways; repair of roof; the cost of personnel and materials
to implement such services, in directing parking, policing the Center, and
affording protection thereof against fire and other risks; all insurance which
Lessor deems necessary or advisable to obtain and maintain in connection with
the Center; professional fees; leasing fees; reasonable fees for management of
the Center; and an administrative charge of fifteen percent (15%) of the total
costs and expenses paid or incurred by Lessor pursuant to this paragraph.
Excluded from "operating expenses," for purposes of this paragraph, are the
taxes billed to Tenant pursuant to other provisions of this Lease and debt
service interest payments. "Proportionate share" of Tenant, for purposes of
this paragraph, shall be equal to the product obtained by multiplying the total
costs and expenses, including administrative costs, by a fraction, the numerator
of which shall be the total square footage of the leased premises, and the
denominator of which shall be the gross leasable area in the building(s) of the
Center, excluding therefrom the common areas and all lower level area not leased
solely for retail purposes, and determined as of the applicable time. The
amount provided for in this paragraph to be paid by Tenant shall be paid to
Lessor upon demand, which demand shall be accompanied by a statement setting
forth the basis of such payment due from Tenant. However, Lessor reserves the
right to estimate Tenant's proportionate share of said costs and expenses for
any current calendar or fiscal year of Lessor, and Tenant shall pay monthly to
Lessor one-twelfth (1/12th) of the amount so estimated. Within forty-five (45)
days after receipt by Lessor of Lessor's Statement of Income and Expenses for
such calendar or fiscal year, Lessor shall render a statement to Tenant setting
forth the difference between Tenant's actual proportionate share of said costs
and expenses and the total amount of Lessor's estimate for the year, or portion
thereof, collected from Tenant. Tenant shall pay any shortage to Lessor within
ten (10) days after delivery of said statement to Tenant by Lessor.
Correspondingly, Lessor shall refund to Tenant the amount of any overpayment
within ten (10) days after delivery of said Statement to Tenant by Lessor,
provided, Tenant has fully performed all of its obligations under this Lease.
28. SIGNS. Tenant shall provide, at its expense, during the term of
this Lease, a sign or signs the form of which shall be agreed to by Lessor
and Tenant, shall be harmonious to the general exterior architectural
treatment of the Center, and shall conform to sign criteria as set forth in
Exhibit "D," attached hereto and made a part hereof. Drawings submitted for
approval by Lessor shall clearly show graphic, construction and attachment
details, and electrical load requirements. The cost of installing,
maintaining, changing and removing all signs shall be borne by Tenant.
Tenant shall keep its display windows, exterior signs and exterior
advertising displays adequately illuminated during such hours as Lessor
determines reasonably to be necessary. Upon commencement of the term of this
Lease, with said sign or signs in place, Tenant shall not erect, install,
place or cause to be erected, installed or placed, decorations or advertising
media of any type on the exterior of the leased premises
<PAGE>
without obtaining, on each occasion, the prior written consent of Lessor.
The consent of Lessor as to signs shall not be withheld unreasonably,
provided, that any such sign shall conform to the sign criteria, any and all
governmental rules, regulations, ordinances, laws with respect to same, and
shall not be distasteful, defacing, unfit, or affect the structural strength
of the leased premises or the building of which they are a part. Tenant
shall have no right to erect any sign of any kind or nature which advertises
a business or product other than Tenant's. Tenant shall not erect, install,
place or cause to be erected, installed, or place any lettering, placards,
decorations or advertising media of any type in the windows of the leased
premises which Lessor, in its sole opinion, considers to be distasteful or
defacing, and Tenant, if so requested by Lessor, shall remove forthwith such
material from the windows of the leased premises. All signs, and all
materials placed in the windows of the leased premises, shall be maintained
in such a manner so as to be sightly and in good condition and repair.
29. REPAIRS AND MAINTENANCE. During the term of this Lease, Lessor, at
Lessor's cost and expense, shall keep and maintain in good order, condition and
repair, the foundation, exterior walls (except store fronts, plate glass or
other breakable materials used in structural portions) and structural part of
the floor. Lessor shall have no obligation to paint or decorate said foundation
or exterior walls. The foregoing to the contrary notwithstanding, any damage to
any of the foregoing caused by any act or negligence of Tenant, its employees,
agents, invitees, licensees or contractors shall be repaired or replaced
promptly by Tenant.
During the term of this Lease, Tenant, at Tenant's cost and expense, shall
keep and maintain in good order, condition and repair, including, reasonable
periodic painting and decorating, and including replacement as required, the
leased premises and every part thereof (except as specifically provided for in
this Paragraph 29 to be Lessor's obligation) including, but not limited to: the
exterior and interior portions of all doors, glass and glass windows; all
mechanical, plumbing, heating, air conditioning, ventilating and electrical
equipment and systems within, affixed (roof mounted, or otherwise) to, or
serving the leased premises; interior walls, partitions; floors and ceilings;
signs of Tenant; and all fixtures, appliances and equipment furnished by Lessor,
if any.
30. ALTERATIONS AND IMPROVEMENTS. Tenant, at its cost and expense and
with no right of reimbursement from Lessor, may make alterations, additions,
and improvements to the leased premises to better adapt the leased premises
to its use and occupancy; provided, however, on each occasion, any such
alteration, addition, or improvement shall: (i) equal or exceed the then
current standard for the Center, utilizing only new and first-grade
materials; (ii) be in conformity with all applicable federal, state and local
laws, ordinances, regulations, building codes, fire regulations, and
insurance requirements of Lessor and Tenant; (iii) be made only with the
prior written consent of Lessor, and as a condition to such consent, Lessor
may require agreement by Tenant to remove such alterations, additions, and/or
improvements at the time of termination of this Lease, and restore the leased
premises to their condition prior to the installation of such alterations,
additions and/or improvements and otherwise, in good condition and repair,
subject to reasonable wear and tear; (iv) be made pursuant to such plans and
specifications as may be required by Lessor, and upon obtaining any required
permits and licenses; (v) be conditioned upon providing to Lessor, at
Lessor's option, a letter of credit, performance bond or other
indemnification in such form and amount as may be satisfactory to Lessor to
protect against liens for labor to be performed and materials to be
furnished; and (vi) be carried out only by persons or entities selected by
Tenant and approved in writing by Lessor, who, if required by Lessor, shall
deliver to Lessor before commencement of the work proof of such workmen's
compensation, comprehensive general liability, and builder's risk insurance
as Lessor may require, with Lessor named as an additional insured, in
amounts, with companies, and in form satisfactory to Lessor, which insurance
shall remain in effect during the entire period during which such alteration,
addition, or improvement will be accomplished. Any such alteration,
addition, or improvement shall be done only at such time and in such manner
as Lessor may designate from time to time. Tenant shall promptly pay the
cost of any such change, addition, or improvement. Upon completion, Tenant
shall furnish Lessor with contractors' affidavits and full and final waivers
of liens. Tenant shall indemnify Lessor for, and hold Lessor harmless
forever from, any and all claims and liabilities of any kind and description
which may arise out of or be connected in any way with any such alteration,
addition, or improvement; provided, however, Tenant shall have no obligation
to indemnify Lessor for the negligence or intentional act of Lessor, its
agents, employees, or contractors. Any increase in property taxes on, or
insurance for, the Building attributable to such change, addition, or
improvement shall be borne by Tenant, and paid by Tenant to Lessor within
thirty (30) days after receipt by Tenant of Lessor's invoice therefor,
accompanied by appropriate evidence thereof. Subject to the provisions of
agreement, if any, pursuant to (iii)
<PAGE>
above, all such alterations, additions, and/or improvements shall remain in
or upon and be surrendered with the leased premises at the termination of
this Lease, with the exception of furniture, movable trade fixtures, and/or
trade equipment, and other movable personal property put in at the expense of
Tenant, which items shall remain the property of Tenant.
31. MECHANICS LIENS. Tenant shall pay timely for labor and material
furnished to Tenant or claimed to have been furnished to Tenant in connection
with work of any character performed or claimed to have been performed on the
leased premises, at the direction or with the consent of Tenant, whether such
work was performed or materials furnished before or after the commencement of
the term of this Lease. Tenant shall not permit any mechanics or similar liens
to remain upon the leased premises incident to the foregoing. However, Tenant
may contest the validity of such lien or claim, provided, Tenant shall give to
Lessor such security as Lessor may require reasonably to insure payment and to
prevent any sale, foreclosure or forfeiture of the leased premises by reason of
such non-payment. Upon a final determination of the validity of any such lien
or claim, Tenant shall immediately pay any judgment or decree rendered against
Tenant or Lessor, including, but not limited to, all proper costs and charges,
and shall cause such lien to be released of record without costs to Lessor.
32. LESSOR'S RIGHT TO INSPECT AND REPAIR. Lessor, or its agents, shall
have the right to inspect any part of the leased premises at any reasonable
time. Tenant shall make any repairs, which in Lessor's reasonable opinion, are
necessary for the protection, preservation and maintenance of the leased
premises or any part thereof, other than those repairs which are Lessor's
responsibility pursuant to the provisions of this Lease. If Tenant fails to
commence such repairs promptly and adequately and/or fails to proceed diligently
to completion, Lessor, at its option, may make such repairs, and any
expenditures made in connection with such work shall be due and payable from
Tenant upon demand, plus an amount equal to fifteen percent (15%) of such
expenditures for overhead and supervision.
33. CONDITION OF LEASED PREMISES AND LESSOR'S PROPERTY AT TERMINATION. At
termination of this Lease, Tenant shall quit and deliver the leased premises,
all partitions, improvements, alterations and other property of Lessor to Lessor
in good condition and repair. If Tenant fails to deliver the leased premises
and Lessor's property to Lessor in good condition and repair, Lessor, at its
option, may make such repairs, and any expenditures made in connection with such
work shall be due and payable from Tenant upon demand, plus an amount equal to
fifteen percent (15%) of such expenditures for overhead and supervision.
34. DAMAGE BY FIRE OR OTHER CASUALTY. In the event of any damage caused
to the leased premises by fire or other casualty, if capable of accomplishment,
Tenant shall give immediate written notice to Lessor, or if not capable of
accomplishment, as soon thereafter as is reasonable under the circumstances. If
Tenant does not so notify Lessor, Tenant shall be liable for all consequential
damages directly or indirectly resulting from its failure to so notify Lessor,
in addition to every other right and remedy which Lessor may have pursuant to
this Lease, at law or in equity.
In the event the leased premises shall be damaged by fire or other casualty
to the extent of fifty percent (50%) or less of the cost of replacement of the
leased premises, and such damage is covered by Lessor's insurance, and can be
repaired within one hundred eighty (180) days after the date of the happening of
the event causing the damage, Lessor shall cause the damage to be repaired, at
its expense; provided, however, in the event such damage occurs during the last
two (2) years of the term of this Lease, Lessor shall have no obligation to
cause the damage to be repaired.
In the event the leased premises shall be damaged by fire or other
casualty, and such fire or other casualty shall not be covered by Lessor's
insurance, or the leased premises shall be damaged to the extent of more than
fifty percent (50%) of the cost of replacement of the leased premises, or
cannot be repaired within one hundred eighty (180) days after the date of the
happening of he event causing the damage but can be repaired within two
hundred seventy (270) days after the date of the happening of the event
causing the damage, then in any of such events, Lessor may elect either to
repair or rebuild the leased premises or to cancel this Lease, either of such
elections to be made by the giving of written notice to such effect by Lessor
to Tenant within sixty (60) days after the date of the happening of the event
causing the damage. In the event Lessor gives Tenant written notice of its
intention to repair or rebuild, then this Lease shall remain in force and
effect. In the event Lessor does not give Tenant written notice of its
intention to
<PAGE>
repair or rebuild or cancel this Lease within said sixty (60) days, this
Lease may be canceled at the option of either Lessor or Tenant by written
notice by either party to the other within thirty (30) days after the
expiration of Lessor's sixty (60) days' notice period. Cancellation, if
appropriately elected, shall be effective as of the date when the damage
occurred.
In the event fifty percent (50%) or more of the building(s) constituting
the Center of which the leased premises are a part shall be damaged by fire or
other casualty, regardless of whether or not the leased premises are affected,
and such fire or other damage cannot be repaired within one hundred eighty (180)
days after the date of the happening of the event causing the damage, then in
any of such events, Lessor may elect either to repair or rebuild said building
or to cancel this Lease, either of such elections to be made by the giving of
written notice to such effect by Lessor to Tenant within ninety (90) days after
the date of the happening of the event causing the damage. In the event Lessor
shall give written notice to Tenant of its election either to repair or rebuild,
then this Lease shall remain in force and effect. In the event Lessor does not
give written notice to Tenant of its election either to repair or to rebuild or
to terminate this Lease within said ninety (90) days, this Lease may be canceled
at the option of either Lessor or Tenant by written notice by either party to
the other within thirty (30) days after the expiration of Lessor's ninety (90)
days' notice period. Cancellation, if appropriately elected, shall be effective
as of the date when the damage occurred.
As promptly as is practicable after such fire or other casualty and during
any period of repair or reconstruction of the leased premises, Tenant shall
continue the operation of its business within the leased premises to the extent
practicable. If the fire or other casualty, repairing or rebuilding shall
render the leased premises untenantable, in whole or in part, a proportionate
abatement of the rent shall be allowed from the date of the happening of the
event causing the damage until the date Lessor completes the repairs or
rebuilding, or, in the event of cancellation, until the effective date of such
cancellation, said proportionate abatement to be computed on the basis of the
relation which the square foot area of the space in the leased premises is
rendered untenantable bears to the total square foot area of the leased
premises. Nothing in this paragraph shall be construed to permit the abatement,
in whole or in part, of the percentage rent or the other charges provided for in
this Lease, but for the purpose of paragraph 11 the computation of percentage
rent shall be based upon the revised minimum rent as the same may be abated
pursuant to this paragraph.
In the event Lessor is obligated, or exercises its election to repair,
restore or replace. the improvements, it shall proceed with due diligence, and
at its sole cost and expense, to make such repairs, restoration or replacement
in such manner as to approximate original condition, reasonable wear and tear
excepted, excluding therefrom improvements or betterments to the leased premises
constructed or installed by Tenant or at Tenant's direction. In determining
"due diligence," consideration shall be given to fire and other casualties,
governmental restrictions and regulations, strikes, lock-outs, construction
delays beyond the control of Lessor, and acts of God. In no event shall Lessor
be required to repair, restore or replace the items hereinafter set forth to be
repaired, restored, or replaced by Tenant. In the event Lessor is required or
elects to repair, restore, or replace the improvements, Tenant shall proceed
with due diligence, at Tenant's sole cost and expense, to repair, restore or
replace improvements or betterments to the leased premises constructed or
installed by Tenant or at Tenant's direction, its stock-in-trade, fixtures,
furniture, furnishings, equipment, other personal property and signs. Lessor
shall not be responsible for, nor liable to, Tenant for any damages whatsoever
caused by any damage or destruction to the leased premises, nor for any delay in
repairing, restoring or replacing, nor for inability to repair, restore, or
replace, nor for any other cause whatsoever beyond Lessor's control. All
property of Tenant and all property kept, stored or maintained in or upon the
leased premises, adjacent sidewalks, loading areas or other common areas shall
be at the sole risk of Tenant.
35. EMINENT DOMAIN. If the leased premises, or such portion thereof as to
render the balance unsuitable for the use of Tenant, as set forth on the Data
Sheet, shall be taken by condemnation or the right of eminent domain or by
private sale in lieu thereof to the potential condemning authority, either party
shall be entitled to terminate this Lease upon written notice to the other
within thirty (30) days after Tenant has been deprived of possession by such
taking or sale. If any portion of the leased premises is so taken or sold and
if this Lease is not terminated in accordance with the provisions hereof, Lessor
shall proceed to restore and rebuild the remaining
<PAGE>
portion thereof so as to make an architecturally complete unit as diligently
as is practicable, and in such event, a proportionate reduction of the
minimum guaranteed rent and reduction of Tenant's proportionate share
pursuant to paragraphs 16 and 27 shall be allowed from the appropriate date,
said proportionate reduction to be computed on the basis of the relation
which the square foot area in the leased premises so taken bears to the total
square foot area of the leased premises. Nothing in this paragraph shall be
construed to permit the abatement or reduction, in whole or in part, of the
percentage rent, or any other charges provided for in this Lease, but for the
purpose of paragraph 11, the computation of percentage rent shall be based
upon the revised minimum rent as the same may be reduced pursuant to this
paragraph.
In the event fifty percent (50%) or more of the building of which the
leased premises are a part shall be taken by condemnation or the right of
eminent domain or by private sale in lieu thereof to the potential condemning
authority, either party shall be entitled to terminate this Lease upon written
notice to the other on or before the date possession is to be surrendered to the
public or quasi-public authority, such termination to be effective as of the
date of surrender of possession.
Tenant shall have the right to make its claim for its unamortized cost of
leasehold improvements to the extent paid for by Tenant, its fixtures and moving
expenses, all to the extent such damages are allowable; provided, any award
thereof can be made separately to Tenant without diminution of any award to be
mad to Lessor. Other than the foregoing, Tenant shall not be entitled to claim,
or have paid to Tenant, any compensation or damages whatsoever for or on account
of any loss, injury, damages or taking of any right, interest or estate of
Tenant, and Tenant hereby relinquishes and hereby assigns to Lessor any rights
to any damages. Subject to the foregoing, Lessor shall be entitled to claim and
have paid to it for the use and benefit of Lessor all compensation and damages
for and on account of or arising out of such taking or condemnation, without
deduction from the amount thereof for and on account of any right, title,
interest or estate of Tenant in or to the leased premises or matter relating
thereto. Tenant, upon request of Lessor, shall execute any and all releases or
other documents as shall be required by such public or quasi-public authority in
accordance with the provisions of this paragraph. In the event Tenant fails to
execute and deliver said releases or other documents within ten (10) days after
said request, Tenant hereby appoints Lessor irrevocably as the attorney-in-fact
of Tenant to execute and deliver said releases or other documents.
36. ASSIGNMENT OR SUBLEASE BY TENANT. Tenant may not, voluntarily or by
operation of law, assign or transfer this Lease, or sublease the whole or any
part of the leased premises, or allow the whole or any part of the leased
premises to be used or occupied by any other person or entity, without the prior
written consent of Lessor. If Tenant is a corporation, then any transfer of
this Lease by merger, consolidation or liquidation, or any change in ownership
of the shares of voting stock so as to result in a change of the present
effective voting control of Tenant by the person, persons and/or entity owning a
majority of said shares on the date of this Lease, shall constitute an
assignment of this Lease, and, as such, shall require the prior written consent
of Lessor. The prior written consent of Lessor shall not be withheld
unreasonably, but only if all of the following conditions are met: (a) proposed
assignee or sublessee is financially responsible; (b) Tenant and any guarantors
hereunder remain liable for the performance of all of Tenant's obligations
pursuant to the Lease; (c) the minimum guaranteed annual rent, effective as of
the effective date of such assignment or subleasing, shall become forthwith the
greater of the following: the minimum guaranteed annual rent then applicable, or
an amount equal to the average of the rent, including percentage rent, payable
for the last two (2) lease years (or shorter period, if so required) immediately
prior to the lease year of the proposed assigning or subleasing; and (d) the use
of the leased premises remains the same as set forth on the Data Sheet, and does
not conflict with an exclusive that Lessor might have granted since the date of
this Lease. The foregoing to the contrary notwithstanding, Lessor shall have a
period of sixty (60) days after notice by Tenant of the proposed assigning or
subleasing to elect to terminate and cancel this Lease without further liability
to Tenant.
37. SALE BY LESSOR; NOVATION. Lessor shall have the right to exhibit
the leased premises to prospective purchasers, and the right to sell or
transfer the leased premises subject to all provisions of this Lease. In the
event of the sale of the leased premises, Lessor shall be and hereby is
relieved of all of the covenants and obligations created hereby other than
obligations arising for the period prior to the date of sale, and as to which
Lessor has received notice from Tenant within thirty (30) days after Tenant
has been notified of such sale. Such
<PAGE>
sale shall result automatically in the purchaser assuming and agreeing to
carry out all the covenants and obligations of Lessor herein.
38. SUBORDINATION; ATTORNMENT AND NON-DISTURBANCE. Tenant agrees that
this Lease is, and shall be, subordinate or superior, at the option of Lessor,
to any mortgage, and to all renewals, modifications, consolidations,
replacements, and extensions thereof, to the full extent of the principal sum
secured thereby and interest thereon, to the extent such mortgage affects the
leased premises or the Center; and that such subordination or superiority,
depending on Lessor's election from time to time, shall be effective without any
further act by Tenant. Tenant further agrees that it will attorn to and
recognize any purchaser at a foreclosure sale of such mortgage, or any
transferee who acquires the leased premises by deed in lieu of foreclosure, and
the successors and assigns of such purchasers, as its Lessor for the unexpired
balance of the term of this Lease and extensions if any. Tenant further agrees
that in the event that a mortgage shall succeed to the interest of Lessor under
this Lease, such mortgage shall not be: liable for any act or omission of any
prior lessor, including Lessor; liable for the return of any security deposit;
subject to any off-sets or defenses which Tenant may have against any prior
lessor, including Lessor; bound by any rent or additional rent which Tenant may
have paid for more than the current month to any prior lessor, including Lessor;
bound by any rent or additional rent which Tenant may have paid for more than
the current month to any prior lessor, including Lessor; bound by any amendment
or modification of this Lease made without its consent. Tenant further agrees
to execute any and all further documents or instruments in addition to this
Lease which may be deemed necessary requisite or desired to effectuate said
subordination and attornment. The agreements and obligations of Tenant as set
forth in this paragraph are undertaken by Tenant with the express understanding
for the benefit of Tenant that in the event of foreclosure of any mortgage
covering the leased premises or the Center, or acquisition thereof by deed in
lieu of foreclosure, the mortgagee, its successors and assigns, will not
terminate this Lease, nor join Tenant in summary or foreclosure proceedings,
provided, Tenant shall continue to perform all of the covenants and conditions
of this Lease and shall not be in default hereunder.
39. ESTOPPEL CERTIFICATE. Within ten (10) days after request therefor by
Lessor, or in the event that upon any sale, assignment, financing or
hypothecation of the leased premises or the Center by Lessor, an Estoppel
Certificate shall be required from Tenant, Tenant agrees hereby to deliver in
recordable form an Estoppel Certificate to any proposed mortgagee, lender or
purchaser, or to Lessor, agreeing to and/or certifying as follows;
(a) that this Lease is in full force and effect, and has not been
assigned, modified, supplemented or amended in any way (or if there
has been any assignment, modification, supplement or amendment,
identifying the same);
(b) that this Lease represents the entire agreement between Lessor and
Tenant as to the subject matter hereof (or if there has been any
assignment, modification, supplement or amendment, identifying the
same);
(c) that Tenant has entered into occupancy of the leased premises, and the
date of such entry if such is the case;
(d) the commencement date and termination date of the term or terms, if
determinable at the time;
(e) that all conditions under this Lease to be performed by Lessor have
been satisfied and all required contributions, if any, by Lessor to
Tenant on account of Tenant's improvements have been received (and if
not, what conditions remain unperformed);
(f) that to the knowledge of the signer of such Estoppel Certificate, no
default exists in the performance or observance of any covenant or
conditions in this Lease and that there are no defenses or offsets
against the enforcement of this Lease by Lessor, or specifying in
reasonable detail such default, defense or offset of which the signer
may have knowledge;
<PAGE>
(g) the amount of minimum guaranteed annual rent, and any information
reasonably requested as to percentage rent and any other charges to be
paid by Tenant pursuant to the provisions of the Lease;
(h) that Tenant has no charge, lien or claim of offset under the Lease, or
otherwise, against rent or charges due or to become due thereunder, or
stating those claimed by Tenant;
(i) if such be the case, that rent payable under this Lease has not been
paid more than thirty (30) days in advance of the next due date, and
that Tenant will not pay any rent more than thirty (30) days in
advance of any due date, with the exception of any security deposit,
in which case Tenant will state the amount of such security deposit;
(j) that if Tenant is provided appropriate evidence of a duly recorded
mortgage encumbering the leased premises or the Center by the
mortgagee named therein, its successors or assigns ("mortgagee"),
Tenant will not consent to the modification of any material provision
of this Lease, and will not seek to terminate this Lease by reason of
any act or omission to such mortgage and until ninety (90) days shall
have elapsed following the giving of such notice, during which period
such mortgage shall have the right, but not the obligation, to remedy
such act or omission; and
(k) that in the event such mortgagee or any purchaser at a foreclosure
sale acquires title to the leased premises pursuant to the exercise of
any remedy provided for in said duly recorded mortgage, Tenant will
attorn to such mortgagee, or to such other purchaser, as its new
landlord and that this Lease shall continue in full force and effect
as a direct Lease between Tenant and such mortgagee or such other
purchaser, upon the terms, covenants, conditions and agreements set
forth herein; provided, however, such mortgagee, or such other
purchaser, shall not be liable to Tenant for any act or omission of
Lessor.
40. REMEDIES OF LESSOR. In the event that during the term of this Lease
(regardless of the pendency of any bankruptcy, reorganization, receivership,
insolvency or other proceedings, in law, in equity, or before any administrative
tribunal, which has prevented or might prevent compliance by Tenant with the
terms of this Lease):
(a) Tenant shall have failed to pay any installment of rent or any other
charge provided herein, or any portion thereof when the same shall be
due and payable, and the same shall remain unpaid for a period of ten
(10) days after written notice thereof;
(b) Tenant shall have failed to comply with any other provisions of this
Lease and shall not cure such failure within ten (10) days after
Lessor, by written notice, has informed Tenant of such non-compliance;
provided, however, in the case of a default other than payment, which
cannot, with due diligence, be cured within a period of ten (10) days,
Tenant shall have such additional time to cure such default as may
reasonably be necessary, but in no event in excess of sixty (60) days,
provided, Tenant proceeds promptly and with due diligence to cure such
default after receipt of said notice; or
(c) Tenant, or its guarantor, if any, shall become insolvent or unable to
pay its debts as they mature, or suspends business or commences
proceedings under any bankruptcy, reorganization, arrangement,
insolvency, or readjustment of debt, dissolution or liquidation laws,
either of the United States or any state thereof; or
(d) if any such proceedings as set forth in subparagraph (c) of this
paragraph 40 shall be commenced against Tenant, or its guarantor, if
any, and that entity or individual consents thereto, or does not take
affirmative action to have the proceedings dismissed within ten (10)
days, or such proceeding remains undismissed for thirty (30) days, or
an order is entered in any proceeding adjudicating
<PAGE>
Tenant, or its guarantor, if any, a bankrupt or insolvent or approving
the petition in such proceeding; or
(e) Tenant, or its guarantor, if any , makes an assignment for the benefit
of creditors, or a receiver or trustee is appointed for Tenant, or its
guarantor, if any, or for any substantial part of a property of
Tenant, or its guarantor, if any; or
(f) Tenant shall have ceased to conduct its normal business operations in
the leased premises, or shall vacate or abandon the leased premises
and leave the same vacated or abandoned for a period of ten (10) days,
excepting vacation or abandonment due to fire or other casualty, or
repairs or improvements by Lessor which necessitate such vacation or
abandonment; or
(g) Tenant shall do or permit to be done anything which creates a lien
upon the leased premises; provided, however, this subparagraph shall
be subject to the provisions of paragraph 31; then Lessor upon five
(5) days' written notice to Tenant may elect either (i) to cancel and
terminate this Lease and this Lease shall not be treated as an asset
of Tenant's estate, or (ii) to terminate Tenant's right to possession
only without canceling and terminating this Lease. Notwithstanding
the fact that initially Lessor elects under (iii) to terminate
Tenant's right to possession only, Lessor shall have the continuing
right to cancel and terminate this Lease by serving five (5) days'
written notice on Tenant of such further election, and shall have the
right to pursue any remedy at law or in equity that may be available
to Lessor.
In the event of election under (ii) to terminate Tenant's right to
possession only, Lessor may, at Lessor's option, enter into the leased premises
and take and hold possession thereof, without such entry into possession
terminating this Lease or releasing Tenant in whole or in part from Tenant's
obligation to pay the rent hereunder for the full stated term. Upon such
reentry, Lessor 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 Tenant, without becoming liable for any loss
or damage which may be occasioned thereby. Such re-entry shall be conducted in
the following manner: without resort to judicial process or notice of any kind
in the situation where Tenant has abandoned or voluntarily surrendered
possession of the leased premises; and, otherwise by resort to judicial process.
Upon and after entry into possession without termination of the Lease, Lessor
shall use its best efforts to relet the premises, or any part thereof, for the
account of Tenant, to any person, firm or corporation, other than Tenant, for
such rent, for such time and upon such terms as Lessor, in Lessor's sole
discretion, shall determine, but Lessor shall not be required to accept any
tenant offered by Tenant or to observe any instruction given by Tenant about
such reletting. Lessor may make alterations and repairs, and redecorate the
leased premises to the extent deemed by Lessor necessary or desirable.
Upon such re-entry, Tenant shall be liable to Lessor as follows:
(a) for the unpaid installments of rent and other unpaid sums which were
due prior to such re-entry, which sums shall be payable forthwith;
(b) for the installments of rent and other sums falling due pursuant to
the provisions of this Lease for the periods after re-entry during
which the leased premises remain vacant, which sums shall be payable
as they become due hereunder;
(c) for all expenses, including commissions, attorneys' fees, costs of
alterations, repairs and redecorating, which shall be payable as they
are incurred; and
(d) while the leased premises are subject to any new lease or leases made
pursuant to this paragraph, for the amount by which the monthly
installments payable under such new lease or leases is less than the
monthly installment for all charges payable pursuant to this Lease,
which deficiencies shall be payable monthly.
<PAGE>
No such re-entry or taking possession of the leased premises by Lessor
shall be construed as an election on its part to terminate this Lease unless a
written notice of such intention be given to Tenant or unless the termination
thereof be decreed by a court of competent jurisdiction. Notwithstanding
Lessor's election to terminate Tenant's right to possession only, and
notwithstanding any reletting without termination, Lessor, at any timer
thereafter, may elect to terminate this Lease, and to recover, in lieu of the
amounts which would thereafter be payable pursuant to the foregoing, as damages
for loss of the bargain and not as a penalty, an aggregate sum equal to the
amount by which the rental value of the portion of the term unexpired at the
time of such election is less than the entire amount of unpaid minimum
guaranteed rent and all additional charges which would have been payable by
Tenant hereunder for the unexpired portion of the term, which deficiency and all
expenses incident thereto, including commissions, attorney's fees, expenses of
alterations, repairs and redecorating, shall be due to Lessor as of the time
Lessor exercises said election, notwithstanding that the term has not expired;
and if Lessor, after such re-entry, leases said leased premises, then the rent
payable under such new lease shall be conclusive evidence of the rental value of
said unexpired portion of said term.
If this Lease shall be terminated by reason of the bankruptcy or insolvency
of Tenant, Lessor shall be entitled, notwithstanding any other provision of this
Lease or any present or future law, to recover from Tenant or Tenant's estate,
in lieu of the equivalent of the amount of all minimum guaranteed rent and all
other charges payable hereunder, as damages for loss of the bargain and not as a
penalty, an aggregate sum which, at the time of such termination of this Lease,
represents the then present worth of the excess, if any, of the aggregate of the
minimum guaranteed rent and all other charges payable pursuant to the provisions
of this Lease over the aggregate rental value of the leased premises for the
balance of the term, unless any statute or rule of law governing the proceedings
in which such damages are to be proved shall limit the amount of such claim
capable of being so proved, in which case, Lessor shall be entitled to prove, as
and for liquidated damages, by reason of such breach and termination of this
Lease, the maximum amount which may be allowed by or under such statute or rule
of law. Nothing contained herein shall limit or prejudice Lessor's right to
prove and obtain as liquidated damages arising out of such breach or termination
the maximum amount allowed by any such statute or rule of law which may govern
the proceedings in which such damages are to be proved whether or not such
amount be greater, equal to, or less than the amount of excess of all charges
over the rental value referred to above.
If Lessor shall at any time be entitled to rent under this Lease pursuant
to any of the covenants, conditions or agreements of this Lease either (i) after
the termination of this Lease, or (ii) after termination of Tenant's right to
possession without termination of this Lease, Lessor shall recover and Tenant
agrees to pay the minimum guaranteed rent, the percentage rent and any other
charges as provided for in this Lease. For the purpose of determining the
percentage rent, in either case, such rent shall be computed prorata on the
basis of the average sales for the twenty four (24) months immediately preceding
the occurrence of either such event of default or for the expired portion of
this Lease, whichever period is shorter.
If Tenant shall default in the performance of any covenant required to be
performed by it under this Lease, taking into consideration the grace periods
provided in paragraphs 40 (a) and 40 (b), Lessor may perform the same for the
account and at the expense of Tenant, upon giving notice to Tenant of its
intention to do so. If Lessor at any time is compelled to pay, or elects to
pay, any sum of money by reason of the failure of Tenant to comply with any
provision of this Lease, or if Lessor is compelled to incur any expense,
including, reasonable attorney's fees, in instituting, prosecuting or defending
any action or proceeding instituted by reason of any default of Tenant
hereunder, the sum or sums so paid by Lessor shall be due from Tenant to Lessor
on the next date following the payment of such sums upon which a regular monthly
rental payment is due, together with interest, at a rate which is the lesser of
the maximum allowable legal rate or eighteen percent (18%) per annum, from the
respective dates of each such payment. In addition, in the event Lessor
performs construction work on behalf of Tenant, which is Tenants obligation
pursuant to the provisions of this Lease, Lessor shall be entitled to an amount
equal to fifteen percent (15%) of the amount of the costs and expenses of such
construction as payment to Lessor for overhead and supervision, in addition to
the costs and expenses of such construction.
No right or remedy herein conferred upon or reserved to Lessor is intended
to be exclusive of any other right or remedy herein or by law provided, but each
shall be cumulative and in addition to every other right or remedy given herein
or now or hereafter existing at law or in equity or by statute.
<PAGE>
41. RESERVATION OF RIGHTS. In addition to all other rights of Lessor and
not in limitation thereof, Lessor expressly reserves the right to use the
outside walls and roof of the leased premises, and the air space above the
leased premises; the right to install, maintain, use, repair and replace the
pipes, ducts, conduits and wires leading through the leased premises in a manner
which will not materially interfere with Tenant's use thereof; and the right,
when so requested by any occupant in the Center, at any time to adjust the space
occupied by said occupant to its business requirements, and in connection
therewith, without any other tenant's consent, to enlarge, expand or contract
the physical space occupied by such occupant, and when so requested by any
occupant, without this Tenant's consent and without restriction, to move or
relocate said occupant within the Center as such occupant's interest may
require. In the event that the Landlord determines that the best interests of
the shopping center will be served by combining Tenant's space with another
space to accommodate a new Tenant or by providing Tenant's space to an adjacent
Tenant for an expansion or for any other reason, Landlord in its sole discretion
shall be entitled to relocate Tenant to a different space within the shopping
center which is approximately the same size as Tenant's premises. Landlord
shall provide a minimum of sixty (60) days notice and all costs of said
relocation shall be paid by Landlord.
Lessor and its agents shall have the right during the term of this Lease to
exhibit the leased premises to prospective purchasers. In addition, Lessor and
its agents shall have the right, during the last three (3) months of the term of
this Lease to place and maintain on the exterior walls of the leased premises
and in the windows thereof reasonable signs advertising the availability of the
leased premises to prospective tenants. The provisions of this paragraph shall
impose no duty or obligation on Lessor contrary to or other than those contained
in the other paragraphs of this Lease.
42. LENDER REQUIREMENTS. If at any time prior to the commencement of the
term of this Lease, Lessor notifies Tenant that a lending institution lending
funds to Lessor in connection with the Center requires a change or changes in
this Lease as a condition of such financing, Tenant agrees, at the request of
Lessor, to promptly execute and deliver to Lessor an amendment to this Lease
incorporating such required changes, provided, that such changes do not change
the financial obligations of Tenant, the size of the building of which the
leased premises are a part or the parking area, the term of this Lease,
construction work (if any) to be performed by Lessor, or involve any other
substantial changes which materially alter the rights or remedies of Tenant
under this Lease.
43. RELATIONSHIP OF THE PARTIES. Nothing contained in this Lease shall be
deemed or construed by the parties hereto or by a third party to create the
relationship of principal and agent or of partnership or of joint venture or of
any association whatsoever between Lessor and Tenant, it being expressly
understood and agreed that neither the method of computation of rent nor any
other provisions contained in this Lease nor any act or acts of the parties
hereto shall be deemed to create any relationship between Lessor and Tenant
other than the relationship of Lessor and Tenant.
44. SHORT FORM LEASE. Tenant shall not record this lease without the
written consent of Lessor; however, upon the request of either party hereto, the
other party shall join in the execution of a memorandum or so-called "short
form" of this Lease for the purposes of recordation. Said memorandum or short
form of this Lease shall describe the parties, the leased premises, the term of
this Lease, any special provisions, and shall incorporate this Lease by
reference. Any fees required to be paid in order to record such memorandum or
short form of this Lease shall be paid by the party desiring to record such
memorandum or short form of this Lease.
45. NOTICES; PAYMENTS. Each provision of this Lease or of any applicable
governmental law, ordinance, regulation, or other requirements with reference to
the sending, mailing or delivery of any notice or the making of any payment
shall be deemed to be complied with when and if the following steps are taken:
(a) all rent and other payments required to be made by Tenant or Guarantor
to Lessor hereunder shall be payable to Lessor at the address
hereinbelow set forth, or at such other address as Lessor may specify
from time to time by written notice delivered in accordance herewith;
<PAGE>
(b) all payments, if any, required to be made by Lessor to Tenant
hereunder shall be payable to Tenant at the address hereinbelow set
forth, or at such other address as Tenant may specify from time to
time by written notice delivered in accordance herewith;
(c) any notice or document required or permitted to be given or delivered
hereunder shall be in writing, and shall be deemed to be given when
deposited in the United States mail, postage prepaid, certified or
registered mail, return receipt requested, addressed to the respective
parties hereto at the respective addresses set out below, or at such
other addresses as they have theretofore specified by written notice
in accordance herewith:
(1) if to Lessor, to Signal Hills Company, 47A Signal Hills, West St.
Paul, Minnesota, 55118.
(2) if to Tenant, to Signal Bank, Marcia O'Brien, 100 Signal Hills,
West St. Paul, MN 55118.
(3) if to Guarantor, to _____________________________________________
_________________________________________________________________
________________________________________________________________.
and shall be deemed to be received, whether actually received or
not, two (2) days after deposit as aforesaid in the United States
mail.
(d) All parties included within the terms "Lessor," "Tenant" and
"Guarantor" respectively, shall be bound by notices given in
accordance with the provisions of this paragraph 45 as if each had
received such notice.
46. IMPORTANCE OF EACH COVENANT. Each covenant and agreement on the part
of one party is understood and agreed to constitute an essential part of the
consideration for each covenant and agreement on the part of the other party.
47. WAIVER. The receipt of rent by Lessor with knowledge of any breach of
this Lease by Tenant or of any default on the part of Tenant in the observance
of performance of any of the obligations or covenants of this Lease shall not be
deemed to be a waiver of any provisions of this Lease. No failure on the part
of Lessor to enforce any obligation or covenant herein contained, nor any waiver
of any right hereunder by Lessor, unless in writing, shall discharge or
invalidate such obligation or covenant or affect the right of Lessor to enforce
the same in the event of any subsequent breach or default.
The receipt by Lessor of any rent or other uses of money or other
consideration paid by Tenant after the termination, in any manner, of Tenant's
right of possession or of this Lease, or terminations, shall not reinstate,
continue or extend the term hereof, or Tenant's right of possession, or in any
manner impair the efficacy of any such notice of termination as may have been
given hereunder by Lessor to Tenant prior to the receipt of any such sum of
money or other consideration, unless so agreed to in writing and signed by
Lessor. Neither the acceptance of keys nor any similar act or thing done by
Lessor during the term of this Lease shall be deemed to be a release of Tenant
from its obligations hereunder, excepting only an agreement, in writing, signed
by Lessor. The exercise of any right herein granted to Lessor to terminate this
Lease or possession thereunder during the term of this Lease shall terminate any
extension or renewal of the term hereof or possession during such extension or
renewal, as the case may be.
48. ACCORD AND SATISFACTION. No payment by Tenant or receipt by Lessor of
a lesser amount than the payments stipulated herein shall be deemed to be other
than on account of the earliest stipulated rent, nor shall any endorsement or
statement on any check or similar payment be deemed an accord and satisfaction,
and Lessor shall accept such check or payment without prejudice to Lessor's
right to recover the balance of such rent
<PAGE>
or other required payment, or pursue any other remedy provided in this Lease.
Accord and satisfaction, if any, shall be accomplished by separate document
executed by both parties.
49. BROKERS. Tenant warrants that it has had no dealings with any broker
or agent in connection with the negotiation or execution of this Lease other
than ____________, which obligation shall be that of ________________. Lessor
and Tenant each shall indemnify and hold the other harmless from and against any
loss, liability and damage, fee or charge, so far as any of the aforementioned
arises by reason of services alleged to have been rendered to, at the instance
of, or agreed to by such party, other than arising as the result of services
rendered by _______________, which obligation shall be that of _____________.
50. INVALIDITY. If any part of this Lease or any part of any provision
hereof shall be adjudicated to be void or invalid, then the remaining provisions
hereof not specifically so adjudicated to be invalid, shall be executed without
reference to the part or portion so adjudicated, insofar as such remaining
provisions are capable of execution.
51. GOVERNING LAW. This Lease shall be subject to and governed by the
laws of the State of Minnesota, and all questions concerning the validity hereof
and questions relating to performance hereunder shall be adjudged and resolved
in accordance with the laws of that state, notwithstanding the fact that one or
more of the parties now is or may hereafter become a resident of a different
state.
52. DEFINITION OF LESSOR, TENANT AND GUARANTOR - JOINT AND SEVERAL
LIABILITY -- Intentionally omitted.
53. CORPORATE TENANT OR GUARANTOR. If Tenant or its guarantor, if any, is
a corporation, the persons executing this Lease on behalf of Tenant and such
guarantor hereby covenant, represent and warrant: that Tenant and such
guarantor, as the case may be, is duly incorporated, is in good standing, and is
duly qualified to do business in Minnesota; suitable evidence thereof shall be
supplied to Lessor upon execution of this Lease by the parties hereto; that each
person executing this Lease on behalf of Tenant and such guarantor, as the case
may be, is an officer of Tenant and such guarantor, as the case may be, and that
he or they, as such officers, are duly authorized to execute and deliver this
Lease; and an appropriate certified copy of corporate resolution of
authorization shall be supplied to Lessor upon execution of this Lease by the
Tenant and such guarantor, as the case may be.
54. HEADINGS. The headings of the paragraphs and subparagraphs of this
Lease are for convenience of reference only, do not form a part hereof, and
shall not be interpreted or construed to modify, limit or amplify such
paragraphs and subparagraphs.
55. PARTIES IN INTEREST; NEGATION OF LESSOR'S PERSONAL LIABILITY. This
Lease shall inure to the benefit of and be binding upon the heirs, personal
representatives, successors and assigns of Lessor; and shall inure to the
benefit of, subject to provisions of paragraph 36, and be binding upon the
successors and assigns of Tenant.
Notwithstanding anything to the contrary provided in this Lease, it is
specifically agreed and understood, such agreement being a primary consideration
for the execution of this Lease by Lessor, that if Lessor, its successors or
assigns, is or shall be an individual, tenancy in common, joint venture, or
general or limited partnership, there shall be no personal liability to any
individual in any of the terms, covenants and/or conditions of this Lease, and
that Tenant shall look solely to the equity of Lessor in the Center for the
satisfaction of the remedies of Tenant in the event of any breach of this Lease
by Lessor, such exculpation of liability to be absolute and without any
exception whatsoever.
56. ENTIRE AGREEMENT; EXHIBITS; RIDER. This instrument, including the
Exhibits and any Guaranty, contains the entire agreement of the parties. It may
not be changed orally but only by an agreement in writing signed by the party
against whom enforcement of any waiver, change, modification, extension, or
discharge is sought. The attached Exhibits labeled Exhibits "A" LEGAL
DESCRIPTION, "B" OUTLINE OF LEASED
<PAGE>
PREMISES, "C" SIGN CRITERIA, "D" ADDENDUM TO LEASE, "E" RULES AND REGULATIONS
and "G" GUARANTY OF TENANTS OBLIGATIONS UNDER AGREEMENT OF LEASE hereby are
made a part hereof, and supersede and control any conflicting or ambiguous
language in this Lease.
57. SUBMISSION OF LEASE; SECURITY AND DAMAGE DEPOSIT -- Intentionally
omitted.
58. COUNTERPARTS. This Lease may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same instrument.
59. REPRESENTATION AND/OR PROMISES. It is understood and agreed by the
Tenant that Landlord and Landlord's agent have made no representations or
promises with respect to the premises; that Tenant has made the selection of the
leased property herein based upon his or her own judgement and expressly
disclaims any reliance upon any statements or representations made by Landlord
or Landlord's agent. Tenant and Landlord agree that neither Landlord nor
Landlord's agent have made any representations or promises expressed or implied,
with the intent of inducing Tenant to execute and enter into this Lease expect
as is expressly set forth herein and that no claim or liability or cause for
termination shall be asserted by Tenant against Landlord and Landlord shall not
be liable for reason of any breach of any expressed or implied representations
or promises which are not expressly stated in this written Lease. Tenant
represents and warrants that Tenant has not dealt with any real estate agent or
broker in connection with this Lease other than Landlord's agent.
60. ENTIRE AGREEMENT AND AMENDMENTS. This Lease and the exhibits attached
hereto contain the entire agreement between the parties and no oral agreements
or understandings shall be binding on either of the parties hereto or be
effective to change, modify or terminate this Lease in whole or in part, unless
such agreement is in writing and duly signed by the party against whom
enforcement of such change, modification or termination is sought. This Lease
and the exhibits attached hereto comprise all the covenants, promises,
agreements, conditions and undertakings between Landlord and Tenant concerning
the leased premises herein. Lessee has not relied upon any statements,
representations or promises concerning past, present or future vacancy or
occupancy percentages of the shopping center as a whole, nor of the
demographics, the traffic flow, or the viability of any other Tenant now or
hereafter located in or about the immediate shopping center area. Additionally,
Tenant has not relied upon any economic projections, population growth, tax
projections or any other factors relating to the long term business plans that
are likely to affect Tenant's business operations. Tenant has performed its own
independent investigation and evaluation of the factors unique to its proposed
venture to determine the viability, profitability and stability to continue its
operations to the end of the term of this Lease, without reliance of Landlord or
Landlord's agent(s).
The parties hereto have duly executed this Agreement of Lease effective as
of the date and year first above written.
LESSOR:
SIGNAL HILLS COMPANY
By: /s/ Witness: /s/
---------------------------- -------------------------
Its: Managing Partner
TENANT:
SIGNAL BANK, INC.
By: /s/ Witness: /s/
---------------------------- --------------------------
Its: President
<PAGE>
EXHIBIT "A"
LEGAL DESCRIPTION OF CENTER
<PAGE>
EXHIBIT "B"
OUTLINE OF LEASED PREMISES
<PAGE>
EXHIBIT "C"
SIGN CRITERIA
EXHIBIT "C" - SIGN CRITERIA -- Intentionally omitted.<PAGE>
<PAGE>
EXHIBIT "D"
RIDER
ADDENDUM TO LEASE AGREEMENT
PARAGRAPH 5, CONDUCT OF BUSINESS, the first three (3) paragraphs in said
Paragraph 5 shall be deleted in their entirety.
PARAGRAPH 11, PERCENTAGE RENT, said Paragraph 11 shall be deleted in its
entirety.
PARAGRAPH 12, RADIUS, said Paragraph 12 shall be deleted in its entirety.
PARAGRAPH 24, MERCHANT'S ASSOCIATION, said Paragraph 24 shall be deleted in
its entirety and replaced with the words "Tenant shall remit $100.00 annually on
June 1st to Signal Hills Merchant's Association."
PARAGRAPH 25, ADVERTISING, said Paragraph 25 shall be deleted in its
entirety.
PARAGRAPH 52, DEFINITION OF LESSOR, TENANT AND GUARANTOR, said Paragraph 52
shall be deleted in its entirety.
PARAGRAPH 57, SUBMISSION OF LEASE; SECURITY AND DAMAGE DEPOSIT, said
Paragraph 57 shall be deleted in its entirety.
EXHIBIT "C", SIGN CRITERIA, said exhibit shall be deleted in its entirety.
Signal Bank shall not have the option to install a sign on the exterior of their
space.
Tenant shall accept leased premises in an "AS IS" condition.
LANDLORD: /s/
-------------------------
TENANT: /s/
---------------------------
<PAGE>
EXHIBIT "E"
TO AGREEMENT OF LEASE, DATED 1-29-93 , BETWEEN SIGNAL HILLS COMPANY, AS
LESSOR AND SIGNAL BANK, INC., AS TENANT, COVERING LEASED PREMISES SITUATED IN
THE SIGNAL HILLS SHOPPING CENTER.
RULES AND REGULATIONS
TENANT AGREES THAT IT WILL:
1. Not permit the leased premises to be used in any way which will
injure the reputation of the business being conducted therein, or injure the
reputation of the Center, or may be a nuisance or annoyance to the tenants of
the Center or of the neighborhood, including, but not limited to, noise by
the playing of any musical instrument or radio or telephone; use of a
microphone or loud speaker; use of flashing lights or search lights; any
other equipment which, in the judgement of Lessor, might cause disturbance,
impairment, or interference with the use or enjoyment of the Center;
2. Not display and merchandise outside the leased premises or in any
way obstruct the sidewalks or common areas adjacent thereto, and will not
place garbage, rubbish, trash, merchandise containers, or other incidentals
to the business outside the leased premises;
3. Keep all trash, refuse, garbage and waste materials in the type of
container specified by Lessor, and such trash, refuse, garbage and waste
material will be placed and prepared for collection in the manner and at the
times and places specified by Lessor;
4. Not burn trash, refuse, garbage or waste materials on leased premises;
5. Not permit deliveries of any kind through the front entrance of the
leased premises, except where no other entrance to the leased premises is
available, and if such be the case, at the times designated by Lessor;
6. Use its best efforts to cause all trucks and servicing the leased
premises to load and unload prior to the hours of opening for business to the
general public of the stores of other tenants in the Center;
7. Observe the following rules and regulations relating to parking: In
the event particular areas are designated by lessor as employee parking areas,
all automobiles, trucks, and other vehicles of Tenant; its officers, employees,
agents, sublessees, licensees, concessionaires and contractors (hereinafter
"Tenant, et al") shall be parked only in such designated areas. Tenant shall
furnish Lessor with automobile license numbers of Tenant, et al, within five (5)
days after taking possession of the leased premises, and shall thereafter notify
Lessor of any changes within (5) days after such changes occur. In the event
Tenant, et al, fail to park their vehicles in designated parking areas as
foresaid, then Lessor, at its option, may charge Tenant, and Tenant shall pay to
Lessor, as additional rent, Twenty-five Dollars ($25.00) per day per car parked
in any area other than those designated, or such vehicles may be removed
therefrom by Lessor or its agents and stored elsewhere at Tenant's expense
without liability of Lessor for such removal;
8. Not solicit business in the parking lot or other common areas, and
will not distribute any handbills or other advertising matter on automobiles
parked in the parking area or in other common areas without written consent of
Lessor;
9. Not use the plumbing facilities for any other purpose than that for
which they are constructed, and no foreign substance of any kind will be thrown
therein, and will pay the expense of any breakage, stoppage, or damage resulting
from the violation of this provision by Tenant, its employees, agents, invitees,
sublessees, licensees, concessionaires or contractors;
<PAGE>
10. Not keep any flammable or combustible material in, on or about the
leased premises except as may be permitted to be kept in such locations and
containers as specified by Lessor from time to time in accordance with the
recommendations or regulations of Lessor's insurance carrier, underwriter or
appropriate governmental authority;
11. Not permit the leased premises to be used for lodging purposes;
12. Not permit any auction sale, fire sale, bankruptcy sale, and/or
going-out-of-business sale, or similar types of sensational promotions to be
conducted in the leased premises or from the leased premises;
13. Not operate or conduct in or from the leased premises a so-called
"discount," "cut-rate" or "surplus" store; and
14. Not conduct catalog sales in or from the leased premises except of
merchandise which Tenant is permitted to sell "over-the-counter" in or at the
leased premises pursuant to the provisions of the Lease.
Delivery by Lessor and receipt by Tenant of the foregoing Rules and
Regulations, numbers 1 through 14, inclusive, are acknowledged hereby.
LESSOR:
SIGNAL HILLS COMPANY
By /s/
-------------------------------
Its Managing Partner
TENANT:
SIGNAL BANK, INC.
By /s/
-------------------------------
Its President
-------------------------------
<PAGE>
EXHIBIT 10.10
LEASE AGREEMENT
SIGNAL HILLS SHOPPING CENTER
THIS LEASE AGREEMENT ("Lease"), entered into effective as of the 20th day
of July, 1986, by and between SIGNAL HILLS COMPANY, a Minnesota General
Partnership ("Lessor") and Signal Bank (Accounting Offices) ("Tenant").
Lessor, for and in consideration of the rent, covenants and agreements
hereinafter set forth to be paid, kept, and performed by Tenant, hereby demises
and leases to Tenant and Tenant hereby hires and rents from Lessor, the leased
premises hereinafter described, for the period, at the rent, upon the terms and
conditions, and consistent with the Data Sheet hereinafter set forth.
DATA SHEET
LEASED PREMISES: The area outlined on Exhibit "A," attached hereto and
made a part hereof. For the purposes of this Lease, the leased premises shall
be deemed to contain Six Thousand (6,000) square feet. The street address is
36B Signal Hills, West St. Paul, Minnesota 55118.
TERM: 15 Years (15) years, Zero (0) months, and Zero (0) days, commencing
on September 1, 1986 ("commencement date"), and ending at midnight, August 31,
2001 ("termination date").
PERMITTED USE: The leased premises shall be used by the Tenant solely for:
General bank business.
MINIMUM GUARANTEED ANNUAL RENT: Eighteen Thousand Dollars ($18,000.00),
payable in equal consecutive monthly installments of One Thousand Five Hundred
Dollars ($1,500.00).
TENANT NAME: Tenant shall conduct its business in the leased premises
under the name Signal Bank.
Each reference in this Lease to any of the data contained in this Data
Sheet shall be construed to incorporate the data stated under the applicable
heading in this Data Sheet.
* Tenant after the second year may cancel this lease with one year notice.
** At the start of each year during the term of this lease the rent will be
increased by $.10 per square foot. This will fix the increase for the
common area and real estate taxes.
CONTINGENCIES: Contingent upon Tenant obtaining necessary permits from
governmental agencies.
<PAGE>
TABLE OF CONTENTS
PARAGRAPH Page
- --------- ----
DATA SHEET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
1. THE LEASED PREMISES; USE OF COMMON AREAS . . . . . . . . . . . . . . . 1
2. ACCEPTANCE OF LEASED PREMISES. . . . . . . . . . . . . . . . . . . . . 1
3. LESSOR'S PROPERTY; TENANT'S PROPERTY . . . . . . . . . . . . . . . . . 1
4. USE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
5. CONDUCT OF BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . 2
6. TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
7. HOLD-OVER TENANCY. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
8. CONTINUANCE OF LEASE . . . . . . . . . . . . . . . . . . . . . . . . . 3
9. QUIET ENJOYMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
10. MINIMUM GUARANTEED RENT. . . . . . . . . . . . . . . . . . . . . . . . 4
11. INTENTIONALLY OMITTED. . . . . . . . . . . . . . . . . . . . . . . . . 4
12. INTENTIONALLY OMITTED. . . . . . . . . . . . . . . . . . . . . . . . . 4
13. REQUIRED PAYMENTS ARE "RENT.". . . . . . . . . . . . . . . . . . . . . 4
14. UTILITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
15. JANITOR SERVICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
16. INTENTIONALLY OMITTED. . . . . . . . . . . . . . . . . . . . . . . . . 5
17. PERSONAL PROPERTY AND LEASEHOLD TAXES. . . . . . . . . . . . . . . . . 5
18. RENTAL TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
19. LICENSE FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
20. TENANT'S INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . 6
21. WAIVER OF SUBROGATION. . . . . . . . . . . . . . . . . . . . . . . . . 7
22. RELEASE OF LESSOR. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
23. INDEMNIFICATION OF LESSOR. . . . . . . . . . . . . . . . . . . . . . . 8
<PAGE>
24. INTENTIONALLY OMITTED. . . . . . . . . . . . . . . . . . . . . . . . . 8
25. INTENTIONALLY OMITTED. . . . . . . . . . . . . . . . . . . . . . . . . 8
26. COMMON AREAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
27. INTENTIONALLY OMITTED. . . . . . . . . . . . . . . . . . . . . . . . . 9
28. SIGNS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
29. REPAIRS AND MAINTENANCE. . . . . . . . . . . . . . . . . . . . . . . . 9
30. ALTERATIONS AND IMPROVEMENTS . . . . . . . . . . . . . . . . . . . . . 10
31. MECHANICS LIENS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
32. LESSOR'S RIGHT TO INSPECT AND REPAIR . . . . . . . . . . . . . . . . . 11
33. CONDITION OF LEASED PREMISES AND LESSOR'S PROPERTY . . . . . . . . . . 11
34. DAMAGE BY FIRE OR OTHER CASUALTY . . . . . . . . . . . . . . . . . . . 11
35. EMINENT DOMAIN . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
36. ASSIGNMENT OR SUBLEASE BY TENANT . . . . . . . . . . . . . . . . . . . 14
37. SALE BY LESSOR; NOVATION . . . . . . . . . . . . . . . . . . . . . . . 15
38. SUBORDINATION; ATTORNMENT AND NON-DISTURBANCE. . . . . . . . . . . . . 15
39. ESTOPPEL CERTIFICATE . . . . . . . . . . . . . . . . . . . . . . . . . 16
40. REMEDIES OF LESSOR . . . . . . . . . . . . . . . . . . . . . . . . . . 17
41. RESERVATION OF RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . 21
42. LENDER REQUIREMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . 21
43. RELATIONSHIP OF THE PARTIES. . . . . . . . . . . . . . . . . . . . . . 21
44. SHORT FORM LEASE . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
45. NOTICES; PAYMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
46. IMPORTANCE OF EACH COVENANT. . . . . . . . . . . . . . . . . . . . . . 23
47. WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
48. ACCORD AND SATISFACTION. . . . . . . . . . . . . . . . . . . . . . . . 23
49. INTENTIONALLY OMITTED. . . . . . . . . . . . . . . . . . . . . . . . . 24
50. INVALIDITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
<PAGE>
51. GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
52. DEFINITION OF LESSOR, TENANT AND GUARANTOR: JOINT AND SEVERAL
LIABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
53. CORPORATE TENANT OR GUARANTOR. . . . . . . . . . . . . . . . . . . . . 24
54. HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
55. PARTIES IN INTEREST; NEGATION OF LESSOR'S PERSONAL LIABILITY . . . . . 24
56. ENTIRE AGREEMENT; EXHIBITS; RIDER. . . . . . . . . . . . . . . . . . . 25
57. INTENTIONALLY OMITTED. . . . . . . . . . . . . . . . . . . . . . . . . 25
58. COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
GUARANTY OF TENANT'S OBLIGATIONS UNDER AGREEMENT OF LEASE. . . . . . . 27
EXHIBIT "A" - OUTLINE OF LEASED PREMISES . . . . . . . . . . . . . . . 28
EXHIBIT "B" - LEGAL DESCRIPTION OF CENTER. . . . . . . . . . . . . . . 29
EXHIBIT "C". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
EXHIBIT "D" - SIGN CRITERIA. . . . . . . . . . . . . . . . . . . . . . 33
<PAGE>
IT IS AGREED:
1. THE LEASED PREMISES; USE OF COMMON AREAS. Subject to the terms and
conditions of this Lease and subject to all reasonable rules and regulations
prescribed by Lessor from time to time with respect to the operation of the
Center and its common areas, which Tenant shall observe, Lessor leases to Tenant
and Tenant rents of and from Lessor the premises as set forth on the Data Sheet
("leased premises") located in Signal Hills Shopping Center ("Center") which
Center is legally described on Exhibit "B," attached hereto and made a part
hereof, West St. Paul, Dakota County, Minnesota.
Additionally, Tenant shall have the non-exclusive use, in common with
Lessor, other tenants of the Center, others entitled to use the same, and their
respective agents, employees, contractors, invitees, and customers, of the
common areas.
2. ACCEPTANCE OF LEASED PREMISES. Tenant accepts the leased premises in
"as is" condition. Tenant, at its cost and expense and with no right of
reimbursement from Lessor, shall do all work and make all installations
necessary for Tenant's use and occupancy, subject to the provisions of Paragraph
30.
3. LESSOR'S PROPERTY; TENANT'S PROPERTY. Tenant acknowledges hereby that
all partitions erected in the leased premises; all improvements affixed to the
leased premises; all fixtures, other than movable trade fixtures of Tenant; and
all heating, air conditioning, plumbing and electrical equipment, pipes, wiring,
connections and fittings, which are necessary to the mechanical, plumbing and
electrical operation and maintenance of the leased premises, shall become
immediately and remain the property of Lessor, without compensation to Tenant,
whether owned by Lessor at the commencement of the term, subsequently purchased
or constructed by Lessor, or purchased or constructed by Tenant in accordance
with any of Tenant's obligations under the terms of this Lease.
Tenant, at its cost and expense, shall provide certain furniture, trade
fixtures and/or trade equipment necessary for Tenant's use and occupancy of the
leased premises. Notwithstanding the fact that such items may be attached to or
affixed to the realty, such furniture, movable trade fixtures and/or trade
equipment, and replacements thereof or additions thereto, as well as movable
furniture and other movable personal property put in at the expense of Tenant,
shall be the property of Tenant, and may be removed by Tenant at termination of
this Lease, provided, Tenant is not in default hereunder, and provided further,
the leased premises are restored as hereinafter set forth. All of the property
removable pursuant to this paragraph shall be removed on or before the last day
of the term hereof, or upon the earlier termination of the term, and all
property not so removed shall be deemed abandoned by Tenant to Lessor. To the
extent Tenant's property is removed pursuant to this paragraph, Tenant, at its
cost and expense, shall repair any damage caused to the leased premises by such
removal. If Tenant chooses not to remove its property, Lessor may require
Tenant, at Tenant's cost and expense, to remove its property and restore the
leased premises to good condition and repair.
4. USE. Tenant, and no other person or entity, shall use the leased
premises solely for the purpose of conducting and operating the business as set
forth on the Data Sheet. Tenant shall continuously occupy and use the leased
premises during the term hereof for said purpose; provided, however, Tenant may
close for necessary repairs for a reasonable period of time, but without
abatement of rent unless specifically provided for herein. Tenant shall not
use, permit or suffer the use of, the leased premises for any other business
purpose. All uses not specifically granted herein are reserved to Lessor and
other tenants in the Center, but Tenant's use shall be non-exclusive.
In the event that the use of the leased premises increases the premium rate
for insurance carried by Lessor on the improvements of which the leased premises
are a part, Tenant shall pay Lessor, upon demand, the amount of such premium
increase.
5. CONDUCT OF BUSINESS. Unless otherwise consented to in writing by
Lessor, Tenant shall conduct its business in the leased premises under the name
as set forth on the Data Sheet.
<PAGE>
Tenant shall keep its display windows, exterior signs and exterior
advertising displays adequately illuminated during such hours as Lessor
determines reasonably to be necessary.
Tenant shall not use, occupy, suffer or permit any use of, the leased
premises which would (a) violate any law, ordinance, or regulation; provided,
however, Tenant shall have the right to contest the validity of any law,
ordinance or regulation adversely affecting its use of the leased premises,
but shall hold Lessor harmless from the consequences of violation of any such
law, ordinance or regulation; (b) constitute a nuisance; (c) constitute an
extra-hazardous use; or (d) violate, suspend or void any policy or policies
of insurance of either Lessor or any other tenant in the Center.
Tenant acknowledges that there are in effect federal, state, and local
laws, regulations and guidelines, and that additional and other laws,
regulations, and guidelines may hereafter be enacted or go into effect, relating
to or affecting the leased premises and/or the Center, and concerning the impact
on the environment and/or energy sources, construction, land use, the
maintenance and operation of structures, and the conduct of business. Tenant
shall not cause, or permit to be caused any act or practice, by negligence,
omission, or otherwise, that would adversely affect the environment, waste
energy, do anything or permit anything to be done that would violate any of said
laws, regulations, or guidelines. In the event of violation of this covenant,
Lessor, at its option, may treat such violation as an event of default
constituting a breach by Tenant of this Lease. Tenant shall have no claim
against Lessor by reason of any physical or operational changes Lessor may make
in the Center or the leased premises pursuant to said laws, regulations, and
guidelines.
As indicated in paragraph 1 hereof, the leasing to Tenant is subject to all
reasonable rules and regulations prescribed by Lessor from time to time with
respect to the leased premises, common areas and the operation of the Center,
and any part or parts thereof. Tenant shall abide by such rules and
regulations, which shall be uniformly applied, and shall cooperate in the
observance of such rules and regulations. The rules and regulations which are
effective as of the date of this Lease are set forth in Exhibit "C" attached
hereto and made a part hereof, and any amendments or additions thereto which may
be made from time to time shall be effective and become binding upon Tenant upon
delivery of a copy to Tenant of such rules and regulations and amendment or
additions thereto; provided, however, such amendments or additions shall not
impose a substantially greater burden upon Tenant, or materially restrict the
use of the leased premises as contemplated under the terms of this lease at its
inception.
6. TERM. The term of this Lease shall be as set forth on the Data Sheet.
If the leased premises are not available for occupancy on the commencement
date, the term shall commence on the date when the leased premises are available
for occupancy, or the date Tenant accepts occupancy of the leased premises,
whichever date first occurs ("extended commencement date"). Accordingly, the
termination date shall be extended to a date ("extended termination date") which
corresponds with the period elapsed between the commencement date and the
extended commencement date plus the number of the days remaining in that month
if said extended termination date is a date other than the last day of the
month. If Tenant is unable to occupy the leased premises at the commencement
date because the leased premises are not ready for occupancy or as a result of
any cause beyond the direct control of Lessor, Lessor shall not be liable in any
manner to Tenant; but during the period Tenant is unable to occupy the leased
premises, the rent and all other charges shall abate.
"Lease year" shall mean in the case of the first lease year, that period
from the commencement date or extended commencement date to the first succeeding
January 31; thereafter, "lease year" shall mean each successive twelve (12)
calendar month period following the expiration of the first lease year, except
that in the event the termination date or extended termination date is any date
other than January 31, then the last lease year shall be the period from the end
of the preceding lease year to the termination date or extended termination
date.
7. HOLD-OVER TENANCY. If Tenant remains in possession of the leased
premises, without written consent of Lessor, after the expiration of the term of
this Lease, such holding over, if rent is accepted by Lessor for any period
after expiration of such term, shall create a tenancy from month to month, at a
rent equal to one hundred twenty percent (120%) of the last monthly rent payable
hereunder, and otherwise upon the terms and conditions of this Lease, terminable
in accordance with Minnesota law governing month to month tenancies.
<PAGE>
8. CONTINUANCE OF LEASE. If the use of the leased premises is prohibited
or prevented by any reason, other than herein provided for, at any time during
the term of this Lease, this Lease shall not be terminated thereby nor shall
Tenant be entitled by reason thereof to surrender the leased premises, or to any
abatement or reduction in rent, nor shall the respective obligations of Lessor
and Tenant be affected.
9. QUIET ENJOYMENT. Subject to Tenant's performance of all of its
obligations under this Lease, Tenant shall have the peaceful and quiet use of
the leased premises for the permitted use set forth in the Data Sheet, without
hindrance on the part of Lessor, and Lessor shall defend Tenant in such peaceful
and quiet use against the lawful claims of all persons claiming by, through or
under Lessor, subject to any mortgage, agreement or encumbrance to which this
Lease is or may be subordinated.
10. MINIMUM GUARANTEED RENT. Tenant shall pay to Lessor as rent,
exclusive of any other charge provided for in this Lease to be paid by Tenant,
the sum of Eighteen Thousand Dollars ($18,000), the minimum guaranteed annual
rent being Eighteen Thousand Dollars ($18,000), payable in equal consecutive
monthly installments of One Thousand Five Hundred Dollars ($1,500) each, in
advance, on the first day of each month throughout the term of this Lease.
11. INTENTIONALLY OMITTED.
12. INTENTIONALLY OMITTED.
13. REQUIRED PAYMENTS ARE "RENT." In addition to minimum guaranteed rent
and all other payments required to be paid by Tenant under the provisions of
this Lease shall be deemed to be and shall become additional rent, whether or
not the same be designated as such; provided, however, all provisions dealing
with abatement of rent shall be construed to permit the abatement of minimum
guaranteed rent only and hereunder. All payments required to be paid by Tenant
under the provisions of this Lease shall bear interest at the greater of the
following rates, (subject to prevailing governmental regulations):
(i) two (2) points over the prime interest rate then charged by the FIRST
BANK/St. Paul to its preferred commercial customers on ninety (90) day unsecured
loans; (ii) or eighteen percent (18%) per annum at the time said payment shall
be due, commencing on the due date and continuing until the date actually paid
by TENANT. In addition to the above stated penalty a late penalty charge on all
payments paid after the fifth (5th) day of the calendar month in the amount of
five percent (5%) of the monthly rental due and payable on the first (1st) day
of the month shall become due and payable to Lessor.
14. UTILITIES. Tenant shall pay, as they become due and payable and
before they become delinquent, all charges for electricity, heat, air
conditioning, water, gas, fuel, telephone, sewage usage or rental, garbage
disposal, refuse removal, telephone and any other utility service furnished to
the leased premises during the term of this Lease.
If Lessor elects to furnish any of the foregoing utility services or other
services, Tenant shall purchase the same from Lessor, provided, the charge to
Tenant for such utility services or other services furnished or caused to be
furnished by Lessor shall not exceed the rate which Tenant would be required to
pay to a utility company of service company furnishing comparable services to
Tenant.
Tenant, at Tenant's sole cost and expense, shall provide and install all
lamps, tubes, bulbs, starters, ballasts, transformers and like items used or
required in the leased premises.
Tenant shall not make any alterations in or additions to the electrical
equipment and/or appliances in the leased premises without the prior written
consent of Lessor in each instance. Tenant's use of electrical current shall
not exceed at any time the capacity of the electric distribution system, and
Tenant shall not make any alteration or addition to the electric distribution
system without the prior written consent of Lessor in each instance. In the
event that at any time during the term of this Lease, Tenant desires to connect
or install any additional electric fixtures, equipment, or appliances to the
electric distribution system, and such fixtures, equipment or appliances require
<PAGE>
additional electric current which, in combination with Tenant's existing
electrical requirements, exceed the capacity of the electric distribution
system, Lessor, upon written request of Tenant, shall install any additional
riser or risers and all other equipment necessary and proper in connection
therewith to supply Tenant's electric requirements, at the sole cost and expense
of Tenant, but only if such riser or risers and such other equipment, if any,
are necessary to supply Tenant with the electric current required by it, and
will not cause damage or injury to the leased premises or the Center, or cause
or create a dangerous or hazardous condition, or entail excessive or
unreasonable alterations, repairs, expense or interference with or disturbance
of other tenants or occupancy of the Center.
Lessor reserves the right to cut off and discontinue any or all utility
services in an emergency and/or when necessary to make repairs, but with as
little interruption to the business of Tenant as is reasonable under the
circumstances. No such action by Lessor shall be construed as an eviction, or
disturbance of possession, or as an election by Lessor to terminate this Lease,
nor shall such action by Lessor subject Lessor to any liability to Tenant or any
other person or entity. In no event shall Lessor be liable to Tenant or any
other person or entity for any loss, damage or expense which may be sustained
for any interruption or failure in the supply of such utilities caused by fire,
other casualty, accident, riot, strike, act of God, the making of necessary
repairs, or by any cause beyond Lessor's control.
15. JANITOR SERVICE. Tenant shall provide and pay for any and all janitor
service required in the leased premises.
16. INTENTIONALLY OMITTED.
17. PERSONAL PROPERTY AND LEASEHOLD TAXES. If at any time, during the
term of this Lease, under federal, state or local law or any political
subdivision thereof, a tax, charge or excise, however described, is levied or
assessed against Tenant's leasehold interest in this Lease or against the
fixtures, equipment, merchandise and other personal property located in, upon,
about or affixed to the leased premises, Tenant shall pay such tax, charge or
levy as it is due and payable, and before it becomes delinquent.
18. RENTAL TAXES. If at any time during the term of this Lease, under
federal or state law or any political subdivision thereof, a tax, charge,
capital levy or excise on rents (fixed, guaranteed or additional), or other tax
(except income tax), however described, shall be levied against Lessor on
account of the rent payable herein, such tax, charge, capital levy, or excise on
rents or other taxes shall be paid by Tenant, or reimbursed to Lessor by Tenant
if such tax, charge, capital levy, or excise on rents or other taxes is advanced
by Lessor, the choice to be at the option of Lessor. If the amounts required to
be paid pursuant to the provisions of this paragraph are payable monthly, such
amounts shall be paid by Tenant to Lessor in addition to the monthly rent
provided for herein. If the amounts required to be paid pursuant to the
provisions of this paragraph are payable annually, such shall be paid by Tenant
to Lessor annually on demand. A photostatic copy of the statement received for
such amounts shall be sufficient evidence of the amounts due and payable.
19. LICENSE FEES. Tenant shall pay, as they become due and payable and
before they become delinquent, all fees, charges and expenses required for
licenses and/or permits, if any, required for Tenant's permitted use of the
leased premises, as set forth in the Data Sheet, during the term of this Lease.
20. TENANT'S INSURANCE. Tenant shall obtain and keep in force, at
Tenant's expense, for the term of this Lease, and any extension or renewal
thereof, the following insurance:
(a) Fire and extended coverage insurance, covering fire and extended
coverage perils, including, in addition to other standard provisions,
protection against theft, vandalism, malicious mischief, water damage
and sprinkler leakage. Said policy shall cover Tenant's stock in
trade, fixtures, furniture, equipment, signs, and all other
installations, improvements and betterments made by or for Tenant, on
or about the leased premises, on the basis of ninety percent (90%) of
replacement cost; and shall provide for allowance of complete waiver
of subrogation.
<PAGE>
(b) Comprehensive general liability insurance, with combined single limit
of One Million Dollars ($1,000,000.00) for each occurrence, or such
higher limits as determined reasonably by Lessor. Said policy shall
name Tenant as a named insured, and Lessor as an additional insured;
shall cover the leased premises, including, any elevators, boilers or
pressure vessels therein; shall contain a broad form hold harmless
endorsement identifying Lessor; and shall cover contractual
agreements.
(c) Any other standard insurance policy as may be required reasonably by
Lessor from time to time, upon such terms and conditions as may be
required reasonably by Lessor from time to time, including, but not
limited to, plate glass insurance.
Said insurance required pursuant to the provisions of this paragraph shall be
issued by an insurance company legally authorized to do business in the State of
Minnesota; shall be in a form satisfactory to Lessor; and shall provide for at
least thirty (30) days' notice, by certified mail, return receipt requested, to
Lessor before cancellation, termination, non-renewal or change of such
insurance. Evidence of said insurance, and any renewals thereof, shall be
delivered to and may remain in the possession of Lessor.(1)
21. WAIVER OF SUBROGATION. Lessor waives its right of subrogation for
damage to the building of which the leased premises are a part, contents
therein, loss of use thereof, and/or loss of income, up to the amount of
insurance proceeds collected; and Tenant waives its right of subrogation for
damage to property in the leased premises, loss of use thereof, loss of
income and/or accounts receivable, including, cash or checks of Tenant held
by Lessor as an accommodation to Tenant, up to the amount of insurance
proceeds collected. Lessor and Tenant, on behalf of their respective
insurance companies, waive any right of subrogation either may have against
the other where such waiver of subrogation is not invalidated by state law.
In the event the insurance premiums of Lessor are increased due to the
obtaining of such waiver of subrogation, Tenant shall reimburse Lessor for
the cost thereof forthwith upon receipt of a statement therefor from Lessor.
22. RELEASE OF LESSOR. All property of any kind that may be on or at the
leased premises shall be at the sole risk of Tenant, or those claiming through
or under Tenant. Lessor shall not be liable to Tenant, or to any other person
or entity due to any of the following: (a) damage, loss or injury, either to
person or persons; (b) loss of property sustained by Tenant, or by any other
person, persons or entities in or upon the leased premises or the Center; (c)
equipment, fixtures, appliances or machinery in or upon the leased, premises or
the building of which the leased premises are a part, or the halls, passageways,
areas, sidewalks or streets adjoining or appurtenant to the leased premises or
the building of which the leased premises are a part, being or becoming out of
repair or defective; (d) the happening of any accident, however occurring; (e)
any act or neglect of Tenant, of any other tenant or occupant of the Center, or
of any other person, persons or entities; (f) water, snow, rain, backing up of
watermains or sewers, frost, steam, sewage, illuminating gas, sewer gas, odors,
electricity or electric current, bursting, stoppage or leaking of pipes,
radiators, plumbing, sinks and fixtures in or about the leased premises or the
building of which the leased premises are a part; (g) the use or misuse of any
instrumentality or agency in or connected with the leased premises or the
Center; or (h) any nuisance made or suffered in, on or at the leased premises.
23. INDEMNIFICATION OF LESSOR. Except to the extent that any of the
following shall result from act or omission of Lessor, its agents, employees or
contractors, or failure on the part of Lessor to perform its covenants or
agreements under this Lease, Tenant shall indemnify and save harmless Lessor
against all liabilities, damages, claims, fines, penalties, costs and other
expenses, including, reasonable attorneys' fees, which may be imposed upon,
incurred by, or asserted against Lessor by reason of all or any of the matters
and things referred to in Paragraph 22, and including all of the following: (a)
any use or condition of the leased premises or any part thereof; (b) any
personal injury or property damage occurring on the leased premises; (c) any
negligence on the part of Tenant, its agents, contractors, licensees or
invitees; (d) any failure to comply with any requirement of any
- ----------------
(1) The insurance coverage tendered by the tenant herewith is satisfactory to
Lessor both as to the insuring company and the coverages therein provided.
<PAGE>
governmental authority; (e) any prosecution or defense of any suit or other
proceeding in discharging the leased premises or any part thereof from any
liens, judgments or encumbrances created upon or against the same or against
Tenant's leasehold estate; (f) any proceedings in obtaining possession of the
leased premises after the termination of this Lease by forfeiture or
otherwise; (g) any litigation commenced by or against Tenant to which Lessor
is made a party without any fault on the part of Lessor; and (h) any failure
on the part of Tenant to perform or comply with any covenant or agreement
required to be performed or complied with by Tenant hereunder.
24. INTENTIONALLY OMITTED.
25. INTENTIONALLY OMITTED.
26. COMMON AREAS. "Common areas" shall consist of all parts of the
Center not under lease exclusively to Tenant hereunder or to other tenants,
including, but not limited to, parking areas, access roads and facilities,
driveways, sidewalks and other walkways, stairways, loading areas, malls (if
any), landscaped areas, and such other areas and improvements provided for
common use and benefit. Lessor and Tenant, and their customers, invitees,
officers, employees, agents, sublessees, licensees, concessionaires and
contractors, shall have common and non-exclusive rights to the use of said
common areas, subject, however, to Lessor's exclusive right to establish,
modify and enforce reasonable rules and regulations with respect to all
common areas and facilities; to construct, maintain and operate lighting
facilities on all said areas and improvements; to police the common areas;
from time to time to change the area, level, location and arrangement of
parking areas and other facilities; to restrict parking by tenants, their
officers, employees, agents, sublessees, licensees, concessionaires and
contractors to employee parking areas; to enforce parking charges, by
operation of meters or otherwise, with appropriate provisions for free
parking ticket validating by tenants; to close all or any portion of said
areas or facilities to such extent as may, in the opinion of Lessor's
counsel, be legally sufficient to prevent a dedication thereof or the accrual
of any rights to any person or the public therein; to close temporarily all
or any portion of the parking areas or facilities; to discourage non-customer
parking; and to do and perform such other acts in and to said areas and
improvements as, in the use of good business judgment, Lessor shall determine
to be advisable with a view to the improvement of the convenience and use
thereof. Lessor shall operate and maintain the common areas and facilities in
such manner as Lessor, in its sole discretion, shall determine from time to
time. Without limiting the scope of such discretion, Lessor shall have the
full right and authority to employ all personnel and to make all rules and
regulations pertaining to and necessary for the proper operation and
maintenance of the common areas and facilities.
Lessor shall be responsible for repairs and maintenance of the common
areas, and lighting therefor, with payment of the expenses incident thereto as
hereinafter provided for.
27. INTENTIONALLY OMITTED.
28. SIGNS. Tenant shall provide, at its expense, during the term of this
Lease, a sign or signs the form of which shall be agreed to by Lessor and
Tenant, shall be harmonious to the general exterior architectural treatment of
the Center, and shall conform to sign criteria as set forth in Exhibit "D,"
attached hereto and made a part hereof. Drawings submitted for approval by
Lessor shall clearly show graphic, construction and attachment details, and
electrical load requirements. The cost of installing, maintaining, changing and
removing all signs shall be borne by Tenant. Tenant shall keep its display
windows, exterior signs and exterior advertising displays adequately illuminated
during such hours as Lessor determines reasonably to be necessary. Upon
commencement of the term of this Lease, with said sign or signs in place, Tenant
shall not erect, install, place or cause to be erected, installed or placed, any
additional signs, awnings; canopies, lettering, placards, decorations or
advertising media of any type on the exterior of the leased premises without
obtaining, on each occasion, the prior written consent of Lessor. The consent
of Lessor as to signs shall not be withheld unreasonably, provided, that any
such sign shall conform to the sign criteria, any and all governmental rules,
regulations, ordinances, laws with respect to same, and shall not be
distasteful, defacing, unfit, or affect the structural strength of the leaded
premises or the building of which they are a part. Tenant shall have no right
to erect any sign of any kind or nature which advertises a business or product
other than Tenant's. Tenant shall not erect, install, place or cause to be
erected, installed, or place any lettering, placards, decorations or advertising
media of any type in the windows of the leased premises which Lessor, in its
sole opinion, considers to be distasteful or defacing, and Tenant, if so
requested by
<PAGE>
Lessor, shall remove forthwith such material from the windows of the leased
premises. All signs, and all materials placed in the windows of the leased
premises, shall be maintained in such a manner so as to be sightly and in
good condition and repair.
29. REPAIRS AND MAINTENANCE. During the term of this Lease, Lessor, at
Lessor's cost and expense, shall keep and maintain in good order, condition and
repair, the foundation, exterior walls (except store fronts, plate glass or
other breakable materials used in structural portions) and structural part of
the floor. Lessor shall have no obligation to paint or decorate said foundation
or exterior walls. The foregoing to the contrary notwithstanding, any damage to
any of the foregoing caused by any act or negligence of Tenant, its employees,
agents, invitees, licensees or contractors shall be repaired or replaced
promptly by Tenant.
During the term of this Lease, Tenant, at Tenant's cost and expense, shall
keep and maintain in good order, condition and repair, including, reasonable
periodic painting and decorating, and including replacement as required, the
leased premises and every part thereof (except as specifically provided for in
this Paragraph 29 to be Lessor's obligation) including, but not limited to: the
exterior and interior portions of all doors, glass and glass windows; all
mechanical, plumbing, heating, air conditioning, ventilating and electrical
equipment and systems within, affixed (roof mounted, or otherwise) to, or
serving the leased premises; interior walls, partitions; floors and ceilings;
signs of Tenant; and all fixtures, appliances and equipment furnished by Lessor,
if any.
30. ALTERATIONS AND IMPROVEMENTS. Tenant, at its cost and expense and
with no right of reimbursement from Lessor, may make alterations, additions, and
improvements to the leased premises to better adapt the leased premises to its
use and occupancy; provided, however, on each occasion, any such alteration,
addition, or improvement shall: (i) equal or exceed the then current standard
for the Center, utilizing only new and first-grade materials; (ii) be in
conformity with all applicable federal, state and local laws, ordinances,
regulations, building codes, fire regulations, and insurance requirements of
Lessor and Tenant; (iii) be made only with the prior written consent of Lessor,
and as a condition to such consent, Lessor may require agreement by Tenant to
remove such alterations, additions, and/or improvements at the time of
termination of this Lease, and restore the leased premises to their condition
prior to the installation of such alterations, additions, and/or improvements,
and otherwise, in good condition and repair, subject to reasonable wear and
tear; (iv) be made pursuant to such plans and specifications as may be required
by Lessor, and upon obtaining any required permits and licenses; (v) be
conditioned upon providing to Lessor, at Lessor's option, a letter of credit,
performance bond or other indemnification in such form and amount as may be
satisfactory to Lessor to protect against liens for labor to be performed and
materials to be furnished; and (vi) be carried out only by persons or entities
selected by Tenant and approved in writing by Lessor, who, if required by
Lessor, shall deliver to Lessor before commencement of the work proof of such
workmen's compensation, comprehensive general liability, and builder's risk
insurance as Lessor may require, with Lessor named as an additional insured, in
amounts, with companies, and in form satisfactory to Lessor, which insurance
shall remain in effect during the entire period during which such alteration,
addition, or improvement will be accomplished. Any such alteration, addition,
or improvement shall be done only at such time and in such manner as Lessor may
designate from time to time. Tenant shall promptly pay the cost of any such
change, addition, or improvement. Upon completion, Tenant shall furnish Lessor
with contractors' affidavits and full and final waivers of liens. Tenant shall
indemnify Lessor for, and hold Lessor harmless forever from, any and all claims
and liabilities of any kind and description which may arise out of or be
connected in any way with any such alteration, addition, or improvement;
provided, however, Tenant shall have no obligation to indemnify Lessor for the
negligence or intentional act of Lessor, its agents, employees, or contractors.
Any increase in property taxes on, or insurance for, the Building attributable
to such change, addition, or improvement shall be borne by Tenant, and paid by
Tenant to Lessor within thirty (30) days after receipt by Tenant of Lessor's
invoice therefor, accompanied by appropriate evidence thereof. Subject to the
provisions of agreement, if any, pursuant to (iii) above, all such alterations,
additions, and/or improvements shall remain in or upon and be surrendered with
the leased premises at the termination of this Lease, with the exception of
furniture, movable trade fixtures, and/or trade equipment, and other movable
personal property put in at the expense of Tenant, which items shall remain the
property of Tenant.
31. MECHANICS LIENS. Tenant shall pay timely for labor and material
furnished to Tenant or claimed to have been furnished to Tenant in connection
with work of any character performed or claimed to have
<PAGE>
been performed on the leased premises, at the direction or with the consent
of Tenant, whether such work was performed or materials furnished before or
after the commencement of the term of this Lease. Tenant shall not permit
any mechanics or similar liens to remain upon the leased premises incident to
the foregoing. However, Tenant may contest the validity of such lien or
claim, provided, Tenant shall give to Lessor such security as Lessor may
require reasonably to insure payment and to prevent any sale, foreclosure or
forfeiture of the leased premises by reason of such non-payment. Upon a
final determination of the validity of any such lien or claim, Tenant shall
immediately pay any judgment or decree rendered against Tenant or Lessor,
including, but not limited to, all proper costs and charges, and shall cause
such lien to be released of record without costs to Lessor.
32. LESSOR'S RIGHT TO INSPECT AND REPAIR. Lessor, or its agents, shall
have the right to inspect any part of the leased premises at any reasonable
time. Tenant shall make any repairs, which in Lessor's reasonable opinion, are
necessary for the protection, preservation and maintenance of the leased
premises or any part thereof, other than those repairs which are Lessor's
responsibility pursuant to the provisions of this Lease. If Tenant fails to
commence such repairs promptly and adequately and/or fails to proceed diligently
to completion, Lessor, at its option, may make such repairs, and any
expenditures made in connection with such work shall be due and payable from
Tenant upon, demand, plus an amount equal to fifteen percent (15%) of such
expenditures for overhead and supervision.
33. CONDITION OF LEASED PREMISES AND LESSOR'S PROPERTY AT TERMINATION. At
termination of this Lease, Tenant shall quit and deliver the leased premises,
all partitions, improvements, alterations and other property of Lessor to Lessor
in good condition and repair. If Tenant fails to deliver the leased premises,
and Lessor's property to Lessor in good condition and repair, Lessor, at its
option, may make such repairs, and any expenditures made in connection with such
work shall be due and payable from Tenant upon demand, plus an amount equal to
fifteen percent (15%) of such expenditures for overhead and supervision.
34. DAMAGE BY FIRE OR OTHER CASUALTY. In the event of any damage caused
to the leased premises by fire or other casualty, if capable of accomplishment,
Tenant shall give immediate written notice to Lessor, or if not capable of
accomplishment, as soon thereafter as is reasonable under the circumstances. If
Tenant does not so notify Lessor, Tenant shall be liable for all consequential
damages directly or indirectly resulting from its failure to so notify Lessor,
in addition to every other right and remedy which Lessor may have pursuant to
this Lease, at law or in equity.
In the event the leased premises shall be damaged by fire or other casualty
to the extent of fifty percent (50%) or less of the cost of replacement of the
leased premises, and such damage is covered by Lessor's insurance, and can be
repaired within one hundred eighty (180) days after the date of the happening of
the event causing the damage, Lessor shall cause the damage to be repaired, at
its expense; provided, however, in the event such damage occurs during the last
two (2) years of the term of this Lease, Lessor shall have no obligation to
cause the damage to be repaired.
In the event the leased premises shall be damaged by fire or other
casualty, and such fire or other casualty shall not be covered by Lessor's
insurance, or the leased premises shall be damaged to the extent of more than
fifty percent (50%) of the cost of replacement of the leased premises, or cannot
be repaired within one hundred eighty (180) days after the date of the happening
of the event causing the damage but can be repaired within two hundred seventy
(270) days after the date of the happening of the event causing the damage, then
in any of such events, Lessor may elect either to repair or rebuild the leased
premises or to cancel this Lease, either of such elections to be made by the
giving of written notice to such effect by Lessor to Tenant within sixty (60)
days after the date of the happening of the event causing the damage. In the
event Lessor gives Tenant written notice of its intention to repair or rebuild,
then this Lease shall remain in force and effect. In the event Lessor does not
give Tenant written notice of its intention to repair or rebuild or cancel this
Lease within said sixty (60) days, this Lease may be cancelled at the option of
either Lessor or Tenant by written notice by either party to the other within
thirty (30) days after the expiration of Lessor's sixty (60) days' notice
period. Cancellation, if appropriately elected, shall be effective as of the
date when the damage occurred.
<PAGE>
In the event fifty percent (50%) or more of the building(s) constituting
the Center of which the leased premises are a part shall be damaged by fire or
other casualty, regardless of whether or not the leased premises are affected,
and such fire or other casualty shall not be covered by Lessor's insurance, or
such damage cannot be repaired within one hundred eighty (180) days after the
date of the happening of the event causing the damage, then in any of such
events, Lessor may elect either to repair or rebuild said building or to cancel
this Lease, either of such elections to be made by the giving of written notice
to such effect by Lessor to Tenant within ninety (90) days after the date of the
happening of the event causing the damage. In the event Lessor shall give
written notice to Tenant of its election either to repair or rebuild, then this
Lease shall remain in force and effect. In the event Lessor does not give
written notice to Tenant of its election either to repair or to rebuild or to
terminate this Lease within said ninety (90) days, this Lease may be cancelled
at the option of either Lessor or Tenant by written notice by either party to
the other within thirty (30) days after the expiration of Lessor's ninety (90)
days' notice period. Cancellation, if appropriately elected, shall be effective
as of the date when the damage occurred.
As promptly as is practicable after such fire or other casualty and during
any period of repair or reconstruction of the leased premises, Tenant shall
continue the operation of its business within the leased premises to the extent
practicable. If the fire or other casualty, repairing or rebuilding shall
render the leased premises untenantable, in whole or in part, a proportionate
abatement of the rent shall be allowed from the date of the happening of the
event causing the damage until the date Lessor completes the repairs or
rebuilding, or, in the event of cancellation, until the effective date of such
cancellation, said proportionate abatement to be computed on the basis of the
relation which the square foot area of the space in the leased premises rendered
untenantable bears to the total square foot area of the leased premises.
Nothing in this paragraph shall be construed to permit the abatement, in whole
or in part, or the other charges provided for in this Lease.
In the event Lessor is obligated, or exercises its election to repair,
restore or replace the improvements, it shall proceed with due diligence, and at
its sole cost and expense, to make such repairs, restoration or replacement in
such manner as to approximate original condition, reasonable wear and tear
excepted, excluding therefrom improvements or betterments to the lease premises
constructed or installed by Tenant or at Tenant's direction. In determining
"due diligence," consideration shall be given to fire and other casualties,
governmental restrictions and regulations, strikes, lock-outs, construction
delays beyond the control of Lessor, and acts of God. In no event shall Lessor
be required to repair, restore or replace the items hereinafter set forth to be
repaired, restored, or replaced by Tenant. In the event Lessor is required or
elects to repair, restore, or replace the improvements, Tenant shall proceed
with due diligence, at Tenant's sole cost and expense, to repair, restore or
replace improvements or betterments to the leased premises constructed or
installed by Tenant or at Tenant's direction, its stock-in-trade, fixtures,
furniture, furnishings, equipment, other personal property and signs. Lessor
shall not be responsible for, nor liable to, Tenant for any damages whatsoever
caused by any damage or destruction to the leased premises, nor for any delay in
repairing, restoring or replacing, nor for inability to repair, restore, or
replace, nor for any other cause whatsoever beyond Lessor's control. All
property of Tenant and all property kept, stored or maintained in or upon the
leased premises, adjacent sidewalks, loading areas or other common areas shall
be at the sole risk of Tenant.
35. EMINENT DOMAIN. If the leased premises, or such portion thereof as to
render the balance unsuitable for the use of Tenant, as set forth on the Data
Sheet, shall be taken by condemnation or the right of eminent domain or by
private sale in lieu thereof to the potential condemning authority, either party
shall be entitled to terminate this Lease upon written notice to the other
within thirty (30) days after Tenant has been deprived of possession by such
taking or sale. If any portion of the leased premises is so taken or sold and
if this Lease is not terminated in accordance with the provisions hereof, Lessor
shall proceed to restore and rebuild the remaining portion thereof so as to make
an architecturally complete unit as diligently as is practicable, and in such
event, a proportionate reduction of the minimum guaranteed rent and reduction of
Tenant's proportionate share pursuant to paragraphs 16 and 27 shall be allowed
from the appropriate date, said proportionate reduction to be computed on the
basis of the relation which the square foot area in the leased premises so taken
bears to the total square foot area of the leased premises. Nothing in this
paragraph shall be construed to permit the abatement or reduction, in whole or
in part, of the percentage rent, or any other charges provided for in this
Lease, but for the purpose of paragraph 11, the computation of percentage rent
shall be based upon the revised minimum rent as the same may be reduced pursuant
to this paragraph.
<PAGE>
In the event fifty percent (50%) or more of the building of which the
leased premises are a part shall be taken by condemnation or the right of
eminent domain or by private sale in lieu thereof to the potential condemning
authority, either party shall be entitled to terminate this Lease upon written
notice to the other on or before the date possession is to be surrendered to the
public or quasi-public authority, such termination to be effective as of the
date of surrender of possession.
Tenant shall have the right to make its claim for its unamortized cost of
leasehold improvements to the extent paid for by Tenant, its fixtures and moving
expenses, all to the extent such damages are allowable; provided, any award
therefor can be made separately to Tenant without diminution of any award to be
made to Lessor. Other than the foregoing, Tenant shall not be entitled to
claim, or have paid to Tenant, any compensation or damages whatsoever for or on
account of any loss, injury, damages or taking of any right, interest or estate
of Tenant, and Tenant hereby relinquishes and hereby assigns to Lessor any
rights to any damages. Subject to the foregoing, Lessor shall be entitled to
claim and have paid to it for the use and benefit of Lessor all compensation and
damages for and on account of or arising out of such taking or condemnation,
without deduction from the amount thereof for and on account of any right,
title, interest or estate of Tenant in or to the leased premises or matter
relating thereto. Tenant, upon request of Lessor, shall execute any and all
releases or other documents as shall be required by such public or quasi-public
authority in accordance with the provisions of this paragraph. In the event
Tenant fails to execute and deliver said releases or other document within ten
(10) days after said request, Tenant hereby appoints Lessor irrevocably as the
attorney-in-fact of Tenant to execute and deliver said releases or other
documents.
36. ASSIGNMENT OR SUBLEASE BY TENANT. Tenant may not, voluntarily or by
operation of law, assign or transfer this Lease, or sublease the whole or any
part of the leased premises, or allow the whole or any part of the leased
premises to be used or occupied by any other person or entity, without the prior
written consent or Lessor. If Tenant is a corporation, then any transfer of
this Lease by merger, consolidation or liquidation, or any change in ownership
of the shares of voting stock so as to result in a change of the present
effective voting control of Tenant by the person, persons and/or entity owning a
majority of said shares on the date of this Lease, shall constitute an
assignment of this Lease, and, as such, shall require the prior written consent
of Lessor. The prior written consent of Lessor shall not be withheld
unreasonably, but only if all of the following conditions are met: (a) proposed
assignee or sublessee is financially responsible; (b) Tenant and any guarantors
obligations pursuant to the Lease; (c) the minimum guaranteed annual rent,
effective as of the effective date of such assignment or subleasing, shall
become forthwith the greater of the following: the minimum guaranteed annual
rent then applicable, or an amount equal to the average of the rent, including
percentage rent, payable for the last two (2) lease years (or shorter period, if
so required) immediately prior to the lease year of the proposed assigning or
subleasing; and (d) the use of the leased premises remains the same as set forth
on the Data Sheet, and does not conflict with an exclusive that Lessor might
have granted since the date of this Lease. The foregoing to the contrary
notwithstanding, Lessor shall have a period of sixty (60) days after notice by
Tenant of the proposed assigning or subleasing to elect to terminate and cancel
this Lease without further liability to Tenant.
37. SALE BY LESSOR; NOVATION. Lessor shall have the right to exhibit the
leased premises to prospective purchasers, and the right to sell or transfer the
leased premises subject to all provisions of this Lease. In the event of the
sale of the leased premises, Lessor shall be and hereby is relieved of all of
the covenants and obligations created hereby other than obligations arising for
the period prior to, the date of sale, and as to which Lessor has received
notice from Tenant within thirty (30) days after Tenant has been notified of
such sale. Such sale shall result automatically in the purchaser assuming and
agreeing to carry out all the covenants and obligations of Lessor herein.
38. SUBORDINATION; ATTORNMENT AND NON-DISTURBANCE. Tenant agrees that
this Lease is, and shall be, subordinate or superior, at the option of Lessor,
to any mortgage, and to all renewals, modifications, consolidations,
replacements, and extensions thereof, to the full extent of the principal sum
secured thereby and interest thereon, to the extent such mortgage affects the
leased premises or the Center; and that such subordination or superiority,
depending on Lessor's election from time to time, shall be effective without any
further act by Tenant. Tenant further agrees that it will attorn to and
recognize any purchaser at a foreclosure sale of such mortgage, or any
transferee who acquires the leased premises by deed in lieu of foreclosure, and
the successors and assigns of such purchasers, as its Lessor for the unexpired
balance of the term of this Lease and extensions, if any.
<PAGE>
Tenant further agrees that in the event that a mortgagee shall succeed to the
interest of Lessor under this Lease, such mortgagee shall not be: liable for
any act or omission of any prior lessor, including Lessor; liable for the
return of any security deposit; subject to any off-sets or defenses which
Tenant may have against any prior lessor, including Lessor; bound by any rent
or additional rent which Tenant may have paid for more than the current month
to any prior lessor, including Lessor; bound by any amendment or modification
of this Lease made without its consent. Tenant further agrees to execute any
and all further documents or instruments in addition to this Lease which may
be deemed necessary requisite or desired to effectuate said subordination and
attornment. The agreements and obligations of Tenant as set forth in this
paragraph are undertaken by Tenant with the express understanding for the
benefit of Tenant that in the event of foreclosure of any mortgage covering
the leased premises or the Center, or acquisition thereof by deed in lieu of
foreclosure, the mortgagee, its successors and assigns, will not terminate
this Lease, nor join Tenant in summary or foreclosure proceedings, provided,
Tenant shall continue to perform all of the covenants and conditions of this
Lease and shall not be in default hereunder.
39. ESTOPPEL CERTIFICATE. Within ten (10) days after request therefor by
Lessor, or in the event that upon any sale, assignment, financing or
hypothecation of the leased premises or the Center by Lessor, an Estoppel
Certificate shall be required from Tenant, Tenant agrees hereby to deliver in
recordable form an Estoppel Certificate to any proposed mortgagee, lender or
purchaser, or to Lessor, agreeing to and/or certifying as follows:
(a) that this Lease is in full force and effect, and has not been
assigned, modified, supplemented or amended in anyway (or if there has
been any assignment, modification, supplement or amendment,
identifying the same);
(b) that this Lease represents the entire agreement between Lessor and
Tenant as to the subject matter hereof (or if there has been any
assignment, modification, supplement, or amendment, identifying the
same);
(c) that Tenant has entered into occupancy of the leased premises, and the
date of such entry if such is the case;
(d) the commencement date and termination date of the term or terms, if
determinable at the time;
(e) that all conditions under this Lease to be performed by Lessor have
been satisfied and all required contributions, if any, by Lessor to
Tenant on account of Tenant's improvements have been received (and if
not, what conditions remain unperformed);
(f) that to the knowledge of the signer of such Estoppel Certificate, no
default exists in the performance or observance of any covenant or
condition in this Lease and that there are no defenses or offsets
against the enforcement of this Lease by Lessor, or specifying in
reasonable detail such default, defense or offset of which the signer
may have knowledge;
(g) the amount of minimum guaranteed annual rent, and any information
reasonably requested as to percentage rent and any other charges to be
paid by Tenant pursuant to the provisions of the Lease;
(h) that Tenant has no charge, lien or claim of offset under the Lease, or
otherwise, against rent or charges due or to become due thereunder, or
stating those claimed by Tenant;
(i) if such be the case, that rent payable under this Lease has not been
paid more than thirty (30) days in advance of the next due date, and
that Tenant will not pay any rent more than thirty (30) days in
advance of any due date, with the exception of any security deposit,
in which case Tenant will state the amount of such security deposit;
<PAGE>
(j) that if Tenant is provided appropriate evidence of a duly recorded
mortgage encumbering the leased premises or the Center by the,
mortgagee named the therein, its successors or assigns ("mortgagee"),
Tenant will not consent to the modification of any material provision
of this Lease, and will not seek to terminate this Lease by reason of
any act or omission of Lessor, until Tenant shall have given written
notice of such act, or omission to such mortgagee and until ninety
(90) days shall have elapsed following the giving of such notice,
during which period such mortgagee shall have the right, but not the
obligation, to remedy such act or omission; and
(k) that in the event such mortgagee or any purchaser at a foreclosure
sale acquires title to the leased premises pursuant to the exercise of
any remedy provided for in said duly recorded mortgage, Tenant will
attorn to such mortgagee, or to such other purchaser, as its new
landlord and that this Lease shall continue in full force and effect
as a direct Lease between Tenant and such mortgage or such other
purchaser, upon the terms, covenants, conditions and agreements set
forth herein; provided, however, such mortgagee, or such other
purchaser, shall not be liable to Tenant for any act or omission of
Lessor.
40. REMEDIES OF LESSOR. In the event that during the term of this Lease
(regardless of the pendency of any bankruptcy, reorganization, receivership,
insolvency or other proceedings, in law, in equity, or before any administrative
tribunal, which has prevented or might prevent compliance by Tenant with the
terms of this Lease):
(a) Tenant shall have failed to pay any installment of rent or any other
charge provided herein, or any portion thereof when the same shall be
due and payable, and the same shall remain unpaid for a period of ten
(10) days after written notice thereof;
(b) Tenant shall have failed to comply with any other provisions of this
Lease and shall not cure such failure within ten (10) days after
Lessor, by written notice, has informed Tenant of such non-compliance;
provided, however, in the case of a default other than payment, which
cannot, with due diligence, be cured within a period of ten (10) days,
Tenant shall have such additional time to cure such default as may
reasonably be necessary, but in no event in excess of sixty (60) days,
provided, Tenant proceeds promptly and with due diligence to cure such
default after receipt of said notice; or
(c) Tenant, or its guarantor, if any, shall become insolvent or unable to
pay its debts as they mature, or suspends business or commences
proceedings under any bankruptcy, reorganization, arrangement,
insolvency, or readjustment of debt, dissolution or liquidation laws,
either of the United States or any state thereof; or
(d) if any such proceedings as set forth in subparagraph (c) of this
paragraph 40 shall be commenced against Tenant, or its guarantor, if
any, and that entity or individual consents thereto, or does not take
affirmative action to have the proceedings dismissed within ten (10)
days, or such proceeding remains undismissed for thirty (30) days, or
an order is entered in any proceeding adjudicating Tenant, or its
guarantor, if any, a bankrupt or insolvent or approving the petition
in such proceeding; or
(e) Tenant, or its guarantor, if any, makes an assignment for the benefit
of creditors, or a receiver or trustee is appointed for Tenant, or its
guarantor, if any, or for any substantial part of a property of
Tenant, or its guarantor, if any; or
(f) Tenant shall have ceased to conduct its normal business operations in
the leased premises, or shall vacate or abandon the leased premises
and leave the same vacated or abandoned for a period of ten (10) days,
excepting vacation or abandonment due to fire or other casualty, or
repairs or improvements by Lessor which necessitate such vacation or
abandonment; or
<PAGE>
(g) Tenant shall do or permit to be done anything which creates a lien
upon the leased premises; provided, however, this subparagraph shall
be subject to the provisions of paragraph 31;
then Lessor upon five (5) days' written notice to Tenant may elect either (i) to
cancel and terminate this Lease and this Lease shall not be treated as an asset
of Tenant's estate, or (ii) to terminate Tenant's right to possession only
without cancelling and terminating this Lease. Notwithstanding the fact that
initially Lessor elects under (ii) to terminate Tenant's right to possession
only, Lessor shall have the continuing right to cancel and terminate this Lease
by serving five (5) days' written notice on Tenant of such further election, and
shall have the right to pursue any remedy at law or in equity that may be
available to Lessor.
In the event of election under (ii) to terminate Tenant's right to possession
only, Lessor may, at Lessor's option, enter into the leased premises and take
and hold possession thereof, without such entry into possession terminating this
Lease or releasing Tenant in whole or in part from Tenant's obligation to pay
the rent hereunder for the full stated term. Upon such reentry, Lessor 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 Tenant, without becoming liable, for any loss or damage which may
be occasioned thereby. Such re-entry shall be conducted in the following
manner: without resort to judicial process or notice of any kind in the
situation where Tenant has abandoned or voluntarily surrendered possession of
the leased premises; and, otherwise, by resort to judicial process. Upon and
after entry into possession without termination of the Lease, Lessor shall use
its best efforts to relet the premises, or any part thereof, for the account of
Tenant, to any person, firm or corporation, other than Tenant, for such rent,
for such time and upon such terms as Lessor, in Lessor's sole discretion, shall
determine, but Lessor shall not be required to accept any tenant offered by
Tenant or to observe any instruction given by Tenant about such reletting.
Lessor may make alterations and repairs, and redecorate the leased premises to
the extent deemed by Lessor necessary or desirable.
Upon such re-entry, Tenant shall be liable to Lessor as follows:
(a) for the unpaid installments of rent and other unpaid sums which were
due prior to such re-entry, which sums shall be payable forthwith;
(b) for the installments of rent and other sums falling due pursuant to
the provisions of this Lease for the periods after re-entry during
which the leased premises remain vacant, which sums shall be payable
as they become due hereunder;
(c) for all expenses, including commissions, attorneys' fees, costs of
alterations, repairs and redecorating, which shall be payable as they
are incurred; and
(d) while the leased premises are subject to any new lease or leases made
pursuant to this paragraph, for the amount by which the monthly
installments payable under such new lease or leases is less than the
monthly installment for all charges payable pursuant to this Lease,
which deficiencies shall be payable monthly.
No such re-entry or taking possession of the leased premises by Lessor shall be
construed as an election on its part to terminate this Lease unless a written
notice of such intention be given to Tenant or unless the termination thereof be
decreed by a court of competent jurisdiction. Notwithstanding Lessor's election
to terminate Tenant's right to possession only, and notwithstanding any
reletting without termination, Lessor, at any time thereafter, may elect to
terminate this Lease, and to recover, in lieu of the amounts which would
thereafter be payable pursuant to the foregoing, as damages for loss of the
bargain and not as a penalty, an aggregate sum equal to the amount by which the
rental value of the portion of the term unexpired at the time of such election
is less than the entire amount of unpaid minimum guaranteed rent and all
additional charges which would have been payable by Tenant hereunder for the
unexpired portion of the term, which deficiency and all expenses incident
thereto, including commissions, attorney's fees, expenses of alterations,
repairs and redecorating, shall be due to Lessor as of the time Lessor exercises
said election, notwithstanding that the term has not expired; and if Lessor,
after such reentry, leases said
<PAGE>
leased premises, then the rent payable under such new lease shall be
conclusive evidence of the rental value of said unexpired portion of said
term.
If this Lease shall be terminated by reason of the bankruptcy or insolvency of
Tenant, Lessor shall be entitled, notwithstanding any other provision of this
Lease or any present or future law, to recover from Tenant or Tenant's estate,
in lieu of the equivalent of the amount of all minimum guaranteed rent and all
other charges payable hereunder, as damages for loss of the bargain and not as a
penalty, an aggregate sum which, at the time of such termination of this Lease,
represents the then present worth of the excess, if any, of the aggregate of the
minimum guaranteed rent and all other charges payable pursuant to the provisions
of this Lease over the aggregate rental value of the leased premises for the
balance of the term, unless any statute or rule of law governing the proceedings
in which such damages are to be proved shall limit the amount of such claim
capable of being so proved, in which case, Lessor shall be entitled to prove, as
and for liquidated damages, by reason of such breach and termination of this
Lease, the maximum amount which may be allowed by or under such statute or rule
of law. Nothing contained herein shall limit or prejudice Lessor's right to
prove and obtain as liquidated damages arising out of such breach or termination
the maximum amount allowed by any such statute or rule of law which may govern
the proceedings in which such damages are to be proved whether or not such
amount be greater, equal to, or less than the amount of the excess of all
charges over the rental value referred to above.
If Lessor shall at any time be entitled to rent under this Lease pursuant
to any of the covenants, conditions or agreements of this Lease either (i) after
the termination of this Lease, or (ii) after termination of Tenant's right to
possession without termination of this Lease, Lessor shall recover and Tenant
agrees to pay the minimum guaranteed rent, the percentage rent and any other
charges as provided for in this Lease. For the purpose of determining the
percentage rent, in either case, such rent shall be computed pro rata on the
basis of the average sales for the twenty-four (24) months immediately preceding
the occurrence of either such event of default or for the expired portion of
this Lease, whichever period is shorter.
If Tenant shall default in the performance of any covenant required to be
performed by it under this Lease, taking into consideration the grace periods
provided in paragraphs 40(a) and 40(b), Lessor may perform the same for the
account and at the expense of Tenant, upon giving notice to Tenant of its
intention to do so. If Lessor at any time is compelled to pay, or elects to
pay, any sum of money by reason of the failure of Tenant to comply with any
provision of this Lease, or if Lessor is compelled to incur any expense,
including, reasonable attorney's fees, in instituting, prosecuting or defending
any action or proceeding instituted by reason of any default of Tenant
hereunder, the sum or sums so paid by Lessor shall be due from Tenant to Lessor
on the next date following the payment of such sums upon which a regular monthly
rental payment is due, together with interest, at a rate which is the lesser of
the maximum allowable legal rate or eighteen percent (18%) per annum, from the
respective dates of each such payment. In addition, in the event Lessor
performs construction work on behalf of Tenant, which is Tenant's obligation
pursuant to the provisions of this Lease, Lessor shall be entitled to an amount
equal to fifteen percent (15%) of the amount of the costs and expenses of such
construction as payment to Lessor for overhead and supervision, in addition to
the costs and expenses of such construction.
No right or remedy herein conferred upon or reserved to Lessor is intended
to be exclusive of any other right or remedy herein or by law provided, but each
shall be cumulative and in addition to every other right or remedy given herein
or now or hereafter existing at law or in equity or by statute.
41. RESERVATION OF RIGHTS. In addition to all other rights of Lessor and
not in limitation thereof, Lessor expressly reserves the right to use the
outside walls and roof of the leased premises, and the air space above the
leased premises; the right to install, maintain, use, repair and replace the
pipes, ducts, conduits and wires leading through the leased premises in a manner
which will not materially interfere with Tenant's use thereof; and the right,
when so requested by any occupant in the Center, at any time to adjust the space
occupied by said occupant to its business requirements, and in connection
therewith without any other tenant's consent, to enlarge, expand or contract the
physical space occupied by such occupant, and when so requested by any occupant,
without this Tenant's consent and without restriction, to move or relocate said
occupant within the Center as such occupant's interest may require. Tenant's
premises shall not be enlarged, expanded, contracted, moved or relocated without
Tenant's express written consent.
<PAGE>
Lessor and its agents shall have the right during the term of this Lease to
exhibit the leased premises to prospective purchasers. In addition, Lessor and
its agents shall have the right, during the last three (3) months of the term of
this Lease to place and maintain on the exterior walls of the leased premises
and in the windows thereof reasonable signs advertising the availability of the
leased premises to prospective tenants. The provisions of this paragraph shall
impose no duty or obligation on Lessor contrary to or other than those contained
in the other paragraphs of this Lease.
42. LENDER REQUIREMENTS. If at any time prior to the commencement of the
term of this Lease, Lessor notifies Tenant that a lending institution lending
funds to Lessor in connection with the Center requires a change or changes in
this Lease as a condition of such financing, Tenant agrees, at the request of
Lessor, to promptly execute and deliver to Lessor an amendment to this Lease
incorporating such required changes, provided, that such changes do not change
the financial obligations of Tenant, the location or the size of the leased
premises or the building of which the leased premises are a part or the parking
area, the term of this Lease, construction work (if any) to be performed by
Lessor, or involve any other substantial changes which materially alter the
rights or remedies of Tenant under this Lease.
43. RELATIONSHIP OF THE PARTIES. Nothing contained in this Lease shall be
deemed or construed by the parties hereto or by a third party to create the
relationship of principal and agent or of partnership or of joint venture or of
any association whatsoever between Lessor and Tenant, it being expressly
understood and agreed that neither the method of computation of rent nor any
other provisions contained in this Lease nor any act or acts of the parties
hereto shall be deemed to create any relationship between Lessor and Tenant
other than the relationship of Lessor and Tenant.
44. SHORT FORM LEASE. Tenant shall not record this Lease without the
written consent of Lessor; however, upon the request of either party hereto, the
other party shall join in the execution of a memorandum or so-called "short
form" of this Lease for the purposes of recordation. Said memorandum or short
form of this Lease shall describe the parties, the leased premises, the term of
this Lease, any special provisions, and shall incorporate this Lease by
reference. Any fees required to be paid in order to record such memorandum or
short form of this Lease shall be paid by the party desiring to record such
memorandum or short form of this Lease.
45. NOTICES; PAYMENTS. Each provision of this Lease or of any applicable
governmental law, ordinance, regulation, or other requirements with reference to
the sending, mailing or delivery of any notice or the making of any payment
shall be deemed to be complied with when and if the following steps are taken:
(a) all rent and other payments required to be made by Tenant or Guarantor
to Lessor hereunder shall be payable to Lessor at the address
hereinbelow set forth, or at such other address as Lessor may specify
from time to time by written notice delivered in accordance herewith;
(b) all payments, if any, required to be made by Lessor to Tenant
hereunder shall be payable to Tenant at the address hereinbelow set
forth, or at such other address as Tenant may specify from time to
time by written notice delivered in accordance herewith;
(c) any notice or document required or permitted to be given or delivered
hereunder shall be in writing, and shall be deemed to be given when
deposited in the United States mail, postage prepaid, certified or
registered mail, return receipt requested, addressed to the respective
parties hereto at the respective addresses set out below, or at such
other addresses as they have theretofore specified by written notice
in accordance herewith:
(1) if to Lessor, to Signal Hills Company, 47 Signal Hills, West St.
Paul, Minnesota, 55118, with a copy by certified or registered mail to
Thomas S. Schreier, 3570 North Lexington Ave., Suite 300, St. Paul,
Minnesota 55112.
<PAGE>
(2) if to Tenant, to President
Signal Bank
100 Signal Hills
West St. Paul, MN 55118
(3) if to Guarantor, to _______________________________________
________________________________________________________________
________________________________________________________________
and shall be deemed to be received, whether actually received or not,
two (2) days after deposit as aforesaid in the United States mail.
(d) All parties included within the terms "Lessor," "Tenant" and
"Guarantor" respectively, shall be bound by notices given in
accordance with the provisions of this paragraph 45 as if each had
received such notice.
46. IMPORTANCE OF EACH COVENANT. Each covenant and agreement on the part
of one party is understood and agreed to constitute an essential part of the
consideration for each covenant and agreement on the part of the other party.
47. WAIVER. The receipt of rent by Lessor with knowledge of any breach of
this Lease by Tenant or of any default on the part of Tenant in the observance
of performance of any of the obligations or covenants of this Lease shall not be
deemed to be a waiver of any provisions of this Lease. No failure on the part
of Lessor to enforce any obligation or covenant herein contained, nor any waiver
of any right hereunder by Lessor, unless in writing, shall discharge or
invalidate such obligation or covenant or affect the right of Lessor to enforce
the same in the event of any subsequent breach or default.
The receipt by Lessor of any rent or other sums of money or other
consideration paid by Tenant after the termination, in any manner, of Tenant's
right of possession or of this Lease, or after giving by Lessor of any notice
hereunder to effect such termination, shall not reinstate, continue or extend
the term hereof, or Tenant's right of possession, or in any manner impair the
efficacy of any such notice of termination as may have been given hereunder by
Lessor to Tenant prior to the receipt of any such sum of money or other
consideration, unless so agreed to in writing and signed by Lessor. Neither the
acceptance of keys nor any similar act or thing done by Lessor during the term
of this Lease shall be deemed to be a release of Tenant from its obligations
hereunder, excepting only an agreement, in writing, signed by Lessor. The
exercise of any right herein granted to Lessor to terminate this Lease or
possession thereunder during the term of this Lease shall terminate any
extension or renewal of the term hereof or possession during such extension or
renewal, as the case may be.
48. ACCORD AND SATISFACTION. No Payment by Tenant or receipt by Lessor of
a lesser amount than the payments stipulated herein shall be deemed to be other
than on account of the earliest stipulated rent, nor shall any endorsement or
statement on any check or similar payment be deemed an accord and satisfaction,
and Lessor shall accept such check or payment without prejudice to Lessor's
right to recover the balance of such rent or other required payment, or pursue
any other remedy provided in this Lease. Accord and satisfaction, if any, shall
be accomplished by separate document executed by both parties.
49. INTENTIONALLY OMITTED.
50. INVALIDITY. If any part of this Lease or any part of any provision
hereof shall be adjudicated to be void or invalid, then the remaining provisions
hereof not specifically so adjudicated to be invalid, shall be executed without
reference to the part or portion so adjudicated, insofar as such remaining
provisions are capable of execution.
<PAGE>
51. GOVERNING LAW. This Lease shall be subject to and governed by the
laws of the State of Minnesota, and all questions concerning the meaning and
intention of the terms of this Lease and concerning the validity hereof and
questions relating to performance hereunder shall be adjudged and resolved in
accordance with the laws of that state, notwithstanding the fact that one or
more of the parties now is or may hereafter become a resident of a different
state.
52. DEFINITION OF LESSOR, TENANT AND GUARANTOR: JOINT AND SEVERAL
LIABILITY. The words, "Lessor," "Tenant" and "Guarantor" used herein shall
include the plural thereof, and the necessary changes required to make the
provisions hereof apply to corporations, partnerships, associations, or men or
women shall be construed as if made. If two or more parties are referred to
collectively under one designation, the liability of each shall be joint and
several.
53. CORPORATE TENANT OR GUARANTOR. If Tenant or its guarantor, if any, is
a corporation, the persons executing this Lease on behalf of Tenant and such
guarantor hereby covenant, represent and warrant: that Tenant and such
guarantor, as the case may be, is duly incorporated, is in good standing, and is
duly qualified to do business in Minnesota; suitable evidence thereof shall be
supplied to Lessor upon execution of this Lease by the parties hereto; that each
person executing this Lease on behalf of Tenant and such guarantor, as the case
may be, is an officer of Tenant and such guarantor, as the case may be, and that
he or they, as such officers, are duly authorized to execute and deliver this
Lease; and an appropriate certified copy of corporate resolution of
authorization shall be supplied to Lessor upon execution of this Lease by the
Tenant and such guarantor, as the case may be.
54. HEADINGS. The headings of the paragraphs and subparagraphs of this
Lease are for convenience of reference only, do not form a part hereof, and
shall not be interpreted or construed to modify, limit or amplify such
paragraphs and subparagraphs.
55. PARTIES IN INTEREST; NEGATION OF LESSOR'S PERSONAL LIABILITY. This
Lease shall inure to the benefit of and be binding upon the heirs, personal
representatives, successors and assigns of Lessor; and shall inure to the
benefit of, subject to the provisions of paragraph 36, and be binding upon the
successors and assigns of Tenant.
Notwithstanding anything to the contrary provided in this Lease, it is
specifically agreed and understood, such agreement being a primary consideration
for the execution of this Lease by Lessor, that if Lessor, its successors or
assigns, is or shall be an individual, tenancy in common, joint venture, or
general or limited partnership, there shall be no personal liability to any
individual in any of the terms, covenants and/or conditions of this Lease, and
that Tenant shall look solely to the equity of Lessor in the Center for the
satisfaction of the remedies of Tenant in the event of any breach of this Lease
by Lessor, such exculpation of liability to be absolute and without any
exception whatsoever.
56. ENTIRE AGREEMENT; EXHIBITS; RIDER. This instrument, including the
Exhibits and any Guaranty, contains the entire agreement of the parties. It may
not be changed orally but only by an agreement in writing signed by the party
against whom enforcement of any waiver, change, modification, extension, or
discharge is sought. The attached Exhibits labeled Exhibits "A," "B," "C" and
"D" hereby are made a part hereof, and supersede and control any conflicting or
ambiguous language in this Lease. The attached Rider, consisting of _____ ( )
typewritten pages, hereby is made a part hereof, and supersedes and controls any
conflicting or ambiguous language in this Lease.
57. INTENTIONALLY OMITTED.
58. COUNTERPARTS. This Lease may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same instrument.
<PAGE>
The parties hereto have duly executed this Agreement of Lease effective as
of the date and year first above written.
LESSOR:
SIGNAL HILLS COMPANY
By /s/
--------------------------------
A Partner
By /s/
--------------------------------
A Partner
TENANT: SIGNAL BANK
By /s/
--------------------------------
<PAGE>
STATE OF MINNESOTA )
) ss.
COUNTY OF __________ )
The foregoing instrument was acknowledged before me this ______ day of ___
_______, 19_____, by ________________________________ and ____________________
________, Partners, on behalf of SIGNAL HILLS COMPANY, a Minnesota General
Partnership.
STATE OF )
) ss.
COUNTY OF )
The foregoing instrument was acknowledged before me this ____ day of _____
________, 19_____, by __________________________________________.
__________________________________
STATE OF )
) ss.
COUNTY OF )
The foregoing instrument was acknowledged before me this ____ day of _____
_______, 19_____, by _________________________________ of _____________________
________, a ____________________ corporation, on behalf of the corporation.
__________________________________
<PAGE>
GUARANTY
OF
TENANT'S OBLIGATIONS UNDER AGREEMENT OF LEASE, DATED ______________________,
BETWEEN SIGNAL HILLS COMPANY, AS LESSOR, AND SIGNAL BANK accounting office, AS
TENANT, COVERING LEASED PREMISES SITUATED AT SIGNAL HILLS SHOPPING CENTER.
DATED this _______ day of _________________________________.
______________________________________
______________________________________
STATE OF )
) ss.
COUNTY OF )
The foregoing instrument was acknowledged before me this ____ day of _____
_______, 19_____, by ________________________________.
______________________________________
STATE OF )
) ss.
COUNTY OF )
The foregoing instrument was acknowledged before me this _____ day of ___
_______, 19_____, by _________________________________________________________
of ___________________, a __________________________ corporation, on behalf of
the corporation.
______________________________________
<PAGE>
EXHIBIT "A"
OUTLINE OF LEASED PREMISES
<PAGE>
EXHIBIT "B"
LEGAL DESCRIPTION OF CENTER
All that part of the NW 1/4 SW 1/4 of Section 17, T.28N., R.22W., Dakota County,
Minnesota, described as follows:
The W 3/4 of said NW 1/4 SW 1/4 and the S 1/2 E 1/4 NW 1/4 SW 1/4 of said
Section 17, except therefrom the following:
A. Beginning at a point on the west line of said NW 1/4 SW 1/4 a distance of
30 feet North of the southwest corner thereof, said point being on the
north line of Moreland Ave.; thence N. 0DEG. 7'25"W. (assumed bearing)
557.42 feet along the west line of said NW 1/4 SW 1/4; thence S. 49DEG.
59'10"E., 703.22 feet; thence on a bearing of South 105.32 feet to the
north line of Moreland Ave. 537.38 feet to the beginning, subject to a 22
foot easement along a traveled road in place running from Moreland Ave.
northerly through the afore described property.
Easement
A 22 foot easement, the centerline of which begins at a point on the south
line of the NW 1/4 SW 1/4 of said Section 17 a distance of 48.71 feet East
of the southwest corner thereof; thence N.2DEG. 30'25"E., 526.68 feet more
or less to the northeasterly line of the afore described property and there
terminate.
B. The North 313.0 feet of the East 200.0 feet of the W 3/4 NW 1/4 SW 1/4 of
said Section 17, subject to an easement over the South 22 feet of the North
105.0 feet thereof.
C. The North 70 feet of the S 1/2 E 1/4 NW 1/4 SW 1/4 of said Section 17.
D. The South 100.0 feet of the North 170.0 feet of the East 140.0 feet of the
S 1/2 E 1/4 NW 1/4 SW 1/4 of said Section 17.
E. Beginning at the southeast corner of said NW 1/4 SW 1/4; thence N.89DEG.
59'21"W., along the south line of said 1/4 1/4 section a distance of 195.57
feet; thence N.0DEG. 01'57E., 174.03 feet; thence S.89DEG. 08'20"E., along
said east line 174.03 feet to the beginning, subject to South Robert St.
and Moreland Ave.
together with an easement over the South 22 feet of the North 105.0 feet of the
East 200 feet of the W 3/4 NW 1/4 SW 1/4 of said Section 17 and together with a
22 foot easement as described at #A
and subject to Butler Ave., South Robert St., Livingston Ave. and Moreland Ave.
<PAGE>
EXHIBIT "C"
TO AGREEMENT OF LEASE, DATED July 24, BETWEEN SIGNAL HILLS COMPANY, AS LESSOR,
AND Signal Bank AS TENANT, COVERING LEASED PREMISES SITUATED IN THE SIGNAL HILLS
SHOPPING CENTER
RULES AND REGULATIONS
TENANT AGREES THAT IT WILL:
1. Not permit the leased premises to be used in any way which will injure
the reputation of the business being conducted therein, or injure the reputation
of the Center, or may be a nuisance or annoyance to the tenants of the Center or
of the neighborhood, including, but not limited to, noise by the playing of any
musical instrument or radio or telephone; use of a microphone or loud speaker;
use of flashing lights or search lights; any other equipment which, in the
judgment of Lessor, might cause disturbance, impairment, or interference with
the use or enjoyment of the Center;
2. Not display any merchandise outside the leased premises or in any way
obstruct the sidewalks or common areas adjacent thereto, and will not place
garbage, rubbish, trash, merchandise containers, or other incidentals to the
business outside the leased premises;
3. Keep all trash, refuse, garbage and waste materials in the type of
container specified by Lessor, and such trash, refuse, garbage and waste
material will be placed and prepared for collection in the manner and at the
times and placed specified by Lessor;
4. Not burn trash, refuse, garbage or waste materials on the leased
premises;
5. Not permit deliveries of any kind through the front entrance of the
leased premises, except where no other entrance to the leased premises is
available, and if such be the case, at the times designated by Lessor;
6. Use its best efforts to cause all trucks servicing the leased premises
to load and unload prior to the hours of opening for business to the general
public of the stores of other tenants in the Center;
7. Observe the following rules and regulations relating to parking: In
the event particular areas are designated by Lessor as employee parking areas,
all automobiles, trucks and other vehicles of Tenant, its officers, employees,
agents, sublessees, licensees, concessionaires and contractors (hereinafter
"Tenant, et al") shall be parked only in such designated areas. Tenant shall
furnish Lessor with automobile license numbers of Tenant, et al, within five (5)
days after taking possession of the leased premises, and shall thereafter notify
Lessor of any changes within five (5) days after such changes occur. In the
event Tenant, et al, fail to park their vehicles in designated parking areas as
aforesaid, then Lessor, at its option, may charge Tenant, and Tenant shall pay
to Lessor, as additional rent, Twenty-five Dollars ($25.00) per day per car
parked in any area other than those designated, or such vehicles may be removed
therefrom by Lessor or its agents and stored elsewhere at Tenant's expense
without liability of Lessor for such removal;
8. Not solicit business in the parking or other common areas, and will
not distribute any handbills or other advertising matter on automobiles parked
in the parking area or in other common areas without written consent of Lessor;
9. Not use the plumbing facilities for any other purpose than that for
which they are constructed, and no foreign substance of any kind will be thrown
therein, and will pay the expense of any breakage, stoppage, or damage resulting
from the violation of this provision by Tenant, its employees, agents, invitees,
sublessees, licensees, concessionaires or contractors;
<PAGE>
10. Not keep any flammable or combustible material in, on or about the
leased premises except as may be permitted to be kept in such locations and
containers as specified by Lessor from time to time in accordance with the
recommendations or regulations of Lessor's insurance carrier, underwriter or
appropriate governmental authority;
11. Not permit the leased premises to be used for lodging purposes;
12. Not permit any auction sale, fire sale, bankruptcy sale, and/or
going-out-of-business sale, or similar types of sensational promotions to be
conducted in the leased premises or from the leased premises;
13. Not operate or conduct in or from the leased premises a so-called
"discount," "cut-rate" or "surplus" store; and
14. Not conduct catalog sales in or from the leased premises except of
merchandise which Tenant is permitted to sell "over-the-counter" in or at the
leased premises pursuant to the provisions of the Lease.
Delivery by Lessor and receipt by Tenant of the foregoing Rules and
Regulations, numbers 1 through 14, inclusive, are acknowledged hereby.
LESSOR:
SIGNAL HILLS COMPANY
By /s/
-------------------------------
A Partner
By /s/
-------------------------------
A Partner
TENANT: SIGNAL BANK
By /s/
-------------------------------
<PAGE>
EXHIBIT "D"
SIGN CRITERIA
The intent of these sign regulations is to achieve a proper relationship between
the sign and overall design concept of the project. This shall be performed for
the benefit of the overall appearance with consideration for the promotional
task of the storefront signs.
A. The advertising or informative content of all signs shall be limited
to letters designating the store name or type of store (which such
designation of the store type shall be by general descriptive terms
and shall not include any specification of the merchandise offered for
sale therein or the services rendered therein) only and shall contain
no advertising devices, slogans, symbols, or marks (other than the
store name or type of store, as aforesaid, and other than crests and
corporate shields, which may be permitted). Crests and corporate
shield designs must be submitted to Landlord for approval for
compatibility of design intent of entire project.
B. Tenant will be allocated an area on the storefront fascia of the
premises of 28 inches.
C. Tenant's sign shall be restricted to an area which shall not be higher
than 5" from bottom edge of fascia and not lower than 5" above window
line.
D. The height of sign letters within storefront fascia will be restricted
to a height not to exceed 18". Maximum height for corporate crest
16".
E. The location, character, design, color, and layout of all signs shall
be subject to the approval of Landlord.
F. No signs will be placed in final positions without the approval of
Landlord.
G. No sign shall exceed a maximum brightness of one hundred (100) foot
lambents. All signs shall be illuminated single channel letters. No
box signs shall be permitted.
H. The name and/or stamp of the sign contractor or sign company, or both,
shall not be exposed to view.
I. All signs shall be fabricated and installed in compliance with all
applicable building and electrical codes and bear a U.L. label.
J. The following type signs are prohibited:
1. Paper signs and/or stickers utilized as signs.
2. Flashing, moving, flickering or blinking illumination.
3. Signs of a temporary character or purpose, irrespective of the
composition of the sign or material used therefore.
4. Animation, moving lights, or flood light illumination.
5. Outrigger signs.
6. Moving signs, to include trailer type signs.
7. Signs, pictures, or paintings within the demised premises if
visible from outside without written permission of the Landlord.
<PAGE>
SIGN APPROVALS
Tenant shall submit three (3) sets drawings and specifications from selected
fabricator. APPROVAL OF STORE DESIGN DRAWING or working drawings and
specifications for tenant's leased premises does not constitute approval of any
sign work.
COST
The furnishing and installing of a sign and costs incurred shall be the
responsibility of the tenant.
<PAGE>
EXHIBIT 10.11
LEASE AGREEMENT
THIS AGREEMENT, Made this 1st day of January, 1996, by and between ELPO
PARTNERSHIP, a partnership under the laws of the State of Minnesota party of the
first part, Lessor, and Goodhue County Financial Corporation party of the second
part, Lessee.
WITNESSETH, That the said party of the first part, in consideration of the
rents and covenants hereinafter mentioned, do hereby Lease to the said party
of the second part, and the said party of the second part do hereby hire and
take from the said party of the first part, the following described premises
situated in the County of Goodhue and State of Minnesota viz:
The premises presently occupied by the Red Wing Loan & Investment
Company at 432 West Third Street, Red Wing, MN.
TO HAVE AND TO HOLD, The said premises just as they are, without any liability
or obligation on the part of said Lessor of making any alterations, improvements
or repairs of any kind on or about said premises, for the term of Three Years
from January 1, 1996, for the following purposes, to-wit:
The operation of a loan and thrift company and other similar related purposes.
SEE ATTACHED SHEET FOR ADDITIONAL TERMS AND CONDITIONS.
paying therefor the rent of Four Hundred Forty and no/100 Dollars ($440.00) per
month.
And the said Lessee does covenant to pay the said rent in equal monthly
payments in advance, to-wit: The sum of Four Hundred Forty and no/100 Dollars,
on or before the first day of every month during said term at Red Wing,
Minnesota and that said Lessee will keep and maintain the said premises during
the aforesaid term, and quit and deliver up the said premises to the said Lessor
peaceably and quietly at the end of the aforesaid term or at any previous
termination thereof for any cause, in as good order and condition and state of
repair, reasonable use and wearing thereof and inevitable accidents excepted, as
the same now are or may be put into by said Lessor.
Lessee further agrees to give Lessor written notice thirty days before the
expiration of this lease of its intention to vacate at the end of this lease,
otherwise Lessor will have option of continuing this lease for _________________
from such expiration without notice to Lessee.
That said Lessee will keep said premises continually in a neat, clean and
respectable condition, and will keep the sidewalks in front and along said
premises cleared of ice and snow, or other obstructions or objectionable thing.
All ashes, garbage and refuse of any kind is to be removed at Lessee's expense.
That said Lessee will not allow any liquors or beverages of an intoxicating
nature or tendency to be sold on said premises, nor permit any gambling or other
immoral practice therein.
The said Lessee will not make or allow any waste thereon or thereof, and
will not assign or underlet said premises or any part thereof without the
written consent of said Lessor. Said Lessee also agree to replace all glass
broken on said premises during said term, and pay for all city water, light and
heat and other utilities used thereon during the term of this lease, and not to
use said premises nor any part thereof for any purposes called extra hazardous
by insurance companies.
And if said monthly payments, whether the same be demanded or not, are not
paid when they become due; or if said leased premises shall be appropriated to
or used for any other purpose or use than is hereinbefore specified; or if any
liquor, gambling or any other immoral practices are allowed on said premises, or
any damage or waste shall be made thereon; or if any part of said premises shall
be underlet or this lease be assigned without the written consent of said Lessor
as above specified; or if any term, condition or covenant of this lease on the
part of the said Lessee to be by said Lessee kept or performed, shall be
violated or neglected, then the said Lessee do hereby authorize and fully
empower said Lessor or its agent to cancel and annul this lease at once and to
re-enter
<PAGE>
and take possession of said premises immediately and by force if necessary
without any previous notice of intention to re-enter, and remove all persons
and their property therefrom and to use such force and assistance in
effecting and perfecting such removal as said Lessor may deem advisable to
recover at once full and exclusive possession of all said leased premises,
whether in possession of said Lessee or of third persons, or vacant; or said
Lessor or its agent may at its option at any time after such default or
violation of condition or covenant, re-enter and take possession of said
premises, without such re-entering working a forfeiture of the rents to be
paid and the covenants to be kept by said Lessee for the full term of this
lease.
If the leased premises, building, or any part thereof, shall be partially
damaged by fire, storm, earthquake or other casualty not due to lessee's
negligence or willful act or that of his employee, family, agent, or visitor,
the premises shall be promptly repaired by lessor and there shall be an
abatement of rent corresponding with the time during which, and the extent to
which, the leased premises may have been untenantable; but, if the leased
premises should be damaged other than by lessee's negligence or willful act or
that of his employee, family, agent, or visitor, to the extent that lessor shall
decide not to rebuild or repair, the term of this lease shall end and the rent
shall be prorated up to the time of the damage.
And it is Mutually Agreed, That all the covenants, terms and conditions of
this lease shall extend, apply to and firmly bind the heirs, personal
representatives, successors and assigns of the respective parties hereto as
fully as the respective parties are themselves bound.
ADDITIONAL TERMS
1. It is understood and agreed that lessor may raise the rent at any time
during the term of this lease or any extension thereof only under the
following conditions:
The rented premises are a part of a building, the ground floor of which is
rented in part to Struss Optical, 434 West Third Street, Red Wing,
Minnesota, in part to Kask Electric, 436 West Third Street, Red Wing,
Minnesota, and in part to Red Wing Loan & Investment Company, 432 West
Third Street, Red Wing, Minnesota (by this lease rented to lessee). The
rent of lessee will not be raised unless the rent of the other tenants of
the building named herein or their successors is also raised and then only
if the rent of each of the tenants is raised by the same percentage amount.
For example, if the rent of Munson Printing, Struss Optical and Kask
Electric or their successors are each raised by 5%, then and in that event
the rent of lessee may be raised by 5%.
2. Lessee shall have the right to renew this lease for an additional three
year period under the same terms and conditions by giving written notice of
its intention to exercise this option to lessor 90 days prior to the
termination of this lease. If the lessee exercises its option to renew
this lease for such additional three year period, it shall have the further
option to renew this lease for a second additional three year term by
giving written notice to lessor 90 days prior to the termination of the
first three year renewal period.
3. Lessor agrees to furnish heat and water.
In Testimony Whereof, Both parties have signed this lease this 1st day of
January, 1996.
ELPO PARTNERSHIP
BY: /s/ Samuel Struss
------------------------------
GOODHUE COUNTY FINANCIAL CORPORATION
BY: /s/ Richard D. Gielau
------------------------------
<PAGE>
State of Minnesota )
) ss.
County of Goodhue )
On this 1st day of January A.D. 1996, before me, Patrick Toegel a Notary
Public within and for said County and State, personally appeared Samuel Struss,
a partner of ELPO PARTNERSHIP to me known to be the same person described in and
who executed the foregoing instrument, and acknowledge that he executed the same
as his free act and deed.
Patrick J. Toegel
------------------------------
Notary Public
State of Minnesota )
) ss.
County of Goodhue )
On this 1st day of January, 1996, before me, a Notary Public within and for
said County, personally appeared Richard D. Gielau to me personally known, who,
being each by me duly sworn he did say that he is the President of the
corporation named in the foregoing instrument, and that the seal affixed to said
instrument is the corporate seal of said corporation, and that said instrument
was signed and sealed in behalf of said corporation by authority of its Board of
Directors and said Richard D. Gielau acknowledged said instrument to be the free
act and deed of said corporation.
Patrick J. Toegel
------------------------------
Notary Public
<PAGE>
EXHIBIT 10.12
HASTINGS
SHOPPING CENTER
LEASE
BETWEEN
COUNTY CROSSROADS CENTER LIMITED PARTNERSHIP
LANDLORD
AND
CONSUMER CREDIT CORPORATION
TENANT
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I PREMISES AND TERM . . . . . . . . . . . . . . . . . 1
ARTICLE II MINIMUM RENT. . . . . . . . . . . . . . . . . . . . 1
ARTICLE III PERCENTAGE RENT . . . . . . . . . . . . . . . . . . 2
ARTICLE IV SALES REPORTS . . . . . . . . . . . . . . . . . . . 2
ARTICLE V COMMON AREAS. . . . . . . . . . . . . . . . . . . . 3
ARTICLE VI USE . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE VII UTILITIES . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE VIII REPAIRS . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE IX INSTALLATIONS, ALTERATIONS AND SIGNS . . . . . . . . 6
ARTICLE X INDEMNITY . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE XI INSURANCE . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE XII FIRE OR OTHER CASUALTY . . . . . . . . . . . . . . . 10
ARTICLE XIII EMINENT DOMAIN . . . . . . . . . . . . . . . . . . . 11
ARTICLE XIV ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . 12
ARTICLE XV ACCESS TO PREMISES . . . . . . . . . . . . . . . . . 13
ARTICLE XVI REMEDIES . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE XVII SURRENDER OF POSSESSION . . . . . . . . . . . . . . 17
ARTICLE XVIII SUBORDINATION . . . . . . . . . . . . . . . . . . . 17
ARTICLE XIX NOTICES . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE XX TAXES . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE XXI MERCHANT'S ASSOCIATION . . . . . . . . . . . . . . . 19
ARTICLE XXII GENERAL . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE XXIII SECURITY DEPOSIT . . . . . . . . . . . . . . . . . 22
ARTICLE XXIV ESTOPPEL CERTIFICATE . . . . . . . . . . . . . . . . 23
ARTICLE XXV TITLE . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE XXVI PREPARATION OF LEASED PREMISES . . . . . . . . . . . 23
<PAGE>
SHOPPING CENTER LEASE
THIS LEASE is made as of August 27, 1993, by and between COUNTY CROSSROADS
CENTER LIMITED PARTNERSHIP, a Minnesota Limited Partnership ("Landlord") and
Consumer Credit Corporation, a Minnesota corporation ("Tenant"), under the laws
of Minnesota.
ARTICLE I
PREMISES AND TERM
SECTION 1.1. Landlord hereby leases to Tenant, and Tenant hereby leases
from Landlord, the store unit outlined in red on Exhibit A hereto. The premises
outlined in red is hereafter called the "lease premises", and the parties agree
that the same contains approximately One thousand four hundred and sixteen
(1,416) square feet. Upon completion of construction, Landlord's architect
shall field measure the leased premises to confirm the actual square footage.
In the event said field measurement results in a number which is greater or
lesser that the square footage described in this Section 1.1, the actual square
footage of the leased premises pursuant to said field measurement shall govern
this Lease. Said store unit is situated in Hastings, Dakota County, Minnesota,
and is located in County Crossroads Center (the "Center"). The Center is
located on land legally described in Exhibit B hereto. The Center name is
subject to change by Landlord.
SECTION 1.2. The leased premises is leased to Tenant for a term of three
(3) years commencing on the ____ day of _____, 19 ___, and ending on the ____
day of _____, 19___, unless sooner terminated as provided in this lease.
SECTION 1.3. The blanks with respect to the commencement and termination
dates of this lease have been left blank. The blank with respect to the
commencement of the term shall be completed with a date thirty (30) days after
Landlord issues a Certificate of Substantial Completion of Landlord's work in
the leased premises, or on the date on which Tenant actually opens for business,
whichever is earlier. The last day of the term of this lease shall be a date
three (3) years after the first day of the first calendar month included in the
lease term. Landlord shall have the right to insert the commencement and
termination dates as so determined or the said dates maybe set by amendment if
required by either party. In the event a dispute occurs as to whether or not
the leased premises is substantially completed on the date so designated by
Landlord, a certificate of Landlord's architect that the Landlord's work in the
leased premises was substantially completed on said date in accordance with the
plans an specifications therefor shall be conclusive and binding upon the
parties hereto.
ARTICLE II
MINIMUM RENT
SECTION 2.1. Fixed annual minimum rent shall be payable by Tenant in equal
monthly installments, on or before the first day of each month in advance at the
office of Landlord or at such other place designated by Landlord in writing from
time to time without prior demand therefor. Said fixed annual minimum rent
shall be equal to the square footage of the leased premises multiplied by Seven
and fifty/100 Dollars ($7.50) per square foot of space within the leased
premises. the rental amounts set forth below will be adjusted to reflect the
actual square footage of the leased premises pursuant to the field measurement
described in Section 1.1 above. The parties agree that until adjustment
following the field measurement, fixed annual minimum rent shall be Ten thousand
six hundred and twenty Dollars ($10,620.00) payable Eight Hundred and
eighty-five Dollars ($885.00) per month.
SECTION 2.2. Tenant waives and disclaims any present or future right to
withhold any rent payment or other payment due under this lease, or to set off
in any action for rent, against any obligation of Landlord, however incurred,
and agrees that it will not claim or assert any right to so withhold or set-off.
<PAGE>
SECTION 2.3. All rental and other sums payable hereunder by Tenant which
are not paid within ten (10) days after due shall bear interest from the date
due to the date paid at the rate of 18% per annum, or the highest rate permitted
by law which ever is less. In addition to the above, Tenant shall pay Landlord
a $30.00 service charge for all monthly minimum rent payments not paid by the
day of the month for which they are payable. Said $30.00 charge is a service
charge to partially cover Landlord's extra expense in handling delinquent
payments.
ARTICLE III
PERCENTAGE RENT
SECTION 3.1. Deleted.
SECTION 3.2. Deleted.
SECTION 3.3. Deleted.
SECTION 3.4. Deleted.
SECTION 3.5. Deleted.
SECTION 3.6. Deleted.
SECTION 3.7. Deleted.
ARTICLE IV
SALES REPORTS
SECTION 4.1. Deleted.
ARTICLE V
COMMON AREAS
SECTION 5.1. The term "common areas" means all of the Center and Center
improvements expect the areas which are constructed for lease to tenants or
hereafter are leased to tenants. Landlord has made no representation as to
identity, type, size or number of other stores or tenancies in the Center, and
Landlord reserves the unrestricted right to change the building perimeters,
driveways, parking areas, store sizes and identity and type of other stores or
tenancies and add buildings and other structures, provided only that the size of
the leased premises, reasonable access to the leased premises and minimum
parking facilities as required by governmental authorities having jurisdiction,
shall not be substantially or materially impaired, subject to the provisions of
Article XIII hereof.
SECTION 5.2. Landlord grants to Tenant, its employees, customers and
invitees, the nonexclusive right during the term of this lease to use the common
areas from time to time constructed, with such use to be common with Landlord
and all tenants of Landlord, its and their employees, customers, and invitees.
Tenant shall not at any time interfere with the rights of Landlord and other
tenants, its and their employees,customers and invitees, to use any part of the
common areas. It is understood and agreed that Landlord may contract for mutual
easement rights with adjoining landowners who shall thereafter along with their
employees, customers, and invitees use the common areas in common with Landlord,
Tenant and all tenants of Landlord, and their employees, customers, and invitees
to the extent of the adjoining landowners' contract rights.
SECTION 5.3. Landlord agrees to provide, and Tenant agrees to pay as
additional rent Tenant's proportionate share of all common area expenditures by
Landlord, including, but not limited to, water and sewer charges, the cost of
managing, repairing, insuring (both the common areas and common area maintenance
employees), operating, securing, traffic regulating, lighting, cleaning, snow
and garbage removal, line painting
<PAGE>
and maintenance, including such replacement and repair of paving, curbs,
sidewalks, roofs, landscaping, drainage, lighting facilities, signage and
other common areas, and including the cost of heating, ventilating, air
conditioning, lighting, insuring and maintaining the Center's enclosed mall
and walkway areas, if any, (plus fifteen percent (15%) of the otherwise total
of the foregoing for overhead) in monthly payments with the monthly rent
payments. Tenant's proportionate share of such costs shall be based on the
proportion the total square foot area in the leased premises bears to the
total square foot rentable area in the Center. The cost of managing the
common areas shall also include a management services fee equal to five
percent (5%) of the fixed annual minimum rent and percentage rent as provided
in Articles II and III, respectively, of this lease. The monthly payments
may be based on Landlord's reasonable estimate of the costs subject hereto
made at the beginning of each calendar year during the term of this lease,
and as adjusted from time to time during the year by Landlord. At the end of
each such calendar year, Landlord shall furnish a statement of all costs
subject hereto and Tenant's share thereof certified to by Landlord. If, at
the end of any such calendar year, the amount paid by Tenant is greater than
its share as shown on said statement the excess shall be credited against the
next rent payments due hereunder. If at the end of any such calendar year,
the amount paid by Tenant is less than its share as shown on said statement,
the deficiency shall be payable with the next monthly minimum rent payment
due hereunder. Common area rent includes property taxes, and special
assessments; water and sewer charges; all common area electricity, heating,
air conditioning and all insurance to be provided by Landlord. At the time
of signing this Lease, Landlord represents to Tenant that the budget for
common area expenditures for 1993 does not exceed $4.00 per square foot for
the leased premises.
ARTICLE VI
USE
SECTION 6.1. The leased premises may be used only for a Loan and Thrift
Company (which permits the taking of deposits and making loans) office (subject
always to the provisions of Section 6.2 of this Article VI) and for no other
purpose without the written consent of Landlord. Tenant agrees to occupy the
leased premises upon the commencement date of the term hereof and to operate
continuously the entire leased premises, fully stocked and adequately staffed
during the term of this lease, and to conduct its business at all times in good
faith, in a high grade and reputable manner. Tenant shall conduct its business
in the leased premises during the regular customary days and hours for such type
of business in the city or trade area in which the shopping center is located,
and will keep the leased premises open for business during the days, nights, and
hours designated by Landlord as standard Center operating periods from time to
time. Tenant shall not violate any laws, ordinances and regulations affecting
the leased premises or Tenant's business therein, plus insurance company
requirements affecting the cleanliness, safety, use and occupation of the leased
premises. Tenant shall store in the leased premises only such goods, wares and
merchandise as Tenant intends to offer for sale at retail from the leased
premises. Without limiting the general prohibition against other uses, it is
expressly agreed that Tenant in no event will use the leased premises for the
sale of liquor, for the operation of a bank, a restaurant or a video store.
SECTION 6.2. Tenant shall not, without Landlord's prior written consent,
conduct any auction, fire, closing-out or bankruptcy sales in or about the
leased premises nor obstruct the common areas or use the same for business or
display purposes, nor abuse walls, ceilings, partitions, floors, wood, stone, or
iron work, nor use plumbing for any purpose other than that for which
constructed, nor make or permit any noise or odor objectionable to the public,
to other occupants of the Center or the Landlord to emit from the leased
premises; nor create, maintain or permit a nuisance thereon; nor do any act to
injure the reputation of the Center; nor without Landlord's prior written
consent, place or permit any radio or television antenna, loud speaker or sound
amplifier, or any phonograph or other devices similar to any of the foregoing
outside of the building in which the leased premises is located or at any place
where the same may be seen or heard outside of said building; nor, where loading
and delivery services are provided, use or permit to be used other entrances for
delivery or pick-up of merchandise. Tenant shall not permit any blinking or
flashing light to emit from the leased premises. Tenant shall keep the leased
premises and loading platform areas allowed for the use of Tenant, clean and
free from rubbish and dirt at all times, and shall store all trash and garbage
within the leased premises and will make the same available for regular pick-up
which Landlord will arrange at Tenant's expense. Tenant shall not burn any
trash or garbage at any time in or about the leased premises or the Center.
<PAGE>
SECTION 6.3. Tenant agrees not to either directly or indirectly operate
any other retail store within a radius of five (5) miles of the leased premises
of a type similar to the one authorized hereunder for the leased premises.
SECTION 6.4. Landlord reserves the right, without liability to Tenant, to
refuse admission to the Center and the leased premises outside ordinary business
hours to any person not known to any watchman in charge, or properly identified,
to eject any person from the Center whose conduct may tend to be harmful to the
safety and interest of Center tenants or to close any part of the Center during
any riot or other commotion where person or property may be imperiled.
SECTION 6.5. Tenant may use the Center name as its advertised address when
referring to its business in the leased premises in newspaper and other
advertising. The right to use such name for such purpose for the term of this
lease is hereby licensed by Landlord to Tenant. Landlord retains all property
rights in such name and Tenant shall not acquire or have any rights in or to
such name other than as are expressly granted by Landlord in this Section 6.5 or
otherwise in writing.
ARTICLE VII
UTILITIES
SECTION 7.1. The leased premises is constructed to utilize individual
heating and air conditioning systems. Tenant agrees to keep the air
conditioning and heating systems operating during business hours at levels
sufficient to satisfy the requirements of the leased premises. Tenant shall pay
for all heating, air conditioning, electricity, and gas used in the leased
premises. If Landlord elects to supply electricity to the leased premises,
Tenant shall use only electricity supplied by Landlord in the leased premises
and shall pay for all electricity to supplied by Landlord in the leased premises
and shall pay for all electricity so supplied by Landlord at rates no greater
than if supplied by the public utilities which would otherwise serve the leased
premises.
SECTION 7.2. Deleted.
SECTION 7.3. Landlord shall not be liable in damages or otherwise if the
furnishing by Landlord or by any other suppliers of any utility or other service
to the leased premises shall be interrupted or impaired by fire, repairs,
accident, or by any causes beyond Landlord's reasonable control.
ARTICLE VIII
REPAIRS
SECTION 8.1. Landlord shall keep the foundations, structural portions of
the exterior walls (except plate glass or glass) and roof and all heating, air
conditioning, ventilation, (except heating, air condition and ventilation
systems serving the leased premises) electrical and plumbing systems exterior to
the leased premises in good repair and, if necessary or required by proper
governmental authority, make modification or replacements thereof; provided that
Landlord shall make, at Tenant's expense: (1) all repairs, modifications or
replacements to the heating, ventilation, and air conditioning equipment serving
the leased premises solely even if located outside the leased premises and (2)
any such repairs, modifications or replacements which become necessary or
desirable by reason of the act or negligence of Tenant, its agents, servants or
employees, or by reason of any illegal entry into or upon the leased premises.
SECTION 8.2. Except as provided in Section 8.1 of this Article VII the
Landlord shall not be obliged to make repairs, replacements or improvements of
any kind upon the leased premises, or any equipment, facilities or fixtures
therein contained, which shall at all times be kept in good order, condition and
repair by Tenant, and in a clean, sanitary and safe condition and which shall
not violate any applicable laws, ordinances and regulations of any governmental
authority having jurisdiction. Tenant shall permit no waste, damage or injury
to the leased premises.
<PAGE>
SECTION 8.3. Tenant shall forthwith at its own cost and expense replace
with glass of the same quality any cracked or broken glass, including plate
glass or glass and any interior and exterior windows and doors in the leased
premises, and any interior and exterior windows and doors in the leased
premises. If specifically required by Landlord, Tenant shall maintain a policy
or policies in companies acceptable to Landlord insuring Landlord and Tenant, as
their interests may appear, against breakage of all such glass in the leased
premises and shall deposit, such policy or policies or certificates evidencing
their existence, together with evidence of the payment of the premiums thereon,
with Landlord at the commencement of the term and at least thirty (30) days
prior to the expiration of each such policy.
ARTICLE IX
INSTALLATIONS, ALTERATIONS AND SIGNS
SECTION 9.1. As soon as reasonably possible after a notice of substantial
completion has been issued for the leased premises Tenant shall have the
privilege, minimum rent free, of entering the leased premises for the purpose of
installing Tenant's leasehold improvements, setting Tenant's fixtures and
storing Tenant's merchandise, all to be done without interference with the work
of Landlord. Such entry of the leased premises by Tenants for this purpose
shall not be construed as acceptance of the leased premises or as a waiver of
any of the provisions hereof. Tenant shall, as soon as possible after notice
from Landlord proceed to get the leased premises ready for occupancy so that the
leased premises is ready to open for business at or substantially at the same
time as a majority of stores in the Center. When, prior to the commencement of
the term, Tenant shall enter the leased premises, it is agreed that such entry
shall be at the Tenant's sole risk. Without limiting the foregoing, Tenant
hereby agrees, and it is made the strictest requirement of any such entry, that
before entering the leased premises, Tenant will cause all insurance coverage
required to be provided by Tenant to be fully in effect on and after the first
day of occupancy of the leased premises by the Tenant. In addition, Tenant will
deliver to Landlord satisfactory proof that all workmen of Tenant or any of
Tenant's contractors or subcontractors entering upon the leased premises are
properly covered by worker's compensation insurance.
SECTION 9.2. Tenant, at its own expense, shall maintain its leasehold
improvements, store fixtures, floor covering, interior painting and decorating
as required by it.
SECTION 9.3. Tenant shall not erect or install any signs, advertising
media or make changes to the leased premises which may be seen from outside the
leased premises without Landlord's prior written consent, which shall not be
unreasonably withheld. Use of the roof is reserved for Landlord. Tenant shall
keep all exterior signs, exterior improvements made by Tenant with Landlord's
consent, and its store front in good condition and repair.
SECTION 9.4. Tenant shall not make any structural repairs without the
Landlord's written consent, nor shall Tenant make any repairs, alterations or
additions to the leased premises or make any contract therefor for work in
excess of $2,000.00 without first procuring Landlord's written consent, which
shall not be unreasonably withheld. Tenant shall furnish such indemnification
against liens and other claims as Landlord may require. Landlord may condition
its consent on such indemnification being furnished by Tenant. All alterations,
additions, improvements and fixtures, other than trade fixtures, which may be
made or installed by either of the parties hereto upon the leased premises and
which in any manner are attached to the floors, walls or ceilings, at the
termination of this lease, shall become the property of Landlord, and shall
remain upon and be surrendered with the leased premises as a part thereof,
without damage or injury; any floor covering affixed to the floor shall likewise
become the property of Landlord, all without compensation or credit to Tenant.
All fixtures installed by Tenant shall be new or completely reconditioned.
SECTION 9.5. Tenant shall promptly pay all contractors and materialmen, so
as to minimize the possibility of a lien attaching to the leased premises, and
should any lien be made or filed, Tenant shall bond against or discharge the
same within fifteen (15) days after filing. Nothing in this lease contained
shall be construed as a consent on the part of the Landlord to subject the
Landlord's estate in the leased premises to any lien or liability under the lien
laws of the State in which the leased premises is located.
<PAGE>
ARTICLE X
INDEMNITY
SECTION 10.1. Tenant agrees to defend, indemnify and hold Landlord and
Wal-Mart Stores, Inc., harmless from and against any and all claims, demands,
damages, costs and expenses, including, without limitation, attorneys' fees,
arising from: (i) Tenant's use of the leased premises as a Loan and Thrift
Company; (ii) any breach or default by Tenant in the performance of any covenant
or agreement under this lease; (iii) injury to person or damage to property
occurring in or around the leased premises; or, (iv) any act or negligence of
Tenant, its agents, contractors, servants, employees, sublessees,
concessionaires or licensees, in or about the leased premises, the sidewalks
adjoining the same, any loading platform area allocated to the use of Tenant and
anywhere in the Center; provided however, that paragraph 10.1 shall not apply to
any such claims, demands, damages, costs or expenses (herein "Claims") to the
extent they arise out of acts or omissions of the Landlord, Wal-Mart, their
agents, contractors, employees, licensees, lessees, assigns or concessionaires
and provided further that Landlord shall promptly notify Tenant of such Claims
and shall permit Tenant to have full control and management of negotiation or
litigation of such Claims.
Except for negligent acts or omissions by Landlord or Wal-Mart, their
employees, agents or contractors, Landlord shall not be liable and Tenant waives
and releases Landlord and Wal-Mart Stores, Inc., their employees, agents and
contractors, from all claims, liabilities and causes of action against Landlord
and Wal-Mart Stores, Inc., their employees, agents and contractors for all
damage, injury to or loss or destruction of property belonging to Tenant
(including, without limitation, all improvements, fixtures, equipment, supplies
and merchandise) sustained by Tenant or Tenant's employees, agents and servants
resulting from (i) any accidents or occurrences in or about the Center; (ii) any
equipment located within the leased premises or appurtenant thereto becoming out
of repair; (iii) any accidents or occurrences in or about the leased premises or
the building in which the same are situated; or (iv) resulting directly or
indirectly from any act or neglect of any other tenant in the Center. This
waiver shall include, without limitation, damage or injury to persons or
property arising from steam, excessive heat or cold, falling plaster, broken
glass, sewage, gas, odors or noise, or bursting or leaking pipes or plumbing
fixtures. All property within the leased premises belonging to the Center and
all property either within or outside of the leased premises belonging to Tenant
or any occupant of the leased premises or the Center shall be at the risk of
Tenant or such person only, and Landlord shall not be liable for damage thereto
or theft or misappropriation thereof.
SECTION 10.2. Landlord hereby waives and releases Tenant, its employees,
agents and contractors, from all claims, liabilities and causes of action
against Tenant and its employees, agents and contractors for loss, injury,
damage to, or destruction of, the buildings and other improvements situated in
the Center resulting from fire or other perils included in the standard fire and
extended coverage insurance maintained by Landlord.
Landlord and Tenant both agree that each party will maintain insurance with
respect to his own property in accordance with the provisions of the lease, and
that each will look to his own insurer for reimbursement for any loss, and
further that the insurer involved shall have no subrogation rights against the
other party.
ARTICLE XI
INSURANCE
SECTION 11.1. Tenant shall not carry any stock of goods or do anything in
or about said leased premises which shall in any way tend to increase insurance
rates on said leased premises or the building in which the same is located. If
Landlord shall consent to such use, Tenant agrees to pay as additional rental
any increase in premiums for insurance against loss by fire or extended coverage
risks resulting from the business carried on in the leased premises by Tenant.
If Tenant installs any electrical equipment that overloads the poser lines to
the building, Tenant shall, at its own expense, make whatever changes are
necessary to comply with the requirements of insurance underwriters and
insurance rating bureaus and governmental authorities having jurisdiction.
<PAGE>
SECTION 11.2. Tenant agrees to procure and maintain a policy or policies
of liability insurance, at its own cost and expense, insuring Landlord and
Tenant from all claims, demands, or actions for injury or death sustained by one
person as a result of any one occurrence in the amount of One Million Dollars
($1,000,000), for injury or death sustained by more than one person in the
amount of Two Million Dollars ($2,000,000) and for property damage in the amount
of not less than Five Hundred Thousand Dollars ($500,000), made by or on behalf
of any person or persons, firm or corporation arising from, related to or
connected with, the conduct and operation of Tenant's business in the leased
premises. Tenant shall carry like coverage against loss or damage by boiler or
internal explosion by boilers, if there is a boiler in the leased premises.
Said insurance shall not be subject to cancellation except after at least thirty
(30) days prior written notice to Landlord and Landlord's mortgagee(s), and the
policy or policies, or duly executed certificate or certificates for the same,
together with satisfactory evidence of the payment of premium thereon, shall be
deposited with Landlord and Landlord's mortgagee(s) at the commencement of the
term and upon any renewal of said insurance not less than thirty (30) days prior
to the expiration of the term of such coverage.
Landlord agrees to procure and maintain a policy or policies of liability
insurance, insuring Landlord and Tenant from all claims, demands, or actions for
injury or death sustained by one person as a result of any one occurrence in the
amount of One Million Dollars ($1,000,000), for injury or death sustained by
more than one person in the amount of Two Million Dollars ($2,000,000) and for
property damage in the amount of not less than Five Hundred Thousand Dollars
($500,000), made by or on behalf of any person or persons, firm or corporation
arising from, related to or connected with, the conduct and operation of the
Center. Landlord shall carry like coverage against loss or damage by boiler or
internal explosion by boilers, if there is a boiler in the leased premises.
Said insurance shall not be subject to cancellation except after at least thirty
(30) days prior written notice to Tenant, and the policy or policies, or duly
executed certificate or certificates for the same, together with satisfactory
evidence of the payment of premium thereon, shall, at the request of Tenant, be
deposited with Tenant at the commencement of the term and upon any renewal of
said insurance not less than thirty (30) days prior to the expiration of the
term of such coverage. Tenant shall reimburse Landlord, monthly with its rental
payments as a part of common area payments under Section 5.3, for its share of
the actual net cost and expense to Landlord of such insurance. Tenant's share
of such costs shall be that fractional part of the total of such costs as the
total area of the leased premises bears to the total rentable area of all
buildings and structures constituting part of the Center. One-twelfth of the
amount due shall be payable on the first day of each month and added to the
monthly rental.
SECTION 11.3. Landlord shall procure at its initial expense, fire and
extended coverage (including coverage for rental loss in connection with damage
and destruction covered by the said fire and extended coverage insurance) and
other reasonably necessary insurance on the Center. Tenant shall reimburse
Landlord, monthly with its rental payments as a part of common area payments
under Section 5.3, for its share of the actual net cost and expense to Landlord
of such insurance. Tenant's share of such costs shall be that fractional part
of the total of such costs as the total area of the leased premises bears to the
total rentable area of all buildings and structures constituting part of the
Center. One-twelfth of the amount due shall be payable on the first day of each
month and added to the monthly rental. This amount may be based on an estimate
until the actual premiums are available and when available an adjustment shall
be made and any difference shall be payable based on Tenant's actual share as so
determined.
SECTION 11.4. Landlord and Tenant shall each maintain at its own cost and
expense, fire and extended coverage, vandalism, malicious mischief and special
extended coverage insurance in an amount adequate to cover the cost of
replacement of all of its property (including alterations, changes, decorations,
additions, fixtures and improvements) in the event of a loss, in companies and
in form acceptable to the other party. Tenant shall reimburse Landlord for
purchase of such insurance as provided in Section 11.3. The insurance which
each party agrees to carry in this section shall insure full insurable value of
the property, improvements and betterments installed by each party in the
Center, whether the same have been paid for entirely or partially by such party.
Each party will further deposit the policy or policies of such insurance or
certificate thereof with the other party, except that Landlord shall be required
to make such deposit only if the Tenant requests Landlord to do so.
<PAGE>
SECTION 11.5. All insurance provided for in this lease shall be obtained
from companies licensed to do business in the State of Minnesota.
ARTICLE XII
FIRE OR OTHER CASUALTY
SECTION 12.1. If the leased premises shall be damaged or destroyed by fire
or casualty insured under Landlord's fire and extended coverage insurance policy
provided hereinabove, but are not thereby rendered untenantable in whole or in
part, Landlord shall, to the extent of insurance proceeds paid in connection
with such damage or destruction, cause such damage to be repaired or the leased
premises rebuilt without abatement of any rent reserved under this lease. If by
reason of such occurrence the leased premises shall be rendered untenantable
only in part, Landlord shall, to the extent of insurance proceeds paid in
connection with such damage or destruction, cause the damage to be repaired or
rebuilt and fixed minimum rent only shall be ratably abated (based on the
proportion during such period of repair of non-usable square footage existing
prior to such occurrence). If the leased premises shall be rendered wholly
untenantable by reason of such occurrence, the Landlord shall, to the extent of
insurance proceeds paid in connection with such damage or destruction, cause
such damage to be repaired or the leased premises rebuilt and fixed minimum rent
only shall be abated during such period of repair. If fifty percent (50%) or
more of the total square footage of the leased premises shall be so damaged or
destroyed, Landlord shall have the right exercisable by notice to Tenant within
sixty (60) days after any such fire or other casualty, to elect not to
reconstruct the leased premises, and in such event this lease and the tenancy
hereby created shall cease as of the date of said election and all rent reserved
under this lease shall be adjusted as of the date of such damage. Tenant shall
not be entitled to any compensation or damages from Landlord for loss or use of
the whole or any part of the leased premises, Tenant's personal property, or any
inconvenience or annoyance occasioned by such damage, repair, reconstruction, or
restoration.
If any part of the building of which the leased premises are a part is
damaged or destroyed by fire or casualty covered under the insurance policy
maintained on the building, Landlord shall, to the extent of insurance proceeds
paid in connection with such damage or destruction, cause such damage to be
repaired or said building to be rebuilt within a reasonable period of time after
such damage or destruction. Provided, however, if thirty percent (30%) or more
of the square footage of said building shall be so damaged or destroyed,
Landlord shall have the right, exercisable by notice to Tenant within sixty (60)
days after such fire or other casualty, to elect not to reconstruct said
building and in such event this lease and the tenancy hereby created shall cease
as of the date of such election and all rent reserved under this lease shall be
adjusted as of the date of such damage. Tenant shall not be entitled to any
compensation or damages from Landlord for loss of the use of the whole or any
part of the leased premises, Tenant's personal property, or any inconvenience or
annoyance occasioned by such damage, repair, reconstruction or restoration.
SECTION 12.2. Landlord's obligation to repair or rebuild pursuant to this
Article XII shall be limited to a basic building and the replacement of any
interior work which may have originally been installed at Landlord's cost. In
no event in the case of any such destruction shall Landlord be required to
repair or replace Tenant's stock in trade, leasehold improvements, fixtures,
furniture, furnishings or floor coverings and equipment. Tenant covenants to
make such repairs and replacements and to furnish Landlord, on demand, evidence
of insurance assuring its ability to do so.
SECTION 12.3. If the leased premises or the buildings of which they are a
part are damaged or destroyed and Landlord commences repair of such damage or
destruction, Tenant shall replace or repair inventory, leasehold improvements,
fixtures (including trade fixtures), furniture, furnishings, floor and wall
coverings and equipment as soon as Landlord's repairs are substantially
completed and shall in good faith do all acts necessary to reopen for business
as soon as possible after the occurrence of such damage or destruction.
<PAGE>
ARTICLE XIII
EMINENT DOMAIN
SECTION 13.1. If the whole of the leased premises shall be taken under the
power of eminent domain, then the term of this lease shall cease as of the day
possession shall be taken and the rent shall be paid to that date.
SECTION 13.2. In the event more than ten percent (10%) of the land area in
the Center be so taken, the Landlord shall have the right to terminate this
lease at the time and with the rent adjustment as provided in Section 13.1 by
giving Tenant written notice of termination within sixty (60) days after the
taking of possession by such public authority.
SECTION 13.3. If ten percent (10%) of the floor area of the leased
premises or forty percent (40%) or more of the parking area shall be so taken,
then Tenant shall have the right either to terminate this lease or, subject to
Landlord's right of termination as set forth in Section 13.2 of this Article
XIII, to continue in possession of the remainder of the leased premises upon
notice in writing to Landlord of Tenant's intention within thirty (30) days
after such taking of possession. In the event Tenant elects to remain in
possession, and Landlord does not so terminate, all of the terms herein provided
shall continue in effect except that the rent shall be equitably abated as to
any portion of the leased premises so taken and Landlord shall make all
necessary repairs or alterations to the extent provided in Section 12.2 of this
lease.
SECTION 13.4. All damages awarded for such taking under the power of
eminent domain, whether for the whole or a part of the leased premises, shall be
the property of Landlord, whether such damages shall be awarded as compensation
for diminution in value of the leasehold or to the fee of the leased premises;
provided however, that Landlord shall not be entitled to any separate award made
to Tenant of loss of business, depreciation to and cost of removal of stock and
fixtures or to other separate awards payable to Tenant.
ARTICLE XIV
ASSIGNMENT AND SUBLETTING
SECTION 14.1. Tenant shall not assign or in any manner transfer this lease
or any interest herein, nor sublet the leased premises or any part or parts
thereof, nor permit occupancy by anyone without the prior written consent of
Landlord. Consent by Landlord to one or more assignments of this lease or to
one or more sublettings of the leased premises shall not operate as a waiver of
Landlord's rights under this Article XIV. No assignment shall release Tenant of
any of its obligations under this lease or be construed or taken as a waiver of
any of Landlord's rights hereunder. For the purposes hereof, if Tenant is a
corporation or partnership or other entity, the sale of 50% or more of the
voting control and/or beneficial ownership of Tenant shall be deemed to be an
assignment which shall require Landlord's consent as above set forth. The
acceptance of rent from someone other than Tenant shall not be deemed to be
waiver of any of the provisions of this lease or consent to any assignment or
subletting of the leased premises.
SECTION 14.2. Tenant agrees not to change the advertised name of the place
of business operated in the leased premises, which name shall be Hastings
Financial without the prior written consent of Landlord, which consent shall not
be unreasonably withheld.
SECTION 14.3. Subject to applicable bankruptcy laws, neither this lease
nor any interest therein shall pass to any trustee or receiver in bankruptcy,
insolvency or reorganization proceedings, any creditors through attachment,
execution or otherwise, any assignee for the benefit of creditors, or by
operation of law.
The parties acknowledge that the leased premises occupied by Tenant consist
of a store building located within an integrated shopping center development
owned and operated by Landlord, and, in the event Tenant becomes subject to
voluntary or involuntary proceedings under the Bankruptcy Reform Act of 1978
(the "Act"), as the same may be amended, the specific provisions of the Act
relating to shopping centers shall be applicable
<PAGE>
to such proceedings. The parties further acknowledge that in order to
protect the mix of tenants within the Shopping Center and to provide the
sales volume anticipated from Tenant's business operations within the leased
premises, the purposes for which the Tenant may use the leased premises have
been specifically limited by the provisions of Section 6.1 hereof, and that
the economics of this lease, particularly with respect to the agreed upon
fixed minimum rent, percentage rent and additional rent, were established on
the basis of Tenant's expected business operations. Notwithstanding anything
in this lease to the contrary, in the event Tenant becomes subject to
voluntary or involuntary proceedings under the Act and Tenant or any trustee,
receiver or other custodian of Tenant or of its assets or properties shall
assign this lease, any and all amounts paid or to be paid by or for the
account of the assignee in consideration of such assignment shall be and
remain the property of the Landlord and any and all such amounts received by
Tenant or such trustee, receiver or custodian shall be held in trust for the
Landlord and remitted to the Landlord promptly after receipt thereof.
For purposes of this lease the requirement set forth in Section 365(b) of
the Act, that the trustee give adequate assurance of future performance
regarding the source of rent and other consideration due under the lease, shall
be deemed met only if the trustee, within thirty (30) days after the
commencement of the case, posts an irrevocable letter of credit, in form
satisfactory to Landlord, equal to amount of total rent reserved for the balance
of the lease term or renewal term of the lease, as the case may be. For
purposes of this Section 14.3, total rent reserved shall mean the highest total
rent, comprised of fixed minimum rent, percentage rent and additional rent paid
or payable for any lease year prior to commencement of the case times the number
of unexpired lease years remaining at the time of commencement of the case.
ARTICLE XV
ACCESS TO PREMISES
SECTION 15.1. Landlord shall have the right to enter upon the leased
premises during all business hours for the purposes of inspecting the same or of
making repairs, additions or alterations thereto or to the building in which the
same is located, or for the purposes of exhibiting the same to prospective
tenants, purchasers or others. Landlord shall not be liable to Tenant in any
manner for any expense, loss or damage by reason thereof, nor shall the exercise
of such right be deemed an eviction or disturbance of Tenant's use or
possession.
ARTICLE XVI
REMEDIES
SECTION 16.1. All rights and remedies of Landlord or Tenant herein
enumerated shall be cumulative and are not intended to be exclusive of any other
remedies or means of redress to which Landlord or Tenant may be lawfully
entitled in case of any breach or threatened breach of the other party of any
provision of this lease. The failure of either party to insist in any one or
more cases upon the strict performance of any of the covenants of this lease or
to exercise any option herein contained shall not be construed as a waiver or
relinquishment for the future of such covenant or option. A receipt by Landlord
of rent with knowledge of the breach of any covenant hereof shall not be deemed
a waiver of such breach and no waiver by Landlord of any provisions of this
lease shall be deemed to have been made unless expressed in writing and signed
by Landlord. In addition to other remedies in this lease provided, Landlord or
Tenant shall be entitled to the restraint by injunction of the violation or
attempted or threatened violation of the covenants, conditions and provisions of
this lease by the other party.
SECTION 16.2. Subject to laws relating to bankruptcy, if, during the term
of this lease or any renewal term, (i) Tenant shall make an assignment for the
benefit of creditors, or (ii) a voluntary petition be filed by Tenant under any
law having for its purpose the adjudication of Tenant as a bankrupt, or Tenant
be adjudged a bankrupt pursuant to an involuntary petition in bankruptcy, or
(iii) a receiver be appointed for the property of Tenant by reason of the
insolvency of Tenant, or (iv) any department of the state or federal government,
or any officer thereof, duly authorized, shall take possession of the business
or property of Tenant by reason of the insolvency of Tenant, the occurrence of
any of such events shall be deemed a breach of this lease and this lease shall,
upon the happening of any of said events be terminated and the same shall expire
as
<PAGE>
fully and completely as if the day fixed for the termination of the initial
term of this lease or any renewal term, as the case may be, had occurred, and
Tenant shall then quit and surrender the leased premises, but Tenant shall
remain liable as provided. As used in this Section 16.2, the term "Tenant"
shall also mean any guarantor of tenant's obligations under this lease.
SECTION 16.3. If, during the initial term of this lease or any renewal
term, (i) Tenant shall default in fulfilling any of the covenants, obligations,
or agreements of this lease (other than the covenants for the payment of rent
payable by Tenant hereunder), or (ii) this lease, without the prior written
consent of Landlord or except as expressly permitted, shall be assigned,
pledged, mortgaged, transferred, or sublet in any manner, Landlord may give
Tenant notice of such default or the happening of any event in this Section 16.3
referred to, and, if at the expiration of thirty (30) days after service of such
notice the default or event upon which said notice was based shall continue to
exist, or in the event of a default or event which cannot with due diligence be
cured within a period of thirty (30) days, if Tenant fails to proceed promptly
after the service of said notice and with all due diligence to commence to cure
the same and thereafter to prosecute the curing of such default with all due
diligence (it being intended that in connection with a default not susceptible
of being cured with diligence within thirty (30) days, the time within which
Tenant is to cure the same shall be extended for such period as may be necessary
to complete the same with all due diligence), such failure shall be a breach of
this contract.
SECTION 16.4. If Tenant defaults in any payment of the rent expressly
reserved hereunder, or if Tenant shall make default in the payment of any item
or any charge required to be paid by Tenant hereunder, or any part of the same,
or if this lease shall terminate by reason of the insolvency of Tenant, as set
forth above, Landlord or Landlord's agent or representative may immediately or
at any time thereafter terminate this lease and/or re-enter the leased premises
and remove all persons and all or any property therefrom, either by summary
proceedings, or by any suitable action or proceeding at law or by force
therefor, and repossess and enjoy the leased premises, together with all
additions, alterations and improvements, without such re-entry and repossession
working a forfeiture or waiver of the rents to be paid and the covenants to be
performed by Tenant during the full term of this lease. Upon termination of
this lease or expiration of Tenant's right to occupy the leased premises by
reason of the happening of any of the foregoing events, or in any other manner
of circumstances whatsoever, whether with or without legal proceedings, by
reason of or based upon or arising out of a default or breach of this lease on
the part of Tenant, Landlord may, at its option, at any time and from time to
time relet the leased premises or any part or parts thereof, for the account of
Tenant or otherwise, and receive and collect the rent therefor, applying the
same first to the payment of such expenses as Landlord may have incurred in
recovering possession of the leased premises, including attorney's fees and
expenses for putting the same into good order and condition or preparing or
altering the same for re-rental and all other expenses, commissions and charges
paid, assumed or incurred by Lessor in or about reletting the leased premises,
and then to the fulfillment of the covenants of Tenant hereunder. Any such
reletting herein provided for may be for the remainder of the initial term or
any renewal term of this lease, as originally granted, or for a longer or
shorter period. In any such case, and whether or not the leased premises or any
part thereof be relet, Tenant shall pay to Landlord the rent and all other
charges required to be paid by Tenant up to the later of the time of such
termination of the lease or of such recovery of possession of the leased
premises by Landlord, as the case may be, and thereafter, except in a case in
which liability of Tenant as hereinafter provided, arises by reason of the
happening of the insolvency of Tenant, Tenant covenants and agrees, if required
by Landlord, to pay to Landlord until the end of the initial term of this lease,
or any renewal term, as the case may be, the equivalent of the amount of all
rent reserved hereunder, and all other charges required to be paid by Tenant,
less the net proceedings of reletting, if any. Landlord shall have the election
to place of and instead of holding Tenant so liable forthwith to recover against
Tenant as damages for loss of the bargain and not as a penalty, an aggregate sum
which at the time of such termination of this lease or of such recovery of
possession of the leased premises by Landlord, as the case may be, represents
the then present worth of the excess, if any, of the aggregate of the rent and
all other charges payable by Tenant hereunder that would have accrued for the
balance of the initial term, or any renewal term, as the case may be, over the
then present worth of the fair market rents and all other charges for the leased
premises for the balance of such term.
SECTION 16.5. If this lease shall terminate by reason of the bankruptcy or
insolvency of Tenant, as above set forth, Landlord shall be entitled,
notwithstanding any other provisions of this lease or any present or
<PAGE>
future law, to recover from Tenant or Tenant's estate (in lieu of the
equivalent of the amount of all rent unpaid at the time of such termination)
as damages for loss of the bargain, and not as a penalty, and aggregate sum
which, at the time of such termination of this lease, represents the excess,
if any, of the then present worth of the aggregate of the rent and other
charges payable by Tenant hereunder that would have accrued for the balance
of the initial term of any renewal term, as the case may be, over the then
present worth of the fair market rents and all other charges for the leased
premises for the balance of the initial term or any renewal term, as the case
may be, unless any statute or rule of law governing the proceedings in which
such damages are to be proved shall limit the amount of such claim capable of
being so proved. In such case, Landlord shall be entitled to prove, as and
for liquidated damages, by reason of such breach and termination of this
lease, the maximum amount which may be allowed by or under such statute or
rule of law. Nothing herein contained shall limit or prejudice Landlord's
right to prove and obtain as liquidated damages arising out of such breach or
termination the maximum amount allowed by any such statute or rule of law
which may govern the proceedings in which such damages are to be proved
whether or not such amount be greater, equal to, or less than the amount of
the excess of the then present worth of the rent and all other charges
reserved herein over the then present worth of the fair market rents and all
other charges referred to above.
SECTION 16.6. Tenant shall pay, upon demand, all of Landlord's costs,
charges and expenses, including attorney's fees and fees of agents and others
retained by Landlord, incurred in enforcing Tenant's obligations hereunder or
incurred by Landlord in any litigation, negotiation or transaction in which
Tenant causes Landlord without Landlord's fault to become involved or concerned.
SECTION 16.7. In the event of any breach hereunder by Tenant, Landlord may
immediately or at any time thereafter, without notice, cure such breach for the
account and at the expense of Tenant. In the event of any breach hereunder by
either Landlord or Tenant, if the other party at any time by reason of such
breach, is compelled to pay, or elects to pay, any sum of money or do any act
which will require the payment of any sum of, money, or is compelled to incur
any expense, including attorney's fees (herein "Claiming Party"), the sum or
sums so paid by such Claiming Party, with interest thereon at the rate of
eighteen percent (18%) per annum from the date of payment thereof, shall be due
from the breaching party from the date of payment of such respective sums or
expenses by Claiming Party.
SECTION 16.8. If, during the initial term of this lease or any renewal
term, Landlord shall default in fulfilling any of the covenants, obligations, or
agreements of this lease Tenant may give Landlord notice of such default or the
happening of any event in this Section 16.8 referred to, and, if at the
expiration of thirty (30) days after service of such notice the default or event
upon which said notice was based shall continue to exist, or in the event of a
default or event which cannot with due diligence be cured within a period of
thirty (30) days, if Landlord fails to proceed promptly after the service of
said notice and with all due diligence to commence to cure the same and
thereafter to prosecute the curing of such default with all due diligence (it
being intended that in connection with a default not susceptible of being cured
with diligence within thirty (30) days, the time within which Landlord is to
cure the same shall be extended for such period as may be necessary to complete
the same with all due diligence), such failure shall be a breach of this
contract.
SECTION 16.9. Tenant hereby expressly waives, to the full extent waivable,
any and all rights of redemption granted by, set forth in Minnesota Statutes
Section 504.02, as now in effect or hereafter amended or under any other present
or future laws in the event of Tenant being evicted or dispossessed for any
cause, or in the event of Landlord's obtaining possession of the leased premises
by reason of the violation by Tenant of any of the covenants or conditions of
this lease, or otherwise.
ARTICLE XVII
SURRENDER OF POSSESSION
SECTION 17.1. At the expiration of the lease term, whether by lapse of
time or otherwise, Tenant shall surrender the leased premises broom clean and in
good condition and repair, reasonable wear and tear and loss by fire or
unavoidable casualty excepted. If the leased premises are not surrendered at
the end of the term or the sooner termination thereof, Tenant shall indemnify
Landlord against loss or liability resulting from delay
<PAGE>
by Tenant in so surrendering the leased premises. Tenant shall
promptly surrender all keys for the leased premises to Landlord at the place
then fixed for payment of rent.
SECTION 17.2. In the event Tenant remains in possession of the leased
premises after the expiration of the tenancy created hereunder with the consent
of Landlord and without execution of a new lease, it shall be deemed to be
occupying the leased premises as a tenant from month to month, at fixed minimum
rent equal to 100% of the fixed minimum rent, if any paid or payable in the last
year of the lease term or any renewal thereof, and subject to all the other
conditions, provisions and obligations of this lease insofar as the same are
applicable to a month-to-month tenancy.
SECTION 17.3. Upon the expiration of the tenancy hereby created, if
Landlord so requires in writing, Tenant shall promptly remove any additions,
fixtures and installations placed in the leased premises by Tenant and
designated in said request, and repair any damage occasioned by such removals at
Tenant's expense, and in default thereof, Landlord may effect such removals and
repairs, and Tenant shall pay Landlord the cost thereof, with interest at the
rate of eighteen percent (18%) per annum from the date of payment by Landlord.
ARTICLE XVIII
SUBORDINATION
SECTION 18.1. Tenant agrees that this lease shall be subject and
subordinate to any mortgages, trust deeds or ground leases now or hereafter
placed upon the leased premises, the Center or any portion thereof, and to any
and all advances to be made thereunder, and to the interest thereon, and all
renewals, replacements and extensions thereof, provided that the mortgagee,
trustee or ground lessor thereunder shall agree to recognize Tenant's rights
hereunder as long as Tenant is not in default hereunder, and Tenant shall attorn
to such mortgagee, trustee or ground lessor. Tenant further agrees that upon
notification by Landlord to Tenant, this lease shall be or become prior to any
mortgages, trust deeds or ground leases that may heretofore or hereafter be
placed on the leased premises. Tenant shall execute and deliver whatever
instruments may be required for the above purposes. Tenant shall, in the event
of the sale or assignment of Landlord's interest in the building in which the
leased premises is located or in the event of any proceedings brought for the
foreclosure of, or in the event of exercise of the power of sale under any
mortgage made by Landlord covering the leased premises, attorn to the purchaser
and recognize such purchaser as Landlord under this lease.
ARTICLE XIX
NOTICES
SECTION 19.1. Whenever under this lease provision is made for notice of
any kind, such notice shall be in writing and shall be deemed sufficient notice
and service thereof, if such notice is to Tenant when actually served upon
Tenant or when sent by registered or certified mail, return receipt requested,
postage prepaid, to the last Post Office address of Tenant furnished to Landlord
for such purposes, or to the leased premises; and if to Landlord when actually
served upon Landlord or when sent by registered or certified mail, return
receipt requested, postage prepaid, to the Landlord at the address furnished for
such purpose, or to the place then fixed for the payment of rent.
SECTION 19.2. If the holder of record of any mortgage, trust deed or
ground lessor's interest covering the leased premises shall have given prior
written notice to Tenant that it is the holder of said mortgage, trust deed or
lessor's interest and such notice includes the address at which notices to such
mortgagee, trustee or ground lessor are to be sent, then Tenant agrees to give
to such party or parties notice simultaneously with any notice given to Landlord
to correct any default of Landlord as hereinabove provided, and agrees that such
party or parties shall have the right, within thirty (30) days after receipt of
said notice, to correct or remedy such default before Tenant may take any action
under this lease by reason of such default.
<PAGE>
ARTICLE XX
TAXES
SECTION 20.1. Landlord shall pay all real property taxes and installments
of special assessments payable therewith on the Center land and improvements
payable during the lease term and rental taxes on rentals levied during the term
hereof upon the rentals from the leased premises. Tenant shall reimburse
Landlord for Tenant's share of such payments of real property taxes and
installments of special assessments as part of common area payments under
Section 5.3. Tenant's share of such costs shall be based on the ratio the total
square foot floor area of the leased premises bears to the total square foot
rentable floor area in the Center, except buildings separately taxed or assessed
for which such taxes and assessments are directly allocated to their Tenants.
Tenant shall also reimburse Landlord for rental taxes, and gross receipts taxes,
if any, paid by Landlord on rentals from the leased premises. One-twelfth of a
full year's taxes, installments of which are next payable, shall be payable on
the first day of each month and added to the monthly rental. Such payments
shall be computed by Landlord and paid by Tenant on a tax year basis (presently
November to October), so that Tenant had paid its share of real estate taxes and
installments of special assessments to Landlord, by the dates that Landlord is
required to pay the same to the taxing authorities. The amount due from Tenant
hereunder may be based on Landlord's reasonable estimate until the actual tax
amounts are available and when available an adjustment shall be made and any
difference shall be payable based on Tenant's actual share as determined.
Tenant's share of such taxes and installments payable in the first and last
calendar year of the lease term shall be equitably pro-rated based on the
portion of the year included in the lease term. All real property taxes and
special assessments are included as a part of "common area" expenditures by
Landlord as provided in Section 5.3 above. Tenant shall pay all personal
property and similar taxes on its property in the leased premises.
ARTICLE XXI
MERCHANT'S ASSOCIATION
SECTION 21.1. Tenant may, throughout the term or any extension or renewal
of the term of this lease, become a member of participate fully in, contribute
to, and remain in good standing in any Merchants' Association ("Association")
formed or to be formed by the Landlord, at its sole discretion, and comply with
the by-laws, rules and regulations of the Association. The objective of the
Association shall be to assist the business of Center tenants by sales
promotions and advertising for the Center as a whole.
SECTION 21.2. The Association is organized or will be organized so that
voting membership is limited to tenants in the Center. The management of the
Association shall be vested in a board of directors consisting of seven (7)
individuals, two (2) of which shall be designated by Landlord and five (5) of
which shall be elected by the Association. Directors need not be tenants of the
Center. In electing directors, each tenant member who belongs to the
Association shall have one vote for each 1,000 square feet of leased space or
part thereof. The Association may also provide for non-voting members
consisting of persons other than Center tenants.
SECTION 21.3. Tenant, if it elects to belong, agrees to pay promptly when
due its share of such dues and assessments as may be fixed from time to time by
the Association for the purposes of creating a fund for the general promotion
and welfare of the Center as a whole. Such sums shall be paid monthly in
advance, the first such payment being paid to the Association on or before the
date of commencement of the term hereof. Tenant hereby agrees to pay said sum
to Landlord on behalf of the Association together with the rental payments as
herein provided.
ARTICLE XXII
GENERAL
SECTION 22.1. Nothing contained herein shall be deemed or construed by
anyone as creating the relationship of principal and agent or of partnership or
joint venture between the parties hereto.
<PAGE>
SECTION 22.2. The headings of the several articles contained herein are
for convenience only and do not define, limit or construe the contents of such
articles. All negotiations, considerations, representations and understandings
between the parties are incorporated herein, and may be modified or altered only
by agreement in writing between the parties.
SECTION 22.3. The covenants and agreements herein contained shall bind and
inure to the benefit of the Landlord, its successors and assigns, and Tenant and
its permitted successors and assigns.
SECTION 22.4. Whenever a period of time is herein provided for either
party to do or perform any act or thing, that party shall not be liable or
responsible for any delays and applicable periods for performance shall be
extended accordingly, due to strikes, lockouts, riots, acts of God, shortages of
labor or materials, national emergency, acts of a public enemy, governmental
restrictions, laws or regulations, or any other cause or causes, whether similar
or dissimilar to those enumerated, beyond its reasonable control. The
provisions of this Section 22.4. shall not operate to excuse Tenant from prompt
payment of rent, percentage rent, additional rent or other monetary payments
required by the terms of this lease.
SECTION 22.5. Tenant shall not record this lease without the written
consent of landlord.
SECTION 22.6. No payment by Tenant or receipt by landlord of a lesser
amount than the amount then due under this lease shall be deemed to be other
than on account of the earliest portion thereof due, nor shall any endorsement
or statement on any check or any letter accompanying any check or payment be
deemed an accord and satisfaction, and Landlord may accept such check or payment
without prejudice to Landlord's right to recover the balance due or to pursue
any other remedy in this lease provided.
SECTION 22.7. Each of the parties represents and warrants that there are
no claims for brokerage commissions or finder's fees in connection with the
execution of this lease, except as set forth below, and each of the parties
agrees to indemnify the other against, hold it harmless from and defend all
liabilities arising from any such claim for which such party is responsible
(including, without limitation, the cost of attorneys' fees in connection
therewith) except as follows:
Commission to be paid to Coldwell Bank Service 1st Realty by Landlord.
SECTION 22.8. The Landlord shall not be obligated to proceed with the
construction of the Center unless and until financing acceptable to Landlord is
obtained. Should such financing not be obtainable within a period determined to
be reasonable by Landlord, Landlord may so notify Tenant in writing, and this
lease shall thereupon cease and terminate and each of the parties hereto shall
be released and discharged from any and all liability and responsibility
hereunder. If Landlord's mortgagee requires modification of the terms and
conditions of this lease, the Landlord shall have the right to cancel this
lease, if the Tenant refuses to approve in writing any such modification within
thirty (30) days after Landlord's request therefor, which request may not be
made after delivery of possession.
SECTION 22.9. If any term or provision of this lease shall to any extent
be held invalid or unenforceable, the remaining terms and provisions of this
lease shall not be affected thereby, but such term and provision of this lease
shall be valid and enforced to the fullest extent permitted by law.
SECTION 22.10. The laws of the state in which the Center is located shall
govern the validity, performance and enforcement of this lease.
SECTION 22.11. Additional provisions, if any, are set forth on Exhibit D
hereto.
SECTION 22.12. The following Exhibits are part of this lease: Exhibit A,
Center Site Plan; Exhibit B, Center Legal Description; Exhibit C, Plans and
Specifications; Exhibit D, Additional Provisions; and Exhibit E, Center Rules
and Regulations. All said Exhibits are hereby incorporated herein by reference
and are part of this lease.
<PAGE>
SECTION 22.13. In the event that one or more individuals, corporations,
partnerships or other entities (or any combination or two or more thereof) shall
sign this lease as Tenant, the liability of each such individual, corporation,
partnership or other entity to perform all obligations hereunder shall be joint
and several. In like manner, in the event that the Tenant named in this lease
shall be a partnership or other business association, the members of which are,
by virtue of statute, or general law, subject to personal liability, then and in
that event, the liability of each such member shall be deemed to be joint and
several.
SECTION 22.14. Anything to the contrary herein notwithstanding, if
Landlord, its successors and assigns, is a mortgagee, an individual, a joint
venture, a tenancy in common, a firm or partnership, general or limited, it is
specifically understood and agreed that there shall be absolutely no personal
liability on the part of such Landlord or the members of such Landlord with
respect to any of the terms, covenants, conditions and provisions of this lease,
and Tenant shall look solely to the equity of Landlord, its successors and
assigns, in the property of which the leased premises is a part for the
satisfaction of each and every remedy of Tenant in the event of any breach of
Landlord, its successors or assigns, of any of the terms, covenants, conditions
and provisions of this lease to be performed by Landlord. Such exculpation of
personal liability is absolute and without any exception whatsoever.
SECTION 22.15. Landlord shall have the right to install, maintain, use,
repair and replace pipes, ducts, conduits, and wires leading through the leased
premises and serving other parts of the building in locations which will not
materially interfere with Tenant's use thereof.
SECTION 22.16. Landlord shall at all times have full control, management
and direction of the Center, subject to the rights of Tenant in the leased
premises, and Landlord reserves the right at any time and from time to time to
reduce, increase, enclose or other change, the size, number and location of
buildings, layout and nature of the Center and the other tenancies, premises and
buildings included in the Center, to construct additional buildings and
additions to any building, and to create additional rentable areas through use
and/or enclosure of common areas, or otherwise, and to place signs on the
Center, and to change the name, address, number or designation by which the
Center is commonly known. No implied easements are granted by this lease.
SECTION 22.17. Employees or agents of Landlord have no authority to make
or agree to make a lease or other agreements or undertaking in connection
herewith, except for Murray Kornberg or such other person designated in writing
by the General Partner of Landlord who do have authority to sign this Lease or
other arrangements or undertakings in connection herewith. The submission of
this document for examination does not constitute an offer to lease, or a
reservation of, or option for, the leased premises. This document becomes
effective and binding only upon the execution and delivery hereof by the proper
officers of Landlord and by Tenant. Tenant confirms that Landlord and its
agents have made no representations or promises with respect to the leased
premises or the making of or entry into this lease except as in this lease
expressly set forth, and Tenant agrees that no claim or liability shall be
asserted by Tenant against Landlord for, and Landlord shall not be liable by
reason of, breach of any representations or promises not expressly stated in
this lease. This lease, except for the Center Rules and Regulations, in respect
to which Section 22.18 shall prevail, can be modified or altered only by
agreement in writing between Landlord and Tenant, and no act or omission of any
employee or agent of Landlord shall alter, change or modify any of the
provisions hereof.
SECTION 22.18. Lessee shall perform, observe and comply with the Center
Rules and Regulations of the Center as set forth in Exhibit E hereto, with
respect to the safety, care and cleanliness of the leased premises and the
Center, and the preservation of good order thereon, and, upon written notice
thereof to Tenant, Tenant shall perform, observe, and comply with any reasonable
changes, amendments or additions thereto as from time to time shall be
established and deemed advisable by Landlord for tenants of the Center.
Landlord shall not be liable to Tenant for any failure of any other tenant or
tenants of the Center to comply with such Center Rules and Regulations.
SECTION 22.19. All rights and occupancy of Tenant herein shall be subject
to all governmental laws, ordinances and regulations, and Tenant shall do no act
to violate the same.
<PAGE>
SECTION 22.20. Deleted.
ARTICLE XXIII
SECURITY DEPOSIT
SECTION 23.1. Tenant hereby deposits with Landlord and shall maintain at
all times on deposit with Landlord and keep whole and unencumbered the sum of
Eight Hundred and eighty-five Dollars ($885.00), the receipt of which is hereby
acknowledged, as security for the faithful performance by Tenant of every term
and condition of this lease, it being expressly understood and agreed that
Tenant may not direct Landlord to apply said security in payment of rent for any
month during the lease term and Tenant shall pay rent for the last month of the
lease term. If there shall be a default by Tenant in respect of any term or
condition of this lease, Landlord may use all or any part of the security to
perform same for the account of Tenant, or for any damages or deficiency,
whether such damages or default occur before or after summary proceedings or
re-entry by Landlord. Landlord shall not be required so to use, apply or retain
the whole or any part of said security nor shall the provisions herein contained
limit the rights of Landlord pursuant to the terms of Article XVI of this lease.
If Tenant shall fully and faithfully comply with all of the provisions of this
lease, including the provisions contained in Article XVII hereof at the
termination of this lease, then said security or any balance thereof remaining
shall be repaid to Tenant within a reasonable time. It is understood that no
interest on said security will be paid by Landlord to Tenant. In the event of
any sale, transfer or assignment of the Landlord's interest under this lease,
Landlord may transfer or assign said security to the vendee, transferee or
assignee, as the case may be, and Landlord thereupon shall be released from all
liability for the repayment of said security, and Tenant, in each instance,
shall look solely to such transferee for repayment of said security. The
provisions hereof shall apply to each such sale, transfer or assignment and each
such transfer or assignment of such security.
ARTICLE XXIV
ESTOPPEL CERTIFICATE
SECTION 24.1. Tenant agrees from time to time upon not less than ten (10)
days prior written request by Landlord to deliver to Landlord a statement in
writing certifying if such facts are true (a) this lease is unmodified and in
full force and effect (or if there have been modifications, that this lease as
modified is in full force and effect and stating the modifications); (b) the
dates to which the rent and other charges have been paid; (c) Landlord is not in
default in any provision of this lease or, if in default, the nature thereof
specified in detail; (d) the amount of monthly rental currently payable by
Tenant; (e) the amount of any prepaid rent, and (f) such other matters as may be
reasonably requested by Lessor or any mortgagee or prospective purchaser of the
Center or any party thereof.
SECTION 24.2. Landlord's mortgage lenders and/or purchasers shall be
entitled to rely upon any statement so executed pursuant to this Article XXIV.
ARTICLE XXV
TITLE
SECTION 25.1. Landlord covenants that it has full right and authority to
enter into this lease for the full term hereof. Landlord further covenants that
Tenant, upon performing the covenants and agreements of this lease to be
performed by said Tenant, will have, hold and enjoy quiet possession of the
leased premises. Landlord further warrants to the Tenant that the building in
which the leased premises are located, and all systems located therein are well
constructed and in working condition, and that they are, along with the land
upon which they are located, constructed otherwise in compliance with all
building and zoning codes, and all other federal, state or local laws,
regulations and ordinances.
<PAGE>
ARTICLE XXVI
PREPARATION OF LEASED PREMISES
SECTION 26.1. This lease contemplates construction of the Center of which
the leased premises is a part. Landlord shall at its sole cost and expense
construct Tenant's premises according to and to the extent provided in the
specifications attached hereto and made a part hereof as Exhibit C. Tenant
shall be responsible for construction of the leased premises beyond the
Landlord's obligations set forth in said Exhibit C, pursuant to plans approved
by Landlord ("Tenant's construction obligations"). The detailed plans and
specifications for the leased premises shall conform with the specifications
contained in said Exhibit C.
SECTION 26.2. The proposed location of the leased premises in the building
of which the leased premises form a part if designated on the site plan attached
marked Exhibit A.
SECTION 26.3. Provided Tenant fully executes this lease and deposits with
Landlord the required rent and security deposits on or before August 31, 1993,
Landlord shall complete the leased premises on or before September 30, 1993. In
the event the Landlord is unable to complete construction and deliver possession
of the leased premises to the Tenant on the contemplated completion date (except
as provided in Section 22.4, in which case all rent is abated), The Tenant may
cancel the Lease by written notice to the Landlord.
IN AGREEMENT, Landlord and Tenant has signed this lease as of the day and
year first above written.
LANDLORD TENANT
COUNTY CROSSROADS CENTER
LIMITED PARTNERSHIP Consumer Credit Corporation
By: HEADWAY CORPORATION
General Partner
By /s/ By /s/
-------------------------- -------------------------
Roger Anderson
Its President Its Vice President
-------------------------- -------------------------
STATE OF MINNESOTA )
) ss.
COUNTY OF RAMSEY )
The foregoing instrument was acknowledged before me this 27th day of
September, 1993, by Murray Kornberg the president of Headway Corporation, a
Minnesota corporation, general partner of County Crossroads Center Limited
Partnership on behalf of the limited partnership. [Landlord]
/s/
-------------------------
Notary Public
<PAGE>
STATE OF MINNESOTA )
) ss.
COUNTY OF GOODHUE )
The foregoing instrument was acknowledged before me this 27th day of
August, 1993, by Roger Anderson, the Vice President of Consumer Credit
Corporation, a Minnesota corporation on behalf of the corporation. [Tenant]
/s/
-------------------------
Notary Public
<PAGE>
EXHIBIT A
CENTER SITE PLAN
<PAGE>
EXHIBIT B
SHOPPING CENTER LEGAL DESCRIPTION
Lot 3, Block 1, County Crossroads Center 3rd Addition, according to
the recorded plat thereof, Dakota County, Minnesota.
<PAGE>
EXHIBIT C
PLANS AND SPECIFICATIONS
This is EXHIBIT "C" to a Lease and between COUNTY CROSSROADS CENTER LIMITED
PARTNERSHIP ("Landlord") and Consumer Credit Corporation ("Tenant") dated this
27th day of August, 1993.
The leased premises shall be constructed and completed in accordance with the
following outline specifications:
DIMENSIONS:
Frontage: twenty-four (24) feet Depth: sixty (60) feet
Area: One thousand four hundred sixteen (1,416) square feet
as measured by Landlord's Architect from the outside of the store front (or
lease line indicated) and the outside of the rear wall (or center line if not
outside wall) and the center line of the demising partitions.
WASHROOM
The Landlord will provide one (1) washroom as required by applicable codes and
regulations for a retail store and for no other requirements, complete with
necessary plumbing fixtures (1 water closet and 1 sink), water heated
electrically, as required by code, toilet paper holder, mirror, exhaust fan,
light, suspended 2 x 4 acoustical ceiling, flooring installed, walls to be
gypsum board taped, sanded and painted ready for application of Tenant's wall
covering, wainscoting or washable floor and wall covering as required by code,
hollow metal door with hardware and all electrical hookups for washroom light,
fan, and water heater. Washroom shall be located at the rear east side of the
leased premises. Additional washroom requirements will be the Tenant's
responsibility.
CEILING SYSTEM
The Landlord will provide a suspended T-Bar ceiling system with 2' x 4' lay-in
acoustical tile for tenant ceiling on a "single plane basis". Ceiling height to
be 10 feet. Any additional cost of installing the ceiling system caused by
partition walls or other interior Tenant improvements shall be borne by Tenant.
STORE FRONT
The store front shall be 1" thick clear insulating glass and prefinished metal
panels set in an anodized aluminum thermal break frame system. One tempered
clear glass and anodized aluminum entrance door to be provided by Landlord.
DEMISING WALLS
Tenant demising walls (party walls) shall typically be 5/8" thick Type X gypsum
board on 4" standard steel studs at 16" centers. Tenant shall field verify
actual stud location. Gypsum board will be taped and sanded, ready for
finishing by Tenant. Where the steel studs are to carry any Tenant required
wall mounted equipment, the costs to reinforce the wall to carry the additional
loads to be borne by Tenant. One side of each demising wall above the ceiling
plane will be carried to underside of roof deck by Landlord.
PARTITIONS WITHIN PREMISE
The washroom partitions are the only partitions within the leased premises
provided by Landlord. All other interior partitions are the responsibility of
the Tenant.
<PAGE>
REAR DOOR
Where required as a second means of egress from premises and as shown on the
blockout drawings, a rear door with hardware will be provided by the Landlord.
Additional or larger doors or openings will be provided at Tenant's cost,
installed by Landlord's contractor.
DECORATING
All decorating in the leased premises to be provided by the Tenant.
FLOORING
Sealed concrete ready for the application of floor covering by Tenant. Tenant
shall install floor covering, satisfactory to Landlord.
SIGNS
All signs to be provided by the Tenant shall be in accordance with the
Landlord's general sign criteria and the local sign ordinance of the City of
Hastings. The quality and design of the sign must be approved in writing by the
Landlord prior to Tenant installation. The fascia signage will be wired direct
to Tenant's electrical panel by Tenant contractor. Landlord shall provide a
J-Box in this fascia for Tenant's signage.
HEATING AND AIR-CONDITIONING
The Landlord will provide the leased premises with a heating and
air-conditioning system. The quality and capacity shall be such as to
provide comfortable conditions in the leased premises in accordance with
generally accepted Minnesota standards.
The Landlord will provide the heating and air conditioning equipment on an open
store plan basis. This equipment shall include: (1) the rooftop unit, (2) the
drop to the leased premises, (3) the main distribution trunk, (4) the
thermostat, wired directly to Tenant's electrical panel, (5) one diffuser and
associated lateral duct work for every five hundred (500) square feet of floor
area in the leased premises. The cost of any additional ducts, dampers and
diffusers, and any cutting and patching of the roof membrane will be borne by
the tenant. In order to insure that all warranties remain intact, this work
shall be carried out by the Landlord's contractor, at the Tenant's sole expense,
based upon written estimates approved in writing by Tenant, prior to the
commencement of this work.
If additional electrical capacities are required for lighting, the Tenant shall
bear the cost of additional air-conditioning required to handle the increased
load.
ELECTRICAL
The Landlord will (1) bring the power supply to the leased premises up to and
including an empty 100 AMP distribution panel box, (2) provide one 2' x 4'
fluorescent lighting fixture for every one hundred (100) square feet of space
within the leased premises, (3) provide three (3) duplex outlets along one wall
of the leased premises. Additional electrical requirements will be paid for by
the Tenant. Tenant washroom light, exhaust fan and water heater will be
connected to Tenant's panel by Landlord.
FIRE PROTECTION
In the event applicable governmental codes or regulations so require, the stores
(including the leased premises) shall be provided with an automatic fire
protection sprinkler system by the Landlord to meet current applicable building
codes and standards. Coverage will be on a "single horizontal plane basis" to
meet Uniform Building Code and National Fire Protection Association
requirements. The cost of any change to the basic system due to
<PAGE>
addition of partitions, ceiling height changes, bulkheads, high storage
shelving, etc., will be borne by the Tenant, and shall be carried out by
Landlord at Tenant's expense.
TELEPHONE
The Landlord will provide one telephone conduit to Tenant's space.
EXTERIOR WORK
Landlord shall provide an additional handicap access ramp in the sidewalk within
twenty-five feet of Tenant's front door.
OTHER WORK
The space provided by the Landlord is described above. The cost of any changes
or additions to the above will be borne by the Tenant and may be carried out by
a contractor or contractors of his choice, subject to the Landlord's written
approval of the changes, additions and the contractor.
Other contractors working on leased premises must co-operate with the Landlord's
Project Manager, apply and pay for their own building permits and fees, conform
to all applicable State and local building codes.
While other contractors may perform work on the leased premises on behalf of the
Tenant, the following areas of work must be performed by the Landlord's
contractor and will be charged back to the tenant on the basis of prior
estimates approved in writing by Tenant:
Structural alterations, including but not limited to:
- Breaking out concrete floors
- Cutting and patching the roof membrane
- Alterations to exterior walls and store front
Heating and air-conditioning system installation or changes
Plumbing and sprinkler system changes and additions.
Electrical feeder changes
<PAGE>
EXHIBIT D
ADDITIONAL PROVISIONS
1. OPTION TO RENEW. Provided the Tenant is not then in default, and further
provided that Tenant has given Landlord not less than One hundred eighty days
(180) notice prior to the expiration of the initial term, Tenant shall have one
(1) option to renew this lease for an additional term of three (3) years on the
same terms and conditions, except those conditions relating to fixed annual
minimum rent and except that Tenant shall have no further options to renew.
Fixed annual minimum rent in the renewal term shall be negotiated prior to
renewal, provided however that under no circumstances whatsoever shall fixed
annual minimum rent in the renewal term be less than fixed annual minimum rent
payable by Tenant in the lease year immediately preceding renewal. In the event
Landlord and Tenant are unable to agree on a new fixed annual minimum rent
within ninety (90) days prior to the expiration of the initial term, Landlord
and Tenant shall submit the matter for arbitration by the Minnesota State Board
of Arbitration, whose decision shall be binding on the parties, but shall be
subject to the minimum rent provisions set forth in this Paragraph 1.
2. RENT ABATEMENT. Provided that Tenant is not then in default, Tenant shall
not be obligated to pay fixed annual minimum rent only for the first, second,
thirteenth, fourteenth and thirty-sixth month of the initial lease term. Tenant
shall still be responsible for the payment of common area expenses, insurance
and property taxes and installments of special assessments during said rent
abatement period, as more fully set forth in Articles V, XI and XX hereinabove.
3. RENT DEPOSIT. Tenant hereby deposits with Landlord Eight hundred and
eighty-five Dollars ($885.00) to be applied against fixed annual minimum rent
due in the third month of the initial lease term.
4. TENANT IMPROVEMENT ALLOWANCE. Landlord shall provide Tenant with an
improvement allowance of One Dollar ($1.00) per square foot of floor area of the
leased premises. Subject to adjustment for the field measurement described in
Section 1.1, the amount of the tenant improvement allowance shall be One
thousand four hundred and sixteen Dollars ($1,416.00).
5. Other provisions of this Lease notwithstanding, Tenant shall not be
required by this Lease to operate its office at hours other than between 8:00
a.m. until 5:00 p.m., Monday through Friday and not on holidays. Tenant may
exhibit signs inside the leased premises which are intended for viewing through
the windows after receiving consent of the Landlord which will not be
unreasonably withheld.
<PAGE>
EXHIBIT E
CENTER RULES AND REGULATIONS
1. Any sign, lettering, picture, notice or advertisement installed on or
in any part of the leased premises and visible from the exterior of the Center,
or visible from the exterior of the leased premises, shall be installed at
Tenant's sole cost and expense, and in such manner, character and style as
Landlord may approve in writing. Anything herein to the contrary
notwithstanding, approval as to signs shall be subject to Landlord's approval
which may be withheld in Landlord's sole discretion. In the event of a
violation of the foregoing by Tenant, Landlord may remove the same without any
liability and may charge the expense incurred by such removal to Tenant.
2. No awning or other projection shall be attached to the outside walls
of the Center or the leased premises. No curtains, blinds, shades or screens
visible from the exterior of the Center or visible from the exterior of the
leased premises, shall be attached to or hung in, or used in connection with any
window or door of the leased premises without the prior written consent of
Landlord. Such curtains, blinds, shades, screens or other fixtures must be of a
quality, type, design and color, and attached in the manner approved by
Landlord.
3. Tenant, its servants, employees, customers, invitees and guests shall
not obstruct common areas of the Center. Tenant shall not place objects against
glass partitions or doors or windows which would be unsightly from the Center
common areas or from the exterior of the Center, and will promptly remove any
such objects upon notice from Landlord.
4. Tenant shall not make excessive noises, cause disturbances or
vibrations or use or operate any electrical or mechanical devices that emit
excessive sound or other waves or disturbances or create obnoxious odors, any of
which may be offensive to the other tenants and occupants of the Center, or that
would interfere with the operation of any device, equipment, radio, television
broadcasting or reception from or within the Center or elsewhere, and shall not
place or install any projections, antennas, aerials or similar devices inside or
outside of the leased premises or on the Center.
5. Tenant shall not waste electricity, water or air conditioning
furnished by Landlord, if any, and shall cooperate fully with Landlord to insure
the most effective operation of the Center's heating and air conditioning
systems.
6. Tenant assumes full responsibility for protecting its space from
theft, robbery and pilferage, which includes keeping doors locked and other
means of entry to the leased premises closed and secured after normal business
hours.
7. In no event shall Tenant bring into the Center inflammables, such as
gasoline, kerosene, naphtha and benzine, or explosives or any other article of
intrinsically dangerous nature. If, by reason of the failure of Tenant to
comply with the provisions of this paragraph, any insurance premium for all or
any part of the Center shall at any time be increased, Tenant shall make
immediate payment of the whole of the increased insurance premium, without
waiver of any of the Landlord's other rights at law or in equity for Tenant's
breach of this lease.
8. Tenant shall comply with all applicable federal, state and municipal
laws, ordinances and regulations, and building rules, and shall not directly or
indirectly make any use of the leased premises which may be prohibited by any of
the foregoing or which may be dangerous to persons or property or may increase
the cost of insurance or require additional insurance coverage.
9. Landlord shall have the right to prohibit any advertising by Tenant
which in Landlord's reasonable opinion tends to impair the reputation of the
Center or its desirability as a shopping center, and upon written notice from
Landlord, Tenant shall refrain from or discontinue such advertising.
<PAGE>
10. The leased premises shall not be used for cooking (as opposed to
hearing of food), lodging, sleeping or for any immoral or illegal purpose.
11. Unless expressly permitted by the Landlord, no additional locks or
similar devices shall be attached to any door or window and no keys other than
those provided by the Landlord shall be made for any door. If more than two
keys for one lock are desired by the Tenant, the Landlord may provide the same
upon payment by the Tenant. Upon termination of this lease or of the Tenant's
possession, the Tenant shall surrender all keys of the leased premises and shall
explain to the Landlord all combination locks on safes, cabinets and vaults.
12. Any carpeting cemented down shall be installed with a releasable
adhesive. In the event of a violation of the foregoing by Tenant, Landlord may
charge the expenses incurred by such removal to Tenant.
13. The water and wash closets, drinking fountains and other plumbing
fixtures shall not be used for any purpose other than those for which they were
constructed, and no sweepings, rubbish, rags, coffee grounds or other substances
shall be thrown therein. All damages resulting from any misuse of the fixtures
shall be borne by the Tenant who, or whose servants, employees, agents, visitors
or licensees, shall have caused the same. No person shall waste water by
interfering or tampering with the faucets or otherwise.
14. No electrical or other wires for any purpose shall be brought into the
leased premises without Landlord's written permission specifying the manner in
which the same may be done. Tenant shall not overload any utilities serving the
leased premises.
15. No dog or other animal shall be allowed in the Center by Tenant.
16. All loading, unloading, receiving or delivery of goods, supplies or
disposal of garbage or refuse shall be made only through entryways provided for
such purposes. Tenant shall be responsible for any damage to the Center or the
property of its employees or others and injuries sustained by any person
whomsoever resulting from the use or moving of such articles in or out of the
leased premises, and shall make all repairs and improvements required by
Landlord or governmental authorities in connection with the use or moving of
such articles.
17. All safes, equipment or other heavy articles shall be carried in or
out of the leased premises only in such manner as shall be prescribed in writing
by Landlord, and Landlord shall in all cases have the right to specify the
proper position of any such safe, equipment or other heavy article, which shall
only be used by Tenant in a manner which will not interfere with or cause damage
to the leased premises or the Center in which it is located, or to the other
tenants or occupants of the Center. Tenant shall be responsible for any damage
to the building or the property of its employees or others and injuries
sustained by any person whomsoever resulting from the use or moving of such
articles in or out of the leased premises, and shall make all repairs and
improvements required by Landlord or governmental authorities in connection with
the use or moving of such articles.
18. Canvassing, soliciting, and peddling in or about the Center is
prohibited and Tenant shall cooperate to prevent the same.
19. Wherever in these Building Rules and Regulations the word "Tenant"
occurs, it is understood and agreed that it shall mean Tenant's associates,
employees, agents, clerks, servants, invitees, and visitors. Wherever in these
Building Rules and Regulations the word "Landlord" occurs, it is understood and
agreed that it shall mean Landlord's successors, assigns, agents, clerks,
servants, and visitors.
20. Landlord shall have the right to enter the leased premises at hours
convenient to the Tenant for the purpose of exhibiting the same to prospective
tenants within the one hundred twenty (120) day period prior to the expiration
of this lease, and may place signs advertising the leased premises for rent on
the exterior of said leased premises at any time within said period.
<PAGE>
21. Tenant, its servants, employees, customers, invitees, and guests
shall, when using the parking facilities in and around the Center, observe and
obey all signs regarding fire lanes and no parking zones, and when parking
always park between the designated lines. Landlord reserves the right to tow
away, at the expense of the owner, any vehicle which is improperly parked or
parked in a no parking zone. All vehicles shall be parked at the sole risk of
the owner, and Landlord assumes no responsibility for any damage to or loss of
vehicles. No vehicle shall be parked overnight.
22. In case of invasion, mob, riot, public excitement, or other commotion,
Landlord reserves the right to prevent access to the Center during the
continuance of the same by blocking the doors or otherwise, for the safety of
the tenants or the protection of the Center and the property therein. Landlord
shall in no case be liable for damages for any error or other action taken with
regard to the admission to or exclusion from the Enter of any person.
23. All entrance doors to the leased premises shall be locked when the
leased premises is not in use. All common corridor doors, if any, shall also be
closed during times when the air conditioning equipment in the Center is
operating so as not to dissipate the effectiveness of the system or place an
overload thereon.
24. Tenant and Tenant's servants, employees, agents, visitors and
licensees shall observe faithfully and comply strictly with the foregoing rules
and regulations and such other and further appropriate rules and regulations as
Landlord or Landlord's agent may from time to time adopt. Notice of any
additional rules and regulations shall be given in such manner as Landlord may
elect.
25. Landlord reserves the right at any time and from time to time to
rescind, alter or waive, in whole or in part, any of these Rules and Regulations
when it is deemed necessary, desirable, or proper, in Landlord's judgment, for
its best interest or for the best interest of the tenants of the Center.
<PAGE>
EXHIBIT 10.13
LUBBERS' PROPERTIES INC.
1080 SOUTH HIGHWAY THREE
NORTHFIELD, MINNESOTA 55057
LEASE AGREEMENT
This lease agreement, made this 8th day of June, 1994, between Lubbers'
Properties Inc. (hereinafter called "Lessor"), and Consumer Credit Corp.
(hereinafter called "Tenant");
WITNESSETH, THAT
1. DEMISED PREMISES. Lessor, subject to the terms and conditions
hereof, hereby leases to Tenant the premises (hereinafter referred to as the
"Demised Premises") addressed as 1014 South Highway Three, Northfield,
Minnesota comprising approximately 1731 square feet of area in the building
situated at 1000 South Highway Three, Northfield, Minnesota (hereinafter
referred to as the "building"), to be used by Tenant for general business and
other related activities and for no other use or purpose. The Building, the
land underlying and contiguous thereto and all improvements thereon are
hereinafter referred to as the "Project".
2. TERM. Tenant takes the Demised Premises from Lessor, upon the
terms and conditions herein contained, to have and to hold the same for the
term ("Lease Term") of five (5) years commencing on or before the first day
of August 1994, and ending on the last day of July 1999, unless sooner
terminated as herein provided.
3. BASE RENT. Tenant shall pay to Lessor during the Lease a monthly
base rent of Eight Hundred and No/100ths Dollars ($800.00) from August 1,
1994 to July 31, 1996. Beginning August 1, 1996 base rent shall increase to
Nine Hundred Thirty Three and No/100 Dollars to July 31, 1999. Base rent is
due the first day of each month in advance at the office of Lessor at 1080
South Highway Three, Northfield, Minnesota or at such other place as may from
time to time be designated by Lessor.
4. OPERATING COSTS. Tenant shall, for the entire lease term, pay to
Lessor as additional rent, without any set-off or deduction therefrom, a pro
rata share (as defined in paragraph 1 herein) of all costs which Lessor may
incur in owning, maintaining and operating the project. Said costs are
referred to herein as operating costs and are hereby defined to include: All
real estate taxes and annual installments of special assessments payable with
respect to the Project; maintenance, repair, replacement and care of all
heating lighting, plumbing and air conditioning fixtures, equipment and
systems serving the common areas; maintenance repair and care of parking and
landscape areas, signs, snow removal, nonstructural repair and maintenance of
the exterior of the building and insurance premiums, management fees, wages
and fringe benefits for personnel employed for such work. Operating costs
shall include the yearly amortization of capital costs incurred by Lessor for
improvements or structural repairs to the Project required to comply with any
change in the laws, rules or regulations of any governmental authority having
jurisdiction, or for purposes of reducing Operating Costs, which cost shall
be amortized over the useful life of such improvements or repairs, as
reasonably estimated by Lessor. As soon as reasonably practicable prior to
the commencement of each calendar year during the Lease Term, Lessor shall
furnish to Tenant an estimate of Tenant's share of Operating Costs, if any,
for the ensuing calendar year and Tenant shall pay, as additional rent
hereunder together with each installment of monthly base rent, one-twelfth
(1/12th) of its estimated annual share of such Operating Costs. As soon as
reasonably practicable after the end of each calendar year during the Lease
Term, Lessor shall furnish to Tenant a statement of the actual Operating
Costs for the previous calendar year, including Tenant's share of such
amount, and within thirty (30) days thereafter Tenant shall pay to Lessor, or
Lessor to Tenant as the case may be, the difference between the actual and
estimated Operating Costs paid by Tenant. Tenant's share of such
<PAGE>
excess Operating Costs for the years in which this Lease commences and
terminates shall be prorated based on the dates of commencement and
termination of the Lease Term.
5. ADDITIONAL TAXES. Tenant shall pay as additional rent to Lessor,
together with each installment of monthly base rent, the amount of any gross
receipts tax, sales tax or similar tax (but excluding therefrom any income
tax) payable, or which will be payable, by Lessor, by reason of the receipt
of the monthly base rent and adjustments thereto. As of date of lease there
are no additional taxes in effect.
6. SECURITY DEPOSIT. On the date of execution of the Lease by Tenant,
there shall be due and payable by Tenant a security deposit in the amount of
Eight Hundred Dollars ($800.00) to be held for the performance by Tenant of
Tenant's covenant's and obligations under this Lease, it being expressly
understood that the deposit shall not be considered an advance payment of
rent or a measure of Lessor's damage in case of default by Tenant. Upon the
occurrence of any event of default by Tenant or breach by Tenant of Tenant's
covenants under this Lease, Lessor may, from time to time, without prejudice
to any other remedy, use the security deposit to the extent necessary to make
good any arrears of rent and/or damage, injury, expense or liability caused
to Lessor by the event of default or breach of covenant, any remaining
balance of the security deposit to be returned by Lessor to Tenant upon
termination of this Lease.
7. UTILITIES. Lessor shall provide mains and conduits to supply
water, gas, electricity and sanitary sewage to the Demised Premises. Tenant
shall pay, when due, all charges for sewer usage or rental, garbage disposal,
refuse removal, water, electricity, gas, telephone and/or other utility
services or energy source furnished to the Demised Premises during the term
of this Lease, or any renewal or extension thereof. If Lessor elects to
furnish any of the foregoing, utility services or other services furnished or
cause to be furnished by Lessor shall not exceed the rate Tenant would be
required to pay to a utility company or service company furnishing any of the
foregoing utilities or services. The charges thereof shall be deemed
additional rent in accordance with Section 4. Landlord shall at his sole cost
and expense, cause all utilities to be separately metered for the exclusive
use of the demised premises prior to occupancy. All utilities are part of
3/net charges except electricity and gas.
8. CARE AND REPAIR OF DEMISED PREMISES. Tenant shall, at all times
throughout the terms of this Lease, including renewals and extensions, and at
its sole expense, keep and maintain the Demised Premises in a clean, safe,
sanitary and first class condition and in compliance with all applicable
laws, codes, ordinances, rules and regulations. Tenant's obligations
hereunder shall include but not be limited to the maintenance, repair and
replacement if necessary, of all lighting and plumbing fixtures and
equipment, fixtures, motors and machinery, all interior walls, partitions,
doors and windows, including the regular painting thereof, all exterior
entrances, windows, doors and docks and the replacement of all broken glass.
When used in this provision, the term "repairs" shall include replacements or
renewals when necessary, and all such repairs made by the Tenant shall be
equal in quality and class to the original work. The Tenant shall keep and
maintain all portions of the Demised Premises and the sidewalk in a clean and
orderly condition, free of accumulation of dirt, rubbish, snow and ice.
Notwithstanding, Lessor shall have sole responsibility for compliance with
any directives from jurisdictional authorities regarding fire sprinkler
systems.
If Tenant fails, refuses, or neglects to maintain or repair the Demised
Premises as required in this Lease after notice shall have been given Tenant,
Lessor may make such repairs without liability to Tenant for any loss or damage
that may accrue to Tenant's merchandise, fixtures, or other property or to
Tenant's business by reason thereof, and upon completion thereof, Tenant shall
pay to Lessor all costs plus 15% for overhead incurred by Lessor in making such
repairs upon presentation to Tenant of bill therefor. Lessor shall keep all
structural portions of the premises to include the foundation, exterior walls
(except plate glass or glass or other breakable materials used in structural
portions) and roof in good repair, and if necessary or required by proper
governmental authority, make modifications or replacements thereof, except that
Lessor shall not be required to make any such repairs, modifications or
replacements which become necessary or desirable by reason of the negligence of
Tenant, its agents, servants, or employees.
<PAGE>
The Lessor shall manage all outside maintenance of the Demised Premises,
including grounds and parking areas. The cost of said maintenance shall be
prorated in accordance with Section 4 of this lease. All such maintenance
which is provided by Lessor shall be provided as reasonably necessary for the
comfortable use of occupancy of Demised Premises during business hours,
except Saturdays, Sunday, and holidays, upon the condition that the Lessor
shall not be liable for damages for failure to do so due to causes beyond its
control. Lessor shall use due diligence in the completion of all maintenance
and repairs.
9. COVENANTS OF TENANT. Tenant agrees that it shall:
A. Observe such reasonable rules and regulations as from time to
time may be put in effect by Lessor for the general safety, comfort and
convenience of Lessor, occupants and tenants of said Building.
B. Give Lessor access to the Demised Premises at all reasonable
times, without change or diminution of rent, to enable Lessor to examine the
same and to make such repairs, additions and alterations as Lessor may deem
advisable so long as said access does not substantially disrupt tenant's
business operation, and during the ninety (90) days prior to the expiration of
the term, to exhibit the premises to prospective tenants and to place upon the
door or in the windows of the Demised Premises any usual or ordinary "For Lease"
signs.
C. Keep the Demised Premises in good order and condition and
replace all glass broken by Tenant with glass of the same quality as that
broken, save only glass broken by fire and extended coverage risks, and
commit no waste on the Demised Premises.
D. Pay for all electric lamps, starters and ballasts used in the
Demised Premises.
E. Upon the termination of this Lease in any manner whatsoever,
remove Tenant's goods and effects and those of any other person claiming
under Tenant, and quit and deliver up the Demised Premises to Lessor
peaceably and quietly in as good order and condition as the same are now in
or hereafter may be put in by Lessor or Tenant, reasonable use and wear
thereof and repairs which are Lessor's obligation excepted. Goods and
effects not removed by Tenant at the termination of the Lease, however
terminated, shall be stored in the name, account and cost of tenant.
F. Except for an assignment or subletting to an affiliate or a
wholly owned subsidiary of Tenant, the Tenant may not assign this Lease, or
sublet all or any part of said Demised Premises, without the Lessor's prior
written consent, which consent shall not be unreasonably withheld. The
Lessor reserves the right, should the Tenant request such assignment or
subletting, to release the Tenant from the terms and provisions of this Lease
and the Lessor shall have (30) days to make such determination. Should the
Lessor exercise this right, the Lease shall terminate. Until termination
hereof, the Tenant will, however, still remain liable for the performance of
all the terms and conditions hereof.
G. Do not place signs on or about the demised premises without
first obtaining Lessor's written consent thereto. Landlord shall permit a
sign on the front of the building and shall permit a temporary sign to be
erected in front of the building.
H. Not overload, damage or deface the Demised Premises or do any
act which may make void or voidable any insurance on the Demised Premises or
the building, or which may render an increased or extra premium payable for
insurance.
I. Tenant may install its own lock and shall provide Lessor with
(2) keys.
J. Not make any alterations or additions to the Demised Premises
without obtaining the prior written approval of the Lessor thereto, and all
alterations, additions or improvements (including carpeting or other floor
covering which has been glued or otherwise affixed to the floor) which may be
made by either of the parties hereto upon the Demised Premises, except
movable office furniture and equipment, shall be the property of Lessor, and
shall remain upon and be surrendered with the Demised Premises, as a part
thereof, at the termination of the Lease. All fixtures and equipment
installed by Lessee may be removed by the Lessee including special
connections for plumbing and electrical work.
K. Cause to be performed by a competent service company,
preventative maintenance of all HVAC units and warehouse unit heaters serving
the Demised Premises, as recommended by the equipment manufacturer.
<PAGE>
Tenant's obligations under this paragraph number 9 to do or not to do a
specified act shall extend to and include Tenant's obligations to see to it
that Tenant's employees, agents and invitees shall do or shall not do such
acts, as the case may be.
10. PARKING AND DRIVES. The Tenant, its employees, and invitees shall
have the nonexclusive right to use the common driveways and parking lots
along with the other tenants and customers of the building. The use of such
driveways and parking facilities are subject to such reasonable rules and
regulations as the Lessor may impose. Tenant may use maximum of three (3)
parking spaces in rear of building for repossessed vehicles for a maximum of
thirty (30) days for each vehicle.
11. CASUALTY LOSS. In case of damage to the Demised Premises or the
Building by fire or other casualty, Tenant shall give notice as soon as
possible to Lessor, who shall thereupon cause the damage to be repaired with
reasonable speed, at the expense of the Lessor subject to delays which may
arise by reason of adjustment of loss under insurance policies and for delays
beyond the reasonable control of Lessor, and to the extent that the Demised
Premises are rendered untenantable, the rent shall proportionately abate,
except in the event such damage resulted from negligence of Tenant, Tenant's
employees or agents, in which event there shall be no abatement of rent. In
the event the damage shall be so extensive that the Lessor shall decide not
to repair or rebuild, this Lease shall, at the option of Lessor, be
terminated within ninety days of the date of such damage by written notice,
and the rent shall be adjusted to the date of such damage and Tenant shall
thereupon promptly vacate the Demised Premises.
12. CONDEMNATION. If the entire Demised Premises are taken by eminent
domain, this Lease shall automatically terminate as of the date of taking.
If a portion of the Demised Premises are taken by eminent domain, Lessee
shall have the right to terminate the Lease as of the date of taking by
giving written notice thereof to Lessor within ninety (90) days after such
date of taking. If Lessee does not elect to terminate this Lease, Lessor
shall, at its expense, restore the Demised Premises, exclusive of any
improvements or other changes made therein by Tenant, to as near the
condition which existed immediately prior to the date of taking as reasonably
possible, and to the extent that the Demised Premises are rendered
untenantable, the rent shall proportionately abate. All damages awarded for
a taking under the power of eminent domain shall belong to and be the
exclusive property of Lessor, whether such damages be awarded as compensation
for diminution in value of the leasehold estate hereby created or to the fee
of the Demised Premises; provided, however, that Lessor shall not be entitled
to any separate award made to Tenant for the value and cost of removal of its
personal property and fixtures.
13. DELAY IN POSSESSION. If the Demised Premises shall on the
scheduled date of commencement of the Lease Term not be ready for occupancy
by the Tenant due to the possession or occupancy thereof by any person not
lawfully entitled thereto, or because construction has not yet been
completed, or by reason of any building operations, repair or remodeling to
be done by Lessor, Lessor shall use due diligence to complete such
construction, building operations, repair or remodeling and to deliver
possession of the Demised Premises to Tenant. The Lessor, using such due
diligence, shall not in any way be liable for failure to obtain possession of
the Demised Premises for Tenant or to timely complete such construction,
building operations, repair or remodeling, but the rental and other charges
payable by Tenant hereunder shall be abated until the Demised Premises shall,
on Lessor's part, be ready for the occupancy of Tenant, this Lease remaining
in all other respects in full force and effect and the Lease Term not thereby
extended.
14. MUTUAL RELEASE/WAIVER OF SUBROGATION. Lessor and Tenant each
hereby release the other from any and all liability or responsibility for any
direct or consequential loss, injury or damage to the Demised Premises, or
its contents, caused by fire or any other casualty, during the term of this
Lease, even if such fire or other casualty may have been caused by the
negligence (but not the willful act) of the other party or one for whom such
party may be responsible. Inasmuch as the above mutual waivers will preclude
the assignment of any aforesaid claim by way of subrogation (or otherwise) to
an insurance company (or any other person), each party hereto agrees if
required by said policies to give to each insurance company which has issued
to it fire and other property insurance, written notice of the terms of said
mutual waivers, and to have said insurance policies
<PAGE>
properly endorsed, if necessary, to prevent the invalidation of said
insurance coverage by reason of said waivers.
Tenant shall not carry any stock of goods or do anything in or about said
leased premises which will increase insurance rates on said leased premises
or the building in which the same are located. If lessor shall consent to
such use, Tenant agrees to pay as additional rental any increase in premiums
for insurance against loss by fire or extended coverage risks resulting from
the business carried on in the leased premises by Tenant. Tenant shall, at
its own expense, comply with the requirements of insurance underwriters and
insurance rating bureaus and governmental authorities having jurisdiction.
The Tenant shall maintain in full force and effect during the term
hereof, a policy of public liability insurance under which Lessor and Tenant
are named insured. The minimum limits of liability of such insurance shall
be $500,000.00 combined single limit as to bodily injury and property damage.
Tenant agrees to deliver a duplicate copy of said policy, or a certificate
of insurance evidencing such coverage, to Lessor. Such policy shall contain
a provision requiring the (10) days written notice to Lessor before
cancellation of the policy can be effected.
15. DEFAULT. Tenant hereby agrees that in case Tenant shall default in
making its payments ten days after due date or any of them or in performing
any of the other agreements, terms and conditions of this Lease, then, in any
such event, Lessor, in addition to all other rights and remedies available to
Lessor by Law or by other provisions hereof, may after ten days written
notice, with due process, reenter immediately into the Demised Premises and
remove all persons and property therefrom, and, at Lessor's option, annul and
cancel this Lease as to all future rights of Tenant. Tenant further agrees
that in case of any such termination Tenant will indemnify the Lessor against
all loss of rents and other damage which Lessor incurs by reason of such
termination, including, but not being limited to, costs of restoring and
repairing the Demised Premises and putting the same in rentable condition,
costs or renting the Demised Premises to another Tenant, loss or diminution
of rents and other damage which Lessor may incur by reason of such
termination, and all reasonable attorney's fees and expenses incurred in
enforcing any of the terms of the Lease. Neither acceptance of rent by
Lessor, with or without knowledge of breach, nor failure of Lessor to take
action on account of any breach hereof or to enforce its rights hereunder
shall be deemed a waiver of any breach, and absent written notice or consent,
said breach shall be a continuing one.
16. NOTICE. All bills, statements, notices of communications which
Lessor may desire or be required to give to Tenant shall be deemed
sufficiently given or rendered if in writing and either delivered to Tenant
personally or sent by registered or certified mail addressed to Tenant at the
demised premise and the time of rendition thereof of the giving of such
notice or communication shall be deemed to be the time when the same is
delivered to Tenant or deposited in the mail as herein provided. Any notice
by Tenant to Lessor must be served by registered or certified mail addressed
to Lessor at the address where the last previous rental hereunder was
payable, or in case of subsequent change upon notice given, to the latest
address furnished.
17. HOLDING OVER. Should Tenant continue to occupy the Demised
Premises after expiration of the Lease term or any renewal or renewals
thereof, or after a forfeiture incurred, such tenancy shall be from month to
month and in no event from year to year or for any longer terms.
18. SUBORDINATION. The rights of Tenant shall be and are subject and
subordinate at all times to the lien of any first mortgage now or hereafter
in force against the project, and Tenant shall execute such further
instruments subordinating this Lease to the lien of any such first mortgage
as shall be requested by Lessor.
19. ESTOPPEL CERTIFICATE. Tenant shall at any time and from time to
time, upon not less than twenty (20) days prior written notice from Lessor,
execute, acknowledge and deliver to Lessor and any other parties designated
by Lessor, a statement in writing certifying (a) that this Lease is in full
force and effect and is unmodified (or, if modified, stating the nature of
such modifications), (b) the date to which the rental and other
<PAGE>
charges payable hereunder have been paid in advance, if any, and (c) that
there are, to Tenant's knowledge, no uncured defaults on the part of Lessor
hereunder (or specifying such defaults if any are claimed). Any such
statement may be furnished to and relied upon by any prospective purchaser,
Tenant or encumbrancer of all or any portion of the Project.
20. SERVICE CHARGE. Tenant agrees to pay a service charge equal to one
percent (1%) per month or any portion thereof of any payment of monthly base
rent or additional charge payable by Tenant hereunder which is not paid
within ten (10) days from the date due, or of $5.00 per month or portion
thereof, whichever is greater.
21. BINDING EFFECT. The word "Tenant", wherever used in this Lease,
shall be construed to mean tenants in all cases where there is more than one
tenant, and the necessary grammatical changes required to make the provisions
hereof apply to corporations, partnerships or individuals, men or women,
shall in all cases be assumed as though in each case fully expressed. Each
provision hereof shall extend to and shall, as the case may require, bind and
inure to the benefit of Lessor and Tenant and their respective heirs, legal
representatives, successors, and assigns, provided that this Lease shall not
inure to the benefit of any heir, legal representative, transferee or
successor of Tenant except upon the express written consent or election of
Lessor. The Lessor may assign its right, title, and interest in this Lease,
and such assignment shall thence terminate all the Lessor's obligations.
22. OPTION. Lessee grants Tenant the option to extend this Lease for
an additional (5) five year period under the same terms and conditions that
were in effect at the end of the initial term. Said Option must be exercised
in writing (60) sixty days before start of option period.
23. IMPROVEMENTS. Lessee shall at no cost to Tenant provide 1 rest
room and a temporary dividing wall in main area.
IN WITNESS WHEREOF, the respective parties hereto have cause this Lease to be
executed the day and year first above written.
LESSOR: Lubbers' Properties Inc.
By /s/
Glenn P. Lubbers
Its President
TENANT: Consumer Credit Corp.
By /s/
Roger L. Anderson, Director
<PAGE>
Addendum to lease agreement:
Item number 10 PARKING AND DRIVES:
This should include boat, motor, and trailer, camper, snowmobile, and
motorcycles for repossessed items.
Item number 22:
OPTION:
The lease can be extended for a period up to five years but not less than one
at a time.
Item number 23:
IMPROVEMENTS:
The temporary dividing wall should include a door space.
<PAGE>
EXHIBIT 10.14
SUBLEASE AGREEMENT
This Sublease, made the _____ day of August, 1994 between CENEX, INC. a
Minnesota cooperative corporation, hereinafter called the "Lessor" and UNITED
COMMUNITY BANCSHARES, INC. a corporation organized under the laws of the State
of Minnesota and having its principal office in the City of Eagan, County of
Dakota and State of Minnesota, hereinafter called the "Sublessee".
Lessor offers to sublease to Sublessee the premises as described in Section
1 below, on the terms and conditions defined within this Sublease.
1. DESCRIPTION: Address:
5400 Babcock Trail
Inver Grove Heights, MN 55077
Building:
One story brick building and the adjacent parking lot
(hereinafter jointly be referred to as the "Property").
Premises:
The space being leased by Sublessee hereinafter (the
"Premises") will increase over the initial term of this
agreement as follows:
4,220 square feet at lease commencement;
5,220 square feet commencing on October 1, 1995; and
6,120 square feet commencing on October 1,1996.
A detailed floor plan is attached hereto as Exhibit A
and is incorporated herein by reference.
2. TERM. The initial term of this Sublease shall be for a period of five
(5) years from October 1, 1994.
3. OPTION TO EXTEND. Provided Sublessee is not in default, Lessor grants
Sublessee an option to renew this Sublease for an additional five (5) years,
under the same terms and conditions, with the exception of rent. Rent for year
one (1) of the option period shall be determined by the increase in the consumer
price index from the initial commencement date of the Sublease to the
termination date of the initial five (5) year period. Rent in succeeding years
of the option period will be determined by the annual increase in the consumer
price index for the immediately preceding year and then applied as a percentage
to the next succeeding year of the term.
4. RIGHT OF FIRST REFUSAL. In the event that Sublessee exercises its
option to extend its Sublease for an additional five (5) year term and in the
event Sublessee desires to continue its tenancy at the expiration of the option
period, and so long as Sublessee is not in default under the terms of this
Sublease, Lessor hereby grants Sublessee a right of first refusal to continue
its occupancy in the Premises for an agreed upon term, at a then-market rent.
In the event that Lessor elects to take occupancy of the Premises, this right of
first refusal will have no force or effect and will become null and void at
Lessor's option. Before the rights granted in this Section take effect,
specifically, before any implementation of Lessor's right to take occupancy of
the Premises or Sublessee's exercise of their right of first refusal, Lessor and
Sublessee agree to mail each other written notice, at least ninety (90) days
preceding the end of the option period.
<PAGE>
5. RENT PAYMENTS. The first month's rent shall be due and payable when
Sublessee accepts occupancy (tentatively September 15, 1994). Thereafter.
Sublessee shall pay to Lessor in advance on or before the first day of each
month, the following amounts as base rent during the initial term:
Year 1 Year 2 Year 3 Year 4 Year 5
------ ------ ------ ------ ------
$3,956.25 $5,002.50 $5,992.50 $6,120.00 $6,247.50
Lessor shall have the right to receive from Sublessee a late charge of
three (3%) percent on rent payments received after the seventh (7th) day of the
month. Said amount to be paid with the next installment of monthly rent.
Furthermore, failure by Sublessee to make these rent payments until proper
termination of this agreement will result in the right of Lessor to exercise any
and all legal remedies available, including termination of the Sublease.
6. SECURITY DEPOSIT. On the date this Sublease is executed, Sublessee
shall pay to Lessor the amount of $3,956.25, to be a security deposit to
guarantee the payment of rent and the performance of all the terms of this
agreement. If Sublessee fails to pay rent or perform, and if the failure to pay
rent or failure to perform is not cured within ten (10) days of the mailing of
written notice to Sublessee, Lessor may use said deposit to the extent necessary
to make good any arrearages of rent or any other expense. Sublessee understands
that its liability is not limited to the amount of the deposit and use of such
deposit by Lessor shall not constitute a waiver, but is, in addition to other
remedies, available to Lessor under this agreement and the law. After use by
Lessor of all or part of the security deposit to cure defaults, Sublessee shall
immediately replace the amount of the deposit used. Any deposit not used
pursuant to this Section will be returned to the Sublessee within a reasonable
period following the expiration or termination of this Sublease Agreement.
7. UTILITIES, MAINTENANCE AND TELEPHONE. The parties have agreed to the
following with regard to utilities, maintenance and telephone services:
(1) Lessor shall provide heat, water, sewer services, and routine
maintenance services to the Premises and the Property. Heating and air
conditioning shall be provided to the general office area during normal
business hours from 8:00 a.m. to 5:30 p.m., Monday through Friday.
Sublessee will pay for its own electrical usage. The parties agree that
Sublessee's electrical usage will be based upon Lessor's total electric
bill for the entire building and will be calculated using the formula noted
on Exhibit B which is attached hereto and incorporated herein.
(2) Lessor will maintain all common areas and mechanical systems.
Sublessee will be responsible for contracting for janitorial services with
regard to the Premises being leased. Furthermore, any maintenance or
repair of the Premises or the Property which is required because of
negligent or willful acts of the Sublessee, its agents, employees or
invitees, shall be the responsibility of Sublessee. If appropriate
maintenance or repair is not performed by Sublessee within ten (10) days of
the mailing of a written request from the Lessor, then Lessor, at its
option may perform the repair or maintenance. If performed by Lessor, the
cost of the aforementioned maintenance, including a gross hourly charge for
maintenance employees required to complete the work, will be billed to
Sublessee as additional rent.
(3) Sublessee shall pay all telephone and telecommunications charges,
including any charges relating to computer equipment. Notwithstanding the
foregoing, Lessor shall not be liable for any interruption in any utility
services beyond the control of Lessor.
8. OCCUPANCY AND TENANT IMPROVEMENTS. Lessor agrees to deliver the
Premises in a safe, broom-clean and useable condition, in compliance with all
applicable building codes. Lessor will replace damaged ceiling tile and damaged
floor tile in the computer room only. All other modifications and improvements
will be at Sublessee's sole cost and expense but subject to Lessor's prior
written approval.
<PAGE>
9. USE. Sublessee agrees to use and occupy the Premises only as a data
processing center. Sublessee agrees not to occupy or use the Premises, or
permit any portion of the Premises to be occupied or used, for any business or
purpose which is unlawful, disruptive or hazardous due to fire or other risks or
to permit anything to be done which would in any way increase the rate of fire
insurance coverage or jeopardize the extent of coverage on the Property, the
improvements located thereon, or its contents. Sublessee shall not store or
permit the storage of hazardous or inflammable materials or chemicals in the
Premises or any other portion of the Property, unless such storage shall have
been previously approved by Lessor. In all events, such storage shall be in
compliance with the requirements of federal, state and local laws, ordinances or
regulations and the requirements of Lessor's and Sublessee's insurance carriers.
Under no circumstances shall Sublessee dispose of hazardous or inflammable
materials or chemicals in the Premises or on the Property.
10. HOLD HARMLESS. The following indemnifications shall be given by the
parties:
(1) Lessor shall not be responsible for loss or damage to property or
injury to persons occurring in or about the Premises or Property by reason
of any condition, defect, matter or thing on said Premises or the Property
or improvements of which the Premises is a part, or for the acts, omissions
or negligence of persons in and about the Property, other than as resulting
from the gross negligence of Lessor, its agents or employees, and Sublessee
shall be required to maintain insurance against such damages or
liabilities.
(2) Subject to the Waiver of Subrogation provision of Section 16,
Sublessee agrees to indemnify, defend, and save Lessor harmless from all
liabilities, losses, damages, expenses, costs of action, suits, interests,
fines, penalties, claims and judgments (to the extent that the same are not
paid out of the proceeds of any policy of insurance) related to losses or
claims of injuries to persons occurring in or about the Premises, resulting
from any act, omission, or neglect of Sublessee, its agents, servants,
employees, customers or invitees, including acts or omissions arising out
of Sublessee's failure to perform, fully and promptly, each and every
covenant, condition and agreement of this Sublease. Sublessee, at its own
cost and expense, shall defend any and all suits that may be brought and
claims that may be made for which Sublessee has agreed to indemnify Lessor
and shall keep Lessor informed of the progress of all such suits.
11. STRUCTURAL MAINTENANCE. Lessor shall, at its expense, keep the
structural parts of the building in good repair, including the structural parts
of the exterior walls, roof, floor, foundation, and interior columns except that
Lessor shall not be responsible for repairs caused by the fault or negligence of
Sublessee, its employees, or invitees.
12. EXTERIOR MAINTENANCE. Lessor shall contract for landscape care, snow
removal, window washing, parking lot maintenance, exterior painting and all
other such maintenance required during the term of this agreement. All services
shall be provided for the comfortable use of the Premises during business hours
provided that Lessor is not liable for damages for failure to provide services
due to causes beyond its reasonable control.
13. INTERIOR MAINTENANCE. Sublessee shall be responsible for the interior
maintenance of the Premises including the replacement of all glass broken and
other damage done by Sublessee, and agrees to keep the Premises, and surrender
the Premises upon termination of this agreement, in as good a condition as when
turned over to it, reasonable wear and tear and damage from the elements
excepted.
14. CASUALTY INSURANCE. Lessor shall maintain, at its own expense, fire
and extended coverage insurance on the property. If the use of the Premises by
Sublessee results in any rate increase for such insurance, Sublessee shall
correct the circumstances that caused such rate increase or shall pay such rate
increase immediately when due.
15. LIABILITY INSURANCE. Sublessee will maintain in force during the term
this agreement a contents and public liability insurance policy with Lessor
named as co-insured; said insurance to afford
<PAGE>
protection of not less than one million ($1,000,000.00) single limit
coverage. Sublessee agrees to deliver to Lessor a certificate of insurance
evidencing such coverage, with a thirty (30) day cancellation clause, prior
to occupancy. Lessor will require each of any other Sublessees to carry the
same insurance on their contents and property and will not permit any
practice by any Sublessee that may cause an increase in the insurance
premiums for the building without charging said increase to the causing
Sublessee for the benefit of all other Sublessees.
16. WAIVER OF SUBROGATION. Lessor and Sublessee each waive and release
all claims and liabilities against the other, and the agents, employees and
invitees of the other, for loss or damage to the Premises or any portion
thereof, the building and other improvements of which the Premises are a part,
as well as any improvements, fixtures, equipment, supplies, merchandise and
other property located in, upon or about the Premises, resulting from fire,
explosion or other perils included in standard fire and extended coverage
insurance, whether caused by the negligence of any of said persons or entities,
or otherwise. It is understood that Lessor and Sublessee shall look solely to
their own insurers in the event of loss.
17. FIXTURES AND EQUIPMENT. All fixtures and equipment considered
necessary to the general operation and maintenance of the property shall be the
property of Lessor, except that any trade fixtures provided by Sublessee, at its
own expense, shall remain the property of Sublessee and will be removed by
Sublessee upon termination of this agreement.
18. ASSIGNMENT. No subleasing, or other assignment by Sublessee is
allowed without written consent of Lessor which consent shall not be
unreasonably withheld. Such consent shall not release the assigning party of
any obligation or liability arising under the terms of this agreement. This
agreement and the deposits shall be assignable by Lessor, provided the assignee
assumes all of the obligations of Lessor.
19. BREACH. A breach of this agreement shall exist, if at any time during
the term of this agreement Sublessee shall: (a) vacate said premises or default
in the payment of rent or in the performance of any of these provisions; or (b)
make an assignment for the benefit of creditors; or (c) file or have filed
against it, a petition for bankruptcy or arrangement in settlement of
liabilities or reorganization. In the event a breach occurs, and if the beach is
not cured within thirty (30) days of the mailing of written notice by Lessor to
Sublessee of the nature of such breach, Lessor shall have the following rights:
(1) Lessor shall have the right to enter the Premises and remove all
persons and property from the Premises and store such property in a public
warehouse or elsewhere at the cost of Sublessee, and Lessor may either
terminate this agreement or, without terminating this agreement, make such
alterations and repairs as may be necessary in order to rent the Premises,
and rent the Premises or any part of the Premises for such term and at such
rents and upon such other terms and conditions as Lessor, in its sole
discretion, may deem advisable. Upon such renting, all rentals received by
Lessor shall be applied: first, to the payment of any debt other than rent
due hereunder from Sublessee to Lessor; second, to pay any reasonable costs
and expenses of such renting, including brokerage and legal fees; third, to
pay any rent due hereunder; and the residue, if any, shall be held by
Lessor and applied in payment of future rent which becomes due and payable
hereunder. If the rental received from renting the Premises is less than
the rent payable hereunder, Sublessee shall pay any such deficiencies
monthly to Lessor. No entry or taking possession of the Premises by Lessor
shall be an election by Lessor to terminate this agreement.
(2) Lessor shall also have the right to terminate this agreement in
which event, in addition to any other remedies Lessor may have, Lessor may
recover from Sublessee all damages incurred by reason of Sublessee's
breach, including the cost of recovering the Premises, reasonable legal
fees and any excess of the rent reserved in this agreement for the
remainder of the stated term over the then reasonable rental value of the
Premises for the remainder of the stated term, all of which shall be
immediately due and payable from Sublessee to Lessor.
<PAGE>
(3) Lessor may, at its option, instead of exercising any other right
or remedy, spend such reasonable sums as may be reasonably necessary to
cure any default of Sublessee and such amount, including legal fees, shall
be paid by Sublessee, as additional rent, upon demand.
(4) Any remedy of Lessor herein or by law or statute shall be
cumulative with all other remedies and may be exercised from time to time
and as often as the occasion may arise.
(5) No forbearance by Lessor to exercise any right accruing to Lessor
hereunder shall be construed as a waiver of any such rights.
20. IMPAIRMENT OF USE. If the Premises shall become untenantable or unfit
for occupancy, in whole or in part, by the total or partial destruction of the
building by fire or other casualty, this agreement may, at the option of the
Lessor, cease and terminate and Sublessee shall have no claim against Lessor for
the value of any unexpired term of said agreement. If Lessor shall elect to
restore the Premises, rent shall be abated for each period of restoration in
accordance with the ratio of the portion of the Premises deemed untenantable to
the entire Premises.
21. CONDEMNATION. If the whole or any part of the Premises shall be
acquired or condemned by eminent domain for any use or purpose, the term of this
agreement may, at the option of Lessor, cease and terminate from the date the
title vests and Sublessee shall have no claim against Lessor for the value of
any unexpired term of said agreement.
22. OTHER PAYMENTS. In addition to the rent set forth herein, all other
payments to be made by Sublessee to Lessor hereunder shall constitute rent as
herein defined.
23. HOLDING OVER. If Sublessee remains in possession of the Premises
after expiration of the Sublease term, without the execution of a new Sublease
(unless pursuant to Sections 3 and 4) it shall be deemed to be occupying the
Premises as a Sublessee from month to month, subject to all the conditions,
provisions and obligations of this agreement applicable to a month-to-month
tenancy. However, the basic rent required to be paid by Sublessee during any
holdover period shall be a minimum of one hundred twenty five (125%) percent of
the basic monthly rent. Any holding over shall not be considered a renewal of
this agreement.
24. NOTICE. Whenever in this Sublease it shall be required or permitted
that notice or demand be given or served by either party to this Sublease to or
on the other, such notice or demand shall be given or served and shall not be
deemed to have been given or served unless in writing and forwarded by certified
or registered mail, return receipt requested, addressed as follows:
To: Lessor CENEX, Inc.
Attn: Roger Tschida
5500 Cenex Drive
Inver Grove Heights, Minnesota 55077
To: Sublessee United Community Bancshares Inc.
Attn: Marcia O'Brien
2600 Eagan Woods Drive - Suite 155
Eagan, MN 55121
Such notices may be changed from time to time by either party by serving notice
to the other at the most current address as above provided.
<PAGE>
IN WITNESS WHEREOF, the Landlord and Tenant have duly executed these
Presents in proper legal manner.
CENEX, INC.
(Lessor)
By:
-------------------------------
Its:
------------------------------
UNITED COMMUNITY BANCSHARES, INC.
(Sublessee)
By: /s/
-------------------------------
Its: Executive Vice President
------------------------------
<PAGE>
EXHIBIT A
FLOOR PLAN
<PAGE>
LEASE EXHIBIT B
UNITED COMMUNITY BANCSHARES, INC.
It is understood that United Community Bancshares, Inc. will be operating their
computer facility beyond normal business hours; therefore, using electricity at
a rate not typical to the other tenants. United Community Bancshares, Inc. will
be invoiced for this non-typical electrical usage over and above their normal
prorated share of the electrical cost to the building.
The following system of submetering and calculations has been developed to
assure that United Community Bancshares, Inc. is charged the appropriate amount
for this non-typical usage in addition to their pro rated share of building
electrical cost.
Electrical charges to United Community Bancshares, Inc. to include:
- Computer equipment power consumption
Determined by new submeter #1, to be installed
- Computer room HVAC equipment power consumption
Determined by new submeter #2, to be installed
- Lighting power consumption beyond normal business hours
Determined by (lighting fixture count) TIMES (power consumed by
each fixture) TIMES (the number of hours of operation beyond
normal business hours) DIVIDED BY (1000) to arrive at the kwh of
power consumed
- Pro-rated share of remaining electrical cost to the building
Determined by SUBTRACTING the total of the above 3 factors from
the total electrical charges from the utility company and then
calculating the normal pro-rated share of this balance to all
tenants including United Community Bancshares, Inc.
<PAGE>
AMENDMENT TO SUBLEASE
This Amendment to Lease is made this 31st day of May, 1996, by and between
UNITED COMMUNITY BANCSHARES, INC. a Minnesota corporation (hereinafter
"Sublessee"), and CENEX, INC. (Formerly Known As, Farmers Union Central
Exchange, Incorporated.), a Minnesota corporation (hereinafter "Lessor").
RECITALS
WHEREAS, on August 31, 1994 Sublessee executed a Sublease Agreement
(hereinafter the "Sublease"), for up to 6,120 square feet of office space, on
the first floor of the Premises, as Premises is defined in the Sublease, and;
WHEREAS, the Sublease had specific terms and conditions which Lessor and
Sublessee now wish to amend;
NOW THEREFORE, based upon the foregoing, and in consideration of the mutual
promises and covenants stated in this Amendment to Sublease, the parties agree
as follows:
1. The space being subleased by the Sublessee under the "Premises"
portion of Section 1 shall be amended to add the following
language:
6,420 square feet (including 300 square feet of storage
space) upon the execution of this Amendment to Sublease.
2. Section 5 of the Lease regarding "Rent Payments", shall be
amended to include the following revised base rents, payable
during the remaining term of the Sublease:
June 1, 1996 through September 30, 1997= $6,182.60
October 1, 1997 through September 30, 1998= $6,320.00
October 1, 1998 through September 30, 1999= $6,450.00
3. Section 4 of the Sublease be amended to include the following
additional language as a second paragraph
So long as Sublessee is not in default under the terms of
this Sublease, and Sublessee is a tenant on the Premises,
Lessor grants to Sublessee the right of first refusal on the
balance of the Building of which the Premises are a part.
This right of first refusal will have no force or effect for
so long as Lessor occupies the Building and shall apply only
when and to the extent Lessor vacates the Building and
intends to lease it to a third party. The rental rate and
terms under which Sublessee can exercise its right of first
refusal, shall be at a then-market rent.
4. Section 4 of the Sublease shall be amended to provide that the
notice period established in the last sentence of the first
paragraph shall be changed from Ninety Days to Twelve Months.
5. All other terms and conditions of the Sublease shall remain in
full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment to Sublease as
of the day and year first above written.
UNITED COMMUNITY BANCSHARES, INC. CENEX, INC
By: /s/ By: /s/
------------------------------- ----------------------------------------
Its Executive Vice President Its Vice President, Corporate Controller
---------------------------- -------------------------------------
<PAGE>
EXHIBIT 12.1
STATEMENT REGARDING COMPUTATION OF RATIOS
For the purpose of calculating the ratio of earnings to fixed charges and
preferred stock dividends, earnings consist of earnings before income taxes and
fixed charges. Fixed charges consist of on-third rent expense and interest
expense. Preferred stock dividends are assumed to equal the amount of pre-tax
income that would be necessary to pay such dividends.
For the purpose of calculating the common stock dividend payout ratio, dividends
per share is divided by net income per share.
<TABLE>
<CAPTION>
CALCULATION OF THE RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK
DIVIDENDS
As of and for the
Six Months Ended June 30 As of and for the years ended December 31
------------------------- --------------------------------------------------------------
UNITED 1996 1995 1995 1994 1993 1992 1991
- ------------------------------ ---------- ----------- --------- -------- -------- ------- ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Income before income taxes
and cumulative effect of change
in accounting principle $3,315 $2,540 $5,685 $3,829 3,242 2,336 512
Interest expense 6,875 6,013 12,848 9,159 9,035 4,334 6,470
1/3 rent expense 49 31 81 61 20 39 51
---------- -------- --------- -------- -------- -------- --------
Total Earnings $10,239 $8,584 $18,614 $13,049 $12,297 $6,709 $7,033
---------- -------- --------- -------- -------- -------- --------
---------- -------- --------- -------- -------- -------- --------
Interest expense $6,875 $6,013 $12,848 $9,159 $9,035 $4,334 $6,470
1/3 rent expense 49 31 81 61 20 39 51
Pretax income necessary to pay
preferred stock dividends 0 0 0 0 0 0 0
---------- -------- --------- -------- -------- -------- --------
Total Fixed Charges $6,924 $6,044 $12,929 $9,220 $9,055 $4,373 $6,521
---------- -------- --------- -------- -------- -------- --------
Ratio 1.48 1.42 1.44 1.42 1.36 1.53 1.08
---------- -------- --------- -------- -------- -------- --------
---------- -------- --------- -------- -------- -------- --------
Income before income taxes
and cumulative effect of change
in accounting principle 3,315 2,540 5,685 3,829 3,242 2,336 512
Interest expense 6,875 6,013 12,848 9,159 9,035 4,334 6,470
Less interest on deposits, FHLB
advances, federal funds
purchased and securities sold
under repurchase agreements (6,749) (5,736) (12,423) (8,575) (8,990) (4,223) (6,335)
1/3 rent expense 49 31 81 61 20 39 51
---------- -------- --------- -------- -------- -------- --------
Total Earnings $3,490 $2,848 $6,191 $4,474 $3,307 $2,486 $698
---------- -------- --------- -------- -------- -------- --------
---------- -------- --------- -------- -------- -------- --------
Interest expense 6,875 6,013 12,848 9,159 9,035 4,334 6,470
Less interest on deposits, FHLB
advances, federal funds
purchased and securities sold
under repurchase agreements (6,749) (5,736) (12,423) (8,575) (8,990) (4,223) (6,335)
1/3 rent expense 49 31 81 61 20 39 51
Pretax income necessary to pay
preferred stock dividends 0 0 0 0 0 0 0
---------- -------- --------- -------- -------- -------- --------
Total Fixed Charges $175 $308 $506 $645 $65 $150 $186
---------- -------- --------- -------- -------- -------- --------
---------- -------- --------- -------- -------- -------- --------
Ratio 19.94 9.25 12.24 6.94 50.88 16.57 3.75
---------- -------- --------- -------- -------- -------- --------
---------- -------- --------- -------- -------- -------- --------
</TABLE>
CALCULATION OF THE RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK
DIVIDENDS
<TABLE>
<CAPTION>
As of and for the
Six Months Ended June 30 As of and for the years ended December 31
------------------------- --------------------------------------------------------------
PFC 1996 1995 1995 1994 1993 1992 1991
- ------------------------------ ---------- ----------- --------- -------- -------- ------- ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Income before income taxes
and cumulative effect of change
in accounting principle $2,401 $1,666 $3,898 $2,865 2,133 1,909 361
Interest expense 3,036 2,637 5,672 3,538 2,927 4,229 6,604
1/3 rent expense 54 53 190 193 218 229 232
---------- -------- --------- -------- -------- -------- --------
Total Earnings $5,491 $4,356 $9,760 $6,596 $5,278 $6,367 $7,197
---------- -------- --------- -------- -------- -------- --------
---------- -------- --------- -------- -------- -------- --------
Interest expense $3,036 $2,637 $5,672 $3,538 $2,927 $4,229 $6,604
1/3 rent expense 54 53 190 193 218 229 232
Pretax income necessary to pay
preferred stock dividends 0 0 0 0 0 0 0
---------- -------- --------- -------- -------- -------- --------
Total Fixed Charges $3,090 $2,690 $5,862 $3,731 $3,145 $4,458 $6,836
---------- -------- --------- -------- -------- -------- --------
---------- -------- --------- -------- -------- -------- --------
Ratio 1.78 1.62 1.66 1.77 1.68 1.43 1.05
---------- -------- --------- -------- -------- -------- --------
---------- -------- --------- -------- -------- -------- --------
Income before income taxes
and cumulative effect of change
in accounting principle 2,401 1,666 3,898 2,865 2,133 1,909 361
Interest expense 3,036 2,637 5,672 3,538 2,927 4,229 6,604
Less interest on deposits, FHLB
advances, federal funds
purchased and securities sold
under repurchase agreements (3,036) (2,637) (5,672) (3,538) (2,927) (4,033) (6,279)
1/3 rent expense 54 53 190 193 218 229 232
---------- -------- --------- -------- -------- -------- --------
Total Earnings $2,455 $1,719 $4,088 $3,058 $2,351 $2,334 $918
---------- -------- --------- -------- -------- -------- --------
---------- -------- --------- -------- -------- -------- --------
Interest expense 3,036 2,637 5,672 3,538 2,927 4,229 6,604
Less interest on deposits, FHLB
advances, federal funds
purchased and securities sold
under repurchase agreements (3,036) (2,637) (5,672) (3,538) (2,927) (4,033) (6,279)
1/3 rent expense 54 53 190 193 218 229 232
Pretax income necessary to pay
preferred stock dividends 0 0 0 0 0 0 0
---------- -------- --------- -------- -------- -------- --------
Total Fixed Charges $54 $53 $190 $193 $218 $425 $557
---------- -------- --------- -------- -------- -------- --------
---------- -------- --------- -------- -------- -------- --------
Ratio 45.46 32.43 21.52 15.84 10.78 5.49 1.65
---------- -------- --------- -------- -------- -------- --------
---------- -------- --------- -------- -------- -------- --------
</TABLE>
<PAGE>
As of and for
As of and for the the year ended
Six Months Ended June 30 December 31
- ----------------------------------- ------------------------- --------------
PRO FORMA 1996 1995 1995
- ----------------------------------- -------- -------- --------
(dollars in thousands)
Income before income taxes
and cumulative effect of change
in accounting principle $4,053 $2,580 $6,237
Interest expense 10,708 9,446 20,113
1/3 rent expense 103 84 271
-------- -------- --------
Total Earnings $14,864 $12,110 $26,621
-------- -------- --------
-------- -------- --------
Interest expense $10,708 $9,446 $20,113
1/3 rent expense 103 84 271
Pretax income necessary to pay
preferred stock dividends 855 855 1,709
-------- -------- --------
Total Fixed Charges $11,666 $10,385 $22,093
-------- -------- --------
-------- -------- --------
Ratio 1.27 1.17 1.20
-------- -------- --------
-------- -------- --------
Income before income taxes
and cumulative effect of change
in accounting principle 4,053 2,580 6,237
Interest expense 10,708 9,446 20,113
Less interest on deposits, FHLB
advances, federal funds
purchased and securities sold
under repurchase agreements (9,785) (8,372) (18,095)
1/3 rent expense 103 84 271
-------- -------- --------
Total Earnings $5,079 $3,738 $8,526
-------- -------- --------
-------- -------- --------
Interest expense 10,708 9,446 20,113
Less interest on deposits, FHLB
advances, federal funds
purchased and securities sold
under repurchase agreements (9,785) (8,372) (18,095)
1/3 rent expense 103 84 271
Pretax income necessary to pay
preferred stock dividends 855 855 1,709
-------- -------- --------
Total Fixed Charges $1,881 $2,013 $3,998
-------- -------- --------
-------- -------- --------
Ratio 2.70 1.86 2.13
-------- -------- --------
-------- -------- --------
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated February 23, 1996 relating to the consolidated financial
statements of United Community Bancshares, Inc., as of and for the years
ended December 31, 1995 and 1994, and to the reference to our Firm under the
caption "Experts" in the Prospectus.
/s/ McGLADREY & PULLEN, LLP
St. Paul, Minnesota McGLADREY & PULLEN, LLP
October 21, 1996
<PAGE>
EXHIBIT 23.3
[LETTERHEAD]
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated February 18, 1994 relating to the consolidated statements of
income, stockholders' equity, and cash flows of United Community Bancshares,
Inc. and Subsidiary (formerly Signal Bancshares, Inc. and Subsidiary), as of
and for the year ended December 31, 1993, and to the reference to our Firm
under the caption "Experts" in the Prospectus.
/s/ LEININGER & LEININGER, LTD
Plymouth, Minnesota
October 21, 1996
<PAGE>
EXHIBIT 23.4
[LETTERHEAD]
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
United Community Bancshares, Inc.:
We consent to the use of our report dated March 4, 1994 on the consolidated
financial statements of Goodhue County Financial Corporation and
subsidiaries as of and for the years ended December 31, 1993 and 1992,
included herein, and to the reference to our firm under the heading "Experts"
in the Prospectus.
/s/ KPMG PEAT MARWICK LLP
October 21, 1996
Minneapolis, Minnesota
<PAGE>
EXHIBIT 23.5
[LETTERHEAD]
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this Registration Statement of United Community
Bancshares, Inc. on Form S-1 of our report dated January 31, 1996, appearing
in the Prospectus, which is a part of this Registration Statement, and to
the reference to us under the heading "Experts" in such Prospectus.
/s/ LARSON, ALLEN, WEISHAIR & CO., LLP
LARSON, ALLEN, WEISHAIR & CO., LLP
Minneapolis, Minnesota
October 21, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> JUN-30-1996 DEC-31-1995
<CASH> 19,246 20,513
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 3,425 8,725
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 104,523 101,837
<INVESTMENTS-CARRYING> 0 0
<INVESTMENTS-MARKET> 0 0
<LOANS> 275,955 265,905
<ALLOWANCE> 2,990 (2,899)
<TOTAL-ASSETS> 428,933 421,841
<DEPOSITS> 340,225 340,723
<SHORT-TERM> 29,283 23,173
<LIABILITIES-OTHER> 4,828 5,213
<LONG-TERM> 16,097 15,762
0 0
0 0
<COMMON> 5 5
<OTHER-SE> 38,495 36,964
<TOTAL-LIABILITIES-AND-EQUITY> 428,933 421,841
<INTEREST-LOAN> 13,190 25,090
<INTEREST-INVEST> 2,967 5,355
<INTEREST-OTHER> 294 761
<INTEREST-TOTAL> 16,451 31,206
<INTEREST-DEPOSIT> 5,735 10,439
<INTEREST-EXPENSE> 6,875 12,848
<INTEREST-INCOME-NET> 9,576 18,358
<LOAN-LOSSES> 95 61
<SECURITIES-GAINS> 0 (32)
<EXPENSE-OTHER> 8,556 16,531
<INCOME-PRETAX> 3,315 5,685
<INCOME-PRE-EXTRAORDINARY> 2,281 3,629
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,281 3,629
<EPS-PRIMARY> 4.09 6.86
<EPS-DILUTED> 4.09 6.86
<YIELD-ACTUAL> 8.73 8.72
<LOANS-NON> 721 403
<LOANS-PAST> 338 249
<LOANS-TROUBLED> 134 100
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 2,899 2,856
<CHARGE-OFFS> 295 337
<RECOVERIES> 291 319
<ALLOWANCE-CLOSE> 2,990 2,899
<ALLOWANCE-DOMESTIC> 1,970 2,174
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 1,020 725
</TABLE>
