<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________.
COMMISSION FILE NUMBER 33-82150
--------
REGENCY BANCORP
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 77-0378956
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organizations) Identification No.)
7060 N. FRESNO STREET, FRESNO, CALIFORNIA 93720
----------------------------------------- ---------
(Address of principal executive offices) (Zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (209) 438-2600.
-------------
NONE
(Former name, former address and fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for the shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---- ----
As of June 30, 1996, the registrant had 1,818,160 shares of Common Stock
outstanding.
The Exhibit Index is located on page 33.
This report contains a total of 116 pages of which this is page one.
1
<PAGE>
REGENCY BANCORP AND SUBSIDIARIES
PART I FINANCIAL INFORMATION
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET (Unaudited)
(In thousands) June 30, 1996 December 31, 1995
- - ------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 9,158 $ 8,925
Federal funds sold 1,000 -
- - ------------------------------------------------------------------------------------------------------
Total Cash and Equivalents 10158 8,925
- - ------------------------------------------------------------------------------------------------------
Interest bearing deposits in other banks 3 3
Securities available-for-sale 27,702 31,750
- - ------------------------------------------------------------------------------------------------------
Loans 100,110 97,137
Allowance for credit losses (1,690) (1,784)
Deferred loan fees & discounts (902) (824)
- - ------------------------------------------------------------------------------------------------------
Net Loans 97,518 94,529
- - ------------------------------------------------------------------------------------------------------
Investments in real estate 16,343 17,954
Other real estate owned 381 341
Cash surrender value of life insurance 2,834 2,764
Premises and equipment, net 2,270 2,339
Accrued interest receivable and other assets 5,060 5,077
- - ------------------------------------------------------------------------------------------------------
Total Assets $ 162,269 $ 163,682
- - ------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing transaction accounts $ 31,677 $ 32,673
Interest bearing transaction accounts 44,097 40,656
Savings accounts 22,996 34,882
Time Deposits $100,000 or over 25,460 23,305
Other time deposits 16,492 12,229
- - ------------------------------------------------------------------------------------------------------
Total Deposits 140,722 143,745
- - ------------------------------------------------------------------------------------------------------
Short term borrowings - -
Notes Payable 6,016 4,109
Other liabilities 2,500 2,886
- - ------------------------------------------------------------------------------------------------------
Total Liabilities 149,238 150,740
- - ------------------------------------------------------------------------------------------------------
Shareholders' Equity:
Preferred stock, no par value;
1,000,000 shares authorized;
no shares issued or outstanding
Common stock, no par value; 5,000,000
shares authorized, 1,818,160
shares issued and outstanding 8,868 8,868
Retained earnings 4,371 4,029
Net unrealized gain (loss) on available-for-sale securities,
net of taxes of $150,000 in 1996 and $ 33,000 in 1995 (208) 45
- - ------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 13,031 12,942
- - ------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 162,269 $ 163,682
- - ------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
2
<PAGE>
REGENCY BANCORP AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
- - ----------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------
(In thousands, except for per common and For the three months For the six months
equivalent share data) ended June 30, ended June 30,
- - ----------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans (including fees) $ 2,627 $ 2,664 $ 5,496 $ 5,291
Investment securities:
Taxable 399 436 842 827
Tax exempt 22 26 45 45
- - ----------------------------------------------------------------------------------------------------------------
Total Investment Interest Income 421 462 887 872
Other 24 46 43 49
- - ----------------------------------------------------------------------------------------------------------------
Total Interest Income 3,072 3,172 6,426 6,212
- - ----------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 1,038 1,304 2,166 2,469
Other 62 19 100 19
- - ----------------------------------------------------------------------------------------------------------------
Total Interest Expense 1,100 1,323 2,266 2,488
- - ----------------------------------------------------------------------------------------------------------------
Net interest income 1,972 1,849 4,160 3,724
Provision for credit losses - - - -
- - ----------------------------------------------------------------------------------------------------------------
Net interest income after
provision for credit losses 1,972 1,849 4,160 3,724
- - ----------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Income from investments in real estate partnerships - 217 - 383
Gain on sale of SBA loans 573 235 888 363
Depositor service charges 85 65 161 136
Income from investment management services 162 124 326 237
Gain/(loss) on sale of securities - - - (25)
Gain on sale of assets 4 - 9 -
Servicing fees on loans sold 81 76 139 156
Other 157 62 252 114
- - ----------------------------------------------------------------------------------------------------------------
Total Noninterest Income 1062 779 1,775 1,364
- - ----------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Loss from investments in real estate partnerships 85 - 182 -
Salaries and related benefits 1,075 1,075 2,186 2,179
Occupancy 401 298 793 556
FDIC insurance and regulatory assessments 16 79 32 159
Marketing 121 89 211 164
Professional Services 269 151 423 272
Director's fees and expenses 92 67 168 134
Management fees for real estate projects 154 94 233 174
Other 410 298 737 585
- - ----------------------------------------------------------------------------------------------------------------
Total Noninterest Expense 2623 2,151 4,965 4,223
- - ----------------------------------------------------------------------------------------------------------------
Income before income taxes 411 477 970 865
Provision for income taxes 173 198 410 363
- - ----------------------------------------------------------------------------------------------------------------
Net Income $ 238 $ 279 $ 560 $ 502
- - ----------------------------------------------------------------------------------------------------------------
Net income per common and
common equivalent share .13 .15 .30 .27
Shares used in computation 1,874,000 1,887,000 1,872,000 1,887,000
- - ----------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
REGENCY BANCORP AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
- - --------------------------------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
- - --------------------------------------------------------------------------------------------------------------------------
Common Common Net
Stock Number Stock Retained Unrealized
(In thousands) of Shares Amount Earnings Gain(Loss) Total
- - --------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1,711 $ 7,950 $ 7,017 $ (640) $ 14,327
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock
under stock option plan 11 19 - - 19
Issuance of common stock dividend
including fractional shares 86 866 (868) - (2)
Tax benefit of stock option transactions - 16 - - 16
Cash dividends - - (171) - (171)
Net change in unrealized gain (loss)on
available-for-sale securities (net of
taxes of $ 393,000) - - - 542 542
Net Income - - 502 - 502
- - --------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1995 1,808 $ 8,851 $ 6,480 $(98) $ 15,233
- - --------------------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------------------
Common Common Net
Stock Number Stock Retained Unrealized
(In thousands) of Shares Amount Earnings Gain(Loss) Total
- - --------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 1,818 $ 8,868 $ 4,029 $ 45 $12,942
- - --------------------------------------------------------------------------------------------------------------------------
Issuance of common
stock under stock option plan - - - - -
Cash dividends - - (218) - (218)
Net change in unrealized gain (loss) on
available-for-sale securities (net of
taxes of $183,000) (253) (253)
Net Income - - 560 - 560
- - --------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1996 1,818 8,868 4,371 (208) 13,031
- - --------------------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
REGENCY BANCORP AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
- - ----------------------------------------------------------------------------------------------------
(IN THOUSANDS) FOR THE SIX MONTHS ENDED JUNE 30, 1996 1995
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Increase (decrease) in cash equivalents:
Net income $ 560 $ 502
Adjustments:
Provisions for credit losses - -
Provision for losses on real estate - -
Provision for OREO losses - 30
Depreciation and amortization 325 320
Deferred income taxes 490 150
(Increase) decrease in interest receivable and other assets (67) 835
Increase in surrender value of life insurance (70) (65)
Distributions of income from real estate partnerships 103 35
Equity in (income) loss of real estate partnerships 5 (383)
(Increase) decrease in real estate held for sale 3,987 -
(Gain) loss on acquisition of partnerships (63) -
Increase (decrease) in other liabilities (811) (1,358)
(Gain)/loss on sale of securities - 25
Gain on sale of loans held-for-sale (888) (363)
Proceeds from sale of loans held-for-sale 8,742 4,695
Additions to loans held-for-sale (5,901) (4,676)
Loss (gain) on sale of premises and equipment and OREO (1) -
- - ----------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 6,411 (253)
- - ----------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of available-for-sale securities (11,223) (10,305)
Proceeds from sales of available-for-sale securities - 3,105
Purchases of held -to-maturity securities - (3,876)
Proceeds from maturities of available-for-sale securities 14,778 6,934
Proceeds from maturities of held-to-maturity securities - 2,000
Loan participations purchased - (750)
Loan participations sold - -
Net (increase) decrease in loans (3,079) 1,044
Net decrease (increase) in other short-term investments - (4,801)
Cash received through acquisition of partnerships 441 -
Proceeds from sale of OREO 123 -
Capital contributions to real estate partnerships (397) (954)
Capital distributions from real estate partnerships 1,012 587
Payments towards the acquisition and development
of investments in real estate - (220)
Purchases of premises and equipment (199) (132)
- - ----------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 1,456 7,368
- - ----------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net increase (decrease) in timed deposits accounts 6,418 8,162
Net increase (decrease) in other deposits (9,441) 3,103
Net increase (decrease) on short term borrowings - -
Cash dividends paid (218) (171)
Payments for fractional shares related to stock dividends - (2)
Payments on notes payable (3,773) (151)
Proceeds from notes payable 380 -
Proceeds from the issuance of common stock under
employee stock option plan - 19
- - ----------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (6,634) 10,960
- - ----------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,233 3,339
- - ----------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,925 8,317
- - ----------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,158 $ 11,656
- - ----------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------
See notes to consolidated financial statements
</TABLE>
5
<PAGE>
REGENCY BANCORP AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. - BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Regency Bancorp and its wholly-owned subsidiaries(the "Company"). Regency
Bancorp is a California corporation organized to act as the holding company for
Regency Bank (the "Bank") and its subsidiaries. The Bank has two wholly-owned
subsidiaries, Regency Investment Advisors, Inc., a California corporation
("RIA"), which provides investment management and consulting services, and
Regency Service Corporation, a California corporation ("RSC"), that engages in
the business of real estate development primarily in the Fresno/Clovis area. All
significant intercompany balances and transactions have been eliminated in
consolidation.
These unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles on a basis consistent
with the accounting policies reflected in the audited consolidated financial
statements of the Company included in the Annual Report on Form 10-K for the
year ended December 31, 1995. They do not, however, include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, the unaudited
interim consolidated financial statements reflect all adjustments (all of which
are of a normal, recurring nature) necessary for a fair presentation of the
results for the interim periods presented. Operating results for the interim
periods presented are not necessarily indicative of the results that may be
expected for any other interim period or for the year as a whole.
NOTE 2. - ACCOUNTING CHANGE
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," which requires adoption of the disclosure provisions no later
than fiscal years beginning after December 15, 1995 and adoption of the
recognition and measurement provisions for nonemployee transactions no later
than after December 15, 1995. The new standard defines a fair value method of
accounting for stock options and other equity instruments. Under the fair value
method, compensation cost is measured at the grant date based on the fair value
of the award and is recognized over the service period, which is usually the
vesting period. Pursuant to the new standard, companies are encouraged, but not
required, to adopt the fair value method of accounting for employee stock-based
transactions. Companies are also permitted to continue to account for such
transactions under Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," but would be required to disclose in a note to the
financial statements pro forma net income, and, if presented, earnings per share
as if the company has applied the new method of accounting. The accounting
requirements of the new method are effective for all employee awards granted
beginning in 1995. The Company has determined it will not elect to change to
the fair value method, but will adopt the disclosure provisions in fiscal 1996.
6
<PAGE>
NOTE 3. - INVESTMENT SECURITIES
During the period between December 31, 1995, and June 30, 1996, the Company
recorded a net decrease in the value of its available-for-sale portfolio of
$253,000 net of applicable taxes. This change is reflected as a change in
shareholders' equity in the Consolidated Statement of Shareholders' Equity.
This change in value is primarily the result of higher interest rates in the
bond market at June 30, 1996 as compared to rates at December 31, 1995.
Following is a comparison of the amortized cost and approximate fair value of
securities available-for-sale:
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------
AVAILABLE-FOR-SALE SECURITIES JUNE 30, 1996 DECEMBER 31, 1995
- - ---------------------------------------------------------------------------------------------------------
Amortized Fair Amortized Fair
(In thousands) Cost Value Cost Value
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasuries $ 2,026 $ 2,015 $ 2,003 $ 2,005
U.S. Government Agencies 15,612 15,293 20,474 20,459
Mortgage-backed securities 9,003 8,935 7,655 7,685
State and Political Subdivision 1,414 1,454 1,540 1,601
Equity Securities 5 5 - -
- - ---------------------------------------------------------------------------------------------------------
Total $ 28,060 $ 27,702 $ 31,672 $ 31,750
- - ---------------------------------------------------------------------------------------------------------
</TABLE>
At June 30, 1996 and December 31, 1995 the Company held no investment securities
classified as held-to-maturity.
NOTE 4. - LOANS
The following table presents a breakdown of the Company's loan portfolio in both
dollars outstanding as well as a percentage of total loans. Further discussion
of the Company's loan portfolio can be found in Item No. 7 - Management's
Discussion and Analysis, Balance Sheet Analysis.
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PERCENTAGES) JUNE 30, 1996 DECEMBER 31, 1995
- - ---------------------------------------------------------------------------------------------------------
Percent of Percent of
Amount Total Loans Amount Total Loans
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $52,797 52.7% $54,150 55.7%
Real estate mortgage 11,683 11.7% 10,389 10.7%
Real estate construction 27,100 27.1% 23,706 24.4%
Consumer and other 8,530 8.5% 8,892 9.2%
- - ---------------------------------------------------------------------------------------------------------
Subtotal 100,110 100.0% 97,137 100.0%
- - ---------------------------------------------------------------------------------------------------------
Less:
Unearned discount 531 468
Deferred loan fees 371 356
Allowances for credit losses 1,690 1,784
- - ---------------------------------------------------------------------------------------------------------
Total loans, net $97,518 $94,529
- - ---------------------------------------------------------------------------------------------------------
</TABLE>
As of June 30, 1996, there were $799,000 in SBA loans held-for-sale.
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan." This standard was further modified by SFAS No. 118,
"Accounting by Creditors for
7
<PAGE>
Impairment of a Loan-Income Recognition and Disclosures." SFAS Nos. 114 and 118
were effective for the Company as of January 1, 1995. They require the Company
to measure impaired loans based upon the present value of expected future cash
flows discounted at the loan's effective interest rate, except that as a
practical expedient, a creditor may measure impairment based on a loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. A loan is impaired when, based upon current information
and events, it is probable that a creditor will be unable to collect all amounts
due according to the contractual terms of the loan agreement.
Under the provisions of SFAS No. 114 and SFAS No. 118, the Company has
analyzed its loan portfolio. As of June 30, 1996, the amount of impaired loans
was not significant.
NOTE 5. - EARNINGS PER SHARE
Primary earnings per share is computed by dividing net income by the
weighted average number of shares of common stock outstanding and common stock
equivalents (stock options) assumed to be outstanding during the year. All
share and per share amounts have been adjusted retroactively to reflect the 5%
stock dividend issued in 1995. As of June 30, 1996, and June 30, 1995, the
Company had 1,872,000 and 1,887,000 total shares of common and common stock
equivalents outstanding.
NOTE 6. - REAL ESTATE ACTIVITIES
Regency Service Corporation ("RSC") is involved in residential real estate
development in the Fresno/Clovis area through both limited partnership
investments in joint ventures and direct investments in real estate projects.
These real estate activities consist primarily of residential subdivisions being
developed into lots and homes. Limited partnership investments are accounted
for under the equity method.
During the first quarter, RSC continued to aggressively pursue divestiture
of its remaining real estate projects through various transactions. During the
quarter ended March 31, 1996, RSC dissolved a total of six partnerships and sold
its investment in one property. As a result of these transactions, RSC obtained
sole ownership of four projects, closed one project out completely and financed
the sale of two properties. Additionally, the assets of RSC now reflect not
only RSC's equity investment, but the total assets and liabilities of the
acquired projects. The above transactions resulted in a net loss of $235,000.
As of December 31, 1995, RSC's equity investment in the four partnerships
acquired was $4,430,000.
8
<PAGE>
The schedule below presents the condensed financial information of the four
entities acquired as of the dates of acquisition:
- - -------------------------------------------------------
ASSETS:
Cash $ 442
Notes receivable 2,025
Land and real estate under construction 10,031
Other assets 223
- - -------------------------------------------------------
Total assets 12,721
- - -------------------------------------------------------
LIABILITIES:
Notes payable 5,300
Accrued interest and other liabilities 425
- - -------------------------------------------------------
Total Liabilities 5,725
- - -------------------------------------------------------
Equity $ 6,996
- - -------------------------------------------------------
- - -------------------------------------------------------
NOTE 7. - SUPPLEMENTAL CASH FLOW INFORMATION
Following is a summary of amounts paid for interest and taxes and of non-cash
transactions for the six months ended June 30, 1996 and 1995:
- - -----------------------------------------------------------------
(IN THOUSANDS) 1996 1995
- - -----------------------------------------------------------------
Cash paid during the period for:
Interest on deposits and other borrowings $ 2,266 $ 1,121
Income taxes 316 600
- - -----------------------------------------------------------------
Non cash transactions:
Transfer of loans to other real estate owned 162 15
- - -----------------------------------------------------------------
- - -----------------------------------------------------------------
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL SUMMARY
The Company's consolidated net income for the six months ended June 30,
1996, was $560,000, an increase of $58,000 or 11.6% when compared to earnings of
$502,000 for the period ended June 30, 1995. Net income for the second quarter
of 1996 was $238,000 as compared to $279,000 in the second quarter of 1995.
Earnings per share were $0.13 in the second quarter of 1996, $0.30 for the six
month period ended June 30, 1996, compared to $0.15 per share in the second
quarter of 1995 and $0.27 for the six month period ended June 30, 1995. The
Company paid a cash dividend of $0.06 per share in the second quarter of 1996.
During the second quarter of 1995, the Company paid a cash dividend of $0.05.
Subsequent to the close of the quarter, the Company's board of directors
declared an additional cash dividend of $0.06 per share payable to shareholders
of record on July 29, 1996.
The increase in net income of $58,000 for the period ended June 30, 1996
was primarily the result of an increase in net interest income of $436,000 as
well as from an increase in income generated from the sale of SBA loans of
$525,000. Income for the second quarter of 1996 declined by $41,000 compared to
the second quarter of 1995, primarily as a result of losses from investments in
real estate. During the second quarter of 1995, the Company recorded net income
from investments in real estate of $217,000 compared to a loss of $85,000
recorded in the second quarter of 1996.
The Company's return on average assets was 0.69% for the first six months
of 1996 compared to 0.65% for the first six months of 1995. Return on average
common equity for the first six months was 8.43% compared to 6.85% for the same
period in 1995.
At June 30, 1996, the Company's total risk-based capital ratio was 10.83%
while the leverage ratio was 7.51%. All capital ratios were in excess of
minimum regulatory guidelines.
Nonperforming assets declined during the second quarter by $25,000 to
$4,236,000 at June 30, 1996 (2.61% of total assets), compared to $4,261,000
at March 31, 1996 (2.56% to total assets) and $922,000 at December 31, 1995
(0.56% of total assets) as a result of continued paydowns on nonaccrual loans
made to facilitate the sale of RSC partnerships. As reported in the
Company's quarterly report on form 10-Q dated March 31, 1996, RSC made loans
amounting to approximately $3.75 million to facilitate the sale of two RSC
partnerships. The two loans were immediately placed on nonaccrual status in
accordance with applicable accounting guidelines regarding the sale of real
estate. As homes and/or lots are sold on these projects, principal
reductions, as well as interest payments received are used to reduce the
principal balance outstanding on these loans. During the second quarter, a
third loan of $310,000 was made to facilitate the sale of another RSC
project. It was also placed on nonaccrual status. The allowance for credit
losses as a percentage of total loans was 1.69% at June 30, 1996 (39.90% of
nonperforming assets) compared to 1.84% (193.50% of non-performing assets) at
year end 1995.
10
<PAGE>
During the quarter ended June 30, 1996, the Company entered into a lease
agreement for a branch office to be located at 126 N. "D" Street, Madera,
California. The term of the lease is for a period of 3 years at a fixed rate of
$2,091 per month and contains provisions for an additional term of three years
at a monthly rate of $2,521 per month. The facility covered under the lease
agreement is a free standing building of approximately 2,500 square feet. The
foregoing description of the lease is qualified by reference to the lease
agreement dated May 13, 1996 attached as exhibit 10.4 to this Form 10-Q. The
Company has received approval from the FDIC and State Banking Department and
expects to open the Madera branch office on or about August 15, 1996.
NET INTEREST INCOME
The Company's operating results depend primarily on net interest income
(the difference between the interest earned on loans and investments less
interest expense on deposit accounts and borrowings). A primary factor
affecting the level of net interest income is the Company's interest rate
margin, the difference between the yield earned on interest earning assets and
the rate paid on interest bearing liabilities, as well as the difference between
the relative amounts of average interest earning assets and interest bearing
liabilities.
The following table presents, for the periods indicated, the Company's total
dollar amount of interest income from average interest earning assets and the
resultant yields, as well as the interest expense on average interest bearing
liabilities and the resultant cost, expressed both in dollars and rates. The
table also sets forth the net interest income and the net earning balance for
the periods indicated.
11
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE BALANCE SHEETS, NET INTEREST INCOME AND
INTEREST RATES
- - -------------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT FOR PERCENTAGES)
FOR THE THREE MONTHS ENDED JUNE 30, 1996 1995
- - -------------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Average Yield/ Average Yield/
Balance Rate Interest Balance Rate Interest
- - -------------------------------------------------------------------------------------------------------------------------
ASSETS
Interest-earning assets:
Loans (1) $ 98,643 10.71% $ 2,627 $ 90,400 11.82% $ 2,664
Investment securities (2) 27,871 6.08% 421 28,753 6.45% 462
Federal funds sold & other 1,736 5.56% 24 3,041 5.92% 46
- - -------------------------------------------------------------------------------------------------------------------------
Total Interest-earning assets 128,250 9.63% 3,072 122,194 10.41% 3,172
- - -------------------------------------------------------------------------------------------------------------------------
Noninterest-earning assets:
Allowance for credit losses (1,750) (1,388)
Cash and due from banks 8,035 8,051
Real estate investments 19,143 17,306
Premises and equivalent, net 2,252 6,149
Cash surrender value of life insurance 2,812 2,682
Accrued interest receivable and other assets 4,477 3,008
- - -------------------------------------------------------------------------------------------------------------------------
Total Average Assets $163,219 $158,002
- - -------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing liabilities:
Transaction accounts $ 44,235 2.63% $ 289 $ 51,393 3.47% $ 445
Savings accounts 24,472 4.11% 250 21,510 4.93% 264
Time deposits 38,910 5.16% 499 42,039 5.67% 595
Federal funds purchased, notes payable
and other 10,558 2.36% 62 343 22.60% 19
- - -------------------------------------------------------------------------------------------------------------------------
Total Interest-bearing 118,175 3.74% 1,100 115,285 4.60% 1,323
- - -------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing liabilities:
Transaction accounts 29,551 26,199
Other liabilities 2,282 1,534
- - -------------------------------------------------------------------------------------------------------------------------
Total liabilities 150,008 143,018
- - -------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity:
Common stock 8,868 8,328
Retained earnings 4,393 6,905
Unrealized gain / (loss) on investment
securities (50) (249)
- - -------------------------------------------------------------------------------------------------------------------------
Total Shareholders Equity 13,211 14,984
- - -------------------------------------------------------------------------------------------------------------------------
Total average liabilities and
shareholders' equity $163,219 $158,002
- - -------------------------------------------------------------------------------------------------------------------------
Net Interest Income $ 1,972 $ 1,849
- - -------------------------------------------------------------------------------------------------------------------------
Interest income as a percentage of average
interest-earning assets 9.63% 10.41%
Interest expense as a percentage of average
interest-earning assets (3.45%) (4.34%)
- - -------------------------------------------------------------------------------------------------------------------------
Net Interest Margin 6.18% 6.07%
- - -------------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Loan amounts include nonaccrual loans, but the related interest income has
been included only for the period prior to the loan being placed on a
nonaccrual basis. Loan interest income includes loan fees of approximately
$328,000 and $283,000 for the three months ended June 30, 1996, and 1995,
respectively.
(2) Applicable nontaxable securities yields have not been calculated on a
taxable-equivalent basis because they are not material to the Company's results
of operations.
12
<PAGE>
CONSOLIDATED AVERAGE BALANCE SHEETS, NET INTEREST INCOME AND
INTEREST RATES
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT FOR PERCENTAGES)
FOR THE SIX MONTHS ENDED JUNE 30, 1996 1995
- - -------------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Average Yield/ Average Yield/
Balance Rate Interest Balance Rate Interest
- - -------------------------------------------------------------------------------------------------------------------------
ASSETS
Interest-earning assets:
Loans (1) $ 96,846 11.41% $5,496 $90,508 11.79% $ 5,291
Investment securities (2) 28,945 6.16% 887 28,158 6.25% 872
Federal funds sold & other 1,650 5.24% 43 1,674 5.83% 49
- - -------------------------------------------------------------------------------------------------------------------------
Total Interest-earning assets 127,441 10.14% 6,426 120,340 10.41% 6,212
- - -------------------------------------------------------------------------------------------------------------------------
Noninterest-earning assets:
Allowance for credit losses (1,770) (1,439)
Cash and due from banks 8,114 7,850
Real estate investments 19,757 16,935
Premises and equivalent, net 2,289 6,185
Cash surrender value of life insurance 2,794 2,666
Accrued interest receivable and other assets 4,558 3,308
- - -------------------------------------------------------------------------------------------------------------------------
Total Average Assets $163,183 $155,845
- - -------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing liabilities:
Transaction accounts $ 45,239 2.70% $ 607 $ 52,373 3.49% $ 906
Savings accounts 26,094 4.16% 540 19,432 4.96% 477
Time deposits 38,443 5.33% 1,019 40,431 5.41% 1,086
Federal funds purchased, notes payable
and other (3) 8,226 2.44% 100 1,489 2.66% 19
- - -------------------------------------------------------------------------------------------------------------------------
Total Interest-bearing 118,002 3.86% 2,266 113,725 4.41% 2,488
- - -------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing liabilities:
Transaction accounts 29,163 25,565
Other liabilities 2,657 1,773
- - -------------------------------------------------------------------------------------------------------------------------
Total liabilities 149,822 141,063
Shareholders' Equity:
Common stock 8,868 8,148
Retained earnings 4,476 7,023
Unrealized gain / (loss) on investment
securities 17 (389)
- - -------------------------------------------------------------------------------------------------------------------------
Total Shareholders Equity 13,361 14,782
- - -------------------------------------------------------------------------------------------------------------------------
Total average liabilities and
shareholders' equity $ 163,183 $ 155,845
- - -------------------------------------------------------------------------------------------------------------------------
Net Interest Income $ 4,160 $ 3,724
- - -------------------------------------------------------------------------------------------------------------------------
Interest income as a percentage of average
interest-earning assets 10.14% 10.41%
Interest expense as a percentage of average
interest-earning assets (3.58%) (4.17%)
- - -------------------------------------------------------------------------------------------------------------------------
Net Interest Margin 6.56% 6.24%
- - -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Loan amounts include nonaccrual loans, but the related interest income has
been included only for the period prior to the loan being placed on a
nonaccrual basis. Loan interest income includes loan fees of approximately
$614,000 and $577,000 for the six months ended June 30, 1996, and 1995,
respectively.
(2) Applicable nontaxable securities yields have not been calculated on a
taxable-equivalent basis because they are not material to the Company's results
of operations.
(3) Interest expense has been reduced by capitalized interest on real estate
projects of approximately $0 and $55,000 for the six month periods ended June
30, 1996 and 1995, respectively.
13
<PAGE>
Changes in the interest margin can be attributed to changes in the yield on
interest earning assets, the rate paid on interest bearing liabilities, as well
as changes in the volume of interest earning assets and interest bearing
liabilities. The following table presents the dollar amount of certain changes
in interest income and expense for each major component of interest earning
assets and interest bearing liabilities and the difference attributable to
changes in average rates and volumes for the periods indicated.
VOLUME/RATE ANALYSIS
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
(IN THOUSANDS)
FOR THE THREE MONTHS ENDED JUNE 30, 1996 COMPARED
TO 1995 VOLUME RATE TOTAL
- - -------------------------------------------------------------------------------
Net Interest Earnings Variance Analysis
Increase (decrease) in interest income:
Loans 660 (697) (37)
Investment securities (14) (27) (41)
Federal funds sold and other (18) (4) (22)
- - -------------------------------------------------------------------------------
Total 628 (728) (100)
- - -------------------------------------------------------------------------------
Increase (decrease) in interest expense:
Transaction accounts (56) (100) (156)
Savings accounts 64 (78) (14)
Certificates of deposit (42) (54) (96)
Federal funds purchased, notes payable and other 44 (1) 43
- - -------------------------------------------------------------------------------
Total 10 (233) (223)
- - -------------------------------------------------------------------------------
Increase (decrease) in net interest income 618 (495) 123
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
(IN THOUSANDS)
FOR THE SIX MONTHS ENDED JUNE 30, 1996 COMPARED
TO 1995 VOLUME RATE TOTAL
- - -------------------------------------------------------------------------------
Net Interest Earnings Variance Analysis
Increase (decrease) in interest income:
Loans 352 (147) 205
Investment securities 24 (9) 15
Federal funds sold and other (1) (5) (6)
- - -------------------------------------------------------------------------------
Total 375 (161) 214
- - -------------------------------------------------------------------------------
Increase (decrease) in interest expense:
Transaction accounts (113) (186) (299)
Savings accounts 116 (53) 63
Certificates of deposit (53) (14) (67)
Federal funds purchased and other 82 (1) 81
- - -------------------------------------------------------------------------------
Total 32 (254) (222)
- - -------------------------------------------------------------------------------
Increase (decrease) in net interest income 343 93 436
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
(1) A change due to both volume and rate has been allocated to the change in
volume and rate in proportion to the relationship of the dollar amount of the
change in each.
(2) Changes calculated on nontaxable securities have not considered tax
equivalent effects.
Net interest income before the provision for loan losses was $1,972,000 for
the second quarter of 1996 as compared to $1,849,000 for the comparable period
of 1995, an increase of $123,000 or 6.7%. This increase was primarily
attributable to lower rates paid on interest-bearing deposit accounts. The
Company's net interest margin in the second quarter of 1996 (based on average
interest earning assets) was 6.18% as compared to 6.07% for the same period in
1995.
14
<PAGE>
Average interest earning assets grew 4.9% between the second quarter 1996 and
the second quarter of 1995 while interest-bearing liabilities grew 2.5% over the
same period.
Net interest income before the provision for loan losses for the first six
months of 1996 was $4,160,000 as compared to $3,724,000 for the comparable
period of 1995, an increase of $436,000 or 11.7%. This increase was primarily
attributable to lower rates paid on interest-bearing deposit accounts as well as
an increase in the number of loans on the Company's books. The Company's net
interest margin for the six month period ended June 30, 1996 (based on average
interest-earning assets) was 6.56% as compared to 6.24% for the same period in
1995. Average interest-earning assets grew 5.9% for the six month period ended
June 30, 1996 as compared to the six month period ended June 30, 1995 while
interest-bearing liabilities grew 3.8% over the comparable periods. The
Company's earning asset mix changed very little between comparable periods.
INTEREST EARNING ASSET MIX
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PERCENTAGES)
FOR THE SIX MONTHS ENDED JUNE 30, 1996 1995
- - -------------------------------------------------------------------------------
Average Percent Average Percent
Balance of Total Balance of Total
- - -------------------------------------------------------------------------------
Interest-Earning Asset Mix:
Loans $ 96,846 75.99% $ 90,508 75.21%
Investment securities 28,945 22.71% 28,158 23.40%
Federal funds sold and other 1,650 1.30% 1,674 1.39%
- - -------------------------------------------------------------------------------
Total Interest-earning Assets 127,441 100.0% $ 120,340 100.0%
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
Average interest-earning assets for the six months ended June 30, 1996
increased to $127,441,000 from $120,340,000 for the comparable period in 1995.
Average loans increased by $6,338,000 to $96,846,000 representing 75.99% of
average interest-earning assets for the first six months of 1996, compared to
$90,508,000 or 75.21% for the first six months of 1995. The yield on average
loans declined to 11.41% at June 30, 1996, from 11.79% at June 30, 1995, due
primarily to a lower Prime lending rate, the rate to which most of the Company's
floating rate loans are tied.
Other interest-earning assets consist of investment securities, overnight
federal funds sold and other short term investments. These investments are
maintained to meet the liquidity requirements of the Company as well as pledging
requirements on certain deposits, and typically have a lower yield than loans.
The yield on investments decreased to 6.16% for the period ended June 30, 1996,
from 6.25% in the comparable period in 1995.
Average interest-bearing liabilities for the six months ended June 30, 1996
increased to $118,002,000 from $113,725,000 for the comparable period in 1995 an
increase of $4,277,000 or 3.76%. The primary reason for the increase was the
result of RSC assuming the debt on several real estate projects that were
dissolved during the first six months of 1996. As a result, federal funds
purchased, notes payable and other increased by $6,737,000 in 1996 compared to
the same period in 1995. For the first six months ended June 30, 1996, the
average interest rate paid on interest-bearing liabilities declined to 3.86%
from an average rate of 4.41% paid during the first six months of 1995.
15
<PAGE>
NONINTEREST INCOME
The Company receives a significant portion of its income from noninterest
sources related both to activities conducted by the Bank (SBA loan originations
and servicing, depositor service charges), as well as from the Bank's two
subsidiaries RSC and RIA.
OTHER INCOME
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
FOR THE THREE MONTHS FOR THE SIX MONTHS
(IN THOUSANDS) ENDED JUNE 30, ENDED JUNE 30,
- - -------------------------------------------------------------------------------
1996 1995 1996 1995
- - -------------------------------------------------------------------------------
Other Income:
Income from investments in real
estate partnerships $ - $217 $ - $383
Gain on sale of SBA loans 573 235 888 363
Depositor service charges 85 65 161 136
Income from investment management
services 162 124 326 237
Gain on sale of securities - - - (25)
Gain on sale of assets 4 - 9 -
Servicing fees on loans sold 81 76 139 156
Other 157 62 252 114
- - -------------------------------------------------------------------------------
Total $1,062 $779 $1,775 $1,364
- - -------------------------------------------------------------------------------
(Income from RSC and RIA in these consolidated financial statements is included
in noninterest income. A further discussion of RSC and RIA is set forth below.)
During the second quarter of 1996, the Company recognized noninterest
income of $1,062,000 compared to $779,000 for the same period during 1995 an
increase of $283,000 or 36.3%. For the first six months of 1996, noninterest
income was $1,775,000 compared to $1,364,000 for the first six months of 1995,
an increase of $411,000 or 30.1%. These increases are attributable to
increases in almost all noninterest income categories with the exception of
income from investments in real estate, with the greatest increases coming from
income from the sale of SBA loans (see "SBA Loan Origination & Sales") as well
as income from investment management services loans (see "Regency Investment
Advisors").
SBA LOAN ORIGINATION & SALES
The Bank originates loans to customers under a Small Business
Administration ("SBA") program that generally provides for SBA guarantees of 70%
to 90% of each loan. The Bank then sells the guaranteed portion of the loan in
the secondary market while retaining the unguaranteed portion of the loan as
well as the ongoing servicing. Income from the sale of the guaranteed portion is
affected by the timing and volume of sales (when loans are funded and available
for sale), as well as the premium paid in the secondary market. The premium paid
in the secondary market is further affected by the rate and terms of the loan as
well as the yield curve.
During the quarter ended June 30, 1996, the Company recognized gains on
sale of SBA loans of $573,000, an increase of $338,000 from $235,000 in the
comparable period of 1995. For the six months ended June 30, 1996 gains on sale
of SBA loans were $888,000 compared to $363,000 during the first six months of
1995, an increase of $525,000. These increases were
16
<PAGE>
primarily the result of timing related to the number and volume of loans
available for sale in the respective periods as well as higher premiums
recognized in 1996.
An additional source of income related to the Bank's SBA loan
origination activities is reflected in income from the ongoing servicing of
loans sold. During the second quarter ended June 30, 1996, servicing income
totaled $81,000, an increase of $5,000 from income of $76,000 during the
quarter ended June 30, 1995. For the the six months ended June 30, 1996,
servicing income totaled $139,000, a decline of $17,000 compared to $156,000
of servicing income during the first six months of 1995. The servicing
income decline for the first six months was the result of payoffs of older
SBA loans resulting in a slight decrease in the overall size of the servicing
portfolio.
REGENCY SERVICE CORPORATION (RSC)
The Bank's wholly owned subsidiary, Regency Service Corporation ("RSC"),
has engaged in real estate development activities since 1986. Such activities,
which typically involve the acquisition, development and sale of residential
real properties (but which sometimes involve the sale of properties prior to
development), historically have been structured as limited partnerships in
which RSC is the limited partner and a local developer is the general partner.
Partnerships are accounted for under the equity method.
The FDIC has adopted final regulations under the Federal Deposit Insurance
Corporation Improvement Act of 1991 regarding real estate investment and
development activities of insured state banks and their majority-owned
subsidiaries. Under the new FDIC regulations, banks must divest of their real
estate development investments as quickly and as prudently as possible, but in
no event later than December 19, 1996, and must submit a plan to the FDIC
regarding the divestiture of such investments. Such regulations also permit
banks to apply for the FDIC's consent to continue certain real estate
development activities and/or to file for an extension to continue divestiture
beyond December 19, 1996. RSC has filed a request with the FDIC to continue its
divestiture beyond December 19, 1996, however, as of the date of this report the
Company has not received written approval for such continuation.
To comply with these regulations RSC has undertaken business strategies
designed to reduce the Company's involvement in real estate development through
its subsidiary as quickly and as prudently as possible. RSC's first challenge
in meeting its divestiture obligations has involved the modification of the
original structure of its partnerships. As stated in the first paragraph, most
of the properties RSC has invested in have been through limited partnerships.
Under the limited partnership structure, the general partner conducts the
activities of and manages the partnership. Due to this structure, RSC has not
had direct day to day control or decision making capability in regard to
substantially all of the properties in which it has been a limited partner
investor.
During the second quarter of 1996, RSC continued to aggressively pursue
divestiture of its remaining real estate projects through various transactions.
As of June 30, 1996, RSC had dissolved or closed out all but three partnerships
which resulted in sole ownership of six of the projects. These projects are
accounted for under the consolidation method. During June 1996, RSC completed
the sale of phases II and III of its Blackhorse III subdivision. As a result of
this
17
<PAGE>
transaction, RSC was able to retire debt of $714,000, while reducing assets by
$2,150,000. To facilitate this transaction, RSC recorded a loan of $310,000 to
the purchaser. This transaction resulted in a loss of $295,000. Due to the
nature of the transaction the loan has been placed on nonaccrual and will be
accounted for by the cost recovery method.
For the second quarter ended June 30, 1996, the net loss from investments
in real estate projects amounted to $85,000, compared to income of $217,000 in
the second quarter ended June 30, 1995, a decline of $302,000. The decline
resulted from the sale of properties at a loss. Actual losses from investments
in real estate projects amounted to $729,000. These losses were offset by a
$644,000 reduction in RSC's allowance for real estate losses. For the first six
months of 1996 the net loss from investments in real estate projects amounted to
$182,000, compared to income of $383,000 for the first six months of 1995, a
decline of $565,000. Actual losses from investments in real estate projects
amounted to $1,125,000. These losses were offset by a $943,000 reduction in
RSC's allowance for real estate losses.
On a stand alone basis, RSC's activities reduced the Company's overall pre-
tax income by $770,000 in the first six months of 1996. This amount includes
all of the costs of operating RSC during this period, including operating costs
such as legal, accounting, project management expense, salaries and the $182,000
in losses from the sale of real estate mentioned above. These operating
expenses have been consolidated with similar operating expenses in the Company's
income statement and noninterest expense table above.
During the second quarter of 1996, the Company completed its analysis of
amounts owing under RSC's project management service agreement with Peachwood
Park, a California Limited Partnership, wherein McDonald Construction Inc.,
a corporation owned by the Company's Chairman, Gary L. McDonald, serves as
general partner. As a result of this analysis, the Company determined that
the contract with Peachwood should be cancelled through a termination
agreement and a new contract should be entered into that delineates the
current divestiture of RSC projects and other obligations of the parties
which were not covered by the prior agreement. On April 1, 1996, RSC entered
into a new contract for management services with Gary L. McDonald Real Estate
and Development Company, a California corporation owned by the Company's
Chairman Gary L. McDonald. Copies of the agreements are attached as exhibits
10.1 and 10.2 to this Form 10-Q and the foregoing description of the
agreements is qualified by reference thereto. The Company also determined
that it owed Peachwood Park approximately $434,300 which was paid by a
one-time payment of $56,700 related to termination of the prior agreement and
reversal of a $377,600 receivable, which had been reserved for as described
in detail in the Company's annual financial statements for the year ended
December 31, 1995.
Additional discussion of loans made by RSC to its partnerships and, in
general, of the Company's investment in RSC is contained in this report under
the headings, "Nonperforming Loans" and "Investments in Real Estate".
18
<PAGE>
REGENCY INVESTMENT ADVISORS (RIA)
The Bank's wholly-owned subsidiary, Regency Investment Advisors ("RIA"),
was formed in August 1993 through the acquisition by the Bank of the assets,
including the client list, of a fee-only investment management and consulting
firm. RIA provides investment management and consulting services, including
comprehensive financial and retirement planning and investment advice, to
individuals and corporate clients for an annual fee that varies depending upon
the size of a client account.
Income from RIA for the second quarter 1996 increased to $162,000 from
$124,000 in the same period of 1995, an increase of $38,000. For the first six
months of 1996, income from RIA was $326,000, an increase of $89,000 or 37.6%
from income of $237,000 for the first six months of 1995. Due to acquisition
costs as well as overhead expense incurred after acquisition, RIA has posted a
net loss on a stand alone basis since inception, however, in the six month
period ended June 30, 1996, RIA posted net pre-tax income of $6,000 compared to
a net pre-tax loss of ($57,000) in the first six months of 1995.
As of June 30, 1996, RIA had $69.0 million in assets under management, an
increase of $23.6 million compared to $45.4 million as of June 30, 1995. Assets
in client accounts managed by RIA are not reflected in the consolidated assets
of the Company.
OTHER EXPENSE
Noninterest expense reflects the costs of products and services, systems,
facilities and personnel for the Company. The major components of other
operating expenses stated both as dollars and as a percentage of average assets
are as follows:
OTHER OPERATING EXPENSE TO AVERAGE ASSETS
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PERCENTAGES)
FOR THE THREE MONTHS ENDED JUNE 30, 1996 1995
- - ------------------------------------------------------------------------------------------
Percent of Percent of
Average Average
Amount Assets Amount Assets
- - ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Other Expense:
Loss from investments in real
estate partnerships $ 85 0.21% $ - -
Salaries and related benefits 1,075 2.65% 1,075 2.73%
Occupancy 401 0.99% 298 0.76%
FDIC insurance and regulatory
assessments 16 0.04% 79 0.20%
Marketing 121 0.30% 89 0.23%
Professional services 269 0.66% 151 0.38%
Director's fees and expenses 92 0.23% 67 0.17%
Management fees for real estate
projects 154 0.38% 94 0.24%
Other 410 1.01% 298 0.75%
- - ------------------------------------------------------------------------------------------
TOTAL $2,623 6.46% $2,151 5.46%
- - ------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
For the second quarter ended June 30, 1996, other expenses increased 22.0%
or $472,000 to $2,623,000, up from $2,151,000 during the comparable period in
1995. The primary cause of the increase was due to losses from investments in
real estate, higher fees for professional services (legal and accounting),
directors fees and expenses, and marketing expense. Management fees for real
estate projects increased to $154,000 in the second quarter of 1996 from $94,000
in the second quarter of 1995 primarily as a result of a one-time charge of
$56,700 related to the termination of RSC's previous management contract with
Peachwood Park. Additionally, the Company recognized a one-time charge of
$140,000 (reflected above in the Other category) related to the cancellation of
an option to purchase the property immediately contiguous to the Company's
headquarters facility owned by the Company's Chairman, Gary L. McDonald and
his wife. When compared to average assets for the respective periods, other
expenses increased to 6.46% versus 5.46% in 1995.
OTHER OPERATING EXPENSE TO AVERAGE ASSETS
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PERCENTAGES)
FOR THE SIX MONTHS ENDED JUNE 30, 1996 1995
- - ------------------------------------------------------------------------------------------
Percent of Percent of
Average Average
Amount Assets Amount Assets
- - ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Other Expense:
Loss from investments in real
estate partnerships $ 182 0.22% $ - -
Salaries and related benefits 2,186 2.69% 2,179 2.82%
Occupancy 793 0.98% 556 0.72%
FDIC insurance and regulatory
assessments 32 0.04% 159 0.21%
Marketing 211 0.26% 164 0.21%
Professional services 423 0.52% 272 0.35%
Director's fees and expenses 168 0.21% 134 0.17%
Management fees for real estate
projects 233 0.29% 174 0.23%
Other 737 0.91% 585 0.75%
- - ------------------------------------------------------------------------------------------
TOTAL $4,965 6.12% $4,223 5.46%
- - ------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------
</TABLE>
For the six months ended June 30, 1996, other expenses increased 17.6% or
$742,000 to $4,965,000, up from $4,223,000 during the comparable period in 1995.
The primary cause of the increase was due to losses from investments in real
estate as well as higher fees for professional services (legal and accounting),
directors fees and expense, and management fees for real estate projects. When
compared to average assets for the respective periods, other expenses increased
to 6.12% versus 5.46% in 1995.
Salaries and benefits expense increased by only $7,000 or 0.32% in the six
month period ended June 30, 1996 as compared to the first six months of 1995.
Occupancy expense increased by $237,000 or 42.6% for the first six months of
1996 compared to the same period in 1995, primarily due to the sale and
leaseback transaction involving the Company's headquarters facility completed in
the third quarter of 1995. As a result of the transaction, the Company now
leases its facility at 7060 N. Fresno Street, Fresno, CA. As part of the
transaction, the Company recorded a loan to the buyer of the property. The
resulting increase in interest income from the loan offsets the higher rental
expense reflected as part of the occupancy expense number shown above.
20
<PAGE>
FDIC insurance and regulatory assessments declined by $127,000 or 79.9% in
the first six months of 1996 compared to the same period in 1995 due to lower
insurance premiums charged by the FDIC.
BALANCE SHEET ANALYSIS
Total assets decreased by $1,413,000 or 0.86% between December 31, 1995 and
June 30, 1996. The Company's loan portfolio increased by $2,973,000 or 3.06%
primarily as a result of $4,060,000 in loans made by RSC to facilitate the sale
of three of its partnerships. Deposits declined during the second quarter of
1996 by $3,023,000 or 2.1%, primarily due to seasonal fluctuations in the Bank's
deposit base.
LOANS
The Company's loans are primarily made within its defined market area of
Fresno and Madera counties. During the first quarter of 1995, the Company
opened an SBA loan production office in Modesto and additionally employs
business development officers targeting businesses in the northern and southern
San Joaquin Valley for SBA loans as well.
Commercial loans, including SBA loans, comprised approximately 52.7% of the
Company's loan portfolio at June 30, 1996. These loans are generally to small
and mid-size businesses and professionals. Commercial loans are diversified as
to industries and types of business, with no material industry concentrations.
Most of these loans have floating rates with the majority tied to the national
Prime Rate. The primary source of repayment on most commercial loans is cash
flow from the primary business. Additional collateral in the form of real
estate, cash, accounts receivable, inventory or other financial instruments is
often obtained as a secondary source of repayment.
Real Estate Construction lending comprised 27.1% of the Company's loan
portfolio at June 30, 1996, consisting of loans primarily for the construction
of single family residential housing. Loans in this category may be to the home
buyer or to the developer. Construction loans are secured by deeds of trust on
the primary property. Such loans also contain $5.0 million in loans RSC has
made to its partnerships or to facilitate the sale of a project. The majority
of construction loans have floating rates tied to either the national Prime Rate
or Regency Bank's Reference Rate. A significant portion of the borrowers'
ability to repay these loans is dependent on the residential real estate market,
principally from the sale of the property. In this regard, the Company's
potential risks include a general decline in the value of the underlying
property, as well as cost overruns or delays in the sale or completion of a
property.
Real Estate Mortgage loans comprised 11.7% of the loan portfolio at June
30, 1996, and are made up of (62%) non-residential properties and (38%) single-
family residential mortgages. The non-residential loans generally are "mini-
perm" (medium-term) commercial real estate mortgages with maturities under seven
years. The residential mortgages are secured by first trust deeds and have
varying maturities. Both types of loans may have either fixed or floating
rates. The majority
21
<PAGE>
are floating. Risks associated with non-residential loans include the decline
in value of commercial property values; economic conditions surrounding
commercial real estate properties; and vacancy rates. The repayment of single-
family residential mortgage loans is generally dependent on the income of the
borrower from other sources, however, declines in the underlying property value
may create risk in these loans.
Consumer installment loans represented the remainder of the loan portfolio
at June 30, 1996, comprising 8.5% of total loans. This category includes
traditional Consumer Installment Loans (51%), Home Equity Lines of Credit (41%),
Leases (1%), and Visa Card Loans (7%). Consumer installment loans are generally
secured by second trust deeds on single-family residences, while Visa Cards are
unsecured.
RISK ELEMENTS
The Company assesses and manages credit risk on an ongoing basis through
stringent credit review and approval policies, extensive internal monitoring and
established formal lending policies. Additionally, the Bank contracts with an
outside loan review consultant to periodically grade new loans and to review the
existing loan portfolio. Management believes its ability to identify and assess
risk and return characteristics of the Company's loan portfolio is critical for
profitability and growth. Management strives to continue the historically low
level of credit losses by continuing its emphasis on credit quality in the loan
approval process, active credit administration and regular monitoring. With
this in mind, management has designed and implemented a comprehensive loan
review and grading system that functions to continually assess the credit risk
inherent in the loan portfolio. Additionally, management believes its ability
to manage portfolio credit risk is enhanced by the knowledge of the Bank's
service area by the lending personnel and Board of Directors.
NONPERFORMING LOANS
The Company's current policy is to cease accruing interest when a loan
becomes 90-days past due as to principal or interest; when the full, timely
collection of interest or principal becomes uncertain; or when a portion of the
principal balance has been charged off, unless the loan is well secured and in
the process of collection. When a loan is placed on nonaccrual status, the
accrued and uncollected interest receivable is reversed and the loan is
accounted for on the cash or cost recovery method thereafter, until qualifying
for return to accrual status. Generally, a loan may be returned to accrual
status when all delinquent interest and principal become current in accordance
with the terms of the loan agreement or when the loan is both well secured and
in process of collection.
At June 30, 1996, nonaccrual loans amounted to $3,885,000 or 3.85% of total
loans compared to $3,920,000, also 3.85%, at March 31, 1996 and $581,000 or .60%
at December 31, 1995. Other real estate owned was $381,000 at June 30, 1996
compared to $341,000 at March 31, 1996 and December 31, 1995. As previously
discussed, the primary reason for the increase in nonperforming loans during the
first six months of 1995 is related to three loans made to facilitate the sale
of RSC properties. During the first quarter of 1996, two loans totaling
$3,750,000 were made to facilitate the sale of RSC properties, while during the
second quarter an additional loan of
22
<PAGE>
$310,000 was made to facilitate the sale of a third property. During the second
quarter of 1996, these loans were paid down by $332,000 as interest paid, as
well as principal reductions, were credited entirely toward the principal
balance. Management expects these loans will appear in the nonperforming
category until the properties underlying the loans are substantially sold out,
currently estimated to be between 18 and 30 months.
Following is a table presenting the Nonperforming loans for the period between
December 31, 1995 and June 30, 1996.
NONPERFORMING ASSETS
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
(IN THOUSANDS, EXCEPT PERCENTAGES) 1996 1995
- - -------------------------------------------------------------------------------
Nonperforming Assets:
Nonaccrual RSC loans $ 3,728 $ 505
Nonaccrual bank loans 127 76
Restructured loans - -
- - -------------------------------------------------------------------------------
Nonperforming loans 3,855 581
Other real estate owned 381 341
- - -------------------------------------------------------------------------------
Total nonperforming assets 4,236 922
- - -------------------------------------------------------------------------------
Accruing loans 90 days past due 179 725
- - -------------------------------------------------------------------------------
Total loans before allowance for losses 100,110 97,137
Total assets 162,269 163,682
Allowance for possible credit losses (1,690) (1,784)
- - -------------------------------------------------------------------------------
Ratios:
Nonperforming loans to total loans consolidated 3.85% .60%
Nonperforming loans to total loans bank only
(excluding RSC loans) .13% .08%
Nonperforming assets to:
Total loans 4.23% .95%
Total loans and OREO 4.22% .95%
Total assets 2.61% .56%
Allowance for possible credit losses to total
nonperforming assets 39.90% 193.50%
- - -------------------------------------------------------------------------------
Under the provisions of SFAS No. 114 and SFAS No. 118, the Company has
analyzed its loan portfolio. As of June 30, 1996, the amount of impaired loans
was not significant.
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses reflects management's judgment as to the
level which is considered adequate to absorb potential losses inherent in the
loan portfolio. This allowance is increased by provisions charged to expense
and reduced by loan charge-offs net of recoveries. Management determines an
appropriate provision based on information currently available to analyze credit
loss potential, including: (a) the loan portfolio growth in the period, (b) a
comprehensive grading and review of new and existing loans outstanding, (c)
actual previous charge-offs, and (d) changes in economic conditions.
The allowance for credit losses totaled $1,690,000 or 1.69% of total loans
at June 30, 1996, compared to $1,784,000 or 1.84% at December 31, 1995. The
decrease is the result of net charge-offs totaling $94,000 during the first six
months of 1996 with no additional provision deemed necessary. It is the policy
of management to maintain the allowance for credit losses at a level adequate
for known and future risks inherent in the loan portfolio. Based on information
currently
23
<PAGE>
available to analyze credit loss potential, including economic factors, overall
credit quality, historical delinquency and a history of actual charge-offs,
management believes that the credit loss provision and allowance is adequate.
However, no prediction of the ultimate level of loans charged-off in future
years can be made with any certainty.
Following is a table presenting the activity within the Company's provision for
credit losses for the period between December 31, 1995 and June 30, 1996.
- - ------------------------------------------------------------
IN THOUSANDS
- - ------------------------------------------------------------
Balance, December 31, 1995 $1,784
- - ------------------------------------------------------------
Provision charged to expense -
Loans charged off (165)
Recoveries 71
- - ------------------------------------------------------------
Balance, June 30, 1996 $1,690
- - ------------------------------------------------------------
- - ------------------------------------------------------------
INVESTMENTS IN REAL ESTATE
The Company's investment in real estate consists of the Bank's investment
of capital and retained earnings in RSC. RSC is currently the sole owner of six
projects and is a limited partner in three projects. As of June 30, 1996, the
Company had an equity investment of $16,343,000 invested in these partnerships
and projects compared to $17,954,000 at December 31, 1995. In addition, RSC has
loans totaling $5,009,000, including one loan to a partnership and three loans
to facilitate the sale of projects which have been classified as construction
loans on the consolidated balance sheet. Approximately, $3,728,000 of these
loans have been placed on nonaccrual status. As a result of the dissolution of
several RSC partnerships, RSC has become the 100% owner of several projects. As
a result of these transactions, the assets and liabilities of RSC now reflect
not only RSC's equity investment, but the total assets and liabilities of the
acquired projects as well. See "Regency Service Corporation" for further
discussion of these issues.
24
<PAGE>
FUNDING SOURCES
Deposits represent the Bank's principal source of funds for investment.
Deposits are primarily core deposits in that they are demand, savings, and time
deposits generated from local businesses and individuals. These sources are
considered to be relatively more stable, long-term deposit relationships thereby
enhancing steady growth of the deposit base without major fluctuations in
overall deposit balances. In order to assist in meeting its funding needs, the
Bank maintains federal funds lines with correspondent banks in addition to using
its investment portfolio to raise funds through repurchase agreements. In
addition, the Bank may, from time to time, obtain additional deposits through
the use of brokered time deposits. As of June 30, 1996, the Bank held no
brokered time deposits and had no outstanding borrowings from correspondent
banks.
The following table presents the composition of the deposit mix for the period
ending June 30, 1996, and December 31, 1995, respectively:
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------
IN THOUSANDS JUNE 30, 1996 DECEMBER 31, 1995
- - -------------------------------------------------------------------------------------------------------
Percent of Percent of
Amount Total Deposits Amount Total Deposits
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deposits:
Noninterest-bearing transaction accounts $31,677 22.51% $32,672 22.73%
Interest bearing deposits: 67,093 47.68% 75,539 52.55%
Time deposits:
Under $100,000 16,492 11.72% 12,229 8.51%
$100,000 and over 25,460 18.09% 23,305 16.21%
- - -------------------------------------------------------------------------------------------------------
Total Interest-bearing Deposits 109,045 77.49% 111,073 77.27%
- - -------------------------------------------------------------------------------------------------------
Total Deposits $140,722 100.0% $143,745 100.0%
- - -------------------------------------------------------------------------------------------------------
</TABLE>
During the first six months of 1996 total deposits declined by $3,023,000
or 2.1% to $140,722,000 at June 30, 1996 compared to $143,745,000 at December
31, 1995. The decline was the result of a shift in lower rate savings and money
market deposits into higher yielding time deposits and competitive pressures
from non-bank competition (money market mutual funds and brokerage accounts), as
well as seasonal fluctuations in the banks deposit portfolio.
LIQUIDITY
Liquidity management refers to the Bank's ability to provide funds on an
ongoing basis to meet fluctuations in deposit levels as well as the credit needs
and requirements of its clients. Both assets and liabilities contribute to the
Bank's liquidity position. Federal funds lines, short-term investments and
securities, and loan repayments contribute to liquidity, along with deposit
increases, while loan funding and deposit withdrawals decrease liquidity. The
Bank assesses the likelihood of projected funding requirements by reviewing
historical funding patterns, current and forecasted economic conditions and
individual client funding needs. The Bank maintains lines of credit with two
correspondent banks for up to $9,000,000 available on a short-term basis.
Additionally, the Bank generally maintains a portfolio of SBA loans either
available for sale or in its portfolio that could be sold should additional
liquidity be required.
25
<PAGE>
INTEREST RATE SENSITIVITY
Interest rate sensitivity is a measure of the exposure to fluctuations in
the Bank's future earnings caused by fluctuations in interest rates. Generally,
if assets and liabilities do not reprice simultaneously and in equal volumes,
the potential for such exposure exists. It is management's objective to
maintain stability in the net interest margin in times of fluctuating interest
rates by maintaining an appropriate mix of interest sensitive assets and
liabilities. To achieve this goal, the Bank prices the majority of its
interest-bearing liabilities at variable rates. At the same time, the majority
of its interest-earning assets are also priced at variable rates, the majority
of which float with the Prime Rate. This pricing structure tends to stabilize
the net interest margin percentage earned by the Bank.
The following table sets forth the interest rate sensitivity and repricing
schedule of the Company's interest-earning assets and interest-bearing
liabilities, the interest rate sensitivity gap, the cumulative interest rate
sensitivity gap, and the cumulative interest rate sensitivity gap ratio.
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------------------
Next Day After Three After
But Within Months One Year
(IN THOUSANDS, EXCEPT PERCENTAGES) Three But Within But Within After
AS OF JUNE 30, 1996 Immediately Months 12 Months Five Years Five Years Total
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Rate Sensitivity Gap:
Loans (1) 42,150 33,744 9,008 6,861 4,492 96,255
Investment securities and other - 5,899 5,298 8,982 7,526 27,705
- - ----------------------------------------------------------------------------------------------------------------------------------
Total Earning Assets 42,150 39,643 14,306 15,843 12,018 123,960
- - ----------------------------------------------------------------------------------------------------------------------------------
Interest-bearing transaction accounts 44,097 - - - - 44,097
Savings accounts 20,481 2,515 - - - 22,996
Time deposits - 15,278 21,978 4,609 87 41,952
Federal funds purchased - - - - - -
- - ----------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Liabilities 64,578 17,793 21,978 4,609 87 109,045
- - ----------------------------------------------------------------------------------------------------------------------------------
Interest rate sensitivity gap (22,428) 21,850 (7,672) 11,234 11,931
Cumulative gap (22,428) (578) (8,250) 2,984 14,915
Cumulative gap percentage to interest
earning assets (18.09%) (.47%) (6.66%) 2.41% 12.03%
- - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Amounts exclude unearned discounts and loan fees of approximately $902,000
as well as nonaccrual loans of $3,855,000.
The above table indicates the time periods in which interest-earning assets
and interest-bearing liabilities will mature or reprice in accordance with their
contractual terms. The table does not necessarily indicate the impact of
general interest rate movements on the net interest margin since the repricing
of various categories of assets and liabilities is subject to competitive
pressures. Additionally, this table does not take into consideration changing
balances in forward periods as a result of normal amortization, principle
paydowns, changes in deposit mix or other such movements of funds as a result of
changing interest rate environments.
26
<PAGE>
CAPITAL RESOURCES
The Board of Governors and the FDIC have adopted risk-based capital
guidelines for evaluating the capital adequacy of bank holding companies and
banks. The guidelines are designed to make capital requirements sensitive to
differences in risk profiles among banking organizations, to take into account
off-balance sheet exposures and to aid in making the definition of bank capital
uniform internationally. Under the guidelines, the Company and the Bank are
required to maintain capital equal to at least 8.0% of its assets and
commitments to extend credit, weighted by risk, of which at least 4.0%, must
consist primarily of common equity (including retained earnings) and the
remainder may consist of subordinated debt, cumulative preferred stock, or a
limited amount of loan loss reserves. Assets, commitments to extend credit and
off-balance sheet items are categorized according to risk and certain assets
considered to present less risk than other permit maintenance of capital at less
than the 8.0% ratio.
The guidelines establish two categories of qualifying capital: Tier 1
capital comprising core capital elements and Tier 2 comprising supplementary
capital requirements. At least one-half of the required capital must be
maintained in the form of Tier 1 capital. Tier 1 capital includes common
shareholder's equity and qualifying perpetual preferred stock less intangible
assets and certain other adjustments. However, no more than 25% of the
Company's total Tier 1 capital may consist of perpetual preferred stock. The
definition of Tier 1 capital for the Bank is the same, except that perpetual
preferred stock may be included only if it is noncumulative. Tier 2 capital
includes, among other items, limited life (and in the case of banks, cumulative)
preferred stock, mandatory convertible securities, subordinated debt and a
limited amount of reserve for credit losses.
The Board of Governors also adopted a 3.0% minimum leverage ratio for
banking organizations as a supplement to the risk-weighted capital guidelines.
The leverage ratio is generally calculated using Tier 1 capital (as defined
under risk-based capital guidelines) divided by quarterly average net total
assets (excluding intangible assets and certain other adjustments).
The Board of Governors emphasized that the leverage ratio constitutes a
minimum requirement for well-run banking organizations having diversified risk.
Banking organizations experiencing or anticipating significant growth, as well
as those organizations which do not exhibit the characteristics of a strong,
well-run banking organization above, will be required to maintain minimum
capital ranging generally from 100 to 200 basis points in excess of the leverage
ratio. The FDIC adopted a substantially similar leverage ratio for state non-
member banks.
27
<PAGE>
The table below presents the Company's and the Bank's risk-based and leverage
capital ratios as of June 30, 1996.
- - -------------------------------------------------------------------------------
RISK-BASED CAPITAL RATIOS
(IN THOUSANDS) COMPANY BANK
- - -------------------------------------------------------------------------------
Amount Ratio Amount Ratio
- - -------------------------------------------------------------------------------
Risk-Based Capital Ratio:
Total Capital $ 13,778 10.83% $ 12,959 10.19%
Tier 1 Capital 12,186 9.57% 11,357 8.94%
Total Risk-Adjusted Assets 127,277 127,057
- - -------------------------------------------------------------------------------
Leverage Ratio:
Tier 1 Capital 12,186 7.51% 11,357 7.01%
Average Total Assets 162,253 162,087
- - -------------------------------------------------------------------------------
As indicated in the table above, at June 30, 1996, the Company's capital
ratios exceed the minimum capital levels required by current federal
regulations. Management believes based upon currently available information
that the Company and the Bank will continue to meet their respective minimum
capital requirements in the foreseeable future.
On December 19, 1991, the President signed the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"). The FDICIA, among other
matters, substantially revises banking regulations and establishes a framework
for determination of capital adequacy of financial institutions. Under the
FDICIA, financial institutions are placed into one of five capital adequacy
categories as follows: (1) "Well capitalized" - consisting of institutions with
a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital
ratio of 6% or greater, and a leverage ratio of 5% or greater, and the
institution is not subject to an order, written agreement, capital directive or
prompt corrective action directive; (2) "Adequately capitalized" - consisting of
institutions with a total risk-based capital ratio of 8% or greater, a Tier 1
risk-based capital ratio of 4% or greater and a leverage ratio of 4% or greater,
and the institution does not meet the definition of a "well capitalized"
institution; (3) "Undercapitalized" - consisting of institutions with a total
risk-based capital ratio less than 8%, a Tier 1 risk-based capital ratio of less
than 4%, or a leverage ratio of less than 4%; (4) "Significantly
undercapitalized" - consisting of institutions with a total risk-based capital
ratio of less than 6%, a Tier 1 risk-based capital ratio of less than 3%, or a
leverage ratio of less than 3%; (5) "Critically undercapitalized" - consisting
of an institution with a ratio of tangible equity to total assets that is equal
to or less than 2%.
Financial institutions classified as undercapitalized or below are subject
to various limitations including, among other matters, certain supervisory
actions by bank regulatory authorities and restrictions related to (i) growth of
assets, (ii) payment of interest on subordinated indebtedness, (iii) payment of
dividends or other capital distributions, and (iv) payment of management fees to
a parent holding company. The FDICIA requires the bank regulatory authorities
to initiate corrective action regarding financial institutions which fail to
meet minimum capital requirements. Such action may be taken in order to, among
other matters, augment capital and reduce total assets. Critically
undercapitalized financial institutions may also be subject to appointment of a
receiver or conservator unless the financial institution submits an adequate
capitalization plan.
28
<PAGE>
RETURN ON EQUITY AND ASSETS
The following table sets forth the ratios of net income to average assets and
average shareholders' equity, and average shareholders' equity to average
assets. Also indicated is the Company's dividend payout ratio. (For purposes
of calculating average shareholders' equity as used in these ratios, unrealized
losses on the Company's available-for-sale securities portfolio have been
included and the percentages shown have been annualized).
- - -------------------------------------------------------------------------------
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, 1996 ENDED JUNE 30, 1996
- - -------------------------------------------------------------------------------
1996 1995 1996 1995
- - -------------------------------------------------------------------------------
Return on average assets .59% .71% .69% .65%
- - -------------------------------------------------------------------------------
Return on average shareholders'
equity 7.25% 7.47% 8.43% 6.85%
- - -------------------------------------------------------------------------------
Average shareholders' equity to
average assets 8.09% 9.48% 8.19% 9.48%
- - -------------------------------------------------------------------------------
Dividend payout ratio 45.84% 30.72% 38.96% 34.13%
- - -------------------------------------------------------------------------------
29
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTER TO VOTE OF SECURITY HOLDERS
(a) The 1996 Annual Meeting of Shareholders (the "Annual Meeting")
was held on May 21, 1996.
(b) Proposal No. 1. To elect directors. The following eight
directors, all of whom are incumbent directors, and Mrs. Joann
Price as the employee director nominee were elected at the annual
meeting by the following vote:
Votes Against
Votes For or Withheld
----------------------------------------------------------
Joseph L, Castanos 1,205,735 4,525
Steven F. Hertel 1,205,735 4,525
Roy Jura 1,205,735 4,525
Gary McDonald 1,205,735 4,525
Barbara Palmquist 1,205,735 4,525
David N. Price 1,205,735 4,525
Joann Price 1,205,735 4,525
Daniel R. Suchy 1,205,735 4,525
Waymon E. Watts 1,205,735 4,525
(c) Proposal No. 2. To ratify the appointment of Deloitte &
Touche LLP as the Company's independent public accountants
for the 1996 fiscal year.
Votes for - 1,184,075 Votes against or withheld - 2,536
(d) Proposal No. 3. To approve the Amendments to the 1990
Regency Bancorp Stock Option Plan.
Votes for - 645,814 Votes against or withheld - 35,122
(e) Proposal No.4. To approve the Regency Bancorp
Indemnification Agreements.
Votes for - 784,442 Votes against or withheld - 31,274
30
<PAGE>
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(3.1) Articles of Incorporation, as amended, dated June 9, 1994,
incorporated by reference from exhibit 3.1 of registrant's Annual
Report on Form 10-K for the year ended December 31, 1994, filed
with the Commission on February 27, 1995.
(3.2) Bylaws, as amended, incorporated by reference from exhibit 3.2 of
registrant's Annual Report on Form 10-K for the year ended
December 31, 1994, filed with the Commission on February 27,
1995.
*(10.1) Contract Termination Agreement, dated April 1, 1996, by and
between Regency Service Corporation, a California corporation,
and Peachwood Park, a California limited partnership, (Gary L.
McDonald Construction Inc. general partner).
*(10.2) Project Management Agreement, dated April 1, 1996, by and between
Regency Service Corporation, a California corporation, and Gary
L. McDonald Real Estate and Development Co., a California
Corporation, for project managerial services related to real
estate development activities conducted by RSC.
*(10.3) Form of Indemnification Agreement
(10.4) Lease agreement dated May 13, 1996 for premises located at 126
'D' Street, Madera, California.
*(10.5) Regency Bancorp 1990 Stock Option Plan, as amended.
(27.1) Financial Data Schedule
* Denotes management contracts, compensatory plans or arrangements.
(b) Reports on Form 8-K
The Company filed a Form 8-K dated April 26, 1996 in which it
reported the Company had declared a $.06 per share cash dividend
payable to shareholders of record on April 26, 1996.
31
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REGENCY BANCORP
Date: ______________________________ By:___________________________________
Steven F. Hertel
President and Chief Executive Officer
(Principal Executive Officer)
Date: ______________________________ By: __________________________________
Steven R. Canfield
Executive Vice President and
(Chief Financial Officer and
Accounting Officer)
32
<PAGE>
EXHIBIT INDEX
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
*10.1 Contract Termination Agreement, dated April 1, 1996, 34 - 39
by and between Regency Service Corporation, a
California corporation, and Peachwood Park, a
California limited partnership, (Gary L. McDonald
Construction Inc., general partner.
*10.2 Project Management Agreement, dated April 1, 1996, by 40 - 64
and between Regency Service Corporation, a California
corporation, and Gary L. McDonald Real Estate and
Development Co., a California Corporation, for project
managerial services related to real estate development
activities conducted by RSC.
*10.3 Form of Indemnification Agreement 65 - 77
10.4 Lease agreement dated May 13, 1996 for premises located 78 - 96
at 126 "D" street.
*10.5 Regency Bancorp 1990 Stock Option Plan, as amended 97 - 116
* Denotes management contracts, compensatory plans or arrangements.
33
<PAGE>
EXHIBIT *10.1
CONTRACT TERMINATION AGREEMENT
This Contract Termination Agreement, dated April 1, 1996 for reference, is
entered into by and between REGENCY SERVICE CORPORATION, a California
corporation ("RSC"), and PEACHWOOD PARK, a California limited partnership
("Project Manager").
RECITALS
A. Project Manager has heretofore provided to RSC certain management
services in connection with RSC's real estate investments. Such services have
been provided pursuant to the terms and conditions set forth in a series of
annual management agreements. The most recent of such management agreements was
entered into on April 17, 1991, effective January 1, 1991 (the "1991
Agreement"), and has been continued in effect on an annual basis since that
date.
B. The 1991 Agreement and its predecessors contemplated that the various
real estate projects for which Project Manager would render its services would
be completed and sold in the ordinary course of business according to the
original intentions of the parties and/or the business plan for each project.
However, the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), which became effective after the 1991 Management Agreement was
executed, has mandated that banks engaged, directly or indirectly, in real
estate development activities divest themselves of those activities by December
19, 1996. As a result, Project Manager has been called upon to provide
management services that are different from or in addition to those that were
set forth in the 1991 Management Agreement.
C. Because of the different services now required by RSC to be performed
by the Project Manager, RSC and Project Manager desire to terminate the 1991
Management Agreement.
D. In addition, the parties acknowledge that a dispute exists with regard
to the amount of compensation due Project Manager for services rendered under
the 1991 Management Agreement for periods prior to the effective date of this
Agreement, including, without limitation, whether the 1991 Management Agreement
requires that Project Manager be liable for one-third of any losses incurred
upon final disposition of a project under Project Manager's management and
whether, because of the different services now required of Project Manager,
Project Manager is entitled to a different compensation than that provided under
the 1991 Management Agreement. The parties have agreed to settle absolutely and
forever such dispute on the terms set forth in this Agreement, and to resolve
all outstanding obligations owed by them to each other.
<PAGE>
AGREEMENT
Therefore, for good and valuable consideration, the receipt and sufficiency
of which is acknowledged, and intending to be legally bound, the parties agree
as follows:
1. TERMINATION. The parties hereby confirm and agree that the 1991
Management Agreement is hereby terminated effective March 31, 1996. This
termination is and shall be effective with respect to each of the parties'
respective rights and obligations under the 1991 Management Agreement, all prior
versions of such agreement, all modifications and amendments thereto, and,
without limitation, those rights and obligations under the 1991 Management
Agreement which by their terms would have otherwise survived termination.
2. FINAL COMPENSATION PAYMENT. RSC shall pay to Project Manager the
following sums (some of which may, as of the date hereof, already have been
paid):
2.1 Twenty-five thousand dollars ($25,000.00) for services rendered
by Project Manager for each of the months of January, February and March 1996.
2.2 Fifty-six thousand, seven hundred dollars ($56,700.00), as the
balance due for services rendered by Project Manager during the year ended
December 31, 1995.
To the extent not already paid, RSC shall pay the foregoing sums to Project
Manager within ten (10) days after the mutual execution and delivery of this
Agreement by both parties.
3. MUTUAL AND GENERAL RELEASE OF ALL CLAIMS. Except as expressly set
forth in this Agreement, and without limiting in any way the rights and
remedies, if any, of any federal or state regulatory agency or other
governmental authority having or purporting to have jurisdiction over RSC or any
of its affiliates (a "Governmental Agency"), the parties agree as follows:
3.1 MUTUAL RELEASE. Each party (for itself and its successors,
assigns, parents, subsidiaries, affiliates, shareholders, directors, officers,
legal representatives, insurers, attorneys and agents) (collectively, the
"Releasing Party"), hereby waives, releases and forever discharges the other
party (and its successors, assigns, parents, subsidiaries, affiliates,
shareholders, directors, officers, legal representatives, insurers, attorneys
and agents) (collectively, the "Released Party"), from any and all actions,
causes of action, claims, demands, damages, obligations and liabilities of every
kind, either at law or in equity, arising out of or in any way related to the
performance or non-performance by the Released Party of its obligations under
the 1991 Management Agreement, including, without limitation, the amount of
compensation due Project Manager thereunder.
3.2 GENERAL RELEASE. The foregoing mutual release is intended to
discharge and acquit all claims coming within its scope, whether or not now
known, unknown, suspected,
2
<PAGE>
anticipated, liquidated or contingent. In furtherance thereof, each party
hereby waives and relinquishes any rights or benefits which such party has or
may have under section 1542 of the California Civil Code and under any similar
provision of the statutory or nonstatutory law of any jurisdiction to the full
extent that such party may lawfully waive all such rights and benefits
pertaining to the subject matter of this release. Section 1542 of the
California Civil Code provides as follows:
A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have materially
affected his settlement with the debtor.
Each party acknowledges and agrees that there is a risk that, after this
Agreement is signed, such party may discover facts, claims, defenses or other
matters concerning the 1991 Management Agreement, or the services rendered
thereunder, which are currently unknown and unanticipated and which, if they had
been known, might have affected their decision to enter into this Agreement.
Nevertheless, it is understood that the purpose of this provision is to waive
and release all such matters. EACH PARTY REPRESENTS AND WARRANTS TO THE OTHER
PARTY THAT IT HAS READ THE FOREGOING RELEASE AND WAIVER, HAS CONFERRED WITH
LEGAL COUNSEL OF ITS CHOICE, AND VOLUNTARILY AGREES TO THE TERMS OF SUCH RELEASE
AND WAIVER WITH FULL KNOWLEDGE AND UNDERSTANDING OF ITS LEGAL EFFECT.
3.3 COVENANT NOT TO SUE. Each party further agrees never voluntarily
to commence or prosecute, or cause to be commenced or prosecuted, against the
other party or its heirs, executors, administrators, successors, assigns,
agents, employees, attorneys and insurers, any action or proceeding based
directly or indirectly upon any of the matters contained in the release set
forth in section 3.1 above.
4. GENERAL INDEMNIFICATION. Project Manager shall defend, indemnify and
hold harmless RSC and its directors, officers, partners, employees, agents,
subsidiaries, affiliates, and assignees, or any of them, from and against any
losses, damages, liabilities (including product liability, regardless of the
theory of recovery), expenses (including attorneys' fees and court costs),
costs, claims, suits, demands, actions, causes of action, proceedings,
recoveries, judgments, assessments, deficiencies and charges on account of
physical damage to tangible property and personal injuries (including death)
(collectively, "Losses") arising out of or resulting from the performance of
services by Project Manager pursuant to the 1991 Management Agreement, but
excluding Losses to the extent caused by or resulting from the intentional
action or negligence of RSC or other indemnified party hereunder. It is a
condition precedent to the right to obtain indemnification under this section 0
that the party seeking indemnification (the "Indemnified Party") shall give to
Project Manager prompt written notice of any claim for which indemnification is
sought. The notice shall describe the basis for such claim and shall submit
copies of all pleadings, demands and other materials pertaining thereto and
shall cooperate
3
<PAGE>
reasonably with Project Manager in the defense of such claim. Provided that the
Project Manager has accepted the tender of defense of a claim from the
Indemnified Party, the Indemnified Party shall not settle, compromise or
otherwise resolve any claim without obtaining the prior written approval of
Project Manager, which shall not be withheld or delayed unreasonably.
5. CONFIDENTIALITY. The terms of this Agreement are confidential. Each
party agrees not to disclose the terms of this Agreement to any person or for
any purpose for a period of three (3) years from the date of this Agreement,
except for such disclosures (a) made by RSC or its affiliates to any
Governmental Agency or as may be required by any law, rule, regulation, order or
directive from any Governmental Agency; (b) as are required by an order of a
court or other adjudicatory body (provided that the party upon whom such order
is imposed shall first have given notice to the other party and allowed the
other party to make a reasonable effort to obtain a protective order or other
confidential treatment for the information); or (c) as are necessary and
appropriate for accounting purposes, financial reporting or otherwise to
consummate the matters contemplated by this Agreement.
6. NO-ADMISSION OF LIABILITY. This Agreement represents the compromise
and settlement of disputed claims. No admission of liability or of the truth or
validity of any claim released by this Agreement is intended or to be implied by
this Agreement.
7. MISCELLANEOUS TERMS.
7.1 INTEGRATION. The provisions of this Agreement constitute the
entire agreement between the parties, and supersede all prior and
contemporaneous agreements, understandings and negotiations, whether written or
oral, with respect to its subject matter.
7.2 BINDING EFFECT. This Agreement shall be binding on and inure to
the benefit of the parties and their respective successors and assigns, but no
party shall have the right to assign this Agreement or any rights or obligations
hereunder without the prior written consent of the other party (which consent
shall not be unreasonably withheld).
7.3 CAPTIONS. The captions and headings used in this Agreement are
provided for convenience only and shall not affect the meaning, interpretation
or construction of any of the provisions of this Agreement.
7.4 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original as against the party whose signature
appears thereon and together which shall constitute but one and the same
document. This Agreement shall become effective when each party has signed and
delivered one or more counterparts of this Agreement to the other party.
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7.5 ATTORNEYS FEES. If either party brings any legal action by any
method other than arbitration against the other with respect to any Dispute
required to be arbitrated under this Agreement, the other party shall be
entitled to recover from such party all damages, costs, expenses and attorneys'
fees incurred as a result of such action. Notwithstanding the foregoing, each
party shall have the right to commence a legal action for injunctive relief in a
court of competent jurisdiction.
7.6 SEVERABILITY. If any provision of this Agreement is declared or
found to be illegal, unenforceable or void, the parties shall negotiate in good
faith to agree upon a substitute provision that is legal and enforceable and is
as nearly as possible consistent with the intentions underlying the original
provision. If the remainder of this Agreement is not materially affected by
such declaration or finding and is capable of substantial performance, then the
remainder shall be enforced to the extent permitted by law. However, if such
illegal, unenforceable or void provision cannot reasonably be modified as
provided above or stricken from this Agreement without material effect on the
Agreement, then this Agreement shall terminate.
7.7 WAIVER. No delay or omission by either party to exercise any
right or power shall impair any such right or power or be construed to be a
waiver thereof. A waiver by any party of any of the covenants, conditions or
contracts to be performed by the other or any breach thereof shall not be
construed to be a waiver of any succeeding breach thereof or of any other
covenant, condition or contract herein contained. No change, waiver or
discharge hereof shall be valid unless in writing and signed by an authorized
representative of the party against which such change, waiver, or discharge is
sought to be enforced.
7.8 CUMULATIVE REMEDIES. The rights and remedies provided in this
Agreement or otherwise under applicable laws shall be cumulative and the
exercise of any particular right or remedy shall not preclude the exercise of
any other rights or remedies in addition to, or as an alternative of, such right
or remedy, except as expressly provided otherwise in this Agreement.
7.9 NO THIRD PARTY BENEFIT. Nothing in this Agreement, expressed or
implied, is intended or shall be construed to confer upon or give to any person,
firm, or corporation, other than the parties hereto and those other persons or
entities specifically granted rights hereunder, and their respective successors
and assigns, any remedy or claim by reason of this Agreement or any term,
covenant or condition hereof, all of which shall be for the sole and exclusive
benefit of the parties hereto.
7.10 APPLICABLE LAW. This Agreement shall be interpreted, construed
and governed by the laws of the State of California, without giving effect to
its choice of law rules.
7.11 AMENDMENT. No oral statements or agreements or any course of
conduct shall be effective to modify, amend, supplement or otherwise change any
of the terms of this
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Agreement. This Agreement can be modified, amended, supplemented or changed
only by an agreement in writing which makes specific reference to this Agreement
and the provisions thereof being modified, amended, supplemented or changed, and
which is signed by both parties.
IN WITNESS WHEREOF, the parties have caused this Contract Termination
Agreement to be executed and delivered by their respective duly authorized
representatives as of the date set forth beneath their respective signatures
hereto.
"RSC" "PROJECT MANAGER"
REGENCY SERVICE CORPORATION, PEACHWOOD PARK,
a California corporation a California limited partnership
By: ___________________________ By: ___________________________
Steve Hertel Gary L. McDonald
President Managing General Partner
Date: _____________ , 1996 Date: ______________ , 1996
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EXHIBIT *10.2
PROJECT MANAGEMENT AGREEMENT
This Project Management Agreement, dated April 1, 1996 for reference (the
"Agreement"), is made and entered into by and between REGENCY SERVICE
CORPORATION, a California corporation ("RSC"), and GARY L. MCDONALD REAL ESTATE
AND DEVELOPMENT CO., a California Corporation ("Project Manager").
RECITALS
A. Since its inception, RSC has been in the business of real estate
investment. The majority of its investments have been made through limited
partnerships in which an un-affiliated developer serves as the general partner
and RSC is the sole limited partner. The purpose of the several partnerships
through which RSC has made its investments has been to identify, acquire and
develop real property and sell either finished lots or completed residential
units.
B. RSC and its partners originally contemplated that the various real
estate projects in which RSC obtained an interest would be completed and sold in
the ordinary course of business according to the original intentions of the
parties and/or the business plan for each project. However, the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA") has mandated that banks
engaged, directly or indirectly, in real estate development activities divest
themselves of those activities by December 19, 1996.
C. As a result, RSC requires that Project Manager provide management
services to facilitate RSC's divestiture activities, as described herein, and
Project Manager is willing to render such services on the terms and conditions
of this Agreement.
AGREEMENT
Now, therefore, in consideration of the mutual covenants set forth below
and other valuable consideration, the receipt and sufficiency of which are
acknowledged, RSC and Project Manager, intending to be legally bound, hereby
agree as follows:
1. FUNDAMENTAL PROVISIONS.
Date of Agreement: April 1, 1996.
Effective Date: April 1, 1996 (the "Effective Date").
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Term: Approximately eight and one-half (8-1/2)
months, commencing on the Effective Date and
expiring on December 19, 1996, subject to
renewal as provided in section 0, below.
Compensation: See section 0 below.
Projects: Those projects listed on EXHIBIT A to this
Agreement for so long as RSC holds an
interest, direct or indirect, therein (the
"Projects")
Address for Notices: RSC: Regency Service Corporation
Attention: Steve Hertel
P. O. Box 16279
Fresno, CA 93755-6279
Fax: 209-438-2699
Phone: 209-438-2600
Project Gary L. McDonald Real Estate and
Manager: Development Co.
7120 North Whitney Avenue
Fresno, CA 93720-0513
Fax: 209-322-0603
Phone: 209-322-1700
2. APPOINTMENT. RSC hereby appoints Project Manager as RSC's exclusive
project manager for the Projects. Project Manager hereby accepts such
appointment and agrees to perform the duties of the project manager set forth in
this Agreement.
3. SCOPE OF DUTIES.
3.1. DUTIES. Project Manager shall represent RSC in connection with
RSC's divestiture of its interests in the Projects, and shall perform the
services and carry out the responsibilities with respect to the Projects as are
set forth in this Agreement and in EXHIBIT B to this Agreement, and such
additional duties and responsibilities as are reasonably within the general
scope of such services and responsibilities. As used in this Agreement, RSC's
"interest" in a Project means RSC's direct or indirect ownership of any estate
or interest in a Project,
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including, without limitation, a partnership interest in a partnership which
owns a Project. Without limiting the foregoing, Project Manager shall:
(a) use its reasonable best efforts to maximize the economic
return available to RSC from the divestiture of RSC's interests in the Projects,
given the time periods, methods of divestiture and other constraints and
objectives specified by RSC;
(b) establish and implement appropriate administrative and
financial controls, including but not limited to:
(i) coordinate the activities of the architect, general
contractor and other contractors, professionals and consultants employed in
connection with the Projects;
(ii) administer contracts pertaining to the divestiture of
RSC's interest in the Project as approved in writing by RSC;
(iii) participate in conferences and render such advice and
assistance as will aid in developing economical, efficient and desirable
procedures;
(iv) participate with RSC, and render such advice and
assistance as is necessary to assist RSC, in developing a budget for each
Project and for the divestiture program as a whole, with periodic updates to
such budgets as required by RSC;
(v) review and submit to RSC for approval all requests
for payments under any architectural, engineering, contractor, sales, escrows or
other agreements pertaining to the Projects;
(vi) apply for and maintain in full force and effect any
and all governmental permits and approvals required for the lawful construction,
completion and occupancy of any improvements regarding the Projects;
(vii) keep RSC fully informed on a regular basis of the
progress of the Projects, including the preparation of such reports as are
provided for herein or as may reasonably be requested by RSC; and
(viii) convey all of RSC's instructions, requirements and
approvals provided for in the agreements with the architect, general contractor
and other contractors, professionals and consultants retained for the Projects;
(c) comply with all terms and conditions applicable to RSC or
the Projects and perform all obligations of RSC contained in any (i) loan
agreement entered into in
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connection with any construction for the Projects, (ii) permit, approval or
agreement issued by or entered into with any governmental authority relating to
the terms and conditions of such construction, (iii) insurance policy affecting
or covering the Projects, or (iv) surety bond obtained in connection with the
Projects; provided that (A) such agreements, permits, policies and bonds have
been approved by RSC, (B) RSC has notified Project Manager of such terms and
conditions by providing Project Manager with either a written summary of the
same or with a copy of such documents or instruments, and (C) no payments shall
be made under or in respect of such documents or instruments without the prior
approval of RSC;
(d) prepare or cause to be prepared and distribute to RSC (i) a
critical path schedule and periodic updates thereto as necessary, but in any
event not less frequently than monthly, to reflect any material changes to the
critical path schedule, (ii) cost estimates as required by RSC, and (iii)
financial accounting reports, including monthly progress reports;
(e) hire and retain, at Project Manager's expense, such
personnel as may be required to perform properly Project Manager's functions
hereunder, to the extent RSC has not agreed in writing either to reimburse
Project Manager for the costs of such personnel or to furnish such personnel
under RSC's employ and at RSC's expense. The compensation, retention and
performance of employees hired by Project Manager shall be controlled
exclusively by Project Manager, and Project Manager shall be responsible for
complying with all laws and regulations affecting such employment, including,
without limitation, the provision of any benefits, compensation, tax withholding
and worker's compensation insurance required by statute or contract;
(f) obtain and maintain during the term of this Agreement, at
RSC's expense, public liability insurance covering personal injury and property
damage which may arise from or during the performance of this Agreement, in such
limits as RSC may reasonably approve, and automobile liability, workers'
compensation and such other insurance as may be required of Project Manager by
law, naming as additional insureds RSC, any mortgagee or deed of trust
beneficiary, and any other person or entity having an insurable interest in the
Projects and specified by RSC;
(g) obtain and maintain at all times until final disposition of
the improvements within the Projects or RSC's interest therein, at RSC's
expense, the insurance coverage specified in an insurance schedule approved by
RSC in writing, insuring Project Manager, its employees, the Projects, RSC, any
mortgagee or deed of trust beneficiary, and any other person or entity having an
insurable interest in the Projects and specified by RSC;
(h) comply with all applicable present and future laws,
ordinances, orders, rules, regulations and requirements (hereinafter, "laws") of
all federal, state and municipal governments, courts, departments, commissions,
boards and offices, any national or local board
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of fire underwriters or insurance services offices having jurisdiction in the
county or counties in which the Projects are situated, or any other body
exercising functions similar to those of any of the foregoing, or any insurance
carriers providing any insurance coverage for RSC or the Projects, which may be
applicable to the Projects. Any such compliance undertaken by Project Manager
on behalf of and in the name of RSC, in accordance with the provisions of this
Agreement, shall be at RSC's expense and prior approval. Project Manager shall
likewise ensure that all agreements between RSC and independent contractors
performing work in connection with the Projects shall include the agreement of
such independent contractors to comply with all such applicable laws;
(i) assemble and retain all contracts, agreements and other
records and data as may be necessary to carry out Project Manager's functions
hereunder. Without limiting the foregoing, Project Manager will develop,
accumulate and furnish to RSC and the appropriate governmental authorities, as
necessary, data and information sufficient to identify the market value of
improvements in place as of each real property tax lien date, and will make
application for appropriate exclusions from the capital costs of the Projects
for purposes of real property ad valorem taxes;
(j) maintain at all times during the term of this Agreement all
books and records prepared or maintained by Project Manager at the place or
places approved by RSC, and make such books and records available for and
subject to audit, inspection and copying by RSC, any representative or auditor
thereof or supervisory or regulatory authority. Project Manager agrees that any
supervisory or regulatory authority shall also have the right, in connection
with any examination of RSC or the Projects, to examine and question Project
Manager and its employees with respect to any such books and records, and
Project Manager agrees to cooperate with all such supervisory or regulatory
authorities; and
(k) perform and administer any and all other services and
responsibilities of Project Manager which are set forth in any other provisions
of this Agreement or which are requested to be performed by RSC and are within
the general scope of the services described herein; provided, however, Project
Manager shall be entitled to seek additional compensation as provided in section
0 for the performance of services which do not fall within the general scope of
the services described in this Agreement.
3.2. ADDITIONAL SERVICES. In the event that Project Manager is
instructed by RSC to perform any services which it believes fall outside the
general scope of its services contemplated by this Agreement, Project Manager
shall promptly consult with RSC prior to undertaking to perform such services.
If RSC decides that the requested services fall within such scope, then Project
Manager shall perform the same, but without prejudice to Project Manager's right
thereafter to seek additional compensation for such services as provided in
section 0 hereof
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in the event that such services are subsequently determined in appropriate
proceedings to be beyond such scope.
3.3. MANNER OF PERFORMANCE. Project Manager, acting through its
president and chief executive officer, Gary L. McDonald, shall devote such time
and attention as may be reasonably necessary and appropriate to perform its
obligations under, and in accordance with, this Agreement.
3.4. OTHER BUSINESSES. Nothing contained in this Agreement shall be
construed so as to prohibit any party to this Agreement (each a "Party" and
together the "Parties") or any Affiliate (defined below) or related person or
entity of any Party from owning, operating or investing in any real estate
development, wherever located, not constituting a Project. Either Party, and
any Affiliate or related person or entity of such Party, may engage in or
possess an interest in another business venture or ventures of any nature and
description, independently or with others, including but not limited to the
ownership, financing, leasing, operation, management, syndication, brokerage and
development of real property, and neither Party shall have any rights by virtue
of this Agreement in and to such independent ventures or to the income or
profits derived therefrom. For purposes of this Agreement, an "Affiliate" shall
mean any individual, partnership, corporation, trust or other entity
(collectively, a "Person") that directly or indirectly through one or more
intermediaries controls or is controlled by or is under common control with a
Party, including without limitation, a limited partnership in which a Party is a
general partner, any Person that is a director, officer, employee, member of,
partner in or trustee of, or serve in a similar capacity with respect to a Party
or any Person with respect to which a Party is a director, officer, employee,
member, partner or trustee or with respect to such Party serves in a similar
capacity and, with respect to RSC, Regency Bancorp, Regency Bank, Regency
Investment Advisors, and their respective directors, officers, shareholders and
agents. A Person controls a corporation, for the purposes of this definition,
when such Person owns at least a majority of the outstanding voting shares of
the corporation, with the full right to vote such shares.
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4. LIMITATIONS ON AUTHORITY.
4.1. DIVESTITURE PLAN. Project Manager shall adhere to the
divestiture plan established by RSC and shall not undertake or pursue any
activity that is not consistent with such divestiture plan. RSC shall have the
right, at any time and from time to time, in its sole and absolute discretion,
to alter, amend, supplement or abandon any divestiture plan or to adopt a new or
different divestiture plan for any Project or Projects.
4.2. CONTRACTS. Project Manager shall have no authority to execute
or otherwise enter into any agreement binding on RSC unless and until the terms
and conditions thereof and the party with whom the agreement is to be made shall
have been approved in writing by RSC. In the event a proposed agreement would
require RSC to have a general contractor's license and RSC has expressly
approved in writing the terms of such agreement, then Project Manager agrees to
enter into the agreement in its own name (or the name of an affiliate holding
the requisite contractor's license) for the benefit of RSC, and RSC shall
reimburse Project Manager for any costs or expenses directly incurred under such
agreement.
4.3. EXPENDITURES. Project Manager shall have no authority to incur
any expense or make any payment on behalf of RSC, and shall have no right to
obtain reimbursement from RSC for any payment made by Project Manager, unless
such expense, payment or reimbursement has been approved in writing by RSC. In
no event shall Project Manager expend more than what Project Manager in good
faith believes to be the fair and reasonable market value at the time and place
of contracting for any goods purchased or leased or services engaged on behalf
of RSC or otherwise in connection with the Projects.
4.4. NATURE OF AGENCY. It is expressly understood that RSC and
Project Manager are and shall remain independent contractors. This Agreement
shall not be construed as creating a joint venture or partnership between them
or their respective successors in interests. Neither Party shall have any
authority to create or assume, in the name or on behalf of the other Party, any
obligation, expressed or implied, nor to act or purport to act as the agent or
the legally empowered representative of the other Party hereto for any purpose
whatsoever except as expressly set forth herein.
5. COMPENSATION.
5.1. AMOUNT; PAYMENT. As compensation for the services rendered by
Project Manager under this Agreement, RSC shall pay to Project Manager a fee
computed in accordance with the Compensation Schedule attached as EXHIBIT C
hereto.
5.2. FULL COMPENSATION. The payment specified in section 0 shall
constitute full and complete payment to Project Manager, and to any and all of
its officers, employees,
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agents, principals and affiliates, for all services rendered under this
Agreement, except only for such additional fees and charges as shall be owing to
Project Manager pursuant to section 0 below. Project Manager shall not be
entitled to any other payment or reimbursement from RSC for any expenses Project
Manager may incur in the performance of this Agreement, including, without
limitation, expenses for wages and salaries, travel, insurance, rent,
secretarial and clerical support, duplication and copying, telephone, telegraph
and other communication charges, entertainment costs, and all other related and
unrelated costs and expenses, overhead and profit, except (i) for such expenses
of Project Manager which RSC has expressly agreed in writing to reimburse to
Project Manager or pay on Project Manager's behalf, and (ii) as may be agreed
pursuant to section 0 below for additional services or work rendered.
5.3. ADDITIONAL FEES. In the event that RSC directs Project Manager
to perform or furnish any service or work which falls outside the general scope
of Project Manager's services as provided herein, Project Manager shall be
entitled to receive such additional compensation therefor as shall be mutually
agreed between Project Manager and RSC, taking into account the nature and value
of the additional services or work rendered and the fees that would reasonably
have been charged by other similarly qualified project managers rendering the
same or similar services or work; provided, however, that if Project Manager
shall commence to perform any services or work which it believes may fall
outside the general scope of the services agreed herein to be performed without
first notifying RSC in writing of Project Manager's belief and thereafter
receiving from RSC written authorization to proceed, RSC shall not be obligated
to pay any additional fee or compensation to Project Manager for such additional
services or work. In the event the Parties are unable to agree as to whether
the services or work is outside the general scope of Project Manager's services
as provided herein or as to the amount of additional compensation due Project
Manager's services, the matter shall be decided by arbitration pursuant to
section 0 below.
5.4. OFFSET RIGHT. Notwithstanding the provisions of this section 0
to the contrary, RSC shall have the right to offset against any compensation
otherwise due Project Manager under this Agreement any amounts owing by Project
Manager to RSC, whether under or pursuant to this Agreement, pursuant to
applicable rules or regulations of regulatory agencies or governmental
authorities having jurisdiction, or otherwise.
6. TERM
6.1. INITIAL TERM. Unless sooner terminated in accordance with
section 0 below or extended pursuant to section 0 below, the term of this
Agreement shall commence on the Effective Date and shall continue until December
19, 1996.
6.2. RENEWAL. Unless sooner terminated in accordance with section 0
below, RSC shall have the right to extend the term of this Agreement by giving
written notice of such
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extension to Project Manager at any time prior to the expiration of the initial
term. If RSC exercises its right to extend the term of this Agreement, this
Agreement shall continue in effect on a month to month basis (renewing
automatically on the first day of each succeeding calendar month) until
terminated in accordance with section 0 below; provided, however, that in no
event shall the term of this Agreement be extended beyond the earlier of (a) the
last day of any extension period which is granted by the Federal Deposit
Insurance Corporation (or other regulatory agency having authority over RSC)
permitting RSC to continue its divestiture activities in the Projects beyond
December 19, 1996, or (b) December 31, 1997.
6.3. TERMINATION. This Agreement may be terminated prior to the
expiration of its term as follows:
(a) BY RSC. RSC may terminate this Agreement as follows:
(i) immediately upon written notice to Project Manager in
the event of Project Manager's default under this Agreement. A "default" by
Project Manager is defined as the occurrence of one or more of the following
events:
(A) Project Manager fails to perform any of its
services or work under this Agreement in the manner or within the time required
herein and fails to cure such failure within fifteen (15) days after written
notice specifying the nature of such failure is given by RSC to Project Manager,
or if such failure cannot reasonably be cured within fifteen (15) days, fails to
commence such cure within such fifteen (15) day period or thereafter fails
diligently to prosecute such cure to completion within sixty (60) days
thereafter; or
(B) Project Manager shall file a voluntary petition in
bankruptcy; or shall be adjudicated a bankrupt or insolvent; or shall file any
petition or answer seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future federal or state law relating to bankruptcy, insolvency or other relief
for debtors; or shall seek, consent to or acquiesce in the appointment of any
trustee, receiver, conservator or liquidator of Project Manager or of all or any
substantial part of its properties (the term "acquiesce", as used herein, being
deemed to include, but not be limited to, the failure to file a petition or
motion to vacate or discharge any order, judgment or decree providing for such
appointment within the time specified by law); or a court of competent
jurisdiction shall enter an order, judgment or decree approving a petition filed
against Project Manager seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future federal or state law relating to bankruptcy, insolvency or other relief
for debtors, and Project Manager shall consent to or acquiesce (as hereinabove
defined) in the entry of such order, judgment or decree, or the same shall
remain unvacated and unstayed for an aggregate of sixty (60) days from the date
of entry thereof; or any trustee, receiver, conservator or liquidator of Project
Manager or of all or any
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substantial part of its properties shall be appointed without the consent of or
acquiescence of Project Manager and such appointment shall remain unvacated and
unstayed for an aggregate of sixty (60) days; or
(ii) immediately upon written notice to Project Manager
that RSC has fully divested itself of all of its interests in the Projects; or
(iii) immediately upon written notice to Project Manager,
in the event that Gary L. McDonald ceases to be the chief executive officer of,
and the holder of a controlling equity interest in, Project Manager, whether by
death, resignation, removal, sale or issuance of shares, or otherwise; or
(iv) immediately (or at such later date as specified by
RSC in writing) upon written notice to Project Manager in the event that RSC
receives an order, directive, or other formal or informal, oral or written,
notice or communication from any regulatory agency or other governmental
authority having or purporting to have jurisdiction over RSC or any of its
Affiliates requiring the termination or modification of this Agreement; or
(v) during any extension of the initial term of this
Agreement (but not during such initial term), upon not less than thirty (30)
days prior written notice to RSC for any reason, in Project Manager's sole and
absolute discretion.
(b) BY PROJECT MANAGER. Project Manager may terminate this
Agreement as follows:
(i) immediately upon written notice to RSC in the event of
RSC's default under this Agreement. A "default" by RSC is defined as the
occurrence of one or more of the following events:
(A) RSC fails to perform any of its obligations under
this Agreement in the manner or within the time required herein and fails to
cure such failure within fifteen (15) days after written notice specifying the
nature of such failure is given by Project Manager to RSC, or if such failure
cannot reasonably be cured within fifteen (15) days, fails to commence such cure
within such fifteen (15) day period or thereafter fails diligently to prosecute
such cure to completion within sixty (60) days thereafter; or
(B) RSC shall file a voluntary petition in bankruptcy;
or shall be adjudicated a bankrupt or insolvent; or shall file any petition or
answer seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future federal
or state law relating to bankruptcy, insolvency or other relief for debtors; or
shall seek, consent to or acquiesce in the appointment of any trustee, receiver,
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conservator or liquidator of RSC or of all or any substantial part of its
properties (the term "acquiesce", as used herein, being deemed to include, but
not be limited to, the failure to file a petition or motion to vacate or
discharge any order, judgment or decree providing for such appointment within
the time specified by law); or a court of competent jurisdiction shall enter an
order, judgment or decree approving a petition filed against Project Manager
seeking any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future federal or state law
relating to bankruptcy, insolvency or other relief for debtors, and RSC shall
consent to or acquiesce (as hereinabove defined) in the entry of such order,
judgment or decree, or the same shall remain unvacated and unstayed for an
aggregate of sixty (60) days from the date of entry thereof; or any trustee,
receiver, conservator or liquidator of RSC or of all or any substantial part of
its properties shall be appointed without the consent of or acquiescence of RSC
and such appointment shall remain unvacated and unstayed for an aggregate of
sixty (60) days; or
(ii) during any extension of the initial term of this
Agreement (but not during such initial term), upon not less than thirty (30)
days prior written notice to RSC for any reason, in Project Manager's sole and
absolute discretion.
(c) ARBITRABLE DISPUTES. The failure or refusal of a Party to
acquiesce to the demand of the other Party over any matter which, by the terms
of this Agreement, is to be submitted to arbitration for resolution shall not
constitute the basis of a default for which this Agreement may be terminated.
(d) EFFECT OF TERMINATION. The expiration or termination of
this Agreement shall not impair, waive or otherwise affect in any way the
respective liabilities or obligations of the Parties hereunder which arose or
accrued prior to the date of such expiration or termination or which, by their
terms, survive the expiration or termination of this Agreement.
7. OWNERSHIP OF INFORMATION AND MATERIALS. Upon completion of Project
Manager's services or any sooner termination of this Agreement, Project Manager
shall deliver to RSC all written data and information generated by or for
Project Manager in connection with the Projects or supplied to Project Manager
by RSC or RSC's contractors, consultants or agents, and all drawings, plans,
books, records, contracts, agreements and all other documents and writings in
its possession relating to its services or the Projects. Such materials shall
at all times be the property of RSC and RSC shall have the right to use the same
without further compensation to Project Manager.
8. COMPLIANCE WITH LAWS; LICENSES. At all times during the term of this
Agreement, Project Manager shall perform its services and work in strict
compliance with applicable federal, state and local law. Without limiting the
foregoing, Project Manager shall obtain and maintain
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such licenses as may be required for the performance by Project Manager of its
services under this Agreement.
9. INDEMNITY.
9.1. BY PROJECT MANAGER. Project Manager hereby agrees to indemnify,
defend and hold harmless RSC, its Affiliates and their respective partners,
officers, directors and employees, from and against any and all claims, demands,
losses, liabilities, actions, lawsuits and other proceedings, judgments, awards,
costs and expenses (including, without limitation, reasonable attorneys' fees,
court costs and witness fees), arising directly or indirectly, in whole or in
part, out of the negligence or any willful misconduct or omission of Project
Manager, or any of its officers, directors, agents or employees, in connection
with this Agreement or Project Manager's services or work hereunder, whether
within or beyond the scope of its duties or authority hereunder.
9.2. BY RSC. RSC hereby agrees to indemnify, defend and hold
harmless Project Manager, its officers, directors and employees, from and
against any and all claims, demands, losses, liabilities, actions, lawsuits and
other proceedings, judgments, awards, costs and expenses (including, without
limitation, reasonable attorneys' fees, court costs and witness fees), arising
directly or indirectly, in whole or in part, out of any action taken by Project
Manager within the scope of its duties or authority hereunder, excluding only
such of the foregoing as result from the negligence or willful misconduct or
omission of Project Manager, its officers, directors, agents and employees.
9.3. SURVIVAL. The provisions of this section 0 shall survive the
expiration or any earlier termination of this Agreement.
10. ARBITRATION. In such cases where this Agreement provides for the
determination of any matter by arbitration, or if the Parties cannot resolve a
dispute arising out of or concerning this Agreement through negotiation, then
the same shall be settled and finally determined by binding arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association, or its successor; or in any case where the American Arbitration
Association, or its successor, is not in existence or fails or refuses to act
within a reasonably prompt period of time (but in no event exceeding 60 days
from the date a request for arbitration is filed), the arbitration shall proceed
in accordance with the laws relating to arbitration then in effect in the State
of California, including but not limited to sections 1280 through 1294.2 of the
California Code of Civil Procedure, as the same may be amended or superseded
from time to time. The following provisions shall also govern any such
arbitration:
10.1. INITIATION; PROCEDURES. Either Party may demand arbitration of
any dispute under this Agreement by giving written notice thereof to the other
Party at any time. The
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demand for arbitration shall contain a description of the dispute, the amount
involved and the relief sought. Any arbitration pursuant to this Agreement
shall be conducted before three neutral arbitrators having not less than ten
(10) years experience in real estate development and construction. Arbitration
proceedings shall be conducted in Fresno, California. All arbitration
proceedings, including all evidence and statements, shall be confidential and
shall not be used or disclosed for any other purpose.
10.2. FINDINGS; AWARD; COSTS. The arbitrators' award shall be in
writing and shall specify in reasonable detail the legal and factual bases of
the award. Judgment on the award rendered in any such arbitration may be
entered in any court having jurisdiction thereof. The award shall be final and
binding on the parties unless vacated or corrected pursuant to applicable law or
proven to have been the result of a substantial error of law or fact. All fees
and expenses of the arbitrators shall be shared equally by the parties to such
arbitration. Each Party shall pay its own attorneys' fees, expenses and costs
of the arbitration. Notwithstanding the foregoing, (a) the arbitrators shall
have the authority to assess any of the foregoing costs against any Party acting
in bad faith, (b) if the prevailing Party is required to initiate proceedings to
enforce the award or confirming judgment, the prevailing Party shall be entitled
to recover its costs and attorneys' fees associated with such action, and (c) if
either Party brings any legal action by any method other than arbitration
against the other with respect to any dispute required to be arbitrated under
this Agreement, the other Party shall be entitled to recover from such Party all
damages, costs, expenses and attorneys' fees incurred as a result of such
action; provided, however, each Party shall have the right to commence and
pursue, prior to the appointment of the arbitrators, a legal action for
injunctive or other protective relief in a court of competent jurisdiction.
10.3. PAYMENT OF AWARD. Any cash award shall be payable in United
States dollars through a bank in the United States. The award shall earn
interest from the date of the award until satisfied in full at the United States
prime interest rate as reported in the Western Edition of THE WALL STREET
JOURNAL on the business day immediately preceding the date of the award.
11. NOTICES. All notices, requests and communications required or
permitted to be given by one Party to the other under this Agreement shall be in
writing and shall be sent to the address of such Party set forth in section 0
above, or at such other address as the addressee may have provided to the other
Party by written notice given in accordance with this section. Such notices
shall be deemed to be duly given on the earliest of (a) actual receipt,
irrespective of whether sent by post, telex, cable, facsimile transmission
(followed by same day mailing of a hard copy), overnight courier or other
method, or (b) on the third business day after mailing by registered or
certified first class mail, return receipt requested and postage prepaid.
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12. CONFIDENTIALITY. Except for such disclosures as are required to be
made by law or on demand of any governmental authority, Project Manager shall
keep confidential all information regarding the Projects and Project Manager's
activities under this Agreement unless authorized in writing by RSC to release
such information, in which event Project Manager shall abide by RSC's reasonable
instructions.
13. GENERAL PROVISIONS
13.1. GOVERNING LAW. This Agreement is entered into in the State of
California and shall be governed by the laws of the State of California
applicable to contracts made and to be wholly performed in that State.
13.2. SEVERABILITY. If any provision of this Agreement shall be
determined by a court, arbitrator or regulatory authority of competent
jurisdiction to be illegal or invalid for any reason whatsoever, such illegal or
invalid provision shall be deemed modified to the minimum extent necessary to
render it legal and valid and, if such provision is not susceptible to such
modification then such provision shall be severed from this Agreement and, in
either event, the remainder of this Agreement shall remain in full force and
effect; provided, however, if such illegal or invalid provision cannot be
reasonably modified or stricken from this Agreement without substantial
impairment of a Party's rights and expectations under this Agreement, then this
Agreement shall be terminated.
13.3. WAIVER; CONSENTS. No consent or waiver, express or implied, by
either Party hereto to or of any breach or default by the other Party in the
performance by the other of its obligations hereunder shall be valid unless in
writing, and no such consent or waiver shall be deemed or construed to be a
consent or waiver to or of any other breach or default in the performance by
such other Party of the same or any other obligations of such Party hereunder.
Failure on the part of either Party to complain of any act or failure to act of
the other Party or to declare the other Party in default, irrespective of how
long such failure continues, shall not constitute a waiver by such Party of its
rights hereunder. The granting of any consent or approval in any one instance
by or on behalf of RSC or Project Manager shall not be construed to waive or
limit the need for such consent in any other or subsequent instance.
13.4. TIME OF ESSENCE. Subject only to the provisions of section 0
below, time is of the essence in the performance of this Agreement.
13.5. FORCE MAJEURE. A delay in or failure of performance by either
Party of its obligations under this Agreement, other than with respect to the
payment of money, shall not constitute a default if and to the extent that such
delay or failure is caused by occurrences beyond the reasonable control of such
Party and its agents, employees, contractors, subcontractors and consultants,
including but not limited to expropriation or confiscation of facilities,
compliance
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with any order or request of any governmental authority or person purporting to
act therefor, acts of declared or undeclared war, public disorders, rebellion,
sabotage, earthquakes, floods, severe adverse weather conditions, natural
disasters, fire, explosions, riots, strikes, inability of a Party to obtain
necessary materials (or reasonable substitutions therefor), permits or licenses
due to existing or future laws, rules or regulations of governmental
authorities, or any other causes not within the reasonable control of such Party
or its agents, employees, contractors, subcontractors and consultants, and which
by the exercise of reasonable diligence such Party is unable to prevent.
However, (i) Project Manager shall not be entitled to the benefits of this
section 0 unless it gives prompt written notice to RSC of the existence of any
event, occurrence or condition which it believes permits a delay in the
performance of its obligations pursuant to this section 0, and (ii) no such
force majeure event shall prevent either Party from exercising any right it may
have to terminate this Agreement other than due to the default of the other
Party.
13.6. ASSIGNMENT AND SUBCONTRACTORS. By this Agreement, RSC has
specifically bargained for the unique and particular services of the Project
Manager named in this Agreement and the personal services of Gary L. McDonald.
Therefore, Project Manager shall have no right, power or authority to assign or
delegate any of its rights, duties or obligations under, or arising pursuant to,
this Agreement, or any portion hereof, either voluntarily, involuntarily or by
operation of law, without the prior written approval of RSC, which approval RSC
may grant or withhold in its sole and absolute discretion. Consent by RSC of
any particular assignment or delegation shall not constitute approval to any
subsequent assignment or delegation. Without limiting the foregoing, Project
Manager shall not subcontract its services, or any portion thereof, without the
prior written approval of RSC. Any approval by RSC of any subcontract of
Project Manager's services or any part thereof shall not be construed to make
RSC a party to such subcontract or to expose RSC to any claims or liabilities
arising thereunder. RSC shall have the right to assign this Agreement, but such
assignment shall not discharge or release RSC from its duties and obligations to
Project Manager in the event that RSC's assignee does not perform such duties
and obligations. Without waiving the foregoing provisions, all of the rights,
benefits, duties, liabilities, and obligations of the Parties shall inure to the
benefit of and be binding upon the Parties and their respective successors and
assigns.
13.7. ENTIRE AGREEMENT. This Agreement contains all of the
understandings and agreements of the Parties, and supersedes all prior written
and contemporaneous oral discussions, negotiations, understandings and
agreements of the Parties, with respect to the subject matter of this Agreement.
13.8. AMENDMENTS. This Agreement may not be amended except by a
written instrument signed by all of the Parties.
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13.9. CAPTIONS AND HEADINGS. All captions and headings used in this
Agreement are provided for convenience and ease of reference only and are not to
be considered in the construction or interpretation of any provision of this
Agreement.
13.10. INTERPRETATION. Whenever the context requires, all words used
in the singular number shall be deemed to include the plural and vice versa, and
each gender shall include any other gender. The use of the word "including",
when following any general statement, shall not be construed to limit such
statement to the specific items or matters set forth immediately following such
word or to similar items or matters, whether or not nonlimiting language (such
as "without limitation," or "but not limited to," or words of similar import) is
used with reference thereto, but rather shall be deemed to refer to all other
items or matters that could reasonably fall within the broadest possible scope
of such general statement, term or matter. This Agreement has been negotiated
at arms-length between the Parties and shall be interpreted as if drafted by
both Parties. The Parties expressly waive any rule of construction that would
interpret any ambiguous provision against the Party responsible for drafting
such provision.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
and delivered by their respective duly authorized representatives on the dates
set forth beneath their signatures hereto, effective as of the Effective Date.
"RSC" "PROJECT MANAGER"
REGENCY SERVICE CORPORATION, GARY L. McDONALD REAL ESTATE
a California corporation AND DEVELOPMENT CO.,
a California corporation
By: __________________________ By: __________________________
Steve Hertel Name: Gary L. McDonald
President Title: President, Chief Executive Officer
Date: ______________ , 1996 Date: ________________ , 1996
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EXHIBIT A
SCHEDULE OF PROJECTS
PARTNERSHIPS PROJECT TYPE
- - ------------ ------------
Regency - Wilson I LOTS
Regency - Wilson II LOTS
Highlands at Fort Washington SFR
Glen Castle L.P. SFR
Regency - Monte Vista SFR
RSC OWNED PROJECTS
- - ------------------
Blackhorse III SFR
Regency - Mason I SFR
Regency - Mason II SFR
Seville Estates II LOTS
St. Andrews Green (formerly, Regency - Wilson V) LOTS
Woodward Classics Estates II SFR
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EXHIBIT B
PROJECT MANAGER DUTIES
I. Communication
A. Maintain network with:
1. Brokers
2. Developers
3. Government Agencies (i.e., staff of City of Fresno and City of
Clovis) on:
- General and specific plan issues
- Prompt responses to RSC's partners' requests
- Other development/regulatory concerns
4. Building Industry Association president and board to participate
in open dialogue on the local Fresno-Clovis market.
5. Sub-contractors and suppliers
6. Brokers and title companies
B. Meet weekly with partners to discuss sales, marketing, financing and
product acceptance; to critique assumptions and strategies; and to
offer opinions on any aspect of the projects the partners desire.
C. Respond to inquiries from and prepare reports to:
1. RSC Staff
2. RB Staff
3. RSC and RB Boards of Directors
4. The Divestiture Committee
D. Meet with attorneys, accountants and regulators as required to
discuss:
1. Dissolution agreements
2. New partnerships
3. Legal issues
4. Accounting issues
5. Regulatory exams
6. Status, strategies and other aspects of projects, as requested
<PAGE>
E. Meet with homeowners to ensure integrity of projects at:
1. Seville
2. Blackhorse III aka Mason V
3. Others as necessary
F. Meet with lenders to keep them informed as to RSC's partners and
projects, status, strategies, needs and progress.
II. Project Oversight
A. Provide weekly windshield surveys of projects
B. Assess projects against the competition on:
1. Price
2. Appeal
3. Upgrades
4. Design style
5. Other market factors
C. Monitor projects on:
1. Traffic count
2. Sales
3. Closings
4. Absorption
5. Proceeds, costs
6. Partner projections to actual results
D. Maintain files on:
1. Each project
2. Minutes
3. Correspondence
4. Contracts
E. Interface with brokers and escrow/title companies on unit and project
marketing and sales.
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F. Gather, interpret and oversee the filing process of required
documentation as needed.
G. Record the progress of the projects, and submit written progress
reports to the RSC Board.
III. Sales and Marketing
A. Meet weekly with project sales staff to discuss:
1. Escrows
2. Traffic quality
3. Market demands
4. Marketing
5. Financing
6. Trade-in home inventory and related marketing plan.
B. Investigate bulk sale and build out opportunities on:
1. Seville
2. Blackhorse III aka Mason V, phases II and III
3. Wilson V
4. Monte Vista, phase II
5. Others as necessary
C. Meet with the engineers weekly to stimulate progress on the
subdivision maps for:
1. Blackhorse III, phases II and III
2. Gajarian
3. Monte Vista, phase II
IV. Financial
A. Review all construction bills for accuracy and payment and ensure that
each project is within budget and/or compliance with agreement (either
partnership or dissolution) for:
1. Blackhorse III aka Mason V
2. Woodward Classics II
3. Seville
4. Others as necessary
-3-
<PAGE>
B. Review monthly financials on all projects to determine how they are
performing to net realizable values (NRVs) and/or budget.
C. Monitor reimbursement of fees from City of Fresno, City of Clovis,
utility companies and others holding deposits or prepaid fees.
D. Monitor all reports from partners and accountants and provide input as
needed.
V. Direct Management of RSC Inventory
A. Continually analyze and evaluate RSC inventory in terms of market
conditions; identify and evaluate alternatives for inventory
disposition,and recommend method which most effectively meets
objectives of RSC and RB. Methods to be evaluated include,but are not
limited to, bulk sales and the build-out of remaining lots.
B. Bulk Sales Efforts
1. Develop marketing strategy and materials.
a. Assemble necessary information and marketing materials.
b. Identify and make contact with potential buyers through a
variety of methods including, without limitation, individual
direct contact, appropriate group meetings
(breakfasts/lunches) with builders and brokers specializing
in land/lot sales.
c. From initial contacts:
(1) Determine most willing and able prospects for further
contact;
(2) Identify those terms and conditions, such as phased
take downs, subordinations, etc., buyers will need us
to consider;
(3) Analyze financing alternatives such as:
(a) Bank loans
(b) RSC loans
(c) Private party loans
(d) Equity kickers
(e) Partnerships
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(4) Analyze best prospects in terms of:
(a) Price
(b) Takedown schedule
(c) Product to be built
(d) Ability to perform (financial, construction and
management)
(e) Marketing/sales effectiveness
2. Negotiate terms and conditions of sales for RSC approval
3. Monitor performance of buyers per terms and conditions of sales
contract. In addition, regularly review:
a. Construction progress
b. Marketing and sales efforts
c. Absorption rates
C. Direct Build-Out
1. Evaluate alternative methods of accomplishing direct build-out.
a. Serving as general contractor
b. Hiring third party general contractor(s)
2. Recommend a choice to RSC
3. If selected as general contractor:
a. Determine product; select architect and develop plans;
secure building permits.
b. Hire and supervise field construction superintendent.
c. Develop and adhere to construction schedule.
d. Identify and hire subcontractors.
e. Develop and implement marketing program.
f. Select sales team.
g. Develop and approve sales contracts.
h. Arrange for financing assistance for buyers.
i. Monitor and assist in close of escrows.
4. When general contractor is to be hired:
-5-
<PAGE>
a. Screen prospects and recommend final selection to RSC.
b. Negotiate terms and conditions with contractor.
c. Monitor performance under the contract.
d. Assist contractor as needed with:
(1) securing permits
(2) coordinating financing
(3) product selection
(4) marketing and sales efforts
e. Review and approve sales terms prior to offer acceptance.
f. Monitor and assist in close of escrows.
VI. Miscellaneous
A. Perform services listed under the terms of the 1991 MANAGEMENT
AGREEMENT attached hereto as EXHIBIT B-2, where appropriate.
B. Monitor closely the home guarantee program.
C. Monitor all non-traditional balance sheet items:
1. Notes receivable from general partner
2. Notes receivable from other parties
3. Refunds
D. Provide project site security as appropriate.
E. Supervise and direct RSC staff support position as needed.
VII. Administration
A. RSC to provide office space, office equipment and one full support
staff position.
B. Project Manager to provide all other administrative support.
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EXHIBIT B-2
SUPPLEMENTAL MANAGEMENT SERVICES SCHEDULE
FROM 1991 MANAGEMENT AGREEMENT
-7-
<PAGE>
EXHIBIT C
COMPENSATION SCHEDULE
In consideration for services actually rendered by Project Manager to RSC under
this Agreement, RSC agrees to compensate Project Manager according to the
following terms:
MONTHLY FEE:
RSC shall pay Project Manager a fee of twenty five thousand dollars
($25,000.00) per month for each month during the term of this Agreement.
Payment shall be made in arrears by the first (1st) day of the calendar month
following the month for which such payment is due. The payment for any partial
calendar month at the beginning or end of the term of this Agreement shall be
prorated based on the number of days in such month within the term of this
Agreement.
COMMISSION FEE:
RSC further agrees to pay Project Manager a fee of three percent (3%) of
the total sales price of each lot, whether improved or unimproved, which is sold
from the St. Andrews Green development (formerly known as Regency-Wilson V).
Such fee will be paid from the sales proceeds actually received by RSC, if, as
and when each sale is consummated, the purchase price (net of fees, costs and
prorations allocated to RSC) therefor is received by RSC, and title is
transferred to the buyer of the lot sold. Such fee shall be payable
notwithstanding that the buyer of the lot sold was procured by a person other
than Project Manager. Notwithstanding the foregoing, it is agreed that no fee
shall be due or payable with respect to a lot if the sale of such lot is not
finally consummated as provided above, for any reason, including, without
limitation, due to (a) the acts or omissions of RSC, its agents, employees or
representatives; (b) the buyer's failure or refusal to accept the title offered
by RSC; or (c) the unmarketability or uninsurability of the title.
Project Manager's right to receive, and RSC's obligation to pay, such fee
with respect to the sale of any particular lot from the St. Andrews Green
development shall survive the expiration or termination of this Agreement for a
period of ninety (90) days; provided that (a) on or before the termination of
this Agreement (i) a binding contract of sale shall have been entered into
between RSC and the buyer of such lot, (ii) such contract shall be subject only
to customary conditions of purchase (e.g., buyer's approval of the condition of
the property and title, and buyer's ability to obtain financing), (iii) an
escrow account shall have been opened and the buyer shall have placed its
initial deposit therein; (b) this Agreement shall not have been terminated by
RSC due to Project Manager's default; and (c) payment of such fee shall not
violate or contravene the terms of any law, rule, regulation, order or directive
from any regulatory agency or other governmental authority having or purporting
to have jurisdiction over RSC or any of its Affiliates. After the expiration of
such ninety (90) day period, all rights of Project Manager to receive such fee
shall terminate absolutely, notwithstanding any role Project Manager may have
had in procuring a buyer for any lot.
<PAGE>
EXHIBIT *10.3
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (the "Agreement") is made and entered into this
_______day of ___________ 199__ , by and between Regency Bancorp, a California
corporation (hereinafter called the "Corporation"), and _______________________
(hereinafter called "Indemnitee") (sometimes hereinafter collectively called
"the Parties hereto").
RECITALS
WHEREAS, the Corporation is aware that competent and experienced persons
are becoming more reluctant to serve as directors or officers of a corporation
unless they are protected by comprehensive insurance or indemnification from
increased exposure to litigation costs and risks resulting from their services
to such corporations; and
WHEREAS, the periodic unavailability of obtaining adequate insurance and
the uncertainties related to indemnification have increased the difficulty of
attracting and retaining such persons; and
WHEREAS, the cost of defending lawsuits is enormous and few individual
directors and officers have the resources to sustain such legal costs, not to
mention assuming the risk of a large judgment and other expenses even in cases
where defendant was neither culpable nor profited personally to the detriment of
the corporation; and
WHEREAS, the members of the Board of Directors of the Corporation, based
upon their experience as business managers, have concluded that present trends
in litigation against corporate directors and officers will result in less
effective direction and supervision of the Corporations and its Subsidiaries'
and Affiliates' (as defined below) business affairs and the operation of their
facilities due to the increased reluctance of officers and directors to take
necessary business risks on behalf of the Corporation, its Subsidiaries and
Affiliates, and the Board deems such consequences to be so detrimental to the
best interests of the Corporation's shareholders and the Corporation that its
directors and officers should be provided with maximum protection against
inordinate risks in order to insure that the most capable persons otherwise
available will be attracted to such positions; therefore, said directors have
further concluded that it is not only reasonable and prudent but necessary for
the Corporation to contractually obligate itself to indemnify in a reasonable
and adequate manner its directors and officers and the directors and officers of
its Subsidiaries and Affiliates and to assume for itself maximum liability for
expenses and damages in connection with claims against such officers and
directors in connection with their service to the Corporation, its Subsidiaries
and Affiliates; and
<PAGE>
WHEREAS, Section 317 of the General Corporation Law of the State of
California ("Section 317"), under which the Coporation is organized, empowers
corporations to indemnify a person serving as a director, officer, employee or
agent of the corporation or a person who serves at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, or other enterprise, and further specifies
that the indemnification set forth in said section "shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, to the extent the additional rights to indemnification
are authorized in the articles of the corporation"; and the Articles of
Incorporation of the Corporation authorize such additional rights to
indemnification; and said section further empowers a corporation "to purchase
and maintain insurance," on behalf of such persons, "against any liability
asserted against or incurred by the agent in that capacity or arising out of the
agent's status as such, whether or not the corporation would have the power to
indemnify the agent against that liability under the provisions of this
section;" and
WHEREAS, the Corporation desires to have Indemnitee serve or continue to
serve as a director or officer of the Corporation and/or one or more of the
Affiliates or Subsidiaries of the Corporation of which he/she has been or is
serving at the request of, for the convenience of, or to represent the interests
of the Corporation; and
WHEREAS, the Indemnitee is willing to serve, or to continue to serve, the
Corporation and/or one or more of the Affiliates or Subsidiaries of the
Corporation, provided Indemnitee is furnished with the indemnification provided
for herein.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Corporation and Indemnitee do hereby covenant and agree,
with the intent to be legally bound, as follows:
1. DEFINITIONS.
(a) AGENT. For the purposes of this Agreement, "Agent" of the Corporation
means any person who is or was a director, officer, employee or other agent of
the Corporation who is or was serving at the request of, for the convenience of,
or to represent the interests of the Corporation as a director, officer,
employee or agent of another foreign or domestic corporation, partnership, joint
venture, trust or other enterprise; or was a director, officer, employee or
agent of a foreign or domestic corporation which was a predecessor corporation
of the Corporation or was a director, officer, employee or agent of another
enterprise at the request of, for the convenience of, or to represent the
interests of such predecessor corporation.
<PAGE>
(b) EXPENSES. For purposes of this Agreement, "Expenses" includes all
direct and indirect costs of any type or nature whatsoever (including, without
limitation, all attorneys' fees and related disbursements, other out-of-pocket
costs and reasonable compensation for time spent by the Indemnitee for which
he/she is not otherwise compensated by the Corporation or any third party)
actually and reasonably incurred by the Indemnitee in connection with either the
investigation, defense or appeal of a Proceeding (as defined in Section l(c) of
this Agreement) or establishing or enforcing a right to indemnification under
this Agreement, Section 317 of the California General Corporation Law or
otherwise; PROVIDED, HOWEVER, that "Expenses" shall not include any judgments,
fines, or amounts paid in settlement of a Proceeding.
(c) PROCEEDING. For the purposes of this Agreement, "Proceeding" means
any threatened, pending, or completed action, suit or other proceeding, whether
civil, criminal, administrative, investigative or any other type whatsoever
except one pending on or before the Effective Date as defined in Section 1(h) of
this Agreement.
(d) SUBSIDIARY. For purposes of this Agreement, "Subsidiary" means any
corporation of which more than 50% of the combined voting power is owned
directly or indirectly by the Corporation, by the Corporation and one or more
other Subsidiaries of the Corporation, or by one or more other Subsidiaries of
the Corporation.
(e) AFFILIATE. For purposes of this Agreement, "Affiliate" means any
foreign or domestic corporation, partnership, joint venture, trust or other
enterprise in which any person is an Agent of the Corporation as defined in
Section 1(a) of this Agreement.
(f) CHANGE IN CONTROL. For purposes of this Agreement, "Change in
Control" means any change in control of the Corporation occurring after the
Effective Date of a nature that would be required to be reported in response to
Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item
on any similar schedule or form) promulgated under the Securities Exchange Act
of 1934 (the "Act") , whether or not the Corporation is then subject to Section
14 of the Act; PROVIDED, HOWEVER, that, without limitation, such a Change in
Control shall be deemed to have occurred if after the Effective Date:
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Act), directly or indirectly, of the securities of the Corporation
representing 10% or more of the combined voting power of the Corporation's then
outstanding securities without the prior approval of at least two-thirds of the
members of the Board of Directors in office immediately prior to such person
obtaining such percentage interest;
(ii) there occurs a proxy contest, or the Corporation is a party to a
merger, consolidation, sale of assets, plan of liquidation or other
reorganization not approved by at least two-thirds of the members of the Board
of Directors then in office, as a consequence of which members of the Board of
Directors in office immediately prior to such transaction or event constitute
less than a majority of the Board of Directors thereafter; or
<PAGE>
(iii) during any period of two consecutive years, other than as a
result of an event described in clause (f) (ii) of this Section 1, individuals
who at the beginning of such period constituted the Board of Directors
(including for this purpose any new director whose election or nomination for
election by the Corporation's stockholders was approved by a vote of at least
two-thirds of the directors then still in office who were directors at the
beginning of such period) cease for any reason to constitute at least a majority
of the Board of Directors.
(g) DISINTERESTED DIRECTOR. For purposes of this Agreement,
"Disinterested Director" means a director of the Corporation who is not and was
not a party to the Proceeding in respect of which indemnification is sought by
Indemnitee.
(h) EFFECTIVE DATE. For purposes of this Agreement, "Effective Date"
means the date of this Agreement.
(i) INDEPENDENT COUNSEL. For purposes of this Agreement, "Independent
Counsel" means a law firm, or member of a law firm, that is experienced in
matters of corporate law and neither presently is, nor in the past five (5)
years has been, retained to represent (i) the Corporation or Indemnitee in any
matter material to either such party, and/or (ii) any other party to the
Proceedings giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the
Corporation or Indemnitee in an action to determine Indemnitee's rights under
this Agreement.
2. AGREEMENT TO SERVE.
The Indemnitee agrees to serve and/or continue to serve as an Agent of the
Corporation, at its will (or under separate agreement, if such agreement
exists), in the capacity Indemnitee currently serves as an Agent of the
Corporation, faithfully and to the best of his/her ability, so long as he/she is
duly appointed or elected and qualified in accordance with the applicable
provisions of the bylaws thereof or any Subsidiary or Affiliate thereof, or
until such time as he/she tenders his/her resignation in writing; PROVIDED,
HOWEVER, that this agreement is not intended to create any rights or liabilities
other than with respect to indemnification. The parties expressly agree that
their respective rights and obligations as to any other matter, including but
not limited to employment, removal as a director or officer, termination of
employment, and the agency relationship, are governed by law, contracts and/or
agreements separate and apart from the Agreement. Thus, nothing in this
Agreement shall create or is intended to create any independent rights to any
form of continued agency relationship.
3. MAINTENANCE OF LIABILITY INSURANCE.
(a) The Corporation hereby covenants and agrees that, so long as the
Indemnitee shall continue to serve as an Agent of the Corporation and thereafter
so long as the Indemnitee shall be subject to any Proceeding by reason of the
fact that the Indemnitee was an Agent of the
<PAGE>
Corporation, the Corporation, subject to Section 3(c), shall promptly obtain and
maintain in full force and effect directors' and officers' liability insurance
("D&O Insurance") in reasonable amounts from established and reputable insurers.
(b) In all policies of D&O Insurance, the Indemnitee shall be named an as
insured in such a manner as to provide the Indemnitee the same rights and
benefits as are accorded to the most favorably insured of the Corporation's
directors, if the Indemnitee is a director; or of the Corporation's officers, if
the Indemnitee is not a director of the Corporation but is an officer; or of the
Corporation's key employees, if the Indemnitee is not an officer or director but
is a key employee.
(c) Notwithstanding the foregoing, the Corporation shall have no
obligation to obtain or maintain D&O Insurance if the Corporation determines in
good faith that such insurance is not reasonably available, the premium costs
for such insurance are disproportionate to the amount of coverage provided,
the coverage provided by such insurance is limited by exclusions so as to
provide an insufficient benefit, or the Indemnitee is covered by similar
insurance maintained by a Affiliate or Subsidiary of the Corporation.
4. OPTIONAL MEANS OF ASSURING PAYMENT.
Upon notice, as defined in Section 9 of this Agreement, by an Indemnitee
certifying that Indemnitee has reasonable grounds for believing Indemnitee may
be made a party to a Proceeding for which Indemnitee may be entitled to
indemnification under this Agreement, the Corporation may, but is not obligated
or required to, create a trust fund, grant a security interest or use other
means (including, without limitation, a letter of credit) to ensure the payment
of such sums as may become necessary to effect indemnification as provided
herein.
5. INDEMNIFICATION.
The Corporation shall indemnify the Indemnitee as provided in this
Agreement and to the fullest extent permitted by applicable law on the Effective
Date of this Agreement and applicable law as amended from time to time:
(a) If Indemnitee is a person who was or is a party or is threatened to be
made a party to any Proceeding (other than an action by or in the right of the
Corporation, a Subsidiary or an Affiliate of the Corporation to procure a
judgment in its favor) by reason of the fact that Indemnitee is or was an Agent
of the Corporation, a Subsidiary or an Affiliate of the Corporation, against any
and all Expenses, judgments, fines and amounts paid in settlement and other
amounts actually and reasonably incurred by Indemnitee in connection with the
investigation, defense or appeal of such Proceeding if Indemnitee acted in good
faith and in a manner he/she reasonably believed to be in the best interests of
the Corporation, a Subsidiary or an Affiliate of the Corporation, as the case
may be, and with respect to any criminal Proceeding, had no reasonable cause to
believe his/her conduct was unlawful; or
<PAGE>
(b) If Indemnitee is a person who was or is a party or is threatened to be
made a party to any Proceeding by or in the right of the Corporation, a
Subsidiary or an Affiliate of the Corporation to procure a judgment in its favor
by reason of the fact that Indemnitee is or was an Agent of the Corporation, a
Subsidiary or an Affiliate of the Corporation or by reason of anything done or
not done by Indemnitee, against any and all Expenses, actually and reasonably
incurred by Indemnitee in connection with the investigation, defense, settlement
or appeal of such Proceeding if Indemnitee acted in good faith and in a manner
he/she reasonably believed to be in the best interests of the Corporation and
its shareholders; PROVIDED, HOWEVER, that no indemnification under this
subsection shall be made in respect of any claim, issue or matter as to which
Indemnitee shall have been adjudged to be liable to the Corporation in the
performance of his/her duty to the Corporation and its shareholders, unless and
only to the extent that the court in which such Proceeding is or was pending
shall determine upon application that, in view of all the circumstances of the
case, Indemnitee is fairly and reasonably entitled to indemnity for such
Expenses which such court shall determine; FURTHER, PROVIDED, that no
indemnification under this subsection shall be made of amounts paid in settling
or otherwise disposing of an pending action without court approval; FURTHER,
PROVIDED, that no indemnification under this subsection shall be made of
Expenses incurred in defending a pending action which is settled or otherwise
disposed of without court approval.
(c) Notwithstanding the foregoing, the Corporation shall not be obligated
to indemnify the Indemnitee for Expenses, judgments, fines, settlements, and
other amounts reasonably incurred in connection with a Proceeding which have
been paid directly to Indemnitee by reason of Indemnitee's coverage by D&O
Insurance.
6. PARTIAL INDEMNIFICATION.
If the Indemnitee is entitled under any provision of this Agreement to
indemnification by the Corporation for some or a portion of any Expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
by him/her in the investigation, defense, settlement or appeal of a Proceeding
but not entitled, however, to indemnification for all of the total amount
thereof, the Corporation shall indemnify the Indemnitee in connection with each
successfully resolved claim, issue or matter, and not as to the portion thereof
to which the Indemnitee is not entitled.
7. PLEA OF NOLO CONTENDERE.
The termination of any Proceeding which is covered by Section 5(a) of
this Agreement against Indemnitee by judgment, order, settlement or conviction,
or upon a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption for the purposes of Section 5(a) of this Agreement that
Indemnitee did not act in good faith and in a manner which he/she reasonably
believed to be in the best interests of the Corporation, a Subsidiary or an
Affiliate of the Corporation and, with respect to any criminal Proceeding, had
reasonable cause to believe that his/her conduct was unlawful.
<PAGE>
8. INDEMNIFICATION FOR EXPENSES AS A WITNESS.
Notwithstanding any other provision of this Agreement, to the extent that
Indemnitee is, by reason of the fact that he/she is or was an Agent of the
Corporation, or by reason of anything done or not done by him/her in such
capacity, a witness in any Proceeding to which Indemnitee is not a party, he/she
shall be indemnified against all Expenses actually and reasonably incurred by
him/her or on his/her behalf.
9. NOTICE AND OTHER INDEMNIFICATION PROCEDURES.
(a) Promptly after receipt by the Indemnitee of notice of the commencement
of or the threat of commencement of any Proceeding (including but not limited to
being served with any summons, citation, subpoena, complaint, indictment,
information or other document relating to any Proceeding or matter which may be
subject to indemnification or advancement of Expenses covered by this
Agreement), the Indemnitee shall, if the Indemnitee believes that
indemnification with respect thereto may be sought from the Corporation under
this Agreement, notify the Corporation in writing of the commencement or threat
of commencement thereof, along with such documentation and information as is
reasonably available to Indemnitee and is reasonably necessary to determine
whether and to what extent Indemnitee is or may be entitled to indemnification.
(b) If, at the time of receipt by the Corporation from the Indemnitee of
the written notice specified in Section 9(a) above, the Corporation has D&O
Insurance in effect, the Corporation shall promptly notify its insurer or
insurers of the matters contained in such written notice in accordance with the
terms of such insurance policy or policies and shall thereafter take all action
necessary to cause such insurer or insurers to pay, on Indemnitee's behalf, all
amounts payable as a result of such Proceeding in accordance with the terms of
such policies.
(c) In the event the Corporation shall be obligated to pay the Expenses of
any Proceeding against the Indemnitee, the Corporation, if appropriate, shall be
entitled to assume the defense of such Proceeding, with counsel reasonably
satisfactory to the Indemnitee, upon the delivery to the Indemnitee of written
notice of its election so to do. Thereafter, the Corporation shall not be
liable to Indemnitee under this Agreement for any attorneys' fees and Expenses
subsequently incurred by Indemnitee with respect to the same Proceeding(s)
except as provided in this Section 9(c) below. The Indemnitee shall have the
right to employ his/her counsel of choice in any such Proceeding(s) but the fees
and Expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the Indemnitee's expense unless
(i) the employment of said counsel by Indemnitee has been previously authorized
by the Corporation, (ii) Indemnitee shall have reasonably concluded that there
is or may be a conflict of interest between the Corporation and Indemnitee in
the conduct of the defense of such Proceeding(s) or (iii) the Corporation shall
not, in fact, have employed counsel to assume the defense of such Proceeding(s),
in each such case the fees and Expenses of Indemnitee's counsel shall be at the
expense of the Corporation.
<PAGE>
10. DETERMINATION OF RIGHT TO INDEMNIFICATION.
(a) Anything contained elsewhere herein to the contrary notwithstanding,
the determination as to whether or not Indemnitee has met the standard of
conduct required to qualify and entitle him/her, partially or fully, to
indemnification under the provisions of Section 5 (a), (b) or (c) of this
Agreement may be made either (i) by the Board of Directors by a majority vote of
a quorum consisting of Disinterested Directors; (ii) if such quorum is not
obtainable or, even if obtainable, if a quorum of Disinterested Directors so
directs, by Independent Counsel in a written opinion; or (iii) by the
shareholders of the Corporation with the shares owned by Indemnitee not being
entitled to vote thereon.
(b) To the extent that Indemnitee has been successful on the merits in
defense of any Proceeding referred to in Section 5 of this Agreement, or in
defense of any claim, issue or matter described therein, the Corporation shall
indemnify Indemnitee and hold Indemnitee harmless from and against all Expenses
actually and reasonably incurred by him/her in connection therewith.
(c) Notwithstanding the foregoing or any other provision of this
Agreement, the Corporation shall not be liable hereunder to indemnify Indemnitee
(i) if Indemnitee is or was a Director of the Corporation, for any acts,
omissions or transactions by Indemnitee in such capacity from which he/she may
not be relieved of liability as set forth in Section 204(a) (10) of the
California General Corporation Law; and/or (ii) as to any circumstances in which
indemnity is expressly prohibited by Section 317 or successor statutes thereto.
(d) Notwithstanding the foregoing or any other provision of this
Agreement, the Corporation shall not be liable hereunder to indemnify Indemnitee
in connection with any Proceeding (i) initiated or brought voluntarily by
Indemnitee and not by way of defense unless, subject to Section 10(d)(F) below,
brought to establish or enforce a right of indemnification under this Agreement
or any statute, law or otherwise provided under Section 317; PROVIDED, HOWEVER,
that indemnification or advancement of Expenses may be provided by the
Corporation in specific cases if the Board of Directors of the Corporation, in
its sole discretion, finds it to be appropriate, or (ii) brought against
Indemnitee:
(A) Which is settled by Indemnitee unless Indemnitee gives written notice
of the Proceeding in accordance with Section 9(a) hereof and the
Corporation consents to such settlement;
(B) For which Indemnitee is otherwise indemnified by the Corporation;
(C) For which Indemnitee has been paid or is entitled to be paid by an
insurance company under any insurance policy maintained by the Corporation;
(D) If a court of competent jurisdiction determines that indemnification
relating to such claim would be unlawful;
<PAGE>
(E) If a court of competent jurisdiction determines that Indemnitee's
conduct was knowingly fraudulent or deliberately dishonest and was material
to the claim adjudicated by the court; or
(F) If a court of competent jurisdiction determines that the material
assertions made by Indemnitee in a Proceeding instituted by Indemnitee to
enforce or interpret the provisions hereof was not made in good faith or
was frivolous.
11. PREPAID EXPENSES.
The Expenses incurred by Indemnitee in investigating, defending or
appealing any Proceeding covered under this Agreement shall be paid by the
Corporation in advance as may be appropriate to properly defend any such
Proceeding, with the understanding and agreement hereby made and entered into by
Indemnitee and the Corporation, that in the event it shall ultimately be
determined as provided hereunder that Indemnitee was not entitled to be fully
indemnified, that Indemnitee shall repay to the Corporation such amount, or the
appropriate portion thereof, so paid or advanced. The advances to be made
hereunder shall be paid by the Corporation to the Indemnitee within thirty (30)
days following delivery of copies of invoices for such amounts by the Indemnitee
to the Corporation.
12. NON-EXCLUSIVITY.
The provisions for indemnification and advancement of Expenses set forth in
this Agreement shall not be deemed exclusive of any other rights which the
Indemnitee may have under any provision of law, the Corporation's Articles of
Incorporation or Bylaws, the vote of the Corporation's shareholders or
Disinterested Directors, other agreements, or otherwise, both as to action in
his/her official capacity and to action in another capacity while occupying
his/her position as an Agent of the Corporation, and the Indemnitee's rights
hereunder shall continue after the Indemnitee has ceased acting as an Agent of
the Corporation and shall inure to the benefit of the heirs, executors and
administrators of the Indemnitee.
(a) No amendment, alteration or repeal of this Agreement or of any
provision hereof shall limit or restrict any right of Indemnitee under this
Agreement in respect of any action taken or omitted by such Indemnitee by
reason of the fact that he/she is or was an Agent of the Corporation prior
to such amendment, alteration or repeal.
(b) In the event of any payment under this Agreement, the Corporation
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and take all
action necessary to secure such rights, including execution of such
documents as are necessary to enable the Corporation to bring suit to
enforce such rights.
<PAGE>
13. REMEDIES OF INDEMNITEE.
(a) In the event that (i) a determination is made pursuant to Section
10 of this Agreement that Indemnitee is not entitled to indemnification
under this Agreement, (ii) advancement of Expenses is not timely made
pursuant to Section 11 of this Agreement, (iii) no determination of
entitlement to indemnification shall have been made pursuant to Section 10
of this Agreement within 90 days after receipt by the Corporation of a
request for indemnification, (iv) payment of indemnification is not made
pursuant to Section 5 or 6 of this Agreement within thirty (30) days after
receipt by the Corporation of a written request therefore, or (v) payment
of indemnification is not made within thirty (30) days after a
determination has been made that Indemnitee is entitled to indemnification,
Indemnitee shall be entitled to an adjudication in an appropriate court of
the State of California, or in another court of competent jurisdiction, of
his/her entitlement to such indemnification or advancement of Expenses.
Alternatively, Indemnitee, at his/her option, may seek an award in
arbitration to be conducted by a single arbitrator pursuant to the
Commercial Arbitration Rules of the American Arbitration Association.
Indemnitee shall commence such proceeding seeking an adjudication or an
award in arbitration within 180 days following the date on which Indemnitee
first has the right to commence such proceeding pursuant to this Section
13; PROVIDED, however, that the foregoing clause shall not apply in respect
to a Proceeding brought by Indemnitee to enforce his/her rights under
Sections 5 or 6 of this Agreement.
(b) In the event that a determination shall have been made pursuant
to Section 10 of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant
to this Section 13 shall be conducted in all respects as a DE NOVO trial,
or arbitration, on the merits and Indemnitee shall not be prejudiced by
reason of that adverse determination. If a Change of Control shall have
occurred on or after the commencement of a Proceeding, in any judicial
proceeding or arbitration commenced pursuant to this Section 13, the
Corporation shall have the burden of proving that Indemnitee is not
entitled to indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made pursuant to Section 10 of
this Agreement that Indemnitee is entitled to indemnification, the
Corporation shall be bound by such determination in any judicial proceeding
or arbitration commenced pursuant to this Section 13, absent (i) a
misstatement by Indemnitee of a material fact, or an omission of a material
fact necessary to make Indemnitee's statement not materially misleading, in
connection with the request for indemnification, or (ii) a prohibition of
such indemnification under applicable law.
(d) In the event that Indemnitee, pursuant to this Section 13, seeks
a judicial adjudication of or an award in arbitration to enforce his/her
rights under, or to recover damages for breach of, this Agreement,
Indemnitee shall be entitled to recover from the Corporation, and shall be
indemnified by the Corporation against, any and all Expenses incurred by
him/her in such judicial adjudication or arbitration, but only if he/she
prevails
<PAGE>
therein. If it shall be determined in said judicial adjudication or
arbitration that Indemnitee is entitled to receive part but not all of the
indemnification or advancement of Expenses sought, the Expenses incurred by
Indemnitee in connection with such judicial adjudication or arbitration
shall be appropriately prorated.
14. DURATION OF AGREEMENT.
This Agreement shall continue until and terminate upon the later of: (a) 10
years after the date that Indemnitee shall have ceased to serve as a director,
officer, employee, or Agent of the Corporation or of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
which Indemnitee served at the request of the Corporation; or (b) the final
termination of any Proceeding then pending in respect of which Indemnitee is
granted rights of indemnification or advancement of Expenses hereunder and of
any Proceeding commenced by Indemnitee pursuant to Section 13 of this Agreement
relating thereto.
15. SEVERABILITY.
If any provision or provisions of this Agreement shall be held to be
invalid, illegal or unenforceable for any reason whatsoever (a) the validity,
legality, and enforceability of the remaining provisions of this Agreement
(including without limitation, all portions of any Sections of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
are not themselves invalid, illegal or unenforceable) shall not in any way be
affected or impaired thereby, and (b) to the fullest extent possible, the
provisions of this Agreement (including, without limitation, all portions of any
Sections of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal, or unenforceable, and to give effect to
Section 15 hereof.
16. INTERPRETATION OF AGREEMENT.
It is understood that the parties hereto intend this Agreement to be
interpreted and enforced so as to provide indemnification to the Indemnitee to
the fullest extent now or hereafter permitted by law.
17. PRIOR AGREEMENTS.
This Agreement shall be of no force and effect with regard to the cost of
settlement borne or paid by Indemnitee under the provisions of any agreement
executed by the Corporation and/or Indemnitee prior to the date hereof.
18. IDENTICAL COUNTERPARTS.
This Agreement shall be of no force and effect with regard to the cost of
settlement borne or paid by Indemnitee under the provisions of any agreement
executed by the Corporation and/or Indemnitee prior to the date hereof.
<PAGE>
19. HEADINGS.
The headings of the Sections of this Agreement are indented for convenience
only and shall not be deemed to constitute part of this Agreement or to affect
the construction thereof.
20. USE OF CERTAIN TERMS.
As used in this Agreement, the words "herein", "hereof" and "hereunder" and
other words of similar import refer to this Agreement as a whole and not to any
particular Section, subparagraph or other subdivision. Whenever the context
requires, all words used in the plural shall be construed in the singular and
vice versa, and each gender shall include the other gender.
21. MODIFICATION AND WAIVER.
No supplement, modification or amendment of this Agreement shall be binding
unless executed in writing by both of the parties hereto. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provisions hereof (whether or not similar) nor shall such waiver
constitute a continuing waiver.
22. NOTICE TO THE CORPORATION BY INDEMNITEE.
Indemnitee agrees to notify the Corporation in writing promptly upon being
served with any citation, complaint, indictment or other document covered
hereunder, either civil or criminal.
23. NOTICES.
All notices, requests, demands and other communications hereunder shall be
in writing and shall be deemed to have been duly given if (a) delivered by hand
and receipted for by the party to whom said notice or other communication shall
have been delivered or if (b) mailed by certified or registered mail with
postage prepaid on the third business day after the date on which it is so
mailed.
(a) If to Indemnitee, at the address indicated on the signature page
hereof.
(b) If to the Corporation, to:
Regency Bancorp
P.O. Box 16279
Fresno, CA 93755-6279
Attention: President
or to such address as a party may have furnished to the other in writing in
accordance with this paragraph.
<PAGE>
24. GOVERNING LAW.
This Agreement shall be governed exclusively by and construed according to
the laws of the State of California, as applied to contracts between California
residents entered into and to be performed entirely within California.
25. SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit of the
Corporation and its successors and assigns and shall be binding upon and inure
to the benefit of Indemnitee and his/her heirs, executors and administrators.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
ATTEST: REGENCY BANCORP
a California Corporation
BY:________________________________ BY:_________________________________
ITS:_______________________________ ITS:________________________________
Indemnitee:
____________________________________
Address: ____________________________________
____________________________________
<PAGE>
EXHIBIT 10.4
COMMERCIAL LEASE
LANDLORD: STEPHEN L. FRAZIER AND SALLY L. FRAZIER TRUST
TENANT; REGENCY BANK
PROPERTY: 126 NORTH D STREET, MADERA, CALIFORNIA
PREAMBLE
This lease is made and entered into on May 13, 1996, by and between STEPHEN L.
FRAZIER AND SALLY L. FRAZIER TRUST ("Landlord"), and REGENCY BANK, a California
corporation ("Tenant").
Landlord, for and in consideration of the rent to be paid by Tenant and of
the covenants and provisions to be kept and performed by Tenant under this
lease, hereby leases to Tenant, and Tenant agrees to lease from Landlord, the
real property commonly known as 126 North D Street, Madera, California, and
legally described on Exhibit "A" attached hereto ("the Property"), together with
the freestanding single-story building ("the Building") and paved parking
(collectively referred to as "the Improvements") located on the Property. The
term "Premises" as used in this lease shall mean both the Property and the
Improvements.
ARTICLE 1. TERM OF LEASE
ORIGINAL TERM
Section 1.01. This lease shall be for a term of three (3) years, commencing
at 12:01 A.M. on the date on which Tenant takes possession of the Premises, or
July 9, 1996, whichever first occurs ("Commencement Date"), and ending at 12:01
A.M. on the date which is exactly three (3) years from the Commencement Date
("Original Term"), unless terminated earlier pursuant to the provisions of this
lease.
CONTINGENCY OF FDIC APPROVAL
Section 1.02. Except as stated in Section 1.03, below, the rights and
obligations of the Tenant under this lease are contingent upon the approval of
this lease by the Federal Deposit Insurance Corporation (FDIC).
NONCONTINGENT OBLIGATIONS OF TENANT
Section 1.03. Whether or not the Tenant obtains FDIC approval of this
lease, in consideration of the Landlord allowing up to one hundred twenty (120)
days from March 11, 1996 (July 9, 1996) for Tenant to obtain the approval of
this lease by the
1
<PAGE>
FDIC, Tenant unconditionally agrees to pay to Landlord the sum of $1,500.00 per
month, commencing May 10, 1996, and continuing through July 8, 1996, and the sum
of $2,091.75 per month, thereafter, commencing July 9, 1996. Tenant shall not
take possession of the Premises until the approval of FDIC is first obtained.
The taking of possession of the Premises by the Tenant shall be deemed to be
presumptive evidence as between the parties to this lease that FDIC approval of
this lease has been obtained by Tenant, thereby removing any contingency to this
lease as stated in Section 1.02, above. The obligation of the Tenant to make
payments to Landlord pursuant to this Section shall cease thirty (30) days after
written notice is received by Landlord from Tenant of the failure of Tenant to
have obtained the approval of this lease from FDIC. Any payments due under this
Section shall be prorated as of the end of the thirty (30) day period following
the receipt by Landlord of such written notice. If Tenant has not taken
possession of the Premises on or before July 9, 1996, Landlord may terminate
this lease upon thirty (30) day written notice being received by Tenant from
Landlord that unless Tenant takes possession of the Premises, and thereby
removes the contingency created by this Section, before the expiration of said
thirty (30) day period, this lease, and all of the rights and obligations of the
parties under this lease, except the obligation of the Tenant to make payments
pursuant to this Section, shall terminate at the conclusion of said thirty
(30) day period.
EXTENDED TERM
Section 1.04. In the event Tenant is not then in default under this lease,
Tenant shall have the option and right to extend the Original Term of this lease
for one period of three (3) years, commencing on expiration of the original
Term. If Tenant elects to extend the term of this lease, Tenant must give
Landlord written notice of Tenant's election to extend at least ninety (90) days
before expiration of the Original Term. During the Extended Term of this lease,
if any, Landlord and Tenant shall be bound by all of the obligations, covenants,
and agreements of this lease except that Tenant shall have no right to further
extend the term of this lease beyond or after expiration of the one three-year
period granted under this section. References throughout this lease to "the
term of this lease" shall include both the Original Term and the Extended Term,
if any, unless otherwise indicated.
HOLDING OVER
Section 1.05. In the event Tenant holds over and continues in possession of
the Premises after expiration of the original Term (when Tenant has not validly
exercised its option to extend the term of the lease in accordance with Section
1.04) or after expiration of the Extended Term (when Tenant has validly
exercised its option to extend the term of the lease in accordance with Section
1.04),
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<PAGE>
Tenant's continued occupancy of the Premises shall be considered a month-to-
month tenancy subject to all the terms and conditions of this lease, with the
amount of rent payable for each month during the month-to-month tenancy being
the same as that stated for the Extended Term, as provided in Section 2.01,
below.
LANDLORD'S INABILITY TO DELIVER POSSESSION
Section 1.06. If Landlord is for any reason unable to deliver possession of
the Premises to Tenant on the Commencement Date set forth in Section 1.01 of
this lease, this lease shall not be void or voidable nor shall Landlord be
liable to Tenant for any loss or damage resulting from failure to deliver
possession to Tenant so long as Landlord has exercised, and continues to
exercise, reasonable diligence to deliver possession of the Premises to Tenant.
No rent shall, however, accrue or become due from Tenant to Landlord under this
lease until the actual physical possession of the Premises is delivered, or the
right to actual unrestricted physical possession of the Premises under this
lease is tendered by Landlord to Tenant. Furthermore, the term of this lease
shall not be extended by Landlord's inability to deliver possession of the
Premises to Tenant on the Commencement Date set forth in Section 1.01.
TERMINATION FOR FAILURE OF POSSESSION
Section 1.07. Notwithstanding any provision of Section 1.06 of this lease, if
Landlord for any reason fails to deliver actual physical possession of the
Premises, or fails to tender actual unrestricted physical possession of the
Premises under this lease, to Tenant within ten (10) days after the date
specified in Section 1.01 of this lease for commencement of the term of this
lease, Tenant may terminate this lease by giving Landlord written notice of its
election to do so. In the event Tenant elects to so terminate this lease, this
lease shall become null and void as of the date Tenant delivers its written
notice of termination to Landlord, and thereafter neither party to this lease
shall be under any further obligation or liability to the other because of this
lease and Landlord shall return to Tenant any consideration received from Tenant
pursuant to or for execution of this lease, including any rents paid. If Tenant
elects to terminate this lease in accordance with the provisions of this
section, it shall give written notice of its election to terminate to Landlord
not later than five (5) days after the date specified in Section 1.01 of this
lease for commencement of the term of this lease.
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ARTICLE 2. RENT
RENT
Section 2.01. Tenant agrees to pay to Landlord a fixed rental for the use
and occupancy of the Premises (the "Rent"). The amount of Rent payable for each
month during the original Term shall be $2,091.75, and the amount of Rent
payable for each month during the Extended Term, if any, shall be $2,510.10. The
Rent shall be payable on the first day of each and every month commencing on the
first day of the month after the Tenant takes possession of the premises (the
"Rent Commencement Date"), at the office of Landlord at 413 Mainberry, Madera,
California 93637, or at any other place or places as Landlord may from time to
time designate by written notice delivered to Tenant. Rent for partial calendar
months occurring at the commencement and termination of the term of this lease
shall be prorated accordingly.
EASIS FOR RENT
Section 2.02. The amount of Rent stated in Section 2.01, above, as to both
the Original Term and the Extended Term, is independent of any number used to
represent the square feet contained in the Building located on Premises or any
price per square foot for said Building. The amount of Rent as stated in
Section 2.01, above, is agreed upon between the parties with respect to the
Property and Improvements "as is." Tenant acknowledges that it has inspected the
Premises, that it has had an opportunity to measure the square feet contained in
the Building located on the Premises, and that it is satisfied that the Rent as
stated in Section 2.01, above, is appropriate for the Premises "as is." Landlord
makes no representation as to the accuracy of any measurement of the Building
located on the premises and no adjustment of Rent shall occur as the result of
any subsequent measurement of the Building located on the Premises.
ARTICLE 3. USE OF PREMISES
PERMITTED USE
Section 3.01. During the term of this lease (including the Original Term
and the Extended Term, if any), the Premises shall be used for the exclusive
purpose of operating and conducting a banking business, for uses normally
incident to that purpose, and for any use not in violation of the banking and
financial laws and regulations. Tenant shall not use or permit the Premises to
be used for any other purpose, without the prior written consent of Landlord,
which consent shall not unreasonably be withheld. In conducting the business
specified in this section in and on the Premises, Tenant shall sell any
merchandise and render any services that are customarily sold and rendered by
the operators of businesses of the same type in the state of California.
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INSURANCE HAZARDS
Section 3.02. Tenant shall not commit or permit the commission of any acts
on the Premises nor use or permit the use of the Premises in any manner that
will increase the existing rates for or cause the cancellation of any fire,
liability, or other insurance policy insuring the Premises or the improvements
on the Premises. Tenant shall, at its own cost and expense, comply with any and
all requirements of Landlord's and Tenant's insurance carriers necessary for the
continued maintenance at reasonable rates of fire and liability insurance
policies on the Premises and the improvements on the Premises.
WASTE OR NUISANCE
Section 3.03. Tenant shall not commit or permit the commission by others of
any waste on the Premises; Tenant shall not maintain, commit, or permit the
maintenance or commission of any nuisance as defined in Civil Code Section 3479
on the Premises; and Tenant shall not use or permit the use of the Premises for
any unlawful purpose.
COMPLIANCE WITH LAWS
Section 3.04. Tenant shall at Tenant's own cost and expense comply with all
statutes, ordinances, regulations, and requirements of all governmental
entities, both federal and state and county or municipal, including those
requiring capital improvements to the Premises, relating to Tenant's use and
occupancy of the Premises, whether those statutes, ordinances, regulations, and
requirements are now in force or are subsequently enacted. The judgment of any
court of competent jurisdiction, or the admission by Tenant in a proceeding
brought against Tenant by any government entity, that Tenant has violated any
such statute, ordinance, regulation, or requirement shall be conclusive as
between Landlord and Tenant and shall constitute grounds for termination of this
lease by Landlord.
ARTICLE 4. TAXES AND UTILITIES
UTILITIES
Section 4.01. Tenant shall pay, and hold Landlord and the property of
Landlord free and harmless from, all charges for the furnishing of gas, water,
sewer, electricity, telephone service, garbage pickup and disposal, and other
public utilities to the Premises during the term of this lease. All such
charges shall be paid by Tenant directly to the provider of the service and
shall be paid as they become due and payable but in any event before
delinquency.
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PERSONAL PROPERTY TAXES
Section 4.02. Tenant shall pay before they become delinquent all taxes,
assessments, and other charges levied or imposed by any governmental entity on
the furniture, trade fixtures, appliances, and other personal property placed by
Tenant in, on, or about the Premises including, without limiting the generality
of the other terms used in this section, any shelves, counters, vaults, vault
doors, wall safes, partitions, fixtures, machinery, plant equipment, office
equipment, television or radio antennas, and communication equipment brought on
the Premises by Tenant.
REAL PROPERTY TAXES AND ASSESSMENTS
Section 4.03. (a) In addition to the rent specified in Section 2.01 of this
lease, Tenant shall pay all real property taxes and general and special
assessments levied or assessed against the Leased Premises during the term of
this lease.
(b) Tenant's obligation to pay all real property taxes and general and
special assessments on the Leased Premises shall also include the obligation to
pay any increases in real property taxes and general and special assessments,
whether the increase results from an increase in the property tax rate and/or
increase in the valuation of the Leased Premises. However, Tenant shall not be
obligated during the original Term of this lease to pay any increase in real
property taxes and assessments, resulting from a sale of the property by
Landlord, which taxes and assessments are higher than the amount of real
property taxes and assessments which are assessed against the property as of the
date of the execution of this lease. For the purpose of this paragraph, any
retroactive reduction or increase in the real property taxes and assessments on
the property shall not affect the amount of such taxes and assessments which
existed at the time of the execution of this lease.
(c) The taxes and assessments levied against the Leased Premises during
the first and last years of the term of this lease shall be prorated between
Landlord and Tenant for purposes of this section as of 12:01 A.M. on date of
commencement and termination respectively of this lease.
(d) If any tax, assessment, or charge may be paid in one sum or in
installments, Tenant may elect either method of payment and its election shall
be binding on Landlord. If tenant makes the election to pay any tax,
assessment, or charge in installments and any installment is payable after
termination of this lease, the unpaid installment shall be prorated as of the
date of termination and the amount payable after the date of termination shall
be paid by Landlord.
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(e) Tenant shall not be required to pay any estate, gift, inheritance,
succession, transfer, franchise, income, or other taxes of a similar nature that
may be payable by Landlord or Landlord's legal representative, successors, or
assigns. Tenant also shall not be required to pay any tax that might become due
on account of Landlord's ownership of property other than the Leased Property,
notwithstanding that tax may become a lien on the Leased Property or be
collectible from it.
RIGHT TO CONTEST TAXES
Section 4.04. Tenant shall have the right, at Tenant's sole cost and
expense, to protest or contest in good faith the amount of any tax or assessment
or to defer payment of the tax or assessment until final determination of the
issue. On final determination, Tenant shall immediately pay the amount of the
judgment rendered and all costs, charges, interest, and related penalties. The
right granted to Tenant in this Section is conditioned on the following:
Before any contest, Tenant shall deposit with Landlord the full amount of
the tax or assessment, plus the amount of penalty that will be imposed on the
Leased Premises for failure to pay the tax or assessment before it became
delinquent, and one year's interest at the rate charged by the government entity
imposing the tax or assessment on the amount of the tax or assessment.
ARTICLE 5. ALTERATIONS AND REPAIRS
CONDITION OF PREMISES
Section 5.01. Tenant accepts the Premises, as well as the Improvements
located on the Premises, except for latent defects within the Premises which
would substantially effect the ability of Tenant to operate its business as a
bank and which would exceed the cost of $1,500.00 to Tenant to repair, in their
present condition and stipulates with Landlord that the Premises and
Improvements are in good, clean, safe, and tenantable condition as of the date
of this lease. Tenant further agrees with and represents to Landlord that the
Premises have been inspected by Tenant, that it has received assurances
acceptable to Tenant by means independent of Landlord or any agent of Landlord
of the truth of all facts material to this lease, and that the Premises are
being leased by Tenant as a result of its own inspection and investigation and
not as a result of any representations made by Landlord or any agent of Landlord
except those expressly set forth in this lease.
MAINTENANCE BY LANDLORD
Section 5.02. Tenant shall be solely responsible and liable for the payment of
the cost and expense of repairs or replacement of the heating and cooling units
of the Building up to the first $1,500.00
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per year of the total cost and expense to repair or replace both such units.
Landlord shall, at its own cost and expense, repair or replace the heating and
cooling units of the Building after the Tenant has expended the first $1,500.00
per year to repair or replace both such units. Tenant shall be solely
responsible and liable for the payment of the cost and expense of repairs or
replacement of all plumbing systems connected with the Building and all
electrical systems and components within the walls of the Building up to the
first $1,500.00 per year of the total cost and expense to repair or replace both
such systems. Landlord shall, at its own cost and expense, repair or replace
all plumbing systems connected with the building and all electrical systems and
components within the walls of the Building after the Tenant has expended the
first $1,500.00 per year to repair or replace both such systems. For the
purposes of this paragraph, "year" shall mean the one year period beginning on
the Commencement Date of the Original Term, as defined in Section 1.01 of this
lease, and each one year period thereafter. Landlord shall maintain, repair or
replace the roof of the Building.
Landlord shall not be liable for any damages to Tenant or the property of
Tenant resulting from Landlord's failure to make any repairs required by this
section unless written notice of the need for those repairs has been given to
Landlord by Tenant and Landlord has failed for a period of thirty (30) days
after receipt of the notice, unless prevented by causes not the fault of the
Landlord, to make the needed repairs. Notwithstanding anything in this section
to the contrary, Tenant shall promptly reimburse Landlord for the full cost of
any repairs made pursuant to this section required because of the negligence or
other fault, other than normal and proper use, of Tenant or its employees or
agents or subtenants, if any.
Landlord and its agents shall have the right to enter the Premises at all
reasonable times during business hours of the Tenant and upon forty-eight (48)
hours advance notice to the Tenant (and at any time during an emergency) for the
purpose of inspecting them or to make any repairs required to be made by
Landlord under this lease.
IMPROVEMENTS BY TENANT
Section 5.03. Tenant shall, at its own cost and expense, make improvements
to the Premises and the Building, specifically including landscaping (e.g.,
grass, bushes, etc.), parking lot renovation (e.g., resealing, etc.), exterior
paint to the Building and exterior lighting, and replacement of interior
carpeting, drapes, wallpaper and linoleum.
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MAINTENANCE BY TENANT
Section 5.04. Except as otherwise expressly provided in Section 5.02 of
this lease, Tenant shall at its own cost and expense keep and maintain all
portions of the Premises and all Improvements located on the Premises in good
order and repair and in as safe and clean a condition as they were when received
by Tenant from Landlord, reasonable wear and tear excepted. Tenant's obligation
to repair shall specifically include necessary repairs to the heating,
ventilation, air conditioning, and sewer systems, interior walls, floor
coverings, ceilings, painting and maintenance of exterior walls, the interior
and exterior portions of all doors, paved driveways and parking areas, and
landscaping for the Premises.
MAINTENANCE OF PLATE GLASS
Section 5.05. Tenant shall, at its own cost and expense, repair and replace
any plate glass in any window on the Premises that is broken regardless of any
cause, except by fault of Landlord, or by fault of some employee or agent of
Landlord. Furthermore, Tenant shall at Tenant's own cost and expense at all
times during the term of this lease carry adequate insurance on the glass in all
windows on the Premises to perform the repair and replacement requirements of
this section. Should Tenant fail to repair or replace any glass broken in a
window or fail to maintain adequate plate glass insurance on the glass in
windows on the Premises, Landlord may replace or repair the broken glass or
secure that insurance and Tenant shall promptly reimburse Landlord for the cost
of the repair, replacement, or insurance. In addition, Tenant shall pay
Landlord interest on those costs at the rate of ten percent (10%) per year from
the date the costs were incurred by Landlord to the date they are reimbursed to
Landlord by Tenant.
ALTERATIONS AND LIENS
Section 5.06. Tenant shall not make or permit any other person to make any
alterations to the Premises or to any Improvements on the Premises without the
prior written consent of Landlord. Landlord shall not unreasonably withhold
this consent. Tenant shall keep the premises free and clear from any and all
liens, claims, and demands for work performed, materials furnished, or
operations conducted on the Premises at the instance or request of Tenant.
Furthermore, any and all alterations, additions, improvements, and fixtures,
except furniture and trade fixtures, made or placed in or on the Premises by
Tenant or any other person shall on expiration or earlier termination of this
lease, become the property of Landlord and remain on the Premises. Landlord
shall have the option, however, on expiration or termination of this lease, of
requiring Tenant, at Tenant's sole cost and expense, to remove any or all such
alterations, additions, improvements, or fixtures from the Premises.
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INSPECTION BY LANDLORD
Section 5.07. Tenant shall permit Landlord or Landlord's agents,
representatives, or employees to enter the Premises during business hours of the
Tenant and upon forty-eight (48) hours advance notice to the Tenant for the
purpose of inspecting the Premises to determine whether Tenant is complying with
the terms of this lease, for the purpose of doing other lawful acts that may be
necessary to protect Landlord's interest in the Premises, or for the purpose of
performing Landlord's duties under this lease.
SURRENDER OF PREMISES
Section 5.08. On expiration or earlier termination of this lease, Tenant
shall promptly surrender and deliver the Premises to Landlord in as good
condition as they are now at the date of this lease, excluding reasonable wear
and tear, and repairs required to be made by Landlord under this lease.
ARTICLE 6. INDEMNITY AND INSURANCE
HOLD-HARMLESS CLAUSE
Section 6.01. Tenant agrees to protect, indemnify, and save Landlord
harmless from and against any all liability to third parties resulting from
Tenant's occupation and use of the Premises, specifically including, without
limitation, any claim, liability, loss, or damage arising by reason of:
(a) The death or injury of any person or persons, including Tenant or any
person who is an employee or agent of Tenant, or by reason of the damage to or
destruction of any property, including property owned by Tenant or any person
who is an employee or agent of Tenant, and caused or allegedly caused by either
the condition of the Premises, or some act or omission of Tenant or of some
agent, contractor, employee, servant, subtenant, or concessionaire of Tenant on
the Premises;
(b) Any work performed on the Premises or materials furnished to the Premises
at the instance or request of Tenant or any agent or employee of Tenant; and
(c) Tenant's failure to perform any provision of this lease or to comply with
any requirement of law or any requirement imposed on Landlord or the leased
premises by any duly authorized governmental agency or political subdivision.
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PUBLIC LIABILITY AND PROPERTY DAMAGE INSURANCE
Section 6.02. Tenant shall, at its own cost and expense, procure and
maintain during the entire term of this lease public liability insurance and
property damage insurance issued by an insurance company reasonably satisfactory
to Landlord and insuring Landlord against loss or liability caused by or
connected with Tenant's occupation and use of the Premises under this lease in
amounts not less than:
(a) $300,000.00 for injury to or death of one person and, subject to that
limitation for the injury or death of one person,, of not less than
$1,000,000.00 for injury to or death of two or more persons as a result of any
one accident or incident; and
(b) $100,000.00 for damage to or destruction of any property of others.
The insurance required under this section shall be issued by a responsible
insurance company or companies authorized to do business in California and shall
be in a form reasonably satisfactory to Landlord. Tenant shall within thirty
(30) days of the date of this lease, deposit with Landlord a certificate showing
that insurance to be in full force and effect.
TENANT'S PERSONAL PROPERTY
Section 6.03. Tenant shall, during the full term of this lease and any
renewals or extensions thereof, maintain at Tenant's own cost and expense an
insurance policy issued by a reputable company authorized to conduct insurance
business in California insuring for their full insurable value all fixtures and
equipment and, to the extent possible, all merchandise that is, at any time
during the term of this lease, in or on the Premises against damage or
destruction by fire, theft, or the elements.
FIRE AND EXTENDED COVERAGE INSURANCE
Section 6.04. Tenant shall, during the term of this lease, procure, carry,
and pay for fire and extended coverage insurance, insuring the Building and
other Improvements on the Premises for at least one hundred percent (100%) of
their full replacement value. The policy shall name Landlord as an additional
insured and shall be issued by a responsible insurance company authorized to do
business in California. The term "extended coverage" as used herein shall mean
any casualties that are commonly included under the term "extended coverage" AS
that term is known and used in the casualty insurance business.
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CANCELLATION REQUIREMENTS
Section 6.05. Each of the insurance policies shall be in a form reasonably
satisfactory to Landlord and shall carry an endorsement that, before changing or
canceling any policy, the issuing insurance company shall give Landlord at least
30 days' prior written notice. Duplicate originals or certificates of all such
insurance policies shall be delivered to Landlord.
ARTICLE 7. SIGNS AND TRADE FIXTURES
INSTALLATION AND REMOVAL OF TRADE FIXTURES
Section 7.01. Tenant shall have the right at any time and from time to time
during the term of this lease, at Tenant's sole cost and expense, to install and
affix in, to, or on the Premises any items, herein called "trade fixtures," for
use in Tenant's trade or business that Tenant may, in Tenant's sole discretion,
deem advisable. Any and all trade fixtures that can be removed without
structural damage to the Premises or any building or improvements on the
Premises shall, subject to Section 7.02 of this lease, remain the property of
the Tenant and may be removed by Tenant at any time before the expiration or
earlier termination of this lease, provided Tenant repairs any damage caused by
the removal.
UNREMOVED TRADE FIXTURES
Section 7.02. Any trade fixtures described in this Article that are not
removed from the Premises by Tenant within thirty (30) days after the expiration
or earlier termination regardless of cause, of this lease shall be deemed
abandoned by Tenant and shall automatically become the property of Landlord as
owner of the real property to which they are affixed.
SIGNS
Section 7.03. Tenant may erect, maintain, permit, and from time to time remove
any signs in or about the Premises that Tenant may deem necessary or desirable,
provided that any signs erected or maintained by Tenant shall comply with all
requirements of any governmental authority with jurisdiction.
ARTICLE 8. DESTRUCTION OF PREMISES
LANDLORD'S OBLIGATION TO REPAIR
Section 8.01. Except as otherwise provided in Section 8.02 below, if at any
time during the original Term of this lease or any Extended Term, the Building
on the Premises is damaged or destroyed by any cause, Landlord shall promptly
repair, rebuild, or restore the Building to substantially the same condition as
the Building was delivered to Tenant at the commencement of this lease (i.e.,
exclusive of tenant fixtures and equipment) and shall be entitled for that
purpose to
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any and all insurance proceeds. Landlord shall commence repair, restoration, or
rebuilding, as appropriate, not later than sixty (60) days after occurrence of
the event causing damage or destruction and shall cause construction to be
completed not later than one hundred eighty (180) days after the occurrence of
the event causing damage or destruction. In the event Landlord does not
commence or complete construction within the time periods described in this
section, Tenant shall have the right to terminate this lease by giving Landlord
written notice within ten (10) days after expiration of either time period.
LANDLORD'S RIGHT TO TERMINATE LEASE
Section 8.02. Notwithstanding Section 8.01, Landlord shall have the right
to terminate this lease and shall have no obligation to repair, restore, or
rebuild the Premises or the Building under any of the following circumstances:
(a) Damage or destruction from an insured casualty when the damage or
destruction cannot reasonably be repaired, restored, or rebuilt within a period
of one hundred eighty (180) days;
(b) Damage or destruction from an uninsured casualty when the cost of
repair, restoration, or rebuilding exceeds a total of forty-five percent (45%)
of the then replacement cost of the Building;
(c) Damage or destruction from an insured or uninsured casualty occurring
during the last year of the Original Term of this lease, if Tenant has not
before occurrence of the casualty elected to extend the Original Term of the
lease, or occurring at any time during the Extended Term, if any, of this lease.
If Landlord elects to terminate this lease under any of the above
circumstances, Landlord shall give written notice to Tenant not later than
thirty (30) days after occurrence of the casualty.
ABATEMENT OF RENT
Section 8.03. If damage or destruction to the Premises reasonably affects
the ability of Tenant to operate its business as a bank, and Tenant in fact
ceases to operate its business, the rent required under this lease shall abate
during the period in which Landlord is required to perform repairs or
restoration, or to rebuild. Tenant shall also be excused from the payment of
taxes and insurance attributable to that repair, restoration, or rebuilding
period. In the event Tenant is able to continue partial operation of its
business, Tenant shall continue to pay the monthly rent provided for under this
lease.
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ARTICLE 9. CONDEMNATION
TOTAL CONDEMNATION
Section 9.01. If, at any time during the term of this lease, title and
possession of all of the Premises is taken under the power of eminent domain by
any public or quasi-public agency or entity, this lease shall terminate as of
12:01 A.M. of the date actual physical possession of the Premises is taken by
the agency or entity exercising the power of eminent domain, and both Landlord
and Tenant shall thereafter be released from all obligations under this lease,
except those described in Section 9.04.
TERMINATION OPTION FOR PARTIAL CONDEMNATION
Section 9.02. If at any time during the term of this lease, title and
possession of only a portion of the Premises is taken under the power of eminent
domain by any public or quasi-public agency or entity, Tenant may, at Tenant's
option, terminate this lease if more than thirty-five percent (35%) of the floor
space of the Building or more than twenty percent (20%) of the parking area of
the Premises is taken under the power of eminent domain, or where any taking
under the power of eminent domain reasonably affects the ability of Tenant to
operate its business as a bank. If Tenant elects to exercise the option granted
under this section, Tenant shall give Landlord at least thirty (30) days prior
written notice within fourteen (14) days after Tenant receives notice of the
taking that designates the precise area of the Premises to be taken. This lease
shall terminate as of the date specified for termination in Tenant's notice, or
on the date actual physical possession of the Premises is taken by the public or
quasi-public agency or entity, whichever date is earlier.
PARTIAL CONDEMNATION WITHOUT TERMINATION
Section 9.03. If Tenant fails to exercise the option described in Section
9.02 of this lease or if the portion of the Premises taken under the power of
eminent domain is insufficient to give rise to the option described in Section
9.02 of this lease:
(a) This lease shall terminate as to the portion of the Premises taken by
eminent domain as of 12:01 A.M. of the day actual physical possession of that
portion of the Premises is taken by the agency or entity exercising the power of
eminent domain (the "date of taking,,);
(b) The Rent specified in Section 2.01 of this lease shall, after the date
of taking, be reduced by an amount that bears the same ratio to the rent
specified in Section 2.01 of this lease AS the square footage ground area of the
portion of the Premises taken under the power of eminent domain bears to the
total square footage ground area of the Premises as of the date of this lease;
and
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(c) Landlord, at Landlord's own cost and expense, shall remodel and
reconstruct the Building remaining on the portion of the Premises not taken by
eminent domain into a single efficient architectural unit as soon after the date
of taking, or before, as can be reasonably done; provided, however, that Rent
specified in this lease shall not be abated or reduced, except as provided in
subparagraph (b) of this section, during remodeling and reconstruction.
ARTICLE 10. DEFAULT, ASSIGNMENT, AND TERMINATION
RESTRICTION AGAINST SUBLETTING OR ASSIGNMENT
Section 10.01. Tenant shall not encumber, assign, or otherwise transfer
this lease, any right or interest in this lease, or any right or interest in the
Premises or any of the Improvements that may now or hereafter be constructed or
installed on the Premises without first obtaining the express written consent of
Landlord, which consent shall not unreasonably be withheld. Tenant shall not
sublet the Premises or any part of the Premises or allow any other person, other
than Tenant's agents, servants, and employees, to occupy the Premises or any
part of the Premises without the prior written consent of Landlord. A consent
by Landlord to one assignment, one subletting, or one occupation of the Premises
by another person shall not be deemed to be a consent to any subsequent
assignment, subletting, or occupation of the Premises by another person. Any
encumbrance, assignment, transfer, or subletting without the prior written
consent of Landlord, whether voluntary or involuntary, by operation of law or
otherwise, is void and shall, at the option of Landlord, terminate this lease.
The consent of Landlord to any assignment of Tenant's interest in this lease or
the subletting by Tenant of the Premises or parts of the Premises shall not be
unreasonably withheld.
DEFAULT DEFINED
Section 10.02. 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 to make any other payment
required to be made by Tenant under this lease (when that failure continues for
ten (10) days after written notice of the failure is given by Landlord to
Tenant).
(b) The abandonment or vacation of the Premises by Tenant (the absence of
Tenant from or the failure by Tenant to conduct business on the Premises for a
period in excess of fourteen (14) consecutive days shall constitute an
abandonment or vacation for purposes of this lease, unless Tenant notifies
Landlord in advance in writing of such absence or failure to conduct business).
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(c) A failure by Tenant to observe and perform any other provision of
this lease to be observed or performed by Tenant, when that failure continues
for thirty (30) days after written notice of Tenant's failure is given by
Landlord to Tenant; provided, however, that if the nature of that default is
such that it cannot reasonably be cured within 30-day period, Tenant shall not
be deemed to be in default if Tenant commences that cure within the 30-day
period and thereafter diligently prosecutes it to completion.
(d) The making by Tenant of any general assignment 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,
it is dismissed within 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, when possession is not restored to Tenant
within 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, when that seizure is not discharged within 30 days.
TERMINATION OF LEASE AND RECOVERY OF DAMAGES
Section 10.03. In the event of any default by Tenant under this lease, in
addition to any other remedies available to Landlord at law or in equity,
Landlord shall have the right to terminate this lease and all rights of Tenant
hereunder by giving written notice of the termination. No act of Landlord shall
be construed as terminating this lease except written notice given by Landlord
to Tenant advising Tenant that Landlord elects to terminate the lease. In the
event Landlord elects to terminate this lease, Landlord may recover from Tenant:
(a) The worth at the time of award of any unpaid rent that had been earned
at the time of termination of the lease;
(b) The worth at the time of award of the amount by which the unpaid rent
that would have been earned after termination of the lease until the time of
award exceeds the amount of rental loss that Tenant proves could have been
reasonably avoided;
(c) The worth at the time of award of the amount by which the unpaid rent
for the balance of the term of this lease after the time of award exceeds the
amount of rental loss that Tenant proves could be reasonably avoided; and
(d) Any other amount necessary to compensate Landlord for all detriment
proximately caused by Tenant's failure to perform its obligations under this
lease.
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The term "rent" as used in this section shall mean the Rent and all other
sums required to be paid by Tenant pursuant to the terms of this lease. As used
in subsections (a) and (b) above, the "worth at the time of award" is computed
by allowing interest at the rate of 10 percent per year. As used in subsection
(c), the "worth at the time of award" is computed by discounting that amount at
the discount rate of the Federal Reserve Bank of San Francisco at the time of
award plus 1 percent.
LANDLORD'S RIGHT TO CONTINUE LEASE IN EFFECT
Section 10.04.(a) If Tenant breaches this lease and abandons the Premises
before the natural expiration of the term of this lease, Landlord may continue
this lease in effect by not terminating Tenant's right to possession of the
Premises, in which event Landlord shall be entitled to enforce all its rights
and remedies under this lease, including the right to recover the rent specified
in this lease as it becomes due under this lease. For as long as Landlord does
not terminate this lease, Tenant shall have the right to assign or sublease the
Premises with the Landlord's prior written consent. Landlord shall not
unreasonably withhold consent.
(b) No act of Landlord, including but not limited to Landlord's entry on
the Premises, efforts to relet the Premises, or maintenance of the Premises,
shall be construed as an election to terminate this lease unless a written
notice of that intention is given to Tenant or unless the termination of this
lease is decreed by a court of competent jurisdiction.
LANDLORD'S RIGHT TO RELET
Section 10.05. In the event Tenant breaches this lease, Landlord may enter
on and relet the Premises or any part of the Premises to a third party or third
parties for any term, at any rental, and on any other terms and conditions that
Landlord in its sole discretion may deem advisable, and shall have the right to
make alterations and repairs to the Premises. Tenant shall be liable for all of
Landlord's costs in reletting, including but not limited to remodeling costs
required for the reletting. In the event Landlord relets the premises, Tenant
shall pay all rent due under and at the times specified in this lease, less any
amount or amounts actually received by Landlord from the reletting.
LANDLORD'S RIGHT TO CURE TENANT DEFAULTS
Section 10.06. If Tenant breaches or fails to perform any of the covenants or
provisions of this lease, Landlord may, but shall not be required to, cure
Tenant's breach. Any sum expended by Landlord, with interest at the rate of ten
percent (10%) per annum, shall be reimbursed by Tenant to Landlord with the next
due rent payment under this lease.
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CUMULATIVE REMEDIES
Section 10.07. The remedies granted to Landlord in this Article shall not
be exclusive but shall be cumulative and in addition to all remedies now or
hereafter allowed by law or provided in this lease.
WAIVER OF BREACH
Section 10-08. The waiver by Landlord of any breach by Tenant of any of
the provisions of this lease shall not constitute a continuing waiver or a
waiver of any subsequent breach by Tenant either of the same or another
provision of this lease.
ARTICLE 11. MISCELLANEOUS
FORCE MAJEURE-UNAVOIDABLE DELAYS
Section 11.01. If the performance of any act required by this lease to be
performed by either Landlord or Tenant is prevented or delayed by reason of an
act of God, strike, lockout, labor troubles, inability to secure materials,
restrictive governmental laws or regulations, or any other cause except
financial inability that is not the fault of the party required to perform the
act, the time for performance of the act will be extended for a period
equivalent to the period of delay, and performance of the act during the period
of delay will be excused. However, nothing contained in this section shall
excuse the prompt payment of rent by Tenant as required by this lease or the
performance of any act rendered difficult solely because of the financial
condition of the party required to perform the act.
ATTORNEYS' FEES
Section 11-02. If any litigation is commenced between the parties to this
lease concerning the Premises, this lease, or the rights and duties of either in
relation to the Premises or to this lease, the party prevailing in that
litigation shall be entitled to, in addition to any other relief that may be
granted in the litigation, a reasonable sum as and for its attorneys' fees in
that litigation that are determined by the court in that litigation or in a
separate action brought for that purpose.
NOTICES
Section 11.03. Except as otherwise expressly provided by law, any and all
notices or other communications required or permitted by this lease or by law to
be served on or given to either
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party to this lease by the other -.arty to this lease shall be in writing and
shall be deemed duly served and given when personally delivered to the party to
whom they are directed, or in lieu of personal service, when deposited in the
United States mail, first-class postage prepaid, addressed to Tenant in care of
the President or the Chief Financial Officer of Tenant at P.O. Box 16279,
Fresno, California 93755-6279, or to Landlord at 413 Mainberry, Madera,
California 93637,. Either party, Tenant or Landlord, may change its address for
the purpose of this section by giving written notice of that change to the other
party in the manner provided in this section.
BINDING ON HEIRS AND SUCCESSORS
Section 11.04. This lease shall be binding on and shall inure to the
benefit of the heirs, executors, administrators, successors, and assigns of
Landlord and Tenant, but nothing in this section shall be construed as a consent
by Landlord to any assignment of this lease or any interest therein by Tenant
except as provided in Section 10.01 of this lease.
PARTIAL INVALIDITY
Section 11.05. If any provision of this lease is held by a court of
competent jurisdiction to be either invalid, void, or unenforceable, the
remaining provisions of this lease shall remain in full force and effect
unimpaired by the holding.
SOLE AND ONLY AGREEMENT
Section 11.06. This instrument constitutes the sole and only agreement
between Landlord and Tenant respecting the Premises, the leasing of the Premises
to Tenant, or the lease term created under this lease, and correctly sets forth
the obligations of Landlord and Tenant to each other as of its date. Any
agreements or representations respecting the Premises or their leasing by
Landlord to Tenant not expressly set forth in this instrument are null and void.
TIME OF ESSENCE
Section 11.07. Time is expressly declared to be of the essence in this
lease.
Executed on May 13, 1996, at Madera, California.
LANDLORD - TENANT -
STEPHEN L. FRAZIER AND REGENCY BANK
SALLY L. FRAZIER TRUST
By: STEPHEN L. FRAZIER By: STEVEN CANFIELD
Trustee Senior Vice President/CEO
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EXHIBIT *10.5
REGENCY BANCORP
AMENDED AND RESTATED
1990 STOCK OPTION PLAN
<PAGE>
TABLE OF CONTENTS
PAGE
1. PURPOSE................................................................. 1
2. ADMINISTRATION.......................................................... 1
3. ELIGIBILITY............................................................. 3
4. THE SHARES.............................................................. 3
5. AUTOMATIC GRANTS TO OUTSIDE DIRECTORS................................... 3
(a) NONSTATUTORY OPTIONS.......................................... 4
(b) OPTION PRICE.................................................. 4
(c) DURATION AND VESTING OF OPTIONS............................... 4
(d) TERMINATION OF TENURE ON THE BOARD............................ 4
(e) NO DISCRETION................................................. 5
6. GRANT, TERMS AND CONDITIONS OF EMPLOYEE OPTIONS......................... 5
(a) OPTION PRICE.................................................. 6
(b) DURATION AND EXERCISE OF OPTIONS.............................. 6
(c) TERMINATION OF EMPLOYMENT..................................... 7
7. TERMS AND CONDITIONS APPLICABLE TO ALL OPTIONS.......................... 8
(a) EXERCISE OF OPTION............................................ 8
(b) TRANSFERABILITY OF OPTION AND SHARES.......................... 9
(c) OTHER TERMS AND CONDITIONS.................................... 9
(d) USE OF PROCEEDS FROM STOCK.................................... 9
(e) RIGHTS AS A SHAREHOLDER....................................... 9
(f) WITHHOLDING................................................... 10
8. ADJUSTMENT OF AND CHANGES IN THE SHARES................................. 10
9. LISTING OR QUALIFICATION OF SHARES...................................... 12
10. BINDING EFFECT OF CONDITIONS............................................ 12
11. AMENDMENT AND TERMINATION OF THE PLAN................................... 13
12. EFFECTIVENESS OF THE PLAN............................................... 13
13. PRIVILEGES OF STOCK OWNERSHIP; SECURITIES LAW
COMPLIANCE; NOTICE OF SALE.............................................. 13
14. INFORMATION TO OPTIONEES................................................ 14
i
<PAGE>
TABLE OF CONTENTS
(continued)
PAGE
15. INDEMNIFICATION......................................................... 14
ii
<PAGE>
Amended and Restated
as of April 1, 1996
REGENCY BANCORP
AMENDED AND RESTATED
1990 STOCK OPTION PLAN
1. PURPOSE.
The purpose of this Stock Option Plan (hereinafter the "Plan") is to
provide a means whereby directors and certain employees of Regency Bancorp
(hereinafter the "Company") and its "affiliates" (as such term is defined below)
may be given an opportunity to purchase shares of the Common Stock (hereinafter
the "Common Stock") of the Company. The Plan is intended to advance the
interests of the Company by encouraging stock ownership on the part of directors
and employees, by enabling the Company to secure and retain the services of
highly qualified persons and by providing directors and employees with an
additional incentive to make every effort to enhance the success of the Company.
The word "affiliate", as used in this Plan, means any bank or corporation
in an unbroken chain of banks or corporations beginning or ending with the
Company, if at the time of the granting of an option, each such bank or
corporation other than the last in that chain owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other banks or corporations in the chain.
2. ADMINISTRATION.
The following provisions shall govern the administration of the Plan:
(a) Subject to paragraphs (b) and (c) below, the Plan shall be
administered by the Board of Directors or a committee of the Board of Directors
appointed for this purpose by the Board of Directors. The Board of Directors
may from time to time remove members from or add members to the committee.
Vacancies on the committee, however caused, shall be filled by the Board of
Directors. The Board of Directors, in its discretion, shall designate a
Chairman and Vice-Chairman of the committee from among the committee members.
Acts of the committee (i) at a meeting, held at a time and place and in
accordance with rules adopted by the committee, at which a quorum of the
committee is present and
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acting, or (ii) reduced to and approved in writing by all members of the
committee, shall be the valid acts of the committee.
(b) Discretionary grants of options to officers of the Company,
including those who are also directors of the Company, shall be made by and all
discretion with respect to the material terms of such options shall be exercised
by (i) the Board of Directors when all members of the Board are Disinterested
Persons, or (ii) a duly appointed committee of the Board composed solely of
Disinterested Persons having full authority to act in the matter. The term
"Disinterested Person" as used in the Plan shall have the meaning set forth in
Rule 16b-3 as promulgated by the Securities and Exchange Commission ("SEC")
under Section 16(b) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as such rule may be amended from time to time, and as
interpreted by the SEC ("Rule 16b-3"). The committee required by this paragraph
shall consist of not less than the minimum number of Disinterested Persons from
time to time required by Rule 16b-3.
(c) The full Board of Directors shall administer the Plan with
respect to the automatic grant of options to Outside Directors pursuant to
Section 5 of the Plan.
(d) The Board and any such committee(s) referred to in Section 2(a)
or 2(b) is referred to hereinafter as the "Committee," except where otherwise
expressly provided or where the context requires otherwise.
(e) The Committee shall effect the grant of options under the Plan by
execution of instruments in writing in a form approved by the Committee.
Subject to the express terms and conditions of the Plan and except with respect
to the automatic grant of options to Outside Directors pursuant to Section 5,
the Committee shall have full power to construe the Plan and the terms of any
option granted under the Plan, to prescribe, amend and rescind rules and
regulations relating to the Plan or such options and to make all other
determinations necessary or advisable for the administration of the Plan,
including, without limitation, the power to: (i) determine which persons meet
the requirements of Section 3 hereof for selection as participants in the Plan
and which persons are considered to be "employees" for purposes of the Internal
Revenue Code of 1986, as amended (the "Code"), and therefore eligible to receive
incentive stock options under the Plan; (ii) determine to whom of the eligible
persons, if any, options shall be granted under the Plan; (iii) establish the
terms and conditions required or permitted to be included in every
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option agreement or any amendments thereto, including whether options to be
granted thereunder shall be "incentive stock options," as defined in Section 422
of the Code, or "nonstatutory stock options"; (iv) specify the number of shares
to be covered by each option; (v) in the event a particular option is to be an
incentive stock option, determine and incorporate such terms and provisions, as
well as amendments thereto, as shall be required in the judgment of the
Committee, so as to provide for or conform such option to any change in any law,
regulation, ruling or interpretation applicable thereto; (vi) take appropriate
action to amend any option hereunder, provided that no such action may be taken
without the written consent of the affected optionee; (vii) cancel outstanding
options and issue replacement options therefor with the consent of the affected
optionee, and (viii) make all other determinations deemed necessary or advisable
for administering the Plan. The determination on the foregoing matters by the
Committee shall be conclusive.
3. ELIGIBILITY.
The persons who shall be eligible to receive the discretionary grant of
options under this Plan shall be those officers and key, full-time salaried
employees of the Company and its affiliates (including those who may also be
directors of the Company). Directors of the Company who are not also employees
of the Company ("Outside Directors") are not eligible for the discretionary
grant of options under this Plan. Outside Directors are eligible only for the
nondiscretionary grant of options pursuant to Section 5 of this Plan.
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4. THE SHARES.
The shares of stock subject to options authorized to be granted under the
Plan shall consist of five hundred forty-five thousand four hundred forty-eight
(545,448) shares of the no par value Common Stock of the Company (the "Shares"),
or the number and kind of shares of stock or other securities which shall be
substituted for such shares of stock or to which such shares shall be adjusted
as provided in Section 8. The Shares subject to the Plan may be set aside out
of the authorized but unissued shares of Common Stock of the Company not
reserved for any other purpose or out of shares of Common Stock subject to an
option which, for any reason, expires or becomes unexercisable as to the Shares.
Shares of the Company's Common Stock which are (i) delivered by an optionee, or
(ii) withheld by the Company from the shares otherwise due upon exercise of an
option, in payment of the exercise price of an option and/or in satisfaction of
applicable withholding taxes shall again become available for the grant of
options under the Plan only to those eligible participants who are not subject
to Section 16 of the Exchange Act.
5. AUTOMATIC GRANTS TO OUTSIDE DIRECTORS.
Each person who is an Outside Director on April 1, 1996, and who continues
to be an Outside Director as of the date a permit qualifying the grant of
options to such Outside Directors is issued by the California Commissioner of
Corporations (the "Permit Date") shall be granted, as of the Permit Date,
options to purchase 10,000 shares. Each person who is first elected or
appointed as an Outside Director after April 1, 1996, shall be granted options
to purchase 10,000 Shares as of the Permit Date or as of the date such person is
first appointed or elected as an Outside Director, whichever shall last occur.
All options granted pursuant to this section shall be subject to approval of
this section by the shareholders of the Company, and shall not be exercisable
prior to the date such approval is obtained. Subject to the preceding sentence,
twenty percent (20%) of each option granted pursuant to this section shall
become vested and exercisable after the first anniversary date of the grant,
with an additional twenty percent (20%) becoming exercisable on each successive
anniversary date until fully vested. Notwithstanding the foregoing, if there
are insufficient Shares available under the Plan for each Outside Director who
is eligible to receive an option, the number of options that an eligible Outside
Director shall receive, if any, shall be determined on a pro rata basis (as
rounded down to avoid fractional Shares). All options granted to
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Outside Directors shall be subject to the following terms and conditions:
(a) NONSTATUTORY OPTIONS. All stock options granted to Outside
Directors pursuant to the Plan shall be nonstatutory stock options.
(b) OPTION PRICE. The purchase price under each option granted to an
Outside Director shall be one hundred percent of the fair market value of the
Shares subject thereto on the date the option is granted; provided, however,
that the purchase price of an option granted to an Outside Director who owns
stock possessing more than ten percent of the total combined voting power of all
classes of stock of the Company shall not be less than one hundred ten percent
of the fair market value of the Shares subject thereto on the date the option is
granted.
(c) DURATION AND VESTING OF OPTIONS. Each option granted to an
Outside Director shall be for a ten-year term and shall be vested for exercise
in the manner specified above.
(d) TERMINATION OF TENURE ON THE BOARD. Upon the termination of an
optionee's status as a member of the Board, his or her rights to exercise any
options then held shall be only as follows:
DEATH OR DISABILITY: If an optionee's tenure on the Board is
terminated by death or disability, such optionee or such optionee's qualified
representative (in the event of the optionee's mental disability) or the
optionee's estate (in the event of optionee's death) shall have the right for a
period of twelve (12) months following the date of such termination to exercise
the option to the extent the optionee was entitled to exercise such option on
the date of such termination; provided the actual date of exercise is in no
event after the expiration of the term of the option. An optionee's "estate"
shall mean the optionee's legal representative or any person who acquires the
right to exercise an option by reason of the optionee's death. To the extent
the option is not exercised within such period the option will terminate.
CAUSE: If an optionee's tenure on the Board is terminated for "cause"
(as such term is defined below), the optionee shall have the right for a period
of thirty (30) days to exercise the option to the extent the option was
exercisable on the date of termination; provided that the date of exercise is in
5
<PAGE>
no event after the expiration of the term of the option. To the extent the
option is not exercised within such period the option will terminate.
OTHER REASONS: If an optionee's tenure on the Board is terminated for
any reason other than those mentioned above under "Death or Disability" or
"CAUSE," the optionee may, within three (3) months following such termination,
exercise the option to the extent such option was exercisable by the optionee on
the date of such termination; provided the date of exercise is in no event after
the expiration of the term of the option. To the extent the option is not
exercised within such period the option will terminate.
(e) NO DISCRETION. The automatic grants to Outside Directors
pursuant to this Section 5 shall not be subject to the discretion of any person.
6. GRANT, TERMS AND CONDITIONS OF EMPLOYEE OPTIONS.
Options may be granted at any time prior to the termination of the Plan to
officers and other key, full-time salaried employees of the Company and its
affiliates who, in the judgment of the Committee, contribute to the successful
conduct of the operation of the Company or its affiliates through their
judgment, interest, ability and special efforts; provided, however, that: (i)
the aggregate initial fair market value of the stock (determined as of the date
the option is granted) that may be acquired by any one officer or employee
pursuant to all incentive stock options granted under the Plan that are
exercisable for the first time during any one calendar year (under all stock
option plans of the Company) shall not exceed $100,000; (ii) except in the case
of termination by death or disability, as set forth in Section 6(c) below, the
granted option must be exercised by the optionee no later than three (3) months
after any termination of employment with the Company and said employment must
have been continuous since the granting of the option; and (iii) the total
number of shares subject to options granted to any one optionee, at any one
time, shall not exceed ten percent (10%) of the then issued and outstanding
shares of Common Stock of the Company. In addition, options granted pursuant to
the Plan shall be subject to the following terms and conditions:
(a) OPTION PRICE. The purchase price under each option shall be not
less than one hundred percent (100%) of the fair market value of the Shares
subject thereto on the date the
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option is granted, as such value is determined by the Committee. The fair
market value of such stock shall be determined in accordance with any reasonable
valuation method, including the valuation methods described in Treasury
Regulation Section 20.2031-2. If, however, an optionee owns stock of the
Company possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company, the option price of any incentive
stock option granted to such optionee shall be not less than 110 percent (110%)
of such fair market value at the time such option is granted.
(b) DURATION AND EXERCISE OF OPTIONS. Each option, other than an
option granted pursuant to Paragraph 5(a), shall vest in such manner and at such
time up to but not exceeding ten (10) years from the date the option is granted
as the Committee shall determine in its sole discretion; provided, however, that
the term of any incentive stock option granted to an individual who owns stock
possessing more than ten percent of the total combined voting power of all
classes of stock of the Company shall not exceed five years; provided further,
that the Committee may accelerate the time of exercise of any option; and
provided further that no option shall vest for exercise at a rate of less than
twenty percent per year during the five year period following the date of grant
of an option. The termination of the Plan shall not alter the maximum duration,
the vesting provisions, or any other term or condition of any option granted
prior to the termination of the Plan.
With respect to incentive stock options granted to a participant under the
Plan in any calendar year, the Company may grant a participant incentive stock
options to purchase Shares having more than $100,000 in initial aggregate fair
market value (determined at the times the options are granted), subject to the
$100,000 limitation set forth in this Section 6 applicable to each year in which
such options first become exercisable. The optionee may exercise, during a
calendar year an incentive stock option only to the extent that the aggregate
initial fair market value of the Shares that may be acquired pursuant to the
option (or portion thereof) and all other incentive stock options that are first
exercisable during the calendar year does not exceed $100,000 (taking into
account all incentive stock options granted under any stock option plan of the
Company or any of its affiliates, or any predecessor of any such corporation).
If permitted under regulations promulgated by the Treasury Department or by a
ruling of the Internal Revenue Service, the optionee may choose, among the
options granted under the Plan that are first exercisable by
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the optionee in a calendar year, those options the optionee wishes to exercise
subject to the $100,000 limitation. If such choice is not permitted (as
determined by the Board of Directors or the Committee, in its sole discretion),
the optionee may exercise an incentive stock option in a calendar year, either
in whole or in part, only if the aggregate initial fair market value of the
shares that the optionee may acquire under incentive stock options prior to the
first mentioned option and which become first exercisable in such year (without
regard to the $100,000 limitation) does not exceed $100,000. If an optionee
does not exercise an incentive stock option (or portion thereof) that is first
exercisable in a calendar year under the $100,000 limitation, the optionee may
exercise that option (or portion thereof) in subsequent years without regard to
the $100,000 limitation.
(c) TERMINATION OF EMPLOYMENT. Upon the termination of an optionee's
status as an employee of the Company or its affiliates, his or her rights to
exercise an option then held shall be only as follows:
DEATH OR DISABILITY: If an optionee's employment is terminated by
death or disability, such optionee or such optionee's qualified representative
(in the event of the optionee's mental disability) or the optionee's estate (in
the event of the optionee's death) shall have the right for a period of
twelve (12) months following the date of such termination to exercise the option
to the extent the optionee was entitled to exercise such option on the date of
such termination; provided the actual date of exercise is in no event after the
expiration of the term of the option. To the extent the option is not exercised
within such period the option will terminate.
An optionee's "estate" shall mean the optionee's legal representative or
any person who acquires the right to exercise an option by reason of the
optionee's death.
CAUSE: If an optionee's employment is terminated because such
optionee is determined by the Committee to have committed an act of
embezzlement, fraud, dishonesty, breach of fiduciary duty to the Company (which
term includes the Company's affiliates for purposes of this paragraph), or to
have deliberately disregarded the rules of the Company which resulted in loss,
damage or injury to the Company, or if an optionee makes any unauthorized
disclosure of any of the secrets of confidential information of the Company,
induces any client or customer of the
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Company to break any contract with the Company or induces any principal for whom
the Company acts as agent to terminate such agency relations, or engages in any
conduct which constitutes unfair competition with the Company, or if an optionee
is removed from any office of the Company by the Federal Deposit Insurance
Corporation or any other bank regulatory agency, the optionee shall have the
right for a period of thirty (30) days to exercise the option to the extent the
option was exercisable on the date of termination; provided that the date of
exercise is in no event after the expiration of the term of the option. To the
extent the option is not exercised within such period the option will terminate.
In making such determination, the Committee shall act fairly and shall give the
optionee an opportunity to appear and be heard at a hearing before the full
Board of Directors and present evidence on the optionee's behalf. For the
purpose of this paragraph, termination of employment shall be deemed to occur
when the Company dispatches notice or advice to the optionee that the optionee's
employment is terminated and not at the time of optionee's receipt thereof.
OTHER REASONS: If an optionee's employment is terminated for any
reason other than those mentioned above under "Death or Disability" and "Cause",
the optionee may, within three (3) months (or such longer period as the
Committee may determine at the date of grant or during the term of the option)
following such termination, exercise the option to the extent such option was
exercisable by the optionee on the date of termination of the optionee's
employment, provided the date of exercise is in no event after the expiration of
the term of the option; and provided further that any option which is exercised
more than three (3) months following such termination shall be treated as a
nonstatutory option whether or not it was designated as such at the time it was
granted. To the extent the option is not exercised within such period the
option will terminate.
7. TERMS AND CONDITIONS APPLICABLE TO ALL OPTIONS.
The following terms and conditions shall apply to all options granted
pursuant to the Plan:
(a) EXERCISE OF OPTION. To the extent the right to purchase Shares
has vested under an optionee's stock option agreement, options may be exercised
from time to time by delivering payment therefor in cash, certified check,
official bank check, or the equivalent thereof acceptable to the Company,
together with written notice to the Secretary of the Company
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identifying the option or part thereof being exercised and specifying the number
of Shares for which payment is being tendered. An optionee may also exercise an
option by the delivery and surrender of shares of the Company's Common Stock
which (i) have been owned by the optionee for at least six (6) months or such
other period as the Committee may require; and (ii) have an aggregate fair
market value on the date of surrender equal to the exercise price. An optionee,
other than an optionee holding an option granted pursuant to Section 5, may also
elect to satisfy the exercise price by requesting that the Company withhold a
sufficient number of shares from the shares otherwise due upon exercise which
have an aggregate fair market value on the date of exercise equal to the
exercise price. Such an election is subject to approval or disapproval by the
Committee, and if the optionee is subject to Section 16 of the Exchange Act, the
timing of the election and exercise of the option must satisfy the requirements
of Rule 16b-3. In addition, the Committee may permit an option to be exercised
by delivering to the Company (i) an exercise notice instructing the Company to
deliver the certificates for the Shares purchased to a designated brokerage firm
and (ii) a copy of irrevocable instructions delivered to the brokerage firm to
sell the Shares acquired upon exercise of the option and to deliver to the
Company from the sale proceeds sufficient cash to pay the exercise price and
applicable withholding taxes arising as a result of the exercise.
The Company shall deliver to the optionee, which delivery shall be not less
than fifteen (15) days and not more than thirty (30) days after the giving of
such notice unless an earlier or later date shall be mutually agreed upon,
without transfer or issue tax to the optionee (or other person entitled to
exercise the option) at the principal office of the Company, or such other place
as shall be mutually acceptable, a certificate or certificates for such Shares
dated the date the options were validly exercised; provided, however, that the
time of such delivery may be postponed by the Company for such period as may be
required for it with reasonable diligence to comply with any requirements of
law. If an option covers incentive and nonstatutory stock options, separate
stock certificates will be issued; one or more for incentive stock options and
one or more for the nonstatutory stock options.
(b) TRANSFERABILITY OF OPTION AND SHARES. No option shall be
transferable other than by will or the laws of descent and distribution and
shall be exercisable during the optionee's lifetime only by the optionee, or in
the event of disability, the
10
<PAGE>
optionee's representative. In addition, in order for Shares acquired upon
exercise of incentive stock options to receive the tax treatment afforded such
Shares, the Shares may not be disposed of within two years from the date of the
option grant nor within one year after the date of transfer of such Shares to
the optionee.
(c) OTHER TERMS AND CONDITIONS. Options may also contain such other
provisions, which shall not be inconsistent with any of the foregoing terms, as
the Committee shall deem appropriate. No option, however, nor anything
contained in the Plan, shall confer upon any optionee any right to continue in
the employ or in the status as an officer of the Company or its affiliates, nor
limit in any way the right of the Company or its affiliates to terminate an
optionee's employment or status as an officer at any time.
(d) USE OF PROCEEDS FROM STOCK. Proceeds from the sale of Shares
pursuant to the exercise of options granted under the Plan shall constitute
general funds of the Company.
(e) RIGHTS AS A SHAREHOLDER. The optionee shall have no rights as a
shareholder with respect to any Shares until the date of issuance of a stock
certificate for such Shares. No adjustment shall be made for dividends or other
rights for which the record date is prior to the date of such issuance, except
as provided in Section 8 hereof.
(f) WITHHOLDING. The Company shall have the right upon the exercise
of an option to deduct any sums required to be withheld under federal, state or
local tax laws or regulations. The Company may condition the issuance of Shares
upon exercise of any option upon the payment by the optionee of any sums
required to be withheld under applicable laws or regulations. An optionee may
elect to pay such tax by (i) requesting the Company to withhold a sufficient
number of Shares from the total number of Shares issuable upon exercise of the
option or (ii) delivering a sufficient number of shares of the Company's Common
Stock (which have been held by the optionee for such period as the Committee may
require) to the Company. The value of shares withheld or delivered shall be the
fair market value of such shares on the date the exercise becomes taxable as
determined by the Committee. Such an election is subject to approval or
disapproval by the Committee, and if the optionee is subject to Section 16 of
the Exchange Act, the timing of the election must satisfy the requirements of
Rule 16b-3. The Company has no duty to advise any
11
<PAGE>
optionee of the existence of any tax or any amounts which may be withheld.
8. ADJUSTMENT OF AND CHANGES IN THE SHARES.
In the event the shares of Common Stock of the Company, as presently
constituted, shall be changed into or exchanged for a different number or kind
of shares of stock or other securities of the Company or of another corporation
(whether by reason of reorganization, merger, consolidation, recapitalization,
reclassification, split-up, combination of shares, or otherwise), or if the
number of shares of Common Stock of the Company shall be increased through the
payment of a stock dividend, the Committee shall substitute for or add to each
share of Common Stock of the Company theretofore appropriated or thereafter
subject or which may become subject to an option under the Plan, the number and
kind of shares of stock or other securities into which each outstanding share of
Common Stock of the Company shall be so changed, or for which each share shall
be exchanged, or to which each such share shall be entitled, as the case may be.
In addition, the Committee shall make appropriate adjustment in the number and
kind of shares as to which outstanding options, or portions thereof then
unexercised, shall be exercisable, so that any optionee's proportionate interest
in the Company by reason of his or her rights under unexercised portions of such
options shall be maintained as before the occurrence of such event. Such
adjustment in outstanding options shall be made without change in the total
price to the unexercised portion of the option and with a corresponding
adjustment in the option price per share.
In the event of sale, dissolution or liquidation of the Company or a merger
or consolidation in which the Company is not the surviving or resulting
corporation, the Committee may, in its discretion, provide for the assumption by
the surviving or resulting corporation of every option outstanding hereunder on
its terms and conditions, both as to the number of shares and otherwise;
provided, however, that, if the Committee does not provide for such assumption,
the Committee shall have the power to cause the termination of every option
outstanding hereunder, except that the surviving or resulting corporation may,
in its discretion, tender an option or options to purchase its shares on its
terms and conditions, both as to the number of shares and otherwise; and,
provided, further, that the provisions contained in the following Sections 8(a)
and (b) shall apply to all options granted prior to (but not after) March 1,
1995 (the date on which the merger of Regency Merger Corporation with and into
Regency
12
<PAGE>
Bank (the "Bank") was consummated), after which time the Bank became a wholly-
owned subsidiary of the Company and options theretofore and thereafter granted
under this Plan became options to purchase shares of Common Stock of the
Company:
(a) Each optionee shall have the right immediately prior to such
sale, dissolution, liquidation, or merger or consolidation in which the Company
is not the surviving or resulting corporation to notification thereof as soon as
practicable and, thereafter, to exercise the optionee's option to purchase
Shares subject thereto to the extent of any unexercised portion of the option,
regardless of the vesting provisions of Section 6(b) hereof. This right of
exercise shall be conditioned upon the execution of a final plan of dissolution
or liquidation or a definitive agreement of merger or consolidation and the
consummation of the transactions contemplated thereby.
(b) In the event of the purchase by any person or entity of, or an
offer by any person or entity to all shareholders of the Company to purchase,
25% or more of the shares of Common Stock of the Company (or shares of stock or
other securities which shall be substituted for such shares or to which such
shares shall be adjusted as provided in Section 8 hereof), or which purchase or
offer would result in such person or entity acquiring more than 50% of the
Company's outstanding shares following such purchase, any optionee under this
Plan shall have the right upon such purchase or the commencement of such offer
to exercise the option and purchase shares subject thereto to the extent of any
unexercised or unvested portion of such option.
No right to purchase fractional shares shall result from any adjustment in
options pursuant to this Section 8. In case of any such adjustment, the shares
subject to the option shall be rounded down to the nearest whole share. Notice
of any adjustment shall be given by the Company to each holder of an option
which was in fact so adjusted and such adjustment (whether or not such notice is
given) shall be effective and binding for all purposes of the Plan.
To the extent the foregoing adjustments relate to stock or securities of
the Company, such adjustments shall be made by the Committee, whose
determination in that respect shall be final, binding and conclusive.
Except as expressly provided in this Section 8, no issuance by the Company
of shares of stock of any class, or securities
13
<PAGE>
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an option. Any issue by the Company of shares of
stock of any class, or securities convertible into shares of any class, shall
not affect the number or price of shares of Common Stock subject to the option,
and no adjustment by reason thereof shall be made.
The grant of an option pursuant to the Plan shall not affect 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 or
to consolidate or to dissolve, liquidate or sell, or transfer all or any part of
its business or assets.
9. LISTING OR QUALIFICATION OF SHARES.
All options granted under the Plan are subject to the requirement that if
at any time the Committee shall determine in its discretion that the listing or
qualification of the Shares subject thereto on any securities exchange or under
any applicable law, or the consent or approval of any governmental regulatory
body, or if, in the opinion of counsel to the Company, compliance with any state
or federal securities laws is necessary or desirable as a condition of or in
connection with the issuance of Shares under the option, the optionee's right to
exercise any and all options shall be suspended and the option may not be
exercised in whole or in part unless such listing, qualification, consent,
approval, or compliance shall have been effected or obtained free of any
condition not acceptable to the Committee.
10. BINDING EFFECT OF CONDITIONS.
The conditions and stipulations herein contained, or in any option granted
pursuant to the Plan shall be, and constitute, a covenant running with all of
the Shares acquired by the optionee pursuant to this Plan, directly or
indirectly, whether the same have been issued or not, and those Shares owned by
the optionee shall not be sold, assigned or transferred by any person save and
except in accordance with the terms and conditions herein provided, and the
optionee shall agree to use the optionee's best efforts to cause the officers of
the Company to refuse to record on the books of the Company any assignment or
transfer made or attempted to be made except as provided in the Plan and to
cause said officers to refuse to cancel old certificates or to issue or deliver
new certificates therefor where the purchaser or assignee
14
<PAGE>
has acquired certificates or the Shares represented thereby, except strictly in
accordance with the provisions of the Plan.
11. AMENDMENT AND TERMINATION OF THE PLAN.
The Board of Directors shall have complete power and authority to terminate
or amend the Plan; provided, however, that the Board of Directors shall not,
without the approval of the shareholders of the Company and, if applicable, the
approval of the Superintendent of Banks of the State of California, amend the
Plan in a manner that requires shareholder approval for continued compliance
with the terms of Rule 16b-3, as promulgated under the Exchange Act (if Section
16 is applicable to the officers and directors of the Company), Section 422 of
the Code, any successor rules, or other regulatory authority; and provided
further that the provisions of Section 5 shall not be amended more than once
every six (6) months, other than to comport with changes in the Code, or the
rules thereunder. Except as provided in Section 8, no termination, modification
or amendment of the Plan may, without the consent of the optionee to whom such
option was previously granted under the Plan, adversely affect the rights of
such optionee. Unless the Plan shall have been terminated by action of the
Board of Directors prior thereto, it shall terminate on March 22, 2000.
15
<PAGE>
12. EFFECTIVENESS OF THE PLAN.
The amendments to the Plan contained herein shall become effective only
upon approval by the Board of Directors and, if necessary, by the shareholders
of the Company in accordance with applicable law.
13. PRIVILEGES OF STOCK OWNERSHIP; SECURITIES LAW COMPLIANCE; NOTICE OF
SALE.
No optionee shall be entitled to the privileges of stock ownership as to
any Shares not actually issued and delivered to the optionee. No Shares shall
be purchased upon the exercise of any option unless and until any then
applicable requirements of any regulatory agencies having jurisdiction,
securities laws, and of any exchanges upon which the Common Stock of the Company
may be listed shall have been fully complied with. The Company shall diligently
endeavor to comply with all applicable securities laws before any options are
granted under the Plan and before any Shares are issued pursuant to the exercise
of such options. The optionee shall give the Company notice of any sale or
other disposition of any Shares acquired upon exercise of an incentive stock
option not more than five (5) days after such sale or other disposition.
14. INFORMATION TO OPTIONEES.
The Company shall provide to each optionee during the period for which he
or she has one or more outstanding options, annual financial statements, and
copies of all annual reports and all other information which is provided to
shareholders of the Company. The Company shall not be required to provide such
information (other than annual financial statements) to key employees whose
duties in connection with the Company assure their access to equivalent
information.
16
<PAGE>
15. INDEMNIFICATION.
To the extent permitted by applicable law in effect from time to time, no
member of the Board of Directors or the Committee shall be liable for any action
or omission of any other member of the Board of Directors or Committee nor for
any act or omission on the member's own part, excepting only the member's own
willful misconduct or gross negligence. The Company shall pay expenses incurred
by, and satisfy a judgment or fine rendered or levied against, a present or
former director or member of the Committee in any action against such person
(whether or not the Company is joined as a party defendant) to impose a
liability or penalty on such person for an act alleged to have been committed by
such person while a director or member of the Committee arising with respect to
the Plan or administration thereof or out of membership on the Committee or by
the Company, or all or any combination of the preceding; provided, the director
or Committee member was acting in good faith, within what such director or
Committee member reasonably believed to have been within the scope of his or her
employment or authority and for a purpose which he or she reasonably believed to
be in the best interests of the Company or its shareholders. Payments
authorized hereunder include amounts paid and expenses incurred in settling any
such action or threatened action. This section does not apply to any action
instituted or maintained in the right of the Company by a shareholder or holder
of a voting trust certificate representing shares of the Company. The
provisions of this section shall apply to the estate, executor, administrator,
heirs, legatees or devisees of a director or Committee member, and the term
"person" as used in this section shall include the estate, executor,
administrator, heirs, legatees, or devisees of such person.
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 9,158
<INT-BEARING-DEPOSITS> 3
<FED-FUNDS-SOLD> 1,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 27,702
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 100,110
<ALLOWANCE> 1,690
<TOTAL-ASSETS> 162,269
<DEPOSITS> 140,722
<SHORT-TERM> 0
<LIABILITIES-OTHER> 8,516
<LONG-TERM> 0
0
0
<COMMON> 8,868
<OTHER-SE> 4,163
<TOTAL-LIABILITIES-AND-EQUITY> 162,269
<INTEREST-LOAN> 5,496
<INTEREST-INVEST> 887
<INTEREST-OTHER> 43
<INTEREST-TOTAL> 6,426
<INTEREST-DEPOSIT> 2,166
<INTEREST-EXPENSE> 2,266
<INTEREST-INCOME-NET> 4,160
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,965
<INCOME-PRETAX> 970
<INCOME-PRE-EXTRAORDINARY> 560
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 560
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
<YIELD-ACTUAL> 6.56
<LOANS-NON> 3,855<F1>
<LOANS-PAST> 179
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 139
<ALLOWANCE-OPEN> 1,784
<CHARGE-OFFS> 165
<RECOVERIES> 71
<ALLOWANCE-CLOSE> 1,690
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,690
<FN>
<F1>Regency Bancorp is a California corporation organized to act as the holding
company for Regency Bank (the "Bank") and its subsidiaries. The Bank has two
wholly-owned subsidiaries, Regency Investment Advisors, Inc., a California
corporation ("RIA"), which provides investment management and consulting
services, and Regency Service Corporation, a California corporation ("RSC"),
that has engaged in the business of real estate development primarily in the
Fresno/Clovis area since 1986.
The FDIC has adopted final regulations under the Federal Deposit Insurance
Corporation Improvement Act of 1991 regarding real estate investment and
development activities of insured state banks and their majority-owned
subsidiaries. Under the new FDIC regulations, banks must divest of their real
estate development investments as quickly and as prudently as possible, but in
no event later than December 19, 1996, and must submit a plan to the FDIC
regarding the divestiture of such investments. Such regulations also permit
banks to apply for the FDIC's consent to continue certain real estate
development activities and/or to file for an extension to continue divestiture
beyond December 19, 1996. RSC has filed a request with the FDIC to continue
its divestiture beyond December 19, 1996, however, as of the date of this report
the Company has not received a response.
As reported in the Company's quarterly report on form 10-Q, in order to
expedite the divestiture of its real estate holdings, RSC made loans to
facilitate the sale of three RSC projects. The loans were immediately placed
on nonaccrual status in accordance with applicable accounting guidelines
regarding the sale of real estate. As home and/or lots are sold on these
projects, principal reductions, as well as interest payments received are used
to reduce the principal balance outstanding on these loans. Although, interest
and principal payments have been received, these loans represent $3.73 million
of the $3.85 million reported as nonaccrual loans.
</FN>
</TABLE>
