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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-26552
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California Independent Bancorp
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(Exact name of registrant as specified in its charter)
California 68-0349947
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State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
1005 Stafford Way, Yuba City, California 95991
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (916) 674-4444
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class
None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X[ Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ X]
Aggregate market volume of Common Stock held by non-affiliates
of California Independent Bancorp at February 28, 1997: $29,816,105
Number of shares of Common Stock outstanding at February 28, 1997: 1,546,032
Documents Incorporated by Reference
Proxy Statement for 1997 Annual Meeting of Shareholders to be filed pursuant
to Regulation 14A.
Part III, Items 10, 11, 12 and 13
THIS REPORT INCLUDES A TOTAL OF ___ PAGES
EXHIBIT INDEX IS ON PAGE 73
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I N D E X
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DESCRIPTION PAGE NO.
ITEM 1. BUSINESS.............................................................1
ITEM 2. PROPERTIES..........................................................23
ITEM 3. LEGAL PROCEEDINGS...................................................25
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................25
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.............................................................25
ITEM 6. SELECTED FINANCIAL DATA.............................................26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS......27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.........................27
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..................28
ITEM 11 EXECUTIVE COMPENSATION..............................................31
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT..........................................................39
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................42
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K.........................................................43
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PART I
ITEM 1. BUSINESS
GENERAL
California Independent Bancorp ("Company") is a California corporation and
the bank holding company for Feather River State Bank ("Bank"), both located in
Yuba City, California. The Bank was incorporated as a California state banking
corporation on December 1, 1976, and commenced operations on April 6, 1977. The
Company was incorporated on October 28, 1994 and became the bank holding company
for Feather River State Bank (the "Bank") on May 2, 1995 pursuant to the Bank
Holding Company Act ("BHC Act").
On October 1, 1996, the Company acquired E.P.I. Leasing Co., Inc., an
equipment lessor ("EPI").
GENERAL BANKING SERVICES
The Bank engages in a broad range of financial services activities, and its
primary market is located in the northern portion of the Sacramento Valley, with
a total of seven branches in Yuba City, Marysville, Colusa, Arbuckle, Wheatland
and Woodland, California serving Sutter, Yuba, Colusa and Yolo Counties. The
total population base in these six counties is approximately 1.6 million people,
the majority of which is in Sacramento County which has 1.1 million people. The
Bank's branch in Wheatland, California opened on March 6, 1997 in a temporary
facility. Bank of America closed its branch in Wheatland on March 21, 1997,
which was the only other banking facility in Wheatland. The Bank decided to
open a branch in Wheatland after requests by numerous residents and the City
Council. Wheatland is primarily an agricultural area. In addition, the Bank
operates two loan production offices ("LPOs"), in Roseville, California in
Sacramento County and in Chico, California in Butte County. Both of these LPOs
emphasize residential mortgage and construction lending. The Bank intends to
open an LPO in Madera, California, an agricultural area just north of Fresno, in
the second quarter of 1997. The decision to open an LPO in Madera was based
upon residents contacting the Bank suggesting that the Bank open a facility and
the results of a focus group conducted in December, 1996, showing a need for
agricultural lending and other services in this area. The Bank currently has
agricultural loans in this area. The Bank intends to offer agricultural loans,
residential real estate and construction loans and equipment leasing through its
subsidiary, E.P.I.
With the exception of Sacramento County, whose main economic force is
government, the Bank's operating territory is predominantly agricultural in
nature.
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Food crops grown in the area are all grown on irrigated land and range from
tomatoes and rice to tree nuts, peaches and prunes.
Due to the agricultural nature of the economy in the Bank's operating
territory and the diversification of crops produced, economic conditions in the
Bank's market areas have remained more stable than in other parts of California
during the recent recession.
The Bank's branches in Yuba City and Marysville (Sutter and Yuba Counties)
are in areas which are at the periphery of housing for those individuals who
work in the growing Sacramento area.
The Bank currently has no applications pending to open additional branch
offices or LPOs, other than for Madera, California, but the Bank may increase
the number of its banking facilities in the Bank's trade areas when such
expansion is appropriate. The Bank's expansion program is, of course, dependent
on obtaining the necessary governmental approvals, a continued earnings pattern
and absence of adverse effects from economic conditions, governmental monetary
policies or competition. No assurance can be given that all or any part of the
Bank's expansion program can be accomplished without the Bank being required to
raise additional capital in the future.
The Bank conducts a commercial banking business including accepting demand,
savings and time deposits and making commercial, real estate, agricultural and
consumer loans and factoring of accounts receivable. The Bank also offers
equipment leasing through its subsidiary, EPI. It also offers installment note
collection, issues cashier's checks and money orders, sells traveler's checks,
and provides bank-by-mail, night depository, safe deposit boxes and other
customary banking services. The Bank installed ATMs for the first time in 1996
at each of its branches. In connection with the relocation of the Bank's
Agricultural and Real Estate Departments in March 1997 to a separate building on
Tharp Road in Yuba City, which formerly was a bank branch, it has installed two
ATMs at this building. The Bank is a member of the Federal Deposit Insurance
Corporation and each depositor's account is insured up to $100,000. The Bank
does not offer trust services or international banking services and does not
plan to do so in the near future.
DEPOSITS
Most of the Bank's deposits are attracted from individuals, small and
medium-sized businesses and professionals. A material portion of the Bank's
deposits has not been obtained from a single person or a few persons, the loss
of any one or more of which would not have a materially adverse effect on the
business of the Bank.
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LENDING ACTIVITIES
The Bank engages in a full complement of lending activities, including
commercial, agricultural, real estate and consumer/ installment loans and
factoring of accounts receivable.
Agricultural loans are made to finance agricultural production generally as
nonrevolving lines of credit that are drawn on when crop expenses are incurred
and are repaid as crop sale proceeds are received. These loans are secured by
the crops and the proceeds. The Bank generally requires a repayment margin of
25% for permanent plantings (i.e., tree and vine crops) and 20% for row crops.
As of December 31, 1996, the Bank had agricultural production loans outstanding
of $46,786,000 which represented 31.0% of the Bank's loan portfolio.
Approximately 5% of these loans are guaranteed by the Farm Service Agency (FSA).
The Bank makes real estate loans for farm land and residential loans.
Loans for farm land include loans for farm residences and other improvement
loans and are secured by a first lien on real estate. The maximum loan-to-value
ratio for farm land is 65%. Residential loans are made to purchase or refinance
1 to 4 family residences or multi-family residential properties and are secured
by a first deed of trust on the property except for loans to improve existing
properties which are secured by junior liens. The maximum loan-to-value ratio
for these loans is 80%. As of December 31, 1996, these types of real estate
secured loans equalled $13,765,000 or 9.11% of the Bank's loan portfolio.
The Bank also makes real estate construction and development loans for
acquisition of raw land to be developed into subdivisions and for the
construction of one to four family and multi-family housing. These loans are
secured by a first deed of trust and have maximum loan to value ratios ranging
from 65% to 80%. As of December 31, 1996, the Bank had outstanding loans of
$29,521,000 for these purposes representing 19.54% of the Bank's loan portfolio
as compared to $18,048,000 or 13.96% as of December 31, 1995. This increase in
real estate construction and development loans reflects the economy recovery in
Northern California following the last recession.
The Bank makes commercial real estate loans for such purposes as offices,
warehouses, professional buildings, retail and storage facilities, and other
purposes. These loans are secured by first deeds of trust and typically are
fully or partially owner-occupied, have a maximum loan-to-value ratio of 65% and
mature in five years or less. As of December 31, 1996, the Bank had a total of
$15,194,000 in these loans representing 10.06% of the Bank's loan portfolio.
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The Bank makes commercial and industrial loans to small-to-medium-sized
businesses for working capital, loans secured by inventory and receivables, term
loans for equipment and for working capital. Typically, the Bank obtains a
security interest in the collateral being financed or in other available assets
of the customer. Loan to value ratios vary but generally do not exceed 75%. As
of December 31, 1996, the Bank had outstanding loans for these purposes of
$26,891,000 representing 17.80% of the Bank's loan portfolio.
Consumer and installment loans and leases are made for household, family
and other personal expenditures. These loans are made on both a secured and
unsecured basis. As of December 31, 1996 the Bank had a total of $18,943,000 in
consumer and installment loans and leases or 12.54% of its loan portfolio.
The Bank originates mortgage loans on residential and farm properties which
it sells into the secondary market in order to divest itself of the interest
rate risk associated with these mostly fixed interest rate products. The Bank
accounts for these loans in accordance with the Emerging Issues Task Force
Issues No. 88-11, "Allocation of Recorded Investment when a Loan is Sold", No.
86-38, "Implication of Mortgage Prepayments on Amortization of Servicing
Rights", and No. 84-21, "Sale of a Loan with a Partial Participation Retained".
These loans are sold without recourse. As of December 31, 1996, 1995, and 1994,
total loans serviced by the Bank were $107,637,000, $107,141,759, and
$105,307,587. For the years ended December 31, 1996, 1995 and 1994, total loans
sold by the Bank were $36,302,000, $8,935,100 and $17,617,681.
Being in an agricultural area the Bank participates in the Farmer Mac I
loan program, pursuant to which it makes and then sells agricultural real estate
loans to the Travelers Realty Insurance Company and the Federal Agricultural
Mortgage Corporation. In addition, the Bank participates in the Farmer Mac II
loan program pursuant to which it makes FmHA guaranteed farm real estate loans
and subsequently sells the 90% guaranteed portion of these loans directly to the
Federal Agricultural Mortgage Corporation ("Farmer Mac") and often retains the
servicing of these loans for which it receives a fee. The Bank is one of the
largest lenders in the U.S. in the Farmer Mac program.
The Bank's real estate department makes mortgage and construction loans.
Its mortgage loans are typically 15 year and 30 year loans with either
adjustable or fixed interest rates. These mortgage loans are pre-sold to
minimize the Bank's interest rate risk. The Bank sells mortgage loans to Fannie
Mae, Freddie Mac, and to other mortgage lenders. The loans sold to Fannie Mae
and Freddie Mac are usually sold servicing retained, for which the Bank
continues to be paid a fee for collecting payments on the loan and performing
other services, and are also sold servicing released, where the Bank does not
perform these services but receives higher
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compensation upon purchase of the loan. With the opening of the Woodland branch
in 1993, the Bank makes mortgage loans in Yolo County and the Greater Sacramento
area. In 1995 and 1996 the Bank generated approximately $20,000,000 and
$28,297,000 in residential mortgage loans.
Pursuant to California law, the Bank's legal lending limit to any one
borrower is 15% of its shareholders' equity and allowance for loan losses for
unsecured loans and 25% for secured loans.
In May of 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard 122, Accounting for Mortgage Servicing Rights.
This statement eliminates the accounting distinction between rights to service
mortgage loans for others that are acquired through loan origination activities
and those acquired through purchase transactions. Under this statement, if the
Company sells or securitizes loans and retains the mortgage servicing rights,
the Company should allocate the total cost of the mortgage loan to the loan and
the mortgage servicing rights based on their relative fair values. Any cost
allocated to the mortgage servicing rights should be recognized as a separate
asset and amortized over the period estimated net service income.
The provisions of this statement apply to fiscal years beginning after
December 15, 1995. Accordingly, the Company adopted this statement on January
1, 1996. The adoption of this statement does not have a significant impact on
its financial position and results of operations.
The risks associated with commercial banking consist primarily of interest
rate risk and credit risk. The Bank attempts to manage its interest rate risk
by making variable rate loans and by interest rate gap analysis.
Credit risk relates to the ability of a borrower to repay the principal and
interest on their loan and is managed by adherence to credit standards and the
taking of collateral to secure most of the Bank's loans.
The majority of the Bank's loan portfolio consists of loans with variable
interest rates. The following chart illustrates the composition of the Bank's
loan portfolio as of December 31, 1996, as it pertains to interest-rate
sensitivity:
FIXED RATE
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TOTAL LOAN VARIABLE-RATE
PORTFOLIO LOANS UNDER 1 YR. OVER 1 YR.
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$151,100,000 $108,419,000 $20,219,000 $22,462,000
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This chart shows that a total of $128,638,000 of the Bank's loans are
repriceable within one year.
On a monthly basis, the Bank calculates its interest-rate gap position
whereby interest-rate-sensitive assets are compared with interest-rate-sensitive
liabilities for specific periods to determine if the Bank is susceptible to
significant earnings changes as a result of changes in interest rates. If the
gap percentage is positive, the Bank's interest earnings would increase during a
period of increasing interest rates and the Bank's interest earnings would
decrease during a period of declining interest rates. The reverse would be true
if the Bank has a negative gap. The Bank puts more emphasis on its gap position
for periods up to one year, as it is felt that a longer horizon gives the Bank
more time and flexibility to reposition its assets and liabilities to counteract
any potential earnings decrease.
The following chart illustrates the gap position of the Bank as of December
31, 1996:
MATURE OR
REPRICE 1-90 91-183 184-365
IMMEDIATELY DAYS DAYS DAYS
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(IN THOUSANDS)
Rate-sensitive
Assets $142,485 $ 21,340 $ 5,568 $ 8,563
Rate-sensitive
Liabilities 41,741 88,797 19,867 22,745
Interest Rate
Sensitivity Gap $100,744 $(67,457) $(14,299) $(14,182)
Cumulative Interest
Rate Sensitivity Gap $100,744 $33,287 18,988 $ 4,807
Cumulative Gap as a
Percentage of
Total Assets 38.7% 12.8% 7.3% 1.8%
It is the Bank's policy to maintain a one-year gap of between 0% and 6%.
Most of the Bank's deposits are attracted by the Bank's established
reputation in the communities it serves and through advertising in the local
media. A material
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portion of the Bank's deposits has not been obtained from a single person or a
few persons, the loss of any or more of which would not have a materially
adverse effect on the business of the Bank.
The underwriting criteria for agricultural and mortgage loans sold in the
secondary market are established by the purchasers of the loans. In certain
instances the Bank will make mortgage loans for its own portfolio at variable
interest rates.
The Bank has made Small Business Administration ("SBA") loans since its
inception. The Bank offers both SBA 7(a) and SBA 504 real estate guaranteed
loans ranging from amounts of $50,000 to $2,000,000. SBA 7(a) loans are for
such purposes as working capital, inventory and other purposes, and are
guaranteed up to 80%. SBA 504 loans are made to finance commercial real estate.
The SBA loan program is continually subject to political and budgetary
uncertainty which, in recent years has resulted in a reduction of the guaranteed
portion of SBA loans and lower maximum loan amounts.
The Bank also offers business and industrial guaranteed loans through the
Rural Development Administration ("RDA"). These loans are designated for
businesses that create jobs in rural areas. RDA loans are in amounts up to $10
million and are 90% guaranteed by the RDA. The Bank sells the guaranteed
portion of its SBA and RDA loans in the secondary market.
INVESTMENT POLICY
The Bank's investment policy is to provide the Bank with the maximum return
on its investment securities consistent with safety and liquidity.
In accordance with this policy and state laws regarding permissible
investments the Bank invests in U.S. Treasury and Agency securities with a
maturity of 10 years or less; tax-free municipal bonds rated "A" or better by
Moody's with a maturity not to exceed 13 years; corporate bonds rated "A" or
better by Standard and Poors or Moody's with a maturity not to exceed 7 years.
The Bank also invests in Federal funds.
The Bank's investment securities may also be used as collateral for public
deposits and for other borrowings.
OTHER SERVICES
The Bank also offers other financial products and services including
annuities, mutual funds, mutual fund advisory service, IRA's, brokerage and
custodial services,
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401(k) plans, estate plans, asset management, asset consulting, charitable
remainder trusts, fiduciary services, pension plans, nonqualified deferred
compensation, retirement plans and trust services. All of these investments
and/or financial services are offered by a registered investment representative
through the Bank's affiliation with Select Advisors, Inc., a registered
broker/dealer and a member of the National Association of Securities Dealers
("NASD") and the Securities Investor Protection Corporation ("SIPC"). Trust
services are provided by the Boston Safe Deposit and Trust Company of
California.
The Bank's primary service area consists of Colusa, Sutter, Yolo and Yuba
Counties. It is estimated that this service area contains 37 competitive
banking offices, of which nine offices are owned by other independent banks. It
is estimated that the primary service area also contains 4 offices of savings
and loan associations, and 6 offices of credit unions. Based upon total bank
deposits as of June 30, 1996 (the last period for which data is available), the
Bank is first in market share in Sutter County, fourth in Yuba and Colusa
counties and tenth in Yolo County which the Bank entered in 1993.
The banking business in California generally, and in the Bank's primary
service area specifically is highly competitive with respect to both loans and
deposits, and is dominated by a relatively small number of major banks with many
offices operating over a wide geographic area. Among the advantages such major
banks have over the Bank are their ability to finance wide ranging advertising
campaigns and to allocate their investment assets to regions of highest yield
and demand. Such institutions offer certain services such as trust services and
international banking which are not offered directly by the Bank (but are
offered indirectly through correspondent institutions) and, by virtue of their
greater total capitalization (legal lending limits to an individual customer are
limited to a percentage of a bank's total capital accounts), they have
substantially higher lending limits than does the Bank. Other entities, both
governmental and in private industry, seeking to raise capital through the
issuance and sale of debt or equity securities also provide competition for the
Bank in the acquisition of deposits. The Bank also competes with money-market
funds for deposits.
In order to compete with major financial institutions and other competitors
in its primary service areas, the Bank relies upon the experience of its
executive and senior officers in serving business individuals, and upon its
specialized service, local promotional activities and the personal contacts made
by its officers, directors and employees. For customers whose loan demand
exceeds the Bank's legal lending limit, the Bank may arrange for such loans on a
participation basis with correspondent banks. The Bank's lending limit is 15%
of its capital and allowance for loan losses for unsecured loans and 25% of its
capital and allowance for loan losses for unsecured and secured loans.
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SUPERVISION AND REGULATION
The Bank is chartered under the banking laws of the State of California and
is subject to the supervision of, and is regularly examined by, the
Superintendent and the FDIC.
The Company is a bank holding company within the meaning of the BHC Act, is
registered as such with and is subject to the supervision of the Federal Reserve
Board ("FRB") and regularly files proxy statements, periodic and other reports
with the Securities and Exchange Commission as a registered company under
Section 12 of the Securities Exchange Act of 1934, as amended.
Certain legislation and regulations affecting the businesses of the Company
and the Bank are discussed below.
GENERAL
As a bank holding company, the Company is subject to the BHC Act. The
Company reports to, registers with, and is examined by the FRB. The FRB also
has the authority to examine the Company's subsidiaries which includes the Bank.
The FRB requires the Company to maintain certain levels of capital. See"
Capital Standards" herein. The FRB also has the authority to take enforcement
action against any bank holding company that commits any unsafe or unsound
practice, or violates certain laws, regulations, or conditions imposed in
writing by the FRB. See "Prompt Corrective Action and Other Enforcement
Mechanisms" herein.
Under the BHC Act, a company generally must obtain the prior approval of
the FRB before it exercises a controlling influence over, or acquires directly
or indirectly, more than 5% of the voting shares or substantially all of the
assets of any bank or bank holding company. Thus, the Company is required to
obtain the prior approval of the FRB before it acquires, merges or consolidates
with any bank, or bank holding company; any company seeking to acquire, merge or
consolidate with the Company also would be required to obtain the FRB's
approval.
The Company is generally prohibited under the BHC Act from acquiring
ownership or control of more than 5% of the voting shares of any company that is
not a bank or bank holding company and from engaging directly or indirectly in
activities other than banking, managing banks, or providing services to
affiliates of the holding company. A bank holding company, with the approval of
the FRB, may engage, or acquire the voting shares of companies engaged, in
activities that the FRB has determined to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto. A bank
holding company must demonstrate that the
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benefits to the public of the proposed activity will outweigh the possible
adverse effects associated with such activity.
The FRB generally prohibits a bank holding company from declaring or paying
a cash dividend which would impose undue pressure on the capital of subsidiary
banks or would be funded only through borrowing or other arrangements that might
adversely affect a bank holding company's financial position. The FRB's policy
is that a bank holding company should not continue its existing rate of cash
dividends on its common stock unless its net income is sufficient to fully fund
each dividend and its prospective rate of earnings retention appears consistent
with its capital needs, asset quality and overall financial condition.
Transactions between the Company, the Bank and any future subsidiaries of
the Company are subject to a number of other restrictions. FRB policies forbid
the payment by bank subsidiaries of management fees which are unreasonable in
amount or exceed the fair market value of the services rendered (or, if no
market exists, actual costs plus a reasonable profit). Additionally, a bank
holding company and its subsidiaries are prohibited from engaging in certain
tie-in arrangements in connection with the extension of credit, sale or lease of
property, or furnishing of services. Subject to certain limitations, depository
institution subsidiaries of bank holding companies may extend credit to, invest
in the securities of, purchase assets from, or issue a guarantee, acceptance, or
letter of credit on behalf of, an affiliate, provided that the aggregate of such
transactions with affiliates may not exceed 10% of the capital stock and surplus
of the institution, and the aggregate of such transactions with all affiliates
may not exceed 20% of the capital stock and surplus of such institution. The
Company may only borrow from depository institution subsidiaries if the loan is
secured by marketable obligations with a value of a designated amount in excess
of the loan. Further, the Company may not sell a low-quality asset to a
depository institution subsidiary.
CAPITAL STANDARDS
The FRB, FDIC and other federal banking agencies have risk based capital
adequacy guidelines intended to provide a measure of capital adequacy that
reflects the degree of risk associated with a banking organization's operations
for both transactions reported on the balance sheet as assets, and transactions,
such as letters of credit and recourse arrangements, which are reported as off
balance sheet items. Under these guidelines, nominal dollar amounts of assets
and credit equivalent amounts of off balance sheet items are multiplied by one
of several risk adjustment percentages, which range from 0% for assets with low
credit risk, such as certain U.S. government securities, to 100% for assets with
relatively higher credit risk, such as business loans.
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A banking organization's risk based capital ratios are obtained by dividing
its qualifying capital by its total risk-adjusted assets and off balance sheet
items. The regulators measure risk-adjusted assets and off balance sheet items
against both total qualifying capital (the sum of Tier 1 capital and limited
amounts of Tier 2 capital) and Tier 1 capital. Tier 1 capital consists of
common stock, retained earnings, noncumulative perpetual preferred stock and
minority interests in certain subsidiaries, less most other intangible assets.
Tier 2 capital may consist of a limited amount of the allowance for possible
loan and lease losses and certain other instruments with some characteristics of
equity. The inclusion of elements of Tier 2 capital are subject to certain
other requirements and limitations of the federal banking agencies. Since
December 31, 1992, the federal banking agencies have required a minimum ratio of
qualifying total capital to risk-adjusted assets and off balance sheet items of
8%, and a minimum ratio of Tier 1 capital to risk-adjusted assets and off
balance sheet items of 4%.
In addition to the risk-based guidelines, federal banking regulators
require banking organizations to maintain a minimum amount of Tier 1 capital to
total assets, referred to as the leverage ratio. For a banking organization
rated in the highest of the five categories used by regulators to rate banking
organizations, the minimum leverage ratio of Tier 1 capital to total assets is
3%. It is improbable, however, that an institution with a 3% leverage ratio
would receive the highest rating by the regulators since a strong capital
position is a significant part of the regulators' rating. For all banking
organizations not rated in the highest category, the minimum leverage ratio is
at least 100 to 200 basis points above the 3% minimum. Thus, the effective
minimum leverage ratio, for all practical purposes, is at least 4% or 5%. In
addition to these uniform risk-based capital guidelines and leverage ratios that
apply across the industry, the regulators have the discretion to set individual
minimum capital requirements for specific institutions at rates significantly
above the minimum guidelines and ratios.
The following tables present the capital ratios for the Company and the
Bank as of December 31, 1996.
THE COMPANY THE BANK
------------------ -----------------
AMOUNT RATIO AMOUNT RATIO
-------- ----- -------- -----
(000's) (000's)
RISK-BASED CAPITAL RATIOS:
Tier 1 Capital . . . . . . . . . . . $ 21,813 11.31% $21,804 11.32%
Minimum Requirement 7,713 4.00% 7,708 4.00%
-------- ------ -------- ------
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THE COMPANY THE BANK
------------------ -----------------
AMOUNT RATIO AMOUNT RATIO
-------- ----- -------- -----
(000's) (000's)
Excess. . . . . . . . . . . . . . $ 14,100 7.31% $ 14,096 7.32%
-------- ------ -------- ------
-------- ------ -------- ------
Total Capital. . . . . . . . . . . . $ 22,918 11.89% $ 24,225 12.57%
Minimum Requirement. . . . . . . . . 15,426 8.00% 15,415 8.00%
-------- ------ -------- ------
Excess. . . . . . . . . . . . . . $ 7,492 3.89% $ 8,810 4.57%
-------- ------ -------- ------
-------- ------ -------- ------
Risk-Adjusted Assets. . . . . . . . . $192,825 $192,693
LEVERAGE RATIO:
Tier 1 Capital . . . . . . . . . . . $ 21,813 8.82% $ 21,804 8.82%
Minimum Requirement . . . . . . . . 9,891 4.00% 9,890 4.00%
-------- ------ -------- ------
Excess. . . . . . . . . . . . . . . $ 11,922 4.82% $ 11,914 4.82%
-------- ------ -------- ------
-------- ------ -------- ------
Total Adjusted Assets . . . . . . . . $247,274 $247,255
SAFETY AND SOUNDNESS STANDARDS
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") implemented certain specific restrictions on transactions and
required the regulators to adopt overall safety and soundness standards for
depository institutions related to internal control, loan underwriting and
documentation, and asset growth. Among other things, FDICIA limits the interest
rates paid on deposits by undercapitalized institutions, the use of brokered
deposits and the aggregate extension of credit by a depository institution to an
executive officer, director, principal stockholder or related interest, and
reduces deposit insurance coverage for deposits offered by undercapitalized
institutions for deposits by certain employee benefits accounts.
The federal financial institution agencies published a final rule effective
on August 9, 1995, implementing safety and soundness standards. The FDICIA
added a new Section 39 to the Federal Deposit Insurance Act which required the
agencies to establish safety and soundness standards for insured financial
institutions covering (1) internal controls, information systems and internal
audit systems; (2) loan
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documentation; (3) credit underwriting; (4) interest rate exposure; (5) asset
growth; (6) compensation, fees and benefits; (7) asset quality, earnings and
stock valuation; and (8) excessive compensation for executive officers,
directors or principal shareholders which could lead to material financial loss.
The agencies issued the final rule in the form of guidelines only for
operational, managerial and compensation standards and reissued for comment
proposed standards related to asset quality and earnings which are less
restrictive than the earlier proposal in November 1993. Unlike the earlier
proposal, the guidelines under the final rule do not apply to depository
institution holding companies and the stock valuation standard was eliminated.
If an agency determines that an institution fails to meet any standard
established by the guidelines, the agency may require the financial institution
to submit to the agency an acceptable plan to achieve compliance with the
standard. If the agency requires submission of a compliance plan and the
institution fails to timely submit an acceptable plan or to implement an
accepted plan, the agency must require the institution to correct the
deficiency. Under the final rule, an institution must file a compliance plan
within 30 days of a request to do so from the institution's primary federal
regulatory agency. The agencies may elect to initiate enforcement action in
certain cases rather than rely on an existing plan particularly where failure to
meet one or more of the standards could threaten the safe and sound operation of
the institution.
RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS
The power of the board of directors of an insured depository institution to
declare a cash dividend or other distribution with respect to capital is subject
to statutory and regulatory restrictions which limit the amount available for
such distribution depending upon the earnings, financial condition and cash
needs of the institution, as well as general business conditions. FDICIA
prohibits insured depository institutions from paying management fees to any
controlling persons or, with certain limited exceptions, making capital
distributions, including dividends, if, after such transaction, the institution
would be undercapitalized.
The FRB has issued a policy statement that a bank holding company should
not declare or pay a cash dividend to its stockholders if the dividend would
place undue pressure on the capital of its subsidiary banks or if the dividend
could be funded only through additional borrowings or other arrangements that
might adversely affect the financial position of the bank holding company.
Specifically, a bank holding company should not continue its existing rate of
cash dividends on its common stock unless its net income is sufficient to fully
fund each consistent with its capital needs, asset quality, and overall
financial condition. Further, the Company is expected to act as a source of
financial strength for each of its subsidiary banks and to commit resources to
support each subsidiary bank in circumstances when it might not do so absent
such policy.
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The Company's ability to pay dividends depends in large part on the ability
of the Bank to pay management fees and dividends to the Company. The ability of
its subsidiary banks to pay dividends will be subject to restrictions set forth
in the California Banking Law and regulations of the FDIC.
The payment of dividends by a state bank is further restricted by
additional provisions of state law. Under Section 642 of the California
Financial Code, funds available for cash dividend payments by a bank are
restricted to the lesser of: (i) retained earnings; or (ii) the bank's net
income for its three fiscal years (less any distributions to stockholders made
during such period). However, under Section 643 of the California Financial
Code, with the prior approval of the Superintendent, a bank may pay cash
dividends in an amount not to exceed the greater of the: (1) retained earnings
of the bank; (2) net income of the bank for its last fiscal year; or (3) net
income of the bank for its current fiscal year. However, if the Superintendent
finds that the stockholders' equity of the bank is not adequate or that the
payment of a dividend would be unsafe or unsound, the Superintendent may order
such bank not to pay a dividend to stockholders. Currently, it is permissible
for the Bank to pay cash dividends without the Superintendent's prior approval.
Additionally, under FDICIA, a bank may not make any capital distribution,
including the payment of dividends, if after making such distribution the bank
would be in any of the "under-capitalized" categories under the FDIC's Prompt
Corrective Action regulations.
Also, under the Financial Institution's Supervisory Act, the FDIC also has
the authority to prohibit a bank from engaging in business practices which the
FDIC considers to be unsafe or unsound. It is possible, depending upon the
financial condition of a bank and other factors, that the FDIC could assert that
the payment of dividends or other payments in some circumstances might be such
an unsafe or unsound practice and thereby prohibit such payment.
INTERSTATE BANKING AND BRANCHING
On September 29, 1994, the Reigle/Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Act") was signed into law. This
Interstate Act effectively permits nationwide banking. The Interstate Act
provides that one year after enactment, adequately capitalized and adequately
managed bank holding companies may acquire banks in any state, even in those
jurisdictions that currently bar acquisition by out-of-state institutions,
subject to deposit concentration limits. The deposit concentration limits
provide that regulatory approval by the Federal Reserve Board may not be granted
for a proposed interstate acquisition if after the acquisition, the acquiror on
a consolidated basis would control more than 10% of the total deposits
nationwide or would control more than 30% of deposits in the state where
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the acquiring institution is located. The deposit concentration state limit
does not apply for initial acquisitions in a state and in every case, may be
waived by the state regulatory authority. Interstate acquisitions are subject
to compliance with the Community Reinvestment Act ("CRA"). States are permitted
to impose age requirements not to exceed five years on target banks for
interstate acquisitions.
Branching between states may be accomplished either by merging separate
banks located in different states into one legal entity, or by establishing de
novo branches in another state. Consolidation of banks is not permitted until
June 1, 1997 provided that the state has not passed legislation "opting-out" of
interstate branching. If a state opts-out prior to June 1, 1997, then banks
located in that state may not participate in interstate branching. A state may
opt-in to interstate branching by bank consolidation or by de novo branching by
passing appropriate legislation earlier than June 1, 1997. California has
passed legislation to opt-in to this legislation. Interstate branching is also
subject to a 30% statewide deposit concentration limit on a consolidated basis,
and a 10% nationwide deposit concentration limit. The laws of the host state
regarding community reinvestment, fair lending, consumer protection (including
usury limits) and establishment of branches shall apply to the interstate
branches.
De novo branching by an out-of-state bank is not permitted unless the host
state expressly permits de novo branching by banks from out-of-state. The
establishment of an initial de novo branch in a state is subject to the same
conditions as apply to initial acquisition of a bank in the host state other
than the deposit concentration limits.
Effective one year after enactment, the Interstate Act permits bank
subsidiaries of a bank holding company to act as agents for affiliated
depository institutions in receiving deposits, renewing time deposits, closing
loans, servicing loans and receiving payments on loans and other obligations. A
bank acting as agent for an affiliate shall not be considered a branch of the
affiliate. Any agency relationship between affiliates must be on terms that are
consistent with safe and sound banking practices. The authority for an agency
relationship for receiving deposits includes the taking of deposits for an
existing account but is not meant to include the opening or origination of new
deposit accounts. Subject to certain conditions, insured saving associations
which were affiliated with banks as of June 1, 1994, may act as agents for such
banks. An affiliate bank or saving association may not conduct any activity as
an agent which such institution if prohibited from conducting as principal.
If an interstate bank decides to close a branch located in a low-or
moderate-income area, it must comply with additional branch closing notice
requirements. The appropriate regulatory agency is authorized to consult with
community organizations
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to explore options to maintain banking services in the affected community where
the branch is to be closed.
To ensure that interstate branching does not result in taking deposits
without regard to a community's credit needs, the regulatory agencies are
directed to implement regulations prohibiting interstate branches from being
used as "deposit production offices." The regulations to implement this
provision are due by June 1, 1997. The regulations must include a provision to
the effect that if loans made by an interstate branch are less than fifty
percent of the average of all depository institutions in the state, then the
regulator must review the loan portfolio of the branch. If the regulator
determines that the branch is not meeting the credit needs of the community, it
has the authority to close the branch and to prohibit the bank from opening new
branches in the state.
The Caldera, Weggeland and Killea California Interstate Banking and
Branching Act of 1995, effective October 2, 1995, (the "Caldera Act") amends the
California Financial Code to, among other matters, regulate the operations of
state banks to eliminate conflicts with and to implement the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 discussed above. The
Caldera Act includes (1) an election to permit early interstate merger
transactions; (2) a prohibition against interstate branching through the
acquisition of a branch business unit located in California without acquisition
of the whole business unit of the California bank; and (3) a prohibition against
interstate branching through de novo establishment of California branch offices.
The Caldera Act mandates that initial entry into California by an out-of-state
institution be accomplished by acquisition of or merger with an existing whole
bank which has been in existence for at least five years.
COMMUNITY REINVESTMENT ACT
In October 1994, the federal financial institution regulatory agencies
proposed a comprehensive revision of their regulations implementing the
Community Reinvestment Act ("CRA"), enacted in 1977 to promote lending by
financial institutions to individuals and businesses located in low and moderate
income areas. In May 1995, the proposed CRA regulations were published in final
form effective as of July 1, 1995. The revised regulations included
transitional phase-in provisions which generally require mandatory compliance
not later than July 1, 1997, although earlier voluntary compliance is
permissible. Under the former CRA regulations, compliance was evaluated by an
assessment of the institution's methods for determining, and efforts to meet,
the credit needs of such borrowers. This system was highly criticized by
depository institutions and their trade groups as subjective, inconsistent and
burdensome, and by consumer representatives for its alleged failure to
aggressively penalize poor CRA performance by financial institutions. The
revised CRA regulations emphasize an assessment of actual performance rather
than of the procedures
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followed by a bank, to evaluate compliance with the CRA. Overall CRA compliance
continues to be rated across a four-point scale from "outstanding" to
"substantial noncompliance," and continues to be a factor in review of
applications to merge, establish new branches or form bank holding companies.
In addition, any bank rated in "substantial noncompliance" with the revised CRA
regulations may be subject to enforcement proceedings.
The regulations provide that "small banks", which are defined to include
any independent bank with total assets of less than $50 million, are to be
evaluated by means of a so-called "streamlined assessment method" unless such a
bank elects to be evaluated by one of the other methods provided in the
regulations. The differences between the evaluation methods may be summarized
as follows:
(1) The "streamlined assessment method" presumptively applicable to small
banks requires that a bank's CRA compliance be evaluated pursuant to five
"assessment criteria," including its (i) loan-to-deposit ratio (as adjusted for
seasonal variations and other lending-related activities, such as sales to the
secondary market or community development lending); (ii) percentage of loans and
other lending-related activities in the bank's service area(s); (iii)
distribution of loans and other lending-related activities among borrowers of
different income levels, given the demographic characteristics of its service
area(s); (iv) geographic distribution of loans and other lending-related
activities within its service area(s); and (v) record of response to written
complaints, if any, about its CRA performance.
(2) The "lending, investments and service tests method" is applicable to
all banks larger than $250 million which are not wholesale or limited purpose
banks and do not elect to be evaluated by the "strategic plan assessment
method." Central to this method is the requirement that such banks collect and
report to their primary federal banking regulators detailed information
regarding home mortgage, small business and farm and community development loans
which is then used to evaluate CRA compliance. At the bank's option, data
regarding consumer loans and any other loan distribution it may choose to
provide also may be collected and reported.
Using such data, a bank will be evaluated regarding its (i) lending
performance according to the geographic distribution of its loans, the
characteristics of its borrowers, the number and complexity of its community
development loans, the innovativeness or flexibility of its lending practices to
meet low and moderate income credit needs and, at the bank's election, lending
by affiliates or through consortia or third-parties in which the bank has an
investment interest; (ii) investment performance by measure of the bank's
"qualified investments," that is, the extent to which the bank's investments,
deposits, membership shares in a credit union, or grants primarily to benefit
low or moderate income individuals and small businesses and farms, address
affordable housing or other needs not met by the private market, or
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assist any minority or women-owned depository institution by donating, selling
on favorable terms or provisioning on a rent-free basis any branch of the bank
located in a predominately minority neighborhood; and (iii) service performance
by evaluating the demographic distribution of the bank's branches and ATMs, its
record of opening and closing them, the availability of alternative retail
delivery systems (such as telephone banking, banking by mail or at work, and
mobile facilities) in low and moderate income geographies and to low and
moderate income individuals, and (given the characteristics of the bank's
service area(s) and its capacity and constraints) the extent to which the bank
provides "community development services" (services which primarily benefit low
and moderate income individuals or small farms and businesses or address
affordable housing needs not met by the private market) and their innovativeness
and responsiveness.
(3) Wholesale or limited purpose banks which do not make home mortgage,
small farm or business or consumer loans to retail customers may elect, subject
to agency approval of their status, to be evaluated by the "community
development test method," which assesses the number and amount of the bank's
community development loans, qualified investments and community development
services and their innovativeness and complexity.
(4) Any bank may request to be evaluated by the "strategic plan assessment
method" by submitting a strategic plan for review and approval. Such a plan
must involve public participation in its preparation, and contain measurable
goals for meeting low and moderate income credit needs through lending,
investments and provision of services. Such plans generally will be evaluated
by measuring strategic plan goals against standards similar to those which will
be applied in evaluating a bank according to the "lending, investments and
service test method."
The federal institution regulatory agencies issued a final rule effective
as of January 1, 1996 to make certain technical corrections to the revised CRA
regulations. Among other matters, the rule clarifies the transition from the
former CRA regulations to the revised CRA regulations by confirming that when an
institution either voluntarily or mandatorily becomes subject to the performance
tests and standards of the revised regulations, the institution must comply with
all of the requirements of the revised regulations and is no longer subject to
the provisions of the former CRA regulations.
DEPOSIT INSURANCE
On December 11, 1996 the FDIC finalized a rule lowering the rates on
assessments paid to the Savings Association Insurance Fund ("SAIF"), effective
October 1, 1996. As a result of the special assessment required by the Deposit
Insurance Funds Act of 1996 ("Funds Act"), the SAIF must be capitalized at the
target
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designated reserve ratio ("DRR") of 1.25 percent of estimated insured deposits
on October 1, 1996. Section 7 of the Federal Deposit Insurance Act, as amended
by the Funds Act, requires the FDIC to set assessments in order to maintain the
target DRR. Therefore, the FDIC has lowered the rates on assessments paid to
the SAIF, while simultaneously widening the spread between the lowest and
highest rates to improve the effectiveness of the FDIC's risk-based premium
system. The FDIC also established a process, similar to that which has applied
to the Bank Insurance Fund ("BIF"), for adjusting the rate schedules for both
the SAIF and BIF within a limited range without notice and comment to maintain
each of the fund balances at the targeted DRR. The Funds Act also separates,
effective January 1, 1997, the Financing Corporation ("FICO") assessment to
service the interest on its bond obligations from the SAIF assessment. The
amount assessed on individual institutions by the FICO will be in addition to
the amount paid for deposit insurance according to the FDIC's risk-related
assessment rate schedules.
The final rule establishes a SAIF assessment rate schedule of 0 to 27 basis
points effective for all institutions beginning January 1, 1997, in addition to
a special interim rate schedule for the fourth quarter of 1996. The Funds Act
also provides that the assessment rates for SAIF members may not be less than
the assessment rates for BIF members which pose a comparable risk to the Deposit
Insurance Fund. The Funds Act provides that assessments are authorized only if
necessary to maintain the DRR of a Deposit Insurance Fund. In the event the
balance in a Deposit Insurance Fund is in excess of the DRR of such fund, such
excess amount shall be refunded to insured depository institutions by the FDIC
on such basis as the FDIC determines to be appropriate, taking into account the
factors considered under the risk-based assessment system. In the case of any
payment of an assessment by an insured depository institution in excess of the
amount due to the FDIC, the FDIC may refund the amount of the excess payment to
the insured depository institution or credit such excess amount toward the
payment of subsequent semi-annual assessments until such credit is exhausted.
The Funds Act also provides that the BIF and the SAIF shall be merged into one
Deposit Insurance Fund effective January 1, 1999, if no insured depository
institution is a savings association on that date.
ECONOMIC GROWTH AND REGULATORY PAPERWORK REDUCTION ACT OF 1996
The Economic Growth and Regulatory Paperwork Reduction Act of 1996 (the
"Regulatory Reduction Act"), was enacted in September 1996. The Regulatory
Reduction Act streamlines many banking laws and Federal bank regulatory agencies
are in the process of promulgating regulations to implement the law. The
Regulatory Reduction Act changes: (i) the procedures for merging, acquiring,
or assuming all or a part of another depositary institution have been simplified
for banks with the two highest regulatory ratings. The regulators have
streamlined their internal approval procedures and expedited the review process
for proposals. Top rated banks and
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well run bank holding companies, qualify for the expedited treatment; (ii) the
new rules eliminate the requirement for well capitalized and well managed banks
to obtain prior approval for investment in bank premises or the stock of a
corporation holding bank premises; (iii) per branch capital requirements are
eliminated for well performing banks as are the requirement that a bank file a
branch application for ATMs; (iv) the approval requirement for divestitures by
well run banks have been eliminated. The process for acquisition of an interest
in certain nonbank activities has been simplified by eliminating notice
requirements for well capitalized and well managed banks. Acquisitions are
still limited to permitted nonbank activities. Permitted nonbank activities
have been greatly expanded. The acquisition is limited in size to ten percent
of the consolidated total risk-weighted assets of the acquiring bank; (v) a
qualified bank holding company may engage in permissible activities listed in 12
USC 1843(c)(8) without prior notification to its federal regulator, but must
still give notification within 10 days of commencing the activity; (vi) banks
meeting minimum capital requirements may appoint directors without giving prior
notice to their regulator. A bank that does not meet its minimum capital
requirements must give notice to its regulator 30 days prior to an appointment.
Once the notice is received, the federal regulator has 90 days to file an
objection to the appointment; (vii) the prohibitions against dual service of
management officials for large banks have been amended to increase the size of
the bank. The effect of this change is to exempt some of the smaller banks from
this particular part of the management interlock prohibitions. Those persons
who were grandfathered under the old regulations have had five years added to
the grandfathering statute; (viii) the requirements for notice to the regulators
and to customers for the closure of an ATM site is eliminated. Relocation or
consolidation of branches no longer require notice if the relocation or
consolidation occurs within the immediate neighborhood or it does not
substantially affect the nature of the business or customers served; (ix) the
Regulatory Reduction Act expanded the eligibility of some banks to qualify for
an 18 month examination schedule by increasing the total asset size for those
banks rated outstanding or good from $175,000,000 to $250,000,000; (x) all
federal regulatory agencies are required to review regulations for outdated or
otherwise unnecessary regulatory requirements not less frequently than once
every 10 years; (xi) in order to encourage self testing and correction of
regulatory errors, the Regulatory Reduction Act establishes a privilege for
information accumulated during self testing of regulatory compliance.
Information obtained by a bank during self testing may not be used in any civil
action, examination or investigation, and generally may not be obtained by any
agency or department for use in such a proceeding. If the bank elects to
disclose this information in connection with a particular action, it may not be
used in any other actions; and (xii) as a result of the passage of the
Regulatory Reduction Act the federal bank regulators have begun a process of
regulatory simplification.
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The Real Estate Settlement Procedures Act ("RESPA") regulations and the
Truth-in-Lending Act ("TILA") regulations have been changed to adopt matching
definitions for common terms. Federal regulators recently asked for additional
comments from banks for consolidation and simplification of the consumer
protection regulations. Those comments are to be published sometime in the
Spring of 1997.
ASSET CONSERVATION, LENDER LIABILITY AND DEPOSIT INSURANCE PROTECTION ACT OF
1996
Environmental Protection Agency regulations excluding financial
institutions from liability for the clean up of toxic materials on property held
as collateral for loans were over turned by the federal courts. Due to concerns
expressed by interested parties (owners, realtors and lenders) Congress passed
amendments to the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA") to reinstate certain safeguards for fiduciaries
and lenders. A bank or other party acting as a fiduciary may hold property in
such capacity and shall have no liability for the release or threatened release
of a hazardous substance in excess of the value of the property held in a
fiduciary capacity. For example, a bank acting as trustee under the terms of a
written trust agreement, will not have any liability in excess of the actual
value of the assets in that particular trust. The assets of the Bank will not
be at risk for a release occurring on property belonging to the trust. This
amendment does not limit the liability of the fiduciary to private parties that
may have a cause of action outside of the scope of CERCLA. Fiduciary as used
in CERCLA includes, trustees, executors, administrators, custodians, guardians,
receivers, conservators, and personal representatives.
The amendments to CERCLA include changes in the definitions contained in 42
USC 9601(20) entitled definitions. A major change in the definition of "owner"
or "Operator" has the effect of limiting the liability of a financial
institution that does not participate in management of an environmentally
impaired property. Section 9607 of CERCLA states that owners and operators of a
vessel or facility are liable for damages arising out of discharge of a
hazardous substance on property. The amendment specifically states that a
financial institution holding a deed of trust on real property that does not
participate in the management of the operations carried out on the property is
not an owner or an operator under the statute. The amendments further state
that a financial institution that forecloses on such property does not incur
liability simply by the act of foreclosing on the property or through the
subsequent sale of the property to a third party.
INTER-COMPANY BORROWINGS
Bank holding companies are also restricted as to the extent to which they
and their subsidiaries can borrow or otherwise obtain credit from one another,
or engage
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in certain other transactions. The "covered transactions" that an insured
depository institution and its subsidiaries are permitted to engage in with
their nondepository affiliates are limited to the following amounts: (1) in the
case of any one such affiliate, the aggregate amount of covered transactions of
the insured depository institution and its subsidiaries cannot exceed 10% of the
capital stock and the surplus of the insured depository institution; and (ii) in
the case of all affiliates, the aggregate amount of covered transactions of the
insured depository institution and its subsidiaries cannot exceed 20% of the
capital stock and surplus of the insured depository institution. In addition,
extensions of credit that constitute covered transactions must be collateralized
in prescribed amounts.
"Covered transactions" are defined by statute to include a loan or
extension of credit to the affiliate, a purchase of securities issued by an
affiliate, a purchase of assets from the affiliate (unless otherwise exempted by
the Federal Reserve Board), the acceptance of securities issued by the affiliate
as collateral for a loan and the issuance of a guarantee, acceptance, or letter
of credit for the benefit of an affiliate. Further, a bank holding company and
its subsidiaries are prohibited from engaging in certain tie-in arrangements in
connection with any extension of credit, lease or sale of property or furnishing
of services.
IMPACT OF MONETARY POLICIES
Banking is a business which depends on interest rate differentials. In
general, the difference between the interest paid by a bank on its deposits and
other borrowings, and the interest rate earned by banks on loans, securities and
other interest-earning assets comprises the major source of banks' earnings.
Thus, the earnings and growth of banks are subject to the influence of economic
conditions generally, both domestic and foreign, and also to the monetary and
fiscal policies of the United States and its agencies, particularly the FRB.
The FRB implements national monetary policy, such an seeking to curb inflation
and combat recession, by its open-market dealings in United States government
securities, by adjusting the required level of reserves for financial
institutions subject to reserve requirements and through adjustments to the
discount rate applicable to borrowings by banks which are members of the FRB.
The actions of the FRB in these areas influence the growth of bank loans,
investments and deposits and also affect interest rates. The nature and timing
of any future changes in such policies and their impact on Central Coast and
Cypress cannot be predicted. In addition, adverse economic conditions could make
a higher provision for loan losses a prudent course and could cause higher loan
loss charge-offs, thus adversely affecting a bank's net earnings.
ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has recently issued SFAS No.
125, "Accounting for the Transfer and Servicing of Financial Assets and
Extinguishments of Liabilities" effective for transactions occurring after
December 31, 1996. SFAS NO. 125 requires that an asset seller must meet
defined conditions to demonstrate that it has surrendered control over the
assets. The failure to meet these conditions usually results in
on-balance-sheet treatment for the assets and a libility for the sale
proceeds received. SFAS No. 125 also requires that contracts to service are
recorded as an asset or a liability based on fair value or on an allocation
of the carrying amount of the financial asset. SFAS 125 covers subsequent
accounting, including impairments, and eliminates the distinction between
excess and normal servicing. In December 1996, the FASB issued SFAS No. 127,
"Deferral of the Effective Date of Certain Provisions of FASB Statement No.
125" to defer for one year the effective date of implementation for
transactions related to repurchase agreements, dollar-roll repurchase
agreements, securities lending and other similar transactions. The Company
does not believe that adoption of these standards will have a significant
impact on its financial position or results of operations.
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GENERAL
On June 25, 1984, the Bank formed Yuba-Sutter Financial Services
Corporation ("Yuba-Sutter") as a wholly-owned subsidiary. This subsidiary is
inactive.
There has been no material effect upon the Bank's capital expenditures,
earnings, or competitive position as a result of federal, state or local
provisions regarding the discharge of materials into the environment.
At December 31, 1996, the Company employed one hundred seventy-nine (179)
persons including six (6) part-time employees, four (4) executive officers and
forty-seven (47) other officers. None of the Company's employees is presently
represented by a union or covered under a collective bargaining agreement.
Management of the Company believes that its employee relations are excellent.
ITEM 2. PROPERTIES
The Bank currently conducts its banking operations from an administrative
office, seven (7) branch offices and two loan production offices and another
loan production office is scheduled to open in the second quarter of 1997.
The Bank's principal office in Yuba City, California, is located at 777
Colusa Avenue in a modern, single story, shopping center end building which has
drive-up windows and off-street parking for its customers. This office was
opened in 1982.
In 1991, the Bank purchased a building located at 1005 Stafford Way, Yuba
City, California, located directly behind its main branch. This building serves
as the headquarters for the Company. The Bank's note department will move from
the Bank's Colusa Avenue office to this location in the second quarter of 1997,
after the Company's headquarters have moved to another location.
The Bank purchased land for the Bank's office at 1221 Bridge Street, Yuba
City, in 1978. In 1991, the Bank purchased a combined retail and office
building with parking located at 1227 Bridge Street, adjacent to the Bank's
Bridge Street branch. Presently, the Bank's Data Center, Administrative
services and financial consulting services are located in this building. In the
second quarter of 1997, the Company's and the Bank's headquarters will be moved
to this location.
The Bank's Marysville branch office was located at 231 D Street in a leased
portion of an office building called "Library Square" until March 31, 1996. The
Bank's lease obligations also terminated on March 31, 1996.
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The new location of the Bank's Marysville office is 700 "E" Street in
Marysville. The Bank purchased this building, which was a branch of another
bank, in September 1995 for a purchase price of $405,000 including all of the
improvements, furniture, fixtures and equipment which were located there.
The Bank's Colusa branch office is located at 655 Fremont Street in an
office building which was converted to banking quarters. The Bank owns the land
and premises for the branch.
In 1985, the Bank purchased premises for its Arbuckle office located at the
corner of Amanda and Sixth Streets. The Bank moved its Arbuckle office to this
location in June, 1986. The Bank leases 1,800 square feet plus a common area of
these premises to an unaffiliated party.
In 1993, the Bank purchased the building which is now the location of its
new Woodland branch office located at 203 Main Street. This was formerly the
site of the Security Pacific Bank branch. The purchase price for this building
of approximately 4,000 square feet was $430,100 and the Bank spent $154,381
remodeling the building.
The Bank's former Citrus Heights loan production office was located at 6545
Sunrise Boulevard, Citrus Heights, California. The premises contained
approximately 1,556 square feet of office space, and was leased for a three year
term beginning on September 15, 1994. The lease was terminated on March 31,
1996. The rent during the first year was $1,400 per month and increases each
year with a rent of $1,556 per month during the third year.
On October 1, 1996, the Bank entered into a month to month lease for an
office located at 2140 Professional Drive, in Roseville, California where it has
a real estate LPO. The rent is $405 per month plus an additional $235 per month
for office services.
On April 30, 1996, the Bank entered into a lease for premises located at
194 East Sixth Street, Chico California, the site of one of its LPOs. The lease
is for two (2) years commencing on June 1, 1996 at a rent of $900 per month.
The lease provides for three options to renew for a period of two (2) years
each.
On December 2, 1996, the Bank purchased a former bank branch located at 995
Tharp Road in Yuba City, California for a purchase price of $650,000. After
remodeling, the Bank relocated its Agricultural Real Estate and Residential Real
Estate Departments at this location.
24
<PAGE>
In connection with the purchase of E.P.I., the Bank entered into a lease
for premises where E.P.I. is located at 6929 Sunrise Boulevard in Citrus
Heights. The lease commenced on August 1, 1996 at a monthly rent of $3,322
which increased to $3,449 on November 1, 1996 and until the lease terminates on
December 31, 1997.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to ordinary routine litigation incidental to its
business and is not a party to any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is trading on the NASDAQ National Market under
the trading symbol "CIBN". The Company's Common Stock began trading on the
NASDAQ National Market on July 31, 1996. Prior to that time, the Company's
Common Stock was listed on the NASDAQ Bulletin Board and was the subject of
limited trading.
Set forth below is information regarding trading in the Company's Common
Stock for the last two years.
The prices indicated below may not necessarily represent actual
transactions.
SALE PRICE OF COMMON STOCK
--------------------------
PERIOD ENDED 1996 BID ASK
----------- -----------
March 31 $19.52 $20.48
June 30 18.10 21.90
September 30 22.75 23.00
December 31 24.00 25.00
25
<PAGE>
PERIOD ENDED 1995 BID ASK
----------- -----------
March 31 $18.10 $18.57
June 30 18.10 18.70
September 30 19.76 20.40
December 31 18.10 18.46
Cash dividends paid on the Company's Common Stock were $.42 per share for
the year ending December 31, 1996, and $.41 per share for the year ending
December 31, 1995, both adjusted to reflect the 5 percent stock dividends paid
on July 14, 1995 and September 20, 1996, and a 5-for-4 stock split paid on May
26, 1994.
It is currently the intention of the Board of Directors of the Company to
pay cash dividends on a quarterly basis. However, there is no assurance that
cash dividends will be paid in the future as they are dependent upon the
earnings, financial condition and capital requirements of the Company and its
subsidiary, Feather River State Bank, as well as legal and regulatory
requirements. As of December 31, 1996, the Company had $6,792,619 available for
payment of dividends to its shareholders without any restrictions.
As of February 28, 1997, there were 1,160 holders of record of the
Company's Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR
Interest Income $20,574,833 $19,002,834 $15,120,346 $12,805,981 $12,419,781
Interest expense 7,448,898 6,316,594 4,502,067 4,388,018 4,915,960
-------------- ------------- ------------- ------------- -------------
Net Interest income 13,125,935 12,686,240 10,618,279 8,417,963 7,503,821
Provision for loan losses 385,000 875,000 347,000 155,000 180,000
-------------- ------------- ------------- ------------- -------------
Net interest income after
provision for loan losses 12,740,935 11,811,240 10,271,279 8,262,963 7,323,821
Noninterest income 3,136,423 2,226,967 1,878,349 2,353,021 1,922,883
Noninterest expense (10,269,529) (8,936,485) (8,189,991) (7,118,212) (5,999,167)
-------------- ------------- ------------- ------------- -------------
26
<PAGE>
<CAPTION>
1996 1995 1994 1993 1992
-------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Income before provision for
income taxes 5,607,829 5,101,722 3,959,637 3,497,772 3,247,537
Provision for income taxes 2,206,778 2,036,000 1,540,000 1,309,000 1,200,000
-------------- ------------- ------------- ------------- -------------
Net income $ 3,401,051 $ 3,065,722 $ 2,419,637 $ 2,188,772 $ 2,047,537
-------------- ------------- ------------- ------------- -------------
-------------- ------------- ------------- ------------- -------------
PER COMMON SHARE DATA
Net income $ 2.18 $ 1.88 $ 1.52 $ 1.37 $ 1.28
Cash dividends $ 0.42 $ 0.41 $ 0.36 $ 0.29 $ 0.29
Book value $ 14.16 $ 12.26 $ 10.83 $ 9.67 $ 8.46
Dividend payout ratio 19.05% 21.70% 23.80% 21.50% 23.10%
AVERAGE COMMON SHARES OUTSTANDING 1,560,949 1,629,474 1,588,874 1,600,926 1,605,070
FINANCIAL RATIOS
Return on average assets 1.51% 1.56% 1.33% 1.34% 1.33%
Return on average common
shareholders' equity 16.71% 17.54% 15.92% 17.88% 19.46%
Net interest margin 5.64% 5.45% 4.96% 4.25% 3.95%
Net charge-offs to average
loans, net 0.16% 0.19% 0.12% 0.34% (0.01%)
Allowance for loan loss as a
percent of net loans 2.68% 3.05% 2.57% 2.87% 3.13%
Efficiency ratio 63.05% 59.92% 65.54% 66.09% 63.64%
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE YEARS
ENDED DECEMBER 31, 1995 AND 1996
THE COMPANY
California Independent Bancorp (the "Company") through its wholly-owned
subsidiary, Feather River State Bank (the "Bank"), engages in a broad range of
financial service activities. The Bank commenced operations in 1977. The Company
was formed in 1995 and, after receiving regulatory and shareholder approval,
became the bank holding company for the Bank in May 1995. In October 1996, the
Bank acquired E.P.I. Leasing Co., Inc., ("EPI") and operates it as a subsidiary.
The Bank's other subsidiary, Yuba-Sutter Financial Services, Inc., is currently
inactive.
SUMMARY OF FINANCIAL RESULTS
In 1996, the Company's earnings increased to $3,401,000 or 10.9%, representing
the fourteenth consecutive year of increases in net income. In 1995, earnings
were $3,066,000, an increase of 26.7% from 1994. Earnings per share in 1996 were
$2.18 an increase of 16.0% as compared to earnings of $1.88 per share in 1995,
which was an increase of 23.7% from 1994.
The Company paid cash dividends of $.36 per share in 1994, $.41 per share in
1995 and $.42 in 1996, 5% stock dividends in 1995 and 1996, and a 5-for-4 stock
split of its Common Stock in 1994. Earnings per share have been adjusted
retroactively to reflect the stock dividends and stock split.
The increase in the Company's earnings from 1994 to 1996 generally reflects an
increase in the volume of interest-earning assets and the economic recovery in
Northern California.
Certain information concerning the Company's average balances, yields and rates
on average interest-earning assets and interest-bearing liabilities is set forth
in the table below.
The Company's average interest-earning assets increased from $155,309,000 in
1994, to $175,020,000 in 1995, and to $201,233,000 in 1996, while the average
yield on these assets increased in 1995 to 10.86% from 9.74% in 1994, and then
declined in 1996 to 10.22%. The increase in average yield in 1995 reflected a
rising interest rate environment from the previous year, while the decrease in
average yield in 1996 of .64% reflects both a decrease in prevailing interest
rates nationally and amongst the Company's local competitors. Average interest-
bearing liabilities, consisting of interest paid on interest-bearing deposits,
increased from $129,454,000 in 1994, to $141,339,000 in 1995, and $162,582,000
in 1996, while the average rate paid on these deposits was 3.48%, 4.47%, and
4.58% respectively. The increase in interest rates on deposits is reflective of
the increase in market rates.
Noninterest-bearing demand accounts, consisting primarily of business checking
accounts, has increased from $36,912,000 in 1994, to $35,864,000 in 1995, and to
$40,128,000 in 1996. The increase in both interest-bearing and noninterest-
bearing deposits from 1995 to 1996, reflects normal growth and also reflects the
closing of branches by large statewide banks in Marysville, where the branch
accounted for a significant part of the overall increase in deposits.
Management believes that the Company has adequate liquidity to meet its needs
such as funding the undisbursed portion of borrower's lines of credit,
withdrawals by depositors, managing interest and market rate risk in the event
of significant changes in interest rates, and meeting its cash needs. Federal
Funds Sold is the means by which the Company invests its excess cash overnight
with other banks.
- --------------------------------------------------------------------------------
AVERAGE BALANCE SHEETS
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------- --------------------------------- --------------------------------
Average Yield/ Interest Average Yield/ Interest Average Yield/ Interest
Balance Rate Amount Balance Rate Amount Balance Rate Amount
----------- ------ ---------- ----------- ------ ---------- ---------- ------ ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Earning-assets
Short-term investments:
Federal funds sold $27,962,872 5.30% $1,482,801 $12,305,263 5.73% $705,422 $8,872,954 4.44% $393,770
----------- ------ ---------- ----------- ------ ---------- ---------- ------ ----------
Total $27,962,872 5.30% $1,482,801 $12,305,263 5.73% $705,422 $8,872,954 4.44% $393,770
----------- ------ ---------- ----------- ------ ---------- ---------- ------ ----------
Investment securities:
Taxable 20,654,011 7.70% 1,591,086 26,081,024 6.99% 1,823,710 22,202,577 5.16% 1,146,082
Nontaxable 4,322,277 6.36% 274,808 4,741,005 6.61% 313,293 5,276,970 6.84% 360,830
----------- ------ ---------- ----------- ------ ---------- ---------- ------ ----------
Total 24,976,288 7.47% 1,865,894 30,822,029 6.93% 2,137,003 27,479,547 5.48% 1,506,912
----------- ------ ---------- ----------- ------ ---------- ---------- ------ ----------
<PAGE>
AVERAGE BALANCE SHEETS (CONTINUED)
<CAPTION>
1996 1995 1994
-------------------------------- ---------------------------------- ---------------------------------
Average Yield/ Interest Average Yield/ Interest Average Yield/ Interest
Balance Rate Amount Balance Rate Amount Balance Rate Amount
----------- ------ ---------- ----------- ------ ---------- ---------- ------ ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans: (1) 148,293,868 11.62% 17,226,138 131,892,742 12.25% 16,160,409 118,956,336 11.11% 13,219,664
------------ ------- ---------- ------------ ------ ----------- ------------ ------ -----------
Total earning assets $201,233,028 10.22% $20,574,833 $175,020,034 10.86% $19,002,834 $155,308,837 9.74% $15,120,346
------------ ------ ----------- ------------ ------ ----------- ------------ ------ -----------
Allowance for
possible loan losses (3,952,228) (3,592,222) (3,157,839)
Nonearning assets
Cash and due from banks $ 13,751,241 $ 11,579,838 $ 17,887,422
Premises and equipment 6,769,581 6,214,843 6,237,337
Other 7,140,684 7,225,503 5,906,097
------------ ------------ ------------
Total nonearning assets 27,661,506 25,020,184 30,030,856
Total assets $224,942,306 $196,447,996 $182,181,854
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing deposits:
Demand, savings and
money market $ 92,765,254 3.80% $ 3,524,331 $ 87,893,048 3.65% $ 3,211,937 $ 96,101,626 3.01% $ 2,894,702
------------ ------ ----------- ------------ ------ ----------- ------------ ------ -----------
Time certificates 68,959,042 5.64% 3,891,406 52,245,879 5.82% 3,041,354 32,452,971 4.82% 1,564,253
Other 858,176 3.86% 33,161 1,200,548 5.27% 63,303 899,241 4.79% 43,112
------------ ------ ----------- ------------ ------ ----------- ------------ ------ -----------
Total $162,582,472 4.58% $ 7,448,898 $141,339,475 4.47% $ 6,316,594 $129,453,838 3.48% $ 4,502,067
------------ ------ ----------- ------------ ------ ----------- ------------ ------ -----------
Noninterest-bearing
deposits and other
liabilities:
Demand,
noninterest-bearing $ 40,127,679 $ 35,863,668 $ 36,912,054
Other liabilities 1,881,981 1,768,835 620,713
Shareholders' equity 20,350,174 17,476,018 15,195,249
------------- ------------ ------------
Total $ 62,359,834 $55,108,521 $ 52,728,016
------------- ------------ ------------
Total liabilities and
shareholders' equity $224,942,306 $196,447,996 $182,181,854
------------- ------------ ------------
------------- ------------ ------------
Net interest income $11,283,053 $12,686,240 $10,618,279
Net interest margin 5.64% 6.39% 6.26%
------- ------- -------
</TABLE>
(1) Includes loan origination fees of $808,336 for 1996; $1,854,024 for 1995;
$2,020,074 for 1994.
- --------------------------------------------------------------------------------
NET INTEREST INCOME
Net interest income, the difference between interest earned on loans and
investments and the interest paid on deposits and other sources of funds, is the
principal component of the Company's earnings. The preceding table shows the
composition of average earning assets and average interest-bearing liabilities,
average yields and rates, and the Company's net interest margin.
Interest income increased from $15,120,000 in 1994, to $19,003,000 in 1995, and
$20,575,000 in 1996, or by 25.7% in 1995 and 8.27% in 1996. The average interest
rate earned on loans was 11.62% in 1996 versus 12.25% in 1995 and 11.11% in
1994. The Company's loan portfolio consists mainly of loans that reprice
immediately with changes in the prime rate and, therefore, closely follow
interest rate trends. The increase in 1995 is a result of an increase in the
volume of interest-earning assets and a larger net interest margin due to the
average yield on interest-earning assets increasing more steeply than the
average rate paid on interest-bearing liabilities. The increase in interest
income in 1996 is due to the increase in the volume of interest-earning assets
as both average yield and the net interest margin decreased.
Average Federal Funds Sold were $8,873,000 in 1994, $12,305,000 in 1995, and
$27,963,000 in 1996, representing increases of 38.7% in 1995 and 127% in 1996.
The increase in Federal Funds Sold in 1996 is due to the increase in both
interest and noninterest-bearing deposits of $25,507,000 and a lower average
balance of investment securities.
<PAGE>
Total interest expense increased from $4,502,000 in 1994, to $6,317,000 in 1995,
and to $7,449,000 in 1996, or an increase of 40.3% in 1995, and 17.9% in 1996.
The volume of average interest-bearing liabilities increased by 15.0% in 1996,
9.0% in 1995, and 12.8% in 1994. The increase in the Company's cost of funds is
due to increases in both volume and rate.
The Company's net yield on interest-earning assets is affected by changes in the
rates earned and paid and the volume of interest-earning assets and interest-
bearing liabilities. The impact of changes in volume and rate on net interest
income in 1996 and 1995 is shown in the following table. Changes attributable to
both volume and rate have been allocated to rate.
- --------------------------------------------------------------------------------
CHANGES IN VOLUME/RATE
<TABLE>
<CAPTION>
1996 Compared to 1995 1995 Compared to 1994
---------------------------- ---------------------------
Volume Rate Total Volume Rate Total
-------- -------- ------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold $ 897 $ (119) $ 778 $ 152 $ 159 $ 311
Investment securities:
Taxable (379) 146 (233) 200 478 678
Nontaxable (28) (10) (38) (36) 84 (48)
Loans 2,009 (2,786) (777) 1,437 1,504 2,941
-------- -------- ------- ------- ------- -------
Total $2,499 $(2,769) $(270) $1,753 $2,129 $3,882
-------- -------- ------- ------- ------- -------
-------- -------- ------- ------- ------- -------
Demand, savings and
money market 178 134 312 (247) 564 317
Time certificates 973 (123) 850 954 523 1,477
-------- -------- ------- ------- ------- -------
Total $1,151 $(1,181) $ (30) $ 707 $1,087 $1,794
-------- -------- ------- ------- ------- -------
Increase in net interest income $1,349 $(1,589) $(240) $1,046 $1,042 $2,088
-------- -------- ------- ------- ------- -------
-------- -------- ------- ------- ------- -------
</TABLE>
- --------------------------------------------------------------------------------
LOANS
Outstanding total loans averaged $148,294,000 in 1996 as compared to
$131,893,000 in 1995, and $118,956,000 in 1994. This represents increases of
$16,401,000 or 12.4% in 1996, $12,937,000 or 10.9% in 1995, and $3,562,000 or
3.1% in 1994. While the Company continues to emphasize its agricultural lending
and lending under programs such as the Federal Agricultural Mortgage Corporation
(Farmer Mac) and Farmers Service Agency (FSA), the increase in average total
loans in 1995 and 1996 primarily reflects increases in loans for real estate
construction and land development due to the economic recovery in the Company's
market area and a significant increase in lease financing. In 1996, the Company
purchased equipment leases from three sources including EPI, which it acquired
in October 1996. The Company purchases leases with its excess liquidity as the
average yield on leases is in excess of 10%.
The following table summarizes the composition of the loan portfolio as of
December 31 for the years indicated:
- --------------------------------------------------------------------------------
COMPOSITION OF LOAN PORTFOLIO
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------------
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Commercial and agricultural $ 71,527,482 $ 74,355,093 $ 69,143,245 $ 51,166,003 $ 41,646,415
Real estate-construction 29,916,204 18,048,005 12,647,669 15,619,506 11,159,497
Real estate-mortgage 28,564,640 28,288,337 33,450,751 37,435,688 46,508,307
Consumer 2,983,939 2,814,717 3,111,243 2,923,728 3,513,747
Lease financing 15,892,783 3,216,140 6,501,110 23,844 137,476
Other 2,214,574 1,522,174 3,109,201 464,524 3,152,019
-------------- ------------- ------------- ------------- --------------
Total $151,099,622 $128,244,466 $127,963,219 $107,633,293 $106,117,461
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
</TABLE>
<PAGE>
The Company lends to consumers, small to medium-sized businesses and farmers.
A significant portion of the Company's loan portfolio consists of loans secured
by residential, commercial and agricultural real estate.
Real estate mortgage and construction loans and agricultural real estate
equalled $58,481,000 or 38.7% and $46,336,000 or 36.13% of the total loan
portfolio at December 31, 1996 and 1995, respectively. These loans are secured
by real estate, and advances are limited to 65% to 80% of appraised value
depending on the type of loan.
The Company makes agricultural production loans and other agricultural loans
which are secured by the crops and the proceeds. These loans generally are at
their peak in the third quarter of each year. The Company had $46,786,000 or
31.0% and $49,966,000 or 39.0% of its loan portfolio in agricultural production
loans outstanding at December 31, 1996 and 1995, respectively. Approximately 15%
of these loans are guaranteed by the Farm Service Agency (FSA).
In October 1995, the Company established a Commercial Finance Division. The
Commercial Finance Division makes commercial and industrial loans to small and
medium-sized businesses for working capital, inventory and equipment. These
loans are secured by the assets being financed or by the customer's receivables,
with loan-to-value ratios which generally do not exceed 75%. The Company also
does factoring (the purchase of accounts receivable) at discounts from 50% to
80% of the amount of the accounts receivable which are purchased. At December
31, 1996, the Commercial Finance Division had outstanding extensions of credit
of approximately $4,500,000.
The Company originates mortgage loans on residential and agricultural properties
which it sells into the secondary market in order to divest itself of the
interest rate risk associated with these mostly fixed-interest rate products.
The Company accounts for these loans in accordance with the Emerging Issues Task
Force Issues No. 88-11, "Allocation of Recorded Investment when a Loan is Sold",
No. 86-38, "Implication of Mortgage Prepayments on Amortization of Servicing
Rights", and No. 84-21, "Sale of a Loan with a Partial Participation Retained".
These loans are sold without recourse.
As of December 31, 1996, 1995, and 1994, total loans serviced by the Company
were $107,637,000, $107,141,759 and $105,307,587. Total loans sold by the
Company were $28,297,103 in 1996, an increase of 217% from 1995; $8,935,100 in
1995, a decrease of 49.28% from 1994; and $17,617,681 in 1994. The decrease in
loans sold in 1995 reflects a change in the market for residential mortgage
loans and the Company's decreased activity in that area. The significant
increase in loans sold in 1996 reflects both Farmer Mac and FSA changing their
procedures for the sale of loans into the secondary market whereby they purchase
the loans directly from the Company rather than have "poolers" purchase these
loans to assemble a pool of loans to be sold in the secondary market. This has
made it easier and less time consuming for the Company to sell these loans. The
Company in 1996 sold many of these loans as servicing released, as the Company
receives more income per loan if it is sold in this manner.
INTEREST RATE SENSITIVITY
Interest rate sensitivity is the relationship between market interest rates and
net interest income due to the repricing characteristics of assets and
liabilities. If more liabilities than assets reprice in a given period (a
liability sensitive position), market interest rate changes will be reflected
more quickly in liability rates. If interest rates decline, a liability
sensitive position will benefit net income. Alternatively, where assets reprice
more quickly than liabilities in a given period (an asset sensitive position), a
decline in market rates will have an adverse effect on net interest income.
Management's objective is to maintain the stability of the net interest margin
in times of fluctuating interest rates by maintaining an appropriate mix of
interest rate sensitive assets and liabilities.
The following table presents the interest rate sensitivity of the Company as of
December 31, 1996.
<PAGE>
INTEREST RATE SENSITIVITY AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
Repricing Opportunity
0-90 91-180 181-365 Over
Days Days Days One Year Total
---------- ---------- ------------ ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Federal funds sold $ 41,300 $ 0 $ 0 $ 0 $ 41,300
Loans 121,598 5,862 3,121 20,519 151,100
Taxable investments 6 4,830 1,990 24,298 31,124
Nontaxable investments 115 150 1,575 1,700 3,540
---------- ---------- ------------ ---------- ---------
Total earning assets $163,019 $10,842 $ 6,686 $46,517 $227,064
---------- ---------- ------------ ---------- ---------
---------- ---------- ------------ ---------- ---------
Interest-bearing demand 33,659 0 0 0 33,659
Savings and money market deposits 67,756 0 0 0 67,756
Time certificates 29,028 19,695 22,574 10,063 81,360
---------- ---------- ------------ ---------- ---------
Total interest-bearing liabilities 130,443 19,695 22,574 10,063 182,775
---------- ---------- ------------ ---------- ---------
Gap $ 32,576 $(8,853) $(15,888) $36,454 $ 44,289
---------- ---------- ------------ ---------- ---------
Cumulative gap 32,576 23,723 7,835 44,289
---------- ---------- ------------ ----------
---------- ---------- ------------ ----------
</TABLE>
- --------------------------------------------------------------------------------
Management does not manage its interest rate sensitivity to maximize income
based on its prediction of interest rates, but to minimize interest rate risk to
the Company by stabilizing the Company's net interest margin in all interest
rate environments.
Additionally, the Company is subject to considerable competitive pressure in
generating deposits and loans at rates and terms prevailing in the Company's
market areas.
Management has developed a matrix that calculates pre-tax impact on earnings as
determined by its gap position, that takes into consideration delays in the
timing of repricing based on actual experience. The matrix is of a static nature
and assumes that Management and market forces effect no changes and leave the
rate-sensitive balance sheet virtually unchanged.
QUALITY OF LOANS
Inherent in the lending function is the fact that loan losses will be
experienced and that the risk of loss will vary with the type of loan extended
and the creditworthiness of the borrower. To reflect the estimated risks of loss
associated with its loan portfolio, provisions are made to the Company's
allowance for loan losses. As an integral part of this process, the allowance
for loan losses is subject to review and possible adjustment as a result of
regulatory examinations conducted by governmental agencies and through
Management's assessment of risk.
The Company uses the allowance method in providing for loan losses. Loan losses
are charged to the allowance for loan losses and recoveries are credited to it.
Management believes that the total allowance for loan losses is adequate and
continues to be maintained at a level above the Company's peer group,
particularly when considering the Company's historically lower level of loan
losses. While Management uses available information to provide for loan losses,
future additions to the allowance may be necessary based on changes in economic
conditions.
The allowance for loan losses at December 31, 1996, was $4,053,000 or 2.68% of
total loans outstanding as compared to $3,911,000 or 3.05% of total loans
outstanding at December 31, 1995. Management believes that the allowance for
loan losses at December 31, 1996, was adequate to provide for losses that can be
reasonably anticipated.
Additions to the allowance for loan losses are made by provisions for possible
loan losses. The provision for possible loan losses is charged to operating
expense and is based upon past loan loss experience and estimates of potential
losses which, in Management's judgment, deserve current recognition. Management
determines the appropriate size of the allowance for loan losses based upon
specific allocations for classified loans and a general allocation for other
loans based upon the loss experience
<PAGE>
during the past twelve rolling months for each particular type of loan. Other
factors considered by Management include growth, composition and overall quality
of the loan portfolio, and current economic conditions that may affect the
borrower's ability to pay. Actual losses may vary from current estimates. The
estimates are reviewed periodically, and adjustments, as necessary, are charged
to operations in the period in which they became known.
- --------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSESS
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Total loans outstanding $151,100 $128,244 $127,963 $107,633 $106,117
Average net loans 148,294 131,893 118,956 115,394 126,869
BALANCE, JANUARY 1 3,911 3,288 3,087 3,320 3,128
Charge-offs by loan category
Commercial 323 413 29 133 376
Consumer 0 46 43 8 2
Real Estate 4 96 125 300 0
---------- ---------- ---------- ---------- -----------
Total $ 327 $ 555 $ 197 $ 441 $ 378
---------- ---------- ---------- ---------- -----------
Recoveries by loan category
Commercial $53 $ 249 $48 $ 18 $ 380
Consumer 31 44 3 5 9
Real Estate 0 10 0 30 1
---------- ---------- ---------- ---------- -----------
Total $ 84 $ 303 $ 51 $ 53 $ 390
---------- ---------- ---------- ---------- -----------
Net charge-offs (recoveries) 243 252 146 388 (12)
Provision charged to expense 385 875 347 155 180
---------- ---------- ---------- ---------- -----------
BALANCE, DECEMBER 31 $ 4,053 $ 3,911 $ 3,288 $ 3,087 $ 3,320
---------- ---------- ---------- ---------- -----------
---------- ---------- ---------- ---------- -----------
Ratios:
Net charge-offs (recoveries)
to average loans 0.16% 0.19% 0.12% 0.34% (0.01)%
Allowance to loans at end of year 2.68% 3.05% 2.57% .87% 3.13%
</TABLE>
- --------------------------------------------------------------------------------
The Company had loan charge-offs of $327,000 in 1996, $555,000 in 1995, and
$197,000 in 1994, and net loan charge-offs (which include recoveries) of
$243,000, $252,000 and $146,000 in 1996, 1995 and 1994, respectively. These net
charge-offs are equal to .16%, .19% and .12% of average loans for 1996, 1995 and
1994. The charged-off loans in 1996 included two row crop loans consisting of a
charge-off of $203,000 of a loan with an original balance of $1,500,000, and a
charge-off of $42,000 from an original balance of $450,000, and a letter of
credit of $35,000, which the Company was obligated to pay when its customer
defaulted on an obligation. The Company has recovered approximately $6,000 from
its customer regarding the letter of credit and recoveries are expected to
continue, but there can be no assurance that the Company will recover the full
amount. In 1995, the Company charged-off $194,000 consisting of three unsecured
loans to one borrower and recovered this same amount during the year. The
Company also charged-off a real estate loan to another borrower in 1995 with a
remaining balance of $55,000, which was also recovered during the year. The
remainder of the loan charge-offs in 1995 consisted of 11 loans of various
dollar amounts and a $55,000 writedown of property subsequently transfered to
OREO.
<PAGE>
ALLOCATION OF ALLOWANCE
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
Category to Category to Category to Category to Category to
----------------- ---------------- ---------------- ----------------- ----------------
$ % $ % $ % $ % $ %
------- ------- ------ ------- ------ ------- ------- ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans in Each Category
to Toal Loans
Balance applicable to:
Commercial and
agricultural $1,918 47.34% $2,267 57.98% $1,776 54.03% $1,467 47.54% $1,302 39.25%
Real Estate-
construction 802 19.80% 550 14.07% 325 9.88% 448 14.51% 349 10.52%
Real Estate-
mortgage 766 18.90% 863 22.06% 860 26.14% 1,074 34.78% 1,455 43.83%
Consumer 80 1.97% 86 2.19% 80 2.43% 84 2.72% 110 3.31%
Other 487 11.99% 145 3.70% 247 7.52% 14 .45% 104 3.09%
------- ------- ------ ------- ------ ------- ------- ------- ------ -------
Total $4,053 100.00% $3,911 100.00% $3,288 100.00% $3,087 100.00% $3,320 100.00%
------- ------- ------ ------- ------ ------- ------- ------- ------ -------
------- ------- ------ ------- ------ ------- ------- ------- ------ -------
Nonperforming Loans
Loans Accounted for on
a Nonaccrual Basis $ 846 $ 293 $1,110 $1,355 $1,042
Other Loans Contractually
Past Due 90 Days or More 2,202 60 50 317 20
------- ------ ------ ------- ------
Total $3,048 $ 353 $1,160 $1,672 $1,062
------- ------ ------ ------- ------
------- ------ ------ ------- ------
</TABLE>
- --------------------------------------------------------------------------------
Any allocation or breakdown in the allowance for loan losses lends an appearance
of exactness that does not exist. Thus, the allocation above should not be
interpreted as an indication of expected amounts or categories where charge-offs
will occur. The allocation of the allowance for loan losses as of the end of the
last five fiscal years is summarized in the table above.
NONPERFORMING LOANS
Loans are generally placed on nonaccrual status when they are 90 days past due
as to either interest or principal. At that time, any accrued but uncollected
interest is reversed, and additional income is recorded on a cash basis as
payments are received. However, loans that are in the process of renewal in the
normal course of business, or are well-secured and in the process of collection,
may not be placed on nonaccrual status, at the discretion of Management. A
nonaccrual loan may be restored to an accrual basis when interest and principal
payments are current and the prospects for future payments are no longer in
doubt.
At December 31, 1996, nonaccrual loans amounted to $846,000 or .56% of total
loans as compared to $293,000 or .23% of total loans, at December 31, 1995, and
$1,110,000 or .87% of total loans at December 31, 1994. The decrease in
nonaccrual loans from 1994 to 1995 primarily reflects the recovering economy at
that time. At December 31, 1996, the increase in nonaccrual loans included three
loans totalling approximately $542,000 for development of residential property
where it was necessary for the developer to change the type of housing to be
built. Additionally, land values in this area decreased because of over-
building. The Company is in negotiation with the borrower to restructure the
loan which would include additional collateral in order to reduce the loan-to-
value ratio to a more appropriate level. Other nonaccrual loans include two
business loans with government guarantees, a business loan on which the Company
now expects to be provided with collateral and a crop loan which is 90%
guaranteed by FSA.
Nonaccrual loans at December 31, 1995, consisted of three loans, two of which
were real estate loans on which the Company anticipated full recovery as the
remaining loan balance was below the market value of the real estate, and
another loan which was a FSA guaranteed as to 90% of the loan.
Loans past due 90 days or more as to principal or interest increased in 1996 to
$2,202,000 as compared to $60,000 in 1995 and $50,000 in 1994. The significant
increase of 357% in loans past due 90 days or more consists primarily of three
loans totalling approximately $1,875,000. The Company is negotiating with the
borrower regarding the largest of these loans, a $1,000,000 loan for livestock
operations, to restructure the loan into a three-year term loan. The second
largest loan is a $700,000 business loan, which is now accruing.
<PAGE>
The Company is negotiating with the borrower to restructure the loan into
separate loans, with one loan to be secured by commercial real estate. The third
loan, which is for approximately $175,000, is on nonaccrual as it is past due as
to $1,700 in interest payments. In addition, there are equipment leases which
are past due in the total amount of approximately $239,000 which were purchased
from the two nonaffiliated leasing companies from which the Company purchases
leases. These represent 1.4% of the leases purchased by the Company from these
leasing companies, whereas the standard in the leasing industry is past dues
equal to about 2% of leases outstanding.
INVESTMENTS
In 1996, the Company's investment portfolio was $34,664,000 or 13.2% of total
assets, an increase from $27,428,000 or 12.78% of total assets in 1995, and from
$32,809,000 or 17.0% of total assets in 1994. At December 31, 1996, 1995 and
1994, Federal Funds Sold were $41,300,000, $30,000,000 and $9,000,000
respectively. Federal Funds Sold are overnight deposits with other banks. In
1996, the increase in investment securities and Federal Funds Sold represent the
investment of additional cash as growth in deposits exceeded the growth in
loans. In 1995, the increase in Federal Funds Sold was due to the additional
purchase of Federal Funds which were yielding a higher interest rate than 5-year
U.S. Treasury securities.
Under Statement of Financial Accounting Standard No. 115 (SFAS 115), investments
of a bank in debt and equity securities must be classified in three different
categories: "Trading", "Available-for-Sale", and "Held-to-Maturity", and there
are different accounting methods for each category. The Company has classified
all of its investment securities as either "Available-for-Sale" or "Held-to-
Maturity". SFAS 115 requires that any unrealized gain or loss of the "Available-
for-Sale" category be reported as an adjustment to the Company's equity capital,
even though this gain or loss would only be realized if the investment were
actually sold.
If the investment is in the "Held-to-Maturity" category, no unrealized gains or
losses need be reported.
The following table summarizes the distribution of the Company's investment
securities as of December 31, 1996 and 1995.
- --------------------------------------------------------------------------------
INVESTMENTS
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
December 31, 1996
Available-for-sale:
U.S. Treasury securities and obligations of U.S.
government agencies $11,405,179 $ 5,915 $(36,631) $11,374,463
------------ ---------- ---------- ------------
------------ ---------- ---------- ------------
Held-to-maturity:
U.S. Treasury securities and obligations of U.S.
government agencies $15,720,573 $140,302 $ (1,158) $15,859,717
Obligations of states and political subdivisions 3,576,412 92,434 (22,159) 3,646,687
Corporate obligations and other securities 3,992,185 27,109 0 4,019,294
------------ ---------- ---------- ------------
$23,289,170 $259,845 $(23,317) $23,525,698
------------ ---------- ---------- ------------
------------ ---------- ---------- ------------
December 31, 1995
Available-for-sale:
U.S. Treasury securities and obligations of U.S.
government agencies $ 5,847,100 $ 47,652 $ (4,566) $ 5,890,186
------------ ---------- ---------- ------------
------------ ---------- ---------- ------------
Held-to-maturity:
U.S. Treasury securities and obligations of U.S.
government agencies $ 9,722,535 $352,824 $ 0 $10,075,359
Obligations of states and political subdivisions 4,905,291 154,675 (3,152) 5,056,814
Corporate obligations and other securities 6,909,942 116,710 (26,875) 6,999,777
------------ ---------- ---------- ------------
$21,537,768 $624,209 $(30,027) $22,131,950
------------ ---------- ---------- ------------
------------ ---------- ---------- ------------
</TABLE>
<PAGE>
As of December 31, 1996, the Company's "Available-for-Sale" category adjustment
reflected a net unrealized loss of $18,000 net of taxes, and the approximate
market value of the Company's total investment portfolio was $34,900,000,
reflecting an unrealized gain of $206,000.
As of December 31, 1995, the Company's "Available-for-Sale" category adjustment
of capital reflected an unrealized gain of $24,900 net of taxes, and the
approximate market value of the Company's total investment portfolio was
$28,022,000, reflecting an unrealized gain of $637,000.
The Company had investment securities pledged as collateral for certain
deposits, typically deposits of government entities of $10,375,000, $10,410,000
and $9,904,000 at December 31, 1996, 1995 and 1994, respectively.
FUNDING
Total deposits at December 31, 1996, 1995 and 1994 were $237,892,000,
$193,296,000 and $175,112,000, an increase of $44,596,000 or 23.1% during 1996
and $18,184,000 or 10.38% during 1995. Average total deposits were $202,710,000
in 1996, $177,203,000 in 1995 and $166,366,000 in 1994. The increase in deposits
in 1996 reflects both normal growth and the acquisition of deposits resulting
from branch consolidations and closings in the Company's market area by large
statewide banks. The increase in deposits during 1995 is partially a result of
depositors shifting funds to bank deposits from other investments as interest
rates on bank deposits increased significantly from the beginning of 1994
through 1995. Average deposits in time certificates increased from $32,453,000
in 1994 to $52,246,000 or 61% in 1995, and to $68,959,000 or 31.99% in 1996. The
increase in 1995 reflects in part the aforementioned movement from other
investments, and depositors shifting funds from other interest-bearing accounts
at the Company to higher yielding time certificates, and in 1996 primarily
reflects the acquisition of new deposits. The Company has been able to attract
deposits by providing interest rates on deposits competitive with other
financial institutions in its market area.
The table below sets forth information for the last three fiscal years regarding
the Company's average deposits and the average rate paid on each of the deposit
categories.
- --------------------------------------------------------------------------------
AVERAGE DEPOSITS
<TABLE>
<CAPTION>
1996 1995 1994
------------------ ----------------- ------------------
Average Average Average
Balance Rate Balance Rate Balance Rate
-------- ------ ------- ----- -------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand, noninterest-bearing $40,128 - $35,864 - $36,912 -
Demand, savings, and
money market, interest-bearing 92,765 3.80% 87,893 3.65% 96,102 3.01%
Time certificates 68,959 5.64% 52,246 5.82% 32,453 4.82%
</TABLE>
- --------------------------------------------------------------------------------
The remaining maturities of the Company's certificates of deposit in amounts of
$100,000 or more, including public time deposits, as of December 31, 1996, are
indicated in the table below. Interest expense on these certificates of deposit
totaled $1,481,000 in 1996.
MATURITY OF CERTIFICATE OF DEPOSITS $100,000 OR MORE
December 31, 1996
-----------------
(In thousands)
Three months or less $12,928
Over three through six months 9,077
Over six through twelve months 8,514
Over twelve months 3,333
-------
Total $33,852
-------
-------
<PAGE>
NONINTEREST INCOME
Noninterest income for 1996 was $3,136,000 or an increase of 40.8%, and for 1995
was $2,227,000 or an increase of 18.6%.
The table below sets forth the components of noninterest income for the years
indicated:
NONINTEREST INCOME
1996 1995 1994
------ ------ ------
(Dollars in thousands)
Service charges
and fees $1,010 $ 943 $ 855
Loan servicing fees 487 482 306
Brokered loan fees 923 360 418
Gain on sale
of OREO 240 31 29
Other 476 411 270
------ ------ ------
Total $3,136 $2,227 $1,878
------ ------ ------
------ ------ ------
Service charges and fees on deposit accounts, the primary component in
noninterest income, increased in 1996 to $1,010,000 or 7.1%, and in 1995 to
$943,000 or 10.3%, due to increased activity in both years. Loan servicing fees
in 1996 were $487,000, and in 1995 were $482,000, an increase of 57.6% over 1994
due to an increase in the number of loans it services. Brokered loan fees in
1996 were $923,000 an increase of 156% as a result of a higher volume of
residential and agricultural mortgage loans sold into the secondary market, the
sale of a significant portion of these loans on a servicing released basis, and
EPI Leasing Brokered Commission Income. In 1996, the Company's gain on sale of
OREO was $240,000 versus $31,000 in 1995. In both years, the gain on sale of
OREO reflects the market value of the real estate property sold in that year.
- --------------------------------------------------------------------------------
OTHER EXPENSES
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------- -------------------------- ------------------------
Percentage Percentage Percentage
of Average of Average of Average
Amount Earning Assets Amount Earning Assets Amount Earning Assets
---------- -------------- ---------- -------------- --------- --------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Salaries and benefits $ 5,513 2.74% $ 4,673 2.67% $ 4,216 2.71%
Occupancy 572 .28% 598 .34% 546 .35%
Equipment 998 .50% 791 .45% 696 .45%
Advertising and promotion 342 .17% 286 .16% 267 .17%
Stationery and supplies 253 .13% 212 .12% 196 .13%
Assessments 25 .01% 220 .13% 376 .24%
Directors' fees 391 .19% 300 .17% 260 .17%
Other 2,175 1.08% 1,857 1.06% 1,632 1.05%
---------- ------- ---------- ------ --------- -------
Total $ 10,269 5.10% $ 8,937 5.10% $ 8,189 5.27%
---------- ------- ---------- ------ --------- -------
---------- ------- ---------- ------ --------- -------
Average Earning Assets $201,233 $175,020 $155,309
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
- --------------------------------------------------------------------------------
NONINTEREST EXPENSE
Noninterest expense for 1996 of $10,269,000 increased by 14.9% as compared to
$8,937,000 in 1995 or an increase of 9.1%. Salaries and employee benefits of
$5,513,000 in 1996, $4,673,000 in 1995, and $4,216,000 in 1994 represent
increases of 17.98% and 10.8% in 1996 and 1995, respectively. The increase in
1996 reflects an increase in employment to accommodate the growth in the
Company's asset size and the addition of 17 employees upon the acquisition of
EPI. The increase in 1995 reflects salary increases and personnel added in
connection with the Company's SBA Department at that time. The Company has
closed its SBA Department due to competitive reasons, but continues to make SBA
loans.
Assessments in 1996 were $25,000 or a decrease of 88.64%, and were $220,000 in
1995 or a decrease of 41.5%, reflecting reductions in FDIC insurance assessments
which were reduced significantly in 1995 and again in 1996.
<PAGE>
INCOME TAXES
The provision for income taxes was $2,207,000 in 1996, $2,036,000 in 1995, and
$1,540,000 in 1994. The Company's effective tax rate was 39.4% for 1996, 39.9%
for 1995, and 38.9% for 1994.
CAPITAL
The Company has sustained its growth in capital through retained earnings, net
of cash dividends paid out to shareholders. Shareholders' equity increased by
$3,011,000 or 15.95% to $21,886,000 in 1996, and by $2,622,000 or 16.1% to
$18,875,000 in 1995, after paying cash dividends of $.42 and $.41 per share in
1996 and 1995, respectively.
The Company and the Bank are subject to requirements of the Federal Reserve
Board and FDIC, respectively, governing capital adequacy. These guidelines are
intended to reflect the degree of risk associated with both on and off-balance
sheet items. Financial institutions are expected to comply with a minimum ratio
of qualifying total capital to risk-weighted assets of 8% at least half of which
must be in Tier 1 Capital.
Federal regulatory agencies have also adopted a minimum leverage ratio of 4%,
which is intended to supplement the risk-based capital requirements and to
ensure that all financial institutions continue to maintain a minimum level of
core capital.
The risk-based and leverage capital ratios for the Company and the Bank at
December 31, 1996, are set forth below. Both the Company and the Bank exceed the
minimum capital requirements.
- --------------------------------------------------------------------------------
CAPITAL RATIO
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
Company Bank
-------------------- --------------------
Amount Ratio Amount Ratio
---------- ------- ---------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
RISK BASED CAPITAL RATIOS
Tier 1 Capital $ 21,813 11.31% $ 21,804 11.32%
Tier 1 Capital minimum requirement -7,713 -4.00% -7,708 -4.00%
---------- ------- ---------- -------
Excess $ 14,100 7.31% $ 14,096 7.32%
---------- ------- ---------- -------
---------- ------- ---------- -------
Total Capital $ 22,918 11.89% $ 24,225 12.57%
Total Capital minimum requirement -15,426 -8.00% -15,415 -8.00%
---------- ------- ---------- -------
Excess $7,492 3.89% $8,810 4.57%
---------- ------- ---------- -------
---------- ------- ---------- -------
Risk-adjusted assets $192,825 $ 192,693
---------- ----------
---------- ----------
LEVERAGE CAPITAL RATIO
Tier 1 Capital to quarterly average total assets $ 21,813 8.82% $ 21,804 8.82%
Minimum leverage requirement -9,891 -4.00% -9,890 -4.00%
---------- ------- ---------- -------
Excess $ 11,922 4.82% $ 11,914 4.82%
---------- ------- ---------- -------
---------- ------- ---------- -------
Total Quarterly average assets $247,274 $247,255
---------- ----------
---------- ----------
</TABLE>
- --------------------------------------------------------------------------------
INFLATION
It is Management's opinion that the effects of inflation on the Company's
financial statements for the years ended December 31, 1996, 1995 and 1994 are
not material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Audited consolidated financial statements of the Company as of December 31,
1996 and 1995 and for each of the three years in the period ended December
31, 1996 appear on pages 40 thru 67.
<PAGE>
PAGE 22
Consolidated Financial Statements
Report Of Independent Public Accountants
To the Shareholders and Board of Directors of California Independent Bancorp:
We have audited the accompanying consolidated balance sheets of CALIFORNIA
INDEPENDENT BANCORP (a California corporation) AND SUBSIDIARIES as of December
31, 1996 and 1995, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of California Independent Bancorp
and Subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
As explained in Note 1 to the financial statements, effective January 1, 1994,
the Company changed its method of accounting for certain investments in debt and
equity securities as required by Statement of Financial Accounting Standards
No.115.
Arthur Andersen LLP
Sacramento, California
February 28, 1997
<PAGE>
PAGE 23
California Independent Bancorp And Subsidiaries
Consolidated Balance Sheets - December 31, 1996 And 1995
1996 1995
------ --------
ASSETS
Cash and due from banks $ 22,927,881 $ 17,962,704
Federal funds sold 41,300,000 30,000,000
------------- --------------
Cash and cash equivalents 64,227,881 47,962,704
Investment securities held-to-maturity 23,289,170 21,537,768
Investment securities available-for-sale 11,374,463 5,890,186
------------- --------------
Total investments 34,663,633 27,427,954
Loans 134,574,987 123,707,855
Loans held-for-sale 16,524,635 4,536,611
Less - allowance for loan losses (4,052,783) (3,910,970)
------------- --------------
Net loans 147,046,839 124,333,496
Premises and equipment, net 7,420,387 6,393,687
Interest receivable 2,213,083 1,270,868
Other real estate owned 1,081,620 965,135
Other assets 5,948,888 6,222,244
------------- --------------
$262,602,331 $214,576,088
------------- --------------
------------- --------------
LIABILITY AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 55,117,230 $ 43,826,833
Interest-bearing 182,775,038 149,469,624
------------- --------------
Total deposits 237,892,268 193,296,457
Interest payable 1,406,031 1,330,077
Other liabilities 1,417,852 1,074,185
------------- --------------
<PAGE>
TOTAL LIABILITIES 240,716,151 195,700,719
------------- --------------
Commitments
Shareholders' equity:
Common stock, no par value-
Authorized -- 20,000,000 shares
Issued and outstanding -- 1,546,032 shares
in 1996 and 1,518,938 shares in 1995 11,088,190 9,303,841
Retained earnings 10,935,806 9,706,538
Debt guarantee of ESOP (120,000) (160,000)
Net unrealized gain (loss) on securities
available-for-sale (17,816) 24,990
------------- --------------
Total shareholders' equity 21,886,180 18,875,369
------------- --------------
$262,602,331 $214,576,088
------------- --------------
------------- --------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
<PAGE>
PAGE 24
California Independent Bancorp And Subsidiaries
Consolidated Statements Of Income
For The Years Ended December 31, 1996, 1995, 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans and leases $17,226,138 $16,160,409 $13,219,664
Interest on investments-
Taxable interest income 1,591,086 1,823,710 1,146,082
Nontaxable interest income 274,808 313,293 360,830
Interest on federal funds sold 1,482,801 705,422 393,770
---------- ---------- ----------
Total interest income 20,574,833 19,002,834 15,120,346
---------- ---------- ----------
INTEREST EXPENSE
Interest on deposits 7,415,738 6,253,291 4,458,955
Interest on other borrowings 33,160 63,303 43,112
---------- ---------- ----------
Total interest expense 7,448,898 6,316,594 4,502,067
---------- ---------- -----------
Net interest income 13,125,935 12,686,240 10,618,279
PROVISION FOR LOAN LOSSES 385,000 875,000 347,000
---------- ---------- ----------
Net interest income after provision
for loan losses 12,740,935 11,811,240 10,271,279
---------- ---------- ----------
NONINTEREST INCOME
Service charges on deposit accounts 917,466 859,329 768,279
Other 2,218,957 1,367,638 1,110,070
---------- ---------- ----------
Total noninterest income 3,136,423 2,226,967 1,878,349
---------- ---------- ----------
NONINTEREST EXPENSE
Salaries and employee benefits 5,512,769 4,672,500 4,216,146
Occupancy expense 572,532 598,127 546,721
Furniture and equipment expense 998,145 791,141 695,920
Other 3,186,083 2,874,717 2,731,204
---------- ---------- ----------
Total noninterest expense 10,269,529 8,936,485 8,189,991
---------- ---------- ----------
Income before provision for income taxes 5,607,829 5,101,722 3,959,637
<PAGE>
PROVISION FOR INCOME TAXES 2,206,778 2,036,000 1,540,000
----------- ----------- -----------
NET INCOME $ 3,401,051 $ 3,065,722 $ 2,419,637
----------- ----------- -----------
----------- ----------- -----------
PER SHARE AMOUNTS
Net income per common share and
common share equivalent $2.18 $1.88 $1.52
----------- ----------- -----------
----------- ----------- -----------
Cash dividends per common share and
common share equivalent $.42 $.41 $.36
----------- ----------- -----------
----------- ----------- -----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 1,560,949 1,629,474 1,588,874
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
<PAGE>
PAGE 25
California Independent Bancorp and Subsidiaries
Consolidated Statements Of Changes In Shareholders' Equity
For The Years Ended December 31, 1996, 1995 And 1994
<TABLE>
<CAPTION>
Net
Unrealized Debt Net
Gain/(Loss) Guarantee of Unrealized
on Marketable Employee Gain(Loss)on
Common Stock Equity Stock Securities
------------------ Retained Ownership Available
Shares Amount Earnings Securities Plan For-Sale Total
------ ------ -------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1993 1,073,848 $7,694,375 $6,656,642 $(19,317) $(16,585) $ - $14,315,115
Net unrealized gain on transfer of
securities to available-for-sale - - - - - 83,201 83,201
5-for-4 stock split with cash paid in
lieu of fractional shares 268,618 - (8,228) - - - (8,228)
Reduction of ESOP debt - - - - 16,585 - 16,585
Options exercised 18,650 70,171 - - - - 70,171
Tax benefit arising from exercise of
nonqualified stock options and
disqualifying dispositions - 114,701 - - - - 114,701
Cash dividends - - (534,686) - - - (534,686)
Change in net unrealized loss on
securities held as available-for-sale - - - - - (242,620) (242,620)
Realized loss on sale of marketable
equity securities - - - 19,317 - - 19,317
Net income - - 2,419,637 - - - 2,419,637
----------- ---------- ---------- --------- -------- ---------- ----------
Balance December 31, 1994 1,361,116 7,879,247 8,533,365 - - (159,419) 16,253,193
5% stock dividend with cash paid in
lieu of fractional shares 67,610 1,267,687 (1,276,762) - - - (9,075)
ESOP loan - - - - (200,000) - (200,000)
Reduction of ESOP debt - - - - 40,000 - 40,000
Options exercised 18,162 14,587 - - - - 14,587
Tax benefit arising from exercise of
nonqualified stock options and
disqualifying dispositions - 142,320 - - - - 142,320
Cash dividends - - (615,787) - - - (615,787)
Change in net unrealized gain on
securities held as available-for-sale - - - - - 184,409 184,409
Net income - - 3,065,722 - - - 3,065,722
----------- ---------- ---------- --------- -------- ---------- ----------
Balance December 31, 1995 1,446,888 9,303,841 9,706,538 - (160,000) 24,990 18,875,369
5% stock dividend with cash paid in
lieu of fractional shares 72,050 1,513,050 (1,523,842) (10,792)
Reduction of ESOP debt 40,000 40,000
Options exercised 27,094 35,010 35,010
Tax benefit arising from exercise of
nonqualified stock options and
disqualifying dispositions 236,289 236,289
Cash dividends (647,941) (647,941)
<PAGE>
Change in net unrealized loss on
marketable equity securities (42,806) (42,806)
Net income 3,401,051 3,401,051
----------- ---------- ---------- --------- -------- ---------- ----------
Balance December 31, 1996 1,546,032 $11,088,190 $10,935,806 - ($120,000) ($17,816) $21,886,180
----------- ---------- ---------- --------- -------- ---------- ----------
----------- ---------- ---------- --------- -------- ---------- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
<PAGE>
PAGE 26
California Independent Bancorp And Subsidiaries
Consolidated Statements Of Cash Flows
For The Years Ended December 31, 1996, 1995, And 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,401,051 $ 3,065,722 $ 2,419,637
Adjustments to reconcile net income to net cash provided
by operating activities-
Depreciation and amortization 776,561 687,353 642,186
Provision for losses of other real estate owned 97,823 178,506 79,000
Provision for loan losses 385,000 875,000 347,000
Provision for deferred taxes (103,192) (204,521) (80,816)
Investment security losses, net (3,470) 12,316 17,970
Gain on sale of loans (80,952) (142,270) -
(Gain) loss on sale of real estate properties, net (240,358) 4,218 (15,556)
Origination of loans held-for-sale (10,854,337) (19,818,618) (23,415,728)
Proceeds from loan sales 28,297,103 20,858,358 26,629,068
(Increase) decrease in assets-
Interest receivable (942,215) 751,854 (103,286)
Other assets 376,548 (4,329,745) (430,302)
Increase (decrease) in liabilities-
Interest payable 75,954 789,561 280,973
Other liabilities 383,667 101,212 (247,082)
----------- ---------- ----------
Net cash provided by operating activities 21,569,183 2,828,946 6,123,064
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans (6,956,353) (1,130,175) (24,473,319)
Purchase of securities held-to-maturity (11,841,055) (14,561,000) (4,917,462)
Purchase of securities available-for-sale (7,760,490) (3,315,591) (7,166,041)
Purchase of loans held-for-sale (33,967,000) 0 0
Proceeds from maturity of securities held-to-maturity 10,326,530 6,658,000 3,777,215
Proceeds from sales and maturities of securities
available-for-sale 2,000,000 16,771,301 5,647,852
Proceeds from sales of other real estate owned 489,246 1,370,253 53,044
Purchases of premises and equipment (1,803,261) (954,625) (582,593)
----------- ---------- ----------
Net cash provide by (used for) investing activities (49,512,383) 4,838,163 (27,661,304)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CASH FLOWS FROM FINANCING ACTIVITIES
<S> <C> <C> <C>
Net increase (decrease) in noninterest-bearing deposits $ 11,290,397 $ 1,334,920 $ (881,497)
Net increase in interest-bearing deposits 33,305,414 16,849,335 15,902,119
Cash dividends (647,941) (615,787) (534,686)
Stock options exercised 271,299 156,907 184,872
Cash paid in lieu of fractional shares (10,792) (9,075) (8,228)
------------- ------------- -------------
Net cash provided by financing activities 44,208,377 17,716,300 14,662,580
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents 16,265,177 25,383,409 (6,875,660)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 47,962,704 22,579,295 29,454,955
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 64,227,881 $ 47,962,704 $ 22,579,295
------------- ------------- -------------
------------- ------------- -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for-
Interest expense $ 7,352,690 $ 5,463,729 $ 4,177,982
Income taxes 1,889,000 2,010,000 1,632,690
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Debt guarantee of ESOP $ (40,000) $ 160,000 $ (16,585)
Unrealized gain on transfer of securities to
available-for-sale (net of taxes of $49,707) - - 83,201
Net unrealized gain on securities held as
available-for-sale (net of taxes) 42,806 184,409 (242,620)
Tax benefit arising from exercise of nonqualified
stock options and disqualifying dispositions 236,289 142,320 114,701
Stock dividends 1,513,050 1,267,687 -
Increase in other real estate owned as a result of
foreclosure 463,196 939,482 723,325
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
<PAGE>
PAGE 27-38
California Independent Bancorp And Subsidiaries
(Formerly Known As Feather River State Bank)
Notes To Financial Statements
December 31, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accounting and reporting policies of California Independent Bancorp and
Subsidiaries (the Company) conform with generally accepted accounting principles
and general practice within the banking industry. The more significant of these
policies applied in the preparation of the accompanying financial statements are
discussed below.
PRINCIPLES OF CONSOLIDATION-The accompanying financial statements include the
accounts of California Independent Bancorp (CIB) and two wholly owned
Subsidiaries, Feather River State Bank (the Bank) and its wholly owned
subsidiaries, EPI Leasing Company, Inc. and Yuba-Sutter Financial Services
Corporation. Significant intercompany transactions and balances have been
eliminated in consolidation.
NATURE OF OPERATIONS-
A new bank holding company, California Independent Bancorp (CIB), was
established in October 1994. CIB acquired all of the outstanding stock of
Feather River State Bank (FRSB) through a phantom merger with FRSB Merger
Company, a wholly-owned subsidiary of CIB. The shareholders exchanged their FRSB
stock on a one-for-one share basis, for stock in CIB. In May 1995, FRSB became a
wholly-owned subsidiary of CIB. Former shareholders of FRSB are now shareholders
of CIB. There have been no changes to management or services of FRSB.
CIB is a California corporation and the bank holding company for Feather
River State Bank (FRSB), located in Yuba City, California. The Bank was
incorporated as a California state banking corporation on December 1, 1976,
and commenced operations on April 6, 1977. The Company was incorporated on
October 28, 1994, and became the holding company for FRSB on May 2, 1995. The
Bank engages in a broad range of financial services activities, and its
primary market is located in the northern Sacramento Valley, with a total of
six branches. In addition, the Bank operates two loan production offices,
emphasizing Residential Mortgage lending, and one lease production office
through EPI Leasing Company, Inc. The primary source of income for the Bank
is from lending activities, including commercial, agricultural, real estate
and consumer/installment loans.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS-
The preparation of financial statements in conformity with generally accepted
accounting principles may require management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
CASH AND CASH EQUIVALENTS-
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks, and federal funds sold. Generally, federal funds
are purchased and sold for one-day periods.
<PAGE>
INVESTMENT SECURITIES-
As of January 1, 1994, the Bank adopted Statement of Financial Accounting
Standards No. 115 (SFAS 115), Accounting for Certain Investments in Debt and
Equity Securities. This change in accounting principle requires the Bank to
classify its investments as either held-to-maturity, trading or
available-for-sale. The Bank does not maintain a trading account and classifies
securities as either "Held-to-Maturity" or "Available-for-Sale."
Securities that the Bank has the positive intent and ability to hold to maturity
are classified as held-to-maturity and accounted for at amortized cost in the
Consolidated Balance Sheets.
Other securities for which the Bank does not have the positive intent or ability
to hold to maturity are classified under the balance sheet caption
Available-for-Sale and are reported at their fair values, with unrealized gains
and losses reported on a net-of-tax basis as a separate component of
shareholders' equity. Fair values are based on quoted market prices or broker or
dealer price quotations on a specific identification basis. Certain economic
factors could cause the Bank to sell some of these securities prior to maturity.
Such factors include significant movements in interest rates and significant
changes in liquidity demands. Gains or losses on sale of investment securities
are computed using the specific identification method.
LOANS-
Loans are stated at the principal amount outstanding less applicable unearned
interest income.
As of January 1, 1995, the Bank adopted Statement of Financial Accounting
Standards No. 114, Accounting by Creditors for Impairment of a Loan, as amended
by Statement of Financial Accounting Standards No. 118. A loan is impaired when,
based on current information and events, it is probable that the Bank will be
unable to collect all amounts due according to the contractual terms of the loan
agreement. When a loan is impaired, the recorded amount of the loan in the
balance sheets is based on the present value of expected future cash flows
discounted at the loan's effective interest rate or on the observable or
estimated market price of the loan or the fair value of the collateral if the
loan is collateral dependent. Income on impaired loans is recognized in
accordance with the Bank's accounting for loans placed on a non-accrual status.
Cash payments are first applied as a reduction of the principal balance until
collectibility of the remaining principal and interest can be reasonably
assured. Thereafter, interest income is recognized as it is collected in cash.
The affect of adopting this standard did not have a material impact on the
balances of the Bank's loans or allowance for loan losses.
LOANS HELD-FOR-SALE-
The Bank originates mortgage loans on residential and farm properties which it
sells into the secondary market in order to divest itself of the interest rate
risk associated with these primarily fixed interest rate products. The Bank
accounts for these loans at the lower cost or net realizable value.
As of January 1, 1996, the Bank adopted Statement of Financial Accounting
Standards No. 122, Accounting for Mortgage Servicing Rights. This statement
requires, under certain circumstances, entities to recognize as a separate asset
an amount related to the right to service mortgage loans. The adoption of this
statement had an immaterial impact on the Bank's results of operations.
SALES AND SERVICING OF SBA LOANS-
The Bank originates loans to customers under the Small Business Administration
(SBA) program that generally provides for SBA guarantees of 70% to 90% of each
loan. The Bank generally sells the guaranteed portion of each loan to a third
party and retains the unguaranteed portion in its own portfolio. The Bank may be
required to refund a portion of the sales premium received, if the borrower
defaults or the loan prepays within 90 days of the settlement date. At December
31, 1996, the Bank had no premiums subject to such recourse. A gain is
recognized on the sale of SBA loans through collection on sale of a premium over
the adjusted carrying value, through retention of an ongoing rate differential
less a normal service fee (excess servicing fee) between the rate paid by the
borrower to the Buyer and the rate paid by the Bank to the purchaser, or both.
<PAGE>
To calculate the gain (or loss) on sale, the Bank's investment in an SBA loan is
allocated among the retained portion of the loan, the excess servicing retained
and the sold portion of the loan, based on the relative fair market value of
each portion. The gain (or loss) on the sold portion of the loan is recognized
at the time of sale based on the difference between the sale proceeds and the
allocated investment. As a result of the relative fair value allocation, the
carrying value of the retained portion is discounted, with the discount accreted
to interest income over the life of the loan. The excess servicing fees are
reflected as an asset which is amortized over an estimated life using a method
approximating the level yield method; in the event future prepayments exceed
Management's estimates and future expected cash flows are inadequate to cover
the unamortized excess servicing asset, additional amortization would be
recognized. In its calculation of excess servicing fees, the Bank is required to
estimate a "normal" servicing fee. The Bank uses the contractual rate of 100
basis points as its estimate of a normal servicing fee.
ALLOWANCE FOR LOAN LOSSES-
The allowance for loan losses is maintained at a level considered adequate by
Management to provide for losses that can be reasonably anticipated.
Accordingly, loan losses are charged to the allowance for loan losses and
recoveries are credited to it. The provision for loan losses charged to
operating expense is based upon past loan loss experience and estimates of
potential losses which, in Management's judgment, deserve current recognition.
Other factors considered by Management include growth, composition and overall
quality of the loan portfolio, reviews of specific problem loans, and current
economic conditions that may affect the borrowers' ability to pay. This
evaluation process requires the use of current estimates which may vary from the
ultimate losses experienced in the future. The estimates are reviewed
periodically, and adjustments, as they become necessary, are charged to
operations in the period in which they become known.
OTHER REAL ESTATE OWNED-
Other real estate owned consists of properties acquired by the Bank through
foreclosure and is carried at the lower of cost or fair value, less estimated
costs to sell. At the time the property is acquired, if the estimated fair value
is less than the amount outstanding on the loan, the difference is charged
against the allowance for loan losses. Subsequent declines, if any, in estimated
fair value are charged to expense.
INTEREST AND FEES ON LOANS AND LEASES-
Origination fees and commitment fees, offset by certain direct loan origination
costs, are deferred and recognized over the contractual life of the loan as
yield adjustment. Interest income on loans and direct lease financing is accrued
monthly as earned on all credits not classified as nonaccrual. Unearned income
on loans, where applicable, is recognized as income using the effective interest
method over the term of the loan.
Loans are generally placed on nonaccrual status when they are 90 days past due
as to either interest or principal or are otherwise determined to be impaired.
At that time, any accrued but uncollected interest is reversed, and additional
income is recorded on a cash basis as payments are received. However, loans that
are well secured and in the process of collection may not be placed on
nonaccrual status, at the discretion of Management. A nonaccrual loan may be
restored to an accrual basis when interest and principal payments are current
and prospects for future payments are no longer in doubt.
<PAGE>
DEPRECIATION AND AMORTIZATION-
Premises and equipment are stated at cost, less accumulated depreciation.
Depreciation on premises, furniture, fixtures and equipment is calculated using
the straight-line method over the estimated useful lives of the assets, which
range from 3 to 31.5 years. Leasehold improvements are amortized using the
straight-line method over the asset's useful life or the term of the lease,
whichever is shorter.
Expenditures for major renewals and improvements of bank premises and equipment
are capitalized, and those for maintenance and repairs are charged to expense as
incurred.
INCOME TAXES-
Income taxes reported in the financial statements are computed at current tax
rates, including deferred taxes resulting from temporary differences in the
recognition of items for tax and financial reporting purposes.
The Bank records income taxes for financial statement purposes using the
liability or balance sheet method under which the net deferred tax asset or
liability is determined based on the tax effects of the differences between book
and tax bases of the various balance sheet assets and liabilities. Under this
method, the computation of the net deferred tax asset or liability gives the
current recognition to changes in tax laws and rates.
RECLASSIFICATIONS-
Certain reclassifications have been made to amounts previously reported to
conform with current presentation methods. Such reclassifications have no effect
on net income or shareholders' equity previously reported.
(2) INVESTMENT SECURITIES:
As of January 1, 1994, securities with an amortized cost of $7,467,595 and a
fair value of $7,980,184 were classified as held-to-maturity. Securities with
an amortized cost of $22,840,612 and a fair value of $22,973,521 were
classified as available-for-sale. The effect of adopting SFAS 115 was to
recognize an unrealized gain, net of applicable taxes, of $83,201 as a direct
addition to shareholders' equity. As of December 31, 1996, 1995, and 1994, the
Bank's equity capital reflected a net unrealized gain (loss), net of applicable
taxes, of $ (17,816), $24,990, and $(159,419), respectively.
The amortized cost and approximate fair value of investments in debt securities
and other investments at December 31, 1996 and 1995, are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- --------- ----------- ----------
<S> <C> <C> <C> <C>
December 31, 1996
Available-for-sale:
U.S. Treasury securities and obligations of
U.S. government agencies $11,405,179 $ 5,915 $ (36,631) $11,374,463
----------- --------- ---------- -----------
----------- --------- ---------- -----------
Held-to-maturity:
U.S. Treasury securities and obligations of
U.S. government agencies 15,720,573 140,302 (1,158) 15,859,717
Obligations of states and political
subdivisions 3,576,412 92,434 (22,159) 3,646,687
<PAGE>
Corporate obligations and other securities
3,992,185 27,109 - 4,019,294
----------- --------- ---------- -----------
Total $23,289,170 $ 259,845 $ (23,317) $23,525,698
----------- --------- ---------- -----------
----------- --------- ---------- -----------
December 31, 1995
Available-for-sale:
U.S. Treasury securities and obligations of
U.S. government agencies $ 5,847,100 $ 47,652 (4,566) $ 5,890,186
----------- --------- ---------- -----------
----------- --------- ---------- -----------
Held-to-maturity:
U.S. Treasury securities and obligations of
U.S. government agencies $ 9,722,535 $352,824 $ - $10,075,359
Obligations of states and political
subdivisions 4,905,291 154,675 (3,152) 5,056,814
Corporate obligations and other securities 6,909,942 116,710 (26,875) 6,999,777
----------- --------- ---------- -----------
Total $21,537,768 $624,209 $ (30,027) $22,131,950
----------- --------- ---------- -----------
----------- --------- ---------- -----------
The following table shows the amortized cost and estimated fair value of
investment securities by contractual maturity at December 31, 1996 and 1995.
Expected maturities may differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
Held-to-Maturity Available-for-Sale
---------------- -------------------
Amortized Fair Amortized Fair
Cost Gains Losses Value
--------- ---------- --------- ----------
December 31, 1996
Within one year $6,833,079 $6,880,248 $1,833,086 $1,833,123
After one but within five years 16,060,091 16,214,010 6,119,299 6,111,175
After five but within ten years 396,000 431,440 3,452,794 3,430,165
----------- --------- ---------- -----------
Total $23,289,170 $23,525,698 $11,405,179 $11,374,463
----------- ----------- ---------- -----------
----------- ----------- ---------- -----------
December 31, 1995
Within one year $ 4,102,714 $ 4,136,151 $ 1,999,876 $ 1,995,310
After one but within five years 15,992,053 16,487,664 401,240 406,049
After five but within ten years 1,397,001 1,457,178 3,445,984 3,488,827
After ten years 46,000 50,957 - -
----------- --------- ---------- -----------
Total $21,537,768 $22,131,950 $ 5,847,100 $ 5,890,186
----------- --------- ---------- -----------
----------- --------- ---------- -----------
</TABLE>
Net gains (losses) from sales of available-for-sale investment securities during
1996, 1995, and 1994 were $3,470, $(12,316), and $(17,970), respectively. Gross
gains of $3,470, $3,000, and $1,750 and gross losses of $0, $15,316, and
$19,720, were realized on those sales in 1996, 1995, and 1994, respectively.
<PAGE>
Investment securities pledged as collateral for certain deposits amounted to
$10,374,814 and $10,410,068 at December 31, 1996 and 1995, respectively.
<PAGE>
(3) LOANS:
Loans outstanding are summarized as follows:
December 31,
------------
1996 1995
--------- -------
Real estate mortgage $ 28,564,640 $ 28,288,337
Commercial and agricultural 71,527,482 74,355,093
Real estate construction 29,916,204 18,048,005
Consumer and installment 2,983,939 2,814,717
Lease financing 15,892,783 3,216,140
Other 2,214,574 1,522,174
------------- ------------
Totals $151,099,622 $128,244,466
------------- ------------
------------- ------------
Loans on which the accrual of interest has been discontinued or reduced amounted
to approximately $845,832 and $292,725 at December 31, 1996 and 1995,
respectively.
As of December 31, 1996, the total recorded investment in impaired loans was
$845,832 and $292,725 as of December 31, 1996 and 1995, respectively, and the
related reserve for loan losses was $200,601 and $292,725 as of December 31,
1996 and 1995, respectively. For income reporting purposes, impaired loans are
placed on a nonaccrual status. This is more fully discussed in Note 1. The
average balance of impaired loans during 1996 was $569,279. Interest income
recorded on those loans during 1996 was $82,344. Foregone interest on loans
placed on nonaccrual status was $42,783 and $39,812 as of December 31, 1996 and
1995, respectively.
Changes in the allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Balance, beginning of year $3,910,970 $3,287,663 $3,086,736
Provision 385,000 875,000 347,000
Loans charged off (327,357) (554,514) (196,712)
Recoveries on loans previously charged off 84,170 302,821 50,639
----------- ---------- ----------
Balance, end of year $4,052,783 $3,910,970 $3,287,663
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
<PAGE>
(4) PREMISES AND EQUIPMENT:
A summary of premises and equipment follows:
December 31,
-------------------------
1996 1995
------ -----
Land $1,432,957 $1,087,889
Bank premises and improvements 5,415,175 4,911,217
Furniture, fixtures and equipment 4,555,933 3,909,030
---------- ----------
11,404,065 9,908,136
Less accumulated depreciation
and amortization 3,983,678 3,514,449
---------- ----------
$7,420,387 $6,393,687
---------- ----------
---------- ----------
Depreciation and amortization charged to expense was $776,561, $687,353, and
$642,186 in 1996, 1995 and 1994, respectively.
Rent under operating leases was approximately $52,487, $110,070, and $93,000 in
1996, 1995 and 1994, respectively.
(5) DEPOSITS:
A summary of deposit balances follows:
December 31,
-------------------------
1996 1995
------ -----
Demand $55,117,230 $ 43,826,833
Interest-bearing
transaction accounts 33,659,296 27,315,360
Savings deposits 67,755,798 61,291,154
Time deposits 81,359,944 60,863,110
------------ -------------
Total deposits $237,892,268 $193,296,457
------------ -------------
------------ -------------
Certificates of deposit of $100,000 or more, including public time deposits,
amounted to approximately $33,851,000 and $23,937,000 at December 31, 1996 and
1995, respectively.
Interest expense on certificates of deposit of $100,000 or more, including
public time deposits, amounted to approximately $1,481,000, $911,000, and
$354,000 in 1996, 1995 and 1994, respectively.
<PAGE>
At December 31, 1996, the scheduled maturities of all Certificates of
Deposits are as follows:
December 31, 1996
--------------------
(Dollars in thousands)
Three months or less $29,028
Over three through six months 19,695
Over six through twelve months 22,574
Over twelve months 10,063
------
Total $81,360
<PAGE>
(6) OTHER NONINTEREST INCOME AND EXPENSE:
The components of other operating income and expense were as follows:
Year Ended December 31,
---------------------------
1996 1995 1994
------ ------ ------
(Dollars in thousands)
Loan servicing fees $ 487 $ 482 $ 306
Brokered loan fees 923 360 418
Gain on Sale of OREO 240 31 29
Other 569 495 357
------ ------ -----
Total other noninterest income $2,219 $1,368 $1,110
------ ------ -----
------ ------ -----
Advertising and promotion $ 342 $ 286 $ 267
FDIC assessments 25 220 376
Stationery and supplies 253 212 196
Directors' fees 391 300 260
Other 2,175 1,857 1,632
------ ------ -----
Total other noninterest expense $3,186 $2,875 $2,731
------ ------ -----
------ ------ -----
(7) INCOME TAXES:
The provision for income taxes consists of the following:
Year Ended December 31,
---------------------------
1996 1995 1994
------ ------ ------
Current-
Federal $1,697,811 $1,626,412 $1,171,774
State 612,159 614,109 449,042
---------- ---------- ----------
2,309,970 2,240,521 1,620,816
---------- ---------- ----------
Deferred-
Federal (85,574) (147,274) (89,774)
State (17,618) (57,247) 8,958
---------- ---------- ----------
(103,192) (204,521) (80,816)
---------- ---------- ----------
$2,206,778 $2,036,000 $1,540,000
---------- ---------- ----------
---------- ---------- ----------
<PAGE>
The effective tax rate and statutory federal income tax rate are reconciled as
follows:
Year Ended December 31,
---------------------------
1996 1995 1994
------ ------ ------
Federal
statutory
income tax
rate 34.0% 34.0% 34.0%
State franchise
taxes, net of
federal income
tax benefit 7.4 7.2 7.6
Tax-exempt
interest (2.1) (1.9) (3.3)
Other (0.1) (0.6) 0.6
----- ----- -----
39.4% 39.9% 38.9%
----- ----- -----
----- ----- -----
The components of the net deferred tax asset, recorded in other assets, of the
Bank as of December 31, 1996 and 1995, were as follows:
1996 1995
------ ------
Deferred tax assets-
Loan losses $1,555,127 $1,492,325
California franchise tax 205,355 151,785
Other real estate owned 116,441 62,262
Unrealized loss on available-for-sale
securities 12,901 -
--------- ----------
Total deferred tax assets 1,889,824 1,706,372
--------- ----------
Deferred tax liabilities-
Depreciation 256,938 264,527
Accretion 85,236 67,575
Unrealized gain on available-for-sale
securities - 18,096
Other 182,824 125,537
--------- ----------
Total deferred tax liabilities 524,998 475,735
--------- ----------
Net deferred tax asset $1,364,826 $1,230,637
--------- ----------
--------- ----------
The components of the deferred income tax provisions are summarized as follows:
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
---------- ---------- ----------
Provisions for possible loan losses $ (62,802) $ (242,184) $ 15,163
Tax depreciation methods (7,589) 52,304 (27,569)
California franchise tax (53,570) (24,447) (125,002)
Other real estate owned (54,179) (37,663) 10,581
Accretion 17,661 52,959 6,892
Other 67,287 (5,490) 39,119
---------- ---------- ----------
$ (103,192) $ (204,521) $ (80,816)
<PAGE>
(8) SHAREHOLDERS' EQUITY:
At December 31, 1996, CIB was authorized to issue 20,000,000 shares of no par
common stock. Of this amount, 1,546,032 and 1,518,938 shares of common stock
were issued and outstanding at December 31, 1996 and 1995, respectively.
One of the principal sources of cash for the Company will be dividends from
its subsidiary bank. Banking regulations limit the amount of dividends that
may be paid without prior approval of the Company's regulatory agencies to
the lesser of retained earnings or the net income of the Company for its last
three fiscal years, less any distributions during such period, subject to
capital adequacy requirements. At December 31, 1996, the Company had
approximately $6,792,619 available for payments of dividends which would not
require the prior approval of the banking regulators under this limitation.
Earnings per share are computed on the basis of the weighted average number of
shares outstanding during each year, including the dilutive effect of stock
options granted, adjusted retroactively to reflect stock splits and stock
dividends declared.
In August 1996, the Board of Directors authorized a five percent stock dividend
which was distributed on September 20, 1996. The dividend was declared on August
13, 1996, to holders of record on August 30, 1996. The dividend resulted in the
issuance of an additional 72,050 shares of common stock.
In June 1995, the Board of Directors authorized a five percent stock dividend
which was distributed on July 14, 1995. The dividend was declared on June 23,
1995, to holders of record on June 30, 1995. The dividend resulted in the
issuance of an additional 67,610 shares of common stock.
In April 1994, the Board of Directors authorized a five-for-four stock split
which was distributed on May 26, 1994. The split was declared on April 22, 1994,
to holders of record on April 29, 1994. The split resulted in the issuance of an
additional 268,618 shares of common stock.
(9) DISCLOSURE OF FAIR VALUE OF FINANCIAL INSTRUMENTS:
CASH AND CASH EQUIVALENTS-
For these short-term instruments, the carrying value is a reasonable estimate of
fair value.
INVESTMENTS-
For securities held-for-investment purposes, fair values are based on quoted
market prices or dealer quotes. See Note 2 for further discussion.
LOANS-
The fair value of loans is estimated by discounting the future cash flows using
current rates at which similar loans would be made to borrowers with similar
credit ratings for similar remaining maturities. The fair value of nonperforming
loans is estimated based on allocating specific and general reserves to the
various nonperforming loan classifications.
DEPOSIT LIABILITIES-
The fair value of demand deposits, savings accounts, and certain money market
deposits is the amount payable on demand at the reporting date. The fair value
of fixed maturity certificates of deposit is estimated using the rates currently
offered for deposits of similar remaining maturities.
Other liabilities represent short-term instruments. The carrying amount is a
reasonable estimate of fair value.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS-
The carrying amounts for fees arising from commitments to extend credit, standby
letters of credit and financial guarantees written and their related fair values
are not material.
<PAGE>
The estimated fair values of the Bank's financial instruments at December 31,
1996 and 1995, are as follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
--------------------------- --------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 64,227,881 $ 64,227,881 $ 47,962,704 $ 47,962,704
Investments 34,663,633 34,900,161 27,427,954 28,022,136
Loans 147,046,839 149,780,903 124,333,496 124,520,236
Financial liabilities:
Deposits $237,892,268 $238,285,181 $193,296,457 $193,789,361
Interest Payable and other
liabilities 2,823,883 2,823,883 2,404,262 2,404,262
</TABLE>
(10) STOCK OPTIONS:
During 1989, the Bank adopted the Feather River State Bank 1989 Amended and
Restated Stock Option Plan. The plan is nonqualified and provides that
nonemployee directors and key employees may be granted options to purchase the
Company's stock at the fair market value of the shares as determined by the
Board of Directors. As of May 1995, all previously granted options to purchase
the Bank's stock had been retired, and exchanged for options to purchase the
Company's stock, on a one-for-one option basis. All granted options must be
exercised within the earlier of ten years of the date of grant or within 30 days
of termination of employment or status as a director. Vesting is determined at
the time of grant by the Board of Directors. Current participants vest over five
years from date of employment. Federal income tax benefits relating to options
exercised have been credited to shareholders' equity.
During 1996, the Company adopted the California Independent Bancorp 1996
Stock Option Plan ("1996 Plan") which sets aside 149,052 shares of no par
value Common Stock of the Company for which options may be granted to key,
full-time salaried employees and officers of the Company, as well as
non-employee directors of the Company. The exercise price of all options to
be granted under the 1996 Plan must be at least 100% of the fair market value
of the Company's Common Stock on the granting date and be paid in full at the
time the option is exercised in cash, shares of the Company's Common Stock
with a fair value equal to the purchase price or a combination thereof. Under
the 1996 Plan, all options expire no more than ten years after the date of
grant.
Federal income tax benefits relating to options exercised under both plans
have been credited to shareholders' equity.
Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for
Stock-Based Compensation," is effective for transactions entered into for fiscal
years beginning after December 15, 1995. This statement defines a
fair-value-based method of accounting for stock-based compensation. As permitted
by SFAS 123, the Bank accounts for stock options under APB Opinion No. 25, under
which no compensation cost is being recognized. Pro forma amounts are not shown
as the difference between SFAS 123 and APB Opinion No. 25 is immaterial.
The following is a summary of stock option transactions with 1995 figures
adjusted to reflect the five percent stock dividend:
December 31,
1996 1995
------- -------
Stock options authorized 427,608 427,608
--------- ---------
--------- ---------
Stock options granted 333,899 305,448
Stock options exercised (107,138) (72,251)
Stock options expired (948) (948)
--------- ---------
Stock options outstanding
December 31 225,813 232,249
--------- ---------
--------- ---------
<PAGE>
Stock options vested
December 31 225,318 231,312
--------- ---------
--------- ---------
Price per share -
Options outstanding $ 5.43 to $ 5.47 to
$24.75 $20.03
--------- ---------
--------- ---------
Price of options exercised $ 5.43 to $ 5.43 to
$13.79 $18.62
--------- ---------
--------- ---------
(11) PROFIT SHARING PLAN AND EMPLOYEE STOCK OWNERSHIP PLAN:
The Bank formed a 401(k) Qualified Savings Plan (the Plan) effective August 1,
1993. All full-time employees who have reached the age of 21 are eligible to
participate beginning on January 1st or July 1st following 12 months of
employment. All eligible employees are 100% vested in their own contributions
which may be any whole percentage of pay between 2% and 12% inclusive. Beginning
January 1, 1995, the Bank began making matching contributions which were equal
to 20% of each employee's elective contributions not exceeding 6% of pay.
Contributions are invested with Lincoln National Life Insurance Company under
employee directed investment options.
The Bank formed an Employee Stock Ownership Plan (the ESOP) effective January 1,
1988. Effective January 1, 1995, the ESOP was amended to recognize CIB and all
of its employees as participants. All employees who have completed one year of
service and have reached the age of 21 are eligible to participate in the ESOP.
The ESOP provides for annual contributions at the discretion of the Board of
Directors. The contributions are allocated based on the participants'
compensation for the year. Employees vest ratably in the ESOP over six years.
The ESOP borrowed $200,000 from a nonprofit corporation to acquire 9,762 shares
of CIB common stock in August 1995. The borrowing is payable in five equal
annual installments with interest at prime minus 1/2 percent, which rate was
7.75% at December 31, 1996. The Bank made contributions to the ESOP of
approximately $40,000, $40,000 and $17,000 in 1996, 1995 and 1994, respectively.
(12) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK:
The Bank makes commitments to extend credit in the normal course of business to
meet the financing needs of its customers. Commitments to extend credit are
agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee.
Since many of the commitments are expected to expire without being drawn upon,
the total commitment amount does not necessarily represent future cash
requirements.
The Bank is exposed to credit loss, in the event of nonperformance by the
borrower, in the contract amount of the commitment. The Bank uses the same
credit policies in making commitments as it does for on-balance-sheet
instruments and evaluates each customer's creditworthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by the Bank, is
based on Management's credit evaluation of the borrower. Collateral held varies
but may include certificates of deposit, accounts receivable, inventory,
property and equipment, and real property.
The Bank also issues standby letters of credit which are unconditional
commitments to guarantee the performance of a customer to a third party. These
guarantees are primarily issued to support construction bonds, private borrowing
arrangements, and similar transactions. Most of these guarantees are short-term
commitments expiring in 1997 and are not expected to be drawn upon. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers. The Bank holds collateral as
deemed necessary, as described above.
<PAGE>
The contract amount of commitments not reflected on the balance sheet at
December 31, 1996, were as follows:
Loan commitments $ 72,208,282
Standby letters of credit 1,276,607
(13) RELATED PARTY TRANSACTIONS:
The Bank has had loan and deposit transactions and has contracted for services
with certain officers and directors and the companies with which they are
associated. In the opinion of Management and the Board of Directors, all such
loans, commitments to lend, and contracts for services were made under terms
which are consistent with the Bank's normal policies. Loan transactions with
these officers and directors for the years ended December 31, 1996 and 1995,
respectively, are as follows:
1996 1995
---------- ----------
Loan balances -
beginning of year $ 6,433,373 $ 4,343,878
Additions 4,277,689 4,446,748
Collections (3,813,593) (2,357,253)
------------ -----------
end of year $ 6,897,469 $ 6,433,373
------------ -----------
------------
The Bank had loans outstanding to two directors of the Bank and their
associates, each in excess of 5 percent of shareholders' equity. The total
principal balance of the loans to one of these two directors was approximately
$3,781,536 and $3,118,000 at December 31, 1996 and 1995, respectively. The total
principal balance of the loans to the other director was approximately
$1,057,000 and $1,524,000 at December 31, 1996 and 1995, respectively.
The Bank's former data processing service bureau was partially owned by a
director of the Bank. The Bank paid approximately $0, $0, and $196,000 for this
service in 1996, 1995 and 1994, respectively.
Remodeling work on branches and offices of the Bank was done by directors of
the Bank. The Bank paid approximately $320,701, $60,000 and $31,000 for this
work in 1996, 1995 and 1994, respectively.
The Bank contracts its property management with a company that is partially
owned by a director of the Bank. The Bank paid approximately $28,772,
$244,000, and $18,000 for property management services in 1996, 1995 and
1994, respectively.
The Bank leased a vehicle and purchased another from an automobile dealership of
which a director of the Bank is the General Manager and President. The vehicle
was purchased in 1995 for $21,000. The lease expires in May 1997 and requires
monthly payments of $434.
<PAGE>
(14) CALIFORNIA INDEPENDENT BANCORP FINANCIAL STATEMENTS (PARENT ONLY):
(In thousands)
December 31, December 31,
1996 1995
------------ ------------
BALANCE SHEET-
Assets:
Cash and due from banks $ 63 $ 29
Investment in subsidiaries 21,662 18,753
Other assets 161 93
--------- ---------
Total assets $ 21,886 $ 18,875
--------- ---------
--------- ---------
Liabilities and shareholders' equity:
Shareholders' equity
Total shareholders' equity $ 21,886 $ 18,875
--------- ---------
Total liabilities and shareholders' equity $ 21,886 $ 18,875
--------- ---------
--------- ---------
(In thousands)
December 31, December 31,
1996 1995
------------ -----------
STATEMENT OF INCOME-
Administrative expense $ 222 $ 76
Other expense 104 53
------ -----
Loss before equity in net income of subsidiaries 326 129
Equity in net income of subsidiaries:
Distributed 958 516
Undistributed 2,637 2,628
Income tax benefit 132 51
------ -----
Net income $3,401 $3,066
------ -----
------ -----
(In thousands)
December 31, December 31,
1996 1995
------------ -----------
STATEMENT OF CASH FLOWS-
Operating activities:
Net income $3,401 $3,066
Adjustments to reconcile net income to
net cash provided by operating activities-
Undistributed equity in subsidiaries (2,637) (2,628)
<PAGE>
Deferred income taxes (132) (51)
Increase in other operating assets (68) (42)
----- -----
Net cash provided by operating activities 564 345
----- -----
Investing activities: - -
Net cash provided by investing activities - -
----- -----
Financing activities:
Dividends paid (530) (316)
----- -----
Net cash used in financing activities (530) (316)
----- -----
Increase in cash and cash equivalents 34 29
Cash and cash equivalents, beginning of year 29 -
----- -----
Cash and cash equivalents, end of year $ 63 $ 29
----- -----
----- -----
(15) QUARTERLY STATEMENTS OF OPERATIONS:
The following information is unaudited. However, in the opinion of Management,
all adjustments, which include only normal recurring adjustments necessary to
present fairly the results of operations for such periods, are reflected.
Reference is made to "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for further explanation of quarterly
results of operations.
<TABLE>
<CAPTION>
1996 Quarter Ended (unaudited)
------------------------------------------------------
March 31 June 30 September 30 December 31
-------- -------- ------------ -----------
(Dollar amounts in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income $4,823 $4,867 $5,311 $5,574
Interest expense 1,746 1,743 1,884 2,076
------ ------ ------ ------
Net interest income 3,077 3,124 3,427 3,498
Provision for loan losses 60 40 80 205
------ ------ ------ ------
Net interest income (loss) after
provision for loan losses 3,017 3,084 3,347 3,293
Noninterest income 638 590 677 1,232
Noninterest expense 2,346 2,360 2,583 2,980
------ ------ ------ ------
Income (loss) before income taxes 1,309 1,313 1,441 1,545
Provision for income taxes 522 526 537 622
------ ------ ------ ------
Net income (loss) 787 787 904 923
------ ------ ------ ------
------ ------ ------ ------
Net income (loss) per share $0.50 $0.51 $0.58 $0.59
------ ------ ------ ------
------ ------ ------ ------
Weighted average shares outstanding 1,535,447 1,535,450 1,538,713 1,560,950
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1995 Quarter Ended (unaudited)
------------------------------------------------------
March 31 June 30 September 30 December 31
-------- -------- ------------ -----------
(Dollar amounts in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income $4,379 $4,774 $4,939 $4,911
Interest expense 1,395 1,555 1,653 1,714
------ ------ ------ ------
Net interest income 2,984 3,219 3,286 3,197
Provision for loan losses 245 255 275 100
------ ------ ------ ------
Net interest income (loss) after
provision for loan losses 2,739 2,964 3,011 3,097
Noninterest income 372 422 671 762
Noninterest expense 2,100 2,218 2,246 2,372
------ ------ ------ ------
Income (loss) before income taxes 1,011 1,168 1,436 1,487
Provision for income taxes 396 462 569 609
------ ------ ------ ------
Net income (loss) $615 $706 $867 $878
------ ------ ------ ------
------ ------ ------ ------
Net income (loss) per share $0.38 $0.43 $0.53 $0.54
------ ------ ------ ------
------ ------ ------ ------
Weighted average shares outstanding 1,621,384 1,659,075 1,628,262 1,637,397
1994 Quarter Ended (unaudited)
------------------------------------------------------
March 31 June 30 September 30 December 31
-------- -------- ------------ -----------
(Dollar amounts in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income $3,220 $3,634 $4,017 $4,249
Interest expense 1,040 1,053 1,155 1,254
------ ------ ------ ------
Net interest income 2,180 2,581 2,862 2,995
Provision for loan losses 10 115 122 100
------ ------ ------ ------
Net interest income (loss) after
provision for loan losses 2,170 2,466 2,740 2,895
Noninterest income 456 451 475 496
Noninterest expense 1,932 1,995 2,059 2,203
------ ------ ------ ------
Income (loss) before income taxes 694 922 1,156 1,188
Provision for income taxes 246 367 454 473
------ ------ ------ ------
Net income (loss) $448 $555 $702 $715
------ ------ ------ ------
------ ------ ------ ------
Net income (loss) per share $0.28 $0.35 $0.44 $0.45
------ ------ ------ ------
------ ------ ------ ------
Weighted average shares outstanding 1,584,394 1,584,394 1,590,565 1,599,465
</TABLE>
(16) REGULATORY MATTERS:
The Company and Bank are subject to various regulatory capital requirements
administered by federal banking agencies. Failure to meet minimum capital
requirements can indicate certain mandatory, and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company's and Bank's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Company and Bank must meet specific capital guidelines
that involve quantitative measures of the Company's and Bank's assets,
liabilities and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Company's and Bank's capital amounts and
classification are also subject to qualitive judgements by the regulators
about components, risk weightings and other factors.
<PAGE>
Quantitative measures established by regulation to ensure capital adequacy
require the Company and Bank to maintain minimum amounts and ratios (set
forth in the table below) of total capital (Total Risk-Based) and Tier I
capital (Tier I Risk-Based) (as defined in the regulations) to risk-weighted
assets (as defined), and of Tier I capital (Tier I Leverage Ratio) (as
defined) to average assets (as defined). Management believes, as of December
31, 1996, that the Company and Bank meets all capital adequacy requirements
to which They are subject.
As of December 31, 1996, the most recent notification from the FDIC
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized the Bank
must maintain minimum Total Risk-Based, Tier I Risk-Based, Tier I Leverage
Ratios as set forth in the table. There are no conditions or events since
that notification that management believes have changed the institution's
category.
The Company's and Bank's actual capital amounts and ratios are also presented
in the following table:
<TABLE>
<CAPTION>
Actual
----------------
Amount Ratio
------ -----
(Dollar amounts in thousands, except ratio data)
<S> <C> <C>
As of December 31, 1996:
TOTAL RISK BASED CAPITAL:
California Independent Bancorp $22,918 11.89%
Feather River State Bank $24,225 12.57%
TIER I RISK BASED CAPITAL:
California Independent Bancorp $21,813 11.31%
Feather River State Bank $21,804 11.32%
TIER I LEVERAGE RATIO:
California Independent Bancorp $21,813 8.82%
Feather River State Bank $21,804 8.82%
As of December 31, 1995:
TOTAL RISK-BASED CAPITAL:
California Independent Bancorp $22,087 13.07%
Feather River State Bank $22,085 13.08%
TIER I RISK-BASED CAPITAL:
California Independent Bancorp $18,875 11.17%
Feather River State Bank $18,753 11.10%
TIER I LEVERAGE RATIO:
California Independent Bancorp $18,875 9.00%
Feather River State Bank $18,753 8.95%
</TABLE>
<TABLE>
<CAPTION>
For Capital Adequacy
Purpose
--------------------
Amount Ratio
------ -----
(Dollar amounts in thousands, except ratio data)
<S> <C> <C>
As of December 31, 1996:
TOTAL RISK-BASED CAPITAL:
California Independent Bancorp Greater than or equal to $15,426 Greater than or equal to 8.0%
Feather River State Bank Greater than or equal to $15,415 Greater than or equal to 8.0%
TIER I RISK-BASED CAPITAL:
California Independent Bancorp Greater than or equal to $7,713 Greater than or equal to 4.0%
Feather River State Bank Greater than or equal to $7,708 Greater than or equal to 4.0%
TIER I LEVERAGE RATIO:
California Independent Bancorp Greater than or equal to $9,891 Greater than or equal to 4.0%
Feather River State Bank Greater than or equal to $9,890 Greater than or equal to 4.0%
As of December 31, 1995:
TOTAL RISK-BASED CAPITAL:
California Independent Bancorp Greater than or equal to $13,488 Greater than or equal to 8.0%
Feather River State Bank Greater than or equal to $13,487 Greater than or equal to 8.0%
TIER I RISK-BASED CAPITAL:
California Independent Bancorp Greater than or equal to $6,741 Greater than or equal to 4.0%
Feather River State Bank Greater than or equal to $6,758 Greater than or equal to 4.0%
TIER I LEVERAGE RATIO:
California Independent Bancorp Greater than or equal to $8,779 Greater than or equal to 4.0%
Feather River State Bank Greater than or equal to $8,722 Greater than or equal to 4.0%
</TABLE>
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
-----------------
Amount Ratio
------ -----
(Dollar amounts in thousands, except ratio data)
<S> <C> <C>
As of December 31, 1996:
TOTAL RISK-BASED CAPITAL:
California Independent Bancorp Greater than or equal to $19,282 Greater than or equal to 10.0%
Feather River State Bank Greater than or equal to $19,269 Greater than or equal to 10.0%
TIER I RISK-BASED CAPITAL:
California Independent Bancorp Greater than or equal to $11,569 Greater than or equal to 6.0%
Feather River State Bank Greater than or equal to $11,562 Greater than or equal to 6.0%
TIER I LEVERAGE RATIO:
California Independent Bancorp Greater than or equal to $12,364 Greater than or equal to 5.0%
Feather River State Bank Greater than or equal to $12,363 Greater than or equal to 5.0%
As of December 31, 1995:
TOTAL RISK-BASED CAPITAL:
California Independent Bancorp Greater than or equal to $16,260 Greater than or equal to 10.0%
Feather River State Bank Greater than or equal to $16,859 Greater than or equal to 10.0%
TIER I RISK-BASED CAPITAL:
California Independent Bancorp Greater than or equal to $10,112 Greater than or equal to 6.0%
Feather River State Bank Greater than or equal to $10,137 Greater than or equal to 6.0%
TIER I LEVERAGE RATIO:
California Independent Bancorp Greater than or equal to $10,974 Greater than or equal to 5.0%
Feather River State Bank Greater than or equal to $10,903 Greater than or equal to 5.0%
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
27
<PAGE>
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS
For information concerning directors and executive officers of the Company,
see "ELECTION OF DIRECTORS" and "Compliance with Section 16(a) of the
Securities Exchange Act of 1934" in the definitive Proxy Statement for the
Company's 1997 Annual Meeting of Shareholders to be filed pursuant to
Regulation 14A (the "Proxy Statement"), which is incorporated herein by
reference.
ITEM 11 - EXECUTIVE COMPENSATION
For information concerning executive compensation, see "EXECUTIVE
COMPENSATION" in the Proxy Statement, which is incorporated herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
For information concerning security ownership of certain beneficial owners
and management, see "Security Ownership of Certain Beneficial Owners and
Management" and "Election of Directors" in the Proxy Statement, which is
incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information concerning certain relationships and related transactions,
see "Indebtedness of Management and Other Transactions" in the Proxy Statement,
which is incorporated herein by reference.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS.
The consolidated financial statements of California Independent
Bancorp and Subsidiaries, other financial information and the Independent
Auditors' Report on Consolidated Financial Statements are contained herein
under Item 8.
2. FINANCIAL STATEMENT SCHEDULES.
In accordance with Regulation S-X, the financial statement schedules have
been omitted because (a) they are not applicable to or required of the Company;
or (b) the information required is included in the consolidated financial
statements or notes thereto.
3. EXHIBITS.
See Index to Exhibits of this Form 10-K.
(b) REPORTS ON FORM 8-K.
For the purposes of complying with the amendments to the rules governing
Form S-8 under the Securities Act of 1933, the undersigned registrant hereby
undertakes as follows, which undertaking shall be incorporated by reference into
the registrant's Registration Statements on Form S-8 No. 333-09823 and No.333-
09813.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding as asserted by such director, officer or controlling person in
43
<PAGE>
connection with the securities being registered the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
44
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly issued this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CALIFORNIA INDEPENDENT BANCORP
Date: March 27, 1997
By: /s/ Robert J. Mulder
--------------------------------
Robert J. Mulder, President
and Chief Executive Officer
45
<PAGE>
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Robert J. Mulder and Annette Dier Bertolini and each of them, his or her true
and lawful attorney-in-fact and agent, with full powers of substitution, for him
or her and in his or her name, place and stead, in any and all capacities, to
sign and to file any and all amendments, including pre- and/or post-effective
amendments to this Registration Statement, with the Securities and Exchange
Commission, granting to said attorney-in-fact full power and authority to
perform any other act on behalf of the undersigned required to be done in
connection therewith.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Annette Dier Bertolini Senior Vice March 27, 1997
- -------------------------- President and Chief
ANNETTE DIER BERTOLINI Financial Officer
(Principal Financial
and Accounting Officer)
/s/ Harold M. Eastridge
- -------------------------- Director March 27, 1997
HAROLD M. EASTRIDGE
Chairman of
the Board
- -------------------------- of Directors March ___, 1997
WILLIAM H. GILBERT
- -------------------------- Director March ___, 1997
DALE L. GREEN
/s/ Lawrence G. Harris
- -------------------------- Director March 27, 1997
LAWRENCE G. HARRIS
46
<PAGE>
/s/ Robert J. Mulder
- -------------------------- President, Chief March 27, 1997
ROBERT J. MULDER Executive Officer and
Director
/s/ David A. Offutt
- -------------------------- Director March 26, 1997
DAVID A. OFFUTT
- -------------------------- Director March ___, 1997
WILLIAM K. RETZER
- -------------------------- Director March ___, 1997
ROSS D. SCOTT
/s/ Louis F. Tarke
- -------------------------- Director March 27, 1997
LOUIS F. TARKE
/s/ Michael C. Wheeler
- -------------------------- Director March 27, 1997
MICHAEL C. WHEELER
47
<PAGE>
INDEX TO EXHIBITS
Exhibit No.
- -----------
2.1 Plan of Reorganization and Merger Agreement dated
January 30, 1995 by and between Feather River State
Bank, FRSB Merger Company and California Independent
Bancorp. 23/ *
3.1 Articles of Incorporation of California Independent
Bancorp. 23/ *
3.2 Bylaws of California Independent
Bancorp. 23/ *
10.1 Salary Continuation Agreements dated April 28, 1993
with Robert J. Mulder, Ronald W. Kelly and Annette
Dier Bertolini. 23/ *
10.2 Agreement for the purchase of 203 Main Street,
Woodland, California by and between Feather River
State Bank and Bank of America, NT & SA successor to
Security Pacific National Bank. 23/ *
10.3 Consolidated Agreement dated April 30, 1993 with
Unisys Corporation. 23/ *
10.4 Agreements with Information Technologies, Inc. 23/ *
10.5 Lease for 6545 Sunrise Boulevard, Suite 201, Citrus
Heights, California. 23/ *
10.6 Deferred Compensation Agreement dated July 19, 1994
with William H. Gilbert. 23/ *
- ---------------
23/ Filed as an exhibit to the Company's General Form for Registration of
Securities on Form 10 (File No. 0-26552).
* Document incorporated herein by reference.
48
<PAGE>
10.7 Feather River State Bank Employee Ownership
Plan. 23/ *
10.8 Bank Affiliate Agreement between Feather River State
Bank and Lexington Capital Management, Inc. 24/ *
10.9 California Independent Bancorp 1989 Amended and
Restated Stock Option Plan including related Incentive
and Non Statutory Stock Option Agreements. 25/
10.10 California Independent Bancorp 1996 Stock Option Plan
and related Incentive Stock Option and Nonstatutory
Stock Option Agreements. 26/ *
10.11 Purchase and Sale Agreement and Joint Escrow
Instructions by and between First Interstate Bank of
California and Feather River State Bank for 700 "E"
Street, Marysville. 24/ *
10.12 Stock Purchase Agreement dated September 16, 1996
between Feather River State Bank and Carolyn E. Roth
and related Employment Agreement and Noncompetition
Agreement. 27/ *
10.13 Lease by and between Metta M. Boyd and Feather River
State Bank for 194 East Sixth Street, Chico, California.
10.14 Lease by and between Wells Fargo Bank, N.A. and
Feather River State Bank for 995 Tharp Road, Yuba City,
California.
10.15 Lease by and between Professional Executive Center,
Inc. and Feather River State Bank for 2140 Professional
Drive, Roseville, California.
- ---------------
24/ Filed as an Exhbit to the Company's Form 10-K for December 31, 1995.
25/ Filed as an Exhibit to Amendment No. 1 to the Company's Registration
Statement on Form S-8/SEC Registration No. 333-09813.
26/ Filed as an exhibit to Amendment No. 1 to the Company's Form S-8/SEC
Registration No. 333-09823.
27/ Filed as an Exhibit to the Company's Form 8-K for the month of October,
1996.
49
<PAGE>
10.16 Executive Salary Continuation Agreement dated Februry
4, 1997 by and between Feather River State Bank and
Robert J. Mulder.
10.17 Lease by and between Anderson and Associates and
E.P.I. Leasing Co., Inc. for the premises at 6929
Sunrise Boulevard, Citrus Heights, California.
10.18 Lease by and between Vault Security Systems, Inc.
and Feather River State Bank dated March 1, 1997 for
modular bank branch located in Wheatland, California.
23 Consent of Arthur Andersen LLP for audited
financial statements for the year ended December 31,
1996.
24 Power of Attorney (Incorporated herein by reference)
27 Financial Data Schedule
50
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT made and entered into this 30 day of April, 1996, by
and between Metta M. Boyd, hereinafter referred to as Lessor, and FEATHER
RIVER STATE BANK, a corporation, hereinafter referred to as Lessee. In
consideration of the mutual promises, covenants and conditions hereinafter
contained, the parties hereto contract and agree as follows:
The Lessor hereby leases to the Lessee and the Lessee takes from the
Lessor that certain property described as:
That certain real property located in the County of Butte, State of
California, described as follows:
The East half of Lot 4 of Block 26 of the City of Chico, according to
the Official Map thereof, recorded in the office of the Recorder of
the County of Butte, State of California fronting sixty-six feet on
East Sixth Street and sixty-six feet on Wall Street
consisting of a business building and parking area, subject to the
following terms and conditions:
1. TERM: Two (2) years commencing June 1, 1996 at a rental of Nine
Hundred Dollars ($900.00) per month, first and last months' rental payable in
advance.
2. Lessee shall maintain said premises including the parking area in
good state of repair at all times and shall not commit waste thereon. The
Lessor shall be responsible for the roof and exterior walls upon the written
notice of Lessee if the same are in need of repair.
3. Lessee shall obtain insurance for plate glass in the front for any
breakage regardless from whatever cause breakage may occur.
4. The Lessor shall not be responsible for any loss to the fixtures,
equipment or merchandise of the Lessee caused by fire, leakage, or other
cause whatsoever.
5. Lessee shall maintain the plumbing in a good state of repair both from
outside and inside and pay any repairs.
6. Any repairs or additions or alterations made by the Lessee shall
first be submitted to the Lessor for written approval.
<PAGE>
7. The Lessee agrees to keep the lot, parking area and surrounding area
clean and sightly at all times.
8. The Lessee shall pay for all utilities used on and about the leased
premises including heat, water, garbage and electricity.
9. There shall be no permanent parking on the lot other than the regular
employees and normal customers.
10. There shall be no printed matter, signs or posters placed on the
leased building without Lessor's prior written consent.
11. The Lessee shall at all times have installed a fire extinguisher
within the leased premises.
12. In the event the building is destroyed by fire, the Lessor shall have
a period of one hundred twenty days (120) to rebuild a similar building in
which event the payment of rent shall cease until construction is completed
and possession restored to Lessee. If the building is partially destroyed and
the Lessee can use a portion of the building, then the rental shall be
prorated. If the loss by fire is through the negligence of the Lessee, then
the Lessee at their own costs and expense shall rebuild the building and pay
full rental during the construction period.
13. This lease is not assignable without the written consent of the
Lessor first had and obtained; however, in the event the Lessee desires to
vacate the premises, and produces a lessee which meets the standards of a
good tenant, the Lessor will not be unreasonable in allowing Lessee to assign
this lease subject to all the terms and conditions herein.
14. Any increase of property taxes over five hundred dollars ($500) per
year during the terms of this lease shall be paid by the Lessee.
15. The Lessee shall hold the Lessor free and harmless from any and all
property damages or personal injuries that may occur upon the leased premises
by reason of the occupancy of the Lessee.
16. The Lessee complying with all of the terms and conditions of this
lease shall have the option to renew the lease for three successive periods
of two years each ("renewal periods", subject to the same terms and
conditions by giving the Lessor 120 days written notice before the expiration
of the lease term then in effect, except that the monthly rental for the
renewal periods shall be renegotiated. The renegotiated rent for any renewal
period shall not be less than the monthly rent in effect immediately prior to
the commencement of any renewal period.
<PAGE>
17. The Lessee shall carry general liability insurance of at least
$500,000.00 and shall make a copy of such policy available to the Lessor.
18. Lessor shall maintain fire and extended coverage insurance throughout
the lease term in an amount equal to at least 90% of the replacement value of
the building that includes the lease premises.
19. At the end of the lease term or any extension thereof, the Lessee
shall return the premises in as good a condition as received, normal wear and
tear expected.
20. The Lessor reserves the right to inspect the premises either in
person or through her agents at all reasonable times and hours.
21. If Lessor sells any of the leased premises, Lessor shall be and is
entirely relieved of all liability under this lease, and of all covenants and
obligations contained in and derived from this lease arising out of any
activity, occurrence, or omission occurring after consummation of the sale;
and the purchaser at the sale or any subject sale of the leased premises,
shall be deemed to have assumed and agreed to carry out any of the covenants
and obligations of Lessor under this lease.
22. If either Lessor or Lessee shall commence any legal proceedings
against the other with respect to any of the terms and conditions of this
lease, the non-prevailing party shall pay to the other all expenses of the
litigation, including reasonable attorneys' fees as may be fixed by the court
having jurisdiction over the matter.
23. This Agreement shall be binding on the heirs, administrators,
executors and assigns of the respective parties hereto.
IN WITNESS WHEREOF, we have hereunto set our hands the day and year herein
written.
LESSOR:
/s/ Metta M. Boyd
---------------------------------------
METTA M. BOYD
LESSEE:
FEATHER RIVER STATE BANK
a Corporation
By /s/ Ronald W. Kelly
---------------------------------------
Title: RONALD W. KELLY, EXECUTIVE VICE
PRESIDENT
<PAGE>
AGREEMENT OF PURCHASE AND SALE
SELLER: WELLS FARGO BANK, N.A., a national banking association
BUYER: FEATHER RIVER STATE BANK
a CALIFORNIA CORPORATION
PROPERTY: 995 Tharp Road, Yuba City, California (AU No. F611)
PURCHASE PRICE: Six Hundred Fifty Thousand Dollars ($65O,OOO.OO)
DEPOSIT: Thirty-Two Thousand Five Hundred Dollars ($32,500.00), due
on execution
DUE DILIGENCE
PERIOD: From full execution of this Agreement until October 31, 1996
CLOSING DATE: December 2, 1996
DATED AS OF
September 23, 1996
--
<PAGE>
TABLE OF CONTENTS
1. Definitions . . . . . . . . . . . . . . . . . . 1
2. Purchase and Sale of Property . . . . . . . . . 4
3. Purchase Price; Deposit. . . . . . . . . . . . . 4
4. Remedies . . . . . . . . . . . . . . . . . . . . 5
5. Due Dilience . . . . . . . . . . . . . . . . . . 5
6. Status . . . . . . . . . . . . . . . . . . . . . 8
7. Grant Deed . . . . . . . . . . . . . . . . . . .10
8. Conditions Precedent to Close of Escrow. . . . .10
9. Closing. . . . . . . . . . . . . . . . . . . . .13
l0. Brokerage Commission . . . . . . . . . . . . . .16
11. Condemnation/Casualty. . . . . . . . . . . . . .16
12. Representations and Warranties . . . . . . . . .17
13. Miscellaneous. . . . . . . . . . . . . . . . . .18
Exhibits
- --------
Exhibit A - Real Property
Exhibit B - Grant Deed
Exhibit C - Due Diligence Materials
ii
<PAGE>
AGREEMENT OF PURCHASE AND SALE
-------------------------------
THIS AGREEMENT OF PURCHASE AND SALE (this "Agreement"), dated as of
September 23, 1996, is made between WELLS FARGO BANK, N.A., a national banking
association ("Seller"), and FEATHER RIVER STATE BANK, a California Corporation
("Buyer"), who for valuable consideration received, agree as follows:
1. DEFINITIONS. For the purposes of this Agreement the following terms
shall be defined as follows:
1.1 ACTUAL KNOWLEDGE OF SELLER. The term "Actual Knowledge of
Seller" means and is limited to the actual knowledge of David Danis, Seller's
Vice President of Corporate Properties Group located at 111 Sutter Street, 22nd
Floor, San Francisco, California, without having conducted any independent
inquiry or inspection.
1.2 BROKERS. The "Seller's Broker" is/are CB Commercial Real Estate
Group, Inc. (Craig Burress) and the "Buyer's Broker" is/are Coldwell
Banker/Trident Investment Corporation. Seller's Broker and Buyer's Broker are
collectively referred to herein as the "Brokers."
1.3 BUYER INSPECTION. The term "Buyer Inspection" shall have the
meaning given thereto in Section 5.2, below.
1.4 CLOSING; CLOSE OF ESCROW; CLOSING DATE. The "Closing" or the
"Close of Escrow" shall mean the consummation of the purchase and sale of the
Property in accordance with this Agreement, as evidenced by the recording of the
Deed in the official records of the county in which the Property is located,
Closing and Close of Escrow are terms used interchangeably in this Agreement.
The "Closing Date" is December 2, 1996 and the last date on which the
Closing/Close of Escrow can occur, unless extended in writing by Seller in its
sole and absolute discretion.
1.5 DEED. The term "Deed" shall have the meaning given thereto in
Section 7, below.
1.6 DEPOSIT. The "Deposit" is Thirty-Two Thousand Five Hundred
Dollars ($32,500.00) and shall be placed into Escrow on the opening of Escrow in
accordance with Section 3.1, below.
1.7 DUE DILIGENCE MATERIALS. The term "Due Diligence Materials"
means the reports, surveys and other materials listed on Exhibit C, attached
hereto.
1.8 DUE DILIGENCE PERIOD. The "Due Diligence Period" is the period
commencing on the Effective Date and ending on
1.
<PAGE>
October 31, 1996, during which Buyer must complete its due diligence as
described in Section 5, below.
1.9 EFFECTIVE DATE. The "Effective Date" is the date set forth below
the signatures of the party which is the last to sign this Agreement.
1.10 ENVIRONMENTAL LAW. The term "Environmental Law" means any law,
statute, ordinance or regulation pertaining to health, industrial hygiene or the
environment including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, and the Resources
Conservation and Recovery Act of 1976, as amended.
1.11 ESCROW. The term "Escrow" shall have the meaning given thereto
in Section 3.1, below.
1.12 ESCROW HOLDER AND TITLE COMPANY. The "Escrow Holder" and the
"Title Company" are:
Fidelity National Title Insurance Company
1455 Butte House Road
Yuba City, CA 95993
Telephone: (916) 673-5844
Facsimile: (916) 671-3979
Attention: Kathy Mangrum
1.13 EXHIBITS. The term "Exhibits" means the following, each of which
is attached hereto and incorporated herein by this reference:
Exhibit A - Legal Description of Real Property
Exhibit B - Form of Deed
Exhibit C - Due Diligence Materials
1.14 HAZARDOUS SUBSTANCE. The term "Hazardous Substance" means any
substance, material or waste which is or becomes designated, classified or
regulated as being "toxic" or "hazardous" or a "pollutant" or which is or
becomes similarly designated, classified or regulated, under any Environmental
Law, including asbestos, petroleum and petroleum products.
1.15 NON-FOREIGN CERTIFICATE. The term "Non-Foreign Certificate"
shall have the meaning given thereto in Section 9.2.1.3, below.
1.16 NOTICES. The term "Notices" means all notices or other
communications required or permitted hereunder, which Notices shall be sent as
follows to:
2.
<PAGE>
Seller: Wells Fargo Bank, N.A.
Corporate Properties Group
111 Sutter Street, 22nd Floor
San Francisco, CA 94104
Attn: David Danis
Telephone: (415) 396-3115
Facsimile: (415) 396-7659
with a copy to: Brobeck, Phleger & Harrison
One Market, Spear Tower
San Francisco, CA 94105
Attn: A. Bruce Gilmore, Esq.
Telephone: (415) 442-0900
Facsimile: (415) 979-2912
Buyer: Feather River State Bank
1005 Stafford Way
Yuba City, CA 95991
Attn: Mr. Robert J. Mulder
Telephone: 916 674-4444
Facsimile: 916 674-4443
with a copy to: Feather River State Bank
1005 Stafford Way
Yuba City, CA 95991
Attn: Annette Bertolini, CFO
Telephone: 916 674-4444
Facsimile: 916 674-4443
1.17 PERMITTED EXCEPTIONS. The term "Permitted Exceptions" shall have
the meaning given thereto in Section 8.2.1.2, below.
1.18 PROPERTY. The term "Property" shall have the meaning given
thereto in Section 2, below.
1.19 PRORATION DATE. The term "Probation Date" shall have the meaning
given thereto in Section 9.5.2, below.
1.20 PURCHASE PRICE. The "Purchase Price" for the Property is Six
Hundred Fifty Thousand Dollars ($650,000.00).
1.21 REAL ESTATE COMPENSATION. The term "Real Estate Compensation"
shall have the meaning given thereto in Section 10, below.
1.22 REAL PROPERTY. The term "Real Property" means that certain
improved real property located in the City of Yuba City, County of Sutter, State
of California, and commonly known as 995 Tharp Road, (AU No. F611), and more
particularly described in EXHIBIT A, attached hereto.
3.
<PAGE>
1.23 SELLER'S ACCOUNT. The term "Seller's Account" means the account
to which the Purchase Price (less Seller's share of closing costs and
prorations) shall be wired pursuant to written instructions to be furnished to
Escrow Holder by Seller prior to Close of Escrow.
1.24 TERMINATION NOTICE The term "Termination Notice" shall have the
meaning given thereto in Section 5.3, below.
1.25 TITLE POLICY. The term "Title Policy" shall have the meaning
given thereto in Section 7, below.
2. PURCHASE AND SALE OF PROPERTY. Seller agrees to sell to Buyer and
Buyer agrees to purchase from Seller on the terms hereinafter set forth all of
Seller's right, title and interest in the Real Property, including all
improvements, fixtures and vaults or vault doors located on the Real Property,
but excluding any automated teller machines and signs located on the Real
Property, together with all rights and appurtenances pertaining thereto
(collectively, the "Property").
The term "Property" does not include, and Seller is not selling to
Buyer, the furniture, equipment or other personal property located on the Real
Property or any deposits, customer lists, banking business, trade or service
names or marks (including WFB, Wells Fargo, Wells Fargo Bank, Wells Fargo &
Company, the Wells Fargo stagecoach, the stagecoach marks, First Interstate
Bank, First Interstate, FIB or any combination of the foregoing) or other
proprietary property of Seller (collectively, "Proprietary Property").
3. PURCHASE PRICE; DEPOSIT. Buyer shall pay to Seller the Purchase Price
for the Property in the following manner:
3.1 DEPOSIT. Within one (1) business day after execution of this
Agreement, Buyer and Seller shall open an escrow account (the "Escrow") with
Escrow Holder, and Buyer shall deposit with Escrow Holder by cashier's check or
immediately. available federal wire transfer cash in an amount equal to the
Deposit, Escrow Holder shall place the funds received from Buyer in an
interest-bearing account at an institution acceptable to Seller, to be held as a
deposit on account of the Purchase Price. All interest earned on the Deposit
shall be added to, and become a part of, the Deposit. Except as expressly
provided otherwise in this Agreement, the Deposit shall become non-refundable on
the first day following the expiration of the Due Diligence Period and
immediately shall be delivered by Escrow Holder to Seller (without any further
instruction by Seller or Buyer to Escrow Holder) unless Buyer terminates this
Agreement by written notice to Seller and Escrow Holder as provided in this
Agreement on or before the expiration of the Due Diligence Period. No interest
shall accrue on the Deposit after delivery of the Deposit to Seller.
4.
<PAGE>
3.2 CASH AT CLOSING. Not less than two (2) days prior to Close of
Escrow, Buyer shall deposit with Escrow Holder by immediately available federal
wire transfer or cashier's check an additional amount equal to the difference
between (i) the Purchase Price and (ii) the Deposit, plus or minus the closing
adjustments and prorations described in Section 9.5.
4. REMEDIES.
--------
4.1 SELLER DEFAULT. If the transaction contemplated by this
Agreement does not close solely as a result of a default by Seller, Buyer's sole
remedy shall be the return of the Deposit (with Buyer thereby waiving any other
remedy, including specific performance, which Buyer may have against Seller).
4.2 NO SELLER DEFAULT; LIQUIDATED DAMAGES. IF THE TRANSACTION
CONTEMPLATED HEREUNDER IS NOT CONSUMMATED DUE TO A DEFAULT BY BUYER, SELLER MAY
IMMEDIATELY TERMINATE THIS AGREEMENT BY WRITTEN NOTICE TO BUYER AND WITHOUT
FURTHER OBLIGATION TO BUYER, AND ESCROW HOLDER SHALL IMMEDIATELY DISBURSE TO
SELLER ANY PORTION OF THE DEPOSIT THEN HELD BY ESCROW HOLDER. SELLER SHALL
RETAIN THE DEPOSIT AS LIQUIDATED DAMAGES AND AS SELLERS SOLE REMEDY THE
PARTIES AGREE THAT SELLER'S ACTUAL DAMAGES AS A RESULT OF BUYER'S DEFAULT
WOULD BE DIFFICULT OR IMPOSSIBLE TO DETERMINE, AND THE DEPOSIT IS THE BEST
ESTIMATE OF THE AMOUNT OF DAMAGES SELLER WOULD SUFFER AS A RESULT OF SUCH
DEFAULT; PROVIDED, HOWEVER, THAT THIS PROVISION WILL NOT LIMIT BUYER'S
INDEMNITY OBLIGATIONS AND SELLER'S RIGHTS TO THOSE INDEMNITY OBLIGATIONS
UNDER THIS AGREEMENT. THE PAYMENT OF THE DEPOSIT AS LIQUIDATED DAMAGES IS NOT
INTENDED AS A FORFEITURE OR PENALTY WITHIN THE MEANING OF CALIFORNIA CIVIL
CODE SECTIONS 3275 OR 3369, BUT IS INTENDED TO CONSTITUTE LIQUIDATED DAMAGES
TO SELLER PURSUANT TO CALIFORNIA CIVIL CODE SECTIONS 1671, 1676 AND 1677.
SELLER HEREBY WAIVES THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 3389.
THE PARTIES WITNESS THEIR AGREEMENT TO THIS LIQUIDATED DAMAGES PROVISION BY
INITIALLING THIS SECTION:
Seller: /s/illegible Buyer: /s/illegible
5. DUE DILIGENCE.
5.1 SELLER'S STUDIES. To the extent Seller has not already done so,
Seller shall make available to Buyer at the office of Seller's Broker the Due
Diligence Materials, for use by Buyer in connection with Buyer's investigation
of the Property, Notwithstanding the foregoing, Seller shall not make available
to Buyer (i) any appraisals of the Real Property, (ii) any internal budgets or
financial projections relating to the Real Property, (iii) correspondence
relating to routine management and maintenance matters and (iv) any reports or
studies prepared or commissioned by Seller concerning the extent to which the
improvements located on the Real Property are in compliance with the Americans
With Disabilities Act. Seller makes no
5.
<PAGE>
representation or warranty of any kind with respect to the Due Diligence
Materials, including their accuracy, completeness or suitability for reliance
thereon by Buyer.
5.2 RIGHT OF ENTRY. During the Due Diligence Period, provided that
Buyer is not in default hereunder, Buyer shall have the right to enter and
inspect the Real Property (each, a "Buyer Inspection") pursuant to the
following terms and conditions:
5.2.1 NOTICE. Buyer shall provide Seller's Broker with at
least one (1) business day's prior written notice of any Buyer Inspection
(describing Buyer's intended activities on the Real Property).
5.2.2 EXPENSES. Each Buyer Inspection shall be at Buyer's
sole cost and expense.
5.2.3 LICENSE; INSURANCE. The persons or entities performing
the Buyer Inspection shall be properly licensed and qualified, shall have
obtained all of the appropriate permits for performing relevant tests and shall
have delivered to Seller, prior to performing any tests or entering the Real
Property, evidence of proper and adequate insurance reasonably satisfactory to
Seller. In addition, if a Buyer Inspection requires more than a visual
inspection of the Real Property, then before undertaking such Buyer Inspection,
Buyer shall arrange for Seller to be named as an additional insured on Buyer's
commercial public liability insurance policy covering liability to property or
persons for Buyer's activities on or about the Real Property in an amount not
less than Two Million Dollars ($2,000,000.00).
5.2.4 PHYSICAL TESTING. Buyer shall obtain Seller's advance
written consent to any proposed physical testing or drilling of the Real
Property by Buyer or Buyer's representatives (which consent shall not be
unreasonably withheld or delayed). If Buyer, or its agents, representatives or
employees, undertake any borings or other disturbance of the soil, such borings
or disturbance shall be recompacted to the original condition of the Real
Property before such activities and Buyer shall obtain at its expense a
certification from a soils engineer that the borings or disturbance has been so
recompacted.
5.2.5 SCHEDULING OF TESTS. Buyer shall schedule all tests
during normal business hours unless otherwise requested by Seller.
5.2.6 REPRESENTATIVE. Seller's Broker shall accompany Buyer
and Buyer's representatives, agents or designees while they are on the Real
Property.
6.
<PAGE>
5.2.7 NO INTERFERENCE. Buyer and its representatives, agents
or designees shall not interfere with Seller's business operations on, or use
of, the Real Property.
5.2.8 REPORTS. If requested by Seller, Buyer shall promptly
deliver to Seller a copy of all reports, tests, analyses and studies of the Real
Property performed by or at the request of Buyer or otherwise obtained by Buyer,
and all conclusions, results, findings and recommendations pertaining thereto.
5.2.9 LIENS. Buyer shall not cause or suffer any lien or
other encumbrance to be recorded against the Real Property, and shall promptly
cause any lien or other encumbrance caused or suffered by Buyer (including
mechanics' liens arising out of Buyer's activities under this Section 5.2) to be
immediately discharged or bonded over, to Seller's satisfaction.
5.2.10 RESTORATION. If any portion of the Real Property is
damaged due to Buyer's entry on the Real Property, Buyer shall, at its sole cost
and expense, immediately repair and restore the Real Property to the same
condition the Real Property was in immediately prior to the date the damage
occurred.
5.2.11 IDEMNITY. Buyer shall indemnify, protect and defend
(by counsel reasonably acceptable to Seller) and hold harmless Seller for, from
and against any and all claims, damages, costs, liabilities and losses and
expenses arising out of any entry, investigations, inspections, tests and other
activities undertaken by Buyer or its agents, designees or representatives,
including (A) reasonable attorneys' fees and expenses and other reasonable costs
and expenses incurred by Seller in connection with investigating or defending
any such matters, (B) any and all costs or expenses incurred by Seller resulting
from or arising out of the aggravation of physical defects or conditions
regarding hazardous, toxic or contaminated substances or materials and (C) any
and all costs or expenses incurred by Seller in defending, discharging or
bonding over any liens or encumbrances against the Property resulting from
Buyer's activities with respect thereto. This indemnity provision shall survive
Close of Escrow or any earlier termination of this Agreement and shall not be
reduced or impaired by Seller's receipt of any sums as liquidated damages
hereunder.
5.2.12 CONFIDENTIAL. Each Buyer Inspection, and the results
thereof, shall remain confidential pursuant to the terms of Section 13.16.
5.3 DISAPPROVAL OF SELLER'S STUDIES OR BUYER INSPECTIONS. Buyer
shall have the right, at any time during the Due Diligence Period, to reasonably
disapprove the results of Buyer's review of the Due Diligence Materials or the
Buyer Inspections of the Real Property by providing Seller and Escrow
7.
<PAGE>
Holder with written notice thereof (a "Termination Notice"). If Buyer delivers a
Termination Notice to Seller and Escrow Holder during the Due Diligence Period,
then (a) this Agreement, and all of the obligations, rights and liabilities of
the parties to each other hereunder (except for Buyer's indemnification
obligations under Section 5.2.11, Buyer's restoration obligations under Section
5.2.10, and the parties' confidentiality obligations under Section 13.16), shall
terminate and be of no further effect, (b) Buyer shall immediately return to
Seller the Due Diligence Materials and, if requested by Seller, deliver to
Seller any written reports, tests or memoranda in Buyer's possession relating to
the Buyer Inspections of the Real Property, and (c) upon Seller's receipt of
such information, Seller shall immediately direct Escrow Holder to return the
Deposit to Buyer. If Buyer fails to provide Seller and Escrow Holder with a
Termination Notice prior to the expiration of the Due Diligence Period, then (i)
Buyer shall be deemed to have approved the results of Buyer's review of the Due
Diligence Materials and the Buyer Inspections of the Real Property and waived
Buyer's right to terminate this Agreement due to a failure of the conditions
precedent described in Section 8.2.1 of this Agreement and (ii) the parties
shall proceed with Close of Escrow in accordance with the terms of this
Agreement. If Buyer objects to any exceptions to title shown in the preliminary
report referred to in Section 8.2.1.2, then unless such exception is of the type
described in Section 8.2.2.1 (other than a "Permitted Exception"), Buyer may
deliver a Termination Notice that is conditional on Seller's committing to
Buyer, before expiration of the Due Diligence Period, to removing the exceptions
objected to by Buyer at Close of Escrow, In any event, the parties'
participation in Close of Escrow shall be deemed a waiver of (i) each party's
ability to terminate this Agreement on the basis of any failure of any
conditions precedent and (ii) each party's right to seek damages from the other
party for the breach of any representations, warranty or covenant of which the
non-breaching party had actual knowledge prior to Close of Escrow.
6. STATUS.
6.1 AS IS PURCHASE. Buyer shall examine, inspect and conduct its own
investigation of all matters with respect to taxes, bonds, environmental
condition, permissible uses, title, zoning, covenants, conditions and
restrictions and all other matters which, in Buyer's judgment, bear upon the
value and suitability of the Property or Buyer's purposes. Except as otherwise
specifically stated in Section 12.2, Seller hereby specifically disclaims any
warranty, guaranty or representation, oral or written, past, present or future,
of, as to or concerning (i) the nature and condition of the Property, including
the water, soil, geology, environmental conditions (including the presence or
absence of any Hazardous Substance), and the suitability thereof for any and all
activities and uses which Buyer may elect to conduct thereon; (ii) the nature
and extent of
8.
<PAGE>
any right-of-way, lease, possession, lien, encumbrance, license, reservation,
condition or otherwise; or (iii) the compliance of the Property or its operation
with any laws, ordinances or regulations of any government or other body
(including the Americans With Disabilities Act) The sale of the Property as
provided for herein is made on an "AS IS" basis, and Buyer expressly
acknowledges that, in consideration of the agreements of Seller herein, except
as otherwise expressly specified in this Agreement, SELLER MAKES NO WARRANTY OR
REPRESENTATION, EXPRESS OR IMPLIED, OR ARISING BY OPERATION OF LAW, INCLUDING,
BUT IN NO WAY LIMITED TO, ANY WARRANTY OF CONDITION, HABITABILITY,
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE PROPERTY.
6.2 RELEASE. Except for any breach by Seller of any representation
or warranty of Seller contained in Section 12.2, Buyer, for itself and its
successors and assigns, hereby releases and forever discharges Seller and its
successors and assigns from, and waives any right to proceed against Seller and
its successors or assigns for, any and all cost, expense, claim, liabilities and
demands (including reasonable attorneys' fees) at law or in equity, whether
known or unknown, arising out of the physical, environmental, economic, legal or
other condition of the Property, including, without limitation, any claims for
contribution pursuant to any Environmental Law (collectively referred to
hereinafter as "Claims"), which Buyer or Buyer's successors or assigns has or
may have in the future. Without limiting the foregoing, Buyer hereby
specifically waives the provisions of Section 1542 of the California Civil Code
which provide:
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.
Buyer hereby specifically acknowledges that Buyer has carefully reviewed this
Section, and discussed its import with legal counsel, is fully aware of its
consequences, and that the provisions of this Section are a material part of
this Agreement.
Buyer /s/illegible agrees.
6.3 INDEMNITY.
6.3.1 SELLER'S INDEMNITY. Seller shall indemnify, protect
and defend by counsel reasonably acceptable to Buyer and hold harmless Buyer
from and against any and all claims, damages, losses, costs, expenses and
liabilities (including all reasonable attorneys' fees and court costs paid or
incurred by Buyer) which arise out of or are in any way connected with any
misrepresentation or breach of warranty or covenant by Seller in
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this Agreement. This indemnity does not apply, however, to any item, matter,
occurrence or condition which was known to or reasonably discoverable by Buyer
prior to the Closing Date.
6.3.2 BUYER'S INDEMNITY. Buyer shall indemnify, protect and
defend by counsel reasonably acceptable to Seller and hold harmless Seller from
and against any and all claims, damages, losses, costs, expenses and liabilities
(including all reasonable attorneys' fees and court costs paid or incurred by
Seller) which arise out of or are in any way connected with the ownership and/or
operation of the Property after the Closing Date or any misrepresentation or
breach of warranty or covenant by Buyer in this Agreement or any document
delivered to Seller pursuant to this Agreement.
6.3.3 INDEMNIFIED PARTIES. For purposes of this Section 6.3,
all references to "Buyer" or "Seller" shall include (A) their parent,
subsidiary or affiliate corporations and (B) their directors, officers,
shareholders, employees and agents.
6.3.4 SURVIVAL. The provisions of this Section 6.3 shall
survive the Closing Date.
7. GRANT DEED. Seller shall convey the Real Property to Buyer by a
grant deed (the "Deed"), in the form of EXHIBIT B, attached hereto. The
conclusive evidence of delivery of title to the Real Property by Seller to Buyer
shall be the willingness of Title Company to issue, upon payment of Title
Company's regularly scheduled premium, an owner's CLTA title insurance policy
(the "Title Policy") in the amount of the Purchase Price showing title to the
Real Property vested of record in Buyer.
8. CONDITIONS PRECEDENT TO CLOSE OF ESCROW. In addition to the
documents and funds which must be deposited into Escrow prior to Close of Escrow
as detailed in Section 9.2, the following are conditions precedent to Close of
Escrow:
8.1 SELLER. Seller's obligation to proceed with Close of Escrow
is conditioned on the satisfaction of each of the following by not later than
the Closing Date:
8.1.1 NO SUIT. As of Close of Escrow, no suit, action or
other proceeding shall be pending or threatened which seeks, nor shall there
exist any judgment the effect of which is, to restrain the purchase and sale of
the Property.
8.l.2 BUYER'S REPRESENTATIONS. Buyer's representations and
warranties set forth herein shall be true and correct as of Close of Escrow.
8.1.3 BUYER'S COVENANTS. Buyer shall have performed all of
Buyer's covenants and agreements contained
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herein which are required to be performed by Buyer on or prior to Close of
Escrow.
8.1.4 RESOLUTION. To the extent requested by either Seller
or Title Company, Buyer shall have provided Seller and Title Company at Close of
Escrow with certified copies of corporate resolutions approving the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby, together with such other certificates of incumbency and
other evidences of corporate or regulatory authority, including but not limited
to certificates of good standing, as Seller or Title Company may reasonably
require.
8.2 BUYER. Buyer's conditions precedent to Close of Escrow are the
following:
8.2.1 DUE DILIGENCE PERIOD. During the Due Diligence Period:
8.2.1.1 INSPECTION. Buyer's inspection and approval of
the Buyer Inspections, the Due Diligence Materials, surveys (if any) and all
other physical, environmental, legal and any other matters relating to the
Property as Buyer may elect to investigate.
8.2.1.2 PRELIMINARY REPORT. Buyer's inspection and
approval of a current preliminary report issued by Title Company for the Real
Property and all of the exceptions contained in such report. All of the
exceptions contained in the preliminary report which are approved or deemed
approved by Buyer (as provided in Section 5.3) are hereinafter referred to as
the "Permitted Exceptions."
8.2.2 CLOSE OF ESCROW. As of Close of Escrow:
8.2.2.1 TITLE POLICY. The willingness of Title Company to
issue, upon the payment of its regularly scheduled premium, a Title Policy for
the Real Property, subject only to (i) a lien for real property taxes and
assessments not then delinquent; (ii) the Permitted Exceptions; (iii) matters
affecting the condition of title to the Real Property created by or with the
written consent of Buyer; (iv) any matters shown by any survey of the Property
or by inquiry of persons in possession of the Real Property; and (v) any
covenants, conditions and restrictions recorded as an interest affecting the
Real Property.
8.2.2.2 NO SUIT. No suit, action or other proceeding
shall be pending or threatened which seeks, nor shall there exist any judgment
the effect of which is, to restrain the purchase and sale of the Property.
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8.2.2.3 SELLER'S REPRESENTATIONS. Seller's
representations and warranties set forth herein shall be true and correct.
8.2.2.4 SELLER'S COVENANTS. Seller shall have performed
all of Seller's covenants and agreements contained herein which are required to
be performed by Seller on or prior to Close of Escrow.
8.3 BUYER'S PLANNING, LEASING AND DEVELOPMENT EFFORTS PRIOR TO
CLOSING. If Buyer intends, prior to Close of Escrow, to seek prospective
tenants for the Property, or to apply for use permits, zoning variances or other
governmental approvals for new uses of prospective tenants of the Property,
Buyer hereby acknowledges that Seller shall be under no obligation to render
assistance to Buyer in such efforts, and all such undertakings shall be
commenced and prosecuted without obligating Seller or encumbering the Property
in any manner. Without limiting the generality of the foregoing, Seller shall
have no obligation to submit or sign applications for use permits, zoning
variances or similar governmental approvals sought by Buyer, and Buyer shall not
represent itself as authorized to speak on behalf of Seller in connection with
Buyer's leasing or development efforts for the Property.
8.4 PROHIBITION ON SOLICITATION OF SELLER'S CUSTOMERS. Buyer hereby
acknowledges that Seller operated a branch banking operation at the Property
prior to marketing the Property for sale. As material consideration for Seller
entering into this Agreement, Buyer covenants and agrees that, prior to Close of
Escrow, neither Buyer nor any of Buyer's employees, agents, contractors or any
person claiming an interest in the Property under or through Buyer
(collectively, "Buyer's Parties") shall specifically target and/or solicit any
banking business from any customers of Seller or First Interstate Bank ("FIB")
who conducted banking business at the Property. As it relates to the above
prohibition, neither Buyer nor Buyer's Parties shall (i) use or advertise the
name or address of the Property, nor (ii) use or advertise the trade or
service name or marks of WFB, Wells Fargo, Wells Fargo Bank, Wells Fargo and
Company, the Wells Fargo stagecoach, the stagecoach marks, First Interstate
Bank, First Interstate, FIB or any combination of the foregoing.
Buyer agrees that Seller will be irreparably damaged by a breach of this
Section 8.4 by Buyer or any of Buyer's Parties and that upon a breach of this
Section 8.4 by Buyer or any of Buyer's Parties, Seller shall be entitled to the
following remedies in addition to any other remedies available to Seller at law
or in equity or under any other agreement: (i) self help and an exparte
temporary restraining order and preliminary and permanent injunctive relief to
bar the use of any Proprietary Property or any Prohibited Conduct;
(ii) terminate this Agreement and any other purchase agreement or sublease that
Buyer has
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entered into with Seller and retain the Deposit as liquidated damages pursuant
to Section 4.2 of this Agreement; and (iii) recover all seller's actual
attorneys' fees and court costs.
9. CLOSING.
9.1 TIME. Escrow shall close ("Close of Escrow") when all documents
and funds specified in this Section 9 have been deposited into Escrow. The
failure of Seller or Buyer to be in a position to close Escrow by the Closing
Date shall constitute a default under this Agreement.
9.2 DOCUMENTS. Not less than two (2) days prior to Close of Escrow,
which shall occur on or before the Closing Date, the parties shall deposit into
Escrow the funds and the documents described below.
9.2.1 SELLER. Seller shall deposit the following:
9.2.1.1 DEED. The duly executed and acknowledged
Deed, conveying the Real Property to Buyer;
9.2.1.2 NON-FOREIGN CERTIFICATE. A duly executed
certificate (the "Non-Foreign Certificate") from Seller certifying that Seller
is not a "foreign person" within the meaning of Section 1445(f)(3) of the
Internal Revenue Code;
9.2.1.3 CALIFORNIA FORM 590. A properly executed
California Form 590 or other evidence sufficient to establish that Seller is not
required to withhold any portion of the Purchase Price pursuant to Sections
18805 and 26131 of the California Revenue and Taxation Code; and
9.2.1.4 ADDITIONAL DOCUMENTS. Such other documents,
including escrow instructions, as may be reasonably required of Seller to close
the transaction in accordance with this Agreement.
9.2.2 BUYER. Buyer shall deposit the following:
9.2.2.1 REMAINDER OF PURCHASE PRICE. The remainder
of the Purchase Price;
9.2.2.2 ADDITIONAL FUNDS. Additional cash in the
amount necessary to pay Buyer's share of the closing costs and prorations, as
hereinafter set forth; and
9.2.2.3 ADDITIONAL DOCUMENTS. Such other documents
and funds, including escrow instructions, as may be reasonably required of Buyer
to close the transaction in accordance with this Agreement.
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9.3 PROCEDURE. Escrow Holder shall close Escrow as follows:
9.3.1 DEED. Record the Deed in the Official Records of the
County in which the Real Property is located (instructing the County Recorder
not to affix the amount of any documentary or transfer taxes to the Deed but to
attach a separate statement to the Deed after recording) and deliver conformed
copies thereof to Buyer and Seller.
9.3.2 PURCHASE PRICE. Deliver the Purchase Price to Seller
(less Seller's share of the closing costs and prorations) via wire transfer of
U.S. federal funds to Seller's Account, or as otherwise directed by Seller, in
accordance with Seller's instructions provided to Escrow Holder prior to Close
of Escrow:
9.3.3 DELIVERIES TO BUYER. Deliver to Buyer
(i) the original Non-Foreign Certificate and Form 590-RE, (ii) a conformed copy
of the recorded Deed and (iii) the original Title Policy.
9.3.4 DELIVERIES TO SELLER. Deliver to Seller
(i) a conformed copy of the recorded Deed and (ii) Seller's closing statement,
9.4 ESCROW INSTRUCTIONS. This Agreement shall serve as escrow
instructions and an executed copy of this Agreement shall be deposited by Seller
and Buyer with Escrow Holder following the execution and delivery hereof. The
parties agree to execute for the benefit of Escrow Holder such additional escrow
instructions as are necessary to close the Escrow, provided that the additional
escrow instructions do not change the terms of this Agreement but merely offer
protection to Escrow Holder. Seller and Buyer hereby designate Escrow Holder as
the "Reporting Person" for the transaction pursuant to Section 6045(e) of the
Internal Revenue Code.
9.5 CLOSING COSTS AND PRORATIONS.
9.5.1 CLOSING COSTS.
9.5.1.1 SELLER'S RESPONSIBILITY. Seller shall be
responsible for the following closing costs: (i) the CLTA portion of the title
insurance premium for the Title Policy; (ii) all Escrow Fees; (iii) all county
documentary transfer taxes; and (iv) Seller's attorneys' fees. In addition,
Seller shall pay the Real Estate Compensation described in Section 10.
9.5.1.2 BUYER'S RESPONSIBILITY. Buyer shall be responsible for
the following closing costs: (i) the ALTA portion of the title insurance premium
for the Title Policy, if requested by Buyer, and any endorsements requested by
Buyer;
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(ii) the cost of any required survey; (iii) all recording costs; and (iv)
Buyer's attorneys' fees.
9.5.2 PRORATIONS. The adjustments and prorations set forth
below shall be made at Close of Escrow, For purposes of this Section 9.5.2, the
term "Proration Date" shall be defined as 11:59 p.m. on the day preceding Close
of Escrow.
9.5.2.1 REAL ESTATE TAXES. All real and personal
property taxes, installments of bonds and special taxes and assessments
attributable to the Property shall be prorated as of the Proration Date based on
a 365-day year and the assessed value of the Property in effect at Close of
Escrow. Seller shall pay all such real estate taxes which are due for the
period of Seller's ownership of the Property through and including the Proration
Date.
9.5.2.2 RE-PRORATION OF REAL ESTATE TAXES. If at any
time after Close of Escrow additional or supplemental real estate taxes are
assessed against the Real Property by reason of any event occurring prior to or
including Close of Escrow, or there is any rebate of such taxes, Buyer and
Seller shall promptly re-prorate such taxes, and any amounts due from one party
to the other shall be paid in cash at that time.
9.5.2.3 UTILITIES. Buyer shall arrange with all
utility services and companies serving the Real Property to have accounts
started in the name of Buyer or its property manager beginning as of the
Proration Date. Seller shall not assign to Buyer any deposits Seller has with
any utility services or companies. Buyer and Seller shall cooperate to have the
utility services and companies make utility readings as of the Proration Date.
If readings cannot be made, utility charges shall be prorated as of the
Probation Date based on estimates from the latest bills available; provided, in
any event, Seller shall pay, through and including the Proration Date, all
utility charges attributable to the Property.
9.5.2.4 REFUNDS OF REAL ESTATE TAXES. Buyer
specifically acknowledges that Seller shall be entitled to any refund of real
and personal property taxes, installments of bonds and special taxes and
assessments attributable to the Property and allocable to the period prior to
Close of Escrow. Any such refunds shall be paid to Seller regardless of when
they are received.
9.5.2.5 Additional Costs. Buyer and Seller
each shall pay their own legal, lending and other fees and expenses incurred in
connection with the negotiation, documentation and closing of the transactions
contemplated by this Agreement.
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10. BROKERAGE COMMISSION. Each party to this Agreement warrants to the
other that no person or entity other than Seller's Broker and Buyer's Broker can
properly claim a right to a real estate commission, finder's fee or. other real
estate brokerage-type commission (collectively, "Real Estate Compensation")
based upon the acts of that party with respect to the transactions contemplated
with respect to this Agreement. Seller shall pay any Real Estate Compensation
due to Seller's Broker pursuant to a separate agreement between Seller and
Seller's Broker. Seller's Broker shall pay to Buyer's Broker a portion of the
Real Estate Compensation pursuant to a separate agreement between Seller's
Broker and Buyer's Broker. Each party hereby agrees to indemnify, protect and
defend the other (by counsel acceptable to the party seeking indemnification)
against and hold the other harmless from and against any and all damages,
liabilities, loss, cost and expense, including, but not limited to, reasonable
attorneys' fees and court costs, resulting from any claims for Real Estate
Compensation by any person or entity other than the Brokers based upon such
acts.
11. CONDEMNATION/CASUALTY.
ll.l CONDEMNATION.
11.1.1 MATERIAL CONDEMNATION. If prior to Close of Escrow a
taking or condemnation of a material portion of the Real Property has occurred,
Buyer, at its option, may terminate this Agreement within five (5) days after
notice of such event (and, if necessary, Close of Escrow shall be extended by
the number of days necessary to give Buyer this full five (5) day period). For
purpose of this Section 11.1.1, a taking or condemnation shall be "material" if
it results in a taking of more than twenty percent (20%) of the gross square
footage of the Real Property or the gross number of square feet in the building
located on the Real Property. If Buyer does not deliver to Seller a termination
notice within the five (5) day period, Close of Escrow shall take place as
provided in this Section 11.1.1 with a credit against the Purchase Price in an
amount equal to any condemnation awards actually received by Seller on account
of such occurrence, If the transaction contemplated by this Agreement is not
consummated due to such an event of condemnation, (i) any condemnation award
received as a result thereof shall be the sole property of Seller and (ii) the
Deposit shall be disbursed to Buyer.
11.1.2 NONMATERIAL CONDEMNATION. If prior to Close of Escrow
a nonmaterial taking or condemnation of the Real Property has occurred, Close of
Escrow shall take place as provided in this Agreement with a credit against the
Purchase Price equal to any condemnation award actually received by Seller due
to the taking.
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11.2 CASUALTY.
11.2.1 MATERIAL CASUALTY. If prior to Close of Escrow the
Real Property is materially damaged or destroyed by fire or other casualty,
Buyer, at its option, may terminate this Agreement within five (5) days after
notice of such event (and, if necessary, Close of Escrow shall be extended by
the number of days necessary to give Buyer this full five (5) day period). For
purposes of this Section 11.2.1, the Real Property shall be deemed "materially"
damaged or destroyed if the cost of repairing or restoring the Real Property is
in excess of Sixty-Five Thousand Dollars ($65,000.00). If Buyer does not deliver
to Seller a termination notice within the five (5) day period, Close of Escrow
shall take place as provided in this Section 11.2.1 with a credit against the
Purchase Price in an amount equal to the cost of repairing or restoring the Real
Property, as reasonably determined by Seller; provided, however, in no event
shall Buyer be entitled to a credit to the Purchase Price under this Section
11.2.1 in excess of Sixty-Five Thousand Dollars ($65,000.00). If the transaction
contemplated by this Agreement is not consummated due to such casualty, then the
Deposit shall be disbursed to Buyer.
11.2.2 NONMATERIAL CASUALTY. If prior to Close of Escrow the
Real Property is damaged or destroyed by fire or other casualty which is not
governed by Section 11.2.1, Close of Escrow shall take place as provided in this
Agreement with a credit against the Purchase Price equal to the cost of
repairing or restoring the Real Property, as reasonably determined by Seller;
provided, however, in no event shall Buyer be entitled to a credit to the
Purchase Price under this Section 11.2.2 in excess of Sixty-Five Thousand
Dollars ($65,000.00).
12. REPRESENTATIONS AND WARRANTIES.
12.1 BUYER. Buyer represents and warrants to Seller, which
representations and warranties shall survive the execution of this Agreement and
Close of Escrow, the following:
12.1.1 BINDING. This Agreement constitutes a valid and
legally binding obligation of Buyer, enforceable in accordance with its terms.
12.1.2 AUTHORITY. Buyer has the full power and authority to
execute and deliver and fully perform its obligations under this Agreement.
12.1.3 NO BANKRUPTCY. Buyer has not made (i) a general
assignment for the benefit of creditors; (ii) filed any voluntary petition in
bankruptcy or suffered the filing of an involuntary petition by Buyer's
creditors; (iii) suffered the appointment of a receiver to take possession of
all or substantially all of Buyer's assets; (iv) suffered the attachment
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or other judicial seizure of all, or substantially all, of Buyer's assets; (v)
admitted in writing its inability to pay its debts as they become due; or (vi)
made an offer of settlement, extension or composition to its creditors
generally.
12.2 SELLER. Seller represents and warrants to Buyer, which
representations and warranties shall survive the execution of this Agreement and
Close of Escrow, the following:
12.2.1 BINDING. This Agreement constitutes a valid and
legally binding obligation of Seller, enforceable in accordance with its terms.
12.2.2 AUTHORITY. Seller has the full power and authority to
execute and deliver and fully perform its obligations under this Agreement.
12.2.3 ENVIRONMENTAL MATTERS. As of the Effective Date, to
the Actual Knowledge of Seller and except as set forth in the Due Diligence
Materials, (i) since the date of Seller's acquisition of the Real Property, no
Hazardous Substances are now or have been used or stored on the Property except
those Hazardous Substances which are or which have been used or stored on the
Real Property in the normal course of use and operation of the Real Property and
in compliance with all applicable Environmental Laws; (ii) since the date of
Seller's acquisition of the Real Property, there are and have been no federal,
state or local enforcement, clean-up, removal, remedial or other governmental or
regulatory actions instituted or completed affecting the Real Property; and
(iii) no claims have bean made by any third party against Seller relating to any
Hazardous Substances on or within the Real Property.
13. MISCELLANEOUS.
13.1 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
heirs, executors, administrators, and successors and assigns of Seller and
Buyer; provided, however, Buyer shall not assign any or all of Buyer's rights
and obligations hereunder to any party without the prior written consent of
Seller, which consent Seller shall have the right to withhold in its sole
discretion. Any such assignment in violation of this provision shall be void.
If Seller consents to an assignment, the assignment will not be effective
against Seller until Buyer delivers to Seller a fully executed copy of the
assignment instrument, which instrument must be satisfactory to Seller in both
form and substance and pursuant to which the assignee assumes and agrees to
perform for the benefit of Seller the obligations of Buyer under this Agreement,
and pursuant to which the assignee makes the warranties and representations
required of Buyer under this Agreement.
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13.2 ENTIRE AGREEMENT. This Agreement contains all of the covenants,
conditions and agreements between the parties and shall supersede all prior
correspondence, agreements and understandings, both oral and written.
13.3 ATTORNEYS' FEES. Should either party employ attorneys to enforce
any of the provisions hereof or to protect its interest in any manner arising
under this Agreement, or to recover damages for breach of this Agreement, or to
enforce any judgment relating to this Agreement and the transaction contemplated
hereby, the prevailing party shall be entitled to attorneys' fees and court
costs.
13.4 WAIVER OF TRIAL BY JURY. Each of Seller and Buyer hereby waives
its rights to a trial by jury as to any matter arising out of or concerning the
subject matter of this Agreement.
13.5 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California.
13.6 FURTHER ASSURANCES. Seller or Buyer shall promptly perform,
execute and deliver or cause to be performed, executed and/or delivered at or
after Close of Escrow any and all acts, deeds and assurances as either party or
Escrow Holder may reasonably require in order to carry out the intent and
purpose of this Agreement.
13.7 SEVERABILITY. In case any one or more of the provisions
contained in this Agreement for any reason is held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision hereof, and this Agreement shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
13.8 NOTICES. All Notices required or permitted hereunder shall be in
writing, and shall be personally delivered or sent by registered or certified
mail, postage prepaid, return receipt requested, national overnight courier
service or facsimile to the addresses stated above. Notices and other
communications shall be deemed received upon the earlier of (i) if personally
delivered, the date of delivery to the address of the person to receive such
notice, (ii) if mailed, three (3) business days after the posting by the United
States Post office, (iii) if sent by national overnight courier service, one (1)
business day after delivery to such courier service, or (iv) if given by
facsimile, when sent and receipt is confirmed. Any notice, request, demand,
direction or other communication sent by facsimile must be confirmed within
twenty-four (24) hours by a letter mailed or delivered in accordance with the
foregoing.
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l3.9 COUNTERPARTS. This Agreement may be executed in one (1) or more
counterparts, and all of the counterparts shall constitute but one and the same
agreement notwithstanding that all parties hereto are not signatory to the same
or original counterpart.
13.10 TIME. Time is of the essence of every provision herein
contained.
13.11 NONWAIVER. Unless otherwise expressly provided herein, no
waiver by a party of any provision hereof shall be deemed to have been made
unless expressed in writing and signed by the party waiving the provision. No
delay or omission in the exercise of any right or remedy accruing to a party
upon any breach under this Agreement shall impair such right or remedy or be
construed as a waiver of any such breach theretofore or thereafter occurring.
The waiver by a party of any breach of any term, covenant or condition herein
stated shall not be deemed to be a waiver of any other term, covenant or
condition. All rights or remedies afforded to a party hereunder or by law shall
be cumulative and not alternative, and the exercise of one right or remedy shall
not bar other rights or remedies allowed herein or by law.
13.12 CAPTIONS. Section titles or captions contained herein are
inserted as a matter of convenience and for reference, and in no way define,
limit, extend or describe the scope of this Agreement.
13.13 SURVIVAL. Except as expressly set forth in this Agreement,
upon Close of Escrow, each of the terms, covenants and conditions of this
Agreement shall be deemed to have merged into the Deed.
13.14 EXHIBITS. All exhibits attached hereto shall be
incorporated herein by reference as if set out herein in full.
13.15 CONSTRUCTION. The parties acknowledge that each party and
its counsel have reviewed and revised this Agreement and that the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement or
any amendment or exhibits hereto.
13.16 CONFIDENTIALITY. Buyer and Seller agree to keep
confidential, and not publicly disclose, the existence and/or terms of this
Agreement and the transaction contemplated hereby or the results, contents or
analysis of the Buyer Inspections of the Property; provided, however, that both
Seller and Buyer may disclose the existence and terms of this Agreement and the
Buyer Inspections to: (i) Buyer's and Seller's respective consultants, agents,
architects, independent contractors, attorneys or surveyors associated with the
purchase and sale of the Property,
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(ii) any third party to whom the non-disclosing party to this Agreement has
given its prior written consent for such a disclosure, or (iii) governmental,
administrative, regulatory or judicial authorities in the investigation of the
compliance of the Property with applicable legal requirements. However, Buyer
expressly covenants and agrees that it will not disclose any code compliance,
environmental or other regulatory matters to governmental or other authorities
without the express prior written approval of Seller. The provisions of this
Section 13,16 shall survive the termination of this Agreement other than by
Close of Escrow.
13.17 NOT OFFER. The submission of this Agreement to Buyer shall
not constitute an offer and neither Buyer nor Seller shall be obligated to
purchase or sell the Property until this Agreement is executed by Buyer and
Seller. Prior to execution of this Agreement by Buyer and Seller, Seller
expressly reserves the right to negotiate with other prospective buyers of the
Property or to decline to sell or dispose of the Property without penalty or any
obligation to Buyer.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement in one
or more counterparts, on the date(s) set forth below, effective as of the
Effective Date.
Seller:
WELLS FARGO BANK, N.A. a national
banking association
By: /s/ David Danis
------------------------
Name: David Danis
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Its: VP
----------------
Date: 10/2 ,1996
------
Buyer:
FEATHER RIVER STATE BANK
By:
------------------------
Name: Robert J, Mulder
----------------
Its: President / CEO
----------------
Date: September 23,1996
------------
By:
------------------------
Name:
----------------
Its:
----------------
Date: ,1996
------------
22.
<PAGE>
EXHIBIT A
-----------
Real Property
[attached]
EXHIBIT A
---------
<PAGE>
Order No.: 104113 Update
LEGAL DESCRIPTION
EXHIBIT "A"
All that certain real property situate in the city of Yuba City County of
Sutter, State of California, being more particularly described as follows:
Parcel 1, as shown on Parcel Map No. 872 recorded May 15, 1992 in Book 5 of
Parcel Maps, page 82, Sutter County Records.
EXCEPTING THEREFROM 50% of all oil, mineral, geothermal and similar rights,
reserved in deed from Del Monte Corporation, dated May 31, 1979 and recorded
June 8, 1979 in Book 960, page 106. Said rights were deeded by Quitclaim Deed
to RJR Nabisco Realty Inc., a Delaware corporation recorded January 17, 1990 in
Book 1333, page 108.
End of Legal
Page 5
<PAGE>
EXHIBIT B
---------
RECORDING REQUESTED BY, FOR RECORDER'S USE ONLY:
AND WHEN RECORDED, MAIL TO:
- ------------------------------ APN:
- ------------------------------ Transfer Tax: See
- ------------------------------ separate statement not
Attention:-------------------- for public record.
- --------------------------------------------------------------------------------
GRANT DEED
----------
FOR VALUABLE CONSIDERATION, receipt of which is hereby acknowledged,
WELLS FARGO BANK, N.A., a national banking association, grants, transfers and
assigns to __________________________, a ______________________________, all
that certain real property located in the City of ___________________________
and County of___________________________, State of California, and which
is more particularly described in SCHEDULE 1, attached hereto and incorporated
herein by this reference.
IN WITNESS WHEREOF, this Grant Deed has been executed
this _____ day of ______ 19__
WELLS FARGO BANK, N.A.
a national banking association
By:
-------------------------------
Its:
------------------------------
MAIL ALL TAX STATEMENTS TO:
---------------------------
---------------------------
---------------------------
Attention:
-----------------
EXHIBIT B
---------
<PAGE>
EXHIBIT C
---------
1. The asbestos survey prepared by Versar Inc. and dated November 1, 1990.
2. The Phase I report prepared by Krazan & Associates, Inc, and dated August
15, 1994.
3. Site Plan.
4. Floor Plan.
5. The roof report prepared by Sullivan Group Roofing Division dated March
1992.
6. The HVAC report prepared by CalAir and dated June 1995.
EXHIBIT C
----------
<PAGE>
MONTH TO MONTH LEASE AGREEMENT
This Lease Agreement (the "Lease") is made as of OCTOBER 1, 1996, by and
between PROFESSIONAL EXECUTIVE CENTER, INC., a California corporation
("Landlord") and FEATHER RIVER STATE BANK ("Tenant"), who agree as follows:
PREMISES. Landlord leases to Tenant and Tenant leases from Landlord, upon
the terms and conditions of the Lease, approximately 168 square feet of office
space, designated as Suite 4 (the "Premises"), in the office building at 2140
Professional Drive, Suite 200, Roseville, California (the "Building").
Concurrently with the Lease, Landlord and Tenant have entered into an Executive
Services Agreement (the "Services Agreement") in conjunction with Tenant's use
of the Premises.
2. TERM: POSSESSION. The term of the Lease (the "Term") is from month
to month commencing on October 1, 1996. This Agreement will be terminated upon
thirty (30) days written notice. The term will be concurrent with the term of
the Lease, and this Agreement will terminate on any termination of the Lease.
3. RENT. Tenant will pay to Landlord, without offset, deduction, prior
notice or demand, the sum of $405.00 per month as rent ("Rent") for the
Premises. Rent for the first month of the Lease is payable in advance upon
execution of the Lease. Thereafter, Rent is payable in advance on the first day
of each calendar month during the Term. Rent for any partial month at the
beginning or end of the Term will be prorated on the basis of 30-day months.
4. LATE CHARGE. The parties agree that in the event Tenant fails to make
any rental payment within ten days of the due date, it will be impracticable and
extremely difficult to fix the actual damage to Landlord. Therefore, the
parties agree that Tenant will pay to Landlord an additional amount equal to ten
percent (10%) of the overdue amount if Rent is not received within ten days of
the due date. These late charges will be in addition to any other remedies
available to Landlord under the Lease or by Law.
5. SECURITY DEPOSIT. As additional consideration for Lease and Services
Agreement execution by Landlord, Tenant has paid to Landlord the sum of $300.00
(the "Security Deposit") as security for the performance of Tenant's
obligations. If Tenant defaults in the performance of any of the Tenant's
obligations under the Lease of the Services Agreement, Landlord may use all or
any part of the Security Deposit to compensate Landlord for any loss or damage
which Landlord may suffer by reason of Tenant's default. Upon receipt of notice
from Landlord that any portion of the Security Deposit has been so used, Tenant
will deposit sufficient funds with Landlord to restore the Security Deposit to
its original amount; Tenant's failure to do so will be a breach of the Lease and
the Services Agreement. Landlord is not required to keep the Security Deposit
separate from Landlord's general funds, and Tenant is not entitled to interest
on the Security Deposit. At the end of the Term, any portion of the Security
Deposit remaining will be returned to Tenant.
6. USE OF PREMISES. Tenant will use the Premises for general office
purposes and for no other business or purpose without the prior written consent
of Landlord. Tenant will comply with all existing and future laws, ordinances,
rules and regulations relating to Tenant's use or occupancy of the Premises, and
Tenant will observe the Building Rules defined in paragraph 17 (Rules and
Regulations). Tenant will not conduct any activities or keep any materials or
substances in the Premises which will impair, invalidate or increase the
premiums on Landlord's insurance policies. Should Tenant, through the nature of
his business, cause the Landlord's insurance rate to increase, Tenant will be
responsible for that rate increase.
7. ALTERATIONS. Tenant will not make any alterations to or install any
fixtures in (collectively "Alterations") the Premises without Landlord's prior
written consent. Any Alterations made by Tenant with Landlord's consent will be
done by contractors approved by Landlord in accordance with the written
specifications of Landlord and will become the property of Landlord.
8. MAINTENANCE AND REPAIR.
A. Landlord will provide janitorial services to the Premises
pursuant to the Services Agreement.
B. By taking possession of the Premises, Tenant agrees that the
Premises are then in good and tenantable condition. During the Term, Tenant
will keep the Premises in good condition, ordinary wear and tear expected.
C. Landlord will keep the structural portions of the Building in
good condition; provided that Tenant will pay the cost of repairs for damage
caused by Tenant or Tenant's employees, agents or invitees.
D. Tenant shall be responsible for glass breakage in his Suite.
E. Landlord reserves the right to make repairs or alterations to any
part of the Building or the Premises at any time without Landlord's action
constituting a constructive eviction of Tenant.
9. TRADE FIXTURES. Subject to the provisions of paragraphs 6 (Use of
Premises) and 7 (Alterations), Tenant may keep furnishings, equipment and other
trade fixtures ("Trade Fixtures") in the Premises as long as the Trade Fixtures
do not become an integral part of the Premises or the Building. If Tenant is
not then in default under the Lease, Tenant may remove any of its Trade Fixtures
at any time during the Term or upon termination of the Lease.
10. UTILITIES AND SERVICES. Landlord will provide certain utilities and
services to Tenant and to the Premises pursuant to the Services Agreement.
Tenant will arrange for installation of N/A separate telephone line(s) for
Tenant and for connection of Tenant's telephone line(s) to Landlord's
switchboard. Tenant will be responsible for all charges for installation and
use of its telephone payments.
11. PERSONAL PROPERTY TAXES. Tenant will pay in a timely manner all taxes
or other charges assessed against Tenant's personal property located in the
Premises. On demand by Landlord, Tenant will furnish Landlord with satisfactory
evidence of these payments.
12. INDEMNITY AND INSURANCE.
A. Indemnity. Tenant will indemnify and hold Landlord harmless from
all claims and damages arising out of Tenant's use or occupancy of the Premises.
Tenant's obligation under this paragraph will be offset by any insurance
proceeds received by Landlord.
B. Liability Insurance. At all times during the Term, Tenant will
maintain at its expense liability insurance with insurance companies approved by
Landlord with single combined liability limits of not less than ONE MILLION
DOLLARS ($1,000,000.00) insuring Tenant and Landlord against liability for
injury to persons and property and death of any person arising out of Tenant's
use or occupancy of the Premises. Landlord shall be added as a named insured
under liability policy.
C. Fire and Other Insurance. At all times during the Term, Tenant
will maintain at its expense standard fire insurance and extended coverage
insurance, with vandalism and malicious mischief endorsements, in an amount
sufficient to cover all losses, insuring Tenant and Landlord for damage to or
loss of Tenant's Trade Fixtures located on the Premises. Landlord will maintain
fire insurance coverage on the Building, but Landlord will not obtain insurance
of any kind on Tenant's Trade Fixtures.
13. DAMAGE OR DESTRUCTION. If any part of the Premises or the Building is
destroyed, Landlord may; (a) terminate the Lease; or (b) continue the Lease and
repair or rebuild the Premises or the Building; provided that Tenant may
terminate the Lease upon giving Landlord written notice within ten days after
the damage or destruction if the Premises cannot be made tenantable within sixty
days. If it is necessary for Landlord to occupy the Premises in order to
accomplish the repair or reconstruction, Rent will abate during the time
Landlord occupies the Premises.
14. CONDEMNATION. If any part of the Premises or the Building is taken as
a result of condemnation proceeds, and either Landlord or Tenant may terminate
the Lease upon thirty days written notice to the other.
15. LANDLORD'S RIGHT TO ENTER PREMISES. Landlord and its authorized
representatives have the right to enter the Premises at any reasonable time for
any reasonable purpose.
16. ASSIGNMENT AND SUBLETTING. Tenant will not do any of the following
without the prior written consent of Landlord, and any such action by Tenant
will be voidable by Landlord and will constitute a default under the Lease:
A. Assign or encumber Tenant's interest in the Lease or the
Premises;
B. Sublease all or any part of the Premises; or
C. Allow any other person to occupy or use all or any part of the
Premises.
17. RULES AND REGULATIONS. Tenant and Tenant's employees, agents and
invitees will comply with the existing rules and regulations regarding use and
occupancy of the Premises and the Building, a copy of which is attached hereto
as Exhibit B, and with all reasonable rules and regulations which Landlord may
adopt hereafter (collectively the "Building Rules"). Any violation of the
Building Rules by Tenant or by Tenant's employees, agents or invitees will
constitute a default under the Lease.
18. ABANDONMENT. Tenant will occupy the Premises continuously except for
normal vacation periods. Tenant's absence from the Premises for more than one
week may be deemed in abandonment of the Premises at the option of Landlord if
Rent is delinquent during any part of that time.
19. TENANT'S DEFAULTS. Tenant will be in default under the Lease if any
of the following occurs:
A. Tenant fails to pay any sum called for by the Lease or the
Services Agreement and such sum remains unpaid for more than ten days;
B. Tenant denies any other Tenant of the Building, or makes it
difficult for Landlord to provide to any other Tenant of the Building, the quiet
enjoyment of the other Tenant's Premises; or
C. Tenant fails to perform any of its other obligations under the
Lease and the failure continues for fifteen days after Landlord gives written
notice to Tenant specifying the particulars of the default.
20. LANDLORD'S REMEDIES.
A. Landlord's Options. If Tenant is in default under the Lease,
then in addition to any other rights provided by the Lease or by law, Landlord
has the option to do any of the following:
(1) Terminate the Lease by giving Tenant notice of termination;
(2) Without terminating the Lease, relet all or any part of the
Premises for Tenant's account or otherwise;
(3) After reletting the Premises, elect to terminate the Lease
at any time thereafter by giving Tenant notice of termination; or
(4) Cure the default at Tenant's cost.
B. Tenant's Duty to Vacate Premises. Upon Tenant's receipt of
notice of termination, all of Tenant's rights in the Premises will terminate,
and Tenant will promptly thereafter surrender and vacate the Premises.
Termination under this provision will not relieve Tenant of the obligation to
pay all sums then due or of liability for damages.
C. Reletting by Landlord. Tenant hereby appoints Landlord as
Tenant's attorney-in-fact for the purpose of reletting the Premises.
Landlord is entitled to all rents from any reletting of the Premises for
Tenant's account, and Tenant will pay the following amounts on the due date
specified in the Lease:
(1) All sums Tenant is required to pay under the Lease; plus
(2) Landlord's expenses of reletting including but not limited
to remodeling expenses, commissions and advertising costs; minus
(3) Rents received from reletting.
D. Reimbursement of Landlord. If Landlord pays any sums as a result
of Tenant's default, Tenant will immediately reimburse Landlord, and any unpaid
portion will bear interest at the maximum rate allowed by law from the date the
sum is paid by Landlord until Landlord is reimbursed by Tenant.
21. CALCULATION OF DAMAGES.
A. Termination of Lease. If Landlord terminates the Lease under
paragraph 20A(1) or 20A(3), Landlord is entitled to recover from Tenant as
damages:
(1) The value of the unpaid rent earned at the time of
termination of the Lease;
(2) The value of the unpaid rent for the remainder of the Term
reduced by any loss of Rent that Tenant proves could have been reasonably
avoided; and
(3) Any other amounts necessary to compensate Landlord for all
detriment proximately caused by Tenant's default including without limitation
court costs of alterations and commissions in connection with reletting.
<PAGE>
B. Interest to Time of Award. The value of the unpaid rent accrued
up to the time of the award will be [text unreadable] rate allowed by law.
C. Present Value of Future Rent. The present value of the future
rent after the time of the award will be computed using the discount rate of the
Federal Reserve Bank of San Francisco at the time of the award plus one percent
(1%).
22. NONLIABILITY OF LANDLORD.
A. Nonliability. Landlord is not liable to Tenant for any damage to
Tenant or Tenant's property for any disruption of Tenant's business, or for any
inconvenience or temporary impairment of the enjoyment of the Premises by the
Tenant, resulting from any of the following:
(1) Leaky plumbing, gas, water, steam, electrical, heating,
cooling, ventilating or air-conditioning facilities or conduits except that
Landlord agrees to take reasonable steps to correct any such condition upon
receipt of written notice for Tenant;
(2) Damage to or destruction of the Premises or the Building;
(3) Disrepair or faulty construction of the Building;
(4) Acts of Landlord or Landlord's employees, agents or invitees
in repairing or remodeling any portion of the Premises or the Building;
(5) Acts of other Tenants in the Building or their employees,
agents or invitees;
(6) Landlord's exercise of its right to enter the Premises as
described in paragraph 15 (Landlord's Right to Enter Premises); or
(7) Any trespass or public offense committed in or around the
Premises or the Building.
B. Rent Abatement. Except as described in paragraph 13 (Damage or
Destruction), Rent will not abate in any of the circumstances described in
paragraph 22A.
23. HOLDING OVER. If Tenant holds over after expiration of the Term with
the consent of Landlord, either express or implied, such holding over will
create only a month-to-month tenancy. The month-to-month tenancy will be
subject to all the terms and conditions of the Lease, except that Tenant will
pay Landlord as monthly rent 110% of Rent in effect upon expiration of the
Term.
24. QUIET POSSESSION. Upon paying the Rent and performing its other
obligation under the Lease, Tenant will have quiet possession of the Premises
throughout the Term. Landlord warrants to Tenant that as of the commencement of
the Term, there will be no existing tenancies on the Premises.
25. RECOVERY OF EXPENSES. In the event that any action is brought by
either party for enforcement of the Lease, the prevailing party will be entitled
to recover its expenses of enforcement including without limitation reasonable
attorney's fees.
26. NOTICES. Any notice to be given to a party to the Lease will be in
writing and will be delivered to the party personally or mailed by first class
United States mail, postage prepaid, addressed to the party as follows:
<TABLE>
<CAPTION>
<S> <C>
LANDLORD: PROFESSIONAL EXECUTIVE CENTER, INC. TENANT:
Attn: Sarah L. Ragan, Financial Officer Feather River State Bank
2140 Professional Drive, Suite 200 ---------------------------------------
Roseville, CA 95661 Real Estate Loan Production Dept.
---------------------------------------
1005 Stafford Way
---------------------------------------
Yuba City, CA 95991
---------------------------------------
</TABLE>
Either party may designate a different address for notice purposes by sending
written notice to the other party. Notices will be effective when received.
Any notice sent by firstclass mail will be deemed received seventy-two hours
after mailing.
27. WAIVER. No waiver of any breach of any of the terms or conditions of
the Lease will be construed as a waiver of any succeeding breach of the same or
other terms or conditions hereof. No waiver will be binding unless executed in
writing by the party making the waiver.
28. BINDING EFFECT. Subject to the restrictions on assignment and
subletting, each of the terms and conditions of the Lease will be binding on and
will insure to the benefit of the heirs, successors and assigns of Landlord and
Tenant.
29. HEADINGS. Paragraph titles of the Lease are included for convenient
reference only and will nave no affect on the Lease interpretation.
30. ENTIRE AGREEMENT. The Lease constitutes the entire agreement between
the parties regarding the matters covered by the Lease, and there are no terms
or representations that are not expressed here in.
31. ESTOPPEL CERTIFICATE. If no connection with any transaction
contemplated by Landlord, an offset statement is required from Tenant certifying
certain information in connection with the Lease, Tenant agrees to deliver such
offset statement within ten days after Tenant receives written request therefore
certifying all requested information that is in fact true. In the event Tenant
fails to deliver such offset statement within the 10-day period, it will be
presumed that the Lease is in full force and effect, that Tenant has no defenses
or offsets against Landlord, and that the other information contained in the
requested statement is correct.
32. LANDLORD'S RIGHT TO SELL. Landlord has the right to sell its interest
in the Building and assign its interest in the Lease without limitation;
provided that any sale will be subject to the Lease. Upon any sale, Landlord
will automatically be relieved of any further obligation under the Lease.
<TABLE>
<CAPTION>
<S> <C>
CORPORATION: PROFESSIONAL EXECUTIVE CENTER, INC. EXECUTIVE: /s/ signature unreadable
-------------------------------------
By: Executive Vice President
---------------------------------- -------------------------------------
SARAH L. RAGAN
-------------------------------------
</TABLE>
<PAGE>
EXECUTIVE SERVICES MONTH TO MONTH AGREEMENT
This Agreement is made as of OCTOBER 1, 1996, by and between PROFESSIONAL
EXECUTIVE CENTER, INC., a California corporation ("Corporation") and FEATHER
RIVER STATE BANK, ("Executive"), who agree as follows:
1. BACKGROUND. Concurrently with this Agreement, Corporation and
Executive have entered into a Lease Agreement (the "Lease") with respect to
space (the "Premises") within the office building at 2140 Professional Drive,
Suite 200, Roseville, California (the "Building"). On the terms and conditions
described in this Agreement, Corporation will provide certain services to
Executive and to the Premises in conjunction with Executive's use of the
Premises under the Lease.
2. TERM. The term of this Agreement (the "Term") is from month to month
commencing on OCTOBER 1, 1996. This Agreement will be terminated upon thirty
(30) days written notice. The term will be concurrent with the term of the
Lease, and this Agreement will terminate on any termination of the Lease.
3. NORMAL BUSINESS HOURS. Corporation will provide certain services
during "normal business hours." For the purposes of this Agreement "normal
business hours" means Monday through Friday, 8 a.m. to 5 p.m., excluding
holidays. At the beginning of each year, Corporation will provide Executive
with a schedule holidays to be observed by the Corporation.
4. BASIC SERVICE. The following services will be provided to Executive
and to the Premises for the Basic Fee set forth in paragraph 6:
A. Receptionist service during normal business hours.
B. Telephone answering service during normal business hours as
follows:
N/A (1) Answering and taking messages when Executive is
unavailable.
N/A (2) Screening all calls and taking messages as
requested by Executive.
C. 2 hours per WEEK of conference room use. Conference room use
will be scheduled on a "first-come, firstserve" basis. Conference
room use scheduled but not used will be counted as conference room
use if not canceled at least two hours before scheduled time.
D. Janitorial Service I. Use of waiting areas for clients or
customers.
E. Mail Distribution J. Use of kitchen/lounge area.
F. 2 Keys to the Building K. Beverage Service to include coffee
tea.
G. 2 Keys to the Premises
H. Utilities to include electricity, heating, air-conditioning and
ventilation.
5. ADDITIONAL SERVICES. The following services will be provided to
Executive for the Additional Fees set forth in paragraph 6:
A. Secretarial services during normal business hours.
B. Word processing services during normal business hours.
C. Notary public services by appointment.
D. Package Handling.
E. Copy Machine use.
F. Telefax machine use.
G. Directory board listing.
H. N/A additional keys to the Building.
I. N/A additional keys to the Premises.
6. FEES. Executive will pay to Corporate, without offset, deduction,
prior to notice or demand, the following:
A. Basic Fee. The Basic Fee for the Services described in paragraph
4 is $235.00 per month. There is an additional monthly fee of $N/A per
telephone for equipment rental and a one-time $N/A charge for installing
telephone lines with telephone system.
B. Additional Fees. The Additional Fees for the services described
in paragraph 5 are set forth in the Fee Schedule attached as Schedule A.
C. Payment of Basic Fee. The Basic Fee for the first month of this
Agreement is payable in advance upon execution of this Agreement. Thereafter,
the Basic Fee is payable in advance on the first day of each calendar month
during the Term. The Basic Fee for any partial month at the beginning or end of
the Term will be prorated on the basis of a 30-day month.
D. Payment of Additional Fees. Corporation will bill Executive for
any Additional Fees incurred each month and Executive will pay such Additional
Fees within ten days after receiving such bill.
7. USE OF EQUIPMENT. Some services to be provided by Corporation allow
Executive or Executive's employees to use equipment provided by Corporation.
Executive and Executive's employees will use the equipment only in accordance
with the instructions of Corporation and will promptly report any problems with
the equipment to Corporation.
8. LIMITATION OF LIABILITY. As a part of the consideration to
Corporation for providing the services described in this Agreement, Executive
agrees that Corporation's liability for any claim by or damage to Executive or
any third party claiming through Executive with respect to services provided by
Corporation will be limited to the amounts paid by Executive for such services
and will not include consequential damage.
9. LATE CHARGE. The parties agree that in the event Executive fails to
make any payment due under this Agreement within ten days of the due date, it
will be impracticable and extremely difficult to fix the actual damages to
Corporation. Therefore, the parties agree that Executive will pay to
Corporation and additional amount equal to ten percent (10%) of the overdue
payment if the payment is not received within ten days of the due date. These
late charges will be in addition to any other remedies available to Corporation
under this Agreement or by law.
10. DEFAULT AND REMEDIES. If Executive is in default in the performance
of Executive's obligations under this Agreement or the Lease for more than ten
days, then, in addition to recovering damages from Executive and asserting any
other rights and remedies provided by this Agreement or by law, Corporation may
use all or any part of the Security Deposit under the Lease to compensate
Corporation for any loss or damage which Corporation may suffer as a result of
Executive's default, and Corporation has the option:
A. Terminate this Agreement and the Lease in the manner provided in
the Lease; or
B. Terminate this Agreement and pursue any of Corporation's remedies
under the Lease.
11. RECOVERY OF EXPENSES. In the event that any action is brought by
either party for enforcement of this Agreement, the prevailing party shall be
entitled to recover its expenses of enforcement including without limitation
reasonable attorney's fees.
12. NOTICES. Any notice to be given to a party to this Agreement shall be
in writing and shall be delivered to the party personally or mailed by first
class United States mail, postage prepaid, addressed to the party as follows:
<TABLE>
<CAPTION>
<S> <C>
CORPORATION: PROFESSIONAL EXECUTIVE CENTER, INC., EXECUTIVE Feather River State Bank
ATTN: Sarah Ragan -------------------------------------
2140 Professional Drive, Suite 200 Real Estate Loan Production Dept.
Roseville, CA 95661 -------------------------------------
1005 Stafford Way
-------------------------------------
Yuba City, CA 95991
-------------------------------------
</TABLE>
Either party may designate a different address for notice purposes by
sending written notice to the other party. Notices shall be effective when
received. Any notice sent by first-class mail shall be deemed received
seventy-two hours after mailing.
13. WAIVER. No waiver of any breach of any of the terms or conditions of
this Agreement shall be construed as a waiver of any succeeding breach of the
same or other terms or conditions hereof. No waiver shall be binding unless
executed in writing by the party making the waiver.
14. HEADINGS. Paragraph titles of the Lease are included for convenient
reference only and shall have no effect on the Lease interpretation.
15. ENTIRE AGREEMENT. The Lease constitutes the entire agreement between
the parties regarding the matters covered by the Lease, and there are no terms
or representations that are not expressed herein.
<TABLE>
<CAPTION>
<S> <C>
CORPORATION: PROFESSIONAL EXECUTIVE CENTER, INC., EXECUTIVE
a California Corporation --------------------------
By By /s/ [illegible]
------------------------- -----------------------------
SARAH L. RAGAN, Manager By Executive Vice President
-----------------------------
</TABLE>
<PAGE>
RULES AND REGULATIONS OF PROFESSIONAL EXECUTIVE CENTER, INC.
The Rules and Regulations described below apply to Tenants leasing
office space in the building located at 2140 Professional Drive, Roseville,
California (The "Building"). Professional Executive Center, Inc., ("Landlord")
reserves the right to rescind, altar or waive any Rule or Regulation at any time
by written notice to Tenant, if in the Landlord's judgement, it is in the best
interests of the Building and its Tenants.
1. SIGN AND ADVERTISING. Tenant will not display any sign, name or
notice ("advertisement") on any part of the inside or outside of the Building
without Landlord's prior written consent, and Landlord has the right to remove
any such advertisement without notice to and at the expense of Tenant. Without
Landlord's prior written consent, Tenant will not use the name of the Building
in connection with Tenant's business except as Tenant's business address.
2. INGRESS AND EGRESS. Tenant will not obstruct the sidewalks,
hallways, passageways, entrances or exits or use them for any purpose other than
ingress and egress. Landlord has the right to prevent access to the Building by
any person whose presence, in the Landlord's judgement, would prejudice the
safety, character, reputation or interest of the Building and its Tenants.
3. LOCKS. Tenant will not altar any lock or bolt or install any new
locks or bolts in the Premises or the Building without the prior written consent
of Landlord. All keys to offices, rooms and restrooms will be obtained from
Landlord, and Tenant will not duplicate or obtain keys without Landlord's
consent. Upon termination of the tenancy, Tenant will return all keys to
Landlord. If Tenant fails to return any key, Tenant will reimburse Landlord for
the cost of replacing they key or changing the locks opened by the key if
Landlord deems it advisable to make such change.
4. RESTROOMS. Tenant will use the restrooms only for those purposes
for which they were constructed, and Tenant will not throw any kind of foreign
substance of any kind therein. Tenant will pay the cost of any breakage,
stoppage or damage resulting from violation of this Rule.
5. ALTERATION. Landlord will provide window coverings which will
not be removed or replaced. Tenant will not do any of the following without
Landlord's prior written consent: (a) lay linoleum or other floor coverings;
(b) mark on, place nails or screws in, or drill into walls, floors or ceilings;
(c) cut or string wires; or (d) deface Premises or the Building in any way.
6. FURNITURE AND EQUIPMENT. Tenant will not bring any furniture or
equipment into the Building without Landlord's prior written consent, and all
moving of furniture and equipment will be done at the time and in the manner
that Landlord designates. Any handtrucks use in the Building must be equipped
with rubber tires and side guards. Tenant will not overload the floor, and
Landlord has the right to prescribe the weight, size and placement of all safes
and other heavy equipment. If Landlord considers it advisable, all safes or
other heavy equipment will be placed on wood strips which will properly
distribute the weight. Landlord is not responsible for loss of or damage to
Tenant's property from any cause. Tenant is responsible for the cost of moving,
maintaining or repairing Tenant's property.
7. QUIET POSSESSION. Tenant will not disturb the occupants of the
Building or neighboring buildings or persons having business with them whether
by the use of any musical instrument, radio, stereo or in any other way. Tenant
will not solicit or canvas any other Tenant or any persons visiting the
Building. Tenant will not use the Premises in any way which is offensive or
objectionable to Landlord or to other Tenant of the Building or neighboring
buildings. Landlord has the right to exclude or expel any person who, in
Landlord's judgement, is under the influence of alcohol or drugs, or who
violates any of these Rules and Regulations.
8. ODORS; ANIMALS; BICYCLES. Tenant will not keep or create any
noxious gas or inflammable substance on the premises. Smoking allowed only in
the Courtyard area. Tenant will not bring any animals, bicycles or vehicles
into the Premises or the Building.
9. COOKING; Portable Heaters and Fans. Tenant will not keep any
food or cook or use small kitchen appliances except within the designated
kitchen area. Tenant will not use or keep any portable heaters or fans on the
Premises. Tenant will not use or keep any portable heaters or fans on the
Premises.
10. USE OF PREMISES. Tenant will not use Premises for manufacturing
or for the storage of merchandise except as such storage may be incidental to
use of the Premises for general office purposes. Tenant will not use any
portion of the Premises for the manufacture of sale of liquor, narcotics or
tobacco in any form, or as a medical, barber or manicure office. Tenant will
not advertise for laborers giving any address in the Building. Tenant will not
use Premises for lodging or sleeping or for any illegal purposes.
11. LOCATION OF FIXTURES. The location of telephones, call boxes and
other equipment affixed to the Premises will be subject to the prior written
approval of Landlord.
12. SECURING BUILDING. Before leaving the Building after normal
business hours, Tenant will ensure that the doors of the Premises and the
Building are closed and securely locked and that all water faucets and
electricity are shut off, so as to prevent waste or damage. If tenant fails to
observe these Rules, Tenant will be responsible for any damage sustained by
Landlord or other Tenants.
13. FIRE AND SECURITY REGULATIONS. Tenant will comply with all fire
and security regulations that may be issued from time to time by Landlord, and
Tenant will provide Landlord with the name of a designated responsible person to
represent Tenant in all matters pertaining to such fire or security regulations.
14. COMPLIANCE BY OTHERS. Tenant will not permit any Tenant's
employees, agents or invitees to violate any of these Rules and Regulations, and
Tenant will cooperate to prevent Tenant's employees, agents and invitees from
doing so. Tenant will be responsible for any damage resulting from violation of
any of these Rules and Regulations by Tenant's employees, agents and invitees.
Tenant acknowledges receipt of a copy of these Rules and Regulations
on October 11, 1996
TENANT Feather River State Bank
-----------------------------
By /s/ signature unreadable
-----------------------------
By Executive Vice President
-----------------------------
<PAGE>
EXECUTIVE SALARY CONTINUATION AGREEMENT
THIS EXECUTIVE SALARY CONTINUATION AGREEMENT ("Agreement") is made and
entered into this 4th day of FEBRUARY 1997, by and between FEATHER RIVER STATE
BANK, a California banking corporation ("Bank"), and ROBERT J. MULDER (the
"Executive")
W I T N E S S E T H:
WHEREAS, the Executive is employed by the Bank as its President and Chief
Executive Officer; and
WHEREAS, the experience of the Executive, his knowledge of the affairs of
the Bank, and his reputation and contacts in the banking industry are so
valuable that assurance of his continued service is essential for the future
growth and profitability of the Bank and it is in the best interests of the Bank
to arrange terms of continued employment for the Executive so as to reasonably
assure his remaining in the Bank's employment during his lifetime or until the
age of retirement; and
WHEREAS, it is the desire of the Bank that the Executive's services be
retained as herein provided; and
WHEREAS, the Executive is willing to continue in the employ of the Bank
provided the Bank agrees to pay the Executive or his beneficiaries certain
benefits in accordance with the terms and conditions hereinafter set forth;
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NOW, THEREFORE, in consideration of the services to be performed in the
future as well as the mutual promises and covenants herein contained, it is
hereby agreed as follows:
ARTICLE l.
1.1. BENEFICIARY. The term Beneficiary shall mean the person or persons
whom the Executive shall designate in writing to receive the benefits provided
hereunder.
1.2. DISABILITY. The term disability shall mean the inability of the
Executive to perform the duties and responsibilities of his position with the
Bank in a normal and regular manner, due to mental or physical illness or
injury, for a period of ninety (90) consecutive days, or for fifty percent (50%)
or more of the normal working days during a period of one hundred eighty (180)
consecutive days. Determination of the Executive's disability shall be made by
the Bank's Board of Directors, which determination shall be made in its sole
discretion and shall be final and conclusive on all parties hereto. In the event
Executive is also a director of the Bank, the Executive shall be ineligible to
participate in such disability determination. Executive shall, if requested by
the Bank's Board of Directors, submit to a mental or physical examination to
assist the Board of Directors in making its determination of disability
hereunder.
1.3. NAMED FIDUCIARY AND PLAN ADMINISTRATOR. The Bank Fiduciary and Plan
Administrator of this plan shall be the Bank.
2
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1.4. CHANGE OF CONTROL. A "Change of Control" shall be deemed to have
occurred if (i) a tender offer shall be made and consummated for the ownership
of 25% or more of the outstanding voting securities of the Bank; (ii) the Bank
shall be merged or consolidated with another bank or corporation and as a result
of such merger or consolidation less than 75% of the outstanding voting
securities of the surviving or resulting bank or corporation shall be owned in
the aggregate by the former shareholders of the Bank, other than affiliates
(within the meaning of the Securities Exchange Act of 1934) of any party to such
merger or consolidation, as the same shall have existed immediately prior to
such merger or consolidation; (iii) the Bank shall sell substantially all of its
assets to another bank or corporation which is not a wholly-owned subsidiary; or
(iv) a person, within the meaning of Section 3 (a) (9) or of Section 13 (d) (3)
(as in effect on the date hereof) of the Securities Exchange Act of 1934, shall
require 25% or more of the outstanding voting securities of the Bank (whether
directly, indirectly, beneficially or of record) For purposes hereof, ownership
of voting securities shall take into account and shall include ownership as
determined by applying the provisions of Rule 13d-3(d)(1)(i) (as in effect on
the date hereof) pursuant to the Securities Exchange Act of 1934.
ARTICLE 2.
2.1. EMPLOYMENT. The Bank agrees to employ the Executive in such capacity
as the Bank may determine from time to time. The
3
<PAGE>
Executive shall continue in the employ of the Bank in such capacity and with
such duties and responsibilities as may be assigned to him, and with such
compensation as may be determined from time to time by the Board of Directors of
the Bank.
2.2. FULL EFFORTS. Executive shall devote his full business time and
efforts to the business and affairs of the Bank or the successor to the Bank by
which Executive is then employed pursuant to this Agreement; provided, however,
this provision shall not preclude Executive, with prior approval of the Bank,
from serving as a director or member of a committee of any other organization
involving no conflict of interests with the interests of the Bank, from engaging
in charitable and community activities, and from managing his personal
investments, provided that such activities do not interfere with the regular
performance of his duties and responsibilities to the Bank.
2.3. FRINGE BENEFITS. The salary continuation benefits provided by this
Agreement are granted by the Bank as a fringe benefit to the Executive and are
not part of any salary reduction plan or any arrangement deferring a bonus or a
salary increase. The Executive has no option to take any current payment or
bonus in lieu of these salary continuation benefits.
ARTICLE 3.
3.1. RETIREMENT. If the Executive shall continue in the employment of the
Bank until he attains the age of sixty-five (65) he may retire from active daily
employment as of the first day of
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the month next following attainment of age sixty-five (65) or upon such later
date as may be mutually agreed upon by the Executive and the Bank ("Retirement
Date").
3.2 PAYMENT. The Bank agrees chat upon such Retirement Date it will pay
to the Executive the annual sum of FORTY THOUSAND ONE HUNDRED Dollars
($40,100.00) payable monthly on the first day of each month following such
Retirement Date for a period of one hundred eighty (180) months; subject to the
conditions and limitations set forth in this Agreement. The FORTY THOUSAND ONE
HUNDRED Dollars ($40,100,00) annual payment amount may be adjusted as of the
first year in which it is to be paid to reflect changes in the federally
determined cost-of-living index and may be adjusted annually for each payment
year hereafter to reflect further changes in said federally determined cost-of-
living index. However, the Bank is not obligated hereunder to make any such
adjustment.
3.3. DEATH AFTER RETIREMENT. The Bank agrees that if the Executive dies
after the Retirement Date but shall die before receiving the full amount of
monthly payments to which he is entitled under this Agreement, the Bank will
continue to make such monthly payments to the Executive's designated Beneficiary
for the remaining period. If a valid Beneficiary Designation is not in effect,
the payments shall be made to the Executive's surviving spouse or, if none, said
payments shall be made to the duly qualified personal representative, executor
or administrator of Executive's estate.
5
<PAGE>
ARTICLE 4.
4.1. DEATH PRIOR TO RETIREMENT. In the event the Executive should die
while employed by the Bank at any time after the date of this Agreement but
prior to his Retirement Date, the Bank shall pay a sum equal to the Net
Insurance Coverage for the appropriate Plan Year set forth in Schedule A
(Participant Balance Sheet and Policy Data) to the Executive's designated
Beneficiary in equal monthly installments for a period of one hundred eighty
(180) months. If a valid Beneficiary Designation is not in effect, the payments
shall be made to the Executive's surviving spouse or, if none, said payments
shall be made to the duly qualified personal representative, executor or
administrator of Executive's estate. The said monthly payments shall begin the
first day of the month following the month of the death of the Executive.
Provided, however, that anything hereinabove to the contrary notwithstanding, no
death benefit shall be payable hereunder if it is determined that the
Executive's death was caused by suicide.
4.2. DISABILITY PRIOR TO RETIREMENT. In the event the Executive should
become disabled while actively employed by the Bank at any time after the date
of this Agreement but prior to his Retirement Date, the Executive shall be
considered to be one hundred percent (100%) vested in the amount set forth in
Schedule A attached hereto and made a part hereof, under Accrued Salary
Continuation Liability for the appropriate Plan Year. Said amount shall be paid
to the Executive in a lump sum within three (3) months of the determination of
disability. Said payment shall be
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in lieu of any other retirement or death benefit under this Agreement.
ARTICLE 5.
5.1 TERMINATION OF EMPLOYMENT. The Bank reserves the right to terminate
the employment of the Executive at any time prior to retirement. In the event
that the employment of the Executive shall terminate prior to the Executive's
Retirement Date, other than by reasons of Executive's disability or death, then
this Agreement shall terminate upon the date of such termination of employment.
Provided, however, that the Executive shall be entitled to the benefits
described below under the following circumstances:
a. If the Executive has been employed by the Bank for a period of at
least four (4) continuous years from and after the date this Agreement was
entered into, the Executive will be considered to be vested in thirty
percent (30%) of the amount set out in Schedule A attached hereto and made
a part hereof under Accrued Salary Continuation Liability for the
appropriate Plan Year and shall become vested in an additional ten percent
(10%) of said amount for each succeeding year thereafter until Executive
becomes one hundred percent (100) vested. If the Executive has been
employed by the Bank for a period of less than four (4) continuous years
from and after the date of this Agreement, the Executive shall not be
considered to be vested in any benefit hereunder and shall be
7
<PAGE>
entitled to no benefits under this Agreement. If the Executive's
employment is terminated under the provisions of this Section 5.1., the
Bank will pay the Executive's vested amount upon such terms and conditions
and upon Executive's attainment of age sixty-five (65).
b. Anything hereinabove to the contrary notwithstanding, if the
Executive is not fully vested in the amount set forth in Schedule A under
Accrued Salary Continuation Liability, he will become fully vested in said
amount in the event of a Change of Control-of the Bank and Executive shall
be entitled to the full amount set forth in Schedule A, for the appropriate
Plan Year, upon the terms and conditions hereof, if termination of
employment thereafter occurs under this Section 5.1.
ARTICLE 6.
6.1. TERMINATION OF AGREEMENT BY REASON OF CHANGE IN LAW. The Bank is
entering into this Agreement upon the assumption that certain existing tax laws
will continue in effect in substantially their current form. In the event of
any changes in such federal laws which materially affect this Agreement, the
Bank shall have an option to terminate or modify this Agreement. Provided,
however, that the Executive shall be entitled to at least the same amount as he
would have been entitled to under Section 4.2. relating to disability. The
payment of said amount shall be made upon such terms and conditions and at such
time as the Corporation shall
8
<PAGE>
determine, but in no event commencing later than the Executive's Retirement
Date.
ARTICLE 7.
7.1. NONASSIGNABLE. Neither the Executive, his spouse, nor any other
beneficiary under this Agreement shall have any power or right to transfer,
assign, anticipate, hypothecate, mortgage, commute, modify, or otherwise
encumber in advance any of the benefits payable hereunder, nor shall any of said
benefits be subject to seizure for the payment of any debts, judgments, alimony
or separate maintenance, owed by the Executive or his beneficiary or any of
them, or be transferable by operation of law in the event of bankruptcy,
insolvency or otherwise.
ARTICLE 8.
8.1. CLAIMS PROCEDURE. The Bank shall make all determinations as to rights
to benefits under this Agreement. Any decision by the Bank denying a claim by
the Executive or his beneficiary for benefits under this Agreement shall be
stated in writing and delivered or mailed to the Executive or such beneficiary.
Such decision shall set forth the specific reasons for the denial, written to
the best of the Bank's ability in a manner calculated to be understood without
legal or actuarial counsel. In addition, the Bank shall provide a reasonable
opportunity to the Executive or such beneficiary for full and fair review of the
decision denying such claim.
9
<PAGE>
ARTICLE 9.
9.l. UNSECURED GENERAL CREDITOR. The Executive's rights are limited to
the right to receive payments as provided in this Agreement and the Executive's
position with respect thereto is that of a general unsecured creditor of the
Bank.
ARTICLE 10.
10.l. REORGANIZATION. The Bank shall not voluntarily engage in a Change of
Control of the Bank unless and until such succeeding or continuing corporation,
firm or person agrees to assume and discharge the obligations of the Bank under
this Agreement. Upon the occurrence of such event, the term "Bank" as used in
this Agreement shall be deemed to refer to such successor or survivor
corporation, firm or person.
ARTICLE l1.
11.1. NOT A CONTRACT OF EMPLOYMENT. This Agreement shall not be deemed to
constitute a contract of employment between the parties hereto, nor shall any
provision hereof restrict the right of the Bank to discharge the Executive, or
restrict the right of the Executive to terminate his employment.
ARTICLE 12.
12.1. LIQUIDATED DAMAGES. The parties hereto, before entering into this
Agreement, have been concerned with the fact that substantial damages will be
suffered by Executive in the event
10
<PAGE>
that the Bank shall fail to perform according to this Agreement. In the event of
nonperformance by the Bank, Executive shall be entitled to liquidated damages of
$5,000.00 for each payment due hereunder which is not made by the Bank within
thirty (30) days of the date such payment was scheduled to have been made. This
provision shall not be applicable in the event that such nonpayment is the
result of prohibition of such payment by law, regulation or order of a banking
regulatory agency.
ARTICLE 13.
13.1. SUCCESSORS AND ASSIGNS; ASSIGNMENT. The rights and obligations of
this Agreement shall be binding upon and inure to the benefit of the successors,
assigns, heirs and personal representatives of the parties hereto. Executive
may not assign this Agreement or any of Executive's rights hereunder except with
the prior written consent of the Bank.
13.2. SEVERABILITY. If any provision of this Agreement, as applied to
either party or to any circumstances, is judged by a court to be void or
unenforceable, in whole or in part, the same shall in no way affect any other
provision of this Agreement, the application of such provision in any other
circumstances, or the validity or enforceability of this Agreement.
13.3. APPLICABLE LAW; JURISDICTION AND VENUE. This Agreement and all
matters or issues collateral hereto shall be governed by the laws of the State
of California applicable to contracts performed entirely therein. Executive and
Bank each consent to the
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<PAGE>
jurisdiction of, and any action concerning this Agreement shall be brought and
tried in, the United States District Court for the Eastern District of
California or the Superior or Municipal Court for the County of Sutter.
13.4. WAIVER. A waiver by either party of any of the terms or conditions
of this Agreement in any one instance shall not be deemed or construed to be a
waiver of such terms or conditions for the future, or of any subsequent breach
thereof. All remedies, rights, undertakings, obligations, and agreements
contained in this Agreement shall be cumulative, and none of them shall be in
limitation of any other remedy, right, undertaking, obligation or agreement of
either party.
13.5. ATTORNEYS' FEES. If any legal action or other proceeding is brought
for the enforcement of this Agreement, or because of an alleged dispute, breach,
default, or misrepresentation in connection with any of the provisions of this
Agreement, the successful or prevailing party or parties shall be entitled to
recover reasonable attorneys' fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it or they may be entitled.
13.6. HEADINGS. The headings in this Agreement are for convenience only
and shall not in any manner affect the interpretation or construction of the
Agreement or any of its provisions.
13.7 NOTICE. Any notice or other communication to be given under this
Agreement shall be in writing and shall be deemed to
12
<PAGE>
have been duly given on the date of service if personally served, or if mailed,
upon deposit in the United States mail, first class postage prepaid, express or
certified, return receipt requested, and properly addressed to the parties as
follows: if to Executive at his last address shown in the Bank's records; if to
Bank
Feather River State Bank
P.O. Box 1575
Yuba City, CA 95992
Attention: President
Either party may designate a new address for purpose of this Section 13.7. by
giving the other notice of the new address as provided herein.
IN WITNESS WHEREOF, the Bank has caused this Agreement to be duly executed
by its proper officer and the Executive has hereunto set his hand at Yuba City,
California, the day and year first above written.
FEATHER RIVER STATE BANK
By:/s/ William H. Gilbert
--------------------------------
WILLIAM H. GILBERT
Its: Chairman
-------------------------------
EXECUTIVE:
/s/ Robert J. Mulder
-----------------------------------
Robert J. Mulder
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[LOGO] EPI Leasing #200/205
STONEWOOD
OFFICE PLAZA
OFFICE LEASE
TABLE OF CONTENTS
PAGE
Article 1 LEASE OF PREMISES. . . . . . . . . . . . . . . . . . . 1
Article 2 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . 1
Article 3 EXHIBITS AND ADDENDA . . . . . . . . . . . . . . . . . 2
Article 4 DELIVERY OF POSSESSION . . . . . . . . . . . . . . . . 2
Article 5 RENT . . . . . . . . . . . . . . . . . . . . . . . . . 2
Article 6 INTEREST AND LATE CHARGES. . . . . . . . . . . . . . . 4
Article 7 SECURITY DEPOSIT . . . . . . . . . . . . . . . . . . . 4
Article 8 TENANT'S USE OF THE PREMISES . . . . . . . . . . . . . 4
Article 9 SERVICES AND UTILITIES . . . . . . . . . . . . . . . . 5
Article 10 CONDITION OF THE PREMISES. . . . . . . . . . . . . . . 5
Article 11 CONSTRUCTION, REPAIRS AND MAINTENANCE. . . . . . . . . 5
Article 12 ALTERATIONS AND ADDITIONS. . . . . . . . . . . . . . . 6
Article 13 LEASEHOLD IMPROVEMENTS; TENANT'S PROPERTY. . . . . . . 6
Article 14 RULES AND REGULATIONS. . . . . . . . . . . . . . . . . 7
Article 15 CERTAIN RIGHTS RESERVED BY LANDLORD. . . . . . . . . . 7
Article 16 ASSIGNMENT AND SUBLETTING. . . . . . . . . . . . . . . 7
Article 17 HOLDING OVER . . . . . . . . . . . . . . . . . . . . . 8
Article 18 SURRENDER OF PREMISES. . . . . . . . . . . . . . . . . 8
Article 19 DESTRUCTION OR DAMAGE. . . . . . . . . . . . . . . . . 8
Article 20 EMINENT DOMAIN . . . . . . . . . . . . . . . . . . . . 8
Article 21 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . 9
Article 22 TENANT'S INSURANCE . . . . . . . . . . . . . . . . . . 9
Article 23 WAIVER OF SUBROGATION. . . . . . . . . . . . . . . . . 10
Article 24 SUBORDINATION AND ATTORNMENT . . . . . . . . . . . . . 10
Article 25 TENANT ESTOPPEL CERTIFICATES . . . . . . . . . . . . . 10
Article 26 TRANSFER OF LANDLORD'S INTEREST. . . . . . . . . . . . 10
Article 27 DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . 10
Article 28 BROKERAGE FEES . . . . . . . . . . . . . . . . . . . . 11
Article 29 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . 11
Article 30 GOVERNMENT ENERGY OR UTILITY CONTROLS. . . . . . . . . 11
Article 31 RELOCATION OF PREMISES . . . . . . . . . . . . . . . . 11
Article 32 QUIET ENJOYMENT. . . . . . . . . . . . . . . . . . . . 12
Article 33 OBSERVANCE OF LAW. . . . . . . . . . . . . . . . . . . 12
Article 34 FORCE MAJEURE. . . . . . . . . . . . . . . . . . . . . 12
Article 35 CURING TENANT'S DEFAULTS . . . . . . . . . . . . . . . 12
Article 36 SIGN CONTROL . . . . . . . . . . . . . . . . . . . . . 12
Article 37 MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . 12/13
Article 38 SPECIAL CONDITIONS . . . . . . . . . . . . . . . . . . 14
<PAGE>
This Lease between Stonewood Office Plaza, a co tenancy ("Landlord"), and
EPI Leasing Co., a corporation, ("Tenant"), is dated 6/27/96,19___.
1. LEASE OF PREMISES.
In consideration of the Rent (as defined at Section 5.4) and the provisions of
this Lease, Landlord leases to Tenant and Tenant leases from Landlord the
Premises shown by diagonal lines on the floor plan attached hereto as Exhibit
"A," and further described at Section 21. The Premises are located within the
Building and Project described in Section 2m. Tenant shall have the
non-exclusive right (unless otherwise provided herein) in common with Landlord,
other tenants, subtenants and invitees, to use of the Common Areas (as defined
at Section 2e).
2. DEFINITIONS
As used in this Lease, the following terms shall have the following meanings:
a. BASE RENT (INITIAL):$ see schedule 5.2 per year.
b. BASE YEAR. The calendar year of 1996.
c. BROKER(S)
Landlord's: n/a.
Tenant's: n/a.
d. COMMENCEMENT DATE: 8/1/96.
e. COMMON AREAS: the building lobbies, common corridors and hallways,
restrooms, garage and parking areas, stairways, elevators and other
generally understood public or common areas. Landlord shall have the right
to regulate or restrict the use of the Common Areas.
f. EXPENSE STOP: (fill in if applicable): $ n/a.
g. EXPIRATION DATE: 12/31/97, unless otherwise sooner terminated in accordance
with the provisions of this Lease.
h. INDEX (SECTION 5.2): United States Department of Labor, Bureau of Labor
Statistics Consumer Price Index for All Urban Consumers, n/a Average,
Subgroup "All Items" (1967 = 100).
i. LANDLORD'S MAILING ADDRESS: c/o Anderson and Assoc.
7777 Greenback Lane #107
Citrus Heights, CA. 95610
TENANT'S MAILING ADDRESS: 6929 Sunrise Blvd. #205
Citrus Heights, CA. 95610
J. MONTHLY INSTALLMENTS OF BASE RENT (INITIAL): $3,321.50 per month.
K. PARKING:
RESERVED STALLS #53,54,6,28,29
l. PREMISES: that portion of the Building containing approximately 2,555
square feet of Rentable Area, shown by diagonal lines on Exhibit "A"
located on the second floor of the Building and known as Suite 200/205.
M. PROJECT: the building, of which the Premises are a part (the "Building")
and any other buildings or improvements on the real property (the
"Property") located at 6929 Sunrise Blvd., Citrus Heights, CA. 95610
n. RENTABLE AREA: as to both the Premises and the Project, the respective
measurements of floor area as may from time to time be subject to lease by
Tenant and all tenants of the Project, respectively, as determined by
Landlord and applied on a consistent basis throughout the Project.
(1)
<PAGE>
o. SECURITY DEPOSIT (SECTION 7):$ 3,193.75 on deposit.
p. STATE: the State of California.
TENANT'S PROPORTIONATE SHARE: 6.77%. Such share is a fraction, the
numerator of which is the Rentable Area of the Premises, and the
denominator of which is the Rentable Area of the Project, as determined
by Landlord from time to time. The Project consists of one building(s)
containing a total Rentable Area of 37,759 square feet.
TENANT'S USE CLAUSE (ARTICLE 8): general office.
t. TERM: the period commencing on the Commencement Date and expiring at
midnight on the Expiration Date.
3. EXHIBITS AND ADDENDA.
The exhibits and addenda listed below (unless lined out) are incorporated by
reference in this Lease:
a. Exhibit "A"-- Floor Plan showing the Premises.
b. Exhibit "B"-- parking
c. Exhibit "C"-- house rules
d. Exhibit "D"--
e. Exhibit "E"--
4. DELIVERY OF POSSESSION.
If for any reason Landlord does not deliver possession of the Premises to Tenant
on the Commencement Date, Landlord shall not be subject to any liability for
such failure, the Expiration Date shall not change and the validity of this
Lease shall not be impaired, but Rent shall be abated until delivery of
possession. "Delivery of possession" shall be deemed to occur on the date
Landlord completes Landlord's Work as defined in Exhibit "C." If Landlord
permits Tenant to enter into possession of the Premises before the Commencement
Date, such possession shall be subject to the provisions of this Lease,
including, without limitation, the payment of Rent.
5. RENT.
5.1 PAYMENT OF BASE RENT. Tenant agrees to pay the Base Rent for the Premises.
Monthly Installments of Base Rent shall be payable in advance on the first day
of each calendar month of the Term. If the Term begins (or ends) on other than
the first (or last) day of a calendar month, the Base Rent for the partial month
shall be prorated on a per diem basis. Tenant shall pay Landlord the first
Monthly Installment of Base Rent when Tenant executes the Lease.
5.2 BASE RENT ADJUSTMENTS.
11/1/96-12/31/97 - $3,449.25/mo.
5.3 PROJECT OPERATING COSTS.
a. In order that the Rent payable during the Term reflect any increase in
Project Operating Costs, Tenant agrees to pay to Landlord as Rent, Tenant's
Proportionate Share of all increases in costs, expenses and obligations
attributable to the Project and its operation, all as provided below.
b. If, during any calendar year during the Term, Project Operating Costs
exceed the Project Operating Costs for the Base Year, Tenant shall pay to
Landlord, in addition to the Base Rent and all other payments due under
this Lease, an amount equal to Tenant's Proportionate Share of such excess
Project Operating Costs in accordance with the provisions of this Section
5.3b.
(2)
<PAGE>
(1) The term "Project Operating Costs" shall include all those items described
in the following subparagraphs (a) and (b).
(a) All taxes, assessments, water and sewer charges and other similar
governmental charges levied on or attributable to the Building or Project
or their operation, including without limitation, (i) real property taxes
or assessments levied or assessed against the Building or Project, (ii)
assessments or charges levied or assessed against the Building or Project
by any redevelopment agency, (iii) any tax measured by gross rentals
received from the leasing of the Premises, Building or Project, excluding
any net income, franchise, capital stock, estate or inheritance taxes
imposed by the State or federal government or their agencies, branches or
departments; provided that if at any time during the Term any governmental
entity levies, assesses or imposes on Landlord any (1) general or special,
ad valorem or specific, excise, capital levy or other tax, assessment, levy
or charge directly on the Rent received under this Lease or on the rent
received under any other leases of space in the Building or Project, or (2)
any license fee, excise or franchise tax, assessment, levy or charge
measured by or based, in whole or in part, upon such rent, or (3) any
transfer, transaction, or similar tax, assessment, levy or charge based
directly or indirectly upon the transaction represented by this Lease or
such other leases, or (4) any occupancy, use, per capita or other tax,
assessment, levy or charge based directly or indirectly upon the use or
occupancy of the Premises or other premises within the Building or Project,
then any such taxes, assessments, levies and charges shall be deemed to be
included in the term Project Operating Costs. If at any time during the
Term the assessed valuation of, or taxes on, the Project are not based on a
completed Project having at least eighty-five percent (85%) of the Rentable
Area occupied, then the "taxes" component of Project Operating Costs shall
be adjusted by Landlord to reasonably approximate the taxes which would
have been payable if the Project were completed and at least eighty-five
percent (85%) occupied.
(b) Operating costs incurred by Landlord in maintaining and operating the
Building and Project, including without limitation the following: costs of
(1) utilities; (2) supplies; (3) insurance (including public liability,
property damage, earthquake, and fire and extended coverage insurance for
the full replacement cost of the Building and Project as required by
Landlord or its lenders for the Project; (4) services of independent
contractors; (5) compensation (including employment taxes and fringe
benefits) of all persons who perform duties connected with the operation,
maintenance, repair or overhaul of the Building or Project, and equipment,
improvements and facilities located within the Project, including without
limitation engineers, janitors, painters, floor waxers, window washers,
security and parking personnel and gardeners (but excluding persons
performing services not uniformly available to or performed for
substantially all Building or Project tenants); (6) operation and
maintenance of a room for delivery and distribution of mail to tenants of
the Building or Project as required by the U.S. Postal Service (including,
without limitation, an amount equal to the fair market rental value of the
mail room premises); (7) management of the Building or Project, whether
managed by Landlord or an independent contractor (including, without
limitation, an amount equal to the fair market value of any on-site
manager's office); (8) rental expenses for (or a reasonable depreciation
allowance on) personal property used in the maintenance, operation or
repair of the Building or Project; (9) costs, expenditures or charges
(whether capitalized or not) required by any governmental or
quasi-governmental authority; (10) amortization of capital expenses
(including financing costs) (i) required by a governmental entity for
energy conservation or life safety purposes, or (ii) made by Landlord to
reduce Project Operating Costs; and (11) any other costs or expenses
incurred by Landlord under this Lease and not otherwise reimbursed by
tenants of the Project. If at any time during the Term, less than
eighty-five percent (85%) of the Rentable Area of the Project is occupied,
the "operating costs" component of Project Operating Costs shall be
adjusted by Landlord to reasonably approximate the operating costs which
would have been incurred if the Project had been at least eighty-five
percent (85%) occupied.
(2) Tenant's Proportionate Share of Project Operating Costs shall be payable by
Tenant to Landlord as follows:
(a) Beginning with the calendar year following the Base Year and for each
calendar year thereafter ("Comparison Year"), Tenant shall pay Landlord an
amount equal to Tenant's Proportionate Share of the Project Operating Costs
incurred by Landlord in the Comparison Year which exceeds the total amount
of Project Operating Costs payable by Landlord for the Base Year. This
excess is referred to as the "Excess Expenses."
(b) To provide for current payments of Excess Expenses, Tenant shall, at
Landlord's request, pay as additional rent during each Comparison Year, an
amount equal to Tenant's Proportionate Share of the Excess Expenses payable
during such Comparison Year, as estimated by Landlord from time to time.
Such payments shall be made in monthly installments, commencing on the
first day of the month following the month in which Landlord notifies
Tenant of the amount it is to pay hereunder and continuing until the first
day of the month following the month in which Landlord gives Tenant a new
notice of estimated Excess Expenses. It is the intention hereunder to
estimate from time to time the amount of the Excess Expenses for each
Comparison Year and Tenant's Proportionate Share thereof, and then to make
an adjustment in the following year based on the actual Excess Expenses
incurred for that Comparison Year.
(c) On or before April 1 of each Comparison Year after the first
Comparison Year (or as soon thereafter as is practical), Landlord shall
deliver to Tenant a statement setting forth Tenant's Proportionate Share of
the Excess Expenses for the preceding Comparison Year. If Tenant's
Proportionate Share of the actual Excess Expenses for the previous
Comparison Year exceeds the total of the estimated monthly payments made by
Tenant for such year, Tenant shall pay Landlord the amount of the
deficiency within ten (10) days of the receipt of the statement. If such
total exceeds Tenant's Proportionate Share of the actual Excess Expenses
for such Comparison Year, then Landlord shall credit against Tenant's next
ensuing monthly installment(s) of additional rent an amount equal to the
difference until the credit is exhausted. If a credit is due from Landlord
on the Expiration Date, Landlord shall pay Tenant the amount of the credit.
The obligations of Tenant and Landlord to make payments required under this
Section 5.3 shall survive the Expiration Date.
(d) Tenant's Proportionate Share of Excess Expenses in any Comparison Year
having less than 365 days shall be appropriately prorated.
(e) If any dispute arises as to the amount of any additional rent due
hereunder, Tenant shall have the right after reasonable notice and at
reasonable times to inspect Landlord's accounting records at Landlord's
accounting office and, if after such inspection Tenant still disputes the
amount of additional rent owed, a certification as to the proper amount
shall be made by Landlord's certified public accountant, which
certification shall be final and conclusive. Tenant agrees to pay the cost
of such certification unless it is determined that Landlord's original
statement overstated Project Operating Costs by more than five percent
(5%).
(3)
<PAGE>
(f) If this Lease sets forth an Expense Stop at Section 2f, then during
the Term Tenant shall be liable for Tenant's Proportionate Share of any
actual Project Operating Costs which exceed the amount of the Expense Stop.
Tenant shall make current payments of such excess costs during the Term in
the same manner as is provided for payment of Excess Expenses under the
applicable provisions of Section 5.3b(2)(b) and (c) above.
5.4 DEFINITION OF RENT. All costs and expenses which Tenant assumes or agrees
to pay to Landlord under this Lease shall be deemed additional rent (which,
together with the Base Rent is sometimes referred to as the "Rent"). The Rent
shall be paid to the Building manager (or other person) and at such place, as
Landlord may from time to time designate in writing, without any prior demand
therefor and without deduction or offset, in lawful money of the United States
of America.
5.5 RENT CONTROL. If the amount of Rent or any other payment due under this
Lease violates the terms of any governmental restrictions on such Rent or
payment, then the Rent or payment due during the period of such restrictions
shall be the maximum amount allowable under those restrictions. Upon
termination of the restrictions, Landlord shall, to the extent it is legally
permitted, recover from Tenant the difference between the amounts received
during the period of the restrictions and the amounts Landlord would have
received had there been no restrictions.
5.6 TAXES PAYABLE BY TENANT. In addition to the Rent and any other charges to
be paid by Tenant hereunder, Tenant shall reimburse Landlord upon demand for any
and all taxes payable by Landlord (other than net income taxes) which are not
otherwise reimbursable under this Lease, whether or not now customary or within
the contemplation of the parties, where such taxes are upon, measured by or
reasonably attributable to (a) the cost or value of Tenant's equipment,
furniture, fixtures and other personal property located in the Premises, or the
cost or value of any leasehold improvements made in or to the Premises by or for
Tenant, other than Building Standard Work made by Landlord, regardless of
whether title to such improvements is held by Tenant or Landlord; (b) the gross
or net Rent payable under this Lease, including, without limitation, any rental
or gross receipts tax levied by any taxing authority with respect to the receipt
of the Rent hereunder; (c) the possession, leasing, operation, management,
maintenance, alteration, repair, use or occupancy by Tenant of the Premises or
any portion thereof; or (d) this transaction or any document to which Tenant is
a party creating or transferring an interest or an estate in the Premises. If
it becomes unlawful for Tenant to reimburse Landlord for any costs as required
under this Lease, the Base Rent shall be revised to net Landlord the same net
Rent after imposition of any tax or other charge upon Landlord as would have
been payable to Landlord but for the reimbursement being unlawful.
6. INTEREST AND LATE CHARGES.
If Tenant fails to pay when due any Rent or other amounts or charges which
Tenant is obligated to pay under the terms of this Lease, the unpaid amounts
shall bear interest at the maximum rate then allowed by law. Tenant
acknowledges that the late payment of any Monthly Installment of Base Rent will
cause Landlord to lose the use of that money and incur costs and expenses not
contemplated under this Lease, including without limitation, administrative and
collection costs and processing and accounting expenses, the exact amount of
which is extremely difficult to ascertain. Therefore, in addition to interest,
if any such installment is not received by Landlord within ten (10) days from
the date it is due, Tenant shall pay Landlord a late charge equal to ten percent
(10%) of such installment. Landlord and Tenant agree that this late charge
represents a reasonable estimate of such costs and expenses and is fair
compensation to Landlord for the loss suffered from such nonpayment by Tenant.
Acceptance of any interest or late charge shall not constitute a waiver of
Tenant's default with respect to such nonpayment by Tenant nor prevent Landlord
from exercising any other rights or remedies available to Landlord under this
Lease.
7. SECURITY DEPOSIT.
Tenant agrees to deposit with Landlord the Security Deposit set forth at Section
2.0 upon execution of this Lease, as security for Tenant's faithful performance
of its obligations under this Lease. Landlord and Tenant agree that the
Security Deposit may be commingled with funds of Landlord and Landlord shall
have no obligation or liability for payment of interest on such deposit. Tenant
shall not mortgage, assign, transfer or encumber the Security Deposit without
the prior written consent of Landlord and any attempt by Tenant to do so shall
be void, without force or effect and shall not be binding upon Landlord.
If Tenant falls to pay any Rent or other amount when due and payable under this
Lease, or fails to perform any of the terms hereof, Landlord may appropriate and
apply or use all or any portion of the Security Deposit for Rent payments or any
other amount then due and unpaid, for payment of any amount for which Landlord
has become obligated as a result of Tenant's default or breach, and for any loss
or damage sustained by Landlord as a result of Tenant's default or breach, and
Landlord may so apply or use this deposit without prejudice to any other remedy
Landlord may have by reason of Tenant's default or breach. If Landlord so uses
any of the Security Deposit, Tenant shall, within ten (10) days after written
demand therefor, restore the Security Deposit to the full amount originally
deposited; Tenant's failure to do so shall constitute an act of default
hereunder and Landlord shall have the right to exercise any remedy provided for
at Article 27 hereof. Within fifteen (15) days after the Term (or any extension
thereof) has expired or Tenant has vacated the Premises, whichever shall last
occur, and provided Tenant is not then in default on any of its obligations
hereunder, Landlord shall return the Security Deposit to Tenant, or, if Tenant
has assigned its interest under this Lease, to the last assignee of Tenant. If
Landlord sells its interest in the Premises, Landlord may deliver this deposit
to the purchaser of Landlord's interest and thereupon be relieved of any further
liability or obligation with respect to the Security Deposit.
8. TENANT'S USE OF THE PREMISES.
Tenant shall use the Premises solely for the purposes set forth in Tenant's Use
Clause. Tenant shall not use or occupy the Premises in violation of law or any
covenant, condition or restriction affecting the Building or Project or the
certificate of occupancy issued for the Building or Project, and shall, upon
notice from Landlord, immediately discontinue any use of the Premises which is
declared by any governmental authority having jurisdiction to be a violation of
law or the certificate of occupancy. Tenant, at Tenant's own cost and expense,
shall comply with all laws, ordinances, regulations, rules and/or any directions
of any governmental agencies or authorities having jurisdiction which shall, by
reason of the nature of Tenant's use or occupancy of the Premises, impose any
duty upon Tenant or Landlord with respect to the Premises or its use or
occupation. A judgment of any court of competent jurisdiction or the admission
by Tenant in any action or proceeding against Tenant that Tenant has violated
any such laws, ordinances, regulations, rules and/or directions in the use of
the Premises shall be deemed to be a conclusive determination of that fact as
between Landlord and Tenant. Tenant shall not do or permit to be done anything
which will invalidate or increase the cost of any fire, extended coverage or
other insurance policy covering the Building or Project and/or property located
therein, and shall comply with all rules, orders, regulations, requirements and
recommendations of the Insurance Services Office or any other organization
performing a similar function. Tenant shall
(4)
<PAGE>
promptly upon demand reimburse Landlord for any additional premium charged for
such policy by reason of Tenant's failure to comply with the provisions of this
Article. Tenant shall not do or permit anything to be done in or about the
Premises which will in any way obstruct or interfere with the rights of other
tenants or occupants of the Building or Project, or injure or annoy them, or use
or allow the Premises to be used for any improper, immoral, unlawful or
objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance
in, on or about the Premises. Tenant shall not commit or suffer to be committed
any waste in or upon the Premises.
9. SERVICES AND UTILITIES.
Provided that Tenant is not in default hereunder, Landlord agrees to furnish to
the Premises during generally recognized business days, and during hours
determined by Landlord in its sole discretion, and subject to the Rules and
Regulations of the Building or Project, electricity for normal desk top office
equipment and normal copying equipment, and heating, ventilation and air
conditioning ("HVAC") as required in Landlord's judgment for the comfortable use
and occupancy of the Premises. If Tenant desires HVAC at any other time,
Landlord shall use reasonable efforts to furnish such service upon reasonable
notice from Tenant; Landlord shall also maintain and
keep lighted the common stairs, common entries and restrooms in the Building.
Landlord shall not be in default hereunder or be liable for any damages directly
or indirectly resulting from, nor shall the Rent be abated by reason of (i) the
installation, use or interruption of use of any equipment in connection with the
furnishing of any of the foregoing services, (ii) failure to furnish or delay in
furnishing any such services where such failure or delay is caused by accident
or any condition or event beyond the reasonable control of Landlord, or by the
making of necessary repairs or improvements to the Premises, Building or
Project, or (iii) the limitation, curtailment or rationing of, or restrictions
on, use of water, electricity, gas or any other form of energy serving the
Premises, Building or Project. Landlord shall not be liable under any
circumstances for a loss of or injury to property or business, however
occurring, through or in connection with or incidental to failure to furnish any
such services. If Tenant uses heat generating machines or equipment in the
Premises which affect the temperature otherwise maintained by the HVAC system,
Tenant shall not, without the written consent of Landlord, use any apparatus or
device in the Premises, including without limitation, electronic data processing
machines, punch card machines or machines using in excess of 120 volts, which
consumes more electricity than is usually furnished or supplied for the use of
premises as general office space, as determined by Landlord. Tenant shall not
connect any apparatus with electric current except through existing electrical
outlets in the Premises. Tenant shall not consume water or electric current in
excess of that usually furnished or supplied for the use of premises as general
office space (as determined by Landlord), without first procuring the written
consent of Landlord, which Landlord may refuse, and in the event of consent,
Landlord may have installed a water meter or electrical current meter in the
Premises to measure the amount of water or electric current consumed. The cost
of any such meter and of its installation, maintenance and repair shall be paid
for by the Tenant and Tenant agrees to pay to Landlord promptly upon demand for
all such water and electric current consumed as shown by said meters, at the
rates charged for such services by the local public utility plus any additional
expense incurred in keeping account of the water and electric current so
consumed. If a separate meter is not installed, the excess cost for such water
and electric current shall be established by an estimate made by a utility
company or electrical engineer hired by Landlord at Tenant's expense.
Landlord shall furnish electric service, lighting replacement for building
standard lights, restroom supplies, window washing and janitor services in a
manner that such services are customarily furnished to comparable office
buildings in the area.
10. CONDITION OF THE PREMISES.
Tenant's taking possession of the Premises shall be deemed conclusive
evidence that as of the date of taking possession the Premises are in good order
and satisfactory condition, except for such matters as to which Tenant gave
Landlord notice on or before the Commencement Date. No promise of Landlord to
alter, remodel, repair or improve the Premises, the Building or the Project and
no representation, express or implied, respecting any matter or thing relating
to the Premises, Building, Project or this Lease (including, without limitation,
the condition of the Premises, the Building or the Project) have been made to
Tenant by Landlord or its Broker or Sales Agent, other than as may be contained
herein or in a separate exhibit or addendum signed by Landlord and Tenant.
11. CONSTRUCTION, REPAIRS AND MAINTENANCE.
a. LANDLORD'S OBLIGATIONS. Landlord shall perform Landlord's Work to the
Premises as described in Exhibit "C." Landlord shall maintain in good
order, condition and repair the Building and all other portions of the
Premises not the obligation of Tenant or of any other tenant in the
Building.
b. TENANT'S OBLIGATIONS.
(1) Tenant at Tenant's sole expense shall, except for services furnished
by Landlord pursuant to Article 9 hereof, maintain the Premises in good
order.
(2) Tenant shall be responsible for all repairs and alterations in and to
the Premises, Building and Project and the facilities and systems thereof,
the need for which arises out of (i) Tenant's use or occupancy of the
Premises, (ii) the installation, removal, use or operation of Tenant's
Property (as defined in Article 13) in the Premises, (iii) the moving of
Tenant's Property into or out of the Building, or (iv) the act, omission,
misuse or negligence of Tenant, its agents, contractors, employees or
invitees.
(5)
<PAGE>
(3) If Tenant fails to maintain the Premises in good order, condition and
repair, Landlord shall give Tenant notice to do such acts as are reasonably
required to so maintain the Premises. If Tenant fails to promptly commence
such work and diligently prosecute it to completion, then Landlord shall
have the right to do such acts and expend such funds at the expense of
Tenant as are reasonably required to perform such work. Any amount so
expended by Landlord shall be paid by Tenant promptly after demand with
interest at the prime commercial rate then being charged by Bank of America
NT & SA plus two percent (2%) per annum, from the date of such work, but
not to exceed the maximum rate then allowed by law. Landlord shall have no
liability to Tenant for any damage, inconvenience, or interference with the
use of the Premises by Tenant as a result of performing any such work.
c. COMPLIANCE WITH LAW. Landlord and Tenant shall each do all acts
required to comply with all applicable laws, ordinances, and rules of any
public authority relating to their respective maintenance obligations as
set forth herein.
d. AMERICANS WITH DISABILITIES ACT. Any and all costs incurred by
Landlord in providing auxiliary aids or services, or in undertaking barrier
removal efforts, as required by the Americans with Disability Act of 1990
and, any rules and regulations promulgated thereunder, as the same shall be
amended or supplemented from time to time, or in accordance with any
similar Federal, State or local laws or ordinance, which are directly
attributable to, or arise primarily from, Tenants use or occupancy of the
Premises, shall be deemed additional rent, and shall be due and payable in
full by Tenant within thirty (30) days after written notice from Landlord.
e. LOAD AND EQUIPMENT LIMITS. Tenant shall not place a load upon any
floor of the Premises which exceeds the load per square foot which such
floor was designed to carry, as determined by Landlord or Landlord's
structural engineer. The cost of any such determination made by Landlord's
structural engineer shall be paid for by Tenant upon demand. Tenant shall
not install business machines or mechanical equipment which cause noise or
vibration to such a degree as to be objectionable to Landlord or other
Building tenants.
f. Except as otherwise expressly provided in this Lease, Landlord shall
have no liability to Tenant nor shall Tenant's obligations under this Lease
be reduced or abated in any manner whatsoever by reason of any
inconvenience, annoyance, interruption or injury to business arising from
Landlord's making any repairs or changes which Landlord is required or
permitted by this Lease or by any other tenant's lease or required by law
to make in or to any portion of the Project, Building or the Premises.
Landlord shall nevertheless use reasonable efforts to minimize any
interference with Tenant's business in the Premises.
g. Tenant shall give Landlord prompt notice of any damage to or defective
condition in any part or appurtenance of the Building's mechanical,
electrical, plumbing, HVAC or other systems serving, located in, or passing
through the Premises.
h. Upon the expiration or earlier termination of this Lease, Tenant shall
return the Premises to Landlord clean and in the same condition as on the
date Tenant took possession, except for normal wear and tear. Any damage
to the Premises, including any structural damage, resulting from Tenant's
use or from the removal of Tenant's fixtures, furnishings and equipment
pursuant to Section 13b shall be repaired by Tenant at Tenant's expense.
12. ALTERATIONS AND ADDITIONS.
a. Tenant shall not make any additions, alterations or improvements to the
Premises without obtaining the prior written consent of Landlord.
Landlord's consent may be conditioned on Tenant's removing any such
additions, alterations or improvements upon the expiration of the Term and
restoring the Premises to the same condition as on the date Tenant took
possession. All work with respect to any addition, alteration or
improvement shall be done in a good and workmanlike manner by properly
qualified and licensed personnel approved by Landlord, and such work shall
be diligently prosecuted to completion.
b. Tenant shall pay the costs of any work done on the Premises pursuant to
Section 12a, and shall keep the Premises, Building and Project free and
clear of liens of any kind. Tenant shall indemnify, defend against and
keep Landlord free and harmless from all liability, loss, damage, costs,
attorneys' fees and any other expense incurred on account of claims by any
person performing work or furnishing materials or supplies for Tenant or
any person claiming under Tenant.
Tenant shall keep Tenant's leasehold interest, and any additions or
improvements which are or become the property of Landlord under this Lease,
free and clear of all attachment or judgment liens. Before the actual
commencement of any work for which a claim or lien may be filed, Tenant
shall give Landlord notice of the intended commencement date a sufficient
time before that date to enable Landlord to post notices of
non-responsibility or any other notices which Landlord deems necessary for
the proper protection of Landlord's interest in the Premises, Building or
the Project, and Landlord shall have the right to enter the Premises and
post such notices at any reasonable time.
c. Landlord may require, at Landlord's sole option, that Tenant provide to
Landlord, at Tenant's expense, a lien and completion bond in an amount
equal to at least one and one-half (1 1/2) times the total estimated cost
of any additions, alterations or improvements to be made in or to the
Premises, to protect Landlord against any liability for mechanic's and
materialmen's liens and to insure timely completion of the work. Nothing
contained in this Section 12c shall relieve Tenant of its obligation under
Section 12b to keep the Premises, Building and Project free of all liens.
d. Unless their removal is required by Landlord as provided in Section
12a, all additions, alterations and improvements made to the Premises shall
become the property of Landlord and be surrendered with the Premises upon
the expiration of the Term; provided, however, Tenant's equipment,
machinery and trade fixtures which can be removed without damage to the
Premises shall remain the property of Tenant and may be removed, subject to
the provisions of Section 13b.
13. LEASEHOLD IMPROVEMENTS; TENANT'S PROPERTY.
a. All fixtures, equipment, improvements and appurtenances attached to or
built into the Premises at the commencement of or during the Term, whether
or not by or at the expense of Tenant ("Leasehold Improvements"), shall be
and remain a part of the Premises, shall be the property of Landlord and
shall not be removed by Tenant, except as expressly provided in Section
13b.
(6)
<PAGE>
h. All movable partitions, business and trade fixtures, machinery and
equipment, communications equipment and office equipment located in the
Premises and acquired by or for the account of Tenant, without expense to
Landlord, which can be removed without structural damage to the Building,
and all furniture, furnishings and other articles of movable personal
property owned by Tenant and located in the Premises (collectively
"Tenant's Property") shall be and shall remain the property of Tenant and
may be removed by Tenant at any time during the Term; provided that if any
of Tenant's Property is removed, Tenant shall promptly repair any damage to
the Premises or to the Building resulting from such removal.
14. RULES AND REGULATIONS.
Tenant agrees to comply with (and cause its agents, contractors, employees and
invitees to comply with) the rules and regulations attached hereto Ex. C and
with such reasonable modifications thereof and additions thereto as Landlord may
from time to time make. Landlord shall not be responsible for any violation of
said rules and regulations by other tenants or occupants of the Building or
Project.
15. CERTAIN RIGHTS RESERVED BY LANDLORD.
Landlord reserves, the following rights, exercisable without liability to Tenant
for (a) damage or injury to property, person or business, (b) causing an actual
or constructive eviction from the Premises, or (c) disturbing Tenant's use or
possession of the Premises:
a. To name the Building and Project and to change the name or street
address of the Building or Project;
b. To install and maintain all signs on the exterior and interior of the
Building and Project;
c. To have pass keys to the Premises and all doors within the Premises,
excluding Tenant's vaults and safes;
d. At any time during the Term, and on reasonable prior notice to Tenant,
to inspect the Premises, and to show the Premises to any prospective
purchaser or mortgagee of the Project, or to any assignee of any mortgage
on the Project, or to others having an interest in the Project or Landlord,
and during the last six months of the Term, to show the Premises to
prospective tenants thereof; and
e. To enter the Premises for the purpose of making inspections, repairs,
alterations, additions or improvements to the Premises or the Building
(including, without limitation, checking, calibrating, adjusting or
balancing controls and other parts of the HVAC system), and to take all
steps as may be necessary or desirable for the safety, protection,
maintenance or preservation of the Premises or the Building or Landlord's
interest therein, or as may be necessary or desirable for the operation or
improvement of the Building or in order to comply with laws, orders or
requirements of governmental or other authority. Landlord agrees to use
its best efforts (except in an emergency) to minimize interference with
Tenant's business in the Premises in the course of any such entry.
16. ASSIGNMENT AND SUBLETTING.
No assignment of this Lease or sublease of all or any part of the Premises shall
be permitted, except as provided in this Article 16.
a. Tenant shall not, without the prior written consent of Landlord, assign
or hypothecate this Lease or any interest herein or sublet the Premises or
any part thereof, or permit the use of the Premises by any party other than
Tenant. Any of the foregoing acts without such consent shall be void and
shall, at the option of Landlord, terminate this Lease. This Lease shall
not, nor shall any interest of Tenant herein, be assignable by operation of
law without the written consent of Landlord.
b. If at any time or from time to time during the Term Tenant desires to
assign this Lease or sublet all or any part of the Premises, Tenant shall
give notice to Landlord setting forth the terms and provisions of the
proposed assignment or sublease, and the identity of the proposed assignee
or subtenant. Tenant shall promptly supply Landlord with such information
concerning the business background and financial condition of such proposed
assignee or subtenant as Landlord may reasonably request. Landlord shall
have the option, exercisable by notice given to Tenant within twenty (20)
days after Tenant's notice is given, either to sublet such space from
Tenant at the rental and on the other terms set forth in this Lease for the
term set forth in Tenant's notice, or, in the case of an assignment, to
terminate this Lease. If Landlord does not exercise such option, Tenant
may assign the Lease or sublet such space to such proposed assignee or
subtenant on the following further conditions:
(1) Landlord shall have the right to approve such proposed assignee
or subtenant, which approval shall not be unreasonably withheld;
(2) The assignment or sublease shall be on the same terms set forth
in the notice given to Landlord;
(3) No assignment or sublease shall be valid and no assignee or
sublessee shall take possession of the Premises until an executed
counterpart of such assignment or sublease has been delivered to
Landlord;
(4) No assignee or sublessee shall have a further right to assign
or sublet except on the terms herein contained;
c. Notwithstanding the provisions of paragraphs a and b above, Tenant may
assign this Lease or sublet the Premises or any portion thereof, without
Landlord's consent and without extending any recapture or termination
option to Landlord, to any corporation which controls, is controlled by or
is under common control with Tenant, or to any corporation resulting from a
merger or consolidation with Tenant, or to any person or entity which
acquires all the assets of Tenant's business as a going concern, provided
that (i) the assignee or sublessee assumes, in full, the obligations of
Tenant under this Lease, (ii) Tenant remains fully liable under this Lease,
and (iii) the use of the Premises under Article 8 remains unchanged.
(7)
<PAGE>
d. No subletting or assignment shall release Tenant of Tenant's
obligations under this Lease or alter the primary liability of Tenant to
pay the Rent and to perform all other obligations to be performed by Tenant
hereunder. The acceptance of Rent by Landlord from any other person shall
not be deemed to be a waiver by Landlord of any provision hereof. Consent
to one assignment or subletting shall not be deemed consent to any
subsequent assignment or subletting. In the event of default by an
assignee or subtenant of Tenant or any successor of Tenant in the
performance of any of the terms hereof, Landlord may proceed directly
against Tenant without the necessity of exhausting remedies against such
assignee, subtenant or successor. Landlord may consent to subsequent
assignments of the Lease or sublettings or amendments or modifications to
the Lease with assignees of Tenant, without notifying Tenant, or any
successor of Tenant, and without obtaining its or their consent thereto and
any such actions shall not relieve Tenant of liability under this Lease.
e. If Tenant assigns the Lease or sublets the Premises or requests the
consent of Landlord to any assignment or subletting or if Tenant requests
the consent of Landlord for any act that Tenant proposes to do, then Tenant
shall, upon demand, pay Landlord an administrative fee of One Hundred Fifty
and No/100ths Dollars ($150.00) plus any attorneys' fees reasonably
incurred by Landlord in connection with such act or request.
17. HOLDING OVER.
If after expiration of the Term, Tenant remains in possession of the Premises
with Landlord's permission (express or implied), Tenant shall become a tenant
from month to month only, upon all the provisions of this Lease (except as to
term and Base Rent), but the "Monthly Installments of Base Rent" payable by
Tenant shall be mutually agreed upon by Landlord and tenant prior to the
holdover period begins. Such monthly rent shall be payable in advance on or
before the first day of each month. If either party desires to terminate such
month to month tenancy, it shall give the other party not less than thirty (30)
days advance written notice of the date of termination.
18. SURRENDER OF PREMISES.
a. Tenant shall peaceably surrender the Premises to Landlord on the
Expiration Date, in broom-clean condition and in as good condition as when
Tenant took possession, except for (i) reasonable wear and tear, (ii) loss
by fire or other casualty, and (iii) loss by condemnation. Tenant shall,
on Landlord's request, remove Tenant's Property on or before the Expiration
Date and promptly repair all damage to the Premises or Building caused by
such removal.
b. If Tenant abandons or surrenders the Premises, or is dispossessed by
process of law or otherwise, any of Tenant's Property left on the Premises
shall be deemed to be abandoned, and, at Landlord's option, title shall
pass to Landlord under this Lease as by a bill of sale. If Landlord elects
to remove all or any part of such Tenant's Property, the cost of removal,
including repairing any damage to the Premises or Building caused by such
removal, shall be paid by Tenant. On the Expiration Date Tenant shall
surrender all keys to the Premises.
19. DESTRUCTION OR DAMAGE.
a. If the Premises or the portion of the Building necessary for Tenant's
occupancy is damaged by fire, earthquake, act of God, the elements of other
casualty, Landlord shall, subject to the provisions of this Article,
promptly repair the damage, if such repairs can, in Landlord's opinion, be
completed within (90) ninety days. If Landlord determines that repairs can
be completed within ninety (90) days, this Lease shall remain in full force
and effect, except that if such damage is not the result of the negligence
or willful misconduct of Tenant or Tenant's agents, employees, contractors,
licensees or invitees, the Base Rent shall be abated to the extent Tenant's
use of the Premises is impaired, commencing with the date of damage and
continuing until completion of the repairs required of Landlord under
Section 19d.
b. If in Landlord's opinion, such repairs to the Premises or portion of
the Building necessary for Tenant's occupancy cannot be completed within
ninety (90) days, Landlord may elect, upon notice to Tenant given within
thirty (30) days after the date of such fire or other casualty, to repair
such damage, in which event this Lease should continue in full force and
effect, but the Base Rent shall be partially abated as provided in Section
19a. If Landlord does not so elect to make such repairs, this Lease shall
terminate as of the date of such fire or other casualty.
c. If any other portion of the Building or Project is totally destroyed or
damaged to the extent that in Landlord's opinion repair thereof cannot be
completed within ninety (90) days, Landlord may elect upon notice to Tenant
given within thirty (30) days after the date of such fire or other
casualty, to repair such damage, in which event this Lease shall continue
in full force and effect, but the Base Rent shall be partially abated as
provided in Section 19a. If Landlord does not elect to make such repairs,
this Lease shall terminate as of the date of such fire or other casualty.
d. If the Premises are to be repaired under this Article, Landlord shall
repair at its cost any injury or damage to the Building and Building
Standard Work in the Premises. Tenant shall be responsible at its sole
cost and expense for the repair, restoration and replacement of any other
Leasehold Improvements and Tenant's Property. Landlord shall not be liable
for any loss of business, inconvenience or annoyance arising from any
repair or restoration of any portion of the Premises, Building or Project
as a result of any damage from fire or other casualty.
e. This Lease shall be considered an express agreement governing any case
of damage to or destruction of the Premises, Building or Project by fire or
other casualty, and any present or future law which purports to govern the
rights of Landlord and Tenant in such circumstances in the absence of
express agreement, shall have no application.
20. EMINENT DOMAIN.
a. If the whole of the Building or Premises is lawfully taken by
condemnation or in any other manner for any public or quasi-public purpose,
this Lease shall terminate as of the date of such taking, and Rent shall be
prorated to such date. If less than the whole of the Building or Premises
is so taken, this Lease shall be unaffected by such taking, provided that
(i) Tenant shall have the right to terminate this Lease by notice to
Landlord given within ninety (90) days of the date of such taking if twenty
percent (20%) or more of the Premises is taken and the remaining area of
the Premises is not reasonably sufficient for Tenant to continue operation
of its business, and (ii) Landlord shall have the right to terminate this
Lease by notice to Tenant given within ninety (90) days after the date of
such taking. If either Landlord or Tenant so elects to terminate this
Lease, the Lease shall terminate on the thirtieth (30th) day after either
such notice. The Rent shall be prorated to the date of termination. If
this Lease continues in force upon such partial taking, the Base Rent and
Tenant's Proportionate Share shall be equitably adjusted according to the
remaining Rentable Area of the Premises and Project.
(8)
<PAGE>
b. In the event of any taking, partial or whole, all of the proceeds of
any award, judgment or settlement payable by the condemning authority shall
be the exclusive property of Landlord, and Tenant hereby assigns to
Landlord all of its right, title and interest in any award, judgment or
settlement from the condemning authority. Tenant, however, shall have the
right, to the extent that Landlord's award is not reduced or prejudiced, to
claim from the condemning authority (but not from Landlord) such
compensation as may be recoverable by Tenant in its own right for
relocation expenses and damage to Tenant's personal property.
c. In the event of a partial taking of the Premises which does not result
in a termination of this Lease, Landlord shall restore the remaining
portion of the Premises as nearly as practicable to its condition prior to
the condemnation or taking, but only to the extent of Building Standard
Work. Tenant shall be responsible at its sole cost and expense for the
repair, restoration and replacement of any other Leasehold Improvements and
Tenant's Property.
21. INDEMNIFICATION.
a. Tenant shall indemnify and hold Landlord harmless against and from
liability and claims of any kind for loss or damage to property of Tenant
or any other person, or for any injury to or death of any person, arising
out of: (1) Tenant's use and occupancy of the Premises, or any work,
activity or other things allowed or suffered by Tenant to be done in, on or
about the Premises; (2) any breach or default by Tenant of any of Tenant's
obligations under this Lease; or (3) any negligent or otherwise tortious
act or omission of Tenant, its agents, employees, invitees or contractors.
Tenant shall at Tenant's expense, and by counsel satisfactory to Landlord,
defend Landlord in any action or proceeding arising from any such claim and
shall indemnify Landlord against all costs, attorneys' fees, expert witness
fees and any other expenses incurred in such action or proceeding. As a
material part of the consideration for Landlord's execution of this Lease,
Tenant hereby assumes all risk of damage or injury to any person or
property in, on or about the Premises from any cause.
b. Landlord shall not be liable for injury or damage which may be
sustained by the person or property of Tenant, its employees, invitees or
customers, or any other person in or about the Premises, caused by or
resulting from fire, steam, electricity, gas, water or rain which may leak
or flow from or into any part of the Premises, or from the breakage,
leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, whether such
damage or injury results from conditions arising upon the Premises or upon
other portions of the Building or Project or from other sources. Landlord
shall not be liable for any damages arising from any act or omission of any
other tenant of the Building or Project.
22. TENANT'S INSURANCE.
a. All insurance required to be carried by Tenant hereunder shall be
issued by responsible insurance companies acceptable to Landlord and
Landlord's lender and qualified to do business in the State. Each policy
shall name Landlord, and at Landlord's request any mortgagee of Landlord,
as an additional insured, as their respective interests may appear. Each
policy shall contain (i) a cross-liability endorsement, (ii) a provision
that such policy and the coverage evidenced thereby shall be primary and
non-contributing with respect to any policies carried by Landlord and that
any coverage carried by Landlord shall be excess insurance, and (iii) a
waiver by the insurer of any right of subrogation against Landlord, its
agents, employees and representatives, which arises or might arise by
reason of any payment under such policy or by reason of any act or omission
of Landlord, its agents, employees or representatives. A copy of each paid
up policy (authenticated by the insurer) or certificate of the insurer
evidencing the existence and amount of each insurance policy required
hereunder shall be delivered to Landlord before the date Tenant is first
given the right of possession of the Premises, and thereafter within thirty
(30) days after any demand by Landlord therefor. Landlord may, at any time
and from time to time, inspect and/or copy any insurance policies required
to be maintained by Tenant hereunder. No such policy shall be cancellable
except after twenty (20) days written notice to Landlord and Landlord's
lender. Tenant shall furnish Landlord with renewals or "binders" of any
such policy at least ten (10) days prior to the expiration thereof. Tenant
agrees that if Tenant does not take out and maintain such insurance,
Landlord may (but shall not be required to) procure said insurance on
Tenant's behalf and charge the Tenant the premiums together with a
twenty-five percent (25%) handling charge, payable upon demand. Tenant
shall have the right to provide such insurance coverage pursuant to blanket
policies obtained by the Tenant, provided such blanket policies expressly
afford coverage to the Premises, Landlord, Landlord's mortgagee and Tenant
as required by this Lease.
b. Beginning on the date Tenant is given access to the Premises for any
purpose and continuing until expiration of the Term, Tenant shall procure,
pay for and maintain in effect policies of casualty insurance covering (i)
all Leasehold Improvements (including any alterations, additions or
improvements as may be made by Tenant pursuant to the provisions of Article
12 hereof), and (ii) trade fixtures, merchandise and other personal
property from time to time in, on or about the Premises, in an amount not
less than one hundred percent (100%) of their actual replacement cost from
time to time, providing protection against any peril included within the
classification "Fire and Extended Coverage" together with insurance against
sprinkler damage, vandalism and malicious mischief. The proceeds of such
insurance shall be used for the repair or replacement of the property so
insured. Upon termination of this Lease following a casualty as set forth
herein, the proceeds under (i) shall be paid to Landlord, and the proceeds
under (ii) above shall be paid to Tenant.
c. Beginning on the date Tenant is given access to the Premises for any
purpose and continuing until expiration of the Term, Tenant shall procure,
pay for and maintain in effect workers' compensation insurance as required
by law and comprehensive public liability and property damage insurance
with respect to the construction of Improvements on the Premises, the use,
operation or condition of the Premises and the operations of Tenant in, on
or about the Premises, providing personal injury and broad form property
damage coverage for not less than One Million Dollars ($1,000,000.00)
combined single limit for bodily injury, death and property damage
liability.
d. Not less than every three (3) years during the Term, Landlord and
Tenant shall mutually agree to increases in all of Tenant's insurance
policy limits for all insurance to be carried by Tenant as set forth in
this Article. In the event Landlord and Tenant cannot mutually agree upon
the amounts of said increases, then Tenant agrees that all insurance policy
limits as set forth in this Article shall be adjusted for increases in the
cost of living in the same manner as is set forth in Section 5.2 hereof for
the adjustment of the Base Rent.
(9)
<PAGE>
23. WAIVER OF SUBROGATION.
Landlord and Tenant each hereby waive all rights of recovery against the other
and against the officers, employees, agents and representatives of the other, on
account of loss by or damage to the waiving party of its property or the
property of others under its control, to the extent that such loss or damage is
insured against under any fire and extended coverage insurance policy which
either may have in force at the time of the loss or damage. Tenant shall, upon
obtaining the policies of insurance required under this Lease, give notice to
its insurance carrier or carriers that the foregoing mutual waiver of
subrogation is contained in this Lease.
24. SUBORDINATION AND ATTORNMENT
Upon written request of Landlord, or any first mortgagee or first deed of trust
beneficiary of Landlord, or ground lessor of Landlord, Tenant shall, in writing,
subordinate its rights under this Lease to the lien of any first mortgage or
first deed of trust, or to the interest of any lease in which Landlord is
lessee, and to all advances made or hereafter to be made thereunder. However,
before signing any subordination agreement, Tenant shall have the right to
obtain from any lender or lessor or Landlord requesting such subordination, an
agreement in writing providing that, as long as Tenant is not in default
hereunder, this Lease shall remain in effect for the full Term. The holder of
any security interest may, upon written notice to Tenant, elect to have this
Lease prior to its security interest regardless of the time of the granting or
recording of such security interest.
In the event of any foreclosure sale, transfer in lieu of foreclosure or
termination of the lease in which Landlord is lessee, Tenant shall attorn to the
purchaser, transferee or lessor as the case may be, and recognize that party as
Landlord under this Lease, provided such party acquires and accepts the Premises
subject to this Lease.
25. TENANT ESTOPPEL CERTIFICATES.
Within ten (10) days after written request from Landlord, Tenant shall execute
and deliver to Landlord or Landlord's designee, a written statement certifying
(a) that this Lease is unmodified and in full force and effect, or is in full
force and effect as modified and stating the modifications; (b) the amount of
Base Rent and the date to which Base Rent and additional rent have been paid in
advance; (c) the amount of any security deposited with Landlord; and (d) that
Landlord is not in default hereunder or, if Landlord is claimed to be in
default, stating the nature of any claimed default. Any such statement may be
relied upon by a purchaser, assignee or lender. Tenant's failure to execute and
deliver such statement within the time required shall at Landlord's election be
a default under this Lease and shall also be conclusive upon Tenant that: (1)
this Lease is in full force and effect and has not been modified except as
represented by Landlord; (2) there are no uncured defaults in Landlord's
performance and that Tenant has no right of offset, counter-claim or deduction
against Rent; and (3) not more than one month's Rent has been paid in advance.
26. TRANSFER OF LANDLORD'S INTEREST.
In the event of any sale or transfer by Landlord of the Premises, Building or
Project, and assignment of this Lease by Landlord, Landlord shall be and is
hereby entirely freed and relieved of any and all liability and obligations
contained in or derived from this Lease arising out of any act, occurrence or
omission relating to the Premises, Building, Project or Lease occurring after
the consummation of such sale or transfer, providing the purchaser shall
expressly assume all of the covenants and obligations of Landlord under this
Lease. If any security deposit or prepaid Rent has been paid by Tenant, Landlord
may transfer the security deposit or prepaid Rent to Landlord's successor and
upon such transfer, Landlord shall be relieved of any and all further liability
with respect thereto.
27. DEFAULT.
27.1. TENANT'S DEFAULT. The occurrence of any one or more of the following
events shall constitute a default and breach of this Lease by Tenant:
a. If Tenant abandons or vacates the Premises; or
b. If Tenant fails to pay any Rent or any other charges required to be
paid by Tenant under this Lease and such failure continues for five (5)
days after such payment is due and payable; or
c. If Tenant fails to promptly and fully perform any other covenant,
condition or agreement contained in this Lease and such failure continues
for thirty (30) days after written notice thereof from Landlord to Tenant;
or
d. If a writ of attachment or execution is levied on this Lease or on any
of Tenant's Property; or
e. If Tenant makes a general assignment for the benefit of creditors, or
provides for an arrangement, composition, extension or adjustment with its
creditors; or
f. If Tenant files a voluntary petition for relief or if a petition
against Tenant in a proceeding under the federal bankruptcy laws or other
insolvency laws is filed and not withdrawn or dismissed within forty-five
(45) days thereafter, of if under the provisions of any law providing for
reorganization or winding up of corporations, any court of competent
jurisdiction assumes jurisdiction, custody or control of Tenant or any
substantial part of its property and such jurisdiction, custody or control
remains in force unrelinquished, unstayed or unterminated for a period of
forty-five (45) days; or
g. If in any proceeding or action in which Tenant is a party, a trustee,
receiver, agent or custodian is appointed to take charge of the Premises or
Tenant's Property (or has the authority to do so) for the purpose of
enforcing a lien against the Premises or Tenant's Property; or
h. If Tenant is a partnership or consists of more than one (1) person or
entity, if any partner of the partnership or other person or entity is
involved in any of the acts or events described in subparagraphs d through
g above.
27.2. REMEDIES. In the event of Tenant's default hereunder, then in addition to
any other rights or remedies Landlord may have under any law, Landlord shall
have the right, at Landlord's option, without further notice or demand of any
kind to do the following:
a. Terminate this Lease and Tenant's right to possession of the Premises
and reenter the Premises and take possession thereof, and Tenant shall have
no further claim to the Premises or under this Lease; or
b. Continue this Lease in effect, reenter and occupy the Premises for the
account of Tenant, and collect any unpaid Rent or other charges which have
or thereafter become due and payable; or
c. Reenter the Premises under the provisions of subparagraph b, and
thereafter elect to terminate this Lease and Tenant's right to possession
of the Premises.
(10)
<PAGE>
If Landlord reenters the Premises under the provisions of subparagraphs b or c
above, Landlord shall not be deemed to have terminated this Lease or the
obligation of Tenant to pay any Rent or other charges thereafter accruing,
unless Landlord notifies Tenant in writing of Landlord's election to terminate
this Lease. In the event of any reentry or retaking of possession by Landlord,
Landlord shall have the right, but not the obligation, to remove all or any part
of Tenant's Property in the Premises and to place such property in storage at a
public warehouse at the expense and risk of Tenant. If Landlord elects to relet
the Premises for the account of Tenant, the rent received by Landlord from such
reletting shall be applied as follows: first, to the payment of any indebtedness
other than Rent due hereunder from Tenant to Landlord; second, to the payment of
any costs of such reletting; third, to the payment of the cost of any
alterations or repairs to the Premises; fourth to the payment of Rent due and
unpaid hereunder; and the balance, if any, shall be held by Landlord and applied
in payment of future Rent as it becomes due. If that portion of rent received
from the reletting which is applied against the Rent due hereunder is less than
the amount of the Rent due, Tenant shall pay the deficiency to Landlord promptly
upon demand by Landlord. Such deficiency shall be calculated and paid monthly.
Tenant shall also pay to Landlord, as soon as determined, any costs and expenses
incurred by Landlord in connection with such reletting or in making alterations
and repairs to the Premises, which are not covered by the rent received from
the reletting.
Should Landlord elect to terminate this Lease under the provisions of
subparagraph a or c above, Landlord may recover as damages from Tenant the
following:
1. PAST RENT. The worth at the time of the award of any unpaid Rent which
had been earned at the time of termination; plus
2. RENT PRIOR TO AWARD. The worth at the time of the award of the amount
by which the unpaid Rent which would have been earned after termination
until the time of award exceeds the amount of such rental losses that
Tenant proves could have been reasonably avoided; plus
3. RENT AFTER AWARD. The worth at the time of the award of the amount by
which the unpaid Rent for the balance of the Term after the time of award
exceeds the amount of the rental loss that Tenant proves could be
reasonably avoided; plus
4. PROXIMATELY CAUSED DAMAGES. Any other amount necessary to compensate
Landlord for all detriment proximately caused by Tenant's failure to
perform its obligations under this Lease or which in the ordinary course of
things would be likely to result therefrom, including, but not limited to,
any costs or expenses (including attorneys' fees), incurred by Landlord in
(a) retaking possession of the Premises, (b) maintaining the Premises after
Tenant's default, (c) preparing the Premises for reletting to a new tenant,
including any repairs or alterations, and (d) reletting the Premises,
including broker's commissions.
"The worth at the time of the award" as used in subparagraphs 1 and 2 above, is
to be computed by allowing interest at the rate of ten percent (10%) per annum.
"The worth at the time of the award" as used in subparagraph 3 above, is to be
computed by discounting the amount at the discount rate of the Federal Reserve
Bank situated nearest to the Premises at the time of the award plus one percent
(1 %).
The waiver by Landlord of any breach of any term, covenant or condition of this
Lease shall not be deemed a waiver of such term, covenant or condition or of any
subsequent breach of the same or any other term, covenant or condition.
Acceptance of Rent by Landlord subsequent to any breach hereof shall not be
deemed a waiver of any preceding breach other than the failure to pay the
particular Rent so accepted, regardless of Landlord's knowledge of any breach at
the time of such acceptance of Rent. Landlord shall not be deemed to have
waived any term, covenant or condition unless Landlord gives Tenant written
notice of such waiver.
27.3 LANDLORD'S DEFAULT. If Landlord fails to perform any covenant, condition
or agreement contained in this Lease within thirty (30) days after receipt of
written notice from Tenant specifying such default, or if such default cannot
reasonably be cured within thirty (30) days, if Landlord fails to commence to
cure within that thirty (30) day period, then Landlord shall be liable to Tenant
for any damages sustained by Tenant as a result of Landlord's breach; provided,
however, it is expressly understood and agreed that if Tenant obtains a money
judgment against Landlord resulting from any default or other claim arising
under this Lease, that judgment shall be satisfied only out of the rents,
issues, profits, and other income actually received on account of Landlord's
right, title and interest in the Premises, Building or Project, and no other
real, personal or mixed property of Landlord (or of any of the partners which
comprise Landlord, if any) wherever situated, shall be subject to levy to
satisfy such judgment. If, after notice to Landlord of default, Landlord (or
any first mortgagee or first deed of trust beneficiary of Landlord) fails to
cure the default as provided herein, then Tenant shall have the right to cure
that default at Landlord's expense. Tenant shall not have the right to
terminate this Lease or to withhold, reduce or offset any amount against any
payments of Rent or any other charges due and payable under this Lease except as
otherwise specifically provided herein.
28. BROKERAGE FEES.
Tenant warrants and represents that it has not dealt with any real estate broker
or agent in connection with this Lease or its negotiation except those noted in
Section 2.c. Tenant shall indemnify and hold Landlord harmless from any cost,
expense or liability (including costs of suit and reasonable attorneys' fees)
for any compensation, commission or fees claimed by any other real estate
broker or agent in connection with this Lease or its negotiation by reason of
any act of Tenant.
29. NOTICES.
All notices, approvals and demands permitted or required to be given under this
Lease shall be in writing and deemed duly served or given if personally
delivered or sent by certified or registered U.S. mail, postage prepaid, and
addressed as follows: (a) if to Landlord, to Landlord's Mailing Address and to
the Building manager, and (b) if to Tenant, to Tenant's Mailing Address;
provided, however, notices to Tenant shall be deemed duly served or given if
delivered or mailed to Tenant at the Premises. Landlord and Tenant may from
time to time by notice to the other designate another place for receipt of
future notices.
30. GOVERNMENT ENERGY OR UTILITY CONTROLS.
In the event of imposition of federal, state or local government controls,
rules, regulations, or restrictions on the use or consumption of energy or other
utilities during the Term, both Landlord and Tenant shall be bound thereby. In
the event of a difference in interpretation by Landlord and Tenant of any such
controls, the interpretation of Landlord shall prevail, and Landlord shall have
the right to enforce compliance therewith, including the right of entry into the
Premises to effect compliance.
31. PARAGRAPH OMMITTED
(11)
<PAGE>
32. QUIET ENJOYMENT.
Tenant, upon paying the Rent and performing all of its obligations under this
Lease, shall peaceably and quietly enjoy the Premises, subject to the terms of
this Lease and to any mortgage, lease, or other agreement to which this Lease
may be subordinate.
33. OBSERVANCE OF LAW.
Tenant shall not use the Premises or permit anything to be done in or about the
Premises which will in any way conflict with any law, statute, ordinance or
governmental rule or regulation now in force or which may hereafter be enacted
or promulgated. Tenant shall, at its sole cost and expense, promptly comply
with all laws, statutes, ordinances and governmental rules, regulations or
requirements now in force or which may hereafter be in force, and with the
requirements of any board of fire insurance underwriters or other similar bodies
now or hereafter constituted, relating to, or affecting the condition, use or
occupancy of the Premises, excluding structural changes not related to or
affected by Tenant's improvements or acts. The judgment of any court of
competent jurisdiction or the admission of Tenant in any action against Tenant,
whether Landlord is a party thereto or not, that Tenant has violated any law,
ordinance or governmental rule, regulation or requirement, shall be conclusive
of that fact as between Landlord and Tenant.
34. FORCE MAJEURE.
Any prevention, delay or stoppage of work to be performed by Landlord or Tenant
which is due to strikes, labor disputes, inability to obtain labor, materials,
equipment or reasonable substitutes therefor, acts of God, governmental
restrictions or regulations or controls, judicial orders, enemy or hostile
government actions, civil commotion, fire or other casualty, or other causes
beyond the reasonable control of the party obligated to perform hereunder, shall
excuse performance of the work by that party for a period equal to the duration
of that prevention, delay or stoppage. Nothing in this Article 34 shall excuse
or delay Tenant's obligation to pay Rent or other charges under this Lease.
35. CURING TENANT'S DEFAULTS.
If Tenant defaults in the performance of any of its obligations under this
Lease, Landlord may (but shall not be obligated to) without waiving such
default, perform the same for the account at the expense of Tenant. Tenant
shall pay Landlord all costs of such performance promptly upon receipt of a bill
therefor.
36. SIGN CONTROL.
Tenant shall not affix, paint, erect or inscribe any sign, projection, awning,
signal or advertisement of any kind to any part of the Premises, Building or
Project, including without limitation, the inside or outside of windows or
doors, without the written consent of Landlord. Landlord shall have the right
to remove any signs or other matter, installed without Landlord's permission,
without being liable to Tenant by reason of such removal, and to charge the cost
of removal to Tenant as additional rent hereunder, payable within ten (10) days
of written demand by Landlord.
37. MISCELLANEOUS.
a. ACCORD AND SATISFACTION; ALLOCATION OF PAYMENTS. No payment by Tenant or
receipt by Landlord of a lesser amount than the Rent provided for in this Lease
shall be deemed to be other than on account of the earliest due Rent, nor shall
any endorsement or statement on any check or letter accompanying any check or
payment as Rent be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of the Rent or pursue any other remedy provided for in this Lease. In
connection with the foregoing, Landlord shall have the absolute right in its
sole discretion to apply any payment received from Tenant to any account or
other payment of Tenant then not current and due or delinquent.
b. ADDENDA. If any provision contained in an addendum to this Lease is
inconsistent with any other provision herein, the provision contained in the
addendum shall control, unless otherwise provided in the addendum.
c. ATTORNEYS' FEES. It any action or proceeding is brought by either party
against the other pertaining to or arising out of this Lease, the finally
prevailing party shall be entitled to recover all costs and expenses, including
reasonable attorneys' fees, incurred on account of such action or proceeding.
d. CAPTIONS, ARTICLES AND SECTION NUMBERS. The captions appearing within the
body of this Lease have been inserted as a matter of convenience and for
reference only and in no way define, limit or enlarge the scope or meaning of
this Lease. All references to Article and Section numbers refer to Articles and
Sections in this Lease.
e. CHANGES REQUESTED BY LENDER. Neither Landlord or Tenant shall unreasonably
withhold its consent to changes or amendments to this Lease requested by the
lender on Landlord's Interest, so long as these changes do not alter the basic
business terms of this Lease or otherwise materially diminish any rights or
materially increase any obligations of the party from whom consent to such
charge or amendment is requested.
(12)
<PAGE>
f. CHOICE OF LAW. This Lease shall be construed and enforced in accordance
with the laws of the State.
g. CONSENT. Notwithstanding anything contained in this Lease to the contrary,
Tenant shall have no claim, and hereby waives the right to any claim against
Landlord for money damages by reason of any refusal, withholding or delaying by
Landlord of any consent, approval or statement of satisfaction, and in such
event, Tenant's only remedies therefor shall be an action for specific
performance, injunction or declaratory judgment to enforce any right to such
consent, etc.
h. CORPORATE AUTHORITY. If Tenant is a corporation, each individual signing
this Lease on behalf of Tenant represents and warrants that he is duly
authorized to execute and deliver this Lease on behalf of the corporation, and
that this Lease is binding on Tenant in accordance with its terms. Tenant
shall, at Landlord's request, deliver a certified copy of a resolution of its
board of directors authorizing such execution.
i. COUNTERPARTS. This Lease may be executed in multiple counterparts, all of
which shall constitute one and the same Lease.
j. EXECUTION OF LEASE; NO OPTION. The submission of this Lease to Tenant shall
be for examination purposes only, and does not and shall not constitute a
reservation of or option for Tenant to lease, or otherwise create any interest
of Tenant in the Premises or any other premises within the Building or Project.
Execution of this Lease by Tenant and its return to Landlord shall not be
binding on Landlord notwithstanding any time interval, until Landlord has in
fact signed and delivered this Lease to Tenant.
k. FURNISHING OF FINANCIAL STATEMENTS; TENANT'S REPRESENTATIONS. In order to
induce Landlord to enter into this Lease Tenant agrees that it shall promptly
furnish Landlord, from time to time, upon Landlord's written request, with
financial statements reflecting Tenant's current financial condition. Tenant
represents and warrants that all financial statements, records and information
furnished by Tenant to Landlord in connection with this Lease are true, correct
and complete in all respects.
l. FURTHER ASSURANCES. The parties agree to promptly sign all documents
reasonably requested to give effect to the provisions of this Lease.
m. MORTGAGEE PROTECTION. Tenant agrees to send by certified or registered mail
to any first mortgagee or first deed of trust beneficiary of Landlord whose
address has been furnished to Tenant, a copy of any notice of default served by
Tenant on Landlord. If Landlord fails to cure such default within the time
provided for in this Lease, such mortgagee or beneficiary shall have an
additional thirty (30) days to cure such default; provided that if such default
cannot reasonably be cured within that thirty (30) day period, then such
mortgagee or beneficiary shall have such additional time to cure the default as
is reasonably necessary under the circumstances.
n. PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all of the agreements of
the parties with respect to any matter-covered or mentioned in this Lease, and
no prior agreement or understanding pertaining to any such matter shall be
effective for any purpose. No provisions of this Lease may be amended or added
to except by an agreement in writing signed by the parties or their respective
successors in interest.
o. RECORDING. Tenant shall not record this Lease without the prior written
consent of Landlord. Tenant, upon the request of Landlord, shall execute and
acknowledge a "short form" memorandum of this Lease for recording purposes.
p. SEVERABILITY. A final determination by a court of competent jurisdiction
that any provision of this Lease is invalid shall not affect the validity of any
other provision, and any provision so determined to be invalid shall, to the
extent possible, be construed to accomplish its intended effect.
q. SUCCESSORS AND ASSIGNS. This Lease shall apply to and bind the heirs,
personal representatives, and permitted successors and assigns of the parties.
r. TIME OF THE ESSENCE. Time is of the essence of this Lease.
s. WAIVER. No delay or omission in the exercise of any right or remedy of
Landlord upon any default by Tenant shall impair such right or remedy or be
construed as a waiver of such default.
The receipt and acceptance by Landlord of delinquent Rent shall not constitute a
waiver of any other default; it shall constitute only a waiver of timely payment
for the particular Rent payment involved.
No act or conduct of Landlord, including, without limitation, the acceptance of
keys to the Premises, shall constitute an acceptance of the surrender of the
Premises by Tenant before the expiration of the Term. Only a written notice
from Landlord to Tenant shall constitute acceptance of the surrender of the
Premises and accomplish a termination of the Lease.
Landlord's consent to or approval of any act by Tenant requiring Landlord's
consent or approval shall not be deemed to waive or render unnecessary
Landlord's consent to or approval of any subsequent act by Tenant.
Any waiver by Landlord of any default must be in writing and shall not be a
waiver of any other default concerning the same or any other provision of the
Lease.
(13)
<PAGE>
EXHIBIT 'A'
[FLOOR PLAN]
<PAGE>
[FLOOR PLAN]
<PAGE>
Exhibit C
1. No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed, or printed or affixed on or to any part of the outside or
include of the Building, without first obtaining the written consent of Landlord
otherwise Landlord shall have the right to remove any of the foregoing without
notice to and at the expense of Tenant. All approved signs or lettering on
doors shall be printed, painted, affixed or inscribed at the expense of Tenant
by a person approved of by Landlord.
2. Tenant shall not place anything or allow anything to be placed near any
window, door, partition or wall which may appear unsightly from outside the
Premises. Landlord may, but is not obligated to, furnish and install a Building
standard window-covering at all exterior windows. Tenant shall not without
prior written consent of Landlord cause or otherwise sunscreen any window.
3. The sidewalk, halls, passages, exits, entrances, elevators and stairways
shall not be obstructed by Tenant or used by Tenant for any purpose other than
for getting to and from the Premises.
4. Tenant shall not alter any lock or install any new additional locks or any
bolt on any doors or windows of the Premises without Landlord's prior written
consent.
5. The toilet room, urinals, wash bowls and other apparatus shall not be used
for any purpose other than that of which they were constructed and no foreign
substance of any kind whatsoever shall be placed therein. The cost and expense
of repair and/or replacement for any breakage, stoppage or damage resulting from
the violation of this rule shall be borne by the Tenant, and Tenant shall
bear the responsibility for its employees or invitees of Tenant, who shall
have caused such breakage, stoppage or damage.
6. Tenant shall not overload the floor of the Premises or in any way deface
any part of the Premises.
7. Landlord shall have the right to prescribe the weight, size and position of
all safes and other heavy objects brought into the Building and also the times
and manner of moving the same in and out of the Building. Safes or other heavy
objects shall, if considered necessary by Landlord, stand on supports of such
thickness as is necessary to properly distribute the weight. Landlord will not
be responsible for loss of or damage to any such safe or heavy object from any
cause and all damage done to the Building by moving or maintaining any such safe
or heavy object shall be repaired at the expense of Tenant.
8. Tenant shall not use, keep, or permit to be used or kept, any foul, noxious
gas or substance in the Premises, or permit or suffer the Premises to be
occupied or used in any manner offensive to the Landlord or other tenants or
occupants of the Building, by reason of noise, odors and/or vibrations, or
interfere in any way with other tenants or those having business therein, nor
shall any animals or birds be brought in or kept in or about the Premises or the
Building.
9. No cooking shall be done or permitted by Tenant on the Premises, nor shall
the Premises be used for storage of merchandise, washing clothes, lodging, or
for any improper, objectionable or immoral purposes as Landlord may determine in
its sole and absolute discretion. Tenant may use a microwave oven and a
refrigerator on the Premises for the convenience of Tenant's employees.
10. Tenant shall not use or keep in the Premises or the Building any kerosene,
gasoline or other inflammable material, or use any method of heating or
air-conditioning other than that supplied by Landlord.
11. Landlord will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for wires will be
allowed without the prior written consent of the Landlord. The location of
telephones, call boxes and other office equipment affixed to the Premises shall
be subject to the prior written approval of Landlord.
12. On Saturdays, Sundays and legal holidays, and on other days between the
hours of 6:00 p.m. and 8:00 a.m. the following day, access to the Building, or
to the halls, corridors, elevators or stairways in the Building, or to the
Premises may be refused unless the person seeking access is known to the person
or employee of the Building then in charge and has a pass or is properly
identified. The Landlord shall in no case be liable for damages for any error
with regard to the admission to or exclusion from the Building of any person.
In case of invasion, mob, riot, public excitement, or other commotion, the
Landlord reserves the right to prevent access to the Building or Property during
the continuance of the same by closing of doors or otherwise for the safety of
the tenants and protection of the Building and property in the Building.
13. Landlord reserves the right to exclude or expel from the Building or
Property any person who, in the judgement of Landlord, is intoxicated or under
the influence of liquor or drugs, or whole shall in any manner do any act in
violation of any of the Rules and Regulations of the Building.
14. No vending machine or machines of any description shall be installed,
maintained or operated upon the Premises without the prior written consent of
the Landlord.
15. Landlord shall have the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the Building of
which the Premises are a part.
16. Tenant shall not disturb, solicit, or canvass any occupant of the Building
and shall cooperate with Landlord and other tenants to prevent same.
17. Without the prior written consent of Landlord, Tenant shall not use the
name of the Building in connection with or in promoting or advertising the
business of Tenant except as Tenant's address.
18. Landlord shall have the right to control and operate the common areas of
the Building and the Property, and the public facilities, heating and
air-conditioning, as well as facilities furnished for the common use of the
tenants, in such a manner as it deems best for the benefit of all tenants
generally.
19. All entrance doors to the Premises shall be locked when the Premises are
not in use, and all doors opening to public corridors shall be kept closed while
the Premises are being used pursuant to the terms of the Lease.
<PAGE>
LEASE AGREEMENT
LESSEE: DELIVERY ADDRESS:
FEATHER RIVER STATE BANK FEATHER RIVER STATE BANK
1005 STAFFORD WAY 114 "D" STREET
YUBA CITY, CA 95991 YUBA CITY, CA 95993
EQUIPMENT SPECIFICATIONS
<TABLE>
<CAPTION>
MODEL SERIAL NUMBER DELIVERY DATE VALUE MINIMUM LEASE TERM RATE PER MONTH
----- ------------- ------------- ----- ------------------ --------------
<S> <C> <C> <C> <C> <C>
64 X 24 CPX-04249 3/1/97 $100,000.00 6 MONTHS $2,255.00 + tax
(or $1.56 per sq. ft.)
</TABLE>
*CONSISTS OF: SMC-02001-454 SMC-02001-455
This agreement is made as of by Vault Security Systems,
Inc., a California corporation trading as one of the above entities
(hereinafter referred to as Lessor) and the Lessee named above.
Lessor hereby agrees to Lease to Lessees and Lessee hereby agrees to
lease and rent from Lessor the trailer(s) and/or relocatable, modular
and/or pre-fabricated structure(s) described below together with stairs,
railings, furniture and other items attached or appurtenant-thereto
(hereinafter referred to collectively as the "Equipment").
NOTICE: LESSEE IS RESPONSIBLE FOR DAMAGE TO THE EQUIPMENT IN ACCORDANCE WITH
ARTICLE 11 OF THE LEASE TERMS AND CONDITIONS ON REVERSE SIDE.
1. LIABILITY WAIVER: LESSEE / /ACCEPTS / /DECLINES to pay an additional
$.25 per day per trailer in consideration for the agreement on the part of
the Lessor contained in Paragraph 13(a) of the Terms and Conditions (reverse
side).
2. PHYSICAL DAMAGE WAIVER: LESSEE / /ACCEPTS / /DECLINES to pay
additional $2.75 per $1,000 value of equipment each month in consideration
for the agreement on the part of the Lessor contained in Paragraph 13(b) of
the Terms and Conditions (reverse side).
FAILURE TO PROVIDE A VALID INSURANCE CERTIFICATE WITHIN 30 DAYS OF DELIVERY
WILL CONSTITUTE AN AUTOMATIC ACCEPTANCE AS CONTAINED IN 12(C).
BILLING INFORMATION
I. MONTHLY:
<TABLE>
<S> <C>
RENT MULTI-SECTIONAL WITH THE FOLLOWING INTERIOR CONTENTS: $2,255.00 + TAX PER MONTH
a) 32 ft. of Ramp & Deck & Rear Steps (OR $1.56 PER SQ. FT.)
b) Telephone System
c) (4) Storage Cabinets
d) Staff Lounge Table & (4) Chairs
e) Signature Card Trays
f) (1) 2-Drawer Firefile
</TABLE>
LESSEE: ACCEPTED LESSOR: VAULT SECURITY SYSTEMS, INC.
BY: /s/ Illegible BY: /s/ Illegible
---------------------------- ---------------------------
TITLE: Pres/CEO TITLE: G.M.
---------------------------- ---------------------------
PAGE 1 OF 3
<PAGE>
LEASE AGREEMENT CONTINUED...
BILLING INFORMATION CONTINUED...
g) (1) Microwave Unit
h) TL-15 Porta Vaults
i) 14 c.f. Refrigerator (white)
j) (2) #16073066 L-SP "DECO"Desks (gray) (see V.S.S. catalog)
k) (6) #F-5901 Swivel Chairs, "HON" (black) (see V.S.S. catalog)
l) (6) #D-4003 Guest Arm Chairs, "HON" (gray) (see V.S.S. catalog)
m) (6) Refuse Containers
n) (4) Sit-down Teller Pedestals
o) (4) Teller Cashtrays with Lids
p) (2) Rolled Coin Trays
q) Complete Hold-up and Burglary Alarm System
r) Complete Video Surveillance System (including ATM camera)
s) (1) Safe Deposit Customer Pedestal (TP-Unit)
t) (1) Night Depository and (25) customer keys
u) (1) Dual Control Key Cabinet
v) (6) Interior Cash Tray Lockers
w) Currency & Coin Storage Lockers with dual access
II. INITIAL PAYMENT:
Delivery Freight to Wheatland (includes pilots & permits) $ 1,046.00
Block & Level 1,070.00
New 16oz. Carpet 520.00
Tie Downs 840.00
168 ft. Skirting 1,680.00
Tenant Improvements 2,095.00
Ramp Delivery & Set-up 1,150.00
Engineering Plans 300.00
Licensing Fee 15.00
Phone System 600.00
Teller Security and Operatons Equipment Installed 3,000.00
----------
$ 12,316.00
AFTER INITIAL PAYMENT HAS BEEN MADE, A MONTHLY RENTAL OF $2,255.00 PLUS ALL
APPLICABLE TAXES AND FEES ARE PAYABLE ON THE 1ST OF EACH MONTH.
LESSEE: ACCEPTED LESSOR: VAULT SECURITY SYSTEMS, INC.
BY: /s/ Illegible BY: /s/ Illegible
---------------------------- ---------------------------
TITLE: Pres/CEO TITLE: G.M.
---------------------------- ---------------------------
PAGE 2 OF 3
<PAGE>
LEASE AGREEMENT CONTINUED...
BILLING INFORMATION CONTINUED...
III. ADDITIONAL OPTIONS CHOSEN:
Bottled Water (TO BILLED SEPARATELY) SEPARATE BILLING
NCR 5085 ATM and Facia (TO BILLED SEPARATELY) SEPARATE BILLING
(2) Module Safe Deposit Boxes $ 2,180.00 + tax
Expand Tellerline to (4) Stations 500.00
(2) 4-Drawer Verticle Firefiles 1,988.00 + tax
Installation of Tharp Road Night Depository 500.00
Installation of Kitchen Coffee Bar 300.00
---------
$ 5,468.00
IV. LEASE TERMINATION BILLING:
Ramp Dismantle & Retrieval $ 795.00
Knockdown, Skirt & Tiedown Removal $ 1,070.00
Return Freight, Pilots & Permits $ 1,046.00
Interior Dismantle & Removal of Security and Operations Equipment $ 2,500.00
ATM & Night Depository Wall Repair $ 975.00
---------
$ 6,386.00
LESSEE: ACCEPTED LESSOR: VAULT SECURITY SYSTEMS, INC.
BY: /s/ Illegible BY: /s/ Illegible
---------------------------- ---------------------------
TITLE: Pres/CEO TITLE: G.M.
---------------------------- ---------------------------
PAGE 3 OF 3
<PAGE>
Exhibit 23
ARTHUR ANDERSEN LLP
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K, into the Company's previously filed
Registration Statements File No. 333-09813 and No. 333-09823.
Arthur Andersen LLP
Sacramento, California
March 27, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 22,928
<INT-BEARING-DEPOSITS> 182,775
<FED-FUNDS-SOLD> 41,300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 11,374
<INVESTMENTS-CARRYING> 23,289
<INVESTMENTS-MARKET> 7,980
<LOANS> 151,100
<ALLOWANCE> 4,053
<TOTAL-ASSETS> 262,602
<DEPOSITS> 237,892
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,418
<LONG-TERM> 0
0
0
<COMMON> 11,088
<OTHER-SE> 10,936
<TOTAL-LIABILITIES-AND-EQUITY> 262,602
<INTEREST-LOAN> 17,226
<INTEREST-INVEST> 1,866
<INTEREST-OTHER> 1,483
<INTEREST-TOTAL> 20,575
<INTEREST-DEPOSIT> 7,416
<INTEREST-EXPENSE> 7,449
<INTEREST-INCOME-NET> 13,126
<LOAN-LOSSES> 385
<SECURITIES-GAINS> (18)
<EXPENSE-OTHER> 10,270
<INCOME-PRETAX> 5,608
<INCOME-PRE-EXTRAORDINARY> 5,608
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,401
<EPS-PRIMARY> 2.18
<EPS-DILUTED> 2.18
<YIELD-ACTUAL> 056
<LOANS-NON> 846
<LOANS-PAST> 2,202
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,911
<CHARGE-OFFS> 328
<RECOVERIES> 84
<ALLOWANCE-CLOSE> 4,053
<ALLOWANCE-DOMESTIC> 4,053
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
