-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JZp5qQ0JzTC+P4oQcBs/ej4jkdil+An+TkjWH/SFY5GPOUC/GlhP8d0BanCSBVmL fjj+fO16t7G2AfB3EED6kg== 0000912057-96-005818.txt : 19960402 0000912057-96-005818.hdr.sgml : 19960402 ACCESSION NUMBER: 0000912057-96-005818 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 22 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960401 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: SC BANCORP CENTRAL INDEX KEY: 0000351617 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 953585586 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-10699 FILM NUMBER: 96543185 BUSINESS ADDRESS: STREET 1: 3800 EAST LAPALMA AVENUE CITY: ANAHEIM STATE: CA ZIP: 92807 BUSINESS PHONE: 7142288200 MAIL ADDRESS: STREET 1: 3800 EAST LAPALM AVENUE CITY: ANAHEIM STATE: CA ZIP: 92807 10-K405 1 10-K405 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K ANNUAL REPORT PURSUANT to SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the year ended December 31, 1995. Commission File Number 0-11046 SC BANCORP (Exact name of registrant as specified in its charter) California 95-3585586 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 3800 E. La Palma Ave., Anaheim, California 92807-1798 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (714) 238-3110 Securities registered pursuant to Section 12 (b) of the Act: Name of each exchange Title of each class on which registered - ------------------- ------------------- Common Stock American Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES. [X] NO. [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the 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]. There were 7,472,805 shares of common stock for the registrant issued and outstanding as of March 25, 1996. The aggregate market value of the voting stock, based on the closing price of the stock on the American Stock Exchange on March 25, 1996, held by nonaffiliates of the registrant was approximately $44,451,062. DOCUMENTS INCORPORATED BY REFERENCE The registrant's Definitive Proxy Statement for the Annual Meeting of Stockholders, which will be filed within 120 days after the fiscal year ended December 31, 1995, is incorporated by reference into Part III of this Form 10-K. SC BANCORP FORM 10-K INDEX PAGES PART I ITEM 1. Business 1 ITEM 2. Properties 24 ITEM 3. Legal Proceedings 25 ITEM 4. Submission of Matters to a Vote of Security Holders 25 PART II ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters 25 ITEM 6. Selected Financial Data 26 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 27 ITEM 8. Financial Statements and Supplementary Data 31 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 54 PART III ITEM 10. Directors and Executive Officers of the Registrant 54 ITEM 11. Executive Compensation 54 ITEM 12. Security Ownership of Certain Beneficial Owners and Management 54 ITEM 13. Certain Relationships and Related Transactions 54 PART IV ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 54 Signatures 57 PART I. ITEM 1. BUSINESS SC Bancorp is a bank holding company incorporated in California on February 9, 1981, and registered under the Bank Holding Company Act of 1956, as amended ("BHCA"). SC Bancorp conducts operations through its sole subsidiary, Southern California Bank, a California state-chartered commercial bank. The Company's executive offices are located at 3800 East La Palma Avenue, Anaheim, California 92807-1798. References herein to the "Company" are to SC Bancorp and Southern California Bank on a consolidated basis. References to "SC Bancorp" are to SC Bancorp on an unconsolidated basis; and references to the "Bank" are to Southern California Bank. Southern California Bank Southern California Bank was formed in 1981 through the merger of the Bank of Downey and the National Bank of Whittier, both founded in 1964. The Bank provides general commercial banking services to individuals and to small to medium-sized businesses in its local service areas through its branch network, which as of December 31, 1995, consisted of 17 branches, 4 of which include corporate banking centers. The Bank concentrates on marketing to and serving the needs of individuals and businesses in southeastern Los Angeles County, and in Orange and San Diego counties. The Bank's primary credit focus is to serve professionals and middle-market companies, including manufacturers and service providers with sales of up to $50 million. Current commercial lending activities consist primarily of medium-term commercial real estate loans secured by commercial properties, working capital loans, and accounts receivable financing. The Bank's consumer products are tailored to serve the financing needs of its retail customers, and the executives and employees of its business clients. Consumer loans consist primarily of home equity lines of credit, personal lines of credit to high net worth individuals, and vehicle loans. The Bank accepts deposits mostly from small to medium-sized businesses and their employees, high net worth individuals, and other consumers. The Bank's deposit accounts are insured by the Federal Deposit Insurance Corporation ("FDIC") to the extent permitted by law. The FDIC is the Bank's principal regulator. In recent years, the Bank's service area has experienced adverse economic conditions. Southern California was hit particularly hard by cutbacks in the defense and aerospace industries, reductions in the growth of international trade, employment losses due to corporate restructurings and declines in real estate values. These circumstances have affected some borrowers' ability to repay loans. As part of the Company's strategic focus on growth in the Orange County market, the Company acquired substantially all of the Corporate and Private Banking Division of Independence One Bank of California, F.S.B. ("IOBC"), during the second quarter of 1995. The Company also acquired two full-service branch locations: one in southern Orange County and the other in northern San Diego County. Later, during the third quarter of 1995, management implemented a restructuring plan (the "1995 Restructuring") to improve the efficiency and financial performance of the Bank. The Bank recorded approximately $1.7 million of losses and other charges in conjunction with the 1995 Restructuring. During the second and fourth quarters of 1993, the Company acquired certain cash assets and deposits of American Commerce National Bank from the FDIC, and a branch centrally located in Downey, California from Community Bank. In conjunction with these acquisitions, management initiated a consolidation of the branch network. In the third quarter of 1993, the Company recorded nonrecurring expenses of approximately $944 thousand for severance expenses, lease terminations and write-offs of other assets as part of a restructuring plan (the "1993 Restructuring"). Competition The banking and financial services business in California generally, and in the Bank's market areas specifically, is highly competitive. The increasingly competitive environment is a result primarily of changes in regulation, changes in technology and product delivery systems, and the accelerating pace of consolidation among financial services providers. The Bank competes for loans and deposits and for financial services customers with other commercial banks, savings and loan associations, securities and brokerage companies, mortgage companies, insurance companies, finance companies, money market funds, credit unions and other nonbank financial service providers. Many of these competitors are much larger in total assets and capitalization, have greater access to capital markets and offer a broader array of financial services than the Bank. In order to compete with the other financial services providers, the Bank principally relies upon local promotional activities and personal relationships established by officers, 1 Part I. Item 1 (continued) directors and employees with its customers, and specialized services tailored to meet its customers' needs. In those instances where the Bank is unable to accommodate a customer's needs, the Bank will arrange for those services to be provided by its correspondents. Divestitures During the fourth quarter of 1995, the Company signed agreements to sell its Signal Hill and City of Industry branches to other financial institutions. The Company also elected to consolidate its Yorba Linda branch into its Tustin/ La Palma office. These transactions were completed during the first quarter of 1996. Employees At December 31, 1995, the Company had 226 full-time equivalent employees, up from 220 at year-end 1994. Management believes that its relations with its employees are satisfactory. Effect Of Governmental Policies And Recent Legislation Banking is a business that depends on rate differentials. In general, the difference between the interest rate paid by the company on its deposits and its other borrowings and the interest rate received by the Company on loans extended to its customers and securities held in the Company's portfolio, comprise the major portion of the Company's earnings. These rates are highly sensitive to many factors that are beyond the control of the Company. Accordingly, the earnings and growth of the company are subject to the influence of local, domestic and foreign economic conditions, including recession, unemployment and inflation. The commercial banking business is not only affected by general economic conditions, but is also influenced by the monetary and fiscal policies of the Federal government and the policies of regulatory agencies, particularly the Federal Reserve Board. The Federal Reserve Board implements national monetary policies (with objectives such as curbing inflation and combating recession) by its open-market operations in United States Government securities, by adjusting the required level of reserves for financial intermediaries subject to its reserve requirements and by varying the discount rates applicable to borrowings by depository institutions. The actions of the Federal Reserve Board in these areas influence the growth of bank loans, investments and deposits and also affect interest rates charged on loans and paid on deposits. The nature and impact of any future changes in monetary policies cannot be predicted. From time to time, legislation is enacted which has the effect of increasing the cost of doing business, limiting or expanding permissible activities or affecting the competitive balance between banks and other financial institutions. Proposals to change the laws and regulations governing the operations and taxation of banks, bank holding companies and other financial institutions are frequently made in Congress, in the California legislature and before various bank regulatory and other professional agencies. The Financial Services Modernization Act recently proposed in the House of Representatives would generally permit banks to expand activities further into the areas of securities and insurance, and would reduce the regulatory and paperwork burden that currently affects banks. Additionally, the proposed legislation would force the conversion of savings and loan holding companies into bank holding companies, although unitary savings and loan holding companies authorized to engage in activities as of January 1, 1995 would be exempted. Similar legislation has also been proposed in the Senate. In addition, legislation was recently introduced in Congress that would merge the deposit insurance funds applicable to commercial banks and savings associations and impose a one-time assessment on savings associations to recapitalize the deposit insurance fund applicable to savings associations. The likelihood of any major legislative changes and the impact such changes might have on the Company are impossible to predict. See Item 1, Supervision and Regulation, below. Supervision And Regulation Bank holding companies and banks are extensively regulated under both federal and state law. Set forth below is a summary description of certain laws which relate to the regulation of SC Bancorp and the Bank. The description does not purport to be complete and is qualified in its entirety by reference to the applicable laws and regulations. SC Bancorp SC Bancorp, as a registered bank holding company, is subject to regulation under the BHCA. SC Bancorp is required to file with the Federal Reserve Board quarterly and annual reports and such additional information as the Federal Reserve Board may require pursuant to the BHCA. The Federal Reserve Board may conduct examinations of SC Bancorp and its subsidiaries. 2 Part I. Item 1 (continued) The Federal Reserve Board may require that SC Bancorp terminate an activity or terminate control of or liquidate or divest certain subsidiaries or affiliates when the Federal Reserve Board believes the activity or the control of the subsidiary or affiliate constitutes a significant risk to the financial safety, soundness or stability of any of its banking subsidiaries. The Federal Reserve Board also has the authority to regulate provisions of certain bank holding company debt, including authority to impose interest ceilings and reserve requirements on such debt. Under certain circumstances, SC Bancorp must file written notice and obtain approval from the Federal Reserve Board prior to purchasing or redeeming its equity securities. Under the BHCA and regulations adopted by the Federal Reserve Board, a bank holding company and its nonbanking subsidiaries are prohibited from requiring certain tie-in arrangements in connection with any extension of credit, lease or sale of property or furnishing of services. Further, SC Bancorp is required by the Federal Reserve Board to maintain certain levels of capital. See Item 1, Supervision and Regulation-Capital Standards, below. SC Bancorp is required to obtain the prior approval of the Federal Reserve Board for the acquisition of more than 5% of the outstanding shares of any class of voting securities or substantially all of the assets of any bank or bank holding company. Prior approval of the Federal Reserve Board is also required for the merger or consolidation of SC Bancorp and another bank holding company. SC Bancorp is prohibited by the BHCA, except in certain statutorily prescribed instances, from acquiring direct or indirect ownership or control of more than 5% of the outstanding voting shares of any company that is not a bank or bank holding company and from engaging directly or indirectly in activities other than those of banking, managing or controlling banks or furnishing services to its subsidiaries. However, SC Bancorp, subject to the prior approval of the Federal Reserve Board, may engage in any, or acquire shares of companies engaged in, activities that are deemed by the Federal Reserve Board to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. In making any such determination, the Federal Reserve Board is required to consider whether the performance of such activities by SC Bancorp or an affiliate can reasonably be expected to produce benefits to the public, such as greater convenience, increased competition or gains in efficiency, that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest or unsound banking practices. The Federal Reserve Board is also empowered to differentiate between activities commenced DE NOVO and activities commenced by acquisition, in whole or in part, of a going concern. Under Federal Reserve Board regulations, a bank holding company is required to serve as a source of financial and managerial strength to its subsidiary banks and may not conduct its operations in an unsafe or unsound manner. In addition, it is the Federal Reserve Board's policy that in serving as a source of strength to its subsidiary banks, a bank holding company should stand ready to use available resources to provide adequate capital funds to its subsidiary banks during periods of financial stress or adversity and should maintain the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks. A bank holding company's failure to meet its obligations to serve as a source of strength to its subsidiary banks will generally be considered by the Federal Reserve Board to be an unsafe and unsound banking practice or a violation of the Federal Reserve Board's regulations or both. This doctrine has become known as the "source of strength" doctrine. Although the United States Court of Appeals for the Fifth Circuit found the Federal Reserve Board's source of strength doctrine invalid in 1990, stating that the Federal Reserve Board had no authority to assert the doctrine under the BHCA, the decision, which is not binding on federal courts outside the Fifth Circuit, was recently reversed by the United States Supreme Court on procedural grounds. The validity of the source of strength doctrine is likely to continue to be the subject of litigation until definitively resolved by the courts or by Congress. SC Bancorp is also a bank holding company within the meaning of Section 3700 of the California Financial Code. As such, SC Bancorp and its subsidiaries are subject to examination by, and may be required to file reports with, the California State Banking Department. Finally, SC Bancorp is subject to the periodic reporting requirements of the Securities Exchange Act of 1934, as amended, including but not limited to, filing annual, quarterly and other current reports with the Securities and Exchange Commission. The Bank The Bank, as a California state chartered bank, is subject to primary supervision, periodic examination and regulation by the California Superintendent of Banks ("Superintendent") and the FDIC. If, as a result of an examination of a bank, the FDIC should determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of the bank's operations are unsatisfactory or that the bank or its management is violating or has violated any law or regulation, 3 Part I. Item 1 (continued) various remedies are available to the FDIC. Such remedies include the power to enjoin "unsafe or unsound" practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in capital, to restrict the growth of the bank, to assess civil monetary penalties, to remove officers and directors and ultimately to terminate a bank's deposit insurance, which for a California state-chartered bank would result in a revocation of the bank's charter. The Superintendent has many of the same remedial powers. The deposits of the Bank are insured by the FDIC in the manner and to the extent provided by law. For this protection, the Bank pays a semiannual statutory assessment. See Item 1, Supervision and Regulation - Premiums for Deposit Insurance, below. Although the Bank is not a member of the Federal Reserve System, it is nevertheless subject to certain regulations of the Federal Reserve Board. Various requirements and restrictions under the laws of the State of California and the United States affect the operations of the Bank. State and federal statutes and regulations relate to many aspects of the Bank's operations, including reserves against deposits, interest rates payable on deposits, loans, investments, mergers and acquisitions, borrowings, dividends, locations of branch offices and capital requirements. Further, the Bank is required to maintain certain levels of capital. See Item 1, Supervision and Regulation - Capital Standards, below. Restrictions On Transfers Of Funds To SC Bancorp By The Bank SC Bancorp is a legal entity separate and distinct from the Bank. SC Bancorp's ability to pay cash dividends is limited by state law. There are statutory and regulatory limitations on the amount of dividends which may be paid to SC Bancorp by the Bank. California law restricts the amount available for cash dividends by state chartered banks to the lesser of retained earnings or the bank's net income for its last three fiscal years (less any distributions to shareholders made during such period). Notwithstanding this restriction, a bank may, with the prior approval of the Superintendent, pay a cash dividend in an amount not exceeding the greater of the retained earnings of the Bank, the net income for such bank's last preceding fiscal year, and the net income of the bank for its current fiscal year. The FDIC also has authority to prohibit the Bank from engaging in activities that, in the FDIC's opinion, constitute unsafe or unsound practices in conducting its business. It is possible, depending upon the financial condition of the bank in question and other factors, that the FDIC could assert that the payment of dividends or other payments might, under some circumstances, be such an unsafe or unsound practice. Further, the FDIC and the Federal Reserve Board have established guidelines with respect to the maintenance of appropriate levels of capital by banks or bank holding companies under their jurisdiction. Compliance with the standards set forth in such guidelines and the restrictions that are or may be imposed under the prompt corrective action provisions of federal law could limit the amount of dividends which the Bank or SC Bancorp may pay. The Superintendent may impose similar limitations on the conduct of California-chartered banks. See Item 1, Supervision and Regulation - Prompt Corrective Regulatory Action and Other Enforcement Mechanisms and - Capital Standards, below for a discussion of these additional restrictions on capital distributions. At present, substantially all of SC Bancorp's revenues, including funds available for the payment of dividends and other operating expenses, are from the proceeds of a stock rights offering conducted by the Company in 1994. At December 31, 1995, the Bank had $8.6 million in retained earnings available for the payment of cash dividends. The Bank is subject to certain restrictions imposed by federal law on any extensions of credit to, or the issuance of a guarantee or letter of credit on behalf of, SC Bancorp or other affiliates, the purchase of or investments in stock or other securities thereof, the taking of such securities as collateral for loans and the purchase of assets of SC Bancorp or other affiliates. Such restrictions prevent SC Bancorp and such other affiliates from borrowing from the Bank unless the loans are secured by marketable obligations of designated amounts. Further, such secured loans and investments by the Bank to or in SC Bancorp or to or in any other affiliate is limited to 10% of the Bank's capital and surplus (as defined by federal regulations) and such secured loans and investments are limited, in the aggregate, to 20% of the Bank's capital and surplus (as defined by federal regulations). California law also imposes certain restrictions with respect to transactions involving SC Bancorp and other controlling persons of the Bank. Additional restrictions on transactions with affiliates may be imposed on the Bank under the prompt corrective action provisions of federal law. See Item 1, Supervision and Regulation - Prompt Corrective Action and Other Enforcement Mechanisms, below. 4 Part I. Item 1 (continued) Capital Standards The Federal Reserve Board and the FDIC have adopted risk-based minimum capital guidelines intended to provide a measure of capital 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 recorded 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. Treasury securities, to 100% for assets with relatively high credit risk, such as business loans. A banking organization's risk-based capital ratios are obtained by dividing its qualifying capital by its total risk adjusted assets. The regulators measure risk-adjusted assets, which includes 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 primarily of common stock, retained earnings, noncumulative perpetual preferred stock (cumulative perpetual preferred stock for bank holding companies) and minority interests in certain subsidiaries, less most intangible assets. Tier 2 capital may consist of a limited amount of the allowance for possible loan and lease losses, cumulative preferred stock, long term preferred stock, eligible term subordinated debt and certain other instruments with some characteristics of equity. The inclusion of elements of Tier 2 capital is subject to certain other requirements and limitations of the federal banking agencies. The federal banking agencies require a minimum ratio of qualifying total capital to risk-adjusted assets of 8% and a minimum ratio of Tier 1 capital to risk-adjusted assets 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%. For all banking organizations not rated in the highest category, the minimum leverage ratio must be at least 100 to 200 basis points above the 3% minimum, or 4% to 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. In August 1995, the federal banking agencies adopted final regulations specifying that the agencies will include, in their evaluations of a bank's capital adequacy, an assessment of the exposure to declines in the economic value of the bank's capital due to changes in interest rates. The final regulations, however, do not include a measurement framework for assessing the level of a bank's exposure to interest rate risk, which is the subject of a proposed policy statement issued by the federal banking agencies concurrently with the final regulations. The proposal would measure interest rate risk in relation to the effect of a 200 basis point change in market interest rates on the economic value of a bank. Banks with high levels of measured exposure or weak management systems generally will be required to hold additional capital for interest rate risk. The specific amount of capital that may be needed would be determined on a case-by-case basis by the examiner and the appropriate federal banking agency. Because this proposal has only recently been issued, the Bank currently is unable to predict the impact of the proposal on the Bank if the policy statement is adopted as proposed. In January 1995, the federal banking agencies issued a final rule relating to capital standards and the risks arising from the concentration of credit and nontraditional activities. Institutions which have significant amounts of their assets concentrated in high risk loans or nontraditional banking activities and who fail to adequately manage these risks, will be required to set aside capital in excess of the regulatory minimums. The federal banking agencies have not imposed any quantitative assessment for determining when these risks are significant, but have identified these issues as important factors they will review in assessing an individual bank's capital adequacy. In December 1993, the federal banking agencies issued an interagency policy statement on the allowance for loan and lease losses which, among other things, establishes certain benchmark ratios of loan loss reserves to classified assets. The benchmark set forth by such policy statement is the sum of (a) assets classified loss; (b) 50 percent of assets classified doubtful; (c) 15 percent of assets classified substandard; and (d) estimated credit losses on other assets over the upcoming 12 months. Federally supervised banks and savings associations are currently required to report deferred tax assets in accordance with SFAS No. 109. See NOTE 1- SIGNIFICANT ACCOUNTING POLICIES of the Company's consolidated financial statements located in Part II, Item 8, of this Form 10-K. The federal banking agencies recently issued final rules, effective April 1, 1995, which limit the amount of deferred tax assets that are allowable in computing an institution's regulatory capital. The standard has been in effect on an interim basis since March 1993. Deferred tax assets that can be realized for taxes paid in prior carryback years and from future reversals of 5 Part I. Item 1 (continued) existing taxable temporary differences are generally not limited. Deferred tax assets that can only be realized through future taxable earnings are limited for regulatory capital purposes to the lesser of (i) the amount that can be realized within one year of the quarter-end report date, or (ii) 10% of Tier 1 Capital. The amount of any deferred tax in excess of this limit would be excluded from Tier 1 Capital and total assets and regulatory capital calculations. Future changes in regulations or practices could further reduce the amount of capital recognized for purposes of capital adequacy. Such a change could affect the ability of the Bank to grow and could restrict the amount of profits, if any, available for the payment of dividends. Prompt Corrective Action And Other Enforcement Mechanisms Federal law requires each federal banking agency to take prompt corrective action to resolve the problems of insured depository institutions, including but not limited to those that fall below one or more prescribed minimum capital ratios. The law required each federal banking agency to promulgate regulations defining the following five categories in which an insured depository institution will be placed, based on the level of its capital ratios: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. In September 1992, the federal banking agencies issued uniform final regulations implementing the prompt corrective action provisions of federal law. An insured depository institution generally will be classified in the following categories based on capital measures indicated below: "WELL CAPITALIZED" Total risk-based capital of 10%; Tier 1 risk-based capital of 6%; and Leverage ratio of 5%. "ADEQUATELY CAPITALIZED" Total risk-based capital of 8%; Tier 1 risk-based capital of 4%; and Leverage ratio of 4% (3% if the institution receives the highest rating from its primary regulator). "UNDERCAPITALIZED" Total risk-based capital less than 8%; Tier 1 risk-based capital less than 4%; or Leverage ratio less than 4% (3% if the institution receives the highest rating from its primary regulator). "SIGNIFICANTLY UNDERCAPITALIZED" Total risk-based capital less than 6%; Tier 1 risk-based capital less than 3%; or Tier 1 risk-based capital less than 3%. "CRITICALLY UNDERCAPITALIZED" Tangible equity to total assets less than 2%. An institution that, based upon its capital levels, is classified as "well capitalized," "adequately capitalized" or "undercapitalized" may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition or an unsafe or unsound practice warrants such treatment. At each successive lower capital category, an insured depository institution is subject to more restrictions. The federal banking agencies, however, may not treat an institution as "critically undercapitalized" unless its capital ratio actually warrants such treatment. The law prohibits insured depository institutions from paying management fees to any controlling persons or, with certain limited exceptions, making capital distributions if after such transaction the institution would be undercapitalized. If an insured depository institution is undercapitalized, it will be closely monitored by the appropriate federal banking agency, subject to asset growth restrictions and required to obtain prior regulatory approval for acquisitions, branching and engaging in new lines of business. Any undercapitalized depository institution must submit an acceptable capital restoration plan to the appropriate federal banking agency 45 days after becoming undercapitalized. The appropriate federal banking agency cannot accept a capital plan unless, among other things, it determines that the plan (i) specifies the steps the institution will take to become adequately capitalized, (ii) is based on 6 Part I. Item 1 (continued) realistic assumptions and (iii) is likely to succeed in restoring the depository institution's capital. In addition, each company controlling an undercapitalized depository institution must guarantee that the institution will comply with the capital plan until the depository institution has been adequately capitalized on an average basis during each of four consecutive calendar quarters and must otherwise provide adequate assurances of performance. The aggregate liability of such guarantee is limited to the lesser of (a) an amount equal to 5% of the depository institution's total assets at the time the institution became undercapitalized or (b) the amount which is necessary to bring the institution into compliance with all capital standards applicable to such institution as of the time the institution fails to comply with its capital restoration plan. Finally, the appropriate federal banking agency may impose any of the additional restrictions or sanctions that it may impose on significantly undercapitalized institutions if it determines that such action will further the purpose of the prompt correction action provisions. An insured depository institution that is significantly undercapitalized, or is undercapitalized and fails to submit, or in a material respect to implement, an acceptable capital restoration plan, is subject to additional restrictions and sanctions. These include, among other things: (i) a forced sale of voting shares to raise capital or, if grounds exist for appointment of a receiver or conservator, a forced merger; (ii) restrictions on transactions with affiliates; (iii) further limitations on interest rates paid on deposits; (iv) further restrictions on growth or required shrinkage; (v) modification or termination of specified activities; (vi) replacement of directors or senior executive officers; (vii) prohibitions on the receipt of deposits from correspondent institutions; (viii) restrictions on capital distributions by the holding companies of such institutions; (ix) required divestiture of subsidiaries by the institution; or (x) other restrictions as determined by the appropriate federal banking agency. Although the appropriate federal banking agency has discretion to determine which of the foregoing restrictions or sanctions it will seek to impose, it is required to force a sale of voting shares or merger, impose restrictions on affiliate transactions and impose restrictions on rates paid on deposits unless it determines that such actions would not further the purpose of the prompt corrective action provisions. In addition, without the prior written approval of the appropriate federal banking agency, a significantly undercapitalized institution may not pay any bonus to its senior executive officers or provide compensation to any of them at a rate that exceeds such officer's average rate of base compensation during the 12 calendar months preceding the month in which the institution became undercapitalized. Further restrictions and sanctions are required to be imposed on insured depository institutions that are critically undercapitalized. For example, a critically undercapitalized institution generally would be prohibited from engaging in any material transaction other than in the ordinary course of business without prior regulatory approval and could not, with certain exceptions, make any payment of principal or interest on its subordinated debt beginning 60 days after becoming critically undercapitalized. Most importantly, however, except under limited circumstances, the appropriate federal banking agency, not later than 90 days after an insured depository institution becomes critically undercapitalized, is required to appoint a conservator or receiver for the institution. The board of directors of an insured depository institution would not be liable to the institution's shareholders or creditors for consenting in good faith to the appointment of a receiver or conservator or to an acquisition or merger as required by the regulator. In addition to measures taken under the prompt corrective action provisions, commercial banking organizations may be subject to potential enforcement actions by the federal regulators for unsafe or unsound practices in conducting their businesses or for violations of any law, rule, regulation or any condition imposed in writing by the agency or any written agreement with the agency. Enforcement actions may include the imposition of a conservator or receiver, the issuance of a cease and desist order that can be judicially enforced, the termination of insurance of deposits (in the case of a depository institution), the imposition of civil money penalties, the issuance of directives to increase capital, the issuance of formal and informal agreements, the issuance of removal and prohibition orders against institution-affiliated parties and the enforcement of such actions through injunctions or restraining orders based upon a judicial determination that the agency would be harmed if such equitable relief was not granted. Safety And Soundness Standards In July 1995, the federal banking agencies adopted final guidelines establishing standards for safety and soundness, as required by the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"). The guidelines set forth operational and managerial standards relating to internal controls, information systems and internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth and compensation, fees and benefits. Guidelines for asset quality and earnings standards will be adopted in the future. The guidelines establish the safety and soundness standards that the agencies will use to identify and address problems at insured depository institutions before capital becomes impaired. If an institution fails to comply with a safety and soundness standard, the appropriate federal banking agency may require the institution to submit a compliance plan. Failure to submit a compliance plan or to implement an accepted plan may result in enforcement action. 7 Part I. Item 1 (continued) In December 1992, the federal banking agencies issued final regulations prescribing uniform guidelines for real estate lending. The regulations, which became effective on March 19, 1993, require insured depository institutions to adopt written policies establishing standards, consistent with such guidelines, for extensions of credit secured by real estate. The policies must address loan portfolio management, underwriting standards and loan to value limits that do not exceed the supervisory limits prescribed by the regulations. Appraisals for "real estate related financial transactions" must be conducted by either state certified or state licensed appraisers for transactions in excess of certain amounts. State certified appraisers are required for all transactions with a transaction value of $1,000,000 or more; for all nonresidential transactions valued at $250,000 or more; and for "complex" 1-4 family residential properties of $250,000 or more. A state licensed appraiser is required for all other appraisals. However, appraisals performed in connection with "federally related transactions" must now comply with the agencies' appraisal standards. Federally related transactions include the sale, lease, purchase, investment in, or exchange of, real property or interests in real property, the financing or refinancing of real property, and the use of real property or interests in real property as security for a loan or investment, including mortgage-backed securities. Premiums For Deposit Insurance Federal law has established several mechanisms to increase funds to protect deposits insured by the Bank Insurance Fund ("BIF") administered by the FDIC. The FDIC is authorized to borrow up to $30 billion from the United States Treasury; up to 90% of the fair market value of assets of institutions acquired by the FDIC as receiver from the Federal Financing Bank; and from depository institutions that are members of the BIF. Any borrowings not repaid by asset sales are to be repaid through insurance premiums assessed to member institutions. Such premiums must be sufficient to repay any borrowed funds within 15 years and provide insurance fund reserves of $1.25 for each $100 of insured deposits. The result of these provisions is that the assessment rate on deposits of BIF members could increase in the future. The FDIC also has authority to impose special assessments against insured deposits. The FDIC implemented a final risk-based assessment system, as required by FDICIA, effective January 1, 1994, under which an institution's premium assessment is based on the probability that the deposit insurance fund will incur a loss with respect to the institution, the likely amount of any such loss, and the revenue needs of the deposit insurance fund. As long as BIF's reserve ratio is less than a specified "designated reserve ratio," 1.25%, the total amount raised from BIF members by the risk-based assessment system may not be less than the amount that would be raised if the assessment rate for all BIF members were 0.23% of deposits. On August 8, 1995, the FDIC announced that the designated reserve ratio had been achieved and, accordingly, issued final regulations adopting an assessment rate schedule for BIF members of 4 to 31 basis points effective on June 1, 1995. On November 14, 1995, the FDIC further reduced deposit insurance premiums to a range of 0 to 27 basis points effective for the semi-annual period beginning January 1, 1996. Under the risk-based assessment system, a BIF member institution such as the Bank is categorized into one of three capital categories (well capitalized, adequately capitalized, and undercapitalized) and one of three categories based on supervisory evaluations by its primary federal regulator (in the Bank's case, the FDIC). The three supervisory categories are: financially sound with only a few minor weaknesses (Group A), demonstrates weaknesses that could result in significant deterioration (Group B), and poses a substantial probability of loss (Group C). The capital ratios used by the FDIC to define well capitalized, adequately capitalized and undercapitalized are the same in the FDIC's prompt corrective action regulations. The BIF assessment rates are summarized below; assessment figures are expressed in terms of cents per $100 in deposits.
Assessment Rates Effective Through the First Half of 1995 Group A Group B Group C -------------------------------- Well Capitalized ................. 23 26 29 Adequately Capitalized ........... 26 29 30 Undercapitalized ................. 29 30 31
8 Part I. Item 1 (continued)
Assessment Rates Effective through the Second Half of 1995 Group A Group B Group C -------------------------------- Well Capitalized .................. 4 7 21 Adequately Capitalized ............ 7 14 28 Undercapitalized .................. 14 28 31
Assessment Rates Effective January 1, 1996 Group A Group B Group C -------------------------------- Well Capitalized ................ 0* 3 17 Adequately Capitalized ........... 3 10 24 Undercapitalized ................. 10 24 27
*Subject to a statutory minimum assessment of $1,000 per semi-annual period (which also applies to all other assessment risk classifications). As a result of the recent acquisition of deposits from IOBC, the Bank maintains some deposits insured by the Savings Association Insurance Fund ("SAIF") administered by the FDIC. For these deposits, the assessment rate ranges from 0.23% of deposits for well-capitalized institutions in Subgroup A to 0.31% of deposits for undercapitalized institutions in Subgroup C. A number of proposals have recently been introduced in Congress to address the disparity in bank and thrift deposit insurance premiums. On September 19, 1995, legislation was introduced and referred to the House Banking Committee that would, among other things: (i) impose a requirement on all SAIF member institutions to fully recapitalize the SAIF by paying a one-time special assessment of approximately 85 basis points on all assessable deposits as of March 31, 1995, which assessment would be due as of January 1, 1996; (ii) spread the responsibility for FICO interest payments across all FDIC-insured institutions on a pro-rata basis, subject to certain exceptions; (iii) require that deposit insurance premium assessment rates applicable to SAIF member institutions be no less than deposit insurance premium assessment rates applicable to BIF member institutions; (iv) provide for a merger of the BIF and the SAIF as of January 1, 1998; (v) require savings associations to convert to state or national bank charters by January 1, 1998; (vi) require savings associations to divest any activities not permissible for commercial banks within five years; (vii) eliminate the bad-debt reserve deduction for savings associations, although savings associations would not be required to recapture into income their accumulated bad-debt reserves; (viii) provide for the conversion of savings and loan holding companies into bank holding companies as of January 1, 1998, although unitary savings and loan holding companies authorized to engage in activities as of September 13, 1995 would have such authority grandfathered (subject to certain limitations); and (ix) abolish the OTS and transfer the OTS' regulatory authority to the other federal banking agencies. The legislation would also provide that any savings association that would become undercapitalized under the prompt corrective action regulations as a result of the special deposit premium assessment could be exempted from payment of the assessment, provided that the institution would continue to be subject to the payment of semiannual assessments under the current rate schedule following the recapitalization of the SAIF. The legislation was considered and passed by the House Banking Committee's Subcommittee on Financial Institutions on September 27, 1995, and has not yet been acted on by the full House Banking Committee. On September 20, 1995, similar legislation was introduced in the Senate, although the Senate bill does not include a comprehensive approach for merging the savings association and commercial bank charters. The Senate bill remains pending before the Senate Banking Committee. The future of both these bills is linked with that of pending budget reconciliation legislation since some of the major features of the bills are included in the Seven-Year Balanced Budget Reconciliation Act. The budget bill, which was passed by both the House and Senate on November 17, 1995 and vetoed by the President on December 6, 1995, would: (i) recapitalize the SAIF through a special assessment of between 70 and 80 basis points on deposits held by institutions as of March 31, 1995; (ii) provide an exemption to this rule for weak institutions, and a 20% reduction in the SAIF-assessable deposits of so- called "Oakar banks;" (iii) expand the assessment base for FICO payments to include all FDIC-insured institutions; (iv) merge the BIF and SAIF on January 1, 1998, only if no insured depository institution is a savings association on that date; (v) establish a special reserve for the SAIF on January 1, 1998; and (vi) prohibit the FDIC from setting semiannual assessments in excess of the amount needed to maintain the reserve ratio 9 Part I. Item 1 (continued) of any fund at the designated reserve ratio. The bill does not include a provision to merge the charters of savings associations and commercial banks. The Bank acquired deposits from IOBC, a SAIF-insured institution, during the year; however, the deposits were acquired after the March 31, 1995 special assessment date contained in the House Banking Committee proposal. In light of ongoing debate over the content and fate of the budget bill, the different proposals currently under consideration and the uncertainty of the Congressional budget and legislative processes in general, management cannot predict whether any or all of the proposed legislation will be passed, or in what form. Accordingly, the effect of any such legislation on the Bank cannot be determined. Interstate Banking And Branching In September 1994, the Riegel-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Act") became law. Under the Interstate Act, beginning one year after the date of enactment, a bank holding company that is adequately capitalized and managed may obtain approval under the BHCA to acquire an existing bank located in another state without regard to state law. A bank holding company would not be permitted to make such an acquisition if, upon consummation, it would control (a) more than 10% of the total amount of deposits of insured depository institutions in the United States or (b) 30% or more of the deposits in the state in which the bank is located. A state may limit the percentage of total deposits that may be held in that state by any one bank or bank holding company if application of such limitation does not discriminate against out-of-state banks. An out-of-state bank holding company may not acquire a state bank in existence for less than a minimum length of time that may be prescribed by state law except that a state may not impose more than a five year existence requirement. The Interstate Act also permits, beginning June 1, 1997, mergers of insured banks located in different states and conversion of the branches of the acquired bank into branches of the resulting bank. Each state may permit such combinations earlier than June 1, 1997, and may adopt legislation to prohibit interstate mergers after that date in that state or in other states by that state's banks. The same concentration limits discussed in the preceding paragraph apply. The Interstate Act also permits a national or state bank to establish branches in a state other than its home state if permitted by the laws of that state, subject to the same requirements and conditions as for a merger transaction. In October 1995, California adopted "opt in" legislation under the Interstate Act that permits out-of-state banks to acquire California banks that satisfy a five-year minimum age requirement (subject to exceptions for supervisory transactions) by means of merger or purchases of assets, although entry through acquisition of individual branches of California institutions and de novo branching into California are not permitted. The Interstate Act and the California branching statute will likely increase competition from out-of-state banks in the markets in which the Company operates, although it is difficult to assess the impact that such increased competition may have on the Company's operations. Community Reinvestment Act And Fair Lending Developments The Bank is subject to certain fair lending requirements and reporting obligations involving home mortgage lending operations and Community Reinvestment Act ("CRA") activities. The CRA generally requires the federal banking agencies to evaluate the record of a financial institution in meeting the credit needs of their local communities, including low and moderate income neighborhoods. In addition to substantial penalties and corrective measures that may be required for a violation of certain fair lending laws, the federal banking agencies may take compliance with such laws and CRA into account when regulating and supervising other activities. The FDIC has rated the Bank "satisfactory" in complying with its CRA obligations. In May 1995, the federal banking agencies issued final regulations which change the manner in which they measure a bank's compliance with its CRA obligations. The final regulations adopt a performance-based evaluation system which bases CRA ratings on an institution's actual lending service and investment performance rather than the extent to which the institution conducts needs assessments, documents community outreach or complies with other procedural requirements. In March 1994, the Federal Interagency Task Force on Fair Lending issued a policy statement on discrimination in lending. The policy statement describes the three methods that federal agencies will use to prove discrimination: overt evidence of discrimination, evidence of disparate treatment and evidence of disparate impact. 10 Part I. Item 1 Accounting Changes Refer to NOTE 1-SIGNIFICANT ACCOUNTING POLICIES of the Company's consolidated financial statements, located in Part II, Item 8, of this Form 10-K for discussion of current accounting pronouncements. Existing And Potential Enforcement Actions Commercial banking organizations, such as the Bank, and their institution- affiliated parties, which include SC Bancorp, may be subject to potential enforcement actions by the Federal Reserve Board, the State Banking Department and the FDIC for unsafe or unsound practices in conducting their businesses or for violations of any law, rule, regulation or any condition imposed in writing by the agency or any written agreement with the agency. Enforcement actions may include the imposition of a conservator or receiver, the issuance of a cease-and-desist order that can be judicially enforced, the termination of insurance of deposits (in the case of a bank), the imposition of civil money penalties, the issuance of directives to increase capital, the issuance of formal and informal agreements, the issuance of removal and prohibition orders against institution-affiliated parties and the imposition of restrictions and sanctions under the prompt corrective action provisions of the FDIC Improvement Act. Additionally, a holding company's inability to serve as a source of strength to its subsidiary banking organizations could serve as an additional basis for a regulatory action against the holding company. In late 1993, the Bank was examined by the FDIC. As a result of that examination, the Bank entered into a Memorandum of Understanding ("MOU") with the FDIC and California State Banking Department. The MOU required the Bank to reduce classified assets to specified levels, and to attain a minimum leverage capital ratio of 7% by November 30, 1994. During 1994, the Company raised approximately $14.2 million through a common stock rights offering and substantially reduced problem assets, thereby fully complying with the MOU requirements. The FDIC and California State Banking Department released the Bank from the MOU effective February 15, 1995. At December 31, 1995, the Company's and the Bank's capital ratios met the regulatory guidelines for a well capitalized institution. See also Management's Discussion of Financial Condition and Results of Operations ("MD&A") which is included in Part II, Item 7, of this Form 10-K. The FDIC conducted its most recent examination of the Bank as of May 31, 1995. The FDIC's report of examination dated October 11, 1995 contained no findings of a material nature. The Federal Reserve Bank of San Francisco (the "FRB") conducted its most recent examination of the Company as of June 30, 1995. The FRB's report of examination dated December 15, 1995 contained no findings of a material nature. Results Of Operations The following table summarizes key performance indicators pertaining to the Company's operating results. Certain figures have been adjusted for the restructuring as indicated. Average balances are computed using daily balances. Refer to Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") in Part II, Item 7 of this Form 10-K for additional discussion of the Company's operating results.
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) YEARS ENDED DECEMBER 31, - ------------------------------------------------------------------------------------------- 1995 1994 1993 - ------------------------------------------------------------------------------------------- Return on average assets 0.19% 0.67% -0.59% as adjusted for restructuring items (1) 0.41% - -0.47% Return on average shareholders' equity 2.14% 6.59% -8.90% as adjusted for restructuring items (1) 4.62% - -7.06% Average shareholders' equity to average total assets 8.87% 10.15% 6.61% Net income (loss) $ 869 $ 2,705 $ (2,733) Earnings (loss) per share $ 0.12 $ 0.49 $ (0.79) Total average assets $457,196 $404,504 $464,286 - -------------------------------------------------------------------------------------------
(1) 1995 net income was adjusted to exclude 1995 Restructuring charges of $1,006 thousand after tax. 1993 net income was adjusted to exclude 1993 Restructuring charges of $566 thousand after tax. 11 Part I. Item 1 (continued) Net Interest Income Net interest income is the difference between interest earned on assets and interest paid on liabilities. Net interest margin is net interest income expressed as a percentage of average interest-earning assets. The following table sets forth a comparison of net interest income and net interest margin for the years indicated.
(DOLLARS IN THOUSANDS) YEARS ENDED DECEMBER 31, - ---------------------------------------------------------------------------------------------- Increase/ Increase/ 1995 decrease 1994 decrease 1993 - ---------------------------------------------------------------------------------------------- Interest income $33,396 26.40% $26,420 -11.14% $29,732 Interest expense 12,015 91.35% 6,279 -34.72% 9,619 - ---------------------------------------------------------------------------------------------- Net interest income $21,381 6.16% $20,141 0.14% $20,113 - ---------------------------------------------------------------------------------------------- Net interest margin 5.30% 5.75% 4.82% - ----------------------------------------------------------------------------------------------
Interest income and expense are affected by changes in the volume and mix of average interest-earning assets and interest-bearing deposits and other liabilities, as well as fluctuations in interest rates. The following tables set forth certain information concerning average interest-earning assets and average interest-bearing liabilities and the yields and rates thereon. The tables also set forth a summary of the changes in interest income and interest expense resulting from changes in average interest rates (rate) and changes in average assets and liability balances (volume) for the years indicated. Average balances are average daily balances. Nonaccrual loans are included in total average loans outstanding.
(DOLLARS IN THOUSANDS) YEARS ENDED DECEMBER 31, - ---------------------------------------------------------------------------------------------------------------------------------- 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------------------------- Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ balance Expense Rate balance Expense Rate balance Expense Rate - ---------------------------------------------------------------------------------------------------------------------------------- Assets Interest-earning assets: Loans, net of deferred fees (1) $261,631 $25,960 9.92% $203,507 $18,971 9.32% $235,414 $20,212 8.59% Investment securities 122,498 6,299 5.14% 139,991 7,166 5.12% 165,283 9,048 5.47% Federal funds sold and other 19,463 1,137 5.84% 6,480 283 4.37% 16,436 472 2.87% - ---------------------------------------------------------------------------------------------------------------------------------- Total interest earning assets/ interest income 403,593 33,396 8.27% 349,978 26,420 7.55% 417,133 29,732 7.13% - ---------------------------------------------------------------------------------------------------------------------------------- Noninterest earning assets 53,604 54,526 47,153 - ---------------------------------------------------------------------------------------------------------------------------------- Total assets $457,196 $404,504 $464,286 - ---------------------------------------------------------------------------------------------------------------------------------- Liabilities and Shareholders' Equity Deposits $282,574 10,998 3.89% $237,105 $ 5,956 2.51% $287,545 $ 8,200 2.85% Other interest-bearing liabilities 8,059 1,017 12.62% 5,689 323 5.68% 38,554 1,419 3.68% - ---------------------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities/ interest expense 290,633 12,015 4.13% 242,794 6,279 2.59% 326,100 9,619 2.95% - ---------------------------------------------------------------------------------------------------------------------------------- Noninterest bearing liabilities 125,989 120,666 120,895 Shareholders' equity 40,575 41,043 30,710 - ---------------------------------------------------------------------------------------------------------------------------------- Total liabilities and equity $457,196 $404,504 $477,704 - ---------------------------------------------------------------------------------------------------------------------------------- Net interest income/net interest margin $21,381 5.30% $20,141 5.75% $20,113 4.82% - ----------------------------------------------------------------------------------------------------------------------------------
(1) Includes loans on nonaccrual status of approximately $1.4 million, $1.6 million, and $7.1 million at December 31, 1995, 1994, and 1993, respectively. The amount of interest foregone on loans that were on nonaccrual status were approximately $207 thousand, $93 thousand, and $550 thousand for the years ended December 31, 1995, 1994, and 1993, respectively. Interest income on loans includes amortization of net loan fees of approximately $211 thousand, $629 thousand, and $575 thousand for the years ended December 31, 1995, 1994, and 1993, respectively. Additionally, net interest (expense) income of ($929) thousand, $141 thousand, and $251 thousand relating to the interest rate swap agreements was included in interest income for the years ended December 31, 1995, 1994, and 1993, respectively. 12 Part I. Item 1 (continued)
(DOLLARS IN THOUSANDS) 1995 and 1994 1994 and 1993 Increase (decrease) Increase (decrease) due to change in Net due to change in Net Rate Volume Change Rate Volume Change - ------------------------------------------------------------------------------------------------------------------------- ASSETS Interest-earning assets: Loans, net of deferred fees $ 1,614 $ 5,376 $ 6,990 $ 1,498 $ (2,740) $ (1,242) Investment securities 28 (895) (868) (502) (1,385) (1,888) Federal funds sold and other 286 568 854 100 (282) (183) - -------------------------------------------------------------------------------------------------------------------------- Total interest earning assets/interest income 1,928 5,049 6,976 1,095 (4,407) (3,312) - -------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Deposits 2,952 2,090 $ 5,042 (506) (1,739) $ (2,244) Other interest-bearing liabilities 716 (23) 693 20 (1,115) (1,096) - -------------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities/interest expense 3,678 2,058 5,736 (486) (2,854) (3,340) - -------------------------------------------------------------------------------------------------------------------------- NET INTEREST INCOME $ (1,750) $ 2,991 $ 1,240 $ 1,581 $ (1,554) $ 28 - --------------------------------------------------------------------------------------------------------------------------
Net interest income increased $1.2 million to $21.4 million for the year ended December 31,1995, from $20.1 million a year ago. Most of the increase is due to higher average loan balances, which increased $58.1 million over 1994 largely due to the purchase of the IOBC and SBA loans. The average balance of Federal funds sold increased by $13 million and the average balance of investment securities decreased by $17.5 million compared to 1994. The decrease in investment securities in 1995 reflects the sale of approximately $27 million of available-for-sale securities, and the maturity of approximately $6.0 million and $7.5 million of securities classified as available-for-sale and held-to- maturity, respectively. Average yields on earning assets for 1995 increased by 72 basis points to 8.27% from 7.55% for 1994. The average yield on loans, including the effect of the interest rate swaps, was 9.92% for the year ended December 31,1995, up 60 basis points from 9.32% for 1994. The increase in the average national prime rate to 8.80% for 1995 from 7.15% for 1994 contributed to the increase in loan yields. Net interest income increased slightly, by $28 thousand, in 1994 from $20.1 million in 1993, despite the $67.1 million decrease in average earning assets to $350.0 million for 1994 from $417.1 million for 1993. The decrease in earning assets comprises a $25.3 million decrease in investment securities and a $31.9 million decrease in loans. The decrease in investment securities reflects maturities of $10.3 million.. The decrease in average loan balances in 1994 reflects the Company's efforts to reduce its concentrations in real estate loans and to reduce the level of nonaccrual loans, which were reduced by $17.4 million and $5.5 million, respectively. The increase in net interest income for the year is largely due to higher yields on prime-based loans. The prime rate increased by 2.5% during 1994, leading to a 73 basis point increase in the average yield on loans and a 42 basis point increase in the overall yield on earning assets from 1993. The Company's net interest margin decreased 45 basis points to 5.30% from 5.75% for the years ended December 31,1995 and 1994, respectively, despite the increase in loan yields. The decrease in net interest margin is primarily due to an increase in interest expense. The increase in interest expense can be attributed to a $408 thousand nonrecurring interest adjustment during the first quarter of 1995 relating to the Company's deferred compensation plans, and to the increase in time certificate of deposit ("TCD") balances and rates compared to the prior year. The increase in deposit rates can be attributed to the increase in overall market rates from the prior year, and to the higher rates offered through a deposit promotion in the first quarter of 1995. The average balance of TCDs increased by $65.9 million to $145.6 million for 1995, from $79.7 million for 1994. The increase in TCD balances is due to a promotional TCD program run during the first quarter of 1995 to provide additional funding for the IOBC acquisition. The average cost of funds on TCDs increased to 5.77% in 1995 from 3.80% in 1994. The Company lowered the average rates on the promotional TCDs to 5.89% from 7.20%, and retained approximately 70% of the TCDs that matured in September 1995. The Company's net interest margin for 1994 increased 93 basis points to 5.75% for 1994 from 4.82% for 1993, largely due to overall market rate increases during 1994. Interest expense decreased $3.3 million to $6.3 million for 1994 from $9.6 million. This decrease reflects substantially lower average borrowings of $5.7 million for 1994 as compared to $38.6 million for 1993. 13 Part I. Item 1 (continued) Provision For Possible Loan Losses The Company recorded a provision for possible loan losses of $1.5 million for 1995, a net credit of $850 thousand to the provision for possible loan losses in 1994, and a $11.8 million provision in 1993. The $1.5 million of provisions recorded in 1995 includes $900 thousand booked in the third quarter. The Company performed an extensive review of its loan portfolio with regard to collateral adequacy during the third quarter. The third quarter provision includes $600 thousand relating to two commercial real estate loans. Net loan charge-offs were $1.7 million for the year. The allowance for possible loan losses was 1.81% of gross loans outstanding, and 414.01% of nonaccrual loans outstanding at December 31, 1995, respectively. The credit to the provision for possible loan losses recorded in 1994 was based on management's determination that an excess existed in the allowance for possible loan losses due to the following factors: substantial provisions had been recorded during 1993, several previously classified loans had been upgraded, and there had been a significant decrease in the level of net loan charge-offs between 1994 and 1993. Accordingly, $850 thousand was reversed from the allowance for possible loan losses in the second quarter of 1994, and no provisions were recorded for the remainder of the year. Net loan charge-offs were $4.6 million for 1994. The allowance for possible loan losses was 2.56% of gross loans outstanding, and 329.88% of nonaccrual loans outstanding at December 31, 1994, respectively. The substantial provision for loan losses in 1993 was necessitated by high levels of nonperforming and classified loans and charge-offs. The charge-offs were concentrated in commercial real estate mortgage loans and commercial loans to borrowers secured by junior liens. Net loan charge-offs were $7.8 million for 1993. The allowance for possible loan losses was 5.08% of gross loans outstanding, and 152.53% of nonaccrual loans outstanding at December 31, 1993, respectively. Refer to NOTE 4-LOANS of the Company's consolidated financial statements which are included in Part II, Item 8, of this Form 10-K. Noninterest Income The following table sets forth the major components of noninterest income, net of restructuring activity, for the years indicated:
(DOLLARS IN THOUSANDS) YEARS ENDED DECEMBER 31, - ----------------------------------------------------------------------------------------------------------------------------------- 1995 1993 1995 Restructure 1995, Net 1994 1993 Restructure Net 1993 ---- ----------- --------- ---- ---- ----------- -------- Service charges on deposit accounts $ 1,727 $ 1,727 $ 1,754 $ 1,779 $ 1,779 Other fees and charges 2,542 - 2,542 2,637 3,162 3,162 Merchant bankcard income 518 518 1,249 1,631 1,631 Net gain (loss) on sales of investment securities (620) (620) - 17 7,074 7,074 - Net gains on sales of loans 145 - 145 215 - - Net gain (loss) on sales of fixed assets (87) (109) 22 409 4 4 Life insurance income 510 - 510 58 49 49 Other income 278 - 278 361 244 244 - ----------------------------------------------------------------------------------------------------------------------------------- Total noninterest income $ 5,013 $ (729) $ 5,742 $ 6,700 $ 13,943 $ 7,074 $ 6,869 - ----------------------------------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------------------------------
Noninterest income, net of restructuring activity, decreased to $5.7 million for 1995, from $6.7 million for 1994, and $6.9 million for 1993. Current year restructuring losses of $729 thousand include the previously-discussed $620 thousand loss on the sale of investment securities, and a $109 thousand loss on the sale of fixed assets at the two branches being sold. The remaining decrease in noninterest income resulted from lower merchant bankcard fee revenues, partially offset by an increase in life insurance income which included a benefit payment of $407 thousand. Noninterest income in 1994 included gains on sales of loans and sale of the Company's headquarters facility of approximately $215 thousand and $414 thousand, respectively. Noninterest income in 1993 included approximately $7.1 million of gains on sales of investment securities from the 1993 Restructuring of the Company's investment securities portfolio. Noninterest Expense The following table provides a breakdown of the Company's noninterest expense by category, net of restructuring charges: 14 Part I. Item 1 (continued)
(DOLLARS IN THOUSANDS) YEARS ENDED DECEMBER 31, - ----------------------------------------------------------------------------------------------------------------------------------- 1995 1993 1995 Restructure 1995, Net 1994 1993 Restructure 1993 Net ---- ----------- --------- ---- ---- ----------- -------- Salaries and employee benefits $ 10,723 $ 179 $ 10,544 $ 9,763 $ 10,743 $ 275 $ 10,468 Occupancy, furniture and equipment 5,273 256 5,017 4,666 5,129 555 4,574 Professional fees 1,740 86 1,654 1,882 1,583 - 1,583 Telecommunications 481 - 481 352 318 - 318 Office supplies 391 - 391 436 470 114 356 Data processing 502 - 502 449 448 - 448 Merchant card expense 475 - 475 1,013 1,424 - 1,424 FDIC assessment 498 - 498 1,006 888 - 888 Insurance 348 - 348 436 399 - 399 Goodwill amortization 821 427 394 211 167 - 167 Other real estate owned 219 - 219 1,832 2,897 - 2,897 Advertising and business development 772 - 772 613 576 - 576 Postage and delivery 586 - 586 543 415 - 415 Other operating expense 464 - 464 650 567 - 567 - ----------------------------------------------------------------------------------------------------------------------------------- Total noninterest expense $ 23,293 $ 948 $ 22,343 $23,852 $ 26,024 $ 944 $ 25,080 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Noninterest expense as a % of average total assets 4.89% 5.90% 5.40%
The Company reported noninterest expense of $23.3 million, $23.9 million, and $26.0 million for the years ended December 31, 1995, 1994 and 1993, respectively. The current year's expense included $948 thousand of restructuring charges for (1) staff reductions including branch sales - $179 thousand; (2) closure of an administrative facility and write off of lease obligations on branch sales - $256 thousand; (3) accruals for legal and professional fees anticipated for the branch sale transactions - $86 thousand; and (4) write-off of $427 thousand of goodwill associated with one of the branches being sold. As adjusted for restructuring charges, noninterest expense for 1995 was $22.3 million as compared to approximately $23.9 for 1994. The net decrease reflects decreases in the FDIC assessment, net expenses for other real estate owned ("OREO"), and merchant bankcard expenses offset by increases in salaries and benefits, occupancy, and goodwill amortization due to the IOBC purchase. Noninterest expense decreased $1.2 million to $23.9 million for 1994 from $25.1 million for 1993 which is net of $944 thousand of restructuring charges related to branch closures and consolidations. Most of the decreases were reflected in salaries and benefits, occupancy, furniture and equipment, net expenses for OREO, and merchant bankcard expenses, offset by increases in professional fees and FDIC assessment. The Company has improved its operating efficiencies and achieved lower noninterest expense, as adjusted for the expenses and losses of the restructuring plan, and the branch consolidations, on a larger average earning assets base. As adjusted, noninterest expense as a percentage of average total assets has decreased to 4.89% in 1995 from 5.90% in 1994. Noninterest expense as a percentage of average total assets increased to 5.90% in 1994 from 5.40% in 1993. The increase in salaries and benefits after adjusting for restructuring charges, for the year ended December 31,1995 compared to the previous year, is primarily due to the addition of the IOBC corporate banking staff, partly offset by reductions in staffing elsewhere in the organization. The Company had 230 and 220 full-time equivalent staff at December 31, 1995 and 1994, respectively. Salaries and benefits decreased by approximately $705 thousand after adjusting for $275 thousand related to branch consolidations in 1993 to $9.8 million for the year ended December 31, 1994, from $10.5 million for the year ended December 31, 1993, largely as a result of staff reductions from branch consolidations. At December 31, 1994, the Company had 220 full-time equivalent employees, down from 244 at year-end 1993. 15 Part I. Item 1 (continued) The following table sets forth the components of the Company's OREO expense for the years indicated:
(DOLLARS IN THOUSANDS) YEARS ENDED DECEMBER 31, - --------------------------------------------------------------------------- 1995 1994 1993 ---- ---- ---- OREO income $ (95) $ - $ - OREO holding expenses 316 655 151 Writedowns and provisions for losses 128 1,182 2,487 Net (gains)/losses from sales (130) (5) 259 - --------------------------------------------------------------------------- OREO expense, net $ 219 $ 1,832 $ 2,897 - --------------------------------------------------------------------------- - ---------------------------------------------------------------------------
OREO expense decreased by $1.6 million to $219 thousand for 1995, from $1.8 million in the previous year. Most of the decrease for the year is reflected in lower charges for writedowns of OREO properties, and from lower holding costs. Seven OREO properties were sold during the year, resulting in a net gain of $130 thousand. OREO expense for 1994 decreased approximately $1.1 million from $2.9 million for 1993 to $1.8 million for 1994. The decrease resulted from lower OREO writedowns, offset by slightly higher OREO holding costs. Financial Condition Additional discussion of the Company's financial condition is provided in the MD&A in Part II, Item 7, of this Form 10-K. Cash And Cash Equivalents Cash and cash equivalents consist of cash on hand, deposits at correspondent banks and overnight investment of excess cash balances as Federal funds sold. The Company maintains balances at correspondent banks adequate to cover daily inclearings and other charges. In accordance with Federal regulations, reserve balances of $3.0 million were maintained in the form of deposits with the Federal Reserve Bank at December 31,1995. Investment Securities The Company's securities portfolio includes U.S. Treasury securities and U.S. federal agency securities, most of which are mortgage-backed securities. The Company reclassified its entire held-to-maturity portfolio to the available-for- sale category in December, 1995 under the special one-time exemption authorized by the Financial Accounting Standards Board. The decrease in the balance of investment securities due to sales and maturities is discussed in Item 1-Net Interest Income above. Reference may also be made to NOTE 1-SIGNIFICANT ACCOUNTING POLICIES AND NOTE 3-INVESTMENT SECURITIES of the Company's consolidated financial statements located in Part II, Item 8, of this Form 10-K. The following table sets forth the maturity distribution of the Company's investment securities at December 31, 1995:
Maturing in - ------------------------------------------------------------------------------------------------------- Over one Over five One year year through years through Over or less five years ten years ten years Total - ------------------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) U.S. Treasury securities $ - $ 5,085 $ - $ 74 $ 5,159 U.S. Agency securities - 36,876 - - 36,876 Mortgage-backed securities 7,872 41,907 2,216 - 51,995 - -------------------------------------------------------------------------------------------------------- Total $ 7,872 $ 83,868 $ 2,216 $ 74 $ 94,030 - -------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------
16 Part I. Item 1 (continued) LOANS The following table sets forth the amount of loans by type for the years indicated:
- ----------------------------------------------------------------------------------------------------------------------------------- December 31, 1995 % 1994 % 1993 % 1992 % 1991 % - ----------------------------------------------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) Commercial $147,230 46.47% $79,369 38.22% $73,220 34.47% $88,761 34.37% $101,762 33.71% Real estate, construction 4,416 1.39% 30 0.01% 1,991 0.94% 8,935 3.46% 21,777 7.21% Real estate, mortgage 107,662 33.98% 83,712 40.31% 99,190 46.70% 117,280 45.41% 127,323 42.18% Consumer 57,533 18.16% 44,577 21.46% 38,006 17.89% 43,271 16.76% 51,020 16.90% - ------------------------------------------------------------------------------------------------------------------------------------ Gross loans 316,841 100.00% 207,688 100.00% 212,407 100.00% 258,247 100.00% 301,882 100.00% ------- ------- ------- ------- -------- ------- ------- ------- ------- Deferred fee income (531) (298) (274) (625) (918) Allowance for possible loan losses (5,734) (5,318) (10,800) (6,859) (4,575) - ----------------------------------------------- --------- --------- ---------- ----------- Loans. net $310,576 $202,072 $201,333 $250,763 $ 296,389 - ----------------------------------------------- --------- --------- ---------- ------------ - ----------------------------------------------- --------- --------- ---------- ------------ No industry constitutes a concentration in the Bank's loan portfolio
The Company provides a full range of credit products designed to meet the credit needs of borrowers in its service area. The Company engages in medium-term commercial real estate loans secured by commercial properties, commercial loans, term financing, SBA loans, and consumer loans principally in the form of home equity lines of credit, vehicle loans, and personal lines of credit to high net worth individuals. Additionally, the Company has added construction loan products principally for entry level housing and owner-user commercial industrial properties. Construction loans outstanding at December 31,1995, were $4,416,000. Please refer to NOTE 4-LOANS in the Company's consolidated financial statements included in Part II, Item 8, of this Form 10-K as a basis for the following discussion of changes in the Company's loan portfolio from December 31, 1994 to December 31, 1995. COMMERCIAL LOANS. Commercial loans totaled $147.2 million or 46.47% of total loans and $79.4 million or 38.22% of total loans at December 31, 1995 and December 31, 1994, respectively. Most of the increase of $67.8 million resulted from the purchase of $37.4 million of commercial loans from IOBC in the second quarter of 1995, and $29.2 million of loan purchases, principally SBA loans, during the fourth quarter of 1995. As adjusted for the purchased loans, commercial loans increased $38.7 million or 48.7% from year-end 1994. Most of the Bank's commercial borrowers and customers are small to medium-sized businesses and professionals. Most of the commercial loans are short term, are reviewed and renewed annually, and bear a floating rate of interest. Approximately 65% of the commercial loan portfolio is collateralized. Collateral for these loans consists of accounts receivable, inventories, equipment, and other business assets, including real estate. At December 31,1995, $29.5 million or 9.31% of total loans were secured by accounts receivable as compared to $26.0 or 12.53% of loans at December 31, 1994. Commercial loans secured by real estate were $18.9 million or 5.97% at December 31,1995, as compared to $13.7 million or 6.60% of loans at December 31, 1994. In 1994, the Company began participating in government-insured lending programs, including SBA loans. At December 31,1995, the Company reported $22.8 million of SBA loans. REAL ESTATE, CONSTRUCTION LOANS. Real estate construction loans comprised $4.4 million or 1.39% of outstanding loans at December 31, 1995. Construction loans were not part of the Bank's previous market strategy. However, during the first quarter of 1995, the Bank created a Real Estate Industries Department and appointed an experienced real estate lender to manage the department. Going forward, the Bank plans to conservatively enter the recovering real estate market and to offer construction financing on quality projects. REAL ESTATE, MORTGAGE LOANS. Real estate mortgage loans comprised $107.7 million or 33.98% of the total loan portfolio at December 31,1995, as compared to $83.7 million or 40.31% of the total loans outstanding at year end 1994. Approximately $16.8 million of real estate loans were purchased from IOBC. Therefore, adjusted real estate loans have increased $7.2 million or 0.97% since 1994. This decrease resulted from deliberate actions by the Bank's management to reduce the concentration of real estate loans in the Bank's loan portfolio. During 1994, the Bank limited new real estate loans to existing borrowers who were owner/users or to new borrowers who provided a new major banking relationship, and demonstrated adequate cash flows. All new real estate borrowers must provide financial reporting that meets FDICIA standards and the loans must have conservative loan to value ratios. Approximately 80% of the Bank's real estate loans are secured by first trust deeds; and approximately 50% are to owner/users. CONSUMER LOANS. Approximately $57.5 million or 18.16% of the loan portfolio was made up of consumer loans at December 31,1995. At December 31,1995, $28.0 million or 8.85% of total loans were comprised of home equity loans and home equity lines 17 Part I. Item 1 (continued) of credit. Vehicle loans comprised approximately $18.0 million of outstanding consumer loans at December 31,1995. Approximately $4.8 million of consumer loans outstanding at December 31,1995, consisted of a successful new loan product designed for high net worth individuals which was acquired from IOBC and has been integrated into the Bank's portfolio of products. The levels of consumer loans at period ends may fluctuate and may not necessarily be representative of average levels experienced during the respective periods due to the timing of advances and payments made on such loans by borrowers. MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES The following table sets forth the maturity distribution of the Company's loan portfolio (excluding consumer and nonaccrual loans) at December 31, 1995 based on remaining scheduled principal repayments:
Maturing in - -------------------------------------------------------------------------------------- Over one One year year through Over or less five years five years Total - -------------------------------------------------------------------------------------- (GROSS LOANS, IN THOUSANDS) Commercial $ 82,784 $38,900 $24,775 $146,459 Real estate, construction 3,346 1,070 - 4,416 Real estate, mortgage 26,078 59,945 21,025 107,048 - -------------------------------------------------------------------------------------- Total $112,208 $99,915 $45,800 $257,923 - -------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------
The following table sets forth information on sensitivity to changes in interest rates for the Company's loan portfolio (excluding consumer and nonaccrual loans) at December 31, 1995:
Repricing in - -------------------------------------------------------------------------------------- Over one One year year through Over or less five years five years Total - -------------------------------------------------------------------------------------- (GROSS LOANS, IN THOUSANDS) Fixed interest rates $ 21,949 $ 42,728 $ 21,655 $ 86,332 Variable interest rates 171,591 - - 171,591 - -------------------------------------------------------------------------------------- Total $ 193,540 $ 42,728 $ 21,655 $ 257,923 - -------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------
The amounts reported in the categories in the tables do not reflect loan prepayments or other factors which may cause the loans to react in different degrees and at different times to changes in market interest rates. Asset Quality Nonaccrual, Past Due And Modified Loans The Company recognizes income principally on the accrual basis of accounting. In determining income from loans, the Company generally adheres to a policy of not accruing interest on loans on which a default of principal or interest has existed for a period of 90 days or more. The Company's policy is to assign nonaccrual status to a loan if either (i) principal or interest payments are past due in excess of 90 days, unless the loan is both well secured and in the process of collection; or (ii) the full collection of interest or principal becomes uncertain, regardless of the length of past due status. When a loan reaches nonaccrual status, any interest accrued on such a loan is reversed and charged against current income. Nonaccrual loans decreased to $1.4 million at December 31, 1995 from $1.6 million at December 31, 1994. The percentage of nonaccrual loans to total loans decreased to 0.44% from 0.78% during the same period. Interest income that would have been collected on these loans had they performed in accordance with their original terms, was approximately $207 thousand, $93 thousand and $550 thousand for the years ended December 31, 1995, 1994 and 1993, respectively. 18 Part I. Item 1 (continued) In the third quarter of 1994, the Company negotiated a bulk sale of assets which totaled $6.8 million. This sale included $2.9 million in nonaccrual loans and $630 thousand in OREO properties. The cash proceeds from the sale approximated the book value of the loans after a charge-off of $2.8 million was taken against the existing allowance for loan losses. The following table provides the balance of the Company's nonaccrual loans as of the dates indicated. The Company has no loans past due 90 days or more and still accruing interest:
- --------------------------------------------------------------------------------------------------------------- December 31, 1995 1994 1993 1992 1991 - --------------------------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) Nonaccrual loans (1) $ 1,385 $ 1,612 $ 7,081 $ 7,426 $ 11,234 Nonaccrual loans as a percentage of total gross loans 0.44% 0.78% 3.33% 2.88% 3.72% - -------------------------------------- - --------------------------------------
(1) Includes loans with modified terms of $125thousand, $100 thousand and $1.4 million as of the years ended December 31, 1995, 1994 and 1993, respectively. Nonaccrual loans by category are summarized below:
- --------------------------------------------------------------------- December 31, 1995 1994 1993 - --------------------------------------------------------------------- (DOLLARS IN THOUSANDS) Commercial $ 620 $ 283 $ 1,269 Real estate, construction - - - Real estate, mortgage 615 930 5,789 Consumer 150 399 23 - --------------------------------------------------------------------- Total nonaccrual loans $ 1,385 $ 1,612 $ 7,081 - ---------------------------------------------------------------------
Delinquent loans (past due 30 to 89 days) by category are summarized below:
- --------------------------------------------------------------------- December 31, 1995 1994 1993 - --------------------------------------------------------------------- (DOLLARS IN THOUSANDS) Commercial $ 548 $ 998 $ 696 Real estate, construction - - - Real estate, mortgage 503 2,089 1,239 Consumer 411 416 436 - --------------------------------------------------------------------- Total delinquent loans $ 1,462 $ 3,503 $ 2,371 - --------------------------------------------------------------------- - ---------------------------------------------------------------------
The levels of delinquent loans may fluctuate and may not necessarily be representative of levels experienced during the respective periods due to the variability of the timing of payments made on such loans by borrowers. Management cannot predict the extent to which the changes in the current economic environment may impact the Company's loan portfolio. Furthermore, the Company's primary regulators review the loan portfolio as an integral component of their regular examinations of the Company, and their assessment of specific credits may affect the level of the Company's problem assets. Accordingly, there can be no assurance that other loans will not become nonaccrual, potential problem credits or delinquent loans in the future. Allowance For Possible Loan Losses A certain degree of risk is inherent in the extension of credit. Management has adopted a policy to maintain the allowance for possible loan and lease losses at a level considered by management to be adequate to absorb estimated known and inherent risks in the existing portfolio. 19 Part I. Item 1 (continued) Management performs a comprehensive analysis of the loan portfolio and its current allowance for loan losses on a regular basis to determine that loans are currently protected according to financial and collateral standards deemed acceptable. The allowance for possible loan losses represents management's recognition of the assumed risks of extending credit and the quality of the loan portfolio. The allowance is management's estimate, which is inherently uncertain and depends on the outcome of future events. A sudden and sustained increase in interest rates could have an adverse impact of borrowers' ability to repay. The evaluation of the quality of the loan portfolio considers the borrower's management, financial condition, cash flow and repayment program, as well as the existence of collateral and guarantees. External business and economic factors beyond the borrower's control, combined with the Company's previous loan loss experience, are considered in management's evaluation of the allowance for possible loan losses. In addition, the bank regulatory authorities, as an integral part of their examination process, periodically review the Company's allowance for possible loan losses and may recommend additions to the allowance based on their assessment of information available to them at the time of their examination. When it is determined that additions are required, additions to the allowance are made through charges to operations and are reflected in the statements of operations as a provision for loan losses. Loans which are deemed to be uncollectible are charged to the allowance. Subsequent recoveries, if any, are credited back to the allowance. Reference may be made to NOTE 4-LOANS of the Company's consolidated financial statements, which are located in Part II, Item 8, of this Form 10-K, for additional detail concerning activity in the allowance for possible loan losses, including loan charge-offs and recoveries. The following table provides a summary of net charge-offs for the years indicated:
- --------------------------------------------------------------------------------------------------------------- 1995 1994 1993 1992 1991 - --------------------------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) Net charge-offs $ 1,740 $ 4,632 $ 7,809 $ 6,788 $ 1,393 Ratio of net charge-offs to average loans outstanding 0.67% 2.28% 3.32% 2.40% 0.46% - --------------------------------------------------------------------------------------------------------------
Net charged-off loans were $1.7 million or .67% of average outstanding loans for 1995 compared to 2.28%, 3.32%, 2.40% and 0.46% of average loans for 1994, 1993,1992 and 1991, respectively. This trend represents a continuing improvement in the Company's loan portfolio quality following the economic recession of the early 1990s. Of the $4.6 million in net charged-off loans for 1994, $2.8 million were related to the $6.8 million bulk loan and OREO sales that occurred in the third quarter. Exclusive of the bulk loan sale, net charged off loans for 1994 would have been 0.88% of outstanding loans. The following table sets forth the allocation of the allowance for possible loan losses by category as of the dates indicated:
- ---------------------------------------------------------------------------------------------------------------------------------- December 31, 1995 % 1994 % 1993 % - ---------------------------------------------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) Commercial $ 1,821 31.76% $ 1,406 38.20% $ 2,563 34.50% Real estate, construction 43 0.75% to 0.00% 139 0.90% Real estate, mortgage 2,172 37.87% 2,366 40.30% 4,415 46.70% Consumer 660 11.52% 592 21.50% 381 17.90% Unallocated 1,038 18.10% 944 - 3,302 - - ---------------------------------------------------------------------------------------------------------------------------------- Total allowance for possible loan losses $ 5,734 100.00% $ 5,318 100.00% $ 10,800 100.00% - ----------------------------------------------------------------------------------------------------------------------------------
Management establishes specific reserves where necessary, according to the criteria for loans deemed to be impaired under the guidance of SFAS No. 114 and No. 118. These amounts are included in the allowance for loan losses shown above. The remainder of the allowance is general in nature and is available for the loan portfolio in its entirety. 20 Part I. Item 1 (continued) Other Real Estate Owned OREO primarily includes properties acquired through foreclosure or through full or partial satisfaction of loans. The difference between the fair value of the real estate collateral and the loan balance at the time of transfer to OREO is reflected in the allowance for possible loan losses as a charge-off. Any subsequent declines in the fair value of the OREO property after the date of transfer are recorded through a provision for writedowns on OREO. Routine holding costs, net of any income and net gains and losses on disposal, are reported as noninterest expense. Activity in OREO for the years indicated is as follows:
- --------------------------------------------------------------------- 1995 1994 1993 - --------------------------------------------------------------------- (DOLLARS IN THOUSANDS) Balance, January 1 $ 5,837 $ 6,133 $ 6,318 Additions 1,923 3,585 7,648 Sales (5,689) (2,699) (4,726) Valuation and other adjustments 2 (1,182) (3,107) - --------------------------------------------------------------------- Balance, December 31 $ 2,073 $ 5,837 $ 6,133 - ---------------------------------------------------------------------
The OREO portfolio at December 31, 1995, consisted of 4 properties totaling $2.1 million. The Bank is actively marketing these properties. DEPOSITS The following table sets forth the distribution of average deposits and the rates paid thereon for the years indicated:
For the years ended December 31, 1995 1994 1993 - ----------------------------------------------------------------------------------------------------------------------------------- Average Average % Average Average % Average Average % balance Rate of total balance Rate of total balance Rate of total - ----------------------------------------------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) Demand deposits (1) $123,815 30.47% $118,044 33.24% $118,066 29.11% NOW/MMDA 81,815 1.77% 20.13% 78,860 1.73% 22.20% 78,216 1.90% 19.28% Savings 55,204 2.08% 13.58% 78,558 1.99% 22.12% 93,950 2.38% 23.16% TCDs 145,555 5.77% 35.82% 79,687 3.80% 22.44% 115,379 3.88% 28.45% - ----------------------------------------------------------------------------------------------------------------------------------- Total average deposits $406,389 100.00% $355,149 100.00% $405,611 100.00% - -----------------------------------------------------------------------------------------------------------------------------------
(1) The Company purchased approximately $19.8 million of noninterest bearing demand deposits from IOBC in the second quarter of 1995. Since the purchase, IOBC demand deposits have decreased $7.4 million, primarily due to a reduction in balances maintained by a large commercial customer. Most of the IOBC customer base has been retained. Demand deposits, net of the effects of the IOBC purchase, have remained flat since 1994. NOW/MMDA and savings accounts have decreased $29.4 million or 20.0% since 1994, after adjusting for the acquired IOBC deposits. Much of the decrease represents a shift in the Company's deposit mix as customers have transferred lower yielding savings and MMDA balances into higher rate certificates of deposit, which have increased 92.8% since December 31, 1994, on an adjusted basis. During the first quarter of 1995, the Company introduced a promotional TCD program. This program proved to be highly successful, procuring in excess of $70 million in 7 to 12 month TCDs. The majority of the TCDs, approximately $52.6 million, matured during August and September, 1995. The Company retained $36.2 million or about 70% of the maturing TCDs at an average rate of 5.89%, with maturities ranging from 7 months to 15 months. Approximately another $20 million of promotional TCDs will mature by February 1996. 21 Part I. Item 1 (continued) The following table sets forth the maturities of the Company's time certificates of deposit outstanding at the dates indicated:
December 31, 1995 Maturing in - ---------------------------------------------------------------------------------------------------------------------------------- Over three Over six Three months months through months through Over or less six months twelve months twelve months Total - ---------------------------------------------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) Under $ 100,000 $ 32,926 $ 28,532 $ 31,492 $ 7,034 $ 99,984 $100,000 and over 20,183 13,587 9,260 3,118 46,148 - ---------------------------------------------------------------------------------------------------------------------------------- Total time certificates of deposit $ 53,109 $ 42,119 $ 40,752 $ 10,152 $ 146,132 - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- December 31, 1994 Maturing in - ---------------------------------------------------------------------------------------------------------------------------------- Over three Over six Three months months through months through Over or less six months twelve months twelve months Total - ---------------------------------------------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) Under $ 100,000 $ 16,467 $ 9,541 $ 9,905 $ 9,497 $ 45,410 $100,000 and over 15,556 6,249 4,532 2,620 28,957 - ---------------------------------------------------------------------------------------------------------------------------------- Total time certificates of deposit $ 32,023 $ 15,790 $ 14,437 $ 12,117 $ 74,367 - ---------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------
Other Borrowed Funds Other borrowed funds consist of overnight federal funds purchased, Treasury tax and loan notes ("TT&L"), obligations under securities repurchase agreements, and the principal portions of capitalized lease obligations, obligations to senior lienholders for certain OREO properties, and deferred compensation liabilities. Other borrowed funds decreased by $7.4 million to $6.4 million at December 31, 1995 from $13.8 million at year end 1994. Other borrowed funds increased to $13.8 at December 31, 1994 from $8.7 million at year end 1993 because of overnight Federal funds purchased at year end. The borrowed money was used to fund new loans at December 31, 1994. The maximum balance of Federal funds purchased and TT&L borrowings outstanding during 1994 was $8.0 million and $6.4 million, respectively. The average balance of and average rate paid on Federal funds purchased and TT&L borrowings for 1994 were $620 thousand and 4.49%, and $3.4 million and 3.17%, respectively. Refer to NOTE 8-BORROWED FUNDS AND OTHER INTEREST-BEARING LIABILITIES of the Company's consolidated financial statements located in Part II, Item 8, of this Form 10-K. Asset/Liability Management The objective of asset/liability management is to manage and control the Company's exposure to interest rate fluctuations while maintaining adequate levels of liquidity and capital. The Company seeks to achieve this objective by matching its interest sensitive assets and liabilities, and maintaining the maturity and repricing of these assets and liabilities at appropriate levels given the interest rate environment. Generally, if rate sensitive assets exceed rate sensitive liabilities, the net interest income will be positively impacted during a rising rate environment and negatively impacted during a declining rate environment. When rate sensitive liabilities exceed rate sensitive assets, the net interest income will generally be positively impacted during a declining rate environment and negatively impacted during a rising rate environment. However, because interest rates for different asset and liability products offered by depository institutions respond differently to changes in the interest rate environment, the gap between rate sensitive assets and rate sensitive liabilities can only be used as a general indicator of interest rate sensitivity. The following gap repricing table sets forth information concerning the Company's rate sensitive assets and rate sensitive liabilities, including the off-balance sheet amounts for interest rate swaps, as of December 31,1995. Such assets and liabilities are classified by the earlier of maturity or repricing date in accordance with their contractual terms. Certain shortcomings are inherent in the method of analysis presented in the following gap table. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees and at different times to changes in market interest rates. Also, loan prepayments and changes in the mix or level of deposits could cause the interest sensitivities to vary from those which appear in the table. 22 Part I. Item 1 (continued)
Three months One year Three months through through Over or less twelve months five years five years Total - ---------------------------------------------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) INTEREST-EARNING ASSETS Federal funds sold $ - $ - $ - $ - $ - Investment securities 1,964 5,904 82,886 3,276 94,030 Loans(l) 202,904 25,351 58,063 29,138 315,456 Interest rate swaps - - 75,000 - 75,000 - ---------------------------------------------------------------------------------------------------------------------------------- Total interest-earning assets $ 204,868 $ 31,255 $ 215,949 $ 32,414 $ 484,486 - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- INTEREST-BEARING LIABILITIES Interest-bearing demand and savings deposits $ 130,301 $ - $ - $ - $ 130,301 Time certificates of deposit 53,109 82,871 10,140 12 146,132 Other borrowings and interest- bearing liabilities 4,883 - - 1,524 6,407 Interest rate swaps 75,000 - - - 75,000 - ---------------------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities $ 263,293 $ 82,871 $ 10,140 $ 1,536 $ 357,840 - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- Interest rate sensitivity gap $ (58,425) $ (51,616) $ 205,809 $ 30,878 Cumulative interest rate sensitivity (58,425) (110,041) 95,768 126,646 Cumulative interest rate sensitivity gap as a percentage of total interest- earning assets -12.06% -22.71% 19.77% 26.14%
- ------------------- (1) Loans exclude nonaccrual loans of $1,385 At December 31,1995, the Company's rate sensitive balance sheet was shown to be in a negative gap position over a one year horizon. The cumulative gap between assets and liabilities that reprice within 12 months was -$110.0 million or - 22.71% of assets. After one year, the gap turns positive. The table above implies that the Company's earnings would be reduced in the short-term if interest rates rise, or in other words that the Company is liability sensitive. However, although the Company exhibits a negative cumulative interest rate sensitivity gap as a percentage of total interest-earning assets in the one year or less horizon, management believes that the Company is asset sensitive in such period. This tendency is primarily due to the Company's core deposits, which are capable of being repriced currently and are therefore classified in the "three months or less" category, but which management believes respond similarly to long-term deposits. By including these core deposits in the over one year repricing categories in the gap table above, the Company would be asset sensitive. This asset sensitivity also stems from the size of the Company's variable rate loan portfolio. More than 70% of the entire loan portfolio reprices within one year. In addition to utilizing the repricing gap table above in managing its interest rate risk, the company performs a quarterly income simulation analysis. This simulation analysis provides a dynamic evaluation of the Company's balance sheet and income statement under varying yield curve scenarios, providing an estimate of both the dollar amount and percentage change in net interest income under various changes in interest rates. The income simulation analysis conducted as of December 31, 1995, indicates that the Company remains moderately asset- sensitive. Thus, a rising rate environment would tend to lead to an increase in net interest income, while a falling rate environment would tend to lead to a decrease in net interest income. In order to stabilize the Company's net interest income with respect to changing rates, the Company entered into a $50 million 5-year interest rate swap agreement in September 1993 ("Swap #1") and a $25 million 3-year interest rate swap agreement in January 1994 ("Swap #2"). The terms of these swap agreements require the Company to pay a floating rate of interest tied to three-month LIBOR, and to receive fixed rates of interest of 4.87% and 5.04% for Swap #1 and Swap #2, respectively. The Company's combined break-even point on both swap agreements is approximately 4.92%. Since the fourth quarter of 1994, three-month LIBOR has 23 Part I. Item 1 (continued) exceeded the Company's break-even point, so that interest expense on the swap agreements has exceeded interest income. Net interest expense on the swaps for the year ended December 31,1995, was $929 thousand, as compared to net interest income of $141 thousand for the year ended December 31, 1994. Liquidity Refer to the MD&A in Part II, Item 7, of this Form 10-K for a discussion of the Company's liquidity. Capital Resources Refer to the MD&A in Part II, Item 7, of this Form 10-K for detail on the Company's and Bank's capital resources. ITEM 2 PROPERTIES The Company owns the following properties: The Bellflower branch office, located at 17046 Bellflower Boulevard, Bellflower, California. This 2,924 square foot facility houses the Bank's Bellflower branch. The Brea branch office, located at 275 West Central Avenue, Brea, California. This 5,300 square foot facility houses the Bank's Brea branch. The Downey Main branch office, located at 10990 Downey Avenue, Downey, California. This 8,795 square foot facility houses the Bank's Downey branch and its Los Angeles County Business Banking group. The Orange branch office, located at 303 West Katella Avenue, Orange, California. This 20,966 square foot facility houses the Bank's Orange branch. The Santa Fe Springs branch office, located at 13372 East Telegraph Road, Santa Fe Springs, California. This 7,300 square foot facility houses the Bank's Santa Fe Springs branch. The Uptown Whittier branch office, located at 12802 East Hadley Street, Whittier, California. This 5,460 square foot facility houses the Bank's Uptown Whittier branch. The Whittier branch office, located at 13525 West Whittier Boulevard, Whittier, California. This 9,000 square foot facility houses the Bank's Whittier branch. The Company leases the following properties: The Company leases 44,259 square feet for its operations center offices, located at 16420 Valley View Avenue, La Mirada, California. The Company leases 4,000 square feet for the Bank's Yorba Linda branch office, located at 17490 East Yorba Linda Boulevard, Yorba Linda, California. The Company leases 10,463 square feet for its executive offices, located at 3800 East La Palma Avenue, Anaheim, California. This location also houses the Bank's Tustin/La Palma branch. The Company leases 6,000 square feet at 5799 E. La Palma Avenue, Anaheim Hills, California. The Company leases 441 square feet for its Anaheim Pavilions Supermarket branch office, located at 8010 Santa Ana Canyon Road, Anaheim Hills, California. The Company leases 4,000 square feet for its Catalina branch office, located at 303 Crescent Avenue, Avalon, California, on Santa Catalina Island. 24 Part I. Item 2 (continued) The Company leases 6,500 square feet for its City of Industry branch office, located at 18261 - 63 Gale Avenue, City of Industry, California. The Company leases 6,980 square feet for its Huntington Beach branch office, located at 9042 Garfield Avenue, Huntington Beach, California. The Company leases 411 square feet for its La Habra branch office, located at Smith's Food and Drug King Market, 2101 West Imperial Highway, La Habra, California. The Company leases 3,025 square feet for its Signal Hill branch office, located at 2501 Cherry Avenue, Signal Hill, California. The Company leases 9,495 square feet for its Laguna Hills branch office, located at 24061 Calle de la Plata, Laguna Hills, California. This location also houses its Orange County Corporate Banking Center. The Company leases 3,471 square feet for its La Jolla branch office, located at 4180 La Jolla Village Drive, Suite 125, La Jolla, California. The Company leases 2,100 square feet for its San Diego Corporate Banking Center, located at 4180 La Jolla Village Drive, Suite 430, La Jolla, California. ITEM 3. LEGAL PROCEEDINGS The Company is a party to routine litigation involving various aspects of its business. As of the date of this Form 10-K, it is management's opinion after consulting with legal counsel that none of the pending litigation will have a material adverse impact on the consolidated financial condition of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to shareholders during the fourth quarter of 1995. PART II. ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Common Stock is listed on the American Stock Exchange ("AMEX") under the symbol, "SCK". The following table sets forth the high and low closing sale prices on a per share basis for the Common Stock as reported by the AMEX for the periods indicated: The Company had approximately 610 shareholders of record of its common stock as of March 1, 1996.
High Low ------------------------------------------------------------------- 1994 First quarter $6 $4 3/4 Second quarter 5 3/8 4 1/4 Third quarter 5 1/8 4 5/8 Fourth quarter 5 3 3/4 1995 First quarter 5 1/4 4 5/16 Second quarter 5 1/4 4 5/8 Third quarter 6 5/8 4 3/4 Fourth quarter 6 1/8 5 7/16 1996 First quarter (through March 25, 1996) 6 3/4 6 1/16
On March 25, 1996 the last reported sales price per share for the Company's stock was $6 1/2. 25 ITEM 6. SELECTED FINANCIAL DATA - --------------------------------
- ------------------------------------------------------------------------------------------------------------------------------ As of or for the year ended December 31, 1995 1994 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------------------------ (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Statement of Operations Data: Interest income $ 33,396 $ 26,420 $ 29,732 $ 35,915 $ 39,440 Interest expense 12,015 6,279 9,619 13,665 17,678 - ------------------------------------------------------------------------------------------------------------------------------ Net interest income 21,381 20,141 20,113 22,250 21,762 Provision for loan losses 1,539 (850) 11,750 9,072 2,888 - ------------------------------------------------------------------------------------------------------------------------------ Net interest income after provision for loan losses 19,842 20,991 8,363 13,178 18,874 - ------------------------------------------------------------------------------------------------------------------------------ Net gains (losses) on sales of securities (620) 17 7,074 2,395 40 Noninterest income 5,633 6,683 6,869 5,605 5,225 Noninterest expense 23,293 23,852 26,024 23,712 20,648 - ------------------------------------------------------------------------------------------------------------------------------ Income (loss) before income taxes 1,562 3,839 (3,718) (2,534) 3,491 Provision for income taxes (benefits) 693 1,134 (1,026) (1,131) 1,089 - ------------------------------------------------------------------------------------------------------------------------------ Income (loss) before cumulative effect of a change in accounting principle 869 2,705 (2,692) (1,403) 2,402 - ------------------------------------------------------------------------------------------------------------------------------ Cumulative effect of change in accounting principle - - (41) - - - ------------------------------------------------------------------------------------------------------------------------------ Net income (loss) $ 869 $ 2,705 $ (2,733) $ (1,403) $ 2,402 - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ Earnings per Share and Stock Data: Net income (loss) $ 0.12 $ 0.49 $ (0.79) $ (0.40) $ 0.69 Cash dividends declared - - - - 0.20 Book value (1) 6.09 5.60 8.21 8.99 9.40 Weighted average shares outstanding (2) 7,472,805 5,507,000 3,468,505 3,468,505 3,468,505 Balance Sheet Data (year end balances): Investment securities $ 94,030 $ 71,858 $ 149,543 $ 164,546 $ 112,812 Loans, net 310,576 202,072 201,333 250,763 296,389 Total assets 461,683 398,555 407,889 464,229 460,886 Total deposits $ 406,811 $ 339,939 $ 368,388 $ 402,892 $ 410,756 Shareholders' equity 45,512 41,844 28,462 31,195 32,598 Asset Quality: Nonaccrual loans (3) $ 1,385 $ 1,612 $ 7,081 $ 7,426 $ 11,234 OREO 2,073 5,837 6,133 6,318 258 Asset Quality Ratios: Net charge-offs to average gross loans 0.67% 2.28% 3.32% 2.40% 0.46% Nonaccrual loans to year-end gross loans 0.44% 0.78% 3.33% 2.88% 3.72% Nonperforming assets to year-end assets (4) 0.75% 1.87% 3.24% 2.96% 2.49% Allowance for possible loan losses to year-end gross loans 1.81% 2.56% 5.08% 2.66% 1.52% Allowance for possible loan losses to nonaccrual loans 414.01% 329.88% 152.53% 92.36% 40.72% Selected Performance Ratios: Return on average assets 0.19% 0.67% -0.59% -0.30% 0.55% Return on average shareholders' equity 2.14% 6.59% -8.90% -4.42% 7.41% Average shareholders' equity to average assets 8.87% 10.15% 6.61% 6.73% 7.42% Dividend payout ratio 0.00% 0.00% 0.00% 0.00% 28.88% Noninterest expense to average assets 5.09% 5.90% 5.61% 5.03% 4.79% Net interest margin (5) 5.30% 5.75% 4.82% 5.27% 5.73% Company Capital Ratios: Leverage 9.08% 10.74% 6.09% 6.30% 6.60% Tier 1 risk-based capital 10.75% 15.72% 8.89% 9.10% 8.40% Total capital 12.01% 16.98% 10.18% 10.60% 9.70% Bank Capital Ratios: Leverage 8.59% 8.86% 6.09% 6.30% 6.60% Tier 1 risk-based capital 10.14% 12.96% 8.89% 9.10% 8.40% Total capital 11.39% 14.22% 10.18% 10.60% 9.70% - --------------------------------------------------------------------------
(1) All book value per share data are based on the number of shares outstanding at year end (2) Excludes the effect of stock options as common stock equivalents as such effect was antidilutive for 1992 and 1993, and immaterial for 1991, 1994 and 1995. (3) Includes loans with modified terms of $125 thousand in 1995, $100 thousand in 1994, and $1.4 million in 1993. The Company has no loan 90 days past due and still accruing interest. (4) Includes nonaccrual loans, other real estate acquired by the Bank through foreclosure or deed-in-lieu of foreclosure, and loans classified as in-substance foreclosure. (5) Computed on tax-equivalent basis for 1992 and 1991. The Company had no investments in tax-exempt municipal securities for 1995, 1994 and 1993. 26 PART II. ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion presents information about the results of operations, financial condition, liquidity and capital resources of SC Bancorp and its subsidiary, Southern California Bank (together, the "Company"). This information should be read in conjunction with the audited consolidated financial statements of the Company and the notes thereto, and the accompanying quarterly unaudited consolidated financial statements and notes thereto. Reference is also made to Item 1 of the Company's annual report on Form 10-K, which provides certain additional financial information regarding the Company. Copies of the Form 10-K are available without charge on written request directed to Southern California Bank, Finance Department, P.O. Box 588, La Mirada, CA 90637-0588. Two significant events impacting operating results for 1995 were the acquisition of the corporate and private banking loans and deposits of Independence One Bank of California, F.S.B. ("IOBC") on April 30, 1995, and the 1995 Restructuring in the third quarter discussed below. The Bank acquired $72.4 million in loans and $34.7 million of deposits from IOBC. Funds for the acquisition were generated through a $5.0 million capital infusion from SC Bancorp and the TCD promotion held during the first quarter of 1995. Reference is made to the registrant's Form 8-K/A, dated April 30, 1995, copies of which are available on request as noted above, for additional discussion of the IOBC transaction. The 1995 Restructuring involved the sale of two branches, consolidation of selected operations, reductions in staff and securities sales. The goal of the restructuring was to improve operating efficiencies and to provide additional liquidity for future loan growth. Results Of Operations The Company reported net income of $869 thousand for 1995 compared to net income of $2.7 million for 1994, and a net loss of $2.7 million for 1993. Net income for 1995 reflects approximately $1.7 million of restructuring charges and losses before tax, a $600 thousand additional loan loss provision specific to the collateral valuation on two commercial real estate loans also recorded in the third quarter, and a $408 thousand nonrecurring adjustment to interest expense in the first quarter for deferred compensation plans. These expenses and losses are partially offset by a $407 thousand gain in the first quarter resulting from a benefit payment received on corporate owned life insurance which is reflected in noninterest income; a refund of FDIC insurance premiums of approximately $239 thousand which is reported in noninterest expense as an offset to insurance premium expense; and a gain on sale of loans of approximately $145 thousand which is also reported in noninterest income. The previous year's results include a $448 thousand gain on the sale of the Company's headquarters building, a $215 thousand gain on the sale of loans, and a $850 thousand reversal of previously recorded allowance for possible loan losses. The net loss during 1993 was primarily attributable to large provisions for loan losses and writedowns of OREO, reduced interest income due to a change in balance sheet composition from higher-yielding loans to investment securities, and approximately $960 thousand of nonrecurring expenses recorded for branch consolidations in conjunction with the 1993 Restructuring. Net interest income increased $1.2 million to $21.4 million for the year ended December 31,1995, from $20.1 million a year ago. Most of the increase was due to higher average loan balances, which increased $58.1 million over 1994 largely due to the purchase of the IOBC loans as well as guaranteed portions of SBA loans. Net interest income increased slightly, by $28 thousand, in 1994 from $20.1 million in 1993, despite the $67.1 million decrease in average earning assets to $350.0 million for 1994 from $417.1 million for 1993. Yields on prime- based loans, however, increased as a result of increases in the national prime rate of nearly 2.5% during 1994. Although net interest income increased $1.2 million from 1994, the Company's net interest margin decreased to 5.30% for the year ended December 31, 1995, compared to 5.75% for the prior year and 4.82% for 1993. The decrease in the net interest margin can be attributed to higher interest expense due to an adjustment recorded on the Company's deferred compensation plans and increased interest expense associated with the TCD program that provided funding for the IOBC transaction. Most of these TCDs matured in September 1995, and many were renewed at significantly lower rates. The increase in the net interest margin for 1994 as compared to 1993 reflects the significant increases in market rates during 1994. 27 Part II. Item 7 (continued) Noninterest income was $5.0 million, $6.7 million, and $13.9 million for the years ended December 31, 1995, 1994, and 1993, respectively. As part of the 1995 Restructuring, the Company sold approximately $27.0 million of its investment securities classified as available-for-sale and realized a loss of approximately $620 thousand. Other fee income also declined compared to the prior year due to reductions in merchant bankcard fee income. Noninterest income for 1994 included nonrecurring gains on the sale of assets as discussed above. Noninterest income in 1993 included approximately $7.1 million in gains on sales of securities from the restructuring of the Company's investment securities portfolio. Operating expenses, excluding 1995 restructuring charges of $948 thousand, decreased from $23.9 million for the year ended December 31, 1994, to $22.3 million for the year ended December 31, 1995. The decrease in operating expense largely occurred in the OREO, FDIC assessment and merchant bankcard expense categories. Operating expenses, excluding 1993 restructuring charges of $944 thousand for branch consolidations, decreased $1.2 million from $25.1 million for the year ended December 31, 1993 to $23.9 million for the year ended December 31, 1994. Most of the decreases were in salaries and benefits, occupancy, furniture and equipment, OREO, and merchant bankcard expenses. Total assets at December 31,1995, were $461.7 million, an increase of 15.8% from $398.6 million at year-end 1994. Total deposits at December 31,1995, were $406.8 million, an increase of 19.7% from $339.9 million at year-end 1994. The increase in assets is primarily attributable to the IOBC loan purchase, and to SBA loan purchases completed during the last quarter of 1995. Approximately half of the increase in deposits resulted from the IOBC purchase, with the remaining increase coming from the promotional TCD program in the first quarter of 1995. The following table provides a summary comparison of assets and liabilities in the Company's consolidated balance sheets and the percentage distribution of these items for the dates indicated:
- ------------------------------------------------------------------------------------------------------------------------------ December 31, 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------------ (DOLLARS IN THOUSANDS) Balance % Balance % Balance % - ------------------------------------------------------------------------------------------------------------------------------ ASSETS Cash and cash equivalents $ 29,088 6.3% $ 31,118 7.8% $ 23,564 5.8% Investment securities 94,030 20.4% 131,881 33.1% 149,543 36.7% Loans, net 310,576 67.3% 202,072 50.7% 201,333 49.3% Prentises and equipment, net 9,734 2.1% 10,254 2.6% 10,096 2.5% Other real estate owned, net 2,073 0.4% 5,837 1.4% 6,133 1.5% Accrued interest receivable 4,297 0.9% 4,330 1.1% 3,971 1.0% Other assets 11,885 2.6% 13,063 3.3% 13,249 3.2% - ------------------------------------------------------------------------------------------------------------------------------ TOTAL ASSETS $ 461,683 100.0% $ 398,555 100.0% $ 407,889 100.0% - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ LIABILITIES AND SHAREHOLDERS' EQUITY Deposits Noninterest-bearing deposits $ 130,378 28.2% $ 118,020 29.6% $ 107,861 26.4% Interest-bearing demand & savings deposits 130,301 28.2% 147,552 37.0% 171,056 41.9% Time certificates of deposit 146,132 31.7% 74,367 18.7% 89,471 22.0% - ------------------------------------------------------------------------------------------------------------------------------ Total deposits 406,811 88.1% 339,939 85.3% 368,388 90.3% - ------------------------------------------------------------------------------------------------------------------------------ Borrowed funds and other interest-bearing liabilities 6,407 1.4% 13,771 3.5% 8,533 2.1% Accrued interest payable and other liabilities 2,953 0.6% 3,001 0.7% 2,506 0.6% Total Shareholders' Equity 45,512 9.9% 41,844 10.5% 28,462 7.0% - ------------------------------------------------------------------------------------------------------------------------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 461,683 100.0% $ 398,555 100.0% $ 407,889 100.0% - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------
28 Part II. Item 7 (continued) Liquidity Liquidity management involves the Company's ability to meet the cash flow requirements of its customers who may be depositors wanting to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs. The Company's liquid assets consist of cash and cash equivalents, and investment securities, excluding those pledged as collateral. It is the Company's policy to maintain a liquidity ratio (liquid assets to liabilities) of between 20% and 40%, and to limit gross loans to no more than 85% of deposits. At December 31,1995, the Company's ratios were well within these guidelines: the liquidity ratio was 25.3% and the loan to deposit ratio was 77.9%. The Company maintains short-term sources of funds to meet periodic planned and unplanned increases in loan demand and deposit withdrawals and maturities. The initial source of liquidity is the excess funds sold daily to other banks in the form of Federal funds. Besides cash and cash equivalents, the Company maintains a portion of its investment securities portfolio as available-for-sale. Available-for-sale securities can be sold in response to liquidity needs or used as collateral under reverse repurchase agreements. As part of its restructuring plan, the Company liquidated a portion of its available-for-sale investment securities portfolio during the year ended December 31, 1995. These securities sales were undertaken to provide a funding source for loan growth, and to strengthen the Bank's funding mix. The Company's liquid assets were $101.3 million at December 31,1995, compared to $125.3 million at December 31, 1994. Secondary sources of liquidity include reverse repurchase agreements to borrow cash for short to intermediate periods of time using the Company's available- for-sale securities as collateral and Federal funds lines of credit that allow the Company to temporarily borrow an aggregate of up to $25.0 million from three commercial banks. At December 31,1995, the Company had approximately $81.7 million in unpledged securities that could be used for reverse repurchase agreements. Federal funds arrangements with correspondent banks are subject to the terms of the individual arrangements and may be terminated at the discretion of the correspondent bank. Secondary sources of liquidity also include short- term borrowings at the Federal Reserve Bank and the Federal Home Loan Bank. Capital Resources The Company and its bank subsidiary are subject to risk-based capital regulations adopted by the federal banking regulators in January 1990. These guidelines are used to evaluate capital adequacy, and are based on an institution's asset risk profile and off balance sheet exposures, such as unused loan commitments and standby letters of credit. The regulations require that a portion of total capital be core, or Tier 1, capital consisting of common shareholders' equity and perpetual preferred stock, less goodwill and certain other deductions, with the remaining, or Tier 2, capital consisting of other elements, primarily subordinated debt, mandatory convertible debt, and grandfathered senior debt, plus the allowance for loan losses, subject to certain limitations. As of December 1992, the risk-based capital rules were further supplemented by a leverage ratio, defined as Tier 1 capital divided by quarterly average assets after certain adjustments. The minimum leverage ratio is 3 percent for banking organizations that do not anticipate significant growth and have well-diversified risk (including no undue interest rate exposure), excellent asset quality, high liquidity, and good earnings. Other banking organizations not in this category are expected to have ratios of at least 4 to 5 percent, depending on their particular condition and growth plans. Higher capital ratios can be mandated by the regulators if warranted by the particular circumstances or risk profile of a banking organization. In the current regulatory environment, banking companies must stay well capitalized, as defined in the banking regulations, in order to receive favorable regulatory treatment on acquisitions and favorable risk-based deposit insurance assessments. Management seeks to maintain capital ratios in excess of the regulatory minimums. Prior to December 1994, the Bank was required to attain a minimum leverage ratio of 7.0% under the conditions of a Memorandum of Understanding ("MOU") the Bank entered into with the FDIC and the California State Banking Department in November 1993. The FDIC and State Banking Department released the Bank from the MOU effective February 15, 1995. As of December 31, 1995, the capital ratios of the Company and the Bank exceeded the well capitalized thresholds prescribed in the rules. 29 Part II. Item 7 (continued) The following table sets forth the Company's and the Bank's risk-based capital and leverage ratios at December 31, 1995:
Company Bank - ---------------------------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) Amount % Amount % - ---------------------------------------------------------------------------------------------------------------- Leverage ratio $ 42,126 9.08% $ 39,727 8.59% Regulatory minimum 18,552 4.00% 18,493 4.00% Excess 23,574 5.08% 12,234 4.59% Risk-based ratios Tier 1 capital $ 42,126 (a) 10.75% (b) $ 39,727 (a) 10.14% (b) Tier 1 minimum 15,671 4.00% (c) 15,671 4.00% (c) Excess 26,455 6.75% 24,056 6.14% Total capital $ 47,034 (d) 12.01% (b) $ 44,634 (d) 11.39% (b) Total capital minimum 31,342 8.00% 31,342 8.00% Excess 15,692 4.01% 13,292 3.39% - ----------------------------------------------------------------------------------------------------------------
(a) Includes common shareholders' equity (excluding unrealized losses on available-for-sale securities) less goodwill. The Tier 1 capital ratio is adjusted for the disallowed portion of deferred tax assets, if applicable. (b) Risk-weighted assets of $391.7 million were used to compute these percentages. (c) Insured institutions, such as the Bank, must maintain a leverage ratio of 4% or 5%, a Tier 1 capital ratio of at least 4% or 6%, and a Total capital ratio of at least 8% or 10% in order to be categorized adequately capitalized or well-capitalized, respectively. (d) Tier 1 capital plus the allowance for loan losses, limited to 1.25% of total risk-weighted assets. 30 PART II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 1995 AND 1994 (DOLLARS IN THOUSANDS)
1995 1994 - --------------------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks $ 29,088 $ 31,118 Federal funds sold- - - - --------------------------------------------------------------------------------------------------------------- Cash and cash equivalents 29,088 31,118 - --------------------------------------------------------------------------------------------------------------- Securities held-to-maturity, at amortized cost: fair value 1994 - $54,680 (Note 3) - 60,023 Securities available-for-sale, at fair value (Note 3) 94,030 71,858 Loans (Notes 4 and 16) 316,841 207,688 Less: Deferred fee income (531) (298) Allowance for possible loan losses (5,734) (5,318) - --------------------------------------------------------------------------------------------------------------- Loans, net 310,576 202,072 - --------------------------------------------------------------------------------------------------------------- Premises and equipment, net (Note 5) 9,734 10,254 Other real estate owned, net (Note 6) 2,073 5,837 Accrued interest receivable 4,297 4,330 Other assets 11,885 13,063 - --------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 461,683 $ 398,555 - --------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- LIABILITIES Deposits: (Note 7) Interest-bearing $ 276,433 $ 221,919 Noninterest-bearing 130,378 118,020 - --------------------------------------------------------------------------------------------------------------- Total deposits 406,811 339,939 - --------------------------------------------------------------------------------------------------------------- Borrowed funds and other interest-bearing liabilities (Note 8) 6,407 13,771 Accrued interest payable and other liabilities 2,953 3,001 - --------------------------------------------------------------------------------------------------------------- Total Liabilities 416,171 356,711 - --------------------------------------------------------------------------------------------------------------- Commitments and contingencies (Note I 1) - - SHAREHOLDERS' EQUITY (NOTES 10 AND 15) Preferred stock, no par or stated value: 10,000,000 shares authorized; no shares issued or outstanding Common stock, no par or stated value: 20,000,000 shares authorized; 7,471,505 shares issued and outstanding at December 31, 1995, and 7,468,505 shares issued and outstanding at December 31, 1994 37,658 37,643 Retained earnings 8,600 7,731 Unrealized loss on available-for-sale securities, net of taxes (746) (3,530) - --------------------------------------------------------------------------------------------------------------- Total Shareholders' Equity 45,512 41,844 - --------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 461,683 $ 398,555 - --------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 31 Part II. Item 8 (continued) CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------------ INTEREST INCOME Interest and fees on loans $ 25,960 $ 18,971 $ 20,212 Interest on investment securities 6,299 7,166 9,054 Interest on Federal funds sold 1,137 283 466 - ------------------------------------------------------------------------------------------------------------------------------ Total interest income 33,396 26,420 29,732 - ------------------------------------------------------------------------------------------------------------------------------ INTEREST EXPENSE Interest on deposits: Interest-bearing demand 1,451 1,363 1,487 Savings 1,150 1,564 2,240 Time certificates of deposit 8,397 3,029 4,473 - ------------------------------------------------------------------------------------------------------------------------------ Total interest on deposits 10,998 5,956 8,200 - ------------------------------------------------------------------------------------------------------------------------------ Other interest expense 1,017 323 1,419 - ------------------------------------------------------------------------------------------------------------------------------ Total interest expense 12,015 6,279 9,619 - ------------------------------------------------------------------------------------------------------------------------------ Net interest income 21,381 20,141 20,113 Provision for (recovery of) possible loan losses (Note 3) 1,539 (850) 11,750 - ------------------------------------------------------------------------------------------------------------------------------ Net interest income after provision for possible loan losses 19,842 20,991 8,363 - ------------------------------------------------------------------------------------------------------------------------------ Noninterest income: Service charges on deposit accounts 1,727 1,754 1,779 Other fees and charges 2,542 2,637 3,162 Merchant bankcard income 518 1,249 1,631 Net (loss) gain on sales of investment securities (620) 17 7,074 Other gains on sales of assets, net 58 624 4 Other income 788 419 293 - ------------------------------------------------------------------------------------------------------------------------------ Total noninterest income 5,013 6,700 13,943 - ------------------------------------------------------------------------------------------------------------------------------ Noninterest expense: Salaries and employee benefits 10,723 9,763 10,743 Net occupancy, furniture and equipment 5,273 4,666 5,129 Professional fees 1,740 1,882 1,583 Telecommunications 481 352 318 Office supplies 391 436 470 Data processing 502 449 448 Merchant bankcard 475 1,013 1,424 FDIC assessment 498 1,006 888 Insurance 348 436 399 Goodwill amortization 821 211 167 Other real estate owned 219 1,832 2,897 Advertising and promotion 772 613 576 Postage and delivery 586 543 415 Other operating expense 464 650 567 - ------------------------------------------------------------------------------------------------------------------------------ Total noninterest expense 23,293 23,852 26,024 - ------------------------------------------------------------------------------------------------------------------------------ Income (loss) before provision for income taxes (benefits) 1,562 3,839 (3,718) Provision for income taxes (benefits) 693 1,134 (1,026) - ------------------------------------------------------------------------------------------------------------------------------ Income (loss) before cumulative effect of change in accounting principle 869 2,705 (2,692) Cumulative effect of change in accounting principle, net of tax - - (41) - ------------------------------------------------------------------------------------------------------------------------------ NET INCOME (LOSS) $ 869 $ 2,705 $(2,733) - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ Weighted average number of shares outstanding 7,469 5,507 3,469 - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ Earnings (loss) per share $ 0.12 $ 0.49 $ (0.79) - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 32 Part II. Item 8 (continued) CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (DOLLARS AND SHARES OUTSTANDING IN THOUSANDS)
UNREALIZED LOSS ON AVAILABLE-FOR COMMON STOCK RETAINED SALE SECURITIES, SHARES AMOUNT EARNINGS NET OF TAX TOTAL - -------------------------------------------------------------------------------------------------------------------------- Balance, January 1, 1993 3,469 $ 23,436 $ 7,759 $ - $ 31,195 Net loss (2,733) (2,733) - -------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1993 3,469 23,436 5,026 - 28,462 Common stock issued 4,000 14,207 14,207 Unrealized loss on available-for-sale securities (3,530) (3,530) Net income 2,705 2,705 - -------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1994 7,469 37,643 7,731 (3,530) 41,844 Common stock issued 3 15 15 Unrealized loss on available-for-sale securities 2,784 2,784 Net income 869 869 - -------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1995 7,472 $ 37,658 $ 8,600 $ (746) $ 45,512 - -------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 33 Part II. Item 8 (continued) CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (DOLLARS IN THOUSANDS)
1995 1994 1993 - --------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 869 $ 2,705 $ (2,733) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Loss (gain) on sale of available-for-sale investment securities 620 (17) (7,074) Net amortization of premiums on investment securities 2,165 1,695 2,319 Provision for (recovery of) possible loan losses 1,539 (850) 11,750 Gain on sale of loans (145) (215) - Net amortization of deferred fees and unearned income on loans 29 24 (351) Depreciation and amortization 2,876 2,106 2,053 Gain on sale of fixed assets and other assets (1) (409) (4) Provision for loss on other real estate owned 128 1,182 2,487 (Gain)/loss on sale of other real estate owned (130) (5) 258 (Benefit) provision for income taxes (541) 1,492 (1,344) Increase in accrued interest receivable and other assets (404) (16) (4,479) (Decrease)/increase in accrued interest payable and other liabilities (198) 645 (1,046) - --------------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 6,807 8,337 1,836 - --------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of available-for-sale investment securities 26,860 5,245 310,669 Proceeds from sale of investment securities held-for-sale - - 57,535 Proceeds from maturities of available-for-sale investment securities 6,000 10,295 5,596 Proceeds from maturities of held-to-maturity investment securities 7,530 - - Purchase of investment securities available-for-sale (1,206) (4,946) (282,445) Purchase of investment securities held-to-maturity - - (71,597) Proceeds from sale of loans 2,084 - - Purchase of IOBOC loans (71,576) - - Purchase of other loans (26,432) - - Loans funded, net of payments received (15,823) (3,283) 30,474 Proceeds from sale of fixed assets and other assets 1 932 20 Purchase of Fixed assets (1,535) (2,576) (3,856) Proceeds from sale of other real estate owned 5,689 2,704 4,581 - --------------------------------------------------------------------------------------------------------------------------------- Net cash (used in) provided by operating activities (68,408) 8,371 50,977 - --------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from Rights Offering - 14,207 - Proceeds from exercise of stock options 15 - - Purchase of IOBOC interest-bearing deposits 14,965 - - Purchase of IOBOC noninterest-bearing deposits 19,762 - - (Decrease)/increase in demand deposits, NOW and savings accounts (36,853) (13,344) 11,158 Increase/(decrease) in time certificates of deposit 68,998 (15,105) (46,666) (Decrease)/increase in other borrowings (7,316) 5,088 (17,641) - --------------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 59,571 (9,154) (53,149) - --------------------------------------------------------------------------------------------------------------------------------- (Decrease)/increase in cash and cash equivalents (2,030) 7,554 (336) Cash and cash equivalents, beginning of period 31,118 23,564 23,900 - --------------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 29,088 $ 31,118 $ 23,564 - --------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 34 Part II. Item 8 (continued) CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (DOLLARS IN THOUSANDS)
1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS Unrealized loss on investment securities available-for-sale, net of tax $ 2,784 $ 3,530 $ - Transfer of loans to OREO 1,821 3,585 7,557 Assumption of senior liens on OREO 102 - 91 Transfer of held-to-maturity securities to available-for-sale 51,991 - - Transfer of held-to-maturity securities to held-for-sale - - 11,227
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 35 Part II. Item 8 (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES SC Bancorp, a bank holding company (the "Company"), and its subsidiary, Southern California Bank, a California state-chartered bank (the "Bank"), operates 17 branches in Southern California. The Company's primary source of revenue is providing loans to customers, who are predominantly small and mid-sized businesses. The accounting and reporting policies of the Company conform to generally accepted accounting principles and general practices within the banking industry. The following are descriptions of the more significant of these policies: PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of the Company and the Bank. All material intercompany balances and transactions have been eliminated in consolidation. USE OF ESTIMATES IN THE PREPARATION OF THE FINANCIAL STATEMENTS: The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS: For cash flow reporting purposes, cash and due from banks and Federal funds sold are considered cash and cash equivalents. SECURITIES: The Company's securities portfolio includes U.S. Treasury and U.S. federal agency securities, most of which are mortgage-backed securities. The Company has classified its investment securities as held-to-maturity or as available- for-sale; the Company has no trading account assets. Securities are classified as available-for-sale when the Company intends to hold the securities for an indefinite period of time but not necessarily to maturity. Any decision to sell a security classified as available-for-sale would be based on various factors, including significant movements in interest rates, changes in the maturity mix of the Company's assets and liabilities, liquidity demands, regulatory capital considerations, and other similar factors. Securities classified as available-for-sale are reported at their fair values. Unrealized holding gains and losses on securities available-for-sale are reported, net of tax, as a separate component of shareholders' equity. Realized gains and losses from the sales of available-for-sale securities are reported separately in the statements of operations. The cost basis of available-for-sale securities is recorded using the specific identification method. In January 1995, the FDIC issued a final rule excluding unrealized holding gains and losses on available-for-sale debt securities from the calculation of Tier 1 capital. At December 31, 1995, the Company's available-for-sale portfolio had a net unrealized loss of $1.3 million. The tax-effected reduction to shareholders' equity at December 31, 1995, was $746 thousand. Securities are classified as held-to-maturity when the Company has both the intent and ability to hold the securities to maturity on a long-term basis. Securities held-to-maturity are reported at cost, adjusted for amortization of premiums and accretion of discounts to maturity or, in the case of mortgage- backed securities, over the estimated life of the securities. Ordinarily, transfers of securities from held-to-maturity to available-for-sale are not permitted. However, under a special one-time exemption authorized by the Financial Accounting Standards Board that allowed companies to reclassify their investment securities portfolio categories, the Company reclassified its entire held-to-maturity investment portfolio to the available-for-sale category in December 1995. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 115, held-to-maturity investment securities were transferred to available-for-sale at their fair market values. The net result of the transfer was an aggregate unrealized net loss of $910 thousand at December 31, 1995. LOANS-ALLOWANCE FOR POSSIBLE LOAN LOSSES AND INCOME RECOGNITION: A certain degree of risk is inherent in the extension of credit. Credit losses arise primarily from the loan portfolio, but may also be derived from other credit-related sources, including commitments to extend credit, guarantees, and standby letters of credit. 36 Part II. Item 8 (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Actual credit losses and other charges, net of recoveries, are deducted from the allowance for possible loan losses. Other charges to the allowance primarily include amounts related to loan foreclosures at the time of transfer to other real estate owned. A provision for possible loan losses, which is a charge against earnings, is added to the allowance based on management's assessment of certain factors including, but not necessarily limited to, estimated losses from loans and other credit arrangements; general economic conditions; deterioration in pledged collateral; historical loss experience; and trends in portfolio volume, maturity, composition, delinquencies, and nonaccruals. The Company adopted SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan- Income Recognition and Disclosures-An Amendment of FASB Statement No. 114," effective January 1, 1995. This statement prescribes that a loan is impaired when it is probable that the creditor will be unable to collect all contractual principal and interest payments under the terms of the loan agreement. This statement generally requires impaired loans to be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate, or as an expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. The Company has determined that the combined effect of adoption of SFAS No. 114 and No. 118 was immaterial to the consolidated financial statements due to the Company's pre- existing methodology for calculating its allowance for possible loan losses, which is based on the value of the underlying collateral of "impaired" loans, as defined by SFAS No. 114. Impaired loans include loans placed on nonaccrual status. Nonaccrual loans are those which are past due 90 days as to either principal or interest, or earlier when payment in full of principal or interest is not expected. When a loan is placed on nonaccrual status, interest accrued but not received is reversed against interest income. Thereafter, interest income is no longer recognized and the full amount of all payments received, whether principal or interest, are applied to the principal balance of the loan. A nonaccrual loan may be restored to an accrual basis when principal and interest payments are current, and full payment of principal and interest is expected. Loans are generally carried at the principal amount outstanding, net of unearned discounts and deferred fees. Purchased loans are generally carried at the principal amount outstanding, net of any unamortized discounts or premiums. Interest on loans, other than installment loans, is calculated using the simple interest method. Interest income on discounted loans is generally recognized over the estimated life of the loans based on methods that approximate the interest method. Net deferred loan origination fees are amortized to interest income over the contractual lives of the related loans using the interest method. PREMISES AND EQUIPMENT: Premises and equipment are stated at cost, less accumulated depreciation and amortization computed on a straight-line basis over the estimated useful lives of the assets or the lease terms. Sublease rental income is reported in noninterest expense. Net gains and losses on disposal or retirement of premises and equipment are reported in net gains and losses on sales of assets. OTHER REAL ESTATE OWNED: Other real estate owned ("OREO") is recorded at fair value at the time of foreclosure. Initial losses on properties acquired through foreclosure are treated as credit losses at the time of transfer to OREO. Routine holding costs, net of any income and net gains and losses on disposal, are reported in the consolidated statements of operations as noninterest expense. Allowances for OREO losses are recorded for any subsequent declines in fair values. GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS: Goodwill represents the excess of the purchase price over the estimated fair value of identifiable net assets acquired. The Company amortizes goodwill over its estimated useful life, not to exceed 15 years. Core deposit intangibles are amortized using the straight-line method based on the estimated runoff of the related deposits. Other identifiable intangible assets are amortized using the interest method or on a straight-line basis over their estimated periods of benefit. Goodwill and identifiable intangible assets are reported as part of other assets. 37 Part II. Item 8 (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INCOME TAXES: The Company files a consolidated Federal income tax return and a combined California state franchise tax return. Deferred income taxes, which are reported with other assets, result from the recognition of income and expense items in different periods for tax and financial reporting purposes. SFAS No. 109, "Accounting for Income Taxes," requires an asset and liability approach for determining the amount of income taxes for financial reporting. A current or deferred tax liability or asset is measured based on the amount of taxes calculated at the current effective tax rates or refundable currently or in future years. If it is more likely than not that any of a deferred tax asset will not be realized, the statement requires a valuation allowance to be recorded. The Company adopted SFAS No. 109 as of January 1, 1993. As a result of this adoption, a cumulative effect adjustment of $41 thousand was recorded in 1993. EARNINGS PER SHARE: The computation of earnings per share is based on the weighted average number of shares and common stock equivalents outstanding during the year. Outstanding stock options were not considered common stock equivalents for 1995 or 1993 because they had an antidilutive effect; outstanding stock options were also not included as common stock equivalents for 1994 because their effect was immaterial. STOCK-BASED COMPENSATION: The Company maintains a stock option plan for the benefit of its executives. In 1995, the FASB issued SFAS No. 123 "Accounting for Stock-Based Compensation," which encourages companies to account for stock-based compensation awards at their fair values at the date the awards are granted. This statement does not require the application of the fair value method and allows the continuance of the current accounting method, which requires accounting for stock-based compensation awards at their intrinsic value, if any, as of the grant date. The accounting and disclosure requirements of this statement are effective for financial statements at various dates beginning after December 15, 1995. The Company has elected not to adopt the fair value provisions of this statement. INTEREST RATE SWAP AGREEMENTS: The Company has entered into two interest rate swap agreements in the management of its interest rate exposure. Revenue or expense associated with these agreements, which are intended to convert the interest-rate characteristics of interest-bearing assets, are accounted for on an accrual basis and recognized as an adjustment to interest income, based on the interest rates currently in effect for such contracts. RECLASSIFICATIONS: Certain reclassifications have been made to prior year amounts to conform to the current year presentation. NOTE 2 - RESTRICTIONS ON CASH AND DUE FROM BANKS Withdrawal and usage restrictions exist on a portion of the funds of the Company, the majority of which arise from the requirements of the Federal Reserve Board to maintain a certain average balance. Such restricted funds amounted to approximately $3.0 million and $3.5 million at December 31, 1995 and 1994, respectively. These funds are included in Cash and Due from Banks in the accompanying consolidated balance sheets. 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 NOTE 3 - INVESTMENT SECURITIES The amortized cost and estimated fair values of investment securities as of December 31, 1995, and 1994, are as follows:
(DOLLARS IN THOUSANDS) DECEMBER 31, 1995 - ----------------------------------------------------------------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains (Losses) Value --------- ---------- ----------- --------- AVAILABLE-FOR-SALE: US Treasury securities and obligations of US government agencies $ 42,036 $ - $ (363) $ 41,673 Mortgage-backed securities 52,062 - (910) 51,152 FHLB stock 1,205 - - 1,205 - ----------------------------------------------------------------------------------------------------------- Total $ 95,303 $ - $ (1,273) $ 94,030 =========================================================================================================== (DOLLARS IN THOUSANDS) DECEMBER 31, 1994 - ----------------------------------------------------------------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains (Losses) Value --------- ---------- ----------- --------- HELD-TO-MATURITY: US Treasury securities and obligations of US government agencies $ 59 $ - $ - $ 59 Mortgage-backed securities 59,964 $ - (5,343) 54,621 - ----------------------------------------------------------------------------------------------------------- Total $ 60,023 $ - $ (5,343) $ 54,680 =========================================================================================================== (DOLLARS DECEMBER 31, 1994 - ----------------------------------------------------------------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains (Losses) Value --------- ---------- ----------- --------- AVAILABLE-FOR-SALE: US Treasury securities and obligations of US government agencies $ 77,249 $ 2 $ (5,393) $ 71,858 - ----------------------------------------------------------------------------------------------------------- Total $ 77,249 $ 2 $ (5,393) $ 71,858 ===========================================================================================================
Investment securities with a carrying value of $18.6 million and $22.3 million were pledged to secure public deposits and as collateral for other borrowings as required by law at December 31, 1995 and 1994, respectively. The amortized cost and estimated fair value of debt securities at December 31, 1995 by contractual maturities are shown in the following table. Expected maturities will differ from contractual maturities, particularly with respect to mortgage-backed securities, because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. 39 Part II. Item 8 (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 NOTE 3 - INVESTMENT SECURITIES (CONTINUED)
Maturing in - ------------------------------------------------------------------------------------------------------------------------ (DOLLARS IN THOUSANDS) Over one Over five One year year through years through Over DECEMBER 31, 1995 or less five years ten years ten years Total -------- ------------ ------------- --------- --------- Available-for-sale, amortized cost $ - $ 86,283 $ 7,815 $ 1,205 $ 95,303 Available-for-sale, estimated fair value $ - $ 85,233 $ 7,592 $ 1,205 $ 94,030 - ------------------------------------------------------------------------------------------------------------------------
Proceeds from sales of investments in securities during 1995, 1994 and 1993 were $26.9 million, $5.2 million, and $368.2 million, respectively. Gross gains of $17 thousand, and $7.1 million were realized on those sales in 1994 and 1993, respectively. Gross losses of $620 thousand and $54.0 thousand were realized on the sales in 1995 and 1993, respectively; no gross gains were realized from sales in 1995, and no gross losses were realized from sales in 1994. NOTE 4 - LOANS Loans outstanding at December 31, 1995, and 1994, are summarized as follows:
- -------------------------------------------------------------------------------- December 31. 1995 % 1994 % - -------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) Commercial $147,230 46.47% $ 79,369 38.22% Real estate, construction 4,416 1.39% 30 0.01% Real estate, mortgage 107,662 33.98% 83,712 40.31% Consumer 57,533 18.16% 44,577 21.46% - -------------------------------------------------------------------------------- Gross loans 316,841 100.00% 207,688 100.00% ------ ------ ------ ------ Deferred fee income (531) (298) Allowance for possible loan losses (5,734) (5,318) - -------------------------------------------------- -------- Loans, net $310,576 $202,072 - -------------------------------------------------- -------- - -------------------------------------------------- --------
No industry constitutes a concentration in the Bank's loan portfolio. The Bank commonly accepts real estate as abundance of collateral in extending credits for commercial purposes. Real estate mortgage loans generally comprise medium-term loans secured by first or second deeds of trust on real estate located in the state of California. The Bank's lending area formerly experienced adverse economic conditions that have resulted in declines in real estate values. These factors adversely affected some borrowers' ability to repay loans. Although management believes the level of the allowance for possible loan losses as of December 31, 1995, is adequate to absorb losses inherent in the loan portfolio, additional declines in real estate values and the general economy may result in increasing losses that cannot be reasonably predicted at this date. 40 Part II. Item 8 (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 NOTE 4 - LOANS (CONTINUED) The changes in the allowance for possible loan losses are as follows:
(DOLLARS IN THOUSANDS) 1995 1994 1993 - -------------------------------------------------------------------------------- Average balance of gross loans outstanding $261,631 $203,507 $ 235,414 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Gross loan balance at December 31. $316,841 $207,688 $ 212,402 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Allowance at January 1, $ 5,318 $ 10,800 $ 6,859 Charge-offs: Commercial 834 2,004 3,704 Real estate 1,227 3,453 4,488 Consumer 587 362 381 - -------------------------------------------------------------------------------- Total charge-offs 2,648 5,819 8,573 Recoveries: Commercial 587 915 607 Real estate 129 215 4 Consumer 192 57 153 - -------------------------------------------------------------------------------- Total recoveries 908 1,187 764 Net charge-offs 1,740 4,632 7,809 Provision (recovery) charged (credited) to expense 1,539 (850) 11,750 Allowance on purchased loans 617 - - - -------------------------------------------------------------------------------- Allowance at December 31 - $5,734 $5,318 $10,800 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Ratio of allowance for loan losses to loans outstanding at December 3 1, 1.81% 2.56% 5.08% Ratio of allowance for loan losses to nonaccrual loans at December 3 1, 414.01% 329.88% 152.53% Ratio of net charge-offs to average loans 0.67% 2.28% 3.32%
Loans on nonaccrual status were approximately $1.4 million, $1.6 million and $7.1 million at December 31, 1995, 1994 and 1993, respectively. Interest income that would have been collected on these loans had they performed in accordance with their original terms, was approximately $207 thousand, $93 thousand, and $550 thousand for the years ended December 31, 1995, 1994 and 1993, respectively. At December 31, 1995, the Bank had classified $1.5 million of its loans as impaired with a specific reserve of $143 thousand determined in accordance with SFAS No. 114. The average recorded investment in impaired loans during the year ended December 31, 1995 was $3.2 million. The Bank collected cash totaling $1.3 million on impaired loans during the same period. 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 NOTE 5 - PREMISES AND EQUIPMENT The following schedule sets forth the cost and accumulated depreciation and amortization of premises and equipment at December 31, 1995 and 1994:
(DOLLARS in thousands) 1995 1994 - -------------------------------------------------------------------------------- Land $ 2,122 $ 2,122 Buildings and improvements: Owned 3,688 3,688 Capital leases 401 384 Furniture, fixtures, and equipment 11,810 10,689 Leasehold improvements 5,598 5,524 - -------------------------------------------------------------------------------- Total 23,619 22,407 Less: accumulated depreciation and amortization (13,885) (12,153) - -------------------------------------------------------------------------------- Premises and equipment, net $ 9,734 $ 10,254 - --------------------------------------------------------------------------------
Depreciation was approximately $2.1 million, $1.9 million, and $1.9 million for the years ended December 31, 1995, 1994 and 1993. The Bank's former head office facility was sold in 1994, which resulted in a gain of $414 thousand. NOTE 6 - OTHER REAL ESTATE OWNED The components of other real estate owned (OREO) at December 31, 1995 and 1994 are as follows:
(DOLLARS in THOUSANDS) 1995 1994 - -------------------------------------------------------------------------------- Other real estate owned - foreclosure $ 4,243 $ 6,003 Insubstance foreclosure (a) - 2,595 - -------------------------------------------------------------------------------- 4,243 8,598 Less: allowance for losses and selling expenses (2,170) (2,761) - -------------------------------------------------------------------------------- Other real estate owned - net $ 2,073 $ 5,837 - --------------------------------------------------------------------------------
(a) Insubtance foreclosures are those in which the Bank controls the collateral even though formal foreclosure proceedings have not been instituted against the borrower. The changes in the allowance for OREO losses and selling expenses for the years ended December 31, 1995 and 1994 were as follows:
(DOLLARS IN THOUSANDS) 1995 1994 - -------------------------------------------------------------------------------- Balance at January 1, $2,761 $1,770 Provisions charged to expense 128 1,182 Sales, charge-offs (719) (191) - -------------------------------------------------------------------------------- Balance, December 31, $2,170 $2,761 - --------------------------------------------------------------------------------
NOTE 7 - DEPOSITS Time certificates of deposit in denominations of $100,000 or more totaled $46.4 million and $29.2 million as of December 31, 1995 and 1994, respectively, of which approximately $891 thousand represented brokered deposits at year end 1994. Interest paid on deposit accounts totaled $10.7 million, $6.2 million, and $8.5 million in 1995, 1994, and 1993, respectively. 42 Part II. Item 8 (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 NOTE 8 - BORROWED FUNDS AND OTHER INTEREST-BEARING LIABILITIES Borrowed funds and other interest-bearing liabilities at December 31, 1995 and 1994 were as follows:
(DOLLARS IN THOUSANDS) 1995 1994 - -------------------------------------------------------------------------------- Federal funds purchased $ - $ 8,000 Treasury, tax and loan (TT&L) 4,883 4,584 Deferred compensation 1,165 1,037 Capital lease obligations 257 150 Other 102 - -------------------------------------------------------------------------------- $ 6,407 $ 13,771 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
TT&L balances fluctuate based on the amounts deposited by customers and the amounts called for payment by the Federal Reserve Bank. The Bank's limit on its TT&L at the Federal Reserve Bank is $6.0 million. Any amounts in excess of this limit will generally be automatically withdrawn by the Federal Reserve Bank the following day. Interest paid on borrowed funds and other interest-bearing liabilities totaled $400 thousand, $294 thousand, and $1.5 million for the years ended December 31, 1995, 1994 and 1993, respectively. NOTE 9 - INCOME TAXES The provision for income taxes (benefits) consists of the following:
(DOLLARS IN THOUSANDS) YEARS ENDED DECEMBER 31, - -------------------------------------------------------------------------------- 1995 1994 1993 - -------------------------------------------------------------------------------- Current - State $ 189 $ 2 $ 1 Current - Federal 1,045 (360) 317 - -------------------------------------------------------------------------------- 1,234 (358) 318 - -------------------------------------------------------------------------------- Deferred - State (221) (319) 219 Deferred - Federal (320) 1,811 (1,563) - -------------------------------------------------------------------------------- $ (541) $1,492 $ (1,344) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Provision for income taxes (benefits) $ 693 $1,134 $ (1,026) - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
A reconciliation of the provision for income taxes to the amounts computed by applying the Federal statutory tax rate of 35% for 1995, 1994 and 1993 follows:
(DOLLARS IN THOUSANDS) YEARS ENDED DECEMBER 31, - -------------------------------------------------------------------------------------------------------------- 1995 1994 1993 Amount % Amount % Amount % - -------------------------------------------------------------------------------------------------------------- RATE RECONCILIATION Federal tax, based on statutory rate $ 547 35.00% $1,305 35.00% $(1,301) 35.00% Tax-exempt municipal interest (7) -0.45% (8) -0.21% (8) 0.22% State franchise tax, net of federal income tax benefits 125 8.00% (211) -5.66% 145 -3.90% Officer life insurance (167) -10.71% (11) -0.29% (16) 0.43% Goodwill 196 12.55% 54 1.45% - 0.00% Other (1) -0.02% 5 0.13% 154 -4.14% - -------------------------------------------------------------------------------------------------------------- Provision for income taxes (benefits)/effective tax rate $ 693 44.37% $1,134 30.42% $(1,026) 27.60% - --------------------------------------------------------------------------------------------------------------
Federal income and California state franchise taxes paid totaled $865 thousand, $152 thousand and $1.4 million in 1995, 1994 and 1993, respectively. 43 Part II. Item 8 (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 NOTE 9 - INCOME TAXES (CONTINUED) Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating loss and tax credit carryforwards. The components of the Company's net deferred tax asset are as follows:
(DOLLARS IN THOUSANDS) DECEMBER 31, - -------------------------------------------------------------------------------- 1995 1994 - -------------------------------------------------------------------------------- Deferred Tax Asset Allowances not currently deductible $ 1,347 $ 1,938 Deferred compensation 955 689 Unrealized loss on securities 528 1,860 Depreciation 582 568 Other 709 98 - -------------------------------------------------------------------------------- Gross deferred tax asset 4,121 5,153 - -------------------------------------------------------------------------------- Deferred Tax Liability Deductible prepaid expense (301) (389) Effect of state taxes on federal liability (209) (270) Other (121) (219) - -------------------------------------------------------------------------------- Gross deferred tax liability (631) (878) - -------------------------------------------------------------------------------- Net deferred tax asset $ 3,490 $ 4,275 - --------------------------------------------------------------------------------
No valuation allowance under SFAS No. 109 was required for federal or state purposes as of December 31, 1995 or 1994, because management expects deferred tax assets to be fully realized as an offset against reversing temporary differences (which create net future tax liabilities), or through loss carrybacks. NOTE 10 - SHAREHOLDERS' EQUITY COMMON STOCK During the second quarter of 1994, the Company successfully completed a rights offering which resulted in the issuance of an additional 4.0 million shares of common stock at $4.00 per share. Net proceeds of $14.2 million were realized on this offering after issuance costs of approximately $1.8 million. STOCK OPTIONS The total shares available under the Company's stock option plan are 650 thousand. The following table summarizes the activity relating to the Company's stock options for the years indicated.
- -------------------------------------------------------------------------------- (NUMBER of SHARES) 1995 1994 1993 - -------------------------------------------------------------------------------- Balance, January 1 379,650 235,250 125,500 Options granted 174,750 152,200 115,500 Options exercised (3,000) - - Options expired (79,300) (7,800) (5,750) - -------------------------------------------------------------------------------- Balance, December 31 472,100 379,650 235,250 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Shares exercisable 219,720 160,970 89,450 Exercise price $4.50-$11.87 $4.88-$11.87 $6.00-$11.87
44 Part II. Item 8 (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 NOTE 11 - COMMITMENTS AND CONTINGENCIES CREDIT EXTENSION: In the normal course of business, there are various outstanding commitments to extend credit which are not reflected in the accompanying consolidated financial statements. The Company does not anticipate losses as a result of these transactions. However, the commitments are a component of the estimate of the allowance for possible loan losses. Commercial and standby letters of credit totaled approximately $4.3 million and $4.5 million at December 31, 1995 and 1994, respectively. In addition, the Company had unfunded loan commitments of $85 million and $49.1 million at December 31, 1995 and 1994, respectively. All of the commitments outstanding at December 31, 1995, represent unfunded loans which bear a floating rate of interest. The Company uses the same credit policies in making commitments and conditional obligations as it does in extending loan facilities to customers. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties. INTEREST RATE SWAPS: The Company has entered into two interest rate swap agreements to reduce the impact of changes in interest rates on its floating rate loan portfolio. At December 31, 1995, the Company had outstanding one interest rate swap agreement with a commercial bank having a total notional principal amount of $50 million (Swap #1), and one interest rate swap agreement with a broker dealer having a notional principal amount of $25 million (Swap #2). The agreements were intended to reduce the Company's exposure to declines in prime lending rates by artificially converting $75 million of the Company's prime-based loans to fixed rates for the duration of the agreements. Swap #1 was entered into in September 1993. The terms of the first agreement require the Company to pay interest quarterly based on three-month LIBOR and to receive interest semi-annually at a fixed rate of 4.865%. The agreement matures in September 1998. Swap #2 was entered into in January 1994. The terms of the second agreement require the Company to pay interest quarterly based on three-month LIBOR in arrears, and to receive interest semi-annually at a fixed rate of 5.04% through the January 1997 maturity date. The Company accrues monthly interest income and expense on the swaps, the net of which is included in income on loans. For the years ended December 31, 1995, 1994, and 1993, net interest income or (expense) of ($929 thousand), $141 thousand, and $251 thousand from the swap agreements is included in interest income on loans in the consolidated statements of operations. The Company is required to pledge collateral on the transactions. US Agency notes having a fair value of approximately $7.4 million were pledged as collateral for the agreements as of December 31, 1995. The Company is exposed to credit loss in the event of nonperformance by the counterparties to the agreements. However, the Company does not anticipate nonperformance by the counterparties. The following table summarized the characteristics of the swap agreements as of December 31, 1995: Interest Rate Swaps:
Notional Interest Rate Interest Rate Unrealized Maturity (DOLLARS IN THOUSANDS) Amount Paid Received Loss Date - ------------------------------------------------------------------------------------------------- Swap #1 $50,000 3-mo LIBOR 4.865% $700 September, 1998 Swap #2 $25,000 3-mo LIBOR 5.04% $370 January, 1997 (in arrears)
LEASE COMMITMENTS: At December 31, 1995, one building lease with an amortized cost of $122.5 thousand was recorded as a capital lease and included in Premises and Equipment in the accompanying consolidated balance sheets. The Company also leases parcels of land and buildings under operating leases, which require the Company to pay all normal property taxes, insurance, and maintenance. Net rent expense for the years ended 1995, 1994 and 1993 was approximately $1.2 million, $0.9 million, and $1.4 million, respectively. The amounts recorded in 1995 and 1993 45 Part II. Item 8 (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 NOTE 11 - COMMITMENTS AND CONTINGENCIES (CONTINUED) included approximately $256 thousand and $400 thousand for restructuring charges on facilities which were closed or consolidated. Future minimum payments required under noncancellable leases with initial or remaining terms of one year or more are as follows as of December 31, 1995:
- -------------------------------------------------------------------------------- CAPITAL OPERATING YEARS ENDING DECEMBER 31, LEASES LEASES TOTAL - -------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) 1996 $ 52 $ 836 $ 888 1997 52 762 814 1998 52 734 786 1999 52 892 944 2000 52 901 953 Thereafter 135 2,496 2,631 - -------------------------------------------------------------------------------- Total minimum payments $395 $6,621 $7,016 - -------------------------------------------------------------------------------- Less amount representing interest 141 - -------------------------------------------------------------------------------- Present value of minimum payments $254 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
The capital lease obligation has been included in borrowed funds in the accompanying consolidated balance sheets. The payments shown above for operating leases take into consideration only one lease option that the Company intends to exercise. The Company has options to extend several of its other operating leases. However, because it is uncertain whether or not these other options will be exercised, payments for those option periods have been excluded. BORROWING ARRANGEMENTS: In the event that the Company experiences a temporary liquidity shortage, it has available other sources of liquidity, including reverse repurchase arrangements to borrow cash for short to intermediate periods of time using the Company's available-for-sale investment securities as collateral, Federal funds lines of credit that allow the Company to temporarily borrow an aggregate of up to $25.0 million from three commercial banks, and short-term borrowing lines of credit at the Federal Reserve Bank and Federal Home Loan Bank. Federal funds arrangements with correspondent banks are subject to the terms of the individual arrangements and may be terminated at the discretion of the correspondent bank. LITIGATION: The Company is party to routine litigation involving various aspects of its business. In the opinion of management, none of the pending litigation at December 31, 1995 would have a material adverse impact on the consolidated financial condition or operations of the Company. NOTE 12 - EMPLOYEE BENEFIT PLANS The Company has a 401(k) plan that covers substantially all full-time employees. It permits voluntary contributions by employees, a portion of which is matched by the Company. The plan may acquire Company shares on the open market as part of the Company's matching contribution. The Company's expenses relating to its contributions to the 401(k) plan were $139 thousand, $108 thousand, and $80 thousand in 1995, 1994 and 1993, respectively. The Company has established deferred compensation plans which permit certain directors and management employees to defer portions of their compensation and earn interest at a predetermined amount above a specified interest rate index on the deferred amounts. Interest expense incurred on deferred balances was approximately $648 thousand, $174 thousand, and $176 thousand 46 Part II. Item 8 (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 NOTE 12 - EMPLOYEE BENEFIT PLANS (CONTINUED) in 1995, 1994 and 1993, respectively. The deferred compensation liability at December 31, 1995 and 1994 was approximately $2.1 million and $1.5 million, respectively, of which $1.2 million and $1.0 million represented principal and was classified with other interest-bearing liabilities in the accompanying consolidated balance sheets. Approximately $946 thousand and $483 thousand represented accrued interest payable at December 31, 1995 and 1994, respectively, and was classified as accrued interest payable and other liabilities in the accompanying consolidated balance sheets. In conjunction with the plans, the Company has purchased life insurance policies on the participants with the Company as beneficiary. The cash surrender values of the life insurance policies were included in other assets in the accompanying consolidated balance sheets totaling approximately $3.0 million and $2.7 million at December 31, 1995 and 1994, respectively. NOTE 13-PARENT COMPANY ONLY INFORMATION
(DOLLARS IN THOUSANDS) DECEMBER 31, - --------------------------------------------------------------------------------------------------------- Assets: 1995 1994 - --------------------------------------------------------------------------------------------------------- Cash $ 2,305 $ 7,481 Other assets - 43 Investment in Southern California Bank 43,113 34,320 - --------------------------------------------------------------------------------------------------------- Total Assets $ 45,418 $ 41,844 - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- Liabilities and Shareholders' Equity - --------------------------------------------------------------------------------------------------------- Liabilities: $ (94) $ - Shareholders' Equity Common stock 37,658 37,643 Retained earnings 8,600 7,731 Unrealized loss on available-for-sale securities, net of tax (746) (3,530) - --------------------------------------------------------------------------------------------------------- Total Shareholders' Equity 45,512 41,844 - --------------------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $ 45,418 $ 41,844 - --------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS) YEARS ENDED DECEMBER 31, - --------------------------------------------------------------------------------------------------------- Income: 1995 1994 1993 - --------------------------------------------------------------------------------------------------------- Income from management fees $ - $ - $ 23 Other management income - - 152 Interest income 108 93 - Dividend income from subsidiary - 163 140 - --------------------------------------------------------------------------------------------------------- Total income 108 256 315 - --------------------------------------------------------------------------------------------------------- Expense: - --------------------------------------------------------------------------------------------------------- Management fees 66 24 23 Other professional fees 281 26 134 Other expenses - 91 158 - --------------------------------------------------------------------------------------------------------- Total expense 347 141 315 - --------------------------------------------------------------------------------------------------------- Income (loss) before income taxes and equity in undistributed earnings (losses) of subsidiary (239) 115 - Provision for income taxes (benefits) (99) - Equity in undistributed earnings (losses) of subsidiary 1,009 2,590 (2,733) - --------------------------------------------------------------------------------------------------------- Net income (loss) $ 869 $ 2,705 $ (2,733) - --------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------
47 Part II. Item 8 (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 NOTE 13-PARENT COMPANY ONLY INFORMATION (CONTINUED)
STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) YEARS ENDED DECEMBER 31, - --------------------------------------------------------------------------------------------------------- Cash Flows from Operating Activities: 1995 1994 1993 - --------------------------------------------------------------------------------------------------------- Net income (loss) $ 869 $ 2,705 $ (2,733) Adjustments to reconcile net income (loss) to net cash used in operating activities: Decrease (increase) in other assets 43 (43) - Undistributed (earnings) loss of subsidiary (1,009) (2,753) 2,593 Decrease in other liabilities (94) - - - --------------------------------------------------------------------------------------------------------- Net cash used in operating activities (191) (91) (140) - --------------------------------------------------------------------------------------------------------- Cash Flows from Investing Activities: Dividends received from subsidiary - 163 140 Additional investment in subsidiary (5,000) (6,810) - - --------------------------------------------------------------------------------------------------------- Net cash (used in) provided by investing activities (5,000) (6,647) 140 - --------------------------------------------------------------------------------------------------------- Cash Flows from Financing Activities: Proceeds from issuance of common stock 15 14,207 - - --------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 15 14,207 - - --------------------------------------------------------------------------------------------------------- Net (decrease) increase in cash (5,176) 7,469 - Cash, January 1 7,481 12 12 - --------------------------------------------------------------------------------------------------------- Cash, December 31 $ 2,305 $ 7,481 $ 12 - --------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------
48 Part II. Item 8 (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 NOTE 14 - QUARTERLY INFORMATION (UNAUDITED)
--------------------------------------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1995 Quarter Ended 31-Dec 30-Sep 30-Jun 31-Mar - ------------------------------------------------------------------------------------ Interest income $ 8,819 $ 8,796 $ 8,544 $ 7,237 Interest expense 2,875 3,107 3,076 2,957 - ------------------------------------------------------------------------------------ Net interest income 5,944 5,689 5,468 4,280 - ------------------------------------------------------------------------------------ Provision for possible loan losses 314 900 200 124 Net gains (losses) on sales of securities - (620) - - Noninterest income 926 1,218 1,382 1,636 Noninterest expense 4,847 6,672 6,042 5,262 - ------------------------------------------------------------------------------------ Income (loss) before income taxes 1,709 (1,285) 608 530 - ------------------------------------------------------------------------------------ Provision for income taxes (benefits) 707 (377) 178 185 - ------------------------------------------------------------------------------------ Net income (loss) $ 1,002 $ (908) $ 430 $ 345 - ------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------ Net income (loss) per share $ 0.13 $ (0.12) $ 0.06 $ 0.05 - ------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------ Stock Data Common stock price range: (1) High 6 1/8 6 5/8 5 1/4 5 1/4 Low 5 7/16 4 3/4 4 5/8 4 5/16
---------------------------------------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1994 Quarter Ended - ------------------------------------------------------------------------------------- 31 -Dec 30-Sep 30-Jun 31-Mar - ------------------------------------------------------------------------------------- Interest income $ 6,782 $ 6,774 $ 6,562 $ 6,302 Interest expense 1,585 1,584 1,492 1,618 - ------------------------------------------------------------------------------------ Net interest income 5,197 5,190 5,070 4,684 - ------------------------------------------------------------------------------------ Provision for possible loan losses - - (850) - Net gains on sales of securities - - - 17 Noninterest income 1,202 1,587 1,593 2,301 Noninterest expense 5,800 5,957 6,786 5,309 - ------------------------------------------------------------------------------------ Income before income taxes 599 820 727 1,693 - ------------------------------------------------------------------------------------ Provision for income taxes (benefits) (220) 318 309 727 - ------------------------------------------------------------------------------------ Net income $ 819 $ 502 $ 418 $ 966 - ------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------ Net income per share $ 0.11 $ 0.07 $ 0.12 $ 0.28 - ------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------ Stock Data Common stock price range: (1) High 5 5 1/8 5 3/8 6 Low 3 3/4 4 5/8 4 1/4 4 3/4
(1) The Common Stock is listed on the American Stock Exchange ("AMEX") under the symbol, "SCK". The preceding table sets forth the high and low closing prices on a per share basis for the Common as reported by the AMEX for the periods indicated. 49 Part II. Item 8 (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 NOTE 15 - REGULATORY MATTERS The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by the regulators that, if undertaken, could have a direct material effect on the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk- weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 1995, that the Bank meets all capital adequacy requirements to which it is subject. As of December 31, 1995, the most recent notification from the Federal Deposit Insurance Corporation, the Bank's primary regulator, categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based and 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 Bank's capital rating category. The actual capital amount and ratios for the Company and the Bank are presented in the table below:
- --------------------------------------------------------------------------------------- DECEMBER 31, 1995 1994 - --------------------------------------------------------------------------------------- WELL CAPITALIZED COMPANY BANK COMPANY BANK REQUIREMENT* - --------------------------------------------------------------------------------------- Leverage capital ratio 9.08% 8.59% 10.74% 8.86% 5.00% Tier I risk-based capital ratio 10.75% 10.14% 15.72% 12.96% 6.00% Total risk-based capital ratio 12.01% 11.39% 16.98% 14.22% 10.00%
*Requirements to be well capitalized under Prompt Corrective Action Provisions. NOTE 16 - TRANSACTIONS WITH DIRECTORS & OFFICERS The Company has had, and may be expected to have in the future, banking transactions in the ordinary course of business with its directors, principal officers, their immediate families, and affiliated companies in which they are principal shareholders. Any such transactions are on the same terms, including interest rates and collateral requirements, as those prevailing at the time for comparable transactions with others. These related parties were indebted to the Company for loans totaling approximately $2.0 million, $2.5 million, and $4.3 million as of December 31, 1995, 1994, and 1993, respectively. New loans granted in 1995, 1994 and 1993 were $714 thousand, $0.4 million, and $0.7 million, respectively; repayments were $1.1 million, $2.0 million, and $0.7 million, respectively. NOTE 17 - FAIR VALUE OF FINANCIAL INSTRUMENTS Management uses its best judgment in estimating the fair value of the Company's financial instruments. However, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates presented herein are not necessarily indicative of the amounts the Company could have realized in a sales transactions at either December 31, 1995 or 1994. The estimated fair value amounts for 1995 and 1994 have been measured as of their respective year ends, and have not been reevaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each year end. 50 Part II. Item 8 (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 NOTE 17 - FAIR VALUE OF FINANCIAL INSTRUMENTS(CONTINUED) The following information should not be interpreted as an estimate of the fair value of the entire company since a fair value calculation is only required for a limited portion of the Company's assets.
December 31, 1995 December 31, 1994 - ------------------------------------------------------------------------------------ Estimated Estimated Carrying Fair Carrying Fair (Dollars in thousands) Amount Value Amount Value - ------------------------------------------------------------------------------------ FINANCIAL ASSETS: Cash and cash equivalents $ 29,088 $ 29,088 $ 31,118 $ 31,118 Investments: Securities held-to-maturity - - 60,023 54,680 Securities available-for-sale 94,030 94,030 71,858 71,858 Loans (excludes nonaccrual loans and deferred fee income): Commercial 146,609 147,595 77,028 74,109 Real estate, construction 4,416 4,451 30 30 Real estate 107,048 109,379 80,579 77,437 Consumer 57,383 58,427 43,511 42,171 Less: Allowance for possible loan losses 5,734 5,734 5,318 5,318 - ------------------------------------------------------------------------------------ Total financial assets $432,840 $437,236 $358,829 $346,085 - ------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------ FINANCIAL LIABILITIES: Deposits payable on demand $260,679 $260,679 $265,572 $265,572 Deposits with fixed maturities 146,132 146,663 74,367 74,047 - ------------------------------------------------------------------------------------ Total financial liabilities $406,811 $407,342 $339,939 $339,619 - ------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------ OFF-BALANCE SHEET FINANCIAL INSTRUMENTS Interest rate swap agreements - (1,070) - (6,244)
This disclosure of fair value amounts does not include the fair values of any intangible assets, such as core deposit intangibles, or loan servicing rights. The carrying values of certain financial instruments approximated their fair values. These financial instruments include cash and due from banks, interest- bearing deposits in banks, federal funds sold and purchased, customers' acceptance liability, certain other assets, demand deposits, other short-term borrowings, acceptances outstanding, and other liabilities that are considered financial instruments. Carrying values were assumed to approximate fair values for these financial instruments because they are short term in nature and their recorded amounts approximate fair values or are receivable or payable on demand. Fair value amounts of investment securities were based on quoted market prices. For purposes of these fair value calculations, the aggregate fair value of the loan portfolio, excluding nonaccrual loans, was adjusted by a related portion of the allowance for possible loan losses. That portion of the allowance for possible loan losses primarily represents the credit risk associated with loans that reprice within relatively short time frames. The fair values of loans that do not reprice within relatively short time frames were calculated using discounted cash flow models based on the maturities of the loans. The discount rates, which were based on market interest rates for similar types of loans, incorporated adjustments for credit risk. 51 Part II. Item 8 (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 NOTE 17 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) The fair values of nonaccrual loans with recorded book values of $1.4 million and $1.6 million at December 31, 1995 and 1994, respectively, were not estimated because it was not practical to reasonably estimate the amount or timing of future cash flows for such loans. The fair market values of the interest rate swap agreements are based on quoted market prices. For deposits with defined maturities, the fair values were calculated using discounted cash flow models based on market interest rates for different product types and maturity dates for which the deposits were held. The fair value of loan commitments is not material to the financial statements taken as a whole. 52 INDEPENDENT AUDITORS' REPORT We have audited the accompanying consolidated balance sheets of SC Bancorp and its subsidiary as of December 31, 1995 and 1994, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1995. 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 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, such consolidated financial statements present fairly, in all material respects, the financial position of SC Bancorp and its subsidiary at December 31, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Los Angeles, California January 24, 1996 /S/ Deloitte & Touche, LLP 53 PART II. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information concerning directors and executive officers is incorporated by reference from the sections entitled "Nominees for Election as Directors: and "Compliance with Section 16(a) of the Exchange Act" of the Company's definitive Proxy Statement which will be filed within 120 days after the Company's fiscal year ended December 31, 1995 (the "1996 Proxy Statement"). ITEM 11. EXECUTIVE COMPENSATION Information concerning management remuneration and transactions is incorporated by reference from the sections entitled "Executive Compensation", "Information About the Board of Directors and Committees of the Board", and "Compensation Committee Interlocks and Insider Participation" of the 1996 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information concerning security ownership of certain beneficial owners and management is incorporated by reference form the section entitled "Certain Relationships and Related Transactions" of the 1996 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS Information concerning certain relationships and related party transactions is incorporated by reference from the section entitled "Certain Relationships and Related Transactions" of the 1996 Proxy Statement. PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a)(1) The following consolidated financial statements of SC Bancorp and subsidiary are filed as part of this Annual Report. Consolidated Balance Sheets as of December 31, 1995 and 1994 Consolidated Statements of Operations for the years ended December 31, 1995, 1994, and 1993 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1995, 1994, and 1993 Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994, and 1993 Notes to Consolidated Financial Statements SC Bancorp (parent only) financial statements - Note 13 (a)(2) All other financial statement schedules are omitted because they are not applicable, not material or because the information is included in the consolidated financial statements or notes thereto. 54 PART IV. ITEM 14 (CONTINUED) (a)(3) Exhibits 2.1 Real Estate Purchase Agreement dated February 28, 1994, between Southern California Bank and Downey Community Hospital Foundation (a) 2.2 Asset Purchase and Liability Assumption Agreement between Southern California Bank and Independence One Bank of California, F.S.B., dated January 18, 1995 (g) 2.3 Deposit Purchase Agreement between Southern California Bank and Home Bank dated October 10, 1995 2.4 Deposit Purchase Agreement between Southern California Bank and Preferred Bank dated November 14, 1995 3(i).1 SC Bancorp Articles of Incorporation dated February 5, 1981, as amended (h) 3(i).2 Amendment to SC Bancorp Articles of Incorporation dated May 9, 1995 3(ii).1 Bylaws as amended through March 25, 1996 4.1 Specimen Common Stock Certificate 4.2 SC Bancorp 1989 Stock Option Plan (February 1990)*(f) 4.3.1 Amended and restated Southern California Bank Employee Retirement Plan dated January 1, 1992*(d) 4.3.2 First amendment to the amended and restated Southern California Bank Employee Retirement Plan* 4.3.3 Second amendment to the amended and restated Southern California Bank Employee Retirement Plan* 4.3.4 Third amendment to the amended and restated Southern California Bank Employee Retirement Plan* 4.3.5 Fourth amendment to the amended and restated Southern California Bank Employee Retirement Plan* 4.4 SC Bancorp Executive Deferral Plan (IV) (February 1990)*(f) 4.5 Southern California Bank Executive Incentive Compensation Plans for 1994 (December 1993)*(b) 4.6 Southern California Bank Executive Incentive Compensation Plans for 1995* 10.1 Sublicense Agreement between Southern California Bank and National Commerce Bank Services, Inc., dated October 22, 1992 for supermarket space in La Habra, California (c) 10.2 Sublease between SC Bancorp and Denny's, dated December 24, 1992 for office space in La Mirada, California (c) 10.3 Lease between Southern California Bank and Robert Stein, dated September 1, 1981, amended June 19, 1990, for office space in Avalon, California (d) 10.4 Lease between Southern California Bank and Commonwealth Equity Trust, dated December 17, 1990 for office space in Signal Hill, California (d) 10.5 Lease between SC Bancorp and Forest Lawn Company and Western Empire Savings and Loan Association, dated August 18, 1983, amended January 3, 1991, for office space in Yorba Linda, California (d) 10.6 Assignment of lease between Southern California Bank and Garfield Bank, dated December 27, 1985, amended January 1, 1987, for office space in Huntington Beach, California (b) 10.7 Lease between Southern California Bank and Tustin-La Palma Business Center, dated July 8, 1993, for office space in Anaheim, California (b) 10.8 Lease between Southern California Bank and Dicker-Warmington Properties, dated as of January 1, 1990 for office space in City of Industry, California (b) 10.9 License Agreement between Southern California Bank and The Vons Companies, Inc., dated December 18, 1992 for supermarket space in Anaheim Hills, California (b) 10.10 Consent to assignment of sublease and sublease between Southern California Bank, Bank of America, NTSA, and The Taj dated May 12, 1995 for office space in Laguna Hills, California 10.11 Sublease between Southern California Bank and Citicorp Savings, dated November 30, 1995 for office space in La Jolla, California 10.12 Lease between Southern California Bank and Regents Park Financial Centre, Ltd., dated October 25, 1995 for office space in La Jolla, California. 10.13 Forward lease between Southern California Bank and Regents Park Financial Centre, Ltd., dated October 25, 1995 for office space in La Jolla, California. 10.14 Employment Security Agreement between SC Bancorp and Larry D. Hartwig, dated January 1, 1995*(g) 10.15 Amendment to Employment Security Agreement between SC Bancorp and Larry D. Hartwig dated July 18, 1995*(i) 10.16 Employment Security Agreement between SC Bancorp and David A. McCoy, dated February 25, 1992*(c) 10.17 Amendment to Employment Security Agreement between SC Bancorp and David A. McCoy dated November 21, 1995* 10.18 Employment Security Agreement between SC Bancorp and Bruce W. Roat, dated March 17, 1995*(g) 10.19 Amendment to Employment Security Agreement between SC Bancorp and Bruce W. Roat, dated November 21, 1995* 10.20 Employment Security Agreement between SC Bancorp and Mark B. Metzinger, dated May 1, 1995* 55 PART IV. ITEM 14 (CONTINUED) 10.21 Amendment to Employment Security Agreement between SC Bancorp and Mark B. Metzinger dated November 21, 1995* 10.22 Employment Security Agreement between Southern California Bank and Ann E. McPartlin, dated September 15, 1994*(g) 10.23 Amendment to Employment Security Agreement between SC Bancorp and Ann E. McPartlin, dated November 21, 1995* 10.24 Employment Security Agreement between Southern California Bank and M. V. Cummings, dated September 15, 1994*(g) 10.25 Amendment to Employment Security Agreement between SC Bancorp and M. V. Cummings, dated November 21, 1995* 10.26 Form of Indemnification Agreement entered into with each Executive Officer and Director of SC Bancorp(b) 10.27 Form of Indemnification Agreement entered into with each Executive Officer and Director of Southern California Bank(b) 21.0 Subsidiaries of the Registrant(g) 23.1 Consent of the Company's independent auditor (Deloitte & Touche, LLP) to the incorporation by reference in the Registration Statement of SC Bancorp on Form S-8 (No. 33-38666) of their report dated January 24, 1996 appearing in the Annual Report on Form 10-K of SC Bancorp for the year ended December 31, 1995. 27.1 Financial Data Schedule (b) The Company filed the following reports on Form 8-K during the fourth quarter of 1995: None. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- * Management contracts or compensatory plans or arrangements required to be filed as exhibits pursuant to Item 14(c) of Form 10-K. (a) This exhibit is contained in SC Bancorp's Registration Statement on Form S-2, Amendment No. 1, filed with the Commission on April 28, 1994, (Commission File No. 33-76274), and incorporated herein by reference. (b) This exhibit is contained in SC Bancorp's Registration Statement on Form S-2, filed with the Commission on March 9, 1994, (Commission File No. 33-76274), and incorporated herein by reference. (c) This exhibit is contained in SC Bancorp's Annual Report on Form 10-K for the year ended December 31, 1992, filed with the Commission on March 30, 1993, (Commission File No. 0-11046) and incorporated herein by reference. (d) This exhibit is contained in SC Bancorp's Annual Report on Form 10-K for the year ended December 31, 1991, filed with the Commission on March 30, 1992, (Commission File No. 0-11046) and incorporated herein by reference. (e) This exhibit is contained in SC Bancorp's Annual Report on Form 10-K for the year ended December 31, 1990, filed with the Commission on April 1, 1991, (Commission File No. 0-11046) and incorporated herein by reference. (f) This exhibit is contained in SC Bancorp's Proxy Statement, filed with the Commission on March 23, 1990, (Commission File No. 0-11046) and incorporated herein by reference. (g) This exhibit is contained in SC Bancorp's Annual Report on Form 10-K for the year ended December 31, 1994, filed with the Commission on March 30, 1995, (Commission File No. 0-11046) and incorporated herein by reference. (h) This exhibit is contained in SC Bancorp's Quarterly Report on Form 10-Q for the period ended March 31, 1995, filed with the Commission on May 15, 1995, (Commission File No. 0-11046) and incorporated herein by reference. (i) This exhibit is contained in SC Bancorp's Quarterly Report on Form 10-Q for the period ended June 30, 1995, filed with the Commission on August 15, 1995, (Commission File No. 0-11046) and incorporated herein by reference. 56 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SC BANCORP By: /s/LARRY D. HARTWIG ------------------- Larry D. Hartwig Chief Executive Officer and President Date: March 26, 1996 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/LARRY D. HARTWIG Chief Executive Officer, March 25, 1996 - -------------------- President and Director Larry D. Hartwig (Principal Executive Officer) /S/BRUCE W. ROAT Executive Vice President, March 25, 1996 - -------------------- Chief Financial Officer Bruce W. Roat (Principal Financial and Accounting Officer) /S/H.A. BEISSWENGER Chairman of the Board March 25, 1996 - ------------------- H.A. Beisswenger /S/H. KEITH ABBOTT Director March 25, 1996 - ------------------ H. Keith Abbott /S/ROBERT C. BALL Director March 25, 1996 - ------------------- Robert C. Ball 57 /s/ James E. Cunningham Director March 25, 1996 - ------------------------- James E. Cunningham /s/ William C. Greenbeck Director March 25, 1996 - ------------------------- William C. Greenbeck /s/ Irving J. Pinsky Director March 25, 1996 - ------------------------- Irving J. Pinsky /s/ Peer A. Swan Director March 25, 1996 - ------------------------- Peer A. Swan /s/ Donald E. Wood Director March 25, 1996 - ------------------------- Donald E. Wood Exhibit Index - ------------------------------------------------------------------------------ Exhibit Description Page No. No. - ------------------------------------------------------------------------------ 2.1 Real Estate Purchase Agreement dated February 28, 1994, between Southern California Bank and Downey Community Hospital Foundation(a) 2.2 Asset Purchase and Liability Assumption Agreement between Southern California Bank and Independence One Bank of California, F.S.B., dated January 18, 1995(g) 2.3 Deposit Purchase Agreement between Southern California Bank and Home Bank dated October 10, 1995 2.4 Deposit Purchase Agreement between Southern California Bank and Preferred Bank dated November 14, 1995 3(i).1 SC Bancorp Articles of Incorporation as previously amended(h) 3(i).2 Amendment to SC Bancorp Articles of Incorporation dated May 9, 1995 3(ii).1 Bylaws, as amended through March 25,1996 4.1 Specimen Common Stock Certificate(b) 4.2 SC Bancorp 1989 Stock Option Plan (February 1990)(f) 4.3.1 Amended and restated Southern California Bank Employee Retirement Plan dated January 1, 1992(d) 4.3.2 First amendment to the amended and restated Southern California Bank Employee Retirement Plan 4.3.3 Second amendment to the amended and restated Southern California Bank Employee Retirement Plan 4.3.4 Third amendment to the amended and restated Southern California Bank Employee Retirement Plan 4.3.5 Fourth amendment to the amended and restated Southern California Bank Employee Retirement Plan 4.4 SC Bancorp Executive Deferral Plan (IV) (February 1990)(f) 4.5 Southern California Bank Executive Incentive Compensation Plans for 1994 (December 1993)(b) 4.6 Southern California Bank Executive Incentive Compensation Plans for 1995 10.1 Sublicense Agreement between Southern California Bank and National Commerce Bank Services, Inc., dated October 22, 1992 for supermarket space in La Habra, California(c) 10.2 Sublease between SC Bancorp and Denny's, dated December 24, 1992 for office space in La Mirada, California(c) 10.3 Lease between Southern California Bank and Robert Stein, dated September 1, 1981, amended June 19, 1990, for office space in Avalon, California(d) 10.4 Lease between Southern California Bank and Commonwealth Equity Trust, dated December 17, 1990 for office space in Signal Hill, California(d) 10.5 Lease between SC Bancorp and Forest Lawn Company and Western Empire Savings and Loan Association, dated August 18, 1983, amended January 3, 1991, for office space in Yorba Linda, California(d) 10.6 Assignment of lease between Southern California Bank and Garfield Bank, dated December 27, 1985, amended January 1, 1987, for office space in Huntington Beach, California(b) 10.7 Lease between Southern California Bank and Tustin-La Palma Business Center, dated July 8, 1993 for office space in Anaheim, California(b) 10.8 Lease between Southern California Bank and Dicker-Warmington Properties, dated as of January 1, 1990 for office space in City of Industry, California(b) 10.9 License Agreement between Southern California Bank and The Vons Companies, Inc., dated December 18, 1992 for supermarket space in Anaheim Hills, California(b) 10.10 Consent to assignment of sublease and sublease between Southern California Bank, Bank of America, NTSA, and The Taj dated May 12, 1995 for office space in Laguna Hills, California 10.11 Sublease between Southern California Bank and Citicorp Savings, dated November 30, 1995 for office space in La Jolla, California 10.12 Lease between Southern California Bank and Regents Park Financial Centre, Ltd., dated October 25, 1995 for office space in La Jolla, California 10.13 Forward lease between Southern California Bank and Regents Park Financial Centre, Ltd., dated October 25,1995 for office space in La Jolla, California 10.14 Employment Security Agreement between SC Bancorp and Larry D. Hartwig, dated January 1, 1995(g) 10.15 Amendment to Employment Security Agreement between SC Bancorp and Larry D. Hartwig, dated July 18, 1995(i) 10.16 Employment Security Agreement between SC Bancorp and David A. McCoy, dated February 25, 1992(c) 10.17 Amendment to Employment Security Agreement between SC Bancorp and David A. McCoy dated November 21, 1995 10.18 Employment Security Agreement between SC Bancorp and Bruce W. Roat, dated March 17, 1995(g) Exhibit Index (continued) 10.19 Amendment to Employment Security Agreement between SC Bancorp and Bruce W. Roat, dated November 21, 1995 10.20 Employment Security Agreement between SC Bancorp and Mark B. Metzinger, dated May 1, 1995 10.21 Amendment to Employment Security Agreement between SC Bancorp and Mark B. Metzinger dated November 21, 1995 10.22 Employment Security Agreement between Southern California Bank and Ann E. McPartlin, dated September 15, 1994(g) 10.23 Amendment to Employment Security Agreement between SC Bancorp and Ann E. McPartlin, dated November 21, 1995 10.24 Employment Security Agreement between Southern California Bank and M. V. Cummings, dated September 15, 1994(g) 10.25 Amendment to Employment Security Agreement between SC Bancorp and M. V. Cummings, dated November 21, 1995 10.26 Form of Indemnification Agreement entered into with each Executive Officer and Director of SC Bancorp(b) 10.27 Form of Indemnification Agreement entered into with each Executive Officer and Director of Southern California Bank(b) 21.0 Subsidiaries of the Registrant(g) 23.1 Consent of the Company's independent auditor (Deloitte & Touche, LLP) to the incorporation by reference in the Registration Statement of SC Bancorp on Form S-8 (No. 33-38666) of their report dated January 24, 1996 appearing in the Annual Report on Form 10-K of SC Bancorp for the year ended December 31, 1995 27.1 Financial Data Schedule - ------------------------------------------------------------------------------ (a) This exhibit is contained in SC Bancorp's Registration Statement on Form S-2, Amendment No. 1, filed with the Commission on April 28, 1994, (Commission File No. 33-76274), and incorporated herein by reference. (b) This exhibit is contained in SC Bancorp's Registration Statement on Form S-2, filed with the Commission on March 9, 1994, (Commission File No. 33-76274), and incorporated herein by reference. (c) This exhibit is contained in SC Bancorp's Annual Report on Form 10-K for the year ended December 31, 1992, filed with the Commission on March 30, 1993, (Commission File No. 0-11046) and incorporated herein by reference. (d) This exhibit is contained in SC Bancorp's Annual Report on Form 10-K for the year ended December 31, 1991, filed with the Commission on March 30, 1992, (Commission File No. 0-11046) and incorporated herein by reference. (e) This exhibit is contained in SC Bancorp's Annual Report on Form 10-K for the year ended December 31, 1990, filed with the Commission on April 1, 1991, (Commission File No. 0-11046) and incorporated herein by reference. (f) This exhibit is contained in SC Bancorp's Proxy Statement, filed with the Commission on March 23, 1990, (Commission File No. 0-11046) and incorporated herein by reference. (g) This exhibit is contained in SC Bancorp's Annual Report on Form 10-K for the year ended December 31, 1994, filed with the Commission on March 30, 1995, (Commission File No. 0-11046) and incorporated herein by reference. (h) This exhibit is contained in SC Bancorp's Quarterly Report on Form 10-Q for the period ended March 31, 1995, filed with the Commission on May 15, 1995, (Commission File No. 0-11046) and incorporated herein by reference. (i) This exhibit is contained in SC Bancorp's Quarterly Report on Form 10-Q for the period ended June 30, 1995, filed with the Commission on August 15, 1995, (Commission File No. 0-11046) and incorporated herein by reference. EX-2.3 2 EXHIBIT 2.3 DEPOSIT PURCHASE AGREEMENT BETWEEN SOUTHERN CALIFORNIA BANK AND HOME BANK PURCHASE AGREEMENT TABLE OF CONTENTS Page 1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Assumed Obligations . . . . . . . . . . . . . . . . . . . . . . . . 1 1.3 Branch Office . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.4 Closing Statement . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.5 Closing Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.6 Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.7 Other Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.8 Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.9 Overdraft Loans . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.10 Payment Amount. . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.11 Premium Amount. . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2. Transfer of Assets and Assumption of Liability . . . . . . . . . . . . . 2 2.1 Transfer of Assets. . . . . . . . . . . . . . . . . . . . . . . . . 2 2.2 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.3 Items in Transit. . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.4 Assumption of Liabilities . . . . . . . . . . . . . . . . . . . . . 2 2.5 Pledged Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.6 Issuance of Account Statements. . . . . . . . . . . . . . . . . . . 3 2.7 Retention of Other Assets and Other Liabilities . . . . . . . . . . 3 3. Consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3.1 Payment by Seller . . . . . . . . . . . . . . . . . . . . . . . . . 3 3.2 Adjustments in Payment Amount . . . . . . . . . . . . . . . . . . . 3 4. Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 5. Conditions Precedent to the Obligations of the Parties . . . . . . . . . 3 i Page 5.1 Conditions Precedent to the Obligations of the Buyer and Seller . . 3 5.1.1 Shareholder Approvals. . . . . . . . . . . . . . . . . . . . 4 5.1.2 Regulatory Approvals . . . . . . . . . . . . . . . . . . . . 4 5.1.3 Absence of Litigation. . . . . . . . . . . . . . . . . . . . 4 5.2 Conditions Precedent to Obligations of Buyer. . . . . . . . . . . . 4 5.2.1 Documents. . . . . . . . . . . . . . . . . . . . . . . . . . 4 5.2.2 Representations and Warranties . . . . . . . . . . . . . . . 4 5.2.3 Conduct of Business. . . . . . . . . . . . . . . . . . . . . 5 5.2.4 Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . 5 5.3 Conditions Precedent to Obligations of Seller . . . . . . . . . . . 5 5.3.1 Documents. . . . . . . . . . . . . . . . . . . . . . . . . . 5 5.3.2 Representations and Warranties . . . . . . . . . . . . . . . 5 5.3.3 Covenants of Buyer . . . . . . . . . . . . . . . . . . . . . 5 5.3.4 Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . 5 6. Agreements of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . 5 6.1 Access to Records and Information . . . . . . . . . . . . . . . . . 5 6.2 Assistance in Obtaining Regulatory Approvals. . . . . . . . . . . . 6 6.3 Further Assistance. . . . . . . . . . . . . . . . . . . . . . . . . 6 6.4 Corporate Consents. . . . . . . . . . . . . . . . . . . . . . . . . 6 7. Agreements of Buyer. . . . . . . . . . . . . . . . . . . . . . . . . . . 6 7.1 Efforts to Obtain Regulatory Approval . . . . . . . . . . . . . . . 6 7.2 Performance of Liabilities. . . . . . . . . . . . . . . . . . . . . 6 7.3 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . 6 7.4 Corporate Consents and Documents. . . . . . . . . . . . . . . . . . 7 7.5 Selection of Overdraft Loans. . . . . . . . . . . . . . . . . . . . 7 8. Warranties and Representations of Seller . . . . . . . . . . . . . . . . 7 8.1 Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 8.2 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 8.3 Closing Statement . . . . . . . . . . . . . . . . . . . . . . . . . 7 ii Page 8.4 Finders or Brokers. . . . . . . . . . . . . . . . . . . . . . . . . 7 8.5 Compliance with Instruments . . . . . . . . . . . . . . . . . . . . 8 8.6 The Overdraft Loans . . . . . . . . . . . . . . . . . . . . . . . . 8 8.7 The Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 9. Warranties and Representations of Buyer. . . . . . . . . . . . . . . . . 8 9.1 Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 9.2 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 9.3 Finders or Brokers. . . . . . . . . . . . . . . . . . . . . . . . . 9 9.4 Governmental Notices. . . . . . . . . . . . . . . . . . . . . . . . 9 9.5 Compliance with Instruments . . . . . . . . . . . . . . . . . . . . 9 10. Disclaimers and other Special Provisions . . . . . . . . . . . . . . . . 9 10.1 Fiduciary Accounts. . . . . . . . . . . . . . . . . . . . . . . . . 9 10.2 Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 10.3 Payment of Certain Interest . . . . . . . . . . . . . . . . . . . . 10 10.4 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . 10 10.5 Tax Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 10.6 Interest Reporting. . . . . . . . . . . . . . . . . . . . . . . . . 11 10.7 Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 10.8 Post-Closing Reconciliation . . . . . . . . . . . . . . . . . . . . 11 10.9 Requests for Documents after Closing. . . . . . . . . . . . . . . . 13 11. Survival of Representations and Warranties . . . . . . . . . . . . . . . 13 12. Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 12.1 Termination Agreement . . . . . . . . . . . . . . . . . . . . . . . 13 12.2 Immaterial Breach . . . . . . . . . . . . . . . . . . . . . . . . . 14 12.3 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . 14 12.4 Waiver of Right to Terminate. . . . . . . . . . . . . . . . . . . . 14 13. Effect on Third Parties. . . . . . . . . . . . . . . . . . . . . . . . . 14 14. Delayed Settlements. . . . . . . . . . . . . . . . . . . . . . . . . . . 15 14.1 Final Settlement. . . . . . . . . . . . . . . . . . . . . . . . . . 15 14.2 Payment and Interest. . . . . . . . . . . . . . . . . . . . . . . . 15 iii Page 15. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 15.1 Confidentiality and Publicity . . . . . . . . . . . . . . . . . . . 15 15.2 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 15.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 15.4 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . 16 15.5 Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . 17 15.6 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 15.7 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 15.8 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 15.9 Attorneys Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . 17 15.10 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . 17 iv
Current or # of Avg. Acct. Transfer Estimated Description Accounts Balance Balance Runoff - --------------------------------------------------------------------------------------------------------- Personal DDA Non-Interest Bearing 25.00% - --------------------------------------------------------------------------------------------------------- Personal DDA Interest Bearing 25.00% - --------------------------------------------------------------------------------------------------------- Personal DDA - Non-IBA Seniors Account 25.00% - --------------------------------------------------------------------------------------------------------- Personal DDA - IBA Seniors Account 25.00% - --------------------------------------------------------------------------------------------------------- Business DDA Non-Interest Bearing 40.00% - --------------------------------------------------------------------------------------------------------- Business DDA Interest Bearing 40.00% - --------------------------------------------------------------------------------------------------------- Bancontrol Accounts 100.00% - --------------------------------------------------------------------------------------------------------- Credit Union Accounts 100.00% - --------------------------------------------------------------------------------------------------------- $ - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- Personal Savings 25.00% - --------------------------------------------------------------------------------------------------------- Business Savings 40.00% - --------------------------------------------------------------------------------------------------------- Individual Retirement Accounts 25.00% - --------------------------------------------------------------------------------------------------------- $ - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- $ - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- Net Retainable Current Est. Premium Premium Description Deposits Yld/Cost Rate Payable - --------------------------------------------------------------------------------------------------------- Personal DDA Non-Interest Bearing $ 2.00% $ - --------------------------------------------------------------------------------------------------------- Personal DDA Interest Bearing $ 1.75% $ - --------------------------------------------------------------------------------------------------------- Personal DDA - Non-IBA Seniors Account $ 2.00% $ - --------------------------------------------------------------------------------------------------------- Personal DDA - IBA Seniors Account $ 2.00% $ - --------------------------------------------------------------------------------------------------------- Business DDA Non-Interest Bearing $ 2.00% $ - --------------------------------------------------------------------------------------------------------- Business DDA Interest Bearing $ 1.75% $ - --------------------------------------------------------------------------------------------------------- Bancontrol Accounts $ 1.00% $ - --------------------------------------------------------------------------------------------------------- Credit Union Accounts $ 2.00% $ - --------------------------------------------------------------------------------------------------------- $ $ - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- Personal Savings $ 1.75% $ - --------------------------------------------------------------------------------------------------------- Business Savings $ 1.75% $ - --------------------------------------------------------------------------------------------------------- Individual Retirement Accounts $ 1.00% $ - --------------------------------------------------------------------------------------------------------- $ $ - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- $ $ - --------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------
DEPOSIT PURCHASE AGREEMENT THIS AGREEMENT is made as of the 10th day of October, 1995, by and between SOUTHERN CALIFORNIA BANK, a California banking corporation (hereinafter referred to as "Seller"), and HOME BANK, a California banking corporation (hereinafter called "Buyer"). 1. DEFINITIONS: 1.1 AGREEMENT. "Agreement" means this Deposit Purchase Agreement, as amended from time to time. 1.2 ASSUMED OBLIGATIONS. "Assumed Obligations" means any obligations of the Branch Office specifically identified in writing by Buyer as being assumed by Buyer on and after the Closing. 1.3 BRANCH OFFICE. "Branch" means the branch banking office of Seller located at 2501 Cherry Avenue, Signal Hill, California 90806-2037. 1.4 CLOSING STATEMENT. "Closing Statement" means the Statement of Condition for the Branch Office and is prepared from Seller's books and records as of the end of the day prior to the Closing Date, provided, however, that the Closing Statement shall contain only those overdraft loans as are identified by Buyer as Overdraft Loans pursuant to Section 7.6. The information on the Closing Statement relating to the Deposits shall be consistent with the closing account statements prepared and issued pursuant to Section 2.6. 1.5 CLOSING DATE. "Closing Date" means 12.01 a.m. on the date when the purchase and sale described in this Agreement is consummated. The Closing Date shall be on a date mutually agreed upon by the parties hereto and which occurs following receipt of the approvals required under Section 5.1, and each of its applicable subparts, of this Agreement; PROVIDED, however, the Closing Date shall not in any event occur prior to the lapse of all legally required waiting or protest periods. 1 1.6 DEPOSITS. "Deposits" means all liabilities of Seller carried on the books of the Branch Office identified as deposits in the Closing Statement. 1.7 OTHER ASSETS. "Other Assets" means all assets identified in the Closing Statement other than Overdraft Loans. 1.8 OTHER LIABILITIES. "Other Liabilities" means all liabilities and obligations of the Branch Office other than Deposits and Assumed Liabilities. 1.9 OVERDRAFT LOANS. "Overdraft Loans" means those loans of the Branch Office representing advances or commitments to advance to cover overdrafts on a Deposit which are identified on the Closing Statement. 1.10 PAYMENT AMOUNT. "Payment Amount" means the aggregate book value of the Deposits [plus accrued interest] less the par value of the Overdraft Loans, less the Premium Amount (as defined below). 1.11 PREMIUM AMOUNT. "Premium Amount" means the dollar amount of deposit premium as calculated by multiplying the premium rates by net retainable deposits (actual deposits on Closing Statement, less Estimated Runoff), as computed in accordance with Exhibit A hereto. 2. TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITY. 2.1 TRANSFER OF ASSETS. On the Closing Date, subject to the terms and conditions set forth in this Agreement, Seller agrees to sell, transfer, assign and deliver the Overdraft Loans and all documents and instruments relating thereto to Buyer, Buyer agrees to purchase, acquire and accept the same from Seller. 2.2 BOOKS AND RECORDS. On the Closing Date, Buyer shall receive possession of, and right, title and interest in: (i) all books and records relating to the Overdraft Loans and (ii) all books and records identified on Exhibit B with respect to the Deposits and Assumed Obligations. All such books and records shall be open for inspection by Seller and its authorized agents and representatives during regular business hours after 2 the Closing Date and Seller may, at its own expense, make such copies of and excerpts from such books and records as it may deem desirable. All books and records relating to the Overdraft Loans, Deposits and Assumed Obligations shall be maintained for a period which is at least the longer of the period required by law or the third anniversary of the Closing Date unless the parties shall, applicable law permitting, agree upon a shorter period. 2.3 ITEMS IN TRANSIT. Buyer shall obtain the benefit of and shall bear the risk of all items relating to the Deposits which are in the original process of collection as of the end of the day prior to the Closing Date provided that Seller shall reimburse Buyer for any such item where Buyer suffers a loss due to Seller's failure to adhere to applicable law and its own policies and procedures in collecting such item. 2.4 ASSUMPTION OF LIABILITIES. From and after the Closing Date, Buyer shall assume, defend, pay, perform, and discharge the Deposits and the Assumed Obligations. 2.5 PLEDGED DEPOSITS. No later than 60 days prior to the Closing Date Seller shall identify in writing to Buyer any Deposits in which Seller or a third party claims a security interest (a "Pledged Deposit"). At the time the Buyer assumes the Liabilities, Seller shall deliver to Buyer copies of any notices received by Seller pursuant to Section 9302(1)(g)(ii) of the Uniform Commercial Code of California with respect to any Pledged Deposits. Buyer shall then treat the Pledged Deposits so identified to it in accordance with its obligations under the Uniform Commercial Code of California. 2.6 ISSUANCE OF ACCOUNT STATEMENTS. On and as of the Closing Date, Seller shall prepare and issue to each customer with respect to each Deposit a closing account statement setting forth the status of such Deposit and all transactions related thereto occurring on or prior to the Closing Date. 2.7 RETENTION OF OTHER ASSETS AND OTHER LIABILITIES. On and after the Closing, Seller shall retain and shall not transfer the Other Assets and Other Liabilities. 3. CONSIDERATION 3 3.1 PAYMENT BY SELLER. Seller shall pay to Buyer on the Closing Date in immediately available funds an amount equal to the Payment Amount. 3.2 ADJUSTMENTS IN PAYMENT AMOUNT. Any prorations or adjustments to the Payment Amount which are made from and after the Closing Date shall be paid, subject to Section 14 of this Agreement, by the party obligated therefor upon demand of the party entitled thereto in immediately available funds. 4. CLOSING. The closing of the purchase and sale of the Assets and the assumption of the Liabilities (the "Closing") described in this Agreement shall take place as of the Closing Date. All responsibility and risk relating to the Overdraft Loans, Deposits and Assumed Obligations and all business conducted at the Branch Office from and after the Closing Date shall be for Buyer's account and risk. 5. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PARTIES. 5.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE BUYER AND SELLER. The obligations of Buyer and Seller are subject to the fulfillment at or prior to the Closing Date of each of the following conditions precedent: 5.1.1 SHAREHOLDER APPROVALS. The Agreement shall have beer approved by the shareholder of Buyer for its approval, as provided under Section 2052 of the California Financial Code, which approval shall be in conformance with all appropriate legal requirements. 5.1.2 REGULATORY APPROVALS. All required licenses, approvals and consents of the California Superintendent of Banks, the Federal Deposit Insurance Corporation, any other federal regulatory agencies and any other relevant California agencies shall have been obtained and shall be in full force and effect, all waiting periods prescribed by applicable law or regulation shall have expired, and none of such authorizations, consents, orders, approvals or licenses shall contain conditions which in the good faith and reasonable judgment of Seller are 4 materially burdensome to it, or which in the good faith and reasonable judgment of Buyer are materially burdensome to it, and all necessary conditions of such licenses, approvals and consents shall have been fully satisfied. 5.1.3 ABSENCE OF LITIGATION. No action or proceeding instituted by a non-party to this Agreement to prevent the consummation of the transactions covered and contemplated by this Agreement shall be pending as of the end of the day prior to the Closing Date . 5.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER. The obligations of Buyer are subject to fulfillment at or prior to the Closing Date of each of the following conditions precedent but compliance with or occurrence of any one or more of such conditions precedent may be waived in writing by Buyer: 5.2.1 DOCUMENTS. Seller shall have delivered to Buyer: (i) Copies, certified as of the date prior to the Closing Date by the secretary of Seller, of resolutions of Seller's Board of Directors authorizing execution and delivery of this Agreement and the other documents contemplated hereby, certifying that such authorization and approval remains unmodified and in full force and effect; (ii) Such deeds, bills of sale, assignments, and other instruments and documents as counsel for Buyer, if any, may reasonably require as necessary for (A) conveying to Buyer pursuant to this Agreement good and marketable title to the Overdraft Loans an (B) evidencing assumption of the Deposits and Assumed Obligations. 5.2.2 REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Seller set forth in Section 8 of this Agreement shall be true and correct in alI material respects as of the end of the day prior to the Closing Date. 5.2.3 CONDUCT OF BUSINESS. Seller shall have fully performed the covenants contained in section 6 of this Agreement. 5 5.2.4 LEGAL MATTERS. The validity of all transactions specified herein to be performed by Seller, as well as the form and substance of all documents to be delivered b, Seller hereunder shall be subject to the approval, to be reasonably exercised, of counsel for Buyer . 5.3 CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER. The obligations of Seller are subject to fulfillment at or prior to the Closing Date of each of the following conditions precedent but compliance with or occurrence of any one or more of such conditions precedent may be waived in writing by Seller: 5.3.1 DOCUMENTS. Buyer shall have delivered to the Seller: (i) Copies, certified as of the date prior to the Closing Date by the secretary of Buyer, of resolutions of Buyer's Board of Directors authorizing execution and delivery of this Agreement and the other documents contemplated hereby, and resolutions of Buyer's shareholder, approving this Agreement, in each case certifying that such authorization and approval remains unmodified and in full force and effect; 5.3.2 REPRESENTATIONS AND WARRANTIES. The representations and warranties of Buyer set forth in Section 9 of this Agreement shall be true and correct in all material respects as of the end of the day prior to the Closing Date. 5.3.3 COVENANTS OF BUYER. Buyer shall have fully performed the covenants contained in Section 7 of this Agreement. 5.3.4 LEGAL MATTERS. The validity of all transactions herein contemplated to be performed by Buyer as well as the substance of all documents to be delivered by Buyer hereunder shall be subject to the approval, to be reasonably exercised, of counsel to Seller. 6. AGREEMENTS OF SELLER. 6.1 ACCESS TO RECORDS AND INFORMATION. Between the date of this Agreement and the day prior to the Closing Date, 6 Seller shall afford to Buyer and its authorized agents and representatives, during times mutually agreed upon by the parties, reasonable access to records, loan files and other information within Seller's possession relating to the Branch Office and the assets to be purchased and liabilities to be assumed by Buyer pursuant to the terms of this Agreement, and the opportunity to update any such investigation at such intervals as the Buyer shall deem appropriate. 6.2 ASSISTANCE IN OBTAINING REGULATORY APPROVALS. Seller agrees to us all reasonable efforts to assist Buyer in obtaining the regulatory approvals referred to in Section 5.1.2 of this Agreement, and Seller will provide to Buyer or to the appropriate regulatory authorities all information required to be submitted by Seller in connection with such approvals. 6.3 FURTHER ASSISTANCE. On and after the Closing Date, Seller shall (i) execute, acknowledge and deliver all such bills of sale, deeds, acknowledgments and other instruments and take such further action as may be necessary and appropriate to effectively vest in Buyer the full legal and equitable title to the Overdraft Loans, and (ii) use its best efforts to assist Buyer in the assumption by Buyer of the Deposits and Assumed Obligations. 6.4 CORPORATE CONSENTS. Seller shall use its best efforts to obtain all necessary corporate consents. Subject to Sections 5.1.1 and 5.1.2, Seller shall comply with all applicable laws, regulations and rulings in connection with this Agreement and the consummation of the transactions contemplated hereby and shall furnish to Buyer at the Closing the documents described in Section 5.2.1 of this Agreement. 7. AGREEMENTS OF BUYER. 7.1 EFFORTS TO OBTAIN REGULATORY APPROVAL. Buyer agrees to use all reasonable efforts to obtain as promptly as possible the regulatory approvals referred to in Section 5.1.2 of this Agreement which must be obtained by Buyer. Buyer shall specifically be responsible for making application to obtain the requisite approvals from the California Superintendent of Banks and the Federal Deposit Insurance Corporation. 7 7.2 PERFORMANCE OF LIABILITIES. From and after the Closing Date, Buyer shall fully perform, pay and discharge all of the Deposits and the Assumed Obligations and shall protect the rights of depositors and creditors of the Branch Office in the same manner and to the same extent as if Buyer had itself incurred such liabilities. 7.3 FURTHER ASSURANCES. On and after the Closing Date, Buyer shall give such further assurances to Seller and shall execute, acknowledge and deliver all such acknowledgments and other instruments and take any further action as may be necessary and appropriate to effectively relieve and discharge Seller from any obligations remaining under the Liabilities assumed by Buyer. 7.4 CORPORATE CONSENTS AND DOCUMENTS. Buyer shall use its best effort to obtain all necessary corporate consents. Subject to Sections 5.1.1 and 5.1.2, Buyer shall comply with all applicable laws, regulations and rulings in connection with this Agreement and the consummation of the transactions contemplated hereby and shall furnish to Seller at the Closing the documents described in Section 5.3.1 of this Agreement. 7.5 SELECTION OF OVERDRAFT LOANS. Not less than 10 days prior to the Closing Date, Buyer shall review the overdraft loans held by Seller at the Branch Office and, based upon such review, shall select the Overdraft Loans and shall provide to Buyer written notice of such selection. Seller shall include only such Overdraft Loans as are selected by Seller on the Closing Statement. 8. WARRANTIES AND REPRESENTATIONS OF SELLER. Seller represents and warrants to Buyer as of the date hereof: 8.1 ORGANIZATION. Seller is a corporation duly organized and validly existing under the laws of the state of California, with full power and authority to exercise its corporate powers, rights and privileges and to conduct a commercial banking business at the Branch Office as is now conducted by it. 8 8.2 AUTHORITY. The execution and delivery of this Agreement by Seller have been duly authorized by its Board of Directors and no further corporate action will be or is necessary on the part of Seller to make this Agreement valid, binding and enforceable in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency, or other laws affecting the enforcement of creditor's rights generally. 8.3 CLOSING STATEMENT. The Closing Statement or any other information based on the books and records of Seller used in making any calculations hereunder or otherwise furnished to Buyer in connection with this Agreement is and will be accurate and complete as of the dates thereof and will be prepared in a consistent manner and in the ordinary course of Seller's business. 8.4 FINDERS OR BROKERS. Seller has not in any manner whatsoever paid or agreed to pay any fee or commission to any agent, broker, finder or other person for or on account of services rendered as a broker or finder in connection with this Agreement or the transactions contemplated hereby. All negotiations relating to this Agreement have been conducted by Seller directly and without the intervention of any person in such manner as to give rise to any valid claim against Buyer for any brokerage commission or other like payment. 8.5 COMPLIANCE WITH INSTRUMENTS. The performance of this Agreement by Seller will not violate or result in a breach of any of the terms or conditions of, or constitute a default under, Seller's Articles of Incorporation or its bylaws, or any law or any contract, agreement, note, bond, license or other instrument or obligation to which Seller is a party or by which any of its properties are bound or affected or violate any rule or regulation of any administrative agency, or order, writ, injunction or decree of any court, administrative agency or governmental body applicable to Seller. 8.6 THE OVERDRAFT LOANS. The instruments and documents relating to the Overdraft Loans were obtained by Seller in the ordinary course of business and relate to actual loan transactions. Seller's books and records fairly reflect in all material aspects (subject to normal adjustments) the payment 9 history and present balance as to each such loan, and none of the borrowers on such loans has notified Seller, nor is Seller aware, of an offset or defense to his obligation under said loan and Seller is not aware of any material adverse change in the financial condition or repayment ability of the borrowers under such Loans. None of the Overdraft Loans, on and as of the Closing Date, shall be in excess of 30 days delinquent. The obligor with respect to each Overdraft Loan is a depositor with respect to a Deposit. 8.7 THE DEPOSITS. The books and records of Seller with respect to deposit; fairly reflect (subject to normal adjustments) the Deposits and the Deposits have been administered in all material respects in compliance with applicable law and regulations. 9. WARRANTIES AND REPRESENTATIONS OF BUYER. Buyer hereby represents and warrants to Seller as of the date hereof: 9.1 ORGANIZATION. Buyer is a banking corporation duly organized and validly existing under the laws of the state of California with full power and authority to exercise its corporate powers, rights and privileges and to conduct a commercial banking business in the State of California. 9.2 AUTHORITY. The execution and delivery of this Agreement by Buyer have been duly authorized by its Board of Directors and no further corporate action (other than the approval of this Agreement and the transaction contemplated herein by Buyer's shareholder) will be or is necessary to make this Agreement valid, binding and enforceable in accordance with its terms except as the enforcement thereof may be limited by bankruptcy, insolvency or other laws affecting the enforcement of creditor's rights generally. 9.3 FINDERS OR BROKERS. Buyer has not in any manner whatsoever paid or agreed to pay any fee or commission to any agent, broker, finder or other person for or on account of services rendered as a broker or finder in connection with this Agreement or the transaction contemplated hereby. All negotiations relating to this Agreement have been conducted by 10 Buyer directly and without the intervention of any person in such manner as to give rise to any valid claim against Seller for any brokerage commission or other like payment. 9.4 GOVERNMENTAL NOTICES. Buyer has not received written notice from any federal or California governmental agency indicating that it would oppose or not grant or issue its consent or approval, if required, with respect to the transactions contemplated by this Agreement. 9.5 COMPLIANCE WITH INSTRUMENTS. The performance of this Agreement by Buyer will not violate or result in the breach of any of the terms or conditions of, or constitute a default under, Buyer's Articles of Incorporation, its bylaws, or any contract, agreement, note, bond license, or other instrument or obligation to which Buyer is a party or by which any of its properties or assets are bound or affected, or violate any law, or any rule or regulation of any administrative agency or governmental body, or any order, writ, injunction or decree of any court, administrative agency or governmental body applicable to Buyer. 10. DISCLAIMERS AND OTHER SPECIAL PROVISIONS. Buyer and Seller understand and agree as follows: 10.1 FIDUCIARY ACCOUNTS. No transfer of properties, assets, investments, agreements, rights or assumption of obligations under trusts, executorship, administrations, guardianships, agencies and other representative capacities of Seller in existence as of the end of the day prior to the Closing Date is contemplated or required by this Agreement, except for Individual Retirement Accounts and other trust accounts which are serviced by Seller's commercial banking business in the ordinary course of business. 10.2 DEPOSITS. All transfers to Buyer of the Deposits are subject to the individual depositors' continuing rights to withdraw under Section 2051 of the California Financial Code, and Seller makes no representation, warranty or agreement concerning the continuing maintenance of such deposits at the Branch office. 11 10.3 PAYMENT OF CERTAIN INTEREST. From and after the Closing Date, Buyer shall pay all interest on the Deposits in accordance with the terms of the contracts applicable to such Deposits. 10.4 INDEMNIFICATION. Seller and Buyer (references in this Section 10.4 to either party shall include its officers, directors, representatives, agents, employees, successors or assigns) each agrees to indemnify and hold the other harmless from and against any and all claims, liabilities, suits, losses, damages, costs and expenses, including reasonable attorneys' fees, whether accrued, absolute, contingent or otherwise, or whether due or to become due (including, without limitation, liability for income taxes, excise taxes, state or local taxes or any other direct or indirect taxes due or to become due) ("Claim") which such other party may incur directly or indirectly as consequence of (i) such indemnifying party's failure to pay and perform (x) all liabilities and obligations incurred by it with respect to the Branch office which are not expressly assumed by the other party and (y) all liabilities and obligations incurred by the other party with respect to the Branch office which are expressly assumed by the indemnifying party; (ii) any acts, omissions or events occurring during the period in which the indemnifying party conducted the business of the Branch Office; (iii) any breach of any of the conditions or covenants made by either party hereto. Further, Seller shall indemnify Buyer from any Claim relating to (i) the return of an item accepted for deposit on or before the Closing Date to the extent that Seller would have otherwise been liable therefor had Seller retained the applicable Deposit; (ii) U. S. Treasury reclamation actions relating to items accepted for deposit on or before the Closing Date to the extent that Seller would have otherwise been liable therefor had Seller retained the applicable Deposit, and to the extent that there do not exist sufficient customer funds to repay such claim and (iii) any failure to report or misreporting of taxpayer identification numbers prior to the Closing Date. The amounts recoverable by either party with respect to any such claims against the other shall reflect, and such other party shall only be obligated to pay, the net amount of damages suffered by the other party entitled to recovery after giving effect to any insurance proceeds recoverable with respect to such matters. Each party shall select its own counsel, if any, and shall pay for the defense of the other party, including 12 reasonable attorneys' fees and costs, with respect to any claim against which such paying party is obligated to indemnify such other party as provided in this Section 10.4. If such other party chooses to have counsel of its own choosing in addition to that provided by the paying party, it may do so at its sole expense. Each party shall provide to the other written notice of any claim to which such other party's indemnity obligations hereunder do or may apply within sixty (60) business days after becoming aware of the existence of such claim. 10.5 TAX REPORTING. Neither Buyer nor Seller will take a position with any federal, state or local taxing authority contrary to any of the terms or provisions of this Agreement. 10.6 INTEREST REPORTING. Seller shall report from January 1, 1995 through the Closing Date, and Buyer shall report from the Closing Date and thereafter, all interest credited to, interest premiums paid on, interest withheld from, and early withdrawal penalties charged to, the Deposits. Such reports shall be made to the holders of the Deposit accounts and to the applicable federal and state taxing agencies. 10.7 WITHHOLDING. Following the Closing Date, Seller shall deliver to Buyer (i) "B" notices (TINs do not match) and "C" notices (underreporting/IRS imposed withholding) received by it from the IRS regarding any of the accounts included within the Deposits, and (ii) all notices received from the IRS releasing withholding restrictions on any of the accounts included within the Deposits. Any amounts required by any governmental agency to be withheld from any of the accounts included within the Deposits (the "Withholding Obligations") or an penalties imposed by any governmental agency will be handled as follows: (a) Any Withholding Obligations required to be remitted to the appropriate governmental agency on or prior to the Closing Date will be withheld and remitted by Seller, and any other sums withheld by Seller pursuant to Withholding Obligations prior to the Closing Date shall also be remitted by Seller to the appropriate governmental agency on or prior to the time they are due; 13 (b) Any Withholding Obligations required to be remitted to the appropriate governmental agency after the Closing Date with respect to Withholding Obligations after the Closing Date shall be withheld and remitted by Buyer. 10.8 POST-CLOSING RECONCILIATION. (a) For a period of sixty (60) days following the Closing Date (the "Inclearing Period"), Seller shall continue to process checks or drafts, drawn on deposit accounts which are not intercepted by the applicable Federal Reserve Bank ("Federal Reserve"). During the Inclearing Period, Seller shall by 3:00 p.m. Pacific Time on the date of presentment make all of such checks or drafts available to Buyer's courier at Seller's data processing center located at 16420 Valley View Street, La Mirada, California along with a cash letter listing all such checks or drafts. By 3:00 p.m. Pacific Time [close of business] on each day of presentment during the Inclearing Period, Buyer shall credit Seller's due to correspondent account with the amount set forth in the cash letter less adjustments for all items presented to Buyer on that day. Upon expiration of the Inclearing Period, Seller shall cease honoring inclearing items presented against the Deposits and such items shall be returned marked "Refer to Maker". (b) ACH TRANSACTIONS. Seller shall provide to Buyer no later than 30 days prior to the Closing Date, the customer name, customer account number, and the originator identification number for each automated clearinghouse ("ACH") entry for the Deposit accounts, and shall further provide, within two business days following the Closing Date, an updated list as of the close of business on the Closing Date. Following closing, Seller shall transmit to Buyer no later than 12:00 p.m. Pacific Time all information pertaining to ACH items affecting Deposit during each business day including claim number, suffix, if applicable, source name, trade identification, company identification, client name and account number and effective date. Seller will credit such finds to Buyer's due from account maintained with Seller. For a period of 60 days following the Closing Date, Seller agrees to continue to accept and immediately forward to Buyer all ACH entries and corresponding funds. Seller agrees to include the originator identification number, and Buyer agrees to immediately notify and instruct the originator of the 14 ACH to reroute the entries directly to Buyer. Buyer shall be responsible for processing and responding to any reclamation requests. Losses due to reclamation requests related to Deposits that are closed or have insufficient funds to cover a reclamation request will be absorbed by Seller if the reclamation is against a credit received on or prior to the Closing and by Buyer if against a credit received after closing. After the 60 day period, Seller may discontinue accepting and forwarding ACH entries and return them to the originators. (c) RETURNED ITEMS. For a period of 60 days following the Closing Date, Seller shall make available no later than 3:00 p.m. Pacific Time to Buyer's courier a cash letter containing all returned items received on that business day. Buyer shall credit Seller's due to account maintained with Buyer by the close of business that day an amount equal to the cash letter for such returned items. Returned items are those items that are included within the Deposits transferred to Buyer but that are returned unpaid to Seller after the Closing Date. Buyer shall notify Seller by facsimile of any unacceptable returned items and Seller shall reimburse Buyer's due from account upon receipt of such unacceptable returned items. 10.9 REQUESTS FOR DOCUMENTS AFTER CLOSING. For so long as Seller is required to maintain the books and records relating to the Deposits under Section 2.2, Seller shall, at Buyer's request, provide research services relating to documentation retained by Seller in connection with requests for documents made on behalf of customers or by court order relating to litigation involving customers. Fees for documents produced at the request of customers shall be Seller's customary research fees in effect from time to time, provided fees for document research relating to State or Federal litigation shall not exceed those set forth in California Evidence Code Section 1563. 11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties made under this Agreement by either party shall survive the Closing; PROVIDED, however, that from and after the Closing neither Buyer nor Seller shall have any liability for any misrepresentation or breach of warranty unless all losses, costs and damages which a party may incur by reason of misrepresentations or breaches of warranty of 15 the other party shall exceed an aggregate of $5,000 in which event the party causing such losses, costs and damages shall be liable for the amount of the claims in excess of $5,000. 12. TERMINATION. 12.1 TERMINATION AGREEMENT. Except as is otherwise provided in Section 12.3, this Agreement shall terminate and shall be of no further force or effect as between the parties hereto upon the occurrence of any of the following: (i) Immediately upon the expiration of fifteen (15) days from the date that Seller has given notice to Buyer of a breach or default by Buyer in the performance of any covenant, agreement, representation, warranty, duty or obligation hereunder; PROVIDED, however, that no such termination shall be effective if, within such fifteen (15) day period, Buyer shall have substantially corrected and cured the grounds for termination as set forth in such notice of termination; (ii) Immediately upon the expiration of fifteen (15) days from the date that Buyer has given notice to Seller of a breach or default by Seller in the performance of any covenant, agreement, representation, warranty, duty or obligation hereunder; PROVIDED, however, that no such termination shall be effective if, within such fifteen (15) day period, Seller shall have substantially corrected and cured the grounds for termination as set forth in such notice of termination; (iii) Upon mutual agreement of the parties, if it appears unlikely that the regulatory approvals required in order to fulfill the conditions set forth in Section 5.l.2 of this Agreement will be obtained, or if the parties otherwise mutually agree to terminate this Agreement for any other reason; (iv) Upon written notice by either party to the other party if the Closing has not occurred on or before December 31, 1995, unless such date is extended by the mutual agreement of the parties hereto. 12.2 IMMATERIAL BREACH. Notwithstanding anything to the contrary contained herein, no party hereto shall have the 16 right to terminate this Agreement on account of its own breach or because of any immaterial breach by any other party hereto of any covenant, agreement, representation, warranty, duty or obligation hereunder. 12.3 EFFECT OF TERMINATION. No termination of this Agreement under this Section 12 shall release, or be construed as so releasing, any party hereto from any liability or damage to any other party hereto arising out of, in connection with or otherwise relating to, directly or indirectly, such party's material and bad faith breach, such party's default, breach or failure if performance of any of its warranties, representations, covenants, agreements, duties or obligations arising hereunder. No termination of this Agreement under this Section 12 or for any other reason shall terminate or release any party hereto from its obligations set forth in Sections 10.5, 15.1 or 15.2 of this Agreement. 12.4 WAIVER OF RIGHT TO TERMINATE. Either Buyer or Seller may, at its written election, waive any of their respective rights to terminate this Agreement under the foregoing provisions of this Section 12, and the parties shall be deemed to have waived such rights from and after the Closing Date even though actual settlement may have been delayed pursuant to the provisions of Section 14. 13. EFFECT ON THIRD PARTIES. Except as otherwise provided by law, neither the rights of creditors and depositors of Seller nor any liability or obligation for payment of money nor any claim or cause of action against Seller shall be in any manner released or impaired by this Agreement or by the transactions contemplated hereunder, and the rights and obligations of all creditors and depositors and of all other persons shall remain unimpaired; Buyer shall succeed to all such obligations and liabilities only to the extent included among the Liabilities as of the day prior to the Closing Date and shall be liable from then and thereafter to pay, discharge and perform all such debts and obligations of Seller assumed pursuant to this Agreement and in connection with the transaction contemplated hereunder in the same manner as if Buyer had itself incurred the debts or obligations, and Buyer shall succeed to all rights, offsets and defenses of Seller in connection therewith. 17 14. DELAYED SETTLEMENTS. 14.1 FINAL SETTLEMENT. All claims by either party to this Agreement regarding the proper computation of the Payment Amount under this Agreement shall be submitted in writing to the other party within 90 days following the Closing Date, except for such claims a relate to Deposits which are credit card merchant accounts, for which such period shall be 180 days. No claim shall be valid and no Payment Amount adjustment shall be made with respect to any claim which is not submitted within such 90- or 180-day period, as applicable, whether or not such claims should or could have come to the attention of the claiming party prior to the expiration of such period of time. All claims submitted by the parties within the 90- or 180-day period shall be resolved by the mutual agreement of the parties (or by such other means as the parties may designate in writing at some future date) within nine months following the Closing Date. The parties agree to use their best efforts to resolve all claims by mutual agreement, and in this connection each party agrees that its representatives will be available at reasonable times to discuss and resolve any disputed matters. In the event such claim cannot be resolved within nine months following the Closing Date, the claiming party may commence or institute a legal action or proceeding to enforce such claim. 14.2 PAYMENT AND INTEREST. Any amounts payable by one party to the other pursuant to Sections 14.1 and 14.2 shall be payable upon demand of the party entitled thereto in immediately available funds and shall bear interest (payable on demand in immediately available funds) from and after the Closing Date to the day of payment at a rate per annum (calculated for actual days elapsed on the basis of a 365-day year) equal to the rate for Fed Funds published in the Wall Street Journal Western Edition from time to time, which rate shall be adjusted from time to time as said Fed Funds' rate changes. 15. MISCELLANEOUS. 15.1 CONFIDENTIALITY AND PUBLICITY. Except as contemplated by this Agreement or as is necessary to carry out the transaction contemplated hereby, all information or documents furnished by either party to the other party in connection with this Agreement, and not otherwise known to the other party or 18 already in the public domain, shall be kept confidential, except as disclosure may be required to obtain the regulatory approvals contemplated herein. If for any reason this transaction is not consummated, each party shall return to the other all information and copies or originals of any documents or other materials furnished pursuant to this Agreement. The parties shall coordinate all publicity relating to this purchase and sale. No party shall issue any press release or other written public notice or make any public statement in connection with this Agreement or the transaction contemplated hereby without the prior written consent of the other party, or unless in the sole opinion of such party's legal counsel a press release or other written public notice or statement is required by applicable law or regulation. 15.2 EXPENSES. Except as is otherwise provided in Sections 10.5 and 15.9 of this Agreement, whether the Closing takes place or whether this Agreement is terminated, each party shall pay its own costs and expenses imposed on or incurred by it in connection with this Agreement and the transactions contemplated hereby, including, but not by way of limitation, all regulatory fees, attorneys' fees, accounting fees, and other expenses. 15.3 NOTICES. All notices, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered in person or by United States mail, certified or registered, with return receipt requested, or otherwise actually delivered, as follows: (i) If to Seller, to: Southern California Bank P.O. Box 588 16420 Valley View La Mirada, CA 90637 Attn: Mr. Bruce Roat (ii) If to Buyer, to: Home Bank 2633 Cherry Avenue 19 Signal Hill, California 90806 Attn: Mr. Keith W. Barnes The persons or addresses to which mailings or deliveries shall be made may change from time to time by notice given pursuant to the provisions of this Section 15.3. Any notice, demand or other communication given pursuant to the provisions of this Section 15.3 shall be deemed to have been given on the date actually delivered or five (5) days following the date deposited in the United State mail, properly addressed, postage prepaid, as the case may be. 15.4 SUCCESSORS AND ASSIGNS. All terms and provisions of this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective transferees, successors and permitted assigns; PROVIDED, however, this Agreement and all rights, privileges, duties and obligations of the parties hereto may not be assigned or delegated by any party hereto without the prior written consent of the other party. 15.5 THIRD PARTY BENEFICIARIES. Each party hereto intends that this Agreement shall not benefit or create any right or cause of action in or on behalf of any person other than the parties hereto. 15.6 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which taken together shall constitute one instrument. 15.7 GOVERNING LAW. This Agreement is made and entered into in the Stat of California and the laws of that state shall govern the validity and interpretation hereof and the performance of the parties hereto of their respective duties and obligations hereunder. 15.8 CAPTIONS. The captions contained in this Agreement are for convenience of reference only and do not form a part of this Agreement. 20 15.9 ATTORNEYS FEES. In the event either party to this Agreement brings an action or suit against the other party by reason of any breach of any covenant, agreement, representation, warranty or any other provision hereof, or any breach of any duty or obligation created hereunder by such other party, the prevailing party in whose favor final judgment is entered shall be entitled to have and recover of and from the losing party, all costs and expenses incurred or sustained by such prevailing party in connection with such suit or action, including without limitation, legal fees and court costs (whether or not taxable as such). 15.10 ENTIRE AGREEMENT. The making, execution and delivery of this Agreement by the parties hereto have been induced by no representations, statements, warranties or agreements other than those herein expressed. This Agreement embodies the entire understanding of the parties and there are no further or other agreements or understandings, written or oral, in effect between the parties relating to the subject matter hereof, unless expressly referred to by reference herein. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the day on this instrument and the agreements contained herein may be amended or modified only by an instrument of equal formality signed by the parties or their duly authorized agents. d year first above written. SELLER: SOUTHERN CALIFORNIA BANK By /s/ ----------------------------------------- Its EVP/COO ---------------------------------------- BUYER: HOME BANK 21 By /s/ ----------------------------------------- Its President ---------------------------------------- 22 EXHIBIT B Account Transfer Agreements Automated Clearing House Debit Authorizations Check File Dividers with Specimen Signatures Credit Card Merchant Processing Agreements Final Hold Report Final Stop Payment Report Final Trial Balance Hold Orders Individual Retirement Plan Account Documents New Account Legal Documentation: Articles of Incorporation Court Orders Fictitious Firm Name Filings Partnership Agreements Trust Agreements Open Levies, Writs & Attachments Pledged Account Agreements Signature Cards Stop Payment Orders Telephone Transfer Authorizations W-9 Taxpayer Identification Certification Forms Wire Transfer Authorizations 23 EX-2.4 3 EXHIBIT 2.4 PURCHASE AGREEMENT FOR BRANCH OFFICE BETWEEN SOUTHERN CALIFORNIA BANK AND PREFERRED BANK TABLE OF CONTENTS PAGE ---- 1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 ACCRUED INTEREST . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.3 ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.4 BRANCH OFFICE. . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.5 CLOSING DATE . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.6 CLOSING STATEMENT. . . . . . . . . . . . . . . . . . . . . . . . 1 1.7 DEPOSITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.8 FIXED ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.9 LEASE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.10 LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.11 NONSTATEMENT LIABILITIES . . . . . . . . . . . . . . . . . . . . 2 1.12 OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.13 PREMIUM AMOUNT . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.14 STATEMENT LIABILITIES. . . . . . . . . . . . . . . . . . . . . . 2 2. TRANSFER OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.1 TRANSFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.2 BOOKS AND RECORDS. . . . . . . . . . . . . . . . . . . . . . . . 3 2.3 ITEMS IN TRANSIT . . . . . . . . . . . . . . . . . . . . . . . . 3 2.4 ASSUMPTION OF LIABILITIES. . . . . . . . . . . . . . . . . . . . 3 2.5 PLEDGED DEPOSITS . . . . . . . . . . . . . . . . . . . . . . . . 3 3. CONSIDERATION FOR ASSETS AND ASSUMPTION OF LIABILITY . . . . . . . . . 3 3.1 PAYMENT BY SELLER. . . . . . . . . . . . . . . . . . . . . . . . 3 3.2 ASSUMPTION OF LIABILITIES. . . . . . . . . . . . . . . . . . . . 3 3.3 PRORATION AND ACCRUALS . . . . . . . . . . . . . . . . . . . . . 3 3.4 ADJUSTMENTS IN PAYMENT AMOUNT. . . . . . . . . . . . . . . . . . 4 3.5 IMMEDIATELY AVAILABLE FUNDS. . . . . . . . . . . . . . . . . . . 4 3.6 SALES AND TRANSFER TAXES . . . . . . . . . . . . . . . . . . . . 4 4. CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 5. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PARTIES . . . . . . . . 4 5.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE BUYER AND SELLER 4 5.1.1 SHAREHOLDER APPROVALS. . . . . . . . . . . . . . . . . . . 4 5.1.2 REGULATORY APPROVALS . . . . . . . . . . . . . . . . . . . 5 5.1.3 ABSENCE OF LITIGATION. . . . . . . . . . . . . . . . . . . 5 5.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER . . . . . . . . . . 5 5.2.1 DOCUMENTS. . . . . . . . . . . . . . . . . . . . . . . . . 5 5.2.2 REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . 6 5.2.3 CONDUCT OF BUSINESS. . . . . . . . . . . . . . . . . . . . 6 i 5.3 CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER. . . . . . . . . . 6 5.3.1 DOCUMENTS. . . . . . . . . . . . . . . . . . . . . . . . . 6 5.3.2 REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . 6 5.3.3 COVENANTS OF BUYER . . . . . . . . . . . . . . . . . . . . 6 5.3.4 LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . 6 6. AGREEMENTS OF SELLER . . . . . . . . . . . . . . . . . . . . . . . . . 7 6.1 ACCESS TO RECORDS AND INFORMATION. . . . . . . . . . . . . . . . 7 6.2 CONDUCT OF BUSINESS PENDING CLOSING. . . . . . . . . . . . . . . 7 6.3 ASSISTANCE IN OBTAINING REGULATORY APPROVALS . . . . . . . . . . 7 6.4 FURTHER ASSISTANCE . . . . . . . . . . . . . . . . . . . . . . . 7 6.5 CORPORATE CONSENTS . . . . . . . . . . . . . . . . . . . . . . . 7 6.6 SCHEDULES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 6.7 CONSENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 6.8 GOOD FAITH AND FAIR DEALING. . . . . . . . . . . . . . . . . . . 8 6.9 SIGNAGE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 6.10 NOTICE TO SELLER'S CUSTOMERS . . . . . . . . . . . . . . . . . . 8 7. AGREEMENTS OF BUYER. . . . . . . . . . . . . . . . . . . . . . . . . . 8 7.1 EFFORTS TO OBTAIN REGULATORY APPROVAL. . . . . . . . . . . . . . 8 7.2 PERFORMANCE OF LIABILITIES . . . . . . . . . . . . . . . . . . . 9 7.3 FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . . . . . . 9 7.4 CORPORATE CONSENTS AND DOCUMENTS . . . . . . . . . . . . . . . . 9 7.5 CHANGE OF NAME . . . . . . . . . . . . . . . . . . . . . . . . . 9 7.6 GOOD FAITH AND FAIR DEALING. . . . . . . . . . . . . . . . . . . 9 7.7 NOTICE BY BUYER. . . . . . . . . . . . . . . . . . . . . . . . . 9 7.8 EMPLOYEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 8. WARRANTIES AND REPRESENTATIONS OF SELLER . . . . . . . . . . . . . . . 10 8.1 ORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . 10 8.2 AUTHORITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 8.3 CLOSING STATEMENT. . . . . . . . . . . . . . . . . . . . . . . . 10 8.4 FINDERS OR BROKERS . . . . . . . . . . . . . . . . . . . . . . . 10 8.5 SCHEDULES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 8.6 COMPLIANCE WITH INSTRUMENTS . . . . . . . . . . . . . . . . . . 11 8.7 TITLE TO PERSONAL PROPERTY AND LEASES. . . . . . . . . . . . . . 11 8.8 THE DEPOSITS . . . . . . . . . . . . . . . . . . . . . . . . . . 11 8.9 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 8.10 INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 8.11 COMPLIANCE WITH LICENSES AND PERMITS . . . . . . . . . . . . . . 12 8.12 MISSTATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 12 8.13 DEFAULTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 8.14 CERTAIN LITIGATION . . . . . . . . . . . . . . . . . . . . . . . 12 8.15 LEASE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 9. WARRANTIES AND REPRESENTATIONS OF BUYER. . . . . . . . . . . . . . . . 12 9.1 ORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . 12 ii PAGE 9.2 AUTHORITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 9.3 FINDERS OR BROKERS . . . . . . . . . . . . . . . . . . . . . . . 13 9.4 GOVERNMENTAL NOTICES . . . . . . . . . . . . . . . . . . . . . . 13 9.5 COMPLIANCE WITH INSTRUMENTS. . . . . . . . . . . . . . . . . . . 13 10. DISCLAIMERS AND OTHER SPECIAL PROVISIONS . . . . . . . . . . . . . . . 13 10.1 FIDUCIARY ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . . 13 10.2 DEPOSITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 10.3 PAYMENT OF CERTAIN INTEREST. . . . . . . . . . . . . . . . . . . 14 10.4 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . 14 10.5 POSSESSION . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 10.6 TAX REPORTING. . . . . . . . . . . . . . . . . . . . . . . . . . 14 10.7 INTEREST REPORTING . . . . . . . . . . . . . . . . . . . . . . . 15 10.8 WITHHOLDING. . . . . . . . . . . . . . . . . . . . . . . . . . . 15 10.9 POST-CLOSING RECONCILIATION. . . . . . . . . . . . . . . . . . . 15 11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . 16 11.1 CLAIMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 11.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . 16 11.3 LIMITATION OF CLAIMS . . . . . . . . . . . . . . . . . . . . . . 16 12. TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 12.1 TERMINATION AGREEMENT. . . . . . . . . . . . . . . . . . . . . . 17 12.2 IMMATERIAL BREACH. . . . . . . . . . . . . . . . . . . . . . . . 18 12.3 EFFECT OF TERMINATION. . . . . . . . . . . . . . . . . . . . . . 18 12.4 WAIVER OF RIGHT TO TERMINATE . . . . . . . . . . . . . . . . . . 18 13. EFFECT ON THIRD PARTIES. . . . . . . . . . . . . . . . . . . . . . . . 18 14. DELAYED SETTLEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . 18 14.1 CLOSING AND FIRST ADJUSTMENT . . . . . . . . . . . . . . . . . . 18 14.2 FINAL SETTLEMENT . . . . . . . . . . . . . . . . . . . . . . . . 19 14.3 PAYMENT AND INTEREST . . . . . . . . . . . . . . . . . . . . . . 19 15. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 15.1 CONFIDENTIALITY AND PUBLICITY. . . . . . . . . . . . . . . . . . 19 15.2 EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 15.3 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 15.4 SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . . . . 21 15.5 THIRD PARTY BENEFICIARIES. . . . . . . . . . . . . . . . . . . . 21 15.6 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . 21 15.7 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . 21 15.8 CAPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 iii PAGE 15.9 ATTORNEYS FEES . . . . . . . . . . . . . . . . . . . . . . . . . 21 15.10 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . 21 iv PURCHASE AGREEMENT THIS AGREEMENT is made as of the 14th day of November, 1995 by and between SOUTHERN CALIFORNIA BANK, a California banking corporation (hereinafter referred to as "Seller"), and PREFERRED BANK, a California banking corporation (hereinafter referred to as "Buyer"). 1. DEFINITIONS: 1.1 ACCRUED INTEREST. "Accrued Interest" means the amount of interest accrued and unpaid on the Deposits at the end of the day prior to the Closing Date. 1.2 AGREEMENT. "Agreement" means this Purchase Agreement, as amended from time to time. 1.3 ASSETS. "Assets" means the Fixed Assets and the Other Assets. 1.4 BRANCH OFFICE. "Branch" means the branch banking office of Seller located at 18261 Gale Avenue, City of Industry, California 91748. 1.5 CLOSING DATE. "Closing Date" means 12.01 a.m. on the date when the purchase and sale described in this Agreement is consummated. The Closing Date shall be on a date mutually agreed upon by the parties hereto and which occurs following receipt of the approvals required under Section 5.1, and each of its applicable subparts, of this Agreement; PROVIDED, however, the Closing Date shall not in any event occur prior to the lapse of all legally required waiting or protest periods. 1.6 CLOSING STATEMENT. "Closing Statement" means the Statement of Condition for the Branch Office which is prepared from Seller's books and records and as of the end of the day prior to the Closing Date. 1.7 DEPOSITS. "Deposits" means all liabilities of Seller carried on the books of the Branch Office identified as deposits in the Closing Statement. 1.8 FIXED ASSETS. "Fixed Assets" means all of the assets set forth on the attached Schedule A. 1.9 LEASE. "Lease" means the lease between Seller and DickerWarmington Properties as landlord ("Landlord") dated January 2, 1990 with respect to the real property, building and improvements thereon comprising the Branch Office. 1.10 LIABILITIES. "Liabilities" means the Closing Statement Liabilities and the Nonstatement Liabilities. 1 1.11 NONSTATEMENT LIABILITIES. "Nonstatement Liabilities" means all agreements existing as of the end of the day prior to the Closing Date made by or with respect to the operations of the Branch Office in the normal course of business of the Branch Office, including leases of personal property, maintenance, service and janitorial agreements, agreements relating to deposits, safe deposit boxes and safekeeping of property which are included among the Assets or Liabilities, as the case may be, and such other agreements as are disclosed by the business records of the Branch Office and are included on the Schedule of Nonstatement Liabilities, to be delivered by Seller to Buyer in accordance with Section 6.6 and which are expressly assumed in writing by Buyer in a separate assumption agreement. Notwithstanding the foregoing, Nonstatement Liabilities shall not include (i) any loan commitments or agreements of any kind unless specifically assumed in writing by Buyer; (ii) any guarantees, including letters of credit; (iii) any obligations or litigation whether pending or threatened relating to assets or liabilities which are not expressly transferred to or assumed by the Buyer pursuant to this Agreement; (iv) repurchase obligations; (v) any obligation or claims based on events, acts or omissions relating to the business of the Branch Office, the Assets and Liabilities, occurring prior to the end of the day prior to the Closing Date, including but not limited to liability related to the operation of deposit accounts, violations of the Federal Reserve Board's Regulation Z and violations of any other federal or state law or regulation relating to the operation of the Branch Office; (vi) any contracts of insurance; and (vii) and liabilities identified in the Closing Statement which are not included among the Closing Statement Liabilities. 1.12 OTHER ASSETS. "Other Assets" means (i) Seller's interest as lessee in all furniture and equipment leased by Seller as of the end of the day prior to the Closing Date which is located in the Branch Office and which is expressly assumed in writing by Buyer in a separate assumption agreement or agreements; (ii) Seller's rights and title in and to all agreements which are included among the Liabilities as assumed in a separate assumption agreement or agreements, other than rights based upon events occurring prior to the Closing Date; and (iii) all records relating to the Assets or Liabilities, relationships, business, assembled work force, good will, those intangible assets representing the benefit of aggregate Deposits being assumed by the Buyer and other intangible assets associated with the Branch Office. 1.13 PREMIUM AMOUNT. "Premium Amount" means $180,000. 1.14 STATEMENT LIABILITIES. "Statement Liabilities" means the Deposits and all other liabilities identified in the Closing Statement as of the end of the day prior to the Closing Date as adjusted pursuant to Section 3.3 of this Agreement. 2. TRANSFER OF ASSETS. 2.1 TRANSFER. On the Closing Date, subject to the terms and conditions set forth in this Agreement, Seller agrees to sell, transfer, assign and deliver the Assets and all documents and instruments relating thereto to Buyer, Buyer agrees to 2 purchase, acquire and accept the same from Seller, and Seller and Buyer agree to execute the assignment and transfer of the Lease. 2.2 BOOKS AND RECORDS. On the Closing Date, Buyer shall receive possession of, and right, title and interest in, all books and records which are maintained by Seller at the Branch Office relating to the Assets and Liabilities including, without limitation, IRS "B" and "C" notice and withholding release notices. All such books and records shall be open for inspection by Seller and its authorized agents and representatives during regular business hours after the Closing Date and Seller may, at its own expense, make such copies of and excerpts from such books and records as it may deem desirable. All books and records relating to the Assets and Liabilities shall be maintained for a period which is at least the longer of the period required by law or the third anniversary of the Closing Date unless the parties shall, applicable law permitting, agree upon shorter period. 2.3 ITEMS IN TRANSIT. Buyer shall obtain the benefit of and shall bear the risk of all items relating to the Liabilities which are in the original process of collection as of the end of the day prior to the Closing Date provided that Seller shall reimburse Buyer for any such item where Buyer suffers a loss due to Seller's failure to adhere to applicable law and its own policies and procedures in collecting such item. 2.4 ASSUMPTION OF LIABILITIES. From and after the Closing Date, Buyer shall assume, defend, pay, perform, and discharge the Deposits and the Liabilities. 2.5 PLEDGED DEPOSITS. No later than 60 days prior to the Closing Date, Seller shall identify in writing to Buyer any Deposits in which Seller or a third party claims a security interest (a "Pledged Deposit"). This information shall be updated no later than the tenth business day prior to Closing. At the time the Buyer assumes the Liabilities, Seller shall deliver to Buyer copies of any notices received by Seller pursuant to Section 9302(1)(g)(ii) of the Uniform Commercial Code of California with respect to any Pledged Deposits. Buyer shall then treat the Pledged Deposits so identified to it in accordance with its obligations under the Uniform Commercial Code of California. 3. CONSIDERATION FOR ASSETS AND ASSUMPTION OF LIABILITY. 3.1 PAYMENT BY SELLER. The payment for the Assets (subject to the Liabilities) shall be an amount equal to the Premium Amount. Such amount shall be netted against the amount paid to Buyer in connection with assumption of the Deposits (such net amount, the "Payment Amount"). 3.2 ASSUMPTION OF LIABILITIES. From and after the Closing Date, Buyer shall assume, defend, pay, perform, and discharge the Liabilities. 3.3 PRORATION AND ACCRUALS. Except as otherwise provided in this Section 3.3, items of income and expense, shall be prorated to reflect all appropriate accruals 3 of income and expense as of the end of the day prior to the Closing Date in accordance with generally accepted accounting principles. All such items shall be reflected on the Closing Statement whether or not such items are normally reflected on branch financial statements and all such items shall be adjusted to reflect all appropriate accruals of income and expense as of the end of the day prior to the Closing Date, whether or not such adjustments would normally be made as of such time. No accruals shall be made for service charges on accounts included among the Deposits which Seller is operationally unable to collect prior to the Closing Date. 3.4 ADJUSTMENTS IN PAYMENT AMOUNT. Any prorations or adjustments to the Payment Amount which are made from and after the Closing Date shall be paid, subject to Section 14 of this Agreement, by the party obligated therefor upon demand of the party entitled thereto in immediately available funds. 3.5 IMMEDIATELY AVAILABLE FUNDS. If the Closing Date falls on a nonbusiness day of Seller or the Payment Amount cannot be delivered on the Closing Date as provided in Section 3.4 or 3.5 of this Agreement, then the Payment Amount shall be made in immediately available funds on the next business day of Seller and shall accrue interest from and after the Closing Date to the date of payment at the rate of interest set forth in Section 14.3 or as is otherwise mutually agreed to by the parties. 3.6 SALES AND TRANSFER TAXES. All excise, sales, use and transfer taxes which are payable or arise as a result of this Agreement or the consummation of the purchase and sale contemplated by this Agreement shall be paid by Buyer and Seller on an equal basis, whether such taxes are imposed upon Buyer or Seller. All other taxes with respect to the Branch Office shall be prorated between Buyer and Seller as of the end of the day prior to the Closing Date. 4. CLOSING. The closing of the purchase and sale of the Assets and the assumption of the Liabilities (the "Closing") described in this Agreement shall take place as of the Closing Date at such place as mutually agreed to by the parties. All responsibility and risk relating to the Assets and Liabilities and all business conducted at the Branch Office from and after the Closing Date shall be for Buyer's account and risk. 5. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PARTIES. 5.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE BUYER AND SELLER. The obligations of Buyer and Seller are subject to the fulfillment at or prior to the Closing Date of each of the following conditions precedent: 5.1.1 SHAREHOLDER APPROVALS. The Agreement will be submitted to the shareholders of Buyer for their approval but only to the extent such approval is 4 required under Section 4879.04 of the California Financial Code, which approval shall be in conformance with all appropriate legal requirements. 5.1.2 REGULATORY APPROVALS. All required licenses, approvals and consents of the California Superintendent of Banks, the Federal Deposit Insurance Corporation, any other federal regulatory agencies and any other relevant California agencies shall have been obtained and shall be in full force and effect, all waiting periods prescribed by applicable law or regulation shall have expired, and none of such authorizations, consents, orders, approvals or licenses shall contain conditions which in the good faith and reasonable judgment of Seller are materially burdensome to it, or which in the good faith and reasonable judgment of Buyer are materially burdensome to it, and all necessary conditions of such licenses, approvals and consents shall have been fully satisfied. 5.1.3 ABSENCE OF LITIGATION. No action or proceeding instituted by a non-party to this Agreement to prevent the consummation of the transactions covered and contemplated by this Agreement shall be pending as of the end of the day prior to the Closing Date. 5.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER. The obligations of Buyer are subject to fulfillment at or prior to the Closing Date of each of the following conditions precedent but compliance with or occurrence of any one or more of such conditions precedent may be waived in writing by Buyer: 5.2.1 DOCUMENTS. Seller shall have delivered to Buyer: (i) Copies of the Articles of Incorporation of Seller, together with all amendments, certified as of the date prior to the Closing Date by the secretary of Seller; (ii) Copies, certified as of the date prior to the Closing Date by the secretary of Seller, of resolutions of Seller's Board of Directors authorizing execution and delivery of this Agreement and the other documents contemplated hereby, certifying that such authorization and approval remains unmodified and in full force and effect; (iii) Such deeds, bills of sale, assignments, and other instruments and documents as counsel for Buyer may reasonably require as necessary for conveying to Buyer pursuant to this Agreement good and marketable title to the Assets; (iv) The assignment of the Lease ("Assignment") in the form attached hereto as Exhibit "B", executed by Seller; (v) Copy of the Lease together with (a) the consent of the landlord to the assignment and transfer of the Lease to Buyer, (b) the certification of the 5 landlord that Seller is not in default in the performance of the Lease, has not committed any breach of the terms of the Lease and the Lease continues in full force and effect and (c) the release of Seller from its obligations to the Landlord under the Lease ("Consent"); and 5.2.2 REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Seller set forth in Section 8 of this Agreement shall be true and correct in all material respects as of the end of the day prior to the Closing Date. 5.2.3 CONDUCT OF BUSINESS. Seller shall have fully performed the covenants contained in section 6 of this Agreement. 5.3 CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER. The obligations of Seller are subject to fulfillment at or prior to the Closing Date of each of the following conditions precedent but compliance with or occurrence of any one or more of such conditions precedent may be waived in writing by Seller: 5.3.1 DOCUMENTS. Buyer shall have delivered to the Seller: (i) Copies of the Articles of Incorporation of Buyer, together with all amendments certified as of the date prior to the Closing Date by the secretary of Buyer; (ii) Copies, certified as of the date prior to the Closing Date by the secretary of Buyer, of resolutions of Buyer's Board of Directors authorizing execution and delivery of this Agreement and the other documents contemplated hereby, and resolutions of Buyer's shareholder if applicable, approving this Agreement, in each case certifying that such authorization and approval remains unmodified and in full force and effect; (iii) The Assignment and Consent, executed by Buyer. (iv) Such other documents and instruments as counsel for Seller may reasonably require. 5.3.2 REPRESENTATIONS AND WARRANTIES. The representations and warranties of Buyer set forth in Section 9 of this Agreement shall be true and correct in all material respects as of the end of the day prior to the Closing Date. 5.3.3 COVENANTS OF BUYER. Buyer shall have fully performed the covenants contained in Section 7 of this Agreement. 5.3.4 LEGAL MATTERS. The validity of all transactions herein contemplated to be performed by Buyer as well as the substance of all documents to be 6 delivered by Buyer hereunder shall be subject to the approval, to be reasonably exercised, of counsel to Seller. 6. AGREEMENTS OF SELLER. 6.1 ACCESS TO RECORDS AND INFORMATION. Between the date of this Agreement and the day prior to the Closing Date, Seller shall afford to Buyer and its authorized agents and representatives, during times mutually agreed upon by the parties, reasonable access to records, files and other information within Seller's possession relating to the Branch Office and the assets to be purchased and liabilities to be assumed by Buyer pursuant to the terms of this Agreement, and the opportunity to update any such investigation at such intervals as the Buyer shall deem appropriate. Seller shall cause its personnel to provide to Buyer assistance in Buyer's investigation of matters relating to the Branch office and to such assets and liabilities; PROVIDED, however, Buyer's investigation shall be conducted in a manner which does not unreasonably interfere with Seller's normal operations, customers and employee relations. 6.2 CONDUCT OF BUSINESS PENDING CLOSING. Except as may be required to obtain the regulatory approvals referred to in Section 5.1.2 of this Agreement, between the date hereof and the Closing Date, and except as may be otherwise required by applicable law or regulation, Seller shall not, without the prior written consent of Buyer, which consent shall not be unreasonably withheld; cause the Branch Office to carry on its business and activities otherwise than diligently and in substantially the same manner as it previously has been carried out with substantially the same staffing levels, or make or institute any methods of operation that will vary materially from those methods used by the Branch Office on or before the date hereof (PROVIDED, however, that Seller shall not be required to continue any activity which no longer is a prudent banking activity or as to which an applicable regulatory agency has otherwise directed). 6.3 ASSISTANCE IN OBTAINING REGULATORY APPROVALS. Seller agrees to use all reasonable efforts to assist Buyer in obtaining the regulatory approvals referred to in Section 5.1.2 of this Agreement, and Seller will provide to Buyer or to the appropriate regulatory authorities all information required to be submitted by Seller in connection with such approvals. 6.4 FURTHER ASSISTANCE. On and after the Closing Date, Seller shall (i) give such further Buyer and shall execute, acknowledge and deliver all such bills of sale, deeds, acknowledgments and other instruments and take such further action as may be necessary and appropriate to effectively vest in Buyer the full legal and equitable title to the Assets, and (ii) use its best efforts to assist Buyer in the orderly transition of the Branch Office operations being acquired by Buyer. 6.5 CORPORATE CONSENTS. Seller shall use its best efforts to obtain all necessary corporate consents. Subject to Sections 5.1.1 and 5.1.2, Seller shall comply with 7 all applicable laws, regulations and rulings in connection with this Agreement and the consummation of the transactions contemplated hereby and shall furnish to Buyer at the Closing the documents described in Section 5.2.1 of this Agreement. 6.6 SCHEDULES. Within thirty (30) days following execution of this Agreement, Seller shall deliver to Buyer a schedule of then-existing Nonstatement Liabilities. The schedule of Nonstatement Liabilities shall be updated as of the tenth (1Oth) business day prior to the Closing Date and as of the end of the day prior to the Closing Date. 6.7 CONSENTS. Seller shall use its best efforts to obtain and deliver to Buyer on the Closing Date all required consents authorizing the transfer and assignment to Buyer of, or the substitution of Buyer for Seller under, all leases and other contracts constituting a portion of the Assets, effective from and after the Closing Date, and the execution of the consent to assignment of Lease by the landlord under the Lease and the certificates from the landlord under the Lease required pursuant to Section 5.2.1 (v). Notwithstanding the foregoing, this Agreement shall not constitute an agreement to assign any lease or other contract if an attempted assignment thereof would constitute a breach thereof, or would adversely affect the rights of Seller thereunder. 6.8 GOOD FAITH AND FAIR DEALING. Seller expressly agrees that it is entering into this Agreement with the intention of fully and completely performing all of its duties and obligations as set forth herein, and further, Seller shall, through and including the day before the Closing Date, and, if applicable, from and after the Closing Date, diligently carry out in good faith pursuant to the terms of this Agreement each of its obligations and requirements set forth herein in order to consummate on the Closing Date the transaction contemplated hereby. 6.9 SIGNAGE. Seller shall use commercially reasonable efforts to make arrangements (such arrangement to be completed no later than ten days prior to closing) with the lessor to permit Buyer to change the signage at the Branch Office. 6.10 NOTICE TO SELLER'S CUSTOMERS. Seller shall send notice to Seller's customers relating to the sale of the Branch Office in accordance with applicable law and regulations. Such notice shall be mutually satisfactory to Seller and Buyer. 7. AGREEMENTS OF BUYER. 7.1 EFFORTS TO OBTAIN REGULATORY APPROVAL. Buyer agrees to use all reasonable efforts to obtain as promptly as possible the regulatory approvals referred to in Section 5.1.2 of this Agreement which must be obtained by Buyer. Buyer shall specifically be responsible for making application to obtain the requisite approvals from the California Superintendent of Banks and the Federal Deposit Insurance Corporation. 8 7.2 PERFORMANCE OF LIABILITIES. From and after the Closing Date, Buyer shall fully perform, pay and discharge all of the Liabilities and shall protect the rights of depositors and creditors of the Branch Office in the same manner and to the same extent as if Buyer had itself incurred the Liabilities. 7.3 FURTHER ASSURANCES. On and after the Closing Date, Buyer shall give such further assurances to Seller and shall execute, acknowledge and deliver all such acknowledgements and other instruments and take any further action as may be necessary and appropriate to effectively relieve and discharge Seller from any obligations remaining under the Liabilities assumed by Buyer. 7.4 CORPORATE CONSENTS AND DOCUMENTS. Buyer shall use its best efforts to obtain all necessary corporate consents. Subject to Sections 5.1.1 and 5.1.2, Buyer shall comply with all applicable laws, regulations and rulings in connection with this Agreement and the consummation of the transactions contemplated hereby and shall furnish to Seller at the Closing the documents described in Section 5.3.1 of this Agreement. 7.5 CHANGE OF NAME. From and after the Closing Date, Buyer (i) shall immediately change the name on all documents and facilities relating to the Branch Office from Seller's name to Buyer's name or to a name approved in writing by Seller which is not in any way similar to Seller's name, and (ii) shall promptly notify all persons who are Branch Office customers and depositors as of the Closing Date of such change. It is understood that Seller is not transferring to Buyer any right, title or interest in or to, or any right or license to use, Seller's name in connection with the Branch Office or otherwise. Nothing in this Section 7.5 shall require Buyer to undertake or reissue deposits or other documents assumed by or assigned to Buyer as of the Closing Date except in the ordinary course of business, it being understood, however, that reasonable efforts will be used to change names in accordance with the provisions of the first sentence of this Section 7.5. 7.6 GOOD FAITH AND FAIR DEALING. Buyer expressly agrees that it is entering into this Agreement with the intention of fully and completely performing all of its duties and obligations as set forth herein, and further, Buyer shall, through and including the day before the Closing Date, and, if applicable, from and after the Closing Date, diligently carry out in good faith pursuant to the terms of this Agreement each of is obligations and requirements set forth herein in order to consummate as of the Closing Date the transaction contemplated hereby. 7.7 NOTICE BY BUYER. Buyer shall send notice of the purchase of the Branch Office no sooner than 10 days before the Closing. Such notice shall be mutually satisfactory to Seller and Buyer. 7.8 EMPLOYEES. Purchaser shall be given an opportunity to interview for employment employees of Seller located at the Branch Office. Purchaser shall utilize commercially reasonable efforts to commence such interviews no later than 60 days 9 prior to Closing and to complete interviews with such employees no later than 30 days prior to Closing. On the 30th day prior to Closing, Purchaser shall notify Seller in writing as to the employees, if any, it wishes to extend offers of employment at the Branch Office and, with respect to such employees, shall take all appropriate steps to hire such employees, effective on and after the Closing Date. Purchaser has been advised that employees of the Branch Office will be allowed to seek other employment within the Seller's organization until the Seller is notified by the Purchaser, in writing, that employees selected by the Purchaser have accepted such offers of employment with the Purchaser. Purchaser shall use commercially reasonable efforts to provide such employees similar employee benefits as are provided to like employees of Purchaser. Employees remaining in the Branch Office on the Closing Date will be terminated by the Seller. The foregoing is not intended to create an obligation in favor of any person not a party to this Agreement. 8. WARRANTIES AND REPRESENTATIONS OF SELLER. Seller represents and warrants to Buyer as of the date hereof: 8.1 ORGANIZATION. Seller is a state banking corporation duly organized and validly existing under the laws of the state of California, with full power and authority to exercise its corporate powers, rights and privileges and to conduct a commercial banking business at the Branch Office as is now conducted by it. 8.2 AUTHORITY. The execution and delivery of this Agreement by Seller have been duly authorized by its Board of Directors and no further corporate action will be or is necessary on the part of Seller to make this Agreement valid, binding and enforceable in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency, or other laws affecting the enforcement of creditors' rights generally. 8.3 CLOSING STATEMENT. The Closing Statement or any other information based on the books and records of Seller used in making any calculations hereunder or otherwise furnished to Buyer in connection with this Agreement is and will be accurate and complete as of the dates thereof and, except for the adjustments required by Section 3.3 of this Agreement, have been and will be prepared in a consistent manner and in the ordinary course of Seller's business. 8.4 FINDERS OR BROKERS. Seller has not in any manner whatsoever paid or agreed to pay any fee or commission to any agent, broker, finder or other person for or on account of services rendered as a broker or finder in connection with this Agreement or the transactions contemplated hereby, other than a finder's fee payable to Guyot & Associates in the amount of $9,000 or 0.13% of Deposits, whichever is greater, which shall be split equally between the parties. All negotiations relating to this Agreement have been conducted by Seller directly and without the intervention of any person in such manner as to 10 give rise to any valid claim against Buyer for any brokerage commission or other like payment. 8.5 SCHEDULES. The schedules to be delivered by Seller to Buyer pursuant to Section 6.6 of this Agreement will be complete and accurate as of the date thereof in all material respects. 8.6 COMPLIANCE WITH INSTRUMENTS. The performance of this Agreement by Seller will not violate or result in a breach of any of the terms or conditions of, or constitute default under, Seller's Articles of Incorporation or its bylaws, or any law or any contract, agreement, note, bond, license or other instrument or obligation to which Seller is a party or by which any of its properties are bound or affected or violate any rule or regulation of any administrative agency, or order, writ, injunction or decree of any court, administrative agency or governmental body applicable to Seller. 8.7 TITLE TO PERSONAL PROPERTY AND LEASES. The Seller has, and as of the Closing Date will have and will convey to Buyer, good and marketable title to the machinery, equipment, trade fixtures, materials, supplies and other property of every kind, which would be, or in the case of the Closing Date is, included among the Fixed Assets, free and clear of all liens, encumbrances and charges except those which are not in the aggregate material and do not materially detract from the value of or interfere with the use of the property subject thereto or affected thereby. The Seller has, and as of the Closing Date will have, a valid Lease and leases under which it is entitled to use in its business all real and personal property leased by it located in the Branch Office. 8.8 THE DEPOSITS. The books and records of Seller with respect to deposits will fairly reflect (subject to normal adjustments) the Deposits held by Seller at the Branch Office. 8.9 TAXES. All taxes imposed by the United States or by any state municipality, subdivision or instrumentality of the United States or by any other taxing authority which are due or payable by Seller relating to the Branch Office have been paid in full or adequately provided for by reserves shown in the records and books of the Seller, and will be so paid or provided for as of the Closing Date and Seller has no knowledge of any deficiencies with respect thereto. Any claims for refund or refunds of such taxes shall remain the property of Seller. 8.10 INSURANCE. Seller and the assets relating to the Branch Office have been adequately insured with respect to risks normally insured against by companies similarly situated. Seller will use its best efforts to maintain such policies in full force and effect through and including the day prior to the Closing Date. Thereafter, Buyer shall have and maintain its own insurance. 11 8.11 COMPLIANCE WITH LICENSES AND PERMITS. Seller has obtained and kept in force all material governmental licenses and permits necessary to conduct its banking business at the Branch Office as now conducted by it and to own and operate the properties and assets utilized by it in such business. No proceeding is pending nor, to the best of its knowledge, has Seller been threatened with any proceeding wherein the remedy sought is the revocation or limiting of any such governmental license or permit and Seller does not know of any basis or grounds for any such revocation or limitation. Seller has complied in all material respects with all laws rules, regulations, ordinances, codes, orders, licenses and permits relating to the conduct of its banking business at the Branch Office. 8.12 MISSTATEMENT. Nothing in this Agreement or in any other certificate, statement, schedule or document furnished or to be furnished to Buyer by or on behalf of the Seller as required by this Agreement contains or will contain any misstatement of a material fact or omits or will omit to state a material fact necessary to make the statements contained herein or therein not misleading. 8.13 DEFAULTS. As to the contracts to be assumed by Buyer hereunder, Seller is not in material default thereunder and each party with whom each such contract has been entered does not have a right to terminate such contract as a result of Seller's default thereunder or to claim monetary damages against Seller. Seller has not been notified that any other party thereto claims that Seller is in default, and, to the best of Seller's knowledge, no other party thereto is in default thereunder. 8.14 CERTAIN LITIGATION. There is no suit, action or claim, no investigation or inquiry by any administrative agency or governmental body and no legal, administrative or arbitration proceeding pending or, to the best of Seller's knowledge, threatened against Seller wherein the relief sought is the seizure or return of any of its tangible personal property which would be included among the Assets. 8.15 LEASE. To the best of Seller's knowledge, the lessor under the Lease has performed in all material respects its obligations under the Lease. Seller has performed in all material respects its obligations under the Lease. 9. WARRANTIES AND REPRESENTATIONS OF BUYER. Buyer hereby represents and warrants to Seller as of the date hereof: 9.1 ORGANIZATION. Buyer is a state banking corporation duly organized and validly existing under the laws of the State of California with full power and authority to exercise its corporate powers, rights and privileges and to conduct a commercial banking business in the State of California. 9.2 AUTHORITY. The execution and delivery of this Agreement by Buyer have been duly authorized by its Board of Directors and no further corporate action 12 (other than the approval of this Agreement and the transaction contemplated herein by Buyer's shareholders) will be or is necessary to make this Agreement valid, binding and enforceable in accordance with its terms except as the enforcement thereof may be limited by bankruptcy, insolvency or other laws affecting the enforcement of creditor's rights generally. 9.3 FINDERS OR BROKERS. Buyer has not in any manner whatsoever paid or agreed to pay any fee or commission to any agent, broker, finder or other person for or on account of services rendered as a broker or finder in connection with this Agreement or the transaction contemplated hereby, other than a finder's fee payable to Guyot & Associates in the amount of $9,000 or 0.13% of Deposits, whichever is greater, which shall be split equally between the parties. All negotiations relating to this Agreement have been conducted by Buyer directly and without the intervention of any person in such manner as to give rise to any valid claim against Seller for any brokerage commission or other like payment. 9.4 GOVERNMENTAL NOTICES. Buyer has not received written notice from any federal or California governmental agency indicating that it would oppose or not grant or issue its consent or approval, if required, with respect to the transactions contemplated by this Agreement. 9.5 COMPLIANCE WITH INSTRUMENTS. The performance of this Agreement by Buyer will not violate or result in the breach of any of the terms or conditions of, or constitute a default under, Buyer's Articles of Incorporation, its bylaws, or any contract, agreement, note, bond, license, or other instrument or obligation to which Buyer is a party or by which any of its properties or assets are bound or affected, or violate any law, or any rule or regulation of any administrative agency or governmental body, or any order, writ, injunction or decree of any court, administrative agency or governmental body applicable to Buyer. 10. DISCLAIMERS AND OTHER SPECIAL PROVISIONS. Buyer and Seller understand and agree as follows: 10.1 FIDUCIARY ACCOUNTS. No transfer of properties, assets, investments, agreements, rights or assumption of obligations under trusts, executorship, administrations, guardianships, agencies and other representative capacities of Seller in existence as of the end of the day prior to the Closing Date is contemplated or required by this Agreement, except for Individual Retirement Accounts and other trust accounts which are serviced by Seller's commercial banking business in the ordinary course of business. Without limiting the generality of the foregoing, Seller and Buyer shall cooperate to appropriately address any account to the extent Buyer determines that such account requires trust powers for the administration thereof. 13 10.2 DEPOSITS. All transfers to Buyer of the Deposits included among the Liabilities are subject to the individual depositors' continuing rights to withdraw under Section 4856 of the California Financial Code, and Seller makes no representation, warranty or agreement concerning the continuing maintenance of such deposits at the Branch Office. 10.3 PAYMENT OF CERTAIN INTEREST. From and after the Closing Date, Buyer shall pay all interest on the Deposits included among the Liabilities (including the Accrued Interest) in accordance with the terms of the contracts applicable to such Deposits. 10.4 INDEMNIFICATION. Seller and Buyer (references in this Section 10.4 to either party shall include its officers, directors, representatives, agents, employees, successors or assigns) each agrees to indemnify and hold the other harmless from and against any and all claims, liabilities, suits, losses, damages, costs and expenses, including reasonable attorneys' fees, whether accrued, absolute, contingent or otherwise, or whether due or to become due (including, without limitation, liability for income taxes, excise taxes, state or local taxes or any other direct or indirect taxes due or to become due) which such other party may incur directly or indirectly as a consequence of (i) such indemnifying party's failure to pay and perform (x) all liabilities and obligations incurred by it with respect to the Branch Office which are not expressly assumed by the other party and (y) all liabilities and obligations incurred by the other party with respect to the Branch Office which are expressly assumed by the indemnifying party; (ii) any acts, omissions or events occurring during the period in which the indemnifying party conducted the business of the Branch Office; (iii) any breach of any of the conditions or covenants made by either party hereto. The amounts recoverable by either party with respect to any such claims against the other shall reflect, and such other party shall only be obligated to pay, the net amount of damages suffered by the other party entitled to recovery after giving effect to any insurance proceeds recoverable with respect to such matters. Each party shall select its own counsel and shall pay for the defense of the other party, including reasonable attorneys' fees and costs, with respect to any claim against which such paying party is obligated to indemnify such other party as provided in this Section 10.4. If such other party chooses to have counsel of its own choosing in addition to that provided by the paying party, it may do so at its sole expense. Each party shall provide to the other written notice of any claim to which such other party's indemnity obligations hereunder do or may apply within sixty (60) business days after becoming aware of the existence of such claim. 10.5 POSSESSION. Simultaneously with the consummation of the transfer, Seller, through its officers, agents and employees, will put Buyer into full possession and enjoyment of all properties and Assets conveyed and transferred by this Agreement. 10.6 TAX REPORTING. Neither Buyer nor Seller will take a position with any federal, state or local taxing authority contrary to any of the terms or provisions of this Agreement. 14 10.7 INTEREST REPORTING. Seller shall report from January 1, 1995 through the Closing Date, and Buyer shall report from the Closing Date and thereafter, all interest credited to, interest premiums paid on, interest withheld from, and early withdrawal penalties charged to, the Deposits. Such reports shall be made to the holders of the Deposit accounts and to the applicable federal and state taxing agencies. 10.8 WITHHOLDING. Following the Closing Date, Seller shall deliver to Buyer (i) "B" notices (TINs do not match) and "C" notices (underreporting/IRS imposed withholding) received by it from the IRS regarding any of the accounts included within the Deposits, and (ii) all notices received from the IRS releasing withholding restrictions on any of the accounts included within the Deposits. Any amounts required by any governmental agency to be withheld from any of the accounts included within the Deposits (the "Withholding Obligations") or any penalties imposed by any governmental agency will be handled as follows: (a) Any Withholding Obligations required to be remitted to the appropriate governmental agency on or prior to the Closing Date will be withheld and remitted by Seller, and any other sums withheld by Seller pursuant to Withholding Obligations prior to the Closing Date shall also be remitted by Seller to the appropriate governmental agency on or prior to the time they are due; (b) Any Withholding Obligations required to be remitted to the appropriate governmental agency after the Closing Date with respect to Withholding Obligations after the Closing Date shall be withheld and remitted by Buyer. 10.9 POST-CLOSING RECONCILIATION. (a) For a period of sixty (60) days following the Closing Date (the "Inclearing Period"), Seller shall continue to process checks or drafts, drawn on Deposits which are not intercepted by the applicable Federal Reserve Bank ("Federal Reserve"). During the Inclearing Period, Seller shall by 3:00 p.m. Pacific Time on the date of presentment make all of such checks or drafts available to Buyer's courier at Seller's data processing center located at 16420 Valley View, La Mirada, California along with a cash letter listing all such checks or drafts. By 3:00 p.m. Pacific Time [close of business] on each day of presentment during the Inclearing Period, Buyer shall credit Seller's due to correspondent account with the amount set forth in the cash letter for all items presented to Buyer on that day. Upon expiration of the Inclearing Period, Seller shall cease honoring inclearing items presented against the Deposits and such items shall be returned marked "Refer to Maker". (b) ACH TRANSACTIONS. Seller shall provide to Buyer no later than 30 days prior to the Closing Date, the customer name, customer account number, and the originator identification number for each automated clearinghouse ("ACH") entry for the Deposit accounts, and shall further provide, within two business days following the 15 Closing Date, an updated list as of the close of business on the Closing Date. Following closing, Seller shall transmit to Buyer no later than 12:00 p.m. Pacific Time all information pertaining to ACH items affecting Deposits during each business day including claim number, suffix, if applicable, source name, trade identification, company identification, client name and account number and effective date. Seller will credit such finds to Buyer's due from account maintained with Seller. For a period of 60 days following the Closing Date, Seller agrees to continue to accept and immediately forward to Buyer all ACH entries and corresponding funds. Seller agrees to include the originator identification number, and Buyer agrees to immediately notify and instruct the originator of the ACH to reroute the entries directly to Buyer. Buyer shall be responsible for processing and responding to any reclamation requests. Losses due to reclamation requests related to Deposits that are closed or have insufficient funds to cover a reclamation request will be absorbed by Seller if the reclamation is against a credit received on or prior to the Closing and by Buyer if against a credit received after closing. After the 60 day period, Seller may discontinue accepting and forwarding ACH entries and return them to the originators. (c) RETURNED ITEMS. For a period of 60 days following the Closing Date, Seller shall make available no later than 3:00 p.m. Pacific Time to Buyer's courier a cash letter containing all returned items received on that business day. Buyer shall credit Seller's due to account maintained with Buyer by the close of business that day an amount equal to the cash letter for such returned items. Returned items are those items that are included within the Deposits transferred to Buyer but that are returned unpaid to Seller after the Closing Date. Buyer shall notify Seller by facsimile of any unacceptable returned items and Seller shall reimburse Buyer's due from account upon receipt of such unacceptable returned items. 11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. 11.1 CLAIMS. For the purpose of this Section 11 only, any party seeking to enforce or claiming the benefit of any representation and warranty hereunder is called a "Claimant" and any party or other person against which such right is claimed is called a "Defendant." 11.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties made under this Agreement by either party shall survive the Closing; PROVIDED, however, that from and after the Closing neither Buyer nor Seller shall have any liability for any misrepresentation or breach of warranty unless (i) all losses, costs and damages which a party may incur by reason of misrepresentations or breaches of warranty of the other party shall exceed an aggregate of $5,000 in which event the party causing such losses, costs or damages shall be liable for the amount of the claims in excess of $5,000 and (ii) the Claimant shall have complied with the provisions of Section 11.3 of this Agreement. 11.3 LIMITATION OF CLAIMS. Notwithstanding anything to the contrary contained in any other provision of this Section 11, all representations and warranties 16 of the parties hereto shall terminate and expire and shall be without any further force or effect whatever from and after the expiration of four (4) years following the Closing Date, unless the Claimant shall: (i) on or prior to such date serve written notice on the Defendant setting forth in reasonable detail any claims which the Claimant may have under this Section 11; and (ii) if legal action is required to enforce its rights hereunder, commence legal action or actions against the Defendant within six (6) months after the date on which such written notice is served. 12. TERMINATION. 12.1 TERMINATION AGREEMENT. Except as is otherwise provided in Section 12.3, this Agreement shall terminate and shall be of no further force or effect as between the parties hereto upon the occurrence of any of the following: (i) Immediately upon the expiration of fifteen (15) days from the date that Seller has given notice to Buyer of a breach or default by Buyer in the performance of any covenant, agreement, representation, warranty, duty or obligation hereunder; PROVIDED, however, that no such termination shall be effective if, within such fifteen (15) day period, Buyer shall have substantially corrected and cured the grounds for termination as set forth in such notice of termination; (ii) Immediately upon the expiration of fifteen (15) days from the date that Buyer has given notice to Seller of a breach or default by Seller in the performance of any covenant, agreement, representation, warranty, duty or obligation hereunder; PROVIDED, however, that no such termination shall be effective if, within such fifteen (15) day period, Seller shall have substantially corrected and cured the grounds for termination as set forth in such notice of termination; (iii) Upon mutual agreement of the parties, if it appears unlikely that the regulatory approvals required in order to fulfill the conditions set forth in Section 5.1.2 of this Agreement will be obtained, or if the parties otherwise mutually agree to terminate this Agreement for any other reason; (iv) At the option of Buyer as set forth in Section 10.6 of this Agreement; or (v) Upon written notice by either party to the other party if the Closing has not occurred on or before March 31, 1996, unless such date is extended by the mutual agreement of the parties hereto. 17 12.2 IMMATERIAL BREACH. Notwithstanding anything to the contrary contained herein, no party hereto shall have the right to terminate this Agreement on account of its own breach or because of any immaterial breach by any other party hereto of any covenant, agreement, representation, warranty, duty or obligation hereunder. 12.3 EFFECT OF TERMINATION. No termination of this Agreement under this Section 12 shall release, or be construed as so releasing, any party hereto from any liability or damage to any other party hereto arising out of, in connection with or otherwise relating to, directly or indirectly, such party's material and bad faith breach, or such party's default, breach or failure in performance of any of its warranties, representations, covenants, agreements, duties or obligations arising hereunder. No termination of this Agreement under this Section 12 or for any other reason shall terminate or release any party hereto from its obligations set forth in Sections 10.4, 15.1 or 15.2 of this Agreement. 12.4 WAIVER OF RIGHT TO TERMINATE. Either Buyer or Seller may, at its written election, waive any of their respective rights to terminate this Agreement under the foregoing provisions of this Section 12, and the parties shall be deemed to have waived such rights from and after the Closing Date even though actual settlement may have been delayed pursuant to the provisions of Section 14. 13. EFFECT ON THIRD PARTIES. Except as otherwise provided by law, neither the rights of creditors and depositors of Seller nor any liability or obligation for payment of money nor any claim or cause of action against Seller shall be in any manner released or impaired by this Agreement or by the transactions contemplated hereunder, and the rights and obligations of all creditors and depositors and of all other persons shall remain unimpaired; Buyer shall succeed to all such obligations and liabilities only to the extent included among the Liabilities as of the day prior to the Closing Date and shall be liable from then and thereafter to pay, discharge and perform all such debts and obligations of Seller assumed pursuant to this Agreement and in connection with the transaction contemplated hereunder in the same manner as if Buyer had itself incurred the debts or obligations, and Buyer shall succeed to all rights, offsets and defenses of Seller in connection therewith. 14. DELAYED SETTLEMENTS. 14.1 CLOSING AND FIRST ADJUSTMENT. In the event that the requisite valuations of certain Assets or the amounts of certain Liabilities are not determinable for the purposes of computing the Payment Amount as of the end of the day prior to the day selected as the Closing Date as required under Section 3 of this Agreement due to the unavailability of the Individual Statement or other records reflecting the required values and amounts as of such time, such valuation shall be made by using the Individual Statement and other records reflecting these values as of the close of business on the fifth (5th) business day immediately preceding the Closing Date. A preliminary Payment Amount shall thereupon be determined 18 pursuant to the provisions of this Agreement and based upon such preliminary amount, a preliminary payment pursuant to either Section 3.4 or 3.5, as the case may be, and Sections 3.6 and 3.7 shall be made. Within fifteen (15) business days immediately following the Closing Date, when the Individual Statement and other records as of the end of the day prior to the day selected as the Closing Date shall be available, Buyer and Seller shall compute the Payment Amount according to the provisions of this Agreement and Buyer or Seller shall immediately pay such excess amount in immediately available funds to the other party as appropriate. 14.2 FINAL SETTLEMENT. All claims by either party to this Agreement regarding the proper computation of the Payment Amount under this Agreement shall be submitted in writing to the other party within ninety (90) days following the Closing Date. No claim shall be valid and no Payment Amount adjustment shall be made with respect to any claim which is not submitted within such ninety (90) day period, whether or not such claims should or could have come to the attention of the claiming party prior to the expiration of such period of time. All claims submitted by the parties within the ninety (90) day period shall be resolved by the mutual agreement of the parties (or by such other means as the parties may designate in writing at some future date) within six (6) months following the Closing Date. The parties agree to use their best efforts to resolve all claims by mutual agreement, and in this connection each party agrees that its representatives will be available at reasonable times to discuss and resolve any disputed matters. In the event such claim cannot be resolved within six (6) months following the Closing Date, the claiming party may commence or institute a legal action or proceeding to enforce such claim. 14.3 PAYMENT AND INTEREST. Any amounts payable by one party to the other pursuant to Sections 14.1 and 14.2 shall be payable upon demand of the party entitled thereto in immediately available funds and shall bear interest (payable on demand in immediately available funds) from and after the Closing Date to the day of payment at a rate per annum (calculated for actual days elapsed on the basis of a 365-day year) equal to the rate for federal funds published in the Wall Street Journal Western Edition from time to time, which rate shall be adjusted from time to time as said Fed Funds' rate changes. 15. MISCELLANEOUS. 15.1 CONFIDENTIALITY AND PUBLICITY. Except as contemplated by this Agreement or as is necessary to carry out the transaction contemplated hereby, all information or documents furnished by either party to the other party in connection with this Agreement, and not otherwise known to the other party or already in the public domain, shall be kept confidential, except as disclosure may be required to obtain the regulatory approvals contemplated herein. If for any reason this transaction is not consummated, each party shall return to the other all information and copies or originals of any documents or other materials furnished pursuant to this Agreement. The parties shall coordinate all publicity relating to this purchase and sale. No party shall issue any press release or other written public notice or make any public statement in connection with this Agreement or the 19 transaction contemplated hereby without the prior written consent of the other party, or unless in the sole opinion of such party's legal counsel a press release or other written public notice or statement is required by applicable law or regulation. 15.2 EXPENSES. Except as is otherwise provided in Sections 10.5 and 15.9 of this Agreement and except for the fee payable to Guyot & Associates, whether the Closing takes place or whether this Agreement is terminated, each party shall pay its own costs and expenses imposed on or incurred by it in connection with this Agreement and the transactions contemplated hereby, including, but not by way of limitation, all regulatory fees, attorneys' fees, accounting fees, and other expenses. 15.3 NOTICES. All notices, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered in person or by United States mail, certified or registered, with return receipt requested, or otherwise actually delivered, as follows: (i) If to Seller, to: Southern California Bank P.O. Box 588 16420 Valley View La Mirada, California 90637 Attn: Bruce W. Roat With a copy to: Andrew Erskine, Esq. Manatt, Phelps & Phillips 11355 West Olympic Boulevard Los Angeles, California 90064-1614 (ii) If to Buyer, to: Preferred Bank 601 South Figueroa Street 20th Floor Los Angeles, California 90017 Attn: Li Yu, Chairman of the Board With a copy to: Yu-Ching Lau 601 South Figueroa Street 20th Floor Los Angeles, California 90017 20 The persons or addresses to which mailings or deliveries shall be made may change from time to time by notice given pursuant to the provisions of this Section 15.3. Any notice, demand or other communication given pursuant to the provisions of this Section 5.3 shall be deemed to have been given on the date actually delivered or five (5) days following the date deposited in the United States mail, properly addressed, postage prepaid, as the case may be. 15.4 SUCCESSORS AND ASSIGNS. All terms and provisions of this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective transferees, successors and permitted assigns; PROVIDED, however, this Agreement and all rights, privileges, duties and obligations of the parties hereto may not be assigned or delegated by any party hereto without the prior written consent of the other party. 15.5 THIRD PARTY BENEFICIARIES. Each party hereto intends that this Agreement shall not benefit or create any right or cause of action in or on behalf of any person other than the parties hereto. 15.6 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which taken together shall constitute one instrument. 15.7 GOVERNING LAW. This Agreement is made and entered into in the State of California and the laws of that state shall govern the validity and interpretation hereof and the performance of the parties hereto of their respective duties and obligations hereunder. 15.8 CAPTIONS. The captions contained in this Agreement are for convenience of reference only and do not form a part of this Agreement. 15.9 ATTORNEYS FEES. In the event either party to this Agreement brings an action or suit against the other party by reason of any breach of any covenant, agreement. representation, warranty or any other provision hereof, or any breach of any duty or obligation created hereunder by such other party, the prevailing party in whose favor final judgment is entered shall be entitled to have and recover of and from the losing party, all costs and expenses incurred or sustained by such prevailing party in connection with such suit or action, including without limitation, reasonable legal fees and court costs (whether or not taxable as such). 15.10 ENTIRE AGREEMENT. The making, execution and delivery of this Agreement by the parties hereto have been induced by no representations, statements, warranties or agreements other than those herein expressed. This Agreement embodies the entire understanding of the parties and there are no further or other agreements or 21 understandings, written or oral, in effect between the parties relating to the subject matter hereof, unless expressly referred to by reference herein. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the day and year first above written. SELLER: ------- SOUTHERN CALIFORNIA BANK By /s/ ----------------------------- Its President/CEO ----------------------------- BUYER: ------ PREFERRED BANK By /s/ ---------------------------- Its CHB/Pres/CEO ---------------------------- 22 SCHEDULE A CITY OF INDUSTRY BRANCH FURNITURE, FIXTURES & EQUIPMENT SEPTEMBER 30, 1995
Preferred Description Bank SCB Total - ------------------------------- --------- --------- --------- Leasehold improvements Renovations 158,419 158,419 Signs 23,976 23,976 Teller lines 25,770 25,770 Vault 56,566 56,566 --------- --------- --------- Leasehold subtotal 240,755 23,976 264,731 --------- --------- --------- Computer and office equipment 227 11,744 11,971 ATM Equipment 19,482 19,482 Drive up 8,053 8,053 --------- --------- ATM Subtotal 27,535 27,535 Safe deposit boxes 2,687 2,687 Furniture 167 2,428 2,595 --------- --------- --------- Total FF&E $271,371 $38,148 $309,519 --------- --------- --------- --------- --------- ---------
Note: A detail fixed asset listing is attached. 23 EX-3.(I)2 4 EXHIBIT 3(I)2 CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION Larry D. Hartwig and William C. Greenbeck certify that: 1. They are the President and the Secretary, respectively, of SC Bancorp, a California corporation. 2. Article Six of the Articles of Incorporation of this corporation is amended to read in its entirety as follows: No holder of any shares of any class of stock of this corporation shall have preemptive rights to subscribe for any shares of any class of stock of this corporation. 3. The foregoing amendment of Articles of Incorporation has been duly approved by the board of directors. 4. The foregoing amendment of Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with Section 902, Corporations Code. The total number of outstanding shares of the corporation is 7,468,505. The number of shares voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required was more than 50%. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge. Date: May 9, 1995 /s/ ------------------------------ Larry D. Hartwig President /s/ ------------------------------ William C. Greenbeck Secretary EX-3.(II)2 5 EXHIBIT 3(II).2 AMENDED AND RESTATED BY-LAWS OF SC BANCORP ARTICLE I OFFICES SECTION 1. PRINCIPAL OFFICE. The Board of Directors shall fix the location of the principal executive office of the corporation at any place within or outside the State of California. If the principal executive office is located outside the State of California, and the corporation has one or more business offices in such state, the Board of Directors shall fix and designate a principal business office in the State of California. SECTION 2. OTHER OFFICES. Branch or other subordinate offices may at any time be established by the Board of Directors at such other places as it deems appropriate. ARTICLE II MEETINGS OF SHAREHOLDERS SECTION 1. PLACE OF MEETINGS. Meetings of shareholders shall be held at any place within or outside the State of California designated by the Board of Directors. In the absence of any such designation, shareholders' meetings shall be held at the principal executive office of the corporation. SECTION 2. ANNUAL MEETING. The annual meeting of shareholders shall be held on the third Tuesday in May of each year at 1:30 p.m., or such other date or such other time as may be fixed by the Board of Directors. SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders may be called at any time by the Board of Directors, the Chairman of the Board, the President, or by the holders of shares entitled to cast not less than ten percent (10%) of the votes at such meeting. If a special meeting is called by any person or persons other than the Board of Directors, the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or by registered mail to the Chairman of the Board, the President, any Vice President or the Secretary of the corporation. The officer receiving the request shall cause notice to be promptly given to the shareholders entitled to vote that a meeting will be held at a time requested by the person or persons calling the meeting, not less than 35 nor more than 60 days after receipt of the request. If the notice is not given within 20 days after receipt of the request, the person or persons requesting the meeting may give the notice. Nothing in this paragraph shall be construed as limiting, fixing or affecting the time when a meeting of shareholders called by action of the Board of Directors may be held. SECTION 4. NOTICE OF MEETINGS. Written notice, in accordance with Section 5 of this Article II, of each annual or special meeting of shareholders shall be given not less than 10 nor more than 60 days before the date of the meeting to each shareholder entitled to vote thereat. Such notice shall state the place, date, and hour of the meeting and (a) in the case of a special meeting, the general nature of the business to be transacted, and no other business may be transacted, or (b) in the case of the annual meeting, those matters which the Board of Directors, at the time of the mailing of the notice, intends to present for action by the shareholders, but, subject to the provisions of applicable law, any proper matter may be presented at the meeting for such action. The notice of any meeting at which Directors are to be elected shall include the names of nominees intended at the time of the notice to be presented by the Board of Directors for election. If action is proposed to be taken at any meeting for approval of (a) a contract or transaction in which a Director has a direct or indirect financial interest, pursuant to Section 310 of the California General Corporation Law, (b) an amendment of the Articles of Incorporation, pursuant to Section 902 of that Law, (c) a reorganization of the corporation, pursuant to Section 1201 of that Law, (d) a voluntary dissolution of the corporation, pursuant to Section 1900 of that Law, or (e) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 of that Law, the notice shall also state the general nature of that proposal. SECTION 5. MANNER OF GIVING NOTICE. Notice of a shareholders' meeting may be given either personally or by first-class mail, or by third-class mail if the corporation has outstanding shares held of record by 500 or more persons (determined as provided in Section 605 of the California General Corporation Law) on the record date for the shareholders' meeting, or by telegraphic or other written communication, charges prepaid, addressed to the shareholder at the address of that shareholder appearing on the books of the corporation or given by the 2 shareholder to the corporation for the purpose of notice. If no such address appears on the corporation's books or is given, notice shall be deemed to have been given if sent to that shareholder by mail or telegraphic or other written communication to the corporation's principal office or if published at least once in a newspaper of general circulation in the county in which that office is located. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by telegram or other means of written communication. An affidavit of mailing or other means of giving any notice in accordance with the above provisions, executed by the Secretary, Assistant Secretary or other transfer agent shall be prima facie evidence of the giving of the notice. If any notice addressed to the shareholder at the address of such shareholder appearing on the books of the corporation is returned to the corporation by the United States postal service marked to indicate that the United States postal service is unable to deliver the notice to the shareholder at such address, all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available for the shareholder upon written demand of the shareholder at the principal executive office of the corporation for a period of one year from the date of the giving of the notice to all other shareholders. SECTION 6. QUORUM. The presence in person or by proxy of the holders of a majority of the shares entitled to vote at any meeting shall constitute a quorum for the transaction of business. The shareholders present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. SECTION 7. ADJOURNED MEETING AND NOTICE THEREOF. Any shareholders' meeting, whether or not a quorum is present, may be adjourned from time to time by the vote of a majority of the shares, the holders of which are either present in person or represented by proxy thereat, but in the absence of a quorum (except as provided in Section 6 of this Article) no other business may be transacted at such meeting. When any meeting of shareholders, either annual or special, is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place are announced at the meeting at which the adjournment is taken. However, when any shareholders' meeting is adjourned for more than 45 days from the date set for the original adjourned meeting, or, if after adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given as in the case of an original meeting. At any 3 adjourned meeting the corporation may transact any business which may have been transacted at the original meeting. SECTION 8. VOTING. The shareholders entitled to notice of any meeting or to vote at any such meeting shall be only persons in whose name shares stand on the stock records of the corporation on the record date determined in accordance with Section 9 of this Article. Voting shall in all cases be subject to the provisions of Sections 702 through 704, inclusive, of the California General Corporation Law (relating to voting shares held by a fiduciary, in the name of a corporation, or in joint ownership). The shareholders' vote may be by voice or ballot; provided, however, that any election for Directors must be by ballot if demanded by any shareholder before the voting has begun. On any matter other than elections of Directors, any shareholder may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or vote them against the proposal, but, if the shareholder fails to specify the number of shares which the shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares that the shareholder is entitled to vote. If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on any matter (other than the election of Directors) shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by the California General Corporation Law or by the Articles of Incorporation. Pursuant to Section 301.5 of the California General Corporation Law, this corporation shall not have cumulative voting as provided under Section 708 of such Law, provided that this corporation shall then be a listed corporation as defined in Section 301.5 of such Law. In any election of Directors, the candidates receiving the highest number of votes of the shares entitled to be voted for them up to the number of Directors to be elected, shall be elected. SECTION 9. RECORD DATE. The Board of Directors may fix, in advance, a record date for the determination of the shareholders entitled to notice of any meeting or to vote or entitled to receive payment of any dividend or other distribution, or any allotment of rights, or to exercise rights in respect of any other lawful action. The record date so fixed shall be not more than 60 days nor less than 10 days prior to the date of the meeting nor more than 60 days prior to any other action. When a record date is so fixed, only shareholders of record at the close of business on that date are entitled to notice of and to vote at the meeting or 4 to receive the dividend, distribution, or allotment of rights, or to exercise of the rights, as the case may be, notwithstanding any transfer of shares on the books of the corporation after the record date. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the Board of Directors fixes a new record date for the adjourned meeting. The Board of Directors shall fix a new record date if the meeting is adjourned for more than 45 days from the date set for the original meeting. If no record date is fixed by the Board, the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held. The record date for determining shareholders for any purpose other than set forth in this Section 9 or Section 11 of this Article shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto, or the sixtieth (60th) day prior to the date of such other action, whichever is later. SECTION 10. CONSENT OF ABSENTEES. The transactions of any meeting of shareholders, however called and noticed, and wherever held, are as valid as though had at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote, not present in person or by proxy, signs a waiver of notice, or a consent to the holding of the meeting or an approval of the minutes thereof. All such waivers, consents, and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance of a person at a meeting shall constitute a waiver of notice of and presence at such meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters required by Section 4 to be included in the notice but not so included, if such objection is expressly made at the meeting. Neither the business to be transacted at nor the purpose of any regular or special meeting of shareholders need be specified in any written waiver of notice, except that if action is taken or proposed to be taken for approval of any of those matters specified in the second paragraph of Section 4 of this Article II, the waiver of notice or consent shall state the general nature of the proposal. SECTION 11. ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Subject to Section 603 of the California General Corporation Law, any action which may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice if a consent in writing, setting forth the action so 5 taken, is signed by the holders of the outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted, or their proxies. All such consents shall be filed with the Secretary of the corporation and shall be maintained in the corporate records; provided, however, that (1) unless the consents of all shareholders entitled to vote have been solicited in writing, notice of any shareholder approval without a meeting by less than unanimous written consent shall be given, as provided by Sections 603(b)(1) and (2) of the California General Corporation Law, and (2) in the case of election of Directors, such a consent shall be effective only if signed by the holders of all outstanding shares entitled to vote for the election of Directors; provided, however, that subject to applicable law, a Director may be elected by the shareholders at any time to fill a vacancy on the Board of Directors that has not been filled by the Directors. Any such election by written consent other than to fill a vacancy created by removal requires the consent of the holders of a majority of the outstanding shares entitled to vote for the election of Directors. Any written consent may be revoked by a writing received by the Secretary of the corporation prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the Secretary. Unless a record date for voting purposes be fixed as provided in Section 9 of this Article, the record date for determining shareholders entitled to give consent pursuant to this Section 11, when no prior action by the Board of Directors has been taken, shall be the day on which the first written consent is given. SECTION 12. PROXIES. Every person entitled to vote shares or execute written consents has the right to do so either in person or by one or more persons authorized by a written proxy executed and dated by such shareholder and filed with the Secretary of the corporation prior to the convening of any meeting of the shareholders at which any such proxy is to be used or prior to the use of such written consent. A validly executed proxy which does not state that it is irrevocable continues in full force and effect unless (1) revoked by the person executing it, before the vote pursuant thereto, by a writing delivered to the corporation stating that the proxy is revoked or by a subsequent proxy executed by, or by attendance at the meeting and voting in person by, the person executing the proxy; or (2) written notice of the death or incapacity of the maker of the proxy is received by the corporation before the vote pursuant thereto is counted; provided, however, that no proxy shall be valid after the expiration of 11 months from the date of its execution unless otherwise provided in the proxy. SECTION 13. INSPECTORS OF ELECTION. In advance of any meeting of shareholders, the Board of Directors may appoint any persons other than nominees 6 for office as inspectors of election to act at such meeting and any adjournment thereof. If no inspectors of election are so appointed, or if any persons so appointed fail to appear or fail or refuse to act, the Chairman of any such meeting may, and on the request of any shareholder or shareholder's proxy shall, appoint inspectors of election at the meeting. The number of inspectors shall be either one (1) or three (3). If inspectors are appointed at a meeting on the request of one or more shareholders or proxies, the holders of a majority of shares or their proxies present shall determine whether one (1) or three (3) inspectors are to be appointed. The duties of such inspectors shall be as prescribed by Section 707(b) of the California General Corporation Law and shall include: determining (1) the number of shares outstanding and the voting power of each, (2) the shares represented at the meeting, (3) the existence of a quorum, (4) the authenticity, validity and the effect of proxies; receiving votes, ballots or consents; hearing and determining all challenges and questions in any way arising in connection with the right to vote; counting and tabulating all votes or consents; determining when the polls shall close; determining the result; and doing such acts as may be proper to conduct the election or vote with fairness to all shareholders. If there are three inspectors of election, the decision, act, or certificate of a majority is effective in all respects as the decision, act or certificate of all. ARTICLE III DIRECTORS SECTION 1. POWERS. Subject to the provisions of the California General Corporation Law and any limitations in the Articles of Incorporation and these By-Laws relating to action required to be approved by the shareholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors. The Board of Directors may delegate the management of the day-to-day operation of the business of the corporation to a management company or other person provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the Board of Directors. Without prejudice to such general powers, but subject to the same limitations, it is hereby expressly declared that the Board of Directors shall have the following powers in addition to the other powers enumerated in these By-Laws: (a) To select and remove all the other officers, agents, and employees of the corporation, prescribe any powers and duties for them that are 7 consistent with law, or with the Articles or these By-Laws, fix their compensation, and require from them security for faithful service. (b) To conduct, manage, and control the affairs and business of the corporation and to make such rules and regulations therefor not inconsistent with law, or with the Articles or these By-Laws, as they may deem best. (c) To adopt, make, and use a corporate seal, and to prescribe the forms of certificates of stock, and to alter the form of such seal and of such certificates from time to time as in their judgment they may deem best. (d) To authorize the issuance of shares of stock of the corporation from time to time, upon such terms and for such consideration as may be lawful. (e) To borrow money and incur indebtedness for the purposes of the corporation, and to cause to be executed and delivered therefor, in the corporate name, promissory and capital notes, bonds, debentures, deeds of trust, mortgages, pledges, hypothecations, or other evidences of debt and securities therefor and any agreements pertaining thereto. (f) To prescribe the manner in which and the person or persons by whom any or all of the checks, drafts, notes, contracts and other corporate instruments shall be executed. (g) To appoint and designate, by resolution adopted by a majority of the authorized number of Directors, one or more committees, each consisting of two or more Directors, including the appointment of alternate members of any committee who may replace any absent member at any meeting of the committee; and (h) Generally, to do and perform every act or thing whatever that may pertain to or be authorized by the Board of Directors of a commercial bank under the laws of this state. SECTION 2. NUMBER AND QUALIFICATION OF DIRECTORS. (a) The number of Directors shall be nine (9). Commencing with the 1993 annual meeting of shareholders, the Board of Directors shall be divided into three classes, Class I, Class II and Class III, each having three Directors. At the 1993 annual meeting of shareholders, Directors of the first class (Class I) shall be elected to hold office for a term expiring at the 1994 annual meeting of shareholders; Directors of the second class (Class II) shall be elected to hold office for a term expiring at the 1995 annual meeting of shareholders; and Directors of 8 the third class (Class III) shall be elected to hold office for a term expiring at the 1996 annual meeting of shareholders. At each annual meeting of shareholders after 1993, the successors to the class of Directors whose terms then shall expire shall be identified as being of the same class as the Directors they succeed and elected to hold office for a term expiring at the third succeeding annual meeting of shareholders. Notwithstanding the foregoing, whenever the holders of the preferred stock or preference stock issued by the corporation shall have the right, voting separately by class, to elect Directors at an annual or special meeting of shareholders, the election, term of office and filling of vacancies of such Directors shall be governed by the terms of the Articles of Incorporation applicable thereto, and such Directors so elected shall not be divided into classes pursuant to this paragraph. Directors elected by a vote of the holders of preferred stock or preference stock as provided in the Articles of Incorporation shall hold office only so long as is required by the Articles of Incorporation. If at any meeting for the election of Directors, more than one class of stock, voting separately as classes, shall be entitled to elect one or more Directors and there shall be a quorum of only one such class of stock, that class of stock shall be entitled to elect its quota of Directors notwithstanding the absence of a quorum of the other class or classes of stock. (b) Nominations for election of members of the Board of Directors may be made by the Board of Directors, by a nominating committee or person appointed by the Board of Directors or by any holder of any outstanding class of capital stock of the corporation entitled to vote for the election of Directors. Notice of intention to make any nominations (other than those made by or at the direction of the Board of Directors) shall be made pursuant to a timely notice in writing to the Secretary of the corporation, with a copy thereof to the Chairman of the Board. To be timely, a shareholder's notice shall be delivered to or mailed and received at the principal executive offices of the corporation by the latter of: (i) the close of business 21 days prior to the meeting of shareholders called for the election of Directors or (ii) 10 days after the date of mailing of notice of the meeting to shareholders. Such shareholder's notice to the Secretary shall set forth (a) as to each person whom the shareholder proposes to nominate for election or reelection as a Director, (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of capital stock of the corporation which are beneficially owned by the person, (iv) the number of shares of any bank, bank holding company, savings and loan association or other depositary institution owned beneficially by the person and the identities and locations of any such institutions, (v) whether the person has ever been convicted of or pleaded nolo contendere to any criminal offense involving dishonesty or breach of trust, filed a petition in bankruptcy or been adjudged bankrupt, and (vi) any other information relating to the person that is 9 required to be disclosed in solicitations for proxies for election of Directors pursuant to Schedule 14A under the Securities Exchange Act of 1934, as amended; and (b) as to the shareholder giving the notice (i) the name and record address of the shareholder, (ii) the class and number of shares of capital stock of the corporation which are beneficially owned by the shareholder, and (iii) the number of shares of capital stock of any bank, bank holding company, savings and loan association or other depositary institution owned beneficially by the shareholder and the identities and locations of any such institutions. The notice shall be signed by the nominating shareholder and by each nominee, and shall be accompanied by a written consent to be named as a nominee for election as a Director from each proposed nominee. The corporation may require any proposed nominee to furnish such other information as may reasonably be required by the corporation to determine the eligibility of any such proposed nominee to serve as a Director of the corporation. No person shall be eligible for election as a Director of the corporation unless nominated in accordance with the procedures set forth herein. Nominations not made in accordance with these procedures shall be disregarded by the chairman of the meeting, and upon his instructions, the inspectors of elections shall disregard all votes cast for each such nominee. The foregoing requirements do not apply to the nomination of a person to replace a proposed nominee who has become unable to serve as a Director between the last day for giving notice in accordance with this paragraph and the date of election of Directors if the procedure called for in this paragraph was followed with respect to the nomination of the proposed nominee. SECTION 3. ELECTION AND TERM OF OFFICE. If any annual meeting is not held or the Directors to then be elected are not elected thereat, the Directors to then be elected may be elected at any special meeting of shareholders held for that purpose. Each Director shall hold office until expiration of the term for which such Director was elected and until a successor has been elected and qualified pursuant to Section 2(a) of this Article III. SECTION 4. VACANCIES. Any Director may resign effective upon giving written notice to the Chairman of the Board, the President, Secretary, or the Board of Directors, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to take office when the resignation becomes effective. Except for a vacancy created by the removal of a Director, vacancies on the Board of Directors may be filled by approval of a majority of the remaining Directors, or, if the number of Directors then in office is less than a quorum, by (1) the unanimous written consent of the Directors then in office, (2) the affirmative vote of a majority of the Directors then in office at a meeting held pursuant to notice or waivers of notice complying with Section 307 of the California General Corporation Law or (3) a sole remaining Director, and each Director so elected shall 10 hold office until such expiration of the term for which such Director was elected and until such Director's successor has been elected and qualified pursuant to Section 2(a) of this Article III. A vacancy on the Board of Directors existing as the result of a removal of a Director may be filled only by approval of the shareholders, unless the Articles of Incorporation or a by- law adopted by the shareholders so provides. A vacancy or vacancies in the Board of Directors shall be deemed to exist in case of death, resignation, or removal of any Director, or if the authorized number of Directors be increased, or if the shareholders fail, at any annual or special meeting of shareholders at which any Director or Directors are elected, to elect the full authorized number of Directors to be voted for at that meeting. The Board of Directors may declare vacant the office of a Director who has been declared of unsound mind by an order of court or convicted of a felony. The shareholders may elect a Director or Directors at any time to fill any vacancy or vacancies not filled by the Directors. Any such election by written consent other than to fill a vacancy created by removal requires the consent of a majority of the outstanding shares entitled to vote. Any such election by written consent to fill a vacancy created by removal requires the unanimous consent of the outstanding shares entitled to vote. If the Board of Directors accepts the resignation of a Director tendered to take effect at a future time, the Board of Directors or the shareholders shall have power to elect a successor to take office when the resignation is to become effective. No reduction of the authorized number of Directors or amendment reducing the number of classes of Directors shall have the effect of removing any Director prior to the expiration of the Director's term of office. SECTION 5. PLACE OF MEETING. Regular meetings of the Board of Directors shall be held at any place within or without the State of California which has been designated in the notice of meeting or if there is no notice, at the principal office of the corporation, or at a place designated by resolution of the Board of Directors or by the written consent of the Board of Directors. Any regular or special meeting is valid wherever held if held upon written consent of all members of the Board of Directors given either before or after the meeting and filed with the Secretary of the corporation. SECTION 6. REGULAR MEETINGS. Immediately following each annual meeting of shareholders and at the same place, the Board of Directors shall hold a regular meeting for the purpose of organization, any desired election of officers, and the transaction of other business. Notice of this meeting shall not be required. 11 Other regular meetings of the Board of Directors shall be held without notice either on the third Tuesday of each month at the hour of 4:00 p.m. or at such different date and time as the Board of Directors may from time to time fix by resolution; provided, however, should said day fall upon a legal holiday observed by the corporation at its principal office, then said meeting shall be held at the same time and place on the next succeeding full business day. Call and notice of all regular meetings of the Board of Directors are hereby dispensed with. SECTION 7. SPECIAL MEETINGS. Special meetings of the Board of Directors for any purpose or purposes may be called at any time by the Chairman of the Board, the President, or the Secretary or by any two Directors. Special meetings of the Board of Directors shall be held upon no less than four days' written notice by mail or 48 hours' notice delivered personally or by telephone or telegraph. Any such written or telegraphic notice shall be addressed or delivered to each Director at such Director's address as it is shown upon the records of the corporation or as may have been given to the corporation by the Director for purposes of notice or, if such address is not shown on such records or is not readily ascertainable, at the place in which the meetings of the Directors are regularly held. Such notice may, but need not, specify the purpose of the meeting, nor the place if the meeting is to be held at the principal office of the corporation. Notice of any meeting of the Board of Directors need not be given to any Director who signs a waiver of notice or a consent to holding the meeting, or who attends the meeting without protesting, either prior thereto or at its commencement, the lack of notice to such Director. Notice by mail shall be deemed to have been given at the time a written notice is deposited in the United States mails, postage prepaid. Any other written notice shall be deemed to have been given at the time it is personally delivered to the recipient or is delivered to a common carrier for transmission, or actually transmitted by the person giving the notice by electronic means, to the recipient. Oral notice shall be deemed to have been given at the time it is communicated, in person or by telephone or wireless, to the recipient or to a person at the office of the recipient who the person giving the notice has reason to believe will promptly communicate it to the recipient. SECTION 8. QUORUM. A majority of the authorized number of Directors constitutes a quorum of the Board of Directors for the transaction of business, except to adjourn as hereinafter provided. Every act or decision done or made by a majority of the Directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the Board of Directors, unless a greater number be required by the Articles and subject to the provisions of Section 310 of the California General Corporation Law (as to approval of contracts or transactions 12 in which a Director has a direct or indirect material financial interest), Section 311 (as to appointment of committees), and Section 317 (e) (as to indemnification of Directors). A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of Directors, if any action taken is approved by at least a majority of the required quorum for such meeting. SECTION 9. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE. Members of the Board of Directors may participate in a meeting through use of a conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another. Participation in a meeting pursuant to this Section 9 constitutes "presence" in person at such meeting. SECTION 10. WAIVER OF NOTICE. The transactions of any meeting of the Board of Directors, however called and noticed or wherever held, are as valid as though had at a meeting duly held after regular call and notice if a quorum is present and if, either before or after the meeting, each of the Directors not present signs a written waiver of notice, a consent to holding such meeting or an approval of the minutes thereof. All such waivers, consents, or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. SECTION 11. ADJOURNMENT. A majority of the Directors present, whether or not a quorum is present, may adjourn any Directors' meeting to another time and place. Notice of the time and place of holding an adjourned meeting need not be given, unless the meeting is adjourned for more than twenty- four hours, in which case notice of the time and place shall be given before the time of the adjourned meeting, in the manner specified in Section 7 of this Article III, to the Directors who were not present at the time of the adjournment. SECTION 12. ACTION WITHOUT MEETING. Any action required or permitted to be taken by the Board of Directors may be taken without a meeting if all members of the Board of Directors shall individually or collectively consent in writing to such action. Such action by written consent shall have the same effect as a unanimous vote of the Board of Directors. Such consent or consents shall be filed with the minutes of the proceedings of the Board of Directors. SECTION 13. FEES AND COMPENSATION. Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed or determined by resolution of the Board of Directors. This Section shall not be construed to preclude any Director from serving the corporation in any other capacity as an officer, agent, employee, or otherwise, and receiving compensation for those services. 13 SECTION 14. RIGHTS OF INSPECTION. Every Director of the corporation shall have the absolute right at any reasonable time to inspect and copy all books, records, and documents of every kind and to inspect the physical properties of the corporation and also of its subsidiary corporations, domestic or foreign. Such inspection by a Director may be made in person or by agent or attorney and includes the right to copy and obtain extracts. SECTION 15. COMMITTEES OF THE BOARD. The Board of Directors may designate, by resolution adopted by a majority of the authorized number of Directors, one or more committees, consisting of two or more Directors, to serve at the pleasure of the Board of Directors. The Board of Directors may designate one or more Directors as alternate members of any committee, and such alternate members may replace any absent member at any meeting of the committee. The appointment of members or alternate members of a committee requires the vote of a majority of the authorized number of Directors. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have all the authority of the Board except as otherwise provided by law. ARTICLE IV OFFICERS SECTION 1. OFFICERS. The officers of the corporation shall be a President, one or more Vice Presidents, a Secretary, and a Chief Financial Officer. The corporation may also have, at the discretion of the Board of Directors, a Chairman of the Board, a Vice Chairman of the Board, one or more Assistant Vice Presidents, one or more Assistant Financial Officers, one or more Assistant Secretaries and such other officers as may be elected or appointed in accordance with provisions of Section 3 of this Article. One person may hold two or more offices, except those of President and Chief Financial Officer. SECTION 2. ELECTION. The officers of the corporation, except such officers as may be elected or appointed in accordance with the provisions of Section 3 or Section 5 of this Article, shall be chosen by, and shall serve at the pleasure of, the Board of Directors, and shall hold their respective offices until their resignation, removal, or other disqualification from service, or until their respective successors shall be elected, subject to the rights, if any, of an officer under any contract of employment. SECTION 3. SUBORDINATE OFFICERS. The Board of Directors may elect, and may empower the President to appoint, such other officers as the business of the corporation may require, each of whom shall hold office for such period, have 14 such authority, and perform such duties as are provided in these By-Laws or as the Board of Directors may from time to time determine. SECTION 4. REMOVAL AND RESIGNATION. Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by the Board of Directors at any time, or, except in the case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors. Any officer may resign at any time by giving written notice to the corporation, but without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 5. VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these By-Laws for regular election or appointment to such office. SECTION 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if there shall be such an officer, shall, if present, preside at all meetings of the Board of Directors and of the shareholders, and exercise and perform such other powers and duties as may be from time to time assigned by the Board of Directors. SECTION 7. VICE CHAIRMAN. The Vice Chairman of the Board, if there shall be such an officer, shall in the absence of the Chairman of the Board, preside at all meetings of the Board of Directors and of the shareholders, and exercise and perform such other powers and duties as may be from time to time assigned by the Board of Directors. SECTION 8. PRESIDENT. Subject to such powers, if any, as may be given by the Board of Directors to the Chairman of the Board, if there be such an officer, the President is the General Manager and Chief Executive Officer of the corporation and has, subject to the control of the Board of Directors, general supervision, direction, and control of the business and officers of the corporation. In the absence of both the Chairman of the Board and the Vice Chairman, or if there be none, the President shall preside at all meetings of the shareholders and at all meetings of the Board of Directors. The President has the general powers and duties of management usually vested in the office of President and General Manager of a corporation and such other powers and duties as may be prescribed by the Board of Directors. 15 SECTION 9. VICE PRESIDENTS. In the absence or disability of the President, the Vice Presidents in order of their rank as fixed by the Board of Directors or, if not ranked, the Vice President designated by the Board of Directors, shall perform all the duties of the President, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors or the By-Laws, and the President, or the Chairman of the Board. SECTION 10. SECRETARY. The Secretary shall keep or cause to be kept, at the principal office and such other place as the Board of Directors may order, a book of minutes of all meetings of shareholders, the Board of Directors, and its committees, with the time and place of holding, whether regular or special, and, if special, how authorized, the notice thereof given, the names of those present or represented at shareholders' meetings, and the proceedings thereof. The Secretary shall keep, or cause to be kept, a copy of the By-Laws of the corporation at the principal office or business office in accordance with Section 213 of the California General Corporation Law. The Secretary shall keep, or cause to be kept, at the principal office or at the office of the corporation's transfer agent or registrar, if one be appointed, a share register, or a duplicate share register, showing the names of the shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation. The Secretary shall give, or cause to be given, notice of all the meetings of the shareholders, of the Board of Directors and of any committees thereof required by these By-Laws or by law to be given, shall keep the seal of the corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors. SECTION 11. ASSISTANT SECRETARY. The Assistant Secretary or the Assistant Secretaries, in the order of their seniority, shall, in the absence or disability of the Secretary, or in the event of such officer's refusal to act, perform the duties and exercise the powers and discharge such duties as may be assigned from time to time by the President or by the Board of Directors. SECTION 12. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares, and shall send or cause to be sent to the 16 shareholders of the corporation such financial statements and reports as are by law or these By-Laws required to be sent to them. The books of account shall at all times be open to inspection by any Director of the corporation. The Chief Financial Officer shall deposit all monies and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the Board of Directors. The Chief Financial Officer shall disburse the funds of the corporation as may be ordered by the Board of Directors, shall render to the President and Directors, whenever they request it, an account of all transactions as Treasurer and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors. SECTION 13. ASSISTANT FINANCIAL OFFICER. The Assistant Financial Officer or the Assistant Financial Officers, in the order of their seniority, shall, in the absence or disability of the Chief Financial Officer, or in the event of such officer's refusal to act, perform the duties and exercise the powers of the Chief Financial Officer, and shall have such additional powers and discharge such duties as may be assigned from time to time by the President or by the Board of Directors. SECTION 14. SALARIES. The salaries of the officers shall be fixed from time to time by the Board of Directors and no officer shall be prevented from receiving such salary by reason of the fact that such officer is also a Director of the corporation. SECTION 15. OFFICERS HOLDING MORE THAN ONE OFFICE. Any two or more offices, except those of President and Chief Financial Officer, may be held by the same person, but no officer shall execute, acknowledge or verify any instrument in more than one capacity. SECTION 16. INABILITY TO ACT. In the case of absence or inability to act of any officer of the corporation and of any person herein authorized to act in his place, the Board of Directors may from time to time delegate the powers or duties of such officer to any other officer, or any Director or other person whom it may select. ARTICLE V OTHER PROVISIONS SECTION 1. INSPECTION OF CORPORATE RECORDS. The corporation shall keep at its principal executive office a record of its shareholders, giving the names 17 and addresses of all shareholders and the number and class of shares held by each shareholder. A shareholder or shareholders of the corporation holding at least five percent (5%) in the aggregate of the outstanding voting shares of the corporation may: (a) Inspect and copy the record of shareholders' names and addresses and shareholdings during usual business hours upon five business days' prior written demand upon the corporation; or (b) Obtain from the transfer agent, if any, for the corporation, upon written demand and upon the tender of its usual charges for such a list (the amount of which charges shall be stated to the shareholder by the transfer agent upon request), a list of the shareholders' names and addresses who are entitled to vote for the election of Directors and their shareholdings, as of the most recent record date for which it has been compiled, or as of a date specified by the shareholder subsequent to the date of demand. The list shall be made available on or before the later of five business days after the demand is received or the date specified therein as the date as of which the list is to be compiled. SECTION 2. INSPECTION OF BY-LAWS. The corporation shall keep in its principal executive office the original or a copy of these By-Laws as amended to date, which shall be open to inspection by shareholders at all reasonable times during office hours. SECTION 3. ENDORSEMENT OF DOCUMENTS; CONTRACTS. Subject to the provisions of applicable law, any note, mortgage, evidence of indebtedness, contract, share certificate, initial transaction statement or written statement, conveyance, or other instrument in writing, and any assignment or endorsement thereof executed or entered into between this corporation and any other person, when signed by (i) the Chairman of the Board, the President or any Vice President and (ii) the Secretary, any Assistant Secretary, the Chief Financial Officer or any Assistant Treasurer of this corporation shall be valid and binding upon this corporation in the absence of actual knowledge on the part of the other person that the signing officers had not the authority to execute the same. Any such instruments may be signed by any other persons or persons and in such manner as from time to time shall be determined by the Board of Directors, and unless so authorized by the Board of Directors, no officer, agent, or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or amount. SECTION 4. CERTIFICATES OF STOCK. Every holder of shares of the corporation shall be entitled to have a certificate signed in the name of the corporation by the President or a Vice President and by the Chief Financial Officer 18 or Assistant Financial Officer or by the Secretary or Assistant Secretary, certifying the number of shares and the class or series of shares owned by the shareholder. Signatures on the certificates may be facsimile. If any officer, transfer agent or registrar who has signed a certificate or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue. The Board of Directors may, in case any certificate for shares is alleged to have been lost, stolen, or destroyed, authorize the issuance of a new certificate in lieu thereof, and the corporation may require that the corporation be given a bond or other adequate security sufficient to indemnify it against any claim that may be made against it (including any expense or liability) on account of the alleged loss, theft, or destruction of any such certificate or the issuance of such new certificate. Prior to the due presentment for registration of transfer in the stock transfer book of the corporation, the registered owner shall be treated as the person exclusively entitled to vote, to receive notifications and otherwise to exercise all the rights and powers of an owner, except as expressly provided otherwise by the laws of the State of California. SECTION 5. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The President or any other officer or officers authorized by the Board of Directors or the President are each authorized to vote, represent, and exercise on behalf of the corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of the corporation. The authority herein granted may be exercised by any such officer in person or by any other person authorized to do so by proxy or power of attorney duly executed by said officer. SECTION 6. ANNUAL REPORT TO SHAREHOLDERS. Not later than 120 days after the close of the fiscal year, the Board of Directors shall cause an annual report to be sent to shareholders of the corporation, complying with Section 1501 of the California General Corporation Law. SECTION 7. SEAL. The corporate seal of the corporation shall consist of two concentric circles, between which shall be the name of the corporation, and in the center shall be inscribed the word "Incorporated" and the date of its incorporation. SECTION 8. FISCAL YEAR. The fiscal year of this corporation shall begin on the first day of January and end on the 31st day of December of each year. 19 SECTION 9. CONSTRUCTION AND DEFINITIONS. Unless the context otherwise requires, the general provisions, rules of construction, and definitions contained in the California General Corporation Law shall govern the construction of these By-Laws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. SECTION 10. BY-LAW PROVISIONS CONTRARY TO OR INCONSISTENT WITH PROVISIONS OF LAW. Any article, section, subsection, subdivision, sentence, clause or phrase of these By-Laws which, upon being construed in the manner provided in Section 9 of this Article, shall be contrary to or inconsistent with any applicable provision of the Accountancy Corporation Board of the State of California or other applicable law of the State of California or of the United States shall not apply so long as said provisions of law shall remain in effect, but such result shall not affect the validity or applicability of any other portions of these By-Laws, it being hereby declared that these By-Laws would have been adopted and each article, section, subsection, subdivision, sentence, clause or phrase thereof, irrespective of the fact that any one or more articles, sections, subsections, subdivisions, sentences, clauses or phrases is or are illegal. ARTICLE VI INDEMNIFICATION SECTION 1. DEFINITIONS. For the purposes of this Article, "agent", includes any person who is or was a Director, officer, employee, or other agent of the corporation, or is or was serving at the request of the corporation as a Director, officer, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, or other enterprise, or was a Director, officer, employee, or agent of a foreign or domestic corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation; "proceeding" includes any threatened, pending, or completed action or proceeding, whether civil, criminal, administrative or investigative; and "expenses" includes, without limitation, attorneys' fees and expenses of establishing a right to indemnification pursuant to law. SECTION 2. EXTENT OF INDEMNIFICATION. (a) The corporation shall, to the maximum extent permitted by the California General Corporation Law, indemnify any person who was or is a party or is threatened to be made a party to any proceeding (other than an action by or in the right of the corporation to procure a judgment in its favor) by reason of the fact 20 that the person is or was an agent of the corporation, against expenses, judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with the proceeding. (b) The corporation shall, to the maximum extent permitted by the California General Corporation Law, indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action by or in the right of the corporation to procure a judgment in its favor by reason of the fact that the person is or was an agent of the corporation, against expenses actually and reasonably incurred by that person in connection with the defense or settlement of the action. (c) The corporation shall, to the maximum extent permitted by the California General Corporation Law, advance the expenses incurred by any agent of the corporation in defending any proceeding prior to the final disposition of the proceeding. SECTION 3. INSURANCE. The corporation shall have power to purchase and maintain insurance on behalf of any agent of the corporation against any liability asserted against or incurred by the agent in that capacity or arising out of the agent's status as such whether or not the corporation would have the power to indemnify the agent against that liability under the provisions of this Article. ARTICLE VII AMENDMENTS New By-Laws may be adopted or these By-Laws may be amended or repealed by the approval of the outstanding shares or by the approval of the Board of Directors; provided, however, that a by-law specifying or changing a fixed number of Directors or the maximum or minimum number or changing from a fixed to a variable Board of Directors or vice versa may only be adopted by approval of the outstanding shares, complying, if applicable, with Section 212 of the California General Corporation Law. If the Articles of Incorporation of the corporation set forth the authorized number of Directors of the corporation, the authorized number of Directors may be changed only by an amendment of the Articles of Incorporation. (as amended through March 25, 1996) 21 101851.7 22 EX-4.3-2 6 EXHIBIT 4.3.2 FIRST AMENDMENT TO THE SOUTHERN CALIFORNIA BANK EMPLOYEES' RETIREMENT PLAN Southern California Bank (the "Employer"), hereby adopts the following First Amendment to the Southern California Bank Employees' Retirement Plan and Trust Agreement (the "Plan") with reference to the following facts: A. Effective January 1, 1990, the Employer adopted the Plan. B. The Plan reserves to the Employer the right to amend the Plan, and the Employer has determined that it is necessary and appropriate to amend the Plan as hereinafter set forth, by a meeting of the Board of Directors on October 20, 1992. NOW, THEREFORE: The Plan is hereby amended in the following particulars: Section 1.01(i) is amended to read as follows: (i) QUALIFIED NON-ELECTIVE CONTRIBUTIONS (Section 4.10(c)) Qualified Non-Elective Contributions shall be allocated to the Qualified Non-Elective Contribution Accounts of: (1) All Participants who meet the eligibility requirements in the profit sharing contribution. (2) In the following manner: (A) In the ratio which each such Eligible Participant's Compensation not in excess of $50,000 for the Plan Year bears to the total Compensation of all such Eligible Participants not in excess of $50,000 for such Plan Year. For the Plan Year beginning in 1992 only, the maximum amount allocated to a participant under this paragraph (A) shall not exceed 1% of Compensation. (B) Any Qualified Non-Elective Contribution in excess of the amount allocated under paragraph (A) shall be allocated in the same manner as paragraph (A) except Eligible Participants shall not include any Highly Compensated Employee. (C) For Plan years beginning after 1992, Qualified Non-Elective Contributions shall be allocated pursuant to paragraph (A) without regard to the last sentence. (D) Compensation shall have the same meanings as defined in Section 1.01(g)(4). Exhibit I is amended to read as attached: IN WITNESS WHEREOF, the undersigned has executed this Amendment this 30th day of December, 1992. s/Ann E. McPartlin/ ---------------------------------------- Senior Vice President ---------------------------------------- Title 141478 EX-4.3-3 7 EXHIBIT 4.3.3 SECOND AMENDMENT TO THE AMENDMENT AND RESTATEMENT OF THE SOUTHERN CALIFORNIA BANK EMPLOYEE RETIREMENT PLAN Southern California Bank (the "Company") hereby amends the Amendment and Restatement of the Southern California Bank Employee Retirement Plan (which was initially effective January 1, 1990, and was amended and restated as of January 1, 1992) (the "Plan"), as follows: 1. Section 5.02(d) is deleted in its entirety and a new Section 5.02(d) is added that reads as follows: "(d) WHEN ALLOCATIONS MADE. Allocations with respect to subsection (b) and Qualified Non-Elective Contributions shall be deemed made as of the Anniversary Date for the Plan Year to which they related. Allocations with respect to Matching Contributions shall be deemed made as of the earlier of (i) when Deferrals to which the Matching Contributions relate are contributed to the Trustee (or, if later, when the Matching Contributions are actually paid to the Trustee), or (ii) the Anniversary Date for the Plan Year to which such Matching Contributions relate. All other allocations shall be deemed made as of the earlier of the date on which the respective contributions are paid to the Trustee, or the Anniversary Date for the Plan Year to which they relate." 2. Except as specifically provided herein, the remaining portions of the Trust shall remain in full force and effect. * * * * * The Company has signed this Amendment on the date indicated below to be effective as of March 1, 1994. "Company" SOUTHERN CALIFORNIA BANK Date: 2/15/94 By: s/ W. C. Greenbeck/ --------------------------------------------------- 141467L.1 EX-4.3-4 8 EXHIBIT 4.3.4 RESOLUTIONS ADOPTING THE THIRD AMENDMENT TO THE AMENDMENT AND RESTATEMENT OF THE SOUTHERN CALIFORNIA BANK EMPLOYEE RETIREMENT PLAN Southern California Bank (the "Company") is a Corporation, and the following resolutions are hereby adopted by its Board of Directors at a meeting held on October 18. 1994. WHEREAS, the Board of Directors has previously adopted the Amendment and Restatement of the Southern California Bank Employee Retirement Plan (the "Plan") effective January 1, 1992 (the original effective date of the Plan was January 1, 1990), and WHEREAS, the Company believes it is in the best interest of the Plan and its participants to make certain changes to the eligibility and vesting provisions of the Plan, as listed below: - Require that an employee complete one year of service, work 1000 hours during the prior 12-month period and attain age 21 for eligibility to participate. - Allow employees hired prior to 1995 the ability to join the Plan on January 1, 1995, without regard to the above restriction. - Improve the vesting schedule, so that a Participant is 25% vested after two years of service, increasing by 25% each year, with full vesting after five years of service. NOW, THEREFORE, BE IT RESOLVED that the Plan be amended effective as of January 1, 1995, and FURTHER RESOLVED that the Company notify each Employee and the Trustees of the Plan of the changes to the Plan, and FURTHER RESOLVED that the officers of the Company are hereby directed to take any and all action necessary to implement such amendment. Dated: October 18, 1994 "Company" Southern California Bank By: /s/ ----------------------------------------- Its: Secretary ---------------------------------------- 141331L.1 EX-4.3-5 9 EXHIBIT 4.3.5 RESOLUTIONS ADOPTING THE FOURTH AMENDMENT TO THE AMENDMENT AND RESTATEMENT OF THE SOUTHERN CALIFORNIA BANK EMPLOYEE RETIREMENT PLAN Southern California Bank (the "Company") is a Corporation, and the following resolutions are hereby adopted by its Board of Directors at a meeting held on August 15, 1995. WHEREAS, The Southern California Bank Employee Retirement Plan 401(k) was adopted on January 1, 1990 to allow employees to accumulate assets for retirement and to receive Bank Matching contributions to assist them with their accumulation; and WHEREAS, The Board of Directors reserved the right to amend the Plan in order to effect changes in the best interest of the Plan participants; and WHEREAS, The Plan accepts rollover contributions from participants' prior employers' qualified retirement program(s); and WHEREAS, The Plan allows participants to withdraw from their accounts under certain circumstances; NOW, THEREFORE, BE IT RESOLVED, that the Plan be amended to allow participants to withdraw any or all of their Rollover Contribution account balances without reason. However, no participant will be allowed to withdraw from their Rollover Contribution account unless the Rollover Contributions have been credited to their account for at least twenty-four (24) months, or the employee has been a Plan participant for at least five (5) years. These twenty- four (24) month and five (5) year restrictions will not apply upon the approved financial hardship of the participant; FURTHER RESOLVED, that the Plan be amended to allow participants to withdraw from their Rollover Contribution account to alleviate financial hardship. All such hardships will be approved by the Employee Retirement Plan Committee based on a uniform nondiscriminatory basis. The Employee Retirement Plan Committee will establish a written policy which will be used to determine approval or disapproval of a participant's request; FURTHER RESOLVED, that the Officers of the Corporation be instructed to prepare or have prepared said amendments and any additional paperwork necessary to effect the amendment with the Internal Revenue Service, Department of Labor, or any other federal or state agency as necessary to maintain the tax exempt status of the Plan and Trust. The officers be further instructed to prepare or have prepared a written policy governing Rollover Contribution hardship withdrawals and any other items to ensure the continued smooth administration of the Plan. Dated: 8/15/95 SOUTHERN CALIFORNIA BANK ------- By: /s/ ----------------------------------------- Its: Secretary ---------------------------------------- EX-4.6 10 EXHIBIT 4.6 SOUTHERN CALIFORNIA BANK EXECUTIVE INCENTIVE COMPENSATION PLAN FOR 1995 CONFIDENTIAL February 17, 1995 BUSINESS STRATEGY Southern California Bank believes our key responsibility is to provide high quality, relationship-based financial services to businesses and consumers within our market area. We work constantly to satisfy our customer needs and to provide services that are convenient, reliable and fairly priced. TOTAL COMPENSATION PHILOSOPHY The cornerstone of any effective compensation program is the philosophy on which it is based. Southern California Bank's compensation philosophy is to provide its executives with a TOTAL COMPENSATION PROGRAM, including base salaries, incentives, stock options and benefits that is: - - Based on achievement of key results and performance. - - True to our organization values and culture. - - Highly competitive within the external marketplace. To accomplish this, we have established base salary levels fully competitive with market rates. Incentives enable you to increase your compensation significantly based on the Bank's annual performance results. Stock options provide the necessary link to increased shareholder value. Benefits consider your needs as well as program costs and tax efficiency. GOALS OF THE PROGRAM The goals of our total compensation program are to: - - Attract, motivate and retain high-caliber executives. - - Make sure we are all working towards those objectives critical to our growth and profitability. - - Recognize and reward your contribution to that success. - - Inspire teamwork. - - Pay above competitive market levels in total compensation based on results. 1 TOTAL COMPENSATION PROGRAM Four major elements make up our total compensation program: - - Base salary - - Incentive compensation - - Executive benefits, including deferred compensation - - Stock options. 1. BASE SALARY In pricing our services/products, we consider market conditions and what our competitors charge for similar services/products. Likewise, to determine competitive compensation levels, we look outside to see what other banks Pay for similar jobs. Competitive compensation levels were obtained through a custom survey and proxy review of banking institutions in Northern and Southern California with assets primarily between $400 million and $1 billion. Based on that data, we have developed base salaries for each executive position and ensured that these salaries reflect competitive compensation levels within our industry peer group. Your base salary is intended to reflect a compensation level for your individual skills, experience and performance, as well as the competitive level paid for your position within our industry peer group. Base salaries will be reviewed annually to attempt to ensure that they remain competitive. 2. INCENTIVE COMPENSATION The 1995 Executive Incentive Compensation Plan is based on how well the Bank performs and how well you, individually, perform. - - Bank and individual performance are viewed as independent components of the incentive award. For Managing Committee members, Bank performance is weighted 75% and individual, 25%. For participants other than Managing Committee, Bank performance represents 25% and individual, 75%. - - Bank performance will be measured by 1995 average Return on Equity (ROE), and receiving satisfactory regulatory examinations. 2 - - Individual performance is measured on achievement of specific functional area objectives and management performance. - - Target for average ROE has been established for the incentive period, January 1, 1995 to December 3 1, 1995. INCENTIVE AWARD OPPORTUNITY - - Target awards, defined as a percentage of base salary, are established for each executive. This is the amount you will receive if the Bank achieves target goals and objectives and your performance is rated at a level of "Achieves Expectations" or greater. - - These target awards increase when results exceed the goal and decrease when results are less than the Goal. - - Specifically, the elements to be evaluated in calculating executive incentive awards are as follow: - -------------------------------------------------------------------------------- PARTICIPANTS --------------------------- PERFORMANCE MANAGING SVP/VP MEASUREMENT COMMITTEE PARTICIPANTS MEMBERS - -------------------------------------------------------------------------------- BANK 75% 25% - Satisfaction regulatory examinations - Achievement of average ROE results INDIVIDUAL 25% 75% - "Achieves expectations" level or greater - Goal attainment - Management/team performance 2. INCENTIVE COMPENSATION INCENTIVE AWARD OPPORTUNITY (Continued): - - The following pages present the incentive earnings schedule and examples of award calculations. - - Incentive awards will be paid in cash within 30 days after annual performance figures have been verified by the Bank's external auditors and the CEO and Board of Directors. 3 PROPOSED 1995 INCENTIVE SCHEDULE MANAGING COMMITTEE MEMBER
- -------------------------------------------------------------------------------- AVERAGE ROE (75%) INDIVIDUAL PERFORMANCE* (25%) -------------------------------------------------------------- 1995 Percentage Percentage Goal Achievment Attained Attained Incentive Managerial ROE Earned - -------------------------------------------------------------------------------- 8.89 85% 0% THRESHOLD 8.90 85% 50% "Achieves Expectations" 9.14 87% 60% 9.45 90% 70% 9.87 94% 80% 10.19 97% 90% TARGET 10.50 100% 100% 100% of Target Award 10.92 104% 105% 11.34 108% 110% 11.76 112% 115% 12.18 116% 120% 12.50 119% 125% 12.92 123% 130% 13.34 127% 135% 13.76 131% 140% 14.18 135% 145% 14.60 139% 150% 15.02 143% 160% 15.65 149% 170% 16.38 156% 180% 17.01 162% 190% MAXIMUM 17.75 169% 200% "Exceeds Expectations" 150% of Target Award - --------------------------------------------------------------------------------
* Individual performance for EVPs will be determined via assessment of performance as done by the CEO and reviewed by the Board Compensation and Benefits Committee; the rating for individual performance of the CEO will be determined by the Chairman of the various Board Committees. Percentage of incentive earned for individual performance component does not accelerate beyond average ROE% attained until Bank achieves target level (100%) of average ROE performance. 4 EXAMPLE OF CALCULATION MANAGING COMMITTEE MEMBER - -------------------------------------------------------------------------------- (Scenario I - Bank Exceeds Average ROE Target) - -------------------------------------------------------------------------------- ASSUMPTIONS PERFORMANCE RESULTS - -------------------------------------------------------------------------------- - - Base Salary: $130,000 - Bank receives satisfactory regulatory exams - - Target Incentive (25%): $32,500 - ROE is 108% of goal - - Target Annual Total Cash: $162,500 - Individual performance "Achieves Expectations" - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TARGET INCENTIVE AWARD INCENTIVE AWARD CALCULATIONS - -------------------------------------------------------------------------------- BANK ELEMENT AVERAGE ROE (75% weighing) - - Target ROE: $24,375 108% of Goal 110% x $24,375 = $26,813 INDIVIDUAL ELEMENT (25% weighing) - - Target: $ 8,125 100% (Achieves 100% x $8,125 = $ 8,125 ------- Expectations) ------ TOTAL TARGET TOTAL EARNED INCENTIVE $32,500 INCENTIVE $34,938 - -------------------------------------------------------------------------------- 5 EXAMPLE OF CALCULATION MANAGING COMMITTEE MEMBER - -------------------------------------------------------------------------------- (Scenario II - Bank Fails to Attain Average ROE Target) - -------------------------------------------------------------------------------- ASSUMPTIONS PERFORMANCE RESULTS - -------------------------------------------------------------------------------- - - Base Salary: $130,000 - Bank receives satisfactory regulatory exams - - Target Incentive (25%): $32,500 - ROE is 85% of goal - - Target Annual Total Cash: $162,500 - Individual performance "Exceeds Expectations" - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TARGET INCENTIVE AWARD INCENTIVE AWARD CALCULATIONS - -------------------------------------------------------------------------------- BANK ELEMENT AVERAGE ROE (75% weighing) - - Target ROE: $24,375 85% of Goal 50% x $24,375 = $12,188 INDIVIDUAL ELEMENT (25% weighing) 50% (Exceeds 50% x $8,125 = $ 4,063 - - Target: $ 8,125 Expectations) ------- TOTAL TARGET TOTAL EARNED INCENTIVE $32,500 INCENTIVE $16,251 - -------------------------------------------------------------------------------- * Percentage incentive earned for individual performance component does not accelerate beyond average ROE % attained until Bank achieves target ROE performance. 6 PROPOSED 1995 INCENTIVE SCHEDULE SENIOR VICE PRESIDENTS/VICE PRESIDENTS
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- AVERAGE ROE (25%) INDIVIDUAL PERFORMANCES* (75%) ----------------------------------------------------------------- 1995 Percentage Percentage Goal Achievement Attained Attained Incentive Managerial ROE Earned ----------------------------------------------------------------- ----------------------------------------------------------------- 8.89 85% 0% - -------------------------------------------------------------------------------- THRESHOLD 8.90 85% 50% "Achieves Expectations" - -------------------------------------------------------------------------------- 9.14 87% 60% 9.45 90% 70% 9.87 94% 80% 10.19 97% 90% - -------------------------------------------------------------------------------- TARGET 10.50 100% 100% 100% of Target Award - -------------------------------------------------------------------------------- 10.92 104% 105% 11.34 108% 110% 11.76 112% 115% 12.18 116% 120% 12.50 119% 125% 12.92 123% 130% 13.34 127% 135% 13.76 131% 140% 14.18 135% 145% 14.60 139% 150% 15.02 143% 160% 15.65 149% 170% 16.38 156% 180% 17.01 162% 190% - -------------------------------------------------------------------------------- MAXIMUM 17.75 169% 200% "Exceeds Expectations" 150% of Target Award - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
* Individual performance for SVP/VPs will be determined via assessment of performance as done by the appropriate Management Committee member and reviewed by the entire Managing Committee. Percentage of incentive earned for individual performance component does not accelerate beyond average ROE% attained until Bank achieves target level (100%) of average ROE performance. 7
EXAMPLE OF CALCULATION SVP/VP PARTICIPANTS - ------------------------------------------------------------------------------------------------ (Scenario I - Bank Exceeds Average ROE Target) - ------------------------------------------------------------------------------------------------ ASSUMPTIONS PERFORMANCE RESULTS - ------------------------------------------------------------------------------------------------ - - Base Salary: $ 75,000 - Bank receives satisfactory regulatory exams - - Target Incentive (20%): $ 15,000 - ROE is 116% of goal - - Target Annual Total Cash: $ 90,000 - Individual performance "Achieves Expectations" - ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------ TARGET INCENTIVE AWARD INCENTIVE AWARD CALCULATIONS - ------------------------------------------------------------------------------------------------ BANK ELEMENT AVERAGE ROE (25% weighing) - - Target ROE: $ 3,750 116% of Goal 120% x $ 3,750 = $ 4,500 INDIVIDUAL ELEMENT (75% weighing) - - Target: $11,250 100% (Achieves 100% x $11,250 = $11,250 ------- Expectations) ------- Total Target Incentive $15,000 TOTAL EARNED INCENTIVE $15,750 - ------------------------------------------------------------------------------------------------
8
EXAMPLE OF CALCULATION SVP/VP PARTICIPANTS - ------------------------------------------------------------------------------------------ (Scenario II - Bank Fails to Attain Average ROE Target) ASSUMPTIONS PERFORMANCE RESULTS - ------------------------------------------------------------------------------------------ - - Base Salary: $ 75,000 - Bank receives satisfactory regulatory exams - - Target Incentive (25%): $ 15,000 - ROE is 87% of goal - - Target Annual Total Cash: $ 90,000 - Individual performance "Exceeds Expectations" - ------------------------------------------------------------------------------------------
TARGET INCENTIVE AWARD INCENTIVE AWARD CALCULATIONS - ------------------------------------------------------------------------------------------ BANK ELEMENT AVERAGE ROE (25% weighing) - - Target ROE: $ 3,750 87% of Goal 60% x $ 3,750 = $ 2,250 INDIVIDUAL ELEMENT (75% weighing) - - Target: $11,250 60% * 60% x $11,250 = $ 6,750 ------- (Exceeds ------- Expectations) Total Target Incentive: $15,000 TOTAL EARNED INCENTIVE: $ 9,000 - ------------------------------------------------------------------------------------------------
* Percentage incentive earned for individual performance component does not accelerate beyond average ROE % attained until Bank achieves target ROE performance. 9 3. EXECUTIVE BENEFIT PROGRAMS The Bank recognizes that the well being of our executives and their families is an important factor in your individual performance and, therefore, to our overall success. Our benefits and perquisites are designed to provide protection, savings, security, and rest and relaxation. They are also designed to be flexible and tax efficient. These plans are so much a part of our lives that we often take them for granted and forget how valuable they are. Our programs are highly competitive and comprehensive, adding approximately 40% to your annual pay, including: - - Deferred Compensation - - Medical, dental and vision insurance - - 401(k) savings plan - - Long-term disability insurance - - Life insurance - - Automobile allowance or leased automobile - - Vacations and holidays. 4. STOCK OPTIONS Our executive stock option program is intended to reward your continued tenure with Southern California Bank and to reward your contributions over time. Holding options provides you with an excellent opportunity to achieve considerable capital accumulation longer term, and to participate in the Bank's success and growth along with our external shareholders. Options are most frequently used at the executive level and optionee holdings are reviewed on an annual basis at fiscal year-end when performance-based awards can be made. 10 SOUTHERN CALIFORNIA BANK 1995 EXECUTIVE INCENTIVE COMPENSATION PLAN Terms and Conditions - -------------------------------------------------------------------------------- 1. PARTICIPATION Executive positions that are eligible to participate for Plan Year 1995, their targeted incentive award levels and the weighing between Bank and individual performance are listed in EXHIBIT I. Executives must have been employed for at least one full calendar quarter to be eligible for an award under the plan. 2. EFFECTIVE DATE This program supersedes all previous incentive compensation or bonus plans. It became effective January 1, 1995 and--subject to Southern California Bank's rights as described below to amend, modify or discontinue the program at any time during the specified period--the program will remain in effect until December 31, 1995. 3. PROGRAM ADMINISTRATION This program is authorized and administered annually by the Compensation and Benefits Committee of the Board of Directors through the Chief Executive Officer (CEO), with process and procedural assistance from the Executive Vice President, Human Resources. The Board Compensation and Benefits Committee has final authority to interpret the program and to make or nullify any rules and procedures as necessary for proper program administration. Any determination of the Committee about the program will be final and binding on all participants. 4. PROGRAM CHANGES OR DISCONTINUANCE Southern California Bank has developed this program based on existing business, market and economic conditions; current services; and personnel assignments. If substantial changes occur at the Bank which affect these conditions, services, assignments, or forecasts, the Compensation and Benefits Committee may add to, amend, modify or discontinue any of the terms or conditions of the program at any time during the program's specified period, provided that this action does not reduce the amount of awards earned before the date of the action. Any modifications to the Plan must be in writing; the Plan cannot be modified orally. 11 5. INCENTIVE COMPENSATION CALCULATION AND PAYMENT All incentive awards will be based on a combination of Bank performance and individual performance and the percentages of earned incentive will be calculated using the Incentive Schedule chart for respective participants. Incentive amounts will be calculated on the actual base salary of the executive as of December 31, 1995, less any bonuses or incentives, car allowances, housing allowances, relocation payments or other non-base compensation elements. Incentive awards will be paid in cash after the end of the fiscal year and within 30 days after annual performance figures have been verified by the Bank's external auditors and the CEO and Board of Directors. Any rights accruing to a participant or his/her beneficiary under the program shall be solely those of an unsecured general creditor of Southern California Bank. Nothing contained in the program and no action taken pursuant to the provisions hereof will create or be construed to create a trust of any kind, or a pledge, or a fiduciary relationship between Southern California Bank or the CEO and the participant or any other person. Nothing herein will be construed to require Southern California Bank or its CEO or Board of Directors to maintain any fund or to segregate any amount for a participant's benefit. Incentive payments will be included as compensation in the year paid for determining compensation under benefit programs. Incentive compensation will be considered taxable income to participants in the year paid and will be subject to all legally required withholdings. Actual tax liability is the participant's responsibility. Participants must have attained an overall individual performance rating of "Achieves Expectations" for their performance for the Plan Year period to be eligible to receive an incentive award. In all cases, the Bank's performance will serve as the threshold for any payments made under this Executive Incentive Plan. If the Bank fails to attain its Regulatory Performances threshold, or if it fails to attain the specified minimum profitability level, no payments will be made to participants even if individual and functional area performance goals have been met and/or exceeded. 12 6. TERMINATION OF EMPLOYMENT A participant, to receive his or her award, must be an active full-time employee of Southern California Bank on the last day of the incentive period for which an award is earned (i.e., December 31, 1995). Voluntary resignation, prior to the end of the incentive period, will serve as a forfeiture of any award. A person being terminated involuntarily will not be eligible for any awards under this plan. 7. NEW HIRES, PROMOTIONS, TRANSFERS, APPROVED LEAVES OF ABSENCE Participants who are not employed by Southern California Bank at the beginning of the Plan Year may receive a proration of their earned award based on their length of employment, except that an executive hired, transferred or promoted into an eligible position on or after October 1, 1995 will not be eligible for any incentive award under this plan. Participants who are on an approved Leave of Absence may be eligible for a pro-rated payment of earned incentive awards provided that the leave does not exceed 90 days in length. 8. DISABILITY, DEATH, OR RETIREMENT If a participant is disabled by an accident or illness, and is disabled long enough to be placed on long-term disability, his or her incentive award for the incentive period shall be prorated so that no award shall be earned during the period of long-term disability. In the event of death, Southern California Bank will pay to the estate or the beneficiary of the participant the pro rata portion of the earned award that the participant would have received if he/she had lived to the end of the Plan Year. Incentive award payments will be prorated in the event that a participant retires before the end of the Plan Year. 9. MISCELLANEOUS The Plan will not be deemed to give any participant the right to be retained in the employ of Southern California Bank, which is an "at-will" employer, nor will the Plan interfere with the right of the Bank to discharge any participant for any reason, with or without notice, at any time. The Plan will not be deemed to constitute a contract of employment with any participant or to be a consideration for the employment of any participant; rather, I understand that Southern California Bank and I have the right to terminate my employment for any reason at any time, and that this policy may be modified only in a written document signed by Southern California Bank's President and CEO. 13 Participation in the 1995 Executive Compensation Plan does not guarantee participation in future incentive plans or other bonus or profit sharing programs. Plan structures and participation will be determined on a year-to-year basis. 14 EXHIBIT I SOUTHERN CALIFORNIA BANK 1995 EXECUTIVE INCENTIVE COMPENSATION PLAN TERMS AND CONDITIONS - -------------------------------------------------------------------------------- ELIGIBLE POSITIONS - President and Chief Executive Officer - EVP/Chief Operating Officer - EVP/Chief Credit Officer - EVP/Corporate Private Banking - EVP/Chief Financial Officer - EVP, Human Resources - SVP, Senior Credit Administrators - SVP, Business/Corporate Banking Managers - VP, Director, Information Services TARGET AWARD STRUCTURE
- -------------------------------------------------------------------------------- INCENTIVE CALCULATION INCENTIVE OPPORTUNITY WEIGHING (0% OF BASE SALARY) --------------------- ------------------------ POSITION TARGET MAX AWARD BANK INDIVIDUAL MINIMUM* TARGET** *** - --------------------------------------------------------------------------------- - --------------------------------------------------------------------------------- Pres/CEO 40% 75% 25% 20% 40% 75% EVP/COO 30% 75% 25% 15% 30% 56% EVP/CCO 25% 75% 25% 12.5% 25% 47% EVP/CPB 25% 75% 25% 12.5% 25% 47% EVP/CFO 25% 75% 25% 12.5% 25% 47% EVP-HR 20% 75% 25% 10% 20% 37.5% All Others 20% 25% 75% 10% 20% 37.5% - ---------------------------------------------------------------------------------
* Minimum = minimum thresholds and performance rating of "Achieves Expectations" ** Target = 100% average ROE and performance rating of "Achieves Expectations" *** Maximum = 200% of Bank average ROE and performance rating of "Exceeds Expectations" 15 SOUTHERN CALIFORNIA BANK 1995 EXECUTIVE INCENTIVE COMPENSATION PLAN EFFECTIVE JANUARY 1, 1995 THROUGH DECEMBER 31, 1995 PARTICIPATION AGREEMENT I have read and reviewed the 1995 Executive Incentive Compensation Plan, including the Terms and Conditions, and understand their applicability. - ------------------------------------ ------------------------- Participant's Signature Date In the event of my death, any awards payable under this plan shall be payable to the following beneficiary. - ------------------------------------ ------------------------- Beneficiary Name Social Security # If you are married and the beneficiary you have named is someone other than your spouse, your spouse must sign below to indicate consent to the designated beneficiary. - ------------------------------------ ------------------------- Signature of Spouse Date 141343 16 EX-10.10 11 EXHIBIT 10.10 CONSENT TO ASSIGNMENT The Taj, a California limited partnership, as Lessor, and the Bank of America National Trust and Savings Association, as Lessee, are parties to a Lease dated as of July 21, 1972, as amended (the "Lease"). The Lessor pursuant to a Consent to Sublease dated May 4, 1994 previously consented to the Sublease dated March 31, 1994, by and between the Lessee and Independence One Bank of California, F.S.B., as Subtenant. The Subtenant desires to assign to Southern California Bank ("Assignee") all of its rights, title and interest in the Sublease. The Lessor hereby consents to the assignment of the Sublease to Assignee on the following terms and conditions: 1. The Consent shall not be construed in any manner to modify, waive or affect any of the terms, covenants, conditions or agreements contained in the Lease; 2. This Consent shall not be construed as a consent by the Lessor to, or as permitting, any other or further subletting or assignment by Lessee, Subtenant or Assignee. 3. Lessee shall not be released from, and Lessee shall be and remain liable for, the performance and observance of all the terms, covenants, conditions, and agreements contained in the Lease. 4. Although a duplicate original of the Sublease and the Assignment and Assumption of Sublease has been delivered to the Lessor for its information, Lessor is not a party to these documents and is not bound by the provisions of these documents, nor shall Lessor, either by receipt thereof or by the making of this Consent, be deemed to have approved any of such provisions contained in said documents; however, any modification or amendment to the Sublease or Assignment and Assumption of Sublease without the prior written consent of Lessor in each instance, shall be deemed a default under the Lease. 5. Prior to the Assignee making any alterations and improvements to the Premises, Assignee shall provide to Lessor for Lessor's approval, which approval shall not be unreasonably withheld the following documents: (a) all construction plans for Assignee's alterations and improvements to the Premises; (b) copy of all building permits from the City of Laguna Hills; (c) copies of all contractor's building contracts; (d) copies of all 1 contractor's insurance certificates; (e) contractor's asbestos disclaimer form in form reasonably acceptable to Lessor; (f) copies of the contractor's schedule and work rules; (g) copies of all demolition permits and trash removal permits and contracts; (h) delivery at completion of the alterations or improvements "as built" plans of the electrical, HVAC, and plumbing systems; and (i) copies of the certificate of occupancy for the Premises and building permit Inspections. 6. If any provisions of this Consent shall be at variance with provisions of the Lease, Sublease or Assignment, the provisions of this Consent shall prevail. This Consent shall not be changed orally but only by an agreement in writing signed by the party against whom the enforcement of such change is sought. 7. The Lessee represents and warrants that no other consents to the assignment of the Sublease are required, including, without limitation, the consent of any lender on the property. 8. Lessee, Subtenant and Assignee acknowledge and agree to the terms of this Consent. Furthermore, Lessee, Subtenant and Assignee acknowledge that certain areas in the Premises may have sprayed on asbestos fire proofing on the structural steel and duct insulation and that Lessor has retained independent consultants to test the air quality of the Premises. Lessee, Subtenant and Assignee acknowledge that the mere presence of asbestos- containing materials does not necessarily constitute a health hazard, however, Lessee, Subtenant and Assignee agree that during the performance of any alterations or improvements no the Premises by Lessee, Subtenant or Assignee that if asbestos is encountered such asbestos must be controlled by Lessee, Subtenant and/or Assignee and dealt with by Lessee, Subtenant and/or Assignee in accordance with federal, state and local laws and regulations. Lessee and Subtenant will notify Assignee and cause Assignee to notify any contractor employed to work on the Premises of the potential for encountering asbestos during the rendition of alterations and improvements, so that such contractor will take proper precautions to inform their employees so that if encountered, such asbestos shall be dealt with as required by 2 applicable laws by the Assignee and its contractor. 9. Lessee, Subtenant and Assignee agree to indemnify, hold harmless, and defend Lessor from any and all claims or causes of action, damages, personal injuries, death, or losses of any nature caused by the exposure, disturbance, and/or removal of any and all asbestos encountered by Lessee, Subtenant, Assignee or their contractors during the rendition of alterations and improvements to the Premises. Dated this 12th day of May, 1995. LESSOR: LESSEE: THE TAJ, BANK OF AMERICA NATIONAL a California limited partnership TRUST AND SAVINGS ASSOCIATION By: Fond du Lac Plaza No. 1, Inc. By: s/Mark Friedman/ General Partner ------------------------ Mark Friedman By: s/Thomas C. Bernachi/ By: s/Steve Shisashi/ ----------------------------- ------------------------- Thomas C. Bernachi Steve Shisashi Vice President ASSIGNEE: SUBTENANT SOUTHERN CALIFORNIA BANK INDEPENDENCE ONE BANK OF CALIFORNIA, F.S.B. By: By: s/Debbie McNeilly/ -------------------------- ------------------------- Executive (Vice) President (Vice President) 3 SUBLEASE (LSN 715680) This Sublease is made this 31st day of March, 1994 by and between Bank of America National Trust and Savings Association, a national banking association ("Sublandlord") and Independence One Bank of California, a federal savings bank ("Subtenant"). WITNESSETH: 1. RECITALS. This Sublease is made with reference to the following facts: 1.1 Atlantic Company and the Estate of Rudy Bruner, a general partnership ("Atlantic"), as lessor and Sublandlord as lessee entered into a written lease dated July 21, 1972, a copy of which is attached hereto as Exhibit A ("Master Lease") covering premises described on page 1 of the Master Lease. The Master Lease was amended by an Addendum to Lease dated September 1, 1978 between Sublandlord and Ronda Valencia Company, a limited partnership, as successor in interest to Atlantic. The Addendum to Lease is included in reference to the lease. 1.2 Subtenant desires to sublet a portion of the premises described in the Master Lease (the "Premises") from Sublandlord on the terms and conditions contained in this Sublease. 2. BASIC SUBLEASE PROVISIONS. 2.1 Building: 24061 Calle de la Plata Laguna Hills, California Floor(s): Ground Floor, Basement and Drive-up Kiosk The Premises are more fully described on Exhibit B attached hereto. 2.2 Area of Premises: approximately 9,495 useable square feet. 2.3 Subtenant's Percentage Share: Subtenant will pay 59.2% of all operating expenses and taxes and assessments payable by Sublandlord under Article 4 of the Master Lease ("Operating Expenses and Taxes"). In the event the area of the Premises are measured and the result is greater or less than the area indicated in Paragraph 2.2, Subtenant's Percentage Share 4 shall be adjusted accordingly. Subtenant shall not be responsible for any Operating Expenses and Taxes or common area charges for the basement area of the premises. 2.4 Commencement Date: April l, 1994. 2.5 Expiration Date: August 31, 2002. 2.6 Basic Monthly Rent: $7,520, adjusted as set forth in Paragraph 2.10. All rent shall be paid without demand, deduction, set-off or counter claim, in advance, on the first day of each calendar month during the term of this Sublease, and in the event of a partial rental month, rent shall be prorated on the basis of a thirty (30) day month. Sublandlord agrees that Basic Monthly Rent shall be abated through December 31, 1994, such abatement to be conditioned upon the performance by Subtenant of all of its obligations under this Sublease. In the event of any breach of this Sublease by Subtenant at any time during the term hereof, all amounts abated hereunder shall be due and payable together with all other amounts payable to Sublandlord in the event of such breach by Subtenant. The foregoing rental abatement shall apply only to Basic Monthly Rent and not to Operating Expenses and Taxes and any other charges hereunder all of which shall be payable commencing on the Commencement Date. 2.7 Permitted Use: General banking purposes and related financial businesses permitted by law, but for no other business or purpose without the consent of Sublandlord which consent shall not be unreasonably withheld. 2.8 Subtenant Improvement Allowance: $90,000. The Subtenant Improvement Allowance will be used to construct certain tenant improvements in the Premises ("Subtenant Improvements"). Construction of Subtenant Improvements shall be performed by Subtenant at Subtenant's sole cost and expense. Prior to commencing construction, Subtenant shall submit to Sublandlord, and Sublandlord shall have the right to approve, which approval shall not be unreasonably withheld the final plans for the Subtenant Improvements. The Subtenant Improvement Allowance will be paid to Subtenant following completion of the work as evidenced a certificate of occupancy and upon submission to Sublandlord of invoices for the work and final lien releases from all contractors involved in the construction of Subtenant Improvements. 2.9 Late Charges: The parties agree that late payments by Subtenant to Sublandlord of rent will cause Sublandlord to incur costs not contemplated by this Sublease, the amount of which is extremely difficult to ascertain. Therefore, the 5 parties agree that if any installment of Basic Monthly Rent or Operating Expenses and Taxes is not received by Sublandlord within 10 days after due, Subtenant will pay to Sublandlord a late charge equal to five percent (5%) of the late payment. 2.10 Rental Adjustments: ADJUSTMENT DATE ADJUSTED BASIC MONTHLY RENT --------------- --------------------------- April 1, 1996 $7,820.80 April 1, 1997 $8,133.63 April 1, 1998 $8,458.98 April 1, 1999 $8,797.34 April 1, 2000 $9,149.23 April 1, 2001 $9,515.20 April 1, 2002 $9,895.81 2.11 Options to Extend: None, however, Sublandlord agrees not to exercise any option to extend the lease term under the Master Lease. 2.12 Intentionally Omitted. 2.13 Acceptance of Premises: Subtenant agrees to accept the Premises in an "as is" condition. Without limiting the foregoing, Subtenant's rights in the Premises are subject to all local, state and federal laws, regulations and ordinances governing and regulating the use and occupancy of the Premises and subject to all matters now or hereafter of record. Subtenant acknowledges that neither Sublandlord nor Sublandlord's agent has made any representation or warranty as to: (i) the present or future suitability of the Premises for the conduct of Subtenant's business; (ii) the physical condition of the Premises; (iii) the expenses of operation of the Premises; (iv) the safety of the Premises, whether for the use of Subtenant or any other person, including Subtenant's employees, agents, invitees or customers; (v) the compliance of the Premises with any applicable laws, regulations or ordinances; or (vi) any other matter or thing affecting or related to the Premises. Subtenant acknowledges that no rights, easements or licenses are acquired by Subtenant by implication or otherwise except as 6 expressly set forth herein. Subtenant shall, prior to delivery of possession of the Premises, inspect the Premises and become thoroughly acquainted with their condition. Subtenant acknowledges that the taking of possession of the Premises by Subtenant shall be conclusive evidence that at the time such possession was taken, the Premises were in good and satisfactory condition, except for any defects incapable of detection through inspection. Subtenant further agrees that, in the event Subtenant subleases all or any portion of the Premises, Subtenant will indemnify and defend Sublandlord (in accordance with PARAGRAPH 9 hereof) for, from and against any matters which arise as a result of Subtenant's failure to disclose any relevant information about the Building or the Premises to any subtenant or assignee. Subtenant shall comply with all laws and regulations relating to the use or occupancy of the Premises and to the common areas, including, without limitation, making structural alterations or providing auxiliary aids and services to the Premises as required by the Americans with Disabilities Act of 1990, 42 U.S.C. Section 12101 ET SEQ. (the "ADA"). Subtenant further agrees that all telephone and other communication installation and use requirements shall be compatible with the Building and that Subtenant shall be solely responsible for all of its telephone and communication installation and usage costs. 2.14 Intentionally omitted. 2.15 Intentionally omitted. 2.16 Address for payment of rent and notices: Sublandlord: Subtenant: For Notices: Bank of America N&SA Independence One Bank of 20 N. Raymond Avenue California Third Floor 26722 Plaza Drive, Suite 120 Pasadena, CA 91103-3931 Mission Viejo, CA 92691 Attn: Real Estate Attn: Debbie McNeilly Manager Tel: (714) 348-8200 Tel: (818) 578-7700 Fax: (714) 367-4080 Fax: (818) 578-7779 For Payment of Rent: Bank of America NT&SA Corporate Accounting File Box 6709 Post Office Box 60000 San Francisco, CA 94160 2.17 Security Deposit: None. 7 2.18 Broker: Linda Crowley & Associates 3. INCORPORATION BY REFERENCE; ASSUMPTION. All of the Articles of the Master Lease are incorporated into this Sublease as if fully set forth in this Sublease except for the following Articles and Sections: Article 2, Section 3.1, Section 3.2, Article 5, Section 8.1, Section 8.4, Article 19, Article 20, Article 23. Where applicable, references in the Master Lease to Lessor shall mean Sublandlord and to Lessee shall mean Subtenant. 3.1 If any provisions of this Sublease conflict with any portion of the Master Lease as incorporated herein, the terms of this Sublease shall govern. 3.2 Subtenant shall assume and perform to Sublandlord the Lessee's obligations under the Master Lease provisions to the extent that the provisions are applicable to the Premises. Subtenant shall pay to Sublandlord Subtenant's Percentage Share of Operating Expenses and Taxes and any other sums payable by Sublandlord under the Master Lease not later than ten (10) days prior to the date any such amounts are due and payable by Sublandlord. 3.3 Sublandlord does not assume the obligations of the Master Landlord under the Master Lease. 3.4 With respect to work, services, repairs, repainting, restoration, the provision of utilities, elevator or HVAC services, or the performance of other obligations required of Master Landlord under the Master Lease, Sublandlord's sole obligation with respect thereto shall be to request the same, on request in writing by Subtenant, and to use reasonable efforts to obtain the same from Master Landlord; provided, however, Sublandlord shall have no obligation to institute legal action against Master Landlord. Subtenant shall cooperate with Sublandlord as may be required to obtain from Master Landlord any such work, services, repairs, repainting restoration, the provision of utilities, elevator or HVAC services, or the performance of any of Master Landlord's other obligations under the Master Lease. 4. SUBTENANT'S PERFORMANCE UNDER MASTER LEASE. At any time and on reasonable prior notice to Subtenant, Sublandlord can elect to require Subtenant to perform Subtenant's obligations under this Sublease directly to Master Landlord, in which event Subtenant shall send to Sublandlord from time to time copies of all notices and other communications it shall send to and receive from Master Landlord. 8 5. COVENANT OF QUIET ENJOYMENT. "Actual Knowledge" of Sublandlord means the actual knowledge of Patricia Morris without having conducted any independent inquiry or inspection. Sublandlord represents that the Master Lease is in full force and effect and that there are no defaults on Sublandlord's or, to Sublandlord's Actual Knowledge, Master Landlord's part under it as of the Commencement Date set forth in PARAGRAPH 2.4 above. Sublandlord has no Actual Knowledge of any governmental violations, citations, claims, lawsuits or investigations concerning the Premises. Subject to this Sublease terminating as provided in Articles 12 and 13 of the Master Lease, Sublandlord represents that if Subtenant performs all the provisions in this Sublease to be performed by Subtenant, Subtenant shall have and enjoy throughout the term of this Sublease the quiet and undisturbed possession of the Premises. Sublandlord shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times, for the purpose of inspecting the condition of the Premises and for verifying compliance by Subtenant with this Sublease and the Master Lease and to permit Sublandlord to perform its obligations under this Sublease and the Master Lease. 6. MASTER LEASE. 6.1 Subtenant shall not do or permit to be done anything which would constitute a violation or breach of any of the terms, conditions or provisions of the Master Lease or which would cause the Master Lease to be terminated or forfeited by virtue of any rights of termination or forfeiture reserved by or vested in Master Landlord. 6.2 If the Master Lease terminates, this Sublease shall terminate and the parties shall be relieved from all liabilities and obligations under this Sublease excepting obligations which have accrued as of the date of termination; except that if this Sublease terminates as a result of a default of one of the parties under this Sublease or the Master Lease, the defaulting party shall be liable to the non-defaulting party for all damage suffered by the non-defaulting party as a result of the termination. 7. HAZARDOUS SUBSTANCES. For the purposes of this Sublease, the following terms have the following meanings: (a) "Environmental Laws" means any and all laws, statutes, ordinances or regulations pertaining to health, industrial hygiene or the environment including, without limitation, CERCLA (Comprehensive Environmental Response Compensation and Liability Act of 1980) and RCRA (Resources Conservation and Recovery Act of 1976). 9 (b) "Hazardous Substances" means asbestos or 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 federal, state or local law, regulation or ordinance. 7.1 Sublandlord and Subtenant understand, acknowledge and agree that various materials may have been used in the construction of the property of which the Premises are a part, in the construction of any improvements to such property; and which materials may have contained materials that may have been or may in the future be determined to be toxic, hazardous or undesirable and may need to be specially treated, specially handled and/or removed from the property. (For example, some electrical transformers and other electrical components contain PCB and asbestos has been used in a wide variety of building components, such as fire-proofing, air duct insulation, acoustical tiling, spray-on acoustical materials, linoleum, floor tiling and plaster.) Due to current or prior uses, the property of which the Premises are a part, or the improvements thereto, may contain materials such as metal, minerals, chemicals, hydrocarbons, biological or radioactive materials and other substances which are considered, or may in the future may be determined to be toxic waste, hazardous materials or undesirable substances. Such substances may be in, above or below ground containers on the property of which the Premises are a part, or may be present on or in soils, water, building components or other portions of the property, in areas that may or may not be accessible or noticeable. Current and/or future federal, state and local regulations may require the clean-up of such toxic, hazardous or undesirable materials at the expense of those persons who in the past, present, or future have had an interest in the property of which the Premises are a part, including, but limited to, current past and future owners and users of an such property. The Parties acknowledge that previous users or owners of the Premises, or the property may have used, generated, manufactured, produced, transported, stored or disposed of, on, under or above the property, or may have transported to or from the property Hazardous Substances. 7.2 At its own expense, Subtenant will procure, maintain in effect and comply with all conditions of any and all permits, licenses and other governmental and regulatory approvals required for Subtenant's use of the Premises, including, without limitation, discharge of appropriately treated materials or wastes into or through any sanitary sewer serving the Premises. Except as discharged into the sanitary sewer in strict accordance and conformity with all applicable Environmental Laws, Subtenant 10 will cause any and all Hazardous Substances to be removed from the Premises to be removed and transported solely by duly licensed haulers to duly licensed facilities for final disposal. Subtenant will, in all respects, handle, treat, deal with and manage any and all Hazardous Substances in, on, under or about the Premises in total conformity with all applicable Environmental Laws and prudent industry practices regarding management of such Hazardous Substances. Upon expiration or earlier termination of the term of this Sublease, Subtenant will cause all Hazardous Substances placed on, under or about the Premises by Subtenant or at Subtenant's direction to be removed and transported for use, storage or disposal in accordance and compliance with all applicable Environmental Laws. Subtenant will not take any remedial action in response to the presence of any Hazardous Substances in or about the Premises or any building, nor enter into any settlement agreement, consent decree or other compromise in respect to any claims relating to any Hazardous Substances in any way connected with the Premises without first notifying Master Landlord and Sublandlord of Subtenant's intention to do so and affording Master Landlord and Sublandlord ample opportunity to appear, intervene or otherwise appropriately assert and protect Master Landlord's and Sublandlord's interests with respect thereto. 8. ARTWORK. Subtenant will not install any artwork of any nature in the Premises which cannot be removed without damage or destruction to the Artwork. Subtenant may not alter or modify any piece of artwork within the Premises without Sublandlord's express written consent, which Sublandlord may withhold in its sole discretion. 9. INDEMNITY. Subtenant will indemnify, defend (by counsel reasonably acceptable to Sublandlord), protect and hold Sublandlord harmless from and against any and all liabilities, claims, demands, losses, damages, costs and expenses (including attorneys' fees and the allocated costs of Sublandlord's in-house attorneys) arising out of or relating to (i) the death of or injury to any person, or damage to any property whatsoever, on or about the Premises; or (ii) Subtenant's breach or default under this Sublease (including, without limitation, Subtenant's breach of PARAGRAPH 7 above) or, to the extent incorporated herein, the Master Lease. Sublandlord will indemnify, defend, protect and hold Subtenant harmless from and against any and all claims, demands, losses, damages, costs and expenses, (including attorneys' fees and the allocated costs of Subtenant's in-house attorneys) arising out of or relating to the death or injury to any person, or damage to any property on or about the Premises, caused by the willful misconduct or gross negligence of Sublandlord. 10. ATTORNEYS' FEES. If there is any legal or arbitration action or proceeding between Sublandlord and Subtenant to enforce 11 or interpret any provision of this Sublease or to protect or establish any right or remedy of either Sublandlord or Subtenant hereunder, the unsuccessful party to such action or proceeding will pay to the prevailing party all costs and expenses, including reasonable attorneys' fees (including allocated costs of the parties' in-house attorneys) incurred by such prevailing party in such action or proceeding and in any appearance in connection therewith, and if such prevailing party recovers a judgment in any such action, proceeding or appeal, such costs, expenses and attorney's fees will be determined by the court or arbitration panel handling the proceeding and will be included in and as a part of such judgment. 11. NO ENCUMBRANCE. Subtenant or Sublandlord shall not voluntarily, involuntarily or by operation of law mortgage or otherwise encumber all or any part of Subtenant's interest in the Sublease or the Premises. 12. ASSIGNMENT AND SUBLETTING. 12.1 Subtenant shall not voluntarily, involuntarily or by operation of law assign this Sublease or any interest therein and shall not sublet the Premises or any part thereof, or any right or privilege appurtenant thereto, without first obtaining the written consent of Sublandlord, which consent shall not be unreasonably withheld. The transfer of more than a fifty percent partnership interest in Subtenant, if Subtenant is a partnership, or more than fifty percent of the stock of Subtenant, if Subtenant is a corporation, to any entity other than a parent, sister company or subsidiary of Subtenant, shall be deemed to be an assignment for purposes of this PARAGRAPH 12. Determining whether or not to consent to the proposed assignment or subletting, Sublandlord may consider among other factors: (i) whether the proposed sublessee or assignee has a net worth equal to or greater than Subtenant; (ii) whether the proposed use of the Premises by the proposed sublessee or assignee is consistent with PARAGRAPH 2.7; (iii) whether the experience and business reputation of the proposed sublessee or assignee is equal to or greater than Subtenant; and (iv) whether Sublandlord's consent will result in a breach of the Master Lease or any other lease or agreement to which Sublandlord is a party affecting the Building or Premises. 12.2 Any attempted assignment or subletting, without Sublandlord's consent shall be null and void and of no effect. 12 No permitted assignment or subletting of Subtenant's interest in this Sublease, shall relieve Subtenant of its obligations to pay the rent or other sum or charge due hereunder and to perform all the other obligations to be performed by Subtenant hereunder. The acceptance of rent by Sublandlord from any other person shall not be deemed to be a waiver by Sublandlord of any provision of this Sublease or to be a consent to any subletting or assignment. Consent to one sublease or assignment shall not be deemed to constitute consent to any subsequent attempted subletting or assignment. 12.3 Within ten (10) days following the date received by Subtenant from any assignee or sublessee, Subtenant shall pay to Sublandlord as additional rent, one hundred percent (100%) of the amount by which the rent payable by such assignee or sublessee to Subtenant exceeds the rent payable by Subtenant to Sublandlord under this Sublease until the rent paid by Subtenant to Sublandlord equals the amount paid by Sublandlord to Master Landlord under the Master Lease and thereafter, fifty percent (50%) of the amount by which the rent payable by such assignee or sublessee to Subtenant throughout the term exceeds the rent paid by Subtenant to Sublandlord under this Sublease. By way of example, if during a year of the term the annual rent under the Master Lease is $12 per square foot, the rent under the Sublease is $10 per square foot, and the rent under such subsublease is $14 per square foot, of the $14 per square foot paid to Subtenant by its subsublessee, $13 per square foot will be paid by Subtenant to Sublandlord hereunder. If Subtenant receives a lump sum payment in connection with an assignment, such amount shall be allocated between Subtenant and Sublandlord, in the same manner taking into account the total rents payable during the remaining terms of the Master Lease and Sublease. The foregoing is a freely negotiated arrangement between Subtenant and Sublandlord respecting the allocation of appreciated rents. This covenant shall survive the expiration of the term of this Sublease. Notwithstanding the foregoing, Subtenant shall not be obligated to pay Sublandlord any portion of such appreciated rentals until Subtenant has recovered any costs it has reasonably incurred in connection with the subletting of the Premises to any third party broker or for improvements to the Premises. Any such costs to be deducted from appreciated rents shall be submitted to Sublandlord and shall be subject to Sublandlord's reasonable approval. 13. ALTERATIONS. (a) ALTERATIONS AND IMPROVEMENTS BY SUBTENANT. Subtenant shall not make any alterations, additions or improvements to the Premises ("Alterations") without obtaining the prior written consent of Sublandlord thereto, which consent shall not be unreasonably withheld. The term "Alterations" shall include any 13 alterations, additions or improvements made by Subtenant to comply with the ADA as required by PARAGRAPH 2.14 above and any alterations paid for with the Subtenant Improvement Allowance. All such Alterations shall be constructed only after necessary permits, licenses and approvals have been obtained by Subtenant from appropriate governmental agencies. All Alterations shall be constructed in a good and workmanlike manner using materials of a quality comparable to those on the Premises, and shall conform to all relevant codes, regulations and ordinances. All such Alterations shall be made at Subtenant's sole cost and expense and shall be diligently prosecuted to completion. Any contractor or person making such Alterations shall first be approved in writing by Sublandlord, which approval shall not be unreasonably withheld, and Sublandlord may require that all work be performed under its supervision. Upon the expiration or earlier termination of this Sublease, Sublandlord may elect to have Subtenant either (i) surrender with the Premises any or all of such Alterations as Sublandlord shall determine (except personal property as provided in Subparagraph (b) below), in which case, such Alterations shall become the property of Sublandlord, or (ii) promptly remove any or all of such Alterations designated by Sublandlord to be removed, in which case Subtenant shall, at its sole cost and expense, repair and restore the Premises to its original condition as of the Commencement Date, reasonable wear and tear excepted. Subtenant shall permit no mechanic's or other liens to be recorded against the Premises. Should a lien be made or filed against the Premises or real property on which the Premises are situated, Subtenant shall, at its sole cost, bond against or discharge said lien within ten (10) days after Sublandlord's or Master Landlord's request to do so. (b) REMOVAL OF PERSONAL PROPERTY. All articles of personal property, and all business and trade fixtures, machinery and equipment, cabinet work, furniture and movable partitions, if any, owned or installed by Subtenant at its expense, excluding, however, any such property paid for by Subtenant using the Subtenant Improvement Allowance provided for in Paragraph 2.8, shall be and remain the property of Subtenant and may be removed by Subtenant at any time, provided that Subtenant, at its expense, shall repair any damage to the Premises caused by such removal or by the original installation. Sublandlord may elect to require Subtenant to remove all or any part of such personal, non-excluded property at the expiration or sooner termination of this Sublease, in which event such removal shall be done at Subtenant's expense, and Subtenant shall at its own expense repair any damage to the Premises caused by such removal prior to the termination of this Sublease. 14. HOLDING OVER. If Subtenant holds over after the expiration or earlier termination of this Sublease, without the express consent of Sublandlord, then at the option of Sublandlord, Subtenant shall become and be only a month-to-month tenant at a 14 rent equal to one hundred and fifty percent (150%) of the rent payable by Subtenant immediately prior to such expiration or termination, and otherwise upon the terms, covenants and conditions herein specified. Notwithstanding any provision to the contrary contained herein, (i) Sublandlord expressly reserves the right to require Subtenant to surrender possession of the Premises upon the expiration of the term hereof or upon the earlier termination hereof and the right to assert any remedy at law or in equity to evict Subtenant and/or collect damages in connection with any such holding over, and (ii) Subtenant shall indemnify, defend and hold Sublandlord harmless from and against any and all liabilities, claims, demands, actions, losses, damages, obligations, costs and expenses, including, without limitation, attorneys' fees (including the allocated costs of Sublandlord's in-house attorneys) incurred or suffered by Sublandlord by reason of Subtenant's failure to surrender the Premises on the expiration or earlier termination of this Sublease in accordance with the provisions of this Sublease. 15. LIENS. Subtenant will keep the Premises and the Building free from any liens arising out of any work performed, materials furnished, or obligations incurred by Subtenant. Sublandlord has the right to post and keep posted on the Premises any notices that may be provided by law or which Sublandlord may deem to be proper for the protection of Sublandlord, the Premises and the building from such liens. 16. MAINTENANCE AND REPAIRS. Subtenant has inspected the Premises and acknowledges that the Premises are in good order and repair except for any defects incapable of detection through inspection. At all times during the term of this Sublease, Subtenant, at its sole cost and expense, will maintain the Premises and every part thereof and all equipment, fixtures and improvements therein in good condition and repair. At the end of the term of this Sublease, Subtenant will surrender the Premises in as good condition as received, normal wear and tear excepted. Subtenant shall be responsible for all repairs required to be performed by the Lessee under the Master Lease. 17. INSURANCE. At all times during the term of this Sublease, Subtenant shall, at its sole expense, procure and maintain the following types and amounts of insurance coverage (but in no event less than the types and amounts of amounts of coverage required from time to time under the Master Lease): 17.1 Comprehensive general liability insurance against any and all damages and liability, including attorneys' fees on account or arising out of injuries to or the death of any person or damage to property, however occasioned, in, on or about the Premises with at least a single combined liability and property damage limit of $2,000,000. 15 17.2 Insurance on all plate or tempered glass in or enclosing the Premises, for the replacement cost of such glass. 17.3 Insurance adequate in amount to cover damage to the Premises including, without limitation, leasehold improvements, trade fixtures, furnishings, equipment, goods and inventory. 17.4 Rent insurance in an amount equal to all rent and other sums or charges payable under this Lease for a period of at least twelve (12) months commencing with the date of loss. 17.5 Employer's liability insurance and worker's compensation insurance as required by applicable law. 17.6 All such insurance shall be in a form satisfactory to Sublandlord and carried with companies reasonably acceptable to Sublandlord. Subtenant shall provide Sublandlord with a certificate of insurance showing Sublandlord as additional insured. The certificate shall provide for a thirty-day written notice to Sublandlord in the event of cancellation or material adverse change of coverage. 17.7 Sublandlord and Subtenant shall each obtain from their respective insurers under all policies of fire, theft, public liability, workers' compensation and other insurance maintained by either of them at any time during the term hereof insuring or covering the Premises, a waiver of all rights of subrogation which the insurer of one party might otherwise have, if at all, against the other party. 18. EVENTS OF DEFAULT. If one or more of the following events ("Event of Default") occurs, such occurrence constitutes a breach of this Sublease by Subtenant: 18.1 Subtenant abandons or vacates the Premises; or 18.2 Subtenant fails to pay any monthly Basic Monthly Rent or Operating Expenses and Taxes, if applicable, as and when the same become due and payable, and such failure continues for more than ten (10) days after Sublandlord gives written notice thereof to Subtenant; or 18.3 Subtenant fails to pay any other sum or charge payable by Subtenant hereunder as and when the same becomes due and payable, and such failure continues for more than thirty (30) days after Sublandlord gives written notice thereof to Subtenant; or 18.4 Subtenant fails to perform or observe any other agreement, covenant, condition or provision of this Sublease to be performed or observed by Subtenant as and when performance or observance is due, and such failure continues for more than 16 thirty (30) days after Sublandlord gives written notice thereof to Subtenant, or if the default cannot be cured within said thirty (30) day period and Subtenant fails within said period to commence with due diligence and dispatch the curing of such default or, having so commenced, thereafter fails to prosecute or complete with due diligence and dispatch the curing of such default; or 18.5 Subtenant (a) files or consents by answer or otherwise to the filing against it of a petition for relief or reorganization or arrangement or any other petition in bankruptcy or liquidation or to take advantage of any-bankruptcy or insolvency law of any jurisdiction; (b) makes an assignment for the benefit of its creditors; (c) consents to the appointment of a custodian, receiver, trustee or other officer with similar powers of itself or of any substantial part of its property; or (d) takes action for the purpose of any of the foregoing; or 18.6 A court or governmental authority of competent jurisdiction, without consent by Subtenant, enters an order appointing a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial portion of its property, or constituting an order for relief or approving a petition for relief or reorganization or any other petition in bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding up or liquidation of Subtenant, or if any such petition is filed against Subtenant and such petition is not dismissed within ninety (90) days; or 18.7 This Sublease or any estate of Subtenant hereunder is levied upon under any attachment or execution and such attachment or execution is not vacated within ninety (90) days. 19. REMEDIES OF SUBLANDLORD ON DEFAULT. 19.1 In the event of any breach of this Sublease by Subtenant, Sublandlord may, at its option, terminate the Sublease and recover from Subtenant: (a) the worth at the time of award of the unpaid rent which had been earned at the time of termination; (b) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of the award exceeds the amount of such rental loss that the Subtenant proves could have been reasonably avoided; (c) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that Subtenant proves could be reasonably avoided; and (d) any other amount necessary to compensate Sublandlord for all detriment proximately caused by Subtenant's failure to perform its obligations under this Sublease or which in the ordinary course of things would be likely to result therefrom. 17 19.2 Sublandlord may, in the alternative, continue this Sublease in effect, as long as Sublandlord does not terminate Subtenant's right to possession, and Sublandlord may enforce all its rights and remedies under the Sublease, including the right to recover the rent as it becomes due under the Sublease. If said breach of the Sublease continues, Sublandlord may, at any time thereafter, elect to terminate the Sublease. Sublandlord shall not be deemed to have terminated this Sublease or the liability of Subtenant to pay rent or any other amounts due hereunder by any reentry or by any action in unlawful detainer, unless Sublandlord shall have specifically notified Subtenant in writing that Sublandlord has elected to terminate this Sublease. 19.3 Sublandlord may pursue any other remedy now or hereafter available to Sublandlord under the laws and judicial decisions of the State where the Premises are located. 20. ESTOPPEL CERTIFICATES. 20.1 Subtenant shall at any time upon not less than ten (10) business days' prior written notice from Sublandlord execute, acknowledge business and deliver to Sublandlord a statement in writing (i) certifying that this Sublease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Sublease, as so modified, is in full force and effect), the amount of any security deposit, and the date to which the rent and other charges are paid in advance, if any, and (ii) acknowledging that there are not, to Subtenant's knowledge, any uncured defaults on the part of Sublandlord hereunder or of Master Landlord under the Master Lease, or specifying such defaults if any are claimed. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer to the Premises. 20.2 At Sublandlord's option, Subtenant's failure to deliver such statement within such time shall be conclusive upon Subtenant (i) that this Sublease is in full force and effect, without modification except as may be represented by Sublandlord, (ii) that there are no uncured defaults in Sublandlord's performance hereunder or in Master Landlord's performance under the Master Lease, and (iii) that not more than one month's rent has been paid in advance, or such failure may be considered by Sublandlord as a material default by Subtenant under this Sublease. 20.3 If the Master Landlord desires to finance, refinance, or sell the Premises, or any part thereof, Subtenant hereby agrees to deliver to any lender or purchaser designated by Master Landlord such financial statements of Subtenant as may be reasonably required by such lender or purchaser. Such statements shall include the past three years' financial statements of Subtenant. 18 21. REAL ESTATE BROKERS. Each party warrants to the other that there are no brokerage commissions or fees payable in connection with this Sublease except to the broker set forth in Paragraph 2.19. Each party further agrees to indemnify and hold the other party harmless, from any cost, liability and expense (including attorney's fees and the allocated costs of the parties' in-house attorneys) which the other party may incur as the result of any breach of this PARAGRAPH 21. 22. ARBITRATION OF DISPUTES. ANY CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS SUBLEASE OR ANY AGREEMENTS OR INSTRUMENTS RELATING HERETO OR DELIVERED IN CONNECTION HEREWITH, INCLUDING BUT NOT LIMITED TO A CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT WILL, AT THE REQUEST OF ANY PARTY, BE DETERMINED BY ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (9 U.S.C. SECTION 1 ET SEQ.) UNDER THE AUSPICES AND RULES OF THE AMERICAN ARBITRATION ASSOCIATION ("AAA"). THE AAA SHALL BE INSTRUCTED BY EITHER OR BOTH OF THE PARTIES TO PREPARE A LIST OF THREE (3) JUDGES WHO HAVE RETIRED FROM THE SUPERIOR COURT OF THE STATE OF CALIFORNIA, A HIGHER CALIFORNIA COURT OR ANY FEDERAL COURT. WITHIN TEN (10) DAYS OF RECEIPT OF THE LIST, EACH PARTY MAY STRIKE ONE (1) NAME FROM THE LIST. THE AAA WILL THEN APPOINT THE ARBITRATOR FROM THE NAME(S) REMAINING ON THE LIST. THE ARBITRATION WILL BE CONDUCTED IN SAN FRANCISCO, LOS ANGELES OR SAN DIEGO, WHICHEVER IS THE CLOSEST CITY TO THE NEXUS OF THE DISPUTE. ANY CONTROVERSY IN INTERPRETATION OR ENFORCEMENT OF THIS PROVISION, OR WHETHER A DISPUTE IS ARBITRABLE, WILL BE DETERMINED BY THE ARBITRATOR. EITHER PARTY MAY CONDUCT DISCOVERY IN THE SAME MANNER AND TO THE EXTENT PROVIDED IN THE FEDERAL RULES OF CIVIL PROCEDURES AND THE LOCAL RULES OF THE U.S. DISTRICT COURT, CENTRAL DISTRICT OF CALIFORNIA EXCEPT THAT SUCH DISCOVERY PERIOD SHALL NOT EXCEED 45 DAYS. JUDGMENT UPON THE AWARD RENDERED BY THE ARBITRATOR MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. THE INSTITUTION AND MAINTENANCE OF AN ACTION FOR JUDICIAL RELIEF OR IN PURSUIT OF A PROVISIONAL OR ANCILLARY REMEDY DOES NOT CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE PLAINTIFF, TO SUBMIT THE CONTROVERSY OR CLAIM TO ARBITRATION. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THE FOREGOING, THE PARTIES HERETO ACKNOWLEDGE AND AGREE THAT THE PROVISIONS OF THIS PARAGRAPH 22 WILL NOT APPLY TO ANY DEFAULT BY SUBTENANT OR TO SUMMARY PROCEEDINGS TO OBTAIN POSSESSION OF REAL PROPERTY PURSUANT TO CHAPTER 4 OF HE CALIFORNIA CODE OF CIVIL PROCEDURE (SECTION 1159 ET SEQ.) AS AMENDED FROM TIME TO TIME OR ANY SIMILAR LAW, STATUTE OR ORDINANCE NOW OR HEREAFTER IN EFFECT. NOTICE: BY INITIALLING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A 19 COURT OR JURY TRIAL. BY INITIALLING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY. WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION TO NEUTRAL ARBITRATION. s/RJW/ s/PM/ -------------- -------------- SUBTENANT'S SUBLANDLORD'S INITIALS INITIALS 23. MASTER LANDLORD DEFAULT; CONSENTS. Notwithstanding any provision of this Sublease to the contrary, (a) Sublandlord shall not be liable or responsible in any way for any loss, damage, cost, expense, obligation or liability suffered by Subtenant by reason or as the result of any breach, default or failure to perform by the Master Landlord under the Master Lease, and (b) whenever the consent or approval of Sublandlord and Master Landlord is required for a particular act, event or transaction (i) any such consent or approval by Sublandlord shall be subject to the consent or approval of Master Landlord, and (ii) should Master Landlord refuse to grant such consent or approval, under all circumstances, Sublandlord shall be released from any obligation to grant its consent or approval. 24. NOTICES. All notices or other communications required or permitted hereunder must be in writing, and be personally delivered (including by means of professional messenger service) or sent by registered or certified mail, postage prepaid, return receipt requested or by overnight courier that obtains the signature of the receiving party, or by facsimile with machine confirmation to the addresses set forth in PARAGRAPH 2.17. All notices will be deemed received on the date sent. 25. MASTER LANDLORD'S CONSENT. This Sublease is expressly conditioned upon receipt of the written consent of Master Landlord within ten (10) days from the date of this Sublease. Sublandlord will use reasonable efforts to obtain Master Landlord's consent; provided, however, Sublandlord shall not be liable to Subtenant if Sublandlord is unable to obtain such consent or obligated to pay money or incur additional liability in order to obtain such consent. In the event Sublandlord fails to obtain the consent of Master Landlord within ten (10) days of 20 the date of this SubLease, then Subtenant may terminate this agreement, in which case both parties shall be relieved of all obligations hereunder, and all rent and other payments made by Subtenant prior to such termination shall be refunded. 26. SIGNAGE. Subject to approval of Master Landlord and city and county regulatory agencies, Subtenant shall have the right to use all sizes and types of signs acceptable under city or county code or acceptable with applicable city or county code variance and mutually agreed upon by Subtenant, Sublandlord and Master Landlord and Subtenant shall have the right to incorporate its corporate color, PMS #287 blue, into the sign design. Subtenant estimates that it will need between approximately 550 and 650 aggregate square feet for signage, including signage on top of the building. Sublandlord agrees to cooperate with Subtenant and use its best efforts to secure the corporation and commitment of Master Landlord in order to obtain any city or county approvals or applicable variances relating to signage. 27. CONTINGENCIES. This Sublease is further expressly conditioned upon the receipt of the approval of the Office of Thrift Supervision to permit Subtenant to operate a bank branch at the premises within thirty (30) days of the Commencement Date ("Contingency Period"). If during the Contingency Period, Subtenant receives notice that such approval has been denied, or if at the end of the Contingency Period Subtenant has received no notice that such approval has been granted or denied, then either party may, at its option, terminate the Sublease by written notice on or before the last day of the Contingency Period. In the event either party elects to terminate the Sublease, both parties shall be relieved of all obligations hereunder except for Subtenant's indemnity obligations under PARAGRAPH 9. All rent and other payments made prior to such termination shall be non-refundable. (Signature page follows) 21 IN WITNESS WHEREOF, Sublandlord and Subtenant have executed this Sublease as of the date first above written. SUBLANDLORD Bank of America National Trust and Savings Association By: s/Yvonne Tom/ ----------------------------- Title: Vice President By: s/Patricia Morris/ ----------------------------- Title: Disposition Manager SUBTENANT Independence One Bank of California a federal savings bank By: s/Robert J. Webber/ 3/21/94 ----------------------------- Title: Vice President By: ----------------------------- Title: ----------------------------- 22 CONSENT TO SUBLEASE The Taj, a California limited partnership, as Lessor, and the Bank of America National Trust and Savings Association, as Lessee, are parties to a Lease dated as of July 21, 1972 as amended (the "Lease"). The Lessor hereby consents to the Sublease dated March 31 1994, by and between the Lessee and Independence One Bank of California, as Subtenant on the following terms and conditions: 1. This Consent shall not be construed in any manner to modify, waive or affect any of the terms, covenants, conditions or agreements contained in the Lease; 2. This Consent shall not be construed as a consent by the Lessor to, or as permitting any other or further subletting or assignment by Lessee or Subtenant. 3. Lessee shall not be released from, and Lessee shall be and remain liable for, the performance and observance of all the terms, covenants, conditions, and agreements contained in the Lease. 4. Although a duplicate original of the Sublease has been delivered to the Lessor for its information, Lessor is not a party thereto and is not bound by its provisions, nor shall Lessor, either by receipt thereof or by the making of this Consent, be deemed to have approved any of such provisions; however, any modification or amendment to the Sublease without the prior written consent of Lessor in each instance, shall be deemed a default under the Lease. 5. Prior to the Subtenant making any alterations and improvements to the Premises Subtenant shall provide to Lessor for Lessor's approval, which approval shall not be unreasonably withheld the following documents: (A) all construction plans for Subtenant's alterations and improvements to the Premises; (B) copy of all building permits from the City of Laguna Hills; (C) copies of all contractor's building contracts ( D) copies of all contractor's insurance certificates; (E) contractor's asbestos disclaimer form in form reasonably acceptable to Lessor; (F) copies of the contractor's schedule and work rules; (G) copies of all demolition permits and trash removal permits and contracts; (H) delivery at completion of the alterations or improvements "as built" plans of the electrical, HVAC, and plumbing systems; and (I) copies of the certificate of occupancy for the Premises and building permit inspections. 6. If any provisions of this Consent shall be at variance with provisions of the Lease o Sublease, the provisions of this 23 Consent shall prevail. This Consent shall not be changed orally, but only by an agreement in writing signed by the party against whom the enforcement of such change is sought. 7. The Lessor represents and warrants that no other consents to the Sublease are required, including, without limitation, the consent of any lender on the property. 8. Lessee acknowledges and agrees to the terms of this Consent. Furthermore, Lessee acknowledges that certain areas in the Premises may have sprayed on asbestos fire proofing on the structural steel and duct insulation and that Lessor has retained independent consultants to test the air quality of the Premises. Lessee acknowledges that the mere presence of asbestos-containing materials does not necessarily constitute a health hazard, however, Lessee and Subtenant agree that during the performance of any alterations or improvements on the Premises by Lessee or Subtenant that if asbestos is encountered, such asbestos must be controlled by Lessee and/or Subtenant and dealt with by Lessee and/or Subtenant in accordance with federal, state, and local laws and regulations. Lessee will notify Subtenant and cause Subtenant to notify any contractor employed to work on the Premises of the potential for encountering asbestos during the rendition of alterations and improvements, so that such contractor will take proper precautions to inform their employees so that if encountered, such asbestos shall be dealt with as required by applicable laws by the Subtenant and its contractor. 9. Lessee and Subtenant agree to indemnify, hold harmless, and defend Lessor from any and all claims or causes of action, damages, personal injuries, death, or losses of any nature caused by the exposure, disturbance, and/or removal of any and all asbestos encountered by Lessee, Subtenant or their contractors during the rendition of alterations and improvements to the Premises. Dated this 4th day of May, 1994. LESSOR: THE TAJ, a California limited partnership By: Fond du Lac Plaza No. 1, Inc., General Partner By: s/Thomas G. Berbacchi/ ----------------------------- Thomas G. Bernacchi Vice President 24 LESSEE: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: s/Stephen R. Lew for Yvonne Tom/ -------------------------------- Finance & Compliance Office Vice President By: s/Patricia Morris/ -------------------------------- Disposition Manager SUBTENANT: INDEPENDENCE ONE BANK OF CALIFORNIA By: s/Robert J. Webber -------------------------------- Vice President 25 ADDENDUM TO LEASE This Addendum To Lease is made as of this 1st day of September 1978 by and between Ronda Valencia Co., a limited partnership, (herein called "Lessor") and Bank of America National Trust And Savings Association, a national banking association, (herein called "Lessee"). RECITALS A. Lessee and Lessor's predecessor entered into a Lease dated July 21, 1972 for premises at 23521 Paseo de Valencia, Laguna Hills, California. Said lease as amended to the date hereof is hereinafter referred to as the "Lease." B. Lessee exercised its option under paragraph 20.1 of the Lease to lease Suites 101, 102 and 103 of the building at 23521 Paseo de Valencia. In order to resolve the dispute between Lessor and Lessee is to the fair market rental value to be paid by Lessee for the option space and to resolve other aspects of the transaction, Lessor and Lessee are entering into this Addendum To Lease in accordance with the arbitration decision by Jerold L. Miles and Richard A. Jampol dated December 12, 1979. Now therefore in consideration of the mutual covenants and agreements herein contained and for other good and valuable consideration receipt of which is hereby acknowledged, the parties hereby amend the Lease, as amended, on the following terms and conditions: 1. Suites 101, 102 and 103 of the building at 23521 Paseo de Valencia, Laguna Hills, California, generally located as shown on the diagram attached hereto as Exhibit A, are hereby added to the Premises under the Lease for a lease term commencing September 1, 1978. Suites 101, 102 and 103 are hereinafter referred to as the "Option Premises." 2. In addition to the rent and other payments required to be paid by the Lessee under the Lease prior to this Addendum, Lessee hereby agrees to pay to Lessor as base rental for the Option Premises $3,811.15 per month, net, net, net, commencing as of September 1, 1978 and continuing on the first day of each calendar month thereafter during the term and any renewal term. Rental shall be paid to Lessor without deduction or offset in lawful money of the United States of America at the office of the building or to such other person or at such other place as Lessor may from time to time designate in writing. 3. The rental provided for in paragraph 2 above for the Option Premises shall be increased proportionately every three 26 years by 75 percent of the excess of the cost of living index for August 1981 and by 75 percent of the excess of the cost of living index for each third August thereafter (i.e. August 1984, August 1987, etc.) during the term and renewal term of the Lease (herein called the "adjustment figure") over the cost of living index for September 1978 (herein called the "base figure") as shown in the Consumer Price Index for All Urban Consumers -Los Angeles-Long Beach-Anaheim, Metropolitan Area ("all Items") compiled by the U.S. Department of Labor, Bureau of Labor Statistics, based on 1967 as 100. Said excess shall be computed every three years as a percentage of the base figure and then multiplied by the monthly rent provided for in paragraph 2 above for the month of September 1978, and the resulting product is hereinafter called the "adjusted monthly rent." Upon completion of the computation Lessor shall give written notice to Lessee of the adjusted monthly rent and it shall be due and payable by Lessee as of the first day of September immediately following the August for which the respective adjustment figure was taken (i.e. September 1, 1981, September 1, 1984, etc.) and on the first of each of the 35 months thereafter. In no event shall the monthly rental be less than the monthly rental specified in paragraph 2 above. All adjusted monthly rent shall be payable in accordance with the provisions of paragraph 2 above and Lessor shall have the same rights, remedies as otherwise provided in the Lease for the failure of Lessee to pay rent. The index for the base figure and adjustment figure shall be the one reported in the U.S. Department of Labor's most comprehensive official index then in use and most nearly answering the foregoing description of the index to be used. If it is calculated from a base different from the period 1967 equal 100 used for the above-described index, the base index used for calculating the adjustment figure shall first be converted under a formula supplied by the Bureau. If the above-described index shall no longer be published, the index substituted therefore by the Bureau of Labor Statistics shall be utilized. If no such index shall be substituted, then another index generally recognized as authoritative shall be substituted by agreement, and if the parties cannot agree, Lessor or Lessee may apply to the appropriate court of Los Angeles County, California by action, proceeding or as otherwise might be proper for determination of an authoritative consumer price index as herein set forth. Section 3.2 of Article 3 of the Lease shall not be applicable to the rent hereinabove provided for the Option Premises. 4. In addition to the monthly rental of $3,811.15 as adjusted by paragraphs 2 and 3 above, there shall be payable by Lessee to Lessor as additional rent for the Option Premises during the term and renewal term of this Lease an amount equal to 5.38 percent of all real property taxes, insurance and public utility charges for each calendar year as described in Article 4 of the Lease. The last paragraph of Section 1.5 of the Lease shall be applied separately to the additional rent set forth in 27 the preceding sentence with "5.38%" substituted for "14.34%" in said last paragraph of Section 4.5. Also, as additional rent for the Option Premises during the term and renewal term of this Lease, Lessee shall pay to Lessor 5.38 percent of all costs incurred by Lessor in the operation and maintenance of the common areas. The provisions of the paragraph entitled "Common Area" attached hereto as Exhibit E and incorporated herein by this reference set forth Lessor's standard and usual procedure for allocating such costs and shall be applicable hereto. The first paragraph of Article 4.5 does not apply to the Option Premises. 5. The Lessee's option to extend the term of the Lease as set forth in Section 19.1 of the Lease shall include the Option Premises except that the base rental payable for the Option Premises in the event that said option is exercised shall be adjusted in the same manner as set forth in paragraph 2 above. Therefore, the portion of Section 19.1 of the Lease beginning with the words "save and except that the" in the 16th line from the bottom of page 17 of the Lease through the end of Section 19.1 shall not be applicable to the Option Premises. 6. Except as herein modified the Lease shall continue in full force and effect with respect to the Premises, including the Option Premises. In Witness Whereof this Addendum To Lease is executed as of the day and year first above written. Bank of America National Ronda Valencia Co. Trust and Savings Association By: By: -------------------------- -------------------------- --------------------- --------------------- By: By: -------------------------- -------------------------- --------------------- --------------------- 28 EXHIBIT A (First Floor Plan) 29 EXHIBIT B COMMON AREA. Common areas as used herein shall include but not be limited to the parking area, walkways and landscaping. Said costs shall include but shall not be limited to costs of cleaning, landscaping, lighting and other utilities, resurfacing, parking attendants, painting, policing, insurance, property tax costs (as defined below) relating to the common areas, depreciation of equipment, and reasonable management fees to lessor (which fee shall not exceed five percent (5%) of the total of all other costs incurred in connection with said areas). On or before the twentieth (20th day of the month next succeeding each calendar quarter (April 20, July 20, October 20, January 29). Lessor shall deliver to Lessee a written statement setting forth the total common area costs incurred by Lessor during the immediately preceding calendar quarter and Lessee's prorata share of such costs. Within ten (10) days after delivery of such statements, Lessee shall pay to lessor its prorata share of such costs as set forth in said statements. In the event this Lease shall commence or terminate on any date other than the last day of a calendar quarter, the amount of common area costs payable by Lessee for the calendar quarter in which this Lease commences or terminates shall be prorated on the ration that the number of days of the Lease term falling within said calendar quarter bears to 91 days. No delay or failure by Lessor to enforce this paragraph, or any part thereof, as to Lessee, or to enforce similar or dissimilar provisions in other leases in use as to any other lessee in the building shall be deemed to be a waiver hereof or prevent any subsequent or other enforcement hereof. The failure of Lessor to deliver the quarterly written statement shall not constitute a waiver by Lessor of its rights to collect Lessee's share of the common area costs. All common area costs payable by lessee hereunder shall constitute additional rent and upon Lessee's failure to pay any such amounts. Lessor shall have the same rights and remedies as otherwise provided in this Lease for the failure of Lessee to pay rent. "Property tax costs" shall be the total of all real and personal property taxes, assessments, license fees, commercial rental taxes, levies, penalties or taxes imposed by any authority having the direct or indirect power to tax, including any city, county, state and federal government, and any school, agricultural, lighting, drainage and other improvement district thereof, as against any legal or equitable interest of Lessor in the premises or in the property of which the premises are a part (including land, building, improvements and personally) as against Lessor's right to rent or other income therefrom, or as against Lessor's business of leasing the premises. 30 Leisure World VITAL FILE #85-1107 LEASE THIS LEASE, made this 21st day of July, 1972, between ATLANTIC COMPANY and the Estate of RUDY BREINER, a general partnership, Lessor, and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a national banking association, Lessee. WITNESSETH: Lessor does hereby lease to Lessee, and Lessee does hereby hire from Lessor those certain premises (hereinafter called "Premises"), consisting of the portions of a building (hereinafter called "Building") outlined in red on Exhibit "A" attached hereto, and hereby made a part hereof, and the land adjacent thereto outlined in green on said Exhibit "A", and space for two remote TV driveup teller units, together with a non-exclusive right to use the driveways to said units for ingress and egress, all as outlined in blue on said Exhibit "A", together with that portion of the basement area of said building outlined in red on Exhibit "AA" attached hereto, which Premises are a portion of the real property described on Exhibit "B" attached hereto and hereby made a part hereof. Said letting and hiring is upon and subject to the terms, covenants and conditions herein set forth. 31 ARTICLE 1 PURPOSE Section 1.1 The Premises are to be used for banking purposes and no other purpose without the prior written consent of Lessor which consent shall not be unreasonably withheld. ARTICLE 2 TERM Section 2.1 The term of this Lease shall commence September 1, 1972, and shall end unless sooner terminated on August 31, 2002. ARTICLE 3 RENT Section 3.1 Lessee shall pay to Lessor rent for the Premises for the first fifteen (15) years of the term as follows: (i) On or before September 1, 1972 and on or before the first day of each month thereafter, to and including February 1, 1973, the sum of $2,850.00; (ii) On or before March 1, 1973 and on or before the first day of each month thereafter to and including August 1, 1987, the sum of $5,157.88, provided, however, that during the first five (5) years when the monthly rent of $5,157.88 is in effect it shall be reduced by the sum of $2,083.33 to compensate Lessee for the sum of $125,000 expended by Lessee on the 32 alterations, remodeling and additions to the Premises hereinafter referred to in Section 8.1 which Lessee will make, with the further understanding that Lessor may at any time pay to Lessee in cash the balance remaining on the $125,000 whereupon the rent shall be $5,157.88 per month as aforesaid. Section 3.2 After the fifteenth (15th) year of the term of this Lease there shall be an adjustment in rent. The adjusted monthly rent shall be the sum of $5,157.88 increased by the percentage of increase, if any, of the assessed valuation by the County Tax Assessor for the real property described on Exhibit "B" hereto for the fiscal year 1986-1987, over such assessed valuation for the fiscal year 1972-1973; provided, however, if the present method and formula for calculating real property tax assessed valuations by the County Tax Assessor has been abolished or changed, then the adjusted rent shall be the fair market rental value as of the beginning of the sixteenth (16th) year of the lease term. In no event shall the adjusted rent be less than $5,157.88 per month. If the adjusted rent is to be determined on the basis of the fair market rental value, six (6) months prior to September 1, 1987, the parties shall endeavor to agree upon the adjusted rent. If the parties are not able to determine the fair market rental value within the first sixty (60) days of the six-month period, either party shall be entitled to submit the question of fair market rental value to arbitration by giving 33 written notice to that effect to the other party as provided in Section 3.3 below. Section 3.3 The party desiring any arbitration provided for in this Lease, shall give written notice to that effect to the other party, specifying in said notice the name and address of the person designated to act as arbitrator on its behalf. Within fifteen (15) days after the service of such notice, the other party shall give written notice to the first party specifying the name and address of the person designated to act as arbitrator on its behalf. If the second party fails to notify the first party of the appointment of its arbitrator, as aforesaid, within or by the time above specified, then the appointment of the second arbitrator shall be made in the same manner as hereinafter provided for the appointment of a third arbitrator in a case where the two arbitrators appointed hereunder and the parties are unable to agree upon such appointment. The arbitrators so chosen shall meet within ten (10) days after the second arbitrator is appointed. If the said two arbitrators shall not agree upon the decision to be made in such dispute, they shall, themselves, appoint a third arbitrator who shall be a competent and impartial person; and in the event of their being unable to agree upon such appointment within ten (10) days after the time aforesaid, the third arbitrator shall be selected by the parties themselves if they can agree thereon within a further period of fifteen (15) days. 34 If the parties do not agree, then either party, on behalf of both, may request the then presiding judge of the Superior Court of the State of California for the County of Los Angeles to appoint such third arbitrator, and the other party shall not raise any question as to the Court's full power and Jurisdiction to entertain the application and make the appointment and the person so appointed, shall be the third arbitrator. The decision of the arbitrators so chosen shall be given within a period of thirty (30) days after the appointment of such third arbitrator. The decision in which any two of the arbitrators so appointed and acting hereunder concur shall in all cases be binding and conclusive upon the parties. Each party shall pay the fees and expenses of the one of the two original arbitrators appointed by such party, or in whose stead as above provided, such arbitrator was appointed, and the fees and expenses of the third arbitrator, if any, shall be borne equally by both parties. Except as otherwise provided in this Lease, the said arbitration shall be conducted in accordance with the rules then in effect of the American Arbitration Association, and judgment upon any arbitration decision rendered may be entered by any Court having jurisdiction thereof. ARTICLE 4 ADDITIONAL RENT Section 4.1 Lessee shall pay to Lessor during the term of this Lease, as additional rent, 14.34% of all real 35 property taxes, insurance and public utility charges relating to the real property described on Exhibit "B" hereto. Section 4.2 The term "real property taxes" as used herein shall mean all taxes, assessments and similar charges of every kind, nature and description, whether general or special, ordinary or extraordinary, which at any time during the term of this Lease by or pursuant to any to any law or governmental, legal, political or other authority may be directly or indirectly taxed, levied, charged, assessed or imposed upon or against or which will or may be or become a lien upon this Lease or any part of the real property described on Exhibit "B" hereto, or upon any estate, right, title or interest of Lessor or Lessee in and to same; provided, however, that in no event shall Lessee be required to pay or discharge any of the following: (a) Any estate, inheritance, succession, transfer, gift or poll tax levied or assessed against Lessor or against the interest of Lessor in the real property described on Exhibit "B" hereto; (b) Any tax upon the income or profits of Lessor or upon any sale or conveyance or encumbrance of the real property described on Exhibit "B" hereto or any part thereof made by Lessor; (c) Any tax that may be levied upon any personal property of Lessor or any tax that may be levied on account of any real property of Lessor other than real property described on Exhibit "B" hereto; 36 (d) Any franchise, capital stock, excise, Social Security, unemployment, sales, use or withholding tax levied or assessed against Lessor or any other tax, assessment, imposition, levy or charge which has no direct relation to the real property described on Exhibit "B" hereto, and which is levied or assessed against Lessor and not against the said real property, which would not become a lien against the said real property except for the failure of Lessor to pay the same. Any of the obligations enumerated in preceding sub-paragraphs (a), (b), (c) and (d) which have become a lien upon Lessee's interest in the Premises or any part thereof shall be discharged by Lessor, and in the event Lessor shall fail to discharge any such obligation and the same has become a lien upon Lessee's interest, or adversely affects Lessee's interest in the Premises or any part thereof, then Lessee at its option may discharge the same and any amount paid by Lessee to effect such discharge shall be repayable forthwith by Lessor to Lessee. Notwithstanding the foregoing, Lessor, if it so desires, may at any time contest the validity of any assessment, tax or levy referred to in the preceding subparagraphs (a), (b), (c) and (d), and Lessee shall not have the right to pay the same while such contest is being regularly conducted by Lessor. In the event that such contest is determined adversely to Lessor, Lessor may pay the same before the judgment becomes final, and Lessor shall, if required by Lessee, furnish to Lessee reasonable indemnity against any loss by reason of such contest. 37 Real property taxes levied or assessed upon the real property described in Exhibit "B" hereto with respect to the fiscal year in which the term of this Lease commences and with respect to the fiscal year in which the term of this Lease ends shall be prorated for the purpose of determining the amount thereof payable by Lessee as of the date upon which this Lease commences and as of the date of which the term of this Lease ends. Benefit shall be taken by Lessor of the provisions of any statute or ordinance permitting any such assessments to be paid over a period of time and the percentage which Lessee shall be obligated to pay shall be calculated only on the installments of such assessments which are attributable to the term of this Lease. Section 4.3 The term "insurance" as used herein shall mean (i) fire and extended coverage insurance; (ii) public liability and property damage insurance. Section 4.4 The term "public utilities charges" as used herein shall mean charges for water, electricity, heat air-conditioning, air conditioning and water maintenance contracts. Section 4.5 During the year 1972, Lessee shall pay to Lessor in advance, on the first day of each calendar month after the commencement date of this Lease the sum of $2,850.00 for application on Lessee's obligations under Section 4.1 hereof and for ensuing years the monthly amounts hereinafter provided. 38 With reasonable promptness after the beginning of each calendar year, Lessor shall furnish to Lessee a statement in reasonable detail setting forth the foregoing costs for the previous calendar year and Lessee's share thereof under the terms hereof, together with the opinion of the firm of Public Accountants employed by Lessor that said statement was prepared in accordance with the terms of this Lease. If the monthly amount paid during the past calendar year is below the amount due hereunder (that is, 14.34% of such costs), Lessee shall promptly pay in cash to Lessor the difference and the monthly charge thereafter for the ensuing calendar year shall be increased accordingly. If the total amount paid by Lessee is in excess of the amount due hereunder, the monthly amount to be paid thereafter by Lessee shall be reduced accordingly and the excess amount collected shall be credited on the monthly payments as they thereafter become due during such ensuing year. ARTICLE 5 LESSOR'S WARRANTY OF TITLE Section 5.1 Lessor warrants and represents that the Premises are owned by Lessor in fee, free and clear of all liens, restrictions, encumbrances, and other exceptions other than those set forth in the Preliminary Title Report dated June 10, 1970 issued by First American Title Insurance Company under its Order No: 1083545, covering the Premises. In addition, Lessor agrees to deliver the Premises to Lessee on or before September 1, 1972 39 free and clear of all tenants, and warrants that Lessee shall peaceably and quietly enjoy the premises so long as it pays the rent payable to it hereunder and is not in default in performing the provisions of this Lease. ARTICLE 6 ASSIGNMENT AND SUBLETTING Section 6.1 Lessee may not assign or sublet the Premises without the written consent of Lessor first obtained which consent shall not be unreasonably withheld. Nothing herein shall be construed to prohibit a transfer resulting from a merger or consolidation. ARTICLE 7 INDEMNITY Section 7.1 Except for any claim, demand, lien, loss, detriment or liability caused by or arising from the negligence or willful act of the Lessor, its agents, servants or employees, or caused by or arising from the failure on the part of Lessor to perform any of the terms, covenants, or conditions herein set forth on its part to be performed, (provided that Lessee shall give Lessor prior written notice of such default, if any, and Lessor shall have a reasonable time to correct such failure), Lessee covenants and agrees at all times to save Lessor, as well as the demised premises, free and harmless of and from each and every claim, demand, lien, loss, detriment and 40 liability, of whatsoever kind or character, at any time made, asserted or claimed, by or on behalf of any person or persons including Lessee against Lessor, for or on account of any matter or thing including injury to or death of any person or persons and damage to property, occurring from any cause upon or about the Premises, or upon the sidewalk adjacent thereto, or resulting from, arising out of, or in any wise connected with any condition of the Premises, or resulting from, arising out of, or in any wise connected with the use and occupancy thereof by Lessee, including all costs and attorneys' fees of Lessor in defending against any one or more of the same. ARTICLE 8 CHANGES AND ALTERATIONS Section 8.1 During the term of this Lease and any renewal thereof, Lessee at its own cost and expense may alter and remodel the portion or the Building leased hereunder and may enlarge same by erecting an additional structure on the land outlined in green on Exhibit "A" hereto, and in addition, Lessee may erect two remote TV driveup teller units as also outlined on Exhibit "A" hereto, provided that such improvements shall conform to the building laws of the public authority having jurisdiction thereof, and provided that no such improvements which will be constructed will impair the strength of the exterior walls, foundations or other structural parts of the Building or will 41 endanger the safety thereof, subject to Lessor's prior written approval which Lessor agrees not to unreasonably withhold. Section 8.2 Lessee expressly covenants and agrees to promptly pay for any and all labor done or materials furnished for any work of demolition, construction, repair, maintenance, improvement, alteration, addition or any other matter pertaining to or in connection with the Premises, and agrees to keep and hold the Premises and Lessor free, clear and harmless of and from any mechanics' liens or liens of a similar nature which might or could arise by reason of any such matter. Section 8.3 Lessor shall at all reasonable times and from time to time have the right to post and to keep posted on the Premises notices provided for by Section 1183.1 of the Code of Civil Procedure of the State of California or by any other law of said State for which Lessor may deem to be for the protection of Lessor and said property from mechanics' liens or liens of a similar nature. Section 8.4 If Lessee is unable to secure a building permit or otherwise is unable to proceed with the initial alterations, remodeling and addition to the Building described in Section 8.1 above on or before December 31, 1972 it may cancel this Lease upon written notice to Lessor and thereupon it will be released of all obligations hereunder. 42 ARTICLE 9 MAINTENANCE Section 9.1 Except as hereinafter provided, Lessee, at its sole cost and expense, shall keep the Premises in good condition and repair, including plate glass windows. Damage thereto by fire, act of God or the elements excepted, Lessee hereby waiving all rights to make repairs at the expense of Lessor as provided by any law, statute or ordinance now or hereafter in effect. Lessee upon the expiration or sooner termination of the term hereof shall surrender the Premises to Lessor in the same condition as received, ordinary wear and tear, damage by fire, act of God, or the elements excepted. Lessor, at its sole cost and expense shall repair any defects in the structure of the Building and shall keep in good condition and repair the roof and exterior thereof. Except, that portion constructed by Lessee which portion shall be maintained and repaired at the sole cost and expense of Lessee. ARTICLE 10 UTILITIES AND SERVICES Section 10.1 Lessor agrees to furnish to the portion of the Premises in the Building during reasonable hours of generally recognized business days, water, electricity, sewer, heat and air-conditioning required for the comfortable use and occupation of said portion of the Premises. 43 Lessee shall furnish at its sole cost and expense janitorial services for the portion of the Premises located in the Building, including the cleaning of windows. ARTICLE 11 PARKING Section 11.1 Lessor shall assign twenty-eight (28) car spaces for Lessee's employees and Lessor hereby grants to Lessee's agents, customers and invitees, the right during the lease term or any extension or renewal thereof, to use in common with others entitled to the use thereof, the parking areas as delineated on Exhibit "A" hereto. The parking spaces crosshatched on Exhibit "A" shall be reserved for exclusive twenty-minute parking for customers of Lessee and Lessor shall use its best efforts to insure that there shall be no interference by others in such exclusive use. Lessor shall maintain the parking area in good and clean condition and repair. The parking area crosshatched on Exhibit "A" shall not be relocated or altered in any way, nor shall any structures be erected thereon other than the two remote TV driveup teller units described in Section 8.1 above. ARTICLE 12 CONDEMNATION Section 12.1 In the event proceedings be taken by any lawful authority to condemn or otherwise acquire in excess of 15% 44 of the portion of the Premises located in the Building or in excess of 25% of the parking area which Lessor is required to provide hereunder, Lessee shall have the option at any time after such proceedings are instituted, and prior to such taking or acquisition, to terminate this Lease upon giving fifteen (15) days notice in writing to Lessor. Said termination shall be effective as of the date possession of the Premises is taken by the condemning authority. In the event of such termination, any unearned rent shall be refunded to Lessee. Should Lessee not elect to terminate this Lease or should any such taking not be sufficient to allow Lessee such option to terminate, this Lease shall continue in full force and effect, and Lessor at its own cost and expense shall restore, repair and remodel the Premises and the parking areas to the extent necessary to provide same suitable for the business of Lessee. Lessee shall be entitled to a reduction in rent thereafter required to be paid hereunder in proportion to the ratio which the number of square feet in the portion of the Premises in the Building taken bears to the total number of square feet in the Premises in the Building originally demised. Lessee shall also be entitled to a reasonable suspension or diminution of the rent required to be paid hereunder during the time required for any restoration and repair according to the portion of the Premises rendered untenantable taking into consideration the time and extent of interference with Lessee's business therein. Lessee shall receive no portion of the award 45 payable to Lessor under a condemnation action except as herein provided. Nothing herein contained shall be deemed or construed to prevent Lessee from interposing or prosecuting in any condemnation proceeding a claim for the value of any fixture or improvements installed in or made to the Premises by Lessee (other than such as have been paid for by Lessor) and in the case of a partial condemnation of the Premises, the cost, loss or damage sustained by Lessee as a result of any alterations, modifications or repairs which may be reasonably required of Lessee in order to place the remaining portion of the Premises not so condemned in suitable condition for further use and occupancy. ARTICLE 13 DAMAGE BY FIRE, ETC. Section 13.1 In the event the portion of the Premises in the Building is damaged by fire or other casualty, Lessor shall forthwith repair the same provided such repairs can be made within ninety (90) days under the laws and regulations of the authorities having jurisdiction thereof, and this Lease shall remain in full force and effect excepting that Lessee shall be entitled to a proportionate reduction of rent from the date of occurrence until such date as repairs are made, such proportionate reduction to be based upon the extent to which the making of such repairs shall interfere with the business carried 46 on by Lessee in the Premises. If such repairs cannot be made within ninety (90) days, Lessor shall have the option either (1) to repair or restore such damage provided this can be done within 180 days, this Lease to continue in full force and effect but the rent to be proportionately reduced as above in this paragraph provided, or, (2) give notice to Lessee at any time within thirty (30) days after such damage terminating this Lease as of the date to be specified in such notice, which date shall not be less than thirty (30), nor more than sixty (60) days after the giving of such notice. In the event of the giving of such notice, this Lease shall expire and all interest of Lessee in the Premises shall terminate on such date so specified in such notice and the rent reduced by a proportionate reduction based upon the extent, if any, to which such damage interfered with the business carried on by Lessee, shall be paid to the date of such termination, Lessor agreeing to refund to Lessee any rent theretofore paid for any period of time subsequent to such date. ARTICLE 14 DEFAULT PROVISION Section 14.1 In the event of default on the part of Lessee in payment of rent or other charges and payments to be made by Lessee under the provisions of this Lease, and such default shall continue uncured for a period of more than thirty (30) days after written notice of such default given as provided in Article 16 of this Lease, or if such default is not curable by 47 the payment of money and the Lessee fails for a period of thirty (30) days after notice given as provided in Article 16 to commence to cure such default, and thereafter diligently proceed to cure such default, or if Lessee shall be adjudicated bankrupt or insolvent according to law, or if any assignment of Lessee's property shall be made for the benefit of creditors, then in any of said events Lessor without further notice or demand may: (i) Declare said term ended and re-enter the Premises or any part thereof, either with or without process of law and expel and remove therefrom Lessee, or any and all parties occupying the same, using such force as may be necessary so to do, and again repossess and enjoy the same. (ii) Without declaring this Lessee ended, re-enter the Premises and relet the whole or any part thereof in either Lessor's or Lessee's name, for the account of the Lessee, for a term, which may extend beyond this Lease term, and may collect said rent and apply it on the amount due from Lessee hereunder and on any reasonable expense of such reletting and may then or at any time, or from time to time, recover from Lessee the balance then due. (iii) Terminate this Lease and thereupon be entitled to recover from Lessee the damages provided for in Section 1951.2 of the California Civil Code, which damages shall include the worth at the time of the award of the amount by which the unpaid rent specified in this Lease exceeds the amount of the rental loss for the same period that Lessee proves could be reasonably avoided. 48 Lessor shall not by any re-entry, or other act, be deemed to have terminated this Lease or the liability of Lessee for the rent and charges equivalent to rent received hereunder, unless Lessor shall give Lessee notice in writing that Lessor has elected to so terminate the Lease. The remedies of Lessor specified hereinabove shall be cumulative as to each other and as to all such others allowed by law, and the exercise of any such remedy by Lessor shall be without prejudice to any remedies which might otherwise be used for arrears of rent or preceding breach of covenant or condition. ARTICLE 15 HOLDING OVER BY LESSEE Section 15.1 If Lessee holds over or remains in the possession or occupancy of the Premises after the expiration of the term of this Lease, or after any sooner termination thereof, without any written lease of the Premises being actually made and entered into between Lessee and Lessor, such holding over or continued possession or occupancy, if rent is paid by Lessee and accepted by Lessor for or during any period of time it so holds over or remains in possession or occupancy shall create only a tenancy from month to month at the last monthly rental and upon the terms (other than the length of term) herein specified. Any such month to month tenancy may be terminated at any time by either Lessor or Lessee upon giving to the other thirty (30) days notice of intention to terminate the same. 49 ARTICLE 16 NOTICES Section 16.1 Any notices or demands which shall be required or permitted by law or any provision of this Lease shall in writing; and if the same is to be served upon Lessor, may be personally delivered to Lessor or may be deposited in the United States mail, registered return receipt requested, postage prepaid, addressed to Lessor as follows: __________________________ __________________________________________________________________________ or at such other address as Lessor may designate in writing. If such notices or demands are to be served-upon Lessee, said notices or demands shall be in writing and shall be made by deposit in the United States mail, registered, return receipt requested, postage prepaid, addressed to the Lessee at 555 South Flower Street, Los Angeles, California 90017, attention of Area Administration-Premises, with a copy of said notice addressed to Continental Service Company, 1335 South Grand Avenue, Los Angeles, California 90015, or such other address as Lessee may designate in writing. In case of service by mall, service may be deemed complete upon deposit in the United States mail in accordance with the provisions of this Article. 50 ARTICLE 17 TERMINATION Section 17.1 Upon termination of this Lease for any reason whatsoever, the Lessor shall require the Lessee to surrender to Lessor all buildings, structures, improvements, and building equipment upon the Premises, together with all alterations and replacements thereof, in good order, condition and repair except for reasonable wear and use building equipment) which may be made or installed by either the Lessor or Lessee upon the Premises shall upon the making or installation thereof be and become a part of the Premises as a part thereof at the termination of this Lease, subject, however, to the terms and provisions of this Lease. Trade fixtures, furniture and equipment (other than building equipment) which may be installed on the Premises, shall not become a part of the Premises and shall be removed by Lessee from the Premises; provided that no trade fixtures, furniture or equipment shall be removed, except with the prior written consent of Lessor, while Lessee is in default in the performance of any of its obligations under this Lease and provided that Lessee shall at its own cost and expense repair any and all physical damage to tho Premises resulting from or caused by the removal of any trade fixtures, furniture or equipment pursuant to this Section. The term "building equipment" wherever used in this Lease shall include all equipment primarily used or useful in the 51 operation of any building or buildings as such upon the demised land as distinguished from equipment used or useful in the operation of the business or businesses conducted within such building or buildings. The term "trade fixtures" as used herein shall include vault doors, night depositories and safe deposit boxes. ARTICLE 18 ATTORNEYS' FEES Section 18.1 Should either party hereto institute any action or proceeding in court to enforce any provision hereof or for damages by reason of an alleged breach of any provision of this Lease, the prevailing party shall be entitled to receive from the losing party such amount as the court may adjudge to be reasonable attorneys' fees for the services rendered the prevailing party in such action or proceedings. ARTICLE 19 OPTIONS TO EXTEND LEASE TERM Section 19.1 Provided Lessee is not in default under any of the items and conditions of this Lease, Lessee shall have the following options to extend the term of this Lease under the same terms, covenants and conditions hereof: (i) Lessee shall have an option to extend the lease term for ten (10) years upon the expiration of the initial term. 52 (ii) If Lessee exercises said first option, Lessee shall have a second option to extend the lease term for an additional ten-year period after the expiration of the first ten-year extension. Each such option shall be exercised by Lessee giving Lessor a written notice that it is exercising the same at least six (6) months prior to the date upon which this Lease would otherwise terminate if such option were not exercised. Any extended term hereof, pursuant to the exercise of said option or options shall be subject to all of the terms, covenants and conditions of this Lease, save and except that the monthly rental for the first extended ten-year term shall be the sum of $5,157.88 increased by the percentage of increase, if any, of the assessment by the County Assessor for the real property described on Exhibit "B" hereto, for the fiscal year 2001-2002 over such assessment for the fiscal year 1972-1973, and save and except that the monthly rental for the second extended ten-year term shall be the sum of $5,157.88 increased by the percentage of increase, if any, of the assessment by the County Assessor for the real property described on Exhibit "B" hereto, for the fiscal year 2011-2012, over such assessment for the fiscal year 1972-1973; provided, however, that if the present method and formula for calculating real property assessments has been abolished or changed at the time of exercising the particular option, then the rent for the applicable extended term or terms shall be the fair market rental value as of the time of 53 commencement of the applicable extended term. In no event shall the adjusted rent be less than $5,157.88 per month. The parties shall endeavor to agree upon the fair market rental value. If the parties shall be unable to agree between themselves as to the rent for the extended term or terms within the first sixty (60) days of the six-month period, then either party shall be entitled to submit this question to arbitration in accordance with Section 3.3 of this Lease. ARTICLE 20 OPTION TO RENT ADDITIONAL SPACE Section 20.1 Lessee shall have the option to lease the portions of the Building known as Suites 101, 102 and 103 for a term beginning September 1, 1978 and expiring on the expiration of the term of this Lease or any extension thereof. Such option shall be exercised by notice in writing to Lessor no later than January 1, 1978. The rent for the additional space shall be the fair market rental value as of the time of commencement of the term thereof. The parties shall endeavor to agree upon the fair market value. If the parties shall be unable to agree between themselves as to the rent for the additional space by March 1, 1978, then either party shall be entitled to submit the question for arbitration in accordance with Section 3.3 of this Lease. ARTICLE 21 ESTOPPEL CERTIFICATE 54 Section 21.1 Lessee and Lessor shall, at any time and from time to time upon not less than ten (10) days' prior request by the other party, execute, acknowledge and deliver to Lessor or Lessee, as the case may be, a statement in writing certifying that this Lease is unmodified and in full force and effect (or if there have been any modifications, that the same is in full force and effect as modified and stating the modifications) and, if so, the dates to which the fixed rent and any other charges have been paid in advance, it being intended that any such statement delivered pursuant to this Section may be relied upon by any prospective purchaser or encumbrancer (including assignees) of the Premises. ARTICLE 22 MEMORANDUM OF LEASE Section 22.1 Each party agrees upon the request of the other to enter upon a Memorandum of Lease suitable for recording containing a reference of this Lease, description of the Premises and the term of this Lease. ARTICLE 23 SIGNS Section 23.1 Lessee may erect signs similar to those used in its other branches in Southern California, provided they shall be in compliance with all applicable laws and regulations. 55 ARTICLE 24 SUCCESSORS Section 24.1 This Lease shall be binding upon and shall inure to the benefit of the parties hereto, their assigns, heirs, successors and personal representatives. ARTICLE 25 DESCRIPTIVE HEADINGS Section 25.1 The descriptive headings of this Lease are inserted for convenience in reference only and do not in any way limit or amplify the terms and provisions of this Lease. IN WITNESS WHEREOF, Lessor and Lessee have executed and delivered this Lease the day and year first above written. BANK OF AMERICAN NATIONAL ATLANTIC CONTINENTAL COMPANY TRUST & SAVINGS ASSOCIATION s/M.T. Barker/ s/Jerome J. Hoffman/ - ---------------------------- ---------------------------- M.T. Barker, Assistant Vice Jerome J. Hoffman President s/ E. Sutherland/ - ---------------------------- ESTATE OF RUDY BRUNER, DEC'D E. Sutherland, Assistant Secretary s/Martin C. Barell/ ---------------------------- Martin C. Barell 56 EXHIBIT "B" All that certain land situated in the State of California, County of Orange, described as follows: Parcel 1: Lot 4, Tract No. 6106 in the County of Orange, State of California, as per map recorded in book 232, pages 6 through 10 of Miscellaneous Maps, in the office of the County Recorder of said County. Except therefrom that portion thereof following described as follows: Beginning at the intersection of the centerline of said El Toro Road and the centerline of said Paseo de Valencia; thence South 02DEG. 25' 25" East, 511.89 feet along the centerline of said Paseo de Valencia; thence South 87DEG. 34' 35" East, leaving said centerline 207.00 feet to the true point of beginning; thence North 87DEG. 34' 35" West 100.00 feet to the Easterly line of Ronda Del Rossmoor, as shown on the map of Tract No. 6106, recorded in book 232, pages 6 to 10, inclusive of Miscellaneous Maps, records of said County, thence along said Easterly line North 02DEG. 25' 25" East 205.78 feet to a tangent curve concave Southeasterly having a radius of 47.00 feet; thence Northeasterly and Easterly along said curve through a central angle of 87DEG. 34' 35" a distance of 71.84 feet to a tangent line; thence East along said tangent line, 223.49 feet to a tangent curve concave Southwesterly having a radius of 104.00 feet; thence Southeasterly along said curve through a central angle of 17DEG. 52' 34" an arc distance of 30.00 feet; thence South to a line that bears South 45DEG. 00' 00" West and passes through the true point of beginning; thence Southwesterly along said last mentioned line to the true point of beginning. Except any portion of Lots B and C of said Tract No. 6106 adjoining said Lot 4. Parcel 2: A non-exclusive easement for ingress and egress over and across the following described land: That portion of Lot C of Tract No. 6106 in the County of Orange, State of California, as per map recorded in book 232, pages 6 to 10 inclusive of Miscellaneous Maps, in the office of the County Recorder of said County, lying Southwesterly of the Southeasterly prolongation of the tangent portion of the Southwesterly line of Lot 3 in said Tract No. 6106 together with that portion of Lot B of said Tract No. 6106, included within a strip of land 44.00 feet wide, the Southwesterly, Southerly, Easterly, and Northeasterly line of 57 which is coincidental with the lot line of Lot 4 in said tract No. 6106. 58 EXHIBIT "A" Plot Plan Basement Floor Plan 59 EX-10.11 12 EXHIBIT 10.11 SUBLEASE AGREEMENT OF SUBLEASE (this "Sublease"), is made as of the 30th day of November 1995, by and between CITIBANK, F.S.B., A FEDERAL SAVINGS BANK, ("SUBLANDLORD"), and SOUTHERN CALIFORNIA BANK, a California Corporation ("SUBTENANT"). W I T N E S S E T H: A. WHEREAS, by that certain Lease, dated as of April 30, 1987, between Lomas Santa Fe, Incorporated predecessor in interest to Regents Park Financial Centre Ltd., a California Limited Partnership ("Landlord"), as lessor, and Citicorp Savings, a Federal Savings and Loan Association, (now known as CITIBANK F.S.B. a Federal Savings Bank), Sublandlord, as lessee, Landlord leased to Sublandlord approximately three thousand four hundred seventy-one (3,471 ) square feet of space, as more particularly described in the Lease, and located on the ground floor in Suite 125 of the building (the "Building") located at 4180 La Jolla Village Drive, La Jolla, California; B. WHEREAS, by that certain First Amendment To Lease, dated as of November 4, 1987, between Landlord and Citicorp Savings, a Federal Savings and Loan Association, Citicorp Savings leased from Landlord additional space within the Building for the purpose of operating Automated Teller Machines ("ATMs"), as more particularly described in the First Amendment To Lease. Such additional space and the 3,471 square feet of space described in Recitals A, above, are collectively herein referred to as the "Premises"; C. WHEREAS, by that certain Assignment of Lease and Assumption of Liability Agreement, dated as of August 15, 1989, Lomas Santa Fe, Incorporated assigned its interest under the Lease to Regents Park Financial Centre Limited, California Limited Partnership; D. WHEREAS, by that certain Second Amendment To Lease, dated as of March 13, 1990, between Landlord and Citicorp Savings, a Federal Savings and Loan Association, Landlord and Citicorp Savings amended Exhibit G of the Lease, as more particularly described in the Second Amendment To Lease; E. WHEREAS, the Lease, First Amendment To Lease and the Second Amendment To Lease, as described in Recitals A, B and D, above, are collectively herein referred to as the "Lease"; and, F. WHEREAS, Sublandlord desires to sublease to Subtenant the entire Premises as indicated on Exhibit A attached hereto and Subtenant desires to hire the Premises from Sublandlord on the terms, covenants and conditions contained herein. NOW, THEREFORE, in consideration of the mutual covenants, conditions and terms herein contained, it is mutually agreed as follows: 1. SUBLEASING OF PREMISES. Sublandlord hereby subleases to Subtenant, and Subtenant hereby hires from Sublandlord, the Premises, upon and subject to the terms and conditions hereinafter set forth. 2. TERM. 2.1 The term (the "Term") of this Sublease shall be for a two (2) year and two (2) month period, which shall commence on November 1,1995 (the "Commencement Date") and shall terminate on December 31, 1997 (the "Expiration Date"), or on such earlier date upon which the Term shall expire or be canceled or terminated pursuant to any of the conditions or covenants of this Sublease or pursuant to law. Subtenant shall have absolutely no option to extend the Term of this Sublease, and Sublandlord hereby agrees that Sublandlord shall have absolutely no option to extend the term of the Lease. Sublandlord and Subtenant hereby agree that the provisions of Addendum To Lease (Option Provision) of the Lease are hereby deleted in their entirety and are null, void and no longer of any force or effect. 2.2 If Sublandlord is unable or fails to deliver possession of the Premises on the Commencement Date (i) Sublandlord shall not be subject to any liability for failure to give possession, (ii) Subtenant waives the right to recover any damages which may result from such failure to give possession, and (iii) the Commencement Date shall be postponed until three (3) days after the date of notice given by Sublandlord to Subtenant stating that the Premises are ready for delivery to Subtenant. If the Commencement Date shall be postponed as provided in this Section 2.2, then promptly following the Commencement Date, Sublandlord and Subtenant shall execute an agreement confirming the Commencement Date and Rental (as hereinafter defined) shall be abated for the period between November 1, 1995 and the Commencement Date, and Subtenant's payment of Rental for the month of November, 1995 only shall be proportionately reduced. If Sublandlord does not deliver the Premises to Subtenant on or before November 30, 1995, Subtenant shall have the right, by delivering notice to Sublandlord and Landlord on or before December 31, 1995, to terminate this Sublease and all rights and obligations of Sublandlord and Subtenant under this Sublease. If Subtenant does not so deliver such notice on or before December 31, 1995, Subtenant shall have no such right thereafter to terminate this Sublease due to Sublandlord not delivering the Premises to Subtenant on or before November 30, 1995. 3. BASE RENT AND ADDITIONAL RENT. 3.1 Subtenant shall pay to Sublandlord, commencing on the Commencement Date, in currency which at the time of payment is legal tender for public and private debts in the United States of America, as base rent ("Base Rent") during the Term, on or 2 before the first (1st) day of each month during the Term, in the following amounts for the following periods: (a) for the one (1) year period commencing on the Commencement Date and ending on October 31, 1996 in equal monthly installments of Five Thousand Five Hundred Fifty-Three and 60/100 Dollars ($5,553.60) per month; (b) for the one (1) year period commencing on November 1, 1996 and ending on October 31, 1997 in equal monthly installments of Five Thousand Seven Hundred Seventy-Five and 74/100 Dollars ($5,775.74) per month; and, (c) for the two (2) month period commencing on November 1, 1997 and ending on the Expiration Date in equal monthly installments of Six Thousand Six and 77/100 Dollars ($6,006.77). The installment of Base Rent for the first full calendar month of the Term following the Commencement Date ($5,553.60) shall be due and payable on the execution of this Sublease. Provided that the delay is not caused by Subtenant, the payment of Base Rent shall be deferred by the same number of days after the Commencement Date that delivery of possession of the Premises may be delayed, if any. If the Commencement Date shall occur on a date other than the first day of any calendar month, the Base Rent payable hereunder for such month shall be prorated on a per-diem basis and shall be paid on or before the first day of the first full month following the Commencement Date. 3.2 In addition to the Base Rent herein reserved, Subtenant agrees to pay to Sublandlord additional rental calculated as follows: (a) one hundred percent (100%) of the amounts payable by Sublandlord pursuant to Lease Article 1.10 (b)(i) (for triple net Operating Expenses), Article 5.04 (for Personal Property Taxes), Article 5.05 (for Utilities), Article 5.06 (for Impounds for Insurance Premiums and Property Taxes), Article 9 (for Maintenance, Repairs and Alterations) and Exhibit G of the Lease to the extent that such amounts exceed Sublandlord's costs for such amounts under the Lease for the first one (1) year period of the Term (the "Base Year") of the Sublease (from November 1, 1995 to October 31, 1996). Effective commencing on November 1, 1996, such increases in such amounts above the Base Year shall be payable by Subtenant to Sublandlord in the same manner (within thirty days of Sublandlord mailing an invoice for such additional rent to Subtenant) as corresponding payments are payable by Sublandlord to Landlord under the Lease. (b) all other payments for which Sublandlord shall become responsible to Landlord under the Lease in respect of the Premises, or Subtenant's use or occupancy thereof or by reason of any act or omission of Subtenant, including, without being limited to, any payments accruing as a result of (i) any increases in insurance premiums as provided in Article 13 3 (Insurance) of the Lease, resulting from any act or omission of Subtenant, (ii) any additional rent payable on account of Subtenant's use of extra heating, ventilation or air conditioning (iii) any additional rent payable on account of any services provided to Subtenant. Any restoration or repair of the Premises or removal of Subtenant's furniture, fixtures, equipment and personal property required upon the expiration of the Term hereof as a result of Subtenant's Alterations, as that term is hereinafter defined, shall be performed by Subtenant at Subtenant's sole risk, cost and expense, and shall be completed by Subtenant on or before the Expiration Date. 3.3 If Subtenant shall fail to pay within five (5) days after any installment of Base Rent is due hereunder, or, if Subtenant shall fail to pay within thirty (30) days after Sublandlord delivers to Subtenant any invoice for any installment of additional rental or other costs, charges and sums payable by Subtenant hereunder (such additional rental or other costs, charges and sums, together with Base Rent, hereinafter collectively referred to as the "Rental"), Subtenant shall pay to Sublandlord, in addition to such installment of Rental, as a late charge equal to ten percent (10%) of any such unpaid Rental amount. 3.4 All Base Rent and other Rental shall constitute rent under this Sublease, and shall be payable to Sublandlord at its address as set forth in Article 14 hereof, unless Sublandlord shall otherwise direct in writing. However, if Sublandlord is adjudged to be in default of the Lease beyond any applicable notice and cure period, and Landlord notifies Subtenant and Sublandlord that Sublandlord is in default of the Lease, Subtenant shall pay all Rental due under this Sublease (commencing after Subtenant and Sublandlord receive such notice) to Landlord and not to Sublandlord. 3.5 Subtenant shall promptly pay the Rental as and when the same shall become due and payable without set-off, offset or deduction of any kind whatsoever, except as expressly set forth herein, and, in the event of Subtenant's failure to pay the same when due (subject to grace periods provided herein), Sublandlord shall have all of the rights and remedies provided for herein or at law or in equity, in the case of non-payment of Rental. 3.6 Sublandlord's failure during the Term to prepare and deliver any statements or bills required to be delivered to Subtenant hereunder, or Sublandlord's failure to make a demand under this Sublease shall not in any way be deemed to be a waiver of, or cause Sublandlord to forfeit or surrender its rights to collect any Rental which may have become due pursuant to this Sublease during the Term. However, Sublandlord's failure to so prepare and deliver statements and bills to Subtenant or make such a demand under this Sublease shall preclude Sublandlord from collecting any late fees or charges from Subtenant until Sublandlord does so prepare and deliver such statements, bills or 4 demands to Subtenant and the time periods have elapsed under paragraph 3.6 of this Sublease. Subtenant's liability for Rental due under this Sublease accruing during the Term, and Sublandlord's obligation to refund overpayments of or adjustments to Rental paid to it by Subtenant, shall survive the expiration or sooner termination of this Sublease. 3.7 Sublandlord shall promptly furnish to Subtenant a copy of each notice or statement from Landlord affecting the Premises. If Sublandlord disputes the correctness of any such notice or statement and if such dispute is resolved in Sublandlord's favor, or if Sublandlord shall receive any refund of additional rent without a dispute, Sublandlord shall promptly pay to Subtenant any refund (after deducting from the amount of any such refund all expenses, including court costs and reasonable attorneys' fees, incurred by Sublandlord in resolving such dispute) received by Sublandlord in respect (but only to the extent) of any related payments of additional rent made by Subtenant less any amounts theretofore received by Subtenant directly from Landlord and relating to such refund, provided that, pending the determination of any such dispute (by agreement or otherwise), Subtenant shall pay the full amount of Rental in accordance with this Sublease and the applicable statement or notice of Landlord. 4. SUBORDINATION TO AND INCORPORATION OF THE LEASE. 4.1 This Sublease is in all respects subject and subordinate to the terms and conditions of the Lease and to all matters to which the Lease is subject and subordinate. Sublandlord represents that a true and complete copy of the Lease has been furnished by Sublandlord to Subtenant. Subtenant shall indemnify Sublandlord for, and shall hold it harmless from and defend it against, any and all losses, damages, penalties, liabilities, costs and expenses, including, without limitation, reasonable attorneys' fees and disbursements, which may be sustained or incurred by Sublandlord by reason of Subtenant's failure to keep, observe or perform any of the terms, provisions, covenants, conditions and obligations on Sublandlord's part to be kept, observed or performed under the Lease to the extent same shall have been incorporated herein, or otherwise arising out of or with respect to Subtenant's use and occupancy of the Premises from and after the Commencement Date. Sublandlord shall indemnify Subtenant for, and shall hold it harmless from and defend it against, any and all losses, damages, penalties, liabilities, costs and expenses, including, without limitation, reasonable attorneys' fees and disbursements, which may be sustained or incurred by Subtenant by reason of Sublandlord's failure to comply (after any applicable period under this Sublease or the Lease has elapsed for Sublandlord to receive notice of and cure the non-compliance) with any term of this Sublease or obligation under the Lease. 4.2 Except as otherwise expressly provided in, or otherwise inconsistent with this Sublease, or to the extent not 5 applicable to the Premises, the terms, provisions, covenants, stipulations, conditions, rights, obligations, remedies and agreements contained in the Lease are incorporated in this Sublease by reference, and are made a part hereof as if herein set forth at length, Sublandlord being substituted for the "Lessor" under the Lease, and Subtenant being substituted for the "Lessee" under the Lease, except that the following provisions of the Lease shall be deemed deleted therefrom and shall have no force and effect as between Sublandlord and Subtenant: i. Articles 1.05 and 2.01 (Term). ii. Article 2.04 (Holding Over), it being understood that Subtenant shall have absolutely no right to hold over in the Premises after the Expiration Date. iii. Article 3 (Rent). iv. Article 19.05 (Lessee's Financial Condition), however; Landlord shall retain the right to request information of Subtenant under Article 19.05 of the Lease. v. Article 36 (Notices). vi. Article 46 (Brokers). vii. Exhibit C (Description of Demised Premises Shell). viii. Exhibit E (Lessee's Improvements, Alterations or Additions). ix. The following specific Sections of Exhibit G (Addendum To Lease)(with all other sections of Exhibit G not listed below continuing in full force and effect:): (1) Section 1.05. (2) Section 3.02(d). (3) Section 9.02 (the first paragraph). (4) Section 9.03 (the second paragraph). However, Subtenant shall provide Landlord with "as built" plans relating to Subtenant's alterations to the Premises, if Landlord so requests. (5) Section 13.01 (c). (6) Section 16.03 (the second paragraph). (7) All of the provisions of Article 47 (Additional Provisions). (8) Article 48 (Sign Removal). (9) Addendum To Lease - Option Provision. x. Exhibit H (Signage). xi. Addendum To Lease (Free Rent Provision). xii. Paragraphs 3, 5 and 6 of the Second Amendment To Lease (except that, Subtenant may use the additional space within the Premises, as described in the Second Amendment To Lease, for the purposes of installing, operating and maintaining two ATMs for Subtenant's business in the Premises). xiii. The Second Amendment To Lease. 5. ADDITIONAL PROVISIONS. 6 The following provisions of the Lease shall be modified as hereinafter provided: 5.1 Article 5 (Additional Rent) is changed such that Subtenant shall pay all Rental to Sublandlord (not Landlord) under this Sublease. 5.2 Article 6.03 (Lessee Advertising and Vending Machines) shall have the following words added thereto: "All such signs of Lessee shall be subject to and comply with all applicable laws, codes and statutes, and shall be subject to the prior written approval of Landlord." 5.3 The second subparagraph of Article 25 (Indemnification of Lessor) shall be modified such that Subtenant hereby acknowledges that Subtenant is subleasing the Premises from Sublandlord and is not leasing the Premises from Regents Park Financial Centre Ltd. 6. USE. Subtenant shall use and occupy the Premises for financial services and for office use and for no other purposes. 7. COVENANTS WITH RESPECT TO THE LEASE. 7.1 Subtenant shall not do anything that would constitute a default under the Lease or omit to do anything that Subtenant is obligated to do under the terms of this Sublease so as to cause there to be a default under the Lease. Throughout the Term of this Sublease (but subject to the provisions of this Sublease and the Lease), Sublandlord shall continue to pay all rent to Landlord due under the Lease, provided that the Lease is not terminated pursuant to the provisions of this Sublease or the Lease. 7.2 The time limits set forth in the Lease for the giving of notices, making demands, performance of any act, condition or covenant, or the exercise of any right, remedy or option, are changed for the purpose of this Sublease, by lengthening or shortening the same in each instance, as appropriate, so that notices may be given, demands made, or any act, condition or covenant performed, or any right, remedy or option hereunder exercised, by Sublandlord or Subtenant, as the case may be (and each party covenants that it will do so) within three (3) days prior to the expiration of the time limit, taking into account the maximum grace period, if any, relating thereto contained in the Lease. Each party shall promptly deliver to the other party copies of all notices requests or demands which relate to the Premises or the use or occupancy thereof after receipt of same from Landlord. Each party shall also promptly deliver to Landlord copies of all notices, requests or demands that such party delivers to the other party hereunder. 7 8. SERVICES, REPAIRS, AND ALTERATIONS. 8.1 Notwithstanding anything to the contrary contained in this Sublease or in the Lease, Sublandlord shall not be required to provide any of the services that Landlord has agreed to provide pursuant to the Lease (or required by law), or furnish the electricity to the Premises that Landlord has agreed to furnish pursuant to the Lease (or required by law), or make any of the repairs or restorations that Landlord has agreed to make pursuant to the Lease (or required by law), or comply with any laws or requirements of any governmental authorities, or take any other action that Landlord has agreed to provide, furnish, make, comply with, or take, or cause to be provided, furnished, made, complied with or taken under the Lease, but Sublandlord agrees to use and exercise reasonable efforts, at Subtenant's sole cost and expense, to obtain the same from Landlord and to cause Landlord to perform its obligations under the Lease for the benefit of Subtenant (provided, however, that Sublandlord shall not be obligated to use such efforts or take any action which might give rise to a default under the Lease), and, subject to Sublandlord using and exercising reasonable efforts as set forth in this paragraph, Subtenant shall rely upon, and look solely to, Landlord for the provision, furnishing or making thereof or compliance therewith. If Landlord shall default in the performance of any of its obligations under the Lease, Sublandlord shall, upon reasonable request and at the sole cost and expense of Subtenant (including but not limited to, Subtenant paying all of Sublandlord's attorney's fees and court costs, provided that such Landlord's default is not solely and proximately caused by a default of Sublandlord under the Lease), timely institute and diligently prosecute any action or proceeding which both Sublandlord and Subtenant deem appropriate in both Sublandlord's and Subtenant's reasonable judgment, in order to have Landlord make such repairs, furnish such electricity, provide such services or comply with any other obligation of Landlord under the Lease or as required by law. However, notwithstanding the foregoing, Sublandlord shall have no obligation to institute or diligently prosecute any action or proceeding which Subtenant could bring directly against Landlord without Sublandlord being a party to any such action or proceeding. Subtenant shall defend, indemnify and hold harmless Sublandlord from and against any and all such claims arising from or in connection with such request, action or proceeding, provided that, Landlord's failure to so comply with Landlord's obligations under the Lease is not solely and proximately caused by a default of Sublandlord under the Lease. This indemnity and hold harmless agreement shall include indemnity from and against any and all liability, fines, suits, demands, costs and expenses of any kind or nature, including, without limitation, reasonable attorneys' fees and disbursements, incurred in connection with any such claim, action or proceeding brought thereon. Subtenant shall not make any claim against Sublandlord for any damage which may arise, nor shall Subtenant's obligations hereunder be diminished, by reason of (i) the failure of Landlord to keep, observe or perform any of its obligations pursuant to the Lease 8 or (ii) the acts or omissions of Landlord, its agents, contractors, servants, employees, invitees or licensees. If the Lease is terminated by Landlord as a result of a default or breach by Sublandlord or Subtenant under this Sublease or the Lease, the defaulting party shall be liable to the non-defaulting party for any damages suffered as a result of such termination. The provisions of this Section 7.1 shall survive the expiration or earlier termination of the Term hereof. 8.2 Subtenant shall not make or allow to be made any alterations, changes, additions or improvements (collectively, "Alterations") to the Premises or any part thereof without the prior written consent of Landlord and Sublandlord. If Landlord and Sublandlord shall consent to any Alterations to the Premises, such Alterations shall be subject to any terms, covenants, conditions and agreements which Landlord and Sublandlord may prescribe from time to time, which shall include a requirement that, prior to the commencement of any Alterations to the Premises, Subtenant deliver to Landlord and Sublandlord written acknowledgments from all materialmen, contractors, artisans, mechanics, laborers and any other persons furnishing any labor, services, materials, supplies or equipment to Subtenant with respect to the Premises that they will look exclusively to Subtenant for payment of any sums due in connection therewith and that Landlord and Sublandlord shall have no liability for such costs. All Alterations to the Premises made or requested by Subtenant shall be at Subtenant's sole risk, cost and expense. Upon the expiration or sooner termination of the Term, any Alterations to the Premises, excepting movable furniture and trade fixtures, shall become the property of Landlord and shall be surrendered with the Premises, unless Landlord or Sublandlord shall direct Subtenant to remove any such Alterations, in which event, Subtenant shall remove same at its sole cost and expense and repair in a good and workmanlike manner or any damage to the Premises or Building occasioned by such removal and, after complying with the foregoing, on or before the Expiration Date, restore the Premises and Building to the condition existing prior to such Alterations, normal wear and tear accepted. 9. CONSENTS. 9.1 Sublandlord agrees that whenever its consent or approval is required hereunder, or where something must be done to Sublandlord's satisfaction, Sublandlord shall not unreasonably withhold or delay such consent or approval, unless otherwise stated in this Sublease; provided, however, that whenever the consent or approval of Landlord, the lessor under a superior lease, or the mortgagee under a mortgage, as the case may be, is also required pursuant to the terms of the Lease, and in connection therewith, if Landlord, the lessor under a superior lease, or the mortgagee under a mortgage shall withhold its consent or approval for any reason whatsoever, Sublandlord shall not be deemed to be acting unreasonably if it shall also withhold its consent or approval. If Landlord shall withhold its consent or approval in connection with this Sublease or the Premises in 9 any instance where, under the Lease, the consent or approval of Landlord may not be unreasonably withheld, and if Subtenant shall reasonably contend that Landlord has unreasonably withheld such consent, Sublandlord may, upon the request and at the expense of Subtenant, but Sublandlord shall have absolutely no obligation to do so under any circumstances, either (i) timely institute and diligently prosecute any action or proceeding which Sublandlord, in its sole and absolute discretion, deems meritorious, in order to dispute such action by Landlord, or (ii) permit Subtenant, to the extent allowable under the Lease, to institute and prosecute such action or proceeding in the name of Sublandlord, provided that Subtenant shall keep Sublandlord informed of its actions and shall not take any action which might give rise to a default under the Lease. Subtenant shall indemnify Sublandlord and hold it harmless from and against all losses, damages, claims, liabilities, fines, penalties, suits, demands, costs and expenses, of any nature, arising from or in connection with any action or proceeding instituted under this Section 8.1. 9.2 If Subtenant shall request Sublandlord's consent and Sublandlord has agreed, under the terms of this Sublease, that neither its consent nor its approval shall be unreasonably withheld, and Sublandlord shall fail or refuse to give such consent or approval, and Subtenant shall dispute the reasonableness of Sublandlord's refusal to give its consent or approval, such dispute shall be finally determined by a court of competent jurisdiction. If the determination shall be adverse to Sublandlord, Sublandlord nevertheless, shall not be liable to Subtenant for a breach of Sublandlord's covenant not to unreasonably withhold such consent or approval, and Subtenant's sole remedy in such event shall be the granting of consent or approval by Sublandlord with respect to such request under this Sublease. 10. TERMINATION OF LEASE. In the event of a default under the Lease which results in the termination of the Lease, Subtenant shall attorn to and recognize Landlord as Sublandlord hereunder and shall, promptly upon Landlord's request, execute and deliver all instruments reasonably necessary or appropriate to confirm such attornment and recognition. Provided Subtenant is not in default under the terms of this Sublease, Landlord shall not disturb Subtenant's right to possession as provided under this Sublease. Sublandlord shall not be liable to Subtenant by reason of such termination of the Lease by either Landlord or Sublandlord pursuant to the Lease, provided the termination is not the result of the Sublandlord's default of the terms of the Lease or this Sublease. 11. SUBLEASE. NOT ASSIGNMENT. Notwithstanding anything contained herein, this Sublease shall be deemed to be a sublease of the Premises and not an assignment, in whole or in part, of Sublandlord's interest in the Lease. 12. DAMAGE, DESTRUCTION, FIRE AND OTHER CASUALTY: CONDEMNATION. Notwithstanding any contrary provision of this 10 Sublease or the provisions of the Lease herein incorporated by reference, Subtenant shall not have the right to terminate this Sublease as to all or any part of the Premises, or be entitled to an abatement of Base Rent or any other item of Rental, by reason of a casualty or condemnation affecting the Premises unless Sublandlord is entitled to terminate the Lease or Sublandlord is entitled to a corresponding abatement with respect to its corresponding obligation under the Lease. If Sublandlord is entitled to terminate the Lease for all or any portion of the Premises by reason of casualty or condemnation, Sublandlord may terminate this Sublease as to any corresponding part of the Premises by written notice to Subtenant given at least five (5) days prior to the date(s) Sublandlord is required to give notice to Landlord of such termination under the terms of the Lease. 13. NO WAIVERS. Failure by Sublandlord in any instance to insist upon the strict performance of any one or more of the obligations of Subtenant under this Sublease, or to exercise any election herein contained, shall in no manner be or be deemed to be a waiver by Sublandlord of any of Subtenant's defaults or breaches hereunder or of any of Sublandlord's rights and remedies by reason of such defaults or breaches, or a waiver or relinquishment for the future of the requirement of strict performance of any and all of Subtenant's obligations hereunder. Further, no payment by Subtenant or receipt by Sublandlord of a lesser amount than the correct amount or manner of payment of Rental due hereunder shall be deemed to be other than a payment on account, nor shall any endorsement or statement on any check or any letter accompanying any check or payment be deemed to effect or evidence an accord and satisfaction, and Sublandlord may accept any checks or payments as made without prejudice to Sublandlord's right to recover the balance or pursue any other remedy in this Sublease or otherwise provided at law or equity. 14. NOTICES. Any notice, statement, demand, consent, approval, advice or other communication required or permitted to be given, rendered or made by either party to the other, pursuant to this Sublease or pursuant to any applicable law or requirement of public authority (collectively, "Notices") shall be in writing and shall be deemed to have been properly given, rendered or made only if sent by personal delivery, receipted by the party to whom addressed, or registered or certified mail, return receipt requested, posted in a United States post office station in the continental United States, addressed (i) to Subtenant, at its address as set forth below or at the Premises, (ii) to Sublandlord, at its addresses as set forth below, and (iii) to Landlord, at its address set forth below. All such Notices shall be deemed to have been given, rendered or made when delivered and receipted by the party to whom addressed, in the case of personal delivery, or three (3) days after the day so mailed. Either party may, by Notice in the manner set forth herein, designate a different address or addresses for communications intended for it. Sublandlord's addresses: 11 Citibank F.S.B. Citicorp Corporate Realty Services Western region 725 South Figueroa, 2nd Floor Los Angeles, CA 90017 Attn: Lease Administrator copies of any Notices commencing or relating to any action, suit or proceeding against Sublandlord arising under this Sublease shall also be sent to the following: Citicorp/Citibank Real Estate Legal Department 599 Lexington Avenue 24th Floor/Zone 9 New York, NY 10043 Attn: General Counsel Subtenant's address: Southern California Bank P.O. Box 588 La Mirada, CA 90637-0588 Attn: Premises Manager Landlord's Address: Regents Park Financial Centre Ltd. c/o Asset Management Group 11750 Sorrento Valley Road San Diego, CA 92121 15. BROKER. Each party hereto covenants, warrants and represents to the other party that it has had no dealings, conversations or negotiations with any broker other than Robert M. Irish, Inc. and CB Commercial Real Estate Group, Inc. (collectively, the "Broker") concerning the execution and delivery of this Sublease. Each party hereto agrees to defend, indemnify and hold harmless the other party against and from any claims for any brokerage commissions and all costs, expenses and liabilities in connection therewith, including, without limitation, reasonable attorneys' fees and disbursements, arising out of its respective representations and warranties contained in this Article 15 being untrue. Sublandlord shall pay any brokerage commissions due to the Broker pursuant to a separate agreement between Sublandlord and the Broker. The provisions of this Article 15 shall survive the expiration or earlier termination of this Sublease. 16. CONDITION OF THE PREMISES. Subtenant represents that it has made or caused to be made a thorough examination of the Premises and is familiar with the condition of every part thereof. Subtenant agrees to accept the Premises in its "as is" condition on the date hereof, reasonable wear and tear between the date hereof and the Commencement Date excepted. Sublandlord has not made and does not make any representations or warranties as to the physical condition of the Premises, the use to which 12 the Premises may be put, or any other matter or thing affecting or relating to the Premises, except as specifically set forth in this Sublease. Sublandlord shall have no obligation whatsoever to alter, remodel, improve, decorate, repair, paint or otherwise prepare the Premises nor replace any part thereof, for Subtenant's occupancy. 17. CONSENT OF LANDLORD TO THIS SUBLEASE. Sublandlord and Subtenant each hereby acknowledge and agree that this Sublease is subject to and conditioned upon Sublandlord obtaining the written consent (the "Consent") of Landlord as to: (i) the subleasing of the Premises by Sublandlord to Subtenant under this Sublease; (ii) Subtenant's proposed use of the Premises; (iii) Subtenant's proposed signage (if any is proposed by Subtenant as of the date of this Sublease); (iv) Subtenant's proposed Alterations (if any are proposed by Subtenant as of the date of this Sublease) and, (v) the transfer to Subtenant of Sublandlord's parking rights under the Lease. Promptly following the execution and delivery hereof, Sublandlord shall submit this Sublease to Landlord for approval. Subtenant hereby agrees that it shall cooperate in good faith with Sublandlord and shall comply with any reasonable requests made of Subtenant by Sublandlord or Landlord in the procurement of the Consent. Sublandlord shall pay to Landlord a tenant improvement allowance within thirty (30) days after Sublandlord receives a written invoice from Landlord, which invoice shall be accompanied by written evidence that Landlord paid a tenant improvement allowance to Subtenant and such allowance was totally utilized to make improvements or alterations to the Premises by Subtenant, which amount must be at least four (4) times the amount for which Landlord has invoiced Sublandlord. However, in no event shall the tenant improvement allowance that is to paid by Sublandlord to Landlord hereunder exceed Five Thousand Dollars ($5,000.00). In no event shall Sublandlord or Subtenant be obligated to make any other payment to Landlord in order to obtain the Consent or the consent to any provision hereof, other than as expressly set forth in the Lease (and any such fees which may be payable pursuant to the Lease shall be payable by Subtenant and Sublandlord shall have no responsibility for the payment of same). 18. ASSIGNMENT, SUBLETTING AND MORTGAGING. 18.1 Subtenant shall not assign, sell, transfer (whether by operation or law or otherwise), pledge, mortgage or otherwise encumber this Sublease or any portion of its interest in the Premises, nor sublet all or any portion of the Premises or permit any other person or entity to use or occupy all or any portion of the Premises, without the prior written consents of Sublandlord (except as set forth below) and Landlord. Sublandlord shall not unreasonably withhold or delay its consent, and Landlord's consent shall be subject to the provisions of Article 16 (Assignment and Sublease) of the Lease. In connection with any subletting or assignment permitted, Subtenant shall pay to Sublandlord, in addition to all 13 such Rental payable by Subtenant to Sublandlord hereunder, all rent, additional rent or other payments and consideration received by Subtenant in excess of Rental payable by Subtenant to Sublandlord. 18.2 For the purposes of this Article 18, an assignment or subletting shall be deemed to have occurred upon: (i) the subletting or assignment to a subsidiary or affiliate of Subtenant or occupancy by Subtenant's subsidiaries or affiliates [such an assignment or subletting under this subpart 18.2(i) shall not require Sublandlord's prior written consent, but shall remain subject to Landlord's consent pursuant to the provisions of Article 16 of the Lease]; (ii) the sale or transfer, whether pursuant to a single transaction or in a series of related or unrelated transactions, including without limitation by consolidation, merger or reorganization, of a majority of the voting stock of Subtenant or any beneficial interest therein, if Subtenant is a corporation, or any sale or other transfer, whether pursuant to one or more successive transactions, of a majority of the general partnership interests in Subtenant or any beneficial interest therein, if Subtenant is a partnership; and (iii) the sale or other transfer, whether pursuant to one or more successive transactions, of more than fifty (50%) percent, by value, of the assets of Subtenant used in conducting its business in the Premises (in the event of such a sale or transfer, Sublandlord shall have no right to terminate this Sublease, but any such sale or transfer shall be subject to Landlord's rights, if any, to terminate this Sublease under the provisions of the Lease). 18.3 If this Sublease be assigned, or if the Premises of any part thereof be sublet (whether or not Sublandlord and Landlord shall have consented thereto), Sublandlord, after default by Subtenant in its obligations hereunder, may collect rent from the assignee or subtenant and apply the net amount collected to the Rental herein reserved, but no such assignment or subletting shall be deemed a waiver of the covenant set forth in this Article 18, or the acceptance of the assignee or subtenant as a tenant, or a release of Subtenant from the further performance and observance by Subtenant of the covenants, obligations and agreements on the part of Subtenant to be performed or observed herein. The consent by Sublandlord or Landlord to an assignment, sale, pledge, transfer, mortgage or subletting shall not in any way be construed to relieve Subtenant from obtaining the express consent in writing, to the extent required by this Sublease or the Lease, of Sublandlord and Landlord to any further assignment, sale, pledge, transfer, mortgage or subletting. 19. SECURITY. Subtenant has deposited with Sublandlord the sum of Six Thousand Six Hundred Six and 77/100 Dollars ($6,006.77) as security (the "Security") for the faithful performance and observance by Subtenant of the terms, provisions and conditions of this Sublease, including, but not limited to, the payment of Base Rent and all other items of Rental and the 14 surrender of the Premises to Sublandlord as herein provided. If Subtenant defaults in respect of any of the terms, provisions and conditions of this Sublease, Sublandlord may apply or retain the whole or any part of the Security so deposited, as the case may be, to the extent required for the payment of any Base Rent or any other item of Rental as to which Subtenant is in default or for any sum which Sublandlord may expend or be required to expend by reason of Subtenant's default in respect of any of the terms, covenants and conditions of this Sublease, including, but not limited to, any damages or deficiency in the reletting of the Premises, whether such damages or deficiency accrue or accrues before or after summary proceedings or other re-entry by Sublandlord. If Sublandlord applies or retains any part of the Security so deposited, Subtenant, upon demand, shall deposit with Sublandlord the amount so applied or retained so that Sublandlord shall have the full deposit on hand at all times during the Term. If Subtenant fully and faithfully complies with all the terms, provisions, covenants and conditions of this Sublease, the Security Deposit, exclusive of any earned interest thereon, shall be returned to the Subtenant within ten (10) days following the Expiration Date. Subtenant shall not assign or encumber or attempt to assign or encumber the monies deposited herein as Security and neither Sublandlord nor its successors or assigns shall be bound by any such assignment, encumbrance, attempted assignment or attempted encumbrance. 20. Intentionally deleted. 21. Regulatory Approval: Sublandlord and Subtenant specifically acknowledge and agree that, notwithstanding anything to the contrary in this Sublease, the effectiveness of this Sublease is expressly contingent upon the following: No later than February 29, 1996, Subtenant shall have received all regulatory approvals from the banking department of the California Department of Corporations and the FDIC necessary for Subtenant to operate the Premises as a branch banking facility (hereinafter "Regulatory Approvals"). If the foregoing condition fails to occur on or before the date specified above for the satisfaction of the applicable condition, then Subtenant may at its option, terminate this Sublease by written notice to the Sublandlord given no later than five (5) days after the date specified for the satisfaction of such condition, in which case, this Sublease shall thereupon terminate and be of no further force or effect except for the obligations, if any, which have been incurred prior to the date of such termination or which expressly survive the expiration or earlier termination of this Sublease. If the foregoing condition is not satisfied by the date specified above for satisfaction of such condition and Subtenant does not give a notice to terminate to the Sublandlord by the following five (5) day period, then this condition shall be deemed satisfied. In the event Subtenant terminates this Sublease as a result of Subtenant's failure to obtain the Regulatory Approvals on or 15 before the date specified above, Subtenant (i) shall satisfy all monetary and non-monetary obligations under this Sublease through the effective date of such termination and (ii) shall deliver to Sublandlord no later than thirty (30) days after the effective date of such termination a check in the amount equal to (a) all tenant improvement expenses up to five thousand dollars ($25,000.00) and (b) brokers' commissions up to a maximum of twenty-five thousand dollars ($25,000.00) cumulative for Sublandlord and Landlord. In addition to the foregoing, upon such termination, Subtenant shall at Landlord's and/or Sublandlord's option return and restore the Premises to the condition which existed prior to the Commencement Date of this Sublease at Subtenant's sole cost and expense. The obligations of Subtenant as set forth herein shall survive the termination of this Sublease. 22. Protection of Subtenant: Landlord and Sublandlord shall use their commercially reasonable best efforts to obtain and deliver to Subtenant an agreement in writing from each existing mortgagee with a lien encumbering the Premises and/or the lessor of any ground lease affecting the Premises, which provides that, so long as Subtenant is not in default under any of the terms, conditions, covenants, or agreements of this Sublease, Subtenant's possession of the Premises shall not be disturbed by reason of foreclosure of any such mortgage or the termination of any such ground lease. Landlord or Sublandlord shall have until December 31,1995 to obtain such an agreement for Subtenant. In the event that such an agreement is not obtained by that date, Subtenant shall have the option to terminate this Sublease by giving written notice thereof to both Sublandlord and Landlord on or before January 15, 1996. In the event of such termination, Subtenant shall only have the obligation to pay Rental for the period of time it occupied the Premises. In the event of such termination, this Sublease shall thereafter be of no further force and effect, except for the obligations, if any, which have been incurred prior to the date of such termination or which expressly survive the Expiration Date or earlier termination of this Sublease. If the foregoing agreement is not obtained by the date specified above and Subtenant does not give notice to terminate to Sublandlord and Landlord on or before January 15,1996, then this condition shall be deemed satisfied. 23. MISCELLANEOUS. 23.1 This Sublease contains the entire agreement between the parties and all prior negotiations and agreements are merged in this Sublease. Any agreement hereafter made shall be ineffective to change, modify or discharge this Sublease in whole or in part unless such agreement is in writing and signed by the parties hereto. No provision of this Sublease shall be deemed to have been waived by Sublandlord or Subtenant unless such waiver be in writing and signed by Sublandlord or Subtenant, as the case may be. The covenants and agreement contained in this Sublease 16 shall bind and inure to the benefit of Sublandlord and Subtenant and their respective permitted succession and assigns. 23.2 In the event that any provision of this Sublease shall be held to be invalid or unenforceable in any respect, the validity, legality or enforceability of the remaining provisions of this Sublease shall be unaffected thereby. 23.3 The paragraph headings appearing herein are for purpose of convenience only and are not deemed to be a part of this Sublease. 23.4 Capitalized terms used herein shall have the same meanings as are ascribed to them in the Lease, unless otherwise expressly defined herein. 23.5 This Sublease is offered to Subtenant for signature with the express understanding and agreement that this Sublease shall not be binding upon Sublandlord or Subtenant unless and until Sublandlord and Subtenant both shall have executed and delivered a fully executed copy of this Sublease to the other. 23.6 All insurance policies required to be obtained by Subtenant under this Sublease or the Lease shall name Landlord and Sublandlord as additional insureds as their interests may appear. 23.7 This Sublease shall be governed by, and construed in accordance with, the laws of the State of California. 23.8 In the event of a conflict ar inconsistency between the provisions of this Sublease and the Lease, the provisions of this Sublease shall supersede and control. However, nothing contained in this paragraph shall affect Landlord's rights under the Lease. 23.8 In the event either party commences any action against the other party hereto because of a breach of or default under this Sublease, or to enforce, interpret or determine the validity of any term, covenant, condition or agreement of this Sublease, the prevailing party shall be entitled to reasonable attorney's fees and court costs. 23.9 Subject to the provisions hereof relating to assignment and subletting, this Sublease shall bind and inure to the benefit of the heirs, executors successors and assigns of the parties hereto. 23.10 Sublandlord hereby warrants that the Lease is in full force and effect and there are no breaches or defaults thereunder on the part of Sublandlord, nor does any condition exist that, with the passage of time, or the giving of notice, or both, would constitute such a breach or default on the part of Sublandlord. 17 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement of Sublease as of the day and year first above written. SUBLANDLORD: By CITICORP NORTH AMERICA, Inc. Authorized agent for: CITIBANK, F.S.B., a Federal Savings Bank By: ---------------------------- Its: --------------------------- SUBTENANT: SOUTHERN CALIFORNIA BANK, a California corporation By: ---------------------------- Its: --------------------------- 18 LANDLORD'S CONSENT TO SUBLEASE Landlord: Regents Park Financial Centre, Ltd., a California corporation Tenant: Citicorp Savings, a Federal Savings and Loan Association, (now known as Citibank F.S.B., a Federal Savings Bank) Sublessee: Southern California Bank, a California corporation Premises: 4180 La Jolla Village Drive, Suite 125, La Jolla, California consisting of approximately 3,471 square feet of office and bank space Lease and Amendments: Lease dated April 30, 1987; First Amendment to Lease dated November 4, 1987; Second Amendment to Lease dated March 13, 1990 (collectively the "Lease") Date/Title of Sublease Document: Sublease dated November 30, 1995 (the "Sublease") Regents Park Financial Centre, Ltd., a California corporation, as Landlord under the Lease, subject to and specifically conditioned upon the following terms and conditions hereby grants its consent to the Sublease made by and between Tenant, as sublessor, and Sublessee, a copy of which is attached hereto as EXHIBIT A, covering the Premises as more particularly described in the Sublease, in the building known as Regents Park Financial Centre. The capitalized terms used herein and not otherwise defined shall have the meanings ascribed thereto in the Lease. This Consent to Sublease and the acknowledgments and acceptance of the conditions hereof may be executed in counterparts, each of which shall be considered an original but constituting one and the same documents. As conditions to the consent of Landlord to the Sublease, it is understood and agreed as follows: (a) NO RELEASE. This Consent to Sublease ("Consent") shall in no way release the Tenant or any person or entity claiming by, through or under Tenant, including Sublessee, from any of its covenants, agreements, liabilities and duties under the Lease (including, without limitation, all duties to cause and keep Landlord and others named or referred to in the Lease fully 19 insured and indemnified with respect to any acts or omissions of Sublessee or its agents, employees or invitees or other matters arising by reason of the Sublease or Sublessee's use or occupancy of the Premises), as the same may be amended from time to time, without respect to any provision to the contrary in the Sublease. (b) SPECIFIC PROVISIONS OF LEASE AND SUBLEASE. This Consent does not constitute approval by Landlord of any of the provisions of the Sublease or agreement thereto or therewith; nor shall the same be construed to amend the Lease in any respect, any purported modifications being solely for the purpose of setting forth the rights and obligations as between Tenant and Sublessee, but not binding Landlord. (c) AMENDMENT OF SUBLEASE. Tenant and Sublessee shall not amend in any respect the Sublease without the prior written approval of Landlord. In no event shall any such amendment affect or modify or be deemed to affect or modify the Lease in any respect. (d) LIMITED CONSENT. This Consent is limited solely to the Sublease, and Landlord reserves the right to consent or to withhold consent and all other rights under the Lease with respect to any other matters including, without limitation, any proposed alterations and with respect to any further or additional subleases, assignments or transfers of the Lease or any interest therein or thereto including, without limitation, a sublease or any assignment of this Sublease. Neither the execution of this Consent by Landlord, nor the acceptance of Rent by Landlord from any other person, including Sublessee, shall constitute a consent to any subsequent transfer or a waiver of any of Landlord's rights hereunder or under the Lease. (e) TENANT'S CONTINUING LIABILITY. Tenant shall remain primarily liable to pay the Rent and all other amounts payable by Tenant under the Lease and to perform all other obligations of Tenant under the Lease. If Sublessee or any of its successors or assigns defaults under the Lease, Landlord may proceed directly against Tenant without pursuing any remedies whatsoever against Sublessee or any other person. Landlord may consent to subsequent transfers of the Lease by Sublessee or any other person without notifying Tenant or obtaining its consent, and no such action shall relieve Tenant of its primary liability and obligations under the Lease and this Consent. Tenant shall be liable to Landlord for any default under the Lease, whether such default is caused by Tenant or Sublessee or anyone claiming by or through either Tenant or Sublessee, but the foregoing shall not be deemed to restrict or diminish any right which Landlord may have against Sublessee pursuant to the Lease, in law or in equity for violation of the Lease or otherwise, including, without limitation, the right to enjoin or otherwise restrain any violation of the Lease by Sublessee. (f) ACCEPTANCE BY TENANT AND SUBTENANT. Tenant and Sublessee understand and acknowledge that Landlord has agreed 20 to execute this Consent to Sublease based upon Tenant's and Sublessee's acknowledgement and acceptance of the terms and conditions hereof. (g) SUBORDINATION. The Sublease is, in all respects, subject and subordinate to the Lease, as the same may be amended. Furthermore, in the case of any conflict between the provisions of this Consent or the Lease and the provisions of the Sublease, the provisions of this Consent or the Lease, as the case may be, shall prevail unaffected by the Sublease. (h) TERMINATION OF LEASE/ATTORNMENT. The earlier termination of the term of the Lease or the surrender of the Lease by Tenant to Landlord, shall, provided there is no continuing and uncured event of default by Sublessee under the Sublease in the payment of rent or in the performance of any of the terms, covenants or conditions of the Sublease on Sublessee's part to be performed, operate as an assignment to Landlord of the Sublease, in which event Sublessee shall attorn to and recognize Landlord as Sublessee's landlord under the Sublease. Notwithstanding the foregoing, Landlord shall not be liable to Sublessee for the Security Deposit referenced in Section 19 of the Sublease in the event this Sublease is assigned to Landlord hereunder. The foregoing provisions of this paragraph shall apply notwithstanding that, as a matter of law, the Sublease may otherwise terminate upon the termination of the Lease and shall be self-operative upon such written demand of the Landlord, and no further instrument shall be required to give effect to documents in confirmation of the foregoing provisions of this paragraph satisfactory to Landlord in which Sublessee shall acknowledge such attornment and shall set forth the terms and conditions of its tenancy. Nothing contained in this paragraph shall be construed to impair or modify any right otherwise exercisable by the Landlord, whether under the Lease, any other agreement or in law. (i) LEASE STATUS. Tenant and Sublessee agree that the Lease, as the same may have been amended, is in full force and effect and that there are no breaches or defaults thereunder on the part of Landlord, nor does any condition exists that, with the passage of time or the giving of notice or both, would constitute such a breach or default on the part of Landlord under the Lease. (j) NO WAIVER; NO PRIVITY. Nothing herein contained shall be deemed a waiver of any of the Landlord's rights under the Lease. Except as specifically provided in paragraph 8 of this Consent with regard to the assignment of the Lease to Landlord upon the early termination of the term of the Lease or the surrender of the Lease by Tenant to Landlord, in no event shall Landlord be deemed to be in privity of contract with Sublessee or owe any obligation or duty to Sublessee under the Lease or otherwise, any duties of Landlord under the Lease being in favor of, for the benefit of and enforceable solely by Tenant. 21 (k) NOTICES. Sublessee agrees to promptly deliver a copy to Landlord of all notices of default and all other notices sent to Tenant under the Sublease, and Tenant agrees to promptly deliver a copy to Landlord of all such notices sent to Sublessee under the Sublease. (l) TENANT REIMBURSEMENT OF TENANT IMPROVEMENT COSTS. In consideration of Landlord's agreement to execute this Consent, Tenant agrees to reimburse Landlord the amount of Five Thousand and 00/100 Dollars ($5,000.00) for the cost of tenant improvements being made to the Premises by Landlord in connection with the Sublease. Such amount shall be reimbursed by Tenant to Landlord within thirty (30) days of written request for such reimbursement by Landlord which written request shall include copies of paid invoices evidencing expenditures by Landlord for tenant improvements to the Premises in an amount equal to or greater than Twenty Thousand and 00/100 Dollars ($20,000.00). (m) CONDITION UPON TERMINATION. Despite the provisions of Section 9.02 of the Lease to the contrary, provided there is no continuing and uncured event of default by Sublessee under the Sublease and Sublessee is in possession of the Premises upon the expiration of the term of the Lease (which is coterminous with the term of the Sublease, it being understood by the parties hereto that it is the intention of Sublessee to remain in possession of the Premises following the expiration of the term of the Lease/Sublease pursuant to a new lease to be entered into directly between Landlord and Sublessee), Landlord shall not require Tenant to remove its fixtures, equipment and/or personal property from the Premises upon the expiration of the term of the Lease. (n) WAIVER OF DOCUMENTATION COSTS. Landlord hereby waives its right to seek reimbursement from Tenant for its attorneys' fees and costs incurred in connection with the review and preparation of documents in connection with the Sublease as provided in Section 16.01(f) of the Lease. 22 (o) TENANTS AND SUBTENANT BOUND. By executing this Consent, Tenant and Sublessee acknowledge and agree to be bound by all of the terms and conditions of Landlord's consent to the Sublease as set forth herein. DATED: 11/30/95 LANDLORD: Regents Park Financial Centre, Ltd.,a California limited partnership The Lomas Santa Fe Group, a California corporation (General Partner) By: /S/------------------- ----------------------- Name: RICHARD E. KELLER ----------------------- Title: PRESIDENT ---------------------- By: /S/ ----------------------- Name: MATTHEW J. ROOT ----------------------- Title: DIRECTOR OF LEASING ---------------------- 23 TENANT'S ACKNOWLEDGMENT AND ACCEPTANCE Tenant hereby acknowledges all of the terms and conditions of the Consent to Sublease set forth above, accepts each and every term and provision thereof, and agrees to be bound thereby. DATED: 11/30/95 TENANT: Citicorp Savings, a Federal Savings and Loan Association, (now known as Citibank F.S.B., a Federal Savings Bank) By: /S/ ----------------------- Name: DAVID C. CUMMING ----------------------- Title: VICE PRESIDENT ---------------------- By: ----------------------- Name: ----------------------- Title: ---------------------- 24 SUBLESSEE'S ACKNOWLEDGMENT AND ACCEPTANCE Sublessee acknowledges all of the terms and conditions of the Consent to Sublease set forth above, accepts each and every term and provision thereof, and agrees to be bound thereby. DATED: 11/9/95 SUBLESSEE: Southern California Bank, a California corporation By: /S/ ----------------------- Name: DAVID A. MCCOY ----------------------- Title: EXECUTIVE VP/COO ---------------------- By: ----------------------- Name: ----------------------- Title: ---------------------- 25 EX-10.12 13 EXHIBIT 10.12 REGENTS PARK FINANCIAL CENTRE OFFICE LEASE This Lease is subject to the terms, covenants and conditions herein set forth, and Tenant (as defined below) covenants as a material part of the consideration for this Lease to keep and perform each and all of those terms, covenants and conditions by Tenant to be kept and performed, and that this Lease is made upon the condition of such performance. ARTICLE 1 - FUNDAMENTAL LEASE PROVISIONS Each of the Fundamental Lease Provisions set forth below is a summary of the terms contained elsewhere in this Lease which relate to each such Fundamental Lease Provision. If there is any conflict between any Fundamental Lease Provision and any specific clause of the Lease, the more specific clause of the Lease shall control. 1.1 Date of Lease: For reference purposes only October 25, 1995 LEASE EXECUTION DATE: The date upon which the last of the signatories executes this Lease. 1.2 Landlord: Regents Park Financial Centre. Ltd. a CALIFORNIA LIMITED PARTNERSHIP 1.3 TENANT: SOUTHERN CALIFORNIA BANK A CALIFORNIA CORPORATION 1.4 BUILDING: General site plan of the Building and/or the Project in which the Premises are located (See Exhibit A). 1.5 PREMISES: (See EXHIBIT B) SUITE NO.: 430 APPROXIMATE SQUARE FEET OF RENTABLE AND USABLE FLOOR AREA WITHIN PREMISES: 2,100 rentable square feet and 1,860 usable square feet which area has been determined by Landlord's representative by using the standard method for floor measurement of office buildings, as determined by BOMA [Building Owners and Managers Association International], which determination is conclusive and binding upon Tenant. TENANT'S PERCENTAGE OF DIRECT EXPENSES: Tenant's percentage of expenses to be paid by the tenants in the Building shall be established by Landlord based upon Tenant's pro rata share of expenses described under Articles 4, 8 and 12 of this Lease, which are shared in common with other tenants in the Building ("Tenant's Percentage Share"). Tenant's Percentage Share shall be a fraction, the numerator of which is the rentable floor area of the Premises, and the denominator of which shall be the rentable floor area of the Building occupied by Tenant and occupied by and/or available for occupancy by other tenants in the Building who share such expenses in common with Tenant. The Tenant's Percentage Share is subject to change with changes in the size of the Premises and/or the Building. Tenant's Percentage Share on the Commencement Date is 2.38%. For purposes of computing Tenant's Percentage Share, the "Base Year" will be calendar year 1996. *SEE ADDENDUM 1.6 TERM: Should the Commencement Date not occur on the first day of a calendar month, the Term shall begin on the first day of the next succeeding calendar month. In t hat event, however, Tenant shall pay Rent for the fractional month on a per diem basis (calculated on the basis of a thirty day month) until the first day of the month when the Term commences. The date which corresponds to the Commencement Date shall be known as the "Anniversary Date" of this Lease, unless the Commencement Date does not occur on the first day of a calendar month in which event the Anniversary Date shall be the date which corresponds to the first day of the next succeeding calendar month following the Commencement Date. Any provisions of this Lease to the contrary notwithstanding, the effective date of this Lease, and the commencement of both parties' rights and obligations hereunder, shall be the date upon which this Lease is executed by Landlord. Following the Commencement Date, Landlord and Tenant shall execute a letter agreement confirming the Commencement Date, the rentable and usable square footage of the Premises, and Tenant's acceptance of the Premises. *SEE ADDENDUM The anticipated Commencement Date is November 1, 1995 1.7 PERMITTED USES: (See Section 5.1) COMMERCIAL AND RETAIL BANKING OFFICES and for no other use or purpose. 1.8 TENANT'S GUARANTOR: (See EXHIBIT D) (If none, so state) NONE 1.9 Address for Notices: To Landlord: REGENTS PARK FINANCIAL CENTRE, LTD. C/O ASSET MANAGEMENT GROUP 11750 SORRENTO VALLEY ROAD SAN DIEGO, CA 92121 To Tenant: SOUTHERN CALIFORNIA BANK 4180 LA JOLLA VILLAGE DRIVE, SUITE 125 LA JOLLA, CA 92037 ATTENTION: BRANCH MANAGER 1.10 Security Deposit: (See Section 3.3) $4.242.00 1.11 RENT AND OTHER CHARGES PAYABLE BY TENANT: 2 1.11.1 MINIMUM MONTHLY RENT. Minimum Monthly Rent shall begin on the Commencement Date. 1.11.2 INITIAL MINIMUM MONTHLY RENT: (See Article 3) *SEE ADDENDUM 1.11.3 OTHER CHARGES PAYABLE BY TENANT ("ADDITIONAL RENT"): (i) Increases in Direct Expenses (See Section 4.2); (ii) Taxes on Tenant's property (See Section 4.4); (iii) Building Services and Utilities (See Section 4.5); (iv) Insurance premiums required to be paid by Tenant (See Article 12); and (v) Maintenance, Repair and Alterations (See Article 8). 1.12 EXHIBITS: The exhibits referenced in the Table of Contents are each attached to this Lease~ and are made a part of this Lease by this reference. 1.13 BROKERS: The brokers who negotiated this Lease are Rancon Real, representing Landlord, and None representing Tenant. 1.14 VEHICLE PARKING PRIVILEGES ALLOCATED TO TENANT: seven (7) reserved parking spaces subject to the terms and conditions set forth in Section 19.3 of this Lease. ARTICLE 2 - LEASE 2.1 LEASE OF PROPERTY FOR TERM. Landlord hereby leases the Premises to Tenant and Tenant hereby leases the Premises from Landlord for the Term. The Term is for the period stated in Section 1.6 above and shall begin on the Commencement Date. 2.2 DELAY IN COMMENCEMENT. Landlord shall not be liable to Tenant if, for reasons beyond the reasonable control of Landlord, Landlord is delayed in delivery of possession of the Premises to Tenant. Landlord's delay in delivery of the Premises to Tenant shall not affect this Lease or the obligations of Tenant under this Lease, except in the determination of the Commencement Date. *SEE ADDENDUM 2.3 EARLY OCCUPANCY. Tenant shall have no right to occupy the Premises prior to the Commencement Date without the prior written consent of Landlord. If Tenant occupies the Premises prior to the Commencement Date with the prior written consent of Landlord, Tenant's occupancy of the Premises shall be subject to all of the provisions of this Lease. Early occupancy of the Premises shall not advance the expiration date of this Lease. Unless otherwise provided for in this Lease, Tenant shall pay Minimum Monthly Rent and all other charges specified in this Lease for the early occupancy period. 2.4 HOLDING OVER. Tenant shall vacate the Premises upon the expiration of the Term or earlier termination of this Lease. If Tenant does not vacate the Premises upon the expiration of the Term or earlier termination of this Lease, and Landlord thereafter accepts Rent from Tenant, Tenant's occupancy of the Premises shall be a "month-to-month" tenancy, subject to all of the terms of this Lease applicable to a month-to-month tenancy, terminable on thirty (30) 3 days' written notice given at any time by either party. In no event shall Landlord's acceptance of Rent after such expiration or earlier termination be construed or result in a renewal of this Lease. During any such month-to-month tenancy, Tenant shall pay all Rent and other charges required by this Lease, except that the Minimum Monthly Rent then in effect under the provisions of Section 3.1 and 3.2 hereof shall be increased by one hundred percent (100%). If Tenant fails to surrender the Premises upon the expiration of the Term or earlier termination of this Lease, despite demand to do so by Landlord, Tenant shall indemnify, defend and hold Landlord harmless from all of Landlord's damages or liability, including, but not limited to, any claim made by any succeeding tenant founded on or resulting from such failure to surrender, and any attorneys' fees and costs. During such holdover period, all options, if any, granted under this Lease, shall be deemed terminated and be of no further effect. The provisions of this Section 2.4 are in addition to and do not affect Landlord's right of reentry or any rights of Landlord hereunder, or as otherwise provided by law. It is acknowledged by Tenant that this Section 2.4 shall confer upon Tenant no occupancy rights beyond the expiration of the Term or earlier termination of this Lease. 2.5 FAILURE TO TAKE POSSESSION. Tenant's inability or failure to take possession of the Premises on the Commencement Date shall not delay the Commencement Date or Tenant's obligation to pay Rent. Tenant acknowledges that even if Tenant never takes possession of the Premises, Landlord shall incur significant expenses in reliance upon Tenant's execution of this Lease, including, without limitation, brokerage commissions and fees, legal and other professional fees, the costs of space planning, financing costs, lost income from not seeking other tenants, and the cost of construction of tenant improvements in the Premises. Tenant acknowledges that all of said expenses shall be included in measuring Landlord's damages should Tenant fail to comply with its obligations under this Section 2.5. *SEE ADDENDUM Section 2.6 ARTICLE 3 - RENT 3.1 MINIMUM MONTHLY RENT. The Minimum Monthly Rent shall be payable beginning on the Commencement Date. Tenant shall pay Minimum Monthly Rent to Landlord, at the address set forth in Section 1.9 above, or such other place as Landlord shall designate. Minimum Monthly Rent shall be paid in advance on the first day of each month, without deduction, offset, prior notice or demand, in the sum specified in Section 1.11 of the Fundamental Lease Provisions and shall be subject to upward adjustment as herein stated. Tenant shall pay the first installment of Minimum Monthly Rent to Landlord concurrently with Tenant's execution of this Lease. Rent for any period during the Term hereof which is for less than one month shall be a pro rata portion of the monthly installment determined on the basis of a thirty (30) day month. Rent shall be paid in lawful money of the United States of America. 3.2 ADJUSTMENT TO MINIMUM MONTHLY RENT. *SEE ADDENDUM 4 3.3 SECURITY DEPOSIT. Landlord hereby acknowledges receipt of the Security Deposit from Tenant in the amount identified in Section 1.10 to secure the faithful performance of the Tenant of all of the terms, covenants and conditions of this Lease by the Tenant to be kept and performed. Tenant agrees that if the Tenant shall fail to make any payments required under this Lease when due, the Security Deposit may, at the option of the Landlord, be applied to any Rent due and unpaid, and if the Tenant violates any of the other terms, covenants and condition of this Lease, the Security Deposit may be applied to any damages suffered by Landlord as a result of Tenant's default. Under no circumstances shall Tenant have the right to apply the Security Deposit against all or a portion of Tenant's payment obligations under any of the provisions of this Lease. 3.3.1 Nothing contained in this Section shall in any way diminish or be construed as waiving any of Landlord's other remedies provided in Article 17 hereof, or at law or in equity. Should the entire Security Deposit, or any portion thereof be appropriated and applied by Landlord for the payment of overdue Rent or other sums due and payable to Landlord by Tenant hereunder, then Tenant shall, on the written demand of Landlord, remit to Landlord a sufficient amount in cash to restore the Security Deposit to its original amount, and Tenant's failure to do so within five (5) days after receipt of such demand shall constitute an Event of Default. Should Tenant comply with all of the terms, covenants and conditions of this Lease and promptly pay all of the Rent and other sums payable by Tenant to Landlord when due hereunder, the Security Deposit (or any remaining portion thereof) shall be returned to Tenant at the end of the Term or sooner termination of this Lease. Landlord shall have the right to commingle the Security Deposit with other funds of Landlord. Landlord shall not be required to pay Tenant interest on the Security Deposit. ARTICLE 4 - OTHER CHARGES PAYABLE BY TENANT (ADDITIONAL RENT 4.1 DEFINITIONS. For the purposes of this Section, the following terms are defined as follows: 4.1.1 BASE YEAR: Shall mean the calendar year specified in Section 1.5 of the Fundamental Lease Provisions. 4.1.2 COMPARISON YEAR: Shall mean each calendar year following the Base Year. 4.1.3 DIRECT EXPENSES: All costs of operation and maintenance of the Building, or the Project, determined by (i) the average percent of actual occupancy of the Building for the entire calendar year if such average is greater than ninety percent (90%), or (ii) as if the Building were not less than ninety-five percent (95%) occupied for an entire calendar year if the average percent of actual occupancy of the Building for the entire calendar year is less than ninety percent (90%). Direct Expenses shall include, but not be limited to, the following: 5 4.1.3.1 Real property taxes and assessments (collectively "Real Property Taxes") upon the improvements to the Building, the Building, the Common Areas serving the Building (as "Common Areas" are defined in Article 19 hereof), and the land upon which they are located, imposed by any governmental authority or agency. "Real Property Taxes" means and shall include without limitation any form of real estate tax, assessment, special assessment, license fee, license tax, special tax, business license fee, commercial rental tax, levy, charge, penalty (not resulting from failure of the Landlord to pay any Real Property Tax), tax or similar imposition, now or hereafter imposed, or imposed in substitution or addition, partial or total, to or regarding any such tax, assessment, special assessment license fee, license tax, special tax, business license fee, commercial rental tax, levy, charge or penalty previously included or not included within the definition of Real Property Taxes, by any authority having the power to tax, including any city, county, state or federal government, or any school, agricultural, lighting, drainage or other improvement assessment or special district thereof, as against the Premises, the Building or the Common Areas or any portion thereof or against any legal or equitable interest of Landlord in the Premises, the Building or the Common Areas and any reasonable costs incurred by Landlord in any proceeding for abatement or reduction thereof, such as attorneys' and consultants' fees. Real Property Taxes shall also include any increase in Real Property Taxes due to a "change in ownership" (as that phrase is defined from time-to-time in the California Revenue and Taxation Code or any successor statute) of the Premises. Notwithstanding any provision of this Section 4.1.3.1, express or implied to the contrary, "Real Property Taxes" shall NOT include Landlord's federal or state income, franchise, inheritance or estate taxes. 4.1.3.2 All expenses incurred in connection with the operation, repair, cleaning, maintenance and insuring of the Building and the Common Areas (collectively "Building Costs"). Building Costs include, without limitation, all sums expended in connection with the Building and Common Areas for: general maintenance and repairs; resurfacing; painting; restriping; cleaning; trash removal (including trash deposited in common receptacles by the individual tenants); sweeping and janitorial services; lighting and operation and maintenance of air conditioning and heating equipment and other utility expenses; maintenance, repair, cleaning and replacement of public toilets, music program equipment and loudspeakers, sidewalks, curbs and Building signs, sprinkler systems, planting and landscaping, floors, ceilings, skylights, windows, directional signs, markers and bumpers, any fire protection systems (including fire sprinklers), lighting systems and fixtures (including replacement of tubes and bulbs), storm drainage systems and other utility systems, all mechanical equipment, automatic door openers, escalators, elevators, roofs, exterior walls, air conditioning and heating equipment and security alarm systems; personnel to implement the foregoing services, including, if Landlord deems necessary, the cost of security guards; all on-site costs and personnel expenses of Landlord incurred in connection with the maintenance of the Building and the Common Areas; all personal property taxes assessed against any personalty (not belonging to any tenant of the Building) in use in the Building or the Common Areas; any governmental imposition or surcharge imposed upon Landlord or assessed against any portion of the Building or the Common Areas; depreciation on maintenance and operating machinery and equipment (if owned) and rental paid for such machinery and equipment (if rented); premiums for all insurance carried by Landlord pursuant to this Lease, including without limitation, adequate comprehensive public liability and property damage insurance covering Landlord's ownership and operation of the Building and the Common Areas, fire and extended 6 coverage insurance on the Building and the Common Areas (which may include earthquake and flood damage endorsements), vandalism and plate glass insurance covering the Building and the Common Areas and rent loss insurance; and the costs of all capital improvements and replacements to the Building or the Common Areas, its contents or any portion thereof which are made to (i) comply with any present or future law, ordinance, rule or regulation including without limitation the Americans With Disabilities Act of 1990 and similar laws, ordinances, rules or regulations; or (ii) improve or add Building life-safety or security systems; or (iii) reduce other Building Costs, such costs to be amortized over the applicable recovery period for federal tax purposes or the estimated useful life as determined by Landlord and utilized by Landlord in its financial and tax reporting, and to include a return on capital at such rate as Landlord pays on funds borrowed for the purpose of constructing such improvements or replacements. In addition, Building Costs shall include a sum to be payable to Landlord for supervision of the Building and the Common Areas and for accounting, bookkeeping and collection of the Building Costs, in an amount equal to fifteen percent (15%) of the total of all of the foregoing Building Costs incurred in each calendar year. Landlord may have any or all services performed in connection with such Building and Common Area maintenance provided by an independent contractor(s). If Landlord acquires, constructs or makes available for Common Area purposes land or improvements not shown as pant of Exhibit A, then Building Costs shall also include all of the expenses itemized above incurred and paid in connection with such additional land or improvements. 4.1.3.3 Direct Expenses shall NOT include (i) mortgage and debt service on any debt instrument which encumbers the Building; (ii) ground lease payments; (iii) Landlord's general overhead and general administrative expenses not related to management or operation of the Building; (iv) depreciation (except as described above); (v) any and all costs of selling, exchanging or refinancing the Building including any escrow charges, transfer taxes, loan fees and points; (vi) extraordinary real estate taxes or insurance premiums related to the tenant improvements of other tenants in the Building which are in excess of building standard as may be defined by Landlord from time to time; (vii) costs incurred by Landlord for the repair of damage to the Building or the Common Areas to the extent Landlord is reimbursed by insurance proceeds from policies paid for in total or in part by Tenant; (viii) capital expenditures required by Landlord's failure to comply with laws enacted on or before the date of issuance of a certificate of occupancy or an equivalent governmental permit for the initial occupancy of the Building; (ix) costs incurred with respect to the installation of tenant improvements made for tenants in the Building or incurred in renovating or otherwise decorating, painting or redecorating vacant space for tenants of the Building; (x) leasing commissions, attorneys' fees, and other costs and expenses incurred in connection with negotiations or disputes with present or prospective tenants or other occupants of the Building, (xi) costs incurred by Landlord to enforce the provisions of any lease of space in the Building due to the violation by any tenant of the Building of the terms and conditions of any lease; (xii) cost of services paid to Landlord or to subsidiaries or affiliates of Landlord for services in the Building to the extent the same exceeds the cost of such services rendered by unaffiliated qualified third parties on a comparable competitive basis; (xiii) any compensation (including wages and fringe benefits) paid to clerks, attendants or other persons in commercial concessions operated by Landlord in the Building lobby; (xiv) all items and services for which Tenant or any other tenant of the Building reimburses Landlord (other than the pass-through of Building Costs) and which Landlord 7 provides selectively to one or more tenants (other than Tenant) without reimbursement; (xv) the cost of purchase and installation of signs in or on the Building which identify the owner of the Building or any tenant of the Building; (xvi) tax penalties incurred as a result of Landlord's negligence or inability or unwillingness to make payments when due; (xvii) electrical power costs for which Tenant or any other tenant directly contracts with the public utility. *See Addendum 4.2 INCREASES IN DIRECT EXPENSES/ADDITIONAL RENT. If the Direct Expenses paid or incurred by the Landlord for the Comparison Year are in excess of the Direct Expenses paid or incurred for the Base Year, then Tenant shall pay Tenant's Percentage Share of the increase as Additional Rent. Notwithstanding the preceding sentence, Tenant shall not be required to pay any Direct Expenses in excess of Direct Expenses paid or incurred for the Base Year, until after the first Anniversary Date of this Lease. Landlord shall endeavor to give to Tenant, on or before the first day of March of each year following the respective Comparison Year, a statement of the increase in Direct Expenses payable by Tenant hereunder, but failure by Landlord to give such statement by March 1 shall not constitute a waiver by Landlord of its right to require payment of the increase in Direct Expense. Upon receipt of the statement for the first Comparison Year, Tenant shall pay in full the total amount of increase due for the first Comparison Year. In addition for the then current year, the amount which Landlord estimates, at Landlord's sole determination, for the increase in Direct Expenses between the Base Year and the said current year, shall be divided into twelve (12) equal monthly installments, and Tenant shall pay to Landlord, concurrently with the Minimum Monthly Rent payment next due following the receipt of such statement, an amount equal to one (1) monthly installment multiplied by the number of months from January in the calendar year in which said statement is submitted to the month of such payment, both months inclusive. Subsequent installments shall be payable concurrently with the Minimum Monthly Rent payments for the balance of that calendar year. If the next or any succeeding Comparison Year results in a greater increase in Direct Expenses than that previously estimated by the Landlord, then, not later than twenty (20) days following receipt of a statement from Landlord, Tenant shall pay a lump sum equal to such total increase in Direct Expenses over the Comparison Year, less the total of the monthly installments of estimated increases paid in the previous year for which comparison is then being made; and the estimated monthly installments to be paid for the next year, following said Comparison Year, shall be adjusted to reflect Landlord's estimate of such increase in Direct Expenses for that current year. If, in any Comparison Year, the Tenant's share of Direct Expenses is less than the preceding year, then upon receipt of Landlord's statement, any overpayment made by Tenant on the monthly installment basis provided above shall be credited towards the next installment of Minimum Monthly Rent falling due. 4.2.1 Not more frequently than once per calendar year, within days after receipt of Landlord's statement comparing Tenant's payment of Direct Expenses during that calendar year against Tenant's Percentage Share of such expenses, Tenant may request in writing to audit Landlord's books and records pertaining to such expenses. Tenant shall have no right to request to audit Landlord's books and records pertaining to such expenses, except during such period. If no such written request is made within the period, Tenant stipulates and agrees that said figures are for all purposes correct and accurate, and the amount of the billing is proper. In the event Tenant requests copies of any portion 8 of Landlord's books and records pertaining to such expenses, such copies shall be provided by Landlord to Tenant at Tenant's expense. *SEE ADDENDUM 4.3 FINAL DETERMINATION OF TENANT'S SHARE OF DIRECT EXPENSES. Even though the Term has expired and Tenant has vacated the Premises, when the final determination is made of Tenant's Percentage Share for the year in which this Lease terminates, Tenant shall immediately pay any increase due over the estimated Direct Expenses paid, and conversely, any overpayment made by Tenant in the event Direct Expenses decrease shall be rebated by Landlord to Tenant. 4.4 TAXES ON TENANT'S PROPERTY. Tenant shall pay, before delinquency, all taxes, assessments, license fees and public charges levied, assessed or imposed upon or measured by the value of its business operation, including but not limited to the furniture, trade and other fixtures, equipment and other property of Tenant any time situated on or installed in the Premises by Tenant. If at any time during the Term any of the foregoing are assessed as a part of the real property of which the Premises are a part, Tenant shall pay to Landlord upon demand the amount of such additional taxes as may be levied against said real property by reason thereof. For the purpose of determining said amount, figures supplied by the County Assessor as to the amount so assessed shall be conclusive. 4.5 BUILDING SERVICES AND UTILITIES. Landlord shall also furnish to the Premises (i) sewer and domestic water service and (ii) facilities for the delivery and distribution within the Premises of electricity and telephone (the foregoing utility facilities and the HVAC Service are hereinafter collectively referred to as "Utilities"). Tenant shall pay for all Utilities used by Tenant within the Premises. If a separate meter is required by Tenant for any Utilities, such meter shall be installed and maintained at Tenant's expense. *See Addendum 4.5.1 If Tenant's electrical consumption is separately metered, Tenant shall pay for such costs directly to the public utility company or to Landlord as Landlord directs (and if such payment is made to Landlord, Landlord shall be responsible for payment to the public utility). If Tenant's electrical consumption is NOT separately metered, Tenant shall pay Tenant's Percentage Share of the electrical consumption of the Building as a part of Direct Expenses; provided however, if Tenant's electrical consumption was not initially separately metered and if a separate meter is subsequently installed to monitor Tenant's electrical consumption, Landlord shall make an appropriate adjustment to Minimum Monthly Rent and Direct Expenses to account for the fact that Tenant is directly paying such separately metered charges to the public utility (or to Landlord as the case may be) and not as a part of Tenant's Minimum Monthly Rent or Tenant's Percentage Share of Direct Expenses. If Tenant's electrical consumption is NOT separately metered and is in excess of the quantity provided by Landlord or extends beyond Business Hours, Landlord may install a separate switch, meter or metering system to be installed at Tenant's expense to measure the amount of electrical consumption by Tenant and charge Tenant for such excess consumption at the rates charged by the local public utility providing the same plus any additional expense incurred in keeping account of the electricity so consumed. 4.5.2 Landlord shall provide customary and routine cleaning and janitorial service for the Premises not less than five (5) days per week, during non Business Hours; provided however, if Tenant is a health care provider, Tenant shall, at Tenant's sole cost and expense, (i) make 9 arrangements for such cleaning and janitorial services for the Premises with a contractor which shall be subject to the reasonable prior approval of Landlord and (ii) satisfy all laws and regulations governing the disposal of medical waste and to arrange for the proper disposal of such waste. The disposal of medical waste is not part of the ordinary services provided by Landlord, and Landlord is not required to provide such services pursuant to this Lease. Tenant agrees to indemnify, def end and hold Landlord harmless from and against any and all claims, costs, loss or liability arising out of or in any connected to Tenant's disposal of such waste. 4.5.3 Tenant shall not install or use machinery or equipment that use excess water, lighting or power, nor shall Tenant permit any act that causes extra burden upon the Utilities, or Building services. Tenant agrees to pay to Landlord within ten (10) working days after Tenant's receipt of an invoice from Landlord, all reasonable charges imposed by Landlord from time to time for all such excess Utilities and/or additional services consumed by Tenant or used in the Premises. 4.5.4 Landlord reserves the right to interrupt, curtail, stop or suspend Utilities when necessary, in Landlord's reasonable discretion by reason of accident or emergency, or for repairs, alterations, replacements or improvements or because of difficulty or inability in securing supplies or labor, or because of strikes, or for any other cause beyond the reasonable control of Landlord, whether such cause be similar or dissimilar lo those hereinabove specifically mentioned, until such cause has been removed. Except as specifically provided in Section 4.7 below, there shall be no diminution or abatement of Rent or other charges due under this Lease as a result of said interruption, curtailment or suspension of Utilities and/or other Building services, nor shall this Lease be affected or any of the Tenant's obligations hereunder be reduced. Landlord shall have no responsibility or liability for any such interruption, curtailment, stoppage or suspension of services or systems as provided for in this Section 4.5, except that Landlord shall exercise reasonable diligence to eliminate the cause of same. 4.5.5 Landlord reserves the right to install new or additional utility facilities throughout the Building and the Common Areas for the benefit of the Landlord or Tenant, or any other tenants of the Building including, but not by way of limitation, such Utilities as plumbing, electrical systems, HVAC systems, communication systems and fire protection and detection systems, including entry into the Premises for such purposes, so long as such installations do not unreasonably interfere with Tenant's use of the Premises. 4.6 ADDITIONAL RENT. All charges payable by Tenant other than Minimum Monthly Rent are called "Additional Rents. Unless this Lease provides otherwise, all Additional Rent shall be paid with the next monthly installment of Minimum Monthly Rent. The term "Rent" shall mean Minimum Monthly Rent and Additional Rent. Tenant's failure to pay any Additional Rent due hereunder shall constitute an Event of Default under this Lease. 4.7 ABATEMENT OF RENT WHEN TENANT IS PREVENTED FROM USING PREMISES. Notwithstanding any provision in this Lease to the contrary, in the event that Tenant is prevented from using, and does not use, the Premises or any portion thereof, for ten (10) consecutive business days (the "Eligibility Period") as a result of any damage or destruction to the Premises or any repair, maintenance or 10 alteration performed by Landlord at any time after Tenant commences business from any portion of the Premises, which interferes with Tenant's use of the Premises, or any failure to provide utilities, services or access to the Premises or because of an eminent domain proceeding, then Tenant's Rent shall be abated or reduced, as the case may be, after expiration of the Eligibility Period for such time that Tenant continues to be so prevented from using, and does not use, the Premises or a portion thereof in the proportion that the rentable area of the portion of the Premises that Tenant is prevented from using, and does not use, bears to the total rentable area of the Premises. However, in the event that Tenant is prevented from conducting, and does not conduct, its business in any portion of the Premises for a period of time in excess; of the Eligibility Period, and the remaining portion of the Premises is not sufficient to allow Tenant to effectively conduct its business therein, and if Tenant does not conduct its business from such remaining portion, then for such time after expiration of the Eligibility Period during which Tenant is so prevented from effectively conducting its business therein, the Rent for the entire Premises shall be abated; provided, however, if Tenant reoccupies and conducts its business from any portion of the Premises during such period, the Rent allocable to such reoccupied portion, based on the proportion that the rentable area of such reoccupied portion of the Premises bears to the total rentable area of the Premises, shall be payable by Tenant from the date such business operations commence. If Tenant s right to abatement occurs because of damage or destruction to the Premises or Tenant's property, Tenant's abatement period shall continue until Tenant has been given sufficient time, and sufficient access to the Premises. to rebuild the portion of the Premises it is required to rebuild, to install its property, furniture, fixtures, and equipment and to move in over one (1) weekend. To the extent Tenant is entitled to abatement because of an event covered by Article 10 (Damage or Destruction) or Article 11 (Eminent Domain) of this Lease, then the Eligibility Period shall not be applicable. ARTICLE S - USE OF PREMISES 5.1 USE. Tenant acknowledges that Tenant's use of the Premises shall be subject to any matters or documents of record, including the effect of any covenants, conditions, restrictions, easements, mortgages or deeds of trust, ground leases, rights-of-way, or any construction, operation and reciprocal easement agreement, ,and the effect of any zoning laws of the city, county and state where the Building is located. Tenant shall use the Premises only for the Permitted Uses identified in Section 1.7 above and shall not use or permit the Premises to be used for any other purpose without the prior written consent of Landlord. In determining whether to grant consent to Tenant for any proposed use other than the Permitted Use, Landlord may consider factors including, but not limited to, tenant mi~c, Building image, need for alteration of the Premises and/or the Building, the impact upon the Common Areas of the Building or the parking facilities, the impact upon Utilities and services, effect on fire or other insurance covering the Building, avoidance of nuisance to other tenants, and violation of Landlord's third-party agreements, including loan documents and non-competition covenants with other tenants. Tenant shall not use or permit anything to be done in or about the Premises, nor bring or keep anything therein which will in any way increase the existing rate of or affect any fire or other insurance upon the Building or any of its contents, or cause cancellation of any insurance policy covering the Building or any part thereof or any of its contents. 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 11 tenants or occupants of the Buildings 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, and Tenant shall conduct itself and cause its employees, agents and invites to conduct themselves, with full regard to the rights, convenience and welfare of all other tenants in the Building. Tenant, its agents and employees, shall at all times comply with the rules and regulations set forth in Exhibit E. 5.2 COMPLIANCE WITH LAW. Tenant shall not use the Premises or permit its employees, agents c r invites to do anything 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 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 nor related to or affected by Tenant's use and occupancy of the Premises and/or 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 be a party thereto or not, that Tenant has violated any law, statute, ordinance or governmental rule, regulation or requirement, shall be conclusive of that fact as between the Landlord and Tenant. 5.3 HAZARDOUS SUBSTANCES. Tenant shall not (either with or without negligence) cause or permit the escape, disposal, or release of any biologically or chemically active or other hazardous substances or materials (collectively "Hazardous Substances). Tenant shall not allow the storage or use of such Hazardous Substances in any manner not sanctioned by law or by the highest standards prevailing in the industry for the storage an i use of such Hazardous Substances, nor allow any Hazardous Substances to be brought into the Project and such Hazardous Substances, except to use in the ordinary course of Tenant's business, and then only after written notice is given to Landlord of the identity of such Hazardous Substances. Without limitation, "Hazardous Substances" shall include those substances and materials described in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq., and applicable state or local laws and the regulations adopted under these acts. If any lender or governmental agency shall ever require testing to ascertain whether or not there has been any release of Hazardous Substances, then the reasonable costs thereof shall be reimbursed by Tenant to Landlord upon demand as Additional Rent. In addition, Tenant shall execute affidavits, representations and the like from time to time at Landlord's request concerning Tenant's best knowledge and belief regarding the presence of Hazardous Substances on the Premises. In all events, Tenant shall indemnify Landlord in the manner elsewhere provided in this Lease from any release of Hazardous Substances on the Premises or Project, if caused by Tenant or persons acting under Tenant, and Tenant shall be fully and completely liable to Landlord for my and all cleanup costs and any and all other charges, fees or penalties relating to the use, disposal, transportation, generation or sale of hazardous substances on the Premises or Project which were brought onto the Premises or Project by Tenant, or Tenant's agents, employees, invites, contractors or subcontractors. The obligations of Tenant pursuant to this Section 5.3 shall survive the expiration or earlier termination of this Lease. Notwithstanding the foregoing, Tenant shall be permitted to use and 12 store within the Premises, reasonable quantities of those substances and materials which are typically found in general office use (i.e. copy toner and cleaning fluids) despite the fact that such substances and materials may be classified as Hazardous Substances. *SEE ADDENDUM ARTICLE 6 - ACCEPTANCE OF PREMISES Tenant acknowledges that its acceptance of possession of the Premises constitutes a conclusive admission that Tenant has inspected the Premises and has found them to be in good condition and repair and in all respects in accordance with the obligations of Landlord under this Lease. Tenant's acceptance of possession shall also constitute its acknowledgment of and agreement to be bound by all recorded matters, laws, ordinances and governmental regulations and orders in effect at the time of such possession. Tenant acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the condition of the Premises or the suitability of the Premises for Tenant's intended use. ARTICLE 7 - INDEMNIFICATION 7.1 TENANT'S INDEMNITY. Tenant shall defend, indemnify and hold Landlord harmless against and from any and all liabilities and claims arising from Tenant's use of the Premises for the conduct of its business or from any activity, work or other thing done, permitted or suffered by the Tenant, its agents or employees, in or about the Building or the Common Areas and shall further indemnify and hold harmless Landlord against and from any and all liabilities and claims arising from any breach or default in the performance of any obligation on Tenant's part to be performed under the terms of this Lease, or arising from any act or negligence of the Tenant, or any officer, agent, employee, guest or invitee of Tenant, and from and against all costs, attorneys' fees, expenses and liabilities incurred in or about any such claim or any action or proceeding brought thereon, and, if any cast, action, claim or proceeding be brought or asserted against Landlord by reason of any such claim, Tenant, upon no ice from Landlord, shall defend the same at Tenant's expense by counsel reasonably satisfactory to Landlord. Tenant, as a material part of the consideration to Landlord, hereby assumes all risk of damage to property or injury to persons in, upon or about the Premises from any cause other than the negligence of Landlord, or its designated agents, servants or employees, unless covered by insurance which Tenant is required to provide, and Tenant hereby waives all claims in respect thereof against Landlord. Tenant's obligation to indemnify Landlord shall include reasonable attorneys' fees and investigation costs, and all other reasonable costs, expenses and liabilities from the first notice that any claim or demand is to be made or may be made. 7.2 LANDLORD'S INDEMNITY. Notwithstanding the provisions of Section 7.1 above, Tenant shall not be required to indemnify, defend, and hold Landlord harmless from any such loss, cost, liability, damage and expense resulting from the negligent acts or omissions or the willful misconduct of Landlord or those of its agents, contractors, servants, employees or licensees, in connection with Landlord's activities on the Premises or the Building or the Project, and Landlord hereby agrees to indemnify, defend, and hold Tenant harmless from any such loss, costs, liability, damage and expense arising directly out of such negligent acts or omissions or such willful misconduct. Further, Tenant's 13 agreement to indemnify and hold Landlord harmless pursuant to Section 7.1 and the exclusion from Tenant's indemnity and the agreement by Landlord to indemnify and hold Tenant harmless pursuant to this Section 7.2 are not intended to and shall not relieve any insurance carrier of its obligations under polices required to be carried by Landlord or Tenant, respectively, pursuant to the provisions of this Lease to the extent that such policies cover the results of such negligence or omissions or such willful misconduct. If either party breaches this Lease by its failure to carry required insurance, such failure shall automatically be deemed to be the covenant and agreement by Landlord or Tenant, respectively, to self-insure such required coverage, with full waiver of subrogation. 7.3 DAMAGE TO TENANT'S PROPERTY. Landlord, its employees and its agents, shall not be liable for any damage to property entrusted by Tenant to employees of the Building, nor for loss or damage to any property by theft or otherwise, nor for any injury to or damage to persons or property resulting from fire, explosion, falling plaster, steam, gas, electricity, water or rain which may leak from any part of the Premises or the Building, or from the pipes, appliances or plumbing works therein or from the roof, street or subsurface or from any other place resulting from dampness or any other cause whatsoever, or by the entry of Landlord or its agents or employees into the Premises as permitted under this Lease, unless, and to the extent, caused by or due to the negligence of Landlord, or its agents, servants or employees, unless and to the e~tent such damage is covered by insurance required to be carried by Tenant pursuant to this Lease. Landlord, or its agent, shall not be liable for interference with or loss of business by Tenant. Tenant shall give prompt notice to Landlord in case of fire or accidents in the Premises or in the Building, or of defects therein, or in the fixtures or equipment. Neither party shall be liable to the other for any unauthorized or criminal entry of third parties into the Premises, Building, or Common Areas, or for any damage to person or property, or loss of property, in and about the Premises, Building, or Common Areas, and the approaches, entrances, streets, sidewalks or corridors thereto, by or from any unauthorized or criminal acts of third parties, regardless of any breakdown, malfunction or insufficiency of any security measures, practices or equipment provided by Landlord or Tenant. Tenant shall immediately notify Landlord in writing of any breakdown or malfunction of any security measures, practices or equipment provided by Landlord which are known to Tenant. *See Addendum ARTICLE 8 - MAINTENANCE. REPAIRS AND ALTERATIONS 8.1 LANDLORD'S OBLIGATIONS. Subject to Tenant's obligations under Section 8.2, Landlord shall repair and maintain in good and tenantable condition the Common Areas, the roof, exterior walls, structural part~ of the Premises (including the structural floor), utility meters, pipes and conduits outside the Premises used to Furnish utilities to the Premises on a nonexclusive basis (except for repairs assumed by the appropriate public utility company), and those portions of any variable air volume or central HVAC system serving the Building which is located outside the Premises. In addition, Landlord shall keep the foundations, exterior walls and exterior roof of the Building in good order, condition and repair. Landlord's costs of meeting its obligations under this Section 8.1 shall be chargeable to Tenant as a part of Building Costs. Tenant shall not have the right to make repairs at Landlord's expense or to terminate this Lease due to Landlord's failure to keep the Common Areas, or the Building in good order, condition and repair. Tenant agrees that the under no circumstances will Tenant use the roof 14 areas for any purpose. Except as specifically provided in Section 4.7 above, there shall be no abatement of Rent and no liability of Landlord by reason of any injury to or interference with Tenant's business arising from the making of any repairs, alterations or improvements in or to any portion of the Building, Common Areas or the Premises or in or to fixtures, appurtenances and equipment therein. If any part of the Premises, Common Areas or the Building is damaged by any act or omission of Tenant, its customers, invitees or employees, Tenant shall pay Landlord the cost of repairing or replacing such damaged property, whether or not Landlord would otherwise be obligated to pay the cost of maintaining or repairing such property, except and to the extent the cost of such repairs or replacements are covered by insurance carried by Landlord and paid for by Tenant as part of Building Costs. Tenant acknowledges that neither Landlord nor any agent of Landlord has made any representation that Landlord shall undertake any modification, alteration or improvement to the Premises, except as may be specifically provided for in this Lease. *SEE ADDENDUM 8.2 TENANT'S OBLIGATIONS. Subject to Landlord's maintenance obligations pursuant to Section 8.1, Tenant shall keep the Premises in an attractive, first-class and fully operative condition. Landlord shall not be obligated to make repairs, replacements or improvements of any kind upon or in the Premises, or upon or to any equipment, Utility Installation (as defined in Section 8.4), fixtures or furnishings therein contained during the Term. Tenant, at Tenant's sole expense, shall keep and maintain the Premises and every part thereof, and any and all appurtenances thereto wherever located, in first-class condition and in good order and repair, in accordance with all applicable laws, ordinances and regulations of any governmental authority having jurisdiction, including replacement of parts and equipment, if necessary, including, but without limitation, all utility facilities, including plumbing, heating, electrical ventilation, heating and air conditioning systems (except Landlord shall maintain the HVAC System serving the Premises, with the cost of such maintenance chargeable to the tenants of the Building), sprinkler systems, walls, floors and ceilings, and all other repairs, replacements, renewals and restorations, ordinary and extraordinary, foreseen and unforeseen, and all other work or leasehold improvements, subject to reasonable wear and tear. In addition, Tenant, at its sole cost and expense, shall install and maintain fire extinguishers and other fire protection devices as may be required from time to time by any agency having jurisdiction thereof and/or by the insurance underwriters insuring the Building or Project in which the Premises are located. In no event shall Tenant make or cause to be made any penetration into or through the roof or floor of the Premises without the prior written approval of Landlord. Tenant shall be directly responsible for any and all damages resulting from any violation of the provisions of this Section 8.2. Any contractors retained by Tenant for the purpose of complying with Tenant's obligations under this Section 8.2 shall have received the prior written approval of Landlord. 8.2.1 If Tenant refuses or neglects to commence repairs within ten (10) days after Landlord's written demand, or adequately to complete such repairs within a reasonable time thereafter, Landlord may make the repairs without liability to Tenant for any loss or damage that may occur to Tenant's personal property or business by reason thereof, and if Landlord makes such repairs, Tenant 15 shall pay to Landlord on demand, as Additional Rent, the cost thereof, with interest at the Interest Rate (as defined in Article 29) from the date of payment by Landlord until repaid by Tenant. 8.2.2 Without any liability for failure to do so, Tenant shall promptly notify Landlord in writing if Tenant observes that any part of the Premises, or of the Building, including the fixtures and facilities, is or appears to be defective, damaged or in a state of disrepair, regardless of the nature of the cause or of the identity of he party responsible for the repair thereof. 8.3 CONDITION UPON TERMINATION. Upon termination of this Lease, Tenant shall remove all of Tenant's personal property, trade fixtures and equipment from the Premises and shall surrender the Premises to Landlord, broom clean and in the same condition as received except for ordinary wear and tear which Tenant was not otherwise obligated to remedy under any provision of this Lease. Landlord may require Tenant to remove any alterations, additions or improvements other than the initial Tenant Improvements to be constructed by Landlord pursuant to the Tenant Improvement Agreement attached hereto as EXHIBIT C (whether or not made with Landlord's consent) by no later than the termination of the Lease and to restore the Premises to the condition specified by Landlord including, without limitation, sign removal and repair and all patching and plastering required by Landlord, all at Tenant's e~pense. All alterations, additions and improvements which Landlord has not required Tenant to remove shall become Landlord's property and shall be surrendered to Landlord upon the termination of the Lease. Tenant shall repair, at Tenant's expense, any damage to the Premises caused by the removal of such improvements and trade fixtures. In no event, however, shall Tenant remove any of the following without Landlord's prior written consent: any power wiring or power panels; wall coverings; drapes, blinds or other window coverings; carpets or other floor coverings; heaters, air conditioners or any heating or air conditioning equipment; fencing or security gates, or other similar Building operating equipment and decorations. 8.4 ALTERATIONS, ADDITIONS AND IMPROVEMENTS. Tenant shall not make any alterations, additions, improvements, structural changes or Utility Installations in or to the Premises (collectively "Alterations") without Landlord's prior written consent. Tenant shall submit to Landlord, at the time of seeking such prior written consent, detailed copies of all plans and specifications for all Alterations to the Premises. As used in this Section 8, the term "Utility Installation" shall mean power panels, electrical distribution systems, security systems, lighting fixtures, air conditioning, plumbing and telephone and telecommunication wiring and equipment. No Alterations shall be undertaken without first providing Landlord with a copy of the signed permit(s) issued by the appropriate governmental agency or agencies, if a permit(s) is required. All Alterations made by Tenant, except light fixtures, cases, counters and other removable trade fixtures shall, upon installation, be deemed to have become part of the freehold and the property of Landlord. Landlord may require Tenant to provide demolition and/or lien and completion bonds in form and amount satisfactory to Landlord. Tenant shall promptly remove any Alterations constructed in violation of this Section 8.4 upon Landlord's written request. All Alterations shall be accomplished in a good and workmanlike manner, in conformity with all applicable laws and regulations, and diligently completed by a licensed contractor approved by Landlord. Upon completion of any Alterations, Tenant shall provide Landlord with copies of all construction contracts, and proof of payment (including unconditional lien waivers) for all labor and materials. Tenant shall 16 reimburse Landlord for all costs incurred by Landlord (including architects' and/or engineers' fees) in approving Tenant's plans for Alterations. 8.4.1 In connection with the construction of any Alterations by Tenant, Tenant shall provide its own trash containers for construction debris and use service entrances to the Premises, if any. In addition, Tenant shall conduct such construction activities during such hours and in such a manner as to not interfere with the quiet enjoyment or business operations of other tenants in the Building. Tenant shall not conduct any core drilling during business hours. 8.4.2 Tenant shall pay when due all claims for labor and material furnished to the Premises. Tenant shall give Landlord at least ten (10) days' prior written notice of the commencement of any Alterations on the Premises. Before commencing any Alterations, Tenant shall permit Landlord to post and maintain notices of non-responsibility and other notices that are provided for under the Mechanics' Lien Law of California and other applicable laws. Tenant shall keep the Premises free and clear of all mechanics' liens resulting from Alterations done by or for Tenant. Tenant shall have the right to contest the correctness or the validity of any such lien immediately on demand by Landlord, Tenant procures and records a lien release bond issued by a corporation authorized to issue surety bonds in California in an amount equal to one and one-half (1-1/2) times the amount of the claim of lien. The bond shall meet the requirements of Civil Code Section 3143 and shall provide for the payment of any sum that the claimant may recover on the claim (together with costs of suit, if it recovers in the action). Furthermore, at all times when Tenant or its agents, contractors or employees are performing Alterations, Tenant or Tenant's contractor shall maintain public liability and property damage insurance on such activities with a single combined limit of One Million Dollars ($1,000,000), naming the Landlord as an additional insured. Furthermore, Tenant or Tenant's contractor shall procure workmen's compensation insurance to cover the activities of all persons engaged in such Alterations. Tenant shall pay all taxes and license fees imposed by reason of any Alterations made by Tenant to the Premises, or imposed upon any personal property of Tenant located within the Premises. Tenant agrees that its interior decorating, including color scheme, shall be subject to the prior approval of Landlord and Landlord's architect which approval shall not be unreasonably withheld. Tenant shall make no changes to any entry locks or locks installed on any other doors located in the Premises without first obtaining Landlord's prior written approval. It is acknowledged by Tenant that a master key system has been employed by Landlord, and that any such lock change could hinder access to the Premises for such purposes as security and fire fighting. In the event that during the Term hereof any Alteration is mandated by law, regulation, rule or the requirement of any insurance company (as a condition to the issuance or continuation of insurance coverage) to be made to the Premises, or any portion thereof, because of Tenant's use of the Premises, then, and in that event, such Alteration shall be made and paid for by Tenant. 8.5 INSTALLATION OF FIXTURES. Landlord may, but shall not be obligated to, grant Tenant written permission to enter upon the Premises prior to the Commencement Date for the purpose of installing trade fixtures and furnishings upon the furnishing to Landlord of written evidence satisfactory to 17 Landlord that Tenant has obtained and put into effect the insurance coverage described in Article 12. Landlord shall not be liable to Tenant for damage to or loss of such fixtures, equipment or furnishings, Tenant accepting the full risk for such damage or loss if any. Tenant shall pay for all utilities consumed by Tenant or its contractors in preparing the Premises for opening of Tenant's business. 8.6 LANDLORD'S RIGHT TO REMODEL BUILDING. Landlord shall have the right, at any time, to remodel, expand, change or refurbish all or any part of the Building, Common Areas or the surrounding property, including the right (but not the obligation) to enclose or otherwise cover all or part of the Common Areas, to landscape or re-landscape portions of the Building or Common Areas, to reconstruct, remodel or refurbish any portion of the exterior of the Building, and/or to change, modify or alter parking, access or other traffic matters. In connection with the exercise of Landlord's rights as set forth in this Section 8.6, Landlord, its agents and employees, shall have the right of reasonable entry and to conduct work within the Premises. Tenant hereby releases Landlord for any and all liability arising from (i) any interference or diminution in access to the Premises; (ii) noise or dust resulting from Landlord's work; and (iii) reduction or limitation of available parking spaces for Tenant's employees and invitees, so long as such activity does not unreasonably interfere with the operation of Tenant's business. This Lease is not intended to nor shall it confer upon Tenant any view corridors. The obstruction of Tenant's view, air or light by any structure erected in the vicinity of the Building, whether by Landlord or third parties, shall not in any way affect this Lease or impose any liability upon Landlord, nor shall Landlord be liable for interference with any other incorporeal hereditament. ARTICLE 9 - PERFORMANCE BY TENANT All covenants and agreements to be performed by Tenant under any of the terms of this Lease shall be performed by Tenant at Tenant's sole cost and expense and without any abatement of Rent except as specifically provided in Section 4.7 above. If Tenant shall fail to pay any sum of money owed to any party other than Landlord, or perform any act for any party other than Landlord, for which Tenant is liable hereunder, and such failure or violation shall continue for fifteen (15) days after written notice thereof by Landlord, and a reasonable additional period of time thereafter to perform any such act if such additional time is required, Landlord may, without waiving or releasing Tenant from its obligations, make any such payment or perform any such other act to be made or performed by Tenant. All sums so paid by Landlord and all necessary incidental costs, together with interest hereon at the Interest Rate from the date of such payment by Landlord, shall be payable to Landlord on demand, and shall be deemed Additional Rent. ARTICLE 10 - DAMAGE OR DESTRUCTION OF LEASEHOLD 10.1 DESTRUCTION COVERED BY INSURANCE. In the event the Premises or the Building are damaged by fire or other perils which are fully covered by fire and extended coverage insurance, Landlord agrees to forthwith repair the same, and this Lease shall remain in full force and effect. Landlord may elect, by written notice to Tenant within sixty (60) days after such casualty, to terminate this Lease in lieu of restoring the Premises if either (i) the Building or Premises are damaged or destroyed to the extent of more than twenty-five percent (25%) of their replacement cost, or (ii) the damage is such 18 that the Building or the Premises cannot be repaired and restored within one hundred eighty (180) days after the casualty. 10.2 DESTRUCTION NOT COVERED BY INSURANCE. In the event the Premises or the Building are damaged as a result of any cause other than the perils covered by fire and e~tended coverage insurance, Landlord shall have the option to: (i) repair or restore such damage, this Lease continuing in full force and effect; or (ii) give notice to Tenant at any time within sixty (60) days after such damage, terminating this Lease as of the date specified in such notice, which date shall be no less than thirty (30) days and no more than sixty (60) days after the giving of such notice. In the event Landlord gives notice of its election to terminate this Lease, as is provided for n this Section 10.2, the Lease shall terminate, and all interest of the Tenant in the Premises shall terminate on the date so specified in such notice and the Rent shall be paid up to date of termination. 10.3 REPAIR COSTS EXCEEDING INSURANCE COVERAGE. If the cost of the restoration of the Premises or the Building exceeds the amount of proceeds received from insurance, Landlord may elect to terminate this Lease by giving notice to Tenant within thirty (30) days after determining that the restoration cost will exceed the insurance proceeds. If Landlord elects to terminate this Lease and Tenant does not elect to contribute toward the cost of restoration as provided in this Section 10.3, this Lease shall terminate, and all interest of the Tenant in the Premises shall terminate on the date so specified in such notice and the Rent shall be paid up to date of termination. If the destruction was caused by an act or omission of Tenant, or its agents or employees, Tenant shall immediately pay Landlord, upon Landlord's demand, the difference between the actual cost of restoration and any insurance proceeds received by Landlord. 10.4 REPAIRS THAT CANNOT BE COMPLETED WITHIN ONE HUNDRED EIGHTY DAYS. Within sixty (60) days after the date of Tenant's notice to Landlord of such damage or destruction ("Damage Notice Date"), Landlord shall give Tenant notice of Landlord's good faith determination of whether or not the damage or destruction can be repaired under applicable laws, within one hundred eighty (180) days after the Damage Notice Date. In the event Landlord determines that such repairs to the Building and/or the Premises and/or the Common Areas cannot, in Landlord's good faith judgment, be substantially completed under applicable laws within one hundred and eighty (180) days after the Damage Notice Date, then Landlord shall notify Tenant of such determination. In such notice Landlord shall either agree to undertake such repairs (in which event the notice shall include Landlord's estimate of the time required to complete the same) or elect to terminate this Lease. If Landlord agrees to undertake the repairs, but states that the required repairs will not be substantially completed within one hundred and eighty (180) days of the Damage Notice Date, Tenant shall have an option, exercisable by written notice thereof delivered to Landlord not later than the thirtieth (30th) day after Landlord's delivery of Landlord's notice that the repairs will not be completed within such one hundred and eighty (180) day period, to terminate this Lease. If neither Landlord nor Tenant exercise a right of termination following Landlord's determination that the repairs will take more than one hundred and eighty (180) days, then Landlord shall diligently undertake to repair such damage or destruction. 19 10.5 ABATEMENT OF RENT. In the event of reconstruction of the Premises under this Article 10, the Rent otherwise payable under this Lease shall be abated proportionately with the degree to which Tenant's use of the Premises is impaired. Such abatement shall commence on the date of such damage or destruction and continue during the period while Landlord is completing the repairs required of it under this Article 10. Tenant shall continue to operate its business on the Premises during any such abatement period to the extent reasonably practicable from the standpoint of prudent business management. Tenant shall not be entitled to any compensation or damage, from Landlord for loss of the use of the whole or any part of the Premises, Building or Tenant's personal property, or for any inconvenience or annoyance suffered by reason of damage or destruction thereto, or the reconstruction or replacement thereof. 10.6 RESTRICTIONS ON RESTORATION. If the existing laws do not permit the restoration of the Premises to substantially the condition existing at the time of such damage or destruction, either party may terminate this Lease immediately following receipt of notice that restoration is forbidden, by giving written notice to the other party. 10.7 DESTRUCTION WITHIN LAST YEAR OF TERM. Notwithstanding anything to the contrary contained in this Article, Landlord shall have no obligation whatsoever to repair, reconstruct or restore any portion of the Premises or any portion of the Building the damage occurs during the last twelve (12) months of the Term or any extension thereof. In the event Landlord elects not to repair, reconstruct or restore the Premises during the last twelve (12) months of the Term, or any extension thereof, Landlord shall give Tenant written notice of Landlord's election to terminate the Lease within thirty (30) days after the date of occurrence of such damage. 10.8 DESTRUCTION OF TENANT'S PERSONAL PROPERTY, TENANT IMPROVEMENTS OR PROPERTY OF TENANT'S EMPLOYEES. It is hereby expressly agreed that Landlord will not be obligated to carry insurance of any kind on Tenant's furniture, furnishings, fixtures, equipment or other personal property (collectively "Personal Property") and in the event of damage or destruction to the Premises or the Building, under no circumstances shall Landlord be required to repair any injury or damage by fire or other cause, or to make any repairs to, or replacements of, Tenant's Personal Property. However, as a part of Direct Expenses, Landlord shall cause to be insured the Tenant Improvements and Alterations which do not constitute Tenant's Personal Property and shall cause such Tenant Improvements and Alterations to be repaired and restored at Landlord's sole cost and expense except that Tenant shall pay for such portion which is covered by the deductible. Landlord shall have no responsibility for any contents placed or kept in or on the Premises or the Building by Tenant or Tenant's employees. 10.9 EXCLUSIVE REMEDIES. Notwithstanding any destruction or damage to the Premises, the Building, and/or the Common Areas, Tenant shall not be released from any of its obligations under this Lease, except to the extent and upon the conditions expressly stated in this Article 10. Tenant hereby expressly waives the provisions of California Civil Code Sections 1932(2) and 1933(4) with respect to any damage or destruction to the Building and/or the Premises and agrees that its rights shall be exclusively governed by the provisions of this Article 10. 20 10.10 TERMINATION - ADVANCE PAYMENTS AND INSURANCE PROCEEDS. Upon termination of this Lease pursuant to this Article 10, an equitable adjustment shall be made concerning advance Rent and any advance payments made by Tenant to Landlord. Landlord shall, in addition, return to Tenant so much of Tenant's Security Deposit as has not been applied by Landlord, as provided for under the terms of this Lease. In the event of termination of this Lease, all proceeds from Tenant's fire and extended coverage insurance under Section 12.1.2 covering the Tenant's Personal Property shall be paid to Tenant. 10.11 TERMINATION. Upon any termination of this Lease under any of the provisions of this Article, the parties shall be released thereby, without further obligation to the other, from the date possession of the Premises is surrendered to the Landlord, except for items which have theretofore accrued and are then unpaid, and those obligations, if any, which by the terms of this Lease, survive such termination. ARTICLE 11 - CONDEMNATION 11.1 DEFINITIONS. (i) ~Condemnation" or ~Taking" means (a) the exercise of any governmental power, whether by legal proceedings or otherwise, by a condemnor, and (b) a voluntary sale or transfer by Landlord to any condemnor, either under the threat of condemnation or while legal proceedings for condemnation are pending; (ii) ~Date of Taking~ means the date the Condemnor has the right to the possession of the property being condemned; (iii) "Award" means all compensation, sums or anything of value awarded, paid or received on a total or partial Condemnation; and (iv) ~Condemnor~ means any public or quasi-public authority, or private corpora:ion or individual, having the power of condemnation. 11.2 PARTIES' RIGHTS AND OBLIGATIONS TO BE GOVERNED BY LEASE. If, during the period between the execution of this Lease and Commencement Date, there is any Taking of all or any part of the Building or Common Areas, or any interest in this Lease by Condemnation, the rights and obligations of the parties shall be determined pursuant to this Article. 11.3 TOTAL TAKING . If the Premises are totally taken by Condemnation during the Term, the Lease shall terminate on the Date of Taking. 11.4 PARTIAL TAKING. 11.4.1 PARTIAL TAKING OF PREMISES. If any portion of the Premises is taken by Condemnation, this Lease shall remain in effect, except that Landlord or Tenant may elect to terminate this Lease if twenty-five percent (25%) or more of the total number of square feet of the floor area in the Premises is taken, and the remainder of the Premises is rendered economically unusable by Tenant. If either party elects to terminate this Lease, that party must exercise its right to terminate pursuant to this Section by giving notice to the other party within thirty (30) days after the nature and the extent of the Taking have been fully determined. If either party elects to terminate this Lease, they shall notify the other party of the date of termination, which date shall not be earlier than thirty (30) days nor later 21 than ninety (90) days after the other party has been notified of the terminating party's election to terminate; except that this Lease shall terminate on the Date of Taking if the Date of Taking falls on a date before the date of termination as designated by the terminating party. If neither party terminates this Lease within the thirty (30) day period, this Lease shall continue in full force and effect, except that Rent shall be reduced as provided below. Furthermore, at Landlord's cost and expense, and as soon as reasonably possible, Landlord will restore the remaining portion of the Premises to a complete unit of like quality and character as existed prior to such Taking. 11.4.2 PARTIAL TAKING OF BUILDING. If more than twenty percent (20%) of the floor area of the Building in which the Premises is located is taken, Landlord may terminate this Lease, at Landlord's option, as of the date the condemning authority takes title or possession by delivering written notice to Tenant within thirty (30) days after receipt of written notice of such Taking (or in the absence of such notice, within thirty (30) days after the Condemnor takes possession). 11.4.3 PARTIAL TAKING OF COMMON AREAS. If any portion of the Common Areas is taken by Condemnation, this Lease shall remain in full force and effect so long as there is no material interference will access to the Premises and/or Tenant's parking facilities. If such a Taking materially interferes with access to the Premises and/or Tenant's rights to parking within the parking facilities within the Project, and comparable substitute parking is not made available to Tenant, then either party shall have the election to terminate this Lease pursuant to this Article 11. For purposes of this Section 11.4.3, such a partial Taking of the Common Areas shall be deemed to materially interfere with access to the Premises and/or Tenant's rights to parking within the parking facilities within the Project only if twenty five percent (25%) or more of the Common Areas is taken and comparable substitute parking or access to the Premises is not made available to Tenant. 11.4.4 EFFECT ON RENT. If any portion of the Premises is taken by Condemnation and this Lease remains in full force and effect, on the Date of Taking, the Minimum Monthly Rent shall be reduced by an amount which is in the same ratio to Minimum Monthly Rent as the total number of square feet in the Premises taken bears to the total number of square feet in the Premises immediately before the Date of Taking. 11.5 RESTORATION. If there is a partial Taking of the Premises and this Lease shall remain in full force and effect pursuant to this Article 11, Landlord, at its cost, shall accomplish all necessary restoration so that the Premises are returned as near as practical to their condition immediately prior to the Date of Taking. 11.6 CONDEMNATION AWARD - DISTRIBUTION. Any Awards paid on account of any Condemnation or Taking of the Building or the Common Area, or any portion or portions thereof, shall belong to and shall be he sole property of Landlord, except that Tenant shall be entitled to receive any Award or portion thereof attributable to the taking of personal property, good will, relocation expenses and/or interests in other than the real property taken, provided the same does not in any way diminish the Award to Landlord. 22 11.7 EFFECT OF TERMINATION. In the event this Lease is cancelled or terminated pursuant to any of the provisions of this Article 11, all Rent and other charges payable on the part of Tenant to Landlord hereunder shall be paid either as of the date upon which actual physical possession shall be taken by the Condemnor, or as of the date upon which Tenant ceases doing business in, upon or from the Premises, whichever last occurs; and the parties shall thereupon be released from all further liability hereunder, except that Landlord shall make an equitable refund to Tenant of any unearned, unused or unappropriated advance Rent or Security Deposit theretofore paid by Tenant to Landlord and except for items which have heretofore accrued and are then unpaid, and those obligations, if any, which by the terms of this Lease, survive such termination. 11.8 RIGHT TO TERMINATE THIS LEASE FOR TAKING. Neither party shall have the right to terminate this Lease in the event of a partial Taking of the Premises, other than as is specifically provided for in this Article 11. Both parties agree that the provisions of this Article 11 shall govern the rights and obligations of the parties in the event of any condemnation of the Premises or the Building, and specifically waive the provisions of California Code of Civil Procedure Section 1265.130 (and any successor provision). ARTICLE 12 - INSURANCE 12.1 INSURANCE MAINTAINED AND PAID BY TENANT. Tenant covenants and agrees that from and after the date of delivery of the Premises from Landlord to Tenant, Tenant will carry and maintain, at its sole cost and expense, in the amounts specified and in the form hereinafter provided for, each of the following types of insurance: 12.1.1 LIABILITY INSURANCE. A Commercial General Liability insurance policy (with coverage which shall be as least as broad as the most recent edition of Insurance Services Office Commercial General liability coverage [~Occurrence form CG 0001] or Insurance Services Office form number GL 0002 covering Comprehensive General Liability and Insurance Offices Form number GL 0404 covering Broad Form Comprehensive General Liability) with a combined single limit of not less than Two Million Dollars ($2,000,000) insuring Tenant on an occurrence basis against all liability of Tenant and Landlord and their authorized representatives, agents and employees arising out of and in connection with Tenant's use or occupancy of the Premises. All such bodily injury liability insurance and property damage liability insurance shall specifically insure the performance by Tenant of the indemnity agreement as to liability for injury to or death of persons and injury or damage to property contained in Section 7.1 of this Lease; however, the limits of said insurance shall not limit the liability of Tenant hereunder. Not more frequently than each two (2) years, if, in the opinion of Landlord's lender or of the insurance broker retained by Landlord, the amount of Commercial General Liability insurance coverage at that time is not adequate, Tenant shall increase the insurance coverage as required by either Landlord's lender or Landlord's insurance broker. 12.1.2 TENANT'S PROPERTY INSURANCE. "All Risk" insurance covering Tenant's personal property, fixtures and equipment from time to time in, on or upon the Premises, in an amount not less than one hundred percent (100%) of their full replacement cost from time to time during the Term, together with insurance against sprinkler damage. Any policy proceeds shall be used for the repair or 23 replacement of the property damaged or destroyed unless this Lease shall cease and terminate under the provisions of Article 10. 12.1.3 WORKERS' COMPENSATION AND EMPLOYER'S LIABILITY INSURANCE. Workers' Compensation Insurance in such amounts as required by applicable California law and Employer's Liability insurance wi h limits of One Million Dollars ($1,000,000.00) per accident. 12.1.4 BUSINESS INTERRUPTION/EXTRA EXPENSE INSURANCE. Loss of income, business interruption and extra expense insurance in such amounts as will reimburse Tenant for direct and indirect loss of earnings and incurred costs attributable to the perils commonly covered by Tenant's property insurance described above for a period of not less than one (1) year. Such insurance shall be carried with the same insurer that issues the insurance for the personal property. 12.1.5 POLICY FORM. All policies of insurance required to be maintained by Tenant under the terms of this Section 12.1 shall be issued by insurance companies, with general policyholder's rating of not less than A and a financial rating of VII rated in the most current available "Best's" Insurance Reports, and admitted to do business in the State of California, and shall (with the exception of Workers' Compensation Insurance) name Landlord, its officers, employees, partners and agents and such other parties (including lenders) as Landlord may reasonably require as additional insured, which policies shall be for the mutual and joint benefit and protection of Landlord, Tenant and such other parties designated by Landlord. Any deductibles or self-insured retentions must be declared to and approved by Landlord. If Landlord disapproves of the amount of any such deductible or self-insured retention, Landlord may either (i) require Tenant's insurer to reduce or eliminate such deductibles or self-insured retentions with respect to Landlord, its officers, employees, partners and agents or (ii) require Tenant to procure a bond guaranteeing payment of losses and related investigations, claim administration and defense expenses to the e~tent of any such deductible or self-insured retention. Copies of such policies of insurance or certificates thereof together with original endorsements showing the coverage required herein shall be delivered to Landlord prior to the delivery of possession of the Premises to Tenant and thereafter prior to the expiration of that term of each such policy. All liability policies shall contain a provision that Landlord, although named an additional insured, shall nevertheless be entitled to recover under said policies for any loss occasioned to it, its servants, agents and employees by reason of the negligence of Tenant. As often as any such policy shall expire or terminate, renewal or additional policies shall be procured and maintained by Tenant in like manner and to like extent. All policies of insurance delivered to Landlord must contain a provision that the company writing said policy will give Landlord thirty (30) days notice in writing (by certified mail, return receipt requested) in advance of any cancellation or lapse or the effective date of any reduction in the amounts of insurance. All liability policies to be maintained by Tenant shall be written as primary policies, not contributing with and in e~cess of coverage which Landlord may carry. In addition, such policies shall include 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. No later than ten ( 0,1 days prior to the Commencement Date, Tenant shall deliver to 24 Landlord, copies of all policies or certificates (together with any required endorsements) evidencing the existence of the amounts and forms of coverage satisfactory to Landlord. 12.1.6 BLANKET POLICIES. Notwithstanding anything to the contrary contained within this Section, Tenant's obligations to carry the insurance provided for herein may be brought within the coverage of a so called blanket policy or policies of property insurance carried and maintained by Tenant, provided, however, that Landlord, its officers, employees, partners and agents, and Landlord's mortgagee(s) or beneficiary(ies) shall be named as an additional insured thereunder as their interest may appear, and that the coverage afforded Landlord and Landlord's mortgagee(s) or beneficiary(ies) will not be reduced or diminished by reason of the use of such blanket policy of insurance, and provided further that the requirements set forth herein are otherwise satisfied. Tenant agrees ta permit Landlord at all reasonable times to inspect the policies of insurance of Tenant covering risks upon the Premises for which policies or copies thereof are not delivered to Landlord. 12.1.7 TENANT'S FAILURE TO PROCURE INSURANCE. Tenant agrees that if Tenant does not carry and maintain any such insurance required to be carried pursuant to this Lease, Landlord may (but shall not be required to) procure such insurance on Tenant's behalf and charge Tenant the premiums, together with a ten percent (10%) handling charge, payable upon demand as Additional Rent. 12.2 INSURANCE MAINTAINED BY LANDLORD AND PAID BY BUILDING TENANTS. 12.2.1 LIABILITY INSURANCE. Landlord shall obtain and keep in force during the Term, a policy of combined single limit bodily injury and broad form property damage insurance, plus coverage against such other risks Landlord deems advisable from time to time, insuring Landlord, but not Tenant, against liability arising out of the ownership, use, occupancy or maintenance of the Building or the Project, if any, in an amount not less than Two Million Dollars ($2,000,000) per occurrence. 12.2.2 PROPERTY INSURANCE. Landlord shall obtain and keep in force, during the Term, a policy or policies of property insurance covering loss or damage to the Building, the Project, the Tenant Improvements and the Alterations but not Tenant's Personal Property, in an amount determined by Landlord or as required by Landlord's lenders. Such policy or policies of insurance shall provide protection against any and all perils generally included in the "All Risk" classification with earthquake coverage insurance, if required by the first mortgagee deed of trust trustee or deed of trust beneficiary of Landlord, or by any federal, state, county, city or local authority, together with insurance against sprinkler damage, vandalism, malicious mischief, plate glass, and such other perils as Landlord deems advisable or may be required by a lender having a lien on the Building or the Project, if any. In addition, Landlord shall obtain and keep in force, during the Term, a policy of loss of rents insurance, covering Tenant's tenancy, providing for insurance proceeds for a period of one (1) year of Tenant's tenancy, with loss payable to Landlord, which insurance shall also cover all Direct Expenses for said period. Tenant shall not be named in any such policies carried by Landlord and shall have no right to any proceeds therefrom. 25 12.2.3 COSTS/DEDUCTIBLES. The policies required by Sections 12.2.1 and 12.2.2 shall contain such deductibles as Landlord or Landlord's lenders may determine. The cost of all such policies shall be chargeable to Tenant as a Building Cost. In the event that the Premises shall suffer an insured loss, as defined in Article 10, the deductible amounts under the applicable insurance policies shall also be deemed Building Costs. Tenant shall not do or permit to be done anything which shall invalidate the insurance policies carried by Landlord. Tenant shall pay the entirety of any increase in the property insurance premium for the Building or the Project, if any, over what it was immediately prior to the Commencement Date, if the increase is specified by Landlord's insurance carrier as being caused by the nature of Tenant's occupancy or any act or omission of Tenant. Landlord's obligation to carry the insurance provided for herein may be brought within the coverage of any so-called blanket policy or policies of property insurance carried and maintained by Landlord, provided that the coverage afforded will not be reduced or diminished by reason of the use of such blanket policy of property insurance. 12.3 WAIVER OF SUBROGATION. Tenant and Landlord (for themselves and their insurers) each hereby releases and relieves the other, and waives its right of recovery against the other, and against the officers, partners, employees, agents and representatives of the other, and against other tenants of the Building (provided such parties and other tenants have waived such rights against Landlord and Tenant), for direct or consequential loss 03 damage arising out of or incident to the perils covered by property insurance carried by such party, whether due to the negligence of Landlord or Tenant, or their agents, employees, contractors and/or invitees, to the item of such insurance coverage. If necessary, all property insurance policies required under this Lease shall be endorsed to contain this waiver of subrogation provision. 12.4 NO REPRESENTATIONS OF ADEQUATE COVERAGE. Landlord makes no representation that the limits or forms of coverage of insurance specified in this Article 12 are adequate to cover Tenant's property or obligations under this Lease. ARTICLE 13 - LANDLORD'S ENTRY ON PREMISES 13.1 ENTRY BY LANDLORD. Landlord and its authorized representatives shall have the right to enter the Premises at all reasonable times for any of the following purposes: (i) to determine whether the Premises are in good condition and whether Tenant is complying with its obligations under this Lease; (ii) in case of emergency or to do any necessary maintenance, restoration, repairs or improvements to the Premises, the Building, Common Areas, the Project, or other leasehold premises in the Building that Landlord has the right or obligation to perform; (iii) to serve, post or keep posted any notices required or allowed under the provisions of this Lease; (iv) to post "for rent" or "for lease" signs during the last four (4) months of the Term, or during any period while Tenant is in default; (v) with prior reasonable notice to Tenant, to show the Premises to prospective brokers, agents, buyers, tenants or persons interested in an exchange, mortgagees, workmen or contractors, at any time during the Term; (vi) to shore the foundations, footings and walls of the Premises or the Building in which the Premises are located and to erect scaffolding and protective barricades around and about the Premises, but not so as to prevent entry to the Premises, and to do any other act or thing necessary for the safety 26 or preservation of the Premises or the Building and other improvements in which the Premises are located; and (vii) to remodel the Building. *SEE ADDENDUM 13.1.1 Landlord shall have the right to use any and all means which Landlord may deem proper to open said doors in an emergency, in order to obtain entry to the Premises, without liability to Tenant. Any entry to the Premises obtained by Landlord by any of said means, or otherwise, shall not, under any circumstances, be construed or deemed to be a forcible or unlawful entry to, or a detainer of, the Premises, or an eviction of Tenant from the Premiss or any portion thereof. Landlord shall conduct its activities on the Premises as allowed in this Section in a manner that will cause the least possible inconvenience, annoyance or disturbance to Tenant. Except in cases of emergency, when the Tenant has abandoned or surrendered the Premises, or if it is impracticable to do so, the Landlord shall give the Tenant reasonable notice and enter only during normal business hours. Tenant hereby grants to Landlord such licenses or easements in and over the Premises or any portion thereof as shall be reasonably required for the installation or maintenance of mains, conduits, pipes or other facilities to serve the Building or any part thereof, including, but not by way of limitation, the Premises of any occupant; provided, however, that Landlord shall pay for any alteration required on the Premiss as a result of any such exercise, occupancy under, or enjoyment of any such license or easement. *SEE ADDENDUM 13.2 NO ABATEMENT OF RENT. Except as specifically provided in Section 4.7 above, Landlord shall not be liable in any manner for any inconvenience, disturbance, loss of business, nuisance or other damage arising out of Landlord's entry on the Premises as provided in this Section, except damage resulting from the negligence or willful misconduct of Landlord or its authorized representatives, but only to the extent such damage is not covered by insurance required to be carried by Tenant pursuant to this Lease. Tenant shall not be entitled to an abatement or reduction of Rent if Landlord exercises any rights reserved in this Section, so long as such activity does not unreasonably interfere with the operation of Tenant's business in the Premises. 27 ARTICLE 14 - RULES AND REGULATIONS Tenant shall faithfully observe and comply with the "Rules and Regulations," attached hereto as EXHIBIT E and all reasonable and nondiscriminatory modifications and additions thereto. However, Landlord shall not be responsible to Tenant for the violation or nonperformance by any other tenant or occupant of the Building of any of the Rules and Regulations, but shall use commercially reasonable efforts to enforce the Rules and Regulations in a nondiscriminatory manner. The Rules and Regulations are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, the terms, covenants, agreements and conditions of this Lease. Tenant shall be responsible for the observance of all of the Rules and Regulations by Tenant's employees, agents, clients, customers, invitees and guests. ARTICLE 15 - RESTRICTIONS ON TRANSFER 15.1 LANDLORD'S CONSENT REQUIRED. Tenant shall not, voluntarily or involuntarily, because of death, divorce, disability, or by operation of law or otherwise, assign, pledge, hypothecate or encumber its interest in th s Lease or the Premises or sublease all or any portion of the Premises, or allow any other person or entity to occupy or use all or any part of the Premises (collectively "Transfer"), without first obtaining Landlord's prior written consent. Any Transfer without such consent, shall be void and, at the option of Landlord, shall terminate this LeasE. Any consent to any Transfer which may be given by Landlord shall not constitute a waiver by Landlord of the provisions of this Article 15 or a release of Tenant from the full performance by it of the covenants herein contained. Il Tenant is a partnership, a transfer of any interest of a general partner, a withdrawal of any general partner from the partnership, or the merger or dissolution of the partnership, shall be deemed to be a Transfer. If Tenant is a corporation, unless Tenant is a public corporation whose stock is regularly traded or a national stock exchange, or is regularly traded in the over-the-counter market and quoted on NASDAQ, any dissolution, merger, consolidation or other reorganization of Tenant or sale or other transfer of a percentage of capital stock of Tenant which results in a change of controlling persons, or the sale or other transfer of all or substantially all of the assets of Tenant, shall be deemed to be a Transfer. For purposes of this Article 15, the term "Transferee" includes without limitation, assignees, subtenants, or any other party who acquires an interest in the Premises or this Lease by way of pledge, hypothecation or encumbrance. *See Addendum 15.2 TRANSFER NOTICE. Tenant shall give Landlord at least sixty (60) days advance written notice ("Transfer Notice"), of its desire to proceed with a Transfer and shall submit in writing to Landlord (i) the name of the proposed transferee, (ii) in detail, the nature of the proposed transferee's business to be carried on in the Premises, (iii) whether Tenant proposes to assign the Lease, sublet the Premises or change ownership, (iv) the proposed effective date of the Transfer, (v) all the material terms and conditions of the Transfer, (vi) financial statements, income statements and balance sheets for the two (2) most recent completed fiscal or calendar years of the proposed transferee, and (vii) a bank reference. The Transfer Notice shall be accompanied by a copy of the proposed agreement documenting the Transfer, or if none, a copy of any offers, draft agreements, letters of commitment 28 or intent, and other documents pertaining to the proposed Transfer. Thereafter, Tenant shall furnish such supplemental information as Landlord may reasonably request concerning the proposed transferee. 15.3 LANDLORD'S ELECTION. At any time within fifteen (15) working days after Landlord's receipt of the information specified above, Landlord may, by written notice to Tenant, elect to (i) consent to the Transfer, or (ii) reasonably disapprove of the Transfer, setting forth in writing Landlord's grounds for doing so. Such grounds for disapproval may include, without limitation, nonsuitability of the proposed use for the Premises and/or the Building, violation of Landlord's third-party agreements, including loan documents and non-competition covenants of Landlord respecting radius, locations, use or exclusivity in any other lease, financing agreement or other agreement relating to the Building or Landlord's other buildings in the immediate area, need for alteration of the Premises, an inappropriate use in light of the Building's existing tenant mix, a material increase in the impact upon the Common Areas or the parking facilities, a material increase in the demands upon utilities and services, the proposed use of the Premises conflicts with Tenant's use clause, a possible material adverse effect upon the reputation of the Premises or the Building from the nature of the business to be conducted, or a reputation for financial reliability on the part of the proposed transferee which is unsatisfactory in the reasonable judgment of Landlord, that Tenant is in default of its obligations under this Lease or that Landlord has not received assurances acceptable to Landlord that all past due amounts owing from Tenant to Landlord will be paid and all other defaults by Tenant will be cured prior to the effective date of the proposed Transfer. If Landlord consents to the Transfer within the fifteen (15) day period, Tenant may thereafter enter into such transfer agreement upon the terms and conditions and as of the effective date set forth in the information furnished by Tenant to Landlord. If Landlord consents to the Transfer and Tenant does not consummate the Transfer within fifteen (15) days after receipt of Landlord's decision, the provisions of this Article 15 shall once again apply. *See Addendum 15.4 ASSUMPTION OF LEASE OBLIGATIONS. Each permitted transferee, other than Landlord, shall assume and be deemed to have assumed this Lease and shall be and remain liable jointly and severally with Tenant for the payment of Rent and for the due performance or satisfaction of all of the provisions, covenants, conditions and agreements herein contained on Tenant's part to be performed or satisfied. No Transfer shall be binding on Landlord unless such transferee or Tenant shall deliver to Landlord a counterpart original of the instrument evidencing such Transfer which contains a covenant of assumption by the transferee, but the failure or refusal of the transferee to execute such instrument of assumption shall not release or discharge the transferee or the Tenant from its liability as set forth herein. Any permitted Transfer shall not, in any way, affect or limit the liability of Tenant under the terms of this Lease, even if after such Transfer the terms of this Lease are materially changed or altered without the consent of Tenant, the consent of whom shall not be necessary. 15.5 ADDITIONAL PROVISIONS REGARDING TRANSFERS. Landlord may accept Rent from any person other than Tenant, pending approval or disapproval of a Transfer. Neither a delay in the approval or disapproval of such Transfer, nor the acceptance of Rent, shall constitute a waiver or estoppel of Landlord's right to exercise its remedies for the breach of any of the terms or conditions of this Article 15 or this Lease. If Tenant's obligations under this Lease have been guaranteed by third parties, then any Transfer, and Landlord's consent thereto, shall not be effective unless said guarantors give their 29 written consent to such Transfer. Furthermore, Landlord may consent to subsequent Transfers or any amendments or modifications thereto without notifying Tenant or anyone else liable on the Lease, and without obtaining their consent, and such action shall not release such persons from liability under this Lease; however, such persons shall not be responsible to the extent any such amendment or modification enlarges or increases the obligations of the Tenant or transferee under this Lease. Upon the occurrence of any Event of Default under this Lease, Landlord may proceed directly against Tenant, any guarantors or anyone else responsible for the performance of this Lease, including the transferee, without first exhausting Landlord's remedies against any other person or entity responsible therefor to Landlord, or any security held by Landlord or Tenant. Landlord's written consent to any Transfer by Tenant shall not constitute an acknowledgment that no Event of Default then exists under this Lease, nor shall such consent be deemed a waiver of any then existing Event of Default, except as may be otherwise acknowledged by Landlord at that time. The discovery of the fact that any financial statement relied upon by Landlord in giving its consent to a Transfer was materially false shall, at Landlord's election, render Landlord's consent null and void. Any sums or other economic consideration received by Tenant as a result of a transfer, however denominated, which exceed, in the aggregate, (i) the total sums which Tenant is obligated to pay Landlord under this Lease (prorated to reflect obligations allocable to any portion of the Premises subleased), plus (ii) the unamortized value of leasehold improvements to the Premises paid for by Tenant, depreciated on a straight-line basis over the Term, shall be paid to Landlord as Additional Rent under this Lease without affecting or reducing ,my other obligations of Tenant hereunder. In the event of any approved Transfer of this Lease in connection with the sale of all or substantially all of the assets of Tenant used in connection with the conduct of Tenant's business on the Premises, the amount of consideration attributable to the Transfer of the Lease shall be reasonably determined by Landlord. 15.5.1 Tenant shall only use such form of assignment as is provided by Landlord, and once the completed assignment form has been approved by Landlord, such assignment shall not be changed or modified without Landlord's prior written consent. 15.6 SPECIAL PROVISIONS REGARDING SUBLETTING. Regardless of Landlord's consent, the following terms and conditions shall apply to any subletting by Tenant of all or any part of the Premises, and shall be deemed included in all subleases under this Lease, whether or not expressly incorporated therein: 15.6.1 Tenant immediately and irrevocably assigns to Landlord, as security for Tenant's obligations under this Lease, all Rent from any subletting of all or a part of the Premises as permitted by this Lease, and Landlord, as assignee and as attorney-in-fact for Tenant, or a receiver for Tenant appointed on Landlord's application, may collect such Rent and apply it toward Tenant's obligations under this Lease; except that, until the occurrence of an Event of Default by Tenant, Tenant shall have the right to collect such Rent. Tenant hereby irrevocably authorizes and directs any such sublessee, upon receipt of written notice from Landlord stating that an Event of Default exists, to pay to Landlord the Rents due and to become due under the sublease. Tenant agrees that such sublessee shall have the right to rely upon any such statement and request from Landlord, and that such sublessee shall pay such Rents to Landlord without any obligation or right to inquire as to whether such default exists, and 30 notwithstanding any notice from or claim from Tenant to the contrary. Tenant shall have no right or claim against said sublessee or Landlord for any such Rents so paid by said sublessee to Landlord. 15.6.2 Tenant shall use only such form of sublease as is provided by Landlord, and once the completed sublease form has been approved by Landlord, the sublease shall not be changed or modified without Landlord's prior written consent. 15.6.3 Upon the occurrence of an Event of Default by Tenant under this Lease, Landlord, at its option and without any obligation to do so, may require any sublessee to attorn to Landlord, in which event Landlord shall undertake the obligations of Tenant under such sublease from the time of the exercise of said option to the termination of such sublease; provided, however, Landlord shall not be liable for any prepaid Rent or Security Deposit paid by such sublessee to Tenant, or for any other prior defaults of Tenant under such sublease. 15.6.4 With respect to any subletting to which Landlord has consented, Landlord agrees to deliver a copy of any notice of default by Tenant to the sublessee. 15.7 NO MERGER. No merger shall result from Tenant's sublease of the Premises under this Article 15, Tenant's surrender of this Lease, or the termination of this Lease in any other manner. In any such event, Landlord may terminate any or all subtenancies or succeed to the interest of Tenant as sublandlord thereunder. 15.8 CONDITIONS DEEMED REASONABLE. Tenant acknowledges and agrees that each of the rights of Landlord set forth in this Article 15 above in the event of a proposed Transfer is a reasonable restriction on transfer for purposes of California Civil Code Section 1951.4. 15.9 TENANT'S REMEDY. *SEE ADDENDUM ARTICLE 16 - DEFAULT 16.1 COVENANTS AND CONDITIONS. Tenant's performance of each of Tenant's obligations under this Lease is a condition as well as a covenant. Tenant's right to continue in possession of the Premises is conditioned upon such performance. Time is of the essence in the performance of all covenants and conditions. 16.2 DEFAULTS. The occurrence of any one or more of the following events (~Event of Default") shall constitute a default and breach of this Lease by Tenant: (i) use of the Premises for any purpose other than the Permitted Use; (ii) the failure by Tenant to make any payment of Minimum Monthly Rent, Additional Rent or any other payment required to be made by Tenant hereunder, as and when due, where such failure shall continue for a period of ________ after written notice thereof from Landlord to Tenant; provided, however, that any such notice shall be in lieu of, and not in addition to, any notice required under California Code of Civil Procedure Section 1161; (iii) Tenant's abandonment of the Premises as defined in California Civil Code Section 1951.3; (iv) Transfer of the Lease by 31 Tenant, either voluntarily or by operation of law, whether by judgment, execution, death or other means, without the prior written consent of Landlord; (v) either (a) the making by Tenant of any general arrangement or general assignment for the benefit of creditors; (b) the filing by or against Tenant of a petition to have Tenant adjudged a bankrupt or a petition for reorganization or arrangement under any law relating to bankruptcy unless, in the case of a petition filed against Tenant, the same is dismissed within thirty (30) days); (c) the appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where possession is not restored to Tenant within thirty (30) days; or (d) the attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease where such seizure is not discharged within thirty (30) days. In the event that any provisions of this subparagraph (v) is contrary to any applicable law, such provision shall be of no force or effect; (vi) the failure by Tenant to observe or perform any of the express or implied covenants or provisions of this Lease to be observed or performed by Tenant, where such failure shall continue for a period of three (3) days after written notice thereof from Landlord to Tenant; provided, however, that any such notice shall be in lieu of, and not in addition to, any notice required under California Code of Civil Procedure Section 1161; provided, further, that if the nature of Tenant's default is such that more than three (3) days are reasonably required for its cure, then Tenant shall not be deemed to be in default if Tenant shall commence such cure within said s.b~ period and thereafter diligently prosecute such cure to completion, which completion shall occur not later than thirty (30) days from the date of such notice from Landlord; or (vii) the discovery by Landlord that any financial statement given to Landlord by Tenant, or its successors in interest, or by any guarantor of Tenant's obligation hereunder, was materially false. *SEE ADDENDUM ARTICLE 17 - REMEDIES UPON DEFAULT 17.1 Landlord Remedies. Landlord shall have the following remedies upon the occurrence of an r Event of Default. These remedies are not exclusive; they are cumulative in addition to any remedies now or later allowed by law. Upon the occurrence of an Event of Default, Landlord may at any time thereafter, with or without notice or demand (except for any notice required by Article 16 above) and without limiting Landlord in the exercise of any right or remedy which Landlord may have by reason of such Event of Default, do any of the following 17.1.1 Continue this Lease in effect so long as Landlord does not terminate Tenant's right to possession and Landlord may enforce all of its rights and remedies hereunder, including, at the option of Landlord: (i) the right to declare the Term ended and with process of law to re-enter the Premises and take possession thereof and remove all persons therefrom, and Tenant shall have no further claim thereon or thereunder; or (ii) the right, without declaring this Lease ended and with or without process of law, to re-enter the Premises, take posession thereof, remove all persons therefrom and occupy or lease the whole or any part thereof for and on account of Tenant and upon such terms and conditions and for such Rent as Landlord may deem proper and to collect said Rent or any other Rent that may thereafter become payable and apply the same toward the amount due or thereafter to become due from Tenant and on account of such expenses of such subletting and any other damages sustained by Landlord; and should such Rent be less than that herein agreed to be paid by Tenant, 32 Tenant agrees to pay such deficiency to Landlord in advance on the day of each month hereinabove specified for payment of Rent and to pay to Landlord forthwith upon such reletting the costs and expenses Landlord may incur by reason thereof; or (iii) the right, even though it may have relet said Premises or brought an action to collect Rent and other charges without terminating this Lease, to thereafter elect to terminate this Lease and all of the rights of Tenant in or to the Premises or (iv) the right, without terminating this Lease, to bring an action or actions to collect Rent and other charges hereunder which are from time to time past due and unpaid; it being understood that the bringing of such an action or actions shall not terminate this Lease unless notice of termination is given. 17.1.2 Should Landlord relet the Premises under the provisions of paragraph 17.1.1 (ii) above, it may execute any such Lease in its own name or in the name of Tenant, but Tenant hereunder shall have no right or authority whatever to collect any Rent from such tenant. The proceeds of any such reletting shall be first applied to the payment of the costs and expenses of reletting the Premises, including alterations and repairs which Landlord, in its sole discretion, deems reasonably necessary and advisable and reasonable attorneys' fees incurred by Landlord in connection with the retaking of said Premises and such reletting and, second, to the payment of any indebtedness, other than Rent, due hereunder, including, without limitation, storage charges or brokerage commissions Owing from Tenant to Landlord. When such costs and expenses of reletting have been paid, Tenant shall be entitled to a credit for the net amount of Rent received from such reletting each month during such unexpired balance of the Term and Tenant shall pay Landlord such sums as may be required to make up the Rent provided for in this Lease. Landlord shall not be deemed to have terminated this Lease, the Tenant's right to possession of the leasehold or the liability of Tenant to pay Rent thereafter to accrue or its liability for damages under any of the provisions hereof by a~y such reentry or by any action in unlawful detainer or otherwise to obtain possession of the Premises, unless Landlord shall have notified Tenant in writing that it has so elected to terminate this Lease. Tenant covenants that the service by Landlord of any notice pursuant to the unlawful detainer statutes of the State of California and the surrender of possession pursuant to such notice shall not (unless Landlord elects to the contrary at the time of or at any time subsequent to the service of such notice and such election be evidenced by a written notice to Tenant) be deemed to be a termination of this Lease or of Tenant's right to possession thereof. Nothing herein contained ;hall be construed as obligating Landlord to relet the whole or any part of the Premises. 17.1.3 Landlord can terminate Tenant's right to possession of the Premises at any time. Acts of maintenance, efforts to relet the Premises, or the appointment of a receiver on Landlord's initiative to protect Landlord's interest under this Lease shall not constitute a termination of Tenant's right to possession. On termination, Landlord has the right to recover from Tenant: (i) the worth, at the time of the award, of the unpaid Rent that had been earned at the time of termination of this Lease; (ii) the worth, at the time of the award, of the amount by which the unpaid Rent that would have been earned after the date of termination of this Lease until the time of award exceeds the amount of the loss of Rent that Tenant proves could have been reasonably avoid d; (iii) 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 loss of Rent that Tenant proves could have been reasonably avoided; and (iv) any other amount, including court costs and attorney's fees, necessary to compensate Landlord for all 33 detriment proximately caused by Tenant's default or defaults, or which in the ordinary course of things would be likely lo result therefrom, including, but not limited to, any costs or expenses incurred by Landlord in (a) retaking possession of the Premises, including reasonable attorneys' fees therefore, (b) maintaining or preserving the Premises after such default, (c) preparing the Premises for reletting to a new tenant, including repairs or alterations to the Premises for such reletting, (d) leasing commissions, or (e) any other costs necessary or appropriate to relet the Premises. "The worth, at the time of award," as used in (i) and (ii) of this Section, is to be computed by allowing interest at the maximum legal rate. "The worth, at the time of the award," as referred to in (iii) of this Section, is to be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of the award, plus 1%. 17.1.4 Whenever Landlord shall re-enter the Premises as provided in this Article, Landlord may remove any property of Tenant from the Premises and store same elsewhere at the e~pense and for the account of Tenant, and if Tenant shall fail to pay the cost of storing of such property after it has been stored for a period of ninety (90) days or more, Landlord may sell any or all of such property, in any lawful manner. In addition, upon the occurrence of an Event of Default, all of Tenant's fixtures, furniture, equipment, improvements, additions, alterations and other personal property shall remain on the Premises, and in that event, and continuing during the length of said default, Landlord shall have the right to take the exclusive possession of said and to use same, Rent or charge fee, until all defaults are cured or, at its option, at any time during the Term, to require Tenant to forthwith remove same. 17.1.5 Upon the occurrence of an Event of Default, Landlord shall have the right to have a receiver appointed to collect Rent and conduct Tenant's business. Tenant also hereby agrees that Landlord shall have a lien for payment for all Rent and Additional Rent called for under the terms of this Lease upon all the furniture, furnishings, fixtures, supplies and all other personal property of Tenant which may be in or upon the Premises, Tenant hereby specifically waiving any and all exemptions allowed by law. Such lien may be enforced in any lawful manner, at the option of Landlord. Neither the filing of a petition for the appointment of a receiver nor the appointment itself shall constitute an election by Landlord to terminate this Lease. 17.1.6 Landlord, at any time after the occurrence of an Event of Default, can cure the default at Tenant's cost. If Landlord at any time, by reason of an Event of Default, pays any sum or does any act that requires the payment of any sum, the sum paid by Landlord shall be due immediately from Tenant to Landlord at the time the sum is paid, and if paid at a later date shall bear interest at the Interest Rate from the date the sum is paid by Landlord until Landlord is reimbursed by Tenant. 17.1.7 Nothing in this Article 17 affects the right of the Landlord under this Lease to indemnification for liability arising prior to the termination of the Lease for personal injuries or property damage, as set forth under Article 7 hereof. 17.2 JURY TRIAL WAIVER. *SEE ADDENDUM 34 ARTICLE 18 - PROTECTION OF LENDERS AND TRANSFEREES 18.1 SUBORDINATION. Landlord shall have the right to subordinate this Lease, and Tenant shall, at Landlord's request, subordinate its rights under this Lease, to any existing or future ground lease, co-Tenants, conditions and restrictions, easements, rights of way or any construction, operation and reciprocal easement agreements, deeds of trust or mortgages encumbering the Premises, any advances made on the security thereof and any renewals, modifications, consolidations, replacements or extensions thereof, whenever made or recorded. However, Tenant's right to quiet possession of the Premises during the Term shall not be disturbed if Tenant pays the Rent and performs all of Tenant's obligations under this Lease and is not otherwise in default. If any ground lessor, beneficiary or mortgagee elects to have this Lease prior to the lien of its ground lease, deed of rust or mortgage, and gives written notice thereof to Tenant, then this Lease shall be deemed prior to such ground lease, deed of trust or mortgage, whether this Lease is dated prior or subsequent to the date of said ground lease, deed of trust or mortgage or the date of recording thereof. *SEE ADDENDUM 18.2 ATTORNMENT. If Landlord's interest in the Premises is acquired by any ground lessor, beneficiary under a deed of trust, mortgagee or purchaser at a foreclosure sale, Tenant shall attorn to the transferee of or successor to Landlord's interest in the Premises and recognize such transferee of or successor as Landlord under this Lease, provided that the purchaser or lessor shall acquire and accept the Premises subject to this Lease Tenant waives the protection of any statute or rule of law which gives or purports to give Tenant any right to terminate this Lease or surrender possession of the Premises upon the transfer of Landlord's interest. 18.3 SIGNING OF DOCUMENTS. Tenant shall sign and deliver any instrument or documents necessary or appropriate to evidence any such attornment or subordination or agreement to do so provided that such int rests or documents recognize that Tenant's right to quiet possession of the Premises shall not be disturbed so long as Tenant is not in default of its obligations pursuant to this Lease beyond any applicable notice and cure period. If Tenant fails to do so within ten (10) days after written request, Tenant hereby makes, constitutes and irrevocably appoints Landlord, or any transferee or successor of Landlord, the attorney-in-fact of Tenant to execute and deliver my such instrument or document. 18.4 ESTOPPEL CERTIFICATES. Upon Landlord's written request, Tenant shall execute, acknowledge and deliver to Landlord a written statement certifying: (i) that none of the terms or provisions of this Lease have been changed (or if they have been changed, stating how they have been changed); (ii) that this Lease has not been cancelled or terminated; (iii) the last date of payment of the Minimum Monthly Rent and other charges and the time period covered by such payment; (iv) the amount of any Minimum Monthly Rent or other charges which have been paid in advance; (v) the commencement and termination dates of the Term; (vi) that there has been no Transfer by Tenant of this Lease, or any interest therein; and (vii) that there are not, to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder and that Tenant has no right of offset, counterclaim or deduction against Rent, or specifying such defaults, if any are claimed, together with the amount of any offset, counterclaim or deduction alleged by Tenant. Tenant shall deliver such statement to Landlord within ten (10) days after 35 Landlord" written request. Any such statement by Tenant may be given by Landlord to any prospective purchaser or encumbrancer of the Premises. Such purchaser or encumbrancer may rely conclusively upon such statement as true and correct. If Tenant does not deliver such statement to Landlord within such ten (10) day period, Landlord, and any prospective purchaser or encumbrancer, may conclusively presume and rely upon the following acts: (i) that the terms and provisions of this Lease have not been changed except as otherwise represented by Landlord; (ii) that this Lease has not been cancelled or terminated except as otherwise represented by Landlord; (iii) Landlord's statement of the last date of payment of the Minimum Monthly Rent and other charges and the time period covered by such payment or payments; (iv) that not more than one month's Minimum Monthly Rent or other charges have been paid in advance; (v) the commencement and termination dates of the Term are as represented by Landlord; (vi) that there is no Transfer by Tenant of this Lease or any interest therein; and (vii) that Landlord is not in default under the Lease. In such event, Tenant shall be estopped from denying the truth of such facts. 18.5 TENANT'S FINANCIAL CONDITION. Within ten (10) days after written request from Landlord, Tenant shall deliver to Landlord such financial statements as are reasonably required by Landlord to verify the net worth of Tenant, or any assignee, subtenant, or guarantor of Tenant. In addition, Tenant shall deliver to any lender designated by Landlord any financial statements required by such lender to facilitate the financing or refinancing of the Premises. Tenant represents and warrants to Landlord that each such financial statement is a true and accurate statement as of the date of such statement. All financial statements shall be confidential and shall be used only for the purposes set forth herein. ARTICLE 19 - COMMON AREAS 19.1 COMMON AREAS. "Common Areas" shall mean all areas within and around the Building, and the Project, if any, which are available for the common use of tenants of the Building and which are not leased or held for the exclusive use of Tenant or other tenants, including, but not limited to, parking areas, driveways, sidewalks, loading areas, access roads, corridors, landscaping and planted areas, stairways, arcades, elevators, escalators, directory equipment, restrooms, common entrances, lobbies, passageways and serviceways therefor, and the common pipes, conduits, wires and appurtenant equipment serving the Building. Landlord may from time to time change the size, location, nature and use of any of the Common Areas, including, but not limited to, the relocation of driveways, entrances, exits, automobile parking spaces, the direction and flow of traffic, installation of prohibited areas, landscaped areas, converting Common Areas into leasable areas, constructing additional parking facilities (including parking structures) in the Common Areas, and increasing or decreasing Common Area land and/or facilities. Tenant acknowledges that such activities may result in decreasing Common Area land and/or facilities, and that such activities may result in occasional inconvenience to Tenant. Landlord shall be responsible for keeping the Common Areas in a neat, clean and orderly condition, properly lighted and landscaped, and shall repair any damage to Common Area facilities. Notwithstanding Landlord's responsibility for such Common Area maintenance, all expenses incurred 36 in connection with the operation, repair, cleaning and maintenance of the Common Areas shall be included in Direct Expenses and charged and prorated in the manner set forth in Article 4 of this Lease. 19.2 USE OF COMMON AREAS. Landlord or such other person(s) as Landlord may appoint shall have the exclusive control and management of the Common Areas. Tenant, and its employees and invites, shall have the nonexclusive right (in common with other tenants and all others to whom Landlord has granted or may grant such rights) to use the Common Areas for the purposes intended, subject to such reasonable rules and regulations as Landlord may establish from time to time. Tenant shall abide by such rules and regulations and shall use its best efforts to cause others who use the Common Areas with Tenant's express or implied permission to abide by Landlord's rules and regulations. Notice of such rules and regulations will be posted or given to Tenant. Tenant shall pay for any increase in the property insurance premiums for the Common Areas caused by Tenant's acts, omissions, use or occupancy of the Premises. Tenant shall not, at any time, interfere with the rights of Landlord, other tenants or any other person entitled to use the Common Areas. Landlord shall not be responsible to Tenant or Tenant's employees, agents or invites, for the noncompliance of other tenants with Landlord's rules and regulations or the interference with the rights of Tenant by other tenants, their agents, employees or invites. Landlord reserves the right from time to time without unreasonable interference with Tenant's use: (i) to install, use, maintain, repair and replace pipes, ducts, conduits, wires and appurtenant meters and equipment for service to other par:s of the Building or Common Areas above the ceiling surfaces, below the floor surfaces, within the walls and in th central core areas, and to relocate any pipes, ducts, conduits, wires and appurtenant meters and equipment included in the Premises which are located in the Premises or located elsewhere outside the Premises, and to expand the Building; To make changes to the Common Areas, including, without limitation, changes in the location, size, shape and number of driveways, entrances, parking spaces, parking areas, loading and unloading areas, ingress, egress, direction of traffic, landscaped areas and walkways; provided, however, Landlord shall at all times provide the parking facilities required by applicable law. Landlord also reserves the right to modify the lobbies, windows, stairways, air shafts, elevators and restrooms; (ii) to close temporarily any of the Common Areas for maintenance purposes so long as reasonable access to the Premises remains available; (iii) to designate other land and improvements outside the boundaries of the Building or the Project, if any, to be part of the Common Areas, provided that such other land and improvements have a reasonable and functional relationship to the Building or the Project; (iv) to use the Common Areas while engaged in making additional improvements, repairs or alterations to the Building, or any portion thereof; and (v) to do and perform such other acts and make such other changes in, to or with respect to the Common Areas and Building as Landlord may, in the exercise of sound business judgment, deem to be appropriate. 19.3 VEHICLE PARKING. Tenant, its employees and concessionaires shall not park in the areas which the Landlord may designate or redesignate as parking for patrons of the Building. Landlord shall provide either within the Building parking area or reasonably close thereto, space for employee parking, if such parking space is available, as reasonably determined by Landlord. Landlord shall have the right, but not the obligation, to designate parking areas for use by Tenant's employees and concessionaires and such designation may be changed from time to time. Tenant, its employees and concessionaires shall park their cars only in such designated areas, if any are so designated. Said 37 parking spaces shall be used only for parking by vehicles no larger than normal size passenger automobiles or pick=up trucks, or if so designated, for smaller vehicles. There shall be no overnight parking in parking areas provided by Landlord without Landlord's prior written consent. If Tenant permits or allows any of the prohibited activities described in Section 19.3 of this Lease, then Landlord shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove or tow away the vehicle involved and charge the cost to Tenant, which cost shall be immediately payable upon demand by Landlord. Landlord reserves the right at any time to substitute an equivalent number of parking spaces in a parking structure or subterranean parking facility or in a surface parking area within a reasonable distance of the Premises.~ 19.3.1 If the parking facilities provide for automated card key access, Landlord shall have the right to charge Tenant a security deposit in the amount of $25.00 for each parking card key requested by Tenant. Landlord may assign any unreserved and unassigned parking spaces and/or make all or a portion of such spaces reserved, if it determines in its sole discretion that is necessary for orderly and efficient parking. Tenant shall not use more parking spaces than the number set forth in the Fundamental Lease Provisions. Tenant shall not permit or allow any vehicles that belong to or are controlled by Tenant or Tenant's employees, suppliers, shippers, customers or invites to be loaded, unloaded or parked in areas other than those designated by Landlord 'or such activities. Tenant agrees that Landlord assumes no responsibility of any kind whatsoever in reference to said automobile parking facilities or the use thereof by Tenant, its employees, agents or invites, or by anyone else. Landlord may, at its sole discretion, determine whether parking facilities shall be surface, underground, multideck, and where they shall be located. Landlord may, at any time, and from time to time, limit access to the parking facilities by means of attendants and/or other devices, and make other changes in the layout and operation of the parking facilities, including, without limiting the generality of the foregoing, changes in locations of entrances, exits and parking spaces. No delay or failure by Landlord to enforce its parking rules and regulations or its or]her rights hereunder, and no waiver by Landlord 38 of any breach thereof, shall be deemed to be a waiver of any succeeding breach, or prevent any subsequent or other enforcement thereof by Landlord. *SEE ADDENDUM ARTICLE 20 - PROFESSIONAL COSTS; CONSENTS 20.1 LEGAL COSTS. If either party incurs any costs or expenses in connection with any action instituted by either party by reason of any dispute pursuant to this Lease or for the recovery of any sum due under this Lease, or because of the breach of any provisions of this Lease by either party, or for any other relief pursuant to this Lease, or in the event of any other litigation between the parties with respect to this Lease, then all costs and expenses, including without limitation, its actual professional fees such as appraisers', accountants, and attorneys' fees, incurred by the prevailing party therein shall be paid by the other party, which obligation on the part of the other party shall be deemed to have accrued on the date of the commencement of such action or dispute and shall be enforceable whether or not the action is prosecuted to judgment. The provisions contained in this Section 20.1 shall survive the expiration or earlier termination of this Lease, and in the event any action or proceeding is instituted to recover possession of the Premises following the expiration or earlier termination of this Lease, the provisions contained in this Section 20.1 shall be applicable. *SEE ADDENDUM 20.2 LANDLORD'S CONSENT. Tenant shall pay all attorneys' fees incurred by Landlord in connection with Tenant's request for Landlord's consent under Article 15 (Restrictions On Transfer), or in connection with any other act which Tenant proposes to do and which requires Landlord's consent, whether or not such consent is granted. Tenant shall also reimburse Landlord for all costs, including, without limitation, engineering and architect fees it incurs in reviewing any remodeling, tenant improvement plans or other requests submitted by Tenant, whether or not consent or approval is granted. ARTICLE 21- SIGNS Tenant shall not place, erect or maintain any sign in or upon the Premises which is visible from the exterior thereof or in or upon the Building or the Project without Landlord's prior written consent and without compliance with the provisions of Exhibit F. *SEE ADDENDUM ARTICLE 22 - LANDLORD'S BREACH - NOTICE 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 failure (or if such failure cannot reasonably be cured within 30 days, if Landlord does not commence to cure the failure within that 30-day period), then such failure shall constitute a default hereunder and Landlord shall be liable to Tenant for any damages sustained by Tenant as a result of Landlord's default; 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, 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 or Building, and no other real, personal or mixed property of Landlord 39 (or of the officers, shareholders, directors, partners or principals of Landlord, if any) wherever situated, shall be subject to levy, attachment or execution, or otherwise used to satisfy any such judgment. Tenant hereby waives any right to satisfy a judgment against Landlord except from the rents, issues, profits and other income actually received on account of Landlord's right, title and interest in the Premises or Building. 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. Tenant agrees to send, by certified or registered mail to any mortgagee or deed of trust beneficiary of the Building 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 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. ARTICLE 23 - LATE CHARGES Tenant's failure to pay Rent promptly may cause Landlord to incur unanticipated costs, the exact amount of which are impractical or extremely difficult to ascertain. Such costs may include, but are not limited to, processing and accounting charges and late charges which may be imposed on Landlord by any ground lease, mortgage or trust deed encumbering the property. Therefore, if Landlord does not receive any Rent payment, Tenant shall pay Landlord a late charge equal to the greater of One Hundred Dollars ($100), or ten percent (10%) of the overdue amount. The parties agree that such late charge represents a fair and reasonable estimate at the date of this Lease of the administrative costs Landlord shall incur by reason of such late payment. In addition, Tenant shall pay to Landlord upon written notice thereof, all costs incurred by Landlord for attorneys' fees in connection with the collection of such Minimum Monthly Rent or Additional Rent. *See Addendum Anything to the contrary in this Lease notwithstanding, Tenant hereby agrees that if it fails to pay Minimum Monthly Rent, Additional Rent or any other monetary obligation which Tenant is required to pay under this Lease when due, for any two (2) consecutive months, or for any three (3) months in a calendar year, Minimum Monthly Rent for the remaining Term shall automatically be adjusted to be quarterly Rent, payable in advance, by cashier's check, commencing upon the first day of the month following such consecutive late month, or the third late month in a calendar year, and continuing thereafter for the remaining Term. Time is strictly of the essence with respect to the provisions of this paragraph. ARTICLE 24 - INTEREST ON PAST-DUE OBLIGATIONS Any and all amounts owed by Tenant to Landlord which are not paid when due shall bear interest at the rate of ten percent (10%) per annum from the due date of such amount ("Interest Rate"). However, interest shall not be payable on late charges incurred by Tenant. The payment 40 of interest on such amounts shall not excuse or cure any default by Tenant under this Lease. If the Interest Rate is higher than the rate permitted by law, the Interest Rate is hereby decreased to the maximum legal interest rate an individual is permitted to charge by law. ARTICLE 25 - BUILDING PLANNING Landlord reserves to itself the right, from time to time, to grant such easements, rights and dedications that Landlord deems necessary or desirable, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights, dedications, maps and restrictions do not unreasonably interfere with the use of the Premises by the Tenant. Tenant shall sign any of the aforementioned documents upon request of Landlord. If Tenant fails to do so within ten ( 10) days after written request, Tenant hereby makes, constitutes and irrevocably appoints Landlord, or any transferee or successor of Landlord, the attorney-in-fact of Tenant to execute and deliver any such instrument or document. ARTICLE 26 - NOTICES All notices required or permitted under this L,ease shall be in writing and shall be personally delivered or sent by certified mail, return receipt requested, postage prepaid, by nationally or locally recognized overnight or same day delivery service which provides for acknowledgement of delivery (i.e., Federal Express) or by telefacsimile ("FAX") machine capable of confirming transmission and receipt. Notices to Landlord and Tenant shall be delivered to the address set forth in Section 1.9 above. Either party may change its notice address upon written notice to the other party, except that Landlord may in any event use the Premises as Tenant's address for notice purposes after the Commencement Date. A copy of all notices required or permitted to be given to Landlord hereunder shall be concurrently transmitted to such party or parties at such addresses as Landlord may, from time to time, hereafter designate by notice to Tenant. ARTICLE 27 - MODIFICATION FOR LENDER If, in connection with obtaining construction, interim or permanent financing or refinancing for the Building, Landlord's lender shall request reasonable modifications in this Lease as a condition to such financing, Tenant will not unreasonably withhold, delay or defer its consent thereto, provided that such modifications do not increase the obligations of Tenant hereunder or materially and adversely affect the leasehold interest hereby created or Tenant's rights hereunder. ARTICLE 28 - CORPORATE AUTHORITY; PARTNERSHIP AUTHORITY If Tenant is a corporation, each person signing this Lease on behalf of Tenant represents and warrants that he has full authority to do so and that this Lease binds the corporation. Concurrently with the signature of th is Lease by Tenant, Tenant shall deliver to Landlord a certified copy of a resolution of Tenant's Board of Directors authorizing the execution of this Lease or other evidence of such authority reasonably acceptable to Landlord. If Tenant is a partnership, each person signing this 41 Lease for Tenant represents and warrants that he is a general partner of the partnership, that he has full authority to sign for the partnership and that this Lease binds the partnership. Concurrently with Tenant's signature of this Lease, Tenant shall deliver to Landlord a copy of Tenant's recorded statement of partnership or certificate of limited partnership. ARTICLE 29 - FORCE MAJEURE The period for performance of any obligation by either party shall be extended (except for Tenant's obligations to pay Minimum Monthly Rent, Additional Rent and other charges due pursuant to this Lease, which obligations shall not be extended) by the period of any delay in performance caused by an act of God, labor strike, adverse weather conditions, shortage of materials, war, invasion, acts of a public enemy, governmental preemption in connection with a national emergency, riot, laws, rules, regulations or order of governmental or military authorities, or failure or defect in the supply, quantity or character of utilities furnished to the Building or Premises (collectively "Force Majeure Event"), excluding from all the foregoing, financial inability. ARTICLE 30 - BROKERS The parties recognize that the brokers who negotiated this Lease are the brokers whose names are stated in Section 1.13 of the Fundamental Lease Provisions, and agree that Landlord shall be solely responsible for the payment of brokerage commissions to said brokers, and that Tenant shall have no responsibility therefor. Tenant represents and warrants to Landlord that to Tenant's knowledge no other broker, agent or finder negotiated or was instrumental in negotiating or consummating this Lease, and that Tenant knows of no other real estate broker, agent or finder who is, or might be, entitled to a commission or compensation in connection with this Lease. Any broker, agent or finder of Tenant whom Tenant has failed to disclose herein shall be paid by Tenant. Tenant shall hold Landlord harmless from all damages and indemnify Landlord for all said damages paid or incurred by Landlord resulting from any claims that may be asserted against Landlord by any broker, agent or finder undisclosed by Tenant herein. *SEE Addendum ARTICLE 31 - SECURITY MEASURES Tenant hereby acknowledges that Landlord shall have no obligation whatsoever to provide guard service or other security measures for the benefit of the Premises, Building, Common Areas or the Project. Tenant assumes all responsibility for the protection of Tenant, its agents, employees and invitees, and the property of Tenant, of the Tenant's agents, employees and invitees from the acts of third parties. However, nothing herein contained shall prevent Landlord, at Landlord's option, from providing security protection for the Building or the Project, or any part thereof, in which event the cost thereof shall be included within the definition of Direct Expenses. 42 ARTICLE 32 - LANDLORD'S RESERVATIONS Landlord shall have the following rights: (i) to change the name, address or title of the Building or the Project; (ii) to permit any tenant the exclusive right to conduct any business, as long as such exclusive right does not conflict with any rights expressly given to Tenant herein; and (iii) to place such signs, notices or displays as Landlord reasonably deems necessary or advisable upon the roof, exterior of the Building or the Project, if any, or on pole signs in the Common Areas. Landlord further reserves the absolute right to effect such other tenancies in the Building as Landlord, in its sole business judgment, determines best promotes the interests of the Building. Landlord does not represent, and Tenant does not rely on the possibility, that any specific tenant or number of tenants will occupy space in the Building during the Term. ARTICLE 33 - MISCELLANEOUS PROVISIONS 33.1 WAIVER. No delay or omission in the exercise of any right or remedy of Landlord or Tenant shall impair such a right or remedy or be construed as a waiver. The receipt and acceptance by Landlord of delinquent Rent shall not constitute a waiver of any other default. No act or conduct of Landlord, including, without limitation, the acceptance of the 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. 33.2 IDENTIFICATION OF TENANT. If more than one person executes this Lease as Tenant, (a) each of them is jointly and severally liable for the keeping, observing and performing of all of the terms, covenants, conditions, provisions and agreements of this Lease to be kept, observed and performed by Tenant, and (b) the term 'Tenant~ as used in this Lease shall mean and include each of them jointly and severally and the act of or notice From, or notice or refund to, or the signature of, any one or more of them, with respect to the tenancy of this Lease, including, but not limited to, any renewal, extension, expiration, termination or modification of this Lease, shall be binding upon each and all of the persons executing this Lease as Tenant with the same force and effect as if each and all of them had so acted or so given or received such notice or refund or so signed. The term "Tenant~ shall include legal representatives, successors and assigns. 33.3 IDENTIFICATION OF LANDLORD. The term "Landlord" as used in this Lease, so far as covenants or obligations on the part of Landlord are concerned, shall be limited to mean and include only the owner o owners at the time in question of the fee of the Premises, and in the event of any transfer, assignment or other conveyance or transfers of any such title or leasehold, the Landlord hereunder named (and in case of any subsequent transfer or conveyances, the then grantor) shall be 43 automatically freed and relieved from and after the date of such Transfer, assignment or conveyance of all liability as respect the performance of any covenants or obligations on the part of Landlord contained in this Lease thereafter to be performed and, without further agreement, the transferee of such title shall be deemed to have assumed and agreed to observe and perform any and all obligations of the Landlord hereunder, during its ownership of the Premises. Landlord may transfer its interest in the Premises without the consent of Tenant, and such transfer or subsequent transfer shall not be deemed a violation on Landlord'; part of any of the terms and conditions of this Lease. 33.4 BINDING EFFECT. Each and all of the covenants, conditions and restrictions in this Lease shall inure to the benefit of and shall be binding upon the successors in interest of Landlord, and subject to the provisions of Article 15, authorized encumbrancers, assignees, transferees, subtenants, licensees, and other successors in interest of Tenant. 33.5 NON-DISCRIMINATION. Tenant covenants and agrees, and it is a condition to the continuance of this Lease, that there will be no discrimination against, or segregation of, any person or group of persons on the basis of race, color, sex, creed, national origin or ancestry, in the leasing, subleasing, transferring, occupancy, tenure or use of the Premises or any portion thereof. 33.6 CONFLICT OF LAWS AND CHOICE OF JURISDICTION. This Lease shall be governed by and construed pursuant to the laws of the State of California. Any litigation concerning this Lease between the parties hereto shall be initiated in the California court having jurisdiction over the area where the Building is located. 33.7 SEVERABILITY. A determination by a court of competent jurisdiction that any provision of this Lease or any part thereof is illegal or unenforceable shall not cancel or invalidate the remainder of such provision or this Lease, which shall remain in full force and effect. It is the intention of the parties hereto that if any provision of this Lease is capable of two constructions, one of which would render the provision void and the other of which would render the provision valid, then the provision shall have the meaning which renders it valid. 33.8 INTERPRETATION. The captions of the articles and sections of this Lease are to assist the parties in reading this Lease and are not a part of the terms or provisions of this Lease. Whenever required by the context of this Lease, the singular shall include the plural, and the plural shall include the singular. The masculine, feminine and neuter genders shall each include the other. The word "person" shall include corporations, firms, partnerships or associations. In any provision relating to the conduct, acts or omissions of Tenant, the term "Tenant" shall include Tenant's agents, employees, contractors, invites, successors or others using the Premises with Tenant's expressed or implied permission. It is also agreed that no specific words, phrases, or clauses herein used shall be taken or construed to control, limit or cut down the scope or meaning of any general words, phrases or clauses used in connection therewith. Although the printed provisions of this Lease were drawn by Landlord, this Lease shall not be construed either for or against Landlord or Tenant, as this Lease has been prepared with the participation of both parties and both parties have either been represented by attorneys or have had the opportunity for such representation in the negotiation of its contents. 44 33.9 INCORPORATION OF PRIOR AGREEMENTS: MODIFICATIONS. This Lease contains all agreements of take parties with respect to any matter mentioned herein. No prior or contemporaneous agreement or understanding pertaining to any such matter shall be effective. This Lease may be modified in writing only, signed by the parties in interest at the time of the modification. Except as otherwise stated in this Lease, Tenant hereby acknowledges that neither the real estate brokers identified in Section 1.13 of the Fundamental Lease Provisions, nor any cooperating broker on this transaction, nor the Landlord, or any employee or agents of any of said persons, has made any oral o written warranties or representations to Tenant relative to the condition or use by Tenant of the Premises or the Building, and Tenant acknowledges that Tenant assumes all responsibility regarding the legal use and adaptability of the Premises and the compliance thereof with all applicable laws and regulations in effect during the Term. 33.10 EXAMINATION OF LEASE. Submission of this Lease for examination or signature by Tenant does not constitute a reservation of or option for Lease, and it is not effective as a Lease or otherwise until signature by and delivery to both Landlord and Tenant. 33.11 TIME. Time is of the essence with respect to the performance of every provision of this Lease in which time or performance is a factor. 33.12 ACCORD AND SATISFACTION. No payment by Tenant or receipt by Landlord of a lesser amount than the Rent payment herein stipulated shall be deemed to be other than on account of the earliest stipulated Rent, nor shall any endorsement or statement on any check or any 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 such Rent or pursue any other remedy provided in this Lease. 33.13 NONRECORDATION OF LEASE. Tenant shall not record this Lease or a short form memorandum thereof. 33.14 COVENANTS AND CONDITIONS. All of the provisions of this Lease shall be deemed as running with the land, and construed to be "conditions,~ as well as "covenants," as though the words specifically expressing or imparting covenants and conditions were used in each separate provision. 33.15 NEGATION OF PARTNERSHIP. Landlord shall not become or be deemed a partner or joint venturer with Tenant by reason of the provisions of this Lease. 33.16 CONSENT OF LANDLORD AND TENANT. Wherever in this Lease consent or approval is required from either party to any action by the other, such consent or approval shall be given in writing and shall not be unreasonably withheld, unless expressly provided otherwise in this Lease. Landlord shall not be deemed to have withheld its consent unreasonably where Landlord's right to give its consent is conditioned on Landlord obtaining the consent of any other person, agency or authority having the right to withhold its consent pursuant to any agreement or law, and such person, agency or authority does withhold its consent. If Landlord or Tenant unreasonably fails to give any such consent, the other party 45 shall be entitled to specific performance in equity and shall have such other remedies as are reserved to it under this Lease, but in no event shall Landlord or Tenant be responsible in monetary damages for failure to give such consent. [Balance of Page Intentionally Left Blank 46 33.17 LEASE EXECUTION DATE. This Lease shall become effective and binding upon both parties upon the last date set forth below signifying execution by the parties to this Lease. *SEE ADDENDUM LANDLORD Regents Park Financial Center, Ltd. a California limited partnership By: The Lomas Santa Fe Group, a California corporation (General Partner DATE: 11/30/95 By: /s/ RICHARD E. KELLER ______________________ ____________________________________ Name: Richard E. Keller __________________________________ Title: President _________________________________ Date: 11/30/95 By: /s/ MATTHEW J. ROOT ______________________ _____________________________________ Name: Matthew J. Root ___________________________________ Title: Director of Leasing __________________________________ TENANT Southern California Bank a California corporation Date: 11/9/95 By: /s/ DAVID A. MCCOY _______________________ _____________________________________ Name: David A. McCoy ___________________________________ Title: EVP/COO __________________________________ Date: ________________ By: _________________________________________ Name: ___________________________________ Title: __________________________________ 47 REGENTS PARR FINANCIAL CENTRE ADDENDUM TO LEASE This Addendum to Lease ("Addendum") is entered into by and between REGENTS PARK FINANCIAL CENTRE, LTD., A CALIFORNIA LIMITED PARTNERSHIP ("Landlord") and SOUTHERN CALIFORNIA BANK, A CALIFORNIA CORPORATION ("Tenant"), and is made to the Regents Park Financial Centre Office Lease dated for reference purposes only as of October 25, 1995 ("Lease"). Landlord and Tenant hereby agree that notwithstanding anything contained in the Lease to the contrary, the provisions set forth below shall be deemed to be a part of the Lease and shall supersede, to the extent appropriate, any contrary provision in the Lease. All references in the Lease and in this Addendum to "Lease" shall be construed to mean the Lease, as amended and supplemented by this Addendum. Unless specifically defined in this Addendum, all capitalized terms used in this Addendum shall have the same meaning as the terms used in the Lease. ARTICLE 1 - FUNDAMENTAL LEASE PROVISIONS 1.5 PREMISES. The following is deemed added to Section 1.5 of the Fundamental Lease Provisions: Landlord and Tenant acknowledge that concurrently with the execution of this Lease, Tenant and Citicorp Savings, a Federal Savings and Loan Association ("Citicorp") are entering into a sublease (the "Citicorp Sublease") for those certain premises consisting of approximately 3,471 rentable square feet located on the ground floor of the Building and designated as Suite 125 ("Suite 125"). In addition, concurrently with the execution of this Lease, Landlord and Tenant are entering into a separate lease for Suite 125 (the "Suite 125 Continuation Lease") which will permit Tenant to remain in possession of Suite 125 following the expiration of the term of the Citicorp Sublease on the terms and conditions set forth therein. 1.6 TERM. The first sentence of Section 1.6 of the Fundamental Lease Provisions is deemed deleted and replaced with the following: The Term shall be eighty four (84) months commencing on the first to occur of (i) of November 1, 1995; or (ii) the date commences business in the Premises (such date hereinafter referred to as the "Commencement Date"). 1.11.2 MINIMUM MONTHLY RENT. Section 1.11.2 of the Fundamental Lease Provisions is deemed deleted and replaced wi h the following: Minimum Monthly Rent for the Term shall be payable in accordance with the following schedule: 48 Months 1 through 12 $1.60 per rentable square foot full service ($3,360.00/month) Months 13 through 24 $1.66 per rentable square foot full service ($3,486.00/month) Months 25 through 36 $1.73 per rentable square foot full service ($3,633.00/month Months 37 through 48 $1.80 per rentable square foot full service ($3,780.00/month) Months 49 through 60 $1.87 per rentable square foot full service ($3,927.00/month) Months 61 through 72 $1.95 per rentable square foot full service ($4,095.00/month) Months 73 through 84 $2.02 per rentable square foot full service ($4,242.00/month) ARTICLE 2 - LEASE 2.2 DELAY IN COMMENCEMENT. The following is deemed added l:o the end of Section 2.2 of the Lease: Despite anything in this Lease to the contrary, if Landlord has not delivered possession of the Premises to Tenant by December 1, 1995 (the "Outside Delivery Date"), then Tenant may, by written notice delivered to Landlord no later than ten (10) days after the Outside Delivery Date (but prior to Landlord's actual delivery of possession of the Premises), elect to terminate this Lease and upon such termination the parties shall be released from all obligations to the other pursuant to this Lease. 2.6 OPTION TO EXTEND TERM. The following provision is deemed added to the Lease as Section 2.6: OPTION TO EXTEND TERM. Landlord hereby grants to Tenant one(1) option ("Option") to extend the Term of this Lease for one (1) additional period of sixty (60) months ("Option Term"). The Option must be exercised, if at all, by written notice ("Option Notice") delivered by Tenant to Landlord no earlier than twelve (12) months and no later than nine (9) months prior to the end of the initial eighty four (84) month Term. Further, the Option shall not be deemed to be properly exercised if, as of the date of the Option Notice or at the end of the initial Term, Tenant (i) is in default under th s Lease or the Suite 125 Continuation Lease beyond an applicable cure period, (ii) has assigned all or 49 any portion of this Lease or the Suite 125 Continuation Lease or its interest therein; or (iii) has sublet all or any portion of the Premises or Suite 125. Provided (a) Tenant has proper]y and timely exercised the Option, (b) Tenant has also proper]y and timely exercised its option to extend the term of the Suite 125 Continuation Lease as provided therein (which exercise may be concurrent with Tenant's exercise of the Option provided for herein), and (c) Landlord and Tenant reach agreement on the Minimum Monthly Rent payable for the Option Term as provided below, the initial Term shall be extended by the Option Term, and all terms, covenants and conditions of the Lease shall remain unmodified and in full force an effect, except that there shall be no further extension of the Term following the Option Term and the Minimum Monthly Rent for the Option Term shall be the then prevailing market rent then being charged by Landlord to new tenants for comparable space in the Building, or, if insufficient comparable transactions exist in the Building, then the rate being charged to new tenants for comparable space by landlords of similar office premises in the same general market area of the Building, with similar amenities, taking into consideration the size and location of the premises, the proposed term of the Option Term, the time the particular rental under consideration was agreed upon and became or is to become effective, the extent of improvements and services to be provided and any other relevant terms and conditions. Landlord shall use its best efforts to provide Tenant with its determination of the Minimum Monthly Rent for the Option Term within thirty (30) days of its receipt of a timely Option Notice from Tenant ("Landlord's Determination"). Tenant shall have fifteen (15) days ("Tenant's Review Period") after receipt of Landlord's Determination within which to accept Landlord's Determination or to reasonably object thereto in writing. In the event Tenant fails to object to Landlord's Determination in writing within such fifteen (15) day period, Landlord's Determination shall be deemed accepted. If Tenant reasonably objects to Landlord's Determination, the parties shall then have thirty (30) days (the "Negotiating Period") after the expiration of Tenant's Review Period within which to agree on new Minimum Monthly Rent for the Option Term. If the parties agree on the Minimum Monthly Rent for the Option Term within the Negotiating Period, they shall immediately execute an amendment to this Lease setting forth the new Minimum Monthly Rent. If the parties are unable to agree on the Minimum Monthly Rent for the Option Term within the Negotiating Period then each party shall place in a separate sealed envelope their final proposal as to Minimum Monthly Rent for the Option Term and such determination shall be submitted to arbitration as set forth below. Landlord and Tenant shall meet with each other within five (5) business days of the expiration of the Negotiating Period, exchange the sealed envelopes, and then open such envelopes in each other's presence. If Landlord and Tenant do not mutually agree upon the Minimum Monthly Rent for the Option Term within five (5) business days of the exchange and opening of envelopes, then, within ten (10) business days of the exchange and opening of envelopes Landlord and Tenant shall agree upon and jointly appoint a single arbitrator who shall by profession be a real estate broker who shall have been 50 active over the five (5) year period ending on the date of such appointment in the leasing of comparable office buildings. Neither Landlord nor Tenant shall consult with such broker as to his or her opinion as to the Minimum Monthly Rent for the Option Term prior to the appointment. The determination of the arbitrator shall be limited solely to the issue of whether Landlord's or Tenant's submitted Minimum Monthly Rent for the Premises is the closer to the actual prevailing market rent for the Premises as determined by the arbitrator, taking into account the requirements of this Section. Such arbitrator may hold such hearings and require such briefs as the arbitrator, in his or her sole discretion, determines is necessary. In addition, Landlord or Tenant may submit to the arbitrator with a copy to the other party within five (5) business days after the appointment of the arbitrator any market data and additional information that such party deems relevant to the determination of Minimum Monthly Rent for the Option Term ("Market Rent Data") and the other party may submit a reply in writing within five (5) business days after receipt of such Market Rent Data. If Landlord and Tenant fail to agree upon and appoint an arbitrator, then the appointment of the arbitrator shall be made by the Presiding Judge of the San Diego County Superior Court, or, if he or she refuses to act, by any judge having jurisdiction over the parties. The arbitrator shall, within thirty (30) days of his or her appointment, reach a decision as to whether the parties shall use Landlord's or Tenant's submitted Minimum Monthly Rent, and shall notify Landlord and Tenant of such determination; provided, however, notwithstanding anything in this Section to the contrary, under no circumstances shall the Minimum Monthly for the initial year of the Option Term be less then the amount of the Minimum Monthly Rent payable by Tenant for the calendar month immediately preceding the commencement of the Option Term. The decision of the arbitrator shall be binding upon Landlord and Tenant. The cost of arbitration shall be paid by Landlord and Tenant equally. If the Minimum Monthly Rent for the Option Term shall not have been determined by the commencement of the Option Term, Tenant shall continue to pay the Minimum Monthly Rent payable as of the month immediately preceding such commencement until the Minimum Monthly Rent is established so that the Minimum Monthly Rent established for the Option Term shall be retroactive to the commencement of the Option Term. ARTICLE 3 - RENT 3.2 ADJUSTMENTS TO MINIMUM MONTHLY RENT. Section 3.2 is deemed deleted in its entirety. ARTICLE 4 - OTHER CHARGES PAYABLE BY TENANT (ADDITIONAL RENT) 51 4.1.3.3 DIRECT EXPENSE EXCLUSIONS. The following items shall be deemed added to the list of items excluded from Direct Expenses set forth in Section 4.1.3.3 of the Lease: (xviii) Costs associated with the operation of the business of the ownership or entity which constitutes "Landlord", as distinguished from the costs of Building operations: (xix) Costs incurred in connection with the original construction of the Building; (xx) Costs of correcting defects in the original design or construction of the Building; (xxi) Costs for which Landlord is reimbursed by insurance carried by Landlord or Tenant pursuant to this Lease; (xxii) Bad debt losses, rent losses, or reserves for the same; (xxiii) Fines and penalties; (xxiv) Except for rent and related expenses incurred by Landlord while making repairs or keeping permanent systems in operation, rent and related expenses incurred in leasing air conditioning systems, elevators or other similar equipment considered to be of a capital nature. It is understood that Direct Expenses shall be reduced by all cash discounts, trade discounts or quantity discounts actually received by Landlord or Landlord's managing agent in the purchase of any goods, utilities or services in connection with the operation of the Building. In the calculation of any Direct Expenses pursuant to this Lease, it is understood that no expenses shall be charged more than once. Landlord shall use commercially reasonable best efforts to effect an equitable proration of bills and services rendered to the Building and to any other property owned by Landlord. Landlord agrees to maintain its books and records showing Direct Expenses in accordance with Landlord's standard accounting practices consistently maintained on a year-to-year basis. 4.2.1 INCREASES IN DIRECT EXPENSES/ADDITIONAL RENT. The references in Section 4.2.1 to "sixty (60) days" are deemed changed to "one hundred and twenty (120) days"). 4.5 BUILDING SERVICES AND UTILITIES. The first sentence of Section 4.5 is deemed deleted and replaced with the following: Landlord shall furnish to the Premises during the normal business hours of Tenant, which are 8:00 a.m. to 7:00 p.m. Monday through Friday and 9:00 a.m. to 1:00 p.m on Saturdays ("Business Hours"), except for those holidays designated annually by Landlord, heating, ventilating and air conditioning ("HVAC Service") as required for the comfortable occupancy of the Premises as reasonably determined by Landlord. 52 ARTICLE 5 - USE OF PREMISES 5.3 HAZARDOUS SUBSTANCES. The following provisions are deemed added to the end of Section 5.3 of the Lease: Landlord represents and warrants that except for materials and substances typically used in offices such as cleaning fluids and copy toner, Landlord has no actual knowledge of the existence of any Hazardous Substances in, on or under the Building or the real property on which the Building is located. Landlord hereby agrees to indemnify and hold harmless Tenant, its directors, officers, employees, and agents, and any successors, from and against any and all liability, directly or indirectly arising out the use, generation, construction, manufacturing, storage, or dispose of Hazardous Substances in, on or under the Building and/or the Premises, the Landlord, its agent, employees or contractors to the extent that such action is attributable, directly or indirectly, to the presence or Use, generation, storage, release, threatened release, or disposal of Hazardous Substances by any such person at the Building or on the Premises (or real property on which the Building is located . The representations, warranties and indemnities of Landlord contained in this paragraph shall not be binding upon Teachers Insurance and Annuity ASSOCIATION as the holder of the first lien against the Building or as a successor-in-interest. ARTICLE 7 - INDEMNIFICATION 7.3 DAMAGE TO TENANT'S PROPERTY. The last sentence of Section 7.3 is deemed deleted and is replaced with the following: Tenant hereby agrees that in no event shall Landlord or its agents or employees be liable for consequential damages, including injury to Tenant's business OR ANY loss of income therefrom, nor shall Landlord NOR Tenant nor their respective agents or employees be liable to Landlord or Tenant, as applicable, for any damages caused by the act or neglect of any other tenant in the Building. ARTICLE 8 - MAINTENANCE, REPAIRS AND ALTERATIONS 8.1 LANDLORD'S OBLIGATIONS. The following is deemed added to the end of Section 8.1 of the Lease: Landlord agrees that in carrying out its obligation~ pursuant to this Section 8.1, Landlord will not unreasonably interfere with the conduct of Tenant's business in the Premises, and if possible on a commercially reasonable basis, with respect to any maintenance or repairs to be performed within the Premises, Landlord will endeavor to perform such maintenance or repairs after the regular business hours of Tenant. ARTICLE 13 - LANDLORD'S ENTRY ON PREMISES 13.1 ENTRY BY LANDLORD. The following is deemed added to the end of Section 13.1: Despite the foregoing, in recognition of Tenant's security concerns, Landlord agrees that prior to any entry into the Premises for the purposes set forth above, Landlord agrees to provide Tenant with reasonable 53 advance written notice, except if such entry is required as a result of an emergency, in which case no such notice shall be required. 13.1.1 The first two lines of Section 13.1.1 are deemed ARTICLE 15 - RESTRICTIONS ON TRANSFER 15.1 LANDLORD'S CONSENT REQUIRED. The following is deemed added to the end of Section 15.1 of the Lease: Despite anything in this Article 15 to the contrary, Tenant shall have the right, without Landlord's consent, to assign this Lease or to sublet all or any portion of the Premises to (i) any subsidiary corporation or parent corporation of Tenant, or (ii) any corporation which Tenant may merge or consolidate, or (iii) any corporation acquiring substantial:.y all of the assets and/or stock of Tenant. As used in this Lease, corporations are related as "parent" or "subsidiary":of such corporation owns fifty percent (50%) or more of the voting stock of another corporation. Even though Landlord s consent to the preceding Transfers is not required, Tenant agrees that Tenant will provide Landlord with written notice of any such Transfer no later than ten (10) days after the effective date of any such Transfer. 15.3 LANDLORD' 8 ELECTION. Landlord's right to recapture the Premises as set forth in subparagraph 15.3 (i) is deemed deleted. 15.9 TENANT'S REMEDY. Section 15.9 is deemed deleted in it's entirety. ARTICLE 16 - DEFAULT 16.2 DEFAULTS. All references to "three (3) days" in Section 16.2 are deemed changed to "five (5) days". In addition, the following is deemed added to the end of Section 16.2: In addition to all of the foregoing, any event of default by Tenant under either the Citicorp Sublease or the Suite 125 Continuation Lease, as applicable, shall also constitute an "Event of Default" for purposes of this Lease. ARTICLE 17 - REMEDIES UPON DEFAULT 17.2 JURY TRIAL WAIVER. Section 17.2 is deemed deleted in its entirety. ARTICLE 18 - PROTECTION OF LENDERS AND TRANSFEREES 18.1 SUBORDINATION. The following is deemed added to the end of Section 18.1 of the Lease: 54 Landlord shall use its commercially reasonable best efforts to obtain and deliver to Tenant an agreement in writing from each existing mortgagee with a lien encumbering the Premises and/or the lessor of any existing ground lease affecting the Premises which provides that, so long as Tenant is not in default of any of the terms, covenants, conditions, provisions or agreements of this Lease, Tenant's possession of the Premises shall not be disturbed by reason of the foreclosure of any such mortgage or the termination of any such ground lease, but Landlord shall have absolutely no liability whatsoever to Tenant if Landlord is not successful in obtaining any such agreement for Tenant nor shall Tenant have any right to terminate this Lease because of Landlord's failure to obtain such an agreement. ARTICLE 19 - COMMON AREAS 19.3 VEHICLE PARKING~. The first and second sentences of subsection 19.3.1 shall be deemed deleted and the following shaLl be deemed inserted in place thereof: During the Term, Tenant shall be entitled to use the number of vehicle parking spaces set forth in Section 1.14 of the Fundamental Lease Provisions at no additional charge. ARTICLE 20 - PROFESSIONAL COSTS: CONSENTS 20.1 LEGAL COSTS. The jury trial waiver set forth in the second sentence of Section 20.1 is deemed deleted in its entirety. ARTICLE 21 - SIGNS The following provisions are deemed added to Article 21 of the Lease: Notwithstanding the foregoing, Landlord and Tenant specifically acknowledge and agree that so long as Tenant is occupying and is in possession of the Premises and Suite 125 (pursuant to the Citicorp Sublease or the Suite 125 Continuation Lease), Tenant shall have the right during the Term, at Tenant's sole cost and expense, and be permitted l:o install two (2) signs identifying Tenant on the exterior of the Building ("Building Signs"). The Building Signs shall be on the Building facade, above the window line, and in a locations mutually approved by Landlord and Tenant. :n addition to the Building Sign, Tenant shall, provided space:s available, be permitted, at Tenant~s expense, to install an additional sign identifying Tenant on one (1) of the Building's monument signs ("Monument Signs"). The Building Signs and the Monument Sign are hereinafter collectively referred to as the "Tenant Signs". Tenant acknowledges and agrees that the Tenant Signs must conform to Landlord's sign criteria and any restrictive encumbering the Building and are subject to further approval by the City of San Diego. The Tenant Signs shall be constructed and installed by a sign contractor approved by Landlord and shall be performed in a lien free manner in accordance with the provisions of this Lease. Tenant shall, at Tenant's sole cost and expense, maintain the Tenant Signs pursuant to a maintenance program reasonably approved by Landlord. Upon (i) the expiration or earlier termination of this Lease, and/or (ii) if Tenant is no longer 55 occupying and in possession of the Premises and Suite 125 pursuant to the Citicorp Sublease or the Suite 1-5 Continuation Lease, Tenant shall, at Tenant's sole cost and expense, and subject to Landlord's supervision, cause the Tenant Signs to be removed and the Building and the monuments to be restored to the condition existing prior to the installation of Tenant's Signs. If Tenant fails to maintain the Tenant Signs and/or remove such signs and restore the Building or monuments as required herein within thirty (30) days after Landlord's written request therefor, then without further notice, Landlord may perform such work, and all costs and expenses incurred by Landlord in performing such work shall be reimbursed by Tenant to Landlord within ten (10) days after Landlord's delivery of an invoice therefor to Tenant. Tenant further specifically acknowledges and agrees that the Building Sign and Monument Sign rights granted to Tenant herein are personal to Southern California Bank and may not be assigned or transferred to, or utilized by, any other person or entity. ARTICLE 23 - LATE CHARGES The words "when due" in the fourth and fifth lines of Article 23 are deemed deleted and replaced with the following: "within five (5) days of the date due". ARTICLE 25 - BUILDING PLANNING The first paragraph of Article 25 is deemed deleted. ARTICLE 30 - BROKERS The following provisions are deemed added to the end of Article 30 of the Lease: Landlord agrees to pay Landlord's broker a commission in accordance with a separate agreement between Landlord and such broker. Landlord shall hold Tenant harmless from all damages and indemnify Tenant for all said damages paid or incurred by Tenant resulting from any claims that may be asserted against Tenant by the brokers identified in Section 1.13 of the Fundamental Lease provisions or any broker, agent or finder undisclosed by Landlord herein. ARTICLE 33 - MISCELLANEOUS The following is deemed added to Article 33 as Section 33.113: 33.18 CONTINGENCY. Landlord and Tenant specifically acknowledge and agrees that notwithstanding anything to the contrary in this Lease, the continuing effectiveness of this Lease is expressly contingent upon the following: No later than February 29, 1996, Tenant shall have received the regulatory approvals from the California Department of Corporations and the FDIC necessary for Tenant to operate the Premises as a branch banking facility (hereinafter the "Regulatory Approvals". If Tenant has not obtained the Regulatory Approvals on or before the date specified above, then Tenant 56 shall have a one-time right, at its option, to terminate this Lease by written notice to Landlord given no later than March 5, 1996, in which case this Lease shall terminate on the date specified in Tenant's notice (which date shall be at least thirty (30) from the date of Tenant s notice) and on the effective date of such termination, this Lease shall be of no further force or effect except for obligations, if any, which have accrued prior to the date of such termination or which expressly survive the expiration or earlier termination of this Lease. If Tenant has not obtained the Regulatory Approvals by the February 29, 1996, and Tenant does not give Landlord a notice to terminate this Lease on or before March 5, 1996, then this condition shall be deemed satisfied and Tenant shall have no further right to terminate this Lease. If Tenant terminates this Lease as a result of Tenants failure to obtain the Regulatory Approvals on or before the date specified above, Tenant shall (i) satisfy all monetary and non-monetary obligations under the Lease through the effective date of such termination and (ii) no later than thirty (30) days after the effective date of such termination Tenant shall deliver to Landlord cash or a certified check in an amount equal to (a) the full amount of the Tenant Improvement Allowance provided to Tenant under this Lease, PLUS (b) the full amount of brokerage commissions paid by Landlord in connection with this Lease and the Suite 125 Continuation Lease, PLUS (c) all attorneys' fees and cost:s incurred by Landlord in connection with this Lease, the Suite 125 Continuation Lease and the Citicorp Sublease; provided however, Landlord agrees that the amount of such reimbursement from Tenant for the items identified in subparagraphs (b) and (c) shall in no event exceed $25,000.00 on a cumulative basis, inclusive of any such similar sums Tenant may be required to pay pursuant to the Citicorp Sublease. In addition to the forgoing, as a further condition to such termination, Tenant shall, at Landlord's sole option, return the Premises to the condition which existed prior to the Commencement Date or deliver to Landlord cash or a certified check in an amount reasonably determined by Landlord to be required for Landlord to return the Premises to such condition. The obligations of Tenant set forth herein shall survive the termination of this Lease. 57 Except as and to the extent modified by this Addendum, all provisions of the Lease shall remain in full force and effect. LANDLORD Regents Park Financial Centre, Ltd a California limited partnership By: The Lomas Santa Fe Group, a California corporation (General Partner) DATE: __________________ By: __________________________ Name: _________________________ Title: ________________________ DATE: __________________ By: __________________________ Name: _________________________ Title: ________________________ TENANT Southern California Bank a California corporation DATE: __________________ By: __________________________ Name: _________________________ Title: ________________________ DATE: __________________ By: __________________________ Name: _________________________ Title: ________________________ 58 Exhibit C TENANT IMPROVEMENT AGREEMENT (Tenant to Construct) Landlord and Tenant are executing simultaneously with this Tenant Improvement Agreement ("Agreement"), a written lease ("Lease") covering those certain premises more particularly described in EXHIBIT B to the Lease ("Premises"), in the Building more particularly described in the Lease. Landlord and Tenant agree that Tenant shall improve and prepare the Premises for Tenant's occupancy, on the terms and conditions set forth in this Agreement. To induce Landlord and Tenant to enter into the Lease and in consideration of the mutual covenants hereinafter contained, Landlord and Tenant mutually agree as follows: 1. GENERAL. The purpose of this Agreement is to set forth how the interior improvements in the Premises as set forth in the Construction Documents, as defined below in Section 2.3 ("Tenant Improvements"), are to be constructed, who will be responsible for the construction of the Tenant Improvements, and the time schedule for the construction and completion of the Tenant Improvements. 1.1 DEFINED TERMS. Except as defined in this Agreement to the contrary, all terms utilized in this Agreement shall have the same meaning as the defined terms in the Lease. 1.2 INCORPORATION OF LEASE. The provisions of the Lease, except where clearly inconsistent or inapplicable to this Agreement, are hereby incorporated into this Agreement. 2. TENANT IMPROVEMENT PLANS. Tenant shall retain a space planner ("Space Planner") to prepare preliminary space plans ("Space Plan") to be utilized in the preparation of final working drawings and specifications for the Tenant Improvements as more particularly described below. Tenant's selection of Space Planner shall be subject to the prior written approval of Landlord, which approval shall not be unreasonably withheld or delayed. 2.1 SPACE PLAN. If Tenant has not previously delivered a Space Plan to Landlord prior to the date of this Agreement, Tenant shall, within ten (10) business days after the date of this Agreement, deliver the Space Plan to Landlord. The Space Plan shall show the configuration of the proposed Tenant Improvements and contain a ~finish schedule~ and all information necessary for Tenant to have the mechanical, electric~l and engineering drawings (collectively ~Engineering Plans") prepared at Tenant's expense, the cost of which will be deducted from the Tenant Improvement Allowance. Such information submitted as part of the Space Plan shall be in sufficient detail to show locations, types and requirements for all heat loads, people loads, floor loads, power and plumbing, regular and special HVAC needs, telephone communications, telephone and electrical outlets, lighting, light fixtures and related power, and electrical and telephone switches. Landlord shall approve, or disapprove for reasonable reasons, the Space Plan within five (5) business days after Landlord receives the completed Space Plan and, if disapproved, Landlord shall return the Space Plan to Tenant, who shall make all 59 necessary revisions within five (5) business days after Tenant's receipt thereof. This procedure shall be repeated until Landlord ultimately approves the Space Plan. When approved, the Space Plan, as modified, shall be deemed the "Final Preliminary Plans". 2.2 ENGINEERING PLANS. If required by applicable building regulations, Tenant shall select as the mechanical and electrical engineer a qualified and licensed company, experienced in tenant improvements in San Diego County, California,("Engineer") to prepare Engineering Plans based on the Final Preliminary Plans. Tenant's selection of the Engineer shall be subject to the prior written approval of Landlord, which approval will not be unreasonably withheld or delayed. For purposes of the preparation of the Engineering Plans, the Engineer may assume that the Final Preliminary Plans are precise, correct and in compliance with applicable laws and codes. Upon completion of the Engineering Plans, they will be submitted to Landlord and Space Planner for approval. Landlord shall approve, or disapprove for reasonable reasons, the Engineering Plans within five (5) business days after Landlord receives the Engineering Plans and, if disapproved, return the Engineering Plans to Tenant who shall cause the Engineer to make all necessary revisions within five (5) business days after Landlord's receipt thereof. This procedure shall be repeated until Landlord ultimately approves the Engineering Plans. When approved, the Engineering Plans, as modified, shall be deemed the "Final Engineering Plans". 3. CONSTRUCTION DOCUMENTS. Within ten (10) business days following Landlord's approval of the Final Preliminary Plans and the Final Engineering Plans (if any), Tenant shall cause Space Planner to prepare final plans and specifications ("Final Tenant Plans") for completion of the Tenant Improvements. Tenant shall then deliver the Final Tenant Plans to Landlord. Landlord shall approve, or disapprove for reasonable reasons, the Final Tenant Plans within five (5) business days after Landlord receives the Final Tenant Plans and, if disapproved, Landlord shall return the Final Tenant Plans to Tenant who shall cause Space Planner to make all necessary revisions within five (6) business days after Tenant's receipt thereof. This procedure shall be repeated until Landlord ultimately approves the Final Tenant Plans. When approved, the Final Tenant Plans, as modified, shall be deemed the "Construction Documents". Any and all costs incurred by Tenant in the preparation of the Construction Documents shall be deducted from the Tenant Improvement Allowance set forth below in Section 6. All deliveries of the Space Plan, Final Preliminary Plans, and Final Tenant Plans shall be delivered by messenger service, by personal hand delivery or by overnight parcel service. 3.1 LANDLORD'S APPROVAL OF PLANS. Tenant specifically acknowledges that although Landlord has the right to approve the Space Plan, Final Preliminary Plans, Final Engineering Plans, and Final Tenant Plans, Landlord's sole interest in doing so is to protect the Building and Landlord's interests. Accordingly, Tenant shall not rely upon Landlord's approvals and Landlord shall not be the guarantor of, nor responsible for, the correctness or accuracy of any such Space Plan, Final Preliminary Plans, Final Engineering Plans or Final Tenant Plans, or the compliance thereof with applicable laws, and Landlord shall incur no liability of any kind by reason of granting such approvals. 4. PERMITS/FEES. Tenant shall be responsible, at Tenant's sole cost and expense, for obtaining all governmental approvals of the Construction Documents to the full extent necessary for the issuance 60 of a building permit for the Tenant Improvements. Thereafter, Tenant shall also cause to be obtained all other necessary approvals and permits from all governmental agencies having authority over the construction and installation of the Tenant Improvements in accordance with the approved Construction Documents and shall undertake all steps necessary to insure that the construction of the Tenant Improvements is accomplished in strict compliance with all state or local laws, ordinances, rules and regulating applicable to such construction and the requirements and standards of any insurance underwriting board, inspecting bureau or insurance carrier insuring the Premises pursuant to the Lease. In addition, Tenant shall, at Tenant's sole cost and expense, be responsible for the payment of (i) all "impact fees" or exactions which may be imposed or assessed as a condition to the issuance of the building permit or other approvals necessary for the construction of the Tenant Improvements; and (ii) all utility hook-up fees and meter setting fees for water, sewer, gas, electric, telephone and any other utility facilities necessary for Tenant's use of the Premises; provided however, Tenant may, upon written notice to Landlord, request that all of the foregoing expenses be deducted from the Tenant Improvement Allowance. Tenant acknowledges that Tenant shall be solely responsible for investigation of all requirements necessary for obtaining a building permit for the Tenant Improvements, including, without limitation, all requirements for the payment of impact fees and exactions and utility fees and hook-up charges. 5. CONSTRUCTION. Tenant shall employ an outside contractor or contractors of Tenant's choice ("Contractor") to construct the Tenant Improvements in substantial conformance with the Construction Documents; provided, however, that the Contractor and construction contracts between Tenant and Contractor and Tenant's subcontractors shall be subject to Landlord's prior written approval (which approval shall not be unreasonably withheld or delayed), and provided further, that the Contractor and the performance of the work shall be subject to the following conditions: 5.1 LICENSING REQUIREMENTS/EXPERIENCE. Contractor shall be duly licensed and experienced in the construction of tenant improvements in similar office premises. 5.1 LANDLORD'S INSPECTION RIGHTS. Landlord or Landlord's agents shall have the right to inspect the construction work to be conducted by Tenant during the progress thereof, it being the intent of the parties hereto that Landlord shall be reasonable in its inspection of the construction work conducted by Tenant and that Landlord shall recognize, to the extent commercially reasonable and practicable, the necessity of field changes based on field conditions. If Landlord shall give notice to Tenant of faulty construction or any other deviation from the Construction Documents, Tenant shall cause Contractor to promptly make corrections. However, neither the privilege herein granted to Landlord to make such inspections, nor the making of such inspections by Landlord, shall operate as wa waiver of any rights of Landlord to require good and workmanlike construction and improvements erected in accordance with the Construction Documents. 6. TENANT IMPROVEMENT ALLOWANCE. Landlord will provide Tenant with an allowance in amount not to exceed $25,000.00 ("Tenant Improvement Allowance'). The Tenant Improvement Allowance shall include, without limitation, any and all costs of construction, materials, permits, space planning, engineering and the cost of Landlord's overhead. The Tenant Improvement Allowance shall be 61 disbursed to Tenant only after receipt by Landlord of unconditional mechanics' lien releases and receipted bills marked "paid" (which mechanics' lien releases shall, at Landlord's option, be executed by subcontractors, labor suppliers and materialmen, as reasonably determined by Landlord, in addition to Contractor). Upon completion of the Tenant Improvements, Tenant shall provide Landlord with a copy of a Notice Of Completion, which shall have been timely recorded in the Official Records of the San Diego County Recorder. All costs in excess of the Tenant Improvement Allowance shall be the sole responsibility of Tenant. As of the date of this Agreement it is anticipated that the Tenant Improvement Allowance shall be used by Tenant for the following improvements to the Premises: (i) painting of the Premiss with building standard paint; (ii) installation of new building standard carpeting in the Premises; and (iii) installation of new standard wall coverings in the Premises as approved by Landlord and Tenant. 6.1 ENGINEERING. The cost of all electrical, mechanical, and structural engineering, including all permits, licenses, and fees relative to the construction of the Tenant Improvements, if any, (including, without limitation, the fees identified in Section 4 above) shall be paid by Tenant, but may be deducted from the Tenant Improvement Allowance. 6.2 CHANGE ORDERS. In the event that Tenant requests (in writing) any changes to the Construction Documents (each being a "Change Order"), Landlord shall not unreasonably withhold its consent to any such Change Order, provided the Change Order does not affect the structure, systems, equipment or appearance of the Premises or the Building. If such Change Orders, as approved by Landlord, increase the cost of constructing the Tenant Improvements in excess of the Tenant Improvement Allowance, Tenant shall pay such increased costs at the time of Landlord's approval of such Change Order. 6.3 CONSTRUCTION MATERIALS. Tenant will utilize, for the construction of the Tenant Improvements, the items and materials specified in the Construction Documents. however, whenever Tenant determines in its reasonable judgment that it is not practical or efficient to use such materials, Tenant shall have the right, upon receipt of prior written approval of Landlord, which approval will not be unreasonably withheld or delayed, to substitute comparable items and materials. 6.4 PROMPT CONSTRUCTION/GENERAL RESPONSIBILITY FOR COSTS. Tenant shall instruct Contractor to build the Tenant Improvements as soon as reasonably possible. 7. DEFAULT. Any default by Tenant under the terms of this Agreement shall constitute an Event of Default under the Lease and shall entitle Landlord to exercise all remedies set forth in the Lease. Tenant shall have any and all rights to remedy such default pursuant to the provisions of the Lease. 8. REASONABLE DILIGENCE. Both Landlord and Tenant agree to use reasonable diligence in performing all of their respective obligations and duties under this Agreement and in proceeding with the construction and completion of the Tenant Improvements. 62 9. SUITE 125 IMPROVEMENTS. Concurrently with the execution of this Lease, Tenant and Citicorp Savings, a Federal Savings and Loan Association ("Citicorp") are entering into a separate sublease (the "Citicorp Sublease") for those certain premises consisting of approximately 3,471 rentable square feet located on the ground floor of the Building and designated as Suite 125 ("Suite 125"). Despite anything in this Agreement to the contrary, Landlord and Tenant agree that the Tenant Improvement Allowance may be used by Tenant for improvements to Suite 125; provided however, the construction and installation of any such improvements in Suite 125 shall be subject to all of the terms and conditions of this Agreement and, to the extent not in conflict herewith, all of the terms and conditions of the Citicorp Sublease applicable to alterations and improvements to Suite 125. 10. CONFLICTS. In the event of any conflict between the terms of this Agreement and the Lease, the terms of this Agreement shall controls. LANDLORD Regents Park Financial Centre, Ltd. a California limited partnership By: The Lomas Santa Fe Group, a California corporation (General Partner) Date: _________________ By: ___________________________ Name: __________________________ Title: _________________________ Date: _________________ By: ___________________________ Name: __________________________ Title: _________________________ TENANT Southern California Bank a California corporation Date: _________________ By: ___________________________ Name: __________________________ Title: _________________________ 63 Date: _________________ By: ___________________________ Name: __________________________ Title: _________________________ EXHIBIT D GUARANTY OF LEASE Intentionally Omitted 64 EXHIBIT E RULES AND REGULATIONS 1. Except as specifically provided in Article 21 of the Lease to which these Rules and Regulations are attached, no sign, placard, picture, advertisement, name or notice shall be installed or displayed on any part of Premises without the prior written consent of Landlord if visible from outside the Premises. Landlord shall have the right to remove,a t Tenant's expense and without notice, any sign installed or displayed in violation of this rule. All approved signs or lettering on doors and walls shall be printed, painted, affixed or inscribed at the expense of Tenant by a person approved by Landlord. If Landlord objects in writing to any curtains, blinds, shades, screens or hanging plants or other similar objects attached to or used in connection with any window or door of the Premises, or placed on any windowsill, which is visible from the exterior of the Premises, Tenant shall immediately discontinue such use. Tenant shall not install or permit to be installed in the Premises any food vending or similar machines for the dispensing of food or beverages without Landlord's prior written consent. Tenant shall not use a representation (photographic or otherwise) of the Building or the Project, if any, or their name(s) in connection with Tenant's business, without Landlord's prior consent. 2. All cleaning and janitorial services for the Building and the Premiss shall be provided exclusively through Landlord,and except with the prior written consent of Landlord, no person or persons other than those approved by Landlord shall be employed by Tenant or permitted to enter the Building for the purpose of cleaning the same. 3. Landlord will furnish Tenant, free of charge, with two keys to each door lock int he Premises. Landlord may impose a reasonable charge for any additional keys. tenant shall not make or have made additional keys, and Tenant shall not alter any lock or install a new additional lock or bolt on any door of its Premises. Tenant, upon the termination of its tenancy, shall deliver to Landlord the keys of all doors which have been furnished to Tenant, and in the event of loss of any keys so furnished, shall pay Landlord therefor. 4. If Tenant requires telegraphic, telephonic, burglar alarm or similar services, it shall first obtain, and comply with, Landlord's instruction in their installation. 5. The Building freight elevator(s) (if any) shall be available for use by all tenant sin the Building, subject to such reasonable scheduling as Landlord, in its discretion, shall deem appropriate. No equipment, materials, furniture, packages, supplies, merchandise or other property will be received in the Building or carried in the elevators except between such hours and in such elevators as may be designated by Landlord. Tenant's initial move in and subsequent deliveries of bulky items, such as furniture, safes and similar items shall, unless otherwise agreed in writing by Landlord, be made during the hours of 6:00 P.M. and 6:00 A.M. or on Saturday or Sunday. Deliveries during normal office hours shall be limited to 65 normal office supplies and other small items. No deliveries shall be made which impede or interfere with other tenants or the operation of the Building. 6. Tenant shall not place a load upon any floor of the Building or Premises which exceeds the load per square foot which such floor was designed to carry and which is allowed by law. Heavy objects shall, if considered necessary by Landlord, stand on such platforms as determined by Landlord to be necessary to properly distribute the weight, which platforms shall be provided at Tenant's expense. The persons employed to move such equipment in or out of the Project must be acceptable to Landlord. Landlord will not be responsible for loss of, or damage to, any such equipment or other property from any cause, and all damage done to the Project by maintaining or moving such equipment or other property shall be repaired at the expense of Tenant. 7. Tenant agrees to cooperate fully with Landlord to assure the most effective operation of the Building's heating and air-conditioning and to comply with any governmental energy-saving rules, laws or regulations of which Tenant has actual notice. 8. Landlord reserves the right to exclude from the Building between the hours of 6 P.M. and 7 A.M. or such other hours as may be established from time to time by Landlord, and on Sundays and Legal Holidays, any person unless that person is known to the person or employee in charge of the Building and has a pass or is properly identified. Tenant shall be responsible for all persons for whom it requests passes and shall be liable to Landlord for all acts of such persons. Landlord shall not be liable for damages for any error with regard to the admission to or exclusion from the Building of any person. 9. The toilet rooms, toilets, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown therein. The expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the Tenant who, or whose employees or invitees, shall have caused it. 10. Tenant shall not sell, or permit the sale at retail, of newspapers, magazines, periodicals, theater tickets or any other goods or merchandise to the general public in or on the Premises. Tenant shall not make any room-to-room solicitation of business from other tenants in th Project. Canvassing, soliciting and distribution of handbills or any other written material, and peddling in the Project are prohibited, and Tenant shall cooperate to prevent such activities. 11. Tenant shall not install any radio or television antenna, loudspeaker or other devices on the roof or exterior walls of the Project nor shall Tenant install any exterior lighting, amplifiers or similar devices or use in or about the Premises any advertising medium which may be heard or seen outside the Premises, such as flashing lights, searchlights, loudspeakers, phonographs or radio broadcasts. Tenant shall not interfere with radio or television broadcasting or reception from or in the Project or elsewhere. 66 12. Tenant shall not mark, drive nails, screw or drill into the partitions, woodwork or plaster or in any way deface the Premises or any part thereof, except in accordance with normal decorating practices. Landlord reserves the right to direct electricians as to where and how telephone and telegraph wires are to be introduced to the Premises. Tenant shall not cut or bore holes for wires. Tenant shall not affix any floor covering to the floor of the Premises in any manner except as approved by Landlord. Tenant shall repair any damage resulting from noncompliance with this rule. 13. Tenant shall store all its trash and garbage within its Premises or in other facilities provided by Landlord. Tenant shall not place in any trash box or receptacle any material which cannot be disposed of in the ordinary and customary manner of trash and garbage disposal. All garbage and refuse disposal shall be made in accordance with directions issued from time to time by Landlord. 14. The Premises shall not be used for the storage of merchandise held for sale to the general public, or for lodging or for manufacturing of any kind, nor shall the Premises be used for any improper, immoral or objectionable purpose. No cooking shall be permitted on the Premises without Landlord's consent, except that use by Tenant of Underwriters' Laboratory approved equipment for brewing coffee, tea, hot chocolate and similar beverages or use of microwave ovens for employee use shall be permitted,d provided that such equipment and use is in accordance with all applicable federal, state, county and city laws, codes, ordinances, rules and regulations. 15. Requests by Tenant relating to the performance of Landlord's maintenance obligations under this Lease will be attended to only upon appropriate application to the Building or Project management office (as appropriate) by an authorized representative of Tenant whose identity shall be designated to Landlord in writing. Employees of Landlord shall not perform any work or do anything outside of their regular duties unless under special instructions from Landlord, and no employee of Landlord will admit any person (Tenant or otherwise) to any office without specific instructions from Landlord. 16. Landlord may waive any or more of these Rules and Regulations for the benefit of Tenant or any other tenant, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of Tenant or any other tenant, nor prevent Landlord from thereafter enforcing any such Rules and Regulations against any or all of the tenants of the Building or Project. Landlord reserves the right to make such other an reasonable and nondiscriminatory Rules and Regulations as, in its judgment, may from time to time be needed for safety and security, for care and cleanliness of the Project and for the preservation of good order therein. 67 EXHIBIT F SIGN CRITERIA (See Attached) 68 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- REGENTS PARK FINANCIAL CENTRE OFFICE LEASE between Regents Park Financial Centre, Ltd., a California limited partnership (LANDLORD) and Southern California Bank, a California corporation (TENANT) Date: October 25, 1995 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 69 EX-10.13 14 EXHIBIT 10.13 - -------------------------------------------------------------------------------- REGENTS PARK FINANCIAL CENTRE OFFICE LEASE between REGENTS PARK FINANCIAL CENTRE, LTD., A CALIFORNIA LIMITED PARTNERSHIP (LANDLORD) and SOUTHERN CALIFORNIA BANK, A CALIFORNIA CORPORATION (TENANT) Date: October 25, 1995 - -------------------------------------------------------------------------------- TABLE OF CONTENTS Page ---- ARTICLE 1 - FUNDAMENTAL LEASE PROVISIONS . . . . . . . . . . . . . . . . . . 1 1.6 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.7 Permitted Uses . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.8 Tenant's Guarantor . . . . . . . . . . . . . . . . . . . . . . . . 2 1.9 Address for Notices. . . . . . . . . . . . . . . . . . . . . . . . 2 1.10 Security Deposit . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.11 Rent and Other Charges Payable by Tenant . . . . . . . . . . . . . 3 1.12 Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.13 Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.14 Vehicle Parking Privileges Allocated To Tenant . . . . . . . . . . 3 ARTICLE 2 - LEASE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.1 Lease of Property for Term . . . . . . . . . . . . . . . . . . . . 3 2.2 Delay in Commencement. . . . . . . . . . . . . . . . . . . . . . . 3 2.3 Early Occupancy. . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.4 Holding Over . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.5 Failure to Take Possession . . . . . . . . . . . . . . . . . . . . 4 ARTICLE 3 - RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3.1 Minimum Monthly Rent . . . . . . . . . . . . . . . . . . . . . . . 4 3.2 Adjustment to Minimum Monthly Rent . . . . . . . . . . . . . . . . 4 3.3 Security Deposit . . . . . . . . . . . . . . . . . . . . . . . . . 4 ARTICLE 4 - OTHER CHARGES PAYABLE BY TENANT (ADDITIONAL RENT). . . . . . . . 5 4.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 4.2 Increases in Direct Expenses/Additional Rent . . . . . . . . . . . 8 4.3 Final Determination of Tenant's Share of Direct Expenses . . . . . 9 4.4 Taxes on Tenant's Property . . . . . . . . . . . . . . . . . . . . 10 4.5 Building Services and Utilities. . . . . . . . . . . . . . . . . . 10 4.6 Additional Rent. . . . . . . . . . . . . . . . . . . . . . . . . . 12 4.7 Abatement of Rent When Tenant is Prevented From Using Premises . . 12 ARTICLE 5 - USE OF PREMISES. . . . . . . . . . . . . . . . . . . . . . . . . 13 5.2 Compliance with Law. . . . . . . . . . . . . . . . . . . . . . . . 13 5.3 Hazardous Substances . . . . . . . . . . . . . . . . . . . . . . . 14 ARTICLE 6 - ACCEPTANCE OF PREMISES . . . . . . . . . . . . . . . . . . . . . 14 ARTICLE 7 - INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . 15 7.1 Tenant's Indemnity . . . . . . . . . . . . . . . . . . . . . . . . 15 7.2 Landlord's Indemnity . . . . . . . . . . . . . . . . . . . . . . . 15 7.3 Damage To Tenant's Property. . . . . . . . . . . . . . . . . . . . 16 i ARTICLE 8 - MAINTENANCE, REPAIRS AND ALTERATIONS . . . . . . . . . . . . . . 17 8.1 Landlord's Obligations . . . . . . . . . . . . . . . . . . . . . . 17 8.2 Tenant's Obligations . . . . . . . . . . . . . . . . . . . . . . . 17 8.3 Condition upon Termination . . . . . . . . . . . . . . . . . . . . 18 8.4 Alterations, Additions and Improvements. . . . . . . . . . . . . . 19 8.5 Installation of Fixtures . . . . . . . . . . . . . . . . . . . . . 21 8.6 Landlord's Right to Remodel Building . . . . . . . . . . . . . . . 21 ARTICLE 9 - PERFORMANCE BY TENANT. . . . . . . . . . . . . . . . . . . . . . 21 ARTICLE 10 - DAMAGE OR DESTRUCTION OF LEASEHOLD. . . . . . . . . . . . . . . 22 10.1 Destruction Covered by Insurance. . . . . . . . . . . . . . . . . 22 10.2 Destruction Not Covered by Insurance. . . . . . . . . . . . . . . 22 10.3 Repair Costs Exceeding Insurance Coverage . . . . . . . . . . . . 22 10.4 Repairs That Cannot Be Completed Within One Hundred Eighty Days . 23 10.5 Abatement of Rent . . . . . . . . . . . . . . . . . . . . . . . . 23 10.6 Restrictions on Restoration . . . . . . . . . . . . . . . . . . . 23 10.7 Destruction Within Last Year of Term. . . . . . . . . . . . . . . 24 10.8 Destruction of Tenant's Personal Property, Tenant Improvements or Property of Tenant's Employees . . . . . . . . . . . . . . . . 24 10.9 Exclusive Remedies. . . . . . . . . . . . . . . . . . . . . . . . 24 10.10 Termination - Advance Payments and Insurance Proceeds . . . . . . 24 10.11 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 ARTICLE 11 - CONDEMNATION. . . . . . . . . . . . . . . . . . . . . . . . . . 25 11.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 11.2 Parties' Rights and Obligations to be Governed by Lease . . . . . 25 11.3 Total Taking. . . . . . . . . . . . . . . . . . . . . . . . . . . 25 11.4 Partial Taking. . . . . . . . . . . . . . . . . . . . . . . . . . 25 12.1 Insurance Maintained and Paid by Tenant . . . . . . . . . . . . . 27 12.2 Insurance Maintained by Landlord and Paid by Building Tenants . . 30 12.3 Waiver of Subrogation . . . . . . . . . . . . . . . . . . . . . . 31 12.4 No Representations of Adequate Coverage . . . . . . . . . . . . . 31 13.1 Entry by Landlord . . . . . . . . . . . . . . . . . . . . . . . . 31 13.2 No Abatement of Rent. . . . . . . . . . . . . . . . . . . . . . . 32 15.1 Landlord's Consent Required . . . . . . . . . . . . . . . . . . . 33 15.2 Transfer Notice . . . . . . . . . . . . . . . . . . . . . . . . . 33 15.3 Landlord's Election . . . . . . . . . . . . . . . . . . . . . . . 34 15.4 Assumption of Lease Obligations . . . . . . . . . . . . . . . . . 34 15.5 Additional Provisions Regarding Transfers . . . . . . . . . . . . 35 15.6 Special Provisions Regarding Subletting . . . . . . . . . . . . . 36 15.7 No Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 15.8 Conditions Deemed Reasonable. . . . . . . . . . . . . . . . . . . 37 15.9 Tenant's Remedy . . . . . . . . . . . . . . . . . . . . . . . . . 37 ARTICLE 16 - DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 16.1 Covenants and Conditions. . . . . . . . . . . . . . . . . . . . . 37 16.2 Defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 ii ARTICLE 17 - REMEDIES UPON DEFAULT . . . . . . . . . . . . . . . . . . . . . 38 17.1 Landlord Remedies . . . . . . . . . . . . . . . . . . . . . . . . 38 17.2 Jury Trial Waiver . . . . . . . . . . . . . . . . . . . . . . . . 41 18.1 Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . 41 18.2 Attornment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 18.3 Signing of Documents. . . . . . . . . . . . . . . . . . . . . . . 42 18.4 Estoppel Certificates . . . . . . . . . . . . . . . . . . . . . . 42 18.5 Tenant's Financial Condition. . . . . . . . . . . . . . . . . . . 43 ARTICLE 19 - COMMON AREAS. . . . . . . . . . . . . . . . . . . . . . . . . . 43 19.1 Common Areas. . . . . . . . . . . . . . . . . . . . . . . . . . . 43 19.2 Use of Common Areas . . . . . . . . . . . . . . . . . . . . . . . 44 19.3 Vehicle Parking . . . . . . . . . . . . . . . . . . . . . . . . . 45 ARTICLE 20 - PROFESSIONAL COSTS; CONSENTS. . . . . . . . . . . . . . . . . . 46 20.1 Legal Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 20.2 Landlord's Consent. . . . . . . . . . . . . . . . . . . . . . . . 47 ARTICLE 21 - SIGNS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 ARTICLE 22 - LANDLORD'S BREACH - NOTICE. . . . . . . . . . . . . . . . . . . 47 ARTICLE 23 - LATE CHARGES. . . . . . . . . . . . . . . . . . . . . . . . . . 48 ARTICLE 24 - INTEREST ON PAST-DUE OBLIGATIONS. . . . . . . . . . . . . . . . 48 ARTICLE 25 - BUILDING PLANNING . . . . . . . . . . . . . . . . . . . . . . . 48 ARTICLE 26 - NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 ARTICLE 27 - MODIFICATION FOR LENDER . . . . . . . . . . . . . . . . . . . . 49 ARTICLE 28 - CORPORATE AUTHORITY; PARTNERSHIP AUTHORITY. . . . . . . . . . . 49 ARTICLE 29 - FORCE MAJEURE . . . . . . . . . . . . . . . . . . . . . . . . . 50 ARTICLE 30 - BROKERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 ARTICLE 31 - SECURITY MEASURES . . . . . . . . . . . . . . . . . . . . . . . 50 ARTICLE 32 - LANDLORD'S RESERVATIONS . . . . . . . . . . . . . . . . . . . . 51 ARTICLE 33 - MISCELLANEOUS PROVISIONS. . . . . . . . . . . . . . . . . . . . 51 33.2 Identification of Tenant. . . . . . . . . . . . . . . . . . . . . 51 33.3 Identification of Landlord. . . . . . . . . . . . . . . . . . . . 52 33.4 Binding Effect. . . . . . . . . . . . . . . . . . . . . . . . . . 52 33.5 Non-Discrimination. . . . . . . . . . . . . . . . . . . . . . . . 52 33.6 Conflict of Laws and Choice of Jurisdiction . . . . . . . . . . . 52 33.7 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . 53 33.8 Interpretation. . . . . . . . . . . . . . . . . . . . . . . . . . 53 33.9 Incorporation of Prior Agreements; Modifications. . . . . . . . . 53 33.10 Examination of Lease. . . . . . . . . . . . . . . . . . . . . . . 53 iii 33.11 Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 33.12 Accord and Satisfaction . . . . . . . . . . . . . . . . . . . 54 33.13 Nonrecordation of Lease . . . . . . . . . . . . . . . . . . . 54 33.14 Covenants and Conditions. . . . . . . . . . . . . . . . . . . 54 33.15 Negation of Partnership . . . . . . . . . . . . . . . . . . . 54 33.16 Consent of Landlord and Tenant. . . . . . . . . . . . . . . . 54 33.17 Lease Execution Date. . . . . . . . . . . . . . . . . . . . . 54 iv REGENTS PARK FINANCIAL CENTRE OFFICE LEASE This Lease is subject to the terms, covenants and conditions herein set forth, and Tenant (as defined below) covenants as a material part of the consideration for this Lease to keep and perform each and all of the terms, covenants and conditions by Tenant to be kept and performed, and that this Lease is made upon the condition of such performance. ARTICLE 1 - FUNDAMENTAL LEASE PROVISIONS Each of the Fundamental Lease Provisions set forth below is a summary of the terms contained elsewhere in this Lease which relate to each such Fundamental Lease Provision. If there is any conflict between any Fundamental Lease Provision and any specific clause of the Lease, the more specific clause of the Lease shall control. 1.1 DATE OF LEASE: For reference purposes only OCTOBER 25, 1995 LEASE EXECUTION DATE: The date upon which the last of the signatories executes this Lease. 1.2 Landlord: Regents Park Financial Centre, Ltd., a California limited partnership 1.3 Tenant: Southern California Bank, a California corporation 1.4 BUILDING: General site plan of the Building and/or the Project in which the Premises are located (See Exhibit A). 1.5 PREMISES: (See EXHIBIT B) SUITE NO.: 125 APPROXIMATE SQUARE FEET OF RENTABLE AND USABLE FLOOR AREA WITHIN PREMISES: 3,471 rentable square feet and 3,074 usable square feet which area has been determined by Landlord's representative by using the standard method for floor measurement of office buildings, as determined by BOMA [Building Owners and Managers Association International], which determination is conclusive and binding upon Tenant. TENANT'S PERCENTAGE OF DIRECT EXPENSES: Tenant's percentage of expenses to be paid by the tenants in the Building shall be established by Landlord based upon Tenant's pro rata share of expenses described under Articles 4, 8 and 12 of this Lease, which are shared in common with other tenants in the Building ("Tenant's Percentage Share"). Tenant's Percentage 1 Share shall be a fraction, the numerator of which is the rentable floor area of the Premises, and the denominator of which shall be the rentable floor area of the Building occupied by Tenant and occupied by and/or available for occupancy by other tenants in the Building who share such expenses in common with tenant. The Tenant's Percentage Share is subject to change with changes in the size of the Premise, and/or the Building. Tenant's Percentage Share on the Commencement Date is 3.63%. For purposes of computing Tenant's Percentage Share, the "Base Year" will be calendar year 1998. *See Addendum 1.6 TERM. Should the Commencement Date not occur on the first day of a calendar month, the Term shall begin on the first day of the next succeeding calendar month. In that event, however, Tenant shall pay Rent for the fractional month on a per diem basis (calculated on the basis of a thirty day month) until the first day of the month when the Term commences. The date which corresponds to the Commencement Date shall be known as the "Anniversary Date" of this Lease, unless the Commencement Date does not occur on the first day of a calendar month in which event the Anniversary Date shall be the date which corresponds to the first day of the next succeeding calendar month following the Commencement Date. Any provisions of this Lease to the contrary notwithstanding, the effective date of this Lease, and the commencement of both parties' rights and obligations hereunder, shall be the date upon which this Lease is executed by Landlord. Following the Commencement Date, Landlord and Tenant shall execute a letter agreement confirming the Commencement Date, the rentable and usable square footage of the Premises, and Tenant's acceptance of the Premises. *See Addendum The anticipated Commencement Date is JANUARY 1, 1998 1.7 PERMITTED USES: (See Section 5.1) Commercial and retail banking offices and for no other use or purpose. 1.8 TENANT'S GUARANTOR: (See EXHIBIT D) (If none, so state) None. 1.9 ADDRESS FOR NOTICES: To Landlord: Regents Park Financial Centre, Ltd. c/o Asset Management Group 11750 Sorrento Valley Road San Diego, CA 92121 To Tenant: Southern California Bank 4180 La Jolla Village Drive, Suite 125 La Jolla, CA 92037 Attention: Branch Manager 1.10 SECURITY DEPOSIT: (See Section 3.3) $7.011.42 2 1.11 RENT AND OTHER CHARGES PAYABLE BY TENANT: 1.11.1 MINIMUM MONTHLY RENT. Minimum Monthly Rent shall begin on the Commencement Date. 1.11.2 INITIAL MINIMUM MONTHLY RENT: (See Article 3) *See Addendum 1.11.3 OTHER CHARGES PAYABLE BY TENANT ("ADDITIONAL RENT"): (i) Increases in Direct Expenses (See Section 4.2); (ii) Taxes on Tenant's property (See Section 4.4); (iii) Building Services and Utilities (See Section 4.5); (iv) Insurance premiums required to be paid by Tenant (See Article 12); and (v) Maintenance, Repair and Alterations (See Article 8). 1.12 EXHIBITS: The exhibits referenced in the Table of Contents are each attached to this Lease and are made a part of this Lease by this reference. 1.13 BROKERS: The brokers who negotiated this Lease are Rancon Real Estate, representing Landlord, and None representing Tenant. 1.14 VEHICLE PARKING PRIVILEGES ALLOCATED TO TENANT: THIRTEEN (13) unreserved parking spaces subject to the terms and conditions set forth in Section 19.3 of this Lease. ARTICLE 2 - LEASE 2.1 LEASE OF PROPERTY FOR TERM. Landlord hereby leases the Premises to Tenant and Tenant hereby leases the Premises from Landlord for the Term. The Term is for the period stated in Section 1.6 above and shall begin on the Commencement Date. 2.2 DELAY IN COMMENCEMENT. *See Addendum 2.3 EARLY OCCUPANCY. *See Addendum 2.4 HOLDING OVER. Tenant shall vacate the Premises upon the expiration of the Term or earlier termination of this Lease. If Tenant does not vacate the Premises upon the expiration of the Term or earlier termination of this Lease, and Landlord thereafter accepts Rent from Tenant, Tenant's occupancy of the Premises shall be a "month-to-month" tenancy, subject to all of the terms of this Lease applicable to a month-to-month tenancy, terminable on thirty (30) days' written notice given at any time by either party. In no event shall Landlord's acceptance of Rent after such expiration or earlier termination be construed or result in a renewal of this Lease. During any such month-to-month tenancy, Tenant shall pay all Rent and other charges required by this Lease, except that the Minimum Monthly 3 Rent then in effect under the provisions of Section 3.1 and 3.2 hereof shall be increased by one hundred percent (100%). If Tenant fails to surrender the Premises upon the expiration of the Term or earlier termination of this Lease, despite demand to do so by Landlord, Tenant shall indemnify, defend and hold Landlord harmless from all of Landlord's damages or liability, including, but not limited to, any claim made by any succeeding tenant founded on or resulting from such failure to surrender, and any attorneys' fees and costs. During such holdover period, all options, if any, granted under this Lease, shall be deemed terminated and be of no further effect. The provisions of this Section 2.4 are in addition to and do not affect Landlord's right of reentry or any rights of Landlord hereunder, or as otherwise provided by law. It is acknowledged by Tenant that this Section 2.4 shall confer upon Tenant no occupancy rights beyond the expiration of the Term or earlier termination of this Lease. 2.5 FAILURE TO TAKE POSSESSION. *See Addendum PARAGRAPH 2.6 ARTICLE 3 - RENT 3.1 MINIMUM MONTHLY RENT. The Minimum Monthly Rent shall be payable beginning on the Commencement Date. Tenant shall pay Minimum Monthly Rent to Landlord, at the address set forth in Section 1.9 above, or such other place as Landlord shall designate. Minimum Monthly Rent shall be paid in advance on the first day of each month, without deduction, offset, prior notice or demand, in the sum specified in Section 1.11 of the Fundamental Lease Provisions and shall be subject to upward adjustment as herein stated. Tenant shall pay the first installment of Minimum Monthly Rent to Landlord concurrently with Tenant's execution of this Lease. Rent for any period during the Term hereof which is for less than one month shall be a pro rata portion of the monthly installment determined on the basis of a thirty (30) day month. Rent shall be paid in lawful money of the United States of America. 3.2 ADJUSTMENT TO MINIMUM MONTHLY RENT. *See Addendum 3.3 SECURITY DEPOSIT. Landlord hereby acknowledges receipt of the Security Deposit from Tenant in the amount identified in Section 1.10 to secure the faithful performance of the Tenant of all of the terms, covenants and conditions of this Lease by the Tenant to be kept and performed. Tenant agrees that if the Tenant shall fail to make any payments required under this Lease when due, the Security Deposit may, at the option of the Landlord, be applied to any Rent due and unpaid, and if the Tenant violates any of the other terms, covenants and conditions of this Lease, the Security Deposit may be applied to any damages suffered by Landlord as a result of Tenant's default. Under no circumstances shall Tenant have the right to apply the Security 4 Deposit against all or a portion of Tenant's payment obligations under any of the provisions of this Lease. 3.3.1 Nothing contained in this Section shall in any way diminish or be construed as waiving any of Landlord's other remedies provided in Article 17 hereof, or at law or in equity. Should the entire Security Deposit, or any portion thereof be appropriated and applied by Landlord for the payment of overdue Rent or other sums due and payable to Landlord by Tenant hereunder, then Tenant shall, on the written demand of Landlord, remit to Landlord a sufficient amount in cash to restore the Security Deposit to its original amount, and Tenant's failure to do so within five (5) days after receipt of such demand shall constitute an Event of Default. Should Tenant comply with all of the terms, covenants and conditions of this Lease and promptly pay all of the Rent and other sums payable by Tenant to Landlord when due hereunder, the Security Deposit (or any remaining portion thereof) shall be returned to Tenant at the end of the Term or sooner termination of this Lease. Landlord shall have the right to commingle the Security Deposit with other funds of Landlord. Landlord shall not be required to pay Tenant interest on the Security Deposit. ARTICLE 4 - OTHER CHARGES PAYABLE BY TENANT (ADDITIONAL RENT) 4.1 DEFINITIONS. For the purposes of this Section, the following terms are defined as follows: 4.1.1 BASE YEAR: Shall mean the calendar year specified in Section 1.5 of the Fundamental Lease Provisions. 4.1.2 COMPARISON YEAR: Shall mean each calendar year following the Base Year. 4.1.3 DIRECT EXPENSES: All costs of operation and maintenance of the Building, or the Project, determined by (i) the average percent of actual occupancy of the Building for the entire calendar year if such average is greater than ninety percent (90%), or (ii) as if the Building were not less than ninety-five percent (95%) occupied for an entire calendar year if the average percent of actual occupancy of the Building for the entire calendar year is less than ninety percent (90%). Direct Expenses shall include, but not be limited to, the following: 4.1.3.1 Real property taxes and assessments (collectively "Real Property Taxes") upon the improvements to the Building, the Building, the Common Areas serving the Building (as "Common Areas" are defined in Article 19 hereof), and the land upon which they are located, imposed by any governmental authority or agency. "Real Property Taxes" means and shall include without limitation any form of real estate tax, 5 assessment, special assessment, license fee, license tax, special tax, business license fee, commercial rental tax, levy, charge, penalty (not resulting from failure of the Landlord to pay any Real Property Tax), tax or similar imposition, now or hereafter imposed, or imposed in substitution or addition, partial or total, to or regarding any such tax, assessment, special assessment license fee, license tax, special tax, business license fee, commercial rental tax, levy, charge or penalty previously included or not included within the definition of Real Property Taxes, by any authority having the power to tax, including any city, county, state or federal government, or any school, agricultural, lighting, drainage or other improvement assessment or special district thereof, as against the Premises, the Building or the Common Areas or any portion thereof or against any legal or equitable interest of Landlord in the Premises, the Building or the Common Areas and any reasonable costs incurred by Landlord in any proceeding for abatement or reduction thereof, such as attorneys' and consultants' fees. Real Property Taxes shall also include any increase in Real Property Taxes due to a "change in ownership" (as that phrase is defined from time-to-time in the California Revenue and Taxation Code or any successor statute) of the Premises. Notwithstanding any provision of this Section 4.1.3.1, express or implied to the contrary, "Real Property Taxes" shall NOT include Landlord's federal or state income, franchise, inheritance or estate taxes. 4.1.3.2 All expenses incurred in connection with the operation, repair, cleaning, maintenance and insuring of the Building and the Common Areas (collectively "Building Costs"). Building Costs include, without limitation, all sums expended in connection with the Building and Common Areas for: general maintenance and repairs; resurfacing; painting; restripping; cleaning; trash removal (including trash deposited in common receptacles by the individual tenants); sweeping and janitorial services; lighting and operation and maintenance of air conditioning and heating equipment and other utility expenses; maintenance, repair, ceiling and replacement of public toilets, music program equipment and loudspeakers, sidewalks, curbs and building signs, sprinkler systems, planting and landscaping, floors, ceilings, skylights, windows, directional signs, markers and bumpers, any fire protection systems (including fire sprinklers), lighting systems and fixtures (including replacement of tubes and bulbs), storm drainage systems and other utility systems, all mechanical equipment, automatic door openers, escalators, elevators, roofs, exterior walls, air conditioning and heating equipment and security alarm systems; personnel to implement the foregoing services, including, if Landlord deems necessary, the cost of security guards; all on-site costs and personnel expenses of Landlord incurred in connection with the maintenance of the Building and the Common Areas; all personal property taxes assessed against any personalty (not belonging to any tenant of the Building) in use in the Building or the Common 6 Areas; any governmental imposition of surcharge imposed upon Landlord or assessed against any portion of the Building or the Common Areas; depreciation on maintenance and operating machinery and equipment (if owned) and rental paid for such machinery and equipment (if rented); premiums for all insurance carried by Landlord pursuant to this Lease, including without limitation, adequate comprehensive public liability and property damage insurance covering Landlord's ownership an i operation of the Building and the Common Areas, fire and extended coverage insurance on the Building and the Common Areas (which may include earthquake and flood damage endorsements), vandalism and plate glass insurance covering the Building and the Common Areas and rent loss insurance; and the costs of all capital improvements and replacements to the Building or the Common Areas, its contents or any portion thereof which are made to (i) comply with any present or future law, ordinance, rule or regulation including without limitation the Americans With Disabilities Act of 1990 and similar laws, ordinances, rules or regulations; or (ii) improve or add Building life-safety or security systems; or (iii) reduce other Building Costs, such costs to be amortized over the applicable recovery period for federal tax purposes or the estimated useful life as determined by Landlord and utilized by Landlord in is financial and tax reporting, and to include a return on capital at such rate as Landlord pays on funds borrowed for the purpose of constructing such improvements or replacements. In addition, Building Costs shall include a sum to be payable to Landlord for supervision of the Building and the Common Areas and for accounting, bookkeeping and collection of the Building Costs, in an amount equal to fifteen percent (15%) of the total of all of the foregoing Building Costs incurred in each calendar year. Landlord may have any or all services performed in connection with such Building and Common Area maintenance provided by an independent contractor(s). If Landlord acquires, constructs or makes available for Common Area purposes land or improvements not shown as part of EXHIBIT A, then Building Costs shall also include all of the expenses itemized above incurred and paid in connection with such additional land or improvements. 4.1.3.3 Direct Expenses shall NOT include (i) mortgage and debt service on any debt instrument which encumbers the Building; (ii) ground lease payments; (iii) Landlord's general overhead and general administrative expenses not related to management or operation of the Building; (iv) depreciation (except as described above); (v) any and all costs of selling, exchanging or refinancing the Building including any escrow charges, transfer taxes, loan fees and points; (vi) extraordinary real estate taxes or insurance premiums related to the tenant improvements of other tenants in the Building which are in excess of building standard as may be defined by Landlord from time to time; (vii) costs incurred by Landlord for the repair of damage to the Building or the Common Areas to the extent Landlord is 7 reimbursed by insurance proceeds from policies paid for in total or in part by Tenant; (viii) capital expenditures required by Landlord's failure to comply with laws enacted on or before date of issuance of a certificate of occupancy or an equivalent governmental permit for the initial occupancy of the Building; (ix) costs incurred with respect to the installation of tenant improvements made for tenants in the Building or incurred in renovating or otherwise decorating, painting or redecorating vacant space for tenants of the Building; (x) leasing commissions, attorneys' fees, and other costs and expenses incurred in connection with negotiations or disputes with present or prospective tenants or other occupants of the Building, (xi) costs incurred by Landlord to enforce the provisions of any lease of space in the Building due to the violation by any tenant of the Building of the terms and conditions of any lease; (xii) cost of services paid to Landlord or to subsidiaries or affiliates of Landlord for services in the Building to the extent the same exceeds the cost of such services rendered by unaffiliated qualified third parties on a comparable competitive basis; (xiii) any compensation (including wages and fringe benefits) paid to clerks, attendants or other persons in commercial concessions operated by Landlord in the Building lobby; (xiv) all items and services for which Tenant or any other tenant of the Building reimburses Landlord (other than the pass-through of Building Costs) and which Landlord provides selectively to one or more tenants (other than Tenant without reimbursement; (xv) the cost of purchase and installation of signs in or on the Building which identify the owner of the Building or any tenant of the Building; (xvi) tax penalties incurred as a result of Landlord's negligence or inability or unwillingness to make payments when due; (xvii) electrical power costs for which Tenant or my other tenant directly contracts with the public utility. *See Addendum 4.2 INCREASES IN DIRECT EXPENSES/ADDITIONAL RENT. If the Direct Expenses paid or incurred by the Landlord for the Comparison Year are in excess of the Direct Expenses paid or incurred for the Base Year, then Tenant shall pay Tenant's Percentage Share of the increase as Additional Rent. Notwithstanding the preceding sentence, Tenant shall not be required to pay any Direct Expenses in excess of Direct Expenses paid or incurred for the Base Year, until after the first Anniversary Date of this Lease. Landlord shall endeavor to give to Tenant, on or before the first day of March of each year following the respective Comparison Year, a statement of the increase in Direct Expenses payable by Tenant hereunder, but failure by Landlord to give such statement by March 1 shall not constitute a waiver by Landlord of its right to require payment of the increase in Direct Expenses. Upon receipt of the statement for the first Comparison Year, Tenant shall pay in full the total amount of increase due for the first Comparison Year. In addition for the then current year, the amount which Landlord estimates, at Landlord's sole determination, for the increase in 8 Direct Expenses between the Base Year and the said current year shall be divided into twelve (12) equal monthly installments, and Tenant shall pay to Landlord, concurrently with the Minimum Monthly Rent payment next due following the receipt of such statement, an amount equal to one (1) monthly installment multiplied by the number of months from January in the calendar year in which said statement is submitted to the month of such payment, both months inclusive. Subsequent installments shall be payable concurrently with the Minimum Monthly Rent payments for the balance of that calendar year. If the ne ct or any succeeding Comparison Year results in a greater increase in Direct Expenses than that previously estimated by the Landlord, then, not later than twenty (20) days following receipt of a statement from Landlord, Tenant shall pay a lump sum equal to such total increase in Direct Expenses over the Comparison Year, less the total of the monthly installments of estimated increases paid in the previous year for which comparison is then being made and the estimated monthly installments to be paid for the next year, following said Comparison Year, shall be adjusted to reflect Landlord's estimate of such increase in Direct Expenses for that current year. If, in any Comparison Year, the Tenant's share of Direct Expenses is less than the preceding year, then upon receipt of Landlord's statement, any overpayment made by Tenant on the monthly installment basis provided above shall be credited towards the next installment of Minimum Monthly Rent falling due. 4.2.1 Not more frequently than once per calendar year, after receipt of Landlord's statement comparing Tenant's payment of Direct Expenses during that calendar year against Tenant's Percentage Share of such expenses, Tenant may request in writing to audit Landlord's books and records pertaining to such expenses. Tenant shall have no right to request to audit Landlord's books and records pertaining to such expenses, except during such period. If no such written request is made within the period, Tenant stipulates and agrees that said figures are for all purposes correct and accurate, and the amount of the billing is proper. In the event Tenant requests copies of any portion of Landlord's books and records pertaining to such expenses, such copies shall be provided by Landlord to Tenant at Tenant's expense. *See Addendum 4.3 FINAL DETERMINATION OF TENANT'S SHARE OF DIRECT EXPENSES. Even though the Term has expired and Tenant has vacated the Premises, when the final determination is made of Tenant's Percentage Share for the year in which this Lease terminates, Tenant shall immediately pay any increase due over the estimated Direct Expenses paid, and conversely, any overpayment made by Tenant in the event Direct Expenses decrease shall be rebated by Landlord to Tenant. 9 4.4 TAXES ON TENANT'S PROPERTY. Tenant shall pay, before delinquency, all taxes, assessments, license fees and public charges levied, assessed or imposed upon or measured by the value of its business operation, including but not limited to the furniture, trade and other fixtures, equipment and other property of Tenant at any time situated on or installed in the Premises by Tenant. If at any time during the Term any of the foregoing are assessed as a part of the real property of which the Premises are a part, Tenant shall pay to Landlord upon demand the amount of such additional taxes as may be levied against said real property by reason thereof. For the purpose of determining said amount, figures supplied by the County Assessor as to the amount so assessed shall be conclusive. 4.5 BUILDING SERVICES AND UTILITIES. Landlord shall also furnish to the Premises (i) sewer and domestic water service and (ii) facilities for the delivery and distribution within the Premises of electricity and telephone (the foregoing utility facilities and the HVAC Service are hereinafter collectively referred to as "Utilities"). Tenant shall pay for all Utilities used by Tenant within the Premises. If a separate meter is required by Tenant for any Utilities, such meter shall be installed and maintained at Tenant's expense. *See Addendum 4.5.1 If Tenant's electrical consumption is separately metered, Tenant shall pay for such costs directly to the public utility company or to Landlord as Landlord directs (and if such payment is made to Landlord, Landlord shall be responsible for payment to the public utility). If Tenant's electrical consumption is NOT separately metered, Tenant shall pay Tenant's Percentage Share of the electrical consumption of the Building as a part of Direct Expenses; provided however, if Tenant's electrical consumption was not initially separately metered and if a separate meter is subsequently installed to monitor Tenant's electrical consumption, Landlord shall make an appropriate adjustment to Minimum Monthly Rent and Direct Expenses to account for the fact that Tenant is directly paying such separately metered charges to the public utility (or to Landlord as the case may be) and not as a part of Tenant's Minimum Monthly Rent or Tenant's Percentage Share of Direct Expenses. If Tenant's electrical consumption is NOT separately metered and is in excess of the quantity provided by Landlord or extends beyond Business Hours, Landlord may install a separate switch, meter or metering system to be installed at Tenant's expense to measure the amount of electrical consumption by Tenant and charge Tenant for such excess consumption at the rates charged by the local public utility providing the same plus any additional expense incurred in keeping account of the electricity so consumed. 4.5.2 Landlord shall provide customary and routine cleaning and janitorial service for the Premises not less than five (5) days per week, during non Business Hours; provided 10 however, if Tenant is a health care provider, Tenant shall, at Tenant's sole cost and expense, (i) make arrangements for such cleaning and janitorial services for the Premises with a contractor which shall be subject to the reasonable prior approval of Landlord and (ii) satisfy all laws and regulations governing the disposal of medical waste and to arrange for the proper disposal of such waste. The disposal of medical waste is not part of the ordinary services provided by Landlord, and Landlord is not required to provide such services pursuant to this Lease. Tenant agrees to indemnify, defend and hold Landlord harmless from and against any and all claims, costs, loss or liability arising out of or in any connected to Tenant's disposal of such waste. 4.5.3 Tenant shall not install or use machinery or equipment that use excess water, lighting or power, nor shall Tenant permit any act that causes extra burden upon the Utilities, or Building services. Tenant agrees to pay to Landlord within ten (10) working days after Tenant's receipt of an invoice from Landlord, all reasonable charges imposed by Landlord from time to time for all such excess Utilities and/or additional, services consumed by Tenant or used in the Premises. 4.5.4 Landlord reserves the right to interrupt, curtail, stop or suspend Utilities when necessary, in Landlord's reasonable discretion by reason of accident or emergency, or for repairs, alterations, replacements or improvements or because of difficulty or inability in securing supplies or labor, or because of strikes, or for any other cause beyond the reasonable control of Landlord, whether such cause be similar or dissimilar to those hereinabove specifically mentioned, until such cause has been removed. Except as specifically provided in Section 4.7 below, there shall be no diminution or abatement of Rent or other charges due under this Lease as a result of said interruption, curtailment or suspension of Utilities and/or other Building services, nor shall this Lease be affected or any of the Tenant's obligations hereunder be reduced. Landlord shall have no responsibility or liability for any such interruption, curtailment, stoppage or suspension of services or systems as provided for in this Section 4.5, except that Landlord shall exercise reasonable diligence to eliminate the cause of same. 4.5.5 Landlord reserves the right to install new or additional utility facilities throughout the Building and the Common Areas for the benefit of the Landlord or Tenant, or any other tenants of the Building, including, but not by way of limitation, such Utilities as plumbing, electrical systems, HVAC systems, communication systems and fire protection and detection systems, including entry into the Premises for such purposes, so long as such installations do not unreasonably interfere with Tenant's use of the Premises 11 4.6 ADDITIONAL RENT. All charges payable by Tenant other than Minimum Monthly Rent are called "Additional Rent". Unless this Lease provides otherwise, all Additional Rent shall be paid with the next monthly installment of Minimum Monthly Rent. The term "Rent" shall mean Minimum Monthly Rent and Additional Rent. Tenant's failure to pay any Additional Rent due hereunder shall constitute an Event of Default under this Lease. 4.7 ABATEMENT OF RENT WHEN TENANT IS PREVENTED FROM USING PREMISES. Notwithstanding any provision in this Lease to the contrary, in the event that Tenant is prevented from using, and does not use, the Premises or any portion thereof, for ten (10) consecutive business days (the "Eligibility Period") as a result of any damage or destruction to the Premises or any repair, maintenance or alteration performed by Landlord at any time after Tenant commences business from any portion of the Premises, which interferes with Tenant's use of the Premises, or any failure to provide utilities, services or access to the Premises or because of an eminent domain proceeding, then Tenant's Rent shall be abated or reduced, as the case may be, after expiration of the Eligibility Period for such time that Tenant continues to be so prevented from using, and does not use, the Premises or a portion thereof, in the proportion that the rentable area of the portion of the Premises that Tenant is prevented from using, and does not use, bears to the total rentable area of the Premises. However, in the event that Tenant is prevented from conducting, and does not conduct, its business in any portion of the Premises for a period of time in excess of the Eligibility Period, and the remaining portion of the Premises is not sufficient to allow Tenant to effectively conduct its business therein, and if Tenant does not conduct its business from such remaining portion, then for such time after expiration of the Eligibility Period during which Tenant is so prevented from effectively conducting its business therein, the Rent for the entire Premises shall be abated; provided, however, if Tenant reoccupies and conducts its business from any portion of the Premises during such period, the Rent allocable to such reoccupied portion, based on the proportion that the rentable area of such reoccupied portion of the Premises bears to the total rentable area of the Premises, shall be payable by Tenant from the date such business operations commence. If Tenant's right to abatement occurs because of damage or destruction to the Premises or Tenant's property, Tenant's abatement period shall continue until Tenant has been given sufficient time, and sufficient access to the Premises. :o rebuild the portion of the Premises it is required to rebuild, to install its property, furniture, fixtures, and equipment and to move in over one (1) weekend. To the extent Tenant is entitled to abatement because of an event covered by Article 10 (Damage or Destruction) or Article 11 (Eminent Domain) of this Lease, then the Eligibility Period shall not be applicable. 12 ARTICLE 5 - USE OF PREMISES 5.1 USE. Tenant acknowledges that Tenant's use of the Premises shall be subject to any matters or documents of record, including the effect of any covenants, conditions, restrictions, easements, mortgage s or deeds of trust, ground leases, rights-of-way, or any construction, operation and reciprocal easement agreement, and the effect of any zoning laws of the city, county and state where the Building is located. Tenant shall use the Premises only for the Permitted Uses identified in Section 1.7 above and shall not use or permit the Premises to be used for any other purpose without the prior written consent of Landlord. In determining whether to grant consent to Tenant for any proposed use other than the Permitted Use, Landlord may consider factors including, but not limited to, tenant mix, Building image, need for alteration of the Premises and/or the Building, the impact upon the Common Areas of the Building or the parking facilities, the impact upon Utilities and services, effect on fire or other insurance covering the Building, avoidance of nuisance to other tenants, and violation of Landlord's third-party agreements, including loan documents and non-competition covenants with other tenants. Tenant shall not use or permit anything to be done in or about the Premises, nor bring or keep anything therein which will in any way increase the existing rate of or affect any fire or other insurance upon the Building or any of its contents, or cause cancellation of any insurance policy covering the Building or any part thereof or any of its contents. 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 right; of other tenants or occupants of the Building 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, and Tenant shall conduct itself and cause its employees, agents and invites to conduct themselves, with full regard to the rights, convenience and welfare of all other tenants in the Building. Tenant, its agents and employees, shall at all times comply with the rules and regulations set forth in Exhibit E. 5.2 COMPLIANCE WITH LAW. Tenant shall not use the Premises or permit its employees, agents or invites to do anything 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 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 13 are not related to or affected by Tenant's use and occupancy of the Premises and/or 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 be a party thereto or not, that Tenant has violated any law, statute, ordinance or governmental rule, regulation or requirement, shall be conclusive of that fact as between the Landlord and Tenant. 5.3 HAZARDOUS SUBSTANCES. Tenant shall not (either with or without negligence) cause or permit the escape, disposal, or release of any biologically or chemically active or other hazardous substances or materials (collectively "Hazardous Substances"). Tenant shall not allow the storage or use of such Hazardous Substances in any manner not sanctioned by law or by the highest standards prevailing in the industry for the storage and use of such Hazardous Substances, nor allow any Hazardous Substances to be brought into the Project and such Hazardous Substances, except to use in the ordinary course of Tenant's business, and then only after written notice is given to Landlord of the identity of such Hazardous Substances. Without limitation, "Hazardous Substances" shall include those substances and materials described in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq., and applicable state or local laws and the regulations adopted under these acts. If any lender or governmental agency shall ever require testing to ascertain whether or not there has been any release of Hazardous Substances, then the reasonable costs thereof shall be reimbursed by Tenant to Landlord upon demand as Additional Rent. In addition, Tenant shall execute affidavits, representations and the like from time to time at Landlord's request concerning Tenant's best knowledge and belief regarding the presence of Hazardous Substances on the Premises. In all events, Tenant shall indemnify Landlord in the manner elsewhere provided in this Lease from any release of Hazardous Substances on the Premises or Project, if caused by Tenant or persons acting under Tenant, and Tenant shall be fully and completely liable to Landlord for any and all cleanup costs and any and all other charges, fees or penalties relating to the use, disposal, transportation, generation or sale of hazardous substances on the Premises or Project which were brought onto the Premises or Project by Tenant, or Tenant's agents, employees, invitees, contractors or subcontractors. The obligations of Tenant pursuant to this Section 5.4 shall survive the expiration or earlier termination of this Lease. Notwithstanding the foregoing, Tenant shall be permitted to use and store within the Premises, reasonable quantities of those substances and materials which are typically found in general office use (i.e. copy toner and cleaning fluids) despite the fact that such substances and materials may be classified as Hazardous Substances. *See Addendum 14 ARTICLE 6 - ACCEPTANCE OF PREMISES Tenant acknowledges that its acceptance of possession of the Premises constitutes a conclusive admission that Tenant has inspected the Premises and has found them to be in good condition and repair and in all respects in accordance with the obligations of Landlord under this Lease. Tenant's acceptance of possession shall also constitute its acknowledgment of and agreement to be bound by all recorded matters, laws, ordinances and governmental regulations and orders in effect at the time of such possession. Tenant acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the condition of the Premises or the suitability of the Premises for Tenant's intended use. ARTICLE 7 - INDEMNIFICATION 7.1 TENANT'S INDEMNITY. Tenant shall defend, indemnify and hold Landlord harmless against and from any and all liabilities and claims arising from Tenant's use of the Premises for the conduct of its business or from any activity, work or other thing done, permitted or suffered by the Tenant, its agents or employees, in or about the Building or the Common Areas and shall further indemnify and hold harmless Landlord against and from any and all liabilities and claims arising from any breach or default in the performance of any obligation on Tenant's part to be performed under the terms of this Lease, or arising from any act or negligence of the Tenant, or any officer, agent, employee, guest or invitee of Tenant, and from and against all costs, attorneys' fees, expenses and liabilities incurred in or about any such claim or any action or proceeding brought thereon, and, if any case, action, claim or proceeding be brought or asserted against Landlord by reason of any such claim, Tenant, upon notice from Landlord, shall defend the same at Tenant's expense by counsel reasonably satisfactory to Landlord. Tenant, as a material part of the consideration to Landlord, hereby assumes all risk of damage to property or injury to persons in, upon or about the Premises from any cause other than the negligence of Landlord, or its designated agents, servants or employees, unless covered by insurance which Tenant is required to provide, and Tenant hereby waives all claims in respect thereof against Landlord. Tenant's obligation to indemnify Landlord shall include reasonable attorneys' fees and investigation costs, and all other reasonable costs, expenses and liabilities from the first notice that any claim or demand is to be made or may be made. 7.2 LANDLORD'S INDEMNITY. Notwithstanding the provisions of Section 7.1 above, Tenant shall not be required to indemnify, defend, and hold Landlord harmless from any such loss, cost, liability, damage and expense resulting from the negligent acts or omissions or the willful misconduct of Landlord or those of its agents, contractors, servants, employees or licensees, in connection with Landlord's activities on the Premises or the 15 Building or the Project, and Landlord hereby agrees to indemnify, defend, and hold Tenant harmless from any such loss, costs, liability, damage and expense arising directly out of such negligent acts or omissions or such willful misconduct. Further, Tenant's agreement to indemnify and hold Landlord harmless pursuant to Section 7.1 and the exclusion from Tenant's indemnity and the agreement by Landlord to indemnify and hold Tenant harmless pursuant to this Section 7.2 are not intended to and shall not relieve any insurance carrier of its obligations under polices required to be carried by Landlord or Tenant, respectively, pursuant to the provisions of this Lease to the extent that such policies cover the results of such negligence or omissions or such willful misconduct. If either party breaches this Lease by its failure to carry required insurance, such failure shall automatically be deemed to be the covenant and agreement by Landlord or Tenant, respectively, to self-insure such required coverage, with full waiver of subrogation. 7.3 DAMAGE TO TENANT'S PROPERTY. Landlord, its employees and its agents, shall not be liable for any damage to property entrusted by Tenant to employees of the Building, nor for loss or damage to any property by theft or otherwise, nor for any injury to or damage to persons or property resulting from fire, explosion, falling plaster, steam, gas, electricity, water or rain which may leak from any part of the Premises or the Building, or from the pipes, appliances or plumbing works therein or from the roof, street or subsurface or from any other place resulting from dampness or any other cause whatsoever, or by the entry of Landlord or its agents or employees into the Premises as permitted under this Lease, unless, and to the extent, caused by or due to the negligence of Landlord, or its agents, servants or employees, unless and to the extent such damage is covered by insurance required to be carried by Tenant pursuant to this Lease. Landlord, or its agent, shall not be liable for interference with or loss of business by Tenant. Tenant shall give prompt notice to Landlord in case of fire or accidents in the Premises or in the Building, or of defects therein, or in the fixtures or equipment. Neither party shall be liable to the other for any unauthorized or criminal entry of third parties into the Premises, Building, or Common Areas, or for any damage to person or property, or loss of property, in and about the Premises, Building, or Common Areas, and the approaches, entrances, streets, sidewalks or corridors thereto, by or from any unauthorized or criminal acts of third parties, regardless of any breakdown, malfunction or insufficiency of any security measures, practices or equipment provided by Landlord or Tenant. Tenant shall immediately notify Landlord in writing of any breakdown or malfunction of any security measures, practices or equipment provided by Landlord which are known to Tenant. *See Addendum. 16 ARTICLE 8 - MAINTENANCE, REPAIRS AND ALTERATIONS 8.1 LANDLORD'S OBLIGATIONS. Subject to Tenant's obligations under Section 8.2, Landlord shall repair and maintain in good and tenantable condition the Common Areas, the roof, exterior walls, structural parts of the Premises (including the structural floor), utility meters, pipes and conduits outside the Premises used to furnish utilities to the Premises on a nonexclusive basis (except for repairs assumed by the appropriate public utility company), and those portions of any variable air volume or central HVAC system serving the Building which is located outside the Premises. In addition, Landlord shall keep the foundations, exterior walls and exterior roof of the Building in good order, condition and repair. Landlord's costs of meeting its obligations under this Section 8.1 shall be chargeable to Tenant as a part of Building Costs. Tenant shall not have the right to make repairs at Landlord's expense or to terminate this Lease due to Landlord's failure to keep the Common Areas, or the Building in good order, condition and repair. Tenant agrees that the under no circumstances will Tenant use the roof areas for any purpose. Except as specifically provided in Section 4.7 above, there shall be no abatement of Rent and no liability of Landlord by reason of any injury to or interference with Tenant's business arising from the making of any repairs, alterations or improvements in or to any portion of the Building, Common Areas or the Premises or in or to fixtures, appurtenances and equipment therein. If any part of the Premises, Common Areas or the Building is damaged by any act or omission of Tenant, its customers, invites or employees, Tenant shall pay Landlord the cost of repairing or replacing such damaged property, whether or not Landlord would otherwise be obligated to pay the cost of maintaining or repairing such property, except and to the extent the cost of such repairs or replacements are covered by insurance carried by Landlord and paid for by Tenant as part of Building Costs. Tenant acknowledges that neither Landlord nor any agent of Landlord has made any representation that Landlord shall undertake any modification, alteration or improvement to the Premises, except as may be specifically provided for in this Lease. *See Addendum. 8.2 TENANT'S OBLIGATIONS. Subject to Landlord's maintenance obligations pursuant to Section 8.1, Tenant shall keep the Premises in an attractive, first-class and fully operative condition. Landlord shall not be obligated to make repairs, replacements or improvements of any kind upon or in the Premises, or upon or to any equipment, Utility Installation (as defined in Section 8.4), fixtures or furnishings therein contained during the Term. Tenant, at Tenant's sole expense, shall keep and maintain the Premises and every part thereof, and any and all appurtenances thereto wherever located, in first-class condition and in good order and repair, in accordance with all applicable laws, ordinances and regulations of any 17 governmental authority having jurisdiction, including replacement of parts and equipment, if necessary, including, but without limitation, all utility facilities, including plumbing, heating, electrical ventilation, heating and air conditioning systems (except Landlord shall maintain the HVAC System serving the Premises, with the cost of such maintenance chargeable to the tenants of the Building), sprinkler systems, walls, floors and ceilings, and all other repairs, replacements, renewals and restorations, ordinary and extraordinary, foreseen and unforeseen, and all other work or leasehold improvements, subject to reasonable wear and tear. In addition, Tenant, at its sole cost and expense, shall install and maintain fire extinguishers and other fire protection devices as may be required from time to time by any agency having jurisdiction thereof and/or by the insurance underwriters insuring the Building or Project in which the Premises are located. In no event shall Tenant make or cause to be made any penetration into or through the roof or floor of the Premises without the prior written approval of Landlord. Tenant shall be directly responsible for any and all damages resulting from any violation of the provisions of this Section 8.2. Any contractors retained by Tenant for the purpose of complying with Tenant's obligations under this Section 8.2 shall have received the prior written approval of Landlord. 8.2.1 If Tenant refuses or neglects to commence repairs within ten (10) days after Landlord's written demand, or adequately to complete such repairs within a reasonable time thereafter, Landlord may make the repairs without liability to Tenant for any loss or damage that may occur to Tenant's personal property or business by reason thereof, and if Landlord makes such repairs, Tenant shall pay to Landlord on demand, as Additional Rent, the cost thereof, with interest at the Interest Rate (as defined in Article 29) from the date of payment by Landlord until repaid by Tenant. 8.2.2 Without any liability for failure to do so, Tenant shall promptly notify Landlord in writing if Tenant observes that any part of the Premises, or of the Building, including the fixtures and facilities, is or appears to be defective, damaged or in a state of disrepair, regardless of the nature of the cause or of the identity of the party responsible for the repair thereof. 8.3 CONDITION UPON TERMINATION. Upon termination of this Lease, Tenant shall remove all of Tenant's personal property, trade fixtures and equipment from the Premises and shall surrender the Premises to Landlord, broom clean and in the same condition as received except for ordinary wear and tear which Tenant was not otherwise obligated to remedy under any provision of this Lease. Landlord may require Tenant to remove any alterations, additions or improvements other than the initial Tenant Improvements to be constructed by Landlord pursuant to the 18 Tenant Improvement Agreement attached hereto as EXHIBIT C (whether or not made with Landlord's consent) by no later than the termination of the Lease and to restore the Premises to the condition specified by Landlord including, without limitation, sign removal and repair and all patching and plastering required by Landlord, all at Tenant's expense. All alterations, additions and improvements which Landlord has not required Tenant to remove shall become Landlord's property and shall be surrendered to Landlord upon the termination of the Lease. Tenant shall repair, at Tenant's expense, any damage to the Premises caused by the removal of such improvements and trade fixtures. In no event, however, shall Tenant remove any of the following without Landlord's prior written consent: any power wiring or power panels; wall coverings; drapes, blinds or other window coverings; carpets or other floor coverings; heaters, air conditioners or any heating or air conditioning equipment; fencing or security gates; or other similar Building operating equipment and decorations. *See Addendum 8.4 ALTERATIONS, ADDITIONS AND IMPROVEMENTS. Tenant shall not make any alterations, additions, improvements, structural changes or Utility Installations in or to the Premises (collectively "Alterations") without Landlord's prior written consent. Tenant shall submit to Landlord, at the time of seeking such prior written consent, detailed copies of all plans and specifications for all Alterations to the Premises. As used in this Section 8.4, the term "Utility Installation" shall mean power panels, electrical distribution systems, security systems, lighting fixtures, air conditioning, plumbing and telephone and telecommunication wiring and equipment. No Alterations shall be undertaken without first providing Landlord with a copy of the signed permit(s) issued by the appropriate governmental agency or agencies, if a permit(s) is required. All Alterations made by Tenant, except light fixtures, cases, counters and other removable trade fixtures shall, upon installation, be deemed to have become part of the freehold and the property of Landlord. Landlord may require Tenant to provide demolition and/or lien and completion bonds in form and amount satisfactory to Landlord. Tenant shall promptly remove any Alterations constructed in violation of this Section 8.4 upon Landlord's written request. All Alterations shall be accomplished in a good and workmanlike manner, in conformity with all applicable laws and regulations, and diligently completed by a licensed contractor approved by Landlord. Upon completion of any Alterations, Tenant shall provide Landlord with copies of all construction contracts, and proof of payment (including unconditional lien waivers) for all labor and materials. Tenant shall reimburse Landlord for all costs incurred by Landlord (including architects' and/or engineers' fees) in approving Tenant's plans for Alterations. 8.4.1 In connection with the construction of any Alterations by Tenant, Tenant shall provide its own trash 19 containers for construction debris and use service entrances to the Premises, if any. In addition, Tenant shall conduct such construction activities during such hours and in such a manner as to not interfere with the quiet enjoyment or business operations of other tenants in the Building. Tenant shall not conduct any core drilling during business hours. 8.4.2 Tenant shall pay when due all claims for labor and material furnished to the Premises. Tenant shall give Landlord at least ten (10) days' prior written notice of the commencement of any Alterations on the Premises. Before commencing any Alterations, Tenant shall permit Landlord to post and maintain notices of non-responsibility and other notices that are provided for under the Mechanics' Lien Law of California and other applicable laws. Tenant shall keep the Premises free and clear of all mechanics' liens resulting from Alterations done by or for Tenant. Tenant shall have the right to contest the correctness or the validity of any such lien if, immediately on demand by Landlord, Tenant procures and records a lien release bond issued by a corporation authorized to issue surety bonds in California in an amount equal to one and one-half (1-1/2) times the amount of the claim of lien. The bond shall meet the requirements of Civil Code Section 3143 and shall provide for the payment of any sum that the claimant may recover on the claim (together with costs of suit, if it recovers in the action). Furthermore, at all times when Tenant or its agents, contractors or employees are performing Alterations, Tenant or Tenant's contractor shall maintain public liability and property damage insurance on such activities with a single combined limit of One Million Dollars ($1,000,000), naming the Landlord as an additional insured. Furthermore, Tenant or Tenant's contractor shall procure workmen's compensation insurance to cover the activities of all persons engaged in such Alterations. Tenant shall pay all taxes and license fees imposed by reason of any Alterations made by Tenant to the Premises, or imposed upon any personal property of Tenant located within the Premises. Tenant agrees that its interior decorating, including color scheme, shall be subject to the prior approval of Landlord and Landlord's architect which approval shall not be unreasonably withheld. Tenant shall make no changes to any entry locks or locks installed on any other doors located in the Premises without first obtaining Landlord's prior written approval. It is acknowledged by Tenant that a master key system has been employed by Landlord, and that any such lock change could hinder access to the Premises for such purposes as security and fire fighting. In the event that during the Term hereof any Alteration is mandated by law, regulation, rule or the requirement of any insurance company (as a condition to the issuance or continuation of insurance coverage) to be made to the Premises, or any portion thereof, because of Tenant's use of the Premises, then, and in that event, such Alteration shall be made and paid for by Tenant. 20 8.5 INSTALLATION OF FIXTURES. Landlord may, but shall not be obligated to, grant Tenant written permission to enter upon the Premises prior to the Commencement Date for the purpose of installing trade fixtures and furnishings upon the furnishing to Landlord of written evidence satisfactory to Landlord that Tenant has obtained and put into effect the insurance coverage described in Article 12. Landlord shall not be liable to Tenant for damage to or loss of such fixtures, equipment or furnishings, Tenant accepting the full risk for such damage or loss, if any. Tenant shall pay for all utilities consumed by Tenant or its contractors in preparing the Premises for opening of Tenant's business. 8.6 LANDLORD'S RIGHT TO REMODEL BUILDING. Landlord shall have the right, at any time, to remodel, expand, change or refurbish all or any part of the Building, Common Areas or the surrounding property, including the right (but not the obligation) to enclose or otherwise cover all or part of the Common Areas, to landscape or re-landscape portions of the Building or Common Areas, to reconstruct, remodel or refurbish any portion of the exterior of the Building, and/or to change, modify or alter parking, access or other traffic matters. In connection with the exercise of Landlord's rights as set forth in this Section 8.6, Landlord, its agents and employees, shall have the right of reasonable entry and to conduct work within the Premises. Tenant hereby releases Landlord from any and all liability arising from (i) any interference or diminution in access to the Premises; (ii) noise or dust resulting from Landlord's work; and (iii) reduction or limitation of available parking spaces for Tenant's employees and invitees, so long as such activity does not unreasonably interfere with the operation of Tenant's business. This Lease is not intended to nor shall it confer upon Tenant any view corridors. The obstruction of Tenant's view, ail or light by any structure erected in the vicinity of the Building, whether by Landlord or third parties, shall not in any way affect this Lease or impose any liability upon Landlord, nor shall Landlord be liable for interference with any other incorporeal hereditament. ARTICLE 9 - PERFORMANCE BY TENANT All covenants and agreements to be performed by Tenant under any of the terms of this Lease shall be performed by Tenant at Tenant's sole cost and expense and without any abatement of Rent except as specifically provided in Section 4.7 above. If Tenant shall fail to pay any sum of money owed to any party other than Landlord, or perform any act for any party other than Landlord, for which Tenant is liable hereunder, and such failure or violation shall continue for fifteen (15) days after written notice thereof by Landlord, and a reasonable additional period of time thereafter to perform any such act if such additional time is required, Landlord may, without waiving or releasing Tenant from its obligations, make any such payment or perform any such 21 other act to be made or performed by Tenant. All sums so paid by Landlord and all necessary incidental costs, together with interest thereon at the Interest Rate from the date of such payment by Landlord, shall be payable to Landlord on demand, and shall be deemed Additional Rent. ARTICLE 10 - DAMAGE OR DESTRUCTION OF LEASEHOLD 10.1 DESTRUCTION COVERED BY INSURANCE. In the event the Premises or the Building are damaged by fire or other perils which are fully covered by fire and extended coverage insurance, Landlord agrees to forthwith repair the same, and this Lease shall remain in full force and effect. Landlord may elect, by written notice to Tenant within sixty (60) days after such casualty, to terminate this Lease in lieu of restoring the Premises if either (i) the Building or Premises are damaged or destroyed to the extent of more than twenty-five percent (25%) of their replacement cost, or (ii) the damage is such that the Building or the Premises cannot be repaired and restored within one hundred eighty (180) days after the casualty. 10.2 DESTRUCTION NOT COVERED BY INSURANCE. In the event the Premises or the Building are damaged as a result of any cause other than the perils covered by fire and extended coverage insurance, Landlord shall have the option to: (i) repair or restore such damage, this Lease continuing in full force and effect; or (ii) give notice to Tenant at any time within sixty (60) days after such damage, terminating this Lease as of the date specified in such notice, which date shall be no less than thirty (30) days and no more than sixty (60) days after the giving of such notice. In the event Landlord gives notice of its election to terminate this Lease, as is provided for in this Section 10.2, the Lease shall terminate, and all interest of the Tenant in the Premises shall terminate on the date so specified in such notice and the Rent shall be paid up to date of termination. 10.3 REPAIR COSTS EXCEEDING INSURANCE COVERAGE. If the cost of the restoration of the Premises or the Building exceeds the amount of proceeds received from insurance, Landlord may elect to terminate this Lease by giving notice to Tenant within thirty (30) days after determining that the restoration cost will exceed the insurance proceeds. If Landlord elects to terminate this Lease and Tenant does not elect to contribute toward the cost of restoration as provided in this Section 10.3, this Lease shall terminate, and all interest of the Tenant in the Premises shall terminate on the date so specified in such notice and the Rent shall be paid up to date of termination. If the destruction was caused by an act or omission of Tenant, or its agents or employees, Tenant shall immediately pay Landlord, upon Landlord's demand, the difference between the actual cost of restoration and any insurance proceeds received by Landlord. 22 10.4 REPAIRS THAT CANNOT BE COMPLETED WITHIN ONE HUNDRED EIGHTY DAYS. Within sixty (60) days after the date of Tenant's notice to Landlord of such damage or destruction ("Damage Notice Date"), Landlord shall give Tenant notice of Landlord's good faith determination of whether or not the damage or destruction can be repaired under applicable laws, within one hundred eighty (180) days after the Damage Notice Date. In the event Landlord determines that such repairs to the Building and/or the Premises and/or the Common Areas cannot, in Landlord's good faith judgment, be substantially completed under applicable laws within one hundred and eighty (180) days after the Damage Notice Date, then Landlord shall notify Tenant of such determination. In such notice Landlord shall either agree to undertake such repairs (in which event the notice shall include Landlord's estimate of the time required to complete the same) or elect to terminate this Lease. If Landlord agrees to undertake the repairs, but states that the required repairs will not be substantially completed within one hundred and eighty (180) days of the Damage Notice Date, Tenant shall have an option, exercisable by written notice thereof delivered to Landlord not later than the thirtieth (30th) day after Landlord's delivery of Landlord's notice that the repairs will not be completed within such one hundred and eighty (180) day period, to terminate this Lease. If neither Landlord nor Tenant exercise a right of termination following Landlord's determination that the repairs will take more than one hundred and eighty (180) days, then Landlord shall diligently undertake to repair such damage or destruction. 10.5 ABATEMENT OF RENT. In the event of reconstruction of the Premises under this Article 10, the Rent otherwise payable under this Lease shall be abated proportionately with the degree to which Tenant's use of the Premises is impaired. Such abatement shall commence on the date of such damage or destruction and continue during the period while Landlord is completing the repairs required of it under this Article 10. Tenant shall continue to operate its business on the Premises during any such abatement period to the extent reasonably practicable from the standpoint of prudent business management. Tenant shall not be entitled to any compensation or damages from Landlord for loss of the use of the whole or any part of the Premises, Building or Tenant's personal property, or for any inconvenience or annoyance suffered by reason of damage or destruction thereto, or the reconstruction or replacement thereof. 10.6 RESTRICTIONS ON RESTORATION. If the existing laws do not permit the restoration of the Premises to substantially the condition existing at the time of such damage or destruction, either party may terminate this Lease immediately following receipt of notice that restoration is forbidden, by giving written notice to the other party. 23 10.7 DESTRUCTION WITHIN LAST YEAR OF TERM. Notwithstanding anything to the contrary contained in this Article, Landlord shall have no obligation whatsoever to repair, reconstruct or restore any portion of the Premises or any portion of the Building the damage occurs during the last twelve (12) months of the Term or any extension thereof. In the event Landlord elects not to repair, reconstruct or restore the Premises during the last twelve (12) months of the Term, or any extension thereof, Landlord shall give Tenant written notice of Landlord's election to terminate the Lease within thirty (30) days after the date of occurrence of such damage. 10.8 DESTRUCTION OF TENANT'S PERSONAL PROPERTY, TENANT IMPROVEMENTS OR PROPERTY OF TENANT'S EMPLOYEES. It is hereby expressly agreed that Landlord will not be obligated to carry insurance of any kind on Tenant's furniture, furnishings, fixtures, equipment or other personal property (collectively "Personal Property") and in the event of damage or destruction to the Premises or the Building, under no circumstances shall Landlord be required to repair any injury or damage by fire or other cause, or to make any repairs to, or replacements of, Tenant's Personal Property. However, as a part of Direct Expenses, Landlord shall cause to be insured the Tenant Improvements and Alterations which do not constitute Tenant's Personal Property and shall cause such Tenant Improvements and Alterations to be repaired and restored at Landlord's sole cost and expense except that Tenant shall pay for such portion which is covered by the deductible. Landlord shall have no responsibility for any contents placed or kept in or on the Premises or the Building by Tenant or Tenant's emploYees. 10.9 EXCLUSIVE REMEDIES. Notwithstanding any destruction or damage to the Premises, the Building, and/or the Common Areas, Tenant shall not be released from any of its obligations under this Lease, except to the extent and upon the conditions expressly stated in this Article 10. Tenant hereby expressly waives the provisions of California Civil Code Sections 1932(2) and 1933(4) with respect to any damage or destruction to the Building and/or the Premises and agrees that its rights shall be exclusively governed by the provisions of this Article 10. 10.10 TERMINATION - ADVANCE PAYMENTS AND INSURANCE PROCEEDS. Upon termination of this Lease pursuant to this Article 10, an equitable adjustment shall be made concerning advance Rent and any advance payments made by Tenant to Landlord. Landlord shall, in addition, return to Tenant so much of Tenant's Security Deposit as has not been applied by Landlord, as provided for under the terms of this Lease. In the event of termination of this Lease, all proceeds from Tenant's fire and extended coverage insurance under Section 12.1.2 covering the Tenant's Personal Property shall be paid to Tenant. 24 10.11 TERMINATION. Upon any termination of this Lease under any of the provisions of this Article, the parties shall be released thereby, without further obligation to the other, from the date possession of the Premises is surrendered to the Landlord, except for items which have theretofore accrued and are then unpaid, and those obligations, if any, which by the terms of this Lease, survive such termination. ARTICLE 11 - CONDEMNATION 11.1 DEFINITIONS. (i) "Condemnation" or "Taking" means (a) the exercise of any governmental power, whether by legal proceedings or otherwise, by a condemnor, and (b) a voluntary sale or transfer by Landlord to any condemnor, either under the threat of condemnation or while legal proceedings for condemnation are pending; (ii) "Date of Taking" means the date the Condemnor has the right to the possession of the property being condemned; (iii) "Award" means all compensation, sums or anything of value awarded, paid or received on a total or partial Condemnation; and (iv) "Condemnor" means any public or quasi-public authority, or private corporation or individual, having the power of condemnation. 11.2 PARTIES' RIGHTS AND OBLIGATIONS TO BE GOVERNED BY LEASE. If, during the period between the execution of this Lease and Commencement Date, there is any Taking of all or any part of the Building or Common Areas, or any interest in this Lease by Condemnation, the rights and obligations of the parties shall be determined pursuant to this Article. 11.3 TOTAL TAKING. If the Premises are totally taken by Condemnation during the Term, the Lease shall terminate on the Date of Taking. 11.4 PARTIAL TAKING. 11.4.1 PARTIAL TAKING OF PREMISES. If any portion of the Premises is taken by Condemnation, this Lease shall remain in effect, except that Landlord or Tenant may elect to terminate this Lease if twenty-five percent (25%) or more of the total number of square feet of the floor area in the Premises is taken, and the remainder of the Premises is rendered economically unusable by Tenant. If either party elects to terminate this Lease, that party must exercise its right to terminate pursuant to this Section by giving notice to the other party within thirty (30) days after the nature and the extent of the Taking have been fully determined. If either party elects to terminate this Lease, they shall notify the other party of the date of termination, which date shall not be earlier than thirty (30) days nor later than ninety (90) days after the other party has been notified of the terminating party's election to terminate; except that this Lease shall terminate on the Date of Taking if 25 the Date of Taking falls on a date before the date of termination as designated by the terminating party. If neither party terminates this Lease within the thirty (30) day period, this Lease shall continue in full force and effect, except that Rent shall be reduced as provided below. Furthermore, at Landlord's cost and expense, and as soon as reasonably possible, Landlord will restore the remaining portion of the Premises to a complete unit of like quality and character as existed prior to such Taking. 11.4.2 PARTIAL TAKING OF BUILDING. If more than twenty percent (20%) of the floor area of the Building in which the Premises is located is taken, Landlord may terminate this Lease, at Landlord's option, as of the date the condemning authority takes title or possession by delivering written notice to Tenant within thirty (30) days after receipt of written notice of such Taking (or in the absence of such notice, within thirty (30) days after the Condemnor takes possession). 11.4.3 PARTIAL TAKING OF COMMON AREAS. If any portion of the Common Areas is taken by Condemnation, this Lease shall remain in full force and effect so long as there is no material interference with access to the Premises and/or Tenant's parking facilities. If such a Taking materially interferes with access to the premises and/or Tenant's rights to parking within the parking facilities within the Project, and comparable substitute parking is not made available to Tenant, then either party shall have the election to terminate this Lease pursuant to this Article 11. For purposes of this Section 11.4.3, such a partial Taking of the Common Areas shall be deemed to materially interfere with access to the Premises and/or Tenant's rights to parking within the parking facilities within the project only if twenty five percent (25%) or more of the Common Areas is taken and comparable substitute parking or access to the Premises is not made available to Tenant. 11.4.4 EFFECT ON RENT. If any portion of the Premises is taken by Condemnation and this Lease remains in full force and effect, on the Date of Taking, the Minimum Monthly Rent shall be reduced by an amount which is in the same ratio to Minimum Monthly Rent as the total number of square feet in the Premises taken bears to the total number of square feet in the Premises immediately before the Date of Taking. 11.5 RESTORATION. If there is a partial Taking of the Premises and this Lease shall remain in full force and effect pursuant to this Article 11, Landlord, at its cost, shall accomplish all necessary restoration so that the Premises are returned as near as practical to their condition immediately prior to the Date of Taking. 26 11.6 CONDEMNATION AWARD - DISTRIBUTION. Any Awards paid on account of any Condemnation or Taking of the Building or the Common Area, or any portion or portions thereof, shall belong to and shall be the sole property of Landlord, except that Tenant shall be entitled to receive any Award or portion thereof attributable to the taking of personal property, good will, relocation expenses and/or interests in other than the real properly taken, provided the same does not in any way diminish the Award to Landlord. 11.7 EFFECT OF TERMINATION. In the event this Lease is cancelled or terminated pursuant to any of the provisions of this Article 11, all Rent and other charges payable on the part of Tenant to Landlord hereunder shall be paid either as of the date upon which actual physical possession shall be taken by the Condemnor, or as of the date upon which Tenant ceases doing business in, upon or from the Premises, whichever last occurs; and the parties shall thereupon be released from all further liability hereunder, except that Landlord shall make an equitable refund to Tenant of any unearned, unused or unappropriated advance Rent or Security Deposit theretofore paid by Tenant to Landlord and except for items which have heretofore accrued and are then unpaid, and those obligations, if any, which by the terms of this Lease, survive such termination. 11.8 RIGHT TO TERMINATE THIS LEASE FOR TAKING. Neither party shall have the right to terminate this Lease in the event of a partial Taking of the Premises, other than as is specifically provided for in this Article 11. Both parties agree that the provisions of this Article 11 shall govern the rights and obligations of the parties in the event of any condemnation of the Premises or the Building, and specifically waive the provisions of California Code of Civil Procedure Section 1265.130 (and any successor provision). ARTICLE 12 - INSURANCE 12.1 INSURANCE MAINTAINED AND PAID BY TENANT. Tenant covenants and agrees that from and after the date of delivery of the Premises from Landlord to Tenant, Tenant will carry and maintain, at its sole cost and expense, in the amounts specified and in the form hereinafter provided for, each of the following types of insurance: 12.1.1 LIABILITY INSURANCE. A Commercial General Liability insurance policy (with coverage which shall be as least as broad as the most recent edition of Insurance Services Office Commercial General Liability coverage ["Occurrence form CG 0001] or Insurance Services Office form number GL 0002 covering Comprehensive General Liability and Insurance Offices Form number GL 0404 covering Broad Form Comprehensive General Liability) with a combined single limit of not less than Two Million Dollars 27 ($2,000,000) insuring Tenant on an occurrence basis against all liability of Tenant and Landlord and their authorized representatives, agents and employees arising out of and in connection with Tenant's use or occupancy of the Premises. All such bodily injury liability insurance and property damage liability insurance shall specifically insure the performance by Tenant of the indemnity agreement as to liability for injury to or death of persons and injury or damage to property contained in Section 7.1 of this Lease; however, the limits of said insurance shall not limit the liability of Tenant hereunder. Not more frequently than each two (2) years, if, in the opinion of Landlord's lender or of the insurance broker retained by Landlord, the amount of Commercial General Liability insurance coverage at that time is not adequate, Tenant shall increase the insurance coverage as required by either Landlord's lender or Landlord's insurance broker. 12.1.2 TENANT'S PROPERTY INSURANCE. "All Risk" insurance covering Tenant's personal property, fixtures and equipment from time to time in, on or upon the Premises, in an amount not less than one hundred percent (100%) of their full replacement cost from time to time during the Term, together with insurance against sprinkler damage. Any policy proceeds shall be used for the repair or replacement of the property damaged or destroyed unless this Lease shall cease and terminate under the provisions of Article 10. 12.1.3 WORKERS' COMPENSATION AND EMPLOYER'S LIABILITY INSURANCE. Workers' Compensation Insurance in such amounts as required by applicable California law and Employer's Liability insurance with limits of One Million Dollars ($1,000,000.00) per accident. 12.1.4 BUSINESS INTERRUPTION/EXTRA EXPENSE INSURANCE. Loss of income, business interruption and extra expense insurance in such amounts as will reimburse Tenant for direct and indirect loss of earnings and incurred costs attributable to the perils commonly covered by Tenant's property insurance described above for a period of not less than one (1) year. Such insurance shall be carried with the same insurer that issues the insurance for the personal property. 12.1.5 POLICY FORM. All policies of insurance required to be maintained by Tenant under the terms of this Section 12.1 shall be issued by insurance companies, with general policyholder's rating of not less than A and a financial rating of VII rated in the most current available "Best's" Insurance Reports, and admitted to do business in the State of California, and shall (with the exception of Workers' Compensation Insurance) name Landlord, its officers, employees, partners and agents and such other parties (including lenders) as Landlord may reasonably require as additional insured, which policies shall be for the 28 mutual and joint benefit and protection of Landlord, Tenant and such other parties designated by Landlord. Any deductibles or self-insured retentions must be declared to and approved by Landlord. If Landlord disapproves of the amount of any such deductible or self-insured retention, Landlord may either (i) require Tenant's insurer to reduce or eliminate such deductibles or self-insured retentions with respect to Landlord, its officers, employees, partners and agents or (ii) require Tenant to procure a bond guaranteeing payment of losses and related investigations, claim administration and defense expenses to the extent of any such deductible or self-insured retention. Copies of such policies of insurance or certificates thereof together with original endorsements showing the coverage required herein shall be delivered to Landlord prior to the delivery of possession of the Premises to Tenant and thereafter prior to the expiration of the term of each such policy. All liability policies shall contain a provision that Landlord, although named an additional insured, shall nevertheless be entitled to recover under said policies for any loss occasioned to it, its servants, agents and employees by reason of the negligence of Tenant. As often as any such policy shall expire or terminate renewal or additional policies shall be procured and maintained by Tenant in like manner and to like extent. All policies of insurance delivered to Landlord must contain a provision that the company writing said policy will give Landlord thirty (30) days notice in writing (by certified mail, return receipt requested) in advance of any cancellation or lapse or the effective date of any reduction in the amounts of insurance. All liability policies to be maintained by Tenant shall be written as primary policies, not contributing with and in excess of coverage which Landlord may carry. In addition, such policies shall include 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. No later than ten (10) days prior to the Commencement Date, Tenant shall deliver to Landlord, copies of all policies or certificates (together with any required endorsements) evidencing the existence of the amounts and forms of coverage satisfactory to Landlord. 12.1.6 BLANKET POLICIES. Notwithstanding anything to the contrary contained within this Section, Tenant's obligations to carry the insurance provided for herein may be brought within the coverage of a so-called blanket policy or policies of property insurance carried and maintained by Tenant, provided, however, that Landlord, its officers, employees, partners and agents, and Landlord's mortgagee(s) or beneficiary(ies) shall be named as an additional insured thereunder as their interest may appear, and that the coverage afforded Landlord and Landlord's mortgagee(s) or beneficiary(ies) will not be reduced or diminished by reason of the use of such blanket policy of 29 insurance, and provided further that the requirements set forth herein are otherwise satisfied. Tenant agrees to permit Landlord at all reasonable times to inspect the policies of insurance of Tenant covering risks upon the Premises for which policies or copies thereof are not delivered to Landlord. 12.1.7 TENANT'S FAILURE TO PROCURE INSURANCE. Tenant agrees that if Tenant does not carry and maintain any such insurance required to be carried pursuant to this Lease, Landlord may (but shall not be required to) procure such insurance on Tenant's behalf and charge Tenant the premiums, together with a ten percent (10%) handling charge, payable upon demand as Additional Rent. 12.2 INSURANCE MAINTAINED BY LANDLORD AND PAID BY BUILDING TENANTS. 12.2.1 LIABILITY INSURANCE. Landlord shall obtain and keep in force during the Term, a policy of combined single limit bodily injury and broad form property damage insurance, plus coverage against such other risks Landlord deems advisable from time to time, insuring Landlord, but not Tenant, against liability arising out of the ownership, use, occupancy or maintenance of the Building or the Project, if any, in an amount not less than Two Million Dollars ($2,000,000) per occurrence. 12.2.2 PROPERTY INSURANCE. Landlord shall obtain and keep in force, during the Term, a policy or policies of property insurance covering loss or damage to the Building, the Project, the Tenant Improvements and the Alterations but not Tenant's Personal Property, in an amount determined by Landlord or as required by Landlord's lenders. Such policy or policies of insurance shall provide protection against any and all perils generally included in the "All Risk" classification with earthquake coverage insurance, if required by the first mortgagee, deed of trust trustee or deed of trust beneficiary of Landlord, or by any federal, state, county, city or local authority, together with insurance against sprinkler damage, vandalism, malicious mischief, plate glass, and such other perils as Landlord deems advisable or may be required by a lender having a lien on the Building or the Project, if any. In addition, Landlord shall obtain and keep in force, during the Term, a policy of loss of rents insurance, covering Tenant's tenancy, providing for insurance proceeds for a period of one (1) year of Tenant's tenancy, with loss payable to Landlord, which insurance shall also cover all Direct Expenses for said period. Tenant shall not be named in any such policies carried by Landlord and shall have no right to any proceeds therefrom. 12.2.3 COSTS/DEDUCTIBLES. The policies required by Sections 12.2.1 and 12.2.2 shall contain such deductibles as Landlord or Landlord's lenders may determine. The cost of all 30 such policies shall be chargeable to Tenant as a Building Cost. In the event that the Premises shall suffer an insured loss, as defined in Article 10, the deductible amounts under the applicable insurance policies shall also be deemed Building Costs. Tenant shall not do or permit to be done anything which shall invalidate the insurance policies carried by Landlord. Tenant shall pay the entirety of any increase in the property insurance premium for the Building or the Project, if any, over what it was immediately prior to the Commencement Date, if the increase is specified by Landlord's insurance carrier as being caused by the nature of Tenant's occupancy or any act or omission of Tenant. Landlord's obligation to carry the insurance provided for herein may be brought within the coverage of any so-called blanket policy or policies of property insurance carried and maintained by Landlord, provided that the coverage afforded will not be reduced or diminished by reason of the use of such blanket policy of property insurance. 12.3 WAIVER OF SUBROGATION. Tenant and Landlord (for themselves and their insurers) each hereby releases and relieves the other, and waives its right of recovery against the other, and against the officers, partners, employees, agents and representatives of the other, and against other tenants of the Building (provided such parties and other tenants have waived such rights against Landlord and Tenant), for direct or consequential loss or damage arising out of or incident to the perils covered by property insurance carried by such party, whether due to the negligence of Landlord or Tenant, or their agents, employees, contractors and/or invitees, to the extent of such insurance coverage. If necessary, all property insurance policies required under this Lease shall be endorsed to contain this waiver of subrogation provision. 12.4 NO REPRESENTATIONS OF ADEQUATE COVERAGE. Landlord makes no representation that the limits or forms of coverage of insurance specified in this Article 12 are adequate to cover Tenant's property or obligations under this Lease. ARTICLE 13 - LANDLORD'S ENTRY ON PREMISES 13.1 ENTRY BY LANDLORD. Landlord and its authorized representatives shall have the right to enter the Premises at all reasonable times for any of the following purposes: (i) to determine whether the Premises are in good condition and whether Tenant is complying with its obligations under this Lease; (ii) in case of emergency or to do any necessary maintenance, restoration, repairs or improvements to the Premises, the Building, Common Areas, the Project, or other leasehold premises in the Building that Landlord has the right or obligation to perform; (iii) to serve, post or keep posted any notices required or allowed under the provisions of this Lease; (iv) to post "for rent" or "for lease" signs during the last four (4) months of the 31 Term, or during any period while Tenant is in default; (v) with prior reasonable notice to Tenant, to show the Premises to prospective brokers, agents, buyers, tenants or persons interested in an exchange, mortgagees, workmen or contractors, at any time during the Term; (vi) to shore the foundations, footings and walls of the Premises or the Building in which the Premises are located and to erect scaffolding and protective barricades around and about the Premises, but not so as to prevent entry to the Premises, and to do any other act or thing necessary for the safety or preservation of the Premises or the Building and other improvements in which the Premises are located; and (vii) to remodel the Building. *See Addendum 13.1.1 Landlord shall have the right to use any and all means which Landlord may deem proper to open said doors in an emergency, in order to obtain entry to the Premises, without liability to Tenant. Any entry to the Premises obtained by Landlord by any of said means, or otherwise, shall not, under any circumstances, be construed or deemed to be a forcible or unlawful entry to, or a detainer of, the Premises, or an eviction of Tenant from the Premises or any portion thereof. Landlord shall conduct its activities on the Premises as allowed in this Section in a manner that will cause the least possible inconvenience, annoyance or disturbance to Tenant. Except in cases of emergency, when the Tenant has abandoned or surrendered the Premises, or if it is impracticable to do so, the Landlord shall give the Tenant reasonable notice and enter only during normal business hours. Tenant hereby grants to Landlord such licenses or easements in and over the Premises or any portion thereof as shall be reasonably required for the installation or maintenance of mains, conduits, pipes or other facilities to serve the Building or any part thereof, including, but not by way of limitation, the Premises of any occupant; provided, however, that Landlord shall pay for any alteration required on the Premises as a result of any such exercise, occupancy under, or enjoyment of any such license or easement. *See Addendum 13.2 NO ABATEMENT OF RENT. Except as specifically provided in Section 4.7 above, Landlord shall not be liable in any manner for any inconvenience, disturbance, loss of business, nuisance or other damage arising out of Landlord's entry on the Premises as provided in this Section, except damage resulting from the negligence or willful misconduct of Landlord or its authorized representatives, but only to the extent such damage is not covered by insurance required to be carried by Tenant pursuant to this Lease. Tenant shall not be entitled to an abatement or reduction of Rent if Landlord exercises any rights reserved in this Section, so long as such activity does not unreasonably interfere with the operation of Tenant's business in the Premises. ARTICLE 14 - RULES AND REGULATIONS 32 Tenant shall faithfully observe and comply with the "Rules and Regulations," attached hereto as EXHIBIT E and all reasonable and nondiscriminatory modifications and additions thereto. However, Landlord shall not be responsible to Tenant for the violation or nonperformance by any other tenant or occupant of the Building of any of the Rules and Regulations, but shall use commercially reasonable efforts to enforce the Rules and Regulations in a nondiscriminatory manner. The Rules and Regulations are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, the terms, covenants, agreements and conditions of this Lease. Tenant shall be responsible for the observance of all of the Rules and Regulations by Tenant's employees, agents, clients, customers, invitees and guests. ARTICLE 15 - RESTRICTIONS ON TRANSFER 15.1 LANDLORD'S CONSENT REQUIRED. Tenant shall not, voluntarily or involuntarily, because of death, divorce, disability, or by operation of law or otherwise, assign, pledge, hypothecate or encumber its interest in this Lease or the Premises or sublease all or any portion of the Premises, or allow any other person or entity to occupy or use all or any part of the Premises (collectively "Transfer"), without first obtaining Landlord's prior written consent. Any Transfer without such consent, shall be void and, at the option of Landlord, shall terminate this Lease. Any consent to any Transfer which may be given by Landlord shall not constitute a waiver by Landlord of the provisions of this Article 15 or a release of Tenant from the full performance by it of the covenants herein contained. If Tenant is a partnership, a transfer of any interest of a general partner, a withdrawal of any general partner from the partnership, or the merger or dissolution of the partnership, shall be deemed to be a Transfer. If Tenant is a corporation, unless Tenant is a public corporation whose stock is regularly traded on a national stock exchange, or is regularly traded in the over-the-counter market and quoted on NASDAQ, any dissolution, merger, consolidation or other reorganization of Tenant or sale or other transfer of a percentage of capital stock of Tenant which results in a change of controlling persons, or the sale or other transfer of all or substantially all of the assets of Tenant, shall be deemed to be a Transfer. For purposes of this Article 15, the term "Transferee" includes without limitation, assignees, subtenants, or any other party who acquires an interest in the Premises or this Lease by way of pledge, hypothecation or encumbrance. *See Addendum 15.2 TRANSFER NOTICE. Tenant shall give Landlord at least sixty (60) days advance written notice ("Transfer Notice"), of its desire to proceed with a Transfer and shall submit in writing to Landlord (i) the name of the proposed transferee, (ii) in detail, the nature of the proposed transferee's business to be 33 carried on in the Premises, (iii) whether Tenant proposes to assign the Lease, sublet the Premises or change ownership, (iv) the proposed effective date of the Transfer, (v) all the material terms and conditions of the Transfer, (vi) financial statements, income statements and balance sheets for the two (2) most recent completed fiscal or calendar years of the proposed transferee, and (vii) a bank reference. The Transfer Notice shall be accompanied by a copy of the proposed agreement documenting the Transfer, or if none, a copy of any offers, draft agreements, letters of commitment or intent, and other documents pertaining to the proposed Transfer. Thereafter, Tenant shall furnish such supplemental information as Landlord may reasonably request concerning the proposed transferee. 15.3 LANDLORD'S ELECTION. At any time within fifteen (15) working days after Landlord's receipt of the information specified above, Landlord may, by written notice to Tenant, elect to (i) consent to the Transfer, or (ii) reasonably disapprove of the Transfer, setting forth in writing Landlord's grounds for doing so. Such grounds for disapproval may include, without limitation, nonsuitability of the proposed use for the Premises and/or the Building, violation of landlord's third-party agreements, including loan documents and non-competition covenants of Landlord respecting radius, locations, use or exclusivity in any other lease, financing agreement or other agreement relating to the Building or Landlord's other buildings in the immediate area, need for alteration of the Premises, an inappropriate use in light of the Building's existing tenant mix, a material increase in the impact upon the Common Areas or the parking facilities, a material increase in the demands upon utilities and services, the proposed use of the Premises conflicts with Tenant's use clause, a possible material adverse effect upon the reputation of the Premises or the Building from the nature of the business to be conducted, or a reputation for financial reliability on the part of the proposed transferee which is unsatisfactory in the reasonable judgment of Landlord, that Tenant is in default of its obligations under this Lease or that Landlord has not received assurances acceptable to Landlord that all past due amounts owing from Tenant to Landlord will be paid and all other defaults by Tenant will be cured prior to the effective date of the proposed Transfer. If Landlord consents to the Transfer within the fifteen (15) day period, Tenant may thereafter enter into such Transfer agreement upon the terms and conditions and as of the effective date set forth in the information furnished by Tenant to Landlord. If Landlord consents to the Transfer and Tenant does not consummate the Transfer within fifteen (15) days after receipt of Landlord's decision, the provisions of this Article 15 shall once again apply. *See Addendum 15.4 ASSUMPTION OF LEASE OBLIGATIONS. Each permitted transferee, other than Landlord, shall assume and be deemed to 34 have assumed this Lease and shall be and remain liable jointly and severally with Tenant for the payment of Rent and for the due performance or satisfaction of all of the provisions, covenants, conditions and agreements herein contained on Tenant's part to be performed or satisfied. No Transfer shall be binding on Landlord unless such transferee or Tenant shall deliver to Landlord a counterpart original of the instrument evidencing such Transfer which contains a covenant of assumption by the transferee, but the failure or refusal of the transferee to execute such instrument of assumption shall not release or discharge the transferee or the Tenant from its liability as set forth herein. Any permitted Transfer shall not, in any way, affect or limit the liability of Tenant under the terms of this Lease, even if after such Transfer the terms of this Lease are materially changed or altered without the consent of Tenant, the consent of whom shall not be necessary. 15.5 ADDITIONAL PROVISIONS REGARDING TRANSFERS. Landlord may accept Rent from any person other than Tenant, pending approval or disapproval of a Transfer. Neither a delay in the approval or disapproval of such Transfer, nor the acceptance of Rent, shall constitute a waiver or estoppel of Landlord's right to exercise its remedies for the breach of any of the terms or conditions of this Article 15 or this Lease. If Tenant's obligations under this Lease have been guaranteed by third parties, then any Transfer, and Landlord's consent thereto, shall not be effective unless said guarantors give their written consent to such Transfer. Furthermore, Landlord may consent to subsequent Transfers or any amendments or modifications thereto without notifying Tenant or anyone else liable on the Lease, and without obtaining their consent, and such action shall not release such persons from liability under this Lease; however, such persons shall not be responsible to the extent any such amendment or modification enlarges or increases the obligations of the Tenant or transferee under this Lease. Upon the occurrence of any Event of Default under this Lease, Landlord may proceed directly against Tenant, any guarantors or anyone else responsible for the performance of this Lease, including the transferee, without first exhausting Landlord's remedies against any other person or entity responsible therefor to Landlord, or any security held by Landlord or Tenant. Landlord's written consent to any Transfer by Tenant shall not constitute an acknowledgment that no Event of Default then exists under this Lease, nor shall such consent be deemed a waiver of any then existing Event of Default, except as may be otherwise acknowledged by Landlord at that time. The discovery of the fact that any financial statement relied upon by Landlord in giving its consent to a Transfer was materially false shall, at Landlord's election, render Landlord's consent null and void. Any sums or other economic consideration received by Tenant as a result of a Transfer, however denominated, which exceed, in the aggregate, (i) the total sums which Tenant is obligated to pay 35 Landlord under this Lease (prorated to reflect obligations allocable to any portion of the Premises subleased), plus (ii) the unamortized value of leasehold improvements to the Premises paid for by Tenant, depreciated on a straight-line basis over the Term, shall be paid to Landlord as Additional Rent under this Lease without affecting or reducing any other obligations of Tenant hereunder. In the event of any approved Transfer of this Lease in connection with the sale of all or substantially all of the assets of Tenant used in connection with the conduct of Tenant's business on the Premises, the amount of consideration attributable to the Transfer of the Lease shall be reasonably determined by Landlord. 15.5.1 Tenant shall only use such form of assignment as is provided by landlord, and once the completed assignment form has been approved by Landlord, such assignment shall not be changed or modified without Landlord's prior written consent. 15.6 SPECIAL PROVISIONS REGARDING SUBLETTING. Regardless of Landlord's consent, the following terms and conditions shall apply to any subletting by Tenant of all or any part of the Premises, and shall be deemed included in all subleases under this Lease, whether or not expressly incorporated therein: 15.6.1 Tenant immediately and irrevocably assigns to Landlord, as security for Tenant's obligations under this Lease, all Rent from any subletting of all or a part of the Premises as permitted by this Lease, and Landlord, as assignee and as attorney-in-fact for Tenant, or a receiver for Tenant appointed on Landlord's application, may collect such Rent and apply it toward Tenant's obligations under this Lease; except that, until the occurrence of an Event of Default by Tenant, Tenant shall have the right to collect such Rent. Tenant hereby irrevocably authorizes and directs any such sublessee, upon receipt of written notice from Landlord stating that an Event of Default exists, to pay to Landlord the Rents due and to become due under the sublease. Tenant agrees that such sublessee shall have the right to rely upon any such statement and request from Landlord, and that such sublessee shall pay such Rents to Landlord without any obligation or right to inquire as to whether such default exists, and notwithstanding any notice from or claim from Tenant to the contrary. Tenant shall have no right or claim against said sublessee or Landlord for any such Rents so paid by said sublessee to Landlord. 15.6.2 Tenant shall use only such form of sublease as is provided by Landlord, and once the completed sublease form has been approved by Landlord, the sublease shall not be changed or modified without Landlord's prior written consent. 15.6.3 Upon the occurrence of an Event of Default by Tenant under this Lease, Landlord, at its option and without any 36 obligation to do so, may require any sublessee to attorn to Landlord, in which event Landlord shall undertake the obligations of Tenant under such sublease from the time of the exercise of said option to the termination of such sublease; provided, however, Landlord shall not be liable for any prepaid Rent or Security Deposit paid by such sublessee to Tenant, or for any other prior defaults of Tenant under such sublease. 15.6.4 With respect to any subletting to which Landlord has consented, Landlord agrees to deliver a copy of any notice of default by Tenant to the sublessee. 15.7 NO MERGER. No merger shall result from Tenant's sublease of the Premises under this Article 15, Tenant's surrender of this Lease, or the termination of this Lease in any other manner. In any such event, Landlord may terminate any or all subtenancies or succeed to the interest of Tenant as sublandlord thereunder. 15.8 CONDITIONS DEEMED REASONABLE. Tenant acknowledges and agrees that each of the rights of Landlord set forth in this Article 15 above in the event of a proposed Transfer is a reasonable restriction on Transfer for purposes of California Civil Code Section 1951.4. 15.9 TENANT'S REMEDY. *See Addendum 15.10 CONTINUING LIABILITY OF TENANT. If Tenant's transferee defaults pursuant to this Lease, Landlord may proceed directly against Tenant without pursuing remedies against the transferee. Tenant agrees to defend, indemnify and hold Landlord harmless with respect to all costs (including reasonable attorneys' fees expended by Landlord in connection therewith) and liability for compensation claimed by any broker or agent in connection therewith any Transfer of Tenant's interest pursuant to this Lease. ARTICLE 16 - DEFAULT 16.1 COVENANTS AND CONDITIONS. Tenant's performance of each of Tenant's obligations under this Lease is a condition as well as a covenant. Tenant's right to continue in possession of the Premises is conditioned upon such performance. Time is of the essence in the Performance of all covenants and conditions. 16.2 DEFAULTS. The occurrence of any one or more of the following events ("Event of Default") shall constitute a default and breach of this Lease by Tenant: (i) use of the Premises for any purpose other than the Permitted Use; (ii) the failure by Tenant to make any payment of Minimum Monthly Rent, Additional Rent, or any other payment required to be made by Tenant hereunder, as and when due, where such failure shall continue for 37 a period of * after written notice thereof from Landlord to Tenant; provided, however, that any such notice shall be in lieu of, and not in addition to, any notice required under California Code of Civil Procedure Section 1161; (iii) Tenant's abandonment of the Premises as defined in California Civil Code Section 1951.3; (iv) transfer of the Lease by Tenant, either voluntarily or by operation of law, whether by judgment, execution, death or other means, without the prior written consent of Landlord; (v) either (a) the making by Tenant of any general arrangement or general assignment for the benefit of creditors; (b) the filing by or against Tenant of a petition to have Tenant adjudged a bankrupt or a petition for reorganization or arrangement under any law relating to bankruptcy (unless, in the case of a petition filed against Tenant, the same is dismissed within thirty (30) days); (c) the appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located at the Premises or c f Tenant's interest in this Lease, where possession is not restored to Tenant within thirty (30) days; or (d) the attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease where such seizure is not discharged within thirty (30) days. In the event that any provisions of this subparagraph (v) is contrary to any applicable law, such provision shall be of no force or effect; (vi) the failure by Tenant to observe or perform any of the express or implied covenants or provisions of this Lease to be observed or performed by Tenant, where such failure shall continue for a period of * after written notice thereof from Landlord to Tenant; provided, however, that any such notice shall be in lieu of, and not in addition to, any notice required under California Code of Civil Procedure Section 1161; provided, further, that if the nature of Tenant's default is such that more than * are reasonably required for its cure, then Tenant shall not be deemed to be in default if Tenant shall commence such cure within said * day period and thereafter diligently prosecute such cure to completion, which completion shall occur not later than thirty (30) days from the date of such notice from Landlord; or (vii) the discovery by Landlord that any financial statement given to Landlord by Tenant, or its successors in interest, or by any guarantor of Tenant's obligation hereunder, was materially false. *See Addendum ARTICLE 17 - REMEDIES UPON DEFAULT 17.1 LANDLORD REMEDIES. Landlord shall have the following remedies upon the occurrence of any Event of Default. These remedies are not exclusive; they are cumulative in addition to any remedies now or later allowed by law. Upon the occurrence of an Event of Default, Landlord may at any time thereafter, with or without notice or demand (except for any notice required by Article 16 above) and without limiting Landlord in the exercise 38 of any right or remedy which Landlord may have by reason of such Event of Default, do any of the following: 17.1.1 Continue this Lease in effect so long as Landlord does not terminate Tenant's right to possession and Landlord may enforce all of its rights and remedies hereunder, including, at the option of Landlord: (i) the right to declare the Term ended and with process of law to re-enter the Premises and take possession thereof and remove all persons therefrom, and Tenant shall have no further claim thereon or thereunder; or (ii) the right, without declaring this Lease ended and with or without process of law, to re-enter the Premises, take possession thereof, remove all persons therefrom and occupy or lease the whole or any part thereof for and on account of Tenant and upon such terms and conditions and for such Rent as Landlord may deem proper and to collect said Rent or any other Rent that may thereafter become payable and apply the same toward the amount due or thereafter to become due from Tenant and on account of such expenses of such subletting and any other damages sustained by Landlord; and should such Rent be less than that herein agreed to be paid by Tenant, Tenant agrees to pay such deficiency to Landlord in advance on the day of each month hereinabove specified for payment of Rent and to pay to Landlord forthwith upon such reletting the costs and expenses Landlord may incur by reason thereof; or (iii) the right, even though it may have relet said Premises or brought an action to collect Rent and other charges without terminating this Lease, to thereafter elect to terminate this Lease and all of the rights of Tenant in or to the Premises; or (iv) the right, without terminating this Lease, to bring an action or actions to collect Rent and other charges hereunder which are from time to time past due and unpaid; it being understood that the bringing of such an action or actions shall not terminate this Lease unless notice of termination is given. 17.1.2 Should Landlord relet the Premises under the provisions of paragraph 17.1.1.(ii) above, it may execute any such Lease in its own name or in the name of Tenant, but Tenant hereunder shall have no right or authority whatever to collect any Rent from such tenant. The proceeds of any such reletting shall be first applied to the payment of the costs and expenses of reletting the Premises, including alterations and repairs which Landlord, in its sole discretion, deems reasonably necessary and advisable and reasonable attorneys' fees incurred by Landlord in connection with the retaking of said Premises and such reletting and, second, to the payment of any indebtedness, other than Rent, due hereunder, including, without limitation, storage charges or brokerage commissions owing from Tenant to Landlord. When such costs and expenses of reletting have been paid, Tenant shall be entitled to a credit for the net amount of Rent received from such reletting each month during such unexpired balance of the Term and Tenant shall pay Landlord such 39 sums as may be required to make up the Rent provided for in this Lease. Landlord shall not be deemed to have terminated this Lease, the Tenant's right to possession of the leasehold or the liability of Tenant to pay Rent thereafter to accrue or its liability for damages under any of the provisions hereof by any such reentry or by any action in unlawful detainer or otherwise to obtain possession of the Premises, unless Landlord shall have notified Tenant in writing that it has so elected to terminate this Lease. Tenant covenants that the service by Landlord of any notice pursuant to the unlawful detainer statutes of the State of California and the surrender of possession pursuant to such notice shall not (unless Landlord elects to the contrary at the time of or at any time subsequent to the service of such notice and such election be evidenced by a written notice to Tenant) be deemed to be a termination of this Lease or of Tenant's right to possession thereof. Nothing herein contained shall be construed as obligating Landlord to relet the whole or any part of the Premises. 17.1.3 Landlord can terminate Tenant's right to possession of the Premises at any time. Acts of maintenance, efforts to relet the Premises, or the appointment of a receiver on Landlord's initiative to protect Landlord's interest under this Lease shall not constitute a termination of Tenant's right to possession. On termination, Landlord has the right to recover from Tenant: (i) the worth, at the time of the award, of the unpaid Rent that had been earned at the time of termination of this Lease; (ii) the worth, at the time of the award, of the amount by which the unpaid Rent that would have been earned after the date of termination of this Lease until the time of award exceeds the amount of the loss of Rent that Tenant proves could have been reasonably avoided; (iii) 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 loss of Rent that Tenant proves could have been reasonably avoided; and (iv) any other amount, including court costs and attorney's fees, necessary to compensate Landlord for all detriment proximately caused by Tenant's default or defaults, or which in the ordinary course of things would be likely to result therefrom, including, but not limited to, any costs or expenses incurred by Landlord in (a) retaking possession of the Premises, including reasonable attorneys' fees therefore, (b) maintaining or preserving the Premises after such default, (c) preparing the Premises for reletting to a new tenant, including repairs or alterations to the Premises for such reletting, (d) leasing commissions, or (e) any other costs necessary or appropriate to relet the Premises. "The worth, at the time of award," as used in (i) and (ii) of this Section, is to be computed by allowing interest at the maximum legal rate. "The worth, at the time of the award," as referred to in (iii) of this Section, is to be computed by 40 discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of the award, plus 1%. 17.1.4 Whenever Landlord shall re-enter the Premises as provided in this Article, Landlord may remove any property of Tenant from the Premises and store same elsewhere at the expense and for the account of Tenant, and if Tenant shall fail to pay the cost of storing of such property after it has been stored for a period of ninety (90) days or more, Landlord may sell any or all of such property, in any lawful manner. In addition, upon the occurrence of an Event of Default, all of Tenant's fixtures, furniture, equipment, improvements, additions, alterations and other personal property shall remain on the Premises, and in that event, and continuing during the length of said default, Landlord shall have the right to take the exclusive possession of said and to use same, Rent or charge free, until all defaults are cured or, at its option, at any time during the Term, to require Tenant to forthwith remove same. 17.1.5 Upon the occurrence of an Event of Default, Landlord shall have the right to have a receiver appointed to collect Rent and conduct Tenant's business. Tenant also hereby agrees that Landlord shall have a lien for payment for all Rent and Additional Rent called for under the terms of this Lease upon all the furniture, furnishings, fixtures, supplies and all other personal property of Tenant which may be in or upon the Premises, Tenant hereby specifically waiving any and all exemptions allowed by law. Such lien may be enforced in any lawful manner, at the option of Landlord. Neither the filing of a petition for the appointment of a receiver nor the appointment itself shall constitute an election by Landlord to terminate this Lease. 17.1.6 Landlord, at any time after the occurrence of an Event of Default, can cure the default at Tenant's cost. If Landlord at any time, by reason of an Event of Default, pays any sum or does any act that requires the payment of any sum, the sum paid by Landlord shall be due immediately from Tenant to Landlord at the time the sum is paid, and if paid at a later date shall bear interest at the Interest Rate from the date the sum is paid by Landlord until Landlord is reimbursed by Tenant. 17.1.7 Nothing in this Article 17 affects the right of the Landlord under this Lease to indemnification for liability arising prior to the termination of the Lease for personal injuries or property damage, as set forth under Article 7 hereof. 17.2 JURY TRIAL WAIVER. *See Addendum ARTICLE 18 - PROTECTION OF LENDERS AND TRANSFEREES 18.1 SUBORDINATION. Landlord shall have the right to subordinate this Lease, and Tenant shall, at Landlord's request, 41 subordinate its rights under this Lease, to any existing or future ground lease, covenants, conditions and restrictions, easements, rights of way or any construction, operation and reciprocal easement agreements, deeds of trust or mortgages encumbering the Premises, any advances made on the security thereof and any renewals, modifications, consolidations, replacements or extensions thereof, whenever made or recorded. However, Tenant's right to quiet possession of the Premises during the Term shall not be disturbed if Tenant pays the Rent and performs all of Tenant's obligations under this Lease and is not otherwise in default. If any ground lessor, beneficiary or mortgagee elects to have this Lease prior to the lien of its ground lease, deed of trust or mortgage, and gives written notice thereof to Tenant, then this Lease shall be deemed prior to such ground lease, deed of trust or mortgage, whether this Lease is dated prior or subsequent to the date of said ground lease, deed of trust or mortgage or the date of recording thereof. *See Addendum 18.2 ATTORNMENT. If Landlord's interest in the Premises is acquired by any ground lessor, beneficiary under a deed of trust, mortgagee or purchaser at a foreclosure sale, Tenant shall attorn to the transferee of or successor to Landlord's interest in the Premises and recognize such transferee of or successor as Landlord under this Lease, provided that the purchaser or lessor shall acquire and accept the Premises subject to this Lease. Tenant waives the protection of any statute or rule of law which gives or purports to give Tenant any right to terminate this Lease or surrender possession of the Premises upon the transfer of Landlord's interest. 18.3 SIGNING OF DOCUMENTS. Tenant shall sign and deliver any instrument or documents necessary or appropriate to evidence any such attornment or subordination or agreement to do so provided that such interests or documents recognize that Tenant's right to quiet possession of the Premises shall not be disturbed so long as Tenant is not in default of its obligations pursuant to this Lease beyond any applicable notice and cure period. If Tenant fails to do so within ten (10) days after written request, Tenant hereby makes, constitutes and irrevocable appoints Landlord, or any transferee or successor of Landlord, the attorney-in-fact of Tenant to execute and deliver any such instrument or document. 18.4 ESTOPPEL CERTIFICATES. Upon Landlord's written request, Tenant shall execute, acknowledge and deliver to Landlord a written statement certifying: (i) that none of the terms or provisions of this Lease have been changed (or if they have been changed, stating how they have been changed); (ii) that this Lease has not been cancelled or terminated; (iii) the last date of payment of the Minimum Monthly Rent and other charges and the time period covered by such payment; (iv) the amount of any 42 Minimum Monthly Rent or other charges which have been paid in advance; (v) the commencement and termination dates of the Term; (vi) that there has been no Transfer by Tenant of this Lease, or any interest therein; and (vii) that there are not, to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder and that Tenant has no right of offset, counterclaim or deduction against Rent, or specifying such defaults, if any are claimed, together with the amount of any offset, counterclaim or deduction alleged by Tenant. Tenant shall deliver such statement to Landlord within ten (10) days after Landlord's written request. Any such statement by Tenant may be given by Landlord to any prospective purchaser or encumbrancer of the Premises. Such purchaser or encumbrancer may rely conclusively upon such statement as true and correct. If Tenant does not deliver such statement to Landlord within such ten (10) day period, Landlord, and any prospective purchaser or encumbrancer, may conclusively presume and rely upon the following facts: (i) that the terms and provisions of this Lease have not been changed except as otherwise represented by Landlord; (ii) that this Lease has not been cancelled or terminated except as otherwise represented by Landlord; (iii) Landlord's statement of the last date of payment of the Minimum Monthly Rent and other charges and the time period covered by such payment or payments; (iv) that not more than one month's Minimum Monthly Rent or other charges have been paid in advance; (v) the commencement and termination dates of the Term are as represented by Landlord; (vi) that there is no Transfer by Tenant of this Lease or any interest therein; and (vii) that Landlord is not in default under the Lease. In such event, Tenant shall be estopped from denying the truth of such facts. 18.5 TENANT'S FINANCIAL CONDITION. Within ten (10) days after written request from Landlord, Tenant shall deliver to Landlord such financial statements as are reasonably required by Landlord to verify the net worth of Tenant, or any assignee, subtenant, or guarantor of Tenant. In addition, Tenant shall deliver to any lender designated by Landlord any financial statements required by such lender to facilitate the financing or refinancing of the Premises. Tenant represents and warrants to Landlord that each such financial statement is a true and accurate statement as of the date of such statement. All financial statements shall be confidential and shall be used only for the purposes set forth herein. ARTICLE 19 - COMMON AREAS 19.1 COMMON AREAS. "Common Areas" shall mean all areas within and around the Building, and the Project, if any, which are available for the common use of tenants of the Building and which are not leased or held for the exclusive use of Tenant or other tenants, including, but not limited to, parking areas, 43 driveways, sidewalks, loading areas, access roads, corridors, landscaping and planted areas, stairways, arcades, elevators, escalators, directory equipment, restrooms, common entrances, lobbies, passageways and serviceways therefor, and the common pipes, conduits, wires and appurtenant equipment serving the Building. Landlord may from time to time change the size, location, nature and use of any of the Common Areas, including, but not limited to, the relocation of driveways, entrances, exits, automobile parking spaces, the direction and flow of traffic, installation of Prohibited areas, landscaped areas, converting Common Areas into leasable areas, constructing additional parking facilities (including parking structures) in the Common Areas, and increasing or decreasing Common Area land and/or facilities. Tenant acknowledges that such activities may result in decreasing Common Area land and/or facilities, and that such activities may result in occasional inconvenience to Tenant. Landlord shall be responsible for keeping the Common Areas in a neat, clean and orderly condition, properly lighted and landscaped, and shall repair any damage to Common Area facilities. Notwithstanding Landlord's responsibility for such Common Area maintenance, all expenses incurred in connection with the operation, repair, cleaning and maintenance of the Common Areas shall be included in Direct Expenses and charged and prorated in the manner set forth in Article 4 of this Lease. 19.2 USE OF COMMON AREAS. Landlord or such other person(s) as Landlord may appoint shall have the exclusive control and management of the Common Areas. Tenant, and its employees and invites, shall have the nonexclusive right (in common with other tenants and all others to whom Landlord has granted or may grant such rights) to use the Common Areas for the purposes intended, subject to such reasonable rules and regulations as Landlord may establish from time to time. Tenant shall abide by such rules and regulations and shall use its best efforts to cause others who use the Common Areas with Tenant's express or implied permission to abide by Landlord's rules and regulations. Notice of such rules and regulations will be posted or given to Tenant. Tenant shall pay for any increase in the property insurance premiums for the Common Areas caused by Tenant's acts, omissions, use or occupancy of the Premises. Tenant shall not, at any time, interfere with the rights of Landlord, other tenants or any other person entitled to use the Common Areas. Landlord shall not be responsible to Tenant or Tenant's employees, agents or invites, for the noncompliance of other tenants with Landlord's rules and regulations or the interference with the rights of Tenant by other tenants, their agents, employees or invites. Landlord reserves the right from time to time without unreasonable interference with Tenant's use: (i) to install, use, maintain, repair and replace pipes, ducts, conduits, wires and appurtenant meters and equipment for service to other parts of the Building or Common Areas above the ceiling surfaces, below the floor surfaces, within the walls and in the central core areas, and to 44 relocate any pipes, ducts, conduits, wires and appurtenant meters and equipment included in the Premises which are located in the Premises or located elsewhere outside the Premises, and to expand the Building; To make changes to the Common Areas, including, without limitation, changes in the location, size, shape and number of driveways, entrances, parking spaces, parking areas, loading and unloading areas, ingress, egress, direction of traffic, landscaped areas and walkways; provided, however, Landlord shall at all times provide the parking facilities required by applicable law. Landlord also reserves the right to modify the lobbies, windows, stairways, air shafts, elevators and restrooms; (ii) to close temporarily any of the Common Areas for maintenance purposes so long as reasonable access to the Premises remains available; (iii) to designate other land and improvements outside the boundaries of the Building or the Project, if any, to be part of the Common Areas, provided that such other land and improvements have a reasonable and functional relationship to the Building or the Project; (iv) to use the Common Areas while engaged in making additional improvements, repairs or alterations to the Building, or any portion thereof; and (v) to do and perform such other acts and make such other changes in, to or with respect to the Common Areas and Building as Landlord may, in the exercise of sound business judgment, deem to be appropriate. 19.3 VEHICLE PARKING. Tenant, its employees and concessionaires shall not park in the areas which the Landlord may designate or redesignate as parking for patrons of the Building. Landlord shall provide either within the Building parking area or reasonably close thereto, space for employee parking, if such parking space is available, as reasonably determined by Landlord. Landlord shall have the right, but not the obligation, to designate parking areas for use by Tenant's employees and concessionaires and such designation may be changed from time to time. Tenant, its employees and concessionaires shall park their cars only in such designated areas, if any are so designated. Said parking spaces shall be used only for parking by vehicles no larger than normal size passenger automobiles or pick-up trucks, or if so designated, for smaller vehicles. There shall be no overnight parking in parking areas provided by Landlord without Landlord's prior written consent. If Tenant permits or allows any of the prohibited activities described in Section 19.3 of this Lease, then Landlord shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove or tow away the vehicle involved and charge the cost to Tenant, which cost shall be immediately payable upon demand by Landlord. Landlord reserves the right at any time to substitute an equivalent number of parking spaces in a parking structure or subterranean parking facility or in a surface parking area within a reasonable distance of the Premises. 45 19.3.1 If the parking facilities provide for automated card key access, Landlord shall have the right to charge Tenant a security deposit in the amount of $25.00 for each parking card key requested by Tenant. Landlord may assign any unreserved and unassigned parking spaces and/or make all or a portion of such spaces reserved, if it determines in its sole discretion that is necessary for orderly and efficient parking. Tenant shall not use more parking spaces than the number set forth in the Fundamental Lease Provisions. Tenant shall not permit or allow any vehicles that belong to or are controlled by Tenant or Tenant's employees, suppliers, shippers, customers or invites to be loaded, unloaded or parked in areas other than those designated by Landlord for such activities. Tenant agrees that Landlord assumes no responsibility of any kind whatsoever in reference to said automobile parking facilities or the use thereof by Tenant, its employees, agents or invites, or by anyone else. Landlord may, at its sole discretion, determine whether parking facilities shall be surface, underground, multideck, and where they shall be located. Landlord may, at any time, and from time to time, limit access to the parking facilities by means of attendants and/or other devices, and make other changes in the layout and operation of the parking facilities, including, without limiting the generality of the foregoing, changes in locations of entrances, exits and parking spaces. No delay or failure by Landlord to enforce its parking rules and regulations or its o her rights hereunder, and no waiver by Landlord of any breach thereof, shall be deemed to be a waiver of any succeeding breach, or prevent any subsequent or other enforcement thereof by T Landlord. *See Addendum ARTICLE 20 - PROFESSIONAL COSTS; CONSENTS 20.1 LEGAL COSTS. If either party incurs any costs or expenses in connection with any action instituted by either party by reason of any dispute pursuant to this Lease or for the recovery of any sum due under this Lease, or because of the breach of any provisions of this Lease by either party, or for any other relief pursuant to this Lease, or in the event of any other litigation between the parties with respect to this Lease, then all costs and expenses, including without limitation, its actual professional fees such as appraisers', accountants, and attorneys' fees, incurred by the prevailing party therein shall be paid by the other party, which obligation on the part of the other party shall be deemed to have accrued on the date of the commencement of such action or dispute and shall be enforceable whether or not the action is prosecuted to judgment. The provisions contained in this Section 20.1 shall survive the expiration or earlier termination of this Lease, and in the event any action or proceeding is instituted to recover possession of the Premises following the expiration or earlier termination of this Lease, the provisions contained in this Section 20.1 shall be applicable. *See Addendum 46 20.2 LANDLORD'S CONSENT. Tenant shall pay all attorneys' fees incurred by Landlord in connection with Tenant's request for Landlord's consent under Article 15 (Restrictions On Transfer), or in connection with any other act which Tenant proposes to do and which requires Landlord's consent, whether or not such consent i, granted. Tenant shall also reimburse Landlord for all costs, including, without limitation, engineering and architect fees it incurs in reviewing any remodeling, tenant improvement plans or other requests submitted by Tenant, whether or not consent or approval is granted. ARTICLE 21 - SIGNS Tenant shall not place, erect or maintain any sign in or upon the Premises which is visible from the exterior thereof or in or upon the Building or the Project without Landlord's prior written consent and without compliance with the provisions of Exhibit F. ARTICLE 22 - LANDLORD'S BREACH - NOTICE 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 failure (or if such failure cannot reasonably be cured within 30 days, if Landlord does not commence to cure the failure within that 30-day period), then such failure shall constitute a default hereunder and Landlord shall be liable to Tenant for any damages sustained by Tenant as a result of Landlord's default; 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, 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 or Building, and no other real, personal or mixed property of Landlord (or of the officers, shareholders, directors, partners or principals of Landlord, if any) wherever situated, shall be subject to levy, attachment or execution, or otherwise used to satisfy any such judgment. Tenant hereby waives any right to satisfy a judgment against Landlord except from the rents, issues, profits and other income actually received on account of Landlord's right, title and interest in the Premises or Building. 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. Tenant agrees to send, by certified or registered mail to any mortgagee or deed of trust beneficiary of the Building whose address has been furnished to Tenant, a copy of any notice of default served by Tenant on Landlord. If Landlord fails to cure 47 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. ARTICLE 23 - LATE CHARGES Tenant's failure to pay Rent promptly may cause Landlord to incur unanticipated costs, the exact amount of which are impractical or extremely difficult to ascertain. Such costs may include, but are not limited to, processing and accounting charges and late charges which may be imposed on Landlord by any ground lease, mortgage or trust deed encumbering the property. Therefore, if Landlord does not receive any Rent payment, Tenant shall pay Landlord a late charge equal to the greater of One Hundred Dollars ($100), or ten percent (10%) of the overdue amount. The parties agree that such late charge represents a fair and reasonable estimate at the date of this Lease of the administrative costs Landlord shall incur by reason of such late payment. In addition, Tenant shall pay to Landlord, upon written notice thereof, all costs incurred by Landlord for attorneys' fees in connection with the collection of such Minimum Monthly Rent or Additional Rent. *See Addendum. Anything to the contrary in this Lease notwithstanding, Tenant hereby agrees that if it fails to pay Minimum Monthly Rent, Additional Rent or any other monetary obligation which Tenant is required to pay under this Lease when due, for any two (2) consecutive months, or for any three (3) months in a calendar year, Minimum Monthly Rent for the remaining Term shall automatically be adjusted to be quarterly Rent, payable in advance, by cashier's check, commencing upon the first day of the month following such consecutive late month, or the third late month in a calendar year, and continuing thereafter for the remaining Term. Time is strictly of the essence with respect to the provisions of this paragraph. ARTICLE 24 - INTEREST ON PAST-DUE OBLIGATIONS Any and all amounts owed by Tenant to Landlord which are not paid when due shall bear interest at the rate of ten percent (10%) per annum from the due date of such amount ("Interest Rate"). However, interest shall not be payable on late charges incurred by Tenant. The payment of interest on such amounts shall not excuse or cure any default by Tenant under this Lease. If the Interest Rate is higher than the rate permitted by law, the Interest Rate is hereby decreased to the maximum legal interest rate an individual is permitted to charge by law. ARTICLE 25- BUILDING PLANNING 48 *See Addendum Landlord reserves to itself the right, from time to time, to grant such easements, rights and dedications that Landlord deems necessary or desirable, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights, dedications, maps and restrictions do not unreasonably interfere with the use of the Premises by the Tenant. Tenant shall sign any of the aforementioned documents upon request of Landlord. If Tenant fails to do so within ten (10) days after written request, Tenant hereby makes, constitutes and irrevocably appoints Landlord, or any transferee or successor of Landlord, the attorney-in-fact of Tenant to execute and deliver any such instrument or document. ARTICLE 26- NOTICES All notices required or permitted under this Lease shall be in writing and shall be personally delivered or sent by certified mail, return receipt requested, postage prepaid, by nationally or locally recognized overnight or same day delivery service which provides for acknowledgement of delivery (i.e., Federal Express) or by telefacsimile ("FAX") machine capable of confirming transmission and receipt. Notices to Landlord and Tenant shall be delivered to the address set forth in Section 1.9 above. Either party may change its notice address upon written notice to the other party, except that Landlord may in any event use the Premises as Tenant's address for notice purposes after the Commencement Date. A copy of all notices required or permitted to be given to Landlord hereunder shall be concurrently transmitted to such party or parties at such addresses as Landlord may, from time to time, hereafter designate by notice to Tenant. ARTICLE 27- MODIFICATION FOR LENDER If, in connection with obtaining construction, interim or permanent financing or refinancing for the Building, Landlord's lender shall request reasonable modifications in this Lease as a condition to such financing, Tenant will not unreasonably withhold, delay or defer its consent thereto, provided that such modifications do not increase the obligations of Tenant hereunder or materially and adversely affect the leasehold interest hereby created or Tenant's rights hereunder. ARTICLE 28- CORPORATE AUTHORITY; PARTNERSHIP AUTHORITY If Tenant is a corporation, each person signing this Lease on behalf of Tenant represents and warrants that he has full authority to do so and that this Lease binds the corporation. Concurrently with the signature of this Lease by Tenant, Tenant shall deliver to Landlord a certified copy of a 49 resolution of Tenant's Board of Directors authorizing the execution of this Lease or other evidence of such authority reasonably acceptable to Landlord. If Tenant is a partnership, each person signing this Lease for Tenant represents and warrants that he is a general partner of the partnership, that he has full authority to sign for the partnership and that this Lease binds the partnership. Concurrently with Tenant's signature of this Lease, Tenant shall deliver to Landlord a copy of Tenant's recorded statement of partnership or certificate of limited partnership. ARTICLE 29 - FORCE MAJEURE The period for performance of any obligation by either party shall be extended (except for Tenant's obligations to pay Minimum Monthly Rent, Additional Rent and other charges due pursuant to this Lease, which obligations shall NOT be extended) by the period of any delay in performance caused by an act of God, labor strike, adverse weather conditions, shortage of materials, war, invasion, acts of a public enemy, governmental preemption in connection with a national emergency, riot, laws, rules, regulations or order of governmental or military authorities, or failure or defect in the supply, quantity or character of utilities furnished to the Building or Premises (collectively "Force Majeure Event"), excluding from all the foregoing, financial inability. ARTICLE 30 - BROKERS The parties recognize that the brokers who negotiated this Lease are the brokers whose names are stated in Section 1.13 of the Fundamental Lease Provisions, and agree that Landlord shall be solely responsible for the payment of brokerage commissions to said brokers, and that Tenant shall have no responsibility therefor. Tenant represents and warrants to Landlord that to Tenant's knowledge no other broker, agent or finder negotiated or was instrumental in negotiating or consummating this Lease, and that Tenant knows of no other real estate broker, agent or finder who is, or might be, entitled to a commission or compensation in connection with this Lease. Any broker, agent or finder of Tenant whom Tenant has failed to disclose herein shall be paid by Tenant. Tenant shall hold Landlord harmless from all damages and indemnify Landlord for all said damages paid or incurred by Landlord resulting from any claims that may be asserted against Landlord by any broker, agent or finder undisclosed by Tenant herein. *See Addendum ARTICLE 31 - SECURITY MEASURES Tenant hereby acknowledges that Landlord shall have no obligation whatsoever to provide guard service or other security measures for the benefit of the Premises, Building, Common Areas 50 or the Project. Tenant assumes all responsibility for the protection of Tenant, its agents, employees and invitees, and the property of Tenant, of the Tenant's agents, employees and invitees from the acts of third parties. However, nothing herein contained shall prevent Landlord, at Landlord's option, from providing security protection for the Building or the Project, or any part thereof, in which event the cost thereof shall be included within the definition of Direct Expenses. ARTICLE 32 - LANDLORD'S RESERVATIONS Landlord shall have the following rights: (i) to change the name, address or title of the Building or the Project; (ii) to permit any tenant the exclusive right to conduct any business, as long as such exclusive right does not conflict with any rights expressly given to Tenant herein; and (iii) to place such signs, notices or displays as Landlord reasonably deems necessary or advisable upon the roof, exterior of the Building or the Project, if any, or on pole signs in the Common Areas. Landlord further reserves the absolute right to effect such other tenancies in the Building as Landlord, in its sole business judgment, determines best promotes the interests of the Building. Landlord does not represent, and Tenant does not rely on the possibility, that any specific tenant or number of tenants will occupy space in the Building during the Term. ARTICLE 33 - MISCELLANEOUS PROVISIONS 33.1 WAIVER. No delay or omission in the exercise of any right or remedy of Landlord or Tenant shall impair such a right or remedy or be construed as a waiver. The receipt and acceptance by Landlord of delinquent Rent shall not constitute a waiver of any other default. No act or conduct of Landlord, including, without limitation, the acceptance of the 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. 33.2 IDENTIFICATION OF TENANT. If more than one person executes this Lease as Tenant, (a) each of them is jointly and severally liable for the keeping, observing and performing of all of the terms, covenants, conditions, provisions and agreements of this Lease to be kept, observed and performed by Tenant, and (b) the term "Tenant" as used in this Lease shall mean and include 51 each of them jointly and severally and the act of or notice from, or notice or refund to, or the signature of, any one or more of them, with respect to the tenancy of this Lease, including, but not limited to, any renewal, extension, expiration, termination or modification of this Lease, shall be binding upon each and all of the persons executing this Lease as Tenant with the same force and effect as if each and all of them had so acted or so given or received such notice or refund or so signed. The term "Tenant" shall include legal representatives, successors and assigns. 33.3 IDENTIFICATION OF LANDLORD. The term "Landlord" as used in this Lease, so far as covenants or obligations on the part of Landlord are concerned, shall be limited to mean and include only the owner or owners at the time in question of the fee of the Premises, and in the event of any transfer, assignment or other conveyance or transfers of any such title or leasehold, the Landlord hereunder named (and in case of any subsequent transfer or conveyances, the then grantor) shall be automatically freed and relieved from and after the date of such transfer, assignment or conveyance of all liability as respect the performance of any covenants or obligations on the part of Landlord contained in this Lease thereafter to be performed and, without further agreement, the transferee of such title shall be deemed to have assumed and agreed to observe and perform any and all obligations of the Landlord hereunder, during its ownership of the Premises. Landlord may transfer its interest in the Premises without the consent of Tenant, and such transfer or subsequent transfer shall not be deemed a violation on Landlord's part of any of the terms and conditions of this Lease. 33.4 BINDING EFFECT. Each and all of the covenants, conditions and restrictions in this Lease shall inure to the benefit of and shall be binding upon the successors in interest of Landlord, and subject to the provisions of Article 15, authorized encumbrances, assignees, transferees, subtenants, licensees, and other successors in interest of Tenant. 33.5 NON-DISCRIMINATION. Tenant covenants and agrees, and it is a condition to the continuance of this Lease, that there will be no discrimination against, or segregation of, any person or group of persons on the basis of race, color, sex, creed, national origin or ancestry, in the leasing, subleasing, transferring, occupancy, tenure or use of the Premises or any portion thereof. 33.6 CONFLICT OF LAWS AND CHOICE OF JURISDICTION. This Lease shall be governed by and construed pursuant to the laws of the State of California. Any litigation concerning this Lease between the parties hereto shall be initiated in the California court having jurisdiction over the area where the Building is located. 52 33.7 SEVERABILITY. A determination by a court of competent jurisdiction that any provision of this Lease or any part thereof is illegal or unenforceable shall not cancel or invalidate the remainder of such provision or this Lease, which shall remain in full force and effect. It is the intention of the parties hereto that if any provision of this Lease is capable of two constructions, one of which would render the provision void and the other of which would render the provision valid, then the provision shall have the meaning which renders it valid. 33.8 INTERPRETATION. The captions of the articles and sections of this Lease are to assist the parties in reading this Lease and are not a part of the terms or provisions of this Lease. Whenever required by the context of this Lease, the singular shall include the plural, and the plural shall include the singular. The masculine, feminine and neuter genders shall each include the other. The word "person" shall include corporations, firms, partnerships or associations. In any provision relating to the conduct, acts or omissions of Tenant, the term "Tenant" shall include Tenant's agents, employees, contractors, invites, successors or others using the Premises with Tenant's expressed or implied permission. It is also agreed that no specific words, phrases, or clauses herein used shall be taken or construed to control, limit or cut down the scope or meaning of any general words, phrases or clauses used in connection therewith. Although the printed provisions of this Lease were drawn by Landlord, this Lease shall not be construed either for or against Landlord or Tenant, as this Lease has been prepared with the participation of both parties and both parties have either been represented by attorneys or have had the opportunity for such representation in the negotiation of its contents. 33.9 INCORPORATION OF PRIOR AGREEMENTS; MODIFICATIONS. This Lease contains all agreements of the parties with respect to any matter mentioned herein. No prior or contemporaneous agreement or understanding pertaining to any such matter shall be effective. This Lease may be modified in writing only, signed by the parties in interest at the time of the modification. Except as otherwise stated in this Lease, Tenant hereby acknowledges that neither the real estate brokers identified in Section 1.13 of the Fundamental Lease Provisions, nor any cooperating broker on this transaction, nor the Landlord, or any employee or agents of any of said persons, has made any oral or written warranties or representations to Tenant relative to the condition or use by Tenant of the Premises or the Building, and Tenant acknowledges that Tenant assumes all responsibility regarding the legal use and adaptability of the Premises and the compliance thereof with all applicable laws and regulations in effect during the Term. 33.10 EXAMINATION OF LEASE. Submission of this Lease for examination or signature by Tenant does not constitute a 53 reservation of or option for Lease, and it is not effective as a Lease or otherwise until signature by and delivery to both Landlord and Tenant. 33.11 TIME. Time is of the essence with respect to the performance of every provision of this Lease in which time or performance is a factor. 33.12 ACCORD AND SATISFACTION. No payment by Tenant or receipt by Landlord of a lesser amount than the Rent payment herein stipulated shall be deemed to be other than on account of the earliest stipulated Rent, nor shall any endorsement or statement on any check or any 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 such Rent or pursue any other remedy provided in this Lease. 33.13 NONRECORDATION OF LEASE. Tenant shall not record this Lease or a short form memorandum thereof. 33.14 COVENANTS AND CONDITIONS. All of the provisions of this Lease shall be deemed as running with the land, and construed to be "conditions," as well as "covenants, " as though the words specifically expressing or imparting covenants and conditions were used in each separate provision. 33.15 NEGATION OF PARTNERSHIP. Landlord shall not become or be deemed a partner or joint venturer with Tenant by reason of the provisions of this Lease. 33.16 CONSENT OF LANDLORD AND TENANT. Wherever in this Lease consent or approval is required from either party to any action by the other, such consent or approval shall be given in writing and shall not be unreasonably withheld, unless expressly provided otherwise in this Lease. Landlord shall not be deemed to have withheld its consent unreasonably where Landlord's right to give its consent is conditioned on Landlord obtaining the consent of any other person, agency or authority having the right to withhold its consent pursuant to any agreement or law, and such person, agency or authority does withhold its consent. If Landlord or Tenant unreasonably fails to give any such consent, the other party shall be entitled to specific performance in equity and shall have such other remedies as are reserved to it under this Lease, but in no event shall Landlord or Tenant be responsible in monetary damages for failure to give such consent. [Balance of Page Intentionally Left Blank] 33.17 LEASE EXECUTION DATE. This Lease shall become effective and binding upon both parties upon the last date set 54 forth below signifying execution by the parties to this Lease. *See Addendum LANDLORD Regents Park Financial Centre, Ltd. a California limited partnership By: The Lomas Santa Fe Group, a California corporation (General Partner) DATE: 11/30/95 By: s/Richard E. Keller/ ---------- ---------------------------------------------- Name: Richard E. Keller Title: President DATE: 11/30/95 By: s/Matthew J. Root/ ---------- ---------------------------------------------- Name: Matthew J. Root Title: Director of Leasing TENANT Southern California Bank, a California corporation DATE: 11/9/95 By: s/David A. McCoy/ ---------- ---------------------------------------------- Name: David A. McCoy Title: EVP/COO DATE: By: ---------- ---------------------------------------------- Name: Title: 55 REGENTS PARK FINANCIAL CENTRE ADDENDUM TO LEASE This Addendum to Lease ("Addendum") is entered into by and between Regents Park Financial Centre, Ltd., a California limited partnership ("Landlord") and Southern California Bank, a California corporation ("Tenant"), and is made to the Regents Park Financial Centre Office Lease dated for reference purposes only as of October 25, 1995 ("Lease"). Landlord and Tenant hereby agree that notwithstanding anything contained in the Lease to the contrary, the provisions set forth below shall be deemed to be a part of the Lease and shaLl supersede, to the extent appropriate, any contrary provision in the Lease. All references in the Lease and in this Addendum to "Lease" shall be construed to mean the Lease, as amended and supplemented by this Addendum. Unless specifically defined in this Addendum, all capitalized terms used in this Addendum shall have the same meaning as the terms used in the Lease. ARTICLE 1 - FUNDAMENTAL LEASE PROVISIONS 1.5 PREMISES. The following is deemed added to Section 1.5 of the Fundamental Lease Provisions: Landlord and Tenant acknowledge that concurrently with the execution of this Lease, Tenant and Citicorp Savings, a Federal Savings and Loan Association ("Citicorp") are entering into a sublease (the "Citicorp Sublease") for the Premises and that the term of the Citicorp Sublease will expire on the Commencement Date of this Lease. In addition, concurrently with the execution of this Lease, Landlord and Tenant are entering into a separate lease for those certain premises located on the fourth floor of the Building consisting of 2,100 rentable square feet and designated as Suite 430 (the "Suite 430 Lease"). The term of the Suite 430 Lease is for eighty four (84) months and is coterminous with the Term of this Lease. 1.6 TERM. The first sentence of Section 1.6 of the Fundamental Lease Provisions is deemed deleted and replaced with the following: The Term shall be fifty seven (57) months commencing on January 1, 1998 (the "Commencement Date"). 1.11.2 MINIMUM MONTHLY RENT. Section 1.11.2 of the Fundamental Lease Provisions is deemed deleted and replaced with the following: 56 Minimum Monthly Rent for the Term shall be payable in accordance with the following schedule: Months 1 through 9 $1.73 per rentable square foot full service ($6,004.83/month) Months 10 through 21 $1.80 per rentable square foot full service ($6,247.80/month) Months 22 through 33 $1.87 per rentable square foot full service ($6,490.77/month) Months 34 through 45 $1.95 per rentable square foot full service ($6,768.45/month) Months 46 through 57 $2.02 per rentable square foot full service ($7,011.42/month) ARTICLE 2 - LEASE 2.2 DELAY IN COMMENCEMENT. Section 2.2 is deemed deleted in its entirety in recognition of the fact that Tenant will be in possession of the Premises prior to the Commencement Date pursuant to the Citicorp Sublease. 2.3 EARLY OCCUPANCY. Section 2.3 is deemed deleted in its entirety in recognition of the fact that Tenant will be in possession of the Premises prior to the Commencement Date pursuant to the Citicorp Sublease. 2.5 FAILURE TO TAKE POSSESSION. Section 2.5 is deemed deleted in its entirety in recognition of the fact that Tenant will be in possession of the Premises prior to the Commencement Date pursuant to the Citicorp Sublease. 2.6 OPTION TO EXTEND TERM. The following provision is deemed added to the Lease as Section 2.6: OPTION TO EXTEND TERM. Landlord hereby grants to Tenant one (1) option ("Option") to extend the Term of this Lease for one (1) additional period of sixty (60) months ("Option Term"). The Option must be exercised, if at all, by written notice ("Option Notice") delivered by Tenant to Landlord no earlier than twelve (12) months and no later than nine (9) months prior to the end of the initial fifty seven (57) month Term. Further, the Option shall not be deemed to be properly exercised if, as of the date of the Option Notice or at the end of the initial Term, Tenant (i) is in default under this Lease or the Suite 430 Lease beyond any applicable cure period, (ii) has assigned all or any portion of this Lease or the Suite 430 Lease or its interest therein; (iii) has sublet all or any portion of the Premises or Suite 430. Provided (a) Tenant has properly and 57 timely exercised the Option, (b) Tenant has also properly and timely exercised its option to extend the term of the Suite 430 Lease as provided therein (which exercise may be concurrent with Tenant's exercise of the Option provided for herein), and (c) Landlord and Tenant reach agreement on the Minimum Monthly Rent payable for the Option Term as provided below, the initial Term shall be extended by the Option Term, and all terms, covenants and conditions of the Lease shall remain unmodified and in full force and effect, except that there shall be no further extension of the Term following the Option Term and the Minimum Monthly Rent for the Option Term shall be the then prevailing market rent then being charged by Landlord to new tenants for comparable space in the Building, or, if insufficient comparable transactions exist in the Building, then the rate being charged to new tenants for comparable space by landlords of similar office premises in the same general market area of the Building, with similar amenities taking into consideration the size and location of the premises, the proposed term of the Option Term, the time the particular rental under consideration was agreed upon and became or is to become effective, the extent of improvements and services to be provided and any other relevant terms and conditions. Landlord shall use its best efforts to provide Tenant with its determination of the Minimum Monthly Rent for the Option Term within thirty (30) days of its receipt of a timely Option Notice from Tenant ("Landlord's Determination"). Tenant shall have fifteen (15) days ("Tenant's Review Period") after receipt of Landlord's Determination within which to accept Landlord's Determination or to reasonably object thereto in writing. In the event Tenant fails to object to Landlord's Determination in writing within such fifteen (15) day period, Landlord's Determination shall be deemed accepted. If Tenant reasonably objects to Landlord's Determination, the parties shall then have thirty (30) days (the "Negotiating Period") after the expiration of Tenant's Review Period within which to agree on new Minimum Monthly Rent for the Option Term. If the parties agree on the Minimum Monthly Rent for the Option Term within the Negotiating Period, they shall immediately execute an amendment to this Lease setting forth the new Minimum Monthly Rent. If the parties are unable to agree on the Minimum Monthly Rent for the Option Term within the Negotiating Period then each party shall place in a separate sealed envelope their final proposal as to Minimum Monthly Rent for the Option Term and such determination shall be submitted to arbitration as set forth below. Landlord and Tenant shall meet with each other within five (5) business days of the expiration of the Negotiating Period, exchange the sealed envelopes, and then open such envelopes in each other's presence. If Landlord and Tenant do not mutually agree upon the Minimum Monthly Rent for the Option Term within five (5) business days of the exchange and opening of envelopes, 58 then, within ten (10) business days of the exchange and opening of envelopes Landlord and Tenant shall agree upon and jointly appoint a single arbitrator who shall by profession be a real estate broker who shall have been active over the five (5) year period ending on the date of such appointment in the leasing of comparable office buildings. Neither Landlord nor Tenant shall consult with such broker as to his or her opinion as to the Minimum Monthly Rent for the Option Term prior to the appointment. The determination of the arbitrator shall be limited solely to the issue of whether Landlord's or Tenant's submitted Minimum Monthly Rent for the Premises is the closer to the actual prevailing market rent for the Premises as determined by the arbitrator, taking into account the requirements of this Section. Such arbitrator may hold such hearings and require such briefs as the arbitrator, in his or her sole discretion, determines is necessary. In addition, Landlord or Tenant may submit to the arbitrator with a copy to the other party within five (5) business days after the appointment of the arbitrator any market data and additional information that such party deems relevant to the determination of Minimum Monthly Rent for the Option Term ("Market Rent Data") and the other party may submit a reply in writing within five (5) business days after receipt of such Market Rent Data. If Landlord and Tenant fail to agree upon and appoint an arbitrator, then the appointment of the arbitrator shall be made by the Presiding Judge of the San Diego County Superior Court, or, if he or she refuses to act, by any judge having jurisdiction over the parties. The arbitrator shall, within thirty (30) days of his or her appointment, reach a decision as to whether the parties shall use Landlord's or Tenant's submitted Minimum Monthly Rent, and shall notify Landlord and Tenant of such determination; provided, however, notwithstanding anything in this Section to the contrary, under no circumstances shall the Minimum Monthly for the initial year of the Option Term be less then the amount of the Minimum Monthly Rent payable by Tenant for the calendar month immediately preceding the commencement of the Option Term. The decision of the arbitrator shall be binding upon Landlord and Tenant. The cost of arbitration shall be paid by Landlord and Tenant equally. If the Minimum Monthly Rent for the Option Term shall not have been determined by the commencement of the Option Term, Tenant shall continue to pay the Minimum Monthly Rent payable as of the month immediately preceding such commencement until the Minimum Monthly Rent is established so that the Minimum Monthly Rent established for the Option Term shall be retroactive to the commencement of the Option Term. 59 ARTICLE 3 - RENT 3.2 ADJUSTMENTS TO MINIMUM MONTHLY RENT. Section 3.2 is deemed deleted in its entirety. ARTICLE 4 - OTHER CHARGES PAYABLE BY TENANT (ADDITIONAL RENT) 4.1.3.3 DIRECT EXPENSE EXCLUSIONS. The following items shall be deemed added to the list of items excluded from Direct Expenses set forth in Section 4.1.3.3 of the Lease: (xviii) Costs associated with the operation of the business of the ownership or entity which constitutes "Landlord", as distinguished from the costs of Building operations: (xix) Costs incurred in connection with the original construction of the Building; (xx) Costs of correcting defects in the original design or construction of the Building; (xxi) Costs for which Landlord is reimbursed by insurance carried by Landlord or Tenant pursuant to this Lease; (xxii) Bad debt losses, rent losses, or reserves for the same; (xxiii) Fines and penalties; (xxiv) Except for rent and related expenses incurred by Landlord while making repairs or keeping permanent systems in operation, rent and related expenses incurred in leasing air conditioning systems, elevators or other similar equipment considered to be of a capital nature. It is understood that Direct Expenses shall be reduced by all cash discounts, trade discounts or quantity discounts actually received by Landlord or Landlord's managing agent in the purchase of any goods, utilities or services in connection with the operation of the Building. In the calculation of any Direct Expenses pursuant to this Lease, it is understood that no expenses shall be charged more than once. Landlord shall use commercially reasonable best efforts to effect an equitable proration of bills and services rendered to the Building and to any other property owned by Landlord. Landlord agrees to maintain its books and records show any Direct Expenses in accordance with Landlord's standard accounting practices consistently maintained on a year-to-year basis. 4.2.1 INCREASES IN DIRECT EXPENSES/ADDITIONAL RENT. The references in Section 4.2.1 to "sixty (60) days" are deemed changed to "one hundred and twenty (120) days"). 60 4.5 BUILDING SERVICES AND UTILITIES. The first sentence of Section 4.5 is deemed deleted and replaced with the following: Landlord shall furnish to the Premises during the normal business hours of Tenant, which are 8:00 a.m. to 7:00 p.m. Monday through Friday and 9:00 a.m. to 1:00 p.m on Saturdays ("Business Hours"), except for those holidays designated annually by Landlord, heating, ventilating and air conditioning ("HVAC Service") as required for the comfortable occupancy of the Premises as reasonably determined by Landlord. ARTICLE 5 - USE OF PREMISES 5.3 HAZARDOUS SUBSTANCES. The following provisions are deemed added to the end of Section 5.3 of the Lease: Landlord represents and warrants that except for materials and substances typically used in offices such as cleaning fluids and copy toner, Landlord has no actual knowledge of the existence of any Hazardous Substances in, on or under the Building or the real property on which the Building is located. Landlord hereby agrees to indemnify and hold harmless Tenant, its directors, officers, employees, and agents, and any successors, from and against any and all liability, directly or indirectly arising out the use, generation, construction, manufacturing, storage, or disposal of Hazardous Substances in, on or under the Building and/or the Premises, by Landlord, its agents, employees, or contractors to the extent that such action is attributable, directly or indirectly, to the presence or use, generation, storage, release, threatened release, or disposal of Hazardous Substances by any such person at the Building or on the Premises (or real property on which the Building is located). The representations, warranties and indemnities of Landlord contained in this paragraph shall not be binding upon Teachers Insurance and Annuity Association as the holder of the first lien against the building or as a successor-in-interest. ARTICLE 7 - INDEMNIFICATION 7.3 DAMAGE TO TENANT'S PROPERTY. The last sentence of Section 7.3 is deemed deleted and is replaced with the following: Tenant hereby agrees that in no event shall Landlord or its agents or employees be liable for consequential damages, including injury to Tenant's business or any loss of income therefrom, nor shall Landlord nor Tenant nor their respective agents or employees be liable to Landlord or Tenant, as applicable, for any damages caused by the act or neglect of any other tenant in the Building. ARTICLE 8 - MAINTENANCE,REPAIRS AND ALTERATIONS 61 8.1 LANDLORD'S OBLIGATIONS. The following is deemed added to the end of Section 8.1 of the Lease: Landlord agrees that in carrying out its obligations pursuant to this Section 8.1, Landlord will not unreasonably interfere with the conduct of Tenant's business in the Premises, and if possible on a commercially reasonable basis, with respect to any maintenance or repairs to be performed within the Premises, Landlord will endeavor to perform such maintenance or repairs after the regular business hours of Tenant. 8.3 CONDITION UPON TERMINATION. The following shall be deemed added to the end of Section 8.3 of the Lease: Despite anything in this Lease to the contrary, unless Tenant receives written notice from Landlord to the contrary, Tenant shall, upon the expiration or earlier termination of the Term, at Tenant's sole cost and expense, remove the night deposit box, the ATM and appurtenant facilities installed by Tenant pursuant to Suite 430 Lease, all cashier's stations and teller lines, the vault and all other similar financial institution trade fixtures. Tenant shall repair, at Tenant's sole cost and expense, any damage to the Premises caused by the removal of the foregoing items. ARTICLE 13 - LANDLORD'S ENTRY ON PREMISES 13.1 ENTRY BY LANDLORD. The following is deemed added to the end of section 13.1: Despite the foregoing, in recognition of Tenant's security concerns, Landlord agrees that prior to any entry into the Premises for the purposes set forth above, Landlord agrees to provide Tenant with reasonable advance written notice, except if such entry is required as a result of an emergency, in which case no such notice shall be required. 13.1.1 The first two lines of Section 13.1.1 are deemed deleted in their entirety. ARTICLE 15 - RESTRICTIONS ON TRANSFER 15.1 LANDLORD'S CONSENT REQUIRED. The following is deemed added to the end of Section 15.1 of the Lease: Despite anything in this Article 15 to the contrary, Tenant shall have the right, without Landlord's consent, to assign this Lease or to sublet all or any portion of the Premises to (i) any subsidiary corporation or parent corporation of Tenant, or (ii) any corporation which Tenant may merge or consolidate, or (iii) any corporation acquiring substantially all of the assets and/or stock of Tenant. As used in this Lease, corporations are related as "parent" or "subsidiary" if such corporation owns fifty percent (50%) or more of the voting stock of another corporation. Even though Landlord's consent to the preceding Transfers is not required, Tenant agrees that Tenant will provide Landlord with 62 written notice of any such Transfer no later than ten (10) days after the effective date of any such Transfer. 15.3 LANDLORD'S ELECTION. Landlord's right to recapture the Premises as set forth in subparagraph 15.3 (i) is deemed deleted. 15.9 TENANT' 8 REMEDY. Section 15.9 is deemed deleted in its entirety. ARTICLE 16 - DEFAULT 16.2 DEFAULTS. All references to "three (3) days" in Section 16.2 are deemed changed to five (5) days". In addition, the following is deemed added to the end of Section 16.2: In addition to all of the foregoing, any event of default by Tenant under the Suite 430 Lease, shall also constitute an "Event of Default" for purposes of this Lease. ARTICLE 17 - REMEDIES UPON DEFAULT 17.2 JURY TRIAL WAIVER. Section 17.2 is deemed deleted in its entirety. ARTICLE 18 - PROTECTION OF LENDERS AND TRANSFEREES 18.1 SUBORDINATION. The following is deemed added to the end of Section 18.1 of the Lease: Landlord shall use its commercially reasonable best efforts to obtain and deliver to Tenant an agreement in writing from each existing mortgagee with a lien encumbering the Premises and/or the lessor of any existing ground lease affecting the Premises which provides that, so long as Tenant is not in default of any of the terms, covenants, conditions, provisions or agreements of this Lease, Tenant's possession of the Premises shall not be disturbed by reason of the foreclosure of any such mortgage or the termination of any such ground lease, but Landlord shall have absolutely no liability whatsoever to Tenant if Landlord is not successful in obtaining any such agreement for Tenant nor shall Tenant have any right to terminate this Lease because of Landlord's failure to obtain such an agreement. ARTICLE 19 - COMMON AREAS 19.3 VEHICLE PARKING. The first and second sentences of subsection 19.3.1 shall be deemed deleted and the following shall be deemed inserted in place thereof: During the Term, Tenant shall be entitled to use the number of vehicle parking spaces set forth in Section 1.14 of the Fundamental Lease Provisions at no additional charge. 63 ARTICLE 20 - PROFESSIONAL COSTS; CONSENTS 20.1 LEGAL COSTS. The jury trial waiver set forth in the second sentence of Section 20.1 is deemed deleted in its entirety. ARTICLE 23 - LATE CHARGES The words "when due" in the fourth and fifth lines of Article 23 are deemed deleted and replaced with the following: "within five (5) days of the date due". ARTICLE 25 - BUILDING PLANNING The first paragraph of Article 25 is deemed deleted. ARTICLE 30 - BROKERS The following provisions are deemed added to the end of Article 30 of the Lease: Landlord agrees to pay Landlord's broker a commission in accordance with a separate agreement between Landlord and such broker. Landlord shall hold Tenant harmless from all damages and indemnify Tenant for all said damages paid or incurred by Tenant resulting from any claims that may be asserted against Tenant by the brokers identified in Section 1.13 of the Fundamental Lease provisions or any broker, agent or finder undisclosed by Landlord herein. ARTICLE 33 - MISCELLANEOUS The following is deemed added to Article 33 as Section 33.18: 33.18 CONTINGENCIES. Tenant specifically acknowledges and agrees that notwithstanding anything to the contrary in this Lease, the continuing effectiveness of this Lease is expressly contingent upon each of the following: (i) prior to or concurrently with the execution of this Lease, Tenant shall have executed the (a) Citicorp Sublease; AND (b) the Suite 430 Lease; and (ii) no later than February 29, 1996, Tenant shall have received all regulatory approvals from the California Department of Corporations and the FDIC necessary for Tenant to operate the Premises as a branch banking facility (hereinafter the "Regulatory Approvals"). If Tenant has not obtained the Regulatory Approvals on or before the date specified above, then Tenant shall have a one-time right, at its option, to terminate this Lease by written notice to Landlord given no later than March 5, 1996, in which case this Lease shall terminate on the date specified in Tenant's 64 notice (which date shall be at least thirty (30) from the date of Tenant's notice) and on the effective date of such termination, this Lease shall be of no further force or effect except for obligations, if any, which have accrued prior to the date of such termination or which expressly survive the expiration or earlier termination of this Lease. If Tenant has not obtained the Regulatory Approvals by the February 29, 1996, and Tenant does not give Landlord a notice to terminate this Lease on or before March 5, 1996, then this condition shall be deemed satisfied and Tenant shall have no further right to terminate this Lease. If Tenant terminates this Lease as a result of Tenant's failure to obtain the Regulatory Approvals on or before the date specified above, Tenant shall (i) satisfy all monetary and non-monetary obligations under the Lease through the effective date of such termination and (ii) no later than thirty (30) days after the effective date of such termination Tenant shall deliver to Landlord cash or a certified check in an amount equal to (a) the full amount of the Tenant Improvement Allowance provided to Tenant under the Suite 430 Lease, PLUS (b) the full amount of brokerage commissions paid by Landlord in connection with this Lease and the Suite 430 Lease, PLUS (c) all attorneys' fees and costs incurred by Landlord in connection with this Lease, the Suite 430 Lease and the Citicorp Sublease; provided however, Landlord agrees that the amount of such reimbursement from Tenant for the items identified in subparagraphs (b) and (c) shall in no event exceed $25,000.00 on a cumulative basis, inclusive of any such similar sums Tenant may be required to pay pursuant to the Citicorp Sublease. In addition to the forgoing, as a further condition to such termination, Tenant shall, at Landlord's sole option, return the Premises to the condition which existed prior to the Commencement Date or deliver to Landlord cash or a certified check in an amount reasonably determined by Landlord to be required for Landlord to return the Premises to such condition. The obligations of Tenant set forth herein shall survive the termination of this Lease. The following is deemed added to Article 33 as Section 33.19: 33.19 USE OF ATM KIOSK. Provided (i) there is no continuing and uncured event of default by Tenant under this Lease and/or the Suite 430 Lease, and (ii) Tenant is in possession of Suite 430 pursuant to the Suite 430 Lease, then subject to the terms and conditions set forth below, Tenant shall have a nonexclusive license (the "License") to use the existing ATM Kiosk located where shown on the Site Plan attached to this Lease as EXHIBIT A (the "Licensed Area") for the installation, maintenance and use of an automated teller machine ("ATM"). Landlord shall provide Tenant with reasonable access to the Licensed Area for the purpose of installing, maintaining and repairing the ATM. The type, size, style, design and proposed 65 installation of the ATM is subject to the prior written approval of Landlord, which approval shall not be unreasonably withheld. 33.19.1 TERM OF LICENSE. The term of this License shall be coterminous with the Term of this Lease, unless earlier terminated pursuant to the terms hereof. Despite the foregoing, Landlord and Tenant acknowledge that prior to the commencement of the term of this License, Tenant has certain rights to use and operate the ATM on the terms and conditions set forth in the First Amendment to the Citicorp Sublease dated November 4, 1987, it being acknowledged by the parties hereto, that this License shall become effective upon the expiration of the Citicorp Sublease. 33.19.2 LICENSE FEE. [Intentionally Omitted] 33.19.3 UTILITIES. Tenant shall pay for all utility service furnished in connection with Tenant's use of the ATM. If requested by Landlord, Tenant shall install, at Tenant's sole expense, a separate metering device to enable Landlord to measure the among of electric current consumed in connection with Tenant's use of the ATM. Tenant agrees to pay Landlord promptly upon demand by Landlord, for all such electric current at the rates charged for such services by the local public utility furnishing the same, plus any reasonable additional expenses incurred by Landlord in keeping account of the electric current so consumed. 33.19.4 INSTALLATION, MAINTENANCE AND REPAIRS. Landlord shall not be required to make any changes, improvements, alterations or repairs to the Licensed Area or the ATM. Tenant shall, at Tenant's sole expense, install the ATM and related utility services (if necessary) and maintain the Licensed Area and the ATM in good order and repair throughout the term of this License. Without limitation of the foregoing, Tenant further specifically acknowledges and agrees that Tenant shall, at its sole cost and expense, be responsible for the cost of all improvements, if any, required to be made to the parking and walkway areas adjacent to the Licensed Area necessary to comply with any State and/or Federal regulations governing the lighting of ATM facilities. 33.19.5 NON-INTERFERENCE OF ATM. Tenant warrants and represents that the ATM shall not unreasonably interfere with Landlord's or Landlord's tenants' use and enjoyment of: (i) the Building's electrical system, air conditioning system, television system, emergency power generation, elevators and other Building equipment and (ii) any computer, data processing, word processing or other electrical device located in the Building. Any such interference shall be prompt]y corrected by Tenant. Tenant's failure to promptly correct any such interference shall 66 constitute a breach of this License Agreement and shall entitle Landlord to terminate the License granted hereunder. 33.19.6 DAMAGE OR INJURY; INDEMNIFICATION. Tenant hereby assumes all risk of loss, damage or injury to the person or property of Tenant or Landlord occurring upon or about the Licensed Area for any cause whatsoever, arising from, or relating to, the use of the Licensed Area, the ATM or access thereto by any person other than any loss, damage or injury resulting directly from the negligence or willful misconduct of Landlord, and Tenant hereby waives all claims in respect thereof against Landlord against and from any and all loss, cost, damage or expense incurred or suffered by Landlord, and any and all claims of damage or injury asserted against Landlord and arising from, or relating to, the use of the Licensed Area, the ATM or access thereto. Tenant further indemnifies and holds harmless Landlord against and from any and all claims arising from any breach or default in the performance of any obligation of Tenant hereunder, or arising from any act or omission of Tenant or its employees or agents, and from all costs, attorney's fees, expenses and liabilities incurred in connection with any such claim or any action or proceedings brought thereon. The indemnity obligations set forth herein shall survive the expiration or early termination of this License and the Lease. 33.19.7 INSURANCE. Tenant shall, at Tenant's sole expense, obtain and keep in force throughout the term of this License Agreement a policy or policies of general liability insurance in such amount and form required by Article 12 of the Lease, insuring against personal injury or property damage which may be caused by the installation of, maintenance of, alteration to, or removal of the ATM. Tenant further agrees, at Tenant's own expense, to maintain in full force and effect throughout the term of this Agreement general fire and extended coverage insurance in a face amount not less than one hundred percent (100%) of the full replacement cost of the ATM and the kiosk in which the same is to be located. Upon t:he request of Landlord, Tenant shall provide to Landlord copies of certificates of all such insurance policies. All such policies shall comply with the requirements of Section 12.1.5 of the Lease (Policy Form). 33.19.8 ALTERATIONS. Tenant shall not make any alterations or additions to the ATM or the Licensed Area without the prior written approval of Landlord. 33.19.9 ATM PARKING. Landlord shall, at no charge, make one (1) additional parking space available for use by customers of Tenant who desire to use the ATM, which parking space shall appropriately marked for use by ATM customers and shall be in a location approved by Landlord and Tenant. 67 33.19.10 TERMINATION OF LICENSE. Notwithstanding anything herein to the contrary, Landlord may terminate the License upon the occurrence of any of the following events: (i) Tenant's failure or omission to pay any sum payable hereunder on or before the same is due; (ii) Tenant's failure or omission to observe, keep or perform the other terms, covenants or conditions to be performed by Tenant under this license, this Lease or the Suite 430 Lease, as applicable; (iii) Tenant's failure or omission to observe, keep or perform any of Tenant's obligations as a Tenant in the Building. Upon any termination of the License, this Lease and/or the Suite 430 Lease, as applicable, including, but not limited to, termination upon the occurrence of the above described events, upon the request of Landlord, Tenant shall remove the ATM, provided such removal can be accomplished without material damage to the Building or the Licensed Area. In any event, the Tenant shall be responsible for restoring the Licensed Area to its original condition existing prior to the installation of the ATM and shall surrender the Licensed Area to Landlord in good order and repair. 33.19.11 ASSIGNMENT. Tenant shall not voluntarily, by operation of law or otherwise hypothecate or otherwise transfer its interest in this License without the prior written consent of Landlord, which consent may be withheld in Landlord's sole and absolute discretion. Any such attempted assignment, hypothecation or transfer of this License, without Landlord's prior written consent, shall constitute a default hereunder and at Landlord's election shall be void so as not to confer any rights upon any third person. Subject to the foregoing, the covenants and agreements contained in this License shall inure to the benefit of, and shall be binding upon, the successors and assigns of the parties hereto. 33.19.12 COMPLIANCE WITH LICENSE. Tenant shall, at its sole cost and expense, take all actions necessary to ensure that the Licensed Area, the ATM, and access thereto are in full compliance with the terms of this License, and such reasonable rules and regulations as may be adopted form time to time by Landlord. 33.19.13 COMPLIANCE WITH LAWS. The installation and maintenance of the ATM shall be in compliance with all laws, rules and regulations of the City of San Diego and all other governmental entities and regulatory agencies having jurisdiction over such matters, including, without limitation, any and all State and/or Federal regulations governing the lighting of ATM facilities and adjacent walkway and parking areas. Tenant shall pay all fees or taxes resulting from such compliance and the installation, alteration, maintenance or removal of the ATM. Balance of Page Intentionally Left Blank 68 Except as and to the extent modified by this Addendum, all provisions of the Lease shall remain in full force and effect. LANDLORD Regents Park Financial Centre, Ltd , a California limited partnership By: The Lomas Santa Fe Group, a California corporation (General Partner) Date: 11/30/95 BY: s/Richard E. Keller/ Name: Richard E. Keller Title: President TENANT Southern California Bank, a California Corporation Date 11/29/95 By: s/David A. McCoy/ Name: David A. McCoy Title: EVP/COO 69 Exhibit A Site Plan 70 Exhibit B Floor Plan of the Premises 71 Exhibit C TENANT IMPROVEMENT AGREEMENT (Tenant to Construct) INTENTIONALLY OMITTED 72 Exhibit D GUARANTY OF LEASE INTENTIONALLY OMITTED 73 Exhibit E RULES AND REGULATIONS 1. Except as specifically provided in Article 21 of the Lease to which these Rules and Regulations are attached, no sign, placard, picture, advertisement, name or notice shall be installed or displayed on any part of Premises without the prior written consent of Landlord if visible from outside the Premises. Landlord shall have the right to remove, at Tenant's expense and without notice, any sign installed or displayed in violation of this rule. All approved signs or lettering on doors and walls shall be printed, painted, affixed or inscribed at the expense of Tenant by a person approved by Landlord. If Landlord objects in writing to any curtains, blinds, shades, screens or hanging plants or other similar objects attached to or used in connection with any window or door of the Premises, or placed on any windowsill, which is visible from the exterior of the Premises, Tenant shall immediately discontinue such use. Tenant shall not install or permit to be installed in the Premises any food vending or similar machines for the dispensing of food or beverages without Landlord's prior written consent. Tenant shall not use a representation (photographic or otherwise) of the Building or the Project, if any, or their name(s) in connection with Tenant's business, without Landlord's prior consent. 2. All cleaning and janitorial services for the Building and the Premises shall be provided exclusively through Landlord, and except with the prior written consent of Landlord, no person or persons other than those approved by Landlord shall be employed by Tenant or permitted to enter the Building for the purpose of cleaning the same. 3. Landlord will furnish Tenant, free of charge, with two keys to each door lock in the Premises. Landlord may impose a reasonable charge for any additional keys. Tenant shall not make or have made additional keys, and Tenant shall not alter any lock or install a new additional lock or bolt on any door of its Premises. Tenant, upon the termination of its tenancy, shall deliver to Landlord the keys of all doors which have been furnished to Tenant, and in the event of loss of any keys so furnished, shall pay Landlord therefor. 4. If Tenant requires telegraphic, telephonic, burglar alarm or similar services, it shall first obtain, and comply with, Landlord's instruction in their installation. 5. The Building freight elevator(s) (if any) shall be available for use by all tenants in the Building, subject to such reasonable scheduling as Landlord, in its discretion, shall deem appropriate. No equipment, materials, furniture, packages, supplies, merchandise or other property will be received in the 74 Building or carried in the elevators except between such hours and in such elevators as may be designated by Landlord. Tenant's initial move in and subsequent deliveries of bulky items, such as furniture, safes and similar items shall, unless otherwise agreed in writing by Landlord, be made during the hours of 6:00 P.M. and 6:00 A.M. or on Saturday or Sunday. Deliveries during normal office hours shall be limited to normal office supplies and other small items. No deliveries shall be made which impede or interfere with other tenants or the operation of the Building. 6. Tenant shall not place a load upon any floor of the Building or Premises which exceeds the load per square foot which such floor was designed to carry and which is allowed by law. Heavy objects shall, if considered necessary by Landlord, stand on such platforms as determined by Landlord to be necessary to properly distribute the weight, which platforms shall be provided at Tenant's expense. The persons employed to move such equipment in or out of the Project must be acceptable to Landlord. Landlord will not be responsible for loss of, or damage to, any such equipment or other property from any cause, and all damage done to the Project by maintaining or moving such equipment or other property shall be repaired at the expense of Tenant. 7. Tenant agrees to cooperate fully with Landlord to assure the most effective operation of the Building's heating and air-conditioning and to comply with any governmental energy-saving rules, laws or regulations of which Tenant has actual notice. 8. Landlord reserves the right to exclude from the Building between the hours of 6 P.M. and 7 A.M. or such other hours as may be established from time to time by Landlord, and on Sundays and Legal Holidays, any person unless that person is known to the person or employee in charge of the Building and has a pass or is properly identified. Tenant shall be responsible for all persons for whom it requests passes and shall be liable to Landlord for all acts of such persons. Landlord shall not be liable for damages for any error with regard to the admission to or exclusion from the Building of any person. 9. The toilet rooms, toilets, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall by thrown therein. The expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the Tenant who, or whose employees or invitees, shall have caused it. 10. Tenant shall not sell, or permit the sale at retail, of newspapers, magazines, periodicals, theater tickets or any other goods or merchandise to the general public in or on the Premises. Tenant shall not make any room-to-room solicitation of business 75 from other tenants in the Project. Canvassing, soliciting and distribution of handbills or any other written material, and peddling in the Project are prohibited, and Tenant shall cooperate to prevent such activities. 11. Tenant shall not install any radio or television antenna, loudspeaker or other devices on the roof or exterior walls of the Project nor shall Tenant install any exterior lighting, amplifiers or similar devices or use in or about the Premises any advertising medium which may be heard or seen outside the Premises, such as flashing lights, searchlights, loudspeakers, phonographs or radio broadcasts. Tenant shall not interfere with radio or television broadcasting or reception from or in the Project or elsewhere. 12. Tenant shall not mark, drive nails, screw or drill into the partitions, woodwork or plaster or in any way deface the Premises or any part thereof, except in accordance with normal decorating practices. Landlord reserves the right to direct electricians as to where and how telephone and telegraph wires are to be introduced to the Premises. Tenant shall not cut or bore holes for wires. Tenant shall not affix any floor covering to the floor of the Premises in any manner except as approved by Landlord. Tenant shall repair any damage resulting from noncompliance with this rule. 13. Tenant shall store all its trash and garbage within its Premises or in other facilities provided by Landlord. Tenant shall not place in any trash box or receptacle any material which cannot be disposed of in the ordinary and customary manner of trash and garbage disposal. All garbage and refuse disposal shall be made in accordance with directions issued from time to time by Landlord. 14. The Premises shall not be used for the storage of merchandise held for sale to the general public, or for lodging or for manufacturing of any kind, nor shall the Premises be used for any improper, immoral or objectionable purpose. No cooking shall be permitted on the Premises without Landlord's consent, except that use by Tenant of Underwriters' Laboratory approved equipment for brewing coffee, tea, hot chocolate and similar beverages or use of microwave ovens for employee use shall be permitted, provided that such equipment and use is in accordance with all applicable federal, state, county and city laws, codes, ordinances, rules and regulations. 15. Requests by Tenant relating to the performance of Landlord's maintenance obligations under this Lease will be attended to only upon appropriate application to the Building or Project management office (as appropriate) by an authorized representative of Tenant whose identity shall be designated to Landlord in writing. Employees of Landlord shall not perform any 76 work or do anything outside of their regular duties unless under special instructions from Landlord, and no employee of Landlord will admit any person (Tenant or otherwise) to any office without specific instructions from Landlord. 16. Landlord may waive any one or more of these Rules and Regulations for the benefit of Tenant or any other tenant, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of Tenant or any other tenant, nor prevent Landlord from thereafter enforcing any such Rules and Regulations against any or all of the tenants of the Building or Project. Landlord reserves the right to make such other and reasonable and nondiscriminatory Rules and Regulations as, in its judgment, may from time to time be needed for safety and security, for care and cleanliness of the Project and for the preservation of good order therein. 77 Exhibit F 78 EX-10.17 15 EXHIBIT 10.17 AMENDMENT TO EMPLOYMENT SECURITY AGREEMENT This Amendment to Employment Security Agreement (this "Amendment") dated as of November 21, 1995 is made between SC Bancorp ("Bancorp") and Southern California Bank ("Bank") (collectively referred to as "Employers") and David McCoy ("Executive"), with reference to the following facts: A. Employers and Executive are parties to that certain Employment Security Agreement dated as of September 15, 1994 (the "Employment Security Agreement"). B. Employers and Executive desire to amend the Employment Security Agreement as hereinafter provided. NOW, THEREFORE, for good and valuable consideration, it is agreed as follows: 1. AMENDMENTS. Section 3, Subparagraph B.(iv) of the Employment Security Agreement shall be amended to read in full as follows: (iv) there is a relocation of the Executive's principal business office by more than ten (10) miles, and (a) the Executive's new commute is more than fifty (50) miles from the Executive's current primary residence or (b) the Executive's new commute is more than the Executive's current commute which is at least 50 miles. Section 7, Subparagraph C shall be deleted in its entirety and amended to read in full as follows: Intentionally Omitted. 2. EFFECT OF AMENDMENTS. All references in the Employment Security Agreement to this "Agreement" shall be references to the Employment Security Agreement as amended by this Amendment. Except as amended by this Amendment, each of the provisions of the Employment Security Agreement shall remain in full force and effect. 3. COUNTERPARTS. This Amendment may be executed by the parties hereto in counterparts, each of which when so executed and delivered shall be deemed an original, but all of which taken together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. SC BANCORP By: - -------------------- -------------------------- David McCoy Larry Hartwig President and Chief Executive Officer SOUTHERN CALIFORNIA BANK By: ------------------------- Larry Hartwig President and Chief Executive Officer EX-10.19 16 EXHIBIT 10.19 AMENDMENT TO EMPLOYMENT SECURITY AGREEMENT This Amendment to Employment Security Agreement (this "Amendment") dated as of November 21, 1995 is made between SC Bancorp ("Bancorp") and Southern California Bank ("Bank") (collectively referred to as "Employers") and Bruce Roat ("Executive"), with reference to the following facts: A. Employers and Executive are parties to that certain Employment Security Agreement dated as of March 17, 1995 (the "Employment Security Agreement"). B. Employers and Executive desire to amend the Employment Security Agreement as hereinafter provided. NOW, THEREFORE, for good and valuable consideration, it is agreed as follows: 1. AMENDMENTS. Section 3, Subparagraph B.(iv) of the Employment Security Agreement shall be amended to read in full as follows: (iv) there is a relocation of the Executive's principal business office by more than ten (10) miles, and (a) the Executive's new commute is more than fifty (50) miles from the Executive's current primary residence or (b) the Executive's new commute is more than the Executive's current commute which is at least 50 miles. Section 7, Subparagraph C shall be deleted in its entirety and amended to read in full as follows: Intentionally Omitted. 2. EFFECT OF AMENDMENTS. All references in the Employment Security Agreement to this "Agreement" shall be references to the Employment Security Agreement as amended by this Amendment. Except as amended by this Amendment, each of the provisions of the Employment Security Agreement shall remain in full force and effect. 3. COUNTERPARTS. This Amendment may be executed by the parties hereto in counterparts, each of which when so executed and delivered shall be deemed an original, but all of which taken together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. SC BANCORP By: - ------------------ -------------------------- Bruce Roat Larry Hartwig President and Chief Executive Officer SOUTHERN CALIFORNIA BANK By: -------------------------- Larry Hartwig President and Chief Executive Officer EX-10.20 17 EXHIBIT 10.20 EMPLOYMENT SECURITY AGREEMENT This EMPLOYMENT SECURITY AGREEMENT (the "Agreement") by and among SC BANCORP, a California corporation (the "Company"), SOUTHERN CALIFORNIA BANK, a California corporation and a wholly owned subsidiary of the Company (the "Bank"), and Mark B. Metzinger (the "Executive"), is entered into as of May 1, 1995 (the "Agreement Date"). W I T N E S S E T H WHEREAS, the Company and the Bank wish to assure themselves and the Executive of continuity of senior management during the term of this Agreement and to provide the Executive with certain termination benefits in the event the Executive's employment is terminated under certain circumstances; and WHEREAS, should the possibility of a change in control of the Company arise, the Board of Directors believes it imperative that the Company, the Bank and the Board be able to rely upon the Executive to continue in his position, and that the Company and the Bank be able to receive and rely upon the Executive's advice, 1 if it requests such advice, as to the best interests of the Company, without concern that he might be distracted by the personal uncertainties and risks created by the possibility of a change in control; and WHEREAS, should the possibility of a change in control arise, in addition to the Executive's regular duties, the Executive may be called upon to assist in the assessment of such possible change in control, to advise management and the Board as to whether such change in control would be in the best interests of the Company and to take such other actions as the Board might determine to be appropriate; NOW, THEREFORE, in consideration of the premises and the respective covenants and agreements of the parties herein contained, and intending to be legally bound hereby, the parties do hereby agree as follows: SECTION 1. TERM OF AGREEMENT This Agreement shall be effective as of the Agreement Date and shall continue in effect until the Expiration Date (as defined below). The "Expiration Date" shall initially be July 31, 1996, but commencing on August 1, 1995 and each August 1 thereafter, the Expiration Date shall automatically be extended 2 by one additional year unless, not later than April 30 of such year, the Company shall have given notice to the Executive that it does not wish to extend the Expiration Date; PROVIDED, HOWEVER, that if a Change in Control (as defined in Section 2, below) shall have occurred prior to the original or extended Expiration Date, the Expiration Date shall automatically become the second anniversary of the last day of the month in which the Change in Control occurred. Notwithstanding the foregoing, the Expiration Date shall be any earlier date on which the Executive's employment with the Company or the Bank terminates, in the event such termination occurs prior to a Change in Control. SECTION 2. DEFINITION OF "CHANGE IN CONTROL" For purposes of the Agreement, a "Change in Control" shall be deemed to have occurred if and when: (a) the Company shall consummate a merger or consolidation (a "Transaction") with another corporation; PROVIDED, HOWEVER, that a Change of Control shall not be deemed to have occurred with respect to a Transaction if the beneficial owners of the outstanding shares entitled to vote in the election of directors immediately prior to such Transaction will beneficially own more than fifty percent (50%) of the outstanding shares entitled to vote in the election of directors of the 3 corporation resulting from the consummation of the Transaction; or (b) thirty percent (30%) of the Company's securities then entitled to vote in the election of directors shall be acquired by any "person" (as such term is used in Sections 13(d) of the Securities Exchange Act of 1934, as amended); or (c) during any period of twenty-four (24) consecutive months, individuals who at the beginning of such period were members of the Board of Directors of the Company (the "Incumbent Board") shall cease to constitute a majority of the Board of Directors of the Company or any successor to the Company, provided that any person becoming a director subsequent to the beginning of such period whose election or nomination for election was approved by a vote of at least seventy-five percent (75%) of the directors comprising the Incumbent Board shall be, for purposes hereof, considered as though such person were a member of the Incumbent Board; or (d) the Company shall sell substantially all of its assets to another corporation. SECTION 3. COVERED TERMINATION The termination benefits described in Section 4 hereof shall be provided to the Executive in the event that his employment with the Company or the Bank is terminated following a Change of Control on account of a "Covered Termination". "Covered Termination" shall mean (i) termination of employment by the Company or the Bank other than for "Cause" as 4 described below or (ii) termination of employment by the Executive for "Good Reason" as described below. A. TERMINATION BY COMPANY OR BANK FOR CAUSE. For purposes hereof, the Company and the Bank shall have "Cause" to terminate the Executive's employment if: (i) the Executive is grossly negligent or engages in willful misconduct in the performance of his material duties; or (ii) the Executive commits an act or acts of dishonesty resulting or intended to result directly or indirectly in gain or personal enrichment at the expense of the Company or the Bank; or (iii) the Executive discloses to a third party information that is of a confidential or proprietary nature to the Company or the Bank, other than as appropriate in the normal course of the performance of his duties; or (iv) the Executive suffers from an illness, injury or other incapacity that prevents him from performing his material duties for a total of six (6) months, whether or not consecutive, within a twelve (12) month period; or (v) the Executive's death occurs. B. TERMINATION BY EXECUTIVE FOR GOOD REASON. For purposes hereof, following a Change in Control the Executive may terminate his employment for Good Reason if: 5 (i) the Executive's then-current level of annual base salary (whether payable by the Company or the Bank) is reduced; or (ii) there is any reduction in the employee benefit coverage provided to the Executive (including pension, profit sharing and welfare benefits and perquisites, but not including incentive bonuses) from the coverage levels in effect immediately prior to the Change in Control, unless, however, the Company or the Bank provides substantially equivalent employee benefits to the Executive; or (iii) the Executive suffers a material diminution in his title, position, reporting relationship, responsibilities, authority or offices; or (iv) there is a relocation of the Executive's principal business office by more than fifty (50) miles from its existing location; or (v) the Company fails to obtain assumption of this agreement by any successor or assign of the Company; PROVIDED, HOWEVER, that any termination by the Executive for Good Reason must be made in good faith. C. NOTICE. Notwithstanding the foregoing provisions of this Section 3, no such termination of the Executive's employment for Good Reason under paragraph B above shall be treated as a Covered Termination unless (i) the Executive shall give written notice to the Company, not later than thirty (30) days prior to the effective date of any such termination for Good Reason and within six (6) months after the date the Executive first becomes entitled to 6 terminate for Good Reason on account of the event(s) forming the basis for such termination, setting forth in specific detail the basis for such termination for Good Reason, and (ii) the Company or the Bank shall not, within thirty (30) days after receipt of such notice, take actions reasonably acceptable to the Executive to remedy the circumstances leading to the termination for Good Reason. SECTION 4. CONSEQUENCES OF COVERED TERMINATION In the event that the employment of the Executive shall have been terminated after a Change in Control in a manner that shall constitute a Covered Termination under Section 3 above, the Company shall make payments to, and provide benefit coverage for, the Executive as described below in this Section 4. A. BASE SALARY. The Executive shall receive an initial installment (the "Initial" Installment") equal to one-half of the highest annual base salary amount paid (by either the Company or the Bank) to the Executive within the three years preceding the Covered Termination. The Initial Installment shall be paid to the Executive within fifteen (15) business days following the Covered Termination. In addition, the Executive shall receive four (4) 7 subsequent installments, each equal to one-fourth of the highest annual base salary amount paid to the Executive within the three years preceding the Covered Termination (each such installment a "Quarterly Installment", and in the aggregate, the "Quarterly Installments"). The first Quarterly Installment shall be paid to the Executive within one hundred and eighty days (180) following the payment of the Initial Installment. The remaining three Quarterly Installments shall be paid to the Executive within one hundred and twenty (120) days of the payment of the prior Quarterly Installment. The highest annual base salary amount shall not include any bonuses awarded to the Executive. B. STOCK OPTIONS. Immediately upon a Covered Termination, any stock options granted to the Executive under any Company incentive plan that were not fully vested and exercisable shall become fully vested and immediately exercisable. Such options will be exercisable for a period of 90 days from the date of the Covered Termination (or such greater period as may be provided in the related plan). Any restrictions on payment or transfer of previously granted incentive awards shall immediately lapse. C. WELFARE BENEFITS. 8 The Company and the Bank shall continue to maintain, in full force and effect, any "Welfare Benefits," such as life insurance coverage and health and disability benefits, which were being provided to the Executive at the time of the Covered Termination during the "Continuation Period." The Continuation Period shall mean the eighteen (18) month period following the date of a Covered Termination. Notwithstanding the above, the Company or the Bank may provide coverage and benefits under separate insured arrangements that provide benefits substantially identical to those being provided to the Executive at the time of the Covered Termination. In addition, the Executive's right to any particular type of Welfare Benefit shall be subject to cancellation by the Company or the Bank if the Executive obtains alternative coverage of a similar type during the Continuation Period that is at least as favorable to the Executive as the corresponding Welfare Benefit. The Executive shall be obligated to notify the Company of any such alternative coverage within thirty (30) days of it first becoming applicable to him. D. WITHHOLDING FOR TAXES. All payments required to be made by the Company to the Executive under this Agreement shall be subject to the 9 withholding of such amounts, if any, relating to tax, excise tax and other payroll deductions as the Company may reasonably determine it should withhold pursuant to any applicable law or regulation. SECTION 5. ARBITRATION Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators in the State of California, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. If the Company or the Bank is found to have breached this Agreement, the Company shall bear the expense of the arbitration proceeding and shall reimburse the Executive for all of his reasonable costs and expenses relating to such arbitration proceeding, including, without limitation, reasonable attorneys' fees and expenses. In no event shall the Executive be required to reimburse the Company or the Bank for any of the costs or expenses relating to such arbitration proceeding. 10 SECTION 6. NOTICES All notices, requests, demands and other communications provided for by this Agreement shall be in writing and shall be sufficiently given if and when mailed in the continental United States by registered or certified mail or personally delivered to the party entitled thereto at the address stated below or to such changed address as the addressee may have given by a similar notice: TO THE COMPANY: SC Bancorp 3800 East LaPalma Avenue Anaheim, California 92807 TO THE EXECUTIVE: Mark B. Metzinger 33935 Faeroe Bay Dana Point, California 92629 SECTION 7. GENERAL PROVISIONS A. ENTIRETY OF AGREEMENT. This Agreement constitutes the entire agreement between the Company, the Bank and the Executive relating to the subject matter hereof and shall supersede any right under any other agreement relating to the subject matter hereof between the Company or the Bank and the Executive existing as of the 11 Agreement Date. Any compensation or benefits to which the Executive is entitled under this Agreement shall be provided based solely upon its terms, without regard to any materials used in the preparation or consideration of this Agreement, including any summary of terms or estimate of amounts relating to this Agreement. B. ENFORCEABILITY. If any provision of this Agreement shall be determined by a court of competent jurisdiction to be, in whole or in part, unenforceable or contrary to any statute, law, order, rule, regulation, directive or other action of any federal or state regulatory agency having jurisdiction over the Company or its subsidiary, then the remaining provisions of this Agreement shall remain in full force and effect to the fullest extent permitted by law. The validity, interpretation, performance and enforcement of this Agreement shall be governed by the laws of the State of California, without giving effect to the principles of conflict of laws thereof. C. MITIGATION. The Executive shall not be obligated to seek other employment in mitigation of the amounts payable and benefits to be provided under this Agreement. Executive shall be obligated, however, to 12 disclose to the Company his earned income (within the meaning of Internal Revenue Code Section 911(d)(2)(A)) during the period ending eighteen (18) months following the Covered Termination (the "Repayment Period"), and to remit to the Company such earned income up to the amount of the Quarterly Installments. The Company shall have the right to request Executive to produce reasonable evidence substantiating the amount of Executive's earned income during the Repayment Period. D. ASSIGNMENT OF INTEREST. No right to or interest in any payments shall be assignable by the Executive; PROVIDED, HOWEVER, that this Agreement shall inure to the benefit of, and be enforceable by, the Executive's personal or legal representatives, executors, administrators, heirs, distributees, devisees and legatees after the Executive's death to the extent of any payments due in respect of the Executive hereunder. E. COMPANY, BANK AND SUCCESSORS. This Agreement shall be binding upon and inure to the benefit of the Company, the Bank and any successor thereof including, without limitation, any corporation or corporations acquiring directly or indirectly all or substantially all of the assets of the Company, whether by merger, consolidation, sale or otherwise 13 (and such successor shall thereafter be deemed "the Company" for the purposes of this Agreement), but shall not otherwise be assignable by the Company. F. AMENDMENT, MODIFICATION AND WAIVER. No provision of this Agreement may be amended, modified or waived unless such amendment, modification or waiver shall be agreed to in a written agreement signed by the Executive and by a duly authorized Company officer. G. NO GUARANTEE OF EMPLOYMENT. The parties hereto explicitly acknowledge that notwithstanding any provision to the contrary contained herein, this Agreement shall not, in any way, be interpreted to provide the Executive with any fixed or minimum term of employment with the Company or the Bank. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. SC BANCORP BY ------------------------ Name: Title: SOUTHERN CALIFORNIA BANK 14 BY ------------------------ Name: Title: ------------------------ Mark B. Metzinger 15 EX-10.21 18 EXHIBIT 1O.21 AMENDMENT TO EMPLOYMENT SECURITY AGREEMENT This Amendment to Employment Security Agreement (this "Amendment") dated as of November 21, 1995 is made between SC Bancorp ("Bancorp") and Southern California Bank ("Bank") (collectively referred to as "Employers") and Mark B. Metzinger ("Executive"), with reference to the following facts: A. Employers and Executive are parties to that certain Employment Security Agreement dated as of May 1, 1995 (the "Employment Security Agreement"). B. Employers and Executive desire to amend the Employment Security Agreement as hereinafter provided. NOW, THEREFORE, for good and valuable consideration, it is agreed as follows: 1. AMENDMENTS. Section 3, Subparagraph B.(iv) of the Employment Security Agreement shall be amended to read in full as follows: (iv) there is a relocation of the Executive's principal business office by more than ten (10) miles, and (a) the Executive's new commute is more than fifty (50) miles from the Executive's current primary residence or (b) the Executive's new commute is more than the Executive's current commute which is at least 50 miles. Section 7, Subparagraph C shall be deleted in its entirety and amended to read in full as follows: Intentionally Omitted. 2. EFFECT OF AMENDMENTS. All references in the Employment Security Agreement to this "Agreement" shall be references to the Employment Security Agreement as amended by this Amendment. Except as amended by -1- this Amendment, each of the provisions of the Employment Security Agreement shall remain in full force and effect. 3. COUNTERPARTS. This Amendment may be executed by the parties hereto in counterparts, each of which when so executed and delivered shall be deemed an original, but all of which taken together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. SC BANCORP By: - ------------------ ------------------------- Mark B. Metzinger Larry Hartwig President and Chief Executive Officer SOUTHERN CALIFORNIA BANK By: --------------------------- Larry Hartwig President and Chief Executive Officer -2- 128569 EX-10.23 19 EXHIBIT 10.23 AMENDMENT TO EMPLOYMENT SECURITY AGREEMENT This Amendment to Employment Security Agreement (this "Amendment") dated as of November 21, 1995 is made between SC Bancorp ("Bancorp") and Southern California Bank ("Bank") (collectively referred to as "Employers") and Ann McPartlin ("Executive"), with reference to the following facts: A. Employers and Executive are parties to that certain Employment Security Agreement dated as of September 15, 1994 (the "Employment Security Agreement"). B. Employers and Executive desire to amend the Employment Security Agreement as hereinafter provided. NOW, THEREFORE, for good and valuable consideration, it is agreed as follows: 1. AMENDMENTS. Section 3, Subparagraph B.(iv) of the Employment Security Agreement shall be amended to read in full as follows: (iv) there is a relocation of the Executive's principal business office by more than ten (10) miles, and (a) the Executive's new commute is more than fifty (50) miles from the Executive's current primary residence or (b) the Executive's new commute is more than the Executive's current commute which is at least 50 miles. Section 7, Subparagraph C shall be deleted in its entirety and amended to read in full as follows: Intentionally Omitted. 2. EFFECT OF AMENDMENTS. All references in the Employment Security Agreement to this "Agreement" shall be references to the Employment Security Agreement as amended by this Amendment. Except as amended by -1- this Amendment, each of the provisions of the Employment Security Agreement shall remain in full force and effect. 3. COUNTERPARTS. This Amendment may be executed by the parties hereto in counterparts, each of which when so executed and delivered shall be deemed an original, but all of which taken together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. SC BANCORP By: - ------------------------ ------------------------- Ann McPartlin Larry Hartwig President and Chief Executive Officer SOUTHERN CALIFORNIA BANK By: -------------------------- Larry Hartwig President and Chief Executive Officer -2- EX-10.25 20 EXHIBIT 10.25 AMENDMENT TO EMPLOYMENT SECURITY AGREEMENT This Amendment to Employment Security Agreement (this "Amendment") dated as of November 21, 1995 is made between SC Bancorp ("Bancorp") and Southern California Bank ("Bank") (collectively referred to as "Employers") and Michael V. Cummings ("Executive"), with reference to the following facts: A. Employers and Executive are parties to that certain Employment Security Agreement dated as of September 15, 1994 (the "Employment Security Agreement"). B. Employers and Executive desire to amend the Employment Security Agreement as hereinafter provided. NOW, THEREFORE, for good and valuable consideration, it is agreed as follows: 1. AMENDMENTS. Section 3, Subparagraph B.(iv) of the Employment Security Agreement shall be amended to read in full as follows: (iv) there is a relocation of the Executive's principal business office by more than ten (10) miles, and (a) the Executive's new commute is more than fifty (50) miles from the Executive's current primary residence or (b) the Executive's new commute is more than the Executive's current commute which is at least 50 miles. Section 7, Subparagraph C shall be deleted in its entirety and amended to read in full as follows: Intentionally Omitted. 2. EFFECT OF AMENDMENTS. All references in the Employment Security Agreement to this "Agreement" shall be references to the Employment Security Agreement as amended by this Amendment. Except as amended by -1- this Amendment, each of the provisions of the Employment Security Agreement shall remain in full force and effect. 3. COUNTERPARTS. This Amendment may be executed by the parties hereto in counterparts, each of which when so executed and delivered shall be deemed an original, but all of which taken together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. SC BANCORP By: - --------------------- -------------------------- Michael V. Cummings Larry Hartwig President and Chief Executive Officer SOUTHERN CALIFORNIA BANK By: -------------------------- Larry Hartwig President and Chief Executive Officer -2- EX-23.1 21 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in the Registration Statement of SC Bancorp on Form S-8 (No. 33-38666) of our report dated January 24, 1996, appearing in the Annual Report on Form 10-K of SC Bancorp for the year ended December 31, 1995. /s/ DELOITTE & TOUCHE LLP Los Angeles, California March 25, 1996 EX-27 22 EXHIBIT 27
9 1,000 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 29,088 0 0 0 94,030 0 0 316,841 5,734 461,683 406,811 6,407 2,953 0 0 0 37,658 8,600 461,683 25,960 6,299 1,137 33,396 10,998 12,015 21,381 1,539 (620) 23,293 1,562 869 0 0 869 0.12 0.12 5.30 1,385 0 1,497 10,860 5,318 2,648 908 5,734 5,734 0 0
-----END PRIVACY-ENHANCED MESSAGE-----