-----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, GxOjPx8ye9igCGRZr5+xsbZIstc5nOSWtlDPJpBDRz2H53wZfHE2zU3Z+PzkbQM8 oCMn5N6sIvfJiDZLdojutw== 0000780118-96-000007.txt : 19960410 0000780118-96-000007.hdr.sgml : 19960410 ACCESSION NUMBER: 0000780118-96-000007 CONFORMED SUBMISSION TYPE: S-4/A PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 19960209 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMWEST INSURANCE GROUP INC CENTRAL INDEX KEY: 0000780118 STANDARD INDUSTRIAL CLASSIFICATION: SURETY INSURANCE [6351] IRS NUMBER: 952672141 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-00119 FILM NUMBER: 96513928 BUSINESS ADDRESS: STREET 1: 6320 CANOGA AVE STE 300 CITY: WOODLAND HILLS STATE: CA ZIP: 91367 BUSINESS PHONE: 8187041111 MAIL ADDRESS: STREET 1: 6320 CANOGA AVENUE SUITE 300 STREET 2: PO BOX 4500 CITY: WOODLAND HILLS STATE: CA ZIP: 91367 S-4/A 1 PRE-EFFECTIVE AMENDMENT NO. 1 TO FORM S-4 As filed with the Securities and Exchange Commission on February 8 , 1996 Registration No. 333-00119 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 PRE-EFFECTIVE AMENDMENT NO. 1 TO FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 AMWEST INSURANCE GROUP, INC. (Exact name of Registrant as specified in its charter) DELAWARE 6351 95-2672141 (State or other jurisdiction of (Primary standard industrial (I.R.S. employer incorporation or organization) classification code number) ID No.) 6320 Canoga Avenue, Suite 300 Woodland Hills, California 91367 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ----------------------------- Steven R. Kay Senior Vice President, Chief Financial Officer and Treasurer Amwest Insurance Group, Inc. 6320 Canoga Avenue Woodland Hills, California 91367 (818) 704-1111 (Name, address, including zip code, and telephone number, including area code, of agent for service) ----------------------------- The Commission is requested to send copies of all communications to: Jonathan K. Layne Stephen E. Newton Gibson, Dunn & Crutcher Kindel & Anderson L.L.P. 333 South Grand Avenue 555 South Flower Street, 29th Floor Los Angeles, California 90071-3197 Los Angeles, California 90071-2498 Approximate date of commencement of proposed sale to the public: As soon as practicable following the effective date of the Registration Statement and the satisfaction or waiver of all other conditions to the merger described in the enclosed Proxy Statement/Prospectus. - -------------------------------------------------------------------------------- CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------- Title of Number of Proposed Maximum Proposed Maximum Each Class of Shares Offering Aggregate Securities to be to be Price Per Offering Registration Registered Registered Share Price Fee Common Stock, $.01 par value (1) 992,000 shares $15.25 (2) $15,128,000(2) $ 5,216.55 (3) ================================================================================ (1) Includes an equal number of Preferred Stock Purchase Rights pursuant to the Registrant's Stockholders' Rights Agreement dated May 10, 1989. (2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(f) and based on the average of the high and low prices of the Common Stock of Amwest Insurance Group, Inc. on the American Stock Exchange on January 4, 1996 of $15.25. (3) Amount previously remitted with the S-4 Registration Statement filing on January 9, 1996 was $3,025.60. Amount remitted with this Pre-effective Amendment No. 1 is $2,190.95. ================================================================================ The Registrant hereby amends the Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine. ================================================================================ AMWEST INSURANCE GROUP, INC. CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(b) OF REGULATION S-K SHOWING LOCATIONS IN THE PROSPECTUS OF THE INFORMATION REQUIRED BY PART 1 OF FORM S-4
Form S-4 Caption Caption in Prospectus 1. Forepart of the Registration Statement and Forepart of Registration Statement; Cross-Reference Sheet; Outside Front Cover Page of Prospectus Outside Front Cover Page. 2. Inside Front and Outside Back Cover Pages of Inside Front Cover Page; Available Information; Prospectus Incorporation by Reference; Table of Contents. 3. Risk Factors, Ratio of Earnings to Fixed Summary; Risk Factors. Charges, and Other Information 4. Terms of the Transaction Summary; General Information; The Proposal to Approve and Adopt the Agreement and Plan of Merger; The Merger Agreement; Certain Other Agreements; Description of Capital Stock of Amwest; Comparison of Stockholder Rights; Incorporation by Reference. 5. Pro Forma Financial Information Unaudited Pro Forma Condensed Combined Financial Statements. 6. Material Contacts With the Company Being Acquired The Proposal to Approve and Adopt the Agreement and Plan of Merger. 7. Additional Information Required For Reoffering Not applicable. by Persons and Parties Deemed to Be Underwriters 8. Interests of Named Experts and Counsel The Proposal to Approve and Adopt the Agreement and Plan of Merger; -- Opinion of Jefferies; -- Opinion of Wedbush Morgan; Legal Matters; Experts. 9. Disclosure of Commission Position on Not applicable. Indemnification For Securities Act Liabilities 10. Information With Respect to S-3 Registrants Incorporation by Reference; Summary; Unaudited Pro Forma Condensed Combined Financial Statements. 11. Incorporation of Certain Information by Reference Incorporation by Reference. 12. Information With Respect to S-2 or S-3 Not applicable. Registrants 13. Incorporation of Certain Information by Reference Not applicable. 14. Information With Respect to Registrants Other Not applicable. Than S-3 or S-2 Registrants 15. Information With Respect to S-3 Companies Incorporation by Reference; Summary; Unaudited Pro Forma Condensed Combined Financial Statements. 16. Information With Respect to S-2 or S-3 Companies Not applicable. 17. Information With Respect to Companies Other Than Not applicable. S-2 or S-3 Companies 18. Information if Proxies, Consents or Summary; General Information; The Condor Special Meeting; Authorizations Are to be Solicited The Amwest Special Meeting; The Proposal to Approve and Adopt the Agreement and Plan of Merger; The Merger Agreement; Certain Other Agreements; Dissenters' Rights; Management of Amwest after the Merger; Description of Capital Stock of Amwest; Comparison of Stockholder Rights; Incorporation by Reference. 19. Information if Proxies, Consents or Not applicable. Authorizations Are not to be Solicited or in an Exchange Offer
AMWEST INSURANCE GROUP, INC. 6320 Canoga Avenue, Suite 300 Woodland Hills, California 91367 February 13, 1996 Dear Stockholder: You are cordially invited to attend the Special Meeting of Stockholders of Amwest Insurance Group, Inc. ("Amwest") to be held at 9:00 a.m. on Thursday, March 14, 1996, at the Warner Center Hilton, 6360 Canoga Avenue, Woodland Hills, California 91367. At this important meeting, you will be asked to consider and vote upon a proposal to approve and adopt an Agreement and Plan of Merger, dated as of November 30, 1995 (the "Merger Agreement"), by and between Amwest and Condor Services, Inc. ("Condor"), pursuant to which Condor will be merged with and into Amwest (the "Merger"), and all transactions contemplated by the Merger, including the issuance of shares of Amwest Common Stock pursuant to the Merger Agreement. Your Board of Directors believes that the combination of Amwest and Condor will create a stronger, more efficient and better diversified company. Pursuant to the Merger, each outstanding share of Condor common stock will be converted into the right to receive 0.5 of a share of Amwest common stock, $0.01 par value per share (subject to adjustment if the Base Period Trading Price of Amwest common stock is less than $12.50 or more than $17.50 per share), including the corresponding percentage of rights to purchase Amwest's Series A Junior Participating Preferred Stock. The proposed Merger is described in the accompanying Joint Proxy Statement/Prospectus, the forepart of which includes a summary of the terms of the Merger and certain other information relating to the proposed transaction. In addition, you will be asked to consider and vote upon a proposal to amend the Amwest Insurance Group, Inc. Stock Option Plan (the "Amwest Stock Option Plan") to permit the grant of Non-Incentive Options at exercise prices less than the fair market value of Amwest's common stock on the date of grant in order to effectuate the cancellation of Condor stock options and issuance of Amwest stock options to Condor employees pursuant to the Merger Agreement. YOUR BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF, AMWEST AND ITS STOCKHOLDERS. THE BOARD HAS UNANIMOUSLY APPROVED THE TERMS OF THE MERGER AND RECOMMENDS THAT YOU VOTE TO APPROVE AND ADOPT THE MERGER AGREEMENT. THE BOARD ALSO UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT TO THE AMWEST STOCK OPTION PLAN AS WELL AS FOR THE RATIFICATION OF THE ENTIRE PLAN. It is important that your shares be represented at the Special Meeting, regardless of the number you hold. Therefore, please sign, date and return your proxy card as soon as possible, whether or not you plan to attend the Special Meeting. This will not prevent you from voting your shares in person if you subsequently choose to attend the Special Meeting. Sincerely, Richard H. Savage Chairman of the Board and Co-Chief Executive Officer AMWEST INSURANCE GROUP, INC. 6320 Canoga Avenue, Suite 300 Woodland Hills, California 91367 NOTICE OF SPECIAL MEETING OF STOCKHOLDERS To Be Held March 14, 1996 A Special Meeting of Stockholders of Amwest Insurance Group, Inc., a Delaware corporation ("Amwest"), will be held at the Warner Center Hilton, 6360 Canoga Avenue, Woodland Hills, California 91367 at 9:00 , Thursday, March 14 , 1996 for the following purposes: 1. To approve and adopt an Agreement and Plan of Merger, dated as of November 30, 1995 (the "Merger Agreement"), between Amwest and Condor Services, Inc. ("Condor"), pursuant to which each outstanding share of Condor common stock, $0.01 par value per share (other than shares owned by Condor as treasury stock or by Amwest or its subsidiaries, all of which shall be canceled), will be converted into th right to receive 0.5 of a share of Amwest common stock, $0.01 par value per share (subject to adjustment if the Base Period Trading Price of Amwest common stock is less than $12.50 or more than $17.50 per share), including the corresponding percentage of rights to purchase Amwest's Series A Junior Participating Preferred Stock. A copy of the Merger Agreement is attached as Annex A to the Joint Proxy Statement/Prospectus accompanying this Notice. 2. To approve an amendment to and ratify Amwest's Stock Option Plan regarding the permitted exercise price of Non-Incentive Options under the plan. 3. To transact such other business as may properly be brought before the meeting and any adjournment thereof. The Board of Directors has fixed the close of business on February 12, 1996 as the record date for the determination of the holders of Amwest's common stock entitled to notice of, and to vote at, the meeting. The Merger and other related matters are more fully described in the accompanying Joint Proxy Statement/Prospectus, and the annexes thereto, which form a part of this notice. ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING. TO ENSURE YOUR REPRESENTATION AT THE MEETING, HOWEVER, YOU ARE URGED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE. A POSTAGE-PRE- PAID ENVELOPE IS ENCLOSED FOR THAT PURPOSE. ANY STOCKHOLDER ATTENDING THE MEETING MAY VOTE IN PERSON EVEN IF THAT STOCKHOLDER HAS RETURNED A PROXY. By order of the Board of Directors, Richard H. Savage Chairman of the Board and Co-Chief Executive Officer Dated: February 13, 1996 CONDOR SERVICES, INC. AND AMWEST INSURANCE GROUP, INC. JOINT PROXY STATEMENT ------------------ AMWEST INSURANCE GROUP, INC. PROSPECTUS ------------------ This Joint Proxy Statement/Prospectus ("Proxy Statement/Prospectus")is being furnished to the holders of common stock, par value $0.01 per share (the "Condor Common Stock"), of Condor Services, Inc., a Delaware corporation ("Condor"), in connection with the solicitation of proxies by the Board of Directors of Condor for use at a Special Meeting of Stockholders of Condor to be held at the Radisson Park Hotel - LAX South, 1400 Park View Avenue, Manhattan Beach , California, on March 14, 1996, at 9:00 a.m., and any and all adjournments or postponements thereof (the "Condor Special Meeting"). This Proxy Statement/Prospectus is also being furnished to the holders of common stock, par value $0.01 per share (the "Amwest Common Stock"), of Amwest Insurance Group, Inc., a Delaware corporation ("Amwest"), in connection with the solicitation of proxies by the Board of Directors of Amwest for use at a Special Meeting of Stockholders of Amwest to be held at the Warner Center Hilton, 6360 Canoga Avenue, Woodland Hills, California, on March 14, 1996, at 9:00 a.m., and any and all adjournments or postponements thereof (the "Amwest Special Meeting"). This Proxy Statement/Prospectus relates, among other things, to the proposed merger (the "Merger") of Condor into Amwest pursuant to an Agreement and Plan of Merger, dated as of November 30, 1995 (the "Merger Agreement"), by and between Amwest and Condor. Upon consummation of the Merger, the separate existence of Condor shall thereupon cease. In the Merger, each outstanding share of Condor Common Stock (other than shares owned by Condor as treasury stock or by Amwest or its subsidiaries, all of which shall be canceled) will be converted into the right to receive 0.5 of a share of Amwest Common Stock (subject to adjustment if the Base Period Trading Price of Amwest Common Stock is less than $12.50 or more than $17.50 per share). No fractional shares of Amwest Common Stock will be issued in the Merger. Consummation of the Merger is subject to various conditions, including the approval of the Merger by a majority of the outstanding shares of Condor Common Stock at the Condor Special Meeting and the approval of the Merger by a majority of the outstanding shares of Amwest Common Stock at the Amwest Special Meeting. In addition, Amwest is soliciting proxies with respect to the approval of a proposal to amend and ratify the Amwest Insurance Group, Inc. Stock Option Plan (the "Amwest Stock Option Plan") to change the permitted exercise price of Non-Incentive Options under the Amwest Stock Option Plan. Amwest has filed a Registration Statement on Form S-4 (such Registration Statement and all exhibits relating thereto and any amendments thereof, the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), with the Securities and Exchange Commission (the "Commission") covering the shares of Amwest Common Stock to be issued in connection with the Merger. This Proxy Statement/Prospectus along with the documents and portions of documents incorporated herein by reference also constitutes the prospectus of Amwest filed as part of the Registration Statement relating to approximately 992,000 shares of Amwest Common Stock expected to be issued to Condor stockholders in connection with the Merger. Amwest Common Stock is traded on the American Stock Exchange (the "AMEX") under the symbol "AMW". On February 12, 1996, the closing sales price for Amwest Common Stock as reported on AMEX was $___ per share. All information contained in this Proxy Statement/Prospectus with respect to Condor has been provided by Condor. All information contained in this Proxy Statement/Prospectus with respect to Amwest has been provided by Amwest. This Proxy Statement/Prospectus and the accompanying forms of proxy are first being mailed to stockholders of Amwest and Condor on or about February 13, 1996. A stockholder who has given a proxy may revoke it at any time prior to its exercise. See "The Condor Special Meeting - Record Date; Voting Rights; Proxies" and "The Amwest Special Meeting - Record Date; Voting Rights; Proxies". ------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Proxy Statement/Prospectus is February 13, 1996. No person has been authorized to give any information or to make any representation not contained or incorporated by reference in this Proxy Statement/Prospectus and, if so given or made, such information or representation not contained herein must not be relied upon as having been authorized. This Proxy Statement/Prospectus does not constitute an offer to sell, or a solicitation of an offer to purchase, any of the securities offered by this Proxy Statement/Prospectus, or the solicitation of a proxy, in any jurisdiction to or from any person to or from whom it is unlawful to make such offer or solicitation of an offer, or proxy solicitation in such jurisdiction. Neither the delivery of this Proxy Statement/Prospectus nor the issuance or sale of any securities hereunder shall under any circumstances create any implication that there has been no change in the information set forth herein since the date hereof or incorporated by reference herein since the date hereof. AVAILABLE INFORMATION Amwest and Condor each are subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith, each files reports, proxy statements and other information with the Commission. Such reports, proxy statements and other information filed may be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and should also be available for inspection and copying at the regional offices of the Commission located at the Jacob K. Javits Federal Building, 75 Park Place, New York, New York 10278 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such information may be obtained at prescribed rates from the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549. In addition, material filed by Amwest can be inspected at the offices of the AMEX, 86 Trinity Place, New York, New York 10006-1881, and the Pacific Stock Exchange Incorporated, Additional Listing Department, 301 Pine Street, San Francisco, California 94104, on which the shares of Amwest Common Stock are listed. This Proxy Statement/Prospectus does not contain all the information set forth in the Registration Statement of which this Proxy Statement/Prospectus is a part, and which Amwest has filed with the Commission under the Securities Act. For further information with respect to Amwest and the securities to be issued in the Merger, reference is made to the Registration Statement. Statements contained herein concerning the provisions of documents are necessarily summaries of such documents and each such statement is qualified in its entirety by reference to the copy of the applicable documents filed with the Commission or attached as an annex hereto. INCORPORATION BY REFERENCE Amwest and Condor hereby incorporate by reference into this Proxy Statement/Prospectus the following documents previously filed with the Commission pursuant to the Exchange Act: (1) Amwest's Annual Report on Form 10-K for the year ended December 31, 1994; (2) Amwest's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1995, June 30, 1995 and September 30, 1995; (3) Amwest's Current Reports on Form 8-K dated December 12, 1995, December 21, 1995 and January 30, 1996. (4) The description of Amwest's common stock in Amwest's Registration Statement on Form S-1, Number 33-21498, dated May 19, 1988. (5) Condor's Annual Report on Form 10-K for the year ended December 31, 1994; (6) Condor's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1995, June 30, 1995 and September 30, 1995; (7) Condor's Current Report on Form 8-K dated April 25, 1995. All reports and other documents filed by Amwest and Condor pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy Statement/Prospectus and prior to the date of the Amwest Special Meeting and the Condor Special Meeting shall be deemed to be incorporated by reference into this Proxy Statement/Prospectus and to be a part hereof from the date of filing of such reports and documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Proxy Statement/Prospectus and the Registration Statement of which it is a part to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Proxy Statement/Prospectus. This Proxy Statement/Prospectus incorporates documents by reference which are not presented herein or delivered herewith. Copies of any such documents, other than exhibits to such documents which are not specifically incorporated by reference therein, are available without charge to any person, including any Condor Stockholder, to whom this Proxy Statement/Prospectus is delivered upon written or oral request to Amwest Insurance Group, Inc., Attention: Corporate Secretary, P.O. Box 4500, Woodland Hills, California 91365-4500, telephone number (818) 704-1111. In order to ensure timely delivery of the documents, any request should be made before March 4, 1996. -------------------------------- TABLE OF CONTENTS AVAILABLE INFORMATION..................................................... iii INCORPORATION BY REFERENCE................................................ iii SUMMARY ................................................................. 1 The Companies.................................................... 1 The Special Meetings............................................. 2 Effective Time of the Merger..................................... 3 Surrender of Stock Certificates.................................. 3 Recommendations of the Boards of Directors....................... 4 Opinions of Investment Banking Firms............................. 4 The Merger....................................................... 4 Interests of Certain Persons in the Merger....................... 6 Certain Considerations........................................... 6 Certain Federal Income Tax Consequences.......................... 6 Dissenters' Rights............................................... 7 Comparative Rights of Stockholders............................... 7 Comparative Per Share Prices..................................... 7 Certain Other Agreements ........................................ 8 Selected Historical and Pro Forma Combined Financial Data........ 8 Recent Developments.............................................. 10 GENERAL INFORMATION....................................................... 11 RISK FACTORS.............................................................. 12 Proposition 103.................................................. 12 Regulatory Environment........................................... 13 Dependence on Key Personnel ..................................... 13 Risks of the Insurance Industry ................................. 13 THE CONDOR SPECIAL MEETING............................................... 14 Purpose of the Condor Special Meeting........................... 14 Record Date; Voting Rights; Proxies.............................. 14 Solicitation of Proxies.......................................... 14 Quorum........................................................... 14 Required Vote.................................................... 15 THE AMWEST SPECIAL MEETING................................................ 16 Purpose of the Amwest Special Meeting............................ 16 Record Date; Voting Rights; Proxies.............................. 16 Solicitation of Proxies.......................................... 16 Quorum........................................................... 17 Required Vote.................................................... 17 THE PROPOSAL TO APPROVE AND ADOPT THE AGREEMENT AND PLAN OF MERGER........ 18 General.......................................................... 18 Effective Time................................................... 18 Conversion of Shares- Procedures for Exchange of Certificates.... 18 History of the Merger............................................ 19 Recommendation of the Board of Directors of Amwest; Reasons for the Merger....................................................... 21 Recommendation of the Board of Directors of Condor; Reasons for the Merger....................................................... 22 Opinion of Jefferies............................................. 24 Opinion of Wedbush Morgan........................................ 27 Certain Considerations........................................... 33 Interests of Certain Persons in the Merger....................... 33 Certain Federal Income Tax Consequences.......................... 34 Anticipated Accounting Treatment................................. 35 Effect on Employee Benefit Plans................................. 36 Regulatory Approvals............................................. 36 Insurance Department Regulatory Approvals........................ 36 Federal Securities Law Consequences.............................. 36 Stock Exchange Listing........................................... 37 THE MERGER AGREEMENT...................................................... 38 The Merger....................................................... 38 Effective Time................................................... 38 Terms of the Merger.............................................. 38 Fractional Shares................................................ 39 Surrender and Payment............................................ 39 Conditions to Consummation of the Merger......................... 40 Representations and Warranties................................... 42 Conduct of Business Pending the Merger........................... 42 Certain Other Covenants.......................................... 43 Other Potential Acquirors........................................ 44 Indemnification and Insurance.................................... 44 Termination and Abandonment...................................... 44 Amendment; Waiver................................................ 45 CERTAIN OTHER AGREEMENTS.................................................. 46 DISSENTERS' RIGHTS........................................................ 47 MANAGEMENT OF AMWEST AFTER THE MERGER..................................... 48 Directors and Executive Officers After the Merger................ 48 Security Ownership of Management................................. 49 Post Merger Dividend Policy...................................... 49 Principal Stockholders of Condor................................. 49 Principal Stockholders of Amwest................................. 50 Principal Stockholders of Amwest - Pro Forma..................... 52 COMPARATIVE PER SHARE PRICES AND DIVIDENDS................................ 54 CAPITALIZATION............................................................ 56 UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS............... 58 DESCRIPTION OF CAPITAL STOCK OF AMWEST.................................... 70 General.......................................................... 70 Common Stock..................................................... 70 Preferred Stock.................................................. 70 COMPARISON OF STOCKHOLDER RIGHTS.......................................... 71 Stockholder Vote Required for Certain Transactions............... 71 Special Meetings of Stockholders................................. 71 Cumulative Voting................................................ 72 Rights Plans..................................................... 72 PROPOSAL TO AMEND THE AMWEST INSURANCE GROUP, INC. STOCK OPTION PLAN...... 73 Description of the Amwest Stock Option Plan...................... 73 Section 16(b) of the Exchange Act................................ 74 Federal Income Tax Treatment..................................... 74 Option Grants.................................................... 76 OTHER MATTERS............................................................. 78 LEGAL MATTERS............................................................. 78 EXPERTS ................................................................. 78 ANNEX A - Agreement and Plan of Merger ANNEX B - Stockholder Agreement ANNEX C - Opinion Jefferies & Company, Inc. ANNEX D - Opinion Wedbush Morgan Securities ANNEX E - Amwest Insurance Group, Inc. Stock Option Plan (as Proposed to be Amended) SUMMARY The following is a brief summary of certain information included elsewhere in this Joint Proxy Statement/Prospectus and the Annexes hereto (the "Proxy Statement/Prospectus"). This Summary does not contain a complete statement of all material information relating to the Merger Agreement and the Merger and is subject to, and is qualified in its entirety by, the more detailed information and financial statements contained or incorporated by reference in this Proxy Statement/Prospectus. Stockholders of Condor and Amwest should read carefully this Proxy Statement/Prospectus in its entirety. Certain capitalized terms used in this summary are defined elsewhere in this Proxy Statement/Prospectus. The Companies Business of Condor - Condor, an insurance holding company incorporated in the State of Delaware, is engaged through its wholly-owned subsidiaries, Condor Insurance Company ("Condor Insurance") and Raven Claims Services, Inc. ("Raven Claims") in providing certain property and casualty insurance coverages and services in California and Arizona. Condor Insurance writes insurance packages which consist principally of commercial automobile liability and physical damage coverage and, to a lesser extent, general liability and other related coverages (excluding hazardous waste and environmental impairment except with respect to policies written for the intermodal trucking industry) for insureds involved in general trucking including solid waste disposal, sand, gravel, transit mix, logging, farm to market, intermodal trucking, less than total load, newspaper distribution, tow truck and limousine services industries. Insurance coverages are written for members of the Waste Industry Loss Prevention and Safety Association, d.b.a. The Safety Association. An applicant for a commercial policy written by Condor Insurance must become a member of The Safety Association. Condor Insurance offers automobile private passenger coverage in Arizona. As used herein, the term "Condor" refers to Condor Services, Inc. and its subsidiaries, unless the context otherwise requires. The principal executive offices of Condor are located at 2361 Rosecrans Avenue, El Segundo, California 90245, and its telephone number is (310) 322-7344. Business of Amwest - Amwest is an insurance holding company engaged, through its two wholly-owned subsidiaries, Amwest Surety Insurance Company ("Amwest Surety") and Far West Insurance Company ("Far West"), in underwriting surety bonds. In December 1995, Amwest Surety and Far West redomesticated under the laws of the State of Nebraska. Amwest operates through 33 branch offices, 8 of which are located in California and the balance of which are located in 20 other states. Amwest obtains business principally through approximately 14,000 independent agents and brokers. Amwest underwrites a wide variety of surety bonds, generally concentrating on principals who are unable to meet "standard" underwriting criteria. Generally, "standard" surety underwriting involves larger multi-line property and casualty insurance companies writing larger bond amounts for larger principals on an uncollateralized basis. "Specialty" surety underwriting typically involves smaller property and casualty companies, smaller bond amounts, smaller principals, and bonds are underwritten using a variety of factors, including the acceptance of partial or full collateral. Amwest's major products are: (1) Contract performance bonds, which guarantee the performance of specific contractual obligations between the principal and the obligee and/or payments to labor and material suppliers; (2) Court bonds, which guarantee that the principal will adequately discharge the obligations set by a court; (3) Contractor's license bonds, which guarantee that the principal will meet the licensing requirements of state or local laws applicable to contractors; (4) Small Business Administration ("SBA") bonds, which are contract performance bonds on which the SBA has guaranteed to the insurer reimbursement of a portion of any loss in exchange for a portion of the premium; and (5) Miscellaneous bonds, which guarantee a variety of non- classifiable obligations including, but not limited to, license and permit, sales tax, income tax and utility bonds. Amwest individually analyzes the risk associated with each application it receives, except for selected categories of miscellaneous bonds. This underwriting evaluation includes verifying the credit history and financial resources of the applicant. Amwest maintains control of the underwriting process through the use of authority limits for each underwriter, through committee underwriting of larger risks and through a system of limited delegation. Amwest requires many contract bonds to be collateralized and will occasionally require collateral on other types of bonds based upon risk characteristics. Collateral can consist of irrevocable letters of credit, certificates of deposit, cash, savings accounts, publicly traded securities and trust deeds or mortgages on real property. The principal form of collateral accepted by Amwest currently consists of irrevocable letters of credit and certificates of deposit. As used herein, the term "Amwest" refers to Amwest Insurance Group, Inc. and its subsidiaries, unless the context otherwise requires. The principal executive offices of Amwest are located at 6320 Canoga Avenue, Woodland Hills, California 91367, and its telephone number is (818) 704-1111. The Special Meetings Time, Place and Date A Special Meeting of the stockholders of Condor will be held on March 14, 1996, at 9:00 a.m., local time, at the Radisson Plaza Hotel - LAX South, 1400 Park View Avenue, Manhattan Beach, California (including any and all adjournments or postponements thereof, the "Condor Special Meeting"). A Special Meeting of the Stockholders of Amwest will be held on March 14, 1996, at 9:00 a.m., local time, at the Warner Center Hilton, 6360 Canoga Avenue, Woodland Hills, California (including any and all adjournments or postponements thereof, the "Amwest Special Meeting"). Purpose of the Special Meetings At the Condor Special Meeting, holders of Condor's common stock, par value $0.01 per share (the "Condor Common Stock"), will consider and vote upon a proposal to approve and adopt an Agreement and Plan of Merger, dated as of November 30, 1995, by and between Condor and Amwest, a copy of which is attached as Annex A to this Proxy Statement/Prospectus (the "Merger Agreement"), providing for the merger of Condor into Amwest (the "Merger"). As a result of the Merger, the separate existence of Condor will thereupon cease. In the Merger, each outstanding share of Condor Common Stock will be converted into the right to receive 0.5 of a share (the "Conversion Number") of Amwest common stock, par value $0.01 per share (the "Amwest Common Stock") (the shares of Amwest Common Stock into which each share of Condor Common Stock is converted shall be referred to as the "Merger Consideration"), subject to adjustment as described below. If the average daily closing price per share of Amwest Common Stock as reported on the American Stock Exchange (the "AMEX") for the 30 consecutive trading days ending on the second trading day preceding the date of the closing of the Merger (the "Base Period Trading Price") is less than $12.50, the Merger Consideration per share of Condor Common Stock shall be increased by a factor of 12.5 divided by the Base Period Trading Price, and if the Base Period Trading Price is greater than $17.50, the Merger Consideration per share shall be decreased by a factor of 17.5 divided by the Base Period Trading Price. Adjustment of the Conversion Number is subject to the right of Amwest not to consummate the Merger if the Conversion Number, as adjusted, would exceed 0.6 and the right of Condor not to consummate the Merger if the Conversion Number, as adjusted, would be less than 0.4. Stockholders of Condor will also consider and vote upon any other matter that may properly come before the meeting. At the Amwest Special Meeting, holders of Amwest Common Stock will consider and vote upon a proposal to approve and adopt the Merger Agreement and all transactions contemplated thereby, including the issuance of Amwest Common Stock pursuant to the Merger Agreement. Stockholders will also be asked to approve an amendment to the Amwest Insurance Group, Inc. Stock Option Plan (the "Amwest Stock Option Plan") to permit the grant of Non-Incentive Options at exercise prices less than the fair market value of Amwest's common stock on the date of grant in order to effectuate the cancellation of Condor stock options and issuance of Amwest stock options to Condor employees pursuant to the Merger Agreement. At the effective time of the Merger, as described in "Summary--Effective Time of the Merger", each outstanding option to purchase shares of Condor Common Stock ("Condor Stock Option"), other than those held by non-employee directors of Condor shall be canceled and the holder shall receive an option ("Amwest Stock Option") to purchase the same number of shares of Amwest Common Stock as the holder would have been entitled to receive in the Merger had the option been exercised in full immediately prior to the effective time, as described below. The Amwest Stock Option will be granted at a price per share equal to (i) the per share exercise price for the shares of Condor Common Stock otherwise purchasable pursuant to such Condor Stock Option divided by (ii) 0.5, as appropriately adjusted pursuant to the Merger Agreement. These grants of Non-Incentive Options will require an amendment to the Amwest Stock Option Plan. The entire Amwest Stock Option Plan, including the proposed amendment, is set forth in Annex E to this Proxy Statement/Prospectus. Stockholders of Amwest will also consider and vote upon any other matter that may properly come before the meeting. Votes Required; Record Date The Merger will require approval and adoption of the Merger Agreement by the affirmative vote of the holders of a majority of the outstanding shares of Condor Common Stock entitled to vote thereon. Each outstanding share of Condor Common Stock is entitled to one vote at the Condor Special Meeting. Only holders of record of Condor Common Stock at the close of business on February 9, 1996 (the "Condor Record Date") will be entitled to notice of and to vote at the Condor Special Meeting. See "The Condor Special Meeting." At the close of business on the Condor Record Date, ________ shares of Condor Common Stock were issued and outstanding. As of the Condor Record Date, directors and executive officers of Condor and their affiliates were beneficial owners of approximately ___% of the outstanding shares of Condor Common Stock. The Merger will require approval and adoption of the Merger Agreement by the affirmative vote of the holders of a majority of the outstanding shares of Amwest Common Stock entitled to vote thereon. Each outstanding share of Amwest Common Stock is entitled to one vote at the Amwest Special Meeting. Only holders of record of Amwest Common Stock at the close of business on February 12, 1996 (the "Amwest Record Date") will be entitled to notice of and to vote at the Amwest Special Meeting. See "The Amwest Special Meeting." At the close of business on the Amwest Record Date, ________ shares of Amwest Common Stock were issued and outstanding. As of the Amwest Record Date, directors and executive officers of Amwest and their affiliates were beneficial owners of approximately __% of the outstanding shares of Amwest Common Stock. See "Management of Amwest After the Merger --Security Ownership of Management". Effective Time of the Merger The Merger will become effective upon the filing of a Certificate of Merger with the Secretary of State of Delaware, (the "Effective Time"). The Effective Time is currently expected to occur on or shortly after March 14, 1996, subject to approval by the stockholders of Amwest and Condor of the matters described herein and satisfaction or waiver of the conditions precedent to the Merger set forth in the Merger Agreement. See "The Proposal to Approve and Adopt the Agreement and Plan of Merger -- Effective Time" and "The Merger Agreement -- Conditions to the Consummation of the Merger." Surrender of Stock Certificates As soon as practicable after the Effective Time, The American Stock Transfer & Trust Company, or another person designated by Amwest and reasonably acceptable to Condor, in its capacity as exchange agent for the Merger (the "Exchange Agent"), will send a transmittal letter to each Condor stockholder. The transmittal letter will contain instructions with respect to the surrender of certificates representing Condor Common Stock to be exchanged for Amwest Common Stock and cash in lieu of fractional shares. Holders of certificates which prior to the Effective Time represented Condor Common Stock will not be entitled to receive any payment of dividends or other distributions with respect to Amwest Common Stock until such certificates have been surrendered for certificates representing Amwest Common Stock. See "The Proposal to Approve and Adopt the Agreement and Plan of Merger--Conversion of Shares- Procedures for Exchange of Certificates." CONDOR STOCKHOLDERS SHOULD NOT FORWARD CERTIFICATES FOR CONDOR COMMON STOCK TO THE EXCHANGE AGENT UNTIL THEY HAVE RECEIVED TRANSMITTAL LETTERS. CONDOR STOCKHOLDERS SHOULD NOT RETURN STOCK CERTIFICATES WITH THE ENCLOSED PROXY. Recommendations of the Boards of Directors The Boards of Directors of Condor and Amwest believe that the terms of the Merger are fair to and in the best interests of their respective stockholders and have unanimously approved the Merger Agreement and the related transactions. The Boards of Directors of Condor and Amwest each unanimously recommend that its stockholders approve and adopt the Merger Agreement and the transactions contemplated thereby, including the issuance of Amwest Common Stock pursuant to the Merger Agreement. See "The Proposal to Approve and Adopt the Agreement and Plan of Merger--History of the Merger," "--Recommendation of the Board of Directors of Condor; Reasons for the Merger," "--Recommendation of the Board of Directors of Amwest; Reasons for the Merger" and "--Interests of Certain Persons in the Merger." Opinions of Investment Banking Firms Wedbush Morgan Securities ("Wedbush Morgan") has delivered its written opinion to the Board of Directors of Condor that, as of November 30, 1995, the consideration to be received by the Condor stockholders was fair, from a financial point of view, to the public stockholders of Condor. Jefferies & Company, Inc. ("Jefferies") has delivered its written opinion to the Board of Directors of Amwest that, as of November 30, 1995, the Conversion Number was fair, from a financial point of view, to the stockholders of Amwest. For information on the assumptions made, matters considered and limits of the reviews undertaken by Jefferies and Wedbush Morgan see "The Proposal to Approve and Adopt the Agreement and Plan of Merger Merger--Opinion of Wedbush Morgan," and " --Opinion of Jefferies." Stockholders' are urged to read in their entirety the opinions of Jefferies and Wedbush Morgan attached as Annexes C and D, respectively, to this Proxy Statement/Prospectus. The Merger Merger Consideration In the Merger, each outstanding share of Condor Common Stock (other than shares owned by Condor as treasury stock or by Amwest or its subsidiaries, all of which shall be canceled) will be automatically converted into the right to receive 0.5 of a share of Amwest Common Stock (subject to adjustment, as described below, if the Base Period Trading Price of Amwest Common Stock is less than $12.50 or more than $17.50 per share. Adjustment of the Conversion Number is subject to the right of Amwest not to consummate the Merger if the Conversion Number, as adjusted, would exceed 0.6 and the right of Condor not to consummate the Merger if the Conversion Number, as adjusted, would be less than 0.4). Cash will be paid in lieu of fractional shares. Upon consummation of the Merger, Condor will be merged with and into Amwest and the separate existence of Condor shall thereupon cease. See "The Merger Agreement--Terms of the Merger." At the Effective Time, each outstanding ("Condor Stock Option, other than those held by non-employee directors, shall be canceled and the holder shall receive an Amwest Stock Option to purchase the same number of shares of Amwest Common Stock as the holder would have been entitled to receive in the Merger had the option been exercised in full immediately prior to the Effective Time. The Amwest Stock Options will have substantially the same terms and conditions as the Condor Stock Options, and the exercise price of each Amwest Stock Option will be economically equivalent to the exercise price of the Condor Stock Option being replaced. All Condor Stock Options held by non-employee directors outstanding at the Effective Time will be canceled. It is anticipated that such options will be exercised prior to the Effective Time. Conditions to the Merger, Termination The obligations of Amwest and Condor to consummate the Merger are subject to various conditions, including, but not limited to: (i) obtaining requisite stockholder and regulatory approvals; (ii) the absence of any preliminary or permanent injunction or other order by any federal or state court which prevents the consummation of the Merger; (iii) approval for listing on the AMEX subject to official notice of issuance, of the Amwest Common Stock to be issued in connection with the Merger; (iv) receipt of opinions of counsel at the closing of the Merger covering such matters and in the form and substance agreed upon; and (v) the absence of material adverse changes in the business of Amwest or Condor that would have a material adverse effect on Amwest or Condor. See "The Merger Agreement--Conditions to Consummation of the Merger." The Merger Agreement may be terminated at any time prior to the Effective Time, (a) by mutual written consent of Amwest and Condor; (b) by either Amwest or Condor if the Merger has been enjoined by a court or if the Merger shall not have been consummated on or before June 30, 1996 provided that the terminating party's failure to fulfill its obligations under the Merger Agreement is not the reason that the Effective Time shall not have occurred on or before said date. The Merger Agreement may also be terminated by Condor in the event the Condor Board of Directors, in the exercise of its fiduciary duties, determines that termination is in the best interests of Condor and its stockholders to enable Condor to accept an offer which the Board of Directors has determined to be superior to the Merger (a "Superior Proposal"). The Merger Agreement may also be terminated under certain other circumstances, see "The Merger Agreement--Termination and Abandonment." Termination Fee Condor will be required to pay Amwest a fee of $700,000 (the "Termination Fee") in the event that Condor terminates the Merger Agreement in order to accept a Superior Proposal. Condor will also be required to pay the Termination Fee if the Merger Agreement is terminated by Amwest (i) for breach of any of Condor's representations, warranties or covenants or because Condor engages in negotiations which continue for more than 20 business days with a third party seeking to acquire Condor (a "Third Party Acquisition") and, within 12 months of such termination, Condor enters into an agreement for, or consummates, a Third Party Acquisition under certain circumstances, or (ii) because the Condor Board of Directors has withdrawn, modified or changed its recommendation of the Merger, has recommended a Third Party Acquisition or has failed to call, give notice of, convene or hold a stockholders' meeting to approve the Merger or because the Merger is not approved by the requisite vote of the Condor Stockholders at the Condor Special Meeting. If the Merger Agreement is terminated by Amwest under conditions requiring the payment of the Termination Fee, Amwest will also be entitled to be reimbursed by Condor for its reasonable expenses incurred in connection with the Merger. If the Merger Agreement is terminated by Condor because of a breach by Amwest of its representations, warranties or covenants or because the Merger is not approved by the requisite vote at the Amwest Special Meeting, Condor will be entitled to be reimbursed by Amwest for its reasonable expenses incurred in connection with the Merger. In all other cases, Amwest and Condor will each bear their own expenses. Listing It is a condition to the Merger that the shares of Amwest Common Stock to be issued in the Merger be authorized for listing on the AMEX, subject to official notice of issuance. Regulatory Approvals Required The Merger is subject to the pre-merger notification requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"). Amwest and Condor have both filed pre-merger notification forms with the Federal Trade Commission and the Department of Justice under the HSR Act. Early termination of the required waiting period was granted on January 5, 1996. See "The Proposal to Approve and Adopt the Agreement and Plan of Merger-- Regulatory Approvals." The Merger and transactions contemplated thereby require approvals of the Commissioners of the California Department of Insurance and the Arizona State Department of Insurance. Amwest has filed a Form A with the California Department of Insurance on January 16, 1996. See "The Proposal to Approve and Adopt the Agreement and Plan of Merger-- Insurance Department Regulatory Approvals." Directors of Amwest After the Merger Pursuant to an Agreement with Guy A. Main and the Main Family Trust, Guy A. Main, currently Chairman of the Board, President and the Chief Executive Officer of Condor, will be elected to the Amwest Board of Directors effective as of the Effective Time. Upon the appointment of Mr. Main, the Amwest Board will consist of 11 directors, 10 of whom were directors of Amwest as of the date of the Merger Agreement. Interests of Certain Persons in the Merger In considering the recommendation of the Condor Board of Directors with respect to the Merger Agreement and the transactions contemplated thereby, stockholders should be aware that certain members of Condor management and the Condor Board of Directors have certain interests in the Merger that are in addition to the interests of stockholders of Condor generally. Amwest will issue substitute Amwest Stock Options to all holders of Condor Stock Options (other than non-employee directors), including officers and management. Amwest has agreed, subject to certain limitations, to indemnify each officer and director of Condor from all losses, claims, damages, costs, expenses and liabilities arising out of or related to the Merger or the Merger Agreement. Employees of Condor who continue as employees after the Effective Time, including officers and management will participate in Amwest Employee Benefit Plans. Mr. Main will be employed by Amwest under a four year employment agreement, will be eligible for bonuses under the Amwest Annual Executive Incentive Plan and will become a member of the Board of Directors of Amwest. See "The Proposal to Approve and Adopt the Agreement and Plan of Merger--Interests of Certain Persons in the Merger." Certain Considerations In deciding whether to approve and adopt the Merger Agreement and the transactions contemplated thereby stockholders of Amwest and Condor should carefully evaluate the matters set forth under "The Proposal to Approve and Adopt the Agreement and Plan of Merger--Certain Considerations" and "Risk Factors." Factors to be considered include: (i) the relative stock prices of Amwest Common Stock and Condor Common Stock at the Effective Time may vary significantly from the prices as of the date of execution of the Merger Agreement or the date of this Proxy Statement/Prospectus or the date on which stockholders vote on the Merger; and (ii) the Conversion Number is fixed at 0.5 Amwest shares for each Condor share, subject to adjustment if the Base Period Trading Price of Amwest Common Stock is less than $12.50 or more than $17.50. See "The Proposal to Approve and Adopt the Agreement and Plan of Merger--Certain Considerations." Certain Federal Income Tax Consequences If the Merger qualifies as a "reorganization" as more fully described under "The Proposal to Approve and Adopt the Agreement and Plan of Merger--Certain Federal Income Tax Consequences," no gain or loss will be recognized by Condor stockholders for federal income tax purposes on the conversion of their Condor Common Stock into Amwest Common Stock, except with respect to cash received in lieu of fractional shares, and no gain or loss will be recognized by Amwest or Condor. See "The Proposal to Approve and Adopt the Agreement and Plan of Merger--Certain Federal Income Tax Consequences." Dissenters' Rights Pursuant to Section 262(b) of the Delaware General Corporation Law, Condor stockholders are not entitled to dissenters' or appraisal rights in connection with the Merger, because: (i) shares of Condor Common Stock were, at the Condor Record Date, designated as a NASDAQ National Market security; (ii) Condor stockholders will not be required to accept anything in exchange for their Condor Common Stock other than Amwest Common Stock (i.e., shares of stock of the corporation surviving the Merger) and cash in lieu of fractional shares of such stock; and (iii) the Certificate of Incorporation of Condor does not otherwise provide Condor stockholders with dissenters' or appraisal rights applicable to the Merger. Amwest stockholders are also not entitled to dissenters' or appraisal rights with respect to the Merger. See "Dissenters' Rights." Comparative Rights of Stockholders The rights of stockholders of Condor currently are governed by Delaware law, Condor's Certificate of Incorporation and Condor's Bylaws. Upon consummation of the Merger, stockholders of Condor will become stockholders of Amwest, which is also a Delaware corporation, and their rights as stockholders of Amwest will be governed by Delaware law, Amwest's Certificate of Incorporation, Amwest's Bylaws and the Amwest Rights Agreement (as hereinafter defined). For a discussion of various differences between the rights of stockholders of Condor and the rights of stockholders of Amwest, see "Comparison of Stockholder Rights." Comparative Per Share Prices The following table sets forth the high, low and last sales prices as reported on the AMEX and NASDAQ Composite Tapes of the companies' common shares on November 30, 1995, the last trading day before the announcement of the execution of the Merger Agreement. Condor Amwest Condor Equivalent(a) High $17 5/8 (b) $3 1/2 $8 3/4 Low 17 1/2 (b) 3 1/2 8 3/4 Last 17 5/8 (b) 3 1/2 8 3/4 On February 12, 1996, the last day before the printing of this Proxy Statement/Prospectus the last sales prices of Amwest Common Stock and Condor Common Stock as reported on the AMEX and NASDAQ NMS, were as follows:. Condor Amwest Condor Equivalent(a) High $ $ $ Low Last (a) The Condor equivalent market value is computed by multiplying the high, low and last sales price per share of Amwest Common Stock by the Conversion Number, assuming the Conversion Number is 0.5. (b) There were no trades for Amwest Common Stock on the AMEX on November 30, 1995. Therefore, the sales prices as reported on the AMEX on November 29, 1995 are shown. See "Comparative Per Share Prices and Dividends." Certain Other Agreements In connection with the Merger Agreement, Amwest has entered or will enter into certain agreements with various persons. Amwest, the Main Family Trust and Mr. Main have entered into a Stockholder Agreement pursuant to which the Main Family Trust (which holds 957,310 shares of Condor Common Stock for the benefit of Mr. Main and his family) and Mr. Main have (i) agreed not to sell or otherwise transfer any shares of Condor Common Stock prior to the Effective Time or the termination of the Merger Agreement, (ii) agreed to vote all shares of Condor Common Stock which they hold in favor of the Merger and against any proposal in opposition to or in competition with the Merger, (iii) agreed to call a special meeting of Condor Stockholders to consider and approve the Merger if such a meeting has not taken place on or before May 1, 1996; and (iv) granted an option to Amwest to purchase 825,000 shares of Condor Common Stock for a price equivalent to the Merger Consideration exercisable at any time during the period commencing with the termination of the Merger Agreement. The directors and officers of Condor have executed and delivered to Amwest an Affiliates Letter and Certificate of Continuity of Interest in which they have made certain representations about their intentions to hold the shares of Amwest Common stock to be received in the Merger and agreed to certain restrictions on resales of such shares. The representations and restrictions of resales are intended to preserve the characterization of the Merger for federal income tax purposes as a reorganization, to comply with the requirements for "pooling of interests" accounting treatment and to comply with restrictions on resales of securities imposed by federal securities laws. At the Effective Time, Amwest, the Main Family Trust and Mr. Main will enter into an agreement pursuant to which Mr. Main will be elected a director of Amwest as long as he remains a member of the management executive committee of Amwest. The agreement will also include certain provisions which become effective only in the event that the Merger does not qualify for "pooling of interests" accounting treatment, including an agreement not to sell any Amwest Common Stock received in the Merger for two years and an agreement to grant a right of first refusal to Amwest to purchase any shares of Amwest Common Stock received in the Merger. Amwest, the Main Family Trust and Mr. Main will also enter into a Registration Rights Agreement pursuant to which Amwest will agree to register shares of Amwest Common Stock received by the Main Family Trust in the Merger for resale under the Securities Act of 1933. At the Effective Time, Amwest and Mr. Main will also enter into an Employment Agreement pursuant to which Mr. Main will be employed for four years as Executive Vice President of Amwest and President of Condor Insurance. Mr. Main will receive a base salary of $253,000, subject to annual review, and will be eligible for bonuses under the Amwest Annual Executive Incentive Plan and entitled to other benefits available to other Amwest officers generally, including an automobile allowance. Selected Historical and Pro Forma Combined Financial Data The following table presents selected historical financial data of Amwest and Condor, and selected pro forma combined financial data after giving effect to the Merger under the "pooling of interests" method of accounting. Amwest's historical financial data for each of the annual periods presented have been derived from its audited consolidated financial statements previously filed with the Commission. Condor's historical financial data for each of the annual periods presented also have been derived from its financial statements previously filed with the Commission. The selected historical financial data for both companies for the nine-month periods ended September 30, 1994 and 1995 have been prepared in accordance with generally accepted accounting principles applicable to interim financial information and, in the opinions of Amwest's and Condor's respective managements, include all adjustments necessary for a fair presentation of results for such interim periods. The selected pro forma combined financial data have been derived from, or prepared on a basis consistent with, the unaudited pro forma condensed combined financial statements included herein. This data is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred or that will occur after consummation of the Merger.
As of or for the nine months ended As of or for the year ended December 31, September 30, --------------------------------------------------- ------------------- 1990 1991 1992 1993 1994 1994 1995 Amwest Insurance Group, Inc. - Historical: Net premiums earned $ 46,858 $ 48,487 $ 48,254 $ 50,090 $ 61,829 $ 44,074 $ 50,478 Net income from continuing operations (a) 5,158 3,493 3,398 4,041 4,588 1,834 2,937 Earnings per common share: (a) Net income from continuing operations 2.16 1.42 1.44 1.70 1.91 0.76 1.22 Net income $ 2.16 $ 1.42 $ 1.44 $ 1.60 $ 1.91 $ 0.76 $ 1.22 Cash dividends declared per common share (b)$ 0.24 $ 0.28 $ 0.28 $ 0.28 $ 0.36 $ 0.27 $ 0.30 Weighted average shares outstanding 2,391 2,461 2,360 2,375 2,408 2,411 2,402 Total assets $112,652 $122,684 $134,404 $140,692 $146,713 $153,344 $150,761 Bank indebtedness 13,193 12,228 12,264 12,500 12,500 12,500 12,500 Stockholders' equity 25,981 28,885 31,749 36,383 35,994 34,536 42,002 Stockholders' equity per common share $ 10.87 $ 12.16 $ 13.52 $ 15.43 $ 15.42 $ 14.58 $ 17.80 Condor Services, Inc. - Historical: Net premiums earned $ 18,266 $ 14,297 $ 15,289 $ 21,995 $ 19,460 $ 15,865 $ 13,229 Net income from continuing operations (362) 1,061 1,627 241 453 (21) 786 Earnings per common share: Net income from continuing operations (0.15) 0.51 0.82 0.12 0.23 (0.01) 0.40 Net income $ (0.15) $ 0.51 $ 0.82 $ 0.12 $ 0.23 $ (0.01) $ 0.40 Cash dividends declared per common share -- -- -- -- -- -- -- Weighted average shares outstanding 2,342 2,060 1,976 1,978 1,981 1,983 1,967 Total assets $ 32,530 $ 35,904 $ 38,477 $ 55,164 $ 40,032 $ 48,253 $ 37,123 Stockholders' equity 8,087 8,876 10,435 11,964 10,163 10,037 12,127 Stockholders' equity per common share $ 4.22 $ 4.93 $ 5.29 $ 6.03 $ 5.16 $ 5.05 $ 6.22 Pro Forma Combined (d): Net premiums earned $ 65,124 $ 62,784 $ 63,543 $ 72,085 $ 81,289 $ 59,939 $ 63,707 Net income from continuing operations 4,796 4,554 5,025 3,947 5,041 1,813 3,723 Earnings per common share: (c) Net income from continuing operations 1.39 1.38 1.55 1.20 1.50 0.54 1.12 Net income $ 1.39 $ 1.38 $ 1.55 $ 1.12 $ 1.50 $ 0.54 $ 1.12 Cash dividends declared per common share $ 0.24 $ 0.28 $ 0.28 $ 0.28 $ 0.36 $ 0.27 $ 0.30 Weighted average shares outstanding 3,440 3,291 3,242 3,299 3,350 3,354 3,337 Total assets $130,480 $142,273 $172,030 $195,296 $186,514 $201,317 $187,470 Bank indebtedness 13,193 12,228 12,264 12,500 12,500 12,500 12,500 Stockholders' equity 33,705 37,351 41,500 47,921 46,005 44,332 53,311 Stockholders' equity per common share $ 10.37 $ 11.75 $ 12.89 $ 14.52 $ 14.07 $ 13.38 $ 16.26
The above information should be read in conjunction with the companies' historical and pro forma combined financial statements and notes thereto, either incorporated by reference or included herein. See "Unaudited Pro Forma Condensed Combined Financial Statements." Notes to Selected Historical and Pro Forma Combined Financial Data (a) For 1993, Amwest's net income from continuing operations excludes an extraordinary loss from early extinguishment of debt of $249,000, net of income tax benefit of $128,000 due to the refinancing of $12,300,000 of bank indebtedness which was completed in August 1993. (b) Pro forma dividends are assumed to be the same as the historical cash dividend declarations of Amwest. Amwest has no present intention to alter its current quarterly dividend subsequent to the Merger. However, any determination to increase or decrease the per share cash dividend amount is at the sole discretion of Amwest's Board of Directors, subject to restrictions which may be imposed by law or contract. (c) Pro forma combined earnings per share is based upon the combined historical weighted average shares outstanding, after adjustment of Condor's historical number of shares by the Conversion Number and excluding any Condor shares held in treasury or owned by Amwest. (d) The pro forma combined statements of income excludes investment banking, legal, accounting and miscellaneous transaction costs and expenses of the Merger, currently estimated to be $600,000. However, the pro forma combined balance sheet as of September 30, 1995 includes the adjustment, net of related taxes, of $396,000 for the above estimated amount of transaction costs related to the Merger. Recent Developments Amwest: On Wednesday, February 7, 1996 Amwest announced results for the quarter and year ended December 31, 1995. Amwest reported a loss of $24,000 or $.01 per share on premiums written of $15,781,000 for the quarter ended December 31, 1995 as compared to net income of $2,754,000 or $1.15 per share on premiums written of $16,780,000 for the quarter ended December 31, 1994. The results for the quarter ended December 31, 1995 included a pre-tax charge of $2,000,000 related to Amwest's estimated rollback obligation pursuant to the California Supreme Court's decision of December 14, 1995 which removed the surety insurance industry's exemption from the rollback provisions of Proposition 103. See "Risk Factors--Proposition 103". Excluding the effects of the Proposition 103 charge, Amwest would have earned $1,296,000 or $.53 per share for the quarter ended December 31, 1995. Amwest reported net income of $2,916,000 or $1.22 per share on premiums written of $69,854,000 for the year ended December 31, 1995 as compared to of $4,588,000 or $1.91 per share on premiums written of $70,485,000 for the year ended December 31, 1994. Excluding the previously mentioned charge for the estimated Proposition 103 rollback liability, Amwest would have earned $4,236,000 or $1.76 per share for the year ended December 31, 1995. Amwest also announced that stockholder's equity increased to a record $42,982,000 or $18.15 per share at December 31, 1995. A summary of the reported results is as follows:
As of or for the As of or for the three months ended year ended December 31, December 31, ------------------------- ------------------------ 1994 1995 1994 1995 ------------ ----------- ----------- ----------- Net premiums earned $ $ $ $ 17,754 16,818 61,829 67,297 Net income from continuing operations 2,754 (24) 4,588 2,916 Earnings per common share: Net income from continuing operations $ 1.15 $ (.01) $ 1.91 $ 1.22 Net income (loss) $ 1.15 $ (.01) $ 1.91 $ 1.22 Cash dividends declared per common share $ 0.09 $ 0.10 $ 0.36 $ 0.40 Weighted average shares outstanding 2,397 2,433 2,408 2,409 Total assets $ 146,713 $ 147,456 $ 146,713 $ 147,456 Bank indebtedness 12,500 12,500 12,500 12,500 Stockholders' equity 35,994 42,982 35,994 42,982 Stockholders' equity per common share $ 15.42 $ 18.15 $ 15.42 $ 18.15
Condor: Condor anticipates announcing results for the quarter and year ended December 31, 1995 in mid-to-late February 1996. It is expected that a supplement to this Proxy Statement/Prospectus setting forth such results will be distributed to each person who was an Amwest or Condor stockholder as of the Amwest Record Date and the Condor Record Date, respectively. GENERAL INFORMATION This Proxy Statement/Prospectus is being furnished to stockholders of each of Condor and Amwest in connection with the solicitation of proxies by and on behalf of the Boards of Directors of Condor and Amwest, as the case may be, for use at the Condor Special Meeting and the Amwest Special Meeting, as the case may be. The Condor Special Meeting will be held at 9:00 a.m. on Thursday, March 14, 1996 at the Radisson Plaza Hotel LAX South, 1400 Park View Avenue, Manhattan Beach, California. The Amwest Special Meeting will be held at 9:00 a.m. on Thursday, March 14, 1996 at the Warner Center Hilton, 6360 Canoga Avenue, Woodland Hills, California. This Proxy Statement/Prospectus and the related form of proxy for each of Condor and Amwest are first being mailed to their respective stockholders on or about February 13, 1996. RISK FACTORS In connection with the Merger, the Amwest stockholders are being asked to approve and adopt the Merger Agreement and all transactions contemplated thereby, including the issuance of Amwest Common Stock pursuant to the Merger Agreement. If the Merger is consummated, the holders of Amwest Common Stock will be subject to certain risks inherent to Condor's business, several of which are also applicable to Amwest's business. Amwest stockholders should carefully consider the following risk factors in evaluating whether to approve the Merger Agreement and the issuance of Amwest Common Stock pursuant thereto. The Condor stockholders are being asked to approve and adopt the Merger Agreement. Pursuant to the Merger Agreement, the Condor stockholders will become holders of Amwest Common Stock and should carefully consider the following risk factors in connection therewith. Several of the risks set forth below are applicable to Condor's business as well. Proposition 103 In November 1988, California voters passed Proposition 103, an insurance initiative which required a rollback in insurance rates for policies (and bonds) written or renewed during the twelve month period beginning November 8, 1988 and provided that changes in insurance premiums after November 8, 1988 must be submitted for approval of the California Insurance Commissioner prior to implementation. While the Proposition has the most significant impact on automobile insurance, its provisions, as written, also apply to other property and casualty insurers including surety insurers. On August 26, 1991, The State of California enacted Insurance Code Section 1861.135 ("Section 1861.135") exempting surety insurance from the rate rollback and prior approval provisions of Proposition 103. Section 1861.135 does not affect Proposition 103's prohibition against excessive, inadequate or discriminatory rates. Due to the enactment of Section 1861.135, Amwest terminated a previously established reserve for potential premium rebates. Subsequently, the Department of Insurance ("Department") and Voter Revolt brought a motion for writ of mandate challenging the validity of Section 1861.135. On March 21, 1992, the Los Angeles Superior Court concluded that Section 1861.135 did not violate the California Constitution or the provisions of Proposition 103. The Department and Voter Revolt appealed. On December 7, 1994, the Second District Court of Appeal overturned Section 1861.135 by a 2-1 vote. On February 24, 1994, the California Supreme Court agreed to hear Amwest's petition for review, thereby staying the Court of Appeals opinion. On December 14, 1995, the Supreme Court of the State of California affirmed the decision of the Second District Court of Appeal, overturning Insurance Code Section 1861.135, which exempted the surety insurance industry from major provisions of Proposition 103. Accordingly, Amwest will no longer be exempted from the rate rollback and prior approval provisions contained in Proposition 103. To date, Amwest has not received any calculations from the California Department of Insurance regarding Amwest's Proposition 103 rollback amount. Amwest accrued $2,000,000 during the quarter ended December 31, 1995 representing Amwest's best estimate of its rollback obligations pursuant to Proposition 103, the exact amount of which has not yet been determined. Such estimate was based on a variety of factors, including but not limited to, the profitability of Amwest in California during 1989 (the rollback period), a review of the various regulations promulgated by the Department of Insurance, and a review of rollback obligations of other insurance companies, including a surety company. Pursuant to the provisions of Proposition 103, the rollback amount will ultimately be determined by complex California Department of Insurance formulas but is statutorily limited to a maximum of 20% of California written premiums during 1989, plus accrued interest thereon. In the event that Amwest's rollback obligation were eventually determined to be the statutory maximum, it could approximate $7,500,000 which is $5,500,000 in excess of Amwest's best estimate of its ultimate rollback liability. While the current accrual represents management's best estimate of Amwest's Proposition 103 rollback obligations, no assurances can be given that a final settlement with the California Department of Insurance will not result in a rollback amount which could have a significant adverse impact on Amwest's future earnings, although it is not anticipated that such result would materially adversely impact Amwest's financial position. Until a final settlement is reached with the California Department of Insurance, no assurances can be given as to the ultimate amount of premiums to be refunded to policyholders. The matters discussed in this paragraph are forward looking statements based upon partial information and management assumptions and involve certain risks and uncertainties as described above. Regulatory Environment The insurance industry is highly regulated. Both Amwest and Condor are subject to the rules and regulation of and oversight by the various Departments of Insurance and other regulatory authorities in the jurisdictions in which Condor and Amwest operate. Dependence on Key Personnel The success of Condor is dependent upon Mr. Guy A. Main, its President, whose loss or unavailability would have a material, adverse affect on its operations. If the Merger is completed, Amwest will execute a four year Employment Agreement with Mr. Main, pursuant to which Mr. Main will agree to devote substantially all of his time to the business of Amwest. Risks of the Insurance Industry The profitability of both Amwest and Condor are subject to many factors, including rate competition, the severity and frequency of claims, defaults of reinsurers, interest rates, inflation, general business conditions, regulatory measures and court decisions that define and expand the extent of coverage and the amount of compensation due to claimants. The profitability of Amwest and Condor may be adversely affected by such factors. THE CONDOR SPECIAL MEETING Purpose of the Condor Special Meeting At the Condor Special Meeting, holders of Condor Common Stock will consider and vote upon a proposal to approve and adopt the Merger Agreement and such other matters as may properly be brought before the meeting. The Board of Directors of Condor has unanimously approved the Merger Agreement and recommends a vote FOR approval and adoption of the Merger Agreement. Record Date; Voting Rights; Proxies The Condor Board of Directors has fixed the close of business on February 9, 1996 as the Condor Record Date for determining holders entitled to notice of and to vote at the Condor Special Meeting. As of the Condor Record Date, there were ________ shares of Condor Common Stock issued and outstanding, each of which entitles the holder thereof to one vote. All shares of Condor Common Stock represented by properly executed proxies will, unless such proxies have been previously revoked, be voted in accordance with the instructions indicated in such proxies. If no instructions are indicated, such shares of Condor Common Stock will be voted in favor of the Merger. Shares voted to abstain on a matter will be treated as entitled to vote on the matter and will thus have the same effect as "no" votes. Broker non-votes are not counted as entitled to vote on a matter in determining the number of affirmative votes required for approval of the matter, but are counted as present for quorum purposes. The term "broker non-votes" refers to shares held by a broker in street name which are present by proxy but are not voted on a matter pursuant to rules prohibiting brokers from voting on non-routine matters, such as approval and adoption of the Merger Agreement, without instructions from the beneficial owner of the shares. Condor does not know of any matters other than as described in the Notice of Special Meeting that are to come before the Condor Special Meeting. If any other matter or matters are properly presented for action at the Condor Special Meeting, the persons named in the enclosed form of proxy and acting thereunder will have the discretion to vote on such matters in accordance with their best judgment, unless such authorization is withheld. A stockholder who has given a proxy may revoke it at any time prior to its exercise by giving written notice thereof to the Secretary of Condor, by signing and returning a later dated proxy, or by voting in person at the Condor Special Meeting; however, mere attendance at the Condor Special Meeting will not in and of itself have the effect of revoking the proxy. Solicitation of Proxies Condor will bear its own cost of solicitation of proxies. Solicitations will be made by mail, telephone or telegram and personally by directors, officers and other employees of Condor, but such persons will not receive compensation for such services over and above their regular salaries. Brokerage houses, fiduciaries, nominees and others will be reimbursed for their reasonable charges and out-of-pocket expenses in forwarding proxy materials to beneficial owners of stock held in their names. Quorum The presence in person or by properly executed proxy of holders of a majority of the issued and outstanding shares of Condor Common Stock is necessary to constitute a quorum at the Condor Special Meeting. Required Vote Approval and adoption of the Merger Agreement requires the affirmative vote of the holders of a majority of the outstanding shares of Condor Common Stock. THE MATTERS TO BE CONSIDERED AT THE CONDOR SPECIAL MEETING ARE OF GREAT IMPORTANCE TO THE STOCKHOLDERS OF CONDOR. ACCORDINGLY, STOCKHOLDERS ARE URGED TO READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS PROXY STATEMENT, AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. THE AMWEST SPECIAL MEETING Purpose of the Amwest Special Meeting At the Amwest Special Meeting, holders of Amwest Common Stock will consider and vote upon proposals to approve and adopt the Merger Agreement and the transactions contemplated thereby, to approve an amendment to the Amwest Stock Option Plan regarding the permitted exercise price of Non-Incentive Options and such other matters as may properly be brought before the meeting. Stockholder approval and adoption of the Merger Agreement and all of the transactions contemplated thereby will constitute the approval required by the AMEX for the Merger Agreement and all of the transactions contemplated thereby, including the issuance of the Amwest Common Stock in connection with the Merger. The Board of Directors of Amwest has unanimously approved the Merger Agreement and the amendment and ratification of the Amwest Stock Option Plan and recommends a vote FOR approval and adoption of the Merger Agreement and such amendment and ratification. Record Date; Voting Rights; Proxies The Amwest Board of Directors has fixed the close of business on February 12, 1996 as the Amwest Record Date for determining holders entitled to notice of and to vote at the Amwest Special Meeting. As of the Amwest Record Date there were _________ shares of Amwest Common Stock issued and outstanding, each of which entitles the holder thereof to one vote. All shares of Amwest Common Stock represented by properly executed proxies will, unless such proxies have been previously revoked, be voted in accordance with the instructions indicated in such proxies. If no instructions are indicated, such shares of Amwest Common Stock will be voted in favor of the Merger and the proposal to amend and ratify the Amwest Stock Option Plan. Shares voted to abstain on a matter will be treated as entitled to vote on the matter and will thus have the same effect as "no" votes. Broker non-votes are not counted as entitled to vote on a matter in determining the number of affirmative votes required for approval of the matter, but are counted as present for quorum purposes. The term "broker non-votes" refers to shares held by a broker in street name which are present by proxy but are not voted on a matter pursuant to rules prohibiting brokers from voting on non-routine matters, such as approval and adoption of the Merger Agreement and amendment and ratification of the Amwest Stock Option Plan, without instructions from the beneficial owner of the shares. Amwest does not know of any matters other than as described in the Notice of Special Meeting that are to come before the Amwest Special Meeting. If any other matter or matters are properly presented for action at the Amwest Special Meeting, the persons named in the enclosed form of proxy and acting thereunder will have the discretion to vote on such matters in accordance with their best judgment, unless such authorization is withheld. A stockholder who has given a proxy may revoke it at any time prior to its exercise by giving written notice thereof to the Secretary of Amwest by signing and returning a later dated proxy, or by voting in person at the Amwest Special Meeting; however, mere attendance at the Amwest Special Meeting will not in and of itself have the effect of revoking the proxy. Votes cast by proxy or in person at the Amwest Special Meeting will be tabulated by the election inspectors appointed for the meeting who will also determine whether or not a quorum is present. Solicitation of Proxies Amwest will bear its own cost of solicitation of proxies. Brokerage houses, fiduciaries, nominees and others will be reimbursed for their out-of-pocket expenses in forwarding proxy materials to beneficial owners of stock held in their names. Quorum The presence in person or by properly executed proxy of holders of a majority of all of the shares of Amwest Common Stock entitled to vote is necessary to constitute a quorum at the Amwest Special Meeting. Required Vote The approval of the Merger Agreement and amendment and ratification of the Amwest Stock Option Plan requires the affirmative vote by the holders of a majority of the outstanding shares of Amwest Common Stock. THE MATTERS TO BE CONSIDERED AT THE AMWEST SPECIAL MEETING ARE OF GREAT IMPORTANCE TO THE STOCKHOLDERS OF AMWEST. ACCORDINGLY, STOCKHOLDERS ARE URGED TO READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS PROXY STATEMENT, AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. PROPOSAL TO APPROVE AND ADOPT THE AGREEMENT AND PLAN OF MERGER This section of the Proxy Statement/Prospectus as well as the next section of the Proxy Statement/Prospectus entitled "The Merger Agreement" describe certain aspects of the proposed Merger. To the extent that it relates to the Merger Agreement, the following description does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement which is attached as Annex A to this Proxy Statement/Prospectus and is incorporated herein by reference. All stockholders are urged to read the Merger Agreement in its entirety. General The Merger Agreement provides that the Merger will be consummated if the approvals of the Condor and Amwest stockholders required therefor are obtained and all other conditions to the Merger are satisfied or waived. Upon consummation of the Merger, Condor will be merged with and into Amwest and the separate existence of Condor will thereupon cease. Condor subsidiaries will become wholly owned subsidiaries of Amwest. Amwest will, by operation of law, succeed to all of the assets and become subject to all of the liabilities of Condor. Upon consummation of the Merger, each outstanding share of Condor Common Stock (other than shares owned by Condor as treasury stock or by Amwest or its subsidiaries all of which shall be canceled) will be automatically converted into the right to receive 0.5 of a share of Amwest Common Stock (subject to adjustment if the average daily closing price per share of Amwest Common Stock as reported on the AMEX for the 30 consecutive trading days ending on the close of trading on the second trading day preceding the closing date is less than $12.50 per share, in which event the Conversion Number will be increased by a factor of 12.5 divided by the Base Period Trading Price, or greater than $17.50 per share, in which event the Conversion Number will be decreased by a factor of 17.5 divided by the Base Period Trading Price. Adjustment of the Conversion Number is subject to the right of Amwest not to consummate the Merger if the Conversion Number, as adjusted, would exceed 0.6 and the right of Condor not to consummate the Merger if the Conversion Number, as adjusted, would be less than 0.4). Based upon the capitalization of Amwest and Condor as of November 30, 1995, the stockholders of Condor will own approximately 28% of the outstanding Amwest Common Stock following consummation of the Merger. Such percentage could change depending on whether an adjustment under the Conversion Number adjustment mechanism is required and whether shares of Condor Common Stock and Amwest Common Stock issuable upon exercise of outstanding Condor and Amwest stock options are issued. Effective Time The Merger will become effective upon the filing of a Certificate of Merger (the "Certificate of Merger") with the Secretary of State of the State of Delaware (the "Effective Time"). The filing of the Certificate of Merger will occur on the date of the closing of the Merger. The Merger Agreement may be terminated by either party if the Merger has not been consummated on or before June 30, 1996 and under certain other conditions. (See "The Merger Agreement--Conditions to Consummation of the Merger" and "--Termination and Abandonment".) Conversion of Shares - Procedures for Exchange of Certificates The conversion at the Conversion Number of Condor Common Stock into the right to receive Amwest Common Stock will occur automatically at the Effective Time. As soon as practicable after the Effective Time, a form transmittal letter will be mailed by the Exchange Agent to each stockholder of Condor, informing such stockholder of the procedures to follow in forwarding his or her Condor stock certificates to the Exchange Agent. Upon receipt of such Condor stock certificates, the Exchange Agent will deliver certificates representing whole shares of Amwest Common Stock to such stockholder and cash in lieu of any fractional share pursuant to the terms of the Merger Agreement and in accordance with the transmittal letter, together with any dividends or other distributions to which such stockholder may be entitled. If a transfer of ownership of Condor Common Stock has not been registered in the transfer records of Condor, a certificate representing the proper number of whole shares of Amwest Common Stock and cash in lieu of fractional shares, if any, and any dividends and distributions will be issued to a transferee upon surrender of the certificate representing such Condor Common Stock accompanied by all documents required to evidence such transfer and by evidence that any stock transfer taxes have been paid. After the Effective Time and until surrendered, shares of Condor Common Stock will be deemed to represent only the right to receive upon such surrender the certificate representing the number of whole shares of Amwest Common Stock and any cash in lieu of any fractional shares as contemplated by the Merger Agreement. No dividends or other distributions, if any, payable to holders of Amwest Common Stock will be paid to the holders of any certificates for shares of Condor Common Stock until such certificates are surrendered. Upon surrender of such certificates, all such declared dividends and distributions which shall have become payable with respect to such Amwest Common Stock, in respect of a record date after the Effective Time, will be paid to the holder of record of the whole shares of Amwest Common Stock represented by the certificate issued in exchange therefor, without interest. CONDOR STOCKHOLDERS SHOULD NOT FORWARD STOCK CERTIFICATES TO THE EXCHANGE AGENT UNTIL THEY HAVE RECEIVED TRANSMITTAL LETTERS. CONDOR STOCKHOLDERS SHOULD NOT RETURN STOCK CERTIFICATES WITH THE ENCLOSED PROXY. History of the Merger In March 1990 Amwest's then investment manager brought Condor to the attention of Amwest senior management. At the time, Condor's shares had fallen significantly in value from previous levels. After reviewing the investment opportunity, Amwest senior management concluded that the shares of Condor were undervalued and that purchases of Condor shares in the open market would be a good equity investment for Amwest. At various times during the remainder of the year, Amwest acquired Condor shares and ultimately became one of its larger stockholders. From 1990 through early 1995, senior management of Amwest monitored the results of Condor and met with Mr. Main on several occasions in order to appropriately monitor Amwest's equity investment. During this period of time, senior management of both Amwest and Condor became better acquainted and were able to gain better understandings of the operations of both companies. In 1993, Condor wrote off $1,870,022 related to the misappropriation of premiums written for its private passenger automobile coverage line of business in Arizona, and incurred associated legal expenses. On July 14, 1994, Condor was awarded a judgment in the Superior Court of Arizona for approximately $1,947,000 against a former agent and an individual who represented that agent. The individual against whom Condor has a judgment, filed for bankruptcy in Las Vegas in December 1994. Condor has also initiated proceedings to collect its judgment in the Las Vegas bankruptcy. The write-off related to the misappropriation of premiums and other related losses and expenses has had a significant impact on Condor's capital surplus and has limited Condor's ability to expand its business by writing additional insurance. On June 16, 1995, a member of Amwest's senior management met with Condor's Chairman and Chief Executive Officer. The Amwest executive expressed Amwest's intent to diversify beyond the surety market place and indicated that because of its familiarity with Condor and Condor's focus on its specialty transportation programs, Condor might be a good candidate to help Amwest achieve its strategic diversification objectives. Condor's Chairman replied that Condor was not interested in an affiliation or business combination at that time, that Condor was anticipating a major recovery in the Las Vegas bankruptcy proceeding which would replenish its capital and expand its underwriting capacity and that it was planning to move its headquarters to Carlsbad, California to achieve cost savings. There was no further contact between Amwest and Condor regarding a possible affiliation or business combination until September 1995. In August 1995, the Las Vegas bankruptcy court postponed until 1996 any further action on the Las Vegas bankruptcy proceeding in which Condor is seeking a recovery and it became apparent that there would be no recovery in 1995 other than the separate legal action which resulted in an $890,000 recovery from a financial institution in April of 1995.. The Condor Board of Directors decided that in the absence of such recovery, Condor should not proceed to move its headquarters in order to avoid significant moving expense. Based on the foregoing events, Condor's Chairman decided in early September 1995 to inquire as to whether Amwest still maintained an interest in discussing a business combination. On September 5, 1995, a member of Amwest senior management met with Condor's Chairman to discuss the operations of the two companies and the possible benefits of combining the two companies. On September 26, 1995, during a general strategy session of Amwest executive management, the possibility of merging with Condor was discussed and it was determined that, based on the information received to such date, the possibility of a merger with Condor should be further investigated on a highly confidential basis. At this time, it was agreed that a meeting with Amwest's and Condor's executive management teams should be held to further explore the possibility of a merger. At an October 18, 1995 meeting between Amwest's Co-Chief Executive Officers and Condor's Chairman, discussions were held regarding the benefits of a combined entity and how the organization would operate going forward. At this time, Condor's Chairman discussed with management of Amwest a possible transaction whereby Condor might be acquired in a stock for stock transaction, wherein each share of Condor Common Stock would be exchanged for 0.5 of a share of Amwest Common Stock. At the conclusion of the meeting, management of Amwest indicated that it would study the benefits of a proposed merger with Condor with members of Amwest's Board of Directors. No agreements, understandings or arrangements were reached regarding a transaction. On November 1, 1995, Condor senior executives met with Amwest's management executive committee to discuss both Condor's and Amwest's operations in greater detail. Amwest management indicated that it would develop a recommendation for Amwest's Board of Directors. In subsequent conversations, Amwest's management indicated that it would recommend a Merger of Condor and Amwest. On November 9, 1995, the Board of Directors of Amwest held a meeting to discuss the potential merger of Condor with and into Amwest. At this meeting, the Board of Directors indicated that it was interested in pursuing a merger with Condor, but that it needed more time to evaluate the proposed Conversion Number and other matters. Additionally, at this meeting, one of the Co-Chief Executive Officers was authorized to engage an investment banking firm for the purpose of rendering an opinion as to the fairness of the proposed transaction to Amwest stockholders. These conclusions were reported to Condor's Chairman on November 9, 1995. On November 11, 1995, the Condor Board of Directors met and discussed a possible merger with Amwest, the terms which were under discussion and the potential advantages to Condor and its stockholders. The conclusions of the Board of Directors were that there were significant growth opportunities available to Condor which could be exploited if it had access to greater capital resources, that given Condor's current stock prices, the cost of raising equity capital appeared excessive, and that merger with or acquisition by a larger company with greater capital resources would allow Condor to expand its business and reduce operating costs. The Board of Directors authorized the engagement of an investment banking firm to furnish an opinion to the Condor Board of Directors as to the fairness, from a financial point of view, to the public stockholders of Condor of the consideration to be received by them in a transaction that might be proposed by Amwest. On November 14, 1995 Amwest engaged the services of Jefferies, in order to advise Amwest as to the fairness of the proposed transaction with respect to Amwest stockholders. On November 20, 1995, Condor engaged the services of Wedbush Morgan, who advised the Condor Board of Directors as to the fairness, from a financial point of view, to the public stockholders of Condor of the consideration to be received by them in the proposed transaction. During this time frame, representatives of Condor and Amwest and their respective counsel held negotiations with respect to the proposed Merger. On November 15, 1995, Amwest and Condor entered into a Confidentiality Agreement, began to exchange certain information related to each other in order to determine whether and on what basis a merger might be possible and began to negotiate the structure and terms of the Merger. A meeting of the Condor Board of Directors was held on November 16, 1995 to discuss in detail the terms that were proposed by Amwest, the structure of the transaction and the status of the negotiations and to receive a briefing from Wedbush Morgan as to the procedures it would follow in forming an opinion as to the fairness, from a financial point of view, to the public stockholders of Condor of the consideration to be received by them in the transaction. On November 20, 1995, the Board of Directors of Amwest held a meeting to review the proposed transaction and to receive a preliminary report from Jefferies, regarding its analysis and progress in order to be in a position to deliver an opinion as to the fairness of the transaction to Amwest stockholders. The Board of Directors of Amwest authorized executive management to continue negotiations with Condor. On November 21, 1995 the Condor Board of Directors met to review and discuss the progress that had been made in negotiating the terms of the transaction, consider certain issues on which agreement had not yet been reached between Condor and Amwest and receive a preliminary report from Wedbush Morgan as to its work to date and the expected timing for reaching a conclusion. On November 29, 1995, three members of Condor's Board of Directors had an informal conference with Condor's counsel to discuss various issues still under negotiation. The negotiations between Amwest and Condor culminated in separate meetings of the Boards of Directors of Amwest and Condor on November 30, 1995 at which the Merger Agreement and related matters were approved by both Boards of Directors. Thereafter on November 30, 1995, after the securities markets for Amwest Common Stock and Condor Common Stock closed for the day, Amwest and Condor entered into the Merger Agreement and related agreements. The terms of the proposed Merger were announced in a joint press release issued prior to the opening of securities markets on December 1, 1995. Recommendation of the Board of Directors of Amwest; Reasons for the Merger The Board of Directors of Amwest has unanimously approved the Merger Agreement and has determined that the Merger is advisable and fair and in the best interests of Amwest and its stockholders and unanimously recommends that holders of shares of Amwest Common Stock vote FOR approval and adoption of the Merger Agreement. In reaching a decision to approve the Merger Agreement and to recommend that Amwest stockholders vote to approve the Merger Agreement, Amwest's Board of Directors considered among other things the following factors: Amwest's knowledge of the business, operations, management and financial results of Condor, gained as a result of its ongoing stock ownership in Condor since 1990, together with information gleaned during the negotiation process. The compatibility of Condor's focused transportation programs with Amwest's stated objective of diversifying beyond the business of surety insurance. The future prospects of Condor, subsequent to the Merger, including the ability of Condor to expand its operations with additional capital. The opinion of Jefferies as to the fairness, from a financial point of view, of the Conversion Number to stockholders of Amwest. See "Opinion of Jefferies." The terms of the Merger agreement which were the product of extensive negotiations. The compatibility of the executive management teams of Amwest and Condor. In view of the wide variety of factors considered by the Board in connection with its evaluation of the Merger, the Board did not find it practicable to quantify or otherwise attempt to assign relative weight to the specific factors considered in making its determination, nor did it evaluate whether such factors were of equal weight. Recommendation of the Board of Directors of Condor; Reasons for the Merger The Board of Directors of Condor has unanimously approved the Merger Agreement and has determined that the Merger is fair to and in the best interest of Condor and its stockholders and unanimously recommends that the Condor stockholders vote FOR approval and adoption of the Merger Agreement. In reaching its decision to approve the Merger Agreement and to recommend that Condor stockholders vote to approve the Merger Agreement, Condor's Board of Directors considered among other things the following factors: The surplus position of Condor and the relative leverage of premiums to surplus, which currently make it difficult for Condor to expand its transportation programs. The excess surplus position of Amwest and the ability to improve the leverage of premium to surplus thus permitting Condor to expand its transportation programs. Knowledge about the stability of Amwest, together with Amwest resources which can be utilized to assist Condor in expanding its transportation programs. The cost savings attributable to combining certain back-office functions of Condor, together with reduced reinsurance costs as a result of merging with a larger entity. The opinion of Wedbush Morgan as to the fairness, from a financial point of view, of the consideration to be received by the public stockholders of Condor in the Merger. See "Opinion of Wedbush Morgan." The terms of the Merger Agreement, which were the product of extensive negotiations. The historical trading prices and dividend rates for Amwest Common Stock. The premium which the Conversion Number will represent over recent trading prices of Condor Common Stock. The compatibility of Condor and Amwest executive management teams. The opportunity for Condor stockholders to participate as holders of Amwest Common Stock in a larger dividend paying company, of which Condor would become a significant part, and to do so by means of a transaction in which Condor stockholders will not recognize gain or loss for Federal income tax purposes on the exchange of their Condor Common Stock for Amwest Common Stock. In reaching its conclusion that the holders of Condor Common Stock will receive fair value in the form of shares of Amwest Common Stock pursuant to the Merger, the Condor Board of Directors considered the opinion of Wedbush Morgan, as to the fairness, from a financial point of view, to the public stockholders of Condor of the Merger Consideration, and the Board's knowledge of Condor's business and its prospects. The Condor Board of Directors also considered recent and current market prices of both Condor Common Stock and Amwest Common Stock on which the Conversion Number was based and concluded that Amwest Common Stock was trading in a reasonable range prior to announcement of the transaction. Additional value was seen in the diverse product lines and efficiencies and cost savings to be experienced by the combined Condor/Amwest operations resulting from the Merger, as compared to those of either Amwest or Condor alone. In considering the fairness of the Merger, the Condor Board of Directors considered the Proposition 103 potential premium rollback (the "Proposition 103 Rollback"), the range of possible effects on Amwest's financial position if the California Supreme Court decided the matter adversely to Amwest, the effect of the outcome considered most likely by Amwest in such event and the effect on the combined operations of Condor and Amwest going forward in the event of various outcomes. The Condor Board of Directors also noted that the Wedbush Morgan fairness opinion was based on the assumption that the outcome of the Proposition 103 Rollback would not have a material adverse effect on the financial position of Amwest. The Condor Board of Directors concluded that, while the amount of Amwest surplus available to expand Condor's transportation programs would be less than currently expected and could limit the future growth of the combined entities if the outcome considered to be the "worst case" occurred, the merger nevertheless represented a highly favorable improvement to Condor stockholders in the value of their holdings. Based on that conclusion and considering the possibility that the Proposition 103 Rollback could be resolved more favorably than on a "worst case" basis, the Condor Board of Directors concluded that the Merger was fair and in the best interests of the Condor stockholders in spite of the uncertainties of the Proposition 103 Rollback and that the risk of a "worst case" outcome was a reasonable risk to run in view of the belief that the Merger would still, in such event, result in a highly favorable increase in value to Condor stockholders. The Condor Board of Directors also believed that certain terms of the Merger Agreement, which were extensively negotiated, contributed to their determination that the Merger is fair and in the best interests of Condor Stockholders. Among such provisions are those which permit Condor to engage in discussions with other potential acquirors who make unsolicited inquiries if the Board of Directors determines, in the exercise of its fiduciary responsibilities, that such discussions are appropriate and permit Condor to terminate the Merger Agreement, subject to the payment of the Termination Fee, if the Board of Directors determines that it is in the best interests of the stockholders to accept a Superior Proposal. Another such provision is the condition that Condor is not obligated to consummate the Merger if the Exchange Ratio is less than 0.4. In addition, the Condor Board of Directors considered that the transaction was structured so that, except for cash paid in lieu of fractional shares, Condor stockholders would not recognize a gain or loss for federal income tax purposes as a result of the Merger and that Condor's Chief Executive Officer was to be included on Amwest's Board of Directors and Management Executive Committee. Prior to commencing merger discussions with Amwest, Condor received two casual inquiries, one direct and one indirect, as to its interest in being acquired by other parties. Because Condor at the time was not interested in being acquired, it did not follow up on such inquiries. While Condor was engaged in merger discussions with Amwest, one of the earlier inquirers contacted Condor to inquire again as to its interest in an acquisition. Condor management questioned the inquirer about business acquisitions it had made in the past, prices paid in such acquisitions and its experience in and knowledge of Condor's business. Condor management also obtained from third party sources certain information on the acquisition experience and practices of the other inquirer. The Condor Board of Directors determined not to entertain discussions with the entities that had made inquiries or to seek alternative offers to the Amwest proposal for the following reasons: the confidential nature of the negotiations with Amwest and the circumstances under which they occurred; Amwest's stated refusal to continue negotiations if Condor were to seek alternative proposals; the significant premium which the Amwest proposal represented over trading prices for Condor Common Stock; information received by the Board of Directors as to prices offered by the inquiring entities in other acquisitions which were significantly less on a relative basis than the Amwest proposal; information received by the Board of Directors as to prices commonly paid for small insurance companies which led it to believe that a significantly superior alternative offer was unlikely; the particular benefits that would result from a Merger with Amwest; the terms of the Merger Agreement which allow Condor to terminate it to accept a Superior Proposal; the Board of Directors belief that the Termination Fee is not unreasonably high and would not constitute a significant obstacle to receipt of a Superior Proposal; and the Board of Directors high level of confidence, based on Amwest's strongly expressed desire to acquire Condor, that the Merger with Amwest could be concluded on a timely basis. The Condor Board of Directors belief that the Merger is fair and in the best interests of the Condor stockholders is supported by the fact that Condor has received no inquiries from other potential acquirors since the public announcement of the terms of the Merger. The foregoing discussion of the information and factors considered and weight given by the Condor Board of Directors is not intended to be exhaustive. In view of the variety of factors considered in connection with its evaluation of the Merger, the Condor Board of Directors did not find it practicable to and did not quantify or otherwise assign relative weights to the specific factors considered in reaching its determination. Opinion of Jefferies Amwest retained Jefferies & Company, Inc. ("Jefferies") to act as its financial advisor in connection with the Merger. Jefferies was selected by Amwest's Board of Directors to act as Amwest's financial advisor, based on Jefferies' qualifications, expertise and reputation. Jefferies has rendered to Amwest's Board of Directors, its written opinion, dated November 30, 1995 (the "Opinion"), that based upon and subject to the various considerations set forth in the Opinion, on November 30, 1995, the Conversion Number was fair from a financial point of view to the holders of outstanding Common Stock of Amwest. No limitations were imposed by the Amwest Board of Directors upon Jefferies with respect to the investigations made or procedures followed by it in rendering its Opinion. The Conversion Number was determined through negotiations among Amwest and Condor, and Jefferies did not participate in such negotiations. Jefferies' fairness opinion was only one factor considered by the Amwest Board of Directors in making its determination to approve the Merger. The Amwest Board of Directors requested the opinion of Jefferies, and Jefferies agreed to furnish its opinion so that the Board would have the assistance of Jefferies in evaluating the proposed transaction and in fulfilling the duties of the Board to Amwest stockholders. Jefferies has consented to the references to its opinion in this Proxy Statement/Prospectus, but has disclaimed any obligation to the Amwest stockholders. The Opinion states that it is intended to be for the benefit of the Amwest Board of Directors, and not for the benefit of stockholders or any other third parties. The full text of the Opinion, which sets forth assumptions made, matters considered and limitations on the review undertaken is attached as Annex C to this Proxy Statement/Prospectus. Amwest stockholders are urged to read the Opinion carefully and in its entirety for information with respect to procedures followed, assumptions made and matters considered by Jefferies in rendering its Opinion. In arriving at its Opinion, Jefferies did not ascribe a specific range of fair value to the Common Stock, but made its determination on the basis of financial and comparative analyses, including (without limitation) those described below. The Opinion is based on economic, monetary and market conditions prevailing, and stock prices and other circumstances and conditions existing, on the date thereof, and Jefferies did not express any opinion as to the market value of the Condor Common Stock or Amwest Common Stock, or the price or trading range at which Amwest Common Stock will trade following consummation of the Merger. The Opinion is directed only to the Amwest Board of Directors and does not constitute a recommendation to any stockholder of Amwest as to how such stockholder should vote at the Special Meeting of Stockholders of Amwest. The summary of the Opinion set forth in this Proxy Statement is qualified in its entirety by reference to the full text of such Opinion. In addition, Jefferies was not requested to opine as to, and its Opinion did not address, the underlying business decision of the Amwest Board of Directors to proceed with or to effect the Merger. In rendering its Opinion, Jefferies reviewed, among other things, the draft of the Merger Agreement dated November 30, 1995 and certain financial and other information about each of Amwest and Condor that was in each case publicly available or furnished to Jefferies by Amwest or Condor, as the case may be, including certain internal analyses, financial forecasts, an actuarial report dated October 17, 1995 on the loss and loss adjustment reserves of Condor Insurance Company as of September 30, 1995, reports and other information prepared by Amwest and Condor Management. Jefferies also held discussions with members of senior management of both Amwest and Condor concerning each company's historical and current operations, financial conditions and prospects, as well as the strategic and operating benefits anticipated from the business combination. In addition, Jefferies conducted such financial studies, analyses and investigations and reviewed such other factors as were deemed appropriate for purposes of their Opinion. Jefferies assumed and relied upon without independent investigation or verification, the accuracy, completeness and fairness of all financial and other information reviewed by Jefferies for purposes of rendering its Opinion, and their Opinion is expressly conditioned upon all such information (whether written or oral) being accurate, complete and fair in all respects. With regard to the financial projections examined by Jefferies (the "Projections"), which were provided by Amwest and Condor, Jefferies assumed that they were reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the respective managements of Amwest and Condor as to the future performance of each company and, although Jefferies performed sensitivity analyses thereon, in rendering its Opinion, Jefferies assumed that each such company will perform in accordance with such projections for all periods specified therein. Jefferies also assumed that the Merger will be a tax free reorganization accounted for as a pooling of interests and that all consents and authorizations necessary to consummate the Merger have been, or will be, obtained without material expense. Jefferies has disclaimed any undertaking or obligation to advise any person of any change in any fact or matter affecting its Opinion of which it becomes aware after the date of the Opinion. Jefferies was not requested to, and did not, participate in the structuring or negotiation of the Merger, solicit third party indications of acquiring all or any part of Amwest, or make any independent evaluation or appraisal of the assets or liabilities, contingent or otherwise, of Amwest or Condor, nor were they furnished with any such evaluation or appraisals, other than the actuarial report previously described. The following is a brief summary of the report presented by Jefferies to the Amwest Board of Directors on November 30, 1995. The following does not purport to be a complete description of the analyses performed, or the matters considered, by Jefferies in arriving at the Opinion. The preparation of a fairness opinion involves various determinations as to the most appropriate and relevant methods of financial analyses and the application of those methods to particular circumstances and, therefore, such an opinion is not readily susceptible to summary description. Furthermore, in arriving at its Opinion, Jefferies did not attribute any particular weight to any analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, Jefferies' analyses must be considered as a whole. Considering any portion of such analyses and of the factors considered, without considering all analyses and factors, could create a misleading or incomplete view of the process underlying the Opinion. In its analyses, Jefferies made many assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of the merging companies. Any estimates contained in these analyses are not necessarily indicative of actual values or predicting of future results or values, which may be significantly more or less favorable than as set forth therein. In addition, analyses relating to the value of businesses do not purport to be appraisals or to reflect the prices at which businesses actually may be sold. Analysis of Comparable Publicly Traded Companies As part of its analysis, Jefferies compared the financial information of Amwest and Condor with a group of fifteen publicly traded insurance companies. Among other things, Jefferies studied latest twelve month ("LTM") and estimated December 1995 and 1996 price to earnings ratios ("P/E"s), market capitalization divided by last fiscal year Generally Accepted Accounting Principals ("GAAP") and statutory net income, price to GAAP and statutory book values and price to GAAP tangible book values, as defined below. The multiples and market capitalizations for Condor were calculated using an assumed stock price reflecting the acquisition value of Condor assuming Amwest Common Stock trades at $17.50 or above per share during the relevant calculation period. GAAP tangible book values are calculated as book value less deferred acquisition costs and other intangibles. The range of comparables for the latest twelve months P/E ratios showed a low of 8.5x, a high of 34.3x earnings, with an average 15.0x, compared to a P/E ratio for Condor of 30.2x. With respect to estimated 1995 P/E ratios, the low was 6.8x, the high was 29.2x, the average 14.3x, compared to 29.2x for Condor. The range of comparables for estimated December 1996 P/E ratios was a low of 5.6x, a high of 18.2x and an average of 10.9x, compared to 7.8x for Condor. The range of comparables for the ratio of market capitalization to last fiscal year GAAP net income showed a low of 8.4x (7.6x based on statutory net income), a high of 36.9x (36.4x based on statutory net income), and an average of 15.8x (18.4x based on statutory net income), compared to 33.9x (57.0x based on statutory net income) for Condor. The price to GAAP book value for the comparables ranged from a low of 0.9x to a high of 2.8x, with an average of 1.5x, compared to 1.4x for Condor. The price to GAAP tangible book value ranged from a low of 1.1x to a high of 6.3x with an average of 2.2x, compared to 1.4x for Condor. The ratio of price to statutory book value ranged from a low of 0.9x to a high of 5.1x, with an average of 2.2x, compared to 2.6x for Condor. None of the companies used in the above analysis is identical to either of the merger companies or to the surviving corporation. Consequently, an appropriate use of a comparable company analysis in this instance necessarily involves qualitative judgments concerning, among other things, differences between the financial and operating characteristics of the merging companies and the selected comparable companies that would affect the public trading values of the merging companies and the selected comparable companies. Contribution Analysis Jefferies analyzed the contribution of each of Amwest and Condor to the pro forma combined company if the Merger were to be consummated. Such analysis was based on historical financial data provided by the managements of Amwest and Condor. Such analysis showed that, based on LTM data, Condor would contribute approximately 20% of net premiums earned, 10% of EBIT and 10% of net income of the combined company, before taking into account any cost savings or other synergies that may be achieved if the Merger were consummated. Based on data as of September 30, 1995, Condor would contribute approximately 22% of GAAP book value, 30% of GAAP tangible book value and 29% of Statutory Accounting Principals ("SAP") book value of the combined company. Based on a price per Amwest share of $12.50 to $17.50, during the calculation period, Condor would receive approximately 28% of the equity and 24% of the total enterprise value (equity plus debt) of the combined company. Pro Forma Earnings Per Share Analysis Jefferies analyzed certain pro forma effects of the Merger on the earnings of the combined company. These analyses were based on the projections provided by Amwest and Condor senior managements regarding the financial performance of Amwest and Condor, respectively, as well as the estimate of cost savings and other synergies provided by Amwest management. Jefferies expressed no view on whether the savings could be obtained. Based on such analysis, Jefferies observed that, after taking into account such estimated cost savings and other synergies, the Merger would initially be dilutive to earnings per share, but could be accretive for Amwest stockholders as early as 1996. Merger and Acquisition Transactions Jefferies examined fourteen mergers and acquisitions of property and casualty insurance companies as screened by Securities Data Corporation that have occurred since March 1990 where the percentage of shares acquired was greater than 50% and offering ratios were available. For each transaction, Jefferies studied the ratios of offer price to LTM earnings and offer price to book value. Excluding the highest and lowest values, the P/E ratio of the comparables ranged from a low of 6.8x to a high of 21.0x, with an average of 14.6x, compared to 30.2x for Condor, and the ratio of price to book value ranged from a low of 0.8x to a high of 2.7x, with an average of 1.5x, compared to 1.4x for Condor. Once again, the analyses assumed Amwest Common Stock will trade at $17.50 or above per share during the calculation period. Jefferies noted that the bid premium in the Merger is 145.6% of the closing market price of Condor Common Stock on November 28, 1995 and that, on average, bid premiums for publicly traded companies are approximately 25-35%. Because the reasons for and circumstances surrounding each of the transactions analyzed were diverse and because of the inherent differences between the operations of the merging companies and the companies engaged in the selected transaction, an appropriate use of a comparable transaction analysis in this instance necessarily involves qualitative judgments concerning, among other things, differences between the characteristics of these transactions and the Merger that would affect the acquisition value of the transaction comparables and the merging companies. Discounted Cash Flow Analysis In performing its evaluation of the Merger, Jefferies also relied on a discounted cash flow analysis. Using the Projections and other financial information supplied by Amwest and Condor, Jefferies analyzed the sum of (i) the present value of tax-effected operating cash flow for the years 1996 to 2000, using discount rates of 12.3% to 14.3%, plus (ii) the estimated "terminal value" of the appropriate entity based upon a range of multiples of 0.8x to 1.2x projected 2000 capitalization, discounted to the present, less (iii) net debt of the appropriate entity at September 30, 1995. The discounted cash flow analysis implies a value of Condor of $9.6 million to $24.3 million, compared to an acquisition valuation of Condor of $16.9 million, assuming Amwest Common Stock trades at $17.50 during the relevant calculation period. Other Matters Pursuant to an engagement letter dated November 20, 1995 between Amwest and Jefferies, Amwest has paid Jefferies a fee of $100,000 for delivering its Opinion and shall reimburse Jefferies for out-of-pocket expenses incurred in connection with rendering its services. Amwest has also agreed to indemnify Jefferies against certain liabilities, including liability under the Federal Securities Laws. The fee paid to Jefferies was payable upon delivery of a fairness opinion, regardless of the conclusions contained therein. In the ordinary course of its business, Jefferies may actively trade securities of Amwest and Condor for its own account and for the accounts of its customers and, accordingly, may at any time hold a long or short position in such securities. Opinion of Wedbush Morgan The Board of Directors of Condor retained Wedbush Morgan to furnish an opinion to the Board as to the fairness, from a financial point of view, to the Public Stockholders of Condor of the Merger Consideration to be received by the Public Stockholders in the Merger. The term "Public Stockholders" as used herein refers to all stockholders of Condor other than Amwest and other than those that are "affiliates" of Condor as that term is used in Rule 12b-2 under the Securities Exchange Act of 1934. Wedbush Morgan is an investment banking firm and a member of the New York Stock Exchange and other principal stock exchanges in the United States, and is regularly engaged as part of its business in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, private placements, secondary distributions of listed and unlisted securities, and valuations for corporate, estate and other purposes. The Condor Board of Directors retained Wedbush Morgan based upon the firm's overall qualifications and reputation in the industry, and its experience in valuation of securities and in furnishing opinions in connection with mergers and acquisitions. The Merger Consideration to be paid to the Public Stockholders was determined through negotiations among Condor and Amwest, and Wedbush Morgan did not participate in such negotiations. Wedbush Morgan's fairness opinion was only one factor considered by the Condor Board of Directors in making its determination to approve the Merger. The Condor Board of Directors requested the opinion of Wedbush Morgan, and Wedbush Morgan agreed to furnish its opinion so that the Board would have the assistance of Wedbush Morgan in evaluating the proposed transaction and in fulfilling the duties of the Board to Condor Public Stockholders. Wedbush Morgan has consented to the references to its opinion in this Proxy Statement/Prospectus, but has disclaimed any obligation to the Condor Public Stockholders. The Wedbush Morgan fairness opinion should not be viewed as having been a recommendation in favor of merging Condor with Amwest in lieu of Condor remaining as an independent entity or pursuing other alternative transactions. The Wedbush Morgan opinion states that it is intended to be for the benefit of the Condor Board of Directors, and not for the benefit of stockholders or any other third parties. Whether this disclaimer would be upheld by a court in a lawsuit by Condor Public Stockholders or others is uncertain. On November 30, 1995, Wedbush Morgan delivered its written opinion to the Condor Board of Directors to the effect that, as of that date and based upon the factors described in its opinion, the Merger Consideration is fair, from a financial point of view, to the Public Stockholders. The full text of the Wedbush Morgan opinion, dated November 30, 1995, which sets forth the assumptions made, the matters considered, and the nature of the review undertaken by Wedbush Morgan in arriving at its opinion is attached to this Proxy Statement/Prospectus as Annex D. All Condor Stockholders are urged to read the opinion in its entirety. The summary opinion of Wedbush Morgan set forth in this Proxy Statement/Prospectus is qualified in its entirety by reference to the full text of such opinion. In arriving at its opinion, Wedbush Morgan reviewed, among other things, the Merger Agreement; the Stockholder Agreement by and between Amwest, Mr. Main and the Main Family Trust; the Affiliates Letter and Continuity of Interest Certificates executed by certain members of Condor Management; the Agreement With Guy A. Main and Main Family Trust to be entered into by and between such parties and Amwest; the Registration Rights Agreement to be entered into between Mr. Main the Main Family Trust and Amwest; the Annual Report on Form 10-K of Condor for the fiscal year ended December 31, 1994; Quarterly Reports on Form 10-Q of Condor for the quarters ended June 30, 1995 and September 30, 1995; financial statements and analyses of Condor prepared by Condor Management for the fiscal years ended December 31, 1989 through December 31, 1993; the Proxy Statement for Annual Meeting of Stockholders of Condor dated April 26, 1995; Quarterly Statement of Statutory Results of Condor as of September 30, 1995; forecast and projections prepared by Condor with respect to Condor for the five fiscal years ended December 31, 1999; Actuarial Report on the Loss and Loss Adjustment Expense Reserves of Condor as of September 30, 1995, prepared by Timothy B. Perr & Company, Consulting Actuaries; the Annual Report to Stockholders of Amwest for the fiscal year ended December 31, 1994; the Annual Report on Form 10-K of Amwest for the fiscal year ended December 31, 1994; historical audited financial statements for the fiscal years ended December 31, 1990 through December 31, 1993 of Amwest; Quarterly Report on Form 10-Q of Amwest for the quarter ended September 30, 1995; Proxy Statement for the Annual Meeting of Stockholders of Amwest dated April 13, 1995; financial forecast of Amwest alone for the five fiscal years ending December 3l, 1999 and of Amwest combined with Condor for the five fiscal years ending December 31, 1999, prepared by Amwest Management. Wedbush Morgan also held discussions with certain members of the senior management of Condor regarding the past and current business operations, financial condition, future prospects and projected operations and performance of Condor. Wedbush Morgan held discussions with certain members of the senior management of Amwest regarding the past and current business operations, financial condition, future prospects and projected operations and performance of Amwest and of the combined entities. Wedbush Morgan toured the headquarters of Condor in El Segundo, California and the headquarters of Amwest in Woodland Hills, California. In addition Wedbush Morgan reviewed the reported price and trading activity of the Condor Common Stock and of Amwest Common Stock, compared certain statistical and financial information for Condor and Amwest respectively, with similar information for certain other companies in the same industries as Condor and Amwest, respectively, reviewed and compared statistical and financial data for recent acquisitions in the same industry as Condor and conducted such other financial studies, analyses and inquiries and considered such other matters as Wedbush Morgan deemed necessary and appropriate for its opinion. Wedbush Morgan did not undertake any obligation to verify independently the accuracy or completeness of financial information or other information furnished to Wedbush Morgan by Condor or Amwest orally or in writing, or other information obtained from publicly available sources and reviewed by Wedbush Morgan for purposes of its opinion. Wedbush Morgan was provided with information represented to Wedbush Morgan as the best currently available estimates, in the judgment of the management of Condor and Amwest, as to the expected future financial and operating performance of Condor and Amwest, and Wedbush Morgan did not undertake any responsibility for the accuracy of such forecasts, estimates, or judgments, nor did it undertake any obligation to verify independently the underlying assumptions made in connection with such forecasts, estimates or judgments. In addition, Wedbush Morgan did not make an independent evaluation or appraisal of any particular assets or liabilities of Condor or Amwest and was not furnished with any such evaluation or appraisal. The Wedbush Morgan fairness opinion notes that under Section 7.03(g) of the Merger Agreement, the obligations of Condor to effect the Merger are subject to the receipt at or prior to the date of the closing of the Merger of an opinion of Amwest's consulting actuary, addressed to Condor, as of December 31, 1995, opining that as of such date the reserves for loss and loss adjustment expense reflected on the balance sheet of Amwest and its affiliates entities have been established in conformity with generally accepted actuarial principles and practices consistently applied, that such reserves were established in conformity with the requirements of the California Department of Insurance, and that such reserves make a reasonable provision for all unpaid loss and loss adjustment expense obligations of Amwest under the terms of its policies and agreements. The Wedbush Morgan opinion was based in part on Condor's ability to obtain such assurances and is subject to receipt of such an actuarial opinion. Wedbush Morgan's experience is in financial analyses of the kind customary in the investment banking profession, and Wedbush Morgan did not undertake any obligation to conduct or to supervise any actuarial analyses or review of the quality of the reserves of Amwest or of Condor. The Wedbush Morgan fairness opinion notes that Amwest is a party to certain legal proceedings, which at the time such opinion was furnished were pending before the California Supreme Court, regarding the validity of Section 1861.135 of the California Insurance Code. Section 1861.135 purported to exempt surety insurance from the rate roll back and prior approval provisions of Proposition 103, the insurance initiative adopted by California voters. On December 14, 1995, the Supreme Court of the State of California affirmed the decision of the Second District Court of Appeal overturning Insurance Code Section 1861.135. Accordingly, the surety insurance industry will no longer be exempted from the rate rollback and prior approval provisions contained in Proposition 103. The Wedbush Morgan opinion is based on the assumption that the outcome of such legal proceedings will not have a material adverse effect (as such term is defined in the Merger Agreement) on the financial position of Amwest. The Wedbush Morgan opinion assumed that all relevant factors and circumstances, as they existed as of the date of its opinion, would remain substantially unchanged through the time the Merger is completed. Wedbush Morgan did not undertake to update its fairness opinion for any changes occurring between the date of such opinion and the Merger. Certain financial analyses performed by Wedbush Morgan in connection with the preparation of its opinion letter and reviewed with the Board are summarized below. These include public market comparable company analysis; discounted cash flow analysis; merger and acquisition comparables valuation; pro forma merger analysis; and contribution analysis. While the following summaries describe all analyses and examinations that Wedbush Morgan deems material to its opinion, they are not a comprehensive description of all analyses and examinations actually conducted by Wedbush Morgan. The preparation of a fairness opinion is not susceptible to partial analysis or summary description. Wedbush Morgan believes that such analyses must be considered as a whole and that selecting portions of such analysis and of the factors considered, without considering all such analyses and factors, would create an incomplete view of the process underlying the analyses set forth in its presentation to Condor's Board of Directors. The ranges of valuations resulting from any particular analysis described below should not be taken to be Wedbush Morgan's view of the actual value of Condor. It is not possible to assign exact weight given by Wedbush Morgan to the various forms of analysis. In performing its analyses, Wedbush Morgan made numerous assumptions with respect to industry performance and general business and economic conditions such as industry growth, inflation, interest rates and many other matters, many of which are beyond the control of Condor and/or Amwest. Any estimates contained in Wedbush Morgan's analyses are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by such analyses. Such analyses were prepared solely as part of Wedbush Morgan's analysis of the fairness of the Merger Consideration to the Condor Public Stockholders. Additionally, indications of the values of businesses and securities set forth below do not purport to be appraisals of the assets or market values of Condor or Amwest or the company formed by the combination of Condor and Amwest, or their respective securities, nor do they necessarily reflect the prices at which such businesses or securities may actually be sold. Amwest and Condor Market Values Wedbush Morgan noted that the closing price of Amwest's Common Stock on November 28, 1995 was $17.75, which implied an aggregate value of the consideration for Condor of $16.9 million, and a per share value of $8.75, based on 1.935 million fully diluted Condor Common Shares then outstanding. Wedbush Morgan noted that the proposed Merger Consideration would represent the following range of multiples of the then current market price of Condor Common Stock of $4.00, based on a range of Amwest stock prices: Consideration as a Multiple Amwest Stock Price of $4.00 Condor Stock Price ------------------ --------------------------- $10.50 1.6x $11.50 1.6x $12.50 1.6x $13.50 1.7x $14.50 1.8x $15.50 1.9x $16.50 2.1x $17.50 2.2x $18.50 2.2x $19.50 2.2x $20.50 2.2x Public Market Comparables Valuation Using publicly available information, Wedbush Morgan compared selected financial data of Condor and Amwest with similar data of selected publicly traded companies engaged in businesses considered by Wedbush Morgan to be comparable to those of Condor and Amwest. An analysis of comparable companies is not purely mathematical; rather it involves complex considerations and judgments concerning similarities and differences in financial, operational and other characteristics of potentially comparable companies. It is a subject as to which differences in professional judgment may well arise. In this regard, Wedbush Morgan noted that although the companies selected were considered similar to Condor or Amwest, none of the companies has the same management makeup, size or combination of business as Condor or Amwest, as the case may be. For purposes of this analysis, Wedbush Morgan treated the following companies as comparable to Condor (the "Condor Comparable Companies"): Acceptance Insurance Cos., American Eagle Group, Baldwin & Lyons, EMC Insurance Group, Guaranty National Corp., Home State Holdings, MCM Corp. and Philadelphia Consolidated Holding Corp. For purposes of this analysis, Wedbush Morgan considered the following companies as comparable to Amwest (the "Amwest Comparable Companies"): Acmat Corp., Capsure Holdings Corp. and Frontier Insurance Group. Wedbush Morgan determined that for the Condor Comparable Companies, the multiple range and median multiple of "market value" (defined as the number of shares outstanding times the closing stock price on November 28, 1995) to publicly reported latest twelve months ("LTM") net operating income (defined as pre-tax income less any realized gains, losses and extraordinary items) were 5.8x to 24.6x and 8.8x, respectively, with the median multiple implying a valuation of $3.59 per share of Condor Common Stock. Wedbush Morgan determined that the multiple range and median multiple of market value (as defined above) to 1996 estimated earnings per share ("EPS") (which estimates reflected a composite of research analysts' estimates as reported by the Institutional Brokers Estimate Service ("IBES")), were 4.9x to 10.5x and 7.6x, respectively, with the median multiple implying a valuation (based on Condor management projections) of $5.62 per share of Condor Common Stock. Wedbush Morgan determined that the multiple range and median multiple of market value (as defined above) to latest publicly reported book value of stockholders' equity were 1.0x to 1.6x and 1.1x, respectively, with the median multiple implying a valuation of $6.80 per share of Condor Common Stock. Wedbush Morgan determined that the multiple range and median multiple of the market value (as defined above) plus net debt to LTM premiums earned were 0.5x to 2.7x and 1.0x, respectively, with the median multiple implying a valuation of $8.44 per share of Condor Common Stock. Wedbush Morgan also compared Condor to the Condor Comparable Companies in terms of certain financial ratios, including: (a) the average "loss ratio" (defined as loss and loss adjustment expenses divided by net earned premiums) over the last three fiscal year period, (b) the average "combined ratio" (defined as the sum of loss and loss adjustment expenses plus underwriting expenses, divided by net earned premiums) over the last three fiscal year period, and (c) the average over the last three fiscal year period of operating return on average equity (defined as net operating income divided by the average book value of stockholders' equity for the period). Based on the median multiples described above for the Condor Comparable Companies, the Wedbush Morgan public market comparables valuation as a whole indicates an implied value reference range for Condor of between $3.59 and $8.44 per share of Condor Common Stock. Wedbush Morgan determined that for the Amwest Comparable Companies the multiple range and median multiple of market value (as defined above) to LTM net operating income were 4.5x to 10.2x and 7.5x, respectively, with the median multiple implying a valuation of $19.56 per share of Amwest Common Stock. Wedbush Morgan determined that the multiple range and median multiple of market value (as defined above) to LTM net income were 10.5x to 13.9x and 12.8x, respectively, with the median multiple implying a valuation of $30.46 per share of Amwest Common Stock. Wedbush Morgan determined that the multiple range and median multiple of market value (as defined above) to 1995 and 1996 estimated EPS (as reported by IBES) were 10.6x to 13.6x and 12.4x, respectively for 1995 and 9.5x to 11.7x and 11.6x, respectively, for 1996. The median multiples imply valuations (based on Amwest management projections) of $23.79 (1995) and $23.04 (1996) per share of Amwest Common Stock. Wedbush Morgan determined that the multiple range and median multiple of market value (as defined above) to latest publicly reported book value of stockholders' equity were 0.9x to 2.0x and 1.1x, respectively, with the median multiple implying a valuation of $19.99 per share of Amwest Common Stock. Wedbush Morgan also compared Amwest to the Amwest Comparable Companies in terms of certain financial ratios, including (a) the average loss ratio over the last three fiscal year period, (b) the average combined ratio over the last three fiscal year period, and (c) the average over the last three fiscal year period of operating returns on average equity. Based on the median multiples described above for the Amwest Comparable Companies, the Wedbush Morgan public market comparables valuation as a whole indicates an implied value reference range for Amwest of between $19.56 and $30.46 per share of Amwest Common Stock. Although, as noted above, Wedbush Morgan believes that the analyses conducted must be considered as a whole in determining fairness, Wedbush Morgan regards the results of its public market comparables valuation overall as supporting the conclusion expressed in its opinion. Discounted Cash Flow Wedbush Morgan analyzed the value of each of Condor and Amwest utilizing a discounted cash flow analysis. Each of these analyses was based upon projected financial information prepared or provided by the management of Condor and Amwest, as the case may be. As part of its analyses, Wedbush Morgan also considered certain sensitivity tests to evaluate the impact of changes in certain variables on overall valuation, including, among other things, changes in loss ratios and expense experiences. Wedbush Morgan calculated ranges of equity values for Condor based upon the discount to present value of Condor's projected four-year stream of after-tax cash flows (as represented by GAAP net income) and its fiscal 1999 terminal values based upon a range of multiples of Condor's projected net income. Wedbush Morgan utilized discount rates ranging from 19% to 24% and terminal value multiples of 1999 net income ranging from 9.25x to 10.75x. Based on the foregoing, Wedbush Morgan indicated a discounted cash flow implied value reference range for Condor of between $5.11 and $6.49 per share of Condor Common Stock. Wedbush Morgan calculated ranges of equity values for Amwest based upon the discount to present value of Amwest's projected four-year stream of after-tax cash flows (as represented by GAAP net income) and its fiscal 1999 terminal values based upon a range of multiples of Amwest's projected net income. Wedbush Morgan utilized discount rates ranging from 15% to 20% and terminal value multiples of 1999 net income ranging from 9.25x to 10.75x. Based on the foregoing, Wedbush Morgan indicated a discounted cash flow implied value reference range for Amwest of between $19.96 and $25.80 per share of Amwest Common Stock. Wedbush Morgan calculated ranges of equity values on a pro forma basis for the combined entity after the Merger based upon the discount to present value of the projected pro forma four-year stream of after-tax cash flows (as represented by GAAP net income) and fiscal 1999 terminal values based upon a range of multiples of projected pro forma net income. Wedbush Morgan utilized discount rates ranging from 20% to 25% and terminal value multiples of 1999 net income ranging from 9.25x to 10.75x. Wedbush Morgan based these analyses on management projections and on sensitivity projections which gave effect to the enhanced growth rate expected as a result of the Merger and to the projected cost savings resulting from the Merger, as estimated by management. No assurances can be given that such projected growth or cost savings in the amount estimated will be realized as a result of the Merger. Based on the foregoing, Wedbush Morgan indicated a discounted cash flow implied value reference range for the combined entity on a pro forma basis of between $20.50 and $26.32 per share of Amwest Common Stock. In determining the discount rates used in the discounted cash flow analyses of Condor and Amwest, Wedbush Morgan noted, among other things, factors such as inflation, prevailing market interest rates, the business risk inherent to each of Condor and Amwest, the historical weighted average cost of capital for each of Condor and Amwest, and the historical weighted average cost of capital for public companies Wedbush Morgan deemed comparable to each of Condor and Amwest. In determining the range of terminal value multiples used in the discounted cash flow analyses of Condor and Amwest, Wedbush Morgan noted, among other things, the multiples at which each of the Condor Common Stock and Amwest Common Stock historically traded, the multiples at which public companies Wedbush Morgan deemed comparable to each of Condor and Amwest historically traded and the multiples observed in mergers and acquisitions which Wedbush Morgan deemed relevant. Although as noted above, Wedbush Morgan believes that the analyses conducted must be considered as a whole in determining fairness, Wedbush Morgan regards the results of its discounted cash flow valuation as supporting the conclusion expressed in its opinion. Merger and Acquisition Comparables Valuation Wedbush Morgan reviewed certain publicly available information regarding selected merger and acquisition transactions involving companies engaged in similar businesses to Condor occurring since November 1992. The selection of comparable transactions, like the selection of comparable companies for purposes of the public market comparables valuation, involves complex considerations and judgments concerning similarities and differences in financial, operational and other characteristics of potentially comparable companies. None of the acquired companies utilized in the selected merger and acquisition comparables valuation was identical to Condor or to Amwest and none of the transactions was identical to the Merger. The transactions deemed comparable (the "Condor Comparable Transactions") and the date each Condor Comparable Transaction was announced were as follows: the acquisition of Leader National Insurance Co. by Penn Central Corp. (March 1993); the acquisition of Economy Fire & Casualty Co. by The St. Paul Cos. (August 1993); the acquisition of American Ambassador Casualty by GRE Plc. (November 1993); the acquisition of Bankers & Shippers Insurance by Integon Corp. (August 1994); the acquisition of Victoria Financial by USF&G Corp. (December 1994); the acquisition of Viking Insurance Holdings by Guaranty National Corp. (April 1995); and the acquisition of Hoosier Insurance by General Casualty Co. (June 1995). Wedbush Morgan determined that for the Condor Comparable Transactions, the multiple range and median multiple of transaction value to LTM revenues were 0.7x to 1.2x and 0.8x respectively, with the median multiple implying a value of $8.43 per share of Condor Common Stock. Wedbush Morgan determined that the multiple range and median multiple of transaction value to LTM premium earned were 0.4x to 1.3x and 0.9x, respectively, with the median multiple implying a value of $8.09 per share of Condor Common Stock. Wedbush Morgan determined that the multiple range and median multiple of transaction value to LTM net income were 11.3x to 36.9x and 21.0x, respectively, with the median multiple implying a value of $5.85 per share of Condor Common Stock. Wedbush Morgan determined that the multiple range and median multiple of transaction value to book value were 1.1x to 2.2x and 1.4x, respectively, with the median multiple implying a value of $8.62 per share of Condor Common Stock. Based on the foregoing median multiples for the Condor Comparable Transactions, Wedbush Morgan indicated an implied value reference range for Condor of between $5.85 and $8.62 per share of Condor Common Stock. Although as noted above, Wedbush Morgan believes that the analyses conducted must be considered as a whole in determining fairness, Wedbush Morgan regards the results of its merger and acquisition comparables valuation as supporting the conclusion expressed in its opinion. Pro Forma Merger Analysis Wedbush Morgan analyzed the changes in the per share amount of net income, book value of stockholders' equity and indicated dividend represented by one share of Condor Common Stock after the Merger. The analysis was performed on the basis of financial information for both companies as of and for the last twelve months ended September 30, 1995. The analysis indicated, among other things, that exchanging one share of Condor Common Stock for an assumed 0.5 of a share of Amwest Common Stock on a pro forma basis would have resulted in a 237% increase in net income per share for each share of Condor Common Stock, a 23% increase in projected 1996 net income per share for each share of Condor Common Stock, a 30% increase in book value per share for each share of Condor Common Stock and an increase in dividends per share from zero to $. 14 for each share of Condor Common Stock based on Condor's and Amwest's indicated annual dividend rate as of September 30, 1995. Although, as noted above, Wedbush Morgan believes that the analyses conducted must be considered as a whole in determining fairness, Wedbush Morgan regards the results of its pro forma merger analysis as supporting the conclusion expressed in its opinion. Contribution Analysis Wedbush Morgan analyzed the contribution of each of Condor and Amwest to, among other things, the premiums earned, net investment income, net operating income, net income, total investments, total assets and total book value of stockholders' equity of the combined pro forma company. This analysis showed that for the last twelve months ended September 30, 1995, among other factors, Condor would have contributed 19.8% of the premiums earned of the pro forma combined company, 20.3% of the net investment income, 11.4% of the net operating income, 8.8% of the net income, 19.7% of the total investments, 19.8% of the total assets, and 22.4% of the total book value of stockholders' equity compared with a proposed ownership of 29.1% of the combined company to be owned by holders of Condor Common Stock. Although, as noted above, Wedbush Morgan believes that the analyses conducted must be considered as a whole in determining fairness, Wedbush Morgan regards the results of its contribution analysis as supporting the conclusion expressed in its opinion. For furnishing its opinion, Wedbush Morgan received from Condor a fee of $75,000 as follows: (a) a non-refundable retainer of $37,500, payable when Wedbush Morgan was retained: (b) a further fee of $37,500, payable at the time Wedbush Morgan notified the Condor Board of Directors that it was prepared to deliver an oral or written opinion to the Board. Condor has also agreed to pay all of Wedbush Morgan's expenses (including, but not limited to the fees and expenses of Wedbush Morgan's legal counsel) reasonably incurred in connection with its engagement. The amount of the fee payable to Wedbush Morgan was not contingent on its conclusion regarding the fairness of the Merger Consideration to the Condor Public Stockholders. Condor also has agreed to indemnify Wedbush Morgan against certain potential liabilities, including liabilities under the Federal securities laws. Certain Considerations In considering whether to approve the Merger Agreement and the transactions contemplated thereby, stockholders should consider, among other factors, the following: (i) the relative stock prices of the Amwest Common Stock and the Condor Common Stock at the Effective Time may vary significantly from the prices as of the date of execution of the Merger Agreement or the date hereof or the date on which stockholders vote on the Merger due to changes in the business, operations and prospects of Amwest or Condor, market assessments of the likelihood that the Merger will be consummated and the timing thereof, the effect of any conditions or restrictions imposed on or proposed with respect to the combined companies by regulatory agencies in connection with or following consummation of the Merger, general market and economic conditions, and other factors; and (ii) the Conversion Number is fixed at 0.5 Amwest shares for each share of Condor Common Stock unless the value of Amwest Common Stock is less than $12.50, in which event the Merger Consideration will be increased by a factor of 12.5 divided by the Base Period Trading Price, or more than $17.50, in which event the Merger Consideration will be increased by a factor of 17.5 divided by the Base Period Trading Price, during the 30 consecutive trading days ending on the second trading day preceding the date of the closing of the Merger. Adjustment of the Conversion Number is subject to the right of Amwest not to consummate the Merger if the Conversion Number, as adjusted, would exceed 0.6 and the right of Condor not to consummate the Merger if the Conversion Number, as adjusted, would be less than 0.4. Interests of Certain Persons in the Merger Pursuant to the Agreement with Guy A. Main and the Main Family Trust, Mr. Main will become a member of the Amwest Board of Directors. See "Management of Amwest After the Merger." At the Effective Time, Amwest will enter into an employment agreement with Guy A. Main for a four year term at compensation levels consistent with the compensation of comparable Amwest executives. The Employment Agreement will provide that Guy A. Main will serve as Executive Vice President of Amwest and President of Condor Insurance Company during the term of his employment, will receive base compensation of $253,000 per year subject to annual review, will be eligible for bonuses and will be entitled to participate in employee benefits available to management generally. Under his employment agreement with Condor, Mr. Main received base compensation for the year ended December 31, 1995 of $310,589 (which is subject to consumer price index increases in future years), is eligible for bonuses, receives certain other employee benefits and an automobile allowance. At the Effective Time, each outstanding option to purchase shares of Condor Common Stock granted by Condor ("Condor Stock Option") shall be canceled and, in lieu thereof, Amwest shall issue to each holder thereof (other than non-employee directors) an option ("Amwest Stock Option"), to acquire, on substantially the same terms and subject to substantially the same conditions as were applicable under such Condor Stock Option, the same number of shares of Amwest Common Stock as the holder of such Condor Stock Option would have been entitled to receive pursuant to the Merger had such holder exercised such option in full immediately prior to the Effective Time, at an aggregate exercise price equal to the aggregate exercise price for the shares of Condor Common Stock otherwise purchasable pursuant to such Condor Stock Option; provided, however, that the number of shares of Amwest Common Stock that may be purchased upon exercise of any Amwest Stock Option shall not include any fractional share and, upon exercise of the Amwest Stock , a cash payment shall be made for any fractional share based upon the closing price of a share of Amwest Common Stock on AMEX on the trading day immediately preceding the date of exercise. Condor Stock Options issued to non-employee directors of Condor which remain outstanding as of the Effective Time shall be automatically canceled as of the Effective Time. It is anticipated that Condor Stock Options held by non-employee directors will be exercised prior to the Effective Time. The Merger Agreement provides that, after the Effective Time, Amwest will indemnify and hold harmless the directors, officers and employees of Condor against any losses, claims, damages, expenses or obligations arising out of the transactions contemplated by the Merger Agreement. Amwest agreed in the Merger Agreement that all rights to indemnification existing in favor of directors, officers, or employees of Condor as provided in Condor's Certificate of Incorporation or Bylaws, in effect on the date of the Merger Agreement with respect to matters occurring through the Effective Time, shall survive the Merger and shall continue in full force and effect for a period of three years from the Effective Time. The indemnification provided by Amwest pursuant to the Merger Agreement shall not, however, exceed the coverage provided by the insurance currently provided the indemnified parties by Condor. See "The Merger Agreement--Indemnification and Insurance." At November 30, 1995, Steven R. Kay, Senior Vice President, Chief Financial Officer and Director of Amwest, beneficially owned 1,550 shares of Condor Common Stock and Edgar L. Fraser, Director of Amwest, beneficially owned 20,680 shares of Condor Common Stock (including 17,600 shares of Condor Common Stock that may be acquired by Mr. Fraser upon exercise of outstanding stock options). Certain Federal Income Tax Consequences The following description of certain federal income tax consequences of the Merger is general in nature, is for general informational purposes only and is not tax advice. This discussion does not cover all aspects of federal income taxation that may be relevant to Amwest, Condor or Condor stockholders, nor does the discussion deal with tax issues peculiar to certain types of taxpayers (including but not limited to life insurance companies, S corporations, financial institutions, tax-exempt organizations or retirement accounts and foreign taxpayers). No aspect of foreign, state, local or estate and gift taxation is addressed. Therefore, the following summary is not a substitute for careful tax planning and advice based upon the individual circumstances of each stockholder of Amwest and Condor. The following summary is based on the Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations promulgated and proposed thereunder, judicial decisions and published administrative rulings and pronouncements of the Internal Revenue Service ("IRS"), as in effect on the date hereof. Changes in or additions to such rules, or new interpretations thereof, may have retroactive effect and therefore could significantly affect the consequences described below. Treatment of Amwest, Condor and Their Stockholders Upon the Exchange of Condor Common Stock for Amwest Common Stock It is anticipated that Gibson, Dunn & Crutcher, counsel for Amwest, and Kindel & Anderson, L.L.P., counsel for Condor (collectively "Counsel"), will render opinions to Amwest and Condor, respectively, at the closing of the Merger that the Merger will qualify as a "reorganization" within the meaning of Section 368(a) of the Code. If the Merger qualifies as a "reorganization" within the meaning of Section 368(a) of the Code: No gain or loss will be recognized by Amwest or Condor stockholders as a result of the Merger (other than gain or loss attributable to cash received by Condor stockholders in lieu of fractional shares). See "Cash in Lieu of Fractional Shares" below; The basis of each share of Amwest Common Stock received by each Condor stockholder will be the same as the basis of his or her Condor Common Stock exchanged therefor, reduced by any basis attributable to a fractional share of Amwest Common Stock for which the stockholder receives cash; See "Cash in Lieu of Fractional Shares" below. The holding period of the shares of Amwest Common Stock received by each Condor stockholder will include the stockholder's holding period for his or her Condor Common Stock exchanged therefor, provided the Condor Common Stock was held as a capital asset by the Condor stockholder; and Neither Amwest nor Condor will recognize taxable gain or loss as a result of the Merger, and the tax basis of Condor's assets in the hands of Amwest will be the same as Condor's tax basis in those assets prior to the Merger. It should be noted that no rulings or opinions have been requested from the IRS with respect to any of the tax aspects of the Merger, and an opinion of counsel is not binding on the IRS. Moreover, the opinions of Counsel will be based on certain factual representations and assumptions which, if untrue or incorrect, could affect the discussion set forth herein. In particular, in order to qualify as a reorganization, among other things, the historic Condor stockholders must maintain a sufficient "continuity of interest" in Amwest following the Merger. The IRS has indicated in published rulings that the continuity of interest requirement will be satisfied if the historic stockholders of the acquired entity (i.e., Condor) receive and retain, in the aggregate, 50% of the value of the stock of the acquired entity in the form of stock of the acquiring corporation (i.e., Amwest). Shares received by stockholders who at the time of receipt have an intention to sell or otherwise dispose of such shares generally are treated as not having been retained for purposes of this requirement. Moreover, Amwest Common Stock issued in exchange for Condor Common Stock acquired in contemplation of the Merger may, in certain cases, be treated as property other than stock for this purpose. Condor stockholders holding approximately 58% of the Condor Common Stock prior to the Merger have represented to Amwest that they have no current plan or intention to sell, exchange, transfer, distribute, pledge, dispose or otherwise engage in a transaction (a "Sale") that reduces those stockholders' risk of ownership, whether directly or indirectly with respect to the Amwest Common Stock received in the Merger. These stockholders are not, however, prohibited from engaging in a Sale of Amwest Common Stock following the Merger, other than as described below under "Certain Other Agreements ." These restrictions alone are not sufficient to ensure that the continuity of interest requirement will be satisfied with respect to the Merger. If Condor stockholders undertake substantial Sales of Condor Common Stock in anticipation of the Merger or substantial Sales of Amwest Common Stock after the Merger, pursuant to a plan or intention existing at or around the time of the Merger which, when combined with Amwest Common Stock converted to cash in lieu of the issuance of fractional shares, exceed 50% of the value of the Condor Common Stock immediately prior to the Merger, the continuity of interest test may not be met and the Merger may not qualify as a reorganization within the meaning of Section 368(a) of the Code. If the IRS were to successfully challenge the status of the Merger as a "reorganization" under Section 368(a) of the Code (based on a failure to satisfy the "continuity of interest" requirement or otherwise), a Condor stockholder would be treated as recognizing gain or loss as a result of the Merger equal to the difference between the stockholder's tax basis in his or her shares of Condor Common Stock and the fair market value of the Amwest Common Stock as of the Effective Time. In such event, the stockholder's aggregate basis in the Amwest Common Stock so received would equal the fair market value of such stock as of the Effective Time, and the stockholder's holding period for the Amwest Common Stock would begin the day after the Merger. In addition, if the Merger were to not qualify as a "reorganization" under Section 368(a) of the Code, the Merger would be treated as a taxable sale by Condor of its assets. The tax liability from such treatment would have a material and adverse effect on Amwest, as successor to the assets and liabilities of Condor pursuant to the Merger. Cash in Lieu of Fractional Shares Any stockholder of Condor who receives cash in lieu of a fractional share of Amwest Common Stock will recognize income or loss for federal income tax purposes equal to the difference between the cash received and the basis which would otherwise be allocable to the fractional share of Amwest Common Stock. For this purpose, the basis of a fractional share of Amwest Common Stock will be determined as if such stockholder had received such fractional share of Amwest Common Stock in the Merger. Any gain or loss likely will be treated as capital gain or loss, provided the Condor Common Stock was held as a capital asset by the Condor stockholder. THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY. STOCKHOLDERS OF AMWEST AND CONDOR SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER APPLICABLE TO THEM, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS. Anticipated Accounting Treatment The Merger is expected to qualify as a "pooling of interests" for accounting and financial reporting purposes. Under this method of accounting, the recorded assets and liabilities of Amwest and Condor will be carried forward to the combined corporation at their recorded amounts, subject to any adjustments required to conform the accounting policies of the companies; income of the combined corporation will include income of Amwest and Condor for the entire fiscal year in which the Merger occurs; and the reported income of the separate corporations for prior periods will be combined and restated as income of the combined corporation. The Merger Agreement does not, however, provide that qualification for "pooling of interests" accounting treatment is a condition to the consummation of the Merger. Effect on Employee Benefits Plans Condor maintains a number of employee benefit plans and compensation arrangements in which eligible employees of Condor and certain of its affiliates participate. These programs will be discontinued following the Merger and service with Condor and its Affiliated Entities and their predecessors prior to the Effective Time will be taken into account for eligibility and vesting purposes in connection with any benefit or payroll plan, practices, policy or agreement of Amwest or any of its affiliates in which any employee of Condor or an affiliated entity may become entitled to participate at or after the Effective Time. The Condor Stock Plan for Non-Employee Directors (the Non-Employee Director Plan) shall be terminated at the Effective Time. Condor Stock Options issued to non-employee directors of Condor which remain outstanding as of the Effective Time shall be automatically canceled as of the Effective Time. Regulatory Approvals Pursuant to the requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), on December 18, 1995, Condor and Amwest each filed a Notification and Report Form for review under the HSR Act with the Federal Trade Commission (the "FTC") and the Antitrust Division of the Department of Justice (the "Antitrust Division"). Early termination of the waiting period under the HSR Act with respect to such filing was granted on January 5, 1996. Even though the HSR Act waiting has expired , the FTC or the Antitrust Division could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking divestiture of substantial assets of Condor or Amwest. Consummation of the Merger is conditioned upon, among other things, the absence of any preliminary or permanent injunction or other order issued by any federal or state court in the United States which prevents the consummation of the Merger. There can be no assurance that a challenge to the Merger on antitrust grounds will not be made or, if such a challenge is made, of the result. Insurance Department Regulatory Approvals The Merger and transactions contemplated thereby require approvals by the Commissioners of the California Department of Insurance and the Arizona State Department of Insurance. Amwest filed a Form A with the California Department of Insurance on January 16, 1996. Receipt of such approvals is a condition of the Merger. Federal Securities Law Consequences All Amwest Common Stock issued in connection with the Merger will be freely transferable, except that any Amwest Common Stock received by persons who are deemed to be "affiliates" (as such term is defined under the Securities Act) of Condor or Amwest prior to the Merger may be sold by them only in transactions permitted by the resale provisions of Rule 145 under the Securities Act with respect to affiliates of Condor, or Rule 144 under the Securities Act with respect to persons who are or become affiliates of Amwest, or as otherwise permitted under the Securities Act. Persons who may be deemed to be affiliates of Condor or Amwest generally include individuals or entities that control, are controlled by, or are under common control with, such party and may include certain officers and directors of such party as well as principal stockholders of such party. Affiliates of Condor may not sell their shares of Amwest Common Stock acquired in connection with the Merger, except pursuant to an effective registration under the Securities Act covering such shares or in compliance with Rule 145 (or Rule 144 under the Securities Act in the case of persons who become affiliates of Amwest) or another applicable exemption from the registration requirements of the Securities Act. In general, under Rule 145, for two years following the Effective Time an affiliate of Condor (together with certain related persons) would be entitled to sell shares of Amwest Common Stock acquired in the Merger only through unsolicited "broker transactions" or in transactions directly with a "market maker," as such terms are defined in Rule 144. Additionally, the number of shares to be sold by an affiliate of Condor (together with certain related persons and certain persons acting in concert) within any three-month period for purposes of Rule 145 may not exceed the greater of 1% of the outstanding shares of Amwest Common Stock or the average weekly trading volume of such stock during the four calendar weeks preceding such sale. Rule 145 will only remain available, however, to affiliates of Condor if Amwest remains current with its informational filings with the Commission under the Exchange Act. Two years after the Effective Time, an affiliate of Condor would be able to sell such Amwest Common Stock without such manner of sale or volume limitations, provided that Amwest was current with its Exchange Act informational filings and such affiliate was not then an affiliate of Amwest. Three years after the Effective Time, an affiliate would be able to sell such shares of Amwest Common Stock without any restrictions so long as such affiliate had not been an affiliate of Amwest for at least three months prior thereto. Stock Exchange Listing It is a condition to the Merger that the shares of Amwest Common Stock to be issued in connection with the Merger be authorized for listing on the AMEX, subject to official notice of issuance. THE MERGER AGREEMENT The following description of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement, a copy of which is attached hereto as Annex A and incorporated herein by reference. Stockholders of Condor and Amwest are urged to read the Merger Agreement in its entirety. The Merger The Merger Agreement provides that, subject to the approval of the Merger by the stockholders of Condor and Amwest and the satisfaction or waiver of the other conditions to the Merger, Condor will be merged with and into Amwest in accordance with Delaware law and the separate existence of Condor shall thereupon cease. Amwest will possess all of the rights, privileges, powers and franchises and be subject to all of the restrictions, disabilities and duties of each of Amwest and Condor. At the Effective Time, the conversion of Condor Common Stock into the right to receive shares of Amwest Common Stock pursuant to the Merger Agreement will be effected as described in "Terms of the Merger", below. Condor's subsidiaries shall become wholly-owned subsidiaries of Amwest. Effective Time Following the adoption of the Merger Agreement by the stockholders of Amwest and Condor and subject to satisfaction or waiver of certain other terms and conditions, including conditions to closing, contained in the Merger Agreement, the Merger will become effective at such date and time as the Certificate of Merger is duly filed with the Secretary of State of Delaware. The date and time of such filing is herein referred to as "Effective Time". The filing of the Certificate of Merger will be made immediately after all conditions contemplated by the Merger Agreement have been satisfied or waived. Terms of the Merger At the Effective Time, by the virtue of the Merger and without any action on the part of the holder: (i) each share of Condor Common Stock held by Condor as treasury stock or owned by Amwest or any subsidiary of Amwest at the Effective Time will be canceled, and no payment will be made with respect thereto; and (ii) each remaining outstanding share of Condor Common Stock shall be converted into the right to receive 0.5 of a share of Amwest Common Stock (subject to adjustment as described below). If the average daily closing price per share of Amwest Common Stock as reported on AMEX for the 30 consecutive trading days ending on the close of trading on the second trading day preceding the date the Merger and the transactions contemplated thereby are consummated (the "Closing Date") (the "Base Period Trading Price") is less than $12.50, the Merger Consideration per share of Condor Common Stock shall be increased by a factor of 12.5 divided by the Base Period Trading Price, and if the Base Period Trading Price is greater than $17.50, the Merger Consideration per share shall be decreased by a factor of 17.5 divided by the Base Period Trading Price. Adjustment of the Conversion Number is subject to the right of Amwest not to consummate the Merger if the Conversion Number, as adjusted, would exceed 0.6 and the right of Condor not to consummate the Merger if the Conversion Number, as adjusted, would be less than 0.4. Each share of Amwest Common Stock issued to Condor stockholders in the Merger will include a right, under certain specified conditions, to purchase one one-hundredth of a share of Amwest Series A Junior Participating Preferred Stock pursuant to the Amwest Rights Agreement (as hereinafter defined). See "Comparison of Stockholder Rights---Rights Plan." As of the Effective Time, present holders of Condor Common Stock will cease to have any rights as holders of such shares, but will have the right to receive shares of Amwest Common Stock and any cash in lieu of fractional shares. After the Effective Time, the stock transfer books of Condor will be closed and there shall be no further transfers of Condor Common Stock. See "The Proposal to Approve and Adopt the Agreement and Plan of Merger--Conversion of Shares- Procedures for Exchange of Certificates" and "Comparison of Stockholder Rights." Condor stockholders are not entitled to dissenters' or appraisal rights in connection with the Merger Amwest stockholders are also not entitled to dissenters' or appraisal rights with respect to the Merger. See "Dissenters' Rights." Fractional Shares Fractional shares of Amwest Common Stock will not be issued in connection with the Merger. In lieu of any such fractional share, each holder of Condor Common Stock who would otherwise have been entitled to a fraction of a share of Amwest Common Stock upon surrender of certificates, would be entitled to receive an amount of cash (without interest) equal to the Base Period Trading Price multiplied by the fractional share interest to which such holder would otherwise be entitled. Surrender and Payment The Merger Agreement provides that as of the Effective Time, Amwest will deposit with The American Stock Transfer & Trust Company, or such other bank or trust company reasonably satisfactory to Condor, ( the "Exchange Agent") certificates representing the appropriate number of shares of Amwest Common Stock and cash to be paid in lieu of fractional shares in connection with the Merger. As soon as practicable after the Effective Time, each holder of Condor Common Stock will be entitled to receive, upon surrender to the Exchange Agent of one or more certificates representing such stock for cancellation, certificates representing the number of shares of Amwest Common Stock into which such shares are converted in the Merger and cash in consideration of fractional shares. Amwest Common Stock into which Condor Common Stock will be converted in the Merger shall be deemed to have been issued at the Effective Time. No dividends or other distributions that are declared or made on Amwest Common Stock will be paid to persons entitled to receive certificates representing Amwest Common Stock until such persons surrender their certificates representing such Condor Common Stock. Upon such surrender, there shall be paid to the person in whose name the certificates representing such Amwest Common Stock shall be issued any dividends or other distributions which shall have become payable with respect to such Amwest Common Stock in respect of a record date after the Effective Time. In no event shall the person entitled to receive such dividends be entitled to receive interest on such dividends or distributions. In the event that any certificates representing shares of Amwest Common Stock are to be issued in a name other than that in which the certificates representing shares of Condor Common Stock surrendered in exchange therefor are registered, it shall be a condition of such exchange that the person requesting such exchange presents to the Exchange Agent such certificates with all documents required to evidence and effect such transfer and evidence that any applicable stock transfer taxes have been paid. Notwithstanding the foregoing, neither Amwest nor Condor shall be liable to any holder of shares of Condor Common Stock, or Amwest Common Stock, as the case may be, for any shares of Amwest Common Stock (or dividends or distributions with respect thereto) or cash in lieu of fractional shares delivered to a public official pursuant to any applicable abandoned property, escheat or similar laws. Detailed instructions, including a transmittal letter, will be mailed to Condor stockholders promptly following the Effective Time as to the method of exchanging certificates formerly representing shares of Condor Common Stock for certificates representing shares of Amwest Common Stock. See "The Proposal to Approve and Adopt the Agreement and Plan of Merger--Conversion of Shares- Procedures for Exchange of Certificates." Stockholders of Condor should not send certificates representing their shares to Condor or to the Exchange Agent prior to receipt of the transmittal letter. Conditions to Consummation of the Merger The respective obligations of Amwest and Condor to effect the Merger are subject to fulfillment at or prior to the date of the Closing of the following conditions: (a) any waiting period (and any extension thereof) applicable to the Merger under the HSR Act shall have expired or been terminated, and any other governmental or regulatory notices or approvals required with respect to the transactions contemplated by the Merger Agreement shall have been either filed or received; (b) the Merger shall have been approved by the requisite vote of the stockholders of Condor required by the Delaware General Corporation Law ("DGCL") , NASD and Condor's Certificate of Incorporation and Bylaws; (c) the Merger shall be been approved by the requisite vote of the stockholders of Amwest required by the DGCL, AMEX and Amwest's Articles of Incorporation and Bylaws; (d) the Registration Statement shall have become effective and no stop order suspending the effectiveness thereof shall be in effect and no proceedings for such purpose shall be pending or threatened before the Commission; (e) the shares of Amwest Common Stock issuable in the Merger shall be approved for listing on the AMEX upon official notice of issuance; (f) no order, statute, rule, regulation, executive order, stay, decree, judgment, or injunction shall have been enacted, entered, issued, promulgated or enforced by any court or governmental authority which prohibits or restricts the effectuation of the Merger; (g) no governmental action or proceeding shall have been commenced or threatened seeking any injunction, restraining or other order which seeks to prohibit, restrain, invalidate or set aside the effectuation of the Merger; (h) the Merger and the transactions contemplated thereby shall have been approved by the Commissioners of the California Department of Insurance and the Arizona State Department of Insurance; and (i) Amwest shall have received from Union Bank a written waiver with respect to consummation of the Merger and the transactions contemplated thereby. The obligations of Condor to effect the Merger are also subject to the fulfillment at or prior to the date of the Closing of the following additional conditions: (a) Amwest shall have performed and complied in all material respects with the agreements and obligations contained in the Merger Agreement that are required to be performed and complied with by them at or prior to the date of the Closing; (b) the representations and warranties of Amwest contained in the Merger Agreement shall be true and correct in all material respects as of the date of the Merger Agreement and shall be deemed to have been made again at and as of the date of the Closing and shall then be true and correct in all material respects except on each date, for breaches or inaccuracies, the combination of which would not constitute a Material Adverse Effect (as defined below) on Amwest; (c) all corporate actions on the part of Amwest necessary to authorize the execution, delivery and performance of the Merger Agreement and the consummation of the transactions contemplated thereby shall have been duly and validly taken; (d) Condor shall have received the opinion of counsel from Gibson, Dunn & Crutcher, counsel to Amwest, covering such matters and in the form and substance agreed upon; (e) there shall have been no material adverse change in, and no event, occurrence or development in the business of Amwest that, taken together with other events, occurrences and developments with respect to such business, would have or would reasonably be expected to have a Material Adverse Effect on Amwest, as defined below; (f) Condor shall have received such certificates of officers of Amwest and such certificate of others to evidence compliance with the conditions to the Merger Agreement as may be reasonably requested by Condor; (g) Amwest shall have delivered to Condor an opinion of Amwest's consulting actuary as of December 31, 1995, opining that as of such date the reserves for loss and loss adjustment expense reflected on such balance sheet of Amwest and its Affiliated Entities (which term includes each direct or indirect subsidiary of Condor or Amwest, as the case may be, and each business entity in which Condor or Amwest, as the case may be, has any direct or indirect interest and for which it accounts on the equity method of accounting) have been established in conformity with generally accepted actuarial principles and practices consistently applied, that such reserves were established in conformity with the requirements of the California Department of Insurance and that such reserves make a reasonable provision for all unpaid loss and loss adjustment expense obligations of Amwest under the terms of its policies and agreements; and (h) the Conversion Number shall not be less than 0.4. "Material Adverse Effect" means any change or effect (i) that is or is reasonably likely to be materially adverse to the properties, business, results of operations, condition (financial or otherwise) or prospects of Condor or Amwest or both taken together, as the case may be, and any Affiliated Entity, taken as a whole, other than any change or effect arising out of general economic conditions unrelated to any businesses in which such party is engaged or (ii) that may impair the ability of such party to consummate the transactions contemplated by the Merger Agreement. The obligations of Amwest to effect the Merger are also subject to the fulfillment at or prior to the date of the Closing of the following additional conditions: (a) Condor shall have performed and complied in all material respects with the agreements and obligations contained in the Merger Agreement that are required to be performed and complied with by it at or prior to the date of the Closing; (b) the representations and warranties of Condor contained in the Merger Agreement shall be true and correct in all material respects, as of the date of the Merger Agreement, and shall be deemed to have been made again at and as of the date of the Closing and shall then be true and correct in all material respects except on each date, for breaches or inaccuracies, the combination of which would not constitute a Material Adverse Effect on Condor; (c) all corporate actions on the part of Condor necessary to authorize the execution, delivery and performance of the Merger Agreement and the consummation of the transactions contemplated thereby shall have been duly and validly taken; (d) Condor shall have received consents to the Merger from all persons from whom such consent or waiver is required; (e) Amwest shall have received the opinions of Kindel & Anderson L.L.P., counsel to Condor, covering such matters and in the form and substance agreed upon; (f) Amwest shall have received such certificates of officers of Condor and such certificates of others to evidence compliance with the conditions to the Merger Agreement as may be reasonably requested by Amwest; (g) there shall have been no material adverse change in, and no event, occurrence or development in the business of Condor that, taken together with other events, occurrences and developments with respect to such business, would have or would reasonably be expected to have a Material Adverse Effect on Condor; (h) Condor shall deliver to Amwest an agreement of stockholder, executed by the principal stockholder of Condor (the "Condor Stockholder"); (i) the Conversion Number shall not exceed 0.6; (j) Condor shall have delivered to Amwest an opinion of Condor's consulting actuary as of the most recently completed quarterly period of which actuarial information is available prior to that date of Closing, opining that as of such date the reserves for loss and loss adjustment expense reflected on such balance sheet of Condor and its Affiliated Entities have been established in conformity with generally accepted actuarial principles and practices consistently applied, that such reserves were established in conformity with the requirements of the California Department of Insurance and that such reserves make a reasonable provision for all unpaid loss and loss adjustment expense obligations of Condor under the terms of its policies and agreements; (k) Amwest shall have received from its consulting actuary, an opinion of actuary as of the most recently completed monthly period of which actuarial information is available prior to the date of Closing, opining that as of such date the reserves for loss and loss adjustment expense reflect on such balance sheet of Condor and its Affiliated Entities have been established in conformity with generally accepted actuarial principles and practices consistently applied, that such reserves were established in conformity with the requirements of the California Department of Insurance and that such reserves make a reasonable provision for all unpaid loss and loss adjustment expense obligations of Condor under the terms of its policies and agreements; (l) Guy A. Main and all members of the Condor Board of Directors and any other person deemed an Affiliate shall have performed his obligations under the Affiliates Letter and Continuity of Interest Certificate, and Amwest shall have received a certificate signed by such persons to such effect; (m) A.M. Best Company's ratings for each of Amwest Surety Insurance Company and Far West Insurance Company shall not, as of the Effective Time (and after taking into account the Merger and the transactions contemplated thereby), be lower than "A" (Excellent); (n) Amwest shall have received an Officers' Certificate Regarding Certain Tax Matters from the Chief Financial Officer and the Chief Executive Officer of Condor; and (o) Amwest shall have received from Condor a certification of non-foreign status described in Treasury Regulation Section 1.1445-2(c)(2), and shall have received from Condor and each Affiliated Entity owned directly by Condor a certification that such entities are not and have not been "United States real property holding corporations" during the periods set forth in, and in the form described in, Treasury Regulation Section 1.1445-2(c)(3). Representations and Warranties The Merger Agreement contains various representations and warranties of Amwest and Condor relating to, among other things, the following matters (which representations and warranties are subject, in certain cases, to specified exceptions as detailed in the Merger Agreement): (i) the due organization, power and standing of, and similar corporate matters with respect to, each of Condor and Amwest and the absence of any conflict with each of Condor's and Amwest's certificate of incorporation and bylaws and compliance with applicable laws; (ii) the authorization, execution, delivery, performance and enforceability of the Merger Agreement by each such party and of the transactions contemplated thereby; (iii) each of Condor's and Amwest's capitalization; (iv) disclosure of Affiliated Entities and commitments to invest funds in any other entity or business; (v) reports and other documents filed with the Commission and other regulatory authorities and the accuracy of the information contained therein; (vi) the absence of any change or event having a Material Adverse Effect on Condor or Amwest; (vii) the absence of any governmental or regulatory authorization, consent or approval required to consummate the Merger; (viii) the absence of any material undisclosed liabilities; (ix) compliance with tax laws and regulations, including the absence of any tax delinquencies of Condor or Amwest; (x) the compliance by each insurance subsidiary with the requirements of the insurance laws and regulations of any applicable jurisdiction; (xi) the right of Condor to use, to the extent they are now using, all proprietary rights; (xii) the absence of any litigation that would have a Material Adverse Effect on Condor or Amwest; (xiii) the validity of all material insurance policies of Condor; (xiv) compliance in all material respects with laws and regulations, a violation of which could have a Material Adverse Effect on Condor or Amwest; (xv) the disclosure of all employee benefit plans and compliance with statutes governing their administration; (xvi) absence of any employment related agreements at Condor; (xvii) the absence of any collective bargaining agreements at Condor; (xviii) compliance with environmental laws and the absence of environmental claims which could have a material adverse impact on Condor or Amwest; (xix) the absence of brokerage or finders fees associated with the Merger; (xx) the absence of any misleading representation or warranty in any document received from Condor or Amwest; (xxi) the proper recognition of post-retirement and post-employment benefit obligations; (xxii) the absence of any material untrue statements or omissions of material facts in the Registration Statement and the Proxy Statement/Prospectus; (xxiii) the absence of any questionable payments by either Condor, Amwest, Affiliated Entities or directors, officers, agents or employees thereof; (xxiv) the absence of guarantees for any liability or obligation other than for Affiliated Entities; (xxv) the disclosure, validity and enforceability of all material contracts; (xxvi) the validity of insurance contracts and the premium rates utilized on all policies of insurance issued by Condor and Amwest; (xxvii) the disclosure and validity of all reinsurance contracts of Amwest and Condor; (xxviii) the adequacy of the loss and loss adjustment expense reserves established by Amwest and Condor; and (xxix) the receipt of fairness opinions of Condor's and Amwest's investment bankers. The representations and warranties of Amwest and Condor will not survive the Effective Time. Conduct of Business Pending the Merger Prior to the Effective Time, unless the other party shall otherwise agree in writing, Condor and Amwest have agreed, among other things, to and to cause their Affiliated Entities to, carry on their respective businesses in the ordinary course of business and use their best efforts to preserve intact their present business organizations, keep available the services of their present officers and employees and maintain satisfactory relationships with customers, suppliers and others having advantageous business dealings with them. Neither Condor or any of its Affiliated Entities, nor Amwest or any of it Affiliated Entities without prior written consent of the other party (subject in certain cases to specified exceptions) shall, among other things: (a) amend its Articles or Certificates of Incorporation or Bylaws; (b) split, combine or reclassify any shares of its capital stock or declare or pay any dividends other than Amwest's regular quarterly dividend; (c) authorize for issuance, sell or deliver any of its capital stock; (d) incur any material obligation other than in the ordinary course of business; (e) adopt or amend any employment related agreement; (f) acquire any other business organization for an amount in excess of $50,000; (g) pay, discharge or satisfy any material claim, liability or obligation other than in the normal course of business; (h) acquire any material assets or properties other than in the ordinary course of business; (i) waive release grant or transfer any material right; (j) change accounting principles except as a result of a change in law or GAAP; (k) materially revalue any assets; (l) make or revoke any tax election or settle or compromise any material tax liability; (m) settle or compromise any pending or threatened suit relating to the transactions contemplated by the Merger Agreement; (n) settle or compromise any pending or threatened suit in the ordinary course of business, except Amwest may settle, compromise and make payment with respect to its existing litigation relating to California Proposition 103; or (o) take any action or agree to take action which would make any representation or warranty in the Merger Agreement untrue or incorrect. Certain Other Covenants Amwest and Condor have agreed to use all reasonable efforts to take, or cause to be taken, all appropriate action and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by the Merger Agreement, including using all reasonable efforts to obtain all necessary waivers, consents and approvals and to effect all necessary registrations, filings and stock listings. Amwest and Condor have agreed to consult with each other before issuing any press release or other public statements with respect to the Merger Agreement or transactions contemplated thereby. Amwest and Condor have agreed to give prompt notice to one another of any event which would be likely to cause any of their respective representations or warranties to be untrue or inaccurate in any material respect or any condition to closing to become impossible or unlikely to be fulfilled and of any failure to comply with any covenant contained in the Merger Agreement. Prior to the date of Closing, Condor has agreed to deliver to Amwest a letter identifying all persons who are, at the time the Merger Agreement is submitted for approval by the Condor Stockholders, "affiliates" of Condor for purposes of Rule 145 under the Securities Act (the "Affiliates"). Condor agrees to use its best efforts to cause each Affiliate to deliver to Amwest on or prior to the date of Closing an agreement that such Affiliate will not sell or in any other way reduce such Affiliate's interest in or risk relative to any Amwest Common Stock received in the Merger until such time as financial results covering at least 30 days of post-Merger operations have been published. Amwest has agreed to use its best efforts to list the Amwest Common Stock issued pursuant to the Merger or on the exercise of Amwest Stock Options to be issued pursuant to the Merger Agreement on the AMEX. Amwest has also agreed to enter into an employment agreement with Mr. Main and an additional agreement with Mr. Main and the Main Family Trust pursuant to which Amwest will agree to cause Mr. Main to be appointed to Amwest's Board of Directors. See "The Proposal to Approve and Adopt the Agreement and Plan of Merger --Interests of Certain Persons in the Merger." Amwest and Condor agree to take such action as is necessary under federal or state securities laws, the HSR Act, or the California or Arizona Insurance Code in connection with the Merger and the transactions contemplated by the Merger Agreement , and to use their best efforts to have declared effective or approved all documents and notifications with the Commission, the California Department of Insurance, the Arizona State Department of Insurance and other appropriate regulatory bodies. Condor shall take no action which would jeopardize the characterization of the Merger as a reorganization within the meaning of Section 368(a)(I)(A) of the Code and neither Condor nor Amwest shall take any action which could prevent the Merger from being accounted for as a "pooling of interests" for accounting purposes. Amwest shall take all corporate action necessary to reserve for issuance a sufficient number of shares of Amwest Common Stock for delivery upon exercise of Amwest Stock Options to be issued to replace certain Condor Stock Options which will be terminated at the Effective Time. See "The Proposal to Approve and Adopt the Agreement and Plan of Merger-- Interest of Certain Persons in the Merger." As soon as practicable after the Effective Time, Amwest shall file a registration statement on Form S-3 or Form S-8, as the case may be (or any successor or other appropriate forms), or another appropriate form with respect to the shares of Amwest Common Stock subject to such Amwest Stock Options and shall use its best efforts to maintain the effectiveness of such registration statement or registration statements (and maintain the current status of the prospectus or prospectuses contained therein) for so long as such options remain outstanding. Other Potential Acquirors Subject to the fiduciary duties of the Board of Directors of Condor, as advised by outside counsel, neither Condor nor any of its Affiliated Entities shall take nor shall Condor authorize or permit any of its or their officers, directors, employees, representatives or agents to, directly or indirectly encourage, solicit, participate in or initiate discussions or negotiations with, or provide any information to any corporation, person, partnership or other entity or group, other than Amwest or its Affiliated Entities or designees, concerning any merger, sale of assets, sale of shares of capital stock or similar transactions involving Condor or any Affiliated Entity or division thereof. Condor will promptly provide to Amwest a copy of any written proposal and a summary of any oral proposal received by Condor regarding such a transaction and the terms of any proposal or inquiry, and thereafter keep Amwest promptly advised of any development with respect thereto. Further, the Condor Board of Directors shall not approve or recommend or cause Condor to enter into any agreement with respect to any acquisition of Condor by a third party of more than 30% of Condor's assets or outstanding shares, or pursuant to a merger or other transaction, unless, after consultation with counsel, the Condor Board of Directors determines that it is necessary to do so in order to comply with its fiduciary duties to stockholders under applicable law. Indemnification and Insurance The Merger Agreement provides that, after the Effective Time, Amwest will indemnify and hold harmless the directors, officers and employees of Condor against all losses, expenses, claims, damages or liabilities, including those arising out of the transactions contemplated by the Merger Agreement, to the fullest extent permitted or required under applicable law. All rights to indemnification existing in favor of directors, officers, or employees of Condor as provided in Condor's Certificate of Incorporation or Bylaws in effect on the date of the Merger Agreement, with respect to matters occurring prior to the Effective Time, shall survive the Merger and shall continue in full force and effect for a period of three years from the Effective Time. The Merger Agreement provides that, with respect to matters occurring prior to the Effective Time, Amwest will indemnify Condor for three years provided that such indemnification shall not exceed the coverage provided by the insurance currently provided the indemnified parties by Condor. Termination and Abandonment The Merger Agreement may be terminated at any time prior to the Effective Time: (i) by mutual written consent of Amwest and Condor or (ii) by either Amwest or Condor if the Merger has been enjoined by a court or the Merger shall not have been consummated on or before June 30, 1996 (provided the terminating party's failure to fulfill its obligations under the Merger Agreement is not the reason that the Merger has not been consummated). The Merger Agreement may be terminated by Condor if (i) any representation or warranty of Amwest is breached or becomes untrue and cannot be cured by June 30, 1996, (ii) a breach of the Merger Agreement by Amwest which could have a Material Adverse Effect on Amwest or materially adversely affect or delay the consummation of the Merger has not been cured within 20 business days after notice by Condor, (iii) Condor enters into a definitive agreement to be acquired by a third party and pays the Termination Fee or (iv) the Merger Agreement is not approved by the requisite vote at the Amwest Special Meeting. The Merger Agreement may be terminated by Amwest if (i) any representation or warranty of Condor is breached or becomes untrue and cannot be cured by June 30, 1996, (ii) a breach of the Agreement by Condor which could have a Material Adverse Effect on Condor or materially adversely affect or delay the consummation of the Merger has not been cured within 20 business days after notice by Amwest, (iii) Condor engages in negotiations which continue for more than 20 days with a third party seeking to acquire Condor, (iv) the Condor Board of Directors has withdrawn, modified or changed its recommendation of the Merger, has recommended an acquisition by a third party or has failed to call, give notice of, convene or hold a stockholders meeting to approve the Merger, (v) the Merger is not approved by the requisite vote at the Amwest Special Meeting or (vi) the Merger is not approved by the requisite vote at the Condor Special Meeting. Condor will be required to pay Amwest a fee of $700,000 (the "Termination Fee") in the event that Condor terminates the Merger Agreement in order to accept a Superior Proposal. Condor will also be required to pay the termination fee if the Merger Agreement is terminated by Amwest (i) for breach of any of Condor's representations, warranties or covenants or because Condor engages in negotiations which continue for more than 20 business days with a third party seeking to acquire Condor and, within 12 months of such termination, Condor enters into an agreement for, or consummates, an acquisition with a third party under certain circumstances, or (ii) because the Condor Board of Directors has withdrawn, modified or changed its recommendation of the Merger, has recommended an acquisition with a third party or has failed to call, give notice of, convene or hold a stockholders meeting to approve the Merger or because the Merger is not approved by the requisite vote of the Condor Stockholders at the Condor Special Meeting. If the Merger Agreement is terminated by Amwest under conditions requiring the payment of the termination fee or because of a breach by Condor of its representations, warranties or covenants, as described above, Amwest will also be entitled to be reimbursed by Condor for its reasonable expenses incurred in connection with the Merger. If the Merger Agreement is terminated by Condor because of a breach by Amwest of its representations, warranties or covenants, as described above, or because the Merger is not approved by the requisite vote at the Amwest Special Meeting, Condor will be entitled to be reimbursed by Amwest for its reasonable expenses incurred in connection with the Merger. In all other cases, Amwest and Condor will each bear their own expenses. Amendment; Waiver The Merger Agreement provides that it may be amended, modified or supplemented only by written agreement of the parties thereto, at any time prior to the Effective Time except that after approvals by the stockholders of Condor and Amwest, the amount or form of consideration to be received by Condor Stockholders may not be decreased or altered without the approval of such stockholders. Any failure of Amwest, on the one hand, or Condor on the other hand, to comply with any obligation, covenant, agreement or condition in the Merger Agreement may be waived in writing by Amwest or Condor, respectively, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. Whenever the Merger Agreement requires or permits consent by or on behalf of Amwest or Condor, such consent shall be given in writing. CERTAIN OTHER AGREEMENTS In connection with the Merger Agreement, Amwest has entered or will enter into certain agreements with various persons. Amwest, the Main Family Trust and Mr. Main have entered into a Stockholder Agreement pursuant to which the Main Family Trust (which holds shares of Condor Common Stock for the benefit of Mr. Main and his family) and Mr. Main have (i) agreed not to sell or otherwise transfer any shares of Condor Common Stock prior to the Effective Time or the termination of the Merger Agreement, (ii) agreed to vote all shares of Condor Common Stock which they hold in favor of the Merger and against any proposal in opposition to or competition with the Merger, and (iii) granted an option to Amwest to purchase 825,000 shares of Condor Common Stock for a price equivalent to the Merger Consideration exercisable at any time during the period commencing with the termination of the Merger Agreement. The directors and officers of Condor have executed and delivered to Amwest an Affiliates Letter and Certificate of Continuity of Interest in which they have made certain representations about their intentions to hold the shares of Amwest Common stock to be received in the Merger and agreed to certain restrictions on resales of such shares. The representations and restrictions of resales are intended to preserve the characterization of the Merger for federal income tax purposes as a reorganization, to comply with the requirements for pooling-of-interest accounting treatment and to comply with restrictions on resales of securities imposed by federal securities laws. At the Effective Time, Amwest, the Main Family Trust and Mr. Main will enter into an agreement pursuant to which Mr. Main will be elected a director of Amwest as long as he remains a member of the management executive committee of Amwest. The agreement will also include certain provisions which become effective only in the event that the Merger does not qualify for pooling-of - -interest accounting treatment, including agreements not to sell any Amwest Common Stock received in the Merger for two years and to grant a right of first refusal to Amwest to purchase any shares of Amwest Common Stock received in the Merger. Amwest, the Main Family Trust and Mr. Main will also enter into a Registration Rights Agreement pursuant to which Amwest will agree to register shares of Amwest Common Stock received by the Main Family Trust in the Merger for resale under the Securities Act of 1933. At the Effective Time, Amwest and Mr. Main will also enter into an Employment Agreement pursuant to which Mr. Main will be employed for four years as Executive Vice President of Amwest and President of Condor Insurance. Mr. Main will receive a base salary of $253,000, subject to annual review, and will be eligible for bonuses under the Amwest Annual Executive Incentive Plan and entitled to other benefits available to other Amwest officers generally, including an automobile allowance. DISSENTERS' RIGHTS Pursuant to Section 262(b) of the Delaware General Corporation Law, Condor stockholders are not entitled to dissenters' or appraisal rights in connection with the Merger, because: (i) shares of Condor Common Stock were, at the Condor Record Date, designated as a NASDAQ National Market security; (ii) Condor stockholders will not be required to accept anything in exchange for their Condor Common Stock other than Amwest Common Stock (i.e., shares of stock of the corporation surviving the Merger) and cash in lieu of fractional shares of such stock; and (iii) the Certificate of Incorporation of Condor does not otherwise provide Condor stockholders with dissenters' or appraisal rights applicable to the Merger. Amwest stockholders are also not entitled to dissenters' or appraisal rights with respect to the Merger. MANAGEMENT OF AMWEST AFTER THE MERGER Directors and Executive Officers After the Merger Pursuant to the Agreement with Guy A. Main and the Main Family Trust, Mr. Main will become a member of the Amwest Board of Directors. Upon the appointment of such persons, the Amwest Board will consist of 11 directors, 10 of whom were directors of Amwest as of the date of the Merger Agreement. Set forth below is certain information about each person who is expected to be a member of the Board of Directors or an executive officer of Amwest as of the Effective Time with the information expected to be true on the Effective Time. Year Became A Name Director Age Richard H. Savage. . . . . . . . . . . . . . . . . . . . . 1970 76 Chairman of the Board, Co-Chief Executive Officer and Director John E. Savage. . . . . . . . . . . . . . . . . . . . . . 1976 43 Co-Chief Executive Officer, President, Chief Operating Officer and Director Steven R. Kay. . . . . . . . . . . . . . . . . . . . . . . 1992 42 Senior Vice President, Chief Financial Officer, Treasurer and Director Arthur F. Melton. . . . . . . . . . . . . . . . . . . . . 1986 41 Senior Vice President and Director Guy A. Main *. . . . . . . . . . . . . . . . . . . . . . . 1996 59 Executive Vice President and Director Neil F. Pont. . . . . . . . . . . . . . . . . . . . . . . 1994 50 Senior Vice President and Director Thomas R. Bennett. . . . . . . . . . . . . . . . . . . . . 1985 68 Director Edgar L. Fraser. . . . . . . . . . . . . . . . . . . . . . 1985 77 Director Jonathan K. Layne. . . . . . . . . . . . . . . . . . . . . 1989 42 Director Bruce A. Bunner. . . . . . . . . . . . . . . . . . . . . . 1995 62 Director Charles L. Schultz. . . . . . . . . . . . . . . . . . . . 1995 67 Director - --------------- * Became a Director of Condor in 1988 (and of its predecessor in 1974). Except as set forth below, each of the directors has served in the capacity indicated in the above table for the past five years. Mr. Kay joined Amwest in April 1992. From 1977 he served in various positions with KPMG Peat Marwick and served as an Audit Partner for KPMG Peat Marwick from 1987 until April 1992. Mr. Pont joined Amwest in November 1991 as a Senior Vice President. During 1991, he served as a retained consultant following his tenure from 1987 until 1991 with Imperial Corporation of America, where he served in various executive management positions, including Executive Vice President Retail Banking, board member of First Imperial Investor Services, an investment broker dealer, and Imperial Insurance Agency. Mr. Bunner retired in 1994 as Chairman of Centre Reinsurance Company of New York. Previously, he served with KPMG Peat Marwick for 22 years. In addition, Mr. Bunner served as California State Insurance Commissioner from 1983 to 1986. Mr. Bunner is also a member of the Board of Directors of Mercury Insurance Group, Inc., a property and casualty insurer specializing in automobile coverages. Mr. Schultz is currently a Director of U.S. Facilities Corporation of Costa Mesa, California. He retired in 1993 as Senior Vice President, Finance and Chief Financial Officer of Farmers Group, Inc. where he had served for 19 years in various capacities. Previously, Mr.Schultz had been with Great American Insurance Company in senior management positions from 1950 to 1974. Mr. Fraser, who was on the Board of Directors of both Amwest and Condor, resigned from the Condor Board effective November 13, 1995 in light of discussions between the two companies. Additional information about directors as of December 31, 1994 is contained in Amwest's and Condor's Proxy Statements for their respective 1995 Annual Meetings of Stockholders, relevant portions of which are incorporated by reference in this Proxy Statement/Prospectus from Amwest's and Condor's Annual Reports on Form 10-K for the years ended December 31, 1994. See "Incorporation by Reference" and "Available Information." Security Ownership of Management As of the Amwest Record Date directors and executive officers of Amwest and their affiliates were beneficial owners of approximately ___% of the outstanding shares of Amwest Common Stock. As of the Condor Record Date, directors and executive officers of Condor and their affiliates were beneficial owners of approximately ___ % of the outstanding shares of Condor Common Stock. Post-Merger Dividend Policy It is the current intention of the Board of Directors of Amwest to declare dividends on the Amwest Common Stock following the Merger initially in the amount of $0.11 per quarter or $0.44 per year, in each case per share. Stockholders should note that no such dividends have been declared and that future dividends will be determined solely by Amwest's Board of Directors in light of the earnings and financial condition of Amwest and its subsidiaries and other factors. Principal Stockholders of Condor The following table sets forth certain information as to the ownership of Condor Common Stock on February 7, 1996, by (i) each person who is known to own beneficially more than 5% of the outstanding shares of the Condor Common Stock, (ii) each director of Condor, (iii) certain executive officers and (iv) all executive officers and directors as a group. Number of Shares Percentage Name Beneficially Owned (1) Ownership Guy A. Main 988,510 (2) 50.3% William A. Clary 26,100 (3) 1.3% Robert W. Kleinschmidt 62,200 (4) 3.2% William J. Van Beurden 114,017 (5) 5.8% Zondra L. Hendrix 37,272 (6) 1.9% All executive officers and directors as a group (5 persons) 1,288,099 (7) 63.7% Other Principal Stockholders: Amwest Insurance Group, Inc. 97,350 5.03% (1) Unless otherwise indicated, each executive officer and director has sole voting and investment power with respect to the shares listed. (2) Includes (a) 13,200 shares of Condor Common Stock that may be acquired by Mr. Main upon exercise of outstanding stock options, (b) 18,000 shares of Condor Common Stock held by the Condor Services, Inc. Profit Sharing Plan, of which Mr. Main is co-trustee with Ms. Hendrix, as to which Mr. Main shares voting and investment power and as to which he disclaims beneficial ownership, and (c) 957,310 shares of Condor Common Stock held by the Main Family Trust, of which Mr. Main and his wife share voting and investment power. The address of Mr. Main is 2361 Rosecrans Avenue, El Segundo, California 90245. (3) Includes 18,700 shares of Condor Common Stock that may be acquired by Mr.Clary upon exercise of outstanding stock options. (4) Includes 13,200 shares of Condor Common Stock that may be acquired by Mr. Kleinschmidt upon exercise of outstanding stock options. (5) Includes (a) 9,900 shares of Condor Common Stock that may be acquired by Mr. Van Beurden upon exercise of outstanding stock options, and (b) 100,000 shares of Condor Common Stock held by Van Beurden Insurance Services, Inc., of which Mr. Van Beurden is the President and a shareholder, as to which Mr. Van Beurden shares voting and investment power and as to which he disclaims beneficial ownership. The address of Mr. Van Beurden is 1600 Draper Street, Kingsburg, California 93631. (6) Includes (a) 18,500 shares of Condor Common Stock that may be acquired by Ms. Hendrix upon exercise of outstanding stock options, (b) 792 shares of Common Stock held by her husband, as to which Ms. Hendrix disclaims beneficial ownership, and (c) 18,000 shares of Condor Common Stock held by the Condor Services, Inc. Profit Sharing Plan, of which Ms. Hendrix is co-trustee with Mr. Main, as to which Ms. Hendrix shares voting and investment power. (7) Includes 73,500 shares of Condor Common Stock that may be acquired upon exercise of outstanding stock options. Principal Stockholders of Amwest The following table sets forth certain information as to the ownership of Amwest Common Stock on February 7, 1996, by (i) each person who is known to own beneficially more than 5% of the outstanding shares of the Amwest Common Stock, (ii) each director of Amwest, (iii) certain executive officers and (iv) all executive officers and directors as a group. Number of Shares Percentage Name Beneficially Owned (1) Ownership (15) ---- ---------------------- -------------- Directors: Richard H. Savage 823,115 (2)(3)(4) 34.76% John E. Savage 158,941 (5) 6.55% Steven R. Kay 25,075 (6) 1.05% Arthur F. Melton 39,225 (7) 1.64% Neil F. Pont 14,505 (8) (16) Thomas R. Bennett 11,550 (9) (16) Bruce A. Bunner 0 (16) Edgar L. Fraser 7,830 (10) (16) Jonathan K. Layne 7,600 (11) (16) Charles L. Schultz 0 (16) All executive officers and directors as a group(10 persons) 1,087,841 43.31% Other Principal Stockholders: Savage Family Trust 126,274 (3)(4) 5.33% Savage Diversified, Inc. 696,841 (4) 29.43% Dimensional Fund Advisors Inc. 154,200 (12) 6.51% Markel Corporation 178,300 (13) 7.53% Heartland Advisors, Inc. 244,900 (14) 10.34% (1) Based on information furnished by the persons named. The persons in the table have sole voting and investment power with respect to all shares of Amwest Common Stock shown as beneficially owned by them, except as otherwise stated. (2) Of the shares beneficially owned by Richard H. Savage: (1) 126,274 shares represent shares owned by the Savage Family Trust for which Mr. Savage serves as Trustee; and (2) 696,841 shares represent shares owned by Savage Diversified, Inc. a California corporation, all the voting stock of which is owned by the Savage Family Trust. Mr. Savage, as Trustee, has sole voting power over shares owned by such trust. (3) The Savage Family Trust owns 126,274 shares of Amwest Common Stock. Richard H. Savage is the Trustee of the Savage Family Trust, and as such, exercises sole voting and investment power with respect to shares owned by the Trust. These shares are included in the number of shares beneficially owned by Richard H. Savage as set forth in Note 2. The address of the Savage Family Trust is 6320 Canoga Avenue, Suite 300, Woodland Hills, California 91367. (4) Of the shares beneficially owned by Richard H. Savage, 696,841 shares are owned by Savage Diversified, Inc., a California corporation, all the voting stock of which is owned by the Savage Family Trust. Richard H. Savage, as Trustee, has sole voting power over shares owned by such trust. These shares are included in the number of shares beneficially owned by Richard H. Savage as set forth in Note 2. The address of Savage Diversified, Inc. is 6320 Canoga Avenue, Suite 300, Woodland Hills, California 91367. (5) John E. Savage serves as Trustee of the following Trusts: (1) Savage Family Stock Trust FBO Sandra Lee Savage which owns 19,478 shares of Common Stock; (2) Savage Family Stock Trust FBO Lorraine Ann Savage which owns 19,478 shares of Common Stock; and (3) Savage Family Stock Trust FBO Geraldine K. Thuresson which owns 19,479 shares of Common Stock. Mr. Savage owns 40,606 shares of Common Stock. In addition, 59,900 shares shown as beneficially owned by Mr. Savage represent shares which may be acquired by Mr. Savage upon exercise of outstanding stock options. (6) Of the shares beneficially owned by Steven R. Kay: (1) 3,500 shares represent shares that are directly owned by Mr. Kay; (2) 500 shares represent shares that are indirectly held through his wife; (3) 200 shares represent shares that are indirectly held through his son; and (4) 20,875 shares represent shares which may be acquired by Mr. Kay upon exercise of outstanding stock options. (7) Of the shares beneficially owned by Arthur F. Melton: (1) 9,050 shares represent shares that are jointly owned by Mr. Melton and his wife; (2) 1,350 shares represent shares that are directly owned by Mr. Melton; and (3) 28,825 shares represent shares which may be acquired by Mr. Melton upon exercise of outstanding stock options. (8) Of the shares beneficially owned by Neil F. Pont: (1) 3,005 shares represent shares that are directly owned by Mr. Pont; and (2)11,500 shares represent which may be acquired by Mr. Pont upon exercise of outstanding stock options. (9) Of the shares beneficially owned by Thomas R. Bennett: (1) 1,200 shares represent shares that are directly owned by Mr. Bennett; (2) 2,550 shares represent shares that are jointl owned by Mr. Bennett and his wife; (3) 300 shares represent shares that are indirectly held through his wife; and (4) 7,500 shares represent shares which may be acquired by Mr. Bennett upon exercise of outstanding stock options. (10) Of the shares beneficially owned by Edgar L. Fraser: (1) 330 shares represent shares that are directly owned by Mr. Fraser; and (2) 7,500 shares represent shares which may be acquired by Mr. Fraser upon exercise of outstanding stock options. (11) Of the shares beneficially owned by Jonathan K. Layne: (1) 100 shares represent shares that are directly owned by Mr. Layne; and (2) 7,500 shares represent shares which may be acquired by Mr. Layne upon exercise of outstanding stock options. (12) Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment advisor, is deemed to have beneficial ownership of 154,200 shares of Amwest Insurance Group, Inc., all of which shares are held in portfolios of DFA Investments Dimensions Group Inc., a registered open-end investment company, or in a series of the DFA Investment Trust Company, a Delaware business trust, or the DFA Group Trust and DFA Participation Group Trust, investment vehicles for qualified employee benefit plans, all of which Dimensional Fund Advisors Inc. serves as investment manager. Dimensional disclaims beneficial ownership of all such shares. The address of Dimensional is 1299 Ocean Avenue, 11th Floor, Santa Monica, California 90401. (13) Reflects the beneficial ownership of Markel Corporation ("Markel"), as set forth in Markel's filing with Amwest of a Schedule 13G dated February 1, 1994. The filing states that Markel has sole voting power over 148,500 shares, sole dispositive power over 148,500 shares and shared dispositive power over 29,800 shares. The address of Markel is 4551 Cox Road, Glen Allen, Virginia 23060. (14) Heartland Advisors, Inc. ("Heartland Advisors"), a registered investment advisor, is deemed to have beneficial ownership of 244,900 shares of Amwest Common Stock pursuant to a filing on Schedule 13G dated August 9, 1995. The filing states that Heartland Advisors has sole voting power over 20,300 shares and sole dispositive power over 244,900 shares. Of these total shares beneficially owned by Heartland Advisors, 200,000 shares may be deemed beneficially owned by Heartland Group, Inc. ("Heartland Group"), a registered investment company. The Heartland Group has sole voting power over all 200,000 shares. The address of Heartland Advisors is 790 North Milwaukee Street, Milwaukee, Wisconsin 53202. (15) Based on 2,367,964 shares of Amwest Common Stock outstanding as of February 7, 1996. (16) Less than 1% of the shares of Amwest Common Stock outstanding. Principal Stockholders of Amwest - Pro Forma The following table sets forth certain information as to the ownership of Amwest Common Stock on February 7, 1996, by (i) each person who is known to own beneficially more than 5% of the outstanding shares of the Amwest Common Stock, (ii) each director of Amwest, (iii) certain executive officers and (iv) all executive officers and directors as a group. Number of Shares Percentage Name Beneficially Owned (1)(2) Ownership (6) Directors: Richard H. Savage 823,115 25.04% John E. Savage 158,941 4.75% Steven R. Kay 25,850 (3) (7) Guy A. Main 495,155 (4) 15.03% Arthur F. Melton 39,225 1.18% Neil F. Pont 14,505 (7) Thomas R. Bennett 11,550 (7) Bruce A. Bunner 0 (7) Edgar L. Fraser 18,170 (5) (7) Jonathan K. Layne 7,600 (7) Charles L. Schultz 0 (7) All executive officers and directors as a group (11 persons) 1,594,111 46.26% Other Principal Stockholders: Savage Family Trust 126,274 3.84% Savage Diversified, Inc. 696,841 21.20% Dimensional Fund Advisors Inc. 154,200 4.69% Markel Corporation 178,300 5.42% Heartland Advisors, Inc. 244,900 7.45% (1) Unless otherwise noted below, the footnotes provided under "Principal Stockholders of Amwest" are applicable to the table above. (2) Based on information furnished by the persons named. The persons in the table have sole voting and investment power with respect to all shares of Amwest Common Stock shown as beneficially owned by them, except as otherwise stated. (3) Of the shares beneficially owned by Steven R. Kay: (1) 4,275 shares represent shares that are directly owned by Mr. Kay; (2) 500 shares represent shares that are indirectly held through his wife; (3) 200 shares represent shares that are indirectly held through his son; and (4) 20,875 shares represent shares which may be acquired by Mr. Kay upon exercise of outstanding stock options. (4) Includes (a) 6,600 shares of Amwest Common Stock that may be acquired by Mr. Main upon exercise of outstanding stock options, (b) 9,000 shares of Amwest Common Stock held by the Condor Services, Inc. Profit Sharing Plan, of which Mr. Main is co-trustee with Zondra Hendrix, as to which Mr. Main shares voting and investment power and as to which he disclaims beneficial ownership, and (c) 479,555 shares of Amwest Common Stock held by the Main Family Trust, of which Mr. Main and his wife share voting and investment power. The address of Mr. Main is 2361 Rosecrans Avenue, El Segundo, California 90245. (5) Of the shares beneficially owned by Edgar L. Fraser: (1) 1,870 shares represent shares that are directly owned by Mr. Fraser; and (2) 16,300 shares represent shares which may be acquired by Mr. Fraser upon exercise of outstanding stock options. (6) Based on 3,286,942 shares of Amwest Common Stock outstanding as of February 7, 1996. (7) Less than 1% of the shares of Amwest Common Stock outstanding. COMPARATIVE PER SHARE PRICES AND DIVIDENDS Amwest Common Stock is listed on the AMEX. Condor Common Stock is quoted on the NASDAQ. The following table sets forth the high and low sales prices per share of the Amwest Common Stock and Condor Common Stock as reported on the AMEX Composite Tape and NASDAQ NMS, respectively and the dividends paid on such Amwest Common Stock and Condor Common Stock, for the below quarterly periods, which correspond to the companies' respective quarterly fiscal periods for financial reporting purposes.
Amwest Common Stock Condor Common Stock Period High Low Dividend High Low Dividend - ------ ---- --- -------- ---- --- -------- 1993 First Quarter $11 1/2 $9 3/8 $.07 $9 1/2 $4 3/4 $.00 Second Quarter 11 3/8 9 3/4 .07 7 3/4 5 5/8 .00 Third Quarter 11 1/8 9 3/4 .07 7 1/8 4 1/2 .00 Fourth Quarter 13 1/4 10 3/8 .07 6 4 5/8 .00 1994 First Quarter $14 1/2 $12 $.09 $3 1/8 $2 1/4 $.00 Second Quarter 14 1/4 12 1/2 .09 4 7/8 2 1/2 .00 Third Quarter 13 7/8 12 1/8 .09 5 5/8 4 3/8 .00 Fourth Quarter 12 3/8 11 1/8 .09 7 4 1/2 .00 1995 First Quarter $15 1/4 $11 3/4 $.10 $6 1/4 $2 1/4 $.00 Second Quarter 15 14 1/8 .10 5 3/4 4 1/8 .00 Third Quarter 15 1/8 14 1/4 .10 5 1/2 4 1/8 .00 Fourth Quarter 18 14 14 7/8 .10 7 3/4 3 1/2 .00 1996 First Quarter (through February 12, 1996) $ $ $ $ $ $
The following table sets forth the high, low and last sales prices as reported on the AMEX and NASDAQ Composite Tapes of the companies' common shares on November 30, 1995. The public announcement of the Merger Agreement occurred after the close of trading on that date and before trading commenced on December 1, 1995. Condor Amwest Condor Equivalent(a) High $17 5/8 (b) $3 1/2 $8 3/4 Low 17 1/2 (b) 3 1/2 8 3/4 Last 17 5/8 (b) 3 1/2 8 3/4 On February 12, 1996, the last day before the printing of this Proxy Statement/Prospectus the last sales prices of Amwest Common Stock and Condor Common Stock as reported on the AMEX and NASDAQ NMS, were as follows:. Condor Amwest Condor Equivalent(a) High $ $ $ Low Last (a) The Condor equivalent market value is computed by multiplying the high, low and last sales price per share of Amwest Common Stock by the Conversion Number, assuming the Conversion Number is 0.5. (b) There were no trades for Amwest Common Stock on the AMEX on November 30, 1995. Therefore, the sales prices as reported on the AMEX on November 29, 1995 are shown. CAPITALIZATION The following table sets forth the capitalization of Amwest and Condor as of September 30, 1995, and as adjusted to give effect to the Merger and related transactions. See "The Merger Agreement--Terms of the Merger."
"As of September 30, 1995" (In thousands) ----------------------------------------------------------------- Historical Pro Forma (a) ------------------------------ --------------------------- Amwest Condor Adjustments Combined Bank indebtedness $ 12,500 0 0 $ 12,500 ----------- ------ ---- --------- Stockholders' equity Preferred stock, $.01 par value; Amwest- authorized: 1,000,000 shares, issued and outstanding: none; Condor- authorized: 200,000 shares, issued and outstanding: none 0 0 0 0 Common stock, $.01 par value; Amwest- authorized: 10,000,000 shares, issued and outstanding: 2,367,964; Condor- authorized: 3,800,000 shares, issued and outstanding: 1,935,306 24 19 (10) 33 Additional paid-in capital 9,358 7,810 10 17,178 Net unrealized appreciation of investments carried at market, net of income taxes 1,554 307 (164) 1,697 Retained earnings 31,066 3,991 (654) 34,403 ----------- ------ ---- --------- Total stockholders' equity 42,002 12,127 (818) 53,311 ----------- ------ ---- --------- Total capitalization $ 54,502 12,127 (818) $ 65,811 =========== ====== ==== =========
(a) The pro forma adjustments and resulting combined amounts reflect actions to be taken at the Effective Time of the Merger to (i) cancel all Condor Common Stock issued but held in Treasury, (ii) retire all Condor Common Stock indirectly owned by Amwest, and (iii) convert all other issued and outstanding shares of Condor Common Stock into 0.5 of a share of Amwest Common Stock. In addition, as of the Effective Time, all rights with respect to shares issuable pursuant to Condor employee stock option awards shall immediately convert to equivalent rights with respect to Amwest shares, utilizing the Conversion Number. (b) For this table, the approximate number of shares of Amwest Common Stock assumed exchanged in the Merger was based upon 1,837,956 Condor shares issued and outstanding as of November 30, 1995, as adjusted by the Conversion Number. Shares potentially issuable pursuant to Amwest's or Condor's stock option plans are excluded . (c) Additional paid in capital is adjusted for the effects of the conversion of all issued and outstanding shares of Condor Common Stock into 0.5 of a share of Amwest Common Stock. (d) Net unrealized appreciation of investments carried at market, net of income taxes is adjusted for the net unrealized gain of $164,000 associated with the equity investment of 97,350 shares of Condor Common Stock owned by Amwest Surety Insurance Company, a wholly-owned subsidiary of Amwest. (e) The net decrease in retained earnings is attributed to the pro forma adjustments made to retire the 97,350 shares of Condor Common Stock owned by a wholly-owned subsidiary of Amwest, the increased dividend accrual associated with the assumed issuance of approximately 919,000 shares and the $396,000 after-tax effect for the estimate for transaction costs associated with the Merger. UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS The following unaudited pro forma combined financial statements give effect to the Merger of Amwest Insurance Group, Inc. ("Amwest") and Condor Services, Inc. ("Condor") under the "pooling of interests" method of accounting. These pro forma financial statements are presented for illustrative purposes only, and therefore are not necessarily indicative of the operating results and financial position that might have been achieved had the Merger occurred as of an earlier date, nor are they necessarily indicative of operating results and financial position which may occur in the future. A pro forma combined balance sheet is provided as of September 30, 1995, giving effect to the Merger as though it had been consummated on that date. Pro forma combined income statements are provided for the nine-month periods ended September 30, 1995 and 1994, and the years ended December 31, 1994, 1993 and 1992, giving effect to the Merger as though it had occurred at the beginning of the earliest period presented. The historical statements of income for annual periods are derived from the historical consolidated financial statements of Amwest and Condor, and should be read in conjunction with the companies' separate 1994 Annual Reports on Form 10-K. The historical financial statements as of or for the nine months ended September 30, 1995 and 1994 have been prepared in accordance with generally accepted accounting principles applicable to interim financial information and, in the opinions of Amwest's and Condor's respective managements, include all adjustments necessary for a fair presentation of financial information for such interim periods. Unaudited Pro Forma Combined Balance Sheet As of September 30, 1995 (In thousands)
Historical Pro Forma -------------------------- ------------------------- Amwest Condor Adjustments Combined ASSETS Investments: Fixed maturities, held to maturity, at amortized cost $ 15,473 $ 15,473 Fixed maturities, available for sale, at market value 82,165 21,879 104,044 Equity securities, available for sale, at market value 7,439 3,555 (414) 10,580 Equity securities, trading, at market value 473 473 Other invested assets 333 333 Short-term investments 1,059 217 1,276 ---------- ------ ---- --------- Total investments 106,469 26,124 (414) 132,179 Cash and cash equivalents 5,028 85 5,113 Accrued investment income 1,267 332 1,599 Agents balances and premiums receivable 9,311 1,161 10,472 Reinsurance recoverable: Paid loss and loss adjustment expenses 1,078 205 1,283 Unpaid loss and loss adjustment expenses 768 5,768 6,536 Ceded unearned premiums 2,959 2,959 Deferred policy acquisition costs 14,393 296 14,689 Furniture, equipment and improvements, net 2,324 855 3,179 Current Federal income taxes 668 145 813 Deferred Federal income taxes 1,229 1,229 Other assets 6,496 923 7,419 ---------- ------ ---- --------- Total assets $ 150,761 37,123 (414) $ 187,470 ========== ====== ==== ========= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Unpaid losses and loss adjustment expenses $ 10,207 20,814 $ 31,021 Unearned premiums 34,431 1,188 35,619 Funds held as collateral 41,435 41,435 Commissions payable 280 280 Reinsurance funds held 106 106 Amounts due to reinsurers 345 1,793 2,138 Bank indebtedness 12,500 12,500 Current Federal income taxes 0 Deferred Federal income taxes 4,010 (288) 3,722 Deferred tax liability on holding gains on fixed maturities and equity securities 158 158 Other liabilities 5,831 657 692 7,180 ---------- ------ ---- --------- Total liabilities 108,759 24,996 404 134,159 Stockholders' equity: Preferred stock, $.01 par value Common stock, $.01 par value 24 19 (10) 33 Additional paid-in capital 9,358 7,810 10 17,178 Net unrealized appreciation (depreciation) of investments carried at market, net of income taxes 1,554 307 (164) 1,697 Retained earnings 31,066 3,991 (654) 34,403 ---------- ------ ---- --------- Total stockholders equity 42,002 12,127 (818) 53,311 ---------- ------ ---- --------- Total liabilities and stockholders'equity $ 150,761 37,123 (414) $ 187,470 ========== ====== ==== =========
See accompanying notes to pro forma combined financial statements. Unaudited Pro Forma Combined Statement of Income For the nine months ended September 30, 1995 (In thousands, except per share data)
Historical Pro Forma -------------------------- ---------------------------- Amwest Condor Adjustments Combined Underwriting revenues: Net premiums written $ 49,928 13,229 $ 63,157 Net change in unearned premiums 550 550 -------- ------ --------- Net premiums earned 50,478 13,229 63,707 Underwriting expenses: Net losses and loss adjustment expenses 16,440 9,368 25,808 Policy acquisition costs 25,302 3,392 28,694 General operating costs 8,927 2,099 11,026 -------- ------ --------- Total underwriting expenses 50,669 14,859 65,528 -------- ------ --------- Underwriting income (loss) (191) (1,630) (1,821) Net investment income 4,787 1,211 5,998 Net unrealized gains (losses) on trading securities 73 73 Net realized investment gains (losses) 1,229 14 1,243 Interest expense (805) (805) Collateral interest expense (1,305) (1,305) Recovery on misappropriation of funds 890 890 Commissions and fees 453 453 Other revenue (6) (6) -------- ------ --------- Income before provision for income taxes 3,715 1,005 4,720 Provision for income taxes 778 219 997 -------- ------ --------- Net income from continuing operations $ 2,937 786 $ 3,723 ======== ====== ========= Earnings per common share, primary: Net income from continuing operations $ 1.22 0.40 $ 1.12 ======== ====== ========= Weighted average number of common shares outstanding 2,402 1,967 3,337 ======== ====== ========= Earnings per common share, assuming full dilution: Net income from continuing operations $ 1.22 0.40 $ 1.11 ======== ====== ========= Weighted average number of common shares outstanding 2,405 1,967 3,340 ======== ====== =========
See accompanying notes to pro forma combined financial statements. Unaudited Pro Forma Combined Statement of Income For the nine months ended September 30, 1994 (In thousands, except per share data)
Historical Pro Forma ------------------------- -------------------------- Amwest Condor Adjustments Combined Underwriting revenues: Net premiums written $ 51,507 15,865 $ 67,372 Net change in unearned premiums (7,433) (7,433) ---------- ------ ---------- Net premiums earned 44,074 15,865 59,939 Underwriting expenses: Net losses and loss adjustment expenses 11,023 12,471 23,494 Policy acquisition costs 23,120 3,859 26,979 General operating costs 9,452 2,188 11,640 ---------- ------ ---------- Total underwriting expenses 43,595 18,518 62,113 ---------- ------ ---------- Underwriting income (loss) 479 (2,653) (2,174) Net investment income 4,104 1,208 5,312 Net unrealized gains (losses) on trading securities (30) (30) Net realized investment gains (losses) (214) 366 152 Interest expense (597) (597) Collateral interest expense (1,507) (1,507) Commissions and fees 772 772 Other revenue 31 31 ---------- ------ ---------- Income before provision for income taxes 2,265 (306) 1,959 Provision for income taxes 431 (285) 146 ---------- ------ ---------- Net income from continuing operations $ 1,834 (21) $ 1,813 ========== ====== ========== Earnings per common share, primary: Net income from continuing operations $ 0.76 (0.01) $ 0.54 ========== ====== ========== Weighted average number of common shares outstanding 2,411 1,983 3,354 ========== ====== ========== Earnings per common share, assuming full dilution: Net income from continuing operations $ 0.76 (0.01) $ 0.54 ========== ====== ========== Weighted average number of common shares outstanding 2,411 1,983 3,354 ========== ====== ==========
See accompanying notes to pro forma combined financial statements. Unaudited Pro Forma Combined Statement of Income For the year ended December 31, 1994 (In thousands, except per share data)
Historical Pro Forma -------------------------- ---------------------------- Amwest Condor Adjustments Combined Underwriting revenues: Net premiums written $ 66,975 19,460 $ 86,435 Net change in unearned premiums (5,146) (5,146) --------- ------ --------- Net premiums earned 61,829 19,460 81,289 Underwriting expenses: Net losses and loss adjustment expenses 14,095 14,633 28,728 Policy acquisition costs 31,755 4,709 36,464 General operating costs 12,734 3,034 15,768 --------- ------ --------- Total underwriting expenses 58,584 22,376 80,960 --------- ------ --------- Underwriting income (loss) 3,245 (2,916) 329 Net investment income 5,737 1,629 7,366 Net unrealized gains (losses) on trading securities (80) (80) Net realized investment gains (losses) (269) 385 116 Interest expense (840) (840) Collateral interest expense (1,921) (1,921) Commissions and fees 1,379 1,379 Other revenue 44 44 --------- ------ --------- Income before income taxes 5,952 441 6,393 Provision for income taxes 1,364 (12) 1,352 --------- ------ --------- Net income from continuing operations $ 4,588 453 $ 5,041 ========= ====== ========= Earnings per common share, primary: Net income from continuing operations $ 1.91 0.23 $ 1.50 ========= ====== ========= Weighted average number of common shares outstanding 2,408 1,981 3,350 ========= ====== ========= Earnings per common share, assuming full dilution: Net income from continuing operations $ 1.91 0.23 $ 1.50 ========= ====== ========= Weighted average number of common shares outstanding 2,408 1,981 3,350 ========= ====== =========
See accompanying notes to pro forma combined financial statements. Unaudited Pro Forma Combined Statement of Income For the year ended December 31, 1993 (In thousands, except per share data)
Historical Pro Forma ------------------------ -------------------------- Amwest Condor Adjustments Combined Underwriting revenues: Net premiums written $ 54,331 21,995 $ 76,326 Net change in unearned premiums (4,241) (4,241) --------- ------ -------- Net premiums earned 50,090 21,995 72,085 Underwriting expenses: Net losses and loss adjustment expenses 11,909 16,456 28,365 Policy acquisition costs 25,077 4,176 29,253 General operating costs 11,387 2,838 14,225 Loss on broker misappropriation of funds 1,870 1,870 --------- ------ -------- Total underwriting expenses 48,373 25,340 73,713 --------- ------ -------- Underwriting income (loss) 1,717 (3,345) (1,628) Net investment income 4,989 1,471 6,460 Net unrealized gains (losses) on trading securities (3) (3) Net realized investment gains (losses) 1,810 1,052 (508) 2,354 Interest expense (1,050) (1,050) Collateral interest expense (2,027) (2,027) Commissions and fees 815 815 Other revenue 27 27 --------- ------ -------- Income before income taxes 5,439 17 (508) 4,948 Provision for income taxes 1,398 (224) (173) 1,001 --------- ------ -------- Net income from continuing operations $ 4,041 241 (335) $ 3,947 ========= ====== ======== Earnings per common share, primary: Net income from continuing operations $ 1.70 0.12 $ 1.20 ========= ====== ======== Weighted average number of common shares outstanding 2,375 1,978 3,299 ========= ====== ======== Earnings per common share, assuming full dilution: Net income from continuing operations $ 1.70 0.12 $ 1.20 ========= ====== ======== Weighted average number of common shares outstanding 2,376 1,978 3,300 ========= ====== ========
See accompanying notes to pro forma combined financial statements. Unaudited Pro Forma Combined Statement of Income For the year ended December 31, 1992 (In thousands, except per share data)
Historical Pro Forma ------------------------- -------------------------- Amwest Condor Adjustments Combined Underwriting revenues: Net premiums written $ 46,697 15,289 $ 61,986 Net change in unearned premiums 1,557 1,557 ---------- ------ ---------- Net premiums earned 48,254 15,289 63,543 Underwriting expenses: Net losses and loss adjustment expenses 10,955 9,923 20,878 Policy acquisition costs 25,016 2,889 27,905 General operating costs 10,871 3,012 13,883 ---------- ------ ---------- Total underwriting expenses 46,842 15,824 62,666 ---------- ------ ---------- Underwriting income (loss) 1,412 (535) 877 Net investment income 5,607 1,456 7,063 Net unrealized gains (losses) on trading securities 0 Net realized investment gains (losses) 728 222 950 Interest expense (1,359) (1,359) Collateral interest expense (1,992) (1,992) Commissions and fees 585 585 Other revenue 198 198 ---------- ------ ---------- Income before income taxes 4,396 1,926 6,322 Provision for income taxes 998 299 1,297 ---------- ------ ---------- Net income from continuing operations $ 3,398 1,627 $ 5,025 ========== ====== ========== Earnings per common share, primary: Net income from continuing operations $ 1.44 0.82 $ 1.55 ========== ====== ========== Weighted average number of common shares outstanding 2,360 1,976 3,242 ========== ====== ========== Earnings per common share, assuming full dilution: Net income from continuing operations $ 1.44 0.82 $ 1.55 ========== ====== ========== Weighted average number of common shares outstanding 2,361 1,976 3,243 ========== ====== ==========
See accompanying notes to pro forma combined financial statements. Unaudited Pro Forma Combined Statement of Income For the year ended December 31, 1991 (In thousands, except per share data)
Historical Pro Forma ---------------------------- --------------------------- Amwest Condor Adjustments Combined Underwriting revenues: Net premiums written $ 50,812 14,297 $ 65,109 Net change in unearned premiums (2,325) (2,325) ------------ ------ ------------ Net premiums earned 48,487 14,297 62,784 Underwriting expenses: Net losses and loss adjustment expenses 9,871 10,374 20,245 Policy acquisition costs 26,598 2,493 29,091 General operating costs 12,505 3,838 16,343 ------------ ------ ------------ Total underwriting expenses 48,974 16,705 65,679 ------------ ------ ------------ Underwriting income (loss) (487) (2,408) (2,895) Net investment income 5,096 1,544 6,640 Net unrealized gains (losses) on trading securities 0 Net realized investment gains (losses) 2,217 2,217 Interest expense (1,357) (1,357) Collateral interest expense (1,784) (1,784) Commissions and fees 1,965 1,965 Other revenue 38 38 ------------ ------ ------------ Income before income taxes 3,685 1,139 4,824 Provision for income taxes 192 78 270 ------------ ------ ------------ Net income from continuing operations $ 3,493 1,061 $ 4,554 ============ ====== ============ Earnings per common share, primary: Net income from continuing operations $ 1.42 0.57 $ 1.38 ============ ====== ============ Weighted average number of common shares outstanding 2,461 1,873 3,301 ============ ====== ============ Earnings per common share, assuming full dilution: Net income from continuing operations $ 1.42 0.57 $ 1.38 ============ ====== ============ Weighted average number of common shares outstanding 2,461 1,873 3,301 ============ ====== ============
See accompanying notes to pro forma combined financial statements. Unaudited Pro Forma Combined Statement of Income For the year ended December 31, 1990 (In thousands, except per share data)
Historical Pro Forma -------------------------- --------------------------- Amwest Condor Adjustments Combined Underwriting revenues: Net premiums written $ 48,479 18,266 $ 66,745 Net change in unearned premiums (1,621) (1,621) ------------ ------ ------------ Net premiums earned 46,858 18,266 65,124 Underwriting expenses: Net losses and loss adjustment expenses 7,966 17,683 25,649 Policy acquisition costs 24,421 1,215 25,636 General operating costs 11,019 3,739 14,758 ------------ ------ ------------ Total underwriting expenses 43,406 22,637 66,043 Underwriting income (loss) 3,452 (4,371) (919) Net investment income 5,135 1,242 6,377 Net unrealized gains (losses) on trading securities 0 Net realized investment gains (losses) (8) (8) Interest expense (1,335) (1,335) Collateral interest expense (1,477) (1,477) Commissions and fees 2,415 2,415 Other revenue 297 297 ------------ ------ ------------ Income before income taxes 5,767 (417) 5,350 Provision for income taxes 609 (55) 554 ------------ ------ ------------ Net income from continuing operations $ 5,158 (362) $ 4,796 ============ ====== ============ Earnings per common share, primary: Net income from continuing operations $ 2.16 (0.17) $ 1.39 ============ ====== ============ Weighted average number of common shares outstanding 2,391 2,129 3,440 ============ ====== ============ Earnings per common share, assuming full dilution: Net income from continuing operations $ 2.16 (0.17) $ 1.39 ============ ====== ============ Weighted average number of common shares outstanding 2,391 2,129 3,440 ============ ====== ============
See accompanying notes to pro forma combined financial statements. NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS 1. Basis of Presentation The unaudited pro forma combined financial statements are presented for illustrative purposes only, giving effect to the Merger of Amwest Insurance Group, Inc. and Condor Services, Inc. as accounted for by the "pooling of interests" method. In accordance with Commission reporting rules, the pro forma combined statements of income, and the historical statements from which they are derived, present only income from continuing operations and, therefore, do not include discontinued operations, extraordinary items, and the cumulative effects of accounting changes. Because the transaction has not been completed and transition plans are currently being developed, transaction costs of the Merger and nonrecurring costs and expenses expected to be incurred in connection with the integration of the companies' business operations can only be estimated at this time. The pro forma combined statements of income excludes investment banking, legal and miscellaneous transaction costs and expenses of the Merger, currently estimated to be $600,000. However, the pro forma combined balance sheet as of September 30, 1995 includes the adjustment, net of related taxes, of $396,000, for the above estimated amount of transaction costs related to the Merger. 2. Pro Forma Adjustments Pro Forma Combined Balance Sheet Equity securities, available for sale, at market value; deferred Federal income taxes Amwest Surety Insurance Company, a wholly owned subsidiary of Amwest, currently owns 97,350 shares of Condor which is classified as an equity investment in the historical balances for Amwest. These shares will be retired pursuant to the Merger Agreement. Based on the market value of this investment at September 30, 1995, a decrease of $414,000 is reflected in the pro forma combined balance sheet as of September 30, 1995. Deferred Federal Income Taxes The pro forma balance sheet at September 30, 1995 reflects an adjustment of $288,000 which is attributed to the deferred taxes associated with the gross unrealized gain of $247,000 on the equity investment in Condor (as explained above), or $84,000 coupled with the deferred taxes associated with the $600,000 estimate for transaction costs, or $204,000. Other Liabilities The pro forma balance sheet at September 30, 1995 reflects an adjustment of $692,000 which is attributed to the $600,000 estimate for transaction costs coupled with an increase in the cash dividend accrual associated with the assumed issuance of approximately 919,000 shares as further explained under Stockholder's Equity below. Amwest declared a cash dividend of $.10 per share payable to stockholders of record as of September 30, 1995. Stockholders' Equity Stockholders' equity as of September 30, 1995 has been adjusted to reflect the following: Common Stock, $.01 par value, has been adjusted to reflect the assumed issuance of approximately 919,000 shares of Amwest Insurance Group, Inc. Common Stock, $.01 par value, in exchange for 1,837,956 (net of 14,500 shares held by Condor in treasury) shares of Condor Services, Inc. Common Stock issued and outstanding as of November 30, 1995, utilizing the exchange rate of 0.5 share of Amwest for each share of Condor (and assuming that the 97,350 shares of Condor Common Stock indirectly owned by Amwest will be retired). The number of shares of Amwest Common Stock to be issued at consummation of the Merger will be based upon the actual number of shares of Condor Common Stock outstanding at that time. Paid in capital is adjusted for the effects of the aforementioned issuance of approximately 919,000 shares of Amwest Common Stock having a par value of $.01 per share in exchange for Condor Common Stock. Net unrealized appreciation (depreciation) of investments carried at market, net of income taxes is adjusted for the net unrealized gain of $164,000 associated with the equity investment of 97,350 shares of appreciated Condor Common Stock owned by a wholly-owned subsidiary of Amwest. The net decrease in retained earnings is attributed to the pro forma adjustments made to retire the 97,350 shares of Condor Common Stock owned by a wholly-owned subsidiary of Amwest, the increased dividend accrual associated with the assumed issuance of approximately 919,000 shares and the $396,000 after-tax effect for the estimate for transaction costs associated with the Merger. Pro Forma Combined Statements of Income Net realized investment gains The pro forma results for net realized investment gains were adjusted for the year ended December 31, 1993 pursuant to sale transactions of Condor Common Stock made by a wholly-owned subsidiary of Amwest. For the year ended December 31, 1993, the investment in Condor Common Stock was reduced from 212,850 shares at January 1, 1993 to 97,350 shares at December 31, 1993 resulting in realized investment gains, net of income taxes of $335,000. Earnings per common share To arrive at pro forma combined net income, adjustments have been made as necessary to reflect such income on both a primary and fully diluted basis. Pro forma weighted average number of common shares outstanding for the nine month periods ended September 30, 1995 and 1994 and for the years ended December 31, 1994, 1993 and 1992 are based upon Amwest's and Condor's combined historical weighted average shares, after adjustment of Condor's historical number of shares by the Conversion Number and excluding any Condor shares held in treasury or owned by Amwest. 3. Proposition 103 On December 14, 1995, the Supreme Court of the State of California affirmed the decision of the Second District Court of Appeal overturning Insurance Code Section 1861.135 which exempted the surety insurance industry from major provisions of Proposition 103. Accordingly, the surety insurance industry will no longer be exempted from the rate rollback and prior approval provisions contained in Proposition 103. To date, Amwest has not received any calculations from the California Department of Insurance regarding Amwest's Proposition 103 rollback amount. Amwest accrued $2,000,000 during the quarter ended December 31, 1995 representing Amwest's best estimate of its rollback obligations pursuant to Proposition 103, the exact amount of which has not yet been determined. Such estimate was based on a variety of factors, including but not limited to, the profitability of Amwest in California during 1989 (the rollback period), a review of the various regulations promulgated by the Department of Insurance, and a review of rollback obligations of other insurance companies, including a surety company. Pursuant to the provisions of Proposition 103, the rollback amount will be ultimately determined by complex California Department of Insurance formulas but is statutorily limited to a maximum of 20% of California written premiums during 1989, plus accrued interest thereon. In the event that Amwest's rollback obligation were eventually determined to be the statutory maximum, it could approximate $7,500,000 which is $5,500,000 in excess of Amwest's best estimate of its ultimate rollback liability. While the current accrual represents management's best estimate of Amwest's Proposition 103 rollback obligations, no assurances can be given that a final settlement with the California Department of Insurance will not result in a rollback amount which could have a significant adverse impact on Amwest's future earnings, although it is not anticipated that such result would materially adversely impact Amwest's financial position. Until a final settlement is reached with the California Department of Insurance, no assurances can be given as to the ultimate amount of premiums to be refunded to policyholders. The matters discussed in this paragraph are forward looking statements based upon partial information and management assumptions and involve certain risks and uncertainties as described above. DESCRIPTION OF CAPITAL STOCK OF AMWEST General The authorized capital stock of Amwest consists of 10,000,000 shares of Common Stock, par value $.01 per share, of which 2,367,964 shares are issued and outstanding, and 1,000,000 shares of Preferred Stock, par value $.01 per share, none of which are issued or outstanding. Common Stock The outstanding shares of Amwest Common Stock are, and the shares to be issued in connection with this offering will be, validly issued, fully paid and nonassessable. Holders of Amwest Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders. The shares of Amwest Common Stock have cumulative voting rights with respect to the election of directors. Holders of Common Stock do not have any preemptive rights or rights to subscribe for additional securities of Amwest. The Amwest Common Stock is neither redeemable nor convertible into other securities, and there are no sinking fund provisions. Subject to the preferences applicable to any shares of Preferred Stock outstanding at the time, holders of Amwest Common Stock are entitled to dividends if, when and as declared by the Board of Directors from funds legally available therefor and are entitled, in the event of liquidation, to share ratably in all assets remaining after payment of liabilities and Preferred Stock preferences, if any. Each outstanding share of Amwest Common Stock is accompanied by a right to purchase one one-hundredth of a share of Amwest Series A Junior Participating Preferred Stock, $0.01 par value per share. Each Right becomes exercisable on the tenth business day after a person or group (other than Amwest and certain related parties) has acquired or commenced a tender or exchange offer to acquire 20% or more of Amwest's Common Stock, or upon consummation of certain mergers, business combinations or sales of Amwest's assets. If the Rights become exercisable, a holder will be entitled to purchase in certain cases (i) one one-hundredth of a share of Series A Junior Participating Preferred Stock, $.01 par value, at the then current exercise price (initially $50), (ii) shares of common stock, $.01 par value, having a market price equal to two times the then current exercise price, or (iii) in case of a merger, common stock of the acquiring corporation having a market value equal to two times the then current exercise price. Amwest is entitled to redeem the Rights at $.01 per Right under certain circumstances. The rights do not have voting or dividend rights, and cannot be traded independently from Amwest's Common Stock until such time as they become exercisable. See "Comparison of Stockholder Rights--Rights Plans." The registrar and transfer agent for the Amwest Common Stock is the American Stock Transfer & Trust Company. Preferred Stock There are 1,000,000 shares of Amwest Preferred Stock authorized for issuance. There are currently no Amwest Preferred Stock outstanding. COMPARISON OF STOCKHOLDER RIGHTS The following is a summary of material differences between the rights of holders of Condor Common Stock and the rights of holders of Amwest Common Stock. As each of Condor and Amwest is organized under the laws of Delaware, these differences arise from various provisions of the Certificate of Incorporation and By-laws of each of Condor and Amwest and the Amwest Rights Agreement (as defined below). Stockholder Vote Required for Certain Transactions Certain Business Combinations. Condor's Certificate of Incorporation contains provisions for the approval or authorization of any business combination that has not been approved in advance by a majority of the Board of Directors. These provisions require the affirmative vote of the holders of not less than 66 2/3% of the shares of voting stock then outstanding. These provisions are not applicable to the Merger because of action taken by the Condor Board of Directors in connection with approving the Merger Agreement. Amwest's Certificate of Incorporation contains similar provisions, however, the affirmative vote of the holders of not less than 75% of the shares of voting stock then outstanding is required. Election of Directors for Vacant Positions. Condor's Certificate of Incorporation provides that a Board vacancy resulting from the death, resignation or removal of a director shall be filled by a person designated by the majority of the remaining directors. Amwest's Certificate of Incorporation contains similar provisions, however, the person designated may be determined by the majority of the remaining directors or, under certain circumstances, the affirmative vote of the holders of not less than 75% of the shares of voting stock then outstanding. Removal of Directors. Condor's Certificate of Incorporation provides that directors may be removed from office with or without cause at any time, but only by the affirmative vote of the holders of a majority of the shares of voting stock then outstanding. Amwest's Certificate of Incorporation provides that directors may be removed from office at any time, but only (1) for cause, and (2) by the affirmative vote of the holders of a majority of the voting stock. Amendments to Certificate of Incorporation. Condor's Certificate of Incorporation contains provisions for the alteration, amendment, repeal or recission of any provision of the Certificate of Incorporation. These provisions require the approval of a majority of the directors of the corporation then in office and the affirmative vote of the holders of a majority of the voting stock then outstanding. Certain provisions of the Certificate of Incorporation require the approval of the majority of the authorized number of directors and the affirmative vote of the holders of not less than 66 2/3% of the shares of voting stock then outstanding. Amwest's Certificate of Incorporation contains similar provisions, however, for certain provisions of the Certificate of Incorporation, the approval of the majority of the authorized number of directors and the affirmative vote of the holders of not less than 75% of the shares of voting stock then outstanding is required. Special Meetings of Stockholders Condor's Certificate of Incorporation provides that a special meeting of stockholders may be called for any purpose or purposes at any time by a majority of the members of the Board of Directors or, under certain circumstances, by the holders of not less than 10% of the shares of voting stock then outstanding. Amwest's Certificate of Incorporation provides that a special meeting of stockholders may be called for any purpose or purposes at any time by a majority of the members of the Board of Directors. Amwest stockholders are not permitted to call a special meeting of stockholders or to require that the Board call such a special meeting. Cumulative Voting Condor's Certificate of Incorporation does not include a provision for cumulative voting in the election of members of the Board of directors. Amwest's Certificate of Incorporation includes a provision for cumulative voting such that, in any election of directors of the corporation, a holder of any class or series of stock then entitled to vote in such election shall be entitled to as many votes as shall equal (i) the number of votes which he would be entitled to cast for the election of directors with respect to his shares of stock multiplied by (ii) the number of directors to be elected in the election in which his class or series of shares is entitled to vote, and each stockholder may cast all of such votes for a single director or for any two or more of them as he may see fit. Rights Plans On May 10, 1989, the Board of Directors of Amwest adopted a Stockholder Rights Plan and declared a dividend of one Stock Purchase Right (a "Right") for each share of common stock outstanding on May 22, 1989. Each Right becomes exercisable on the tenth business day after a person or group (other than Amwest and certain related parties) has acquired or commenced a tender or exchange offer to acquire 20% or more of Amwest's Common Stock, or upon consummation of certain mergers, business combinations or sales of Amwest's assets. If the Rights become exercisable, a holder will be entitled to purchase in certain cases (i) one one-hundredth of a share of Series A Junior Participating Preferred Stock, $.01 par value, at the then current exercise price (initially $50), (ii) shares of common stock, $.01 par value, having a market price equal to two times the then current exercise price, or (iii) in case of a merger, common stock of the acquiring corporation having a market value equal to two times the then current exercise price. Amwest is entitled to redeem the Rights at $.01 per Right under certain circumstances. The rights do not have voting or dividend rights, and cannot be traded independently from Amwest's common stock until such time as they become exercisable. The Merger does not trigger the Stockholder Rights Plan because it has been approved by the Board of Directors and to Amwest's knowledge, no stockholder will own more than 20% of Amwest after the Merger, other than previously excepted persons. PROPOSAL TO AMEND AND RATIFY THE AMWEST STOCK OPTION PLAN At the Special Meeting of Stockholders, the stockholders of Amwest will be asked to approve an amendment to the Amwest Stock Option Plan as described below. At the Effective Time, each outstanding Condor Stock Option, other than those held by non-employee directors of Condor shall be canceled and the holder shall receive an Amwest Stock Option to purchase the same number of shares of Amwest Common Stock as the holder would have been entitled to receive in the Merger had the option been exercised in full immediately prior to the Effective Time. The Amwest Stock Option will be granted at a price per share equal to (i) the per share exercise price for the shares of Condor Common Stock otherwise purchasable pursuant to such Condor Stock Option divided by (ii) 0.5, as appropriately adjusted pursuant to the Merger Agreement. These grants of Non-Incentive Options will require an amendment to the Amwest Stock Option Plan since the Plan currently provides that no options of and kind under the plan (including Non-Incentive Options) may be granted with exercise prices of less than fair market value on the date of grant. The Amwest Stock Option Plan provides that no action may be taken to reduce the minimum permissible exercise price without the approval of the stockholders of Amwest. Thus, the stockholders of Amwest will be asked at the Special Meeting, among other things, to approve an amendment to the Amwest Stock Option Plan regarding the permitted exercise price of Non-Incentive Options under the Amwest Stock Option Plan. The entire Amwest Stock Option Plan, including the proposed amendment, is set forth in Annex E to this Proxy Statement. Description of the Amwest Stock Option Plan The Amwest Stock Option Plan provides for the reservation of 476,000 shares of Amwest Common Stock, subject to adjustment for reorganizations, recapitalizations, stock splits or similar events, for issuance upon the exercise of options to be granted under the Amwest Stock Option Plan. Shares of Amwest Common Stock subject to the unexercised portions of any options granted under the Amwest Stock Option Plan which expire, terminate or are canceled may again be subject to options under the Amwest Stock Option Plan. Salaried employees, including directors who are employees, and consultants are currently eligible to receive options under the Amwest Stock Option Plan. Based on current company policy, 20 persons are eligible as of February 7, 1996. The Amwest Stock Option Plan was amended by the stockholders of Amwest at the 1987, 1988, 1990 and 1994 Annual Meetings of Stockholders. These amendments brought the Amwest Stock Option Plan into compliance with Rule 16b-3 (promulgated by the Securities and Exchange Commission under the Securities Act of 1934) and increased the number of shares subject to the Amwest Stock Option Plan. See "Proposal to Amend and Ratify Amwest's Stock Option Plan". The Amwest Stock Option Plan is administered by a committee (the "Compensation and Stock Option Committee") of directors who are neither employees of nor consultants to Amwest or its subsidiaries, and who are appointed by the Board of Directors of Amwest. The Compensation and Stock Option Committee has the full power to construe the Amwest Stock Option Plan, to determine which persons are eligible to receive options under the Amwest Stock Option Plan, the vesting of such options and which of the eligible persons, if any, shall be granted options under the Amwest Stock Option Plan. The Amwest Stock Option Plan provides for options which qualify as incentive stock options ("Incentive Options") under Section 422 of the Internal Revenue Code (the "Code") as well as options which do not so qualify ("Non-Incentive Options") and for the grant of stock appreciation rights ("Stock Appreciation Rights") to be associated with stock options. The Stock Appreciation Rights permit the optionee to elect to receive, in lieu of exercising the related option, an amount equal to the difference between the value of the shares subject to the option and the exercise price of the option. The per share exercise price of Incentive Options under the Amwest Stock Option Plan may not be less than 100% of the fair market value of the underlying Amwest Common Stock on the date of grant of the option (110% of such fair market value with respect to Incentive Options granted to an individual who owns more than 10% of the total combined voting power of all classes of stock of Amwest or any subsidiary corporation). On February 12, 1996, the closing sales price of Amwest's Common Stock as reported on the American Stock Exchange was $ . The Amwest Stock Option Plan provides that the aggregate fair market value of the stock with respect to which Incentive Options are exercisable for the first time by each employee during any calendar year (under the Amwest Stock Option Plan or similar plans) shall not exceed $100,000. No Incentive Option granted under the Amwest Stock Option Plan may be exercised more than ten years after its date of grant, except that an Incentive Option granted to an individual owning more than 10% of the total combined voting power of all classes of stock of Amwest or any subsidiary or parent corporation shall expire no later than five (5) years from the date the option was granted. No Non-Incentive Option granted under the Amwest Stock Option Plan may be exercised more than eleven (11) years after its date of grant. Section 16(b) of the Exchange Act The acquisition and disposition of shares of Amwest Common Stock by officers, directors, and more than 10% stockholders of Amwest ("Insiders") pursuant to awards granted to them under the Amwest Stock Option Plan may be subject to the provisions of Section 16(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), under which a purchase of shares of Amwest Common Stock within six months before or after a sale of Amwest Common Stock could result in recovery by Amwest of all or a portion of any amount by which the sale proceeds exceed the purchase price. Insiders are required to file reports of changes in beneficial ownership under Section 16(a) of the Exchange Act upon acquisitions and dispositions of shares. Rule 16b-3 provides an exemption from Section 16(b) liability for certain transactions pursuant to employee benefit plans. Federal Income Tax Treatment The following is a brief description of the federal income tax treatment which will generally apply to awards made under the Amwest Stock Option Plan, based on federal income tax laws in effect on the date hereof. The exact federal income tax treatment of awards will depend on the specific nature of the award. Such an award may, depending on the conditions applicable to the award, be taxable as an option, as restricted or unrestricted stock, as a cash payment, or otherwise. Because the following is only a brief summary of the general federal income tax rules, recipients of awards should not rely thereon for individual tax advice, as each taxpayer's situation and the consequences of any particular transaction will vary depending upon the specific facts and circumstances involved. Each taxpayer is advised to consult with his or her own tax advisor for particular federal, as well as state and local, income and any other tax advice. Incentive Options. Pursuant to the Amwest Stock Option Plan, employees may be granted options which are intended to qualify as incentive stock options ("Incentive Options") under the provisions of Section 422 of the Internal Revenue Code (the "Code"). Generally, the optionee is not taxed and Amwest is not entitled to a deduction on the grant or the exercise of an Incentive Option, provided the participant was an employee of Amwest or a subsidiary at all times from the date the option was granted to the date three months (in the case of a disabled employee, one year) before the date of exercise. If the optionee disposes of the acquired stock after the later of (I) one year after the date the stock is transferred to the optionee pursuant to the exercise of the option or (ii) two years after the date of the option grant, the participant will recognize capital gain or loss equal to the difference between the amount realized from such disposition over the option price, and the company will not be entitled to a deduction. However, if the optionee sells the shares acquired upon the exercise of an Incentive Option at any time those one-year or two-year periods, then the optionee will recognize ordinary income in an amount equal to the excess, if any, of the lesser of the sale price of the shares of Amwest Common Stock or the fair market value of the shares of Amwest Common Stock on the date of exercise over the exercise price of such Incentive Option. Any gain recognized by the optionee on the disposition in excess of the amount taxable as ordinary income, or any loss recognized if the shares are sold for less than the exercise price, will be treated as capital gain or loss, long term or short term depending on whether the common stock has been held for more than one year. Amwest will generally be entitled to a tax deduction in an amount equal to the amount of ordinary income recognized by such optionee. The amount by which the fair market value of the shares of Amwest Common Stock received upon exercise of an Incentive Option exceeds the exercise price will be included as a positive adjustment in the calculation of an optionee's "alternative minimum taxable income" ("AMTI") in the year of exercise. The "alternative minimum tax" imposed on individual taxpayers is generally equal to the amount by which 28% of the taxpayer's AMTI (26% for AMTI below certain amounts), reduced by certain exemption amounts, exceeds his or her regular income tax liability for the year. Non-Incentive Options. The grant of an option or other similar right to acquire stock which does not qualify for treatment as an Incentive Option (a "Non-Incentive Option") is generally not a taxable event for the optionee. Upon exercise of the option, the optionee will generally recognize ordinary income in an amount equal to the excess of the fair market value of the stock acquired upon exercise (determined as of the date of exercise) over the exercise price of such option, and Amwest will be entitled to a tax deduction equal to such amount. See "Special Rules for Awards Granted to Insiders," below. Special Rules for Awards Granted to Insiders. If an optionee is a director, officer or stockholder subject to Section 16 of the Exchange Act (an "Insider") and exercises an option within six months of the date of grant, the timing of the recognition of any ordinary income should be deferred until (and the amount of ordinary income should be determined based on the fair market value (or sales price in the case of a disposition) of the shares of Amwest Common Stock upon) the earlier of the following two dates: (i) six months after the date of grant or (ii) a disposition of the shares of Amwest Common Stock, unless the Insider makes an election under Section 83(b) of the Code (an "83(b) Election") within 30 days after exercise to recognize ordinary income based on the value of the Amwest Common Stock on the date of exercise. In addition, special rules apply to an Insider who exercises an option having an exercise price greater than the fair market value of the underlying shares on the date of exercise. Insiders should consult their tax advisors to determine the tax consequences to them of exercising options granted to them pursuant to the Amwest Stock Option Plan. Miscellaneous Tax Issues. Awards may be granted under the Amwest Stock Option Plan which do not fall clearly into the categories described above. The federal income tax treatment of these awards will depend upon the specific terms of such awards. Generally, Amwest will be required to make arrangements for withholding applicable taxes with respect to any ordinary income recognized by a participant in connection with awards made under the Amwest Stock Option Plan. With certain exceptions, an individual may not deduct investment-related interest to the extent such interest exceeds the individual's net investment income for the year. Investment interest generally includes interest paid on indebtedness incurred to purchase shares of Amwest Common Stock. Interest disallowed under this rule may be carried forward to an deducted in later years, subject to the same limitations. A holder's tax basis in Amwest Common Stock acquired pursuant to the Amwest Stock Option Plan generally will equal the amount paid for the Amwest Common Stock plus any amount recognized as ordinary income with respect to such stock. Other than ordinary income recognized with respect to the Amwest Common Stock and included in basis, any subsequent gain or loss upon the disposition of such stock generally will be capital gain or loss (long-term or short-term, depending on the holder's holding period). Special rules will apply in cases where a recipient of any award pays the exercise or purchase price of the award or applicable withholding tax obligations under the Amwest Stock Option Plan by delivering previously owned shares of Amwest Common Stock or by reducing the amount of shares otherwise issuable pursuant to the award. The surrender of withholding of such shares will in certain circumstances result in the recognition of income with respect to such shares or a carryover basis in the shares acquired. The terms of the agreements pursuant to which specific awards are made to optionees under the Amwest Stock Option Plan may provide for accelerated vesting or payment of an award in connection with a change in ownership or control of Amwest. In that event and depending upon the individual circumstances of the optionee, certain amounts with respect to such awards may constitute "excess parachute payments" under the "golden parachute" provisions of the Code. Pursuant to these provisions, a recipient will be subject to a 20% excise tax on any "excess parachute payments" and Amwest will be denied any deduction with respect to such payment. Optionees should consult their tax advisors as to whether accelerated vesting of an award in connection with a change of ownership or control of Amwest would give rise to an excess parachute payment. The Code limits to $1,000,000 per person the amount that Amwest may deduct for compensation paid to any of its most highly compensated officers, including deductions arising from the exercise of options. Thus, there can be no assurances that all amounts treated as compensation to optionees as described above will be deductible by Amwest. The Board of Directors of Amwest unanimously recommends a vote FOR approval of the amendment to the Amwest Stock Option Plan as well as a vote FOR the ratification of the entire Amwest Stock Option Plan as set forth in Annex E to this Proxy Statement/Prospectus. Option Grants Shown below is certain information on grants of stock options pursuant to the Amwest Stock Option Plan during the fiscal year 1995. No stock appreciation rights have been granted in connection with options. OPTION/SAR GRANTS TABLE Option/SAR Grants in Last Fiscal Year
Value at Assumed Annual Rates of Stock Price Appreciation for Option Individual Grants Term (1) - --------------------------------------------------------------------------------------------------- ----------------------------- Number of % of Total Securities Options/SARs Exercise Underlying Granted to or Base Options/SARs Employees in Price Expiration Name Granted (2) Fiscal Year ($/Sh) Date 5% ($) 10% ($) - ----------------------------------- --------------- --------------- --------------- --------------- -------------- -------------- Richard H. Savage __-- -- -- -- -- -- Chairman of the Board and Co-Chief Executive Officer John E. Savage 10,000 (3) 10.2% 14.250 April 4, 2005 89,617 227,108 Co-Chief Executive Officer, President and Chief Operating Officer Steven R. Kay 7,500 (3) 7.6% 14.250 April 4, 2005 67,213 170,331 Senior Vice President, Chief 10,000 (4) 10.2% 14.250 April 4, 2000 39,370 86,998 Financial Officer and Treasurer Arthur F. Melton 7,500 (3) 7.6% 14.250 April 4, 2005 67,213 170,331 Senior Vice President 10,000 (4) 10.2% 14.250 April 4, 2000 39,370 86,998 Neil F. Pont 7,500 (3) 7.6% 14.250 April 4, 2005 67,213 170,331 Senior Vice President 10,000 (4) 10.2% 14.250 April 4, 2000 39,370 86,998
(1) Potential realizable value is based on an assumption that the stock price of the Common Stock appreciates at the annual rate shown above (compounded annually) from the date of grant until the end of the five or ten year option term. These numbers are calculated based on the requirements promulgated by the Securities and Exchange Commission and do not reflect the Company's estimate of future stock price growth. (2) The Plan is administered by the Compensation and Stock Option Committee of the Board of Directors. The committee determines the eligibility of employees, the number of shares to be granted and the terms of such grants. (3) Options were granted on April 4, 1995 at fair market value and become exercisable at the rate of 25 percent on the first, second, third and fourth anniversary of the grant date, and have a term of 10 years. (4) Options were granted on April 4, 1995 at fair market value and become exercisable at the rate of 20 percent on the date of grant and the first, second, third and fourth anniversary of the grant date, and have a term of 5 years. OTHER MATTERS It is not expected that any matters other than those described in this Proxy Statement will be brought before the Condor Special Meeting or the Amwest Special Meeting. If any other matters are presented, however, it is the intention of the persons named in the Condor proxy and Amwest proxy to vote the proxy in accordance with the discretion of the persons named in such proxy. LEGAL MATTERS Certain legal matters with respect to the validity of the securities offered hereby and the Merger, and with respect to the discussion under the heading "The Proposal to Approve and Adopt the Agreement and Plan of Merger--Certain Federal Income Tax Consequences," will be passed upon for Amwest by Gibson, Dunn & Crutcher, 333 South Grand Avenue, Los Angeles, California 90071-3197. Jonathan K. Layne, who is a member of Amwest's Board of Directors, is a partner of Gibson, Dunn & Crutcher. Certain legal matters in connection with the Merger will be passed upon for Condor by Kindel & Anderson LLP, 555 South Flower Street, Los Angeles, California 90071-2498. EXPERTS The consolidated financial statements of Amwest Insurance Group, Inc. and Condor Services, Inc. as of December 31, 1994 and 1993, and for each of the years in the three year period ended December 31, 1994, have been incorporated by reference herein and in the registration statement in reliance upon the reports of KPMG Peat Marwick, LLP, independent certified public accountants, incorporated by reference herein, and upon the authority of said firm as experts in auditing and accounting. The report of KPMG Peat Marwick LLP on the December 31, 1994 financial statements of Condor Services, Inc. contains an explanatory paragraph that states that Condor adopted the provisions of Financial Accounting Standards Board's Statement of Financial Accounting Standard No. 115, "Accounting for Certain Investments in Debt and Equity Securities" in 1993. AMWEST INSURANCE GROUP, INC. AND CONDOR SERVICES, INC. Annexes to the Joint Proxy Statement/Prospectus Annex A -- Merger Agreement Annex B -- Stockholder Agreement Annex C --Opinion of Jefferies and Company Annex D --Opinion of Wedbush Morgan Annex E -- Amwest Insurance Group, Inc. Stock Option Plan (as Proposed to be Amended) PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 20. Indemnification of Directors and Officers. Section 145 of the Delaware General Corporation Law, as amended, provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director, officer, employee or agent of the corporation or is or was serving at its request in such capacity in another corporation or business association against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Section 102(b)(7) of the Delaware General Corporation Law, as amended, permits a corporation to provide in its certificate of incorporation that a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. As permitted by Section 145 of the Delaware General Corporation Law, the Bylaws of the Registrant provide: (i) the Registrant is required to indemnify its directors, officers and employees and persons serving in such capacities in other business enterprises (including, for example, subsidiaries of the Registrant) at the Registrant's request, who are or were a party to, or is threatened to be made a party to, any threatened, pending or completed action, suit or proceeding, whether or not by or in the right of the Registrant, and whether civil, criminal, administrative, investigative or otherwise, to the fullest extent permitted by Delaware law; (ii) the Registrant shall pay all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement and, in the manner provided by law, any such expenses may be paid by the Registrant in advance of the final disposition of such action, suit or proceeding.); (iii) the rights conferred in the Bylaws are not exclusive and the Registrant is authorized to enter into indemnification agreements with any other person for any such expenses to the fullest extent permitted by law; (iv) the Registrant may purchase and maintain insurance on behalf of any such person against any liability which may be asserted against such person.; and (v) the Registrant may not retroactively amend the Bylaw provisions in a way that is adverse to such directors, officers, employees and agents. The Registrant has also entered into an agreement with its directors and certain of its officers indemnifying them to the fullest extent permitted by the foregoing. These indemnification provisions, and the Indemnification Agreements entered into between the Registrant and its directors and certain of its officers, may be sufficiently broad to permit indemnification of the Registrants' officers and directors for liabilities arising under the Securities Act. The Registrant's Stock Plan, as amended, provides for indemnification by the Registrant of any committee member, officer or director administering or interpreting such plan for actions not undertaken in bad faith or fraud. Item 21. Exhibits and Financial Statement Schedules.
Exhibit Number Description 2.1 Agreement and Plan of Merger dated as of November 30, 1995 by and between Amwest Insurance Group, Inc. and Condor Services, Inc., including Exhibits and Disclosure Schedules (incorporated hereby by reference to Exhibit 2 to Amwest's Form 8-K dated November 30, 1995). 3.1 Restated Certificate of Incorporation of Amwest as amended to date (incorporated hereby by reference to Exhibit 3(3)(a) to Amwest's Form 8-B Registration Statement No. 1-9580). 3.2 Bylaws of Amwest (incorporated hereby by reference to Exhibit 3.2 of Registrant's Annual Report on Form 10-K for the year ended December 31, 1990.) 4.1 Specimen Common Stock Certificate (incorporated hereby by reference to Exhibit 3(4) to Amwest's Form 8-B Registration Statement No. 1-9580.) 5.1 * Opinion of Gibson, Dunn & Crutcher Regarding Legality of Shares Being Registered. 8.1 * Opinion of Gibson, Dunn & Crutcher Regarding Tax Matters. 10.1 Lease Agreement dated April 1, 1986, by and between Amwest Insurance Group, Inc. and Trillium/Woodland Hills. (Incorporated by reference to exhibit 10.9 to Amwest's 1986 Form 10-K.) 10.2 First amendment to Lease Agreement dated January 30, 1987, by and between Amwest Insurance Group, Inc. and Trillium/Woodland Hills. (Incorporated by reference to 10.13 to Amwest's 1987 Form 10-K.) 10.3 Second amendment to Lease Agreement dated June 11, 1987, by and between Amwest Insurance Group, Inc. and Trillium/Woodland Hills. (Incorporated by reference to 10.14 to Amwest's 1987 Form 10-K.) 10.4 Third amendment to Lease Agreement dated September 1, 1988, by and between Amwest Insurance Group, Inc. and Trillium/Woodland Hills. (Incorporated by reference to 10.15 to Amwest's 1988 Form 10-K.) 10.5 Fourth amendment to Lease Agreement dated November 20, 1989, by and between Amwest Insurance Group, Inc. and Trillium/Woodland Hills. (Incorporated by reference to 10.15 to Amwest's 1989 Form 10-K.) 10.6 Fifth amendment to Lease Agreement dated December 20, 1989, by and between Amwest Insurance Group, Inc. and Trillium/Woodland Hills. (Incorporated by reference to 10.16 to Amwest's 1989 Form 10-K.) 10.7 Sixth amendment to Lease Agreement dated December 31, 1989, by and between Amwest Insurance Group, Inc. and Trillium/Woodland Hills. (Incorporated by reference to 10.17 to Amwest's 1989 Form 10-K.) 10.8 Contract between Amwest and Hewlett-Packard Company, dated September 16, 1991. (Incorporated by reference to 10.22 to Amwest's 1991 Form 10-K.) 10.9 Lease Agreement dated June 16, 1992 by and between Amwest Insurance Group, Inc. and Hewlett-Packard Company. (Incorporated by reference to 10.18 to Amwest's 1992 Form 10-K.) 10.10 First Excess of Loss Reinsurance Contract effective October 1, 1992 issued to Amwest Surety Insurance Company and Far West Insurance Company by a syndicate of reinsurers lead by Kemper Reinsurance Company. (Incorporated by reference to 10.19 to Amwest's 1992 Form 10-K.) 10.11 Investment Management Agreement between Amwest and AAM Advisors, Inc., dated August 11, 1992. (Incorporated by reference to 10.21 to Amwest's 1992 Form 10-K.) 10.12 Contract between Amwest and Scudder, Stevens & Clark, Inc., dated August 13, 1992. (Incorporated by reference to 10.22 to Amwest's 1992 Form 10-K.) 10.13 Revolving Credit Agreement dated August 6, 1993 between Amwest Insurance Group, Inc. and Union Bank. (Incorporated by reference to 10.13 to Amwest's 1993 Form 10-K.) 10.14 First Amendment to the First Excess of Loss Reinsurance Contract effective October 1, 1993. (Incorporated by reference to 10.14 to Amwest's 1993 Form 10-K.) 10.15 Semiautomatic Bond Quota Share Reinsurance Contract effective October 1, 1993 issued to Amwest Surety Insurance Company by Kemper Reinsurance Company and Underwriters Reinsurance Company. (Incorporated by reference to 10.15 to Amwest's 1993 Form 10-K.) 10.16 First Excess of Loss Reinsurance Contract effective October 1, 1994 issued to Amwest Surety Insurance Company and Far West Insurance Company by a syndicate of reinsurers lead by Kemper Reinsurance Company. (Incorporated by reference to 10.16 to Amwest's 1994 Form 10-K.) 10.17 Semiautomatic Contract Surety Reinsurance Agreement effective March 1, 1994 issued to Amwest Surety Insurance Company and Far West Insurance Company by a syndicate of reinsurers lead by Kemper Reinsurance Company. (Incorporated by reference to 10.17 to Amwest's 1994 Form 10-K.) 10.18 Stock Option Plan of Amwest, as amended. (Incorporated by reference to Exhibit 4.1 to Amwest's Form S-8 Registration Statement No. 33-82178.) 10.19 Form of Indemnity Agreement between Amwest and Individual Directors and Certain Officers Designated by Amwest's Board of Directors. (Incorporated by reference to Exhibit 3(10) to Amwest's Form 8-B Registration Statement No. 1-9580.) 10.20 Form of Senior Executive Severance Agreement entered into by Amwest and certain officers. (Incorporated by reference to 10.20 to Amwest's 1989 Form 10-K.) 10.21 Rights Agreement dated as of May 10, 1989 executed by Amwest and Bankers Trust Company of California, N.A., as rights agent. (Incorporated by reference to Exhibit 10.1 to Amwest's Registration Statement on Form 8-A dated May 11, 1989.) 10.22 Non-Employee Director Stock Option Plan of Amwest. (Incorporated by reference to Exhibit 4.2 to Amwest's Form S-8 Registration Statement No. 33-82178.) 10.23 First Amendment to Revolving Credit Agreement. (Incorporated by reference to Exhibit 19.1 to the Amwest's March 31, 1995 Form 10-Q.) 10.24 * Lease Agreement dated January 24, 1996, by and between Amwest Insurance Group, Inc. and ACD2, a California Corporation. 10.25 * Option Agreement dated January 24, 1996, by and between Amwest Insurance Group, Inc. and ACD2, a California Corporation. 13.1** Amwest's 1994 Annual Report on Form 10-K. 13.2** Amwest's March 31, 1995 Quarterly Report on Form 10-Q. 13.3** Amwest's June 30, 1995 Quarterly Report on Form 10-Q. 13.4** Amwest's September 30, 1995 Quarterly Report on Form 10-Q. 21.1 List of Subsidiaries of Registrant (incorporated hereby by reference to Exhibit 3(22) to Amwest's Form 8-B Registration Statement No. 1-9580.) 23.1 * Consent of KPMG Peat Marwick LLP. 23.2 * Consent of Gibson, Dunn & Crutcher (included as part of the Opinion submitted as Exhibit 5.1 hereto). 24.1 ** Power of Attorney (contained on page II-7 of the Registration Statement). 99.1 * Proxy Card For Amwest Insurance Group, Inc.
* Filed herewith. ** Previously filed. *** To be filed by amendment. Item 22. Undertakings. (a) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (b) The undersigned registrant hereby undertakes to deliver or cause to be delivered with the prospectus, to each person to whom the prospectus is sent or given, the latest annual report, to security holders that is incorporated by reference in the prospectus and furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and, where interim financial information required to be presented by Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or cause to be delivered to each person to whom the prospectus is sent or given, the latest quarterly report that is specifically incorporated by reference in the prospectus to provide such interim financial information. (c) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement; (i) To include any prospectus required by Section 10(a) (3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (d) (1) The undersigned registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (2) The registrant undertakes that every prospectus: (i) that is filed pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (e) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (f) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this pre-effective amendment to registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Woodland Hills, State of California, on the 13th day of February, 1996. AMWEST INSURANCE GROUP, INC. By: /s/ Steven R. Kay Steven R. Kay Senior Vice President, Chief Financial Officer and Treasurer Pursuant to the requirements of the Securities Act of 1933, this Pre-Effective Amendment No. 1 to registration statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date Chairman of the Board and Co-Chief Executive Officer (Principal /s/RICHARD H. SAVAGE * Executive Officer) 2/13/96 Richard H. Savage President, Chief Operating Officer, /s/JOHN E. SAVAGE * Co-Chief Executive Officer and Director 2/13/96 John E. Savage Senior Vice President, Chief Financial Officer, Treasurer and Director (Principal Financial and Principal /s/STEVEN R. KAY Accounting Officer) 2/13/96 Steven R. Kay /s/ARTHUR F. MELTON * Senior Vice President and Director 2/13/96 Arthur F. Melton /s/NEIL F. PONT * Senior Vice President and Director 2/13/96 Neil F. Pont /s/THOMAS R. BENNETT * Director 2/13/96 Thomas R. Bennett /s/BRUCE A. BUNNER * Director 2/13/96 Bruce A. Bunner /s/EDGAR L. FRASER * Director 2/13/96 Edgar L. Fraser /s/JONATHAN K. LAYNE * Director 2/13/96 Jonathan K. Layne /s/CHARLES L. SCHULTZ * Director 2/13/96 Charles L. Schultz * By: /s/STEVEN R. KAY Steven R. Kay Attorney-in-fact INDEX TO EXHIBITS
Exhibit Sequential Page Number Description Number ------ ----------- ------- 2.1 Agreement and Plan of Merger dated as of November 30, 1995 by and between Amwest Insurance Group, Inc. and Condor Services, Inc., including Exhibits and Disclosure Schedules (incorporated hereby by reference to Exhibit 2 to Amwest's Form 8-K dated November 30, 1995). 3.1 Restated Certificate of Incorporation of Amwest as amended to date (incorporated hereby by reference to Exhibit 3(3)(a) to Amwest's Form 8-B Registration Statement No. 1-9580). 3.2 Bylaws of Amwest (incorporated hereby by reference to Exhibit 3.2 of Registrant's Annual Report on Form 10-K for the year ended December 31, 1990.) 4.1 Specimen Common Stock Certificate (incorporated hereby by reference to Exhibit 3(4) to Amwest's Form 8-B Registration Statement No. 1-9580.) 5.1 * Opinion of Gibson, Dunn & Crutcher Regarding Legality of Shares Being Registered. 8.1 * Opinion of Gibson, Dunn & Crutcher Regarding Tax Matters. 10.1 Lease Agreement dated April 1, 1986, by and between Amwest Insurance Group, Inc. and Trillium/Woodland Hills. (Incorporated by reference to exhibit 10.9 to Amwest's 1986 Form 10-K.) 10.2 First amendment to Lease Agreement dated January 30, 1987, by and between Amwest Insurance Group, Inc. and Trillium/Woodland Hills. (Incorporated by reference to 10.13 to Amwest's 1987 Form 10-K.) 10.3 Second amendment to Lease Agreement dated June 11, 1987, by and between Amwest Insurance Group, Inc. and Trillium/Woodland Hills. (Incorporated by reference to 10.14 to Amwest's 1987 Form 10-K.) 10.4 Third amendment to Lease Agreement dated September 1, 1988, by and between Amwest Insurance Group, Inc. and Trillium/Woodland Hills. (Incorporated by reference to 10.15 to Amwest's 1988 Form 10-K.) 10.5 Fourth amendment to Lease Agreement dated November 20, 1989, by and between Amwest Insurance Group, Inc. and Trillium/Woodland Hills. (Incorporated by reference to 10.15 to Amwest's 1989 Form 10-K.) 10.6 Fifth amendment to Lease Agreement dated December 20, 1989, by and between Amwest Insurance Group, Inc. and Trillium/Woodland Hills. (Incorporated by reference to 10.16 to Amwest's 1989 Form 10-K.) 10.7 Sixth amendment to Lease Agreement dated December 31, 1989, by and between Amwest Insurance Group, Inc. and Trillium/Woodland Hills. (Incorporated by reference to 10.17 to Amwest's 1989 Form 10-K.) 10.8 Contract between Amwest and Hewlett-Packard Company, dated September 16, 1991. (Incorporated by reference to 10.22 to Amwest's 1991 Form 10-K.) 10.9 Lease Agreement dated June 16, 1992 by and between Amwest Insurance Group, Inc. and Hewlett-Packard Company. (Incorporated by reference to 10.18 to Amwest's 1992 Form 10-K.) 10.10 First Excess of Loss Reinsurance Contract effective October 1, 1992 issued to Amwest Surety Insurance Company and Far West Insurance Company by a syndicate of reinsurers lead by Kemper Reinsurance Company. (Incorporated by reference to 10.19 to Amwest's 1992 Form 10-K.) 10.11 Investment Management Agreement between Amwest and AAM Advisors, Inc., dated August 11, 1992. (Incorporated by reference to 10.21 to Amwest's 1992 Form 10-K.) 10.12 Contract between Amwest and Scudder, Stevens & Clark, Inc., dated August 13, 1992. (Incorporated by reference to 10.22 to Amwest's 1992 Form 10-K.) 10.13 Revolving Credit Agreement dated August 6, 1993 between Amwest Insurance Group, Inc. and Union Bank. (Incorporated by reference to 10.13 to Amwest's 1993 Form 10-K.) 10.14 First Amendment to the First Excess of Loss Reinsurance Contract effective October 1, 1993. (Incorporated by reference to 10.14 to Amwest's 1993 Form 10-K.) 10.15 Semiautomatic Bond Quota Share Reinsurance Contract effective October 1, 1993 issued to Amwest Surety Insurance Company by Kemper Reinsurance Company and Underwriters Reinsurance Company. (Incorporated by reference to 10.15 to Amwest's 1993 Form 10-K.) 10.16 First Excess of Loss Reinsurance Contract effective October 1, 1994 issued to Amwest Surety Insurance Company and Far West Insurance Company by a syndicate of reinsurers lead by Kemper Reinsurance Company. (Incorporated by reference to 10.16 to Amwest's 1994 Form 10-K.) 10.17 Semiautomatic Contract Surety Reinsurance Agreement effective March 1, 1994 issued to Amwest Surety Insurance Company and Far West Insurance Company by a syndicate of reinsurers lead by Kemper Reinsurance Company. (Incorporated by reference to 10.17 to Amwest's 1994 Form 10-K.) 10.18 Stock Option Plan of Amwest, as amended. (Incorporated by reference to Exhibit 4.1 to Amwest's Form S-8 Registration Statement No. 33-82178.) 10.19 Form of Indemnity Agreement between Amwest and Individual Directors and Certain Officers Designated by Amwest's Board of Directors. (Incorporated by reference to Exhibit 3(10) to Amwest's Form 8-B Registration Statement No. 1-9580.) 10.20 Form of Senior Executive Severance Agreement entered into by Amwest and certain officers. (Incorporated by reference to 10.20 to Amwest's 1989 Form 10-K.) 10.21 Rights Agreement dated as of May 10, 1989 executed by Amwest and Bankers Trust Company of California, N.A., as rights agent. (Incorporated by reference to Exhibit 10.1 to Amwest's Registration Statement on Form 8-A dated May 11, 1989.) 10.22 Non-Employee Director Stock Option Plan of Amwest. (Incorporated by reference to Exhibit 4.2 to Amwest's Form S-8 Registration Statement No. 33-82178.) 10.23 First Amendment to Revolving Credit Agreement. (Incorporated by reference to Exhibit 19.1 to the Amwest's March 31, 1995 Form 10-Q.) 10.24 * Lease Agreement dated January 24, 1996, by and between Amwest Insurance Group, Inc. and ACD2, a California Corporation. 10.25 * Option Agreement dated January 24, 1996, by and between Amwest Insurance Group, Inc. and ACD2, a California Corporation. 13.1 ** Amwest's 1994 Annual Report on Form 10-K. 13.2 ** Amwest's March 31, 1995 Quarterly Report on Form 10-Q. 13.3 ** Amwest's June 30, 1995 Quarterly Report on Form 10-Q. 13.4 ** Amwest's September 30, 1995 Quarterly Report on Form 10-Q. 21.1 List of Subsidiaries of Registrant (incorporated hereby by reference to Exhibit 3(22) to Amwest's Form 8-B Registration Statement No. 1-9580.) 23.1 * Consent of KPMG Peat Marwick LLP. 23.2 * Consent of Gibson, Dunn & Crutcher (included as part of the Opinion submitted as Exhibit 5.1 hereto). 24.1 ** Power of Attorney (contained on page 112 of the Registration Statement). 99.1 * Proxy Card for Amwest Insurance Group, Inc.
* Filed herewith. ** Previously filed. *** To be filed by amendment ANNEX A AGREEMENT AND PLAN OF MERGER BY AND BETWEEN AMWEST INSURANCE GROUP, INC. AND CONDOR SERVICES, INC. DATED November 30, 1995 TABLE OF CONTENTS Page(s) CONTENTS ARTICLE I THE MERGER......................................................... 1 Section 1.01 The Merger ................................................ 1 Section 1.02 Effective Time............................................. 1 Section 1.03 Certificate of Incorporation and Bylaws of the Surviving Corporation........................................................ 2 Section 1.04 Board of Directors and Officers............................ 2 Section 1.05 Conversion of Shares....................................... 2 Section 1.06 Surrender of Certificates; Payment for and Exchange of Shares.......................................................... 3 ARTICLE II RELATED MATTERS................................................... 5 Section 2.01 Treatment of Stock Options................................. 5 Section 2.02 Stockholder Approval....................................... 6 Section 2.03 Other Securities Matters................................... 7 ARTICLE III REPRESENTATIONS AND WARRANTIES OF CONDOR......................... 7 Section 3.01 Corporate Organization..................................... 7 Section 3.02 Authorization.............................................. 8 Section 3.03 Capitalization............................................. 8 Section 3.04 Affiliated Entities........................................ 8 Section 3.05 Financial Statements....................................... 9 Section 3.06 Absence of Certain Changes or Events....................... 10 Section 3.07 Consents and Approvals; No Violation....................... 10 Section 3.08 No Undisclosed Liabilities................................. 11 Section 3.09 Taxes ..................................................... 11 Section 3.10 Insurance: Licenses, Permits and Filings................... 15 Section 3.11 Patents, Trademarks, and Other Intellectual Property....... 16 Section 3.12 Litigation ................................................ 16 Section 3.13 Insurance ................................................. 17 Section 3.14 Compliance with Laws....................................... 17 Section 3.15 Employee Benefit Plans..................................... 17 Section 3.16 Employment Related Agreements.............................. 18 Section 3.17 Labor Agreements and Controversies......................... 18 Section 3.18 Environmental Matters...................................... 19 Section 3.19 Certain Fees............................................... 19 Section 3.20 Disclosure ................................................ 19 Section 3.21 Post-Retirement and Post-Employment Benefit Obligations.... 20 Section 3.22 Registration Statement and Proxy Statement................. 20 Section 3.23 Absence of Questionable Payments........................... 20 Section 3.24 Guaranties................................................. 21 Section 3.25 Material Contracts......................................... 21 Section 3.26 Insurance Contracts and Rates.............................. 22 Section 3.27 Reinsurance................................................ 22 Section 3.28 Loss Reserves; Solvency.................................... 22 Section 3.29 Opinion of Financial Advisor............................... 23 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF AMWEST.......................... 23 Section 4.01 Corporate Organization..................................... 23 Section 4.02 Authorization.............................................. 23 Section 4.03 Capitalization............................................. 24 Section 4.04 Financial Statements and Reports........................... 24 Section 4.05 Absence of Certain Changes................................. 25 Section 4.06 Consents and Approvals; No Violations...................... 25 Section 4.07 Litigation ................................................ 26 Section 4.08 Compliance with Laws....................................... 26 Section 4.09 Proxy Statement, Etc....................................... 26 Section 4.10 No Undisclosed Liabilities................................. 27 Section 4.11 Disclosure ................................................ 27 Section 4.12 Post-Retirement and Post-Employment Benefit Obligations.... 27 Section 4.13 Employee Benefit Plans..................................... 27 Section 4.14 Environmental Matters...................................... 28 Section 4.15 Absence of Questionable Payments........................... 29 Section 4.16 Certain Fees............................................... 30 Section 4.17 Taxes ..................................................... 30 Section 4.18 Affiliated Entities........................................ 33 Section 4.19 Reinsurance................................................ 33 Section 4.20 Insurance: Licenses, Permits and Filings................... 34 Section 4.21 Guaranties................................................. 35 Section 4.22 Material Contracts......................................... 35 Section 4.23 Insurance Contracts and Rates.............................. 36 Section 4.24 Loss Reserves; Solvency.................................... 36 ARTICLE V COVENANTS.......................................................... 37 Section 5.01 Conduct of Business of Condor and Amwest................... 37 Section 5.02 Access to Information...................................... 39 Section 5.03 All Reasonable Efforts..................................... 40 Section 5.04 Public Announcements....................................... 40 Section 5.05 Notification of Certain Matters............................ 40 Section 5.06 Indemnification and Insurance.............................. 40 Section 5.07 Regulatory Approvals....................................... 42 Section 5.08 Employee Matters........................................... 42 Section 5.09 No Actions Inconsistent With Tax-Free Reorganization....... 42 Section 5.10. Other Potential Acquirors................................. 42 Section 5.11 Letter of Condor's Accountants............................. 44 Section 5.12 Stock Exchange Listing..................................... 44 Section 5.13 Pooling of Interests....................................... 44 Section 5.14 Employment Agreement....................................... 44 Section 5.15 Condor Affiliates.......................................... 45 Section 5.16 Agreement with Guy A. Main................................. 45 ARTICLE VI CLOSING........................................................... 45 Section 6.01 Time and Place............................................. 45 Section 6.02 Deliveries at the Closing.................................. 45 ARTICLE VII CONDITIONS TO THE MERGER......................................... 45 Section 7.01 Conditions to the Obligations of Amwest and Condor......... 45 Section 7.02 Additional Conditions to the Obligations of Amwest......... 46 Section 7.03 Additional Conditions to the Obligations of Condor......... 48 ARTICLE VIII TERMINATION AND ABANDONMENT..................................... 49 Section 8.01 Termination................................................ 49 Section 8.02 Effect of Termination...................................... 50 Section 8.03 Fees and Expenses.......................................... 51 ARTICLE IX GENERAL PROVISIONS................................................ 52 Section 9.01 Amendment and Modification................................. 52 Section 9.02 Waiver of Compliance; Consents............................. 52 Section 9.03 Validity .................................................. 52 Section 9.04 Parties in Interest........................................ 53 Section 9.05 Survival of Representations, Warranties, Covenants and Agreements......................................................... 53 Section 9.06 Notices ................................................... 53 Section 9.07 Governing Law.............................................. 54 Section 9.08 Counterparts............................................... 54 Section 9.09 Table of Contents and Headings............................. 54 Section 9.10 Entire Agreement........................................... 54 Section 9.11 Arbitration; Attorneys' Fees and Expenses.................. 54 Section 9.12 Miscellaneous.............................................. 55 EXHIBIT A STOCKHOLDER AGREEMENT.............................................. 57 EXHIBIT B AFFILIATES LETTER AND CONTINUITY OF INTEREST CERTIFICATE........... 61 EXHIBIT C AGREEMENT WITH GUY A. MAIN AND MAIN FAMILY TRUST................... 65 APPENDIX A TO EXHIBIT C...................................................... 73 AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER, dated as of November 30, 1995 (the "Agreement"), is between Amwest Insurance Group, Inc., a Delaware corporation ("Amwest") and Condor Services, Inc., a Delaware corporation ("Condor"). RECITALS A. Condor will be merged into Amwest pursuant to the terms of this Agreement (the "Merger") and Condor will cease to exist as a separate entity. B. The Merger will be accomplished and will have the effects set forth in this Agreement and as a result the shares of Condor common stock will be converted into shares of common stock of Amwest. C. A stockholder of Condor (the "Condor Stockholder") and Amwest have entered into an agreement (the "Stockholder Agreement") substantially in the form of Exhibit A to this Agreement by which the Condor Stockholder has, among other things, consented to the Merger and agreed to vote his shares in favor of the Merger. ARTICLE I THE MERGER Section 1.01 The Merger Upon the terms and subject to the satisfaction or, if permissible, waiver of the conditions of this Agreement, at the Effective Time (as defined in Section 1.02 hereof), Condor shall be merged with and into Amwest in accordance with the applicable provisions of Delaware law and the separate existence of Condor shall thereupon cease, and Amwest, which shall be and which is hereinafter referred to as the "Surviving Corporation", shall continue its corporate existence under the laws of the State of Delaware under the name "Amwest Insurance Group, Inc." From and after the Effective Time, Amwest shall possess all of the rights, privileges, powers and franchises of a public as well as of a private nature, and be subject to all the restrictions, disabilities and duties of each of the constituent corporations, all as set forth in Section 259 of the General Corporation Law of the State of Delaware (the "DGCL"). Section 1.02 Effective Time On the date of the closing of the Merger referred to in Section 6.01 hereof, a Certificate of Merger in such form as required by, and executed in accordance with, the relevant provisions of the DGCL shall be filed with the Secretary of State of Delaware. The Merger shall become effective at the date and time specified in such filing, and the date and time of such filing is hereinafter referred to as the "Effective Time." Section 1.03 Certificate of Incorporation and Bylaws of the Surviving Corporation The Certificate of Incorporation and Bylaws of Amwest, as in effect immediately prior to the Effective Time, shall be the Certificate of Incorporation and Bylaws of the Surviving Corporation until thereafter changed or amended as provided therein or by law. Section 1.04 Board of Directors and Officers The directors and officers of Amwest immediately prior to the Effective Time shall be the directors and officers of the Surviving Corporation, each of such directors and officers to hold office, subject to the applicable provisions of the Certificate of Incorporation and Bylaws of the Surviving Corporation, until their successors are duly elected and qualified, or their earlier death, resignation or removal. Section 1.05 Conversion of Shares At the Effective Time, by virtue of the Merger and without any action on the part of the holder thereof and subject to the conditions set forth in Sections 7.02(i) and 7.03(h): (a)......each share of Common Stock, par value $.01 per share, of Condor (collectively, the "Condor Common Stock") then owned by Amwest or any direct or indirect subsidiary of Amwest and each share of Condor Common Stock then held in the treasury of Condor shall be canceled, and no payment shall be made nor other consideration paid with respect thereto; (b)......each then remaining outstanding share of Condor Common Stock shall be converted into the right to receive 0.5 of a share (subject to adjustment pursuant to Section 1.05(c) below, the "Conversion Number") of common stock, par value $.01 per share, of Amwest (the "Amwest Common Stock") (the shares of Amwest Common Stock into which each share of Condor Common Stock is converted shall be referred to herein as the "Merger Consideration"); and (c)......(i) if the average daily Closing Price per share (as defined in Section 2.01(a) below) of Amwest Common Stock as reported on the American Stock Exchange ("ASE") for the 30 consecutive trading days ending on the close of trading on the second trading day preceding the Closing Date (the "Base Period Trading Price") is less than $12.50, the Merger Consideration per share of Condor Common Stock shall be increased by a factor of 12.5 divided by the Base Period Trading Price and (ii) if the Base Period Trading Price is greater than $17.50, the Merger Consideration per Share shall be decreased by a factor of 17.5 divided by the Base Period Trading Price. Section 1.06 Surrender of Certificates; Payment for and Exchange of Shares (a)......As of the Effective Time, Amwest shall deposit with American Stock Transfer & Trust Company, or another bank or trust company designated by Amwest and reasonably acceptable to Condor (the "Exchange Agent"), for the benefit of the holders of Condor Common Stock, for exchange in accordance with this Article I, through the Exchange Agent: (i) certificates representing the appropriate number of shares of Amwest Common Stock and (ii) cash to be paid in lieu of fractional shares of Amwest Common Stock (such shares of Amwest Common Stock and such cash are hereinafter referred to as the "Exchange Fund") issuable pursuant to Section 1.06(f) in exchange for outstanding Condor Common Stock. (b)......As soon as reasonably practicable after the Effective Time, the Exchange Agent shall mail to each holder of record of a certificate or certificates which immediately prior to the Effective Time represented outstanding Condor Common Stock (the "Certificates") whose shares were converted into the right to receive shares of Amwest Common Stock pursuant to Section 1.05: (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent and shall be in such form and have such other provisions as Amwest and Condor may reasonably specify) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for certificates representing shares of Amwest Common Stock. Upon surrender of a Certificate for cancellation to the Exchange Agent or to such other agent or agents as may be appointed by Amwest, together with such letter of transmittal, duly executed, the holder of such Certificate shall be entitled to receive in exchange therefor a certificate representing that number of whole shares of Amwest Common Stock and, if applicable, a check representing the cash consideration to which such holder may be entitled on account of a fractional share of Amwest Common Stock, which such holder has the right to receive pursuant to the provisions of this Article I, and the Certificate so surrendered shall forthwith be canceled. In the event of a transfer of ownership of Condor Common Stock which is not registered in the transfer records of Condor, a certificate representing the proper number of shares of Amwest Common Stock, together with a check, if applicable, for cash payable in lieu of a fractional share, will be issued to a transferee if the Certificate representing such Condor Common Stock is presented to the Exchange Agent, accompanied by all documents required to evidence and effect such transfer and by evidence that any applicable stock transfer taxes have been paid. Until surrendered as contemplated by this Section 1.06, each Certificate shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender the certificate representing shares of Amwest Common Stock and cash in lieu of any fractional shares of Amwest Common Stock as contemplated by this Section 1.06. (c)......No dividends or other distributions declared or made after the Effective Time with respect to Amwest Common Stock with a record date after the Effective Time shall be paid to the holder of any unsurrendered Certificate with respect to the shares of Amwest Common Stock represented thereby and no cash payment in lieu of fractional shares shall be paid to any such holder pursuant to Section 1.06(f) until the holder of record (or a valid transferee) of such Certificate shall surrender such Certificate. Subject to the effect of applicable laws, following surrender of any such Certificate, there shall be paid to the record holder of the certificates representing whole shares of Amwest Common Stock issued in exchange therefor, without interest, (i) at the time of such surrender, the amount of any cash payable in lieu of a fractional share of Amwest Common Stock to which such holder is entitled pursuant to Section 1.06(f) and the amount of dividends or other distributions with a record date after the Effective Time theretofore paid with respect to such whole shares of Amwest Common Stock, and (ii) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time but prior to surrender and a payment date subsequent to surrender payable with respect to such whole shares of Amwest Common Stock. (d)......In the event that any certificate for Condor Common Stock shall have been lost, stolen or destroyed, the Exchange Agent shall issue in exchange therefor, upon the making of an affidavit of that fact by the holder thereof such shares of Amwest Common Stock and cash in lieu of fractional shares, if any, as may be required pursuant to this Agreement provided, however, that Amwest may, in its discretion, require the delivery of a suitable bond or indemnity. (e)......All shares of Amwest Common Stock issued upon the surrender for exchange of Condor Common Stock in accordance with the terms hereof (including any cash paid pursuant to Section 1.06(c) or 1.06(f)) shall be deemed to have been issued in full satisfaction of all rights pertaining to such Condor Common Stock, subject, however, to the Surviving Corporation's obligation to pay any dividends or make any other distributions with a record date prior to the Effective Time which may have been declared or made by Condor on such Condor Common Stock in accordance with the terms of this Agreement or prior to the date hereof and which remain unpaid at the Effective Time, and there shall be no further registration of transfers on the stock transfer books of the Surviving Corporation of the Condor Common Stock which were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this Article I. (f)......No fractions of a share of Amwest Common Stock shall be issued in the Merger, but in lieu thereof each holder of Condor Common Stock otherwise entitled to a fraction of a share of Amwest Common Stock shall, upon surrender of his or her certificate or certificates, be entitled to receive an amount of cash (without interest) determined by multiplying the Base Period Trading Price by the fractional share interest to which such holder would otherwise be entitled. The parties acknowledge that payment of the cash consideration in lieu of issuing fractional shares was not separately bargained for consideration but merely represents a mechanical rounding off for purposes of simplifying the corporate and accounting problems which would otherwise be caused by the issuance of fractional shares. (g)......Any portion of the Exchange Fund which remains undistributed to the stockholders of Condor for six months after the Effective Time shall be delivered to Amwest, upon demand, and any stockholders of Condor who have not theretofore complied with this Article I shall thereafter look only to Amwest for payment of their claim for Amwest Common Stock, as the case may be, any cash in lieu of fractional shares of Amwest Common Stock and any dividends or distributions with respect to Amwest Common Stock. (h)......Neither Amwest nor Condor shall be liable to any holder of Condor Common Stock, or Amwest Common Stock, as the case may be, for such shares (or dividends or distributions with respect thereto) or cash from the Exchange Fund delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. ARTICLE II RELATED MATTERS Section 2.01 Treatment of Stock Options (a)......At or immediately prior to the Effective Time, each holder of a then outstanding option to purchase shares of Condor Common Stock, other than those options held by non-employee directors of Condor, (whether or not then currently exercisable) granted by Condor ("Condor Stock Option") as set forth in Section 2.01 of the Condor Disclosure Schedule to this Agreement executed by Condor and delivered simultaneously herewith (the "Condor Disclosure Schedule") shall be canceled and, in lieu thereof, Amwest shall issue to each holder thereof an option ("Amwest Option"), to acquire, on substantially the same terms and subject to substantially the same conditions as were applicable under such Condor Stock Option, the same number of shares of Amwest Common Stock as the holder of such Condor Stock Option would have been entitled to receive pursuant to the Merger had such holder exercised such option in full immediately prior to the Effective Time, at a price per share equal to (y) the per share exercise price for the shares of Condor Common Stock otherwise purchasable pursuant to such Condor Stock Option divided by (z) .5 as appropriately adjusted pursuant to subsection (c) of Section 1.05; provided, however, that the number of shares of Amwest Common Stock that may be purchased upon exercise of any Amwest Option shall not include any fractional share and, upon exercise of the Amwest Option, a cash payment shall be made for any fractional share based upon the Closing Price (as hereinafter defined) of a share of Amwest Common Stock on the trading day immediately preceding the date of exercise. "Closing Price" shall mean, on any day, the last reported sale price for one share of Amwest Common Stock on the ASE. Condor Stock Options issued to non-employee directors of Condor which remain outstanding as of the Effective Time shall be automatically canceled as of the Effective Time. (b)......Amwest shall take all corporate action necessary to reserve for issuance a sufficient number of shares of Amwest Common Stock for delivery upon exercise of Amwest Options assumed in accordance with this Section 2.01. As soon as practicable after the Effective Time, Amwest shall file a registration statement on Form S-3 or Form S-8, as the case may be (or any successor or other appropriate forms), or another appropriate form with respect to the shares of Amwest Common Stock subject to such options and shall use its best efforts to maintain the effectiveness of such registration statement or registration statements (and maintain the current status of the prospectus or prospectuses contained therein) for so long as such options remain outstanding. Section 2.02 Stockholder Approval (a)......(i) As promptly as practicable, Amwest will cause a meeting of its stockholders to be duly called and will give notice of, convene and hold such meeting as soon as practicable for the purpose of obtaining approval of the Merger. The stockholder vote required for such approvals will be no greater than that required by the applicable requirements of the DGCL and the applicable rules of the ASE and the applicable requirements of Amwest's Certificate of Incorporation and Bylaws. Amwest will solicit such approvals by its stockholders and recommend that its stockholders vote in favor of such approvals. (ii) As promptly as practicable, Condor will cause a meeting of its stockholders to be duly called and will give notice of, convene and hold such meeting as soon as practicable for the purpose of obtaining approval of the Merger. The stockholder vote required for such approvals will be no greater than that required by the applicable requirements of the DGCL and the applicable rules of the National Association of Securities Dealers ("NASD") and the applicable requirements of Condor's Certificate of Incorporation and Bylaws. Condor will solicit such approvals by its stockholders and recommend that its stockholders vote in favor of such approvals. (b)......In connection with any solicitations of approval of the Merger by Amwest's and Condor's stockholders, Amwest and Condor will each file with the Securities and Exchange Commission (the "Commission" or the "SEC") under the Securities Exchange Act of 1934 (the "Exchange Act"), and will use all reasonable efforts to have cleared by the Commission, and promptly thereafter will mail to its respective stockholders proxy solicitation materials (including a proxy statement and appropriate related forms of proxies) with respect to such meeting. Except as provided in Section 9.12(b), such proxy statement of Amwest will also constitute a prospectus of Amwest with respect to the shares of Amwest Common Stock to be issued in the Merger and will be a part of a registration statement filed by Amwest with the Commission for purposes of registering the public offering of such shares under the Securities Act of 1933 (the "Securities Act"). Amwest will promptly so file such registration statement and will use all reasonable efforts to have it declared effective by the Commission. The term "Proxy Materials" shall mean such proxy statement together with the related forms of proxies and other proxy solicitation materials at the time initially mailed to stockholders and all amendments or supplements thereto, if any, similarly filed and mailed. The term "Registration Statement" shall mean the registration statement of Amwest containing, as a part thereof, a prospectus in the form of such proxy statement of Amwest, at the time it is declared effective by the Commission. (c)......The information provided and to be provided by Amwest and Condor for use in the Registration Statement and the Proxy Materials will not, in the case of the Registration Statement, on the date the Registration Statement becomes effective and, in the case of the Proxy Materials, on the respective dates on which either (i) the Proxy Materials are mailed to stockholders of Amwest or Condor, as the case may be, or (ii) approval of the Merger by Amwest's or Condor's stockholders, as the case may be, is obtained, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Amwest and Condor agree promptly to correct any such information which shall have become false or misleading in any material respect and take all steps necessary to file with the Commission and have declared effective or cleared by the Commission any amendment or supplement to the Registration Statement or the Proxy Materials so as to correct the same and to cause the Proxy Materials as so corrected to be disseminated to their respective stockholders, in each case as to the extent required by applicable law. The Registration Statement and the Proxy Materials will comply as to form in all material respects with the provisions of the Securities Act and the Exchange Act and other applicable law and will contain the recommendation of the Board of Directors of Amwest and of Condor that Amwest's and Condor's stockholders vote in favor of or consent to such approvals. Section 2.03 Other Securities Matters Amwest shall promptly prepare and file with respect to the shares of Amwest Common Stock to be issued in the Merger any action required to be taken under state blue sky or securities laws in connection with the issuance of shares of Amwest Common Stock in the Merger and Condor shall furnish Amwest with all information and shall take such other action as Amwest may reasonably request in connection with any such action. ARTICLE III REPRESENTATIONS AND WARRANTIES OF CONDOR Condor represents and warrants to Amwest as follows: Section 3.01 Corporate Organization Condor is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, with all requisite corporate power and authority to own, operate and lease its properties and to carry on its business as now being conducted, and is duly qualified or licensed to do business and is in good standing in each jurisdiction in which its ownership or leasing of property or conduct of business requires such licensing or qualification, except where the failure to be so qualified would not have a Material Adverse Effect (as defined below) on Condor. Condor has delivered to Amwest complete and correct copies of its Certificate of Incorporation and Bylaws as in effect on the date hereof. "Material Adverse Effect" means any change or effect (i) that is or is reasonably likely to be materially adverse to the properties, business, results of operations, condition (financial or otherwise) or prospects of Condor or Amwest or both taken together, as the case may be, and any Affiliated Entity (as defined in Section 3.04 hereof), taken as a whole, other than any change or effect arising out of general economic conditions unrelated to any businesses in which such party is engaged or (ii) that may impair the ability of such party to consummate the transactions contemplated hereby. Section 3.02 Authorization Condor has the requisite corporate power and authority to enter into this Agreement and to carry out its obligations hereunder. The execution and delivery by Condor of this Agreement, the performance by Condor of its obligations hereunder and the consummation by Condor of the transactions contemplated hereby have been duly authorized by Condor's Board of Directors and, except for the approval of the stockholders of Condor Common Stock, no other corporate proceeding on the part of Condor is necessary for the execution and delivery thereof, and this Agreement is a legal, valid and binding obligation of Condor, enforceable against it in accordance with its terms. Section 3.03 Capitalization The authorized capital stock of Condor and the ownership thereof as well as the number of issued and outstanding shares of each class of capital stock of Condor is as set forth in Section 3.03 of the Condor Disclosure Schedule. All of such outstanding shares have been duly and validly issued, were not issued in violation of any preemptive rights and are fully paid and non-assessable with no personal liability attaching to the ownership thereof. Except as set forth on Section 3.03 of the Condor Disclosure Schedule, there are no options, warrants, subscriptions, conversion or other rights, agreements, commitments, arrangements or understandings with respect to (i) the issuance of shares of capital stock of Condor or any other securities convertible into, exchangeable for or evidencing the right to subscribe for any such shares, (ii) obligating Condor to purchase shares of Condor Common Stock or any security convertible into Condor Common Stock or (iii) obligating any of Condor stockholders to purchase, sell or transfer any Condor Common Stock. Section 3.03 of the Condor Disclosure Schedule lists all stock options granted by Condor, true and correct copies of which have been provided by Condor to Amwest. Section 3.04 Affiliated Entities (a)......Except as set forth in Section 3.04(a) of the Condor Disclosure Schedule, Condor has no direct or indirect "Affiliated Entities" (which term includes each direct or indirect subsidiary of Condor or Amwest, as the case may be, and each business entity in which Condor or Amwest, as the case may be, has any direct or indirect interest and for which it accounts on the equity method of accounting). Each Affiliated Entity of Condor listed on Section 3.04(a) of Condor Disclosure Schedule is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, with all requisite corporate power and authority to own, operate and lease its properties and to carry on its business as now being conducted, and is duly qualified or licensed to do business and is in good standing in each jurisdiction in which its ownership or leasing of property or conduct of business requires such qualification or licensing, except where the failure to be so qualified would not have a Material Adverse Effect on Condor. Condor has delivered to Amwest complete and correct copies of the Articles or Certificate of Incorporation and Bylaws of each such Affiliated Entity as in effect on the date hereof. (b)......Except as set forth in Section 3.04(b) of the Condor Disclosure Schedule, Condor is, directly or indirectly, the record and beneficial owner of all of the outstanding shares of capital stock of each of its Affiliated Entities, and all of the outstanding shares of capital stock of each such Affiliated Entity are duly and validly issued, were not issued in violation of any preemptive rights, are fully paid and non-assessable and are owned free and clear of any claim, lien, encumbrance or agreement with respect thereto. Except as and to the extent set forth in Section 3.04(b) of the Condor Disclosure Schedule, there are not any options, warrants, subscriptions, conversion or other rights, agreements, or commitments, arrangements or understandings with respect to the issuance of capital stock of any Affiliated Entity of Condor or any other securities convertible into, exchangeable for or evidencing the right to subscribe for any such shares. (c)......Except as set forth in Section 3.04(c) of the Condor Disclosure Schedule, Condor does not own, directly or indirectly, any capital stock or other equity securities of any corporation, limited liability company or limited partnership, other than of its Affiliated Entities, does not have any direct or indirect equity or ownership interest in any other business or entity, and does not have any direct or indirect obligation or any commitment to invest any funds in any corporation or other business or entity other than investments previously made in its Affiliated Entities. Section 3.05 Financial Statements Since January 1, 1994, Condor has filed with the SEC all reports, registration statements and all other filings required to be filed with the SEC under the rules and regulations of the SEC (collectively, the "Required Condor Reports"), all of which, as of their respective effective dates, complied in all material respects with all applicable requirements of the Securities Act and the Exchange Act. Condor has delivered to Amwest true and complete copies of (i) Condor's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, as filed with the SEC, (ii) Quarterly Reports on Form 10-Q for the three months ended March 31, 1995, June 30, 1995 and September 30, 1995, as filed with the SEC, (iii) proxy statements relating to all meetings of Condor's stockholders (whether annual or special) held or scheduled to be held since January 1, 1994, (iv) all other forms, reports, statements and documents filed by Condor with the SEC since January 1, 1994 and (v) all reports, statements and other information provided by Condor to its stockholders since January 1, 1994 (collectively, the "Condor SEC Filings"). Except as set forth in Section 3.05 of the Condor Disclosure Schedule, as of their respective dates, none of the Required Condor Reports or Condor SEC Filings contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. Except as set forth in Section 3.05 of the Condor Disclosure Schedule, the consolidated financial statements of Condor included or incorporated by reference in the Condor SEC Filings were prepared in accordance with generally accepted accounting principles applied on a consistent basis ("GAAP") (except as otherwise stated in such financial statements or, in the case of audited statements, the related report thereon of independent certified public accountants), and present fairly the financial position and results of operations, cash flows and changes in stockholders' equity of Condor and its consolidated Affiliated Entities as of the dates and for the periods indicated, subject, in the case of unaudited interim financial statements, to the absence of notes and to normal year-end adjustments, and are consistent with the books and records of Condor. Section 3.06 Absence of Certain Changes or Events Except as set forth in Condor SEC Filings or in Section 3.06 of the Condor Disclosure Schedule, since December 31, 1994, Condor and its Affiliated Entities have conducted their respective businesses only in the ordinary and usual course and there has not been any event, change or development which has had or will have a Material Adverse Effect on Condor. Section 3.07 Consents and Approvals; No Violation There is no requirement applicable to Condor or any of its Affiliated Entities to make any filing with, or to obtain any permit, authorization, consent or approval of, any governmental or regulatory authority as a condition to the lawful consummation of the transactions contemplated by this Agreement, other than (i) requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), (ii) requirements of the California Insurance Code (the "Insurance Code"), (iii) filings with the SEC pursuant to the Securities Act and the Exchange Act, (iv) such filings and approvals as may be required under the "blue sky," takeover or securities laws of various states, (v) compliance with the requirements of the NASD, or (vi) where the failure to make any such filing, or to obtain such permit, authorization, consent or approval, would not prevent or delay consummation of the Merger or would not otherwise prevent Condor from performing its obligations under this Agreement. Except as set forth in Section 3.07 of the Condor Disclosure Schedule, neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (a) result in the acceleration of, or the creation in any party of any right to accelerate, terminate, modify or cancel any indenture, contract, lease, sublease, loan agreement, note or other obligation or liability to which Condor or any Affiliated Entity is a party or by which any of them is bound or to which any of their assets is subject, except as would not have a Material Adverse Effect on Condor, (b) conflict with or result in a breach of or constitute a default under any provision of the Certificate of Incorporation or Bylaws (or other charter documents) of Condor or any Affiliated Entity, or, except as would not have a Material Adverse Effect on Condor, a default under or violation of any restriction, lien, encumbrance, indenture, contract, lease, sublease, loan agreement, note or other obligation or liability to which any of them is a party or by which any of them is bound or to which any of their assets is subject or result in the creation of any lien or encumbrance upon any of said assets, or (c) violate or result in a breach of or constitute a default under any judgment, order, decree, rule or regulation of any court or governmental agency to which Condor or any Affiliated Entity is subject. Section 3.08 No Undisclosed Liabilities Except as and to the extent set forth on the consolidated balance sheet of Condor as of December 31, 1994, included in the Required Condor Reports, neither Condor nor any Affiliated Entities had, at such date, any liabilities or obligations (absolute, accrued, contingent or otherwise) greater than $50,000, taken as a whole and since that date neither Condor nor any Affiliated Entities has incurred any liabilities or obligations material to Condor and Affiliated Entities taken as a whole except those incurred in the ordinary and usual course of business and consistent with past practice or in connection with or as a result of the transactions contemplated by this Agreement to which Condor is or is to be a party. Section 3.09 Taxes (a)......For purposes of this Agreement: (i) the term "Taxes" means (A) all federal, state, local, foreign and other net income, gross income, gross receipts, sales, use, ad valorem, value added, intangible, unitary, capital gain, transfer, franchise, profits, license, lease, service, service use, withholding, backup withholding, payroll, employment, estimated, excise, severance, stamp, occupation, premium, property, prohibited transactions, windfall or excess profits, customs, duties or other taxes, fees, assessments or charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts with respect thereto, (B) any liability for payment of amounts described in clause (A) whether as a result of transferee liability, of being a member of an affiliated, consolidated, combined or unitary group for any period, or otherwise through operation of law and (C) any liability for the payment of amounts described in clauses (A) or (B) as a result of any tax sharing, tax indemnity or tax allocation agreement or any other express or implied agreement to indemnify any other person; and the term "Tax" means any one of the foregoing Taxes; and (ii) the term "Returns" means all returns, declarations, reports, statements and other documents required to be filed in respect of Taxes; and the term "Return" means any one of the foregoing Returns. (b)......Section 3.09 of the Condor Disclosure Schedule sets forth: (i) the taxable years of Condor and Tax Affiliates as to which the respective statutes of limitations on the assessment of United States federal income and any applicable state, local or foreign income, franchise and premium Taxes have not expired, and (ii) with respect to such taxable years sets forth those years for which examinations by the Internal Revenue Service or the state, local or foreign taxing authority have been completed, those years for which examinations by such agencies are presently being conducted, those years for which notice of pending or threatened examination or adjustment has been received, those years for which examinations by such agencies have not been initiated, and those years for which required Returns for such Taxes have not yet been filed. Except to the extent indicated in Section 3.09 of the Condor Disclosure Schedule, all deficiencies asserted or assessments made as a result of any examinations by the Internal Revenue Service or state, local or foreign taxing authority have been fully paid, or are fully reflected as a liability in the Required Condor Reports, or are set forth in Section 3.09 of the Condor Disclosure Schedule, are being contested and an adequate reserve therefor has been established and is fully reflected in the Required Condor Reports to the extent required by GAAP. Section 3.09 of the Condor Disclosure Schedule sets forth all Returns not otherwise described above that are presently under examination with respect to Taxes and all assessments and deficiencies with respect to the Returns that are presently being contested by Condor and Tax Affiliates. (c)......Condor represents and warrants to Amwest that, except as described in Section 3.09 of the Condor Disclosure Schedule: (i) Condor, its Affiliated Entities and every member of a consolidated, combined,unitary, or other similar group for federal, state or local income tax purposes(for the period during which Condor or Amwest, as the case may be, or any of such Affiliated Entities were included in that group) (all such Affiliated Entities and other entities collectively referred to herein as "Tax Affiliates"), have filed on a timely basis all Returns required to have been filed by it and have paid on a timely basis all Taxes shown thereon as due. All such Returns are true, complete and correct in all material respects. The provisions for taxes in the Required Condor Reports set forth in all material respects the maximum liability of Condor and the Affiliated Entities for Taxes relating to periods covered thereby. No liability for Taxes has been incurred by Condor and the Affiliated Entities since the dates of the Required Condor Reports other than in the ordinary course of their business. No director, officer or employee of Condor or any of the Affiliated Entities having responsibility for Tax matters has reason to believe that any Taxing authority has valid grounds to claim or assess any material additional Tax with respect to Condor or the Tax Affiliates in excess of the amounts shown on the Required Condor Reports for the periods covered thereby. (ii) With respect to all amounts in respect of Taxes imposed upon Condor or Tax Affiliates, or for which Condor or Tax Affiliates are or could be liable, whether to taxing authorities (as, for example, under law) or to other persons or entities (as, for example, under tax allocation agreements), and with respect to all taxable periods or portions of periods ending on or before the Effective Time, all applicable Tax laws and agreements have been fully complied with, and all such amounts required to be paid by Condor and Tax Affiliates to taxing authorities or others have been paid, in all material respects. (iii) None of the Returns required to be filed by Condor and Tax Affiliates contains, or were required to contain (in order to avoid the imposition of a penalty), a disclosure statement under Section 6662 (or any predecessor provision) of the Internal Revenue Code of 1986, as amended (the "Code"), or any similar provision of state, local or foreign law; (iv) Neither Condor nor any Tax Affiliate has received notice that the Internal Revenue Service ("IRS") or any other taxing authority has asserted against Condor or such Tax Affiliate any deficiency or claim for additional Taxes in connection with any Return, and no issues have been raised (and are currently pending) by any taxing authority in connection with any Return. Neither Condor nor any Tax Affiliate has received notice that it is or may be subject to Tax in a jurisdiction in which it has not filed or does not currently file Returns; (v) There is no pending or, to Condor's Knowledge, threatened action, audit, proceeding, or investigation with respect to (i) the assessment or collection of Taxes or (ii) a claim for refund made, of or by Condor and Tax Affiliates with respect to Taxes; (vi) All Tax deficiencies asserted or assessed against Condor and Tax Affiliates have been paid or finally settled with no further amounts owed; (vii) All amounts that were required to be collected or withheld by Condor and Tax Affiliates have been duly collected or withheld in all material respects, and all such amounts that were required to be remitted to any taxing authority have been duly remitted in all material respects; (viii) Condor and Tax Affiliates have not requested an extension of time to file any Return not yet filed, and have not granted any waiver of any statute of limitations with respect to, or any extension of a period for the assessment of, any Tax. No power of attorney granted by Condor or Tax Affiliates with respect to Taxes is in force; (ix) Condor and Tax Affiliates have not taken any action not in accordance with past practice that would have the effect of deferring any material Tax liability of Condor or any Tax Affiliate from any taxable period ending on or before or including the Effective Time to any subsequent taxable period; (x) Other than the Affiliated Entities, Condor has had no Tax Affiliates during any period with respect to which the applicable statue of limitations on the assessment of Taxes remains open; (xi) Condor was not acquired in a "qualified stock purchase" under Section 338(d)(3) of the Code and no elections under Section 338(g) of the Code, protective carryover basis elections, offset prohibition elections or similar election are applicable to Condor or any Tax Affiliate; (xii) Neither Condor nor any Tax Affiliate is required to include in income any adjustment pursuant to Sections 481 or 263A of the Code (or similar provisions of other law or regulations) by reason of a change in accounting method or otherwise, following the Effective Time, and Condor has no Knowledge that the IRS (or other taxing authority) has proposed, or is considering, any such change in accounting method or other adjustment; (xiii) There are no liens for Taxes (other than for current Taxes not yet due and payable) upon the assets of Condor or the Affiliated Entities; (xiv) Neither Condor nor any of the Affiliated Entities are party to any agreement, contract, arrangement or plan that has resulted or would result, separately or in the aggregate, in the payment of any "excess parachute payments" within the meaning of Section 280G of the Code, whether by reason of the Merger or otherwise; (xv) Neither Condor nor any Affiliated Entity is, and has not been, a United States real property holding corporation (as defined in Section 897(c)(2) of the Code) during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code (or any corresponding provision of state, local or foreign Tax law); (xvi) Neither Condor nor any of the Affiliated Entities has or has had a permanent establishment in any foreign country, as defined in any applicable Tax treaty or convention between the United States of America and such foreign country and neither Condor nor any of the Affiliated Entities has engaged in a trade or business within any foreign country; (xvii) Condor and the Affiliated Entities are not party to any joint venture, partnership, or other arrangement or contract which could be treated as a partnership for federal income tax purposes; (xviii)Neither Condor nor any of the Affiliated Entities has not made a "waters edge election" pursuant to California Revenue and Taxation Code Section 25110; (xix) There are no excess loss accounts, deferred intercompany gains or losses, or intercompany items, as such terms are defined in the Treasury Regulations, that will be required to be recognized or otherwise taken into account as a result of the acquisition of the Condor Common Stock pursuant to this Agreement; (xx) Neither Condor nor any of the Affiliated Entities has filed a consent under Section 341(f) of the Code (or any corresponding provision of state, local or foreign Tax law); and (xxi) Neither Condor nor any of the Affiliated Entities is a party to or bound by any Tax sharing agreement nor has any current or contingent contractual obligation to indemnify any other person with respect to Taxes, other than obligations to indemnify a lessor for property Taxes, sales/use Taxes or gross receipts Taxes (but not income, franchise or premium Taxes) imposed on lease payments arising from terms that are customary for leases of similar property. Section 3.10 Insurance: Licenses, Permits and Filings Condor is duly organized and registered as a California insurance holding company, and each Affiliated Entity which engages in an insurance business ("Insurance Subsidiary") is duly organized and licensed as an insurance company in California and is duly licensed or authorized as an insurer or reinsurer in any other jurisdiction where it is required to be so licensed or authorized to conduct its business, or is subject to no liability or disability that would have a Material Adverse Effect by reason of the failure to be so licensed or authorized in any such jurisdiction. Since January 1, 1994, Condor has made all required filings under applicable insurance holding company statutes. Each of Condor and its Insurance Subsidiaries has all other necessary authorizations, approvals, orders, consents, certificates, permits, registrations or qualifications of and from the California Department of Insurance (the "Department") and any other applicable insurance regulatory authorities (the "Insurance Licenses") to conduct their businesses as currently conducted and all such Insurance Licenses are valid and in full force and effect, except such Insurance Licenses which the failure to have or to be in full force and effect individually or in the aggregate would not have a Material Adverse Effect. Section 3.10 of the Condor Disclosure Schedule lists each order and written understanding or agreement of or with the Department currently in effect and applicable to Condor or any of its Insurance Subsidiaries. Neither Condor nor any Affiliated Entity has received any notification (which notification has not been withdrawn or otherwise resolved prior to the date of this agreement) from the Department or any other insurance regulatory authority to the effect that any additional Insurance License from such insurance regulatory authority is needed to be obtained by Condor or any Affiliated Entity in any case where it could be reasonably expected that (x) Condor or any Affiliated Entity would in fact be required either to obtain any such additional Insurance License, or cease or otherwise limit writing certain business and (y) obtaining such Insurance License or the limiting of such business would have a Material Adverse Effect. Each Insurance Subsidiary is in compliance with the requirements of the insurance laws and regulations of California and the insurance laws and regulations of any other jurisdiction which are applicable to such Insurance Subsidiary, and has filed all notices, reports, documents or other information required to be filed thereunder or in any such case is subject to no Material Adverse Effect by reason of the failure to so comply or file. Section 3.11 Patents, Trademarks, and Other Intellectual Property Except as set forth in Section 3.11 of the Condor Disclosure Schedule, Condor and its Affiliated Entities possess or have the right to use to the extent they are now using, all proprietary rights (including, without limitation, patents, trade secrets, technology, know-how, copyrights, trademarks, tradenames, and rights to any of the foregoing), the failure to possess which would have a Material Adverse Effect on Condor or would prevent Condor from carrying on its business and completing the development of new products as currently contemplated ("Proprietary Rights"), and the consummation of the transactions contemplated hereby will not alter or impair any such rights. Set forth in Section 3.11 the of Condor Disclosure Schedule is a list of all Proprietary Rights consisting of patents, patent applications, trademarks, trademark applications, trade names and service marks owned or utilized by Condor or its Affiliated Entities. Section 3.11 of the Condor Disclosure Schedule also lists all licenses or other contracts related to Propriety Rights, other than those entered into in the ordinary course. With respect to such Proprietary Rights, and except as set forth in Section 3.11 of the Condor Disclosure Schedule, (i) Condor has no Knowledge of any claim asserted by any person challenging such Proprietary Rights which could have a Material Adverse Effect on the business of Condor and its Affiliated Entities, (ii) to the Knowledge of Condor, none of the aforesaid infringes or otherwise violates the rights of others or is being infringed by others, and (iii) except for sales and licenses in the ordinary course of business, no licenses, sublicenses or agreements pertaining to any of the aforesaid have been granted by Condor or any Affiliated Entity. Section 3.12 Litigation Except as set forth in Section 3.12 of the Condor Disclosure Schedule, there is no Proceeding (as defined below) pending or, to the Knowledge of Condor, threatened against or involving Condor or any of its Affiliated Entities or any of their respective properties, assets, rights or obligations before any court, arbitrator or administrative or governmental body, nor is there any judgment, decree, injunction, rule or order of any court, governmental department, commission, agency, instrumentality or arbitrator outstanding against Condor or any of its Affiliated Entities involving sums in excess of $75,000. Neither Condor nor any of its Affiliated Entities is in violation of any term of any judgment, decree, injunction or order outstanding against it. There are no Proceedings pending or, to the Knowledge of Condor, threatened against Condor or any of its Affiliated Entities arising out of or in any way related to this Agreement or any of the transactions contemplated hereby. As used in this Agreement, "Proceeding" means any action, suit, hearing, arbitration or governmental investigation (whether public or private). None of the Proceedings set forth in Section 3.12 of the Condor Disclosure Schedule could result in any Material Adverse Effect. Section 3.13 Insurance All material policies of fire, liability, workmen's compensation and other similar forms of insurance owned or held by Condor and each Affiliated Entity are in full force and effect, and no notice of cancellation or termination has been received with respect to any such policy. Such policies are valid, outstanding and enforceable policies, and will not in any way be affected by, or terminate or lapse by reason of, the transactions contemplated by this Agreement. Such policies, together with the self-insurance reserves, if any, reflected on the most recent Condor SEC Filings, and such other policies and reserves added since such date, provide, to the Knowledge of Condor, insurance coverage that is adequate for the assets and operations of Condor. Since January 1, 1994, Condor and its Affiliated Entities have been covered by insurance in scope and amount customary and reasonable for business in which it has engaged during such period. Section 3.14 Compliance with Laws Condor and each Affiliated Entity have complied in all material respects with the laws and regulations of federal, state, local and foreign governments and all agencies thereof which are applicable to the business or properties of Condor or any Affiliated Entity, a violation of which would result in a Material Adverse Effect on Condor. Except for all licenses, permits, consents, authorizations and orders contained in Section 3.10, Condor holds such licenses, permits, consents, authorizations and orders of such governmental or regulatory authorities as are necessary to carry on its business as currently being conducted and as anticipated to be conducted, the failure to hold which could have a Material Adverse Effect on Condor, and such licenses, permits, consents, authorizations and orders are in full force and effect and have been and are being fully complied with by Condor. Section 3.15 Employee Benefit Plans (a)......Except as set forth in Section 3.15(a) to the Condor Disclosure Schedule, (i) neither Condor nor any entity that together with Condor is treated as a single employer pursuant to Section 414(b) or (c) of the Code or Section 3(5) or 4001(b) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") (an "ERISA Affiliate"), maintains or in the past has maintained any Employee Benefit Plan, as defined in ERISA, under which Condor or any of its Affiliated Entities has any present or future obligation or liability or under which any present or former employee of Condor or its Affiliated Entities has any present or future rights to benefits, (ii) each Employee Benefit Plan listed in Section 3.15(a) of the Condor Disclosure Schedule has been administered in accordance with the applicable requirements of ERISA and the Code, and in the case of any such Plan that is funded for purposes of ERISA and the Code, has not incurred any federal income or excise tax liability which would have a Material Adverse Effect on Condor, (iii) all material reports and information required to be filed with the United States Department of Labor, Internal Revenue Service or Pension Benefit Guaranty Corporation, or distributed to participants and their beneficiaries with respect to each Employee Benefit Plan listed in Section 3.15(a) of the Condor Disclosure Schedule, has been timely filed or distributed and, with respect to each Employee Benefit Plan for which an Annual Report has been filed, no change has occurred with respect to the matters covered by the Annual Report since the date of the most recent such Annual Report which could reasonably be expected to have a Material Adverse Effect on Condor, and (iv) there have been no non-exempt "prohibited transactions" (as that term is defined in the Code or in ERISA) with respect to any Employee Benefit Plan listed in Section 3.15(a) of the Condor Disclosure Schedule and no material penalty or tax under ERISA or the Code has been imposed upon Condor or any of its Affiliated Entities and there are no pending or, to Condor's Knowledge, threatened claims by or on behalf of any Employee Benefit Plan listed in Section 3.15(a) of the Condor Disclosure Schedule, by any employee or beneficiary covered by Employee Benefit Plan listed in Section 3.15(a) of the Condor Disclosure Schedule, or otherwise involving an Employee Benefit Plan listed in Section 3.15(a) of the Condor Disclosure Schedule, other than claims for benefits in the ordinary course and other than claims which would not have a Material Adverse Effect on Condor. (b)......Each Employee Benefit Plan listed in Section 3.15(a) of the Condor Disclosure Schedule which is an "employee pension benefit plan," as defined in ERISA and which is intended to be "qualified" within the meaning of Section 401(a) of the Code, is so qualified, and, except as set forth in Section 3.15(b) of the Condor Disclosure Schedule, a favorable determination letter has been issued by the Internal Revenue Service with respect to such plan and no such plan has been amended since the issuance of the most recent determination letter issued by the Internal Revenue Service with respect thereto. No Employee Benefit Plan listed in Section 3.15(a) of the Condor Disclosure Schedule is subject to Title IV of ERISA or Section 412 of the Code. (c)......Condor or its Affiliated Entities has not maintained or contributed to, or been obligated or required to contribute to, a "multiemployer plan," as such term is defined in Section 3(37) of ERISA. Section 3.16 Employment Related Agreements Except as described in Section 3.03, 3.15 or 3.16 of the Condor Disclosure Schedule, neither Condor nor any of its Affiliated Entities is a party to any bonus, profit sharing, stock option, incentive, pension, retirement, deferred compensation, consulting, severance, indemnification, employment or similar arrangement or agreement with officers, directors or employees of Condor or any of its Affiliated Entities ("Employment Related Agreements"). Section 3.17 Labor Agreements and Controversies Neither Condor nor any of its Affiliated Entities is a party to any collective bargaining agreement nor are there any union representation proceedings or labor controversies pending or, to the Knowledge of Condor, threatened against Condor or any of its Affiliated Entities. Section 3.18 Environmental Matters (a)......Except as disclosed in Section 3.18 of the Condor Disclosure Schedule, Condor is in full compliance with all laws, rules, regulations, and other legal requirements relating to the prevention of pollution and the protection of human health or the environment, including all such legal requirements pertaining to human health and safety (collectively, "Environmental Laws"), except for noncompliance that could not reasonably be expected to have a Material Adverse Effect on Condor; and Condor possesses and can transfer to Amwest all permits, licenses, and similar authorizations required under Environmental Laws. Except as disclosed in Section 3.18 of the Condor Disclosure Schedule, Condor or an Affiliated Entity has not received written notice of, or, to the best Knowledge of Condor, is the subject of, any action, cause of action, claim, investigation, demand or notice by any person or entity alleging liability under or noncompliance with any Environmental Law (an "Environmental Claim") that could reasonably be expected to have a Material Adverse Effect on Condor; and to the best Knowledge of Condor, there are no circumstances that are reasonably likely to prevent or interfere with such material compliance in the future. (b)......Except as disclosed in Section 3.18 of the Condor Disclosure Schedule, there are no Environmental Claims which could reasonably be expected to have a Material Adverse Effect on Condor or an Affiliated Entity that are pending or, to the best Knowledge of Condor, threatened against Condor or an Affiliated Entity or, to the best Knowledge of Condor, against any person or entity whose liability for any Environmental Claim Condor or an Affiliated Entity has or may have retained or assumed either contractually or by operation of law. Section 3.19 Certain Fees Neither Condor, nor any of its Affiliated Entities nor any of their directors, officers or stockholders has employed any broker or finder or incurred any liability for any financial advisory, brokerage or finders' fees or similar fees or commissions in connection with the transactions contemplated by this Agreement. Section 3.20 Disclosure To the best of Condor's Knowledge, no representation or warranty by Condor in this Agreement and no statement contained in any document, certificate or other writing furnished or to be furnished by Condor to Amwest or Amwest contains or will contain any untrue statement of a material fact or omits or will omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Section 3.21 Post-Retirement and Post-Employment Benefit Obligations All obligations associated with the benefits to be provided to present and former employees after retirement or termination have been properly recognized as liabilities on Condor's balance sheet at December 31, 1994 in accordance with Financial Accounting Standards Board Statements No. 106 and 112. Section 3.22 Registration Statement and Proxy Statement None of the information with respect to Condor or any affiliate or associate of Condor that has been supplied by Condor or any of its accountants, counsel or other authorized representatives in writing (the "Condor Information") specifically for use in the Proxy Materials or the Registration Statement will, at the time the Registration Statement becomes effective, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. Section 3.23 Absence of Questionable Payments (a)......Neither Condor nor any Affiliated Entity nor any director, officer, agent or employee or any other person authorized to act on behalf of Condor nor any Affiliated Entity has used any corporate or other funds on behalf of Condor or any Affiliated Entity in any significant amount for unlawful contributions, payments, gifts or entertainment, or made any unlawful expenditures in any significant amount relating to political activity, government officials or others and neither Condor nor any Affiliated Entity nor any director, officer, agent or employee or any other person authorized to act on behalf of Condor or any Affiliated Entity has accepted or received any unlawful contributions, payments, gifts or expenditures in any significant amount. (b)......Neither Condor nor any director, officer, employee or agent of Condor acting in such person's capacity as such, or any Affiliated Entity (1) has solicited or received any remuneration (including any kickback, bribe, rebate or other payment, whether in cash or in kind), directly or indirectly, overtly or covertly in return for (A) referring a Person to another Person in connection with the furnishing or arranging for the furnishing of any item, product or service or (B) purchasing, leasing, ordering or arranging for or recommending the purchase, lease or order of any good, facility, service or item, where any of the foregoing has violated, or could be deemed to violate, any applicable law, (2) has offered or paid any such remuneration directly or indirectly, overtly or covertly, to any person to induce such Person to so refer a Person or to so purchase, lease, order, arrange for or recommend, and (3) is a party to any agreement or arrangement, written or oral, that may result in any of the events described in clauses (1) or (2). Section 3.24 Guaranties. Other than risks or liabilities assumed pursuant to insurance policies or contracts issued by any of Condor's Affiliated Entities, neither Condor nor any of its Affiliated Entities is a guarantor or otherwise liable for any liability or obligation of any other person other than Condor and the Affiliated Entities. Section 3.25 Material Contracts. (a)......Section 3.25(a) of the Condor Disclosure Schedule lists all of the following contracts not otherwise listed on the Condor Disclosure Schedule to which Condor is a party or by which any of its properties or assets are bound: (i) employment, consulting, non-competition, severance, golden parachute or indemnification contract (including, without limitation, any contract to which Condor is a party involving employees of Condor, but excluding any insurance policies issued by Condor's Affiliated Entities); (ii) material licensing, merchandising or distribution agreements; (iii) contracts granting a right of first refusal or first negotiation; (iv) partnership or joint venture agreements; (v) agreements for the acquisition, sale or lease of material properties or assets of Condor (by merger, purchase or sale of assets or stock or otherwise) entered into since January 1, 1993; (vi) contracts or agreements with any governmental entity; (vii) other contracts which materially affect the business, properties or assets of Condor and its Affiliated Entities taken as a whole and are not otherwise disclosed in this Agreement or were entered into other than in the ordinary course of business; and (viii) all commitments and agreements to enter into any of the foregoing (collectively, for purposes of this Section 3.25 only, the "Contracts"). Condor has delivered or otherwise made available to Amwest true, correct and complete copies of the Contracts listed in Section 3.25(a) of the Condor Disclosure Schedule, together with all amendments, modifications and supplements thereto and all side letters to which Condor is a party affecting the obligations of any party thereunder. (b)......Except as set forth in Section 3.25(b) of the Condor Disclosure Schedule: ...........................(i) Each of the Contracts is valid and enforceable in accordance with its terms, and there is no material default under any Contract so listed either by Condor or, to the Knowledge of Condor, by any other party thereto, and no event has occurred that with the lapse of time or the giving of notice or both would constitute a material default thereunder by Condor or, to the Knowledge of Condor, any other party. ...........................(ii) No party to any such Contract has given notice to Condor of or made aclaim against Condor with respect to any material breach or material default thereunder. (c)......With respect to those Contracts that were assigned or subleased to Condor by a third party, all necessary consents to such assignments or subleases have been obtained. Section 3.26 Insurance Contracts and Rates. All contracts, agreements, leases, policies or agreements of insurance or reinsurance, contracts, notes, mortgages, indentures, arrangements or other commitments or obligations, whether written or oral ("Insurance Contracts") regarding insurance, written or issued by Condor or any of its Insurance Subsidiaries as now in force are in all material respects, to the extent required under applicable law, on forms approved by applicable insurance regulatory authorities or which have been filed and not objected to by such authorities within the period provided for objection, and such forms comply in all material respects with the insurance statutes, regulations and rules applicable thereto. True, complete and correct copies of such forms have been furnished or made available to Amwest and there are no other forms of Insurance Contracts used in connection with Condor's and its Insurance Subsidiaries' business. Premium rates established by Condor or its Insurance Subsidiaries which are required to be filed with or approved by insurance regulatory authorities have been so filed or approved, the premiums charged conform thereto in all material respects, and such premiums comply in all material respects with the insurance statutes, regulations and rules applicable thereto. Section 3.27 Reinsurance. Section 3.27 of the Condor Disclosure Schedule contains a list of all reinsurance or coinsurance treaties or agreements, including retrocessional agreements, to which Condor or any Insurance Subsidiary is a party or under which Condor or any Insurance Subsidiary has any existing rights, obligations or liabilities. All reinsurance and coinsurance treaties or agreements, including retrocessional agreements, to which Condor or any Insurance Subsidiary is a party or under which Condor or any Insurance Subsidiary has any existing rights, obligations or liabilities are in full force and effect. Neither Condor nor any Insurance Subsidiary, nor, to the knowledge of Condor, any other party to a reinsurance or coinsurance treaty or agreement to which Condor or any Insurance Subsidiary is a party, is in default in any material respect as to any provision thereof, and no such agreement contains any provision providing that the other party thereto may terminate such agreement by reason of the transactions contemplated by this Agreement. Condor has not received any notice to the effect that the financial condition of any other party to any such agreement is impaired with the result that a default thereunder may reasonably be anticipated, whether or not such default may be cured by the operation of any offset clause in such agreement. Section 3.28 Loss Reserves; Solvency. Except as set forth in Section 3.28 of the Condor Disclosure Schedule, the reserve for loss and loss adjustment expense liabilities set forth in the most recent Condor SEC Filing and subsequent Condor SEC Filings provided to Amwest after the date hereof was or will be determined in accordance with generally accepted actuarial standards and principles consistently applied, is fairly stated in accordance with sound actuarial principles and statutory accounting principles and meets the requirements of the insurance statutes, laws and regulations of the State of California. Except as disclosed in Section 3.28 of the Condor Disclosure Schedule, the reserves for loss and loss adjustment expense liabilities reflected in the most recent Condor SEC Filing and subsequent Condor SEC Filings provided to Amwest after the date hereof and established on the books of Condor for all future insurance and reinsurance losses, claims and expenses make or will make a reasonable provision for all unpaid loss and loss adjustment expense obligations of Condor and its Insurance Subsidiaries under the terms of its policies and agreements. Condor and each of its Insurance Subsidiaries owns assets which qualify as admitted assets under California state insurance laws in an amount at least equal to the sum of all of their respective required insurance reserves and minimum statutory capital and surplus as required by Sections 700.01 through 700.05 of the Insurance Code. The value of the assets of Condor and its Affiliated Entities at their present fair saleable value is greater than their total liabilities, including contingent liabilities, and Condor and its Affiliated Entities have assets and capital sufficient to pay their liabilities, including contingent liabilities, as they become due. Section 3.29 Opinion of Financial Advisor Wedbush Morgan Securities (the "Condor Financial Advisor") has delivered to the Condor board of directors its written opinion, dated the date of this Agreement, to the effect that, as of such date, the Merger Consideration is fair to the public holders of Condor Common Stock from a financial point of view, a signed, true and complete copy of which opinion has been delivered to Amwest, and such opinion has not been withdrawn or modified. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF AMWEST Amwest represents and warrants to Condor as follows: Section 4.01 Corporate Organization Amwest is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, with all requisite corporate power and authority to own, operate and lease its properties and to carry on its business as now being conducted, and is duly qualified or licensed to do business and is in good standing in each jurisdiction in which its ownership or leasing of property or conduct of business requires such licensing or qualification, except where the failure to be so qualified would not have a Material Adverse Effect on Amwest. Amwest has delivered to Condor complete and correct copies of its Certificate of Incorporation and Bylaws as in effect on the date hereof. Section 4.02 Authorization Amwest has the requisite corporate power and authority to enter into this Agreement and to carry out its obligations hereunder. The execution and delivery by Amwest of this Agreement and the performance by it of its obligations hereunder and the consummation by it of the transactions contemplated hereby have been duly authorized by its Board of Directors and, except for the approval of the stockholders of Amwest Common Stock contemplated herein, no other corporate proceeding is necessary for the execution and delivery thereof, and the performance of Amwest's obligations hereunder, and the consummation by it of the transactions contemplated hereby. This Agreement is a legal, valid and binding obligation of Amwest enforceable against Amwest in accordance with its terms. Section 4.03 Capitalization The authorized capital stock of Amwest as well as the number of issued and outstanding shares of each class of capital stock of Amwest is as set forth on Section 4.03 of the Amwest Disclosure Schedule to this Agreement executed by Amwest and delivered to Condor simultaneously with the execution of this Agreement (the "Amwest Disclosure Schedule"). All of such outstanding shares have been duly and validly issued, were not issued in violation of any preemptive rights and are fully paid and non-assessable with no personal liability attaching to the ownership thereof. Except as set forth on Section 4.03 of the Amwest Disclosure Schedule, there are no options, warrants, subscriptions, conversion or other rights, agreements, commitments, arrangements or understandings with respect to (i) the issuance of shares of capital stock of Amwest or any other securities convertible into, exchangeable for or evidencing the right to subscribe for any such shares, (ii) obligating Amwest to purchase shares of Amwest Common Stock or any security convertible into Amwest Common Stock, or (iii) obligating any of the stockholders of Amwest to purchase, sell or transfer any Amwest Common Stock. Section 4.03 of Amwest Disclosure Schedule lists each of Amwest's stock option plans and other stock award plans, true and correct copies of which have been provided by Amwest to Condor. Section 4.04 Financial Statements and Reports Since January 1, 1994, Amwest has filed with the SEC all reports, registration statements and all other filings required to be filed with the SEC under the rules and regulations of the SEC (collectively, the "Required Amwest Reports"), all of which, as of their respective effective dates, complied in all material respects with all applicable requirements of the Securities Act and the Exchange Act. Amwest has delivered to Condor true and complete copies of (i) Amwest's Annual Report on Form 10-K for the fiscal years ended December 31, 1994, as filed with the SEC, (ii) Quarterly Reports on Form 10-Q for the three months ended March 31, 1995, June 30, 1995 and September 30, 1995, as filed with the SEC, (iii) proxy statements relating to all meetings of Amwest's stockholders (whether annual or special) held or scheduled to be held since January 1, 1994, (iv) all other forms, reports, statements and documents filed by Amwest with the SEC since January 1, 1994 and (v) all reports, statements and other information provided by Amwest to its stockholders since January 1, 1994 (collectively, the "Amwest SEC Filings"). As of their respective dates, none of the Required Amwest Reports or Amwest SEC Filings contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. The consolidated financial statements of Amwest included or incorporated by reference in the Amwest SEC Filings were prepared in accordance with GAAP applied on a consistent basis (except as otherwise stated in such financial statements or, in the case of audited statements, the related report thereon of independent certified public accountants), and present fairly the financial position and results of operations, cash flows and changes in stockholders' equity of Amwest and its consolidated Affiliated Entities as of the dates and for the periods indicated, subject, in the case of unaudited interim financial statements, to the absence of notes and to normal year-end adjustments, and are consistent with the books and records of Amwest. Section 4.05 Absence of Certain Changes Except as set forth in Amwest SEC Filings or in Section 4.05 of the Amwest Disclosure Schedule, since December 31, 1994, Amwest, and each Affiliated Entity, have conducted their respective businesses only in the ordinary and usual course and there has not been any event, change or development which has had or will have a Material Adverse Effect on Amwest. Section 4.06 Consents and Approvals; No Violations There is no requirement applicable to Amwest or any of its Affiliated Entities to make any filing with, or to obtain any permit, authorization, consent or approval of, any governmental or regulatory authority as a condition to the lawful consummation of the transactions contemplated by this Agreement, other than (i) requirements of the HSR Act, (ii) requirements of the Insurance Code, the Arizona State Department of Insurance and applicable Arizona insurance code provisions and regulations thereunder, and any other applicable insurance regulatory authorities and applicable insurance code provisions and regulations thereunder, (iii) filings with the SEC pursuant to the Securities Act and the Exchange Act, (iv) such filings and approvals as may be required under the "blue sky," takeover or securities laws of various states, (v) compliance with the requirements of the ASE, (vi) the written consent from Union Bank regarding the Merger and the transactions contemplated thereby, or (vii) where the failure to make any such filing, or to obtain such permit, authorization, consent or approval, would not prevent or delay consummation of the Merger or would not otherwise prevent Amwest from performing its obligations under this Agreement. Except as set forth in Section 4.06 of the Amwest Disclosure Schedule, neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (a) result in the acceleration of, or the creation in any party of any right to accelerate, terminate, modify or cancel any indenture, contract, lease, sublease, loan agreement, note or other obligation or liability to which Amwest or any Affiliated Entity is a party or by which any of them is bound or to which any of their assets is subject, except as would not have a Material Adverse Effect on Amwest, (b) conflict with or result in a breach of or constitute a default under any provision of the Certificate of Incorporation or Bylaws (or other charter documents) of Amwest or any Affiliated Entity, or, except as would not have a Material Adverse Effect on Amwest, a default under or violation of any restriction, lien, encumbrance, indenture, contract, lease, sublease, loan agreement, note or other obligation or liability to which any of them is a party or by which any of them is bound or to which any of their assets is subject or result in the creation of any lien or encumbrance upon any of said assets, or (c) violate or result in a breach of or constitute a default under any judgment, order, decree, rule or regulation of any court or governmental agency to which Amwest or any Affiliated Entity is subject. Section 4.07 Litigation Except as set forth in Section 4.07 of the Amwest Disclosure Schedule, there is no action, proceeding or investigation pending or, to the Knowledge of Amwest, threatened against or involving Amwest or any of its Affiliated Entities or any of their respective properties, assets, rights or obligations before any court, arbitrator or administrative or governmental body nor is there any judgment, decree, injunction, rule or order of any court, governmental department, commission, agency, instrumentality or arbitrator outstanding against Amwest or any of its Affiliated Entities in which a decision could have a Material Adverse Effect on Amwest. Neither Amwest nor any of its Affiliated Entities is in violation of any term of any judgment, decree, injunction or order outstanding against it. There are no actions, suits or proceedings pending or, to the Knowledge of Amwest, threatened against Amwest or any of its Affiliated Entities arising out of or in any way related to this Agreement or any of the transactions contemplated hereby. Section 4.08 Compliance with Laws Amwest and each Affiliated Entity have complied in all material respects with the laws and regulations of federal, state, local and foreign governments and all agencies thereof which are applicable to the business or properties of Amwest or any Affiliated Entity, a violation of which would result in a Material Adverse Effect on Amwest, including the provisions of the Insurance Code. Section 4.09 Proxy Statement, Etc. The Proxy Statement and Registration Statement (as defined in Section 2.02) and all amendments and supplements thereto will comply as to form in all material respects with the provisions of the Exchange Act, the Securities Act and the rules and regulations promulgated thereunder. The Proxy Statement, the Registration Statement and any amendments thereof or supplements thereto, will not, on the date the Proxy Statement and Registration Statement are first mailed to stockholders of Condor, at the time the meeting of the stockholders of Amwest referred to in Section 2.02 hereof is convened or at the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that Amwest makes no representation or warranty with respect to any information furnished to it by Condor or any of their accountants, counsel or other authorized representatives in writing specifically for inclusion in the Proxy Statement or the Registration Statement. Section 4.10 No Undisclosed Liabilities Except as set forth in Section 4.10 of the Amwest Disclosure Schedule, and except as and to the extent set forth on the consolidated balance sheet of Amwest as of December 31, 1994 (including those liabilities and potential liabilities referred to in the financial footnotes thereto), included in the Required Amwest Reports, neither Amwest nor any Affiliated Entities had, at such date, any liabilities or obligations (absolute, accrued, contingent or otherwise) greater than $100,000, taken as a whole and since that date neither Amwest nor any Affiliated Entities has incurred any liabilities or obligations material to Amwest and Affiliated Entities taken as a whole except those incurred in the ordinary and usual course of business and consistent with past practice or in connection with or as a result of the transactions contemplated by this Agreement to which Amwest is or is to be a party. Section 4.11 Disclosure To the best of Amwest's knowledge, no representation or warranty by Amwest in this Agreement and no statement contained or to be contained in any document, certificate or other writing furnished or to be furnished by Amwest to Condor, contains or will contain any untrue statement of a material fact or omits or will omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Section 4.12 Post-Retirement and Post-Employment Benefit Obligations Except as described in Section 4.12 of the Amwest Disclosure Schedule, all obligations associated with benefits to be provided to present and former employees after retirement or termination have been properly recognized as liabilities on Amwest's balance sheet at December 31, 1994 in accordance with Financial Accounting Standards Board Statements Nos. 106 and 112. Section 4.13 Employee Benefit Plans (a)......Except as set forth in Section 4.13(a) to the Amwest Disclosure Schedule, (i) neither Amwest nor any entity that together with Amwest is treated as a single employer pursuant to Section 414(b) or (c) of the Code or Section 3(5) or 4001(b) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") (an "ERISA Affiliate"), maintains or in the past has maintained any Employee Benefit Plan, as defined in ERISA, under which Amwest or any of its Affiliated Entities has any present or future obligation or liability or under which any present or former employee of Amwest or its Affiliated Entities has any present or future rights to benefits, (ii) each Employee Benefit Plan listed in Section 4.13(a) of the Amwest Disclosure Schedule has been administered in accordance with the applicable requirements of ERISA and the Code, and in the case of any Employee Benefit Plan listed in Section 4.13(a) of the Amwest Disclosure Schedule that is funded for purposes of ERISA and the Code, has not incurred any federal income or excise tax liability which would have a Material Adverse Effect on Amwest, (iii) all material reports and information required to be filed with the United States Department of Labor, Internal Revenue Service or Pension Benefit Guaranty Corporation, or distributed to participants and their beneficiaries with respect to each Employee Benefit Plan listed in Section 4.13(a) of the Amwest Disclosure Schedule, has been timely filed or distributed and, with respect to each Employee Benefit Plan for which an Annual Report has been filed, no change has occurred with respect to the matters covered by the Annual Report since the date of the most recent such Annual Report which could reasonably be expected to have a Material Adverse Effect on Amwest, and (iv) there have been no non-exempt "prohibited transactions" (as that term is defined in the Code or in ERISA) with respect to any Employee Benefit Plan listed in Section 4.13(a) of the Amwest Disclosure Schedule and no material penalty or tax under ERISA or the Code has been imposed upon Amwest or any of its Affiliated Entities and there are no pending or, to Amwest's Knowledge, threatened claims by or on behalf of any Employee Benefit Plan listed in Section 4.13(a) of the Amwest Disclosure Schedule, by any employee or beneficiary covered by Employee Benefit Plan listed in Section 4.13(a) of the Amwest Disclosure Schedule, or otherwise involving an Employee Benefit Plan listed in Section 4.13(a) of the Amwest Disclosure Schedule, other than claims for benefits in the ordinary course and other than claims which would not have a Material Adverse Effect on Amwest. (b)......Each Employee Benefit Plan listed in Section 4.13(a) of the Amwest Disclosure Schedule which is an "employee pension benefit plan," as defined in ERISA and which is intended to be "qualified" within the meaning of Section 401(a) of the Code, is so qualified, and, except as set forth in Section 4.13(b) of the Amwest Disclosure Schedule, a favorable determination letter has been issued by the Internal Revenue Service with respect to such plan and no such plan has been amended since the issuance of the most recent determination letter issued by the Internal Revenue Service with respect thereto. No Employee Benefit Plan listed in Section 4.13(a) of the Amwest Disclosure Schedule is subject to Title IV of ERISA or Section 412 of the Code. (c)......Amwest has not maintained or contributed to, or been obligated or required to contribute to, a "multiemployer plan," as such term is defined in Section 3(37) of ERISA. Section 4.14 Environmental Matters (a)......Except as disclosed in Section 4.14 of the Amwest Disclosure Schedule, Amwest is in full compliance with all laws, rules, regulations, and other legal requirements relating to the prevention of pollution and the protection of human health or the environment, including all such legal requirements pertaining to human health and safety (collectively, "Environmental Laws"), except for noncompliance that could not reasonably be expected to have a Material Adverse Effect on Amwest, which compliance includes, but is not limited to, the possession by Amwest of all material permits, and other governmental authorizations required under applicable Environmental Laws, and compliance with the terms and conditions thereof. Except as disclosed in Section 4.14 of the Amwest Disclosure Schedule, Amwest or an Affiliated Entity has not received written notice of, or, to the best Knowledge of Amwest, is the subject of, an Environmental Claim that could reasonably be expected to have a Material Adverse Effect on Amwest; and to the best Knowledge of Amwest, there are no circumstances that are reasonably likely to prevent or interfere with such material compliance in the future. (b)......Except as disclosed in Section 4.14 of the Amwest Disclosure Schedule, there are no Environmental Claims which could reasonably be expected to have a Material Adverse Effect on Amwest or an Affiliated Entity that are pending or, to the best Knowledge of Amwest, threatened against Amwest or an Affiliated Entity or, to the best Knowledge of Amwest, against any person or entity whose liability for any Environmental Claim Amwest or an Affiliated Entity has or may have retained or assumed either contractually or by operation of law. Section 4.15 Absence of Questionable Payments (a)......Neither Amwest nor any Affiliated Entity nor any director, officer, agent or employee or any other person authorized to act on behalf of Amwest nor any Affiliated Entity has used any corporate or other funds on behalf of Amwest or any Affiliated Entity in any significant amount for unlawful contributions, payments, gifts or entertainment, or made any unlawful expenditures in any significant amount relating to political activity, government officials or others and neither Amwest nor any Affiliated Entity nor any director, officer, agent or employee or any other person authorized to act on behalf of Amwest or any Affiliated Entity has accepted or received any unlawful contributions, payments, gifts or expenditures in any significant amount. (b)......Neither Amwest, nor any director, officer, employee or agent of Amwest acting in such person's capacity as such, or any Affiliated Entity (1) has solicited or received any remuneration (including any kickback, bribe, rebate or other payment, whether in cash or in kind), directly or indirectly, overtly or covertly in return for (A) referring a Person to another Person in connection with the furnishing or arranging for the furnishing of any item, product or service or (B) purchasing, leasing, ordering or arranging for or recommending the purchase, lease or order of any good, facility, service or item, where any of the foregoing has violated, or could be deemed to violate, any applicable law, (2) has offered or paid any such remuneration directly or indirectly, overtly or covertly, to any Person to induce such Person to so refer a Person or to so purchase, lease, order, arrange for or recommend, and (3) is a party to any agreement or arrangement, written or oral, that may result in any of the events described in clauses (1) or (2). Section 4.16 Certain Fees Neither Amwest, nor any of its Affiliated Entities nor any of their directors, officers or stockholders has employed any broker or finder or incurred any liability for any financial advisory, brokerage or finders' fees or similar fees or commissions in connection with the transactions contemplated by this Agreement. Section 4.17 Taxes (a)......Section 4.17 of the Amwest Disclosure Schedule sets forth: (i) the taxable years of Amwest and Tax Affiliates as to which the respective statutes of limitations on the assessment of United States federal income and any applicable state, local or foreign income, franchise and premium Taxes have not expired, and (ii) with respect to such taxable years sets forth those years for which examinations by the Internal Revenue Service or the state, local or foreign taxing authority have been completed, those years for which examinations by such agencies are presently being conducted, those years for which notice of pending or threatened examination or adjustment has been received, those years for which examinations by such agencies have not been initiated, and those years for which required Returns for such Taxes have not yet been filed. Except to the extent indicated in Section 4.17 of the Amwest Disclosure Schedule, all deficiencies asserted or assessments made as a result of any examinations by the Internal Revenue Service or state, local or foreign taxing authority have been fully paid, or are fully reflected as a liability in the Required Amwest Reports, or are set forth in Section 4.17 of the Amwest Disclosure Schedule, are being contested and an adequate reserve therefor has been established and is fully reflected in the Required Amwest Reports to the extent required by GAAP. Section 4.17 of the Amwest Disclosure Schedule sets forth all Returns not otherwise described above that are presently under examination with respect to Taxes and all assessments and deficiencies with respect to the Returns that are presently being contested by Amwest and Tax Affiliates. (b)......Amwest represents and warrants to Condor that, except as described in Section 4.17 of the Amwest Disclosure Schedule: (i) Amwest and its Tax Affiliates have filed on a timely basis all Returns required to have been filed by it and have paid on a timely basis all Taxes shown thereon as due. All such Returns are true, complete and correct in all material respects. The provisions for taxes in the Required Amwest Reports set forth in all material respects the maximum liability of Amwest and the Affiliated Entities for Taxes relating to periods covered thereby. No liability for Taxes has been incurred by Amwest and the Affiliated Entities since the dates of the Required Amwest Reports other than in the ordinary course of their business. No director, officer or employee of Amwest or any of the Affiliated Entities having responsibility for Tax matters has reason to believe that any Taxing authority has valid grounds to claim or assess any material additional Tax with respect to Amwest or the Tax Affiliates in excess of the amounts shown on the Required Amwest Reports for the periods covered thereby. (ii) With respect to all amounts in respect of Taxes imposed upon Amwest or Tax Affiliates, or for which Amwest or Tax Affiliates are or could be liable, whether to taxing authorities (as, for example, under law) or to other persons or entities (as, for example, under tax allocation agreements), and with respect to all taxable periods or portions of periods ending on or before the Effective Time, all applicable Tax laws and agreements have been fully complied with, and all such amounts required to be paid by Amwest and Tax Affiliates to taxing authorities or others have been paid, in all material respects. (iii) None of the Returns required to be filed by Amwest and Tax Affiliates contains, or were required to contain (in order to avoid the imposition of a penalty), a disclosure statement under Section 6662 (or any predecessor provision) of the Code, or any similar provision of state, local or foreign law; (iv) Neither Amwest nor any Tax Affiliate has received notice that the IRS or any other taxing authority has asserted against Amwest or such Tax Affiliate any deficiency or claim for additional Taxes in connection with any Return, and no issues have been raised (and are currently pending) by any taxing authority in connection with any Return. Neither Amwest nor any Tax Affiliate has received notice that it is or may be subject to Tax in a jurisdiction in which it has not filed or does not currently file Returns; (v) There is no pending or, to Amwest's Knowledge, threatened action, audit, proceeding, or investigation with respect to (i) the assessment or collection of Taxes or (ii) a claim for refund made, of or by Amwest and Tax Affiliates with respect to Taxes; (vi) All Tax deficiencies asserted or assessed against Amwest and Tax Affiliates have been paid or finally settled with no further amounts owed; (vii) All amounts that were required to be collected or withheld by Amwest and Tax Affiliates have been duly collected or withheld in all material respects, and all such amounts that were required to be remitted to any taxing authority have been duly remitted in all material respects; (viii) Amwest and Tax Affiliates have not requested an extension of time to file any Return not yet filed, and have not granted any waiver of any statute of limitations with respect to, or any extension of a period for the assessment of, any Tax. No power of attorney granted by Amwest or Tax Affiliates with respect to Taxes is in force; (ix) Amwest and Tax Affiliates have not taken any action not in accordance with past practice that would have the effect of deferring any material Tax liability of Amwest or any Tax Affiliate from any taxable period ending on or before or including the Effective Time to any subsequent taxable period; (x) Other than the Affiliated Entities, Amwest has had no Tax Affiliates during any period with respect to which the applicable statue of limitations on the assessment of Taxes remains open; (xi) Amwest was not acquired in a "qualified stock purchase" under Section 338(d)(3) of the Code and no elections under Section 338(g) of the Code, protective carryover basis elections, offset prohibition elections or similar election are applicable to Amwest or any Tax Affiliate; (xii) Neither Amwest nor any Tax Affiliate is required to include in income any adjustment pursuant to Sections 481 or 263A of the Code (or similar provisions of other law or regulations) by reason of a change in accounting method or otherwise, following the Effective Time, and Amwest has no Knowledge that the IRS (or other taxing authority) has proposed, or is considering, any such change in accounting method or other adjustment; (xiii)There are no liens for Taxes (other than for current Taxes not yet due and payable) upon the assets of Amwest or the Affiliated Entities; (xiv) Neither Amwest nor any of the Affiliated Entities are party to any agreement, contract, arrangement or plan that has resulted or would result, separately or in the aggregate, in the payment of any "excess parachute payments" within the meaning of Section 280G of the Code, whether by reason of the Merger or otherwise; (xv) Neither Amwest nor any Affiliated Entity is, and has not been, a United States real property holding corporation (as defined in Section 897(c)(2) of the Code) during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code (or any corresponding provision of state, local or foreign Tax law); (xvi) Neither Amwest nor any of the Affiliated Entities has or has had a permanent establishment in any foreign country, as defined in any applicable Tax treaty or convention between the United States of America and such foreign country and neither Amwest nor any of the Affiliated Entities has engaged in a trade or business within any foreign country; (xvii)Amwest and the Affiliated Entities are not party to any joint venture, partnership, or other arrangement or contract which could be treated as a partnership for federal income tax purposes; (xviii)Neither Amwest nor any of the Affiliated Entities has not made a "waters edge election" pursuant to California Revenue and Taxation Code Section 25110; (xix) There are no excess loss accounts, deferred intercompany gains or losses, or intercompany items, as such terms are defined in the Treasury Regulations, that will be required to be recognized or otherwise taken into account as a result of the acquisition of the Amwest Common Stock pursuant to this Agreement; (xx) Neither Amwest nor any of the Affiliated Entities has filed a consent under Section 341(f) of the Code (or any corresponding provision of state, local or foreign Tax law); and (xxi) Neither Amwest nor any of the Affiliated Entities is a party to or bound by any Tax sharing agreement nor has any current or contingent contractual obligation to indemnify any other person with respect to Taxes, other than obligations to indemnify a lessor for property Taxes, sales/use Taxes or gross receipts Taxes (but not income, franchise or premium Taxes) imposed on lease payments arising from terms that are customary for leases of similar property. Section 4.18 Affiliated Entities (a)......Except as set forth in Section 4.18(a) of the Amwest Disclosure Schedule, Amwest has no direct or indirect Affiliated Entities. Each Affiliated Entity of Amwest listed on Section 4.18(a) of Amwest Disclosure Schedule is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, with all requisite corporate power and authority to own, operate and lease its properties and to carry on its business as now being conducted, and is duly qualified or licensed to do business and is in good standing in each jurisdiction in which its ownership or leasing of property or conduct of business requires such qualification or licensing, except where the failure to be so qualified would not have a Material Adverse Effect on Amwest. Amwest has delivered to Condor complete and correct copies of the Articles or Certificate of Incorporation and Bylaws of each such Affiliated Entity as in effect on the date hereof. (b)......Except as set forth in Section 4.18(b) of the Amwest Disclosure Schedule, Amwest is, directly or indirectly, the record and beneficial owner of all of the outstanding shares of capital stock of each of its Affiliated Entities, and all of the outstanding shares of capital stock of each such Affiliated Entity are duly and validly issued, were not issued in violation of any preemptive rights, are fully paid and non-assessable and are owned free and clear of any claim, lien, encumbrance or agreement with respect thereto. Except as and to the extent set forth in Section 4.18(b) of the Amwest Disclosure Schedule, there are not any options, warrants, subscriptions, conversion or other rights, agreements, or commitments, arrangements or understandings with respect to the issuance of capital stock of any Affiliated Entity of Amwest or any other securities convertible into, exchangeable for or evidencing the right to subscribe for any such shares. Section 4.19 Reinsurance. Section 4.19 of the Amwest Disclosure Schedule contains a list of all reinsurance or coinsurance treaties or agreements, including retrocessional agreements, to which Amwest or any Insurance Subsidiary is a party or under which Amwest or any Insurance Subsidiary has any existing rights, obligations or liabilities. All reinsurance and coinsurance treaties or agreements, including retrocessional agreements, to which Amwest or any Insurance Subsidiary is a party or under which Amwest or any Insurance Subsidiary has any existing rights, obligations or liabilities are in full force and effect. Neither Amwest nor any Insurance Subsidiary, nor, to the knowledge of Amwest, any other party to a reinsurance or coinsurance treaty or agreement to which Amwest or any Insurance Subsidiary is a party, is in default in any material respect as to any provision thereof, and no such agreement contains any provision providing that the other party thereto may terminate such agreement by reason of the transactions contemplated by this Agreement. Amwest has not received any notice to the effect that the financial condition of any other party to any such agreement is impaired with the result that a default thereunder may reasonably be anticipated, whether or not such default may be cured by the operation of any offset clause in such agreement. Section 4.20 Insurance: Licenses, Permits and Filings Amwest is duly organized and registered as a California insurance holding company, and each Insurance Subsidiary is duly organized and licensed as an insurance company in California and is duly licensed or authorized as an insurer or reinsurer in any other jurisdiction where it is required to be so licensed or authorized to conduct its business, or is subject to no liability or disability that would have a Material Adverse Effect by reason of the failure to be so licensed or authorized in any such jurisdiction. Since January 1, 1994, Amwest has made all required filings under applicable insurance holding company statutes. Each of Amwest and its Insurance Subsidiaries has all other necessary Insurance Licenses to conduct their businesses as currently conducted and all such Insurance Licenses are valid and in full force and effect, except such Insurance Licenses which the failure to have or to be in full force and effect individually or in the aggregate would not have a Material Adverse Effect. Section 4.20 of the Amwest Disclosure Schedule lists each order and written understanding or agreement of or with the Department currently in effect and applicable to Amwest or any of its Insurance Subsidiaries. Neither Amwest nor any Affiliated Entity has received any notification (which notification has not been withdrawn or otherwise resolved prior to the date of this agreement) from the Department or any other insurance regulatory authority to the effect that any additional Insurance License from such insurance regulatory authority is needed to be obtained by Amwest or any Affiliated Entity in any case where it could be reasonably expected that (x) Amwest or any Affiliated Entity would in fact be required either to obtain any such additional Insurance License, or cease or otherwise limit writing certain business and (y) obtaining such Insurance License or the limiting of such business would have a Material Adverse Effect. Each Insurance Subsidiary is in compliance with the requirements of the insurance laws and regulations of California and the insurance laws and regulations of any other jurisdiction which are applicable to such Insurance Subsidiary, and has filed all notices, reports, documents or other information required to be filed thereunder or in any such case is subject to no Material Adverse Effect by reason of the failure to so comply or file. Section 4.21 Guaranties. Other than risks or liabilities assumed pursuant to insurance policies or contracts issued by any of Amwest's Affiliated Entities, neither Amwest nor any of its Affiliated Entities is a guarantor or otherwise liable for any liability or obligation of any other person other than Amwest and the Affiliated Entities. Section 4.22 Material Contracts. (a)......Section 4.22(a) of the Amwest Disclosure Schedule lists all of the following contracts not otherwise listed on the Amwest Disclosure Schedule to which Amwest is a party or by which any of its properties or assets are bound: (i) employment, consulting, non-competition, severance, golden parachute or indemnification contract (including, without limitation, any contract to which Amwest is a party involving employees of Amwest, but excluding any insurance policies issued by Amwest's Affiliated Entities); (ii) material licensing, merchandising or distribution agreements; (iii) contracts granting a right of first refusal or first negotiation; (iv) partnership or joint venture agreements; (v) agreements for the acquisition, sale or lease of material properties or assets of Amwest (by merger, purchase or sale of assets or stock or otherwise) entered into since January 1, 1993; (vi) contracts or agreements with any governmental entity; (vii) other contracts which materially affect the business, properties or assets of Amwest and its Affiliated Entities taken as a whole and are not otherwise disclosed in this Agreement or were entered into other than in the ordinary course of business; and (viii) all commitments and agreements to enter into any of the foregoing (collectively, for purposes of this Section 4.22 only, the "Contracts"). Amwest has delivered or otherwise made available to Condor true, correct and complete copies of the Contracts listed in Section 4.22(a) of the Amwest Disclosure Schedule, together with all amendments, modifications and supplements thereto and all side letters to which Amwest is a party affecting the obligations of any party thereunder. (b)......Except as set forth in Section 4.22(b) of the Amwest Disclosure Schedule: ...........................(i) Each of the Contracts is valid and enforceable in accordance with its terms, and there is no material default under any Contract so listed either by Amwest or, to the Knowledge of Amwest, by any other party thereto, and no event has occurred that with the lapse of time or the giving of notice or both would constitute a material default thereunder by Amwest or, to the Knowledge of Amwest, any other party. ...........................(ii) No party to any such Contract has given notice to Amwest of or made aclaim against Amwest with respect to any material breach or material default thereunder. (c)......With respect to those Contracts that were assigned or subleased to Amwest by a third party, all necessary consents to such assignments or subleases have been obtained. Section 4.23 Insurance Contracts and Rates. All Insurance Contracts regarding insurance, written or issued by Amwest or any of its Insurance Subsidiaries as now in force are in all material respects, to the extent required under applicable law, on forms approved by applicable insurance regulatory authorities or which have been filed and not objected to by such authorities within the period provided for objection, and such forms comply in all material respects with the insurance statutes, regulations and rules applicable thereto. True, complete and correct copies of such forms have been furnished or made available to Condor and there are no other forms of Insurance Contracts used in connection with Amwest's and its Insurance Subsidiaries' business. Premium rates established by Amwest or its Insurance Subsidiaries which are required to be filed with or approved by insurance regulatory authorities have been so filed or approved, the premiums charged conform thereto in all material respects, and such premiums comply in all material respects with the insurance statutes, regulations and rules applicable thereto. Section 4.24 Loss Reserves; Solvency. Except as set forth in Section 4.24 of the Amwest Disclosure Schedule, the reserve for loss and loss adjustment expense liabilities set forth in the most recent Amwest SEC Filing and subsequent Amwest SEC Filings provided to Condor after the date hereof was or will be determined in accordance with generally accepted actuarial standards and principles consistently applied, is fairly stated in accordance with sound actuarial principles and statutory accounting principles and meets the requirements of the insurance statutes, laws and regulations of the State of California. Except as disclosed in Section 4.24 of the Amwest Disclosure Schedule, the reserves for loss and loss adjustment expense liabilities reflected in the most recent Amwest SEC Filing and subsequent Amwest SEC Filings provided to Condor after the date hereof and established on the books of Amwest for all future insurance and reinsurance losses, claims and expenses make or will make a reasonable provision for all unpaid loss and loss adjustment expense obligations of Amwest and its Insurance Subsidiaries under the terms of its policies and agreements. Amwest and each of its Insurance Subsidiaries owns assets which qualify as admitted assets under California state insurance laws in an amount at least equal to the sum of all of their respective required insurance reserves and minimum statutory capital and surplus as required by Sections 700.01 through 700.05 of the Insurance Code. The value of the assets of Amwest and its Affiliated Entities at their present fair saleable value is greater than their total liabilities, including contingent liabilities, and Amwest and its Affiliated Entities have assets and capital sufficient to pay their liabilities, including contingent liabilities, as they become due. ARTICLE V COVENANTS Section 5.01 Conduct of Business of Condor and Amwest Except as contemplated by this Agreement or to the extent that the other party to this Agreement shall otherwise consent in writing, during the period from the date of this Agreement to the Effective Time, Condor and its Affiliated Entities and Amwest and its Affiliated Entities, respectively, will conduct their respective operations only in, and Condor and its Affiliated Entities and Amwest and its Affiliated Entities, respectively, will not take any action, except in the ordinary course of business, and Condor and its Affiliated Entities and Amwest and its Affiliated Entities, respectively, will use all reasonable efforts to preserve intact in all material respects their respective business organizations, assets, prospects and advantageous business relationships, to keep available the services of their respective officers and key employees and to maintain satisfactory relationships with their respective licensors, licensees, suppliers, contractors, distributors, customers and others having advantageous business relationships with them. Without limiting the generality of the foregoing, except as contemplated by this Agreement, neither Condor or any of its Affiliated Entities nor Amwest or any of its Affiliated Entities, respectively, will, without the prior written consent of the other parties to this Agreement: (a)......amend its Articles or Certificate of Incorporation or Bylaws or change its authorized number of directors, except that each of Amwest Surety Insurance Company and its subsidiary, Far West Insurance Company, may reincorporate or redomesticate under the laws of the State of Nebraska; (b)......split, combine or reclassify any shares of its capital stock, declare, pay or set aside for payment any dividend or other distribution in respect of its capital stock, or directly or indirectly, redeem, purchase or otherwise acquire any shares of its capital stock or other securities, except that Amwest may pay regular quarterly cash dividends in accordance with past practice; (c)......authorize for issuance, issue, sell or deliver or agree or commit to issue, sell, or deliver (whether through the issuance or granting of any options, warrants, commitments, subscriptions, rights to purchase or otherwise) any of its capital stock or any securities convertible into or exercisable or exchangeable for shares of its capital stock, other than the issuance by Condor or Amwest of shares of its Common Stock pursuant to the exercise of employee stock options and other rights set forth in the Condor or Amwest Disclosure Schedule; (d)......other than in the ordinary course of business, incur any material liability or obligation (absolute, accrued, contingent or otherwise) or issue any debt securities or assume, guarantee, endorse or otherwise as an accommodation become responsible for, the obligations of any other individual or entity, or change any assumption underlying, or methods of calculating, any bad debt, contingency or other reserve; (e)......enter into, adopt or, except as determined by Condor or Amwest to be necessary to comply with applicable law or maintain tax-favored status (and any nonmaterial changes incidental thereto), amend any Employment Related Agreement or Employee Benefit Plan or grant, or become obligated to grant, any increase in the compensation payable or to become payable to any of their officers or directors or any general increase in the compensation payable or to become payable to their employees (including, in each case, any such increase pursuant to any Employment Related Agreement or Employee Benefit Plan, other than an increase pursuant to the terms of such an Employment Related Agreement or Employee Benefit Plan in effect on the date of this Agreement and reflected on the Condor or Amwest Disclosure Schedule), other than in connection with individual performance reviews in the ordinary course of business and consistent with past practice; (f)......acquire (by merger, consolidation, or acquisition of stock or assets) any corporation, partnership or other business organization or division thereof or make any investment either by purchase of stock or securities, contributions to capital, property transfer, or purchase of an amount in excess of $50,000 individually, or in the aggregate, of properties or assets of any other individual or entity, provided, however, Condor and Amwest may each continue to make investment portfolio purchases and sales at their respective subsidiary levels in the ordinary course of their respective businesses and provided, further, that Amwest may make additional investments or acquisitions in an aggregate amount not to exceed $5 million; (g)......pay, discharge or satisfy any material claims, liabilities or obligations (absolute, accrued, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business of liabilities reflected or reserved against on Condor's or Amwest's Latest Balance Sheet, or subsequently incurred in the ordinary course of business, or disclosed pursuant to this Agreement; (h)......acquire (including by lease) any material assets or properties or dispose of, mortgage or encumber any material assets or properties, other than in the ordinary course of business, except that Amwest may enter into a new real property lease or purchase agreement for a new corporate headquarters facility and that Amwest may purchase from Amwest Surety Insurance Company shares of Condor Common Stock; (i)......waive, release, grant or transfer any material rights or modify or change in any material respect any material existing license, lease, contract or other document, other than in the ordinary course of business and consistent with past practice, except that Amwest may amend or modify its existing real property lease for its existing corporate headquarters facility; (j)......except as may be required as a result of a change in law or in generally acceptedaccounting principles, change any of the accounting principles or practices used by it; (k)......revalue in any material respect any of its assets, including, without limitation, writing down the value of inventory or writing-off notes or accounts receivable other than in the ordinary course of business; (l)......make or revoke any Tax election or settle or compromise any material Tax liability or change (or make a request to any taxing authority to change) any material aspect of its method of accounting for Tax purposes; (m)......settle or compromise any pending or threatened suit, action or claim relating tothe transactions contemplated hereby; (n)......settle or compromise any pending or threatened suit, action or claim in the ordinary course of Amwest's or Condor's respective businesses, except that Amwest may settle, compromise or make payments with respect to its existing litigation relating to California Proposition 103; or (o)......take any action or agree, in writing or otherwise, to take any of the foregoing actions or any action which would at any time make any representation or warranty in Article III (other than Section 3.09 solely as it relates to payment, Sections 3.12 with respect to the defense of any litigation, arbitration or claim, and Section 3.13) or Article IV (other than Section 4.17 solely as it relates to payment and Section 4.07 with respect to the defense of any litigation, arbitration or claim) untrue or incorrect. Section 5.02 Access to Information (a)......Between the date of this Agreement and the Effective Time, Amwest and Condor will upon reasonable notice give to each other and the other's authorized representatives access during regular business hours to all of its personnel, plants, offices, warehouses and other facilities and to all of its books and records and will permit the other to make such inspections as it may require and will cause its officers and those of its Affiliated Entities to furnish the other with such financial and operating data and other information with respect to its business and properties as the other may from time to time reasonably request. (b)......Information obtained by the parties hereto pursuant to this Section 5.02 shall be subject to the provisions of the confidentiality agreement between Amwest and Condor dated November 15, 1995, which agreement remains in full force and effect. If this Agreement is terminated, each party will (i) deliver to the other all documents, work papers and other material (including copies) obtained by such party or on its behalf from the other party as a result of this Agreement or in connection herewith, and (ii) destroy or provide to outside counsel for retention all material working papers reflecting any of the confidential information contained in such documents, work papers and other material. In addition, if this Agreement is terminated neither party shall disclose, except as required by law, the basis or reason for such termination, without the consent of the other party. Section 5.03 All Reasonable Efforts Upon the terms and subject to the conditions hereof, and subject to the fiduciary duties of the Board of Directors of Condor and of Amwest under applicable law, Amwest and Condor each agree to use all reasonable efforts promptly to take, or cause to be taken, all appropriate action and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement and will use all reasonable efforts to obtain all waivers, permits, consents and approvals and to effect all registrations, filings and notices with or to third parties or governmental or public bodies or authorities which are in the opinion of Amwest or Condor necessary or desirable in connection with the transactions contemplated by this Agreement, including, without limitation, filings and approvals to the extent required under the DGCL, the Securities Act, the Exchange Act, the Insurance Code and the HSR Act or any rule of the ASE or NASD. If at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement, the proper officers or directors of Amwest and Condor will take such action. Section 5.04 Public Announcements Amwest, on the one hand, and Condor, on the other hand, will consult with each other before issuing any press release or otherwise making any public statements with respect to this Agreement or the transactions contemplated hereby and will not issue any such press release or make any such public statement prior to such consultation. Notwithstanding the foregoing, Amwest and Condor shall not be prohibited from issuing any press release or making any public statement as may be required under applicable law, but in any such event, Amwest or Condor, as the case may be, shall notify the other party prior to taking such action. Section 5.05 Notification of Certain Matters Amwest and Condor will give prompt notice to one another of (i) the occurrence, or failure to occur, of any event which occurrence or failure would or would be likely to cause any of their respective representations or warranties contained in this Agreement to be untrue or inaccurate in any material respect or would or would likely cause any condition in Article VII to become impossible to fulfill, or unlikely to be fulfilled, at any time from the date hereof to the Effective Time, and (ii) any failure on its part or on the part of any of their respective officers, directors, employees, representatives or agents to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by them under this Agreement; provided, however, that no such notification will alter or otherwise affect such representations, warranties, covenants, conditions or agreements. Section 5.06 Indemnification and Insurance (a)......From and after the Effective Time, Amwest shall indemnify, defend and hold harmless each person who is now, or has been at any time prior to the date hereof or who becomes prior to the Effective Time, an officer or director of Condor or any Affiliated Entity or a holder of Condor Common Stock (the "Indemnified Parties") against (i) all losses, claims, damages, costs, expenses (including attorney's fees), liabilities or judgments or amounts that are paid in settlement (which settlement shall require the prior written consent of Amwest, which consent shall not be unreasonably withheld) of or in connection with any claim, action, suit, proceeding or investigation (a "Claim") in which an Indemnified Party is, or is threatened to be made, a party or a witness based in whole or in part on or arising in whole or in part out of the fact that such person is or was an officer, director or employee of Condor or any Affiliated Entity, whether such Claim pertains to any matter or fact arising, existing or occurring at or prior to the Effective Time (including, without limitation, the Merger and other transactions contemplated by this Agreement), regardless of whether such Claim is asserted or claimed prior to, at or after the Effective Time (the "Indemnified Liabilities"), and (ii) all Indemnified Liabilities based in whole or in part on, or arising in whole or in part out of, or pertaining to this Agreement or the transactions contemplated hereby; in each case to the full extent Condor would have been permitted under Delaware law and its Certificate of Incorporation and Bylaws to indemnify such person (and Amwest shall pay expenses in advance of the final disposition of any such action or proceeding to each Indemnified Party to the full extent permitted by law and under such Certificate of Incorporation or Bylaws, upon receipt of any undertaking required by such Certificate of Incorporation, Bylaws or applicable law). Any Indemnified Party wishing to claim indemnification under this Section 5.06(a), upon learning of any Claim, shall notify Amwest (but the failure to so notify Amwest shall not relieve it from any liability which Amwest may have under this Section 5.06(a) except to the extent such failure prejudices Amwest) and shall deliver to Amwest any undertaking required by such Certificate of Incorporation, Bylaws or applicable law. Amwest shall use its best efforts to assure, to the extent permitted under applicable law, that all limitations of liability existing in favor of the Indemnified Parties as provided in Condor's Certificate of Incorporation and Bylaws, as in effect as of the date hereof, with respect to claims or liabilities arising from facts or events existing or occurring prior to the Effective Time (including, without limitation, the transactions contemplated by this Agreement), shall survive the Merger. The obligations of Amwest described in this Section 5.06(a) shall continue in full force and effect, without any amendment thereto, for a period of three years from the Effective Time; provided, however, that all rights to indemnification in respect of any Claim asserted or made within such period shall continue until the final disposition of such Claim; and provided further that nothing in this Section 5.06(a) shall be deemed to modify applicable Delaware law regarding indemnification of former officers and directors. Notwithstanding anything contained in this Section 5.06, the indemnification provided hereunder shall not exceed the coverage provided by the insurance currently provided the Indemnified Parties by Condor. (b)......The obligations of Amwest under this Section 5.06 are intended to benefit, and be enforceable against Amwest directly by the Indemnified Parties, and shall be binding on all respective successors of Amwest. Section 5.07 Regulatory Approvals Condor and Amwest will take all such action as may be necessary under federal or state securities laws or the HSR Act or the California Insurance Code applicable to or necessary for, and will file and, if appropriate, use their best efforts to have declared effective or approved all documents and notifications with the SEC, the California Department of Insurance, the Arizona State Department of Insurance and other governmental or regulatory bodies which they deem necessary or appropriate for, the consummation of the Merger and the transactions contemplated hereby, and each party shall give the other information reasonably requested by such other party pertaining to it and Affiliated Entities to enable such other party to take such actions, and Condor and Amwest shall file in a timely manner all reports and documents required to be so filed by or under the Exchange Act or the Insurance Code which they deem necessary or appropriate in relation to the Merger. Section 5.08 Employee Matters (a)......Amwest will cause service with Condor and its Affiliated Entities and their predecessors prior to the Effective Time to be taken into account for eligibility and vesting purposes in connection with any benefit or payroll plan, practice, policy or agreement of Amwest or any of its affiliates in which any employee of Condor or an Affiliated Entity may become entitled to participate at or after the Effective Time. (b)......Amwest hereby assumes and agrees to perform and pay or cause to be performed and paid all of Condor's duties and obligations under the employment and option agreements listed in Section 3.03 of the Condor Disclosure Schedule, to the extent they have not been terminated prior to the Effective Time. (c)......The obligations of Amwest under Sections 5.08(a) and 5.08(b) are intended to benefit, and be enforceable against Amwest directly by, the parties (other than Condor) to such agreements and the participants or former participants in such plans and their respective beneficiaries and other successors in interest, and shall be binding on all successors of Amwest. Section 5.09 No Actions Inconsistent With Tax-Free Reorganization Condor shall take no action with respect to its capital stock, assets or liabilities that would cause the Merger not to qualify as a "reorganization" within the meaning of Sections 368(a)(1)(A) of the Code. Section 5.10. Other Potential Acquirors (a)......Condor, its Affiliated Entities and their respective officers, directors, employees, representatives and agents shall immediately cease any existing discussions or negotiations, if any, with any parties conducted heretofore with respect to any acquisition of all or any material portion of the assets of, or any equity interest in, Condor or its Affiliated Entities or any business combination with Condor or its Affiliated Entities. Condor may, directly or indirectly, furnish information and access, in each case only in response to unsolicited requests therefor, to any corporation, partnership, person or other entity or group pursuant to confidentiality agreements, and may participate in discussions and negotiate with such entity or group concerning any merger, sale of assets, sale of shares of capital stock or similar transaction involving Condor or any Affiliated Entity or division of Condor, if such entity or group has submitted a written proposal to the Condor board of directors (the "Condor Board") relating to any such transaction and the Condor Board by a majority vote determines in its good faith judgment, after consultation with and based upon the advice of outside legal counsel that it is required to do so to comply with its fiduciary duties to stockholders under applicable law. The Condor Board shall provide a copy of any such written proposal and a summary of any oral proposal to Amwest immediately after receipt thereof and thereafter keep Amwest promptly advised of any development with respect thereto. Except as set forth above, neither Condor nor any of its Affiliated Entities shall, nor shall Condor authorize or permit any of its or their respective officers, directors, employees, representatives or agents to directly or indirectly, encourage, solicit, participate in or initiate discussions or negotiations with, or provide any information to, any corporation, partnership, person or other entity or group (other than Amwest, any Affiliated Entity of Amwest or any designee of Amwest) concerning any merger, sale of assets, sale of shares of capital stock or similar transaction involving Condor or any Affiliated Entity or division of Condor; provided, however, that nothing herein shall prevent the Condor Board from taking, and disclosing to Condor's stockholders, a position contemplated by Rules 14d-9 and 14e-2 promulgated under the Exchange Act with regard to any tender offer; provided, further, that nothing herein shall prevent the Condor Board from making such disclosure to Condor's stockholders as, in the good faith judgment of the Condor Board, after consultation with and based upon the advice of outside legal counsel, is required to comply with its fiduciary duties to stockholders under applicable law. (b)......Except as set forth in this Section 5.10, the Condor Board shall not approve or recommend, or cause Condor to enter into any agreement with respect to, any Third Party Acquisition (as defined below). Notwithstanding the foregoing, if the Condor Board, after consultation with and based upon the advice of outside legal counsel, determines in good faith that it is necessary to do so in order to comply with its fiduciary duties to stockholders under applicable law, the Condor Board may withdraw, modify or change its approval or recommendation of this Agreement or the Merger and approve or recommend a Superior Proposal (as defined below) or cause Condor to enter into an agreement with respect to a Superior Proposal, but in each case only (i) after providing reasonable written notice to Amwest (a "Notice of Superior Proposal") advising Amwest that the Condor Board has received a Superior Proposal and identifying the person making such Superior Proposal and (ii) if Amwest does not make within seven business days of Amwest's receipt of the Notice of Superior Proposal, an offer which the Condor Board, after consultation with its financial advisors, determines is superior to such Superior Proposal. In addition, if Condor proposes to enter into an agreement with respect to any Third Party Acquisition, it shall concurrently with entering into such an agreement pay, or cause to be paid, to Amwest the fee required by Section 8.03(a) hereof. For purposes of this Agreement, a "Superior Proposal" means any bona fide proposal to acquire, directly or indirectly, for consideration consisting of cash and/or securities, more than 50% of the Condor Common Stock then outstanding or all or substantially all the assets of Condor or any merger or similar transaction involving Condor or any Affiliated Entity or division of Condor and otherwise on terms which the Condor Board determines in its good faith judgment (based on the advice of a financial advisor of nationally recognized reputation) to be more favorable to Condor's stockholders than the Merger. Section 5.11 Letter of Condor's Accountants Condor shall use its best efforts to cause to be delivered to Amwest a letter from KPMG Peat Marwick, Condor's independent auditors, dated a date within two business days before the date on which the S-4 shall become effective and addressed to Amwest, in form and substance reasonably satisfactory to Amwest and customary in scope and substance for letters delivered by independent public accountants in connection with registration statements similar to the S-4. Section 5.12 Stock Exchange Listing Amwest shall use all reasonable efforts to cause the shares of Amwest Common Stock to be issued in the Merger and the shares of Amwest Common Stock to be reserved for issuance upon exercise of Amwest Options granted pursuant to Section 2.01(a) to be approved for listing on the ASE, subject to official notice of issuance, prior to the date of Closing. Section 5.13 Pooling of Interests Condor and Amwest each agrees that it will not take any action which could prevent the Merger from being accounted for as a "pooling-of-interests" for accounting purposes and each of Condor and Amwest will bring to the attention of the other any actions which could reasonably likely prevent Amwest from accounting for the Merger as a "pooling-of-interests." Section 5.14 Employment Agreement Amwest shall, as of or prior to the Effective Time, enter into an employment agreement with Guy Main on substantially the terms set forth in the form of Employment Agreement agreed to as of the date hereof. Pursuant to the Employment Agreement, Guy Main will be employed by Amwest for a four year term at compensation levels consistent with the compensation for comparable Amwest executives. The employment agreement will provide that Guy Main will have the titles of Executive Vice President of Amwest and President of Condor Insurance Company during the term of his employment. Section 5.15 Condor Affiliates Prior to the date of Closing, Condor shall deliver to Amwest a letter identifying all persons who are, at the time this Agreement is submitted for approval to the stockholders of Condor, "affiliates" of Condor for purposes of Rule 145 under the Securities Act. Condor shall use its best efforts to cause each such person to deliver to Amwest on or prior to the date of Closing a written agreement, substantially in the form attached as Exhibit B hereto. Section 5.16 Agreement with Guy A. Main Condor and Amwest agree that, as of the Effective Time, Amwest and Guy Main will enter into an Agreement substantially in the form attached as Exhibit C hereto. ARTICLE VI CLOSING Section 6.01 Time and Place Subject to the provisions of Articles VII and VIII, the consummation of the transactions contemplated by this Agreement (the "Closing") will take place at the offices of Gibson, Dunn & Crutcher, 333 S. Grand Avenue, Los Angeles, California 90071, immediately after the approvals by stockholders of Amwest and Condor referred to in Section 2.02 hereof and the fulfillment of the other conditions to the Merger set forth in Article VII hereof has been obtained or at such other place or at such other time as may be mutually agreed upon by Amwest and Condor. Section 6.02 Deliveries at the Closing Subject to the provisions of Articles VII and VIII, at the Closing: (a)......There will be delivered to Amwest and Condor the certificates and other documents and instruments the delivery of which is contemplated under Article VII; and (b)......Amwest and Condor will cause appropriate documents necessary to effect the Merger to be filed in accordance with the provisions of Section 251 of the DGCL and shall take any and all other lawful actions and do any and all other lawful things necessary to cause the Merger to become effective. ARTICLE VII CONDITIONS TO THE MERGER Section 7.01 Conditions to the Obligations of Amwest and Condor The respective obligations of Amwest and Condor to effect the Merger are subject to fulfillment at or prior to the date of the Closing of the following conditions: (a)......Any waiting period (and any extension thereof) applicable to the Merger under the HSR Act shall have expired or been terminated, and any other governmental or regulatory notices or approvals required with respect to the transactions contemplated hereby shall have been either filed or received; (b)......The Merger shall have been approved by the requisite vote of the stockholders of Condor required by the DGCL, NASD and Condor's Certificate of Incorporation and Bylaws; (c)......The Merger shall have been approved by the requisite vote of the stockholders of Amwest required by the DGCL, ASE and Amwest's Articles of Incorporation and Bylaws; (d)......The Registration Statement shall have become effective and no stop order suspending the effectiveness thereof shall be in effect and no proceedings for such purpose shall be pending or threatened before the Commission; (e)......The shares of Amwest Common Stock issuable in the Merger shall be approved for quotation on the ASE upon notice of issuance; (f)......No order, statute, rule, regulation, executive order, stay, decree, judgment, or injunction shall have been enacted, entered, issued, promulgated or enforced by any court or governmental authority which prohibits or restricts the effectuation of the Merger; (g)......No governmental action or proceeding shall have been commenced or threatened seeking any injunction, restraining or other order which seeks to prohibit, restrain, invalidate or set aside the effectuation of the Merger; (h)......The Merger and the transactions contemplated thereby shall have been approved by the Commissioners of the California Department of Insurance and the Arizona State Department of Insurance; and (i)......Amwest shall have received from Union Bank a written waiver with respect to consummation of the Merger and the transactions contemplated thereby. Section 7.02 Additional Conditions to the Obligations of Amwest The obligations of Amwest to effect the Merger are also subject to the fulfillment at or prior to the date of the Closing of the following additional conditions: (a)......Condor shall have performed and complied in all material respects with the agreements and obligations contained in this Agreement that are required to be performed and complied with by it at or prior to the date of the Closing; (b)......The representations and warranties of Condor contained in this Agreement shall be true and correct in all material respects, as of the date hereof and shall be deemed to have been made again at and as of the date of the Closing and shall then be true and correct in all material respects except on each date, for breaches or inaccuracies, the combination of which would not constitute a Material Adverse Effect on Condor; (c)......All corporate actions on the part of Condor necessary to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby or thereby shall have been duly and validly taken; (d)......Condor shall have received consents to the Merger from all persons from whom such consent or waiver is required, as referred to in Section 4.06; (e)......Amwest shall have received the opinions of counsel from Kindel & Anderson, counsel to Condor covering such matters and in the form and substance agreed upon as of the date hereof; (f)......Amwest shall have received such certificates of officers of Condor and such certificates of others to evidence compliance with the conditions set forth in this Section 7.02 and in Section 7.01 as may be reasonably requested by Amwest; (g)......Since the date of this Agreement, there shall have been no material adverse change in, and no event, occurrence or development in the business of Condor that, taken together with other events, occurrences and developments with respect to such business, would have or would reasonably be expected to have a Material Adverse Effect on Condor; (h)......Condor shall deliver to Amwest an agreement of stockholder in the form ofExhibit A, executed by the Condor Stockholder; (i)......The Conversion Number shall not exceed 0.6; (j)......Condor shall have delivered to Amwest an opinion of Condor's consulting actuary, executed by Tim Perr, as of the most recently completed monthly period of which actuarial information is available prior to the date of Closing, opining that as of such date the reserves for loss and loss adjustment expense reflected on such balance sheet of Condor and its Affiliated Entities have been established in conformity with generally accepted actuarial principles and practices consistently applied, that such reserves were established in conformity with the requirements of the California Department of Insurance and that such reserves make a reasonable provision for all unpaid loss and loss adjustment expense obligations of Condor under the terms of its policies and agreements; (k)......Amwest shall have received from its consulting actuary, an opinion of actuary as of the most recently completed monthly period of which actuarial information is available prior to the date of Closing, opining that as of such date the reserves for loss and loss adjustment expense reflected on such balance sheet of Condor and its Affiliated Entities have been established in conformity with generally accepted actuarial principles and practices consistently applied, that such reserves were established in conformity with the requirements of the California Department of Insurance and that such reserves make a reasonable provision for all unpaid loss and loss adjustment expense obligations of Condor under the terms of its policies and agreements; (l)......Guy Main and all members of the Condor Board and any other person deemed an Affiliate shall have performed his obligations under the Affiliates Letter and Continuity of Interest Certificate in the form of Exhibit B hereto, and Amwest shall have received a certificate signed by such persons to such effect; (m)......A.M. Best Company's ratings for each of Amwest Surety Insurance Company and Far West Insurance Company shall not, as of the Effective Time (and after taking into account the Merger and the transactions contemplated thereby), be lower than "A" (Excellent); (n)......Amwest shall have received an Officers' Certificate Regarding Certain Tax Mattersfrom the Chief Financial Officer and the Chief Executive Officer of Condor; and (o)......Amwest shall have received from Condor a certification of non-foreign status described in Treasury Regulation Section 1.1445-2(c)(2), and shall have received from Condor and each Affiliated Entity owned directly by Condor a certification that such entities are not and have not been "United States real property holding corporations" during the periods set forth in, and in a the form described in, Treasury Regulation Section 1.1445-2(c)(3). Section 7.03 Additional Conditions to the Obligations of Condor The obligations of Condor to effect the Merger are also subject to the fulfillment at or prior to the date of the Closing of the following additional conditions: (a)......Amwest shall have performed and complied in all material respects with the agreements and obligations contained in this Agreement that are required to be performed and complied with by them at or prior to the date of the Closing; (b)......The representations and warranties of Amwest contained in this Agreement shall be true and correct in all material respects as of the date hereof and shall be deemed to have been made again at and as of the date of the Closing and shall then be true and correct in all material respects except on each date, for breaches or inaccuracies, the combination of which would not constitute a Material Adverse Effect on Amwest; (c)......All corporate actions on the part of Amwest necessary to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby and thereby shall have been duly and validly taken; (d)......Condor shall have received the opinion of counsel from Gibson, Dunn & Crutcher, counsel to Amwest, covering such matters and in the form and substance agreed upon as of the date hereof; (e) Since the date of this Agreement, there shall have been no material adverse change in, and no event, occurrence or development in the business of Amwest that, taken together with other events, occurrences and developments with respect to such business, would have or would reasonably be expected to have a Material Adverse Effect on Amwest; (f)......Condor shall have received such certificates of officers of Amwest and such certificates of others to evidence compliance with the conditions set forth in this Section 7.03 and in Section 7.01 as may be reasonably requested by Condor; (g)......Amwest shall have delivered to Condor an opinion of Amwest's consulting actuary as of December 31, 1995, opining that as of such date the reserves for loss and loss adjustment expense reflected on such balance sheet of Amwest and its Affiliated Entities have been established in conformity with generally accepted actuarial principles and practices consistently applied, that such reserves were established in conformity with the requirements of the California Department of Insurance and that such reserves make a reasonable provision for all unpaid loss and loss adjustment expense obligations of Amwest under the terms of its policies and agreements; and (h)......The Conversion Number shall not be less than 0.4. ARTICLE VIII TERMINATION AND ABANDONMENT Section 8.01 Termination This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time: (a)......by mutual written consent of Amwest and Condor; (b)......by Amwest or Condor if (i) any court of competent jurisdiction in the United States or other United States governmental authority shall have issued a final order, decree or ruling or taken any other final action restraining, enjoining or otherwise prohibiting the Merger and such order, decree, ruling or other action is or shall have become nonappealable or (ii) the Merger has not been consummated by June 30, 1996; provided that no party may terminate this Agreement pursuant to this clause (ii) if such party's failure to fulfill any of its obligations under this Agreement shall have been the reason that the Effective Time shall not have occurred on or before said date; (c)......by Condor if (i) there shall have been a breach of any representation or warranty on the part of Amwest set forth in this Agreement, or if any representation or warranty of Amwest shall have become untrue, in either case such that the conditions set forth in Section 7.03(b) would be incapable of being satisfied by June 30, 1996 (or as otherwise extended), (ii) there shall have been a breach by Amwest of any of its covenants or agreements hereunder having a Material Adverse Effect on Amwest or materially adversely affecting (or materially delaying) the consummation of the Merger, and Amwest has not cured such breach within twenty business days after notice by Condor thereof, provided that Condor has not breached any of its obligations hereunder, (iii) Condor enters into a definitive agreement relating to a Superior Proposal in accordance with Section 5.10(b), provided that such termination under this clause (iii) shall not be effective until payment of the fee required by Section 8.03(a) hereof, or (iv) Amwest shall have convened a meeting of its stockholders to vote upon the Merger and shall have failed to obtain the requisite vote of its stockholders; or (d)......by Amwest if (i) there shall have been a breach of any representation or warranty on the part of Condor set forth in this Agreement, or if any representation or warranty of Condor shall have become untrue, in either case such that the conditions set forth in Section 7.02(b) would be incapable of being satisfied by June 30, 1996 (or as otherwise extended), (ii) there shall have been a breach by Condor of its covenants or agreements hereunder having a Material Adverse Effect on Condor or materially adversely affecting (or materially delaying) the consummation of the Merger, and Condor has not cured such breach within twenty business days after notice by Amwest thereof, provided that Amwest has not breached any of its obligations hereunder, (iii) Condor shall engage in negotiations with any entity or group (other than Amwest) that has proposed a Third Party Acquisition (as defined below) and such negotiations shall have continued for more than 20 business days after Condor has first furnished information to such entity or group or commenced negotiations with such party (whichever is earlier), (iv) the Condor Board shall have withdrawn, modified or changed its approval or recommendation of this Agreement or the Merger, shall have recommended to the Condor stockholders a Third Party Acquisition or shall have failed to call, give notice of, convene or hold a stockholders' meeting to vote upon the Merger, or shall have adopted any resolution to effect any of the foregoing, (v) Amwest shall have convened a meeting of its stockholders to vote upon the Merger and shall have failed to obtain the requisite vote of its stockholders or (vi) Condor shall have convened a meeting of its stockholders to vote upon the Merger and shall have failed to obtain the requisite vote of its stockholders. "Third Party Acquisition" means the occurrence of any of the following events (i) the acquisition of Condor by merger or otherwise by any person (which includes a "person" as such term is defined in Section 13(d)(3) of the Exchange Act) or entity other than Amwest or any affiliate thereof (a "Third Party"); (ii) the acquisition by a Third Party of more than 30% of the total assets of Condor and its Affiliated Entities, taken as a whole; or (iii) the acquisition by a Third Party of 30% or more of the outstanding Shares. Section 8.02 Effect of Termination In the event of the termination and abandonment of this Agreement pursuant to Section 8.01, this Agreement shall forthwith become void and have no effect, without any liability on the part of any party hereto or its affiliates, directors, officers or stockholders, other than the provisions of this Section 8.02 and Sections 5.02(b), 5.04, 8.03 and Article IX hereof. Nothing contained in this Section 8.02 shall relieve any party from liability for any breach of this Agreement. Section 8.03 Fees and Expenses (a)......In the event that this Agreement shall be terminated pursuant to: (i) Section 8.01(c)(iii); (ii) Sections 8.01(d)(i), (ii) or (iii) and, within twelve months thereafter, Condor enters into an agreement with respect to a Third Party Acquisition, or a Third Party Acquisition occurs, involving any party (or any affiliate thereof) (x) with whom Condor (or its agents) had negotiations with a view to a Third Party Acquisition, (y) to whom Condor (or its agents) furnished information with a view to a Third Party Acquisition or (z) who had submitted a proposal or expressed an interest in a Third Party Acquisition, in the case of each of clauses (x), (y) and (z) after the date hereof and prior to such termination; (iii) Section 8.01(d)(iv); or (iv) Section 8.01(d)(vi); Amwest would suffer direct and substantial damages, which damages cannot be determined with reasonable certainty. To compensate Amwest for such damages, Condor shall pay to Amwest the amount of $700,000 in cash as liquidated damages immediately upon such a termination. It is specifically agreed that the amount to be paid pursuant to this Section 8.03(a) represents liquidated damages and not a penalty. (b)......Upon the termination of this Agreement pursuant to Sections 8.01(d)(i), (ii), (iii), (iv) or (vi), Condor shall reimburse Amwest and its affiliates (not later than ten business days after submission of statements therefor) for all actual documented out-of-pocket fees and expenses, actually and reasonably incurred by any of them or on their behalf in connection with the Merger and the consummation of all transactions contemplated by this Agreement (including, without limitation, fees payable to investment bankers, counsel to any of the foregoing, and accountants). Amwest shall have provided Condor with an estimate of the amount of such fees and expenses and, if Amwest shall have submitted a request for reimbursement hereunder, will provide Condor in due course with invoices or other reasonable evidence of such expenses upon request. Condor shall in any event pay the amount requested within ten business days of such request, subject to Condor's right to demand a return of any portion as to which invoices are not received in due course. (c)......Upon the termination of this Agreement pursuant to Sections 8.01(c)(i), (ii) or (iv), Amwest shall reimburse Condor and its affiliates (not later than ten business days after submission of statements therefor) for all actual documented out-of-pocket fees and expenses, actually and reasonably incurred by any of them or on their behalf in connection with the Merger and the consummation of all transactions contemplated by this Agreement (including, without limitation, fees payable to investment bankers, counsel to any of the foregoing, and accountants). Condor shall have provided Amwest with an estimate of the amount of such fees and expenses and, if Condor shall have submitted a request for reimbursement hereunder, will provide Amwest in due course with invoices or other reasonable evidence of such expenses upon request. Amwest shall in any event pay the amount requested within ten business days of such request, subject to Amwest's right to demand a return of any portion as to which invoices are not received in due course. (d)......Except as specifically provided in this Section 8.03, each party shall bear its own expenses in connection with this Agreement and the transactions contemplated hereby. ARTICLE IX GENERAL PROVISIONS Section 9.01 Amendment and Modification Subject to applicable law, this Agreement may be amended, modified or supplemented only by written agreement of Amwest and Condor at any time prior to the Effective Time with respect to any of the terms contained herein except that after the approvals by stockholders contemplated by Section 2.02, the amount or form of consideration to be received by the holders of voting shares of Condor may not be decreased or altered without the approval of such holders. Section 9.02 Waiver of Compliance; Consents Any failure of Amwest, on the one hand, or Condor on the other hand, to comply with any obligation, covenant, agreement or condition herein may be waived in writing by Amwest or Condor, respectively, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. Whenever this Agreement requires or permits consent by or on behalf of Amwest or Condor, such consent shall be given in writing in a manner consistent with the requirements for a waiver of compliance as set forth in this Section 9.02. Section 9.03 Validity The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, which shall remain in full force and effect. Section 9.04 Parties in Interest This Agreement shall be binding upon and inure solely to the benefit of Amwest and Condor, and nothing in this Agreement (except the provisions of Sections 5.06 and 5.08), express or implied, is intended to confer upon any other person any rights or remedies of any nature whatsoever under or by reason of this Agreement. Section 9.05 Survival of Representations, Warranties, Covenants and Agreements Except as provided in the following sentence, the respective representations and warranties of Amwest and Condor shall not survive the Effective Time, but covenants that specifically relate to periods, activities or obligations subsequent to the Merger shall survive the Merger. If this Agreement is terminated pursuant to Section 8.01, the covenants contained in Sections 5.02(b), 5.04 and 8.03 shall survive such termination. Section 9.06 Notices All notices and other communications hereunder shall be in writing and shall be deemed given on the date of delivery, if delivered personally or faxed during normal business hours of the recipient, or three days after deposit in the U.S. Mail, postage prepaid, if mailed by registered or certified mail (return receipt requested) as follows: (a)....if to Amwest or to Condor after the Effective Time, to: Amwest Insurance Group, Inc. 6320 Canoga Avenue, Suite 300 Woodland Hills, California 91367 Attention: Co-Chief Executive Officers and Chief Financial Officer with a copy to: Gibson, Dunn & Crutcher 333 South Grand Avenue Los Angeles, CA 90071-3197 Attention: Jonathan K. Layne, Esq. (b)....if to Condor prior to the Effective Time, to: Condor Services, Inc. 2361 Rosecrans Avenue El Segundo, California 90245 Attention: Chief Executive Officer with a copy to: Kindel & Anderson 555 S. Flower St., 29th Fl. Los Angeles, California 90071-2498 Attention: Stephen E. Newton, Esq. Section 9.07 Governing Law The Agreement shall be governed by and construed in accordance with the law of the State of Delaware without regard to the conflicts of law rules thereof. Section 9.08 Counterparts This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement. Section 9.09 Table of Contents and Headings The table of contents and article and section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and shall not affect in any way the meaning or interpretation of this Agreement. Section 9.10 Entire Agreement This Agreement, including the exhibits and schedules hereto and the documents and instruments referred to herein or executed contemporaneously herewith, embodies the entire agreement and understanding of Amwest and Condor in respect of the subject matter contained herein and supersedes all prior agreements and understandings among them with respect to such subject matter. Section 9.11 Arbitration; Attorneys' Fees and Expenses Any controversy, dispute, or claim arising out of, in connection with, or in relation to, the interpretation, performance or breach of this Agreement, including, without limitation, the validity, scope and enforceability of this Section 9.11, may at the election of any party, be solely and finally settled by arbitration conducted in California, by and in accordance with the then existing rules for commercial arbitration of the American Arbitration Association, or any successor organization. Judgment upon any award rendered by the arbitrator(s) may be entered by the state or federal court having jurisdiction thereof. Any of the parties may demand arbitration by written notice to the other and to the American Arbitration Association ("Demand for Arbitration"). Any Demand for Arbitration pursuant to this Section 9.11 shall be made before the earlier of (i) the expiration of the applicable statute of limitations with respect to such claim, or (ii) 60 days from the date on which a lawsuit is brought by any other party with respect to such claim. The parties intend that this agreement to arbitrate be valid, enforceable and irrevocable. Time is of the essence in the resolution of any such dispute, and the parties agree to instruct the arbitrator to institute accelerated procedures to resolve any dispute. The losing party shall reimburse the prevailing party in such arbitration, or in any legal proceeding arising out of, in connection with or in relation to this Agreement, including this Section 9.11, in any state or federal court, for the prevailing party's legal fees and expenses reasonably incurred in connection with such arbitration or proceeding. The parties being represented by counsel hereby waive any and all rights to punitive or special damages arising from or relating to this Agreement or the transactions contemplated herein. Section 9.12 Miscellaneous (a) For purposes of this Agreement, the term "Knowledge" of an entity means knowledge actually possessed by any Director or officer of such entity. (b) If the SEC does not allow or the parties believe the SEC will not allow the use of a Registration Statement on Form S-4 to register Amwest Common Stock being issued to Stockholders or Condor believes it is no longer in the interest of Stockholders to use Form S-4, Condor may elect to require Amwest to file and maintain in effect for a two-year period a Registration Statement on Form S-3 as soon as is practicable after the Effective Time to register such shares, subject to a limitation that no stockholder receiving such shares may, pursuant to such registration, sell more than 1% of the amount of Amwest Common Stock Outstanding during any calendar quarter. IN WITNESS WHEREOF, Amwest and Condor have caused this Agreement to be signed on their behalf by their respective duly authorized officers on the date first above written. AMWEST INSURANCE GROUP, INC. By:___________________________________ Richard H. Savage Chairman of the Board and Co-Chief Executive Officer CONDOR SERVICES, INC. By:___________________________________ Guy A. Main Chairman of the Board, President and Chief Executive Officer ANNEX B STOCKHOLDER AGREEMENT This Stockholder Agreement (this "Agreement") dated as of November 30, 1995, is entered into by and between Amwest Insurance Group, Inc., a Delaware corporation ("Amwest") and the undersigned stockholder (the "Stockholder") of Condor Services, Inc., a Delaware corporation ("Condor"). RECITALS A........Concurrently with the execution of this Agreement, Condor is entering into an Agreement and Plan of Merger with Amwest dated November 30, 1995 (the "Merger Agreement"), pursuant to which, among other things, Condor shall merge with and into Amwest (the "Merger"), as a result of which the stockholders of Condor immediately prior to such merger shall become stockholders of Amwest. B........As a condition to the execution of the Merger Agreement, the Stockholder is willing to enter into and be bound by this Agreement. C........As of the date hereof, the Stockholder owns in the aggregate 957,310 shares of Condor common stock, $.01 par value per share (the "Main Shares"). NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the parties agree as follows: 1........AGREEMENT TO RETAIN SHARES. 1.1 Transfer and encumbrances. The Stockholder agrees not to transfer (except as may be specifically required by court order), sell, exchange, pledge or otherwise dispose of or encumber any of the Main Shares, or to make any offer or agreement relating thereto, at any time prior to the Expiration Date. As used herein, the term "Expiration Date" shall mean the earlier to occur of (i) such date and time as the Merger shall become effective in accordance with the terms and provisions of the Merger Agreement and (ii) such date and time as the Merger Agreement shall be terminated pursuant to the terms thereof. 2........AGREEMENT TO VOTE SHARES AND CALL STOCKHOLDER MEETING. At every meeting of the stockholders of Condor called with respect to any of the following, and at every adjournment thereof, and on every action or approval by written consent of the stockholders of Condor on or before the Expiration Date with respect to any of the following, the Stockholder shall vote the Main Shares: (i) in favor of approval of the Merger Agreement and the Merger and any matter that could reasonably be expected to facilitate the Merger; and (ii) against approval of any proposal made in opposition to or competition with consummation of the Merger and against any liquidation or winding up of Condor (each of the foregoing is referred to as a "Opposing Proposal"). In the event a meeting of Condor stockholders to consider and approve the Merger and the transactions contemplated thereby has not taken place on or before May 1, 1996, Stockholder agrees to immediately call and cause to occur a special meeting of Condor stockholders to consider and approve the Merger and to vote in favor of same as provided in Section 2(i) above. 3........OPTION TO PURCHASE SHARES. The Stockholder hereby grants to Amwest the irrevocable option to purchase 825,000 of the Main Shares at a per share exercise price equal to the Merger Consideration as defined and subject to comparable adjustments as set forth in the Merger Agreement. The option granted hereby is exercisable for the period commencing immediately upon the termination of the Merger Agreement, if any, and ending on December 31, 1996. Amwest shall in no event be obligated to exercise such option at any time. 4........REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE STOCKHOLDER. The Stockholder hereby represents, warrants and covenants to Amwest as follows: 4.1 Ownership of shares. The Stockholder (i) is the beneficial owner of the Main Shares, which at the date hereof and at all times up until the Expiration Date will be free and clear of any liens, claims, options, charges or other encumbrances; and (ii) has full power and authority to make, enter into and carry out the terms of this Agreement. 4.2 No proxy solicitations. The Stockholder will not, and will not permit any entity under the Stockholder's control to: (i) solicit proxies or become "participants" in a "solicitation" (as such terms are defined in Regulation 14A under the Exchange Act) with respect to an Opposing Proposal or otherwise encourage or assist any party in taking or planning any action that would compete with, restrain or otherwise serve to interfere with or inhibit the timely consummation of the Merger in accordance with the terms of the Merger Agreement; (ii) initiate a stockholders' vote or action by consent of Condor stockholders with respect to an Opposing Proposal; or (iii) become a member of a "group" (as such term is used in Section 13(d) of the Exchange Act) with respect to any voting securities of Condor with respect to an Opposing Proposal. Notwithstanding the above, the Stockholder may take any actions in such Stockholder's role as director and/or officer of Condor permitted under the Merger Agreement. 5........ADDITIONAL DOCUMENTS. The Stockholder hereby covenants and agrees to execute and deliver any additional documents necessary or desirable, in the reasonable opinion of Amwest to carry out the intent of this Agreement. 6........CONSENT AND WAIVER. The Stockholder hereby gives any consents or waivers that are reasonably required for the consummation of the Merger under the terms of any agreements to which the Stockholder is a party or pursuant to any rights Stockholder may have; provided that this Section 6 shall not be deemed a consent of Stockholder in lieu of a meeting as contemplated by Section 228 of the Delaware General Corporation Law. 7........TERMINATION. This Agreement shall terminate and shall have no further force or effect after the later of: (i) the Expiration Date and, (ii) the expiration of the option granted pursuant to Section 3 hereof. 8........MISCELLANEOUS. 8.1 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, then the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. 8.2 Binding effect and assignment. This Agreement and all of the provisions hereof shall be binding with respect to the specific matters set forth herein and shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but, except as otherwise specifically provided herein, neither this Agreement nor any of the rights, interests or obligations of the Stockholder may be assigned by the Stockholder without the prior written consent of the others. 8.3 Amendments and modification. This Agreement may not be modified, amended, altered or supplemented except upon the execution and delivery of a written agreement executed by the party against whom enforcement is sought. 8.4 Specific performance; injunctive relief. The parties hereto acknowledge that a violation of any of the covenants or agreements of one party set forth herein will result in the other parties being irreparably harmed (such other parties hereafter referred to as an "Injured Party") and will leave an Injured Party with no adequate remedy at law. Therefore, it is agreed that, in addition to any other remedies that may be available to an Injured Party upon any such violation, an Injured Party shall have the right to enforce such covenants and agreements by specific performance, injunctive relief or by any other means available to an Injured Party at law or in equity. 8.5 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given on the date of delivery, if delivered personally or faxed during normal business hours of the recipient, or three days after deposit in the U.S. Mail, postage prepaid, if mailed by registered or certified mail (return receipt requested) as follows: If to Amwest: Amwest Insurance Group, Inc. 6320 Canoga Avenue, Suite 300 Woodland Hills, California 91367 Attention: Co-Chief Executive Officers and Chief Financial Officer With a copy to: Gibson, Dunn & Crutcher 333 South Grand Avenue Los Angeles, California 90071 Attention: Jonathan K. Layne If to the Stockholder: c/o Condor Services, Inc. 2361 Rosecrans Avenue El Segundo, California 90245 or to such other address as any party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall only be effective upon receipt. 8.6 Governing law. This Agreement shall be governed by, and construed and enforced in accordance with, the internal laws of the State of Delaware. 8.7 Entire agreement. This Agreement contains the entire understanding of the parties in respect of the subject matter hereof, and supersedes all prior negotiations and understandings between the parties with respect to such subject matter. 8.8 Counterparts. This Agreement may be executed in several counterparts, each of which shall be an original, but all of which together shall constitute one and the same agreement. 8.9 Effect of headings. The section headings herein are for convenience only and shall not affect the construction of interpretation of this Agreement. IN WITNESS WHEREOF, the parties have caused this Stockholder Agreement to be duly executed on the day and year first above written. AMWEST INSURANCE GROUP, INC. By:______________________________ Richard H. Savage Chairman of the Board and Co-Chief Executive Officer STOCKHOLDER: _________________________________ Guy A. Main MAIN FAMILY TRUST: By:_______________________________ Guy A. Main Trustee By:_______________________________ Freda Main Trustee ANNEX C OPINION JEFFERIES & COMPANY, INC. November 30, 1995 The Board of Directors AMWEST INSURANCE GROUP, INC. 6320 Canoga Avenue, Suite 300 Woodland Hills, CA 91367 Re: The proposed merger (the "Merger") of Condor Services, Inc. ("Condor") with and into Amwest Insurance Group, Inc. ("Amwest" or the "Company"). Gentlemen: You have asked us to advise you on the fairness, from a financial point of view, to the holders of the outstanding shares of common stock, par value $.01 per share (the "Amwest Common Stock"), of the Company (the "Stockholders") of the Exchange Rate (defined below) contemplated by the Merger. You have informed us that pursuant to the Merger, each outstanding share of Common Stock, par value $.01 per share ("Condor Common Stock"), of Condor (other than shares held by Amwest or its subsidiaries that will be canceled pursuant to the Merger), will be converted into the right to receive 0.5 shares of Amwest Common Stock (the "Exchange Rate"), subject to an adjustment as described in Section 1.05 of the draft of the Agreement and Plan of Merger (the "Merger Agreement"), dated November 30, 1995, to be entered into, by and between Amwest and Condor. The terms and conditions of the Merger, including the adjustment, are more fully set forth in the Merger Agreement. We note that the Merger has not yet been consummated. Any change in the Exchange Rate or in the final form of the Merger Agreement could change the conclusions expressed herein. Jefferies & Company, Inc. ("Jefferies"), as part of its investment banking activities, is regularly engaged in the evaluation of capital structures. In addition, Jefferies performs valuations of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements, and other financial services. As you are aware, Jefferies has been engaged by the Company to render, and has received a fee for rendering, this opinion. In connection with our opinion, we have, reviewed, among other things, the draft of the Merger Agreement and certain financial and other information about each of Amwest and Condor, that was, in each case, publicly available or furnished to us by the Company or Condor, as the case may be, including certain internal financial analyses, financial forecasts, the actuarial report on the loss and loss adjustment reserves of Condor Insurance Company dated October 17, 1995, reports and other information prepared by Company and Condor management. We have held discussions with members of senior management of the Company and Condor concerning each company's historical and current operations, financial conditions and prospects, as well as the strategic and operating benefits anticipated from the business combination. In addition, we have conducted such financial studies, analyses and investigations and reviewed such other factors as we deemed appropriate for purposes of this opinion. In rendering this opinion, we have relied, without independent investigation or verification, on the accuracy, completeness and fairness of all financial and other information reviewed by us and this opinion is conditioned upon such information (whether written or oral), including, without limitation, the information referred to in the preceding paragraph, being accurate, complete and fair in all respects. You have informed us, and we have assumed, with your permission, that all projections examined by us were reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the respective management of the Company and Condor as to the future performance of each company. In addition, although we performed sensitivity analysis thereon, in rendering this opinion we have assumed, with your permission, that each such company will perform in accordance with such projections for all periods specified therein. Although such projections did not form the principal basis for our opinion, but rather was one among many items employed, changes thereto could affect the opinion rendered herein. We have assumed, with your permission, that the Merger will be a accounted for under the "pooling of interest" accounting method. We have not been requested to, and did not: (a) participate in the structuring or negotiating of the Merger; (b) solicit third party indications of interest in acquiring all or any part of the Company; or (c) make any independent evaluation or appraisal of the assets or liabilities, contingent or otherwise, of the Company or Condor, nor have we been furnished with any such evaluation or appraisals, other than the actuarial report described herein. We have assumed, with your permission, that all consents and authorizations necessary to consummate the Merger have been, or will be obtained, without material expense. Our opinion is addressed solely to the fairness, from a financial point of view, of the Exchange Rate on the assumption that the Company and its Board of Directors have determined that, from the standpoint of its business and prospects, it is appropriate and desirable to consummate the Merger. Our opinion is based on economic, monetary and market conditions prevailing, and stock prices and other circumstances and conditions existing, on the date of this letter, and we do not express any opinion as to the market value of the Condor Common Stock or Amwest Common Stock, or the price or trading range at which shares of Amwest Common Stock will trade following consummation of the Merger. Without limiting the foregoing, we expressly disclaim any undertaking or obligation to advise any person of any change in any fact or matter affecting our opinion of which we become aware after the date hereof. In the ordinary course of Jefferies business, we may actively trade securities of the Company and Condor for our own account and for the accounts of our customers and, accordingly, may at any time hold a long or short position in such securities. It is understood that this letter is for the use of the Board of Directors of the Company only and may not be used for any other purpose without Jefferies prior, written consent, except that, the Company may include this letter, in its entirety, and a description thereof, in any proxy statement, registration statement or similar document distributed to the stockholders of the Company in connection with the Merger. Without limiting the foregoing, this letter does not constitute a recommendation to any stockholder of the Company as to how such stockholder should vote with respect to the Merger. Based upon and subject to the foregoing, it is our opinion that the Exchange Rate is fair, from a financial point of view, to the Stockholders of Amwest. Very truly yours, JEFFERIES & COMPANY, INC. ANNEX D OPINION WEDBUSH MORGAN SECURITIES November 30, 1995 Personal and Confidential Board of Directors of Condor Services, Inc. 2041 Rosecrans Avenue El Segundo, CA 90245 Gentlemen: You have requested our opinion as to the fairness, from a financial point of view, to the Public Shareholders of Condor Services, Inc. (the "Company") of the consideration (the "Merger Consideration") to be received by the Public Shareholders in the proposed merger (the "Merger") contemplated by the Agreement and Plan of Merger dated November 30, 1995, by and between Amwest Insurance Group, Inc. ("Amwest") and the Company (the "Merger Agreement"). The term "Public Shareholders" as used herein refers to all shareholders of the Company other than Amwest and other than those that are "affiliates" of the Company as that term is used in Rule 12b-2 under the Securities Exchange Act of 1934. The Merger Agreement defines the Merger Consideration as follows. At the effective time of the Merger, each outstanding share of Condor Common Stock held by a Public Shareholder shall be converted into the right to receive 0.5 of a share (subject to adjustment pursuant to the following two sentences) of Amwest Common Stock. If the average daily Closing Price (as defined in the Merger Agreement) of Amwest Common Stock as reported on the American Stock Exchange for the 30 consecutive trading days ending on the close of trading on the second trading day preceding the closing date of the Merger (the "Base Period Trading Price") is less than $12.50, the Merger Consideration would be increased by a factor of 12.5 divided by the Base Period Trading Price. If the Base Period Trading Price is greater than $17.50, the Merger Consideration would be decreased by a factor of 17.5 divided by the Base Period Trading Price. In the event that the portion of a share of Amwest Common Stock into which each share of Condor Common Stock would be converted based upon the foregoing would be less than four-tenths of a share (.4), Condor would have the right to terminate the Merger Agreement without liability. In the event that the portion of a share of Amwest Common Stock into which each share of Condor Common Stock would be converted based upon the foregoing would exceed six-tenths of a share (.6), Amwest would have the right to terminate the Merger Agreement without liability. Wedbush Morgan Securities is an investment banking firm and a member of the New York Stock Exchange and other principal stock exchanges in the United States, and is regularly engaged as part of its business in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, private placements, secondary distributions of listed and unlisted securities, and valuations for corporate, estate and other purposes. In arriving at our opinion set forth below, we have reviewed, among other things, the Merger Agreement; the Stockholder Agreement by and between Amwest, Guy A. Main, and the Main Family Trust; the Affiliates Letter and Continuity of Interest Certificates executed by certain members of Condor management; the Agreement With Guy A. Main and Main Family Trust to be entered into by and between such parties and Amwest; the Registration Rights Agreement to be entered into between Guy A. Main, the Main Family Trust and Amwest; the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1994; Quarterly Reports on Form 10-Q of the Company for the quarters ended June 30, 1995 and September 30, 1995; financial statements and analyses of the Company prepared by Condor management for the fiscal years ended December 31, 1989 through December 31, 1993; the Proxy Statement for Annual Meeting of Stockholders of Condor dated April 26, 1995; Quarterly Statement of Statutory Results of Condor as of September 30, 1995; forecasts and projections prepared by Condor with respect to Condor for the five fiscal years ending December 31, 1999; Actuarial Report on the Loss and Loss Adjustment Expense Reserves of Condor as of September 30, 1995, prepared by Timothy B. Perr & Company, Consulting Actuaries; the Annual Report to Shareholders of Amwest for the fiscal year ended December 31, 1994; Annual Reports on Form 10-K of Amwest for the fiscal year ended December 31, 1994; historical audited financial statements for the fiscal years ended December 31, 1990 through December 31, 1993; Quarterly Report on Form 10-Q of Amwest for the quarter ended September 30, 1995; Proxy Statement for Annual Meeting of Stockholders of Amwest dated April 17,, 1995; financial forecasts of Amwest alone for the five fiscal years ending December 31, 1999 and of Amwest combined with Condor for the five fiscal years ending December 31, 1999 prepared by Amwest management. We have held discussions with certain members of the senior management of the Company regarding the past and current business operations, financial condition, future prospects and projected operations and performance of the Company. We have held discussions with certain members of the senior management of Amwest regarding the past and current business operations, financial condition, future prospects and projected operations and performance of Amwest and of the combined entities. We toured the headquarters of the Company in El Segundo, California and the headquarters of Amwest in Canoga Park. In addition, we have reviewed the reported price and trading activity of the Company Common Stock and of Amwest Common Stock, compared certain statistical and financial information for the Company and Amwest, respectively, with similar information for certain other companies in the same industries as the Company and Amwest, respectively, reviewed and compared statistical and financial data for recent acquisitions in the same industry as the Company and conducted such other financial studies, analyses and inquiries and considered such other matters as Wedbush deemed necessary and appropriate for this opinion. We note that under Section 7.03(g) of the Merger Agreement, the obligations of the Company to effect the Merger are also subject to the receipt at or prior to the date of the closing of the Merger of an opinion of Peat Marwick, consulting actuary to Amwest, addressed to the Company, as of December 31, 1995, opining that as of such date the reserves for loss and loss adjustment expense reflected on such balance sheet of Amwest and its affiliated entities have been established in conformity with generally accepted actuarial principles and practices consistently applied, that such reserves were established in conformity with applicable insurance regulatory requirements, and that such reserves make a reasonable provision for all unpaid loss and loss adjustment expense obligations of Amwest under the terms of its policies and agreements. Our opinion is based in part on the Company's ability to obtain such assurances and is subject to receipt of such an actuarial opinion. We note in this connection that our experience is in financial analyses of the kind customary in the investment banking profession and that we have not undertaken any obligation to conduct or to supervise any actuarial analysis or review of the quality of the reserves of Amwest or of the Company. We further note that Amwest is a party to certain legal proceedings, currently before the California Supreme Court, regarding the validity of Section 1861.135 of the California Insurance Code. Section 1861.135 exempts surety insurance from the rate rollback and prior approval provisions of Proposition 103, the insurance initiative adopted by California Voters. Our opinion is based on the assumption that the outcome of such legl proceedings will not have a material adverse effect on the financial position of Amwest. We have not undertaken any obligation independently to verify the accuracy or completeness of financial information or other information furnished to us by the Company or Amwest orally or in writing, or other information obtained from publicly available sources and reviewed by us for purposes of this opinion. We were provided with information represented to us as the best currently available estimates and judgments of the management of the Company and Amwest, as to the expected future financial and operating performance of the Company and Amwest, and we have not undertaken any responsibility for the accuracy of such forecasts, estimates or judgments nor have we undertaken any obligation independently to verify the underlying assumptions made in connection with such forecasts, estimates or judgments. In addition, we have not made an independent evaluation or appraisal of any particular assets or liabilities of the Company or Amwest, and we have not been furnished with any such evaluation or appraisal. We have not negotiated, or participated in any way in the negotiation of, the terms of the Merger or advised you regarding strategic alternatives. We have not been asked to consider, and this opinion does not address, the relative merits of the Merger as compared to any alternative business strategies that might exist for the Company or the effect of any other transaction in which the Company might engage. Based upon and subject to the foregoing and based upon such other matters as we consider relevant, it is our opinion that, as of the date hereof, the Merger Consideration is fair, from a financial point of view, to the Public Shareholders. This opinion is intended for the use of the Board of Directors of the Company in connection with its consideration of the Merger. We recognize that the Company may be required to disclose this opinion in any proxy statement related to the Merger, and agree that the Company may do so, provided that the full text of the opinion is attached to such proxy statement and that the descriptions of Wedbush and the opinion in such proxy statement are approved by us in advance. We note, however, that the opinion is intended to be for the benefit of the Board of Directors, and not for the benefit of shareholders or any other third parties. Our agreement to allow disclosure of the opinion in the Company's proxy statement is intended solely to facilitate compliance by the Company with its legal obligations, and should not be construed as (1) authorizing reliance on such opinion by any shareholder of the Company or any other person, (2) recommending to any shareholder how to vote regarding the Merger, or (3) implying that Wedbush is, within the meaning of Section 7 or Section 11 of the Securities Act of 1933, an "accountant, engineer, or appraiser, or any person whose profession gives authority to a statement made by him, who has with his consent been named as having prepared or certified" any part of any proxy statement or registration statement in which such opinion may be included, or any report or valuation used in connection therewith. Except as provided in this paragraph, this opinion is not to be used, circulated, quoted or otherwise referred to for any purpose, except in accordance with our prior written consent. Very truly yours, WEDBUSH MORGAN SECURITIES ANNEX E AMWEST INSURANCE GROUP, INC. STOCK OPTION PLAN (As Proposed to be Amended) 1. Purpose of the Plan. Under this Stock Option Plan (the "Plan") of Amwest Insurance Group, Inc., a Delaware corporation (the "Company"), options may be granted to eligible persons, as set forth in Section 3, to purchase shares of the Company's common stock ("Common Stock"). The Plan is designed to enable the Company to attract, retain and motivate such persons by providing for or increasing their proprietary interest in the Company. The Plan provides for options which qualify as incentive stock options ("Incentive Options") under Section 422A of the Internal Revenue Code (the "Code") as well as options which do not so qualify ("Non-Incentive Options"), and for the grant of stock appreciation rights ("Stock Appreciation Rights") to be associated with stock options. 2. Stock Subject to Plan. The maximum number of shares that may be subject to options granted hereunder shall be 676,000 shares of Common Stock, subject to adjustments under Section 8. Shares of Common Stock subject to the unexercised portions of any options granted under this Plan which expire, terminate or are canceled may again be subject to options under this Plan. 3. Eligible Persons. The persons eligible to be considered for the grant of Incentive Options hereunder are any persons employed by the Company or its parent or subsidiaries on a salaried basis including directors who are employees. Such persons, as well as directors who are also employees or consultants of the Company or its parent or subsidiaries shall be eligible for the grant of "Non-Incentive Options." Directors who are neither employees nor consultants of the Company or its parent or subsidiaries are not eligible for the grant of Incentive Options or Non-Incentive Options under this Plan. 4. Incentive Stock Option Limitation. The aggregate fair market value (determined at the time each Incentive Option is granted) of the stock with respect to which Incentive Options are exercisable for the first time by each employee during any calendar year (under all such plans of the Company and its parent and subsidiary corporations) shall not exceed $100,000. 5. Payment. Payment for Common Stock purchased upon any exercise of any option granted hereunder shall be made in full in cash concurrently with such exercise, except that, if the Committee (as defined in Section 12 below) shall have authorized it and if the Company is not then prohibited from purchasing or acquiring shares of stock, such payment may be made in whole or in part with shares of stock of the Company delivered in lieu of cash concurrently with such exercise, the shares so delivered to be valued on the basis of their fair market value on the date of exercise. If the Company is required to withhold an amount on account of any federal or state income tax imposed as a result of such exercise, the optionee shall pay such amount to the Company by check or in cash concurrently with the exercise of the option. 6. Exercise Price. The exercise price for each Incentive Option granted hereunder shall not be less than 100% of the fair market value of the Common Stock at the date of the grant of such option, provided, however, the option price of an Incentive Option shall not be less than 110% of the fair market value of such Common Stock on the date such option is granted to an individual then owning (after the application of the family and other attribution rules of Section 425(d) of the Code), more than 10% of the total combined voting power of all classes of stock of the Company or any subsidiary or parent corporation. 7. Nontransferability. Any option granted under this Plan shall by its terms be nontransferable by the optionee otherwise than by will or the laws of descent and distribution, and shall be exercisable, during the optionee's lifetime, only by the optionee. 8. Adjustment. If the outstanding shares of stock of the class then subject to this Plan are increased or decreased, or are changed into or exchanged for a different number or kind of shares or securities, as a result of one or more reorganizations, recapitalizations, stock splits, reverse stock splits, stock dividends, and the like, appropriate adjustments shall be made in the number and/or type of shares or securities for which options may thereafter be granted under this Plan and for which options then outstanding under this Plan may thereafter be exercised. Any such adjustments in outstanding options shall be made without changing the aggregate exercise price applicable to the unexercised portions of such options. 9. Maximum Option Term. No Incentive Option granted under this Plan may be exercised in whole or in part more than ten years after its date of grant, provided, however, that an Incentive Option granted to an individual owning (after the application of the family and other attribution rules of Section 425(d) of the Code), at the time such option was granted, more than 10% of the total combined voting power of all classes of stock of the Company or any subsidiary or parent corporation shall expire no later than five years from the date the option was granted. No Non-Incentive Option granted under this Plan may be exercised in whole or in part more than eleven years after its date of grant. 10. Stock Appreciation Rights. The Committee may, under such terms and conditions as it deems appropriate, grant to the optionee the conditional right to surrender all or part of an unexercised option and to receive payment of any amount less than or equal to the excess of the fair market value of the underlying shares on the date of surrender over the option exercise price. Such payment may be made in shares of stock valued at their fair market value on the date of surrender of the option or in cash, or partly in shares and partly in cash. The exercise of a Stock Appreciation Right and the manner of payment shall be in the discretion of the Committee, provided, however, that any Stock Appreciation Right shall be subject to the condition that the Committee may at any time in its absolute discretion not allow the exercise of a Stock Appreciation Right and instead require that the optionee exercise any option granted under this Plan as if there were no Stock Appreciation Rights with respect to such option. The Committee may further impose such conditions on the exercise of Stock Appreciation Rights as may be required to comply with Rule 16b-3 under the Securities Exchange Act of 1934. 11. Plan Duration. Options may not be granted more than ten years after the date of the adoption of this Plan by the Board of Directors of the Company (the "Board"), or of stockholder approval thereof, whichever is earlier. 12. Administration. The Plan shall be administered by the Board or, of the Board so decides, by a Committee (the "Committee") of the Board which shall consist of not less than three Directors of the Company, appointed for this purpose by the Board. The Board may from time to time add to or remove members from the Committee, and shall have the sole authority to fill vacancies on the Committee. Subject to the express terms and conditions of the Plan and the terms of any option outstanding under the Plan, the Committee shall have full power to construe the Plan and the terms of any option granted under the Plan, to prescribe , amend and rescind rules and regulations relating to the Plan or such options and to make all other determinations necessary or advisable for the administration of the Plan, including, without limitation, the power to determine which persons meet the requirements of Section 3 hereof for selection as participants in the Plan, and to which of the eligible persons, if any, options shall be granted under the Plan and, subject to the provisions of this Plan, to establish the terms and conditions required or permitted to be included in option agreements and to impose such conditions on the exercise of stock options as may be required to comply with Rule 16b-3 under the Securities Exchange Act of 1934. 13. Amendment and Termination. The Board may alter, amend, suspend, or terminate this Plan, provided that no such action shall deprive any optionee, without his consent, of any option granted to the optionee pursuant to this Plan or of any of his rights under such option. Except as herein provided, no such action of the Board, unless taken with the approval of the stockholders of the Company, may: (a) increase the maximum number of shares that may be subject to options under this Plan; (b) reduce the minimum permissible exercise price; (c) extend the ten-year duration of this Plan set forth herein; or (d) alter the class of employees eligible to receive Incentive Options or the class of persons eligible to receive Non-Incentive Options under the Plan. IN TESTIMONY WHEREOF, Amwest Insurance Group, Inc. has executed this Stock Option Plan by its officers thereunto duly authorized. AMWEST INSURANCE GROUP, INC. Richard H. Savage Chairman of the Board and Co-Chief Executive Officer ATTEST: Richard H. Busch Secretary EX-5.1 2 OPINION OF GIBSON DUNN & CRUTCHER EXHIBIT 5.1 Amwest Insurance Group, Inc. 6320 Canoga Avenue, Suite 300 Woodland Hills, CA 91367 Re: Amwest Insurance Group, Inc. - Form S-4 Registration Statement Gentlemen: We have acted as counsel to Amwest Insurance Group, Inc., a Delaware corporation (the "Company"), in connection with the registration by the Company on Form S-4 Registration Statement No.333-00119 (the "Registration Statement") under the Securities Act of 1933, as amended, of 992,000 shares of the Company's common stock, $.01 par value (the "Shares"). The Shares are being offered to the stockholders of Condor Services, Inc. ("Condor") by the Company as consideration pursuant to the Agreement and Plan of Merger dated as of November 30, 1995, by and between the Company and Condor (the "Merger Agreement"). On the basis of such investigation as we have deemed necessary, we are of the opinion that the Shares, when issued in accordance with the terms of the Merger Agreement, will be validly issued, fully paid and nonassessable. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to this firm under the heading "Legal Matters" contained in the prospectus that forms a part of the Registration Statement. Very truly yours, GIBSON, DUNN & CRUTCHER JKL/DMM LA960340.010/1 + EX-8.1 3 OPINION OF GIBSON DUNN & CRUTCHER EXHIBIT 8.1 Amwest Insurance Group, Inc. 6320 Canoga Avenue, Suite 300 Woodland Hills, California 91367 Re: Amwest Insurance Group, Inc. - Form S-4 Registration Statement Gentlemen: We have acted as counsel to Amwest Insurance Group, Inc., a Delaware corporation (the "Company"), in connection with the registration by the Company on Form S-4 Registration Statement No. 333-00119 under the Securities Act of 1933, as amended (the "Registration Statement"), of 992,000 shares of the Company's common stock, $.01 par value (the "Shares"). The Shares are being offered to the stockholders of Condor Services, Inc. ("Condor") by the Company as consideration for a merger (the "Merger") of Condor with and into the Company to be effected pursuant to the Agreement and Plan of Merger dated as of November 30, 1995, by and between the Company and Condor. In connection with the Registration Statement, you have requested our opinion concerning the summary of certain federal income tax issues set forth in the prospectus (the "Prospectus") that forms a part of the Registration Statement under the heading "The Merger--Certain Federal Income Tax Consequences." The discussion set forth in the Prospectus under the heading "The Merger--Certain Federal Income Tax Consequences" states that it is anticipated that counsel for the Company and counsel for Condor will render an opinion to the Company and to Condor, respectively, at the closing of the Merger (the "Closing"), that the Merger will qualify as a "reorganization" within the meaning of Section 368(a) of the Internal Revenue Codeof 1986, as amended. This letter does not constitute such an opinion, and does not constitute an opinion regarding the likelihood that such an opinion will be rendered. Such opinions, if rendered, will be rendered at the Closing and will be based on certain factual representations and assumptions made at or around the Closing which, if untrue or incorrect, could affect the discussion set forth in the Prospectus. We are opining herein as to the effect of the federal income tax laws of the United States on the Merger as of the date hereof, and we express no opinion with respect to the applicability thereto, or the effect thereon, of other federal laws, the laws of any other jurisdiction or as to any matters of municipal law or the laws of any other local agencies within any state. Based on the foregoing and our understanding of the pertinent facts, in our opinion, the discussion in the Prospectus under the heading "The Merger--Certain Federal Income Tax Consequences," is an accurate summary of the United States federal income tax consequences of the Merger that are likely to be material to the stockholders of Amwest and Condor. This opinion is rendered only to you and is solely for your benefit in connection with filing the Registration Statement and Prospectus with the Securities and Exchange Commission. This opinion may not be relied upon by you for any other purpose, or furnished to, quoted to, or relied upon by any other person, firm or corporation for any purpose, without our prior written consent. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to this firm under the heading "Legal Matters" contained in the Prospectus. Very truly yours, GIBSON, DUNN & CRUTCHER PSI: SLT LT960370028/2+ EX-10.24 4 LEASE AGREEMENT EXHIBIT 10.24 OFFICE BUILDING LEASE BETWEEN ACD2, a California corporation, LANDLORD AND AMWEST INSURANCE GROUP, INC. a Delaware corporation, TENANT CALABASAS COMMERCE CENTER, BUILDING 6 TABLE OF CONTENTS Page 1. CERTAIN TERMS AND DEFINITIONS 1 2. PREMISES, COMMON AREAS & EXPANSION SPACE 5 2.1 Premises 5 2.2 Confirmation of RSF 5 2.3 Common Areas 6 2.4 Expansion Space 7 2.5 Quality of Construction - Standard for Maintenance, Repairs and Operation 8 3. TERM AND OPTION TERM 9 3.1 Initial Term 9 3.2 Option to Extend Term 10 3.3 Cancellation Option 12 3.4 Possession 12 3.5 Early Entry into Premises 13 4. NONDISTURBANCE AGREEMENT 13 5. MONTHLY BASIC RENT 14 6. ADDITIONAL RENT 15 7. CONSTRUCTION OF THE TENANT IMPROVEMENTS AND THE BASE BUILDING. 25 8. USE 25 9. PAYMENTS AND NOTICES 26 10. BROKERS AND REPRESENTATIVES 27 11. HOLDING OVER 27 12. TAXES ON TENANT'S PROPERTY 27 13. CONDITION OF PREMISES 28 14. ALTERATIONS 30 15. REPAIRS 32 16. LIENS 35 17. ENTRY BY LANDLORD 35 18. UTILITIES AND SERVICES 36 18.1 Services 36 19. BANKRUPTCY 37 20. INDEMNIFICATION AND EXCULPATION 37 21. DAMAGE TO TENANT'S PROPERTY 39 22. INSURANCE 39 23. DAMAGE OR DESTRUCTION 42 23.1 Definitions 42 23.2 Partial Damage - Insured Loss 42 23.3 Partial Damage - Uninsured Loss 43 23.4 Total Destruction 43 23.5 Damage Near End of Term 43 23.6 Notice of Repair Time 44 23.7 Abatement of Rent; Tenant's Remedies 44 23.8 Inconsistent Statutes 45 24. EMINENT DOMAIN 45 25. DEFAULTS AND REMEDIES 46 26. ASSIGNMENT AND SUBLETTING 48 27. SUBORDINATION 51 28. ESTOPPEL CERTIFICATE 51 29. SIGNS 52 30. RULES AND REGULATIONS 53 31. BANKRUPTCY 54 32. SECURITY 54 33. SURRENDER OF PREMISES 54 34. PERFORMANCE BY TENANT 54 35. MORTGAGE AND SENIOR LESSOR PROTECTION 55 36. DEFINITION OF LANDLORD 55 37. PARKING 55 38. OPTION TO PURCHASE 57 39. FORCE MAJEURE 57 40. LIMITATION ON LIABILITY 57 41. MODIFICATION FOR LENDER 57 42. ACCESS. 58 43. QUIET ENJOYMENT 58 44. CONFIDENTIALITY 58 45. CONSENT/DUTY TO ACT REASONABLY 58 46. CONFLICT OF LAWS 59 47. SUCCESSORS AND ASSIGNS 59 48. ATTORNEYS' FEES 59 49. WAIVER 59 50. SEVERABILITY 59 51. TERMS AND HEADINGS 60 52. TIME 60 53. PRIOR AGREEMENT; AMENDMENTS 60 54. TENANT AS CORPORATION 60 55. APPROVALS 60 56. NO PARTNERSHIP OR JOINT VENTURE 60 57. RULE AGAINST PERPETUITIES 60 58. RIGHT TO TERMINATE 60 59. INTEREST RATE 61 60. REFERENCES 61 61. RECOVERY AGAINST LANDLORD 62 62. MEMORANDUM OF LEASE AND OPTION AGREEMENT 62 EXHIBIT A-I PRELIMINARY FLOOR PLAN 1 EXHIBIT A-II SITE PLAN 2 EXHIBIT A-III RENTABLE SQUARE FOOTAGE OF BUILDING FLOORS 3 EXHIBIT C FORM OF NOTICE OF LEASE TERM DATES, PREMISES SQUARE FOOTAGE AND TENANT'S PERCENTAGE 1 EXHIBIT D SERVICES 1 EXHIBIT E SAMPLE FORM OF TENANT ESTOPPEL CERTIFICATE 1 EXHIBIT F RULES AND REGULATIONS 1 EXHIBIT G PARKING RULES AND REGULATIONS 1 EXHIBIT H SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT 1 EXHIBIT I OPTION AGREEMENT 1 EXHIBIT J MEMORANDUM OF LEASE AND OPTION AGREEMENT 1 THIS OFFICE BUILDING LEASE ("Lease") is made as of the 24th day of January, 1996, by and between ACD2, a California corporation, and AMWEST INSURANCE GROUP, INC., a Delaware corporation. 1. CERTAIN TERMS AND DEFINITIONS. For the purposes of this Lease, the following terms shall have the following definitions and meanings: (a) "LandLord": ACD2, a California corporation (b) "Landlord's address": ACD2 Department 713 4900 Rivergrade Road Irwindale, California 91706 Attention: Mr. Robert Noble With copies to: Christine Langenfeld-Minasian, Esq., Senior Counsel, Legal Home Savings of America, FSB 4900 Rivergrade Road #2560 Irwindale, California 91706 Copies of all notices pertaining to any Tenant Delay, Landlord Delay or any Event of Default applicable to Lessee shall be sent, in the same manner and at the same time, to: Paul, Hastings, Janofsky & Walker 555 South Flower Street 23rd Floor Los Angeles, California 90071 Attention: M. Guy Maisnik, Esq. (c) "Tenant": AMWEST INSURANCE GROUP, INC., a Delaware corporation (d) "Tenant's Address before Commencement Date": Amwest Insurance Group 6320 Canoga Avenue Suite 300 Woodland Hills, California "Tenant's Address after Commencement Date": All notices after the Commencement Date shall be sent to the address of the Premises: Attention: Chief Financial Officer Copies of all notices pertaining to any Tenant Delay, Landlord Delay or any Event of Default applicable to Lessee shall be sent, in the same manner and at the same time, to: Pillsbury Madison & Sutro 725 South Figueroa Street Suite 1200 Los Angeles, California 90017 Attn.: Michael E. Meyer, Esq. (e) "Building": The three (3) story building to be constructed by Landlord under the terms of the Work Agreement attached hereto as Exhibit B (and referred to therein as the "Base Building") and commonly known as Building 6. The parties anticipate that the Building shall contain approximately 75,709 rentable square feet ("RSF"). The Building is part of a larger business park known as Calablasas Commerce Center ("Project"), as shown on the Site Plan attached hereto as Exhibit A-II, which Project has not as of the date of this Lease been completed. Tenant acknowledges that because the Project has not yet been completed, that the Site Plan is not an accurate representation of the completed Project and that Landlord shall have the right to modify the Project from time to time without the consent of Tenant, provided that Landlord does not reduce or alter Tenant's parking rights as set forth herein. The RSF of the Building shall be computed from dimensioned drawings of Landlord's architect or space planner in accordance with the criteria established by the Building Owners and Managers Association ("BOMA Guidelines") as American National Standard Z65.1-1989. The parties shall attach Exhibit A-III to this Lease when the RSF for each floor in the Building have been determined. Exhibit A-III shall state the RSF of each floor in the Building. (f) "Premises":Approximately 63,091 RSF encompassing the entire second and third floors and approximately fifty percent (50%) of the ground floor of the Building, as depicted on Exhibit A-1, which amount shall be expanded pursuant to Subparagraph 2.4 below. The Premises as initially leased by Tenant, exclusive of any Expansion Space, is sometimes referred to as the "Initial Premises". (g) "Term":Fifteen (15) Lease Years commencing on the Commencement Date (as defined in Subparagraph 1(j) below), plus any extensions pursuant to Subparagraph 3.2 below if exercised by Tenant pursuant to the terms set forth in the Lease. The first fifteen (15) Lease Years of the Term is sometimes referred to as the "Initial Term." The phrase "Lease Year" means each 365-day period during the Term commencing on the Commencement Date and each anniversary thereof and terminating on the date immediately prior to the next succeeding anniversary of the Commencement Date and each anniversary thereof. (h) "Tenant Improvement Allowance": Twenty-five Dollars ($25.00) per RSF of the Initial Premises. (i) "Tenant Improvements":All improvements, fixtures and equipment installed by Tenant in connection with the Premises for Tenant's occupancy thereof pursuant to the Work Agreement. (j) "Commencement Date": The earlier of (i) the date of Occupancy for Business (defined in Subparagraph 1(y) below) by Tenant or (ii) one hundred-twenty (120) days ("Construction Period") following (x) Substantial Completion of the Building (defined in Subparagraph 1(k) below) and (y) the Delivery Date (defined in Subparagraph 1(l) below). The Target Commencement Date is estimated by Landlord to be May 1, 1997; however such estimate is for informational purposes only, and neither party shall rely on such estimate. The Construction Period shall be extended one (1) day for each day Tenant is delayed in designing and constructing its Tenant Improvements and moving into its Premises because of Landlord Delays or Force Majeure Delays (as such terms are defined in Sections 2.2 and 4.4 of the Work Agreement hereto); provided, however, that Tenant's notice to be given as a prerequisite to the effectiveness of any Landlord Delay or Force Majeure Delay shall specifically state that Tenant is actually being delayed in constructing its Tenant Improvements and/or moving into its Premises as a result thereof. (k) "Substantial Completion of the Building": When each of the following conditions has been satisfied or would have been satisfied but for Tenant Delays (as defined in the Work Agreement): (1) Landlord has substantially completed the Base Building, consistent with the standards of a first-class Comparable Building as defined in Subparagraph 2.5 below (which the parties agree shall be the case if constructed in accordance with the Base Building Plans as defined in the Work Agreement), including all of the following, with the exception of normal punch-list items or other items which remain uncompleted but which do not materially interfere with Tenant's safe and convenient use, access and occupancy of the Building and Parking Area (as defined in Subparagraph 2.1 below): (i) common areas in the Building to the extent reasonably necessary for Tenant's use and access to the Premises; (ii) pedestrian and service entrances to the Building to the extent reasonably necessary for Tenant's access to the Building; (iii) all systems and equipment to the extent necessary for the proper operation of the Building Systems and Building Structure (as such terms are defined in Subparagraph 15(b) herein) as required hereunder to be furnished by Landlord to Tenant for the Premises; 2) Tenant and its visitors shall have adequate and safe access to the lobbies of the Building and to the Premises through the lobbies of the Building to the bank of elevators serving the Premises, and the Building's life safety system to the extent reasonably necessary for Tenant's use of the Building and the Premises are operating in a normal manner; (3) Landlord has completed the Base Building Improvements to the extent that Tenant shall be able to obtain a certificate of occupancy or a temporary certificate of occupancy or the equivalent pursuant to which the City of Calabasas permits occupancy of the Initial Premises when Tenant has completed the Tenant Improvements; (4) Landlord has made the Premises available to Tenant free and clear of any other occupancy or tenancy (other than contractors and other workers to complete punchlist items); (5) all of the elevators intended to service the Premises are available for Tenant's use; and (6) Landlord has caused the Parking Area for the Building to be available to Tenant to the extent reasonably necessary for Tenant's initial space requirements and are sufficient to accommodate the users of such Parking Area. (l) "Delivery Date": Five (5) business days after the date on which Landlord has provided a factually correct notice to Tenant ("Landlord's Delivery Notice") that Landlord has substantially completed the Base Building to the extent necessary for Tenant to begin constructing the Tenant Improvements, with the exception of normal punchlist items or other items which remain uncompleted but which do not materially interfere with Tenant's safe and convenient access and use of the Building and Parking Area for the purpose of constructing the Tenant Improvements. Landlord's Delivery Notice shall be deemed true and correct if Tenant does not otherwise object thereto within ten (10) business days following Tenant's receipt of Landlord's Delivery Notice. (m) "Expiration Date": The last day of the Term, as identified on the Commencement Notice. (n) "Effective Date": This Lease shall become effective on the date Landlord and Tenant mutually execute this Lease. (o) "Annual Basic Rent" payable on a triple net basis for Lease Years: Initial Term Lease Years 1-5 $13.68 per RSF. Lease Years 6-10 $15.73 per RSF. Lease Years 11-15 $18.09 per RSF. Option Period Lease Years 16-20 "Fair Market Rental Rate" (as defined in Subparagraph 3.2(v)(i) below). Lease Years 21-25 Fair Market Rental Rate. (p) "Monthly Basic Rent": Annual Basic Rent divided by twelve(12). (q) "Tenant's Percentage": A fraction whose numerator is the number of RSF of the Premises and whose denominator is the number of RSF within the Building. (r) (i) "Security Deposit": None. (ii) "Prepaid Rent": None (s) (i) "Landlord's Broker": Cushman & Wakefield of California, Inc. (c/o Hal Cook and Ronald Wade) (ii) "Tenant's Representative": Julien J. Studley, Inc. (c/o Seth Dudley and Mark Sullivan) (t) "Landlord's Construction Representative": Lowe Enterprises Commercial Group (c/o Richard Newman or Jeffrey Allen) (u) "Use of Premises": General office use and other related legally permitted uses consistent and compatible with the uses in the Building and Project (as defined herein) and other first-class low rise office buildings in the Calabasas area. (v) "Exhibits": A through K, inclusive, which Exhibits are attached to this Lease and are incorporated herein by this reference. (w) "Guarantor": None. (x) "Commencement Notice": A memorandum in the form of Exhibit "C" specifying the Lease Term, Commencement Date, Expiration Date, Tenant's Percentage, the total RSF of each floor of the Premises, and the total RSF of the Building. (y) "Occupancy for Business by Tenant": Occupancy of almost all of the Premises by Tenant (i.e. 75% or more of the total RSF of the Premises) for the purpose of Tenant's employees conducting its business therein, excluding occupancy or use to construct Tenant Improvements, to monitor construction of Tenant Improvements, to construct, install or move in Tenant's furniture, fixtures and equipment, or to install or retrieve business records. Provided, however, if Tenant occupies a portion of any floor of the Premises (but occupies less than a almost all of the entire Premises) for the purpose of conducting business therein, Tenant shall pay Rent to Landlord, commencing as of the date Tenant so occupies such portion of any floor and continuing until the Commencement Date, at the rate of $0.0375 (Three and three quarter cents) per RSF of floor space contained within (i) the entire floor so occupied, if Tenant occupies more than fifty percent (50%) of any floor, or (ii) fifty percent (50%) of the floor so occupied, if Tenant occupies fifty percent (50%) or less or such floor, per day ("Daily Basic Rent"). (For example, if the second floor contains 25,000 RSF, and if Tenant, prior to the Commencement Date, occupies for business 10,000 RSF on such floor, then Tenant would be required to pay Daily Basic Rent, in the time and manner provided herein, at the rate of $0.0375 per RSF based on 12,500 RSF, until the Commencement Date; in the alternative, if at any time prior to the Commencement Date Tenant were to occupy for business more than 12,500 RSF of such floor, then Tenant would be required to pay Daily Basic Rent at the rate of $.0375 per RSF based on 25,000 RSF, until the Commencement Date). The total Daily Basic Rent owed by Tenant shall be paid to Landlord on the Commencement Date, except that if the Commencement Date shall not have occurred within thirty (30) days following the date on which Tenant took occupancy of a portion of any floor, the Daily Basic Rent shall be payable on the last day of each calendar month prior to the Commencement Date, with the final payment due to Landlord on the Commencement Date. Nothing under this Subparagraph 1(y) shall be construed as granting Tenant a free rent period. (z) "Parking Ratio": 3.6 non-tandem parking spaces in the Parking Area per 1,000 RSF of the Premise. All such non-tandem parking spaces shall be designated as "reserved." Landlord shall use good faith efforts to provide Tenant with at least ten (10) covered parking spaces as set forth in Subparagraph 37(a). 2. PREMISES, COMMON AREAS & EXPANSION SPACE. 2.1 Premises. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord on the terms and provisions set forth in this Lease the Premises designated in Subparagraph 1(f) above, outlined on the Preliminary Floor Plan attached hereto and marked Exhibit "A-I" (which shall be deemed adjusted to fit the actual Premises once the Building is Substantially Completed) located in the Building described in Subparagraph 1(e) which, together with its related parking facilities ("Parking Area"), is located on the parcel or parcels of real property described in the legal description attached hereto as Exhibit "A-IV" ("Land"), all as outlined on the Site Plan attached hereto as Exhibit "A-II". The parties acknowledge that because this Lease is being signed before the Building, Project or Development (as such terms are defined herein) have been completed, that the Site Plan is not a precisely accurate representation of the Building, Project or Development (defined below), and that neither Landlord shall be in default, nor shall this Lease be voidable or terminable by Tenant if the Building, Project or Development is not precisely as shown on the Site Plan. The Premises shall be improved by Tenant with Tenant Improvements to be constructed by Tenant in accordance with the Work Agreement. The Premises being agreed, for the purposes of this Lease, to have an area approximately the number of RSF designated in Subparagraph 1(f) above (the exact number to be determined in accordance with Subparagraph 2.2) and being situated on the floors designated in Subparagraph 1(f) above. The Building, together with the Land, the Common Areas (as defined in Subparagraph 2.3 below), and all other easements, rights-of-way, and licenses are known as and shall be referred to herein as the "Development." The Development constitutes a portion of the Project, as defined above. 2.2 Confirmation of RSF. (a) Prior to the Commencement Date, Landlord shall deliver to Tenant a certificate from the space planner or architect who measured the space in the Base Building shell and core stating the RSF of the Building and the Premises in accordance with BOMA Guidelines and setting forth the calculations thereof, including the aggregating of all Common Areas. If Tenant agrees with the calculations set forth in the architect's or space planner's certificate, then Landlord and Tenant shall initial the certificate and attach it to this Lease and the calculations in the certificate shall be deemed to replace the RSF figures in Subparagraphs 1(e) and 1(f). If Tenant disagrees with such calculations, then Tenant shall, within sixty (60) days of receiving the architect's or space planner's certificate, give Landlord written notice of the opinion of Tenant's architect or space planner as to the RSF of the Building and the Premises in accordance with BOMA Guidelines. As a condition to the delivery of such notice, Tenant's space planner or architect shall have been actively engaged in the measurement of space in office buildings for a continuous period of at least three (3)years ending on the date of his or her appointment. If Tenant does not deliver such written notice to Landlord within the sixty(60) day period, then Tenant shall be deemed to have agreed with the calculations set forth in Landlord's architect's or space planner's certificate. (b) Where Tenant has so disagreed with Landlord's architect's or space planner's calculations, and Tenant and Landlord cannot, together with their respective space planners or architects, agree within fifteen (15) days from and after Landlord's receipt of Tenant's architect's or space planner's opinion of the RSF of the Building and the Premises ("Discussion Period"), Tenant may request by written notice to Landlord that such disagreement be resolved by arbitration. If Tenant does not make such request within five (5) business days from and after the end of the Discussion Period, Tenant shall be deemed to have accepted Landlord's RSF figures for the Premises and the Building. (c) If Tenant does so request to have the RSF figures determined through binding arbitration, the matter shall be submitted for decision to an independent arbitrator. Not later than fifteen (15) days from and after Landlord's receipt of Tenant's written request for arbitration, Tenant's and Landlord's space planners and/or architects shall select an arbitrator who shall have the same qualifications required for Tenant's architect or space planner, as provided herein, but shall not have performed work for either party or any of their respective principals. The determination of the arbitrator shall be limited solely to the issue of whether Landlord's or Tenant's calculations of the RSF for the Premises and the Building is closest to the actual RSF determined by the arbitrator. The arbitrator shall within fifteen (15) days of his or her appointment reach a decision as to whether the parties shall use Landlord's or Tenant's calculations of the RSF of the Building and the Premises, and shall notify Landlord and Tenant thereof. The decision of the arbitrator shall be binding upon Landlord and Tenant. The cost of the arbitrator shall be shared by Landlord and Tenant equally. (d) If the arbitrator has not determined the RSF of the Building and the Premises prior to the Commencement Date, Tenant shall pay Monthly Basic Rent and Tenant's Percentage of Operating Expenses based upon the RSF calculations set forth in Landlord's architect's or space planner's certificate until such time as the arbitrator determines the RSF of the Building and the Premises. If the arbitrator selects Tenant's calculations, the next Monthly Installments of Rent shall be equitably adjusted. 2.3 Common Areas. Tenant shall have the non-exclusive right, subject to the Rules and Regulations referred to in Section 30 below, any CC&Rs and/or any REA's (as such terms are defined in Subparagraph 13(e) hereunder) to use in common with other tenants in the Building and the Development, as the case may be, the following areas ("Common Areas") appurtenant to the Development: (a) The Building's common entrances, lobbies, restrooms, freight and passenger elevators, escalators, stairways and accessways, loading docks, ramps, drives and platforms and any passageways and serviceways thereto, and the common pipes, conduits, shafts, wires and appurtenant equipment serving the Premises; and (b) Loading and unloading areas, trash areas, parking areas, roadways, sidewalks, walkways, parkways, driveways, landscaped areas and similar areas and facilities appurtenant to the Building. The parties acknowledge that certain of the foregoing items listed in Subparagraph 2.3(i) shall be located on full floors leased by Tenant, in which case, such items shall be deemed a part of the RSF of the Premises pursuant to BOMA Guidelines but shall nevertheless be constructed by Landlord in accordance with the Base Building Plans. Landlord reserves the right from time to time as Landlord reasonably deems necessary, consistent with the quality of a first-class low rise office building complex: (1) 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, (including construction of a parking structure), loading and unloading areas, ingress, egress, direction of traffic, landscaped areas and walkways, so long as Tenant's reserved parking spaces and other parking privileges are not materially and adversely affected thereby, the number of Tenant's parking spaces are not reduced and access to the Premises and Tenant's parking spaces are not materially and adversely affected; (2) To close temporarily any of the Common Areas for maintenance purposes so long as reasonable access to the Premises and the Parking Area remains available; (3) To use the Common Areas while engaged in making additional improvements, repairs or alterations to the Building or the Development, or any portion thereof, provided Tenant's use and occupancy of the Premises are not materially and adversely affected; (4) To add additional improvements to the Common Areas of the Development (other than to the Building unless required by Applicable Law or, without any obligation to do so, to make the Building safer or more efficient); and (5) To do and perform such other acts and make such other changes in, to or with respect to the Common Areas, the Building or the Development as Landlord may, in the exercise of sound business judgment, deem to be appropriate, provided Tenant's use and occupancy of the Premises and the Parking Area are not materially and adversely affected. 2.4 Expansion Space. (a) As a material inducement for Landlord entering into this Lease, Tenant agrees that it shall be obligated in accordance with the terms of this paragraph to lease from Landlord, upon the same terms and conditions as those contained in this Lease, except with respect to the Tenant Improvement Allowance, which shall be determined as set forth below, the remainder of the Building not then leased by Tenant (the "Expansion Space"). Landlord shall deliver the Expansion Space to Tenant at any time between the sixty-first (61st) and seventieth (70th) months of the Term, with all Base Building improvements completed to the extent necessary for Tenant to begin constructing the Tenant Improvements, and with such additional improvements or alterations as Landlord may reasonably elect, provided that such improvements are in good condition and are at all times consistent with a general office use ("Required Condition"). The Expansion Space Delivery Date shall be five (5) business days after Tenant has received a factually correct notice from Landlord that the Expansion Space is in the Required Condition and available for Tenant's immediate and exclusive use. Tenant's Monthly Basic Rent, Tenant's Percentage of Operating Expenses and any other monetary obligations of Tenant which are based on the RSF of the Premises shall be equitably adjusted, and Tenant shall pay such increased rental amounts beginning on the earlier of (i) the date of Occupancy for Business in the Expansion Space, or (ii) one hundred twenty (120) days (also the "Construction Period") following the Expansion Space Delivery Date of the Expansion Premises (the "Expansion Space Commencement Date"). Tenant's Monthly Basic Rent for the Expansion Premises shall be the same as the Monthly Basic Rent Tenant is paying for the Initial Premises as of the Expansion Space Commencement Date (i.e. $15.73 per RSF), and the term of the Expansion Space shall be coterminous with the Lease Term. The Construction Period will be extended one day for each day Tenant is delayed in designing, constructing and moving into the Expansion Space because of Force Majeure Delays or Landlord Delays as defined in Exhibit B. (b) As of the Expansion Space Commencement Date, Tenant shall be entitled to additional parking spaces at the ratio stated in Subparagraph 1(z) above; however, Tenant shall not be entitled to any additional covered parking spaces. (c) In the event that Landlord delivers the Expansion Premises to Tenant previously improved for another tenant's occupancy, then Tenant shall be entitled to a Tenant Improvement Allowance of $12.50 per RSF for the design, construction and fixturizing of the Expansion Space. If, however, Landlord delivers the space to Tenant not previously improved for another tenant's occupancy (other than the Building Base shell and core work), then Tenant shall be entitled to a Tenant Improvement Allowance of $25.00 per RSF for the design, construction and fixturizing of the Expansion Space. Landlord shall pay the Tenant Improvement Allowance to Tenant at the time and in the manner specified in the Work Agreement attached hereto, to the extent applicable to the Expansion Space. The provisions of Sections 2, 3 and 4 of the Work Agreement to the extent applicable and to the extent not inconsistent with this Lease, shall apply to the design and construction of the Tenant Improvements in the Expansion Space. (d) Following the Expansion Space Commencement Date, all references herein to the "Premises" (other than those specifically addressing the original construction of the Initial Premises and/or the Building) shall mean and include the Initial Premises as expanded by the Expansion Space, unless specifically stated otherwise herein. 2.5 Quality of Construction - Standard for Maintenance, Repairs and Operation. Landlord hereby covenants that the Building will be constructed and operated in a first-class manner comparable to that of Comparable Buildings, free of all asbestos containing materials ("ACM") and in full compliance with all governmental regulations, ordinances, and laws ("Applicable Laws") to the extent such Applicable Laws are in existence and enforced in the manner and degree at the time of construction, including, but not limited to, laws pertaining to disabled access and laws pertaining to hazardous substances, in order to make the Premises, the Building and the Project suitable for business offices. In its obligation to comply with Applicable Laws, Landlord will be fully responsible for making all alterations and repairs to the Premises and the Building at its cost, which shall not be included as Operating Expenses (as defined in Subparagraph 6(a)(1) of the Lease), (a) required in order to comply with the Americans with Disabilities Act of 1990, 42 U.S.C. 12101 et seq., as amended (the "ADA") (for purposes of this Lease, Landlord shall be deemed to have complied with ADA once Landlord has substantially completed Landlord's Work based upon plans for which a valid building permit was issued), (b) required to remove any and all ACM discovered at any time to have existed in the Premises as of the Commencement Date, or (c) resulting from or necessitated by the failure by Landlord and/or Landlord's contractor to comply with the Applicable Laws, including from Landlord's and/or Landlord's contractor's utilization of hazardous substances. Landlord's obligation to perform such work in accordance with Applicable Laws as provided above shall exist and continue even though the time for performance under such Applicable Laws was contingent on (1) the passage of time or (2) the expenditure of money. Accordingly, with respect to any costs that Tenant incurs in connection with the construction of the initial Tenant Improvements, which Tenant would not have had to incur if the Building and Premises, to the extent of Landlord's Work as expressly set forth in the Base Building Plans were constructed in full compliance with the laws applicable to new construction as provided above, then Landlord shall reimburse Tenant for such increased costs. Otherwise, Landlord shall, subject to Tenant's repair obligations set forth in the Lease, maintain and operate the Building in a first class manner, keep the Building Structure and the Building Systems in first class condition and repair, maintain and provide services and security (without any liability whatsoever because of a breakdown in security, or the failure of security devices or personnel to adequately perform) to the Building in a first-class manner comparable to other first-class low rise tilt-up concrete office buildings in the City of Calabasas ("Comparable Building") the cost of which (except for capital improvements and repairs, as more specifically set forth in Section 6 of the Lease) shall be included in Operating Expenses, or paid for directly by Tenant (for maintenance and repair of the Premises only to the extent required by this Lease) if not normally included in Operating Expenses. Notwithstanding the foregoing, Landlord and Tenant agree that in no event shall Landlord's obligations be increased, nor shall Landlord be required to incur any cost or expense, beyond Landlord's obligations in the Base Building Plans as a result of any improvements, alterations or repairs made by or at the direction of Tenant. 3. TERM AND OPTION TERM. 3.1 Initial Term. The Term shall be for the period designated in Subparagraph 1(g) above, commencing on the Commencement Date and ending on the Expiration Date, unless the Term shall be sooner terminated as provided herein. Landlord shall deliver the Commencement Notice to Tenant within thirty (30) days after the Commencement Date and Tenant shall make such corrections, if any, as are appropriate, and sign and return the notice to Landlord within ten (10) business days of the Tenant's receipt thereof. In the event that Landlord shall fail to so deliver said Commencement Notice to Tenant within said thirty (30) day period, and following Tenant's ten (10) day prior written request for the same, then Tenant shall have the right to deliver the Commencement Notice to Landlord, and Landlord shall make such corrections, if any, as are appropriate, and sign and return the notice to Tenant within ten (10) business days of the Landlord's receipt thereof. 3.2 Option to Extend Term. (1) Landlord hereby grants to Tenant two (2) options (each an "Option") to extend the Term for a period of five (5) years each ("First Option Term" and "Second Option Term", respectivley, and generally, "Option Term"), provided that such extension (x) shall be for all or any contiguous portion of the Premises that includes either the ground, second and/or third floor then leased by Tenant, and (y) shall not be for less than all the space then leased by Tenant on any given floor, such that Tenant shall not be entitled herein to lease only a portion of any given floor. (2) Each Option must be exercised by written notice received by Landlord ("Extension Notice") not less than one hundred twenty (120) days prior to the expiration of the Initial Term (or the First Option Term, if the Second Option Term is being exercised). (3) Provided Tenant has properly and timely exercised the applicable Option, the Term shall be extended by the applicable Option Term and all terms, covenants and conditions of this Lease shall remain unmodified and in full force and effect, except that the Annual Basic Rent shall be modified as set forth in Subparagraph 3.2(iv)below, and all economic "tenant concessions" granted to Tenant hereunder, if any, shall be inapplicable except to the extent the same are included as part of the Fair Market Rental Rate if determination thereof is applicable. In connection therewith, Tenant shall be entitled to an additional tenant improvement allowance (to be used solely for the purposes provided herein) at the commencement of each Option Term equal in amount to that which other tenants of comparable spaces in Comparable Buildings are then receiving (taking into account the relevant factors listed below in Subparagraph 3.2(5)(i)); accordingly, the amount of such tenant improvement allowance shall be taken into account when determining the Fair Market Rental Rate (defined in Subparagraph 3.2(5)(i) below) applicable to the subject Option Term. If Tenant shall exercise its Option herein, the tenant improvement allowance shall be disbursed to Tenant in the same manner and on the same conditions as set forth in the Work Agreement, to the extent applicable to the Option Term. The tenant improvement allowance shall be used for the cost of renovating or redesigning the existing Tenant Improvements, or for the construction and design of new tenant improvements to the Premises, including without limitation, materials and labor, space planning and design, consultants' fees, permits, voice and data wiring, security, and signage, but not including the purchase, design or construction of Tenant's personal property. (4) Subject to the limitations set forth in the provisions of Subparagraph 3.2(5) below, the Annual Basic Rent payable for the First and Second Option Terms shall be equal to the then Fair Market Rental Rate (as defined hereunder) for the Premises. (5) Landlord shall provide notice of Landlord's determination of the Fair Market Rental Rate (as defined hereinbelow) of the Premises for the applicable Option Term within thirty (30) days after receipt of Tenant's Extension Notice. Tenant shall have fifteen (15)days ("Tenant's Extension Review Period") after receipt of Landlord's notice within which to accept Landlord's determination of the Fair Market Rental Rate for the Premises or to object reasonably thereto in writing. If Tenant so objects, Landlord and Tenant shall attempt in good faith to agree upon such Fair Market Rental Rate, using their best good faith efforts. If Landlord and Tenant fail to reach agreement within fifteen (15) days from and after Tenant's Extension Review Period ("Outside Agreement Extension Date"), then each party's determination shall be submitted to arbitration consistent with the procedures outlined below. Failure of Tenant to so elect in writing within such period shall be deemed its rejection of the Fair Market Rental Rate for the Premises as determined by Landlord. The arbitration procedure for calculating the Fair Market Rental Rate for any Option Term where the parties are unable to agree upon the Annual Basic Rent shall be as follows: (i) Not later than fifteen (15) days from and after the Outside Agreement Extension Date, Landlord and Tenant shall each appoint one arbitrator who shall by profession be a real estate appraiser, which appointee shall have been active over the five (5) year period ending on the date of such appointment in the appraisal of first-class, office buildings in the Calabasas area. The determination of the third arbitrator described below shall be limited solely to the issue of whether Landlord's or Tenant's submitted Fair Market Rental Rate for the applicable Option Term is the closest to the actual Fair Market Rental Rate for such Option Term, as determined by the arbitrator, based upon what a willing, comparable tenant would pay and a willing, comparable landlord would accept at arm's length, for a new five (5) year lease on non-renewal but not first generation space for delivery on or about the expiration of the Initial Term or the First Option Term, as applicable, for comparable space in other comparable low rise office buildings in the Calabasas area similarly improved, giving appropriate consideration to the annual rental rates per rentable square foot, the type of escalation clauses (including, without limitation, operating expenses, real estate tax allowance and/or Consumer Price Index rental adjustments), rent concessions, if any, brokerage commissions, the length of the lease term, size and location of the premises being leased (including the floor level), quality and location of the project, tenant improvement allowances, if any, lease takeover payments, the then existing tenant improvements, the extent of services to be provided to the leased premises, the date as of which the Fair Market Rental Rate is to become effective and other generally applicable terms and conditions of tenancy for comparable sized space ("Fair Market Rental Rate"). (ii) The two arbitrators so appointed shall within fifteen (15) days of the date of the appointment of the last appointed arbitrator agree upon and appoint a third arbitrator who shall be qualified under the same criteria set forth hereinabove for qualification of the initial two arbitrators. Upon appointment of the third arbitrator, Landlord and Tenant shall each submit to the other and to the third arbitrator sealed envelopes containing their respective determinations of the Fair Market Rental Rate. If Landlord's and Tenant's determination are within five percent (5%) of each other, the third arbitrator shall average the determination. If such determinations are not within five percent (5%) of each other, the third arbitrator shall choose the determination closer to his own determination. (iii) The third arbitrator shall within thirty (30) days of his appointment reach a decision as to whether the parties shall use Landlord's or Tenant's submitted Fair Market Rental Rate, or, if Landlord's and Tenant's determination are within five percent (5%) of each other, the average of the two, and shall notify Landlord and Tenant thereof. (iv) The decision of the third arbitrator shall be binding upon Landlord and Tenant. (v) If either Landlord or Tenant fails to appoint an arbitrator within fifteen (15) days after the Outside Agreement Extension Date, the arbitrator timely appointed by one of them shall reach a decision, notify Landlord and Tenant thereof, and such arbitrator's decision shall be binding upon Landlord and Tenant. (vi) If the two arbitrators fail to agree upon and appoint a third arbitrator, both arbitrators shall be dismissed and the matter to be decided shall be forthwith submitted to arbitration under the provisions of the American Arbitration Association, but subject to the instructions set forth herein. (vii) The cost of arbitration shall be paid by Landlord and Tenant equally. (viii) If the Fair Market Rental Rate for the applicable Option Term has not been determined by the commencement of such Option Term, then until the time the Fair Market Rental Rate is determined in accordance with Subparagraph 3.2(5), Tenant shall pay as Annual Basic Rent the greater of (a) the Annual Basic Rent on a RSF basis as it is then obligated to pay immediately prior to the commencement of such Option Term as increased by the percentage increase in the Consumer Price Index (All Urban Consumers, Los Angeles-Anaheim-Riverside Metropolitan Area, as published by the United States Department of Labor, Bureau of Labor Statistics; "CPI" herein), over that period beginning on the date of the last increase in the Annual Basic Rent and ending on the date of the commencement of such Option Term, but not to exceed Landlord's determination of the Fair Market Rental Rate, or (b) an amount equal to the sum of Landlord's and Tenant's determination of the Fair Market Rental Rate for the applicable Option Term divided by two (2). If the arbitration procedure results in a higher Annual Basic Rent than that paid by Tenant prior to date of the arbitrators' determination, Tenant shall make up the difference and pay such amount to Landlord along with the next installment of Monthly Basic Rent due. If the arbitration procedure results in a lower Annual Basic Rent than that paid by Tenant prior to the date of the arbitrators' determination, Tenant shall receive a credit against any next succeeding installment(s) of Monthly Basic Rent to the extent of such overpayment. Notwithstanding the foregoing, an Option shall not be deemed properly exercised, if, as of the date of the Option Notice, or at the end of the then current Option Term, Landlord has given Tenant notice that Tenant is in monetary default or other material default under this Lease and any applicable cure period has lapsed without Tenant's curing such default, and the period within which the Option may be exercised shall not be extended by reason of Tenant's inability to exercise such Option as a result thereof. 3.3 Cancellation Option. Notwithstanding the foregoing, Tenant shall have the option to cancel this Lease upon 30 days' notice to Landlord in the event that the Delivery Date has not occurred by July 1, 1997, except to the extent due to Tenant Delays. Landlord shall not be liable for any damages suffered by Tenant as a result of Landlord's failure to timely deliver the Base Building by the date hereinabove described, and Tenant's remedies in connection therewith shall be limited to: (i) canceling this Lease, or (ii) suing for specific performance. 3.4 Possession. Tenant agrees that if the Delivery Date has not occurred by July 1, 1997, or any Expansion Space has not been delivered to Tenant by the date otherwise anticipated by the parties, as applicable, this Lease shall not be void or voidable, except as expressly set forth in Subparagraph 3.3 above, nor shall Landlord be liable to Tenant for any loss or damage resulting therefrom. 3.5 Early Entry into Premises. Tenant, upon providing Landlord with at least two (2) business days' prior notice, may enter the Premises after the execution and delivery of this Lease by Landlord and Tenant in order to commence design work in connection with the construction of the Tenant Improvements; provided, however, that (i) prior to Substantial Completion of the Building (as such term is defined in Subparagraph 1(k) above), Tenant's early entry shall not interfere with Landlord's construction of the Base Building, and to the extent Tenant's early entry does interfere with Landlord's construction activities, such interference shall constitute a Tenant Delay (as defined in Section 1.4 of the Work Agreement), (ii) Landlord shall not be responsible for, and Tenant is required to obtain insurance covering, any loss caused by Tenant or those entering the Premises on behalf of Tenant to design or construct the Tenant Improvements, including theft, damage or destruction to any work or material installed or stored by Tenant or any contractor or individual involved in the construction of the Tenant Improvements, or for any injury to Tenant or Tenant's employees, agents, contractors, licensees, directors, officers, partners, trustees, visitors or invitees (collectively, "Tenant's Employees") or to any other person; and (iii) Landlord shall have the right to post the appropriate notices of non-responsibility and to require Tenant to provide Landlord with evidence that Tenant has fulfilled its obligation to provide insurance pursuant to Section 22 hereof. 4. NONDISTURBANCE AGREEMENT. 4.1 Landlord warrants that on the date of this Lease Landlord owns the Development free and clear of the interest of any ground lessor or mortgage holder, and as a result, Tenant shall not need a non-disturbance agreement (as defined below) to protect its leasehold interest against such interests. Tenant acknowledges that Landlord has provided Tenant with a copy of that certain Preliminary Title Report issued by Chicago Title Company, dated January 10, 1996, with respect to the Development, and that it has satisfied itself that, as of the date of this Lease, no monetary liens exist thereon for which Tenant would require a non-disturbance agreement from any holder thereof. 4.2 As a condition to Tenant's obligation to subordinate its interest under the Lease to the interest of any lien holder, Landlord shall first provide Tenant with commercially reasonable non-disturbance agreement(s) substantially in the form of Exhibit "H" attached to the Lease in favor of Tenant from any mortgage holder, ground lessor or other lien holder (each, "Superior Mortgagee") of Landlord who later come(s) into existence at any time prior to the expiration of the Term of the Lease, as it may be extended. Said non-disturbance agreements shall be in recordable form and may be recorded at Tenant's election and expense. 4.3 Notwithstanding anything to the contrary set forth in this Lease, in the event that Landlord fails to pay to Tenant the Tenant Improvement Allowance (including allowances, if any, for expansions, renewals, initial construction, remodeling or refurbishing), the Superior Mortgagee or such other successor to the interests of Landlord and/or the Superior Mortgagee shall pay to Tenant, together with interest at the Interest Rate (as defined in Section 59 below), such unpaid amounts and shall recognize and honor any remaining credit of Base Rent and/or Operating Expenses. With respect to all such payments, interest thereon shall be computed from the date such amounts should have been paid until the date such amounts are in fact paid. 4.4 All commercially reasonable non-disturbance agreements shall acknowledge that, and Landlord hereby independently agrees that, to the extent Landlord has failed to fulfill its obligations with respect to the payment of any Tenant Improvement Allowance (including allowances for expansions, renewals, initial construction, remodeling or refurbishing), or the cost incurred by Tenant of constructing or completing the Tenant Improvements which were required to be constructed or completed by Landlord at Landlord's expense ("Key Obligations"), Tenant may deduct the amount of the Key Obligation which Landlord has not paid, together with interest thereon at the Interest Rate, from the Rent (defined in Subparagraph 5(a) below) next coming due and payable, from time to time, under the Lease. In addition to the foregoing, Landlord agrees that if Landlord has failed to pay the Tenant Improvement Allowance in accordance with Landlord's obligations, Tenant may deduct the amount thereof which Landlord has not paid, together with interest at the Interest Rate, from the Rent next coming due and payable, from time to time, under the Lease. 5. MONTHLY BASIC RENT. (a) Tenant agrees to pay Landlord as Annual Basic Rent for the Premises the Annual Basic Rent designated in Subparagraph 1(n) in equal monthly installments of Monthly Basic Rent (collectively, "Monthly Installments") each in advance on the first day of each calendar month during the Term. Rent for any partial calendar month during the Term shall be prorated and payable in the proportion that the number of days this Lease is in effect during such calendar month bears to thirty (30). In addition to the Annual Basic Rent, Tenant agrees to pay as additional rent the amount of rental adjustments and other occupancy costs required expressly by Section 6 below and generally by any other terms of this Lease. The terms "rental" "rent" or "Rent" have identical meanings and include all monetary obligations of Tenant under this Lease, including additional rent unless the context clearly or specifically implies that only Annual Basic Rent is referenced. All Rent shall be paid to Landlord when due, without prior demand or notice and without any abatement (except as expressly provided herein), deduction or offset, in lawful money of the United States of America, at the address of Landlord designated in Subparagraph 1(b) hereof or to such other person or at such other place as Landlord may from time to time designate. (b) Tenant hereby acknowledges that late payment by Tenant to Landlord of rent, including, without limitation, any Monthly Installment and all other additional charges to be paid to Landlord in accordance with this Lease, will cause Landlord to incur costs not contemplated in the agreement of the monetary and other terms of this Lease, the exact amount of which are presently anticipated to be extremely difficult to ascertain. Such costs may include, without limitation, processing and accounting charges and late charges which may be imposed on Landlord by the terms of any mortgage or deed of trust covering the Land and other expenses of a similar or dissimilar nature. Accordingly, on the first occasion within a Lease Year in which Tenant fails to make any Rent payment when due, and Tenant further fails to make payment of the same within ten (10) days after Landlord's delivery of written notice to Tenant that the same is past due, in addition to such Rent payment, Tenant shall pay to Landlord a late charge equal to two percent (2%) of the overdue Rent. After such first occasion, Tenant shall incur a late charge equal to two percent (2%) of the overdue Rent on any further rent payments not made within two (2) business days of Tenant's receipt of a notice from Landlord that such Rental payment is past due, without the necessity of any further notice. The parties agree that this late charge represents a fair and reasonable estimate of the costs that Landlord will incur by reason of late payment to Tenant. In addition, and unless expressly stated otherwise herein, any payment, including, without limitation, any Monthly Installment or additional charges called for under this Lease, is not paid when due hereunder, the amount unpaid shall bear interest from the date due, until the same have been fully paid, at the Interest Rate (as defined in Subparagraph 59 below). The payment of said late charge or such interest shall not constitute waiver of, nor excuse or cure, any default under this Lease, nor prevent Landlord or Tenant from exercising any other rights and remedies available to Landlord or Tenant. Notwithstanding the foregoing, Landlord shall not assess a late charge against Tenant for the first late payment hereunder during each Lease Year unless such late payment is not paid in full to Landlord within five (5) business days after notice of such late payment by Landlord to Tenant. 6. ADDITIONAL RENT. (a) For the purposes of this Subparagraph 6(a), the following terms are defined as follows: (1) Operating Expenses: Operating Expenses shall consist of all costs, expenses and disbursements of ownership, management, maintenance, operation, administration and repair of the Building, Common Areas, Development and Project and related off-site areas ("Operating Expenses"), including the following costs by way of illustration, but not limitation: any and all assessments Landlord must pay for the Building and other improvements pursuant to any CC&Rs, REAs (as such terms are defined in Subparagraph 13(e)), tenancy-in-common agreements or similar restrictions and agreements affecting the Development or the Project; real property taxes (defined below) and assessments and any taxes or assessments hereafter imposed in lieu thereof; rent taxes, gross receipt taxes (whether assessed against Landlord or assessed against Tenant and paid by Landlord, or both; water, water management, and sewer charges (including without limitation, maintenance and repair of private sewer lines and sewer hook-ups for the Building or the Premises); accounting, legal and other consulting fees; the net cost and expense of insurance for which Landlord is responsible hereunder or which Landlord or any first mortgagee with a lien affecting the Premises reasonably deems necessary in connection with the operation of the Building (including deductible amounts thereof, exclusive of any portion of the deductible paid under a policy of earthquake insurance); utilities (including, without limitation any utilities serving off-site Mitigation Area); window washing; security; labor; utilities surcharges, or any other costs levied, assessed or imposed by, or at the direction of, or resulting from statutes or regulations or interpretations thereof, promulgated by any federal, state, regional, municipal or local government authority in connection with the use or occupancy of the Project or the Premises or the parking facilities serving the Project or premises (collectively, "Governmental Required Expenditures"); any financing costs of same obtained by Landlord on financing of any repairs, alterations, replacements and improvements where Landlord is entitled to pass through the cost thereof under this Lease; repairs, alterations, replacements and improvements made for safety of persons or property in or about the Project or Common Areas (colectively, "Safety Expenditures"); the costs of any other capital expenditures to the extent of any reduction in Operating Expenses ("Efficiency Expenditures"); costs reasonably required to maintain the Development and Project in first class condition and repair as existing on the Commencement Date ("Maintenance Expenditures"); costs incurred in the management of the Building, if any (including supplies, wages and salaries of employees to the extent used in the management, operation and maintenance of the Building, and payroll taxes and similar governmental charges with respect thereto); any exaction, assessment, fee, charge or other cost relating to any and all governmentally mandated transportation system management programs and other transportation and traffic measures applying to the Development and Project; Building management office rental, not to exceed the fair market rental value of such office and provided such office is not materially larger than necessary and only for the portion devoted exclusively to management of the Development and/or Project; a management fee not to exceed that payable to first class managers of Comparable Buildings who are not owned, controlled or affiliated with the Landlord; air conditioning; waste disposal; heating; ventilating; elevator maintenance; supplies; materials; equipment; tools; warranties; repair and maintenance of the structural portions of the Building, including the plumbing, heating, ventilating, air conditioning and electrical systems installed or furnished by Landlord; maintenance costs, including utilities and payroll expenses, rental of personal property used in maintenance, and all other upkeep of all Parking Area and Common Areas; costs and expenses of gardening and landscaping; maintenance of signs (other than Tenant's signs which shall be the sole responsibility of Tenant); personal property taxes levied on or attributable to personal property used in connection with the Project; reasonable audit or verification fees; costs and expenses of repairs, resurfacing, repairing, maintenance, painting, lighting, cleaning, refuse removal, security and similar items; and costs and expenses incurred in connection with the leasing and management of any parking facility used in connection with the Project, including, but not limited to, the cost for payroll for clerks, attendants and other persons, including payroll taxes and benefits, payroll processing, bookkeeping, janitorial and cleaning services, striping and painting of parking spaces, repair and maintenance of parking equipment, and traffic signs. The term "Operating Expenses" shall additionally include all costs of operation, management, maintenance and repair (collectively, "Maintenance") of the Project Common Areas to the extent (i) such Maintenance is performed with respect to the Project as a whole (including the Development) and is not separately allocable to any single building or parcel in the Project (e.g. costs of security personnel patrolling the entire Project), or (ii) such Maintenance is performed pursuant to any recorded declarations, CC&Rs, REAs or the like, affecting the Project. "Operating Expenses" shall further include the cost of landscaping, maintaining and repairing that area designated on the attached Site Plan as the "Mitigation Area." Notwithstanding anything herein to the contrary, Tenant's Percentage of the additional Operating Expenses described in this paragraph only shall equal the proportion that the RSF of the Premises bears to the total RSF of all buildings in the Project. Because Tenant agrees that Tenant shall be solely responsible, at its sole cost, for providing its own janitorial services and utilities for the Premises, Operating Expenses shall not include any janitorial expenses or utility use charges provided to any other tenants. If the Building and/or Project is not fully constructed and completed and/or does not have at least one hundred percent (100%) of the RSF of the Building and/or Project occupied during any calendar year period, then the variable portion of the Operating Expenses for such period shall be deemed to be equal to the total of (i) the Operating Expenses, other than real property taxes, which would have been incurred by Landlord if the Building and/or Project had been fully constructed and completed and one hundred percent (100%) of the RSF of the Building and/or Project had been occupied for the entirety of such calendar year and (ii) the actual real property taxes as defined below. The annual amortization of costs shall be determined by dividing the original cost of such capital expenditure by the number of years useful life of the capital item acquired, which useful life shall be reasonably determined by Landlord. Operating Expenses shall be computed according to the cash or accrual basis of accounting, as Landlord may elect in accordance with standard and reasonable accounting principles employed by Landlord. Landlord further agrees that since one of the purposes of Operating Expenses and the gross up provision is to allow Landlord to require Tenant to pay for the costs attributable to its Premises, Landlord agrees that (i) Landlord will not be entitled to charge Tenant more than Tenant's Percentage of one hundred percent (100%) of the Operating Expenses actually paid by Landlord in connection with the operation of the Building, and (ii) Landlord shall make no profit from Landlord's collections of Operating Expenses from Tenant. Notwithstanding anything to the contrary in the definition of Operating Expenses and real property taxes, Operating Expenses and real property taxes shall not include the following except to the extent specifically permitted by a specific exception to the following: (i) any ground lease rental; (ii) capital expenditures of Landlord in initially constructing the Development; (iii) all costs of a capital nature (including, without limitation, capital repairs, replacements, improvements and equipment), as determined in accordance with generally accepted accounting principles ("GAAP"), consistently applied "Capital Items"), if applicable, other than Governmental Required Expenditures incurred by Landlord after the Commencement Date for any capital improvements to the extent installed or paid for by Landlord and required by any new (or change in) laws, rules or regulations of any governmental or quasi-governmental authority which are enacted after the Commencement Date (or enacted before the Commencement Date, but enforced in a different manner after the Commencement Date), Efficiency Expenditures (provided the annual amortized costs of any Efficiency Expenditures do not exceed the actual cost savings realized and such savings do not redound primarily to the benefit of any particular tenant), Maintenance Expenditures or Safety Expenditures. Any allowed costs of a capital nature (including interest costs thereon) included in Operating Expenses shall be amortized as provided above; (iv) costs incurred by Landlord for the repair of damage to the Building to the extent that Landlord is reimbursed by insurance proceeds, governmental agencies or entities or any tenant of the Development and costs of all capital repairs, regardless of whether such repairs are covered by insurance; (v) costs, including permit, license and inspection costs, incurred with respect to the installation of tenant or other occupant improvements made for tenants in the Development or incurred in renovating or otherwise improving, decorating, painting or redecorating vacant office and retail space (i.e., other than Common Areas) for tenants or other occupants of the Development; (vi) depreciation, amortization and interest payments, except as provided herein, and except on materials, tools, supplies and vendor-type equipment purchased by Landlord to enable Landlord to supply services Landlord might otherwise contract for with a third party where such depreciation, amortization and interest payments would otherwise have been included in the charge for such third party's services, all as determined in accordance with GAAP, consistently applied, if applicable and when depreciation or amortization is permitted or required, the item shall be amortized over its reasonably anticipated useful life; (vii) leasing commissions, attorneys' fees, marketing costs, advertising expenses, payments, credits, free rent, lease takeover obligations, other inducements and other costs and expenses incurred in connection with the leasing of space, or negotiations and preparation of letters, deal memos, letters of intent, leases, subleases, and/or assignments, space planning costs and other costs and expenses incurred in connection with lease, sublease and/or assignment, negotiations and transactions or disputes with present or prospective tenants or other occupants of the Development concerning their particular leased premises; (viii) expenses in connection with services or other benefits which are not offered to Tenant or for which Tenant or any other tenant is charged directly but are not offered to another tenant or occupant of the Building; (ix) costs incurred by Landlord due to the violation by Landlord or any tenant of the terms and conditions of any lease of space in the Development; (x) costs paid to Landlord or to subsidiaries or affiliates of Landlord for services in the Building to the extent the same exceeds the costs of such services rendered by unaffiliated third parties on a competitive basis; (xi) except for Governmental Required Expenditures Efficiency Expenditures, Safety Expenditures and Maintenance Expenditures, interest, principal, points and fees on debts or amortization on any mortgage or mortgages or any other debt instrument (including refinancings) encumbering the Development or the Land (except as permitted in Subsection (iii) above); (xii) Landlord's general corporate overhead and general and administrative expenses or costs for which Landlord has been compensated by a management fee and any management fee in excess of those management fees which are normally and customarily charged by comparable landlords of Comparable Buildings; (xiii) costs of, including compensation paid to clerks, attendants or other persons, in excess of revenues from, commercial concessions operated by Landlord serving the Development where such concessions are operated for a profit or in the Parking Area of the Building or wherever Tenant is granted its parking privileges and/or all fees paid to any parking facility operator (and/or of the Project) provided, however, that if Landlord provides such parking to Tenant free of charge or at a reduced rate, to the extent that Tenant's Proportionate Share of such expenses exceeds an amount paid by Tenant for such parking, those expenses may be included as part of Operating Expenses; (xiv) except for making repairs or keeping permanent systems in operation while repairs are being made, rentals and other related expenses incurred in leasing air conditioning systems, elevators or other equipment ordinarily considered to be of a capital nature, or not reasonably necessary or appropriate to operate or maintain the Building in a first class manner, other than Governmental Required Expenditures, Safety Expenditures, Efficiency Expenditures and Maintenance Expenditures; (xv) all items and services for which Tenant or any other tenant in the Building reimburses Landlord or which Landlord provides selectively to one or more tenants (other than Tenant) without reimbursement; (xvi) advertising and promotional expenditures and purchasing, constructing, repairing, maintaining or removing costs of signs, or any legal expenses incurred in connection with securing any required governmental approvals therefor in or on the Building, identifying the owner of the Building; (xvii) utility costs for which Tenant or any tenant directly contracts with the local public service company; (xviii) interest or penalties incurred as a result of Landlord's inability or unwillingness to make payments and/or to file any tax or informational returns when due; (xix) costs for sculpture, paintings or other art work; (xx) costs for off-site personnel, including accounting services, to the extent such personnel do not perform services for the Development; (xxi) costs to acquire, finance, construct, equip and complete the Development, the cost of utilities consumed in connection with the construction and completion of the Development or any space therein, any costs to complete "punchlist" matters in the common areas, Premises or any other portions of the Development, and costs incurred in connection with replacing any defective portion of such original construction; (xxii) costs (other than tax increases) in connection with the purchase or sale of the Development or Landlord or any portion of or interest (direct or indirect) in either; (xxiii) unreimbursed expenditures by Landlord for (i) HVAC provided to other tenants to the extent such tenants receive such HVAC at costs below those charged to Tenant under this Lease and (ii) the cost of providing janitorial services to other tenants to the extent such tenants receive janitorial services in excess of that provided to Tenant under this Lease, or the cost of any non-common area janitorial expenses if Tenant provides its own janitorial services; (xxiv) costs arising from Landlord's charitable or political contributions; (xxv) costs to repair latent defects in the Base Building or improvements or repairs made by Landlord; (xxvi) all assessments and premiums which are not specifically charged to Tenant because of what Tenant has done, which can be paid by Landlord in installments, shall be paid by Landlord in the maximum number of installments permitted by law and not included as Operating Expenses except in the year in which the assessment or premium installment is actually paid; provided, however, that it is the prevailing practice in Comparable Buildings to pay such assessments or premiums on an earlier basis and Landlord pays on such basis, such assessments or premiums shall be included in Operating Expenses as paid by Landlord; (xxvii) any compensation fee (as opposed to a reimbursement or pass-through charge) payable to the parking operator of the Parking Area; (xxviii) cost, including penalties or damages incurred due to such non-compliance, to correct Landlord's failure to comply and conform with the Americans With Disabilities Act or any other Applicable Law on the date the building permit was issued for the construction of the Base Building, provided such Applicable Law was routinely enforced in the manner and degree being enforced on the date the building permit therefor was issued; (xxix) except for making repairs or keeping permanent Building Systems in operation while repairs are being made, rentals and other related expenses incurred in leasing, air-conditioning systems, elevators or other equipment ordinarily considered to be of a capital nature except equipment not affixed to the Building which is used in providing janitorial or similar services; (xxx) rentals for items (except when needed in connection with normal repairs and maintenance of permanent systems) which if purchased, rather than rented, would constitute a Capital Item which is specifically excluded in Subsection (ii) above (excluding, however, Capital Items where the costs thereof is permitted to be passed through as an Operating Expense under this Lease as provided above or permitted equipment not affixed to the Building which is used in providing janitorial or similar services); (xxxi) Overhead and profit increments paid to Landlord or to subsidiaries or affiliates of Landlord for goods and/or services in or to Building to the extent the same exceeds the costs of such goods and/or services rendered by substantially all unaffiliated third parties on a competitive basis; (xxxii) To the extent that Tenant will be paying directly for electricity, gas, and other utilities used within its Premises (collectively, "Separately Metered Utilities"), and so long as Tenant will be providing janitorial services for its own Premises, Landlord shall not include in Operating Expenses the cost of such utilities or janitorial services which are provided to any other tenant in the Building; or (xxxiii) water services provided and costs incurred in connection with the operation of the retail and restaurant operations in the Building, except to the extent the square footage of such operations are included in the RSF of the Building and to the extent the services and tax costs do not exceed that which would have been incurred had the retail and/or restaurant space been used for general office purposes. (b) "Real property taxes" shall include any form of assessment, license fee, license tax, business license fee, commercial rental tax, levy, charge, penalty, tax or similar imposition, imposed by any authority having the direct power to tax, including without limitation any city, county, state or federal government, or any school, agricultural, lighting, drainage or other improvement or special assessment district thereof, as against any legal or equitable interest of Landlord in the Development, including, but not limited to, the following: (1) any tax on Landlord's "right" to rent or "right" to other income from the Development or as against Landlord's business of leasing the Development; (2) any assessment, tax, fee, levy or charge in substitution, partially or totally, of any assessment, tax, fee, levy or charge previously included within the definition of real estate tax, including but not limited to, any assessments, taxes, fees, levies and charges that may be imposed by any governmental agencies for such services as fire protection, street, sidewalk and road maintenance, transportation management, utility or water regulations, refuse removal and for other governmental services formerly provided without charge to property owners or occupants. It is the intention of Tenant and Landlord that all such new and increased assessments, taxes, fees, levies and charges be included within the definition of "real property taxes" for the purpose of this Lease; (3) any assessment, tax, fee, levy or charge allocable to or measured by the area of the Development or rent payable hereunder, including, without limitation, any gross income tax or excise tax levied by the state, city or federal government, or any political subdivision thereof, with respect to the receipt of such rent, or upon or with respect to the possession, leasing, operating, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises, or any portion thereof; (4) any assessment, tax, fee, levy or charge upon this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises; (5) any assessment, tax, fee, levy or charge by any governmental agency related to any transportation plan, fund or system instituted within the geographic area of which the Development is a part; and (6) reasonable legal fees and other professional fees, costs and disbursements incurred in connection with proceedings to contest, determine or reduce real property taxes. If the tax assessor does not specifically identify tenant improvements in its assessment, Landlord shall pay any real property taxes associated with the tenant improvements of all tenants and include such taxes in Operating Expenses. If the tax assessor does specifically identify tenant improvements in its assessment, any real property taxes associated with tenant improvements based on tenant improvements being valued at an amount not to exceed Twenty-five Dollars ($25.00) per RSF shall be included in Operating Expenses and Tenant shall be responsible for all real property taxes associated with the Tenant Improvements above such amount pursuant to Subparagraph 12(b). Notwithstanding any provision of this Subparagraph 6(b) expressed or implied to the contrary: (1) "real property taxes" shall not include Landlord's federal or state income, franchise, gift, capital stock, transfer, inheritance or estate taxes; (2) Tenant's Percentage of real property taxes included in Operating Expenses shall be based on the actual real property taxes payable for the Development, and Tenant shall pay real property taxes as they are paid by Landlord directly to the appropriate taxing authority or into an impound account as required by the holder of a beneficial interest of a deed of trust or mortgage encumbering the Building, which shall be on the later of (i) ten (10) days after notice to Tenant stating the amount due and, if no such impounds are required to be paid, a copy of the tax bill or (ii) five (5) days before payment is due; (3) real property taxes shall not be adjusted by Landlord to represent a fully assessed building, until so assessed by the appropriate taxing authority; and (4) Tenant shall not be liable for any share of late fees or penalties due to Landlord's failure to pay real property taxes on time. In addition, Landlord agrees that to the extent that the real property tax component of the Operating Expenses is increased due to the first sale of the Building during the initial Term (i.e., prior to any Option Term), Tenant's Operating Expenses shall not be increased as a result thereof during the initial Lease Term to the extent such increase exceeds the increase that would have occurred had no such sale or transfer taken place. Following such first sale, if any event shall occur which causes a reassessment, and thereby causes an increase in real property taxes, the real property taxes payable by Tenant shall be increased accordingly without regard to any prior limitation on increases in real property taxes agreed to above. The foregoing exclusions from real property taxes are not intended to exclude any annual increases in real property taxes. Notwithstanding the foregoing, Tenant shall be liable for all taxes, assessments or governmental charges attributable to a Change of Ownership Assessment resulting from a sale, transfer or other change in ownership, which sale, transfer or change in ownership occurs subsequent to the first sale of the Development. Tenant may attempt to have the assessed valuation of all or part of the Development or Tenant's personal property reduced or may initiate proceedings to contest the real property taxes or personal property taxes. Upon Tenant's request, or if required by applicable law, Landlord shall reasonably join in the proceedings brought by Tenant. However, Tenant shall pay all costs of the proceedings, including any reasonable costs or fees reasonably incurred by Landlord in connection therewith. Within thirty (30) days after the final determination of any proceeding or contest, Tenant shall pay the taxes due, together with all costs, charges, interest and penalties incidental to the proceedings. Notwithstanding the foregoing and provided Tenant pays such taxes when required by the taxing authority, Tenant shall pay the taxes (and such other amounts, as applicable) under protest, whether or not such payment under protest is necessary to contest the amount of taxes or to prevent the sale of the Development under a "tax sale" or similar enforcement proceeding. If any contest of taxes with respect to the Development results in a reimbursement by one or more taxing authorities of some or all of the tax payments previously made by Tenant with respect to the Development, Tenant shall be entitled to the full amount of such reimbursement to the extent of any payment by Tenant. (c) (1) At least forty-five (45) days prior to the Commencement Date, Landlord shall endeavor to deliver to Tenant an estimate of Tenant's Percentage of Operating Expenses for the first year of the Lease Term (i.e., the period commencing on the Commencement Date and expiring on December 31 of said calandar year) ("First Year Estimate", and Tenant shall pay to Landlord concurrently with the first payment of Monthly Basic Rent after the Commencement Date, and then monthly thereafter together with each regular payment of Monthly Basic Rent until the revised Estimate Statement takes effect, the amount set forth in the First Year Estimate Statement multiplied by a fraction, such fraction being the number of calendar months remaining in such calendar year from and after the Commencement Date divided by 12. (2) By the end of each calendar year during the Term, Landlord shall endeavor to deliver to Tenant a statement ("Estimate Statement") wherein Landlord shall estimate the Operating Expenses (except for any portion attributable to real property taxes) for the immediately following calendar year. Not more often than once in any calendar year, if Landlord determines that Tenant's Percentage of the Operating Expenses for such calendar year exceeds (or is less than) that set forth in the Estimate Statement, and such excess is substantial, extraordinary and non-budgeted (or any expected substantial expense does not occur) then Landlord shall deliver to Tenant, as appropriate, a revised Estimate Statement and Tenant shall pay to Landlord, or Landlord shall credit Tenant's next monthly Rental payments coming due or pay to Tenant, as appropriate, within fifteen (15) days of the delivery of such revised Estimate Statement, the difference between such revised Estimate Statement and the original Estimate Statement for the portion of the current calendar year which has then expired, and pursuant to Landlord's notice to Tenant, Tenant shall either (a) pay during the balance of such current calendar year a fraction of the balance of such difference as would fully amortize such excess over the remaining months of the then current calendar year or (b) reduce its monthly payment during the balance of such current calendar year by an amount to account for the revised Estimate Statement's being less than the original Estimate Statement, as appropriate. (3) If Landlord has not given Tenant an Estimate Statement before December 31 for the immediately following calendar year, then during the immediately following calendar year, until such Estimate Statement is given to Tenant, Tenant shall continue to pay its Percentage Share of Operating Expenses at the same rate as for the immediately preceding calendar year. Once such Estimate Statement is rendered, it shall be considered a revised Estimate Statement, as provided under (ii) above, and Tenant shall pay Landlord Tenant's Percentage of Operating Expenses for such calendar year accordingly. (4) The Operating Expenses (excluding real property taxes) estimated in the Estimate Statement shall be divided into twelve (12) equal monthly installments, and Tenant shall pay to Landlord, concurrently with the regular 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 paid concurrently with the regular monthly Rent payments for the balance of the calendar year and shall continue until the next calendar year's Estimate Statement is rendered. (5) By the first day of April of each succeeding calendar year during the Term, Landlord shall endeavor to deliver to Tenant a statement ("Actual Statement") wherein Landlord shall state the actual Operating Expenses for the preceding calendar year, certified by Landlord. If the Actual Statement reveals a greater increase in Tenant's Percentage of Operating Expenses than was estimated by Landlord in the Estimated Statement (as revised) delivered as provided herein, then within thirty (30) days after receipt of the Actual Statement from Landlord, Tenant shall pay a lump sum equal to said total increase. If the Actual Statement reveals a lesser increase (or a decrease) in Tenant's Percentage of Operating Expenses than was estimated by Landlord in the Estimated Statement (as revised), then upon receipt of Landlord's Actual Statement, any overpayment made by Tenant on the monthly installment basis provided above shall be credited toward the next monthly Rent falling due and the monthly installment of Tenant's Percentage of Operating Expenses to be paid pursuant to the then current Estimate Statement shall be adjusted to reflect such lower expenses from the most recent calendar year, or if this Lease has been terminated, such excess shall be credited against any amount which Tenant owes Landlord pursuant to this Lease and, to the extent all amounts which Tenant owes Landlord pursuant to this Lease have been paid, Landlord shall within ten (10) business days of receipt by Tenant of the Actual Statement pay such excess to Tenant. Any delay or failure by Landlord in delivering any estimate or statement pursuant to this Section 6 shall not constitute a waiver of its right to require an increase in rent nor shall it relieve Tenant of its obligations pursuant to this Section 6, except that Tenant shall not be obligated to make any payments based on such estimate or statement until ten (10) days after receipt of such estimate or statement. (6) In the event Tenant shall dispute the amount set forth in the Actual Statement described above in this Subparagraph 6(c) and/or the amount due as Operating Expenses pursuant to Lease Section 6, Tenant shall have the right not later than two (2) years following receipt of such Actual Statement to cause Landlord's books and records with respect to the preceding calendar year (and previous years if necessary to review or audit properly Landlord's books and records with respect to such actual statement in question) to be reviewed and photocopied by Tenant or its representatives or to be audited by an accountant who shall be at least of a quality consistent with accountants typically hired by nationally recognized public accounting firms at Landlord's office. If after reviewing and photocopying Landlord's books and records, Tenant disagrees with the calculations set forth in the Actual Statement and/or the amount due as Operating Expenses pursuant to Lease Section 6, then Tenant shall, not later than two (2) year from and after receiving the Actual Statement, give Landlord written notice of Tenant's opinion of the Operating Expenses for the Building for such calendar year. If Tenant does not deliver such written notice to Landlord within the two (2) year period, then Tenant shall be deemed to have agreed with the calculations set forth in the Actual Statement. If Landlord and Tenant disagree over the Actual Statement, either party may submit the matter to arbitration in accordance with the rules and regulations of the American Arbitration Association. In no event, however, shall Tenant have the right to withhold payment of all or any portion of the amount stated as due in such Actual Statement. The amounts payable under this Subparagraph 6(c) by Landlord to Tenant or by Tenant to Landlord, as the case may be, shall be appropriately adjusted on the basis of such audit. The cost of such review or audit shall be borne by Tenant; provided, however, that if upon resolution of the dispute it is determined that Landlord's originally delivered Actual Statement overstated Operating Expenses (excluding real property taxes) for the Development by more than five percent (5%), Landlord shall pay Tenant within thirty (30) days of such determinations Tenant's actual and reasonable audit expenses incurred in auditing such Actual Statement. (7) Neither the accounting firm or Lessee's employees shall be compensated on a contingent fee, commission or bonus basis, but must only be compensated on a flat salary, fee or hourly basis. (8) Landlord shall maintain in a safe and orderly manner all of its records pertaining to the additional rent payable pursuant to this Section 6 for a period of three (3) years after the completion of each calendar year. Landlord shall maintain such records on a current basis and in sufficient detail to permit adequate audit and review thereof and, at all reasonable times, in reasonable coordination with Landlord's schedule, during Landlord's regular business hours, copies of such records, at Tenant's expense, shall be available to Tenant or its representatives for such purposes at the office of the Building. (d) Even though the Term has expired and Tenant has vacated the Premises, when the final determination is made of Tenant's Percentage of Operating Expenses for the year in which this Lease terminates, Tenant shall pay any increase due over the estimated expenses paid within thirty (30) days after receipt of such final determination and, conversely, any overpayment made in the event said expenses decrease shall be rebated by Landlord to Tenant within thirty (30) days after receipt of such final determination. (e) Each time Landlord provides Tenant with an actual and/or estimated statement of Operating Expenses, such statement shall be itemized on a line item by line item basis, showing the applicable expense for the applicable year and the year prior to the applicable year. (f) In the event Tenant ceases, and has given Landlord written notice that Tenant has ceased, to occupy one (1) or more floors of the Premises (and provided Tenant is still leasing and paying Monthly Basic Rent on the same), Tenant shall receive a credit against Operating Expenses equal to the actual reduction in the use of utilities (excluding Separately Metered Utilities) and services in the Building resulting from Tenant's vacancy of such portion of the Premises. 7. CONSTRUCTION OF THE TENANT IMPROVEMENTS AND THE BASE BUILDING. Construction of the Tenant Improvements and the Building shall be done in accordance with the terms of the Work Agreement attached hereto as Exhibit "B." 8. USE. (a) Tenant shall use the Premises for general office use and other related legally permitted uses consistent with a first-class office building in the Calabasas area, and shall not use or permit the Premises to be used for any other purpose without the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed. Nothing contained herein shall be deemed to give Tenant any exclusive right to such use in the Building, nor grant any use or access right therein to the general public or any person other than those employed by or invitees of Tenant. Tenant shall not use or occupy the Premises in violation of (i) any Applicable Law, (ii) any recorded CC&R or REA affecting the Development, or (iii) the certificate of occupancy issued for the Building, and Tenant shall, upon receipt of written notice from Landlord or any governmental authority having jurisdiction, immediately discontinue any use of the Premises which is declared by any such governmental authority to be a violation of Applicable Law or of said CC&Rs, REAs or certificate of occupancy. (b) Tenant shall comply at Tenant's cost and expense with any direction of any governmental authority having jurisdiction which shall, by reason of the nature of Tenant's use or occupancy of the Premises or Tenant's Work, impose any duty upon Tenant or Landlord with respect to the Premises or with respect to the use or occupation thereof. Tenant shall comply with all rules, orders, regulations and requirements of the Pacific Fire Rating Bureau or its successor, or any other organization performing a similar function. Provided, however, notwithstanding any provision in this Lease to the contrary, Tenant shall not be obligated to make any modifications to the Building Structure or Building Systems except to the extent of a Tenant Related Cause. A "Tenant Related Cause" means any alteration, improvement or other work required by Applicable Law or standard building practices to be made to the Building including, without limitation, the ADA on account of Tenant's particular use, manner of use, occupancy or manner of occupancy of the Premises, Building and/or Parking Area in excess of that necessary to use the Premises for general office uses typical of tenants of Comparable Buildings (e.g., the Premises having private exclusive washrooms or kitchens or any other similar Tenant-caused-reason which triggers such compliance and/or upgrades and is not necessary for general office use) or the particular type of improvements, alterations or additions made by or at the direction of Tenant, which would not be required to use the Premises for general office use. In addition, Tenant acknowledges that Tenant shall be responsible for complying with all Applicable Laws within the Premises (exclusive of any Building Structure or Building Systems (each defined below) unless modifications are required to be made to the Building Structure or Building Systems on account of a Tenant Related Cause). Tenant shall promptly upon demand, reimburse Landlord for any additional premium charged for such policy by reason of Tenant's failure to comply with the provisions of this Section 8. Consistent herewith, Tenant shall participate in and comply with all governmentally mandated water management and rationing programs or other environmental or safety programs applicable to the Development from time to time. Furthermore, Tenant shall participate in and comply with any and all governmentally mandated transportation system management and transportation demand management programs and other transportation and traffic measures applicable to the Development from time to time. (c) Tenant shall not do or permit anything to be done in or about the Premises which will in any material way obstruct or interfere with the rights of other tenants or occupants of the Building or the Development, or injure or annoy them, or use or allow the Premises to be used for any unlawful 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 shall keep the Premises in first class repair, normal wear and tear excepted, at Tenant's cost and expense. (d) Landlord reserves the right to prescribe the weight and position of all files, safes and heavy equipment which Tenant desires to place in the Premises if required to properly distribute the weight thereof. However, if Tenant designates the location of the areas to be reinforced on a timely basis, Landlord shall complete such reinforcement as part of the Base Building improvements and only charge Tenant actual, out-of-pocket costs for performing such work and ordering extra materials. Tenant's business machines and mechanical equipment which cause vibration or noise that may be transmitted to the Building Structure or to any other space in the Building and noticeable by a person outside the Premises shall be so installed, maintained and used by Tenant as to eliminate such vibration or noise. Except as provided in this Subparagraph 8(d), Tenant shall be responsible at Tenant's cost and expense for all structural engineering and other engineering and consultants required to determine structural load, vibration and noise related to Tenant's furnishing and equipment. (e) During the entire Term of the Lease, the Premises shall not be used as or for any retail uses, mission, restaurant, food operations (except for an employee and guest cafeteria and executive dining facility as specifically permitted under this Lease), school, clubhouse, church, auction, "boiler-room", tanning salon or any use which creates pedestrian or vehicular traffic beyond that created by normal office use in a first class office building. Notwithstanding the foregoing and subject to Tenant's compliance with Applicable Laws (the cost of which shall be borne entirely by Tenant), Tenant shall have the right, during all times when Tenant is leasing the entire RSF of the Building, to use the Premises, or any portion thereof, for a government office and/or consulate. 9. PAYMENTS AND NOTICES. All rents and other sums payable by Tenant to Landlord hereunder shall be paid to Landlord at the address first set forth in Subparagraph 1(b) above or at such other place as Landlord may hereunder designate in writing. Any notice, consent, approval, election, demand or other communication required or permitted to be given hereunder shall be in writing and shall be delivered by hand, sent by reputable air courier, sent by prepaid registered or certified United States mail with return receipt requested, or sent by facsimile, and shall be deemed to have been given upon the earliest of (i) receipt, (ii) one business day after delivery in the United States to a reputable air courier for overnight expedited delivery service for delivery within the Unites States, (iii) three (3) business days after the date upon which it has been deposited in the United States mail, registered or certified, with postage prepaid and return receipt requested (provided that such return receipt must indicate receipt at the address specified), or (iv) on the next business day (in the place of its destination) after its transmission by facsimile, subject to having in fact been received in legible form, and addressed as appropriate to the addresses (or to such other or further addresses or facsimile numbers as the parties may designate by like notice similarly sent) stated in Section 1. 10. BROKERS AND REPRESENTATIVES. Each party warrants and represents to the other party that neither it nor any of its affiliates has had dealings with any real estate broker, agent or finder in connection with the negotiation of this Lease, except for the broker or representative named in Subparagraphs 1(s)(1) and (2) whose commission or fee shall be payable by Landlord by separate agreement, and that it knows of no other real estate broker, agent, finder or representative who is or might be entitled to a commission or fee in connection with this Lease. If a party to this Lease, or its affiliate, has dealt with any other person or firm with respect to leasing or renting space in the Building and that is claiming a fee or commission, such party shall be solely responsible for the payment of any fee or commission due said person or firm and shall indemnify, defend and hold the other party free and harmless from and against any liability in respect thereto, including reasonable attorneys' fees and costs. 11. HOLDING OVER. If Tenant holds over after the expiration or earlier termination of the Term without the express written consent of Landlord, Tenant shall become a month to month tenant, at a rental rate equal to one hundred twenty-five percent (125%) of the rental rate then in effect as of the Expiration Date, and otherwise subject to the terms, covenants and conditions herein specified, so far as applicable. Acceptance by Landlord of rent after such expiration or earlier termination shall not result in a renewal of this Lease. The foregoing provisions of this Section 11 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. If Tenant fails to surrender the Premises upon the expiration of this Lease despite demand to do so by Landlord, Tenant shall indemnify and hold Landlord harmless from all loss or liability, including without limitation, any claim made by any succeeding tenant founded on or resulting from such failure to surrender and any reasonable attorneys' fees and costs. 12. TAXES ON TENANT'S PROPERTY. Tenant shall be liable for and shall pay, before delinquency all taxes levied against any personal property or trade fixtures placed by Tenant in or about the Premises. If any such taxes on Tenant's personal property or trade fixtures are levied against Landlord or Landlord's property or if the assessed value of the Premises is increased by the inclusion therein of a value placed upon such personal property or trade fixtures of Tenant and if Landlord, after written notice to Tenant, pays the taxes based upon such increased assessment, which Landlord shall have the right to do regardless of the validity thereof, but only under proper protest if requested by Tenant, Tenant shall, within ten (10) days after Landlord has delivered written notice to Tenant, repay Landlord the taxes so levied against Landlord, or the portion of such taxes resulting from such increase in the assessment. 13. CONDITION OF PREMISES. (a) Landlord covenants to construct the Base Building and Tenant covenants to construct the Tenant Improvements in a first-class manner and in full compliance with all Applicable Laws applicable to new construction, including ADA, pursuant to the Work Agreement. In addition, neither Landlord nor Tenant, nor either of their respective contractors shall use asbestos or unlawful amounts of substances determined by Applicable Law as of the date of this Lease to be hazardous substances (collectively, "Hazardous Substances"). If Hazardous Substances are found in the Development, Premises or Building, then to the extent required by law, Landlord shall remove, or cause to be removed, any and all Hazardous Substances from the Development, Premises and the Building (except the existence of Hazardous Substances which is caused by Tenant, in which case, Tenant shall immediately remove such Hazardous Substances at Tenant's sole cost and expense). The conduct of such removal shall be in accordance with all Applicable Laws. (b) Tenant and Landlord shall not transport, use, store, maintain, generate, manufacture, handle, dispose, release or discharge any "Hazardous Material" upon or about the Building, nor permit their respective employees, agents, invitees or contractors to engage in such activities upon or about the Building. However, the foregoing provisions shall not prohibit the transportation to and from, and the use, storage, maintenance and handling within, the Premises of substances customarily used in connection with normal office use provided: (i) such substances shall be used and maintained only in such quantities as are reasonably necessary for the permitted use of the Premises set forth in this Lease strictly in accordance with Applicable Laws and the manufacturers' instructions therefor; (ii) such substances shall not be disposed of, released or discharged on the Building or the Project, and shall be transported to and from the Premises in compliance with all Applicable Laws, and as Landlord shall reasonably require; (iii) if any Applicable Law or Landlord's trash removal contractor requires that any such substances be disposed of separately from ordinary trash, Tenant shall make arrangements at Tenant's expense for such disposal directly with a qualified and licensed disposal company at a lawful disposal site (subject to scheduling and approval by Landlord, which approval shall not be unreasonably withheld, conditioned or delayed), and shall ensure that disposal occurs frequently enough to prevent unnecessary storage of such substances in the Premises; and (iv) any remaining such substances shall be completely, properly and lawfully removed from the Building upon expiration or earlier termination of this Lease. (c) Landlord shall construct the Base Building to enable Tenant to commence the lawful construction of its Tenant Improvements and, when completed, to obtain a Certificate of Occupancy (or temporary certificate of occupancy or other governmental approval (in any such case, "Occupancy Permit") that shall permit Tenant to use and occupy the Premises) for the Premises ("Delivery Condition"). If, however, Tenant is able to obtain a building permit for the commencement of construction of the Tenant Improvements but is not able to obtain an Occupancy Permit until Landlord has caused the Base Building to comply with Applicable Laws for new construction, then Delivery Condition shall nevertheless be deemed to have occurred; provided, however, that the Commencement Date shall be delayed until Landlord has complied with its obligations under this Section 13 and/or the Work Agreement to the extent necessary to enable Tenant to obtain an Occupancy Permit. Notwithstanding anything herein to the contrary, Tenant covenants to perform all alterations, improvements and other work resulting from a Tenant Upgrade Cause, as hereinafter defined. A "Tenant Upgrade Cause" means any alteration, improvement or other work required by Applicable Law to be made to the Building including, without limitation, the ADA on account of Tenant's particular use, manner of use, occupancy or manner of occupancy of the Premises, Building and/or Development in excess of that of any general office use or the particular type of tenant improvements Tenant is requiring, and would not necessarily be used by all office tenants. In addition, Tenant acknowledges that Tenant shall be responsible for complying with all Applicable Laws within the Premises (exclusive of the Building Systems and Building Structure unless modifications are required to be made to the Base Building on account of a Tenant Upgrade Cause) once the Premises are delivered in the Delivery Condition to Tenant on the Delivery Date. (d) Except as expressly stated in Subparagraph 2.5 and Subparagraph 13(a) above, Tenant acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the Development, Premises or the Building, or with respect to the suitability of either for the conduct of Tenant's business. The taking of possession of the Premises by Tenant shall be presumptive evidence, as against Tenant, that Tenant accepts the same in its then "as is" condition subject to all defects existing on the Commencement Date, except for (i) "punchlist" items, (ii) defects caused by Landlord or Landlord's contractor of which Landlord receives notice during the first ninety (90) calendar days from and after the Commencement Date, (iii) latent defects (i.e., defects which are not discoverable upon a reasonably diligent inspection of the Premises within one (1) year from and after the Commencement Date), and (iv) warranty items during warranty periods from contractors with respect to the Premises. In no event shall Landlord be liable to Tenant for any consequential damages including lost profits. Tenant acknowledges and accepts that various minor start-up inconveniences which shall not materially impair Tenant's use and occupancy of the Premises may be associated with the use of the Building's Common Areas, including certain construction obstacles such as scaffolding, delays in use of freight elevator service, certain elevators not being available to Tenant, the passage of work crews using elevators, uneven air conditioning services and other typical conditions incident to recently constructed office buildings. Further, Tenant acknowledges, in light of the practical impossibility of ensuring that every floor slab has been installed with absolutely no deflection, that all wood floor coverings, wood paneling and similar interior Tenant Improvements may have to be designated to accommodate the actual floor slab deflection (such deflection, however, shall not be greater than what is customary in Comparable Buildings). (e) Tenant acknowledges that the Development is subject to all reciprocal easements and/or operation and easement agreements affecting the Development, as modified from time to time, hereinafter collectively referred to as "REAs", and all covenants, conditions and restrictions affecting the Development, and as modified from time to time, hereinafter collectively referred to as "CCRs." This Lease is and shall remain subject and subordinate to the REAs and CCRs, as the same may hereafter be supplemented, modified or amended, and Tenant agrees to execute any commercially reasonable documents required to effectuate and/or affirm such subordination; provided, however, that Tenant's subordination shall be conditioned upon Tenant's prior approval of all such supplements, modifications or amendments which materially decrease Tenant's rights or materially increase Tenant's obligations hereunder. The terms and provisions of the CCRs and REAs are hereby incorporated into this Lease by this reference, as applicable. 14. ALTERATIONS. (a) Without Landlord's prior consent, but subject to the terms and provisions herein, Tenant may make such interior, non-structural alterations, additions and improvements to the Premises as Tenant deems appropriate, provided such alterations do not in any manner cause or create the potential for affecting any Building Systems or for a Design Problem, as defined below, and do not in any instance exceed Ten Thousand Dollars ($10,000). Otherwise, Tenant shall not make or permit to be made any alterations, additions or improvements in or to the Premises after the Commencement Date without Landlord's prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed. (b) Unless Landlord's consent is not required or Landlord is not requiring plans and specifications for any proposed work, Tenant shall submit to Landlord plans and specifications for any proposed alterations, additions or improvements, and may not make such alterations, additions or improvements until Landlord has approved of such plans and specifications. Tenant shall pay Landlord's reasonably incurred Actual Costs to review Tenant's plans and specifications, except as may otherwise be provided in the Work Agreement. Landlord shall respond to any submittal of plans and specifications within ten (10) business days by approving them or disapproving them based upon Landlord's reasonable determination that such alterations and/or improvements would cause a Design Problem, as defined below. Tenant shall construct such alterations, additions or improvements in accordance with the plans and specifications approved by Landlord, and shall not amend or modify such plans and specifications without Landlord's prior approval, which approval shall not be unreasonably withheld, conditioned or delayed. (c) Tenant shall have the right to make alterations and improvements to the Premises, as long as (a) Tenant pays for the entire cost of such alterations and improvements, (b) Tenant agrees to remove said alterations and improvements upon the expiration or termination of this Lease, unless (i) such improvements and/or alterations are Standard Alterations described in Section 14(f) below, or (ii) Landlord has otherwise agreed in writing at the time the alterations and improvements are approved by Landlord, and (c) such alterations and improvements will not (i) adversely affect the Building Structure or Building Systems, (ii) affect or change the exterior appearance of the Building or the exterior appearance of the Premises (provided, however, this restriction will not be applicable once Tenant leases the entire Building), (iii) unreasonably interferes with any other occupants' customary business operations, (iv) violate any Applicable Law, (v) require that Landlord make any alterations, improvements or repairs to the Building except to the extent Tenant agrees to pay and actually pays for such alterations, improvements or repairs or (vi) increase Landlord's cost to operate the Building, unless Tenant agrees to pay for such increased cost (individually and collectively a "Design Problem"). In no event shall Tenant be permitted to create a Design Problem. (d) All work by Tenant or Tenant's contractors shall be done at such times and in such manner as does not materially and adversely affect other tenants. Tenant covenants and agrees that all work done by Tenant shall be performed in full compliance with all Applicable Laws and the rules, regulations and requirements of the Pacific Fire Rating Bureau (or its successor), and of any similar body. Tenant shall at all times comply with all rules and regulations of Landlord, and Tenant shall cause all work to be performed in a good and first class workmanlike manner, using materials and equipment at least equal in quality and class to the original installations of the Building. (e) Before commencing any work (except for de minimis work for decoration purposes), whether or not Landlord's consent is required, Tenant shall give Landlord at least twenty (20) days' written notice of the proposed commencement of such work. Where reasonably required by Landlord, Tenant or its contractor shall obtain a policy of builder's all-risk insurance covering fire and the broad form of extended coverage, and other risks as Landlord may reasonably determine, in an amount equal to the replacement value of that portion of the Premises undergoing work if other insurance carried by Tenant does not provide adequate protection. Any liability insurance of Tenant shall include coverage of acts of Tenant's employees, contractors, agents and other invitees, and shall conform to the general requirements of Subparagraph 22(b). Tenant shall not install and make part of the Premises any materials, fixtures or articles which are subject to liens, conditional sales contracts or chattel mortgages. Tenant further covenants and agrees that any mechanic's lien filed against the Premises or against the Building for work claimed to have been done for, or materials claimed to have been furnished to Tenant, will be discharged by Tenant, by bond or other means satisfactory to Landlord, within ten (10) days after the filing thereof, at the cost and expense of Tenant. (f) All alterations, additions or improvements upon the Premises made by either party, including, without limiting the generality of the foregoing, all Tenant Improvements, all wall-covering, built-in cabinet work, paneling and the like, shall, unless Landlord elects or has agreed otherwise, become the property of Landlord, and shall remain upon, and be surrendered with the Premises, as a part thereof, at the end or earlier termination of the Term. Tenant shall, upon the expiration or sooner termination of the Term, surrender the Premises to Landlord in substantially the same condition as when received, with Tenant Improvements and other alterations approved by Landlord or those not requiring Landlord's approval, normal wear and tear and damage by fire or other casualty, or by Landlord excepted, except as otherwise expressly stated herein. At the expiration of the Term, Tenant shall deliver to Landlord an amount equal to the proceeds of any insurance (including any self-insurance) which Tenant carries or is required to carry hereunder and to which Tenant is entitled to (or would have been entitled to if carried pursuant to the terms of this Lease) on account of any damage to the Tenant Improvements in the Premises. However, at the election of Landlord (unless such election has been waived as hereinafter provided or if not required pursuant to 14(c) above), exercisable by written notice to Tenant, Tenant shall, at Tenant's sole cost and expense, prior to the expiration of the Term, except as otherwise provided in the Work Agreement and as provided in the last sentence of this Subparagraph 14(f), remove from the Premises Tenant's alterations, additions and improvements (other than floor coverings, paint, ceilings, light fixtures and controls, built-in cabinets and office demising walls, doors, door fixtures and trim, HVAC distribution and fixtures related thereto, to the extent the same are normal and customary for general business office purposes), and repair all damage to the Premises caused by such removal and return the Premises to Landlord's standard build out condition. Prior to making any alterations, additions or improvements to the Premises, Tenant shall have the right to request in writing Landlord's consent to Tenant's not removing any alterations, additions and improvements that Tenant intends to make. If Landlord fails to respond to such Tenant's request within fifteen (15) days after Landlord's receipt of said notice, Landlord shall be deemed to have waived its right to elect that such alterations, additions and improvements be so removed, provided that in such Tenant's request Tenant specifically states in such notice in bold face print that Landlord shall be deemed to have waived Landlord's right to require Tenant to remove such alterations, additions or improvements if Landlord fails to respond to such request within such fifteen (15) day period. Landlord's failure to require Tenant to remove any particular alterations, additions or improvements shall not be construed as a waiver of any prior election of Landlord or release Tenant from its obligations to remove any other alterations, additions or improvements. Notwithstanding any of the foregoing, Landlord specifically agrees that it shall not require that Tenant remove any alterations, additions and improvements made subsequent to the initial construction of the Tenant Improvements consisting of normal Building standard type items which are customary for a general office use (i.e., ceiling tiles, 2x4 fluorescent light fixtures, partitions, door frames and hardware) (collectively, "Standard Alterations"). (g) All articles of personal property, including all business and trade fixtures, movable machinery and equipment, furniture and movable partitions owned by Tenant or installed by or on behalf of Tenant in the Premises shall be and remain the property of Tenant and may be removed by Tenant at any time. All of Tenant's personal property shall be completely removed by Tenant prior to the expiration of the Term. Provided, however, that Tenant shall repair all damage caused by such removal prior to the expiration of the Term. (h) Landlord reserves the right at any reasonable time and from time to time and without the same constituting an actual or constructive eviction, and without incurring any liability to Tenant therefor or otherwise affecting Tenant's obligations under this Lease, to make such changes, alterations, additions, improvements, repairs or replacements in or to the Development or the Building and the fixtures and equipment thereof, as well as in or to the street entrances, halls, passages and stairways thereof, provided access to the Parking Area, lobbies and Premises is not materially adversely affected and the Building Systems (including, without limitation, HVAC, elevators, life safety and security) are not materially and adversely affected. Nothing contained in this Section 14 shall be deemed to relieve Tenant of any duty, obligation or liability with respect to making any repair, replacement or improvement or complying with any law, order or requirement of any government or other authority (but Tenant shall not have to make any modification to the Building Structure or Building Systems except to the extent of a Tenant Related Cause, and nothing contained in this Section 14 shall be deemed or construed to impose upon Landlord any obligation, responsibility or liability whatsoever for the care, supervision or repair of the Building or any part other than as otherwise provided in this Lease. 15. REPAIRS. (a) Tenant shall keep, maintain and preserve the Premises other than the Building Systems and Building Structure (except as otherwise specifically provided herein) in a first class condition and repair, normal wear and tear excepted, and shall, when and if needed, at Tenant's sole cost and expense, make all repairs to the Premises and every part thereof except as required by Landlord as specifically provided herein. In that regard, Tenant shall maintain and repair at its sole cost and expense, and with maintenance contractors approved by Landlord, all non-Base Building facilities within the Premises, including to the extent same were not part of the Base Building lavatory, shower, toilet, wash basin and kitchen facilities and HVAC systems, including all plumbing connected to said facilities or systems installed by or on behalf of Tenant, and all Tenant Improvements. Landlord shall have no obligation to alter, remodel, improve, repair, decorate or paint the Premises or any part thereof, except as stated in Subparagraph 15(b) below. (b) Except as otherwise provided in this Lease, Landlord shall repair and maintain at all times during the Term of this Lease (i) the structural portions of the Base Building, including the foundation, floor/ceiling slabs, roof, curtain walls, exterior glass and mullions, columns, beams, shafts (including elevator shafts), common area stairwells, common area elevator cabs, common area escalators, common area plazas, common area art work, sculptures and washrooms, common area mechanical, electrical and telephone closets and all other Common Areas (collectively, "Building Structure"), and (ii) the mechanical, electrical, life safety, plumbing, sprinkler systems (connected to the core) of the Base Building (as opposed to any particular premises (e.g., executive washrooms) and HVAC systems (including primary and secondary loops connected to the core) ("Building Systems") in first class condition and repair and shall operate the Building as a first class Comparable Building. Notwithstanding anything in the Lease to the contrary, Tenant shall not be required to make any repair to, modification of, or addition to the Building Structure and/or the Building Systems except and to the extent of a Tenant Related Cause. Tenant may request that repairs and maintenance having a material effect on Tenant's use of the Premises be performed during non-business hours, and Landlord shall comply with such request to the extent compliance does not increase Landlord's costs (unless Tenant agrees to pay for such increased costs). All of Landlord's costs under this Subparagraph (b) shall be passed through to Tenant as an Operating Expense, unless expressly excluded in this Lease and subject to the amortization requirements. (c) In the event Tenant is prevented from using, and does not use, the Premises or any portion thereof, for five (5) consecutive business days or twelve (12) days in any twelve (12) month period ("Eligibility Period") as a result of (a) any damage or destruction to the Base Building, the Parking Area and/or the Premises, (b) any repair, maintenance or alteration performed by Landlord after the Commencement Date and required by this Lease which substantially interferes with Tenant's use of the Premises, the Parking Area and/or the Building, (c) any failure by Landlord to provide Tenant with services that Landlord is expressly required by this Lease to provide or access to the Premises, the Parking Area and/or the Building, (d) because of an eminent domain proceeding, or (e) because of the presence of Hazardous Substances in, on or around the Building, the Premises and/or the Project which could pose a health risk to occupants of the Premises, 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 conduct in a reasonable manner 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 conducting in a reasonable manner 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 an eminent domain taking and/or because of damage or destruction to the Premises or the Building or the Parking Area or Tenant's property, if expressly permitted herein, Tenant's abatement period shall continue until Tenant has been given sufficient time as reasonably determined by Landlord's contractor and sufficient access to the Premises, the Parking Area and/or the Building, to rebuild such portion it is required to rebuild (including the Tenant Improvements) and to install its property, furniture, fixtures, and equipment to the extent the same shall have been removed as a result of such damage or destruction, plus a move-in period equal to one (1) weekend. To the extent Tenant is entitled to abatement without regard to the Eligibility Period, because of an event covered by Lease Sections 23 or 24, then the Eligibility Period shall not be applicable. (d) Unless expressly provided in this Lease, Landlord shall not be liable for any failure to make any repairs or to perform any maintenance. Except as expressly provided in this Lease, 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 or the Premises or in or to fixtures, appurtenances and equipment therein. Tenant waives the right to make repairs at Landlord's expense under any law, statute or ordinance now or hereafter in effect. Notwithstanding any provision set forth in the Lease to the contrary, if Tenant provides written notice (or oral notice in the event of an emergency such as damage or destruction to or of the Building Structure and/or the Building Systems) to Landlord of an event or circumstance which by the express terms of this Lease requires the action of Landlord with respect to repair and/or maintenance, and Landlord fails to provide such action within a reasonable period of time, given the circumstances, after the receipt of such notice, but in any event not later than twenty-one (21) days after receipt of such notice, then Tenant may proceed to take the required action upon delivery of an additional ten (10) business days' notice to Landlord specifying that Tenant is taking such required action (provided, however, that neither of such notices shall be required in the event of an emergency which threatens life or where there is imminent danger of damage to property), and if such action was required under the terms of the Lease to be taken by Landlord and was not taken by Landlord within such ten (10) day period, and Landlord does not give Tenant written notice disputing the same within such ten (10) day period, then Tenant shall be entitled to prompt reimbursement by Landlord of Tenant's reasonable costs and expenses payable to third parties in taking such action plus interest thereon at the Interest Rate as defined below. If Landlord shall fail to promptly reimburse Tenant as and when expressly provided above, and Tenant obtains a final judgment against Landlord as a result of Landlord's default in the payment thereof, then the amount of the award (which shall include interest at the Interest Rate from the time of each expenditure by Tenant until the date Tenant receives such amount by payment or offset and reasonable attorneys' fees and related costs) may be deducted by Tenant from the Rents next due and owing under the Lease. In the event Tenant takes such action, and such work will affect the Building Structure and/or the Building Systems, Tenant shall use only those contractors used by Landlord in the Building for work on such Building Structure or Building Systems unless such contractors are unwilling or unable to perform, or timely and competitively perform, such work, in which event Tenant may utilize the services of any other qualified contractor which normally and regularly performs similar work in Comparable Buildings exercising its due care in the same manner and standards as required of Landlord under this Lease. 16. LIENS. Tenant shall not permit any mechanics', materialmen's or other liens to be filed against the Building nor against Tenant's leasehold interest in the Premises. Landlord shall have the right at all reasonable times to post and keep posted on the Premises any notices which it deems necessary for protection from such liens. If any such liens are filed, Tenant shall cause such liens to be released within the earlier of fifteen (15) days or within the time period required by the holder of any mortgage or deed of trust encumbering the Building after Tenant's receipt of actual notice of such liens. If Tenant fails to cause such liens to be released within said period of time, Landlord shall have the right to obtain and post a bond in order to remove such liens of record or to obtain a title insurance policy for one and one-half times the amount of such lien, and Tenant shall on demand reimburse Landlord as additional rent for Landlord's costs thereof including interest at the Interest Rate. 17. ENTRY BY LANDLORD. Landlord reserves and shall have the right to enter the Premises to inspect the same upon one (1) business day's prior notice (except in case of an emergency where notice is not reasonably practical), to supply services to be provided by Landlord to Tenant hereunder at reasonable times (which service may be provided after Building Business Hours, as defined in Subparagraph 18.2 below), to show the Premises to prospective purchasers or tenants upon one (1) business day's prior notice (but only during the last 12 months of the Term as to prospective tenants) and at reasonable times, to post notices of non-responsibility, to alter, improve or repair the Premises or any other portion of the Building, all without being deemed guilty of any eviction of Tenant and without abatement of rent except as provided in Section 15. If Tenant reasonably requests that Landlord enter at another time, Landlord shall if feasible comply with such request. Landlord may, in order to carry out such purposes, erect scaffolding and other necessary structures where reasonably required by the character of the work to be performed. Tenant hereby waives any claim for damages for any injury or inconvenience to or interference with Tenant's business, any loss of occupancy or quiet enjoyment of the Premises, and any other loss in, upon and about the Premises due to an entry allowed hereunder except to the extent of Landlord's indemnity obligations in Section 20. Landlord shall at all times have and retain a key with which to unlock all doors in the Premises, excluding Tenant's vaults and safes and areas that Tenant has reasonably designated. Landlord shall have no liability with respect to such areas to which Tenant does not permit Landlord to access. In any event, any such entry shall be accomplished as expeditiously as reasonably possible and in a manner so as to cause as little interference to Tenant as reasonably possible. Landlord shall have the right to use any and all means which Landlord may deem proper to open said doors in an emergency, without any liability whatsoever therefore to obtain entry to the Premises. Any entry to the Premises obtained by Landlord by any of said means shall not be construed or deemed to be a forcible or unlawful entry into the Premises, or an eviction of Tenant from the Premises or any portion thereof. It is understood and agreed that no provision of this Lease shall be construed as obligating Landlord to perform any repairs, alterations or decorations except as otherwise expressly agreed herein by Landlord. Landlord shall attempt in the exercise of its rights under this Section 17 to minimize any disturbance to Tenant's use and possession of the Premises and to provide as much notice to Tenant as may be reasonably possible prior to any such exercise of Landlord's rights under this Section 17. 18. UTILITIES AND SERVICES. 18.1 Services. Landlord shall provide or cause to be provided the services described in Exhibit "D" subject to the conditions and in accordance with the terms set forth herein. (a) Tenant agrees to keep and cause to be kept closed all doors from the Premises leading to Common Areas, and Tenant agrees to reasonably cooperate fully at all times with Landlord and to abide by all reasonable regulations and requirements which Landlord may prescribe for the proper functioning and protection of the HVAC systems. Tenant shall not install or use in the Premises, any equipment which would generate heat so as to adversely and materially affect the normal operations of the HVAC systems; provided, however, that subject to the provisions of this Lease concerning the right of Tenant to make alterations, repairs, additions, improvements and/or replacements, with Landlord's consent (which consent shall not be unreasonably withheld, conditioned or delayed) Tenant may install, at Tenant's expense, supplemental HVAC equipment to allow for the use of heat generating equipment that would otherwise adversely affect the normal HVAC systems. Landlord, throughout the Term, shall have free access to any and all mechanical installations of Landlord or Tenant, including, without limitation, air conditioning, fan, ventilating and machine rooms, telephone rooms, electrical closets and any other areas in the Building containing mechanical installations or utility lines or connections thereto. Tenant agrees that there shall be no construction of partitions or other obstructions which interfere with Landlord's free access thereto, or interfere with the moving of Landlord's equipment to or from the enclosures containing said installations. Tenant further agrees that neither Tenant, nor its employees, agents, licensees or invitees shall at any time enter the said enclosures or tamper with, adjust, touch or otherwise in any manner affect Landlord's mechanical installations. (b) As part of the construction of the Tenant Improvements, submeters or other equipment shall be installed to determine the actual amount of electricity, and gas which Tenant shall utilize from time to time in the Premises. Tenant shall pay directly to the appropriate utility company, to the extent the same are separately metered, all costs attributable to electricity, gas and other utility usage in the Premises. Utilities by other tenants in their premises shall not be passed through to Tenant in whole or in part. At all times, Tenant's use of electrical current shall not exceed that to which Tenant is entitled by Applicable Law or the capacity of the feeders to the Building or the risers or wiring installation. (c) Tenant shall have the right to retain a consultant to conduct a technical analysis of the telephone, electrical, and HVAC requirements for the Initial Premises. Tenant has approved the HVAC specifications for the Base Building and is satisfied that HVAC system is capable of providing to the Premises, on a connected load basis, sufficient amount of wattage and live load power per for Tenant's comfortable use. Landlord shall work with Tenant and its consultant, if any, to maximize the electricity provided to satisfy Tenant's power and HVAC needs within the Title 24 regulations for the Building. 18.2 HVAC and Utility Operation. To the extent provided for in the Base Building Plans, Tenant shall have access within the Premises to separate controls (including climate control and on/off switches) in connection with the HVAC service to the Premises. In the event Tenant requires utilities (other than Separately Metered Utilities) and/or services in excess of the amount that Landlord is required to provide, or at times other than during the hours of 8:00 a.m. to 6:00 p.m., Monday through Friday (except nationally recognized holidays), and 8:00 a.m to 2:00 p.m Saturdays (excluding nationally recognized holidays) (collectively, "Business Hours"), Landlord agrees to provide such extra utilities and services, and Tenant agrees to reimburse to Landlord its actual costs of providing such extra utilities and services, without a profit to or administration, depreciation or overhead charge by Landlord ("Actual Costs"). 18.3 Tenant's Obligations. Tenant shall at all times maintain at its own cost and expense all non-Base Building plumbing facilities and equipment attached thereto within the Premises in good order, condition and repair to the satisfaction of Landlord. Tenant hereby indemnifies Landlord against any and all claims, liabilities, losses, damages, costs and expenses whatsoever (including, without limitation, reasonable attorneys' fees, costs, disbursements and expenses but specifically excluding consequential damages) whether suffered by Landlord or other occupants or persons in the Building, the Development or any of the areas used in connection with the operation thereof arising out of Tenant's failure to satisfy its obligations under this Subparagraph 18.3. Landlord shall not be obligated to clean or provide supplies for any such plumbing facilities or equipment attached thereto. Nothing herein contained shall be construed to confer upon Tenant the right to install any plumbing facilities without the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed 18.4 Interruption of Services. Landlord reserves the right to stop service of the elevator, plumbing, heating, ventilating, air conditioning and electric or other mechanical systems, or cleaning services, when necessary, by reason of accident or emergency or for inspection, repairs, alterations, decorations, additions or improvements, which in the reasonable judgment of Landlord are desirable or necessary to be made, until same shall have been completed, and Landlord shall have no responsibility or liability, and there shall be no abatement of rent, except as expressly stated in this Lease, for failure to supply any of such services in such instance. In the event of any failure, stoppage or interruption of said services, Landlord shall use its commercially reasonable efforts to cause the resumption of such service as soon as reasonably possible. 19. BANKRUPTCY. [Intentionally omitted.] 20. INDEMNIFICATION AND EXCULPATION. (a) Subject to the provisions of Sections 23 and 24, and to the extent not covered by insurance required to be carried by Landlord, Tenant shall indemnify, protect, defend and hold Landlord harmless from all loss, cost, liability, damage or expense (including, but not limited to, penalties, fines, reasonable attorneys' fees or costs (but not lost profits or consequential damages)) (collectively, "Claims") to any person, property or entity arising from Tenant's use of the Premises or the conduct of its business therein or from any activity, work or thing done or permitted to be done by Tenant, or any of Tenant's agents, employees or contractors in or about the Premises, the Building or Common Areas. Tenant shall further indemnify, protect, defend and hold Landlord harmless from all claims arising from any breach or default in the performance of any obligation to be performed by Tenant under the express terms of this Lease for which Tenant has received the prior written notice of such default by Tenant required under this Lease and has had a reasonable period of time within which to cure such default pursuant to the provisions hereof, or arising from the willful misconduct or negligence of Tenant or of its agents, contractors, invitees or employees and from and against all costs, reasonable attorneys' fees, expenses and liabilities (but not lost profits or consequential damages) incurred in or about such claim or any action or proceeding brought thereon. In case any action or proceeding shall be brought against Landlord by reason of any such claim, Tenant, upon notice from Landlord, shall defend the same at Tenant's expense by counsel approved in writing by Landlord. Notwithstanding any of the foregoing, however, in no event whatsoever shall Tenant be liable for Landlord's lost profits or Landlord's consequential damages beyond the rent payable by Tenant under this Lease or rent payable by other tenants in the Project. (b) Subject to the provisions of Sections 23 and 24, and to the extent not covered by insurance required to be carried by Tenant, Landlord shall indemnify, protect, defend and hold harmless Tenant, its Affiliates and their respective officers, directors, partners, agents and employees from all Claims to any person, property or entity arising from or in connection with Landlord's activities in the Building (except for damage to the Tenant Improvements and Tenant's personal property, fixtures, furniture and equipment in the Premises, to the extent Tenant is required to obtain the requisite insurance coverage pursuant to the Lease) or the Project and any default in the performance of any obligation on Landlord's part to be performed under the express terms of this Lease for which Landlord has received at least thirty (30) days prior written notice of such default by Landlord and has had a reasonable period of time within which to cure such default pursuant to the provisions hereof, or arising from the willful misconduct or negligence of Landlord or its agents, employees, invitees or contractors or arising from any noncompliance of the Building and/or the Project with any laws relating to disable access, or Claims arising from the presence in the Premises, the Building and/or the Project of hazardous substances, except to the extent such hazardous substances were placed in or on the Premises, the Building and/or the Project by Tenant (Landlord's indemnity hereunder will survive the expiration of the Term of, or any termination of the Lease) and from and against all costs, reasonable attorneys' fees, expenses and liabilities incurred in or about such claim or any action or proceeding brought thereon. In case any action or proceeding shall be brought against Tenant by reason of any such claim, Landlord upon notice from Tenant shall defend the same at Landlord's expense by counsel approved in writing by Tenant. Notwithstanding any of the foregoing, however, in no event whatsoever shall Landlord be liable for Tenant's lost profits or Tenant's consequential damages. (c) Notwithstanding any of the foregoing, because Tenant is required to insure fully all of its own personal property and Tenant Improvements, neither Landlord nor any agent, employee or contractor of Landlord shall be liable to Tenant for any loss, injury or damage to any personal property of Tenant or of agent, employee, contractor or invitee of Tenant. In addition, except to the extend required to be covered by Landlord's insurance under this Lease, neither Landlord nor any agent, employee or contractor of Landlord shall be liable for any damage caused by other lessees or persons in or about the Building. Similarly, Tenant shall not be responsible for any damage to the Building, Building Structure and/or Building Systems to the extent covered by insurance that Landlord carries or is required to carry under this Lease. (d) The indemnities set forth in this Section 20 shall not apply to the extent any liability or damage is covered by insurance maintained by Tenant or Landlord. Tenant's agreement to indemnify and hold Landlord harmless pursuant to Subparagraph 20(a) and Landlord's agreement to indemnify and hold Tenant harmless pursuant to Subparagraph 20(c) is not intended to and shall not relieve any insurance carrier of its obligations under policies required to be or actually carried by Landlord or Tenant pursuant to this Lease to the extent that such policies cover the results of such acts, omissions or willful misconduct. Failure by Landlord or Tenant to carry required insurance shall automatically be deemed to be the covenant and agreement of Landlord or Tenant, respectively, to self-insure such required coverage, with full waiver of subrogation. (e) Notwithstanding anything to the contrary in this Lease, Tenant's and Landlord's obligations under this Section 20 shall survive the expiration or earlier termination of this Lease. 21. DAMAGE TO TENANT'S PROPERTY. Subject to the provisions of Section 20 above and the insurance provisions of Section 22, Landlord or its agents shall not be liable for (i) any damage to any property entrusted to employees of the Building, (ii) loss or damage to any property by theft or otherwise, (iii) any injury or damage to persons or property resulting from insurrection, riots, military activity, fire, explosion, falling plaster, steam, gas, electricity, water or rain which may leak from any part of the Building or from the pipes, appliances or plumbing work therein or from the roof, street or subsurface or from any other place or resulting from dampness or any other cause whatsoever, except as otherwise provided in this Lease. Neither Landlord nor its agents shall be liable for any interference with or diminution of light, air, view or other incorporeal hereditaments, whatever the cause. The occurrence of any such interference or diminution shall not entitle Tenant to any reduction in any rents or charges due Landlord hereunder. Tenant shall give prompt notice to Landlord in case of fire or accidents in the Premises or in the Building or of defects therein. 22. INSURANCE. (a) Tenant shall during the Term and during all other times Tenant or its agents, employees or contractors are on the Premises, including during the period of Tenant's construction of the Tenant Improvements, at Tenant's sole cost and expense, keep in full force and effect the following insurance: (1) Standard form property insurance insuring against the perils of fire, extended coverage, vandalism, malicious mischief ("All-Risk"), sprinkler leakage, flood and earthquake. This insurance policy shall be upon the Tenant Improvements, all property owned by Tenant or that was installed at Tenant's expense, and which is located in the Building including, without limitation, furniture, fittings, installations, fixtures, and any other personal property, in an amount not less than one hundred percent (100%) of the full replacement cost thereof. Neither Landlord nor Landlord's mortgagee shall incur any liability whatsoever if such insurance does not cover sufficiently ninety percent (90%) of the full replacement cost of such property. Such policy shall name Landlord and any mortgagees of Landlord of which Tenant has notice as insured parties loss payees, as their respective interests may appear. (2) Commercial General Liability Insurance insuring Tenant against any liability arising out of the lease, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be in the amount of Two Million Dollars ($2,000,000) Combined Single Limit for injury to, or death of one or more persons in an occurrence, and for damage to tangible property (including loss of use) in an occurrence, with such liability amount to be adjusted from year to year (but not more often than once a year) to reflect increases in the CPI; provided, however, in no event shall such increases require Tenant to carry a greater amount of insurance than is generally carried by Comparable Tenants of Comparable Buildings. The policy shall insure the hazards of the Premises and Tenant's operations thereon, independent contractors and contractual liability (covering the indemnity contained in Section 20 above) and shall name Landlord and Landlord's interested parties as an additional insured. (3) Worker's Compensation and Employer's Liability insurance of not less than One Million Dollars ($1,000,000). (4) Such other insurance as is generally carried by Comparable Tenants of Comparable Buildings. (b) All policies required to be carried by Tenant or Landlord hereunder shall: (1) be taken out with insurance companies holding a General Policyholders Rating of "A-" and a Financial Rating of "IX" or better, as set forth in the most current issue of Best's Insurance Guide (or the equivalent under any substitute guide produced by Best); (2) contain a cross-liability provision; and (3) contain a provision that the insurance provided hereunder shall be primary and non-contributing with any other insurance. On or before the Commencement Date, each party shall deliver to the other party copies of policies or certificates evidencing the existence of the amounts and forms of coverage. No such policy shall be cancelable or reducible in coverage except after thirty (30) days' prior written notice to the other party. Except Tenant shall, within thirty (30) days prior to the expiration of such policies, furnish the Landlord with renewals or "binders" thereof. Nothing in this Lease shall prevent Tenant from taking out the insurance required hereunder under a blanket insurance policy or policies covering other properties as well as the Premises provided that the total amount and quality of insurance allocated to the Premises are not less than that required hereunder and the insurance benefits to the Building and Landlord are not reduced thereby. Nothing contained in this Section 22 shall be construed as a limitation of Tenant's liability hereunder. (c) During the Term, Landlord shall insure the Base Building (including the Building Structure and Building Systems and Common Areas of the Building) (excluding any property which Tenant is obligated to insure under Subparagraphs 22(a) and (b) above) and the Common Areas of the remainder of the Project (to the extent exclusively controlled by Landlord) against damage with All-Risk insurance in an amount not less than one hundred percent (100%) of the full replacement value of the Development and Project Common Areas (to the extent exclusively controlled by Landlord) and related offsite improvements, commercial general liability insurance covering Landlord against claims for bodily injury or death or property damage occurring in, upon or about the Development with a combined single limit of not less than $5,000,000 per occurrence, and employer's liability insurance with coverage of not less than $1,000,000 and workers' compensation insurance covering Landlord's employees in an amount not less than that required by applicable laws or regulations. In addition to the foregoing, Landlord shall insure against all risks and all other hazards as are customarily insured against, in Landlord's reasonable judgment, by others similarly situated and developing or operating like properties, including, without limitation, insurance against business interruption and rent loss, insurance against loss, damage or destruction caused by machinery breakdown, by fire and the perils specified in the standard extended coverage endorsement, vandalism and malicious mischief, and by sprinkler, gas, water, steam and sewage leakage, and for such amounts and upon such terms and conditions as would a prudent owner of property similar to the Development in Landlord's reasonable judgment. Landlord shall reevaluate the levels of insurance required hereunder no less frequently than once every two (2) years. Landlord may, but shall not be obligated to, obtain and carry any other form or forms of insurance as it or Landlord's mortgagees may determine advisable. Tenant acknowledges that it has no right to receive any proceeds from any insurance policies carried by Landlord in connection with any incident in the Common Areas for which there is liability to third parties except to the extent Tenant is not covered under insurance it is required to obtain pursuant to Subparagraph 22(a)(ii), and provided Landlord (and any mortgagee of Landlord) has received insurance proceeds adequate to cover all of Landlord's liabilities, costs and expenses in connection with said incident. Landlord is not required to carry insurance of any kind on Tenant's furniture or furnishings or on any fixtures, equipment, improvements or appurtenances of Tenant under this Lease, and Landlord shall not be obligated to repair any damages thereto or replace the same except as specifically provided for in this Lease. (d) Tenant will not keep, use, sell or offer for sale in or upon the Premises any article which may be prohibited by any insurance policy periodically in force covering the Building. If Tenant's occupancy or business in, or on, the Premises, whether or not Landlord has consented to the same, results in any increase in premiums above what would be required by general and customary tenants for the insurance periodically carried by Landlord with respect to the Building, then Tenant shall pay any such increase in premiums as additional rent within thirty (30) days after being billed therefor by Landlord. Landlord shall use its commercially reasonable efforts to obtain from Landlord's insurer written notice that the increase in premiums is attributable to Tenant or Tenant's use of the Premises. Absent such written notice from Landlord's insurer, a schedule issued by the organization computing the insurance rates on the Building or the Tenant Improvements showing the various components of such rate, shall be conclusive evidence of the several items and charges which make up such rate. Tenant shall promptly comply with all reasonable requirements of the insurance authority or any present or future insurer relating to the Premises provided Tenant has received prior written notice of such requirements. (e) If any of Landlord's insurance policies shall be canceled or cancellation shall be threatened in writing or the coverage thereunder reduced or threatened in writing to be reduced in any way because of the use of the Premises or any part thereof, other than the uses expressly permitted hereunder, by Tenant or any assignee or subtenant of Tenant or by anyone Tenant permits on the Premises and, if Tenant fails to remedy the condition giving rise to such cancellation, threatened cancellation, reduction of coverage or threatened reduction of coverage, increase in premiums, or threatened increase in premiums, within two (2) business days after notice thereof, Landlord may, at its option, enter upon the Premises and attempt to remedy such condition, and Tenant shall promptly pay the cost thereof to Landlord as additional rent. Landlord shall not be liable for any damage or injury caused to any property of Tenant or of others located on the Premises resulting from such entry except to the extent caused by Landlord's active negligence or willful misconduct. If Landlord is unable, or elects not to remedy such condition, then Landlord shall have all of the remedies provided for in this Lease in the event of a default by Tenant. (f) Landlord and Tenant hereby release and relieve the other and waive their entire right of recovery against the other for loss or damage arising out of or incident to the perils insured against, or required to be insured against, under this Section 22, which perils occur in, on or about the Project, whether due to the negligence of Landlord or Tenant or their respective agents, employees, contractors and/or invitees. Landlord and Tenant shall, upon obtaining the policies of insurance required hereunder, give notice to their insurer that this mutual waiver of subrogation is provided in this Lease and shall thereafter obtain and provide evidence of the waiver by their respective insurance carriers of any right of subrogation against the other. If any such policy can be obtained with a waiver of subrogation only upon payment of an additional premium, the party whose duty it is to pay for such insurance shall pay such additional premium. (g) If the Lease is terminated because of damage to or destruction of the Building pursuant to Section 23, and the Premises have also been damaged, Tenant will pay to Landlord, within thirty (30) days of its receipt of the same, all of its insurance proceeds, if any, to the extent relating to the Tenant Improvements and alterations paid for by Landlord (but not to Tenant Improvements and alterations paid for by Tenant, Tenant's removable trade fixtures, equipment, furniture or other personal property of Tenant) in the Premises. 23. DAMAGE OR DESTRUCTION. 23.1 Definitions. (a) "Premises Partial Damage" shall mean damage or destruction to all or any portion of the Premises which is not Premises Total Destruction. "Building Partial Damage" shall mean damage or destruction to the Building which is not Building Total Destruction. (b) "Premises Total Destruction" shall mean damage or destruction to all or any portion of the Premises or Building to the extent that 50% or more of the Premises are rendered unusable and untenantable for twelve (12) months or more. "Building Total Destruction" shall herein mean damage or destruction to the Building to the extent that either (i) the cost of repair is 25% or more of the then replacement cost of the Building as a whole; or (ii) the Building cannot be restored to substantially the same condition as it was in prior to such damage or destruction. (c) "Insured Loss" shall herein mean damage or destruction to the Development which was caused by an event covered by insurance or required by this Lease to be covered by insurance or for which the uninsured cost to repair (including the deductible) is less than $50,000. (d) "Uninsured Loss" shall mean damage or destruction to the Development which was caused by an event not covered by or not required to be covered by insurance and for which the uninsured cost to repair is equal to or greater than $50,000. Such $50,000 amounts above shall be increased or decreased annually from and after the Commencement Date by a percentage equivalent to the aggregate percentage change in the CPI from and after such date, or if no such index exists, by a mutually agreeable method of adjusting such amount to reflect the equivalency of Commencement Date dollars. 23.2 Partial Damage - Insured Loss. Subject to the provisions of Subparagraphs 23.4 and 23.5, if at any time during the Term there is damage which is an Insured Loss and which falls into the classification of Premises Partial Damage or Building Partial Damage, Landlord shall, at Landlord's expense, diligently proceed to repair such damage, but not the Tenant Improvements or Tenant's personal property. Tenant shall, at Tenant's expense, diligently proceed to repair the Tenant Improvements and Tenant's personal property and this Lease shall continue in full force and effect; provided, that Landlord shall pay to Tenant all insurance proceeds received by Landlord, if any, relating to the Tenant Improvements. Tenant's repair of the Tenant Improvements shall be treated as a Tenant alteration for purposes of Landlord's approval of such repair except to the extent there are no changes to the Tenant Improvements. 23.3 Partial Damage - Uninsured Loss. Subject to the provisions of Subparagraphs 23.4 and 23.5, if at any time during the Term there is damage which is an Uninsured Loss and which falls within the classification of Premises Partial Damage or Building Partial Damage, Landlord may at Landlord's option either (i) repair such damage (other than the Tenant Improvements and Tenant's personal property) as soon as reasonably possible at Landlord's expense, in which event this Lease shall continue in full force and effect, or (ii) if Landlord does not elect to repair such damage, give notice to Tenant within fifty (50) days after the date of the occurrence of such damage of Landlord's intention to terminate this Lease, as of the date of the occurrence of such damage with respect to any unoccupyable portions of the Premises and effective four (4) months after receipt by Tenant of such notice for the balance of the Premises. If Landlord elects to give such notice of Landlord's intention to terminate this Lease, Tenant shall have the right within thirty (30) days after the receipt of such notice to give notice to Landlord of Tenant's intention to reimburse Landlord for the repair of such damage without contribution or reimbursement from Landlord, in which event this Lease shall continue in full force and effect, and Landlord shall proceed to make such repairs as soon as reasonably possible following its receipt of adequate funding or assurances to Landlord's reasonable satisfaction of the same from Tenant. If Tenant does not give such notice within such thirty (30) day period, this Lease shall be canceled and terminated as of the date of the occurrence of such damage with respect to the unoccupyable portions of the Premises and effective four (4) months after receipt by Tenant of such notice for the balance of the Premises. If Landlord elects to repair such damage, Tenant shall promptly repair and restore the Tenant Improvements. 23.4 Total Destruction. If at any time during the Term there is damage, whether or not an Insured Loss (including destruction required by any authorized public authority), which falls into the classification of Building Total Destruction or Premises Total Destruction, Landlord or Tenant shall have the right to terminate this Lease by notice to the other within ninety (90) days after the date of the occurrence of such damage as of the date of the destruction, effective four (4) months after receipt by Tenant of such notice for the balance of the Premises. If neither Landlord nor Tenant exercises the right to so terminate, Landlord shall, at Landlord's expense, repair such damage, other than the Tenant Improvements and Tenant's personal property, as soon as reasonably possible. 23.5 Damage Near End of Term. (a) In addition to any other right of termination which either party may have under this Section 23, but subject to Subparagraph 23.5(b), if at any time during the last twenty-four (24) months of the Term there is damage, whether or not an Insured Loss, which affects any floor of the Premises such that fifty percent (50%) or more of such floor cannot be occupied for business purposes, and repair or restoration of such damage would take, in Landlord's reasonable judgment, more than the shorter of twelve (12) months or one-half of the time left in the Term from the date of the occurrence of the damage, Landlord or Tenant may at its option terminate this Lease as to such floor or floors as of the date of occurrence of such damage by giving notice to the other party of its election to do so within thirty (30) days after the date of occurrence of such damage; provided further, if such damage makes thirty-five percent (35%) or more of the Premises unusable and untenantable and repairs or restoration of such damage would take, in Landlord's reasonable judgment, more than the shorter of six (6) months or one-half of the time left in the Term from the date of the occurrence of the damage, Landlord or Tenant may, at its option, terminate this Lease as of the date of occurrence of such damage by giving notice to the other party of its election to do so within thirty (30) days after the date of occurrence of such damage. (b) Notwithstanding Subparagraph 23.5(a), if Tenant has an option to extend this Lease, and the time within which said option may be exercised has not yet expired, Tenant may exercise such option, if it is to be exercised at all, no later than thirty (30) days after receipt of the notice pursuant to Subparagraph 23.5(a). If Tenant duly exercises such option during such 30-day period, Landlord shall, if otherwise required under this Section 23, at Landlord's expense, repair such damage affecting the portion of the Premises damaged as soon as reasonably possible and this Lease shall continue in full force and effect. If Tenant fails to exercise such option during such 30-day period, then such option shall automatically expire and this Lease shall terminate on the expiration of such 30-day period notwithstanding any term or provisions in the option to the contrary. The percentages with respect to the Premises as stated in this Section 23 are intended to exclude any expansion space or other space which Tenant may have the right to lease but which are not part of the Premises at the time of the damage or destruction. 23.6 Notice of Repair Time. Within sixty (60) days after the date of occurrence of any damage, Landlord shall notify Tenant, upon Tenant's request for such notice, whether or not repair of such damage will require more than twelve (12) months. 23.7 Abatement of Rent; Tenant's Remedies. (a) Intentionally omitted. (b) If there is damage described in Subparagraphs 23.2 or 23.3, and Landlord repairs or restores the Premises, Building or the Development (other than the Tenant Improvements and Tenant's personal property), Landlord shall (i) diligently prosecute insurance claims and diligently seek all necessary governmental permits and authorizations necessary for such repair or restoration; (ii) commence such repair or restoration as soon as practicable; and (iii) diligently proceed to complete such repair or restoration. Landlord shall repair or restore in a workmanlike manner, using materials and workmanship consistent with the original construction of the Development. (c) If Landlord shall be obligated or shall elect to repair or restore the Premises under the provisions of this Section 23 and (i) shall not diligently prosecute insurance claims and diligently seek all necessary governmental permits and authorizations or (ii) shall not commence such repair or restoration (commencement for purposes of the foregoing meaning actually beginning new construction and not merely the removal of damaged items or debris) within sixty (60) days after insurance claims have been settled, insurance proceeds have been received or set aside for such repair or restoration and all necessary governmental permits and authorizations have been obtained, or (iii) shall not provide Tenant with notice within fifteen (15) days after Tenant's written request therefor of Landlord's good faith reasons for not proceeding with the prosecution of such insurance claims or the commencement of such construction (and including within said request a statement that Tenant has the right to terminate this Lease if Tenant does not receive a good faith response from Landlord within such fifteen (15) day period), or (iv) the repair has not been completed within twelve (12) months from the date of damage, Tenant may at Tenant's option terminate this Lease by giving Landlord notice of Tenant's election to do so at any time prior to the commencement of such repair or restoration. In such event, this Lease shall terminate as of the date of such notice. 23.8 Inconsistent Statutes. The provisions of this Lease, including this Section 23, constitute an express agreement between Landlord and Tenant with respect to any and all damages to, or destruction of, all or any part of the Premises, Building or the Development and any statute or regulation of the State of California, including without limitation Sections 1932(2) and 1933(4) of the California Civil Code, with respect to any rights or obligations concerning damage or destruction in any absence of an express agreement between the parties, and any similar statute or regulation now or hereafter in effect, shall have no application to this Lease or to any damage to or destruction of all or any part of the Premises, the Building or the Development. In addition, Tenant hereby waives the provisions of Sections 1941 and 1942 of the California Civil Code, which Sections permit Tenant to make repairs at Landlord's expense. 24. EMINENT DOMAIN. (a) In case all of the Premises or such part thereof as shall substantially interfere with Tenant's use and occupancy of the Premises shall be taken for any public or quasi-public purpose by any lawful power or authority by exercise of the right of appropriation, condemnation or eminent domain (generally referred to herein as a "taking"), or sold to prevent such taking, either party shall have the right to terminate this Lease effective as of the date possession is required to be surrendered to said authority. Tenant shall not assert any claim against Landlord for any compensation because of such taking, and Landlord shall be entitled to receive the entire amount of any award without deduction for any estate or interest of Tenant except that Tenant's right to receive compensation or damages from the condemning authority for Tenant's personal property and fixtures and reasonable moving expenses and the right to recover from the condemning authority one hundred percent (100%) of the "Bonus Value" of the leasehold estate which shall be equal to the difference between the Rental Rate payable by Tenant under the Lease and the rate established by the condemning authority as an award for compensation purposes shall not be affected in any manner hereby. In the event the amount of property or the type of estate taken shall not substantially interfere with the conduct of Tenant's business, Landlord shall be entitled to the entire amount of the award without deduction for any estate or interest of Tenant, Landlord shall restore the Premises to substantially their same condition prior to such partial taking, and a proportionate rent abatement shall be made corresponding to the time during which, and to the part of the Premises of which, Tenant shall be so deprived on account of such taking and restoration. Nothing contained in this Subparagraph shall be deemed to give Landlord any interest in any award made to Tenant for the taking of personal property and fixtures belonging to Tenant. (b) In the event of a taking of the Premises or any part thereof for temporary use, (i) this Lease shall be and remain unaffected thereby and rent shall not abate, except as expressly provided herein, and (ii) Tenant shall be entitled to receive for itself such portion or portions of any award made for such use with respect to the period of the taking which is within the Term, provided that if such taking shall remain in force at the expiration or earlier termination of this Lease, Tenant shall then pay to Landlord a sum equal to the reasonable cost of performing Tenant's obligations under Section 15 above with respect to surrender of the Premises and upon such payment shall be excused from such obligations. (c) Landlord may, with prior written notice to Tenant, agree to sell and/or convey to any condemnor presenting a bona fide threat of condemnation or eminent domain of the Premises, the Building, the Development or any portion thereof sought by condemnor, free from this Lease and the rights of Tenant hereunder without first requiring that any action or proceeding be instituted or, if instituted, pursued to a judgment. Nothing herein is intended to affect Tenant's rights of recovering from any condemnor the value of Tenant's personal property and movable trade fixtures and the cost of Tenant's moving expenses. (d) In the event of a taking that does not result in a termination of this Lease as to the entire Premises, the Annual Basic Rent and Operating Expenses shall abate in proportion to the portion of the Premises taken or rendered untenantable by such taking. Tenant and Landlord hereby waive and release their rights under Section 1265.130 of the California Code of Civil Procedure or any similar statute now or hereafter in effect. 25. DEFAULTS AND REMEDIES. (a) The occurrence of any one or more of the following events shall constitute a default hereunder by Tenant: (1) The failure by Tenant to make any payment of rent or additional rent or any other payment required to be made by Tenant hereunder, within seven (7) calendar days after written notice thereof from Landlord to Tenant that such payment was not paid when due. Any such notice shall be in addition to, and not in lieu of, any notice required under California Code of Civil Procedure Section 1161 et. seq. regarding unlawful detainer actions. (2) The failure by Tenant to observe or perform any provision of this Lease to be observed or performed by Tenant, other than as stated in Subparagraph 25(a)(1) or Subparagraph 26(a), where such failure continues for twenty (20) days after written notice thereof from Landlord to Tenant; provided, however, if the nature of Tenant's failure is such that more than twenty (20) days are reasonably required for its cure, then Tenant shall not be deemed to be in default if Tenant shall commence such cure within twenty (20) days after notice of such failure is given to Tenant, and Tenant thereafter diligently and continuously prosecutes such cure to completion. Any such notice shall be in addition to, and not in lieu of, any notice required under California Code of Civil Procedure Section 1161 et. seq. regarding unlawful detainer actions. (b) In the event of any such default by Tenant, in addition to any other remedies available to Landlord at law or in equity, Landlord shall have the immediate option to terminate this Lease and all rights of Tenant hereunder. In the event that Landlord shall elect to so terminate this Lease then Landlord may recover from Tenant: (1) the worth at the time of award of any unpaid rent which had been earned at the time of such termination; plus (2) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus (3) 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 Tenant proves could be reasonably avoided; plus (4) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform Tenant's obligations under this Lease or which in the ordinary course of things would be likely to result therefrom (including without limitation reasonable attorneys' and accountants' fees, costs of alterations of the Premises, interest costs and brokers' fees incurred upon any reletting of the Premises); As used in Subparagraphs 25(b)(1) and (2) above, the "worth at the time of award" is computed by allowing interest at the maximum rate permitted by law. As used in Subparagraph 25(b)(3) above, the "worth at the time of award" is computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). (c) In the event of any such default by Tenant, Landlord shall additionally have the right, with or without terminating this Lease, to reenter the Premises and remove all persons and property from the Premises; such property may be removed and stored in a public warehouse or elsewhere at the cost of and for the account of Tenant. No reentry or taking possession of the Premises by Landlord pursuant to this Subparagraph 25(c) shall be construed as an election to terminate this Lease unless a written notice of such intention is given to Tenant or unless the termination thereof is decreed by a court of competent jurisdiction. If Landlord does not elect to terminate this Lease as provided above, Landlord may from time to time, without terminating this Lease, either recover all rent as it becomes due or relet the Premises or any part thereof for the Term on terms and conditions as Landlord in its good faith judgment may deem advisable with the right to make alterations and repairs to the Premises. In the event that Landlord shall elect to so relet, then rentals received by Landlord from such reletting shall be applied: first, to the payment of any indebtedness other than rent due hereunder from Tenant to Landlord; second, to the payment of any cost of such reletting; third, to the payment of the cost, including interest expense, of any alterations and repairs to the Premises; fourth, to the payment of rent due and unpaid hereunder and the residue, if any, shall be held by Landlord and applied to payment of future rent as the same may become due and payable hereunder. Should that portion of such rentals received from such reletting during any month, which is applied to the payment of rent hereunder, be less than the rent payable during that month by Tenant hereunder, then Tenant shall pay such deficiency to Landlord within thirty (30) days after demand therefor by Landlord. Such deficiency shall be calculated and paid monthly. Tenant shall also pay to Landlord, as soon as ascertained, any costs and expenses incurred by Landlord in such reletting or in making such alterations and repairs not covered by the rentals received from such reletting. (d) Tenant hereby expressly waives any and all rights to possession of the Premises granted by or under any present or future Applicable Law in the event of Tenant's being lawfully physically evicted or dispossessed, or in the event Landlord's lawfully obtaining actual possession of the Premises, by reason of the violation by Tenant of any of the terms, covenants, conditions, provisions or agreements of this Lease. (e) All rights, options and remedies of Landlord contained in this Lease shall be construed and held to be cumulative, and no one of them shall be exclusive of the other, and Landlord shall have the right to pursue any one or all of such remedies or any other remedy or relief which may be provided by law, whether or not stated in this Lease. No waiver of any default of Tenant hereunder shall be implied from any acceptance by Landlord of any rent or other payments due hereunder or any omission by Landlord to take any action on account of such default if such default persists or is repeated, and no express waiver shall affect defaults other than as specified in said waiver. The consent or approval of Landlord to or of any act by Tenant requiring Landlord's consent or approval shall not be deemed to waive or render unnecessary Landlord's consent or approval to or of any subsequent similar acts by Tenant. In the event of a breach or threatened breach by Tenant or Landlord of any of the terms, covenants, conditions, provisions or agreements of this Lease, Tenant or Landlord, as the case may be, shall, in addition to all of their respective rights and remedies, have the right of injunction, and where it is determined by judicial authority that a breach of this Lease has or was about to have occurred, the breaching party shall pay the premium for any bond required in connection with such injunction. 26. ASSIGNMENT AND SUBLETTING. (a) Except as expressly stated below, Tenant shall not voluntarily assign or encumber its interest in this Lease or in the Premises or sublease all or any part of the Premises, or allow any other person or entity to occupy or use all or any part of the Premises. Any assignment, encumbrance or sublease which does not comply with the terms and provisions of this Section 26 shall be voidable at Landlord's election, and, if Landlord shall have notified Tenant of Landlord's disapproval of such assignment, encumbrance or sublease, then such assignment, encumbrance or sublease by Tenant shall constitute a default. (1) Without Landlord's consent, Tenant may assign this Lease in its entirety or sublet all or any portion of the Premises to: (w) any entity resulting from a merger or consolidation with Tenant or any organization purchasing all or substantially all of Tenant's assets; or (x) any entity succeeding to all or substantially of the business or assets of Tenant; or (y) any entity which acquires all or substantially all of Tenant or (z) any Affiliate of Tenant, as defined below (collectively, "Permitted Assignee"); provided, that in each of the foregoing instances, such other entity shall assume in writing all of Tenant's obligations hereunder; provided further, that such assignment or subletting will not cause a material denigration of Tenant's financial condition, which in Landlord's reasonable opinion would affect Tenant's ability to fulfill its respective obligations as they become due. The term "Affiliate", means any entity directly or indirectly, through one or more intermediaries, controlling, " as used in the immediately preceding sentence, means the right to the exercise, directly or indirectly, of more than fifty percent (50%) of the voting rights attributable to the interest in the controlled entity. No consent to an assignment, encumbrance or sublease shall constitute a further waiver of the provisions of this Section 26. In the event of an assignment or subletting pursuant to this Subparagraph 26(a)(i), Tenant shall retain 100% of any and all Net Profits (as defined below). (2) Subject to the terms and conditions stated herein, Tenant may assign or sublease any portion of the Premises to any entity which is not a Permitted Assignee with Landlord's prior written approval, which approval shall not be unreasonably withheld, conditioned or delayed beyond the later of thirty (30) days after Landlord's receipt of Tenant's request or ten (10) days after Landlord's receipt of all information reasonably requested by Landlord and information provided herein required in connection with such assignment or sublease. No consent to any such assignment or sublease shall constitute a further waiver of the provisions of this Section 26. In such event, Tenant and Landlord shall evenly divide any and all Net Profits applicable to the Term. "Net Profits" means the gross revenue, including without limitation, any and all rent, fees, charges and other consideration received by Tenant from any assignee or sublessee with respect to the space covered by the sublease or the assignment during the sublease term or during the assignment ("Transferred Space") (as opposed to the sale of its business but based on the then Fair Market Rental Rate of the Transferred Space) less: (a) the gross revenue paid to Landlord by Tenant during the period of the sublease term or during the assignment with respect to the Transferred Space; (b) the gross revenue as to the Transferred Space paid to Landlord by Tenant for all days the Transferred Space was vacated from the date that Tenant first vacated the Transferred Space until the date the assignee or sublessee was to pay Rent; (c) any improvement allowance or other economic concession (planning allowance, moving expenses, etc.), paid by Tenant to sublessee or assignee; (d) brokers' commissions; (e) attorneys' fees; (f) lease takeover payments; (g) costs of advertising the space for sublease or assignment; and (h) unamortized cost of initial and subsequent improvements to the Premises by Tenant; provided, however, under no circumstance shall Landlord be paid any Profits until Tenant has recovered all the items set forth in subparts (a) through (h) for such Transferred Space, it being understood that if in any year the gross revenues, less the deductions set forth in subparts (a) through (i) ("Net Revenues"), are less than any and all costs actually paid in assigning or subletting the affected space (collectively, "Transaction Costs"), the amount of the excess Transaction Costs shall be carried over to the next year and then deducted from Net Revenues with the procedure repeated until a Profit is achieved. (3) It is agreed that fifty percent (50%) of all Net Profits are expressly reserved from the grant of Tenant's leasehold estate hereunder except to the extent otherwise expressly provided above. Landlord shall have the right to fifty percent (50%) of Net Profits regardless of whether (i) the instrument effecting any assignment or sublease provides the right to Landlord, or (ii) Landlord has approved such an instrument which fails to provide such right to Landlord. (4) During the Term, Landlord shall not have the right to recapture any portion of the Premises that Tenant proposes to assign or sublease. (b) In connection with any assignment or sublease where Landlord's consent or approval is required, Tenant shall notify Landlord in writing of Tenant's intent to assign, encumber or sublease this Lease, the name of the proposed assignee or sublessee, information concerning the financial responsibility of the proposed assignee or sublessee and the terms of the proposed assignment or subletting. Where Landlord's approval of an assignment or sublease is required, Landlord's disapproval shall be deemed reasonable if it is based on Landlord's analysis of (1) the proposed assignee's or sublessee's credit character and business or professional standing or, (2) whether the assignee's or sublessee's use and occupancy of the Premises will be consistent with Subparagraph 1(u) and Section 8 above; provided, however, that the basis for Landlord's disapproval shall not be limited to those set forth in clauses (1) and (2) above, but Landlord's approval shall not be unreasonably withheld. Notwithstanding the foregoing, it shall be unreasonable for Landlord to withhold its consent herein on the basis that the proposed transferee is an existing or prospective tenant of the Building or the Project. Furthermore, Landlord shall not withhold its consent, if such consent is otherwise required of Landlord, to any assignment or sublease which Tenant has successfully negotiated with any other tenant or occupant of the Building or the Project, provided Tenant is the transferee. (c) As a condition for granting its consent to any assignment, encumbrance or sublease, Landlord may require that the assignee or sublessee remit directly to Landlord on a monthly basis, all monies due to Tenant by said assignee or sublessee if Landlord has a reasonable and good faith reason for the requirement of such condition based on circumstances relating to Tenant or the transferee. A condition to Landlord's consent to any assignment, transfer or hypothecation of this Lease shall be the delivery to Landlord of a true copy of the fully executed instrument of assignment, transfer or hypothecation, and the delivery to Landlord of an agreement executed by the assignee in form and substance satisfactory to Landlord and expressly enforceable by Landlord, whereby the assignee assumes and agrees to be bound by all the applicable terms and provisions of this Lease and to perform all of the applicable obligations of Tenant hereunder. As a condition to Landlord's consent to any sublease, such sublease shall provide that it is subject and subordinate to this Lease and to all mortgages; that Landlord shall have the right to enforce the terms and provisions of this Lease directly against such sublease to the extent applicable to the sublease space; that Landlord may enforce the provisions of the sublease, including collection of rent; that in the event of termination of this Lease for any reason, including without limitation a voluntary surrender by Tenant, or in the event of any reentry or repossession of the Premises by Landlord, Landlord may, at its option, either (i) terminate the sublease, unless Landlord has entered into a non-disturbance agreement with such sublessee, or (ii) take over all of the right, title and interest of Tenant, as sublessor, under such sublease, in which case such sublessee shall attorn to Landlord and Landlord shall recognize such sublease at the rate per RSF that is equal to the higher of the rate per RSF in this Lease or the rate per RSF in the Sublease, but that nevertheless Landlord shall not (1) be liable for any previous act or omission of Tenant under such sublease, (2) be subject to any defense or offset previously accrued in favor of the sublessee against Tenant, or (3) be bound by any previous modification of any sublease made without Landlord's written consent, or by any previous prepayment by sublessee of more than one month's rent. Such sublessee shall execute a written agreement with Landlord acknowledging such sublessee's agreement to the foregoing. Landlord's rights to so enforce the terms of this Lease and such sublease as against such sublessee shall not in any way be construed as expanding or adding to any of the rights of such sublessee under any such sublease, nor a waiver or release of Tenant's obligations under the terms of this Lease. (d) Landlord's waiver or consent to any assignment or subletting shall not relieve Tenant or any assignee or sublessee from any obligation under this Lease whether or not accrued. No consent to an assignment, encumbrance or sublease shall constitute a further waiver of the provisions of this Section 26. (e) Notwithstanding anything to the contrary in the Lease, Tenant shall not be deemed to have waived any of its rights under California Civil Code Section 1995.310, except to the extent inconsistent with the terms and provisions of this Section 26. (f) Tenant may allow any person or company which is a client or customer of Tenant or which is providing service to Tenant or one of Tenant's clients to occupy as a permittee certain portions of the Premises without such occupancy being deemed an assignment or subleasing (or otherwise constituting a leasehold interests) as long as no new demising walls are constructed to accomplish such occupancy, such relationship was not created as a subterfuge to avoid the obligations set forth in this Section 26, such person or company, together with all other such persons or companies occupying the Premises, do not occupy in the aggregate more than fifteen percent (15%) of the total RSF of the Premises, and such person or company is not making any payment of rent or other fee (other than utility or other reimbursable charges such as photocopy, telephone and food charges) for the use of such space. 27. SUBORDINATION. (a) Subject to Section 4, without the necessity of any additional document being executed by Tenant for the purpose of effecting a subordination, and at the election of Landlord or any mortgagee with a lien on the Building or any ground lessor with respect to the Building, this Lease shall be subject and subordinate at all times to: (1) all ground leases or underlying leases which may now exist or hereafter be executed affecting the Building or the land upon which the Building is situated or both; and (2) the lien of any mortgage or deed of trust which may now exist or hereafter be executed in any amount for which the Building, land, ground leases or underlying leases, or Landlord's interest or estate in any of said items is specified as security. (b) Subject to Section 4, Landlord shall have the right to subordinate or cause to be subordinated any such ground leases or underlying leases or any such liens to this Lease. In the event that any ground lease or underlying lease terminates for any reason or any mortgage or deed of trust is foreclosed or a conveyance in lieu of foreclosure is made for any reason, Tenant shall, notwithstanding any subordination, attorn to and become the Tenant of the successor-in-interest to Landlord, and, in such event, Tenant's right to possession of the Premises shall not be disturbed except in accordance with the terms of this Lease. Tenant covenants and agrees to execute and deliver, upon demand by Landlord and consistent with the form attached hereto as Exhibit "H" (and including therein such other provisions reasonably required by the ground lessor or holder of lien) evidencing the priority or subordination of this Lease with respect to any such ground leases or underlying leases or the lien of any such mortgage or deed of trust. Should Tenant fail to sign and return any such documents within ten (10) business days of request, Tenant shall be deemed to have fully approved, executed and delivered such documents, and such documents shall be binding upon and enforceable against Tenant as if Tenant had actually duly signed and delivered the same. 28. ESTOPPEL CERTIFICATE. (a) Within ten (10) business days from and after any written request which Landlord or Tenant may make from time to time, the other party shall execute and deliver to the requesting party a statement, in a form substantially similar to the form of Exhibit "E" certifying: (i) the date of commencement of this Lease; (ii) the fact that this Lease is unmodified and in full force and effect (or, if there have been modifications hereto, that this Lease is in full force and effect, and stating the date and nature of such modifications); (iii) the date to which the rental and other sums payable under this Lease have been paid; (iv) that there are no current defaults under this Lease by either Landlord or Tenant except as specified in the replying party's statement; and (v) such other commercially reasonable matters requested by the requesting party. Landlord and Tenant intend that any statement delivered pursuant to this Section 28 may be relied upon by any mortgagee, beneficiary, purchaser or prospective purchaser of the Building or any interest therein or by any prospective assignee or sublessee of the Premises. (b) The non-requesting party's failure to deliver such statement within such time shall be conclusive upon the non-requesting party (i) that this Lease is in full force and effect, without modification except as may be represented by the requesting party, (ii) that there are no uncured defaults in the requesting party's performance, and (iii) that not more than one (1) month's rental has been paid in advance. 29. SIGNS. 29.1 Tenant, at Tenant's sole cost and expense, may initially install the following signage: (a) professionally designed identification signs on all main entrances to the Premises, on each floor that is open to the general public, and on corridor and/or exterior doors which open into the Premises. (b) on the Building directory information board; (c) top of Building signage provided Tenant at all times leases and occupies at least two (2) full floors of the Building; (d) a non-exclusive exterior monument sign indicating Tenant's corporate name on the existing monument sign at the Mureau Road entrance to the Project, as depicted on the Site Plan as "Monument Sign "A""; Tenant shall be entitled to the top tenant position thereon, and all other tenant identification panels and lettering on said Monument Sign "A" shall be no larger in size than the maximum size which Tenant is allowed under the terms of this Lease (or under Applicable Law) for such identification panels and lettering. To the extent available, Tenant shall have the limited right to place identification signage on the monument sign at the Las Virgenes Road entrance to the Project, as depicted on the Site Plan as "Monument Sign "B,"" once the same is constructed; provided, however, Tenant's signage on Monument Sign "B," if any, shall be subordinate to all other signs thereon which identify the Project, building 7 and/or the restaurant and retail tenants of the Project, and the size and location of Tenant's signage on said Monument Sign "B" shall be subject to Landlord's reasonable approval. Tenant's signage rights herein shall be at all times subject to compliance with Applicable Law. (e) once and for so long as Tenant leases the entire Building, any other sign or signs that Tenant elects to install on the Building to the extent permitted by Applicable Law. Tenant's signage rights shall be subject to restrictions imposed by Applicable Law, and shall otherwise be reasonably satisfactory to Landlord. 29.2 Tenant, at Tenant's sole expense, shall maintain and keep in good repair all of its signs and connections and shall pay for all charges required to keep them in good repair and clean condition. Upon termination of this Lease, Tenant shall promptly remove all such signs (leaving monument intact) and repair any damage caused by such removal, at its own expense. Tenant shall be responsible for all costs associated with the fabrication, installation, maintenance and repair of the signage. If Tenant shall fail to keep its exterior signage in good condition and repair, then Landlord shall have the right to perform the same after providing Tenant with at least five (5) business days' notice. If Tenant has not commenced performance within such five (5) business day period and thereafter diligently pursued the same to completion, then Landlord may perform the same at Tenant's sole cost and expense, which amount shall be payable as "rent" under this Lease within thirty (30) days after written demand is made on Tenant. 29.3 Landlord shall use its commercially reasonable efforts to cooperate with Lessee in obtaining all necessary governmental approvals and permits for the installation of Tenant's signage on the Building Project. Tenant shall be responsible for all materials, labor, installation, maintenance and utility costs with respect to such signs. At the termination of this Lease, unless Landlord otherwise requires, Tenant shall remove such signs and repair any damage to the Building caused thereby at Tenant's sole cost and expense. 29.4 Provided Tenant leases at least two (2) entire floors of the Building, Tenant shall have the sole and exclusive sign rights attributable to the Building and Landlord shall not permit any other signs in or on the Building except directional signs and signs required by law. If Tenant leases at least one (1) entire floor of the Building, but less than two (2) entire floors, Tenant shall have the non-exclusive right to place its signs in and on the Building in proportion to the RSF then leased by Tenant in the Building over the total RSF of the Building. In the event that Tenant leases less than one (1) entire floor of the Building, then Tenant shall immediately remove, at Tenant's sole cost and expense, the exterior building signs constructed pursuant hereto, promptly repair any damage caused thereby, and Tenant shall no longer be entitled to place identification signage on the Building exterior, unless otherwise approved by Landlord in writing, which approval may be withheld at Landlord's sole discretion. 29.5 No sign shall be placed on the Building (except for the Building directory) which identifies any person, company or entity which is a "competitor" of Tenant (as hereinafter defined). Under no circumstances shall the Building be named after or referred to utilizing the name of a competitor of Tenant. Tenant may transfer such sign rights to any assignee or sublessee. For purposes of the Lease, a "competitor" of Tenant shall be a person or entity whose primary business is sale of insurance. 30. RULES AND REGULATIONS. (a) Tenant shall faithfully observe and comply with the "Rules and Regulations," a copy of which is attached hereto and marked Exhibit "F", and all reasonable and nondiscriminatory modifications thereof and additions thereto from time to time put into effect by Landlord provided Tenant has received such modifications and additions in writing, to the extent not inconsistent with the express terms of this Lease. Landlord covenants that it will use its commercially reasonable efforts to enforce the Rules and Regulations against all tenants and in a uniform manner which shall unreasonably interfere with the normal and customary use of the Premises by Tenant for normal and customary business office operations permitted under Subparagraph 1(u). Landlord shall not be responsible to Tenant for the violation or non-performance by any other tenant or occupant of the Building of any of said Rules and Regulations, unless such other tenant or party is the Landlord, and/or its agents or its employees, and then only to the extent expressly provided in this Lease. (b) Landlord agrees that the Rules and Regulations of the Building, attached to and made a part of this Lease, shall not be changed or revised or enforced in any unreasonable way by Landlord nor enforced or changed by Landlord in such a way as to interfere with the uses expressly permitted under this Lease. 31. BANKRUPTCY. In the event that the obligations of Landlord under this Lease are not performed during the pendency of a bankruptcy or insolvency proceeding involving Landlord as the debtor, or following the rejection of this Lease in accordance with Section 365 of the United States Bankruptcy Code, then notwithstanding any provision of this Lease to the contrary, Tenant shall have the right to set off against Rents next due and owing under this Lease (a) any and all damages caused by such non-performance of Landlord's obligations under this Lease by Landlord, debtor-in-possession, or the bankruptcy trustee, and (b) any and all damages caused by the non-performance of Landlord's obligations under this Lease following any rejection of this Lease in accordance with Section 365 of the United States Bankruptcy Code. 32. SECURITY. Landlord shall provide at Tenant's sole cost, risk and expense, building security, equipment, personnel, procedures and systems as Tenant may require, except that the cost of drive-by security and a key entrance system shall be maintained as an Operating Expense under Section 6 above. In all events, unless expressly provided herein, Landlord shall not be liable to Tenant, and Tenant hereby waives any claim against Landlord, for any unauthorized or criminal entry of third parties into the Premises or the Building, including, without limitation, the parking areas of the Development, and/or for any damage to persons, including, without limitation, Tenant, its employees, agents, licensees and/or invitees or loss of property in and about the Premises, the Building, the Development, the parking area and the approaches, entrances, streets, sidewalks or corridors thereto, by or from any unauthorized or criminal acts of third parties, regardless of any action, inaction, failure, breakdown, malfunction and/or insufficiency of the security measures, practices or equipment provided by Landlord. Landlord acknowledges that Tenant shall be permitted at its sole cost and expense to install its own security system in the Premises subject to the approval of Landlord, which approval shall not be unreasonably withheld, conditioned or delayed. Tenant hereby agrees to indemnify and hold Landlord harmless from and against any and all loss, costs and/or obligations relating to Tenant's own security system, unless expressly provided herein. 33. SURRENDER OF PREMISES. The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation thereof, shall not work a merger, and shall, at the option of Landlord, terminate any or all existing subleases or subtenancies, or may, at the option of Landlord operate as an assignment to it of any or all subleases or subtenancies. Upon the expiration or termination of this Lease, Tenant shall peaceably surrender the Premises and all alterations and additions thereto, broom clean the Premises, leave the Premises in good order, repair and condition, reasonable wear and tear and damage from casualty excepted, and comply with the provisions of Section 15 above. No act or thing done by either party or such party's agents during the Term shall be deemed a surrender of the Premises except by written agreement signed by both parties. No employee of either party shall have any power to accept or deliver the keys of the Premises prior to the expiration or earlier termination of this Lease. Upon the expiration or earlier termination of this Lease, Tenant shall have the right to remove its personal property and fixtures provided Tenant repairs any damage to the Premises or the Building as a result thereof. 34. 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, unless expressly provided otherwise herein. If Tenant shall fail to pay any sum of money owed to any party other than Landlord, for which it is liable hereunder, or if Tenant shall fail to perform any other act on its part to be performed hereunder, and such failure shall continue for thirty (30) days (or shorter time if reasonably required) after notice thereof by Landlord, Landlord may, without waiving or releasing Tenant from obligations of Tenant, but shall not be obligated to, 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 thereon at the Interest Rate, from the date of such payment by Landlord, shall be payable to Landlord as additional rent on demand. Tenant covenants to pay any such sums, and Landlord shall have (in addition to any other right or remedy of Landlord) all rights and remedies in the event of the nonpayment thereof as in the case of default by Tenant in the payment of rent. 35. MORTGAGE AND SENIOR LESSOR PROTECTION. No act or failure to act on the part of Landlord which would entitle Tenant under the terms of this Lease, or by law, to be relieved of Tenant's obligations hereunder or to terminate this Lease, shall result in a release of such obligations or a termination of this Lease, unless Tenant has satisfied the provisions set forth on Exhibit "H" concerning the rights of the beneficiary of any deed of trust or mortgage covering the Premises and to the lessor under any master or ground lease covering the Building or the Development or interest therein and whose identity and address shall have been furnished to Tenant. 36. DEFINITION 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 title of the Premises or the lessees under any ground lease, if any. In the event of any transfer, assignment or other conveyance or transfers of any such title, Landlord herein named (and in case of any subsequent transfers 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 respects the performance of any covenants or obligations on the part of Landlord contained in this Lease thereafter to be performed provided the transferee of such title shall have assumed and agreed to observe and perform any and all obligations of Landlord hereunder. 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. 37. PARKING. (a) Tenant shall have the exclusive right to the use of the parking spaces within the Parking Area, as shown on the Parking Plan attached hereto as Exhibit "A-IV." Tenant's use of the Parking Area for parking purposes shall be at no additional charge to Tenant (except for Operating Expenses relating thereto). All of such parking spaces shall be designated as "reserved." Landlord agrees to use its good faith efforts (without the requirement of Landlord to expend money or commence legal or administrative action, unless Tenant agrees to bear the cost thereof, and further agrees to indemnify, protect, defend and hold Landlord harmless from any liability, cost, expense or loss incurred in connection therewith) to provide to Tenant up to ten (10) covered parking spaces (such spaces to be included in the calculation of the Parking Ratio set forth in Subparagraph 1(z)), provided that (i) "covered parking" shall be construed to mean covered by a non-structural awning, canopy, or otherwise, but not enclosed or underground parking, and (ii) all costs and expenses of providing such covered parking, including without limitation, design, construction and permitting costs and expenses, and all insurance costs related thereto, shall be borne entirely by Tenant. Upon receipt of Landlord's invoice, or partial invoices, for the same, Tenant shall either promptly reimburse Landlord for the cost thereof or elect to reduce the Tenant Improvement Allowance by such cost. (b) At any time during the Term where Tenant does not have the exclusive use of all parking spaces in the Development: (i) 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 it is necessary for orderly and efficient parking, provided it does not reduce Tenant's overall parking below that of 3.6 spaces per 1,000 RSF of the Premises. (ii) Tenant shall use its commercially reasonable efforts to prohibit any vehicles that belong to or are controlled by Tenant or Tenant's employees, suppliers, shippers, customers or invitees to be loaded, unloaded or parked in areas other than those designated by Landlord for such activities. (c) The use by Tenant, its employees and invitees, of the Parking Area of the Development shall be on the terms and conditions set forth in Exhibit "G" attached hereto, and shall be subject to such other agreement between Landlord and Tenant as may hereinafter be established. Landlord reserves the right to modify, add to, or delete from time to time such Parking Rules and Regulations as it deems reasonably necessary for the operation of said parking provided Tenant has received such modification, addition and deletions in writing; provided, however, that Tenant shall always have the right to use the Parking Area twenty-four (24) hours a day, seven (7) days a week, every day of the year; provided, however, that Tenant acknowledges that during construction of the Project or for safety reasons, Landlord may require temporarily that Tenant not use a certain portion of the parking area, provided Tenant's lack of use shall not materially and adversely impact Tenant's overall access and use of the Parking Area or access to the Premises. Landlord covenants that it will use its commercially reasonable efforts to enforce such Parking Rules and Regulations against all users of the parking facilities and in a uniform manner. Landlord may refuse to permit any person who frequently violates the Parking Rules and Regulations to park in the Development Parking Area, and frequent and notified violations shall be subject to car removal. (d) Tenant shall submit a written notice in a form reasonably specified by Landlord, containing the names, office address and office telephone numbers of those persons who are authorized by Tenant to use the parking spaces (the "Authorized Users") and shall use its commercially reasonable efforts to identify each automobile by make, model and license number. Such notice shall be served upon Landlord prior to the beginning of the Term. Such notice, as amended from time to time, is hereafter referred to as the "Parking Notice." (e) Notwithstanding the foregoing, Tenant's parking rights shall be subject to all federal, state and local laws and ordinances pertaining to reserve parking, including, without limitation, traffic management ordinances and regulations established by regulatory agencies having jurisdiction over the Development, and Tenant agrees to fully cooperate with Landlord in its observance of such laws and ordinances. (f) Landlord shall have the one-time right, at its election and upon ten (10) days' prior notice to Tenant, to relocate up to twenty (20) of Tenant's parking spaces within the Parking Area from the area designated as location "1" on the Parking Plan to the area designated as location "2" on said Parking Plan. 38. OPTION TO PURCHASE. (a) In consideration for Tenant's execution hereof, Tenant shall have the option to purchase ("Purchase Option") the Development, including the Building, Parking Area, and any improvements and appurtenances thereof, as more particularly described in that certain Option Agreement attached hereto as Exhibit I. (b) Notwithstanding the foregoing, no exercise of any of Tenant's rights under this Section 38 shall be valid unless and until Tenant shall have cured, in the time and manner required under this Lease, any valid notice of default given to Tenant under the terms of this Lease, and which cure must be effected as a condition to any purchase under the Purchase Option. Tenant acknowledges and agrees that no exercise of Tenant's rights pursuant to the Purchase Option shall affect or limit Landlord's rights or remedies if Tenant is in default under this Lease. Accordingly, any rent due but not yet paid on the date fee title to the Development is conveyed to Tenant is expressly reserved from such conveyance. 39. FORCE MAJEURE. "Force Majeure" shall mean any actual delay due to strike, other labor trouble, governmental preemption of priorities or other controls in connection with a national or other public emergency, weather conditions, or shortages of fuel, supplies, construction materials or labor resulting therefrom, or any other cause, whether similar or dissimilar to the above, beyond a party's reasonable control (but specifically excluding governmental delays encountered by Tenant in connection with the issuance of all necessary permits, certificates and approvals required as a condition to Tenant's construction and/or completion of the Tenant Improvements, or Tenant's occupancy of the Premises or any portion thereof). Except as to Tenant's obligation to pay rent at the times and in the manner stated in this Lease, neither party ("Nonperforming Party") shall incur any liability whatsoever to the other party, and the Nonperforming Party's obligations hereunder shall be extended on account of Force Majeure. Except as to Tenant's obligations to pay rent at the times and in the manner stated in this Lease, if this Lease specifies a time period for performance of an obligation of the Nonperforming Party, that time period for performance shall be extended by the period of any delay in the Nonperforming Party's performance caused by any of the events of Force Majeure described above. 40. LIMITATION ON LIABILITY. In consideration of the benefits accruing hereunder, Tenant and all successors and assigns covenant and agree that, in the event of any actual or alleged failure, breach or default hereunder by Landlord the sole and exclusive remedy shall be against the Landlord's interest in the Building. The obligations of Landlord under this Lease do not constitute personal obligations of the individual directors, officers or shareholders of Landlord, and Tenant shall not seek recourse against the individual directors, officers or shareholders of Landlord or any of their personal assets for satisfaction of any liability in respect to this Lease. These covenants and agreements are enforceable both by Landlord and also by any directors, officers or shareholders of Landlord. 41. MODIFICATION FOR LENDER. If, in connection with obtaining construction, interim or permanent financing for the Building and/or the Development, any lender of Landlord 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 Tenant's rent obligations hereunder or materially increase Tenant's non-rent obligations hereunder or adversely affect Tenant's right to quiet enjoyment of its leasehold created hereunder. 42. ACCESS. Subject to emergency or other causes outside of the reasonable control of Landlord, Tenant shall be granted access to the Building, the Premises, and the Parking Area twenty-four (24) hours per day, seven (7) days per week, every day of the year. Tenant acknowledges and agrees that although Landlord provides security to the Building during normal business hours, and that Landlord uses its good faith commercially reasonable efforts to keep the Building and users thereof reasonably safe, that, notwithstanding anything to the contrary in this Lease, Landlord shall have no responsibility or liability to Tenant or its employees, agents, consultants, guests or contractors for any failure of or break down in security in the Building, or for any damage or injury to person or property. 43. QUIET ENJOYMENT. Landlord covenants and agrees with Tenant that upon Tenant's paying the rent required under this Lease and paying all other charges and performing all of the covenants and provisions aforesaid on Tenant's part to be observed and performed under this Lease, Tenant shall and may lawfully, peaceably and quietly have, hold and enjoy the Premises in accordance with this Lease without hindrance, disturbance or ejection by Landlord or any other person claiming through Landlord. 44. CONFIDENTIALITY. Landlord and Tenant agree to keep the terms of this Lease confidential except as reasonably necessary or appropriate in connection with development, construction and operation of the Development, and as each party may disclose to its professionals, consultants and affiliates. Further, Landlord and Tenant expressly agree that they and their respective agents and representatives are not authorized to announce this Lease until Landlord and Tenant have reviewed and approved any press releases or similar items to be released by Landlord, its agents and representatives. 45. CONSENT/DUTY TO ACT REASONABLY. Whenever the consent of Landlord or Tenant is required under the Lease, such consent shall not be unreasonably withheld or delayed, unless another standard is specifically stated otherwise herein. Notwithstanding anything in this Lease to the contrary, Tenant acknowledges that Landlord may withhold its consent and/or approval in its sole and absolute discretion with respect to any proposed Tenant action which: (a) would have an adverse effect on the structural integrity of the Building Structure (as defined below); (b) is visible from the exterior of the Premises; (c) would have an adverse effect on the Building Systems to abate or reduce noise or vibrations which could affect other tenants in the Building; (d) in Landlord's reasonable judgment might materially and adversely affect the other tenant's use of the Common Areas or other tenants in the Building or the Project or increase Landlord's cost to operate the Building or Development, unless Tenant agrees to pay for such increased costs; (e) would result in a violation of Applicable Law, any recorded CC&Rs and/or REAs, or any Rules and Regulations promulgated by Landlord from time to time, subject to the restrictions set forth herein whereupon in each such case Landlord's duty is to act in good faith and in compliance with the Lease. Except as otherwise provided, whenever the Lease grants Landlord or Tenant the right to take action, exercise discretion, establish rules and regulations, or make an allocation or other determination (other than decisions to exercise expansion, contraction, cancellation, termination or renewal options), Landlord and Tenant shall reasonably act in good faith and take no action which might result in the frustration of the other party's reasonable expectations concerning the benefits to be enjoyed under the Lease. 46. CONFLICT OF LAWS. This Lease shall be governed by and construed pursuant to the laws of the State of California. 47. SUCCESSORS AND ASSIGNS. Except as otherwise provided in this Lease, all of the covenants, conditions and provisions of this Lease shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and assigns. 48. ATTORNEYS' FEES. If either party becomes a party to any litigation concerning this Lease, the Premises, or the Development, by reason of any act or omission of the other party or its authorized representatives, and not by reason of any act or omission of the party that becomes a party to that litigation, or any act or omission of its authorized representatives, the prevailing party shall be entitled to have and recover from the losing party reasonable attorneys' fees and court costs. If either party commences any action against the other party arising out of or in connection with this Lease, or institutes any proceeding in a bankruptcy or similar court which has jurisdiction over the other party or any or all of its property or assets, or appeals from any judgment in favor of the other party, the prevailing party shall be entitled to have and recover from the losing party reasonable attorneys' fees and court costs. 49. WAIVER. The failure of either party to seek redress of, or to insist upon the strict performance of, any term, covenant, condition or agreement in this Lease or in the Rules and Regulations shall not be deemed to be a waiver by such party of such breach or violation or prevent a subsequent act by the other party from having the same force and effect of any original violation or be deemed a waiver of any subsequent breach of the same or any other term, covenant, condition or agreement herein contained, nor shall any custom or practice which may grow up between the parties in the administration of the terms hereof be deemed a waiver of or in any way affect the right of any party to insist upon the performance by the other party in strict accordance with terms of this Lease. The subsequent acceptance of rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, other than the failure of Tenant to pay the particular rent so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such rent. No acceptance by Landlord of a lesser sum than the basic rental and additional rent or other sum then due shall be deemed to be other than on account of the earliest installment of such rent or other amount due, nor shall any endorsement or statement on any check or any letter accompanying any check 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 installment or other amount or pursue any other remedy in this Lease provided. 50. SEVERABILITY. Any provision of this Lease which shall prove to be invalid, void or illegal in no way affects, impairs or invalidates any other provision hereof, and such other provisions shall remain in full force and effect. 51. TERMS AND HEADINGS. The words "Landlord" and "Tenant" as used herein shall include the plural as well as the singular. Words used in one gender include the other gender. The paragraph headings of this Lease are not a part of this Lease and shall have no effect upon the construction or interpretation of any part hereof. 52. TIME. Time is of the essence with respect to the performance of every provision of this Lease in which time of performance is a factor. Unless expressly stated otherwise, all reference to days means calendar days. 53. PRIOR AGREEMENT; AMENDMENTS. This Lease contains all of the agreements of the parties hereto with respect to any matter covered or mentioned in this Lease, and no prior agreement or understanding pertaining to any such matter shall be effective for any purpose. No provision of this Lease may be amended or added to except by an agreement in writing signed by the parties hereto or their respective successors-in-interest. 54. TENANT AS CORPORATION. If Tenant executes this Lease as a corporation, then Tenant and the persons executing this Lease on behalf of Tenant represent and warrant that the individuals executing this Lease on Tenant's behalf are duly authorized to execute and deliver this Lease on its behalf in accordance with a duly adopted resolution of the board of directors of Tenant, a copy of which is to be delivered to Landlord on execution hereof, and in accordance with the bylaws of Tenant, and that this Lease is binding upon Tenant in accordance with its terms. 55. APPROVALS. The submission of this Lease to Tenant or its broker or other agent does not constitute an offer to Tenant to Lease the Premises. This instrument shall have no force and effect until this Lease has been executed and delivered by Tenant to Landlord and executed by Landlord. 56. NO PARTNERSHIP OR JOINT VENTURE. Nothing in this Lease shall be deemed to constitute Landlord and Tenant as partners or joint venturers. It is the express intent of the parties hereto that their relationship with regard to this Lease be and remain that of landlord and tenant. 57. RULE AGAINST PERPETUITIES. Anything in this Lease to the contrary notwithstanding, all of the transactions and transfers contemplated by this Lease, must be consummated, if at all, within the time permitted by the rule against perpetuities, including codification thereof, enforced in the State of California. 58. RIGHT TO TERMINATE. 58.1 Notwithstanding anything in either Lease Sections 23 or 24 to the contrary, and except as expressly set forth in Subsection (b) below, in the event that Tenant is notified or becomes aware of the fact that: (i) damage or destruction to the Premises, the Parking Area and/or the Building or any part thereof so as to interfere substantially with Tenant's use of the Premises, the Parking Area and/or the Building; (ii) a taking by eminent domain or exercise of other governmental authority of the Premises, the Parking Area and/or the Building or any part thereof so as to interfere substantially with Tenant's use of the Premises, the Parking Area and/or the Building; (iii) the inability of Landlord to provide services to the Premises, the Parking Area and/or the Building so as to interfere substantially with Tenant's use of the Premises, the Parking Area and/or the Building; or (iv) any discovery of hazardous substances in, on or around the Premises, the Building and/or the Project not placed in, on or around the Premises, the Building and/or the Project by Tenant, that may, considering the nature and amount of the substances involved, interfere with Tenant's use of the Premises or which present a health risk to any occupants of the Premises) (each of the items set forth in provision (a)(i),(ii), (iii) and (iv) being referred to herein as a "Trigger Event"), and as a result thereof, Tenant cannot, within twelve (12) months ("Non-Use Period") of the occurrence of the Trigger Event, be given reasonable use of, and access to, a fully repaired and restored (subject to changes required by Applicable Law) Premises,the Parking Area and Building (except for minor "punch-list" items (i.e., items which are not so substantial that they prevent Tenant from having reasonable use and access to the Premises, Parking Area or Building) which will be repaired promptly thereafter), and the utilities and services pertaining to the Premises, the Parking Area and the Building, all suitable for the efficient conduct of Tenant's business therefrom, and Tenant does not use the Premises, Parking Area and Building during such Non-Use Period, then Tenant may elect to exercise an ongoing right to terminate the Lease upon ten (10) days' written notice sent to Landlord at any time following the expiration of the Non-Use Period. 58.2 In the event of any Trigger Event occurring during the last year of the Lease Term (as may be extended by any option to extend granted herein), should the Non-Use Period continue for sixty (60) days, Tenant may elect to exercise an on-going right to terminate the Lease upon ten (10) days' written notice sent to Landlord at any time following the expiration of the Non-Use Period. 59. INTEREST RATE. The "Interest Rate" is defined as the lesser of (a) (2%) in excess of the prime reference rate of interest established for commercial loans announced publicly by Bank of America at its San Francisco Headquarters, adjusted monthly on the first (1st) business day of each month to the then effective rate, such adjustment to be effective for the following month (or, if such bank ceases to exist, the rate publicly announced from time to time, by the largest (as measured by deposits) chartered bank operating in California as its Prime Rate, Reference Rate or other similar benchmark, plus two percent (2%)); or (b) the maximum rate permitted by law. 60. REFERENCES. All personal pronouns used in this Lease, whether used in the masculine, feminine or neuter gender, shall include all other genders; the singular shall include the plural, and vice versa, and references to "party" or "parties" shall refer solely to the parties signatory hereto except where otherwise specifically provided. All references in this Lease to Sections or Subparagraphs shall refer to the corresponding Section or Subparagraph of this Lease unless specific reference is made to another document or instrument. The use herein of the words "including" or "include" when following any general statement, term or matter shall not be construed to limit such statement, term or matter to the specific items or matters set forth immediately following such word or to similar items or matters, whether or not nonlimiting language (such as "without imitation," or "but not limited to," or words of similar import) is used with reference thereto, but rather shall be deemed to refer to all other items or matters that would reasonably fall within the broadest possible scope of such general statement, term or matter. The term "and/or" when used herein shall be construed to include every possible construction with "and" alone and every possible construction with "or" alone. All references to "mortgage" and "mortgagee" shall include deeds of trust and beneficiaries under deeds of trust, respectively. All Exhibits referenced herein and attached to this Lease are hereby incorporated in this Lease by this reference. If there is more than one Tenant, the obligations under this Lease imposed on Tenant shall be joint and several. The captions preceding the Sections and Subparagraphs of this Lease have been inserted solely as a matter of convenience and such captions in no way define or limit the scope or intent of any provision of this Lease. 61. RECOVERY AGAINST LANDLORD. Tenant shall look solely to Landlord's interest in the Building for the recovery of any judgment against Landlord. Landlord, or if Landlord is a partnership, its partners whether general or limited, or if Landlord is a corporation, its directors, officers and shareholders, shall never be personally liable for any such judgment. Any lien obtained to enforce any such judgment and any levy of execution thereon shall be subject and subordinate to all ground leases, or underlying leases, and the liens of all mortgages or deeds of trust referred to herein. 62. MEMORANDUM OF LEASE AND OPTION AGREEMENT. Concurrently with the execution of this Lease, Landlord shall execute and have its signature notarized on, a "Memorandum of Lease and Option Agreement" in the form of Exhibit "J" attached hereto and incorporated herein. Tenant shall also execute and notarize the Memorandum of Lease and Option Agreement, and shall cause the same to be recorded in the Official Records of Los Angeles County. IN WITNESS WHEREOF, the parties have executed this Lease as of the date first above written. LANDLORD:ACD2, a California corporation By:___________________________ Print name: _______________ Title: ____________________ TENANT: AMWEST INSURANCE GROUP, INC., a Delaware corporation By:___________________________ Print name: _______________ Title: ____________________ By:___________________________ Print name: _______________ Title: ____________________ EX-10.25 5 OPTION AGREEMENT EXHIBIT 10.25 OPTION AGREEMENT BETWEEN ACD2, a California corporation, OPTIONOR AND AMWEST INSURANCE GROUP, INC., a Delaware corporation OPTIONEE CALABASAS COMMERCE CENTER, BUILDING 6 TABLE OF CONTENTS Page 1. Grant of Option 1 2. Exercise of Option 2 3. Property Information, Access and Inspection 3 4. Purchase Price 8 5. Escrow Instructions 10 A. Opening of Escrow 10 B. Documents and Funds to be Delivered 10 C. Conditions to Close 13 D. Recordation and Transfer 14 E. Close of Escrow 15 F. Title Insurance Policy 15 G. Prorations 15 H. Optionor's Cooperation With Optionee 16 I. Costs 16 J. Failure to Close 16 6. Nominee/Assignment 17 7. Optionor's Representations and Warranties 17 A. Power and Authority of Optionor 17 B. Validity of Agreement 18 C. Leases and Rent Roll 18 D. Contracts 18 E. Hypothecation of Property Income 18 F. Operating Statements. 18 G. Hazardous Substances 19 H. Litigation 19 I. Compliance with Laws. 20 J. Land Use Regulations 20 K. Other Written Contracts 20 L. True Copies 20 M. Insolvency 21 N. Personal Property; Intangible Rights and Warranties 21 O. Optionor's Knowledge 21 8. Optionee's Representations and Warranties 21 A. Power of Authority of Optionee 22 B. Validity of Agreement 22 9. Change in Condition of Property 22 10. Covenants of Optionor and Optionee 23 A. Covenants of Optionor 23 B. Sale of Property 24 11. Recordation of Memorandum of Option 24 12. Waiver of Performance 24 13. Section Headings 25 14. Notices 25 15. Property "As Is" 26 A. Side Letter Agreement 26 B. No Other Side Agreements of Representations 26 C. AS IS CONDITION 26 16. Governmental Approvals 27 17. Determination of Land Value 28 18. Counterparts 30 19. Governing Law 30 20. Attorneys' Fees and Costs 30 21. Prior Agreements 30 22. Further Assurances 30 23. Successors and Assigns 30 24. Possession. 30 25. Severability 31 26. Performance Due on Non-Business Day 31 27. Amendments 31 EXHIBITS Exhibit A Legal Description of the Land Exhibit B Estoppel Certificate Exhibit C Purchase Price Calculation Exhibit D Grant Deed Exhibit E Assignment of Leases Exhibit F Bill of Sale Exhibit G Assignment and Assumption of Service Contracts Exhibit H Assignment of Intangible Property Exhibit I ss.1445 Affidavit Exhibit J California Real Estate Withholding Exemption Certificate Exhibit K Title Insurance Commitment Exhibit L Side Letter Agreement OPTION AGREEMENT THIS OPTION AGREEMENT (this "Agreement") is executed as of the 24th day of January, 1996 by ACD2, a California corporation ("Optionor"), and AMWEST INSURANCE GROUP, INC., a Delaware corporation ("Optionee"), with reference to the following facts: A. Optionor, as Landlord, and Optionee, as Tenant, are concurrently herewith entering into that certain Office Building Lease (the "Lease"), pursuant to which Optionee has agreed to lease initially from Optionor approximately 64,543 rentable square feet (the "Premises") in Building 6 (the "Building") to be constructed by Optionor together with the exclusive right to the use of certain parking spaces in the parking facilities related to the Building (the "Parking Area") and the non-exclusive right to use, in common with other tenants in the Building and the Development (as defined below), the Common Areas (as defined in the Lease) on the land described on Exhibit "A" attached hereto (the "Land") and which will be part of a larger business park known as the Calabasas Commerce Center (the "Project") in Calabasas, California. The Building, together with the Land, the Common Areas and all other easements, rights-of-way and licenses are known as and shall be referred to herein as the "Development". The Development is a portion of the Project. All capitalized terms used but not defined herein shall have the meaning given thereto in the Lease. B. Optionee is to enter into possession of the Premises for an initial lease term of fifteen (15) years (the "Initial Term"), with two (2) five (5) year extension options. The Initial Term and any extension options exercised by Optionee are collectively referred to herein as the "Lease Term." C. Optionor now desires to grant to Optionee and Optionee desires to accept an option to acquire the Property (as defined in Section 1 below) on the terms and conditions contained herein. It is the intention of the parties hereto that, upon exercise of the option granted herein, this Agreement shall act as the purchase agreement for the sale of the Property to Optionee. NOW, THEREFORE, in consideration of the mutual covenants and conditions contained herein and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. Grant of Option. In consideration of One Hundred and No/100 Dollars ($100.00) and other good and valuable consideration, receipt of which is hereby acknowledged, Optionor grants to Optionee the exclusive right and option (the "Option") to purchase the following: (a) The Land; (b) All rights, privileges, easements and rights of way appurtenant to the Land, including, without limitation, all mineral, oil and gas and other subsurface rights, development rights, air rights, and water rights (the "Appurtenances"); (c) All improvements, fixtures and personal property located on the Land at the time of the exercise of the Option owned by Optionor, including, without limitation, the Building, the Parking Area and related landscaping, all apparatus, equipment and appliances owned by Optionor and used in connection with the operation or occupancy thereof, such as heating and air conditioning systems and facilities used to provide any utility services, parking services, refrigeration, ventilation, trash disposal, recreation or other services thereto (collectively, the "Improvements"); (d) All of the interest of Optionor in any and all contracts, rights, warranties, guaranties, agreements, utility contracts and deposits, approvals (governmental or otherwise), surveys, plans and specifications, other rights relating to the construction, ownership, use and operation of all or any part of the Land and Improvements and any agreements, covenants or indemnifications received by Optionor from a prior owner or any other third party relating to the Land, Appurtenances or Improvements (collectively, the "Intangible Property"), all to the extent assignable and to the extent approved by Optionee, all of which shall be assigned to Optionee pursuant to an assignment described herein below; and (e) All of the interest of Optionor in all leases, lease amendments, exhibits, addenda and riders thereto including, without limitation, any contracts, operating leases, rental agreements, licenses or similar instruments creating a possessory interest in the Property (as defined below), lease guaranties, work letter agreements which will survive the Close of Escrow (as hereinafter defined), side letter agreements, improvement agreements, subleases, assignments, licenses, concessions and other agreements which will survive the Close of Escrow (collectively, the "Leases") with all persons leasing, using or occupying the Land or the Improvements or any part thereof. The Land, the Appurtenances, the Improvements, the Intangible Property and the Leases are hereinafter collectively referred to as the "Property." 2. Exercise of Option. (a) Exercise of Option by Optionee. The Option may be exercised by Optionee at any time between the thirty-sixth (36th) and forty-second (42nd) months of the Initial Term (the "Option Period") by delivering written notice of such exercise to Optionor in accordance with Section 14 hereof (the "Option Exercise Notice") along with Optionee's determination of "Land Value" as defined and described in Section 17 below. The Close of Escrow (as defined in Section 5.E. below) shall occur one hundred twenty (120) days from the date Optionee delivers the Option Exercise Notice, or such other date as mutually agreed in writing by Optionor and Optionee. Notwithstanding the foregoing, in the event Optionor and Optionee are unable to agree upon a Land Value by the "Outside Agreement Date" (as defined in Section 17 below), the Close of Escrow shall occur on the later to occur of: (i) the one hundred twentieth (120th) day following the date Optionee delivers the Option Exercise Notice; or (ii) the thirtieth (30th) day following the date the Land Value is determined following arbitration proceedings as described in Section 17 below ("Land Value Determination Date"), or such other date as mutually agreed in writing by Optionor and Optionee. (b) Exercise of Put Option by Optionor. If Optionor intends to sell the Property to a third party at any time following the Commencement Date and prior to expiration of the Option Period, Optionor shall have the right to "put" the Option to Optionee by giving written notice to Optionee of such intention ("Put Notice") along with Optionor's determination of Land Value and Optionee shall have thirty (30) days after the Land Value Determination Date in which to elect to exercise the Option in accordance with Section 14 hereof (the "Put/Option Exercise Notice"). If Optionee elects to so exercise the Option, the Close of Escrow shall occur sixty (60) days following delivery by Optionee to Optionor of the Put/Option Exercise Notice. If Optionee fails to elect to exercise the Option within such thirty (30) day period, Optionor shall have one hundred eighty (180) days from the Land Value Determination Date to close a sale of the Property to a third party buyer unaffiliated with Optionor on terms acceptable to Optionor. If Optionor fails to close such a sale within said one hundred eighty (180) day period, Optionee shall again have the Option under all of the same terms and conditions set forth herein. 3. Property Information, Access and Inspection. In order to assist Optionee in determining whether to exercise the Option: (a) Optionor shall promptly deliver to Optionee, upon written request, at any time between the thirty-second (32nd) and forty-second (42nd) months of the Initial Term or following delivery of a Put Notice, the following information (or an update of such information if previously delivered to Optionee): (i) A current CLTA preliminary title report with a full legal description of the Land and legible copies of all documents referred to therein (collectively the "PTR") from Chicago Title Company (the "Title Company"). (ii) To the extent in Optionor's possession, or readily available to Optionor, true and complete copies of the following as they relate to the Property: (A) surveys; (B) site plans, parking plans, as-built plans, grading plans, and the plans, specifications and design documents related to the Improvements; (C) drawings, specifications, engineering and architectural studies and similar documents, maps, topographical maps, soils reports and construction testing documents: (D) warranties and guarantees, provided same are in full force and effect; (E) draft and final studies, reports, surveys and assessments relating to the environmental condition of the Property or any property within the vicinity of the Property, including, without limitation, any soils, toxics and hazardous waste (including, without limitation, asbestos) reports; (F) correspondence, applications, permits and other communications to or from any governmental or quasi-governmental agency in connection with any Hazardous Substances (as hereinafter defined) or the environmental condition of the Property or any property within the vicinity of the Property; (G) notifications required by applicable law to be provided to any tenant or any other party as a result of the condition of the Property, if applicable (including, without limitation, notices relating to Hazardous Substances on or near the Property; and (H) building, occupancy and use permits and approvals and any other governmental licenses, permits or approvals for the Property or the equipment used in connection with the Property; (iii) a list setting forth (as of the time the list is prepared): (A) to the best of Optionor's actual knowledge, all current and past uses of the Property by Optionor or any tenant, licensee or occupant of the Property during Optionor's ownership or occupancy of the Property; (B) to the best of Optionor's actual knowledge, all uses of the Property by any prior "Owner or Operator" of the Property (as that phrase is defined in CERCLA (as hereinafter defined); (C) to the best of Optionor's actual knowledge, all Hazardous Substances currently or previously used, generated, stored, transported to, transported from, or disposed of on the Property by any current or prior "Owner or Operator" of the Property or any other person (whether legal or illegal, accidental or intentional); (D) to the best of Optionor's actual knowledge, the location or former location on or under the Property of all storage tanks, leach pits, clarifier pits and other storage or treatment facilities, if any; (E) to the best of Optionor's actual knowledge, the location of any Hazardous Substances disposed of on the Property by Optionor, if any (whether legal or illegal, accidental or intentional); (F) to the best of Optionor's actual knowledge, the location of any Hazardous Substances from the Property disposed of off-site, if any (whether legal or illegal, accidental or intentional); (G) to the best of Optionor's actual knowledge, the location of any release (as that term is defined under the Environmental Laws (as hereinafter defined)) of any Hazardous Substances either on the Property or on property located within two thousand (2,000) feet of the Property; (iv) a list and complete copies (as of the time prepared) of all written contracts, agreements or other documents affecting the Property which would survive the Close of Escrow including, without limitation, service contracts, maintenance contracts, management contracts, employment contracts, union contracts, retirement plans (including information relating to unfunded obligations), warranties and indemnity agreements; (v) a schedule setting forth an inventor of any personal property which would be delivered to Optionee at the Close of Escrow; (vi) any and all Leases and proposed leases (if any) currently being negotiated (collectively, the "Proposed Leases") affecting the Property which would not be terminated prior to the Close of Escrow, including all amendments and supplements thereto; (vii) complete copies of the property tax bills for the Property for the most recent three (3) years or, if Optionor has not owned the Property for three (3) years, then for the period of Optionor's ownership; (viii) a rent roll for the Property (the "Rent Roll"), current up through the date it is delivered, certified to be true and correct by Optionor, which shall set forth the following information: (a) the commencement date of each Lease; (b) the name and location of the tenant under each Lease and any guarantor thereof; (c) the monthly rental and all adjustments to the basic rent, including any free rent periods; (d) any option rights, including, without limitation, any right to renew, extend or terminate; (e) any expansion or contraction rights and information relating thereto including, without limitation, conditions precedent to the exercise of such rights, and the term and scope of such rights; (f) the base year and relevant percentage, if any, for purposes of calculating additional rent based upon operating costs, as well as the number of rentable square feet leased by each tenant that is used in calculating such percentage and the basis upon which such rentable square footage is calculated; (g) whether the tenant is current in its payment of rental or, to the best of Optionor's knowledge, is otherwise in material default; (h) the name of any broker entitled to any commission under any of the Leases as a result of rentals, the exercise of options or otherwise and the amount of commissions payable thereto and the dates upon which such commissions are payable; (i) the expiration date of the term of each Lease; (j) the number and location of any parking spaces allocated to any tenant and the rate paid therefor (if any); (k) the amount of any security deposits, prepaid rent or other deposits; and (l) the amount of rentable square footage in the Improvements not occupied by tenants and the basis upon which such rentable square footage is calculated; (ix) Annual operating statements for the Property from the date of completion of the Improvements to date, or the last three (3) years, whichever is shorter, covering all items of operation of the Property, including, without limitation, taxes, common area maintenance fees (if any), and utilities, and the source and nature of all income from operations of the Property for such periods, together with all appropriate back-up information reasonably requested by Optionee, and a schedule of all Improvements made and capital costs incurred; and (x) such other documents or information regarding the Property in Optionor's possession or readily available to Optionor as Optionee reasonably requests. Notwithstanding any provision in this Section 3(a), Optionor shall not be obligated to disclose to Optionee any proprietary, privileged or confidential information of Optionor relating to the Property, including but not limited to, Optionor's internal financial analyses, Optionor's credit analyses and collection plans, and any documents or communications subject to the attorney/client privilege. Furthermore, it is understood by the parties hereto that Optionor does not make any representation or warranty, express or implied, as to the accuracy or completeness of any information contained in Optionor's files or in the documents or lists produced by Optionor which were not prepared by Optionor, including, without limitation, documents or lists prepared by unaffiliated third party consultants, such as environmental audits or reports. Optionee acknowledges that Optionor and Optionor's affiliates shall have no responsibility for the contents and accuracy of such disclosures from parties other than Optionor, and Optionee agrees that the obligations of Optionor in connection with the purchase of the Property shall be governed by this Agreement and the documents and certifications prepared by Optionor and delivered to Optionee pursuant to this Agreement irrespective of the contents of any such disclosures from documents prepared by parties other than Optionor or the timing or delivery thereof. (b) In the event Optionee desires to assess whether or not to exercise the Option, Optionee may inspect and approve the physical condition of the Property, at Optionee's sole cost and expense, prior to the expiration of the Option Period. The parties agree that Optionee shall have the right to inspect the Property and to make the investigations set forth herein. Subject to the rights of tenants in possession, Optionee and its agents, employees and contractors shall be afforded full access to any portion of the Property during normal business hours following at least three (3) calendar days' prior notice from Optionee to Optionor for the purpose of making such investigations as Optionee deems prudent with respect to the physical condition of the Property, including, without limitation, engineering studies, seismic tests, environmental studies (including, without limitation, surface and subsurface tests, borings, samplings (including, without limitation, soil, groundwater and asbestos sampling) and measurements) and a survey of the Property. Notwithstanding the foregoing, no invasive testing or boring shall be done without the prior notification of Optionor and Optionor's written permission of the same, which permission shall not be unreasonably withheld, conditioned or delayed by Optionor. Optionee may conduct such feasibility studies as Optionee deems reasonably necessary and investigate all matters relating to the zoning, use and compliance with other applicable laws which relate to the use and occupancy of the Property and any proposed impositions, assessments or governmental regulations affecting the Property. Optionor shall reasonably cooperate to assist Optionee in completing such inspections, provided, however, Optionor shall not be obligated to incur any costs or expenses in connection with such cooperation. Optionee shall promptly repair any damage to the Property caused by its inspections and investigations. Optionee shall hold harmless, defend and indemnify Optionor and Optionor's officers, directors, shareholders, participants, affiliates, employees, representatives, invitees, agents and contractors (collectively, "Indemnified Parties") from and against all claims, damages, liens, stop notices, liabilities, losses, costs and expenses, including reasonable attorneys' fees and court costs arising from any such entry and activities on the Property by Optionee, its agents, employees and contractors. Notwithstanding the foregoing, Optionee shall not be liable to Indemnified Parties, nor shall Optionee have any obligation to hold harmless, defend or indemnify Indemnified Parties from any liability, costs, damage or claims (including, without limitation, claims that the Property has declined in value) which are related to (i) pre-existing adverse conditions affecting the Property except such pre-existing adverse conditions as were caused by Optionee as a tenant of the Property, (ii) Optionor's negligence or willful misconduct, or (iii) Optionee's discovery of any information potentially having a negative impact on the Property (including, without limitation, any claims arising out of, resulting from or incurred in connection with the discovery of any Hazardous Substances on or about the Property). The Optionee's indemnification obligations set forth herein shall survive the termination of this Agreement shall survive the Close of Escrow and shall not be merged with any grant deed. Furthermore, Optionee shall obtain or cause its consultants to obtain, at Optionee's sole cost and expense prior to any investigative activities relating to the Property, a policy of commercial general liability insurance covering any and all liability of Optionee and Optionor with respect to or arising out of any investigative activities. Such insurance policy shall be in form and substance and issued by an insurance company reasonably satisfactory to Optionor and contain liability limits in an amount reasonably satisfactory to Optionor. (c) If there are any tenants of the Property other than Optionee, upon written request by Optionee, Optionor shall use its best efforts to cause each such other tenant to deliver to Optionee a full and complete estoppel certificate (or an update thereof if previously delivered to Optionee), in the form attached hereto as Exhibit "B" (the "Estoppel Certificate"), executed by each such other tenant. If Optionor is unable to obtain the Estoppel Certificate from all such other tenants, Optionor shall deliver to Optionee a landlord estoppel certificate for any such other tenant certifying to the matters which would have been contained in the Estoppel Certificate. 4. Purchase Price. The total purchase price ("Purchase Price") for the Property shall be an amount equal to: (i) the lesser of: (y) the actual cost of constructing the Building shell and core and Tenant Improvements (as defined in the Lease), including applicable plans, permits and fees, as qualified and quantified in the attached Exhibit "C" ("Project Cost") or (z) $7,572,482, less (a) the amount, if any, by which $25.00 per rentable square foot of Expansion Premises (as defined in the Lease) exceeds the actual amount expended on real property tenant improvements in the Expansion Premises approved by Optionee; less (b) the actual costs and expenses, if any, of removing Hazardous Substances or remediating any condition relating to the presence or release of Hazardous Substances on or about the Property which were known by Optionor to exist as of the Commencement Date (as defined in the Lease) and which have not been removed or remediated as of the Land Value Determination Date; plus (ii) Land Value, as determined pursuant to Section 17 below; plus (iii) the actual costs and expenses of Optionor (which are not covered or reimbursed by any insurance coverage on the Property), if any, of repairing, restoring or reconstructing the Property following a fire, earthquake, flood, accident or other casualty; plus (iv) the actual costs and expenses of Optionor, if any, of repairing, upgrading, or improving the Property after the completion of the Improvements and the issuance of a Certificate of Occupancy, which are required by the adoption or implementation of any law, regulation, or policy of any governmental entity or authority or are agreed to by Optionee; plus (v) the actual costs and expenses, if any, of removing Hazardous Substances or remediating any condition relating to the presence or release of Hazardous Substances on or about the Property which either Optionor did not know to exist as of the Commencement Date or which were not directly caused by Optionor. Upon the Commencement Date, Optionor shall calculate the Purchase Price for the Property (except for Land Value) and deliver a detailed accounting of such calculation to Optionee, in form and substance acceptable to Optionee. Furthermore, Optionor shall recalculate the Purchase Price for the Property (except for Land Value) concurrently with its delivery of any Put Notice and on or before the date the Option Period commences, and Optionor shall deliver a detailed accounting of such calculation to Optionee, in form and substance acceptable to Optionee. In the event Optionor incurs any costs and expenses after the date of the commencement of the Option Period, or following delivery of a Put Notice to Optionee, which entitles Optionor to adjust the Purchase Price, Optionor shall promptly recalculate the Purchase Price for the Property (except for Land Value) and deliver a detailed accounting of such calculation to Optionee, in form and substance acceptable to Optionee. Optionee, at its sole cost and expense, may cause the books, records, receipts and expenses of Optionor to be audited in connection with the determination of the Purchase Price. If Optionee disagrees with Optionor's determination of the Purchase Price (except for Land Value) and the parties cannot reach an agreement, then upon written notice from Optionee to Optionor the determination of the Purchase Price (including Land Value) shall be decided by binding arbitration as provided in Section 17 below and the qualifications of the arbitrators shall include at least five (5) years experience in the appraisal of first class office buildings in the Calabasas area. The cost of such arbitration shall be split between the parties equally. Optionee shall have the right, in its sole and absolute discretion, to elect whether or not to exercise its Option to purchase the Property or to complete its acquisition of the Property, whichever is applicable, if the Purchase Price is not acceptable to Optionee. 5. Escrow Instructions. A. Opening of of Escrow. As soon as reasonably practicable following determination of the Land Value and Optionee's election to close the transaction, the parties shall open an escrow (the "Escrow") at Chicago Title Company located at 700 South Flower Street, Suite 900, Los Angeles, California 90017 or at such other escrow company as the parties shall mutually select (the "Escrow Holder"), in order to consummate the purchase in accordance with the terms and provisions hereof. A copy of this Agreement shall be deposited in the Escrow and the provisions hereof shall constitute joint primary escrow instructions to the Escrow Holder; provided, however, that the parties shall execute such additional instructions as requested by the Escrow Holder not inconsistent with the provisions hereof. B. Documents and Funds to be and Funds to be Delivered. The following shall be delivered into the Escrow in connection with the transfer of the Property: (1) Delivery by Optionor. At least two (2) business days prior to the Closing Date (as hereinafter defined), Optionor shall deposit into Escrow: (a) a grant deed (the "Deed") to the Land, Appurtenances and Improvements in recordable form, duly executed by Optionor and acknowledged and in substantially the same form as set forth in Exhibit "D" attached hereto; (b) If there are any tenants of the Property other than Optionee, three (3) originals of an assignment and assumption of Leases and security deposits (the "Lease Assignment"), duly executed in counterpart by Optionor assigning to Optionee Optionor's interest and rights, as lessor, under all of the Leases and security deposits in substantially the same form as set forth in Exhibit "E" attached hereto; (c) three (3) originals of a bill of sale (the "Bill of Sale"), duly executed by Optionor, pursuant to which Optionor shall quitclaim, without any representations or warranties, except as otherwise provided in this Agreement all of Optionor's right, title and interest, if any, in all personal property, owned by Optionor used exclusively in connection with the Property in substantially the same form as set forth in Exhibit "F" attached hereto; (d) three (3) originals of an assignment and assumption of service contracts (the "Service Contracts Assignment"), duly executed in counterpart by Optionor, assigning to Optionee, without any representations or warranties except as otherwise provided in this Agreement, and subject to the right of consent of any third parties where consent is necessary to the transfer thereof, Optionor's right, title and interest, if any, in all service contracts which will remain in effect after the Close of Escrow in substantially the same form as set forth in Exhibit "G" attached hereto; (e) three (3) originals of an assignment of intangible property (the "Assignment of Intangible Property"), duly executed in counterpart by Optionor, conveying to Optionee, without any representations or warranties except as otherwise provided in this Agreement, all of Optionor's right, title and interest in and to the Intangible Property in substantially the same form as set forth in Exhibit "H" attached hereto; (f) three (3) originals of an affidavit from Optionor which satisfies the requirements of Section 1445 of the Internal Revenue Code, as amended (the "Section 1445 Affidavit") in substantially the same form as set forth in Exhibit "I" attached hereto; (g) An original California Real Estate Withholding Exemption Certificate ("California Affidavit") in substantially the same form as set forth in Exhibit "J" attached hereto; (h) a certificate reconfirming Optionor's representations and warranties as described in Section 7 below; and (i) such other instruments and documents as may be reasonably requested by Escrow Holder or Optionee and are reasonably required to transfer the Property to Optionee in accordance with this Agreement. (2) Delivery by Optionee. At least one (1) business day prior to the Closing Date, Optionee shall deposit into Escrow: (a) If applicable, three (3) originals of the Lease Assignment, duly executed in counterpart by Optionee, assuming Optionor's interest and obligations as lessor under the Leases; (b) If applicable, three (3) originals of the Service Contracts Assignment, duly executed in counterpart by Optionee, assuming Optionor's interest and obligations under the service contracts which will remain in effect after the Close of Escrow; (c) three (3) originals of the Assignment of Intangible Property, duly executed in counterpart by Optionee, assuming Optionor's interest in and obligations with respect to the Intangible Property; (d) a certificate reconfirming Optionee's representations and warranties as described in Section 8 below; and (e) such other instruments and documents as may be reasonably requested by Escrow Holder or Optionor and are reasonably required to transfer the Property to Optionee in accordance with this Agreement. (3) Further Delivery by Optionee. Upon the Closing Date, Optionee shall deliver into Escrow by certified or cashier's check if acceptable to Escrow Holder (or a wire transfer of immediately available funds) the amount of the Purchase Price as adjusted and prorated herein, plus such additional sums as shall be necessary to pay the expenses payable by Optionee hereunder. (4) Closing Statement. At least five (5) business days prior to the Close of Escrow, Escrow Holder shall deliver to Optionor and Optionee a pro forma closing statement which sets forth the prorations and other credits and debits contemplated by this Agreement, which closing statement shall be subject to the approval of Optionor and Optionee prior to the Close of Escrow. C. Conditions to Close. (1) Optionee. Escrow shall not close unless and until the following conditions precedent and contingencies have been satisfied or waived in writing by Optionee: (a) All instruments described in this Section 5 have been delivered to the Escrow Holder; (b) On the Closing Date, Optionor shall not be in material default in the performance of any material covenant or agreement to be performed by Optionor under this Agreement or the Lease; (c) On the Closing Date, all material representations and warranties made by Optionor in Section 7 hereof shall be true and correct as if made on and as of the Closing Date; (d) The Title Company is in a position to issue to Optionee an ALTA policy of title insurance for the Property as set forth in Subsection E below; (2) Optionor. Escrow shall not close unless and until the following conditions precedent and contingencies have been satisfied or waived in writing by Optionor: (a) All funds and instruments described in this Section 5 have been delivered to the Escrow Holder; (b) On the Closing Date, Optionee shall not be in material default in the performance of any material covenant or agreement to be performed by Optionee under this Agreement or the Lease; and (c) On the Closing Date, all material representations and warranties made by Optionee in Section 8 hereof shall be true and correct as if made on and as of the Closing Date. D. Recordation and and Transfer. Upon satisfaction of the conditions set forth in Section 5 above, Escrow Holder shall transfer the Property as follows: (1) Cause the Grant Deed to be recorded in the Official Records of Los Angeles County, California; (2) Deliver to (a) Optionee at least one fully executed original of the Lease Assignment (if any), the Service Contracts Assignment, the Bill of Sale, the Assignment of Intangible Property, the Section 1445 Affidavit, the California Affidavit and at least one conformed copy of the recorded Grant Deed, (b) Optionor at least one fully executed original of the Lease Assignment (if any), the Service Contracts Assignment, the Bill of Sale, the Assignment of Intangible Property, the Section 1445 Affidavit, the California Affidavit and at least one conformed copy of the recorded Grant Deed, and (c) the parties entitled thereto any other closing documents; (3) Disburse all funds deposited with Escrow Holder by Optionee in payment of the Purchase Price for the Property as follows: (a) to the extent that Optionor is a foreign person pursuant to Section 1445 of the Internal Revenue Code of 1986, as amended, and is not otherwise exempt from such section's withholding requirements, withhold the cash equivalent of ten percent (10%) of the Purchase Price (unless some lesser amount is authorized by the Internal Revenue Service); (b) to the extent that Optionor is a non-California resident pursuant to Revenue and Taxation Code Sections 18805 and 26131, and is not otherwise exempted from such sections withholding requirements, withhold the cash equivalent of three and one-third percent (3-1/3%) of the Purchase Price (unless some lesser amount is authorized by the Franchise Tax Board); (c) deduct the amount of all items chargeable to the account of Optionor pursuant hereto; (d) deliver to Optionor the remaining portion of the Purchase Price pursuant to instructions to be delivered by Optionor to Escrow Holder; (e) deduct the amounts of all items chargeable to Optionee; (f) disburse the remaining balance of the funds deposited by Optionee to Optionee promptly upon the Close of Escrow pursuant to instructions to be delivered by Optionee to Escrow Holder; (4) If appropriate, deliver the California Affidavit to the California Franchise Tax Board. E. Close of of Escrow. Subject to the terms and provisions of this Agreement, the transaction contemplated by this Agreement shall close ("Close of Escrow or Closing Date") on or before the date set forth in Section 2(a) or 2(b) above, whichever is applicable, unless otherwise extended pursuant to the terms of this Agreement or in writing by mutual agreement between Optionee and Optionor. If the Closing Date does not fall on a Tuesday, Wednesday or Thursday, Escrow shall close on the Tuesday following such date. Upon the Close of Escrow, the Lease shall automatically terminate. F. Title Insurance Insurance Policy. Upon the transfer of the Property, title to the Property shall be insured by an ALTA policy of title insurance issued by the Title Company with liability in the amount of the Purchase Price and including title endorsement nos. 103.3 and 103.7, insuring title to the Property to be vested in Optionee or Optionee's nominee, subject only to current real estate taxes not delinquent, exceptions to title described on Optionee's title insurance commitment dated as of January 23, 1996 issued by Title Company (the "Option Policy"), a copy of which is attached hereto as Exhibit "K", and all other matters of record approved in writing by Optionee. G. Prorations. (1) As of the Close of Escrow, all real and personal property taxes based on the most recent property tax bills available, rents, issues and profits from the Property, utilities, and such other matters as the parties shall agree to be prorated. (2) All bonds or special assessments against the Property due before the Close of Escrow shall be paid by Optionor and all bonds or special assessments due after the Close of Escrow, which relate to events occurring prior to the Close of Escrow, shall be prorated as of the Close of Escrow. (3) All past due rent (including operating expense pass throughs) shall for purposes of proration be deemed received by Optionor except rent due by Optionee or its affiliates for which Optionor shall receive a credit at Close of Escrow; provided, however, Optionee agrees to use its good faith efforts (without litigation) to obtain and promptly deliver to Optionor all past due rents accrued prior to the Close of Escrow from any tenants of the Property other than Optionee. (4) Rentals and operating expense pass throughs received by Optionee shall first be credited to current obligations, and when those are satisfied, then to past due obligations owed to Optionor which shall be promptly paid to Optionor by Optionee. (5) Any supplementary tax bills received by Optionee following the Close of Escrow relating to a period prior to the Close of Escrow shall be prorated by the parties as if said tax bills had been available at the Close of Escrow. (6) Security and other deposits and unused portions of advance rentals, if any, actually paid by any tenant and received by Optionor under any of the Leases shall be transferred to Optionee upon the Close of Escrow without additional consideration by Optionee. (7) Prepaid expenses, the benefits of which are enjoyed by Optionee after Close of Escrow, such as advertising expenses and utility charges. H. Optionor's Cooperation With Optionee Optionor agrees to cooperate with Optionee in providing for an orderly transition in utility service for the Property. In this connection, Optionor agrees, upon receipt of a request from Optionee, to continue the utility service for the Property in Optionor's name but at Optionee's expense for a period not to exceed five (5) business days following the Close of Escrow. I. Costs. Optionor and Optionee shall each pay one half (1/2) of the Escrow fees. Optionor shall pay for the costs of obtaining a CLTA policy of title insurance, all documentary or other transfer taxes, sales taxes, deed preparation and recordation charges. Optionee shall pay for the cost of the premium for the difference between an ALTA policy of title insurance and a CLTA policy of title insurance, any survey prepared for Optionee in connection with the issuance of an ALTA policy of title insurance, and any endorsements requested by Optionor in connection with any title insurance coverage for the Property not described in Sub-Section F above. Each party shall pay its own attorneys' fees and other expenses incurred by it in connection herewith. Each party shall pay for any and all other title or closing charges necessary to close Escrow pursuant to the local customs of the County of Los Angeles. Concurrently with the execution of this Agreement, the Title Company has issued to Optionee the Option Policy at Optionee's sole expense. Optionee shall receive a credit against the Purchase Price for any credit given by the Title Company against the title insurance premium which otherwise would be owed by Optionor under this Sub-Section I. J. Failure to Close. If for any reason this transaction fails to close after Optionee exercises the Option including, without limitation, due to a failure of any condition set forth above, except for a default by Optionee under this Agreement, then this Agreement shall remain in full force and effect and Optionee may elect to exercise the Option at a future date so long as Optionee exercises the Option between the thirty-sixth (36th) and forty-second (42nd) months of the Initial Term. 6. Nominee/Assignment. Optionee shall have the right to designate a nominee to take title to the Property, or assign its rights hereunder, by delivering written notice thereof to Optionor at least five (5) business days prior to the Closing; provided, however, (i) such assignee or nominee shall be an affiliate of Optionee or such other entity which has succeeded to the rights of Optionee under this Agreement and/or under the Lease and (ii) such assignment or substitution shall not relieve Optionee of its obligations hereunder. 7. Optionor's Representations and Warranties. Optionor hereby covenants that the following representations and warranties of Optionor are true as of the date of this Agreement and shall be true and correct as of the Closing. Representations and warranties as to Improvements, Intangible Property, Leases and the operation of the Improvements shall only be applicable and shall be true and correct as of the completion of the Improvements and as of the Closing. It is hereby expressly understood and agreed that all liability of Optionor for breach of the representations and warranties contained in this Section 7 shall terminate if no written claim of breach, specifying the representation or warranty allegedly breached and the supporting evidence for the alleged breach, shall be delivered to Optionor on or prior to the date which is one (1) year following the Closing Date. Optionor shall reconfirm the following representations and warranties as of the Closing or disclose in writing to Optionee any exceptions thereto which exist as of the date of the new certificate. The sale of the Property to Optionee pursuant to this Agreement shall be, except as provided in this Agreement, "as-is," "where-is," "with all faults" and without warranties, implied or expressed. A. Power and Authority of Optionor. Optionor is a corporation duly organized and validly existing under the laws of the State of California and duly qualified to conduct business activities in the State of California. Optionor has the requisite right, power and authority to enter into and carry out the terms of this Agreement and the execution and delivery hereof and of all other instruments referred to herein. The performance by Optionor of Optionor's obligations hereunder will not violate or constitute an event of default under the terms and provisions of any material agreement, document or instrument to which Optionor is a party or by which Optionor is bound. All proceedings required to be taken by or on behalf of Optionor to authorize it to make, deliver and carry out the terms of this Agreement have been duly and properly taken. No further consent of any person or entity is required in connection with the execution and delivery of, or performance by Optionor of its obligations under this Agreement, including, without limitation, the consent or approval of any bankruptcy or other court having jurisdiction over Optionor or the Property. B. Validity of Agreement. This Agreement is a valid and binding obligation of Optionor, enforceable against Optionor in accordance with its terms. C. Leases and Rent Roll. The copies of the Leases delivered to Optionee pursuant to this Agreement are true and correct copies thereof. The Leases are in full force and effect. The Leases are the only leases affecting the Property which will not be terminated as of the Closing and the tenants under the Leases are the only tenants thereof. To the best of Optionor's actual knowledge, there are no other agreements, written or oral, with respect to the tenancies, or the Improvements. There are no material defaults by Optionor under any of the Leases nor have events occurred which with notice or passage of time, or both, would constitute a material event of default by Optionor thereunder. Except as disclosed to Optionee in writing, there are no material defaults by any tenant under any of the Leases which is known to Optionor, nor have events occurred which with notice or the passage of time, or both, would constitute a material event of default by such tenant thereunder which is known to Optionor. Optionor has not made any previous assignment, transfer or other disposition of all or any part of its interest in any of the Leases (except in connection with financing the Property and which has been disclosed to Optionee) and there are no encumbrances by Optionor covering the Leases that will survive the Closing. The information contained in the Rent Roll is true, complete and correct as of the date the Rent Roll was delivered to Optionee and shall be revised as necessary to be true, complete and correct as of the Closing. The Rent Roll shall specify the amount of the Property's operating expenses which are passed through to the Property's tenant(s) in accordance with generally accepted accounting principles consistently applied. D. Contracts. The copies of the contracts, if any, delivered to Optionee pursuant to this Agreement are true, complete and correct copies of all such contracts and to the best of Optionor's actual knowledge there are no other contracts relating to the Property. To the best of Optionor's actual knowledge, there are no defaults thereunder by Optionor or, by any other parties thereto which is known to Optionor except as disclosed to Optionee in writing, and there exists no condition that, with the passage of time, the giving of notice, or both, would constitute such a default by Optionor or, by any other parties thereto which is known to Optionor except as disclosed to Optionee in writing. E. Hypothecation of Property Income. Optionor has not hypothecated the rents or income from the Property in any manner other than in accordance with the terms of any loans (which loans shall be discharged in full by Optionor at the Closing). F. Operating Statements. The copies of the operating statements for the Property delivered by Optionor to Optionee are true, complete and correct copies of the originals thereof, and accurately show all income and expenses of the Property in all material respects, for the periods indicated. G. Hazardous Substances. To the best of Optionor's actual knowledge, except as disclosed to Optionee in writing or otherwise discovered by Optionee prior to the Closing Date: (i) no Hazardous Substances are present in, on or under the Property; and (ii) Optionor has never used the Property or any part thereof, and has never permitted any person to use the Property or any part thereof, for the production, processing, manufacture, generation, treatment, handling, storage or disposal of Hazardous Substances, and no underground storage tanks of any kind are located in, on or under the Property, nor, were any underground storage tanks previously located in, on or under the Property; and (iii) no notice of any order, directive, complaint or other written communication, has been made or issued by any governmental or quasi-governmental agency nor has Optionor received a written notice from any other third party alleging the occurrence of any activity on the Property in violation of any applicable Environmental Laws (as hereinafter defined) or demanding payment or contribution for environmental damage or injury to the Property. As used in this Agreement, the following definitions shall apply: "Environmental Laws" shall mean all federal, state and local laws, ordinances, rules and regulations now or hereafter in force, as amended from time to time, in any way relating to or regulating human health or safety, or industrial hygiene or environmental conditions, or protection of the environment, or pollution or contamination of the air, soil, surface water or groundwater, and includes, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. ss. 9601, et seq. ("CERCLA"), the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901, et seq., the Clean Water Act, 33 U.S.C. ss. 1251, et seq. "Hazardous Substance(s)" shall mean any substance or material that is described as a toxic or hazardous substance, waste or material or a pollutant or contaminant or infectious waste, or words of similar import, in any of the Environmental Laws, and includes asbestos, petroleum or petroleum products (including crude oil or any fraction thereof, natural gas, natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel, or any mixture thereof), polychlorinated biphenyls, urea formaldehyde, radon gas, radioactive matter, medical waste, and chemicals which may cause cancer or reproductive toxicity. "Release" shall mean any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping or disposing into the environment including continuing migration, of Hazardous Substances into or through soil, air, surface water or groundwater. H. Litigation. To the best of Optionor's actual knowledge, except as disclosed to Optionee in writing or otherwise discovered by Optionee prior to the Closing Date, there are no pending or, to the best of Optionor's actual knowledge, contemplated actions, suits, arbitrations, claims or proceedings, at law or in equity, affecting all or any portion of the Property or in which Optionor is or will be a party by reason of its ownership of the Property, including, without limitation, judicial, municipal or administrative proceedings in eminent domain, unlawful detainer or tenant evictions, collections, alleged building code, health and safety or zoning violations, personal injuries or property damages alleged to have occurred on the Property or by reason of the condition or use of the Property. I. Compliance with Laws. To the best of Optionor's actual knowledge, except as disclosed to Optionee in writing or otherwise discovered by Optionee prior to the Closing Date, (i) the Property is being operated in full compliance with all federal, state and local building, zoning, planning, handicapped (including, without limitation, the Americans with Disabilities Act), parking, health and insurance laws and regulations and (ii) no notices of violation of or exemptions from governmental regulations relating to the Property or Optionor have been issued to, served upon, received by or entered against Optionor. J. Land Use Regulations. To the best of Optionor's actual knowledge, except as disclosed to Optionee in writing or otherwise discovered by Optionee prior to the Closing Date, Optionor has not received any written notice of any condemnation, environmental, planning, zoning or other land use regulation adversely affecting the Property or any part thereof. K. Other Written Contracts. To the best of Optionor's actual knowledge, Optionor has not entered into any other contracts for the sale of the Property, nor do there exist any rights of first refusal or options to purchase the Property. L. True Copies. To the best of Optionor's actual knowledge, all documents to be submitted to Optionee for Optionee's approval pursuant to this Agreement will be true, correct and complete copies thereof as of the date of submission thereof and as of the Close of Escrow, and all supplements or additions will be true, correct and complete copies thereof as of the date submitted and as of the Close of Escrow. Optionor has no actual knowledge of any material error, misrepresentation or inconsistency with any of the documents or supplemental documents delivered to Optionee pursuant to this Agreement. Notwithstanding any of the foregoing, Optionor makes no representation or warranty, express or implied, as to the accuracy or completeness of any document prepared by any party other than Optionor, including, without limitation, unaffiliated third party consultants. M. Insolvency. This Agreement is the product of an arms-length transaction. Optionor has not taken any action relating to the Property which would invalidate this transaction or the transfer of the Property to Optionee. Optionor is currently solvent, and shall not be rendered insolvent by virtue of the sale of the Property to Optionee, and Optionor has not otherwise taken any action which may subject Optionor to applicable bankruptcy or similar laws affecting the rights of creditors generally. N. Personal Property; Intangible Rights and Warranties. Except in connection with the financing of the Property or as disclosed to Optionee in writing or otherwise discovered by Optionee prior to the Closing Date, Optionor has not made any previous assignments, sales or conveyances of any personal property covered by this Agreement and there are no encumbrances covering any such personal property which will survive the Closing. Except in connection with the financing of the Property and as disclosed to Optionee in writing or otherwise discovered by Optionee prior to the Closing Date, Optionor has not made any previous assignment, transfer or disposition of all or any part of its interest in the Intangible Property or any warranties relating to the Property (the "Warranties"). O. Optionor's Knowledge. As used anywhere in this Agreement the term "to the best of Optionor's actual knowledge" refers to the actual knowledge of Richard G. Newman, Vice President of Lowe Development Company, and Robert Noble, Executive Vice President of Home Savings of America (collectively, "Seller's Representatives") without the obligation to undertake any investigation or inquiry. Optionor represents that each of Seller's Representatives has been involved with the Property for approximately the past two (2) years. The representations and warranties set forth in this Section 7 are solely for the benefit of Optionee and/or the nominee or assignee of Optionee as described in Section 6 above. 8. Optionee's Representations and Warranties. Optionee hereby covenants that the following representations and warranties of Optionee are true and shall be true and correct as of the Closing. It is expressly understood and agreed that all liability of Optionee for breach of the representations and warranties contained in this Section 8 shall terminate if no written claim of breach, specifying the representation or warranty allegedly breached and the supporting evidence for the alleged breach, shall be delivered to Optionee on or prior to the date which is one (1) year following the Closing Date. Optionee shall reconfirm the following representations and warranties as of the Closing or disclose in writing to Optionor any exceptions thereto which exist as of the date of the new certificate: A. Power of Authority of Optionee. Optionee is a corporation duly organized and existing under the laws of the State of Delaware and duly qualified to conduct business activities in the State of California. Optionee has the requisite power and authority to enter into and carry out the terms of this Agreement and the execution, performance and delivery hereof and of all other agreements and instruments referred to herein to be executed, performed or delivered by Optionee and the performance by Optionee of Optionee's obligations hereunder will not violate or constitute an event of default under the terms and provisions of any material agreement, document or instrument to which Optionee is a party or by which Optionee is bound. All proceedings required to be taken by or on behalf of Optionee to authorize it to make, deliver and carry out the terms of this Agreement have been duly and properly taken. No further consent of any person or entity is required in connection with the execution and delivery of, or performance by Optionee of its obligations under this Agreement. B. Validity of Agreement. This Agreement is a valid and binding obligation of Optionee, enforceable against Optionee in accordance with its terms, subject to the effect of applicable bankruptcy, insolvency, reorganization, or other similar laws affecting the rights of creditors generally. 9. Change in Condition of Property. Optionor covenants and agrees to advise Optionee of any material change in the physical condition of the Property (ordinary wear and tear excepted), or of any damage or destruction to the Property, or upon receipt of any notice regarding the condemnation of the Property or any portion thereof ("Change in Condition"). In the event that, after the exercise of the Option and prior to the Closing any material portion of the Property is destroyed or damaged, Optionor shall immediately notify Optionee of such damage and inform Optionee if it intends to repair such damage. If Optionor elects to repair the damage, the Closing shall be extended until the repairs are completed. If Optionor notifies Optionee that it does not intend to repair such damage, Optionee shall have the right, exercisable by giving notice of such decision to Optionor within fifteen (15) calendar days after receiving such written notice from Optionor, to elect not to acquire the Property, in which case this Agreement shall terminate. If Optionee elects to accept the Property in its then condition, all proceeds of insurance payable to Optionor by reason of such damage or destruction shall be paid or assigned to Optionee. If, after the exercise of the Option, Optionor receives notice of any pending action by any federal, state, local or other agency concerning any material violation of any law, statute, ordinance or regulation affecting the Property, (a) Optionor may elect to correct such violation at Optionor's expense prior to the Closing, and shall notify Optionee of such violation and Optionor's intended action within ten (10) calendar days after receipt of such notice; (b) if Optionor desires to correct such violation but if such correction cannot be accomplished prior to the Closing, Optionor shall notify Optionee of such violation and its desire to correct such violation and shall thereupon commence and diligently prosecute the same to completion, at Optionor's sole cost and expense, as promptly as possible and the Closing shall be delayed until completion of such correction, or (c) Optionor shall submit such notice to Optionee and notify Optionee that Optionor does not intend to correct such violation. Within ten (10) calendar days of receipt of such notice not to cure, Optionee may elect to acquire the Property subject to such violation or such matters or requirements, respectively, or Optionee may elect not to acquire the Property, in which case this Agreement shall terminate. Any work required to be performed by Optionor pursuant to the terms of this Agreement shall be performed in accordance with all applicable laws in effect at the time such work is performed. If, after the exercise of the Option and prior to the Closing, Optionor receives written notice of a pending condemnation proceeding concerning any portion of the Property, Optionor shall promptly deliver to Optionee written notice of such pending condemnation. In such event, Optionee shall have the option to acquire the Property upon written notice to Optionor delivered not later than ten (10) days after receipt of Optionor's notice. If Optionee does not elect to acquire the Property, this Agreement shall terminate. In the event Optionee does elect to acquire the Property, Optionor shall assign and turn over to Optionee all awards for the taking by eminent domain which accrue to Optionor pursuant to an assignment between Optionor, as assignor, and Optionee, as assignee, and containing terms and conditions reasonably acceptable to Optionee, and the parties shall proceed to the Closing pursuant to the terms hereof, without modification of the terms of this Agreement and without any reduction in the Purchase Price. 10. Covenants of Optionor and Optionee. A. Covenants of Optionor. From and after the date hereof and until the Closing or the earlier expiration of the Option or termination of this Agreement, Optionor shall do the following, in addition to the covenants set forth elsewhere in this Agreement: (i) Not permit or suffer to exist any encumbrance, charge or lien to be placed or claimed upon the Property unless such encumbrance, charge or lien has been approved in writing by Optionee or unless such monetary encumbrance, charge or lien would be removed by Optionor prior to the Closing; (ii) Promptly notify Optionee in writing if any of the representations and warranties set forth in this Agreement are no longer true and correct in any material respect; and (iii) Not sell, lease, convey, assign, transfer or otherwise dispose of the Property including, without limitation, the Leases, and the Improvements, or any part thereof or interest therein, without the prior written consent of Optionee, which consent shall not be unreasonably withheld by Optionee with respect to a new Lease for the Expansion Premises but which may be withheld by Optionee in its sole and absolute discretion with respect to a sale of all or a portion of the Property unless Optionor exercises its "put" right under Section 2 of this Agreement with respect to such sale. B. Sale of Property. Subject to subsection (iii) above, if Optionee consents to the sale of all or any portion of the Property, then (i) such sale shall be made subject to the Option and this Agreement, (ii) the Purchase Price shall not include any of the costs incurred by Optionor or such purchaser in connection with the sale of the Property and (iii) such purchaser shall be bound by the terms of this Agreement. Following any such approved sale, the Purchase Price shall continue to be calculated as provided in this Agreement. Prior to the sale of the Property to such purchaser, Optionor shall deliver to Optionee all of the documentation and information described in Section 3 above. Upon sale of the Property to such purchaser, Optionor and Optionee shall calculate the Purchase Price as of such date and such purchaser shall be bound by the agreed amount of costs and expenses incurred by Optionor and agreed to by Optionee as of such date. 11. Recordation of Memorandum of Option. As soon as reasonably practicable following mutual execution of this Agreement, the parties shall record a memorandum of this Agreement in a form reasonably acceptable to Optionor and Optionee, in the Official Records of the Los Angeles County Recorder's Office. 12. Waiver of Performance. Either party may waive the satisfaction or performance of any conditions or agreements in this Agreement which have been inserted for its own and exclusive benefit, so long as the waiver is signed (unless the Agreement provides for a non-written waiver) and specifies the waived condition or agreement and is delivered to the other party hereto and the Escrow Holder. 13. Section Headings. The section headings of this Agreement are for the purposes of reference only and shall not be used for limiting or interpreting the meaning of any section. 14. Notices. All notices under this Agreement shall be in writing and shall be effective upon receipt whether delivered by personal delivery or recognized overnight delivery service, telecopy, or sent by United States registered or certified mail, return receipt requested, postage prepaid, addressed to the respective parties as follows: If to Optionor: ACD2 c/o Ahmanson Commercial Development Company 4900 Rivergrade Road Department 713 Irwindale, California 91706 Attention: Mr. Robert Noble With a copy to: Paul Hastings Janofsky & Walker 555 South Flower Street, 23rd Floor Los Angeles, California 90071 Attention: M. Guy Maisnik, Esq. If to Optionee: Amwest Insurance Group, Inc. 6320 Canoga Avenue, Suite 300 Woodland Hills, CA 91365-4500 Attention: Steven R. Kay Senior Vice President Chief Financial Officer With a copy to: Pillsbury Madison & Sutro LLP 725 South Figueroa Street, Suite 1200 Los Angeles, California 90017 Attention: John W. Whitaker, Esq. Any party can notify the other party of their change of address by notifying the other party in writing of the new address. 15. Property "As Is" A. Side Letter Agreement. Attached hereto as Exhibit "L" and incorporated herein by this reference is a copy of the Side Letter Agreement of even date herewith (the "Side Letter Agreement") between Optionor and Optionee clarifying certain matters relating to the Declaration of Covenants, Conditions and Restrictions for Calabasas Commerce Center II which affects the Property. B. No Other Side Agreements of Representations. No person acting on behalf of Optionor is authorized to make, and by execution hereof, Optionee acknowledges that no person has made any representation, agreement, statement, warranty, guarantee or promise regarding the Property or the transaction contemplated herein or the zoning, construction, physical condition or other status of the Property except as set forth in the Side Letter Agreement or as may be expressly set forth in this Agreement. No representation, warranty, agreement, statement, guarantee or promise, if any, made by any person acting on behalf of Optionor which is not contained in this Agreement or the Side Letter Agreement will be valid or binding on Optionor. C. AS IS CONDITION. OPTIONEE ACKNOWLEDGES AND AGREES THAT, EXCEPT AS SPECIFICALLY PROVIDED IN SECTION 7 HEREIN OR IN THE SIDE LETTER AGREEMENT, OPTIONOR HAS NOT MADE, DOES NOT MAKE AND SPECIFICALLY NEGATES AND DISCLAIMS ANY REPRESENTATIONS, WARRANTIES, PROMISES, COVENANTS, AGREEMENTS OR GUARANTIES OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, PAST, PRESENT OR FUTURE, OF, AS TO, CONCERNING OR WITH RESPECT TO (I) VALUE; (II) THE INCOME TO BE DERIVED FROM THE PROPERTY; (III) THE SUITABILITY OF THE PROPERTY FOR ANY AND ALL ACTIVITIES AND USES WHICH OPTIONEE MAY CONDUCT THEREON, INCLUDING THE POSSIBILITIES FOR FUTURE DEVELOPMENT OF THE PROPERTY; (IV) THE HABITABILITY, MERCHANTABILITY, MARKETABILITY, PROFITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE PROPERTY; (V) THE MANNER, QUALITY, STATE OF REPAIR OR LACK OF REPAIR OF THE PROPERTY; (VI) THE NATURE, QUALITY OR CONDITION OF THE PROPERTY, INCLUDING, WITHOUT LIMITATION, THE WATER, SOIL AND GEOLOGY; (VII) THE COMPLIANCE OF OR BY THE PROPERTY OR ITS OPERATION WITH ANY LAWS, RULES, ORDINANCES OR REGULATIONS OF ANY APPLICABLE GOVERNMENTAL AUTHORITY OR BODY; (VIII) THE MANNER OR QUALITY OF THE CONSTRUCTION OR MATERIALS, IF ANY, INCORPORATED INTO THE PROPERTY; (IX) COMPLIANCE WITH ANY ENVIRONMENTAL PROTECTION, POLLUTION OR LAND USE LAWS, RULES, REGULATION, ORDERS OR REQUIREMENTS, INCLUDING BUT NOT LIMITED TO, TITLE III OF THE AMERICANS WITH DISABILITIES ACT OF 1990, CALIFORNIA HEALTH & SAFETY CODE, THE FEDERAL WATER POLLUTION CONTROL ACT, THE FEDERAL RESOURCE CONSERVATION AND RECOVERY ACT, THE U.S. ENVIRONMENTAL PROTECTION AGENCY REGULATIONS AT 40 C.F.R., PART 261, THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY ACT OF 1980, AS AMENDED, THE RESOURCE CONSERVATION AND RECOVERY ACT OF 1976, THE CLEAN WATER ACT, THE SAFE DRINKING WATER ACT, THE HAZARDOUS MATERIALS TRANSPORTATION ACT, THE TOXIC SUBSTANCE CONTROL ACT, AND REGULATIONS PROMULGATED UNDER ANY OF THE FOREGOING; (X) THE PRESENCE OR ABSENCE OF HAZARDOUS MATERIALS AT, ON, UNDER, OR ADJACENT TO THE PROPERTY; (XI) THE CONTENT, COMPLETENESS OR ACCURACY OF THE DUE DILIGENCE MATERIALS DISCLOSED BY OR ON BEHALF OF OPTIONOR TO OPTIONEE OR PRELIMINARY TITLE REPORT REGARDING TITLE; (XII) THE CONFORMITY OF THE IMPROVEMENTS TO ANY PLANS OR SPECIFICATIONS FOR THE PROPERTY, INCLUDING ANY PLANS AND SPECIFICATIONS THAT MAY HAVE BEEN OR MAY BE PROVIDED TO OPTIONEE; (XIII) THE CONFORMITY OF THE PROPERTY TO PAST, CURRENT OR FUTURE APPLICABLE ZONING OR BUILDING REQUIREMENTS; (XIV) DEFICIENCY OF ANY UNDERSHORING; (XV) DEFICIENCY OF ANY DRAINAGE; (XVI) THE FACT THAT ALL OR A PORTION OF THE PROPERTY MAY BE LOCATED ON OR NEAR AN EARTHQUAKE FAULT LINE; (XVII) THE EXISTENCE OF VESTED LAND USE, ZONING OR BUILDING ENTITLEMENTS AFFECTING THE PROPERTY; OR (XVIII) WITH RESPECT TO ANY OTHER MATTER. OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT HAVING BEEN GIVEN THE OPPORTUNITY TO INSPECT THE PROPERTY AND REVIEW INFORMATION AND DOCUMENTATION AFFECTING THE PROPERTY, EXCEPT AS SPECIFICALLY PROVIDED IN SECTION 7 HEREIN OR IN THE SIDE LETTER AGREEMENT OPTIONEE IS RELYING SOLELY ON ITS OWN INVESTIGATION OF THE PROPERTY AND REVIEW OF SUCH INFORMATION AND DOCUMENTATION, AND NOT ON ANY INFORMATION PROVIDED OR TO BE PROVIDED BY OPTIONOR. OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT CERTAIN INFORMATION MADE AVAILABLE TO OPTIONEE WITH RESPECT TO THE PROPERTY WAS OBTAINED FROM UNAFFILIATED THIRD PARTY CONSULTANTS AND THAT OPTIONOR HAS NOT MADE ANY INDEPENDENT INVESTIGATION OR VERIFICATION OF SUCH INFORMATION AND MAKES NO REPRESENTATIONS AS TO THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION. OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT TO THE MAXIMUM EXTENT PERMITTED BY LAW, EXCEPT AS SPECIFICALLY PROVIDED IN SECTION 7 HEREIN OR IN THE SIDE LETTER AGREEMENT THE SALE OF THE PROPERTY AS PROVIDED FOR HEREIN IS MADE ON AN "AS IS" CONDITION AND BASIS WITH ALL FAULTS, AND THAT OPTIONOR HAS NO OBLIGATIONS TO MAKE REPAIRS, REPLACEMENTS OR IMPROVEMENTS EXCEPT AS MAY OTHERWISE BE EXPRESSLY STATED HEREIN OR IN THE LEASE. ------------------------- ---------------------------- OPTIONOR'S INITIALS OPTIONEE'S INITIALS 16. Governmental Approvals. Nothing contained in this Agreement shall be construed as authorizing Optionee to apply for a zone change, variance, subdivision maps, lot line adjustment, or other discretionary governmental act, approval or permit with respect to the Property prior to the Close of Escrow, and Optionee agrees not to do so without Optionor's prior written approval, which approval may be withheld in Optionor's sole and absolute discretion. Optionee agrees not to submit any reports, studies or other documents, including, without limitation, plans and specifications, impact statements for water, sewage, drainage or traffic, environmental review forms, or energy conservation checklists to any governmental agency, or any amendment or modification to any such instruments or documents prior to the Close of Escrow unless first approved by Optionor, which approval Optionor may withhold in Optionor's reasonable discretion. Optionee's obligation to purchase the Property shall not be subject to or conditioned upon Optionee's obtaining any variances, zoning amendments, subdivision maps, lot line adjustment or other discretionary governmental act, approval or permit. 17. Determination of Land Value. Optionee shall provide notice of Optionee's determination of Land Value (as defined below) concurrently with its delivery to Optionor of the Option Exercise Notice. Optionor shall have fifteen (15) days ("Optionor's Review Period") after receipt of Optionee's notice within which to accept Optionee's determination of Land Value or to object reasonably thereto in writing and set forth Optionor's determination of Land Value. If Optionor so objects, Optionee and Optionor shall attempt in good faith to agree upon such Land Value, using their best good faith efforts. If Optionee and Optionor fail to reach agreement within fifteen (15) days from and after Optionor's Review Period ("Outside Agreement Date"), then each party's determination shall be submitted to arbitration consistent with the procedures outlined below. Failure of Optionor to so elect in writing within such period shall be deemed its acceptance of the Land Value as determined by Optionee. The procedure shall be reversed in the event Optionor delivers to Optionee a Put Notice. Optionor shall provide to Optionee Optionor's determination of Land Value concurrently with its delivery to Optionee of the Put Notice, and Optionee shall have fifteen (15) days ("Optionee's Review Period") after receipt of the Put Notice and Optionor's determination of Land Value within which to accept Optionor's determination of Land Value or to object reasonably thereto in writing and set forth Optionor's determination of Land Value. If Optionee so objects, Optionee and Optionor shall attempt in good faith to agree upon such Land Value, using their best good faith efforts. If Optionee and Optionor fail to reach agreement within fifteen (15) days from and after Optionee's Review Period (also known as the "Outside Agreement Date"), each party's determination shall be submitted to arbitration consistent with the procedures outlined below. Failure of Optionee to so elect in writing within such period shall be deemed its acceptance of the Land Value as determined by Optionor. The arbitration procedure for calculating Land Value where the parties are unable to agree upon Land Value shall be as follows: (i) Not later than fifteen (15) days from and after the applicable Outside Agreement Date, Optionor and Optionee shall each appoint one arbitrator who shall by profession be a real estate appraiser, which appointee shall have been active over the five (5) year period ending on the date of such appointment in the appraisal of unimproved land in the Calabasas area. The determination of the third arbitrator described below shall be limited solely to the issue of whether Optionor's or Optionee's submitted Land Value is the closest to the actual Land Value, as determined by the arbitrator, based upon what a willing purchaser would pay and a willing seller would accept at arm's length, for the Land as if it were unimproved land and not subject to the Lease or the Option ("Land Value"). (ii) The two arbitrators so appointed shall within fifteen (15) days of the date of the appointment of the last appointed arbitrator agree upon and appoint a third arbitrator who shall be qualified under the same criteria set forth herein above for qualification of the initial two arbitrators. Upon appointment of the third arbitrator, Optionor and Optionee shall each submit to the third arbitrator in a sealed envelope their respective determinations of the Land Value as previously submitted to the other together with any relevant supporting documentation. (iii) The third arbitrator shall make an independent appraisal of the Land Value, shall then review the determination of Land Value and supporting documentation submitted by Optionor and Optionee in the sealed envelopes and within sixty (60) days of his appointment reach a decision as to whether the parties shall use Optionor's or Optionee's submitted Land Value, and shall notify Optionor and Optionee thereof. The determination of Land Value shall conform with the then generally accepted appraisal standards, which is currently evidenced by the Uniform Standards of Professional Appraisal Practice promulgated by the Appraisal Standards Board of the Appraisal Foundation, except that comparable unimproved land located in Calabasas, Agoura Hills and Westlake Village shall be emphasized to the extent such comparables are available. (iv) The decision of the third arbitrator shall be binding upon Optionor and Optionee. (v) If either Optionor or Optionee fails to appoint an arbitrator within fifteen (15) days after the applicable Outside Agreement Date, the arbitrator timely appointed by one of them shall reach a decision, notify Optionor and Optionee thereof, and such arbitrator's decision shall be binding upon Optionor and Optionee. (vi) If the two arbitrators fail to agree upon and appoint a third arbitrator within the required fifteen (15) day period, or if the third arbitrator fails to reach a decision within sixty (60) days of his appointment, at the election of either party prior to the date that a decision is made, both arbitrators shall be dismissed, Optionor and Optionee within fifteen (15) days thereafter shall each appoint another arbitrator with the same qualifications as are set forth in subparagraph (i) above and the above process shall again take place until a third arbitrator reaches a decision within sixty (60) days of his appointment. (vii) The cost of arbitration shall be paid by Optionor and Optionee equally. 18. Counterparts. This Agreement may be executed in several counterparts and all such executed counterparts shall constitute one agreement, binding on all of the parties hereto, notwithstanding that all of the parties hereto are not signatories to the original or to the same counterpart. This Agreement shall not be binding unless and until all parties hereto have executed the Agreement. 19. Governing Law. The validity, construction and operational effect of this Agreement shall be governed by the laws of the State of California. 20. Attorneys' Fees and Costs. In any action between the parties hereto seeking the enforcement of any of the terms and provisions of this Agreement, or in connection with the Property, the prevailing party in such action shall be awarded, in addition to damages, injunctive or other relief, its reasonable costs and expenses, and reasonable attorneys' fees. 21. Prior Agreements. This Agreement supersedes any and all oral or written agreements between the parties hereto regarding the acquisition of the Property which are prior in time to this Agreement. Neither Optionee nor Optionor shall be bound by any prior understanding, agreement, promise, representation or stipulation, express or implied, not specified herein. 22. Further Assurances. Optionee and Optionor agree to execute all documents and instruments reasonably required in order to consummate the purchase and sale herein contemplated. 23. Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of permitted successors and assigns of the parties hereto. 24. Possession. Optionor shall deliver possession of the Property to Optionee as of the Closing, including all keys in Optionor's possession and originals of documents delivered hereunder, such possession being subject only to rights of tenants in possession under the Leases. 25. Severability. If any portion of this Agreement is held to be unenforceable by a court of competent jurisdiction, the remainder of this Agreement shall remain in full force and effect. 26. Performance Due on Non-Business Day If the time period for the performance of any act called for under this Agreement expires on a Saturday, Sunday, or any other day in which banking institutions in the State of California are authorized or obligated by law or executive order to close ("Holiday"), the act in question may be performed on the next succeeding day that is not a Saturday, Sunday or a Holiday. 27. Amendments. This Agreement may be amended only by written agreement signed by both of the parties hereto. IN WITNESS WHEREOF, Optionor and Optionee have executed this Agreement as of the date first above written. Optionee: AMWEST INSURANCE COMPANY, a Delaware corporation By: ______________________ Title: ___________________ Optionor: ACD2, a California corporation By:_______________________ Title: ___________________ EX-23.1 6 CONSENT OF KPMG PEAT MARWICK LLP EXHIBIT 23.1 The Board of Directors Amwest Insurance Group, Inc.: We consent to the use of our reports incorporated herein by reference and to the reference to our firm under the heading "Experts" in the prospectus. Los Angeles, California February 7, 1996 EX-23.2 7 CONSENT OF GIBSON, DUNN & CRUTCHER EXHIBIT 23.2 (Included in Exhibit 5.1) EX-24.1 8 POWER OF ATTORNEY EXHIBIT 24.1 (Included on Signature Page) EX-99.1 9 PROXY CARD FOR AMWEST INSURANCE GROUP, INC. PROXY AMWEST INSURANCE GROUP, INC. PROXY PROXY FOR SPECIAL MEETING OF STOCKHOLDERS, MARCH 14, 1996 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS for the Special Meeting of Stockholders to be held on March 14, 1996 at 9:00 A.M., Los Angeles time, at the Warner Center Hilton, 6360 Canoga Avenue, Woodland Hills, California 91367. The undersigned hereby acknowledges receipt of the Notice of Special Meeting of Stockholders and the accompanying Joint Proxy Statement/Prospectus of Amwest Insurance Group, Inc. ("Amwest") and Condor Services, Inc. ("Condor"), each dated February 13, 1996, and revoking all prior proxies, appoints Richard H. Savage, John E. Savage, Steven R. Kay, Arthur F. Melton and Neil F. Pont, and each or any of them, with full power of substitution in each, the proxies of the undersigned to represent the undersigned and vote all shares of Common Stock of the undersigned in Amwest Insurance Group, Inc., at the Special Meeting of Stockholders to be held on March 14, 1996 and any adjournments or postponements thereof upon the following matters and in the manner designated on the reverse side: (Continued and to be signed on reverse side) (Continued from other side) AMWEST INSURANCE GROUP, INC. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSALS. 1. TO APPROVE AND ADOPT THE MERGER AGREEMENT BY AND BETWEEN AMWEST AND CONDOR PURSUANT TO WHICH CONDOR WILL BE MERGED WITH AND INTO AMWEST ___ FOR ___ AGAINST ___ ABSTAIN 2. APPROVAL OF AN AMENDMENT TO AND THE RATIFICATION OF THE COMPANY'S STOCK OPTION PLAN ___ FOR ___ AGAINST ___ ABSTAIN 3. TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF AND AS TO WHICH THE UNDERSIGNED HEREBY CONFERS DISCRETIONARY AUTHORITY. THIS PROXY WILL BE VOTED FOR ITEMS 1 AND 2 UNLESS OTHERWISE SPECIFIED Please sign as name(s) appears. Executors, administrators, guardians, officers of corporations, and others signing in a fiduciary capacity should state their full titles as such. Date: _________________________ , 1996 ----------------------------------- ----------------------------------- PLEASE MARK, DATE, SIGN AND MAIL THIS PROXY CARD PROMPTLY IN THE ENCLOSED ENVELOPE -----END PRIVACY-ENHANCED MESSAGE-----