-----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, R7ZfdUgmoaS9fC7JX8l63Zm4jVgK27WHjxHb0fwXTjosjldumMSorsGIReewN3vf dbwbxtLsaWzzHQFF9eTpvA== 0000930661-00-000655.txt : 20000324 0000930661-00-000655.hdr.sgml : 20000324 ACCESSION NUMBER: 0000930661-00-000655 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000323 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BANK OF THE OZARKS INC CENTRAL INDEX KEY: 0001038205 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 710556208 STATE OF INCORPORATION: AR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-22759 FILM NUMBER: 576552 BUSINESS ADDRESS: STREET 1: 12615 CHENAL PARKWAY STREET 2: SUITE 3100 CITY: LITTLE ROCK STATE: AR ZIP: 72211 BUSINESS PHONE: 5019782265 MAIL ADDRESS: STREET 1: 12615 CHENAL PARKWAY CITY: LITTLE ROCK STATE: AR ZIP: 72211 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark one) (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to ____________. Commission File Number 0-22759 BANK OF THE OZARKS, INC. (Exact name of registrant as specified in its charter) ARKANSAS 71-0556208 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 12615 CHENAL PARKWAY, P.O. BOX 8811, LITTLE ROCK, ARKANSAS 72231-8811 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (501) 978-2265 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered ------------------- ------------------- None N/A Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.01 per share (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( ) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ( ) State the aggregate market value of the Registrant's common stock held by non-affiliates: $34,482,150 (based upon the average bid and asked prices quoted on the Nasdaq National Market on March 1, 2000). Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practical date. Class Outstanding at December 31, 1999 - --------------------------------------- -------------------------------- Common Stock, par value $0.01 per share 3,779,555 Documents incorporated by reference: Parts I, II and III of this Form 10-K incorporate certain information by reference from the Registrant's Annual Report to Stockholders for the year ended December 31, 1999 and the Proxy Statement for its 2000 annual meeting. BANK OF THE OZARKS, INC. FORM 10-K December 31, 1999 INDEX
PART I. Financial Information Page ---- Item 1. Business 1 Item 2. Properties 10 Item 3. Legal Proceedings 11 Item 4. Submission of Matters to a Vote of Security Holders 11 PART II. Item 5. Market for Registrant's Common Stock and Related Stockholder Matters 11 Item 6. Selected Financial Data 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 11 Item 8. Financial Statements and Supplementary Data 12 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 12 PART III. Item 10. Directors and Executive Officers of the Registrant 12 Item 11. Executive Compensation 12 Item 12. Security Ownership of Certain Beneficial Owners and Management 12 Item 13. Certain Relationships and Related Transactions 12 PART IV. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 12 Signatures 17
Part I Item 1. BUSINESS -------- General Bank of the Ozarks, Inc. (the "Company") is an Arkansas business corporation registered under the Bank Holding Company Act of 1956. During 1999 the Company consolidated its federal savings bank and two state chartered banks into a single state chartered bank subsidiary. This subsidiary, Bank of the Ozarks, conducts banking operations through 23 offices in 16 communities throughout northern, western and central Arkansas. At December 31, 1999 the Company had total assets of $796 million, total loans of $467 million and total deposits of $596 million. The Company provides a wide range of retail and commercial banking services. Deposit services include checking, savings, money market, time deposit and individual retirement accounts. Loan services include various types of real estate, consumer, commercial, industrial and agricultural loans. The Company also provides mortgage lending, cash management, trust services, safety deposit boxes, real estate appraisals, credit related life and disability insurance, ATMs, telephone banking and debit cards. In 1994 the Company initiated an expansion strategy, via de novo branching, into target Arkansas markets. Since embarking on this strategy, the Company has opened eighteen new offices in northern, western and central Arkansas. In 1999 the Company continued its growth strategy and opened a total of four new offices, with one office in Clinton, Arkansas, a second office in Harrison, Arkansas and two offices in North Little Rock, Arkansas. The Company's de novo branching strategy initially focused on opening branches in smaller communities throughout its market area. During 1994 the Company opened its first new office pursuant to this expansion strategy in Clarksville, Arkansas. In 1995, 1996 and 1997 the Company opened a total of eight additional full service offices including new offices in Marshall, Van Buren, Mulberry, Alma, Paris, Bellefonte, Harrison and a second office in Clarksville, Arkansas. In 1998 the Company added a new element to its growth strategy by significantly expanding into two of Arkansas' largest metropolitan markets -- Little Rock and Fort Smith. The Company originally entered the Little Rock market in 1995, when it opened its corporate headquarters and a small commercial lending office. In 1996 the Company opened a residential mortgage lending office. In February 1998 the Company began full service banking operations in Little Rock with the acquisition of a small savings and loan with $9.4 million in deposits. In 1998 the Company also opened three more Little Rock offices, including its 40,000 square foot corporate headquarters which houses a full- service banking center, corporate offices, mortgage lending center and full service trust operations. The Company pursued major expansion in a second metropolitan market in September 1998 with the opening of a 22,500 square foot banking center in Fort Smith. In 2000 and 2001 the Company plans to concentrate more on growth at existing locations while adding only one or two new offices each year. The Company's management believes a slower rate of new office openings combined with an emphasis on growth in existing offices should lead to better efficiency and performance. Lending Activities The Company's primary source of income is interest earned from its loan portfolio and, to a lesser extent, earnings on its investment portfolio. In underwriting loans, primary emphasis is placed on the borrower's financial condition, including its ability to generate cash flow to support its debt obligations and other cash expenses. Additionally, substantial consideration is given to collateral value and marketability as well as the borrower's character, reputation and other relevant factors. The Company's portfolio includes most types of real estate loans, consumer loans, commercial and industrial loans, agricultural loans and other types of loans. The vast majority of the properties collateralizing the Company's mortgage loans are located within the trade areas of the Company's offices. 1 Real Estate Loans. The Company's portfolio of real estate loans includes loans secured by owner-occupied 1-4 family residential, non-farm non- residential, agricultural, construction and land development, and multifamily residential (five or more) properties. Owner-occupied 1-4 family residential loans comprise the largest portion of the Company's real estate loans. Non-farm non-residential loans include those secured by real estate mortgages on motels, churches, medical facilities, nursing homes, shopping centers, office buildings, restaurants, and other business and industrial properties. Agricultural real estate loans include loans secured by farmland and related improvements including loans guaranteed by the Farm Service Agency or the Small Business Administration. Real estate construction and land development loans include loans with original maturities of sixty months or less to finance land development or construction of industrial, commercial, residential or farm buildings or additions or alterations to existing structures. The Company offers a variety of real estate loan products that are generally amortized over five to thirty years, payable in monthly or other periodic installments of principal and interest, and due and payable in full (unless renewed) at a balloon maturity generally within one to five years. Certain loans not subject to Arkansas' usury law, typically first mortgage residential loans, may be structured as term loans with adjustable interest rates (adjustable daily, every six months, annually, or at other regular adjustment intervals usually not to exceed every five years) and without balloon maturities. Owner-occupied 1-4 family residential loans are underwritten primarily based on the borrower's ability to repay, including prior credit history, and the value of the collateral. Other real estate loans are underwritten based on the ability of the property, in the case of income producing property, or the borrower's business to generate sufficient cash flow to amortize the debt. Secondary emphasis is placed upon collateral value and other factors. Loans collateralized by real estate have generally been originated with loan to appraised value ratios of not more than 89% for owner-occupied 1-4 family residential, 85% for other single family residential and other improved property, 80% for construction loans secured by commercial, multifamily and other non-residential properties, 75% for land development loans, and 65% for raw land loans. The Company typically requires mortgage title insurance in the amount of the loan and hazard insurance on improvements. Documentation requirements vary depending on loan size, type, complexity and other factors. Consumer Loans. The Company's portfolio of consumer loans generally includes loans to individuals for household, family and other personal expenditures. Proceeds from such loans are used to, among other things, fund the purchase of automobiles, household appliances, furniture, trailers, boats, mobile homes and for other similar purposes. Consumer loans made by the Company are generally collateralized with terms typically ranging up to 72 months, depending upon the nature of the collateral and size of the loan. Consumer loans are attractive to the Company because they generally have a short term with higher yielding interest rates. Such loans, however, pose additional risks of collectibility and loss when compared to certain other types of loans. The borrower's ability to repay is of primary importance in the underwriting of consumer loans. Commercial and Industrial Loans. The Company's commercial and industrial loan portfolio consists of loans for commercial, industrial and professional purposes including loans to fund working capital requirements (such as inventory, floor plan and receivables financing), purchases of machinery and equipment and other purposes. The Company offers a variety of commercial and industrial loan arrangements, including term loans, balloon loans and lines of credit with the purpose and collateral supporting a particular loan determining its structure. These loans are offered to businesses and professionals for short and medium terms on both a collateralized and uncollateralized basis. As a general practice, the Company obtains as collateral a lien on furniture, fixtures, equipment, inventory, receivables or other assets. Commercial and industrial loans typically are underwritten on the basis of the borrower's ability to make repayment from the cash flow of its business and generally are collateralized by business assets. As a result, such loans involve additional complexities, variables and risks and require more thorough underwriting and servicing than other types of loans. Agricultural (Non-Real Estate) Loans. The Company's portfolio of agricultural (non-real estate) loans includes loans for financing agricultural production, including loans to businesses or individuals engaged in the production of 2 timber, poultry, livestock and crops. The Company's agricultural (non-real estate) loans are generally secured by farm machinery, livestock, crops, vehicles or other agri-related collateral. Deposits The Company offers an array of deposit products consisting of non-interest bearing checking accounts, low cost deposit products, including interest bearing transaction (such as checking) and savings accounts, and higher cost deposit products, including money market accounts and time deposits. The Company acts as depository for a number of state and local governments and government agencies or instrumentalities. Such public fund deposits are often subject to competitive bid and in many cases must be secured by the Company's pledge of government agency or other securities. The Company's deposits come primarily from within the Company's trade area. As of December 31, 1999 the Company had no outstanding "brokered deposits," defined as deposits which, to the knowledge of management of the Company, have been placed with the bank subsidiary by a person who acts as a broker in placing such deposits on behalf of others. Other Banking Services Trust Services. Prior to 1999 the Company provided trust services from its Ozark, Arkansas office. As the Company expanded into larger markets, it identified a need to expand the capabilities and services of this department. In 1998 the Company assembled a team of experienced trust officers at its main office in Little Rock to handle personal trusts, corporate trusts, employee benefit accounts and trust operations. In late 1998 this team commenced operations in Little Rock and the Ozark trust operations were consolidated into that office. In 1999 revenue from trust services continued to grow as this team began to develop increased business from this expanded trust operations. As of December 31, 1999 total trust assets under management were $99.4 million compared to $48.4 million as of December 31, 1998. Cash Management Services. In 1998 the Company introduced cash management products which are designed to provide a high level of specialized support to the treasury operations of business customers. In 1999 the Company continued to build its cash management products and added new commercial account customers. Cash management has four basic functions: deposit handling, funds concentration, funds disbursement and information reporting. The Company's cash management services include automated clearing house services (e.g., direct deposit, direct debit and electronic cash concentration and disbursement), zero balance accounts, current and prior day transaction reporting, wholesale lockbox services, automated credit line transfer and account analysis. The Company expects to continue to increase the number of customers to which it provides such services. Mortgage Lending. In 1996 the Company expanded its residential mortgage product line by offering long-term fixed and variable rate loans to be sold on a servicing released basis in the secondary market. The Company originates such loans through its Little Rock, Fort Smith and Harrison offices. In 1999 rising rates impacted the volume of mortgage loans being refinanced and the volume of loans on home purchases resulting in a substantial decline in the Company's mortgage loan originations and mortgage lending income. Loan originations dropped from $138.9 million in 1998 to $83.0 million in 1999. Although this business is cyclical, it will continue to be an important component of non- interest income. Competition The banking industry in the Company's market area is highly competitive. In addition to competing with other commercial and savings banks and savings and loan associations, the Company competes with credit unions, finance companies, mortgage companies, brokerage and investment banking firms, asset-based non-bank lenders and many other financial service firms. Competition is based upon interest rates offered on deposit accounts, interest rates charged on loans, fees and service charges, the quality and scope of the services rendered, the convenience of banking facilities and, in the case of loans to commercial borrowers, relative lending limits. A substantial number of the commercial banks operating in the Company's market area are branches or subsidiaries of much larger organizations affiliated with statewide, regional or national banking companies, and as a result may have greater resources and lower costs of funds than the Company. Additionally, the Company faces increased competition from de novo community banks, including those with senior management who were previously with other 3 local banks or those controlled by investor groups with strong local business and community ties. Management believes the Company will continue to be competitive because of its strong commitment to quality customer service, convenient local branches, active community involvement and competitive products and pricing. Employees At December 31, 1999 the Company employed 292 full-time equivalent employees. None of the employees were represented by any union or similar group. The Company has not experienced any labor disputes or strikes arising from any organized labor groups. The Company believes its employee relations are good. Executive Officers of Registrant The following is a list of the executive officers of the Company: George Gleason, age 46, Chairman and Chief Executive Officer. Mr. Gleason has served the Company or one of its bank subsidiaries as Chairman, Chief Executive Officer and/or President since 1979. He holds a B.A. in Business and Economics from Hendrix College and a J.D. from the University of Arkansas. James Patridge, age 49, Vice Chairman since 1997. From 1985 to 1997 Mr. Patridge served as Executive Vice President with NationsBank, N.A. (formerly Boatmen's Arkansas, Inc. and Worthen Banking Corporation). He has served as a director of the Company and its bank subsidiaries since December 1997. Mr. Patridge holds a B.S.B.A. from the University of Arkansas, an M.S. in Finance from Memphis State University and a J.D. from Oklahoma City University. Mark Ross, age 44, President. Mr. Ross has served as President since 1986 and in various capacities for one of the bank subsidiaries since 1980. He was elected as a director of the Company in 1992. Mr. Ross holds a B.A. in Business Administration from Hendrix College. Danny Criner, age 45, President of the bank subsidiary's northern division since 1990. Mr. Criner received a B.S.B.A. in Banking and Finance from the University of Arkansas. Paul Moore, age 53, Chief Financial Officer since 1995. From December 1989 to 1995 Mr. Moore served as secretary, secretary/treasurer or director of eight privately held companies under common ownership of Frank Lyon Jr. and family. Such companies engaged in diverse activities ranging from real estate to agricultural to banking. He is a C.P.A. and received a B.S.B.A. in Banking, Finance and Accounting from the University of Arkansas. Aubrey Avants, age 56, Executive Vice President, Trust of the bank subsidiary since June 1998. From 1993 to June 1997 Mr. Avants served as Senior Vice President, Trust Manager for First Bank of Arkansas, Jonesboro, Arkansas, and from June 1997 to June 1998 he served as Senior Vice President, Trust for First Commercial Bank, Memphis, Tennessee. Mr. Avants received an MBA from the University of Tennessee and his undergraduate degree in Finance from the University of Arkansas. Susan Sisk Grobmyer, age 51, Executive Vice President of the bank subsidiary since May 1997. Ms. Grobmyer joined the bank subsidiary in March 1997 as Senior Vice President. She previously served as a Senior Vice President of Commercial Loans for Pulaski Bank from 1995 to 1997 and Twin City Bank (now Mercantile Bank of Arkansas) from 1978 to 1995. Ms. Grobmyer attended the University of Arkansas at Monticello. Darrel Russell, age 46, Executive Vice President of the bank subsidiary since May 1997. From 1992 to 1997 Mr. Russell served as Senior Vice President of the bank subsidiary. He received a B.S.B.A. in Banking and Finance from the University of Arkansas. Randy Oates, age 56, Senior Vice President, Marketing since 1996. From 1992 to 1996 he served as Marketing Director for Commercial National Bank, Shreveport, Louisiana. He received a B.S.B.A. in Marketing from the University of Arkansas. Unless otherwise noted, each of the foregoing persons serves in the same position with both the Company and its bank subsidiary. 4 SUPERVISION AND REGULATION In addition to the generally applicable state and federal laws governing businesses and employers, bank holding companies and banks are extensively regulated under both federal and state law. With few exceptions, state and federal banking laws have as their principal objective either the maintenance of the safety and soundness of the Bank Insurance Fund ("BIF") and Savings Association Insurance Fund ("SAIF") of the FDIC or the protection of consumers or classes of consumers, rather than the specific protection of the stockholders of the Company. To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by reference to those particular statutory and regulatory provisions. Any change in applicable law or regulation may have an adverse effect on the results of operation and financial condition of the Company and its bank subsidiary. Federal Regulations The primary federal banking regulatory authority for the Company is the Board of Governors of the Federal Reserve System (the "FRB"), acting pursuant to its authority to regulate bank holding companies. Because the Company's bank subsidiary is an insured depository institution which is not a member bank of the Federal Reserve System, it is subject to regulation and supervision by the FDIC and is not subject to direct supervision by the FRB. Bank Holding Company Act. The Company is subject to supervision by the FRB under the provisions of the Bank Holding Company Act of 1956, as amended (the "BHCA"). The BHCA restricts the types of activities in which bank holding companies may engage and imposes a range of supervisory requirements on their activities, including regulatory enforcement actions for violations of laws and policies. The BHCA limits the activities of the Company and any companies controlled by it to the activities of banking, managing and controlling banks, furnishing or performing services for its subsidiaries, and any other activity that the FRB determines to be incidental to or closely related to banking. These restrictions also apply to any company in which the Company owns 5% or more of the voting securities. Before a bank holding company engages in any bank-related activities, either by acquisition or commencement of de novo operations, it must comply with the FRB's notification and approval procedures. In reviewing these notifications, the FRB considers a number of factors, including the expected benefits to the public versus the risks of possible adverse effects. In general, the potential benefits include greater convenience to the public, increased competition and gains in efficiency, while the potential risks include undue concentration of resources, decreased or unfair competition, conflicts of interest and unsound banking practices. Under the BHCA, a bank holding company must obtain FRB approval before engaging in acquisitions of banks or bank holding companies. In particular, the FRB must generally approve the following actions by a bank holding company: . the acquisition of ownership or control of more than 5% of the voting securities of any bank or bank holding company . the acquisition of all or substantially all of the assets of a bank . the merger or consolidation with another bank holding company In considering any application for approval of an acquisition or merger, the FRB is required to consider various competitive factors, the financial and managerial resources of the companies and banks concerned, the convenience and needs of the communities to be served and the applicant's record of compliance with the Community Reinvestment Act (the "CRA"). The CRA generally requires financial institutions to take affirmative action to ascertain and meet the credit needs of its entire community, including low and moderate income neighborhoods. The Attorney General of the United States may, within 30 days after approval of an acquisition by the FRB, bring an action challenging such acquisition under the federal antitrust laws, in which case the effectiveness of such approval is stayed pending a final ruling by the courts. Recent Banking Legislation. On November 12, 1999, the Gramm-Leach-Bliley Act (the "GLBA") was signed into law and it became effective March 11, 2000. Under the GLBA, a bank holding company that elects to become a "financial holding company" will be permitted to engage in any activity that the FRB, in consultation with the Secretary of the Treasury, determines by regulation or order is (i) financial in nature or incidental to such financial activity or (ii) complementary to a 5 financial activity and does not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally. In addition to traditional lending activities, the GLBA specifies the following activities as financial in nature: . acting as principal, underwriter, agent or broker for insurance; . underwriting, dealing in or making a market in securities; . merchant banking activities; and . providing financial and investment advice. A bank holding company may become a financial holding company only if all depository institution subsidiaries of the holding company are well-capitalized, well-managed and have at least a satisfactory rating under the Community Reinvestment Act. A financial holding company that falls out of compliance with such requirement may be required to cease engaging in certain activities. National banks are also authorized by the GLBA to engage, through "financial subsidiaries," in any activity that is permissible for a financial holding company, except (i) insurance underwriting, (ii) real estate development or real estate investment activities (unless otherwise permitted by law), (iii) insurance company portfolio investments and (iv) merchant banking. The authority of a national bank to invest in a financial subsidiary is subject to a number of conditions, including, among other things, requirements that the bank must be well-managed and well-capitalized (after deducting from capital the bank's outstanding investments in financial subsidiaries). The GLBA provides that state banks, such as the Company's bank subsidiary, may invest in financial subsidiaries that engage as principal in activities that would only be permissible for a national bank to conduct in a financial subsidiary. This authority is generally subject to the same conditions that apply to national bank investments in financial subsidiaries. The GLBA also adopts a number of consumer protections, including provisions intended to protect privacy of bank customers' financial information and provisions requiring disclosure of ATM fees imposed by banks on customers of other banks. Implementing regulations under the GLBA have not yet been promulgated and the Company cannot predict the full impact of the new legislation and has not yet determined if it will elect to become a financial holding company. As long as the Company has not elected to become a financial holding company, it will remain subject to the current restrictions of the BHCA. Interstate Banking. On September 29, 1994, President Clinton signed into law the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Act") which amended the BHCA to permit bank holding companies to acquire existing banks in any state effective September 29, 1995. The Interstate Act preempted barriers that restricted entry into states and created opportunities for expansion into markets that were previously closed. Interstate banking and branching authority (discussed below) is subject to certain conditions and restrictions, such as capital adequacy, management and CRA compliance. The Interstate Act also contained interstate branching provisions that allow multistate banking operations to merge into a single bank with interstate branches. The interstate branching provisions became effective on June 1, 1997, although states were allowed to pass laws to opt in early or to opt out completely as long as they acted prior to that date. Effective May 31, 1997, the Arkansas Interstate Banking and Branching Act of 1997 (the "Arkansas Interstate Act") authorized banks to engage in interstate branching activities within the borders of the state of Arkansas. Banks acquired pursuant to this new branching authority may be converted to branches. Interstate branching allows banks to merge across state lines to form a single institution. Interstate merger transactions can be used to consolidate existing multistate operations or to acquire new branches. A bank can also establish a new branch as its initial entry into a state if the state has authorized de novo branching. The Arkansas Interstate Act prohibits entry into the state through de novo branching. Deposit Insurance. The FDIC insures the deposits of the Company's bank subsidiary to the extent provided by law. BIF is the primary insurance fund for the bank's deposits, but SAIF insures a portion due to certain acquisitions by the Company of deposits from SAIF-insured institutions. Under the FDIC's risk- based insurance system, depository institutions 6 are currently assessed premiums based upon the institution's capital position and other supervisory factors. BIF and SAIF members currently have the same risk-based assessment schedule, which is 0 to 27 cents per $100 of eligible deposits. Insured depository institutions are further assessed premiums for Financing Corporation Bond debt service ("FICO"). Beginning January 1, 1997, FICO premiums for BIF and SAIF became 1.22 and 6.1 basis points, respectively, per $100 of eligible deposits. For the period July 1, 1999 through December 31, 1999, the Company's bank subsidiary was assessed an average annualized premium of $0.01172 per $100 of BIF-eligible deposits and $0.0586 per $100 of SAIF-eligible deposits. Capital Adequacy Requirements. The FRB monitors the capital adequacy of bank holding companies such as the Company, and the FDIC monitors the capital adequacy of its bank subsidiary. The federal bank regulators use a combination of risk-based guidelines and leverage ratios to evaluate capital adequacy. Under the risk-based capital guidelines, bank regulators assign a risk weight to each category of assets based generally on the perceived credit risk of the asset class. The risk weights are then multiplied by the corresponding asset balances to determine a "risk-weighted" asset base. The minimum ratio of total risk-based capital to risk-weighted assets is 8.0%. At least half of the risk-based capital must consist of Tier 1 capital, which is comprised of common equity, retained earnings and certain types of preferred stock and excludes goodwill and various intangible assets. The remainder, or Tier 2 capital, may consist of a limited amount of subordinated debt, certain hybrid capital instruments and other debt securities, preferred stock, and an allowance for loan losses not to exceed 1.25% of risk-weighted assets. The sum of Tier 1 capital and Tier 2 capital is "total risk-based capital." The leverage ratio is a company's Tier 1 capital divided by its adjusted total assets. The leverage ratio requires a 3.0% Tier 1 capital to adjusted average asset ratio for institutions with the highest regulatory rating of 1. All other institutions must maintain a leverage ratio of 4.0% to 5.0%. For a tabular summary of the Company's and the bank subsidiary's risk-weighted capital and leverage ratios, see "Management's Discussion and Analysis of Financial Condition and Results of Operation--Liquidity and Capital Resources." Bank regulators from time to time consider raising the capital requirements of banking organizations beyond current levels. However, the Company is unable to predict whether higher capital requirements will be imposed and, if so, the amount or timing of such increases. Therefore, the Company cannot predict what effect such higher requirements may have on it or its bank subsidiary. Enforcement Authority. The FRB has enforcement authority over bank holding companies and non-banking subsidiaries to forestall activities that represent unsafe or unsound practices or constitute violations of law. It may exercise these powers by issuing cease-and-desist orders or through other actions. The FRB may also assess civil penalties against companies or individuals who violate the BHCA or related regulations in amounts up to $1 million for each day's violation. The FRB can also require a bank holding company to divest ownership or control of a non-banking subsidiary or require such subsidiary to terminate its non-banking activities. Certain violations may also result in criminal penalties. The FDIC possesses comparable authority under the Federal Deposit Insurance Act (the "FDI Act"), the Federal Deposit Insurance Corporation Improvement Act ("FDICIA") and other statutes with respect to the bank subsidiary. In addition, the FDIC can terminate insurance of accounts, after notice and hearing, upon a finding that the insured institution is or has engaged in any unsafe or unsound practice that has not been corrected, is in an unsafe and unsound condition to continue operations, or has violated any applicable law, regulation, rule, or order of, or condition imposed by the appropriate supervisors. The FDICIA required federal banking agencies to broaden the scope of regulatory corrective action taken with respect to depository institutions that do not meet minimum capital and related requirements and to take such actions promptly in order to minimize losses to the FDIC. In connection with FDICIA, federal banking agencies established capital measures (including both a leverage measure and a risk-based capital measure) and specified for each capital measure the levels at which depository institutions will be considered well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized or critically undercapitalized. If an institution becomes classified as undercapitalized, the appropriate federal banking agency will require the institution to submit an acceptable capital restoration plan and can suspend or greatly limit the institution's ability to 7 effect numerous actions including capital distributions, acquisitions of assets, the establishment of new branches and the entry into new lines of business. On November 30, 1999 the FDIC advised the Company that the bank subsidiary had been classified as "well-capitalized" under these guidelines. Examination. The FRB may examine the Company and any or all of its subsidiaries. The FDIC examines and evaluates insured banks every 12 months, and it may assess the institution for its costs of conducting the examinations. The FDIC has a reciprocal agreement with the Arkansas State Bank Department whereby each will accept the other's examination reports in certain cases. As a result, the bank subsidiary generally undergoes FDIC and state examinations either on a joint basis or in alternating years. Reporting Obligations. As a bank holding company, the Company must file with the FRB an annual report and such additional information as the FRB may require pursuant to the BHCA. The bank subsidiary must submit to federal and state regulators annual audit reports prepared by independent auditors, and the Company's audit report can be used to satisfy this requirement. Other Regulation. The Company's status as a registered bank holding company under the BHCA does not exempt it from certain federal and state laws and regulations applicable to corporations generally, including, without limitation, certain provisions of the federal securities laws. The Company is under the jurisdiction of the Securities and Exchange Commission and of state securities commissions for matters relating to the offer and sale of its securities. The bank subsidiary's loan operations are subject to certain federal laws applicable to credit transactions, such as the federal Truth-In-Lending Act governing disclosures of credit terms to consumer borrowers, the Home Mortgage Disclosure Act of 1975 requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves, the Equal Credit Opportunity Act prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit, the Fair Credit Reporting Act of 1978 governing the use and provision of information to credit reporting agencies, the Fair Debt Collection Act governing the manner in which consumer debts may be collected by collection agencies, the Fair Housing Act prohibiting discriminatory practices relative to real estate-related transactions, including the financing of housing and the rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws. The deposit operations of the bank subsidiary also are subject to the Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records, the Electronic Funds Transfer Act, which governs automatic deposits to and withdrawals from deposit accounts and customers' rights and liabilities arising from the use of automated teller machines and other electronic banking services, the Truth in Savings Act requiring depository institutions to disclose the terms of deposit accounts to consumers and the Expedited Funds Availability Act requiring financial institutions to make deposited funds available according to specified time schedules and to disclose funds availability policies to consumers. State Regulations The Company and its bank subsidiary are subject to examination and regulation by the Arkansas State Bank Department. Examinations of the bank subsidiary are conducted annually but may be extended to 24 months if an interim examination is performed by the FDIC. The Arkansas State Bank Department may also make at any time an examination of the Company as may be necessary to disclose fully the relations between the holding company and its bank subsidiary and the effect of those relations. The Arkansas Constitution provides, in summary, that "consumer loans and credit sales" have a maximum percentage limitation of 17% per annum and that all "general loans" have a maximum limitation of 5% over the Federal Reserve Discount Rate in effect at the time the loan was made. The Arkansas Supreme Court has determined that "consumer loans and credit sales" are also "general loans" and are thus subject to an interest rate limitation equal to the lesser of 5% over the Federal Reserve Discount Rate or 17% per annum. The Arkansas Constitution also provides penalties for usurious "general loans" and "consumer loans and credit sales," including forfeiture of all principal and interest on consumer loans and credit sales made at a greater rate of interest than 17% per annum. Additionally, "general loans" made at a usurious rate may result in forfeiture of uncollected interest and a refund to the borrower of twice the interest collected. 8 Arkansas usury laws have historically been preempted by federal law with respect to first residential real estate loans and certain loans guaranteed by the Small Business Administration. Furthermore, the GLBA preempted the application of the Arkansas Constitution's usury limits to the Company's bank subsidiary effective November 12, 1999. Because of the recent enactment of this usury preemption under the GLBA, the absence of any judicial interpretation of the provision, and the current competitive marketplace for loans, the Company is unable to predict the impact of this provision on its operations or whether its bank subsidiary will seek to make loans with interest rates in excess of the Arkansas usury limits. The Company is also subject to the Arkansas Bank Holding Company Act of 1983 ("ABHCA") which places certain restrictions on the acquisition of banks by bank holding companies. Any acquisition by the Company of more than 10% of any class of the outstanding capital stock of any bank located in Arkansas, would require the Arkansas Bank Commissioner's approval. Further, no bank holding company may acquire any bank if after such acquisition the holding company would control, directly or indirectly, banks having 25% of the total bank deposits (excluding deposits from other banks and public funds) in the State of Arkansas. Under the ABHCA a bank holding company cannot own more than one bank subsidiary if any of its bank subsidiaries has been chartered for less than 5 years. Effective January 1, 1999 Arkansas law allows the Company to engage in branching activities for its bank subsidiaries on a statewide basis. Immediately prior to that date, the state's branching laws prevented state and national banks from opening branches in any county of the state other than their home county and the counties contiguous to their home county. Because the state branching laws did not limit the branching activities of federal savings banks, the Company was able to branch outside of the traditional areas of its state bank subsidiaries through the federal thrift that it acquired in February 1998. In response to the change in state branching laws, the Company merged its thrift charter into its lead state bank subsidiaries in early 1999. Bank Subsidiary The lending and investment authority of the state bank subsidiary is derived from Arkansas law. The lending power is generally subject to certain restrictions, including the amount which may be lent to a single borrower. Regulations of the FDIC and the Arkansas State Bank Department limit the ability of the bank subsidiary to pay dividends to the Company without the prior approval of such agencies. FDIC regulations prevent insured state banks from paying any dividends from capital and allows the payment of dividends only from net profits then on hand after deduction for losses and bad debts. The Arkansas State Bank Department currently limits the amount of dividends that the bank subsidiary can pay the Company to 75% of the bank's net profits after taxes for the current year plus 75% of its retained net profits after taxes for the immediately preceding year. Federal law substantially restricts transactions between financial institutions and their affiliates, particularly their non-financial institution affiliates. As a result, the bank subsidiary is sharply limited in making extensions of credit to the Company or any non-bank subsidiary, in investing in the stock or other securities of the Company or any non-bank subsidiary, in buying the assets of, or selling assets to, the Company, and/or in taking such stock or securities as collateral for loans to any borrower. Moreover, transactions between the bank subsidiary and the Company (or any nonbank subsidiary) must generally be on terms and under circumstances at least as favorable to the bank subsidiary as those prevailing in comparable transactions with independent third parties or, in the absence of comparable transactions, on terms and under circumstances that in good faith would be available to nonaffiliated companies. The federal banking laws require all insured banks, including the bank subsidiary, to maintain reserves against their checking and transaction accounts (primarily checking accounts, NOW and Super NOW checking accounts). Because reserves must generally be maintained in cash or in non-interest bearing accounts, the effect of the reserve requirements is to increase the bank subsidiary's cost of funds. Arkansas law requires state chartered banks to maintain such reserves as are required by the applicable federal regulatory agency. The bank subsidiary is subject to Section 23A of the Federal Reserve Act, which places limits on the amount of loans or extensions of credit to, or investments in, or certain other transactions with, affiliates, including the Company. In addition, limits are placed on the amount of advances to third parties collateralized by the securities or obligations of affiliates. Most of these loans and certain other transactions must be secured in prescribed amounts. The bank subsidiary is also subject to 9 Section 23B of the Federal Reserve Act, which prohibits an institution from engaging in transactions with certain affiliates unless the transactions are on terms substantially the same, or at least as favorable to such institution or its subsidiaries, as those prevailing at the time for comparable transactions with non-affiliated companies. The bank subsidiary is subject to restrictions on extensions of credit to executive officers, directors, certain principal stockholders, and their related interests. These extensions of credit (1) must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with third parties and (2) must not involve more than the normal risk of repayment or present other unfavorable features. Proposed Legislation For Bank Holding Companies And Banks Certain proposals affecting the banking industry have been discussed from time to time. Such proposals include: regulation of all insured depository institutions by a single regulator; limitations on the number of accounts protected by the federal deposit insurance funds; and modification of the $100,000 coverage limit on deposits. It is uncertain which, if any, of the above proposals may become law and what effect they would have on the Company and its bank subsidiary. Item 2. PROPERTIES ---------- The Company serves its customers by offering a broad range of banking services throughout northern, western and central Arkansas from the following locations:
Banking Location/(1)/ Year Opened Square Footage -------------------------------------------------- ----------------------------- --------------------- Yellville......................................... Under Construction 2,716 Clinton........................................... 1999 2,784 North Little Rock (North Hills)/(2)/.............. 1999 4,350 Harrison (Downtown)............................... 1999 14,000 North Little Rock (Indian Hills)/(3)/............. 1999 1,500 Fort Smith........................................ 1998 22,500 Little Rock (Cantrell)............................ 1998 2,700 Little Rock (Chenal).............................. 1998 40,000 Little Rock (Rodney Parham)....................... 1998 2,500 Little Rock (Chester)/(4)/........................ 1998 1,716 Bellefonte........................................ 1997 1,444 Alma.............................................. 1997 4,200 Paris............................................. 1997 3,100 Mulberry.......................................... 1997 1,875 Harrison (North)/(5)/............................. 1996 3,300 Clarksville (Rogers)/(5)/......................... 1995 3,300 Van Buren......................................... 1995 2,520 Marshall/(5)/..................................... 1995 2,520 Clarksville (Main)................................ 1994 2,520 Ozark (Westside).................................. 1993 2,520 Western Grove..................................... 1976 (expanded 1991) 2,610 Altus/(6)/........................................ 1972 (rebuilt 1998) 1,500 Ozark (Main)...................................... 1971 (expanded 1985) 30,877 Jasper............................................ 1967 (expanded 1984) 4,408
_________________ (1) Unless otherwise indicated, the Company owns, or will own upon the completion of construction, its banking locations. (2) The Company owns the building and leases the land at this location. The initial lease term expires twenty years from November 1999 with the right to extend for four additional five-year periods. 10 (3) The Company leases the building and land at this location with an initial term expiring in December 2002, subject to options to renew for four additional terms of two years each. (4) This location was acquired by the Company in February 1998. The facility was constructed in 1994. (5) The Company owns the buildings and leases the land at these locations. The initial lease terms expire in 2001 (Harrison), 2007 (Clarksville) and 2024 (Marshall). The Company has renewal options on the Harrison and Marshall facilities and purchase options on the Harrison and Clarksville facilities. (6) Original facility was destroyed by storm in 1997. This facility was rebuilt and placed in service in 1998. While management believes its existing banking locations are adequate for its present operations, the Company intends to establish additional branch offices in the future in accordance with its growth strategy. Item 3. LEGAL PROCEEDINGS ----------------- The Company is not currently involved in any material legal proceedings. However, from time to time the Company is involved in routine legal proceedings arising in the ordinary course of business. Management does not believe that any such proceedings, either individually or in the aggregate, will result in material losses to the Company. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- No information is required in response to this Item as no matters were submitted to a vote of Registrant's security holders during the fourth quarter of the fiscal year covered by this report. PART II Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS. --------------------------------------------------------------------- The Company's Common Stock is listed on the Nasdaq National Market under the symbol "OZRK" and as of March 1, 2000 the Company had 187 holders of record. The other information required by Item 201 of Regulation S-K is contained in the Management's Discussion and Analysis section of the Company's 1999 Annual Report under the heading "Summary of Quarterly Results of Operations, Common Stock Market Prices and Dividends" on page 27, which information is incorporated herein by reference. Item 6 SELECTED FINANCIAL DATA ----------------------- The information required by Item 301 of Regulation S-K is contained in the Company's 1999 Annual Report under the heading "Selected Consolidated Financial Data" on page 9, which information is incorporated herein by reference. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND --------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- The information required by Item 303 of Regulation S-K is contained in the Company's 1999 Annual Report under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 10 through 27, which information is incorporated herein by reference. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ---------------------------------------------------------- The information required by Item 305 of Regulation S-K is contained in the Management's Discussion and Analysis section of the Company's 1999 Annual Report under the heading "Interest Rate Sensitivity" on pages 21 through 23, which information is incorporated herein by reference. 11 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ------------------------------------------- The information required by this Item and by Item 302 of Regulation S-K is contained in the Company's 1999 Annual Report on pages 28 through 44 and in the Management's Discussion and Analysis section of the 1999 Annual Report under the heading "Summary of Quarterly Results of Operations, Common Stock Market Prices and Dividends" on page 27 which information is incorporated herein by reference. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND ---------------------------------------------------------------- FINANCIAL DISCLOSURE -------------------- No information is required in response to this item. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT -------------------------------------------------- The information required by Item 401 of Regulation S-K regarding directors is contained in the Company's Proxy Statement for the 2000 annual meeting under the heading "Nominees for Election as Directors" on pages 3 through 4, which information is incorporated herein by reference. In accordance with Item 401(b) of Regulation S-K, Instruction 3, information concerning the Company's executive officers is furnished in a separate item captioned "Executive Officers of Registrant" in Part I above. The information required by Item 405 of Regulation S-K is contained in the Company's Proxy Statement for the 2000 annual meeting under the heading "Section 16(a) Beneficial Ownership Reporting Compliance" on page 16, which information is incorporated herein by reference. Item 11. EXECUTIVE COMPENSATION ----------------------- The information required by Item 402 of Regulation S-K is contained in the Company's Proxy Statement for the 2000 annual meeting under the heading "Executive Compensation and Other Information" on pages 10 through 12, which information is incorporated herein by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -------------------------------------------------------------- The information required by Item 403 of Regulation S-K is contained in the Company's Proxy Statement for the 2000 annual meeting under the headings "Principal Stockholders" and "Security Ownership of Management" on pages 8 through 9, which information is incorporated herein by reference. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ---------------------------------------------- The information required by Item 404 of Regulation S-K is contained in the Company's Proxy Statement for the 2000 annual meeting under the heading "Certain Transactions" on page 15, which information is incorporated herein by reference. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K ---------------------------------------------------------------- (a) The following documents are filed as part of this report: (1) The following consolidated financial statements of the Registrant included on pages 29 to 44 in the Company's Annual Report for the fiscal year ended December 31, 1999, and the Report of Independent Auditors on page 28 of such Annual Report are incorporated herein by reference Consolidated Balance Sheets as of December 31, 1999 and 1998 12 Consolidated Statements of Income for the Years Ended December 31, 1999, 1998 and 1997 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1999, 1998 and 1997 Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997 Notes to Consolidated Financial Statements (2) Financial Statement Schedules: All schedules are omitted for the reasons that they are not required or are not applicable, or the required information is shown in the consolidated financial statements or the notes thereto. (b) Reports on Form 8-K: Registrant did not file any reports on Form 8-K during the fourth quarter of 1999. (c) Exhibits: The exhibits to this report are listed in the Exhibit Index at the end of this Item 14. (d) Financial Statement Schedules: Not applicable. 13 EXHIBIT INDEX The following exhibits are filed with this report or are incorporated by reference to previously filed material. Exhibit No. - ----------- 3.1 Amended and Restated Articles of Incorporation of the Registrant, dated May 22, 1997 (previously filed as Exhibit No. 3.1 to the Company's Registration Statement on Form S-1 filed with the Commission on May 22, 1997, as amended, Commission File No. 333-27641, and incorporated herein by this reference). 3.2 Amended and Restated By-Laws of the Registrant, dated March 13, 1997 (previously filed as Exhibit No. 3.2 to the Company's Registration Statement on Form S-1 filed with the Commission on May 22, 1997, as amended, Commission File No. 333-27641, and incorporated herein by this reference). 4.1 Amended and Restated Trust Agreement, dated June 18, 1999, relating to the issuance of Ozark Capital Trust's $17,250,000 of 9.0% Cumulative Trust Preferred Securities (previously filed as exhibit 4.1 to the Company's quarterly report on Form 10-Q filed with the Commission for the period ended June 30, 1999, and incorporated herein by this reference). 4.2 9.0% Cumulative Trust Preferred Securities Certificate (included as an exhibit to Item 4.1 previously filed with the Company's quarterly report on Form 10-Q filed with the Commission for the period ended June 30, 1999, and incorporated herein by this reference). 4.3 Agreement as to Expenses and Liabilities (included as an exhibit to Item 4.1, previously filed as exhibit 4.1 to the Company's quarterly report on Form 10-Q filed with the Commission for the period ended June 30, 1999, and incorporated herein by this reference). 4.4 Subordinated Indenture, dated June 18, 1999, relating to the issuance of the Company's $17,783,510 of 9.0% Subordinated Debentures (previously filed as exhibit 4.4 to the Company's quarterly report on Form 10-Q filed with the Commission for the period ended June 30, 1999, and incorporated herein by this reference). 4.5 Form of 9.0% Subordinated Debenture (included as an exhibit to Item 4.4 previously filed with the Company's quarterly report on Form 10-Q filed with the Commission for the period ended June 30, 1999, and incorporated herein by this reference). 4.6 Form of Preferred Securities Guarantee Agreement, dated June 18, 1999, (previously filed as exhibit 4.6 to the Company's quarterly report on Form 10-Q filed with the Commission for the period ended June 30, 1999, and incorporated herein by this reference). 10.1 Bank of the Ozarks, Inc. Stock Option Plan, dated May 22, 1997 (previously filed as Exhibit No. 10.1 to the Company's Registration Statement on Form S-1 filed with the Commission on May 22, 1997, as amended, Commission File No. 333-27641, and incorporated herein by this reference). 10.2 Bank of the Ozarks, Inc. Non-Employee Director Stock Option Plan, dated May 22, 1997 (previously filed as Exhibit No. 10.2 to the Company's Registration Statement on Form S-1 filed with the Commission on May 22, 1997, as amended, Commission File No. 333-27641, and incorporated herein by this reference). 10.3 Loan Agreement with Union Planters National Bank, Memphis, Tennessee, dated March 25, 1998 (previously filed as Exhibit No. 10 to the Company's Quarterly Report on Form 10-Q filed with the Commission for the period ended March 31, 1998, and incorporated herein by this reference). 10.4 Modification dated June 10, 1999 of loan agreement dated March 25, 1998 between the Company and Union Planters Bank, N.A. (previously filed as exhibit 10 to the Company's quarterly report on Form 10-Q filed with the Commission for the period ended June 30, 1999, and incorporated herein by this reference). 14 10.5 Ground Lease - Marshall (Searcy County), dated October 15, 1993 (previously filed as Exhibit No. 10.6 to the Company's Registration Statement on Form S-1 filed with the Commission on May 22, 1997, as amended, Commission File No. 333-27641, and incorporated herein by this reference). 10.6 Ground Lease - Harrison (Boone County), dated December 22, 1994 (previously filed as Exhibit No. 10.7 to the Company's Registration Statement on Form S-1 filed with the Commission on May 22, 1997, as amended, Commission File No. 333-27641, and incorporated herein by this reference). 10.7 Ground Lease - Clarksville (Johnson County), dated January 1, 1995 (previously filed as Exhibit No. 10.7 to the Company's Registration Statement on Form S-1 filed with the Commission on May 22, 1997, as amended, Commission File No. 333-27641, and incorporated herein by this reference). 10.8 Employment Agreement, dated May 22, 1997, between the Registrant and George Gleason (previously filed as Exhibit No. 10.9 to the Company's Registration Statement on Form S-1 filed with the Commission on May 22, 1997, as amended, Commission File No. 333-27641, and incorporated herein by this reference). 10.9 Form of Indemnification Agreement between the Registrant and its directors and certain of its executive officers (previously filed as Exhibit No. 10.10 to the Company's Registration Statement on Form S-1 filed with the Commission on May 22, 1997, as amended, Commission File No. 333-27641, and incorporated herein by this reference). 10.10 Amendment to Employment Agreement, dated September 16, 1997, between the Registrant and George Gleason (previously filed as exhibit 10 to the Company's quarterly report on Form 10-Q filed with the Commission for the period ended September 30, 1997, and incorporated herein by this reference). 10.11 Second Amendment to Employment Agreement, dated July 21, 1998 between the Registrant and George Gleason (previously filed as Exhibit 10 to the Company's Quarterly Report on Form 10-Q filed with the Commission for the period ended June 30, 1998, and incorporated herein by reference). 10.12 Ground Lease - North Little Rock, Indian Hills Shopping Center (Pulaski County), dated November 20, 1998, between Bank of the Ozarks, wca and Indian Hills Shopping Center Partnership d/b/a Indian Hills Shopping Center, as amended December 8, 1998 (previously filed as Exhibit No. 10.16 to the Company's annual report on 10-K for the year ended December 31, 1998 and incorporated herein by this reference). 10.13 Construction Contract, dated July 20, 1998, between Bank of the Ozarks and East-Harding, Inc. (Cantrell Road, Little Rock) (attached). 10.14 Construction Contract, dated September 8, 1998, between Bank of the Ozarks and East-Harding, Inc. (Harrison, Arkansas) (attached). 10.15 Construction Contract, dated June 16, 1999, between Bank of the Ozarks and East-Haring, Inc. (Clinton, Arkansas) (attached). 10.16 Construction Contract, dated June 16, 1999, between Bank of the Ozarks and East-Haring, Inc. (North Little Rock) (attached). 10.17 Construction Contract, dated November 23, 1999, between Bank of the Ozarks and East-Haring, Inc. (Yellville, Arkansas) (attached). 10.18 Ground Lease - North Little Rock, Lakewood Shopping Center (Pulaski County), dated May 18, 1999, between Bank of the Ozarks, wca and Metropolitan Realty and Development, LLC (attached). 13 Portions of the Registrant's Annual Report to Stockholders for the year ended December 31, 1999 which are incorporated herein by reference: pages 9 to 44 of such Annual Report (attached). 15 21 List of Subsidiaries of the Registrant (attached). 23.1 Consent of Ernst & Young LLP (attached). 23.2 Consent of Moore Stephens Frost (attached). 27 Financial Data Schedule (attached). 16 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BANK OF THE OZARKS, INC. By: /s/ George Gleason --------------------------------------------- Chairman and Chief Executive Officer Date: March 21, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. SIGNATURE TITLE DATE /s/ George Gleason Chairman of the Board, Chief March 21, 2000 - ------------------------- George Gleason Executive Officer and Director /s/ James Patridge Vice Chairman and Director March 21, 2000 - ------------------------- James Patridge /s/ Mark Ross President and Director March 21, 2000 - ------------------------- Mark Ross /s/ Paul Moore Chief Financial Officer March 21, 2000 - ------------------------- Paul Moore (Chief Accounting Officer) Director March 21, 2000 - ------------------------- Roger Collins /s/ Jerry Davis Director March 21, 2000 - ------------------------- Jerry Davis /s/ C. E. Dougan Director March 21, 2000 - ------------------------- C. E. Dougan 17 /s/ Robert East Director March 21, 2000 - ------------------------- Robert East /s/ Linda Gleason Director March 21, 2000 - ------------------------- Linda Gleason /s/ Porter Hillard Director March 21, 2000 - ------------------------- Porter Hillard /s/ Henry Mariani Director March 21, 2000 - ------------------------- Henry Mariani /s/ Dr. R. L. Qualls Director March 21, 2000 - ------------------------- Dr. R. L. Qualls /s/ Kennith Smith Director March 21, 2000 - ------------------------- Kennith Smith 18 EX-10.13 2 CONSTRUCTION CONTRACT, JULY 20, 1998 Exhibit 10.13 AIA Document A 111 Standard Form of Agreement Between Owner and Contractor where the basis of payment is the COST OF THE WORK PLUS A FEE with or without a Guaranteed Maximum Price 1987 EDITION THIS DOCUMENT HAS IMPORTANT LEGAL CONSEQUENCES, CONSULTATION WITH AN ATTORNEY IS ENCOURAGED WITH RESPECT TO ITS COMPLETION OR MODIFICATION. The 1987 Edition of AIA Document A201, General Conditions of the Contract for Construction, is adopted in this document by reference. Do not use with other general conditions unless this document is modified. This document has been approved and endorsed by The Associated General Contractors of America. AGREEMENT made as of the Twentieth day of July in the year of Nineteen Hundred and Ninety Eight BETWEEN the Owner: (Name and address) Bank of the Ozarks Chenal Parkway & W. Markham St. Little Rock, AR 72231-8811 and the Contractor: (Name and address) East-Harding, Inc. 2230 Cottondale Lane , Suite 3 Little Rock, AR 72202 the Project is: (Name and address) Bank of the Ozarks 7500 Cantrell Rd. Little Rock, AR 72211 the Architect is: (Name and address) AMR Architects 201 East Markham, Suite 150 Little Rock, AR 72201 The Owner and Contractor agree as set forth below. ARTICLE 1 THE CONTRACT DOCUMENTS 1.1 The Contract Documents consist of this Agreement, Conditions of the Contract (General, Supplementary and other Conditions), Drawings, Specifications, addenda issued prior to execution of this Agreement, other documents listed in this Agreement and Modifications issued after execution of this Agreement; these form the Contract, and are as fully a part of the Contract as if attached to this Agreement or repeated herein. The Contract represents the entire and integrated agreement between the parties hereto and supersedes prior negotiations, representations or agreements, either written or oral. An enumeration of the Contract Documents, other than Modifications, appears in Article 16. If anything in the other Contract Documents is inconsistent with this Agreement, this Agreement shall govern. ARTICLE 2 THE WORK OF THIS CONTRACT 2.1 The Contractor shall execute the entire Work described in the Contract Documents, except to the extent specifically indicated in the Contract Documents to be the responsibility of others, or as follows: - -Telephone and Data Cabling - -Pylon Sign ARTICLE 3 RELATIONSHIP OF THE PARTIES 3.1 The Contractor accepts the relationship of trust and confidence established by this Agreement and covenants with the Owner to cooperate with the Architect and utilize the Contractor's best skill, efforts and judgment in furthering the interests of the Owner; to furnish efficient business administration and supervision; to make best efforts to furnish at all times an adequate supply of workers and materials; and to perform the Work in the best way and most expeditious and economical manner consistent with the interests of the Owner. The Owner agrees to exercise best efforts to enable the Contractor to perform the Work in the best way and most expeditious manner by furnishing and approving in a timely way information required by the Contractor and making payments to the Contractor in accordance with requirements of the Contract Documents. ARTICLE 4 DATE OF COMMENCEMENT AND SUBSTANTIAL COMPLETION 4.1 The date of commencement is the date from which the Contract Time of Subparagraph 4.2 is measured; it shall be the date of this Agreement, as first written above, unless a different date is stated below or provision is made for the date to be fixed in a notice to proceed issued by the Owner. (Insert the date of commencement, if it differs from the date of this Agreement or, if applicable, state that the date will be fixed in a notice to proceed.) July 20, 1998 Unless the date of commencement is established by a notice to proceed issued by the Owner, the Contractor shall notify the Owner in writing not less than five days before commencing the Work to permit the timely filing of mortgages, mechanic's liens and other security interests. 4.2 The Contractor shall achieve Substantial Completion of the entire Work not later than (Insert the calendar date or number of calendar days after the date of commencement. Also insert any requirements for earlier Substantial Completion of certain portions of the Work, if not stated elsewhere in the Contract Documents.) December 1, 1998 , subject to adjustments of this Contract Time as provided in the Contract Documents. (Insert provisions, if any, for liquidated damages relating to failure to complete on time.) ARTICLE 5 CONTRACT SUM 5.1 The Owner shall pay the Contractor in current funds for the Contractor's performance of the Contract the Contract Sum consisting of the Cost of the Work as defined in Article 7 and the Contractor's Fee determined as follows: (State a lump sum, percentage of Cost of the Work or other provision for determining the Contractor's Fee, and explain bow the Contractor's Fee is to be adjusted for changes in the Work.) Cost of Work Plus Five Percent (5%) Fee 5.2 GUARANTEED MAXIMUM PRICE (IF APPLICABLE) 5.2.1 The sum of the Cost of the Work and the Contractor's Fee is guaranteed by the Contractor not to exceed Five Hundred Fifty-Two Thousand, Seven Hundred Seventy Two Dollars ($552,772) subject to additions and deductions by Change Order as provided in the Contract Documents. Such maximum sum is referred to in the Contract Documents as the Guaranteed Maximum Price. Costs which would cause the Guaranteed Maximum Price to be exceeded shall be paid by the Contractor without reimbursement by the Owner. (insert specific provisions if the Contractor is to participate in any savings.) 100% Savings Given to Owner 5.2.2 The Guaranteed Maximum Price is based upon the following alternates, if any, which are described in the Contract Documents and are hereby accepted by the Owner: (State the numbers or other identification of accepted alternates, but only if a Guaranteed Maximum Price is inserted in Subparagraph 5.2. 1 If decisions on other alternates are to be made by the Owner subsequent to the execution of this Agreement, attach a schedule of such other alternates showing the amount for each and the date until which that amount is valid.) See Attachment One 5.2.3 The amounts agreed to for unit prices, if any, are as follows: (State unit prices only if a Guaranteed Maximum Price is inserted in Subparagraph 5.2. 1.) ARTICLE 6 CHANGES IN THE WORK 6.1 CONTRACTS WITH A GUARANTEED MAXIMUM PRICE 6.1.1 Adjustments to the Guaranteed Maximum Price on account of changes in the Work may be determined by any of the methods listed-in Subparagraph 7.3.3 of the General Conditions. 6.1.2 In calculating adjustments to subcontracts (except those awarded with the Owner's prior consent on the basis of cost plus a fee), the terms "cost" and "fee" as used in Clause 7.3.3.3 of the General Conditions and the terms "costs" and "a reasonable allowance for overhead and profit" as used in Subparagraph 7.3.6 of the General Conditions shall have the meanings assigned to them in the General Conditions and shall not be modified by Articles 5, 7 and 8 of this Agreement. Adjustments to subcontracts awarded with the Owner's prior consent on the basis of cost plus a fee shall be calculated in accordance with the terms of those subcontracts. 6.1.3 In calculating adjustments to this Contract, the terms "cost" and "costs" as used in the above-referenced provisions of the General Conditions shall mean the Cost of the Work as defined in Article 7 of this Agreement and the terms "fee" and "a reasonable allowance for overhead and profit" shall mean the Contractor's Fee as defined in Paragraph 5.1 of this Agreement. 6.2 CONTRACTS WITHOUT A GUARANTEED MAXIMUM PRICE 6.2.1 Increased costs for the items set forth in Article 7 which result from changes in the Work shall become part of the Cost of the Work, and the Contractor's Fee shall be adjusted as provided in Paragraph 5.1. 6.3 ALL CONTRACTS 6.3.1 If no specific provision is made in Paragraph 5.1 for adjustment of the Contractor's Fee in the case of changes in the Work, or if the extent of such changes is such, in the aggregate, that application of the adjustment provisions of Paragraph 5.1 will cause substantial inequity to the Owner or Contractor, the Contractor's Fee shall be equitably adjusted on the basis of the Fee established for the original Work. ARTICLE 7 COSTS TO BE REIMBURSED 7.1 The term Cost of the Work shall mean costs necessarily incurred by the Contractor in the proper performance of the Work. Such costs shall be at rates not higher than the standard paid at the place of the Project except with prior consent of the Owner. The Cost of the Work shall include only the items set forth in this Article 7. 7.1.1 LABOR COSTS 7.1.1.1 Wages of construction workers directly employed by the Contractor to perform the construction of the Work at the site or, with the Owner's agreement, at off-site workshops. 7.1.1.2 Wages or salaries of the Contractor's supervisory and administrative personnel when stationed at the site with the Owner's agreement. (If it is intended that the wages or salaries of certain personnel stationed at the Contractor's principal or other offices shall be included in the Cost of the Work, identify in Article 14 the personnel to be included and whether for all or only part of their time.) 7.1.1.3 Wages and salaries of the Contractor's supervisory or administrative personnel engaged, at factories, workshops or on the road, in expediting the production or transportation of materials or equipment required for the Work, but only for that portion of their time required for the Work. 7.1.1.4 Costs paid or incurred by the Contractor for taxes, insurance, contributions, assessments and benefits required by law or collective bargaining agreements and, for personnel not covered by such agreements, customary benefits such as sick leave, medical and health benefits, holidays, vacations and pensions, provided such costs are based on wages and salaries included in the Cost of the Work under Clauses 7.1.1.1 through 7.1.1.3. 7.1.2 SUBCONTRACT COSTS Payments made by the Contractor to Subcontractors in accordance with the requirements of the subcontracts. 7.1.3 COSTS OF MATERIALS AND EQUIPMENT INCORPORATED IN THE COMPLETED CONSTRUCTION 7.1.3.1 Costs, including transportation, of materials and equipment incorporated or to be incorporated in the completed construction. 7.1.3.2 Costs of materials described in the preceding Clause 7.1.3.1 in excess of those actually installed but required to provide reasonable allowance for waste and for spoilage. Unused excess materials, if any, shall be handed over to the Owner at the completion of the Work or, at the Owner's option, shall be sold by the Contractor; amounts realized, if any, from such sales shall be credited to the Owner as a deduction from the Cost of the Work. 7.1.4 COSTS OF OTHER MATERIALS AND EQUIPMENT, TEMPORARY FACILITIES AND RELATED ITEMS 7.1.4.1 Costs, including transportation, installation, maintenance dismantling and removal of materials, supplies, temporary facilities, machinery, equipment, and hand tools not customarily owned by the construction workers, which are provided by the Contractor at the site and fully consumed in the performance of the Work; and cost less salvage value on such items if not fully consumed, whether sold to others or retained by the Contractor. Cost for items previously used by the Contractor shall mean fair market value. 7.1.4.2 Rental charges for temporary facilities, machinery, equipment, and hand tools not customarily owned by the construction workers, which are provided by the Contractor at the site, whether rented from the Contractor or others, and costs of transportation, installation, minor repairs and replacements, dismantling and removal thereof. Rates and quantities of equipment rented shall be subject to the Owner's prior approval. 7.1.4.3 Costs of removal of debris from the site. 7.1.4.4 Costs of telegrams and long-distance telephone calls, postage and parcel delivery charges, telephone service at the site and reasonable petty cash expenses of the site office. 7.1.4.5 That portion of the reasonable travel and subsistence expenses of the Contractor's personnel incurred while traveling in discharge of duties connected with the Work. 7.1.5 MISCELLANEOUS COSTS 7.1.5.1 That portion directly attributable to this Contract of premiums for insurance and bonds. 7.1.5.2 Sales, use or similar taxes imposed by a governmental authority which are related to the Work and for which the Contractor is liable. 7.1.5.3 Fees and assessments for the building permit and for other permits, licenses and inspections for which the Contractor is required by the Contract Documents to pay. 7.1.5.4 Fees of testing laboratories for tests required by the Contract Documents, except those related to defective or nonconforming Work for which reimbursement is excluded by Subparagraph 13.5.3 of the General Conditions or other provisions of the Contract Documents and which do not fall within the scope of Subparagraphs 7.2.2 through 7.2.4 below. 7.1.5.5 Royalties and license fees paid for the use of a particular design, process or product required by the Contract Documents; the cost of defending suits or claims for infringement of patent rights arising from such requirement by the Contract Documents; payments made in accordance with legal judgments against the Contractor resulting from such suits or claims and payments of settlements made with the Owner's consent; provided, however, that such costs of legal defenses, judgment and settlements shall not be included in the calculation of the Contractor's Fee or of a Guaranteed Maximum Price, if any, and provided that such royalties, fees and costs are not excluded by the last sentence of Subparagraph 3.17.1 of die General Conditions or other provisions of the Contract Documents. 7.1.5.6 Deposits lost for causes other than the Contractor's fault or negligence. 7.1.6 OTHER COSTS 7.1.6.1 Other costs Incurred in the performance of the Work if and to the extent approved in advance in writing by the Owner. 7.2 EMERGENCIES: REPAIRS TO DAMAGED, DEFECTIVE OR NONCONFORMING WORK The Cost of the Work shall also include costs described in Paragraph 7.1 which are incurred by the Contractor: 7.2.1 In taking action to prevent threatened damage, injury or loss in case of an emergency affecting the safety of persons and property, as provided in Paragraph 10.3 of the General Conditions. 7.2.2 In repairing or correcting Work damaged or improperly executed by construction workers in the employ of the Contractor, provided such damage or improper execution did not result from the fault or negligence of the Contractor or the Contractor's foremen, engineers or superintendents, or other supervisory, administrative or managerial personnel of the Contractor. 7.2.3 In repairing damaged Work other than that described in Subparagraph 7.2.2, provided such damage did not result from the fault or negligence of the Contractor or the Contractor's personnel, and only to the extent that the cost of such repairs is not recoverable by the Contractor from others and the Contractor is not compensated therefor by insurance or otherwise. 7.2.4 In correcting defective or nonconforming Work performed or supplied by a Subcontractor or material supplier and not corrected by them, provided such defective or nonconforming Work did not result from the fault or neglect of the Contractor or the Contractor's personnel adequately to supervise and direct the Work of the Subcontractor or material supplier, and only to the extent that the cost of correcting the defective or nonconforming Work is not recoverable by the Contractor from the Subcontractor or material supplier. ARTICLE 8 COSTS NOT TO BE REIMBURSED 8.1 The Cost of the Work shall not include: 8.1.1 Salaries and other compensation of the Contractor's personnel stationed at the Contractor's principal office or offices other than the site office, except as specifically provided in Clauses 7.1.1.2 and 7.1.1.3 or as may be provided in Article 14. 8.1.2 Expenses of the Contractor's principal office and offices other than the site office. 8.1.3 Overhead and general expenses, except as may be expressly included in Article 7. 8.1.4 The Contractor's capital expenses, including interest on the Contractor's capital employed for the Work. 8.1.5 Rental costs of machinery and equipment, except as specifically provided in Clause 7.1.4.2. 8.1.6 Except as provided in Subparagraphs 7.2.2 through 7.2.4 and Paragraph 13.5 of this Agreement, costs due to the fault or negligence of the Contractor, Subcontractors, anyone directly or indirectly employed by any of them, or for whose acts any of them may be liable, including but not limited to costs for the correction of damaged, defective or nonconforming Work, disposal and replacement of materials and equipment incorrectly ordered or supplied, and making good damage to property not forming part of the Work. 8.1.7 Any cost not specifically and expressly described in Article 7. 8.1.8 Costs which would cause the Guaranteed Maximum Price, if any, to be exceeded. ARTICLE 9 DISCOUNTS, REBATES AND REFUNDS 9.1 Cash discounts obtained on payments made by the Contractor shall accrue to the Owner if (1) before making the payment, the Contractor included them in an Application for Payment and received payment therefor from the Owner, or (2) the Owner has deposited funds with the Contractor with which to make payments; otherwise, cash discounts shall accrue to the Contractor. Trade discounts, rebates, refunds and amounts received from sales of surplus materials and equipment shall accrue to the Owner, and the Contractor shall make provisions so that they can be secured. 9.2 Amounts which accrue to the Owner in accordance with the provisions of Paragraph 9.1 shall be credited to the Owner as a deduction from the Cost of the Work. ARTICLE 10 SUBCONTRACTS AND OTHER AGREEMENTS 10.1 Those portions of the Work that the Contractor does not customarily perform with the Contractor's own personnel shall be performed under subcontracts or by other appropriate agreements with the Contractor. The Contractor shall obtain bids from Subcontractors and from suppliers of materials or equipment fabricated especially for the Work and shall deliver such bids to the Architect. The Owner will then determine, with the advice of the Contractor and subject to the reasonable objection of the Architect, which bids will be accepted. The Owner may designate specific persons or entities from whom the Contractor shall obtain bids; however, if a Guaranteed Maximum Price has been established, the Owner may not prohibit the Contractor from obtaining bids from others. The Contractor shall not be required to contract with anyone to whom the Contractor has reasonable objection. 10.2 If a Guaranteed Maximum Price has been established and a specific bidder among those whose bids are delivered by the Contractor to the Architect (1) is recommended to the Owner by the Contractor; (2) is qualified to perform that portion of the Work; and (3) has submitted a bid which conforms to the requirements of the Contract Documents without reservations or exceptions, but the Owner requires that another bid be accepted; then the Contractor may require that a Change Order be issued to adjust the Guaranteed Maximum Price by the difference between the bid of the person or entity recommended to the Owner by the Contractor and the amount of the subcontract or other agreement actually signed with the person or entity designated by the Owner. 10.3 Subcontracts or other agreements shall conform to the payment provisions of Paragraphs 12.7 and 12.8, and shall not be awarded on the basis of cost plus a fee without the prior consent of the Owner. ARTICLE 11 ACCOUNTING RECORDS 11.1 The Contractor shall keep full and detailed accounts and exercise such controls as may be necessary for proper financial management under this Contract; the accounting and control systems shall be satisfactory to the Owner. The Owner and the Owner's accountants shall be afforded access to the Contractor's records, books, correspondence, instructions, drawings, receipts, subcontracts, purchase orders, vouchers, memoranda and other data relating to this Contract, and the Contractor shall preserve these for a period of three years after final payment, or for such longer period as may be required by law. ARTICLE 12 PROGRESS PAYMENTS 12.1 Based upon Applications for Payment submitted to the Architect by the Contractor and Certificates for Payment issued by the Architect, the Owner shall make progress payments on account of the Contract Sum to the Contractor as provided below and elsewhere in the Contract Documents. 12.2 The period covered by each Application for Payment shall be one calendar month ending on the last day of the month, or as follows: 12.3 Provided an Application for Payment is received by the Architect not later than the last day of a month, the Owner shall make payment to the Contractor not later than the tenth day of the following month. If an Application for Payment is received by the Architect after the application date fixed above, payment shall be made by the Owner not later than ten days after the Architect receives the Application for Payment. 12.4 With each Application for Payment the Contractor shall submit payrolls, petty cash accounts, receipted invoices or invoices with check vouchers attached, and any other evidence required by the Owner or Architect to demonstrate that cash disbursements already made by the Contractor on account of the Cost of the Work equal or exceed (1) progress payments already received by the Contractor; less (2) that portion of those payments attributable to the Contractor's Fee; plus (3) payrolls for the period covered by the present Application for Payment; plus (4) retainage provided in Subparagraph 12.5.4, if any, applicable to prior progress payments. 12.5 CONTRACTS WITH A GUARANTEED MAXIMUM PRICE 12.5.1 Each Application for Payment shall be based upon the most recent schedule of values submitted by the Contractor in accordance with the Contract Documents. The schedule of values shall allocate the entire Guaranteed Maximum Price among the various portions of the Work, except that the Contractor's Fee shall be shown as a single separate item. The schedule of values shall be prepared in such form and supported by such data to substantiate its accuracy as the Architect may require. This schedule, unless objected to by the Architect, shall be used as a basis for reviewing the Contractor's Applications for Payment. 12.5.2 Applications for Payment shall show the percentage completion of each portion of the Work as of the end of the period covered by the Application for Payment. The percentage completion shall be the lesser of (1) the percentage of that portion of the Work which has actually been completed or (2) the percentage obtained by dividing (a) the expense which has actually been incurred by the Contractor on account of that portion of the Work for which the Contractor has made or intends to make actual payment prior to the next Application for Payment by (b) the share of the Guaranteed Maximum Price allocated to that portion of the Work in the schedule of values. 12.5.3 Subject to other provisions of the Contract Documents, the amount of each progress payment shall be computed as follows: 12.5.3.1 Take that portion of the Guaranteed Maximum Price properly allocable to completed Work as determined by multiplying the percentage completion of each portion of the Work by the share of the Guaranteed Maximum Price allocated to that portion of the Work in the schedule of values. Pending final determination of cost to the Owner of changes in the Work, amounts not in dispute may be included as provided in Subparagraph 7.3.7 of the General Conditions, even though the Guaranteed Maximum Price has not yet been adjusted by Change Order. 12.5.3.2 Add that portion of the Guaranteed Maximum Price properly allocable to materials and equipment delivered and suitably stored at the site for subsequent incorporation in the Work or, if approved in advance by the Owner, suitably stored off the site at a location agreed upon in writing. 12.5.3.3 Add the Contractor's Fee, less retainage of ten percent (10%). The Contractor's Fee shall be computed upon the Cost of the Work described in the two preceding Clauses at the rate stated in Paragraph 5.1 or, if the Contractor's Fee is stated as a fixed sum in that Paragraph, shall be an amount which bears the same ratio to that fixed-sum Fee as the Cost of the Work in the two preceding Clauses bears to a reasonable estimate of the probable Cost of the Work upon its completion. 12.5.3.4 Subtract the aggregate of previous payments made by the Owner. 12.5.3.5 Subtract the shortfall, if any, indicated by the Contractor in the documentation required by Paragraph 12.4 to substantiate prior Applications for Payment, or resulting from errors subsequently discovered by the Owner's accountants in such documentation. 12.5.3.6 Subtract amounts, if any, for which the Architect has withheld or nullified a Certificate for Payment as provided in Paragraph 9.5 of the General Conditions. 12.5.4 Additional retainage, if any, shall be as follows: (If it is intended to retain additional amounts from progress payments to the Contractor beyond (1) the retainage from the Contractor's Fee provided in Clause 12.5.3.3, (2) the retainage from Subcontractors provided in Paragraph 12.7 below, and (3) the retainage, if any provided by other provisions of the Contract, insert provision for such additional retainage here. Such provision, if made, should also describe any arrangement for limiting or reducing the amount retained after The Work reaches a certain state of completion.) 12.6 CONTRACTS WITHOUT A GUARANTEED MAXIMUM PRICE 12.6.1 Applications for Payment shall show the Cost of the Work actually incurred by the Contractor through the end of the period covered by the Application for Payment and for which the Contractor has made or intends to make actual payment prior to the next Application for Payment. 12.6.2 Subject to other provisions of the Contract Documents, the amount of each progress payment shall be computed as follows: 12.6.2.1 Take the Cost of the Work as described in Subparagraph 12.6. 1. 12.6.2.2 Add the Contractor's Fee, less retainage of percent( %). The Contractor's Fee shall be computed upon the Cost of the Work described in the preceding Clause 12.6.2.1 at the rate stated in Paragraph 5.1 or, if the Contractor's Fee is stated as a fixed sum in that Paragraph, an amount which bears the same ratio to that fixed-sum Fee as the Cost of the Work in the preceding Clause bears to a reasonable estimate of the probable Cost of the Work upon its completion. 12.6.2.3 Subtract the aggregate of previous payments made by the Owner. 12.6.2.4 Subtract the shortfall, if any, indicated by the Contractor in the documentation required by Paragraph 12.4 or to substantiate prior Applications for Payment or resulting from errors subsequently discovered by the Owner's accountants in such documentation. 12.6.2.5 Subtract amounts, if any, for which the Architect has withheld or withdrawn a Certificate for Payment as provided in the Contract Documents. 12.6.3 Additional retainage, if any, shall be as follows: 12.7 Except with the Owner's prior approval, payments to Subcontractors included in the Contractor's Applications for Payment shall not exceed an amount for each Subcontractor calculated as follows: 12.7.1 Take that portion of the Subcontract Sum properly allocable to completed Work as determined by multiplying the percentage completion of each portion of the Subcontractor's Work by die share of the total Subcontract Sum allocated to that portion in the Subcontractor's schedule of values, less retainage of ten percent ( 10 %). Pending final determination of amounts to be paid to the Subcontractor for changes in the Work, amounts not in dispute may be included as provided in Subparagraph 7.3.7 of the General Conditions even though the Subcontract Sum has not yet been adjusted by Change Order. 12.7.2 Add that portion of the Subcontract Sum properly allocable to materials and equipment delivered and suitably stored at the site for subsequent incorporation in the Work or, if approved in advance by the Owner, suitably stored off the site at a location agreed upon in writing, less retainage of ten percent (10%). 12.7.3 Subtract the aggregate of previous payments made by the Contractor to the Subcontractor. 12.7.4 Subtract amounts, if any, for which the Architect has withheld or nullified a Certificate for Payment by the Owner to the Contractor for reasons which are the fault of the Subcontractor. 12.7.5 Add, upon Substantial Completion of the entire Work of the Contractor, a sum sufficient to increase the total payments to the Subcontractor to Five percent (5 %) of the Subcontract Sum, less amounts, if any, for incomplete Work and unsettled claims; and, if final completion of the entire Work is thereafter materially delayed through no fault of the Subcontractor, add any additional amounts payable on account of Work of the Subcontractor in accordance with Subparagraph 9.10.3 of the General Conditions. (If it is intended, prior to Substantial Completion of the entire Work of the Contractor, to reduce or limit the retainage from Subcontractors resulting from the percentages inserted in Subparagraphs 12.7.1 and 12.7.2 above, and this is not explained elsewhere in the Contract Documents, insert here provisions for such reduction or limitation.) The Subcontract Sum is the total amount stipulated in the subcontract to be paid by the Contractor to the Subcontractor for the Subcontractor's performance of the subcontract. 12.8 Except with the Owner's prior approval, the Contractor shall not make advance payments to suppliers for materials or equipment which have not been delivered and stored at the site. 12.9 In taking action on the Contractor's Applications for Payment, the Architect shall be entitled to rely on the accuracy and completeness of the information furnished by the Contractor and shall not be deemed to represent that the Architect has made a detailed examination, audit or arithmetic verification of the documentation submitted in accordance with Paragraph 12.4 or other supporting data; that the Architect has made exhaustive or continuous on- site inspections or that the Architect has made examinations to ascertain how or for what purposes the Contractor has used amounts previously paid on account of the Contract. Such examinations, audits and verifications, if required by the Owner, will be performed by the owner's accountants acting in the sole interest of the Owner. ARTICLE 13 FINAL PAYMENT 13.1 Final payment shall be made by the Owner to the Contractor when (1) the Contract has been fully performed by the Contractor except for the Contractor's responsibility to correct defective or nonconforming Work, as provided in Subparagraph 12.2.2 of the General Conditions, and to satisfy other requirements, if any, which necessarily survive final payment; (2) a final Application for Payment and a final accounting for the Cost of the Work have been submitted by the Contractor and reviewed by the Owner's accountants; and (3) a final Certificate for Payment has then been issued by the Architect; such final payment shall be made by the Owner not more than 30 days after the issuance of the Architect's final Certificate for Payment, or as follows: 13.2 The amount of the final payment shall be calculated as follows: 13.2.1 Take the sum of the Cost of the Work substantiated by the Contractor's final accounting and the Contractor's Fee; but not more than the Guaranteed Maximum Price, if any. 13.2.2 Subtract amounts, if any, for which the Architect withholds, in whole or in part, a final Certificate for Payment as provided in Subparagraph 9.5.1 of the General Conditions or other provisions of the Contract Documents. 13.2.3 Subtract the aggregate of previous payments made by the Owner. If the aggregate of previous payments made by the Owner exceeds the amount due the Contractor, the Contractor shall reimburse the difference to the Owner. 13.3 The Owner's accountants will review and report in writing on the Contractor's final accounting within 30 days after delivery of the final accounting to the Architect by the Contractor. Based upon such Cost of the Work as the Owner's accountants report to be substantiated by the Contractor's final accounting, and provided the other conditions of Paragraph 13.1 have been met, the Architect will, within seven days after receipt of the written report of the Owner's accountants, either issue to the Owner a final Certificate for Payment with a copy to the Contractor, or notify the Contractor and Owner in writing of the Architect's reasons for withholding a certificate as provided in Subparagraph 9.5.1 of the General Conditions. The time periods stated in this Paragraph 13.3 supersede those stated in Subparagraph 9.4. 1 of the General Conditions. 13.4 If the Owner's accountants report the Cost of the Work as substantiated by the Contractor's final accounting to be less than claimed by the Contractor, the Contractor shall be entitled to demand arbitration of the disputed amount without a further decision of the Architect. Such demand for arbitration shall be made by the Contractor within 30 days after the Contractor's receipt of a copy of the Architect's final Certificate for Payment; failure to demand arbitration within this 30-day period shall result in the substantiated amount reported by the Owner's account ants becoming binding on the Contractor. Pending a final resolution by arbitration, the Owner shall pay the Contractor the amount certified in the Architect's final Certificate for Payment. 13.5 If, subsequent to final payment and at the Owner's request, the Contractor incurs costs described in Article 7 and not excluded by Article 8 to correct defective or nonconforming Work, the Owner shall reimburse the Contractor such costs and the Contractor's Fee applicable thereto on the same basis as if such costs had been incurred prior to final payment, but not in excess of the Guaranteed Maximum Price, if any. If the Contractor has participated in savings as provided in Paragraph 5.2, the amount of such savings shall be recalculated and appropriate credit given to the Owner in determining the net amount to be paid by the Owner to the Contractor. ARTICLE 14 MISCELLANEOUS PROVISIONS 14.1 Where reference is made in this Agreement to a provision of the General Conditions or another Contract Document, the reference refers to that provision as amended or supplemented by other provisions of the Contract Documents. 14.2 Payments due and unpaid under the Contract shall bear interest from the date payment is due at the rate stated below, or in the absence thereof, at the legal rate prevailing from time to time at the place where the Project is located. (Insert rate of interest agreed upon, if any.) (Usury laws and requirements under the Federal Truth in Lending Act, similar state and local consumer credit laws and other regulations at the Owner's and Contractor's principal places of business, the location of the Project and elsewhere may affect the validity of this provision. Legal advice should be obtained with respect to deletions or modifications, and also regarding requirements such as written disclosures or waivers.) 14.3 Other provisions: Retainage to be reduced to 5% at 50% completion of project. ARTICLE 15 TERMINATION OR SUSPENSION 15.1 The Contract may be terminated by the Contractor as provided in Article 14 of the General Conditions; however, the amount to be paid to the Contractor under Subparagraph 14.1.2 of the General Conditions shall not exceed the amount the Contractor would be entitled to receive under Paragraph 15.3 below, except that the Contractor's Fee shall be calculated as if the Work had been fully completed by the Contractor, including a reasonable estimate of the Cost of the Work for Work not actually completed. 15.2 If a Guaranteed Maximum Price is established in Article 5, the Contract may be terminated by the Owner for cause as provided in Article 14 of the General Conditions; however, the amount, if any, to be paid to the Contractor under Subparagraph 14.2.4 of the General Conditions shall not cause the Guaranteed Maximum Price to be exceeded, nor shall it exceed the amount the Contractor would be entitled to receive under Paragraph 15.3 below. 15.3 If no Guaranteed Maximum Price is established in Article 5, the Contract may be terminated by the Owner for cause as provided in Article 14 of the General Conditions; however, the Owner shall then pay the Contractor an amount calculated as follows: 15.3.1 Take the Cost of the Work incurred by the Contractor to the date of termination. 15.3.2 Add the Contractor's Fee computed upon the Cost of the Work to the date of termination at the rate stated in Paragraph 5.1 or, if the Contractor's Fee is stated as a fixed sum in that Paragraph, an amount which bears the same ratio to that fixed-sum Fee as the Cost of the Work at the time of termination bears to a reasonable estimate of the probable Cost of the Work upon its completion. 15.3.3 Subtract the aggregate of previous payments made by the Owner. The Owner shall also pay the Contractor fair compensation, either by purchase or rental at the election of the Owner, for any equipment owned by the Contractor which the Owner elects to retain and which is not otherwise included in the Cost of the Work under Subparagraph 15.3. 1. To the extent that the Owner elects to take legal assignment of subcontracts and purchase orders (including rental agreements), the Contractor shall, as a condition of receiving the payments referred to in this Article 15, execute and deliver all such papers and take all such steps, including the legal assignment of such subcontracts and other contractual rights of the Contractor, as the Owner may require for the purpose of fully vesting in the Owner the rights and benefits of the Contractor under such subcontracts or purchase orders. 15.4 The Work may be suspended by the Owner as provided in Article 14 of the General Conditions; in such case, the Guaranteed Maximum Price, if any, shall be increased as provided in Subparagraph 14.3.2 of the General Conditions except that the term "cost of performance of the Contract" in that Subparagraph shall be understood to mean the Cost of the Work and the term "profit" shall be understood to mean the Contractor's Fee as described in Paragraphs 5.1 and 6.3 of this Agreement. ARTICLE 16 ENUMERATION OF CONTRACT DOCUMENTS 16.1 The Contract Documents, except for Modifications issued after execution of this Agreement, are enumerated as follows: 16.1.1 The Agreement is this executed Standard Form of Agreement Between Owner and Contractor, AIA Document A111, 1987 Edition. 16.1.2 The General Conditions are the General Conditions of the Contract for Construction, AIA Document A.201, 1987 Edition. 16.1.3 The Supplementary and other Conditions of the Contract are those contained in the Project Manual dated May 1, 1998, and are as follows: Document Title Pages Cantrell Road Branch Bank of the Ozarks Project Manual Dated May 1, 1998 AMR Architects, Inc. 16.1.4 The Specifications are those contained in the Project Manual dated as in Paragraph 16.1.3, and are as follows: (Either list the Specifications here or refer to an exhibit attached to this Agreement.) Section Title Pages Cantrell Road Branch Bank of the Ozarks Project Manual Dated May 1, 1998 AMR Architects 16.1.5 The Drawings are as follows, and are dated unless a different date is shown below: (Either list the Drawings here or refer to an exhibit attached to this Agreement.) Number Title Date See Attachment Two 16.1.6 The addenda, if any, are as follows: Number Date Pages N/A Portions of Addenda relating to bidding requirements are not part of the Contract Documents unless the bidding requirements are also enumerated in this Article 16. 16.1.7 Other Documents, if any, forming part of the Contract Documents are as follows: (List here any additional documents which are intended to form part of the Contract Documents. The General Conditions provide that bidding requirements such as advertisement or invitation to bid, Instructions to Bidders, sample forms and the Contractor's bid are not part of the Contract Documents unless enumerated in this Agreement. They should be listed here only if intended to be part of the Contract Documents.) This Agreement is entered into as of the day and year first written above and is executed in at least three original copies of which one is to be delivered to the Contractor, one to the Architect for use in the administration of the Contract, and the remainder to the Owner. OWNER CONTRACTOR /s/ Melvin L. Edwards /s/ Thomas Harding (Signature) (Signature) Melvin L. Edwards, Administrative Officer Thomas Harding, President (Printed name and title) (Printed name and title) CAUTION: You should sign an original AIA document which has this caution printed in red. An original assures that changes will not be obscured as may occur when documents are reproduced. Attachment Number One Bank of the Ozarks Cantrell Road Branch Contract Basis Base Bid $590,618.00 Status Miscellaneous Items Change ceiling tile to Second Look II and use 15/16 grid $ (2,100.00) Yes Reuse existing water tap located on site $ (800.00) Yes Go to alternate electrical fixture package $ (2,000.00) Yes Go to MC cable in walls and use conduit for homeruns $ (500.00) Yes Revised Canopy Detail $ (2,130.00) Yes Go to Wood Frame Structure in lieu of Steel $(30,366.00) Yes - ------------------------------------------------------------------------------------------- Revised Contract with Alternates Accepted: As of 8/27/98 $552,722.00
Attachment Number Two Drawing Number Title Dated C - 1 Site Survey 3-Jun-98 C - 2 Demolition Plan 3-Jun-98 C - 3 Existing Conditions 3-Jun-98 C - 4 Site Grading Plan 3-Jun-98 C - 5 Dimension Plan 3-Jun-98 L - 1 Landscaping 5/5/98 A1.0 Floor Plan 8/12/98 Al.1 Roof Plan 5/1/98 A2.0 Elevations 5/1/98 A2.1 Elevations 5/1/98 A3.1 Building Sections 5/1/98 A3.2 Wall Sections 5/1/98 A4.0 Door & Window Details 5/1/98 A5.0 Millwork 5/1/98 A6.0 Wall Sections 5/1/98 A7.0 Reflected Ceiling Plan 5/1/98 S1.0 Foundation Plan 8/3/98 S2.0 Foundation Details 7/27/98 S2.1 Foundation Details 7/27/98 S3.0 Roof Framing Plan 7/27/98 S4.0 Framing Details 8/3/98 S4.1 Framing Details 8/3/98 S5.0 Framing Details 8/3/98 M1.0 MEP Site Plan 5/1/98 M2.0 Plumbing Floor Plan 8/12/98 M3.0 Riser Diagram 8/12/98 M4.0 Mechanical Floor Plan 5/1/98 M5.0 Equipment Schedule 5/1/98 E1.0 Electrical Site Plan 5/1/98 E2.0 Electrical Lighting Plan 5/1/98 E3.0 Electrical Power & System Plan 5/1/98 EX-10.14 3 CONSTRUCTION CONTRACT, SEPTEMBER 8, 1998 Exhibit 10.14 AIA Document A111 Standard Form of Agreement Between Owner and Contractor where the basis of payment is the COST OF THE WORK PLUS A FEE with or without a Guaranteed Maximum Price 1987 EDITION THIS DOCUMENT HAS IMPORTANT LEGAL CONSEQUENCES; CONSULTATION WITH AN ATTORNEY IS ENCOURAGED WITH RESPECT TO ITS COMPLETION OR MODIFICATION The 1987 Edition of AIA Document A201, General Conditions of the Contract for Construction, is adopted in this document by reference. Do not use with other general conditions unless this document is modified. This document has been approved and endorsed by The Associated General Contractors of America. AGREEMENT made as of the EIGHTH day of SEPTEMBER in the year of Nineteen Hundred and NINETY EIGHT BETWEEN the Owner: (Name and address) BANK OF THE OZARKS 12615 CHENAL PARKWAY LITTLE ROCK, AR 72212 and the Contractor: (Name and address) EAST HARDING, INC. 2230 COTTONDALE LANE LITTLE ROCK, AR 72202 the Project is: (Name and address) BANK OF THE OZARKS 315 WALNUT STREET HARRISON, AR 71601 the Architect is: (Name and address) AMR ARCHITECTS, INC. 201 EAST MARKHAM SUITE 150 LITTLE ROCK, AR 72201 The Owner and Contractor agree as set forth below. ARTICLE I THE CONTRACT DOCUMENTS 1.1 The Contract Documents consist of this Agreement, Conditions of the Contract (General, Supplementary and other Conditions), Drawings, Specifications, addenda issued prior to execution of this Agreement, other documents listed in this Agreement and Modifications issued after execution of this Agreement; these form the Contract, and are as fully a part of the Contract as if attached to this Agreement or repeated herein, The Contract represents the entire and integrated agreement between the parties hereto and supersedes prior negotiations, representations or agreements, either written or oral. An enumeration of the Contract Documents, other than Modifications, appears in Article 16. If anything in the other Contract Documents is inconsistent with this Agreement, this Agreement shall govern. ARTICLE 2 THE WORK OF THIS CONTRACT 2.1 The Contractor shall execute the entire Work described in the Contract Documents, except to the extent specifically indicated in the Contract Documents to be the responsibility of others, or as follows: The following items are the responsibility of the owner. (A) Telephone and Data Cabling & Security Wiring. (B) Exterior Signage (C) Bank Equipment (D) Bank Vault ARTICLE 3 RELATIONSHIP OF THE PARTIES 3.1 The Contractor accepts the relationship of trust and confidence established by this Agreement and covenants with the Owner to cooperate with the Architect and utilize the Contractor's best skill, efforts and judgment in furthering the interests of the Owner; to furnish efficient business administration and supervision; to make best efforts to furnish at all times an adequate supply of workers and materials; and to perform the Work in the best way and most expeditious and economical manner consistent with the interests of the Owner. The Owner agrees to exercise best efforts to enable the Contractor to perform the Work in the best way and most expeditious manner by furnishing and approving in a timely way information required by the Contractor and making payments to the Contractor in accordance with requirements of the Contract Documents. ARTICLE 4 DATE OF COMMENCEMENT AND SUBSTANTIAL COMPLETION 4.1 The date of commencement is the date from which the Contract Time of Subparagraph 4.2 is measured; it shall be the date of this Agreement, as first written above, unless a different date is stated below or provision is made for the date to be fixed in a notice to proceed issued by the Owner. (Insert the date of commencement, if it differs from the date of this Agreement or, if applicable, state that the date will be fixed in a notice to proceed.) Unless the date of commencement is established by a notice to proceed issued by the Owner, the Contractor shall notify the Owner in writing not less than five days before commencing the Work to permit the timely filing of mortgages, mechanic's liens and other security interests. 4.2 The Contractor shall achieve Substantial Completion of the entire Work not later than (Insert the calendar date or number of calendar days after the date of commencement. Also insert any requirements for earlier Substantial Completion of certain portions of the Work, if not stated elsewhere in the Contract Documents.) April 30, 1999 ,subject to adjustments of this Contract Time as provided in the Contract Documents. (Insert provisions, if any, for liquidated damages relating to failure to complete on time.) ARTICLE 5 CONTRACT SUM 5.1 The Owner shall pay the Contractor in current funds for the Contractor's performance of the Contract the Contract Sum consisting of the Cost of the Work as defined in Article 7 and the Contractor's Fee determined as follows: (State a lump sum, percentage of Cost of the Work or other provision for determining the Contractor's Fee, and explain how the Contractor's Fee is to be adjusted for changes in the Work.) East-Harding Inc. fee of 5% Percent 5.2 GUARANTEED MAXIMUM PRICE (IF APPLICABLE) 5.2.1 The sum of the Cost of the Work and the Contractor's Fee is guaranteed by the Contractor not to exceed ONE MILLION SEVEN HUNDRED TWENTY THOUSAND SEVEN HUNDRED SEVENTY TWO ($1,720,772) Dollars subject to additions and deductions by Change Order as provided in the Contract Documents. Such maximum sum is referred to in the Contract Documents as the Guaranteed Maximum Price. Costs which would cause the Guaranteed Maximum Price to be exceeded shall be paid by the Contractor without reimbursement by the Owner. (Insert specific provisions if the Contractor is to participate in any savings.) 100% Savings given to owner 5.2.2 The Guaranteed Maximum Price is based upon the following alternates, if any, which are described in the Contract Documents and are hereby accepted by the Owner: (State the numbers or other identification of accepted alternates, but only if a Guaranteed Maximum Price is inserted in Subparagraph 5.2.1. If decisions on other alternates are to be made by the Owner subsequent to the execution of this Agreement, attach a schedule of such other alternates showing the amount for each and the date until which that amount is valid.) 5.2.3 The amounts agreed to for unit prices, if any, are as follows: (State unit prices only if a Guaranteed Maximum Price is inserted in Subparagraph 5.2. 1) - -Interior Signage Allowance of $5000 - -Adjustments to site undercut and compacted fill will be made at the unit cost of $8.00/cy ARTICLE 6 CHANGES IN THE WORK 6.1 CONTRACTS WITH A GUARANTEED MAXIMUM PRICE 6.1.1 Adjustments to the Guaranteed Maximum Price on account of changes in the Work may be determined by any of the methods listed in Subparagraph 7.3.3 of the General Conditions. 6.1.2 In calculating adjustments to subcontracts (except those awarded with the Owner's prior consent on the basis of cost plus a fee), the terms "cost" and "fee" as used in Clause 7.3.3.3 of the General Conditions and the terms "costs" and "a reasonable allowance for overhead and profit" as used in Subparagraph 7.3.6 of the General Conditions shall have the meanings assigned to them in the General Conditions and shall not be modified by Articles 5, 7 and 8 of this Agreement. Adjustments to subcontracts awarded with the Owner's prior consent on the basis of cost plus a fee shall be calculated in accordance with the terms of those subcontracts. 6.1.3 In calculating adjustments to this Contract, the terms "cost" and "costs" as used in the above-referenced provisions of the General Conditions shall mean the Cost of the Work as defined in Article 7 of this Agreement and the terms "fee" and "a reasonable allowance for overhead and profit" shall mean the Contractor's Fee as defined in Paragraph 5.1 this Agreement 6.2 CONTRACTS WITHOUT A GUARANTEED MAXIMUM PRICE 6.2.1 Increased costs for the items set forth in Article 7 which result from changes in the Work shall become part of the Cost of the Work, and the Contractor's Fee shall be adjusted as provided in Paragraph 5.1. 6.3 ALL CONTRACTS 6.3.1 If no specific provision is made in Paragraph 5.1 for adjustment of the Contractor's Fee in the case of changes in the Work, or if the extent of such changes is such, in the aggregate, that application of the adjustment provisions of Paragraph 5.1 will cause substantial inequity to the Owner or Contractor, the Contractor's Fee shall be equitably adjusted on the basis of the Fee established for the original Work. ARTICLE 7 COSTS TO BE REIMBURSED 7.1 The term Cost of the Work shall mean costs necessarily incurred by the Contractor in the proper performance of the Work. Such costs shall be at rates not higher than the standard paid at the place of the Project except with prior consent of the Owner. The Cost of the Work shall include only the items set forth in this Article 7. 7.1.1 LABOR COSTS 7.1.1.1 Wages of construction workers directly employed by the Contractor to perform the construction of the Work at the site or, with the Owner's agreement, at off-site workshops. 7.1.1.2 Wages or salaries of the Contractor's supervisory and administrative personnel when stationed at the site with the Owner's agreement. (If it is intended that the wages or salaries of certain personnel stationed at the Contractor's principal or other offices shall be included in the Cost of the Work, identify in Article 14 the personnel to be included and whether for all or only part of their time.) 7.1.1.3 Wages and salaries of the Contractor's supervisory or administrative personnel engaged, at factories, workshops or on the road, in expediting the production or transportation of materials or equipment required for the Work, but only for that portion of their time required for the Work. 7.1.1.4 Costs paid or incurred by the Contractor for taxes, insurance, contributions, assessments and benefits required by law or collective bargaining agreements and, for personnel not covered by such agreements, customary benefits such as sick leave, medical and health benefits, holidays, vacations and pensions, provided such costs are based on wages and salaries included in the Cost of the Work under Clauses 7.1.1.1 through 7.1.1.3. 7.1.2 SUBCONTRACT COSTS Payments made by the Contractor to Subcontractors in accordance with the requirements of the subcontracts. 7.1.3 COSTS OF MATERIALS AND EQUIPMENT INCORPORATED IN THE COMPLETED CONSTRUCTION 7.1.3.1 Costs, including transportation, of materials and equipment incorporated or to be incorporated in the completed construction. 7.1.3.2 Costs of materials described in the preceding Clause 7.1.3.1 in excess of those actually installed but required to provide reasonable allowance for waste and for spoilage. Unused excess materials, if any, shall be handed over to the Owner at the completion of the Work or, at the Owner's option, shall be sold by the Contractor; amounts realized, if any, from such sales shall be credited to the Owner as a deduction from the Cost of the Work. 7.1.4 COSTS OF OTHER MATERIALS AND EQUIPMENT, TEMPORARY FACILITIES AND RELATED ITEMS 7.1.4.1 Costs, including transportation, installation, maintenance, dismantling and removal of materials, supplies, temporary facilities, machinery, equipment, and hand tools not customarily owned by the construction workers, which are provided by the Contractor at the site and fully consumed in the performance of the Work; and cost less salvage value on such items if not fully consumed, whether sold to others or retained by the Contractor. Cost for items previously used by the Contractor shall mean fair market value. 7.1.4.2 Rental charges for temporary facilities, machinery, equipment, and hand tools not customarily owned by the construction workers, which are provided by the Contractor at the site, whether rented from the Contractor or others, and costs of transportation, installation, minor repairs and replacements, dismantling and removal thereof. Rates and quantities of equipment rented shall be subject to the Owner's prior approval. 7.1.4.3 Costs of removal of debris from the site. 7.1.4.4 Costs of telegrams and long-distance telephone calls, postage and parcel delivery charges, telephone service at the site and reasonable petty cash expenses of the site office. 7.1.4.5 That portion of the reasonable travel and subsistence expenses of the Contractor's personnel incurred while traveling in discharge of duties connected with the Work. 7.1.5 MISCELLANEOUS COSTS 7.1.5.1 That portion directly attributable to this Contract of premiums for insurance and bonds. 7.1.5.2 Sales, use or similar taxes imposed by a governmental authority which are related to the Work and for which the Contractor is liable. 7.1.5.3 Fees and assessments for the building permit and for other permits, licenses and inspections for which the Contractor is required by the Contract Documents to pay. 7.1.5.4 Fees of testing laboratories for tests required by the Contract Documents, except those related to defective or nonconforming Work for which reimbursement is excluded by Subparagraph 13.5.3 of the General Conditions or other provisions of the Contract Documents and which do not fall within the scope of Subparagraphs 7.2.2 through 7.2.4 below. 7.1.5.5 Royalties and license fees paid for the use of a particular design, process or product required by the Contract Documents; the cost of defending suits or claims for infringement of patent rights arising from such requirement by the Contract Documents; payments made in accordance with legal judgments against the Contractor resulting from such suits or claims and payments of settlements made with the Owner's consent; provided, however, that such costs of legal defenses, judgment and settlements shall not be included in the calculation of the Contractor's Fee or of a Guaranteed Maximum Price, if any, and provided that such royalties, fees and costs are not excluded by the last sentence of Subparagraph 3.17.1 of the General Conditions or other provisions of the Contract Documents. 7.1.5.6 Deposits lost for causes other than the Contractor's fault or negligence. 7.1.6 OTHER COSTS 7.1.6.1 Other costs incurred in the performance of the Work if and to the extent approved in advance in writing by the Owner. 7.2 EMERGENCIES: REPAIRS TO DAMAGED, DEFECTIVE OR NONCONFORMING WORK The Cost of the Work shall also include costs described in Paragraph 7.1 which are incurred by the Contractor: 7.2.1 In taking action to prevent threatened damage, injury or loss in case of an emergency affecting the safety of persons and property, as provided in Paragraph 10.3 of the General Conditions. 7.2.2 In repairing or correcting Work damaged or improperly executed by construction workers in the employ of the Contractor, provided such damage or improper execution did not result from the fault or negligence of the Contractor or the Contractor's foremen , engineers or superintendents, or other supervisory, administrative or managerial personnel of the Contractor. 7.2.3 In repairing damaged Work other than that described in Subparagraph 7.2.2, provided such damage did not result from the fault or negligence of the Contractor or the Contractor's personnel, and only to the extent that the cost of such repairs is not recoverable by the Contractor from others and the Contractor is not compensated therefor by insurance or otherwise. 7.2.4 In correcting defective or nonconforming Work performed or supplied by a Subcontractor or material supplier and not corrected by them, provided such defective or nonconforming Work did not result from the fault or neglect of the Contractor or the Contractor's personnel adequately to supervise and direct the Work of the Subcontractor or material supplier, and only to the extent that the cost of correcting the defective or nonconforming Work is not recoverable by the Contractor from the Subcontractor or material supplier. ARTICLE 8 COSTS NOT TO BE REIMBURSED 8.1 The Cost of the Work shall not include: 8.1.1 Salaries and other compensation of the Contractor's personnel stationed at the Contractor's principal office or offices other than the site office, except as specifically provided in Clauses 7.1.1.2 and 7.1.1.3 or as may be provided in Article 14. 8.1.2 Expenses of the Contractor's principal office and offices other than the site office. 8.1.3 Overhead and general expenses, except as may be expressly included in Article 7. 8.1.4 The Contractor's capital expenses, including interest on the Contractor's capital employed for the Work. 8.1.5 Rental costs of machinery and equipment, except as specifically provided in Clause 7.1.4.2. 8.1.6 Except as provided in Subparagraphs 7.2.2 through 7.2.4 and Paragraph 13.5 of this Agreement, costs due to the fault or negligence of the Contractor, Subcontractors, anyone directly or indirectly employed by any of them, or for whose acts any of them may be liable, including but not limited to costs for the correction of damaged, defective or nonconforming Work, disposal and replacement of materials and equipment incorrectly ordered or supplied, and making good damage to property not forming part of the Work. 8.1.7 Any cost not specifically and expressly described in Article 7. 8.1.8 Costs which would cause the Guaranteed Maximum Price, if any, to be exceeded. ARTICLE 9 DISCOUNTS, REBATES AND REFUNDS 9.1 Cash discounts obtained on payments made by the Contractor shall accrue to the Owner if (1) before making the payment, the Contractor included them in an Application for Payment and received payment therefor from the Owner, or (2) the Owner has deposited funds with the Contractor with which to make payments; otherwise, cash discounts shall accrue to the Contractor. Trade discounts, rebates, refunds and amounts received from sales of surplus materials and equipment shall accrue to the Owner, and the Contractor shall make provisions so that they can be secured. 9.2 Amounts which accrue to the Owner in accordance with the provisions of Paragraph 9.1 shall be credited to the Owner as a deduction from the Cost of the Work. ARTICLE 10 SUBCONTRACTS AND OTHER AGREEMENTS 10.1 Those portions of the Work that the Contractor does not customarily perform with the Contractor's own personnel shall be performed under subcontracts or by other appropriate agreements with the Contractor. The Contractor shall obtain bids from Subcontractors and from suppliers of materials or equipment fabricated especially for the Work and shall deliver such bids to the Architect. The Owner will then determine, with the advice of the Contractor and subject to the reasonable objection of the Architect, which bids will be accepted. The Owner may designate specific persons or entities from whom the Contractor shall obtain bids; however, if a Guaranteed Maximum Price has been established, the Owner may not prohibit the Contractor from obtaining bids from others. The Contractor shall not be required to contract with anyone to whom the Contractor has reasonable objection. 10.2 If a Guaranteed Maximum Price has been established and a specific bidder among those whose bids are delivered by the Contractor to the Architect (1) is recommended to the Owner by the Contractor; (2) is qualified to perform that portion of the Work; and (3) has submitted a bid which conforms to the requirements of the Contract Documents without reservations or exceptions, but the Owner requires that another bid be accepted; then the Contractor may require that a Change Order be issued to adjust the Guaranteed Maximum Price by the difference between the bid of the person or entity recommended to the Owner by the Contractor and the amount of the subcontract or other agreement actually signed with the person or entity designated by the Owner. 10.3 Subcontracts or other agreements shall conform to the payment provisions of Paragraphs 12.7 and 12.8, and shall not be awarded on the basis of cost plus a fee without the prior consent of the Owner. ARTICLE 11 ACCOUNTING RECORDS 11.1 The Contractor shall keep full and detailed accounts and exercise such controls as may be necessary for proper financial management under this Contract; the accounting and control systems shall be satisfactory to the Owner. The Owner and the Owner's accountants shall be afforded access to the Contractor's records, books, correspondence, instructions, drawings, receipts, subcontracts, purchase orders, vouchers, memoranda and other data relating to this Contract, and the Contractor shall preserve these for a period of three years after final payment, or for such longer period as may be required by law. ARTICLE 12 PROGRESS PAYMENTS 12.1 Based upon Applications for Payment submitted to the Architect by the Contractor and Certificates for Payment issued by the Architect, the Owner shall make progress payments on account of the Contract Sum to the Contractor as provided below and elsewhere in the Contract Documents. 12.2 The period covered by each Application for Payment shall be one calendar month ending on the last day of the month, or as follows: 12.3 Provided an Application for Payment is received by the Architect not later than the LAST day of a month, the Owner shall make payment to the Contractor not later than the TENTH day of the FOLLOWING month. If an Application for Payment is received by the Architect after the application date fixed above, payment shall be made by the Owner not later than TEN days after the Architect receives the Application for Payment. 12.4 With each Application for Payment the Contractor shall submit payrolls, petty cash accounts, receipted invoices or invoices with check vouchers attached, and any other evidence required by the Owner or Architect to demonstrate that cash disbursements already made by the Contractor on account of the Cost of the Work equal or exceed (1) progress payments already received by the Contractor; less (2) that portion of those payments attributable to the Contractor's Fee; plus (3) payrolls for the period covered by the present Application for Payment; plus (4) retainage provided in Subparagraph 12.5.4, if any, applicable to prior progress payments. 12.5 CONTRACTS WITH A GUARANTEED MAXIMUM PRICE 12.5.1 Each Application for Payment shall be based upon the most recent schedule of values submitted by the Contractor in accordance with the Contract Documents. The schedule of values shall allocate the entire Guaranteed Maximum Price among the various portions of the Work, except that the Contractor's Fee shall be shown as a single separate item. The schedule of values shall be prepared in such form and supported by such data to substantiate its accuracy as the Architect may require. This schedule, unless objected to by the Architect, shall be used as a basis for reviewing the Contractor's Applications for Payment. 12.5.2 Applications for Payment shall show the percentage completion of each portion of the Work as of the end of the period covered by the Application for Payment. The percentage completion shall be the lesser of (1) the percentage of that portion of the Work which has actually been completed or (2) the percentage obtained by dividing (a) the expense which has actually been incurred by the Contractor on account of that portion of the Work for which the Contractor has made or intends to make actual payment prior to the next Application for Payment by (b) the share of the Guaranteed Maximum Price allocated to that portion of the Work in the schedule of values. 12.5.3 Subject to other provisions of the Contract Documents, the amount of each progress payment shall be computed as follows: 12.5.3.1 Take that portion of the Guaranteed Maximum Price properly allocable to completed Work as determined by multiplying the percentage completion of each portion of the Work by the share of the Guaranteed Maximum Price allocated to that portion of the Work in the schedule of values. Pending final determination of cost to the Owner of changes in the Work, amounts not in dispute may be included as provided in Subparagraph 7.3.7 of the General Conditions, even though the Guaranteed Maximum Price has not yet been adjusted by Change Order. 12.5.3.2 Add that portion of the Guaranteed Maximum Price properly allocable to materials and equipment delivered and suitably stored at the site for subsequent incorporation in the Work or, if approved in advance by the Owner, suitably stored off the site at a location agreed upon in writing. 12.5.3.3 Add the Contractor's Fee, less retainage of __________________ percent (___%). The Contractor's Fee shall be computed upon the Cost of the Work described in the two preceding Clauses at the rate stated in Paragraph 5.1 or, if the Contractor's Fee is stated as a fixed sum in that Paragraph, shall be an amount which bears the same ratio to that fixed-sum Fee as the Cost of the Work in the two preceding Clauses bears to a reasonable estimate of the probable Cost of the Work upon its completion. 12.5.3.4 Subtract the aggregate of previous payments made by the Owner. 12.5.3.5 Subtract the shortfall, if any, indicated by the Contractor in the documentation required by Paragraph 12.4 to substantiate prior Applications for Payment, or resulting from errors subsequently discovered by the Owner's accountants in such documentation. 12.5.3.6 Subtract amounts, if any, for which the Architect has withheld or nullified a Certificate for Payment as provided in Paragraph 9.5 of the General Conditions. 12.5.4 Additional retainage, if any, shall be as follows: (If it is intended to retain additional amounts from progress payments to the Contractor beyond (I) the retainage from the Contractor's Fee provided in Clause 12.5.3.3, (2) the retainage from Subcontractors provided in Paragraph 12.7 below, and (3) the retainage, if any provided by other provisions of the Contract, insert provision for such additional retainage here. Such provision, if made, should also describe any arrangement for limiting or reducing the amount retained after the Work reaches a certain state of completion.) NO ADDITIONAL RETAINAGE WILL BE HELD AFTER THE WORK IS FIFTY PERCENT (50%) COMPLETE. 12.6 CONTRACTS WITHOUT A GUARANTEED MAXIMUM PRICE 12.6.1 Applications for Payment shall show the Cost of the Work actually incurred by the Contractor through the end of the period covered by the Application for Payment and for which the Contractor has made or intends to make actual payment prior to the next Application for Payment. 12.6.2 Subject to other provisions of the Contract Documents, the amount of each progress payment shall be computed as follows: 12.6.2.1 Take the Cost of the Work as described in Subparagraph 12.6. 1. 12.6.2.2 Add the Contractor's Fee, less retainage of _________________ percent (_______%). The Contractor's Fee shall be computed upon the Cost of the Work described in the preceding Clause 12.6.2.1 at the rate stated in Paragraph 5.1 or, if the Contractor's Fee is stated as a fixed sum in that Paragraph, an amount which bears the same ratio to that fixed-sum Fee as the Cost of the Work in the preceding Clause bears to a reasonable estimate of the probable Cost of the Work upon its completion. 12.6.2.3 Subtract the aggregate of previous payments made by the Owner. 12.6.2.4 Subtract the shortfall, if any, indicated by the Contractor in the documentation required by Paragraph 12.4 or to substantiate prior Applications for Payment or resulting from errors subsequently discovered by the Owner's accountants in such documentation. 12.6.2.5 Subtract amounts, if any, for which the Architect has withheld or withdrawn a Certificate for Payment as provided in the Contract Documents. 12.6.3 Additional retainage, if any, shall be as follows: 12.7 Except with the Owner's prior approval, payments to Subcontractors included in the Contractor's Applications for Payment shall not exceed an amount for each Subcontractor calculated as follows: 12.7.1 Take that portion of the Subcontract Sum properly allocable to completed Work as determined by multiplying the percentage completion of each portion of the Subcontractor's Work by the share of the total Subcontract Sum allocated to that portion in the Subcontractor's schedule of values, less retainage of TEN percent (10 %). Pending final determination of amounts to be paid to the Subcontractor for changes in the Work, amounts not in dispute may be included as provided in Subparagraph 7.3.7 of the General Conditions even though the Subcontract Sum has not yet been adjusted by Change Order. 12.7.2 Add that portion of the Subcontract Sum properly allocable to materials and equipment delivered and suitably stored at the site for subsequent incorporation in the Work or, if approved in advance by the Owner, suitably stored off the site at a location agreed upon in writing, less retainage of TEN percent (10%). 12.7.3 Subtract the aggregate of previous payments made by the Contractor to the Subcontractor. 12.7.4 Subtract amounts, if any, for which the Architect has withheld or nullified a Certificate for Payment by the Owner to the Contractor for reasons which are the fault of the Subcontractor. 12.7.5 Add, upon Substantial Completion of the entire Work of the Contractor, a sum sufficient to increase the total payments to the Subcontractor to FIVE percent (5%) of the Subcontract Sum, less amounts, if any, for incomplete Work and unsettled claims; and, if final completion of the entire Work is thereafter materially delayed through no fault of the Subcontractor, add any additional amounts payable on account of Work of the Subcontractor in accordance with Subparagraph 9.10.3 of the General Conditions. (If it is intended, prior to Substantial Completion of the entire Work of the Contractor, to reduce or limit the retainage from Subcontractors resulting from the percentages inserted in Subparagrapbs 12.7.1 and 12.7.2 above, and this is not explained elsewhere in the Contract Documents, insert here provisions for such reduction or limitation.) The Subcontract Sum is the total amount stipulated in the subcontract to be paid by the Contractor to the Subcontractor for the Subcontractor's performance of the subcontract. 12.8 Except with the Owner's prior approval, the Contractor shall not make advance payments to suppliers for materials or equipment which have not been delivered and stored at the site. 12.9 In taking action on the Contractor's Applications for Payment, the Architect shall be entitled to rely on the accuracy and completeness of the information furnished by the Contractor and shall not be deemed to represent that the Architect has made a detailed examination, audit or arithmetic verification of the documentation submitted in accordance with Paragraph 12.4 or other supporting data; that the Architect has made exhaustive or continuous on- site inspections or that the Architect has made examinations to ascertain how or for what purposes the Contractor has used amounts previously paid on account of the Contract. Such examinations, audits and verifications, if required by the Owner, will be performed by the Owner's accountants acting in the sole interest of the Owner. ARTICLE 13 FINAL PAYMENT 13.1 Final payment shall be made by the Owner to the Contractor when (1) the Contract has been fully performed by the Contractor except for the Contractor's responsibility to correct defective or nonconforming Work, as provided in Subparagraph 12.2.2 of the General Conditions, and to satisfy other requirements, if any, which necessarily survive final payment; (2) a final Application for Payment and a final accounting for the Cost of the Work have been submitted by the Contractor and reviewed by the Owner's accountants; and (3) a final Certificate for Payment has then been issued by the Architect; such final payment shall be made by the Owner not more than 30 days after the issuance of the Architect's final Certificate for Payment, or as follows: 13.2 The amount of the final payment shall be calculated as follows: 13.2.1 Take the sum of the Cost of the Work substantiated by the Contractor's final accounting and the Contractor's Fee; but not more than the Guaranteed Maximum Price, if any. 13.2.2 Subtract amounts, if any, for which the Architect withholds, in whole or in part, a final Certificate for Payment as provided in Subparagraph 9.5.1 of the General Conditions or other provisions of the Contract Documents. 13.2.3 Subtract the aggregate of previous payments made by the Owner. If the aggregate of previous payments made by the Owner exceeds the amount due the Contractor, the Contractor shall reimburse the difference to the Owner. 13.3 The Owner's accountants will review and report in writing on the Contractor's final accounting within 30 days after delivery of the final accounting to the Architect by the Contractor. Based upon such Cost of the Work as the Owner's accountants report to be substantiated by the Contractor's final accounting, and provided the other conditions of Paragraph 13.1 have been met, the Architect will, within seven days after receipt of the written report of the Owner's accountants, either issue to the Owner a final Certificate for Payment with a copy to the Contractor, or notify the Contractor and Owner in writing of the Architect's reasons for withholding a certificate as provided in Subparagraph 9.5.1 of the General Conditions. The time periods stated in this Paragraph 13.3 supersede those stated in Subparagraph 9.4.1 of the General Conditions. 13.4 If the Owner's accountants report the Cost of the Work as substantiated by the Contractor's final accounting to be less than claimed by the Contractor, the Contractor shall be entitled to demand arbitration of the disputed amount without a further decision of the Architect. Such demand for arbitration shall be made by the Contractor within 30 days after the Contractor's receipt of a copy of the Architect's final Certificate for Payment; failure to demand arbitration within this 30-day period shall result in the substantiated amount reported by the Owner's accountants becoming binding on the Contractor. Pending a final resolution by arbitration, the Owner shall pay the Contractor the amount certified in the Architect's final Certificate for Payment. 13.5 If, subsequent to final payment and at the Owner's request, the Contractor incurs costs described in Article 7 and not excluded by Article 8 to correct defective or nonconforming Work, the Owner shall reimburse the Contractor such costs and the Contractor's Fee applicable thereto on the same basis as if such costs had been incurred prior to final payment, but not in excess of the Guaranteed Maximum Price, if any. If the Contractor has participated in savings as provided in Paragraph 5.2, the amount of such savings shall be recalculated and appropriate credit given to the Owner in determining the net amount to be paid by the Owner to the Contractor. ARTICLE 14 MISCELLANEOUS PROVISIONS 14.1 Where reference is made in this Agreement to a provision of the General Conditions or another Contract Document, the reference refers to that provision as amended or supplemented by other provisions of the Contract Documents. 14.2 Payments due and unpaid under the Contract shall bear interest from the date payment is due at the rate stated below, or in the absence thereof, at the legal rate prevailing from time to time at the place where the Project is located. (Insert rate of interest agreed upon, if any.) (Usury laws and requirements under the Federal Truth in Lending Act, similar state and local consumer credit laws and other regulations at the Owner's and Contraclor's principal places of business, the location of the Project and elsewhere may affect the validity of this provision. Legal advice should be obtained with respect to deletions or modifications, and also regarding requirements such as written disclosures or waivers.) 14.3 Other provisions: ARTICLE 15 TERMINATION OR SUSPENSION 15.1 The Contract may be terminated by the Contractor as provided in Article 14 of the General Conditions; however, the amount to be paid to the Contractor under Subparagraph 14.1.2 of the General Conditions shall not exceed the amount the Contractor would be entitled to receive under Paragraph 15.3 below, except that the Contractor's Fee shall be calculated as if the Work had been fully completed by the Contractor, including a reasonable estimate of the Cost of the Work for Work not actually completed. 15.2 If a Guaranteed Maximum Price is established in Article 5, the Contract may be terminated by the Owner for cause as provided in Article 14 of the General Conditions; however, the amount, if any, to be paid to the Contractor under Subparagraph 14.2.4 of the General Conditions shall not cause the Guaranteed Maximum Price to be exceeded, nor shall it exceed the amount the Contractor would be entitled to receive under Paragraph 15.3 below. 15.3 If no Guaranteed Maximum Price is established in Article 5, the Contract may be terminated by the Owner for cause as provided in Article 14 of the General Conditions; however, the Owner shall then pay the Contractor an amount calculated as follows: 15.3.1 Take the Cost of the Work incurred by the Contractor to the date of termination. 15.3.2 Add the Contractor's Fee computed upon the Cost of the Work to the date of termination at the rate stated in Paragraph 5.1 or, if the Contractor's Fee is stated as a fixed sum in that Paragraph, an amount which bears the same ratio to that fixed-sum Fee as the Cost of the Work at the time of termination bears to a reasonable estimate of the probable Cost of the Work upon its completion. 15.3.3 Subtract the aggregate of previous payments made by the Owner. The Owner shall also pay the Contractor fair compensation, either by purchase or rental at the election of the Owner, for any equipment owned by the Contractor which the Owner elects to retain and which is not otherwise included in the Cost of the Work under Subparagraph 15.3. 1. To the extent that the Owner elects to take legal assignment of subcontracts and purchase orders (including rental agreements), the Contractor shall, as a condition of receiving the payments referred to in this Article 15, execute and deliver all such papers and take all such steps, including the legal assignment of such subcontracts and other contractual rights of the Contractor, as the Owner may require for the purpose of fully vesting in the Owner the rights and benefits of the Contractor under such subcontracts or purchase orders. 15.4 The Work may be suspended by the Owner as provided in Article 14 of the General Conditions; in such case, the Guaranteed Maximum Price, if any, shall be increased as provided in Subparagraph 14-3.2 of the General Conditions except that the term "cost of performance of the Contract" in that Subparagraph shall be understood to mean the Cost of the Work and the term "profit" shall be understood to mean the Contractor's Fee as described in Paragraphs 5.1 and 6.3 of this Agreement. ARTICLE 16 ENUMERATION OF CONTRACT DOCUMENTS 16.1 The Contract Documents, except for Modifications issued after execution of this Agreement, are enumerated as follows: 16.1.1 The Agreement is this executed Standard Form of Agreement Between Owner and Contractor, AIA Document A111, 1987 Edition. 16.1.2 The General Conditions are the General Conditions of the Contract for Construction, AIA Document A201, 1987 Edition. 16.1.3 The Supplementary and other Conditions of the Contract are those contained in the Project Manual dated JULY 24, 1998 and are as follows: Document Title Pages HARRISON, ARKANSAS BANK OF THE OZARKS PROJECT MANUAL AMR ARCHITECTS, INC. 16.1.4 The Specifications are those contained in the Project Manual dated as in Paragraph 16.1.3, and are as follows: (Either list the Specifications here or refer to an exhibit attached to this Agreement.) Section Title Pages HARRISON., ARKANSAS BANK OF THE OZARKS PROJECT MANUAL-DATED JULY 24, 1998 AMR ARCHITECTS, INC. 16.1.5 The Drawings are as follows, and are dated __________________________________ unless a different date is shown below: (Either list the Drawings here or refer to an exhibit attached to this Agreement.) Number Title Date SEE ATTACHED 16.1.6 The addenda, if any, are as follows: Number Date Pages ONE AUGUST 22, 1998 6 ELECTRICAL ADDUNDUM AUGUST 27, 1998 1 Portions of Addenda relating to bidding requirements are not part of the Contract Documents unless the bidding requirements are also enumerated in this Article 16. 16.1.7 Other Documents, if any, forming part of the Contract Documents are as follows: (List here any additional documents which are intended to form part of the Contract Documents. The General Conditions provide that bidding requirements such as advertisement or initiation to bid, Instructions to Bidders. sample forms and the Contractor's bid are not part of the Contract Documents unless enumerated in this Agreement. They should be listed here only if intended to be part of the Contract Documents.) This Agreement is entered into as of the day and year first written above and is executed in at least three original copies of which one is to be delivered to the Contractor, one to the Architect for use in the administration of the Contract, and the remainder to the OWNER CONTRACTOR BANK OF THE OZARKS EAST-HARDING, INC. /s/ Melvin L. Edwards /s/ Thomas Harding (Signature) (Signature) Melvin L. Edwards, Administrative Officer Thomas Harding, President (Printed name and title) (Printed name and title) CAUTION: You should sign an original AIA document which has this caution printed in red. An original assures that changes will not be obscured as may occur when documents are reproduced. BANK OF THE OZARKS C1 EXISTING SITE 8-12-98 C2 EXISTING CONTOURS 8-12-98 C3 PROPOSED CONTOURS 8-12-98 C4 SITE DEMENSION PLAN 8-12-98 C5 SITE UTILITY PLAN 8-12-98 A1.0 LANDSCAPE PLAN 7-24-98 A1.1 FIRST FLOOR PLAN 7-24-98 A1.2 SECOND FLOOR PLAN 7-24-98 A1.3 ROOF PLAN 7-24-98 A1.4 ENLARGED PLANS & DETAILS 7-24-98 A2.0 ELEVATIONS 7-24-98 A3.0 BUILDING SECTIONS 7-24-98 A3.1 WALL SECTIONS 7-24-98 A3.2 STAIR AND ELEVATOR SECTION 7-24-98 A3.3 PARTITION DETAILS 7-24-98 A4.0 WINDOW DETAILS & SCHEDULES 7-24-98 A4.1 WINDOW DETAILS 7-24-98 A5.0 INTERIOR ELEVATIONS 7-24-98 A6.0 MILLWORK DETAILS 7-24-98 A7.1 FIRST FLOOR REFLECTED 7-24-98 CEILING PLANS A7.2 SECOND FLOOR REFLECTED 7-24-98 CEILING PLANS S1.0 FOUNDATION PLAN 7-24-98 S1.1 SECOND FLOOR FRAMING PLAN 7-24-98 S1.2 ROOF FRAMING PLAN & DETAILS 7-24-98 S2.0 FOUNDATION DETAILS 7-24-98 S2.1 FOUNDATION DETAILS 7-24-98 S3.0 FRAMING DETAILS 7-24-98 S3.1 FRAMING DETAILS 7-24-98 M1.0 FIRST FLOOR PLUMBING PLAN 7-24-98 M2.0 SECOND FLOOR PLUMBING PLAN 7-24-98 M3.0 PLUMBING SCHEDULE DETAILS 7-24-98 & DETAILS M4.0 FIRST FLOOR MECHANICAL PLAN 7-24-98 M5.0 SECOND FLOOR MECHANICAL 7-24-98 M6.0 MECHANICAL SCHEDULE & 7-24-98 DETAILS E1.1 ELECTRICAL SITE PLAN 8-10-98 E2.1 FIRST FLOOR LIGHTING PLAN 8-10-98 E2.2 SECOND FLOOR LIGHTING PLAN 8-10-98 E3.1 FIRST FLOOR PLAN POWER 8-10-98 E3.2 SECOND FLOOR PLAN POWER 8-10-98 EX-10.15 4 CONSTRUCTION CONTRACT, JUNE 16, 1999 Exhibit 10.15 1997 EDITION AIA DOCUMENT A111-1997 Standard Form of Agreement Between Owner and Contractor where the basis for payment is the COST OF THE WORK PLUS A FEE with a negotiated Guaranteed Maximum Price This document has impor- tant legal consequences. AGREEMENT made as of the Sixteenth day of June in the year Nineteen Hundred Ninety Nine Consultation with an attorney is encouraged with respect to its completion or modification. BETWEEN The Owner: Bank of the Ozarks P. O. Box 8811 Little Rock, AR 72231 This document is not intended for use in competitive bidding. and the Contractor: East-Harding, Inc. AIA Document A201-1997, 2230 Cottondale Lane, Suite 3 General Conditions of the Little Rock, AR 72202 Contract for Construction, is adopted in this documented reference. The Project is: Bank of the Ozarks This document has been Hwy 65 South approved and endorsed by Clinton, AR 72031 The Associated General Contractors of America. The Architect is: AMR Architects, Inc. 201 East Markham, Ste 150 Little Rock, Ar 72201 The Owner and Contractor agree as follows. ARTICLE 1 THE CONTRACT DOCUMENTS The Contract Documents consist of this Agreement, Conditions of the Contract (General, Supplementary and other Conditions), Drawings, Specifications, Addenda issued prior to execution of this Agreement, other, documents listed in this Agreement and Modifications issued after execution of this Agreement; these form the Contract, and are as fully a part of the Contract as if attached to this Agreement or repeated herein. The Contract represents the entire and integrated agreement between the parties hereto and supersedes prior negotiations, representations or agreements, either written or oral. An enumeration of the Contract Documents, other than Modifications, appears in Article 15. If anything in the other Contract Documents is inconsistent with this Agreement, this Agreement shall govern. ARTICLE 2 THE WORK OF THIS CONTRACT The Contractor shall fully execute the Work described in the Contract Documents, except to the extent specifically indicated in the Contract Documents to be the responsibility of others. 1. Telephone, Computer data, & Security wiring & cabling, N.I.C. 2. Exterior Signage, N.I.C. 3. Bank Equipment, N.I.C. 4 Bank Vault, N.I.C. ARTICLE 3 RELATIONSHIP OF THE PARTIES The Contractor accepts the relationship of trust and confidence established by this Agreement and covenants with the Owner to cooperate with the Architect and exercise the Contractor's skill and judgment in furthering the interests of the Owner; to furnish efficient business administration and supervision; to furnish at all times an adequate supply of workers and materials; and to perform the Work in an expeditious and economical manner consistent with the Owner's interests. The Owner agrees to furnish and approve, in a timely manner, information required by the Contractor and to make payments to the Contractor in accordance with the requirements of the Contract Documents. ARTICLE 4 DATE OF COMMENCEMENT AND SUBSTANTIAL COMPLETION 4.1 The date of commencement of the Work shall be the date of this Agreement unless a different date is stated below or provision is made for the date to be fixed in a notice to proceed issued by the Owner. (Insert the date of commencement, if it differs from the date of this Agreement or, if applicable, state that the date will be fixed in a notice to proceed.) If, prior to commencement of the Work, the Owner requires time to file mortgages, mechanic's liens and other security interests, the Owner's time requirement shall be as follows: 4.2 The Contract Time shall be measured from the date of commencement. 4.3 The Contractor shall achieve Substantial Completion of the entire Work not later than days from the date of commencement, or as follows: (Insert number of calendar days. Alternatively, a calendar date may be used when coordinated with the date of commencement. Unless stated elsewhere in the Contract Documents, insert any requirements for earlier Substantial Completion of certain portions of the Work.) November 1, 1999 , subject to adjustments of this Contract Time as provided in the Contract Documents. (Insert provisions, if any, for liquidated damages relating to failure to complete on time, or for bonus payments for early completion of the Work.) ARTICLE 5 BASIS FOR PAYMENT 5.1 CONTRACT SUM 5.1.1 The Owner shall pay the Contractor the Contract Sum in current funds for the Contractor's performance of the Contract. The Contract Sum is the Cost of the Work as defined in Article 7 Plus the Contractor's Fee. 5.1.2 The Contractor's Fee is: 5% of the Final Actual Cost (State a lump sum, percentage of Cost of the Work or other provision for determining the Contractors Fee, and describe the method of adjustment of the Contractors Fee for changes in the Work.) 5.2 GUARANTEED MAXIMUM PRICE 5.2.1 The sum of the Cost of the Work and the Contractor's Fee is guaranteed by the Contractor not to exceed Four Hundred Seventy Five Thousand Two Hundred Forty Four Dollars ($475,244.00) subject to additions and deductions by Change Order as provided in the Contract Documents. Such maximum sum is referred to in the Contract Documents as the Guaranteed Maximum Price. Costs which would cause the Guaranteed Maximum Price to be exceeded shall be paid by the Contractor without reimbursement by the Owner. (Insert specific provisions if the Contractor is to participate in any savings.) 100% Savings Given to Owner 5.2.2 The Guaranteed Maximum Price is based on the following alternates, if any, which are described in the Contract Documents and are hereby accepted by the Owner: (State the numbers or other identification of accepted alternates. If decisions on other alternates are to be made by the Owner subsequent to the execution of this Agreement, attach a schedule of such other alternates showing the amount for each and the date when the amount expires.) 1. Alternate No. 1A - Omit metal soffitt & provide Alcoa Aluminum Soffitts. 2. Alternate No. 2 - Omit aluminum breakmetal cover& provide Dryvit system at canopy beams. 3. Alternate No. 7 - Provide equal electrical fixture and switchgear material package. 4. Alternate No. 8 - Omit TVSS Completely 5. Alternate No. 9 - Reduce paved area behind ATM Island 5.2.3 Unit prices, if any, are as follows: 5.2.4 Allowances, if any, are as follows: (Identify and state the amounts of any allowances, and state whether they include labor, materials, or both.) 1. Landscape and irrigation allowance $ 14,000.00 2. Interior signage allowance $ 300.00 5.2.5 Assumptions, if any, on which the Guaranteed. Maximum Price is based are as follows: 5.2.6 To the extent that the Drawings and Specifications are anticipated to require further development by the Architect, the Contractor has provided in the Guaranteed Maximum Price or such further development consistent with the Contract Documents and reasonably inferable therefrom. Such further development does not include such things as changes in scope, systems, kinds and quality of materials, finishes or equipment, an of which, if required, shall be incorporated by Change Order. ARTICLE 6 CHANGES IN THE WORK 6.1 Adjustments to the Guaranteed Maximum Price on account of changes in the Work may be determined by any of the methods listed in Subparagraph 7.3.3 of AIA Document A20l-1997. 6.2 In calculating adjustments to subcontracts (except those awarded with the Owner's prior consent on the basis of cost plus a fee), the terms "cost" and "fee" as used in Clause 7.3.3.3 of AIA Document A201-1997 and the terms "costs" and "a reasonable allowance for overhead and profit" as used in Subparagraph 7.3.6 of AIA Document A201-1997 shall have the meanings assigned to them in AIA Document A201-1997 and shall not be modified by Articles 5, 7 and 8 of this Agreement. Adjustments to subcontracts awarded with the Owner's prior consent on the basis of cost plus a fee shall be calculated in accordance with the terms of those subcontracts. 6.3 In calculating adjustments to the Guaranteed Maximum Price, the terms "cost" and "costs" as used in the above-referenced provisions of AIA Document A201-1997 shall mean the Cost of the Work as defined in Article 7 of this Agreement and the terms "fee" and "a reasonable allowance for overhead and profit" shall mean the Contractor's Fee as defined in Subparagraph 5.1.2 of this Agreement. 6.4 If no specific provision is made in Paragraph 5.1 for adjustment of the Contractor's Fee in the case of changes in the Work, or if the extent of such changes is such, in the aggregate, that application of the adjustment provisions of Paragraph 5.1 will cause substantial inequity to the Owner or Contractor, the Contractor's Fee shall be equitably adjusted on the basis of the Fee established for the original Work, and the Guaranteed Maximum Price shall be adjusted accordingly. ARTICLE 7 COSTS TO BE REIMBURSED 7.1 COST OF THE WORK The term Cost of the Work shall mean costs necessarily incurred by the Contractor in the proper performance of the Work. Such costs shall be at rates not higher than the standard paid at the place of the Project except with prior consent of the Owner. The Cost of the Work shall include only the items set forth in this Article 7. 7.2 LABOR COSTS 7.2.1 Wages of construction workers directly employed by the Contractor to perform the construction of the Work at the site or, with the Owner's approval, at off-site workshops. 7.2.2 Wages or salaries of the Contractor's supervisory and administrative personnel when stationed at the site with the Owner's approval. (If it is intended that the wages or salaries of certain personnel stationed at the Contractors principal or other offices shall be included in the Cost of the Work, identify in Article 14 the personnel to be included and whether for all or only part of their time, and the rates at which their time will be charged to the Work.) 7.2.3 Wages and salaries of the Contractor's supervisory or administrative personnel engaged, at factories, workshops or on the road, in expediting the production or transportation of materials or equipment required for the Work, but only for that portion of their time required for the Work. 7.2.4 Costs paid or incurred by the Contractor for taxes, insurance, contributions, assessments and benefits required by law or collective bargaining agreements and, for personnel not covered by such agreements, customary benefits such as sick leave, medical and health benefits, holidays, vacations and pensions, provided such costs are based on wages and salaries included in the Cost of the Work under Subparagraphs 7.2.1 through 7.2.3. 7.3 SUBCONTRACT COSTS 73.1 Payments made by the Contractor to Subcontractors in accordance with the requirements of the subcontracts. 7.4 COSTS OF MATERIALS AND EQUIPMENT INCORPORATED IN THE COMPLETED CONSTRUCTION 7.4.1 Costs, including transportation and storage, of materials and equipment incorporated or to be incorporated in the completed construction. 7.4.2 Costs of materials described in the preceding Subparagraph 7.4.1 in excess of those actually installed to allow for reasonable waste and spoilage. Unused excess materials, if any, shall become the Owner's property at the completion of the Work or, at the Owner's option, shall be sold by the Contractor. Any amounts realized from such sales shall be credited to the Owner as a deduction from the Cost of the Work. 7.5 COSTS OF OTHER MATERIALS AND EQUIPMENT, TEMPORARY FACILITIES AND RELATED ITEMS 7.5.1 Costs, including transportation and storage, installation, maintenance, dismantling and removal of materials, supplies, temporary facilities, machinery, equipment, and hand tools not customarily owned by construction workers, that are provided by the Contractor at the site and fully consumed in the performance of the Work; and cost (less salvage value) of such items if not fully consumed, whether sold to others or retained by the Contractor. Cost for items previously used by the Contractor shall mean fair market value. 7.5.2 Rental charges for temporary facilities, machinery, equipment, and hand tools not customarily owned by construction workers that are provided by the Contractor at the site, whether rented from the Contractor or others, and costs of transportation, installation, minor repairs and replacements, dismantling and removal thereof. Rates and quantities of equipment rented shall be subject to the Owner's prior approval. 7.5.3 Costs of removal of debris from the site. 7.5.4 Costs of document reproductions, facsimile transmissions and long- distance telephone calls, postage and parcel delivery charges, telephone service at the site and reasonable petty cash expenses of the site office. 7.5.5 That portion of the reasonable expenses of the Contractor's personnel incurred while traveling in discharge of duties connected with the Work. 7.5.6 Costs of materials and equipment suitably stored off the site at a mutually acceptable location, if approved in advance by the Owner. 7.6 MISCELLANEOUS COSTS 7.6.1 That portion of insurance and bond premiums that can be directly attributable to this Contract. 7.6.2 Sales, use or similar taxes imposed by a governmental authority that are related to the Work. 7.6.3 Fees and assessments for the building permit and for other permits, licenses and inspections for which the Contractor is required by the Contract Documents to pay. 7.6.4 Fees of laboratories for tests required by the Contract Documents, except those related to defective or nonconforming Work for which reimbursement is excluded by Subparagraph 13.5.3 of AIA Document A201-1997 or other provisions of the Contract Documents, and which do not fall within the scope of Subparagraph 7.7.3. 7.6.5 Royalties and license fees paid for the use of a particular design, process or product required by the Contract Documents; the costs of defending suits or claims for infringement of patent rights arising from such requirement of the Contract Documents and payments made in accordance with legal judgments against the Contractor resulting from such suits or claims and payments of settlements made with the Owner's consent. However, such costs of legal defenses, judgments and settlements shall not be included in the calculation of the Contractor's fee or subject to the Guaranteed Maximum Price. If such royalties, fees and costs are excluded by the last sentence of Subparagraph 3.17.1 of AIA Document A201-1997 or other provisions of the Contract Documents, then they shall not be included in the Cost of the Work. 7.6.6 Data processing costs related to the Work. 7.6.7 Deposits lost for causes other than the Contractor's negligence or failure to fulfill a specific responsibility to the Owner as set forth in the Contract Documents. 7.6.8 Legal, mediation and arbitration costs, including attorneys' fees, other than those arising from disputes between the Owner and Contractor, reasonably incurred by the Contractor in the performance of the Work and with the Owner's prior written approval; which approval shall not be unreasonably withheld. 7.6.9 Expenses incurred in accordance with the Contractor's standard personnel policy for relocation and temporary living allowances of personnel required for the Work, if approved by the Owner. 7.7 OTHER COSTS AND EMERGENCIES 7.7.1 Other costs incurred in the performance of the Work if and to the extent approved in advance in writing by the Owner. 7.7.2 Costs due to emergencies incurred in taking action to prevent threatened damage, injury or loss in case of an emergency affecting the safety of persons and property, as provided in Paragraph 1o.6 of AIA Document A201-1997 7.7.3 Costs of repairing or correcting damaged or nonconforming Work executed by the Contractor, Subcontractors or suppliers, provided that such damaged or nonconforming Work was not caused by negligence or failure to fulfill a specific responsibility of the Contractor and only to the extent that the cost of repair or correction is not recoverable by the Contractor from insurance, sureties, Subcontractors or suppliers. ARTICLE 8 COSTS NOT TO BE REIMBURSED 8.1 The Cost of the Work shall not include: 8.1.1 Salaries and other compensation of the Contractor's personnel stationed at the Contractor's principal office or offices other than the site office, except as specifically provided in Subparagraphs 7.2.2 and 7.2.3 or as may be provided in Article 14. 8.1.2 Expenses of the Contractor's principal office and offices other than the site office. 8.1.3 Overhead and general expenses, except as may be expressly included in Article 7. 8.1.4 The Contractor's capital expenses, including interest on the Contractor's capital employed for the Work. 8.1.5 Rental costs of machinery and equipment, except as specifically provided in Subparagraph 7.5.2. 8.1.6 Except as provided in Subparagraph 7.7.3 of this Agreement, costs due to the negligence or failure to fulfill a specific responsibility of the Contractor, Subcontractors and suppliers or anyone directly or indirectly employed by any of them or for whose acts any of them may be liable. 8.1.7 Any cost not specifically and expressly described in Article 7. 8.1.8 Costs, other than costs included in Change Orders approved by the Owner, that would cause the Guaranteed Maximum Price to be exceeded. ARTICLE 9 DISCOUNTS, REBATES AND REFUNDS 9.1 Cash discounts obtained on payments made by the Contractor shall accrue to the Owner if (1) before making the payment, the Contractor included them in an Application for Payment and received payment therefor from the Owner, or (2) the Owner has deposited funds with the Contractor with which to make payments; otherwise, cash discounts shall accrue to the Contractor. Trade discounts, rebates, refunds and amounts received from sales of surplus materials and equipment shall accrue to the Owner, and the Contractor shall make provisions so that they can be secured. 9.2 Amounts that accrue to the Owner in accordance with the provisions of Paragraph 9.1 shall be credited to the Owner as a deduction from the Cost of the Work. ARTICLE 10 SUBCONTRACTS AND OTHER AGREEMENTS 10.1 Those portions of the Work that the Contractor does not customarily perform with the Contractor's own personnel shall be performed under subcontracts or by other appropriate agreements with the Contractor. The Owner may designate specific persons or entities from whom the Contractor shall obtain bids. The Contractor shall obtain bids from Subcontractors and from suppliers of materials or equipment fabricated especially for the Work and shall deliver such bids to the Architect. The Owner shall then determine, with the advice of the Contractor and the Architect, which bids will be accepted. The Contractor shall not be required to contract with anyone to whom the Contractor has reasonable objection. 10.2 If a specific bidder among those whose bids are delivered by the Contractor to the Architect (1) is recommended to the Owner by the Contractor; (2) is qualified to perform that portion of the Work; and (3) has submitted a bid that conforms to the requirements of the Contract Documents without reservations or exceptions, but the Owner requires that another bid be accepted, then the Contractor may require that a Change Order be issued to adjust the Guaranteed Maximum Price by the difference between the bid of the person or entity recommended to the Owner by the Contractor and the amount of the subcontract or other agreement actually signed with the person or entity designated by the Owner. 10.3 Subcontracts or other agreements shall conform to the applicable payment provisions of this Agreement, and shall not be awarded on the basis of cost plus a fee without the prior consent of the Owner. ARTICLE 11 ACCOUNTING RECORDS The Contractor shall keep full and detailed accounts and exercise such controls as may be necessary for proper financial management under this Contract, and the accounting and control systems shall be satisfactory to the Owner. The Owner and the Owner's accountants shall be afforded access to, and shall be permitted to audit and copy, the Contractor's records, books, correspondence, instructions, drawings, receipts, subcontracts, purchase orders, vouchers, memoranda and other data relating to this Contract, and the Contractor shall preserve these for a period of three years after final payment, or for such longer period as may be required by law. ARTICLE 12 PAYMENTS 12.1 PROGRESS PAYMENTS 12.1.1 Based upon Applications for Payment submitted to the Architect by the Contractor and Certificates for Payment issued by the Architect, the Owner shall make progress payments on account of the Contract Sum to the Contractor as provided below and elsewhere in the Contract Documents. 12.1.2 The period covered by each Application for Payment shall be one calendar month ending on the last day of the month, or as follows: 12.1.3 Provided that an Application for Payment is received by the Architect not later than the Last day of a month, the Owner shall make payment to the Contractor not later than the Tenth day of the following month. If an Application for Payment is received by the Architect after the application date fixed above, payment shall be made by the Owner not later than Ten days after the Architect receives the Application for Payment. 12.1.4 With each Application for Payment, the Contractor shall submit payrolls, petty cash accounts, receipted invoices or invoices with check vouchers attached, and any other evidence required by the Owner or Architect to demonstrate that cash disbursements already made by the Contractor on account of the Cost of the Work equal or exceed (1) progress payments already received by the Contractor; less (2) that portion of those payments attributable to the Contractor's Fee; plus three (3) payrolls for the period covered by the present Application for Payment. 12.1.5 Each Application for Payment shall be based on the most recent schedule of values submitted by the Contractor in accordance with the Contract Documents. The schedule of values shall allocate the entire Guaranteed Maximum Price among the various portions of the Work, except that the Contractor's Fee shall be shown as a single separate item. The schedule of values shall be prepared in such form and supported by such data to substantiate its accuracy as the Architect may require. This schedule, unless objected to by the Architect, shall be used as a basis for reviewing the Contractor's Applications for Payment. 12.1.6 Applications for Payment shall show the percentage of completion of each portion of the Work as of the end of the period covered by the Application for Payment. The percentage of completion shall be the lesser of (1) the percentage of that portion of the Work which has actually been completed; or (2) the percentage obtained by dividing (a) the expense that has actually been incurred by the Contractor on account of that portion of the Work for which the Contractor has made or intends to make actual payment prior to the next Application for Payment by (b) the share of the Guaranteed Maximum Price allocated to that portion of the Work in the schedule of values. 12.1.7 Subject to other provisions of the Contract Documents, the amount of each progress payment shall be computed as follows: .1 take that portion of the Guaranteed Maximum Price properly allocable to completed Work as determined by multiplying the percentage of completion of each portion of the Work by the share of the Guaranteed Maximum Price allocated to that portion of the Work in the schedule of values. Pending final determination of cost to the Owner of changes in the Work, amounts not in dispute shall be included as provided in Subparagraph 7.3.8 of AIA Document A201-1997; .2 add that portion of the Guaranteed Maximum Price properly allocable to materials and equipment delivered and suitably stored at the site for subsequent incorporation in the Work, or if approved in advance by the Owner, suitably stored off the site at a location agreed upon in writing; .3 add the Contractor's Fee, less retainage of Ten percent (10%) The Contractor's Fee shall be computed upon the Cost of the Work described in the two preceding Clauses at the rate stated in Subparagraph 5.1.2 or, if the Contractor's Fee is stated as a fixed sum in that Subparagraph, shall be an amount that bears the same ratio to that fixed-sum fee as the Cost of the Work in the two preceding Clauses bears to a reasonable estimate of the probable Cost of the Work upon its completion; .4 subtract the aggregate of previous payments made by the Owner; .5 subtract the shortfall, if any, indicated by the Contractor in the documentation required by Paragraph 12.1.4 to substantiate prior Applications for Payment, or resulting from errors subsequently discovered by the Owner's accountants in such documentation; and .6 Subtract amounts, if any, for which the Architect has withheld or nullified a Certificate for Payment as provided in Paragraph 9.5 of AIA Document A201-1997. 12.1.8 Except with the Owner's prior approval, payments to Subcontractors shall be subject to retainage of not less than Ten percent (10 %). The Owner and the Contractor shall agree upon a mutually acceptable procedure for review and approval of payments and retention for Subcontractors. 12.1.9 In taking action on the Contractor's Applications for Payment, the Architect shall be entitled to rely on the accuracy and completeness of the information furnished by the Contractor and shall not be deemed to represent that the Architect has made a detailed examination, audit or arithmetic verification of the documentation submitted in accordance with Subparagraph 12.1.4 or other supporting data; that the Architect has made exhaustive or continuous on-site inspections or that the Architect has made examinations to ascertain how or for what purposes the Contractor has used amounts previously paid on account of the Contract. Such examinations, audits and verifications, if required by the Owner, will be performed by the Owner's accountants acting in the sole interest of the Owner. 12.2 FINAL PAYMENT 12.2.1 Final payment, constituting the entire unpaid balance of the Contract Sum, shall be made by the Owner to the Contractor when: .1 the Contractor has fully performed the Contract except for the Contractor's responsibility to correct Work as provided in Subparagraph 12.2.2 of AIA Document A201-1997, and to satisfy other requirements, if any, which extend beyond final payment; and .2 a final Certificate for Payment has been issued by the Architect. 12.2.2 The Owner's final payment to the Contractor shall be made no later than 30 days after the issuance of the Architect's final Certificate for Payment, or as follows: 12.2.3 The Owner's accountants will review and report in writing on the Contractor's final accounting within 30 days after delivery of the final accounting to the Architect by the Contractor. Based upon such Cost of the Work as the Owner's accountants report to be substantiated by the Contractor's final accounting, and provided the other conditions of Subparagraph 12.2.1 have been met, the Architect will, within seven days after receipt of the written report of the Owner's accountants, either issue to the Owner a final Certificate for Payment with a copy to the Contractor, or notify the Contractor and Owner in writing of the Architect's reasons for withholding a certificate as provided in Subparagraph 9.5.1 of the AIA Document A201-1997. The time periods stated in this Subparagraph 12.2.3 supersede those stated in Subparagraph 9.4.1 of the AIA Document A20l-1997. 12.2.4 If the Owner's accountants report the Cost of the Work as substantiated by the Contractor's final accounting to be less than claimed by the Contractor, the Contractor shall be entitled to demand arbitration of the disputed amount without a further decision of the Architect. Such demand for arbitration shall be made by the Contractor within 30 days after the Contractor's receipt of a copy of the Architect's final Certificate for Payment; failure to demand arbitration within this 30-day period shall result in the substantiated amount reported by the Owner's accountants becoming binding on the Contractor. Pending a final resolution by arbitration, the Owner shall pay the Contractor the amount certified in the Architect's final Certificate for Payment. 12.2.5 If, subsequent to final payment and at the Owner's request, the Contractor incurs costs described in Article 7 and not excluded by Article 8 to correct defective or nonconforming Work, the Owner shall reimburse the Contractor such costs and the Contractor's Fee applicable thereto on the same basis as if such costs had been incurred prior to final payment, but not in excess of the Guaranteed Maximum Price. If the Contractor has participated in savings as provided in Paragraph 5.2, the amount of such savings shall be recalculated and appropriate credit given to the Owner in determining the net amount to be paid by the Owner to the Contractor. ARTICLE 13 TERMINATION OR SUSPENSION 13.1 The Contract may be terminated by the Contractor, or by the Owner for convenience, as provided in Article 14 of AIA Document A20l-1997. However, the amount to be paid to the Contractor under Subparagraph 14.1.3 of AIA Document A201-1997 shall not exceed the amount the Contractor would be entitled to receive under Paragraph 13.2 below, except that the Contractor's Fee shall be calculated as if the Work had been fully completed by the Contractor, including a reasonable estimate of the Cost of the Work for Work not actually completed. 13.2 The Contract may be terminated by the Owner for cause as provided in Article 14 of AIA Document A201-1997. The amount, if any, to be paid to the Contractor under Subparagraph 14.2.4 of AIA Document A201-1997 shall not cause the Guaranteed Maximum Price to be exceeded, nor shall it exceed an amount calculated as follows: 13.2.1 Take the Cost of the Work incurred by the Contractor to the date of termination; 13.2.2 Add the Contractor's Fee computed upon the Cost of the Work to the date of termination at the rate stated in Subparagraph 5.1.2 or, if the Contractor's Fee is stated as a fixed sum in that Subparagraph, an amount that bears the same ratio to that fixed sum Fee as the Cost of the Work at the time of termination bears to a reasonable estimate of the probable Cost of the Work upon its completion; and 13.2.3 Subtract the aggregate of previous payments made by the Owner. 13.3 The Owner shall also pay the Contractor fair compensation, either by purchase or rental at the election of the Owner, for any equipment owned by the Contractor that the Owner elects to retain and that is not otherwise. included in the Cost of the Work under Subparagraph 13.2.1. To the extent that the Owner elects to take legal assignment of subcontracts and purchase orders (including rental agreements), the Contractor shall, as a condition of receiving the payments referred to in this Article 13, execute and deliver all such papers and take all such steps, including the legal assignment of such subcontracts and other contractual rights of the Contractor, as the Owner may require for the purpose of fully vesting in the Owner the rights and benefits of the Contractor under such subcontracts or purchase orders. 13.4 The Work may be suspended by the Owner as provided in Article 14 of AIA Document A20l-1997; in such case, the Guaranteed Maximum Price and Contract Time shall be increased as provided in Subparagraph 43.2 of AIA Document A201-1997 except that the term "profit" shall be understood to mean the Contractor's Fee as described in Subparagraphs 5.1.2 and Paragraph 6.4 Of this Agreement. ARTICLE 14 MISCELLANEOUS PROVISIONS 14.1 Where reference is made in this Agreement to a provision AIA Document A20l-1997 or another Contract Document, the reference refers to that provision as amended or supplemented by other provisions of the Contract Documents. 14.2 Payments due and unpaid under the Contract shall bear interest from the date payment is due at the rate stated below, or in the absence thereof, at the legal rate prevailing from time to time at the place where the Project is located. (Insert rate of interest agreed upon, if any.) (Usury laws and requirements under the Federal Truth in Lending Act, similar state and local consumer credit laws and other regulations at the Owners and Contractors principal places of business, the location of the Project and elsewhere may affect the validity of this provision. Legal advice should be obtained with respect to deletions or modifications, and also regarding requirements such as written disclosures or waivers.) 14.3 The Owner's representative is: Mr. Melvin Edwards (Name, address and other information.) 14.4 The Contractor's representative is: Mr. Greg Fluger (Name, address and other information.) 14.5 Neither the Owner's nor the Contractor's representative shall be changed without ten days' written notice to the other party. 14.6 Other provisions: 1. No additional retainage will be held after the contract work is fifty percent (50%) complete. Retainage will then become 5% of the Guaranteed Maximum Price. ARTICLE 15 ENUMERATION OF CONTRACT DOCUMENTS 15.1 The Contract Documents, except for Modifications issued after execution of this Agreement, are enumerated as follows: 15.1.1 The Agreement is this executed 1997 edition of the Standard Form of Agreement Between Owner and Contractor, AIA Document A111-1997. 15.1.2 The General Conditions are the 1997 edition of the General Conditions of the Contract for Construction, AIA Document A201-1997 15.1.3 The Supplementary and other Conditions of the Contract are those contained in the Project Manual dated April 14, 1999,and are as follows: Document Title Pages Project Manual Clinton Branch Bank of the Ozarks Page 1 through 16910-2 15.1.4 The Specifications are those contained in the Project Manual dated as in Subparagraph 15.1.3, and are as follows: (Either list the Specifications here or refer to an exhibit attached to this Agreement.) Section Title Pages SEE EXHIBIT "A" 15.1.5 The Drawings are as follows, and are dated unless a different date is shown below: (Either list the Drawings here or refer to an exhibit attached to this Agreement.) Number Title Date SEE EXHIBIT "B" 15.1.6 The Addenda, if any, are as follows: Number Date Pages Addendum No. 1 April 30, 1999 2 Pages Portions of Addenda relating to bidding requirements are not part of the Contract Documents unless the bidding requirements are also enumerated in this Article 15. 15.1.7 Other Documents, if any, forming part of the Contract Documents are as follows: (List here any additional documents, such as a list of alternates that are intended to form part of the contract Documents. AIA Document A201-1997 provides that bidding requirements such as advertisement or invitation to bid, Instructions to Bidders, sample forms and the Contractor's bid are not part of the Contract Documents unless enumerated in this Agreement. They should be listed here only if intended to be part of the Contract Documents.) ARTICLE 16 INSURANCE AND BONDS (List required limits of liability for insurance and bonds. AIA Document A201-1997 gives other specific requirements for insurance and bonds.) This Agreement is entered into as of the day and year first written above and is executed in at least three original copies, of which one is to be delivered to the Contractor, one to the Architect for use in the administration of the Contract, and the remainder to the Owner. OWNER CONTRACTOR /s/Melvin L. Edwards /s/ Thomas Harding (Signature) (Signature) Melvin L. Edwards, VP (Printed name and title) (Printed name and title) CAUTION: You should sign an original AIA document which has this caution printed in red. An original assures that changes will not be obscured as may occur when documents are reproduced. EXHIBIT - "A" BANK OF THE OZARKS CLINTON TABLE OF CONTENTS GENERAL CONDITIONS (AIA DOCUMENT A201) SUPPLEMENTARY GENERAL CONDITIONS DIVISION 1 - GENERAL REQUIREMENTS 01010 -Summary of work 01030 - Alternates 01300 - Submittals and Substitutions 01500 - Construction Facilities and Temporary Controls DIVISION 2 - SITEWORK 02060 - Building Demolition 02100 - Site Preparation 02200 - Earthwork 02280 - Soil Treatment 02510 - Asphaltic Concrete Paving 02520 - Portland Cement Concrete Paving 02811 - Landscape Irrigation Systems 02936 - Sodding 02950 - Trees, Shrubs and Groundcover DIVISION 3 - CONCRETE 03300 - Cast-In-Place Concrete DIVISION 4 - MASONRY 04200 - Unit Masonry DIVISION 5 - METALS 05120 - Structural Steel 05500 - Metal Fabrications and Miscellaneous Work DIVISION 6 - WOOD AND PLASTICS 06100 - Carpentry 06400 - Architectural Woodwork DIVISION 7 - THERMAL AND MOISTURE PROTECTION 07210 - Building Insulation 07311 - Asphalt Shingles 07600 - Sheet Metal Work 07900 - Joint Sealants BANK OF THE OZARKS CLINTON TABLE OF CONTENTS CONTINUED DIVISION 8 - DOORS AND WINDOWS 08110 - Metal Doors and Frames 08120 - Aluminum Doors and Frames 08200 - Wood Doors 08700 - Hardware 08800 - Glazing DIVISION 9 - FINISHES 09250 - Gypsum Wallboard 09300 - Tile 09510 - Acoustical Ceilings 09650 - Resilient Flooring 09680 - Carpeting 09900 - Painting DIVISION 10 -SPECIALTIES 10520 - Fire Extinguishers and Cabinets 10800 - Toilet Accessories 10990 - Miscellaneous Specialties DIVISION 11 - EQUIPMENT AND FURNISHINGS None in this Project DIVISION 12 - FURNISHINGS AND SEATING None in this Project DIVISION 13 - SPECIAL CONSTRUCTION None in this Project DIVISION 15 - MECHANICAL DIVISION 16 - ELECTRICAL EXHIBIT - "B" NUMBERS TITLE DATE Index 4/14/99 Ll Landscape Plan 4/14/99 C1 Existing Contour Plan 4/13/99 C2 Site Grading Plan 4/13/99 C3 Site Dimension Plan 4/13/99 C4 Erosion Control Plan 4/13/99 A1.0 Floor Plan, Ceiling Plan, Roof Plan 4/14/99 A2.0 Elevations 4/14/99 A3.1 Building Sections 4/14/99 A3.2 Wall Sections 4/14/99 A4.0 Window Details & Schedules 4/14/99 A5.0 Millwork Elevations & Sections 4/14/99 S1.0 Foundation Plan 4/14/99 S2.0 Foundation Details 4/14/99 S3.0 Roof Framing Plan & Details 4/14/99 S4.1 Truss Bottom Chord Bracing Plan 4/14/99 S5.0 Framing Notes & Details 4/14/99 M1.0 Utility Site Plan 4/14/99 M2.0 Plumbing Floor Plan 4/14/99 M3.0 Plumbing Details 4/14/99 M4.0 Mechanical Floor Plan 4/14/99 M5.0 Mechanical Details 4/14/99 EO.1 Electrical Site Plan 4/14/99 E1.0 Electrical Lighting Plan 4/14/99 E2.0 Electrical Power & Systems Plan 4/14/99 E3.0 Electrical Power Plan Mechanical 4/14/99 BANK OF THE OZARKS- CLINTON BRANCH ADDENDUM NO 1 TO: PROJECT MANUAL AND DRAWINGS FOR: BANK OF THE OZARKS - CLINTON BRANCH April 30,1999 This Addendum forms a part of the Contract Documents and modifies or interprets the Project Manual and Drawings, as noted below. Refer to the Drawings: 1. SHEET C-2 & C-3 REFER TO THE ENCLOSED CIVIL SKETCHES WHICH REVISE THE PARKING LAYOUT AND ELIMINATE THE CONNECTING DRIVE AT THE NORTH SIDE OF THE PROPERTY. 2. SHEET A1.0 REFER TO THE FLOOR PLAN. ADDD THE FOLLOWING NOTE TO CLOSETS 103 AND 119:"INSTALL SIX (6) 3/4" PLYWOOD SHELVES WITH 1 1/2" HARDWOOD EDGE. SHELVING TO BE ADJUSTABLE. INSTALL VERTICAL DIVIDERS FROM TWO LAYERS OF 3/4" PLYWOOD SUCH THAT NO SHELF SPANS MORE THAN 36"." 3. SHEET A3.2 IGNORE THE STEEL BEAMS AND LINTEL BEAMS INDICATED IN SECTIONS 1 AND 2. ON SHEET A3.2. REFER TO THE STRUCTURAL PLANS FOR LINTEL BEAMS AND FRAMING. 4. SHEET A5.0 SECTION 2 THE BLACK GRANITE DEAL PLATES ARE NOT TO HAVE A BULLNOSE EDGE BUT A SIMPLE EASED EDGE AND SHOULD NOT CANTILEVER OUT BEYOND THE TELLER COUNTER FRONT BUT SHOULD FLUSH OUT WITH THE FRONT LAMINATE SURFACE INSTEAD. 5. SHEET E2.0 TELEPHONE AND DATA OUTLETS ARE TO BE COMBINED INTO ONE 4" X 4" BOX WITH A 2" X 4" COVER. ALL COMBO TELEPHONE/DATA OUTLETS ARE TO BE SERVED, BY A 1 " CONDUIT. 6. SHEET E2.0 ADD A DATA OUTLET NEXT TO THE WALL PHONE OUTLET IN BREAK ROOM 116. ADD TWO DATAITEL. OUTLETS AT THE NORTH END ABOVE THE COUNTER IN PROOF ROOM 109. ADD A DATA/ TEL. OUTLET TO THE SOUTH END OF THE TELLER LINE AT THE DRIVE -THRU TELLERS COUNTER IN TELLER 110. 7. SHEET E1.0, E2.0, AND E3.0 THE NORTH ARROW POINTS THE WRONG WAY NORTH IS TO THE RIGHT ON THE SHEET. SHEET EO.1 NORTH SHOULD POINT UP THE SHEET. 8. SHEET E2.0 ADD A QUAD RECEPTACLE UNDER THE TELEPHONE BOARD IN ELEC.108CONNECT TO CIRCUIT B-30. 9. SHEET E2.0 ELIMINATE BOTH SETS OF FLOOR POWER AND DATA OUTLETS FOR THE TWO DESKS IN LOBBY 101. 10. SHEET E2.0 ALL OF THE DATA AND POWER OUTLETS NEAR THE DESKS IN ALL OF THE OFFICES NEED TO BE MOVED TO THE BRIDGE OF THE DESK. A REVISED DRAWING WILL BE ISSUED. 11. SHEET E1.0 CLOSETS 119 AND 120 HAVE BEEN COMBINED INTO ONE CLOSET. ELIMINATE THE TYPE "3" FIXTURES AND PROVIDE ONE TYPE "8 FIXTURE. PROVIDE ONLY ONE SWITCH. 12. SHEET E1.0 CLOSETS 102 AND 103 HAVE BEEN COMBINED INTO ONE CLOSET. ELIMINATE THE TYPE "3" FIXTURES AND PROVIDE ONE TYPE "8 FIXTURE. PROVIDE ONLY ONE SWITCH. Refer to the Project Manual: 1. SECTION 08120 PART 2-PRODUCTS SECTION2.03 ADD THE FOLLOWING: "C. ALUMINUM ENTRANCE DOOR FINISH HARDWARE. 1 SET PIVOTS, MANUF STD. 1 EA. INTERMEDIATE PIVOT, MANUF. STD. 1 EA. ADA COMPLIANT THRESHOLD ALUMINUM 1 EA CYLINDER (SEE SECTION 8710) 1 EA CLOSER PARALLEL ARM - HEAVY DUTY" END OF ADDENDUM 1 ADDENDUM NO. 1 ADD - 2 EX-10.16 5 CONSTRUCTION CONTRACT, JUNE 16, 1999 Exhibit 10.16 AIA DOCUMENT Alll-1997 Standard Form of Agreement Between Owner and Contractor where the basis for payment is the COST OF THE WORK PLUS A FEE with a negotiated Guaranteed Maximum Price A G R E E M E N T made as of the Sixteenth day of June This document has important in the year Nineteen Hundred Ninety-Nine legal consequences. Consultation (In words, indicate day, month and year) with an attorney is encouraged with respect to its completion or modification. BETWEEN the Owner: Bank of the Ozarks This document is not (Name, address and other information) P.O. Box 8811 intended for use in Little Rock, AR 72231 competitive bidding. and the Contractor: East-Harding, Inc. AIA Document A201-1997, (Name, address and other information) 2230 Cottondale Lane, Suite 3 General Conditions of the Little Rock, AR 72202 Contract for Construction is adopted in this document by reference. The Project is: Bank of the Ozarks This document has been (Name and address) North Little Rock Branch approved and endorsed North Hills Blvd. by The Associated General North Little Rock, AR Contractors of America. The Architect is: AMR Architects, Inc. (Name, address and other information) 201 East Markham, Ste. 150 Little Rock, AR 72201
The Owner and Contractor agree as follows. ARTICLE 1 THE CONTRACT DOCUMENTS The Contract Documents consist of this Agreement, Conditions of the Contract (General, Supplementary and other Conditions), Drawings, Specifications, Addenda issued prior to execution of this Agreement, other documents listed in this Agreement and Modifications issued after execution of this Agreement; these form the Contract, and are as fully a part of the Contract as if attached to this Agreement or repeated herein. The Contract represents the entire and integrated agreement between the parties hereto and supersedes prior negotiations, representations or agreements, either written or oral. An enumeration of the Contract Documents, other than Modifications, appears in Article 15. If anything in the other Contract Documents is inconsistent with this Agreement, this Agreement shall govern. ARTICLE 2 THE WORK OF THIS CONTRACT The Contractor shall fully execute the Work described in the Contract Documents, except to the extent specifically indicated in the Contract Documents to be the responsibility of others. 1. Telephone & Data Cabling N.I.C. 2. Bank Equipment & Vault - N.I.C 3. Exterior & Interior Signage - N.I.C. ARTICLE 3 RELATIONSHIP OF THE PARTIES The Contractor accepts the relationship of trust and confidence established by this Agreement and covenants with the Owner to cooperate with the Architect and exercise the Contractor's skill and judgment in furthering the interests of the Owner; to furnish efficient business administration and supervision; to furnish at all times an adequate supply of workers and materials; and to perform the Work in an expeditious and economical manner consistent with the Owner's interests. The Owner agrees to furnish and approve, in a timely manner, information required by the Contractor and to make payments to the Contractor in accordance with the requirements of the Contract Documents. ARTICLE 4 DATE OF COMMENCEMENT AND SUBSTANTIAL COMPLETION 4.1 The date of commencement of the Work shall be the date of this Agreement unless a different date is stated below or provision is made for the date to be fixed in a notice to proceed issued by the Owner. (Insert the date of commencement, if it differs from the date of this Agreement or, if applicable, state that the date will be fixed in a notice to proceed.) If, prior to commencement of the Work, the Owner requires time to file mortgages, mechanic's liens and other security interests, the Owner's time requirement shall be as follows: 4.2 The Contract Time shall be measured from the date of commencement. Commencement is based upon work by others to establish an approved building pad being completed. 4.3 The Contractor shall achieve Substantial Completion of the entire Work not later than (150) Calendar days from the date of commencement, or as follows: (Insert number of calendar days. Alternatively, a calendar date may be used when coordinated with the date of commencement. Unless stated elsewhere in the Contract Documents, insert any requirements for earlier Substantial Completion of certain portions of the Work.) , subject to adjustments of this Contract Time as provided in the Contract Documents. (Insert provisions, if any, for liquidated damages relating to failure to complete on time, or for bonus payments for early completion of the Work.) ARTICLE 5 BASIS FOR PAYMENT 5.1 CONTRACT SUM 5.1.1 The Owner shall pay the Contractor the Contract Sum in current funds for the Contractor's performance of the Contract. The Contract Sum is the Cost of the Work as defined in Article 7 Plus the Contractor's Fee. 5.1.2 The Contractor's Fee is: (State a lump sum, percentage of Cost of the Work or other provision for determining the Contractors Fee, and describe the method of adjustment of the Contractors Fee for changes in the Work.) 5% of the Final Actual Cost 5.2 GUARANTEED MAXIMUM PRICE 5.2.1 The sum of the Cost of the Work and the Contractor's Fee is guaranteed by the Contractor not to exceed Six Hundred Forty-two Thousand, Six Hundred Thirty Seven Dollars $642,637.00, subject to additions and deductions by Change Order as provided in the Contract Documents. Such maximum sum is referred to in the Contract Documents as the Guaranteed Maximum Price. Costs which would cause the Guaranteed Maximum Price to be exceeded shall be paid by the Contractor without reimbursement by the Owner. (Insert specific provisions if the Contractor is to participate in any savings.) 100% Savings Given to Owner 5.2.2 The Guaranteed Maximum Price is based on the following alternates, if any, which are described in the Contract Documents and are hereby accepted by the Owner: (State the numbers or other identification of accepted alternates. If decisions on other alternates are to be made by the Owner subsequent to the execution of this Agreement, attach a schedule of such other alternates showing the amount for each and the date when the amount expires.) 1. Alternate No. 1 - Omit Fry Reglets 2. Alternate No. 2 - Change Maple Wood Ceiling to suspended acoustical in Foyer #100 & partial area in #109 3. Alternate No. 3 - To use Metalogic roof system in lieu of specified 5.2.3 Unit prices, if any, are as follows: 5.2.4 Allowances, if any, are as follows: (Identify and state the amounts of any allowances, and state whether they include labor, materials, or both.) Landscape & Irrigation Allowance $12,000.00 5.2.5 Assumptions, if any, on which the Guaranteed Maximum Price is based are as follows: Work performed by other General Contractor to be all inclusive of the following: 1. Site excavation, including building pad and all other areas to required subgrade. Specified compaction & testing included. 2. Curb & sidewalks outside of building immediate perimeter, including curbs, walks & aprons at street. 3. Asphalt paving & Markings. 4. Storm drainage & structures. 5. Water & Sewer Mains including taps & fees. 5.2.6 To the extent that the Drawings and Specifications are anticipated to require further development by the Architect, the Contractor has provided in the Guaranteed Maximum Price for such further development consistent with the Contract Documents and reasonably inferable therefrom. Such further development does not include such things as changes in scope, systems, kinds and quality of materials, finishes or equipment, all of which, if required, shall be incorporated by Change Order. ARTICLE 6 CHANGES IN THE WORK 6.1 Adjustments to the Guaranteed Maximum Price on account of changes in the Work may be determined by any of the methods listed in Subparagraph 7.3.3 of AIA Document A207-1997. 6.2 In calculating adjustments to subcontracts (except those awarded with the Owner's prior consent on the basis of cost plus a fee), the terms "cost" and "fee" as used in Clause 7.3.3.3 Of AIA Document A207-1997 and the terms "costs" and "a reasonable allowance for overhead and profit" as used in Subparagraph 7.3.6 of AIA Document A201-1997 shall have the meanings assigned to them in AIA Document A201-1997 and shall not be modified by Articles 5, 7 and 8 of this Agreement. Adjustments to subcontracts awarded with the Owner's prior consent on the basis of cost plus a fee shall be calculated in accordance with the terms of those subcontracts. 6.3 In calculating adjustments to the Guaranteed Maximum Price, the terms "cost" and "costs" as used in the above-referenced provisions of AlA Document A201-1997 shall mean the Cost of the Work as defined in Article 7 of this Agreement and the terms "fee" and "a reasonable allowance for overhead and profit" shall mean the Contractor's Fee as defined in Subparagraph 5.1.2 of this Agreement. 6.4 If no specific provision is made in Paragraph 5.1 for adjustment of the Contractor's Fee in the case of changes in the Work, or if the extent of such changes is such, in the aggregate, that application of the adjustment provisions of Paragraph 5.1 will cause substantial inequity to the Owner or Contractor, the Contractor's Fee shall be equitably adjusted on the basis of the Fee established for the original Work, and the Guaranteed Maximum Price shall be adjusted accordingly. ARTICLE 7 COSTS TO BE REIMBURSED 7.1 COST OF THE WORK The term Cost of the Work shall mean costs necessarily incurred by the Contractor in the proper performance of the Work. Such costs shall be at rates not higher than the standard paid at the place of the Project except with prior consent of the Owner. The Cost of the Work shall include only the items set forth in this Article 7. 7.2 LABOR COSTS 7.2.1 Wages of construction workers directly employed by the Contractor to perform the construction of the Work at the site or, with the Owner's approval, at off-site workshops. 7.2.2 Wages or salaries of the Contractor's supervisory and administrative personnel when stationed at the site with the Owner's approval. (If it is intended that the wages or salaries of certain personnel stationed at the Contractor's principal or other offices shall be included in the Cost of the Work, identify in Article 14 the personnel to be included and whether for all or only part of their time, and the rates at which their time will be charged to the Work.) 7.23 Wages and salaries of the Contractor's supervisory or administrative personnel engaged, at factories, workshops or on the road, in expediting the production or transportation of materials or equipment required for the Work, but only for that portion of their time required for the Work. 7.2.4 Costs paid or incurred by the Contractor for taxes, insurance, contributions, assessments and benefits required by law or collective bargaining agreements and, for personnel not covered by such agreements, customary benefits such as sick leave, medical and health benefits, holidays, vacations and pensions, provided such costs are based on wages and salaries included in the Cost of the Work under Subparagraphs 7.2.1 through 7.2.3. 7.3 SUBCONTRACT COSTS 7.3.1 Payments made by the Contractor to Subcontractors in accordance with the requirements of the subcontracts. 7.4 COSTS OF MATERIALS AND EQUIPMENT INCORPORATED IN THE COMPLETED CONSTRUCTION 7.4.1 Costs, including transportation and storage, of materials and equipment incorporated or to be incorporated in the completed construction. 7.4.2 Costs of materials described in the preceding Subparagraph 7.4.1 in excess of those actually installed to allow for reasonable waste and spoilage. Unused excess materials, if any, shall become the Owner's property at the completion of the Work or, at the Owner's option, shall be sold by the Contractor. Any amounts realized from such sales shall be credited to the Owner as a deduction from the Cost of the Work. 7.5 COSTS OF OTHER MATERIALS AND EQUIPMENT, TEMPORARY FACILITIES AND RELATED ITEMS 7.5.1 Costs, including transportation and storage, installation, maintenance, dismantling and removal of materials, supplies, temporary facilities, machinery, equipment, and hand tools not customarily owned by construction workers, that are provided by the Contractor at the site and fully consumed in the performance of the Work; and cost (less salvage value) of such items if not fully consumed, whether sold to others or retained by the Contractor. Cost for items previously used by the Contractor shall mean fair market value. 7.5.2 Rental charges for temporary facilities, machinery, equipment, and hand tools not customarily owned by construction workers that are provided by the Contractor at the site, whether rented from the Contractor or others, and costs of transportation, installation, minor repairs and replacements, dismantling and removal thereof. Rates and quantities of equipment rented shall be subject to the Owner's prior approval. 7.5.3 Costs of removal of debris from the site. 7.5.4 Costs of document reproductions, facsimile transmissions and long-distance telephone calls, postage and parcel delivery charges, telephone service at the site and reasonable petty cash expenses of the site office. 7.5.5 That portion of the reasonable expenses of the Contractor's personnel incurred while traveling in discharge of duties connected with the Work. 7.5.6 Costs of materials and equipment suitably stored off the site at a mutually acceptable location, if approved in advance by the Owner. 7.6 MISCELLANEOUS COSTS 7.6.1 That portion of insurance and bond premiums that can be directly attributable to this Contract. 7.6.2 Sales, use or similar taxes imposed by a governmental authority that are related to the Work. 7.6.3 Fees and assessments for the building permit and for other permits, licenses and inspections for which the Contractor is required by the Contract Documents to pay. 7.6.4 Fees of laboratories for tests required by the Contract Documents, except those related to defective or nonconforming Work for which reimbursement is excluded by Subparagraph 13.5.3 of AIA Document A201- 1997 or other provisions of the Contract Documents, and which do not fall within the scope of Subparagraph 7.7.3. 7.6.5 Royalties and license fees paid for the use of a particular design, process or product required by the Contract Documents; the costs of defending suits or claims for infringement of patent rights arising from such requirement of the Contract Documents and payments made in accordance with legal judgments against the Contractor resulting from such suits or claims and payments of settlements made with the Owner's consent. However, such costs of legal defenses, judgments and settlements shall not be included in the calculation of the Contractor's fee or subject to the Guaranteed Maximum Price. If such royalties, fees and costs are excluded by the last sentence of Subparagraph 3.17.1 of AIA Document A201-1997 or other provisions of the Contract Documents, then they shall not be included in the Cost of the Work. 7.6.6 Data processing costs related to the Work. 7.6.7 Deposits lost for causes other than the Contractor's negligence or failure to fulfill a specific responsibility to the Owner as set forth in the Contract Documents. 7.6.8 Legal, mediation and arbitration costs, including attorneys' fees, other than those arising from disputes between the Owner and Contractor, reasonably incurred by the Contractor in the performance of the Work and with the Owner's prior written approval; which approval shall not be unreasonably withheld. 7.6.9 Expenses incurred in accordance with the Contractor's standard personnel policy for relocation and temporary living allowances of personnel required for the Work, if approved by the Owner. 7.7 OTHER COSTS AND EMERGENCIES 7.7.1 Other costs incurred in the performance of the Work if and to the extent approved in advance in writing by the Owner. 7.7.2 Costs due to emergencies incurred in taking action to prevent threatened damage, injury or loss in case of an emergency affecting the safety of persons and property, as provided in Paragraph 10.6 of AIA Document A201-1997 7.73 Costs of repairing or correcting damaged or nonconforming Work executed by the Contractor, Subcontractors or suppliers, provided that such damaged or nonconforming Work was not caused by negligence or failure to fulfill a specific responsibility of the Contractor and only to the extent that the cost of repair or correction is not recoverable by the Contractor from insurance, sureties, Subcontractors or suppliers. ARTICLE 8 COSTS NOT TO BE REIMBURSED 8.1 The Cost of the Work shall not include: 8.1.1 Salaries and other compensation of the Contractor's personnel stationed at the Contractor's principal office or offices other than the site office, except as specifically provided in Subparagraphs 7.2.2 and 7.2.3 or as may be provided in Article 14. 8.1.2 Expenses of the Contractor's principal office and offices other than the site office. 8.1.3 Overhead and general expenses, except as may be expressly included in Article 7. 8.1.4 The Contractor's capital expenses, including interest on the Contractor's capital employed for the Work. 8.1.5 Rental costs of machinery and equipment, except as specifically provided in Subparagraph 7.5.2. 8.1.6 Except as provided in Subparagraph 7.7.3 of this Agreement, costs due to the negligence or failure to fulfill a specific responsibility of the Contractor, Subcontractors and suppliers or anyone directly or indirectly employed by any of them or for whose acts any of them may be liable. 8.1.7 Any cost not specifically and expressly described in Article 7. 8.1.8 Costs, other than costs included in Change Orders approved by the Owner, that would cause the Guaranteed Maximum Price to be exceeded. ARTICLE 9 DISCOUNTS, REBATES AND REFUNDS 9.1 Cash discounts obtained on payments made by the Contractor shall accrue to the Owner if (1) before making the payment, the Contractor included them in an Application for Payment and received payment therefor from the Owner, or (2) the Owner has deposited funds with the Contractor with which to make payments; otherwise, cash discounts shall accrue to the Contractor. Trade discounts, rebates, refunds and amounts received from sales of surplus materials and equipment shall accrue to the Owner, and the Contractor shall make provisions so that they can be secured. 9.2 Amounts that accrue to the Owner in accordance with the provisions of Paragraph 9.1 shall be credited to the Owner as a deduction from the Cost of the Work. ARTICLE 10 SUBCONTRACTS AND OTHER AGREEMENTS 10.1 Those portions of the Work that the Contractor does not customarily perform with the Contractor's own personnel shall be performed under subcontracts or by other appropriate agreements with the Contractor. The Owner may designate specific persons or entities from whom the Contractor shall obtain bids. The Contractor shall obtain bids from Subcontractors and from suppliers of materials or equipment fabricated especially for the Work and shall deliver such bids to the Architect. The Owner shall then determine, with the advice of the Contractor and the Architect, which bids will be accepted. The Contractor shall not be required to contract with anyone to whom the Contractor has reasonable objection. 10.2 If a specific bidder among those whose bids are delivered by the Contractor to the Architect (1) is recommended to the Owner by the Contractor; (2) is qualified to perform that portion of the Work; and (3) has submitted a bid that conforms to the requirements of the Contract Documents without reservations or exceptions, but the Owner requires that another bid be accepted, then the Contractor may require that a Change Order be issued to adjust the Guaranteed Maximum Price by the difference between the bid of the person or entity recommended to the Owner by the Contractor and the amount of the subcontract or other agreement actually signed with the person or entity designated by the Owner. 10.3 Subcontracts or other agreements shall conform to the applicable payment provisions of this Agreement, and shall not be awarded on the basis of cost plus a fee without the prior consent of the Owner. ARTICLE 11 ACCOUNTING RECORDS The Contractor shall keep full and detailed accounts and exercise such controls as may be necessary for proper financial management under this Contract, and the accounting and control systems shall be satisfactory to the Owner. The Owner and the Owner's accountants shall be afforded access to, and shall be permitted to audit and copy, the Contractor's records, books, correspondence, instructions, drawings, receipts, subcontracts, purchase orders, vouchers, memoranda and other data relating to this Contract, and the Contractor shall preserve these for a period of three years after final payment, or for such longer period as may be required by law. ARTICLE 12 PAYMENTS 12.1 PROGRESS PAYMENTS 12.1.1 Based upon Applications for Payment submitted to the Architect by the Contractor and Certificates for Payment issued by the Architect, the Owner shall make progress payments on account of the Contract Sum to the Contractor as provided below and elsewhere in the Contract Documents. 12.1.2 The period covered by each Application for Payment shall be one calendar month ending on the last day of the month, or as follows: 12.1.3 Provided that an Application for Payment is received by the Architect not later than the Last day of a month, the Owner shall make payment to the Contractor not later than the Tenth day of the Following month. If an Application for Payment is received by the Architect after the application date fixed above, payment shall be made by the Owner not later than Ten days after the Architect receives the Application for Payment. 12.1.4 With each Application for Payment, the Contractor shall submit payrolls, petty cash accounts, receipted invoices or invoices with check vouchers attached, and any other evidence required by the Owner or Architect to demonstrate that cash disbursements already made by the Contractor on account of the Cost of the Work equal or exceed (i) progress payments already received by the Contractor; less (2) that portion of those payments attributable to the Contractor's Fee; plus (3) payrolls for the period covered by the present Application for Payment. 12.1.5 Each Application for Payment shall be based on the most recent schedule of values submitted by the Contractor in accordance with the Contract Documents. The schedule of values shall allocate the entire Guaranteed Maximum Price among the various portions of the Work, except that the Contractor's Fee shall be shown as a single separate item. The schedule of values shall be prepared in such form and supported by such data to substantiate its accuracy as the Architect may require. This schedule, unless objected to by the Architect, shall be used as a basis for reviewing the Contractor's Applications for Payment. 12.1.6 Applications for Payment shall show the percentage of completion of each portion of the Work as of the end of the period covered by the Application for Payment. The percentage of completion shall be the lesser of (i) the percentage of that portion of the Work which has actually been completed; or (2) the percentage obtained by dividing (a) the expense that has actually been incurred by the Contractor on account of that portion of the Work for which the Contractor has made or intends to make actual payment prior to the next Application for Payment by (b) the share of the Guaranteed Maximum Price allocated to that portion of the Work in the schedule of values. 12.1.7 Subject to other provisions of the Contract Documents, the amount of each progress payment shall be computed as follows: .1 take that portion of the Guaranteed Maximum Price properly allocable to completed Work as determined by multiplying the percentage of completion of each portion of the Work by the share of the Guaranteed Maximum Price allocated to that portion of the Work in the schedule of values. Pending final determination of cost to the Owner of changes in the Work, amounts not in dispute shall be included as provided in Subparagraph 7.3.8 of AIA Document A201-1997; .2 add that portion of the Guaranteed Maximum Price properly allocable to materials and equipment delivered and suitably stored at the site for subsequent incorporation in the Work, or if approved in advance by the Owner, suitably stored off the site at a location agreed upon in writing; .3 add the Contractor's Fee, less retainage of Ten percent (10%). The Contractor's Fee shall be computed upon the Cost of the Work described in the two preceding Clauses at the rate stated in Subparagraph 5.1.2 or, if the Contractor's Fee is stated as a fixed sum in that Subparagraph, shall be an amount that bears the same ratio to that fixed-sum fee as the Cost of the Work in the two preceding Clauses bears to a reasonable estimate of the probable Cost of the Work upon its completion; .4 subtract the aggregate of previous payments made by the Owner; .5 subtract the shortfall, if any, indicated by the Contractor in the documentation required by Paragraph 12.1.4 to substantiate prior Applications for Payment, or resulting from errors subsequently discovered by the Owner's accountants in such documentation; and .6 subtract amounts, if any, for which the Architect has withheld or nullified a Certificate for Payment as provided in Paragraph 9.5 of AIA Document A201-1997 12.1.8 Except with the Owner's prior approval, payments to Subcontractors shall be subject to retainage of not less than Ten percent ( 10 %). The Owner and the Contractor shall agree upon a mutually acceptable procedure for review and approval of payments and retention for Subcontractors. 12.1.9 In taking action on the Contractor's Applications for Payment, the Architect shall be entitled to rely on the accuracy and completeness of the information furnished by the Contractor and shall not be deemed to represent that the Architect has made a detailed examination, audit or arithmetic verification of the documentation submitted in accordance with Subparagraph 12.1.4 or other supporting data; that the Architect has made exhaustive or continuous on-site inspections or that the Architect has made examinations to ascertain how or for what purposes the Contractor has used amounts previously paid on account of the Contract. Such examinations, audits and verifications, if required by the Owner, will be performed by the Owner's accountants acting in the sole interest of the Owner. 12.2 FINAL PAYMENT 12.2.1 Final payment, constituting the entire unpaid balance of the Contract Sum, shall be made by the Owner to the Contractor when: .1 the Contractor has fully performed the Contract except for the Contractor's responsibility to correct Work as provided in Subparagraph 12.2.2 of AIA Document A201-1997 and to satisfy other requirements, if any, which extend beyond final payment; and .2 a final Certificate for Payment has been issued by the Architect. 12.2.2 The Owner's final payment to-the Contractor shall be made no later than 30 days after the issuance of the Architect's final Certificate for Payment, or as follows: 12.23 The Owner's accountants will review and report in writing on the Contractor's final accounting within 30 days after delivery of the final accounting to the Architect by the Contractor. Based upon such Cost of the Work as the Owner's accountants report to be substantiated by the Contractor's final accounting, and provided the other conditions of Subparagraph 12.2.1 have been met, the Architect will, within seven days after receipt of the written report of the Owner's accountants, either issue to the Owner a final Certificate for Payment with a copy to the Contractor, or notify the Contractor and Owner in writing of the Architect's reasons for withholding a certificate as provided in Subparagraph 9.5.1 of the AIA Document A201-1997 The time periods stated in this Subparagraph 12.2.3 supersede those stated in Subparagraph 9.4.1 of the AIA Document A201-1997 12.2.4 If the Owner's accountants report the Cost of the Work as substantiated by the Contractor's final accounting to be less than claimed by the Contractor, the Contractor shall be entitled to demand arbitration of the disputed amount without a further decision of the Architect. Such demand for arbitration shall be made by the Contractor within 30 days after the Contractor's receipt of a copy of the Architect's final Certificate for Payment; failure to demand arbitration within this 30-day period shall result in the substantiated amount reported by the Owner's accountants becoming binding on the Contractor. Pending a final resolution by arbitration, the Owner shall pay the Contractor the amount certified in the Architect's final Certificate for Payment. 12.2.5 If, subsequent to final payment and at the Owner's request, the Contractor incurs costs described in Article 7 and not excluded by Article 8 to correct defective or nonconforming Work, the Owner shall reimburse the Contractor such costs and the Contractor's Fee applicable thereto on the same basis as if such costs had been incurred prior to final payment, but not in excess of the Guaranteed Maximum Price. If the Contractor has participated in savings as provided in Paragraph 5.2, the amount of such savings shall be recalculated and appropriate credit given to the Owner in determining the net amount to be paid by the Owner to the Contractor. ARTICLE 13 TERMINATION OR SUSPENSION 13.1 The Contract may be terminated by the Contractor, or by the Owner for convenience, as provided in Article 14 of AIA Document A201-1997. However, the amount to be paid to the Contractor under Subparagraph 14.1.3 of AIA Document A201-1997 shall not exceed the amount the Contractor would be entitled to receive under Paragraph 13.2 below, except that the Contractor's Fee shall be calculated as if the Work had been fully completed by the Contractor, including a reasonable estimate of the Cost of the Work for Work not actually completed. 13.2 The Contract may be terminated by the Owner for cause as provided in Article 14 of AIA Document A201-1997. The amount, if any, to be paid to the Contractor under Subparagraph 14.2.4 of AIA Document A201-1997 shall not cause the Guaranteed Maximum Price to be exceeded, nor shall it exceed an amount calculated as follows: 13.2.1 Take the Cost of the Work incurred by the Contractor to the date of termination; 13.2.2 Add the Contractor's Fee computed upon the Cost of the Work to the date of termination at the rate stated in Subparagraph 5.1.2 or, if the Contractor's Fee is stated as a fixed sum in that Subparagraph, an amount that bears the same ratio to that fixed-sum Fee as the Cost of the Work at the time of termination bears to a reasonable estimate of the probable Cost of the Work upon its completion; and 13.2.3 Subtract the aggregate of previous payments made by the Owner. 13.3 The Owner shall also pay the Contractor fair compensation, either by purchase or rental at the election of the Owner, for any equipment owned by the Contractor that the Owner elects to retain and that is not otherwise included in the Cost of the Work under Subparagraph 13.2.1. To the extent that the Owner elects to take legal assignment of subcontracts and purchase orders (including rental agreements), the Contractor shall, as a condition of receiving the payments referred to in this Article 13, execute and deliver all such papers and take all such steps, including the legal assignment of such subcontracts and other contractual rights of the Contractor, as the Owner may require for the purpose of fully vesting in the Owner the rights and benefits of the Contractor under such subcontracts or purchase orders. 13.4 The Work may be suspended by the Owner as provided in Article 14 of AIA Document A201-1997 in such case, the Guaranteed Maximum Price and Contract Time shall be increased as provided in Subparagraph 14.3.2 of AIA Document A201-1997 except that the term "profit" shall be understood to mean the Contractor's Fee as described in Subparagraphs 5.1.2 and Paragraph 6.4 of this Agreement. ARTICLE 14 MISCELLANEOUS PROVISIONS 14.1 Where reference is made in this Agreement to a provision AIA Document A201-1997 or another Contract Document, the reference refers to that provision as amended or supplemented by other provisions of the Contract Documents. 14.2 Payments due and unpaid under the Contract shall bear interest from the date payment is due at the rate stated below, or in the absence thereof, at the legal rate prevailing from time to time at the place where the Project is located. (Insert rate of interest agreed upon, if any.) (Usury laws and requirements under the Federal Truth in Lending Act, similar state and local consumer credit laws and other regulations at the Owner's and Contractor's principal places of business, the location of the Project and elsewhere may affect the validity of this provision. Legal advice should be obtained with respect to deletions or modifications, and also regarding requirements such as written disclosures or waivers.) 14.3 The Owner's representative is: Mr. Melvin Edwards (Name, address and other information.) 14.4 The Contractor's representative is: Mr. Greg Fluger (Name, address and other information.) 14.5 Neither the Owner's nor the Contractor's representative shall be changed without ten days' written notice to the other party. 14.6 Other provisions: No additional retainage will be held after the contract work is fifty percent (50%) complete. Retainage will then become five percent (5%) of the Guaranteed Maximum Price. ARTICLE 15 ENUMERATION OF CONTRACT DOCUMENTS 15.1 The Contract Documents, except for Modifications issued after execution of this Agreement, are enumerated as follows: 15.1.1 The Agreement is this executed 1997 edition of the Standard Form of Agreement Between Owner and Contractor, AIA Document A111-1997. 15.1.2 The General Conditions are the 1997 edition of the General Conditions of the Contract for Construction, AIA Document A201-1997. 15.1.3 The Supplementary and other Conditions of the Contract are those contained in the Project Manual dated March 5, 1999, and are as follows: Document Title Pages Project Manual North Little Rock Branch Page 1 through 16910-2 Bank of the Ozarks 15.1.4 The Specifications are those contained in the Project Manual dated as in Subparagraph 15.1.3, and are as follows: (Either list the Specifications here or refer to an exhibit attached to this Agreement.) Section Title Pages See Exhibit "A" 15.1.5 The Drawings are as follows, and are dated unless a different date is shown below: (Either list the Drawings here or refer to an exhibit attached to this Agreement.) Number Title Date See Exhibit "B" 15.1.6 The Addenda, if any, are as follows: Number Date Pages Electrical Addendum June 7, 1999 (one) Portions of Addenda relating to bidding requirements are not part of the Contract Documents unless the bidding requirements are also enumerated in this Article 15. 15.1.7 Other Documents, if any, forming part of the Contract Documents are as follows: (List here any additional documents, such as a list of alternates that are intended to form part of the Contract Documents. AIA Document A201-1997 provides that bidding requirements such as advertisement or invitation to bid, Instructions to Bidders, sample forms and the Contractors bid are not part of the Contract Documents unless enumerated in this Agreement. They should be listed here only if intended to be part of the Contract Documents.) ARTICLE 16 INSURANCE AND BONDS (List required limits of liability for insurance and bonds. AIA Document A201-1997 gives other specific requirements for insurance and bonds.) This Agreement is entered into as of the day and year first written above and is executed in at least three original copies, of which one is to be delivered to the Contractor, one to the Architect for use in the administration of the Contract and the remainder to the Owner. BANK OF THE OZARKS /s/ Melvin L. Edwards /s/ Thomas Harding - --------------------------------- ----------------------------- OWNER (Signature) CONTRACTOR (Signature) Melvin L. Edwards, VP - --------------------------------- _____________________________ (Printed name and title) (Printed name and title) CAUTION: You should sign an original AIA document or a licensed reproduction. Originals contain the AIA logo printed in red; licensed reproductions are those produced in accordance with the Instructions to this document. EXHIBIT - "A" BANK OF THE OZARKS NORTH LITTLE ROCK TABLE OF CONTENTS GENERAL CONDITIONS (AIA DOCUMENT A 201) SUPPLEMENTARY GENERAL CONDITIONS DIVISION 1 - GENERAL REQUIREMENTS 01010 - Summary of Work 01300 - Submittals and Substitutions 01500 -Construction Facilities and Temporary Controls DIVISION 2 - SITEWORK 02200 - Earthwork 02280 - Soil Treatment 02520 - Portland Cement Concrete Paving 02936 - Sodding 02950 - Trees, Shrubs and Ground Cover DIVISION 3 - CONCRETE 03300 - Cast-In-Place Concrete 03450 - Architectural Precast Concrete DIVISION 4 - MASONRY 04200 - Unit Masonry DIVISION 5 - METALS 05120 - Structural Steel 05500 - Metal Fabrications and Miscellaneous Work DIVISION 6 - WOOD AND PLASTICS 06100 - Carpentry 06400 - Architectural Woodwork DIVISION 7 - THERMAL AND MOISTURE PROTECTION 07210 - Building Insulation 07412 - Metal Roofing 07600 -Sheet Metal Work 07900 - Joint Sealants BANK OF THE OZARKS, NORTH LITTLE ROCK TABLE OF CONTENTS CONTINUED DIVISION 8 - DOORS AND WINDOWS 08110 - Metal Doors and Frames 08120 - Aluminum Doors and Frames 08200 - Wood Doors 08700 - Hardware 08800 - Glazing DIVISION 9 - FINISHES 09250 - Gypsum Wallboard 09300 - Tile 09510 - Acoustical Ceilings 09650 - Resilient Flooring 09680 - Carpeting 09815 - Glaze Coating 09900 - Painting DIVISION 10 - SPECIALTIES 10520 - Fire Extinguishers and Cabinets 10800 - Toilet Accessories 10990 - Miscellaneous Specialties DIVISION 11 - EQUIPMENT AND FURNISHINGS None in this Project DIVISION 12 - FURNISHINGS AND SEATING None in this Project DIVISION 13 - SPECIAL CONSTRUCTION None in this Project DIVISION 15 - MECHANICAL DIVISION 16 - ELECTRICAL EXHIBIT "B" NUMBER TITLE DATE Index 3/5/99 L1 Landscape Plan 4/26/99 A1.0 First Floor Plan 3/5/99 A1.1 Roof Plan 3/5/99 A2.0 Elevations 3/5/99 A2.1 Elevations 3/5/99 A2.0 Alt. Alternate Elevations 3/5/99 A2.1 Alt. Alternate Elevations 3/5/99 A3.1 Building Sections 3/5/99 A3.2 Wall Sections 3/5/99 A4.0 Window Details 3/5/99 A5.0 Millwork Elevations & Sections 3/5/99 A7.0 Reflected Ceiling Plan 3/5/99 S1.0 Foundation Plan 3/5/99 S2.0 Foundation Details 3/5/99 S3.0 Roof Framing Plans & Details 3/5/99 S4.0 Roof Framing Details 3/5/99 S4.1 Truss Bottom Chord Bracing Plan 3/5/99 S5.0 Roof Framing Notes & Details 3/5/99 M1.0 Utility Site Plan 3/15/99 M2.0 Plumbing Floor Plan 3/15/99 M3.0 Plumbing Details 3/15/99 M4.0 Mechanical Floor Plan 3/15/99 M5.0 Mechanical Details 3/15/99 E1.0 Electrical Lighting Plan 3/15/99 E2.0 Electrical Power & System Plan 3/15/99 E3.0 Electrical Power Plan Mechanical 3/15/99 E4.0 Electrical Risers & Schedules 3/15/99 ADDENDUM TO BANK OF THE OZARKS NORTH LITTLE ROCK. ARKANSAS Refer to the Drawings 1. Sheet E2.0 Change the following a. Telephone and data outlets are to be combined 4" x 4"box with 2" x 4" cover. All outlets to be served with a 1" conduit. b. Add a quad receptacle outlet under the telephone board. Circuit to B-42. EX-10.17 6 CONSTRUCTION CONTRACT, NOVEMBER 23, 1999 Exhibit 10.17 1997 EDITION AIA DOCUMENT Alll-1997 Standard Form of Agreement Between Owner and Contractor where the basis for payment is the COST OF THE WORK PLUS A FEE with a negotiated Guaranteed Maximum Price AGREEMENT made as of the 23rd day of November in the year Nineteen Hundred Ninety-Nine (In words, indicate day, month and year) BETWEEN the Owner: Bank of the Ozarks P. O. Box 8811 Little Rock, AR 72231 and the Contractor: East-Harding, Inc. P.O. Box 251556 Little Rock, AR 72225-1556 The Project is: Bank of the Ozarks Hwy 62/412 Yellville, AR 72687 The Architect is: A.M.R. Architects, Inc. 201 East Markham, Ste.150 Little Rock, AR 72201 The Owner and Contractor agree as follows. ARTICLE I THE CONTRACT DOCUMENTS The Contract Documents consist of this Agreement, Conditions of the Contract (General, Supplementary and other Conditions), Drawings, Specifications, Addenda issued prior to execution of this Agreement, other documents listed in this Agreement and Modifications issued after execution of this Agreement; these form the Contract, and are as fully a part of the Contract as if attached to this Agreement or repeated herein. The Contract represents the entire and integrated agreement between the parties hereto and supersedes prior negotiations, representations or agreements, either written or oral. An enumeration of the Contract Documents, other than Modifications, appears in Article 15. If anything in the other Contract Documents is inconsistent with this Agreement, this Agreement shall govern. ARTICLE 2 THE WORK OF THIS CONTRACT The Contractor shall fully execute the Work described in the Contract Documents, except to the extent specifically indicated in the Contract Documents to be the responsibility of others. 1. Telephone, Computer Data & Security Wiring & Cabling N.I.C.; 2. Exterior Signage, N.I.C.; 3. Bank Equipment N.I.C.; 4. Bank Vault, N.I.C. ARTICLE 3 RELATIONSHIP OF THE PARTIES The Contractor accepts the relationship of trust and confidence established by this Agreement and covenants with the Owner to cooperate with the Architect and exercise the Contractor's skill and judgment in furthering the interests of the Owner; to furnish efficient business administration and supervision; to furnish at all times an adequate supply of workers and materials; and to perform the Work in an expeditious and economical manner consistent with the Owner's interests. The Owner agrees to furnish and approve, in a timely manner, information required by the Contractor and to make payments to the Contractor in accordance with the requirements of the Contract Documents. ARTICLE 4 DATE OF COMMENCEMENT AND SUBSTANTIAL COMPLETION 4.1 The date of commencement of the Work shall be the date of this Agreement unless a different date is stated below or provision is made for the date to be fixed in a notice to proceed issued by the Owner. (Insert the date of commencement, if it differs from the date of this Agreement or, if applicable, state that the date will be fixed in a notice to proceed.) 1. Only Site Excavation work was allowed to commence as of November 19, 1999. 2. The remaining contract work was allowed to commence an December 3, 1999. If, prior to commencement of the Work, the Owner requires time to file mortgages, mechanic's liens and other security interests, the Owner's time requirement shall be as follows: 4.2 The Contract Time shall be measured from the date of commencement. 4.3 The Contractor shall achieve Substantial Completion of the entire Work not later than _______ days from the date of commencement, or as follows: (Insert number of calendar days. Alternatively, a calendar date may be used when coordinated with the date of commencement. Unless stated elsewhere in the Contract Documents, insert any requirements for earlier Substantial Completion of certain portions of the Work.) April 21, 2000 , subject to adjustments of this Contract Time as provided in the Contract Documents. (Insert provisions, if any, for liquidated damages relating to failure to complete on time, or for bonus payments for early completion of the Work.) ARTICLE 5 BASIS FOR PAYMENT 5.1 CONTRACT SUM 5.1.1 The Owner shall pay the Contractor the Contract Sum in current funds for the Contractor's performance of the Contract. The Contract Sum is the Cost of the Work as defined in Article 7 plus the Contractor's Fee. 5.1.2 The Contractor's Fee is: 5% of the final actual cost. (State a lump sum, percentage of Coal of the Work or other provision for determining the Contractors Fee, and describe the method of adjustment of the Contractors Fee for changes in the Work.) 5.2 GUARANTEED MAXIMUM PRICE 5.2.1 The sum of the Cost of the Work and the Contractor's Fee is guaranteed by the Contractor not to exceed Five Hundred Seventeen Thousand Fourteen Dollars ($517,014 ), subject to additions and deductions by Change Order as provided in the Contract Documents. Such maximum sum is referred to in the Contract Documents as the Guaranteed Maximum Price. Costs which would cause the Guaranteed Maximum Price to be exceeded shall be paid by the Contractor without reimbursement by the Owner. (Insert specific provisions if the Contractor is to participate in any savings.) 5.2.2 The Guaranteed Maximum Price is based on the following alternates, if any, which are described in the Contract Documents and are hereby accepted by the Owner: (State the numbers or other identification of accepted alternates. If decisions on other alternates are to be made by the Owner subsequent to the execution of this Agreement, attach a schedule of such other alternates showing the amount for each and the date when the amount 1. Change Metal Soffit to Alcoa Aluminum Soffit. 2. Change Alcoa Aluminum Soffit at Front Porch to V-Groove Maple. 3. Delete Horizontal Mullion at Exterior Windows. 4. Omit Drywall, VCT, VinylBase; add Plywood On Walls in Rm.108. 5. Change Lobby Ceiling Ht. to 11"-2" above floor. 6. Add Electrical Power for one Ext. sign on North Elevation 7. Add Marble Threshhold at Men's and Women's Toilets. 5.2.3 Unit prices, if any, are as follows: 5.2.4 Allowances, if any, are as follows: (Identify and state the amounts of any allowances, and state whether they include labor, materials, or both.) (1) Landscape and Irrigation Allowance $ 16,000 (2) Carpet, $20/sy for the purchase of Carpet Material. 5.2.5 Assumptions, if any, on which the Guaranteed Maximum Price is based are as follows: 5.2.6 To the extent that the Drawings and Specifications are anticipated to require further development by the Architect, the Contractor has provided in the Guaranteed Maximum Price for such further development consistent with the Contract Documents and reasonably inferable therefrom. Such further development does not include such things as changes in scope, systems, kinds and quality of materials, finishes or equipment, all of which, if required, shall be incorporated by Change Order. ARTICLE 6 CHANGES IN THE WORK 6.1 Adjustments to the Guaranteed Maximum Price on account of changes in the Work may be determined by any of the methods listed in Subparagraph 7.3.3 of AIA Document A201-1997 6.2 In calculating adjustments to subcontracts (except those awarded with the Owner's prior consent on the basis of cost plus a fee), the terms "cost" and "fee" as used in Clause 7.3.3.3 Of AIA Document A201-1997 and the terms "costs" and "a reasonable allowance for overhead and profit" as used in Subparagraph 7.3.6 of AIA Document A201-1997 shall have the meanings assigned to them in AIA Document A201-1997 and shall not be modified by Articles 5, 7 and 8 of this Agreement. Adjustments to subcontracts awarded with the Owner's prior consent on the basis of cost plus a fee shall be calculated in accordance with the terms of those subcontracts. 6.3 In calculating adjustments to the Guaranteed Maximum Price, the terms "cost" and "costs" as used in the above-referenced provisions of AIA Document A201-1997 shall mean the Cost of the Work as defined in Article 7 of this Agreement and the terms "fee" and "a reasonable allowance for overhead and profit" shall mean the Contractor's Fee as defined in Subparagraph 5.1.2 of this Agreement. 6.4 If no specific provision is made in Paragraph 5.1 for adjustment of the Contractor's Fee in the case of changes in the Work, or if the extent of such changes is such, in the aggregate, that application of the adjustment provisions of Paragraph 5.1 will cause substantial inequity to the Owner or Contractor, the Contractor's Fee shall be equitably adjusted on the basis of the Fee established for the original Work, and the Guaranteed Maximum Price shall be adjusted accordingly. ARTICLE 7 COSTS TO BE REIMBURSED 7.1 COST OF THE WORK The term Cost of the Work shall mean costs necessarily incurred by the Contractor in the proper performance of the Work. Such costs shall be at rates not higher than the standard paid at the place of the Project except with prior consent of the Owner. The Cost of the Work shall include only the items set forth in this Article 7. 7.2 LABOR COSTS 7.2.1 Wages of construction workers directly employed by the Contractor to perform the construction of the Work at the site or, with the Owner's approval, at off-site workshops. 7.2.2 Wages or salaries of the Contractor's supervisory and administrative personnel when stationed at the site with the Owner's approval. (If it is intended that the wages or salaries of certain personnel stationed at the Contractors principal or other offices shall be included in the Cost of the Work, identify in Article 14 the personnel to be included and whether for all or only part of their time, and the rates at which their time will be charged to the Work.) 7.2.3 Wages and salaries of the Contractor's supervisory or administrative personnel engaged, at factories, workshops or on the road, in expediting the production or transportation of materials or equipment required for the Work, but only for that portion of their time required for the Work. 7.2.4 Costs paid or incurred by the Contractor for taxes, insurance, contributions, assessments and benefits required by law or collective bargaining agreements and, for personnel not covered by such agreements, customary benefits such as sick leave, medical and health benefits, holidays, vacations and pensions, provided such costs are based on wages and salaries included in the Cost of the Work under Subparagraphs 7.2.1 through 7.2.3. 7.3 SUBCONTRACT COSTS 7.3.1 Payments made by the Contractor to Subcontractors in accordance with the requirements of the subcontracts. 7.4 COSTS OF MATERIALS AND EQUIPMENT INCORPORATED IN THE COMPLETED CONSTRUCTION 7.4.1 Costs, including transportation and storage, of materials and equipment incorporated or to be incorporated in the completed construction. 7.4.2 Costs of materials described in the preceding Subparagraph 7.4.1 in excess of those actually installed to allow for reasonable waste and spoilage. Unused excess materials, if any, shall become the Owner's property at the completion of the Work or, at the Owner's option, shall be sold by the Contractor. Any amounts realized from such sales shall be credited to the Owner as a deduction from the Cost of the Work. 7.5 COSTS OF OTHER MATERIALS AND EQUIPMENT TEMPORARY FACILITIES AND RELATED ITEMS 7.5.1 Costs, including transportation and storage, installation, maintenance, dismantling and removal of materials, supplies, temporary facilities, machinery, equipment, and hand tools not customarily owned by construction workers, that are provided by the Contractor at the site and fully consumed in the performance of the Work; and cost (less salvage value) of such items if not fully consumed, whether sold to others or retained by the Contractor. Cost for items previously used by the Contractor shall mean fair market value. 7.5.2 Rental charges for temporary facilities, machinery, equipment, and hand tools not customarily owned by construction workers that are provided by the Contractor at the site, whether rented from the Contractor or others, and costs of transportation, installation, minor repairs and replacements, dismantling and removal thereof. Rates and quantities of equipment rented shall be subject to the Owner's prior approval. 7.5.3 Costs of removal of debris from the site. 7.5.4 Costs of document reproductions, facsimile transmissions and long- distance telephone calls, postage and parcel delivery charges, telephone service at the site and reasonable petty cash expenses of the site office. 7.5.5 That portion of the reasonable expenses of the Contractor's personnel incurred while traveling in discharge of duties connected with the Work. 7.5.6 Costs of materials and equipment suitably stored off the site at a mutually acceptable location, if approved in advance by the Owner. 7.6 MISCELLANEOUS COSTS 7.6.1 That portion of insurance and bond premiums that can be directly attributable to this Contract. 7.6.2 Sales, use or similar taxes imposed by a governmental authority that are related to the Work. 7.6.3 Fees and assessments for the building permit and for other permits, licenses and inspections for which the Contractor is required by the Contract Documents to pay. 7.6.4 Fees of laboratories for tests required by the Contract Documents, except those related to defective or nonconforming Work for which reimbursement is excluded by Subparagraph 13.5.3 of AIA Document A201-1997 or other provisions of the Contract Documents, and which do not fall within the scope of Subparagraph 7.7.3. 7.6.5 Royalties and license fees paid for the use of a particular design, process or product required by the Contract Documents; the costs of defending suits or claims for infringement of patent rights arising from such requirement of the Contract Documents and payments made in accordance with legal judgments against the Contractor resulting from such suits or claims and payments of settlements made with the Owner's consent. However, such costs of legal defenses, judgments and settlements shall not be included in the calculation of the Contractor's fee or subject to the Guaranteed Maximum Price. If such royalties, fees and costs are excluded by the last sentence of Subparagraph 3.17.1 of AIA Document A201-1997 or other provisions of the Contract Documents, then they shall not be included in the Cost of the Work. 7.6.6 Data processing costs related to the Work. 7.6.7 Deposits lost for causes other than the Contractor's negligence or failure to fulfill a specific responsibility to the Owner as set forth in the Contract Documents. 7.6.8 Legal, mediation and arbitration costs, including attorneys' fees, other than those arising from disputes between the Owner and Contractor, reasonably incurred by the Contractor in the performance of the Work and with the Owner's prior written approval; which approval shall not be unreasonably withheld. 7.6.9 Expenses incurred in accordance with the Contractor's standard personnel policy for relocation and temporary living allowances of personnel required for the Work, if approved by the Owner. 7.7 OTHER COSTS AND EMERGENCIES 7.7.1 Other costs incurred in the performance of the Work if and to the extent approved in advance in writing by the Owner. 7.7.2 Costs due to emergencies incurred in taking action to prevent threatened damage, injury or loss in case of an emergency affecting the safety of persons and property, as provided in Paragraph 10.6 of AIA Document A201-1997. 7.7.3 Costs of repairing or correcting damaged or nonconforming Work executed by the Contractor, Subcontractors or suppliers, provided that such damaged or nonconforming Work was not caused by negligence or failure to fulfill a specific responsibility of the Contractor and only to the extent that the cost of repair or correction is not recoverable by the Contractor from insurance, sureties, Subcontractors or suppliers. ARTICLE 8 COSTS NOT TO BE REIMBURSED 8.1 The Cost of the Work shall not include: 8.1.1 Salaries and other compensation of the Contractor's personnel stationed at the Contractor's principal office or offices other than the site office, except as specifically provided in Subparagraphs 7.2.2 and 7.2.3 or as may be provided in Article 14. 8.1.2 Expenses of the Contractor's principal office and offices other than the site office. 8.1.3 Overhead and general expenses, except as may be expressly included in Article 7. 8.1.4 The Contractor's capital expenses, including interest on the Contractor's capital employed for the Work. 8.1.5 Rental costs of machinery and equipment, except as specifically provided in Subparagraph 7.5.2. 8.1.6 Except as provided in Subparagraph 7.7.3 of this Agreement, costs due to the negligence or failure to fulfill a specific responsibility of the Contractor, Subcontractors and suppliers; or anyone directly or indirectly employed by any of them or for whose acts any of them may be liable. 8.1.7 Any cost not specifically and expressly described in Article 7. 8.1.8 Costs, other than costs included in Change Orders approved by the Owner, that would cause the Guaranteed Maximum Price to be exceeded. ARTICLE 9 DISCOUNTS, REBATES AND REFUNDS 9.1 Cash discounts obtained on payments made by the Contractor shall accrue to the Owner if (1) before making the payment, the Contractor included them in an Application for Payment and received payment therefor from the Owner, or (2) the Owner has deposited funds with the Contractor with which to make payments; otherwise, cash discounts shall accrue to the Contractor. Trade discounts, rebates, refunds and amounts received from sales of surplus materials and equipment shall accrue to the Owner, and the Contractor shall make provisions so that they can be secured. 9.2 Amounts that accrue to the Owner in accordance with the provisions of Paragraph 9.1 shall be credited to the Owner as a deduction from the Cost of the Work. ARTICLE 10 SUBCONTRACTS AND OTHER AGREEMENTS 10.1 Those portions of the Work that the Contractor does not customarily perform with the Contractor's own personnel shall be performed under subcontracts or by other appropriate agreements with the Contractor. The Owner may designate specific persons or entities from whom the Contractor shall obtain bids. The Contractor shall obtain bids from Subcontractors and from suppliers of materials or equipment fabricated especially for the Work and shall deliver such bids to the Architect. The Owner shall then determine, with the advice of the Contractor and the Architect, which bids will be accepted. The Contractor shall not be required to contract with anyone to whom the Contractor has reasonable objection. 10.2 If a specific bidder among those whose bids are delivered by the Contractor to the Architect (1) is recommended to the Owner by the Contractor; (2) is qualified to perform that portion of the Work; and (3) has submitted a bid that conforms to the requirements of the Contract Documents without reservations or exceptions, but the Owner requires that another bid be accepted, then the Contractor may require that a Change Order be issued to adjust the Guaranteed Maximum Price by the difference between the bid of the person or entity recommended to the Owner by the Contractor and the amount of the subcontract or other agreement actually signed with the person or entity designated by the Owner. 10.3 Subcontracts or other agreements shall conform to the applicable payment provisions of this Agreement, and shall not be awarded on the basis of cost plus a fee without the prior consent of the Owner. ARTICLE 11 ACCOUNTING RECORDS The Contractor shall keep full and detailed accounts and exercise such controls as may be necessary for proper financial management under this Contract, and the accounting and control systems shall be satisfactory to the Owner. The Owner and the Owner's accountants shall be afforded access to, and shall be permitted to audit and copy the Contractor's records, books, correspondence, instructions, drawings, receipts, subcontracts, purchase orders, vouchers, memoranda and other data relating to this Contract, and the Contractor shall preserve these for a period of three years after final payment, or for such longer period as may be required by law. ARTICLE 12 PAYMENTS 12.1 PROGRESS PAYMENTS 12.1.1 Based upon Applications for Payment submitted to the Architect by the Contractor and Certificates for Payment issued by the Architect, the Owner shall make progress payments on account of the Contract Sum to the Contractor as provided below and elsewhere in the Contract Documents. 12.1.2 The period covered by each Application for Payment shall be one calendar month ending on the last day of the month, or as follows: 12.1.3 Provided that an Application for Payment is received by the Architect not later than the Last day of a month, the Owner shall make payment to the Contractor not later than the (10th) Tenth day of the Following month. If an Application for Payment is received by the Architect after the application date fixed above, payment shall be made by the Owner not later than Ten days after the Architect receives the Application for Payment. 12.1.4 With each Application for Payment, the Contractor shall submit payrolls, petty cash accounts, receipted invoices or invoices with check vouchers attached, and any other evidence required by the Owner or Architect to demonstrate that cash disbursements already made by the Contractor on account of the Cost of the Work equal or exceed (1) progress payments already received by the Contractor; less (2) that portion of those payments attributable to the Contractor's Fee; plus (3) payrolls for the period covered by the present Application for Payment. 12.1.5 Each Application for Payment shall be based on the most recent schedule of values submitted by the Contractor in accordance with the Contract Documents. The schedule of values shall allocate the entire Guaranteed Maximum Price among the various portions of the Work, except that the Contractor's Fee shall be shown as a single separate item. The schedule of values shall be prepared in such form and supported by such data to substantiate its accuracy as the Architect may require. This schedule, unless objected to by the Architect, shall be used as a basis for reviewing the Contractor's Applications for Payment. 12.1.6 Applications for Payment shall show the percentage of completion of each portion of the Work as of the end of the period covered by the Application for Payment. The percentage of completion shall be the lesser of (1) the percentage of that portion of the Work which has actually been completed; or (2) the percentage obtained by dividing (a) the expense that has actually been incurred by the Contractor on account of that portion of the Work for which the Contractor has made or intends to make actual payment prior to the next Application for Payment by (b) the share of the Guaranteed Maximum Price allocated to that portion of the Work in the schedule of values. 12.1.7 Subject to other provisions of the Contract Documents, the amount of each progress payment shall be computed as follows: .1 take that portion of the Guaranteed Maximum Price properly allocable to completed Work as determined by multiplying the percentage of completion of each portion of the Work by the share of the Guaranteed Maximum Price allocated to that portion of the Work in the schedule of values. Pending final determination of cost to the Owner of changes in the Work, amounts not in dispute shall be included as provided in Subparagraph 7.3.8 of AIA Document A202-1997; .2 add that portion of the Guaranteed Maximum Price properly allocable to materials and equipment delivered and suitably stored at the site for subsequent incorporation in the Work, or if approved in advance by the Owner, suitably stored off the site at a location agreed upon in writing; .3 add the Contractor's Fee, less retainage of Ten percent ( 10 %). The Contractor's Fee shall be computed upon the Cost of the Work described in the two preceding Clauses at the rate stated in Subparagraph 5.1.2 or, if the Contractor's Fee is stated as a fixed sum in that Subparagraph, shall be an amount that bears the same ratio to that fixed-sum fee as the Cost of the Work in the two preceding Clauses bears to a reasonable estimate of the probable Cost of the Work upon its completion; .4 Subtract the aggregate of previous payments made by the Owner; .5 Subtract the shortfall, if any, indicated by the Contractor in the documentation required by Paragraph 12.1.4 to substantiate prior Applications for Payment, or resulting from errors subsequently discovered by the Owner's accountants in such documentation; and .6 Subtract amounts, if any, for which the Architect has withheld or nullified a Certificate for Payment as provided in Paragraph 9.5 of AIA Document A201-1997. 12.1.8 Except with the Owner's prior approval, payments to Subcontractors shall be subject to retainage of not less than Ten percent (10 %). The Owner and the Contractor shall agree upon a mutually acceptable procedure for review and approval of payments and retention for Subcontractors. 12.1.9 In taking action on the Contractor's Applications for Payment, the Architect shall be entitled to rely on the accuracy and completeness of the information furnished by the Contractor and shall not be deemed to represent that the Architect has made a detailed examination, audit or arithmetic verification of the documentation submitted in accordance with Subparagraph 12- 1.4 or other supporting data; that the Architect has made exhaustive or continuous on-site inspections or that the Architect has made examinations to ascertain how or for what purposes the Contractor has used amounts previously paid on account of the Contract. Such examinations, audits and verifications, if required by the Owner, will be performed by the Owner's accountants acting in the sole interest of the Owner. 12.2 FINAL PAYMENT 12.2.1 Final payment, constituting the entire unpaid balance of the Contract Sum, shall be made by the Owner to the Contractor when: .1 the Contractor has fully performed the Contract except for the Contractor's responsibility to correct Work as provided in Subparagraph 12.2.2 of AIA Document A202-1997; and to satisfy other requirements, if any, which extend beyond final payment; and .2 a final Certificate for Payment has been issued by the Architect. 12.2.2 The Owner's final payment to the Contractor shall be made no later than 30 days after the issuance of the Architect's final Certificate for Payment, or as follows: 12.2.3 The Owner's accountants will review and report in writing on the Contractor's final accounting within 30 days after delivery of the final accounting to the Architect by the Contractor. Based upon such Cost of the Work as the Owner's accountants report to be substantiated by the Contractor's final accounting, and provided the other conditions of Subparagraph 12.2.1 have been met, the Architect will, within seven days after receipt of the written report of the Owner's accountants, either issue to the Owner a final Certificate for Payment with a copy to the Contractor, or notify the Contractor and Owner in writing of the Architect's reasons for withholding a certificate as provided in Subparagraph 9.5.1 of the AIA Document A201-1997. The time periods stated in this Subparagraph 12-2.3 supersede those stated in Subparagraph 9.4.1 of the AIA Document A201-1997. 12.2.4 If the Owner's accountants report the Cost of the Work as substantiated by the Contractor's final accounting to be less than claimed by the Contractor, the Contractor shall be entitled to demand arbitration of the disputed amount without a further decision of the Architect. Such demand for arbitration shall be made by the Contractor within 30 days after the Contractor's receipt of a copy of the Architect's final Certificate for Payment; failure to demand arbitration within this 30-day period shall result in the substantiated amount reported by the Owner's accountants becoming binding on the Contractor. Pending a final resolution by arbitration, the Owner shall pay the Contractor the amount certified in the Architect's final Certificate for Payment. 12.2.5 If, subsequent to final payment and at the Owner's request, the Contractor incurs costs described in Article 7 and not excluded by Article 8 to correct defective or nonconforming Work, the Owner shall reimburse the Contractor such costs and the Contractor's Fee applicable thereto on the same basis as if such costs had been incurred prior to final payment, but not in excess of the Guaranteed Maximum Price. If the Contractor has participated in savings as provided in Paragraph 5.2, the amount of such savings shall be recalculated and appropriate credit given to the Owner in determining the net amount to be paid by the Owner to the Contractor. ARTICLE 13 TERMINATION OR SUSPENSION 13.1 The Contract may be terminated by the Contractor, or by the Owner for convenience, as provided in Article 14 of AIA Document A201-1997. However, the amount to be paid to the Contractor under Subparagraph 14.1.3 of AIA Document A201-1997. shall not exceed the amount the Contractor would be entitled to receive under Paragraph 13.2 below, except that the Contractor's Fee shall be calculated as if the Work had been fully completed by the Contractor, including a reasonable estimate of the Cost of the Work for Work not actually completed. 13.2 The Contract may be terminated by the Owner for cause as provided in Article 14 of AIA Document A201-1997. The amount, if any, to be paid to the Contractor under Subparagraph 14.2.4 of AIA Document A201-1997. shall not cause the Guaranteed Maximum Price to be exceeded, nor shall it exceed an amount calculated as follows: 13.2.1 Take the Cost of the Work incurred by the Contractor to the date of termination; 13.2.2 Add the Contractor's Fee computed upon the Cost of the Work to the date of termination at the rate stated in Subparagraph 5.1.2 or, if the Contractor's Fee is stated as a fixed sum in that Subparagraph, an amount that bears the same ratio to that fixed-sum Fee as the Cost of the Work at the time of termination bears to a reasonable estimate of the probable Cost of the Work upon its completion; and 13.2.3 Subtract the aggregate of previous payments made by the Owner. 13.3 The Owner shall also pay the Contractor fair compensation, either by purchase or rental at the election of the Owner, for any equipment owned by the Contractor that the Owner elects to retain and that is not otherwise included in the Cost of the Work under Subparagraph 13.2.1. To the extent that the Owner elects to take legal assignment of subcontracts and purchase orders (including rental agreements), the Contractor shall, as a condition of receiving the payments referred to in this Article 13, execute and deliver all such papers and take all such steps, including the legal assignment of such subcontracts and other contractual rights of the Contractor, as the Owner may require for the purpose of fully vesting in the Owner the rights and benefits of the Contractor under such subcontracts or purchase orders. 13.4 The Work may be suspended by the Owner as provided in Article 14 of AIA Document A201-1997. in such case, the Guaranteed Maximum Price and Contract Time shall be increased as provided in Subparagraph 14.3.2 of AIA Document A201-1997 except that the term "profit" shall be understood to mean the Contractor's Fee as described in Subparagraphs 5.1.2 and Paragraph 6.4 Of this Agreement. ARTICLE 14 MISCELLANEOUS PROVISIONS 14.1 Where reference is made in this Agreement to a provision AIA Document A201-1997. or another Contract Document, the reference refers to that provision as amended or supplemented by other provisions of the. Contract Documents. 14.2 Payments due and unpaid under the Contract shall bear interest from the date payment is due at the rate stated below, or in the absence thereof, at the legal rate prevailing from time to time at the place where the Project is located. (Insert rate of interest agreed upon, if any.) (Usury laws and requirements under the Federal Truth in Lending Act, similar state and local consumer credit laws and other regulations at the Owners and Contractors principal places of business, the location of the Project and elsewhere may affect the validity of this provision. Legal advice should be obtained with respect to deletions or modifications, and also regarding requirements such as written disclosures or waivers.) 14.3 The Owner's representative is: Mr. Melvin Edwards Bank of the Ozarks P.O. Box 8811 Little Rock, AR 14.4 The Contractor's representative is: Mr. Greg Fluger East-Harding, Inc. 2230 Cottondale Lane Little Rock, AR 14.5 Neither the Owner's nor the Contractor's representative shall be changed without ten days' written notice to the other party. 14.6 Other provisions: (1) No additional retainage will be held after the contract work is fifty percent (50%) complete. Retainage will then became 5% of the Guaranteed Maximum Price. ARTICLE 15 ENUMERATION OF CONTRACT DOCUMENTS 15.1 The Contract Documents, except for Modifications issued after execution of this Agreement, are enumerated as follows: 15.1.1 The Agreement is this executed 1997 edition of the Standard Form of Agreement Between Owner and Contractor, AIA Document A111-1997. 15.1.2 The General Conditions are the 1997 edition of the General Conditions of the Contract for Construction, AIA Document A201-1997. 15.1.3 The Supplementary and other Conditions of the Contract are those contained in the Project Manual dated October 18, 1999 and are as follows: Document Title Pages Project Manual Yellville Branch Page 1 through 16910-2 Bank of the Ozarks 15.1.4 The Specifications are those contained in the Project Manual dated as in Subparagraph 15.1.3, and are as follows: (Either list the Specifications here or refer to an exhibit attached to this Agreement.) Section Title Pages See Exhibit I A 5.1.5 The Drawings are as follows, and are dated different date is shown below: (Either list the Drawings here or refer to an exhibit attached to this Agreement unless a different date is shown below: Number Title Date See Exhibit "B" 15.1.6 The Addenda, if any, are as follows: Number Date Pages Portions of Addenda relating to bidding requirements are not part of the Contract Documents unless the bidding requirements are also enumerated in this Article 15. 15.1.7 Other Documents, if any, forming part of the Contract Documents are as follows: (List here any additional documents, such as a list of alternates that are intended to form part of the Contract Documents. AIA Document A201-1997 provides that bidding requirements such as advertisement or invitation to bid, Instructions to Bidders, sample forms and the Contractors bid are not part of the Contract Documents unless enumerated in this Agreement. They should be listed here only if intended to be part of the Contract Documents.) EXHIBIT "A" BANK OF THE OZARKS-YELLVILLE BRANCH TABLE OF CONTENTS GENERAL CONDITIONS (AIA DOCUMENT A 20 1) SUPPLEMENTARY GENERAL CONDITIONS DIVISON I - GENERAL REQUIREMENTS 01010-Summary of Work 01030-Alternates 01300-Submittals and Substitutions 01500-Construction Facilities and Temporary Controls DIVISON 2-SITEWORK 02060-Building Demolition 02100-Site Preparation 02200-Earthwork 02280-Soil Treatment 02510-Asphaltic Concrete Paving 02520-Portland Cement Concrete Paving 02811-Landscape Irrigation Systems 02936-Sodding 02950-Trees, Shrubs and Groundcover DIVISON 3-CONCRETE 03300-Cast-In-Place Concrete DIVISON 4-MASONRY 04200-Unit Masonry DIVISON 5-METALS 05120-Structural Steel 05500-Metal Fabrications and Miscellaneous Work DIVISON 6-WOOD AND PLASTICS 06100-Carpentry 06400-Architectural Woodwork DIVISON 7-THERMAL AND MOISTURE PROTECTION 07210-Building Insulation 07311-Asphalt Shingles 07412-Metal Roofing 07600-Sheet Metal Work 07900-Joint Sealants DIVISON 8-DOORS AND WINDOWS 0811 0-Metal Doors and Frames 08120-Aluminum Doors and Frame 08200-Wood Doors 08700-Hardware 08800-Glazing DIVISON 9-FINISHES 09250-Gypsum. Wallboard 09300-Tile 09510-Aoustical Ceilings 09650-Resilient Flooring 09680-Carpeting 09900-Painting DIVISON 10-SPECLALTIES 10520-Fire Extinguishers and Cabinets 10800-Toilet Accessories 10990-Miscellaneous Specialties DIVISON 11-EQUIPMENT AND FURNISHINGS None in this project DIVISON 12-FURNISHNGS AND SEATING None in this Project DIVISON l3-SPECIAL CONSTRUCTION None in this project DIVISON 15-MECHANICAL DIVISON 16-ELECTRICAL EXHIBIT-"B" NUMBERS TITLE DATE Index 10/18/99 L1 Landscape Plan 10/19/99 C1 Site Survey 10/14/99 C2 Site Dimension Plan 10/19/99 C3 Existing Contour Plan 10/19/99 C4 Site Grading Plan 10/19/99 C5 Drainage Plan 10/19/99 A1.0 Floor Plan 10/18/99 A1.1 Roof Plan 10/03/99 A2.0 Elevations 10/03/99 A2.1 Elevations 10/18/99 A3.1 Building Sections 10/18/99 A3.2 Wall Sections 10/18/99 A4.0 Window Details & Schedules 10/18/99 A5.0 Millwork Elevations & Sections 10/18/99 A7.0 Reflected Ceiling Plan 10/18/99 S1.0 Foundation Plan 10/15/99 S2.0 Foundation Details 10/15/99 S2.1 Column Base Plate Details 10/15/99 S3.0 Roof Framing Plan & Details 10/15/99 S4.0 Framing Details 10/15/99 S4.1 Truss Bottom Chord Bracing Plan 10/15/99 S5.0 Framing Notes & Details 10/15/99 M1.0 Utility Site Plan 10/15/99 M2.0 Plumbing Floor Plan 10/15/99 M3.0 Plumbing Details 10/15/99 M4.0 Mechanical Floor Plan 10/15/99 M5.0 Mechanical Details 10/15/99 E0.1 Electrical Site Plan 10/12/99 E1.0 Electrical Lighting Plan 10/12/99 E2.0 Electrical Power & Systems Plan 10/12/99 EAST-HARDING EAST-HARDING, INC. GENERAL CONTRACTORS P. O. Box 251556 Little Rock, AR 72225-1556 501/661-1646 FAX 501/661-9546 Bank of the Ozarks Yellville, AR December 1 1999 Schedule of Values (Revised) General Condition $ 54,304.00 Sitework $ 75,314.00 Building Concrete $ 26,253.00 Masonry $ 34,000.00 Structural Steel $ 18,745.00 Rough Carpentry $ 44,494.00 Millwork $ 26,147.00 Thermal & Roofing $ 33,013.00 Doors, Frames, Hardware & Window $ 30,784.00 Finishes $ 47,714.00 Specialties $ 2,878.00 MEP $ 82,748.00 Landscape & Irrigation-Allowance 16,000.00 ----------- Subtotal $492,394.00 Fee @ 5% $ 24,620.00 ----------- Total $517,014.00 Bank of the Ozarks Yellville, AR. November 15, 1999 Schedule of Values General Condition $ 54,304.00 Sitework $ 75,314.00 Building Concrete $ 26,253.00 Masonry $ 34,000.00 Structural Steel $ 18,745.00 Rough Carpentry $ 44,494.00 Millwork $ 24,295.00 Thermal & Roofing $ 30,853.00 Doors, Frames, Hardware & Windows $ 31,364.00 Finishes $ 56,213.00 Specialties $ 2,878.00 MEP $ 82,570.00 Landscape & Irrigation-Allowance $ 16,000.00 ----------- Subtotal $497,283.00 Fee @ 5% $ 24,864.00 ----------- Total $522,147.00 Alternate No. I Omit linear metal soffit and use Alcoa metal soffit over wood furring strips. Deduct $ 5,400.00 EAST-HARDING November 22, 1999 Frank Barksdale AMR Architects, Inc. 201 East Markham Ste. 150 Little Rock, AR 72201 Re: Bank of the Ozarks, Yellville, Arkansas Frank, As requested, we are providing costs differences per the itemized list we received from you last Friday. (1.) To delete the aluminum soffit at the front entrance canopy and add V- groove maple soffit with a clear sealer. -Omit aluminum soffit Deduct <$440.00> -Add V-groove maple soffit $1,852.00 --------- $1,412.00 East-Harding Fee @5% $ 71.00 --------- Add $1,483.00 (2.) To delete the horizontal window mullions at the exterior window frames. Deduct <$580.00> (3.) To delete all finishes in Electrical No. 108, and add sealed concrete and solid plywood walls. --Omit drywall <$95.00> -Omit floor covering and base <$150.00> -Omit paint <$140.00> -Add floor sealer and plywood $ 180.00 --------- Deduct $ <205.00> (4.) To change Lobby No. 100 ceiling height from 12'2" to 11'2" Deduct <$360.00> (5.) To provide paver for one sign at north elevation. Add $178.00 (6.) To add marble transition at mens and womens toilets. Add $ 60.00 (7.) To change AL 2 frame designation on floor plan to read AL 1. No Cost Change Sincerely, Greg Fluger ARTICLE 16 INSURANCE AND BONDS (List required limits of liability for insurance and bonds. AIA Document A201- 1997 gives other specific requirements for insurance and bonds.) This Agreement is entered into as of the day and year first written above and is executed in at least three original copies, of which one is to be delivered to the Contractor, one to the Architect for use in the administration of the Contract, and the remainder to the Owner. /s/ Melvin L. Edwards /s/ Thomas Harding - ----------------------------------------- --------------------------- OWNER (Signature) CONTRACTOR (Signature) Melvin L. Edwards, VP - ----------------------------------------- --------------------------- (Printed name and title) (Printed Name and Title) CAUTION: You should sign an original AIA document or a licensed reproduction. Originals contain the AIA logo printed in red; licensed reproductions are those produced in accordance with the Instructions to this document. EX-10.18 7 GROUND LEASE Exhibit 10.18 LEASE AGREEMENT THIS LEASE AGREEMENT (the "Agreement") made and entered this 18th day of May, 1999, by and between Metropolitan Realty & Development, LLC, an Arkansas Limited Liability Company ("Landlord") and Bank of the Ozarks, wca, an Arkansas Corporation d/b/a Bank of the Ozarks ("Tenant"). Now, therefore: ARTICLE I PREMISES Section 1.1 Description. Landlord hereby leases to Tenant, and Tenant takes from Landlord, that certain real property located in the "Center," as hereinafter defined, and described as follows: A building pad comprising approximately 7,960 square feet of ground area located in Lot 11, Block 67, Lakewood Addition to North Little Rock, Arkansas, also known as 4846 North Hills Boulevard, and more particularly described by metes and bounds on Exhibit A-1" attached hereto and made a part hereof; (the "Premises"). The boundaries and location of the Premises are indicated by hatching on the site plan of North Hills Plaza Shopping Center (the "Center" or "Shopping Center"), which is marked Exhibit "A" attached hereto and made a part hereof. The Center is more particularly described on Exhibit "A-2", attached hereto and made a part hereof. The use and occupation by the Tenant of the Premises shall include the use in common with others entitled thereto of the common areas, employees' parking areas, service roads, loading facilities, sidewalks, customer parking areas, and other facilities as may be designated from time to time by Landlord, subject however to the terms and conditions of this Agreement and to rules and regulations for the use thereof as prescribed from time to time by Landlord. ARTICLE II TERM Section 2.1 Initial Term. The term of this demise shall commence on the date hereof and shall end at midnight on the last day of the month which is twenty (20) years after the month of the Rental Commencement Date (the "Term"). Section 2.2 Extension. Tenant shall have the right and option to extend the Term of this Agreement for four (4) successive periods of five (5) years each (the "Option Periods") upon giving notice of its exercise of each option at least sixty (60) days, but not more than one hundred twenty (120) days, prior to the expiration of the then current Term. Each of these options to extend are contingent upon Tenant not being in default under this Agreement at the time the option is exercised and at the commencement of the extended Term. All references in this Lease to Term shall include the Term as defined in Section 2.1, together with any extensions thereof resulting from the exercise of one of the Option Periods set forth in this Section 2.2. Section 2.3 Surrender of Premises. On or before the last day of the Term or Option Periods of this Agreement, Tenant shall surrender the Premises to Landlord in good condition and repair except for reasonable wear and tear and damage by insured casualty. On or before said day, Tenant shall remove all its personal property and equipment and trade fixtures from the Premises. Tenant shall repair any damage caused by any such removal. Notwithstanding the foregoing provisions, if Tenant shall fail to remove any such property it shall be obligated to remove hereunder, Landlord may effect such removal for and at the expense of Tenant and shall thereafter reimburse Landlord upon demand for any reasonable expense incurred by Landlord in effecting such removal. Section 2.4 Holdover. If Tenant remains in possession of the Premises with Landlord's consent after the expiration of the Term or any written extension or renewal of the Term, such continued possession shall create a tenancy from month-to-month upon the same terms and conditions herein so far as applicable. ARTICLE III RENT Section 3.1 Base Rent for Term. (a) Tenant shall pay Landlord the sum of Fifty-two Thousand Five Hundred Dollars ($52,500.00) per annum, payable in equal monthly installments, in advance, of Four Thousand Three Hundred Seventy-Five Dollars ($4,375.00) on or before the first day of each calendar month during the Term without prior demand and without abatement or setoff, commencing on the earlier of (i) the date when Tenant opens for business to the public or (ii) one hundred eighty (180) days after Agreement execution (the "Rental Commencement Date"). The foregoing amount shall be referred to as "Base Rent." It is agreed that Base Rent for the first and last months of the Term, if they are only partial calendar months, shall be prorated on the basis of a thirty (30) day month. (b) It is agreed that Base Rent shall be adjusted every five (5) years of this Agreement by any increase or decrease in the "CPI," hereinafter defined, if any, in the manner hereinafter set forth provided, however, in no event shall Base Rent be less than the rental specified in Section 3.1(a) above. The rental for the sixth Lease Year shall be the rent specified in (a) above, increased by the same percentage as the percentage increase, if any, in the Consumer Price Index ("CPI") for the second month preceding the beginning of the sixth Lease Year over the CPI for the second month preceding the beginning of the first Agreement year. "Lease Year" means each twelve-month period of the Term including all extension periods. "Consumer Price Index" means the Consumer Price Index for All Urban Wage Earners and Clerical Workers (CPI-W), all Items, U.S. Average (1982-84 = 100) which is now compiled by the U.S. Department of Labor, and shall mean and include such other index or statistics as may succeed it, as adjusted to account for any change in the standard reference base year. The foregoing procedure shall be followed every five (5) years during the Term. Section 3.2 Additional Charges. (a) General. In addition to (and separate from) its obligation to pay Base Rent as provided in this Article, Tenant agrees to reimburse Landlord the amount equal to Tenant's pro rata share of the expenses of operating and maintaining North Hills Plaza Shopping Center including, but not limited to, Center "Operating Costs" as defined in Section 9.1, real estate taxes (including special assessments) and liability insurance premiums paid by Landlord with respect to the Center (these charges, as defined herein and otherwise determined from time to time, shall be called the "Additional Charges"). For common area maintenance and insurance purposes, Tenant's pro rata percentage of such expenses shall be based upon a fraction, the numerator of which shall be 7,960 square feet (the approximate total area of the building pad site) and the denominator of which shall be the area in the Shopping Center on which construction is complete and occupied or available for occupancy as reasonably determined by Landlord from time to time and communicated to Tenant in writing by Landlord; said area shall be measured from the outside of exterior walls and the middle of shared interior walls. Tenant shall not be required to pay a pro rata share of the premium for fire insurance on the buildings within the Shopping Center, but Tenant shall be required to pay a pro rata share of the premium for liability insurance coverage on the common areas within the Shopping Center which are complete and ready for use as reasonably determined by Landlord from time to time and communicated to Tenant in writing by Landlord. For real estate tax purposes, Tenant shall not be required to pay any portion of the real estate taxes levied on the buildings within the Center other than Tenant's building, defined herein, but shall be required to pay a pro rata share of the real estate taxes levied on the land and the common area improvements within the Center. Any and all improvements constructed by Tenant on the Premises ("Tenant's building") shall be separately assessed for real estate tax purposes, and Tenant shall be responsible for and pay before same is due the resulting real estate tax on same. Until the Shopping Center is completed and occupied or available for occupancy, Tenant's pro rata share of the real estate taxes levied upon the land and the common area improvements of the Center (general and special assessments) shall be based upon a fraction, the numerator of which shall be 7,960 square feet and the denominator of which shall be 46,500 square feet, the total leaseable building floor area contemplated to be constructed within the Shopping Center, including Tenant's 7,960 square feet (e.g. 7,960 divided by 46,500 equals 17.12%). At such time as the entire leaseable area of space within the Center has been constructed and is occupied or available for occupancy, the denominator which shall be used to compute Tenant's pro rata share of real estate taxes shall then be the actual total square footage of leaseable area within the center. Notwithstanding the aforementioned, in no event shall Tenant's pro rata share of real estate taxes exceed 20% of the total real estate taxes for the land and common area improvements portions of the Shopping Center. Real estate taxes for purposes hereof shall include all real estate taxes, assessments (both general and special) and other governmental impositions to the extent of charges lawfully created and assessed. However, notwithstanding anything to the contrary herein, if at any time during the Term there shall be levied or assessed in substitution of real estate taxes, in whole or in part, a tax, assessment or governmental imposition (other than a general gross receipts or income tax) on the rents received from the premises or the rents reserved herein, and said tax, assessment or governmental imposition shall be imposed upon Landlord, Tenant shall pay same as hereinabove provided, but only to the extent that such new tax, assessment or governmental imposition is a substitute for real estate taxes previously imposed. Also, if at any time, in the judgment of the Landlord reasonably exercised, it shall become necessary so to do, the Landlord, after written notice to the Tenant, may, under protest if so requested by Tenant, pay such monies as may be required to prevent the sale of the Premises or any part thereof, or foreclosure of the lien created thereon by such item, and such amount shall become immediately due and payable by Tenant to Landlord and shall constitute additional rent hereunder, or at Tenant's option and at Tenant's sole cost and expense, in lieu thereof, Tenant shall obtain lien release bonds in amounts equal to the claims of any such liens or as otherwise required by applicable law (or shall provide Landlord with other security reasonably acceptable to Landlord). At the expiration of the term of this Lease, taxes, impositions, assessments, or other similar expenses required to be paid by Tenant hereunder shall be apportioned in the same manner as such taxes were apportioned prior to the Rent Commencement Date, and Landlord shall pay that portion thereof applicable to the period after the expiration of the term of this Lease. Notwithstanding that the amount of such taxes will not be known until after the expiration of this Lease, Tenant agrees to reimburse Landlord within thirty (30) days after written request therefore, for Tenant's share of taxes relating to time periods prior to the expiration of the Term of this Lease. Unpaid amounts shall accrue interest at the lesser of (i) the highest interest rate permitted by law or (ii) the rate of ten percent (10%) per annum, if not paid within such thirty (30) day period. (b) Manner of Collecting Additional Charges. Tenant shall pay, in advance, on the first day of each calendar month of the Term, commencing on the "Rental Commencement Date," 1/12th of the estimated annual Additional Charges, such estimate to be made by Landlord in its reasonable discretion and delivered by Landlord to Tenant in writing prior to the beginning of each calendar year of the Term. Within 30 days after the end of each calendar year, Landlord will provide to Tenant an accounting of the actual Additional Charges for the Center for that 12-month period. Landlord estimates Tenant's monthly Additional Charge for the first calendar year of the Term to be $500.00. ARTICLE IV USE OF PREMISES Section 4.1 Purpose. The Premises will be leased to Tenant for the sole and exclusive purpose of operating a branch banking facility and related activities commonly carried on in bank branches, such as sales of securities, insurance, etc., this provision being a material part of the consideration for Landlord entering into this Agreement. No other use of the Premises shall be allowed without Landlord's prior written consent which shall not be unreasonably withheld, provided, without limiting Landlord's rights, it is agreed that Landlord will not be deemed to be unreasonable if it does not approve any other use of the Premises if such use: (i) is to perform governmental or quasi- governmental functions; (ii) is to operate any business that in Landlord's opinion is unsuitable for the then-tenant mix and character of the Center; or (iii) or if any such use will violate any exclusive use provision contained in any lease for space in the Center of any other then-existing tenant of the Center. Tenant agrees to continuously use the Premises as a branch bank facility during the Term of this Agreement, subject to the provisions of this Section 4.1 and subject to the provisions of Article 15.1 hereof. Section 4.2 Construction. (a) Tenant shall have the right to construct and maintain a building and various site improvements, all of which are expressly subject to the prior written approval of Landlord as to all aspects, including but not limited to design, location on the Premises and elevation, which approval may be withheld at Landlord's discretion. Tenant agrees to provide all plans and specifications for such building and site improvements to Landlord within thirty (30) days from the date hereof. Tenant further agrees to complete the construction of such building and site improvements within One Hundred Eighty (180) days from the date hereof. (b) Tenant shall, during the Term and Option Periods, own all improvements made by Tenant on the Premises, provided that upon the occurrence of the event of default hereunder, and this Agreement is terminated on account thereof, then any building and improvements and Trade Fixtures shall, ipso facto, become the property of Landlord. (c) Upon the expiration of the Term or Option Periods, the building and all site and other improvements shall be the sole property of Landlord, this being a material part of the consideration for this Agreement. (d) At the expiration of the Term or Option Periods or at the termination of this Agreement, Tenant, or those claiming through Tenant, shall remove any and all of Tenant's personal property and trade fixtures located upon the Premises immediately and turn over possession of the Premises to Landlord. Notwithstanding anything contained in this Article to the contrary, if any trade fixtures cannot be removed from the Premises without causing structural damage, then such damage shall be repaired by Tenant at Tenant's sole cost and expense, or, such trade fixtures shall not be removed but shall, ipso facto, become the property of Landlord. 4.4 Discharge of Liens. Notice is hereby given that Landlord shall not be liable for any work or materials furnished to Tenant on credit and that no mechanics', materialmen's or other liens for any such work or materials shall attach to or affect Landlord's interest in the Premises. Whenever any such lien shall be filed against the Premises based on any work or materials supplied to Tenant or any person claiming through Tenant, Tenant shall forthwith take such action by bonding or otherwise as will remove or satisfy such lien. Tenant shall indemnify and hold Landlord harmless from any loss, including attorneys fees, resulting from Tenant's failure to remove or satisfy any such lien. ARTICLE V MAINTENANCE AND REPAIRS Section 5.1 Repair Obligation. All improvements on or about the Premises including, without limitation, plumbing, heating, roof, exterior and interior walls, including all glass, all structural components, electrical, mechanical, air conditioning and ventilating work which are or may hereafter be erected or placed in the Premises at any time during said Term shall be kept in good condition, order and repair (making all necessary replacements thereto) by Tenant at its sole cost and expense. Section 5.2 Alterations Required by Government. Tenant shall comply with all laws, ordinances, orders, regulations, rules, requirements, notices, violations and penalties (hereinafter called "legal requirements") of every kind and nature, relating to the Premises or, to repairs, changes or requirements to or in or about the Premises or to changes or requirements incident to or as the result of any use or occupation thereof, of the municipal, state and federal authorities, and each of them, their bureaus and departments, having jurisdiction over or relating to the Premises and the improvements on the Premises. Tenant shall have the right to contest the validity of or seek a variance from or review said legal requirements by legal proceedings or in such other manner as it deems suitable, and may have, if able, said legal requirements canceled, removed or revoked without actual compliance with the same, and if such actions or proceedings be instituted, they shall be conducted promptly at the expense of Tenant and free of expense to Landlord. If and whenever said legal requirements shall become absolute against Tenant and the Premises, or against Landlord, after contest thereof, Tenant shall then comply with the same with due diligence, and if in default thereof for fifteen (15) days, Landlord may comply therewith and the cost and expense of so doing may be paid by Landlord, and Tenant will reimburse Landlord on demand for such cost and expenses incurred by Landlord. Landlord will join in any contest provided for in this Article at the request of Tenant, but at Tenant's sole cost and expense and Tenant shall indemnify Landlord against costs or other damages by reason of such joinder. Section 5.3 Compliance With Public Accommodation Laws. Tenant assumes all responsibility for compliance of the Premises with any and all applicable laws, regulations and building codes governing non-discrimination in public accommodations commercial facilities ("Public Accommodation Laws"), including without limitation, the requirements of the American Disabilities Act, 42 U. S. C. 12-101 and all regulations and promulgations thereunder. Tenant agrees to indemnify, defend and hold harmless Landlord from and against any and all claims, liabilities, fines, penalties, losses and expenses (including attorneys' fees) arising in connection with Tenant's failure to comply with the provisions of this Section. ARTICLE VI CONSTRUCTION AND RELOCATION OF IMPROVEMENTS AND ADDITIONS TO NORTH HILLS PLAZA Section 6.1 General. The purpose of the Shopping Center site plan (which is attached as Exhibit "A") is to show the approximate current location of the improvements, parking areas and other areas in the Center. Landlord reserves the right at any time to modify the site plan of the Center (other than the Premises itself) and reconfigure the improvements, parking areas, entrances, common areas, etc., in a manner that is otherwise consistent with law. Landlord also reserves the right to construct other improvements or additions in the Center, other than on the Premises (including the addition of elevated parking facilities) provided the ratio of the parking spaces to the leased area in the Center shall not be reduced to less than four (4) spaces for each 1,000 square feet of leased building floor area in the Center. If any common area is diminished, changed or altered, Landlord shall not be subject to any liability for damages which Tenant might incur as a result of the interruption or diminution of business or general inconvenience. Furthermore, Tenant shall not be entitled to any rental adjustment, nor shall any change, alteration or diminution be deemed to be a constructive or actual eviction. ARTICLE VII SIGNS, AWNINGS, CANOPIES, FIXTURES, ALTERATIONS Section 7.1 Alterations by Tenant. Tenant shall not make any changes to the building exterior of any building located on the Premises without first obtaining Landlord's written approval and consent, which approval and consent shall not be unreasonably withheld, provided it will not be unreasonable for Landlord to withhold consent of any such changes will: (1) reduce the value of the Premises, (2) increase the height of any building on the Premises, or (3) not be architecturally compatible with the other buildings within the Center. Tenant shall present to the Landlord plans and specifications for such work at the time approval is sought. Section 7.2 Signs, Awnings and Canopies - Sign Criteria. Except for the signs set forth on Exhibit B attached hereto and made a part hereof, which conform to the criteria set forth thereon and which are hereby approved, Tenant will not place or cause, to be placed or maintained on the Center pylon sign or on any exterior door, wall, or window of Tenant's building upon the Premises or anywhere on the Premises or the Center, any decoration, lettering or advertising matter without first obtaining Landlord's written approval and consent, which consent may be withheld at Landlord's sole discretion provided, Landlord agrees that it will not unreasonably withhold its approval and consent to any such sign to be located on Tenant's exterior doors and windows which posts Tenant's hours of operation or any other such sign for advertising and/or notices on said doors and windows of such sizes, number, locations and types and of such materials as is common or typical for branch banking facilities located in or adjacent to first class retail shopping centers. Tenant further agrees to maintain such approved sign, awning, canopy, decoration, lettering, advertising matter or other thing in good condition and repair at all times at Tenant's sole cost and expense. Section 7.3 Sign Removal. Tenant shall, at the termination of this Agreement, effect the removal of any and all signs which it used in its business. Tenant shall have a period of thirty (30) days to effect such removal at its own expense and shall restore the Premises to the condition they were in prior to the sign being installed, normal wear and tear excepted. Section 7.4 Shopping Center Pylon Sign. Landlord agrees to erect at least one (1) pylon sign for the Center at the location shown on Exhibit "A," conforming to size and criteria set forth on Exhibit "B-1," and Landlord agrees that Tenant shall be allowed a position on such pylon sign in the location and conforming to the size and criteria set forth on said Exhibit "B-1." Tenant shall pay for the cost of Tenant's sign face and graphics as well as future upkeep and maintenance of those items. Upkeep and maintenance of all other pylon sign components shall be a common area maintenance expense. ARTICLE VIII PARKING AND COMMON USE AREAS AND FACILITIES Section 8.1 Common Areas. The term "Common Area" is defined for all purposes of this Agreement as that part of the Center from time to time intended for the common use of all tenants and their customers, including but not limited to such facilities as the parking area, private streets and alleys, landscaping, curbs, loading areas, sidewalks, malls and promenades (enclosed or otherwise), lighting facilities, drinking fountains, meeting rooms, public toilets, and the like but excluding streets and alleys maintained by a public authority. Tenant, and its employees and customers, and when duly authorized pursuant to the provisions of this Agreement, its subtenants, licensees and concessionaires, shall have the non-exclusive right to use the Common Area as constituted from time to time, such use to be in common with Landlord, other tenants of the Center and other persons permitted by Landlord to use the same, and subject to such reasonable rules and regulations governing use as Landlord may from time to time prescribe. Section 8.2 Control of Common Areas by Landlord. The Common Areas in or about North the Center shall at all times be subject to the exclusive control and management of Landlord, and Landlord shall have the right from time to time to establish, modify and enforce reasonable rules and regulations with respect to all facilities and area mentioned in this Article. In addition to Landlord's rights under this Agreement, to which the provisions of this Article are expressly subject, Landlord shall have the right to construct, maintain, and operate lighting facilities on all said areas and improvements, to police the same, from time to time to change the area, level, location, and arrangement of parking areas and other facilities hereinabove referred to; to restrict parking by tenants, their officers, agents and employees to employee parking areas; to close all or any portion of said area of facilities to such extent as may, in the opinion of Landlord's counsel, be legally sufficient to prevent a dedication thereof or the accrual of any rights to any person or the public therein; to close temporarily all or any portion of the parking areas or facilities to discourage non-customer parking and to do and perform such other acts in and to said areas and improvements as in the use of good business judgment, Landlord shall determine to be advisable with a view to the improvement of the Center and use thereof by Tenant, its officers, agents, employees and customers. Landlord shall control, operate, and maintain the common facilities referred to above in such manner as Landlord, in its sole discretion, shall determine from time to time. Without limiting the scope of such discretion, Landlord shall have the full right and authority to employ all personnel and to make all contracts, rules, and regulations pertaining to and necessary for the proper operation and maintenance of the common areas and facilities. ARTICLE IX COST OF MAINTENANCE OF COMMON AREAS Section 9.1 Operating Costs. "Operating Costs" shall mean the total costs and expenses incurred by Landlord in operating and maintaining the Common Areas of the Center, its outside area, and the mall area, if any, including but without limitation, such maintenance and repair as shall be required in Landlord's judgment to preserve the utility thereof in the same condition and status as it was at the time of completion of the construction and installation of any improvements thereon, together with operating costs of any subsequent capital improvements made by Landlord; repair of any entry canopy or door, stairs, elevators, or escalators; costs and expenses of planting, maintaining, replanting and replacing flowers, plants and landscaping; water and sewer charges; exterior painting; required licenses and permits; costs and expenses of supplies; the operation of loudspeakers and any other equipment supplying music; exterior furniture, fixtures, and decorations; exterior illumination of the buildings and the outside area and interior illumination of the buildings (including maintenance of fixtures and the cost of light bulbs); illumination, maintenance, and replacement of lighting and other equipment and sanitary control facilities; parking lot line restriping; removal of snow, ice, trash, rubbish, garbage and other refuse; trash dumpsters or other receptacles; all costs and expenses of fire protection and sprinkler maintenance; security costs (provided it is expressly understood and agreed that Landlord shall have no obligation to provide security for Common Areas), including personnel and burglar alarms; fire hydrant or fire sprinkler fees; traffic control and policing (provided it is understood and agreed that Landlord shall have no obligation to provide same); holiday and other decorations; depreciation of the capital cost of and rents for the leasing of any machinery, equipment (including lighting, heating and air conditioning) and vehicles used in connection with operation or maintenance; repair and replacement of on-site water, electricity, gas, sanitary and storm sewer lines; all charges for utility services; special assessments; fees for audits, permits, franchise fees and licenses. The operating costs hereinabove described shall be subject to audit by Tenant at Tenant's expense no more often than once each year upon at least twenty (20) days prior written notice to Landlord at Landlord's offices. Landlord shall use commercially reasonable efforts to minimize such costs of operation, management and maintenance in a manner consistent with generally accepted property management practices within North Little Rock, Arkansas. ARTICLE X INSURANCE AND INDEMNITY Section 10.1 Landlord's Insurance. At all times during the term of this Agreement, Landlord will carry and maintain (i) fire and extended coverage insurance covering the Shopping Center (other than the Premises) and the Shopping Center's (other than the Premises) equipment and common area furnishing, and (ii) comprehensive general liability insurance covering the common areas of the Center in such amounts as Landlord determines from time-to- time in its reasonable discretion. Tenant will reimburse Landlord, as an Operating Expense, for the costs of all such liability insurance for the common areas of the Center in accordance with Article 3. Section 10.2 Tenant's Liability Insurance. Tenant shall, during the Term and Option Periods, keep in full force and effect comprehensive general liability insurance coverage insuring against property damage and public liability arising by reason of occurrences on or about the Premises in a minimum amount of $2,000,000 combined single limit, which policy shall include (i) coverage for bodily injury, death, property damage and products liability coverage; and (ii) contractual liability coverage insuring Tenant's obligations under Section 10.5 of this Agreement. Section 10.3 Workers' Compensation Insurance. Tenant shall, during the Term and Option Periods, keep in full force and effect a policy of workers' compensation and employer's liability in an amount as required by the laws of the State of Arkansas. Section 10.4 Tenant's Fire/Extended Coverage Insurance. Tenant shall, during the Term and Option Periods, keep in full force and effect a policy of fire and extended coverage insurance on its building and improvements, alterations, additions, fixtures, equipment, merchandise, trade fixtures and other property placed on the Premises. Such policy shall contain a replacement cost endorsement. In the event that Tenant sustains a loss by reason of fire or other casualty which is covered (or could have been covered) by a fire and extended coverage insurance policy or other insurance policy or rider thereto, and such fire or casualty is caused in whole or in part by acts or omissions of Landlord, its agents, servants or employees, then Tenant agrees to look solely to its insurance proceeds (if any); and Tenant shall have no claim or right of recovery against Landlord, or the agents, servants or employees of Landlord; and no third party shall have any claim or right of recovery by way of subrogation or assignment or otherwise. To the extent that Tenant fails to take out or maintain the aforesaid fire and extended coverage insurance policy, such failure shall be a defense to any claim asserted by Tenant against Landlord by reason of any loss sustained by Tenant due to fire or other casualty, notwithstanding that such loss might have been proximately caused solely by the negligence of Landlord. Such insurance policy shall contain a loss payable clause designating Tenant and Landlord as loss payees as their respective interests may appear. Tenant agrees that Landlord shall not be responsible or liable to Tenant or those claiming under Tenant for injury, death or damage or loss occasioned by the acts or omissions of persons occupying any part of the Center or occasioned by the condition of the Center or property of any other occupant of any part of the Center or the acts or omissions of any other person or persons present at the Center who are not occupants of any part thereof, whether or not such persons are present with the knowledge or consent of Landlord. Section 10.5 Indemnification of Landlord. Tenant shall indemnify Landlord and save it harmless from and against any and all losses, claims, actions, suits, damages, liabilities and expenses arising (or allegedly arising) in or out of any occurrence in, upon or at the Premises and regardless of how the same may have been caused; or the occupancy or use by Tenant of the Premises or any part thereof; or occasioned wholly or in part by any act or omission of Tenant, its agents, contractors, employees, customers, servants, licensees or concessionaires. Landlord shall not be liable for and Tenant further agrees to indemnify and release Landlord from any claim arising out of damage or loss to Tenant's improvements, fixtures, stock in trade or other property caused by acts of third parties or by the condition of the Premises, including vandalism, malicious mischief, theft, burglary, or any other criminal act; or alleged damage occasioned by the failure of the Landlord to perform any contractual duty. In case Landlord shall, without fault on its part, be made a party to any litigation commenced by or against Tenant, then Tenant shall protect and hold Landlord harmless and shall pay all costs, expenses and reasonable attorneys' fees incurred or paid by Landlord in connection with such litigation. Tenant shall also pay all costs, expenses and reasonable attorneys' fees that may be incurred or paid by Landlord in connection with such litigation. Section 10.6 Failure to Adequately Insure. The Tenant's failure to insure the Premises or indemnify Landlord as provided herein shall be an Event of Default which shall entitle Landlord to pursue any and all courses of action available to him by law or as a result of the execution of this Agreement. Section 10.7 Policies And Certificates. Copies of policies or an "Acord 27 Evidence of Property Insurance" form evidencing the insurance required by this Article, each bearing notations evidencing payment of the premiums or other evidence of payment satisfactory to Landlord, shall be delivered by Tenant to Landlord. In the case of expiring policies throughout the Term and Option Periods, copies of certificates of any new or renewal policies, each bearing notations evidencing payment of the premiums or other evidence of payment satisfactory to Landlord, shall be delivered by Tenant to Landlord. Section 10.8 Insured Parties. Policies of insurance required by this Section shall name Landlord and Tenant as insured as their respective interests may appear and shall contain a cross-liability endorsement where possible. Section 10.9 Insurers. All insurance required by this Article shall be effected with insurance companies authorized to do business in Arkansas and shall be rated at least A+ Class X by Best's Insurance Reports and shall be selected by Tenant. When Landlord is an interested party, the selection of the insurance company shall be subject to the reasonable approval of Landlord. Tenant shall cause appropriate provisions to be inserted in each insurance policy making each policy noncancellable without at least thirty (30) days prior written notice to Landlord and Tenant. No claim shall be made and no suit or action at law or in equity shall be brought by Landlord, or those claiming through Landlord, against Tenant for any damage to the trade fixtures covered by the insurance required by this Article, however caused, but nothing herein shall diminish Tenant's obligation to repair as required in Article V hereof. ARTICLE XI REQUIREMENTS OF LAW, FIRE INSURANCE Section 11.1 General. Tenant, at its expense, will comply with all applicable governmental laws, orders and regulation, and with any direction of any public officer of officers, according to law, that will impose any violation, order or duty upon Landlord or Tenant with respect to the Premises or their use or occupancy. Tenant agrees to indemnify, defend and hold harmless Landlord from and against any and all claims, liabilities, fines, penalties, losses and expenses (including attorneys' fees) arising in connection with Tenant's failure to comply with the provisions of this Section. Section 11.2 Toxic Materials. Tenant will not store, use, or dispose of any hazardous, toxic, corrosive, explosive, reactive, or radioactive matter in, on, or about the Premises or the Shopping Center. Tenant agrees to indemnify, defend and hold harmless Landlord from and against any and all claims, liabilities, fines, penalties, losses and expenses (including attorneys' fees) arising in connection with Tenant's failure to comply with the provisions of this Section. Section 11.3 Certain Insurance Risks. Tenant will not do or permit to be done any act or thing upon the Premises which would (i) jeopardize or be in conflict with fire insurance policies covering the Shopping Center and fixtures and property in the Shopping Center; (ii) increase the rate of fire insurance applicable to the Shopping Center to an amount higher than it otherwise would be for the general use as a Shopping Center; or (iii) subject Landlord to any liability or responsibility for injury to any person or persons or to property by reason of any business or operation being carried on upon the Premises; however, this Section 11.3 will not prevent Tenant's use of the Premises for the purposes stated herein. Section 11.4 Tenant's Insurance Payments. If, as a result of any act or omission or violation of this Agreement by Tenant, the rate of fire insurance applicable to the Shopping Center or any other insurance carried by Landlord is increased to an amount higher than it otherwise would have been, Tenant will reimburse Landlord for the increased cost of Landlord's insurance premiums. Such reimbursement will be rent payable upon the first day of the month following Landlord's delivery to Tenant of a statement showing payment by Landlord for such increased insurance premiums. In any action or proceeding in which Landlord and Tenant are parties, a schedule or "make up" of rates for the Shopping Center or Premises issued by the body making fire insurance rates for the Premises will be presumptive evidence of the facts stated and of the several items and charges in the fire insurance rate then applicable to the Premises. ARTICLE XII RULES AND REGULATIONS Section 12.1 Change of Name. Tenant agrees not to change the advertised name of the business operated in the Premises without the written permission of Landlord, which shall not be unreasonably withheld Section 12.2 Solicitation of Business. Tenant and Tenant's employees and agents shall not solicit business or advertise in any area beyond the Premises itself (i.e. Tenant's lease line) or in the parking or other Common Areas, nor shall Tenant distribute any handbills or other advertising matter on automobiles parked in the parking area or in other Common Areas. Section 12.3 Rules, Rights and Regulations. Landlord reserves the right to adopt and promulgate reasonable rules and regulations applicable to the Premises and North Hills Plaza and from time to time to amend or supplement said rules and regulations. Notice of such rules and regulations and amendments and supplements, shall be given to Tenant and Tenant agrees to comply with and observe such rules and regulations and amendments thereto and supplements thereof. The neglect or failure of any other tenant to observe and comply with such rules and regulations shall not excuse Tenant from doing so. ARTICLE XIII UTILITIES Section 13.1 Utility Charges. Tenant shall be solely responsible for and promptly pay all charges for water, gas, electricity, telephone, or any other utility used or consumed with respect to the Premises. In no event shall Landlord be liable for an interruption or failure in the supply of any such utilities to the Premises. Section 13.2 Sprinkler Head Charges. In the event the Premises contains a fire protection sprinkler system and any Governmental authority (municipal or otherwise) charges a sprinkler fee, Tenant shall pay to such authority any such charge upon presentation of a bill for same, regardless of whether such bill is addressed to Landlord or Tenant. ARTICLE XIV DESTRUCTION AND RESTORATION Section 14.1 Damage to Premises. Subject to the provisions of Section 14.4 hereof, if at any time during the Term or the Option Periods, the building located on the Premises, or any part thereof, or other improvements located on the Premises shall be damaged or destroyed by fire or other casualty against which Tenant is required by the terms of this Lease to maintain insurance, Tenant (or any party acting on behalf of Tenant) may, at is election, proceed with due diligence (subject to reasonable time allowance for the purpose of adjusting the insurance loss or force majeure, as defined in Section 21.12 hereof, and provided Tenant complies with all of the terms and conditions of this Lease) to repair, replace or rebuild said damaged improvements or damaged building to the character and condition existing prior to such damage or destruction including only such variations and alterations as may be approved by Landlord in writing prior to commencement of such repair, replacement or rebuilding and subject to any other restrictions contained in this Lease, if any ("Restoration Work"); provided that if, on or before that date which is three hundred sixty-five days after the date of the damage or destruction, Tenant has not completed, or is not in the process of, and diligently proceeding to, rebuild the Premises, or if Tenant thereafter fails to diligently proceed to complete such rebuilding, then Landlord shall have the right at any time thereafter (but prior to commencement of such rebuilding) to terminate this Lease on thirty (30) days notice to Tenant and on the expiration of such notice this Lease shall terminate and neither the party shall have any further liability hereunder except as provided in Section 14.4 hereof. Notwithstanding anything to the contrary contained herein, Tenant shall ensure that any damaged or destroyed building and improvements are put into a safe, sightly and secure condition, including any necessary razing and removing of debris as soon as reasonably possible, and in no event later than one hundred eighty (180) days after the date of such damage or destruction. Section 14.2. (a) If Tenant elects to restore the building and improvements, all insurance proceeds payable to Landlord, Tenant or any fee mortgagee at any time, as a result of casualty to the building or improvements, shall be paid directly to Tenant, in trust, to be applied for the Restoration Work. Such funds shall be used only for such purposes until the Restoration Work is completed and any excess proceeds shall be retained by Tenant. (b) Landlord shall cooperate fully with Tenant in order to recover the largest possible insurance award and execute any and all reasonably required consents and other instruments, and take all other reasonably required actions necessary or desirable in order to effectuate same and to cause such proceeds to be paid as hereinbefore provided. Section 14.3. Except as otherwise expressly provided herein, this Lease shall not be affected in any manner by reason of the total or partial destruction of the building or improvements on the Premises or any part thereof, and Tenant, notwithstanding any law or statute, present or future, waives all rights to quit or surrender the Premises or any part thereof, and Tenant's obligations under this Lease, including but not limited to, the payment of Base Rent and Additional Charges, shall continue as though none of those events had occurred and without abatement, suspension, or reduction of any kind. Section 14.4. If Tenant does not elect to restore the building and improvements following damage or destruction of the Premises by fire or other casualty pursuant to Section 14.1, and, in any event, upon termination of this Lease as provided in Section 14.1 hereof, or pursuant to other provisions of this Lease: (i) Tenant shall, at Tenant's sole cost and expense, complete any necessary razing and remove all debris resulting from any damage or destruction due to a fire or other casualty, put the Premises in a safe, sightly and secure condition as soon as reasonably possible after any such damage or destruction, and in the event of termination of the Lease pursuant to Section 14.1, or otherwise pursuant to other provisions of this Lease, deliver the Premises to Landlord in a clean, safe, sightly and secure condition as soon as reasonably possible after such damage or destruction. (ii) Tenant shall assign to Landlord (the form of which assignment shall be reasonably satisfactory to Landlord) during the initial twenty (20) year Term, a portion of the insurance proceeds payable as a result of such damage or destruction equal to the amount determined by multiplying the insurance proceeds by a fraction the numerator of which is the number of days from the "Rental Commencement Date" of the Term to the date of the damage or destruction of the Premises, and the denominator of which is the total number of days in the initial twenty (20) year Term. During the Option Periods Tenant shall assign to Landlord (the form of which assignment shall be reasonably satisfactory to Landlord) One Hundred Percent (100%) of the insurance proceeds as a result of such damage or destruction. ARTICLE XV ASSIGNMENT & SUBLETTING Section 15.1 Generally. Tenant may not assign this Agreement or sublet the Premises until the fully executed assignment of sublease has been presented to and approved by Landlord, which approval shall not be unreasonably withheld, subject to the following conditions: Landlord agrees to not unreasonably withhold its consent to an assignment of this Agreement or a subletting of the entire Premises by Tenant named herein, provided that: (i) At least thirty (30) days before the proposed effective date of the assignment or subletting, Landlord receives for approval a copy of a fully-executed unconditional assignment or sublease together with (1) reasonably detailed information as to the character, reputation and business experience of the proposed assignee or subtenant together with such proposed assignees intended use of the Premises, and (2) a financial statement on the proposed assignee or subtenant certified as being true and correct by the chief financial executive of the proposed assignee or subtenant; (ii) No breach or default on Tenant's part exists at the time of the consent request and at the effective assignment or subletting date; (iii) Any assignment or subletting will be upon and subject to all terms and conditions of the Agreement; (iv) Any assignment must specifically state (and, if it does not, it will be deemed to specifically state) that the assignee assumes and agrees to be bound by all terms and conditions of this Agreement, and any sublease must specifically state (and, if it does not, it will be deemed to specifically state) that at Landlord's election the subtenant will attorn to Landlord and recognize Landlord as Tenants successor under the sublease for the balance of the sublease term if this Agreement is surrendered by Tenant or terminated by reason of Tenant's default; (v) Upon request and as additional rent, Tenant will pay to Landlord a processing fee of $250.00, or such greater amount as may be reasonable under the circumstances, for document review and/or preparation in connection with the proposed transaction; (vi) No assignment or subletting will be to a then- existing or former tenant or occupant of the Shopping Center nor violate or conflict with the rights of any such party; (vii) Any assignment or subletting must first be approved in writing by any mortgagee of Landlord having the right of approval thereof. Without limiting Landlord's rights, it is agreed that Landlord will not be deemed to be unreasonable if it does not approve any assignee or subtenant which will: (i) perform governmental or quasi-governmental functions; (ii) operate any business that in Landlord's opinion is unsuitable for the then tenant mix and character of the Shopping Center; or (iii) have a net worth insufficient to support a lease to it as an original tenant, consistent with Landlord's then- current practices and standards. An assignment or sublease to a financial institution with a net worth at least equal to Tenant's upon the date of the execution of this Agreement shall be presumed to be approvable. Any such financial institution sublease or assignee shall be deemed approved as to its specific use, however, any change of use thereafter shall be subject to Landlord's reasonable approval, as set forth in (ii) immediately preceding and in Section 4.1 hereof. Notwithstanding any assignment or subletting, Tenant shall remain fully liable on this Agreement and shall not be released from performing any of the terms, covenants and obligations of this Lease. Further, consent by Landlord to any assignment or subletting shall not constitute a waiver of the necessity for such consent to a subsequent assignment or subletting. ARTICLE XVI EMINENT DOMAIN Section 16.01. If substantially all of the Premises or substantially all of the access thereto or therefrom shall be taken for any public or quasi-public use under any statute or by right of eminent domain, or by purchase in lieu thereof (a "Taking"), then this Lease shall automatically terminate as of the date that possession has been so taken (the "Vesting Date"). Section 16.02. (a) In the event of a Taking of less than substantially all of the Premises or less than substantially all of the access thereto, Tenant may elect to terminate this Lease and not restore the building if, by reason of the Taking: (i) any portion of the ground floor area of the building located on the Premises shall be taken; (ii) so much of the parking area adjacent to Premises or so much of the access to the Premises from any public roadway adjoining same is taken that Tenant in its reasonable opinion cannot operate its branch bank business within the building on the Premises; (iii) there is a prohibition of the use of the Premises for branch banking purposes; or (iv) there is any Taking of the Premises occurring during the final five (5) years of the Lease Term. (b) In the event Tenant elects by reason of the foregoing events to terminate the Lease, Tenant shall give written notice of such election to Landlord and any fee mortgagee of Landlord accompanied by the consent of any subtenant of the entire Premises or assignee of this Lease, if any, and the Lease Term shall expire and come to an end as of the last day of the calendar month in which such notice is given. Section 16.03. In the event of a Taking resulting in the termination of this Lease pursuant to the provisions of Section 16.01 or 16.02 hereof, the parties hereto agree to cooperate in applying for and in prosecuting any claim for such Taking and further agree that the aggregate net award, after deducting the reasonable expenses of Landlord, Tenant, and any fee mortgagee of Landlord, including attorneys' fees, incurred in connection therewith, related to a Taking of the Premises shall be paid to Landlord and distributed as follows, and in the following order of priority: (a) Tenant shall be entitled to an amount of the award equal to the unamortized value of the building and other improvements erected by Tenant on the Premises amortized on a straight line basis over the initial twenty (20) year lease Term, and Landlord shall be entitled to an amount of the award equal to the fair market value of Landlord's fee interest in that part of the land comprising the portion of the Premises taken together with an amount of said award equal to the amortized value of the building and other improvements erected on the Premises by Tenant also amortized on a straight line basis over the initial twenty (20) year lease Term. If the amount of the award is insufficient to pay both Landlord and Tenant the foregoing sums in full, they shall share in such proceeds pro rata; (b) Tenant and Landlord shall next be entitled to that portion of the award equal to the amount of such award which is specifically allocated in such award to either of them for any specific loss suffered by either of them which was not included in Section 16.03(a) above, including but not limited to such items as the fair market value of their respective leasehold interest in the Premises under this Lease, loss of trade fixtures, or the loss of business. If the amount of such award is insufficient to pay Tenant and Landlord such sums in full, they shall share in such remaining proceeds available for distribution in this Subsection 16.03(b) pro rata; (c) Landlord shall be entitled to the balance of the award. Section 16.04. (a) In case of a Taking of less than substantially all of the Premises and if this Lease is not terminated as provided in Section 16.02 hereof, Tenant, at its expense, shall proceed with diligence (subject to reasonable time periods for purposes of adjustment of any award and Unavoidable Delays) to repair or reconstruct the building and any improvements located on the Premises at the time of the Taking to a complete architectural unit or units (all such repair, reconstruction and work being referred to in this Article as "Reconstruction Work") and the award in the condemnation proceedings related to the Premises, after deduction of the expenses of Landlord, Tenant and any fee mortgagee of Landlord incurred in connection with the Taking, shall be paid to Tenant for purposes of paying the cost and expense of the Reconstruction Work. Such funds shall be utilized only for "Reconstruction Work" and any funds not utilized for Reconstruction Work shall be paid to Landlord. During the period in which the Reconstruction Work has not been completed, and provided Tenant is not open for business to the public in the Premises, Tenant shall be entitled to a full abatement in all Base Rent. In the event of a Taking of less than substantially all of the Premises affecting a portion of land comprising the Premises not covered by the building, the Base Rent hereunder shall, from and after the Vesting Date, be reduced by an amount equal to the product of the Fixed Rent then in effect times a fraction, the numerator of which shall be the number of square feet of the land within the Premises so taken and the denominator of which shall be the number of square feet of the entire land within the Premises prior to such Taking. Section 16.05. Landlord and Tenant shall not, without the consent of the other and any fee mortgagee of Landlord, make any settlement with the condemning authority or convey any portion of the Premises to such authority in lieu of condemnation or consent to any Taking. Section 16.06. (a) In the event of a dispute between Landlord and Tenant as to the allocation and distribution of any condemnation award pursuant to this Article 16, and if Landlord and Tenant cannot agree on same within sixty (60) days after the final award or awards shall have been fixed and determined, the dispute shall be determined by arbitration in the manner provided in Section 16.06(b) below utilizing the distribution and priority formula set forth in Section 16.03 above. (b) In the event of a dispute between Landlord and Tenant as to allocation and distribution of any condemnation award pursuant to this Article 16 requiring arbitration pursuant to Section 16.06(a) above, the party desiring arbitration shall give written notice to that effect to the other party, specifying in the notice the name and address of the person designated to act as an arbitrator on its behalf. Within 15 days after the service of such notice, the other party shall give written notice to the first party specifying the name and address of the person designated to act as an arbitrator on its behalf. If the second party fails to notify the first party of the appointment of its arbitrator within the time above specified, then the appointment of the second arbitrator shall be made in the same manner as provided below for the appointment of a third arbitrator in a case where the two arbitrators appointed under this Section and the parties are unable to agree on the appointment. The arbitrators so chosen shall meet within 10 days after the second arbitrator is appointed and if, within 30 days after the second arbitrator is appointed, the two arbitrators shall not agree on the allocation and distribution of condemnation proceeds, they shall themselves appoint a third arbitrator who shall be a competent and impartial person. In the event the two arbitrators are unable to agree on the appointment of a third arbitrator within 10 days after the 30-day period, the third arbitrator shall be selected by the parties themselves if they can agree on the appointment within a further period of 15 days. If the parties do not so agree, then either party, on behalf of both, may apply to the American Arbitration Association for the appointment of a third arbitrator. The decision of the arbitrators so chosen shall be given within a period of 30 days after the appointment of the third arbitrator. The decision in which any two arbitrators so appointed and acting under this Section concur shall in all cases be binding and conclusive on the parties. Each party shall pay the fees and expenses of the one of the two original arbitrators appointed, and the fees and expenses of the third arbitrator, if any, shall be borne equally by both parties. All arbitrators appointed hereunder must be MAI appraisers with at least ten (10) years of commercial real estate appraisal experience. Except as otherwise specifically set forth herein the arbitration provided in this Section 16.06(b) shall follow rules established by a majority of the arbitrators in their sole and absolute discretion, provided if a majority of the arbitrators cannot agree on such rules then except as otherwise specifically set forth herein the arbitration shall follow the rules of the American Arbitration Association. ARTICLE XVII TENANT'S PROPERTY Section 17.1 Taxes on Leasehold. Tenant shall be responsible for and shall pay before delinquency all municipal, county or state taxes of any nature assessed during the Term and Option Periods of this Agreement against any leasehold interest, fixtures, improvements, stock in trade, or personal property of any kind, owned by or placed in, upon or about the Premises by the Tenant. Section 17.2 Loss or Damage. Landlord shall not be liable for any damage to property of Tenant or of others located on the Premises, nor for the loss of or damage to any property of Tenant or of others by theft, burglary, any other criminal act, or otherwise. Landlord shall not be liable for any injury or damage to persons or property resulting from fire, explosion, falling plaster, steam, gas, electricity, water, rain or snow or leaks from any part of the Premises or from the pipes, appliances or plumbing works or from the roof, street or sub-surface or from any other place or by dampness or by any other cause of whatsoever nature. Landlord shall not be liable for any such damage caused by other Tenants or persons in the Premises, occupants of adjacent property of North Hills Plaza, or the public, or caused by operations in construction of any private, public or quasi-public work. All property of Tenant kept or stored on the Premises shall be so kept or stored at the risk of Tenant only and Tenant shall hold Landlord harmless from any claims arising out of damage to the same, including subrogation claims by Tenant's insurance carrier, unless such damage shall be caused by the willful act or gross neglect of Landlord. ARTICLE XVIII SUBORDINATION AND MORTGAGES Section 18.1 General. This Agreement and Tenant's rights under this Agreement are subject and subordinate to any ground or underlying lease, mortgage, indenture, deed of trust, or other lien encumbrance (each a "superior lien"), together with any renewals, extensions, modifications, consolidations, and replacements of such superior lien, now or after this date affecting or placed, charged, or enforced against the Premises or the Center, or any interest of Landlord in them or Landlord's interest in this Agreement and the leasehold estate created by this Agreement (except to the extend any such instrument expressly provides that this Agreement is superior to such instrument). This provision will be self-operative and no further instrument of subordination will be required in order to effect it provided, however, that Landlord agrees to provide Tenant for any such existing "superior liens," other than Tenant if the Tenant or any entity owned or controlled by Tenant is the holder of such "superior liens," within sixty (60) days of the date hereof a non-disturbance agreement which provides that in the event any such holder of a superior lien succeeds to Landlord's interest in the Premises, that such successor in interest will not disturb Tenant in its use of the Premises in accordance with this Agreement so long as Tenant is not in default of any of the terms of this Lease (hereinafter sometimes "Non- Disturbance Agreement"). In the event Landlord fails to provide Tenant with the foregoing "Non-Disturbance Agreement" within 60 days from the date hereof for any existing holder of a "superior lien," then Tenant as its sole and exclusive remedy shall have the right at any time thereafter until such "Non-Disturbance Agreement" is provided to terminate this Agreement by written notice to Landlord. Notwithstanding the foregoing, Landlord represents and warrants to Tenant that as of the date of execution of this Agreement no such superior lien exists and Landlord further agrees that it will not create any such "superior lien" prior to the recording of a memorandum of this Agreement as contemplated in Section 21.15 hereof, or until the expiration of thirty (30) days after the date of execution of this Agreement, whichever first occurs. Notwithstanding the foregoing, Tenant will execute, acknowledge, and deliver to Landlord, within 20 days after written demand by Landlord, such documents as may be reasonably requested by Landlord or the holder of any superior lien to confirm or effect any such subordination (hereinafter sometimes "Subordination Agreement") provided, however, in the case of superior liens placed on the Premises or the Center or any interest of Landlord in them or Landlord's interest in this Agreement and the leasehold estate created by this Agreement, after the date hereof, other than Tenant if the Tenant or any entity owned or controlled by Tenant is the holder of such "superior lien," Tenant's requirement hereunder to provide the foregoing "Subordination Agreement" shall be conditioned upon Tenant receiving from such holder of a "superior lien" a "Non-Disturbance Agreement," as above defined, as a part of such Subordination Agreement or by separate instrument contemporaneously therewith executed by the holder of such "superior lien." Section 18.2 Attornment and Nondisturbance. Tenant agrees that in the event any holder of a superior lien succeeds to Landlord's interest in the Premises, Tenant will pay to such holder all rents subsequently payable under this Agreement. Further, Tenant agrees that in the event of the enforcement by the holder of a superior lien of the remedies provided for by law or by such superior lien, Tenant will, upon request of any person or party succeeding to the interest of Landlord as a result of such enforcement, automatically become the Tenant of and attorn to such successor in interest without change in the terms or provisions of this Agreement. Such successor in interest will not be bound by: (a) Any payment of rent for more than one month in advance, except prepayments in the nature of security for the performance by Tenant of its obligations under this Agreement; (b) Any amendment or modification of this Agreement made without the written consent of such successor in interest (if such consent was required under the terms of such superior lien); (c) Any claim against Landlord arising prior to the date on which such successor in interest succeeded to Landlord's interest; or (d) Any claim or offset of rent against the Landlord. Upon request by such successor in interest and without cost to Landlord or such successor in interest, Tenant will, within 20 days after written demand, execute, acknowledge, and deliver an instrument or instruments confirming the attornment, so long as such instrument provides that such successor in interest will not disturb Tenant in its use of the Premises in accordance with this Agreement so long as Tenant is not in default of any of the terms of this Lease. Section 18.3 Mortgages. Tenant agrees it will not subject the Premises, the Center, or its leasehold interest in the Premises to any mortgage, lien or encumbrance without Landlord's prior written consent, which consent may be withheld at Landlord's sole discretion. ARTICLE XIX DEFAULT PROVISIONS Section 19.1 Events of Default. The following shall be deemed the events of default under this Agreement: (a) The failure of Tenant to pay when due or within five (5) days thereafter the Rent, Additional Charges (e.g. Common Area maintenance, taxes, insurance) or other sums provided for in this Agreement. If Rent or Additional Charges are not paid within 5 days of the date it is due, Landlord, in addition to any other rights or remedies set forth in this Article 19, or otherwise, shall have the right to impose a late fee of five percent (5%) of the amount due. (b) The failure of either party to perform any term, condition, covenant or agreement of this Agreement (excluding the payment of Rent or Additional Charges) and the continuation of such failure for a period of twenty (20) days after the other party has been given written notice specifying the same or in a case where default cannot be cured within twenty (20) days, if the defaulting party shall not promptly within such period, commence and diligently pursue to completion the remedy of such default. (c) The taking of Tenant's interests in this Agreement or the Premises or any part thereof upon execution or by other process of law directed against Tenant, or the taking upon or subject to any attachment at the instance of any creditor of or claimant against Tenant, and said attachment shall not be discharged or disposed of within sixty (60) days after the levy thereof. Section 19.2 Landlord's Default. If Landlord should be in default as defined in Section 19.1, and after the expiration of the applicable cure period set forth therein, Tenant may incur any expense reasonably necessary to perform the obligation of Landlord specified in such notice and commence an action at law to recover such amount. Section 19.3 Tenant's Default. In the event of any default by Tenant, Landlord may, at its option, at any time: (a) Terminate this Agreement by written notice to Tenant and immediately reenter and take possession of the Premises. Tenant shall pay the Rent and other sums due prior to the time of such termination. (b) Take possession of the Premises and expel Tenant and then terminate this Agreement, or from time to time, without terminating this Agreement, relet the Premises upon such terms and conditions as Landlord may deem advisable; Landlord shall have no obligation to relet or otherwise mitigate the loss. No taking possession of the Premises by Landlord shall be construed as an election on Landlord's part to terminate this Agreement unless a written notice of such intention is given to Tenant. Landlord shall receive all proceeds from any reletting of the Premises and shall apply them to the payment of all such amounts as may become due under this Agreement. If the amounts so received by Landlord are insufficient to pay amounts due and becoming due hereunder, Tenant shall pay to Landlord upon demand by Landlord such deficiency. If Landlord cannot lease said Premises, the Rent obligation will continue for the remainder of the Term. (c) exercise any other remedy available to Landlord at law or equity, or otherwise available under other provision of this Lease. Section 19.4 Interest and Costs. Any sum accruing to either party under the terms of this Agreement which shall not be paid when due shall bear interest at the maximum lawful rate, not to exceed ten percent (10%) per annum from the date the same becomes due and payable until paid. Upon any default, Tenant shall pay Landlord all expenses in connection with such default, including, without limitation, all repossession costs, brokerage commissions, expenses of employees, alteration costs, and expenses of preparation for reletting. In the event either party hereto brings or commences legal proceedings to enforce any of the terms of this Agreement, the successful party shall then be entitled to receive from the other party, in every such action commenced, its reasonable attorneys' fees and costs incurred in enforcing the terms of this Agreement. Section 19.5 Equitable Remedies. In addition to the remedies in Section 19.3 to Landlord upon an Event of Default by Tenant as defined in Section 19.1 above, Landlord shall be entitled to specific performance, and injunctive or other appropriate equitable relief for any breach of any of the provisions of this Agreement, notwithstanding the availability of an adequate remedy at law, and Tenant hereby waives the right to raise such defense in any proceeding in equity. Section 19.6 No Waiver. The failure of Landlord or Tenant to seek redress for violation, or to insist upon the strict performance of any covenant or condition of this Agreement, shall not prevent a subsequent act, which would have originally constituted a violation, from having all the force and effect of an original violation. The receipt by Landlord of rent with knowledge of the breach of any covenant of this Agreement shall not be deemed a waiver of such breach. No provision of this Agreement shall be deemed to have been waived by Landlord or Tenant unless such waiver be in writing signed by Landlord or Tenant, as the case may be. Section 19.7 Cumulative Remedies. The specific remedies provided for in this Agreement are cumulative and are not exclusive of any other remedy. ARTICLE XX FEDERAL REGULATORY AGENCY REQUIREMENTS Section 20.1 Generally. Notwithstanding any other provisions contained in this Lease, in the event the Tenant is closed by, or taken over by, the banking authority of the State of Arkansas, or other bank supervisory authority ("Regulator"), Landlord may thereafter terminate this Lease only after giving such Regulator written notice of any existing default and Landlord's intent to terminate, and such Regulator fails to cure such default within thirty (30) days after such written notice. Provided such Regulator cures all existing defaults within thirty (30) days of notice of any such default from Landlord, and provided thereafter such Regulator complies with all of the terms and conditions of the Lease on behalf of Tenant, any such Regulator shall in such event have the election either to continue or to terminate this Lease by giving Landlord written notice of such intention within sixty (60) days of the closing or takeover, and in the event of an election to terminate, this Lease shall automatically terminate. In the event this Lease is so terminated, such termination shall be without prejudice to Landlord's claim for damages or indemnity, provided, in such event the maximum claim of Landlord for damages or indemnity for injury resulting from the rejection or abandonment of the unexpired term of the Agreement shall in no event be an amount exceeding the rent and estimated Additional Charges (CAM. etc.) reserved by the Lease, without acceleration, for the year next succeeding the date of the surrender of the Premises to the Landlord, or the date of re-entry of the Landlord, whichever first occurs, whether before or after the closing of the bank, plus an amount equal to the unpaid rent and Additional Charges (CAM, etc.) accrued. In the event this Lease is terminated in compliance with the provisions of this Section 20.1, ownership of the leasehold improvements shall, upon such termination, revert to Landlord free and clear of any encumbrances. ARTICLE XXI MISCELLANEOUS Section 21.1 Miscellaneous. (a) Any notice, consent, request, claim or other communication hereunder shall be in writing and shall be deemed to have been duly given if hand delivered, mailed by certified mail, return receipt requested, or delivered by overnight courier to the address shown for the respective party at the conclusion of this Agreement. Such addresses may be changed by any party by notice given in the manner provided above. (b) All statements contained in any certificate or other instrument delivered by or on behalf of the parties pursuant hereto, or in connection with the transaction contemplated hereby, shall be deemed representations and warranties by the party giving same. (c) In the event either party to this Agreement shall employ legal counsel to protect its rights under this Agreement or to enforce any term or provision of this Agreement, then the party prevailing in any such legal action shall have the right to recover from the other party all of its reasonable attorneys' fees, costs and expenses incurred in relation to such claim. (d) This Agreement contains all the terms and conditions agreed upon by the parties hereto with respect to the transactions contemplated hereby, and shall not be amended or modified except by written instrument signed by all of the parties. (e) This Agreement shall be binding upon and inure to the benefit of the representatives, heirs, estates, successors and assigns to the parties hereto. The obligations of each person constituting a Tenant shall be joint and several. (f) Nothing expressed or implied in this Agreement is intended, or shall be construed, to confer upon or give any person, firm or corporation, other than the parties hereto, their successors and assigns, any benefits, rights or remedies under or by reason of this Agreement. (g) Time is of the essence of this Agreement. (h) This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. (i) This Agreement shall be governed by and construed under the laws of the State of Arkansas. (j) Wherever in this Agreement it is provided that any party shall or will make any payment or perform or refrain from performing any act or obligation, each such provision shall, even though not so expressed, be construed as an express agreement to make such payment or to perform or not to perform, as the case may be, such act or obligation. Section 21.2 Estoppel Certificate. Any party within ten (10) days, upon request of any other party, shall furnish a written statement as to whether such other party is in default hereunder, whether this Agreement is in full force and effect and whether such party has any claims and/or defenses against such other party relating to this Agreement. Section 21.3 Construction. In the event Landlord or Tenant shall assert in any court a cause of action arising out of this Agreement, then this Agreement shall not be construed as having been written by either Landlord or Tenant, it being the specific intent of the parties that this Agreement shall not be construed more strictly against one that the other. Section 21.4 Joint and Several Liability. If Tenant is composed of more than one signatory to this Agreement, each signatory will be jointly and severally liable with each other signatory for payment and performance according to this Agreement. Section 21.5 Limitation on Recourse. Tenant specifically agrees to look solely to Landlord's interest in the Shopping Center for the recovery of any judgments from Landlord, it being agreed that Landlord (and its shareholders, venturers, and partners, and their shareholders, venturers, and partners, and all of their officers, directors, and employees) will never be personally liable for any obligations under this Lease or for any such judgments. The provision contained in the preceding sentence is not intended to and will not limit any right that Tenant might otherwise have to obtain injunctive relief against Landlord or to pursue any suit or action in connection with enforcement or collection of amounts that may become owing or payable under or on account of insurance maintained by Landlord. Section 21.6 Waiver of Jury Trial. Landlord and Tenant by this Section 20.6 waive trial by jury in any action, proceeding, or counterclaim brought by either of the parties to this Agreement against the other on any matters whatsoever arising out of or in any way connected with this Agreement, the relationship of Landlord and Tenant, Tenant's use or occupancy of the Premises, or any other claims (including without limitation claims for personal injury or property damage), and any emergency statutory or any other statutory remedy. Section 21.7 Entire Agreement. This Agreement, the exhibits, and addenda, if any, contain the entire agreement between Landlord and Tenant and may be amended only by subsequent written agreement. No promises or representations, except as contained in this Agreement, have been made to Tenant respecting the condition of the Premises or the manner of operating the Shopping Center. Section 21.8 Captions. The captions of the various articles and sections of this Agreement are for convenience only and do not necessarily define, limit, describe, or construe the contents of such articles or sections. Section 21.9 Authority. Tenant and the party executing this Agreement on behalf of Tenant represent to Landlord that such party is authorized to do so by requisite action of the board of directors or partners, as the case may be, and agree upon request to deliver to Landlord a resolution or similar document to that effect. Section 21.10 Brokers. Landlord and Tenant respectively represent and warrant to each other that neither of them has consulted or negotiated with any broker or finder with regard to the Premises. Each of them will indemnify the other against and hold the other harmless from any claims for fees or commissions from anyone with whom either of them has consulted or negotiated with regard to the Premises. Section 21.11 Landlord's Fees. Whenever Tenant requests Landlord to take any action or give any consent required or permitted under this Agreement, Tenant will reimburse landlord for all of Landlord's costs incurred in reviewing the proposed action or consent, including without limitation reasonable attorneys', engineers', architects', accountants', and other professional fees, within ten (10) days after Landlord's delivery to Tenant of a statement of such costs. Tenant will be obligated to make such reimbursement without regard to whether Landlord consents to any such proposed action. Section 21.12. Force Majeure. Except for the payment of Rent, Percentage Rent, or other sums payable by Tenant pursuant to this Lease, the time for performance by Landlord or Tenant of any term, provision or covenant of this Lease shall be deemed extended by time lost due to delays resulting from acts of God, strikes, unavailability of building materials, civil riots, floods, material or labor restrictions by governmental authority, enforcement of governmental regulations or requirements, and any other cause not within the control of Landlord or Tenant, as the case may be. Section 21.13. Landlord-Tenant Relationship. It is further understood and agreed that the Landlord shall in no event be construed or held to be a partner, joint venturer or associate of the Tenant in the conduct of the Tenant's business, nor shall Landlord be liable for any debts incurred by the Tenant in the Tenant's business; but it is understood and agreed that the relationship is and at all times shall remain that of landlord and tenant. Section 21.14. Right of Inspection. Landlord and its agents and representatives shall be entitled to enter upon and inspect the Premises at any time during normal business hours upon prior reasonable notice, provided only that such inspection shall not unreasonably interfere with Tenant's business. Section 21.15 Recording. Landlord and Tenant agree that neither party will record this Lease without the written consent of the other party, provided however, Landlord, and Tenant agree that upon the written request of either party that both parties will execute a memorandum of this Lease in form reasonably acceptable to both parties which does not reveal any of the economic terms of this Lease. Any such memorandum shall be recorded at the expense of the requesting party. 21.16. Regulatory Approval. It is understood and agreed that Tenant must file an application for approval and obtain approval of such application from the applicable regulatory authorities to operate a branch bank at the Premises. Tenant agrees to file all such necessary applications promptly after execution of this Lease and thereafter diligently pursue such approvals. Notwithstanding anything to the contrary in this Lease, in the event Tenant promptly files such application and diligently pursues such approval but is unable to obtain such approval on or before August 1, 1999, at anytime after such date but prior to such approval being obtained, either Landlord or Tenant may terminate this Lease by written notice to the other party and thereupon this Lease shall automatically terminate and neither party shall have any further obligations hereunder. EXECUTED in duplicate originals this the date first mentioned above. LANDLORD: METROPOLITAN REALTY & DEVELOPMENT, LLC By: /s/ Terry A. Paff, President ATTEST: /s/ Karen L. Mashburn Secretary Address for Notices: Metropolitan Realty & Development, LLC 7500 Highway 107 P.0. Box 6500 Sherwood, AR 72124-6500 Phone: 501-835-7500 TENANT: BANK OF THE OZARKS, WCA By: /s/ James C. Patridge Title: Vice Chairman ATTEST: /s/ Donna Quandt Secretary Address For Notices: P.O. Box 8811 Little Rock, AR 72231 Telephone: (501)978-2275 [ACKNOWLEDGMENTS AND EXHIBITS INTENTIONALLY OMITTED] EX-13 8 PORTIONS OF ANNUAL REPORT EXHIBIT 13 [LOGO] Financial Information Selected Consolidated Financial Data
Year Ended December 31, ------------------------------------------------------------------------- 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- (Dollars in thousands, except per share amounts) Income statement data: Interest income ............................... $ 51,575 $ 38,882 $ 27,468 $ 21,836 $ 15,703 Interest expense .............................. 27,782 20,518 12,979 10,031 7,391 Net interest income ........................... 23,793 18,364 14,489 11,805 8,312 Provision for loan losses ..................... 2,485 2,026 1,139 1,486 360 Non-interest income ........................... 5,147 5,031 2,925 1,865 1,168 Non-interest expense .......................... 16,464 13,119 9,228 7,151 5,996 Net income .................................... 6,635 5,629 4,531 3,027 2,170 Per common share data: Earnings - diluted ............................ $ 1.75 $ 1.47 $ 1.38 $ 1.05 $ 0.75 Book value .................................... 11.61 10.68 9.44 6.44 5.66 Dividends ..................................... 0.40 0.23 0.20 0.30 0.30 Weighted avg. shares outstanding (thousands)... 3,792 3,819 3,281 2,880 2,894 Balance sheet data at period end: Total assets .................................. $ 796,042 $ 612,431 $ 352,093 $ 270,600 $ 212,476 Total loans ................................... 467,131 387,526 275,463 214,462 153,198 Allowance for loan losses ..................... 6,072 4,689 3,737 3,019 1,909 Total investment securities ................... 263,395 176,618 42,459 39,608 37,137 Total deposits ................................ 595,930 529,040 295,555 231,648 182,463 Repurchase agreements with customers .......... 9,026 1,408 -- -- -- Other borrowings .............................. 126,989 39,271 19,089 18,123 11,867 Total stockholders' equity .................... 43,874 40,355 35,666 18,547 16,294 Loan to deposit ratio ......................... 78.39% 73.25% 93.20% 92.58% 83.96% Average balance sheet data: Total average assets .......................... $ 709,640 $ 486,729 $ 314,489 $ 240,208 $ 185,160 Total average stockholders' equity ............ 41,988 37,951 26,328 17,144 15,392 Average equity to average assets .............. 5.92% 7.80% 8.37% 7.14% 8.31% Performance ratios: Return on average assets ...................... 0.93% 1.16% 1.44% 1.26% 1.17% Return on average stockholders' equity ........ 15.80 14.83 17.21 17.66 14.09 Net interest margin ........................... 3.77 4.19 4.98 5.36 4.95 Efficiency .................................... 55.09 54.98 52.55 51.60 61.83 Dividend payout ............................... 22.86 15.65 14.49 28.57 40.00 Assets quality ratios: Net charge-offs as a percentage of average total loans ................................ 0.26% 0.33% 0.17% 0.21% 0.08% Nonperforming loans to total loans ............ 0.42 0.70 0.25 1.08 0.85 Nonperforming assets to total assets .......... 0.53 0.50 0.24 0.88 0.63 Allowance for loan losses as a percentage of: Total loans ................................... 1.30% 1.21% 1.36% 1.41% 1.25% Nonperforming loans ........................... 307.91 171.82 534.62 130.69 146.28 Capital ratios at period end: Leverage capital .............................. 7.46% 6.21% 9.86% 6.42% 7.49% Tier I risk-based capital ..................... 11.50 9.05 13.01 8.45 9.80 Total risk-based capital ...................... 13.15 10.21 14.27 9.70 11.05
9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General Net income was $6.6 million for the year ended December 31, 1999, a 17.9% increase over net income of $5.6 million in 1998. Net income in 1997 was $4.5 million. Diluted earnings rose 19.0% to $1.75 per share in 1999 compared to $1.47 per share in 1998. Diluted earnings in 1997 were $1.38 per share. As shown below total assets, loans and deposits increased 30.0%, 20.5% and 12.6%, respectively, from December 31, 1998 to December 31, 1999 and 73.9%, 40.7% and 79.0%, respectively, from December 31, 1997 to December 31, 1998. Stockholders' equity increased 8.7% from December 31, 1998 to December 31, 1999 and 13.1% from December 31, 1997 to December 31, 1998. During these same periods, book value per share increased 8.7% and 13.1%, respectively.
% Change December 31, ------------------------ ---------------------------------------- 1999 1998 1999 1998 1997 from 1998 from 1997 -------- -------- -------- --------- --------- (Dollars in thousands except per share amounts) Assets........................ $796,042 $612,431 $352,093 30.0% 73.9% Loans......................... 467,131 387,526 275,463 20.5 40.7 Deposits...................... 595,930 529,040 295,555 12.6 79.0 Stockholders' equity.......... 43,874 40,355 35,666 8.7 13.1 Book value per share.......... 11.61 10.68 9.44 8.7 13.1
Two measures of performance by banking institutions are return on average assets and return on average equity. Return on average assets ("ROA") measures net earnings in relation to average total assets and indicates a company's ability to employ its resources profitably. For the year ended December 31, 1999, the Company's ROA was 0.93% compared with 1.16% and 1.44%, respectively, for the years ended December 31, 1998 and 1997. Return on average equity ("ROE") is determined by dividing annual net earnings by average shareholders' equity and indicates how effectively a company can generate net income on the capital invested by its shareholders. For the year ended December 31, 1999, the Company's ROE was 15.80% compared with 14.83% and 17.21%, respectively, for the years ended December 31, 1998 and 1997. Analysis of Results of Operations The Company's results of operations depend primarily on net interest income, which is the difference between the interest income from earning assets, such as loans and investments, and the interest expense incurred on interest bearing liabilities, such as deposits and other borrowings. The Company also generates non-interest income, including service charges on deposit accounts, mortgage lending income, other charges and fees, trust income, and gains on sales of assets. The Company's non-interest expenses primarily consist of employee compensation and benefits, occupancy, equipment, and other operating expenses. The Company's results of operations are also significantly affected by its provision for loan losses. The following discussion provides a summary of the Company's operations for the past three years. Net Interest Income Net interest income is analyzed in the discussion and tables below on a fully taxable equivalent ("FTE") basis. The adjustment to convert certain income to an FTE basis consists of dividing tax-exempt income by one minus the statutory federal income tax rate (34%). 1999 compared to 1998 Net interest income (FTE) increased 31.4% to $24.7 million in 1999 from $18.8 million in 1998. This increase primarily resulted from a 46.1% increase in average earning assets to $656.6 million in 1999 from $449.4 million in 1998. The increase in average earning assets resulted from continued growth in the Company's loan portfolio and a significant increase in the investment securities portfolio. The Company's net interest margin declined from 4.19% for 1998 to 3.77% for 1999. The Company experienced strong competition for loans which reduced the Company's average loan yields by 77 basis points in 1999 compared to 1998. Deposit costs declined 48 basis points in 1999 compared to 1998 primarily as a result of 10 lower CD rates on the repricing of promotional CD's offered in connection with certain branch openings in 1997 and 1998. Deposit growth not used to fund loans, along with certain borrowings, was used to increase the investment securities portfolio. The increase in the investment securities portfolio in amount and as a percentage of total assets increased the Company's net interest income but reduced the net interest margin as the yield on securities was less than the yield on loans. 1998 compared to 1997 Net interest income (FTE) increased 28.7% to $18.8 million in 1998 from $14.6 million in 1997. This increase primarily resulted from a 53.1% increase in average earning assets to $449.4 million in 1998 from $293.6 million in 1997. The increase in average earning assets resulted from continued growth in the Company's loan portfolio and a significant increase in the investment securities portfolio. The Company's net interest margin declined from 4.98% for 1997 to 4.19% for 1998. While the Company experienced strong competition for loans which reduced the Company's average loan yields, deposit costs did not decline proportionately due to competition and promotional CD rates offered by the Company at its new offices opened in 1997 and 1998. The Company capitalized on favorable competitive opportunities resulting from industry consolidation to capture deposit market share causing its loan to deposit ratio to decline from 93.2% at the beginning of 1998 to 73.3% at December 31, 1998. Deposit growth not used to fund loans, along with certain borrowings, was used to increase the investment securities portfolio. The increase in the investment securities portfolio in amount and as a percentage of total assets increased the Company's net interest income but reduced net interest margin as the yield on securities was less than the yield on loans. Analysis of Net Interest Income (FTE = Fully Taxable Equivalent)
Year Ended December 31, -------------------------------- 1999 1998 1997 ------- ------- ------- (Dollars in thousands) Interest income ............................ $51,575 $38,882 $27,468 FTE adjustment ............................. 947 466 144 ------- ------- ------- Interest income--FTE ....................... 52,522 39,348 27,612 Interest expense ........................... 27,782 20,518 12,979 ------- ------- ------- Net interest income--FTE ................... $24,740 $18,830 $14,633 ======= ======= ======= Yield on interest earning assets--FTE ...... 8.00% 8.76% 9.40% Cost of interest bearing liabilities ....... 4.63 5.06 5.02 Net interest spread--FTE ................... 3.37 3.70 4.38 Net interest margin--FTE ................... 3.77 4.19 4.98
The following table sets forth certain information relating to the Company's net interest income for the years ended December 31, 1999, 1998 and 1997. The yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods shown except where otherwise noted. Average balances are derived from daily average balances for assets and liabilities. The average balance of loans receivable includes loans on which the Company has discontinued accruing interest. The yields and costs include amortization of certain deferred fees and origination costs, capitalization of interest on construction projects and late fees. These are considered adjustments to yields or rates. 11 Average Consolidated Balance Sheets and Net Interest Analysis
Year Ended December 31, -------------------------------------------------------------- 1999 1998 ---------------------------- --------------------------- Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate -------- -------- ---- -------- -------- ---- ASSETS (Dollars in thousands) Earning assets: Interest bearing deposits ..................... $ 262 $ 14 5.18% $ 3,730 $ 205 5.50% Federal funds sold ............................ 579 31 5.30 1,659 89 5.36 Investment securities: Taxable .................................... 194,511 12,847 6.61 99,840 6,654 6.66 Tax-exempt--FTE ............................ 36,938 2,538 6.87 15,790 1,160 7.35 Loans--FTE (net of unearned income) ........... 424,339 37,092 8.74 328,394 31,240 9.51 -------- -------- -------- -------- Total earning assets ..................... 656,629 52,522 8.00 449,413 39,348 8.76 Non-earning assets ............................ 53,011 37,316 -------- -------- Total assets ............................. $709,640 $486,729 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing liabilities: Deposits: Savings and interest bearing transaction ... $105,980 $ 2,756 2.60% $ 74,354 $ 2,054 2.76% Time deposits of $100,000 or more .......... 177,938 8,892 5.00 87,751 4,899 5.58 Other time deposits ........................ 239,707 12,183 5.08 198,268 11,165 5.63 -------- -------- -------- -------- Total interest bearing deposits .......... 523,625 23,831 4.55 360,373 18,118 5.03 Repurchase agreements with customers .......... 2,991 132 4.40 108 4 3.70 FHLB advances and federal funds ............... 67,793 3,433 5.06(1) 36,402 1,759 4.83(1) Notes payable(2) .............................. 5,924 386 6.52 8,811 637 7.23 -------- -------- -------- -------- Total interest bearing liabilities ....... 600,333 27,782 4.63 405,694 20,518 5.06 Non-interest liabilities: Non-interest bearing deposits ................. 54,782 40,583 Other non-interest liabilities ................ 3,085 2,501 -------- -------- Total liabilities ........................ 658,200 448,778 Trust preferred securities ....................... 9,452 -- Stockholders' equity ............................. 41,988 37,951 -------- -------- Total liabilities and stockholders' equity $709,640 $486,729 ======== ======== Interest rate spread--FTE ........................ 3.37% 3.70% -------- -------- Net interest income--FTE ......................... $ 24,740 $ 18,830 ======== ======== Net interest margin--FTE ......................... 3.77% 4.19% Year Ended December 31, ---------------------------- 1997 ---------------------------- Average Income/ Yield/ Balance Expense Rate -------- -------- ---- ASSETS Earning assets: Interest bearing deposits ..................... $ 3,883 $ 213 5.49% Federal funds sold ............................ 2,021 108 5.34 Investment securities: Taxable .................................... 39,413 2,684 6.81 Tax-exempt--FTE ............................ 3,520 353 10.03 Loans--FTE (net of unearned income) ........... 244,757 24,254 9.91 -------- -------- Total earning assets ..................... 293,594 27,612 9.40 Non-earning assets ............................ 20,895 -------- Total assets ............................. $314,489 ======== LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing liabilities: Deposits: Savings and interest bearing transaction ... $ 61,184 $ 1,786 2.92% Time deposits of $100,000 or more .......... 48,919 2,753 5.63 Other time deposits ........................ 129,969 7,287 5.61 -------- -------- Total interest bearing deposits .......... 240,072 11,826 4.93 Repurchase agreements with customers .......... -- -- -- FHLB advances and federal funds ............... 12,347 599 4.85(1) Notes payable(2) .............................. 6,125 554 9.04 -------- -------- Total interest bearing liabilities ....... 258,544 12,979 5.02 Non-interest liabilities: Non-interest bearing deposits ................. 26,981 Other non-interest liabilities ................ 2,636 -------- Total liabilities ........................ 288,161 Trust preferred securities ....................... -- Stockholders' equity ............................. 26,328 -------- Total liabilities and stockholders' equity $314,489 ======== Interest rate spread--FTE ........................ 4.38% -------- Net interest income--FTE ......................... $ 14,633 ======== Net interest margin--FTE ......................... 4.98%
(1) This rate is impacted by the capitalization of interest on construction projects in the amount of $51,000, $275,000 and $145,000 for the years ended December 31, 1999, 1998 and 1997, respectively. In the absence of this capitalization these percentages would have been 5.14%, 5.59% and 6.03% for the years ended December 31, 1999, 1998 and 1997, respectively. (2) The interest expense on notes payable includes interest accrued for the year ended December 31, 1997 for a tax dispute related to the years 1992-1995. Such interest accrual was $25,000 and was recorded during the year ended December 31, 1997. The following table reflects how changes in the volume of interest earning assets and interest bearing liabilities and changes in interest rates have affected the Company's interest income and interest expense during the periods indicated. Information is provided in each category with respect to changes attributable to (1) changes in volume (changes in volume multiplied by prior rate); (2) changes in rate (changes in rate multiplied by prior volume); and (3) changes in rate/volume (change in rate multiplied by change in volume). The changes attributable to the combined impact of volume and rate have all been allocated to the changes due to volume. 12 Analysis of Changes in Net Interest Income
1999 over 1998 1998 over 1997 -------------------------------- -------------------------------- Yield/ Yield/ Volume Rate Total Volume Rate Total -------- -------- -------- -------- -------- -------- (Dollars in thousands) Increase (decrease) in: Interest income--FTE: Interest bearing deposits ............ $ (179) $ (12) $ (191) $ (8) $ -- $ (8) Federal funds sold ................... (57) (1) (58) (19) -- (19) Investment securities: Taxable ............................ 6,253 (60) 6,193 4,027 (57) 3,970 Tax-exempt--FTE .................... 1,453 (75) 1,378 901 (94) 807 Loans (net of unearned income) ....... 8,388 (2,536) 5,852 7,956 (970) 6,986 -------- -------- -------- -------- -------- -------- Total interest income--FTE ......... 15,858 (2,684) 13,174 12,857 (1,121) 11,736 -------- -------- -------- -------- -------- -------- Interest expense: Savings and interest bearing transaction 823 (121) 702 364 (96) 268 Time deposits of $100,000 or more ...... 4,507 (514) 3,993 2,168 (22) 2,146 Other time deposits .................... 2,106 (1,088) 1,018 3,846 32 3,878 Repurchase agreements with customers ... 127 1 128 4 -- 4 FHLB advances and federal funds ........ 1,589 85 1,674 1,163 (3) 1,160 Notes payable .......................... (188) (63) (251) 194 (111) 83 -------- -------- -------- -------- -------- -------- Total interest expense ............. 8,964 (1,700) 7,264 7,739 (200) 7,539 -------- -------- -------- -------- -------- -------- Increase (decrease) in net interest income--FTE ........................ $ 6,894 $ (984) $ 5,910 $ 5,118 $ (921) $ 4,197 ======== ======== ======== ======== ======== ========
Non-Interest Income The Company's non-interest income can primarily be broken down into five main sources: (1) service charges on deposit accounts, (2) mortgage lending income, (3) other charges and fees including appraisal fees and commissions from the sale of credit related insurance products, (4) trust income and (5) gains on sales of assets. Non-interest income for the year ended December 31, 1999 increased 2.3% to $5.1 million compared with $5.0 million in 1998. Non-interest income was $2.9 million in 1997. During 1999 the Company benefited from strong growth in service charges on deposit accounts and increases in trust income compared to 1998. The increase in service charge income resulted from continued growth in the number of retail checking, savings and money market accounts, growth in the number of commercial checking accounts and cash management customers, increased service charge rates and improved collection and waiver practices. The improvements in these components of non-interest income were offset by declining mortgage lending income in 1999, particularly in the last half of the year as rising interest rates resulted in a significant reduction in the rate of mortgage refinancing and slowed real estate activity in general. The table below shows non-interest income for the years ended December 31, 1999, 1998 and 1997. Non-Interest Income
Year Ended December 31, ------------------------------ 1999 1998 1997 ------- ------- ------- (Dollars in thousands) Service charges on deposit accounts .......... $ 2,499 $ 1,372 $ 957 Mortgage lending income ...................... 1,306 2,136 566 Other charges and fees ....................... 630 656 570 Trust income ................................. 479 335 274 Gain on sale of loans ........................ -- -- 57 Gain on sale of foreclosed real estate ....... 16 98 261 Gain (loss) on sale of other assets .......... (4) 15 76 Gain on sale of securities ................... 69 255 14 Printed check sales .......................... 32 118 127 Other ........................................ 120 46 23 ------- ------- ------- Total non-interest income .............. $ 5,147 $ 5,031 $ 2,925 ======= ======= =======
13 Non-Interest Expense Non-interest expense consists of salaries and employee benefits, occupancy, equipment and other operating expenses. Non-interest expense for the year ended December 31, 1999 increased 25.5% to $16.5 million compared with $13.1 million in 1998. Non-interest expense was $9.2 million in 1997. The increase in 1999 primarily resulted from the Company's continued growth and expansion as well as expenses incurred in connection with consolidation of the Company's banking subsidiaries into a single charter during the first half of 1999. Full time equivalent employees increased to 292 at December 31, 1999 from 266 at December 31, 1998 as the Company added staff due to continued growth. The Company's efficiency ratio (non-interest expenses divided by the sum of net interest income on a tax equivalent basis and non-interest income) was 55.1% for the year ended December 31, 1999 compared to 55.0% in 1998 and 52.6% in 1997. The table below shows non-interest expense for the years ended December 31, 1999, 1998 and 1997. Non-Interest Expense
Year Ended December 31, ----------------------------- 1999 1998 1997 ------- ------- ------- (Dollars in thousands) Salaries and employee benefits ................ $ 8,752 $ 7,197 $ 5,330 Net occupancy expense ......................... 1,223 877 584 Equipment expense ............................. 1,432 1,084 721 Other real estate and foreclosure expense ..... 358 130 40 Other operating expense: Professional and outside services .......... 319 211 102 Postage .................................... 286 243 178 Telephone .................................. 418 314 221 Data lines ................................. 186 139 41 Operating supplies ......................... 513 454 405 Advertising and public relations ........... 612 566 332 Directors' fees ............................ 121 114 116 Software expense ........................... 301 190 119 Check printing charges ..................... 27 147 137 ATM expense ................................ 178 118 53 FDIC and state assessments ................. 217 166 112 Business development, meals and travel ..... 147 120 69 Amortization of goodwill ................... 90 106 56 Amortization of other intangibles .......... 172 67 19 Other ...................................... 1,112 876 593 ------- ------- ------- Total non-interest expense ........... $16,464 $13,119 $ 9,228 ======= ======= =======
Income Taxes The provision for income taxes was $2.5 million for the year ended December 31, 1999 compared to $2.6 million in 1998 and $2.5 million in 1997. The effective income tax rates were 27.4%, 31.8% and 35.7%, respectively, for 1999, 1998 and 1997. In 1999 the Company recovered $153,000 of tax and $91,000 of interest related to the assessment of additional state income taxes for the year 1992 with respect to a dispute involving the taxation of intercompany dividends. This assessment had been expensed in 1996. The decrease in effective tax rates in 1999 resulted from this state tax recovery and the Company's increased investments in tax-exempt securities, including securities exempt from both federal and Arkansas income taxes as well as certain federal agency securities exempt solely from Arkansas income taxes. The decrease in the effective tax rate for 1998 compared to 1997 was primarily a result of increased investments in tax-exempt securities. 14 Analysis of Financial Condition Loan Portfolio At December 31, 1999 the Company's loan portfolio was $467.1 million, an increase of 20.5% from $387.5 million at December 31, 1998. As of December 31, 1999 the Company's loan portfolio consisted of approximately 62.5% real estate loans, 17.5% consumer loans, 15.0% commercial and industrial loans and 4.3% agricultural loans (non-real estate). The amount and type of loans outstanding are reflected in the following table. Loan Portfolio
December 31, --------------------------------------------------------------------- 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- (Dollars in thousands) Real estate: Owner-occupied 1-4 family residential................. $136,856 $121,539 $ 96,943 $ 78,124 $ 55,609 Non-farm/non-residential.............. 101,766 76,563 41,710 35,258 36,603 Agricultural.......................... 20,396 19,463 13,443 11,583 9,274 Construction/land development......... 28,294 23,305 16,257 8,808 3,471 Multifamily residential............... 4,687 6,207 3,897 3,743 4,388 -------- -------- -------- -------- -------- Total real estate................. 291,999 247,077 172,250 137,516 109,345 Consumer................................. 81,753 66,407 53,233 39,868 25,372 Commercial and industrial................ 70,012 52,192 37,470 28,154 11,077 Agricultural (non-real estate)........... 19,947 20,068 10,824 8,363 6,963 Other.................................... 3,420 1,782 1,686 561 441 -------- -------- -------- -------- -------- Total loans....................... $467,131 $387,526 $275,463 $214,462 $153,198 ======== ======== ======== ======== ========
The following table reflects remaining maturities at December 31, 1999 by type and by fixed or floating interest rates. Loan Maturities
Over 1 Year 1 Year Through Over or Less 5 Years 5 Years Total -------- -------- ------- -------- (Dollars in thousands) Real estate................................ $ 73,474 $182,633 $35,892 $291,999 Consumer................................... 18,784 60,350 2,619 81,753 Commercial, industrial and agricultural.... 40,034 46,316 3,609 89,959 Other...................................... 132 67 3,221 3,420 -------- -------- ------- -------- $132,424 $289,366 $45,341 $467,131 ======== ======== ======= ======== Fixed rate................................. $120,586 $283,952 $25,303 $429,841 Floating rate.............................. 11,838 5,414 20,038 37,290 -------- -------- ------- -------- $132,424 $289,366 $45,341 $467,131 ======== ======== ======= ========
15 Nonperforming Assets Nonperforming assets consist of (1) nonaccrual loans, (2) accruing loans 90 days or more past due, (3) restructured loans providing for a reduction or deferral of interest or principal because of a deterioration in the financial position of the borrower and (4) real estate or other assets that have been acquired in partial or full satisfaction of loan obligations or upon foreclosure. The Company generally places a loan on nonaccrual status when payment of principal or interest is contractually past due 90 days, or earlier when doubt exists as to the ultimate collection of principal and interest. The Company continues to accrue interest on certain loans contractually past due 90 days if such loans are both well secured and in the process of collection. At the time a loan is placed on nonaccrual status, interest previously accrued but uncollected is generally reversed and charged against interest income. If a loan is determined to be uncollectible, the portion of the loan principal determined to be uncollectible will be charged against the allowance for loan losses. Interest income on nonaccrual loans is recognized on a cash basis when and if actually collected. Nonperforming loans as a percent of total loans improved to 0.42% at year-end 1999 compared to 0.70% at year-end 1998. Nonperforming assets as a percent of total assets increased slightly to 0.53% as of year-end 1999 compared to 0.50% as of year-end 1998. During the first quarter of 1999 the Company placed on nonaccrual status residential real estate development loans to a single borrower and charged these loans down to the $1.6 million dollar appraised value of the collateral. During the third quarter the Company completed foreclosure and acquired title to the real estate securing these loans and transferred the loan balances to other real estate. The Company completed the sale of approximately 9% of the lots in this development during the fourth quarter of 1999. The following table presents information concerning nonperforming assets including nonaccrual and restructured loans and foreclosed assets held for sale. Nonperforming Assets
December 31, ---------------------------------------------- 1999 1998 1997 1996 1995 ------ ------ ------ ------ ------ (Dollars in thousands) Nonaccrual loans ........................................ $1,972 $2,708 $ 664 $2,057 $1,181 Accruing loans 90 days or more past due ................. -- 21 35 253 124 Restructured loans ...................................... -- -- -- -- -- ------ ------ ------ ------ ------ Total nonperforming loans ......................... 1,972 2,729 699 2,310 1,305 Foreclosed assets held for sale and repossessions(1) .... 2,238 314 136 78 29 ------ ------ ------ ------ ------ Total nonperforming assets ........................ $4,210 $3,043 $ 835 $2,388 $1,334 ====== ====== ====== ====== ====== Nonperforming loans to total loans ...................... 0.42% 0.70% 0.25% 1.08% 0.85% Nonperforming assets to total assets .................... 0.53 0.50 0.24 0.88 0.63
(1) Foreclosed assets held for sale and repossessions are generally written down to estimated market value at the time of transfer from the loan portfolio. The value of such assets is reviewed from time to time throughout the holding period with the value adjusted to the then estimated market value, if lower, until disposition. Under Arkansas banking law, other real estate owned is generally required to be written off over a five year period unless approval of the Arkansas State Bank Department is obtained to write such assets off over an extended period. 16 An analysis of the allowance for loan losses for the periods indicated is shown in the table below. Allowance and Provision for Loan Losses
Year Ended December 31, ----------------------------------------------------- 1999 1998 1997 1996 1995 ------ ------ ------ ------ ------ (Dollars in thousands) Balance, beginning of period.................................. $4,689 $3,737 $3,019 $1,909 $1,649 Loans charged off: Real estate: Owner-occupied 1-4 family residential............... 260 75 35 73 14 Non-farm/non-residential............................ 8 18 -- -- 51 Agricultural........................................ 3 -- -- -- -- Construction/land development....................... 115 -- -- -- -- Multifamily residential............................. -- -- -- -- -- ------ ------ ------ ------ ------ Total real estate.............................. 386 93 35 73 65 Consumer................................................. 516 633 434 216 44 Commercial and industrial................................ 271 423 -- 128 47 Agricultural (non-real estate)........................... 52 -- -- -- -- ------ ------ ------ ------ ------ Total loans charged off........................ 1,225 1,149 469 417 156 ------ ------ ------ ------ ------ Recoveries of loans previously charged off: Real estate: Owner-occupied 1-4 family residential............... 4 9 5 2 -- Non-farm/non-residential............................ -- -- -- -- 33 Agricultural ....................................... -- -- 2 -- -- Construction/land development....................... 2 -- -- -- -- Multifamily residential............................. -- -- -- -- -- ------ ------ ------ ------ ------ Total real estate.............................. 6 9 7 2 33 Consumer................................................. 111 55 39 35 23 Commercial and industrial ............................... 6 11 2 4 -- Agricultural (non-real estate)........................... -- -- -- -- -- ------ ------ ------ ------ ------ Total recoveries .............................. 123 75 48 41 56 ------ ------ ------ ------ ------ Net loans charged off ........................................ 1,102 1,074 421 376 100 Provision charged to operating expense........................ 2,485 2,026 1,139 1,486 360 ------ ------ ------ ------ ------ Balance, end of period ....................................... $6,072 $4,689 $3,737 $3,019 $1,909 ====== ====== ====== ====== ====== Net charge-offs to average loans outstanding during the periods indicated............................. 0.26% 0.33% 0.17% 0.21% 0.08% Allowance for loan losses to total loans ..................... 1.30 1.21 1.36 1.41 1.25 Allowance for loan losses to nonperforming loans ............. 307.91 171.82 534.62 130.69 146.28
The Company continuously monitors its underwriting procedures in an attempt to maintain loan quality. Beginning in 1998 and continuing in 1999 the Company implemented changes in its lending process, including changes in personnel, to more effectively address credit risks associated with the Company's loan portfolio growth. These changes are intended to improve loan quality and allow the Company to continue to maintain a satisfactory charge-off level. The amounts of provisions to the allowance for loan losses are based on management's judgment and evaluation of the loan portfolio utilizing objective and subjective criteria. The objective criteria utilized by the Company to assess the adequacy of its allowance for loan losses and required additions to such reserve are (1) an internal grading system, (2) a peer group analysis, and (3) a historical analysis. In addition to these objective criteria, the Company subjectively assesses adequacy of the allowance for loan losses and the need for additions thereto, with consideration given to the nature and volume of the portfolio, overall portfolio quality, review of specific problem loans, national, regional and local business and economic conditions that may affect the borrowers' ability to pay or the value 17 of collateral securing the loans, and other relevant factors. The Company's allowance for loan losses increased to $6,072,000 at December 31, 1999, or 1.30% of total loans, compared with $4,689,000, or 1.21% of total loans, at December 31, 1998. While management believes the current allowance is adequate, changing economic and other conditions may require future adjustments to the allowance for loan losses. During the fourth quarter of 1999, the Company modified its internal grading system analysis to more closely follow the Company's actual historical loan loss experience. This modified analysis assigns grades to all loans except owner-occupied 1-4 family residential loans and consumer installment loans. Graded loans are assigned to one of seven risk grades, with each grade being assigned a specific reserve allocation percentage. The loan grade for each individual loan is determined by the loan officer at the time it is made and changed from time to time to reflect an ongoing assessment of loan risk. Loan grades are reviewed on specific loans from time to time by senior management and as part of the Company's internal loan review process. Owner-occupied 1-4 family residential and consumer installment loans are assigned a reserve allocation percentage based on past due status. The sum of all reserve amounts determined by this methodology is utilized by management as the primary indicator of the appropriate reserve level. The unallocated reserve generally serves to compensate for the uncertainty in estimating loan losses, including the possibility of changing risk ratings or specific reserve allocations. In addition to the above analysis, the Company compares the allowance for loan losses (as a percentage of total loans) maintained by its subsidiary bank to the peer group average percentage as shown on the most recently available FDIC Uniform Bank Performance Reports for such banks. The Company also compares the allowance for loan loss to the bank's historical cumulative net charge-offs for the five preceding calendar years. The Company subjectively assesses the adequacy of the allowance for loan losses by considering the nature and volume of the portfolio, overall portfolio quality, review of specific problem loans, national, regional and local business and economic conditions that may affect the borrowers' ability to pay or the value of collateral securing the loans, and other relevant factors. Although the Company does not determine the overall allowance based upon the amount of loans in a particular type or category (except in the case of owner-occupied 1-4 family residential and consumer installment loans), risk elements attributable to particular loan types or categories are considered in assigning loan grades to individual loans. These risk elements include the following: (1) for non-farm/non-residential loans and multifamily residential loans, the debt service coverage ratio (income from the property in excess of operating expenses compared to loan payment requirements), operating results of the owner in the case of owner-occupied properties, the loan to value ratio, the age and condition of the collateral and the volatility of income, property value and future operating results typical of properties of that type; (2) for agricultural real estate loans, the loan to value ratio; (3) for construction and land development loans, the perceived feasibility of the project including the ability to sell developed lots or improvements constructed for resale or ability to lease property constructed for lease, the quality and nature of contracts for presale or preleasing if any, experience and ability of the developer and loan to value ratios; (4) for commercial and industrial loans, the operating results of the commercial, industrial or professional enterprise, the borrower's business, professional and financial ability and expertise, the specific risks and volatility of income and operating results typical for businesses in that category and the value, nature and marketability of collateral; (5) for non-real estate agricultural loans, the operating results, experience and ability of the borrower, historical and expected market conditions and the value, nature and marketability of collateral. In addition, for each category the Company considers secondary sources of income and the financial strength of the borrower and any guarantors. Management reviews the allowance on a quarterly basis to determine whether the amount of regular monthly provision should be increased or decreased or whether additional provisions should be made to the allowance. The allowance is determined by management's assessment and grading of individual loans in the case of loans other than owner-occupied 1-4 family residential and consumer installments and specific reserves made for other categories of loans. The total allowance amount is available to absorb losses across the Company's entire portfolio. The following table sets forth the sum of the amounts of the allowance for loan losses attributable to individual loans within each loan category, or loan categories in general, and unallocated reserves as of December 31, 1999, 1998 and 1997. These amounts have been computed using the modified grading system analysis. The allowance amounts for 1998 have been restated to conform to this methodology. Information prior to the Company's initial public offering in 1997 is not available. The amounts shown are not necessarily indicative of the actual future losses that may occur within particular loan categories. 18 Allocation Of The Allowance For Loan Losses
Percent of Percent of Percent of Loans in Loans in Loans in Allowance Category to Allowance Category to Allowance Category to Amount Total Loans Amount Total Loans Amount(1) Total Loans --------- ----------- --------- ----------- --------- ----------- December 31, 1999 December 31, 1998 December 31, 1997 ---------------------- ----------------------- ------------------------ (Dollars in thousands) Real estate: Owner-occupied 1-4 family residential .... $ 478 29.2% $ 532 31.4% $1,116 35.2% Non-farm/non-residential .... 1,067 21.8 801 19.7 423 15.2 Agricultural ................ 302 4.4 231 5.0 152 4.9 Construction/land development 321 6.1 267 6.0 163 5.9 Multifamily ................. 57 1.0 63 1.6 41 1.4 Consumer ...................... 1,313 17.5 1,236 17.1 372 19.3 Commercial and industrial ..... 808 15.0 610 13.5 412 13.6 Agricultural (non-real estate) 322 4.3 257 5.2 114 3.9 Other ......................... 225 0.7 179 0.5 248 0.6 Unallocated reserves .......... 1,179 N/A 513 N/A 696 N/A ------ ----- ------ ----- ------ ----- $6,072 100.0% $4,689 100.0% $3,737 100.0% ====== ===== ====== ===== ====== =====
(1) The allocation of the allowance by loan type as of December 31, 1997 is presented based on the Company's previous methodology as information is not available to restate this allocation. The Company maintains an internally classified loan list that, along with the list of nonaccrual or nonperforming loans, helps management assess the overall quality of the loan portfolio and the adequacy of the allowance. Loans classified as "substandard" are loans with clear and defined weaknesses such as highly leveraged positions, unfavorable financial ratios, uncertain repayment sources or poor financial condition which may jeopardize recoverability of the loan. Loans classified as "doubtful" are those loans that have characteristics similar to substandard loans, but also have an increased risk that a loss may occur or at least a portion of the loan may require a charge-off if liquidated. Although loans classified as substandard do not duplicate loans classified as doubtful, both substandard and doubtful loans may include some loans that are past due at least 90 days, are on nonaccrual status or have been restructured. Loans classified as "loss" are loans that are in the process of being charged off. At December 31, 1999, substandard loans not designated as nonaccrual or 90 days past due totaled $3 million. No loans were designated as doubtful or loss at December 31, 1999. Administration of the subsidiary bank's lending function is the responsibility of the Chief Executive Officer, Vice Chairman and certain senior lenders. Such officers perform their lending duties subject to the oversight and policy direction of the Board of Directors and various loan committees. Loan authorities are granted to the Chief Executive Officer and Vice Chairman as determined appropriate by the Board of Directors. Loan authorities of other lending officers are assigned by the Chief Executive Officer and Vice Chairman. Loans and aggregate loan relationships exceeding $3 million up to the lending limit of the bank can be authorized only by the Board of Directors. Loans and aggregate loan relationships exceeding $1 million up to $3 million can be authorized by one of the loan committees. At quarterly meetings, a designated loan review committee reviews detailed reports of new loans, loan commitments over $100,000, loan loss activity, past due and problem loans, asset quality and other matters as appropriate. The Board of Directors also reviews on a monthly basis reports of loan originations, past due loans, internally classified and watch list loans and activity in the Company's allowance for loan losses. The Company's compliance and loan review officers are responsible for serving the bank subsidiary of the Company in the loan review and compliance areas. Periodic reviews are scheduled for the purpose of evaluating asset quality and effectiveness of loan administration. The compliance and loan review officers prepare loan review reports which identify deficiencies, establish recommendations for improvement, and outline management's proposed action plan for curing the deficiencies. This report is provided to the audit committee, which consists of three non-employee members of the Board of Directors. The Company's allowance for loan losses exceeds its cumulative historical net charge-off experience for the last five years. However, the allowance is considered reasonable given the significant growth in the loan portfolio in 1999 and 1998, key allowance and nonperforming loan ratios and comparisons to industry averages. 19 Based on these procedures, management believes that the allowance of $6,072,000 at December 31, 1999 is adequate. The allowance for loan losses is 1.30% of loans at December 31, 1999 compared to 1.21% at December 31, 1998. Provision for Loan Losses: The amounts of provision to the allowance for loan losses are based on management's judgment and evaluation of the loan portfolio utilizing the criteria discussed above. The provision for 1999 was $2.5 million compared to $2.0 million in 1998 and $1.1 million in 1997. Investments and Securities The Company's securities portfolio is the second largest component of earning assets and provides a significant source of revenue for the Company. The following table presents the amortized cost and the fair value of investment securities for each of the dates indicated. Investment Securities
December 31, --------------------------------------------------------------- 1999 1998 1997 ------------------- ------------------- ------------------- Book Fair Book Fair Book Fair Value(1) Value(2) Value(1) Value(2) Value(1) Value(2) -------- -------- -------- -------- -------- -------- (Dollars in thousands) Securities of U.S. Government agencies ..................... $215,713 $202,947 $156,351 $156,331 $ 24,583 $ 24,596 Mortgage-backed securities ........ 192 192 2,117 2,117 9,571 9,571 Obligations of states and political subdivisions ................. 39,705 39,665 14,904 14,985 6,795 6,819 Other securities .................. 7,785 7,782 3,246 3,246 1,510 1,510 -------- -------- -------- -------- -------- -------- Total .................. $263,395 $250,586 $176,618 $176,679 $ 42,459 $ 42,496 ======== ======== ======== ======== ======== ========
(1) The book value on available-for-sale securities is adjusted to reflect the unrealized gains or losses on those securities. (2) The fair value of the Company's investment securities is based on quoted market prices where available. If quoted market prices are not available, fair values are based on market prices for comparable securities. The following table reflects the amortized cost, by contractual maturity, of the Company's investment securities at December 31, 1999 and weighted average yields (for tax-exempt obligations on a fully taxable equivalent basis assuming a 34% tax rate) of such securities. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Maturity Distribution of Investment Securities
Over Over 1 Year 1 Year 5 Years Over or Thru 5 Thru 10 10 Fair Less Years Years Years Total Value --------- --------- -------- -------- -------- -------- (Dollars in thousands) Securities of U.S. Government agencies ......... $ -- $ -- $181,211 $ 34,502 $215,713(1) $202,947 Mortgage-backed securities ..................... -- -- 55 137 192 192 Obligations of states and political subdivisions 451 5,563 8,442 25,249 39,705(2) 39,665 Other securities ............................... -- -- -- 7,785 7,785 7,782 --------- --------- -------- -------- -------- -------- Total ..................................... $ 451 $ 5,563 $189,708 $ 67,673 $263,395 $250,586 ========= ========= ======== ======== ======== ======== Percentage of total ............................ 0.17% 2.11% 72.02% 25.69% 100.00% Weighted average yield (FTE)(3) ................ 7.18 6.26 6.66 6.72 6.62
(1) At December 31, 1999 all federal agency securities held by the Company have certain rights which allow the issuer to call or prepay the obligation without prepayment penalties. (2) At December 31, 1999 approximately $1.0 million of these securities earned interest at floating rates repricing semi-annually. (3) The weighted average yields (FTE) are based on book value. 20 Deposits The Company's bank subsidiary lending and investing activities are funded primarily by deposits, approximately 72.9% of which were time deposits and 27.1% of which were demand and savings deposits at December 31, 1999. Interest bearing deposits other than time deposits consist of transaction, savings and money market accounts. These deposits comprise 17.7% of total deposits at December 31, 1999. Non-interest bearing demand deposits at December 31, 1999, constituted approximately 9.4% of total deposits. The Company had no brokered deposits at December 31, 1999. Average Deposit Balances and Rates
Year Ended December 31, ------------------------------------------------------------------- 1999 1998 1997 ---------------------- ------------------- -------------------- Average Average Average Average Rate Average Rate Average Rate Amount Paid Amount Paid Amount Paid ---------------------- ------------------- -------------------- (Dollars in thousands) Non-interest bearing accounts ..... $ 54,782 -- $ 40,583 -- $ 26,981 -- Interest bearing accounts: Transaction (NOW) .............. 51,615 2.21% 32,419 2.25% 25,469 2.19% Savings ........................ 15,702 1.97 12,002 2.11 8,734 2.13 Money market ................... 38,663 3.38 29,933 3.58 26,981 3.86 Time deposits less than $100,000 239,707 5.08 198,268 5.63 129,969 5.61 Time deposits $100,000 or more . 177,938 5.00 87,751 5.58 48,919 5.63 ----------- -------- -------- Total deposits .............. $ 578,407 $400,956 $267,053 =========== ======== ========
The following table sets forth by time remaining to maturity, time deposits in amounts of $100,000 or more at December 31, 1999. Maturity distribution of time deposits of $100,000 and over December 31, 1999 ----------------- (Dollars in thousands) Maturity -------- 3 months or less ................... $83,576 3 to 6 months ...................... 54,565 6 to 12 months...................... 38,937 Over 12 months...................... 13,822 Interest Rate Sensitivity The Company's interest rate risk management is the responsibility of the Asset/Liability Management Committee, which reports to the Board of Directors. This committee establishes policies that monitor and coordinate the Company's sources, uses and pricing of funds. The committee is also involved with management in the Company's planning and budgeting process. The Company regularly reviews its exposure to changes in interest rates. Among the factors considered are changes in the mix of earning assets and interest bearing liabilities, interest rate spreads and repricing periods. Typically, the committee reviews on at least a quarterly basis the bank subsidiary's relative ratio of rate sensitive assets to rate sensitive liabilities and the related cumulative gap for different time periods. Additionally, the committee and management review other alternative interest rate risk measures and utilize a simulation model in assessing the Company's interest rate sensitivity. Using a simple static GAP analysis as shown in the following table, at December 31, 1999 the cumulative ratios of rate sensitive assets to rate sensitive liabilities at six months and one year, respectively, were 43.6% and 47.8%. A financial institution is considered to be liability sensitive, or as having a negative GAP, when the amount of its interest bearing liabilities maturing or repricing within a given time period exceeds the amount of its interest earning assets also maturing or repricing within that time period. Conversely, an institution is considered to be asset sensitive, or as having a positive GAP, when the amount of its interest bearing liabilities maturing and repricing is less than the amount of its interest earning assets also maturing or repricing during the same period. Generally, in a falling interest rate environment, a negative GAP should result in an increase in net interest income, and in a rising interest rate environment this negative GAP should adversely affect net interest income. The converse would be true for a positive GAP. Due to inherent limitations in any static GAP analysis and since conditions change on a daily basis, these expectations may not reflect future results. 21 Rate Sensitive Assets and Liabilities
December 31, 1999 -------------------------------------------------------------------------- Rate Rate Cumulative Cumulative Sensitive Sensitive Period Cummulative Gap to RSA(1) to Assets Liabilities Gap Gap Total RSA(1) RSL(2) --------- ----------- --------- ----------- ------------ ---------- (Dollars in thousands) Floating rate .......... $ 39,790 $ 78,849 $ (39,059) $ (39,059) (5.34)% 50.46% Fixed rate repricing in: 1 month .............. 38,758 60,385 (21,627) (60,686) (8.30) 56.41 2 months ............. 26,511 94,097 (67,586) (128,272) (17.55) 45.03 3 months ............. 22,841 61,160 (38,319) (166,591) (22.80) 43.43 4 months ............. 20,241 42,250 (22,009) (188,600) (25.81) 43.99 5 months ............. 17,363 32,265 (14,902) (203,502) (27.85) 44.85 6 months ............. 18,152 52,510 (34,358) (237,860) (32.55) 43.57 6 months - 1 year .... 79,012 127,634 (48,622) (286,482) (39.20) 47.83 1-2 years ............ 91,101 64,772 26,329 (260,153) (35.60) 57.62 2-3 years ............ 57,584 20,882 36,702 (223,451) (30.58) 64.80 3-4 years ............ 33,539 18,407 15,132 (208,319) (28.51) 68.11 4-5 years ............ 22,606 1,763 20,843 (187,476) (25.65) 71.38 Over 5 years ......... 263,311 20,794 242,517 55,041 7.53 108.14 --------- --------- --------- Total ............. $ 730,809 $ 675,768 $ 55,041 ========= ========= =========
(1) Rate Sensitive Assets (2) Rate Sensitive Liabilities The data used in the table above is based on contractual repricing dates for variable or adjustable rate instruments except for interest bearing Now accounts and regular savings accounts which are reflected as repricing prorata during the first four years. Callable investments or borrowing are scheduled on their contractual maturity unless the Company has received notification the investment or borrowing will be called. In the event the Company has received notification of call, the investment or borrowing is placed in the fixed rate category for the time period in which the call occurs or is expected to occur. Other financial instruments are scheduled on their contractual maturity. This simple GAP analysis gives no consideration to a number of factors which can have a material impact on the Company's interest rate risk position. Such factors include call features on certain assets and liabilities, prepayments, interest rate floors and caps on various assets and liabilities, the current interest rates on assets and liabilities to be repriced in each period, and the relative changes in interest rates on different types of assets and liabilities. The Company uses a simulation modeling process to estimate changes in net interest income resulting from changes in interest rate levels. The Company relies primarily on the results of this model in evaluating its interest rate risk. In addition to the data in the previous table, this model incorporates a number of additional factors. These factors include: (1) the expected exercise of call features on various assets and liabilities, (2) the expected rates at which various rate sensitive assets and liabilities will reprice, (3) the expected growth in various interest earning assets and interest bearing liabilities and the expected rates on such new assets and liabilities, (4) the expected relative movements in different interest rate indexes which are used as the basis for pricing or repricing various assets and liabilities, (5) existing and expected contractual cap and floor rates on various assets and liabilities, (6) expected changes in administered rates on interest bearing transaction, savings, money market and time deposit accounts and the expected impact of competition on the pricing or repricing of such accounts and (7) other factors. Inclusion of these factors in the model is intended to more accurately project the Company's changes in net interest income resulting from an immediate and sustained parallel shift in interest rates of up 100 basis points (bps), up 200 bps, down 100 bps and down 200 bps. While the Company believes this model provides a more accurate projection of its interest rate risk, the model includes a number of assumptions and predictions which may or may not be accurate. These assumptions and predictions include growth rates, competition and a variety of other factors that are difficult to accurately predict. Accordingly there can be no assurance the simulation model will reflect future results. 22 The following table presents the annual projected impact on the Company's net interest income of the simulation model results for an immediate and sustained parallel shift in interest rates. Change in $ Change in % Change in Interest Rates Net Interest Net Interest (in bps) Income Income -------------- ------------ ------------ (Dollars in thousands) +200 $(2,068) (7.8)% +100 (1,285) (4.9) -100 1,042 3.9 -200 (92) (0.3) In the event of a shift in interest rates, management may take certain actions intended to mitigate the negative impact to net interest income or to maximize the positive impact to net interest income. These actions may include, but are not limited to, restructuring of earning assets and interest bearing liabilities, seeking alternative funding sources or investment opportunities and modifying the pricing or terms of loans and deposits. Impact of Inflation and Changing Prices The Consolidated Financial Statements and related Notes presented elsewhere in the report have been prepared in accordance with accounting principles generally accepted in the United States. This requires the measurement of financial position and operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of the Company's operations. Unlike most industrial companies, nearly all the assets and liabilities of the Company are monetary in nature. As a result, interest rates have a greater impact on the Company's performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services. Capital Compliance Bank regulatory authorities in the United States impose certain capital standards on all bank holding companies and banks. These capital standards require compliance with certain minimum "risk-based capital ratios" and a minimum "leverage ratio". The risk-based capital ratios consist of (1) Tier 1 capital (i.e. common stockholders' equity excluding goodwill, certain intangibles and net unrealized gains on available for sale securities, but including, subject to limitations, trust preferred securities and other qualifying items) to total risk-weighted assets and (2) total capital (Tier 1 capital plus Tier 2 capital which is the qualifying portion of the allowance for loan losses and the portion of trust preferred securities not counted as Tier 1 capital) to risk-weighted assets. The leverage ratio is measured as Tier 1 capital to adjusted quarterly average assets. 23 The Company's risk-based and leverage capital ratios exceeded these minimum requirements at December 31, 1999 and December 31, 1998 and are presented below, followed by the capital ratios of the Company's bank subsidiary at December 31, 1999. Consolidated Capital Ratios
December 31, ----------------------- 1999 1998 --------- --------- (Dollars in thousands) Tier 1 capital: Stockholders' equity ..................................................... $ 43,874 $ 40,355 Allowed amount of guaranteed preferred beneficial interest in Company's subordinated debentures (trust preferred securities) .................. 15,132 -- Plus (less) net unrealized losses (gains) on available for sale securities 1,523 (81) Less goodwill and certain intangible assets .............................. (3,304) (3,623) --------- --------- Total Tier 1 capital ................................................. $ 57,225 $ 36,651 Tier 2 capital: Qualifying allowance for loan losses ..................................... 6,072 4,689 Remaining amount of guaranteed preferred beneficial interest in Company's subordinated debentures (trust preferred securities) .................. 2,118 -- --------- --------- Total risk-based capital ............................................ $ 65,415 $ 41,340 ========= ========= Risk-weighted assets ......................................................... $ 497,460 $ 404,879 ========= ========= Ratios at end of period: Leverage capital ......................................................... 7.46% 6.21% Tier 1 risk-based capital ................................................ 11.50 9.05 Total risk-based capital ................................................. 13.15 10.21 Minimum ratio guidelines: Leverage capital(1) ...................................................... 3.00% 3.00% Tier 1 risk-based capital ................................................ 4.00 4.00 Total risk-based capital ................................................. 8.00 8.00
Capital Ratios of Bank Subsidiary December 31, 1999 ----------------- Bank of the Ozarks (Dollars in Thousands) Stockholders' equity - Tier 1............... $57,450 Leverage capital............................ 7.50% Tier 1 risk-based capital................... 11.44 Total risk-based capital.................... 12.64 (1) Regulatory authorities require institutions to operate at varying levels (ranging from 100-200 basis points) above a minimum leverage ratio of 3% depending upon capitalization classification. 24 Liquidity and Capital Resources Line of Credit. The Company maintains a revolving line of credit for up to $22 million with a correspondent bank. Interest accrues on all outstanding borrowings due under the line of credit at a variable rate equal to the average prime lending rate reported from time to time by the Wall Street Journal minus 1.25%, provided, however, the rate is not to exceed 7.75%. Interest is payable quarterly. The line of credit is effective through March 31, 2003, subject to an annual compliance review by the lender. No standby or unused commitment fees are payable under the line of credit. All borrowings under the line of credit are secured by a pledge of 100% of the Company's stock in its bank subsidiary. As of December 31, 1999, there were no borrowings outstanding under this line of credit. The line of credit requires the Company's bank subsidiary to maintain, among other requirements, (1) a return on average assets for each calendar year equal to at least 1.0%, (2) a ratio of capital, as defined in the line of credit, to assets at levels acceptable to bank regulatory authorities but at least 7.0% at each calendar year end, (3) its classified assets as defined by regulatory authorities not in excess of 40% of its capital, (4) non-performing assets (as shown on its call report) in an amount not to exceed 2% of assets as of year end, (5) a loan loss reserve equal to the greater of 1% of total loans or 100% of non-performing assets and (6) net charges to the reserve for loan losses at less than 1.0% of net loans during any calendar year. In addition, the line of credit requires that the parent Company's aggregate indebtedness not exceed 55.0% of the Company's tangible net worth through March 31, 2000 reducing 5% a year thereafter and that borrowings under the line of credit not exceed 50.0% of the tangible book value of its bank subsidiary stock pledged to secure such borrowings. At December 31, 1999 the Company was in compliance with these requirements. Trust Preferred Securities. On June 18, 1999 Ozark Capital sold to investors $17.3 million of 9% trust preferred securities. The proceeds were used to purchase an equal principal amount of subordinated debentures of Bank of the Ozarks, Inc. Subject to certain limitations, the trust preferred securities qualify as Tier 1 capital and are presented in the Consolidated Balance Sheets as "Guaranteed preferred beneficial interest in the Company's subordinated debentures." Both the trust preferred securities and the subordinated debentures will mature on June 18, 2029; however, they may be prepaid, subject to regulatory approval, prior to maturity at any time on or after June 18, 2004, or earlier upon certain changes in tax or investment company laws or regulatory capital requirements. The net proceeds from this offering were used to repay $12.5 million outstanding borrowings under the Company's revolving line of credit with the balance of the proceeds used for general corporate purposes including a $3.0 million capital investment in the Company's bank subsidiary. Growth and Expansion. In 1999 the Company opened four new offices, including Clinton, Arkansas, a second office in Harrison, Arkansas and two offices in North Little Rock, Arkansas. In 2000 and 2001 the Company plans to emphasize growth at existing locations and add one or two new offices each year. The Company's management believes a slower rate of new office openings combined with an emphasis on growth in existing offices should lead to better efficiency and performance. Bank Liquidity. Liquidity represents an institution's ability to provide funds to satisfy demands from depositors and borrowers by either converting assets into cash or accessing new or existing sources of incremental funds. Generally, the Company's bank subsidiary relies on customer deposits and loan repayments as their primary sources of funds. The Company has used these funds, together with FHLB advances and other borrowings, to make loans, acquire investment securities and other assets and to fund continuing operations. Deposit levels may be affected by a number of factors, including rates paid by competitors, general interest rate levels, returns available to customers on alternative investments and general economic conditions. Loan repayments are a relatively stable source of funds, but such loans generally are not readily convertible to cash. Accordingly, the Company may be required from time to time to rely on secondary sources of liquidity to meet loan and withdrawal demands or otherwise fund operations. Such sources include FHLB advances, federal funds lines of credit from correspondent banks, Federal Reserve Bank borrowings, and borrowings by the Company under its line of credit described above. At December 31, 1999, the Company's bank subsidiary had substantial unused borrowing availability. This availability is primarily comprised of the following three options: (1) $3.0 million of available blanket borrowing capacity with the Federal Home Loan Bank which offers various terms, (2) $47.1 million of securities available to pledge on a federal funds line of credit or for repurchase agreements or other borrowings and (3) up to $191.7 million from several borrowing programs of the Federal Reserve Bank. Management anticipates the Company's bank subsidiary will continue to rely primarily on customer deposits and loan repayments to provide liquidity. Additionally, where necessary, the above described borrowings (including borrowings under the Company's line of credit) will be used to augment the Company's primary funding sources. Dividend Policy. In 1999 the Company paid dividends of 0.40 per share. In 1998 and 1997 the Company paid dividends of $0.23 and $0.20 per 25 share, respectively. The Company increased its dividend for the second quarter of 1998 to $0.06 from $0.05. Commencing in the first quarter of 1999 the dividend was increased to $0.10. The determination of future dividends on the Company's common stock will depend on conditions existing at that time. The Company's goal is to continue the current $0.10 quarterly dividend with consideration to future changes depending on the Company's earnings, capital and liquidity needs. Year 2000 The Company has substantially completed its Year 2000 Project as scheduled. As of February 24, 2000, the Company's computer and other systems with imbedded microchips have operated without Year 2000 related problems and appear to be Year 2000 compliant. The Company is not aware that any of its software and hardware vendors, major loan customers, correspondent banks or governmental agencies with which the Company interacts have experienced material Year 2000 related problems. While the Company believes all of its critical systems are Year 2000 ready, there can be no guarantee the Company has discovered all possible failure points including all of its systems, non-ready third parties whose systems and failures could impact the Company, or other uncertainties. Many experts believe that the risk of potential Year 2000 related failures could continue beyond January 1, 2000 as certain sensitive target dates occur. As a result the Company will continue to monitor its own systems (including new systems brought into operation by the Company) and maintain contact with mission critical third parties as these target dates approach. Additionally, the Company will maintain its previously developed contingency plan for implementation in the event that mission critical third party systems fail to address remaining Year 2000 issues. The Company's aggregate expenses incurred since 1996 with respect to its Year 2000 Project were less than $130,000, all of which have been expensed through December 31, 1999. A significant portion of these costs were represented by the redeployment of existing staff to the Year 2000 project. No projects under consideration by the Company have been deferred because of Year 2000 efforts. The Company does not anticipate any additional material costs relating to the Year 2000 issue. Forward-Looking Information This Management's Discussion and Analysis of Financial Condition and Results of Operations, other filings made by the Company with the Securities and Exchange Commission and other oral and written statements or reports by the Company and its management, include certain forward-looking statements including, without limitation, statements with respect to anticipated future operating and financial performance, growth opportunities and growth rates, acquisition opportunities and other similar forecasts and statements of expectation. Words such as "anticipate," "believe," "estimate," "expect," "intend" and similar expressions, as they relate to the Company or its management, identify forward-looking statements. Forward-looking statements made by the Company and its management are based on estimates, projections, beliefs and assumptions of management at the time of such statements and are not guarantees of future performance. The Company disclaims any obligation to update or revise any forward-looking statement based on the occurrence of future events, the receipt of new information, or otherwise. Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements made by the Company and its management due to certain risks, uncertainties and assumptions. Certain factors that may affect operating results of the Company include, but are not limited to, the following: (1) potential delays or other problems in implementing the Company's growth and expansion strategy; (2) the ability to attract new deposits and loans; (3) interest rate fluctuations; (4) competitive factors and pricing pressures; (5) general economic conditions; and (6) changes in legal and regulatory requirements, as well as, other factors described in this and other Company reports and statements. Should one or more of the foregoing risks materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those described in the forward-looking statements. 26 Summary of Quarterly Results of Operations, Common Stock Market Prices and Dividends
1999 - Three Months Ended ------------------------------------- Mar. 31 June 30 Sept. 30 Dec. 31 ------- ------- -------- ------- (Dollars in thousands, except per share amounts) Total interest income ..................... $11,730 $12,617 $13,234 $13,993 Total interest expense .................... 6,421 6,730 7,012 7,618 ------- ------- ------- ------- Net interest income .................. 5,309 5,887 6,222 6,375 Provision for loan losses ................. 611 580 578 716 Non-interest income ....................... 1,269 1,303 1,293 1,282 Non-interest expense ...................... 3,768 4,241 4,195 4,261 Income taxes .............................. 673 658 639 539 Distributions on trust preferred securities................................ -- 52 397 397 ------- ------- ------- ------- Net income ........................... $ 1,526 $ 1,659 $ 1,706 $ 1,744 ======= ======= ======= ======= Per share: Earnings - diluted ................... $ 0.40 $ 0.44 $ 0.45 $ 0.46 Cash dividends ....................... 0.10 0.10 0.10 0.10 Bid price per common share: Low .................................. $ 20.50 $ 17.00 $ 16.75 $ 16.63 High ................................. 23.25 21.38 21.25 20.63 1998 - Three Months Ended ------------------------------------- Mar. 31 June 30 Sept. 30 Dec. 31 ------- ------- -------- ------- (Dollars in thousands, except per share amounts) Total interest income...................... $ 7,993 $ 9,000 $10,423 $11,466 Total interest expense .................... 3,836 4,570 5,782 6,330 ------- ------- ------- ------- Net interest income................... 4,157 4,430 4,641 5,136 Provision for loan losses.................. 225 255 742 804 Non-interest income........................ 1,094 1,152 1,333 1,452 Non-interest expense....................... 2,924 3,329 3,267 3,599 Income taxes .............................. 728 611 544 738 ------- ------- ------- ------- Net income............................ $ 1,374 $ 1,387 $ 1,421 $ 1,447 ======= ======= ======= ======= Per share: Earnings - diluted.................... $ 0.36 $ 0.36 $ 0.37 $ 0.38 Cash dividends........................ 0.05 0.06 0.06 0.06 Bid price per common share: Low................................... $ 21.94 $ 30.00 $ 20.00 $ 18.50 High.................................. 30.00 34.75 30.75 24.00
See Note 15 to Consolidated Financial Statements for discussion of dividend restrictions. 27 Report of Independent Auditors Board of Directors and Shareholders Bank of the Ozarks, Inc. We have audited the accompanying consolidated balance sheets of Bank of the Ozarks, Inc. and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The consolidated financial statements of Bank of the Ozarks, Inc. and subsidiaries for the year ended December 31, 1997, were audited by other auditors whose report dated January 28, 1998, expressed an unqualified opinion on those statements. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the 1999 and 1998 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Bank of the Ozarks, Inc. and subsidiaries as of December 31, 1999 and 1998, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States. /s/ ERNST & YOUNG LLP Little Rock, Arkansas January 14, 2000 28 Bank of the Ozarks, Inc. CONSOLIDATED BALANCE SHEETS
December 31, ---------------------- 1999 1998 --------- --------- (Dollars in thousands, except per share amounts) ASSETS ------ Cash and due from banks $ 24,279 $ 14,168 Interest bearing deposits 283 856 --------- --------- Cash and cash equivalents 24,562 15,024 Investment securities - available for sale 44,837 17,629 Investment securities - held to maturity (estimated market value: $205,749 in 1999 and $159,050 in 1998) 218,558 158,989 Loans, net of unearned income 467,131 387,526 Allowance for loan losses (6,072) (4,689) --------- --------- Net loans 461,059 382,837 Premises and equipment, net 30,547 27,155 Foreclosed assets held for sale, net 2,238 314 Interest receivable 7,174 5,517 Intangible assets, net 3,323 3,665 Other 3,744 1,301 --------- --------- Total assets $ 796,042 $ 612,431 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Deposits Demand non-interest bearing $ 56,177 $ 50,138 Savings and interest-bearing transaction 105,211 95,471 Time 434,542 383,431 --------- --------- Total deposits 595,930 529,040 Repurchase agreements with customers 9,026 1,408 Other borrowings 126,989 39,271 Accrued interest and other liabilities 2,973 2,357 --------- --------- Total liabilities 734,918 572,076 Guaranteed preferred beneficial interest in the Company's subordinated debentures 17,250 -- Commitments and contingencies Stockholders' equity Preferred stock; $0.01 par value, 1,000,000 shares authorized, no shares issued and outstanding -- -- Common stock; $0.01 par value; Authorized 10,000,000 shares; 3,779,555 shares issued and outstanding in 1999 and 1998 38 38 Additional paid-in capital 14,314 14,314 Retained earnings 31,045 25,922 Accumulated other comprehensive (loss) income (1,523) 81 --------- --------- Total stockholders' equity 43,874 40,355 --------- --------- Total liabilities and stockholders' equity $ 796,042 $ 612,431 ========= =========
The accompanying notes are an integral part of these consolidated financial statements 29 Bank of the Ozarks, Inc. CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31, -------------------------------- 1999 1998 1997 -------- -------- -------- (Dollars in thousands, except per share amounts) Interest income Loans $ 37,008 $ 31,168 $ 24,230 Investment securities - taxable 12,847 6,654 2,684 - nontaxable 1,675 766 233 Federal funds sold 31 89 108 Deposits with banks 14 205 213 -------- -------- -------- Total interest income 51,575 38,882 27,468 -------- -------- -------- Interest expense Deposits 23,831 18,118 11,826 Repurchase agreements with customers 132 4 -- Other borrowings 3,819 2,396 1,153 -------- -------- -------- Total interest expense 27,782 20,518 12,979 -------- -------- -------- Net interest income 23,793 18,364 14,489 Provision for loan losses (2,485) (2,026) (1,139) -------- -------- -------- Net interest income after provision for loan losses 21,308 16,338 13,350 -------- -------- -------- Other income Trust income 479 335 274 Service charges on deposit accounts 2,499 1,372 957 Other income, charges and fees 1,936 2,792 1,136 Gain on sale of securities 69 255 14 Other 164 277 544 -------- -------- -------- Total other income 5,147 5,031 2,925 -------- -------- -------- Other expense Salaries and employee benefits 8,752 7,197 5,330 Net occupancy and equipment 2,655 1,961 1,305 Other operating expenses 5,057 3,961 2,593 -------- -------- -------- Total other expense 16,464 13,119 9,228 -------- -------- -------- Income before income taxes and trust distribution 9,991 8,250 7,047 Distributions on trust preferred securities 846 -- -- Provision for income taxes 2,510 2,621 2,516 -------- -------- -------- Net income $ 6,635 $ 5,629 $ 4,531 ======== ======== ======== Basic earnings per common share $ 1.76 $ 1.49 $ 1.38 ======== ======== ======== Diluted earnings per common share $ 1.75 $ 1.47 $ 1.38 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements 30 Bank of the Ozarks, Inc. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Accumulated Additional Other Common Paid-In Retained Comprehensive Stock Capital Earnings Income (Loss) Total -------- -------- -------- ------------- ----- (Dollars in thousands, except per share amounts) Balance - January 1, 1997 $ 29 $ 1,168 $ 17,251 $ 99 $ 18,547 Comprehensive income: Net income -- -- 4,531 -- 4,531 Other comprehensive income Unrealized gains on available for sale securities net of $37 tax effect -- -- -- 60 60 Less: reclassification adjustment for gains included in income net of $4 tax effect -- -- -- (7) (7) -------- Comprehensive income 4,584 Dividends paid, $.20 per share -- -- (620) -- (620) Issuance of 899,755 shares of common stock 9 13,146 -- -- 13,155 -------- -------- -------- -------- -------- Balance - December 31, 1997 38 14,314 21,162 152 35,666 Comprehensive income: Net income -- -- 5,629 -- 5,629 Other comprehensive income Unrealized gains on available for sale securities net of $35 tax effect -- -- -- 57 57 Less: reclassification adjustment for gains included in income net of $79 tax effect -- -- -- (128) (128) -------- Comprehensive income 5,558 Dividends paid, $.23 per share -- -- (869) -- (869) -------- -------- -------- -------- -------- Balance - December 31, 1998 38 14,314 25,922 81 40,355 Comprehensive income (loss): Net income -- -- 6,635 -- 6,635 Other comprehensive income (loss) Unrealized loss on available for sale securities net of $966 tax effect -- -- -- (1,558) (1,558) Less: reclassification adjustment for gains included in income net of $30 tax effect -- -- -- (46) (46) -------- Comprehensive income 5,031 Dividends paid, $.40 per share -- -- (1,512) -- (1,512) -------- -------- -------- -------- -------- Balance - December 31, 1999 $ 38 $ 14,314 $ 31,045 $ (1,523) $ 43,874 ======== ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements 31 Bank of the Ozarks, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, ----------------------------------- 1999 1998 1997 --------- --------- --------- (Dollars in thousands) Cash flows from operating activities Net income $ 6,635 $ 5,629 $ 4,531 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,375 1,043 626 Amortization 262 173 74 Provision for loan losses 2,485 2,026 1,139 Provision for losses on foreclosed assets 90 35 8 Amortization and accretion on investment securities (132) (115) (39) Gain on disposition of investments (69) (255) (14) Gain on sale of loans (4) -- (57) (Increase) decrease in mortgage loans held for sale 4,308 (3,750) (1,504) Gain on disposition of premises and equipment (36) (14) (76) (Gain) loss on disposition of foreclosed assets 28 (98) (261) Deferred income taxes 139 (222) (59) Changes in assets and liabilities: Interest receivable (1,657) (2,502) (461) Other assets, net (1,500) (305) 55 Accrued interest and other liabilities 739 518 (483) --------- --------- --------- Net cash provided by operating activities 12,663 2,163 3,479 --------- --------- --------- Cash flows from investing activities Acquisitions, net of funds acquired -- 22,123 -- Proceeds from sales and maturities of investment securities available for sale 19,922 54,036 31,171 Purchases of investment securities available for sale (49,635) (20,260) (19,453) Proceeds from maturities of investment securities held to maturity 42,293 67,386 6,576 Purchases of investment securities held to maturity (101,756) (234,804) (21,007) Decrease (increase) in federal funds sold -- 3,149 (2,535) Net increase in loans (89,630) (110,019) (61,152) Proceeds from sale of loans 994 -- 811 Proceeds from dispositions of bank premises and equipment 317 30 178 Purchase of bank premises and equipment (5,048) (14,109) (7,295) Proceeds from dispositions of foreclosed assets 1,454 525 632 --------- --------- --------- Net cash used in investing activities (181,089) (231,943) (72,074) --------- --------- --------- Cash flows from financing activities Net increase in deposits 66,890 208,455 63,907 Net proceeds from other borrowings 87,718 20,182 966 Net increase in repurchase agreements with customers 7,618 1,408 -- Proceeds from trust preferred 17,250 -- -- Dividends paid (1,512) (869) (620) Proceeds from issuance of common stock -- -- 13,155 --------- --------- --------- Net cash provided by financing activities 177,964 229,176 77,408 --------- --------- --------- Net increase (decrease) in cash and cash equivalents 9,538 (604) 8,813 Cash and cash equivalents - beginning of year 15,024 15,628 6,815 --------- --------- --------- Cash and cash equivalents - end of year $ 24,562 $ 15,024 $ 15,628 ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements 32 Bank of the Ozarks, Inc. Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) 1. Summary of Significant Accounting Policies Organization - Bank of the Ozarks, Inc. (the "Company") is a bank holding company headquartered in Little Rock, Arkansas, which operates under the rules and regulations of the Board of Governors of the Federal Reserve System and owns a state chartered bank and Ozark Capital Trust, a Delaware business trust. The bank is subject to the regulation of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities. The bank has offices located in northern, western, and central Arkansas. Merger of subsidiaries - During 1999 the Company consolidated its federal savings bank and two banking subsidiaries into a single banking subsidiary. This resulted in the Company owning one state chartered bank subsidiary which is named Bank of the Ozarks. Principles of consolidation - The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Significant intercompany transactions and amounts have been eliminated in consolidation. Use of estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Cash and cash equivalents - For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks and interest bearing deposits with banks. Investment securities - Management determines the appropriate classification of debt securities at the time of purchase and reevaluates such designation as of each balance sheet date. Debt securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost. Debt securities not classified as held-to-maturity or trading and marketable equity securities not classified as trading are classified as available-for-sale. Available-for-sale securities are stated at estimated fair value, with the unrealized gains and losses, net of tax, reported as a separate component of stockholders' equity. The amortized cost of debt securities classified as held-to-maturity or available-for-sale is adjusted for amortization of premiums and accretion of discounts to maturity, or in the case of mortgage-backed securities, over the estimated life of the security. Such amortization is included in interest income from investments. Interest and dividends are included in interest income from investments. Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. Gains or losses on the sale of securities are recognized on the specific identification method at the time of sale. Loans - Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding principal adjusted for any charge-offs, deferred fees or costs on originated loans, and unamortized premiums or discounts on purchased loans. Unearned discounts on certain installment loans are recognized as income over the terms by the rule of 78's interest method which approximates the interest method. The Company discontinued the use of the rule of 78's method on loans originated in 1999, and interest on these loans is recognized using the interest method. Unearned purchased discounts are recorded as income over the life of the loans utilizing the interest method to achieve a constant yield. Interest on other loans is calculated by using the simple interest method on daily balances of the principal amount outstanding. Loan origination fees and direct origination costs are capitalized and recognized as adjustments to yields on the related loans. Allowance for loan losses - The allowance for loan losses is established through a provision for loan losses charged against income. Loans deemed to be uncollectible are charged against the allowance for loan losses when management believes that the collectibility of the principal is unlikely, and subsequent recoveries, if any, are credited to the allowance. The allowance is maintained at a level that management believes will be adequate to absorb losses on existing loans that may become uncollectible, based on evaluations of the collectibility of loans and prior loan loss experience. The evaluations take into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, historical loan loss experience and current economic and business conditions that may affect the borrowers' ability to pay or the value of the collateral securing the loans. The Company's policy generally is to place a loan on nonaccrual status when payment of principal or interest is contractually past due 90 days, or earlier when concern exists as to the ultimate collection of principal and interest. The Company continues to accrue interest on certain loans contractually past due 90 days if such loans are both well secured and in the process of collection. The Company considers a loan to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms thereof. The Company applies this policy even if delays or shortfalls in payment are expected to be insignificant. All nonaccrual loans and all loans that have been restruc- 33 Notes to Consolidated Financial Statements, Dollars in thousands tured from their original contractual terms are considered impaired loans. The aggregate amount of impairment of loans is utilized in evaluating the adequacy of the allowance for loan losses and amount of provisions thereto. Losses on impaired loans are charged against the allowance for loan losses when in the process of collection it appears likely that such losses will be realized. The accrual of interest on impaired loans is discontinued, when in management's opinion, the borrower may be unable to meet payments as they become due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received. Premises and equipment - Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of the related assets. Estimated book depreciation lives for the major classes of assets are 20 to 50 years for buildings, 40 years for leaseholds and 3 to 15 years for furniture, fixtures and equipment. Accelerated depreciation methods are used for tax purposes. Foreclosed assets held for sale - Real estate and personal properties acquired through or in lieu of loan foreclosure are to be sold and are initially recorded at fair value at the date of foreclosure establishing a new cost basis. After foreclosure, real property is generally amortized over 60 months unless regulatory authority approves the write off over an extended period. Valuations are periodically performed by management and the real estate is carried at the lower of carrying amount or fair value less cost to sell. Gains and losses from the sale of other real estate are recorded in other income, and expenses used to maintain the properties are included as operating expenses. Income taxes - The Company utilizes the liability method in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based upon the difference between the values of the assets and liabilities as reflected in the financial statement and their related tax basis using enacted tax rates in effect for the year in which the differences are expected to be recovered or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. The Company and its subsidiaries file consolidated tax returns. Its subsidiaries provide for income taxes on a separate return basis, and remit to the Company amounts determined to be currently payable. Trust department income - Property, other than cash deposits, held by the Company's trust department in fiduciary or agency capacities for its customers are not included in the accompanying financial statements, since such items are not assets of the Company. Trust department income has been recognized on the cash basis in accordance with customary banking practice, which does not differ materially from the accrual method. Intangible assets - Intangible assets consist of goodwill and core deposit intangibles. These assets are being amortized over periods ranging from 10 to 40 years. Goodwill represents the excess purchase price over the fair value of net assets acquired in business acquisitions. Core deposit intangibles represent premiums paid for deposits acquired. Accumulated amortization of intangibles totaled $1,449 and $1,187 at December 31, 1999 and 1998, respectively. Earnings per share - Basic earnings per share has been calculated based on the weighted average number of shares outstanding. Diluted earnings per share has been calculated based on the weighted average number of shares outstanding after consideration of the dilutive effect of the Company's outstanding stock options. Financial instruments - In the ordinary course of business, the Company has entered into off-balance sheet financial instruments consisting of commitments to extend credit, commitments under credit card arrangements, and letters of credit. Such financial instruments are recorded in the financial statements when they are funded or related fees are incurred or received. Advertising and public relations expense - Advertising and public relations expense is expensed as incurred and totaled $612, $566 and $332 for the years ended December 31, 1999, 1998 and 1997, respectively. Stock-based compensation - The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("ABP 25") and related interpretations in accounting for its employee stock options. Under ABP 25, because the exercise price of employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recorded. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). Segment Disclosures - On December 31, 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information". SFAS 131 established standards for reporting information about operating segments and related disclosures about products and services, geographic areas and major customers. As the Company operates in only one segment - community banking - the adoption of SFAS 131 did not have a material effect on the primary financial statements or the disclosure of segment information. No revenues are derived from foreign countries and no single external customer comprises more than 10% of the Company's revenues. Derivatives and Hedging Activities - In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133, which requires the Company to recognize all derivatives on the balance sheet at fair value, was adopted by the Company effective July 1, 1998. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of the assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recog- 34 Notes to Consolidated Financial Statements, Dollars in thousands nized in earnings. The ineffective portions of a derivative's change in fair value will be immediately recognized in earnings. The adoption of SFAS No. 133 did not have a significant impact on the Company's financial position or results of operations. In connection with the adoption of SFAS No. 133, the Company transferred investment securities with a carrying value of $25,795 and unrealized gains of $167 from its held-to-maturity to available-for-sale portfolio. Reclassifications - Certain reclassifications of 1998 and 1997 amounts have been made to conform with the 1999 financial statements presentation. 2. Acquisitions In August 1998 the Company completed the purchase of the Marshall, Arkansas branch of Superior Federal Bank, FSB. The acquisition included the branch bank building, related assets and deposit accounts totaling $16 million. The transaction was accounted for as a purchase with the Company reporting the results of the acquired branch's operations from the closing date. The resulting core deposit intangible of $1.6 million is being amortized on a straight-line basis over 10 years. In February 1998 the Company acquired the stock of Heartland Community Bank, FSB, an entity formed solely for the purpose of selling certain assets and liabilities, from its parent company--Heartland Community Bank, Camden--for $3.1 million in cash. The Company received the federal savings bank's charter, approximately $9.4 million in customer deposits and the related banking facility. The transaction was accounted for as a purchase and the excess of the purchase price over net assets acquired of $847 is being amortized straight-line over 25 years. The Company has reported the results of operations of the acquired bank from the closing date. Pro forma disclosures related to the above acquisitions have not been provided as the entities acquired do not meet the criteria of significant subsidaries. 3. Investment Securities The following is a summary of the amortized cost and estimated market values of investment securities:
December 31, 1999 --------------------------------------------------- Amortized Unrealized Unrealized Market Cost Gains Losses Value --------- ---------- ---------- -------- Securities - available for sale: Securities of United States government and agencies $ -- $ -- $ -- $ -- Mortgage-backed securities 201 -- (9) 192 State and political subdivisions 39,488 -- (2,528) 36,960 Other securities 7,615 70 -- 7,685 -------- -------- -------- -------- Total securities - available for sale $ 47,304 $ 70 $ (2,537) $ 44,837 ======== ======== ======== ======== Securities - held to maturity: Securities of United States government and agencies $215,713 $ -- $(12,766) $202,947 State and political subdivisions 2,745 14 (54) 2,705 Other securities 100 -- (3) 97 -------- -------- -------- -------- Total securities - held to maturity $218,558 $ 14 $(12,823) $205,749 ======== ======== ======== ======== December 31, 1998 --------------------------------------------------- Amortized Unrealized Unrealized Market Cost Gains Losses Value --------- ---------- ---------- -------- Securities - available for sale: Securities of United States government and agencies $ 1,000 $ 1 $ -- $ 1,001 Mortgage-backed securities 2,107 17 (7) 2,117 State and political subdivisions 11,205 60 -- 11,265 Other securities 3,185 61 -- 3,246 -------- -------- ------ -------- Total securities - available for sale $ 17,497 $ 139 $ (7) $ 17,629 ======== ======== ======== ======== Securities - held to maturity: Securities of United States government and agencies $155,351 $ 196 $ (217) $155,330 State and political subdivisions 3,537 82 -- 3,619 Other securities 101 -- -- 101 -------- -------- ------ -------- Total securities - held to maturity $158,989 $ 278 $ (217) $159,050 ======== ======== ======== ========
35 Notes to Consolidated Financial Statements, Dollars in thousands The amortized cost and estimated market value by contractual maturity of investment securities classified as available-for-sale and held-to-maturity at December 31, 1999 are as follows: Available for Sale Held to Maturity --------------------- --------------------- Estimated Estimated Amortized Market Amortized Market Cost Value Cost Value --------- --------- --------- --------- Due in one year or less $ 292 $ 292 $ 159 $ 159 Due from one year to five years 4,761 4,698 866 868 Due from five years to ten years 7,701 7,373 182,335 172,461 Due after ten years 34,550 32,474 35,198 32,261 -------- -------- -------- -------- Totals $ 47,304 $ 44,837 $218,558 $205,749 ======== ======== ======== ======== Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. For purposes of the maturity table, mortgage-backed securities which are not due at a single maturity date have been allocated over maturity groupings based on anticipated maturities. The mortgage-backed securities may mature earlier than their weighted average contractual maturities because of principal prepayments. During the years ended December 31, 1999, 1998, and 1997, investment securities available-for-sale with a fair value at the date of sale of $18,408, $41,613 and $3,407, respectively, were sold. The gross realized gains on such sales totaled $78, $322, and $14, respectively. The gross realized losses totaled $9, $67, and $-0-, respectively. The income tax expenses related to net security gains was $23, $87 and $5 in 1999, 1998 and 1997, respectively. The Bank had no trading securities during 1999, 1998 or 1997. Assets, principally investment securities, having a carrying value of approximately $202,660 and $97,831 at December 31, 1999 and 1998, respectively, were pledged to secure public deposits and for other purposes required or permitted by law. 4. Loans The following is a summary of the loan portfolio by principal categories: December 31, ----------------------- 1999 1998 -------- -------- Real Estate: Owner-occupied 1-4 family residential $136,856 $121,539 Non-farm/non-residential 101,766 76,563 Agricultural 20,396 19,463 Construction/land development 28,294 23,305 Multifamily residential 4,687 6,207 Consumer 81,753 66,407 Commercial and industrial 70,012 52,192 Agricultural (non-real estate) 19,947 20,068 Other 3,420 1,782 -------- -------- Loans, net of unearned discounts $467,131 $387,526 ======== ======== These loan categories are presented net of unearned discounts, unearned purchase discounts and deferred costs totaling $1,123 at December 31, 1999 and $4,961 at December 31, 1998. Loans on which the accrual of interest has been discontinued aggregated $1,972 and $2,708 at December 31, 1999 and 1998, respectively. Mortgage loans held for resale of $2,377 and $6,685 at December 31, 1999 and 1998, respectively, are included in owner-occupied 1-4 family residential loans. The carrying value of these loans approximate their fair value. Other service charges and fees include mortgage lending income of $1,306, $2,136 and $566 during 1999, 1998 and 1997, respectively. 5. Allowance for Loan Losses The following is a summary of activity within the allowance for loan losses: Year Ended December 31, ------------------------------------ 1999 1998 1997 ------- ------- ------- Balance - beginning of year $ 4,689 $ 3,737 $ 3,019 Loans charged-off (1,225) (1,149) (469) Recoveries on loans previously charged-off 123 75 48 ------- ------- ------- Net charge-offs (1,102) (1,074) (421) Provision charged to operating expense 2,485 2,026 1,139 ------- ------- ------- Balance - end of year $ 6,072 $ 4,689 $ 3,737 ======= ======= ======= Impairment of loans having carrying values of $1,973 and $2,708 at December 31, 1999 and 1998, respectively, have been recognized in conformity with Statement of Financial Accounting Standards No. 114, as amended by Statement of Financial Accounting Standards No. 118. The average carrying value of impaired loans was $3,611, $1,840,and $2,339, for the years ended December 31, 1999, 1998, and 1997, respectively, some of which, as a result of write-downs, did not have an allowance for credit losses. The total allowance for credit losses related to these loans was $276 and $457 at December 31, 1999 and 1998, respectively. The Company does not segregate income recognized on a cash basis in its financial records, and thus, such disclosure is not practicable. For impairment recognized in conformity with SFAS 114, as amended, the entire change in present value of expected cash flows is reported as provision for loan losses in the same manner in which impairment initially was recognized or as a reduction in the amount of provision for loan losses that otherwise would be reported. Real estate securing loans having a carrying value of $3,625 and $628 was transferred to foreclosed assets held for sale in 1999 and 1998, respectively. The bank is not committed to lend additional funds to debtors whose loans have been modified. 36 Notes to Consolidated Financial Statements, Dollars in Thousands 6. Premises and Equipment The following is a summary of premises and equipment: December 31, --------------------------- 1999 1998 -------- -------- Land $ 7,284 $ 6,691 Construction in process 60 437 Buildings and improvements 18,130 15,113 Leasehold improvements 2,243 1,615 Equipment 8,384 7,565 -------- -------- 36,101 31,421 Accumulated depreciation (5,554) (4,266) -------- -------- Premises and equipment, net $ 30,547 $ 27,155 ======== ======== The Company capitalized $51, $275 and $145 of interest on construction projects during the years ended December 31, 1999, 1998 and 1997, respectively. Included in occupancy expense is rent of approximately $71, $45, and $45 incurred under noncancelable operating leases in 1999, 1998, and 1997, respectively, for leases of real estate in connection with buildings and premises. These leases contain certain renewal and purchase options according to the terms of the agreements. Future amounts due under noncancelable operating leases at December 31, 1999 are $115 -- 2000, $101 -- 2001, $76 -- 2002, $76 -- 2003, $76 -- 2004 and $836 -- thereafter. 7. Deposits The aggregate amount of time deposits with a minimum denomination of $100 was $190,900 and $143,540 at December 31, 1999 and 1998, respectively. The following is a summary of the scheduled maturities of all time deposits: December 31, -------------------------- 1999 1998 -------- -------- Up to one year $384,365 $359,218 One year to two years 43,859 14,471 Two years to three years 3,653 5,868 Three years to four years 1,096 1,884 Four years to five years 811 997 Thereafter 758 993 -------- -------- Total time deposits $434,542 $383,431 ======== ======== 8. Borrowings Short-term borrowings with maturities less than one year include FHLB advances, repurchase agreements, treasury, tax and loan note accounts and federal funds purchased. The following is a summary of information relating to the short-term borrowings: December 31, ------------------------- 1999 1998 ------- ------- Average annual balance $20,793 $12,242 December 31 balance 38,206 5,238 Maximum month-end balance during year 38,206 43,510 Interest rate: Weighted average 4.47% 5.25% December 31 4.53% 4.57% The following is a summary of long term borrowings: December 31, ------------------------- 1999 1998 ------- ------- Note payable to a bank, interest payable quarterly at a variable rate equal to the prime rate minus 1.25% but not to exceed 7.75%. This note payable is a revolving line of credit for up to $22 million maturing March 31, 2003. Note secured by the pledge of 100% of the Company's stock in Bank of the Ozarks. (See Note 9). $ -- $12,340 FHLB advances with original maturities exceeding one year. Interest rates range from 4.16% to 6.30% at December 31, 1999. At December 31, 1999, the Company's bank subsidiary had remaining $3,000 of unused blanket FHLB borrowing availability. The FHLB maintains as collateral a blanket lien on the Company's 1-4 family mortgages. 97,725 22,993 Other 84 108 ------- ------- $97,809 $35,441 ======= ======= Maturities of long term borrowings at December 31, 1999 are as follows: 2000--$2,168; 2001--$4,198; 2002--$197; 2003-$258; 2004--$197; 2005--$198; 2006--$197; 2007--$198; 2008--$5,198 and 2009 -- $85,000. FHLB advances of $5 million maturing in 2008 and $85 million maturing in 2009 may be called quarterly but the Company has the option to refinance on a long-term basis any amounts called. During February 2000 FHLB advances of $70 million were called and are expected to be refinanced with borrowings having similar maturities. The revolving line of credit requires the Company's bank subsidiary, Bank of the Ozarks, to maintain (1) a return on average assets for each calendar year equal to at least 1.0%, (2) a ratio of capital, as defined in the 37 Notes to Consolidated Financial Statements, Dollars in Thousands line of credit, to assets at levels acceptable to bank regulatory authorities but at least 7.0% at each calendar year end, (3) its classified assets as defined by regulatory authorities not in excess of 40% of its capital, (4) non-performing assets (as shown on its call report) in an amount not to exceed 2% of assets as of year end, (5) a loan loss reserve equal to the greater of 1% of total loans or 100% of non-performing assets, and (6) net charges to the reserve for loan losses at less than 1.0% of net loans during any calendar year. In addition, the line of credit requires that the parent company's aggregate indebtedness not exceed 55.0% of the Company's tangible net worth through March 31, 2000, reducing 5% a year thereafter and that borrowings under the line of credit not exceed 50.0% of the tangible book value of its bank subsidiary stock pledged to secure such borrowings. At December 31, 1999, the Company was in compliance with these requirements. 9. Guaranteed Preferred Beneficial Interest in the Company's Subordinated Debentures On June 18, 1999 Ozark Capital Trust ("Ozark Capital"), a Delaware business trust wholly owned by Bank of the Ozarks, Inc., sold to investors in a public underwritten offering $17.3 million of 9% cumulative trust preferred securities. The proceeds were used to purchase an equal principal amount of 9% subordinated debentures of Bank of the Ozarks, Inc. Bank of the Ozarks, Inc. has, through various contractual arrangements, fully and unconditionally guaranteed all obligations of Ozark Capital on a subordinated basis with respect to the preferred securities. Subject to certain limitations, the preferred securities qualify as Tier 1 capital and are presented in the Consolidated Balance Sheets as "Guaranteed preferred beneficial interest in the Company's subordinated debentures." The sole asset of Ozark Capital is the subordinated debentures issued by Bank of the Ozarks, Inc. Both the preferred securities of Ozark Capital and the subordinated debentures of Bank of the Ozarks, Inc. will mature on June 18, 2029; however, they may be prepaid, subject to regulatory approval, prior to maturity at any time on or after June 18, 2004, or earlier upon certain changes in tax or investment company laws or regulatory capital requirements. The net proceeds from the offering were used to repay $12.5 million of outstanding borrowings under the Company's revolving line of credit with the balance of the proceeds used for general corporate purposes including a $3.0 million capital investment in the Company's bank subsidiary. Debt issuance cost of $1,022 was incurred with the offering and is included in other assets and are amortized over the life of the preferred securities. 10. Income Taxes The following is a summary of the components of the provision (benefit) for income taxes: Year Ended December 31, ---------------------------------- 1999 1998 1997 ------- ------- ------- Current: Federal $ 2,814 $ 2,363 $ 2,180 State (165) 36 277 ------- ------- ------- Total current 2,649 2,399 2,457 ------- ------- ------- Deferred: Federal (146) 180 55 State 7 42 4 ------- ------- ------- Total deferred (139) 222 59 ------- ------- ------- Provision for income taxes $ 2,510 $ 2,621 $ 2,516 ======= ======= ======= The reconciliation between the statutory federal income tax rate and effective income tax rate is as follows: Year Ended December 31, ---------------------------------- 1999 1998 1997 ------- ------- ------- Statutory federal income tax rate 34.0% 34.0% 34.0% State income taxes, net of federal benefit -- 0.6 4.3 Effect of non-taxable interest income (5.7) (3.7) (2.7) Refund of 1992 state income tax assessment (1.1) -- -- Other 0.2 0.9 0.1 ---- ---- ---- Effective income tax rate 27.4% 31.8% 35.7% ==== ==== ==== During the year ended December 31, 1996, the Company was assessed approximately $326 of additional state income taxes for the years ended December 31, 1992 through 1995. This assessment related to the State of Arkansas taking a different position than the federal income tax treatment regarding dividends from less than 95% owned subsidiaries. The full assessment plus interest of $93 was recorded as income tax expense and interest expense during the year ended December 31, 1996 and paid during the year ended December 31, 1997. In 1999 the Company recorded a tax refund for the 1992 state income taxes. The state agreed to a settlement with respect to the 1992 tax assessment that will result in a refund of $153 of tax and $91 of interest. These were recorded in 1999 as a credit to tax expense and other income, respectively. 38 Notes to Consolidated Financial Statements, Dollars in Thousands The types of temporary differences between the tax basis of assets and liabilities and their financial reporting amounts that give rise to deferred income tax assets and liabilities and their approximate tax effects are as follows: December 31, --------------------- 1999 1998 ------ ------ Deferred tax assets: Allowance for loan losses $1,913 $1,514 Valuation of foreclosed assets 13 2 Unrealized depreciation on securities available for sale 945 -- ------ ------ Gross deferred tax assets 2,871 1,516 Deferred tax liabilities: Unrealized appreciation on securities available for sale -- 51 Accelerated depreciation on premises and equipment 807 599 Other 208 145 ------ ------ Gross deferred tax liabilities 1,015 795 ------ ------ Net deferred tax assets included in other assets $1,856 $ 721 ====== ====== 11. Employee Benefit Plans Employee Stock Ownership Plan - The Company had an employee stock ownership plan ("ESOP") to provide benefits to substantially all employees of the Company. The ESOP was merged into the 401(k) Plan in 1999. The Company had historically made annual contributions to the plan as determined solely by the Board of Directors. The Company made no contributions in 1999 and 1998 and contributed $64 to the plan for the year ended December 31, 1997. 401(k) Plan - In May 1997 the Company established a qualified retirement plan, with a salary deferral feature designed to qualify under Section 401 of the Internal Revenue Code (the "401(k) Plan"). The 401(k) Plan permits the employees of the Company to defer a portion of their compensation in accordance with the provisions of Section 401(k) of the Code. Matching contributions may be made in amounts and at times determined by the Company. Certain other statutory limitations with respect to the Company's contribution under the 401(k) Plan also apply. Amounts contributed by the Company for a participant will vest over six years and will be held in trust until distributed pursuant to the terms of the 401(k) Plan. Employees of the Company are eligible to participate in the 401(k) Plan when they meet certain requirements concerning minimum age and period of credited service. All contributions to the 401(k) Plan will be invested in accordance with participant elections among certain investment options. Distributions from participant accounts will not be permitted before age 65, except in the event of death, permanent disability, certain financial hardships or termination of employment. The Company made matching contributions to the 401(k) plan during 1999, 1998 and 1997 of $146, $99 and $32, respectively. 12. Stock Options The Company has a nonqualified stock option plan for certain key employees and officers of the Company. This plan provides for the granting of incentive nonqualified options to purchase up to 285,000 shares of common stock in the Company. No option may be granted under this plan for less than the fair market value of the common stock at the date of the grant. The exercise period and the termination date for the employee plan options is determined when the options are actually granted. The Company also has a nonqualified stock option plan for non-employee directors. The non-employee director plan calls for options to purchase 1,000 shares of common stock to be granted to non-employee directors the day after the annual stockholders' meeting. These options are exercisable immediately and expire ten years after issuance. The following summarizes stock option activity for the year indicated:
Years ended December 31, -------------------------------------------------------------------------- 1999 1998 1997 ---------------------- ---------------------- ---------------------- Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Options Price Options Price Options Price ------- --------- ------- --------- ------- --------- Outstanding - beginning of year 198,050 $ 20.42 106,500 $16.42 -- $ -- Granted 71,500 17.96 103,700 24.11 108,500 16.42 Exercised -- -- -- Canceled (15,450) 20.57 (12,150) 16.00 (2,000) 16.00 ------- ------- ------- Outstanding - end of year 254,100 19.72 198,050 20.42 106,500 16.42 ======= ======= ======= Exercisable at end of year 83,200 $ 22.20 17,000 $22.37 8,000 $ 16.00 ======= ======= =======
39 Notes to Consolidated Financial Statements, Dollars in Thousands Exercise prices for options outstanding as of December 31, 1999 ranged from $16.00 to $34.13. The weighted-average fair value of options granted during 1999,1998 and 1997 was $6.85, $8.36 and $6.20, respectively. The weighted- average remaining contractual life of the options issued in 1999 is 5.1 years. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: 1999 1998 1997 ---- ---- ---- Risk-free interest rate 5.71% 4.94% 6.17% Dividend yield 2.00 0.91 1.78 Expected dividend yield increase 12.00 15.00 15.00 Expected stock volatility 42.16 39.09 32.65 Weighted average expected life 5 years 4 years 6 years For purposes of pro forma disclosures as required by SFAS No. 123, the estimated fair value of the options is amortized over the option's vesting period. The following table represents the required pro forma disclosures for options granted subsequent to December 31, 1996: 1999 1998 1997 ------- ------- ------- Pro forma net income $ 6,243 $ 5,363 $ 4,462 Pro forma earnings per share: Basic 1.65 1.42 1.36 Diluted 1.64 1.40 1.36 The following is a summary of currently outstanding and exercisable options at December 31, 1999:
Options Outstanding Options Exercisable ------------------------------------------------- ----------------------------- Weighted Average Weighted Weighted Range of Remaining Average Average Exercise Options Contractual Exercise Options Exercise Prices Outstanding Life (in years) Price Exercisable Price - ------------- ----------- --------------- -------- ----------- -------- $ 16.00-19.19 157,600 6.3 $16.89 17,000 $17.68 21.50-27.75 88,500 4.7 23.45 58,200 21.89 34.13 8,000 8.3 34.13 8,000 34.13 ------- ------ 254,100 83,200 ======= ======
13. Commitments and Contingencies The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual notional amount of those instruments. The Company has the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since these commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties. The Company had outstanding commitments to extend credit of approximately $36,686 and $27,409 at December 31, 1999 and 1998, respectively. The commitments extend over varying periods of time with the majority to be disbursed within a one-year period. The Company had total outstanding letters of credit amounting to $684 and $334 at December 31, 1999 and 1998, respectively. The commitment terms generally expire within one year. The Company grants agribusiness, commercial, residential and consumer installment loans to customers primarily in northern, western and central Arkansas. The Company maintains a diversified loan portfolio. 14. Related Party Transactions The Banks have entered into transactions with their executive officers, directors, principal shareholders, and their affiliates (related parties). The aggregate amount of loans to such related parties at December 31, 1999 and 1998 was $7,513, and $5,317, respectively. New loans and advances on prior commitments made to 40 Notes to Consolidated Financial Statements, Dollars in Thousands such related parties were $3,263, $5,483, and $169 for the years ended December 31, 1999, 1998, and 1997, respectively. Repayments of loans made by such related parties were $1,067, $376, and $1,571 for the years ended December 31, 1999, 1998, and 1997, respectively. During 1999 and 1998, the Company constructed seven banking buildings. The majority owner of the contractor on these construction projects is a member of the Company's Board of Directors. Total payments to the contractor during the years ended December 31, 1999 and 1998 were approximately $2,343 and $7,424, respectively. 15. Regulatory Matters Federal regulatory agencies generally require member banks to maintain core (Tier 1) capital of at least 3% of total assets plus an additional cushion of 1% to 2%, depending upon capitalization classifications. Tier 1 capital generally consists of total stockholders' equity. Additionally, these agencies require member banks to maintain total risk-based capital of at least 8% of risk-weighted assets, with at least one-half of that total capital amount consisting of Tier 1 capital. Total capital for risk-based purposes includes Tier 1 capital plus the lesser of the allowance for loan losses or 1.25% of risk weighted assets. The Company's regulatory capital positions were as follows:
December 31, 1999 December 31, 1998 -------------------------- -------------------------- Computed Computed Computed Computed Capital Percent Capital Percent -------- -------- -------- -------- Bank of the Ozarks, Inc. (consolidated): Total risk-based capital $65,414 13.15% $41,340 10.21% Tier 1 risk-based capital 57,225 11.50 36,651 9.05 Leverage ratio -- 7.46 -- 6.21 Bank of the Ozarks: Total risk-based capital $63,552 12.64% $53,612 13.17% Tier 1 risk-based capital 57,450 11.44 48,922 12.02 Leverage ratio -- 7.50 -- 8.27
The December 31, 1998, amounts for Bank of the Ozarks have been restated to reflect the merger of the bank subsidiaries into one banking subsidiary. As of December 31, 1999 and 1998, the most recent notification from the regulators categorized the Company and its subsidiary bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Company's or its subsidiary bank's category. At December 31, 1999, the subsidiary bank exceeded its minimum capital requirements. As of December 31, 1999, the state bank commissioner's approval was required before the bank could declare and pay any dividend of 75% or more of the net profits of the bank after all taxes for the current year plus 75% of the retained net profits for the immediately preceding year. Approximately $5,055 was available at December 31, 1999, for payments of dividends by the bank without the approval of regulatory authorities. Under Federal Reserve regulation, the subsidiary bank is also limited as to the amount it may loan to its affiliates, including the Company, unless such loans are collateralized by specific obligations. At December 31, 1999, the maximum amount available for transfer from the subsidiary bank to the Company in the form of loans approximated $5,761. The subsidiary bank is required by bank regulatory agencies to maintain certain minimum balances of cash or non-interest bearing deposits primarily with the Federal Reserve. At December 31, 1999 and 1998, these required balances aggregated approximately $5,458 and $2,621, respectively. 16. Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of financial instruments. Cash and due from banks - For these short-term instruments, the carrying amount is a reasonable estimate of fair value. Investment securities - For securities held for investment purposes, fair values are based on quoted market prices or dealer quotes. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities or the carrying amount. Loans, net of unearned income - The fair value of loans is estimated by discounting the future cash flows using the current rate at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Deposit liabilities - The fair value of demand deposits, savings accounts, NOW accounts and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed maturity certificates is estimated using the rate 41 Notes to Consolidated Financial Statements, Dollars in Thousands currently offered for deposits of similar remaining maturities. The carrying amount of accrued interest payable approximates its fair value. Other borrowed funds - For these short-term instruments, the carrying amount is a reasonable estimate of fair value. The fair value of long-term debt is estimated based on the current rates available to the Company for debt with similar terms and remaining maturities. Accrued interest - The carrying amount of accrued interest payable approximates its fair value. Off-balance sheet instruments - Fair values for off-balance sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing. Commitments to extend credit and standby letters of credit - The fair value of these commitments is estimated using the fees currently charged to enter into similar agreements taking into account the remaining terms of the agreements and the present credit-worthiness of the counter-parties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counter-parties at the reporting date. The following table presents the estimated fair values of the Company's financial instruments. The fair values of certain of these instruments were calculated by discounting expected cash flows, which involves significant judgments by management and uncertainties. Fair value is the estimated amount at which financial assets or liabilities could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Because no market exists for certain of these financial instruments and because management does not intend to sell these financial instruments, the Company does not know whether the fair values shown below represent values at which the respective financial instruments could be sold individually or in the aggregate.
1999 1998 ------------------- ------------------- Carrying Fair Carrying Fair Amount Value Amount Value -------- -------- -------- -------- Financial assets: Cash and cash equivalents $ 24,562 $ 24,562 $ 15,024 $ 15,024 Available-for-sale securities 44,837 44,837 17,629 17,629 Held-to-maturity securities 218,558 205,749 158,989 159,050 Loans, net of allowance for loan losses 461,059 456,848 382,837 382,720 Accrued interest receivable 7,174 7,174 5,517 5,517 Financial liabilities: Demand, NOW and savings account deposits $161,388 $161,388 $145,609 $145,609 Time deposits 434,542 434,000 383,431 384,598 Repurchase agreements with customers 9,026 9,026 1,408 1,408 Other borrowings 126,989 124,243 39,271 39,878 Accrued interest and other liabilities 2,973 2,973 2,357 2,357 Off balance sheet items: Standby letters of credit -- $ 684 -- $ 334 Commitments to extend credit -- 36,686 -- 27,409 Unfunded credit card loans -- -- -- 1,419
17. Supplemental Cash Flow Information Supplemental cash flow information is as follows:
Year Ended December 31, -------------------------------- 1999 1998 1997 -------- -------- --------- Cash paid during the period for: Interest $ 27,448 $ 20,466 $ 13,255 Income taxes 2,314 2,333 2,752 Supplemental schedule of non-cash investing and financing activities: Transfer of loans to foreclosed assets held for sale 3,625 628 683 Loans advanced for sales of foreclosed assets 771 251 203 Change in unrealized loss (gain) in available for sale securities 2,600 (78) (85)
42 Notes to Consolidated Financial Statements, Dollars in Thousands 18. Other Operating Expenses The following is a summary of other operating expenses: Year Ended December 31, ------------------------------ 1999 1998 1997 ------ ------ ------ Operating supplies $ 513 $ 454 $ 405 Advertising and public relations 612 566 332 Other 3,932 2,941 1,856 ------ ------ ------ Total other operating expenses $5,057 $3,961 $2,593 ====== ====== ====== 19. Earnings Per Common Share The following table sets forth the computation of basic and diluted earnings per share ("EPS"):
Year Ended December 31, ------------------------ 1999 1998 1997 ------ ------ ------ Numerator: Net income $6,635 $5,629 $4,531 ====== ====== ====== Denominator: Denominator for basic EPS weighted average shares 3,780 3,780 3,272 Effect of dilutive securities: Stock options 12 39 9 ------ ------ ------ Denominator for diluted EPS - adjusted weighted average shares and assumed conversions 3,792 3,819 3,281 ====== ====== ====== Basic EPS $ 1.76 $ 1.49 $ 1.38 ====== ====== ====== Diluted EPS $ 1.75 $ 1.47 $ 1.38 ====== ====== ======
Options to purchase 97, 24 and 3 shares of common stock at prices ranging from $21.50 to $34.13 per share were outstanding during 1999, 1998 and 1997 but were not included in the computation of diluted EPS because the options' exercise price was greater than the average market price of the common shares and inclusion would have been antidilutive. 20. Parent Company Financial Information The following condensed balance sheets, income statements and statements of cash flows reflect the financial position and results of operations for the parent company: Condensed Balance Sheets
December 31, -------------------- 1999 1998 -------- -------- Assets ------ Cash and cash equivalents $ 713 $ 51 Investment in subsidiaries 58,580 51,407 Premises and equipment, net 14 25 Excess cost over fair value of net assets acquired, at amortized cost 1,204 1,261 Debt issuance cost, net 1,004 -- Other 214 19 -------- -------- Total assets $ 61,729 $ 52,763 ======== ======== Liabilities and Stockholders' Equity ------------------------------------ Accrued interest and other liabilities $ 47 $ 20 Notes payable 24 12,388 Subordinated debentures 17,784 -- -------- -------- Total liabilities 17,855 12,408 -------- -------- Stockholders' equity Common stock 38 38 Additional paid-in capital 14,314 14,314 Retained earnings 31,045 25,922 Accumulated other comprehensive income (1,523) 81 -------- -------- Total stockholders' equity 43,874 40,355 -------- -------- Total liabilities and stockholders' equity $ 61,729 $ 52,763 ======== ========
43 Notes to Consolidated Financial Statements, Dollars in Thousands Condensed Statements of Income
Year Ended December 31, --------------------------- 1999 1998 1997 ------- ------- ------- Income Dividends from subsidiaries $ 2,591 $ 3,174 $ -- Other 92 2 1 ------- ------- ------- Total income 2,683 3,176 1 ------- ------- ------- Expenses Interest 1,257 637 554 Salaries and employee benefits -- -- 284 Net occupancy and equipment -- 53 71 Other operating expenses 777 620 360 ------- ------- ------- Total expenses 2,034 1,310 1,269 ------- ------- ------- Income (loss) before income tax benefit and equity in undistributed earnings of subsidiaries 649 1,866 (1,268) Income tax benefit 743 461 486 Equity in undistributed earnings of subsidiary 5,243 3,302 5,313 ------- ------- ------- Net income $ 6,635 $ 5,629 $ 4,531 ======= ======= =======
Condensed Statements of Cash Flows
Year Ended December 31, -------------------------------- 1999 1998 1997 -------- -------- -------- Cash flows from operating activities Net income $ 6,635 $ 5,629 $ 4,531 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 11 13 18 Amortization 75 77 56 Equity in undistributed earnings of subsidiaries (5,243) (3,302) (5,313) Change in assets and liabilities: Accrued interest and other liabilities 27 (110) (199) Other, net (195) (3) 18 -------- -------- -------- Net cash provided by (used in) operating activities 1,310 2,304 (889) -------- -------- -------- Cash flows from investing activities Purchases of premises and equipment -- (7) (22) Purchase 100% of the stock in Heartland Community Bank, FSB -- (3,100) -- Additional investment in subsidiaries (3,534) (9,000) (9,000) Dividends from prior years earnings of subsidiary -- 143 -- -------- -------- -------- Net cash used in investing activities (3,534) (11,964) (9,022) -------- -------- -------- Cash flows from financing activities Increase in deferred debt issuance cost (1,022) -- -- Issue subordinated debentures 17,784 -- -- Proceeds from issuance of common stock -- -- 13,155 Proceeds from notes payable -- 14,350 10,000 Payments of notes payable (12,364) (7,034) (10,324) Dividends paid (1,512) (869) (620) -------- -------- -------- Net cash provided by financing activities 2,886 6,447 12,211 -------- -------- -------- Net increase (decrease) in cash and cash equivalents 662 (3,213) 2,300 Cash and cash equivalents - beginning of period 51 3,264 964 -------- -------- -------- Cash and cash equivalents - end of period $ 713 $ 51 $ 3,264 ======== ======== ========
44 EX-21 9 LIST OF SUBSIDIARIES Exhibit 21 Subsidiaries of the Registrant 1. Bank of the Ozarks, an Arkansas state chartered bank. 2. Ozark Capital Trust, a Delaware business trust. EX-23.1 10 CONSENT OF ERNST & YOUNG LLP Exhibit 23.1 Consent of Independent Auditors We consent to the incorporation by reference in this Annual Report (Form 10-K) of Bank of the Ozarks, Inc. of our report dated January 14, 2000, included in the 1999 Annual Report to Stockholders of Bank of the Ozarks., Inc. We also consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-32173) pertaining to the Bank of the Ozarks, Inc. Stock Option Plan, Form S-8 (No. 333-74577) pertaining to the Bank of the Ozarks, Inc. 401(k) Retirement Savings Plan and Form S-8 (No. 333-32175) pertaining to the Bank of the Ozarks, Inc. Non-employee Director Stock Option Plan of our report dated January 14, 2000, with respect to the consolidated financial statements incorporated herein by reference in this Annual Report (Form 10-K) of Bank of the Ozarks, Inc. for the year ended December 31, 1999. /s/ Ernst & Young LLP Little Rock, Arkansas March 20, 2000 EX-23.2 11 CONSENT OF MOORE STEPHENS FROST Exhibit 23.2 CONSENT OF MOORE STEPHENS FROST, INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Annual Report (Form 10-K) of Bank of the Ozarks, Inc. (the "Company") of the consolidated financial statements for the year ended December 31, 1997 (the "Financial Statements") included in the 1999 Annual Report to Stockholders of the Company. We also consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 333-74577, 333-32175 and 333-32173, pertaining to certain employee benefit plans of the Company of the Financial Statements included in or incorporated by reference in this Annual Report (Form 10-K). Moore Stephens Frost Little Rock, Arkansas March 20, 2000 EX-27 12 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS & NOTES THERETO INCORPORATED BY REFERENCE IN THE ANNUAL REPORT ON FORM 10-K. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 24,279 283 0 0 44,837 218,558 205,749 467,131 6,072 796,042 595,930 50,375 2,973 85,640 17,250 0 38 43,836 796,042 37,008 14,522 45 51,575 23,831 27,782 23,793 2,485 69 16,464 9,145 9,145 0 0 6,635 1.76 1.75 8.74 1,972 0 0 2,976 4,689 1,225 123 6,072 6,072 0 0
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