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Home My WebLink AboutDai-Ichi Kangyo Bank, Ltd. - Lender to Robert L. Mayer Corp. for Waterfront Project - 1989-03-204 A�' CITY OF HUNTINGTON BEACH°c ce COUNCIL - ADMINISTRATOR COMMUNICATION b HUNTINGTON BEACH C �� Honorable City Council Paul Coo�`-''W� To From City Administrator o RESOLUTION FOR APPROVAL OF March 20, 1989 Subject FINANCING FOR WATER FRONT PROJECTDate The request for approval of Dai-Ichi Kangyo Bank, Ltd. as lender to the Robert L. Mayer Corporation for the Waterfront project will be presented as Consent Calendar item E-3 on March 20, 1989. The lender has requested that your action include approval of the attached Resolution, prepared and approved by Agency Council. Doug La Belle or I will be available to answer any questions you may have pertaining to the attached document. PEC SRH :lb r^ � REQUEST FC . REDEVELOPMENT. .-.31 ENCY APPILOVED BY CITY CUUNCi— &r�o 19 �� CITY CLEkK "0 N �aa t-d�ddQe R 89-23 t -- Date &12r. ,1999 Submitted to: Honorable Chairman and Redevelopment Agency Members Submitted by: Paul Cook, Executive Director V Prepared by: Douglas La Belle, Deputy City Administrator/Economic Develop me Subject: APPROVAL OF DAI ICHI KANGYO BANK, LTD. AS LENDER TO RLM CORPORATION FOR THE WATERFRONT PHASE I DEVELOPMENT1 Consistent with Council Policy? dQ Yes [ ] New Policy or Exception Statement of Issue, Recommendation, Analysis, Funding Source, Alternative Actions, Attachments: M STATEMENT OF ISSUE: The Robert L. Mayer Corporation has requested that the Redevelopment Agency approve Dai—Ichi Kangyo Bank, Ltd. as lender for Phase I construction, pursuant to Section 204 of the Disposition and Development Agreement. RECOMMENDATION: Approve the financing commitment of Dai—Ichi Kangyo Bank, Ltd. ANALYSIS: On February 21, 1989, the Robert L. Mayer Corporation requested the Redevelopment Agency's approval of the Dai—Ichi Kangyo Bank, Ltd. as lender for the construction of the Hilton Hotel, Phase I of the Waterfront project. Section 204 of the Disposition and Development Agreement stipulates that the Agency shall approve or disapprove evidence of financing within thirty (30) days after the developer's request for such approval is accepted as complete. The DDA further requires any disapproval to be in writing, specifying reasons for the disapproval, and outlining conditions necessary in order to obtain Agency approval. The DDA requires that evidence of financing shall include: a copy of the commitment for financing, sufficient information regarding the financial resources of the lender, a financial statement demonstrating that the developer has sufficient funds to cover the difference between the construction and development cost, minus financing authorized by mortgage loans, and a copy of the contract between the developer and the general contractor. All documentation has been submitted and is attached with the exception that the proposed financing will cover 100% of the costs, deleting the developer's requirement to demonstrate other sources of capital. Keyser Marston Associates, Inc., has subsequently reviewed the loan commitment and has submitted a letter which states that "DKB has sufficient resources to fund the loan for the Waterfront Hilton Hotel" (see attached report). FUNDING SOURCE: 15 None PIO/1/85 MA Do not approve the proposed financing commitment provided by Dal-Ichi Kangyo Bank, Ltd. 1) Communication from the Robert L. Mayer Corporation 2) Letter of Intent from the Dal-Ichi Kangyo Bank, Ltd. 3) General conditions for construction contract, Waterfront Hotel 4) Dai-lchi Kangyo Bank, Limited Annual Report, 1988 5) Communication from Keyser Marston Associates, Inc. PEC/DLB/SH:lp 4513h 0 iinF it '$= Gz-:44 F.!�HFT i• PUrL , QF wZ DrNNT THEWATE' M-j February 21,1989 Mr. Paul Cook City Administrator City of Huntington Beach 2000 Main Street Huntington Beach, CA 92648 Dear Paul: F.Z'c This letter is to advise you that we have selected Dai-Ichi Kangyo Bank-, Ltd. to provide the constru;•tion and permanent financing for The Waterfront Hilton. Pursuant to Section.. 204 of the Disposition and Development Agreement, we respectfully request approval for this financial commitment. We have forwarded to the following to Keyser Marsten for their review: 1. Letter of Intent from Dai-Ichi Kangyo Bank, Ltd. 2. Dai-Ichi Kangyo Bark, Ltd. Annual 1938 Report If you have any questions, please feel free to contact me. Sincerely, Stephen K Bone Executive Director SKB/nab CC: Robert L.. Mayer Susan Hunt 14mch- 0'4� The Robert Mayer Ccrpo:anon 66o Ne%vport Center Dr.ve, Suite I050, PO. Box 8680, Newport Bea&., CA 92465346:O • Telepl one (714) 759-80% TELEPHONE IM) 612-6400 THE DJ-.44CHI KANGYO MAAK, LTD. LOB AN©ELES AGENCY 770 VASHIRE 130UU-VAM LOS ANGELES. CAL'FORNIA SM17 February 15, 1989 Mr. Robert L. Mayer, President The Robert Mayer Corporation 660 Newport Center Drive Suite 1050, P.O. Box 8680 Newport Beach, CA 92658-8680 CABLE ADDRESS BANKMKAM TELEX 67-4516 JOKB LSA] • ••1 ' • •_ !' • • •1 Tl• Wo F T. I ITMW# f!• •I • � •1 • 1 � 1 l•l •! ► ! • 31 Dear Mr. Mayer: Pursuant to your request, I am pleased to provide you with a summary of the terms and conditions under which The Dai-Ichi Kangyo Bank, Ltd., Los Angeles Agency ("DKB") would be willing to provide funds for the above -referenced request for financing. The following is designed as a "letter of intent". DKB expresses "no commitment" to the financing discussed herein; all terms and conditions are subject to negotiation and final approval from DKB-Tokyo. . OPOSED TERMS AND CONDITIONS Borrower: The Robert Mayer Corporation or a California Partnership majority owned and operated by The Robert Mayer Corporation acceptable to DKB. Purpose: To provide construction and interim financing to construct the Waterfront Hilton Hotel, Huntington Beach, California. Loan Term: 7 years from closing date, (2 years construction financing with 5 years interim financing). Amount: Up to a maximum of $55,000,000. Type of Financing: The Borrower has the option to elect the form of financing at any time during the tenor of this transaction: 1) Commercial Paper (CP) program, supported with a letter of credit from DKB. 2) Conventional Loan. 14 77;��4- 446,z �Wf Waterfront Page 2 of Pricing: Hilton hotel 6 Commitment Fee: Security: 1) Letter of Credit fee 1.25% per annum payable monthly in arrears, reducing to 1.125% per annum upon completion and issuance of a certificate of occupancy, reducing to .875% per annum upon achievement of breakeven debt service of at least l.ix for 12 consecutive months. 2) Conventional Loan, at the Borrower's option: i. LIBOR + 1.25% (one, two, three, six, nine and twelve month options), reserve adjusted to include all current and future reserve cost, reducing to + 1.125% per annum upon completion and issuance of a certificate of occupancy, reducing to + 1.0% upon achievement of breakeven debt service of at least 1.1x for 12 consecutive months. ii. Term FED Funds + 1.25% (option up to the remaining tenor of the financing), reducing to + 1.125% per annum upon completion and issuance of a certificate of occupancy, reducing to 1.0% per annum upon achievement of breakeven debt service of at least 1.1x for 12 consecutive months. iii. Citicorp Prime Bank lending rate flat, reducing to Prime minus .25% upon achievement of breakeven debt service of at least 1.lx for 12 consecutive months. 1.0% flat, payable in full upon the date of closing the proposed loan. Security for the proposed transaction is to include, but is not limited to the following: A) A perfected first mortgage lien on the property, buildings and improvements. B) Assignment of any contractual documents. �Wi Waterfront Hilton Hotel Page 3 of 6 C) Title Insurance insuring DKB's first priority lien, to be issued by a DKB- approved title company. D) Adequate property, casualty, fire, flood, and liability insurance acceptable to DKB. Loan to Value: Not to exceed 75% of MAI stabilized appraised value. loan to Value ("LTV"): total loan outstanding on the project divided by the stabilized appraised value plus guaranteed amount (as described under "Cash Flow Guarantee"). Cash Flow Guarantee: The Borrower agrees to provide DKB with an irrevocable and unconditional letter of credit to cover interest expense, to be not less than $3MH and not more than $5MH. DKB will release the Borrower's letter of credit upon stabilization of the property subject to the terms and conditions of this financing. Stabilization: Average occupancy rate for 12 months will be equal to or greater than 76%. Average daily room rate will be $130,00. Construction Guarantee: The Borrower Shall guarantee the lien -free completion of the Hotel in accordance with final plans, specifications, and approved construction loan budget. A guaranteed maximum fixed price contract and/or a letter of credit sufficient to guarantee the lien - free completion will be required by DKB. Construction Consultant: The Borrower shall pay the fees of a construction consultant hired to conduct on -- site construction progress reviews. The consultant is to be selected by DKB. Special Conditions: Borrower will furnish certain items and documents satisfactory in form and in content to DKB. Below is a list of such items, however, not limited to: A) Complete Property Title Report B) Construction disbursements breakdown, and progress schedules. waterfront Hilton Hotel Page 4 of 6 C) Design development plans and approvals including demolition, foundation, building permits and all other items required to complete the construction and all improvements. D) Maximum fixed price construction contract, based on design development plans and specifications. E) Signed and executed Management Contract with no limiting conditions. Interest Rate Risk: The Borrower agrees to enter into an interest rate hedge transaction acceptable to DKB prior to closing. Covenants: All covenants, terms, and conditions will be customary for a financing of this type. Proposal Date: This letter of intent will expire if not accepted by the Borrower on or before February 17, 1989. Commitment Date: on or before March 15, 1989. Lender's Title Insurance: The Borrower will be entitled to select the lead title insurance company, subject to DKB's approval. Title search fees and the cost of title insurance shall be paid by the Borrower. Counsel: DKB's counsel shall be Lillick & McHose. Legal Expenses: DKB shall be reimbursed by the Borrower for all reasonable legal fees incurred in connection with this financing, to include future legal fees which may occur in the event of a default or a force majeure. In the event the proposed financing is not closed after a commitment letter is accepted and acknowledged by the Borrower at the fault of the Borrower, all legal expenses DKB incurred with the preparation and/or review of loan documents will be at the Borrower's expense. Waterfront Hilton Hotel Page 5 of 6 Expenses: The Borrower agrees to pay all taxes and assessments, recording fees, title insurance premiums and other fees of the title company, appraisal fees, consulting architectural fees, inspection fees, interest rate hedge fees, and all other expenses of closing the proposed financing including expenses specifically described in this proposal. Good Faith Deposit: Upon acceptance and acknowledgement of the this letter of intent, the Borrower agrees to deposit with DKB the sum of $50,000. as a good faith deposit, such fee is payable toward upfront cost upon the successful consummation of the financing. In the event DKB rejects the financing on substantially the same terms and conditions as described herein, such good faith deposit will be refunded to the Borrower. This summary of terms and conditions is not meant to be, nor shall it be construed as an attempt to define all of the terms and conditions of the financing discussed herein. The intended use of this document is to outline certain basic points of business understanding which the legal documentation of this transaction could be construed. Please signify your acceptance of this offer of intent by signing and returning to us the enclosed copy of this letter. Sincerely, The Dai--Ichi Kangyo Bank, Ltd. Los Angeles Agency J, ' ....., \, Masahiro Shimizu General Manager Agent Waterfront Hilton Hotel Page 6 of 6 As a representative acceptance in principle discussed herein. It i document is subject to Borrower and DFB-Tokyo. -)Y2 621 --L Partner ;/ Partner M2/pf of the Borrower, I acknowledge the of the proposed terms and conditions as s my explicit understanding that this negotiation and final approval of the r GENERAL CONDITIONS FOR CONSTRUCTION CONTRACT WATERFRONT HOTEL -- HUNTINGTON BEACH, CALIFORNIA A nR(,ti•'�3 ti l") r TABLE _OI_ &ONTENTS PAGE ARTICLE I - DEFINITIOE9................................ 1 2.1 Application Day .................................. i 1.2 Arch i tact ....... ....... . . .... . . ...... ■ ....... 0 ... 1 1.3 Beneficial Occupancy ............................. 1 1.4 Change Order ..................................... I 1.5 Completion Date .................................. 1 1.6 Construction Agreement ........................... 1 1.7 Construction Contract ............................ i 1.8 Construction Progress Schedule ................... 1 1.9 Contract Documents ............................... 1 1.10 Contract Sum ..................................... 2 1.11 Contractor ....................................... 2 1.12 Days ............................................. 2 1.13 Final Completion ................................. 2 1.14 Finish Work ...................................... 2 1.15 Hotel Operator ................................... 2 1.16 Lender ........................................... 2 1.17 Owner ............................................ 2 1.18 Owner's Representative ........................... 2 1.19 Plans and Specifications ......................... 2 1.20 Project • .......... . .. . ...... 0 .................... 2 2.21 Project Bulletin ................................. 2 1.22 Punch List ....................................... 3 7HISO882 20/18/88 i r ti • ARJXCLE -_DEFINITIONS ontinuaq) 1.23 Samples ....:................+.........+.......... 3 1.24 Scope Drawings .........+•..+.+........•.......... 3 1.25 Separate Contract ................................ 3 1.26 Shop Drawings .................................... 3 1.27 Site ............................................. 3 1.28 Subcontractor ...+ ................................ 3 1.29 Trade Payment Breakdown .......................... 3 1.30 Work ..............................+.............. 3 1.31 Work in Place .................................... 4 BRTICLE II ^ CO-WRACT DOCUMENTS ••+++.•r.++•a.•.•+++•••• 4 2.1 • Purpose .......................................... 4 2.2 Substitution ..................................... 4 2.3 Interpretation ................................... 5 2.4 Controlling Documents ............................ S &RTICLE III - ARCHITECT ................................ 6 3.1 Architect -Ps Status ............................... 6 3.2 Access ........................................... 6 3r3 Clarifying Instructions .......................... 7 3.4 Inspection ..:.................................... 7 3.5 ownership of Documents +.......................... 9 7H180882 10/18/88 ii w • IkRTICLE _IV - IDMINISTRATION OF THE CQT}ACT ............. 9 4.1 Owner and owner*s Representative .................. 9 4.2 Information Furnished by Owner .................... 9 4.3 owner -a Approval of Subcontracts .................. 9 4.4 Title to the Mork ................................. 10 4.5 Rejection of work ................................. 10 4.6 Right of Owner to Stop Mork ...........+........... 10 4.7 Right of Owner to Correct 'Work .................... 11 4.8 Interpretation of Contract Documents .............. 11 4.9 Ownerfs Replacement of Owner's Representative ..... 11 4.10 Separate Contracts r+•••...•..,.,....••r......•..•. 11 ZiRTICLE 4 - CONTRACTOR .................................. 13 5.1 General Obligation ................................ 13 5.2 Project Management ................................ 18 5.3 ' Construction Progress Schedule .................... 18 5.4 Books and Records ................................. 19 5.5 Permits, Fees and Notices ......................... 20 5.6 Trade Regulations ................................. 20 5.7 Royalties and Patents ............................. 21 5.8 Quality Control Program ........................... 21 5.9 Taxes ............................................. 25 5.10 Awarding Subcontracts ................+............ 25 5.11 General Responsibilities and Duties of Contractor 26 5.12 Bonds ............................................. 28 5.13 Equal Employment Opportunity 29 7H180882 10/18/88 iii ARTICLE VI - 1AXM8NT8................................... 30 6.1 Payment to Contractor 30 6.2 Trade Payment Breakdown 30 6.3 Application for Payment 31 6.4 Retention ......................................... 32 6.5 Architect's Review of Payment Application'......... 32 6.6 Time of Payment ................................... 32 6.7 Title ............................................. 34 6.8 Final Completion .................................. 34 6.9 Final Payment ..................................... 35 6.10 Release ..............................•..•••.....• 37 6.11 Payment Not Construed as Acceptance 37 ARTICLE VZ.X - 'OHM W0LtK woo... • **sees* 37 7.2 Work .............................................. 37 7.2 Commencement and Completion 38 7.3 Extension of Completion Date •..............•...... 38 7.4 Hours of Work ..........................•.......... 39 7.5 watchmen .......................................... 39 V 6 Use of Sit* ....................................... 40 7.7 Building xaterials, Equipment and processes 40 7.8 operation and Maintenance Instructions •........... 42 7.9 protection of Persons and Property 43 .7.10 Safety ............................................ 45 7.11 Piro Protection ................•.................. 45 7.12 Emergencies ........•....•...........•..•...•...... 46 7H180882 01/05/89 iv ARTICLE VIT - THE STORK Montinued) 7.13 Accidents ......................................... 46 7.14 Rodent Control .................................... 46 7.15 Pumping and Draining 47 7.16 Temporary Facilities 47 7.17 Changes in the Work 48 7.18 Correction of Work ................................ 49 7.19 Clean -Up .......................................... 50 7.20 acceptance of the Work ............................ 52 7.21 Guarantee and Correction of Work 53 ARTICLE VIII - RIGHTS AND REMEDIES 54 8.1 Termination by Contractor ......................... 54 8.2 Termination by Owner .............................. 55 8.3 Transfers Upon Termination 57 ARTICLE IX ^,DISPQTES................................... 57 9.1 Initial Decision by Ownerts Representative ........ 57 9.2. Litigation or Arbitration ......................... 58 7H180882 O1/05/89 v ARTICLE I DEFINITIONS Whenever used in these General Conditions, the fol- lowing terms shall have the meanings hereinafter set forth un- less a different meaning is clearly indicated: 1.1 stApplication Dayts means the day of each month during the progress of the Work. 1.2 "Architects' means the person or firm designated as such from time to time by Owner. 1.3 •$Beneficial Occupancy" means the taking of pos- session by Owner of any designated area or areas within the Project, prior to Final Completion, following inspection of such area or areas by Owner, Architect and Contractor to as- certain the condition of the Site and the Work which remains to be completed in such area or areas. 1.6 stCbange Order" means a written instrument signed by owner or Owners Representative directing changes to the Work or specifying adjustments to the Construction Progress Schedule or the compensation payable to Contractor under the Construction Contract. 1.5 "Completion Date', means , 19_, as such date may be extended pursuant to the Contract Documents. 1.6 "Construction Agreements+ means the agreement between Owner and Contractor relating to the Work, to which these General Conditions are attached. 1.7 "Construction Contract" means the Construction Agreement, these General conditions and all other exhibits and addenda referred to or incorporated in the Construction Agree- ment. 1.0 ssConstruction Progress Schedule,# shall have the meaning ascribed to it in Section 5.3(a) hereof. 1.9 ++Contract Documents+ means the Construction Contract, the Plans and Specifications, the Construction Progress Schedule, Change Orders, and all other contracts, da- ta, documentation and instructions relating to the Work, to- gether with any and all exhibits, -riders, amendments and modi- fications thereto. A complete list of all Contract Documents is attached hereto as Exhibit A. 7HISCS82 01/05/89 1 `.) 2.10 $'Contract Sum" ir4ans the sum of Dollars ($ ). i.ti @,contractor,, means the person or firm designat- ed as such in the Construction Agreement. 1.12 "Days" means calendar days unless specifically provided to the contrary herein or in any other Contract Docu- ment; provided, bgwever, that if any day falls on a weekend or a holiday, the same shall refer to the next business day thereafter. 1.13 •@'Final completion" means completion of the Work in accordance with the Contract Documents, and acceptance thereof by Owner. 1.24 $'Finish Work' means labor, material and ser- vices (including acquisition and installation of furniture, furnishings, fixtures and equipment) required to enable Owner to operate the Project as a first-class hotel for the purposes intended by Owner. 1.15 O'Hotel Operator" means any entity designated by owner in writing as the operator of the hotel to be situat- ed in the Project. 1.15 I'Lenderf' means the entity or entities lending funds to Owner for the purpose of, among other things, paying the Contract Sum. 1.17 "Owners, means the party identified as such in the Construction Agreement. 1.18 @'Owner-*s Representative'# means the person or entity designated as such by Owner in writing from time to time. 2.19 Plans and Specifications++ means all architec- tural and engineering drawings, descriptions, diagrams, ren- derings and instructions describing the Project and Work. The Plans and Specifications shall include, but not be limited to, all Scope Drawings and specifications, working drawings and Shop Drawings approved by Owner. 1.20 I'Project'l means all buildings, facilities and other improvements necessary for the creation of a first-class hotel on the Site as shown on, or which are reasonably infer- able from, the Scope Drawings. 1.21 "Project Bulletints means an instruction issued by Owner indicating a contemplated change to the Work and re- questing Contractor to furnish information regarding such 7H180882 10/18/88 2 contemplated change with respect to the probable cost thereof and the amount of time necessary to implement such change. 1.22 "Punch List$$ means a list approved by Hotel Operator, Architect and owner identifying defective, damaged, incomplete or uncorrected Work of Contractor or any Subcon- tractor. 1.23 "Bamplese, mean physical examples of any por- tion of the Project or Work furnished by Contractor to illus- trate materials, equipment or workmanship, and to establish standards by which the Work will be judged. 1.24 "Scope Dravingst, means the drawings, specifi- cations and depictions which generally describe the Work. The Scope Drawings shall be a part of the documents prepared by the Architect which include design criteria, drawings, outline specifications and other documents to establish and describe the size and character of the entire Project. 1.25 $'Separate Contract's means any agreement be- tween Owner and any person or entity other than Contractor pertaining to the construction or furnishing of a portion of the Project (including, without limitation, Finish Work). Any party to a Separate Contract other than Owner shall be re- ferred to herein as a "Separate Contractor." 1.26 "Shop Drawings" means drawings, diagrams, il- lustrations, schedules, performance charts, brochures, and other data which are prepared by Contractor or any Subcontrac- tor, manufacturer, supplier or distributor, and which illus- trate or otherwise pertain to some portion of the Work. 2.27 "Site'$ means that certain real property more particularly described in Exhibit "B" attached hereto. 1.28 $'Subcontractor" means any person or firm, oth- er than an employee of Contractor, who is engaged by Contrac- tor or by another Subcontractor to furnish labor, materials, analysis or other services with respect to a portion of the Work. 1.29 "Trade Payment Preakdovnll means a schedule de- scribing in detail the various portions of the Work and the estimated or actual (if known) costs thereof, as more fully described in Section 6.2 hereof. 1.30 IlWorkil means the furnishing of all labor and materials necessary for Final Completion of the Project in ac- cordance with the Contract Documents and includes, but is not limited to, all materials, tools, machinery, methods, labor, overtime labor and standby labor as may be required to 7H180882 20/18/88 3 maintain construction progress, equipment, supplies, services, supervision, transportation, power, fuel, water and other items, facilities, services and machinery of every kind neces- sary to perform and complete the Project for use as a first-class hotel in compliance with the requirements of the Contract Documents. 1.31 "work in 'Places, means Work which has been made a part of the Project pursuant to the Construction Contract, but does not include equipment or materials delivered to the site and not yet installed in the Project. ARTICLE II CONTRACT pOMEHIR 2.1 Purpose. The purpose of the Contract Documents is to set forth and adequately describe all Work required to complete the Project (unless such Work is specifically exclud- ed from the coverage of the Contract Documents. All matters shown on the Plans and Specifications and any matter within the scope described in the Contract Documents which is infer- able from or a logical extension of the Contract Documents for completion of the Project shall be considered a part of the Work, and shall be executed by Contractor and the Subcontrac- tors in the same manner and with the same level of competence and quality as all other portions of the Work, without the payment of any additional compensation by Owner. 2.2 pubstitution. In performing its Work, Contrac- tor only shall use the specific materials, methods and equip- ment specified in the Contract Documents. Neither Owner nor Architect make any representation or warranty to Contractor, any Subcontractor or any other person or entity performing any part of the Work regarding the availability of any materials or equipment so specified. Where several materials are speci- fied by name for the same use, any one so specified may be used by Contractor. No such choice by Contractor shall have any effect upon the Contract Sum. Whenever an item or class of material is specified exclusively by trade name, manufac- turer's name or catalog reference, only the specified item or class may be used by Contractor unless written approval by Owner of a substitution is first secured. When two or more products are specified for an item of Work, any one thereof shall be deemed acceptable. When only one product is speci- fied and the term "or equal" is used in connection with the product, Contractor may offer for Architect's review a substi- tute product which will completely accomplish the purpose for such product evident in the Contract Documents. If a speci- fied product is not available or will not, in Contractor's opinion, produce the desired result, Contractor shall offer 7H180882 10/18/88 4 for Architect's review and approval a substitute product which will completely accomplish the purpose for such product evi- dent in the Contract Documents. When proposing to owner or Architect any substitution for a specified product or materi- al, Contractor shall have the burden of proving the equivalen- cy of the proposed substitution to the specified materials. When proving the equivalency of a proposed substitution Con- tractor shall document the proposed substitution to enable Ar- chitect's and owner's review, evaluation, analysis and recom- mendation thereof, state in such documentation the extra sum or credit involved, and provide any reasonable supporting da- ta. Any such submittal shall be made in a timely fashion to avoid any adverse effect upon the Construction Progress Sched- ule. 2.3 Xnterpretation. Words describing material or work which have an accepted technical or trade meaning, unless otherwise specifically defined in any of the Contract Docu- ments, shall be construed in accordance with such accepted meaning. References made in the Plans and Specifications to standard codes or test methods of technical societies, trade associations or similar organizations shall, unless specifi- cally set forth to the contrary, be deemed to be references to the most current revision of such standards as of the date of the Construction Agreement. Contractor and all Subcontractors acknowledge their familiarity and experience with generally recognized standards of quality and workmanship applicable to the portions of the Work performed by each of them. The re- quirements of any and all such generally recognized standards are hereby incorporated into the 'Plans and Specifications and made a part thereof if and where referred to therein. 2.4 ont o cumenta. In the event of any conflict, inconsistency or discrepancy among any of the Con- tract Documents, the Construction Agreement shall control over the General Conditions and the Plans and Specifications, and the General Conditions shall control over the Plans and Speci- fications. Contractor shall be furnished one (1) copy of all reproducible Shop Drawings and Plans and Specifications for the execution of the Work. Contractor shall secure written clarification or interpretation from owner's Representative of any conflict, discrepancy or duplication in the Contract Docu- ments known or logically inferable by Contractor before pro- ceeding with any Work which may be affected thereby. In all instances the best quality of work, materials and equipment shall be deemed to be required by the Contract Documents, and Contractor shall accrue in favor of owner a reasonable credit if a lesser quality of work, materials or equipment is direct- ed. Any duplication, conflict or discrepancy known or which may be logically inferable by Contractor is not intended by the Contract Documents, and shall not under any circumstances be a basis for any extra cost chargeable to owner. 7H180882 10/18/88 5 ARTICLE III RCR 3.! architect's,Btatus. (a) Architect shall observe the Work in progress on behalf of Owner. Architect shall be the initial inter- preter of the. Plans and Specifications and the initial judge of the compliance by Contractor therewith. If any dispute exists between Owner and Contractor with respect to the Plans and Specifications, Architect shall recom- mend to Owner a resolution of such dispute. Such recom- mendation shall be advisory only. The decision of Owner, whether or not in accord with Architect's recommendation, shall be final with respect to such dispute, so long as such decision is logically inferable from said Plans and Specifications. Architect shall not be responsible for, and shall exert no control over, construction means, methods, techniques, sequences, procedures or safety pre- cautions and programs in connection with the Work. Ex- cept as may otherwise be provided in any agreement be- tween Architect and Owner and except for such responsi- bilities as may be encompassed by Architect's obligation to observe Work in progress (as more particularly set forth above in this Section 3.1(a)y, Architect shall not be responsible for any act or omission of Contractor or any Subcontractor or for the failure of Contractor or any Subcontractor to carry out the Work in accordance with the Contract Documents. Architect may act on behalf of Owner only to the extent expressly provided in the Con- tract Documents or otherwise authorized in writing by Owner or owner's Representative. All such written au- thorizations to act on behalf of Owner shall be shown by Architect to Contractor upon its request. (b) If the employment of Architect by Owner is ter- minated, Owner promptly shall appoint and designate to Contractor a successor architect who shall for all pur- poses be deemed to be the Architect under the Contract Documents. (c) Architect shall not make any changes or modifi- cations to the Contract Documents, authorize or direct additional Work not contemplated in the Contract Docu- ments, or waive any requirements set forth in the Con- tract Documents which may be applicable to any party thereto, except as expressly provided to the contrary herein. 3.2 acceng. Architect and Owner at all times shall have access to the Site and the Work wherever located. U180882 10/18/88 6 Contractor shall provide proper and safe facilities for such access, observation and inspection at the Site, at any place of manufacture or elsewhere, and shall require all Subcontrac- tors to do the same. Contractor shall, and shall require all Subcontractors to, provide staff to assist Architect upon any reasonable request therefor by Architect, and shall notify Ar- chitect prior to any layouts of the Work to enable Architect to be present at such layouts. 3.3 C1arifvincr_jn9tructioR9. (a) Architect shall furnish to Owner and, if re- quested by Owner, to Contractor with reasonable prompt- ness additional instructions, interpretations and clari- fications of the Plans and Specifications, by means of drawings or otherwise, whenever necessary for the proper execution of the Work. All such instructions, interpre- tations and clarifications shall be consistent with the Contract Documents as the same may have been modified by any Change Order. (b) All Work shall be executed in conformity with the Contract Documents. Contractor shall do no Work, nor permit any Subcontractor to do any Work, not in conformi- ty with Plans and Specifications or approved Shop Draw- ings. (c) Wherever typical parts or sections of the Work are completely detailed on any Plans and Specifications and other parts or sections which are essentially of the same construction are shown in outline only, such com- plete details shall apply to the part or section of the Work which is shown in outline. (d) Dimensions of Work shall not be determined by scale or rule. Instead, figured dimensions shall be fol- lowed at all times. If figured dimensions are lacking on any Shop Drawings, Plans and Specifications or other drawings or renderings, Architect promptly shall provide them upon request by Owner or Contractor. Figure dimen- sions and marked data shall control over scale measure- ments, and details shall control over smaller scale gen- eral drawings. Discrepancies, inconsistencies or ambigu- ities found in any Shop Drawings, Plans and Specifica- tions or other drawings or renderings shall be reported immediately to Architect and Owner's Representative for clarification. 3.4 Inspection. (a) Architect shall inspect the Site and the Work periodically, at such times as agreed upon by Owner and 7H180882 10/18/88 7 Architect, to allow Architect to determine the status of the Work and its compliance and conformity with the Con- tract Documents, make recommendations to Owner regarding payments to Contractor, prepare Punch Lists, and ascer- tain Final Completion. Architect shall recommend to own- er the rejection by Owner or Owner's Representative of any Wort. of Contractor or Subcontractor which does not conform to the Contract Documents. Owner shall be the final judge of whether such Work shall in fact be reject- ed. (b) If the Plans and Specifications, the Archi- tect's instructions, or any laws, ordinances or public authority require any Work to be specially tested or re- viewed, Contractor shall give Architect and owner's Rep- resentative timely written notice of the readiness of such Work for such testing or review. If the testing or review is performed by an authority other than Architect, Contractor shall inform Architect and Owner's Representa- tive of the date fixed for such testing or review in ad- vance of such date. Testing and review by Architect shall be made promptly and, where practicable, may be made at the source of supply or manufacture. Tc) Architect shall review all Shop Drawings, Sam- ples, materials required by the Plans and Specifications, project data and written guarantees required by the Plans and Specifications to be submitted by Contractor or Sub- contractor, promptly upon (but in no event later than fourteen (14) days after) receipt thereof, and shall rec- ommend to Owner acceptance or rejection thereof by Owner. All Samples required by the Plans and specifications shall be presented to Owner and Architect. If Architect recommends rejection thereof, Architect shall state the reasons for such rejection. Any approval which may be made by Architect of a specific item shall not be deemed to be a recommendation or approval of an assembly of which the item is a component. (d) if any portion of the Work is covered contrary to the specific requirements of the Contract Documents or instructions of Architect or Owner's Representative be- fore it has been inspected by Architect, such portion of the Work shall, if required by Architect or owner, be un- covered for its observation and replaced and recovered at the expense of Contractor. Such expense shall not be made a part of the Contract Sum. If any portion of the Work which is covered has not been specifically required by Architect or in the Contract Documents to be observed by Architect prior to being covered, Architect may, with Owner's prior written approval, request that the Work in question be uncovered. If approved by Owner, such 7H180882 10/18/88 ii portion of the Work shall be uncovered, and except as hereinafter provided the cost of uncovering and recover- ing such portion of the Work shall be added to the Con- tract Sum by an appropriate Change Order. If such uncov- ered Work is determined by Architect to be not in accor- dance with the Contract Documents or not in compliance with any applicable law, ordinance, rule, regulation or order of any agency or authority having jurisdiction over the Project, the cost of uncovering, replacing and recov- ering such Work, including compensation for any addition- al services performed by Architect or any other party em- ployed by Owner made necessary by such defective Work, shall be borne by Contractor, and shall in no event be added to the Contract Sum. 3.5 QWnershipoc All Shop Drawings, Plans and Specifications, renderings and models prepared with respect to the Project, and all copies thereof, are and shall be and remain the sole property of Owner. Such copies shall not to be used on any other work or projects whatsoever with- out Owner's prior written consent, and shall be returned to Owner's Representative upon completion of the Work. ARTICLE IV LkDHINISTRATION OF THE CONTRACT 4.2 Owner and_Owner!a Representative. Owner, act- ing through Owner's Representative, shall administrate the Contract Documents. Any decision made by Owner's Representa- tive hereunder shall be deemed to be a decision made by Owner. Owner's Representative shall have full power to act on behalf of Owner hereunder, unless expressly provided to the contrary herein or unless Owner shall have advised Contractor to the contrary in writing. 4.2 formation Furnished by owner. Owner shall, throughout the term of the Contract Documents and with reason- able promptness, furnish to Contractor all surveys in owner's possession or under Owner's control describing the physical characteristics, legal limitations and utility locations re- garding the Site, the results in Owner's possession or under Owner's control of any soil tests or borings made for or on behalf of Owner, and a legal description of the Site prior to the commencement of the Work. 4.3 0wner_11_lvor2val of gUbcon%ragty. Owner shall review and approve or disapprove the form of all Subcontracts to be used by Contractor. Each such Subcontract shall incor- porate all applicable obligations and requirements set forth in the Contract Documents. Contractor shall deliver to Owner 7HIS0882 10/18/88 9 for its review and approval or disapproval a duplicate origi- nal of any executed Subcontract designated by owner within four (4) days after designation thereof by Owner. If any such Subcontract is disapproved by Owner Contractor promptly shall let a new Subcontract in the place and stead of such disap- proved Subcontract. Contractor shall use its best efforts to cause the total amount payable under such new Subcontract to be not greater than the total amount payable under the disap- proved Subcontract, and in such event the Contract Sum shall remain unchanged. If Owner determines that it is not reason- ably practical for Contractor to cause the total amount pay- able under such new Subcontract to be not greater than the to- tal amount payable under the disapproved Subcontract, then the Contract Sum shall be increased by the difference between the total amount payable under the disapproved Subcontract and the total amount payable under the new Subcontract. 4.4 Title to the work. Title to all information furnished pursuant to Section 4.2 above, the Contract Docu- ments, all Work completed and in course of construction, and all materials acquired or produced by Contractor or any Sub- contractor in connection with their performance of the Work shall, subject to the provisions of Section 6.7 hereof, be in Owner. Notwithstanding the foregoing, however, all risks re- lating to the Work and risk of loss of all or any portion of the Project shall be and remain upon Contractor until Final Completion. 4.5 Rejection of work. Owner's Representative may reject Work which does not conform to the Contract Documents. Whenever in the reasonable opinion of owner's Representative it is necessary or advisable to ensure the proper implementa- tion of the intent of the Contract Documents, owner's Repre- sentative may require special inspection or testing of the Work, or any portion thereof, in accordance with Section 5.8 hereof, regardless of whether such Work has been fabricated, installed or completed. Notwithstanding the foregoing, howev- er, neither the authority of Owner's Representative to act un- der this Section 4.5, nor any decision made by it either to exercise or not to exercise such authority, shall give rise under the Contract Documents to any duty, liability or respon- sibility on the part of Owner or Owner's, Representative. 4.5 Right -of Ompgr t2 stoRo If Contractor or any Subcontractor fails to correct any defective portion of the Work as required by the Contract Documents, or repeatedly fails to carry out the Work in accordance with the Contract Documents, then Owner or Owner's Representative may, by writ- ten notice to Contractor, order Contractor to stop the Work or any portion thereof until the deficiency giving rise to such notice has been eliminated. Notwithstanding the foregoing, however, this right of Owner and Owner's Representative to 7HIS0882 10/18/88 10 stop the Work shall not give rise to any duty on the part of owner or Owners Representative to exercise such right for the benefit of Contractor or any other person or entity. Wo stop- page of Work by Owner or Owner's Representative pursuant to this Section 4.6 shall in any way give rise to a modification of the Construction Progress Schedule or an extension of the Completion Date (whether pursuant to Section 7.3 of these Gen- eral Conditions or otherwise). 4.7 R-igh Qf_oyner t4 Correct work. If Contractor or any Subcontractor fails to carry out the Work in accordance with the Contract Documents, and fails after notice as provid- ed in Section 8.2 hereof to commence and continue correction of any deficient or defective Work, Owner may, without preju- dice to any other remedy it may have, correct or cause the correction of such deficient or defective Work. In such case, an appropriate Change Order shall be issued deducting from the payments then or thereafter due Contractor the amount deemed necessary by Owner to correct such deficient or defective Work, including, but not limited to, all costs of any addi- tional services rendered by Architect. If the payments then or thereafter due to Contractor are not sufficient to cover such amount, Contractor immediately shall remit to Owner the difference between the amount to be deducted by Owner and the amount then and thereafter due to Contractor. 4.8 Uteroretation of ContractCocuments. Owner's Representative shall, with the advice of the Architect, be the interpreter of the Contract Documents and the judge of the performance of Contractor and all Subcontractors under the Contract Documents. Subject to the provisions of Article IX hereof, all claims, disputes and other controversies arising out of, connected with or incidental to the Contract Documents or the Work shall be decided by Owner s Representative. The decision of Owner's Representative shall be'final as long as consistent with the Contract Documents. 4.9 MOVE 'RftP_J1&JMJJ1t• e tat ve. If Owner terminates the employment of owner's Representative, or relocates Owner's Representative to other responsibilities, Owner may appoint a successor Owner's Representative, whose status under the Contract Documents shall be that of the for- mer owner's Representative as soon as written notice of the appointment of such new Owner's Representative is given to Contractor. 4e10 Recarate CToDtXMLcta. (a) Owner may perform Work relating to the Project, including but not limited to Finish Work, either through Separate Contractors or with its own agents and U180882 10/28/88 11 employees, and may award Separate Contracts under such terms and subject to such conditions as Owner may deem appropriate. Any Separate Contract shall provide that the Work to be done thereunder shall not cause delay in the Work performed by Contractor. Neither the awarding of, nor the performance of any Work under, any Separate Contract shall relieve Contractor of any obligations un- der, reasonably inferred from, or which are a logical ex- tension of, the Contract Documents. (b) Contractor shall afford Owner, each Separate Contractor, each Subcontractor and each subcontractor of a Separate Contractor a reasonable opportunity to install and store their materials and equipment Within the Project to execute their Work, and shall properly connect and coordinate the Work with all other Work, without any increase in the Contract Sum. (a) If any part of Contractor's Work depends for its proper execution upon the Work of Owner, any Separate Contractor or any subcontractor of any Separate Contrac- tor, Contractor shall, prior to commencing its Work, in- spect and promptly report to Owner's Representative any apparent discrepancies or defects in such Work of Owner which may render such Work of Owner unsuitable for the Project. The failure of Contractor to so inspect and re- port shall constitute an acceptance of such Work as fit and proper. (d) If Contractor, any Separate Contractor or any subcontractor of a Separate Contractor causes damage to the Work, the property of Owner or the property of any other Separate Contractor (or such Separate Contractor's subcontractors) on the Project, then the party causing such damage shall immediately remedy such damage and pay to Owner, such Separate Contractor or such Separate Con- tractor's subcontractors, as the case may be, any costs and expenses incurred by any of them in connection with such damage. If the cause of such damage is in dispute, Owner's Representative shall resolve the same, and Con- tractor, each Separate Contractor and each subcontractor of any Separate Contractor shall, and hereby agrees to, comply with such resolution. If any Separate Contractor, subcontractor of any Separate Contractor, Subcontractor, or Contractor, pursuant to Section 9.2 hereof, sues Owner or initiates an arbitration proceeding on account of any damage alleged to have been so sustained, Owner shall no- tify the allegedly responsible party, who shall, at Own- er's sole option either (a) defend such proceedings at its sole cost and expense (pMv ded, howeve , that owner reserves the right at any time to join in such defense), or (b) reimburse Owner for all costs, charges, fees and 7H180882 10/18/88 12 V expenses (including judgments, costs and attorney's fees) incurred by owner in connection therewith. If any judg- ment or award, or settlement in lieu thereof, against Owner results from such action or arbitration, the re- sponsible party immediately shall pay or satisfy such judgement, award or settlement, and immediately shall re- imburse to Owner all attorneys' fees and all other costs, charges, fees and expenses incurred by Owner in connec- tion therewith. (a) Contractor shall be responsible for any cut- ting, fitting and patching that may be required to com- plete the Work, except as specifically provided to the contrary elsewhere in the Contract Documents. Contractor shall not endanger any work of any Separate Contractors by cutting, excavating or otherwise altering any Work, and shall not cut or alter the Work of any Separate Con- tractor except with the prior written consent of Owner or owner's Representative. All such Work shall be performed by trades and persons normally and properly employed to do such Work. (f) If a dispute arises between Contractor and any Separate Contractor regarding their respective responsi-. bility for completing various portions of the Work, de- fective or ill-timed Work, or any clean up obligations, owner's Representative shall, subject to the provisions of Article IX hereof, be the final authority to settle any such dispute. In addition to the foregoing, Owner may complete, correct and/or clean up such Work and charge the cost thereof to Contractor or a Separate Con- tractor, as Owner's Representative shall determine to be appropriate. ARTICLE Q 5.1 general_Ob iaationa. (a) Contractor hereby represents and warrants to owner that Contractor is a business entity experienced and skilled in the construction of projects of the type described in the Contract Documents, is licensed to en- gage in the general contracting business in the jurisdic- tion where the Site is located, is in compliance with all applicable governmental laws and regulations relating to performance of the Work and has, by careful examination, satisfied itself as to: (i) the nature, location, and character of the Project and the Site, including, without limitation, the surface condition of the Site and all 7HI80882 10/18/88 13 structures and obstructions thereon (both natural and man-made) and all surface water conditions of the Site and the surrounding area (but not including, however, any subsurface conditions of the Site not apparent from Con- tractor's examination of the Site and from tests submit- ted to Contractor), (ii) the nature, location, and char- acter of the general area in which the Project is locat- ed, including, without limitation, its climatic condi- tions, available labor supply and labor costs, and avail- able equipment supply and equipment costs; (iii) the quality and quantity of all materials, supplies, tools, equipment, labor, and professional services necessary to complete the Work within the Contract Sum; (iv) any writ- ten requirements of Hotel operator delivered to contrac- tor; and (v) the ability of Contractor to complete the Work on or before the Completion Date at an aggregate cost not to exceed the Contract Sum. (b) Contractor shall furnish efficient business ad- ministration, coordination, supervision and superinten- dence of the Work, furnish at all times a competent and adequate administrative and supervisory staff and a com- petent and adequate supply of workmen and materials, and perform the Work in the best and most sound way and in the most expeditious and economical manner consistent with the interests of Owner. Contractor shall furnish to owner and Architect, from time to time at Owner's re- quest, estimates and technical advice with respect to construction methods and equipment. Contractor shall re- view the Plans and Specifications, Shop Drawings, land- scaping drawings, furniture, furnishings, fixtures, equipment, and any other drawings, plans and specifica- tions developed with respect to the Project, and shall give advice and make recommendations with respect to such factors as construction feasibility, cost savings, avail- ability of material and labor, time requirements for pro- curement, and projected costs. Contractor shall careful- ly study and compare the Contract Documents and shall, as soon as observed, report to owner's Representative any error, inconsistency, duplication or omission it discov- ers. Contractor shall assist in the coordination of all sections of the Plans and Specifications without, howev- er, assuming any of Architect's customary responsibili- ties for design or any liability therefor. Except for such Shop Drawings required under the Plans and Specifi- cations to be prepared by Contractor or a Subcontractor, Contractor shall not be responsible for any of Archi- tect's customary responsibilities for design, nor shall Contractor have any liability therefor. Contractor shall cooperate with Architect, owner's Representative, Sepa- rate Contractors, and all persons or entities retained by Owner to provide consultation and advice, and to 7H180882 10/18/88 14 coordinate the Work with the Work of such parties, so that the Project shall be completed in the most efficient and expeditious manner. In performing its Work, Contrac- tor shall strictly adhere to the Contract Documents, fi- nal Shop Drawings, product data and any Samples for such portion of the Work. (c) Contractor acknowledges that Owner intends to award one or more contracts for Finish Work. Contractor acknowledges and recognizes that both Contractor and the Separate Contractors performing the Finish Work shall be pursuing their Work in connection with the Project simul- taneously. contractor shall cooperate and coordinate with such Separate Contractors to cause the Project to be completed in the most efficient and expeditious manner and, if requested by Owner, shall cooperate with such Separate Contractors and Owner to facilitate and effect a partial opening of the Project prior to Final Completion. (d) Contractor warrants that its financial condi- tion is. sound, and that Contractor shall be capable of obtaining any bonds required under Section 5.13 hereof. Upon request by Owner, Contractor shall make available to Owner such audited and unaudited financial statements of Contractor as Owner may reasonably request. Contractor promptly shall advise Owner of any occurrence, event, fact, or other matter that has had, will have, or might reasonably be expected to have a material adverse effect upon the financial condition of Contractor. (a) Except as specifically provided to the contrary in Section 7.3 hereof, the Completion Date shall not be extended, nor shall the Contract Sum be increased. Con- tractor shall bear all risks, hazards, and conditions en- countered in the performance of the Work, including, but not limited to, normal climatic conditions, delays in de- livery of material and equipment, strikes, labor disputes (whether directed against contractor or any Subcontrac- tors) and embargoes, and no increase in the Contract Sum or extension of the Completion Date shall be allowed or effected as a result thereof. (f) Contractor shall be responsible to Owner for the acts and omissions of all its employees, all Subcon- tractors and their agents and employees, and all other persons performing any of the Work under any contract or agreement with Contractor or. any Subcontractor. (9) The means, methods, techniques, sequences, pro- cedures and safety measures utilized in the performance of the Work are the sole responsibility of Contractor. Any means, method, technique, sequence or procedure 7H180882 10/18/88 15 specified in the Contract Documents is solely to specify the desired end result. If the means, method, technique, sequence or procedure specified in the Contract Documents will not result in the desired end result or is unsafe or illegal, Contractor shall instead use the correct means, method, technique, sequence or procedure. Nothing in the review of the general quality and progress of the Work, including review of submittals and Work by Architect, Owner, Owner's Representative, or Hotel Operator, shall be deemed or construed as any assumption of responsibili- ty or authority for administration or supervision over the performance of the Work. (h) 110 inspection, testing or other administrative activity performed by or on behalf of Architect, Owner, Hotel Operator or Owner's Representative shall relieve Contractor from any obligation to perform its Work in strict accordance with Contract Documents. (i) Contractor shall review, approve, and submit to Architect with reasonable promptness and in orderly se- quence consistent with the Construction Progress Sched- ule, Shop Drawings and Samples for all materials and equipment required by the Contract Documents. Shop Draw- ings and Samples shall be properly identified by Contrac- tor in,such manner as Owner or Architect may require. At the time of submission, Contractor shall inform Architect and Owner's Representative in writing of any deviation in the Shop Drawings or Samples from the requirements of the Contract Documents and any deficiency therein relating to a defect, inconsistency or incomplete design discovered by Contractor. Architect shall review any recommended completion of or correction to the Plans and Specifica- tions made pursuant to Section 3.4 hereof. By approving Shop Drawings and Samples, Contractor thereby represents that Contractor approves the same, has determined and verified all dimensions, field construction criteria, ma- terials, and similar information, has checked and coordi- nated each Shop Drawing and Sample with the requirements of the Work and the Contract Documents, and will bear all costs arising out of, connected with or incidental to any deviation from the Contract Documents or from any error or omission in such submittals, and the correction there- of, which should be known or logically inferable by Con- tractor. Contractor shall make any change or correction to Shop Drawings and Samples required by Owner's Representa- tive or Architect and shall resubmit such corrected Shop Drawings and Samples until approved by Owner. If Con- tractor determines that any change or correction required by Owner's Representative or Architect may result in an 7HIS0882 10/18/88 16 increase in the Contract Sum or extension of the Comple- tion Date, Contractor shall give Owner's Representative and Architect ten (10) days' prior written notice of such requested change, and shall make no such change unless authorized in a Change Order. Contractor shall specify to Owner and Architect in writing (either on resubmitted Shop Drawings or otherwise) any revisions which are made other than corrections requested by Architect on previous submissions. No portion of the Work requiring submission of a Shop Drawing or Sample shall be commenced until the sub- mission has been reviewed and approved by Architect and Owner's Representative. All such portions of the Work shall be effected in accordance with such approved Shop Drawings or Samples. Contractor shall maintain at the Site a complete and current file and status schedule of all approved and unapproved Shop Drawings and Samples. M Contractor shall Maintain at the Site for Owner and Owner's Representative a true, correct and complete copy of all drawings, Plans and Specifications, addenda, approved Shop Drawings, Change Orders and other modifica- tions, in good order and marked to record all changes made during construction. Such documents, marked to record all changes made during construction, shall be available to Architect and shall be delivered to Archi- tect for review by Architect and delivery to Owner as a condition precedent to Final Completion. (k) Contractor shall repair all damage to the Work unless caused by a Separate Contractor or Owner. All re- pair, cutting, fitting or patching of the Work required to correct damaged Work or to make its several parts fit together properly shall be promptly done by the trade whose portion of the Work is to be cut, fit or patched, in a manner that does not endanger the Work and that leaves the Work in good condition, and shall be paid for by Contractor or the Subcontractor requiring the repair, cutting, fitting, or patching. Notwithstanding the fore- going, no structural portion of the Work shall be cut ex- cept upon written approval by Architect, Contractor and Owner's Representative. Any such Work done without such approval shall be at the risk of the party doing such Work and shall be replaced by Contractor at Contractor's own expense and without reimbursement under the construc- tion Contract. Permission to patch any portion of the Work shall not constitute 6 waiver of the right of own- er's Representative to require complete removal and re- placement of said Work if, in Architect's opinion, said patching does not satisfactorily restore the quality and appearance of such Work. 7H180882 10/18/88 17 5.2 project Manaa2meat. Contractor shall employ a competent project manager, a construction superintendent and any necessary assistants, all of whom shall all be in atten- dance at the Site at all times during the progress of the Work. The project manager shall attend such meetings as re- quested by Owner at such times and locations as Owner may rea- sonably request, and shall render reports on the progress of the Work to, and consult with, Owner and Architect. The project manager, superintendent and assistants shall be ap- proved in writing by Owner prior to the commencement of the Work, which approval shall not be unreasonably withheld, and shall be replaced promptly by Contractor with individuals rea- sonably satisfactory to owner if they become unsatisfactory to Owner. Contractor shall not replace any such project manager, superintendent or assistant except with the prior written con- sent of Owner, unless such project manager, superintendent or assistant proves to be unsatisfactory to Contractor or ceases to be Contractor's employee. The project manager and superin- tendent shall be representatives of Contractor, and all commu- nications given to or commitments made by the project manager or superintendent shall be as binding upon Contractor as if given to or made by Contractor. Any such communications shall be confirmed in writing if requested by Owner. In all meet- ings with Owner, Owner's Representative or Architect, Contrac- tor shall be represented by a person with authority to make decisions and commitments on Contractor's behalf. 5.3 o st ct o o ress_gche¢ule. (a) Contractor has heretofore prepared and submit- ted to Owner and Architect a Construction Progress Sched- ule for the Work (the "Construction Progress Schedule"). The Construction Progress Schedule is attached hereto as Exhibit C. The interrelationship and scheduling of trades and Subcontracts is the sole obligation of Con- tractor. Accordingly, Owner's review of the Construction Progress Schedule and the monthly schedules described in subparagraph (c) of this section 5.3 shall not indicate approval or disapproval thereof. Owner shall authorize the date of commencement of construction and confirm a proposed date of Final Completion of the Work. (b) The Construction Progress Schedule shall be a logic network prepared in the critical path method or an- other sequential network in use within the construction industry and reasonably acceptable to owner, and shall depict (i) a sequence of operations mutually agreeable to Owner, Architect and Contractor; (ii) the dates of com- mencement and completion of each of the various stages of the Work (including lead time activities, Shop Drawing and Sample submissions, bidding and awarding Subcon- tracts, manufacturing and shipping); (iii) delivery dates 7H180882 20/18/88 1$ for materials and equipment; and (iv) at Owner's request, the schedule for all Finish Work to be performed by Sepa- rate Contractors. The Construction Progress Schedule shall include a complete itemized breakdown of the Work. Contractor shall use its best efforts and act with due diligence to maintain the progress of the Work in accor- dance with the Construction Progress Schedule. Notwith- standing any other provisions in any of the Contract Doc- uments to the contrary, the Completion Date may be ex- tended only by a written Change Order executed by Owner and Contractor. (c) Contractor shall, monthly during the progress of the Work, submit to Owner an updated Construction Progress Schedule. Such schedule shall be submitted to Owner in a form provided or approved by Owner on or be- fore the tenth (loth) day of each calendar month. Such schedule shall with detail satisfactory to Owner (i) depict the current progress of the Work; (ii) indicate any methods available to overcome any past delays in the Work; (iii) indicate all past and future cash flow requirements with respect to the Work; and (iv) set forth a manpower projection which shall project the total number of laborers and materials projected to be necessary for the diligent prosecution of the Work for each future month until Final Completion. in no event shall such updated Construction Progress Schedule affect the Completion Date. 5.4 Books and Records. Contractor shall examine all materials, equipment, and labor used in connection with the Work and shall keep such full and detailed accounts of all costs and expenses relating thereto as may be necessary to en- sure proper financial management of the Work under the Con- tract Documents. The method of keeping such accounts employed by Contractor shall be satisfactory to Owner. Owner shall be afforded access to the Work and access to, and the right to receive upon request copies of, all of Contractor's records, books, correspondence, instructions, drawings, receipts, vouchers, bid summaries, memoranda, and similar documents and materials relating to the Contract Documents. Contractor shall preserve all such books, records, and data for a period of five (5) years after the final" payment made by Owner to Contractor pursuant to Section 6.9 hereof. Contractor shall cooperate fully with all reasonable reporting requirements of Lender. 5.5 Permits, lees and -Notices'. (a) Unless otherwise specifically provided in the Contract Documents, Contractor shall secure and pay for 7H180882 10/18/88 29 all building permits and other permits, licenses, inspec- tions and approvals necessary for the proper execution and completion of the Work. Contractor shall also comply with all then currently applicable requirements of the American Insurance Association and other codes described in the Plans and Specifications. (b) Contractor shall give all notices and comply with all codes, statutes, laws, ordinances, rules, regu- lations and orders of any governmental or quasi -governmental agency or tion over the Project, the Sil mance or safety of performance any costs or fees incurred by nection with such compliance imposed for violation thereof. authority having jurisdic- :e, the Work or the perfor- of the Work, and shall pay Dwner or Contractor in con - and any fines or penalties (c) Contractor shall not be responsible for compli- ance of the Contract Documents with applicable laws, statutes, building codes, regulations or requirements of the American Insurance Association. Notwithstanding the foregoing, however, if Contractor observes that any of the Contract Documents are inconsistent therewith in any respect, it shall promptly notify Owner's Representative in writing,' and any necessary changes shall be accom- plished by appropriate Change Order. If Contractor or any Subcontractor performs any Work knowing it to be con- trary to such laws, ordinances, rules or regulations, and without the aforementioned notice to owner's Representa- tive, Contractor or such Subcontractor shall assume full responsibility therefor and shall bear all costs, charg- es, fees and expenses attributable thereto and to the correction thereof. 5.6 Trade Regulations. (a) Wherever any provision of any section of the Plans and Specifications conflicts with any agreement or regulation of any kind at any time in force among members of any trade associations, unions or councils which regu- late or distinguish what Work shall or shall not be in- cluded in the work of any particular trade, Contractor shall make all necessary arrangements to reconcile any such conflict without delay, damage, increase to the Con- tract Sum or recourse to Architect or Owner. If progress of the Work is adversely affected by any undue delay in furnishing or installing any material or equipment re- quired under the Contract Documents because of a conflict of the type described in this subparagraph (a), Owner's Representative may require that other material or equip- ment of equal kind and quality be provided at no addi- tional cost to Owner. 7HIS0882 10/18/88 20 (b) Contractor and all Subcontractors not normally employing union labor shall make all provisions necessary (including, but not limited to, the employment of union labor) to avoid any disputes with labor unions which could adversely affect the progress of the Work. Con- tractor and all subcontractors shall be responsible for any delays, damages, or extra costs caused by employment of such non -union labor. 5.7 'Royalties and ,Patents. Contractor shall pay all royalties and license fees related to the Project. Con- tractor shall defend all suits or claims for infringement of any patent rights and shall indemnify, defend, save and hold Owner harmless from and against any and all claims, demands and losses related thereto, except that Contractor shall not be responsible for such loss if a particular design, process or the product of a particular manufacturer is specified; pro- w de , however, that if Contractor has reason to believe that the specified design, process or product infringes upon a pat- ent, then Contractor shall be responsible for such loss unless it promptly gives such information to Owner's Representative. The review by Architect or owner of any method of construc- tion, invention, appliance, process, article, device, or mate- rial of any kind shall be for its adequacy for the Work only, and shall not be an approval for the use thereof by Contractor in violation of any patent or other rights of any third per- son. 5.8 Quality Control Program. (a) Contractor shall establish a quality control program (the "Quality Control Program") satisfactory to Owner for the Work, which program shall include adequate inspection and testing of all portions of the Work and shall be coordinated with the proposed construction se- quence to insure conformance of the Work to the Contract Documents in all respects. The Quality Control Program shall encompass all aspects of the Work and shall include all specific tests, surveillance and procedures required by, or necessary to assure compliance with, the Contract Documents and all applicable codes, laws, statutes, ordi- nances, rules and regulations. No portion of the Work shall be commenced until Owner approves the Quality Con- trol Program. (b) Contractor shall furnish reports of all inspec- tions and daily job reports to owner and Architect, and shall in a timely manner distribute copies of all inspec- tion reports and certificates of inspection, testing or approval directly to Architect and owner and such other parties as Owner designates. Any certificates of inspec- tion, testing or approval required by any Contract 7H180882 10/18/88 21 Documents or applicable law shall be secured by Contrac- tor and promptly delivered by Contractor to Owner's Rep- resentative. Except as specifically and expressly pro- vided to the contrary in the Contract Documents, all tests required pursuant to the Contract Documents shall be the sole and exclusive responsibility of Contractor, regardless of whether performed or procured by Contractor or any Subcontractor. Contractor shall give Architect and Owner's Representative timely notice of all tests and inspections so that Architect and Owner's Representative may observe such tests and inspections. Contractor shall be responsible for, and bear all costs of, such inspec- tions and tests required by the Contract Documents or any public agency or authority. Owner shall bear all costs of inspections and tests not required by the Contract Documents or any public agency or authority, but which are requested by owner or Architect; RrovIded,, howeve , that if any such inspection or test reveals a failure of the Work to comply with any requirements of the Contract Documents or any codes, laws, ordinances, statutes, regu- lations, rules or orders of any public agency or authori- ty having jurisdiction over the Work or Project, Contrac- tor shall bear all costs related to such tests and in- spections, including compensation for Architect's addi- tional services made necessary by such failure. (c) All tests by Contractor or any Subcontractor shall be performed by an independent testing agency pre- viously approved by Owner or Owner's Representative in writing, and shall be in accordance with the then current standards of engineering practice. Owner and Architect shall be furnished with two (2) copies of each test pro- cedure used and two (2) copies of each test report made with respect to the Work. All corrected Work shall be retested, and owner and Architect shall be provided the procedures and reports described in the immediately pre- ceding sentence with respect to such retesting. Owner shall not be obligated to accept any equipment or other portion of the Work which does not pass the prescribed tests. (d) The Quality Control Program shall assure com- pliance with all sections of the Plans and Specifications and shall include, at a minimum, all requirements of the Contract Documents as well as the following: (i) Soils inspections, tests and approvals by Owner regarding: (A) all excavations, subgrades and bear- ing areas; 7H180882 10/18/88 22 (B) backfill materials; (C) proof -rolled areas: and (D) engineered fill and compacted areas with no fewer than one field density test for each 250 square yards of each specified lift. (ii) Concrete inspections, tests and approvals by owner regarding: (A) mix designs; (B) slump tests and compressive strength tests; and (C) batches used in the Work (which batches shall be inspected at the plant of ori- gin) to check overall quality of operation and to check quality of materials. (iii) Structural fabrication and steel erection inspection, tests and approvals by Owner regarding: (A) bolt torque; (B) welder certification; and (C) welds. (iv) Asphalt paving inspection, tests and ap- provals by owner regarding: (A) design mixes; (B) plant operations; (C) paving operations; and (D) materials delivered to the Site. (v) Roofing installation full-time observa- tion, inspection and approval by Owner. (vi) Mechanical systems balancing, inspections, tests, approvals and certifications if and to the extent required by Owner. (vii) Electrical systems inspections, tests, ap- provals and certifications, and relay and fuse coor- dination studies if and to the extent required by Owner. 7HISOO82 10/18/88 23 (viii) Life safety systems inspections, tests, approvals and certifications and approvals thereof by Owner and any applicable governmental or quasi -governmental agency or authority (including applicable fire marshals) having jurisdiction over the Project. (ix) Certification by a licensed surveyor or civil engineer acceptable to owner that the actual building location conforms with the location stipu- lated in the Plans and Specifications. Such certi- fication shall be made upon completion of the foun- dations of the Project and before commencement of any erection of the superstructure. For any build- ings exceeding five (5) stories, such surveyor or civil engineer also shall provide a certification acceptable to owner with respect to building plumb and drift. (x) All other tests, inspections, approvals and certifications as may be reasonably necessary in Owner's reasonable judgment to ensure that the Project will be of sound quality and capable of op- eration as a first-class hotel. (e) In addition to any testing pursuant to the Con- tract Documents, Owner may, from time to time and in its sole discretion, effect testing of any portion of the Work or Project. Such testing will be for Owner's bene- fit only, and any information obtained pursuant thereto shall not relieve Contractor of any responsibility for testing necessary to assure the quality of the Work and conformity to the Contract Documents, or for the removal and replacement of any Work which is not in accordance with the Plans and Specifications or other Contract Docu- ments. (f) Any failure by Owner or Architect to discover or reject defective Work, or Work not in accordance with the Contract Documents, shall not be deemed an acceptance thereof nor a waiver of Owner's rights to the proper exe- cution of the Work and all its component parts. No par- tial or final payment or partial or total occupancy of the Project by Owner shall be construed to be an accep- tance of the Work or materials which are not strictly in accordance with the -Contract Documents. Contractor shall be responsible for verifying topographical data and such soil borings and laboratory tests as may be required to insure 'proper performance of the Work. Acceptance by owner of test results or inspections of any portion of the Work shall not relieve Contractor of its obligation 7H180882 10/18/88 24 to perform the Work as required by the Contract Docu- ments. 5.9 Toxese Contractor shall pay all applicable federal, state and local taxes on all materials, labor and services furnished by it and all taxes arising out of, con- nected with or incidental to its operations under the Contract Documents which may be imposed upon or collectable from Owner or Contractor or may be or become a lien against Owner's or Contractors property. such taxes shall include, but not be limited to, occupational, sales, use, excise, old age, employ- ee, lease, benefit and unemployment taxes, customs, duties and all income taxes and other taxes now in force or hereafter en- acted.prior to Final Completion. Notwithstanding the forego- ing, however, nothing contained in the Contract Documents shall require Contractor to pay general real estate taxes or special assessments levied against the Project. 5.10 Avardina_8ubcontracts. (a) Subject to the provisions of Section 4.3, and except as expressly provided to the contrary in subpara- graph (b), below, Contractor shall procure bids for, ne- gotiate and enter into all Subcontracts for the perfor- mance of the Work, Owner shall not be a party to or be deemed to have any direct contractual relationship with any Subcontractor, and all responsibility and discretion for the selection of Subcontractors and relations with Subcontractors shall be borne exclusively by Contractor. All Subcontractors shall be bound by all applicable pro- visions of the Contract Documents. Contractor shall an- ticipate any situations which may cause Subcontractor difficulty in completing its portion of the Work, and shall take such actions as may be necessary to remedy such situation or employ a satisfactory replacement of such Subcontractor. M Contractor hereby conditionally assigns to own- er all Subcontracts and material .supply contracts now or hereafter executed by Contractor in connection with the Work, and each Subcontractor hereby consents and agrees to such assignment, subject to the following terms and conditions: (i) Such assignment shall become effective on- ly upon a termination by Owner of the Construction Contract in accordance with the provisions of the Contract Documents and only with respect to those Subcontracts which Owner accepts in writing; (ii) Owner shall be bound by, and shall assume the obligations of Contractor under, only those 7H180882 10/18/88 25 assigned Subcontracts and material supply contracts which Owner accepts as provided above, and shall be liable only for that portion of the obligations thereunder which accrue after the date of termina- tion of the Construction Contract; and (iii) Contractor and Subcontractor each agree to execute such additional instruments as Owner reason- ably may request to confirm such assignment. (c) All Work performed for Contractor by a Subcon- tractor shall be performed for the benefit of owner and its successors and assigns, and shall be performed pursu- ant to a Subcontract in form and substance acceptable to owner. Every Subcontract shall (i) preserve and protect the rights of owner under the Contract Documents with re- spect to the Work to be performed under such Subcontract; (ii) require that all Work be performed in accordance with the requirements of the Contract Documents; (iii) require submission to Contractor of applications for payment under such Subcontract in reasonable time to enable Contractor to apply for payment in accordance with Section 6.3 hereof; (iv) require that all claims for ad- ditional costs, extensions of time, damages for delays and other matters be submitted to Contractor in suffi- cient time to enable Contractor to comply in the manner provided in the Contract Documents for similar claims by Contractor upon Owner; (v) waive all rights the contract- ing parties may have against one another for damages caused by fire or other perils covered by the property insurance described in Article VIII hereof, except such rights as they may have to the proceeds of such insurance held by Owner; and (vi) cbligate each Subcontractor to consent to all provisions of the Contract Documents. 5.11 General Responsibilitiesan4 Duties of Con' tractor. Unless expressly provided to the contrary in the Contract Documents: (a) Contractor is bound to Owner by the terms of the Contract Documents. Contractor shall require all Subcontractors" to assume toward Contractor, with respect to any portion of the Work to be performed under such Subcontractor's Subcontract, all the obligations and re- sponsibilities that Contractor assumes toward owner and Architect. (b) If the proper and accurate performance of any portion of the Work to be performed by a Subcontractor depends upon the proper and accurate performance of other Work not included in such Subcontractor's Subcontract, Contractor shall require such Subcontractor to use all M180882 10/18/88 26 V necessary means to discover any defect in such other Work and to allow Contractor, Architect and any other other Subcontractor Contractor elects, a reasonable period of time to remedy any such defects. if such Subcontractor proceeds with its Work it shall be deemed to have accept- ed such other Work, unless it shall have proceeded pursu- ant to instructions in writing by Contractor over Subcon- tractor's written objection. (c) Contractor shall require all Subcontractors to submit to Contractor or Owner, promptly when requested by Contractor or owner, all information with respect to the names, responsibilities and titles of the principal mem- bers of their respective staffs. (d) Contractor shall require all Subcontractors to furnish, at their sole cost and expense, all temporary facilities and storage other than those specifically agreed to be furnished to it by Contractor in the Subcon- tract. Contractor shall furnish its own facilities and storage in accordance with the provisions of Section 7.16 hereof. Contractor shall place all shanties, material storage rooms and field offices of Contractor and any Subcontractor in locations designated by Owner's Repre- sentative. If it becomes necessary, due to the progress of the Project, for Contractor to relocate its field op- erations, it shall do so in an expeditious manner and at no additional cost to Owner. The construction of shan- ties, material storage rooms, field offices, and similar structures shall be of fireproof material only, such as concrete or gypsum block, rated drywall or sheet metal, and shall comply with any applicable governmental law, ordinance, rule, regulation, statute or order. (a) Contractor shall be fully responsible for all the acts of its Subcontractors, and all persons, either directly or indirectly, enployed by any of the foregoing, and for all the Work performed by any of the foregoing. Contractor shall at all times enforce strict discipline and good order among its employees and Subcontractors, and shall not employ on the Work any unfit person or any- one not skilled in the task assigned to it. Owner may require Contractor to remove, or cause the removal, from the Site of any unfit or unskilled employee or Subcon- tractor. Contractor shall require all Subcontractors to pay Contractor's reasonable charges for hoisting, repair to other Work caused by the fault or negligence of such Subcontractor, removal of 'such Subcontractor's rubbish, and clean up occasioned by such Subcontractor. Such pay- ments shall not increase the Contract Sum. 7H180882 10/18/88 27 Q (f) Contractor shall not display or permit any Sub- contractor to display on or about the Site any sign, trademark or other advertisement or identifying symbol without the prior written approval of Owner. (g) If any dispute exists regarding whether any portion of the Work is within the scope of the Work to be performed by any Subcontractor, or any dispute exists re- garding whether or not a Subcontractor is entitled to ad- ditional compensation for any Work requested of it, Sub- contractor shall continue to proceed diligently with its performance of its portion of the Work. Contractor and Subcontractor shall resolve such dispute with reasonable promptness, but in no event shall any delay in such de- termination excuse prompt performance by Contractor or such Subcontractor of the Work. (h) Contractor shall not permit any Subcontractor to assign its Subcontract in whole or in part, nor as- sign, convey, pledge or hypothecate any monies due or to become due to it under the Subcontract, without the prior written consent of Contractor and Owner. Each Subcon- tract shall provide that any such assignment, conveyance, pledge or hypothecation made without the written consent of Contractor and owner shall be void Ab initio, and that the assignees in such case shall acquire no rights what- soever by virtue of such assignment. (i) Contractor and each Subcontractor shall be ful- ly responsible at all times for any loss or damage to its tools or equipment and the tools and equipment of their respective Subcontractors, workers or suppliers, and shall make no claims against Owner for any such loss or damage. Owner may (but shall be under no obligation to) elect to provide security personnel for the Site, but shall not be deemed to have assumed any liability for any occurrence on or about the Site as a result thereof. Such election by owner shall not affect in any manner Contractor's responsibilities hereunder. Nothing con- tained in this subparagraph (i) shall be deemed to estab- lish any liability of Contractor to any Subcontractor. 5.12 Bonds. Owner may require Contractor to ob- tain, and if so required by Owner Contractor shall obtain, performance, labor and material payment bonds covering the Work to be performed by Contractor and/or any Subcontractor. All such bonds shall be in form and substance satisfactory to owner and Lender, and shall be- delivered to owner promptly, and in any event within ten (10) days after request therefor by owner. All such bonds shall name Owner and Lender as obli- gees therein. The premium costs of all such bonds shall be paid directly by Contractor, and shall not give rise to any 7H180882 10/18/88 28 �j increase in the Contract Sum. Unless and until each assign- ment of a Subcontract pursuant to Section 5.10 hereof becomes effective, Owner, upon demand by Contractor, shall execute any and all consents, reassignments, endorsements or other instru- ments which may be necessary to permit Contractor, acting alone and without the joinder of owner, to enforce all amounts payable to the obligees thereunder. Owner agrees that no act or omission by Owner will release or impair the rights of Con- tractor under any bond provided by a Subcontractor. 5.13 Equal Employment ORoortunity. (a) Contractor shall comply, and shall require all Subcontractors to comply, with all applicable statutes, codes, laws, ordinances, rules, regulations and orders of any governmental agency or authority, including, but not limited to, the applicable provisions of the Fair Labor Standards Act, the Fair Employment Practices Law and the Equal Pay Act, relating to the terms and conditions of employment of any person employed in connection with the Work. (b) Contractor shall not discriminate or permit any Subcontractor to discriminate against any employee or ap- plicant for employment in connection with the Work be- cause of race, creed, color, sex or national origin, and shall take affirmative action and cause all Subcontrac- tors to take affirmative action to afford equal employ- ment opportunities with respect to the Work without dis- crimination because of race, creed, color, sex, or na- tional origin. Such action shall be taken in connection with, but shall not be limited to, recruitment, employ- ment, job assignment, promotion, upgrading, demotion, transfer, lay-offs, termination, rates of pay or other forms of compensation, and selection for training (in- cluding apprenticeships and on-the-job training). (c) Contractor shall comply, and shall require all Subcontractors to comply, with all plans, guidelines and policy determinations relating to the employment of mi- nority• groups established by any governmental agency or authority and contractors' or grade association, and any other organization designated by Owner. ARTICLE VI r_Ek$ 6.1 rgyataj t2 gontraq=, As full compensation to Contractor for the Work, Owner shall pay to Contractor the Contract Sum. 7H180882 10/1.8/88 29 6.2 Trade _payment BuRu2n. Before submitting its first application for payment hereunder to Owner, Contractor shall submit the Trade Payment Breakdown to Owner and shall obtain owner's written approval thereof. The Trade Payment Breakdown shall segregate the Work (and the Work to be per- formed under each Subcontract) into its significant compo- nents, shall divide such components by building area, labor, material and equipment, and shall allocate dollar values for each such area. Owner may reapportion the values set forth in the Trade Payment Breakdown if they appear to be unbalanced or biased. The Trade Payment Breakdown shall be formatted in a manner which facilitates an evaluation of the progress of the Work and approval of payments to Contractor in accordance with the Contract Documents. Contractor also shall -furnish to Own- er, concurrently with the Trade Payment Breakdown, a compre- hensive schedule of the estimated net cash disbursements to be requested in progress payments during the construction of the Project. The Trade Payment Breakdown shall be in form, sub- stance, and detail acceptable to owner, and shall contain: (a) The names and addresses of all Subcontractors and all parties furnishing material or equipment for the Work. (b) The amount of each Subcontract and the price of all material required for each applicable portion of the Work. (c) The amount paid to the date of any application for payment to Contractor and to all Subcontractors and material suppliers. (d) The amount of materials being stored for which payment currently is requested. (a) The total amounts requested by Contractor and by all Subcontractors and material suppliers. (f) The balance that will be due after any such payment is made to Contractor and to all Subcontractors and material suppliers. (g) Any additions to and subtractions from the Con- tract Sum pursuant to executed Change Orders. (b) A summary of all retention amounts. (i) A statement by Contractor of the percentage of Work completed. (j) The amounts payable pursuant to the Quality Control Program. 7H180882 10/18/88 30 Lwn (k) The then current, Owner -approved Construction Progress Schedule. 6.3 Application for -payment. (a) On or before the Application Day of each calen- dar month during the progress of the Work, Contractor shall submit to Architect, owner and such other parties as reasonably request by owner, an application for pay- ment for Work completed as of the end of the immediately preceding month. Such application shall be in the form of the Trade Payment Breakdown approved by Owner pursuant to Section 6.2 hereof, shall be supported by such docu- ments and materials substantiating Contractor's and all Subcontractors' rights to payment as Owner or Lender may require, and shall be accompanied by sworn statements, certifications, lien waivers waiving all rights of Con- tractor and all Subcontractors to assert liens against the Site, the Project or any monies paid or payable to Contractor and all Subcontractors through the date of such application for payment, acknowledgements of receipt of prior progress payments, and similar or dissimilar documents executed by Contractor, the Subcontractors and such other parties as Owner, Lender or any applicable ti- tle insurer or paying agent shall deem appropriate, all in form and content satisfactory to Owner and Lender. (b) Each application for payment shall request pay- ments for stored material only if Owner's Representative has previously approved such storage. If payments are requested for materials and equipment not incorporated in the Work but delivered to and suitably stored at the Site or at some other location approved by Owner in writing, such payments shall be conditioned upon submission by Contractor to Owner, and approval by owner, of all appli- cable bills of sale, waivers of liens, and such other documents and materials satisfactory to Owner to estab- lish owner's title to such materials or equipment or oth- erwise protect Owner's interest therein. Materials stored off -site shall be stored in an approved and bonded warehouse. Payment for stored materials shall not in any way relieve Contractor from its sole responsibility for the care and protection of stored materials. 6.4 Retention. Each application for payment shall provide for the retention by Owner or Lender, as the case may be, of an amount equal to ten percent (10%) of the amount oth- erwise payable to Contractor for'Work performed by Contractor. All such retention shall be withheld until one hundred twenty (120) days after the date of Final Completion. 7H180882 10/18/88 31 6.5 Argbitect's Review Of IPAYMODt APRILPAtiOn- owner's Representative shall have the authority to determine, prior to payment, all amounts owing to Contractor and Subcon- tractors, and in connection therewith may rely upon the recom- mendation of the Architect. To assist Owner's Representative in reviewing and approving each application for payment, Ar- chitect shall, within ten (10) days after submission of each full, complete and correct application for payment, issue its certificate to Owner, which certificate shall constitute Ar- chitect's representation to Owner, based upon Architect's ob- servations of the Work and Architect's review of the informa- tion contained in the application for payment, that to the best of Architect's knowledge, information and belief the Work has progressed to the point indicated in the application for payment, the quality of the Work is in accordance with the Contract Documents (provided, hgwever, that such certification shall not constitute a waiver of Contractor's duties hereunder with respect to the quality of the Work) and that Contractor is entitled to payment in the amount specified in the applica- tion for payment. In each instance Architect's certificate shall include an evaluation of the Work for conformity to the Contract Documents upon Final Completion, describe the results of any subsequent tests, identify deviations and defects in the Work which are correctable prior to Final Completion, and set forth any specific qualifications. Issuance by Architect of its certificate is intended only to assist Owner in its de- termination that a payment may or may not be due to Contrac- tor, and Owner shall not be bound by any of the statements, representations or conclusions of any such certificate. Ar- chitect may withhold its certificate, in whole or in part, to the extent reasonably necessary to protect Owner if in Archi- tect's opinion it is unable to make the representations to Owner described above. Architect also may decline to issue its certificate because of subsequently discovered informa- tion, and may nullify all or any part of any certificate pre- viously issued by it to the extent necessary in its opinion to protect owner from loss or damage. 6.6 Time of Payment. (a) Provided an application for payment satisfying the requirements of this Article VI is received by Owner and Architect on or before the Application Day and all supporting documents and materials are received by Owner and Architect within fifteen (15) days after the Applica- tion Day, payment of all amounts approved by Owner shall be made within twenty-five (25) days of the Application Day. Owner may, either at its discretion or upon request of Lender, make any applicable portion of any payment not in dispute between Contractor and any applicable Subcon- tractor directly to any Subcontractor or through any ap- plicable title insurer, payout agent or both; proviftd, 7H180882 10/18/88 32 howeveE, no contractual relationship between owner and such Subcontractor shall be deemed or construed to exist as a result of any such direct payment. If such payments are not made directly to a Subcontractor, payments such shall be made to Contractor who shall make the requisite payment to all Subcontractors. Each Subcontractor shall, upon receipt of any payment from Contractor, promptly make all requisite payments to its Subcontractors and ma- terial suppliers. Unless payment is made directly by Owner to a Subcontractor, Owner shall be under no obliga- tion to pay or insure payment to Subcontractors, Which obligation shall be and remain that of Contractor. (b) All payments shall be in the amount set €orth in the application for payment, with such deductions therefrom as Owner's Representative shall deem appropri- ate due to incomplete documentation or incomplete or un- satisfactory Work. Owner's Representative shall notify Contractor of any reasons for withholding any amount claimed by Contractor in the application for, payment. Any amount so withheld shall be paid at the time of the next regular monthly payment made hereunder, provided the basis for such withholding no longer exists. Owner's Representative may withhold payment, in whole or in part, due to any of the following: (i) any defective Work; (ii) reasonable evidence indicating that claims have been filed against Owner, the Project, the Site, the Work, or Lender by any party other than Owner or Contractor; (iii) any failure by Contractor to make payments properly to Subcontractors for labor, materials or equipment; (iv) reasonable evidence that the Work will not be completed on or prior to the Completion Date; M the occurrence of loss or damage to any Separate Contractor caused by the fault of Contrac- tor; (vi) unsatisfactory prosecution of the Work by Contractor; (vii) any refusal*by Lender to approve the ap- plication for payment resulting from a failure by Contractor to comply with the Contract Documents; 7HISOB82 10/18/88 33 W (viii) any default by Contractor under any provi- sion of the Contract Documents; or (ix) any error or omission in Contractor's ap- plication for payment. (c). Any amount withheld by Owner's Representative may be allocated by Owner's Representative among Contrac- tor and such Subcontractors as Owner's Representative deems responsible for the situation giving rise to such withholding. if such responsible party cannot be ascer- tained at the time of payment, Owner's Representative may allocate any amount withheld among those parties whom Owner's Representative determines to have probable re- sponsibility. 6.7 Title. Contractor warrants and guarantees that title to all Work, materials and equipment covered by an ap- plication for payment, whether or not incorporated in the Project, will pass to Owner concurrently with payment by Owner of the amount for which application has been made, free and clear of any and all liens, claims, security interests and en- cumbrances, and further warrants and guarantees that no por- tion of the Work covered by any application for payment will be subject to an agreement pursuant to which an interest in such portion of the Work or an encumbrance thereon is retained or otherwise imposed by Contractor or any other person or en- tity. 6.8 Fipal_CompletioD. Within ten (10) days of re- ceipt of written notice from Contractor that the Work is com- pleted and ready for final inspection and acceptance, Owner's Representative and Architect shall make such inspection. if owner's Representative finds the Work and other obligations of Contractor to be fully completed.. Owner's Representative shall, within five (5) days after such inspection, either sig- nify its acceptance of the Work in writing to Contractor or notify Contractor in writing as to the reason or reasons why Owner refuses to accept the Word:. The date of issuance of the written notice: of acceptance shall be designated as the date of Final Completion. Prior to acceptance by Owner, Contractor shall fully demonstrate the use and function of each system or piece of equipment included in the Work. Except for retention (the payment of which shall be governed by Section 6.4 here- of), and subject to Section 6.9 hereof, a final application for payment may be made by Contractor not sooner than fifteen (15) days after the date of Final Completion, provided no me- chanic's liens are then in effect or threatened with respect to the Work, Project or Site. 7Hk80882 10/18/88 34 6.9 ginal Payment. (a) If Final Completion has occurred, but minor items remain to be performed through no fault of Contrac- tor, Owner may, in its sole discretion, accept the Work, subject to any items listed on a Punch List. Any such Punch List shall be included in the notice of acceptance issued by Owner to Contractor pursuant to Section 6.8, above, and twice the cost of the items designated in such Punch List (as determined by owner's Representative) shall be retained by Owner. The amount so retained shall not become due and payable to Contractor until Owner's Representative shall certify in writing that said Punch List items have been completed, Owner's inspection of the work shall have confirmed the same, and Contractor shall have submitted an application for payment with respect to such completed Punch List items. If such Punch List Items are not completed within ninety (90) days after Fi- nal Completion, Owner may, in its sole discretion, cause the same to be completed by such persons or entities as owner shall choose, and the cost thereof shall be paid by Contractor or deducted, to the extent possible, from any sums then due Contractor hereunder. (b) Payment following Final Corpletion under this Section 6.9 shall be subject to Contractor's satisfaction of all requirements set forth in Sections 6.2, 6.3, 6.5, 6.6, 6.71 6.8, the foregoing provisions of this Sec- tion 6.9 and delivery by Contractor to Owner of all of the following: (i) all final permits, approvals, certificates and authorizations for use and occupancy of the Project required by any agency or authority having jurisdiction over the Project, including any neces- sary occupancy and use permits, and all drawings and renderings which were stamped and approved by any applicable governmental agency. (ii) formally prepared "as -built" drawings, records and related materials, including all field notes of all the Work, all of which shall be set forth on "mylar" and not "sepia" reproducible draw- ings. (iii) all operating manuals, parts lists, con- tractors' lists, repair source lists and similar ma- terials required under Section 7.8 hereof. (iv) all guarantees and warranties to which Owner may be entitled hereunder. 7H180882 10/18/88 35 (v) satisfactory proof that all liens, claims, and tax liabilities relating to the Work have been paid and released. (vi) written acknowledgements of, and lien waivers with respect to, prior payments and waivers of liens from all Subcontractors and Contractor. (vii) Architects certificate certifying Final Completion. (viii) a written statement from Architect that all practical orientation and physical operating in- structions for all materials, systems, and equipment comprising the Project have been satisfactorily com- pleted. (ix) a satisfactory report of an outside pro- fessional agency that all mechanical systems have been and are properly balanced. (x) copies of the results of all tests per- formed pursuant to Section 5.8 hereof. (xi) a schedule of values for various Project components if and to the extent required by Owner for purposes of obtaining investment tax credit and accelerated depreciation. (xii) an affidavit from Contractor stating that all payroll, bills for materials and equipment, and other indebtedness pertaining to the Work for which Owner or its property may in any way be held liable or responsible, have been paid or otherwise satis- fied. (xiii) consent of any surety to such final pay- ment. (xiv) if and to the extent required by Owner, such other documents or materials establishing pay- ment or satisfaction of all obligations relating to the Project, such as receipts, releases 'and waivers of liens. If any Subcontractor refuses to furnish a lien release or waiver required by Owner, Contractor shall, if requested by owner, furnish to Owner a bond satisfactory to Owner in form and amount to indemnify Owner against any such lien. If any such lien remains unsatisfied after all payments are made by owner, Contractor promptly shall refund to Owner all monies that Owner may be compelled to pay to discharge such lien, 7H180882 10/18/88 36 including all costs, charges, fees, expenses and reasonable attorneys' fees. 6.20 ease. Acceptance by Contractor or any Sub- contractor of the final payment shall constitute a release of Owner, Owner's Representative, Hotel Operator and Architect from all liability for all things done or furnished in connec- tion with the Work, and for every act, omission or neglect by any of such parties arising out of, connected with or inciden- tal to the Work. If requested by Owner, Contractor and each Subcontractor shall, before final payment by Owner, execute and deliver a general release to Owner, Owner's Representa- tive, Hotel Operator and Architect to further and more specif- ically evidence the release set forth in the immediately pre- ceding sentence. 6.11 Payment Not Construed as Acceptance. No cer- tificate issued or payment made to Contractor or any Subcon- tractor or to any vendor under a materialman agreement, in- cluding the final payment, nor any partial or entire use or occupancy of the Project by Owner or Hotel Operator, shall be deemed or construed as an acceptance of any Work or material which does not comply with the Contract Documents, as evidence of proper performance of the Work, either in whole or in part, or as an acceptance of defective workmanship or improper mate- rials. ARTICLE VIZ THE WORM 7.1 Fork. Contractor shall provide all materials, supplies, tools, equipment, labor and services, and shall per- form all other acts and supply all other things (including, but not limited to, all light, power, water and sanitary fa- cilities for workers during the progress of the Work) neces- sary to cause construction of the Project in accordance with the Contract Documents, including all work expressly specified therein and such additional work as reasonably may be inferred therefrom, saving and excepting only such items of Work as are specifically stated in the Contract Documents to be not the obligation of Contractor. The Work shall include any changes in the Work necessary to satisfy all applicable requirements of governmental agencies and authorities having or claiming jurisdiction over the performance of the Work, and all reason- able requirements of Lender which are not inconsistent with the Contract Documents. No adjustment shall be made to the Contract Sum for changes in the Work required pursuant to the immediately preceding sentence if, as a prudent contractor, Contractor should have been aware of or anticipated such re- quirements or if satisfaction of such requirements is, under 7HIS0882 10/18/88 37 normal standards and practice, the responsibility of Contrac- tor. 7.2 Commenceme a d m Contractor shall commence the Work at the time established pursuant to the Con- struction Agreement, shall prosecute the Work with due dili- gence in accordance with the Construction Progress Schedule, and shall complete the Work no later than the Completion Date. The Completion Date may be extended only by a Change Order ex- ecuted by Owner or pursuant to Section 7.3 hereof. 7.3 Extension of._Compl.etion Date. Provided Con- tractor gives Owner written notice within five (5) days after the commencement of any delay described in this Section 7.3 and elects, by giving Owner an additional written notice with- in five (5) days after the conclusion of such delay, to claim the benefits of this Section 7.3 with respect to such delay, the Completion Date shall be extended for causes due to a de- lay in the performance of the Work which affects the schedule of the performance of the Work, would logically require an ex- tension of the time necessary to complete the Work, and is caused by: (a) acts of God (excepting normal climatic condi- tions); (b) fire or other casualty; (c) unusual and unforesee- able obstructions in transportation; (d) unavoidable casual- ties or stoppage of the Work by order of any court or other public authority through no act or fault of Contractor, anyone employed by Contractor or any Subcontractor; (e) acts or omis- sions of Owner, Owner's Representative, Hotel Operator, Archi- tect, Separate Contractors or anyone employed by any of the aforesaid parties which continue for a period of time in ex- cess of thirty (30) days from the date of Contractor's notifi- cation to Owner of the same; or (f) other causes beyond the control of Contractor. No extension of the Completion Date shall be granted if, in the opinion of Owner's Representative, the delay does not result in the need for additional time to complete the Work. ' Each notice required to be given within five (5) days of the commencement of any delay shall set forth Contractor's estimate of the probable duration of, and a rea- sonable explanation and justification for, the delay occa- sioned thereby. Any extension of the Completion Date shall be for a period of time equal to the additional time required to complete the Work caused by such delay. Notwithstanding any- thing to the contrary contained herein, and with the sole ex- ception of a delay of the nature described in clauses (a) or (e) above, the Completion Date shall not be extended for an aggregate period of time in excess of ninety (90) days pursu- ant to this Section 7.3. Any extension of the Completion Date pursuant to the provisions of this Section 7.3 shall in no way relieve Contractor of its obligation to make every reasonable effort (without incurring additional costs or expenses) to re- duce or, if possible, eliminate any delay of Final Completion. If a delay occurs which would cause the extension of the 7H180882 10/18/88 38 V Completion Date pursuant to this Section 7.3 and such delay is caused solely by an act or omission of Owner, Owner's Repre- sentative, Hotel Operator, Architect, or a Separate Contractor and continues for more than thirty (30) days after the date of Contractor's notification to Owner of the same, or such delay is caused solely by the order of any court or any public au- thority through no fault of Contractor and continues for more than sixty (60) days from the date of Contractor's notifica- tion to Owner of the same, then Contractor shall be entitled to an increase in the Contract Sum in an amount equal to one hundred ten percent (1101) of the additional costs, charges, fees and expenses reasonably paid or incurred by Contractor as a result of such delay. Any such increase in the Contract Sum shall be evidenced by an appropriate Change Order executed in accordance with Section 7.17 hereof. Except as specifically provided to the contrary in this Section 7.3, Contractor shall not make, and hereby waives, any claim for damages or any oth- er form of relief, including those resulting from increased labor or material costs, resulting from any delay, obstruction or hindrance of the Work for any reason whatsoever, including but not limited to the aforesaid causes, and agrees that the sole right and remedy therefor shall be an extension of time subject to the limitations as herein provided. 7.4 Rours of Work. Contractor shall furnish suffi- cient forces to ensure the diligent prosecution of the Work. Work shall be performed during regular working hours; piov - gd, howeve , that in the event of emergency, and if necessary to complete the Work on or before the Completion Date, Work may be performed at times other than regular working hours (including Sundays and holidays), but only if written permis- sion to do so has first been obtained from Owner's Representa- tive. No additional compensation shall be payable to Contrac- tor or any Subcontractor, nor shall the Contract Sum be in- creased, for Work performed outside regular working hours un- less so provided by Change Order._ 7.5 Watchmen. Contractor shall provide sufficient watchmen,as necessary for proper protection of the Site and the Work, and shall provide temporary protection at all open- ings in any walls on or near the perimeter of the Site or Project to prevent unauthorized persons from obtaining access to the Site or Work during nonworking hours. Contractor shall be fully responsible for all vandalism or loss of materials not covered by insurance. If the Work of any Subcontractor or Contractor involves a special risk or hazard, then the party performing such Work shall furnish such additional protection as may be necessary or desirable to protect against such spe- cial risk or hazard. 7.6 IIse of Site. Contractor shall, and shall re- quire all Subcontractors to, confine operations at the Site to 7H18088Z 10/18/88 39 V areas permitted by applicable law and the Contract Documents, and shall not unduly or unreasonably encumber the Site with materials or equipment. Contractor shall erect such barri- cades and fences as may be necessary or appropriate to protect the Site and the Work to avoid any trespass or other intrusion onto the Site. Any materials or equipment on or about the Site which hinder or could be expected to hinder the prosecu- tion of the Work promptly shall be relocated. All adjacent property and all roads abutting and leading to the Site shall be kept clean of all dirt, spoil, rubbish, concrete, debris and materials objectionable to Owner. 7.7 Building Materials.-Zauipment_and Processes. (a) Unless otherwise specified in the Contract Doc- uments or by Owner in writing, all materials and equip- ment to be permanently installed or incorporated in the Project shall be new and shall be of such quality as is necessary to satisfy the standards of the Contract Docu- ments. Contractor and each Subcontractor shall, if re- quired by Owner, furnish satisfactory evidence as to the kind and quality of all materials and equipment incorpo- rated into the Project. All workmanship shall be of first class quality in accordance with the standards set forth in the Contract Documents. Any Work, materials or equipment which does not conform to the standards and re- quirements set forth in the Contract Documents may be disapproved by Owner's Representative or Architect, in which case they shall be removed and replaced by Contrac- tor in the manner provided in Section 7.18 hereof. (b) Requests by Contractor for substitution of products, materials or processes other than those speci- fied will be deemed a warranty by the Contractor, and shall be accompanied by reasonable documentary evidence to support such warranty, that the proposed substitution (i) is equal in quality and serviceability to the speci- fied item; (ii) will not entail changes in detail and construction of related Work; and (iii) will not provide a cost or operating disadvantage to Owner. Such warranty shall not be deemed to encompass the required design or artistic effect of such substitution. Contractor shall furnish, concurrently with its request for a substitu- tion, such drawings, specifications, samples, performance test results and other information as may be required of it by Owner or Architect to assist Architect and Owner's Representative in determining whether the proposed sub- stitution is acceptable. 'The final decision regarding the acceptability of a proposed substitution shall be that of Owner's Representative, which decision shall be consistent with the intent of the Contract Documents. 7H180882 10/18/88 40 M Contractor shall prepare and submit to Owner's Representative or Architect, as Subcontracts are let, comprehensive lists in triplicate of all manufacturers' products proposed for the Project. Such lists shall in- clude such information regarding materials, equipment and fixtures as may be required by Owner's Representative or Architect for their respective review of such lists. Re- view of such lists shall not be deemed or construed as a substitute for any Shop Drawings, manufacturers' descrip- tive data or Samples required under the Contract Docu- ments, but instead shall constitute a base from which more detailed submittals shall be developed for Archi- tect's final review. Where required by any technical section of the Contract Documents, Contractor shall sub- mit to Owner a statement of application regarding goods incorporated into the Project prior to preliminary accep- tance of the Work by Owner. If deviations from the Con- tract Documents are necessary, or if, in the opinion of Contractor, Subcontractor, or the fabricator or installer of such goods the application as shown deviates from nor- mal and proper application as recommended by the manufac- turer, or if job conditions necessitate deviations from the manufacturer's instructions or other minimum stan- dards of good practice, and if in any of the foregoing instances such deviation has been approved by Architect, Owner or Owner's Representative, the fabricator and the installer prior to the installation of such goods, then such deviations shall be recorded on the statement of ap- plication. Otherwise, the statement ,of application shall be submitted without qualification. (d) Except for required Underwriters' Laboratories' labels, manufacturers' nameplates shall not be permanent- ly attached to ornamental or other metal work, doors, frames, millwork or similar factory -fabricated products, furnishings, equipment and accessories where, in the opinion of Architect or Owner's Representative, such nameplates would be objectionable if visible after in- stallation of the Work. Each major component of mechani- cal and electrical equipment incorporated into the Project shall have affixed to it in a conspicuous place the manufacturer's name and address, the model number and any rating, if and to the extent required in the mechani- cal and electrical sections of the Plans and Specifica- tions. (a) Wherever the Contract Documents indicate that the colors of factory -finished equipment are to be se- lected by Architect and the colors selected by Architect are not the manufacturer's standard colors, the colors selected by Architect nevertheless shall be provided. Contractor shall notify owner's Representative it such 7HIB0882 10/18/88 41 selection involves an additional cost, in which case an appropriate Change Order shall be issued if owner's Rep- resentative does not, within thirty (30) days of its re- ceipt of such notification, disaffirm such selection by Architect. Contractor or Subcontractor shall submit to Architect for Architect's approval samples of all colors requested by Architect. (f) All manufactured articles, materials and equip- ment shall be applied, installed, connected, erected, used, cleaned and conditioned in accordance with the man- ufacturer's written specifications or instructions, ex- cept as otherwise expressly provided in the Contract Doc- uments. If any discrepancies or conflicts exist between the requirements of the manufacturer's instructions or specifications and the technical sections of the Plans and Specifications, the instructions or specifications having the more detailed and precise requirements specif- ically applicable to the Work in question, as determined by Architect, shall govern. Contractor shall assign, or cause an assignment, to Owner of any and all manufactur- ers' warranties with respect to any item of equipment or material for which such warranty was issued. 7.6 .Operation and Maintenance Instructions. Con- tractor shall furnish three (3) manuals containing all manu- facturers' instructions for the maintenance and operation of each item of equipment furnished under the Contract Documents, a manufacturer's parts list, a Current price list for all man- ufacturer's parts, and any additional information specifically required under the various sections of the Plans and Specifi- cations for each division of the Work. Such manuals shall be arranged in proper order, indexed and suitably bound. Upon Final Completion Contractor shall certify, and shall obtain and deliver to Owner the certification of each Subcontractor by endorsement thereon, that each of the manuals is complete and accurate. .._ (a) Contractor shall initiate, maintain and super- vise all safety precautions and programs in connection with the Work. Contractor shall take all reasonable pre- cautions for the safety of, and shall provide all neces- sary protection to prevent damage, injury or loss to- (i) all persons engaged in the Work or who may be affect- ed thereby; (ii) all Work and all materials and equipment to be incorporated therein, whether in storage on or off the Site or under the care, custody or control of Con- tractor or any Subcontractor; and (iii) all other proper- ty at the Site or adjacent thereto, including trees, 7H180882 10/18/88 42 4� shrubs, lawns, walks, pavement, roadways, structures and utilities not designated for removal, relocation or re- placement during the course of the Work. (b) All injury to persons or damage or loss to any property referred to in subparagraph (a) of this Sec- tion 7.9 caused in whole or in part by Contractor, any Subcontractor or anyone directly or indirectly employed by any of them, or by anyone for whose acts any of them may be liable, shall be borne and remedied by Contractor. (c) Contractor shall employ at the Site only meth- ods of construction or erection, and hoists, rigging, forms, scaffolding, cribbing, tools and structures which conform to the applicable requirements of the "Williams -Steiger Occupational Safety and Health Act of 1970", the ANSI Standard Safety Code for Building Con- struction, the Manual of Accident Prevention in Construc- tion of the Associated General Contractors of America, and all applicable local, state and federal safety laws and building codes, and shall require all Subcontractors to comply with all such requirements, laws and codes. When the use or storage of explosives or other hazardous materials or equipment is necessary for the execution of the Work, Contractor shall exercise the utmost care and shall carry on such activities under the supervision of properly qualified personnel. (d) If Contractor or any Subcontractor discovers any utility line which has not been disclosed in any sur- vey, it shall cease all Work in the area surrounding said line which may affect said line, and promptly shall noti- fy Owner's Representative or Contractor, as the case may be, of the existence of such line, and shall not restart Work without notice from and approval of Owner's Repre- sentative and Contractor (in the case of any such discov- ery by a Subcontractor). (e) Contractor shall provide and maintain adequate protection against weather to preserve the Work and all materials, equipment, apparatus and fixtures related thereto free from injury or damage. Contractor shall protect all finished surfaces of the Work, including the Jambs and soffits of all openings used as passageways or through which materials are handled, against any possible damage. All finished surfaces of the Work, including factory -finished and job -finished items, shall be clean and not marred upon delivery of the Project to Owner. Contractor shall, without additional cost or expense to Owner, refinish all such areas where such surfaces prove to have been marred or damaged. 7H180882 10/18/88 43 (f) Contractor shall confine its construction equipment, the storage of materials and the operation of workers to the limits indicated by applicable laws, codes, statutes, ordinances, rules, regulations and per- mits or by the Contract Documents. (g) Contractor shall protect all streets, side- walks, light poles, hydrants and concealed or exposed utilities of every description affected by or adjacent to the Work. If such items are damaged by Contractor or any Subcontractor, Contractor shall make all necessary re- pairs thereto or replacements thereof without additional cost or expense to owner. (h) Tight wood sheathing or plywood shall be laid under any materials that are stored on finished cement surfaces. Reinforced nonstaining kraft building paper shall be laid over all types of finished floor surfaces in traffic areas and where otherwise directed by Owner's Representative to prevent damage to such floor surfaces. Before moving any materials over such finished floor sur- faces or performing any subsequent Work which might dam- age them, plywood or planking shall be laid over the kraft paper. Wheelbarrows or handcarts used over such floor surfaces shall have rubber tired wheels. (i) Roof surfaces shall not be subjected to traf- fic, nor shall they be used for storage of any materials. Where construction activity must occur on the roof in or- der to perform the Work, adequate protection shall be provided by Contractor. (j) Contractor shall provide and maintain adequate protection for all properties adjacent to the Site. When required by law or for the safety of the work, Contractor shall shore, brace, underpin and protect, as necessary, foundations and other portions of existing structures which are in any way affected by the Work. Before com- mencing any part of the Work, Contractor shall give any notices required to be given to adjoining landowners or other parties. (k) Contractor shall not load or permit any part of a structure comprising a part of the Project to be loaded with a weight that will endanger its safety. (1) No equipment intended to form a part of the completed Work shall be used as construction equipment without the prior written consent and specific direction of Owner's Representative. 7H180882 10/18/88 44 '\■,% �.W, (m) Contractor shall use its best efforts to en- force the instructions of Owner and Owner's Representa- tive and all laws and regulations regarding signs, adver- tisements, fires and smoking, and shall prohibit the presence of liquor and the supply or holding of firearms by any person at the Site. 7.10 gafety. Contractor shall designate, and require each Subcon- tractor to designate, a responsible representative at the Site as a safety superintendent who shall be responsible for the promotion of safety, the prevention of accidents and the en- forcement of all applicable laws, statutes, ordinances, codes, rules, regulations and standards pertaining to safety and the prevention of accidents. Such safety superintendent shall hold biweekly meetings with the representatives of the various trades employed at the Site to ensure that all employees un- derstand and comply with the aforementioned laws, statutes, ordinances, codes, rules, regulations and standards. Neither Owner, Owner's Representative nor Architect shall be responsi- ble for conducting safety inspections or observations, but may make recommendations to Contractor concerning safety. 7.11 Fire-Protecti-on. (a) All reasonable precautions shall be taken against fire throughout all the Contractor's and Subcon- tractors' operations. Flammable material shall be main- tained on the Site in absolute minimum amounts. Any such materials shall be properly handled and stored. Except as otherwise provided herein, Contractor shall not permit fires to be built or open incinerators to be used in any part of the Work. Gasoline and other flammable liquids shall be stored outside all structures in, and dispensed, from Underwriters' Laboratories listed safety containers in conformance with the National Board of Fire Underwrit- ers recommendations. (b) All construction practices on the Site, includ- ing cutting and welding, small be in accordance with the published standards of the Factory Insurance Association and the American Insurance Association. Contractor shall provide a sufficient number of approved portable fire ex- tinguishers, which shall be properly distributed about the Site. (c) Contractor shall schedule the Work so that the permanent standpipe fire protection system shall be in- stalled and made operable at the earliest possible date. At such time Contractor shall furnish sufficient fire hoses to ensure adequate fire coverage for the Site. 7H180882 10/18/88 45 Contractor shall cause periodic inspections of the Site by local fire protection authorities and insurance under- writers, shall cooperate with such inspectors and prompt- ly shall carry out their recommendations. All tarpaulins that may be used for any purpose during construction of the Work shall be made of material which is water, weath- er and fire resistant. All tarpaulins shall be Under- writers' Laboratories labeled with a flame spread rating of fifteen (15) or less, and shall be approved by a local fire marshal before use. 7.12 Emergencies. In an emergency affecting the safety of life, the Work, or any property adjoining the Site, Contractor shall act to prevent such threatened loss or injury without special instructions or authorization from Owner's Representative, Architect or Owner. 7.13 Accidents. Contractor shall provide at the Site, and make available to all workers, medical supplies and equipment necessary to supply first aid service to any persons injured in connection with the Work. Contractor shall report promptly in writing to Owner's Representative all accidents whatsoever arising out of, connected with or incidental to the Work, whether occurring on or off the Site. Any such report shall include full details and statements of witnesses. If death, serious injury or serious damage is caused, such acci- dent shall be reported immediately by telephone or messenger. if any claim is made by anyone against Contractor or any Sub- contractor on account of any such accident, Contractor shall report promptly in writing to Owner's Representative all de- tails concerning such claim. 7.14 odent -Control. Contractor shall institute an effective program of rat and rodent control for the Site. Contractor shall cooperate with local authorities and shall provide the regular services of an experienced- exterminator who shall, at least once a month during the period that Work continues, visit the Site and take such actions as may be nec- essary to control infestation by rats and other rodents. Con- tractor shall provide marked metal containers for all edible rubbish and shall require and enforce their use by all persons present on the Site. Such containers shall be emptied and the contents removed from the Site as often as required to main- tain an adequate rodent control program. 7.15 22mcing and -Draining. Contractor shall pro- vide and maintain such temporary drainage systems and pumping equipment as may be necessary to -keep all of the excavated ar- eas within the Site free from water from any source. As the Work progresses all water shall be removed from basement ar- eas, tunnels, pits, trenches and similar areas as required for proper performance of the Work and to prevent damage to any 7HI80882 10/28/88 46 f. part of the Work. Any such water removal shall be effected at the sole cost and expense of Contractor and in strict accor- dance with all applicable federal, state and local laws, stat- utes, codes, ordinances, rules, regulations and guidelines (environmental or otherwise). Contractor shall indemnify, de- fend, save and hold Owner and Owner's Representative harmless from and against any and all claims, demands and cause or causes of action arising out of, connected with or incidental to any failure by Contractor to so comply with any such law, statute, code, ordinance, rule, regulation or guideline. Per- manent sump pumps shall not be used for such removal; Rr9yJdegt however, that Contractor may install temporary pumps in any sump pits until permanent pumps are installed therein, providing that any such sump pits and drain lines are cleaned satisfactorily after their temporary use. Contractor shall provide and maintain all pumping and drainage equipment neces- sary for the installation of all underground piping and con- duit systems. All pumping and draining shall be performed in a manner to avoid endangering the Work and any property adja- cent to the Site. Such methods shall be subject to the review and approval of Architect. 7.16 em o a ac 1 t es. (a) Contractor shall provide and maintain general services and temporary facilities if and to the extent required by Architect, Owner, Owner's Representative, all Subcontractors, Separate Contractors and Contractor's staff for the proper and expeditious prosecution of the Work, including, but not limited to, offices and toilets; storage; electrical lighting and power; water; enclo- sures; heating and ventilation; openings; material hoists; ladders, ramps and runways; fire protection; pro- tective coverings; and construction signs. Contractor shall, at its own cost and expense, 'make all temporary connections to utilities and services in locations ac- ceptable to owner's Representative, Architect and appli- cable local authorities having jurisdiction over the Pro- ject, maintain such connections, remove such temporary installations and connections when no longer required, and restore the services and sources of supply to which connection was made to their condition existing immedi- ately prior to such connection. (b) Temporary electrical service provided pursuant hereto shall have a capacity adequate for all construc- tion tools and equipment used at the Site, and shall be made available to all trades. Any temporary lighting system provided pursuant hereto shall be adequate to sat- isfy all minimum requirements of safety and security. All temporary facilities provided pursuant hereto shall comply with all applicable laws and codes, and shall be M180882 20/18/88 47 used and maintained in a manner which does not constitute a hazard to persons or property. 7.17 Chances In the Wow. (a) owner or owner's Representative may order changes in the Work by a Change Order. All changes in the Work shall be effected only if authorized by a Change Order. In an emergency, where timely performance of ad- ditional Work is required, such Work may be authorized by an emergency change order signed by Contractor or Owner's Representative; provided, ow e , that such emergency change order subsequently shall be formalized by the prompt execution of a Change Order. (b) Any increase or reduction in the Contract Sum resulting from a change in the Work shall be determined in one or more of the following ways: (i) by mutual ac- ceptance of a lump sum properly itemized and substantiat- ed by documents and materials acceptable to owner; or (ii) based upon unit prices set forth in the Contract Documents or subsequently agreed upon; provided, howeve , that if unit prices are stated in the Contract Documents or subsequently agreed upon by Owner and Contractor and the quantities of such units to be used in the Project are changed from the amount originally contemplated to an extent which causes application of the agreed unit prices to create a hardship on owner or Contractor, then Owner' and Contractor shall agree upon an equitable adjustment of the applicable unit prices to prevent such hardship. If neither of the methods set forth in clauses (i) or (ii) above are agreed upon by Contractor or Subcontrac- tor, then provided they receive a written order signed by Owner's Representative to proceed prior to the issuance of the necessary Change Order Contractor and Owner promptly shall proceed with the work involved. The cost of any Work required by such written order from Owner's Representative shall then be determined by Owner's Rep- resentative on the basis of Contractor's expenditures and savings. Ito Subcontractor shall be entitled to any sums for overhead and profit that in the aggregate exceed ten percent (10%) of the cost of the Work authorized by any Change Order. No allowance shall be made for any in- crease in any payment to Contractor except as specifical- ly provided in the Construction Agreement or Section 7.3 hereof. (a) Contractor shall aaintain, and promptly deliver to Owner upon request, an itemized accounting of the ba- sis for establishing all information required to deter- mine any change made pursuant to a Change order, includ- ing the unit price of all material, labor, supervision 7H180882 01/05/89 48 and overhead (if allowed or claimed), together with ap- propriate supporting documents and materials, all in form and substance acceptable to Owner. Owner shall have the right at any time during normal business hours to examine the books, records and supporting materials of Contractor to determine the validity of any computations made in connection with a Change Order. If the records, docu- ments and materials required to be kept and maintained by Contractor are not so kept and maintained and made avail- able to Owner, then no increase in the Contract Sum shall be allowed. Contractor shall review and verify all price and cost quotations provided by Subcontractors and shall ensure that the prices and costs quoted are fair and eq- uitable before forwarding them to Owner's Representative. (e) Any demand by Contractor for an increase in the Contract Sum shall be made, if at all, upon Owner's Rep- resentative in writing within ten (10) business days af- ter the occurrence or commencement of the event giving rise to such demand., Such demand shall state in detail the nature of the event and Contractor's estimate of the effect of such event on the Contract Sum and the Comple- tion Date. Such demand shall be made by Contractor be- fore proceeding to execute any Work required by such event except in an emergency endangering life or property (in which case Contractor shall proceed in accordance in Section 7.12 hereof). No such demand shall be honored nor shall any adjustment to the Contract Sum or any ex- tension of the Completion Date be made unless Contractor makes such demand upon Owner's Representative and the in- crease or adjustment demanded is authorized by a Change Order executed by owner. 7.16 Correction of Work (a) Neither the final certificate issued by Archi- tect, final payment to Contractor, nor any provisions in the Contract Documents shall relieve Contractor of its full responsibility for faulty materials, equipment and workmanship. Contractor promptly shall remedy all de- fects in materials, equipment and workmanship and shall pay for any damage to other Work resulting therefrom. owner or Owner's Representative shall give written notice of such observed defects with reasonable promptness. If such defects are not promptly corrected and Owner's Rep- resentative deems it inappropriate to correct such de- fects, an equitable reduction of the Contract Sum instead shall be made. M Contractor promptly shall remove from the Site all materials, equipment (whether incorporated in the Work or not) and Work designated by Architect or Owner's 7HIS0882 01/05/89 49 Representative as failing to conform to the Contract Doc- uments, replace and re -execute all such materials, equip- ment and Work in accordance with the Contract Documents and without increase in the contract Sum, and repair or replace all Work of other contractors or Subcontractors destroyed or damaged by such removal or replacement. If Contractor does not remove such defective Work, equipment and materials within ten (10) days following its receipt of notice that the same are defective (or if removal within such time is not possible, then if Contractor fails to commence and diligently prosecute such removal within ten (10) days following its receipt of such no- tice), then Owner may, at the expense of Contractor, re- move and store such defective Work, equipment and materi- als. If Contractor does not reimburse to Owner the costs, charges, fees and expenses of such removal and storage paid or incurred by Owner within ten (10) days thereafter, Owner may deduct all such costs, charges, fees and expenses from any sums then due Contractor, sell such materials at auction or at private sale, or do both. Upon any such sale, owner shall account to Contractor for the net proceeds thereof only after deducting therefrom all costs, charges, fees and expenses paid or incurred by owner in connection with such sale and in connection with such removal and storage. Any remaining funds following such sale and payment to owner shall be returned to Con- tractor, and any shortage of funds following such sale and payment to Owner shall be paid by Contractor to Own- er. 7.19 Clean-Ug (a) All crates, cartons and other flammable waste materials or trash shall be removed from the areas of the Site where Work is ongoing at the end of each day. Con- tractor shall coordinate and direct the cleanup work of all trades. Contractor and each subcontractor shall clean and maintain their respective portions of the Work as required and directed by Owner's Representative or Contractor (in the case of Subcontractors). If the Project and Site are not maintained in accordance with this Section 7.19, Owner's Representative may cause such maintenance to be done and charge the cost thereof to the Contractor. (b) Elevator shafts, electrical closets, pipe and duct shafts, chases, furred spaces and similar spaces which ordinarily are left unfinished shall be cleaned by Contractor and left free from rubbish, loose plaster, mortar drippings, extraneous construction materials, dirt and dust before preliminary inspection of the Work. 7H180882 10/18/88 50 (c) All areas of the Project in which painting or other Finish Work is to be performed shall be cleaned thoroughly immediately prior to the start of such paint- ing or other Finish Work, and shall be kept and main- tained clean throughout the course of such painting and Finish Work. Such cleaning shall include the removal of trash and rubbish; broom cleaning of floors; removal of any plaster, mortar, dust and other extraneous materials from all finished surfaces, including but not limited to, all exposed structural steel, miscellaneous metal, wood- work, plaster, masonry, concrete, mechanical and electri- cal equipment, piping, duct work, conduit, and all sur- faces visible after all permanent fixtures, induction unit covers, convector covers, covers for finned tube ra- diation, grilles, registers, and other such fixtures or devices. (d) In addition to all cleaning specified in sub- paragraph (c) above and any additional cleaning which may be required elsewhere under any of the Contract Docu- ments, the Project shall be prepared for occupancy by a thorough final cleaning. As a part of such cleaning the glass and curtain walls shall be washed and cleaned on both sides by a Window cleaning Subcontractor specializ- ing in such portion of the Work. Contractor shall, at Owner's request, delay such washing of exterior surfaces until a time specified by Owner. Recleaning after the Work has been inspected and accepted shall only be re- quired of Contractor if, in the opinion of owner, such recleaning is necessary due to subsequent operations of Contractor. (a) As soon as practical before Final Completion, Contractor shall dismantle all temporary facilities and remove from the Site all construction and installation equipment, supplies, fences, scaffolding, surplus materi- als and rubbish of every kind. 7 *20 P,cceotence Of the ItorJJ. (a) Preliminary acceptance of any part of the Work shall be made after preliminary inspection by Owner's Representative and Architect when, in the opinion of Own- er's Representative and Architect, such Work has been substantially completed in accordance with the require- ments of the Contract Documents (except for minor adjust- ments and repairs of deficiencies) so that Owner may oc- cupy the Project or portion thereof for the use for which it is intended. Such preliminary acceptance shall not, however, discharge Contractor or any Subcontractor from any obligation, warranty or guarantee contained in the Contract Documents. 7H180882 10/18/88 51 (b) Owner may have Beneficial Occupancy of all or any portion of the Project for itself or for any tenant of the Project. Owner may install Finish Work in certain spaces within the Project prior to Final Completion pro- vided: (i) in the opinion of Owner's Representative, Owner's occupancy and use of such spaces shall not unduly interfere with or delay completion of the Work, (ii) owner secures an endorsement from its insurance car- rier, if required, and a consent from any surety, permit- ting occupancy of the Project, and (III) a partial or temporary certificate of occupancy, if required by local governmental agencies or authorities, has been issued. Contractor or any applicable Subcontractor, as the case may be, at the election of Owner and under written au- thorization from Owner, shall obtain promptly any requi- site certificate of occupancy from local government agen- cies or authorities required as a condition precedent to any Beneficial Occupancy by Owner. If Owner desires to have Beneficial Occupancy of any portion of the Project prior to Final Completion, Contractor shall cooperate with Owner or Owner's Representative in making available for the Owner's use such building services as heating, ventilation, cooling, water, lighting, power, elevators and telephones for the portion of the Project to be so occupied. If the equipment required to furnish such ser- vices is not entirely completed at the time Owner desires to commence such Beneficial Occupancy, Contractor shall make every reasonable effort to complete the same and put it into use as soon as possible thereafter. During Bene- ficial Occupancy prior to Final Completion, mutually ac- ceptable arrangements shall be made among Owner and Con- tractor regarding the operation and cost of all necessary utilities such as heating, ventilating, cooling, water, lighting, power, elevator and telephone services, and re- garding any other additional expenses caused by such par- tial occupancy. To the extent reasonably possible all such expenses shall be borne by Owner and Contractor in proportion to the amount of use made of such services and utilities by Owner and Contractor. Owner shall be re- sponsible for damage to the Work occurring during such partial occupancy if such damage is caused solely by own- er or its agents or employees without any fault of Con- tractor or any Subcontractor. Owner's Beneficial Occu- pancy of space in the Project shall not constitute Own- er's acceptance of any Work which is not in accordance with the requirements of the Contract Documents, nor shall it relieve Contractor from its obligations to com- plete the Work, from its responsibility for loss or dam- age arising out of, connected with or incidental to de- fects in or malfunctions of any Work, material or equip- ment, or from any other unfulfilled obligations or 7HIS0882 10/18/88 52 responsibilities of Contractor under the Contract Docu- ments. (c) If the Project is not completed and accepted by Owner by the Completion Date, then at its election Owner may from time to time occupy the Project or any portion of the Project as the Work in connection therewith is completed to such a degree as will, in the opinion of Owner, permit use of the Project (or portions thereof) for the purpose for which they were intended. 7.21 Guarantee and Correction of Work. (a) Contractor shall promptly correct all Work re- jected by Architect or Owner as defective or as failing to conform to the Contract Documents whether observed or detected before or after Final Completion and whether or not fabricated, installed or completed. Contractor shall bear all cost of correcting such rejected Work, including but not limited to damages to property not covered by Owner's insurance, the fees or costs charged by any con- sultants of Owner, and the cost of Architect's additional services thereby made necessary. (b) In addition to any guarantee or warranty con- tained in the Contract Documents or provided by any manu- facturer or supplier, Contractor guarantees that all Work shall be free from defects in workmanship and material, that all Work shall be constructed and installed in ac- cordance with the -Contract Documents, and that all ma- chinery and apparatus incorporated in the Work meets the tests, requirements and capacities prescribed in the Con- tract Documents. The foregoing guarantee shall apply to all latent defects and to all other matters occurring within a period of one (1) year from Final Completion, or during one (1) season of operation under full load condi- tions, whichever occurs later. If any manufacturer or supplier of equipment or aaterial furnishes a guarantee or warranty for a period in excess of the above stated period, the guarantee of Contractor shall be deemed to be extended for a like period as to such equipment or mate- rial. If any Work is corrected, repaired or remedied pursuant to any guarantee provided under any of the Con- tract Documents or otherwise available to Owner, the guarantee periods specified above or elsewhere in the Contract Documents shall begin anew from the date of Own-- er's acceptance of such correction, repair or remedy. Contractor agrees that each Subcontract shall contain a guarantee of the Work performed thereunder in the same form as the guarantee of Contractor contained herein. Each such Subcontractor's guaranty shall authorize en- forcement thereof directly by Owner if Owner so elects. 7H180882 10/18/88 53 The guarantee of any Subcontractor shall not relieve Con- tractor of its obligations under its guarantee contained herein as set forth above, and Owner may look to Contrac- tor directly and solely to correct any defects in the Work. If owner notifies Contractor or any applicable Subcontractor of any breach of any guarantee, Contractor or Subcontractor or both shall, at no cost to owner, cure such breach and repair or replace any portion of the Work (whether originally performed by Contractor, any Subcon- tractor or any Separate Contractor) damaged or adversely affected by the curing of such breach. All such repair and replacement shall be effected by trades and persons reasonably acceptable to Omer, with a minimum of incon- venience to owner and Hotel operator, and at times least 'disruptive to the operation of the Project. (c) The remedies set forth in this Section 7.21 are non-exclusive, and shall not deprive Owner of any other action, right, or remedy available to it for breach of any of the provisions of the Contract Documents. The time periods referred to in this Section 7.21, or such longer time periods as may be specified elsewhere in the Contract Documents, shall not be deemed or construed as limiting the time within which Owner may pursue such oth- er action, right or remedy. ARTICLE VIII i :i_AA831 4 8.1 Termination by Contractor. If (a) the Work is stopped for a period of ninety (90) days pursuant to an order of any court or any governmen- tal agency or authority having jurisdiction over the Project issued through no act or fault of Contractor, any Subcontrac- tor, or their respective agents or employees or any other per- sons performing any of the Work; or (b) Owner has not made a payment required by the Contract Documents and such failure to make such payment has continued for fourteen (14) days after receipt by Owner of notice from Contractor of such non-payment, then Contractor may serve written notice on owner and Architect describing in reasonable detail the default of Owner under this Section 8.1. If Owner fails to cure such de- fault within fourteen (14) days after receipt of such notice, Contractor may terminate the Construction Contract. Upon any such termination by Contractor,' Contractor may recover from owner payment for all Work executed and for any proven loss sustained with respect to any materials, equipment, tools, construction equipment and machinery. Notwithstanding any- thing to the contrary contained in this Section 8.1, however, 7H180882 10/18/88 54 09 Contractor may not refuse to render future services under this Construction Contract or terminate the Construction Contract by reason of any delay of the nature described in Section 7.3 hereof, or by reason of any non-payment by Owner for specific items or elements of Contractor's application for payment not approved owner. 8.2 Tprminat on by Owner. (a) If (i) Contractor fails to perform its portion of the Work in a skilled and expeditious manner with suf- ficient labor, materials, equipment and facilities, or (ii) a lien is recorded against the Project or the Site and is not immediately bonded or insured against in a manner satisfactory to Owner, or (iii) an assignment is made by Contractor for the benefit of its creditors, or (iv) Contractor files a voluntary petition for bankruptcy or for any other arrangement in insolvency proceedings, or (v) either a receiver is appointed for Contractor or any bankruptcy or other insolvency proceedings is filed and such appointment, bankruptcy or insolvency proceed- ings is not terminated within thirty (30) days of such appointment 'or filing, as the case may be, or (vi) Contractor is declared .to be bankrupt or insolvent, or (vii) any representation or warranty made by Contrac- tor to Owner or Architect shall prove to be false or mis- leading on the date said warranty or representation is made, or (viii) default is made in the observance or per- formance of any covenant, ,agreement or condition con- tained in the Contract Documents required to be kept, performed or observed by Contractor, or (ix) there has been a material adverse change in the financial condition of Contractor which affects the Work or Project, or (x) a bonding or surety company refuses to issue a labor or ma- terial payment or performance bond or other similar guar- antee of performance required under the Construction Con- tract, or (xi) Contractor or any principal or officer of contractor working on the Project shall be indicted with the commission of a felony, or (xii) Contractor fails to comply with any reasonable requirements of Lender, or (xiii) Contractor fails to comply with any laws, ordi- nances, statutes, codes, rules, regulations or orders of any public agency or authority having jurisdiction over the Work, Project or Site, or (xiv) any event of the na- ture described in subsections (a)(i) through (a)(xiii), inclusive, of this Section 8.2, shall occur with respect to any Subcontractor and such Subcontractor shall not be replaced by Contractor within fourteen (14) days of the occurrence thereof, or (xv) Contractor shall be in de- fault under any other agreement with Owner, or (xvi) the Work shall be unreasonably delayed or discontinued or the execution of the Work ceases for more than ten (10) days, 7H180882 10/18/88 55 or the Work is delayed so that in Owner's judgment the Work cannot be completed on or prior to the Completion Date, then, provided Contractor does not cure any such event within seven (7) days after notice thereof from Owner (or, if any such event is not capable of cure with- in such seven (7) days, then if Contractor fails to com- mence the cure within said seven (7) day period and dili- gently pursue the same to completion), Owner may, without prejudice to any other right or remedy to which owner may be entitled under the Construction Documents or applica- ble law, terminate the employment of Contractor, take possession of the Site and all materials, equipment, tools, construction equipment and machinery thereon owned by Contractor, and finish the Work by whatever method it may deem proper. In such case, Contractor shall not be entitled to receive any further payment until the Work is finished. If the unpaid balance of the Contract Sum ex- ceeds the costs of completing the Work, including compen- sation for Owner's administrative costs, legal fees, fees paid to consultants, Architect's additional services, and interest and other loan expenses (including any costs, charges, fees and expenses incurred by Owner as a result of any failure to consummate in a timely manner any loan transaction), then any sums in excess of the foregoing costs of completing the Work (adjusted for any costs sav- ings achieved by owner) shall be paid to Contractor. If the foregoing costs of completing the Work exceed such unpaid balance, Contractor shall pay the difference to Owner, with interest thereon from the date incurred by Owner until paid by Contractor at a rate of interest two percent (2%) higher than the "prime" or "reference" rate of interest published or announced from time to time by Security Pacific National Bank. No termination of the employment of Contractor shall constitute a termination of the Construction Contract or Contractor's obligation thereunder, nor of the obligations of any surety of Con- tractor or any Subcontractor. (b) Upon fifteen (15) days' prior written notice to Contractor, Owner may cancel the Construction Contract at any time, regardless of whether a default exists thereun- der, and Owner shall incur no liability to Contractor or any other person by reason of such cancellation; provided, however, that if such cancellation is not due to any fault of Contractor, Owner shall pay to Contractor a sum equal to all actual costs and expenses incurred by Contractor in the cancellation of any Subcontract, up to but not exceeding twenty pe=cent (20%) of the cost of the Work to which such Subcontract relates with respect to the first fifty percent (50%) of the Work then completed and ten percent (10%) of the cost of the Work to which such Subcontract relates with respect to the balance of 7H180882 10/18/88 56 the Work then completed. In such event, Owner and Con- tractor shall continue to have such rights against each other, excepting any rights in favor of Contractor for any additional payment, if any, as may have accrued prior to such cancellation. 9.3 a s e s a . Subject to Section 8.2 above, upon any termination of the Construction Contract pursuant to this Article VIII Owner and Contractor each shall forthwith return to the other all papers, materials and other property of the other held by each in connection with the Work or this Construction Con- tract, and each party shall assist the other in an orderly termination of this Construction Contract. ARTICLE IX 9.1 Initial DeciEion by -Owner's _Representative. Any claim, dispute or controversy arising out of, connected with or incidental to Contractor's or any Subcontractor's per- formance of the Work, and any other matter in question between owner and Contractor, shall be referred initially to Owner s Representative for resolution. owner's Representative shall resolve such claim, dispute or controversy within fourteen (14) days of its receipt thereof. Notwithstanding. anything contained in the Contract Documents stating that a decision of Owner's Representative is a final decision, or that the opin- ion of the owner's Representative is determinative, decisions of Owner's Representative rendered pursuant to this Article IX shall be final only if not appealed within fourteen (14) days of the issuance thereof by Owner's Representative. All such appeals shall be made by demanding and proceeding with arbi- tration in accordance with Section 9.2 below. In considera- tion for such right of appeal and except as provided in Sec- tion 9.2 hereof, all other rights and remedies available to any party to the Contract Documents, including but not limited to the right to assert a mechanic's or materialman's lien, af- forded by any laws applicable to the Work are hereby waived. Unless otherwise agreed upon in writing, Contractor, all Sub- contractors and Architect shall continue the Work during the pendency of any such arbitration proceeding or any action at law. 9.2 Litigation or Arbitration. (a) Upon the written agreement of Contractor and owner to submit a claim, dispute or controversy to arbi- tration, such dispute shall be settled by arbitration in 7H180882 10/18/88 57 accordance with the Construction Industry Rules of the American Arbitration Association. In the event such dis- pute involves the act or omissions of Architect, a Sub- contractor or a Separate Contractor, such party shall be made a party to the arbitration. Any arbitration pro- ceeding initiated pursuant to this Section 9.2 shall be held at a place mutually -agreed upon by the parties; Rrovided, howeve, that in the absence of such an agree- ment by the parties such proceeding shall be held at the office of the American Arbitration Association nearest to the Site. (b) Notice of the demand for arbitration shall be filed in writing with all other parties to the arbitra- tion and with the American Arbitration Association. Such demand shall be made within a reasonable time after the claim, dispute or controversy has arisen; prgvided, how- ever, that in no event may such demand for arbitration be made after the date when the institution of legal or eq- uitable proceedings based on such claim, dispute or con- troversy would be barred by any applicable statute of limitations. If arbitration proceedings are commenced, any applicable statute of limitations shall be tolled during the pendency of such arbitration proceedings. (c) Any award rendered by the arbitrators shall be final, and judgment may be entered upon it in accordance with applicable law in any court having jurisdiction thereof. All costs, charges, fees and expenses relating to any arbitration proceeding shall be borne in the man- ner ordered by the arbitrator or arbitrators in such pro- ceeding or, in the absence of any such order, by the par- ty which paid or incurred such cost, charge, fee or ex- pense. 7H180882 10/18/88 58 m W+ EXHIBIT A SCHEDULE OF CONTRACT DO,CVMENT! 7H180882 10/18/88 A-1 Or �J EXHIBIT B u sqzffqi� 7HIS0882 10/18/88 8-2 EXHIBIT C CONSIRUCTYON PROGRESS -SCHEDULE U180882 10/18/88 C-1 • The Da Kangyo Bank, Limited Annual Report 1988 . _ (April 1.1987—March 31. 1988) s X � r • e. a.— t• 's r� i* The ®at 1chi It . , W%jj lu t�S bn � ,t1, i W1 +r u� . s J il• I'I i mciai liiohii6 A ,Message. from ; '�_int the B1.est'as Retail Banfcing;,`'.' Corporate Bankin Investment Panki. 1'r uncial Section.. Board of bi-i t Ol�ani atlori Cha , '*z'. lilt lratiol ['Xxne st IC ink f n-Kai 7kh'AffiG< O rP rde 1 r c a't d `x^ 8` r. ; ' r ,, tfi. t; s; air y II s `'v KtV' s r 7 k ." .I , , II, ��, II-"�. .�-�I �, I ," yy,, _4 + ?. My '. f # #`'kk� f. +�.yz } -, * ,.. " I i L,� tr %Y1 Bank, Umitedt'(DKB) is the I . v 1';betermu[ed''to et�blish an.identty'� k' +� a ,,.; g',},t •� as -! y�y t� {h-� {��R �,r. a+ r t + r' �y1 r t �s4 f •-, ,r '� r i f S,T �i�.iFr4 t a '°Yt+ i� iQ3e�J�J�bl �1 a '+ � t,k ' 1 ,, d. "y:,, i-''� y � 41,$3 ' �3s orng ,in Qt r� "' b nkin �nc`I rr h xt: b N ', �= r � ' v jk'7� ak n >v�Y�,� J�� J_ d'n� 4S ,� '�'» > i'� ?I ,�f 'c i r"� r ' r ma r r ak M k ti i'"� {� r fit' r j: c 4� ti. d a;X '' :At , �' y 4' r < 3 i��'„YRtzt�; ,�sr v,' .� i'' S ,1� r y-" y°i '�� k rl e fk ;fi .,1,. 4W' �ti >"r I .1 y'IS' vy { yr' ..n �e E �Y Jt'R t' 'k $ Xcre yt , t� wT" fi#t -- vs r rt w x-r•�'Y" , d s t r l- k r i F �'r, ,mot F,1", ,. 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(pt�matlonal [ 3nki I�", " 1es5 lnfOCmrit'IQ' I IPu'r 1r�1 � 7 1., , I I o' t �1� ` { �y L �'' 4 '24 I t if, 1 yJ i y . ;t T.. rb +` a rtyyyyyW��,,,,,,,,,, P G + w r < + " ^X4 r, t o r ". _i ° y' ' n -t ,s, In r, - 4 qs C .y: i + 1 •v` r ' ii �' ?jf ` a• q}'� I �,� F V � , V kt'��'t t j «i fV.t; � ,, r 4 kl - .kyl _ i P 1 y "k '''1.. t r � 1 1 Financial Highlights Non{ors dated Basis rwal rears ended AW h 11 1988 1987 1988 Thousands of Millions of yen U.S. dollars r I I Total Assets..................................................................................................... V46.511,239 Y41.606.339 $371,050.973 Deposits.......................................................................................................... 34,776,478 30,558,723 277.435.011 Loans and Sills Discounted............................................................................ 25,360,919 21,909.034 202.320.855 Securities......................................................................................................... 4.084.591 3.716.946 32.585.492 Shareholders' Equity....................................................................................... 955,527 706.753 7.622.874 Total Income.................................................................................................... Y 2.513.172 Y 2.052.524 S 20.049.246 Total Expenses................................................................................................ 2.197,248 1.849.364 17,528,905 Income before Income Taxes......................................................................... 315.924 203,159 2,520.341 Net Income..................................................................................................... 133,212 99.145 1.062.728 Cash Dividends(*2) ........................................................................................ 19,343 18.725 154.317 Yen U.S. dc::ars Net Income per Share ................................... .. Y 52.28 Y 39.87 $0.417 Cash Dividends per Share('2) ....................................................................... 7.50 7.50 0.059 Net Assets per Share...................................................................................... 364.83 283.03 2.910 1. US dor•ar a-nourls ror e onened 1Diely for eom�esnerrre ofthe YI21 31-USSI pre+ar6rg rare on INr;h 1; 19M •i [a-h dnidends r'eAreienl the calk d Weeds proposed zPF dx Ward d Mwtm as appkabee eD the re wme years oogeOW •.dl irsenm cash d.rde*+ pars A Message from Managemey DKB turned in another strong performance in the fiscal year ended March 31, 1988, as economic recovery proceeded in Japan and around the world. Net income rose 34.4%, to Y133.2 billion ($1.1 billion), while total assets increased 11.8%, to Y46.511.2 billion ($371.1 billion). Shareholders' equity rose 35.2%, to Y955.5 billion ($7.6 billion). We are pleased to report that DKB ranked first in profits among the city banks of Japan this year, a reflection of our emphasis on profitability and on new business. We remain the world's largest bank in terms of total assets and total deposits. DKB's goal is to be Japan's strongest comprehensive financial services organization. 0-,jr two -pronged strategy to achieve this goal is to actively avail our- selves of the opportunities being created by the rapid deregulation and globalization of our business and to further improve our efficiency and profitability. The pilla-s of our drive toward this goal are the unmatched size of our customer base. our leadership in many areas of the banking business, and the high quality of our internal management and business systems. Our first priority is continued growth in business with individuals and with small and medium-sized companies. This expanding market holds substantial potential for profit growth. especially with our progress in diversifying services and automating operations. We are casting an equa!iy ambitious eye. however, on expanding our busiress relationships —and hence our services —with our major corporate customers ar,d on securing quali- tative growth in global wholesale banking. In pursuit of these objectives. we undertook a major reorganization in August 1987. Important features included buttressing our investment banking functions 1) by establishing the Capital Markets Headquarters. in which we have integrated our domestic and international securities and treasury divisions, a -id 21 by establishing the B isiness Information Headquarters. which will con- centrate on mediating mergers and acquisitions and corporate tie-ups and on providing other intermediary services. The reorganization strengthened our consulting and advisory services as well. Seeking Quality Growth The capital adequacy guidelines proposed by the Bank for International Settlements (BIS) are changing perspec- tives on banking soundness around the world. We support the concept of unified international standards inherent in the higher capital ratios proposed by BIS. and we are determined to meet these standards. Our Increasing emphasis on maximizing return on assets will help us do so. as will new equity raised in the capital markets. We raised Y126 billion in equity through a public offering in September 1987 and issued Y I OO billion in domestic convertible bonds in May 1988. As we keep a very close eye on the course of financial deregulation, we are confident that our unrivaled cus- tomer base and market position assure that DKB will thrive over the long run in a deregulated environment. We look forward eagerly to demonstrating the competi- tive drive and innovative abilities of the people of the DKB organization in developing the opportunities offered by deregulation. Having succeeded Tetsuo Fujimori and Nobuya Hagura as chairman and president in June 1988. we pledge to continue to build on the strong foundation they put in place. As we carry out this changing of the guard. we would like to express our appreciation to our share- holders and customers worldwide for their continuing support. Over the present fiscal year, we expect further prog- ress in our areas of concern and in becoming Japan's strongest comprehensive financial services organization. Profitability, efficiency. and qualitative growth combined with the very best in service —these are the essence of our drive toward "being the best as well as the biggest." July 1988 Ichiro Nakamura, Chairman Kuniji Miyazaki. President As Financials e keep finding better days to serve the individual and [ntertnediary '; corporate depositors who provide us with world banking'sI W largest pool of funds 'on deposit, And we keep passing " these funds on to quality borrowers through the largest portfolio of loan assets in the banking industry. Through our 363 branches and our approximately 1,700 automatic teller machines and cash dispensers, we serve customers at more sites throughout Japan than any other bank:,, • Individual borrowers, ""whose housing loans, card loans, and other financing from.DKB make up the largest portfolio of loans to 'individuals among all, Japanese banks... • The 10 million ' individual depositors who provide us with reliable, low-cost funding through the largest pool of per sonal deposits in Japanese banking... • And corporate customers. Small and medium-sized companies that have not yet devel- oped the same direct access to the capital markets as their" larger counterparts "are a , natural focus of our services as a financial intermediary. We serve the largest customer base of small and medium-sized corporate borrowers in Japan with responsive financing and in other valuable ways, like introducing customers and arranging technological tie-ups. Right: The growing Also valued highly by small companies, not to mention number of working is'an impor- large ones, are the man electronic banking services avail - women tant reason behind able on-line from DKB that they can access through terminals the upward trend in on their own premises. consumer spending in Japan, where For each of our biggest corporate. customers, we assign a DKB serves more relationship -management team to coordinate our overall individuals than any other bank. Above: Efficiency is a key to quality growth in the consumer. market, and continuing investment in computer systems has kept DKB's data processing capabilities a step ahead of a burgeon- ing daily volume of transactions. 5. As Investment Banker ave taken major organizational steps to keep DKB in the mainstream of global financial markets amid the securitization of those markets. The biggest of these steps was the launching of the Capital Markets Headquarters in our organizational realignment of August 1987. Operating as a semiautonomous securities house, the Capital Markets Head- quarters complements our traditional capabilities in commer- cial banking with an efficient framework for asserting capabil- ities in investment banking. Our strengths and experience in investment banking are broadly based. As one of the handful of banks that serve as lead underwriters for syndicated issues of Japanese govern- ment bonds, we have developed placement channels unsurpassed in the Japanese market. We are the lead com- missioned bank for Nippon Telegraph and Telephone Corpo- ration (NTT), the telecommunications giant that is Japan's largest corporate issuer of debt, and we have long been a leading trustee for corporate bond issues. With the interna- tionalization of the Tokyo market, we have served as com- missioned bank for more bond issues in Japan by foreign corporations than any other Japanese bank. And we were the principal paying agent for 31 of the 93 non -Japanese companies listed on the Tokyo Stock Exchange at fiscal year-end. Overseas, DKB is a leading underwriter of Japanese issues in Switzerland and a prominent underwriter in London and other capital markets, too. With the largest private -sector clientele in Japanese banking and a top position in under- writing Japanese government bonds, we have advanced Below: NTT. Japan's telecom- munications giant and the nation's largest corporate issuer of debt, turns to DKB for commissioned bank services and other assistance with the bond issues that help finance a state-of-the-art tele- communications grid. Right: These profes- sionals at DKB's London Branch are part of a growing DKB presence in financial and capital markets worldwide. naturally into the role of underwriter for private -sector issues of securities in overseas markets. We will continue to make the necessary commitment of resources to broaden this role. In doing so, we will be expanding a global business founda- tion on which we have built positions of leadership in project finance, syndicated loans, and other phases of international finance. In the secondary bond market, our Y193 trillion in turnover in the past fiscal year was the largest dealing volume by far among Japanese banks. As a financial services organization, our fundamental mandate in securities dealing lies in making markets for customers and thereby assuring them of a continuous scope of liquid trading alternatives. In market making for more than a thousand corporations and institu- tions, we deal in hundreds of issues and run bid and offer quotations for many of them on leading video information services in Japan and overseas. Dealing is but one of the many phases of our investment banking activity where we are augmenting the value of our customer service with information. The extensive coverage of our branch network in Japan and our 59 facilities in 28 nations overseas gives us excellent access to information that can be immensely valuable to Japanese companies building or acquiring facilities abroad, to foreign companies moving to establish a presence in Japan, and to companies of any nationality seeking technology, customers, or partners. The creation of the Business Information Headquarters in our organizational realignment signifies our determination to devote the full. measure of resources required to ensure continued leadership for DKB in adding value to financial services through information. As we become investment bankers as well as commercial bankers, we are becoming daily a more information -intensive financial institution, Japan's best bank as well as its biggest. Project finance is a big part of the global presence that DKB asserts in financial sen•ices, with DKB not only providing financing for projects but also helping to plan and coordinate them to the maximum benefit of all participants. Retail Banking DKB handles a variety of debit cards and credit cards to serve the diverse and mounting needs of consumers for responsive financial services. The momentum of our leadership in retail banking services was much in evidence in the past fiscal year. We garnered a net increase of 3 million new deposit accounts with individuals during the year, bringing the total number of these accounts to 34 million at fiscal year-end. Deposits in these accounts totaled Y8.2 trillion at fiscal year-end, up 12.1 % over the year before. On the asset side of the ledger, we achieved a 48.4% increase in aggregate loans outstanding to consumers, which amounted to Y2.8 trillion at fiscal year-end. Con- sumers served by DKB loans numbered 544,087 at fiscal year-end, an 1 1.4% increase over the previous year-end. Supporting our efficiency gains in the retail market was a big increase in the number of automatic teller machines (ATMs) and cash dispensers (CDs) that we operate. We served customers through approximately 1,700 of these machines at our branches at fiscal year- end. in addition to the ATMs and CDs in service at DKB branches, we operate 80 ATMs and CDs at the factories, offices, and other facilities of our corporate customers. As part of our efforts to broaden the applicability of these machines, American Express cardholders who maintain accounts with DKB have been able to use their American Express cards at DKB ATMs and CDs since 1986. More recently, we began a joint -use arrangement with Citibank in January 1988 that enables holders of Citibank debit cards to use their cards in any DKB ATM or CD in Japan. This arrangement, the first of its kind between a Japanese and a foreign bank, greatly en- hances the convenience and value of the Citibank card in Japan while generating fee income for us and opening the way to additional mutually beneficial cooperation in other areas. ATMs and CDs are but one aspect of the improve- ments in efficiency generated by advanced computer systems at DKB. Our first -generation computer system handled 24.9 million transactions-1.2 million via ATMs and CDs —per month in the fiscal year ended March 31, 1975, when more than 12,600 clerks worked at DKB branches in Japan. in the fiscal year ended March 31, 1988, our second -generation system handled 51.4 million transactions a month-7.7 million through ATMs and CDs —and the number of clerks at DKB branches was down to 5,900. A third -generation computer system now being installed at DKB will expand our processing capacity further as we prepare for the tremendous growth expected in on-line banking transactions. H M. R �''R•'{ t l7+ TU .{w ��,. .` �{�,�.....,.�.�`, ��r ie. ;lam t�` �.,�.t��.�,. .� 14F•'"."`* � �� ..\ rM!?Alat � n. � �y I.wSeltl�kwari�uN•+`Ae w � ' "j1j .x(=...wx....1 {IK �. 'x+'.+��.�. � 1 Building Comprehensive Banking Relationships with Individuals Of the 9 million ordinary deposit accounts at DKB, 1.5 million receive automatic salary deposits. More than Y220 billion in salaries is deposited automatically into individuals' accounts at DKB each month and several times this amount in the traditional twice -a -year bonus months. Customers also enjoy the convenience of automatic remittance of utility bills, home loan repay- ment installments, and other payments from their DKB accounts. We are also using electronic banking in other ways to enhance the quality of DKB services for individuals. Principles of artificial intelligence, for example, support a pair of computer -based services that we introduced in 1988 to help individuals optimize the management of their personal financial assets and liabilities. Incorpo- rating so-called "expert system" software, these services run on a mainframe computer at our headquarters in Tokyo and can be accessed on-line from terminals installed at every DKB branch in Japan. Financial plan- ners at the branches consult with customers about their financial needs and objectives and run portfolio simula- tions on the system terminals to come up with invest- ment -savings portfolios or loan -financing schemes with which the customers can feel comfortable. In the rapidly growing field of private banking, we have assembled a new marketing team to provide personalized banking services to high -net -worth individ- uals. These individuals are also the target of a portfolio product we introduced in the past fiscal year for invest- ment in a carefully structured basket of such instruments as time deposits, money market certificates, mortgage - security loans, and Swiss franc denominated time deposits. Lending to individuals remains a housing -driven market for us, and the growth we registered in loans to individuals in the past fiscal year owes a great deal to a housing boom that continued throughout the year. About 80% of our loans outstanding to individuals at fiscal year-end were home loans. In nonresidential lending, one of the new products we introduced in the past fiscal year enables individuals to use their home or other collateral to secure revolving credit facilities of up to Y50 million. These facilities differ from conven- tional credit lines for individuals in Japan in that they are available for any purpose, and they have proven extremely popular. Another loan that we introduced recently relieves the burden of inheritance taxes on estates. Japan's high inheritance tax and the short maximum period allowed for installment payments of the tax oblige many people to sell the real estate or other assets that they have inherited to meet their tax obligations. Our new loan, collateralized with the assets inherited, offers a low interest rate and a repayment period of up to 30 years, which greatly relieves the financial burden associated with inheritance. Credit cards are another important mode of consumer credit, and these operations continue to display steady growth. Holders of our UC Heart Card numbered 1.5 million at fiscal year-end, up 21 % over the year before. Collaboration is a key to success in credit card opera- tions, and we have enhanced the value of our cards through tie-ups with top-quality partners. An arrange- ment with MasterCard, for example, permits holders of our UC Heart Card to use it worldwide. Efficient computer support for ATMs and counter operations has made long lines a thing of the past at DKB branches. 12 Corporate Banking Sports facilities. like this enclosed stadium recently completed in Tokyo, symbolize a wave of capital spending in Japan that is upgrading the nation's social infra- structure. Corporate banking relationships continue to generate a growing diversity of business for us, both in our tradi- tional commercial banking operations and in our steadily broadening activity in investment banking. Efforts to increase the number of these relationships and to broaden the scope of each of them are central to our strategy for sound, long-term growth. Our corporate clientele, the largest among Japanese banks, included about 100,000 corporate borrowers at fiscal year-end, which was about 7% of all the companies in Japan. The continuing expansion of our business with this clientele was reflected in the year-end figures for corporate loans and deposits. Our loans outstanding to companies and institutions in Japan totaled Y16.5 trillion at the end of the past fiscal year, up 8.9% over the year before. Likewise, we held Y 1 1.8 trillion in deposits from companies and institutions in Japan, an increase of 15.9% over the previous year-end. Relationship banking remains the predominant mode of financial services in Japan, with growth prospects for financial institutions being heavily dependent on the range and depth of their ties with corporate customers. Our industry -leading portfolio of corporate relationships is thus a decisive strategic advantage for us, and these relationships are stronger than ever as we reinforce them through assorted value-added services. While core services in corporate banking remain the province of solid relationships between companies and their main banks, corporate customers are more inclined than formerly to shop around for the most attractive terms in peripheral services. We welcome this trend because it creates opportunities to compete for business with new customers for whom we are not the main bank. Maintaining Relationships with Corporations Large and Small An important part of our marketing organization consists of several dozen teams based at our Tokyo headquarters that are each devoted to coordinating our overall relationship with one of 50 major corporate groups. The parent companies of these groups, all of 13 them household names in Japan, a�%,4he heart of our serve the most e�sive clientele of smaller companies industry -leading clientele of large corporations. And we serve more than 2,000 subsidiaries and other companies associated with these 50 key corporate clients, as well as thousands of group employees. Manufacturers remain the biggest group of large corporate customers at DKB. but a shift toward nonmanufacturing sectors is apparent. especially in the amount of loans outstanding. DKB Loans Outstanding to Corporations in Japan Y billion March 31 1988 1983 1978 Manufacturing Y 4.422 Y3,751 Y2.944 Financial services 1.557 496 191 Fublic utilities 277 238 119 Wholesale and retail 4.309 3.093 2,255 Real estate and 2.704 980 698 construction _ Others 3.294 1,287 709 Total Y16.563 19,851 Y6,916 DKB's ties with corporations capitalized at more than Y1 billion included about Y4.7 trillion in loans at fiscal year-end, compared with Y4.8 trillion the year before. Biink borrowings clearly remain an important tool in liability management at these companies, especially for snort -term working capital needs, even as they take advantage of increasingly accessible capital markets through issues of securities. In addition to —and partially because of —our un- matched clientele of large corporate groups, we also in Japanese banking. Companies capitalized at less than YI billion accounted for 71.9% of our lending to corporate clients at fiscal year-end. compared with 57.3% five years ago. 'these companies depend on bank borrowings to help finance capital spending as well as ro augment working capital: so. they tend to present steady aggregate demand for loan financing. although demand for financing in individual industrial sectors fluctuates in reflection of the business environment and outlook. As with large corporations. a shift toward nbnmanufactu ring sectors is apparent in the composition of our clientele of smaller companies. DKB Corporate Loans in Japan by Six of Borrower Y bllion huarch 31 1988 1983 1978 ,Companies with paid -in capital of Y 4.652 Y4.203 Y3.302 Y1 billion or more ,Companies with paid - in capital of less 11.911 5.648 3.614 than YI billion Total Y 16.563 Y9.851 Y6.916 Looking Beyond Loans and Deposits Business other than traditional activity in lending and deposit taking accounts for an ever bigger part of our relationships with corporate customers. A major reason for this is the evolving cash management needs of these clients. and we provide a full range of advisory assis- tance to help clients optimize their cash management operations. Payments and remittances are another area where we provide a variety of value-added services to corporate clients, and hundreds of thousands of companies take advantage of electronic banking services at DKB. Many of these companies. for example. are connected to DKB via on-line computer terminals that enable them 14 n a relationship represent- ative of. DKB's tees with large corporate customers, the largest manufacturer of computers in Faun heads a corporate group from which scores of corn- panies and thousands of employees do business with DK[ . a to have remittances and other services performed immediately. A new data services network that we are marketing to corporate customers as Hear-t Net supports a highly individualized response to the electronic banking needs of each company. DK3 representatives corisult with hundreds of clients each year on their banking -related needs in data processing and explain how we can provide custom -engineered, computerized solutions to those needs through Heart Net. A rapidly growing number of companies are taking us up on this offer, and we are finding that some of the services we develop as custom solutions for the creeds of individual com- panies are broadly applicable to similar needs at other companies, We have packaged a number of these services as standardized, economical products, one such standardized product automatically collates billing data with information on deposits made into a company's account as payments from customers. This product has halved the tirne and effort required for processing payments received at more than 90 com- panies. Another product streamlines work at about two - dozen large real estate management companies by automatically processing tenant payments, withholding the management fee, and passing the remainder on to the owners via electronic rernt ttances into their bank accounts. . Companies also use their electronic tie-ins to DK3 to tap a variety of information services, such as real-time displays of prices in the financial markets. As our third - generation computer system comes on-line, it will enable these companies to access essentially any information and data processing service in Japan through their DKB hookups. Many of DKB's corporate clients take advantage of computer hookups that enable them to conduct banking trans- actions in real time `from their offices. In Investment Banking Staff members through- out DKB's international network strive to build close, service -oriented associations with clients, both in and out of the office. Stimulated by progress in deregulation and internation- alization, Japan's capital market has developed rapidly and holds an important position as one of the world's major funding markets. Our work as commissioned bank in the primary bond market is central to our strong position in the Japanese capital market. And we complement our extensive involvement in issues by domestic issuers with a growing volume of business with non -Japanese issuers. During the past fiscal year, we served as lead com- missioned bank for the first samurai bond issue —a yen denominated bond issue in Japan by a nonresident borrower —by the Public Corporation of New South Wales and as commissioned bank for samurai issues by Ireland; the Province of Manitoba, Canada; and the National Bank of Hungary. Favored as a commissioned bank by corporate samurai issuers, we have served as lead commissioned bank for half of the corporate samurai issues to date, including issues by Sears, Roebuck and Co. and American Express. DKB is the bank most called upon to serve as principal paying agent for foreign companies that have listed on the Tokyo Stock Exchange, and during the past fiscal year we were named principal paying agent for Glaxo Holdings and American Family Corp. In addition, we participated as dealer for the first commercial paper issued by a foreign company, Dow Chemical, after Japan permitted CP issues by nonresidents in January 1988. Extending Horizons through Merchant Banking Subsidiaries DKB has developed its merchant banking operations through a number of overseas subsidiaries. The core of the DKB Group's Euromarket operations is London - based DKB International Limited (DKBI). Conditions were unfavorable for Eurobond issues in the past fiscal year, and issues declined in number and total value for the first time in five years. DKBI, however, expanded its operations, maintaining its position as a major player in Euro issues. In the primary market, DKBI participated in a total of 121 new issues, including 23 as lead manager. Responding to investors' shift away from dollar denominated bonds, DKBI created products that matched the needs of investors and issuers seeking 17 to diversify their assets and liabilities, promoting non - dollar bond issues in Euroyen, deutsche marks, pound sterling, and other currencies. In the secondary market, DKBI is a member of the Association of International Bond Dealers (AIBD) and serves the needs of domestic and foreign investors as a market maker in Eurodollar bonds, yen bonds— Euroyen bonds and government bonds —and floating- rate notes (FRNs). As our main merchant banking arm, DKBI is especially emphasizing sales and dealing in yen -based instruments to meet our objective of becom- ing the world's strongest financial institution in yen - based operations. DKBI is gradually increasing its activity in futures transactions, options, swaps, and Euro commercial paper to meet diversifying market require- ments in funding and risk hedging. In Switzerland, Dai-Ichi Kangyo Bank (Schweiz) AG is a universal bank, offering an extensive range of services in securities, banking, asset management, and treasury operations. As in the Euromarket, conditions worsened in the Swiss market during the fiscal year, and the number and total value of new issues declined. This market, however, is on a par with the Euromarket as a source of funds for Japanese corporations. Of the more than SFr42 billion issued in foreign bonds during the year, slightly over SFr12 billion was issued by Japanese corporations, compared with SFr14.7 billion in the previous year. Dai-Ichi Kangyo Bank (Schweiz) under- wrote 94 issues-47 for Japanese and 47 for non - Japanese issuers —handling about 30% of all issues by Japanese corporations. It is also active in arranging private placements of straight bonds for Japanese issuers. Dai-Ichi Kangyo Bank (Schweiz) participated in 11 placements for a total of SFr275 million, five of them as lead arranger for a total of SFr95 million. Dai-Ichi Kangyo Bank. (Schweiz) ranks as top among the subsidiaries of Japanese banks in underwriting in the Swiss market, reflecting DKB's extensive corporate customer base in Japan. Another DKB subsidiary, Dai-lchi Kangyo Bank Neder- land N.V., is involved in a wide range of securities operations in the Euromarket, together with DKBI and Dai-Ichi Kangyo Bank (Schweiz). In Australia, Dai-lchi Kangyo Australia Limited is also an important arm of DKB's worldwide investment banking network. Hong Kong -based DKB Asia Limited is a major partic- ipant in the syndicated loan markets of Asia and Oceania, centered on Hong Kong. In the past fiscal year, DKB Asia arranged 17 syndicated loans totaling $595 million for public- and private -sector borrowers in Hong Kong, the Republic of Korea, Indonesia, Australia, and India. DKB Asia is also a prominent underwriter of Australian dollar denominated note issuance facilities (NIFs), being the top-ranking underwriter among Japanese bank subsidiaries of such NIFs for the Australian public and private sectors. DKB Asia also deals in Australian commercial paper. Through its relationship with DKB, the subsidiary provides Asian investors with strong investment services in yen denominated securities, as well as a wide range of advice on other foreign currency denominated securities. Asserting Innovative Strengths We established the Corporate Finance Division in our August 1987 organizational realignment to develop financial products that use new financial techniques, such as swaps and options. During the past fiscal year, we created Prosper, a new type of low interest bearing DKB's New York branch. with the most deposits of any non-U.S. bank branch in that financial center, is one of 10 DKB facilities in North America. impact loan that allows customers Lo borrow funds at a rate below LIBOR by a controlled trade-off of currency risk on the principal. This loan was well received in the market, where borrowers raised more than $200 million with Prosper in the first six months that we offered it. We also developed other loans that have caught the attention of major overseas corporations because of their innovative concepts in raising funds. One such loan is packaged with options and achieves an even lower rate than Prosper. Another is our Boots loan. Developed for use in project finance, this loan gets its name from the boot -shaped configuration of its interest payment curve. We have devised a variety of asset management schemes to suit a wide range of customer needs, including a new yen hedging method created in response to the boom in overseas foreign currency denominated bond issues by Japanese corporations. Because this method greatly reduces the issuer's hedging costs, it is being utilized by many Japanese corporations. Trends in original financial products include the grow- ing demand for industrial revenue bonds and leveraged leases by Japanese companies entering the U.S. market and for debt -to -equity conversion (DEC), an investment vehicle for heavily indebted countries that is attracting attention as a means of low-cost funding. We are also offering other services, such as debt assumption. Leasing, meanwhile, is widely acknowledged as one of the most attractive methods for equipment procure- ment, especially because of tax benefits such as accel- erated depreciation. DKB serves the U.S. leasing market through its subsidiary, Dai-lchi Kangyo Bank of California. This arm of DKB has vigorously developed its leasing business and has accumulated the expertise to provide various types of special financing, including leveraged leases. In Indonesia, DKB has also acquired a 30% inter- est in the well -established firm of P.T. Panin Oceanic Leasing, entering the local leasing market though this new affiliate, P.T. Panin DKB Oceanic Leasing. DKB has issueu numerous letters of credit to provide credit enhancement or liquidity support for U.S. munic- ipal bonds. These letters of credit have provided signi- ficant savings to U.S. municipal issuers by helping them secure a cheaper source of funding in either the tax- able or tax-exempt bond markets than they have tradi- tionally been able to acquire. DKB's letters of credit have supported various types of bonds, ranging from general obligations to revenue bonds for diverse issuers, including municipal governments and authorities —from large states to small cities, universities, hospitals and utilities. In issuing letters of credit for these bonds, DKB works closely with local issuers, major investment banks, and regional underwriters to provide timely financing to meet local needs. Maintaining Volume and Service Leadership in Dealing Our leading position among Japanese banks in bond dealing relates to our role as one of the four banks that, on an annual rotating basis, share the responsibility of lead manager of the syndicate that underwrites Dealing at DKB is both a global activity and a local one. as DKB traders live and work in each major capital market, acquiring an expert knowledge of the market and of their counterparties. r Japanese government bond issues. Our trading volume of Y 193 trillion in bonds over the fiscal year was top among banks and yielded Y27.5 billion in profits. Having foreseen the lifting of the restrictions on deal- ing in overseas financial futures by domestic institutional investors that occurred in May 1987, we were the first Japanese bank to set up a futures and options team to serve these investors. This team holds the largest share of the futures and options market in Japan and is already a world -class market maker. Wanting to pass on to our customers the advanced know-how we have accumulated in our dealing opera- tions, we are emphasizing the development of new financial products. In addition to packaging deposits or loans with currency options, we introduced Japan's first deposits and loans with forward interest rate agree- ments, which are aimed at hedging interest rate fluctua- tion risk. The globalization of finance is steadily increasing the importance of yen transactions. As the strongest of the yen -based banks, we are helping maximize the role of DKB holds monthly seminars to keep clients abreast of market trends and effective investment strategies. the yen in the world economy, as exemplified by our role as the first settlement bank for the Japanese govern- ment bond futures being traded on the London Inter- national Financial Futures Exchange (LIFFE). Because of the rapid growth in our securities and foreign exchange dealing operations, we have outgrown our dealing room. Completion of a new, expanded dealing room equipped with the most advanced sys- tems is scheduled for autumn 1988. Mediating Corporate Growth through Mergers and Acquisitions Our customers' expectations revolve around our ability to provide high -quality information and expert advisory and project coordinator services. The division that fulfills this function, the Business Information Headquarters, received information on a diversified range of more than 3,000 transactions over the fiscal year. During the same period, our staff advised on over 2,000 enquiries on trade investments and administrative procedures for companies entering overseas markets. Using this information and DKB's network, the Business Information Headquarters has been supporting Japanese corporations' entrance into overseas markets. When Nippon Columbia Co., Ltd., set up a plant in the Federal Republic of Germany, we acted as sole advisor for the entire project. In the capacity of advisor or project coordinator, we supervised the completion of 20 such projects over the fiscal year. We served as financial advisor to Japanese corpora- tions in more than 50 mergers and acquisitions during the past fiscal year, overseeing the successful comple- tion of 20 transactions by the end of the fiscal year. The successful transactions that we helped mediate included investments that gave Kawasaki Steel Corpo- ration a large stake in a venture business with highly regarded computer technology, that gave Yokohama Rubber Co., Ltd., a large equity interest in a manufac- turer of electronic equipment, and that made another large Japanese company the owner of a U.S. textile manufacturer. Contributing to Regional Development Our Regional Development & Coordination Group meets new market demands in urban redevelopment and corporate restructuring. The group undertakes a 20 x trengthening relationships with international clients is a process of exploring client needs with sensitivity and meeting them with expert dedication, a process facilitated by frequent client contact. 21 wide range of activities in urban rk,,,velopment and regional development, such as collecting timely informa- tion, providing customers with information and materials, and participating in redevelopment projects on its own. Many large real estate projects are getting under way in Japan, with some especially large projects along the waterfront areas of major cities. In a move representative of our activity in these projects, we helped set up a consortium in December 1987 to Create an original redevelopment plan for the waterfront area of Tokyo. The consortium comprises 92 companies. with DKB and a large trading company actinf; as principal coordi- nators. Other activities of the Regional Development & Coordination Group include participating in real estate development around public transport stations and in commercial center redevelopment, providing informa- tion on and cooperating with large developers in the development of idle plants and land, promoting resort development by supplying information or acting as project coordinator, and encouraging new businesses through activities such as participating in the planning of homes for the elderly. Putting Skills to Work in Asset Management and Trust Services DKB subsidiaries and affiliates provide advisory and management services to support 1) investment in domestic or foreign securities by Japanese investors. including pension funds, and 21 investment by overseas customers in international markets, including Japan. In July 1986. we set up DKB Investment Management International Limited (DKBIMI) in London to act as the center of our investment management services. This move made our investment management services inde- Xendent of DKBi and has enabled DKBIMI to respond more effectively to customer needs. DKBIMI is now the core of our overseas operational bases in asset manage- ment and offers a wide range of international portfolio management services. Dai-Ichi Kangyo Investment Manafement Co.. Ltd. (DKIM). in Tokyo. supplies investment advice to our domestic customers. Its asset management services and expert advice highly evaluated in the market. D{IM and DKBIMI cooperatively furnish worldwide investment advice to both domestic and overseas customers. DaHchl Kangyo Bank (Luxembourg) S.A., established in July 1986. engages not only in traditional banking blr also in the securities and asset management and trust businesses. Its wide-ranging services include the listing of Eurobonds. short- and long-term financing, the underwriting of securities issued through the Luxembourg market and bond dealing in the Euro- market. It also acts as a paying agent for Euro securities. DaHchl Kangyo Rust Company of New York (DKTC) was established in June 1986 and provides trust servi- ces for U.S. corporations and the U.S. subsidiaries of Japanese corporations. its establishment has greatly strengthened our international investment management on the East Coast. DKTC offers a wide range of trust services. including trustee, paying agent and custodial services. Investment advice for investors in U.S. stocks and bonds is also available. On the West Coast. the Los Angeles -based Dai-Ichi Kangyo Bank of California handles trust operations. Jr. addition to DKB's trust operations In the United States. Dal-Ichi Kangyo Bank (Schweiz) and DKB Asia also offer trust services, enhancing our ability to serve customers worldwide. 22 Financial S-Aion Contents Five -Year Financial Summary - 24 Financial Review • 25 Non -Consolidated Balance Sheets - 28 Non -Consolidated Statements of Income • 29 Non -Consolidated Statements of Appropriations of Profit - 29 Notes to Non -Consolidated Financial Statements • 30 Report of Independent Certified Public Accountants • 34 Consolidated Balance Sheets - 35 Consolidated Statements of Income - 36 Consolidated Statements of Earned Surplus 36 Notes to Consolidated Financial Statements 37 Report of Independent Certified Public Accountants , 38 23 Five -Year Financial Summ, j Non -consolidated Basis Fiscal years ended March 31 1988 1987 1986 1985 1984 Millions of yen Total Assets ............................................. V46,511,239 Y41,606,339 Y36,369,438 Y32.715.519 Y28,910,223 Call Loans ............................................. 891,839 1,488,503 1,678,766 753,946 1,472,526 Trading Account Securities .................. 42,594 182,826 169,724 22,935 - Securities .............................................. 4,084,591 3,716,946 3,090,359 3,062,856 2,616,193 Loans and Bills Discounted ................. 25,360,919 21,909,034 19,407,681 17,364,647 14,967,909 Total Liabilities ........................................ 45,555,712 40,899,585 35,747,353 32,180,867 28,418,650 Deposits ................................................ 34,776,478 30,558,723 26,630,479 24,211.684 21,675,155 Call Money ........................................... 3,132,724 3,774,192 3,293,828 2,902,251 2,179,459 Borrowed Money ................................. 633,256 516,604 349,616 218,133 308,565 Convertible Bonds ................................ 5,468 13,975 17,615 - - Total Shareholders' Equity ...................... 955,527 706,753 622,085 534,651 491,572 Common Stock ..................................... 206,420 139,047 137,277 120,000 120,000 Total Income ............................................ Y 2,513,172 Y 2,052,524 Y 2,082,738 Y 2,230,867 Y 1,790,451 Interest on Loans and Discounts......... 1,263,236 1,223,713 1,265,665 1,249,636 1,100,388 Interest on Securities ........................... 246,793 225,796 223,238 216,010 176,628 Fees and Commissions ........................ 75,793 68,022 72,004 67,658 59,281 Other Income ....................................... 427,407 137,132 83,905 45,836 51,107 Total Expenses ........................................ 2,197,248 1,849,364 1,944,124 2,100,797 1,654,789 Interest on Deposits ............................. 1,345,957 1,188,315 1,296,176 1,486,710 1,109,211 Interest on Borrowings and Rediscounts ....................................... 163,539 204,128 220,935 201,092 178,231 General and Administrative Expenses ........................................... 340,696 313,892 293,852 280,875 274,183 Income before income Taxes ................. 315,924 203,159 138,613 130,069 135,662 Net Income .............................................. 133,212 99,145 70,149 60,128 56,399 Cash Dividends* ..................................... 19,343 18,725 16,946 16,800 15,600 Yen Net Income per Share ............................ V 52.28 Y 39.87 Y 29.06 Y 25.05 Y 23.49 Cash Dividends per Share ...................... 7.50 7.50 7.00 7.00 6.50 Net Assets per Share .............................. 364.83 283.03 256.85 222.77 204.82 Millions of U.S. dollars Foreign Exchange Transactions .............. $613,039 $479,137 $315,522 $246,407 $182,676 Foreign Currencv Assets ......................... 110,750 88,418 60,097 45,265 44,640 Number of Branches, Sub -Branches, and Overseas Branches ....................... 374 371 363 359 355 Number of Employees ............................ 18,663 19,293 20,226 21,102 22,162 •: Cash dividends represent the cash dividends proposed by the Board of Directors as applicable to the respective years together with interim cash dividends paid. 24 Financial Review Non-consolida, J Basis Net Income Total income increased to Y2, 513.1 billion ($20.0 billion), from Y2,052.5 billion ($16.4 billion) in the previous year. This rise in income resulted from further expansion in the domestic economy, supported by strong growth in domestic demand, which began in summer 1987. Capital expenditures in the private sector, reflecting the improvement in corporate performances, also made a rapid recovery. DKB's interest on loans and discounts advanced to Y1,263.2 billion ($10.1 billion), from Y1,223.7 billion ($9.8 billion), while interest on securities rose to Y246.7 billion ($2.0 billion). "Interest on Others," primarily deposits and foreign exchange interest, increased to Y495.7 billion ($4.0 billion). Other income rose substantially to Y427.4 billion ($3.4 billion), principally because of increased income from sales of and dealing in securities. Total expenses increased to Y2,197.2 billion ($17.5 billion), from Y 1,849.3 billion ($14.8 billion), because of the increased proportion of funds being raised at market rates due to the progress of financial deregula- tion and because of rising interest rates overseas. Net Income Deposits (Millions of yen) (Billions of yen) 133,212 34.776 Interest on deposits expanded to Y1,345.9 billion ($10.7 billion), from Y1,188.3 billion ($9.5 billion). Interest on borrowings and rediscounts, however, declined to Y163.5 billion ($1.3 billion), from Y204.1 billion ($1.6 billion). General and administrative (G&A) expenses advanced to Y340.6 billion ($2.7 billion), from Y313.8 billion ($2.5 billion). This increase resulted from greater taxes due to higher income and from expenses related to our installation of electronic banking systems, such as a new on-line computer system. DKB continues to work at reducing personnel and other expenses through a wide-ranging rationalization program that is beginning to yield tangible results. Salaries and allowances as a proportion of G&A expenses were reduced to 39.2%, compared with 42.8% in the previous fiscal year. Consequently, income before income taxes increased 55.5%, to Y315.9 billion ($2.5 billion), and net income rose 34.40/o, to Y133.2 billion ($1.1 billion). This strong performance can be attributed to increased profitability resulting from efforts to improve efficiency and generally strengthen the Bank's operations. Loans and Bills Discounted (Billions of yen) 25.361 30.559 21 909 99,145 26.630 19.408 24,212 17.365 21,675 14.968 70,149 60.128 56.39 19 1984 1985 1986 1987 1988 1984 1985 1986 1987 1988 1984 1985 1986 1987 1988 25 6 Net Income and Dividends Per Share Net income per share increased 31.1 %, to Y52.28 ($0.417), and cash dividends applicable to the year were Y7.50 ($0.059) per share. Deposits The total balance of deposits grew to Y34,776.4 billion ($277.4 billion), from Y30,558.7 billion ($243.8 billion), as a result of marketing efforts, increased individual deposits, and expansion of MMCs (money market certificates) and large -denomination deposits with liberalized interest rates. Excluding negotiable certificates of deposit, total deposits including time deposits, rose Y4,044.8 billion ($32.3 billion), to Y33,072.1 billion ($263.8 billion). Negotiable certificates of deposit increased 11.3 %, to Y 1,704.2 billion ($13.6 billion). The total deposit balance per employee increased 17.6% from the previous year, to Y 1,863 million ($14.8 million), and deposits per branch rose 13.2%, to Y99.0 billion ($790.4 million). Loans to Industries (Billions of yen) Io To Nonrmanufaauring Industries To Manufacturing Industries 9.54& 8,190 3, q 4 1984 1985 15,096 1986 1987 1988 Loans and Bills Discounted Loans and bills discounted rose to Y25,360.9 billion ($202.3 billion), from Y21,909.0 billion ($174.8 billion). Excluding overdrafts on current accounts, loans and bills discounted by domestic branches increased Y2,137.5 billion ($17.1 billion), to Y19,518.0 billion ($15 5.7 billion). Of this amount, financing for individuals and small and medium-sized companies advanced 19.9%, to Y12,296.7 billion ($98.1 billion), and accounted for 63.0% of total domestic loans and bills discounted. Total consumer loans rose 45.8%, to Y2,989.9 billion ($23.9 billion). Loans and bills discounted per employee increased 19.7%, to Y 1.3 billion ($10.8 million), and on a per - branch basis, loans and bills discounted rose 15.1 %, to Y72.2 billion ($576.4 million). DKB has expanded its operational base by employing assets effectively through housing loans and other lending to individuals, loans to small and medium-sized companies, and long-term loans to private- and public -sector borrowers. Loans to Securities Consumers Held (Billions of yen) (Billions of yen) M Total Loans to Consumers ,: Housing Loans 2,990 4,0885 IN3.717 n 3.063 3.090 2.050 '. 2.616 1.7 1.412 1, 2I9 183 11.2 LO 1.0 i 6,f 1984 1985 1986 1987 1988 1984 1985 1986 1987 1988 26 Securities Held Total securities held as of March 31, 1988, increased 9.91/. from the previous year, to Y4,084.5 billion ($32.6 billion). The average yields were as follows: National Local Government Government Corporate Bonds Bonds Bonds Average As of March 31, 1988......... 7,23% 7.19% 6.53% 6.95% As of March 31, 1987......... 7.53% 7.24% 6.80% 7.19% Foreign Currency Transactions Import and export foreign exchange transactions advanced 62.2%, to $96,438 million. Other foreign exchange transactions rose 23.1%, to $516,601 million. Consequently, total foreign exchange transactions increased 27.9%, to $613,039 million. Foreign Currency Assets DK13's foreign currency assets at fiscal year-end rose 25.3%, to $110,750 million, compared with the previous year. Foreign Exchange Foreign Currency Transactions Assets (Billions of U S. dollars) (Billions of U.S. dollars) 6130 110.8 479.1 91 88.4 60.1 315.5 246.4 44.6 45.3 182.7 1984 1985 1986 1987 1988 1984 1985 1986 1987 1988 Total Assets and Shareholders' Equity Total assets advanced Y4,904.9 billion ($39.1 billion), to Y46,511.2 billion ($371.1 billion). Excluding customers' liabilities for acceptances and guarantees, total assets increased Y4,676.3 billion ($37.3 billion), to Y43,591.4 billion ($347.8 billion). Shareholders' equity rose by Y248.7 billion ($2.0 billion), to Y955.5 billion ($7.6 billion), mainly as a result of a public offering of shares. The number of outstanding shares increased 122,016 thousand, to 2,619,074 thousand shares. Total Assets (Billions of yen) 46,511 41.606 36.369 27 Non -Consolidated Balance :...nets March 31. 1988 and 1987 Millions of yen and thousands of U.S. dollars 1988 1987 1988 ASSETS Cash and Due from Banks.............................................................................. T 9,776,039 Y 8,936,658 $ 77,989,941 Call Loans........................................................................................................ 891,839 1,488, 503 7,114,795 Trading Account Securities.............................................................................. 42,594 182,826 339,804 Securities (Note 2)........................................................................................... 4,084,591 3,716,946 32,585,492 Loans and Bills Discounted (Note 3).............................................................. 25,360,919 21,909,034 202,320,855 Foreign Exchanges (Note 4)........................................................................:... 769,363 612,020 6,137,719 Other Assets (Note 5)...................................................................................... 2,487,306 1,893,635 19,842,889 Premises and Equipment (Note 6).................................................................. 178,846 175,548 1,426,777 Customers' Liabilities for Acceptances and Guarantees....................................................................... 2,919,740 2,691,165 23,292,701 Total Assets............................................................................................. V46,511,239 Y41,606,339 $371,050,973 LIABILITIES Deposits (Note 7)............................................................................................. T34,776,478 Y30,558,723 $277,435,011 Call Money (Note 8)........................................................................................ 3,132,724 3,774,192 24,991,818 Borrowed Money (Note 9).............................................................................. 633,256 516,604 5,051,906 Foreign Exchanges (Note 4)............................................................................ 1,033,902 839,678 8,248,124 Convertible Bonds........................................................................................... 5,468 13,975 43,628 Other Liabilities (Note10)............................................................................... 2,822,970 2,290,504 22,520,707 Reserve for Possible Loan Losses (Note 11).................................................. 154,406 137,012 1,231,800 Reserve for Retirement Allowances................................................................ 70,779 70,375 564,656 Other Reserves (Note12)................................................................................ 5,985 7,353 47,748 Acceptances and Guarantees (Note 13)......................................................... 2,919,740 2,691,165 23,292,701 Total Liabilities........................................................................................ Y45,555,712 Y40,899,585 $363,428,099 SHAREHOLDERS' EQUITY Common Stock (Note 14)................................................................................ Y 206,420 Y 139,047 $ 1,646,754 Capital Surplus................................................................................................. 94,894 27,521 757,039 Legal Reserve (Note 15).................................................................................. 47,896 44,092 382,103 Earned Surplus Voluntary Reserve......................................................................................... 460,915 387,168 3,677,032 Undivided Profit............................................................................................ 145,399 108,924 1,159,946 Total Shareholders' Equity.................................................................... 1f 955,527 Y 706,753 $ 7,622,874 Total Liabilities and Shareholders' Equity .......................................... T46,511,239 Y41,606,339 $371,050,973 The accompanying notes are an integral part of these financial statements 28 Non -Consolidated Statements of Income Fiscal years ended March 31. 1988 and 1987 Millions of yen and thousands of U.S. dollars 1988 1987, 1988 INCOME Interest on Loans and Discounts................................................................................. 1f1,263,236 Y1,223,713 $10,077,674 Securities.................................................................................................... 246,793 225,796 1,968,837 Others (Note 16)........................................................................................ 495,738 397,258 3,954,833 Fees and Commissions.................................................................................... 75,793 68,022 604,657 Other Income (Note 17).................................................................................. 427,407 137,732 3,409,716 Transfer from Other Reserves......................................................................... 4,202 - 33,529 Total Income............................................................................................ 1I2,513,172 Y2,052, 524 $20,049,246 EXPENSES Interest on Deposits..................................................................................................... T1,345,957 Y1,188,315 $10,737,596 Borrowings and Rediscounts..................................................................... 163,539 204,128 1,304,664 Others (Note 18)........................................................................................ 81,499 60,061 650,173 Fees and Commissions.................................................................................... 23,121 19,232 184,459 General and Administrative Expenses (Note 19)........................................... 340,696 313,892 2,717,958 Other Expenses (Note 20)............................................................................... 239,686 61,477 1,912,140 Transfer to Other Reserves.............................................................................. 2,747 2,257 21,915 Total Expenses........................................................................................ T2,197,248 Y1,849,364 $17,528,905 Income before Income Taxes...................................................................... lI 315,924 Y 203,159 $ 2,520,341 Provision for Income Taxes (Note 21)............................................................ 182,711 104,014 1,457,613 Net Income..................................................................................................... T 133,212 Y 99,145 $ 1,062,728 The accompanying notes are an integral part of these financial statements. Non -Consolidated Statements of Appropriations of Profit Fiscal years ended March 31. 1988 and 1987 Millions of yen and thousands of U.S. dollars 1988 1987 1988 Balance at Beginning of Year...................................................................... 1f 108,924 Y 74,877 $ 868,960 Transfer from Voluntary Reserve..................................................................... 279 602 2,228 Appropriations: Transfer to Legal Reserve............................................................................. Y 3,804 Y 3,572 $ 30,351 Transfer to Voluntary Reserve...................................................................... 74,026 44,011 590,559 Cash Dividends............................................................................................. 18,886 17,838 150,667 Bonuses for Directors and Statutory Auditors ............................................ 300 280 2,393 Y 97,017 Y 65,701 $ 773,970 Net Income..................................................................................................... T 133,212 Y 99,145 $1,062,728 Balance at End of Year (Note 22)....................................:........................... Y145,399 Y108,924 $1,159,946 The accompanying notes are an integral part of these financial statements. �o Notes to Non -Consolidated . ..uncial Statements 1. Significant Accounting Policies (a) Basis of Presentation The accompanying Financial Statements of the DaHchi Kangyo Bank, Limited (the Bank) have been prepared in accordance with the Japanese Commercial Code, Banking Law and in conformity with generally accepted accounting principles and, where applicable, with the accounting and reporting guidelines prescribed by banking regulatory authorities. In the preparation of these financial statements, certain items on the domestically issued financial statements have been reclassified and rearranged, considering the convenience of readers outside Japan. Yen amounts less than one million yen have been disregarded. All U.S. dollar amounts included herein are presented solely for the convenience of readers, and are nothing more than arithmetical computation. They. are converted at the rate of Y 12 5.3 5 = $1, the prevailing rate on the Tokyo foreign exchange market on March 31, 1988. (b) Trading Account Securities With the commencement of trading national and local government and government guaranteed bonds in June 1984 a "Trading Account Securities" account has been newly established. Listed securities are stated at either cost or market value, whichever is lower. Unlisted securities are stated at cost. (c) Securities Listed national government bonds and local government bonds are carried at cost. Listed corporate bonds, stocks and other securities are stated at either cost or market value, whichever is lower. Unlisted securities are carried at cost. In accordance with a revision in the Accounting Standards for Banks, securities managed in tokkin funds are valued by the above methods as of the fiscal year ended March 31, 1988. Gains and losses from securities transactions are presented in "Other Income" and "Other Expenses". (d) Premises and Equipment Premises and Equipment are generally carried at cost less accumulated depreciation and deferred gains on sales of real estate. In accordance with the Accounting Standards for Banks issued by the Ministry of Finance, the depreciation of buildings is computed on the declining balance method up to 160% of the ratio allowable under the Japanese Tax Law. Depreciation of equipment is computed on the declining balance method up to the ratio allowable under the said Law. (e) Foreign Currency Translation The financial statements of the Bank are maintained in yen. Foreign currency assets and liabilities held domestically and the accounts of the Bank's overseas branches and agency are translated into yen at the prevailing rates on the Tokyo foreign exchange market on the last business day of each fiscal year. (f) Reserve for Possible Loan Losses The Reserve for Possible Loan Losses is composed of a general reserve for possible loan losses, a reserve for special purposes, and a reserve for specific overseas loans. The general reserve is provided in accordance with the revisions of the Tax Law and the Accounting Standards for Banks. In accordance with these regulations, the amount of the reserve remains constant so far as it exceeds 0.3 % of outstanding loans and claims at the end of each year, which is the limit for a tax-free general reserve. For the year ended March 31, 1988, it accounts for approximately 0.34% of such loans and claims. The reserve for special purposes is an additional reserve provided for certain loans and claims outstanding which have high possibility of being uncollectible, based on their estimated recovery. Against possible loan losses on specific loans extended overseas, a special provision is provided based on the evaluation procedures issued by the Ministry of Finance. The Bank provides these reserves up to the maximum sum allowable under the regulations. Loan losses incurred are included in "Other Expenses", or they are charged to the reserve if a reserve for special purposes has been set up. (g) Reserve for Retirement Allowances and Pension Plan The Bank has the Reserve for Retirement Allowances and a Pension Plan in line with its employee benefit plans. The Reserve for Retirement Allowances is set aside for the lump -sum payment on retirement, on the basis of the amount which would be required if all eligible employees had voluntarily retired at the end of the fiscal year concerned. Substantially all eligible, salaried Japanese employees are covered by a contributory pension plan. The balance of past service costs as of March 31. 1987 was Y23,490 million, which is to be funded over 20 years. 2. Securities Millions of yen and dw nds of U S dollars 1988 1987 1988 National Government Bonds.. .......... ............ 11,133,818 Y1.046.214 $ 9,045,218 Local Government Bonds ............................... 116,395 135,028 928,563 Corporate Bonds ............................................ 786,966 860,526 6,278,152 Stocks............................................................. 1,150,817 821,691 9,180.837 Other Securities .............................................. 896,593 853.485 7,152,722 Total.......................................................... Y4,084,591 Y3.716,946 $32,585,492 30 Gains and losses from securities transactions are as follows Millions of yen and thousands of U.S. dollars 1988 1987 1988 Gains on sales of Securities ............................ 1301.414 Y90,584 $2,404,580 Gains on Redemption of Securities ................ 852 1,173 6,799 Losses on Sales of Securities .......................... (140,193) (26,172) (1,118,414) Losses on Redemption of Securities .............. (26,310) (12,019) (209,900) Devaluation of Securities ................................ (14,028) (8,065) (111,912) Total.......................................................... Y121,733 Y45.500 $ 971,153 3. Loans and Bills Discounted Millions of yen and thousands of U.5. dollars 1988 1987 1988 Bills Discounted .............................................. Y 1,975,812 Y 2,059,050 $ 15,762,362 Loans on Notes .................. ................ _.......... 9,973,353 9.251,439 79,564,049 Loans on Deeds .............................................. 10,892,184 8,800,436 86,894,175 Overdrafts....................................................... 2,519,568 1,798,107 20,100,269 Total.......................................................... 125,360,919 Y21,909,034 $202.320,855 4. Foreign Exchanges (Assets and Liabilities) (Assets) Due from Foreign Banks ................................. Foreign Bills of Exchange Bought ................... Foreign Bills of Exchange Receivable ............. Total.......................................................... (Liabilities) Due to Foreign Banks .................................... Foreign Bills of Exchange Sold ...................... Foreign Bills of Exchange Payable ................. Total......................................................... 5. Other Assets Domestic Exchange Settlement AccountDr. .. .............................................. Prepaid Expenses .......................................... Accrued Income ............................................ Others............................................................ Total......................................................... Millions of yen and thousands of U.S. dollars 1988 1987 1988 Y 211,632 Y122.207 $1,688,337 405,727 322,659 3,236,758 152,002 167,153 1,212,624 Y 769,363 Y612.020 $6,137,719 11,000,243 Y794,474 $7,979,606 25,472 37,814 203,211 8,186 7,388 65.307 Y1,033,902 Y839.678 $8,248,124 Millions of yen and thousands of U.S. dollars 1988 1987 1988 Y1,964,851 Y1,442,994 $15,674,926 15,049 16,166 120,057 356,883 265,372 2,847,094 150,521 169.102 1,200,812 T2,487,306 Y1,893,635 $19,842,889 Domestic Exchange Settlement Account Dr. and Cr. are debits and credits representing unsettled balances accrued from interbank domestic exchange transfers. 6. Premises and Equipment Land............................................................... Buildings......................................................... Equipment...... ........... .................................... Others............................................................. Total.......................................................... Less Accumulated Depreciation ..................... Total Book Value .......................................... Millions of yen and thousands of u 5. dollars 1988 1987 1988 Y 52,096 Y 52.644 $ 415,611 169,297 166,543 1,350,596 100,003 87,307 797,794 36,962 38,225 294,873 Y358,359 Y344.721 $2,858,874 179,513 169,173 1,432,097 Y178,846 Y175.548 $1,426,777 The balances of Land and Buildings are represented deducting deferred gains on sales of real estate for Y68,551 million and Y59,712 million, for the years ended on March 31, 1988 and 1987, respectively. 7. Deposits Current Deposits ............................................. Ordinary Deposits ........................................... Deposits at Notice .......................................... Time Deposits ................................................. Negotiable Certificates of Deposit .................. Other Deposits ............................................... Total.......................................................... 8. Call Money Millions of yen and thousands of U 5 dollars 1988 1987 1988 Y 2,440,881 Y 1.780,270 $ 19,472,529 3,172,078 2,778.107 25,305,772 965,769 977,017 7,704,585 21,244,297 20,262.061 169,479,833 1,704,279 1,531.404 13,596,165 5,249,172 3,229.862 41,876,127 Y34,776,478 Y30.558,723 $277,435,011 Millions of yen and thousands of U.S. dollars 1988 1987 1998 Call Money ...................................................... Y1,916,944 Y2,013,057 $15,292,735 Bills Sold ......................................................... 1,215,790 1,761,135 9,699,083 Total.......................................................... Y3,132,724 Y3374,192 $24,991,818 9. Borrowed Money Borrowed Money represents the balance of short-term borrowings from other banks and other Financial Institutions. a 31 10. Other Liabilities Millions of yen and thousands of U S dollars 1988 1987 1988 Domestic Exchange Settlement Account Cr .................................................. Y1,712,621 Y1.336.340 $11,662,718 Accrued Expenses .......................................... 732,688 632,277 5,845,140 Unearned Income ........................................... 101.471 93,477 809,508 Accrued Income Taxes ................................... 135,644 76,994 1,082,123 Employees' Deposits ...................................... 33,091 33,405 263,991 others............................................................. 107,453 118,008 857,227 Total.......................................................... 12,822,970 Y2.290,504 $22,520,707 11. Reserve for Possible Loan Losses Millions of yen and thousands of U.S. dollars 1988 1987 1988 Balance at Beginning of Year .......................... Y137,012 Y130.933 $1,093,043 Foreign Currency Translation Adjustments ................................................ (1,953) (3.110) (15,581) Loan Losses Charged to Reserve ................... (1,712) (593) (13,661) Provision Charged to Expenses ...................... 21,058 9.783 167,999 Balance at End of Year ................................... Y154,406 Y137,012 $1,231,800 12. Other Reserves Millions of yen and thousands of U.S. dollars 1988 1987 1988 Reserve for Price Fluctuations of National Government Bonds ....................... Y - Y4.202 $ - Reserve for Trading Account Securities..................................................... 5,897 3.150 47,050 Reserve for Intematfonal Garden and Greenery Exposition ............................. 87 - 698 Total.......................................................... Y5,985 Y7,353 $47,748 The amount transferred to the reserve for trading account securities is indicated as "Transfer to Other Reserves" on the Statements of Income, whereas the amount of transfer to the reserve for the EXPO is charged to "General and Administrative Expenses". 13. Acceptances and Guarantees Acceptances................................................... Letters of Credit., ................................... ........ Guarantees..................................................... Total.......................................................... Millions of yen and thousands of U.S. dollars 1988 1987 1988 Y 47,520 Y 38,379 $ 379,102 780,341 687,414 6,225,298 2,091,878 1,965,371 16,688,301 Y2,919,740 Y2.691,165 $23,292,701 All contingent liabilities arising in compliance with customers' needs in foreign trade and other transactions are included in "Acceptances and Guarantees". As a contra account, "Customers' Liabilities for Acceptances and Guarantees" is shown on the asset side representing the Bank's right of indemnity from customers. 14. Common Stock As of March 31, 1988, Common Stock of the Bank consisted of 2,619 million shares issued and outstanding. The par value of shares is Y50 each and the authorized number of shares is 4,320 million. 15. Legal Reserve The Banking Law provides that at least 20% of cash dividends must be appropriated as a Legal Reserve until such reserve equals the amount of the Bank's paid -in capital. This reserve is not available for dividends but may be used to reduce a deficit by resolution of shareholders or may be capitalized by resolution of the Board of Directors. 16. Other Interest Income Other Interest Income includes deposit interest for Y431,149 million, foreign exchange interest for Y63,806 million and others. 17. Other Income Millions of yen and thousands of U.S. dollars 1988 1987 1988 Gains on Foreign Exchange Transactions................................................. Y 27,835 Y 18,070 $ 222,065 Gains on Securities 7tading ............................ 27,470 20.666 219,152 Gains on Sales of Securities ............................ 301,414 90,584 2,404,580 Gains on Redemption of Securities ................ 852 1,173 6,799 Gains on Sales of Real Estate ......................... 12,324 672 98,322 Collection of Written -off Claims ...................... 170 102 1,363 Others............................................................. 57,339 6,463 457,435 Total.......................................................... Y427,407 YI37,732 $3,409,716 The item "Others" for the fiscal year ended March 31, 1988, includes an extraordinary gain of Y48,409 million on the sale of securities, which covered an increase in the funding rate of a specific reserve for overseas claims. 32 18. Other Interest Expenses Other Interest Expenses include foreign exchange interest for Y75,860 million and others. 19. General and Administrative Expenses Moll- of yen and thousands of US. dollars 1988 1987 1988 Salaries and Allowances ................................. Y133,571 Y134,390 $1,065,590 I Retirement Benefits ........................................ 8,999 8,801 71,793 Welfare Expenses ........................................... 24,985 25.533 199,324 Depreciation for Premises and Equipment ................................................... 17,204 15,383 137,255 Rental Expenses ............................................. 27,409 27,083 218,662 Taxes............................................................... 56,006 42,907 446,798 Others............................................................. 72,519 59.790 578,536 Total......................................................... Y340,696 Y313,892 $2.717,958 20. Other Expenses Millions of yen and thousands of US. dollars 1988 1987 1988 Provision for Reserve for Possible Loan Losses ................................................. Y 3,556 Y 9,783 S 28,373 Write-off of Loans ........................................... 2,514 942 20,063 Losses on Sales of Securities .......................... 140,193 26,172 1,118,414 Losses on Redemption of Securities .............. 26,310 12,019 209,900 Devaluation of Securities ................................ 14,028 8,065 111,912 Losses on Sales of Real Estate ....................... 12,716 1.271 101,450 Others............................................................. 40,366 3,223 322,028 Total.......................................................... Y239,686 Y61.477 $1,912,140 The item "Others" for the fiscal year ended March 31, 1988, includes an extraordinary transfer of Y17,502 million to a specific reserve for overseas claims made in connection with an increase in the funding rate of that reserve. 21. Income Taxes As to the taxes based on income, the Bank is subject to corporate, enterprise, and inhabitant taxes. The Bank computes and provides Income Taxes currently payable based on taxable income, except for the enterprise tax which is included in "General and Administrative Expenses". No deferred income taxes provision is made to take into account timing differences between the Bank's financial and tax reporting in the accompanying financial statements. 22. Subsequent Event The following appropriation of profit applicable to the year ended March 31, 1988 was approved at the shareholders' meeting held on June 29, 1988. Millions of yen and thousands of U.S. dollars 1988 1987 1988 Undivided Profit at the End of the Term......... Y145,399 Y108.924 $1,159,946 Transfer from Voluntary Reserve .................... 272 279 2,170 Total.......................................................... Y145,671 Y109,203 $1,162,116 Appropriations: Transfer to Legal Reserve ............................. Y 2,000 Y 1.900 S 15,956 Transfer to Voluntary Reserve ...................... 107,011 74,026 853,701 Cash Dividends (Y3.75 per share) ................. 9,821 9.363 78,353 Bonuses for Directors and Statutory Auditors ....................................... 300 300 2,393 Total ................ .................................. I....... 1119,132 Y 85,590 $ 950.403 Balance of Undivided Profit Carried Forward....................................................... Y 26,538 Y 23.612 $ 211,713 On May 17, 1988, the Bank issued by way of public offering in the Japanese market, a series of three yen -denominated unsecured convertible bonds in the aggregate principal amount of Y100 billion ($780 million). The bonds comprise Y40 billion ($319 million) four-year convertible bonds, Y40 billion ($ 319 million) six -year convertible bonds, and Y20 billion ($160 million) seven-year convertible bonds. The conversion price for the three convertible bonds is Y3339 per share. 33 Report of Independent Cert►r.ed Public Accountants NIHON SEKIJUJISHA BLDG. .� CENTURY AUDIT CORPORATION MINAT -KU, T MOO I-0HOME MINATO-KU, TOKYO 105, JAPAN CERTIFIED PUBLIC ACCOUNTANTS TEL. (03) 578-1920 FAX. (03) 578-1934 To the Board of Directors of The Dai-Ichi Kangyo Bank, Limited We have examined the Non -Consolidated Balance Sheets of The Dai-Ichi Kangyo Bank, Limited as of March 31, 1988 and 1987, and the related Non -Consolidated Statements of Income and of Appropriations of Profit for the years then ended, expressed in Japanese yen. Our examinations were made in accordance with generally accepted auditing standards in Japan, and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. In our opinion, the Non -Consolidated Financial Statements referred to above present fairly the financial position of The Dai-Ichi Kangyo Bank, Limited, as of March 31, 1988 and 1987, and the results of its operations for the years then ended, in conformity with accounting principles generally accepted in Japan applied on a consistent basis. The amounts expressed in U.S. dollars have been translated on the basis set out in Note 1 of the Notes to the Non -Consolidated Financial Statements. Tokyo, June 29, 1988 ce'7z" j&aA't 34 Consolidated Balance Sh,..;ts March 31, 1988 ASSETS Cash and Due from Banks ............... CallLoans ........................................ IYading Account Securities .............. Securities .......................................... Loans and Bills Discounted ............. Foreign Exchanges .......................... Other Assets .................................... Deferred Taxes ................................. Premises and Equipment ................. Customers' Liabilities for Acceptances and Guarantees ....... Total Assets ............................. LIABILITIES Deposits........................................................................................................... ............................. CallMoney.................................................................................................................................... BorrowedMoney.......................................................................................................................... ForeignExchanges....................................................................................................................... ConvertibleBonds........................................................................................................................ OtherLiabilities............................................................................................................................. Reserve for Possible Loan Losses............................................................................................... Reserve for Retirement Allowances............................................................................................. OtherReserves............................................................................................................................. Minority Interest in Consolidated Subsidiary ............................................................................... Acceptances and Guarantees....................................................................................................... TotalLiabilities..................................................................................................................... SHAREHOLDERS' EQUITY CommonStock............................................................................................................................. CapitalSurplus.............................................................................................................................. LegalReserve................................................................................................................................ EarnedSurplus.............................................................................................................................. Common Stock in 'IYeasury .......................................................................................................... Total Shareholders' Equity................................................................................................. Total Liabilities and Shareholders' Equity....................................................................... The accompanying notes are an integral part of these financial statements. Millions of Yen 1988 T 9,914,196 902,314 52,448 4,214,288 25,496,110 767,510 2,571,290 107,373 182,078 2,866, 344 T47,073,956 Y35,143,313 3,136,569 761,302 1,020,439 5,468 2,838,591 161,586 70,779 5,985 346 2,866,344 Y46, 010, 729 V 206,420 94,894 48,060 713,857 Thousands of U.S Dollars $ 79,092,111 7,198,358 418,419 33,620,169 203,399,367 6,122,942 20, 512,890 856,591 1,452,559 22,866,732 $375,540,138 $280,361,498 25,022,493 6,073,416 8,140,723 43,627 22,645,330 1,289,085 564,656 47,748 2,763 22,866,732 $ 367,058,071 $ 1,646,754 757,039 383,411 5,694,916 (53) V47,073,956 $375,540,138 35 Consolidated Statements of _. .corne Fiscal year ended March 31. 1988 Millions of Yen Thousands of U.S. Dollars 1988 1988 INCOME Interest on Loans and Discounts................................................................................................................. Y 1,276,828 $10,186,104 Securities................................................................................................................................... 259,688 2,071,708 Others........................................................................................................................................ 509,997 4,068,584 Feesand Commissions................................................................................................................... 77,997 622,236 OtherIncome...............................................................................................:.................................. 443,070 3,534,665 TotalIncome............................................................................................................................ V2,567,581 $20,483,297 EXPENSES Interest on Deposits..........................................................................................:.......................................... TI,362,419 $10,868,927 Borrowings and Rediscounts.................................................................................................... 165,165 1,317,635 Others........................................................................................................................................ 98,822 788,373 Fees and Commissions................................................................................................................... 24,020 191,625 General and Administrative Expenses........................................................................................... 346,568 2,764,807 OtherExpenses.............................................................................................................................. 251,160 2,003,670 Transferto Other Reserves............................................................................................................. 2,747 21,915 Total Expenses........................................................................................................................ V2,250,903 $17,956,952 Income before Income Taxes...................................................................................................... if 316,677 S 2,526,345 Provision for Income Taxes............................................................................................................ 165,006 1,316,365 Minority Interest in Net Income..................................................................................................... 56 454 Amortization of Consolidation Difference...................................................................................... 0 2 Equity in Net Income of Affiliates.................................................................................................. (44) (354) NetIncome .................................. ................................................................................................ :.. V 151,569 $ 1,209,170 The accompanying notes are an integral part of these financial statements Consolidated Statements of Earned Surplus Fiscal year ended March 31. 1988 Millions of Yen Thousands of U.S. Dollars 1988 1988 Balance at Beginning of Year...................................................................................................... V584,956 $4,666,584 Appropriations: Transferto Legal Reserve............................................................................................................ 3,831 30,569 CashDividends............................................................................................................................. 18,886 150,667 Bonuses for Directors and Statutory Auditors............................................................................ 300 2,393 NetIncome..................................................................................................................................... 151,569 1,209,170 Foreign Currency Translation Adjustment.......................................................... I........................... 349 2,791 Balance at End of Year................................................................................................................ Y713,857 $5,694,916 The accompanying notes are an integral part of these financial statements M. Notes to Consolidated Fi —ndal Statements 1. Basis of Presentation The accompanying consolidated financial statements are prepared on the basis of generally accepted accounting principles and practices in Japan, and are compiled from the consolidated financial statements, with the report of a certified public accountant, filed with the Ministry of Finance as required by the Securities and Exchange Law of Japan. Notes thereto have been summarized and rearranged for the convenience of readers outside Japan. All monetary amounts are stated in million yen units, and figures of smaller denominations are not represented. Accordingly, the sum of each account may in fact not be equal to the combined sum of the individual items. The Bank maintains its records and prepares its financial statements in Japanese yen. U.S. dollar amounts are solely for convenience and should not be construed to represent the actual value in Japanese yen that have been or could have been converted to U.S. dollars. The rate used for the U.S. dollar amounts in the accompanying financial statements is Y 12 5.3 5 to $ 1.00, the rate of exchange on March 31, 1988. 2. Principles of Consolidation The consolidated financial statements include the accounts of The Dai-lchi Kangyo Bank, Limited (the Bank) and 15 of its subsidiaries, including Dai-Ichi Kangyo Bank Nederland N.V. (a Dutch corporation), Dai-Ichi Kangyo Bank (Schweiz) AG (a Swiss corporation), and Chekiang First Bank Ltd. (a Hong Kong corporation), after the elimination of all significant intercompany transactions, balances, and unrealized profit. The consolidated financial statements do not include the accounts of Dai-Ichi Kangyo Trust Company of New York (a U.S. corporation) and 7 other subsidiaries, since the combined total assets, total gross revenue, and net income of these subsidiaries are not significant and would not have a material impact on the consolidated financial statements of the Bank. Investment in Dai-Ichi Kangyo Trust Company of New York and 5 other unconsolidated subsidiaries is carried out using the equity method. Investment in another 2 unconsolidated subsidiaries and 4 affiliates is carried at cost, since the effect of applying the equity method in these unconsolidated subsidiaries and affiliates is not material. Any difference between the cost of an investment in a subsidiary and the amount of underlying equity in net assets of the equity is charged or carried over to income, as the case may be, in the year in which it occurs. The financial statements of the consolidated subsidiaries, of which fiscal year -ends are principally December 31. are included in consolidation on the basis of their respective fiscal years after making appropriate adjustments for the significant transactions during the period from their year -ends to the date of the consolidated financial statements' year-end. 3. Translation of Foreign Currencies 1) The financial statements of all foreign subsidiaries and affiliates have been translated into yen at exchange rates prevailing on the date of consolidation except for their beginning balances of earned surplus, which are converted at exchange rates prevailing on the date of previous con- solidation. The differences arising from applying different exchange rates to their balances of earned surplus are stated as "Foreign Currency Translation Adjustment" in the Consolidated Statements of Earned Surplus. 2) Foreign currency accounts held by the Bank are translated into Japanese yen at the current exchange rates prevailing at the end of the fiscal year, except that certain special amounts, as approved by the Japanese regulatory authorities, are translated at the historical rates. Foreign currency accounts held by the consolidated foreign subsidiaries are translated into the currencies of the subsidiaries at the respective year-end exchange rates. 4. Income Taxes Tax effect is recorded for timing differences in recognition of certain revenue and expenses between tax and financial reporting. 5. Significant Accounting Policies of The Dai-Ichi Kangyo Bank, Limited Refer to "Notes to Non -Consolidated Financial Statements". b. Significant Accounting Policies of the Consolidated Subsidiaries Some consolidated subsidiaries apply accounting policies which may differ from the Bank's policies in certain respects, such as the straight-line method for depreciation of premises and equipment and the cost method for evaluation of securities. 7. Net Income per Share Net Income per Share for the year ended March 31, 1988 amounted to Y59.48 ($0.47), and is computed based on the weighted average number of shares outstanding during the year. 37 Report of Independent CerL.,ed Accountants 4 $ ♦ 3 a NIHON SEKIJUJISHA BLDG. ON 1-CHOME CENTURY AUDIT CORPORATION MINAT -KLI,TBA KYO10,JAP MINATO-KU, TOKYO 105, JAPAN CERTIFIED PUBLIC ACCOUNTANTS TEL. (03) 578-1920 FAX. (03) 578-1934 To the Board of Directors of The Dai-Ichi Kangyo Bank, Limited We have examined the Consolidated Balance Sheets of The Dai-Ichi Kangyo Bank, Limited and subsidiaries, as of March 31, 1988. and the related Consolidated Statements of Income and Consolidated Statements of Earned Surplus for the year then ended, expressed in Japanese yen. Our examinations were made in accordance with generally accepted auditing standards in Japan, and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. In our opinion, the Consolidated Financial Statements referred to above present fairly the consolidated financial position of The Dai-Ichi Kangyo Bank, Limited, and subsidiaries as of March 31, 1988 and the consolidated results of its operations for the year then ended, in conformity with accounting principles generally accepted in Japan. The amounts expressed in U.S. dollars have been translated on the basis set out in Note 1 of the Notes to the Consolidated Financial Statements. Tokyo, July 28, 1988 6*-� 38 Board of Directors As of lune ?9. 1988 Chairman, Ichiro Nakamura President, Kuniji Miyazaki Deputy Presidents, (standing from left) Hiroshi Arai, Chuichi Numata, (seated from left) Yoshiteru Murakami, Koji Takahashi CHAIRMAN Ichiro Nakamura PRESIDENT Kuniji Miyazaki DEPUTY PRESIDENTS Koji Takahashi Yoshiteru Murakami Hiroshi Arai Chuichi Numata SENIOR MANAGING DIRECTORS Tokuichi Kitajima Kiyotaka Kano Yuko Oana Takeshi Ikeda Senior Managing Directors, (standing from left) Yuko Oana. Takeshi Ikeda, (seated from left) Tokuichi Kitajima, Kiyotaka Kano MANAGING DIRECTORS Yutaka Hayashi Masahiro limori Naoyuki Ohata Senji Adachi Tadashi Okuda Eiji Akiyama Takehiko Kiuchi Yoichiro Kato Itsuo Murakami Shin-ichi Hirai DIRECTORS Tetsuo Fujimori former chairman Nobuya Hagura former president Toshiichi Hashimoto Kenji Fujinuma Akira Kanazawa Hirohisa Matsudaira Yuzuru Abe Tohru Fujino Hiromichi Matsuka Yukiji Horie Yutaka Kawada Shigeki Takakuwa Sokichi Kurosawa Yasushi Sakamoto Koji Iriyama Hisao Kobayashi Masakuni Nishiyama Noriyuki Yamaga AUDITORS Kunio Hara Masayasu Sugimoto Fumio Nakano Hisashi Sasaki 39 Organization Chart As of luly 31. 1988 Secretariat Planning Headquarters Corporate Planning Div. Public Relations Office Affiliated Companies Office Accounting Div. Market Research & Planning Div. LLoan Operations Center Corporate Credit Planning Div. LIndustry Research Office National Banking Headquariers Planning & Coordination Div. Branch Planning Office Customer Relations Office Consumer Investment Advisory Office Credit Supervision Div. I Credit Supervision Div. II LCollection & Legal Office Branch Administration Div. Branch Administration Div. II Branch Administration Div. lil Branch Administration Div. IV Branch Administration Div. V Branch Administration Div. VI SHAREHOLDERS' MEETING i AUDITORS BOARD OF DIRECTORS I EXECUTIVE COMMITTEE Chairman President Deputy Presidents Senior Managing Directors Managing Directors Corporate Banking Headquarters Corporate Banking Coordination Div. Corporate Credit Supervision Div. I Corporate Credit Supervision Div. II Corporate Banking Div. I Corporate Banking Div. ll Corporate Banking Div. III Corporate Banking Div. IV Corporate Banking Div. V Corporate Banking Div, VI Corporate Banking Div. V11 Public Institutions xBusiness Div. Business Operations Diva International Banking Headquarters International Planning & Coordination Div. International Finance Div. International Credit Supervision Diva international Systems & Operations Div. Systems,Planning Office Tokyo Foreign Operations Center Osaka Foreign Operations Center Americas Div. Europe. Africa & Middle East Div. Asia & Oceania Div. China Office 40 -Domestic Branches Financial & Public Inst-tutrons DIY. Capital Business Systems b Markets Information Operations General Affairs Headquarters Headquarters Headquarters' Div Sys:ems & Sevrities MY. Business information Div. Op.ro w's Bank Premises Div. Planniig Div Inveumenr b Market Sjoness [oyorare 9-61c OP -rations personnel Div. I Div. A&7Wy Me Administration Div. frfmnafi0n d Treasury Div. C0"VrK Mcaeioe PUft*q Me >6ayo Opnaoons taster Personnel Div R eorgorate psara Lpera s Finance Div. eemv PAY GYrxe Rrib ar L7orraas iRleakh cow eawae xs Me Systems Development Economic & Legal b Administation Div. Re:seamh Div. Inspection Div. 4tirxas rA'arKhes DYeese�ss �on»� [1Asrr EDP aePceaa omxar me RexresYntame CYfcas lottery Div. SuFxdtarfes Osata Admfnisliation Office 41 Organization Chart of the I4,�rnational Banking, Capital Ma'..'!ts, and Business information Headquarters .taeel Ad, rN jww International Koji Takahashi Sanking Dw&V PAer &v 6 Newl of die HedsA„srrs+s Semi Adachi Headquarters ✓W+'t %V Duemy 6 Aw Head a air Hea kiwaers International Senii Adachi Planning S Coordination At rwr'Q A"`mr 6 rAlwat Awuatr Taro Yamagata Division Dewy Geerral Asarow International Finance Mitsuo Hamamota Gerwal Abram • Division International Itsuo Murakami Credit Supervision Asar agwq antra 6 C~al "ana r . Division International Eiji Sakurai Systems & Operations General Abram Shunzo Tsunokawa Division a:pary Cereal Uarwer Theo Yamagam Americas General hun cer Division Kazuo M eda Deputy Cereal Maru6- Europe. Africa & Hidetaka Nakalima Middle East C.erwal Aw%gw Nobuyoshi Sato Division Feperty General ManAr"r Takashi Ando Asia G Oceanla GeneralMaveer Division Yasuhisa Kubomura wry Geese Awsasyer Administration 6 Coordination Group Se+$ qoh. Assrstant Gerwt Manam Planning Group Takasuke Kaneko. Au swc General Awam General Affairs Group Taro Yamagata. Dewy General manam Finance Group Kenji Nakamura. etssesrxY General A1aryQer Project Finance Group Susumu Miyasaka_ AsVRM Cenral Awwv" Tadaomi Unarm. Lan &vffvtsor Michio Ueda. Loan Sir Masanod Eb*wa. Lana 6Aervesor Toshio Motohashi. Loan-emxftsar Operations Planning Group Akira InaZaki. ASFmart General Aearuter Operations Administration Group Shusei Ohnishi. Ass.sraet Corral maragw Systems Planning Office Kiyoshi Takagi. Head or the Crrx+e Tokyo Foreign Operations Center Akio Ohoka. Oww A &%wr Osaka Foreign Operations Center Minoru Sasaki. Owf Awsftw China Office Yoshiharu Suga Head or err 03ne 42 Capltal Kiyotaka Kano Markets `` r" ma-wrt Pmcror 6 !seed of the Headqurrcn Yokhiro Kato Headquarters MaWnir mernx 6 kw Head of the wa*r aim Hits MKhi mw.suka Securities o7R'cwr 6 Genera' M&wvr Division VUlaka Monsugl DepwY Gerwal AimWer Planning Group Koji Kanda. Asssram General mawm Investment Group Chikakazu Ishimfzu- AS09wr Gowal Manru• International Investmert Group Ak.hide Sato. As Www Cereraf Ma•wyrr Capital Markets Group hlasato Tsutsul. Assrstrr Gererai Manager Imernational Capital Markets Croup Tonami Hirayama. Asshran Ceneraf auna,w f+ITT Bonds Group Hirokazu Murai. Anrsrrr General MsnaQer L Custodian Group Shinichi ishizuka. Assstrt cerwar mwikrr Market Business Group HKauai Yuichi Kaneko. Assrsrrr General Maier Marketrket Business C,e,ffWSI � A~. Division Toyohiko Yamashita Drp,XYC—Ar Wraaer SecuritiesAd anon Croup SusumuuSakaguchi.uehi. Assrsrrr GeraYal Mrtaoer Fund Operations Group Shineo Takushima. Asstmw General Manager International Planning Group Tohru Fuiino Hann Ishimani. Asrarrr Ci rraf A"-,ftw Treasury Dwecror 6 Cehe.af Manager Division Toshiji Tokina International Funds 6 Fore% Group Deputy Cene al Al.AWf Hirotuml Tanaka. Asswitir General iitrrrper Administration Group Hiroshi Sasaki. Asvoane General Afawl?w Business Kiy+otaka Kano Inforrnatbn Seftx MaW `Dwe" 6 Herd of tle Headpuurres r Headquarters Business Information Coordination Croup Tadaaki Shimo. Aww&V GexralMru�rr Business Osamu Utabw Regional Development 6 Coordination Group Information Akira Knam"e" Akita i'agami KMji Hirashima. Asfesrrr Cerenlaunyer Division Depnny Crneral asaysir Electronic Banking Service Group Kenwke Yamamoto. Asssran Cerwal+wwyer Investment 6 Corporate Strategic Advisory Office Hidenon Wakamoto. Head of ear cteim Information 6 Communication Planning Office Kensuke Yamamoto. Head of the CiFcr Corporate Osamu Ikhiyat•u Corporate Finance Group finance Ceveral Manager Tkuneo Yanagida. Atswmv Ceneral Mw6% r Division 43 International Network As of July 31, 1988 Branches and Agencies NEW YORK One World Trade Center, Suite 4911, New York, New York 10048, U.S.A. Tel. 212-466-5200 Telex ITT 420720. 422 58 1, RCA 232988 Fax 212-524-0579 TOSHIICHI HASHIMOTO Director & General Manager KUNIMOTO KOJIMA, Senior Vice President & loin[ General Manager TAIRA HOSAKA, Senior Vice President & Joint General Manager TAK.ATSUGU .MURAI Senior Vice President & loint General Manager LOS ANGELES 770 Wilshire Boulevard, Los Angeles, California 90017, U.S.A. Tel. 213-612-6400 Telex 67-4516 (DKB LSA) Fax 213-624-5258 MASAHIRO SHIMIZU, General Manager & Agent NOBUHIRO MORI loirt General Manager CHICAGO Mid -Continental Plaza, I I I South Wabash Avenue, Chicago, Illinois 60603, U.S.A. Tel. 312-782-5400Telex 25-4515 (DKB CHGO) Fax 312-372-0592 TOSHIO TAKAHASHI, General Manager YOSHIRO.AOKI. joint General ,Manager ATLANTA Marquis Two Tower, Suite 2400, 285 Peachtree Center Avenue, N.E. Atlanta, Georgia 30303, U.S.A. Tel. 404-581-0200 Telex 544173 (DKB ATL) Fax 404-581-9657 MASAAKI SUZUKI, General Manager SHINJI KATO Joint General Manager PANAMA Plaza International, Via Espan6, P.O. Box 2637. Panama 9A. Republic of Panama Tel. 507-69-61 l 1 Telex TRT (From USA) 328-2030 (DKB PA), (Others) 377-2030 (DKB PA), INTEL (From USA) 368-2372 (DKB PG), (Others) 379-2372 (DKB PG) Fax 507-69-681 5 SETSUZO FUKUZAW.A General Manager LONDON 122 Leadenhall Street, London, EC3V 4PA, England Tel. 01-283-0929 Telex 884042 (DKB LDN), 885521 (DKB LDN) Fax 44-1-626-2800 HIROHISA M.ATSUDAIRA Director & General Manager MINORU HATAKENAK.A. Joint General Manager TAKESHI TANIMURA Joint General Manager WATARU AKIHAMA. Joint General ,Manager DUSSELDORF Konigsallee 60 D. 4000 Dusseldorf 1, F.R. Germany Tel. 021 1-13020 Telex 8588149 (DKB D) Fax 49-211-324935 TO.M011 :MATSUMURA, General Manager DR FRANZ PAUL HECKCHEN, General Manager KENICHI OKANO, joint General :Manager MUNCHEN Prielmayerstrasse 1, 8000 Munchen 2, F.R. Germany Tel. 49-89-597534 Telex 5216346 (DKBMD) Fax 49-89-596054 OS.AMU KONDO Branch Manager PARIS 49/53 Avenue des Champs-Elysees, 75008 Paris, France Tel. 33-1-45630880 Telex 695595 (DKBPR) Fax 33-1-45619392 AMO IW'ASAKI General Manager TOMOHISA NIIMI Joint General Manager TAIPEI No. 137 Sec. 2 Nanking East Road, Taipei Taiwan Tel. 506-4371 Telex 1 1220 (DKB) Fax 886-2-507-4388 MAS.AII TAMURA, General Marager YOSHINOBU OYAN.AGI Icint General ,Marager KATSI_IYOSHI SAITO Joint General Vacaker SHI CHURN CHOU_ hint General ,Manager SEOUL Nae Wei Bldg, 6, 2-ka, Eulji-ro, Chung-ku, Seoul, Republic of Korea Tel. 756-8181 Telex K27387 Fax 822-754-6844 KOJI KOBAYASHI Gene al Manager YASUHIRA H,AGIW.AR.A. Joint General Manager SINGAPORE I Raffles Place. # 47-00 OUB Centre, Singapore 0104 Tel. 5332626 Telex RS 2 162 2 (DKB SP) Fax 65-5332190 SHOUHEI T.AKADA General Manager TOSHIKAZU MAEDA lo'mt General Manager ATSUSHIKOBAYASHI jolntGeneral Manager HONG KONG 31 st Floor, Gloucester Tower, 1 l Pedder Street, Central, Hong Kong Tel. 5-266591 Telex 60489 (HK DKB) Fax 852-5-868-1421,852-5-810-1326 H DEO KITAHARA, General Manager YASUO ISHII Ioint General Manager KOiCHI HANAWA. lo'.nt General Manage KUN'IHIKOOKABE iointGeneralManager CAYMAN P.O. Box 92, Grand Cayman Island, British West Indies TOSHIICHI HASH;,MOTO ')trector & General Manager 44 Representative Offices HOUSTON First City Tower, Suite 3860, 1001 Fannin, Houston. Texas 77002. U.S.A. Tel. 713-654-5055 Telex 910-240-51 50 (DKB HOU) Fax 713-654-1667 MITSUO MUROTANI Chie.` Representative SAN FRANCISCO Suite 2775, 101 California Street. San Francisco, California 941 11. U.S.A. Tel. 41 5-788-8448 Telex 4497193 (DKB SF) Fax 41 5-788-7868 AKIHIKO YAMASHITA, Chief Represertative TORONTO P.O. Box 295, Suite 3740, Commerce Court West, Toronto, Ontario, Canada M5L 1 H9 Tel. 416-362-2544 Telex 06-22404 (DKB TOR) Fax 416-365-7314 SHUNICHI CHIBA Representat've SAO PAULO Avenida Paulista, 12 74-110 andar, Cep. 01 311 Vista -Sao Paulo, S.P. Brasil Tel. 011-283-4441, 251-4003, Telex 01 1-24856 (DKB BR) Fax 55-1 1-251-4247 SHIGERU KUBOTA Chief Representatve MEXICO CITY Campos Eliseos No. 345-12, Col. Chapultepec Polanco, 11560 Mexico, D.F. Mexico Tel. 202-2100, 202-2173 Telex 017-62455 (DKB MME) Fax 525-202-2069 YOSHIHIRO KIKUCHI Chief Rep,e-entatve CARACAS Edificio Cavendes, Piso 6, Oficina 603, Avenida Francisco de Miranda. Los Palos Grandes, Caracas, Apartado del Este 68730 Venezuela Tel. 284-0055, 284-0244, 284-0489 Telex 23 54 5 (DKB VC) Fax 58-2-283-9942 HIDED ITOH Chief Representatce BUENOS AIRES Reconquista 1048, 911 piso, Buenos Aires, Argentina Tel 312-1150, 312-1111 Telex 23235 (DKBBA AR) Fax 54-1-1 1-1533 HARUKI ORITA Chief Representa:.ce FRANKFURT City-Haus. Friedrich-Ebert-Anlage 2-14, D-6000 Frankfurt am Main 1, F.R. Germany Tel. 069-752001 Telex 416377 (DKB D) Fax 49-69-752249 H'.RO%IICHISATO Chef Reoresertatve MADRID Paseo de la Castellana 42-4, 28046 Madrid, Spain Tel. 276-74-05/06 Telex 46883 (DKB ME) Fax 341-276-0754 KIYOSHI YAMAGUCHI. C'. of Recresentative STOCKHOLM Location Address: Vasagatan 3, 7TR. S-10127 Stockholm, Sweden Mailing Address: Box 134, S-10121 Stockholm, Sweden Tel. 08-231865 Telex 16834 (DKB S) Fax 46-8-200382 TADA,NOBU HIRAYAMA Chief Reoresentative MILANO Corso Vittorio Emanuele 24, 20122 Mi'ano MI, Italia Tel.02-7933291794601 Telex 353095 (DKBMIL 1) Fax 39-2-783221 SEIICHI TAKAHASHI. Chie` Recreseotative BAHRAIN Location Address: 6th Floor, Part 3, Manama Centre, Manama, State of Bahrain Mailing Address: P.O. Box 26891, Manama. State of Bahrain Tel. 2 5984 5, 2 5093 7 Telex 9419 (DKB BAH) Fax 973-230187 SUSUMU NITADORI, Chief Representat've JAKARTA I Ith Floor, Skyline Building, )I. M.H.. Thamrin No. 9, Jakarta, Indonesia Tel. 327018, 327333 Telex 61231 (DKBIKT IA) Fax 62-21-327031 SHINICHI SHIBATA, Chief Representative KUALA LUMPUR 5th Floor, Mui Plaza. lalan P. Ramlee. P.O. Box 12613, 50784 Kuala Lumpur. Malaysia Tel. 03-24 15635. 2415734 Telex MA32147 (DKB KL) Fax 60-3-2422760 HIROSHI KIKUCHI, Chief Representative BANGKOK 5th Floor, Thai Farmers Bank Bldg., 142 Silom Road, Bangkok 10 500, Thailand Tel. 236-6885/7094 (Direct), 234-70501Ext. 355/757) Telex 82551 (DKB TH) Fax 66-2-236-6884 FUbtiAKI IKENORI, Chief Representative BOMBAY 113, Maker Chambers VI. 1 Ith Floor, 220, Nariman Point, Bombay-400 021, India Tel. 2047029, 2046994, 2870320, 2870321 Telex 1 1-5486 (MCC IN) Fax 91-22-2049163 KUNIO KAWAMURA. Chief Repre entative 45 M BEIJING 11-2 CIT1C Building. 19 lianguo Menwai Dajie. Eeijing. People's Republic of China Tat. 500.1088. 500-4916 Telex 22913 IDKBBI CN) Fax 861-500.4916 K J%:HIKO M ITOBA Chef Repee%"jr e SHANGHAI Foom No. 1401. Ruijin Building. 205 Mao Acing Nan-Lu. Shanghai. People's Republic of China T_I. 374095 Telex 33302 IDKBSH CN) Fax 862-336329 H 20Y m TAMEDA, Cie! ReVe tat re CUANGZHOU Room No. 2560. Dong Fang Hotel. Liu Hua Lu 1 Hae. Guangzhou. People's Republic of China Tel. 669.900 (Ext. 2560). 677-184 (Direct) Telex 44588 (DCBGZ CNI Fax 8620-677.184 WX31I YtYi, NO OW1 Repr W-tame DALJAN Room 2061208. Dalian Hotel. 7 Zhongshan Square. Dalian. People's Republic of China T!I.239203 (Direct). 233111 (Ext. 206, 2081 Telex 86416 (DKBDL CN) Fax 86-411-809300 M %UO AK'J SU. Clef Revewur.m SYDNEY Level 30 State Bank Centre. 52 Martin Place. Sidney N.S.W. 2000. Australia Tel. 221-3677 Telex 24253 IDKB AAl Fax 61-2.235.1263 Hl WAM IS. L OW. RePVwFA%e MELBOURNE I Sth F)ocr. I Collins Street. Melbourne. Victoria 3000. Australia Tel. 61.3-654-7899 Telex AA34857 IDKBMELI Fax 61-3-650-1748 S INII %AKA0 0%e RePm W;ve Subsidiaries NEW YORK Dal-Ichi Kangyo Trust Company of New York One World 'trade Center. Suite 5031 New York. New York 10048. U.S.A. Tel. 212-466.6640 Telex ITT 420720. 422 58 1. RCA 232988.12-6976.6862 Fax 212-912-1039 TOSHNHI HASHNMO. Chaimw d dv kart 6lkesdert LOS ANGELES Dai-Ichi Kangyo Bank of Cali`omia 770 Wilshire Boulevard. Los Angeles. California 90017. U.S.A. Tel. 213-612-6400Telex 67-42391DAIKAN LSA1 Fax 213.624-5258 MkW. .:R0SHIMIZU[barmy.Offt3::-d&71e .t K11,01 KALAE Senor Ezw& a YKe Pendent YOSHIH:RO HAYASH:. Exec. w YKe I-esde-t San lose Office: 190 Park Center Plaza. San lase. Cali'ornia 95113. U.S.A. Tel. 408-287.5282 Fax A08 57.3499 YUZO SHSALL ermxh Maram Torrance Office- 21525 liaaftme Blvd Tor-atice. California 90503. U.S.A. Tel. 213.540.7554 Fax 213.315-0431 1611CHIO YAMADA- Owd Mmagr San Diego Office: 301 A Street. San Diego. Cal fcxnia 92 tO1. U.S-A. Tel. 619.233.8015 Fax 619.231.9540 LARL SISLARZ Brand) Mrar TORONTO Dai-Ichi Kangyo Bank (Canada) P.O. Box 295. Suite 3740. Commerce Court West. Toronto. Ontario. Canada M5L 1 H9 Tel. 416-365-9666 Telex 06-22404.06.218874 IDKB TOR) Fax 416.365-7314 H:ROKAZU ICH:KAW-k Residr+t SHICERU HA%AOKA. EmAve YKe 1Y�, Vamouver Branch: Suite 2774-Four Bentall Centre. P.O. Box 49326. 1055 Dunsmuir Street. Vancot:ver. British Columbia. Canada V7X I L4 Tel. 604.684.6522 Telex 0453108 IDKBC VCR) Fax 604.684.4954 M NMERU MlUitk Gv*W M~- LONDON DKB International Limited Garden House. 18 Finsbury Circus. London. EC2M 713P. England Tel. 01-920-0181 Telex 932931 (DKINTL G) Fax 44-1-628-7259 TAKEO SOAK LWWN Dmv YUTALA HORICUCHI Deputy Mr ; Deettar HARUHIKO A0YX%t k D" Mrag7-j Dr eear DKB Investment Management Intemational Limited Garden House. 19 Finsbury C)'cus. London. EC2M 71313. England Tel.01.638.9433 IDirect).01-920-0181(General) Telex 944444 (DKB1\111 GI Fax 01-628-7259 HIDEO MK9010_ M"r4 D MnDr AMSTERDAM Dai-Ichi Kangyo Bank Nederland N.V. Singel 540. 1017 AZ Amsterdam. The Netherlands Tel. 020-523 f 200 Telex 15717 IDKB NLl Fax 31-20.260974 SEIKNI IAICAHA3A Cre-al \1raip 15=7m U. Depa1 re-Wal xwam ZURICH Dai-Ichi Kangyo Bank ISCHWEIZi AG LBwenstrasse 32. CH-8023 Zurich. Switzerland Tel_ 01.216-91 11 Telex 813886 IDKB CHI Fax 411-216-9322 M MiTOSHI YODA CA-eil .VW21er KAZW YIOWL%E- Drxes U-,rat %Unht-. LUXEMBOURG Dai-Ichi Kangyo Bank (LUXEAIBOURG) S.A. 9. Boulevard F.D. Roosevelt. P.O. Box 43. L-2450 Luxembourg Tel. 47571 I Telex 60534 (DKB LUI Fax 352.475717 LATSMHISA COTO Meati,j D n1Kmr KEU MUM1010 De, xS Ce-ral Mra.-r HONG KONG DKB Asia Limited 31 st Floor. Gloucester Tower. 11 Pedder Street. Central, Hong Kong Tel. 5-266591 Telex 65941 IDKF HKI Fax 852-5-868.1421 HIDEO KITAHAR,A. Ma-ag-q D-ecme WIJYUKI OKUB,I. Dv= & Crral Mrage- Chekiang First Bank Ltd. 60 Gloucester Road. Hong Kong Tel. 5-8236400 Telex 73686 [First HXI Fax 001.852.5.823-6456 ZIA-%C"E.-4 KU\ : CW-mr. 5 C kRf Maragr TAIaw OHYA DrftV s DrM O d Mra e• MUM Wk%r, D m w 6 Drxq Q+x? %Wagr SINGAPORE DKB Futures (Singapore) Pte Ltd I Raffles Place. * 47-00 OUS Centre. Singapore 0I04 Tel. 5332626 SHWHEI TAKADA Mrag-f D-ew T0SH:KAr'JMAEJA D" mr SYDNEY Dai-Ichi Kangyo Australia Limited Level 30. State Bank Centre, 52 Martin Place. Sydney N.S.W. 2000. Australia Tel. 23 3.8400 Telex 24 546 (DKAUST AA24 546i Fax 61-2-235-1263 KhIUYA hOGU01. Mraa' K Wetmr TOSHIHIKO KAI- DeM 1urai-i Drecme Afflllated and Assoclated Corn panles SAO PAULO UNIBANCO-Banco de Investimento do Brasil S.A. Av. EuzL&bio Alatoso. 891-220 andar. Sdo Paulo. Brasil Tel. 011-817-4322 Telex 011-36803. Oil-36804. 011.36805 SHK.ERU KUBM QreRrvo CongAl o LONDON Associated lapanese Bank Ilniemationall Ltd. 29/30Comhill. London. EC3V 3ND. England Tel, 01-623-5661 Telex 883661. 983662. 291036 Fax 44-1-626.1618 TAKEO M1RA Ma 4C-; Drectx 46 Domestic Network 1, of luir 3i !4,' European Brazilian Bank Ltd. Bucklersbury House, I 1 Walbrook, London, EC4N 8HP, England Tel. 01-2 36-1066 International Mexican Bank Ltd. 29 Gresham Street. London, EC2V 7ES, England Tel. 01-600-0880 Telex 881017 INTMEX BANGKOK Thai Investment & Securities Co., Ltd. 9th Floor, Boonmitr Bldg., 138 Silom Road, Bangkok 10 500 Metropolis, Thailand Tel. 236-2320, 236-6885 Telex 82551 (DKB TH) Fax 66-2-236-6884 FUMI.AKI IKENORI, Director SINGAPORE Asian -American Merchant Bank Ltd. 2704-2706 Clifford Centre, 24 Raffles Place, Singapore 0104 Tel. 913433 Telex RS21894 (AAMBNK) KUALA LUMPUR Aseambankers Malaysia Berhad 15th Floor, Oriental Plaza. lalan Parry, P.O. Box 1057, Kuala Lumpur 01-02, Malaysia Tel. 482044 Telex 30367 (ASEAMBMA) IAKARTA P.T. Aseam Indonesia 16th Floor, Bank Bumi Daya Plaza, lalan Imam Bonjol 61, Jakarta Pusat, Indonesia Tel. 21-321932 Telex 61483 (ASEAMIA) Fax 62-21-336861 EIICHI ASAI Manager P.T. Panin DKB Oceanic Leasing 6th Floor, Panin Bank Centre, 11. lendral Sudirman (Senayan), Jakarta 10270, Indonesia Tel. 62-21-710261 Telex 48470 (PTPOL IA) Fax 62-21-7200337 TOSHIO SANG, Director & Deputy Chief Operating Officer BRUNEI The International Bank of Brunei, Berhad LOT 155, lalan Roberts, P.O. Box 2725, Bandar Seri Begawan, Negara Brunei Darussalam Tel. 2-20686, 2-20676 Telex 2320 (IBB BU), 2370 (IBB BU) Fax673-2-2 1470 KIYOTAKA EGUCHI, Director TAKASHI SHIOTSUBO, Manager Others HONOLULU First Hawaiian Bank International Banking Division 165 South King Street, Room 1209, Honolulu. Hawaii 96813, U.S.A. Tel. 808-525-6237 Telex RCA (723) 8321 IKUO YOSHIDA MANILA Asian Development Bank 2330 Roxas Boulevard, Pasay City, Metro Manila, Philippines Tel. 71 1-3851 (Int'l). 834-3218 (Dom) KAtiII OB.ANA Country Officer Head Office: 1-5, Uchisaiwaicho I-chome Chiyoda-ku, Tokyo 100 Tel. 03-596-1 1 11 Cable Address: BANKDAIKAN Telex 122379, J22315 Answer -back Code: DKB Osaka Branch: 1 Okawacho Higashi-ku, Osaka 541 Tel. 06-202-1 1 51 Cable Address: BANKDAIKAN Telex 163366, 163254 Answer -back Code: DKB Nagoya Branch: 19-24, Nishiki 1-chome Naka-ku, Nagoya 460 Tel. 052-201-2371 Cable Address: BANKDAIKAN Kobe Branch: 6-1, Sakaemachi-dori 3-chome Chuo-ku, Kobe 650 Tel. 078-331-7001 Cable Address: BANKDAIKAN Yokohama Branch: 33, Honcho 3-chome Naka-ku, Yokohama 231 Tel. 04 5-21 1-2101 Cable Address: BANKDAIKAN 47 Sankin-Kai DKB is the principal financial institution in an informal grouping of leading Japanese corporations known as the Sankin-Kai. Members of this group, which is the largest group of its kind in Japan, meet regularly to discuss approaches to common issues. Sankir.-Kai members, including DKB. conduct business freely with companies belonging to other corporate groups, but business and capita' relationships tend to be especially close with fellow members of the Sankin-Kai. Sankin-Kai Members As of July 11. #9M Commerce, Transportation C. Itoh S Co.. Ltd. Kanematsu-Gosho Ltd. Kawasaki Kisen Kaisha, Ltd. Kawasho Corporation Nippon Express Co.. Ltd. Nissho lwai Corporation The Seibu Department Stores, Ltd. The Shibusawa Warehouse Co.- Ltd Construction Shimizu Construction Co.. Ltd. Cosmetics, Pharmaceuticals Lion Corporation Sankyo Co., Ltd. Shiseido Co.. Ltd. Electric Machinery Fuji Electric Co., Ltd. Fujitsu Limited Hitachi, Ltd. Nippon Columbia Co.. Ltd. Yaskawa Electric Mfg. Co., Ltd. Insurance Asahi Mutual Life Insurance Company Fukoku Mutual Life Insurance Company The Nissan Fire & Mar:re Insurance Co.. Ltd. The Taisei Fire and Marine Insurance Company. Limited Iron and Steel. Nonferrous Metals, Metal Products Furukawa Co.. Ltd. The Furukawa Electric Co.. Ltd. Japan Metals b Chemicals Co.. Ltd. Kawasaki Steel Corporation Kobe Steel. Ltd. Nippon Light Metal Company. Ltd. Machinery, Transportation Equipment. Precision Instruments. Other Manufacturers Asahi Optical Co.. Ltd. Ebara Corporation Iseki & Co., Ltd. Ishikawajima-Harima Heavy Industries Co.. Ltd. Isuzu Motors Limited Kawasaki Heavy Industries. Ltd. Niigata Engineering Co.. Ltd. Petroleum, Chemicals. Rubber, Ceramics Asahi Denka Kogyo K.K. Chichibu Cement Co., Ltd. Denki Kagaku Kogyo Kabushiki Kaisha Kyowa Hakko Kogyo Co.. Ltd. Nippon Zeon Co.. Ltd. Showa Shell Sekiyu K.K. The Yokohama Rubber Company. Ltd. Services Korakuen Co.. Ltd. The Nippon Kangyo Kakumaru Securities Co., Ltd. Orient Finance Co.. Ltd. Textile. Paper and Pulp Asahi Chemical Industry Co., Ltd. Honshu Paper Co., Ltd. The Dal-lchi Kangyo Bank, Limited 43 'D G k • C�6Ie.Add ess„RANI IAA (A ' b rrn a�xtA�tt7a xPaie�-in Capital .. N}. a rl y:w fy i"kt�,i 12" p�k l 4F '� iLll�,4� i Y{ tan Y 4 tjij7777 CJ. y q T`r za�y1�) x �zEaa[ rnvestrne fi, ,�� Shan es of Crnont©c3e Issued arrd utstandrrrg . 'card business 7 , 2 619;rJ74;4 t 6 `r t.card b l nee r Y " , `` r .� - ! a q i5,j A y >' �as xy • �) NV1rTi it CIf Sil reh rs: ...t tment mana� ernent ;' g 4 2 56 iris iaan guarantee seruices Nuof > mp oyeas nation management ^ � � �. 1 g � G g-ment cansultizg M� Secrrties Traded_;; 3atr software and dat .L } fir= �akyoStock Fxchaneand;othcrrr7apor y nsfe er,t ar�iei'trar , iai Ichi.'Kangyo a,pk i �rnited Century Adit#Corporatidr3 641• +�' .Sri R , ;. x x f ..�L P; t t r �+ r gur L f �w•C�� 1''ie l,S ;� u'k A�, 'd'•'� ,l�_'1cxYY•fi•- d�q}� Printed in Japan --• 16�c= i;c"r'Wi= r:;,�Ts_.Ei. L.A. r.c Kaser'M r tnnAssociatcsI c. [::ha-C f.. F�o:;i ?�:r?S�•u:h Gr..r;;i .��..r.�,c.S4: c 1�� CtWn E. It Ut ii LosArrrlcs.t'JSir:n.s v01 1 SAN D.LGO 6[9 +ss.•03R' SA.N rR wCr)CO 415A0-305J Tiro;hy C. KeRy, A. Jerry Keyser Kati E4 Funk Von I it2!rr m \f ch3el Co:::on Den.'sc F. Cor.1%;y March 7, 1989 Mr. Douglas La Belie Director of Economic Development City of Huntington Beach. 2000 Main Street Huntington Beach, California 92648 Dear Doug: In accordance with your request, Keyser Marston Associates, inc. WMA) reviewed the proposed loan, ccmnitnent provided by Dai-Ichi Kan yo Bank, Ltd. (DKB) for the Waterfront Hilton Hotel. It is our understanding that the Disposition and Development Agreement between the Robert Mayer Corporation (RLM) and the Huntington Beach Redevelopment Agency gives the Age :cy approval rights over the prospective project's mortgage based on an analysis of the lender's financial ability to provide the committed funds. Our review of the documents submitted by RLM indicates that the lender has agreed to fund a construction loan based on approved costs, with a take-out loan based on a maximum of 75% of the ap- praised project value, up to $55 million. The construction loan i_ to be applied for a maximum of 2 years, at which time it will be replaced with a take-out loan with a five year term. Giver_ the currently estimated costs for the proposed hotel, $55 Trillion represents sufficient funding to allow for the construction ox the hotel at the quality level required by the DDA. Moreover, a review of the DKB financial statements indicates that the institu- tion is the largest bark in the world in terms of total assets and total deposits, with over $371 billion in assets and $277 billion in deposits. Therefore, it is our opinion that DKB has sufficient resources to fund the loan for the Waterfront Hilton Hotel. Yours very truly, KEYSER MARSTON ASSOCIOTES, INC. Kathleen H. �� _ Q-2:11�5[xii�ral��l�r�.' •'Rr��!'.trrl;nn�rrv,�