Draft of 8/14/98
As Filed With the Securities And Exchange Commission on ________________, 1998
Registration No. -_________________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
COMMUNITY WEST BANCSHARES
(Exact Name of Registrant as Specified in its Charter)
------------------------
California ----------6712---------- 77-0446957
(State or Other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation Industrial Classification Identification Number)
or Organization) Code Number)
5638 Hollister Avenue
Goleta, California 93117
(805) 692-1862
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------
C. Randy Shaffer
Executive Vice President
Community West Bancshares
5638 Hollister Avenue
Goleta, California 93117
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
With copies to:
ARTHUR COREN, Esq. KURT KICKLIGHTER, Esq.
Horgan Rosen Beckham & Coren, L.L.P. Higgs, Fletcher & Mack, LLP
21700 Oxnard St., Suite 1400 401 W. A Street, Suite 200
Woodland Hills, CA 91367 San Diego, California 92101
(818) 340-6100 (619) 236-1551
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As soon as practicable after the effective date of this Registration Statement
and the satisfaction or waiver of all other conditions to the Merger described
in the Joint Proxy Statement-Prospectus.
------------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering.
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
------------------------
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Proposed Maximum Proposed Maximum
Title of Each Class Amount To Be Offering Price Aggregate Amount of
of Securities To Be Registered Registered Per Unit Offering Price Registration Fee
- ------------------------------ ---------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Common Stock, no par value 1,200,000 shares $ 15.00 $ 9,735,000 $ 2,872
============================== ================ ================= ================= ================
<FN>
(1) Represents the estimated maximum number of shares of Common Stock, no par value, of
Community West Bancshares ("CWB Common Stock") that are issuable upon consummation of the merger of
Palomar Savings and Loan Association ("Palomar") with CWB Merger Corp, a wholly-owned subsidiary of
Community West Bancshares (the "Merger").
(2) Pursuant to Rule 457(f)(1), the registration fee is based on the average of the high and
low sales prices on August 14, 1998 of the Common Stock, no par value, of Palomar ("Palomar Common
Stock") on the over-the-counter market and computed based on the estimated maximum number of shares
of Palomar Common Stock that may be converted into shares of CWB Common Stock to be registered.
</TABLE>
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT BECOMES EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
<PAGE>
PALOMAR SAVINGS AND LOAN ASSOCIATION
_____________, 1998
Dear Palomar Shareholder:
You are cordially invited to attend a special meeting of shareholders of
Palomar Savings and Loan Association ("Palomar") to be held on____________,
1998, at :___.m., __________, Escondido, California _______ (the "Palomar
Meeting"). At such time you will be asked to consider and vote on a proposal to
approve the principal terms of a proposed merger (the "Merger") of Palomar with
CWB Merger Corp, a wholly-owned subsidiary of Community West Bancshares ("CWB"),
pursuant to an Agreement and Plan of Reorganization dated as of April 23, 1998,
by and between CWB and Palomar (the "Merger Agreement"). Upon the Merger
becoming effective, each outstanding share of common stock of Palomar (the
"Palomar Common Stock") (other than as provided in the Merger Agreement) will be
converted into the "Per Share Consideration". The Per Share Consideration is
based on a formula to be calculated just prior to the effective time of the
Merger and, as such, is subject to change until that time. However, although no
assurances can be given, if the Per Share Consideration were calculated as of
June 30, 1998 (based on unaudited financial information), each share of Palomar
Common Stock issued and outstanding as of that date would be converted into the
right to receive 1.544 shares of CWB Common Stock. For a more detailed
description of the terms and conditions of the Merger and the calculation of the
Per Share Consideration see "THE MERGER AGREEMENT" in the attached Joint Proxy
Statement-Prospectus and a copy of the Merger Agreement, which is reproduced as
Appendix A thereto. Additional information about the Merger, Palomar and CWB are
contained in the accompanying Joint Proxy Statement-Prospectus and the
appendices thereto, all of which should be carefully reviewed.
THE BOARD OF DIRECTORS OF PALOMAR HAS CONCLUDED THAT THE MERGER IS IN THE
BEST INTERESTS OF PALOMAR AND THE PALOMAR SHAREHOLDERS AND UNANIMOUSLY
RECOMMENDS THAT THE PALOMAR SHAREHOLDERS VOTE "FOR" THE APPROVAL OF THE
PRINCIPAL TERMS OF THE MERGER.
It is important that your shares be represented and voted at the Palomar
Meeting regardless of the number of shares you own and whether or not you plan
to attend the Palomar Meeting. The affirmative vote of the holders of a majority
of Palomar's Common Stock entitled to vote at the Palomar Meeting is required
for approval of the principal terms of the Merger. Your failure to vote for
approval of the principal terms of the Merger has the same effect as voting
against the Merger. Therefore, we urge you to sign, date and mail the enclosed
proxy. If you decide to attend the Palomar Meeting and wish to vote in person,
you may withdraw your proxy at that time.
YOU SHOULD NOT SEND IN SHARE CERTIFICATES AT THIS TIME.
Thank you for your cooperation in this matter and we look forward to seeing
you at the Palomar Meeting.
Sincerely,
/S/ Robert A. Wedeking
-------------------------
Robert A. Wedeking,
Chairman of the Board of Directors
/S/ James M. Rady
------------------------
James M. Rady,
President and Chief Executive Officer
<PAGE>
COMMUNITY WEST BANCSHARES
_____________, 1998
Dear CWB Shareholder:
You are cordially invited to attend a special meeting of shareholders of
Community West Bancshares ("CWB") to be held on ____________, 1998, at 2:00 p.m.
at the Holiday Inn, 5650 Calle Real, Goleta, California 93117 (the "CWB
Meeting"). At such time you will be asked to consider and vote on (i) a
proposal to increase the range of directors of CWB from six (6) to eleven (11)
persons to from eight (8) to fifteen (15) persons and (ii) a proposal to approve
the principal terms of a proposed merger (the "Merger") of Palomar with CWB
Merger Corp, a wholly-owned subsidiary of Community West Bancshares, pursuant to
an Agreement and Plan of Reorganization dated as of April 23, 1998, by and
between CWB and Palomar (the "Merger Agreement"). Upon the Merger becoming
effective, each outstanding share of common stock of Palomar (the "Palomar
Common Stock") (other than as provided in the Merger Agreement) will be
converted into the "Per Share Consideration". The Per Share Consideration is
based on a formula to be calculated just prior to the effective time of the
Merger and, as such, is subject to change until that time. However, although no
assurances can be given, if the Per Share Consideration were calculated as of
June 30, 1998, each share of Palomar Common Stock issued and outstanding as of
that date would be converted into the right to receive 1.544 shares of CWB
Common Stock. For a more detailed description of the terms and conditions of
the Merger and the calculation of the Per Share Consideration see "THE MERGER
AGREEMENT" in the attached Joint Proxy Statement-Prospectus and a copy of the
Merger Agreement, which is reproduced as Appendix A thereto. Additional
information about the Merger, Palomar and CWB are contained in the accompanying
Joint Proxy Statement-Prospectus and the appendices thereto, all of which should
be carefully reviewed.
THE BOARD OF DIRECTORS OF CWB HAS CONCLUDED THAT THE MERGER IS IN THE BEST
INTERESTS OF CWB AND THE CWB SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT THE
CWB SHAREHOLDERS VOTE "FOR" THE APPROVAL OF THE PRINCIPAL TERMS OF THE MERGER.
It is important that your shares be represented and voted at the CWB
Meeting regardless of the number of shares you own and whether or not you plan
to attend the CWB Meeting. The affirmative vote of the holders of a majority of
CWB's Common Stock entitled to vote at the CWB Meeting is required for approval
of the principal terms of the Merger. Your failure to vote for approval of the
principal terms of the Merger has the same effect as voting against the Merger.
Therefore, we urge you to sign, date and mail the enclosed proxy. If you decide
to attend the CWB Meeting and wish to vote in person, you may withdraw your
proxy at that time.
Thank you for your cooperation in this matter and we look forward to seeing
you at the CWB Meetings.
Sincerely,
/S/ John D. Markel
---------------------
John D. Markel,
Chairman of the Board of Directors
/S/ Llewellyn W. Stone
-------------------------
Llewellyn W. Stone,
President and Chief Executive Officer
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OF PALOMAR SAVINGS AND LOAN ASSOCIATION
To be held __________________, ________, 1998
:.m.
-----
TO THE SHAREHOLDERS
OF PALOMAR SAVINGS AND LOAN ASSOCIATION:
NOTICE IS HEREBY GIVEN that pursuant to the Bylaws of Palomar Savings and
Loan Association ("Palomar") and the call of its Board of Directors, a Special
Meeting of Shareholders of Palomar (the "Palomar Meeting") will be held at
_______________________, Escondido, California __________, on ________________,
1998 at :.m., for the purpose of considering and voting upon the following
------
matters:
<PAGE>
1. Merger of CWB Merger Corp with Palomar. To consider and vote on a
--------------------------------------
proposal to approve the principal terms of the Agreement and Plan of
Reorganization dated as of April 23, 1998, (the "Merger Agreement), by and
between Palomar and Community West Bancshares ("CWB") whereby Palomar will
become a wholly-owned subsidiary of CWB pursuant to a merger of CWB Merger Corp
with and into Palomar and the transactions contemplated thereby. Upon
consummation of the Merger, each outstanding share of common stock of Palomar
will be converted into the right to receive the Per Share Consideration as more
particularly described in the attached Joint Proxy Statement - Prospectus and in
the Merger Agreement attached at Appendix A thereto.
2. Other Business. To transact such other business as may properly
---------------
come before the Palomar Meeting or any postponement or adjournment thereof.
The Board of Directors of Palomar has fixed the close of business on
________, 1998 as the record date for determination of the shareholders entitled
to notice of and to vote at the Palomar Meeting or any adjournment thereof.
Approval of the matters to be voted upon in connection with the Merger requires
the affirmative vote of a majority of the outstanding shares of Palomar Common
Stock.
THE BOARD OF DIRECTORS OF PALOMAR HAS CONCLUDED THAT THE MERGER IS IN THE
BEST INTERESTS OF PALOMAR AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT
YOU VOTE "FOR" THE PRINCIPAL TERMS OF THE MERGER.
Shareholders may be entitled to exercise dissenters' rights as provided in
the California General Corporation Law (the "CGCL") and to receive cash in the
amount equal to the fair market value of their shares of common stock of Palomar
as of April 22, 1998 in lieu of receiving the Per Share Consideration provided
in the Merger Agreement by complying with certain procedures specified by the
CGCL. See "THE MERGER-Dissenters' Rights" in the accompanying Joint Proxy
Statement-Prospectus.
The accompanying Joint Proxy Statement-Prospectus and the Appendices
thereto (including the Merger Agreement attached as Appendix A thereto and
certain of the Exhibits to the Merger Agreement) form a part of this Notice.
By Order of the Board of the Directors
of Palomar Savings and Loan Association
/S/ Donald M. Galyean,
-------------------------------
Donald M. Galyean,
Corporate Secretary
Dated: _____________, 1998
YOUR VOTE IS IMPORTANT. THEREFORE, WHETHER OR NOT YOU PLAN TO ATTEND THE
PALOMAR MEETING, WE URGE YOU TO DATE, SIGN AND RETURN THE ENCLOSED PROXY AS
PROMPTLY AS POSSIBLE. IF YOU ATTEND THE PALOMAR MEETING, YOU WILL BE ENTITLED TO
VOTE IN PERSON. IF YOU WISH YOU WILL BE PERMITTED TO REVOKE YOUR PROXY AT ANY
TIME PRIOR TO ITS EXERCISE AND VOTE IN PERSON AT THE MEETING. YOU SHOULD NOT
FORWARD SHARE CERTIFICATES AT THIS TIME.
<PAGE>
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OF COMMUNITY WEST BANCSHARES
To be held ___________________, ________, 1998
2:00 p.m.
TO THE SHAREHOLDERS
OF COMMUNITY WEST BANCSHARES
NOTICE IS HEREBY GIVEN that pursuant to the Bylaws of Community West
Bancshares ("CWB") and the call of its Board of Directors, a Special Meeting of
Shareholders of CWB (the "CWB Meeting") will be held at the Holiday Inn, 5650
Calle Real, Goleta, California 93117, on ________________, 1998, at 2:00 p.m.
for the purpose of considering and voting upon the following matters:
1. Merger of CWB Merger Corp with Palomar. To consider and vote on a
--------------------------------------
proposal to approve the principal terms of the Agreement and Plan of
Reorganization dated as of April 23, 1998, (the "Merger Agreement), by and
between Palomar Savings and Loan Association ("Palomar") and CWB whereby Palomar
will become a wholly-owned subsidiary of CWB pursuant to a merger of CWB Merger
Corp with and into Palomar and the transactions contemplated thereby. Upon
consummation of the Merger, each outstanding share of common stock of Palomar
will be converted into the right to receive the Per Share Consideration as more
particularly described in the attached Joint Proxy Statement - Prospectus and in
the Merger Agreement attached as Appendix A thereto.
2. Amend the Bylaws to Increase Range of Directors. To amend Section
-----------------------------------------------
3.2 of the CWB Bylaws to increase the range of directors from the current range
of from six (6) to eleven (11) members to from eight (8) to fifteen (15)
members.
3. Other Business. To transact such other business as may properly
---------------
come before the CWB Meeting or any postponement or adjournment thereof.
The Board of Directors of CWB has fixed the close of business on ________,
1998 as the record date for determination of the shareholders entitled to notice
of and to vote at the CWB Meeting or any adjournment thereof. Approval of the
matters to be voted upon in connection with the Merger requires the affirmative
vote of a majority of the outstanding shares of CWB Common Stock.
THE BOARD OF DIRECTORS OF CWB HAS CONCLUDED THAT THE MERGER IS IN THE BEST
INTERESTS OF CWB AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE
"FOR" THE PRINCIPAL TERMS OF THE MERGER AND "FOR" THE AMENDMENT OF THE BYLAWS
CHANGING THE RANGE OF DIRECTORS.
Shareholders may be entitled to exercise dissenters' rights as provided in
the California General Corporation Law (the "CGCL") and to receive cash in the
amount equal to the fair market value of their shares of common stock of CWB as
of April 22, 1998 by complying with certain procedures specified by the CGCL.
See "THE MERGER-Dissenters' Rights" in the accompanying Joint Proxy
Statement-Prospectus.
The accompanying Joint Proxy Statement-Prospectus and the Appendices
thereto (including the Merger Agreement attached as Appendix A thereto and
certain of the Exhibits to the Merger Agreement) form a part of this Notice.
By Order of the Board of the Directors
of Community West Bancshares
/S/ Michel Nellis
-------------------------------
Michel Nellis
Corporate Secretary
<PAGE>
Dated: _____________, 1998
YOUR VOTE IS IMPORTANT. THEREFORE, WHETHER OR NOT YOU PLAN TO ATTEND THE
SPECIAL MEETING, YOU SHOULD DATE, SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY
AS POSSIBLE. IF YOU ATTEND THE CWB MEETING, YOU WILL BE ENTITLED TO VOTE IN
PERSON. IF YOU WISH YOU WILL BE PERMITTED TO REVOKE YOUR PROXY AT ANY TIME PRIOR
TO ITS EXERCISE AND TO VOTE IN PERSON AT THE MEETING.
<PAGE>
JOINT PROXY STATEMENT-PROSPECTUS
COMMUNITY WEST BANCSHARES
AND
PALOMAR SAVINGS AND LOAN ASSOCIATION
This Joint Proxy Statement-Prospectus is being furnished to the
shareholders of Community West Bancshares ("CWB") and the shareholders of
Palomar Savings and Loan Association ("Palomar") in connection with the
solicitation of proxies by the Board of Directors of CWB (the "CWB Board") from
holders of outstanding shares of common stock, no par value, of CWB ("CWB Common
Stock") for use at the CWB meeting of shareholders ("CWB Meeting") to be held on
___________, 1998 and at any adjournments and postponements thereof and by the
Board of Directors of Palomar (the "Palomar Board") from holders of outstanding
shares of common stock, $4.00 par value, of Palomar ("Palomar Common Stock") for
use at the meeting of Palomar shareholders ("Palomar Meeting") to be held on
__________, 1998 and at any adjournments and postponements thereof.
At the CWB Meeting and the Palomar Meeting, the shareholders of each
institution will be asked to consider and vote upon a proposal to approve the
principal terms of the merger of Palomar and CWB Merger Corp, a wholly-owned
subsidiary of CWB, pursuant to the Merger Agreement, which is attached as
Appendix A to this Joint Proxy Statement-Prospectus and is incorporated herein
by reference. Pursuant to the Merger Agreement, CWB Merger Corp will merge with
and into Palomar, with Palomar being the surviving association (the "Surviving
Association") and operating under the name "Palomar Savings and Loan
Association." Upon the Merger becoming effective, each share of Palomar Common
Stock issued and outstanding immediately prior thereto (other than (a) shares
that have not been voted in favor of the approval of the principal terms of the
Merger and with respect to which Dissenters' Rights shall have been perfected in
accordance with the CGCL and (b) shares held directly or indirectly by CWB,
other than shares held in a fiduciary capacity or in satisfaction of a debt
previously contracted) will be converted into, subject to certain limitations
set forth in the Merger Agreement, the right to receive that number of newly
issued shares of CWB Common Stock resulting from dividing the Palomar Per Share
Value by the CWB Per Share Value. The CWB Per Share Value is equal to the
average of the "bid" and "ask" of CWB Common Stock quoted on the Nasdaq National
Market System ("Nasdaq") for the thirty trading (30) days immediately preceding
the Closing. The Palomar Per Share Value is equal to (i) the total shareholders
equity of Palomar (as determined in accordance with generally accepted
accounting principles) as of the last day of the calendar month immediately
preceding the Closing divided by the number of shares of Palomar Common Stock
issued and outstanding immediately prior to the Closing (ii) multiplied by the
factor of 2.2. Because the conversion number is not fixed pursuant to the
Merger Agreement, changes in the trading price of CWB Common Stock as well as
changes in the total shareholders equity of Palomar before the Effective Time
will affect the number of shares of CWB Common Stock to be received in the
Merger by Palomar shareholders. However, by way of example only, if the Per
Share Consideration were calculated as of June 30, 1998, each share of Palomar
Common Stock would be converted into the right to receive 1.544 shares of CWB
Common Stock. See "RISK FACTORS-Limited Market for CWB Common Stock,"
"INFORMATION REGARDING CWB" and "SUMMARY-Markets and Market Prices".
Holders of Palomar Common Stock as of the Palomar Record Date are entitled
to dissenters' rights in connection with the Merger. In order to assert
dissenters' rights Palomar Shareholders have to strictly comply with the
provisions of Chapter 13 of the California General Corporation Law ("CGCL").
See "THE MERGER-Palomar Dissenters' Rights" and a copy of Chapter 13 of the CGCL
attached hereto as Appendix B.
Holders of CWB Common Stock as of the CWB Record Date may also be entitled
to dissenters' rights in connection with the Merger if demand for payment with
respect to five percent (5%) or more of the outstanding CWB Common Stock is made
in accordance with the provisions of Chapter 13 of the CGCL. See "THE
MERGER-CWB Dissenters' Rights" and a copy of Chapter 13 of the CGCL attached
hereto as Appendix B.
1
<PAGE>
CWB Common Stock is designated for quotation on Nasdaq under the symbol
"CWBC".
SEE "RISK FACTORS" BEGINNING ON PAGE ___ FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHAREHOLDERS SHOULD CONSIDER WITH RESPECT TO THE MERGER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION, THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY
STATEMENT-PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF CWB COMMON STOCK OFFERED HEREBY ARE NOT DEPOSITS AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION. CWB AND PALOMAR DO NOT
GUARANTEE THE INVESTMENT VALUE OF THE TRANSACTION DESCRIBED IN THIS JOINT PROXY
STATEMENT-PROSPECTUS. AN INVESTMENT IN CWB COMMON STOCK MAY LOSE VALUE BEFORE OR
AFTER THE EFFECTIVE DATE OF THE MERGER.
THE DATE OF THIS JOINT PROXY STATEMENT-PROSPECTUS IS _________, 1998.
No person has been authorized to give any information or to make any
representation other than those contained in this Joint Proxy
Statement-Prospectus in connection with the solicitation of proxies or the
offering of securities made hereby, and if given or made, such information or
representation should not be relied upon as having been authorized. This Joint
Proxy Statement-Prospectus does not constitute an offer to sell, or a
solicitation of an offer to purchase, the securities offered by this Joint Proxy
Statement-Prospectus, or the solicitation of a proxy, by any person in any
jurisdiction in which such an offer or solicitation is not authorized or in
which the person making such offer or solicitation is not qualified to do so or
to any person to whom it is unlawful to make such an offer, or solicitation of
an offer, or proxy solicitation. Neither delivery of this Joint Proxy
Statement-Prospectus nor any distribution of the securities being offered
pursuant to this Joint Proxy Statement-Prospectus shall, under any
circumstances, create an implication that there has been no change in the
information set forth herein since the date of this Joint Proxy
Statement-Prospectus.
AVAILABLE INFORMATION
CWB is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). In accordance therewith, CWB files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "SEC"). Palomar is not subject to the informational
requirements of the Exchange Act but does file reports and other information
with the Office of Thrift Supervision ("OTS") and the California Department of
Financial Institutions ("DFI"). The reports and other information filed by
Palomar with the OTS may be inspected and copied at the offices of the OTS 8300
Von Karman Street, Suite 800, Irvine, California 92715. Fax Number (714)
440-3910. The reports, proxy statements and other information filed by CWB with
the SEC may be inspected and copied at the public reference facilities of the
SEC located at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the SEC's
regional offices at 7 World Trade Center, New York, New York 10048, and Citicorp
Center, 500 West Madison Street, Chicago, Illinois 60661, at prescribed rates.
Such material may also be accessed electronically by means of the SEC's home
page on the Internet at http://www.sec.gov. Shares of CWB Common Stock are
designated for quotation on the Nasdaq National Market System. Material filed
by CWB can be inspected at the offices of the National Association of Securities
Dealers, Inc., Reports Section, 1735 K Street, N.W., Washington, D.C. 20006.
CWB became a reporting company as of December 31, 1997. Prior thereto, CWB's
predecessor corporation (now its wholly-owned subsidiary) Goleta National Bank
("GNB") filed reports, proxy statements, and other information with the Office
of the Comptroller of the Currency (the "OCC"). The reports, proxy statements
and other information filed by CWB with the OCC during the ___ calendar months
immediately preceding the filing of CWB's Registration Statement (as defined
below) have been filed with the SEC as part of the Current Report on Form 8-K
filed by CWB on July 23, 1998, and may be inspected and copied at the public
reference facilities of the SEC and at the SEC's regional offices at the
addresses listed above, and accessed electronically at the SEC's home page
listed above.
2
<PAGE>
CWB has filed with the SEC a Registration Statement on Form S-4 (including
exhibits thereto, the "Registration Statement") pursuant to the Securities Act
of 1933, as amended (the "Securities Act"), covering the shares of CWB Common
Stock issuable in the Merger. This Joint Proxy Statement-Prospectus does not
contain all the information set forth in the Registration Statement. Such
additional information may be obtained from the SEC's principal office in
Washington, D.C. Statements contained in this Joint Proxy Statement-Prospectus
as to the contents of any contract or other document referred to herein are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference.
This Joint Proxy Statement-Prospectus constitutes the Proxy Statements of
CWB and Palomar relating to the solicitation of proxies for their use at the CWB
Meeting and the Palomar Meeting, respectively, as well as the Prospectus filed
as part of the Registration Statement. This Joint Proxy Statement-Prospectus and
the related proxy and other materials are first being provided to the
shareholders of CWB on or about ____________, 1998 and to the shareholders of
Palomar on or about ___________, 1998
3
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
This Joint Proxy Statement-Prospectus incorporates by reference documents
not included herein. Documents relating to CWB, excluding exhibits unless
specifically incorporated herein, are available without charge upon request to
Ms. Lynda Pullon, Senior Vice President, Community West Bancshares, 5638
Hollister Avenue, Goleta, California 93117. Telephone requests may be directed
to Ms. Lynda Pullon at (805) 692-1862. Documents relating to Palomar, excluding
exhibits unless specifically incorporated herein, are available without charge
upon request to Mr. Darol Caster, Senior Vice President, Palomar Savings and
Loan Association, 355 West Grand Avenue, Escondido, California 92025. Telephone
requests may be directed to Mr. Darol Caster at (760)745-9370.
The following documents filed with the Commission by CWB are incorporated
herein by reference:
(a) CWB's Registration Statement on Form 8-A dated December 31, 1997
as amended on March 8, 1998;
(b) CWB's Annual Report on Form 10-K for the year ended December 31,
1997;
(c) CWB's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1998 and June 30, 1998; and
(d) CWB's Current Reports on Form 8-K dated July 23, 1998.
Such incorporation by reference shall not be deemed to incorporate by
reference the information referred to in Item 402(a)(8) of Regulation S-K.
All documents and reports filed by CWB pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date hereof and prior to the CWB
Meeting and the Palomar Meeting shall be deemed to be incorporated herein by
reference and to be a part hereof from the date of such filing and any statement
contained herein or in a document incorporated or deemed to be incorporated
herein by reference shall be deemed to be modified or superseded for purposes
hereof to the extent that a statement contained herein or in any other
subsequently filed document that also is, or is deemed to be, incorporated
herein by reference, modifies or supersedes such statement. Any such statement
so modified or superseded shall not be deemed to constitute a part hereof,
except as so modified or superseded.
4
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
AVAILABLE INFORMATION 2
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE 4
TABLE OF CONTENTS 5
SUMMARY 8
Information About The Companies 8
The Merger 9
THE CWB MEETING 10
The Palomar Meeting 10
Votes Required; Securities Held By Insiders 10
Revocability of Proxies 11
Recommendations of the Boards of Directors 12
Effective Time Of The Merger 12
Conditions to the Merger 12
Waiver and Amendment 13
Termination 13
Regulatory Approvals 13
Operations and Management After the Merger 13
Interests of Certain Persons in the Merger 14
Certain Federal Income Tax Consequences 14
Accounting Treatment 14
Dissenters' Rights 14
Markets and Market Prices 15
Summary Historical and Pro Forma Financial Data 17
Summary Unaudited Pro Forma Combined Financial Data 20
Selected Historical and Pro Forma Per Share Data 21
RISK FACTORS 23
Forward-Looking Statements May Not Prove Accurate 23
No Independent Fairness Opinion 23
Competition 23
Ability to Integrate the Operations of CWB and Palomar 23
General Business Risk 23
Concentration of Operations; Recessionary Environments; Decline in Real Estate Values 24
Accounting Treatment 24
Interest Rate Risk 24
Shares Eligible for Future Sale; Dilution 25
Regulation 25
Limited Market for CWB Common Stock 25
THE MEETINGS 25
General 25
The Palomar Special Meeting 26
The Palomar Record Date 26
Solicitation of Proxies By Palomar 26
Votes Required and Voting of Proxies 26
The CWB Special Meeting 27
The CWB Record Date 27
Solicitation of Proxies By CWB 28
Votes Required and Voting of Proxies 28
5
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THE MERGER 29
Background of the Merger 29
Structure of the Merger 30
Reasons for the Merger; Recommendations of the Boards of Directors 30
Certain Federal Income Tax Consequences 31
Regulatory Approvals 33
Resale of CWB Common Stock 34
Certain Effects of the Merger 34
Interests of Certain Persons in the Merger 35
Agreement with Western Financial Corporation 35
Dissenters' Rights 36
Accounting Treatment 39
The Merger Agreement 40
THE MERGER 40
Effective Time and Effective Date 40
Exchange of Stock Certificates 40
No Fractional Shares 41
Conduct of the Business of Palomar and CWB Prior to the Merger 41
Representations and Warranties 42
Conditions 43
Termination 43
Termination Payment 43
Expenses 44
The Shareholder Agreements 44
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA 45
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA 52
INFORMATION REGARDING CWB 53
Business of CWB 53
Certain Information Regarding CWB Management and Principal Shareholders 54
Incorporation of Certain Information By Reference 58
INFORMATION REGARDING PALOMAR 58
Business of Palomar 58
Certain Information Regarding Palomar Management and Principal Shareholders 59
Management's Discussion and Analysis of Financial Condition and Results of Operations 63
DESCRIPTION OF PALOMAR CAPITAL STOCK 85
COMPARISON OF SHAREHOLDER RIGHTS 85
Comparison of Corporate Structure 85
Voting Rights 85
Dividends and Dividend Policy 86
Number of Directors 86
Indemnification of Directors and Officers 87
6
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SUPERVISION AND REGULATION 87
VALIDITY OF CWB COMMON STOCK 98
EXPERTS 99
INDEX TO FINANCIAL STATEMENTS 99
LIST OF APPENDICES
Appendix A - Agreement and Plan of Reorganization dated as of April 23,
1998, by and between CWB and Palomar.
Appendix B - Chapter 13 of the CGCL.
</TABLE>
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SUMMARY
The following is a summary of certain information contained elsewhere in
this Joint Proxy Statement - Prospectus. Reference is made to, and this summary
is qualified in its entirety by the more detailed information included in this
Joint Proxy Statement-Prospectus, the Appendices hereto and the documents
incorporated herein by reference. Shareholders are urged to read carefully this
Joint Proxy Statement-Prospectus, including the Appendices hereto and the
documents incorporated herein by reference, in their entirety. Certain
capitalized terms which are used but not defined in this Summary are defined
elsewhere in this Joint Proxy Statement - Prospectus.
This Joint Proxy Statement-Prospectus includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. Although each of CWB and Palomar believes that its plans,
intentions and expectations reflected in such forward-looking statements are
reasonable, neither can give any assurance that such plans, intentions or
expectations will be achieved. Important factors that could cause actual
results to differ materially from CWB's and Palomar's forward-looking statements
are set forth below and elsewhere in this Joint Proxy Statement-Prospectus.
Furthermore, CWB and Palomar do not intend to update or revise the
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events. Shareholders are
cautioned not to place undue reliance on any of the forward-looking statements
included herein. All forward-looking statements attributable to CWB, Palomar or
persons acting on either of their behalves are qualified in their entirety by
the cautionary statements set forth herein. See "RISK FACTORS".
INFORMATION ABOUT THE COMPANIES
CWB
Community West Bancshares was incorporated under the laws of the State of
California on November 26, 1996, for the purpose of forming a one bank holding
company. On December 31, 1997, CWB acquired a 100% interest in Goleta National
Bank, Goleta, California ("GNB"). Effective that date, shareholders of GNB
became shareholders of CWB in a one-for-one exchange and GNB became CWB's only
subsidiary.
GNB opened for business as a national banking association on August 21,
1989. The deposits of CWB are insured up to the applicable limits by the FDIC,
and GNB is a member of the Federal Reserve System. GNB's main office is located
at 5827 Hollister Avenue, Goleta, California. GNB operates loan productions
offices in Santa Barbara, Ventura, Santa Maria, Bakersfield, Fresno, Modesto,
West Covina and Costa Mesa, California. GNB also has loan production offices in
Woodstock, Georgia, Las Vegas, Nevada, and Jacksonville, Pensacola and Panama
City, Florida. Application has been made with the applicable regulatory
agencies for a branch office in Ventura, California with a courier service
operation.
GNB offers a full range of commercial banking services, including the
acceptance of demand, savings and time deposits, and the origination of
commercial, U.S. Small Business Administration ("SBA"), accounts receivable,
real estate, construction, home improvement, and other installment and term
loans. It also offers cash management, remittance processing, electronic
banking, merchant credit card processing, and other customary bank services to
its customers. GNB is a "Preferred Lender" of the SBA and as such is able to
process SBA loans more quickly than institutions which do not have such status.
GNB originates FHA Title I loans and sells them into the secondary market
and retains the servicing. In early 1995, GNB was approved as one of a small
number of financial institutions to be able to sell FHA Title I loans directly
to the Federal National Mortgage Association ("FNMA"). This approval has given
GNB a competitive advantage over nonapproved lenders because it can price loans
at lower rates to customers and reduce or eliminate fees normally charged to
customers.
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Because of the development costs involved, most small community banks have
difficulty providing electronic banking services to their customers. From its
inception, GNB has invested heavily in the hardware and software necessary to
offer today's electronic banking services. In addition to the normal banking
services, this investment affords GNB the ability to offer such services as
on-line cash management, automated clearinghouse origination, electronic data
interchange, remittance processing, draft preparation and processing, and
merchant credit card processing. Not only do these services generate significant
fee income, they attract companies with large deposit balances. These services
have helped GNB attain a competitive advantage over most institutions its size
and many which are significantly larger than GNB.
In October, 1997, GNB acquired a 70% interest in Electronic Paycheck, LLC,
a California limited liability company that has developed systems to allow
companies to pay their employees by issuing them a card or "electronic
paycheck". The card is currently being used by companies in the agricultural,
manufacturing and service sectors to pay their workers, many of whom do not have
bank accounts. GNB provides access to ATM and Point-of-Sale (POS) networks so
that the cardholders have access to their cash at thousands of locations
virtually worldwide. On July 7, 1998, GNB announced the commencement of a
six-month pilot program with Thomas Cook Currency Services, Inc. pursuant to
which the electronic paycheck system would be used as a delivery vehicle for the
payment of wages to employees in the cruise line industry.
At June 30, 1998, CWB had consolidated assets of $151,182,273, deposits of
$132,533,350 and shareholders' equity of $17,186,579.
PALOMAR
Palomar Savings and Loan Association (Palomar) was incorporated under the
laws of the State of California on January 10, 1983 as North County Savings and
Loan Association. Operations commenced June 20, 1984. In January, 1986,
Palomar changed its name to "Palomar Savings and Loan Association."
Palomar is a state-chartered full service savings and loan association and
is subject to supervision by the OTS, the FDIC and the Commissioner. The
deposits of Palomar are insured up to the applicable limits by the Savings
Association Insurance Fund ("SAIF"). Palomar is a member of the Federal Home
Loan Bank ("FHLB") system. Palomar's main office is located at 355 West Grand
Avenue, Escondido, California 92025. A branch application has been approved for
an office to be located at 1815 East Valley Parkway, Suite 1, Escondido,
California 92027.
Palomar's banking services include those traditionally offered by savings
and loan associations, such as checking and savings accounts, and real estate
and home improvement loans. The majority of Palomar's loan originations are
sold into the secondary market servicing released.
CWB MERGER CORP
CWB Merger Corp was incorporated under the laws of the State of California
on May 26, 1998. One hundred percent of its issued and outstanding Common Stock
(5,000 shares) are owned by CWB. CWB Merger Corp was formed by CWB in
accordance with the terms of the Merger Agreement as a vehicle to assist in
accompanying the Merger and its corporate existence will cease upon consummation
of the Merger. The directors and executive officers of CWB serve as all of the
directors and executive officers of CWB Merger Corp.
THE MERGER
On April 17, 1998, the Palomar Board, and on April __, 1998, the CWB Board
each approved the principal terms of the Merger. The Merger Agreement which
embodies the principal terms of the Merger was executed and delivered on April
23, 1998, by CWB and Palomar. The Merger Agreement provides for the merger of
CWB Merger Corp, a newly formed wholly-owned subsidiary of CWB, and Palomar with
Palomar as the Surviving Association and operating under the charter and name of
"Palomar Savings and Loan Association". In connection with the Merger, each
share of Palomar Common Stock issued and outstanding at the Effective Time
(other than (a) shares that have not been voted in favor of approval of the
principal terms of the Merger and with respect to which Dissenters' Rights have
been perfected in accordance with the CGCL and (b) shares held directly or
indirectly by CWB, other than shares held in a fiduciary capacity or in
satisfaction of a debt previously contracted) will be converted into, subject to
the limitations set forth in the Merger Agreement with respect to proration and
fractional shares, the Per Share Consideration. Each share of CWB Common Stock
outstanding immediately prior to the Effective Time will remain outstanding
after the Merger as one share of CWB Common Stock.
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<PAGE>
Under the terms of the Merger Agreement, the Per Share Consideration is
equal to the Palomar Per Share Value divided by the CWB Per Share Value. The
CWB Per Share Value is equal to the average "bid" and "asked"price of CWB Common
Stock as quoted on Nasdaq for the thirty (30) trading days immediately preceding
the Closing. The Palomar Per Share Value is equal to (i) the Palomar total
shareholders equity (calculated in accordance with generally accepted accounting
principles) on the last day of the calendar month immediately preceding the
Closing divided by the number of shares of Palomar Common Stock outstanding
immediately prior to the Closing, (ii) multiplied by a factor of 2.2. Because
the Per Share Consideration is subject to adjustments in the total shareholders'
equity of Palomar and the market value of CWB Common Stock up to the dates
previously indicated, no assurances can be given as to what the Per Share
Consideration will be. By way of example only, if the Per Share Consideration
were calculated as of June 30, 1998, at the effective time of the Merger, each
share of Palomar Common Stock would be converted into the right to receive 1.544
shares of CWB Common Stock, CWB would issue approximately 1,000,800 new shares
of Common Stock, and the current shareholders of Palomar would own 20.1% of
CWB's the issued and outstanding Common Stock following the Merger (excluding
shares of CWB Common Stock which might be purchased pursuant to options to
purchase 129,468 shares of CWB Common Stock currently outstanding) under CWB's
Stock Option Plan. See "THE MERGER-Background of the Merger", "Reasons for the
Merger; Recommendations of the Board of Directors" and "Dissenters' Rights".
STRUCTURE
The Merger Agreement provides that, if the Palomar Shareholders and the CWB
Shareholders approve the principal terms of the Merger Agreement, and subject to
receipt of regulatory approvals and other customary closing conditions as more
fully set forth below, then Palomar will merge with CWB Merger Corp, with
Palomar being the Surviving Association. Palomar will be a wholly-owned
subsidiary of CWB and will continue to operate as a state chartered savings and
loan association with the name and charter of Palomar Savings and Loan
Association. See "THE MERGER-Certain Federal Income Tax Consequences"and "THE
MERGER AGREEMENT-The Merger".
THE CWB MEETING
The CWB Meeting to consider and vote on, among other things, approval of
the principal terms of the Merger and an amendment of Section 3.2 of CWB's
Bylaws increasing the range of directors from eight (8) to fifteen (15) members
will be held on ________________, __________________, 1998 at 2:00 p.m., at the
Holiday Inn, 5650 Calle Real, Goleta, California. Only holders of record of CWB
Common Stock at the close of business on ________________, 1998 (the "CWB Record
Date") will be entitled to vote at the CWB Meeting. At such date, there were
outstanding and entitled to vote 3,984,500 shares of CWB Common Stock . Each
shareholder of CWB Common Stock is entitled to one vote for each share held of
record upon each matter properly submitted at the CWB Meeting.
For additional information relating to the CWB Meeting, see "THE
MEETINGS-The CWB Special Meeting".
THE PALOMAR MEETING
The Palomar Meeting to consider and vote on, among other things, approval
of the principal terms of the Merger will be held on __________,
_______________, 1998 at : .m., at ____________________, Escondido,
---- -----
California. Only holders of record of Palomar Common Stock at the close of
business on _____________, 1998 (the "Palomar Record Date") will be entitled to
vote at the Palomar Meeting. At such date,
there were outstanding and entitled to vote 648,186 shares of Palomar Common
Stock. Each shareholder of Palomar Common Stock is entitled to one vote for
each share held of record upon each matter properly submitted at the Palomar
Meeting.
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<PAGE>
For additional information relating to the Palomar Meeting, see "THE
MEETINGS-The Palomar Special Meeting".
VOTES REQUIRED; SECURITIES HELD BY INSIDERS
Approval of the matters to be voted upon in connection with the Merger by
the CWB shareholders and Palomar shareholders requires the affirmative vote of
the holders of a majority of the outstanding shares of CWB Common Stock and
Palomar Common Stock entitled to vote, respectively. As a result, the failure
to vote in person or by proxy on any such proposal at the CWB Meeting or the
Palomar Meeting or abstaining on any proposal has the same effect as voting
against the applicable proposal. See "THE MEETINGS - Special Meeting of CWB -
Votes Required and Voting of Proxies" and "THE MEETINGS-The Palomar Special
Meeting-Votes Required and Voting of Proxies".
As of the Record Date, Palomar's directors and executive officers
beneficially owned and were entitled to vote, in the aggregate, approximately
20.65% of the outstanding Palomar Common Stock entitled to vote at the Palomar
Meeting. Palomar shareholders (who are also directors of Palomar) holding
approximately 20.65% of Palomar Common Stock outstanding on the Palomar Record
Date have entered into agreements (the "Shareholder Agreements") pursuant to
which they have agreed, among other things, to vote "FOR" the adoption and
approval of the Merger Agreement and the Merger. See "THE MERGER - The
Shareholder Agreements".
As of the Record Date, CWB's directors and executive officers beneficially
owned and were entitled to vote, in the aggregate, approximately 27.6% of the
outstanding CWB Common Stock entitled to vote at the CWB Meeting. CWB
shareholders (who are also directors of CWB) holding approximately 27.6% of CWB
Common Stock outstanding on the CWB Record Date have entered into agreements
(the "Shareholder Agreements") pursuant to which they have agreed, among other
things, to vote "FOR" the adoption and approval of the Merger Agreement and the
Merger. See "THE MERGER - The Shareholder Agreements".
REVOCABILITY OF PROXIES
The presence of a CWB shareholder or a Palomar shareholder at the CWB
Meeting or Palomar Meeting (or at any postponement or adjournment thereof),
respectively, will not automatically revoke such shareholder's proxy. However,
a CWB shareholder or Palomar shareholder may revoke a proxy at any time prior to
its exercise by (a) delivery to the secretary of CWB or Palomar, respectively,
of a written notice of revocation prior to or at the CWB Meeting or Palomar
Meeting (or, if such CWB Meeting or Palomar Meeting is adjourned or postponed,
prior to or at the time the adjourned or postponed meeting is actually held);
(b) delivery to the secretary of CWB or Palomar, respectively, prior to or at
the CWB Meeting or Palomar Meeting of a duly executed proxy bearing a later
date; or (c) attending the CWB Meeting or Palomar Meeting (or, if such CWB
Meeting or Palomar Meeting is adjourned or postponed, by attending the adjourned
or postponed meeting) and voting in person thereat. In the case of CWB
shareholders any written revocation of proxy or other related communications
should be addressed to Ms. Michel Nellis, 5638 Hollister Avenue, Goleta,
California 93117. In the case of Palomar shareholders any written revocation of
proxy or other related communications should be addressed to Mr. Donald Galyean,
355 West Grand Avenue, Escondido, California 92025.
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RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
Both the CWB Board and the Palomar Board unanimously approved the Merger
Agreement and the transactions contemplated thereby. The members of the CWB and
the Palomar Board unanimously believe that the Merger and the transactions
contemplated by the Merger Agreement are fair to, and in the best interest of,
the CWB and Palomar shareholders and unanimously recommend a vote "FOR" the
matters to be voted upon by such shareholders in connection with the Merger.
The conclusions of the CWB Board and Palomar Board with respect to the Merger
are based upon a number of factors. See "THE MERGER-Background of the Merger",
"Reasons for the Merger; Recommendations of the Board of Directors". Neither
the Board of Directors of CWB nor the Board of Directors of Palomar have
obtained an opinion from a third party to the effect that, as of a particular
date, the Per Share Consideration to be paid by CWB in the Merger is fair to the
Palomar shareholders from a financial point of view.
EFFECTIVE TIME OF THE MERGER
The Merger will become effective on the date and at the time that an
agreement of merger and related documents bearing and endorsement by the
California Commissioner of Financial Institutions (the "Commissioner") and
certified by the California Secretary of State, are filed with and accepted by
the Commissioner. Subject to conditions specified in the Merger Agreement, the
parties anticipate that the Merger will be effective on or about October 15,
1998, although there can be no assurance as to whether or when the Merger will
become effective. See "THE MERGER AGREEMENT-Effective Time and Effective Date"
and "Conditions to the Merger".
CONDITIONS TO THE MERGER
The respective obligations of CWB and Palomar to consummate the Merger are
subject to certain conditions, including (a) the approval by the CWB and Palomar
shareholders of the principal terms of the Merger; (b) receipt of approvals and
consents required by law in connection with the Merger and the other
transactions contemplated by the Merger Agreement, including approval by the
Board of Governors of the Federal Reserve System (the "FRB"), the Federal
Deposit Insurance Corporation (the "FDIC") and the Commissioner; (c) the absence
of any statute, rule, regulation, order, injunction or decree being in effect
and prohibiting the consummation of the Merger or any other transaction
contemplated by the Merger Agreement; (d) the Registration Statement having
become effective and there having been issued no stop order suspending the
effectiveness of the Registration Statement and no proceedings for that purpose
initiated or threatened by the Commissioner, SEC or any other regulatory agency;
(e) receipt of a ruling issued by the Internal Revenue Service or, in lieu
thereof, the opinion of Deloitte & Touche, LLP, that the Merger qualifies as a
tax free reorganization within the meaning of Section 368(a)(1)(A) of the
Internal Revenue Code of 1986, as amended, (the "IRC"); and (f) no fact,
circumstance or event shall have occurred or is reasonably likely to occur that
would cause the Merger not to qualify for pooling of interests accounting
treatment.
The obligation of CWB to consummate the Merger also are subject to the
fulfillment or waiver by CWB prior to the Effective Time of certain conditions,
including the following: (a) the representations and warranties of Palomar being
true and correct unless the failure to be true and correct is not likely to have
a material adverse effect on Palomar; (b) the performance by Palomar in all
material respects of all obligations contained in the Merger Agreement required
to be performed by Palomar before the Effective Time; (c) receipt by CWB of an
opinion letter from the law firm of Higgs, Fletcher & Mack, LLP with respect to
certain matters of Palomar; and (d) the appointment by Palomar, as of the
Effective Time, of a director recommended by CWB to the Palomar Board.
In addition, the obligation of Palomar to consummate the Merger also is
subject to the fulfillment, or waiver by Palomar, prior to the Effective Time of
certain conditions, including the following: (a) the representations and
warranties of CWB being true and correct unless the failure to be true and
correct is not likely to have a material adverse effect on CWB; (b) the
performance by CWB in all material respects of all obligations contained in the
Merger Agreement required to be performed before the Effective Time; (c)
receipt by Palomar of an opinion letter from the law firm of Horgan, Rosen,
Beckham & Coren, L.L.P. with respect to certain matters of CWB; and (d) the
appointment by CWB, as of the Effective Time, of a director recommended by
Palomar to the CWB Board.
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WAIVER AND AMENDMENT
Prior to the Effective Time, the conditions to each party's obligation to
consummate the Merger may be waived by such party in whole or in part to the
extent permitted by applicable law. In addition, CWB and Palomar may change the
method of effectuating the transaction if it is determined that the change is
necessary, appropriate or desirable provided the change does not change the
amount and kind of consideration, cause the transaction to be anything other
than a tax free reorganization to holders of Palomar Stock, or materially impede
or delay the closing. See "THE MERGER AGREEMENT-Conditions".
TERMINATION
The Merger Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Time of the Merger: (a) by mutual consent of CWB and
Palomar; (b) by either CWB or Palomar if (i) the other party materially breaches
any representation, warranty, covenant or agreement contained in the Merger
Agreement and such breach is not cured or curable within a ten (10) day grace
period, (ii) the Merger is not consummated by December 31, 1998; (iii) thirty
(30) days after the failure to obtain the approval of a governmental authority
required for consummation of the Merger; (iv) if the Palomar Board receives a
Strategic Transaction Proposal (as defined in the Merger Agreement) and
determines, based upon the written opinion of a financial advisor, that the
financial terms of the proposal are superior to the Merger from Palomar's
shareholders' prospective; (v) if the CWB Board receives Strategic Transaction
Proposal (as defined in the Merger Agreement) and determines, based upon the
written opinion of a financial advisor, that the financial terms of the proposal
are superior to the Merger from CWB's shareholders' prospective; or (vi) CWB
enters into a Community West Acquisition Transaction (as defined in the Merger
Agreement) where CWB or its shareholders will still control the resulting entity
but the transaction will have a material adverse effect upon CWB. See "THE
MERGER AGREEMENT-Termination".
If the Merger Agreement is terminated by either CWB or Palomar pursuant to
a material breach of any representation, warranty, covenant or agreement of the
other party that is not cured within 10 days after written notice of such
breach, the breaching party will pay to the other party, as reasonable and full
liquidated damages and not as a penalty or forfeiture, the sum of $500,000. If
the Merger Agreement is terminated by either CWB or Palomar as a result of
Palomar's involvement in a Strategic Transaction proposal, Palomar shall pay to
CWB, as reasonable and full liquidated damages and not as a penalty or
forfeiture, the sum of $500,000. If the Merger Agreement is terminated by
either CWB or Palomar as a result of CWB's involvement in a Strategic
Transaction Proposal, CWB shall pay to Palomar, as reasonable and full
liquidated damages and not as a penalty or forfeiture, the sum of $500,000. See
"THE MERGER AGREEMENT-Termination Payment".
REGULATORY APPROVALS
The Merger is subject to prior approval by the FRB under Section 4 of the
BHCA, the FDIC under the Bank Merger Act and the Commissioner pursuant to the
California Financial Code. CWB and Palomar submitted applications seeking
approval of the Merger and related matters to the FRB on July 27, 1998, to the
FDIC on July 7, 1998 and to the Commissioner on July 8, 1998. See "THE
MERGER-Regulatory Approvals". It is expected that the approvals will be
received prior to the CWB Meeting and Palomar Meeting, but there can be no
assurance that such approvals will be obtained if at all, by that date.
OPERATIONS AND MANAGEMENT AFTER THE MERGER
The Merger Agreement provides that CWB and Palomar will each appoint a
designated individual to the respective Board of Directors of the other
institution's Board, to be effective immediately after the Effective Time.
Other than these additions, there are no changes in senior management or the
Board of Directors of CWB or Palomar as a result of the Merger anticipated as of
the date of this Joint Proxy Statement-Prospectus. See "THE MERGER-Certain
Effects of the Merger".
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the CWB Board or Palomar Board,
shareholders of CWB and Palomar should be aware that certain members of
management and board of CWB and Palomar have certain interests in the
transactions contemplated by the Merger Agreement that are in addition to the
interests of shareholders generally and that may create potential conflicts of
interest.
These interests include, among others, the commitment of CWB to cause
Palomar to enter into certain employment agreements with James M. Rady, Darol H.
Caster and Robert E. Pommier of Palomar as of the Effective Time providing
certain benefits to those individuals. In addition, although no determination
has been made as of the date hereof, it is anticipated that directors and
certain officers of Palomar will receive options to purchase CWB Common Stock
under CWB's Stock Option Plan sometime after the Effective Time. In addition, a
director representative of Palomar will be appointed to the CWB Board and a
director representative of CWB will be appointed to the Palomar Board as of the
Effective Time. See "THE MERGER-Interests of Certain Persons in the Merger.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
It is intended that the Merger will be treated as a reorganization (a
"Reorganization") under Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), so that Palomar Shareholders will not recognize any gain
or loss for tax purposes on the receipt of CWB Common Stock in exchange for
their shares of Palomar Common Stock in the Merger (except to the extent such
shareholder receives cash in lieu of a fractional share interest in CWB Common
Stock). Consummation of the Merger as a Reorganization is conditioned upon
receipt of the opinion of the Internal Revenue Service or, in lieu thereof, of
Deloitte & Touche, LLP (the "Tax Opinion"), substantially to the effect that,
for federal income tax purposes: (i) the Merger will be treated as a
Reorganization within the meaning of Section 368(a)(1)(A) of the IRC, (ii) no
gain or loss will be recognized by the parties as a result of the Merger; and
(iii) no gain or loss will be recognized by the holders of the Palomar Common
Stock upon conversion of their shares to CWB Common Stock (except as to
fractions share interests paid in cash). See "THE MERGER-Certain Federal Income
Tax Consequences".
BECAUSE OF THE COMPLEXITY OF THE TAX LAWS AND THE INDIVIDUAL NATURE OF
CERTAIN TAX CONSEQUENCES OF THE MERGER TO EACH PALOMAR SHAREHOLDER, EACH PALOMAR
SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR CONCERNING CERTAIN OTHER
FEDERAL AND ALL STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE MERGER THAT MAY
BE APPLICABLE.
ACCOUNTING TREATMENT
For accounting and financial reporting purposes, the Merger will be
accounted for as a pooling of interests in accordance with generally accepted
accounting principles. See "RISK FACTORS-Accounting Treatment" and "THE
MERGER-Accounting Treatment".
DISSENTERS' RIGHTS
In connection with the Merger, shareholders of CWB and Palomar may be
entitled to dissenters' rights under Chapter 13 of the CGCL ("Dissenters'
Rights"), the text of which is attached hereto as Appendix C. IN ORDER FOR ANY
CWB SHAREHOLDER TO EXERCISE HIS OR HER DISSENTERS' RIGHTS, A NOTICE OF SUCH
SHAREHOLDER'S INTENTION TO EXERCISE HIS OR HER DISSENTERS' RIGHTS AS PROVIDED IN
THE CGCL MUST BE SENT BY SUCH SHAREHOLDER AND RECEIVED BY CWB, ON OR BEFORE THE
DATE OF THE CWB MEETING AND ANY SUCH SHAREHOLDER MUST VOTE AGAINST THE APPROVAL
OF THE PRINCIPAL TERMS OF THE MERGER. FAILURE TO SEND SUCH NOTICE AND TO VOTE
AGAINST THE PRINCIPAL TERMS OF THE MERGER WILL RESULT IN A WAIVER OF SUCH
SHAREHOLDER'S DISSENTERS' RIGHTS. IN ORDER FOR ANY PALOMAR SHAREHOLDER TO
EXERCISE HIS OR HER DISSENTERS' RIGHTS, HE OR SHE MUST NOT VOTE IN FAVOR OF THE
TRANSACTION AT THE PALOMAR MEETING AND MUST MAKE A WRITTEN DEMAND FOR PAYMENT IN
ACCORDANCE WITH THE CGCL. SEE "THE MERGER-DISSENTERS' RIGHTS" AND APPENDIX B.
14
<PAGE>
RISK FACTORS
In deciding whether to vote for the approval of the principal terms of the
Merger, shareholders of CWB and Palomar should carefully evaluate the matters
set forth under "Risk Factors" herein in addition to the other matters described
herein.
MARKETS AND MARKET PRICES
As of the CWB Record Date, there were approximately 1,200 holders of record
of CWB Common Stock. No shares of CWB Preferred Stock has been issued or are
outstanding. CWB Common Stock is designated for quotation on the Nasdaq National
Market System (the "Nasdaq-NMS") under the symbol "CWBC".
As of the Palomar Record Date, there were approximately 310 holders of
record of Palomar Common Stock. Palomar Common Stock is on the "over the
counter" market under the symbol "PALO".
15
<PAGE>
The following table summarizes the approximate high and low sales prices on
a per share basis for the CWB Common Stock and the Palomar Common Stock for the
periods indicated.
<TABLE>
<CAPTION>
High Low High Low
-------- ------- ------ -----
CWB Common Stock(1) Palomar Common Stock(2)
--------------------- -----------------------
<S> <C> <C> <C> <C>
1996
First Quarter $ 3.219 $ 3.00 $ 7.60 $7.60
Second Quarter $ 3.50 $ 3.50 $ 7.60 $7.60
Third Quarter $ 4.50 $ 3.625 $ 7.60 $7.60
Fourth Quarter $ 5.375 $ 4.375 $ 7.60 $7.60
1997
First Quarter $ 8.25 $ 5.25 $ 7.60 $7.60
Second Quarter $ 7.625 $ 6.625 $ 7.60 $7.60
Third Quarter $ 9.75 $ 6.375 $ 7.60 $7.60
Fourth Quarter $ 9.50 $ 8.375 $ 7.60 $7.60
1998
First Quarter $ 14.00 $ 8.875 $ 9.00 $7.60
Second Quarter $14.313 $11.875 $15.00 $9.00
- ---------------
<FN>
(1) CWB Common Stock was listed on the Nasdaq-NMS effective December
31, 1997. From November 19, 1996 until just prior to that listing, GNB's common
stock was publically traded and listed on the Nasdaq-NMS and was traded under
the symbol "GLTB." These figures reflect adjustment for the two-for-one stock
splits effective __________, 1996 and February, 1998. The trading information
provided for the period prior to that date is based on information from the
over-the-counter market through various brokerage firms.
(2) Palomar's Common Stock is traded on a very limited basis on the
over-the-counter market through various brokerage firms. Consequently, the
prices listed represent quotations by dealers who match buyers with seller of
Palomar Common Stock and reflect inter-dealer prices, without adjustments for
mark-ups, mark-downs or commissions, and may not necessarily represent actual
transactions. These figures reflect adjustment for the five percent (5%) stock
dividend issued February 18, 1998.
</TABLE>
The following table sets forth the closing price per share of CWB Common
Stock as reported by the Nasdaq-NMS, the closing price per share of Palomar
Common Stock as reported by Western Financial Corporation and the "equivalent
per share price" (as defined below) of Palomar Common Stock as of April 22,
1998, the last trading day before the date on which CWB and Palomar announced
the execution of the Merger Agreement and as of ________________, 1998, the
last practicable date prior to the date of this Joint Proxy
Statement-Prospectus. The "equivalent per share price" of Palomar Common Stock
on any date equals the closing price of the CWB Common Stock on such date, as
reported on the Nasdaq-NMS, multiplied by the conversion number of 1.544.
16
<PAGE>
<TABLE>
<CAPTION>
CWB Common Palomar Common Equivalent Per
Market Price Per Share as of Stock Stock Share Price
- ---------------------------- ----------- --------------- ---------------
<S> <C> <C> <C>
April 22, 1998 $ 13.75 $ 9.00 $ 21.23
__________, 1998
</TABLE>
Because the conversion ratio is not fixed pursuant to the Merger Agreement,
a change in the trading price of CWB Common Stock or the total shareholders
equity of Palomar before the Effective Time will affect the number of shares of
CWB Common Stock to be received in the Merger by Palomar Shareholders. See "RISK
FACTORS. THERE CAN BE NO ASSURANCE AS TO THE MARKET PRICE OF CWB COMMON STOCK
AT ANY TIME BEFORE, AT OR AFTER THE EFFECTIVE TIME. SHAREHOLDERS ARE URGED TO
OBTAIN CURRENT MARKET QUOTATIONS FOR CWB COMMON STOCK AND PALOMAR COMMON STOCK.
Upon consummation of the Merger, it is anticipated, based on June 30, 1998
unaudited financial information regarding Palomar and the trading price of CWB
Common Stock for the thirty (30) trading days ending June 30, 1998 that there
will be up to approximately holders of record of CWB Common Stock, 4,985,300
shares will be outstanding and the stock will be traded on the Nasdaq-NMS under
the designation "CWBC."
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
CWB
The following summary historical financial data for the six months ended
June 30, 1998 and 1997 are derived from unaudited consolidated financial
statements of CWB and include, in the opinion of CWB's management, all
adjustments necessary to present fairly the data for such periods. The results
for the six month period ended June 30, 1998 are not necessarily indicative of
the results to be expected for the full fiscal year. The following summary
historical financial data for the six months ended June 30, 1997 and for the
five years ended December 31, 1997 are derived from the audited financial
statements of GNB, the predecessor corporation to CWB. The data should be read
in conjunction with the consolidated financial statements, related notes, and
other financial information included or incorporated by reference in this Joint
Proxy Statement-Prospectus.
17
<PAGE>
<TABLE>
<CAPTION>
For the Six
Months Ended At or for the Years
June 30 Ended December 31
----------- -------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- --------- -------- -------- -------- -------- --------
(in thousands, except ratios and per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Interest Income $ 6,013 $ 3,841 $ 8,009 $ 6,812 $ 6,504 $ 5,180 3,515
Interest Expenses 2,266 1,340 2,910 2,425 2,451 1,680 1,104
-------- --------- -------- -------- -------- -------- --------
NET INTEREST INCOME 3,747 2,501 5,099 4,387 4,053 3,500 2,411
Provision for loan losses 280 160 260 435 360 700 305
-------- --------- -------- -------- -------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 3,467 2,341 4,839 3,952 3,693 2,800 2,106
Other operating income 6,209 4,323 9,432 6,621 4,481 2,514 994
Other operating expense 7,855 5,434 11,524 8,667 6,436 4,204 2,589
-------- --------- -------- -------- -------- -------- --------
1,821 1,230 2,747 1,906 1,738 1,110 511
INCOME BEFORE TAXES
Income tax expense 753 517 1,158 801 730 463 -
-------- --------- -------- -------- -------- -------- --------
NET INCOME 1,068 713 1,589 1,105 1,008 647 511
======== ========= ======== ======== ======== ======== ========
ENDING BALANCE SHEET DATA:
Assets 151,080 85,854 95,312 80,883 70,115 60,781 57,392
Securities 4,156 6,784 6,255 4,532 2,509 4,475 4,715
Loans, net 127,879 62,186 71,164 57,400 51,574 45,346 43,263
Allowance for loan losses 1,313 1,301 1,286 1,409 1,463 1,391 594
Deposits 132,533 73,514 80,252 70,606 63,592 54,904 52,846
Other Liabilities 1,361 1,282 2,931 219 410 782 62
-------- --------- -------- -------- -------- -------- --------
Total stockholders' equity 17,186 71,058 12,129 10,059 6,113 5,096 4,484
PER SHARE DATA AND OTHER SELECTED RATIOS:
Net income per common share
Basic $ 0.32 $ 0.24 $ 0.53 $ 0.47 $ 0.50 $ 0.32 $ 0.25
Diluted $ 0.30 $ 0.20 $ 0.44 $ 0.44 $ 0.47 $ 0.32 $ 0.25
Dividends declared per share $ 0.00 $ 0.00 $ 0.00 $ 0.04 $ 0.03 $ 0.03 $ 0.00
Book value per share 4.31% 3.65% 3.93% 3.41% 3.00% 2.53% 2.23%
Stockholders' equity to assets at period end 11.38% 12.88% 12.73% 12.44% 8.72% 8.38% 7.81%
Tangible stockholders' equity to assets at
period end 8.91% 9.63% 10.07% 9.67% 7.23% 8.38% 7.81%
Return on average assets 1.73% 1.71% 1.82% 1.52% 1.57% 1.13% 1.10%
Return on average equity 14.57% 13.51% 14.64% 13.67% 17.89% 13.17% 12.86%
Average equity to average assets 11.9% 12.66% 12.59% 10.71% 8.56% 8.11% 8.44%
Net interest margin 6.2% 6.3% 6.6% 6.8% 7.0% 6.8% 5.60%
</TABLE>
Palomar
The following summary historical financial data for the six months ended
June 30, 1998 and 1997 are derived from unaudited financial statements of
Palomar and include, in the opinion of Palomar's management, all adjustments
necessary to present fairly the data for such periods. The results for the six
month period ended June 30, 1998 are not necessarily indicative of the results
to be expected for the full fiscal year. The following summary historical
financial data for the three (3) years ended December 31, 1995 are derived from
the audited financial statements of Palomar. The financial data from the two
years ended December 31, 1997 are derived from the unaudited financial
statements of Palomar since Palomar changed its fiscal year end in 1996 from
December 31 to June 30. The data should be read in conjunction with the
consolidated financial statements, related notes, and other financial
information included or incorporated by reference in this Joint Proxy
Statement-Prospectus.
18
<PAGE>
<TABLE>
<CAPTION>
For the Six
Months Ended At or for the Years
June 30 Ended December 31,
------------------ --------------------------------------------------
1998 1997 1997(1) 1996(1) 1995 1994 1993
-------- -------- -------- -------- -------- -------- ----------
RESULTS OF OPERATIONS: (in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income $ 2,777 $ 2,751 $,5,540 $ 5,649 $ 5,465 $ 4,741 $ 5,868
Interest expenses 1,710 1,708 3,450 3,566 3,803 2,610 3,048
-------- -------- -------- -------- -------- -------- ----------
NET INTEREST INCOME 1067 1,043 2,090 2,083 1,662 2,131 2,820
Provision (credit) for loan losses (116) (69) (70) 216 762 5 349
-------- -------- -------- -------- -------- -------- ----------
NET INTEREST INCOME AFTER 1,183 1,112 2,160 1,867 900 2,126 2,471
PROVISION (CREDIT) FOR
LOAN LOSSES
Non-interest income (loss) 440 199 476 347 78 72 (1,867)
Non-interest expense 1,050 985 1,917 2,228 1,833 1,858 1,932
-------- -------- -------- -------- -------- -------- ----------
INCOME (LOSS) BEFORE 573 326 719 (14) (855) 340 (1,328)
TAXES
Provision <benefit> for income taxes 158 96 99 (86) (939) 168 456
-------- -------- -------- -------- -------- -------- ----------
NET INCOME (LOSS) $ 415 $ 230 $ 620 $ 72 $ 84 $ 172 ($1,784)
======== ======== ======== ======== ======== ======== ==========
ENDING BALANCE SHEET DATA:
Assets 79,491 77,837 78,611 80,031 81,471 81,789 92,421
Securities 13,857 12,054 13,068 12,067 17,958 18,701 20,679
Loans net of deferred fees and costs 53,275 57,709 57,985 57,135 56,184 58,343 54,339
Allowance for loan losses 649 659 765 928 891 554 597
Deposits 72,923 72,065 72,439 72,500 74,002 73,009 81,291
Borrowed funds 0 0 0 2,000 2,000 3,250 6,000
Common shareholders' equity $ 5,955 $ 5,137 5,559 4,902 4,828 4,700 4,566
PER SHARE DATA AND OTHER SELECTED RATIOS:
Earnings (loss) per common share
Basic $ 0.65 $ 0.37 $ 1.00 $ 0.12 $ 0.14 $ 0.28 $ (2.94)
Diluted $ 0.65 $ 0.37 $ 1.00 $ 0.12 $ 0.14 $ 0.28 $ (2.94)
Dividends declared per share
Book value per share $ 9.19 $ 8.32 $ 9.00 $ 7.94 $ 7.82 $ 7.62 $ 7.40
Shareholders' equity to assets at
period end 7.49% 6.60% 7.07% 6.13% 5.93% 5.75% 4.94%
Tangible shareholders' equity to
assets at period end 7.47% 6.60% 7.03% 6.13% 5.76% 5.53% 4.79%
Return on average assets .52% .29% .79% .09% .10% .21% (1.93%)
Return on average equity 7.35% 4.65% 12.00% 1.48% 1.77% 3.71% (30.23%)
Average equity to average assets 7.06% 6.33% 6.58% 6.02% 5.69% 5.55% 6.83%
Net interest margin 2.67% 2.67% 2.66% 2.59% 1.99% 2.55% 3.05%
<FN>
(1) Palomar's fiscal year end was changed in 1996 from December 31 to September 30. Audited financial
information for the two years ended December 31, 1997 is therefore not available.
</TABLE>
19
<PAGE>
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following table sets forth certain summary unaudited pro forma combined
financial data for CWB after giving effect to the Merger, as if it had occurred
as of the beginning of each of the periods presented, using the _____________ of
_____ and accounting for the Merger as a pooling of interests. See "The
Merger-Accounting Treatment". This information should be read in conjunction
with the historical consolidated financial statements of CWB and Palomar
including the notes thereto, appearing elsewhere in this Joint Proxy
Statement-Prospectus or incorporated herein by reference. See "Unaudited Pro
Forma Combined Condensed Financial Information".
The unaudited pro forma combined condensed balance sheets are not
necessarily indicative of the actual financial position that would have existed
had the Merger been consummated on June 30, 1998 or December 31, 1997, or that
may exist in the future. The unaudited pro forma combined condensed statements
of income are not necessarily indicative of the results that would have occurred
had the Merger been consummated on the dates indicated or that may be achieved
in the future.
<TABLE>
<CAPTION>
For the Six
Months Ended At or for the Years
June 30 Ended December 31
----------------- ---------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- ------- ------- ------- -------- ------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Interest income $ 8,790 6,592 13,549 12,461 11,969 9,921 9,383
Interest expenses 3,976 3,048 6,360 5,991 6,254 4,290 4,152
-------- ------- ------- ------- -------- ------- --------
NET INTEREST INCOME 4,814 3,544 7,189 6,470 5,715 5,631 5,231
Provision for loan losses 164 91 190 651 122 705 654
NET INTEREST INCOME
AFTER PROVISION FOR LOAN
LOSSES 4,650 3,453 6,999 5,819 4,593 4,926 4,577
Other income 6,649 4,522 9,908 6,967 4,559 2,586 (873)
Other expense 8,905 6,419 13,441 10,894 8,269 6,062 4,521
-------- ------- ------- ------- -------- ------- --------
INCOME (LOSS) BEFORE TAXES 2,394 1,556 3,466 1,892 883 1,450 (817)
Provision for income taxes 911 613 1,257 715 (209) 631 456
-------- ------- ------- ------- -------- ------- --------
NET INCOME 1,483 943 2,209 1,177 1,092 819 (1,273)
======== ======= ======= ======= ======== ======= ========
ENDING BALANCE SHEET DATA:
Assets 230,571 163,691 173,923 160,914 151,586 142,570 149,813
Securities 18,013 18,838 17,323 16,599 20,467 23,176 25,394
Loans net of allowances for loan losses 181,154 119,895 129,149 114,535 107,758 103,689 97,602
Allowance for loan losses 1,962 1,960 2,051 2,337 2,354 1,945 1,191
Deposits 205,456 145,579 152,691 143,106 137,594 127,913 134,137
Total stockholders' equity 23,141 16,195 17,688 14,961 10,941 9,796 9,050
PER SHARE DATA AND OTHER SELECTED RATIOS:
Earnings per common equivalent share
Basic .34 .24 .56 .36 .37 .29 (.46)
Diluted .33 .21 .49 .34 .35 .29 (.46)
Dividends declared per share .00 .00 .00 .02 .02 .02 .00
Book value per share 4.64 4.06 4.38 3.84 3.66 3.52 3.26
Stockholders' equity to assets at period end 10.04 9.89 10.17 9.30 7.22 6.87 5.96
Tangible shareholders' equity to assets at period end 8.41 8.19 8.49 7.91 6.44 6.75 5.87
Return on average assets 1.47 1.16 1.32 .75 .74 .56 (.88)
Return on average equity 14.53 12.11 13.53 9.09 10.53 8.69 (14.47)
Average equity/average assets 10.09 9.60 9.75 8.29 7.05 6.40 6.08
Net interest margin 4.82 4.53 4.73 4.62 4.22 4.26 3.93
</TABLE>
20
<PAGE>
SELECTED HISTORICAL AND PRO FORMA PER SHARE DATA
The following table sets forth for CWB Common Stock and Palomar Common
Stock certain selected historical and unaudited pro forma equivalent per share
data at June 30, 1998 and 1997 and for the six months ended June 30, 1998
and 1997, and at the end of and for each of the three years ended December 31,
1997, giving effect to the Merger using the pooling-of-interests method of
accounting. The information is derived from the historical consolidated
financial statements of CWB and the historical financial statements of Palomar,
including the related notes thereto, and the pro forma combined financial
information giving effect to the Merger, including the related notes thereto,
appearing elsewhere herein. The information below should be read in conjunction
with the historical and pro forma combined financial information of CWB and
Palomar, including the notes thereto, appearing elsewhere in this Joint Proxy
Statement-Prospectus or incorporated herein by reference. See "Unaudited Pro
Forma Combined Condensed Financial Information".
<TABLE>
<CAPTION>
For the Six Months For the Years Ended
Ended June 30 December 31
------------------ ---------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995
-------- -------- -------- -------- --------
Diluted earnings (loss) per share(1)
CWB .30 .20 .44 .44 .47
Palomar .65 .37 1.00 .12 .14
CWB equivalent pro forma .33 .21 .49 .34 .35
Palomar combined pro forma
Dividends per share(2)
CWB cash dividends per share .00 .00 .00 .04 .03
Palomar cash dividends per share .00 .00 .00 .00 .00
Palomar equivalent pro forma cash
dividends per share .00 .00 .00 .02 .02
At June 30, At December 31,
1998 1997
----------- ---------------
Book value per share(3)
CWB 4.31 3.93
Palomar 9.19 9.01
CWB combined pro forma
Palomar equivalent pro forma 4.64 4.38
<FN>
(1) The CWB combined pro forma diluted earnings (loss) per share were
calculated by using aggregate historical income information divided by the
average pro forma diluted shares outstanding of the combined entity. The average
diluted pro forma shares of the combined entity were calculated by combining the
CWB historical diluted shares with the historical diluted shares of Palomar as
adjusted by the conversion number of 1.544. See "The Merger
Agreement-Conversion of Palomar Common Stock". The Palomar equivalent pro forma
earnings per share amounts were computed by multiplying the CWB combined pro
forma amounts by the conversion number of 1.544
(2) The Palomar equivalent pro forma cash dividends per share amounts
were computed by multiplying the CWB cash dividends per share by the conversion
number of 1.544.
21
<PAGE>
(3) The CWB combined pro forma book value per share is based on the
aggregate historical common shareholders' equity of the Companies divided by the
total pro forma common shares of the combined entity based on the conversion
number of 1.544. The Palomar equivalent pro forma book value per share at period
end represents the CWB pro forma amounts multiplied by the conversion number of
1.544. See "The Merger Agreement--Conversion of Palomar Common Stock".
</TABLE>
22
<PAGE>
RISK FACTORS
In addition to the information contained elsewhere in this Joint Proxy
Statement-Prospectus or incorporated herein by reference, CWB and Palomar
shareholders considering the proposal to approve the principal terms of the
Merger should carefully consider the following factors, among others, before
making any final decision.
FORWARD-LOOKING STATEMENTS MAY NOT PROVE ACCURATE
When used or incorporated by reference in this Joint Proxy
Statement-Prospectus, the words "anticipate", "estimate", "expect", "project",
"believe" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks, uncertainties and
assumptions including those set forth below. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated, expected
or projected. Several key factors that have a direct bearing on CWB's ability to
attain its goals are discussed below.
NO INDEPENDENT FAIRNESS OPINION
The Boards of Directors of both CWB and Palomar have each decided not to
obtain an opinion from a third party advisor that the consideration to be paid
by CWB to the holders of Palomar Common Stock is fair to the shareholders of CWB
or Palomar from a financial point of view. The consideration being paid has
been agreed to after arm's length negotiations by representatives of both
companies with the approval of their respective Boards of Directors.
COMPETITION
The banking business in California generally, and in CWB's and Palomar's
service areas in particular, is highly competitive with respect to both loans
and deposits and is dominated by a relatively small number of major financial
institutions that have many offices operating throughout wide geographic areas.
In addition, there are numerous other independent commercial banks and savings
associations within their primary service areas, many of which have greater
resources, greater capital and, in some cases, less stringent regulatory
limitations. Certain of their competitors may be better able to respond to
changing capital and other regulatory requirements and better able to maintain
or improve market share.
ABILITY TO INTEGRATE THE OPERATIONS OF CWB AND PALOMAR
Because the markets in which CWB and Palomar operate are highly competitive
and because of the inherent uncertainties associated with merging two companies,
there can be no assurance that the entities will be able to realize fully the
operating efficiencies CWB and Palomar currently expect to realize as a result
of the Merger and the consolidation of certain administrative operations of
Palomar or that such operating efficiencies will be realized in the time frame
currently anticipated. See "THE MERGER-Background of the Merger".
GENERAL BUSINESS RISK
The business of CWB and Palomar is subject to various business risks. The
volume of loan originations is dependent upon demand for loans of the type
originated and serviced by GNB, CWB's wholly-owned subsidiary, and Palomar and
the competition in the marketplace for such loans. The level of consumer
confidence, fluctuations in real estate values, fluctuations in prevailing
interest rates and fluctuations in investment returns expected by the financial
community could combine to make loans of the type originated by GNB and Palomar
less attractive. In addition, CWB, GNB and Palomar may be adversely affected by
other factors that could (a) increase the cost to the borrower of loans
originated by GNB and Palomar, (b) create alternative lending sources for such
borrowers, or (c) increase the cost of funds of GNB and Palomar at rates faster
than any increase in interest income, thereby narrowing their net interest rate
margins. Managements of CWB, GNB, and Palomar believe that loan demand will
continue to improve, but there can be no assurance that there will be sufficient
loan demand in the future to keep pace with increases in deposits such that the
asset mix desired by CWB and Palomar can be achieved and maintained.
Governmental interventions through elimination of tax benefits for home equity
loans, regulation of an increased scope of loans or introduction of additional
regulations aimed at mortgage loans could also adversely affect the business in
which CWB and Palomar are engaged.
23
<PAGE>
In the ordinary course of business, CWB, GNB, and Palomar are subject to
claims made against them by borrowers and investors arising from, among other
things, losses that are claimed to have been incurred as a result of (a) alleged
breaches of fiduciary obligation, (b) alleged misrepresentations, errors or
omissions by employees and officers (including appraisers), (c) alleged
incomplete documentation, or (d) alleged failure by CWB, GNB, or Palomar to
comply with applicable laws and regulations. CWB and Palomar believe that any
liability with respect to any currently asserted claims or legal actions against
CWB, GNB, or Palomar is not likely to be material to the consolidated financial
position or results of operations of either institution; however, any claims
asserted in the future may result in legal expense or liabilities that could
have a material adverse effect on the financial positions and results of
operations of CWB or Palomar. See "LITIGATION".
CONCENTRATION OF OPERATIONS; RECESSIONARY ENVIRONMENTS; DECLINE IN REAL ESTATE
VALUES
The business activities of CWB and Palomar currently are focused in
Southern California, with the majority of their business concentrated in Santa
Barbara and San Diego counties. The business of CWB after the Merger is expected
to continue to be concentrated in Southern California for the foreseeable
future. Although CWB has expanded into the Central Valley of California and has
loan production offices in Nevada, Georgia and Florida and intends to continue
to expand within Southern California, there can be no assurance when or if any
further expansion will take place. Consequently, the results of operations and
financial condition of CWB and Palomar are dependent upon general trends in the
Santa Barbara County, San Diego County, in particular, and Southern California
economies and residential and commercial real estate markets, generally. The
risks to which the business of CWB and Palomar is subject, and to which the
business of CWB after the Merger will be subject, become more acute during an
economic slow-down or recession such as that experienced during the recent
California recession. During such periods, delinquencies and foreclosures
generally increase and can result in increased numbers of, and larger, claims
and legal actions and in a decline in demand for the services provided by CWB
and Palomar. In addition, a significant decline in market values of properties
of the type that secure loans originated by GNB and Palomar would reduce
homeowners' equity in their homes and businesses' equity in their properties,
thereby reducing their borrowing power and also weakening collateral coverage on
loans made previously by GNB and Palomar. Such a decline could also diminish the
market for loans originated by GNB and Palomar. Any of the foregoing could have
a material adverse effect on the financial position and results of operations of
CWB, GNB and Palomar, and could have a greater adverse impact on CWB, GNB and
Palomar than on certain competitors that may have greater resources and capital.
In addition, the concentration of CWB's, GNB's and Palomar's operations in Santa
Barbara and San Diego counties exposes it to greater risk than other banking
companies with a wider geographic base in the event of catastrophes, such as
earthquakes, fires and floods, in this region.
ACCOUNTING TREATMENT
In the event the Merger cannot be accounted for as a pooling of interests
(or the availability of the pooling-of- interests method of accounting with
respect to the Merger cannot be determined prior to the consummation of the
Merger), the parties may nonetheless determine to proceed with the consummation
of the Merger using the purchase method of accounting. See "THE
MERGER-Accounting Treatment". In such event, CWB will be required to recognize
additional goodwill of approximately ___________ which will be amortized over a
period of ___ years, resulting in a potential reduction of reported net income
of approximately $__________ per year. [See "UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL INFORMATION"]. Although management of CWB and Palomar
currently expect that the Merger will be accounted for as a pooling of
interests, there can be no assurance that such accounting treatment will be
available, and CWB and Palomar may determine to consummate the Merger whether or
not such accounting treatment is available.
INTEREST RATE RISK
It is expected that CWB, through its subsidiaries including Palomar, will
continue to realize income from the differential or "spread" between the
interest earned on loans, securities and other interest-earning assets, and
interest paid on deposits, borrowings and other interest-bearing liabilities.
Net interest spreads are affected by the difference between the maturities and
repricing characteristics of interest-earning assets and interest-bearing
liabilities. In addition, loan volume and yields are affected by market interest
rates on loans, and rising interest rates generally are associated with a lower
volume of loan originations. There can be no assurance that CWB's and Palomar's
interest rate risk will be minimized or eliminated. In addition, an increase in
the general level of interest rates may affect the ability of certain borrowers
to pay the interest on and principal of their obligations. Accordingly, changes
in levels of market interest rate could materially adversely affect CWB's and
Palomar's net interest spread, asset quality, loan origination volume and
overall results of operation.
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SHARES ELIGIBLE FOR FUTURE SALE; DILUTION
Shares of CWB Common Stock eligible for future sale could have a dilutive
effect on the market for CWB Common Stock and could adversely affect market
prices.
As of _____________, 1998, the Articles of Incorporation of CWB authorized
20,000,000 shares of CWB Common Stock, of which 3,984,500 shares were issued and
outstanding. It is anticipated that approximately 1,000,800 additional shares
of CWB Common Stock will be issued in the Merger to Palomar shareholders,
assuming no shares of Palomar Common Stock reserved for issuance on the Palomar
Record Date are issued on or prior to the Effective Date (See "THE
MERGER-______________"). Pursuant to its stock option plan, CWB had outstanding
options to purchase an additional 129,468 shares of CWB Common Stock with
exercise prices of between $_____ and $_______. As of the Palomar Record Date,
Palomar had no options to purchase shares of Palomar Common Stock or warrants
outstanding to purchase additional shares of Palomar Common Stock.
It is CWB's intention to pursue acquisitions of other companies from time
to time where such acquisitions are believed by CWB to enhance shareholder value
or satisfy other strategic objectives. Such acquisitions, if any, could be
accomplished by the issuance of additional shares of CWB Common Stock or other
securities convertible into or exercisable for CWB Common Stock. See "UNAUDITED
PRO FORMA COMBINED CONDENSED FINANCIAL DATA".
REGULATION
The operations of CWB, GNB, and Palomar are subject to extensive regulation
by federal, state and local governmental authorities and are subject to various
laws and judicial and administrative decisions imposing requirements and
restrictions on part or all of their respective operations. CWB and Palomar each
believes that it is in substantial compliance in all material respects with
applicable federal, state and local laws, rules and regulations. Because the
business of each of CWB and Palomar is highly regulated, the laws, rules and
regulations applicable to CWB and Palomar are subject to regular modification
and change. There are currently proposed various laws, rules and regulations
that, if adopted, would impact CWB, GNB and Palomar. There can be no assurance
that these proposed laws, rules and regulations, or other such laws, rules or
regulations, will not be adopted in the future, which could make compliance much
more difficult or expensive, restrict CWB's or GNB's ability to originate,
broker or sell loans, further limit or restrict the amount of commissions,
interest or other charges earned on loans originated or sold by CWB or GNB or
otherwise adversely affect the business or prospects of CWB and Palomar.
LIMITED MARKET FOR CWB COMMON STOCK
CWB Common Stock was designated for quotation on the Nasdaq-NMS on December
31, 1997. There can be no assurance that an active trading market for CWB Common
Stock will develop, or if developed, will continue, or that shareholders of CWB
after the Merger will be able to resell their securities or otherwise liquidate
their investment, if at all, without considerable delay or considerable impact
on the sales price. See "SUMMARY-Markets and Market Prices".
There can be no assurance as to the market value of CWB Common Stock, which
market value may be significantly affected by various factors, including but not
limited to announcements of expanded services by CWB or its competitors,
acquisitions of related companies and variations in quarterly operating results,
as well as by the dilutive effects of the matters described above in "-Shares
Eligible for Future Sale; Dilution". The limited trading market for CWB Common
Stock may cause fluctuations in the market value of CWB Common Stock to be
exaggerated, leading to price volatility in excess of that which would occur in
a more active trading market.
THE MEETINGS
GENERAL
This Joint Proxy Statement-Prospectus is furnished in connection with the
solicitation by the Palomar Board of proxies representing Palomar Common Stock
to be voted at the Palomar Meeting to be held on ______________, 1998, and at
any postponement or adjournment thereof and in connection with the solicitation
by the CWB Board of Proxies representing CWB Common Stock to be voted at the CWB
Meeting to be held on ________________, 1998, and at any postponement or
adjournment thereof. This Joint Proxy Statement-Prospectus and accompanying
proxy card are first being mailed to Palomar shareholders on or about
_______________, 1998 and to CWB shareholders on or about ___________________,
1998.
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THE PALOMAR SPECIAL MEETING
The purpose of the Palomar Meeting is to (a) consider and vote upon the
principal terms of the Merger; and (b) transact such other business as may
properly come before the Palomar Meeting or any adjournments or postponements
thereof. Consummation of the Merger is subject to satisfaction of a number of
conditions, including the receipt of various regulatory approvals for the
Merger, and the approval of the principal terms of the Merger by Palomar
shareholders. See "MERGER AGREEMENT-Conditions."
The Merger Agreement provides, among other things, that a representative of
CWB, selected by the Board of Directors of CWB, will be appointed to the board
of directors of Palomar at the time the Merger is consummated. Accordingly, at
the Effective Time, the Palomar Board will appoint that representative to fill
the vacancy on the Palomar Board. The directors and executive officers of
Palomar will not be required to resign, effective upon consummation of the
Merger. See "THE MERGER-Certain Effects of the Merger." In the event that the
Merger is not consummated as contemplated, all directors of Palomar elected at
the last meeting of Palomar shareholders will continue to serve as directors of
Palomar until the next annual meeting of Palomar and until their successors have
been elected and duly qualified.
THE PALOMAR RECORD DATE
The Palomar Board has fixed the close of business on ______________, 1998
as the Palomar Record Date for the determination of the Palomar shareholders
entitled to receive notice of, and to vote at, the Palomar Meeting. Only holders
of record of shares of Palomar Common Stock at the close of business on the
Palomar Record Date will be entitled to notice of, and to vote at, the Palomar
Meeting and any postponements or adjournments thereof. On the Palomar Record
Date, ___________ shares of Palomar Common Stock were issued and outstanding.
SOLICITATION OF PROXIES BY PALOMAR
This solicitation of Proxies is being made by the Board of Directors of
Palomar. The expense of preparing, assembling, printing and mailing this Proxy
Statement and the materials used in the solicitation of Proxies for the Meeting
will be borne by Palomar. It is contemplated that Proxies will be solicited
principally through the use of the mail, but officers, directors and employees
of Palomar may solicit Proxies personally or by telephone, without receiving
special compensation therefor. Although there is no formal agreement to do so,
Palomar may reimburse banks, brokerage houses and other custodians, nominees and
fiduciaries for their reasonable expenses in forwarding these Proxy Materials to
shareholders whose stock in Palomar is held of record by such entities. In
addition, Palomar may use the services of individuals or companies it does not
regularly employ in connection with this solicitation of Proxies, if Management
determines it advisable. Palomar also will provide persons, firms, banks and
corporations holding shares in their names or in the names of nominees, which in
any case are beneficially owned by others, with proxy materials for transmittal
to such beneficial owners and will reimburse such record owners for their
expenses of doing so.
VOTES REQUIRED AND VOTING OF PROXIES
In advance of the Palomar Meeting, the Palomar Board will appoint one or
three persons, as inspectors of the election, whose duties will be those set
forth in Section 707 of the CGCL, among which are determining the shares
represented at the meeting, determining the existence of a quorum, determining
the authenticity, validity and effect of proxies, and counting and tabulating
all votes or consents as to all matters presented to the Palomar shareholders. A
majority of all shares of Palomar Common Stock entitled to vote, represented in
person or by proxy, constitutes a quorum. Abstentions will each be included in
the determination of the number of shares present; however, they will not be
counted as votes in favor of the principal terms of the Merger. Each share of
Palomar Common Stock held of record will be entitled to one vote upon each
matter properly submitted to the Palomar Shareholders at the Palomar Meeting and
any postponement or adjournment thereof.
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The affirmative vote of the holders of at least a majority of the total
number of outstanding shares of Palomar Common Stock entitled to vote at the
Palomar Meeting is required to approve the principal terms of the Merger. The
failure to vote, an abstention or a broker non-vote thus has the same effect as
a vote against the principal terms of the Merger.
A form of Proxy for voting the Palomar Common Stock at the meeting is
enclosed. Any shareholder of Palomar who executes and delivers such a Proxy has
the right to revoke it at any time before it is exercised by filing with the
Secretary of Palomar an instrument revoking it or a duly executed Proxy bearing
a later date. In addition, the powers of the Proxy Holders will be revoked if
the person executing the Proxy is present at the Meeting and elects to vote in
person. A Proxy received in time for the Meeting will be voted by the Proxy
Holders in accordance with the instructions specified in the Proxy. IF NO
INSTRUCTION IS SPECIFIED WITH RESPECT TO A PROPOSAL TO BE ACTED UPON, THE SHARES
REPRESENTED BY YOUR EXECUTED PROXY WILL BE VOTED IN FAVOR OF THE PROPOSAL LISTED
ON THE PROXY. IF ANY OTHER BUSINESS IS PROPERLY PRESENTED AT THE MEETING, THE
PROXY WILL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF PALOMAR'S BOARD OF
DIRECTORS. Any proxy that is voted against approval of the principal terms of
the Merger or on which the relevant Palomar shareholder specifically abstains
from voting with respect to such approval will not be voted in favor of any such
proposal
The Palomar Board is not currently aware of any business to be acted upon
at the Palomar Meeting other than as described herein. If, however, other
matters are properly brought before the Palomar Meeting, persons appointed as
proxies will have discretion to vote or act thereon in their best judgment.
Certain Palomar shareholders, all of whom are executive officers or
directors of Palomar, holding approximately 20.65% of Palomar Common Stock
outstanding on the Palomar Record Date have agreed, among other things, to vote
"FOR"the adoption and approval of the Merger Agreement and the Merger. See
"THE MERGER-The Shareholder Agreements".
If a quorum is not obtained, or fewer shares of Palomar Common Stock are
voted in favor of the principal terms of the Merger than the number required for
approval of the principal terms of the Merger, it is expected that the Palomar
Meeting will be postponed or adjourned for the purpose of allowing additional
time to obtain additional proxies or votes, and at any subsequent reconvening of
the Palomar Meeting, all proxies will be voted in the same manner as such
proxies would have been voted at the original convening of the Palomar Meeting
(except for any proxies that have theretofore effectively been revoked or
withdrawn).
THE CWB SPECIAL MEETING
The purpose of the CWB Meeting is to (a) consider and vote upon the
principal terms of the Merger; (b) consider and vote upon an amendment to
Section 3.2 of the CWB Bylaws increasing the range of directors from six (6)
to eleven (11) persons to eight (8) to fifteen (15) persons; and (c) transact
such other business as may properly come before the CWB Meeting or any
adjournments or postponements thereof. Consummation of the Merger is subject to
satisfaction of a number of conditions, including the receipt of various
regulatory approvals for the Merger, and the approval of the principal terms of
the Merger by CWB shareholders. See "MERGER AGREEMENT-Conditions."
The Merger Agreement provides, among other things, that a representative of
Palomar, selected by the Board of Directors of Palomar, will be appointed to the
board of directors of CWB at the time the Merger is consummated. Accordingly, at
the Effective Time, the CWB Board will adopt resolutions increasing the number
of CWB directors from eleven (11) to twelve (12) and appoint that representative
to fill the vacancy created thereby. In the event that the Merger is not
consummated as contemplated, all directors of CWB elected at the last meeting of
CWB shareholders will continue to serve as directors of CWB until the next
annual meeting of CWB and until their successors have been elected and duly
qualified.
THE CWB RECORD DATE
The CWB Board has fixed the close of business on ______________, 1998 as
the CWB Record Date for the determination of the CWB shareholders entitled to
receive notice of, and to vote at, the CWB Meeting. Only holders of record of
shares of CWB Common Stock at the close of business on the CWB Record Date will
be entitled to notice of, and to vote at, the CWB Meeting and any postponements
or adjournments thereof. On the CWB Record Date, ___________ shares of CWB
Common Stock were issued and outstanding.
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SOLICITATION OF PROXIES BY CWB
This solicitation of Proxies is being made by the Board of Directors of
CWB. The expense of preparing, assembling, printing and mailing this Proxy
Statement and the materials used in the solicitation of Proxies for the Meeting
will be borne by CWB. It is contemplated that Proxies will be solicited
principally through the use of the mail, but officers, directors and employees
of CWB may solicit Proxies personally or by telephone, without receiving special
compensation therefor. Although there is no formal agreement to do so, CWB may
reimburse banks, brokerage houses and other custodians, nominees and fiduciaries
for their reasonable expenses in forwarding these Proxy Materials to
shareholders whose stock in CWB is held of record by such entities. In
addition, CWB may use the services of individuals or companies it does not
regularly employ in connection with this solicitation of Proxies, if Management
determines it advisable. CWB also will provide persons, firms, banks and
corporations holding shares in their names or in the names of nominees, which in
any case are beneficially owned by others, with proxy materials for transmittal
to such beneficial owners and will reimburse such record owners for their
expenses of doing so.
VOTES REQUIRED AND VOTING OF PROXIES
In advance of the CWB Meeting, the CWB Board will appoint one or three
persons as inspectors of the election, whose duties will be those set forth in
Section 707 of the CGCL, among which are determining the shares represented at
the meeting, determining the existence of a quorum, determining the
authenticity, validity and effect of proxies, and counting and tabulating all
votes or consents as to all matters presented to the CWB shareholders. A
majority of all shares of CWB Common Stock entitled to vote, represented in
person or by proxy, constitutes a quorum. Abstentions will each be included in
the determination of the number of shares present; however, they will not be
counted as votes in favor of the principal terms of the Merger. Each share of
CWB Common Stock held of record will be entitled to one vote upon each matter
properly submitted to the CWB shareholders at the CWB Meeting and any
postponement or adjournment thereof.
The affirmative vote of the holders of at least a majority of the total
number of outstanding shares of CWB Common Stock entitled to vote at the CWB
Meeting is required to approve the principal terms of the Merger. The failure to
vote, an abstention or a broker non-vote thus has the same effect as a vote
against the principal terms of the Merger.
A form of Proxy for voting the CWB Common Stock at the meeting is enclosed.
Any shareholder of CWB who executes and delivers such a Proxy has the right to
revoke it at any time before it is exercised by filing with the Secretary of CWB
an instrument revoking it or a duly executed Proxy bearing a later date. In
addition, the powers of the Proxy Holders will be revoked if the person
executing the Proxy is present at the Meeting and elects to vote in person. A
Proxy received in time for the Meeting will be voted by the Proxy Holders in
accordance with the instructions specified in the Proxy. IF NO INSTRUCTION IS
SPECIFIED WITH RESPECT TO A PROPOSAL TO BE ACTED UPON, THE SHARES REPRESENTED BY
YOUR EXECUTED PROXY WILL BE VOTED IN FAVOR OF THE PROPOSAL LISTED ON THE PROXY.
IF ANY OTHER BUSINESS IS PROPERLY PRESENTED AT THE MEETING, THE PROXY WILL BE
VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF CWB'S BOARD OF DIRECTORS. Any
proxy that is voted against approval of the principal terms of the Merger or on
which the relevant CWB shareholder specifically abstains from voting with
respect to such approval will not be voted in favor of any such proposal.
The CWB Board is not currently aware of any business to be acted upon at
the CWB Meeting other than as described herein. If, however, other matters are
properly brought before the CWB Meeting, persons appointed as proxies will have
discretion to vote or act thereon in their best judgment.
Certain CWB shareholders, all of whom are directors of CWB, holding
approximately 27.6% of CWB Common Stock outstanding on the CWB Record Date have
agreed, among other things, to vote "FOR" the adoption and approval of the
Merger Agreement and the Merger. See "THE MERGER-The Shareholder Agreements".
If a quorum is not obtained, or fewer shares of CWB Common Stock are voted
in favor of the principal terms of the Merger than the number required for
approval of the principal terms of the Merger, it is expected that the CWB
Meeting will be postponed or adjourned for the purpose of allowing additional
time to obtain additional proxies or votes, and at any subsequent reconvening of
the CWB Meeting, all proxies will be voted in the same manner as such proxies
would have been voted at the original convening of the CWB Meeting (except for
any proxies that have theretofore effectively been revoked or withdrawn).
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THE MERGER
This Section of the Joint Proxy Statement-Prospectus describes certain
aspects of the proposed Merger, and such information is qualified in its
entirety by reference to the other information contained elsewhere in this Proxy
Statement -Prospectus, including the Appendices hereto, and the documents
incorporated herein by reference. A copy of the Merger Agreement is set forth as
Appendix A to this Joint Proxy Statement-Prospectus and the text thereof is
incorporated herein by reference, and reference is made theretofore a complete
description of the terms of the Merger. Shareholders are urged to read carefully
the Merger Agreement and each of the other Appendices hereto in their entirety.
BACKGROUND OF THE MERGER
CWB, principally through its wholly-owned subsidiary, Goleta National Bank,
conducts general banking operations centered in Santa Barbara County with loan
production offices throughout the Central Valley of California, in Las Vegas,
Nevada, Woodstock, Georgia and three locations in Florida. In serving
individuals, small businesses and mid-market corporations, GNB historically has
focused on a community-based approach to banking. Palomar operates as a savings
and loan association headquartered in San Diego County providing home loans and
other real estate lending services to its service area. Management of each of
CWB and Palomar has been cognizant of the rapidly changing structure of the
banking market in Southern California, in part as a result of the problems
associated with the savings and loan industry and the problems experienced by
other independent banks during the recent recession. The structure of the
banking market is changing largely through a process of consolidation. As is the
case throughout the United States, the managements of CWB and Palomar believe
that a process of consolidation will continue to occur in the Southern
California financial services industry resulting in, among other things, a
reduction in the number of independent banks and independent savings and loan
associations.
In order to compete effectively with the larger financial institutions that
CWB Management believes will result from the various consolidations and mergers
in the industry locally, CWB Management saw a need to expand prudently and
recognized the opportunity to build a larger regional, independent financial
institution network in Southern California. Accordingly, as a part of its
effort to achieve long-term stable profitability, enhance the services offered
to customers and leverage CWB's investment in corporate software and hardware,
CWB commenced a search for other financial institutions in the Southern
California market which were believed by CWB to enhance shareholder value and
satisfy other strategic objectives. CWB has worked to identify financial
institutions with significant affiliations in their particular service area that
wish to remain committed to the personal service to their local customers yet
achieve the benefits and efficiencies that result from being a member of a
family of companies all dedicated to providing quality financial services, under
the umbrella of the Community West system.
Palomar Management perceived the same challenges and opportunities as
Palomar emerged from the difficulties of the recent recession. The pace of
consolidation in California, already rapid, appeared to be accelerating and
larger institutions were attempting to increase their share of the market served
by Palomar. At the same time, savings and loan associations were either
converting their charters or were combining and providing greater competition.
Palomar Management examined prospects for internal growth, growth by acquisition
of one or more financial institutions and the possibility of a merger with a
strong partner that shared a common vision and was focused on markets
demographically similar or identical to those served by Palomar.
In December, 1997, the Palomar Board authorized the engagement of the
investment banking firm of Western Financial Corporation to pursue a merger with
a larger partner. In _____________, 1998, ________________ of Western Financial
Corporation, contacted C. Randy Shaffer, Executive Vice President of CWB, to
explore a possible merger of the two institutions. A meeting between Mr.
Shaffer and Mr. James Rady, President and Chief Executive Officer and Mr. Darol
H. Caster, Senior Vice President and Chief Financial Officer of Palomar, was
held on January 21, 1998. At this meeting, Mr. Shaffer indicated that CWB was
interested in exploring a possible merger of the two institutions. Subsequent
to the meeting, several discussions were conducted between Mr. Shaffer and Mr.
Rady. At a meeting on March 6, 1998, attended by Mr. Shaffer and the entire
Palomar Board, the major terms of the Merger were discussed. The Palomar Board
appointed Mr. Robert Wedeking, Chairman of the Palomar Board, Mr. Rady, and Mr.
Timothy S. Thomas, a Board Member, to an ad hoc committee and authorized them to
negotiate terms of the proposed transaction with CWB and report to the Palomar
Board. The parties completed their independent due diligence of each other on
or about March 27, 1998.
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The CWB Board held a meeting on ___________, 1998, at which the proposed
Merger was considered in detail with CWB's senior management, including the
consideration to be paid by CWB and the related transactions. At such meeting,
the CWB Board approved the Merger Agreement and the various matters and related
agreements contemplated thereby and authorized CWB Management to take all action
reasonably necessary to effect the Merger.
The Palomar Board held a meeting on April 17, 1998, at which the terms of
the proposed Merger were considered in detail also with Palomar's senior
management. At such meeting, the Palomar Board unanimously approved the Merger
Agreement and the various matters and related agreements contemplated thereby.
The parties executed the Merger Agreement on April 23, 1998.
In addition, as an inducement to the other party entering into the Merger
Agreement, the directors of Palomar entered into Shareholder Agreements with CWB
and the directors of CWB entered into Shareholder Agreements with Palomar,
pursuant to which they committed to vote their respective shares in favor of the
Merger.
The managements of CWB and Palomar believe that the two institutions
complement each other in their community-based approaches to banking, their
lines of business, and in terms of their markets, both geographic and
demographic. Consequently both managements perceive opportunities for increased
operating efficiencies through combination and believe that, by combining
forces, they will be able more effectively to compete and successfully to take
advantage of banking opportunities in the rapidly evolving Southern California
markets.
STRUCTURE OF THE MERGER
The Merger Agreement provides for the merger of Palomar with a wholly owned
subsidiary of CWB formed for the sole purpose of facilitating the Merger, CWB
Merger Corp, with Palomar being the Surviving Association and operating under
the name and charter of "Palomar Savings and Loan Association". As more fully
described below in "The Merger Agreement" in connection with the Merger, each
share of Palomar Common Stock issued and outstanding at the Effective Time
(other than (a) shares that have not been voted in favor of approval of the
principal terms of the Merger and with respect to which Dissenters' Rights have
been perfected in accordance with the CGCL and (b) shares held directly or
indirectly by CWB, other than shares held in a fiduciary capacity or in
satisfaction of a debt previously contracted) will be converted into (subject to
the limitations set forth in the Merger Agreement with respect to proration and
fractional shares) the Per Share Consideration. Each share of CWB Common Stock
outstanding immediately prior to the Effective Time will remain outstanding
after the Merger as one share of CWB Common Stock. See "THE MERGER-The Merger
Agreement".
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
The Palomar Board and the CWB Board have unanimously approved the Merger
and the Merger Agreement and unanimously recommend that Palomar shareholders and
CWB shareholders, respectively, vote "FOR" the approval of the principal terms
of the Merger.
In reaching its determination to approve the Merger, the Palomar Board
analyzed Palomar's alternatives for enhancement of Palomar shareholder value,
including Palomar's prospects under several assumptions so as to be able to
compare the value of a share of Palomar Common Stock with the CWB Common Stock
and the Per Share Consideration as well as with comparable transactions. At the
same time, the Palomar Board also reviewed the history of CWB and the prospects
of CWB if the Merger were consummated. The factors that were examined as part of
this analysis, include, but were not limited to the following:
(a) Data showing CWB's and Palomar's results of operations and financial
condition;
(b) The increasing competition in Palomar's markets from both existing and
potential competitors, some of whom have far greater assets and resources, in
part as a result of the consolidation taking place in the financial institutions
industry;
(c) The efficacy of Palomar's strategic plan to increase financial
performance and shareholder value over the period of its projection under
current competitive conditions and actions;
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(d) The consolidation of the financial services industry nationally and in
California;
(e) A review of potential benefits for shareholders of a larger
organization with greater resources, increased operating efficiencies, extremely
sophisticated computer technology to enhance customer service, a readily
available secondary market for loan sales and loan participation and a stronger
market position in Southern California.
(f) The belief of the Palomar Board and management that a business
combination with CWB would offer increased long-term value and liquidity to
Palomar shareholders;
(g) A comparison of the CWB offer with reported transactions, nationally
and in California, by financial institutions with similar characteristics;
(h) Discussions with representatives of Western Financial Corporation
regarding strategic alternatives available to Palomar; and
(i) The determination of the Palomar Board of Directors that the Per Share
Consideration was fair, from a financial point of view, to the Palomar
Shareholders.
The Board of Directors of CWB, in reaching its conclusion to recommend to
holders of CWB Common Stock to approve the Merger and the Merger Agreement,
considered other potential merger partners and reviewed the history, prospects
of Palomar and the potential enhancement to the operation of CWB with Palomar as
a subsidiary financial institution. The factors examined included but were not
limited to the following:
(a) Data showing Palomar's results of operations and financial
condition;
(b) The potential benefits for CWB by having a subsidiary financial
institution with a savings and loan charter and having its primary focus on
originating, servicing and selling residential and other real estate secured
loans, particularly with CWB's active participation in the resale of such loans
in the secondary market and its commitment to provide higher loan-to-value real
estate loans;
(c) The potential to further employ CWB's enhanced data processing and
sophisticated computing systems; and
(d) The potential for enhanced earnings on a consolidated basis for
CWB.
The foregoing discussion of material factors considered by the Palomar
Board and CWB Board is not intended to be exhaustive but does set forth the
principal factors considered by the Palomar Board and CWB Board. The Palomar
Board collectively and CWB Board collectively reached the unanimous conclusion
to approve the Merger in light not only of the factors described above but of
such other factors as each Board member felt was appropriate. Neither the
Palomar Board nor the CWB Board assigned relative or specific weights to any of
the factors described above and individual directors may have weighed such
factors differently.
FOR THE REASONS SET FORTH ABOVE THE PALOMAR BOARD AND THE CWB BOARD HAVE
UNANIMOUSLY APPROVED THE MERGER AS IN THE BEST INTERESTS OF PALOMAR AND CWB AND
THEIR RESPECTIVE SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT PALOMAR AND CWB
SHAREHOLDERS APPROVE THE PRINCIPAL TERMS OF THE MERGER.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The federal income tax discussion set forth below may not be applicable to
certain classes of taxpayers, including insurance companies, securities dealers,
financial institutions, tax exempt organizations or trusts, foreign persons,
persons who hold shares of Palomar Common Stock as part of a straddle or
conversion transaction and persons who acquired shares of Palomar Common Stock
pursuant to the exercise of employee stock options or rights or otherwise as
compensation. Palomar Shareholders are urged to consult their own tax advisors
as to the specific tax consequences to them of the Merger, including the
applicability and effect of federal, state, local and other tax laws.
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TAX OPINIONS
It is intended that the Merger will be treated as a reorganization within
the meaning of Section 368(a) of the IRC. Consummation of the Merger as a
reorganization is conditioned upon receipt by CWB and Palomar of a ruling by the
IRS or, in lieu thereof, the opinion of Deloitte & Touche, LLP, substantially to
the effect that, for federal income tax purposes: (i) the Merger will be treated
as a reorganization within the meaning of Section 368(a) of the IRC, and (ii)
each of CWB and Palomar will be a party to that reorganization within the
meaning of Section 368(b) of the IRC (the "Tax Opinion").
The Tax Opinion if issued by Deloitte & Touche, LLP will not be binding on
the Internal Revenue Service (the "IRS"), and there can be no assurance that the
IRS will not contest the conclusions expressed therein. The Tax Opinion will be
based in part upon certain factual assumptions and upon certain representations
made, and certificates delivered, by CWB, CWB Merger Corp, and Palomar, which
representations and certificates Deloitte & Touche, LLP will assume to be true,
correct and complete. If such representations or certificates are inaccurate,
the Tax Opinion could be adversely affected.
TAX CONSEQUENCES OF THE MERGER
General. The following summary sets forth certain anticipated material
federal income tax consequences of the Merger to Palomar shareholders. The tax
treatment of each Palomar shareholder will depend in part upon such
shareholder's particular situation. This summary is based on the provisions of
the Internal Revenue Code of 1986, as amended (the "IRC") the Treasury
Regulations promulgated thereunder and administrative and judicial
interpretations thereof, all as in effect as of the date hereof. Such laws,
regulations or interpretations may differ at the Effective Time, and relevant
facts also may differ.
No gain or loss will be recognized by a Palomar shareholder who receives
solely CWB Common Stock for such Palomar shareholder's shares of Palomar Common
Stock (except to the extent such shareholder receives cash in lieu of a
fractional share interest in CWB Common Stock).
Such a Palomar Shareholder's aggregate tax basis in the CWB Common Stock
received pursuant to the Merger will equal such shareholder's aggregate tax
basis in the shares of Palomar Common Stock exchanged therefor, reduced by any
amount allocable to a fractional share interest of CWB Common Stock for which
cash is received. The holding period of CWB Common Stock received pursuant to
the Merger will include the holding period of the shares of Palomar Common Stock
exchanged therefor, provided that such shares were held as a capital asset as of
the Effective Date.
Fractional Shares of CWB Common Stock. No fractional shares of CWB Common
Stock will be issued in the Merger. A Palomar shareholder who receives cash in
lieu of such a fractional share will be treated as having received such
fractional share pursuant to the Merger and then as having exchanged such
fractional share for cash in a redemption by CWB subject to Section 302 of the
IRC. Such a deemed redemption will be treated as a sale of the fractional
share, provided that it is not "essentially equivalent to a dividend". If the
CWB Common Stock represents a capital asset in the hands of the shareholder, the
shareholder will generally recognize capital gain or loss on such a deemed
redemption of the fractional share in an amount determined by the difference
between the amount of cash received therefor and the shareholder's tax basis in
the fractional share. Any such capital gain or loss will be long-term if the
Palomar Common Stock exchanged was held for more than one year. Under
recently-enacted legislation, long-term capital gain of an individual is
generally subject to a maximum capital gains rate of 20% for capital assets held
for more than one year.
BACKUP WITHHOLDING
Unless an exemption applies under applicable law and regulations, the
Exchange Agent (as defined herein), will be required to withhold 31% of any cash
payments to which a non-corporate shareholder or the payee is entitled pursuant
to the Merger unless the shareholder or other payee provides its taxpayer
identification number (social security number, employer identification number or
individual taxpayer identification number) and certifies that such number is
correct. Each shareholder and, if applicable, each other payee must provide the
information and certification necessary to avoid backup withholding, unless an
applicable exemption exists and is established in a manner satisfactory to CWB
and the Exchange Agent.
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REGULATORY APPROVALS
FEDERAL DEPOSIT INSURANCE CORPORATION AND FEDERAL RESERVE BOARD APPROVALS
Consummation of the Merger is subject to receipt of the prior approval of
the FDIC under the Bank Merger Act, 12 U.S.C. 1828(c) (the "BMA"). The BMA
requires that the FDIC take into consideration, among other factors, the
financial and managerial resources and future prospects of the institutions and
the convenience and needs of the communities to be served. The BMA prohibits the
FDIC from approving the Merger (i) if such transaction would result in a
monopoly or be in furtherance of any combination or conspiracy to monopolize or
to attempt to monopolize the business of banking in any part of the United
States, or (ii) if the effect of such transaction in any section of the country
may be substantially to lessen competition or to tend to create a monopoly, or
if it would in any other manner be a restraint of trade, unless the relevant
regulatory agency finds that the anti-competitive effects of such merger are
clearly outweighed by the public interest and by the probable effect of the
transaction in meeting the convenience and needs of the communities to be
served.
The Merger is also subject to prior approval by the Federal Reserve Board
(the "FRB") under Section 3 of the BHCA. In reviewing the application under the
BHCA, the FRB will take into consideration, among other things, competition, the
financial and managerial resources and future prospects of the holding companies
and banks concerned and the convenience and needs of the communities to be
served. The BHCA prohibits the FRB from approving the Merger if (a) it would
result in a monopoly or would be in furtherance of any combination or conspiracy
to monopolize or attempt to monopolize the business of banking in any part of
the United States or (b) its effect in any section of the country may be
substantially to lessen competition or tend to create a monopoly, or it would in
any other manner be in restraint of trade, unless the FRB finds that the
anti-competitive effects of the Merger are clearly outweighed in the public
interest by the probable effect of the transaction in meeting the convenience
and needs of the communities to be served.
Each of the FDIC and the FRB has the authority to deny an application if it
concludes that the combined organization would have an inadequate capital
structure, taking into account, among other factors, the nature of the business
and operations and plans for expansion. Furthermore, the FDIC and the FRB must
also assess the records of the depository institution subsidiaries of CWB, GNB
and Palomar under the Community Reinvestment Act of 1977, as amended (the
"CRA"). The CRA requires that the FDIC and the FRB assess, when evaluating an
application, each depository institution's record of meeting the credit needs of
its local communities, including low- and moderate-income neighborhoods,
consistent with safe and sound operation and take such record into account when
evaluating certain regulatory applications. Each of GNB and Palomar has a CRA
rating of "satisfactory".
Under the BMA and the BHCA, the Merger may not be consummated until the
fifteenth (15th) day following the date of FDIC or FRB approval, as the case may
be, or such earlier date as may be determined by the FDIC or the FRB, as the
case may be. If the United States Department of Justice commenced an action
challenging the Merger on antitrust grounds during such waiting period,
commencement of such action would stay the effectiveness of the FDIC and FRB
approvals, unless a court specifically orders otherwise.
CWB and Palomar submitted an application seeking approval of the Merger and
related matters to the FDIC on July 7, 1998. CWB and Palomar submitted an
application seeking approval of the FRB on July 27, 1998. It is expected that
the approvals will be received prior to the Palomar Meeting and the CWB Meeting,
but there can be no assurance that such approval will be obtained.
CALIFORNIA COMMISSIONER OF FINANCIAL INSTITUTIONS APPROVAL
Since Palomar is a California state-chartered savings and loan association,
CWB and Palomar must obtain approval of the California Commissioner of Financial
Institutions (the "Commissioner") pursuant to the California Financial Code
prior to the consummation of the Merger. CWB and Palomar filed an application
for such approval on July 8, 1998. It is expected that the approval will be
received prior to the Palomar Meeting and the CWB Meeting, but there can be no
assurance that such approval will be obtained.
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The Merger cannot proceed in the absence of the regulatory approvals. CWB
and Palomar are not aware of any material governmental approvals or actions that
are required for consummation of the Merger, except as described above. CWB and
Palomar have agreed in the Merger Agreement to use reasonable best efforts
promptly to take all actions necessary, proper or advisable to consummate the
transactions contemplated by the Merger Agreement, including using efforts to
obtain all necessary approvals from all applicable governmental entities, making
all necessary registrations, applications and filings and obtaining any
contractual consents and regulatory approvals. HOWEVER, THERE CAN BE NO
ASSURANCE THAT SUCH REGULATORY APPROVALS WILL BE OBTAINED, NOR CAN THERE BE
ASSURANCE AS TO THE DATE OF ANY SUCH APPROVAL. THERE CAN ALSO BE NO ASSURANCE
THAT ANY SUCH APPROVAL WILL NOT CONTAIN A CONDITION OR REQUIREMENT THAT CAUSES
SUCH APPROVALS TO FAIL TO SATISFY THE CONDITIONS SET FORTH IN THE MERGER
AGREEMENT AND DESCRIBED BELOW UNDER "THE MERGER-THE MERGER AGREEMENT".
RESALE OF CWB COMMON STOCK
All shares of CWB Common Stock received by Palomar shareholders in the
Merger will be freely transferable, except that shares of CWB Common Stock
received by Palomar shareholders who are deemed to be "affiliates" (as defined
for purposes of Rule 145 under the Securities Act) of Palomar as of the date of
the Palomar Meeting may be resold by them only pursuant to an effective
registration statement under the Securities Act covering resales of such shares
or in transactions permitted by the resale provisions of Rule 145 of the
Securities Act or as otherwise permitted under the Securities Act. Persons who
may be deemed to be affiliates of Palomar or CWB generally include individuals
or entities that control, are controlled by, or are under common control with,
such entities and may include certain officers and directors of such entities as
well as principal shareholders of such entities.
Each of Palomar's officers and directors has delivered to CWB a written
agreement providing that each such person will not sell, pledge, transfer or
otherwise dispose of any shares of CWB Common Stock to be received by such
person in the Merger, except in compliance with the applicable provisions of the
Securities Act. In addition, such "affiliate" (as defined for purposes of Rule
145 under the Securities Act) of Palomar is required to deliver at closing a
letter confirming such agreement and also agreeing that the affiliate will not
sell, pledge, transfer or otherwise dispose of any shares of CWB Common Stock to
be received by such person in the Merger until after financial results covering
at least 30 days of post-Merger combined operations of CWB and Palomar have been
published. See "THE MERGER - The Merger Agreement."
CERTAIN EFFECTS OF THE MERGER
Palomar will be the Surviving Association following the Merger. Once the
Merger is consummated, the trading of Palomar Common Stock will cease. It is
anticipated that the management and operation of Palomar will be integrated
after the Merger and will allow additional services to be provided to customers,
without affecting current day-to-day service. However, Palomar has agreed,
subject to certain conditions, at or before the Effective Time, to make such
accounting adjustments as CWB requests in order to implement its plans regarding
Palomar or to reflect merger-related expenses and costs incurred by Palomar. See
"THE MERGER-Certain Covenants-Certain Policies of Palomar".
Pursuant to the Merger Agreement, CWB has consented to appoint a
representative of Palomar, selected by the Board of Palomar to the CWB Board.
Prior to the Effective Time, the CWB Board will adopt resolutions fixing the
exact number of directors at twelve (12) and the representative will be
appointed to fill the vacancy on the CWB Board created thereby. See "THE
MERGER-Conditions". Also pursuant to the Merger Agreement, Palomar will appoint
a representative of CWB to the Board of Palomar. In the event that the Merger
is not consummated as contemplated, all directors of Palomar and CWB will
continue to serve as directors of Palomar and CWB, respectively, until the
completion of their respective terms and until their successors have been
elected and duly qualified. In all other respects, it is expected that
Palomar's Board of Directors and senior management will remain the same for the
foreseeable future after the Merger.
After the Merger, Palomar, as the Surviving Association will be
headquartered at 355 West Grand Avenue, Escondido, California 92025. The
telephone number at such offices will be (760) 745-9370.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
GENERAL
In considering the recommendations of the Palomar Board, Palomar
shareholders should be aware that certain members of management of Palomar and
of the Palomar Board have certain interests in the transactions contemplated by
the Merger Agreement that are in addition to the interests of shareholders
generally and that may create potential conflicts of interest. These interests
include, among others, the appointment of a Palomar Board member to the CWB
Board as of the Effective Time, and certain employment agreements and employee
benefits discussed below.
EMPLOYMENT AGREEMENTS
It is anticipated that at or shortly after the Effective Time, CWB will
cause Palomar to enter into employment agreements (the "Employment Agreements")
with James M. Rady, Darol H. Caster and Robert E. Pommier, the President and
Chief Executive Officer, the Senior Vice President and Chief Financial Officer,
and the Vice President/Lending Administrator of Palomar, respectively. It is
anticipated that the terms of each of the Employment Agreements will provide __
________________________________________________________________________________
________________________________________________________________________________
EMPLOYEE BENEFITS
Although Palomar will continue as a separate entity after the Effective
Time of the Merger, as a practical matter the Palomar Employee Plans will be
governed, managed and/or terminated by CWB from and after the Effective Time.
See "___________________________".
RELATED TRANSACTIONS
Other than the Merger Agreement, the Shareholder Agreements, and the
Employment Agreements that may be negotiated between Palomar and the officers of
Palomar noted above, and the transactions contemplated by and described in this
Joint Proxy Statement-Prospectus, CWB and Palomar do not know of any past,
present or proposed material contracts, arrangements or understandings between
CWB or its affiliates, on the one hand, and Palomar and its affiliates, on the
other hand.
AGREEMENT WITH WESTERN FINANCIAL CORPORATION
On December 2, 1997, Palomar entered into a Finders Fee Agreement with
Western Financial Corporation ("WFC"). Under that agreement, WFC agreed to
assist Palomar in the discovery and the evaluation of a potential candidate for
a direct investment, a tender or exchange offer, any form of merger or
consolidation involving Palomar, or any combination of the foregoing, as a
direct result of which a controlling interest in Palomar will be acquired by a
prospective investor. WFC is entitled to a finders fee in the event that during
the retention period or within 12 months thereafter, (i) a business transaction
between a prospective investor and Palomar is consummated; and (ii) WFC
discovered the prospective investor during the retention period. Unless the
business transaction consideration is paid to Palomar in installments, the
finders fee is due and payable immediately upon consummation of the business
transaction. The retention period begins on the effective date (as that term is
defined in the agreement) and continues until either party indicates to the
other, in writing, its prospective intention to terminate the agreement with or
without cause. The agreement provides for the rendering of services by WFC as a
finder only, and does not include the rendering of any other services, including
due diligence services. WFC acknowledges that it is an independent contractor
and shall not be deemed to be Palomar's agent for any purpose whatsoever. WFC's
engagement under this agreement is nonexclusive, and Palomar shall have the
continuing right to deal with, and consummate business transactions with other
prospective investors not discovered by WFC, either directly or through other
brokers, agents, finder or other representatives, without any obligation to pay
WFC a finders fee or any other sum.
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DISSENTERS' RIGHTS
HOLDERS OF PALOMAR COMMON STOCK
In connection with the Merger, the Palomar shareholders may be entitled to
Dissenters' Rights under Chapter 13 of the CGCL, the text of which is attached
hereto as Appendix B. The description of Dissenters' Rights contained in this
Joint Proxy Statement-Prospectus is qualified in its entirety by reference to
Chapter 13 of the CGCL. IN ORDER FOR A PALOMAR SHAREHOLDER TO EXERCISE
DISSENTERS' RIGHTS, THE HOLDER MUST COMPLY WITH THE PROCEDURES AS REQUIRED BY
THE CGCL, AS MORE FULLY DESCRIBED BELOW. FAILURE TO FOLLOW SUCH PROCEDURES WILL
RESULT IN A WAIVER OF SUCH SHAREHOLDER'S DISSENTERS' RIGHTS.
The Palomar shareholders who dissent in connection with the Merger are
governed by specific provisions of the law contained in Chapter 13 (Sections
1300-1312) of the California General Corporations Law ("CGCL"), the text of
which is attached as Appendix B hereto. The description of dissenters' rights
contained in this Joint Proxy Statement - Prospectus is qualified in its
entirely by reference to those sections of the CGCL.
If the Merger is completed, shareholders who do not vote in favor of the
Merger and who have fully complied with all applicable provisions of Chapter 13
---
of the CGCL may have the right to require the Surviving Association to purchase
the shares of Palomar Common Stock held by them for cash at the fair market
value of those shares on the day before the terms of the Merger were first
announced, excluding any appreciation or depreciation because of the Merger.
(Persons who are beneficial owners of shares of Palomar Common Stock but whose
shares are held by another person, such as a broker or nominee, should instruct
the record holder to follow the procedures outlined below if such persons wish
to dissent with respect to any or all of their shares.) Under the CGCL, no
Palomar shareholder who is entitled to exercise dissenters' rights has any right
at law or in equity to attack the validity of the Merger or to have the merger
set aside or rescinded, except in an action to test whether the number of shares
required to authorize or approve the Merger had been legally voted in favor of
the Merger.
Under Chapter 13 of the CGCL, Palomar shareholders who do not wish to
receive the Per Share Consideration for their Palomar Common Stock must satisfy
four requirements to perfect their dissenters' rights. First, the Palomar
Common Stock must not immediately prior to the Merger have been listed on either
a national securities exchange certified by the California Commissioner of
Corporations under Section 25100(o) of the California Corporation Securities Law
of 1968, as amended or on the list of "over-the-counter" margin stocks issued by
the FRB ("Listed Shares"). Second, the shares must have been outstanding on the
Palomar Record Date and either (a) were not voted in favor of the Merger or (b)
in the case of Listed Shares, were voted against the merger at the Palomar
Meeting. Third, the holder must demand purchase of the shares at their fair
market value in accordance with the requirement of Chapter 13 by the Surviving
Association. Finally, the holder must properly submit the shares to the
Surviving Association for endorsement also in accordance with Chapter 13 of the
CGCL.
Although no assurances can be given and each Palomar shareholder is urged
to consult his/her own legal advisor on the matter, it is Palomar's position
that since Palomar Common Stock does not fall into the category of Listed Shares
the first requirement does not apply to the Merger. AGAIN SINCE THE SHARES OF
PALOMAR COMMON STOCK ARE NOT LISTED SHARES, THE SHARES MUST ONLY HAVE NOT BEEN
VOTED IN FAVOR OF THE MERGER. THERE IS NO REQUIREMENT THAT THE SHARES HAVE BEEN
ACTUALLY VOTED AGAINST THE MERGER, JUST THAT THE SHARES HAVE NOT BEEN VOTED IN
FAVOR OF THE MERGER. CONSEQUENTLY, AN ABSTENTION IS SUFFICIENT TO SATISFY THIS
REQUIREMENT. HOWEVER, IF NO INSTRUCTIONS ARE INDICATED ON PROXIES RECEIVED BY
PALOMAR, SUCH PROXIES WILL BE VOTED FOR THE PROPOSAL TO APPROVE THE PRINCIPAL
TERMS OF THE MERGER AT THE PALOMAR MEETING. THOSE PALOMAR SHAREHOLDERS WHO
RETURN THEIR PROXIES WITHOUT INSTRUCTIONS, RESULTING IN A VOTE FOR THE APPROVAL
OF THE PRINCIPAL TERMS OF THE MERGER, WILL NOT BE ENTITLED TO DISSENTERS'
RIGHTS.
Within ten (10) days after the approval of the Merger by Palomar
shareholders, the respective holders of shares of Palomar Common Stock who have
not voted in favor of the Merger must be notified by Palomar of the approval and
Palomar must offer all of these shareholders a cash price for their shares which
Palomar considers to be the fair market value of the shares on the day
immediately before the terms of the Merger were first announced, excluding any
appreciation or depreciation because of the proposed Merger. The notice also
must contain a brief description of the procedures to be followed under Chapter
13 of the CGCL in order for a shareholder to exercise the right to have the
Surviving Association purchase his or her shares and attach a copy of the
relevant provisions of the CGCL. This notice constitutes an offer by Palomar to
purchase the shares at the price stated therein.
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MERELY NOT VOTING, ABSTAINING OR VOTING AGAINST OR DELIVERING A PROXY
DIRECTING A VOTE AGAINST THE APPROVAL OF THE MERGER DOES NOT CONSTITUTE A DEMAND
FOR PURCHASE. IN ALL CASES, THE DISSENTING SHAREHOLDER MUST DELIVER TO PALOMAR A
WRITTEN DEMAND WITHIN THIRTY (30) DAYS AFTER THE DATE ON WHICH THE NOTICE OF
SHAREHOLDER APPROVAL WAS MAILED TO SHAREHOLDERS WHICH DEMAND MUST CONTAIN THE
FOLLOWING:
(i) It must be made by the person who was the shareholder of record on the
Palomar Record Date set for voting on the Merger (or his or her duly authorized
representative) and not by someone who is merely a beneficial owner of the
shares or a shareholder who acquired the shares subsequent to the Palomar Record
Date;
(ii) It must state the number and class of dissenting shares; and
(iii) It must include a demand that the Surviving Association purchase the
shares at what the shareholder claims to be the fair market value of such shares
on the day before the terms of the Merger were first announced, excluding any
appreciation or depreciation because of the proposed Merger. It is Palomar's
position that this day is April 22, 1998. A shareholder may take the position in
the written demand that a different date is applicable.
The shareholder's statement of fair market value constitutes an offer by such
dissenting shareholder to sell the shares to the Surviving Association at such
price.
IN ADDITION, IT IS RECOMMENDED THAT THE FOLLOWING CONDITIONS BE COMPLIED
WITH TO ENSURE THAT THE DEMAND IS PROPERLY EXECUTED AND DELIVERED:
(i) The demand should be sent by registered or certified mail, return
receipt requested.
(ii) The demand should be signed by the shareholder as of the Palomar
Record Date (or his or her duly authorized representative) exactly as his or her
name appears on the stock certificates evidencing the shares.
(iii) A demand for the purchase of shares owned jointly by more than one
person should identify and be signed by all such holders.
(iv) Any person signing a demand for purchase in any representative
capacity (such as attorney-in fact, executor, administrator, trustee or
guardian) should indicate his or her title and, if the Surviving Association so
requests, furnish written proof of his or her capacity and authority to sign the
demand.
A shareholder may not withdraw a demand for payment without the consent of
Palomar or the Surviving Association. Under the terms of the CGCL, a demand by
a shareholder is not effective for any purpose unless it is received by Palomar
or the Surviving Association (or any transfer agent thereof).
Within 30 days after the date on which the notice of the approval of the
Merger is mailed, the shareholder's certificates representing any shares which
the shareholder demands be purchased must be submitted to Palomar at its
principal office, or at the office of any transfer agent thereof, to be stamped
with a statement that the shares are dissenting shares. Upon subsequent transfer
of these shares, the new certificates will be similarly stamped, together with
the name of the original dissenting shareholder.
If Palomar or the Surviving Association and a dissenting shareholder agree
that the shares held by such shareholder are eligible for dissenters' rights and
agree upon the price of such shares, the dissenting shareholder is entitled to
receive from the Surviving Association the agreed price with interest thereon at
the legal rate on judgments from the date of such agreement. Any agreement
fixing the fair market value of dissenting shares as between Palomar or the
Surviving Association and the holders thereof must be filed with Secretary of
the Surviving Association at the address set forth below. Subject to certain
provisions of Section 1306 and Chapter 5 of the CGCL, payment of the fair market
value of the dissenting shares shall be made within 30 days after the amount
thereof has been agreed upon or within 30 days after the statutory or
contractual conditions to the Merger are satisfied, whichever is later. Cash
dividends declared and paid by Palomar or the Surviving Association upon the
dissenting shares after the date of approval of the Merger by its shareholders
and prior to payment for the shares shall be credited against the total amount
to be paid by the Surviving Association.
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If Palomar or the Surviving Association and a dissenting shareholder fail
to agree on either the fair market value of the shares or on the eligibility of
the shares to be purchased, then either the shareholder or Palomar or the
Surviving Association may file a complaint for judicial resolution of the
dispute in the superior court of the proper county. The complaint must be filed
within six (6) months after the date on which the respective notice of approval
is mailed to the shareholders. If a complaint is not filed within six (6)
months, the shares will lose their status as dissenting shares. Two or more
dissenting shareholders may join as plaintiffs or be joined as defendants in
such an action. If the eligibility of the shares is at issue, the court will
first decide this issue. If the fair market value of the shares is in dispute,
the court will determine, or shall appoint one or more impartial appraisers to
assist in its determination of, the fair market value. The costs of the action
will be assessed or apportioned as the court considers equitable, but if the
fair market value is determined to exceed 125% of the price offered to the
shareholder, the Surviving Association will be required to pay such costs.
Any demands, notices, certificates or other documents required to be
delivered to Palomar or the Surviving Association may be sent to the Office of
the Secretary, Palomar Savings and Loan Association, 355 West Grand Avenue,
Escondido, California 92025 (760) 745-9370.
HOLDERS OF CWB COMMON STOCK
In connection with the Merger, the Shareholders may be entitled to
Dissenters' Rights under Chapter 13 of the CGCL, the text of which is attached
hereto as Appendix B. The description of Dissenters' Rights contained in this
Joint Proxy Statement-Prospectus is qualified in its entirety by reference to
Chapter 13 of the CGCL. IN ORDER FOR A CWB SHAREHOLDER TO EXERCISE DISSENTERS'
RIGHTS, A NOTICE OF SUCH SHAREHOLDER'S INTENTION TO EXERCISE HIS OR HER
DISSENTERS' RIGHTS AS PROVIDED IN THE CGCL MUST BE SENT BY SUCH SHAREHOLDER AND
RECEIVED BY CWB ON OR BEFORE THE DATE OF THE CWB MEETING, AND SUCH SHAREHOLDER
MUST VOTE AGAINST THE APPROVAL OF THE PRINCIPAL TERMS OF THE MERGER AND COMPLY
WITH SUCH OTHER PROCEDURES AS REQUIRED BY THE CGCL, AS MORE FULLY DESCRIBED
BELOW. FAILURE TO SEND SUCH NOTICE, TO VOTE AGAINST THE PRINCIPAL TERMS OF THE
MERGER OR TO FOLLOW SUCH OTHER PROCEDURES WILL RESULT IN A WAIVER OF SUCH
SHAREHOLDER'S DISSENTERS' RIGHTS.
If no instructions are indicated on proxies received by CWB, such proxies
will be voted for the proposal to approve the principal terms of the Merger at
the CWB Meeting. Those CWB shareholders who return their proxies without
instructions, resulting in a vote for the approval of the principal terms of the
Merger, will not be entitled to Dissenters' Rights.
In addition, because the CWB Common Stock is traded on Nasdaq, the CWB
shareholders will not have Dissenters' Rights unless demands for purchase in
------
cash of such shares at their fair market value as of April 22, 1998 pursuant to
Section 1301 of the CGCL (each, a "Demand") are made with respect to 5% or more
of the outstanding shares of CWB Common Stock, as the case may be (before giving
effect to the Merger). Such Demands must be received by CWB or its transfer
agent not later than the date of the CWB Meeting. In the event that Demands are
made with respect to 5% or more of the outstanding shares of CWB Common Stock on
or before the date of the CWB Meeting, the CWB shareholders who made Demands
will be entitled to Dissenters' Rights, provided that such Dissenters' Rights
are perfected pursuant to Chapter 13 of the CGCL.
In the event that (i) the Merger is approved by the CWB shareholders and
(ii) Demands are made by holders of 5% or more of the CWB Common Stock, a holder
of CWB Common Stock who objects to the Merger (a "CWB Dissenting Shareholder")
will be entitled to payment in cash of the fair market value as of April 22,
1998 (the day before the public announcement of the Merger) of his or her shares
(the "CWB Dissenting Shares"); provided that (a) such shares were outstanding
immediately prior to the date for the determination of shareholders entitled to
vote on the Merger; (b) the CWB Dissenting Shareholder voted his or her shares
against the approval of the principal terms of the Merger; (c) the CWB
Dissenting Shareholder made a Demand; and (d) the CWB Dissenting Shareholder has
submitted for endorsement certificates representing his or her CWB Dissenting
Shares, in accordance with Section 1302 of the CGCL.
The Demand must (a) be a written demand to purchase the CWB Dissenting
Shares and make payment to the CWB Dissenting Shareholder in cash of their fair
market value as of April 22, 1998; (b) be received by CWB on or before the date
of the CWB Meeting; (c) state the number and class of the shares held of record
by the CWB Dissenting Shareholder that the CWB Dissenting Shareholder demands
that CWB purchase; and (d) contain a statement of what the CWB Dissenting
Shareholder claims to be the fair market value of his or her CWB Dissenting
Shares as of April 22, 1998. Such statement of the fair market value constitutes
an offer by the CWB Dissenting Shareholder to sell his or her CWB Dissenting
Shares at such price. A CWB Dissenting Shareholder who has made such a demand
for payment may not withdraw such Demand unless CWB consents thereto. A PROXY OR
VOTE AGAINST THE APPROVAL OF THE PRINCIPAL TERMS OF THE MERGER AGREEMENT DOES
NOT IN ITSELF CONSTITUTE A DEMAND.
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The CWB Dissenting Shareholder must submit the certificates representing
the CWB Dissenting Shares for endorsement as CWB Dissenting Shares to CWB at its
principal office or at the office of its transfer agent within 30 days after the
date on which notice of approval of the Merger by CWB shareholders was mailed to
such CWB Dissenting Shareholder.
If any CWB shareholder has Dissenters' Rights, CWB will mail to each such
shareholder a notice of the approval of the Merger by the CWB shareholders,
within ten (10) days after the date of such approval, accompanied by (a) a copy
of Sections 1300, 1301, 1302, 1303 and 1304 of Chapter 13 of the CGCL; (b) a
statement of the price determined by CWB to represent the fair market value as
of April 22, 1998 of the CWB Dissenting Shares (which CWB expects to be the
closing price on April 22, 1998 of $13.75; and (c) a brief description of the
procedure to be followed if the shareholder desires to exercise his or her CWB
Dissenters' Rights under such sections. The statement of price constitutes an
offer by CWB to purchase such CWB Dissenting Shares.
If CWB denies that shares submitted to it as CWB Dissenting Shares are CWB
Dissenting Shares, or if CWB and a CWB Dissenting shareholder fail to agree on
the fair market value of the CWB Dissenting Shares, either such CWB Dissenting
Shareholder or CWB may file a complaint in the Superior Court of the proper
county in California requesting that the court determine such issue. Such
complaint must be filed within six months after the date on which notice of the
approval of the Merger is mailed to CWB Dissenting Shareholders. It is the
opinion of CWB that the fair market value of its shares with regard to valuation
for CWB Dissenting Share purposes is $13.75, the closing price of CWB Common
Stock as reported on the Nasdaq-NMS for April 22, 1998, the day prior to
announcement of the Merger.
On trial of the action, the court will first determine whether or not the
shares are CWB Dissenting Shares, and if so determined, the court will either
determine the fair market value or appoint one or more impartial appraisers to
do so. If both CWB and the CWB Dissenting Shareholder fail to file a complaint
within six months after the date on which notice of the approval of the Merger
was mailed to the CWB Dissenting Shareholders, such CWB Dissenting Shareholder
will lose his or her Dissenters' Rights. In addition, if the CWB Dissenting
Shareholder transfers such CWB Dissenting Shares prior to their submission for
the required endorsement, such shares will lose their status as CWB Dissenting
Shares.
Any demands, notices, certificates or other documents delivered to CWB
prior to the Merger may be sent to Office of the Secretary, Community West
Bancshares, 5638 Hollister Avenue, Goleta, California 93117.
FAILURE TO TAKE ANY NECESSARY STEP WILL RESULT IN A TERMINATION OR WAIVER
OF THE RIGHTS OF THE HOLDER UNDER CHAPTER 13 OF THE CGCL. A PERSON HAVING A
BENEFICIAL INTEREST IN CWB COMMON STOCK THAT IS HELD OF RECORD IN THE NAME OF
ANOTHER PERSON, SUCH AS A TRUSTEE OR NOMINEE, MUST ACT PROMPTLY TO CAUSE THE
RECORD HOLDER TO FOLLOW THE REQUIREMENTS OF CHAPTER 13 OF THE CGCL IN A TIMELY
MANNER IF SUCH PERSON ELECTS TO DEMAND PAYMENT OF THE FAIR MARKET VALUE OF SUCH
SHARES.
ACCOUNTING TREATMENT
For accounting and financial reporting purposes, it is currently expected
that the Merger will be accounted for as a "pooling of interests" in accordance
with generally accepted accounting principles, and confirmation by the
independent accountants for both CWB and Palomar of the ability to use such
accounting treatment is one of the conditions to the consummation of the Merger.
Under this method of accounting, the previously recorded assets and liabilities
of CWB Merger Corp and Palomar would be carried forward to the Surviving
Association at their recorded amounts; income and expenses of the Surviving
Association would include income and expenses of CWB Merger Corp and Palomar for
the entire fiscal year in which the Merger occurs; and the reported results of
the separate corporations for prior periods would be combined and restated as
the results of the Surviving Association. The results of the pooling treatment
for accounting purposes would not be reflected in historical consolidated
financial statements of CWB.
Although the Merger is expected to be accounted for as a pooling of
interests, the Merger will qualify for such treatment only if numerous
requirements are met. If the Merger does not qualify for pooling-of-interests
treatment, the Merger Agreement provides that CWB and Palomar may waive their
respective pooling conditions and in which event the parties could proceed with
the Merger under "purchase" accounting. See "RISK FACTORS-Accounting
Treatment,""UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION" and
"THE MERGER-The Merger Agreement-Conditions".
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<PAGE>
THE MERGER AGREEMENT
Set forth below is a description of certain of the terms and conditions of
the Merger Agreement and related matters. This summary of the terms and
conditions of the Merger Agreement does not purport to be complete and is
qualified in its entirely by reference to the full text of the Merger Agreement
as set forth in Appendix A hereto and the text thereof is incorporated by
reference herein.
THE MERGER
The Merger Agreement was entered into by and between CWB and Palomar on
April 23, 1998, (the "Merger Agreement"). Pursuant to the Merger Agreement at
the Effective Time, Palomar will merge with CWB Merger Corp, with Palomar being
the Surviving Association and operating under the name "Palomar Savings and Loan
Association". The separate corporate existence of CWB Merger Corp will then
cease. In connection with the Merger, each share of Palomar Common Stock issued
and outstanding at the Effective Time (other than (a) shares that have not been
voted in favor of approval of the principal terms of the Merger and with respect
to which Dissenters' Rights have been perfected in accordance with the CGCL and
(b) shares held directly or indirectly by CWB, other than shares held in a
fiduciary capacity or in satisfaction of a debt previously contracted) will be
converted into, subject to the limitations set forth in the Merger Agreement,
the "Per Share Consideration" as defined below. Each share of CWB Common Stock
outstanding immediately prior to the Effective Time will remain outstanding
after the Merger as one share of CWB Common Stock.
The Per Share Consideration is equal to the number of newly issued CWB
Common Stock, no par value, resulting from dividing the Palomar Per Share Value
by the CWB Per Share Value, plus cash in lieu of fractional interests. The
Palomar Per Share Value is equal to the product of 2.2 x [a b], where "a" is the
Palomar Total Shareholder Equity as of the last day of the calendar month
immediately preceding the Closing as determined in accordance with generally
accepted accounting principles and where "b" is the number of shares of Palomar
Common Stock outstanding immediately prior to the Closing. The CWB Per Share
Value is equal to the average of the "bid" and "ask" of CWB Common Stock as
quoted in Nasdaq for the thirty (30) trading days immediately preceding the
Closing. Since the Per Share Consideration is based on a formula that will not
be applied until immediately preceding the Closing, no assurances can be given
as to what the Per Share Consideration will be at the Closing. However, if the
Per Share Consideration was calculated as of June 30, 1998, that is each share
of Palomar Common Stock would be converted into the right to receive 1.544
shares of CWB Common Stock.
It is expected that the merger will be a Reorganization within the meaning
of Section 368(a) of the Code. See "THE MERGER-Certain Federal Income Tax
Consequences".
EFFECTIVE TIME AND EFFECTIVE DATE
On a date to be selected by mutual agreement of CWB and Palomar, which will
be within fifteen (15) days after the last to occur of the expiration of all
applicable waiting periods in connection with approvals of governmental
authorities and the receipt of all approvals of governmental authorities and all
conditions to the consummation of the Merger being satisfied or waived, or on
such earlier or later date as may be agreed in writing by CWB and Palomar, an
agreement of merger will be executed in accordance with all appropriate legal
requirements and will be filed as required by law. The Merger will become
effective (the "Effective Time") on the date and at the time that the agreement
of merger and related documents, bearing an endorsement of the Commissioner and
certified by the California Secretary of State are filed with and accepted by
the Commissioner.
EXCHANGE OF STOCK CERTIFICATES
Prior to the Effective Time, CWB will deposit, or will cause to be
deposited, with U.S. Stock Transfer (in such capacity, the "Exchange Agent"),
for the benefit of the holders of certificates formerly representing shares of
Palomar Common Stock ("Old Certificates"), for exchange, certificates
representing the shares of CWB Common Stock ("New Certificates") and an
estimated amount of cash to be paid in exchange for fractional shares of Palomar
Common Stock.
40
<PAGE>
As soon as practicable after the Effective Time, the Transfer Agent will
send or cause to be sent to each former holder of record of shares of Palomar
Common Stock immediately prior to the Effective Time transmittal materials (the
"Letter of Transmittal") for use in exchanging such shareholder's Old
Certificates for the Per Share Consideration. CWB will cause the New
Certificates into which shares of a shareholder's Palomar Common Stock are
converted on the Effective Date and/or any check in respect of any fractional
share interests or dividends or distributions which such person will be entitled
to receive to be delivered to such shareholder upon delivery to the Exchange
Agent of Old Certificates representing such shares of Palomar Common Stock owned
by such shareholder. No interest will be paid on any such cash to be paid in
lieu of fractional share interests or in respect of dividends or distributions
which any such person will be entitled to receive upon such delivery.
PALOMAR SHAREHOLDERS SHOULD NOT FORWARD PALOMAR COMMON STOCK CERTIFICATES TO THE
EXCHANGE AGENT UNTIL THEY HAVE RECEIVED TRANSMITTAL FORMS. PALOMAR SHAREHOLDERS
SHOULD NOT RETURN CERTIFICATES WITH THE ENCLOSED PROXY.
NO FRACTIONAL SHARES
No fractional shares of CWB Common Stock will be issued in the Merger. In
lieu of the issuance of any fractional share of CWB Common Stock that would
otherwise be issuable, a cash adjustment will be paid to Palomar shareholders in
an amount equal to such fractional proportion of the price of a share of CWB
Common Stock as of the close of business seven (7) days immediately prior to the
Closing Date.
CONDUCT OF THE BUSINESS OF PALOMAR AND CWB PRIOR TO THE MERGER
Pursuant to the Merger Agreement, each of CWB and Palomar has agreed that,
during the period from the date of the Merger Agreement until the Effective
Time, except as permitted by the Merger Agreement, each will not (a) take any
action that would adversely affect or delay the ability of Palomar or CWB to
perform any of their obligations on a timely basis under the Merger Agreement or
take any action that is reasonably likely to have a material adverse effect on
Palomar or CWB; or (b) knowingly take any action that is intended or is
reasonably likely to result in (i) any of its representations and warranties set
forth in the Merger Agreement being or becoming untrue in any material respect
at any time at or prior to the Effective Time, (ii) any of the conditions to the
Merger set forth in the Merger Agreement not being satisfied or (iii) a
violation of any provision of the Merger Agreement.
In addition, Palomar and CWB have each agreed that, during the same period,
they will not, subject to certain exceptions, without the prior consent of the
other, (a) conduct their business other than in the ordinary and usual course;
(b) (i) issue, sell or otherwise permit to become outstanding, or authorize the
creation of, any additional shares of common stock or preferred stock, (ii)
enter into any agreement with respect to the foregoing or (iii) permit any
additional shares of common stock to become subject to grants of employee or
director stock options or other similar stock -based employee rights; (c) (i)
make, declare, pay or set aside for payment any dividend or declare or make any
distribution or (ii) directly or indirectly adjust, split, combine, redeem,
reclassify, purchase or otherwise acquire, any shares of its capital stock; (d)
increase the compensation of employees or directors, or make any other changes
with respect to compensation, other than increases in compensation for employees
in accordance with past practices, pursuant to the terms of written employment
agreements in accordance with contractual obligations existing under any
pension, retirement, or similar plan or arrangement; (f) dispose of or
discontinue any of its assets, deposits, business or properties except in the
ordinary course of business and in a transaction that is not material; (g)
acquire all or any portion of, the assets, business, deposits or properties of
any other entity except in the ordinary course of business; (h) make any capital
expenditures other than those in the ordinary course of business in amounts not
exceeding $75,000; (i) amend its articles or by-laws; (j) implement or adopt any
change in its accounting principles or practices or methods; (k) except in the
ordinary course of business, enter into or terminate any material contract or
amend or modify in any material respect any existing material contracts; (1)
except in the ordinary course of business, institute, settle or agree to settle
any claim, action or proceeding involving an expenditure in excess of $75,000;
(m) (i) implement or adopt any material change in its interest rate and other
risk management policies, procedures or practices; (ii) fail to follow its
existing policies or practices with respect to managing its exposure to interest
rate and other risk; or (iii) fail to use commercially reasonable means to avoid
any material increase in its aggregate exposure to interest rate risk; and (n)
incur any indebtedness for borrowed money other than in the ordinary course of
business in excess of $75,000. The parties have also agreed to make available
to the other all loan application files (at such times as will not interfere
with the loan underwriting process) where the aggregate indebtedness of the
borrower will exceed $350,000 for commercial loans or commercial real estate
loans or $500,000 for residential real estate loans.
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<PAGE>
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various customary representations and
warranties relating to, among other things, (a) organization and similar
corporate matters; (b) the capital structure of each of Palomar, CWB and CWB
Merger Corp; (c) authorization, execution, delivery, performance and
enforceability of the Merger Agreement and related matters; (d) conflicts under
articles or bylaws, required consents or approvals, and violations of any
agreements or law; (e) documents filed with the Commissioner, the SEC, the FRB
and the FDIC and the accuracy of information contained therein; (f) absence of
certain material adverse events, changes, effects or undisclosed liabilities;
(g) retirement and other employee plans and matters relating to the Employee
Retirement Income Security Act of 1974, as amended; (h) litigation; (i)
compliance with law, including environmental compliance;(j) tax returns and
audits; (k) ownership of real property; (1) absence of regulatory actions; and
(m) labor matters.
THIRD PARTY TRANSACTIONS
Pursuant to the Merger Agreement, Palomar and CWB each has agreed that they
will not, and will cause their officers, directors, agents, advisors and
affiliates not to, solicit or encourage inquiries or proposals with respect to,
or engage in any negotiations concerning, or provide any confidential
information to, or have any discussions with, any person relating to, any tender
or exchange offer, proposal for a merger, consolidation or other business
combination involving Palomar or CWB as applicable or any proposal or offer to
acquire in any manner a substantial equity interest in, or a substantial portion
of the assets or deposits of, Palomar or CWB as applicable, other than the
transactions contemplated by the Merger Agreement (any such proposal or offer
being referred to as a "Strategic Transaction Proposal"); provided however, that
the parties are free to conduct the foregoing activities with regard to a
Strategic Transaction Proposal if the Board of Directors of the respective party
determines, in good faith, on the basis of a written opinion from a financial
advisor retained by that party that the financial terms of the Strategic
Transaction Proposal are, from that party's shareholders' perspective, superior
to the Merger and that such action is therefore required to be pursued under the
respective Board of Directors' fiduciary duties.
Notwithstanding the prohibition against either party being involved in a
Strategic Transaction Proposal, under the Merger Agreement, CWB is permitted,
without the prior approval of Palomar, to solicit, encourage, negotiate or enter
into a transaction with a third party other than Palomar where CWB will be the
surviving or resulting corporation, where CWB's shareholders will own 50% or
more of the surviving or resulting corporation, where CWB will purchase all or
substantially all the assets or deposits of another corporation, or where CWB
will purchase 10% or more of the voting securities of another corporation or
entity ("Community West Acquisition Transaction"); provided CWB gives prompt
notice thereof to Palomar and the Community West Acquisition Transaction does
not have a material adverse effect upon CWB. During the pendancy of a Community
West Acquisition Transaction, CWB will notify Palomar of the transaction,
disclose the terms thereof, and to the extent such disclosure involves
non-public information, the executive officers and directors of Palomar will be
obligated to maintain the confidentiality of such information and to refrain
from trading in the securities of CWB, Palomar or the third party.
EMPLOYEE BENEFITS
While Palomar will remain a separate operating entity after the Effective
Time, for all practical purposes, from and after the Effective Time, all of
Palomar's benefit and compensation plans, contracts, policies or arrangements
covering employees or former employees of Palomar and current or former
directors of Palomar, including, but not limited to, "employee benefit plans"
within the meaning of Section 3(3) of ERISA, and deferred compensation, stock
option, stock purchase, stock appreciation rights, stock based, incentive and
bonus plans, will be governed, managed and/or terminated by CWB.
SECURITIES ACT
Concurrent with the execution of the Merger Agreement, Palomar has caused
each person that, to the best of Palomar's knowledge, is or is reasonably likely
to be, as of the date of the Palomar Meeting, deemed to be an "affiliate" of
Palomar (each, an "Affiliate as that term is used in Rule 145 under the
Securities Act or SEC Accounting Series Releases) to execute and deliver to CWB
an agreement which provides that each such person will agree not to sell,
pledge, transfer or otherwise dispose of the shares of CWB Common Stock to be
received by such person in the Merger except in compliance with the applicable
provisions of the Securities Act.
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<PAGE>
CONDITIONS
The respective obligations of CWB and Palomar to consummate the Merger are
subject to certain conditions, including (a) the approval by the Palomar and CWB
shareholders of the principal terms of the Merger; (b) receipt of approvals
required by law in connection with the Merger and the other transactions
contemplated by the Merger Agreement (the parties having agreed that no such
approval will be deemed to have been received if it includes any condition or
requirement that would result in a material adverse effect on the Surviving
Association or would reduce the economic benefits of the Merger in so
significant and adverse a manner that CWB would not have entered into the Merger
Agreement had such condition or requirement been known to it); (c) the absence
of any statute, rule, regulation, order, injunction or decree being in effect
and prohibiting the consummation of the Merger or any other transaction
contemplated by the Merger Agreement; (d) the Registration Statement having
become effective and there being issued no stop order suspending the
effectiveness of the Registration Statement and no proceedings for that purpose
initiated or threatened by the SEC; (e) the receipt and continued effectiveness
of all permits and other authorizations under state securities laws necessary to
consummate the transactions contemplated by the Merger Agreement and to issue
the shares of CWB Common Stock to be issued in the Merger; (f) the approval for
listing on the Nasdaq-NMS, subject to official notice of issuance, of the shares
of CWB Common Stock to be issued in the Merger; (g) receipt by each of CWB and
Palomar of a letter from the IRS or Deloitte & Touche, LLP stating that in its
opinion, that the Merger will be treated as a Reorganization within the meaning
of Section 368(a) of the Code; and (h) no fact, circumstance or event shall have
occurred or is reasonably likely to occur that would cause the Merger not to
qualify for pooling of interests accounting treatment.
The obligations of CWB to consummate the Merger also are subject to the
fulfillment or waiver by CWB prior to the Effective Time of certain conditions,
including the following: (a) the representations and warranties of Palomar being
true and correct unless the failure so to be true and correct is not likely to
have a material adverse effect on Palomar; (b) the performance by Palomar in all
material respects of all obligations contained in the Merger Agreement required
to be performed by Palomar before the Effective Time; (c) the absence of an
event which has had or is likely to have a materially adverse effect on Palomar;
(d) receipt and compliance with the Shareholder Agreements as to Palomar
shareholders; (e) receipt of an opinion of Higgs, Fletcher & Mack, LLP regarding
certain matters; and (f) the appointment of a representative selected by CWB to
the Board of Directors of Palomar as of the Effective Time.
In addition, the obligations of Palomar to consummate the Merger also is
subject to the fulfillment or waiver by Palomar prior to the Effective Time of
certain conditions, including the following: (a) the representations and
warranties of CWB being true and correct unless the failure so to be true and
correct is not likely to have a material adverse effect on CWB; (b) the
performance by CWB in all material respects of all obligations contained in the
Merger Agreement required to be performed before the Effective Time; (c) the
absence of an event which has had or is likely to have a material adverse effect
on CWB; (d) receipt and compliance with the Shareholders Agreements as to CWB
shareholders; (e) receipt of an opinion of Horgan, Rosen, Beckham & Coren,
L.L.P. regarding certain matters; and (f) the appointment of a representative
selected by Palomar to the Board of Directors of CWB as of the Effective Time.
TERMIANTION
The Merger Agreement may be terminated, and the Merger abandoned, prior to
the Effective Time: (a) by the mutual agreement of CWB and Palomar; (b) by
either of CWB or Palomar, by written notice to the other, in the event of (i) a
material breach by the other party of any representation, warranty, covenant or
agreement contained in the Merger Agreement that is not cured or not curable
within 10 days after written notice of such breach is given to the party
committing such breach, (ii) the Merger not having been consummated by December
31, 1998; or (iii) thirty (30) days after any approval of a governmental
authority required to permit consummation of the Merger or any transaction
necessary to consummate the Merger shall have been denied; (c) by Palomar or
CWB, if the Palomar Board receives a Strategic Transaction Proposal and
determines, in good faith and based upon the written advice of a financial
advisor that the financial terms of the Strategic Transaction Proposal are
superior to the Merger from the Palomar Shareholders'perspective; (d) by Palomar
if CWB enters into a CWB Acquisition Transaction which has a material adverse
effect on CWB; or (e) by CWB or Palomar, if the CWB Board receives a Strategic
Transaction Proposal and determines in good faith and based upon the written
advice of a financial advisor that the financial terms of the Strategic
Transaction Proposal are superior to the Merger from the CWB Shareholders'
perspective.
TERMINATION PAYMENT
If the Merger Agreement is terminated by Palomar pursuant to a material
breach of any representation, warranty, covenant or agreement contained therein
by CWB that is not cured within 10 days after written notice of such breach is
given to CWB by Palomar, CWB will pay to Palomar a fee equal to $500,000. If
the Merger Agreement is terminated by CWB pursuant to a material breach of any
representation, warranty, covenant or agreement contained therein by Palomar
that is not cured within 10 days after written notice of such breach is given to
Palomar by CWB, Palomar shall pay to CWB a fee equal to $500,000. In the event
that there is a termination as a result of one party being involved in a
Strategic Transaction Proposal under the circumstances described above, the
party being involved in the Strategic Transaction Proposal shall pay to the
other party $500,000. The payment of the aforementioned sums shall be made as
reasonable liquidated damages and not as a penalty or forfeiture.
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<PAGE>
EXPENSES
All costs and expenses incurred in connection with the Merger Agreement and
the transactions contemplated thereby shall be paid by the party incurring such
costs or expenses, except upon termination of the Merger Agreement under certain
circumstances.
THE SHAREHOLDER AGREEMENTS
CWB has entered into Shareholder Agreements with Darol H. Caster, Donald M.
Galyean, Frederick Mandlebaum, Robert E. Pommier, James M. Rady, Timothy S.
Thomas, Ralph O. Vasquez, Robert A. Wedeking and David Weseloh (the "Palomar
Shareholders"), each a Palomar Shareholder and current or former director of
Palomar. The Palomar Shareholders, holding in the aggregate shares representing
approximately 20.65% of the total voting power of Palomar Common Stock as of the
Palomar Record Date, each agreed, in consideration of the substantial expenses
incurred by CWB and CWB Merger Corp in connection with the Merger Agreement and
as a condition to CWB entering into the Merger Agreement, to vote all of such
Palomar shareholder's shares of Palomar Common Stock in favor of adoption and
approval of the Merger Agreement and the Merger at every meeting of Palomar
Shareholders at which such matters are considered and at every adjournment
thereof.
Palomar has entered into Shareholder Agreements with Michael A. Alexander,
Mounir R. Ashamalla, Robert H. Bartlein, Jean W. Blois, John D. Illgen, John D.
Markel, Michel Nellis, William R. Peeples, C. Randy Shaffer, James R. Sims and
Llewellyn W. Stone (the "CWB Shareholders"), each a CWB Shareholder and current
or former director of CWB. The CWB Shareholders, holding in the aggregate
shares representing approximately 27.6% of the total voting power of CWB Common
Stock as of the CWB Record Date, each agreed, in consideration of the
substantial expenses incurred by Palomar in connection with the Merger Agreement
and as a condition to Palomar entering into the Merger Agreement, to vote or to
cause to be voted all of such CWB shareholder's shares of CWB Common Stock in
favor of adoption and approval of the Merger Agreement and the Merger at every
meeting of CWB Shareholders at which such matters are considered and at every
adjournment thereof.
Each Shareholder Agreement also provides that the shareholder will not
enter into or become subject to any agreement or commitment which would restrict
or in any way impair the obligation of the shareholder to comply with all the
terms of the Shareholder Agreement entered into by that shareholder. In
addition, each shareholder each agreed not to sell, assign, transfer or dispose
of any of his or her shares of Palomar Common Stock or CWB Common Stock, as
applicable, during the term of the relevant Shareholder Agreement.
The Shareholder Agreements will terminate upon the date on which the Merger
Agreement is terminated in accordance with its terms.
The Shareholder Agreements bind the actions of the signatories thereto only
in their capacity as Palomar or CWB shareholders. Those directors of Palomar or
CWB who signed Shareholder Agreements are not and could not be contractually
bound to abrogate their fiduciary duties as directors of Palomar or CWB.
Accordingly, while such shareholders/directors are, under the Shareholder
Agreements executed by them, contractually bound to vote as a Palomar or CWB
shareholder in favor of the Merger their fiduciary duties as Palomar or CWB
directors nevertheless require them to act in their capacity as directors in the
best interest of Palomar or CWB when they decide to approve the Merger. In
addition, such shareholders/directors will continue to be bound by their
fiduciary duties as Palomar or CWB directors with respect to any decisions they
may take in connection with the Merger or otherwise.
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<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The following unaudited pro forma combined condensed financial data
combines the historical consolidated condensed financial statements of CWB and
the historical consolidated condensed Financial Statements of Palomar, giving
effect to the Merger as if it had been effective on June 30, 1998 and December
31, 1997, with respect to the Pro Forma Combined Condensed Balance Sheets, and
as of the beginning of the periods indicated, with respect to the Pro Forma
Combined Condensed Statements of Income. This information is presented under
pooling-of-interests accounting. The information for the period ended June 30,
1998 is derived from the unaudited financial statements of the companies which
includes, in the opinion of the management of the companies, all adjustments
(consisting only of normal accruals) necessary to present fairly the data for
such periods. This information should be read in conjunction with the historical
consolidated financial statements of the companies, including their respective
notes thereto, which are included and incorporated by reference into this Joint
Proxy Statement-Prospectus, and in conjunction with the combined condensed
historical selected financial data and other pro forma combined financial
information, including the notes thereto, appearing elsewhere in this Joint
Proxy Statement-Prospectus. See "Incorporation of Certain Information by
Reference". The effect of estimated merger and reorganization costs expected to
be incurred in connection with the Merger has been reflected in the Unaudited
Pro Forma Combined Condensed Balance Sheets; however, since the estimated costs
are nonrecurring, they have not been reflected in the Unaudited Pro Forma
Combined Condensed Statements of Income. See Note 2 to the Unaudited Pro Forma
Combined Condensed Financial Information. The unaudited pro forma combined
condensed data does not give effect to any anticipated operating efficiencies in
conjunction with the Merger. The Unaudited Pro Forma Combined Condensed Balance
Sheets are not necessarily indicative of the actual financial position that
would have existed had the Merger been consummated on June 30, 1998 or December
31, 1997, or that may exist in the future. The Unaudited Pro Forma Combined
Condensed Statements of Income are not necessarily indicative of the results
that would have occurred had the Merger been consummated on the dates indicated
or that may be achieved in the future. Assuming the consummation of the Merger,
the actual financial position and results of operations will differ, perhaps
significantly, from the pro forma amounts reflected herein because of a variety
of factors, including changes in value and changes in operating results between
the dates of the unaudited pro forma financial data and the date on which the
Merger takes place.
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UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEETS AT
JUNE 30, 1998
<TABLE>
<CAPTION>
CWB and
CWB Palomar Pro Forma Palomar
(Historical) (Historical)(1) Adjustments(2) Pro Forma
------------ --------------- -------------- ----------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
ASSETS: $ 4,297 $ 3,417 $ 7,714
Cash and due from banks 6,215 7,600 13,815
------------ --------------- ----------
Federal funds sold 10,512 11,017 21,529
TOTAL CASH AND CASH EQUIVALENTS
Federal Reserve Bank and Federal
Home Loan Bank stock, at cost 264 531 795
Securities held to maturity 1,078 3,420 4,498
Securities available for sale 2,814 10,437 13,251
------------ --------------- ----------
TOTAL SECURITIES 4,156 14,388 18,554
Net loans 127,879 52,626 180,505
Premises and equipment 3,040 157 3,197
Investment in real estate ventures - 76 76
Other real estate owned 210 - 210
Other assets 5,283 1,227 6,510
------------ --------------- ----------
TOTAL ASSETS 151,080 79,491 230,571
============ =============== ==========
LIABILITY AND SHAREHOLDERS' EQUITY
LIABILITIES:
Non-interest bearing deposits 21,465 549 22,014
Interest bearing deposits 111,068 72,374 183,442
------------ --------------- ----------
Total deposits 132,533 72,923 205,456
Borrowed funds - - -
Accrued interest payable & other liabilities
TOTAL LIABILITIES 1,361 613 1,974
------------ --------------- ----------
133,894 73,536 207,430
SHAREHOLDERS' EQUITY:
Common stock and surplus 12,560 4,540 17,100
Retained earnings 4,626 1,402 6,028
Unrealized net gains (losses) on
investments available for sale, net - 13 13
------------ --------------- ----------
TOTAL SHAREHOLDERS' EQUITY 17,186 5,955 23,141
------------ --------------- ----------
TOTAL LIABILITIES &
SHAREHOLDERS' EQUITY $ 151,080 $ 79,491 $ 230,571
============ =============== ==========
Number of common shares outstanding
Common shareholders' equity per share 3,984,500 648,186 4,985,300
$ 4.31 $ 9.19 $ 4.64
</TABLE>
46
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEETS AT
DECEMBER 31, 1997
<TABLE>
<CAPTION>
CWB and
CWB Palomar Pro Forma Palomar
(Historical) (Historical)(1) Adjustments(2) Pro Forma
------------- --------------- -------------- -----------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
ASSETS: $ 3,663 $ 2,634 $ 6,297
Cash and due from banks 8,440 4,100 12,540
------------ --------------- -----------
Federal funds sold 12,103 6,734 18,837
TOTAL CASH AND CASH EQUIVALENTS
Time deposits in other financial institutions 2,477 - 2,477
Federal Reserve Bank and Federal
Home Loan Bank stock, at cost 251 512 763
Securities held to maturity 999 4,156 5,155
Securities available for sale 0 8,912 8,912
Securities held for trading 2,529 - 2,529
------------ --------------- -----------
TOTAL SECURITIES 6,256 13,580 19,836
Net loans 71,164 57,220 128,384
Premises and equipment 2,725 127 2,852
Investments in real estate ventures 0 77 77
Other assets 3,064 873 3,937
------------ --------------- -----------
TOTAL ASSETS 95,312 78,611 173,923
============ =============== ===========
LIABILITY AND SHAREHOLDERS' EQUITY
LIABILITIES:
Non-interest bearing deposits 15,132 657 15,789
Interest bearing deposits 65,120 71,782 136,902
------------ --------------- -----------
Total deposits 80,252 72,439 152,691
Accrued interest payable and other liabilities
TOTAL LIABILITIES 2,931 613 3,544
------------ --------------- -----------
83,183 73,052 156,235
SHAREHOLDERS' EQUITY:
Common stock and surplus 8,570 4,263 12,833
Retained earnings 3,559 1,265 4,824
Unrealized net gains (losses) on
investments available for sale, net - 31 31
------------ --------------- -----------
TOTAL SHAREHOLDERS' EQUITY 12,129 5,559 17,688
------------ --------------- -----------
TOTAL LIABILITIES &
SHAREHOLDERS' EQUITY $ 95,312 $ 78,611 $ 173,923
============ =============== ===========
Number of common shares outstanding
Common shareholders' equity per share 3,081,316 617,477 4,034,701
$ 3.94 $ 9.01 $ 4.38
</TABLE>
47
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
CWB and
CWB Palomar Pro Forma Palomar
(Historical) (Historical)(1) Adjustments(2) Pro Forma
------------ --------------- -------------- ----------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
INTEREST INCOME: $ 5,697 $ 2,160 $------------- $ 7,857
Interest and fees on loans
Interest on interest bearing deposits in other 60 32 92
banks 29 454 483
Interest on investment securities 227 131 358
----------- --------------- ----------
Interest on federal funds sold 6,013 2,777 - 8,790
TOTAL INTEREST INCOME
INTEREST EXPENSE:
Interest expense on deposits 2,266 1,710 3,976
Interest expense on borrowings - - -
----------- --------------- ----------
TOTAL INTEREST EXPENSE 2,266 1,710 - 3,976
NET INTEREST INCOME: 3,747 1,067 4,814
Less: provisions (credit) for loan losses 280 (116) 164
----------- --------------- ----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 3,467 1,183 - 4,650
NON-INTEREST INCOME:
Gains from loan sales 2,483 298 2,781
Loan origination fees 1,818 - 1,818
Documentation processing fees 707 - 707
Loan servicing income 554 89 643
Service charges, commissions and fees 481 31 512
Securities gains - 14 14
Other income 166 8 174
----------- -------------- ----------
TOTAL NON-INTEREST INCOME 6,209 440 - 6,649
NON-INTEREST EXPENSE:
Salaries and benefits 5,182 521 5,703
Occupancy, furniture and equipment 1,091 129 1,220
Postage and freight 306 16 322
Advertising and business development 288 27 315
Other real estate owned - - 0
Professional services 267 62 329
Telephone, stationery and supplies - 33 33
Data processing - 61 61
Merger costs - 13 13
Customer services cost - 24 24
Travel expenses 113 7 120
Other expense 608 157 765
----------- -------------- ----------
TOTAL NON-INTEREST EXPENSE 7,855 1050 - 8,905
Income before income taxes 1,821 573 - 2,394
Income taxes 753 158 911
----------- -------------- ----------
NET INCOME $ 1,068 $ 415 - $ 1,483
=========== ============== ==========
PER SHARE INFORMATION:
Number of shares (weighted average)
Basic 3,327,128 648,186 4,315,353
Diluted 3,539,947 640,042 4,528,172
Income per share
Basic $ 0.32 $ 0.65 $ 0.34
Diluted $ 0.30 $ 0.65 $ 0.33
</TABLE>
48
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE SIX MONTHS ENDED JUNE 30,1997
<TABLE>
<CAPTION>
CWB and
CWB Palomar Pro Forma Palomar
(Historical) (Historical)(1) Adjustments(2) Pro Forma
-------------- --------------- -------------- -----------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
INTEREST INCOME: $ 3,553 $ 2,172 $ 5,725
Interest and fees on loan 64 72 136
Interest on interest bearing deposits in 61 416 477
other banks 163 91 254
-------------- --------------- -----------
Interest on investment securities 3,841 2,751 6,592
Interest on federal funds sold
TOTAL INTEREST INCOME
INTEREST EXPENSE:
Interest expense on deposits 1,340 1,676 3,016
Interest expense on borrowings 0 32 32
-------------- --------------- -----------
TOTAL INTEREST EXPENSE 1,340 1,708 3,048
NET INTEREST INCOME 2,501 1,043 3,544
Less: provision (credit) for loan losses 160 (69) 91
-------------- --------------- -------------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,341 1,112 3,453
NON-INTEREST INCOME:
Service charges, commissions and fees 375 82 457
Gains on sale of loans and other assets 1,630 104 1,734
Securities gains 0 (4) (4)
Other income 2,318 17 2,335
-------------- --------------- -------------- -----------
TOTAL NON-INTEREST INCOME 4,323 199 4,522
NON-INTEREST EXPENSE:
Salaries and benefits 3,448 453 3,901
Occupancy, furniture and equipment 715 125 840
Advertising and business development 259 33 292
Other real estate owned - 66 66
Professional services 134 43 177
Telephone, stationery and supplies 345 28 373
Goodwill amortization - - -
Data processing - 44 44
Customer services cost - 21 21
Merger costs - - -
Other 533 172 705
-------------- --------------- -----------
TOTAL NON-INTEREST EXPENSE 5,434 985 6,419
Income before income taxes 1,230 326 1,556
Income taxes 517 96 613
-------------- --------------- -----------
NET INCOME $ 713 $ 230 $ 943
============== =============== ===========
PER SHARE INFORMATION:
Number of shares (weighted average)
Basic 2,982,376 617,477 3,935,761
Diluted 3,556,494 617,477 4,509,879
Income per share
Basic $ 0.21 $ 0.37 $ 0.24
Diluted $ 0.20 $ 0.37 $ 0.21
</TABLE>
49
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
CWB Palomar Pro Forma CWB and Palomar
(Historical) (Historical)(1) Adjustments(2) Pro Forma
-------------- ------------------ ---------------- ---------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
INTEREST INCOME: $ 7,350 $ 4,410 $ $ 11,760
Interest and fees on loans
Interest on interest bearing deposits 121 109 230
in other banks 115 828 943
Interest on investment securities 423 193 616
-------------- ------------------ ---------------
Interest on federal funds sold 8,009 5,540 - 13,549
TOTAL INTEREST INCOME
INTEREST EXPENSE:
Interest expense on deposits 2,910 3,421 6,331
Interest expense on borrowings 0 29 29
-------------- ------------------ ---------------
TOTAL INTEREST EXPENSE 2,910 3,450 - 6,360
NET INTEREST INCOME: 5,099 2,090 7,189
Less: provisions (credit) for loan losses 260 (70) 190
-------------- ------------------ ---------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 4,839 2,160 - 6,999
NON-INTEREST INCOME:
Gains from loan sales 4,101 289 4,390
Loan origination fees 2,961 - 2.961
Document processing fees 819 - 819
Loan servicing income 632 82 714
Service charges, commissions and fees 896 88 984
Securities gains (losses) 0 (10) (10)
Other income 23 27 50
-------------- ------------------ ---------------
TOTAL NON-INTEREST INCOME 9,432 476 - 9,908
NON-INTEREST EXPENSE:
Salaries and benefits 7,315 935 8,250
Occupancy, furniture and equipment 1,509 260 1,769
Advertising and business development 822 53 875
Other real estate owned 583 70 653
Professional services - 86 86
Telephone, stationery and supplies 426 61 487
Goodwill amortization 155 - 155
Data processing - 89 89
Customer services cost - 45 45
Other 714 318 1,032
-------------- ------------------ ---------------
TOTAL NON-INTEREST EXPENSE 11,524 1,917 13,441
-
Income before income taxes 2,747 719 3,466
Income taxes 1,158 99 1,257
-------------- ------------------ ---------------
NET INCOME $ 1,589 $ 620 $ - $ 2,209
============== ================== ===============
PER SHARE INFORMATION:
Number of shares (weighted average)
Basic 3,016,208 617,477 3,969,593
Diluted 3,588,477 617,477 4,541,862
Income per share
Basic $ 0.53 $ 1.00 $ 0.56
Diluted $ 0.44 $ 1.00 $ 0.49
</TABLE>
50
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
CWB and
CWB Palomar Pro Forma Palomar
(Historical) (Historical)(1) Adjustments(2) Pro Forma
------------ --------------- -------------- ----------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
INTEREST INCOME: $ 6,341 $ 4,291 $ 10,632
Interest and fees on loans 88 109 197
Interest on interest bearing deposits in
other banks 100 1,103 1,203
Interest on investment securities 283 146 429
------------ --------------- -------------- ----------
Interest on federal funds sold 6,812 5,649 12,461
TOTAL INTEREST INCOME
INTEREST EXPENSE:
Interest expense on deposits 2,425 3,448 5,873
Interest expense on borrowings - 118 118
------------ --------------- ------------ ------------
TOTAL INTEREST EXPENSE 2,425 3,566 5,991
NET INTEREST INCOME:
Less: provisions for loan losses 4,387 2,083 6,470
NET INTEREST INCOME AFTER PROVISION FOR LOAN 435 216 651
------------ --------------- ------------ ------------
LOSSES 3,952 1,867 5,819
NON-INTEREST INCOME:
Service charges, commissions and fees 590 180 770
Gains on sale of loans and other assets 2,614 31 2,645
Securities gains - 15 15
Other income 3,416 121 3,537
------------ --------------- ------------ ------------
TOTAL NON-INTEREST INCOME 6,620 347 6,967
NON-INTEREST EXPENSE:
Salaries and benefits 5,453 737 6,190
Occupancy, furniture and equipment 1,186 254 1,440
Advertising and business development 311 39 350
Other real estate owned - 11 11
Professional services 246 121 367
Telephone, stationery and supplies 685 51 736
Goodwill amortization - - -
Data processing - 89 89
Customer services cost - 49 49
Merger costs - - -
Other 785 877 1,662
------------ --------------- ------------ ------------
TOTAL NON-INTEREST EXPENSE 8,666 2,228 10,894
Income (loss) before income taxes 1,906 (14) 1,892
Income taxes (benefit) 801 (86) 715
------------ --------------- ------------ ------------
NET INCOME $ 1,105 $ 72 $ 1,177
============ =============== ============ ============
PER SHARE INFORMATION:
Number of shares (weighted average)
Basic 2,356,162 617,477 3,309,547
Diluted 2,510,352 617,477 3,463,737
Income per share
Basic $ 0.47 $ 0.12 $ 0.36
Diluted $ 0.44 $ 0.12 $ 0.34
</TABLE>
51
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
CWB and
CWB Palomar Pro Forma Palomar
(Historical) (Historical)(1) Adjustments(2) Pro Forma
------------ --------------- -------------- -----------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
INTEREST INCOME: $ 5,977 $ 4,058 $ - $ 10,035
Interest and fees on loans 174 98 - 272
Interest on interest bearing deposits in 48 1,210 - 1,258
other banks 305 99 - 404
----------- ---------------- -------------- -----------
Interest on investment securities 6,504 5,465 - 11,969
Interest on federal funds sold
TOTAL INTEREST INCOME
INTEREST EXPENSE:
Interest expense on deposits 2,451 3,638 - 6,089
Interest expense on borrowings - 165 - 165
----------- ---------------- -------------- -----------
TOTAL INTEREST EXPENSE 2,451 3,803 - 6,254
NET INTEREST INCOME: 4,053 1,662 - 5,715
Less: provisions for loan and lease losses 360 762 - 1,122
----------- ---------------- -------------- -----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN AND LEASE LOSSES 3,693 900 - 4,593
NON-INTEREST INCOME:
Service charges, commissions and fees 372 49 - 421
Gains on sale of loans and other assets 2,522 - - 2,522
Other income (loss) 1,587 29 - 1,616
----------- ---------------- -------------- -----------
TOTAL NON-INTEREST INCOME 4,481 78 - 4,559
NON-INTEREST EXPENSE:
Salaries and benefits 3,925 725 - 4,650
Occupancy, furniture and equipment 987 259 - 1,246
Advertising and business development 282 57 - 339
Professional services 318 66 - 384
Telephone, stationery and supplies 276 142 - 418
Data processing - 83 - 83
Customer services cost - 56 - 56
Other 648 390 - 1,038
----------- ---------------- -------------- -----------
TOTAL NON-INTEREST EXPENSE 6,436 1,833 - 8,269
Income (loss) before income taxes 1,738 (855) - 883
Income taxes (benefit) 730 (939) - (209)
----------- ---------------- -------------- -----------
Net income (loss) $ 1,008 $ 84 $ - $ 1,092
=========== ================ ============== ===========
PER SHARE INFORMATION:
Number of shares (weighted average)
Basic 2,013,830 617,477 2,967,215
Diluted 2,128,212 617,477 3,081,597
Income per share
Basic $ 0.50 $ 0.14 $ 0.37
Diluted $ 0.47 $ 0.14 $ 0.35
</TABLE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
NOTE 1: BASIS OF PRESENTATION. Certain historical data of Palomar have been
reclassified on a pro forma basis to conform to CWB's classifications.
Transactions between the Companies are not material in relation to the unaudited
pro forma combined financial statements, and have not been eliminated from the
pro forma combined amounts. The unaudited pro forma number of common shares
outstanding, common shareholders' equity per share, number of shares (basic and
diluted) and income per share (basic and diluted) are based on the share amounts
for CWB plus the historical share amounts for Palomar multiplied by an assumed
Conversion Ratio of ______.
52
<PAGE>
NOTE 2: MERGER COSTS. The unaudited pro forma combined condensed financial
data reflects CWB management's current estimate, for purposes of pro forma
presentation, of the aggregate estimated merger costs of $ ____________
($__________ net of taxes, computed using the combined federal and state tax
rate of 4.2%) expected to be incurred in connection with the Merger. While a
portion of these costs may be required to be recognized over time, the current
estimate of these costs has been recorded in the Unaudited Pro Forma Combined
Condensed Balance Sheets in order to disclose-the aggregate effect of these
activities on CWB's pro forma combined financial position. The estimated
aggregate costs include the following:
Computer conversion costs $
--------
Investment banking fees $191,000
Legal and other professional costs $110,000
Printing costs $ 10,000
Other costs $ 10,000
TOTAL ESTIMATED AGGREGATE COSTS $
========
CWB Management's cost estimates are forward-looking. While the costs
represent CWB Management's current estimate of merger costs that will be
incurred, the ultimate level and timing of recognition of such costs will be
based on the final merger and integration plan to be completed prior to
consummation of the Merger, which will be developed by various of the Companies'
task forces and integration committees. Readers are cautioned that the
completion of the merger and integration plan and the resulting management plans
detailing actions to be undertaken to effect the Merger and resultant
integration of operations will impact these estimates; the type and amount of
actual costs incurred could vary materially from these estimates if future
developments differ from the underlying assumptions used by management in
determining the current estimate of these costs.
INFORMATION REGARDING CWB
BUSINESS OF CWB
CWB is a bank holding company registered under the BHCA, and its principal
business is to serve as a holding company for its banking subsidiary, Goleta
National Bank ("GNB"). CWB was organized on November 26, 1996, as a California
corporation and commenced operation as a bank holding company of GNB on December
31, 1997. GNB commenced operations as a national banking association on August
21, 1989. CWB's main office is located at 5638 Hollister Avenue, Goleta,
California. GNB's main office is located at 5827 Hollister Avenue, Goleta,
California. In addition, as of June 30, 1998, GNB has loan production offices
located in Fresno, Bakersfield, Costa Mesa, Modesto, Santa Maria, Santa Barbara,
Ventura/Oxnard and West Covena in California and Las Vegas, Nevada, Woodstock,
Georgia and Jacksonville, Pensacola and Panama City Beach, Florida. Application
for a new branch office in Ventura, California is pending.
CWB and GNB offer a broad range of banking products and services, including
many types of business and personal savings and checking accounts and other
consumer banking services. At June 30, 1998, CWB had consolidated total assets,
total deposits and shareholders' equity of $151,080,000, $132,533,000 and
$17,186,000, respectively.
53
<PAGE>
CERTAIN INFORMATION REGARDING CWB MANAGEMENT AND PRINCIPAL SHAREHOLDERS
BENEFICIAL OWNERSHIP OF STOCK
Except as set forth below and in the following table, CWB management does
not know of any individual, group, corporation or other entity who owns
beneficially, directly or indirectly, more than 5% of the outstanding shares of
the CWB Common Stock as of July 31, 1998. The following table sets forth the
amount of shares of the Common Stock beneficially owned, directly and
indirectly, by each of CWB's directors, naming them, and by all directors and
executive officers(1) of CWB, as a group, as of July 31, 1998, Management is not
aware of any change in control of CWB which has occurred since January 1, 1997,
or any arrangement which may, at a subsequent date, result in a change in
control of CWB.
(1) The terms "officer" or "executive officer" means the President and Chief
Executive Officer and the Executive Vice President. CWB's other Vice Presidents
are not deemed to be executive officers.
54
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
NAME AND OFFICE HELD COMMON STOCK
WITH THE COMPANY BENEFICIALLY OWNED PERCENT OF CLASS(2)
- ------------------------------------- ------------------ -------------------
Michael A. Alexander
Director 74,370(3) 1.85%
Mounir R. Ashamalla
Director 74,856(4) 1.86%
Robert H. Bartlein
Vice Chairman of the Board 86,472(5) 2.16%
Jean W. Blois
Director 51,068(6) 1.27%
John D. Illgen
Director 42,080(7) 1.05%
John D. Markel
Chairman of the Board 314,664(8) 7.82%
Michel Nellis
Secretary and Director 40,952(9) 1.02%
William R. Peeples
Director 309,588(10) 7.72%
C. Randy Shaffer
Executive Vice President
and Director 44,730(11) 1.10%
James R. Sims, Jr.
Director 17,400(12) 0.43%
55
<PAGE>
Llewellyn W. Stone
President, Chief Executive Officer
and Director 85,424(13) 2.12%
All directors and Executive Officers
as a group
(11 in number) 1,141,104(14) 27.6%
<FN>
(2) Includes shares subject to options held by each director and named
officer and the directors and named officers as a group that are exercisable
("vested") within 60 days of July 31,1998. These are treated as issued and
outstanding for the purpose of computing the percentage of each director and
named officers as a group but not for the purpose of computing the percentage
of class of any other person.
(3) Mr. Alexander has shared voting and investment powers as to 53,170
of these shares and has 9,460 shares acquirable by exercise of stock options.
(4) Dr. Ashamalla has 10,164 shares acquirable by exercise of stock options.
(5) Mr. Bartlein has 2,680 shares acquirable by exercise of stock options.
(6) Ms. Blois has 24,244 shares acquirable by exercise of stock options.
(7) Mr. Illgen has 15,444 shares acquirable be exercise of stock options.
(8) Mr. Markel has shared voting and investment powers as to 27,720 of these
shares and has 15,840 shares acquirable by exercise of stock options.
(9) Ms. Nellis has shared voting and investment powers as to 7,246 of these
shares and has 15,444 shares acquirable by exercise of stock options.
(10) Mr. Peeples has 2,860 shares acquirable by exercise of stock options.
(11) Mr. Shaffer has shared voting and investment powers as to all of these
shares.
(12) Mr. Sims has 9,152 shares acquirable by exercise of stock options.
(13) Mr. Stone has shared voting and investment powers as to 1,584 of these
shares and has 24,000 shares acquirable by exercise of stock options.
(14) Includes 129,468 shares acquirable by exercise of stock options.
</TABLE>
56
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The Bylaws of CWB provide that the authorized number of directors shall not
be less than six (6) or more than eleven (11), with the exact number of
directors fixed from time to time by resolution of a majority of the full Board
of Directors or by resolution of the shareholders. The number of directors has
been fixed at eleven (11) by action of the Board of Directors.
The following data sets forth the names and certain information as of July
31, 1998, concerning the directors and executive officers of CWB. The directors
of CWB are elected annually by the CWB shareholders and serve until the next
Annual Meeting of Shareholders. Except as may be set forth in any applicable
employment agreements, officers serve at the pleasure of the CWB Board. None of
the directors or executive officers of CWB were selected pursuant to any
arrangement or understanding, other than with the directors and executive
officers of CWB acting with the capacities as such. Except as noted below, as
of July 31, 1998, there are no family relationships between the directors and
executive officers of CWB. None of the directors or executive officers of CWB
serve as directors of any company which has a class of securities registered
under, or which is subject to the periodic reporting requirements of, the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any
investment company registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act").
The following table sets forth the names and certain information as of July
31, 1998, concerning the persons currently serving on the Board of Directors of
CWB.
57
<PAGE>
<TABLE>
<CAPTION>
Year First
Appointed or
Name and Offices Held Age Principal Occupation Elected To Board
- --------------------- --- -------------------------------------------------- ----------------
<S> <C> <C> <C>
Michael A. Alexander 67 Chairman of the Board of Goleta National Bank. 1997
Director Chief Executive Officer of Utilicom Corp. since
1994. Prior to that time, Director of Programs of
Delco Electronics.
Mounir R. Ashamalla 60 Oral-Maxillo-Facial Surgeon 1997
Director
Robert H. Bartlein 50 President of Bartlein Group, Inc. and President of 1997
Director and Vice Chairman of Bartlein & Company, Inc.
the Board
Jean W. Blois 70 Independent consultant 1997
Director
John D. Illgen 53 President and Chairman of Illgen Simulation 1997
Director Technologies, Inc.
John D. Markel 54 Private Investor 1997
Chairman of the Board
Michel Nellis 51 Partner with Nellis Associates 1997
Secretary and Director
William R. Peeples 54 Private Investor 1997
Director
C. Randy Shaffer 51 Executive Vice President of the Company and 1998
Director and Executive Vice Executive Vice President of Bank
President
James R. Sims, Jr. 62 Realtor. 1997
Director
Llewellyn W. Stone 55 President and Chief Executive Officer of the 1997
President, Chief Executive Company and Bank
Officer and Director
</TABLE>
LITIGATION
As of the date of this Prospectus - Joint Proxy Statement, CWB is not aware
of any litigation pending or threatened to which CWB is a party the outcome of
which is likely to have a material adverse affect on CWB.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
Additional information relating to CWB, including information relating to
the business, management, properties, financial condition and results of
operations of CWB, is included in documents incorporated by reference into this
Joint Proxy Statement-Prospectus. See "AVAILABLE INFORMATION" and "INCORPORATION
OF CERTAIN INFORMATION BY REFERENCE".
INFORMATION REGARDING PALOMAR
BUSINESS OF PALOMAR
Palomar was organized on January 10, 1983, as a California savings and loan
association under the name North County Savings and Loan Association and
commenced operations pursuant to a charter issued by the Commissioner on June
20, 1984. In January 1986, North County Savings and Loan Association changed
its name to "Palomar Savings and Loan Association."
58
<PAGE>
Palomar is a California state chartered full-service savings and loan
association which engages in general savings and loan business in San Diego
County, California. Palomar is subject to supervision by the Office of Thrift
("OTS"), of the Federal Deposit Insurance Corporation ("FDIC"), and the
California Department of Financial Institutions (the "Commissioner"). The
deposits are insured up to the applicable limits by the Savings Association
Insurance Fund ("SAIF") of the FDIC. Palomar is a member of the Federal Home
Loan Bank ("FHLB") system. Palomar's principal executive office is located at
355 West Grand Avenue, Escondido, California and its telephone number is (760)
745-9370. As of June 30, 1998 Palomar had no branch offices. However, a branch
application in Escondido, California has been approved. Services include those
traditionally offered by savings and loan associations, such as checking and
saving accounts and real estate and home improvement loans. The vast majority
of Palomar's loans are direct loans made to individuals, professionals and small
and medium sized businesses within Palomar's marketing area. The majority of
Palomar's loan originations are sold into the secondary market servicing
released.
CERTAIN INFORMATION REGARDING PALOMAR MANAGEMENT AND PRINCIPAL SHAREHOLDERS
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth certain information as of June 30, 1998,
concerning the beneficial ownership of Palomar Common Stock: (i) by each of
Palomar's directors and executive officers(1); and (ii) by all directors and
executive officers of Palomar as a group. Management is not aware of any change
in control of Palomar which has occurred since January 1, 1997, or any
arrangement which may, at a subsequent date, result in a change in control of
Palomar. Except for as set forth below, Management of Palomar does not know of
any person who owns, beneficially or of record, more than 5% of Palomar Common
Stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK PERCENT OF CLASS
NAME AND POSITION HELD(1) BENEFICIALLY OWNED(2) BENEFICIALLY OWNED
- ---------------------------------------- -------------------------- ---------------------
<S> <C> <C>
Darol H. Caster,
Senior Vice President and 12,704(3) 1.95%
Chief Financial Officer
Donald M. Galyean,
Director and Secretary 3,530 0.54%
Frederick Mandelbaum,
Director 13,854 2.14%
Robert E. Pommier,
Vice President/Lending Administration - N/A
James M. Rady,
Director, President and 35,795(4) 5.52%
Chief Executive Officer
Timothy S. Thomas,
Director 3,848 0.59%
Ralph O. Vasquez,
Director 132 0.02%
Robert A. Wedeking,
Chairman of the Board of Directors 24,119 3.72%
David Weseloh(3),
Director 39,859 6.15%
Palomar Employee Stock Ownership Plan
30,083 4.64%
All Directors and Executive Officers
as a Group (9 in number) 133,841 20.65%
<FN>
(1) The terms "officer" and "executive officer" means President and Chief Executive
Officer, the Senior Vice President and Chief Financial Officer, and the Vice
President/Lending Administration. Palomar's other Vice Presidents are not deemed
to be executive officers.
(2) Includes shares beneficially owned, directly and indirectly, together with
associates. Also includes shares held as trustee and held by or as custodian for minor
children. Unless otherwise indicated, all shares are held as community property
under California law or with sole voting and investment power.
(3) Includes 5,485 shares of Palomar Common Stock credited to Mr. Caster under the
Palomar Employee Stock Ownership Plan.
(4) Includes 8,180 shares of Palomar Common Stock credited to Mr. Rady under the
Palomar Employee Stock Ownership Plan.
(5) Mr. Weseloh's business address is 1772 Pinehurst Street, Escondido, California
92026.
</TABLE>
59
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The Palomar Bylaws provide that the authorized number of directors shall
not be less than seven (7) nor more than thirteen (13). Currently, the actual
number of directors of Palomar is seven (7). The Palomar Board is divided into
three classes, with staggered terms of three years per class, so that
approximately one-third of the Palomar Board is elected each year.
The following table sets forth the names and certain information as of June
30, 1998, concerning the directors and executive officers of Palomar. The
directors are elected with staggered terms of three years per class by the
Palomar shareholders. Except as may be set forth in any applicable employment
agreement, officers serve at the pleasure of the Palomar Board. None of the
directors or executive officers of Palomar were selected pursuant to any
arrangement or understanding, other than with the directors and executive
officers of Palomar, acting within their capacities as such. Except as noted
below, as of June 30, 1998, there are no family relationships between the
directors and executive officers of Palomar. None of the directors or executive
officers serve as directors of any company which has a class of securities
registered under, or which are subject to the periodic reporting requirements of
the Exchange Act or any investment company registered under the Investment
Company Act.
<TABLE>
<CAPTION>
YEAR FIRST ELECTED TO
BUSINESS EXPERIENCE OR APPOINTED DIRECTOR OR
NAME AND TITLE AGE DURING PAST FIVE YEARS EXECUTIVE OFFICER
- --------------------------------------- --- ----------------------------- ------------------------
<S> <C> <C> <C>
Darol H. Caster, 49 Senior Vice President, 1984
Senior Vice President and Palomar Savings and Loan
Chief Financial Officer
Donald M. Galyean, 48 Sales - Golf Merchandise 1988
Director and Secretary
Frederick Mandelbaum, 82 Retired Credit Manager 1986
Director
<PAGE>
Robert E. Pommier, 36 Vice President, Palomar 1996
Vice President/Lending Administration Savings and Loan since July
1996; Vice President -
Underwriting of Classic
Financial Corporation prior
James M. Rady, 56 President and CEO, Palomar 1983
Director, President and Savings and Loan
Chief Executive Officer
Timothy S. Thomas, 49 Attorney - Private Practice 1988
Director
Ralph O. Vasquez, 66 Tax Preparer and Consultant 1994
Director
Robert A. Wedeking, 63 Owner of a Bakery 1983
Chairman of the Board of Directors
David Weseloh, 61 Owner of a Recycling Business 1983
Director
</TABLE>
60
<PAGE>
The following table sets forth certain compensation paid to Palomar's
President and Chief Executive Officer and the other most highly compensated
executive officers of Palomar who received compensation on a calendar year basis
in excess of $100,000 as of December 31, 1997:36
<TABLE>
<CAPTION>
Long Term Compensation(1)
----------------------------------------------
Annual Compensation(1) Awards Payouts
-------------------------------- ------------------------- -----------------------
Restricted
Stock Securities
Award(s) Underlying LTIP All Other
Year Salary Bonus Other ($) Options Payouts Compensation(2)
---- ---------------- ------ ------ ------------ ----------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James M. Rady 1997 $133,125 124,500 $ 0 $ 0 $ 0 $ 0 $ 0 $ 10,732
President and Chief 1996 124,500 0 0 0 0 0 13,616
Executive Officer 1995 0 0 0 0 0 11,126
<FN>
(1) Information has been prepared on a calendar year basis.
(2) Includes taxable auto allowance, club dues, term life insurance in excess of $50,000 and Palomar's
contribution to the ESOP for the benefit of the executive.
</TABLE>
61
<PAGE>
CERTAIN PALOMAR TRANSACTIONS
Some of the directors, officers and principal shareholders of Palomar, and
the businesses with which they are associated, were customers of, and had
banking transactions with Palomar in the ordinary course of Palomar's business
during 1997. All loans and commitments to lend included in such transactions
were made in compliance with applicable laws and on substantially the same
terms, including interest rates, collateral and repayment terms, as those
prevailing at the time for comparable transactions with other persons of similar
credit worthiness and, in the opinion of management of Palomar, did not involve
more than a normal risk of collectability or present other unfavorable features.
As of December 31, 1997 the aggregate principal amount of extensions of credit
to directors and executive officers and related interests was $47,200 which
represents approximately 0.85% of Palomar's shareholder's equity as of that
date.
PALOMAR COMPENSATION COMMITTEE REPORT
The Palomar Compensation Committee is responsible for setting the
compensation for the Chief Executive Officer and awarding benefits to all
employees. The Compensation Committee answers to the Palomar Board and
recommendations from this Committee are submitted to the Palomar Board for
ratification or approval.
The following is a report of the Compensation Committee with respect to the
executive compensation policies established by the Compensation Committee and
approved when necessary by Palomar's Board.
Palomar has always been interested in attracting and retaining highly
skilled banking professionals. Simultaneously, Palomar has also been very
concerned that base salary compensation remains within the current industry
standards. Consequently, in setting executive officer salaries, we utilize
compensation surveys from time to time, most notably the California Bankers
Association Compensation Survey.
Ordinarily, Palomar's performance does not have a bearing on the base
salary of the Chief Executive Officer. No stock options have been granted as
long-term incentive compensation. Bonuses could be used as additional
compensation for the results of the prior year.
Palomar has adopted the Palomar Stock Ownership Plan ("ESOP"). The ESOP's
only assets are 30,080 shares of Palomar's Common Stock. The ESOP is scheduled
to be terminated upon completion of the Merger.
LITIGATION
As of the date of this Prospectus - Joint Proxy Statement, Palomar is not
aware of any litigation pending or threatened to which it is a party
the outcome of which is likely to have a material adverse affect on Palomar.
62
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the increase or decrease of certain items in the
statements of income as compared to the prior periods:
STATEMENTS OF INCOME COMPARISON
-----------------------------------
(Dollars in thousands)
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED
JUNE 30, 1998 VERSUS 1997 1997 VERSUS 1996 1996 VERSUS 1995 1995 VERSUS 1994
------------------------ ------------------------ ------------------------ ------------------------
AMOUNT OF PERCENT OF AMOUNT OF PERCENT OF AMOUNT OF PERCENT OF AMOUNT OF PERCENT OF
INCREASE INCREASE INCREASE INCREASE INCREASE INCREASE INCREASE INCREASE
(DECREASE) (DECREASE) (DECREASE) (DECREASE) (DECREASE) (DECREASE) (DECREASE) (DECREASE)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total interest income $ 26 0.95% $ (109) (1.93)% $ 184 3.37% $ 724 15.27%
Total interest expense 2 0.12 (116) (3.25) (237) (6.23) 1,193 45.71
Net interest income 24 2.30 7 0.34 421 25.33 (469) (22.01)
Provision (credit) for loan
losses (47) (68.12) (286) (132.41) (546) (71.65) 757 15,140.00
Net interest income after
provision (credit) for
loan losses 71 6.38 293 15.69 967 107.44 (1,226) (57.67)
Non interest income 241 121.11 129 37.18 269 344.87 6 8.33
Non interest expense 65 6.60 (311) (13.96) 395 21.55 (25) (1.35)
Income before income taxes 247 75.77 733 5,235.71 841 98.36 (1,195) (351.47)
Income taxes 62 64.58 185 215.12 853 90.84 (1,107) (658.93)
Net income $ 185 80.43% $ 548 761.11% $ (12) (14.29)% $ (88) (51.16)%
</TABLE>
63
<PAGE>
NET INTEREST INCOME AND NET INTEREST MARGIN
- -------------------------------------------------
Palomar's earnings depend largely upon the difference between the income
received from its loan portfolio and investment securities and the interest paid
on its liabilities, including interest paid on deposits. This difference is
"net interest income." The net interest income, when expressed as a percentage
of average total interest-earning assets, is referred to as the net yield on
interest-earning assets. Palomar's net interest income is affected by the
change in the level and the mix of interest-earning assets and interest-bearing
liabilities, referred to as volume changes. Palomar's net yield on
interest-earning assets is also affected by changes in the yields earned on
assets and rates paid on liabilities, referred to as rate changes. Interest
rates charged on Palomar's loans are affected principally by the demand for such
loans, the supply of money available for lending purposes and competitive
factors. These factors are in turn affected by general economic conditions and
other factors beyond Palomar's control, such as federal economic policies, the
general supply of money in the economy, legislative tax policies, governmental
budgetary matters, and the actions of the FRB.
Net interest income for the six months ended June 30, 1998 was $1,067,000
an increase of $24,000 or 2.3% from $1,043,000 for the same period of 1997.
This increase was primarily due to the volume of interest-earning assets
increasing more rapidly than the volume of interest-bearing liabilities.
Average interest-earning assets increased $1,050,000 or 1.4%, while average
interest-bearing liabilities only increased $336,000 or 0.5%. Palomar also
improved its mix of interest-earning assets as interest earning cash in banks,
Palomar's lowest yielding asset decreased by $1,427,000 or 53.6% during this
period. These funds were reinvested into investment securities at a higher
yield. The average yield on interest-earning assets was 7.22%, down 0.04 basis
points from the average yield of 7.26% in the first six months of 1997.
Meanwhile, the rates paid on deposits remained stable at 4.7%. As a result, the
net yield on interest-earning assets decreased from 2.56% for the first six
months of 1996 to 2.52% for the first six months of 1997.
For 1997, net interest income was $2,090,000 an increase of $7,000 or 0.3%
from 2,083,000 for 1996. This increase was primarily attributable to the
decrease in the average balance of other borrowings. Average interest-earning
assets decreased by 1.5% from $77,434,000 for 1996 to $76,271,000 for 1997.
Average interest-bearing liabilities decreased 3.1% from $74,340,000 for 1996 to
$72,060,000 for 1997. The net yield on interest-earning assets decreased
slightly from 2.5% in 1996 to 2.47% in 1997.
The following table presents the average amounts outstanding for the major
categories of the Palomar's interest-earning assets and interest-bearing
liabilities, the average interest rates earned or paid thereon, and the net
yield on average interest earning assets for the periods indicated:
64
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES AND INTEREST RATES
-----------------------------------
(Dollars in thousands)
For The Six Months Ended June 30,
------------------------------------------------------------------------------
1998 1997
-------------------------------------- --------------------------------------
Average Interest Average Interest
Average Yield or Earned Average Yield or Earned
Balance(1) Rate Paid(2) or Paid(2) Balance(1) Rate Paid(2) or Paid(2)
---------- ------------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Cash in banks $ 1,236 5.18% $ 32 $ 2,663 5.40% 72
Investment securities 13,911 6.52% 454 12,152 6.84% 416
Federal funds sold 5,026 5.22% 131 3,419 5.32% 91
Loans, net 56,764 7.62% 2,160 57,653 7.54% 2,172
---------- ------------ ----------- ----------- ------------ -----------
$ 76,937 7.20% 2,777 75,887 7.26% 2,751
INTEREST BEARING LIABILITIES:
Deposits:
Money market and NOW 17,864 2.22% 198 16,063 3.29% 184
Time deposits 54,837 5.65% 1,512 55,252 5.61% 1,492
---------- ------------ ----------- ----------- ------------ -----------
Total Deposits 72,701 4.70% 1,710 71,315 4.70% 1,676
Other borrowings - N/A - 1,050 5.80% 32
---------- ------------ ----------- ----------- ------------ -----------
Total interest-bearing liabilities $ 72,701 4.70% $ 1,710 $ 72,365 4.72% $ 1,708
Net interest income $ 1,067 $ 1,043
Net yield on interest earning assets 2.78%(3) 2.74%(3)
<FN>
- -----------------------------------------
(1) The average balance of non-accruing loans is immaterial as a percentage of total loans and as such has been
included in net loans.
(2) Yields and amounts earned on loans include loan fees of $13,000 and $12,000 for the six months ended
June 30, 1998 and 1997, respectively.
(3) These rations have been annualized.
</TABLE>
65
<PAGE>
66
<PAGE>
<TABLE>
<CAPTION>
For The Year Ended December 31,
--------------------------------------------------------------------------
1997 1996
------------------------------------ ------------------------------------
Average Interest Average Interest
Average Yield or Earned Average Yield or Earned
Balance(1) Rate Paid(2) or Paid Balance(1) Rate Paid(2) or Paid
---------- ------------ ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Cash in banks $ 2,185 4.99% $ 109 2,252 4.84% $ 109
Investment securities(2) 12,450 6.65 828 16,373 6.74 1,103
Federal funds sold 3,628 5.31 193 2,941 4.96 146
Loans, net(3)(4) 58,008 7.60 4,410 55,868 7.68 4,291
---------- ------------ ---------- ---------- ------------ ----------
Total interest-earning assets 76,271 7.26 5,540 77,434 7.30 5,649
INTEREST BEARING LIABILITIES:
Deposits:
Money market and NOW 16,312 2.27 370 16,622 2.50 416
Time deposits 55,210 5.53 3,051 55,718 5.44 3,032
---------- ------------ ---------- ---------- ------------ ----------
Total Deposits 71,522 4.78 3,421 72,340 4.77 3,448
Other borrowings 538 5.39 29 2,000 5.90 118
---------- ------------ ---------- ---------- ------------ ----------
Total interest-bearing liabilities $ 72,060 4.79% 3,450 74,340 4.80% 3,566
---------- ---------- ----------
Net interest income $ 2,090 $ 2,083
Net yield on interest earning assets 2.74% 2.69%
<FN>
- ------------------------------------
(1) The average balance of non-accruing loans is immaterial as a percentage of total loans and as such has been
included in net loans.
(2) Yields and amounts earned on loans include loan fees of $29,000 and $33,000 for the years ended December 31,
1997 and 1996, respectively.
</TABLE>
67
<PAGE>
The following tables set forth an analysis of the changes in interest
income and interest expense. The total change is shown in the column designated
"Net Change" and is allocated to the change attributable to variations in volume
and the change attributable to variations in interest rate. Changes due to both
volume and rate changes have been allocated between the volume and rate
categories in proportion to the relationship of the changes due solely to the
changes in volume and the changes due solely to changes in rate.
<TABLE>
<CAPTION>
RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
-------------------------------------------
(Dollars in thousands)
FOR THE SIX MONTHS ENDED
JUNE 30, 1998 COMPARED TO THE
SIX MONTHS ENDED JUNE 30, 1997
------------------------------
INCREASE (DECREASE)
-------------------
DUE TO CHANGE IN:
------------------
NET
VOLUME RATE CHANGE
------------ ------------ -----------
<S> <C> <C> <C>
INTEREST-EARNING ASSETS:
Investment securities(1) $ 57 $ (19) $ 38
Federal funds sold 42 (2) 40
Loans, net (2)(3) (34) 22 (12)
Interest on interest bearing deposits (37) (3) (40)
------------ ------------ -----------
Total interest-earning assets 28 (2) 26
INTEREST-BEARING LIABILITIES:
Deposits:
Money market and NOW 20 (6) 14
Time deposits (12) 32 20
Interest on borrowings (32) 0 (32)
------------ ------------ -----------
Total interest bearing liabilities (24) 26 2
------------ ------------ -----------
Net interest income $ 52 $ (28) $ 24
============ ============ ===========
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
For The Year Ended
December 31, 1997
Compared To The Year Ended
December 31, 1996
INCREASE (DECREASE)
---------------------
DUE TO CHANGE IN:
--------------------
NET
VOLUME RATE CHANGE
------ ---- ------
<S> <C> <C> <C>
INTEREST-EARNING ASSETS:
Investment securities (260) (15) (275)
Federal funds sold 37 10 47
Loans, net 164 (45) 119
Interest on interest bearing deposits (2) 2 0
----- ---- -----
Total interest-earning assets (61) (48) (109)
INTEREST-BEARING LIABILITIES:
Deposits:
Money market and NOW (8) (38) (46)
Time deposits (28) 47 19
Other borrowings (87) (2) (89)
----- ---- -----
Total interest-bearing liabilities (123) 7 (116)
----- ---- -----
Net interest income 62 (55) 7
===== ==== =====
</TABLE>
PROVISION FOR LOAN LOSSES
----------------------------
Provisions for loan losses are charged to earnings to bring the total
allowance for possible loan losses to a level deemed appropriate by management
based on such factors as historical experience, the volume and type of lending
conducted by Palomar, the amount of non-performing loans, regulatory policies,
generally accepted accounting principles, general economic conditions, and other
factors related to the collectability of loans in Palomar's portfolio.
Each month Palomar reviews the allowance for possible loan losses and makes
additional transfers to the allowance, as needed. During the first six months
of 1998, Palomar actually effected a negative provision for loan losses which
has the effect of causing a credit to the allowance. The credit for loan losses
was $116,000, up 68% from $69,000 in the same period of 1997. The credit for
loan losses was $70,000 in 1997 compared to a provision of $216,000 in 1996 and
$762,000 in 1995. The decrease in the provision during 1997 reflected the
decrease in nonperforming loans and the amount of net charge-offs during that
period. As of June 30, 1998 and December 31, 1997, Palomar believes the
allowance for possible credit losses was adequate.
NONINTEREST INCOME AND NONINTEREST EXPENSE
- ----------------------------------------------
Noninterest income for the six months ended June 30, 1998 was $440,000 or a
121% increase from the same period in 1997. This increase of $241,000 was
primarily the result of an increase in gains on the sale of loans of $194,000
and an increase in service charges and fees of $38,000.
Noninterest income in 1997 was $476,000 compared to $347,000 in 1996 and
$78,000 in 1995. The 1997 increase of $129,000 or 37% was caused primarily by
an increase in gains on the sale of loans of $258,000 and a decrease in gain of
sale of land of $95,000.
69
<PAGE>
Noninterest income increased by $269,000 or 345% in 1996 compared to 1995.
This increase was primarily attributable to a $31,000 increase in gains on the
sale of loans. Other income also reflected a gain of $95,000 from the sale of
real estate in 1996. Palomar recognized a loss of $202,000 from joint venture
operations in 1995.
The following table sets forth for the periods indicated the various
components of Palomar's noninterest income:
<TABLE>
<CAPTION>
NONINTEREST INCOME
--------------------
(Dollars in thousands)
For The Six For The Years
Months Ended Ended
June 30, December 31,
---------- -------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C>
Service charges and fees $120 $ 82 $170 $180 $ 179
Gain on sale of loans 298 104 289 31 0
Other 22 13 17 136 (101)
---- ---- ---- ---- ------
Total $440 $199 $476 $347 $ 78
==== ==== ==== ==== ======
</TABLE>
Noninterest expense for the six months ended June 30, 1998 was $1,050,000
compared to $985,000 for the same period in 1997. This increase of $65,000 or
7% was centered primarily in salaries and employee benefits and other expenses.
These increases were primarily related to Palomar's growth and expansion in
business activity. As a percent of average assets, annualized noninterest
expense was 2.6% for the six months ended June 30, 1998 and 2.5% for the same
period in 1997.
Noninterest expense was $1,917,000 in 1997, $2,228,000 in 1996, and
$1,833,000 in 1995. The decrease of $311,000 or 14% in 1997 was comprised
primarily of the absence of the one-time SAIF assessment of $506,000 in 1996
offset by an increase in salaries and employee benefits of $199,000 resulting
from expansion of loan operations. As a percent of average assets, noninterest
expense was 2.4% in 1997 and 2.8% in 1996.
Noninterest expense increased $395,000 or 22% in 1996 from 1995. This
increase was caused primarily by a one-time SAIF assessment of $506,000 offset
by a $76,000 reduction in legal fees and other expenses related to real estate
owned.
70
<PAGE>
The following table sets forth for the periods indicated the various
components of Palomar's noninterest expense:
<TABLE>
<CAPTION>
NONINTEREST EXPENSE
---------------------
(Dollars in thousands)
For The Six For The Years
Months Ended Ended
June 30, December 31,
------------ -------------------
1998 1997 1997 1996 1995
------ ---- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits $ 521 453 935 737 725
Occupancy expense, furniture and equipment 129 125 260 254 259
Advertising 27 33 53 39 57
Other real estate owned - 66 70 11 66
Professional fees 62 43 86 121 142
Telephone, stationary and supplies 33 28 61 51 55
Data processing 61 44 89 89 83
Customer service cost 24 21 45 49 56
Merger costs 13 - - - -
Other 180 172 318 877 390
------ ---- ----- ----- -----
Total 1,050 985 1,917 2,228 1,833
====== ==== ===== ===== =====
</TABLE>
As a result of the regulations issued by FDIC on _________________, a new
rate schedule for institutions whose deposits are insured by the Savings
Association Insurance Fund ("SAIF") was adopted. The rate Palomar pays for
insurance on its deposits increased as a result of the regulation. See
"SUPERVISION AND REGULATION - Premiums for Deposit Insurance."
INCOME TAXES
- -------------
Income tax expense was $158,000 for the six months ended June 30, 1998 and
$96,000 for the same period in 1997. Income tax expenses (benefits) were
$99,000, ($86,000) and ($939,000) for the years ended December 31, 1997, 1996,
and 1995, respectively. These expenses (benefits) varied from the anticipated
effective tax rate of approximately 41.6% primarily due to the timing of the
recognition for financial statement purposes of the tax effects of certain
losses related to joint ventures incurred in prior years.
ANALYSIS OF FINANCIAL CONDITION
The following table sets forth the average balances of each principal
category of Palomar's assets, liabilities and capital accounts for the periods
indicated, as well as the percentage of each category to total assets for the
periods indicated:
71
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
----------------------------------------------------------------------
(Dollars in thousands)
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE SIX MONTHS ENDED DECEMBER 31,
------------------------------------------------ -----------------------------------
1998 1997 1997 1996
----------------------- ------------------------ ----------------------- ---------
AVERAGE PERCENT OF AVERAGE PERCENT OF AVERAGE PERCENT OF AVERAGE
ASSETS: BALANCE TOTAL ASSETS BALANCE TOTAL ASSETS BALANCE TOTAL ASSETS BALANCE
-------- ------------- --------- ------------- -------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and due from banks $ 3,205 4.0% $ 3,974 5.1% 3,726 4.7% 3,481
Investment securities(1) 13,951 175 12,134 15.5 12,453 15.9 16,350
Federal funds sold 4,871 6.1 3,571 4.6 3,628 4.6 2,941
Loans, net 55,885 700 56,592 72.3 57,002 72.6 54,783
Premises and equipment 137 0.2 142 0.2 136 0.2 159
Other real estate owned - N/A 198 0.2 115 0.2 541
Accrued interest and other assets 1,766 2.2 1,626 2.1 1,448 1.8 2,292
-------- ------------- --------- ------------- -------- ------------- ---------
Total assets $ 79,815 100.0% $ 78,237 100.0% $ 78,508 100.0% $ 80,547
======== ============= ========= ============= ======== ============= =========
LIABILITIES AND CAPITAL:
Deposits:
Noninterest-bearing demand 452 0.6% 379 0.5% 392 0.5% 307
Money market and NOW 17,864 22.3 16,063 20.5 16,312 20.8 16,622
Time deposits 54,837 68.7 55,252 70.6 55,210 70.3 55,718
-------- ------------- --------- ------------- -------- ------------- ---------
Total deposits 73,153 91.6 71,694 91.6 71,914 91.6 72,647
Other borrowings - N/A 714 0.9 538 0.7 2,000
Accrued interest and other liabilities 925 1.2 833 1.1 879 1.1 1,051
-------- ------------- --------- ------------- -------- ------------- ---------
Total liabilities 74,078 92.8 73,241 93.6 73,331 93.4 75,698
Common Stock 4,460 5.6 4,263 5.4 4,263 5.4 4,263
Retained earnings 1,252 1.6 746 1.0 913 1.2 611
Unrecognized gains (losses) 25 -- (13) -- 1 -- (25)
-------- ------------- --------- ------------- -------- ------------- ---------
Total shareholders' equity 5,737 7.2 4,996 6.4 5,177 6.6 4,849
-------- ------------- --------- ------------- -------- ------------- ---------
Total liabilities and shareholders'
equity $ 79,815 100.0% $ 78,237 100.0% $ 78,508 100.0% $ 80,547
======== ============= ========= ============= ======== ============= =========
FOR THE SIX MONTHS ENDED DECEMBER 31,
-----------------------------------
1996
---------------
PERCENT OF
ASSETS: TOTAL ASSETS
---------------
<S> <C>
Cash and due from banks 4.3%
Investment securities(1) 20.3
Federal funds sold 3.6
Loans, net 68.0
Premises and equipment 0.2
Other real estate owned 0.7
Accrued interest and other assets 2.9
---------------
Total assets 100.0%
===============
LIABILITIES AND CAPITAL:
Deposits:
Noninterest-bearing demand 0.4%
Money market and NOW 20.6
Time deposits 69.2
---------------
Total deposits 90.2
Other borrowings 2.5
Accrued interest and other liabilities 1.3
---------------
Total liabilities 94.0
Common Stock 5.3
Retained earnings 0 .7
Unrecognized gains (losses) --
---------------
Total shareholders' equity 6.0
---------------
Total liabilities and shareholders'
equity 100.0%
===============
</TABLE>
72
<PAGE>
Investment Portfolio
---------------------
In order to maintain a reserve of readily saleable assets to meet Palomar's
liquidity and loan requirements, Palomar purchases United States Treasury
securities, mortgage backed securities and other investments. Sales of "Federal
funds" (short-term loans to other banks) are regularly utilized. Placement of
funds in certificates of deposit with other financial institutions may be made
as alternative investments pending utilization of funds for loans or other
purposes.
In addition to investing in federal funds sold and investing in term
certificates of deposit with federally insured financial institutions, Palomar's
investment policy allows the institution to invest in debt securities of the
U.S. Treasury and U.S. government agencies. The current investment portfolio is
made up of securities issued by these agencies.
Palomar accounts for its investment portfolio following SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," which
requires the investment portfolio to be classified into securities "Available
for Sale" and securities "Held to Maturity." Securities designated as available
for sale are stated at their current market value with stockholders' equity
being adjusted for the after-tax unrecognized gain (loss) on said securities.
Investment securities classified as held to maturity are stated at cost,
decreased by amortization of premium and increased by accretion of discount,
over the period to maturity of the related securities.
The following tables summarize the amounts and distribution of Palomar's
investment securities held as of the dates indicated, and the weighted average
yields as of June 30, 1998 and December 31, 1997 and 1996:
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO
----------------------
(Dollars in thousands)
December 31,
---------------------------------------
June 30, 1998 1997 1996
------------------------------------------ -------------------------- -----------
Weighted
Book Value Market Value Average Yield Book Value Market Value Book Value
----------- ------------- -------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
AVAILABLE-FOR-SALE SECURITIES
- -------------------------------------------
U.S. GOVERNMENT & AGENCY SECURITIES:
Within one year $ 500 $ 502 6.06% $ - $ - $ -
One to five years 250 251 5.88 750 752 -
Over five years 500 500 7.00 - - -
----------- ------------- -------------- ----------- ------------- -----------
Total U.S. Government and Agency Securities $ 1,250 $ 1,253 6.40% $ 750 $ 752 $ -
ADJUSTABLE RATE MORTGAGE FUND: - - - - - 987
MORTGAGE-BACKED SECURITIES:
Over five years 9,165 9,184 6.60 8,115 8,160 5,943
----------- ------------- -------------- ----------- ------------- -----------
Total mortgage-backed securities 9,165 9,184 6.60 8,115 8,160 5,943
----------- ------------- -------------- ----------- ------------- -----------
Total available-for sale securities $ 10,415 $ 10,437 6.58% $ 8,865 $ 8,912 $ 6,930
December 31,
-------------
1996
-------------
AVAILABLE-FOR-SALE SECURITIES
- -------------------------------------------
U.S. GOVERNMENT & AGENCY SECURITIES:
<S> <C>
Market Value
-------------
Within one year $ -
One to five years -
Over five years -
-------------
Total U.S. Government and Agency Securities $ -
ADJUSTABLE RATE MORTGAGE FUND: 981
MORTGAGE-BACKED SECURITIES:
Over five years 5,939
-------------
Total Mortgage-Backed Securities 5,939
-------------
Total Available-For Sale Securities $ 6,920
</TABLE>
73
<PAGE>
<TABLE>
<CAPTION>
December 31,
----------------------------------------
June 30, 1998 1997 1996
------------------------------------------ -------------------------- ------------
Weighted
Book Value Market Value Average Yield Book Value Market Value Book Value
----------- ------------- --------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
HELD-TO-MATURITY SECURITIES
- -------------------------------------------
U.S. GOVERNMENT & AGENCY SECURITIES:
Over five years $ - N/A 736 738 1,726 1,740
----------- --------------- ----------- ------------- -----------
Total U.S. Government and Agency Securities $ - N/A $ 736 738 $ 1,726 1,740
MORTGAGE-BACKED SECURITIES:
Over five years 3,420 3,285 5.89 3,420 3,233 3,421
----------- ------------- --------------- ----------- ------------- -----------
Total mortgage-backed securities 3,420 3,285 5.89 3,420 3,233 3,421
----------- ------------- --------------- ----------- ------------- -----------
Total held To maturity securities $ 3,420 3,285 5.89 4,156 $ 3,971 5,147
----------- ------------- --------------- ----------- ------------- -----------
Total securities $ 13,835 $ 13,722 6.41% $ 13,021 $ 12,883 $ 12,077
=========== ============= =============== =========== ============= ===========
December 31,
-------------
1996
-------------
Market Value
-------------
<S> <C>
HELD-TO-MATURITY SECURITIES
- -------------------------------------------
U.S. GOVERNMENT & AGENCY SECURITIES:
Over five years
Total U.S. Government and Agency Securities
MORTGAGE-BACKED SECURITIES:
Over five years 3,175
-------------
Total mortgage-backed securities 3,175
-------------
Total held To maturity securities 4,915
-------------
Total securities $ 11,835
=============
</TABLE>
74
<PAGE>
LOAN PORTFOLIO
- ----------------
General. The following table presents Palomar's loan portfolio as of the
-------
dates indicated:
<TABLE>
<CAPTION>
LOAN PORTFOLIO
---------------
(Dollars in thousands)
December 31,
------------------------
June 30, 1998 1997 1996
----------- ---------- ------------
<S> <C> <C> <C>
Real estate - construction ----- ----- $ 107
Real estate - residential $ 40,242 $ 44,264 42,126
Real estate - other 12,685 13,314 14,525
Consumer 491 574 529
----------- ---------- ------------
Total loans 53,418 58,152 57,287
Unearned fees and discounts 143 167 152
Allowance for possible loan losses 649 765 928
----------- ---------- ------------
Net loans $ 52,626 $ 57,220 $ 56,207
=========== ========== ============
</TABLE>
The majority of Palomar's loans are made to finance the purchase of
single-family homes in southern California. These loans are collateralized by
the related real property, and loan-to-value ratios generally do not exceed 95%.
Palomar offers both fixed and floating rate loans. Maturities on such loans are
generally 15 or 30 years. Palomar's policy is to generally sell its fixed rate
loan originations in the secondary market servicing released.
Real estate construction loans are made primarily to builder-owners of
individual homes, generally in San Diego and Riverside Counties. Construction
loans are collateralized by the related real property and the loan-to-value
ratio generally do not exceed 75% based on appraisals received by Palomar.
Other real estate loans consist of land loans and loans secured by office
buildings, small shopping centers, and small industrial centers in San Diego
County. Loan-to-value ratios are restricted to 70% of appraisal value of the
underlying real property.
Consumer loans primarily consist of lines of credit extended to individuals
and small businesses.
With certain exceptions, Palomar is permitted under applicable law to make
related extensions of credit to any one borrowing entity up to 15% of Palomar's
regulatory capital. As of June 30, 1998, these lending limits for Palomar were
$968,000.
Loan Concentrations. Palomar does not have any concentrations in its loan
--------------------
portfolio by industry or group of industries, except that as of June 30, 1998,
approximately 99% of Palomar's loans were secured by real property.
Loan Portfolio Maturities and Interest Rate Sensitivity. The following
-----------------------------------------------------------
table sets forth the amounts of Palomar's loans outstanding at June 30, 1998,
which, based on the remaining scheduled repayments of principal, have the
ability to be repriced or are due in less than one year, in one to five years,
or in more than five years. In addition, the table shows the distribution of
such loans between those loans with predetermined (fixed) interest rates and
those with variable (floating) interest rates. Floating rates generally
fluctuate with changes in the FHLB's Eleventh District Cost of Funds. As of
June 30, 1998, over 87% of Palomar's loan portfolio were floating interest rate
loans. Non-performing loans are included in this schedule based on nominal
maturities, even though Palomar may be unable to collect such loans at their
maturity date.
75
<PAGE>
<TABLE>
<CAPTION>
MATURITIES AND RATE SENSITIVITY OF LOANS
---------------------------------------------
(Dollars in thousands)
OVER ONE
ONE YEAR BUT
YEAR OR LESS THAN OVER FIVE
LESS(1) FIVE YEARS YEARS TOTAL
--------- ----------- ---------- -------
<S> <C> <C> <C> <C>
Real estate - residential $ 32,370 $ 1,390 $ 6,482 $40,242
Real estate - other 12,313 11 361 12,685
Consumer 441 0 50 491
--------- ----------- ---------- -------
Total Loans $ 45,124 $ 1,401 $ 6,893 $53,418
========= =========== ========== =======
Loans with predetermined (fixed) interest rates $ 460 $ 1,401 $ 6,893 $ 8,754
Loans with variable (floating) interest rates 44,664 0 0 44,664
--------- ----------- ---------- -------
Total $ 45,124 $ 1,401 $ 6,893 $53,418
========= =========== ========== =======
<FN>
(1) All loans due on demand, having no stated repayment schedule or maturity, and
overdrafts are reported as due in one year or less.
</TABLE>
76
<PAGE>
Commitments and Standby Letters of Credit. The following table sets forth
-----------------------------------------
at the dates indicated Palomar's loan commitments and standby letters of credit:
<TABLE>
<CAPTION>
COMMITMENTS AND STANDBY LETTERS OF CREDIT
-----------------------------------------
(Dollars in thousands)
DECEMBER 31,
----------------
JUNE 30, 1998 1997 1996
------------- -------- ------
<S> <C> <C> <C>
Loan commitments $ 4,007 $ 1,580 $ 642
Standby letters of credit $ 0 $ 0 $2,154
</TABLE>
Palomar's outstanding loan commitments at June 30, 1998 and December 31,
1997, primarily consisted of single family residential loans. Based upon
Palomar's historical experience, the outstanding loan commitments fluctuate
throughout the year depending on loan demand. The standby letter of credit was
canceled in September 1977.
Non-Performing Assets. Interest on performing loans is accrued and taken
----------------------
into income daily. Loans over 90 days past due are deemed "non-performing" and
are placed on a nonaccrual status. Interest received on nonaccrual loans is
credited to income only upon receipt. At June 30, 1998, nonaccrual loans were
comprised of five loans all secured by liens on real estate.
When appropriate or necessary to protect Palomar's interests, real estate
taken as collateral on a loan may be taken by Palomar through foreclosure or a
deed in lieu of foreclosure. Real property acquired in this manner by Palomar
is known as "other real estate owned" ("OREO"). The OREO is carried on the
books of Palomar as an asset, at the lesser of Palomar's recorded investment or
the fair value less estimated costs to sell. The Bank periodically revalues the
OREO properties and charges other expenses for any further write-downs. The
OREO represents an additional category of "non-performing assets."
As of June 30, 1998, as well as of December 31, 1997, Palomar held no OREO.
The following table sets forth information regarding the components of
Palomar's non-performing assets at the dates indicated: nonaccrual l
<TABLE>
<CAPTION>
NON-PERFORMING ASSETS
(Dollars in thousands)
DECEMBER 31,
--------------------------
JUNE 30, 1998 1997 1996
------------- ------------ ------------
<S> <C> <C> <C>
Nonaccrual loans $ 771 $ 455 $ 22
------------- ------------ ------------
Loans past due 90 days or more but not on nonaccrual 0 0 0
------------- ------------ ------------
Total non-performing loans $ 771 $ 455 $ 22
OREO 0 0 708
------------- ------------ ------------
Total non-performing assets $ 771 $ 455 $ 730
============= ============ ============
Total non-performing assets to total assets 0.97% 0.58% 0.91%
============= ============ ============
</TABLE>
Nonaccrued interest at June 30, 1998 totaled $47,000.
The risk of nonpayment of loans is an inherent feature of the banking
business. That risk varies with the type and purpose of the loan, the
collateral which is utilized to secure payment, and ultimately, the
creditworthiness of the borrower. In order to minimize this credit risk,
Palomar requires that all loans be approved by at least two officers, one of
whom must be an executive officer. Larger loans must be approved by the
Directors' Loan Committee.
77
<PAGE>
Palomar maintains an internal asset review program which reviews loans
based on defined criteria for weaknesses which may require classification of a
loan. Loans are graded from "pass" to "loss," depending on credit quality, with
"pass" representing loans which involve a degree of risk which is not
unwarranted given the favorable aspects of the credit. Classified loans
identified in the review process are added to Palomar's Internal Watchlist and
an allowance for possible loan losses is established for such loans.
Additionally, Palomar is examined regularly by the OTS and the Commissioner at
which time a further review of loans is conducted.
The classified loans as of June 30, 1998, totaled $1,390,000 and are
largely due to poor payment histories by the borrowers and borrower
bankruptcies. Management believes that it has adequately provided an allowance
to cover estimated losses in the loan portfolio. Significant further
deterioration in Southern California real estate values could materially impact
future operating results, liquidity, or capital resources.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
- --------------------------------------
Palomar maintains an allowance for possible loan losses to provide for
potential losses in the loan portfolio. Additions to the allowance are made by
charges to operating expenses in the form of a provision for loan losses. All
loans which are judged to be uncollectible are charged against the allowance
while any recoveries are credited to the allowance. Management conducts a
critical evaluation of the loan portfolio monthly. This evaluation includes an
assessment of the following factors: the results of Palomar's internal loan
review, any external loan review, and any regulatory examination, loan loss
experience, estimated potential loss exposure on each credit, concentrations of
credit, value of collateral, any known impairment in the borrower's ability to
repay, and present economic conditions.
It is Palomar's policy to annually review Palomar's criteria for
establishing general valuation allowances. Palomar utilizes its historical loss
performance experience, peer data, and an evaluation of the current local
economic environment as a basis for this review. For evaluation purposes, loans
are segregated by type in determining the appropriate valuation allowance rates
for unclassified, special mention and substandard classifications. Although
management believes it uses the best information available to make
determinations with respect to the allowance for possible loan losses, future
adjustments may be necessary if economic conditions differ from the assumptions
used. Management believes that the allowance for possible loan losses at June
30, 1998 was adequate to absorb known and inherent risks in the loan portfolio.
However, there can be no assurance that economic conditions which may adversely
affect Palomar's market area or other circumstances will not result in increased
loan losses in Palomar's loan portfolio which might be in excess of the
allowance.
Effective January 1, 1995, Palomar adopted Statement of Financial
Accounting Standards No. 114, Accounting by Creditors for Impairment of a Loan
("SFAS 114"), as amended by Statement of Financial Accounting Standards No. 118,
Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures ("SFAS 118"). Under SFAS 114, a loan is impaired when it is
"probable" that a creditor will be unable to collect all amounts due (i.e. both
principal and interest) according to the contractual terms of the loan
agreement. The measurement of impairment may be based on (i) the present value
of the expected future cash flows of the impaired loan discounted at the loans's
original effective interest rate, (ii) the observable market price of the
impaired loan, or (iii) the fair value of the collateral of a
collateral-dependent loan. The adoption of SFAS 114, as amended by SFAS 118,
had no material impact on the Bank's financial statements as Palomar's existing
policy of measuring loan impairment is consistent with methods prescribed in
these standards.
The following table summarizes Palomar's loan loss experience, transactions
in the allowance for possible credit losses and certain pertinent ratios for the
periods indicated:
78
<PAGE>
<TABLE>
<CAPTION>
ALLOWANCE FOR POSSIBLE LOAN LOSSES
---------------------------------------
(Dollars in thousands)
At or For the Year
Ended December 31,
--------------------------------
At or For The
Six Months Ended
June 30, 1998 1997 1996
------------------ --------------- ---------------
<S> <C> <C> <C>
BALANCES:
Average total loans $ 56,764 $ 58,008 $ 55,868
Total loans at end of period 53,418 58,152 57,287
Allowance for Possible Loan Losses:
Balance at beginning of period 765 928 891
Actual charge-offs:
Commercial 0 0 0
Consumer 0 0 5
Real estate 0 93 174
------------------ --------------- ---------------
Total charge-offs ------ 93 179
Less recoveries:
Commercial 0 0 0
Consumer 0 0 0
Real Estate 0 0 0
------------------ --------------- ---------------
Total Recoveries 0 0 0
------------------ --------------- ---------------
Net loans charged-off 0 0 0
Provision for loan losses (116) (70) 216
------------------ --------------- ---------------
Balance at end of period $ 649 $ 765 $ 928
================== =============== ===============
RATIOS:
Net loans charged-off to average loans N/A 0.16% 0.32%
Net loans charged-off to total loans at end of period N/A 0.16% 0.31%
Allowance for possible loan losses to
average loans 1.14% 1.32% 1.66%
Allowance for possible loan losses to
total loans at end of period 1.21% 1.32% 1.60%
Allowance for possible loan losses to
non-performing loans at end of period 84.18% 168.13% 127.12%
Net loans charged off to beginning allowance for
possible loan losses N/A 10.02% 20.09%
Net loans charged off to provision for loan losses N/A N/A 82.87%
</TABLE>
The following table summarizes the allocation of the allowance for possible
loan losses by loan type and the percent of loans in each category compared to
total loans for the periods indicated: pard
79
<PAGE>
<TABLE>
<CAPTION>
ALLOCATION OF ALLOWANCE FOR POSSIBLE LOAN LOSSES
-------------------------------------------------------
(Dollars in thousands)
DECEMBER 31,
---------------------------------------------------
JUNE 30, 1998 1997 1996
------------------------- ------------------------- ------------------------
PERCENT OF PERCENT OF PERCENT OF
LOANS IN LOANS IN LOANS IN
EACH EACH EACH
ALLOWANCE CATEGORY TO ALLOWANCE CATEGORY TO ALLOWANCE CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
----------- ------------ ----------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Real Estate - Construction - - - - $ 8 -
Real Estate - Residential $ 213 77.0 $ 250 77.0 201 75.0%
Real Estate - Other 244 22.0 341 22.0 574 24.0
Consumer 9 1.0 10 1.0 17 1.0
Unallocated 183 - 164 - 128 -
----------- ------------ ----------- ------------ ---------- ------------
Total $ 649 100.0% $ 765 100.0% $ 928 100.0%
=========== ============ =========== ============ ========== ============
</TABLE>
DEPOSITS
- --------
Deposits are Palomar's primary source of funds. At June 30, 1998, Palomar
had a deposit mix of 76.4% time and savings deposits, 22.8% in money market and
NOW deposits, and 0.8% on interest-bearing demand deposits.
Palomar's deposits are obtained from a cross-section of the community it
serves. No material portion of Palomar's deposits has been obtained from or is
dependent upon any one person or industry. Palomar's business is not seasonal
in nature. Palomar accepts deposits in excess of $100,000 from customers.
Those deposits are priced to remain competitive. As of December 31, 1997 and
1996, and June 30, 1998 and 1997, Palomar has no brokered funds on deposit.
Palomar is not dependent upon funds from sources outside the United States
and has not made loans to any foreign entities. Palomar has not made any loans
to finance leveraged buyouts or for highly leveraged transactions.
80
<PAGE>
The following table summarizes the distribution of average deposits and the
average rates paid (annualized for June 30, 1998) for the periods indicated:
<TABLE>
<CAPTION>
AVERAGE DEPOSITS
------------------
(Dollars in thousands)
December 31,
--------------------------------------
June 30, 1998 1997 1996
------------------ ------------------ ------------------
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Non interest-bearing demand deposits $ 452 N/A $ 392 N/A $ 307 N/A
Money market and NOW 17,864 2.22% 16,312 2.27% 16,622 2.50%
Time deposits 54,837 5.52 55,210 5.53 55,718 5.44
-------- -------- -------- -------- -------- --------
Total average deposits $ 73,153 4.68% $ 71,914 4.76% $ 72,647 4.74%
======== ======== ======== ======== ======== ========
</TABLE>
The following table indicates the maturity schedule of Palomar's
certificates of deposit of $100,000 or more as of June 30, 1998:
<TABLE>
<CAPTION>
TIME DEPOSITS OF $100,000 OR MORE
---------------------------------------
(Dollars in thousands)
PERCENT OF
BALANCE TOTAL
----------- ------
<S> <C> <C>
Three months or less $ 3,788 33.1%
Over three months through six months 1,525 13.3
Over six months through twelve months 4,961 43.3
Over twelve months 1,187 10.3
----------- ------
Total $ 11,461 100.0%
=========== ======
</TABLE>
LIQUIDITY AND LIABILITY MANAGEMENT
- -------------------------------------
Liquidity management for savings and loans requires that funds always be
available to pay anticipated deposit withdrawals and maturing financial
obligations promptly and fully in accordance with their terms. The balance of
the funds required is generally provided by payments on loans, sale of loans,
liquidation of assets and the acquisition of additional deposit liabilities.
One method savings and loans utilize for acquiring additional liabilities is
through the acceptance of "brokered deposits" (defined to include not only
deposits received through deposit brokers, but also deposits bearing interest in
excess of 75 basis points over market rates), typically attracting large
certificates of deposit at high interest rates.
To meet liquidity needs, Palomar maintains a portion of its funds in cash
deposits in other banks, Federal funds sold, and investment securities. As of
June 30, 1998, Palomar's liquidity ratio was 27.3%, defined as $7.6 million in
federal funds sold, $10.9 million in investment securities, and $3.2 million in
cash and due from banks, as a percentage of deposits plus other borrowings less
passbook loans.
Liquidity can be enhanced, if necessary, through short-term borrowings.
Palomar has a $19.8 million line of credit with the Federal Home Loan Bank of
San Francisco secured by real estate loans and certain investment securities.
81
<PAGE>
The careful planning of asset and liability maturities and the matching of
interest rates to correspond with this maturity matching is an integral part of
the active management of an institution's net yield. To the extent maturities
of assets and liabilities do not match in a changing interest rate environment,
net yields may be affected. Even with perfectly matched repricing of assets and
liabilities, risks remain in the form of prepayment of assets, timing lags in
adjusting certain assets and liabilities that have varying sensitivities to
market interest rates and basis risk. In its overall attempt to match assets
and liabilities, management takes into account rates and maturities to be
offered in connection with its certificates of deposit and offers variable rate
loans. Palomar has generally been able to control its exposure to changing
interest rates by maintaining primarily floating interest rate loans and a
majority of its time certificates in relatively short maturities.
The table below sets forth the interest rate sensitivity of Palomar's
interest-earning assets and interest-bearing liabilities as of June 30, 1998,
using the interest rate sensitivity gap ratio. For purposes of the following
table, an asset or liability is considered rate-sensitive within a specified
period when it can be repriced or matures within its contractual terms:
82
<PAGE>
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY
---------------------------
(Dollars in thousands)
DUE IN DUE AFTER
WITHIN THREE TO ONE YEAR DUE AFTER
THREE TWELVE TO FIVE TO FIVE
MONTHS MONTHS YEARS YEARS TOTAL
--------- ----------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Interest-earning cash deposits 1,295 $ - $ - $ - $ 1,295
Federal funds sold 7,600 - - - 7,600
Investment securities 6,812 5,546 251 1,248 13,857
Gross loans 19,910 26,588 1,414 5,506 53,418
--------- ----------- ---------- ------------ --------
Total $ 35,617 $ 32,134 $ 1,665 $ 6,754 $ 76,170
INTEREST-BEARING LIABILITIES:
Money market and NOW deposits $ 16,645 $ 0 $ 0 $ 0 $ 16,645
Time deposits 18,305 28,777 8,647 0 55,729
--------- ----------- ---------- ------------ --------
Total $ 34,950 $ 28,777 $ 8,647 $ 0 $ 72,374
========= =========== ========== ============ ========
Interest Rate Sensitivity Gap $ 667 $ 3,357 $ (6,982) $ 6,754 $ 3,796
Cumulative Interest Rate Sensitivity Gap $ 667 $ 4,024 $ (2,958) $ 3,796
Cumulative Interest Rate Sensitivity Gap 0.84% 5.06% (3.72)% 4.78%
Ratio Based on Total Assets
</TABLE>
Since interest rate changes do not affect all categories of assets and
liabilities equally or simultaneously, a cumulative gap analysis alone cannot be
used to evaluate Palomar's interest rate sensitivity position. To supplement
traditional gap analysis, Palomar utilizes the interest rate risk exposure
report received from the OTS quarterly.
Palomar's Investment Committee meets monthly to monitor Palomar's
investments, liquidity needs and oversee its asset-liability management. In
between meetings of the Committee, Palomar's management oversees Palomar's
liquidity management.
CAPITAL RESOURCES
- ------------------
The Financial Institution Reform, Recovery and Enforcement Act of 1989
("FIRREA") requires savings and loan institutions to have a minimum regulatory
tangible capital ratio equal to 1.5% of adjusted total assets, a minimum 3.0%
core capital ratio and an 8.0% total risk-based capital ratio. At June 30,
1998, Palomar exceeded all minimum capital requirements for tangible, core, and
risk-based capital.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") also adopted leverage requirements that apply in addition to the
risk-based capital requirements. FDICIA established five capital categories
applicable to insured institutions, each with specific regulatory consequences.
The capital categories, in declining order, are "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized," and
"critically undercapitalized."
83
<PAGE>
To be considered "well capitalized" under FDICIA, an institution must
generally have a core capital ratio of at least 5%, a total risk-based capital
ratio of at least 10% and a Tier I risk-based capital ratio of at least 6%.
At June 30, 1998, (unaudited) Palomar's capital exceeded all minimum
regulatory requirements and Palomar was considered to be "well capitalized" as
defined in the regulations issued by the FDIC. Palomar's risk-based capital
rations, shown below as of June 30, 1998, have been computed accordance with
regulatory accounting policies:
<TABLE>
<CAPTION>
CAPITAL RATIOS
--------------
Bank Minimum Requirements
------ ---------------------
<S> <C> <C>
Leverage Ratio 7.44% 5.0%
Tier 1 Risk-Based 13.57% 6.0%
Total Risk-Based 14.82% 10.0%
</TABLE>
ACCOUNTING MATTERS
- -------------------
In June 1996, the Financial Accounting Standards Board ("FASB") issued
Statement of Accounting Standards No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities" ("Statement
125"). Statement 125 is effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after December 31, 1996 and
is to be applied prospectively. This statement provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishment of
liabilities based on consistent application of a financial-components approach
that focuses on control. It distinguishes transfers of financial assets that are
sales from transfers that are secured borrowings. The adoption of Statement 125
did not have a material impact on Palomar's financial position, results of
operations or liquidity.
In December 1996, the FASB issued Statement of Financial Accounting
Standards No. 127, "Deferral of the Effective Date of Certain Provisions of FASB
Statement No. 125" ("Statement 127"). Statement 127 defers for one year the
effective date of certain provisions of Statement 125. Management of Palomar
does not expect the adoption of Statement 127 to have a material impact on
Palomar's financial position, results of operations or liquidity.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130. "Reporting Comprehensive Income" ("Statement 130"), which establishes
standards for reporting and display of comprehensive income and its components
in a full set of financial statements. Statement 130 requires the display of
comprehensive income and its components in a financial statement that is
displayed in equal prominence with other financial statements that constitute a
full set of financial statements. The Statement does not require, however, a
specific format for the financial statement but requires the display of net
income as a component of comprehensive income in that financial statement.
Enterprises may elect to display comprehensive income and its components in one
or two statements of financial performance or in a statement of changes in
equity. If an enterprise chooses to display comprehensive income in a statement
of changes in equity, that statement must be presented as part of a full set of
financial statements and not in the notes to the financial statements.
Statement 130 is effective for interim and annual periods beginning after
December 15, 1997. Earlier application is permitted. Comparative financial
statements provided for earlier periods are required to be reclassified to
reflect application of the provisions of the Statement. Management of Palomar
does not anticipate that the adoption of Statement 130 will have a material
impact on Palomar's financial position, results of operations or liquidity.
INFLATION
- ---------
The impact of inflation on a financial institution can differ significantly
from that exerted on other companies. Savings and loans, as financial
intermediaries, have many assets and liabilities which may move in concert with
inflation both as to interest rates and value. This is especially true for
companies, such as Palomar, with a high percentage of interest rate sensitive
assets and liabilities. It is Palomar's policy to have the majority of its loan
portfolio be variable interest rate loans. Savings and loans can further reduce
the impact of inflation if it can manage its interest rate sensitivity gap.
Palomar attempts to structure its mix of financial instruments and manage its
interest rate sensitivity gap in order to minimize the potential adverse effects
of inflation or other market forces on its net interest income and therefore its
earnings and capital.
However, financial institutions are also affected by inflation's impact on
noninterest expenses, such as salaries and occupancy expenses. During 1997, and
1996, the problems of inflation remained relatively stable, due primarily to
continuous management of the money supplied by the FRB which has maintain
interest rates during those years. Because of Palomar's ratio of rate sensitive
assets to rate sensitive liabilities, Palomar benefits in the short term from a
decreasing interest rate market and suffers in an increasing interest rate
market. As such, indirectly, the management of the money supply by the FRB to
control the rate of inflation has an impact on the earnings of Palomar. Also,
the changes in interest rates may have a corresponding impact on the ability of
borrowers to repay loans with Palomar.
YEAR 2000 COMPLIANCE
- ----------------------
The year 2000 has posed a unique set of challenges to those industries
reliant on information technology. As a result of methods employed by early
programmers, many software applications and operational programs may be unable
to distinguish the year 2000 from the year 1900. If not effectively addressed,
this problem could result in the production of inaccurate data, or, in the worst
cases, the inability of the systems to continue to function altogether.
Financial institutions are particularly vulnerable due to the industry's
dependence on electronic data processing systems.
Palomar has adopted a year 2000 policy and compliance program under
guidelines issued by the regulatory agencies which involves five phases. These
phases include awareness, assessment, renovation, validation and implementation.
Palomar currently is involved in the validation, or testing, phase. Palomar
primarily utilizes third party service providers and software vendors for its
software applications and programs. Management anticipates that it will have
completed the testing of its "mission-critical" defined systems by June 30,
1999.
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It is anticipated that Palomar's general ledger, deposit and lending
application will be merged into CWB's systems in the second quarter of 1999.
Upon completion of this merger, Palomar will be operating under CWB's year 2000
plan for these applications.
Palomar does not expect any material consequences to its financial results
or service capabilities related to the year 2000 problem. However, there can be
no guarantee that these expectations will be realized and actual results will
not differ materially from these plans.
DESCRIPTION OF PALOMAR CAPITAL STOCK
Pursuant to Palomar's Articles of Incorporation, Palomar is authorized to
issue 1,250,000 shares of Palomar Common Stock with an aggregate par value of
$5,000,000 ($4.00 per share). As of June 30, 1998, there were 648,186 shares of
Palomar Common Stock issued and outstanding. As of June 30, 1998, there were no
outstanding options, warrants, commitments, agreements or other rights in or
with respect to the unissued shares of Palomar Common Stock or any other
securities convertible into Palomar Common Stock.
COMPARISON OF SHAREHOLDER RIGHTS
COMPARISON OF CORPORATE STRUCTURE
Both CWB and Palomar are California corporations and as such are governed
by the CGCL, although with respect to Palomar certain provisions of the
California Financial Code supercede those of the CGCL. Consequently, except as
otherwise noted below, there is no material difference between the rights of the
holders of CWB Common Stock and the rights of the holders of Palomar Common
Stock with regard to electing members of the board of directors, amending the
articles of incorporation (association) or bylaws, calling special meetings of
shareholders, acting by written consent of shareholders without a meeting and
indemnifying directors.
Certain differences in the articles of incorporation (association) and
bylaws of CWB and Palomar are discussed below.
VOTING RIGHTS
Both CWB shareholders and Palomar shareholders are entitled to one vote for
each share held of record on all matters voted upon by the respective
shareholders of each corporation, except that in connection with the election of
directors, shares of CWB Common Stock may, under certain circumstances, be voted
cumulatively.
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DIVIDENDS AND DIVIDEND POLICY
PALOMAR
An OTS regulation imposes limitations upon all capital distributions by
savings associations, such as cash dividends, payments to repurchase or
otherwise acquire its shares, payments to shareholders of another institution in
a cash-out merger and other distributions charged against capital. In general,
Palomar may not declare or pay a cash dividend on its capital stock if the
payment would cause Palomar to fail to meet one of its regulatory capital
requirements. Palomar must also provide the OTS with 30 days advance notice of
any proposed dividend declaration.
Under the regulation, an association that meets its capital requirements
both before and after a proposed distribution and has not been notified by the
OTS that it is in need of more than normal supervision (a "Tier 1 association")
may, after prior notice to but without the approval of the OTS, make capital
distributions during a calendar year up to the higher of: (i) 100% of its net
income to date during the calendar year plus the amount that would reduce by
one-half its surplus capital ratio at the beginning of the calendar year, or
(ii) 75% of its net income over the most recent four-quarter period. A Tier 1
association may make capital distributions in excess of the above amount if it
gives notice to the OTS and the OTS does not object to the distribution. At
June 30, 1998, Palomar qualified as a Tier 1 association for purposes of the
capital distribution rule.
If an association does not meet the definition of a Tier 1 association, its
ability to pay dividends is somewhat more restricted. In addition, the OTS may
prohibit a proposed capital distribution that would otherwise be permitted if
the OTS determines that the distribution would constitute an unsafe or unsound
practice.
The OTS has proposed to amend its capital distribution regulation to
conform its requirements to the OTS prompt corrective action regulation. Under
the proposed regulation, an institution that would remain at least adequately
capitalized after making a capital distribution, and was not owned by a holding
company, would not longer be required to provide notice to the OTS prior to
making a capital distribution. "Troubled" associations and undercapitalized
associations would be allowed to make capital distributions only by filing an
application and receiving OTS approval, and such applications would be approved
under certain limited circumstances.
CWB
Holders of CWB Common Stock are entitled to receive dividends declared by
the CWB Board out of funds legally available therefor under the laws of the
State of California, subject to the rights of holders of any preferred stock of
CWB that may be issued after the date hereof. CWB had not paid any dividends
since its formation on December 31, 1997. Under California law, CWB is
prohibited from paying dividends unless: (1) its retained earnings immediately
prior to the dividend payment equals or exceeds the amount of the dividend; or
(2) immediately after giving effect to the dividend (i) the sum of CWB's assets
will be at least equal to 125% of its liabilities and, (ii) the current assets
of CWB will be at least equal to its current liabilities or, if the average of
its earnings before taxes on income and before interest expense fort the two
preceding fiscal years was less than the average of its interest expense for the
two preceding fiscal years, the current assets of CWB would be at least equal to
125% of its current liabilities.
The future dividend policy of CWB is subject to the discretion of the CWB
Board and will depend upon a number of factors, including earnings, financial
condition, cash needs and general business conditions. CWB's current dividend
policy is to retain the majority of its earnings to increase capital, and CWB
intends to maintain such policy in the foreseeable future.
NUMBER OF DIRECTORS
The Palomar Bylaws provide that the authorized number of directors of
Palomar shall be not less than seven (7) and not more than thirteen (13).
Currently, the actual number of directors of Palomar is seven (7).
The CWB Bylaws provide that the authorized number of directors of CWB shall
not be less than six (6) nor more than eleven (11) and that any amendment to the
CWB Bylaws affecting the authorized number of directors must be approved by a
majority of the CWB shareholders, provided that an amendment to the Bylaws
reducing the number of directors to a number less than five cannot be adopted if
the votes cast against its adoption are equal to more than 16 % of the
outstanding shares entitled to vote on such amendment. Currently, the actual
number of directors of CWB is eleven (11). (See "AMENDMENT OF CWB BYLAWS.")
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INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 317 of the CGCL authorizes a court to award, or a corporation 's
Board of Directors to grant, indemnity to directors, officers and employees in
terms sufficiently broad to permit such indemnification under certain
circumstances for liabilities (including reimbursement for expenses incurred)
arising under the Securities Act. Section 317 of the CGCL applies to Palomar
and Section 4.16 of the Palomar Bylaws provide that Palomar may indemnify each
of its agents against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred to the fullest extent possible under the
provisions of Section 317 of the CGCL. Article V of CWB's Articles of
Incorporation provides for elimination of liability for monetary damages of its
directors, and Article V of CWB's Articles of Incorporation and Article VI of
CWB's Bylaws provide for indemnification of its directors, officers, employees
and other agents to the fullest extent permitted by the CGCL. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of CWB pursuant to the
foregoing provisions, or otherwise, CWB has been advised that in the opinion of
the SEC such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
SUPERVISION AND REGULATION
GENERAL
- -------
Palomar, as a California state-chartered savings and loan association whose
deposits are insured by the FDIC up to the maximum extend provided by law, is
subject to regulation, supervision, and regular examination by the California
Department of Financial Institutions (the "DFI"), the Office of Thrift
Supervision ("OTS") and the FDIC. CWB, as a California corporation and bank
holding company under BHCA is subject to supervision and regulation of the FRB.
CWB's wholly-owned subsidiary, GNB, is chartered under the laws of the United
States and as such is subject to supervision and regulation by the Office of the
Comptroller of the Currency (the "OCC"). The regulations of these agencies
govern most aspects of Palomar's, CWB's and GNB's business, including capital
ratios, reserves against deposits, interest rates payable on certain types of
deposits, loans, investments, mergers and acquisitions, borrowings, dividends
and locations of branch offices. California law exempts all banks from usury
limitations on interest rates.
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RECENT LEGISLATION AND REGULATORY CHANGES
---------------------------------------------
1. INTRODUCTION
------------
General. From time to time legislation is proposed or enacted which has
-------
the effect of increasing the cost of doing business and changing the competitive
balance between banks and other financial and non-financial institutions.
Various federal laws enacted over the past several years have provided, among
other things, for the maintenance of mandatory reserves with the FRB on deposits
by depository institutions (state reserve requirements have been eliminated);
the phasing-out of the restrictions on the amount of interest which financial
institutions may pay on certain of their customers' accounts; and the
authorization of various types of new deposit accounts, such as NOW accounts,
"Money Market Deposit" accounts and "Super NOW" accounts, designed to be
competitive with money market mutual funds and other types of accounts and
services offered by various financial and non-financial institutions. The
lending authority and permissible activities of certain non-bank financial
institutions such as savings and loan associations and credit unions have been
expanded, and federal regulators have been given increased authority and means
for providing financial assistance to insured depository institutions and for
effecting interstate and cross-industry mergers and acquisitions of failing
institutions. These laws have generally had the effect of altering competitive
relationships existing among financial institutions, reducing the historical
distinctions between the services offered by banks, savings and loan
associations and other financial institutions, and increasing the cost of funds
to banks and other depository institutions.
Other legislation has been proposed or is pending before the United States
Congress which would affect the financial institutions industry. Such
legislation includes wide-ranging proposals to further alter the structure,
regulation and competitive relationships of the nation's financial institutions,
to reorganize the federal regulatory structure of the financial institutions
industry, to subject banks to increased disclosure and reporting requirements,
and to expand the range of financial services which banks and bank holding
companies can provide. Other proposals which have been introduced or are being
discussed would equalize the relative powers of savings and loan holding
companies and bank holding companies, and authorize such holding companies to
engage in insurance underwriting and brokerage, real estate development and
brokerage, and certain securities activities, including underwriting and dealing
in United States Government securities and municipal securities, sponsoring and
managing investment companies and underwriting the securities thereof. It
cannot be predicted whether or in what form any of these proposals will be
adopted, or to what extent they will effect the various entities comprising the
financial institutions industry.
Certain of the potentially significant changes which have been enacted in
the past several years are discussed below.
Interstate Banking. The Riegle-Neal Interstate Banking and Branching
-------------------
Efficiency Act of 1994 (the "Riegle-Neal Act"), enacted on September 29, 1994,
repealed the McFadden Act of 1927, which required states to decide whether
national or state banks could enter their state, and, effective June 1, 1997,
allows banks to open branches across state lines. The Riegle-Neal Act also
repealed the 1956 Douglas Amendment to the Bank Holding Company Act, which
placed the same requirements on bank holding companies. The repeal of the
Douglas Amendment made it possible for bank holding companies to buy
out-of-state banks in any state after September 29, 1995, which, after June 1,
1997, may now be converted into interstate branches.
The Riegle-Neal Act permitted interstate banking to begin effective
September 29, 1995. The amendment to the Bank Holding Company Act permits bank
holding companies to acquire banks in other states provided that the acquisition
does not result in the Bank holding company controlling more than 10 percent of
the deposits in the United States, or 30 percent of the deposits in the state in
which the bank to be acquired is located. However, the Riegle-Neal Act also
provides that states have the authority to waive the state concentration limit.
Individual states may also require that the Bank being acquired be in existence
for up to five years before an out-of-state bank or bank holding company may
acquire it.
The Riegle-Neal Act provides that, since June 1, 1997, interstate branching
and merging of existing banks is permitted, provided that the banks are at least
adequately capitalized and demonstrate good management. Interstate mergers and
branch acquisitions were permitted at an earlier time if the state choose to
enact a law allowing such activity. The states were also authorized to enact
laws to permit interstate banks to branch de novo.
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On September 28, 1995, the California Interstate Banking and Branching Act
of 1995 ("CIBBA") was enacted and signed into law. CIBBA authorized
out-of-state banks to enter California by the acquisition of or merger with a
California bank that has been in existence for at least 5 years, unless the
California bank is in danger of failing or in certain other emergency
situations. CIBBA does not permit out-of-state banks to enter California by
branch acquisition or de novo branching. CIBBA allows a California state bank
to have agency relationships with affiliated and unaffiliated insured depository
institutions and allows a bank subsidiary of a bank holding company to act as an
agent to receive deposits, renew time deposits, service loans and receive
payments for a depository institution affiliate.
Proposed Expansion of Securities Underwriting Authority. Various bills
-----------------------------------------------------------
have been introduced in the United States Congress which would expand, to a
lesser or greater degree and subject to various conditions and limitations, the
authority of bank holding companies to engage in the activity of underwriting
and dealing in securities. Some of these bills would authorize securities firms
(through the holding company structure) to own banks, which could result in
greater competition between banks and securities firms. No prediction can be
made as to whether any of these bills will be passed by the United States
Congress and enacted into law, what provisions such a bill might contain, or
what effect it might have on Palomar.
Expansion of Investment Opportunities for California State-Chartered Banks.
--------------------------------------------------------------------------
Legislation enacted by the State of California has substantially expanded the
authority of California state-chartered banks to invest in real estate,
corporate stock and other corporate securities. National banks are governed in
these areas by federal law, the provisions of which are more restrictive than
California law. However, provisions of the Federal Deposit Insurance
Corporation Improvement Act of 1991, discussed below, limits state-authorized
activities to that available to national banks, unless the FDIC has determined
that such activities would pose no risk to the insurance fund of which it is a
member and the institution is in compliance with applicable regulatory
requirements. Notwithstanding the above, no bank may engage in practices which
are unsafe or unsound.
(2) FINANCIAL INSTITUTIONS REFORM, RECOVERY, AND ENFORCEMENT ACT OF
-------------------------------------------------------------------
1989
- ----
General. On August 9, 1989, the Financial Institutions Reform, Recovery,
-------
and Enforcement Act of 1989 ("FIRREA") was signed into law. This legislation
has resulted in major changes in the regulation of insured financial
institutions, including significant changes in the authority of government
agencies to regulate insured financial institutions.
Under FIRREA, the Federal Savings and Loan Insurance Corporation ("FSLIC")
and the Federal Home Loan Bank Board were abolished and the FDIC was authorized
to insure savings associations, including federal savings associations, state
chartered savings and loans and other corporations determined to be operated in
substantially the same manner as a savings association. FIRREA established two
deposit insurance funds to be administered by the FDIC. The money in these two
funds is separately maintained and not commingled. The FDIC Permanent Insurance
Fund was replaced by the Bank Insurance Fund (the "BIF") and the FSLIC deposit
insurance fund was replaced by the Savings Association Insurance Fund (the
"SAIF").
Deposit Insurance Assessments. Under FIRREA, the premium assessments made
------------------------------
on banks and savings associations for deposit insurance were initially
increased, with rates set separately for banks and savings associations, subject
to statutory restrictions. The Omnibus Budget Reconciliation Act of 1990,
designed to address the federal budget deficit, increased the insurance
assessment rates for members of the BIF and the SAIF over that provided by
FIRREA, and eliminated FIRREA's maximum reserve-ratio constraints on the BIF.
The FDIC raised BIF premiums to 23 per $100 in insured deposits for 1993 from a
base of 12 in 1990.
Effective January 1, 1994, the FDIC implemented a risk-based assessment
system, under which an institution's premium assessment is based on the
probability that the deposit insurance fund will incur a loss with respect to
the institution, the likely amount of such loss, and the revenue needs of the
deposit insurance fund. As long as BIF's reserve ratio is less than a specified
"designated reserve ratio," 1.25%, the total amount raised from BIF members by
the risk-based assessment system may not be less than the amount that would be
raised if the assessment rate for all BIF members were 23 per $100 in insured
deposits. The FDIC determined that the designated reserve ratio was achieved on
May 31, 1995. Accordingly, on August 8, 1995, the FDIC issued final regulations
adopting an assessment rate schedule for BIF members of 4 to 31 per $100 in
insured deposits that became effective June 1, 1995. On November 14, 1995, the
FDIC further reduced the BIF assessment rates by 4 so that effective January 1,
1996, the premiums ranged from zero to 27 per $100 in insured deposits, but in
any event not less than $2,000 per year.
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Under the risk-based assessment system, a BIF member institution such as
GNB is categorized into one of three capital categories (well capitalized,
adequately capitalized, and undercapitalized) and one of three categories based
on supervisory evaluations by its primary federal regulator (in GNB's case, the
OCC). The three supervisory categories are: financially sound with only a few
minor weaknesses (Group A), demonstrates weaknesses that could result in
significant deterioration (Group B), and poses a substantial probability of loss
(Group C). The capital ratios used by the FRB to define well-capitalized,
adequately capitalized and undercapitalized are the same as in the FRB's prompt
corrective action regulations (discussed below). The BIF assessment rates since
January 1, 1997 are summarized below; assessment figures are expressed in terms
of cents per $100 in insured deposits.
The capital and supervisory group ratings for SAIF institutions are the
same as for BIF institutions. Accordingly, Palomar's deposit insurance
assessment rate is also derived from the following table:
<TABLE>
<CAPTION>
Assessment Rates Effective January 1, 1997
------------------------------------------
Supervisory Group
-----------------
Capital Group Group A Group B Group C
- ---------------------- ----------------- ------------- -------
<S> <C> <C> <C>
Well Capitalized 0 3 17
Adequately Capitalized 3 10 24
Undercapitalized 10 24 27
</TABLE>
The Deposit Insurance Funds Act of 1996, signed into law on September 30,
1996, eliminated the minimum assessment, commencing with the fourth quarter of
1996. In addition, after December 31, 1996, banks are required to share in the
payment of interest on Financing Corp. ("FICO") bonds. Previously, the FICO
debt was paid out of the SAIF assessment base. The assessments imposed on
insured depository institutions with respect to any BIF-assessable deposit will
be assessed at a rate equal to 1/5 of the rate of the assessments imposed on
insured depository institutions with respect to any SAIF-assessable deposit.
For the first quarter of 1997, the SAIF-FICO assessment rate was 6.48 per $100
in insured deposits. Accordingly, the BIF-FICO assessment rate was 1.296 per
$100 in insured deposits. For the second quarter of 1997, the SAIF-FICO
assessment rate was 6.5 per $100 in insured deposits and the BIF-FICO
assessment rate was 1.3 per $100 in insured deposits. For the third quarter of
1997, the SAIF-FICO assessment rate was 6.3 and the BIF-FICO assessment rate
was 1.26 . For the fourth quarter of 1997, the SAIF-FICO assessment rate was
6.32 and the BIF-FICO assessment rate was 1.264 . Although the FICO assessment
rates are annual rates, they are subject to change quarterly. Since the FICO
bonds do not mature until the year 2019, it is conceivable that banks will
continue to share in the payment of the interest on the bonds until then.
Palomar's deposit accounts are insured by the SAIF, as administered by the
FDIC, up to the maximum amount permitted by law. Insurance of deposits may be
terminated by the FDIC upon a finding that the institution has engaged in unsafe
or unsound practices, is in an unsafe or unsound condition to continue
operations or has violated any applicable law, regulation, rule, order or
condition imposed by the FDIC or the institution's primary regulator.
The FDIC charges an annual assessment for the insurance of deposits based
on the risk a particular institution poses to its deposit insurance fund. Under
this system as of December 31, 1995, SAIF members paid within a range of 23
cents to 31 cents per $100 of domestic deposits, depending upon the
institution's risk classification. This risk classification is based on an
institution's capital group and supervisory subgroup assignment. Pursuant to
the Economic Growth and Paperwork Reduction Act of 1996 (the "EGPRA"), the FDIC
imposed a special assessment on SAIF members to capitalize SAIF at the
designated reserve level of 1.25% as of October 1, 1996. Based on Palomar's
deposits as of March 31, 1995, the date for measuring the amount of the special
assessment pursuant to the EGPRA Palomar paid a special assessment of $506,000
in October, 1996 to recapitalize the SAIF. This expense was recognized during
the third quarter of 1996.
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Pursuant to the EGPRA, Palomar pays its normal deposit insurance premiums
as a member of the SAIF ranging from nothing to 27 cents per $100 of domestic
deposits. In addition, Palomar also pays an amount equal to approximately 6.4
cents per $100 of domestic deposits towards the retirement of the Financing
Corporation bonds ("FICO Bonds") issued in the 1980s to assist in the recovery
of the savings and loan industry. Under the EGPRA, the FDIC is not permitted to
establish SAIF assessment rates that are lower than comparable BIF assessment
rates. Beginning no later than January 1, 2000, the rate paid to retire the
FICO Bonds will be equal for members of the BIF and the SAIF. The EGPRA also
provides for the merging of the BIF and the SAIF by January 1, 2000, provided
there are no financial institutions still chartered as savings associations at
that time. Should the insurance funds be merged before January 1, 2000, the
rate paid by all members of this new fund to retire the FICO Bonds would be
equal.
With certain limited exceptions, FIRREA prohibits a bank from changing its
status as an insured depository institution with the BIF to the SAIF and
prohibits a savings association from changing its status as an insured
depository institution with the SAIF to the BIF, without the prior approval of
the FDIC.
FDIC Receiverships. Pursuant to FIRREA, the FDIC may be appointed
-------------------
conservator or receiver of any insured bank or savings association. In
addition, FIRREA authorized the FDIC to appoint itself as sole conservator or
receiver of any insured state bank or savings association for any, among others,
of the following reasons: (i) insolvency of such institution; (ii) substantial
dissipation of assets or earnings due to any violation of law or regulation or
any unsafe or unsound practice; (iii) an unsafe or unsound condition to transact
business, including substantially insufficient capital or otherwise; (iv) any
willful violation of a cease and desist order which has become final; (v) any
concealment of books, papers, records or assets of the institution; (vi) the
likelihood that the institution will not be able to meet the demands of its
depositors or pay its obligations in the normal course of business; (vii) the
incurrence or likely incurrence of losses by the institution that will deplete
all or substantially all of its capital with no reasonable prospect for the
replenishment of the capital without federal assistance; and (viii) any
violation of any law or regulation, or an unsafe or unsound practice or
condition which is likely to cause insolvency or substantial dissipation of
assets or earnings, or is likely to weaken the condition of the institution or
otherwise seriously prejudice the interest of its depositors.
As a receiver of any insured depository institution, the FDIC may liquidate
such institution in an orderly manner and make such other disposition of any
matter concerning such institution as the FDIC determines is in the best
interests of such institution, its depositors and the FDIC. Further, the FDIC
shall as the conservator or receiver, by operation of law, succeed to all
rights, titles, powers and privileges of the insured institution, and of any
stockholder, member, account holder, depositor, officer or director of such
institution with respect to the institution and the assets of the institution;
may take over the assets of and operate such institution with all the powers of
the members or shareholders, directors and the officers of the institution and
conduct all business of the institution; collect all obligations and money due
to the institution and preserve; and conserve the assets and property of such
institution.
Enforcement Powers. Some of the most significant provisions of FIRREA were
------------------
the expansion of regulatory enforcement powers. FIRREA has given the federal
regulatory agencies broader and stronger enforcement authorities reaching a
wider range of persons and entities. Some of those provisions included those
which: (i) expanded the category of persons subject to enforcement under the
Federal Deposit Insurance Act; (ii) expanded the scope of cease and desist
orders and provided for the issuance of a temporary cease and desist orders;
(iii) provided for the suspension and removal of wrongdoers on an expanded basis
and on an industry-wide basis; (iv) prohibited the participation of persons
suspended or removed or convicted of a crime involving dishonesty or breach of
trust from serving in another insured institution; (v) required regulatory
approval of new directors and senior executive officers in certain cases; (vi)
provided protection from retaliation against "whistleblowers" and establishes
rewards for "whistleblowers" in certain enforcement actions resulting in the
recovery of money; (vii) required the regulators to publicize all final
enforcement orders; (viii) required each insured financial institution to
provide its independent auditor with its most recent Report of Condition ("Call
Report"); (ix) significantly increased the penalties for failure to file
accurate and timely Call Reports; and (x) provided for extensive increases in
the amounts and circumstances for assessment of civil money penalties, civil and
criminal forfeiture and other civil and criminal fines and penalties.
Crime Control Act of 1990. The Crime Control Act of 1990 further
-----------------------------
strengthened the authority of federal regulators to enforce capital
requirements, increased civil and criminal penalties for financial fraud, and
enacted provisions allowing the FDIC to regulate or prohibit certain forms of
golden parachute benefits and indemnification payments to officers and directors
of financial institutions.
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3. RISK-BASED CAPITAL GUIDELINES
-------------------------------
The federal banking agencies have established risk-based capital
guidelines. The risk-based capital guidelines include both a new definition of
capital and a framework for calculating risk weighted assets by assigning
assets and off-balance sheet items to broad credit risk categories. A bank's
risk-based capital ratio is calculated by dividing its qualifying capital (the
numerator of the ratio) by its risk weighted assets (the denominator of the
ratio).
A bank's qualifying total capital consists of two types of capital
components: "core capital elements" (comprising Tier 1 capital) and
"supplementary capital elements" (comprising Tier 2 capital). The Tier 1
component of a bank's qualifying capital must represent at least 50% of
qualifying total capital and may consist of the following items that are defined
as core capital elements: (i) common stockholders' equity; (ii) qualifying
noncumulative perpetual preferred stock (including related surplus); and (iii)
minority interest in the equity accounts of consolidated subsidiaries. The Tier
2 component of a bank's qualifying total capital may consist of the following
items: (i) allowance for loan and lease losses (subject to limitations); (ii)
perpetual preferred stock and related surplus (subject to conditions); (iii)
hybrid capital instruments (as defined) and mandatory convertible debt
securities; and (iv) term subordinated debt and intermediate-term preferred
stock, including related surplus (subject to limitations).
Assets and credit equivalent amounts of off-balance sheet items are
assigned to one of several broad risk categories, according to the obligor, or,
if relevant, the guarantor or the nature of collateral. The aggregate dollar
value of the amount in each category is then multiplied by the risk weight
associated with that category. The resulting weighted values from each of the
risk categories are added together, and this sum is Palomar's total risk
weighted assets that comprise the denominator of the risk-based capital ratio.
Risk weights for all off-balance sheet items are determined by a two-step
process. First, the "credit equivalent amount" of off-balance sheet items such
as letters of credit and recourse arrangements is determined, in most cases by
multiplying the off-balance sheet item by a credit conversion factor. Second,
the credit equivalent amount is treated like any balance sheet asset and
generally is assigned to the appropriate risk category according to the obligor,
or, if relevant, the guarantor or the nature of the collateral.
The supervisory standards set forth below specify minimum supervisory
ratios based primarily on broad risk considerations. The risk-based ratios do
not take explicit account of the quality of individual asset portfolios or the
range of other types of risks to which banks may be exposed, such as interest
rate, liquidity, market or operational risks. For this reason, banks are
generally expected to operate with capital positions above the minimum ratios.
All banks and savings and loan associations are required to meet a minimum
ratio of qualifying total capital to risk weighted assets of 8%, of which at
least 4% should be in the form of Tier 1 capital net of goodwill, and a minimum
ratio of Tier 1 capital to risk weighted assets of 4%. The maximum amount of
supplementary capital elements that qualifies as Tier 2 capital is limited to
100% of Tier 1 capital net of goodwill. In addition, the combined maximum
amount of subordinated debt and intermediate-term preferred stock that qualifies
as Tier 2 capital is limited to 50% of Tier 1 capital. The maximum amount of
the allowance for loan and lease losses that qualifies as Tier 2 capital is
limited to 1.25% of gross risk weighted assets. Allowance for loan and lease
losses in excess of this limit may, of course, be maintained, but would not be
included in a bank's risk-based capital calculation.
In addition to the risk-based guidelines, the federal banking agencies require
all banks to maintain a minimum amount of Tier 1 capital to total assets,
referred to as the leverage ratio. For a bank rated in the highest of the five
categories used by regulators to rate banks, the minimum leverage ratio of Tier
1 capital to total assets is 3%. For all banks not rated in the highest
category, the minimum leverage ratio must be at least 4% to 5%. In addition to
these uniform risk-based capital guidelines and leverage ratios that apply
across the industry, the regulators have the discretion to set individual
minimum capital requirements for specific institutions at rates significantly
above the minimum guidelines and ratios.
In December, 1993, the federal banking agencies issued an interagency
policy statement on the allowance for loan and lease losses which, among other
things, establishes certain benchmark ratios of loan loss reserves to classified
assets. The benchmark set forth by the policy statement is the sum of: (a)
assets classified loss; (b) 50% of assets classified doubtful; (c) 15% of assets
classified substandard; and (d) estimated credit losses on other assets over the
upcoming twelve months.
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The federal banking agencies have recently revised their risk-based capital
rules to take account of concentrations of credit and the risks of
non-traditional activities. Concentrations of credit refers to situations where
a lender has a relatively large proportion of loans involving one borrower,
industry, location, collateral or loan type. Non-traditional activities are
considered those that have not customarily been part of the banking business but
that start to be conducted as a result of developments in, for example,
technology or financial markets. The regulations require institutions with high
or inordinate levels of risk to operate with higher minimum capital standards.
The federal banking agencies also are authorized to review an institution's
management of concentrations of credit risk for adequacy and consistency with
safety and soundness standards regarding internal controls, credit underwriting
or other operational and managerial areas.
Further, the banking agencies recently have adopted modifications to the
risk-based capital rules to include standards for interest rate risk exposures.
Interest rate risk is the exposure of a bank's current and future earnings and
equity capital arising from adverse movements in interest rates. While interest
rate risk is inherent in a bank's role as financial intermediary, it introduces
volatility to bank earnings and to the economic value of Palomar. The banking
agencies have addressed this problem by implementing changes to the capital
standards to include a bank's exposure to declines in the economic value of its
capital due to changes in interest rates as a factor that the banking agencies
will consider in evaluating an institution's capital adequacy. Bank examiners
consider a bank's historical financial performance and its earnings exposure to
interest rate movements as well as qualitative factors such as the adequacy of a
bank's internal interest rate risk management. The federal banking agencies
recently considered adopting a uniform supervisory framework for all
institutions to measure and assess each bank's exposure to interest rate risk
and establish an explicit capital charge based on the assessed risk, but
ultimately elected not to adopt such a uniform framework. Even without such a
uniform framework, however, each bank's interest rate risk exposure is assessed
by its primary federal regulator on an individualized basis, and it may be
required by the regulator to hold additional capital for interest rate risk if
it has a significant exposure to interest rate risk or a weak interest rate risk
management process.
Effective April 1, 1995, the federal banking agencies issued rules which
limit the amount of deferred tax assets that are allowable in computing a bank's
regulatory capital. The standard had been in effect on an interim basis since
March, 1993. Deferred tax assets that can be realized for taxes paid in prior
carryback years and from future reversals of existing taxable temporary
differences are generally not limited. Deferred tax assets that can only be
realized through future taxable earnings are limited for regulatory capital
purposes to the lesser of: (i) the amount that can be realized within one year
of the quarter-end report date; or (ii) 10% of Tier 1 capital. The amount of
any deferred tax in excess of this limit would be excluded from Tier 1 capital,
total assets and regulatory capital calculations.
4. FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991
--------------------------------------------------------------------
General. The Federal Deposit Insurance Corporation Improvement Act of 1991
-------
("FDICIA") was signed into law on December 19, 1991. FDICIA recapitalized the
FDIC's Bank Insurance Fund, granted broad authorization to the FDIC to increase
deposit insurance premium assessments and to borrow from other sources, and
continued the expansion of regulatory enforcement powers, along with many other
significant changes.
Prompt Corrective Action. FDICIA established five categories of bank
--------------------------
capitalization: "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically
undercapitalized" and mandated the establishment of a system of "prompt
corrective action" for institutions falling into the lower capital categories.
Under FDICIA, banks are prohibited from paying dividends or management fees to
controlling persons or entities if, after making the payment Palomar would be
undercapitalized, that is, Palomar fails to meet the required minimum level for
any relevant capital measure. Asset growth and branching restrictions apply to
undercapitalized banks, which are required to submit acceptable capital plans
guaranteed by its holding company, if any. Broad regulatory authority was
granted with respect to significantly undercapitalized banks, including forced
mergers, growth restrictions, ordering new elections for directors, forcing
divestiture by its holding company, if any, requiring management changes, and
prohibiting the payment of bonuses to senior management. Even more severe
restrictions are applicable to critically undercapitalized banks, those with
capital at or less than 2%, including the appointment of a receiver or
conservator after 90 days, even if Palomar is still solvent.
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The federal banking agencies have promulgated substantially similar
regulations to implement this system of prompt corrective action. Under the
regulations, a bank shall be deemed to be: (i) "well capitalized" if it has a
total risk-based capital ratio of 10.0% or more, has a Tier 1 risk-based capital
ratio of 6.0% or more, has a leverage capital ratio of 5.0% or more and is not
subject to specified requirements to meet and maintain a specific capital level
for any capital measure; (ii) "adequately capitalized" if it has a total
risk-based capital ratio of 8.0% or more, a Tier 1 risk-based capital ratio of
4.0% or more and a leverage capital ratio of 4.0% or more (3.0% under certain
circumstances) and does not meet the definition of "well capitalized"; (iii)
"undercapitalized" if it has a total risk-based capital ratio that is less than
8.0%, a Tier 1 risk-based capital ratio that is less than 4.0%, or a leverage
capital ratio that is less than 4.0% (3.0% under certain circumstances); (iv)
"significantly undercapitalized" if it has a total risk-based capital ratio that
is less than 6.0%, a Tier 1 risk-based capital ratio that is less than 3.0% or a
leverage capital ratio that is less than 3.0%; and (v) "critically
undercapitalized" if it has a ratio of tangible equity to total assets that is
equal to or less than 2.0%.
FDICIA and the implementing regulations also provide that a federal banking
agency may, after notice and an opportunity for a hearing, reclassify a well
capitalized institution as adequately capitalized and may require an adequately
capitalized institution or an undercapitalized institution to comply with
supervisory actions as if it were in the next lower category if the institution
is in an unsafe or unsound condition or engaging in an unsafe or unsound
practice. (The federal banking agency may not, however, reclassify a
significantly undercapitalized institution as critically undercapitalized.)
Operational Standards. FDICIA also granted the regulatory agencies
----------------------
authority to prescribe standards relating to internal controls, credit
underwriting, asset growth and compensation, among others, and required the
regulatory agencies to promulgate regulations prohibiting excessive compensation
or fees. Many regulations have been adopted by the regulatory agencies to
implement these provisions and subsequent legislation (the Riegal Community
Development Act, discussed below) gave the regulatory agencies the option of
prescribing the safety and soundness standards as guidelines rather than
regulations.
Regulatory Accounting Reports. Each bank with $500 million or more in
-------------------------------
assets is required to submit an annual report to the FDIC, as well as any other
federal banking agency with authority over Palomar, and any appropriate state
banking agency. This report must contain a statement regarding management's
responsibilities for: (i) preparing financial statements; (ii) establishing and
maintaining adequate internal controls; and (iii) complying with applicable laws
and regulations. In addition to having an audited financial statement by an
independent accounting firm on an annual basis, the accounting firm must
determine and report as to whether the financial statements are presented fairly
and in accordance with generally accepted accounting principles and comply with
other requirements of the applicable federal banking authority. In addition,
the accountants must attest to and report to the regulators separately on
management's compliance with internal controls.
Truth in Savings. FDICIA further established a new truth in savings
------------------
scheme, providing for clear and uniform disclosure of terms and conditions on
which interest is paid and fees are assessed on deposits. The FRB's Regulation
DD, implementing the Truth in Savings Act, became effective June 21, 1993.
Brokered Deposits. Effective June 16, 1992, FDICIA placed restrictions on
------------------
the ability of banks to obtain brokered deposits or to solicit and pay interest
rates on deposits that are significantly higher than prevailing rates. FDICIA
provides that a bank may not accept, renew or roll over brokered deposits
unless: (i) it is "well capitalized"; or (ii) it is adequately capitalized and
receives a waiver from the FDIC permitting it to accept brokered deposits paying
an interest rate not in excess of 75 basis points over certain prevailing market
rates. FDIC regulations define brokered deposits to include any deposit
obtained, directly or indirectly, from any person engaged in the business of
placing deposits with, or selling interests in deposits of, an insured
depository institution, as well as any deposit obtained by a depository
institution that is not "well capitalized" for regulatory purposes by offering
rates significantly higher (generally more than 75 basis points) than the
prevailing interest rates offered by depository institutions in such
institution's normal market area. In addition to these restrictions on
acceptance of brokered deposits, FDICIA provides that no pass-through deposit
insurance will be provided to employee benefit plan deposits accepted by an
institution which is ineligible to accept brokered deposits under applicable law
and regulations.
Lending. New regulations have been issued in the area of real estate
-------
lending, prescribing standards for extensions of credit that are secured by real
property or made for the purpose of the construction of a building or other
improvement to real estate. In addition, the aggregate of all loans to
executive officers, directors and principal shareholders and related interests
may now not exceed 100% (200% in some circumstances) of the depository
institution's capital.
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State Authorized Activities. The new legislation also created restrictions
---------------------------
on activities authorized under state law. FDICIA generally restricts activities
through subsidiaries to those permissible for national banks, unless the FDIC
has determined that such activities would pose no risk to the insurance fund of
which it is a member and Palomar is in compliance with applicable regulatory
capital requirements, thereby effectively eliminating real estate investment
authorized under California law, and provided for a five-year divestiture period
for impermissible investments. Insurance activities were also limited, except
to the extent permissible for national banks.
Qualified Thrift Lender Test. Savings associations, like Palomar, must
-------------------------------
meet a QTL test, which test may be met either by maintaining a specified level
of assets in qualified thrift investments as specified in HOLA or by meeting the
definition of a "domestic building and loan association" in Section 7701 of the
California Financial Code ("CFC"). If Palomar maintains an appropriate level of
certain specified investments (primarily residential mortgages and related
investments, including certain mortgage-related securities) and otherwise
qualifies as a QTL or a domestic building and loan association, it will continue
to enjoy full borrowing privileges from the FHLB. The required percentage of
investments under HOLA is 65% of assets while the CFC requires investments of
60% of assets. An association must be in compliance with the QTL test or the
definition of domestic building and loan association on a monthly basis in nine
out of every 12 months. Associations that fail to meet the QTL test will
generally be prohibited from engaging in any activity not permitted for both a
national bank and a savings association. As of December 31, 1997, Palomar was
in compliance with its QTL requirements and met the definition of a domestic
building and loan association.
Activities of Subsidiaries. A savings association seeking to establish a
----------------------------
new subsidiary, acquire control of an existing company or conduct a new activity
through a subsidiary must provide 30 days prior notice to the FDIC and the OTS
and conduct any activities of the subsidiary in accordance with regulations and
orders of the OTS. The OTS has the power to require a savings association to
divest any subsidiary or terminate any activity conducted by a subsidiary that
the OTS determines to pose a serious threat to the financial safety, soundness
or stability of the savings association or to be otherwise inconsistent with
sound banking practices.
Federal Home Loan Bank System. Palomar is a member of the FHLB system.
---------------------------------
Among other benefits, each FHLB serves as a reserve or center bank for its
members within its assigned region. Each FHLB is financed primarily from the
sale of consolidated obligations of the FHLB system. Each FHLB makes available
to its members loans (i.e., advances) in accordance with the policies and
procedures established by the Board of Directors of the individual FHLB.
5. RIEGLE COMMUNITY DEVELOPMENT AND REGULATORY IMPROVEMENT ACT OF 1994
--------------------------------------------------------------------
The Riegle Community Development and Regulatory Improvement Act of 1994
(the "1994 Act"), which has been viewed as the most important piece of banking
legislation since the enactment of FDICIA, was signed into law on September 23,
1994. In addition to providing funding for the establishment of a Community
Development Financial Institutions Fund (the "Fund"), which provides assistance
to new and existing community development lenders to help to meet the needs of
low- and moderate-income communities and groups, the 1994 Act mandated changes
to a wide range of banking regulations. These changes included modifications to
the publication requirements for Call Reports, less frequent regulatory
examination schedules for small institutions, small business and commercial real
estate loan securitization, amendments to the money laundering and currency
transaction reporting requirements of the Bank Secrecy Act, clarification of the
coverage of the Real Estate Settlement Procedures Act for business, commercial
and agricultural real estate secured transactions, amendments to the national
flood insurance program, and amendments to the Truth in Lending Act to provide
greater protection for consumers by reducing discrimination against the
disadvantaged.
The "Paperwork Reduction and Regulatory Improvement Act," Title III of the
1994 Act, required the federal banking agencies to consider the administrative
burdens that new regulations will impose before their adoption and requires a
transition period in order to provide adequate time for compliance. This Act
also requires the federal banking agencies to work together to establish uniform
regulations and guidelines as well as to work together to eliminate duplicative
or unnecessary requests for information in connection with applications or
notices. This act reduces the frequency of examinations for well-rated
institutions, simplifies the quarterly Call Reports and eliminated the
requirement that financial institutions publish their Call Reports in local
newspapers. This Act also established an internal regulatory appeal process and
independent ombudsman to provide a means for review of material supervisory
determinations. The Paperwork Reduction and Regulatory Improvement Act also
amended the Bank Holding Company Act and Securities Act of 1933 to simplify the
formation of bank holding companies.
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Title IV of the 1994 Act amended the Bank Secrecy Act by reducing the
reporting requirements imposed on financial institutions for large currency
transactions, expanding the ability of financial institutions to provide
exemptions to the reporting requirements for businesses that regularly deal in
large amounts of currency, and providing for the delegation of civil money
penalty enforcement from the Treasury Department to the individual federal
banking agencies.
6. SAFETY AND SOUNDNESS STANDARDS
---------------------------------
In July, 1995, the federal banking agencies adopted final guidelines
establishing standards for safety and soundness, as required by FDICIA and the
1994 Act. The guidelines set forth operational and managerial standards
relating to internal controls, information systems and internal audit systems,
loan documentation, credit underwriting, interest rate exposure, asset growth
and compensation, fees and benefits. Guidelines for asset quality and earnings
standards will be adopted in the future. The guidelines establish the safety
and soundness standards that the agencies will use to identify and address
problems at insured depository institutions before capital becomes impaired. If
an institution fails to comply with a safety and soundness standard, the
appropriate federal banking agency may require the institution to submit a
compliance plan. Failure to submit a compliance plan or to implement an
accepted plan may result in enforcement action.
The federal banking agencies issued regulations prescribing uniform
guidelines for real estate lending. The regulations require insured depository
institutions to adopt written policies establishing standards, consistent with
such guidelines, for extensions of credit secured by real estate. The policies
must address loan portfolio management, underwriting standards and loan to value
limits that do not exceed the supervisory limits prescribed by the regulations.
Appraisals for "real estate related financial transactions" must be
conducted by either state certified or state licensed appraisers for
transactions in excess of certain amounts. State certified appraisers are
required for all transactions with a transaction value of $1,000,000 or more;
for all nonresidential transactions valued at $250,000 or more; and for
"complex" 1-4 family residential properties of $250,000 or more. A state
licensed appraiser is required for all other appraisals. However, appraisals
performed in connection with "federally related transactions" must now comply
with the agencies' appraisal standards. Federally related transactions include
the sale, lease, purchase, investment in, or exchange of, real property or
interests in real property, the financing or refinancing of real property, and
the use of real property or interests in real property as security for a loan or
investment, including mortgage-backed securities.
7. CONSUMER PROTECTION LAWS AND REGULATIONS
--------------------------------------------
The bank regulatory agencies are focusing greater attention on compliance
with consumer protection laws and their implementing regulations. Examination
and enforcement have become more intense in nature, and insured institutions
have been advised to monitor carefully compliance with various consumer
protection laws and their implementing regulations. Banks are subject to many
federal consumer protection laws and regulations including, but not limited to,
the Community Reinvestment Act (the "CRA"), the Truth in Lending Act (the
"TILA"), the Fair Housing Act (the "FH Act"), the Equal Credit Opportunity Act
(the "ECOA"), the Home Mortgage Disclosure Act ("HMDA"), and the Real Estate
Settlement Procedures Act ("RESPA").
The CRA, enacted into law in 1977, is intended to encourage insured
depository institutions, while operating safely and soundly, to help meet the
credit needs of their communities. The CRA specifically directs the federal
bank regulatory agencies, in examining insured depository institutions, to
assess their record of helping to meet the credit needs of their entire
community, including low- and moderate-income neighborhoods, consistent with
safe and sound banking practices. The CRA further requires the agencies to take
a financial institution's record of meeting its community credit needs into
account when evaluating applications for, among other things, domestic branches,
consummating mergers or acquisitions, or holding company formations.
The federal banking agencies have adopted regulations which measure a
bank's compliance with its CRA obligations on a performance-based evaluation
system. This system bases CRA ratings on an institution's actual lending
service and investment performance rather than the extent to which the
institution conducts needs assessments, documents community outreach or complies
with other procedural requirements. The ratings range from "outstanding" to a
low of "substantial noncompliance."
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The ECOA, enacted into law in 1974, prohibits discrimination in any credit
transaction, whether for consumer or business purposes, on the basis of race,
color, religion, national origin, sex, marital status, age (except in limited
circumstances), receipt of income from public assistance programs, or good faith
exercise of any rights under the Consumer Credit Protection Act. In March,
1994, the Federal Interagency Task Force on Fair Lending issued a policy
statement on discrimination in lending. The policy statement describes the
three methods that federal agencies will use to prove discrimination: overt
evidence of discrimination, evidence of disparate treatment and evidence of
disparate impact. This means that if a creditor's actions have had the effect
of discriminating, the creditor may be held liable - even when there is no
intent to discriminate.
The FH Act, enacted into law in 1968, regulates may practices, including
making it unlawful for any lender to discriminate in its housing-related lending
activities against any person because of race, color, religion, national origin,
sex, handicap, or familial status. The FH Act is broadly written and has been
broadly interpreted by the courts. A number of lending practices have been
found to be, or may be considered, illegal under the FH Act, including some that
are not specifically mentioned in the FH Act itself. Among those practices that
have been found to be, or may be considered, illegal under the FH Act are:
declining a loan for the purposes of racial discrimination; making excessively
low appraisals of property based on racial considerations; pressuring,
discouraging, or denying applications for credit on a prohibited basis; using
excessively burdensome qualifications standards for the purpose or with the
effect of denying housing to minority applicants; imposing on minority loan
applicants more onerous interest rates or other terms, conditions or
requirements; and racial steering, or deliberately guiding potential purchasers
to or away from certain areas because of race.
The TILA, enacted into law in 1968, is designed to ensure that credit terms
are disclosed in a meaningful way so that consumers may compare credit terms
more readily and knowledgeably. As a result of the TILA, all creditors must
use the same credit terminology and expressions of rates, the annual percentage
rate, the finance charge, the amount financed, the total payments and the
payment schedule.
HMDA, enacted into law in 1975, grew out of public concern over credit
shortages in certain urban neighborhoods. One purpose of HMDA is to provide
public information that will help show whether financial institutions are
serving the housing credit needs of the neighborhoods and communities in which
they are located. HMDA also includes a "fair lending" aspect that requires the
collection and disclosure of data about applicant and borrower characteristics
as a way of identifying possible discriminatory lending patterns and enforcing
anti-discrimination statutes. HMDA requires institutions to report data
regarding applications for one-to-four family loans, home improvement loans, and
multifamily loans, as well as information concerning originations and purchases
of such types of loans. Federal bank regulators rely, in part, upon data
provided under HMDA to determine whether depository institutions engage in
discriminatory lending practices.
RESPA, enacted into law in 1974, requires lenders to provide borrowers with
disclosures regarding the nature and costs of real estate settlements. Also,
RESPA prohibits certain abusive practices, such as kickbacks, and places
limitations on the amount of escrow accounts.
Violations of these various consumer protection laws and regulations can
result in civil liability to the aggrieved party, regulatory enforcement
including civil money penalties, and even punitive damages.
8. CONCLUSION
----------
As a result of the recent federal and California legislation, there has
been a competitive impact on financial institutions. There has been a lessening
of the historical distinction between the services offered by banks, savings and
loan associations, credit unions, and other financial institutions, banks have
experienced increased competition for deposits and loans which may result in
increases in their cost of funds, and banks have experienced increased costs.
Further, the federal banking agencies have increased enforcement authority over
financial institutions and their directors and officers.
Future legislation is also likely to impact CWB's, GNB's and Palomar's
business. Consumer legislation has been proposed in Congress which may require
banks to offer basic, low-cost, financial services to meet minimum consumer
needs. Various proposals to restructure the federal bank regulatory agencies
are currently pending in Congress, some of which include proposals to expand the
ability of banks to engage in previously prohibited businesses. Further, the
regulatory agencies have proposed and may propose a wide range of regulatory
changes, including the calculation of capital adequacy and limiting business
dealings with affiliates. These and other legislative and regulatory changes
may have the impact of increasing the cost of business or otherwise impacting
the earnings of financial institutions. However, the degree, timing and full
extent of the impact of these proposals cannot be predicted.
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IMPACT OF MONETARY POLICIES
- ------------------------------
Banking is a business which depends on rate differentials. In general, the
difference between the interest rate paid by the financial institution on its
deposits and its other borrowings and the interest rate earned by the financial
institution on loans, securities and other interest-earning assets will comprise
the major source of the financial institution's earnings. These rates are
highly sensitive to many factors which are beyond the control of the financial
institution and, accordingly, the earnings and growth of the financial
institution will be subject to the influence of economic conditions generally,
both domestic and foreign, including inflation, recession, and unemployment; and
also to the influence of monetary and fiscal policies of the United States and
its agencies, particularly the FRB. The FRB implements national monetary
policy, such as seeking to curb inflation and combat recession, by its
open-market dealings in United States government securities, by adjusting the
required level of reserves for financial institutions subject to reserve
requirements, by placing limitations upon savings and time deposit interest
rates, and through adjustments to the discount rate applicable to borrowings by
banks which are members of the Federal Reserve System. The actions of the FRB
in these areas influence the growth of bank loans, investments, and deposits and
also affect interest rates. The nature and timing of any future changes in such
policies and their impact on the financial institutions cannot be predicted;
however, depending on the degree to which the financial institution's
interest-earning assets and interest-bearing liabilities are positively rate
sensitive, increases in rates would have the temporary effect of increasing the
financial institution's net interest margin, while decreases in interest rates
would have the opposite effect.
In addition, adverse economic conditions could make a higher provision for
loan losses prudent and could cause higher loan charge-offs, thus adversely
affecting the financial institution's net income.
AMENDMENT OF CBW BYLAWS
-----------------------
Section 3.2 of the CWB Bylaws provide that the range of directors is from
six (6) to eleven (11) members. Under the terms of the Merger Agreement, at the
Effective Time, the CWB Board is required to appoint a representative of the
Palomar Board, selected by the Palomar Board, to the CWB Board. Currently, the
CWB Board has eleven (11) members. Consequently, the CWB Board has adopted and
hereby recommends that the CWB shareholders approve and amendment to Section 3.2
of the CWB Bylaws increasing the range of directors to from eight (8) to fifteen
(15) members. This will permit the CWB Board to increase the number of directors
to twelve (12) at the Effective Time of the Merger and to appoint the Palomar
designee to fill the vacancy at that time. At the CWB Meeting, the CWB
shareholders will be asked to consider and vote upon approval of the following
amendment to the first sentence of Section 3.2 of the Bylaws:
"The authorized number of directors of the corporation shall be not
less than eight (8) nor more than fifteen (15) and the exact number of directors
shall be twelve (12) until changed, within the limits specified above, by a
resolution amending such exact number, duly adopted by the Board of Directors or
by the shareholders."
The approval of a majority of the outstanding shares of CWB Common Stock is
required to approve the foregoing Bylaw amendment. THE CWB BOARD RECOMMENDS A
VOTE "FOR" ON THIS PROPOSAL.
VALIDITY OF CWB COMMON STOCK
The validity of the shares of CWB Common Stock to be issued in the Merger
has been reviewed by the firm of Horgan, Rosen, Beckham & Coren, L.L.P., 21700
Oxnard Street, Suite 1400, Woodland Hills, California 91367. Such review should
not be construed as constituting and opinion as to the merits of the offering
made hereby, the accuracy or adequacy of the disclosures contained herein, or
the suitability of the CWB Common Stock for any Palomar Shareholders.
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EXPERTS
The consolidated financial statements of CWB and subsidiaries as of
December 31, 1997 and of Goleta National Bank (CWB's predecessor corporation) as
of December 31, 1996, and subsidiaries and for each of the years in the
three-year period ended December 31, 1997, have been incorporated by reference
herein and in the registration statement in reliance on the report of Deloitte &
Touche, LLP, independent certified public accountants, incorporated herein by
this reference and upon the authority of said firm as experts in accounting and
auditing.
The consolidated financial statements of Palomar for the years ended
_______________, and for each of the years in the three year period ended
December 31, 1997, have been incorporated by reference herein and in the
registration statement in reliance on the report of KPMG Peat Marwick, LLP,
independent certified public accountants, incorporated herein by this reference,
and upon the authority of paid firm as experts in accounting and auditing.
SHAREHOLDER PROPOSALS TO BE
PRESENTED AT NEXT ANNUAL MEETING
Proposals of shareholders intended to be presented at the next Annual
Meeting of Shareholders of CWB must be received by CWB at its offices at 5638
Hollister Avenue, Goleta, California, 93117, no later than January 8, 1999, and
must satisfy the conditions established by the SEC for shareholder proposals to
be included in CWB's Proxy Statement for the Meeting.
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
<S> <C>
FINANCIAL STATEMENTS OF PALOMAR PAGE
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Independent Auditors' Report
Consolidated Statements of Financial Condition as of September 30, 1997 and 1996
Consolidated Statements of Income for the Years Ended September 30, 1997 and
the Nine Months Ended September 30, 1996
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Consolidated Statements of Financial Condition as of June 30, 1998 and 1997 (unaudited)
Consolidated Statements of Operations for the Six Months Ended June 30, 1998 and 1997 (unaudited)
Consolidated Statements of Stockholder's Equity for the Nine Months Ended June 30, 1998.
Consolidated Statements of the Cash Flows for the Six Months Ended June 30, 1998 and 1997 (unaudited)
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Palomar Savings and Loan Association:
We have audited the accompanying consolidated statements of financial condition
of Palomar Savings and Loan Association and subsidiary (the Association) as of
September 30, 1997 and 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for the year ended September 30,
1997 and the nine months ended September 30, 1996. These consolidated financial
statements are the responsibility of the Association's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Palomar Savings and
Loan Association and subsidiary as of September 30, 1997 and 1996 and the
results of their operations and their cash flows for the year ended September
30, 1997 and the nine months ended September 30, 1996 in conformity with
generally accepted accounting principles.
November 7, 1997
<PAGE>
<TABLE>
<CAPTION>
PALOMAR SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Consolidated Statements of Financial Condition
September 30, 1997 and 1996
ASSETS 1997 1996
----------- -----------
<S> <C> <C>
Cash and cash equivalents (note 1) $ 6,371,391 8,039,702
Investments:
Securities available-for-sale, at fair value (note 3) 9,494,885 9,489,618
Securities held-to-maturity, at amortized cost (fair values
approximate $3,971,022 and $4,832,289 at September 30, 1997
and 1996, respectively) (note 2) 4,154,376 5,147,691
Loans receivable held-for-investment, net (notes 4, 10 and 13) 57,309,223 53,857,903
Loans receivable held-for-sale (note 5) 1,062,183 25,000
Accrued interest and dividends receivable 435,227 455,630
Real estate owned, net (note 7) - 547,556
Investments in real estate ventures, net (note 6) 76,872 155,661
Premises and equipment, net (note 8) 132,162 151,576
Investment in Federal Home Loan Bank stock, at cost (note 10) 503,900 474,100
Prepaid expenses and other assets (note 11) 388,901 513,958
Taxes receivable (note 11) 72,968 390,586
----------- -----------
$80,002,088 79,248,981
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits (note 9) $72,090,266 71,294,022
Borrowings from Federal Home Loan Bank (notes 4 and 10) 2,000,000 2,000,000
Accounts payable and other liabilities 553,809 1,199,202
----------- -----------
Total liabilities 74,644,075 74,493,224
----------- -----------
Stockholders' equity (notes 15 and 16):
Guarantee stock, $4.00 par value, 1,500,000 shares authorized,
617,477 issued and outstanding at September 30, 1997 and 1996 2,469,908 2,469,908
Capital in excess of par value 1,793,097 1,793,097
Unrealized gains (losses) on securities available-for-sale, net 17,776 (48,676)
Retained earnings, substantially restricted 1,077,232 541,428
----------- -----------
Total stockholders' equity 5,358,013 4,755,757
----------- -----------
Commitments and contingencies (notes 4, 11 and 12)
$80,002,088 79,248,981
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
PALOMAR SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Consolidated Statements of Operations
NINE MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
--------------- --------------
<S> <C> <C>
Interest income:
Interest and fees on loans $ 4,365,938 3,217,127
Interest on mortgage-backed securities 653,591 678,195
Interest on federal funds sold 208,634 73,820
Interest and dividends on investments 300,481 293,913
--------------- --------------
Total interest income 5,528,644 4,263,055
--------------- --------------
Interest expense:
Interest on deposits (note 9) 3,391,737 2,603,256
Interest on borrowings 57,068 88,651
--------------- --------------
Total interest expense 3,448,805 2,691,907
--------------- --------------
Net interest income before provision for loan losses 2,079,839 1,571,148
Provision (credit) for loan losses (note 4) (65,831) 211,867
--------------- --------------
Net interest income after provision (credit)
for loan losses 2,145,670 1,359,281
--------------- --------------
Non-interest income (expense):
Gain on real estate ventures (note 6) 24,477 1,877
Net gain on sale of loans 224,592 10,193
(Losses) gains on sale of securities available-for-sale (note 3) (11,620) 17,939
Gain on early retirement of securities held-to-maturity (note 2) 3,809 -
Gain on sale of real estate investment - 94,995
Loan servicing fee income 85,154 71,005
Other fees and charges 96,222 76,708
--------------- --------------
Total non-interest income 422,634 272,717
--------------- --------------
General and administrative:
Salaries and related personnel costs 790,744 543,502
Premises and occupancy costs 220,063 159,181
SAIF insurance 88,399 677,381
REO expenses 73,442 7,217
Professional services 75,274 88,480
Data processing 89,107 66,532
Advertising 54,056 26,419
Other 480,415 244,531
--------------- --------------
Total general and administrative 1,871,500 1,813,243
--------------- --------------
Earnings (loss) before income taxes 696,804 (181,245)
Income tax expense (benefit) (note 11) 161,000 (150,000)
--------------- --------------
Net earnings (loss) $ 535,804 (31,245)
=============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
PALOMAR SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
UNREALIZED
GAINS
(LOSSES) ON
SECURITIES RETAINED TOTAL
GUARANTEE CAPITAL IN AVAILABLE- EARNINGS, STOCK-
STOCK EXCESS OF FOR-SALE, SUBSTANTIALLY HOLDERS'
--------- ---------- ------------ -------------- ----------
SHARES AMOUNT PAR VALUE NET RESTRICTED EQUITY
--------- ---------- ---------- ------------ -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1995 617,477 $2,469,908 1,793,097 (7,816) 572,673 4,827,862
Change in unrealized
Losses on securities
Available-for-sale, net
(note 3) - - - (40,860) - (40,860)
Net loss for the nine
months ended
September 30, 1996 - - - - (31,245) (31,245)
--------- ---------- ---------- ------------ -------------- ----------
Balance at
September 30, 1996 617,477 2,469,908 1,793,097 (48,676) 541,428 4,755,757
Change in unrealized
gains (losses) on
securities available-
for-sale, net (note 3) - - - 66,452 - 66,452
Net earnings for the year
ended September 30,
1997 - - - - 535,804 535,804
--------- ---------- ---------- ------------ -------------- ----------
Balance at
September 30, 1997 617,477 $2,469,908 1,793,097 17,776 1,077,232 5,358,013
========= ========== ========== ============ ============== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
PALOMAR SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
NINE MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
--------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 535,804 (31,245)
Adjustments to reconcile net (loss) earnings to net cash
provided by operating activities:
Depreciation and amortization 26,077 31,103
(Credit) provision for loan losses (65,831) 211,867
Provisions for losses on real estate owned 74,141 11,854
Provisions for deferred income taxes 95,000 141,000
Net gain on sale of loans (224,592) (10,193)
Losses (gains) on sale of securities available-for-sale 11,620 (17,939)
Gain on early retirement of securities held-to-maturity (3,809) -
Net gain on sale of real estate owned (8,650) (13,649)
Gain on sale of real estate investment - (94,995)
Gain on real estate ventures (24,477) (1,877)
Federal Home Loan Bank capital stock dividends (29,800) (22,700)
Increase (decrease) in deferred fees 24,331 (10,511)
(Increase) decrease in net other assets and liabilities (311,465) 1,084,943
--------------- --------------
Net cash provided by operating activities 98,349 1,277,658
--------------- --------------
Cash flows from investing activities:
Loan originations held-for-investment,
net of principal repayments (3,411,105) 758,125
Purchase of securities held-to-maturity - (1,725,156)
Purchase of securities available-for-sale (6,077,492) (5,954,473)
Proceeds from sale of securities available-for-sale 5,421,825 9,717,105
Proceeds from early retirement of securities held-to-maturity 1,000,000 -
Principal repayments on investments 642,827 1,243,994
Proceeds from sale of loans 13,913,736 1,064,328
Loans originated for sale (14,751,411) (1,079,135)
Purchase of premises and equipment (13,586) (25,679)
Repayments from real estate ventures, net 103,266 3,900
Additions to real estate owned (19,265) -
Proceeds from sale of real estate owned 628,301 545,922
Proceeds from sale of real estate investments - 94,995
Redemption (purchase) of Federal Home Loan Bank stock - 195,000
--------------- --------------
Net cash provided by (used in) investing activities (2,562,904) 4,838,926
--------------- --------------
Cash flows from financing activities - net increase
(decrease) in deposits 796,244 (2,708,148)
--------------- --------------
Net increase (decrease) in cash and cash equivalents (1,668,311) 3,408,436
Cash and cash equivalents at beginning of period 8,039,702 4,631,266
--------------- --------------
Cash and cash equivalents at end of period $ 6,371,391 8,039,702
=============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
PALOMAR SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Consolidated Statements of Cash Flows, Continued
NINE MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
--------------- --------------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash (received) paid during the period for:
Income taxes $ (222,000) (808,000)
=============== ==============
Interest $ 3,467,672 2,736,384
=============== ==============
Supplemental disclosure of noncash investing and
financing activities:
Transfers from loans to real estate owned $ 126,971 475,680
=============== ==============
(Decrease) increase in net unrealized losses on securities
available-for-sale $ (100,603) 59,929
=============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PALOMAR SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1997 and 1996
(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Palomar Savings and Loan Association is a state-chartered savings and loan
association and is subject to supervision by the Office of Thrift Supervision
(the OTS), the Federal Deposit Insurance Corporation (the FDIC) and the
California Department of Savings and Loans. Palomar Savings and Loan
Association is engaged primarily in the business of mortgage loan origination in
San Diego and Riverside counties.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts and
transactions of Palomar Savings and Loan Association and its wholly-owned
subsidiary, Palomar Service Corporation (the Association). Intercompany
transactions and balances have been eliminated in consolidation.
SECURITIES HELD-TO-MATURITY AND SECURITIES AVAILABLE-FOR-SALE
Management determines the appropriate classification of securities at the time
of purchase. If management has the intent and the Association has the ability
at the time of purchase to hold securities until maturity, they are classified
as held-to-maturity. Securities held-to-maturity are stated at cost, adjusted
for amortization of premiums and accretion of discounts over the period to
maturity of the related security. Securities to be held for indefinite periods
of time, but not necessarily to be held-to-maturity or on a long-term basis are
classified as available-for-sale and carried at fair value with unrealized gains
or losses reported as a separate component of stockholders' equity, net of
applicable income taxes. Realized gains or losses on the sale of securities
available-for-sale, if any, are determined using the adjusted cost of the
specific securities sold. Securities held for indefinite periods of time
include securities that management intends to use as part of its asset/liability
management strategy and that may be sold in response to changes in interest
rates, prepayment risk and other related factors.
LOAN INTEREST INCOME
Interest on loans is credited to income as earned. Accrued interest on loans 90
days or more contractually delinquent or in foreclosure is reversed. Loans are
restored to accrual status when the loan becomes both well-secured and
management believes both principal and interest are collectible.
LOAN FEE INCOME
Loan fees and certain direct loan origination costs are deferred, and the net
fees or costs are recognized as an adjustment to interest income over the
contractual life of the loans using a method which approximates the interest
method. The amortization of loan fees is discontinued on nonaccrual loans when,
in management's judgment, a reasonable doubt exists as to the collectibility of
the loans in the normal course of business.
LOANS RECEIVABLE HELD-FOR-SALE
Loans receivable held-for-sale are stated at the lower of cost or market as
determined by outstanding commitments from investors or current investor-yield
requirements calculated on an aggregate basis.
1
<PAGE>
PALOMAR SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is available for future loan charge-offs. Many
factors are collectively weighed by management in determining the adequacy of
the allowance, including management's review of the extent of the existing risks
in the loan portfolio and prevailing economic conditions.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize estimated losses on loans,
future additions to the allowance may be necessary based on changes in economic
conditions and the repayment capabilities of the borrowers. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Association's allowance for losses on loans. Such
agencies may require the Association to recognize additions to the allowance
based on their judgments related to information available to them at the time of
their examinations.
Through its internal asset review function, the Association identifies and
measures its impaired loans by using the fair value of the collateral.
Management will establish an allowance for loan losses when the carrying value
of a loan identified as being impaired is less that the fair value of the
collateral.
REAL ESTATE OWNED
Real estate owned is recorded at fair value at the date of acquisition. Fair
value is based upon current appraisals less estimated selling costs.
Write-downs to fair value at the time of acquisition of the real estate, if any,
are made by a charge to the allowance for loan losses. Any subsequent
write-downs are charged against operating expenses and recognized as a valuation
allowance. Subsequent increases in the fair value of the asset less estimated
selling costs reduces the valuation allowance and are credited to income.
Operating expenses of such properties, net of related income, are included in
other expenses.
REAL ESTATE VENTURES
The Association accounts for its investment in real estate ventures on the
equity method (Note 6).
PREMISES AND EQUIPMENT
Premises and equipment are carried at cost less accumulated depreciation and
amortization. Depreciation is computed using the straight-line method over the
estimated useful lives of the related assets, generally three to twenty years.
Leasehold improvements are amortized over the shorter of their remaining useful
lives or the remaining terms of the lease.
INCOME TAXES
The Association accounts for income taxes under the asset and liability method
of accounting for income taxes whereby deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
2
<PAGE>
PALOMAR SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash,
due from banks, federal funds sold, and certificates of deposit with original
maturities of three months or less. Generally, federal funds sold are held for
one-day periods. A summary of cash and cash equivalents at September 30, 1997
and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Cash $3,571,391 1,539,702
Federal funds sold 1,300,000 5,000,000
Certificates of deposit 1,500,000 1,500,000
---------- ---------
Cash and cash equivalents $6,371,391 8,039,702
========== =========
</TABLE>
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amount of revenue, costs of revenue and
expenses during the reported period. Actual results could differ from those
estimates.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities" ("Statement 125").
Statement 125 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996 and is to be
applied prospectively. This statement provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities based on consistent application of a financial-components approach
that focuses on control. It distinguishes transfers of financial assets that
are sales from transfers that are secured borrowings. The adoption of Statement
125 did not have a material impact on the Association's financial position,
results of operations or liquidity.
In December 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 127, "Deferral of the Effective Date of
Certain Provisions of FASB Statement No. 125" ("Statement 127"). Statement 127
defers for one year the effective date of certain provisions of Statement 125.
Management of the Association does not expect the adoption of Statement 127 to
have a material impact on the Association's financial position, results of
operations or liquidity.
3
<PAGE>
PALOMAR SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("Statement 130"), which establishes standards for reporting and display of
comprehensive income and its components in a full set of financial statements.
Statement 130 requires the display of comprehensive income and its components in
a financial statement that is displayed in equal prominence with other financial
statements that constitute a full set of financial statements. The Statement
does not require, however, a specific format for the financial statement but
requires the display of net income as a component of comprehensive income in
that financial statement. Enterprises may elect to display comprehensive income
and its components in one or two statements of financial performance or in a
statement of changes in equity. If an enterprise chooses to display
comprehensive income in a statement of changes in equity, that statement must be
presented as part of a full set of financial statements and not in the notes to
the financial statements. Statement 130 is effective for interim and annual
periods beginning after December 15, 1997. Earlier application is permitted.
Comparative financial statements provided for earlier periods are required to be
reclassified to reflect application of the provisions of the Statement.
Management of the Association does not anticipate that the adoption of Statement
130 will have a material impact on the Association's financial position, results
of operations or liquidity.
(2) SECURITIES HELD-TO-MATURITY
Mortgage-backed securities are fully guaranteed by U.S. Government agencies.
Securities held-to-maturity, net of related discounts and premiums, consist of
the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------------------------------
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Federal National Mortgage
Association REMICs $3,420,753 - (184,731) 3,236,022
FNMA bonds 733,623 1,377 - 735,000
---------- ---------- ----------- -----------
$4,154,376 1,377 (184,731) 3,971,022
========== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------------------------------
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Federal National Mortgage
Association REMICs $3,421,378 - (292,214) 3,129,164
FNMA bonds 1,726,313 - (23,188) 1,703,125
---------- ---------- ----------- -----------
$5,147,691 - (315,402) 4,832,289
========== ========== =========== ===========
</TABLE>
4
<PAGE>
PALOMAR SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
Proceeds from the early retirement of securities held-to-maturity during the
year ended September 30, 1997 were $1,000,000 and resulted in a gross gain of
$3,809.
There were no sales of securities held-to-maturity during the nine months ended
September 30, 1996 or the year ended September 30, 1997.
Mortgage-backed securities included above have contractual terms to maturity,
but require periodic payments to reduce principal. In addition, expected
maturities will differ from contractual maturities because borrowers have the
right to prepay the underlying mortgages.
(3) SECURITIES AVAILABLE-FOR-SALE
Mortgage-backed securities are fully guaranteed by U.S. Government agencies.
The mutual funds in which the Association has invested, invests primarily in
adjustable-rate mortgage securities.
The amortized cost, gross unrealized gains and losses and approximate fair value
of securities available-for-sale are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------------------------------
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage
Corporation REMICs $ 595,339 - (18,195) 577,144
Government National Mortgage
Association participation
certificates 3,769,175 39,181 - 3,808,356
Federal National Mortgage
Association and Federal Home
Loan Mortgage Corporation
participation certificates 4,353,288 3,597 - 4,356,885
U.S. Treasury Securities 750,156 2,344 - 752,500
---------- ---------- ----------- -----------
$9,467,958 45,122 (18,195) 9,494,885
========== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------------------------------
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage
Corporation REMICs $1,277,537 - (30,548) 1,246,989
Government National Mortgage
Association participation
certificates 5,710,871 - (22,345) 5,688,526
Federal National Mortgage
Association and Federal Home
Loan Mortgage Corporation
participation certificates 586,236 - (3,773) 582,463
Mutual Funds 1,988,650 - (17,010) 1,971,640
---------- ---------- ----------- -----------
$9,563,294 - (73,676) 9,489,618
========== ========== =========== ===========
</TABLE>
5
<PAGE>
PALOMAR SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
Proceeds from the sale of securities available-for-sale during 1997 were
$5,421,825 resulting in gross gains and losses of $15,865 and $27,485,
respectively. Proceeds from the sale of securities available-for-sale during
1996 were $9,717,105 resulting in gross gains and losses of $30,916 and $12,977,
respectively.
Mortgage-backed securities included above have contractual terms to maturity,
but require periodic payments to reduce principal. In addition, expected
maturities will differ from contractual maturities because borrowers have the
right to prepay the underlying mortgages.
(4) LOANS RECEIVABLE HELD-FOR-INVESTMENT
Loans receivable held-for-investment at September 30, 1997 and 1996 are
summarized as follows:
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Single-family residential $40,233,574 36,324,212
Construction of single-family residential - 323,950
Multi-family residential 3,965,480 3,201,208
Nonresidential 12,081,957 12,437,734
Land 1,338,069 2,066,876
Loans secured by savings accounts 62,228 267,705
Consumer and commercial 574,063 369,247
------------ -----------
58,255,371 54,990,932
Less:
Undisbursed loan funds - (31,212)
Deferred loan fees (165,148) (140,817)
Allowance for loan losses (781,000) (961,000)
------------ -----------
$57,309,223 53,857,903
============ ===========
</TABLE>
The majority of the Association's loans are made to finance the purchase of
single-family homes in southern California. These loans are collateralized by
the related property, and management intends for loan-to-value ratios not to
exceed 95% upon origination.
Real estate construction loans are made primarily to builder-owners of
individual homes, generally in San Diego and Riverside Counties. Construction
loans are collateralized by the related property and management intends for the
loan-to-value ratios not to exceed 75% upon origination.
The Association's nonresidential loans are secured by office buildings, small
shopping centers and small industrial centers in San Diego County.
6
<PAGE>
PALOMAR SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
The Association has established a monitoring system for its loans in order to
identify potential problem loans and to permit the periodic evaluation of
impairment and the adequacy of the allowance for loan losses in a timely manner.
Impaired loans included in the Association's loan portfolio were $936,000 and
$1,563,000 at September 30, 1997 and 1996, respectively. At September 30, 1997
and 1996, $16,000 and $1,441,000, respectively, of these loans were assigned
specific allowances totaling $16,000 and $441,000, respectively. During the
year ended September 30, 1997 and the nine months ended September 30, 1996, the
average balance of impaired loans was $1,031,000 and $1,672,000, respectively,
and $61,000 and $109,000 of interest was recognized on these loans on a cash
basis in accordance with Association policy, respectively. During the year
ended September 30, 1997 and the nine months ended September 30, 1996, $61,000
and $73,000 of interest was recognized using the accrual method on impaired
loans, respectively.
At September 30, 1997 and 1996, Troubled Debt Restructurings ("TDR's") amounted
to $920,000 and $1,194,000, respectively. The Association has not committed to
lend any additional funds on TDR's, and TDR's are current in accordance with
their modified terms. Interest recorded on TDR's for the year ended September
30, 1997 and the nine months ended September 30, 1996 totaled $66,000 and
$76,200, respectively.
A summary of the activity in the allowance for loan losses, which includes
provisions for impaired loans, is as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance at December 31, 1995 $ 891,000
Provision 211,867
Charge-offs (141,867)
----------
Balance at September 30, 1996 961,000
----------
Credit (65,831)
Charge-offs (114,169)
----------
Balance at September 30, 1997 $ 781,000
==========
</TABLE>
During the year ended September 30, 1997, the Association recaptured $90,225 of
what had been previously provided for as a specific reserve. During the year,
the related loan receivable was paid off in full, and the excess of the specific
reserve over the actual loss incurred was recognized into income.
Nonaccrual loans amounted to $16,000 and $369,500 at September 30, 1997 and
1996, respectively. The additional interest that would have been earned on
these loans during the year ended September 30, 1997 and the nine months ended
September 30, 1996, if nonaccrual loans had been on a current basis in
accordance with their original terms, was approximately $1,700 and $22,200,
respectively. Interest income of $1,200 and $2,100 was recognized on loans
subsequently transferred to nonaccrual status as of September 30, 1997 and 1996,
respectively.
The Association services loans for others approximating $21,164,000 and
$23,908,000 at September 30, 1997 and 1996, respectively.
The Association has pledged real estate loans held for investment approximating
$23,741,000 and $26,700,000 at September 30, 1997 and 1996 to secure advances
from the Federal Home Loan Bank (Note 10).
7
<PAGE>
PALOMAR SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(5) LOANS RECEIVABLE HELD-FOR-SALE
Loans receivable held-for-sale at September 30, 1997 and 1996 are summarized as
follows:
<TABLE>
<CAPTION>
1997 1996
---------- ------
<S> <C> <C>
Single-family residential loans $1,062,183 25,000
========== ======
</TABLE>
(6) INVESTMENT IN REAL ESTATE VENTURES
The Association had entered into a certain venture agreement with a real estate
developer for the acquisition, development and sale of commercial and
single-family lots. The Association had a 50% interest in the venture through
its 49.5% limited partnership interest in the venture and its 50% stock
ownership in the 1% general partner.
Investments in and advances to real estate ventures at September 30, 1997 and
1996 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Investments in real estate venture $79,872 172,661
Allowance for losses (3,000) (17,000)
-------- --------
$76,872 155,661
======== ========
</TABLE>
Activity in the allowance for losses on investments in and advances to real
estate ventures is summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance at December 31, 1995 $ 18,000
Reduction (1,000)
---------
Balance at September 30, 1996 17,000
Reduction (14,000)
---------
Balance at September 30, 1997 $ 3,000
=========
</TABLE>
Gain on real estate ventures at September 30, 1997 and 1996 is comprised of the
following:
<TABLE>
<CAPTION>
1997 1996
------- ------
<S> <C> <C>
Reduction of loss provisions and write-downs
of real estate $14,000 (125)
Income from operations 10,477 2,002
------- ------
$24,477 1,877
======= ======
</TABLE>
8
<PAGE>
PALOMAR SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
Under the provisions of the Financial Institution Reform, Recovery and
Enforcement Act ("FIRREA") signed into law in August 1989, state-chartered
savings associations can no longer engage directly in the business of real
estate development activities and, in general, must divest themselves of such
investments as quickly as can be prudently done.
At September 30, 1997, the Association's remaining venture interest is Rancho
California Associates I, owned by the Association's wholly-owned subsidiary,
Palomar Service Corporation.
Combined unaudited summary financial information of the ventures is as follows:
<TABLE>
<CAPTION>
FINANCIAL POSITION
SEPTEMBER 30, SEPTEMBER 30,
ASSETS 1997 1996
-------------- -------------
<S> <C> <C>
Cash $ 40 5,382
Interest receivable - 800
Real estate held for sale or development, at
lower of cost or market 158,700 339,223
-------------- -------------
$ 158,740 345,405
============== =============
LIABILITIES AND EQUITY
Equity:
Association $ 79,370 172,702
Others 79,370 172,703
-------------- -------------
Total equity $ 158,740 345,405
============== =============
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
--------------- --------------
<S> <C> <C>
Operations:
Sales $ 181,683 -
Cost and expenses (180,523) -
--------------- --------------
1,160 -
Interest income 15,967 7,227
Other 4,607 (2,273)
--------------- --------------
Equity in loss from joint ventures $ 21,734 4,954
=============== ==============
</TABLE>
9
<PAGE>
PALOMAR SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(7) REAL ESTATE OWNED
A summary of real estate owned by property type at September 30, 1996 is as
follows:
<TABLE>
<CAPTION>
<S> <C>
Single-family $254,880
Nonresidential 369,676
---------
624,556
Less allowance for losses (77,000)
---------
$547,556
=========
</TABLE>
There was no real estate owned at September 30, 1997.
Activity in the allowance for losses on REO is summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance at December 31, 1995 $ 69,000
Provision for loss 11,854
Charge-offs (3,854)
----------
Balance at September 30, 1996 77,000
Provision for loss 74,141
Charge-offs (151,141)
----------
Balance at September 30, 1997 $ -
==========
</TABLE>
(8) PREMISES AND EQUIPMENT
Premises and equipment at September 30, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Premises $ 174,666 174,666
Office fixtures and equipment 457,853 447,099
---------- ---------
632,519 621,765
Less accumulated depreciation and amortization (500,357) (470,189)
---------- ---------
Total $ 132,162 151,576
========== =========
</TABLE>
10
<PAGE>
PALOMAR SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(9) DEPOSITS
Deposits at September 30, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
-----------------------------------------------------
WEIGHTED- WEIGHTED-
AMOUNT AVERAGE RATE AMOUNT AVERAGE RATE
----------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Non-interest bearing
deposits $ 424,134 - 372,711 -
NOW accounts 4,660,271 1.40% 4,158,910 1.42%
Money market deposit
accounts 11,230,145 2.65% 11,659,974 2.67%
Certificates of Deposit 55,775,716 5.70% 55,102,427 5.52%
----------- ------------- ---------- -------------
Total deposits $72,090,266 4.92% 71,294,022 4.78%
=========== ============= ========== =============
</TABLE>
Certificates of deposit with balances of $100,000 or more amounted to
approximately $12,892,000 and $12,067,000 at September 30, 1997 and 1996,
respectively.
Included in deposits are certificates scheduled to mature as follows:
<TABLE>
<CAPTION>
<S> <C>
YEAR ENDING SEPTEMBER 30,
- -------------------------
1998 $49,905,400
1999 4,542,489
2000 1,327,827
-----------
$55,775,716
===========
</TABLE>
Interest on deposits is summarized as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
-------------- -------------
<S> <C> <C>
NOW $ 64,443 42,433
Money Market 302,543 269,437
Certificates of Deposit 3,024,751 2,291,386
-------------- -------------
$ 3,391,737 2,603,256
============== =============
</TABLE>
11
<PAGE>
PALOMAR SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(10) INVESTMENT IN AND BORROWINGS FROM FEDERAL HOME LOAN BANK
The Association had borrowings of $2,000,000 outstanding from the FHLB at
September 30, 1996. This borrowing was secured by real estate loans and matured
in August 1997.
In addition, the Association has a line of credit agreement with the Federal
Home Loan Bank (FHLB). Advances are to be secured by real estate loans and by
its investment in FHLB stock and are due on demand. The interest rate is
variable and is to be adjusted daily based on a rate established by the FHLB.
At September 30, 1997, the Association had $2,000,000 in outstanding advances
under this line of credit.
As a member of the FHLB system, the Association is required to own capital stock
in the FHLB of San Francisco in an amount at least equal to the greater of 1% of
the aggregate principal amount of its unpaid residential mortgage loans, home
purchase contracts and similar obligations at the end of each year, or 5% of its
advances from the FHLB of San Francisco. The Association's investment in FHLB
stock at September 30, 1997 and 1996 amounted to $503,900 and $474,100, at cost,
respectively. The FHLB stock is subject to credit risk if it should become
permanently impaired.
(11) INCOME TAXES
The components of income taxes (benefit) at September 30, 1997 and 1996 consist
of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Current income taxes:
Federal $ 55,000 (291,000)
State 11,000 -
---------- ---------
66,000 (291,000)
---------- ---------
Deferred income taxes:
Federal 260,000 233,000
State 88,000 20,000
---------- ---------
348,000 253,000
---------- ---------
Change in valuation allowance (287,000) (93,000)
Taxes allocated to stockholders' equity 34,000 (19,000)
---------- ---------
Income tax expense (benefit) $ 161,000 (150,000)
========== =========
</TABLE>
12
<PAGE>
PALOMAR SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
A reconciliation between the expected income taxes computed using the federal
income tax rate of 34% to taxes actually provided is set forth below:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
--------------- --------------
<S> <C> <C>
"Computed" expected income tax expense (benefit) $ 237,000 (62,000)
State franchise taxes, net of federal benefit 66,000 13,000
Increase (decrease) in tax resulting from:
Decrease in valuation allowance (287,000) (93,000)
Other 145,000 (8,000)
--------------- --------------
Total income taxes $ 161,000 (150,000)
=============== ==============
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities under SFAS No. 109 at September 30,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Deferred tax assets:
Write-downs and losses from joint venture
activities $ 62,000 75,000
Gains and losses from real estate owned - 35,000
Allowance for loan losses 297,000 392,000
Reserve for securities available-for-sale (9,000) 25,000
Fixed assets due to differences in depreciation
methods 1,000 5,000
SAIF assessment - 210,000
Other 20,000 36,000
Net operating loss carryforward - state 98,000 92,000
---------- ---------
Total gross deferred tax assets 469,000 870,000
Less valuation allowance (211,000) (498,000)
---------- ---------
Net deferred tax assets 258,000 372,000
---------- ---------
Deferred tax liabilities:
Federal Home Loan Bank dividends (65,000) (53,000)
Deferred loan fees (64,000) (95,000)
---------- ---------
Total gross deferred tax liabilities (129,000) (148,000)
---------- ---------
Net deferred tax asset $ 129,000 224,000
========== =========
</TABLE>
13
<PAGE>
PALOMAR SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
Based upon the level of historical taxable income, net operating loss
carrybacks, tax planning strategies available to the Association and projections
of future taxable income over the periods in which the deferred tax assets are
deductible, management believes it is more likely than not the Association will
receive the benefits of these deductible differences, net of the existing
valuation allowance at September 30, 1997 and 1996, respectively.
At September 30, 1997, the Association had $1,300,000 in operating loss
carryforwards for state income tax purposes. The Association had no operating
loss carryforwards for federal tax purposes.
Under the Internal Revenue Code, the Association is allowed a special bad debt
deduction related to additions to tax bad debt reserves established for the
purpose of absorbing losses. This deduction amount represents an allocation of
income to bad debt reserves for tax computation purposes. The amount of the bad
debt reserves, for which income taxes have not been accrued, included in
retained earnings is $446,452 at September 30, 1997.
(12) COMMITMENTS
The Association leases its facilities under a noncancelable operating lease.
Annual future minimum lease payments as of September 30 are as follows:
<TABLE>
<CAPTION>
<S> <C>
YEAR ENDING SEPTEMBER 30,
- -------------------------
1998 $ 153,900
1999 153,900
2000 153,900
2001 153,900
2002 153,900
Thereafter 795,300
----------
$1,564,800
==========
</TABLE>
Rent expense for the year ended September 30, 1997 and the nine months ended
September 30, 1996 was $151,000 and $111,700, respectively.
At September 30, 1997, the Association had commitments to originate loans of
$1,006,750. Commitments to extend credit are agreements to lend to a customer
as long as there is no violation of any condition established in the contract.
These commitments expire in less than one year and the Association anticipates
no loss on the fulfillment of these commitments. Since many of the commitments
are expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements.
(13) RELATED PARTY TRANSACTIONS
In the normal course of business, the Association accepts deposits and makes
loans to certain officers, directors and employees under terms consistent with
its general interest rates and lending policies.
Certain officers, directors, employees and their affiliated companies maintain
savings accounts at the Association, which amounted to $979,326 and $771,917 at
September 30, 1997 and 1996, respectively.
14
<PAGE>
PALOMAR SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
The Association has loans outstanding to directors and employees at September
30, 1997 aggregating $346,995. Activity was as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance at December 31, 1995 $ 534,271
Additions 15,422
Repayments (9,333)
----------
Balance at September 30, 1996 540,360
Additions -
Repayments (193,365)
----------
Balance at September 30, 1997 $ 346,995
==========
</TABLE>
(14) WHOLLY-OWNED SUBSIDIARY
The accompanying consolidated financial statements include the accounts and
transactions of the Association's wholly-owned subsidiary, Palomar Service
Corporation. Palomar Service Corporation's condensed financial information is
summarized as follows:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
SEPTEMBER 30, SEPTEMBER 30,
ASSETS 1997 1996
-------------- -------------
<S> <C> <C>
Cash $ 6,552 18,062
Note receivable 25,467 27,947
Investment in joint venture 77,969 170,477
-------------- -------------
$ 109,988 216,486
============== -------------
STOCKHOLDER'S EQUITY
Stockholder's equity $ 109,988 216,486
============== -------------
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF EARNINGS
NINE MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
-------------- -------------
<S> <C> <C>
Trustee fee income $ 2,790 1,960
Interest income 2,720 2,019
Corporation's share of income from operations
of joint venture 10,758 2,452
-------------- -------------
Net earnings $ 16,268 6,431
============== -------------
</TABLE>
15
<PAGE>
PALOMAR SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(15) STOCK TRANSACTIONS
The Association has an employee stock ownership plan (the "Plan"), which is
available to all employees who are 21 years of age or older and who have
completed at least one year of service with the Association. The purpose of the
Plan is to establish a fund from contributions made by the Association. The
funds will be used by the trustee (certain members of the Board of Directors) to
purchase the Association's guarantee stock from time to time. The contribution
by the Association to the Plan is determined annually based on a percentage of
eligible compensation, up to a maximum of 15%, as determined by the Board of
Directors. There was no contribution for the year ended September 30, 1997.
For the nine months ended September 30, 1996, the rate was 2% of eligible
compensation, which resulted in a contribution of $10,334. The contributions
are expensed at the time they are made. The total number of shares in the ESOP
at September 30, 1997 and 1996 are 28,649. The ESOP purchased no shares from
the Association in 1997 or 1996.
(16) REGULATORY CAPITAL
The Financial Institution Reform, Recovery and Enforcement Act (FIRREA) of 1989
requires institutions to have a minimum regulatory tangible capital ratio equal
to 1.5% of adjusted total assets, a minimum 3% core capital ratio and a 8% total
risk-based capital ratio. At September 30, 1997, the Association exceeded all
minimum capital requirements for tangible, core and risk-based capital as shown
in the table below.
The Federal Deposit Insurance Corporation Improvement Act (FDICIA) of 1991 was
signed into law on December 19, 1991. Regulations implementing the prompt
corrective action provisions of FDICIA include significant changes to the legal
and regulatory environment for insured depository institutions, including
reductions in insurance coverage for certain kinds of deposits, increased
supervision by the federal regulatory agencies, increased reporting requirements
for insured institutions, and new regulations concerning internal controls,
accounting, and operations.
The prompt corrective action regulations define specific capital categories
based on an institution's capital ratios. The capital categories, in declining
order, are "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly under capitalized," and "critically undercapitalized."
To be considered "well capitalized" an institution must generally have a core
capital ratio of at least 5% and a total risk-based capital ratio of at least
10%. Additionally, FDICIA imposed in 1994 a new Tier I risk-based capital ratio
of at least 6% to be considered "well capitalized." At September 30, 1997, the
Association exceeds all these requirements as shown in the table below.
16
<PAGE>
PALOMAR SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
The following table compares the capital amounts of the Association as
calculated according to both FIRREA and FDICIA regulatory capital requirements
at September 30, 1997:
<TABLE>
<CAPTION>
FIRREA FDICIA
--------------------------------------- ----------------------------------------
TOTAL RISK- TIER 1 RISK- TOTAL RISK-
TANGIBLE CORE BASED LEVERAGE BASED BASED
CAPITAL CAPITAL CAPITAL CAPITAL CAPITAL CAPITAL
------------ ----------- ------------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Stockholders' equity capital $ 5,358,013 5,358,013 5,358,013 5,358,013 5,358,013 5,358,013
Unrealized gains on
securities available-for-
sale, net (17,776) (17,776) (17,776) (17,776) (17,776) (17,776)
General loan loss allowance - - 572,000 - - 572,000
------------ ----------- ------------ ----------- ------------- ------------
Regulatory capital measure 5,340,237 5,340,237 5,912,237 5,340,237 5,340,237 5,912,237
Regulatory capital required (1,200,000) (2,400,000) (3,661,000) (3,999,000) (2,745,000) (4,576,000)
------------ ----------- ------------ ----------- ------------- ------------
Regulatory capital in excess
of required regulatory
capital $ 4,140,237 2,940,237 2,251,237 1,341,237 2,595,237 1,336,237
============ =========== ============ =========== ============= ============
Total tangible assets $79,984,000 79,984,000 79,884,000
============ =========== ===========
Total risk-weighted assets 45,758,000 45,758,000 45,758,000
============ ============= ============
Regulatory capital ratio
requirements:
OTS 1.5% 3% 8% - - -
FDICIA (well
capitalized) - - - 5.0% 6.0% 10.0%
Association's capital
ratios 6.7% 6.7% 12.9% 6.7% 11.7% 12.9%
</TABLE>
Deposits in the Association are presently insured by the Savings Association
Insurance Fund (SAIF). The Association's regular assessment rate and the
premiums paid to the SAIF for the year ended September 30, 1997 were 12.3 basis
points and $88,400, respectively. On September 30, 1997, the Association
recorded a one-time special assessment of $506,000 payable to the SAIF in
accordance with the enactment of the Direct Insurance Funds Act of 1995. This
assessment was based on a rate of 65.7 basis points applied to the Association's
SAIF assessable deposits as of March 31, 1995.
(17) SUBSEQUENT EVENT
On October 27, 1997, the Board of Directors of the Association approved a 5%
stock dividend on issued and outstanding shares. The dividend is to be issued
on February 18, 1998 to the stockholders of record at the close of business on
February 2, 1998.
17
<PAGE>
INDEPENDENT AUDITORS' STATEMENTS REGARDING REGULATORY COMPLIANCE
September 30, 1997
Our audit of the consolidated financial statements of Palomar Savings and Loan
Association and subsidiary was made in accordance with generally accepted
auditing standards, the primary objective being to formulate our opinion on the
current year's basic consolidated financial statements taken as a whole.
The audit meets the requirements of Article 163, Subchapter 5, Chapter 2, Title
10 of the California Administrative Code. Further, the required conditions of
independence stipulated in Section 162 have also been met. We also gave due
consideration to the contents of the latest edition of "AICPA Audit and
Accounting Guide for Audits of Banks and Savings Institutions" published by the
American Institute of Certified Public Accountants.
Our letter dated November 7, 1997 to the Board of Directors contains comments
relating to our review of the system of internal accounting control as required
by generally accepted auditing standards.
18
<PAGE>
<TABLE>
<CAPTION>
Palomar Savings and Loan Association
Consolidated Statements of Financial Condition
(Dollars in thousands, except per share data)
(Unaudited)
June 30, September 30,
Assets 1998 1997
- ------------------------------------------------------------------- ----------- --------------
<S> <C> <C>
Cash and cash equivalents $ 11,017 $ 6,371
Investments: 10,437 9,495
Securities available-for-sale, at fair market value
Securities held-to-maturity, at amortized cost
(fair values approximate $3,285 and $3,971 at
June 30, 1998 and September 30, 1997, respectively) 3,420 4,154
Loans receivable held-for-investment, net 51,524 57,309
Loans receivable held-for-sale 1,102 1,062
Accrued interest and dividends receivable 412 435
Investments in real estate ventures 76 77
Premises and equipment, net 157 132
Investment in Federal Home Loan Bank stock, at cost 531 504
Prepaid expenses and other assets 815 390
Taxes receivable - 73
----------- --------------
$ 79,491 $ 80,002
=========== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------
Liabilities:
Deposits $ 72,923 $ 72,090
Borrowings from Federal Home Loan Bank - 2,000
Accounts payable and other liabilities 613 554
----------- --------------
Total Liabilities $ 73,536 $ 74,644
=========== ==============
Stockholders' Equity:
Guarantee stock, $4.00 par value, 1,250,000 shares authorized
648,186 and 617,477 shares issued and outstanding at June
30,1998 and September 30, 1997, respectively 2,593 2,470
Capital in excess of par value 1,947 1,793
Unrealized gains on securities available-for-sale, net 13 16
Retained earnings, substantially restricted 1,402 1,077
----------- --------------
Total Stockholders' equity 5,955 5,358
=========== ==============
$ 79,491 $ 80,002
=========== ==============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Palomar Savings and Loan Association
Consolidated Statements of Operations
(Dollars in thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------- --------------------
1998 1997 1998 1997
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 1,050 $ 1,094 $ 3,278 $ 3,249
Interest on mortgage-backed securities 201 169 573 481
Interest on federal funds sold 74 44 187 163
Interest and dividends on investments 45 79 138 248
---------- ---------- --------- ---------
Total interest income 1,370 1,366 4,176 4,141
Interest expenses:
Interest on deposits 856 847 2,585 2,521
Interest on borrowings -- 22 1 61
---------- ---------- --------- ---------
Total interest income 856 869 2,586 2,582
Net interest income before provision
(credit) for loan losses 514 517 1,590 1,559
Provision (credit) for loan losses (117) (70) (116) (66)
---------- ---------- --------- ---------
Net interest income after provision
(credit) for loan issues 631 587 1,706 1,625
---------- ---------- --------- ---------
Non-interest income (expense):
Gain on real estate ventures -- 1 4 14
Net gain on sale of loans 199 52 383 125
(Losses) gains on sale of securities
available-for-sale -- -- 9 (8)
Loan servicing fee income 48 21 108 65
Other fees and changes 21 19 62 78
---------- ---------- --------- ---------
Total non-interest income 268 93 566 274
---------- ---------- --------- ---------
General and administrative:
Salaries and related personnel costs 272 214 762 667
Premises and occupancy costs 59 56 173 162
SAIF insurance 17 17 50 72
REO expenses -- 69 1 70
Professional services 25 22 71 53
Data processing 29 23 84 66
Advertising 16 19 39 43
Other 127 83 329 271
---------- ---------- --------- ---------
Total general and administration 545 503 1,509 1,404
---------- ---------- --------- ---------
Earnings before income taxes 354 177 763 495
Income tax expense 91 47 160 161
---------- ---------- --------- ---------
Net earnings $ 263 $ 130 $ 603 $ 334
---------- ---------- --------- ---------
Weighted average number of shares
outstanding 648,186 617,477 640,509 617,477
---------- ---------- --------- ---------
Earnings per share $ 0.41 $ 0.21 $ 0.94 $ 0.54
---------- ---------- --------- ---------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Palomar Savings and Loan Association
Consolidated Statement of Stockholders' Equity
For the Nine Months ended June 30, 1998
(Dollars in thousands, except per share data)
(Unaudited)
Unrealized
gains on
securities Retained Total
Capital in available- earnings stock-
Guarantee Stock excess of for-sale, substantially holders'
-----------------
Shares Amount par value net restricted equity
-------- ------- ----------- ------------ --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1997 617,477 $ 2,470 $ 1,793 $ 18 $ 1,077 $ 5,358
Stock dividend 30,709 123 154 - (278) (1)
Change in unrealized gains on
Securities available-for-sale, net - - - (5) - (5)
Net income for the nine months
ended June 30, 1998 - - - - 603 603
-------- ------- ----------- ------------ --------------- ----------
Balance at June 30, 1998 648,186 $ 2,593 $ 1,947 $ 13 $ 1,402 $ 5,955
-------- ------- ----------- ------------ --------------- ----------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Palomar Savings and Loan Association
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Nine months ended
June 30,
-------------------
1998 1997
--------- --------
<S> <C> <C>
Cash flows operating activities:
Net earnings $ 603 $ 334
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 64 18
Credit for loan losses (116) (66)
Provision for losses on real estate owned - 74
Net gain on sale of loan (383) (125)
Losses on sale of securities available-for-sale 5 12
Gain on early retirement of securities held-to-maturity (14) (4)
Net gain on sale of real estate owned - (10)
Gain on real estate ventures (4) (17)
Federal Home Loan Bank capital stock dividends (27) (22)
Increase (decrease) in deferred fees (23) 25
Increase in net other assets and liabilities (298) (5)
Net cash provided by (used in) operating activities (193) 214
Cash flows from investing activities:
Loan originations held-for-investment, net of principal repayments 6,098 (3,095)
Purchase of securities available-for-sale (3,790) (4,310)
Proceeds from sale of securities available-for-sale 1,174 5,422
Proceeds from early retirement of securities held-to-maturity 750 1,000
Principal repayments on investments 1,651 471
Proceeds from sale of loans 26,742 9,081
Loans originated for sale (26,573) (9,115)
Purchase of premises and equipment (50) (8)
Repayments from real estate ventures, net 5 101
Additions to real estate owned - (18)
Proceeds from sale of real estate owned - 574
Cash in lieu of stock dividend (1) -
Net cash provided by investing activities 6,006 103
Cash flows from financing activities:
Net increase in deposits 833 771
Net decrease in borrowing from Federal Home Loan Bank (2,000) (2,000)
Net cash used in financing activities (1,167) (1,229)
Net increase (decrease) in cash and cash equivalents 4,646 (912)
Cash and cash equivalents at beginning of period 6,371 8,040
--------- --------
Cash and cash equivalents at end of period $ 11,017 $ 7,128
--------- --------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
PALOMAR SAVINGS AND LOAN ASSOCIATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENT
(1) BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts and
transactions of Palomar Savings and Loan Association and its wholly-owned
subsidiary, Palomar Service Corporation (the Association). Intercompany
transactions and balances have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
principally of normal recurring accruals) necessary for a fair presentation have
been included.
The results of operations for the three and nine months ended June 30, 1998 are
not necessarily indicative of results that may be expected for the entire fiscal
year ending September 30, 1998.
(2) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board (FASB) issued Statement
of Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities" ("Statement 125").
Statement 125 was effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996 and was to be
applied prospectively. This statement provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities based on consistent application of a financial-components approach
that focuses on control. It distinguishes transfers of financial assets that
are sales from transfers that are secured borrowings. The adoption of Statement
125 did not have a material impact on the Association's financial position,
results of operations or liquidity.
In December 1996, the FASB issued Statement of Financial Accounting Standards
No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement
No. 125" ("Statement 127"). Statement 127 defers for one year the effective
date of certain provisions of Statement 125. Management of the Association does
not expect the adoption of Statement 127 to have a material impact on the
Association's financial position, results of operations or liquidity,
<PAGE>
In June 1997, the FASB issued Statement of Financial Accounting Standards No,
130, "Reporting Comprehensive Income" ("Statement 130"), which establishes
standards for reporting and display of comprehensive income and its components
in a full set of financial statements. Statement 130 requires the display of
comprehensive income and its components in a financial statement that is
displayed in equal prominence with other financial statements that constitute a
full set of financial statements. The Statement does not require, however, a
specific format for the financial statement but requires the display of net
income as a component of comprehensive income in that financial statement.
Enterprises may elect to display comprehensive income and its components in one
or two statements of financial performance or in a statement of changes in
equity. If an enterprise chooses to display comprehensive income in a statement
of changes in equity, that statement must be presented as part of a full set of
financial statements and not in the notes to the financial statements.
Statement 130 is effective for interim and annual periods beginning after
December 15, 1997. Earlier application is permitted. Comparative financial
statements provided for earlier periods are required to be reclassified to
reflect application of the provisions of the Statement. Management of the
Association does not anticipate that the adoption of Statement 130 will have a
material impact on the Association's financial position, results of operations
or liquidity.
(3) STOCK DIVIDEND
On October 27, 1997, the board of Directors of the Association approved a 5%
stock dividend on issued and outstanding shares. The dividend was issued on
February 18, 1998 to the stockholders of record at the close of business on
February 2, 1998.
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and
entered into as of April 23, 1998, by and among Community West Bancshares, a
California corporation ("Community West"), 5827 Hollister Avenue, Goleta,
California 93117, and Palomar Savings & Loan Association, a California savings
and loan association ("Palomar"), 355 Grand Avenue, Escondido, California 92025,
pursuant to which Palomar will become a separate wholly-owned subsidiary of
Community West, with reference to the following:
99
<PAGE>
R E C I T A L S
- - - - - - - -
WHEREAS, Palomar is a California savings and loan association with its
principal office in the City of Escondido, County of San Diego, State of
California, and Community West is a California corporation with its principal
office in the unincorporated area of Santa Barbara County known as Goleta,
County of Santa Barbara, State of California;
WHEREAS, Palomar and Community West desire to enter into this Agreement
which contemplates the acquisition of Palomar by Community West, pursuant to
which Palomar will become a separate, wholly-owned subsidiary of Community West;
WHEREAS, this Agreement provides for the completion of the acquisition of
Palomar by Community West through the merger (the "Merger") of Palomar with an
interim California corporation which shall be a wholly-owned subsidiary of
Community West ("CWB Merger Corp") under the applicable laws of the State of
California and in accordance with the Merger Agreement (the "Merger Agreement")
to be entered into by and between CWB Merger Corp and Palomar substantially in
the form of Exhibit "A" hereto;
------------
WHEREAS, to consummate the Merger the parties hereto will have to take
various steps and actions (collectively, with the Merger, the "Transactions");
and
WHEREAS, the Boards of Directors of Community West and Palomar have
determined that this Agreement and the Transactions are in the best interests of
their respective shareholders and have approved this Agreement and authorized
its execution;
100
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained herein, and intending to be legally
bound, the parties hereto agree as follows:
A G R E E M E N T
- - - - - - - - -
ARTICLE I
THE MERGER AND RELATED TRANSACTIONS
-----------------------------------
1.1 CREATION OF CWB MERGER CORP. As soon as practicable Community
-------------------------------
West shall organize CWB Merger Corp pursuant to the General Corporations Law of
California (the "GCC") as a new California corporation wholly-owned by Community
West to facilitate the transactions contemplated by this Agreement.
1.2 MERGER. At the Effective Time of the Merger (as that term is
------
defined in Section 2.2 hereof), pursuant to the terms of this Agreement and the
Merger Agreement, the following transactions will be deemed to have occurred
simultaneously:
(a) MERGER OF CWB MERGER CORP AND PALOMAR. CWB Merger Corp will be
-----------------------------------------
merged with and into Palomar, and the separate corporate existence of CWB Merger
Corp shall cease. Palomar as the association surviving the Merger is sometimes
referred to herein as the "Surviving Association."
(b) EFFECT ON CWB MERGER CORP SHARES. Each share of the common stock,
--------------------------------
no par value, of CWB Merger Corp (the "CWB Merger Corp Stock") issued and
outstanding immediately prior to the Effective Time of the Merger, on and after
the Effective Time of the Merger, pursuant to the Merger Agreement and without
any further action on the part of Community West or CWB Merger Corp, shall be
converted into one share of common stock of the Surviving Association (the
"Surviving Association Stock"). Each outstanding stock certificate which prior
to the Effective Time of the Merger represented shares of CWB Merger Corp Stock
automatically and for all purposes shall be deemed to represent the number of
shares of Surviving Association Stock into which the shares of CWB Merger Corp
Stock represented by such certificate have been converted as provided in this
Subsection 1.2(b); provided, however, at the request of Community West, the
Surviving Association shall exchange Community West's certificate or
certificates formerly representing shares of CWB Merger Corp Stock for a
certificate or certificates of Surviving Association Stock.
101
<PAGE>
(c) EFFECT ON PALOMAR SHARES. Each share of the common stock, $4.00
--------------------------
par value, of Palomar (the "Palomar Stock") issued and outstanding immediately
prior to the Effective Time of the Merger, except for Dissenting Palomar Shares
(as defined in Section 1.3 hereof), on and after the Effective Time of the
Merger, pursuant to the Merger Agreement and without any further action on the
part of Palomar or the holders of Palomar Stock, automatically shall be canceled
and cease to be an issued and outstanding share of Palomar Stock and shall be
converted into the right to receive that number of newly issued shares of common
stock, no par value, of Community West, equal to the whole and fractional number
resulting from dividing the Palomar Per Share Value by the Community West Per
Share Value, plus cash in lieu of fractional interests as specified in Section
1.5 of the Agreement. For purposes of this Agreement, the term Community West
Per Share Value shall mean the average of the "bid" and "ask" of Community West
Stock as quoted in the NASDAQ National Market System for the thirty (30) trading
days immediately preceding the Closing (as that term is defined in Section 2.1
hereof). For purposes of this Agreement, the term Palomar Per Share Value shall
mean the product of the following equation: [2.2] x [a b] where "a" is the
Palomar Total Shareholders Equity as of the last day of the calendar month
immediately preceding the Closing as determined in accordance with generally
accepted accounting principals as in effect in the United States, consistently
applied (without giving effect to the payment of any finders'fee occurring after
the Closing), and where "b" is the number of shares of Palomar Stock outstanding
immediately prior to the Closing. Certificates formerly evidencing shares of
Palomar Stock shall be surrendered for exchange to the Transfer Agent (as
defined in Section 1.6 hereof) in accordance with Section 1.6.
(d) EFFECT ON COMMUNITY WEST SHARES. Each share of Community West
-----------------------------------
Stock issued and outstanding immediately prior to the Effective Time of the
Merger, except for Dissenting Community West Shares (as defined in Section 1.4
hereof), shall, on and after the Effective Time of the Merger, remain issued and
outstanding and shall automatically and for all purposes be deemed to represent
one share of common stock of Community West.
(e) ALTERNATIVE METHOD. Anything herein to the contrary
-------------------
notwithstanding, Community West may at any time prior to the Effective Time of
the Merger change the method of effecting the acquisition of Palomar (including,
without limitation, the provisions of this Article I) if and to the extent it
deems such change to be necessary, appropriate or desirable; provided, however,
that no such change shall (i) alter or change the amount or kind of
consideration to be issued to holders of Palomar Stock as provided for in this
Agreement, (ii) cause the transaction to be treated as anything other than a
tax-free reorganization to the shareholders of Palomar Stock, or (iii)
materially impede or delay consummation of the transactions contemplated by this
Agreement.
1.3 DISSENTING SHARES OF PALOMAR STOCK. Each outstanding share of
--------------------------------------
Palomar Stock whose holder has lawfully dissented from the Merger in accordance
with the applicable statutes of the State of California, and who shall have
timely demanded payment of the value of such shareholder's Palomar Stock and
submitted such shares for endorsement as provided in Section 1300(b) of the CGC
("Dissenting Palomar Shares"), shall thereafter have only such rights as are
provided a dissenting shareholder in accordance with said statutes and shall
have no other rights under this Agreement or as shareholders of Palomar.
102
<PAGE>
1.4 DISSENTING SHARES OF COMMUNITY WEST STOCK. Any shareholder of
---------------------------------------------
Community West who shall have lawfully dissented from the Transactions in
accordance with the applicable statutes of the State of California, and who
shall have timely demanded payment of the value of such shareholder's Community
West Stock and submitted such shares for endorsement as provided in Section
1300(b) of the CGC ("Dissenting Community West Shares"), shall thereafter have
only such rights as are provided a dissenting shareholder in accordance with
said statutes and shall have no other rights under this Agreement or as
shareholders of Community West.
1.5 FRACTIONAL SHARES. No fractional shares of Community West Stock
------------------
shall be issued in the Merger. In lieu thereof, each holder of Palomar Stock
who would otherwise be entitled to receive fractional shares of Community West
Stock shall receive an amount in cash equal to the fair market value of one
share of Community West Stock at the close of business on the date seven days
preceding the Closing Date (as determined in Section 2.1), multiplied by the
fraction of a share of Community West Stock to which such holder would otherwise
be entitled.
1.6 DELIVERY OF CERTIFICATES AND CASH.
-------------------------------------
(a) TRANSFER AGENT. Prior to the Effective Time of the Merger,
---------------
Community West shall deliver or cause to be delivered to U.S. Stock Transfer
Corporation, its transfer agent (the "Transfer Agent"), an amount of cash equal
to the anticipated aggregate amount of fractional interests to be paid pursuant
to Section 1.5 hereof, and sufficient certificates of its common stock for
issuance to Palomar's shareholders. Delivery to the holders of Palomar Stock of
the certificates for Community West Stock and cash to which they are entitled
will subsequently be made by the Transfer Agent against delivery of share
certificates formerly evidencing Palomar Stock (duly executed and in proper form
for transfer) to the Transfer Agent in accordance with this Section 1.6 and the
terms and conditions of an agreement to be entered into by and between Community
West and the Transfer Agent (the "Transfer Agent Agreement"). A copy of the
Transfer Agent Agreement will be provided to Palomar and its counsel for
approval prior to consummation of the Merger, which approval shall not be
unreasonably withheld.
(b) EXCHANGE PROCEDURES. As soon as practicable after the Effective
--------------------
Time of the Merger, the Transfer Agent will send a notice and transmittal form
to each holder of a certificate previously representing shares of Palomar Stock
advising such holders of the applicable terms of the conversion effected by the
Merger and the procedure for surrendering to the Transfer Agent such certificate
for conversion. Each holder of such certificates, upon surrender of the same to
the Transfer Agent in accordance with such transmittal form, shall be entitled
to receive the consideration provided for in Subsection 1.2(c) hereof, with the
exception of holders of Dissenting Palomar Shares. If the consideration for
shares of Palomar Stock provided for in Subsection 1.2(c) is to be delivered to
any person other than the registered holder of said shares surrendered for
exchange, the amount of any stock transfer tax or similar taxes (whether imposed
on the registered holder or such person) payable on account of the transfer to
such person shall be paid to the Transfer Agent by such person, or the Transfer
Agent may refuse to make such exchange unless satisfactory evidence of the
payment of such taxes or exemption therefrom is submitted. The certificates so
surrendered shall forthwith be canceled. No interest will be paid or accrued on
any amount payable upon due surrender of the certificates.
103
<PAGE>
(c) TRANSFERS. After the Effective Time of the Merger, there shall be
---------
no transfers on the stock transfer books of Palomar of the Palomar Stock that
was outstanding immediately prior to the Effective Time of the Merger.
(d) TERMINATION OF EXCHANGE FUND. Any portion of the cash delivered
------------------------------
to the Transfer Agent (including the proceeds of any investments thereof) that
remains unclaimed by the holders of Palomar Stock for six months after the
Effective Time of the Merger shall be returned to Community West. Any holders
of Palomar Stock who have not theretofore complied with this Section 1.6 shall
thereafter look only to Community West for exchange of their Palomar Stock upon
due surrender of their certificates (or affidavits of loss in lieu thereof),
without any interest thereon. Notwithstanding the foregoing, none of Community
West, Palomar, the Transfer Agent or any other person shall be liable to any
former holder of Palomar Stock for any amount properly delivered to a public
official pursuant to applicable abandoned property, escheat or similar laws.
(e) LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
------------------------------------------
certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the person claiming such certificate to be lost,
stolen or destroyed and, if required by Community West, the posting by such
person of a bond in customary amount as indemnity against any claim that may be
made against it with respect to such certificate, the Transfer Agent shall
exchange such lost, stolen or destroyed certificate, upon due surrender thereof,
in accordance with the provisions of this Section 1.6.
1.7 EFFECT OF THE MERGER. By virtue of the Merger and at the
-----------------------
Effective Time of the Merger, all of the rights, privileges, powers and
franchises and all property and assets of every kind and description of CWB
Merger Corp and Palomar shall be vested in and be held and enjoyed by the
Surviving Association, without further act or deed, and all the estates and
interests of every kind of CWB Merger Corp and Palomar, including all debts due
to either of them, shall be as effectively the property of the Surviving
Association as they were CWB Merger Corp and Palomar, and the title to any real
estate vested by deed or otherwise in either CWB Merger Corp or Palomar shall
not revert or be in any way impaired by reason of the Merger; and all rights of
creditors and liens upon any property of CWB Merger Corp and Palomar shall be
preserved unimpaired, and all debts, liabilities and duties of CWB Merger Corp
and Palomar shall be debts, liabilities and duties of the Surviving Association
and may be enforced against it to the same extent as if such debts, liabilities
and duties had been incurred or contracted by it, and none of such debts,
liabilities or duties shall be expanded, increased, broadened or enlarged by
reason of the Merger.
104
<PAGE>
1.8 NAME OF SURVIVING ASSOCIATION. The name of the Surviving
--------------------------------
Association shall be "Palomar Savings & Loan Association."
1.9 ARTICLES OF INCORPORATION AND BYLAWS OF SURVIVING ASSOCIATION. The
-------------------------------------------------------------
Articles of Incorporation and Bylaws of Palomar as in effect immediately prior
to the Effective Time of the Merger shall be the Articles of Incorporation and
Bylaws of the Surviving Association.
1.10 DIRECTORS AND OFFICERS OF SURVIVING ASSOCIATION. The directors
-------------------------------------------------
of Palomar at the Effective Time of the Merger shall be the directors of the
Surviving Association until their successors have been chosen and qualified in
accordance with the Articles of Incorporation and the Bylaws of the Surviving
Association; provided however, that at the Effective Time of the Merger one
additional person designated by the Board of Directors of Community West in its
sole and absolute discretion shall be appointed to the Board of Directors of
Palomar. The officers of Palomar at the Effective Time of the Merger shall be
the officers of the Surviving Association until they resign or are replaced or
terminated by the Board of Directors of the Surviving Association or otherwise
in accordance with the Surviving Association's Articles of Incorporation or
Bylaws.
1.11 DIRECTORS AND OFFICERS OF COMMUNITY WEST. The directors of
---------------------------------------------
Community West's at the Effective Time of the Merger shall be the directors of
Community West until their successors have been chosen and qualified in
accordance with the Article of Incorporation and Bylaws of Community West;
provided however, that at the Effective Time of the Merger one additional person
designated by the Board of Directors of Palomar in its sole and absolute
discretion shall be appointed to the Board of Directors of Community West.
1.12 SHAREHOLDER AGREEMENTS. Concurrently with the execution of this
-----------------------
Agreement Palomar and Community West shall cause each of their directors and
executive officers to enter into agreements substantially in the form of Exhibit
"B-1" or Exhibit "B-2" hereto, respectively, pursuant to which each shareholder
shall agree to vote or cause to be voted all shares of their Community West
Stock or Palomar Stock with respect to which such shareholder has voting power
on the date hereof or hereafter acquired to approve the Transactions
contemplated hereby and all requisite matters related thereto.
1.13 AFFILIATES' LETTERS. Concurrently with the execution of this
--------------------
Agreement Palomar shall cause each of its "affiliates" for purposes of Rule 145
under the Securities Act of 1933, as amended, to sign an Affiliates Letter
substantially in the form of Exhibit "C" hereto. At the Closing, Palomar shall
-----------
cause any affiliates who had not previously signed an Affiliates Letter to do so
as a condition to the Closing. Each share of Community West Stock issued in
respect of Palomar Stock pursuant to the Merger to such affiliates shall bear
the restrictive legend specified in Exhibit "C".
------------
1.14 COOPERATION; BEST EFFORTS. Each of the parties, consistent with
--------------------------
the fiduciary duties of the directors of each party, will use its best efforts
to consummate the Transactions contemplated by this Agreement and cooperate in
any action necessary or advisable to facilitate such consummation including,
without limitation, making all filings required in order to obtain any necessary
consents or to comply with any law and providing any information required in
connection therewith.
105
<PAGE>
ARTICLE II
THE CLOSING
-----------
2.1 CLOSING DATE. The consummation of the Transactions contemplated
-------------
by this Agreement (the "Closing"), unless another date or place is agreed in
writing by the parties hereto, shall take place at the main office of Community
West, 5827 Hollister Avenue, Goleta, California 93117, within fifteen (15) days
immediately following the end of the calendar month after which all of the
following have occurred: (i) the receipt of all approvals and consents specified
in Article X hereof; (ii) the expiration of the applicable waiting period under
the Bank Holding Company Act; and (iii) the date on which all conditions
specified in Articles VIII, IX and X hereof have been satisfied (the "Closing
Date"); provided, however, that if the parties cannot agree on the Closing Date,
the Closing Date shall be the last business day in such fifteen day period.
2.2 EFFECTIVE TIME OF MERGER. As soon as practicable after the
---------------------------
adoption and approval of this Agreement by the shareholders of Community West
and Palomar and the satisfaction of the conditions precedent to the consummation
of the Merger, the Merger Agreement substantially in the form attached hereto as
Exhibit "A" (as amended, if necessary to conform to any requirements of law or a
- -----------
governmental authority or agency, which requirements are not materially in
contravention of any of the substantive terms hereof) shall be executed by CWB
Merger Corp and Palomar. As soon as practicable thereafter, on such date and at
such time as the Merger Agreement, together with all requisite certificates as
required by applicable California law, bearing an endorsement by the California
Commissioner of Financial Institutions (the "Commissioner") as required by
Section 5758 of the California Financial Code ("CFC") shall be filed with the
California Secretary of State. Prior to the close of business on the Closing
Date, an executed copy of the Merger Agreement with the approval of the
Commissioner endorsed thereon and certified by the California Secretary of State
shall be filed with the Commissioner as provided in Section 5758 of the CFC (the
"Effective Time of the Merger"). Notwithstanding the foregoing, the Merger
Agreement may be completed in accordance with this Agreement and submitted to
the Commissioner and Secretary of State in advance of the Closing; provided,
however, the Closing and the filing of the Merger Agreement with the
Commissioner as provided in Section 5758 of the CFC shall be subject to the
satisfaction of the conditions precedent to the consummation of the Merger, as
specified in Articles VIII, IX and X of this Agreement and the Merger Agreement
and the transactions contemplated herein may be terminated at any time before
the Effective Time of the Merger pursuant to any of the conditions contained
herein as specified in Article XI hereof.
106
<PAGE>
2.3 DOCUMENTS TO BE DELIVERED AT THE CLOSING AND ON THE CLOSING DATE.
------------------------------------------------------------------
The parties shall deliver, or cause to be delivered, the documents called for by
the Closing Schedule attached hereto as Schedule 2.3, along with such other
------------
documents or certificates as may be necessary, in the reasonable opinion of
counsel for each of the parties, to effectuate the transactions called for
hereunder. In the event that counsel for any of the parties believes that
documents necessary for the Closing have not been set forth on the Closing
Schedule, counsel shall advise the other party in writing, no less than five (5)
business days prior to the Closing Date, setting forth a brief description of
the additional documents desired and such documents shall also be provided at
the Closing. If, at any time after the Effective Time of the Merger, the
Surviving Association or their successors or assigns shall determine that any
further conveyance, assignment or other documents or any further action is
necessary or desirable to further effectuate the transactions set forth herein
or contemplated hereby, the officers and directors of the parties hereto shall
execute and deliver, or cause to be executed and delivered, all such documents
as may be reasonably required to effectuate such transactions, whether at the
Closing or thereafter.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PALOMAR
-----------------------------------------
Palomar hereby represents and warrants to Community West as follows:
3.1 ORGANIZATION, STANDING AND POWER. Palomar is a state chartered
-----------------------------------
savings and loan association, duly organized, validly existing and in good
standing under the laws of the State of California, and is authorized by the
Commissioner to conduct a general savings and loan business. Palomar is an
"insured bank" as defined in the Federal Deposit Insurance Act; and Palomar has
all requisite corporate power and authority to own, lease and operate its
properties and assets and to carry on its business as presently conducted.
Neither the scope of the business of Palomar nor the location of any of its
properties requires that it be licensed to do business in any jurisdiction other
than the State of California. Attached hereto as Schedule 3.1 are true and
------------
correct copies of its Articles of Incorporation and Bylaws, as amended to the
date hereof.
3.2 CAPITALIZATION. The authorized capitalization of Palomar consists
--------------
of 1,500,000 shares of common stock, $4.00 par value, of which 648,351 shares
are issued and outstanding as of the date of this Agreement. As of March 31,
1998, the Palomar Stock was held of record by approximately ___ shareholders and
the Palomar Stock was not registered under the Securities Exchange Act of 1934.
All of the outstanding shares of the Palomar Stock are validly issued, fully
paid and nonassessable. There are presently, and on the Closing Date there will
be, no outstanding options, warrants or other rights in or with respect to the
unissued shares of the Palomar Stock or any securities convertible into such
Palomar Stock, and Palomar is not obligated to issue any additional shares of
its Palomar Stock or any other security convertible into its Palomar Stock.
107
<PAGE>
3.3 SUBSIDIARIES. Except as set forth on Schedule 3.3 hereof, Palomar
------------
does not own, directly or indirectly (except as pledgee pursuant to loans which
are not in default or for shares held by Palomar as the result of any
foreclosure by Palomar on any loan, which shares do not exceed 4.9% of the
outstanding common stock of any such company), any outstanding stock or other
voting interests in any corporation, partnership, joint venture or other entity.
The entity or entities set forth on Schedule 3.3 shall hereinafter be referred
to as the "Service Corporation." Service Corporation is duly organized validly
existing and in good standing under the laws of the State of California, and has
all requisite corporate power and authority to own, lease and operate its
properties and assets and carry on its business as presently conducted.
Attached hereto as part of Schedule 3.3 are true and correct copies of Service
Corporation's Articles of Incorporation and Bylaws, as amended to the date
hereof. The Service Corporation's authorized capitalization, issued and
outstanding securities, and the ownership thereof as of the date of this
Agreement are also set forth on Schedule 3.3. Service Corporation is not
obligated to issue any additional shares of voting stock or any other security
convertible into its voting stock. The shares of Service Corporation held by
Palomar are free and clear of all security interests, encumbrances,
restrictions, claims or other defects in title.
3.4 AUTHORITY. The execution and delivery by Palomar of this Agreement
---------
and the Merger Agreement and the consummation of the Transactions contemplated
hereby, have been duly and validly authorized by all necessary corporate action
on the part of Palomar. The Agreement is, and the Merger Agreement will be,
binding and enforceable obligations of Palomar, except as enforceability thereof
may be limited by bankruptcy, insolvency, moratorium or similar laws affecting
the rights of creditors generally or national banking associations and by
general equitable principles. Neither the execution and delivery by Palomar of
this Agreement or the Merger Agreement, nor the consummation of the Transactions
contemplated herein, nor compliance by Palomar with any of the provisions hereof
or thereof will: (a) conflict with, or result in a breach of, any provision of
its Articles of Incorporation or Bylaws; or (b) except as set forth in Schedule
--------
3.4, to the best of Palomar's knowledge constitute a breach of, or result in
- ---
default, or give rise to any rights of termination, cancellation or
acceleration, or give rise to any right by any other person or entity to acquire
any security interest in any assets under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, franchise, license, permit,
agreement or other instrument or obligation to which Palomar or any of its
properties or assets are subject. No consent or approval of, notice to or
filing with any governmental authority having jurisdiction over any aspect of
the business or assets of Palomar, and no consent or approval of or notice to
any other person or entity, is required in connection with the execution and
delivery by Palomar of this Agreement or the Merger Agreement or the
consummation by Palomar of the Transactions contemplated hereby or thereby,
except: (a) approval of this Agreement and the Merger Agreement by the
shareholders of Palomar and CWB Merger Corp; (b) such approvals of this
Agreement, the Merger Agreement, and the Transactions contemplated herein as may
be required by the California Commissioner of Financial Institutions (the
"Commissioner"), the Federal Deposit Insurance Corporation (the "FDIC") and/or
the Board of Governors of the Federal Reserve System (the "FRB") as may be
required under the Bank Holding Company Act of 1956, as amended; and (c) as set
forth on Schedule 3.4.
--------------
3.5 BRANCHES. Except for its main office located at 355 West Grand
--------
Avenue, Escondido, California 92025, and except for its branch offices and loan
production offices located as set forth on Schedule 3.5, Palomar does not
------------
operate or conduct business out of any other location and has not applied for or
received permission to open any other branch or to operate out of any other
location.
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<PAGE>
3.6 FINANCIAL STATEMENTS. Except as disclosed in the notes relating
---------------------
thereto, or otherwise on Schedule 3.6, the audited financial statements of
-------------
Palomar as of and for the periods ended September 30, 1996 and 1997,
respectively, as well as the unaudited financial statements of Palomar as of and
for the periods ended December 31, 1996 and 1997, attached hereto as Schedule
--------
3.6 (all of these statements are collectively referred to herein as the "Palomar
- ---
Financial Statements"), fairly and accurately present the financial condition of
Palomar as of the dates thereof and the results of operations and its cash flows
for the periods therein set forth and have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved. Such Palomar Financial Statements are based on the books and
records of Palomar, and contain and reflect reserves for all material accrued
liabilities and any reasonably anticipated losses.
3.7 UNDISCLOSED LIABILITIES. To the best of Palomar's knowledge
------------------------
Palomar and Service Corporation do not have any liabilities or obligations,
either accrued or contingent, which are material to Palomar taken as a whole and
which have not been: (a) reflected or disclosed in the Palomar Financial
Statements; or (b) disclosed in Schedule 3.7. Palomar does not know of any
-------------
basis for the assertion against it or Service Corporation of any liability,
obligation or claim (including, without limitation, that of any regulatory
authority) that might result in or cause any material adverse change in the
business or financial condition of Palomar when taken as a whole, which is not
fairly reflected in the Palomar Financial Statements or otherwise disclosed in
Schedule 3.7 hereto.
- -------------
3.8 TITLE TO ASSETS. Except as set forth in Schedule 3.8, Palomar and
----------------
Service Corporation have good, valid and marketable title to all material
properties and assets, other than real property and securities pledged to secure
public deposits or retail repurchase agreements, owned or stated to be owned by
Palomar or Service Corporation and reflected on the Palomar Financial
Statements, or acquired after December 31, 1997 (except properties sold or
otherwise transferred in the ordinary course of business since December 31,
1997), free and clear of all mortgages, liens, encumbrances, pledges or charges
of any kind or nature (except for liens for current taxes not yet due and
payable and except as disclosed in the Palomar Financial Statements or in
Schedule 3.8 hereto).
- -------------
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<PAGE>
3.9 REAL ESTATE. Schedule 3.9 hereto contains a list of all real
------------ -------------
property, including leaseholds and "other real estate owned," owned by Palomar
and copies of all leases to which Palomar is a party. Schedule 3.9 contains,
------------
among other things, an accurate summary of all material commitments which
Palomar has to improve real estate owned or leased by it. Palomar has good and
marketable title to all the real property, and valid leasehold interests in the
leaseholds, described in Schedule 3.9, free and clear of all mortgages,
-------------
covenants, conditions, restrictions, easements, liens, security interests,
charges, claims and encumbrances, except for: (a) rights of lessors, co-lessees
or sublessees in such matters which are reflected in the leases; (b) current
taxes not yet due and payable; (c) as described in any title policies (included
in Schedule 3.9); (d) such imperfections of title and encumbrances, if any, as
-------------
do not materially detract from the value of or materially interfere with the
present use of such property; or (e) except as described in Schedule 3.9 hereto.
------------
Copies of title policies for properties described in Schedule 3.9 as owned by
------------
Palomar have been delivered or made available to Community West. The activities
of Palomar with respect to its real property owned and their leaseholds for use
in connection with their operations are in all material respects permitted and
authorized by applicable zoning laws, ordinances and regulations and all laws
and regulations of any governmental department or agency relative to
environmental matters affecting such property, except as otherwise disclosed in
Schedule 3.9. Palomar enjoys quiet and peaceful possession of all such
- -------------
property. To the best knowledge of Palomar, all tangible properties of Palomar
that are material to the business, financial condition or results of operations
of Palomar are in a good state of maintenance and repair, except for ordinary
wear and tear, and are adequate for the conduct of the business of Palomar as
presently conducted. Except as set forth in Schedule 3.9: (i) the execution of
------------
this Agreement, the performance of the obligations of Palomar hereunder and the
consummation of the Transactions contemplated herein do not conflict with and
will not result in a breach or default under any lease, agreement or contract
described in Schedule 3.9, or give any other party thereto a right to terminate
------------
or modify any term thereof; (ii) each lease and agreement under which Palomar is
a lessee or holds or operates any property (real, personal or mixed) owned by
any third party is in full force and effect and is a valid and legally binding
obligation of Palomar; (iii) Palomar and, each other party to any such lease or
agreement have performed in all material respects all the obligations required
to be performed by them to date under such lease or agreement and are not in
default in any material respect under any such lease or agreement and there is
no pending or threatened proceeding, or proceeding which Palomar has reason to
believe may be threatened, that would interfere with the quiet enjoyment of such
leasehold or such material property by Palomar; (iv) no underground storage
tanks or surface impoundments are on or in the real property; and (v) no
asbestos is contained or located on any of the real property. To the best
knowledge of Palomar, none of such leases or agreements contain any unusual
provision which now or in the future may cause a material adverse change in the
business condition of Palomar.
3.10 ENVIRONMENTAL LIABILITIES.
--------------------------
(a) COMPLIANCE. Except as set forth on Schedule 3.10, Palomar and
---------- -------------
Service Corporation are conducting and have conducted their business, and have
used and are using their properties, whether currently owned, operated or
leased, or owned, operated or leased by Palomar or Service Corporation at any
time in the past, and to Palomar's and Service Corporation's knowledge, all
properties in which Palomar or Service Corporation has a security interest have
been used and are being used, in compliance with all applicable Environmental
Laws (as that term is defined below).
For purposes of this Agreement, "Environmental Law" shall mean any federal,
state, county, or local statute, law, ordinance, rule, regulation, order,
consent, decree, judicial or administrative decision or directive of the United
States or other jurisdiction whether now existing or as hereinafter promulgated,
issued or enacted prior to the Closing relating to: (i) pollution or protection
of the environment, including natural resources; (ii) exposure of persons,
including employees, to Hazardous Substances (as that term is defined below) or
other products, materials or chemicals; (iii) protection of the public health or
welfare from the effects of products, by-products, wastes, emissions, discharges
or releases of chemicals or other substances from industrial or commercial
activities; or (iv) regulation of the manufacture, use or introduction into
commerce of substances from industrial or commercial activities; or (iv)
regulation of the manufacture, use or introduction into commerce of substances,
including, without limitation, their manufacture, formulation, packaging,
labeling, distribution, transportation, handling, storage and disposal. For the
purposes of this definition, the term "Environmental Law" shall include, without
limiting the foregoing, the following statutes, as amended from time to time:
(1) the Clean Air Act, as amended, 42 U.S.C. 7401 et seq.; (2) the Federal
-- ----
Water Pollution Control Act, as amended, 33 U.S.C. 1251 et seq.; (3) the
-- ----
Resource Conservation and Recovery Act of 1976, as amended, 42 U.S.C. 6901 et
--
seq.; (4) the Comprehensive Environmental Response, Compensation and Liability
---
Act of 1980, as amended (including the Superfund Amendments and Reauthorization
Act of 1986), 42 U.S.C. 2601 et seq.; (5) the Toxic Substances Control Act, as
-- ----
amended, 15 U.S.C. 2601 et seq.; (6) the Occupational Safety and Health Act,
-- ----
as amended, 29 U.S.C. 651; (7) the Emergency Planning and Community
Right-To-Know Act of 1986, 42 U.S.C. 1101 et seq.; (8) the Mine Safety and
-- ----
Health Act of 1977, as amended, 30 U.S.C. 801 et seq.; (9) the Safe Drinking
-- ----
Water Act, 42 U.S.C. 300f et seq.; and (10) all comparable state and local
-- ----
laws, laws of other applicable jurisdictions or orders and regulations
including, but not limited to, the Carpenter-Presley-Tanner Hazardous Substance
Account Act, California. Health & Safety Code 25300 et seq.
-- ----
110
<PAGE>
(b) NO INVESTIGATIONS. Neither Palomar nor Service Corporation
------------------
nor any property currently owned, operated or leased by Palomar or Service
Corporation or which has been in the past owned, operated or leased by Palomar
or Service Corporation, and to Palomar's and Service Corporation's knowledge,
all properties in which Palomar or Service Corporation has a security interest
are subject to any existing, pending or threatened investigation, action or
proceeding, including any notice of violation, by any governmental authority
regarding contamination of any part of the property or infractions of any law,
statute, ordinance or regulation or any license or permit issued by any
government agency pertaining to health, industrial hygiene or environmental
safety or environmental conditions on, under or about the property, except for
such investigations, actions, proceedings, notifications, or infractions which,
in the aggregate, have not had and could not have a Material Adverse Effect on
Palomar.
(c) HAZARDOUS SUBSTANCES. Except as set forth on Schedule 3.10,
--------------------- -------------
there are no Hazardous Substances (as that term is defined below) presently
located on, under or about any property which is currently owned, operated or
leased by Palomar or Service Corporation, or has been owned, operated or leased
by Palomar or Service Corporation, and to Palomar's and Service Corporation's
knowledge in which Palomar or Service Corporation has a security interest.
There has not been any generation, use, handling, transportation, treatment or
disposal of any Hazardous Substances in connection with the conduct of the
business of Palomar or Service Corporation that has or might result in any
material liability under any Environmental Law.
For purposes of this Agreement, the term "Hazardous Substances" shall mean:
(i) substances that are defined or listed in, or otherwise classified pursuant
to, or the use or disposal of which are regulated by, any Environmental Law as
"hazardous substances," "toxic substances," or any other formulation intended to
define, list or classify substances by reason of deleterious properties such as
ignitability, corrosivity, reactivity, carcinogenicity, reproductive toxicity,
or "EP toxicity"; (ii) oil or petroleum derived from substances and drilling
fluids, produced waters, and other wastes associated with the exploration,
development, or production of crude oil, natural gas, or geothermal resources;
(iii) any flammable substances or explosives, any radioactive materials, any
hazardous wastes or substances, any toxic wastes or substances or any other
materials or pollutants which pose a hazard to any property or to individuals or
entities on or about such property; and (iv) asbestos in any form or electrical
equipment which contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of 50 parts per million.
111
<PAGE>
3.11 LOANS AND INVESTMENTS. Except as disclosed in Schedule 3.11
----------------------- -------------
hereto: (a) all the loans and investments of Palomar and Service Corporation are
legal, valid and permitted under federal and state laws and regulations
applicable at the time of their origination or assumption; and (b) Palomar or
Service Corporation is not subject to any liability or claim for violation of
any state or federal law or regulation concerning extensions of credit,
including, without limitation, those relating to discriminatory lending
practices and truth-in-lending. Except for investments that have matured or
been sold, Schedule 3.11 sets forth all of the investments reflected in the
--------------
balance sheets of Palomar dated December 31, 1997. Except as set forth in
Schedule 3.11, none of such investments is subject to any restriction,
- --------------
contractual, statutory or other, that would materially impair the ability of
Palomar to dispose freely of any such investment at any time, except
restrictions on the public distribution or transfer of such investments under
the Securities Act of 1933, as amended, or state securities laws. Except as set
forth in Schedule 3.11, as of December 31, 1997, Palomar had no holdings of
--------------
positions in forwards, futures, options, swaps, interest rate caps, collars and
floors, or any other similar instruments ("Derivative Instruments"). Except as
set forth in Schedule 3.11, since January 1, 1996 Palomar has not engaged in any
-------------
transactions in or involving Derivative Instruments except as agent on the order
and for the account of others. Schedule 3.11 sets forth for each Derivative
-------------
Instrument held by Palomar since January 1, 1996, the present book value and
market value, if applicable, the open exposure of Palomar, if any, and whether
any counterparties to any contract or agreement with respect to any such
instrument is in default with respect to such contract or agreement.
3.12 DEPOSITS. Schedule 3.12 sets forth a list of deposit accounts
-------- --------------
outstanding at Palomar with an outstanding balance as of December 31, 1997, of
$100,000.00 or more.
3.13 LITIGATION AND GOVERNMENTAL PROCEEDINGS. Except as otherwise
------------------------------------------
expressly disclosed in Schedule 3.13, Palomar and Service Corporation are not
-------------
engaged in, or to the best of their knowledge threatened with, any legal action
or other proceeding before any court or administrative agency which might be
material to their business or in which the amount claimed against them is
$100,000 or more; except as set forth in Schedule 3.13, to the best of Palomar's
-------------
knowledge, Palomar and Service Corporation are not in default of any of their
duties or obligations under, or with respect to, any judgment, order, writ,
injunction, decree, rule or regulation of any court or governmental department,
commission, board, bureau, agency or other instrumentality having jurisdiction
over Palomar or Service Corporation or their business; except as disclosed in
Schedule 3.13, Palomar and Service Corporation have not been served with notice
- --------------
of, or, to the best of Palomar's knowledge, are not under investigation with
respect to, any possible violation of any provision of federal, state or local
laws or administrative regulations; and except as set forth in Schedule 3.13,
-------------
Palomar and Service Corporation are not subject to any order, letter agreement
or written direction of any governmental agency with respect to their financial
or operating ratios, or with respect to any other standards or tests imposed by
state and federal laws and regulations, including, without limitation, those
relating to net worth, liquidity and the maintenance of reserves, nor has any
such order, letter agreement or written direction been proposed to Palomar or
Service Corporation. Schedule 3.13 contains a list identifying any claims
--------------
pending on behalf of Palomar or Service Corporation against any governmental
agencies, or any third parties for reimbursement for loan defaults, indicating
the date of the claim, the name of the borrower, and the amount of the claim.
111
<PAGE>
3.14 CONTRACTS AND AGREEMENTS. Except as provided by this Agreement
--------------------------
and except as forth in Schedule 3.14, Palomar and Service Corporation are not
-------------
parties to any contract, agreement, commitment or offer which may become a
binding obligation if accepted by another person or entity, whether written or
oral (collectively referred to herein as an "Understanding") which individually,
or with all other similar Understandings relating to the same or similar subject
matter, falls within any of the following classifications:
(a) Any loan commitment, agreement, pledge, conditional sale contract,
security agreement, lease (excluding leases of real property listed in Schedule
--------
3.9), guarantee, subordination agreement or other similar or related type of
- ---
Understanding (but not including any deposit agreements as to which Palomar or
Service Corporation is the debtor), involving the expenditure of $25,000 or more
as to which Palomar or Service Corporation is a debtor, pledgor, lessee or
obligor other than borrowings from the Federal Home Loan Bank of San Francisco;
(b) Except as otherwise contemplated by this Agreement, any
Understanding for the employment of any officer or employee which is not
terminable by Palomar or Service Corporation without liability on not more than
thirty (30) days' notice;
(c) Any Understanding with any labor organization;
(d) Any Understanding which obligates Palomar or Service Corporation
for a period in excess of one year to purchase, sell or provide services,
materials, supplies, merchandise, facilities or equipment;
(e) Any Understanding for the sale of any of Palomar's or Service
Corporation's assets in excess of $25,000 in amount, or for the grant of any
preferential right to purchase any of its assets, properties or rights in excess
of $25,000 in amount, or which requires the consent of any third party to the
transfer and assignment of any of its assets, properties or rights in excess of
$25,000 in amount, other than in the ordinary course of business;
(f) Any Understanding for the borrowing of any money by Palomar or
Service Corporation or for a line of credit to Palomar or Service Corporation;
113
<PAGE>
(g) Any Understanding for any one capital expenditure or series of
related capital expenditures in excess of $25,000;
(h) Any Understanding to make, renew or extend the term of a loan to
any affiliate (as that term is defined for purposes of Rule 144 under the
Securities Act of 1933) or group of persons related to any affiliate, which,
in-cluding any undisbursed or unfunded amount, when aggregated with all
outstanding indebtedness of such affiliate or group of related persons to
Palomar, would exceed $25,000;
(i) Any Understanding of any kind (other than contracts relating to
demand, savings or time deposits) with any director or officer of Palomar or
with any affiliate or member of the immediate family (defined to include a
person's spouse, parents, in laws, descendants or siblings) of any such
director, officer or affiliate;
(j) Any Understanding for the sale of loans with recourse; or
(k) Any Understanding not otherwise disclosed pursuant to this Section
3.14 which is material to the financial condition, results of operations, assets
or business of Palomar taken as a whole.
3.15 PERFORMANCE OF OBLIGATIONS. Palomar and Service Corporation have
---------------------------
performed in all respects all of the obligations required to be performed by it
to date and, to the best of Palomar's knowledge, Palomar and Service Corporation
are not in default in any respect under any agreement, contract or lease to
which it is a party or subject or is otherwise bound and which are material to
the financial condition of Palomar taken as a whole; no party with whom Palomar
or Service Corporation has an agreement which is of material importance to the
business of Palomar is, to the knowledge of Palomar, in material default
thereunder, except as has been disclosed in Schedule 3.15. With respect to loan
--------------
delinquencies, Schedule 3.15 contains the monthly loan delinquency report dated
-------------
on or about March 31, 1998, in the form customarily prepared for and delivered
to the Board of Directors of Palomar.
3.16 INSURANCE. Except as set forth in Schedule 3.16, Palomar and
--------- -------------
Service Corporation have in full force and effect policies of insurance,
including, without limitation, a banker's blanket bond, with respect to their
assets and business and against such casualties and contingencies and of such
amounts, types and forms as are appropriate for their business, operations,
properties and assets and as are usual and customary in the banking industry.
Set forth in Schedule 3.16 hereto is a schedule of all policies of insurance
--------------
(other than title insurance) carried and owned by Palomar or Service
Corporation; showing the name of the insurance company, the nature of the
coverage, the policy limit, the annual premiums and the expiration dates. There
has been delivered to or made available to Community West a copy of each such
policy of insurance. To the best of Palomar's knowledge, Palomar and Service
Corporation have continually maintained a fidelity bond insuring them against
acts of dishonesty by their employees in such amounts as are disclosed in
Schedule 3.16. To the best of Palomar's knowledge, no claims have been made
- --------------
under such bond. Palomar is not aware of any facts which would form the basis
of a claim under any such bond; nor does Palomar have any reason to believe that
any insurance coverage will not be renewed by the existing carrier on
substantially the same terms as existing coverage.
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<PAGE>
3.17 TAXES. Except as set forth in Schedule 3.17 hereto, Palomar and
----- -------------
Service Corporation have timely filed all federal, state and local tax returns
required to be filed by them or on their behalf. Except as set forth in
Schedule 3.17, all taxes shown by such returns to be due and payable have been
- ---------------
paid or are reflected as a liability on the Palomar Financial Statements. To
the best of Palomar's knowledge, none of the federal, state and local tax
returns of Palomar or Service Corporation have been audited by the Internal
Revenue Service or other governmental authorities having jurisdiction over the
examination of such returns except for the years or periods indicated in
Schedule 3.17. All material deficiencies (including interest and penalties, if
- --------------
any, thereon), if any, imposed as a result of such examinations have been either
paid, or have been accrued as a liability on the Palomar Financial Statements,
or are being contested in good faith and are disclosed in Schedule 3.17. No
--------------
material tax deficiency has been or to the knowledge of Palomar is proposed to
be assessed against Palomar or Service Corporation by any federal, state or
local authority or agency. Palomar and Service Corporation have not agreed to
any extension of time for the assessment of any taxes of whatsoever kind or
nature payable by them, nor has Palomar or Service Corporation waived or been
requested to waive any applicable statute of limitations with relation to the
payment of any federal, state or local taxes. To the best of Palomar's
knowledge, the accruals for taxes reflected on the Palomar Financial Statements
are adequate for all unpaid federal, state or local taxes (including interest
and penalties, if any, thereon) due, or which became due for any period
commencing prior to December 31, 1997.
3.18 ABSENCE OF CERTAIN CHANGES. Except as disclosed on Schedule 3.18
-------------------------- -------------
or as permitted by this Agreement, since December 31, 1997, the business of
Palomar and Service Corporation have been conducted diligently and only in the
ordinary course, in the same manner as heretofore conducted and there has not
been:
(a) Any change in the financial condition of Palomar or Service
Corporation taken as a whole which has had or is likely to have a Material
Adverse Effect on Palomar or Service Corporation;
(b) Any declaration, setting aside, or the payment of any dividend or
other distribution with respect to Palomar's common stock or the issuance of any
additional shares of, or options to purchase, Palomar's common stock or any
other security of Palomar;
(c) Any damage, destruction or loss (whether or not covered by
insurance) which individually or taken as a whole has had or is likely to have a
Material Adverse Effect on the property or business of Palomar;
(d) Any change in accounting methods or practices of Palomar having a
Material Adverse Effect on Palomar;
115
<PAGE>
(e) Any revaluation by Palomar of any of Palomar's assets except as may
be applicable to available-for-sale securities;
(f) Any increase in the salary schedule or compensation rate, or the
declaration, payment or commitment or obligation of any kind for the payment by
Palomar of a bonus or other additional salary or compensation, other than in
accordance with past practice;
(g) Any sale, assignment or transfer of any material assets of Palomar
except in the ordinary course of business;
(h) Any waiver or release of any material right or claim of Palomar,
except in the ordinary course of business; or
(i) Any agreement to take any action specified in Subsections 3.18(a)
through (h) hereof.
3.19 BROKERS' AND FINDERS' FEES. Except as specified in Schedule 3.19,
-------------------------- -------------
neither Palomar nor any of its officers or employees have paid or agreed to pay,
or have done any act which would give rise to the payment of, any fee,
commission or consideration to any agent, broker, finder or other person on
account of services rendered as a broker or finder in connection with this
Agreement or the Transactions, contemplated herein, or which has resulted in, or
may give rise to, any obligation on the part of Palomar or Community West
therefor.
3.20 EMPLOYEES. To the best of Palomar's knowledge there are no
---------
material controversies pending or threatened between Palomar or Service
Corporation and any of their employees. Except as disclosed in the Palomar
Financial Statements, all material sums due for employee compensation and
benefits have been duly and adequately paid or accrued on the books of Palomar.
3.21 REGULATORY REPORTS. Palomar has made available or provided to
-------------------
Community West the following documents:
(a) All independent audit or loan review reports, if any, in respect of
Palomar or Service Corporation issued during the past three years; and
(b) All filings and other correspondence and documents sent or received
by Palomar or Service Corporation to or from any financial institutions
regulatory agency or tax authority (excluding releases, bulletins and similar
documents issued generally by such regulatory agencies), issued during the past
three years.
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<PAGE>
3.22 PALOMAR EMPLOYEE BENEFIT PLANS. Schedule 3.22 hereto contains a
------------------------------- -------------
true and correct copy of Palomar's Personnel Policy and a true and correct list
of all pension, retirement or other employee benefit plans or arrangements
maintained by Palomar or Service Corporation for the benefit of their employees
(except any individual retirement accounts held by Palomar as to which Palomar
acts as custodian), including, without limitation, any pension plan as defined
in Section 3(2) of the Employee Retirement Income Security Act of 1974 ("ERISA")
and any welfare plan as defined in Section 3(1) of ERISA, whether or not funded,
with respect to which Palomar is a fiduciary as defined in Section 3(21) of
ERISA (all of such plans being collectively referred to herein as "Palomar
Employee Plans"). To the best of Palomar's knowledge, Palomar, Service
Corporation and any Palomar Employee Plan have not engaged in any prohibited
transaction with respect to the Palomar Employee Plan which could subject
Palomar to a penalty or tax on prohibited transactions imposed under ERISA, or
Section 4975 of the Internal Revenue Code of 1954, as amended (the "Code"). To
the best of Palomar's knowledge no Palomar or Service Corporation employee has
engaged in any transaction which could subject Palomar to liability if Palomar
is obligated to indemnify such person against liability. To the best of
Palomar's knowledge, each Palomar Employee Plan that is an employee pension
benefit plan (which is not described in Section 4(b) or Section 301(a) of ERISA)
is qualified under Section 401(a) of the Code, and the trust thereunder is
exempt from income tax under Section 501(a) of the Code.
3.23 STOCK OPTION PLAN. Palomar does not have any stock option plans
-------------------
or other options or warrants in effect.
3.24 ABSENCE OF CERTAIN PRACTICES. Except as may be disclosed to
-------------------------------
Community West on Schedule 3.24, to the best of Palomar's knowledge neither
--------------
Palomar and Service Corporation, nor any officer, director, employee or agent of
Palomar or Service Corporation has, directly or indirectly, within the past four
years, given or made or agreed to give or make any illegal commission, payment,
gratuity, gift, political contribution or similar benefit to any customer,
supplier, governmental employee or other person in order to obtain business for
or further the business of Palomar or Service Corporation.
3.25 NO VIOLATION OF LAW. To the best of Palomar's knowledge, Palomar
--------------------
and Service Corporation are in substantial compliance with all material laws
relating to their business or employment practices or the ownership of their
properties, and are in substantial compliance with each material law, ordinance,
order, decree or regulation of any governmental entity applicable to the conduct
thereof or the ownership of the properties related thereto, except in each case
for violations which either individually or in the aggregate do not and will not
have a material adverse effect on the business, financial condition or results
of operations of Palomar taken as a whole. Palomar and Service Corporation have
filed all material reports and documents required to be filed by them with any
governmental authority on or before the date hereof and have in effect all
approvals, authorizations, consents, licenses, clearances and orders of and
registrations with, all governmental and regulatory authorities, which are
necessary to each material portion of the business or operations of Palomar or
Service Corporation as presently conducted.
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<PAGE>
3.26 CERTAIN INTERESTS. To the best of Palomar's knowledge, except in
------------------
arm's-length transactions pursuant to normal commercial terms and conditions:
(a) no officer or director of Palomar or Service Corporation has any material
interest in any property, real or personal, tangible or intangible, used in or
pertaining to the business of Palomar or Service Corporation except for the
normal rights of a shareholder of Palomar; (b) no such person is indebted to
Palomar or Service Corporation except for normal business expense advances or
banking transactions in the ordinary course of business on the same terms,
including interest rates and collateral on loans as those prevailing at the same
time for comparable transactions with others; and (c) Palomar and Service
Corporation are not indebted to any such person except for amounts due under
normal salary or reimbursement of ordinary business expenses. The consummation
of the Transactions contemplated hereby will not (either alone, or upon the
occurrence of any act or event, or with the lapse of time, or both) result in
any payment (severance or other) becoming due from Palomar or Service
Corporation to any employee of Palomar or Service Corporation.
3.27 MINUTE BOOKS. The minute books of Palomar and Service Corporation
-------------
accurately reflect all material actions duly taken by the shareholders, Boards
of Directors and committees of Palomar or Service Corporation as applicable.
3.28 ACCOUNTING RECORDS; DATA PROCESSING. Palomar and Service Corporation
------------------------------------
have records that, in all material respects, fairly reflect its transactions,
and accounting controls sufficient to ensure that such transactions are in all
material respects: (a) executed in accordance with management's general or
specific authorization; and (b) recorded in conformity with generally accepted
accounting principles. Except as set forth in Schedule 3.28, the procedures and
-------------
equipment, including, without limitation, the data processing equipment, data
transmission equipment, and related peripheral equipment and software, used by
Palomar and Service Corporation in the operation of their business (including
any disaster recovery facility) to generate and retrieve such records are
adequate in relation to the size and complexity of the business of Palomar and
Service Corporation and are year 2000 compliant or adequate actions have been
taken by Palomar and Service Corporation to cause Palomar and Service
Corporation to be year 2000 compliant in accordance with the requirements of all
regulatory agencies with authority over Palomar and Service Corporation.
3.29 OPERATING LOSSES. Schedule 3.29 sets forth any Operating Loss (as
----------------- --------------
defined below) that has occurred at Palomar and Service Corporation during the
period after December 31, 1996. To the best of Palomar's knowledge, except as
set forth on Schedule 3.29, since December 31, 1996, no event has occurred, and
-------------
no action has been taken or omitted to be taken by any employee of Palomar or
Service Corporation that has resulted in the occurrence by Palomar or Service
Corporation of an Operating Loss or that might reasonably be expected to result
in the occurrence by Palomar or Service Corporation of an Operating Loss after
December 31, 1996, which, net of any insurance proceeds payable in respect
thereof, exceeds, or would exceed $25,000 by itself or $50,000 when aggregated
with all other Operating Losses during such period. For purposes of this
Agreement, "Operating Loss" means any loss resulting from cash shortages, lost
or misposted items, disputed clerical and accounting errors, forged checks,
payment of checks over stop payment orders, counterfeit money, wire transfers
made in error, theft, robberies, employee dishonesty, defalcations, check
kiting, fraudulent use of credit cards or electronic teller machines, civil
money penalties, fines, litigation, claims, arbitration awards or other similar
acts or occurrences.
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3.30 REGULATORY APPROVAL. To the best of Palomar's knowledge, based
--------------------
upon Palomar's understanding of regulatory requirements, Palomar has no reason
to believe that the parties will not receive all required regulatory approvals,
subject to the disclosures in Schedule 3.28.
3.31 FULL DISCLOSURE AND STANDARD. None of the information contained
------------------------------
in the representations and warranties of Palomar set forth in this Agreement,
and none of the information contained in any of the schedules, lists, documents,
or instruments attached hereto or delivered by Palomar as contemplated by any
provision of this Agreement, contains any untrue statement of a fact or omits to
state a fact necessary to make the statements contained herein or therein not
misleading. No representation or warranty of Palomar contained in Article III
shall be deemed untrue or incorrect, and Palomar shall not be deemed to have
breached a representation or warranty, as a consequence of the existence of any
fact, event or circumstance unless such fact, event or circumstance individually
------
or taken together with all other facts, events or circumstances inconsistent
with any representation or warranty contained in Article III has had or is
reasonably likely to have a Materially Adverse Effect on Palomar. For purposes
of this Agreement the term "Materially Adverse Effect" shall mean with respect
to Community West or Palomar, any effect that (i) is material and adverse to the
financial position, results of operations of Community West and its subsidiaries
taken as a whole or Palomar and its subsidiaries taken as a whole, respectively,
or (ii) would materially impair the ability of either Community or Palomar to
perform its obligations under this Agreement or otherwise materially threaten or
materially impede the consummation of the Merger and the other Transactions
contemplated by this Agreement; provided, however, that Materially Adverse
Effect shall not be deemed to include the impact of (a) changes in banking and
similar laws of generally applicability or interpretations thereof by courts or
governmental authorities, (b) changes in generally accepted accounting
principles or regulatory accounting requirements applicable to banks or savings
and loan associations and their holding companies generally, and (c) any
modifications or changes to valuation policies and practices in connection with
the Merger or restructuring charges taken in connection with the Merger, in each
case in accordance with generally accepted accounting principles
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF COMMUNITY WEST
------------------------------------------------
Community West hereby represents and warrants to Buyers as follows:
4.1 ORGANIZATION, STANDING AND POWER. Community West is a California
----------------------------------
corporation, duly organized, validly existing and in good standing under the
laws of the State of California and Community West has all requisite corporate
power and authority to own, lease and operate its properties and assets and to
carry on its business as presently conducted. Except as set forth on Schedule
4.1(a) hereto, neither the scope of the business of Community West nor the
location of any of its properties requires that it be licensed to do business in
any jurisdiction other than the State of California. Attached hereto as
Schedule 4.1(b) are true and correct copies of its Articles of Incorporation and
- ---------------
Bylaws, as amended to the date hereof.
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<PAGE>
4.2 CAPITALIZATION. The authorized capitalization of Community West
--------------
consists of 20,000,000 shares of Common Stock, no par value, of which 3,143,916
shares are issued and outstanding as of the date of this Agreement. As of March
31, 1998, Community West Stock was held of record by approximately _____
shareholders and the Community West Stock was registered under the Securities
Exchange Act of 1934. All of the outstanding shares of the Community West Stock
are validly issued, fully paid and nonassessable. Except as contemplated herein
and except for employee stock options under the Community West 1997 Stock Option
Plans and the warrants to purchase Community West common stock issued. in
exchange for GNB (defined in Section 4.3 below) warrants issued in 1996 (the
"1996 Warrants"), there are presently, and on the Closing Date there will be, no
outstanding options, warrants or other rights in or with respect to the unissued
shares of the Community West Stock or any securities convertible into such
Community West Stock, and Community West is not obligated to issue any
additional shares of its Community West Stock or any other security convertible
into its Community West Stock.
<PAGE>
4.3 SUBSIDIARIES. Except for Goleta National Bank ("GNB"), Community
------------
West does not own, directly or indirectly (except as pledgee pursuant to loans
which are not in default or for shares held by GNB as the result of any
foreclosure by GNB on any loan, which shares do not exceed 4.9% of the
outstanding common stock of any such company), any outstanding stock or other
voting interests in any corporation, partnership, joint venture or other entity.
GNB is a national banking association, duly organized, validly existing and in
good standing under the laws of the United States, is a member of the Federal
Reserve Bank of San Francisco, and is an "insured bank" as defined in the
Federal Deposit Insurance Act; and GNB has all requisite corporate power and
authority to own, lease and operate its properties and assets and carry on its
business as presently conducted. Attached hereto as Schedule 4.3 are true and
------------
correct copies of GNB's Articles of Association and Bylaws, as amended to the
date hereof. GNB's authorized capitalization consists of 8,000,000 shares of
common stock, $2.50 par value, of which 1,540,658 shares are issued and
outstanding as of the date of this Agreement, all of which are owned by
Community West. GNB is not obligated to issue any additional shares of its
common stock or any other security convertible into its common stock. The
shares of GNB's common stock held by Community West are free and clear of all
security interests, encumbrances, restrictions, claims or other defects in
title. Electronic Paycheck, LLC ("EP") is a California limited liability
company, duly organized, validly existing and in good standing under the laws of
the State of California. GNB owns seventy percent (70%) of the Membership
Interests of EP. EP is not obligated to issue any additional membership
interests or any other security convertible into its membership interests. The
membership interests of EP held by GNB are free and clear of all security
interests, encumbrances, restrictions, claims or other defects in title, except
pursuant to that certain Operating Agreement dated October 16, 1997.
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<PAGE>
4.4 AUTHORITY. The execution and delivery by Community West of this
---------
Agreement and the Merger Agreement and the consummation of the Transactions
contemplated hereby, have been duly and validly authorized by all necessary
corporate action on the part of Community West. The Agreement is, and the
Merger Agreement will be, binding and enforceable obligations of CWB Merger
Corp, except as enforceability thereof may be limited by bankruptcy, insolvency,
moratorium or similar laws affecting the rights of creditors generally or
California corporations and by general equitable principles. Neither the
execution and delivery by Community West of this Agreement, nor the consummation
of the Transactions contemplated herein, nor compliance by Community West with
any of the provisions hereof will: (a) conflict with, or result in a breach of,
any provision of its Articles of Incorporation or Bylaws; or (b) except as set
forth in Schedule 4.4, to the best of Community West's knowledge constitute a
-------------
breach of, or result in default, or give rise to any rights of termination,
cancellation or acceleration, or give rise to any right by any other person or
entity to acquire any security interest in any assets under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, franchise,
license, permit, agreement or other instrument or obligation to which Community
West or any of its properties or assets are subject. No consent or approval of,
notice to or filing with any governmental authority having jurisdiction over any
aspect of the business or assets of Community West, and no consent or approval
of or notice to any other person or entity, is required in connection with the
execution and delivery by Community West of this Agreement or by CWB Merger Corp
of the Merger Agreement or the consummation by Community West of the
Transactions contemplated hereby or thereby, except: (a) approval of this
Agreement and the Merger Agreement by the shareholders of Community West and CWB
Merger Corp; (b) such approvals of this Agreement, the Merger Agreement, and the
Transactions contemplated herein as may be required by the Commissioner, the
California Department of Corporations ("CDC"), the FDIC, or the FRB as may be
required under applicable law; and (c) as set forth on Schedule 4.4.
--------------
4.5 BRANCHES. Except for its main office located at 5827 Hollister
--------
Avenue, Goleta, California 93117, and except for its branch offices and loan
production offices located as set forth in Schedule 4.5, Community West, GNB and
------------
EP do not operate or conduct business out of any other location and has not
applied for or received permission to open any other branch or to operate out of
any other location.
4.6 FINANCIAL STATEMENTS. Except as disclosed in the notes relating
---------------------
thereto, or otherwise on Schedule 4.6, the audited consolidated financial
-------------
statements of Community West as of and for the periods ended December 31, 1996
and 1997 attached hereto as Schedule 4.6 (all of these statements are
-------------
collectively referred to herein as the "Community West Financial Statements"),
fairly and accurately present the financial condition of Community West as of
the dates thereof and the results of operations and its cash flows for the
periods therein set forth and have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved. Such Community West Financial Statements are based on the books and
records of Community West, and contain and reflect reserves for all material
accrued liabilities and any reasonably anticipated losses.
4.7 UNDISCLOSED LIABILITIES. To the best of Community West's knowledge
-----------------------
Community West and GNB do not have any liabilities or obligations, either
accrued or contingent, which are material to Community West taken as a whole and
which have not been: (a) reflected or disclosed in the Community West Financial
Statements; or (b) disclosed in Schedule 4.7. Community West does not know of
-------------
any basis for the assertion against it, GNB or EP of any liability, obligation
or claim (including, without limitation, that of any regulatory authority) that
might result in or cause any material adverse change in the business or
financial condition of Community West when taken as a whole, which is not fairly
reflected in the Community West Financial Statements or otherwise disclosed in
Schedule 4.7 hereto.
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<PAGE>
4.8 TITLE TO ASSETS. Except as set forth in Schedule 4.8, Community
----------------- ------------
West, GNB and EP have good, valid and marketable title to all material
properties and assets, other than real property and securities pledged to secure
public deposits or retail repurchase agreements, owned or stated to be owned by
Community West, GNB or EP and reflected on the Community West Financial
Statements, or acquired after December 31, 1997 (except properties sold or
otherwise transferred in the ordinary course of business since December 31,
1997), free and clear of all mortgages, liens, encumbrances, pledges or charges
of any kind or nature (except for liens for current taxes not yet due and
payable and except as disclosed in the Community West Financial Statements or in
Schedule 4.8 hereto).
- -------------
4.9 REAL ESTATE. Schedule 4.9 hereto contains a list of all real
------------ -------------
property, including leaseholds and "other real estate owned," owned by Community
West and copies of all leases to which Community West is a party. Schedule 4.9
------------
contains, among other things, an accurate summary of all material commitments
which Community West has to improve real estate owned or leased by it.
Community West has good and marketable title to all the real property, and valid
leasehold interests in the leaseholds, described in Schedule 4.9, free and clear
------------
of all mortgages, covenants, conditions, restrictions, easements, liens,
security interests, charges, claims and encumbrances, except for: (a) rights of
lessors, co-lessees or sublessees in such matters which are reflected in the
leases; (b) current taxes not yet due and payable; (c) as described in any title
policies (included in Schedule 4.9); (d) such imperfections of title and
-------------
encumbrances, if any, as do not materially detract from the value of or
materially interfere with the present use of such property; or (e) except as
described in Schedule 4.9 hereto. Copies of title policies for properties
-------------
described in Schedule 4.9 as owned by Community West have been delivered or made
------------
available to Palomar. The activities of Community West with respect to its real
property owned and their leaseholds for use in connection with their operations
are in all material respects permitted and authorized by applicable zoning laws,
ordinances and regulations and all laws and regulations of any governmental
department or agency relative to environmental matters affecting such property,
except as otherwise disclosed in Schedule 4.9. Community West enjoys quiet and
------------
peaceful possession of all such property. To the best knowledge of Community
West, all tangible properties of Community West that are material to the
business, financial condition, or results of operations of Community West are in
a good state of maintenance and repair, except for ordinary wear and tear, and
are adequate for the conduct of the business of Community West as presently
conducted. Except as set forth in Schedule 4.9: (i) the execution of this
-------------
Agreement, the performance of the obligations of Community West hereunder and
the consummation of the Transactions contemplated herein do not conflict with
and will not result in a breach or default under any lease, agreement or
contract described in Schedule 4.9, or give any other party thereto a right to
------------
terminate or modify any term thereof; (ii) each lease and agreement under which
Community West is a lessee or holds or operates any property (real, personal or
mixed) owned by any third party is in full force and effect and is a valid and
legally binding obligation of Community West; (iii) Community West and, each
other party to any such lease or agreement have performed in all material
respects all the obligations required to be performed by them to date under such
lease or agreement and are not in default in any material respect under any such
lease or agreement and there is no pending or threatened proceeding, or
proceeding which Community West has reason to believe may be threatened, that
would interfere with the quiet enjoyment of such leasehold or such material
property by Community West; (iv) no underground storage tanks or surface
impoundments are on or in the real property; and (v) no asbestos is contained or
located on any of the real property. To the best knowledge of Community West,
none of such leases or agreements contain any unusual provision which now or in
the future may cause a material adverse change in the business condition of
Community West.
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<PAGE>
4.10 ENVIRONMENTAL LIABILITIES.
--------------------------
(a) COMPLIANCE. Except as set forth on Schedule 4.10, Community
---------- -------------
West and GNB are conducting and have conducted their business, and have used
and are using their properties, whether currently owned, operated or leased, or
owned, operated or leased by Community West or GNB at any time in the past, and
to Community West's and GNB's knowledge, all properties in which Community West
or GNB has a security interest have been used and are being used, in compliance
with all applicable Environmental Laws.
(b) NO INVESTIGATIONS. Neither Community West nor GNB nor any
------------------
property currently owned, operated or leased by Community West or GNB or which
has been in the past owned, operated or leased by Community West or GNB, or to
Community West's and GNB's knowledge, in which Community West or GNB has a
security interest, is subject to any existing, pending or threatened
investigation, action or proceeding, including any notice of violation, by any
governmental authority regarding contamination of any part of the property or
infractions of any law, statute, ordinance or regulation or any license or
permit issued by any government agency pertaining to health, industrial hygiene
or environmental safety or environmental conditions on, under or about the
property, except for such investigations, actions, proceedings, notifications,
or infractions which, in the aggregate, have not had and could not have a
material adverse effect on Community West.
(c) HAZARDOUS SUBSTANCES. Except as set forth on Schedule 4.10,
--------------------- -------------
there are no Hazardous Substances presently located on, under or about any
property which is currently owned, operated or leased by Community West or GNB,
or has been owned, operated or leased by Community West or GNB, or to Community
West's and GNB's knowledge, in which Community West or GNB has a security
interest. There has not been any generation, use, handling, transportation,
treatment or disposal of any Hazardous Substances in connection with the conduct
of the business of Community West or GNB that has or might result in any
material liability under any Environmental Law.
4.11 LOANS AND INVESTMENTS. Except as disclosed in Schedule 4.11
----------------------- -------------
hereto: (a) all the loans and investments of Community West and GNB are legal,
valid and permitted under federal and state laws and regulations applicable at
the time of their origination or assumption; and (b) Community West and GNB are
not subject to any liability or claim for violation of any state or federal law
or regulation concerning extensions of credit, including, without limitation,
those relating to discriminatory lending practices and truth-in-lending. Except
for investments that have matured or been sold, Schedule 4.11 sets forth all of
-------------
the investments reflected in the balance sheets of Community West and/or GNB
dated December 31, 1997. Except as set forth in Schedule 4.11, none of such
-------------
investments is subject to any restriction, contractual, statutory or other, that
would materially impair the ability of Community West or GNB to dispose freely
of any such investment at any time, except restrictions on the public
distribution or transfer of such investments under the Securities Act of 1933,
as amended, or state securities laws. Except as set forth in Schedule 4.11, as
-------------
of December 31, 1997, Community West and GNB had no holdings of positions in
Derivative Instruments. Except as set forth in Schedule 4.11, since January 1,
-------------
1996 Community West and GNB have not engaged in any transactions in or involving
Derivative Instruments except as agent on the order and for the account of
others. Schedule 4.11 sets forth for each Derivative Instrument held by
--------------
Community West or GNB since January 1, 1996, the present book value and market
value, if applicable, the open exposure of Community West or GNB, if any, and
whether any counterparties to any contract or agreement with respect to any such
instrument is in default with respect to such contract or agreement.
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<PAGE>
4.12 DEPOSITS. Schedule 4.12 sets forth a list of deposit accounts
-------- --------------
outstanding at GNB with an outstanding balance as of December 31, 1997, of
$100,000.00 or more.
4.13 LITIGATION AND GOVERNMENTAL PROCEEDINGS. Except as otherwise
------------------------------------------
expressly disclosed in Schedule 4.13, Community West and GNB are not engaged in,
-------------
or to the best of Community West's knowledge threatened with, any legal action
or other proceeding before any court or administrative agency which might be
material to its or their business or in which the amount claimed against them is
$100,000 or more; except as set forth in Schedule 4.13 hereto, to the best of
-------------
Community West's knowledge, Community West and GNB are not in default of any of
their duties or obligations under, or with respect to, any judgment, order,
writ, injunction, decree, rule or regulation of any court or governmental
department, commission, board, bureau, agency or other instrumentality having
jurisdiction over Community West or GNB or their businesses; except as disclosed
in Exhibit 4.13 hereto, Community West and GNB have not been served with notice
------------
of, or, to the best of Community West's knowledge, are not under investigation
with respect to, any possible violation of any provision of federal, state or
local laws or administrative regulations; and except as set forth in Schedule
--------
4.13, Community West and GNB are not subject to any order, letter agreement or
- ----
written direction of any governmental agency with respect to its financial or
operating ratios, or with respect to any other standards or tests imposed by
state and federal laws and regulations, including, without limitation, those
relating to net worth, liquidity and the maintenance of reserves, nor has any
such order, letter agreement or written direction been proposed to Community
West or GNB. Schedule 4.13 contains a list identifying any claims pending on
--------------
behalf of GNB against the SBA, any other governmental agencies, or any third
parties for reimbursement for loan defaults, indicating the date of the claim,
the name of the borrower, and the amount of the claim.
4.14 CONTRACTS AND AGREEMENTS. Except as provided by this Agreement
--------------------------
and except as forth in Schedule 4.14 Community West and GNB are not parties to
-------------
any Understanding which individually, or with all other similar Understandings
relating to the same or similar subject matter, falls within any of the
following classifications:
(a) Any loan commitment, agreement, pledge, conditional sale contract,
security agreement, lease (excluding leases of real property listed in Schedule
--------
4.9), guarantee, subordination agreement or other similar or related type of
- ---
Understanding (but not including any deposit agreements as to which GNB is the
debtor), involving the expenditure of $25,000 or more as to which Community West
or GNB is a debtor, pledgor, lessee or obligor other than borrowings from the
Federal Reserve Bank of San Francisco;
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<PAGE>
(b) Except as otherwise contemplated by this Agreement, any
Understanding for the employment of any officer or employee which is not
terminable by Community West or GNB without liability on not more than thirty
(30) days' notice;
(c) Any Understanding with any labor organization;
(d) Any Understanding which obligates Community West or GNB for a
period in excess of one year to purchase, sell or provide services, materials,
supplies, merchandise, facilities or equipment;
(e) Any Understanding for the sale of any of Community West's or GNB's
assets in excess of $25,000 in amount, or for the grant of any preferential
right to purchase any of their assets, properties or rights in excess of $25,000
in amount, or which requires the consent of any third party to the transfer and
assignment of any of their assets, properties or rights in excess of $25,000 in
amount, other than in the ordinary course of business;
(f) Any Understanding for the borrowing of any money by Community West
or GNB or for a line of credit to Community West or GNB;
(g) Any Understanding for any one capital expenditure or series of
related capital expenditures in excess of $25,000;
(h) Any Understanding to make, renew or extend the term of a loan to
any affiliate (as that term is defined for purposes of Rule 144 under the
Securities Act of 1933) or group of persons related to any affiliate, which,
in-cluding any undisbursed or unfunded amount, when aggregated with all
outstanding indebtedness of such affiliate or group of related persons to
Community West, would exceed $25,000;
(i) Any Understanding of any kind (other than contracts relating to
demand, savings or time deposits) with any director or officer of Community West
or with any affiliate or member of the immediate family (defined to include a
person's spouse, parents, in laws, descendants or siblings) of any such
director, officer or affiliate;
(j) Any Understanding for the sale of loans with recourse; or
(k) Any Understanding not otherwise disclosed pursuant to this Section
4.14 which is material to the financial condition, results of operations, assets
or business of Community West taken as a whole.
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<PAGE>
4.15 PERFORMANCE OF OBLIGATIONS. Community West and GNB have performed
--------------------------
in all respects all of the obligations required to be performed by them to date
and, to the best of Community West's knowledge, Community West or GNB are not in
default in any respect under any agreement, contract or lease to which they are
a party or subject or are otherwise bound and which are material to the
financial condition of Community West taken as a whole; no party with whom
Community West or GNB has an agreement which is of material importance to the
business of Community West is, to the knowledge of Community West, in material
default thereunder, except as has been disclosed in Schedule 4.15. With respect
--------------
to loan delinquencies, Schedule 4.15 contains the monthly loan delinquency
--------------
report dated on or about March 31, 1998, in the form customarily prepared for
and delivered to the Board of Directors of Community West.
4.16 INSURANCE. Except as set forth in Schedule 4.16, Community West
--------- -------------
and GNB have in full force and effect policies of insurance, including, without
limitation, a banker's blanket bond, with respect to their assets and business
and against such casualties and contingencies and of such amounts, types and
forms as are appropriate for their business, operations, properties and assets
and as are usual and customary in the banking industry. Set forth in Schedule
--------
4.16 hereto is a schedule of all policies of insurance (other than title
- ----
insurance) carried and owned by Community West and GNB; showing the name of the
insurance company, the nature of the coverage, the policy limit, the annual
premiums and the expiration dates. There has been delivered to or made available
to Palomar a copy of each such policy of insurance. To the best of Community
West's knowledge, GNB has continually maintained a fidelity bond insuring it
against acts of dishonesty by its employees in such amounts as are disclosed in
Schedule 4.16. To the best of Community West's knowledge, no claims have been
- ---------------
made under such bond. Community West is not aware of any facts which would form
the basis of a claim under any such bond; nor does Community West have any
reason to believe that any insurance coverage will not be renewed by the
existing carrier on substantially the same terms as existing coverage.
4.17 TAXES. Except as set forth in Schedule 4.17 hereto, Community
----- -------------
West and GNB have timely filed all federal, state and local tax returns required
to be filed by them or on their behalf. Except as set forth in Schedule 4.17,
-------------
all taxes shown by such returns to be due and payable have been paid or are
reflected as a liability on the Community West Financial Statements. To the
best of Community West's knowledge, none of the federal, state and local tax
returns of Community West or GNB have been audited by the Internal Revenue
Service or other governmental authorities having jurisdiction over the
examination of such returns except for the years or periods indicated in
Schedule 4.17. All material deficiencies (including interest and penalties, if
- --------------
any, thereon), if any, imposed as a result of such examinations have been either
paid, or have been accrued as a liability on the Community West Financial
Statements, or are being contested in good faith and are disclosed in Schedule
--------
4.17. No material tax deficiency has been or to the knowledge of Community West
- -----
is proposed to be assessed against Community West or GNB by any federal, state
or local authority or agency. Neither Community West nor GNB have agreed to any
extension of time for the assessment of any taxes of whatsoever kind or nature
payable by it, nor has Community West or GNB waived or been requested to waive
any applicable statute of limitations with relation to the payment of any
federal, state or local taxes. To the best of Community West's knowledge, the
accruals for taxes reflected on the Community West Financial Statements are
adequate for all unpaid federal, state or local taxes (including interest and
penalties, if any, thereon) due, or which became due for any period commencing
prior to December 31, 1997.
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<PAGE>
4.18 ABSENCE OF CERTAIN CHANGES. Except as disclosed on Schedule 4.18
-------------------------- -------------
or as permitted by this Agreement, since December 31, 1997, the business of
Community West and GNB have been conducted diligently and only in the ordinary
course, in the same manner as heretofore conducted and there has not been:
(a) Any change in the financial condition of Community West taken as a
whole which has had or is likely to have a Material Adverse Effect on Community
West;
(b) Any declaration, setting aside, or the payment of any dividend or
other distribution with respect to the Community West Stock or the issuance of
any additional shares of, or options to purchase, the Community West Stock or
any other security of Community West;
(c) Any damage, destruction or loss (whether or not covered by
insurance) which individually or taken as a whole has had or is likely to have a
Material Adverse Effect on the property or business of Community West;
(d) Any change in accounting methods or practices of Community West
having a Material Adverse Effect on Community West;
(e) Any revaluation by Community West of any of Community West's assets
except as may be applicable to available-for-sale securities;
(f) Any increase in the salary schedule or compensation rate, or the
declaration, payment or commitment or obligation of any kind for the payment by
Community West of a bonus or other additional salary or compensation, other than
in accordance with past practice;
(g) Any sale, assignment or transfer of any material assets of
Community West except in the ordinary course of business;
(h) Any waiver or release of any material right or claim of Community
West, except in the ordinary course of business; or
(i) Any agreement to take any action specified in Subsections 4.18(a)
through (h) hereof.
4.19 BROKERS' AND FINDERS' FEES. Except as specified in Schedule 4.19,
-------------------------- -------------
neither Community West nor any of its officers or employees have paid or agreed
to pay, or have done any act which would give rise to the payment of, any fee,
commission or consideration to any agent, broker, finder or other person on
account of services rendered as a broker or finder in connection with this
Agreement or the Transactions, or which has resulted in, or may give rise to,
any obligation on the part of Community West or Palomar therefor.
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4.20 EMPLOYEES. To the best of Community West's knowledge there are no
---------
material controversies pending or threatened between Community West or GNB and
any of their employees. Except as disclosed in the Community West Financial
Statements, all material sums due for employee compensation and benefits have
been duly and adequately paid or accrued on the books of Community West.
4.21 REGULATORY REPORTS. Community West has made available or provided
------------------
to Palomar the following documents:
(a) All independent audit or loan review reports, if any, in respect of
Community West or GNB issued during the past three years; and
(b) All filings and other correspondence and documents sent or received
by Community West or GNB to or from any bank regulatory agency or tax authority
(excluding releases, bulletins and similar documents issued generally by such
regulatory agencies), issued during the past three years.
4.22 COMMUNITY WEST EMPLOYEE BENEFIT PLANS. Schedule 4.22 hereto
----------------------------------------- --------------
contains a true and correct copy of GNB's Personnel Policy and a true and
correct list of all pension, retirement or other employee benefit plans or
arrangements maintained by Community West or GNB for the benefit of its
employees (except any individual retirement accounts held by GNB as to which GNB
acts as custodian), including, without limitation, any pension plan as defined
in Section 3(2) of the Employee Retirement Income Security Act of 1974 ("ERISA")
and any welfare plan as defined in Section 3(1) of ERISA, whether or not funded,
with respect to which GNB is a fiduciary as defined in Section 3(21) of ERISA
(all of such plans being collectively referred to herein as "Community West
Employee Plans"). To the best of Community West's knowledge, Community West,
GNB and any Community West Employee Plan have not engaged in any prohibited
transaction with respect to the Community West Employee Plan which could subject
Community West to a penalty or tax on prohibited transactions imposed under
ERISA, or Section 4975 of the Internal Revenue Code of 1954, as amended (the
"Code"). To the best of Community West's knowledge no Community West or GNB
employee has engaged in any transaction which could subject Community West to
liability if Community West is obligated to indemnify such person against
liability. To the best of Community West's knowledge, each Community West
Employee Plan that is an employee pension benefit plan (which is not described
in Section 4(b) or Section 301(a) of ERISA) is qualified under Section 401(a) of
the Code, and the trust thereunder is exempt from income tax under Section
501(a) of the Code.
4.23 STOCK OPTION PLAN; 1996 WARRANTS. Schedule 4.23 sets forth a true
-------------------------------- -------------
and correct copy of Community West's Stock Option Plan(s) and a schedule showing
the names, dates of grant, vesting schedules, termination dates, and option
prices for each option outstanding as of March 31, 1998. The Stock Option
Plan(s) has (have) been duly approved by the Board of Directors and shareholders
of Community West and by all applicable regulatory authorities, each stock
option has been approved by the Board of Directors of Community West, and, upon
exercise of the options in accordance with their terms, the shares of Community
West Stock issued have been and will be validly issued, fully paid and
nonassessable. Schedule 4.23 also sets forth a true and correct schedule
--------------
showing the names, date of issuance, term, vesting schedule, and exercise price
for the 1996 Warrants as of March 31, 1998. The 1996 Warrants have been duly
approved by the Board of Directors and, upon the exercise of the 1996 Warrants
in accordance with their terms, the shares of Community West Stock issued will
have been and will be validly issued, fully paid and non-assessable.
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4.24 ABSENCE OF CERTAIN PRACTICES. Except as may be disclosed to
-------------------------------
Palomar on Exhibit 4.24, to the best of Community West's knowledge neither
-------------
Community West nor GNB, nor any officer, director, employee or agent of
Community West or GNB has, directly or indirectly, within the past four years,
given or made or agreed to give or make any illegal commission, payment,
gratuity, gift, political contribution or similar benefit to any customer,
supplier, governmental employee or other person in order to obtain business for
or further the business of Community West or GNB.
4.25 NO VIOLATION OF LAW. To the best of Community West's knowledge,
---------------------
Community West and GNB are in substantial compliance with all material laws
relating to their business or employment practices or the ownership of their
properties, and are in substantial compliance with each material law, ordinance,
order, decree or regulation of any governmental entity applicable to the conduct
thereof or the ownership of the properties related thereto, except in each case
for violations which either individually or in the aggregate do not and will not
have a material adverse effect on the business, financial condition or results
of operations of Community West taken as a whole. Community West and GNB have
filed all material reports and documents required to be filed by them with any
governmental authority on or before the date hereof and have in effect all
approvals, authorizations, consents, licenses, clearances and orders of and
registrations with, all governmental and regulatory authorities, which are
necessary to each material portion of the business or operations of Community
West or GNB as presently conducted.
4.26 CERTAIN INTERESTS. To the best of Community West's knowledge,
------------------
except in arm's-length transactions pursuant to normal commercial terms and
conditions: (a) no officer or director of Community West or GNB has any material
interest in any property, real or personal, tangible or intangible, used in or
pertaining to the business of Community West or GNB except for the normal rights
of a shareholder of Community West; (b) no such person is indebted to Community
West or GNB except for normal business expense advances or banking transactions
in the ordinary course of business on the same terms, including interest rates
and collateral on loans as those prevailing at the same time for comparable
transactions with others; and (c) Community West and GNB are not indebted to any
such person except for amounts due under normal salary or reimbursement of
ordinary business expenses. The consummation of the Transactions contemplated
hereby will not (either alone, or upon the occurrence of any act or event, or
with the lapse of time, or both) result in any payment (severance or other)
becoming due from Community West or GNB to any employee of Community West or
GNB.
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4.27 MINUTE BOOKS. The minute books of Community West and GNB accurately
-------------
reflect all material actions duly taken by the shareholders, Boards of Directors
and committees of Community West or GNB, as applicable.
4.28 ACCOUNTING RECORDS; DATA PROCESSING. Community West and GNB have
--------------------------------------
records that, in all material respects, fairly reflect their transactions and
accounting controls sufficient to ensure that such transactions are in all
material respects: (a) executed in accordance with management's general or
specific authorization; and (b) recorded in conformity with Generally Accepted
Accounting Principles. Except as set forth in Schedule 4.28, the procedures and
-------------
equipment, including, without limitation, the data processing equipment, data
transmission equipment, and related peripheral equipment and software, used by
Community West and GNB in the operation of their businesses (including any
disaster recovery facility) to generate and retrieve such records are adequate
in relation to the size and complexity of the business of Community West and GNB
and are year 2000 compliant or adequate actions have been taken by Community
West and GNB to cause Community West and GNB to be year 2000 compliant in
accordance with the requirements of all regulatory agencies with authority over
Community West and GNB.
4.29 OPERATING LOSSES. Schedule 4.29 sets forth any Operating Loss that
----------------- --------------
has occurred at GNB during the period after December 31, 1996. To the best of
Community West's knowledge, except as set forth on Schedule 4.29, since December
-------------
31, 1996, no event has occurred, and no action has been taken or omitted to be
taken by any employee of Community West or GNB that has resulted in the
occurrence by GNB of an Operating Loss or that might reasonably be expected to
result in the occurrence by GNB of an Operating Loss after December 31, 1996,
which, net of any insurance proceeds payable in respect thereof, exceeds, or
would exceed $25,000 by itself or $50,000 when aggregated with all other
Operating Losses during such period.
4.30 REGULATORY APPROVAL. To the best of Community West's knowledge,
--------------------
based upon Community West's understanding of regulatory requirements, Community
West has no reason to believe that the parties will not receive all required
regulatory approvals.
4.31 FULL DISCLOSURE AND STANDARD. None of the information contained
------------------------------
in the representations and warranties of Community West set forth in this
Agreement, and none of the information contained in any of the schedules, lists,
documents, or instruments attached hereto or delivered by Community West as
contemplated by any provision of this Agreement, contains any untrue statement
of a fact or omits to state a fact necessary to make the statements contained
herein or therein not misleading. No representation or warranty of Community
West contained in Article IV shall be deemed untrue or incorrect, and Community
West shall not be deemed to have breached a representation or warranty, as a
consequence of the existence of a fact, event or circumstance unless such fact,
------
event or circumstance, individually or taken together with all other facts,
events or circumstances inconsistent with any representations or warranty
contained in Article IV has had or is reasonably likely to have a Material
Adverse Effect on Community West.
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ARTICLE V
COVENANTS OF PALOMAR PRIOR TO CLOSING
--------------------------------------
Palomar hereby covenants and agrees with Community West as follows:
5.1 BUSINESS RECORDS AND INFORMATION. During the period commencing on
---------------------------------
the date hereof, and ending on the Closing Date, Palomar will afford Community
West, its representatives, counsel, accountants, agents and employees reasonable
access during normal business hours to all of its business, operations,
properties, books, files and records and will do everything reasonably necessary
to enable Community West and its representatives, counsel, accountants, agents
and employees to make a complete examination of the financial statements,
business, operations, assets and properties of Palomar and the conditions
thereof, and to update such examination at such intervals as Community West
shall deem appropriate. Such examination shall be conducted in cooperation with
the officers of Palomar in such a manner as to minimize, to the extent possible
consistent with the conducting of a comprehensive examination, any disruption of
or interference with the normal business operations of Palomar. No such
examination or Community West's examination prior to the date of this Agreement,
however, shall constitute a waiver or relinquishment on the part of Community
West of its right to rely upon the representations, warranties or covenants made
by Palomar herein or pursuant hereto.
5.2 LIMITATIONS UPON PALOMAR PRIOR TO CLOSING. Except as required by
-------------------------------------------
this Agreement, between the date hereof and the Closing Date, without the prior
written consent of Community West, which shall not be unreasonably withheld and
which shall be deemed granted if within ten days after receipt of written
request refusal of such written consent is not received from Community West by
Palomar, Palomar shall not do any of the following:
(a) Create or take action to incur any liabilities in excess of $75,000
or having a term in excess of one year, other than liabilities incurred in the
ordinary course of business or in connection with the creation or performance of
this Agreement;
(b) Except in the usual or ordinary course of business, create or incur
or suffer to exist any mortgage, lien, pledge, security interest, charge,
encumbrance or restriction of any kind against or in respect of any property or
right of Palomar securing an obligation in excess of $75,000 or having a term in
excess of one year, and except for a pledge of security interests given in
connection with the acceptance of repurchase agreements or government deposits;
(c) Make or become a party to any contract or commitment in excess of
$75,000 or having a term in excess of one year, or renew, extend, amend or
modify any contract or commitment in excess of $75,000, except in the usual and
ordinary course of business;
(d) Make any capital expenditures in excess of $75,000, except for
ordinary and necessary repairs and replacements and tenant improvements on
Palomar's new Escondido branch office;
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(e) Sell or otherwise dispose of any of its assets or properties in
excess of $75,000 in value, except in the usual and ordinary course of its
business;
(f) Declare or pay any dividend (cash, in kind, or stock) or make any
other distribution upon, or purchase or redeem, any shares of Palomar Stock;
(g) Except as contemplated herein, issue or sell or obligate itself to
issue or sell any shares of Palomar Stock or any other securities including,
without limitation, any capital notes, or any warrants, rights or options to
acquire any shares of Palomar Stock or other securities otherwise than pursuant
to this Agreement;
(h) Acquire capital stock of any corporation or any interest in any
person except in the usual and ordinary course of its business;
(i) Amend its Articles of Incorporation or Bylaws, except for such
amendments that do not hinder performance of this Agreement or as permitted by
or contemplated by this Agreement;
(j) Grant any salary increase or enter into or amend any bonus,
incentive compensation, deferred compensation, pension, profit sharing,
retirement, group insurance or other benefit plan or any employment agreement or
consulting agreement or amend its Personnel Policy where the individual or
aggregate cost to Palomar is increased, except in accordance with past
practices, pursuant to written employment agreements disclosed pursuant hereto,
or such amendments to any Palomar Employee Plan as may be necessary to
consummate the Transactions contemplated herein;
(k) Pay any obligation or liability, absolute or contingent, in excess
of $75,000 except liabilities shown on the Palomar Financial Statements, or
except in the usual and ordinary course of business or in connection with the
Transactions contemplated herein;
(l) Institute, settle or agree to settle any claim, action or
proceeding involving an expenditure by Palomar or waiver of its claims in excess
of $75,000 before any court or governmental agency, except in the usual and
ordinary course of its business;
(m) Invest in any real estate except upon the foreclosure of loans in
the ordinary course of business, or acceptance of a deed in lieu of foreclosure,
in the ordinary course of business;
(n) Except in the usual and ordinary course of its business, enter into
any continuing contract or series of related contracts in excess of $75,000 for
the purchase of materials, supplies, equipment or services which cannot be
terminated without cause and without payment of any amount as a penalty, bonus,
premium or other compensation for such termination;
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(o) Enter into or amend any contract or agreement (other than loans or
bank accounts) with any officer, director or principal shareholder of Palomar or
any affiliate of such person on terms that are less favorable to Palomar than
could be obtained from an unrelated third party on an arm's length basis;
(p) File any applications for additional branches or to relocate
operations from any existing location, except as contemplated herein;
(q) Change any of Palomar's basic policies and practices with respect
to liquidity management and cash flow planning, marketing, deposit origination,
lending, budgeting, profit and tax planning, personnel practices, accounting or
any other material aspect of its business or operations, except such change as
may be required in the opinion of Palomar's management to respond to economic or
market conditions or as may be required by the rules of the AICPA or FASB or by
applicable bank regulatory authorities;
(r) Knowingly default in any material respect under any Understanding
to which Palomar is a party, and which, individually or together with other
Understandings with respect to which a default by Palomar exists, would
materially adversely affect the business, properties, or financial condition of
Palomar taken as a whole; or
(s) Conduct its business in a manner that would violate its Articles of
Incorporation or Bylaws or would, to the best of its knowledge, materially
violate or be in material conflict with any law, ordinance, rule or regulation
of any applicable federal or state authority; provided, however, that no
exception to this Subsection 5.2(s) shall constitute a waiver of any rights of
Community West under any other provision of this Agreement.
5.3 AFFIRMATIVE CONDUCT OF PALOMAR PRIOR TO CLOSING. Between the date
------------------------------------------------
hereof and the Closing Date, Palomar shall:
(a) Use its best efforts to obtain as expeditiously as possible and
cooperate with others to expeditiously bring about the satisfaction of the
conditions and approvals specified in Articles I, VII, IX, and X hereof and to
permit the consummation of the Merger and the Transactions contemplated under
this Agreement as promptly as possible, and advise Community West promptly in
writing of any matter which would make the representations and warranties set
forth in Article III hereof not true and correct in all material respects at the
Closing;
(b) Use and devote its best efforts consistent with this Agreement to
maintain and preserve intact its present business organization and to maintain
and preserve its relationships and goodwill with account holders, borrowers,
employees and others having business relationships with it;
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(c) Carefully prepare or review and make available to Community West
all federal, state and local tax returns and reports to government authorities
regarding Palomar required to be filed by it between the date hereof and the
Closing;
(d) Furnish Community West with such financial and other information
with respect to Palomar and its properties, business and operations as in the
reasonable opinion of Community West, counsel for Community West and counsel for
Palomar shall be necessary in order to prepare applications for and obtain the
permits, approvals, nondisapprovals, consents and authorizations referred to in
Article IX hereof; such information will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the information contained therein not misleading;
(e) Provide Community West with Palomar's monthly Board Package at the
time provided to Palomar's directors;
(f) Make available to Community West on Palomar's premises all loan
application files at such time or times as will not interfere with the loan
underwriting or approval process, in connection with each loan where the
aggregate indebtedness of the borrower created by such loan will exceed $350,000
for commercial loans or commercial or commercial real estate loans or $500,000
for residential real estate loans;
(g) Maintain insurance coverage at least equal to that now in effect on
all of its properties and on all properties for which it is responsible, and
carry the same coverage for fidelity, directors and officers, public liability,
personal injury and property damage that is presently in effect;
(h) Duly observe and conform to lawful requirements applicable to its
business in all material respects;
(i) Maintain its books of account and records in the regular manner in
accordance with generally accepted accounting principles, with all applicable
statutory and regulatory requirements applied on a consistent basis;
(j) Take all actions reasonable and necessary to terminate all Palomar
Employee Plans as set forth on Schedule 3.22 hereof as of the time immediately
preceding the Closing.
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5.4 DISCUSSION WITH THIRD PARTIES.
--------------------------------
(a) Palomar: (i) shall not, and shall instruct and cause each of its
directors, officers, employees, agents, representatives and advisors
("Representatives") not to, solicit or encourage, directly or indirectly,
inquires or proposals with respect to any Strategic Transaction Proposal (as
hereinafter defined); and (ii) except as expressly permitted by Subsection
5.4(b), shall not, and shall instruct and cause each of its Representatives not
to, furnish any non-public information relating to or participate in any
negotiations, discussions or other activities concerning, any Strategic
Transaction (as hereinafter defined) with any party other than Community West.
Palomar shall notify Community West within twenty-four (24) hours after any
Strategic Transaction Proposal is received by, or any negotiations or
discussions regarding a Strategic Transaction Proposal are sought to be
initiated with, directly or indirectly, Palomar or any of its Representatives,
and shall disclose to Community West the identity of the third party making or
seeking to make such Strategic Transaction Proposal, the terms and conditions
thereof, provided, however, that if Palomar receives a Strategic Transaction
Proposal and the foregoing disclosure of such Strategic Transaction Proposal to
Community West would violate a confidentiality agreement by which Palomar is
bound, Palomar (i) shall make the foregoing disclosure only to the maximum
extent permissible under such confidentiality agreement, (ii) shall return such
Strategic Transaction Proposal to the initiating party without substantive
response, and (iii) to the extent such disclosure has not been made under clause
(i) of this sentence, shall notify Community West that a Strategic Transaction
Proposal has been received and that the same has been returned to the initiating
party without substantive response. A "Strategic Transaction Proposal" means
any proposal regarding a Strategic Transaction. For purposes of this Section
5.4, a "Strategic Transaction" means any acquisition or purchase of more than
ten percent (10%) of the assets or voting securities of Palomar or any merger or
other business combination involving Palomar or any recapitalization involving
Palomar resulting in an extraordinary dividend or distribution to Palomar's
shareholders or a self-tender for or redemption of some or all of the
outstanding shares of Palomar Stock.
(b) Qualifying Proposal. Notwithstanding Subsection 5.4(a), following
-------------------
receipt of a Qualifying Strategic Transaction Proposal, neither Palomar nor any
of its Representatives shall be prohibited from (i) engaging in discussions or
negotiations with a third party which has made a proposal that satisfies the
requirements of a Qualifying Strategic Transaction Proposal and thereafter
providing to such third party information previously provided or made available
to Community West, provided the third party shall have entered into a
confidentiality agreement, (ii) taking and disclosing to Palomar's shareholders
a position contemplated by Rule 14e-2(a) under the Exchange Act, or otherwise
making disclosure of the Qualifying Strategic Transaction Proposal to Palomar's
shareholders, or (iii) subject to the terms of Subsection 11.1(d) terminating
this Agreement. For purposes of this Section 5.4, a "Qualifying Strategic
Transaction Proposal" shall mean a bona fide written Strategic Transaction
Proposal with respect to which Palomar's Board of Directors shall have
determined, after consultation with Palomar's counsel, that the action by
Palomar contemplated under either clause (i), (ii) or (iii), as applicable, of
the immediately preceding sentence is required under the fiduciary duties owed
by the Board of Directors to the holders of Palomar Stock, which determination
has been made acting in good faith and on the basis of a written opinion from a
financial advisor retained by Palomar to the effect that the financial terms of
such Strategic Transaction Proposal are from Palomar's shareholders' perspective
superior to the Merger.
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(c) Disclosure and Trading. Upon receipt of the disclosure by
------------------------
Community West of a Strategic Transaction Proposal involving Community West or
any subsidiary thereof or a Community West Acquisition Transaction (as that term
is defined in Section 6.4(c) hereof), Palomar, its executive officers and
directors shall, and each hereby agrees to, maintain the confidentiality of all
non-public information regarding the Strategic Transaction Proposal involving
Community West or any subsidiary thereof or the Community West Acquisition
Transaction to the same extent so required of Community West and/or any
subsidiary thereof under the terms of any confidentiality agreement to which
Community West and/or any subsidiary is a party or is bound and to refrain from
---
trading in Community West Stock, Palomar Stock and the securities of the party
or parties to the Strategic Transaction Proposal or the Community West
Acquisition Transaction until the earlier of: (i) full public disclosure of such
non-public information has been made and trading in the subject securities would
not be a violation of applicable securities laws, or (ii) the Strategic
Transaction Proposal or Community West Acquisition Transaction has been
terminated or has expired by its terms and disclosure of such non-public
information is permitted under the terms of any agreement regarding the
transaction and trading in the subject securities would not be a violation of
applicable securities laws.
5.5 PROXY STATEMENT. The proxy statement and/or any other materials or
---------------
documents (collectively, the "Proxy Materials") to be used in connection with
the shareholders' meeting required pursuant to Section 7.1 hereof, with respect
to all information set forth therein relating to Palomar, the Agreement, the
Merger Agreement and the Transactions, at the time of mailing to shareholders
and at the time of the shareholders' meeting, shall:
(a) Comply in all material respects with the provisions of all
applicable laws and regulations; and
(b) except with respect to any information regarding Community West or
GNB supplied to Palomar by Community West for inclusion in the Proxy Materials,
not contain any statement which, at the time and in light of the circumstances
under which it is made, is false or misleading with respect to any material fact
or not omit to state any material fact necessary in order to make the statements
therein not false or misleading or necessary to correct any statement in any
earlier communication with respect to the solicitation of a proxy for the same
meeting or subject matter that has become false or misleading.
ARTICLE VI
COVENANTS OF COMMUNITY WEST PRIOR TO CLOSING
--------------------------------------------
Community West hereby covenants and agrees with Palomar as follows:
6.1 BUSINESS RECORDS AND INFORMATION. During the period commencing on
---------------------------------
the date hereof, and ending on the Closing Date, Community West will afford
Palomar, its representatives, counsel, accountants, agents and employees
reasonable access during normal business hours to all of its business,
operations, properties, books, files and records and will do everything
reasonably necessary to enable Palomar and its representatives, counsel,
accountants, agents and employees to make a complete examination of the
financial statements, business, operations, assets and properties of Community
West and GNB and the conditions thereof, and to update such examination at such
intervals as Palomar shall deem appropriate. Such examination shall be
conducted in cooperation with the officers of Community West or GNB in such a
manner as to minimize, to the extent possible consistent with the conducting of
a comprehensive examination, any disruption of or interference with the normal
business operations of Community West or GNB. No such examination or Palomar's
examination prior to the date of this Agreement, however, shall constitute a
waiver or relinquishment on the part of Palomar of its right to rely upon the
representations, warranties or covenants made by Community West herein or
pursuant hereto.
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6.2 LIMITATIONS UPON COMMUNITY WEST PRIOR TO CLOSING. Except as
------------------------------------------------------
required by this Agreement, between the date hereof and the Closing Date,
without the prior written consent of Palomar, which shall not be unreasonably
withheld and which shall be deemed granted if within ten days after receipt of
written request refusal of such written consent is not received from Palomar by
Community West, Community West shall not do any of the following:
(a) Create or take action to incur any liabilities in excess of $75,000
or having a term in excess of one year, other than liabilities incurred in the
ordinary course of business or in connection with the creation or performance of
this Agreement;
(b) Except in the usual or ordinary course of business, create or incur
or suffer to exist any mortgage, lien, pledge, security interest, charge,
encumbrance or restriction of any kind against or in respect of any property or
right of Community West securing an obligation in excess of $75,000, or having a
term in excess of one year, and except for a pledge of security interests given
in connection with the acceptance of repurchase agreements or government
deposits;
(c) Make or become a party to any contract or commitment in excess of
$75,000 or having a term in excess of one year, or renew, extend, amend or
modify any contract or commitment in excess of $75,000, except in the usual and
ordinary course of business;
(d) Make any capital expenditures in excess of $75,000, except for
ordinary and necessary repairs and replacements;
(e) Sell or otherwise dispose of any of its assets or properties in
excess of $75,000 in value, except in the usual and ordinary course of its
business;
(f) Declare or pay any dividend (cash, in kind, or stock) or make any
other distribution upon, or purchase or redeem, any shares of Community West
Stock; provided, however, GNB may pay dividends to Community West;
(g) Except as contemplated herein, issue or sell or obligate itself to
issue or sell any shares of Community West Stock or any other securities
including, without limitation, any capital notes, or any warrants, rights or
options to acquire any shares of Community West Stock or other securities
otherwise than pursuant to this Agreement; except pursuant to the exercise of
the stock options and the 1996 Warrants set forth in Schedule 4.23;
(h) Acquire capital stock of any corporation or any interest in any
person except in the usual and ordinary course of its business;
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(i) Amend its Articles of Incorporation or Bylaws, except for such
amendments that do not hinder performance of this Agreement or as permitted by
or contemplated by this Agreement;
(j) Grant any salary increase or enter into or amend any bonus,
incentive compensation, deferred compensation, pension, profit sharing,
retirement, group insurance or other benefit plan or any employment agreement or
consulting agreement or amend its Personnel Policy where the individual or
aggregate cost to Community West or GNB is increased, except in accordance with
past practices, pursuant to written employment agreements disclosed pursuant
hereto, or such amendments to any Community West Employee Plan as may be
necessary to consummate the Transaction contemplated herein including increasing
the number of shares covered in Community West's 1997 Stock Option Plan or other
stock option plans;
(k) Pay any obligation or liability, absolute or contingent, in excess
of $75,000 except liabilities shown on the Community West Financial Statements,
or except in the usual and ordinary course of business or in connection with the
Transactions contemplated herein;
(l) Institute, settle or agree to settle any claim, action or
proceeding involving an expenditure by Community West or waiver of its claims in
excess of $75,000 before any court or governmental agency, except in the usual
and ordinary course of its business;
(m) Invest in any real estate except upon the foreclosure of loans in
the ordinary course of business, or acceptance of a deed in lieu of foreclosure,
in the ordinary course of business;
(n) Except in the usual and ordinary course of its business, enter into
any continuing contract or series of related contracts in excess of $75,000 for
the purchase of materials, supplies, equipment or services which cannot be
terminated without cause and without payment of any amount as a penalty, bonus,
premium or other compensation for such termination;
(o) Enter into or amend any contract or agreement (other than loans or
bank accounts) with any officer, director or principal shareholder of Community
West or any affiliate of such person on terms that are less favorable to
Community West than could be obtained from an unrelated third party on an arm's
length basis;
(p) File any applications for additional branches or to relocate
operations from any existing location, except as contemplated herein;
(q) Change any of Community West's or GNB basic policies and practices
with respect to liquidity management and cash flow planning, marketing, deposit
origination, lending, budgeting, profit and tax planning, personnel practices,
accounting or any other material aspect of their business or operations, except
such change as may be required in the opinion of Community West's or GNB's
management to respond to economic or market conditions or as may be required by
the rules of the AICPA or FASB or by applicable bank regulatory authorities;
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(r) Knowingly default in any material respect under any Understanding
to which Community West or GNB is a party, and which, individually or together
with other Understandings with respect to which a default by Community West or
GNB exists, would materially adversely affect the business, properties, or
financial condition of Community West taken as a whole; or
(s) Conduct its business in a manner that would violate its Articles of
Incorporation or Bylaws or would, to the best of its knowledge, materially
violate or be in material conflict with any law, ordinance, rule or regulation
of any applicable federal or state authority; provided, however, that no
exception to this Subsection 6.2 (s) shall constitute a waiver of any rights of
Palomar under any other provision of this Agreement.
6.3 AFFIRMATIVE CONDUCT OF COMMUNITY WEST PRIOR TO CLOSING. Between
---------------------------------------------------------
the date hereof and the Closing Date, Community West shall:
(a) Use its best efforts to obtain as expeditiously as possible and
cooperate with others to expeditiously bring about the satisfaction of the
conditions and approvals specified in Articles I, VII, VIII, and X hereof and to
permit the consummation of the Merger and the transactions contemplated under
this Agreement as promptly as possible, and advise Palomar promptly in writing
of any matter which would make the representations and warranties set forth in
Article IV hereof not true and correct in all material respects at the Closing;
(b) Use and devote its best efforts consistent with this Agreement to
maintain and preserve intact its present business organization and to maintain
and preserve its relationships and goodwill with account holders, borrowers,
employees and others having business relationships with it;
(c) Carefully prepare or review and make available to Palomar all
federal, state and local tax returns and reports to government authorities
regarding Community West required to be filed by it between the date hereof and
the Closing;
(d) Furnish Palomar with such financial and other information with
respect to Community West and its properties, business and operations as in the
reasonable opinion of Palomar, counsel for Palomar and counsel for Community
West shall be necessary in order to prepare applications for and obtain the
permits, approvals, nondisapprovals, consents and authorizations referred to in
Article IX hereof; such information will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the information contained therein not misleading;
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(e) Provide Palomar with Community West's and GNB's monthly Board
Packages at the time provided to their directors;
(f) Make available to Palomar on Community West's premises all loan
application files at such time or times as will not interfere with the loan
underwriting process, in connection with each loan where the aggregate
indebtedness of the borrower created by such loan will exceed $350,000 for
commercial loans or commercial real estate loans or $500,000 for residential
real estate loans;
(g) Maintain insurance coverage at least equal to that now in effect on
all of its properties and on all properties for which it is responsible, and
carry the same coverage for fidelity, directors and officers, public liability,
personal injury and property damage that is presently in effect;
(h) Duly observe and conform to lawful requirements applicable to its
business in all material respects; and
(i) Maintain its books of account and records in the regular manner in
accordance with generally accepted accounting principles, with all applicable
statutory and regulatory requirements applied on a consistent basis.
6.4 DISCUSSION WITH THIRD PARTIES.
--------------------------------
(a) Community West: (i) shall not, and shall instruct and cause each
of its Representatives not to, solicit or encourage, directly or indirectly,
inquires or proposals with respect to any Strategic Transaction Proposal; and
(ii) except as expressly permitted by Subsection 6.4(b), shall not, and shall
instruct and cause each of its Representatives not to, furnish any non-public
information relating to or participate in any negotiations, discussions or other
activities concerning, any Strategic Transaction (as hereinafter defined) with
any party other than Palomar. Community West shall notify Palomar within
twenty-four (24) hours after any Strategic Transaction Proposal is received by,
or any negotiations or discussions regarding a Strategic Transaction Proposal
are sought to be initiated with, directly or indirectly, Community West or any
of its Representatives, and shall disclose to Palomar the identity of the third
party making or seeking to make such Strategic Transaction Proposal, the terms
and conditions thereof; provided, however, that if Community West receives a
Strategic Transaction Proposal and the foregoing disclosure of such Strategic
Transaction Proposal to Palomar would violate a confidentiality agreement by
which Community West is bound, Community West (i) shall make the foregoing
disclosure only to the maximum extent permissible under such confidentiality
agreement, (ii) shall return such Strategic Transaction Proposal to the
initiating party without substantive response, and (iii) to the extent such
disclosure has not been made under clause (i) of this sentence, shall notify
Palomar that a Strategic Transaction Proposal has been received and that the
same has been returned to the initiating party without substantive response.
For purposes of this Section 6.4, a "Strategic Transaction" means any
acquisition or purchase of more than ten percent (10%) of the assets or voting
securities of Community West or any merger or other business combination
involving Community West or any recapitalization involving Community West
resulting in an extraordinary dividend or distribution to Community West's
shareholders or a self-tender for or redemption of some or all of the
outstanding shares of Community West Stock; provided however, that the sale of
any loans or an interest in a portfolio of loans by Community West or GNB in the
ordinary course of business including without limitation the securitization of a
portfolio of loans in an aggregate amount of up to $75,000,000 shall not be
deemed a Strategic Transaction for purposes of this Agreement.
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(b) Qualifying Proposal. Notwithstanding Subsection 6.4(a), following
-------------------
receipt of a Qualifying Strategic Transaction Proposal, neither Community West
nor any of its Representatives shall be prohibited from (i) engaging in
discussions or negotiations with a third party which has made a proposal that
satisfies the requirements of a Qualifying Strategic Transaction Proposal and
thereafter providing to such third party information previously provided or made
available to Palomar, provided the third party shall have entered into a
confidentiality agreement, (ii) taking and disclosing to Community West's
shareholders a position contemplated by Rule 14e-2(a) under the Exchange Act, or
otherwise making disclosure of the Qualifying Strategic Transaction Proposal to
Community West's shareholders, or (iii) subject to the terms of Subsection
11.1(e) terminating this Agreement. For purposes of this Section 6.4, a
"Qualifying Strategic Transaction Proposal" shall mean a bona fide written
Strategic Transaction Proposal with respect to which Community West's Board of
Directors shall have determined, after consultation with Community West's
counsel, that the action by Community West contemplated under either clause (i),
(ii) or (iii), as applicable, of the immediately preceding sentence is required
under the fiduciary duties owed by the Board of Directors to the holders of
Community West Stock, which determination has been made acting in good faith and
on the basis of a written opinion from a financial advisor retained by Community
West to the effect that the financial terms of such Strategic Transaction
Proposal are, from Community West's shareholders' perspective, superior to the
Merger.
(c) Community West Acquisition Transaction. Notwithstanding Subsection
-----------------------------------------
6.4(a) or 6.4(b) hereof, Community West or any of its subsidiaries shall be
permitted to and may cause its respective Representatives to solicit, encourage,
discuss, negotiate, enter into agreements, and carry out and complete
transactions regarding a Community West Acquisition Transaction; provided
however, that should Community West enter into or modify any agreement, or
complete without any agreement, any Community West Acquisition Transaction which
has a Material Adverse Effect upon Community West without written approval of
Palomar, then such action shall constitute a breach under Subsection 11.1(b) of
this Agreement giving rise to a right of termination by Palomar in accordance
with Subsection 11.(b) of this Agreement. For purposes of this Agreement, the
term "Community West Acquisition Transaction" shall mean: (i) a merger or
consolidation or any similar transaction where Community West or any of its
subsidiaries will be the surviving or resulting corporation or where the
shareholders of Community West or any of its subsidiaries immediately prior to
the completion of the transaction will own fifty percent (50%) or more of the
surviving or resulting corporation immediately after the completion of the
transaction, (ii) a purchase, lease or other acquisition of all or substantially
all of the assets of or assumption of all or substantially all the deposits of
another corporation, partnership or limited liability company which business is
permissible under the Bank Holding Company Act of 1956, as amended and
Regulation Y promulgated pursuant thereto, or (iii) the purchase or other
acquisition of securities representing ten percent (10%) or more of the voting
power of another corporation, partnership or limited liability company which
business is permissible under the Bank Holding Company Act of 1956, as amended
and Regulation Y promulgated pursuant thereto. Community West shall promptly
notify Palomar of any Community West Acquisition Transaction and shall disclose
to Palomar the identity of the party or parties to the transaction, and the
terms and conditions thereof. To the extent Community West makes a disclosure of
any non-public information to Palomar, its executive officer and/or directors,
then Palomar and its executive officers and directors shall, and each hereby
agrees to, maintain the confidentiality of all non-public information regarding
the Community West Acquisition Transaction so disclosed and to refrain from
trading in Community West Stock, Palomar Stock and the securities of the party
or parties to the Community West Acquisition Transaction so disclosed in
accordance with the provisions of Subsection 5.4(c) of this Agreement.
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(d) Disclosure and Trading. Upon receipt of the disclosure by Palomar
-----------------------
of a Strategic Transaction Proposal involving Palomar or any subsidiary thereof,
Community West, its executive officers and directors shall, and each hereby
agrees to, maintain the confidentiality of all non-public information regarding
the Strategic Transaction Proposal involving Palomar or any subsidiary thereof
to the same extent so required of Palomar and/or any subsidiary thereof under
the terms of any confidentiality agreement to which Palomar and/or any
subsidiary is a party or is bound and to refrain from trading in Community West
---
Stock, Palomar Stock and the securities of the party or parties to the Strategic
Transaction Proposal until the earlier of: (i) full public disclosure of such
non-public information has been made and trading in the subject securities would
not be a violation of all applicable securities laws, or (ii) the Strategic
Transaction Proposal has been terminated or has expired by its terms and
disclosure of such non-public information is permitted under the terms of any
agreement regarding the transaction and trading in the subject securities would
not be a violation of applicable securities laws.
6.5 PROXY STATEMENT. The Proxy Materials to be used in connection with
---------------
the shareholders' meeting required pursuant to Section 7.1 hereof, with respect
to all information set forth therein relating to Community West, GNB, the
Agreement, the Merger Agreement and the Transactions, at the time of mailing to
shareholders and at the time of the shareholders' meeting, shall:
(a) Comply in all material respects with the provisions of all
applicable laws and regulations; and
(b) except with respect to any information regarding Palomar supplied
to Community West by Palomar for inclusion in the Proxy Materials, not contain
any statement which, at the time and in light of the circumstances under which
it is made, is false or misleading with respect to any material fact or not omit
to state any material fact necessary in order to make the statements therein not
false or misleading or necessary to correct any statement in any earlier
communication with respect to the solicitation of a proxy for the same meeting
or subject matter that has become false or misleading.
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ARTICLE VII
MEETINGS OF SHAREHOLDERS AND FEDERAL SECURITIES LAWS
----------------------------------------------------
Community West and Palomar each covenant and agree with the other as
follows:
7.1 SHAREHOLDERS' MEETINGS. It will, promptly after execution of this
-----------------------
Agreement, cause a meeting of its shareholders (hereinafter referred to as the
"Community West Meeting" or the "Palomar Meeting," as applicable) to be duly
called and held upon requisite notice for the purpose of:
(a) authorizing and approving this Agreement and the Transactions
contemplated herein; and
(b) conducting such other business as its Board of Directors deems
advisable and proper in connection therewith, including the election of
directors.
Each of Community West and Palomar, through its Board of Directors, will
recommend that its shareholders approve the Transactions contemplated hereby,
and it will use its best efforts to obtain the affirmative votes of the holders
of the largest possible percentage of its outstanding shares of common stock.
7.2 SECURITIES LAWS. In obtaining the consent of their shareholders
----------------
to the matters described in Section 7.1 hereof, Community West and Palomar and
their officers, directors and controlling shareholders, will, in all respects,
comply with Sections 10 and 14 of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), the rules and regulations of the SEC promulgated
thereunder, the rules and regulations of the FDIC promulgated under the 1934
Act, if applicable, and the securities laws of all states in which shareholders
of the parties reside, including without limitation the Commissioner. Without
in any way limiting the generality of the forgoing, Community West and Palomar
agree with the other that the Notice of Meeting, Proxy Statement submitted in
connection therewith, form of Proxy and other solicitation materials that will
be used by them in soliciting the aforesaid shareholder approvals and
authorizations:
(a) will be filed with, and not be used before the same are cleared for
use by the SEC and the FDIC, if applicable, and, to the extent required, the
securities administrators of all states in which their shareholders reside
including without limitation the Commissioner;
(b) will contain all of the information required by the 1934 Act and the
rules and regulations of the SEC and FDIC thereunder, whether or not the party
has securities registered under the 1934 Act; and
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(c) will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading, except that neither party warrants the
accuracy or completeness of any information contained therein which is furnished
to it by the other relating to the business, assets, properties, financial
condition or management of the other or any corporation or person affiliated
therewith.
Community West and Palomar will use their respective best efforts to obtain
clearance by all appropriate regulatory authorities for the use of their Notices
of Meeting, Proxy Statements, forms of Proxy and other solicitation materials.
Community West and Palomar will consult and cooperate with the other in the
preparation of all such proxy solicitation materials for the Community West
Meeting and the Palomar Meeting.
7.3 SHAREHOLDER AGREEMENTS. The directors and executive officers of
-----------------------
Community West and Palomar, in their capacity as shareholders, in exchange for
good and valuable consideration, have executed and delivered Shareholder
Agreements substantially in the form of Exhibit "B-1" and Exhibit "B-2" hereto,
committing such person, among other things: (i) to vote their shares of
Community West Stock and Palomar Stock in favor of the agreement at the
Community West Meeting and Palomar Meeting as applicable, and (ii) to certain
representations concerning the ownership of Community West Stock and Palomar
Stock which they own, respectively. Community West and Palomar each covenant
and agree that they will take all actions and use their best efforts to cause
their respective directors and executive officers, in their capacity as
shareholders, to fully comply with the terms and conditions of the Shareholder
Agreements.
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF PALOMAR
----------------------------------------------
All obligations of Palomar to consummate the Transactions contemplated
herein are subject to the satisfaction, on or before the Closing Date, of the
following conditions precedent, unless compliance with or the occurrence of any
one or more of such conditions precedent is waived in writing by Palomar:
8.1 CONTINUED ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
---------------------------------------------------------
representations and warranties of Community West contained in this Agreement
shall be true and correct as of the date of this Agreement and as of the Closing
Date as though made on and as of the Closing Date, except as otherwise
contemplated by this Agreement.
8.2 PERFORMANCE OF OBLIGATIONS. Community West and its directors and
----------------------------
officers shall have performed and satisfied in all material respects all of the
covenants, agreements, obligations and conditions required by this Agreement and
the Shareholder Agreements of Community West to be performed and satisfied by
Community West and its directors and officers at or prior to the Closing Date.
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8.3 ABSENCE OF MATERIAL CHANGES. Between the date of this Agreement
------------------------------
and the Closing Date there shall have been: (a) no damage, destruction, whether
or not covered by insurance (except damage, destruction or loss for which, prior
to the Closing Date, Community West has been compensated by insurance in such
measure as to fully cover the replacement or repair of all damage, destruction
or loss) or Operating Loss, having a Material Adverse Effect on the business or
prospects of Community West taken as a whole; (b) no change in the business,
operations, financial condition, income, or prospects of Community West which
has had or is likely to have a Material Adverse Effect on Community West; and
(c) an absence of the institution of litigation involving Community West or any
of its assets which, if determined adverse to Community West, would have a
Material Adverse Effect upon Community West.
8.4 APPOINTMENT OF DIRECTORS. Community West shall have delivered to
--------------------------
Palomar at the Closing a copy of resolutions duly adopted by its Board of
Directors, which copy shall be certified by its Corporate Secretary, providing
for the appointment of the one nominee designated by Palomar as required by
Section 1.10 of this Agreement, effective as of the Closing Date and, if
necessary, providing for a new fixed number of directors within the range set in
Community West's Bylaws.
8.5 SHAREHOLDER AGREEMENTS. Community West shall have delivered to
-----------------------
Palomar concurrently with the execution of this Agreement all of the Shareholder
Agreements of Community West duly executed as provided for in Section 1.12
hereof which Shareholder Agreements shall be in full force and effect and shall
have been fully complied with in accordance with their terms by the shareholders
of Community West who have executed same.
8.6 EMPLOYMENT AGREEMENTS. Community West shall have delivered to
----------------------
Palomar new Employment Agreements between Palomar and those persons serving as
Palomar's Chief Executive Officer and Palomar's Chief Financial Officer as of
the Closing Date which Employment Agreements shall provide for the employment of
those persons by Palomar for a term of three (3) years from and the Effective
Term of the Merger under terms and conditions substantially similar to the terms
and conditions applying to those individual employment with Palomar as of the
date of this Agreement.
8.7 OFFICERS' CERTIFICATE. There shall have been delivered to Palomar
----------------------
at the Closing a certificate executed by the President and Chief Executive
Officer, by the Corporate Secretary, and by the Chief Financial Officer of
Community West certifying, to the best of their knowledge, compliance by
Community West with all of the provisions of Sections 8.1, 8.2, 8.3 and 8.4 of
this Agreement.
8.8 RECEIPT OF LEGAL OPINION. Palomar shall have received a legal
---------------------------
opinion from Horgan, Rosen, Beckham & Coren LLP, counsel for Community West,
addressed to Palomar and dated the Closing Date and substantially in the form
set forth on Exhibit "D-1" hereto or in such other form as agreed to by the
parties.
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8.9 CLOSING DOCUMENTS. Community West shall have delivered to Palomar
------------------
the Closing documents required pursuant to Article VIII of this Agreement.
ARTICLE IX
CONDITIONS PRECEDENT TO OBLIGATIONS OF COMMUNITY WEST
-----------------------------------------------------
All obligations of Community West to consummate the Transactions
contemplated herein
are subject to the satisfaction, on or before the Closing Date, of the following
conditions precedent, unless compliance with or the occurrence of any one or
more of such conditions precedent is waived in writing by Community West:
9.1 CONTINUED ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
---------------------------------------------------------
representations and warranties of Palomar contained in this Agreement shall be
true and correct as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date, except as otherwise contemplated by
this Agreement.
9.2 PERFORMANCE OF OBLIGATIONS. Palomar and its directors and officers
--------------------------
shall have performed and satisfied in all material respects all of the
covenants, agreements, obligations and conditions required by this Agreement and
the Shareholder Agreements of Palomar to be performed and satisfied by Palomar
and its directors and officers at or prior to the Closing Date.
9.3 ABSENCE OF MATERIAL CHANGES. Between the date of this Agreement
------------------------------
and the Closing Date there shall have been: (a) no damage, destruction, whether
or not covered by insurance (except damage, destruction or loss for which, prior
to the Closing Date, Palomar has been compensated by insurance in such measure
as to fully cover the replacement or repair of all damage, destruction or loss)
or Operating Loss, having a Material Adverse Effect on the business of Palomar
taken as a whole; (b) no change in the business, operations, financial condition
or income of Palomar which has had or is likely to have a Material Adverse
Effect on Palomar; and (c) an absence of the institution of litigation involving
Palomar or any of its assets which, if determined adverse to Palomar, would have
a Material Adverse Effect upon Palomar.
9.4 AFFILIATES' LETTERS. Palomar shall have delivered to Community
--------------------
West concurrently with the execution of this Agreement, Affiliates' Letters
substantially in the form of Schedule "C" hereto signed by each of its
-------------
affiliates.
9.5 SHAREHOLDER AGREEMENTS. Palomar shall have delivered to Community
-----------------------
West concurrently with the execution of this Agreement all of the Shareholder
Agreements of Palomar duly executed as provided called by Section 1.12 hereof
which Shareholder Agreements shall be in full force and effect and shall have
been fully complied with in accordance with their terms by the shareholders of
Palomar who have executed same.
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9.6 OFFICERS' CERTIFICATE. There shall have been delivered to
----------------------
Community West at the Closing a certificate executed by the President and Chief
Executive Officer, by the Corporate Secretary, and by the Chief Financial
Officer of Palomar certifying, to the best of their knowledge, compliance by
Palomar with all of the provisions of Sections 9.1, 9.2, 9.3, 9.4 and 9.5 of
this Agreement.
9.7 RECEIPT OF LEGAL OPINION. Community West shall have received a
---------------------------
legal opinion from Higgs, Fletcher & Mack, LLP, counsel for Palomar, addressed
to Community West and CW Merger Corp and dated the Closing Date, substantially
in the form set forth as Exhibit "D-2" hereto or in such other form as agreed to
by the parties.
9.8 CLOSING DOCUMENTS. Palomar shall have delivered to Community West
-----------------
the Closing documents required pursuant to Article IX of this Agreement.
ARTICLE X
CONDITIONS PRECEDENT TO THE MERGER
----------------------------------
The obligations of Community West and Palomar to proceed with the Merger
and the Transactions provided for herein are subject to the fulfillment, at or
prior to the Effective Time of Merger, of the conditions that:
10.1 PERMITS AND APPROVALS. Appropriate permits or approvals from the
---------------------
Commissioner, the FDIC, the FRB and any other governmental agencies which are
necessary to carry out the Transactions contemplated in this Agreement, shall
have been received without the imposition of any conditions or requirements
which, in the reasonable opinion of the affected party, are materially
burdensome or undesirable, and the United States Department of Justice shall not
have taken any adverse action within the period allowed under 12 U.S.C. Section
1828(c)(6). Said permits and approvals shall include, but shall not be limited
to, the following:
(a) prior written approval from the Commissioner and the FDIC for Palomar
to merger with CWB Merger Corp pursuant to Section 5750 of the CFC and the Bank
Merger Act;
(b) receipt of approval from the FRB under the Bank Holding Company Act
1956 for Community West to acquire control of Palomar; and
(c) receipt of a permit from the California Commissioner of Corporations
under the California Corporate Securities Law of 1968 and the declaration as
effective by the SEC of a registration statement under the Securities Act of
1933, with respect to the shares of Community West Stock to be issued upon
consummation of the Merger, and the approvals of any requisite state securities
administrators.
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10.2 TAX RULING OR OPINION. Receipt by the parties of a ruling issued
---------------------
by the Internal Revenue Service or, in lieu thereof, the opinion of Deloitte &
Touche, LLP to the effect that:
(a) the Merger qualifies as a reorganization within the meaning of
Section 368(a)(1)(A) of the Internal Revenue Code of 1954, as amended (the
"Code"), and Community West, Palomar, and CWB Merger Corp are parties to a
reorganization under Section 368(d) of the Code;
(b) no gain or loss will be recognized by the parties as a result of the
Merger;
(c) the basis and holding periods of the assets and liabilities exchanged
between the parties to the Merger will be the same as the basis and holding
periods of those assets and liabilities prior to the Merger;
(d) no gain or loss will be recognized by the holders of Palomar Stock
upon the conversion of their shares of Palomar Stock into shares of Community
West Stock (except for any fractional share interests to which they may be
entitled);
(e) where Palomar's shareholders hold their Palomar Stock as a capital
asset, the basis of Community West Stock to be received by Palomar's
shareholders will be the same as the basis of Palomar Stock converted into
Community West Stock;
(f) where Palomar's shareholders hold their stock in Palomar as a capital
asset, the holding period of Community West Stock to be received by Palomar
shareholders will be the same as the holding period of Palomar Stock converted
into Community West Stock;
(g) where a shareholder of Palomar or Community West dissents to the
Merger and has received cash for his or her Palomar Stock or Community West
Stock, such cash will be treated as received by the shareholder as a
distribution in redemption of his or her Palomar Stock or Community West Stock
subject to the provisions and limitations of Section 302 of the Code; and
(h) where cash is received by a shareholder of Palomar in lieu of a
fractional share interest in Community West Stock, the cash will be treated as
being received by the shareholder as a distribution in redemption of his or her
fractional share interest, subject to the provisions and limitations of Section
302 of the Code.
10.3 ABSENCE OF LITIGATION. On the Closing Date and at the Effective
----------------------
Time of the Merger:
(a) there shall be no action pending before any court of competent
jurisdiction in which any injunction is sought by any governmental authority
against the Transactions contemplated hereby; and
(b) there shall be in effect no order, writ, injunction or decree of any
court or governmental authority prohibiting the consummation of any of the
Transactions contemplated hereby.
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10.4 SHAREHOLDER APPROVALS.
----------------------
(a) Approval of Merger. This Agreement shall have been approved by the
-------------------
holders of at least a majority of the issued and outstanding shares of Community
West Stock entitled to vote, by the holders of at least a majority of the issued
and outstanding shares Palomar Stock entitled to vote, and by the holder of at
least a majority of the issued and outstanding shares of CWB Merger Corp Stock
entitled to vote.
(b) Other Actions. Any and all other actions required by the
--------------
shareholders of Community West or Palomar to authorize or effect the
Transactions called for herein shall have been duly and validly taken.
10.5 CONTINUITY OF INTEREST. Taking into account payments to, and
------------------------
proposed payments to, holders of Dissenting Palomar Shares and payments of
expenses incurred in connection with the Transactions called for herein, after
the Effective Time of the Merger Palomar will hold at least 90% of the fair
market value of the net assets and 70% of the fair market value of the gross
assets owned by both it and CWB Merger Corp immediately before the Effective
Time of the Merger. All payments to holders of Dissenting Palomar Shares and
all redemptions and distributions made by Palomar immediately preceding the
Effective Time of the Merger and which are part of this Agreement will be
considered as assets held by Palomar immediately prior to the Effective Time of
the Merger. No fact, circumstance or event shall have occurred or is reasonably
likely to occur that would cause the Merger not to be deemed a tax-free
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended, or that would cause the Merger to not qualify for
pooling-of-interests accounting treatment, including without limitation,
distributions or payment to holders of dissenting Palomar shares and payments
made on account of fractional shares of Community West to be issued in
consideration of Palomar Stock in the Merger.
ARTICLE XI
TERMINATION
-----------
11.1 TERMINATION OF THIS AGREEMENT. This Agreement shall terminate and
-----------------------------
be of no further force and effect as between the parties hereto, except as to
liability for a material breach of any representation, warranty or covenant
occurring or arising prior to the date of termination, upon the occurrence of
any of the following:
(a) Immediately upon the expiration of ten (10) days from the date that
Community West has given notice to Palomar of breach or default by Palomar in
the performance of any covenant, agreement, representation, warranty, duty or
obligation hereunder; provided, however, that no such termination shall be
effective if, within said ten day period, Palomar shall have substantially
corrected and cured the grounds for the termination as set forth in said notice
of termination;
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(b) Immediately upon the expiration of ten (10) days from the date that
Palomar has given notice to Community West of breach or default by Community
West in the performance of any covenant, agreement, representation, warranty,
duty or obligation hereunder; provided, however, that no such termination shall
be effective if, within said ten day period Community West shall have
substantially corrected and cured the grounds for the termination as set forth
in said notice of termination;
(c) Upon the expiration of thirty (30) days after the Commissioner, the
FDIC, the FRB, the SEC or any other applicable regulatory agency denies or
refuses to grant the approvals, nondisapprovals, consents, or authorizations
required to be obtained in order to consummate the Transactions contemplated by
this Agreement, unless within said thirty (30) day period the parties hereto
agree to resubmit the application to the regulatory authority which has denied
or refused to grant such approval, nondisapproval, consent, authorization or
ruling, as the case may be;
(d) Immediately after: (i) Community West is notified by Palomar or
Community West otherwise becomes aware that, pursuant to Section 5.4, Palomar
has received a Qualifying Strategic Transaction Proposal; and (ii) payment by
Palomar to Community West of the Termination Fee pursuant to Subsection 11.4(a);
(e) Immediately after: (i) Palomar is notified by Community West or
Palomar otherwise becomes aware that, pursuant to Section 6.4, Community West
has received a Qualifying Strategic Transaction Proposal; and (ii) payment by
Community West of the Termination Fee pursuant to Subsection 11.4(a);
(f) By notice by Community West to Palomar or by Palomar to Community
West, if the Closing has not occurred on or before December 31, 1998, unless
said date shall be extended by the mutual agreement of the parties hereto and
unless such failure results primarily from any material breach pursuant to
Subsections 11.1(a) or (b) or by virtue of the events described in Subsections
11.1(c), (d) or (e);
(g) Upon the mutual agreement of the parties hereto;
(h) On or before May 14, 1998, by Palomar in the event that (i)
Community West fails to deliver to Palomar on or before May 7, 1998, all of the
schedules Community West is required to provide in accordance with Article IV of
this Agreement, or (ii) Community West delivers the schedules to Palomar
required by Article IV on or before May 7, 1998, but upon review, Palomar, in
good faith after applying a commercially reasonable standard determines that
there is a fact, event or circumstance identified on the schedule(s) that has
had or is likely to have a Material Adverse Effect on Community West; or
150
<PAGE>
(i) On or before May 14, 1998, by Community in the event that (i)
Palomar fails to deliver to Community West on or before May 7, 1998, all of the
schedules Palomar is required to provide in accordance with Article III of this
Agreement, or (ii) Palomar delivers the schedules to Community West required by
Article III on or before May 7, 1998, but upon review, Community West, in good
faith after applying a commercially reasonable standard determines that there is
a fact, event or circumstance identified on the schedule(s) that has had or is
likely to have a Material Adverse Effect on Palomar.
11.2 IMMATERIAL BREACH. Notwithstanding anything to the contrary
------------------
contained herein, no party hereto shall have the right to terminate this
Agreement on account of its own breach or due to any immaterial breach by any
other party hereto of any covenant, agreement, representation, warranty, duty or
obligation hereunder.
<PAGE>
11.3 EFFECT OF TERMINATION. No termination of this Agreement under
-----------------------
this Article XI for any reason or in any manner, except as permitted by
Subsections 11.1 (f), (g), (h) or (i) shall release, or be construed as so
releasing, any party hereto from any liability or damage to any other party
hereto arising out of, in connection with or otherwise relating to, directly or
indirectly said party's material and bad faith breach, default or failure in
performance of any of its covenants, agreements, duties or obligations arising
hereunder, or any breaches of any representation or warranty contained herein or
its obligation pursuant to Section 12.1 hereof; provided, however, neither party
shall be liable to the other for termination pursuant to Subsection 11.1(c) for
the failure of the Commissioner, the FDIC, the FRB, or any other applicable
regulatory agency to grant the approvals, nondisapprovals, consents, or
authorizations required or imposes burdens upon Community West, GNB or Palomar
that are determined to be material upon and are unacceptable to that
representative party, if the failure is not the result of a material breach by
that party of a representation, warranty or covenant set forth in this
Agreement. If, however, such termination shall result from an election to
terminate by Community West pursuant to Subsection 11.1(a), then Palomar shall
pay to Community West, as reasonable and full liquidated damages and reasonable
compensation for the loss sustained thereby and not as a penalty or forfeiture,
the Liquidated Damages as set forth in Subsection 11.4(b). If, however, such
termination shall result from an election to terminate by Palomar pursuant to
Subsection 11.1(b), then Community West shall pay to Palomar, as reasonable and
full liquidated damages and reasonable compensation for the loss sustained
thereby and not as a penalty for forfeiture, the Liquidated Damages as set forth
in Subsection 11.4(b). If, however, such termination shall result from an
election to terminate by Community West or Palomar pursuant to Subsection
11.1(d), then Palomar shall pay to Community West the Termination Fee pursuant
to Subsection 11.4(a). If, however, such termination shall result from an
election to terminate by Palomar or Community West pursuant to Subsection
11.1(e), then Community West shall pay to Palomar the Termination Fee pursuant
to Subsection 11.4(a).
11.4 TERMINATION FEE AND LIQUIDATED DAMAGES.
------------------------------------------
(a) Termination Fee. The Termination Fee shall be the amount of $500,000
----------------
(the "Termination Fee") in the event this Agreement is terminated pursuant to
Subsection 11.1(d) or Subsection 11.1(e).
151
<PAGE>
(b) Liquidated Damages. As reasonable and full liquidated damages and
-------------------
reasonable compensation for the loss sustained and not as a penalty or
forfeiture in the event that this Agreement is terminated pursuant to Subsection
11.1(a) or Subsection 11.1(b), the liquidated damages shall be the amount of
$500,000 (the "Liquidated Damages").
(c) Exclusive Remedy. Except in the event the responsible party fails to
-----------------
pay the Termination Fee or the Liquidated Damages, as applicable, within ten
(10) business days after receipt of an invoice therefor, which period shall be
extended by an additional reasonable time if the responsible party has
reasonably disputed the existence or amount of such obligations, timely receipt
of such payment shall constitute an exclusive remedy, and following such receipt
and acceptance, the receiving party shall be barred from recovering damages for
any breach of any term of this Agreement.
ARTICLE XII
GENERAL PROVISIONS
------------------
12.1 EXPENSES. Community West and Palomar shall each bear their own
--------
expenses incurred in connection with the negotiation, preparation, and
performance of this Agreement, including legal and accounting fees, printing
costs, filing fees, and other necessary expenses (hereinafter "Expenses")
regardless of whether the Merger or any of the Transactions contemplated under
this Agreement are consummated.
<PAGE>
12.2 NOTICES. All notices, demands or other communications hereunder
-------
shall be in writing and shall be deemed to have been duly given if delivered in
person, or by United States mail, certified or registered, with return receipt
requested, or otherwise actually delivered, as follows:
(i) If to Palomar, to:
Palomar Savings & Loan Association
355 West Grand Avenue
Escondido, California 92033-0630
Attention: Mr. James M. Rady, President and CEO
With a copy to:
Higgs, Fletcher & Mack, LLP
401 West A Street, Suite 2000
San Diego, California 92101
Attn: Kurt L. Kicklighter, Esq.
152
<PAGE>
(ii) If to Community West, to:
Community West Bancshares
5827 Hollister Avenue
Goleta, California 93117
Attention: Mr. Llewellyn W. Stone, President and CEO
With a copy to:
Horgan, Rosen, Beckham & Coren, LLP
21700 Oxnard Street, Suite 1400
Los Angeles, California 91365-4335
Attn: Arthur A. Coren, Esq.
The persons or addresses to which mailings or deliveries shall be made may
change from time to time by notice given pursuant to the provisions of this
Section 12.2. Any notice, demand or other communications given pursuant to the
provisions of this Section 12.2 shall be deemed to have been given on the date
actually delivered or three (3) days following the date mailed, as the case may
be.
12.3 SUCCESSORS AND ASSIGNS. All terms and provisions of this
------------------------
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective transferees, successors and assigns; provided, however,
that except as otherwise contemplated hereby, this Agreement and all rights,
privileges, duties and obligations of the parties hereto may not be assigned or
delegated by any party hereto without the prior written consent of the other
parties to this Agreement.
12.4 THIRD PARTY BENEFICIARIES. Palomar and Community West intend that
-------------------------
this Agreement shall not benefit or create any right or cause of action in or on
behalf of any person other than Palomar or Community West.
12.5 COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, all of which taken together shall constitute one instrument.
12.6 GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement is made and
--------------------------------------
entered into in the State of California and the internal laws (without regard to
the conflict of law of laws provisions thereof) of that state shall govern the
validity and interpretation hereof and the performance of the parties hereto of
their respective duties and obligations hereunder. EACH PARTY HERETO HEREBY
SUBMITS TO THE JURISDICTION OF THE COURTS OF THE COUNTY OF SANTA BARBARA, AS
WELL AS TO THE JURISDICTION OF ALL COURTS FROM WHICH AN APPEAL MAY BE TAKEN OR
OTHER REVIEW SOUGHT FROM THE AFORESAID COURTS, FOR THE PURPOSE OF ANY SUIT,
ACTION OR OTHER PROCEEDING ARISING OUT OF SUCH PARTY'S OBLIGATIONS UNDER OR WITH
RESPECT TO THIS AGREEMENT OR ANY OF THE AGREEMENTS, INSTRUMENTS OR DOCUMENTS
CONTEMPLATED HEREBY, AND, TO THE EXTENT IT LAWFULLY MAY DO SO, EXPRESSLY WAIVES
ANY AND ALL OBJECTIONS IT MAY HAVE AS TO VENUE IN ANY OF SUCH COURTS.
12.7 CAPTIONS. The captions contained in this Agreement and the
--------
Schedules hereto are for convenience of reference only and do not form a part of
or affect the interpretation of this Agreement.
153
<PAGE>
12.8 SCHEDULES. The Schedules attached hereto are an integral part of
---------
this Agreement and each Schedule shall be applicable as if set forth in full in
the text hereof only with respect to the sections of this Agreement to which it
is cross-referenced. In the event there is any absolute unconditional
representation contained in this Agreement, said representation shall be
modified by any contrary information set forth on an Schedule which expressly
cross-references to the section where the absolute or unconditional
representation is contained.
12.9 REPRESENTATIONS AND WARRANTIES. The representations and
--------------------------------
warranties of the parties hereto contained in this Agreement or any Schedule
hereto shall survive for two (2) years from and after the Effective Time of the
Merger and thereafter shall terminate and be of no further force and effect.
12.10 WAIVER AND MODIFICATION. No waiver of any term, provision or
-------------------------
condition of this Agreement, whether by conduct or otherwise, in any one or more
instances shall be deemed to be or construed as a further or continuing waiver
of any such term, provision or condition of this
154
<PAGE>
Agreement. This Agreement may be modified or amended only by an instrument of
equal formality signed by the parties or their duly authorized agents.
12.11 KNOWLEDGE. In all representations and warranties concerning the
---------
knowledge of Community West or Palomar, wherever included herein, there shall be
imputed to Community West or Palomar the actual (and not constructive) knowledge
of its current executive officers and directors.
12.12 ATTORNEYS' FEES. In the event any of the parties to this
----------------
Agreement brings an action or suit against any other party by reason of any
breach of any covenant, agreement, representation, warranty or other provision
hereof, any prevailing party in whose favor final judgment is entered shall be
entitled to have and recover of and from the losing party all reasonable costs
and expenses incurred or sustained by such prevailing party in connection with
such suit or action, including, without limitation, legal fees and court costs.
12.13 ENTIRE AGREEMENT. The making, execution and delivery of this
-----------------
Agreement by the parties hereto have been induced by no representations,
statements, warranties or agreements other than those herein expressed. This
Agreement embodies the entire understanding of the parties and there are no
further or other agreements or understandings, written or oral, in effect
between the parties relating to the subject matter hereof, unless expressly
referred to by reference herein.
12.14 CONSENTS. Any and all consents required to be obtained from any
--------
of the parties hereto under this Agreement shall not be unreasonably withheld
and shall be deemed given unless the requesting party receives written notice to
the contrary from the party to whom such request is made within ten business
days after request therefor.
12.15 SEVERABILITY. If any portion of this Agreement shall be deemed
------------
by a court of competent jurisdiction to be unenforceable, the remaining terms
hereof shall provide for the consummation of the Transactions contemplated
herein in substantially the same manner as originally set forth at the date this
Agreement was executed.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
PALOMAR SAVINGS & COMMUNITY WEST
LOAN ASSOCIATION BANCSHARES
By: /S/ James M. Rady By: /S/ C. Randy Shaffer
--------------------------- --------------------------
James M. Rady C. Randy Shaffer
Its: President and Its: Executive Vice President
Chief Executive Officer
155
<PAGE>
EXHIBIT "A"
MERGER AGREEMENT
THIS MERGER AGREEMENT (this "Agreement") is made this ___ day of
_________________, 1998, by and between CWB MERGER CORP, a California
Corporation (hereinafter referred to as "CWB Merger Corp"), and PALOMAR SAVINGS
& LOAN ASSOCIATION, a California savings and loan association (hereinafter
referred to as "Palomar"), with reference to the following:
RECITALS
--------
WHEREAS, Palomar is a California savings and loan association duly
organized, validly existing and in good standing under the laws of the State of
California;
WHEREAS, CWB Merger Corp is a California corporation established as a
wholly-owned subsidiary of Community West Bancorp ("Community West") and is duly
organized, validly existing and in good standing under the laws of the State of
California.
WHEREAS, Community West and Palomar have entered into that certain
Agreement and Plan of Reorganization dated __________________, 1998 (the
"Acquisition Agreement") providing for the acquisition of Palomar by Community
West through the merger of Palomar with CWB Merger Corp under the charter and
title of Palomar (the "Merger");
WHEREAS, both CWB Merger Corp and Palomar wish to complete the acquisition
by consummating the Merger; and
WHEREAS, the Board of Directors of each of Community West and Palomar has
approved this Agreement and has authorized its execution and delivery and the
sole shareholder of CWB Merger Corp and the shareholders of Community West and
Palomar have approved this Agreement and the transactions contemplated hereby;
NOW, THEREFORE, in consideration of the mutual covenants, conditions and
agreements set forth herein, the parties hereto hereby agree as follows:
AGREEMENT
---------
SECTION 1. SURVIVING BANK. At the Effective Time of the Merger (as that
---------- ---------------
term is defined in the Acquisition Agreement), CWB Merger Corp and Palomar shall
be merged under the charter of Palomar (the "Surviving Association").
SECTION 2. CLOSING. The closing of the transactions contemplated hereby
---------- -------
(the "Closing")
shall take place at the offices of Community West, 5827 Hollister Avenue,
Goleta, California 93117, on the date fixed therefor pursuant to Section 2.1 of
the Acquisition Agreement.
SECTION 3. NAME. The name of the Surviving Association shall be "Palomar
---------- ----
Savings & Loan Association."
<PAGE>
SECTION 4. BUSINESS; OFFICES. The business of the Surviving Association
---------- ------------------
shall be that of a savings and loan association. This business shall be
conducted by the Surviving Association at its main office located at 355 West
Grand Avenue, Escondido, California 92033, and at its legally established
branches and loan production offices.
SECTION 5. CAPITAL. The capital account of the Surviving Association at
---------- -------
the Effective Time of the Merger shall be equal to the combined capital accounts
of Palomar and CWB Merger Corp, adjusted, however, for normal earnings and
expenses up to the Effective Time of the Merger. The authorized capitalization
of the Surviving Association shall be 1,500,000 shares of common stock, par
value $4.00 per share.
SECTION 6. ASSETS; LIABILITIES. All assets of each of Palomar and CWB
---------- --------------------
Merger Corp, as they exist immediately prior to the Effective Time of the
Merger, shall pass to and vest in the Surviving Association without any
conveyance or other transfer. The Surviving Association shall be responsible
for all of the liabilities of every kind and description of each of CWB Merger
Corp and Palomar existing as of the Effective Time of the Merger.
SECTION 7. OUTSTANDING STOCK. At the Effective Time of the Merger, each
---------- ------------------
share of the common stock, $4.00 par value, of Palomar (the "Palomar Stock")
issued and outstanding immediately prior to the Effective Time of the Merger,
except for Dissenting Palomar Shares (as defined in Section 1.3 of the
Acquisition Agreement), on and after the Effective Time of the Merger, pursuant
to the Acquisition Agreement and the Agreement and without any further action on
the part of Palomar or the holders of Palomar Stock, automatically shall be
canceled and cease to be an issued and outstanding share of Palomar Stock and
shall be converted into the right to receive that number of newly issued shares
of common stock, no par value, of Community West, equal to the whole and
fractional number resulting from dividing the Palomar Per Share Value by the
Community West Per Share Value; plus cash in lieu of fraction interests as
specified in Section 1.5 of the Agreement. For purposes of this Agreement, the
term Community West Per Share Value shall mean the average of the "bid" and
"ask" of Community West Stock as quoted in the NASDAQ National Market System for
the thirty (30) trading days immediately preceding the Closing (as that term is
defined in Section 2.1 of the Acquisition Agreement). For purposes of this
Agreement, the term Palomar Per Share Value shall mean the product of the
following equation: [2.2] x [a b] where "a" is the Palomar Total Shareholders
Equity as of the last day of the calendar month immediately preceding the
Closing as determined in accordance with generally accepted accounting
principles as in effect in the United States, consistently applied (without
giving effect to the payment of finders'fee occurring after the Closing), and
where "b" is the number of shares of Palomar Stock outstanding immediately prior
to the Closing. Certificates formerly evidencing shares of Palomar Stock shall
be surrendered for exchange to the Transfer Agent (as defined in Section 1.6 of
the Acquisition Agreement) in accordance with Section 1.6 of the Acquisition
Agreement.
SECTION 8. DIVIDEND. Neither CWB Merger Corp nor Palomar shall declare or
--------- --------
pay any dividend to its shareholders between the date of this Agreement and the
Effective Time of the Merger, or dispose of any of its assets in any other
manner except in the normal course of business and for adequate value.
2
<PAGE>
SECTION 9. BOARD OF DIRECTORS; OFFICERS. The persons serving as the Board
--------- ----------------------------
of Directors of Palomar immediately prior to the Effective Time of the Merger at
and after the Effective Time of the Merger shall become and be the Board of
Directors of the Surviving Association, and such persons shall serve as the
directors of the Surviving Association until such time as their successors have
been elected and qualified; provided however, that at the Effective Time of the
Merger, one additional person designated by the Board of Directors of Community
West in its sole and absolute discretion shall be appointed to the Board of
Directors of Palomar. The executive officers of Palomar immediately prior to
the Effective Time of the Merger at and after the Effective Time of the Merger
shall become and be the executive officers of the Surviving Association, and
such persons shall serve until they resign or are replaced or terminated by the
Board of Directors of the Surviving Association.
SECTION 10. ARTICLES OF ASSOCIATION AND BYLAWS OF SURVIVING ASSOCIATION.
----------- ------------------------------------------------------------
The Articles of Incorporation and Bylaws of Palomar as in effect immediately
prior to the Effective Time of the Merger, copies of which are attached hereto
as Exhibits "A" and "B," respectively, shall be the Articles of Incorporation
and Bylaws of the Surviving Association.
SECTION 11. CONDITIONS. The obligations of the parties to proceed with
----------- ----------
the Closing are subject to the satisfaction or waiver at or prior to the Closing
of all of the conditions to the Merger set forth herein and in the Acquisition
Agreement.
SECTION 12. TERMINATION. This Agreement may be terminated at any time
----------- -----------
prior to the Closing:
(a) by the written agreement of CWB Merger Corp, Community West and
Palomar;
(b) by CWB Merger Corp or Palomar if the Closing shall not have been
consummated on or before December 31, 1998, or such other date, if any, upon
which CWB Merger Corp, Community West and Palomar may agree in writing; or
(c) automatically in the event the Acquisition Agreement is terminated
in accordance with its terms.
SECTION 13. APPROVALS. This Agreement has been approved and/or ratified
----------- ---------
and confirmed by the affirmative vote of shareholders of Palomar owning at least
a majority of its capital stock outstanding, and by the sole shareholder of CWB
Merger Corp, by written consent or at a meeting held on the call of the Board of
Directors; and the Merger shall become effective on such date and at such time
as an executed copy of this Agreement, together with all requisite certificates
as required by applicable California law, bearing the endorsement of the
California Commissioner of Financial Institutions (the "Commissioner") as
required by California Financial Code Section 5758 and certified by the
California Secretary of State is filed with the Commissioner (the "Effective
Time of the Merger").
3
<PAGE>
WITNESS the signatures of CWB Merger Corp and Palomar, this ____ day of
___________, 1998, each set by its President and attested to by its Cashier or
Secretary, pursuant to a resolution of their Boards of Directors, acting by a
majority.
CWB MERGER CORP
By: /s/ Llewellyn W. Stone
-------------------------
Llewellyn W. Stone
President and
Chief Executive Officer
Attest:
/s/ Michel Nellis
- ---------------------
Michel Nellis
Secretary
PALOMAR SAVINGS & LOAN ASSOCIATION
By: /s/ James M. Rady
-------------------------
James M. Rady
President and
Chief Executive Officer
Attest:
- ------------------------
Secretary
4
<PAGE>
EXHIBIT "B-1"
SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT (this "Shareholder Agreement"), is made as
of this ____ day of April, 1998, by and among Community West Bancshares, a
California corporation ("Community West"), and the shareholder of Palomar
Savings & Loan Association, a California state chartered savings and loan
association ("Palomar") whose name is set forth under "Shareholder" on the
signature page hereof (the "Shareholder"). Community West is contemporaneously
herewith entering into agreements with other shareholders of Palomar, which
agreements are identical in all respects hereto, except as to (a) the number of
shares of Palomar's common stock, $4.00 par value (the "Palomar Common Stock")
owned by such other shareholders, and (b) the name and address of the other
shareholders. The Shareholder and such other persons shall hereinafter be
referred to as to the Shareholders and this Agreement and such other agreements
as "Shareholder Agreements." This Shareholder Agreement is made with reference
to the following:
RECITALS
--------
WHEREAS, that certain Agreement and Plan of Reorganization (the
"Agreement"), dated as of April __, 1998, entered into by and among Community
West and Palomar, provides for the acquisition by Community West of one hundred
percent (100%) of the Palomar Common Stock, through the merger (the "Merger") of
Palomar with a merger corporation which shall be a wholly-owned subsidiary of
Community West ("CWB Merger Corp"); and
WHEREAS, as a condition precedent to the obligations of Community West and
Palomar under the Agreement, the Shareholder and all the Shareholders shall have
entered into Shareholder Agreements concurrent with the execution of the
Agreement in accordance with the terms, conditions, and provisions thereof;
NOW, THEREFORE, in order to effectuate the transactions set forth above and
in consideration of the mutual covenants, conditions, agreements,
representations and warranties contained herein and in the Agreement, and
intending to be legally bound, the parties hereto agree as follows:
AGREEMENT
---------
ARTICLE I
COVENANTS OF SHAREHOLDER
------------------------
1.1 VOTE OF SHAREHOLDERS. At the meeting of shareholders of Palomar
-----------------------
referred to in Section 7.1 of the Agreement (the "Meeting"), the Shareholder
shall vote or cause to be voted the shares of Palomar Common Stock indicated as
owned or controlled by such Shareholder on Schedule I attached hereto, and any
other shares of Palomar Common Stock now owned or hereafter acquired or
controlled by such Shareholder, in favor of, and to approve the principal terms
of, the Merger and any other matter contemplated by the Agreement which requires
the approval of the shareholders of Palomar.
<PAGE>
1.2 OTHER CONTRACTS. From and after the date of this Shareholder
-----------------
Agreement, the Shareholder shall not enter into or become subject to any
agreement or commitment which would restrict or in any way impair the obligation
of the Shareholder to comply with all the terms of this Shareholder Agreement,
including, without limitation, any other agreement to sell, transfer or
otherwise dispose of the Shareholder shares of Palomar Common Stock.
1.3 UPDATING INFORMATION. In the event that the Shareholder shall
----------------------
discover that any representation or warranty made herein by him/her was false or
misleading in any material respect when made or that any event has occurred such
that any representation or warranty of the Shareholder made herein would, if
made at and as of the time of the occurrence of such event, or thereafter, be
incorrect in any material respect, the Shareholder shall deliver to Community
West a statement specifying that it is delivered pursuant to this Section 1.3
and stating in reasonable detail the facts with respect thereto. Delivery of
any such statement shall not limit any rights which Community West may otherwise
have under this Shareholder Agreement.
1.4 AGREEMENT TO RECOMMEND. The Shareholder agrees that, upon the
-------------------------
execution of this Shareholder Agreement, he/she shall at all times use his/her
best efforts in order to obtain the approval of the shareholders of Palomar of
the principal terms of the Merger and any other matter contemplated by the
Agreement which requires approval of the shareholders of Palomar and shall
recommend the approval of such matters by the shareholders of Palomar at the
Meeting.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
------------------------------
OF SHAREHOLDER
--------------
2.1 REPRESENTATIONS AND WARRANTIES OF DIRECTOR. The Shareholder
----------------------------------------------
represents and warrants to, and agrees with, Community West as follows:
(a) CAPACITY. The Shareholder has all requisite capacity to enter
--------
into and to perform the Shareholder's obligations under this Shareholder
Agreement.
(b) AGREEMENT. The Shareholder has received a copy of the
---------
Agreement and has had the opportunity to review and to consider the terms and
conditions contained in this Shareholder Agreement and in the Agreement and to
confer with his or her counsel concerning said terms and conditions.
(c) BINDING AGREEMENT. This Shareholder Agreement has been duly
------------------
executed and delivered by such Shareholder and constitutes a valid and legally
binding agreement of such Shareholder.
2
<PAGE>
(d) OWNERSHIP OF SHARES, ETC. Schedule I hereto correctly sets
---------------------------
forth the number of shares of Palomar Common Stock owned by the Shareholder or
with respect to which such Shareholder has sole or shared voting power, and the
Shareholder has good and marketable title to all such shares of Palomar Common
Stock free and clear of any liens, security interests, charges or other
encumbrances of any kind or nature except as set forth on Schedule I.
(e) RELATIONSHIP WITH PALOMAR. The Shareholder is a director or
---------------------------
executive officer of Palomar.
(f) NON-CONTRAVENTION. The execution and delivery of this
-----------------
Agreement by the Shareholder does not, and the performance by the Shareholder of
the Shareholder's obligations hereunder and the consummation by the Shareholder
of the transactions contemplated hereby will not, violate or conflict with or
constitute a default under any agreement, instrument, contract or other
obligation or any order, arbitration award, judgment or decree to which the
Shareholder is a party or by which the Shareholder is bound, or any statute,
rule or regulation to which the Shareholder or any of the Shareholder's property
is subject.
ARTICLE III
DISCLOSURE AND TRADING
----------------------
The Shareholder hereby covenants and agrees that upon receipt of the
disclosure of a Strategic Transaction Proposal or a Community West Acquisition
Transaction (as those terms are defined in the Agreement), Shareholder shall
maintain the confidentiality of all non-public information regarding the
Strategic Transaction Proposal or the Community West Acquisition Transaction to
the same extent required by the parties to any such transaction under the terms
of any confidentiality agreement to which those parties are bound and to refrain
from trading in securities of Community West, Palomar, any subsidiary thereof or
any other party to the Strategic Transaction Proposal or Community West
Acquisition Transaction until the earlier of: (i) full public disclosure of such
non-public information has been made and trading in the subject securities would
not be a violation of applicable securities laws, or (ii) the Strategic
Transaction Proposal or Community West Acquisition Transaction has been
terminated or has expired by its terms and disclosure of such non-public
information is permitted under the terms of any agreement regarding the
transaction and trading in the subject securities would not be a violation of
applicable securities laws.
3
<PAGE>
ARTICLE IV
TERMINATION
-----------
TERMINATION. This Shareholder Agreement shall automatically terminate and
-----------
be of no further force or effect if the Agreement is terminated in accordance
with the terms thereof, except as to any breach of this Shareholder Agreement by
the Shareholder occurring prior to the date of such termination. The
representations and warranties set forth in Article II and the covenants and
agreements of Articles III and V hereof shall survive the termination of this
Shareholder Agreement and the Closing.
ARTICLE V
MISCELLANEOUS
-------------
5.1 EXPENSES. Each party hereto shall pay its own costs and expenses
--------
in connection with this Shareholder Agreement and the transactions covered and
contemplated hereby; provided, however, that nothing contained herein shall
preclude the payment of the Shareholder's expenses in connection with the
negotiation and documentation of this Shareholder's Agreement by Palomar.
5.2 NOTICES, ETC. All communications required or permitted to be
-------------
given hereunder shall be in writing and shall be deemed to have been duly given
to the appropriate parties if delivered in person (professional carrier
acceptable) or by United States mail, certified and with return receipt
requested, or otherwise actually delivered:
(a) If to the Shareholder, to the address set forth on Schedule I
attached hereto.
With a copy to:
Palomar Savings & Loan Association
355 West Grand Avenue
Escondido, California 92025
Attn: Mr. James M. Rady
With a copy to: Higgs, Fletcher & Mack, LLP
401 West A Street, Suite 2000
San Diego, California 92101
Attn: Kurt L. Kicklighter, Esq.
4
<PAGE>
(b) If to Community West
Community West Bancshares
5827 Hollister Avenue
Goleta, California 93117
Attn: Llewellyn W. Stone
President and Chief Executive Officer
With a copy to: Horgan, Rosen, Beckham & Coren, LLP
21700 Oxnard Street, Suite 1400
Los Angeles, California 91365
Attn: Arthur A. Coren, Professional Corporation
FAX: (818) 340-6190
or such other address as any party may have furnished in writing to the other
parties.
5.3 ENTIRE AND SOLE AGREEMENT. The making, execution and delivery of
---------------------------
this Shareholder Agreement by the parties hereto have not been induced by any
representations, statements, warranties or agreements other than those expressed
herein and in the Agreement. This Shareholder Agreement and the Agreement
embody the entire understanding of the parties, and there are no further or
other agreements or understandings, whether written or oral, in effect among the
parties relating to the subject matter hereof, unless expressly referred to by
reference herein.
5.4 SUCCESSORS AND ASSIGNS. Except as otherwise provided in this
------------------------
Shareholder Agreement, all covenants and agreements of the parties contained in
this Shareholder Agreement shall be binding upon and inure to the benefit of the
respective successors and assigns of the parties hereto.
5.5 GOVERNING LAW. This Shareholder Agreement shall be construed and
--------------
enforced in accordance with and governed by the laws of the State of California.
Each party hereto hereby submits to the jurisdiction of the courts of the County
of Santa Barbara for the purpose of any suit, action or other proceeding arising
out of such party's obligations under or with respect to this Agreement.
5.6 COUNTERPARTS. This Shareholder Agreement may be executed
------------
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
5.7 AMENDMENT, SUPPLEMENT AND WAIVER. This Shareholder Agreement may
----------------------------------
be amended or supplemented, and compliance with the provisions hereof may be
waived only by an instrument in writing signed by the party against which
enforcement of such amendment, supplement or waiver of compliance is sought.
5
<PAGE>
5.8 HEADINGS. The headings in this Shareholder Agreement are for
--------
purposes of reference only and shall not limit or otherwise affect the meaning
hereof.
5.9 SPECIFIC PERFORMANCE. It is recognized and agreed that monetary
---------------------
damages will not compensate the parties hereto for nonperformance by any party.
Accordingly, each party agrees that his or her obligation shall be enforceable
by a court order requiring specific performance.
5.10 SEVERAL OBLIGATIONS. All duties and obligations of the
--------------------
Shareholder executing this Shareholder Agreement shall be several and not joint
with the duties and obligations of other Shareholders executing similar
Shareholder Agreements with Community West.
IN WITNESS WHEREOF, the parties hereto have caused this Shareholder
Agreement to be duly executed as of the date first above written.
SHAREHOLDER COMMUNITY WEST BANCSHARES
By: /s/ Llewellyn W. Stone
- ----------------------------- -------------------------
(Name) Llewellyn W. Stone
Its: President and Chief Executive Officer
- -----------------------------
(Signature)
6
<PAGE>
SCHEDULE I
NAME OF SHAREHOLDER:
-------------------------------
ADDRESS OF SHAREHOLDER:
-------------------------------
-------------------------------
-------------------------------
CERTIFICATE NUMBER NUMBER OF SHARES REGISTERED OWNER(S)
- ------------------ ---------------- -------------------
DESCRIBE ANY LIENS:
- --------------------
<PAGE>
EXHIBIT "B-2"
SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT (this "Shareholder Agreement"), is made as
of this ____ day of April, 1998, by and among Palomar Savings & Loan
Association, a California state chartered savings and loan association
("Palomar") and the shareholder of Community West Bancshares, a California
corporation ("Community West") whose name is set forth under "Shareholder" on
the signature page hereof (the "Shareholder"). Palomar is contemporaneously
herewith entering into agreements with other shareholders of Community West,
which agreements are identical in all respects hereto, except as to (a) the
number of shares of Community West's common stock, no par value (the "Community
West Stock") owned by such other shareholders, and (b) the name and address of
the other shareholders. The Shareholder and such other persons shall
hereinafter be referred to as to the Shareholders and this Agreement and such
other agreements as "Shareholder Agreements." This Shareholder Agreement is
made with reference to the following:
RECITALS
--------
WHEREAS, that certain Agreement and Plan of Reorganization (the
"Agreement"), dated as of April __, 1998, entered into by and among Community
West and Palomar, provides for the acquisition by Community West of one hundred
percent (100%) of the Palomar Common Stock, through the merger (the "Merger") of
Palomar with a merger corporation which shall be a wholly-owned subsidiary of
Community West ("CWB Merger Corp"); and
WHEREAS, as a condition precedent to the obligations of Community West and
Palomar under the Agreement, the Shareholder and all the Shareholders shall have
entered into Shareholder Agreements concurrent with the execution of the
Agreement in accordance with the terms, conditions, and provisions thereof;
NOW, THEREFORE, in order to effectuate the transactions set forth above and
in consideration of the mutual covenants, conditions, agreements,
representations and warranties contained herein and in the Agreement, and
intending to be legally bound, the parties hereto agree as follows:
AGREEMENT
---------
ARTICLE I
COVENANTS OF SHAREHOLDER
------------------------
1.1 VOTE OF SHAREHOLDERS. At the meeting of shareholders of Community
----------------------
West referred to in Section 7.1 of the Agreement (the "Meeting"), the
Shareholder shall vote or cause to be voted the shares of Community West Stock
indicated as owned or controlled by such Shareholder on Schedule I attached
hereto, and any other shares of Community West Stock now owned or hereafter
acquired or controlled by such Shareholder, in favor of, and to approve the
principal terms of, the Merger and any other matter contemplated by the
Agreement which requires the approval of the shareholders of Community West.
<PAGE>
1.2 OTHER CONTRACTS. From and after the date of this Shareholder
-----------------
Agreement, the Shareholder shall not enter into or become subject to any
agreement or commitment which would restrict or in any way impair the obligation
of the Shareholder to comply with all the terms of this Shareholder Agreement,
including, without limitation, any other agreement to sell, transfer or
otherwise dispose of the Shareholder shares of Community West Stock.
1.3 UPDATING INFORMATION. In the event that the Shareholder shall
----------------------
discover that any representation or warranty made herein by him/her was false or
misleading in any material respect when made or that any event has occurred such
that any representation or warranty of the Shareholder made herein would, if
made at and as of the time of the occurrence of such event, or thereafter, be
incorrect in any material respect, the Shareholder shall deliver to Palomar a
statement specifying that it is delivered pursuant to this Section 1.3 and
stating in reasonable detail the facts with respect thereto. Delivery of any
such statement shall not limit any rights which Palomar may otherwise have under
this Shareholder Agreement.
1.4 AGREEMENT TO RECOMMEND. The Shareholder agrees that, upon the
-------------------------
execution of this Shareholder Agreement, he/she shall at all times use his/her
best efforts in order to obtain the approval of the shareholders of Community
West of the principal terms of the Merger and any other matter contemplated by
the Agreement which requires approval of the shareholders of Community West and
shall recommend the approval of such matters by the shareholders of Community
West at the Meeting.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
------------------------------
OF SHAREHOLDER
--------------
2.1 REPRESENTATIONS AND WARRANTIES OF DIRECTOR. The Shareholder
----------------------------------------------
represents and warrants to, and agrees with, Palomar as follows:
(a) CAPACITY. The Shareholder has all requisite capacity to enter
--------
into and to perform the Shareholder's obligations under this Shareholder
Agreement.
(b) AGREEMENT. The Shareholder has received a copy of the
---------
Agreement and has had the opportunity to review and to consider the terms and
conditions contained in this Shareholder Agreement and in the Agreement and to
confer with his or her counsel concerning said terms and conditions.
2
<PAGE>
(c) BINDING AGREEMENT. This Shareholder Agreement has been duly
------------------
executed and delivered by such Shareholder and constitutes a valid and legally
binding agreement of such Shareholder.
(d) OWNERSHIP OF SHARES, ETC. Schedule I hereto correctly sets
---------------------------
forth the number of shares of Community West Stock owned by the Shareholder or
with respect to which such Shareholder has sole or shared voting power, and the
Shareholder has good and marketable title to all such shares of Community West
Stock free and clear of any liens, security interests, charges or other
encumbrances of any kind or nature except as set forth on Schedule I.
(e) RELATIONSHIP WITH COMMUNITY WEST. The Shareholder is a
-----------------------------------
director or executive officer of Community West.
(f) NON-CONTRAVENTION. The execution and delivery of this
-----------------
Agreement by the Shareholder does not, and the performance by the Shareholder of
the Shareholder's obligations hereunder and the consummation by the Shareholder
of the transactions contemplated hereby will not, violate or conflict with or
constitute a default under any agreement, instrument, contract or other
obligation or any order, arbitration award, judgment or decree to which the
Shareholder is a party or by which the Shareholder is bound, or any statute,
rule or regulation to which the Shareholder or any of the Shareholder's property
is subject.
ARTICLE III
DISCLOSURE AND TRADING
----------------------
The Shareholder hereby covenants and agrees that upon receipt of the
disclosure of a Strategic Transaction Proposal or a Community West Acquisition
Transaction (as those terms are defined in the Agreement), Shareholder shall
maintain the confidentiality of all non-public information regarding the
Strategic Transaction Proposal or the Community West Acquisition Transaction to
the same extent required by the parties to any such transaction under the terms
of any confidentiality agreement to which those parties are bound and to refrain
from trading in securities of Community West, Palomar, any subsidiary thereof or
any other party to the Strategic Transaction Proposal or Community West
Acquisition Transaction until the earlier of: (i) full public disclosure of such
non-public information has been made and trading in the subject securities would
not be a violation of applicable securities laws, or (ii) the Strategic
Transaction Proposal or Community West Acquisition Transaction has been
terminated or has expired by its terms and disclosure of such non-public
information is permitted under the terms of any agreement regarding the
transaction and trading in the subject securities would not be a violation of
applicable securities laws.
3
<PAGE>
ARTICLE IV
TERMINATION
-----------
TERMINATION. This Shareholder Agreement shall automatically terminate and
-----------
be of no further force or effect if the Agreement is terminated in accordance
with the terms thereof, except as to any breach of this Shareholder Agreement by
the Shareholder occurring prior to the date of such termination. The
representations and warranties set forth in Article II and the covenants and
agreements of Articles III and V hereof shall survive the termination of this
Shareholder Agreement and the Closing.
ARTICLE V
MISCELLANEOUS
-------------
5.1 EXPENSES. Each party hereto shall pay its own costs and expenses
--------
in connection with this Shareholder Agreement and the transactions covered and
contemplated hereby; provided, however, that nothing contained herein shall
preclude the payment of the Shareholder's expenses in connection with the
negotiation and documentation of this Shareholder's Agreement by Community West.
5.2 NOTICES, ETC. All communications required or permitted to be
-------------
given hereunder shall be in writing and shall be deemed to have been duly given
to the appropriate parties if delivered in person (professional carrier
acceptable) or by United States mail, certified and with return receipt
requested, or otherwise actually delivered:
(a) If to the Shareholder, to the address set forth on Schedule I
attached hereto.
With a copy to:
Community West Bancshares
5827 Hollister Avenue
Goleta, California 93117
Attn: Llewellyn W. Stone
President and Chief Executive Officer
With a copy to: Horgan, Rosen, Beckham & Coren, LLP
21700 Oxnard Street, Suite 1400
Los Angeles, California 91365
Attn: Arthur A. Coren, Professional Corporation
FAX: (818) 340-6190
4
<PAGE>
(b) If to Palomar
Palomar Savings & Loan Association
355 West Grand Avenue
Escondido, California 92025
Attn: Mr. James M. Rady
With a copy to: Higgs, Fletcher & Mack, LLP
401 West A Street, Suite 2000
San Diego, California 92101
Attn: Kurt L. Kicklighter, Esq.
or such other address as any party may have furnished in writing to the other
parties.
5.3 ENTIRE AND SOLE AGREEMENT. The making, execution and delivery of
---------------------------
this Shareholder Agreement by the parties hereto have not been induced by any
representations, statements, warranties or agreements other than those expressed
herein and in the Agreement. This Shareholder Agreement and the Agreement
embody the entire understanding of the parties, and there are no further or
other agreements or understandings, whether written or oral, in effect among the
parties relating to the subject matter hereof, unless expressly referred to by
reference herein.
5.4 SUCCESSORS AND ASSIGNS. Except as otherwise provided in this
------------------------
Shareholder Agreement, all covenants and agreements of the parties contained in
this Shareholder Agreement shall be binding upon and inure to the benefit of the
respective successors and assigns of the parties hereto.
5.5 GOVERNING LAW. This Shareholder Agreement shall be construed and
--------------
enforced in accordance with and governed by the laws of the State of California.
Each party hereto hereby submits to the jurisdiction of the courts of the County
of Santa Barbara for the purpose of any suit, action or other proceeding arising
out of such party's obligations under or with respect to this Agreement.
5.6 COUNTERPARTS. This Shareholder Agreement may be executed
------------
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
5.7 AMENDMENT, SUPPLEMENT AND WAIVER. This Shareholder Agreement may
----------------------------------
be amended or supplemented, and compliance with the provisions hereof may be
waived only by an instrument in writing signed by the party against which
enforcement of such amendment, supplement or waiver of compliance is sought.
5.8 HEADINGS. The headings in this Shareholder Agreement are for
--------
purposes of reference only and shall not limit or otherwise affect the meaning
hereof.
5
<PAGE>
5.9 SPECIFIC PERFORMANCE. It is recognized and agreed that monetary
---------------------
damages will not compensate the parties hereto for nonperformance by any party.
Accordingly, each party agrees that his or her obligation shall be enforceable
by a court order requiring specific performance.
5.10 SEVERAL OBLIGATIONS. All duties and obligations of the
--------------------
Shareholder executing this Shareholder Agreement shall be several and not joint
with the duties and obligations of other Shareholders executing similar
Shareholder Agreements with Palomar.
IN WITNESS WHEREOF, the parties hereto have caused this Shareholder
Agreement to be duly executed as of the date first above written.
SHAREHOLDER PALOMAR SAVINGS & LOAN ASSOCIATION
By: /S/ James M. Rady
- --------------------------- -------------------------
(Name) James M. Rady
Its: President and Chief Executive Officer
- ---------------------------
(Signature)
6
<PAGE>
SCHEDULE I
NAME OF DIRECTOR:
-------------------------------
ADDRESS OF DIRECTOR:
-------------------------------
-------------------------------
-------------------------------
CERTIFICATE NUMBER NUMBER OF SHARES REGISTERED OWNER(S)
- ------------------- ------------------ --------------------
DESCRIBE ANY LIENS:
- --------------------
<PAGE>
EXHIBIT "C"
AFFILIATES LETTER
Community West Bancshares
5827 Hollister Avenue
Goleta, California 93117
Attention: Mr. Llewellyn W. Stone
President and Chief Executive Officer
Ladies and Gentlemen:
I have been advised that I may be an "affiliate," as defined in Rule 145
under the Securities Act of 1933 (the "Act"), of Palomar Savings & Loan
Association ("Palomar") at the time of the merger (the "Merger") of Palomar and
Community West Bancshares pursuant to which Palomar will become a wholly-owned
subsidiary of Community West Bancshares ("Community West"). In the Merger, I
will acquire shares (the "Shares") of the common stock of Community West in
exchange for my shares of common stock of Palomar ("Palomar Stock").
I represent and agree as follows:
1. I have carefully read this letter and, to the extent I felt necessary,
I have discussed it with legal counsel.
2. The Shares are being acquired by me in good faith for investment, for
my own account, and not with a view to distributing, the Shares to others or
otherwise reselling the Shares.
3. I will not make any sale or other disposition of the Shares in
violation of the Act or related rules and regulations. In this connection, I
understand that the issuance of the Shares to me has been or will be registered
under the Act, but that such registration will not cover resales by affiliates.
Accordingly, the Shares must be held by me indefinitely unless: (i) the Shares
have been registered under the Act for sale by me; (ii) a sale of the Shares is
made in conformity with the volume and other applicable limitations of paragraph
(d) of Rule 145; or (iii) another exemption from registration is available.
4. I understand that Community West is under no obligation to register
the sale or other disposition of the Shares by me or on my behalf or to take any
other action to qualify sale of the Shares for any exemption for registration.
5. I also understand that stop transfer instructions will be given to
Community West's transfer agent with respect to the Shares and that there will
be placed on the certificates for the Shares a legend stating in substance:
<PAGE>
Community West Bancshares
Page 2
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, APPLIES AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IN
COMPLIANCE WITH THE REQUIREMENTS OF RULE 145 OR PURSUANT TO A REGISTRATION
STATEMENT UNDER THAT ACT OR AN EXEMPTION FROM SUCH REGISTRATION.
6. I agree that commencing on the date of the Effective Time of the
Merger (as that term is defined in that certain Agreement and Plan of
Reorganization dated April __, 1998 by and between Palomar and Community West)
and until the time that financial results covering at least 30 days of
post-Merger combined operations of Palomar and Community West have been
published, I will not sell, transfer or otherwise dispose of any interest in the
shares owned by me or any of the Shares that I receive as a result of the Merger
or reduce my interest in or my risk relating to any of such Shares. I
understand that Community West will publish such financial results as soon as
reasonably practicable following the close of the first calendar quarter after
the Merger.
7. I know of no plan (written or oral) pursuant to which holders of
shares of the outstanding Palomar Stock intend to sell or otherwise dispose of
more than 50%, in the aggregate, of their interest in such shares, either by a
sale or other disposition of Palomar Stock before the Merger, by the exercise of
dissenters' rights in the Merger or by a sale or other disposition of the Shares
to be received by them as a result of the Merger.
8. I understand and agree that Community West will rely upon the
foregoing representations and warranties in issuing the Shares to me and I
hereby agree to indemnify Community West and hold it and its officers,
directors, employees, agents and representatives harmless from and against all
liabilities, costs, or expenses (including reasonable attorneys' fees) arising
as a result of a sale or disposition of any of the Shares in violation of any of
the restrictions described above.
9. I understand that so long as I am an "affiliate" of Community West
within the meaning of the Act, any shares of Community West's common stock I may
acquire in the future, separate and apart from the Shares described above,
whether or not such shares are previously registered with the Securities and
Exchange Commission, will also be subject to restriction on resale. Moreover, I
understand that under various circumstances, including the case where I acquire
shares of Community West's common stock which have not previously been
registered with the Securities and Exchange Commission, I will be required to
hold such shares for a minimum of one year before I can sell the shares in the
trading market. I also understand that legends reflecting all restrictions on
Community West common stock which I may acquire will be placed on all
certificates representing such shares, and that stop transfer orders will be
placed with Community West's transfer agent prohibiting transfers by me in
violation of such restrictions.
<PAGE>
Community West Bancshares
Page 3
Very truly yours,
Dated:____________, 1998
------------------------------
Signature
------------------------------
Type or Print Name
<PAGE>
EXHIBIT D-1
___________, 1998
Board of Directors
Palomar Savings & Loan Association
355 West Grand Avenue
Escondido, California 92025
Re: Merger of Community West Bancshares and
--------------------------------------------
Palomar Savings & Loans Association
---------------------------------------
Ladies and Gentlemen:
We have acted as counsel for Community West Bancshares ("Community West")
with respect to the proposed merger with Palomar Savings & Loan Association
("Palomar") pursuant to the Agreement and Plan of Reorganization dated as of
April ___, 1998, by and between Community West and Palomar (the "Agreement").
This opinion is rendered to you pursuant to Section 8.8 of the Agreement. Terms
used in this opinion will have the same meaning as in the Agreement.
In our capacity as counsel for Community West we have examined originals or
certified, conformed, or photostatic copies, the authenticity of which have been
established to our satisfaction, of such agreements, certificates, and other
documents as we have deemed relevant and necessary for the basis for the
opinions expressed in this letter. In all such examinations, we have assumed
the genuineness of all signatures on originals and certified copies and the
conformity to the originals or certified documents of all copies submitted to us
as conformed or photostatic copies. We have not independently verified the
actions described in minutes, certificates, or documents, but we have assumed
they correctly reflect the actions described therein. As to various questions
of fact material to our opinion, to the extent noted herein, we have relied upon
the certificates or representations of Community West or its officers.
While we believe that the opinions set forth below will accurately reflect
the state of relevant law, the opinions involve mixed questions of fact and law
or matters as to which there is no clear precedent. Furthermore, both statutory
law and interpretations thereof are subject to change from time to time.
Accordingly, we cannot assure you that, in the event of any of the issues dealt
with in this opinion as set forth below are litigated, our position would be
sustained by the courts.
<PAGE>
Board of Directors
Palomar Savings & Loan Association
page 2
On the basis of the foregoing and in reliance thereon, and on such other
matters as we deem relevant in these circumstances, we are of the opinion that,
as of the date hereof:
1. Community West is a corporation duly organized, validly existing and in
good standing under the laws of the State of California, and is entitled to own
or lease its properties and to conduct its business in the places where such
properties are now owned or leased or such business is now conducted. Community
West and it wholly-owned subsidiary, Goleta National Bank ("GNB") have adequate
charter, franchise, permit and license rights to enable them to conduct their
business as presently conducted and the power and authority to enter into and
perform its obligations under the Agreement.
2. The Agreement and the Merger Agreement referred to in the Agreement (the
"Merger Agreement") have been duly authorized and validly executed and delivered
by Community West and CWB Merger Corp and (assuming each has been duly
authorized, executed and delivered by Palomar) constitute the valid and binding
agreements of Community West and CWB Merger Corp except as may be limited by
bankruptcy, insolvency or reorganization laws or other laws pertaining to the
rights of creditors generally.
3. The execution, delivery, and performance of the Agreement and Merger
Agreement and the consummation of the transactions contemplated therein will not
result in a breach or violation of, constitute a material default in, result in
the acceleration of any obligation of, or result in the creation of any lien
under or pursuant to, any term or provision of Community West's Articles of
Incorporation or Bylaws, or any statute, rule or regulation.
4. The execution, delivery, and performance of the Agreement and Merger
Agreement and the consummation of the transactions contemplated therein will not
result in a breach or violation of, constitute a material default in, result in
the acceleration of any obligation of, or result in the creation of any lien
under or pursuant to, any material mortgage, lien, lease, agreement, instrument,
judgement, decree, order, arbitration award, writ or injunction applicable to
Community West and will not violate or conflict with any other material
restriction of any kind or character applicable to Community West, except as to
those agreements reflected in schedules to the Agreement.
5. Community West is authorized by its Articles of Incorporation to issue
20,000,000 shares of Common Stock, no par value, of which as of the date hereof
there were ____________ shares issued and outstanding, all of which are duly
authorized, validly issued and outstanding, fully paid and nonassessable.
Community West has no other authorized or outstanding series or classes of
capital stock or other securities, or outstanding options, warrants or rights to
acquire unissued securities, other than as reflected in schedules to the
Agreement.
<PAGE>
Board of Directors
Palomar Savings & Loan Association
page 3
6. Community West and CWB Merger Corp have the corporate power to execute
and deliver the Agreement and to consummate the transactions to be performed by
them thereunder; to the best of our knowledge, all corporate and shareholder
action required by law to authorize such execution and delivery of the Agreement
and the Merger Agreement and the consummation of the transactions contemplated
therein by Community West and CWB Merger Corp have been duly and validly taken
by Community West and CWB Merger Corp; and subject to approval by all
appropriate regulatory agencies, upon the filing of an executed copy of the
Merger Agreement with the California Secretary of State and the California
Commissioner of Financial Institutions, the Merger contemplated in the Agreement
will be effective in accordance with the terms of the Agreement.
7. To the best of our knowledge without any independent investigation, there
are no material suits, proceedings, governmental investigations, or labor
disputes pending or threatened in writing against or relating to Community West,
its properties or business, as of this date, except as reflected in schedules to
the Agreement.
8. Although we have necessarily assumed the correctness and completeness of
the statements made by Community West in the Proxy Statement and take no
responsibility therefor, we have no reason to believe that the information
regarding Community West and Community West Stock in the Proxy Statement
including all of the amendments and supplements thereto, as of the date thereof,
and as of the Community West Meeting Date, contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein which was necessary to make the statements therein not materially
misleading and, to the best of our knowledge, between the Community West Mailing
Date and the date hereof, we have no reason to believe that any event or
occurrence or fact arose or came to light which should have been, but was not,
appropriately disclosed (except we express no opinion or belief as to financial
statements or other statistical data or as to any other information supplied by
Community West).
<PAGE>
Board of Directors
Palomar Savings & Loan Association
page 4
The foregoing opinions are further limited by and subject to the following:
9. This opinion relates only to matters of federal law and to the laws
of the State of California, without reference to the conflict of laws, and we do
not purport to express any opinions on the laws of any other jurisdiction.
10. This opinion letter is governed by, and shall be interpreted in
accordance with, the Legal Opinion Accord (the "Accord") of the ABA Section of
Business Law (1991). As a consequence, it is subject to a number of
qualifications, exceptions, definitions, limitations on coverage and other
limitations, all as more particularly described in the Accord, and this opinion
letter should be read in conjunction therewith. The law covered by the opinions
expressed herein is limited to the federal law of the United States and the law
of the State of California. This opinion letter is also governed by, and shall
be interpreted in accordance with, the "California Provisions" and the
"California Generic Exception" as defined in the Business Law Section of the
---------------------------
California State Bar Report on the Third-Party Legal Opinion Report of the ABA
-----------------------------------------------------------------------------
Section of Business Law (dated May 1992), and is therefore subject to a number
-----------------------------------------
of additional qualifications, exceptions, and understandings all as more
particularly described in the California Provisions and California Generic
Exception, and this opinion letter should also be read in conjunction therewith.
We assume no obligation to advise you of any changes in the foregoing
subsequent to the delivery of this opinion. This opinion has been prepared
solely for your use in connection with the consummation of the transactions
contemplated by the Agreement and shall not be quoted in whole or in part or
otherwise be referred to, nor be filed with or furnished to any person or entity
without the prior written consent of this firm.
Respectfully submitted,
HORGAN, ROSEN, BECKHAM & COREN, L.L.P.
<PAGE>
EXHIBIT "D-2"
__________, 1998
Board of Directors
Community West Bancshares
5827 Hollister Avenue
Goleta, California 93117
Re: Merger of Community West Bancshares and
--------------------------------------------
Palomar Savings & Loans Association
---------------------------------------
Ladies and Gentlemen:
We have acted as counsel for Palomar Savings & Loan Association ("Palomar")
with respect to the proposed merger with Community West Bancshares ("Community
West") pursuant to the Agreement and Plan of Reorganization dated as of April
___, 1998, by and between Community West and Palomar (the "Agreement"). This
opinion is rendered to you pursuant to Section 9.7 of the Agreement. Terms used
in this opinion will have the same meaning as in the Agreement.
In our capacity as counsel for Palomar we have examined originals or
certified, conformed, or photostatic copies, the authenticity of which have been
established to our satisfaction, of such agreements, certificates, and other
documents as we have deemed relevant and necessary for the basis for the
opinions expressed in this letter. In all such examinations, we have assumed
the genuineness of all signatures on originals and certified copies and the
conformity to the originals or certified documents of all copies submitted to us
as conformed or photostatic copies. We have not independently verified the
actions described in minutes, certificates, or documents, but we have assumed
they correctly reflect the actions described therein. As to various questions
of fact material to our opinion, to the extent noted herein, we have relied upon
the certificates or representations of Palomar or its officers.
While we believe that the opinions set forth below will accurately reflect
the state of relevant law, the opinions involve mixed questions of fact and law
or matters as to which there is no clear precedent. Furthermore, both statutory
law and interpretations thereof are subject to change from time to time.
Accordingly, we cannot assure you that, in the event of any of the issues dealt
with in this opinion as set forth below are litigated, our position would be
sustained by the courts.
<PAGE>
Board of Directors
Community West Bancshares
page 2
On the basis of the foregoing and in reliance thereon, and on such other
matters as we deem relevant in these circumstances, we are of the opinion that,
as of the date hereof:
1. Palomar is a corporation duly organized, validly existing and in good
standing under the laws of the State of California, and is entitled to own or
lease its properties and to conduct its business in the places where such
properties are now owned or leased or such business is now conducted. Palomar
has adequate charter, franchise, permit and license rights to enable it to
conduct its business as presently conducted and the power and authority to enter
into and perform its obligations under the Agreement. The nature of Palomar's
operations and the business transacted by it as of the date hereof make
licensing and qualification in any other state or jurisdiction other than
California unnecessary.
2. The Agreement and the Merger Agreement referred to in the Agreement (the
"Merger Agreement") have been duly authorized and validly executed and delivered
by Palomar and (assuming each has been duly authorized, executed and delivered
by Community West) constitute the valid and binding agreements of Palomar except
as may be limited by bankruptcy, insolvency or reorganization laws or other laws
pertaining to the rights of creditors generally.
3. The execution, delivery, and performance of the Agreement and Merger
Agreement and the consummation of the transactions contemplated therein will not
result in a breach or violation of, constitute a material default in, result in
the acceleration of any obligation of, or result in the creation of any lien
under or pursuant to, any term or provision of Palomar's Articles of
Incorporation or Bylaws, or any statute, rule or regulation.
4. The execution, delivery, and performance of the Agreement and Merger
Agreement and the consummation of the transactions contemplated therein will not
result in a breach or violation of, constitute a material default in, result in
the acceleration of any obligation of, or result in the creation of any lien
under or pursuant to, any material mortgage, lien, lease, agreement, instrument,
judgement, decree, order, arbitration award, writ or injunction applicable to
Palomar and will not violate or conflict with any other material restriction of
any kind or character applicable to Palomar, except as to those agreements
reflected in schedules to the Agreement.
<PAGE>
Board of Directors
Palomar Savings & Loan Association
page 3
5. Palomar is authorized by its Articles of Incorporation to issue
20,000,000 shares of Common Stock, no par value, of which as of the date hereof
there were ____________ shares issued and outstanding, all of which are duly
authorized, validly issued and outstanding, fully paid and nonassessable.
Palomar has no other authorized or outstanding series or classes of capital
stock or other securities, or outstanding options, warrants or rights to acquire
unissued securities, other than as reflected in schedules to the Agreement.
6. Palomar has the corporate power to execute and deliver the Agreement and
to consummate the transactions to be performed by it thereunder; to the best of
our knowledge, all corporate and shareholder action required by law to authorize
such execution and delivery of the Agreement and the Merger Agreement and the
consummation of the transactions contemplated therein by Palomar have been duly
and validly taken by Palomar and subject to approval by all appropriate
regulatory agencies, upon the filing of an executed copy of the Merger Agreement
with the California Secretary of State and the California Commissioner of
Financial Institutions, the Merger contemplated in the Agreement will be
effective in accordance with the terms of the Agreement.
7. To the best of our knowledge without any independent investigation, there
are no material suits, proceedings, governmental investigations, or labor
disputes pending or threatened in writing against or relating to Palomar, its
properties or business, as of this date, except as reflected in schedules to the
Agreement.
8. Although we have necessarily assumed the correctness and completeness of
the statements made by Palomar in the Proxy Statement and take no responsibility
therefor, we have no reason to believe that the information regarding Palomar
and Palomar Stock in the Proxy Statement including all of the amendments and
supplements thereto, as of the date thereof, and as of the Palomar Meeting Date,
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein which was necessary to make the
statements therein not materially misleading and, to the best of our knowledge,
between the Palomar Mailing Date and the date hereof, we have no reason to
believe that any event or occurrence or fact arose or came to light which should
have been, but was not, appropriately disclosed (except we express no opinion or
belief as to financial statements or other statistical data or as to any other
information supplied by Palomar).
The foregoing opinions are further limited by and subject to the following:
<PAGE>
Board of Directors
Palomar Savings & Loan Association
Page 4
11. This opinion relates only to matters of federal law and to the laws
of the State of California, without reference to the conflict of laws, and we do
not purport to express any opinions on the laws of any other jurisdiction.
12. This opinion letter is governed by, and shall be interpreted in
accordance with, the Legal Opinion Accord (the "Accord") of the ABA Section of
Business Law (1991). As a consequence, it is subject to a number of
qualifications, exceptions, definitions, limitations on coverage and other
limitations, all as more particularly described in the Accord, and this opinion
letter should be read in conjunction therewith. The law covered by the opinions
expressed herein is limited to the federal law of the United States and the law
of the State of California. This opinion letter is also governed by, and shall
be interpreted in accordance with, the "California Provisions" and the
"California Generic Exception" as defined in the Business Law Section of the
---------------------------
California State Bar Report on the Third-Party Legal Opinion Report of the ABA
-----------------------------------------------------------------------------
Section of Business Law (dated May 1992), and is therefore subject to a number
-----------------------------------------
of additional qualifications, exceptions, and understandings all as more
particularly described in the California Provisions and California Generic
Exception, and this opinion letter should also be read in conjunction therewith.
We assume no obligation to advise you of any changes in the foregoing
subsequent to the delivery of this opinion. This opinion has been prepared
solely for your use in connection with the consummation of the transactions
contemplated by the Agreement and shall not be quoted in whole or in part or
otherwise be referred to, nor be filed with or furnished to any person or entity
without the prior written consent of this firm.
Respectfully submitted,
HIGGS, FLETCHER & MACK, LLP
<PAGE>
APPENDIX B
CORPORATIONS CODE
TITLE 1. CORPORATIONS
DIVISION 1. GENERAL CORPORATION LAW
CHAPTER 13. DISSENTERS' RIGHTS
Section 1300. Reorganization or short-form merger; dissenting shares;
corporate purchase at fair market value.
(a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions (a) and (b) or
subdivision(e) or (f) of Section 1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-form merger may, by complying with this chapter, require
the corporation in which the shareholder holds shares to purchase for cash at
their fair market value the shares owned by the shareholder which are dissenting
shares as defined in subdivision (b). The fair market value shall be determined
as of the day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or depreciation
in consequence of the proposed action, but adjusted for any stock split, reverse
stock split, or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by the
Commissioner of Corporations under subdivision (o) of Section 25100 or (B)
listed on the list of OTC margin stocks issued by the Board of Governors of the
Federal Reserve System, and the notice of meeting of shareholders to act upon
the reorganization summarizes this Section and Sections 1301, 1302, 1303 and
1304; provided, however, that this provision does not apply to any shares with
respect to which there exists any restriction on transfer imposed by the
corporation or by any law or regulation; and provided, further, that this
provision does not apply to any class of shares described in subparagraph (A) or
(B) if demands for payment are filed with respect to 5 percent or more of the
outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted in
favor of the reorganization or, (B) if described in subparagraph (A) or (B) of
paragraph (1) (without regard to the provisos in that paragraph), were voted
against the reorganization, or which were held of record on the effective date
of a short-form merger; provided, however, that subparagraph (A) rather than
subparagraph (B) of this paragraph applies in any case where the approval
required by Section 1201 is sought by written consent rather than at a meeting.
<PAGE>
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record.
Section 1301. Notice to holders of dissenting shares in reorganizations;
demand for purchase; contents of demand.
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3)
and(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section
152)within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the procedure to be followed if
the shareholder desires to exercise the shareholder's right under such sections.
The statement of price constitutes an offer by the corporation to purchase at
the price stated any dissenting shares as defined in subdivision (b) of
Section1300, unless they lose their status as dissenting shares under Section
1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
Section 1302. Submission of share certificates for endorsement;
uncertificated securities.
<PAGE>
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (I) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
Section 1303. Payment of agreed price with interest; agreement fixing fair
market value; filing; time of payment.
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
Section 1304. Action to determine whether shares are dissenting shares or
fair market value limitation; joinder; consolidation; determination of issues;
appointment of appraisers.
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (I) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If
the status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
<PAGE>
Section 1305. Report of appraisers; confirmation; determination by court;
judgment payment; appeal; costs.
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a
report within 10 days from the date of their appointment or within such further
time as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections
1300,1301 and 1302 if the value awarded by the court for the shares is more than
125percent of the price offered by the corporation under subdivision (a) of
Section1301).
Section 1306. Prevention of immediate payment; status as creditors;
interest.
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
<PAGE>
Section 1307. Dividends on dissenting shares.
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
Section 1308. Rights of dissenting shareholders pending valuation;
withdrawal of demand for payment.
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto.
Section 1309. Termination of dissenting share and shareholder status.
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the status
of the shares as dissenting shares or upon the purchase price of the shares, and
neither files a complaint or intervenes in a pending action as provided in
Section 1304, within six months after the date on which notice of the approval
by the outstanding shares or notice pursuant to subdivision (I) of Section 1110
was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
Section 1310. Suspension of right to compensation or valuation proceedings;
litigation of shareholders' approval.
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings under
Sections 1304 and 1305 shall be suspended until final determination of such
litigation.
<PAGE>
Section 1311. Exempt shares.
This chapter, except Section 1312, does not apply to classes of shares
whose terms and provisions specifically set forth the amount to be paid in
respect to such shares in the event of a reorganization or merger.
Section 1312. Right of dissenting shareholders to attach, set aside or
rescind merger or reorganization; restraining order or injunction; conditions.
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 317 of the CGCL authorizes a court to award, or a corporation's
Board of Directors to grant, indemnity to directors, officers and employees in
terms sufficiently broad to permit such indemnification under certain
circumstances for liabilities (including reimbursement for expenses incurred)
arising under the Securities Act. Article V of Community West's Articles of
Incorporation, as amended, and Article VI of Community West's Bylaws provide for
indemnification of its directors, officers, employees and other agents to the
fullest extent permitted by the CGCL.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(g) Exhibits
Exhibits Description and Method of Filing
- -------- ------------------------------------
2.1 Agreement and Plan of Reorganization, dated as of April 23, 1998,
by and between Community West and Palomar. (incorporated by
reference to Appendix A to this Registration Statement on Form S-4)
4.1 Form of Certificate representing shares of Community West Common
Stock (incorporated by reference to Exhibit 4c to the Registrant's
Amendment to Registration Statement on Form 8-A, dated March 12,
1998)
5.1 Opinion of Horgan, Rosen, Beckham & Coren, L.L.P.
8.1* Tax Opinion of Deloitte & Touche LLP
9.1 Shareholder Agreement, dated as of April 23, 1998, by and among
Michael Alexander and Palomar Savings and Loan Association
9.2 Shareholder Agreement, dated as of April 23, 1998, by and among
Mounir R. Ashamalla and Palomar Savings and Loan Association
9.3 Shareholder Agreement, dated as of April 23, 1998, by and among
Robert H. Bartlein and Palomar Savings and Loan Association
9.4 Shareholder Agreement, dated as of April 23, 1998, by and among
Jean W. Blois and Palomar Savings and Loan Association
9.5 Shareholder Agreement, dated as of April 23, 1998, by and among
John D. Illgen and Palomar Savings and Loan Association
9.6 Shareholder Agreement, dated as of April 23, 1998, by and among
John D. Markel and Palomar Savings and Loan Association
9.7 Shareholder Agreement, dated as of April 23, 1998, by and among
Michel Nellis and Palomar Savings and Loan Association
9.8 Shareholder Agreement, dated as of April 23, 1998, by and among
William R. Peeples and Palomar Savings and Loan Association
9.9 Shareholder Agreement, dated as of April 23, 1998, by and among C.
Randy Shaffer and Palomar Savings and Loan Association
9.10 Shareholder Agreement, dated as of April 23, 1998, by and among
James R. Sims, Jr. and Palomar Savings and Loan Association
9.11 Shareholder Agreement, dated as of April 23, 1998, by and among
Llewellyn W. Stone and Palomar Savings and Loan Association
9.12 Shareholder Agreement, dated as of April 23, 1998, by and among
Darol H. Caster and Community West Bancshares.
9.13 Shareholder Agreement, dated as of April 23, 1998, by and among
Donald M. Galyean and Community West Bancshares.
9.14 Shareholder Agreement, dated as of April 23, 1998, by and among
Frederick Mandelbaum and Community West Bancshares.
9.15 Shareholder Agreement, dated as of April 23, 1998, by and among
James M. Rady and Community West Bancshares.
9.16 Shareholder Agreement, dated as of April 23, 1998, by and among
Timothy S. Thomas and Community West Bancshares.
9.17 Shareholder Agreement, dated as of April 23, 1998, by and among
Ralph O. Vasquez and Community West Bancshares.
9.18 Shareholder Agreement, dated as of April 23, 1998, by and among
Robert A. Wedeking and Community West Bancshares.
9.19 Shareholder Agreement, dated as of April 23, 1998, by and among
David Weseloh and Community West Bancshares.
23.1* Consent of Deloitte & Touche LLP
23.2* Consent of KPMG Peat Marwick LLP
23.6 Consent of Horgan, Rosen, Beckham & Coren, L.L.P. (included in
opinion filed as Exhibit 5.1 hereto)
23.7* Consent of Deloitte & Touche LLP for Tax Opinion that is filed as
Exhibit 8.1 hereto
24.1 Power of Attorney (set forth on the signature page to the
Registration Statement on Form S-4)
- -------------------------------
* To be filed by amendment
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that it is incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
2
<PAGE>
(b) The undersigned registrant hereby undertakes as follows: that prior
to any public offering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such offering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(c) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (b) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described under Item 20
above, or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(e) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(f) The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved herein, that was not the subject of and included
in the registration when it became effective.
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement on Form S-4 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Goleta, State of
California, on August 4, 1998.
COMMUNITY WEST BANCSHARES
By: /s/ Llewellyn W. Stone
---------------------------
Name: Llewellyn W. Stone
Title: President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEM BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Llewellyn W. Stone and Arthur A. Coren, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully as all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents or either of them, or their or his
substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE CAPACITY DATE
/s/ Michael A. Alexander Director August 6, 1998
- ---------------------------
Michael A. Alexander
/s/ Mounir R. Ashamalla Director August 6, 1998
- --------------------------
Mounir R. Ashamalla
/s/ Robert H. Bartlein Director August 6, 1998
- ------------------------
Robert H. Bartlein
/s/ Jean W. Blois Director August 5, 1998
- --------------------
Jean W. Blois
<PAGE>
SIGNATURE CAPACITY DATE
/s/ John D. Illgen Director August 4, 1998
- ---------------------
John D. Illgen
/s/ John D. Markel Chairman of the Board August 6, 1998
- ---------------------
John D. Markel
/s/ Michel Nellis Director and Secretary August 6, 1998
- -------------------
Michel Nellis
/s/ William R. Peeples Director August 6, 1998
- -------------------------
William R. Peeples
/s/ C. Randy Shaffer Director, Executive August 6, 1998
- ----------------------
C. Randy Shaffer Vice President and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
/s/ James R. Sims, Jr. Director August 6, 1998
- --------------------------
James R. Sims, Jr.
/s/ Llewellyn W. Stone Director, President and August 4, 1998
- -----------------------
Llewellyn W. Stone Chief Executive Officer
(Principal Executive Officer)
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION (SEE APPENDIX A TO THIS REGISTRATION
STATEMENT ON FORM S-4)
<PAGE>
Board of Directors
Community West Bancshares
page 5
EXHIBIT 5.1
August 14, 1998
Community West Bancshares
5838 Hollister Avenue
Goleta, California 93117
Gentlemen:
In connection with the registration under the Securities Act of 1933
(the "Act") of at least 1,200,000 shares (the "Securities") of Common Stock, no
par value, of Community West Bancshares, a California corporation (the
"Company"), we, as your counsel, have examined such corporate records,
certificates and other documents, and such questions of law, as we have
considered necessary or appropriate for the purposes of this opinion. Upon the
basis of such
examination, we advise you that, in our opinion, when the registration statement
relating to the Securities (the "Registration Statement") has become effective
under the Act, the terms of the sale of the Securities have been duly
established in conformity with the Company's articles of incorporation, and the
Securities have been duly issued and sold as contemplated by the Registration
Statement and upon consummation of the proposed transaction whereby the Company
wil acquire all of the voting shares of Palomar Savings and Loan Association
("Palomar") and Palomar will become a wholly-owned subsidiary of the Company,
the Securities will be validly issued, fully paid and nonassessable.
The foregoing opinion is limited to the Federal laws of the United
States and the laws of the State of California, and we are expressing no opinion
as to the effect of the laws of any other jurisdiction.
We have relied as to certain matters on information obtained from
public officials, officers of the Company and other sources believed by us to be
responsible.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to us under the heading "Validity
of CWB Common Stock" in the Prospectus. In giving such consent, we do not
thereby admit that we are in the category of persons whose consent is required
under Section 7 of the Act.
Very truly yours,
Horgan, Rosen, Beckham & Coren, L.L.P.
<PAGE>
EXHIBIT 9.1
SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT (this "Shareholder Agreement"), is made as
of this ____ day of April, 1998, by and among Palomar Savings & Loan
Association, a California state chartered savings and loan association
("Palomar") and the shareholder of Community West Bancshares, a California
corporation ("Community West") whose name is set forth under "Shareholder" on
the signature page hereof (the "Shareholder"). Palomar is contemporaneously
herewith entering into agreements with other shareholders of Community West,
which agreements are identical in all respects hereto, except as to (a) the
number of shares of Community West's common stock, no par value (the "Community
West Stock") owned by such other shareholders, and (b) the name and address of
the other shareholders. The Shareholder and such other persons shall
hereinafter be referred to as to the Shareholders and this Agreement and such
other agreements as "Shareholder Agreements." This Shareholder Agreement is
made with reference to the following:
RECITALS
--------
WHEREAS, that certain Agreement and Plan of Reorganization (the
"Agreement"), dated as of April __, 1998, entered into by and among Community
West and Palomar, provides for the acquisition by Community West of one hundred
percent (100%) of the Palomar Common Stock, through the merger (the "Merger") of
Palomar with a merger corporation which shall be a wholly-owned subsidiary of
Community West ("CWB Merger Corp"); and
WHEREAS, as a condition precedent to the obligations of Community West and
Palomar under the Agreement, the Shareholder and all the Shareholders shall have
entered into Shareholder Agreements concurrent with the execution of the
Agreement in accordance with the terms, conditions, and provisions thereof;
NOW, THEREFORE, in order to effectuate the transactions set forth above and
in consideration of the mutual covenants, conditions, agreements,
representations and warranties contained herein and in the Agreement, and
intending to be legally bound, the parties hereto agree as follows:
<PAGE>
AGREEMENT
---------
ARTICLE I
COVENANTS OF SHAREHOLDER
------------------------
1.1 VOTE OF SHAREHOLDERS. At the meeting of shareholders of Community
----------------------
West referred to in Section 7.1 of the Agreement (the "Meeting"), the
Shareholder shall vote or cause to be voted the shares of Community West Stock
indicated as owned or controlled by such Shareholder on Schedule I attached
hereto, and any other shares of Community West Stock now owned or hereafter
acquired or controlled by such Shareholder, in favor of, and to approve the
principal terms of, the Merger and any other matter contemplated by the
Agreement which requires the approval of the shareholders of Community West.
1.2 OTHER CONTRACTS. From and after the date of this Shareholder
-----------------
Agreement, the Shareholder shall not enter into or become subject to any
agreement or commitment which would restrict or in any way impair the obligation
of the Shareholder to comply with all the terms of this Shareholder Agreement,
including, without limitation, any other agreement to sell, transfer or
otherwise dispose of the Shareholder shares of Community West Stock.
1.3 UPDATING INFORMATION. In the event that the Shareholder shall
----------------------
discover that any representation or warranty made herein by him/her was false or
misleading in any material respect when made or that any event has occurred such
that any representation or warranty of the Shareholder made herein would, if
made at and as of the time of the occurrence of such event, or thereafter, be
incorrect in any material respect, the Shareholder shall deliver to Palomar a
statement specifying that it is delivered pursuant to this Section 1.3 and
stating in reasonable detail the facts with respect thereto. Delivery of any
such statement shall not limit any rights which Palomar may otherwise have under
this Shareholder Agreement.
1.4 AGREEMENT TO RECOMMEND. The Shareholder agrees that, upon the
-------------------------
execution of this Shareholder Agreement, he/she shall at all times use his/her
best efforts in order to obtain the approval of the shareholders of Community
West of the principal terms of the Merger and any other matter contemplated by
the Agreement which requires approval of the shareholders of Community West and
shall recommend the approval of such matters by the shareholders of Community
West at the Meeting.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
------------------------------
OF SHAREHOLDER
--------------
2.1 REPRESENTATIONS AND WARRANTIES OF DIRECTOR. The Shareholder
----------------------------------------------
represents and warrants to, and agrees with, Palomar as follows:
(a) CAPACITY. The Shareholder has all requisite capacity to enter
--------
into and to perform the Shareholder's obligations under this Shareholder
Agreement.
<PAGE>
(b) AGREEMENT. The Shareholder has received a copy of the
---------
Agreement and has had the opportunity to review and to consider the terms and
conditions contained in this Shareholder Agreement and in the Agreement and to
confer with his or her counsel concerning said terms and conditions.
(c) BINDING AGREEMENT. This Shareholder Agreement has been duly
------------------
executed and delivered by such Shareholder and constitutes a valid and legally
binding agreement of such Shareholder.
(d) OWNERSHIP OF SHARES, ETC. Schedule I hereto correctly sets
---------------------------
forth the number of shares of Community West Stock owned by the Shareholder or
with respect to which such Shareholder has sole or shared voting power, and the
Shareholder has good and marketable title to all such shares of Community West
Stock free and clear of any liens, security interests, charges or other
encumbrances of any kind or nature except as set forth on Schedule I.
(e) RELATIONSHIP WITH COMMUNITY WEST. The Shareholder is a
-----------------------------------
director or executive officer of Community West.
(f) NON-CONTRAVENTION. The execution and delivery of this
-----------------
Agreement by the Shareholder does not, and the performance by the Shareholder of
the Shareholder's obligations hereunder and the consummation by the Shareholder
of the transactions contemplated hereby will not, violate or conflict with or
constitute a default under any agreement, instrument, contract or other
obligation or any order, arbitration award, judgment or decree to which the
Shareholder is a party or by which the Shareholder is bound, or any statute,
rule or regulation to which the Shareholder or any of the Shareholder's property
is subject.
ARTICLE III
DISCLOSURE AND TRADING
----------------------
The Shareholder hereby covenants and agrees that upon receipt of the
disclosure of a Strategic Transaction Proposal or a Community West Acquisition
Transaction (as those terms are defined in the Agreement), Shareholder shall
maintain the confidentiality of all non-public information regarding the
Strategic Transaction Proposal or the Community West Acquisition Transaction to
the same extent required by the parties to any such transaction under the terms
of any confidentiality agreement to which those parties are bound and to refrain
from trading in securities of Community West, Palomar, any subsidiary thereof or
any other party to the Strategic Transaction Proposal or Community West
Acquisition Transaction until the earlier of: (i) full public disclosure of such
non-public information has been made and trading in the subject securities would
not be a violation of applicable securities laws, or (ii) the Strategic
Transaction Proposal or Community West Acquisition Transaction has been
terminated or has expired by its terms and disclosure of such non-public
information is permitted under the terms of any agreement regarding the
transaction and trading in the subject securities would not be a violation of
applicable securities laws.
<PAGE>
ARTICLE IV
TERMINATION
-----------
TERMINATION. This Shareholder Agreement shall automatically terminate and
-----------
be of no further force or effect if the Agreement is terminated in accordance
with the terms thereof, except as to any breach of this Shareholder Agreement by
the Shareholder occurring prior to the date of such termination. The
representations and warranties set forth in Article II and the covenants and
agreements of Articles III and V hereof shall survive the termination of this
Shareholder Agreement and the Closing.
ARTICLE V
MISCELLANEOUS
-------------
5.1 EXPENSES. Each party hereto shall pay its own costs and expenses
--------
in connection with this Shareholder Agreement and the transactions covered and
contemplated hereby; provided, however, that nothing contained herein shall
preclude the payment of the Shareholder's expenses in connection with the
negotiation and documentation of this Shareholder's Agreement by Community West.
5.2 NOTICES, ETC. All communications required or permitted to be
-------------
given hereunder shall be in writing and shall be deemed to have been duly given
to the appropriate parties if delivered in person (professional carrier
acceptable) or by United States mail, certified and with return receipt
requested, or otherwise actually delivered:
(a) If to the Shareholder, to the address set forth on Schedule I
attached hereto.
With a copy to:
Community West Bancshares
5827 Hollister Avenue
Goleta, California 93117
Attn: Llewellyn W. Stone
President and Chief Executive Officer
With a copy to: Horgan, Rosen, Beckham & Coren, LLP
21700 Oxnard Street, Suite 1400
Los Angeles, California 91365
Attn: Arthur A. Coren, Professional Corporation
FAX: (818) 340-6190
<PAGE>
(b) If to Palomar
Palomar Savings & Loan Association
355 West Grand Avenue
Escondido, California 92025
Attn: Mr. James M. Rady
With a copy to: Higgs, Fletcher & Mack, LLP
401 West A Street, Suite 2000
San Diego, California 92101
Attn: Kurt L. Kicklighter, Esq.
or such other address as any party may have furnished in writing to the other
parties.
5.3 ENTIRE AND SOLE AGREEMENT. The making, execution and delivery of
---------------------------
this Shareholder Agreement by the parties hereto have not been induced by any
representations, statements, warranties or agreements other than those expressed
herein and in the Agreement. This Shareholder Agreement and the Agreement
embody the entire understanding of the parties, and there are no further or
other agreements or understandings, whether written or oral, in effect among the
parties relating to the subject matter hereof, unless expressly referred to by
reference herein.
5.4 SUCCESSORS AND ASSIGNS. Except as otherwise provided in this
------------------------
Shareholder Agreement, all covenants and agreements of the parties contained in
this Shareholder Agreement shall be binding upon and inure to the benefit of the
respective successors and assigns of the parties hereto.
5.5 GOVERNING LAW. This Shareholder Agreement shall be construed and
--------------
enforced in accordance with and governed by the laws of the State of California.
Each party hereto hereby submits to the jurisdiction of the courts of the County
of Santa Barbara for the purpose of any suit, action or other proceeding arising
out of such party's obligations under or with respect to this Agreement.
5.6 COUNTERPARTS. This Shareholder Agreement may be executed
------------
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
5.7 AMENDMENT, SUPPLEMENT AND WAIVER. This Shareholder Agreement may
----------------------------------
be amended or supplemented, and compliance with the provisions hereof may be
waived only by an instrument in writing signed by the party against which
enforcement of such amendment, supplement or waiver of compliance is sought.
5.8 HEADINGS. The headings in this Shareholder Agreement are for
--------
purposes of reference only and shall not limit or otherwise affect the meaning
hereof.
5.9 SPECIFIC PERFORMANCE. It is recognized and agreed that monetary
---------------------
damages will not compensate the parties hereto for nonperformance by any party.
Accordingly, each party agrees that his or her obligation shall be enforceable
by a court order requiring specific performance.
<PAGE>
5.10 SEVERAL OBLIGATIONS. All duties and obligations of the
--------------------
Shareholder executing this Shareholder Agreement shall be several and not joint
with the duties and obligations of other Shareholders executing similar
Shareholder Agreements with Palomar.
IN WITNESS WHEREOF, the parties hereto have caused this Shareholder
Agreement to be duly executed as of the date first above written.
SHAREHOLDER PALOMAR SAVINGS & LOAN ASSOCIATION
Michael Alexander By: /s/ James M. Rady
- ----------------------- --------------------
(Name) James M. Rady
Its: President and Chief Executive Officer
/s/ Michael Alexander
- -----------------------
(Signature)
<PAGE>
SCHEDULE 1
NAME OF SHAREHOLDER: Michael A. Alexander
-----------------------
ADDRESS OF SHAREHOLDER: 1043 Camino Del Retiro
-------------------------
Santa Barbara, CA 93110
--------------------------
CERTIFICATE NUMBER NUMBER OF SHARES REGISTERED OWNER(S)
- ------------------- ------------------ --------------------
Warrants 11,824 Michael & Sophie Alexander
Warrants 1,214 Michael Alexander
39,412 Michael & Sophie Alexander
11,960 Michael Alexander
DESCRIBE ANY LIENS:
- ---------------------
None
<PAGE>
EXHIBIT 9.2
SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT (this "Shareholder Agreement"), is made as
of this ____ day of April, 1998, by and among Palomar Savings & Loan
Association, a California state chartered savings and loan association
("Palomar") and the shareholder of Community West Bancshares, a California
corporation ("Community West") whose name is set forth under "Shareholder" on
the signature page hereof (the "Shareholder"). Palomar is contemporaneously
herewith entering into agreements with other shareholders of Community West,
which agreements are identical in all respects hereto, except as to (a) the
number of shares of Community West's common stock, no par value (the "Community
West Stock") owned by such other shareholders, and (b) the name and address of
the other shareholders. The Shareholder and such other persons shall
hereinafter be referred to as to the Shareholders and this Agreement and such
other agreements as "Shareholder Agreements." This Shareholder Agreement is
made with reference to the following:
RECITALS
--------
WHEREAS, that certain Agreement and Plan of Reorganization (the
"Agreement"), dated as of April __, 1998, entered into by and among Community
West and Palomar, provides for the acquisition by Community West of one hundred
percent (100%) of the Palomar Common Stock, through the merger (the "Merger") of
Palomar with a merger corporation which shall be a wholly-owned subsidiary of
Community West ("CWB Merger Corp"); and
WHEREAS, as a condition precedent to the obligations of Community West and
Palomar under the Agreement, the Shareholder and all the Shareholders shall have
entered into Shareholder Agreements concurrent with the execution of the
Agreement in accordance with the terms, conditions, and provisions thereof;
NOW, THEREFORE, in order to effectuate the transactions set forth above and
in consideration of the mutual covenants, conditions, agreements,
representations and warranties contained herein and in the Agreement, and
intending to be legally bound, the parties hereto agree as follows:
AGREEMENT
---------
ARTICLE I
COVENANTS OF SHAREHOLDER
------------------------
1.1 VOTE OF SHAREHOLDERS. At the meeting of shareholders of Community
----------------------
West referred to in Section 7.1 of the Agreement (the "Meeting"), the
Shareholder shall vote or cause to be voted the shares of Community West Stock
indicated as owned or controlled by such Shareholder on Schedule I attached
hereto, and any other shares of Community West Stock now owned or hereafter
acquired or controlled by such Shareholder, in favor of, and to approve the
principal terms of, the Merger and any other matter contemplated by the
Agreement which requires the approval of the shareholders of Community West.
<PAGE>
1.2 OTHER CONTRACTS. From and after the date of this Shareholder
-----------------
Agreement, the Shareholder shall not enter into or become subject to any
agreement or commitment which would restrict or in any way impair the obligation
of the Shareholder to comply with all the terms of this Shareholder Agreement,
including, without limitation, any other agreement to sell, transfer or
otherwise dispose of the Shareholder shares of Community West Stock.
1.3 UPDATING INFORMATION. In the event that the Shareholder shall
----------------------
discover that any representation or warranty made herein by him/her was false or
misleading in any material respect when made or that any event has occurred such
that any representation or warranty of the Shareholder made herein would, if
made at and as of the time of the occurrence of such event, or thereafter, be
incorrect in any material respect, the Shareholder shall deliver to Palomar a
statement specifying that it is delivered pursuant to this Section 1.3 and
stating in reasonable detail the facts with respect thereto. Delivery of any
such statement shall not limit any rights which Palomar may otherwise have under
this Shareholder Agreement.
1.4 AGREEMENT TO RECOMMEND. The Shareholder agrees that, upon the
-------------------------
execution of this Shareholder Agreement, he/she shall at all times use his/her
best efforts in order to obtain the approval of the shareholders of Community
West of the principal terms of the Merger and any other matter contemplated by
the Agreement which requires approval of the shareholders of Community West and
shall recommend the approval of such matters by the shareholders of Community
West at the Meeting.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
------------------------------
OF SHAREHOLDER
--------------
2.1 REPRESENTATIONS AND WARRANTIES OF DIRECTOR. The Shareholder
----------------------------------------------
represents and warrants to, and agrees with, Palomar as follows:
(a) CAPACITY. The Shareholder has all requisite capacity to enter
--------
into and to perform the Shareholder's obligations under this Shareholder
Agreement.
(b) AGREEMENT. The Shareholder has received a copy of the
---------
Agreement and has had the opportunity to review and to consider the terms and
conditions contained in this Shareholder Agreement and in the Agreement and to
confer with his or her counsel concerning said terms and conditions.
(c) BINDING AGREEMENT. This Shareholder Agreement has been duly
------------------
executed and delivered by such Shareholder and constitutes a valid and legally
binding agreement of such Shareholder.
<PAGE>
(d) OWNERSHIP OF SHARES, ETC. Schedule I hereto correctly sets
---------------------------
forth the number of shares of Community West Stock owned by the Shareholder or
with respect to which such Shareholder has sole or shared voting power, and the
Shareholder has good and marketable title to all such shares of Community West
Stock free and clear of any liens, security interests, charges or other
encumbrances of any kind or nature except as set forth on Schedule I.
(e) RELATIONSHIP WITH COMMUNITY WEST. The Shareholder is a
-----------------------------------
director or executive officer of Community West.
(f) NON-CONTRAVENTION. The execution and delivery of this
-----------------
Agreement by the Shareholder does not, and the performance by the Shareholder of
the Shareholder's obligations hereunder and the consummation by the Shareholder
of the transactions contemplated hereby will not, violate or conflict with or
constitute a default under any agreement, instrument, contract or other
obligation or any order, arbitration award, judgment or decree to which the
Shareholder is a party or by which the Shareholder is bound, or any statute,
rule or regulation to which the Shareholder or any of the Shareholder's property
is subject.
ARTICLE III
DISCLOSURE AND TRADING
----------------------
The Shareholder hereby covenants and agrees that upon receipt of the
disclosure of a Strategic Transaction Proposal or a Community West Acquisition
Transaction (as those terms are defined in the Agreement), Shareholder shall
maintain the confidentiality of all non-public information regarding the
Strategic Transaction Proposal or the Community West Acquisition Transaction to
the same extent required by the parties to any such transaction under the terms
of any confidentiality agreement to which those parties are bound and to refrain
from trading in securities of Community West, Palomar, any subsidiary thereof or
any other party to the Strategic Transaction Proposal or Community West
Acquisition Transaction until the earlier of: (i) full public disclosure of such
non-public information has been made and trading in the subject securities would
not be a violation of applicable securities laws, or (ii) the Strategic
Transaction Proposal or Community West Acquisition Transaction has been
terminated or has expired by its terms and disclosure of such non-public
information is permitted under the terms of any agreement regarding the
transaction and trading in the subject securities would not be a violation of
applicable securities laws.
ARTICLE IV
TERMINATION
-----------
TERMINATION. This Shareholder Agreement shall automatically terminate and
-----------
be of no further force or effect if the Agreement is terminated in accordance
with the terms thereof, except as to any breach of this Shareholder Agreement by
the Shareholder occurring prior to the date of such termination. The
representations and warranties set forth in Article II and the covenants and
agreements of Articles III and V hereof shall survive the termination of this
Shareholder Agreement and the Closing.
<PAGE>
ARTICLE V
MISCELLANEOUS
-------------
5.1 EXPENSES. Each party hereto shall pay its own costs and expenses
--------
in connection with this Shareholder Agreement and the transactions covered and
contemplated hereby; provided, however, that nothing contained herein shall
preclude the payment of the Shareholder's expenses in connection with the
negotiation and documentation of this Shareholder's Agreement by Community West.
5.2 NOTICES, ETC. All communications required or permitted to be
-------------
given hereunder shall be in writing and shall be deemed to have been duly given
to the appropriate parties if delivered in person (professional carrier
acceptable) or by United States mail, certified and with return receipt
requested, or otherwise actually delivered:
(a) If to the Shareholder, to the address set forth on Schedule I
attached hereto.
With a copy to:
Community West Bancshares
5827 Hollister Avenue
Goleta, California 93117
Attn: Llewellyn W. Stone
President and Chief Executive Officer
With a copy to: Horgan, Rosen, Beckham & Coren, LLP
21700 Oxnard Street, Suite 1400
Los Angeles, California 91365
Attn: Arthur A. Coren, Professional Corporation
FAX: (818) 340-6190
<PAGE>
(b) If to Palomar
Palomar Savings & Loan Association
355 West Grand Avenue
Escondido, California 92025
Attn: Mr. James M. Rady
With a copy to: Higgs, Fletcher & Mack, LLP
401 West A Street, Suite 2000
San Diego, California 92101
Attn: Kurt L. Kicklighter, Esq.
or such other address as any party may have furnished in writing to the other
parties.
5.3 ENTIRE AND SOLE AGREEMENT. The making, execution and delivery of
---------------------------
this Shareholder Agreement by the parties hereto have not been induced by any
representations, statements, warranties or agreements other than those expressed
herein and in the Agreement. This Shareholder Agreement and the Agreement
embody the entire understanding of the parties, and there are no further or
other agreements or understandings, whether written or oral, in effect among the
parties relating to the subject matter hereof, unless expressly referred to by
reference herein.
5.4 SUCCESSORS AND ASSIGNS. Except as otherwise provided in this
------------------------
Shareholder Agreement, all covenants and agreements of the parties contained in
this Shareholder Agreement shall be binding upon and inure to the benefit of the
respective successors and assigns of the parties hereto.
5.5 GOVERNING LAW. This Shareholder Agreement shall be construed and
--------------
enforced in accordance with and governed by the laws of the State of California.
Each party hereto hereby submits to the jurisdiction of the courts of the County
of Santa Barbara for the purpose of any suit, action or other proceeding arising
out of such party's obligations under or with respect to this Agreement.
5.6 COUNTERPARTS. This Shareholder Agreement may be executed
------------
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
5.7 AMENDMENT, SUPPLEMENT AND WAIVER. This Shareholder Agreement may
----------------------------------
be amended or supplemented, and compliance with the provisions hereof may be
waived only by an instrument in writing signed by the party against which
enforcement of such amendment, supplement or waiver of compliance is sought.
5.8 HEADINGS. The headings in this Shareholder Agreement are for
--------
purposes of reference only and shall not limit or otherwise affect the meaning
hereof.
5.9 SPECIFIC PERFORMANCE. It is recognized and agreed that monetary
---------------------
damages will not compensate the parties hereto for nonperformance by any party.
Accordingly, each party agrees that his or her obligation shall be enforceable
by a court order requiring specific performance.
<PAGE>
5.10 SEVERAL OBLIGATIONS. All duties and obligations of the
--------------------
Shareholder executing this Shareholder Agreement shall be several and not joint
with the duties and obligations of other Shareholders executing similar
Shareholder Agreements with Palomar.
IN WITNESS WHEREOF, the parties hereto have caused this Shareholder
Agreement to be duly executed as of the date first above written.
SHAREHOLDER PALOMAR SAVINGS & LOAN ASSOCIATION
Mounir R. Ashamalla By: /s/ James M. Rady
- -------------------------- -------------------------
(Name) James M. Rady
Its: President and Chief Executive Officer
/s/ Mounir R. Ashamalla
- --------------------------
(Signature)
<PAGE>
SCHEDULE 1
NAME OF SHAREHOLDER: Dr. Mounir Ashamalla
----------------------
ADDRESS OF SHAREHOLDER: 122 S. Paterson, Suite 111
------------------------------
Santa Barbara, CA 93111
--------------------------
CERTIFICATE NUMBER NUMBER OF SHARES REGISTERED OWNER(S)
- ------------------- ------------------ --------------------
51,706 Dr. Mounir Ashamalla
Profit Sharing Plan
Warrants 12,986 Dr. Mounir Ashamalla
Profit Sharing Plan
DESCRIBE ANY LIENS:
- ---------------------
None
<PAGE>
EXHIBIT 9.3
SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT (this "Shareholder Agreement"), is made as
of this ____ day of April, 1998, by and among Palomar Savings & Loan
Association, a California state chartered savings and loan association
("Palomar") and the shareholder of Community West Bancshares, a California
corporation ("Community West") whose name is set forth under "Shareholder" on
the signature page hereof (the "Shareholder"). Palomar is contemporaneously
herewith entering into agreements with other shareholders of Community West,
which agreements are identical in all respects hereto, except as to (a) the
number of shares of Community West's common stock, no par value (the "Community
West Stock") owned by such other shareholders, and (b) the name and address of
the other shareholders. The Shareholder and such other persons shall
hereinafter be referred to as to the Shareholders and this Agreement and such
other agreements as "Shareholder Agreements." This Shareholder Agreement is
made with reference to the following:
RECITALS
--------
WHEREAS, that certain Agreement and Plan of Reorganization (the
"Agreement"), dated as of April __, 1998, entered into by and among Community
West and Palomar, provides for the acquisition by Community West of one hundred
percent (100%) of the Palomar Common Stock, through the merger (the "Merger") of
Palomar with a merger corporation which shall be a wholly-owned subsidiary of
Community West ("CWB Merger Corp"); and
WHEREAS, as a condition precedent to the obligations of Community West and
Palomar under the Agreement, the Shareholder and all the Shareholders shall have
entered into Shareholder Agreements concurrent with the execution of the
Agreement in accordance with the terms, conditions, and provisions thereof;
NOW, THEREFORE, in order to effectuate the transactions set forth above and
in consideration of the mutual covenants, conditions, agreements,
representations and warranties contained herein and in the Agreement, and
intending to be legally bound, the parties hereto agree as follows:
AGREEMENT
---------
ARTICLE I
COVENANTS OF SHAREHOLDER
------------------------
1.1 VOTE OF SHAREHOLDERS. At the meeting of shareholders of Community
----------------------
West referred to in Section 7.1 of the Agreement (the "Meeting"), the
Shareholder shall vote or cause to be voted the shares of Community West Stock
indicated as owned or controlled by such Shareholder on Schedule I attached
hereto, and any other shares of Community West Stock now owned or hereafter
acquired or controlled by such Shareholder, in favor of, and to approve the
principal terms of, the Merger and any other matter contemplated by the
Agreement which requires the approval of the shareholders of Community West.
<PAGE>
1.2 OTHER CONTRACTS. From and after the date of this Shareholder
-----------------
Agreement, the Shareholder shall not enter into or become subject to any
agreement or commitment which would restrict or in any way impair the obligation
of the Shareholder to comply with all the terms of this Shareholder Agreement,
including, without limitation, any other agreement to sell, transfer or
otherwise dispose of the Shareholder shares of Community West Stock.
1.3 UPDATING INFORMATION. In the event that the Shareholder shall
----------------------
discover that any representation or warranty made herein by him/her was false or
misleading in any material respect when made or that any event has occurred such
that any representation or warranty of the Shareholder made herein would, if
made at and as of the time of the occurrence of such event, or thereafter, be
incorrect in any material respect, the Shareholder shall deliver to Palomar a
statement specifying that it is delivered pursuant to this Section 1.3 and
stating in reasonable detail the facts with respect thereto. Delivery of any
such statement shall not limit any rights which Palomar may otherwise have under
this Shareholder Agreement.
1.4 AGREEMENT TO RECOMMEND. The Shareholder agrees that, upon the
-------------------------
execution of this Shareholder Agreement, he/she shall at all times use his/her
best efforts in order to obtain the approval of the shareholders of Community
West of the principal terms of the Merger and any other matter contemplated by
the Agreement which requires approval of the shareholders of Community West and
shall recommend the approval of such matters by the shareholders of Community
West at the Meeting.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
------------------------------
OF SHAREHOLDER
--------------
2.1 REPRESENTATIONS AND WARRANTIES OF DIRECTOR. The Shareholder
----------------------------------------------
represents and warrants to, and agrees with, Palomar as follows:
(a) CAPACITY. The Shareholder has all requisite capacity to enter
--------
into and to perform the Shareholder's obligations under this Shareholder
Agreement.
(b) AGREEMENT. The Shareholder has received a copy of the
---------
Agreement and has had the opportunity to review and to consider the terms and
conditions contained in this Shareholder Agreement and in the Agreement and to
confer with his or her counsel concerning said terms and conditions.
(c) BINDING AGREEMENT. This Shareholder Agreement has been duly
------------------
executed and delivered by such Shareholder and constitutes a valid and legally
binding agreement of such Shareholder.
<PAGE>
(d) OWNERSHIP OF SHARES, ETC. Schedule I hereto correctly sets
---------------------------
forth the number of shares of Community West Stock owned by the Shareholder or
with respect to which such Shareholder has sole or shared voting power, and the
Shareholder has good and marketable title to all such shares of Community West
Stock free and clear of any liens, security interests, charges or other
encumbrances of any kind or nature except as set forth on Schedule I.
(e) RELATIONSHIP WITH COMMUNITY WEST. The Shareholder is a
-----------------------------------
director or executive officer of Community West.
(f) NON-CONTRAVENTION. The execution and delivery of this
-----------------
Agreement by the Shareholder does not, and the performance by the Shareholder of
the Shareholder's obligations hereunder and the consummation by the Shareholder
of the transactions contemplated hereby will not, violate or conflict with or
constitute a default under any agreement, instrument, contract or other
obligation or any order, arbitration award, judgment or decree to which the
Shareholder is a party or by which the Shareholder is bound, or any statute,
rule or regulation to which the Shareholder or any of the Shareholder's property
is subject.
ARTICLE III
DISCLOSURE AND TRADING
----------------------
The Shareholder hereby covenants and agrees that upon receipt of the
disclosure of a Strategic Transaction Proposal or a Community West Acquisition
Transaction (as those terms are defined in the Agreement), Shareholder shall
maintain the confidentiality of all non-public information regarding the
Strategic Transaction Proposal or the Community West Acquisition Transaction to
the same extent required by the parties to any such transaction under the terms
of any confidentiality agreement to which those parties are bound and to refrain
from trading in securities of Community West, Palomar, any subsidiary thereof or
any other party to the Strategic Transaction Proposal or Community West
Acquisition Transaction until the earlier of: (i) full public disclosure of such
non-public information has been made and trading in the subject securities would
not be a violation of applicable securities laws, or (ii) the Strategic
Transaction Proposal or Community West Acquisition Transaction has been
terminated or has expired by its terms and disclosure of such non-public
information is permitted under the terms of any agreement regarding the
transaction and trading in the subject securities would not be a violation of
applicable securities laws.
ARTICLE IV
TERMINATION
-----------
TERMINATION. This Shareholder Agreement shall automatically terminate and
-----------
be of no further force or effect if the Agreement is terminated in accordance
with the terms thereof, except as to any breach of this Shareholder Agreement by
the Shareholder occurring prior to the date of such termination. The
representations and warranties set forth in Article II and the covenants and
agreements of Articles III and V hereof shall survive the termination of this
Shareholder Agreement and the Closing.
<PAGE>
ARTICLE V
MISCELLANEOUS
-------------
5.1 EXPENSES. Each party hereto shall pay its own costs and expenses
--------
in connection with this Shareholder Agreement and the transactions covered and
contemplated hereby; provided, however, that nothing contained herein shall
preclude the payment of the Shareholder's expenses in connection with the
negotiation and documentation of this Shareholder's Agreement by Community West.
5.2 NOTICES, ETC. All communications required or permitted to be
-------------
given hereunder shall be in writing and shall be deemed to have been duly given
to the appropriate parties if delivered in person (professional carrier
acceptable) or by United States mail, certified and with return receipt
requested, or otherwise actually delivered:
(a) If to the Shareholder, to the address set forth on Schedule I
attached hereto.
With a copy to:
Community West Bancshares
5827 Hollister Avenue
Goleta, California 93117
Attn: Llewellyn W. Stone
President and Chief Executive Officer
With a copy to: Horgan, Rosen, Beckham & Coren, LLP
21700 Oxnard Street, Suite 1400
Los Angeles, California 91365
Attn: Arthur A. Coren, Professional Corporation
FAX: (818) 340-6190
<PAGE>
(b) If to Palomar
Palomar Savings & Loan Association
355 West Grand Avenue
Escondido, California 92025
Attn: Mr. James M. Rady
With a copy to: Higgs, Fletcher & Mack, LLP
401 West A Street, Suite 2000
San Diego, California 92101
Attn: Kurt L. Kicklighter, Esq.
or such other address as any party may have furnished in writing to the other
parties.
5.3 ENTIRE AND SOLE AGREEMENT. The making, execution and delivery of
---------------------------
this Shareholder Agreement by the parties hereto have not been induced by any
representations, statements, warranties or agreements other than those expressed
herein and in the Agreement. This Shareholder Agreement and the Agreement
embody the entire understanding of the parties, and there are no further or
other agreements or understandings, whether written or oral, in effect among the
parties relating to the subject matter hereof, unless expressly referred to by
reference herein.
5.4 SUCCESSORS AND ASSIGNS. Except as otherwise provided in this
------------------------
Shareholder Agreement, all covenants and agreements of the parties contained in
this Shareholder Agreement shall be binding upon and inure to the benefit of the
respective successors and assigns of the parties hereto.
5.5 GOVERNING LAW. This Shareholder Agreement shall be construed and
--------------
enforced in accordance with and governed by the laws of the State of California.
Each party hereto hereby submits to the jurisdiction of the courts of the County
of Santa Barbara for the purpose of any suit, action or other proceeding arising
out of such party's obligations under or with respect to this Agreement.
5.6 COUNTERPARTS. This Shareholder Agreement may be executed
------------
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
5.7 AMENDMENT, SUPPLEMENT AND WAIVER. This Shareholder Agreement may
----------------------------------
be amended or supplemented, and compliance with the provisions hereof may be
waived only by an instrument in writing signed by the party against which
enforcement of such amendment, supplement or waiver of compliance is sought.
5.8 HEADINGS. The headings in this Shareholder Agreement are for
--------
purposes of reference only and shall not limit or otherwise affect the meaning
hereof.
5.9 SPECIFIC PERFORMANCE. It is recognized and agreed that monetary
---------------------
damages will not compensate the parties hereto for nonperformance by any party.
Accordingly, each party agrees that his or her obligation shall be enforceable
by a court order requiring specific performance.
<PAGE>
5.10 SEVERAL OBLIGATIONS. All duties and obligations of the
--------------------
Shareholder executing this Shareholder Agreement shall be several and not joint
with the duties and obligations of other Shareholders executing similar
Shareholder Agreements with Palomar.
IN WITNESS WHEREOF, the parties hereto have caused this Shareholder
Agreement to be duly executed as of the date first above written.
SHAREHOLDER PALOMAR SAVINGS & LOAN ASSOCIATION
Robert H. Bartlein By: /s/ James M. Rady
- ---------------------------- -----------------------------
(Name) James M. Rady
Its: President and Chief Executive Officer
/s/ Robert H. Bartlein
- ----------------------------
(Signature)
<PAGE>
SCHEDULE 1
NAME OF SHAREHOLDER: Robert H. Bartlein
--------------------
ADDRESS OF SHAREHOLDER: 1085 Estrella Drive
---------------------
Santa Barbara, CA 93110
--------------------------
CERTIFICATE NUMBER NUMBER OF SHARES REGISTERED OWNER(S)
- ------------------- ------------------ --------------------
31,806 Robert H. Bartlein
17,040 Robert H. Bartlein
Warrants 3,822 Trustee for minor son
Robert H. Bartlein
Warrants 10,000 Robert H. Bartlein
Trustee for minor son
DESCRIBE ANY LIENS:
- ---------------------
None
<PAGE>
EXHIBIT 9.4
SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT (this "Shareholder Agreement"), is made as
of this ____ day of April, 1998, by and among Palomar Savings & Loan
Association, a California state chartered savings and loan association
("Palomar") and the shareholder of Community West Bancshares, a California
corporation ("Community West") whose name is set forth under "Shareholder" on
the signature page hereof (the "Shareholder"). Palomar is contemporaneously
herewith entering into agreements with other shareholders of Community West,
which agreements are identical in all respects hereto, except as to (a) the
number of shares of Community West's common stock, no par value (the "Community
West Stock") owned by such other shareholders, and (b) the name and address of
the other shareholders. The Shareholder and such other persons shall
hereinafter be referred to as to the Shareholders and this Agreement and such
other agreements as "Shareholder Agreements." This Shareholder Agreement is
made with reference to the following:
RECITALS
--------
WHEREAS, that certain Agreement and Plan of Reorganization (the
"Agreement"), dated as of April __, 1998, entered into by and among Community
West and Palomar, provides for the acquisition by Community West of one hundred
percent (100%) of the Palomar Common Stock, through the merger (the "Merger") of
Palomar with a merger corporation which shall be a wholly-owned subsidiary of
Community West ("CWB Merger Corp"); and
WHEREAS, as a condition precedent to the obligations of Community West and
Palomar under the Agreement, the Shareholder and all the Shareholders shall have
entered into Shareholder Agreements concurrent with the execution of the
Agreement in accordance with the terms, conditions, and provisions thereof;
NOW, THEREFORE, in order to effectuate the transactions set forth above and
in consideration of the mutual covenants, conditions, agreements,
representations and warranties contained herein and in the Agreement, and
intending to be legally bound, the parties hereto agree as follows:
AGREEMENT
---------
ARTICLE I
COVENANTS OF SHAREHOLDER
------------------------
1.1 VOTE OF SHAREHOLDERS. At the meeting of shareholders of Community
----------------------
West referred to in Section 7.1 of the Agreement (the "Meeting"), the
Shareholder shall vote or cause to be voted the shares of Community West Stock
indicated as owned or controlled by such Shareholder on Schedule I attached
hereto, and any other shares of Community West Stock now owned or hereafter
acquired or controlled by such Shareholder, in favor of, and to approve the
principal terms of, the Merger and any other matter contemplated by the
Agreement which requires the approval of the shareholders of Community West.
<PAGE>
1.2 OTHER CONTRACTS. From and after the date of this Shareholder
-----------------
Agreement, the Shareholder shall not enter into or become subject to any
agreement or commitment which would restrict or in any way impair the obligation
of the Shareholder to comply with all the terms of this Shareholder Agreement,
including, without limitation, any other agreement to sell, transfer or
otherwise dispose of the Shareholder shares of Community West Stock.
1.3 UPDATING INFORMATION. In the event that the Shareholder shall
----------------------
discover that any representation or warranty made herein by him/her was false or
misleading in any material respect when made or that any event has occurred such
that any representation or warranty of the Shareholder made herein would, if
made at and as of the time of the occurrence of such event, or thereafter, be
incorrect in any material respect, the Shareholder shall deliver to Palomar a
statement specifying that it is delivered pursuant to this Section 1.3 and
stating in reasonable detail the facts with respect thereto. Delivery of any
such statement shall not limit any rights which Palomar may otherwise have under
this Shareholder Agreement.
1.4 AGREEMENT TO RECOMMEND. The Shareholder agrees that, upon the
-------------------------
execution of this Shareholder Agreement, he/she shall at all times use his/her
best efforts in order to obtain the approval of the shareholders of Community
West of the principal terms of the Merger and any other matter contemplated by
the Agreement which requires approval of the shareholders of Community West and
shall recommend the approval of such matters by the shareholders of Community
West at the Meeting.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
------------------------------
OF SHAREHOLDER
--------------
2.1 REPRESENTATIONS AND WARRANTIES OF DIRECTOR. The Shareholder
----------------------------------------------
represents and warrants to, and agrees with, Palomar as follows:
(a) CAPACITY. The Shareholder has all requisite capacity to enter
--------
into and to perform the Shareholder's obligations under this Shareholder
Agreement.
(b) AGREEMENT. The Shareholder has received a copy of the
---------
Agreement and has had the opportunity to review and to consider the terms and
conditions contained in this Shareholder Agreement and in the Agreement and to
confer with his or her counsel concerning said terms and conditions.
(c) BINDING AGREEMENT. This Shareholder Agreement has been duly
------------------
executed and delivered by such Shareholder and constitutes a valid and legally
binding agreement of such Shareholder.
<PAGE>
(d) OWNERSHIP OF SHARES, ETC. Schedule I hereto correctly sets
---------------------------
forth the number of shares of Community West Stock owned by the Shareholder or
with respect to which such Shareholder has sole or shared voting power, and the
Shareholder has good and marketable title to all such shares of Community West
Stock free and clear of any liens, security interests, charges or other
encumbrances of any kind or nature except as set forth on Schedule I.
(e) RELATIONSHIP WITH COMMUNITY WEST. The Shareholder is a
-----------------------------------
director or executive officer of Community West.
(f) NON-CONTRAVENTION. The execution and delivery of this
-----------------
Agreement by the Shareholder does not, and the performance by the Shareholder of
the Shareholder's obligations hereunder and the consummation by the Shareholder
of the transactions contemplated hereby will not, violate or conflict with or
constitute a default under any agreement, instrument, contract or other
obligation or any order, arbitration award, judgment or decree to which the
Shareholder is a party or by which the Shareholder is bound, or any statute,
rule or regulation to which the Shareholder or any of the Shareholder's property
is subject.
ARTICLE III
DISCLOSURE AND TRADING
----------------------
The Shareholder hereby covenants and agrees that upon receipt of the
disclosure of a Strategic Transaction Proposal or a Community West Acquisition
Transaction (as those terms are defined in the Agreement), Shareholder shall
maintain the confidentiality of all non-public information regarding the
Strategic Transaction Proposal or the Community West Acquisition Transaction to
the same extent required by the parties to any such transaction under the terms
of any confidentiality agreement to which those parties are bound and to refrain
from trading in securities of Community West, Palomar, any subsidiary thereof or
any other party to the Strategic Transaction Proposal or Community West
Acquisition Transaction until the earlier of: (i) full public disclosure of such
non-public information has been made and trading in the subject securities would
not be a violation of applicable securities laws, or (ii) the Strategic
Transaction Proposal or Community West Acquisition Transaction has been
terminated or has expired by its terms and disclosure of such non-public
information is permitted under the terms of any agreement regarding the
transaction and trading in the subject securities would not be a violation of
applicable securities laws.
ARTICLE IV
TERMINATION
-----------
TERMINATION. This Shareholder Agreement shall automatically terminate and
-----------
be of no further force or effect if the Agreement is terminated in accordance
with the terms thereof, except as to any breach of this Shareholder Agreement by
the Shareholder occurring prior to the date of such termination. The
representations and warranties set forth in Article II and the covenants and
agreements of Articles III and V hereof shall survive the termination of this
Shareholder Agreement and the Closing.
<PAGE>
ARTICLE V
MISCELLANEOUS
-------------
5.1 EXPENSES. Each party hereto shall pay its own costs and expenses
--------
in connection with this Shareholder Agreement and the transactions covered and
contemplated hereby; provided, however, that nothing contained herein shall
preclude the payment of the Shareholder's expenses in connection with the
negotiation and documentation of this Shareholder's Agreement by Community West.
5.2 NOTICES, ETC. All communications required or permitted to be
-------------
given hereunder shall be in writing and shall be deemed to have been duly given
to the appropriate parties if delivered in person (professional carrier
acceptable) or by United States mail, certified and with return receipt
requested, or otherwise actually delivered:
(a) If to the Shareholder, to the address set forth on Schedule I
attached hereto.
With a copy to:
Community West Bancshares
5827 Hollister Avenue
Goleta, California 93117
Attn: Llewellyn W. Stone
President and Chief Executive Officer
With a copy to: Horgan, Rosen, Beckham & Coren, LLP
21700 Oxnard Street, Suite 1400
Los Angeles, California 91365
Attn: Arthur A. Coren, Professional Corporation
FAX: (818) 340-6190
<PAGE>
(b) If to Palomar
Palomar Savings & Loan Association
355 West Grand Avenue
Escondido, California 92025
Attn: Mr. James M. Rady
With a copy to: Higgs, Fletcher & Mack, LLP
401 West A Street, Suite 2000
San Diego, California 92101
Attn: Kurt L. Kicklighter, Esq.
or such other address as any party may have furnished in writing to the other
parties.
5.3 ENTIRE AND SOLE AGREEMENT. The making, execution and delivery of
---------------------------
this Shareholder Agreement by the parties hereto have not been induced by any
representations, statements, warranties or agreements other than those expressed
herein and in the Agreement. This Shareholder Agreement and the Agreement
embody the entire understanding of the parties, and there are no further or
other agreements or understandings, whether written or oral, in effect among the
parties relating to the subject matter hereof, unless expressly referred to by
reference herein.
5.4 SUCCESSORS AND ASSIGNS. Except as otherwise provided in this
------------------------
Shareholder Agreement, all covenants and agreements of the parties contained in
this Shareholder Agreement shall be binding upon and inure to the benefit of the
respective successors and assigns of the parties hereto.
5.5 GOVERNING LAW. This Shareholder Agreement shall be construed and
--------------
enforced in accordance with and governed by the laws of the State of California.
Each party hereto hereby submits to the jurisdiction of the courts of the County
of Santa Barbara for the purpose of any suit, action or other proceeding arising
out of such party's obligations under or with respect to this Agreement.
5.6 COUNTERPARTS. This Shareholder Agreement may be executed
------------
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
5.7 AMENDMENT, SUPPLEMENT AND WAIVER. This Shareholder Agreement may
----------------------------------
be amended or supplemented, and compliance with the provisions hereof may be
waived only by an instrument in writing signed by the party against which
enforcement of such amendment, supplement or waiver of compliance is sought.
5.8 HEADINGS. The headings in this Shareholder Agreement are for
--------
purposes of reference only and shall not limit or otherwise affect the meaning
hereof.
5.9 SPECIFIC PERFORMANCE. It is recognized and agreed that monetary
---------------------
damages will not compensate the parties hereto for nonperformance by any party.
Accordingly, each party agrees that his or her obligation shall be enforceable
by a court order requiring specific performance.
<PAGE>
5.10 SEVERAL OBLIGATIONS. All duties and obligations of the
--------------------
Shareholder executing this Shareholder Agreement shall be several and not joint
with the duties and obligations of other Shareholders executing similar
Shareholder Agreements with Palomar.
IN WITNESS WHEREOF, the parties hereto have caused this Shareholder
Agreement to be duly executed as of the date first above written.
SHAREHOLDER PALOMAR SAVINGS & LOAN ASSOCIATION
Jean W. Blois By: /s/ James M. Rady
- -------------------- --------------------
(Name) James M. Rady
Its: President and Chief Executive Officer
/s/ Jean W. Blois
- --------------------
(Signature)
<PAGE>
SCHEDULE 1
NAME OF SHAREHOLDER: Jean W. Blois
---------------
ADDRESS OF SHAREHOLDER: 5660 Cielo Avenue
-------------------
Goleta, CA 93117
------------------
CERTIFICATE NUMBER NUMBER OF SHARES REGISTERED OWNER(S)
- ------------------- ------------------ --------------------
26,824 Jean W. Blois
DESCRIBE ANY LIENS:
- ---------------------
None
<PAGE>
EXHIBIT 9.5
SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT (this "Shareholder Agreement"), is made as
of this ____ day of April, 1998, by and among Palomar Savings & Loan
Association, a California state chartered savings and loan association
("Palomar") and the shareholder of Community West Bancshares, a California
corporation ("Community West") whose name is set forth under "Shareholder" on
the signature page hereof (the "Shareholder"). Palomar is contemporaneously
herewith entering into agreements with other shareholders of Community West,
which agreements are identical in all respects hereto, except as to (a) the
number of shares of Community West's common stock, no par value (the "Community
West Stock") owned by such other shareholders, and (b) the name and address of
the other shareholders. The Shareholder and such other persons shall
hereinafter be referred to as to the Shareholders and this Agreement and such
other agreements as "Shareholder Agreements." This Shareholder Agreement is
made with reference to the following:
RECITALS
--------
WHEREAS, that certain Agreement and Plan of Reorganization (the
"Agreement"), dated as of April __, 1998, entered into by and among Community
West and Palomar, provides for the acquisition by Community West of one hundred
percent (100%) of the Palomar Common Stock, through the merger (the "Merger") of
Palomar with a merger corporation which shall be a wholly-owned subsidiary of
Community West ("CWB Merger Corp"); and
WHEREAS, as a condition precedent to the obligations of Community West and
Palomar under the Agreement, the Shareholder and all the Shareholders shall have
entered into Shareholder Agreements concurrent with the execution of the
Agreement in accordance with the terms, conditions, and provisions thereof;
NOW, THEREFORE, in order to effectuate the transactions set forth above and
in consideration of the mutual covenants, conditions, agreements,
representations and warranties contained herein and in the Agreement, and
intending to be legally bound, the parties hereto agree as follows:
AGREEMENT
---------
ARTICLE I
COVENANTS OF SHAREHOLDER
------------------------
1.1 VOTE OF SHAREHOLDERS. At the meeting of shareholders of Community
----------------------
West referred to in Section 7.1 of the Agreement (the "Meeting"), the
Shareholder shall vote or cause to be voted the shares of Community West Stock
indicated as owned or controlled by such Shareholder on Schedule I attached
hereto, and any other shares of Community West Stock now owned or hereafter
acquired or controlled by such Shareholder, in favor of, and to approve the
principal terms of, the Merger and any other matter contemplated by the
Agreement which requires the approval of the shareholders of Community West.
<PAGE>
1.2 OTHER CONTRACTS. From and after the date of this Shareholder
-----------------
Agreement, the Shareholder shall not enter into or become subject to any
agreement or commitment which would restrict or in any way impair the obligation
of the Shareholder to comply with all the terms of this Shareholder Agreement,
including, without limitation, any other agreement to sell, transfer or
otherwise dispose of the Shareholder shares of Community West Stock.
1.3 UPDATING INFORMATION. In the event that the Shareholder shall
----------------------
discover that any representation or warranty made herein by him/her was false or
misleading in any material respect when made or that any event has occurred such
that any representation or warranty of the Shareholder made herein would, if
made at and as of the time of the occurrence of such event, or thereafter, be
incorrect in any material respect, the Shareholder shall deliver to Palomar a
statement specifying that it is delivered pursuant to this Section 1.3 and
stating in reasonable detail the facts with respect thereto. Delivery of any
such statement shall not limit any rights which Palomar may otherwise have under
this Shareholder Agreement.
1.4 AGREEMENT TO RECOMMEND. The Shareholder agrees that, upon the
-------------------------
execution of this Shareholder Agreement, he/she shall at all times use his/her
best efforts in order to obtain the approval of the shareholders of Community
West of the principal terms of the Merger and any other matter contemplated by
the Agreement which requires approval of the shareholders of Community West and
shall recommend the approval of such matters by the shareholders of Community
West at the Meeting.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
------------------------------
OF SHAREHOLDER
--------------
2.1 REPRESENTATIONS AND WARRANTIES OF DIRECTOR. The Shareholder
----------------------------------------------
represents and warrants to, and agrees with, Palomar as follows:
(a) CAPACITY. The Shareholder has all requisite capacity to enter
--------
into and to perform the Shareholder's obligations under this Shareholder
Agreement.
(b) AGREEMENT. The Shareholder has received a copy of the
---------
Agreement and has had the opportunity to review and to consider the terms and
conditions contained in this Shareholder Agreement and in the Agreement and to
confer with his or her counsel concerning said terms and conditions.
(c) BINDING AGREEMENT. This Shareholder Agreement has been duly
------------------
executed and delivered by such Shareholder and constitutes a valid and legally
binding agreement of such Shareholder.
<PAGE>
(d) OWNERSHIP OF SHARES, ETC. Schedule I hereto correctly sets
---------------------------
forth the number of shares of Community West Stock owned by the Shareholder or
with respect to which such Shareholder has sole or shared voting power, and the
Shareholder has good and marketable title to all such shares of Community West
Stock free and clear of any liens, security interests, charges or other
encumbrances of any kind or nature except as set forth on Schedule I.
(e) RELATIONSHIP WITH COMMUNITY WEST. The Shareholder is a
-----------------------------------
director or executive officer of Community West.
(f) NON-CONTRAVENTION. The execution and delivery of this
-----------------
Agreement by the Shareholder does not, and the performance by the Shareholder of
the Shareholder's obligations hereunder and the consummation by the Shareholder
of the transactions contemplated hereby will not, violate or conflict with or
constitute a default under any agreement, instrument, contract or other
obligation or any order, arbitration award, judgment or decree to which the
Shareholder is a party or by which the Shareholder is bound, or any statute,
rule or regulation to which the Shareholder or any of the Shareholder's property
is subject.
ARTICLE III
DISCLOSURE AND TRADING
----------------------
The Shareholder hereby covenants and agrees that upon receipt of the
disclosure of a Strategic Transaction Proposal or a Community West Acquisition
Transaction (as those terms are defined in the Agreement), Shareholder shall
maintain the confidentiality of all non-public information regarding the
Strategic Transaction Proposal or the Community West Acquisition Transaction to
the same extent required by the parties to any such transaction under the terms
of any confidentiality agreement to which those parties are bound and to refrain
from trading in securities of Community West, Palomar, any subsidiary thereof or
any other party to the Strategic Transaction Proposal or Community West
Acquisition Transaction until the earlier of: (i) full public disclosure of such
non-public information has been made and trading in the subject securities would
not be a violation of applicable securities laws, or (ii) the Strategic
Transaction Proposal or Community West Acquisition Transaction has been
terminated or has expired by its terms and disclosure of such non-public
information is permitted under the terms of any agreement regarding the
transaction and trading in the subject securities would not be a violation of
applicable securities laws.
ARTICLE IV
TERMINATION
-----------
TERMINATION. This Shareholder Agreement shall automatically terminate and
-----------
be of no further force or effect if the Agreement is terminated in accordance
with the terms thereof, except as to any breach of this Shareholder Agreement by
the Shareholder occurring prior to the date of such termination. The
representations and warranties set forth in Article II and the covenants and
agreements of Articles III and V hereof shall survive the termination of this
Shareholder Agreement and the Closing.
<PAGE>
ARTICLE V
MISCELLANEOUS
-------------
5.1 EXPENSES. Each party hereto shall pay its own costs and expenses
--------
in connection with this Shareholder Agreement and the transactions covered and
contemplated hereby; provided, however, that nothing contained herein shall
preclude the payment of the Shareholder's expenses in connection with the
negotiation and documentation of this Shareholder's Agreement by Community West.
5.2 NOTICES, ETC. All communications required or permitted to be
-------------
given hereunder shall be in writing and shall be deemed to have been duly given
to the appropriate parties if delivered in person (professional carrier
acceptable) or by United States mail, certified and with return receipt
requested, or otherwise actually delivered:
(a) If to the Shareholder, to the address set forth on Schedule I
attached hereto.
With a copy to:
Community West Bancshares
5827 Hollister Avenue
Goleta, California 93117
Attn: Llewellyn W. Stone
President and Chief Executive Officer
With a copy to: Horgan, Rosen, Beckham & Coren, LLP
21700 Oxnard Street, Suite 1400
Los Angeles, California 91365
Attn: Arthur A. Coren, Professional Corporation
FAX: (818) 340-6190
<PAGE>
(b) If to Palomar
Palomar Savings & Loan Association
355 West Grand Avenue
Escondido, California 92025
Attn: Mr. James M. Rady
With a copy to: Higgs, Fletcher & Mack, LLP
401 West A Street, Suite 2000
San Diego, California 92101
Attn: Kurt L. Kicklighter, Esq.
or such other address as any party may have furnished in writing to the other
parties.
5.3 ENTIRE AND SOLE AGREEMENT. The making, execution and delivery of
---------------------------
this Shareholder Agreement by the parties hereto have not been induced by any
representations, statements, warranties or agreements other than those expressed
herein and in the Agreement. This Shareholder Agreement and the Agreement
embody the entire understanding of the parties, and there are no further or
other agreements or understandings, whether written or oral, in effect among the
parties relating to the subject matter hereof, unless expressly referred to by
reference herein.
5.4 SUCCESSORS AND ASSIGNS. Except as otherwise provided in this
------------------------
Shareholder Agreement, all covenants and agreements of the parties contained in
this Shareholder Agreement shall be binding upon and inure to the benefit of the
respective successors and assigns of the parties hereto.
5.5 GOVERNING LAW. This Shareholder Agreement shall be construed and
--------------
enforced in accordance with and governed by the laws of the State of California.
Each party hereto hereby submits to the jurisdiction of the courts of the County
of Santa Barbara for the purpose of any suit, action or other proceeding arising
out of such party's obligations under or with respect to this Agreement.
5.6 COUNTERPARTS. This Shareholder Agreement may be executed
------------
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
5.7 AMENDMENT, SUPPLEMENT AND WAIVER. This Shareholder Agreement may
----------------------------------
be amended or supplemented, and compliance with the provisions hereof may be
waived only by an instrument in writing signed by the party against which
enforcement of such amendment, supplement or waiver of compliance is sought.
5.8 HEADINGS. The headings in this Shareholder Agreement are for
--------
purposes of reference only and shall not limit or otherwise affect the meaning
hereof.
5.9 SPECIFIC PERFORMANCE. It is recognized and agreed that monetary
---------------------
damages will not compensate the parties hereto for nonperformance by any party.
Accordingly, each party agrees that his or her obligation shall be enforceable
by a court order requiring specific performance.
<PAGE>
5.10 SEVERAL OBLIGATIONS. All duties and obligations of the
--------------------
Shareholder executing this Shareholder Agreement shall be several and not joint
with the duties and obligations of other Shareholders executing similar
Shareholder Agreements with Palomar.
IN WITNESS WHEREOF, the parties hereto have caused this Shareholder
Agreement to be duly executed as of the date first above written.
SHAREHOLDER PALOMAR SAVINGS & LOAN ASSOCIATION
John D. Illgen By: /s/ James M. Rady
- --------------------- --------------------
(Name) James M. Rady
Its: President and Chief Executive Officer
/s/ John D. Illgen
- ---------------------
(Signature)
<PAGE>
SCHEDULE 1
NAME OF SHAREHOLDER: John D. Illgen
----------------
ADDRESS OF SHAREHOLDER: 5008 Sungate Ranch Road
--------------------------
Santa Barbara, CA 93111
--------------------------
CERTIFICATE NUMBER NUMBER OF SHARES REGISTERED OWNER(S)
- ------------------- ------------------ --------------------
21,062 John D. Illgen
Warrants 5,574 John D. Illgen
DESCRIBE ANY LIENS:
- ---------------------
NONE
<PAGE>
EXHIBIT 9.6
SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT (this "Shareholder Agreement"), is made as
of this ____ day of April, 1998, by and among Palomar Savings & Loan
Association, a California state chartered savings and loan association
("Palomar") and the shareholder of Community West Bancshares, a California
corporation ("Community West") whose name is set forth under "Shareholder" on
the signature page hereof (the "Shareholder"). Palomar is contemporaneously
herewith entering into agreements with other shareholders of Community West,
which agreements are identical in all respects hereto, except as to (a) the
number of shares of Community West's common stock, no par value (the "Community
West Stock") owned by such other shareholders, and (b) the name and address of
the other shareholders. The Shareholder and such other persons shall
hereinafter be referred to as to the Shareholders and this Agreement and such
other agreements as "Shareholder Agreements." This Shareholder Agreement is
made with reference to the following:
RECITALS
--------
WHEREAS, that certain Agreement and Plan of Reorganization (the
"Agreement"), dated as of April __, 1998, entered into by and among Community
West and Palomar, provides for the acquisition by Community West of one hundred
percent (100%) of the Palomar Common Stock, through the merger (the "Merger") of
Palomar with a merger corporation which shall be a wholly-owned subsidiary of
Community West ("CWB Merger Corp"); and
WHEREAS, as a condition precedent to the obligations of Community West and
Palomar under the Agreement, the Shareholder and all the Shareholders shall have
entered into Shareholder Agreements concurrent with the execution of the
Agreement in accordance with the terms, conditions, and provisions thereof;
NOW, THEREFORE, in order to effectuate the transactions set forth above and
in consideration of the mutual covenants, conditions, agreements,
representations and warranties contained herein and in the Agreement, and
intending to be legally bound, the parties hereto agree as follows:
AGREEMENT
---------
ARTICLE I
COVENANTS OF SHAREHOLDER
------------------------
1.1 VOTE OF SHAREHOLDERS. At the meeting of shareholders of Community
----------------------
West referred to in Section 7.1 of the Agreement (the "Meeting"), the
Shareholder shall vote or cause to be voted the shares of Community West Stock
indicated as owned or controlled by such Shareholder on Schedule I attached
hereto, and any other shares of Community West Stock now owned or hereafter
acquired or controlled by such Shareholder, in favor of, and to approve the
principal terms of, the Merger and any other matter contemplated by the
Agreement which requires the approval of the shareholders of Community West.
<PAGE>
1.2 OTHER CONTRACTS. From and after the date of this Shareholder
-----------------
Agreement, the Shareholder shall not enter into or become subject to any
agreement or commitment which would restrict or in any way impair the obligation
of the Shareholder to comply with all the terms of this Shareholder Agreement,
including, without limitation, any other agreement to sell, transfer or
otherwise dispose of the Shareholder shares of Community West Stock.
1.3 UPDATING INFORMATION. In the event that the Shareholder shall
----------------------
discover that any representation or warranty made herein by him/her was false or
misleading in any material respect when made or that any event has occurred such
that any representation or warranty of the Shareholder made herein would, if
made at and as of the time of the occurrence of such event, or thereafter, be
incorrect in any material respect, the Shareholder shall deliver to Palomar a
statement specifying that it is delivered pursuant to this Section 1.3 and
stating in reasonable detail the facts with respect thereto. Delivery of any
such statement shall not limit any rights which Palomar may otherwise have under
this Shareholder Agreement.
1.4 AGREEMENT TO RECOMMEND. The Shareholder agrees that, upon the
-------------------------
execution of this Shareholder Agreement, he/she shall at all times use his/her
best efforts in order to obtain the approval of the shareholders of Community
West of the principal terms of the Merger and any other matter contemplated by
the Agreement which requires approval of the shareholders of Community West and
shall recommend the approval of such matters by the shareholders of Community
West at the Meeting.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
------------------------------
OF SHAREHOLDER
--------------
2.1 REPRESENTATIONS AND WARRANTIES OF DIRECTOR. The Shareholder
----------------------------------------------
represents and warrants to, and agrees with, Palomar as follows:
(a) CAPACITY. The Shareholder has all requisite capacity to enter
--------
into and to perform the Shareholder's obligations under this Shareholder
Agreement.
(b) AGREEMENT. The Shareholder has received a copy of the
---------
Agreement and has had the opportunity to review and to consider the terms and
conditions contained in this Shareholder Agreement and in the Agreement and to
confer with his or her counsel concerning said terms and conditions.
(c) BINDING AGREEMENT. This Shareholder Agreement has been duly
------------------
executed and delivered by such Shareholder and constitutes a valid and legally
binding agreement of such Shareholder.
<PAGE>
(d) OWNERSHIP OF SHARES, ETC. Schedule I hereto correctly sets
---------------------------
forth the number of shares of Community West Stock owned by the Shareholder or
with respect to which such Shareholder has sole or shared voting power, and the
Shareholder has good and marketable title to all such shares of Community West
Stock free and clear of any liens, security interests, charges or other
encumbrances of any kind or nature except as set forth on Schedule I.
(e) RELATIONSHIP WITH COMMUNITY WEST. The Shareholder is a
-----------------------------------
director or executive officer of Community West.
(f) NON-CONTRAVENTION. The execution and delivery of this
-----------------
Agreement by the Shareholder does not, and the performance by the Shareholder of
the Shareholder's obligations hereunder and the consummation by the Shareholder
of the transactions contemplated hereby will not, violate or conflict with or
constitute a default under any agreement, instrument, contract or other
obligation or any order, arbitration award, judgment or decree to which the
Shareholder is a party or by which the Shareholder is bound, or any statute,
rule or regulation to which the Shareholder or any of the Shareholder's property
is subject.
ARTICLE III
DISCLOSURE AND TRADING
----------------------
The Shareholder hereby covenants and agrees that upon receipt of the
disclosure of a Strategic Transaction Proposal or a Community West Acquisition
Transaction (as those terms are defined in the Agreement), Shareholder shall
maintain the confidentiality of all non-public information regarding the
Strategic Transaction Proposal or the Community West Acquisition Transaction to
the same extent required by the parties to any such transaction under the terms
of any confidentiality agreement to which those parties are bound and to refrain
from trading in securities of Community West, Palomar, any subsidiary thereof or
any other party to the Strategic Transaction Proposal or Community West
Acquisition Transaction until the earlier of: (i) full public disclosure of such
non-public information has been made and trading in the subject securities would
not be a violation of applicable securities laws, or (ii) the Strategic
Transaction Proposal or Community West Acquisition Transaction has been
terminated or has expired by its terms and disclosure of such non-public
information is permitted under the terms of any agreement regarding the
transaction and trading in the subject securities would not be a violation of
applicable securities laws.
ARTICLE IV
TERMINATION
-----------
TERMINATION. This Shareholder Agreement shall automatically terminate and
-----------
be of no further force or effect if the Agreement is terminated in accordance
with the terms thereof, except as to any breach of this Shareholder Agreement by
the Shareholder occurring prior to the date of such termination. The
representations and warranties set forth in Article II and the covenants and
agreements of Articles III and V hereof shall survive the termination of this
Shareholder Agreement and the Closing.
<PAGE>
ARTICLE V
MISCELLANEOUS
-------------
5.1 EXPENSES. Each party hereto shall pay its own costs and expenses
--------
in connection with this Shareholder Agreement and the transactions covered and
contemplated hereby; provided, however, that nothing contained herein shall
preclude the payment of the Shareholder's expenses in connection with the
negotiation and documentation of this Shareholder's Agreement by Community West.
5.2 NOTICES, ETC. All communications required or permitted to be
-------------
given hereunder shall be in writing and shall be deemed to have been duly given
to the appropriate parties if delivered in person (professional carrier
acceptable) or by United States mail, certified and with return receipt
requested, or otherwise actually delivered:
(a) If to the Shareholder, to the address set forth on Schedule I
attached hereto.
With a copy to:
Community West Bancshares
5827 Hollister Avenue
Goleta, California 93117
Attn: Llewellyn W. Stone
President and Chief Executive Officer
With a copy to: Horgan, Rosen, Beckham & Coren, LLP
21700 Oxnard Street, Suite 1400
Los Angeles, California 91365
Attn: Arthur A. Coren, Professional Corporation
FAX: (818) 340-6190
<PAGE>
(b) If to Palomar
Palomar Savings & Loan Association
355 West Grand Avenue
Escondido, California 92025
Attn: Mr. James M. Rady
With a copy to: Higgs, Fletcher & Mack, LLP
401 West A Street, Suite 2000
San Diego, California 92101
Attn: Kurt L. Kicklighter, Esq.
or such other address as any party may have furnished in writing to the other
parties.
5.3 ENTIRE AND SOLE AGREEMENT. The making, execution and delivery of
---------------------------
this Shareholder Agreement by the parties hereto have not been induced by any
representations, statements, warranties or agreements other than those expressed
herein and in the Agreement. This Shareholder Agreement and the Agreement
embody the entire understanding of the parties, and there are no further or
other agreements or understandings, whether written or oral, in effect among the
parties relating to the subject matter hereof, unless expressly referred to by
reference herein.
5.4 SUCCESSORS AND ASSIGNS. Except as otherwise provided in this
------------------------
Shareholder Agreement, all covenants and agreements of the parties contained in
this Shareholder Agreement shall be binding upon and inure to the benefit of the
respective successors and assigns of the parties hereto.
5.5 GOVERNING LAW. This Shareholder Agreement shall be construed and
--------------
enforced in accordance with and governed by the laws of the State of California.
Each party hereto hereby submits to the jurisdiction of the courts of the County
of Santa Barbara for the purpose of any suit, action or other proceeding arising
out of such party's obligations under or with respect to this Agreement.
5.6 COUNTERPARTS. This Shareholder Agreement may be executed
------------
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
5.7 AMENDMENT, SUPPLEMENT AND WAIVER. This Shareholder Agreement may
----------------------------------
be amended or supplemented, and compliance with the provisions hereof may be
waived only by an instrument in writing signed by the party against which
enforcement of such amendment, supplement or waiver of compliance is sought.
5.8 HEADINGS. The headings in this Shareholder Agreement are for
--------
purposes of reference only and shall not limit or otherwise affect the meaning
hereof.
5.9 SPECIFIC PERFORMANCE. It is recognized and agreed that monetary
---------------------
damages will not compensate the parties hereto for nonperformance by any party.
Accordingly, each party agrees that his or her obligation shall be enforceable
by a court order requiring specific performance.
<PAGE>
5.10 SEVERAL OBLIGATIONS. All duties and obligations of the
--------------------
Shareholder executing this Shareholder Agreement shall be several and not joint
with the duties and obligations of other Shareholders executing similar
Shareholder Agreements with Palomar.
IN WITNESS WHEREOF, the parties hereto have caused this Shareholder
Agreement to be duly executed as of the date first above written.
SHAREHOLDER PALOMAR SAVINGS & LOAN ASSOCIATION
John D. Markel By: /s/ James M. Rady
- --------------------- --------------------
(Name) James M. Rady
Its: President and Chief Executive Officer
/s/ John D. Markel
- ---------------------
(Signature)
<PAGE>
SCHEDULE 1
NAME OF SHAREHOLDER: John D. Markel
----------------
ADDRESS OF SHAREHOLDER: 3214 Campanil Drive
---------------------
Santa Barbara, CA 93109
--------------------------
CERTIFICATE NUMBER NUMBER OF SHARES REGISTERED OWNER(S)
- ------------------- ------------------ --------------------
178,172 John ViRginia Markel
Warrants 120,652 John & Virginia Markel
DESCRIBE ANY LIENS:
- ---------------------
130,444 shares in margin account with Torrey Pines Securities
<PAGE>
EXHIBIT 9.7
SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT (this "Shareholder Agreement"), is made as
of this ____ day of April, 1998, by and among Palomar Savings & Loan
Association, a California state chartered savings and loan association
("Palomar") and the shareholder of Community West Bancshares, a California
corporation ("Community West") whose name is set forth under "Shareholder" on
the signature page hereof (the "Shareholder"). Palomar is contemporaneously
herewith entering into agreements with other shareholders of Community West,
which agreements are identical in all respects hereto, except as to (a) the
number of shares of Community West's common stock, no par value (the "Community
West Stock") owned by such other shareholders, and (b) the name and address of
the other shareholders. The Shareholder and such other persons shall
hereinafter be referred to as to the Shareholders and this Agreement and such
other agreements as "Shareholder Agreements." This Shareholder Agreement is
made with reference to the following:
RECITALS
--------
WHEREAS, that certain Agreement and Plan of Reorganization (the
"Agreement"), dated as of April __, 1998, entered into by and among Community
West and Palomar, provides for the acquisition by Community West of one hundred
percent (100%) of the Palomar Common Stock, through the merger (the "Merger") of
Palomar with a merger corporation which shall be a wholly-owned subsidiary of
Community West ("CWB Merger Corp"); and
WHEREAS, as a condition precedent to the obligations of Community West and
Palomar under the Agreement, the Shareholder and all the Shareholders shall have
entered into Shareholder Agreements concurrent with the execution of the
Agreement in accordance with the terms, conditions, and provisions thereof;
NOW, THEREFORE, in order to effectuate the transactions set forth above and
in consideration of the mutual covenants, conditions, agreements,
representations and warranties contained herein and in the Agreement, and
intending to be legally bound, the parties hereto agree as follows:
AGREEMENT
---------
ARTICLE I
COVENANTS OF SHAREHOLDER
------------------------
1.1 VOTE OF SHAREHOLDERS. At the meeting of shareholders of Community
----------------------
West referred to in Section 7.1 of the Agreement (the "Meeting"), the
Shareholder shall vote or cause to be voted the shares of Community West Stock
indicated as owned or controlled by such Shareholder on Schedule I attached
hereto, and any other shares of Community West Stock now owned or hereafter
acquired or controlled by such Shareholder, in favor of, and to approve the
principal terms of, the Merger and any other matter contemplated by the
Agreement which requires the approval of the shareholders of Community West.
<PAGE>
1.2 OTHER CONTRACTS. From and after the date of this Shareholder
-----------------
Agreement, the Shareholder shall not enter into or become subject to any
agreement or commitment which would restrict or in any way impair the obligation
of the Shareholder to comply with all the terms of this Shareholder Agreement,
including, without limitation, any other agreement to sell, transfer or
otherwise dispose of the Shareholder shares of Community West Stock.
1.3 UPDATING INFORMATION. In the event that the Shareholder shall
----------------------
discover that any representation or warranty made herein by him/her was false or
misleading in any material respect when made or that any event has occurred such
that any representation or warranty of the Shareholder made herein would, if
made at and as of the time of the occurrence of such event, or thereafter, be
incorrect in any material respect, the Shareholder shall deliver to Palomar a
statement specifying that it is delivered pursuant to this Section 1.3 and
stating in reasonable detail the facts with respect thereto. Delivery of any
such statement shall not limit any rights which Palomar may otherwise have under
this Shareholder Agreement.
1.4 AGREEMENT TO RECOMMEND. The Shareholder agrees that, upon the
-------------------------
execution of this Shareholder Agreement, he/she shall at all times use his/her
best efforts in order to obtain the approval of the shareholders of Community
West of the principal terms of the Merger and any other matter contemplated by
the Agreement which requires approval of the shareholders of Community West and
shall recommend the approval of such matters by the shareholders of Community
West at the Meeting.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
------------------------------
OF SHAREHOLDER
--------------
2.1 REPRESENTATIONS AND WARRANTIES OF DIRECTOR. The Shareholder
----------------------------------------------
represents and warrants to, and agrees with, Palomar as follows:
(a) CAPACITY. The Shareholder has all requisite capacity to enter
--------
into and to perform the Shareholder's obligations under this Shareholder
Agreement.
(b) AGREEMENT. The Shareholder has received a copy of the
---------
Agreement and has had the opportunity to review and to consider the terms and
conditions contained in this Shareholder Agreement and in the Agreement and to
confer with his or her counsel concerning said terms and conditions.
(c) BINDING AGREEMENT. This Shareholder Agreement has been duly
------------------
executed and delivered by such Shareholder and constitutes a valid and legally
binding agreement of such Shareholder.
<PAGE>
(d) OWNERSHIP OF SHARES, ETC. Schedule I hereto correctly sets
---------------------------
forth the number of shares of Community West Stock owned by the Shareholder or
with respect to which such Shareholder has sole or shared voting power, and the
Shareholder has good and marketable title to all such shares of Community West
Stock free and clear of any liens, security interests, charges or other
encumbrances of any kind or nature except as set forth on Schedule I.
(e) RELATIONSHIP WITH COMMUNITY WEST. The Shareholder is a
-----------------------------------
director or executive officer of Community West.
(f) NON-CONTRAVENTION. The execution and delivery of this
-----------------
Agreement by the Shareholder does not, and the performance by the Shareholder of
the Shareholder's obligations hereunder and the consummation by the Shareholder
of the transactions contemplated hereby will not, violate or conflict with or
constitute a default under any agreement, instrument, contract or other
obligation or any order, arbitration award, judgment or decree to which the
Shareholder is a party or by which the Shareholder is bound, or any statute,
rule or regulation to which the Shareholder or any of the Shareholder's property
is subject.
ARTICLE III
DISCLOSURE AND TRADING
----------------------
The Shareholder hereby covenants and agrees that upon receipt of the
disclosure of a Strategic Transaction Proposal or a Community West Acquisition
Transaction (as those terms are defined in the Agreement), Shareholder shall
maintain the confidentiality of all non-public information regarding the
Strategic Transaction Proposal or the Community West Acquisition Transaction to
the same extent required by the parties to any such transaction under the terms
of any confidentiality agreement to which those parties are bound and to refrain
from trading in securities of Community West, Palomar, any subsidiary thereof or
any other party to the Strategic Transaction Proposal or Community West
Acquisition Transaction until the earlier of: (i) full public disclosure of such
non-public information has been made and trading in the subject securities would
not be a violation of applicable securities laws, or (ii) the Strategic
Transaction Proposal or Community West Acquisition Transaction has been
terminated or has expired by its terms and disclosure of such non-public
information is permitted under the terms of any agreement regarding the
transaction and trading in the subject securities would not be a violation of
applicable securities laws.
ARTICLE IV
TERMINATION
-----------
TERMINATION. This Shareholder Agreement shall automatically terminate and
-----------
be of no further force or effect if the Agreement is terminated in accordance
with the terms thereof, except as to any breach of this Shareholder Agreement by
the Shareholder occurring prior to the date of such termination. The
representations and warranties set forth in Article II and the covenants and
agreements of Articles III and V hereof shall survive the termination of this
Shareholder Agreement and the Closing.
<PAGE>
ARTICLE V
MISCELLANEOUS
-------------
5.1 EXPENSES. Each party hereto shall pay its own costs and expenses
--------
in connection with this Shareholder Agreement and the transactions covered and
contemplated hereby; provided, however, that nothing contained herein shall
preclude the payment of the Shareholder's expenses in connection with the
negotiation and documentation of this Shareholder's Agreement by Community West.
5.2 NOTICES, ETC. All communications required or permitted to be
-------------
given hereunder shall be in writing and shall be deemed to have been duly given
to the appropriate parties if delivered in person (professional carrier
acceptable) or by United States mail, certified and with return receipt
requested, or otherwise actually delivered:
(a) If to the Shareholder, to the address set forth on Schedule I
attached hereto.
With a copy to:
Community West Bancshares
5827 Hollister Avenue
Goleta, California 93117
Attn: Llewellyn W. Stone
President and Chief Executive Officer
With a copy to: Horgan, Rosen, Beckham & Coren, LLP
21700 Oxnard Street, Suite 1400
Los Angeles, California 91365
Attn: Arthur A. Coren, Professional Corporation
FAX: (818) 340-6190
<PAGE>
(b) If to Palomar
Palomar Savings & Loan Association
355 West Grand Avenue
Escondido, California 92025
Attn: Mr. James M. Rady
With a copy to: Higgs, Fletcher & Mack, LLP
401 West A Street, Suite 2000
San Diego, California 92101
Attn: Kurt L. Kicklighter, Esq.
or such other address as any party may have furnished in writing to the other
parties.
5.3 ENTIRE AND SOLE AGREEMENT. The making, execution and delivery of
---------------------------
this Shareholder Agreement by the parties hereto have not been induced by any
representations, statements, warranties or agreements other than those expressed
herein and in the Agreement. This Shareholder Agreement and the Agreement
embody the entire understanding of the parties, and there are no further or
other agreements or understandings, whether written or oral, in effect among the
parties relating to the subject matter hereof, unless expressly referred to by
reference herein.
5.4 SUCCESSORS AND ASSIGNS. Except as otherwise provided in this
------------------------
Shareholder Agreement, all covenants and agreements of the parties contained in
this Shareholder Agreement shall be binding upon and inure to the benefit of the
respective successors and assigns of the parties hereto.
5.5 GOVERNING LAW. This Shareholder Agreement shall be construed and
--------------
enforced in accordance with and governed by the laws of the State of California.
Each party hereto hereby submits to the jurisdiction of the courts of the County
of Santa Barbara for the purpose of any suit, action or other proceeding arising
out of such party's obligations under or with respect to this Agreement.
5.6 COUNTERPARTS. This Shareholder Agreement may be executed
------------
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
5.7 AMENDMENT, SUPPLEMENT AND WAIVER. This Shareholder Agreement may
----------------------------------
be amended or supplemented, and compliance with the provisions hereof may be
waived only by an instrument in writing signed by the party against which
enforcement of such amendment, supplement or waiver of compliance is sought.
5.8 HEADINGS. The headings in this Shareholder Agreement are for
--------
purposes of reference only and shall not limit or otherwise affect the meaning
hereof.
5.9 SPECIFIC PERFORMANCE. It is recognized and agreed that monetary
---------------------
damages will not compensate the parties hereto for nonperformance by any party.
Accordingly, each party agrees that his or her obligation shall be enforceable
by a court order requiring specific performance.
<PAGE>
5.10 SEVERAL OBLIGATIONS. All duties and obligations of the
--------------------
Shareholder executing this Shareholder Agreement shall be several and not joint
with the duties and obligations of other Shareholders executing similar
Shareholder Agreements with Palomar.
IN WITNESS WHEREOF, the parties hereto have caused this Shareholder
Agreement to be duly executed as of the date first above written.
SHAREHOLDER PALOMAR SAVINGS & LOAN ASSOCIATION
Michel Nellis By: /s/ James M. Rady
- ------------------- --------------------
(Name) James M. Rady
Its: President and Chief Executive Officer
/s/ Michel Nellis
- -------------------
(Signature)
<PAGE>
SCHEDULE 1
NAME OF SHAREHOLDER: Michel Nellis
--------------
ADDRESS OF SHAREHOLDER: 1298 Orchid Drive
-------------------
Santa Barbara, CA 93111
--------------------------
CERTIFICATE NUMBER NUMBER OF SHARES REGISTERED OWNER(S)
- ------------------- ------------------ --------------------
7,246 Bryan & Michel Nellis
16,272 Michel Nellis
Warrants 1,990 Michel Nellis
DESCRIBE ANY LIENS:
- ---------------------
None
<PAGE>
EXHIBIT 9.8
SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT (this "Shareholder Agreement"), is made as
of this ____ day of April, 1998, by and among Palomar Savings & Loan
Association, a California state chartered savings and loan association
("Palomar") and the shareholder of Community West Bancshares, a California
corporation ("Community West") whose name is set forth under "Shareholder" on
the signature page hereof (the "Shareholder"). Palomar is contemporaneously
herewith entering into agreements with other shareholders of Community West,
which agreements are identical in all respects hereto, except as to (a) the
number of shares of Community West's common stock, no par value (the "Community
West Stock") owned by such other shareholders, and (b) the name and address of
the other shareholders. The Shareholder and such other persons shall
hereinafter be referred to as to the Shareholders and this Agreement and such
other agreements as "Shareholder Agreements." This Shareholder Agreement is
made with reference to the following:
RECITALS
--------
WHEREAS, that certain Agreement and Plan of Reorganization (the
"Agreement"), dated as of April __, 1998, entered into by and among Community
West and Palomar, provides for the acquisition by Community West of one hundred
percent (100%) of the Palomar Common Stock, through the merger (the "Merger") of
Palomar with a merger corporation which shall be a wholly-owned subsidiary of
Community West ("CWB Merger Corp"); and
WHEREAS, as a condition precedent to the obligations of Community West and
Palomar under the Agreement, the Shareholder and all the Shareholders shall have
entered into Shareholder Agreements concurrent with the execution of the
Agreement in accordance with the terms, conditions, and provisions thereof;
NOW, THEREFORE, in order to effectuate the transactions set forth above and
in consideration of the mutual covenants, conditions, agreements,
representations and warranties contained herein and in the Agreement, and
intending to be legally bound, the parties hereto agree as follows:
AGREEMENT
---------
ARTICLE I
COVENANTS OF SHAREHOLDER
------------------------
1.1 VOTE OF SHAREHOLDERS. At the meeting of shareholders of Community
----------------------
West referred to in Section 7.1 of the Agreement (the "Meeting"), the
Shareholder shall vote or cause to be voted the shares of Community West Stock
indicated as owned or controlled by such Shareholder on Schedule I attached
hereto, and any other shares of Community West Stock now owned or hereafter
acquired or controlled by such Shareholder, in favor of, and to approve the
principal terms of, the Merger and any other matter contemplated by the
Agreement which requires the approval of the shareholders of Community West.
<PAGE>
1.2 OTHER CONTRACTS. From and after the date of this Shareholder
-----------------
Agreement, the Shareholder shall not enter into or become subject to any
agreement or commitment which would restrict or in any way impair the obligation
of the Shareholder to comply with all the terms of this Shareholder Agreement,
including, without limitation, any other agreement to sell, transfer or
otherwise dispose of the Shareholder shares of Community West Stock.
1.3 UPDATING INFORMATION. In the event that the Shareholder shall
----------------------
discover that any representation or warranty made herein by him/her was false or
misleading in any material respect when made or that any event has occurred such
that any representation or warranty of the Shareholder made herein would, if
made at and as of the time of the occurrence of such event, or thereafter, be
incorrect in any material respect, the Shareholder shall deliver to Palomar a
statement specifying that it is delivered pursuant to this Section 1.3 and
stating in reasonable detail the facts with respect thereto. Delivery of any
such statement shall not limit any rights which Palomar may otherwise have under
this Shareholder Agreement.
1.4 AGREEMENT TO RECOMMEND. The Shareholder agrees that, upon the
-------------------------
execution of this Shareholder Agreement, he/she shall at all times use his/her
best efforts in order to obtain the approval of the shareholders of Community
West of the principal terms of the Merger and any other matter contemplated by
the Agreement which requires approval of the shareholders of Community West and
shall recommend the approval of such matters by the shareholders of Community
West at the Meeting.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
------------------------------
OF SHAREHOLDER
--------------
2.1 REPRESENTATIONS AND WARRANTIES OF DIRECTOR. The Shareholder
----------------------------------------------
represents and warrants to, and agrees with, Palomar as follows:
(a) CAPACITY. The Shareholder has all requisite capacity to enter
--------
into and to perform the Shareholder's obligations under this Shareholder
Agreement.
(b) AGREEMENT. The Shareholder has received a copy of the
---------
Agreement and has had the opportunity to review and to consider the terms and
conditions contained in this Shareholder Agreement and in the Agreement and to
confer with his or her counsel concerning said terms and conditions.
(c) BINDING AGREEMENT. This Shareholder Agreement has been duly
------------------
executed and delivered by such Shareholder and constitutes a valid and legally
binding agreement of such Shareholder.
<PAGE>
(d) OWNERSHIP OF SHARES, ETC. Schedule I hereto correctly sets
---------------------------
forth the number of shares of Community West Stock owned by the Shareholder or
with respect to which such Shareholder has sole or shared voting power, and the
Shareholder has good and marketable title to all such shares of Community West
Stock free and clear of any liens, security interests, charges or other
encumbrances of any kind or nature except as set forth on Schedule I.
(e) RELATIONSHIP WITH COMMUNITY WEST. The Shareholder is a
-----------------------------------
director or executive officer of Community West.
(f) NON-CONTRAVENTION. The execution and delivery of this
-----------------
Agreement by the Shareholder does not, and the performance by the Shareholder of
the Shareholder's obligations hereunder and the consummation by the Shareholder
of the transactions contemplated hereby will not, violate or conflict with or
constitute a default under any agreement, instrument, contract or other
obligation or any order, arbitration award, judgment or decree to which the
Shareholder is a party or by which the Shareholder is bound, or any statute,
rule or regulation to which the Shareholder or any of the Shareholder's property
is subject.
ARTICLE III
DISCLOSURE AND TRADING
----------------------
The Shareholder hereby covenants and agrees that upon receipt of the
disclosure of a Strategic Transaction Proposal or a Community West Acquisition
Transaction (as those terms are defined in the Agreement), Shareholder shall
maintain the confidentiality of all non-public information regarding the
Strategic Transaction Proposal or the Community West Acquisition Transaction to
the same extent required by the parties to any such transaction under the terms
of any confidentiality agreement to which those parties are bound and to refrain
from trading in securities of Community West, Palomar, any subsidiary thereof or
any other party to the Strategic Transaction Proposal or Community West
Acquisition Transaction until the earlier of: (i) full public disclosure of such
non-public information has been made and trading in the subject securities would
not be a violation of applicable securities laws, or (ii) the Strategic
Transaction Proposal or Community West Acquisition Transaction has been
terminated or has expired by its terms and disclosure of such non-public
information is permitted under the terms of any agreement regarding the
transaction and trading in the subject securities would not be a violation of
applicable securities laws.
ARTICLE IV
TERMINATION
-----------
TERMINATION. This Shareholder Agreement shall automatically terminate and
-----------
be of no further force or effect if the Agreement is terminated in accordance
with the terms thereof, except as to any breach of this Shareholder Agreement by
the Shareholder occurring prior to the date of such termination. The
representations and warranties set forth in Article II and the covenants and
agreements of Articles III and V hereof shall survive the termination of this
Shareholder Agreement and the Closing.
<PAGE>
ARTICLE V
MISCELLANEOUS
-------------
5.1 EXPENSES. Each party hereto shall pay its own costs and expenses
--------
in connection with this Shareholder Agreement and the transactions covered and
contemplated hereby; provided, however, that nothing contained herein shall
preclude the payment of the Shareholder's expenses in connection with the
negotiation and documentation of this Shareholder's Agreement by Community West.
5.2 NOTICES, ETC. All communications required or permitted to be
-------------
given hereunder shall be in writing and shall be deemed to have been duly given
to the appropriate parties if delivered in person (professional carrier
acceptable) or by United States mail, certified and with return receipt
requested, or otherwise actually delivered:
(a) If to the Shareholder, to the address set forth on Schedule I
attached hereto.
With a copy to:
Community West Bancshares
5827 Hollister Avenue
Goleta, California 93117
Attn: Llewellyn W. Stone
President and Chief Executive Officer
With a copy to: Horgan, Rosen, Beckham & Coren, LLP
21700 Oxnard Street, Suite 1400
Los Angeles, California 91365
Attn: Arthur A. Coren, Professional Corporation
FAX: (818) 340-6190
<PAGE>
(b) If to Palomar
Palomar Savings & Loan Association
355 West Grand Avenue
Escondido, California 92025
Attn: Mr. James M. Rady
With a copy to: Higgs, Fletcher & Mack, LLP
401 West A Street, Suite 2000
San Diego, California 92101
Attn: Kurt L. Kicklighter, Esq.
or such other address as any party may have furnished in writing to the other
parties.
5.3 ENTIRE AND SOLE AGREEMENT. The making, execution and delivery of
---------------------------
this Shareholder Agreement by the parties hereto have not been induced by any
representations, statements, warranties or agreements other than those expressed
herein and in the Agreement. This Shareholder Agreement and the Agreement
embody the entire understanding of the parties, and there are no further or
other agreements or understandings, whether written or oral, in effect among the
parties relating to the subject matter hereof, unless expressly referred to by
reference herein.
5.4 SUCCESSORS AND ASSIGNS. Except as otherwise provided in this
------------------------
Shareholder Agreement, all covenants and agreements of the parties contained in
this Shareholder Agreement shall be binding upon and inure to the benefit of the
respective successors and assigns of the parties hereto.
5.5 GOVERNING LAW. This Shareholder Agreement shall be construed and
--------------
enforced in accordance with and governed by the laws of the State of California.
Each party hereto hereby submits to the jurisdiction of the courts of the County
of Santa Barbara for the purpose of any suit, action or other proceeding arising
out of such party's obligations under or with respect to this Agreement.
5.6 COUNTERPARTS. This Shareholder Agreement may be executed
------------
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
5.7 AMENDMENT, SUPPLEMENT AND WAIVER. This Shareholder Agreement may
----------------------------------
be amended or supplemented, and compliance with the provisions hereof may be
waived only by an instrument in writing signed by the party against which
enforcement of such amendment, supplement or waiver of compliance is sought.
5.8 HEADINGS. The headings in this Shareholder Agreement are for
--------
purposes of reference only and shall not limit or otherwise affect the meaning
hereof.
5.9 SPECIFIC PERFORMANCE. It is recognized and agreed that monetary
---------------------
damages will not compensate the parties hereto for nonperformance by any party.
Accordingly, each party agrees that his or her obligation shall be enforceable
by a court order requiring specific performance.
<PAGE>
5.10 SEVERAL OBLIGATIONS. All duties and obligations of the
--------------------
Shareholder executing this Shareholder Agreement shall be several and not joint
with the duties and obligations of other Shareholders executing similar
Shareholder Agreements with Palomar.
IN WITNESS WHEREOF, the parties hereto have caused this Shareholder
Agreement to be duly executed as of the date first above written.
SHAREHOLDER PALOMAR SAVINGS & LOAN ASSOCIATION
William R. Peeples By: /s/ James M. Rady
- ------------------------- --------------------
(Name) James M. Rady
Its: President and Chief Executive Officer
/s/ William R. Peeples
- -------------------------
(Signature)
<PAGE>
SCHEDULE 1
NAME OF SHAREHOLDER: William Peeples
----------------
ADDRESS OF SHAREHOLDER: 877 Gwynne Avenue
-------------------
Santa Barbara, CA 93110
--------------------------
CERTIFICATE NUMBER NUMBER OF SHARES REGISTERED OWNER(S)
- ------------------- ------------------ --------------------
278,728 William Peeples
Warrants 28,000 William Peeples
DESCRIBE ANY LIENS:
- ---------------------
3080 are in margin account with Charles Schwab
<PAGE>
EXHIBIT 9.9
SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT (this "Shareholder Agreement"), is made as
of this ____ day of April, 1998, by and among Palomar Savings & Loan
Association, a California state chartered savings and loan association
("Palomar") and the shareholder of Community West Bancshares, a California
corporation ("Community West") whose name is set forth under "Shareholder" on
the signature page hereof (the "Shareholder"). Palomar is contemporaneously
herewith entering into agreements with other shareholders of Community West,
which agreements are identical in all respects hereto, except as to (a) the
number of shares of Community West's common stock, no par value (the "Community
West Stock") owned by such other shareholders, and (b) the name and address of
the other shareholders. The Shareholder and such other persons shall
hereinafter be referred to as to the Shareholders and this Agreement and such
other agreements as "Shareholder Agreements." This Shareholder Agreement is
made with reference to the following:
RECITALS
--------
WHEREAS, that certain Agreement and Plan of Reorganization (the
"Agreement"), dated as of April __, 1998, entered into by and among Community
West and Palomar, provides for the acquisition by Community West of one hundred
percent (100%) of the Palomar Common Stock, through the merger (the "Merger") of
Palomar with a merger corporation which shall be a wholly-owned subsidiary of
Community West ("CWB Merger Corp"); and
WHEREAS, as a condition precedent to the obligations of Community West and
Palomar under the Agreement, the Shareholder and all the Shareholders shall have
entered into Shareholder Agreements concurrent with the execution of the
Agreement in accordance with the terms, conditions, and provisions thereof;
NOW, THEREFORE, in order to effectuate the transactions set forth above and
in consideration of the mutual covenants, conditions, agreements,
representations and warranties contained herein and in the Agreement, and
intending to be legally bound, the parties hereto agree as follows:
AGREEMENT
---------
ARTICLE I
COVENANTS OF SHAREHOLDER
------------------------
1.1 VOTE OF SHAREHOLDERS. At the meeting of shareholders of Community
----------------------
West referred to in Section 7.1 of the Agreement (the "Meeting"), the
Shareholder shall vote or cause to be voted the shares of Community West Stock
indicated as owned or controlled by such Shareholder on Schedule I attached
hereto, and any other shares of Community West Stock now owned or hereafter
acquired or controlled by such Shareholder, in favor of, and to approve the
principal terms of, the Merger and any other matter contemplated by the
Agreement which requires the approval of the shareholders of Community West.
<PAGE>
1.2 OTHER CONTRACTS. From and after the date of this Shareholder
-----------------
Agreement, the Shareholder shall not enter into or become subject to any
agreement or commitment which would restrict or in any way impair the obligation
of the Shareholder to comply with all the terms of this Shareholder Agreement,
including, without limitation, any other agreement to sell, transfer or
otherwise dispose of the Shareholder shares of Community West Stock.
1.3 UPDATING INFORMATION. In the event that the Shareholder shall
----------------------
discover that any representation or warranty made herein by him/her was false or
misleading in any material respect when made or that any event has occurred such
that any representation or warranty of the Shareholder made herein would, if
made at and as of the time of the occurrence of such event, or thereafter, be
incorrect in any material respect, the Shareholder shall deliver to Palomar a
statement specifying that it is delivered pursuant to this Section 1.3 and
stating in reasonable detail the facts with respect thereto. Delivery of any
such statement shall not limit any rights which Palomar may otherwise have under
this Shareholder Agreement.
1.4 AGREEMENT TO RECOMMEND. The Shareholder agrees that, upon the
-------------------------
execution of this Shareholder Agreement, he/she shall at all times use his/her
best efforts in order to obtain the approval of the shareholders of Community
West of the principal terms of the Merger and any other matter contemplated by
the Agreement which requires approval of the shareholders of Community West and
shall recommend the approval of such matters by the shareholders of Community
West at the Meeting.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
------------------------------
OF SHAREHOLDER
--------------
2.1 REPRESENTATIONS AND WARRANTIES OF DIRECTOR. The Shareholder
----------------------------------------------
represents and warrants to, and agrees with, Palomar as follows:
(a) CAPACITY. The Shareholder has all requisite capacity to enter
--------
into and to perform the Shareholder's obligations under this Shareholder
Agreement.
(b) AGREEMENT. The Shareholder has received a copy of the
---------
Agreement and has had the opportunity to review and to consider the terms and
conditions contained in this Shareholder Agreement and in the Agreement and to
confer with his or her counsel concerning said terms and conditions.
(c) BINDING AGREEMENT. This Shareholder Agreement has been duly
------------------
executed and delivered by such Shareholder and constitutes a valid and legally
binding agreement of such Shareholder.
<PAGE>
(d) OWNERSHIP OF SHARES, ETC. Schedule I hereto correctly sets
---------------------------
forth the number of shares of Community West Stock owned by the Shareholder or
with respect to which such Shareholder has sole or shared voting power, and the
Shareholder has good and marketable title to all such shares of Community West
Stock free and clear of any liens, security interests, charges or other
encumbrances of any kind or nature except as set forth on Schedule I.
(e) RELATIONSHIP WITH COMMUNITY WEST. The Shareholder is a
-----------------------------------
director or executive officer of Community West.
(f) NON-CONTRAVENTION. The execution and delivery of this
-----------------
Agreement by the Shareholder does not, and the performance by the Shareholder of
the Shareholder's obligations hereunder and the consummation by the Shareholder
of the transactions contemplated hereby will not, violate or conflict with or
constitute a default under any agreement, instrument, contract or other
obligation or any order, arbitration award, judgment or decree to which the
Shareholder is a party or by which the Shareholder is bound, or any statute,
rule or regulation to which the Shareholder or any of the Shareholder's property
is subject.
ARTICLE III
DISCLOSURE AND TRADING
----------------------
The Shareholder hereby covenants and agrees that upon receipt of the
disclosure of a Strategic Transaction Proposal or a Community West Acquisition
Transaction (as those terms are defined in the Agreement), Shareholder shall
maintain the confidentiality of all non-public information regarding the
Strategic Transaction Proposal or the Community West Acquisition Transaction to
the same extent required by the parties to any such transaction under the terms
of any confidentiality agreement to which those parties are bound and to refrain
from trading in securities of Community West, Palomar, any subsidiary thereof or
any other party to the Strategic Transaction Proposal or Community West
Acquisition Transaction until the earlier of: (i) full public disclosure of such
non-public information has been made and trading in the subject securities would
not be a violation of applicable securities laws, or (ii) the Strategic
Transaction Proposal or Community West Acquisition Transaction has been
terminated or has expired by its terms and disclosure of such non-public
information is permitted under the terms of any agreement regarding the
transaction and trading in the subject securities would not be a violation of
applicable securities laws.
ARTICLE IV
TERMINATION
-----------
TERMINATION. This Shareholder Agreement shall automatically terminate and
-----------
be of no further force or effect if the Agreement is terminated in accordance
with the terms thereof, except as to any breach of this Shareholder Agreement by
the Shareholder occurring prior to the date of such termination. The
representations and warranties set forth in Article II and the covenants and
agreements of Articles III and V hereof shall survive the termination of this
Shareholder Agreement and the Closing.
<PAGE>
ARTICLE V
MISCELLANEOUS
-------------
5.1 EXPENSES. Each party hereto shall pay its own costs and expenses
--------
in connection with this Shareholder Agreement and the transactions covered and
contemplated hereby; provided, however, that nothing contained herein shall
preclude the payment of the Shareholder's expenses in connection with the
negotiation and documentation of this Shareholder's Agreement by Community West.
5.2 NOTICES, ETC. All communications required or permitted to be
-------------
given hereunder shall be in writing and shall be deemed to have been duly given
to the appropriate parties if delivered in person (professional carrier
acceptable) or by United States mail, certified and with return receipt
requested, or otherwise actually delivered:
(a) If to the Shareholder, to the address set forth on Schedule I
attached hereto.
With a copy to:
Community West Bancshares
5827 Hollister Avenue
Goleta, California 93117
Attn: Llewellyn W. Stone
President and Chief Executive Officer
With a copy to: Horgan, Rosen, Beckham & Coren, LLP
21700 Oxnard Street, Suite 1400
Los Angeles, California 91365
Attn: Arthur A. Coren, Professional Corporation
FAX: (818) 340-6190
<PAGE>
(b) If to Palomar
Palomar Savings & Loan Association
355 West Grand Avenue
Escondido, California 92025
Attn: Mr. James M. Rady
With a copy to: Higgs, Fletcher & Mack, LLP
401 West A Street, Suite 2000
San Diego, California 92101
Attn: Kurt L. Kicklighter, Esq.
or such other address as any party may have furnished in writing to the other
parties.
5.3 ENTIRE AND SOLE AGREEMENT. The making, execution and delivery of
---------------------------
this Shareholder Agreement by the parties hereto have not been induced by any
representations, statements, warranties or agreements other than those expressed
herein and in the Agreement. This Shareholder Agreement and the Agreement
embody the entire understanding of the parties, and there are no further or
other agreements or understandings, whether written or oral, in effect among the
parties relating to the subject matter hereof, unless expressly referred to by
reference herein.
5.4 SUCCESSORS AND ASSIGNS. Except as otherwise provided in this
------------------------
Shareholder Agreement, all covenants and agreements of the parties contained in
this Shareholder Agreement shall be binding upon and inure to the benefit of the
respective successors and assigns of the parties hereto.
5.5 GOVERNING LAW. This Shareholder Agreement shall be construed and
--------------
enforced in accordance with and governed by the laws of the State of California.
Each party hereto hereby submits to the jurisdiction of the courts of the County
of Santa Barbara for the purpose of any suit, action or other proceeding arising
out of such party's obligations under or with respect to this Agreement.
5.6 COUNTERPARTS. This Shareholder Agreement may be executed
------------
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
5.7 AMENDMENT, SUPPLEMENT AND WAIVER. This Shareholder Agreement may
----------------------------------
be amended or supplemented, and compliance with the provisions hereof may be
waived only by an instrument in writing signed by the party against which
enforcement of such amendment, supplement or waiver of compliance is sought.
5.8 HEADINGS. The headings in this Shareholder Agreement are for
--------
purposes of reference only and shall not limit or otherwise affect the meaning
hereof.
5.9 SPECIFIC PERFORMANCE. It is recognized and agreed that monetary
---------------------
damages will not compensate the parties hereto for nonperformance by any party.
Accordingly, each party agrees that his or her obligation shall be enforceable
by a court order requiring specific performance.
<PAGE>
5.10 SEVERAL OBLIGATIONS. All duties and obligations of the
--------------------
Shareholder executing this Shareholder Agreement shall be several and not joint
with the duties and obligations of other Shareholders executing similar
Shareholder Agreements with Palomar.
IN WITNESS WHEREOF, the parties hereto have caused this Shareholder
Agreement to be duly executed as of the date first above written.
SHAREHOLDER PALOMAR SAVINGS & LOAN ASSOCIATION
C. Randy Shaffer By: /s/ James M. Rady
- ----------------------- --------------------
(Name) James M. Rady
Its: President and Chief Executive Officer
/s/ C. Randy Shaffer
- -----------------------
(Signature)
<PAGE>
SCHEDULE 1
NAME OF SHAREHOLDER: C. Randy Shaffer
------------------
ADDRESS OF SHAREHOLDER: 465 N. La Cumbre Road
-------------------------
Santa Barbara, CA 93110
--------------------------
CERTIFICATE NUMBER NUMBER OF SHARES REGISTERED OWNER(S)
- ------------------- ------------------ --------------------
44,230 C. Randy Shaffer & Linda Shaffer
DESCRIBE ANY LIENS:
- ---------------------
In margin account OMX-205869 at Prudential Securities
<PAGE>
EXHIBIT 9.10
SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT (this "Shareholder Agreement"), is made as
of this ____ day of April, 1998, by and among Palomar Savings & Loan
Association, a California state chartered savings and loan association
("Palomar") and the shareholder of Community West Bancshares, a California
corporation ("Community West") whose name is set forth under "Shareholder" on
the signature page hereof (the "Shareholder"). Palomar is contemporaneously
herewith entering into agreements with other shareholders of Community West,
which agreements are identical in all respects hereto, except as to (a) the
number of shares of Community West's common stock, no par value (the "Community
West Stock") owned by such other shareholders, and (b) the name and address of
the other shareholders. The Shareholder and such other persons shall
hereinafter be referred to as to the Shareholders and this Agreement and such
other agreements as "Shareholder Agreements." This Shareholder Agreement is
made with reference to the following:
RECITALS
--------
WHEREAS, that certain Agreement and Plan of Reorganization (the
"Agreement"), dated as of April __, 1998, entered into by and among Community
West and Palomar, provides for the acquisition by Community West of one hundred
percent (100%) of the Palomar Common Stock, through the merger (the "Merger") of
Palomar with a merger corporation which shall be a wholly-owned subsidiary of
Community West ("CWB Merger Corp"); and
WHEREAS, as a condition precedent to the obligations of Community West and
Palomar under the Agreement, the Shareholder and all the Shareholders shall have
entered into Shareholder Agreements concurrent with the execution of the
Agreement in accordance with the terms, conditions, and provisions thereof;
NOW, THEREFORE, in order to effectuate the transactions set forth above and
in consideration of the mutual covenants, conditions, agreements,
representations and warranties contained herein and in the Agreement, and
intending to be legally bound, the parties hereto agree as follows:
AGREEMENT
---------
ARTICLE I
COVENANTS OF SHAREHOLDER
------------------------
1.1 VOTE OF SHAREHOLDERS. At the meeting of shareholders of Community
----------------------
West referred to in Section 7.1 of the Agreement (the "Meeting"), the
Shareholder shall vote or cause to be voted the shares of Community West Stock
indicated as owned or controlled by such Shareholder on Schedule I attached
hereto, and any other shares of Community West Stock now owned or hereafter
acquired or controlled by such Shareholder, in favor of, and to approve the
principal terms of, the Merger and any other matter contemplated by the
Agreement which requires the approval of the shareholders of Community West.
<PAGE>
1.2 OTHER CONTRACTS. From and after the date of this Shareholder
-----------------
Agreement, the Shareholder shall not enter into or become subject to any
agreement or commitment which would restrict or in any way impair the obligation
of the Shareholder to comply with all the terms of this Shareholder Agreement,
including, without limitation, any other agreement to sell, transfer or
otherwise dispose of the Shareholder shares of Community West Stock.
1.3 UPDATING INFORMATION. In the event that the Shareholder shall
----------------------
discover that any representation or warranty made herein by him/her was false or
misleading in any material respect when made or that any event has occurred such
that any representation or warranty of the Shareholder made herein would, if
made at and as of the time of the occurrence of such event, or thereafter, be
incorrect in any material respect, the Shareholder shall deliver to Palomar a
statement specifying that it is delivered pursuant to this Section 1.3 and
stating in reasonable detail the facts with respect thereto. Delivery of any
such statement shall not limit any rights which Palomar may otherwise have under
this Shareholder Agreement.
1.4 AGREEMENT TO RECOMMEND. The Shareholder agrees that, upon the
-------------------------
execution of this Shareholder Agreement, he/she shall at all times use his/her
best efforts in order to obtain the approval of the shareholders of Community
West of the principal terms of the Merger and any other matter contemplated by
the Agreement which requires approval of the shareholders of Community West and
shall recommend the approval of such matters by the shareholders of Community
West at the Meeting.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
------------------------------
OF SHAREHOLDER
--------------
2.1 REPRESENTATIONS AND WARRANTIES OF DIRECTOR. The Shareholder
----------------------------------------------
represents and warrants to, and agrees with, Palomar as follows:
(a) CAPACITY. The Shareholder has all requisite capacity to enter
--------
into and to perform the Shareholder's obligations under this Shareholder
Agreement.
(b) AGREEMENT. The Shareholder has received a copy of the
---------
Agreement and has had the opportunity to review and to consider the terms and
conditions contained in this Shareholder Agreement and in the Agreement and to
confer with his or her counsel concerning said terms and conditions.
(c) BINDING AGREEMENT. This Shareholder Agreement has been duly
------------------
executed and delivered by such Shareholder and constitutes a valid and legally
binding agreement of such Shareholder.
<PAGE>
(d) OWNERSHIP OF SHARES, ETC. Schedule I hereto correctly sets
---------------------------
forth the number of shares of Community West Stock owned by the Shareholder or
with respect to which such Shareholder has sole or shared voting power, and the
Shareholder has good and marketable title to all such shares of Community West
Stock free and clear of any liens, security interests, charges or other
encumbrances of any kind or nature except as set forth on Schedule I.
(e) RELATIONSHIP WITH COMMUNITY WEST. The Shareholder is a
-----------------------------------
director or executive officer of Community West.
(f) NON-CONTRAVENTION. The execution and delivery of this
-----------------
Agreement by the Shareholder does not, and the performance by the Shareholder of
the Shareholder's obligations hereunder and the consummation by the Shareholder
of the transactions contemplated hereby will not, violate or conflict with or
constitute a default under any agreement, instrument, contract or other
obligation or any order, arbitration award, judgment or decree to which the
Shareholder is a party or by which the Shareholder is bound, or any statute,
rule or regulation to which the Shareholder or any of the Shareholder's property
is subject.
ARTICLE III
DISCLOSURE AND TRADING
----------------------
The Shareholder hereby covenants and agrees that upon receipt of the
disclosure of a Strategic Transaction Proposal or a Community West Acquisition
Transaction (as those terms are defined in the Agreement), Shareholder shall
maintain the confidentiality of all non-public information regarding the
Strategic Transaction Proposal or the Community West Acquisition Transaction to
the same extent required by the parties to any such transaction under the terms
of any confidentiality agreement to which those parties are bound and to refrain
from trading in securities of Community West, Palomar, any subsidiary thereof or
any other party to the Strategic Transaction Proposal or Community West
Acquisition Transaction until the earlier of: (i) full public disclosure of such
non-public information has been made and trading in the subject securities would
not be a violation of applicable securities laws, or (ii) the Strategic
Transaction Proposal or Community West Acquisition Transaction has been
terminated or has expired by its terms and disclosure of such non-public
information is permitted under the terms of any agreement regarding the
transaction and trading in the subject securities would not be a violation of
applicable securities laws.
ARTICLE IV
TERMINATION
-----------
TERMINATION. This Shareholder Agreement shall automatically terminate and
-----------
be of no further force or effect if the Agreement is terminated in accordance
with the terms thereof, except as to any breach of this Shareholder Agreement by
the Shareholder occurring prior to the date of such termination. The
representations and warranties set forth in Article II and the covenants and
agreements of Articles III and V hereof shall survive the termination of this
Shareholder Agreement and the Closing.
<PAGE>
ARTICLE V
MISCELLANEOUS
-------------
5.1 EXPENSES. Each party hereto shall pay its own costs and expenses
--------
in connection with this Shareholder Agreement and the transactions covered and
contemplated hereby; provided, however, that nothing contained herein shall
preclude the payment of the Shareholder's expenses in connection with the
negotiation and documentation of this Shareholder's Agreement by Community West.
5.2 NOTICES, ETC. All communications required or permitted to be
-------------
given hereunder shall be in writing and shall be deemed to have been duly given
to the appropriate parties if delivered in person (professional carrier
acceptable) or by United States mail, certified and with return receipt
requested, or otherwise actually delivered:
(a) If to the Shareholder, to the address set forth on Schedule I
attached hereto.
With a copy to:
Community West Bancshares
5827 Hollister Avenue
Goleta, California 93117
Attn: Llewellyn W. Stone
President and Chief Executive Officer
With a copy to: Horgan, Rosen, Beckham & Coren, LLP
21700 Oxnard Street, Suite 1400
Los Angeles, California 91365
Attn: Arthur A. Coren, Professional Corporation
FAX: (818) 340-6190
<PAGE>
(b) If to Palomar
Palomar Savings & Loan Association
355 West Grand Avenue
Escondido, California 92025
Attn: Mr. James M. Rady
With a copy to: Higgs, Fletcher & Mack, LLP
401 West A Street, Suite 2000
San Diego, California 92101
Attn: Kurt L. Kicklighter, Esq.
or such other address as any party may have furnished in writing to the other
parties.
5.3 ENTIRE AND SOLE AGREEMENT. The making, execution and delivery of
---------------------------
this Shareholder Agreement by the parties hereto have not been induced by any
representations, statements, warranties or agreements other than those expressed
herein and in the Agreement. This Shareholder Agreement and the Agreement
embody the entire understanding of the parties, and there are no further or
other agreements or understandings, whether written or oral, in effect among the
parties relating to the subject matter hereof, unless expressly referred to by
reference herein.
5.4 SUCCESSORS AND ASSIGNS. Except as otherwise provided in this
------------------------
Shareholder Agreement, all covenants and agreements of the parties contained in
this Shareholder Agreement shall be binding upon and inure to the benefit of the
respective successors and assigns of the parties hereto.
5.5 GOVERNING LAW. This Shareholder Agreement shall be construed and
--------------
enforced in accordance with and governed by the laws of the State of California.
Each party hereto hereby submits to the jurisdiction of the courts of the County
of Santa Barbara for the purpose of any suit, action or other proceeding arising
out of such party's obligations under or with respect to this Agreement.
5.6 COUNTERPARTS. This Shareholder Agreement may be executed
------------
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
5.7 AMENDMENT, SUPPLEMENT AND WAIVER. This Shareholder Agreement may
----------------------------------
be amended or supplemented, and compliance with the provisions hereof may be
waived only by an instrument in writing signed by the party against which
enforcement of such amendment, supplement or waiver of compliance is sought.
5.8 HEADINGS. The headings in this Shareholder Agreement are for
--------
purposes of reference only and shall not limit or otherwise affect the meaning
hereof.
5.9 SPECIFIC PERFORMANCE. It is recognized and agreed that monetary
---------------------
damages will not compensate the parties hereto for nonperformance by any party.
Accordingly, each party agrees that his or her obligation shall be enforceable
by a court order requiring specific performance.
<PAGE>
5.10 SEVERAL OBLIGATIONS. All duties and obligations of the
--------------------
Shareholder executing this Shareholder Agreement shall be several and not joint
with the duties and obligations of other Shareholders executing similar
Shareholder Agreements with Palomar.
IN WITNESS WHEREOF, the parties hereto have caused this Shareholder
Agreement to be duly executed as of the date first above written.
SHAREHOLDER PALOMAR SAVINGS & LOAN ASSOCIATION
James R. Sims, Jr. By: /s/ James M. Rady
- -------------------------- --------------------
(Name) James M. Rady
Its: President and Chief Executive Officer
/s/ James R. Sims, Jr.
- --------------------------
(Signature)
<PAGE>
SCHEDULE 1
NAME OF SHAREHOLDER: James Sims
-----------
ADDRESS OF SHAREHOLDER: 389 Valley Vista Dr.
-----------------------
Camarillo, CA 93010
---------------------
CERTIFICATE NUMBER NUMBER OF SHARES REGISTERED OWNER(S)
- ------------------- ---------------- --------------------
7,784 James R. Sims, Jr.
Warrants 464 James R. Sims, Jr.
DESCRIBE ANY LIENS:
- ---------------------
None
<PAGE>
EXHIBIT 9.11
SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT (this "Shareholder Agreement"), is made as
of this ____ day of April, 1998, by and among Palomar Savings & Loan
Association, a California state chartered savings and loan association
("Palomar") and the shareholder of Community West Bancshares, a California
corporation ("Community West") whose name is set forth under "Shareholder" on
the signature page hereof (the "Shareholder"). Palomar is contemporaneously
herewith entering into agreements with other shareholders of Community West,
which agreements are identical in all respects hereto, except as to (a) the
number of shares of Community West's common stock, no par value (the "Community
West Stock") owned by such other shareholders, and (b) the name and address of
the other shareholders. The Shareholder and such other persons shall
hereinafter be referred to as to the Shareholders and this Agreement and such
other agreements as "Shareholder Agreements." This Shareholder Agreement is
made with reference to the following:
RECITALS
--------
WHEREAS, that certain Agreement and Plan of Reorganization (the
"Agreement"), dated as of April __, 1998, entered into by and among Community
West and Palomar, provides for the acquisition by Community West of one hundred
percent (100%) of the Palomar Common Stock, through the merger (the "Merger") of
Palomar with a merger corporation which shall be a wholly-owned subsidiary of
Community West ("CWB Merger Corp"); and
WHEREAS, as a condition precedent to the obligations of Community West and
Palomar under the Agreement, the Shareholder and all the Shareholders shall have
entered into Shareholder Agreements concurrent with the execution of the
Agreement in accordance with the terms, conditions, and provisions thereof;
NOW, THEREFORE, in order to effectuate the transactions set forth above and
in consideration of the mutual covenants, conditions, agreements,
representations and warranties contained herein and in the Agreement, and
intending to be legally bound, the parties hereto agree as follows:
AGREEMENT
---------
ARTICLE I
COVENANTS OF SHAREHOLDER
------------------------
1.1 VOTE OF SHAREHOLDERS. At the meeting of shareholders of Community
----------------------
West referred to in Section 7.1 of the Agreement (the "Meeting"), the
Shareholder shall vote or cause to be voted the shares of Community West Stock
indicated as owned or controlled by such Shareholder on Schedule I attached
hereto, and any other shares of Community West Stock now owned or hereafter
acquired or controlled by such Shareholder, in favor of, and to approve the
principal terms of, the Merger and any other matter contemplated by the
Agreement which requires the approval of the shareholders of Community West.
<PAGE>
1.2 OTHER CONTRACTS. From and after the date of this Shareholder
-----------------
Agreement, the Shareholder shall not enter into or become subject to any
agreement or commitment which would restrict or in any way impair the obligation
of the Shareholder to comply with all the terms of this Shareholder Agreement,
including, without limitation, any other agreement to sell, transfer or
otherwise dispose of the Shareholder shares of Community West Stock.
1.3 UPDATING INFORMATION. In the event that the Shareholder shall
----------------------
discover that any representation or warranty made herein by him/her was false or
misleading in any material respect when made or that any event has occurred such
that any representation or warranty of the Shareholder made herein would, if
made at and as of the time of the occurrence of such event, or thereafter, be
incorrect in any material respect, the Shareholder shall deliver to Palomar a
statement specifying that it is delivered pursuant to this Section 1.3 and
stating in reasonable detail the facts with respect thereto. Delivery of any
such statement shall not limit any rights which Palomar may otherwise have under
this Shareholder Agreement.
1.4 AGREEMENT TO RECOMMEND. The Shareholder agrees that, upon the
-------------------------
execution of this Shareholder Agreement, he/she shall at all times use his/her
best efforts in order to obtain the approval of the shareholders of Community
West of the principal terms of the Merger and any other matter contemplated by
the Agreement which requires approval of the shareholders of Community West and
shall recommend the approval of such matters by the shareholders of Community
West at the Meeting.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
------------------------------
OF SHAREHOLDER
--------------
2.1 REPRESENTATIONS AND WARRANTIES OF DIRECTOR. The Shareholder
----------------------------------------------
represents and warrants to, and agrees with, Palomar as follows:
(a) CAPACITY. The Shareholder has all requisite capacity to enter
--------
into and to perform the Shareholder's obligations under this Shareholder
Agreement.
(b) AGREEMENT. The Shareholder has received a copy of the
---------
Agreement and has had the opportunity to review and to consider the terms and
conditions contained in this Shareholder Agreement and in the Agreement and to
confer with his or her counsel concerning said terms and conditions.
(c) BINDING AGREEMENT. This Shareholder Agreement has been duly
------------------
executed and delivered by such Shareholder and constitutes a valid and legally
binding agreement of such Shareholder.
<PAGE>
(d) OWNERSHIP OF SHARES, ETC. Schedule I hereto correctly sets
---------------------------
forth the number of shares of Community West Stock owned by the Shareholder or
with respect to which such Shareholder has sole or shared voting power, and the
Shareholder has good and marketable title to all such shares of Community West
Stock free and clear of any liens, security interests, charges or other
encumbrances of any kind or nature except as set forth on Schedule I.
(e) RELATIONSHIP WITH COMMUNITY WEST. The Shareholder is a
-----------------------------------
director or executive officer of Community West.
(f) NON-CONTRAVENTION. The execution and delivery of this
-----------------
Agreement by the Shareholder does not, and the performance by the Shareholder of
the Shareholder's obligations hereunder and the consummation by the Shareholder
of the transactions contemplated hereby will not, violate or conflict with or
constitute a default under any agreement, instrument, contract or other
obligation or any order, arbitration award, judgment or decree to which the
Shareholder is a party or by which the Shareholder is bound, or any statute,
rule or regulation to which the Shareholder or any of the Shareholder's property
is subject.
ARTICLE III
DISCLOSURE AND TRADING
----------------------
The Shareholder hereby covenants and agrees that upon receipt of the
disclosure of a Strategic Transaction Proposal or a Community West Acquisition
Transaction (as those terms are defined in the Agreement), Shareholder shall
maintain the confidentiality of all non-public information regarding the
Strategic Transaction Proposal or the Community West Acquisition Transaction to
the same extent required by the parties to any such transaction under the terms
of any confidentiality agreement to which those parties are bound and to refrain
from trading in securities of Community West, Palomar, any subsidiary thereof or
any other party to the Strategic Transaction Proposal or Community West
Acquisition Transaction until the earlier of: (i) full public disclosure of such
non-public information has been made and trading in the subject securities would
not be a violation of applicable securities laws, or (ii) the Strategic
Transaction Proposal or Community West Acquisition Transaction has been
terminated or has expired by its terms and disclosure of such non-public
information is permitted under the terms of any agreement regarding the
transaction and trading in the subject securities would not be a violation of
applicable securities laws.
ARTICLE IV
TERMINATION
-----------
TERMINATION. This Shareholder Agreement shall automatically terminate and
-----------
be of no further force or effect if the Agreement is terminated in accordance
with the terms thereof, except as to any breach of this Shareholder Agreement by
the Shareholder occurring prior to the date of such termination. The
representations and warranties set forth in Article II and the covenants and
agreements of Articles III and V hereof shall survive the termination of this
Shareholder Agreement and the Closing.
<PAGE>
ARTICLE V
MISCELLANEOUS
-------------
5.1 EXPENSES. Each party hereto shall pay its own costs and expenses
--------
in connection with this Shareholder Agreement and the transactions covered and
contemplated hereby; provided, however, that nothing contained herein shall
preclude the payment of the Shareholder's expenses in connection with the
negotiation and documentation of this Shareholder's Agreement by Community West.
5.2 NOTICES, ETC. All communications required or permitted to be
-------------
given hereunder shall be in writing and shall be deemed to have been duly given
to the appropriate parties if delivered in person (professional carrier
acceptable) or by United States mail, certified and with return receipt
requested, or otherwise actually delivered:
(a) If to the Shareholder, to the address set forth on Schedule I
attached hereto.
With a copy to:
Community West Bancshares
5827 Hollister Avenue
Goleta, California 93117
Attn: Llewellyn W. Stone
President and Chief Executive Officer
With a copy to: Horgan, Rosen, Beckham & Coren, LLP
21700 Oxnard Street, Suite 1400
Los Angeles, California 91365
Attn: Arthur A. Coren, Professional Corporation
FAX: (818) 340-6190
<PAGE>
(b) If to Palomar
Palomar Savings & Loan Association
355 West Grand Avenue
Escondido, California 92025
Attn: Mr. James M. Rady
With a copy to: Higgs, Fletcher & Mack, LLP
401 West A Street, Suite 2000
San Diego, California 92101
Attn: Kurt L. Kicklighter, Esq.
or such other address as any party may have furnished in writing to the other
parties.
5.3 ENTIRE AND SOLE AGREEMENT. The making, execution and delivery of
---------------------------
this Shareholder Agreement by the parties hereto have not been induced by any
representations, statements, warranties or agreements other than those expressed
herein and in the Agreement. This Shareholder Agreement and the Agreement
embody the entire understanding of the parties, and there are no further or
other agreements or understandings, whether written or oral, in effect among the
parties relating to the subject matter hereof, unless expressly referred to by
reference herein.
5.4 SUCCESSORS AND ASSIGNS. Except as otherwise provided in this
------------------------
Shareholder Agreement, all covenants and agreements of the parties contained in
this Shareholder Agreement shall be binding upon and inure to the benefit of the
respective successors and assigns of the parties hereto.
5.5 GOVERNING LAW. This Shareholder Agreement shall be construed and
--------------
enforced in accordance with and governed by the laws of the State of California.
Each party hereto hereby submits to the jurisdiction of the courts of the County
of Santa Barbara for the purpose of any suit, action or other proceeding arising
out of such party's obligations under or with respect to this Agreement.
5.6 COUNTERPARTS. This Shareholder Agreement may be executed
------------
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
5.7 AMENDMENT, SUPPLEMENT AND WAIVER. This Shareholder Agreement may
----------------------------------
be amended or supplemented, and compliance with the provisions hereof may be
waived only by an instrument in writing signed by the party against which
enforcement of such amendment, supplement or waiver of compliance is sought.
5.8 HEADINGS. The headings in this Shareholder Agreement are for
--------
purposes of reference only and shall not limit or otherwise affect the meaning
hereof.
5.9 SPECIFIC PERFORMANCE. It is recognized and agreed that monetary
---------------------
damages will not compensate the parties hereto for nonperformance by any party.
Accordingly, each party agrees that his or her obligation shall be enforceable
by a court order requiring specific performance.
<PAGE>
5.10 SEVERAL OBLIGATIONS. All duties and obligations of the
--------------------
Shareholder executing this Shareholder Agreement shall be several and not joint
with the duties and obligations of other Shareholders executing similar
Shareholder Agreements with Palomar.
IN WITNESS WHEREOF, the parties hereto have caused this Shareholder
Agreement to be duly executed as of the date first above written.
SHAREHOLDER PALOMAR SAVINGS & LOAN ASSOCIATION
Llewellyn W. Stone By: /s/ James M. Rady
- ------------------------- --------------------
(Name) James M. Rady
Its: President and Chief Executive Officer
/s/ Llewellyn W. Stone
- -------------------------
(Signature)
<PAGE>
SCHEDULE 1
NAME OF SHAREHOLDER: Llewellyn W. Stone
--------------------
ADDRESS OF SHAREHOLDER: 6560 Camino Venturoso
-----------------------
Goleta, CA 93117
------------------
CERTIFICATE NUMBER NUMBER OF SHARES REGISTERED OWNER(S)
- ------------------- ------------------ --------------------
1,584 Lew & Norma Stone
59,840 Lew Stone
DESCRIBE ANY LIENS:
- ---------------------
55,000 shares in a margin account with Prudential Securities
<PAGE>
EXHIBIT 9.12
SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT (this "Shareholder Agreement"), is made as
of this ____ day of April, 1998, by and among Community West Bancshares, a
California corporation ("Community West"), and the shareholder of Palomar
Savings & Loan Association, a California state chartered savings and loan
association ("Palomar") whose name is set forth under "Shareholder" on the
signature page hereof (the "Shareholder"). Community West is contemporaneously
herewith entering into agreements with other shareholders of Palomar, which
agreements are identical in all respects hereto, except as to (a) the number of
shares of Palomar's common stock, $4.00 par value (the "Palomar Common Stock")
owned by such other shareholders, and (b) the name and address of the other
shareholders. The Shareholder and such other persons shall hereinafter be
referred to as to the Shareholders and this Agreement and such other agreements
as "Shareholder Agreements." This Shareholder Agreement is made with reference
to the following:
RECITALS
--------
WHEREAS, that certain Agreement and Plan of Reorganization (the
"Agreement"), dated as of April __, 1998, entered into by and among Community
West and Palomar, provides for the acquisition by Community West of one hundred
percent (100%) of the Palomar Common Stock, through the merger (the "Merger") of
Palomar with a merger corporation which shall be a wholly-owned subsidiary of
Community West ("CWB Merger Corp"); and
WHEREAS, as a condition precedent to the obligations of Community West and
Palomar under the Agreement, the Shareholder and all the Shareholders shall have
entered into Shareholder Agreements concurrent with the execution of the
Agreement in accordance with the terms, conditions, and provisions thereof;
NOW, THEREFORE, in order to effectuate the transactions set forth above and
in consideration of the mutual covenants, conditions, agreements,
representations and warranties contained herein and in the Agreement, and
intending to be legally bound, the parties hereto agree as follows:
AGREEMENT
---------
ARTICLE I
COVENANTS OF SHAREHOLDER
------------------------
1.1 VOTE OF SHAREHOLDERS. At the meeting of shareholders of Palomar
-----------------------
referred to in Section 7.1 of the Agreement (the "Meeting"), the Shareholder
shall vote or cause to be voted the shares of Palomar Common Stock indicated as
owned or controlled by such Shareholder on Schedule I attached hereto, and any
other shares of Palomar Common Stock now owned or hereafter acquired or
controlled by such Shareholder, in favor of, and to approve the principal terms
of, the Merger and any other matter contemplated by the Agreement which requires
the approval of the shareholders of Palomar.
<PAGE>
1.2 OTHER CONTRACTS. From and after the date of this Shareholder
-----------------
Agreement, the Shareholder shall not enter into or become subject to any
agreement or commitment which would restrict or in any way impair the obligation
of the Shareholder to comply with all the terms of this Shareholder Agreement,
including, without limitation, any other agreement to sell, transfer or
otherwise dispose of the Shareholder shares of Palomar Common Stock.
1.3 UPDATING INFORMATION. In the event that the Shareholder shall
----------------------
discover that any representation or warranty made herein by him/her was false or
misleading in any material respect when made or that any event has occurred such
that any representation or warranty of the Shareholder made herein would, if
made at and as of the time of the occurrence of such event, or thereafter, be
incorrect in any material respect, the Shareholder shall deliver to Community
West a statement specifying that it is delivered pursuant to this Section 1.3
and stating in reasonable detail the facts with respect thereto. Delivery of
any such statement shall not limit any rights which Community West may otherwise
have under this Shareholder Agreement.
1.4 AGREEMENT TO RECOMMEND. The Shareholder agrees that, upon the
-------------------------
execution of this Shareholder Agreement, he/she shall at all times use his/her
best efforts in order to obtain the approval of the shareholders of Palomar of
the principal terms of the Merger and any other matter contemplated by the
Agreement which requires approval of the shareholders of Palomar and shall
recommend the approval of such matters by the shareholders of Palomar at the
Meeting.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
------------------------------
OF SHAREHOLDER
--------------
2.1 REPRESENTATIONS AND WARRANTIES OF DIRECTOR. The Shareholder
----------------------------------------------
represents and warrants to, and agrees with, Community West as follows:
(a) CAPACITY. The Shareholder has all requisite capacity to enter
--------
into and to perform the Shareholder's obligations under this Shareholder
Agreement.
(b) AGREEMENT. The Shareholder has received a copy of the
---------
Agreement and has had the opportunity to review and to consider the terms and
conditions contained in this Shareholder Agreement and in the Agreement and to
confer with his or her counsel concerning said terms and conditions.
(c) BINDING AGREEMENT. This Shareholder Agreement has been duly
------------------
executed and delivered by such Shareholder and constitutes a valid and legally
binding agreement of such Shareholder.
<PAGE>
(d) OWNERSHIP OF SHARES, ETC. Schedule I hereto correctly sets
---------------------------
forth the number of shares of Palomar Common Stock owned by the Shareholder or
with respect to which such Shareholder has sole or shared voting power, and the
Shareholder has good and marketable title to all such shares of Palomar Common
Stock free and clear of any liens, security interests, charges or other
encumbrances of any kind or nature except as set forth on Schedule I.
(e) RELATIONSHIP WITH PALOMAR. The Shareholder is a director or
---------------------------
executive officer of Palomar.
(f) NON-CONTRAVENTION. The execution and delivery of this
-----------------
Agreement by the Shareholder does not, and the performance by the Shareholder of
the Shareholder's obligations hereunder and the consummation by the Shareholder
of the transactions contemplated hereby will not, violate or conflict with or
constitute a default under any agreement, instrument, contract or other
obligation or any order, arbitration award, judgment or decree to which the
Shareholder is a party or by which the Shareholder is bound, or any statute,
rule or regulation to which the Shareholder or any of the Shareholder's property
is subject.
ARTICLE III
DISCLOSURE AND TRADING
----------------------
The Shareholder hereby covenants and agrees that upon receipt of the
disclosure of a Strategic Transaction Proposal or a Community West Acquisition
Transaction (as those terms are defined in the Agreement), Shareholder shall
maintain the confidentiality of all non-public information regarding the
Strategic Transaction Proposal or the Community West Acquisition Transaction to
the same extent required by the parties to any such transaction under the terms
of any confidentiality agreement to which those parties are bound and to refrain
from trading in securities of Community West, Palomar, any subsidiary thereof or
any other party to the Strategic Transaction Proposal or Community West
Acquisition Transaction until the earlier of: (i) full public disclosure of such
non-public information has been made and trading in the subject securities would
not be a violation of applicable securities laws, or (ii) the Strategic
Transaction Proposal or Community West Acquisition Transaction has been
terminated or has expired by its terms and disclosure of such non-public
information is permitted under the terms of any agreement regarding the
transaction and trading in the subject securities would not be a violation of
applicable securities laws.
ARTICLE IV
TERMINATION
-----------
TERMINATION. This Shareholder Agreement shall automatically terminate and
-----------
be of no further force or effect if the Agreement is terminated in accordance
with the terms thereof, except as to any breach of this Shareholder Agreement by
the Shareholder occurring prior to the date of such termination. The
representations and warranties set forth in Article II and the covenants and
agreements of Articles III and V hereof shall survive the termination of this
Shareholder Agreement and the Closing.
<PAGE>
ARTICLE V
MISCELLANEOUS
-------------
5.1 EXPENSES. Each party hereto shall pay its own costs and expenses
--------
in connection with this Shareholder Agreement and the transactions covered and
contemplated hereby; provided, however, that nothing contained herein shall
preclude the payment of the Shareholder's expenses in connection with the
negotiation and documentation of this Shareholder's Agreement by Palomar.
5.2 NOTICES, ETC. All communications required or permitted to be
-------------
given hereunder shall be in writing and shall be deemed to have been duly given
to the appropriate parties if delivered in person (professional carrier
acceptable) or by United States mail, certified and with return receipt
requested, or otherwise actually delivered:
(a) If to the Shareholder, to the address set forth on Schedule I
attached hereto.
With a copy to:
Palomar Savings & Loan Association
355 West Grand Avenue
Escondido, California 92025
Attn: Mr. James M. Rady
With a copy to: Higgs, Fletcher & Mack, LLP
401 West A Street, Suite 2000
San Diego, California 92101
Attn: Kurt L. Kicklighter, Esq.
(b) If to Community West
Community West Bancshares
5827 Hollister Avenue
Goleta, California 93117
Attn: Llewellyn W. Stone
President and Chief Executive Officer
With a copy to: Horgan, Rosen, Beckham & Coren, LLP
21700 Oxnard Street, Suite 1400
Los Angeles, California 91365
Attn: Arthur A. Coren, Professional Corporation
FAX: (818) 340-6190
or such other address as any party may have furnished in writing to the other
parties.
<PAGE>
5.3 ENTIRE AND SOLE AGREEMENT. The making, execution and delivery of
---------------------------
this Shareholder Agreement by the parties hereto have not been induced by any
representations, statements, warranties or agreements other than those expressed
herein and in the Agreement. This Shareholder Agreement and the Agreement
embody the entire understanding of the parties, and there are no further or
other agreements or understandings, whether written or oral, in effect among the
parties relating to the subject matter hereof, unless expressly referred to by
reference herein.
5.4 SUCCESSORS AND ASSIGNS. Except as otherwise provided in this
------------------------
Shareholder Agreement, all covenants and agreements of the parties contained in
this Shareholder Agreement shall be binding upon and inure to the benefit of the
respective successors and assigns of the parties hereto.
5.5 GOVERNING LAW. This Shareholder Agreement shall be construed and
--------------
enforced in accordance with and governed by the laws of the State of California.
Each party hereto hereby submits to the jurisdiction of the courts of the County
of Santa Barbara for the purpose of any suit, action or other proceeding arising
out of such party's obligations under or with respect to this Agreement.
5.6 COUNTERPARTS. This Shareholder Agreement may be executed
------------
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
5.7 AMENDMENT, SUPPLEMENT AND WAIVER. This Shareholder Agreement may
----------------------------------
be amended or supplemented, and compliance with the provisions hereof may be
waived only by an instrument in writing signed by the party against which
enforcement of such amendment, supplement or waiver of compliance is sought.
5.8 HEADINGS. The headings in this Shareholder Agreement are for
--------
purposes of reference only and shall not limit or otherwise affect the meaning
hereof.
5.9 SPECIFIC PERFORMANCE. It is recognized and agreed that monetary
---------------------
damages will not compensate the parties hereto for nonperformance by any party.
Accordingly, each party agrees that his or her obligation shall be enforceable
by a court order requiring specific performance.
5.10 SEVERAL OBLIGATIONS. All duties and obligations of the
--------------------
Shareholder executing this Shareholder Agreement shall be several and not joint
with the duties and obligations of other Shareholders executing similar
Shareholder Agreements with Community West.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Shareholder
Agreement to be duly executed as of the date first above written.
SHAREHOLDER COMMUNITY WEST BANCSHARES
Darol Caster By: /s/ Llewellyn W. Stone
- ------------------ -------------------------
(Name) Llewellyn W. Stone
Its: President and Chief Executive Officer
/s/ Darol Caster
- ------------------
(Signature)
<PAGE>
SCHEDULE 1
NAME OF SHAREHOLDER: Darol H. Caster
-----------------
ADDRESS OF SHAREHOLDER: 1261 Rincon Road
------------------
Escondido, CA 92025
---------------------
CERTIFICATE NUMBER NUMBER OF SHARES REGISTERED OWNER(S)
- ------------------- ------------------ --------------------
5,203 Darol H. Caster &
Linda L. Caster, Com. Prop.
823 Darol H. Caster, Cust.
Darren M . Caster Unif
TRF MIN Act CA
1,193 Payne Webber (IRA)
DESCRIBE ANY LIENS:
- ---------------------
NONE
<PAGE>
EXHIBIT 9.13
SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT (this "Shareholder Agreement"), is made as
of this ____ day of April, 1998, by and among Community West Bancshares, a
California corporation ("Community West"), and the shareholder of Palomar
Savings & Loan Association, a California state chartered savings and loan
association ("Palomar") whose name is set forth under "Shareholder" on the
signature page hereof (the "Shareholder"). Community West is contemporaneously
herewith entering into agreements with other shareholders of Palomar, which
agreements are identical in all respects hereto, except as to (a) the number of
shares of Palomar's common stock, $4.00 par value (the "Palomar Common Stock")
owned by such other shareholders, and (b) the name and address of the other
shareholders. The Shareholder and such other persons shall hereinafter be
referred to as to the Shareholders and this Agreement and such other agreements
as "Shareholder Agreements." This Shareholder Agreement is made with reference
to the following:
RECITALS
--------
WHEREAS, that certain Agreement and Plan of Reorganization (the
"Agreement"), dated as of April __, 1998, entered into by and among Community
West and Palomar, provides for the acquisition by Community West of one hundred
percent (100%) of the Palomar Common Stock, through the merger (the "Merger") of
Palomar with a merger corporation which shall be a wholly-owned subsidiary of
Community West ("CWB Merger Corp"); and
WHEREAS, as a condition precedent to the obligations of Community West and
Palomar under the Agreement, the Shareholder and all the Shareholders shall have
entered into Shareholder Agreements concurrent with the execution of the
Agreement in accordance with the terms, conditions, and provisions thereof;
NOW, THEREFORE, in order to effectuate the transactions set forth above and
in consideration of the mutual covenants, conditions, agreements,
representations and warranties contained herein and in the Agreement, and
intending to be legally bound, the parties hereto agree as follows:
AGREEMENT
---------
ARTICLE I
COVENANTS OF SHAREHOLDER
------------------------
1.1 VOTE OF SHAREHOLDERS. At the meeting of shareholders of Palomar
-----------------------
referred to in Section 7.1 of the Agreement (the "Meeting"), the Shareholder
shall vote or cause to be voted the shares of Palomar Common Stock indicated as
owned or controlled by such Shareholder on Schedule I attached hereto, and any
other shares of Palomar Common Stock now owned or hereafter acquired or
controlled by such Shareholder, in favor of, and to approve the principal terms
of, the Merger and any other matter contemplated by the Agreement which requires
the approval of the shareholders of Palomar.
<PAGE>
1.2 OTHER CONTRACTS. From and after the date of this Shareholder
-----------------
Agreement, the Shareholder shall not enter into or become subject to any
agreement or commitment which would restrict or in any way impair the obligation
of the Shareholder to comply with all the terms of this Shareholder Agreement,
including, without limitation, any other agreement to sell, transfer or
otherwise dispose of the Shareholder shares of Palomar Common Stock.
1.3 UPDATING INFORMATION. In the event that the Shareholder shall
----------------------
discover that any representation or warranty made herein by him/her was false or
misleading in any material respect when made or that any event has occurred such
that any representation or warranty of the Shareholder made herein would, if
made at and as of the time of the occurrence of such event, or thereafter, be
incorrect in any material respect, the Shareholder shall deliver to Community
West a statement specifying that it is delivered pursuant to this Section 1.3
and stating in reasonable detail the facts with respect thereto. Delivery of
any such statement shall not limit any rights which Community West may otherwise
have under this Shareholder Agreement.
1.4 AGREEMENT TO RECOMMEND. The Shareholder agrees that, upon the
-------------------------
execution of this Shareholder Agreement, he/she shall at all times use his/her
best efforts in order to obtain the approval of the shareholders of Palomar of
the principal terms of the Merger and any other matter contemplated by the
Agreement which requires approval of the shareholders of Palomar and shall
recommend the approval of such matters by the shareholders of Palomar at the
Meeting.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
------------------------------
OF SHAREHOLDER
--------------
2.1 REPRESENTATIONS AND WARRANTIES OF DIRECTOR. The Shareholder
----------------------------------------------
represents and warrants to, and agrees with, Community West as follows:
(a) CAPACITY. The Shareholder has all requisite capacity to enter
--------
into and to perform the Shareholder's obligations under this Shareholder
Agreement.
(b) AGREEMENT. The Shareholder has received a copy of the
---------
Agreement and has had the opportunity to review and to consider the terms and
conditions contained in this Shareholder Agreement and in the Agreement and to
confer with his or her counsel concerning said terms and conditions.
(c) BINDING AGREEMENT. This Shareholder Agreement has been duly
------------------
<PAGE>
executed and delivered by such Shareholder and constitutes a valid and legally
binding agreement of such Shareholder.
(d) OWNERSHIP OF SHARES, ETC. Schedule I hereto correctly sets
---------------------------
forth the number of shares of Palomar Common Stock owned by the Shareholder or
with respect to which such Shareholder has sole or shared voting power, and the
Shareholder has good and marketable title to all such shares of Palomar Common
Stock free and clear of any liens, security interests, charges or other
encumbrances of any kind or nature except as set forth on Schedule I.
(e) RELATIONSHIP WITH PALOMAR. The Shareholder is a director or
---------------------------
executive officer of Palomar.
(f) NON-CONTRAVENTION. The execution and delivery of this
-----------------
Agreement by the Shareholder does not, and the performance by the Shareholder of
the Shareholder's obligations hereunder and the consummation by the Shareholder
of the transactions contemplated hereby will not, violate or conflict with or
constitute a default under any agreement, instrument, contract or other
obligation or any order, arbitration award, judgment or decree to which the
Shareholder is a party or by which the Shareholder is bound, or any statute,
rule or regulation to which the Shareholder or any of the Shareholder's property
is subject.
ARTICLE III
DISCLOSURE AND TRADING
----------------------
The Shareholder hereby covenants and agrees that upon receipt of the
disclosure of a Strategic Transaction Proposal or a Community West Acquisition
Transaction (as those terms are defined in the Agreement), Shareholder shall
maintain the confidentiality of all non-public information regarding the
Strategic Transaction Proposal or the Community West Acquisition Transaction to
the same extent required by the parties to any such transaction under the terms
of any confidentiality agreement to which those parties are bound and to refrain
from trading in securities of Community West, Palomar, any subsidiary thereof or
any other party to the Strategic Transaction Proposal or Community West
Acquisition Transaction until the earlier of: (i) full public disclosure of such
non-public information has been made and trading in the subject securities would
not be a violation of applicable securities laws, or (ii) the Strategic
Transaction Proposal or Community West Acquisition Transaction has been
terminated or has expired by its terms and disclosure of such non-public
information is permitted under the terms of any agreement regarding the
transaction and trading in the subject securities would not be a violation of
applicable securities laws.
ARTICLE IV
TERMINATION
-----------
TERMINATION. This Shareholder Agreement shall automatically terminate and
-----------
be of no further force or effect if the Agreement is terminated in accordance
with the terms thereof, except as to any breach of this Shareholder Agreement by
the Shareholder occurring prior to the date of such termination. The
representations and warranties set forth in Article II and the covenants and
agreements of Articles III and V hereof shall survive the termination of this
Shareholder Agreement and the Closing.
<PAGE>
ARTICLE V
MISCELLANEOUS
-------------
5.1 EXPENSES. Each party hereto shall pay its own costs and expenses
--------
in connection with this Shareholder Agreement and the transactions covered and
contemplated hereby; provided, however, that nothing contained herein shall
preclude the payment of the Shareholder's expenses in connection with the
negotiation and documentation of this Shareholder's Agreement by Palomar.
5.2 NOTICES, ETC. All communications required or permitted to be
-------------
given hereunder shall be in writing and shall be deemed to have been duly given
to the appropriate parties if delivered in person (professional carrier
acceptable) or by United States mail, certified and with return receipt
requested, or otherwise actually delivered:
(a) If to the Shareholder, to the address set forth on Schedule I
attached hereto.
With a copy to:
Palomar Savings & Loan Association
355 West Grand Avenue
Escondido, California 92025
Attn: Mr. James M. Rady
With a copy to: Higgs, Fletcher & Mack, LLP
401 West A Street, Suite 2000
San Diego, California 92101
Attn: Kurt L. Kicklighter, Esq.
(b) If to Community West
Community West Bancshares
5827 Hollister Avenue
Goleta, California 93117
Attn: Llewellyn W. Stone
President and Chief Executive Officer
With a copy to: Horgan, Rosen, Beckham & Coren, LLP
21700 Oxnard Street, Suite 1400
Los Angeles, California 91365
Attn: Arthur A. Coren, Professional Corporation
FAX: (818) 340-6190
or such other address as any party may have furnished in writing to the other
parties.
<PAGE>
5.3 ENTIRE AND SOLE AGREEMENT. The making, execution and delivery of
---------------------------
this Shareholder Agreement by the parties hereto have not been induced by any
representations, statements, warranties or agreements other than those expressed
herein and in the Agreement. This Shareholder Agreement and the Agreement
embody the entire understanding of the parties, and there are no further or
other agreements or understandings, whether written or oral, in effect among the
parties relating to the subject matter hereof, unless expressly referred to by
reference herein.
5.4 SUCCESSORS AND ASSIGNS. Except as otherwise provided in this
------------------------
Shareholder Agreement, all covenants and agreements of the parties contained in
this Shareholder Agreement shall be binding upon and inure to the benefit of the
respective successors and assigns of the parties hereto.
5.5 GOVERNING LAW. This Shareholder Agreement shall be construed and
--------------
enforced in accordance with and governed by the laws of the State of California.
Each party hereto hereby submits to the jurisdiction of the courts of the County
of Santa Barbara for the purpose of any suit, action or other proceeding arising
out of such party's obligations under or with respect to this Agreement.
5.6 COUNTERPARTS. This Shareholder Agreement may be executed
------------
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
5.7 AMENDMENT, SUPPLEMENT AND WAIVER. This Shareholder Agreement may
----------------------------------
be amended or supplemented, and compliance with the provisions hereof may be
waived only by an instrument in writing signed by the party against which
enforcement of such amendment, supplement or waiver of compliance is sought.
5.8 HEADINGS. The headings in this Shareholder Agreement are for
--------
purposes of reference only and shall not limit or otherwise affect the meaning
hereof.
5.9 SPECIFIC PERFORMANCE. It is recognized and agreed that monetary
---------------------
damages will not compensate the parties hereto for nonperformance by any party.
Accordingly, each party agrees that his or her obligation shall be enforceable
by a court order requiring specific performance.
5.10 SEVERAL OBLIGATIONS. All duties and obligations of the
--------------------
Shareholder executing this Shareholder Agreement shall be several and not joint
with the duties and obligations of other Shareholders executing similar
Shareholder Agreements with Community West.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Shareholder
Agreement to be duly executed as of the date first above written.
SHAREHOLDER COMMUNITY WEST BANCSHARES
Donald M. Galyean By: /s/ Llewellyn W. Stone
- ------------------------ -------------------------
(Name) Llewellyn W. Stone
Its: President and Chief Executive Officer
/s/ Donald M. Galyean
- ------------------------
(Signature)
<PAGE>
SCHEDULE 1
NAME OF SHAREHOLDER: Donald M. Galyean
-------------------
ADDRESS OF SHAREHOLDER: 1007 Turtle Dove Lane
------------------------
Escondido, CA 92026
---------------------
CERTIFICATE NUMBER NUMBER OF SHARES REGISTERED OWNER(S)
- ------------------- ------------------ --------------------
3,530 Edward D. Jones & Co., Cust.
for Donald M. Galyean
DESCRIBE ANY LIENS:
- ---------------------
NONE
<PAGE>
EXHIBIT 9.14
SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT (this "Shareholder Agreement"), is made as
of this ____ day of April, 1998, by and among Community West Bancshares, a
California corporation ("Community West"), and the shareholder of Palomar
Savings & Loan Association, a California state chartered savings and loan
association ("Palomar") whose name is set forth under "Shareholder" on the
signature page hereof (the "Shareholder"). Community West is contemporaneously
herewith entering into agreements with other shareholders of Palomar, which
agreements are identical in all respects hereto, except as to (a) the number of
shares of Palomar's common stock, $4.00 par value (the "Palomar Common Stock")
owned by such other shareholders, and (b) the name and address of the other
shareholders. The Shareholder and such other persons shall hereinafter be
referred to as to the Shareholders and this Agreement and such other agreements
as "Shareholder Agreements." This Shareholder Agreement is made with reference
to the following:
RECITALS
--------
WHEREAS, that certain Agreement and Plan of Reorganization (the
"Agreement"), dated as of April __, 1998, entered into by and among Community
West and Palomar, provides for the acquisition by Community West of one hundred
percent (100%) of the Palomar Common Stock, through the merger (the "Merger") of
Palomar with a merger corporation which shall be a wholly-owned subsidiary of
Community West ("CWB Merger Corp"); and
WHEREAS, as a condition precedent to the obligations of Community West and
Palomar under the Agreement, the Shareholder and all the Shareholders shall have
entered into Shareholder Agreements concurrent with the execution of the
Agreement in accordance with the terms, conditions, and provisions thereof;
NOW, THEREFORE, in order to effectuate the transactions set forth above and
in consideration of the mutual covenants, conditions, agreements,
representations and warranties contained herein and in the Agreement, and
intending to be legally bound, the parties hereto agree as follows:
AGREEMENT
---------
ARTICLE I
COVENANTS OF SHAREHOLDER
------------------------
1.1 VOTE OF SHAREHOLDERS. At the meeting of shareholders of Palomar
-----------------------
referred to in Section 7.1 of the Agreement (the "Meeting"), the Shareholder
shall vote or cause to be voted the shares of Palomar Common Stock indicated as
owned or controlled by such Shareholder on Schedule I attached hereto, and any
other shares of Palomar Common Stock now owned or hereafter acquired or
controlled by such Shareholder, in favor of, and to approve the principal terms
of, the Merger and any other matter contemplated by the Agreement which requires
the approval of the shareholders of Palomar.
<PAGE>
1.2 OTHER CONTRACTS. From and after the date of this Shareholder
-----------------
Agreement, the Shareholder shall not enter into or become subject to any
agreement or commitment which would restrict or in any way impair the obligation
of the Shareholder to comply with all the terms of this Shareholder Agreement,
including, without limitation, any other agreement to sell, transfer or
otherwise dispose of the Shareholder shares of Palomar Common Stock.
1.3 UPDATING INFORMATION. In the event that the Shareholder shall
----------------------
discover that any representation or warranty made herein by him/her was false or
misleading in any material respect when made or that any event has occurred such
that any representation or warranty of the Shareholder made herein would, if
made at and as of the time of the occurrence of such event, or thereafter, be
incorrect in any material respect, the Shareholder shall deliver to Community
West a statement specifying that it is delivered pursuant to this Section 1.3
and stating in reasonable detail the facts with respect thereto. Delivery of
any such statement shall not limit any rights which Community West may otherwise
have under this Shareholder Agreement.
1.4 AGREEMENT TO RECOMMEND. The Shareholder agrees that, upon the
-------------------------
execution of this Shareholder Agreement, he/she shall at all times use his/her
best efforts in order to obtain the approval of the shareholders of Palomar of
the principal terms of the Merger and any other matter contemplated by the
Agreement which requires approval of the shareholders of Palomar and shall
recommend the approval of such matters by the shareholders of Palomar at the
Meeting.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
------------------------------
OF SHAREHOLDER
--------------
2.1 REPRESENTATIONS AND WARRANTIES OF DIRECTOR. The Shareholder
----------------------------------------------
represents and warrants to, and agrees with, Community West as follows:
(a) CAPACITY. The Shareholder has all requisite capacity to enter
--------
into and to perform the Shareholder's obligations under this Shareholder
Agreement.
(b) AGREEMENT. The Shareholder has received a copy of the
---------
Agreement and has had the opportunity to review and to consider the terms and
conditions contained in this Shareholder Agreement and in the Agreement and to
confer with his or her counsel concerning said terms and conditions.
(c) BINDING AGREEMENT. This Shareholder Agreement has been duly
------------------
executed and delivered by such Shareholder and constitutes a valid and legally
binding agreement of such Shareholder.
<PAGE>
(d) OWNERSHIP OF SHARES, ETC. Schedule I hereto correctly sets
---------------------------
forth the number of shares of Palomar Common Stock owned by the Shareholder or
with respect to which such Shareholder has sole or shared voting power, and the
Shareholder has good and marketable title to all such shares of Palomar Common
Stock free and clear of any liens, security interests, charges or other
encumbrances of any kind or nature except as set forth on Schedule I.
(e) RELATIONSHIP WITH PALOMAR. The Shareholder is a director or
---------------------------
executive officer of Palomar.
(f) NON-CONTRAVENTION. The execution and delivery of this
-----------------
Agreement by the Shareholder does not, and the performance by the Shareholder of
the Shareholder's obligations hereunder and the consummation by the Shareholder
of the transactions contemplated hereby will not, violate or conflict with or
constitute a default under any agreement, instrument, contract or other
obligation or any order, arbitration award, judgment or decree to which the
Shareholder is a party or by which the Shareholder is bound, or any statute,
rule or regulation to which the Shareholder or any of the Shareholder's property
is subject.
ARTICLE III
DISCLOSURE AND TRADING
----------------------
The Shareholder hereby covenants and agrees that upon receipt of the
disclosure of a Strategic Transaction Proposal or a Community West Acquisition
Transaction (as those terms are defined in the Agreement), Shareholder shall
maintain the confidentiality of all non-public information regarding the
Strategic Transaction Proposal or the Community West Acquisition Transaction to
the same extent required by the parties to any such transaction under the terms
of any confidentiality agreement to which those parties are bound and to refrain
from trading in securities of Community West, Palomar, any subsidiary thereof or
any other party to the Strategic Transaction Proposal or Community West
Acquisition Transaction until the earlier of: (i) full public disclosure of such
non-public information has been made and trading in the subject securities would
not be a violation of applicable securities laws, or (ii) the Strategic
Transaction Proposal or Community West Acquisition Transaction has been
terminated or has expired by its terms and disclosure of such non-public
information is permitted under the terms of any agreement regarding the
transaction and trading in the subject securities would not be a violation of
applicable securities laws.
ARTICLE IV
TERMINATION
-----------
TERMINATION. This Shareholder Agreement shall automatically terminate and
-----------
be of no further force or effect if the Agreement is terminated in accordance
with the terms thereof, except as to any breach of this Shareholder Agreement by
the Shareholder occurring prior to the date of such termination. The
representations and warranties set forth in Article II and the covenants and
agreements of Articles III and V hereof shall survive the termination of this
Shareholder Agreement and the Closing.
<PAGE>
ARTICLE V
MISCELLANEOUS
-------------
5.1 EXPENSES. Each party hereto shall pay its own costs and expenses
--------
in connection with this Shareholder Agreement and the transactions covered and
contemplated hereby; provided, however, that nothing contained herein shall
preclude the payment of the Shareholder's expenses in connection with the
negotiation and documentation of this Shareholder's Agreement by Palomar.
5.2 NOTICES, ETC. All communications required or permitted to be
-------------
given hereunder shall be in writing and shall be deemed to have been duly given
to the appropriate parties if delivered in person (professional carrier
acceptable) or by United States mail, certified and with return receipt
requested, or otherwise actually delivered:
(a) If to the Shareholder, to the address set forth on Schedule I
attached hereto.
With a copy to:
Palomar Savings & Loan Association
355 West Grand Avenue
Escondido, California 92025
Attn: Mr. James M. Rady
With a copy to: Higgs, Fletcher & Mack, LLP
401 West A Street, Suite 2000
San Diego, California 92101
Attn: Kurt L. Kicklighter, Esq.
(b) If to Community West
Community West Bancshares
5827 Hollister Avenue
Goleta, California 93117
Attn: Llewellyn W. Stone
President and Chief Executive Officer
With a copy to: Horgan, Rosen, Beckham & Coren, LLP
21700 Oxnard Street, Suite 1400
Los Angeles, California 91365
Attn: Arthur A. Coren, Professional Corporation
FAX: (818) 340-6190
or such other address as any party may have furnished in writing to the other
parties.
<PAGE>
5.3 ENTIRE AND SOLE AGREEMENT. The making, execution and delivery of
---------------------------
this Shareholder Agreement by the parties hereto have not been induced by any
representations, statements, warranties or agreements other than those expressed
herein and in the Agreement. This Shareholder Agreement and the Agreement
embody the entire understanding of the parties, and there are no further or
other agreements or understandings, whether written or oral, in effect among the
parties relating to the subject matter hereof, unless expressly referred to by
reference herein.
5.4 SUCCESSORS AND ASSIGNS. Except as otherwise provided in this
------------------------
Shareholder Agreement, all covenants and agreements of the parties contained in
this Shareholder Agreement shall be binding upon and inure to the benefit of the
respective successors and assigns of the parties hereto.
5.5 GOVERNING LAW. This Shareholder Agreement shall be construed and
--------------
enforced in accordance with and governed by the laws of the State of California.
Each party hereto hereby submits to the jurisdiction of the courts of the County
of Santa Barbara for the purpose of any suit, action or other proceeding arising
out of such party's obligations under or with respect to this Agreement.
5.6 COUNTERPARTS. This Shareholder Agreement may be executed
------------
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
5.7 AMENDMENT, SUPPLEMENT AND WAIVER. This Shareholder Agreement may
----------------------------------
be amended or supplemented, and compliance with the provisions hereof may be
waived only by an instrument in writing signed by the party against which
enforcement of such amendment, supplement or waiver of compliance is sought.
5.8 HEADINGS. The headings in this Shareholder Agreement are for
--------
purposes of reference only and shall not limit or otherwise affect the meaning
hereof.
5.9 SPECIFIC PERFORMANCE. It is recognized and agreed that monetary
---------------------
damages will not compensate the parties hereto for nonperformance by any party.
Accordingly, each party agrees that his or her obligation shall be enforceable
by a court order requiring specific performance.
5.10 SEVERAL OBLIGATIONS. All duties and obligations of the
--------------------
Shareholder executing this Shareholder Agreement shall be several and not joint
with the duties and obligations of other Shareholders executing similar
Shareholder Agreements with Community West.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Shareholder
Agreement to be duly executed as of the date first above written.
SHAREHOLDER COMMUNITY WEST BANCSHARES
Frederick Mandelbaum By: /s/ Llewellyn W. Stone
- -------------------------- -------------------------
(Name) Llewellyn W. Stone
Its: President and Chief Executive Officer
/s/ Frederick Mandelbaum
- --------------------------
(Signature)
<PAGE>
SCHEDULE 1
NAME OF SHAREHOLDER: Frederick Mandelbaum
---------------------
ADDRESS OF SHAREHOLDER: 1634 Foxfire Place
--------------------
Escondido, CA 92026
---------------------
CERTIFICATE NUMBER NUMBER OF SHARES REGISTERED OWNER(S)
- ------------------- ------------------ --------------------
13,854 Frederick Mandelbaum &
Carmen R. Mandelbaum, TR
UA Dtd 9-5-91
DESCRIBE ANY LIENS:
- ---------------------
NONE
<PAGE>
EXHIBIT 9.15
SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT (this "Shareholder Agreement"), is made as
of this ____ day of April, 1998, by and among Community West Bancshares, a
California corporation ("Community West"), and the shareholder of Palomar
Savings & Loan Association, a California state chartered savings and loan
association ("Palomar") whose name is set forth under "Shareholder" on the
signature page hereof (the "Shareholder"). Community West is contemporaneously
herewith entering into agreements with other shareholders of Palomar, which
agreements are identical in all respects hereto, except as to (a) the number of
shares of Palomar's common stock, $4.00 par value (the "Palomar Common Stock")
owned by such other shareholders, and (b) the name and address of the other
shareholders. The Shareholder and such other persons shall hereinafter be
referred to as to the Shareholders and this Agreement and such other agreements
as "Shareholder Agreements." This Shareholder Agreement is made with reference
to the following:
RECITALS
--------
WHEREAS, that certain Agreement and Plan of Reorganization (the
"Agreement"), dated as of April __, 1998, entered into by and among Community
West and Palomar, provides for the acquisition by Community West of one hundred
percent (100%) of the Palomar Common Stock, through the merger (the "Merger") of
Palomar with a merger corporation which shall be a wholly-owned subsidiary of
Community West ("CWB Merger Corp"); and
WHEREAS, as a condition precedent to the obligations of Community West and
Palomar under the Agreement, the Shareholder and all the Shareholders shall have
entered into Shareholder Agreements concurrent with the execution of the
Agreement in accordance with the terms, conditions, and provisions thereof;
NOW, THEREFORE, in order to effectuate the transactions set forth above and
in consideration of the mutual covenants, conditions, agreements,
representations and warranties contained herein and in the Agreement, and
intending to be legally bound, the parties hereto agree as follows:
AGREEMENT
---------
ARTICLE I
COVENANTS OF SHAREHOLDER
------------------------
1.1 VOTE OF SHAREHOLDERS. At the meeting of shareholders of Palomar
-----------------------
referred to in Section 7.1 of the Agreement (the "Meeting"), the Shareholder
shall vote or cause to be voted the shares of Palomar Common Stock indicated as
owned or controlled by such Shareholder on Schedule I attached hereto, and any
other shares of Palomar Common Stock now owned or hereafter acquired or
controlled by such Shareholder, in favor of, and to approve the principal terms
of, the Merger and any other matter contemplated by the Agreement which requires
the approval of the shareholders of Palomar.
<PAGE>
1.2 OTHER CONTRACTS. From and after the date of this Shareholder
-----------------
Agreement, the Shareholder shall not enter into or become subject to any
agreement or commitment which would restrict or in any way impair the obligation
of the Shareholder to comply with all the terms of this Shareholder Agreement,
including, without limitation, any other agreement to sell, transfer or
otherwise dispose of the Shareholder shares of Palomar Common Stock.
1.3 UPDATING INFORMATION. In the event that the Shareholder shall
----------------------
discover that any representation or warranty made herein by him/her was false or
misleading in any material respect when made or that any event has occurred such
that any representation or warranty of the Shareholder made herein would, if
made at and as of the time of the occurrence of such event, or thereafter, be
incorrect in any material respect, the Shareholder shall deliver to Community
West a statement specifying that it is delivered pursuant to this Section 1.3
and stating in reasonable detail the facts with respect thereto. Delivery of
any such statement shall not limit any rights which Community West may otherwise
have under this Shareholder Agreement.
1.4 AGREEMENT TO RECOMMEND. The Shareholder agrees that, upon the
-------------------------
execution of this Shareholder Agreement, he/she shall at all times use his/her
best efforts in order to obtain the approval of the shareholders of Palomar of
the principal terms of the Merger and any other matter contemplated by the
Agreement which requires approval of the shareholders of Palomar and shall
recommend the approval of such matters by the shareholders of Palomar at the
Meeting.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
------------------------------
OF SHAREHOLDER
--------------
2.1 REPRESENTATIONS AND WARRANTIES OF DIRECTOR. The Shareholder
----------------------------------------------
represents and warrants to, and agrees with, Community West as follows:
(a) CAPACITY. The Shareholder has all requisite capacity to enter
--------
into and to perform the Shareholder's obligations under this Shareholder
Agreement.
(b) AGREEMENT. The Shareholder has received a copy of the
---------
Agreement and has had the opportunity to review and to consider the terms and
conditions contained in this Shareholder Agreement and in the Agreement and to
confer with his or her counsel concerning said terms and conditions.
(c) BINDING AGREEMENT. This Shareholder Agreement has been duly
------------------
executed and delivered by such Shareholder and constitutes a valid and legally
binding agreement of such Shareholder.
<PAGE>
(d) OWNERSHIP OF SHARES, ETC. Schedule I hereto correctly sets
---------------------------
forth the number of shares of Palomar Common Stock owned by the Shareholder or
with respect to which such Shareholder has sole or shared voting power, and the
Shareholder has good and marketable title to all such shares of Palomar Common
Stock free and clear of any liens, security interests, charges or other
encumbrances of any kind or nature except as set forth on Schedule I.
(e) RELATIONSHIP WITH PALOMAR. The Shareholder is a director or
---------------------------
executive officer of Palomar.
(f) NON-CONTRAVENTION. The execution and delivery of this
-----------------
Agreement by the Shareholder does not, and the performance by the Shareholder of
the Shareholder's obligations hereunder and the consummation by the Shareholder
of the transactions contemplated hereby will not, violate or conflict with or
constitute a default under any agreement, instrument, contract or other
obligation or any order, arbitration award, judgment or decree to which the
Shareholder is a party or by which the Shareholder is bound, or any statute,
rule or regulation to which the Shareholder or any of the Shareholder's property
is subject.
ARTICLE III
DISCLOSURE AND TRADING
----------------------
The Shareholder hereby covenants and agrees that upon receipt of the
disclosure of a Strategic Transaction Proposal or a Community West Acquisition
Transaction (as those terms are defined in the Agreement), Shareholder shall
maintain the confidentiality of all non-public information regarding the
Strategic Transaction Proposal or the Community West Acquisition Transaction to
the same extent required by the parties to any such transaction under the terms
of any confidentiality agreement to which those parties are bound and to refrain
from trading in securities of Community West, Palomar, any subsidiary thereof or
any other party to the Strategic Transaction Proposal or Community West
Acquisition Transaction until the earlier of: (i) full public disclosure of such
non-public information has been made and trading in the subject securities would
not be a violation of applicable securities laws, or (ii) the Strategic
Transaction Proposal or Community West Acquisition Transaction has been
terminated or has expired by its terms and disclosure of such non-public
information is permitted under the terms of any agreement regarding the
transaction and trading in the subject securities would not be a violation of
applicable securities laws.
ARTICLE IV
TERMINATION
-----------
TERMINATION. This Shareholder Agreement shall automatically terminate and
-----------
be of no further force or effect if the Agreement is terminated in accordance
with the terms thereof, except as to any breach of this Shareholder Agreement by
the Shareholder occurring prior to the date of such termination. The
representations and warranties set forth in Article II and the covenants and
agreements of Articles III and V hereof shall survive the termination of this
Shareholder Agreement and the Closing.
<PAGE>
ARTICLE V
MISCELLANEOUS
-------------
5.1 EXPENSES. Each party hereto shall pay its own costs and expenses
--------
in connection with this Shareholder Agreement and the transactions covered and
contemplated hereby; provided, however, that nothing contained herein shall
preclude the payment of the Shareholder's expenses in connection with the
negotiation and documentation of this Shareholder's Agreement by Palomar.
5.2 NOTICES, ETC. All communications required or permitted to be
-------------
given hereunder shall be in writing and shall be deemed to have been duly given
to the appropriate parties if delivered in person (professional carrier
acceptable) or by United States mail, certified and with return receipt
requested, or otherwise actually delivered:
(a) If to the Shareholder, to the address set forth on Schedule I
attached hereto.
With a copy to:
Palomar Savings & Loan Association
355 West Grand Avenue
Escondido, California 92025
Attn: Mr. James M. Rady
With a copy to: Higgs, Fletcher & Mack, LLP
401 West A Street, Suite 2000
San Diego, California 92101
Attn: Kurt L. Kicklighter, Esq.
(b) If to Community West
Community West Bancshares
5827 Hollister Avenue
Goleta, California 93117
Attn: Llewellyn W. Stone
President and Chief Executive Officer
With a copy to: Horgan, Rosen, Beckham & Coren, LLP
21700 Oxnard Street, Suite 1400
Los Angeles, California 91365
Attn: Arthur A. Coren, Professional Corporation
FAX: (818) 340-6190
or such other address as any party may have furnished in writing to the other
parties.
<PAGE>
5.3 ENTIRE AND SOLE AGREEMENT. The making, execution and delivery of
---------------------------
this Shareholder Agreement by the parties hereto have not been induced by any
representations, statements, warranties or agreements other than those expressed
herein and in the Agreement. This Shareholder Agreement and the Agreement
embody the entire understanding of the parties, and there are no further or
other agreements or understandings, whether written or oral, in effect among the
parties relating to the subject matter hereof, unless expressly referred to by
reference herein.
5.4 SUCCESSORS AND ASSIGNS. Except as otherwise provided in this
------------------------
Shareholder Agreement, all covenants and agreements of the parties contained in
this Shareholder Agreement shall be binding upon and inure to the benefit of the
respective successors and assigns of the parties hereto.
5.5 GOVERNING LAW. This Shareholder Agreement shall be construed and
--------------
enforced in accordance with and governed by the laws of the State of California.
Each party hereto hereby submits to the jurisdiction of the courts of the County
of Santa Barbara for the purpose of any suit, action or other proceeding arising
out of such party's obligations under or with respect to this Agreement.
5.6 COUNTERPARTS. This Shareholder Agreement may be executed
------------
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
5.7 AMENDMENT, SUPPLEMENT AND WAIVER. This Shareholder Agreement may
----------------------------------
be amended or supplemented, and compliance with the provisions hereof may be
waived only by an instrument in writing signed by the party against which
enforcement of such amendment, supplement or waiver of compliance is sought.
5.8 HEADINGS. The headings in this Shareholder Agreement are for
--------
purposes of reference only and shall not limit or otherwise affect the meaning
hereof.
5.9 SPECIFIC PERFORMANCE. It is recognized and agreed that monetary
---------------------
damages will not compensate the parties hereto for nonperformance by any party.
Accordingly, each party agrees that his or her obligation shall be enforceable
by a court order requiring specific performance.
5.10 SEVERAL OBLIGATIONS. All duties and obligations of the
--------------------
Shareholder executing this Shareholder Agreement shall be several and not joint
with the duties and obligations of other Shareholders executing similar
Shareholder Agreements with Community West.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Shareholder
Agreement to be duly executed as of the date first above written.
SHAREHOLDER COMMUNITY WEST BANCSHARES
James M. Rady By: /s/ Llewellyn W. Stone
- -------------------- -------------------------
(Name) Llewellyn W. Stone
Its: President and Chief Executive Officer
/s/ James M. Rady
- --------------------
(Signature)
<PAGE>
SCHEDULE 1
NAME OF SHAREHOLDER: James M. Rady
---------------
ADDRESS OF SHAREHOLDER: 1445 Country Club Ln.
------------------------
Escondido, CA 92026
---------------------
CERTIFICATE NUMBER NUMBER OF SHARES REGISTERED OWNER(S)
- ------------------- ------------------ --------------------
27,615 James M. Rady and
Julie McKay and
Kara L. Wilson
DESCRIBE ANY LIENS:
- ---------------------
None
<PAGE>
EXHIBIT 9.16
SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT (this "Shareholder Agreement"), is made as
of this ____ day of April, 1998, by and among Community West Bancshares, a
California corporation ("Community West"), and the shareholder of Palomar
Savings & Loan Association, a California state chartered savings and loan
association ("Palomar") whose name is set forth under "Shareholder" on the
signature page hereof (the "Shareholder"). Community West is contemporaneously
herewith entering into agreements with other shareholders of Palomar, which
agreements are identical in all respects hereto, except as to (a) the number of
shares of Palomar's common stock, $4.00 par value (the "Palomar Common Stock")
owned by such other shareholders, and (b) the name and address of the other
shareholders. The Shareholder and such other persons shall hereinafter be
referred to as to the Shareholders and this Agreement and such other agreements
as "Shareholder Agreements." This Shareholder Agreement is made with reference
to the following:
RECITALS
--------
WHEREAS, that certain Agreement and Plan of Reorganization (the
"Agreement"), dated as of April __, 1998, entered into by and among Community
West and Palomar, provides for the acquisition by Community West of one hundred
percent (100%) of the Palomar Common Stock, through the merger (the "Merger") of
Palomar with a merger corporation which shall be a wholly-owned subsidiary of
Community West ("CWB Merger Corp"); and
WHEREAS, as a condition precedent to the obligations of Community West and
Palomar under the Agreement, the Shareholder and all the Shareholders shall have
entered into Shareholder Agreements concurrent with the execution of the
Agreement in accordance with the terms, conditions, and provisions thereof;
NOW, THEREFORE, in order to effectuate the transactions set forth above and
in consideration of the mutual covenants, conditions, agreements,
representations and warranties contained herein and in the Agreement, and
intending to be legally bound, the parties hereto agree as follows:
AGREEMENT
---------
ARTICLE I
COVENANTS OF SHAREHOLDER
------------------------
1.1 VOTE OF SHAREHOLDERS. At the meeting of shareholders of Palomar
-----------------------
referred to in Section 7.1 of the Agreement (the "Meeting"), the Shareholder
shall vote or cause to be voted the shares of Palomar Common Stock indicated as
owned or controlled by such Shareholder on Schedule I attached hereto, and any
other shares of Palomar Common Stock now owned or hereafter acquired or
controlled by such Shareholder, in favor of, and to approve the principal terms
of, the Merger and any other matter contemplated by the Agreement which requires
the approval of the shareholders of Palomar.
<PAGE>
1.2 OTHER CONTRACTS. From and after the date of this Shareholder
-----------------
Agreement, the Shareholder shall not enter into or become subject to any
agreement or commitment which would restrict or in any way impair the obligation
of the Shareholder to comply with all the terms of this Shareholder Agreement,
including, without limitation, any other agreement to sell, transfer or
otherwise dispose of the Shareholder shares of Palomar Common Stock.
1.3 UPDATING INFORMATION. In the event that the Shareholder shall
----------------------
discover that any representation or warranty made herein by him/her was false or
misleading in any material respect when made or that any event has occurred such
that any representation or warranty of the Shareholder made herein would, if
made at and as of the time of the occurrence of such event, or thereafter, be
incorrect in any material respect, the Shareholder shall deliver to Community
West a statement specifying that it is delivered pursuant to this Section 1.3
and stating in reasonable detail the facts with respect thereto. Delivery of
any such statement shall not limit any rights which Community West may otherwise
have under this Shareholder Agreement.
1.4 AGREEMENT TO RECOMMEND. The Shareholder agrees that, upon the
-------------------------
execution of this Shareholder Agreement, he/she shall at all times use his/her
best efforts in order to obtain the approval of the shareholders of Palomar of
the principal terms of the Merger and any other matter contemplated by the
Agreement which requires approval of the shareholders of Palomar and shall
recommend the approval of such matters by the shareholders of Palomar at the
Meeting.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
------------------------------
OF SHAREHOLDER
--------------
2.1 REPRESENTATIONS AND WARRANTIES OF DIRECTOR. The Shareholder
----------------------------------------------
represents and warrants to, and agrees with, Community West as follows:
(a) CAPACITY. The Shareholder has all requisite capacity to enter
--------
into and to perform the Shareholder's obligations under this Shareholder
Agreement.
(b) AGREEMENT. The Shareholder has received a copy of the
---------
Agreement and has had the opportunity to review and to consider the terms and
conditions contained in this Shareholder Agreement and in the Agreement and to
confer with his or her counsel concerning said terms and conditions.
(c) BINDING AGREEMENT. This Shareholder Agreement has been duly
------------------
executed and delivered by such Shareholder and constitutes a valid and legally
binding agreement of such Shareholder.
<PAGE>
(d) OWNERSHIP OF SHARES, ETC. Schedule I hereto correctly sets
---------------------------
forth the number of shares of Palomar Common Stock owned by the Shareholder or
with respect to which such Shareholder has sole or shared voting power, and the
Shareholder has good and marketable title to all such shares of Palomar Common
Stock free and clear of any liens, security interests, charges or other
encumbrances of any kind or nature except as set forth on Schedule I.
(e) RELATIONSHIP WITH PALOMAR. The Shareholder is a director or
---------------------------
executive officer of Palomar.
(f) NON-CONTRAVENTION. The execution and delivery of this
-----------------
Agreement by the Shareholder does not, and the performance by the Shareholder of
the Shareholder's obligations hereunder and the consummation by the Shareholder
of the transactions contemplated hereby will not, violate or conflict with or
constitute a default under any agreement, instrument, contract or other
obligation or any order, arbitration award, judgment or decree to which the
Shareholder is a party or by which the Shareholder is bound, or any statute,
rule or regulation to which the Shareholder or any of the Shareholder's property
is subject.
ARTICLE III
DISCLOSURE AND TRADING
----------------------
The Shareholder hereby covenants and agrees that upon receipt of the
disclosure of a Strategic Transaction Proposal or a Community West Acquisition
Transaction (as those terms are defined in the Agreement), Shareholder shall
maintain the confidentiality of all non-public information regarding the
Strategic Transaction Proposal or the Community West Acquisition Transaction to
the same extent required by the parties to any such transaction under the terms
of any confidentiality agreement to which those parties are bound and to refrain
from trading in securities of Community West, Palomar, any subsidiary thereof or
any other party to the Strategic Transaction Proposal or Community West
Acquisition Transaction until the earlier of: (i) full public disclosure of such
non-public information has been made and trading in the subject securities would
not be a violation of applicable securities laws, or (ii) the Strategic
Transaction Proposal or Community West Acquisition Transaction has been
terminated or has expired by its terms and disclosure of such non-public
information is permitted under the terms of any agreement regarding the
transaction and trading in the subject securities would not be a violation of
applicable securities laws.
ARTICLE IV
TERMINATION
-----------
TERMINATION. This Shareholder Agreement shall automatically terminate and
-----------
be of no further force or effect if the Agreement is terminated in accordance
with the terms thereof, except as to any breach of this Shareholder Agreement by
the Shareholder occurring prior to the date of such termination. The
representations and warranties set forth in Article II and the covenants and
agreements of Articles III and V hereof shall survive the termination of this
Shareholder Agreement and the Closing.
<PAGE>
ARTICLE V
MISCELLANEOUS
-------------
5.1 EXPENSES. Each party hereto shall pay its own costs and expenses
--------
in connection with this Shareholder Agreement and the transactions covered and
contemplated hereby; provided, however, that nothing contained herein shall
preclude the payment of the Shareholder's expenses in connection with the
negotiation and documentation of this Shareholder's Agreement by Palomar.
5.2 NOTICES, ETC. All communications required or permitted to be
-------------
given hereunder shall be in writing and shall be deemed to have been duly given
to the appropriate parties if delivered in person (professional carrier
acceptable) or by United States mail, certified and with return receipt
requested, or otherwise actually delivered:
(a) If to the Shareholder, to the address set forth on Schedule I
attached hereto.
With a copy to:
Palomar Savings & Loan Association
355 West Grand Avenue
Escondido, California 92025
Attn: Mr. James M. Rady
With a copy to: Higgs, Fletcher & Mack, LLP
401 West A Street, Suite 2000
San Diego, California 92101
Attn: Kurt L. Kicklighter, Esq.
(b) If to Community West
Community West Bancshares
5827 Hollister Avenue
Goleta, California 93117
Attn: Llewellyn W. Stone
President and Chief Executive Officer
With a copy to: Horgan, Rosen, Beckham & Coren, LLP
21700 Oxnard Street, Suite 1400
Los Angeles, California 91365
Attn: Arthur A. Coren, Professional Corporation
FAX: (818) 340-6190
or such other address as any party may have furnished in writing to the other
parties.
<PAGE>
5.3 ENTIRE AND SOLE AGREEMENT. The making, execution and delivery of
---------------------------
this Shareholder Agreement by the parties hereto have not been induced by any
representations, statements, warranties or agreements other than those expressed
herein and in the Agreement. This Shareholder Agreement and the Agreement
embody the entire understanding of the parties, and there are no further or
other agreements or understandings, whether written or oral, in effect among the
parties relating to the subject matter hereof, unless expressly referred to by
reference herein.
5.4 SUCCESSORS AND ASSIGNS. Except as otherwise provided in this
------------------------
Shareholder Agreement, all covenants and agreements of the parties contained in
this Shareholder Agreement shall be binding upon and inure to the benefit of the
respective successors and assigns of the parties hereto.
5.5 GOVERNING LAW. This Shareholder Agreement shall be construed and
--------------
enforced in accordance with and governed by the laws of the State of California.
Each party hereto hereby submits to the jurisdiction of the courts of the County
of Santa Barbara for the purpose of any suit, action or other proceeding arising
out of such party's obligations under or with respect to this Agreement.
5.6 COUNTERPARTS. This Shareholder Agreement may be executed
------------
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
5.7 AMENDMENT, SUPPLEMENT AND WAIVER. This Shareholder Agreement may
----------------------------------
be amended or supplemented, and compliance with the provisions hereof may be
waived only by an instrument in writing signed by the party against which
enforcement of such amendment, supplement or waiver of compliance is sought.
5.8 HEADINGS. The headings in this Shareholder Agreement are for
--------
purposes of reference only and shall not limit or otherwise affect the meaning
hereof.
5.9 SPECIFIC PERFORMANCE. It is recognized and agreed that monetary
---------------------
damages will not compensate the parties hereto for nonperformance by any party.
Accordingly, each party agrees that his or her obligation shall be enforceable
by a court order requiring specific performance.
5.10 SEVERAL OBLIGATIONS. All duties and obligations of the
--------------------
Shareholder executing this Shareholder Agreement shall be several and not joint
with the duties and obligations of other Shareholders executing similar
Shareholder Agreements with Community West.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Shareholder
Agreement to be duly executed as of the date first above written.
SHAREHOLDER COMMUNITY WEST BANCSHARES
Timothy S. Thomas By: /s/ Llewellyn W. Stone
- ------------------------ -------------------------
(Name) Llewellyn W. Stone
Its: President and Chief Executive Officer
/s/ Timothy S. Thomas
- ------------------------
(Signature)
<PAGE>
SCHEDULE 1
NAME OF SHAREHOLDER: Timothy S. Thomas
-------------------
ADDRESS OF SHAREHOLDER: 28828 Vista Valley Drive
---------------------------
Vista, CA 92084
-----------------
CERTIFICATE NUMBER NUMBER OF SHARES REGISTERED OWNER(S)
- ------------------- ------------------ --------------------
1,912 Timothy S. Thomas
1,935 Timothy S. Thomas &
Margaretha C.H. Thomas
DESCRIBE ANY LIENS:
- ---------------------
None
<PAGE>
EXHIBIT 9.17
SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT (this "Shareholder Agreement"), is made as
of this ____ day of April, 1998, by and among Community West Bancshares, a
California corporation ("Community West"), and the shareholder of Palomar
Savings & Loan Association, a California state chartered savings and loan
association ("Palomar") whose name is set forth under "Shareholder" on the
signature page hereof (the "Shareholder"). Community West is contemporaneously
herewith entering into agreements with other shareholders of Palomar, which
agreements are identical in all respects hereto, except as to (a) the number of
shares of Palomar's common stock, $4.00 par value (the "Palomar Common Stock")
owned by such other shareholders, and (b) the name and address of the other
shareholders. The Shareholder and such other persons shall hereinafter be
referred to as to the Shareholders and this Agreement and such other agreements
as "Shareholder Agreements." This Shareholder Agreement is made with reference
to the following:
RECITALS
--------
WHEREAS, that certain Agreement and Plan of Reorganization (the
"Agreement"), dated as of April __, 1998, entered into by and among Community
West and Palomar, provides for the acquisition by Community West of one hundred
percent (100%) of the Palomar Common Stock, through the merger (the "Merger") of
Palomar with a merger corporation which shall be a wholly-owned subsidiary of
Community West ("CWB Merger Corp"); and
WHEREAS, as a condition precedent to the obligations of Community West and
Palomar under the Agreement, the Shareholder and all the Shareholders shall have
entered into Shareholder Agreements concurrent with the execution of the
Agreement in accordance with the terms, conditions, and provisions thereof;
NOW, THEREFORE, in order to effectuate the transactions set forth above and
in consideration of the mutual covenants, conditions, agreements,
representations and warranties contained herein and in the Agreement, and
intending to be legally bound, the parties hereto agree as follows:
AGREEMENT
---------
ARTICLE I
COVENANTS OF SHAREHOLDER
------------------------
1.1 VOTE OF SHAREHOLDERS. At the meeting of shareholders of Palomar
-----------------------
referred to in Section 7.1 of the Agreement (the "Meeting"), the Shareholder
shall vote or cause to be voted the shares of Palomar Common Stock indicated as
owned or controlled by such Shareholder on Schedule I attached hereto, and any
other shares of Palomar Common Stock now owned or hereafter acquired or
controlled by such Shareholder, in favor of, and to approve the principal terms
of, the Merger and any other matter contemplated by the Agreement which requires
the approval of the shareholders of Palomar.
<PAGE>
1.2 OTHER CONTRACTS. From and after the date of this Shareholder
-----------------
Agreement, the Shareholder shall not enter into or become subject to any
agreement or commitment which would restrict or in any way impair the obligation
of the Shareholder to comply with all the terms of this Shareholder Agreement,
including, without limitation, any other agreement to sell, transfer or
otherwise dispose of the Shareholder shares of Palomar Common Stock.
1.3 UPDATING INFORMATION. In the event that the Shareholder shall
----------------------
discover that any representation or warranty made herein by him/her was false or
misleading in any material respect when made or that any event has occurred such
that any representation or warranty of the Shareholder made herein would, if
made at and as of the time of the occurrence of such event, or thereafter, be
incorrect in any material respect, the Shareholder shall deliver to Community
West a statement specifying that it is delivered pursuant to this Section 1.3
and stating in reasonable detail the facts with respect thereto. Delivery of
any such statement shall not limit any rights which Community West may otherwise
have under this Shareholder Agreement.
1.4 AGREEMENT TO RECOMMEND. The Shareholder agrees that, upon the
-------------------------
execution of this Shareholder Agreement, he/she shall at all times use his/her
best efforts in order to obtain the approval of the shareholders of Palomar of
the principal terms of the Merger and any other matter contemplated by the
Agreement which requires approval of the shareholders of Palomar and shall
recommend the approval of such matters by the shareholders of Palomar at the
Meeting.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
------------------------------
OF SHAREHOLDER
--------------
2.1 REPRESENTATIONS AND WARRANTIES OF DIRECTOR. The Shareholder
----------------------------------------------
represents and warrants to, and agrees with, Community West as follows:
(a) CAPACITY. The Shareholder has all requisite capacity to enter
--------
into and to perform the Shareholder's obligations under this Shareholder
Agreement.
(b) AGREEMENT. The Shareholder has received a copy of the
---------
Agreement and has had the opportunity to review and to consider the terms and
conditions contained in this Shareholder Agreement and in the Agreement and to
confer with his or her counsel concerning said terms and conditions.
(c) BINDING AGREEMENT. This Shareholder Agreement has been duly
------------------
executed and delivered by such Shareholder and constitutes a valid and legally
binding agreement of such Shareholder.
<PAGE>
(d) OWNERSHIP OF SHARES, ETC. Schedule I hereto correctly sets
---------------------------
forth the number of shares of Palomar Common Stock owned by the Shareholder or
with respect to which such Shareholder has sole or shared voting power, and the
Shareholder has good and marketable title to all such shares of Palomar Common
Stock free and clear of any liens, security interests, charges or other
encumbrances of any kind or nature except as set forth on Schedule I.
(e) RELATIONSHIP WITH PALOMAR. The Shareholder is a director or
---------------------------
executive officer of Palomar.
(f) NON-CONTRAVENTION. The execution and delivery of this
-----------------
Agreement by the Shareholder does not, and the performance by the Shareholder of
the Shareholder's obligations hereunder and the consummation by the Shareholder
of the transactions contemplated hereby will not, violate or conflict with or
constitute a default under any agreement, instrument, contract or other
obligation or any order, arbitration award, judgment or decree to which the
Shareholder is a party or by which the Shareholder is bound, or any statute,
rule or regulation to which the Shareholder or any of the Shareholder's property
is subject.
ARTICLE III
DISCLOSURE AND TRADING
----------------------
The Shareholder hereby covenants and agrees that upon receipt of the
disclosure of a Strategic Transaction Proposal or a Community West Acquisition
Transaction (as those terms are defined in the Agreement), Shareholder shall
maintain the confidentiality of all non-public information regarding the
Strategic Transaction Proposal or the Community West Acquisition Transaction to
the same extent required by the parties to any such transaction under the terms
of any confidentiality agreement to which those parties are bound and to refrain
from trading in securities of Community West, Palomar, any subsidiary thereof or
any other party to the Strategic Transaction Proposal or Community West
Acquisition Transaction until the earlier of: (i) full public disclosure of such
non-public information has been made and trading in the subject securities would
not be a violation of applicable securities laws, or (ii) the Strategic
Transaction Proposal or Community West Acquisition Transaction has been
terminated or has expired by its terms and disclosure of such non-public
information is permitted under the terms of any agreement regarding the
transaction and trading in the subject securities would not be a violation of
applicable securities laws.
ARTICLE IV
TERMINATION
-----------
TERMINATION. This Shareholder Agreement shall automatically terminate and
-----------
be of no further force or effect if the Agreement is terminated in accordance
with the terms thereof, except as to any breach of this Shareholder Agreement by
the Shareholder occurring prior to the date of such termination. The
representations and warranties set forth in Article II and the covenants and
agreements of Articles III and V hereof shall survive the termination of this
Shareholder Agreement and the Closing.
<PAGE>
ARTICLE V
MISCELLANEOUS
-------------
5.1 EXPENSES. Each party hereto shall pay its own costs and expenses
--------
in connection with this Shareholder Agreement and the transactions covered and
contemplated hereby; provided, however, that nothing contained herein shall
preclude the payment of the Shareholder's expenses in connection with the
negotiation and documentation of this Shareholder's Agreement by Palomar.
5.2 NOTICES, ETC. All communications required or permitted to be
-------------
given hereunder shall be in writing and shall be deemed to have been duly given
to the appropriate parties if delivered in person (professional carrier
acceptable) or by United States mail, certified and with return receipt
requested, or otherwise actually delivered:
(a) If to the Shareholder, to the address set forth on Schedule I
attached hereto.
With a copy to:
Palomar Savings & Loan Association
355 West Grand Avenue
Escondido, California 92025
Attn: Mr. James M. Rady
With a copy to: Higgs, Fletcher & Mack, LLP
401 West A Street, Suite 2000
San Diego, California 92101
Attn: Kurt L. Kicklighter, Esq.
(b) If to Community West
Community West Bancshares
5827 Hollister Avenue
Goleta, California 93117
Attn: Llewellyn W. Stone
President and Chief Executive Officer
With a copy to: Horgan, Rosen, Beckham & Coren, LLP
21700 Oxnard Street, Suite 1400
Los Angeles, California 91365
Attn: Arthur A. Coren, Professional Corporation
FAX: (818) 340-6190
or such other address as any party may have furnished in writing to the other
parties.
<PAGE>
5.3 ENTIRE AND SOLE AGREEMENT. The making, execution and delivery of
---------------------------
this Shareholder Agreement by the parties hereto have not been induced by any
representations, statements, warranties or agreements other than those expressed
herein and in the Agreement. This Shareholder Agreement and the Agreement
embody the entire understanding of the parties, and there are no further or
other agreements or understandings, whether written or oral, in effect among the
parties relating to the subject matter hereof, unless expressly referred to by
reference herein.
5.4 SUCCESSORS AND ASSIGNS. Except as otherwise provided in this
------------------------
Shareholder Agreement, all covenants and agreements of the parties contained in
this Shareholder Agreement shall be binding upon and inure to the benefit of the
respective successors and assigns of the parties hereto.
5.5 GOVERNING LAW. This Shareholder Agreement shall be construed and
--------------
enforced in accordance with and governed by the laws of the State of California.
Each party hereto hereby submits to the jurisdiction of the courts of the County
of Santa Barbara for the purpose of any suit, action or other proceeding arising
out of such party's obligations under or with respect to this Agreement.
5.6 COUNTERPARTS. This Shareholder Agreement may be executed
------------
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
5.7 AMENDMENT, SUPPLEMENT AND WAIVER. This Shareholder Agreement may
----------------------------------
be amended or supplemented, and compliance with the provisions hereof may be
waived only by an instrument in writing signed by the party against which
enforcement of such amendment, supplement or waiver of compliance is sought.
5.8 HEADINGS. The headings in this Shareholder Agreement are for
--------
purposes of reference only and shall not limit or otherwise affect the meaning
hereof.
5.9 SPECIFIC PERFORMANCE. It is recognized and agreed that monetary
---------------------
damages will not compensate the parties hereto for nonperformance by any party.
Accordingly, each party agrees that his or her obligation shall be enforceable
by a court order requiring specific performance.
5.10 SEVERAL OBLIGATIONS. All duties and obligations of the
--------------------
Shareholder executing this Shareholder Agreement shall be several and not joint
with the duties and obligations of other Shareholders executing similar
Shareholder Agreements with Community West.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Shareholder
Agreement to be duly executed as of the date first above written.
SHAREHOLDER COMMUNITY WEST BANCSHARES
Ralph O. Vasquez By: /s/ Llewellyn W. Stone
- ----------------------- -------------------------
(Name) Llewellyn W. Stone
Its: President and Chief Executive Officer
/s/ Ralph O. Vasquez
- -----------------------
(Signature)
<PAGE>
SCHEDULE 1
NAME OF SHAREHOLDER: Ralph Ortiz Vasquez
---------------------
ADDRESS OF SHAREHOLDER: P.O. Box 793
--------------
Escondido, CA 92025
---------------------
CERTIFICATE NUMBER NUMBER OF SHARES REGISTERED OWNER(S)
- ------------------- ------------------ --------------------
132 Ralph Ortiz Vasquez
DESCRIBE ANY LIENS:
- ---------------------
NONE
<PAGE>
EXHIBIT 9.18
SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT (this "Shareholder Agreement"), is made as
of this ____ day of April, 1998, by and among Community West Bancshares, a
California corporation ("Community West"), and the shareholder of Palomar
Savings & Loan Association, a California state chartered savings and loan
association ("Palomar") whose name is set forth under "Shareholder" on the
signature page hereof (the "Shareholder"). Community West is contemporaneously
herewith entering into agreements with other shareholders of Palomar, which
agreements are identical in all respects hereto, except as to (a) the number of
shares of Palomar's common stock, $4.00 par value (the "Palomar Common Stock")
owned by such other shareholders, and (b) the name and address of the other
shareholders. The Shareholder and such other persons shall hereinafter be
referred to as to the Shareholders and this Agreement and such other agreements
as "Shareholder Agreements." This Shareholder Agreement is made with reference
to the following:
RECITALS
--------
WHEREAS, that certain Agreement and Plan of Reorganization (the
"Agreement"), dated as of April __, 1998, entered into by and among Community
West and Palomar, provides for the acquisition by Community West of one hundred
percent (100%) of the Palomar Common Stock, through the merger (the "Merger") of
Palomar with a merger corporation which shall be a wholly-owned subsidiary of
Community West ("CWB Merger Corp"); and
WHEREAS, as a condition precedent to the obligations of Community West and
Palomar under the Agreement, the Shareholder and all the Shareholders shall have
entered into Shareholder Agreements concurrent with the execution of the
Agreement in accordance with the terms, conditions, and provisions thereof;
NOW, THEREFORE, in order to effectuate the transactions set forth above and
in consideration of the mutual covenants, conditions, agreements,
representations and warranties contained herein and in the Agreement, and
intending to be legally bound, the parties hereto agree as follows:
AGREEMENT
---------
ARTICLE I
COVENANTS OF SHAREHOLDER
------------------------
1.1 VOTE OF SHAREHOLDERS. At the meeting of shareholders of Palomar
-----------------------
referred to in Section 7.1 of the Agreement (the "Meeting"), the Shareholder
shall vote or cause to be voted the shares of Palomar Common Stock indicated as
owned or controlled by such Shareholder on Schedule I attached hereto, and any
other shares of Palomar Common Stock now owned or hereafter acquired or
controlled by such Shareholder, in favor of, and to approve the principal terms
of, the Merger and any other matter contemplated by the Agreement which requires
the approval of the shareholders of Palomar.
<PAGE>
1.2 OTHER CONTRACTS. From and after the date of this Shareholder
-----------------
Agreement, the Shareholder shall not enter into or become subject to any
agreement or commitment which would restrict or in any way impair the obligation
of the Shareholder to comply with all the terms of this Shareholder Agreement,
including, without limitation, any other agreement to sell, transfer or
otherwise dispose of the Shareholder shares of Palomar Common Stock.
1.3 UPDATING INFORMATION. In the event that the Shareholder shall
----------------------
discover that any representation or warranty made herein by him/her was false or
misleading in any material respect when made or that any event has occurred such
that any representation or warranty of the Shareholder made herein would, if
made at and as of the time of the occurrence of such event, or thereafter, be
incorrect in any material respect, the Shareholder shall deliver to Community
West a statement specifying that it is delivered pursuant to this Section 1.3
and stating in reasonable detail the facts with respect thereto. Delivery of
any such statement shall not limit any rights which Community West may otherwise
have under this Shareholder Agreement.
1.4 AGREEMENT TO RECOMMEND. The Shareholder agrees that, upon the
-------------------------
execution of this Shareholder Agreement, he/she shall at all times use his/her
best efforts in order to obtain the approval of the shareholders of Palomar of
the principal terms of the Merger and any other matter contemplated by the
Agreement which requires approval of the shareholders of Palomar and shall
recommend the approval of such matters by the shareholders of Palomar at the
Meeting.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
------------------------------
OF SHAREHOLDER
--------------
2.1 REPRESENTATIONS AND WARRANTIES OF DIRECTOR. The Shareholder
----------------------------------------------
represents and warrants to, and agrees with, Community West as follows:
(a) CAPACITY. The Shareholder has all requisite capacity to enter
--------
into and to perform the Shareholder's obligations under this Shareholder
Agreement.
(b) AGREEMENT. The Shareholder has received a copy of the
---------
Agreement and has had the opportunity to review and to consider the terms and
conditions contained in this Shareholder Agreement and in the Agreement and to
confer with his or her counsel concerning said terms and conditions.
(c) BINDING AGREEMENT. This Shareholder Agreement has been duly
------------------
executed and delivered by such Shareholder and constitutes a valid and legally
binding agreement of such Shareholder.
<PAGE>
(d) OWNERSHIP OF SHARES, ETC. Schedule I hereto correctly sets
---------------------------
forth the number of shares of Palomar Common Stock owned by the Shareholder or
with respect to which such Shareholder has sole or shared voting power, and the
Shareholder has good and marketable title to all such shares of Palomar Common
Stock free and clear of any liens, security interests, charges or other
encumbrances of any kind or nature except as set forth on Schedule I.
(e) RELATIONSHIP WITH PALOMAR. The Shareholder is a director or
---------------------------
executive officer of Palomar.
(f) NON-CONTRAVENTION. The execution and delivery of this
-----------------
Agreement by the Shareholder does not, and the performance by the Shareholder of
the Shareholder's obligations hereunder and the consummation by the Shareholder
of the transactions contemplated hereby will not, violate or conflict with or
constitute a default under any agreement, instrument, contract or other
obligation or any order, arbitration award, judgment or decree to which the
Shareholder is a party or by which the Shareholder is bound, or any statute,
rule or regulation to which the Shareholder or any of the Shareholder's property
is subject.
ARTICLE III
DISCLOSURE AND TRADING
----------------------
The Shareholder hereby covenants and agrees that upon receipt of the
disclosure of a Strategic Transaction Proposal or a Community West Acquisition
Transaction (as those terms are defined in the Agreement), Shareholder shall
maintain the confidentiality of all non-public information regarding the
Strategic Transaction Proposal or the Community West Acquisition Transaction to
the same extent required by the parties to any such transaction under the terms
of any confidentiality agreement to which those parties are bound and to refrain
from trading in securities of Community West, Palomar, any subsidiary thereof or
any other party to the Strategic Transaction Proposal or Community West
Acquisition Transaction until the earlier of: (i) full public disclosure of such
non-public information has been made and trading in the subject securities would
not be a violation of applicable securities laws, or (ii) the Strategic
Transaction Proposal or Community West Acquisition Transaction has been
terminated or has expired by its terms and disclosure of such non-public
information is permitted under the terms of any agreement regarding the
transaction and trading in the subject securities would not be a violation of
applicable securities laws.
ARTICLE IV
TERMINATION
-----------
TERMINATION. This Shareholder Agreement shall automatically terminate and
-----------
be of no further force or effect if the Agreement is terminated in accordance
with the terms thereof, except as to any breach of this Shareholder Agreement by
the Shareholder occurring prior to the date of such termination. The
representations and warranties set forth in Article II and the covenants and
agreements of Articles III and V hereof shall survive the termination of this
Shareholder Agreement and the Closing.
<PAGE>
ARTICLE V
MISCELLANEOUS
-------------
5.1 EXPENSES. Each party hereto shall pay its own costs and expenses
--------
in connection with this Shareholder Agreement and the transactions covered and
contemplated hereby; provided, however, that nothing contained herein shall
preclude the payment of the Shareholder's expenses in connection with the
negotiation and documentation of this Shareholder's Agreement by Palomar.
5.2 NOTICES, ETC. All communications required or permitted to be
-------------
given hereunder shall be in writing and shall be deemed to have been duly given
to the appropriate parties if delivered in person (professional carrier
acceptable) or by United States mail, certified and with return receipt
requested, or otherwise actually delivered:
(a) If to the Shareholder, to the address set forth on Schedule I
attached hereto.
With a copy to:
Palomar Savings & Loan Association
355 West Grand Avenue
Escondido, California 92025
Attn: Mr. James M. Rady
With a copy to: Higgs, Fletcher & Mack, LLP
401 West A Street, Suite 2000
San Diego, California 92101
Attn: Kurt L. Kicklighter, Esq.
(b) If to Community West
Community West Bancshares
5827 Hollister Avenue
Goleta, California 93117
Attn: Llewellyn W. Stone
President and Chief Executive Officer
With a copy to: Horgan, Rosen, Beckham & Coren, LLP
21700 Oxnard Street, Suite 1400
Los Angeles, California 91365
Attn: Arthur A. Coren, Professional Corporation
FAX: (818) 340-6190
or such other address as any party may have furnished in writing to the other
parties.
<PAGE>
5.3 ENTIRE AND SOLE AGREEMENT. The making, execution and delivery of
---------------------------
this Shareholder Agreement by the parties hereto have not been induced by any
representations, statements, warranties or agreements other than those expressed
herein and in the Agreement. This Shareholder Agreement and the Agreement
embody the entire understanding of the parties, and there are no further or
other agreements or understandings, whether written or oral, in effect among the
parties relating to the subject matter hereof, unless expressly referred to by
reference herein.
5.4 SUCCESSORS AND ASSIGNS. Except as otherwise provided in this
------------------------
Shareholder Agreement, all covenants and agreements of the parties contained in
this Shareholder Agreement shall be binding upon and inure to the benefit of the
respective successors and assigns of the parties hereto.
5.5 GOVERNING LAW. This Shareholder Agreement shall be construed and
--------------
enforced in accordance with and governed by the laws of the State of California.
Each party hereto hereby submits to the jurisdiction of the courts of the County
of Santa Barbara for the purpose of any suit, action or other proceeding arising
out of such party's obligations under or with respect to this Agreement.
5.6 COUNTERPARTS. This Shareholder Agreement may be executed
------------
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
5.7 AMENDMENT, SUPPLEMENT AND WAIVER. This Shareholder Agreement may
----------------------------------
be amended or supplemented, and compliance with the provisions hereof may be
waived only by an instrument in writing signed by the party against which
enforcement of such amendment, supplement or waiver of compliance is sought.
5.8 HEADINGS. The headings in this Shareholder Agreement are for
--------
purposes of reference only and shall not limit or otherwise affect the meaning
hereof.
5.9 SPECIFIC PERFORMANCE. It is recognized and agreed that monetary
---------------------
damages will not compensate the parties hereto for nonperformance by any party.
Accordingly, each party agrees that his or her obligation shall be enforceable
by a court order requiring specific performance.
5.10 SEVERAL OBLIGATIONS. All duties and obligations of the
--------------------
Shareholder executing this Shareholder Agreement shall be several and not joint
with the duties and obligations of other Shareholders executing similar
Shareholder Agreements with Community West.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Shareholder
Agreement to be duly executed as of the date first above written.
SHAREHOLDER COMMUNITY WEST BANCSHARES
Robert A. Wedeking By: /s/ Llewellyn W. Stone
- ------------------------- -------------------------
(Name) Llewellyn W. Stone
Its: President and Chief Executive Officer
/s/ Robert A. Wedeking
- -------------------------
(Signature)
<PAGE>
SCHEDULE 1
NAME OF SHAREHOLDER: Robert A. Wedeking
--------------------
ADDRESS OF SHAREHOLDER: 1666 Lotus Glen
-----------------
Escondido, CA 92026
---------------------
CERTIFICATE NUMBER NUMBER OF SHARES REGISTERED OWNER(S)
- ------------------- ------------------ --------------------
24,119 Robert A. Wedeking &
Esta Mae Wedeking TR UA DT
6/18/92 The Robert A. Wedeking
Family Trust
DESCRIBE ANY LIENS:
- ---------------------
NONE
<PAGE>
EXHIBIT 9.19
SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT (this "Shareholder Agreement"), is made as
of this ____ day of April, 1998, by and among Community West Bancshares, a
California corporation ("Community West"), and the shareholder of Palomar
Savings & Loan Association, a California state chartered savings and loan
association ("Palomar") whose name is set forth under "Shareholder" on the
signature page hereof (the "Shareholder"). Community West is contemporaneously
herewith entering into agreements with other shareholders of Palomar, which
agreements are identical in all respects hereto, except as to (a) the number of
shares of Palomar's common stock, $4.00 par value (the "Palomar Common Stock")
owned by such other shareholders, and (b) the name and address of the other
shareholders. The Shareholder and such other persons shall hereinafter be
referred to as to the Shareholders and this Agreement and such other agreements
as "Shareholder Agreements." This Shareholder Agreement is made with reference
to the following:
RECITALS
--------
WHEREAS, that certain Agreement and Plan of Reorganization (the
"Agreement"), dated as of April __, 1998, entered into by and among Community
West and Palomar, provides for the acquisition by Community West of one hundred
percent (100%) of the Palomar Common Stock, through the merger (the "Merger") of
Palomar with a merger corporation which shall be a wholly-owned subsidiary of
Community West ("CWB Merger Corp"); and
WHEREAS, as a condition precedent to the obligations of Community West and
Palomar under the Agreement, the Shareholder and all the Shareholders shall have
entered into Shareholder Agreements concurrent with the execution of the
Agreement in accordance with the terms, conditions, and provisions thereof;
NOW, THEREFORE, in order to effectuate the transactions set forth above and
in consideration of the mutual covenants, conditions, agreements,
representations and warranties contained herein and in the Agreement, and
intending to be legally bound, the parties hereto agree as follows:
AGREEMENT
---------
ARTICLE I
COVENANTS OF SHAREHOLDER
------------------------
1.1 VOTE OF SHAREHOLDERS. At the meeting of shareholders of Palomar
-----------------------
referred to in Section 7.1 of the Agreement (the "Meeting"), the Shareholder
shall vote or cause to be voted the shares of Palomar Common Stock indicated as
owned or controlled by such Shareholder on Schedule I attached hereto, and any
other shares of Palomar Common Stock now owned or hereafter acquired or
controlled by such Shareholder, in favor of, and to approve the principal terms
of, the Merger and any other matter contemplated by the Agreement which requires
the approval of the shareholders of Palomar.
<PAGE>
1.2 OTHER CONTRACTS. From and after the date of this Shareholder
-----------------
Agreement, the Shareholder shall not enter into or become subject to any
agreement or commitment which would restrict or in any way impair the obligation
of the Shareholder to comply with all the terms of this Shareholder Agreement,
including, without limitation, any other agreement to sell, transfer or
otherwise dispose of the Shareholder shares of Palomar Common Stock.
1.3 UPDATING INFORMATION. In the event that the Shareholder shall
----------------------
discover that any representation or warranty made herein by him/her was false or
misleading in any material respect when made or that any event has occurred such
that any representation or warranty of the Shareholder made herein would, if
made at and as of the time of the occurrence of such event, or thereafter, be
incorrect in any material respect, the Shareholder shall deliver to Community
West a statement specifying that it is delivered pursuant to this Section 1.3
and stating in reasonable detail the facts with respect thereto. Delivery of
any such statement shall not limit any rights which Community West may otherwise
have under this Shareholder Agreement.
1.4 AGREEMENT TO RECOMMEND. The Shareholder agrees that, upon the
-------------------------
execution of this Shareholder Agreement, he/she shall at all times use his/her
best efforts in order to obtain the approval of the shareholders of Palomar of
the principal terms of the Merger and any other matter contemplated by the
Agreement which requires approval of the shareholders of Palomar and shall
recommend the approval of such matters by the shareholders of Palomar at the
Meeting.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
------------------------------
OF SHAREHOLDER
--------------
2.1 REPRESENTATIONS AND WARRANTIES OF DIRECTOR. The Shareholder
----------------------------------------------
represents and warrants to, and agrees with, Community West as follows:
(a) CAPACITY. The Shareholder has all requisite capacity to enter
--------
into and to perform the Shareholder's obligations under this Shareholder
Agreement.
(b) AGREEMENT. The Shareholder has received a copy of the
---------
Agreement and has had the opportunity to review and to consider the terms and
conditions contained in this Shareholder Agreement and in the Agreement and to
confer with his or her counsel concerning said terms and conditions.
(c) BINDING AGREEMENT. This Shareholder Agreement has been duly
------------------
<PAGE>
executed and delivered by such Shareholder and constitutes a valid and legally
binding agreement of such Shareholder.
(d) OWNERSHIP OF SHARES, ETC. Schedule I hereto correctly sets
---------------------------
forth the number of shares of Palomar Common Stock owned by the Shareholder or
with respect to which such Shareholder has sole or shared voting power, and the
Shareholder has good and marketable title to all such shares of Palomar Common
Stock free and clear of any liens, security interests, charges or other
encumbrances of any kind or nature except as set forth on Schedule I.
(e) RELATIONSHIP WITH PALOMAR. The Shareholder is a director or
---------------------------
executive officer of Palomar.
(f) NON-CONTRAVENTION. The execution and delivery of this
-----------------
Agreement by the Shareholder does not, and the performance by the Shareholder of
the Shareholder's obligations hereunder and the consummation by the Shareholder
of the transactions contemplated hereby will not, violate or conflict with or
constitute a default under any agreement, instrument, contract or other
obligation or any order, arbitration award, judgment or decree to which the
Shareholder is a party or by which the Shareholder is bound, or any statute,
rule or regulation to which the Shareholder or any of the Shareholder's property
is subject.
ARTICLE III
DISCLOSURE AND TRADING
----------------------
The Shareholder hereby covenants and agrees that upon receipt of the
disclosure of a Strategic Transaction Proposal or a Community West Acquisition
Transaction (as those terms are defined in the Agreement), Shareholder shall
maintain the confidentiality of all non-public information regarding the
Strategic Transaction Proposal or the Community West Acquisition Transaction to
the same extent required by the parties to any such transaction under the terms
of any confidentiality agreement to which those parties are bound and to refrain
from trading in securities of Community West, Palomar, any subsidiary thereof or
any other party to the Strategic Transaction Proposal or Community West
Acquisition Transaction until the earlier of: (i) full public disclosure of such
non-public information has been made and trading in the subject securities would
not be a violation of applicable securities laws, or (ii) the Strategic
Transaction Proposal or Community West Acquisition Transaction has been
terminated or has expired by its terms and disclosure of such non-public
information is permitted under the terms of any agreement regarding the
transaction and trading in the subject securities would not be a violation of
applicable securities laws.
ARTICLE IV
TERMINATION
-----------
TERMINATION. This Shareholder Agreement shall automatically terminate and
-----------
be of no further force or effect if the Agreement is terminated in accordance
with the terms thereof, except as to any breach of this Shareholder Agreement by
the Shareholder occurring prior to the date of such termination. The
representations and warranties set forth in Article II and the covenants and
agreements of Articles III and V hereof shall survive the termination of this
Shareholder Agreement and the Closing.
<PAGE>
ARTICLE V
MISCELLANEOUS
-------------
5.1 EXPENSES. Each party hereto shall pay its own costs and expenses
--------
in connection with this Shareholder Agreement and the transactions covered and
contemplated hereby; provided, however, that nothing contained herein shall
preclude the payment of the Shareholder's expenses in connection with the
negotiation and documentation of this Shareholder's Agreement by Palomar.
5.2 NOTICES, ETC. All communications required or permitted to be
-------------
given hereunder shall be in writing and shall be deemed to have been duly given
to the appropriate parties if delivered in person (professional carrier
acceptable) or by United States mail, certified and with return receipt
requested, or otherwise actually delivered:
(a) If to the Shareholder, to the address set forth on Schedule I
attached hereto.
With a copy to:
Palomar Savings & Loan Association
355 West Grand Avenue
Escondido, California 92025
Attn: Mr. James M. Rady
With a copy to: Higgs, Fletcher & Mack, LLP
401 West A Street, Suite 2000
San Diego, California 92101
Attn: Kurt L. Kicklighter, Esq.
(b) If to Community West
Community West Bancshares
5827 Hollister Avenue
Goleta, California 93117
Attn: Llewellyn W. Stone
President and Chief Executive Officer
With a copy to: Horgan, Rosen, Beckham & Coren, LLP
21700 Oxnard Street, Suite 1400
Los Angeles, California 91365
Attn: Arthur A. Coren, Professional Corporation
FAX: (818) 340-6190
or such other address as any party may have furnished in writing to the other
parties.
<PAGE>
5.3 ENTIRE AND SOLE AGREEMENT. The making, execution and delivery of
---------------------------
this Shareholder Agreement by the parties hereto have not been induced by any
representations, statements, warranties or agreements other than those expressed
herein and in the Agreement. This Shareholder Agreement and the Agreement
embody the entire understanding of the parties, and there are no further or
other agreements or understandings, whether written or oral, in effect among the
parties relating to the subject matter hereof, unless expressly referred to by
reference herein.
5.4 SUCCESSORS AND ASSIGNS. Except as otherwise provided in this
------------------------
Shareholder Agreement, all covenants and agreements of the parties contained in
this Shareholder Agreement shall be binding upon and inure to the benefit of the
respective successors and assigns of the parties hereto.
5.5 GOVERNING LAW. This Shareholder Agreement shall be construed and
--------------
enforced in accordance with and governed by the laws of the State of California.
Each party hereto hereby submits to the jurisdiction of the courts of the County
of Santa Barbara for the purpose of any suit, action or other proceeding arising
out of such party's obligations under or with respect to this Agreement.
5.6 COUNTERPARTS. This Shareholder Agreement may be executed
------------
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
5.7 AMENDMENT, SUPPLEMENT AND WAIVER. This Shareholder Agreement may
----------------------------------
be amended or supplemented, and compliance with the provisions hereof may be
waived only by an instrument in writing signed by the party against which
enforcement of such amendment, supplement or waiver of compliance is sought.
5.8 HEADINGS. The headings in this Shareholder Agreement are for
--------
purposes of reference only and shall not limit or otherwise affect the meaning
hereof.
5.9 SPECIFIC PERFORMANCE. It is recognized and agreed that monetary
---------------------
damages will not compensate the parties hereto for nonperformance by any party.
Accordingly, each party agrees that his or her obligation shall be enforceable
by a court order requiring specific performance.
5.10 SEVERAL OBLIGATIONS. All duties and obligations of the
--------------------
Shareholder executing this Shareholder Agreement shall be several and not joint
with the duties and obligations of other Shareholders executing similar
Shareholder Agreements with Community West.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Shareholder
Agreement to be duly executed as of the date first above written.
SHAREHOLDER COMMUNITY WEST BANCSHARES
David Weseloh By: /s/ Llewellyn W. Stone
- ------------------- -------------------------
(Name) Llewellyn W. Stone
Its: President and Chief Executive Officer
/s/ David Weseloh
- -------------------
(Signature)
<PAGE>
SCHEDULE 1
NAME OF SHAREHOLDER: David Weseloh
--------------
ADDRESS OF SHAREHOLDER: 1772 Pinehurst Avenue
-----------------------
Escondido, CA 92026
---------------------
CERTIFICATE NUMBER NUMBER OF SHARES REGISTERED OWNER(S)
- ------------------- ------------------ --------------------
16,275 David Weseloh
23,584 David Weseloh and
Cathy S. Weseloh
DESCRIBE ANY LIENS:
- ---------------------
None
<PAGE>
