As filed with the Securities and Exchange Commission on July 1, 1998
Registration No. 333-______
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
UCBH HOLDINGS, INC.
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(exact name of registrant as specified in its certificate of incorporation)
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DELAWARE 6035 Being applied for
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(state or other jurisdiction of (Primary Standard (IRS Employer Identification No.)
incorporation or organization) Classification Code Number)
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711 Van Ness Avenue
San Francisco, California 94102
(415) 928-0700
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(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Tommy S. Wu
President and Chief Executive Officer
United Commercial Bank
711 Van Ness Avenue
San Francisco, California 94102
(415) 928-0700
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(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Joseph G. Passaic, Jr., Esquire
Mary M. Sjoquist, Esquire
Geoffrey W. Ryan, Esquire
Patton Boggs LLP
2550 M Street, N.W.
Washington, D.C. 20037
(202) 457-6000
Approximate date of commencement of proposed sale to public: From time
to time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please 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(c) under the Securities Act, check the following box and list the Securities
Act registration number of the earlier effective registration statement for the
same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
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Proposed Proposed
Maximum Maximum
Title of each Class of Amount to Offering Price Aggregate Registration
Securities to be Registered be Registered Per Share Offering Price(1) Fee
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Common Stock 9,333,333
$.01 par Value Shares $15.00(2) $139,999,995 $41,300
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(1) Estimated solely for the purpose of calculating the registration fee.
(2) Based upon the average of the bid and asked price for the Common Stock on
June 29, 1998.
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 shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
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PROSPECTUS
9,333,333 Shares of Common Stock
UCBH HOLDINGS, INC.
This Prospectus relates to the public offer and sale of up to 9,333,333
shares of common stock, par value $0.01 per share (the "Common Stock"), of UCBH
Holdings, Inc., a Delaware corporation (the "Company" or "Holdings"). For
additional information with respect to the terms of the Common Stock, see
"Description of Common Stock." The Common Stock was issued and sold in the
Private Offerings (as defined herein) exempt from the registration requirements
of the Securities Act of 1933, as amended (the "Securities Act"), to persons
reasonably believed by the Company to be "qualified institutional buyers" (as
defined by Rule 144A under the Securities Act) or other "accredited investors"
(as defined in Rule 501(a) of Regulation D under the Securities Act. In
connection with the Private Offerings, the Company executed and delivered for
the benefit of the holders of the Common Stock a Registration Rights Agreement
dated April 13, 1998 (the "Registration Rights Agreement"), providing for, among
other things, the filing with the Securities and Exchange Commission (the
"Commission") of the Registration Statement of which this Prospectus forms a
part. The Common Stock offered hereby may be offered and sold from time to time
(the "Offering") by the holders named herein or, if required, by holders named
in an accompanying supplement (a "Prospectus Supplement") or by their respective
transferees, pledgees, donees, or their successors (collectively, the "Selling
Holders") pursuant to this Prospectus and a Prospectus Supplement, if required.
The Common Stock may be sold by the Selling Holders from time to time
directly to purchasers or through underwriters, dealers or agents at market
prices or negotiated prices. See "Plan of Distribution." If required, the names
of any such underwriters, dealers or agents involved in the sale of the Common
Stock in respect of which this Prospectus is being delivered and the applicable
underwriter's discount, dealer's purchaser price or agent's commission, if any,
will be set forth in a Prospectus Supplement. The Selling Holders will receive
all of the net proceeds from the sale of the Common Stock and will pay all
underwriting discounts and selling commissions, if any, applicable to the sale
of the Common Stock. The Company is responsible for payment of all other
expenses incident to the offer and sale of the Common Stock.
The Selling Holders and any underwriters, dealers or agents which
participate in the distribution of the Common Stock may be deemed to be
"underwriters" within the meaning of the Securities Act, and any commission
received by them and any profit on the resale of the Common Stock purchased by
them may be deemed to be underwriting commissions or discounts under the
Securities Act. See "Plan of Distribution" for a description of indemnification
arrangements.
The Company has applied to the NASDAQ National Market ("NASDAQ") to
have the Common Stock quoted on the NASDAQ under the symbol "UCBH." Prior to
this Offering, there has not been a public market for the Common Stock and there
can be no assurance that an active public trading market for the Common Stock
will develop or be sustained.
SEE "RISK FACTORS" COMMENCING ON PAGE ___ FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THE COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE SAVINGS
ASSOCIATION INSURANCE FUND, THE BANK INSURANCE FUND OR ANY GOVERNMENT AGENCY.
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 OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is _________, 1998
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SUMMARY
The following is a summary of certain information contained elsewhere
in this Prospectus. Reference is made to, and this summary is qualified in its
entirety by, the more detailed information and the Company's Consolidated
Financial Statements, including the Notes thereto, appearing elsewhere in this
Prospectus.
The Company
The Company is a Delaware corporation and conducts business as a
unitary savings and loan holding company, the sole subsidiary of which is United
Commercial Bank (the "Bank"). The Company's assets consist primarily of all of
the issued and outstanding common stock of the Bank.
Since its founding in 1974, the Company has grown to total assets of
$1.56 billion, total deposits of $1.46 billion and stockholders' equity of $64.6
million at March 31, 1998. The Bank currently has 25 retail banking offices in
the state of California, located in areas with high concentrations of ethnic
Chinese, including the San Francisco Bay area (which includes Oakland), and the
Sacramento/Stockton and Los Angeles metropolitan areas. After giving effect to
the recent consolidation activity in California and based on asset size, the
Bank is the tenth largest thrift institution in California and the third largest
financial institution focused on serving the ethnic Chinese market within
California.
Substantially all of the Bank's loans are secured by real property. At
March 31, 1998, approximately $716.5 million, or 58% of the Bank's gross loan
portfolio were secured by residential properties (1-4 family), approximately
$336.2 million, or 27% of the Bank's gross loans were secured by commercial real
estate-multi-family mortgages, and $112.7 million, or 9% of the Bank's gross
loans were secured by commercial real estate-non-residential. The Bank's
deposits are obtained primarily from ethnic Chinese individuals and small and
medium sized businesses, business executives and professionals. As a result of
its focus on these deposit sources, at March 31, 1998, the Bank was able to
achieve a cost of funds approximately 57 basis points below the Eleventh
District Cost of Funds Index ("COFI"). Based upon June 30, 1997, FDIC deposit
market share data, the Bank believes it has the leading deposit market share in
the principal ethnic Chinese market within Oakland and is among the leaders in
deposit market share in the principal ethnic Chinese markets within the San
Francisco Bay area.
Through its network of banking offices, the Bank provides a wide range
of personal and commercial banking services to small and medium sized
businesses, business executives, professional and other individuals in the
financial services, professional services, real estate construction, computer
and semi-conductor manufacturing, and wholesale and retail trade industries. The
Bank offers a variety of deposit products, from traditional savings and business
accounts to the specialized services designed to serve the personal banking
needs of its customers. The Bank also engages in a full complement of lending
activities, including residential and commercial real estate, construction,
commercial and consumer credit facilities and working capital loans. The Bank
offers Chinese multilingual services to all of its customers.
Historically, the Bank has operated as a traditional thrift engaged
primarily in mortgage banking activities and the origination of residential
mortgages (1-4 family) which were generally pooled and sold in the secondary
market, with loan servicing rights retained. From time to time, the Bank sold
its loan servicing rights and also purchased agency servicing rights in
connection with its mortgage banking activities. Since 1993, the Bank has also
specialized in the origination of limited documentation residential mortgages
(1-4 family). The Bank has historically maintained a heavy concentration of
assets with interest rates based on COFI, which generally lags market interest
rate changes and which can suppress net interest margins during periods of
rapidly escalating interest rates. From 1993 to 1995, the Bank experienced a
decline in earnings primarily as a result of (i) depressed net interest margins
due to COFI-indexed assets and a larger volume of LIBOR-based borrowings; (ii)
an increase in the Bank's allowance for loan losses; and (iii) the competitive
pressures in the mortgage banking business. In addition, in 1996, the Bank's
earnings were reduced by the payment of a onetime $7.7 million Savings
Association Insurance Fund ("SAIF") recapitalization assessment.
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From 1995 to March 1998, the Company experienced steady growth in its
net interest income. Notwithstanding this improvement in net interest income,
the Company's net income was adversely impacted by a $7.7 million SAIF
recapitalization assessment in 1996 and an $8.8 million provision for loan
losses during 1995. The $8.8 million provision for loan losses was $4.1 million
greater than the five year average provision for loan losses of $4.7 million and
was recorded to address the continued depressed California economy and real
estate market and to significantly increase the Company's overall level of
allowance for loan losses to over 1.00% of gross loans. Without giving effect to
the SAIF recapitalization assessment, in 1996, the Company's net income would
have amounted to $4.3 million as compared to the $306,000 actual net loss.
Balance Sheet Restructuring
In recent years, the mortgage banking industry became highly
competitive and, combined with the availability of more efficient delivery
systems through brokers and the Internet, the industry has experienced shrinking
profit margins and reduced loan servicing values. Higher levels of prepayment
activity resulting from the lower interest rate environment and the willingness
of lenders to offer mortgage loans with no points and, in many cases, no fees,
have reduced servicing values. To respond to these market factors and to improve
the long-term prospects of the Bank, the Bank since 1995 has taken the following
measures:
COFI Asset Reduction. In the fourth quarter of 1996, the Bank ceased
all COFI-based mortgage lending and began to reduce the Bank's COFI-based
mortgage-backed securities portfolio. From December 31, 1996 to March 31, 1998,
COFI-based loans have been reduced from 60.2% of the Bank's total gross loan
portfolio to 43.0%. From December 31, 1996 to March 31, 1998, total COFI
exposure has been reduced from 64.9% of the Bank's interest-earning assets to
51.3%.
Closure of Mortgage Banking Division. In 1997, the Bank closed its
mortgage banking division and ceased the origination of nonconventional mortgage
loans (i.e., loans insured by the Federal Housing Administration or partially
guaranteed by the Veterans Administration) for sale in the secondary market and
sold its agency loan servicing portfolio. While the Bank no longer engages in
the origination of nonconventional mortgage loans, the Bank continues to
originate conventional residential mortgage loans for portfolio retention and
conforming mortgage loans for resale in the secondary market through its retail
branching networks. See "Business--Lending Activities."
Reduced Non-Performing and Non-Interest Earning Assets. The Bank
reduced its non-performing assets from $22.3 million as of December 31, 1995, to
$9.1 million as of March 31, 1998, and reduced non-interest-earning assets from
$68.0 million as of December 31, 1995, to $49.9 million as of March 31, 1998.
Reduced Mismatched Borrowings. The Bank reduced its predominantly high
cost LIBOR-based borrowings (which were mismatched with COFI-based assets) from
$265.3 million at the beginning of 1995 to zero at December 31, 1996 and 1997
and at March 31, 1998.
Implementation of Strategy
In conjunction with the implementation of the balance sheet
restructuring described above which returned the Bank to profitability in 1996,
excluding the one-time SAIF recapitalization assessment, to further improve the
Bank's long-term prospects and to take advantage of the Bank's significant
deposit market share and the potential cross selling opportunities to the ethnic
Chinese and Asian communities within its market area, the Board of Directors
adopted a business strategy to shift the primary business focus of the Bank from
a traditional thrift to a full service commercial banking operation. To
implement its business strategy, the Bank took the actions and adopted the
initiatives outlined below.
Management. The Bank realigned senior management responsibilities, and
hired commercial banking officers and Small Business Administration ("SBA")
business banking officers with lending experience in the Bank's market area. See
"Management of the Company and the Bank."
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Established Commercial Banking Division. In 1996, to take advantage of
the opportunities in the Bank's targeted markets, the Bank established its
commercial banking division to offer an array of commercial bank services and
products to its customers particularly focused on the ethnic Chinese
communities. Since its establishment, the commercial banking division has
originated approximately $101.4 million in commercial loan commitments and has
$70.4 million in outstanding loans as of May 31, 1998. As of June 24, 1998, the
division had a current committed pipeline of approximately $129 million. To
support its commercial banking activities, the Bank acquired a commercial
banking data processing system to replace a system designed for thrift
institutions. The new system provides customer profitability reports, account
analysis and other commercial banking management tracking and reporting
mechanisms. The installation of this new system was completed in February 1998.
The Bank installed software to enhance commercial real estate loan marketing and
development. The PC based system provides key information on substantially all
commercial real estate transactions in the Bank's market area in California. The
software provides information instrumental to identifying lending and
refinancing opportunities, screening potential credit opportunities and
evaluating collateral values to facilitate efficient solicitation of borrowers
and related depository relationships from commercial and multi-family property
owners. The Bank anticipates opening a commercial, construction and SBA lending
office in Pasadena, California during the second quarter of 1998. In addition to
other personnel, the Bank has hired a team of three experienced SBA business
banking officers to staff the Pasadena office. These officers were previously
affiliated with one of the leading lenders focusing on SBA lending to Asians.
Core Deposit Solicitation. To further develop the Bank's core deposit
base, the Bank is evaluating the establishment of mini-branches in or adjacent
to Asian supermarkets in selected target market areas. By continuing to
emphasize multilingual services at its automated teller machines ("ATMs"),
through its telephone banking system and by its customer service and loan
officers, the Bank expects to continue to further expand its presence in the
Asian, and specifically the ethnic Chinese, markets in California. At March 31,
1998, less than 2% of the Bank's deposits were held by customers located outside
the United States. In addition, as of such date, the 100 depositors with the
largest aggregate average deposit balances comprised less than 10% of the Bank's
total deposits. The Bank also expects to increase its business accounts as the
commercial lending portfolio grows and correspondent account relationships are
established.
Capital Enhancement. On April 17, 1998, the Company completed a $140.0
million placement of its Common Stock and a $30.0 million placement of 9.375%
Capital Securities through UCBH Trust Co. (together the "Private Offerings").
The Private Offerings were consummated pursuant to Rule 506 of Regulation D,
Regulation S and Rule 144A under the Security Act. At March 31, 1998, the
Company's stockholders' equity was $64.6 million, or 4.2% of total assets. Prior
to the Private Offerings, Chief Investments Limited and United Holdings Int'l,
Ltd. (the "Selling Shareholders") owned in the aggregate 100% of the Common
Stock of Holdings and 100% of the Notes (as defined below). In connection with
the Private Offerings, the Company exchanged its Common Stock for $20.6 million
of Holdings' senior debt plus accrued interest (the "Notes") and subsequently
used $120.0 million of the proceeds of the Private Offerings to redeem all
shares of Common Stock outstanding, including those shares of Common Stock
issued to the Selling Shareholders in exchange for the Notes (the "Redemption").
As a result, the Selling Shareholders are no longer affiliated with the Company
or the Bank. Following the Private Offerings and the Redemption, the Company's
stockholders' equity increased to $94.5 million and the Company's consolidated
Tier 1 capital increased from $63.9 million at December 31, 1997 to $125.4
million. See "Supervision and Regulation--Savings Institution Regulations--
Regulatory Capital Requirements."
Charter Conversion. In the first quarter of 1998, the Bank changed its
name to United Commercial Bank to reflect the Bank's new emphasis on providing
commercial banking services to its customers. As part of its strategy to shift
its business focus from mortgage banking to commercial banking, management
submitted amended applications to the California Department of Financial
Institutions and the Federal Reserve Bank of San Francisco in June 1998 to
convert the Bank to a California-chartered commercial bank and the Company to a
bank holding company.
As a result of the measures taken to effect the Bank's shift in its
primary business focus from mortgage banking to commercial banking, and the
implementation of its strategic initiatives, management believes that the Bank
is and will
4
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continue to be well positioned to take advantage of the opportunities in its
market area and particularly in the growing ethnic Chinese market in California.
The Company, as a registered savings and loan holding company, is
subject to examination and regulation by the Office of Thrift Supervision (the
"OTS"). The Bank, as a federally chartered savings bank, is subject to
comprehensive regulation and examination by the OTS, as its chartering authority
and primary regulator, and by the FDIC, which administers the SAIF, which
insures the Bank's deposits to the maximum extent permitted by law. The Bank is
a member of the Federal Home Loan Bank ("FHLB") of San Francisco, which is one
of the 12 regional banks which comprise the FHLB system. The Bank is further
subject to regulations of the Board of Governors of the Federal Reserve System
("Federal Reserve Board") governing reserves required to be maintained against
deposits and certain other matters. See "Supervision and Regulation."
The Company's executive offices are located at 711 Van Ness Avenue, San
Francisco, California 94102 and its main telephone number is (415) 928-0700.
THE OFFERING
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The Private Placement..................................... The Common Stock issued to investors in the Private
Placement was sold by the Company on April 17, 1998.
An aggregate of 9.3 million shares of Common Stock
were sold to 246 purchasers. In connection therewith,
the Company executed and delivered for the benefit of
the holders of the Common Stock the Registration
Rights Agreement, providing for, among other things,
the filing of the Registration Statement of which this
Prospectus forms a part. See "The Private Offerings and
the Redemption Transactions" and "Selling Holders."
Securities Offered........................................ 9,333,333 shares of Common Stock.
Market for Common Stock................................... The Company has applied to have the Common Stock
quoted on the NASDAQ under the symbol "UCBH."
Prior to the Offering, there has not been a public market
for the Common Stock and there can be no assurance
that an active public trading market for either or both of
the Common Stock or the Senior Notes will develop or
be sustained.
Use of Proceeds........................................... The Selling Holders will receive all of the proceeds from
the Common Stock sold pursuant to this Prospectus.
See "Use of Proceeds" for a discussion of the use of the
net proceeds from the Private Offerings.
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SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data with respect to the
consolidated financial position of the Company as of December 31, 1997 and 1996,
and operating data for the fiscal years ended December 31, 1997, 1996 and 1995
have been derived from, and should be read in conjunction with, and is qualified
in its entirety by, the audited Consolidated Financial Statements and Notes
thereto of the Company presented elsewhere in this Prospectus. The selected
consolidated financial data with respect to the Company's consolidated financial
position as of December 31, 1995, 1994 and 1993 and operating data for the years
ended December 31, 1994 and 1993 have been derived from the audited Consolidated
Financial Statements of the Company, which are not presented herein. The data
presented at March 31, 1998 and for the three months ended March 31, 1998 and
1997 were derived from unaudited consolidated financial statements and reflect,
in the opinion of management, all adjustments (consisting only of normal
recurring adjustments) which are necessary to present fairly the results for
such interim periods. The results of operations for the three months ended March
31, 1998 are not necessarily indications of the results of operations that may
be expected for the year ended December 31, 1998.
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At March
31, At December 31,
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1998 1997 1996 1995 1994 1993
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(Dollars in Thousands)
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Financial Condition And Other Data:
Total assets.....................................$1,557,151 $1,561,650 $1,474,617 $1,521,699 $1,522,412 $1,456,892
Net loans........................................ 1,227,698 1,202,095 1,054,686 1,011,909 965,668 878,001
Securities (1)................................... 262,427 270,103 343,739 429,005 467,426 491,278
Deposits......................................... 1,463,323 1,468,987 1,393,125 1,311,604 1,168,031 1,032,868
Borrowings....................................... -- -- -- 128,600 265,341 309,975
Long-term debt to affiliates..................... 20,060 20,060 16,736 13,000 13,500 14,000
Stockholders' equity............................. 64,599 62,552 54,344 55,457 59,350 58,440
Non-performing assets............................ 9,139 10,266 21,096 22,287 16,347 29,006
Ratio of equity to assets........................ 4.15% 4.01% 3.69% 3.64% 3.90% 4.01%
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For the Three Months
Ended March 31, For the Year Ended December 31,
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1998 1997 1997 1996 1995 1994 1993
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(Dollars in Thousands)
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Operating Data:
Interest income.................................. $28,120 $25,865 $107,591 $102,964 $99,034 $87,079 $90,203
Interest expense................................. 16,171 15,112 64,252 63,955 70,196 53,621 48,724
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Net interest income.............................. 11,949 10,753 43,339 39,009 28,838 33,458 41,479
Provision for loan losses........................ 633 17 1,154 1,476 8,777(2) 3,206 8,898
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Net interest income after provision for loan
losses................................... 11,316 10,736 42,185 37,533 20,061 30,252 32,581
Noninterest income............................... 558 862 3,094 3,397 3,767 8,603 17,897
SAIF recapitalization assessment................. -- -- -- 7,716(3) -- -- --
Noninterest expense.............................. 9,245 8,136 32,190 33,697 30,142 35,603 38,677
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Income (loss) before taxes................... 2,629 3,462 13,089 (483) (6,314) 3,252 11,801
Income tax expense (benefit)..................... 1,078 1,425 5,790 (177) (3,406) 772 5,281
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Net income (loss)................................ $ 1,551 $ 2,037 $ 7,299 $ (306)(3) $(2,908)(2) $ 2,480 $ 6,520
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Operating Ratios And Other Data:
Return (loss) on average assets.................. 0.40% 0.54% 0.47% (0.02)% (0.19)% 0.17% 0.45%
Return (loss) on average equity.................. 9.78 14.66 12.33 (0.48) (4.89) 3.45 9.50
Interest rate spread............................. 2.93 2.81 2.71 2.58 1.85 2.29 3.17
Net interest margin.............................. 3.14 2.95 2.89 2.68 1.96 2.36 2.85
Efficiency ratio(4)(5)........................... 73.92 70.05 69.33 79.46(3) 92.45 84.65 65.14
Noninterest expense to average assets(5)......... 2.37 2.16 2.08 2.23 1.98 2.40 2.69
Asset Quality Data:
Non-performing assets to total assets............ 0.59% 0.70% 0.66% 1.43% 1.46% 1.07% 1.99%
Non-performing loans to total gross loans........ 0.73 1.20 0.81 1.83 2.00 1.17 1.79
Allowance for loan losses to total gross loans... 1.01 1.06 1.00 1.10 1.34 0.78 0.90
Allowance for loan losses to non-performing loans 138.89 88.31 123.22 59.98 66.88 66.67 54.83
Net charge-offs to average gross loans........... 0.07 0.11 0.06 0.34 0.26 0.41 0.96
Bank Regulatory Capital Ratios:
Tier 1 risk-based capital........................ 10.02% 9.81% 9.90% 9.41% 9.21% 9.95% 9.84%
Total risk-based capital......................... 11.27 11.06 11.15 10.67 10.47 10.95 10.93
Core (leverage).................................. 5.52 5.23 5.37 4.90 4.50 4.80 4.72
Tangible......................................... 5.52 5.23 5.37 4.90 4.50 4.77 4.68
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(1) Includes available-for-sale securities and held-to-maturity securities.
(2) During 1995, the Company's net income was adversely affected by management's
decision to make a $8.8 million loan loss provision. This provision was $4.1
million greater than the five year average provision for loan losses of $4.7
million and was recorded to address the continued depressed California
economy and real estate market and to significantly increase the Company's
overall level of allowance for loan losses to over 1.00% of gross loans.
(3) During 1996, the Company's net income was adversely affected by the one-time
SAIF recapitalization assessment which was recognized by the Bank during the
third quarter of the year. Without giving effect to the SAIF
recapitalization assessment, the Company's net income would have amounted to
$4.3 million for 1996.
(4) Represents noninterest expense divided by the aggregate of net interest
income before provision for loan losses and noninterest income.
(5) During the year ended December 31, 1996, such ratios exclude the one-time
SAIF recapitalization assessment. Including the SAIF recapitalization
assessment, the Bank's efficiency ratio and noninterest expense to average
assets would amount to 97.66% and 2.74%, respectively.
RISK FACTORS
Prospective investors should carefully review the information contained
elsewhere in this Prospectus and should particularly consider the following
matters. Information contained in this Prospectus contains "forward-looking
statements" which can be identified by the use of forward-looking terminology
such as "believes," "expects," "may," "will," "should," "projected,"
"contemplates" or "anticipates" or the negative thereof or other variations
thereon or comparable terminology. No assurance can be given that the future
results covered by the forward-looking statements will be achieved. The
following matters constitute cautionary statements identifying important factors
with respect to such forward-looking statements, including certain risks and
uncertainties, that could cause actual results to vary materially from the
future results covered in such forward-looking statements. Other factors, such
as the general state of the economy, could also cause actual results to vary
materially from the future results covered in such forward-looking statements.
Increased Lending Risks Associated with Expansion into Commercial Banking
Activities
At March 31, 1998, $336.2 million, or 27.1% of the Bank's gross loans
consisted of multi-family loans. In addition, with the change in the Bank's
business strategy and focus on commercial banking activities, the Bank's
commercial real estate loans, construction loans and commercial business loans
are expected to increase. Loans secured by apartment buildings and other
multi-family properties and loans secured by commercial real estate properties
are generally larger and involve a greater degree of risk than residential
mortgage (1-4 family) loans. Because payments on loans secured by multi-family
and commercial real estate properties are often dependent on successful
operation or management of the properties, repayment of such loans may be
subject to a greater extent to the then prevailing conditions in the real estate
market or the economy. Moreover, construction financing is generally considered
to involve a higher degree of credit risk than long-term financing on improved,
owner-occupied real estate. Risk of loss on a construction loan is dependent
largely upon the accuracy of the initial estimate of the property's value at
completion of construction or development compared to the estimated cost
(including interest) of construction. If the estimate of value proves to be
inaccurate, the Bank may be confronted with a project, when completed, having a
value which is insufficient to assure full repayment.
Unlike mortgage loans, which generally are made on the basis of the
borrower's ability to make repayment from his or her employment or other income,
and which are secured by real property whose value tends to be more readily
ascertainable, commercial business loans are of higher risk and typically are
made on the basis of the borrower's ability to make repayment from the cash flow
of the borrower's business. As a result, the availability of funds for the
repayment of commercial business loans may be substantially dependent on the
success of the business itself. Furthermore, any collateral securing such loans
may depreciate over time, may be difficult to appraise and may fluctuate in
value based on the success of the business.
Although the Bank seeks to minimize the above risks through its
underwriting and credit administration policies, there can be no assurance that
such risks would not materialize, in which event the Company's result of
operations, financial condition and prospects could be materially adversely
affected.
7
<PAGE>
Interest Rate Risk
The Bank's earnings depend largely on the relationship between its cost
of funds, primarily deposits, and the yield on earning assets. This
relationship, known as the interest spread, is subject to fluctuation and is
affected by economic and competitive factors which influence market interest
rates, the volume and mix of interest-earning assets and interest-bearing
liabilities, and the level of non-performing assets. Fluctuations in market
interest rates affect the demand of customers for the Bank's products and
services. The Bank is subject to interest rate risk to the degree that its
interest-bearing liabilities reprise or mature more slowly or more rapidly or on
a different basis than its interest-earning assets. Given the Bank's current
volume and mix of interest-bearing liabilities and interest-earning assets, the
Bank's interest rate spread could be expected to decrease during periods of
rising and falling interest rates. Although the Bank believes its current level
of interest rate sensitivity is reasonable, significant fluctuations in interest
rates may have an adverse effect on the Bank's results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Market Risk and Net Portfolio Value."
Leveraging Strategy
As a result of the proceeds received by the Company and made to be
available to the Bank following the Private Offerings, the Bank implemented a
plan to leverage such proceeds through the purchase of U.S. Government agency
mortgage-backed securities, investment grade securities, investment grade
municipal bonds and investment grade residential mortgage (1-4 family)
securities and to fund such purchases primarily through intermediate and
long-term secured borrowings, advances from the FHLB and from cash made
available from the proceeds. Such plan is consistent with the Bank's asset and
liability management policy and was approved by the Bank's Credit Policy and
Investment Committee. In connection with the strategy, the Bank will remain
classified as a "well capitalized" institution for regulatory capital purposes.
If market rates of interest fluctuate in such a manner that Holdings is unable
to earn a positive spread as a result of its leverage strategy, Holdings' net
interest margin and net earnings will be adversely affected in future periods.
Through June 24, 1998, the Bank purchased approximately $325 million of such
assets and entered into $202 million of long-term borrowings.
Credit Quality
A significant source of risk for the Company arises from the
possibility that losses will be sustained because borrowers, guarantors and
related parties may fail to perform in accordance with the terms of their loan
agreements. The Company has adopted underwriting and credit monitoring
procedures and credit policies, including the establishment and review of the
allowance for loan losses, that management believes are appropriate to minimize
this risk by assessing the likelihood of nonperformance, tracking loan
performance and diversifying the Bank's credit portfolio. Such policies and
procedures, however, may not prevent unexpected losses that could materially
adversely affect the Company's results of operations. Maintenance of a high
credit quality of new commercial loans is also key in achieving its strategic
goals.
The Bank's loan portfolio is predominantly secured by real estate.
Conditions in the real estate markets in which the collateral for the Bank's
mortgage loans are located strongly influence the level of the Bank's non-
performing loans and its results of operations. Real estate values are affected
by, among other things, changes in general or local economic conditions, changes
in governmental rules or policies, the availability of loans to potential
purchasers, and acts of nature. Declines in real estate markets have in the past
and may continue to negatively impact the value of the collateral securing the
loans and the Company's results of operations. See "Business--Lending
Activities--Loan Portfolio." As of March 31, 1998, the Bank had $9.1 million in
non-performing assets.
Limited Documentation Lending
The Bank specializes in a limited documentation mortgage loan product
for loans secured by single family residential properties. This product serves a
particular niche of borrowers willing to pay a premium, in the form of higher
interest rates, and larger down payments in exchange for more expedient loan
processing by virtue of providing
8
<PAGE>
less income or less income and less asset information. These limited
documentation mortgage loans, however, involve a higher degree of risk as there
is limited verified knowledge of the borrower's level of income or ability to
service the indebtedness which, in turn, may result in a higher rate of default.
As of March 31, 1998, $492.1 million, or 68.7% of the residential mortgages (1-4
family) were low documentation loans. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Financial Condition--Loan
Portfolio."
No Assurances as to the Adequacy of Allowance for Loan Losses
The Bank's allowance for loan losses is maintained at a level
considered adequate by management to absorb inherent losses in its loan
portfolio. The amount of inherent loan losses which could be ultimately realized
is susceptible to changes in economic, operating and other conditions, including
changes in interest rates, that could be beyond the Bank's control. Such losses
could exceed current estimates. Although management believes that the Bank's
allowance for loan losses is adequate, there can be no assurance that the
allowance will prove sufficient to cover actual loan losses should such losses
be realized. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
External Factors Affecting Asset Quality
The economy in the Bank's primary market area and the real estate
market in particular have suffered from the effects of a recession in the first
half of this decade. Some of the effects of the recession were declines in
property values and decreased demand for goods and services. These conditions
may have had an adverse impact on the ability of certain borrowers to perform
under the original terms of their obligations to the Bank. The Bank's loan
portfolio is predominantly secured by real estate. The Bank's properties and
substantially all of the real and personal property securing loans in the Bank's
portfolio are located in California. The real estate securing loans has been in
the past and may in the future be adversely affected by market conditions in
California. In addition to market fluctuations, California is prone to
earthquakes, flooding and other natural disasters. The Bank faces the risk that
many of its borrowers may experience uninsured property damage, sustained
interruption of their businesses or loss of their jobs from earthquakes, floods
or other disasters. As a result, these borrowers may be unable to repay their
loans in accordance with their original terms and the collateral for such loans
may decline significantly in value. There can be no assurance that the allowance
for loan losses will be adequate to cover losses resulting from such external
factors.
Government Regulation and Monetary Policy
The thrift and banking businesses are subject to extensive federal and
state supervision and regulation. Such regulations limit the manner in which
Holdings and the Bank conduct their respective businesses, undertake new
investments and activities and obtain financing. These regulations are designed
primarily for the protection of the deposit insurance funds and consumers, and
not to benefit holders of the Company's securities. In the future, if Holdings
and the Bank were to convert to a bank holding company and state-chartered bank,
respectively, as part of the strategy to shift the Bank's business focus to
commercial banking, the scope and degree of regulatory oversight will change.
Among other things, there would be statutory and regulatory limitations on the
amount of dividends which could be paid to Holdings by the Bank which are
different from the restrictions currently applicable to the Bank under the OTS
regulations. Bank regulatory agencies also have authority to prohibit banks from
engaging in activities that, in their respective opinions, constitute unsafe or
unsound practices in conducting its business. It is possible, depending upon the
financial condition of the Bank and other factors, that the FDIC or the
California Department of Financial Institutions (the "DFI") could assert that
the payment of dividends or other payments by the Bank might, under some
circumstances, be such an unsafe or unsound practice.
Financial institution regulation has been the subject of significant
legislation in recent years, and may be the subject of further significant
legislation in the future, none of which is in the control of the Company or the
Bank. Significant new laws or changes in, or repeals of, existing laws may cause
the Company's results of operations to differ materially. Further, federal
monetary policy, particularly as implemented through the Federal Reserve Board
significantly affects credit conditions for the Company, primarily through open
market operations in United States
9
<PAGE>
government securities, the discount rate for bank borrowings and reserve
requirements. A material change in any of these conditions would have a material
impact on the Bank, and therefore the Company's results of operations.
Competition
The banking and financial services industry in California generally,
and in the Bank's market areas specifically, is highly competitive. The
increasingly competitive environment results from changes in regulation, changes
in technology and product delivery systems, and the consolidation among
financial services providers. The Bank competes for loans, deposits and
customers for financial services with other commercial banks, savings and loan
associations, securities and brokerage companies, mortgage companies, insurance
companies, finance companies, money market funds, credit unions, and other
nonbank financial service providers. Many of these competitors are much larger
in total assets and capitalization, have greater access to capital markets and
offer a broader array of financial services than the Bank. To compete with the
other financial services providers, the Bank relies on local promotional
activities, personal relationships established by officers, directors and
employees with its customers, and specialized services tailored to meet its
customers' needs.
The Bank competes for deposits from the ethnic Chinese markets with
other banks catering to the Asian community. The Bank believes that it has two
major competitors that are targeting the ethnic Chinese markets. Such
institutions have branch locations in many of the same neighborhoods as the
Bank, provide similar loan, savings and financial services, and market their
services in similar Asian publications and media in California.
Economic Conditions and Geographic Concentration; Real Estate Markets
The Bank's operations are located in Northern and Southern California
and are concentrated primarily in the San Francisco Bay area (including Oakland)
and the Sacramento/Stockton and Los Angeles metropolitan areas, with specific
emphasis on communities with a high concentration of ethnic Chinese individuals
and businesses. As a result of these geographic concentrations, the Bank's
results depend largely upon economic conditions in these areas. A deterioration
in economic conditions in the Bank's market could have a material adverse impact
on the quality of the Bank's loan portfolio and the demand for its products and
services, and accordingly, the Company's results of operations. See
"Business--Market Area."
Accounting Treatment
Based upon the representations of each offeree in the Private Offerings
("Offeree") that such Offeree was not acting in concert with any other Offeree,
it is the Company's understanding that following consummation of the Private
Offerings and the Redemption, generally accepted accounting principles do not
require the Company to revalue the assets and liabilities of the Company in the
Company's Consolidated Financial Statements to reflect consummation of the
Private Offerings and the Redemption. In the event that some or all of the
Offerees were deemed to be acting in concert, there is a substantial likelihood
that generally accepted accounting principles would require a step-up in
accounting basis (analogous to the purchase method of accounting for business
combinations) with respect to the Private Offerings and the Redemption. If a
change in accounting basis were required, the Company's assets and liabilities
would be reflected on the Company's consolidated financial statements based on
their estimated fair values at the consummation date and goodwill would be
recorded to the extent that the consideration paid to the Selling Shareholders
in the Redemption exceeds the aggregate net fair value of the Company's net
assets. In addition, if a step-up in accounting basis were required, it is
likely that generally accepted accounting principles, the Commission's
requirements and the Bank's primary regulator would likely require such
adjustments to be "pushed down" and reflected in the Bank's financial
statements. The requirement for push-down of accounting basis could have a
material adverse effect on the ability of the Bank to pay dividends to the
Company. In addition, the amortization of any goodwill recorded as a result of
such accounting treatment would significantly reduce the earnings of the Bank in
future periods and could adversely impact the ability of the Bank to pay
dividends to the Company. The Company received a report from its independent
accountants, Price Waterhouse LLP, as to the application of accounting
principles which concludes that consummation of the Private Offerings and
Redemption as described herein did not require the Company to revalue the assets
and
10
<PAGE>
liabilities of the Company in the Company's Consolidated Financial Statements
and, therefore, did not trigger the recognition of goodwill by the Company or
the Bank.
It is uncertain whether, notwithstanding the Company's understanding of
generally accepted accounting principles and receipt of the report from Price
Waterhouse LLP referenced above, the Bank's primary regulator would require the
push-down of accounting basis with respect to the Bank's financial statements.
The Company has not discussed with the Bank's primary regulator whether it would
require such treatment. If such regulator were to require the push-down of
accounting basis with respect to the Bank's financial statements, such
accounting treatment could have the effects described above. Accordingly, in
considering an investment in the Company, potential purchasers should take into
account the possibility that the push-down of accounting basis with respect to
the Bank's financial statements may be required.
Dependence on Key Management Personnel
The Company's success depends substantially on certain members of its
senior management, in particular the following officers of the Bank: Tommy S.
Wu, President and Chief Executive Officer; Jonathan H. Downing, Senior Vice
President, Chief Financial Officer and Treasurer; Sylvia Loh, Senior Vice
President and Director of Commercial Banking; Louis E. Barbarelli, Senior Vice
President and Director of Systems and Operations; Cecilia Lai, Senior Vice
President and Director of Retail Banking; and William T. Goldrick, Senior Vice
President and Chief Credit Officer. The Company's business and financial
condition could be materially adversely affected by the loss of the services of
any such individuals. Ms. Loh joined the Bank as the head of commercial banking
in February 1996. The success of her department is vital to the success of the
shift in the Bank's business focus to commercial banking. The Company does not
maintain any key man life insurance with respect to any of the foregoing
officers. See "Management of the Company and the Bank."
Ability of the Company to Execute its Business Strategy and Generate Earnings
The Bank's ability to achieve its strategic goal and shift its business
focus to commercial banking largely depends on its ability to: fund a
significant amount of commercial real estate loans and commercial business
loans, including SBA loans; originate intermediate fixed-rate residential
mortgage loans (1-4 family); and significantly increase the Bank's commercial
deposit and demand accounts. During the year ended December 31, 1997, the Bank
originated $23.7 million of commercial real estate loans, $28.7 million of
commercial business loans and $3.3 million of SBA loans and at May 21, 1998 the
Bank had in its pipeline $73.1 million of commercial real estate loans, $28.9
million of commercial business loans and $16.1 million of SBA loans. Given the
competitive environment for loan originations, consumer demand for fixed-rate
30-year loans and the array of alternative cash investments available to
consumers, there are no assurances that the Bank will be able to achieve its
strategic business goals.
The implementation of the Bank's strategic goals places demands on the
Bank's management personnel as well as its systems, other personnel control
systems, asset quality, earnings, policies and procedures. There can be no
assurance that the Bank will be able to make all adjustments necessary or to
employ and retain personnel with adequate training and experience to achieve its
strategic goals or to manage the Bank's growth and expansion. The failure to
achieve its strategic goals could have a material adverse effect on the
Company's results of operations, financial condition and prospects.
Year 2000 Compliance Issues
The Year 2000 issue is a computer programming situation that may affect
many electronic data processing systems. In order to minimize the length of data
fields, most computers programs eliminated the first two digits in the year date
field. This problem could affect date-sensitive calculations that treat "00" as
the year 1900, rather than 2000. Secondly, years that end in "00" are not leap
years, except for the anomaly in the year 2000. This anomaly could result in
miscalculations when processing critical date-sensitive information after
December 31, 1999.
11
<PAGE>
The Bank has adopted a plan to address Year 2000 data processing
issues. The plan includes the assessment of all internal systems, programs and
data processing applications as well as those provided to the Bank by
third-party vendors. The Bank recently converted its core banking system to a
system which is Year 2000 compliant.
The Bank is in the process of selecting accounting and loan processing
systems which are Year 2000 compliant and anticipates that such systems will be
selected and installed by the end of 1998. The Company does not anticipate that
the expenses incurred in conjunction with the Year 2000 issues will have a
material effect on the results of operations of the Company. Management is
currently evaluating the Bank's third party vendors' efforts with respect to
compliance with Year 2000 issues. No assurance can be made that such third party
vendors' efforts will be successful or that the Company's costs associated
therewith will be as estimated. However, the Company does not believe any Year
2000 issues will materially affect the Company's products, services or
competitive conditions. In addition, the Company does not believe that the cost
of addressing the Year 2000 issues is a material event or uncertainty that would
cause reported financial information not to be necessarily indicative of future
operating results or financial condition, and the costs or the consequences of
incomplete or untimely resolution of its Year 2000 issues does not represent a
known material event or uncertainty that is reasonably likely to affect its
future financial results, or cause its reported financial information not to be
necessarily indicative of future operating results or future financial
condition. However, there can be no assurance that the Year 2000 issue will not
have a material adverse effect on the Bank.
Tax Considerations
In 1997, the IRS concluded an examination of the income tax returns of
the Company for the tax years 1993 through 1995. The audit resulted in the
Company making cash payments and writing down the deferred tax assets of the
Company. Such cash payments and write-downs amounted to $500,000 in the
aggregate, which approximated the book allowances provided by the Company for
this eventuality. The IRS audit focused generally on the Company's Notes, which,
until cancelled in the Redemption, were held by the Selling Shareholders (who
were then affiliates of the Company and the Bank) and, more specifically, on the
appropriateness of the Company's interest expense deductions during 1993, 1994
and 1995. Notwithstanding the conclusion of the IRS's audit and the resulting
cash payments and write-downs, no assurance can be made that the IRS will not
reexamine the Company's tax returns and further challenge the validity of the
Notes and the related interest expense deductions which could result in
additional income tax payments and/or write-downs. Although the settlement with
the IRS confirmed the treatment of the Notes as debt rather than equity, there
can be no assurance that the IRS will not reexamine the appropriateness of the
characterization of the Notes as debt with respect to the tax years subsequent
to 1995. The Notes were retired in April 1998 in conjunction with the
consummation of the Redemption. As of March 31, 1998, the Company's consolidated
financial statements reflect deferred tax assets of approximately $2.5 million
which represent interest expense deductions that the Company will take in its
1998 tax return.
Employment Contracts, Change in Control Provisions and Employee Severance
Compensation
The Bank and the Company have entered into employment agreements with
Mr. Wu and change in control agreements with certain executive officers of the
Company and the Bank, which agreements provide for severance payments if their
respective employment is terminated in connection with a change in control of
the Company or the Bank. These provisions may have the effect of increasing the
cost of acquiring the Company, thereby discouraging future attempts to take over
the Company or the Bank. In addition, these agreements provide for certain
severance payments in the event of the executive officer's termination for any
reason other than resignation, cause, death or permanent disability. See
"Restrictions on Acquisition--Restrictions in the Company's Certificate of
Incorporation and Bylaws," "Management of the Company and the Bank--Employment
and Change in Control Agreements."
No Present Intention to Pay Dividends
Holdings does not anticipate initially paying dividends on the Common
Stock. It is Holdings' present intention to retain earnings to enhance capital
and future growth.
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<PAGE>
Certain Anti-Takeover Provisions Which May Discourage Takeover Attempts
Certain provisions of the Company's Certificate of Incorporation and
Bylaws, particularly a provision limiting voting rights, as well as certain
federal regulations, assist the Company in maintaining its status as an
independent publicly owned corporation. These provisions provide for, among
other things, supermajority voting on certain matters, staggered boards of
directors, non-cumulative voting for directors, limits on the calling of special
meetings, limits on voting shares in excess of 10% of the outstanding shares,
and certain uniform price provisions for certain business combinations. These
provisions in the Company's governing instruments may discourage potential proxy
contests and other potential takeover attempts, particularly those which have
not been negotiated with the Board of Directors, and thus, generally may serve
to perpetuate current management. For a more detailed discussion of these
provisions, see "Restrictions on Acquisition."
THE PRIVATE OFFERINGS AND THE REDEMPTION TRANSACTIONS
The Redemption Agreement. On March 31, 1998, the Company entered into
an Exchange and Redemption Agreement (the "Redemption Agreement") with the
Selling Stockholders. In connection with the Private Offerings, and pursuant to
the terms of the Redemption Agreement, $20.6 million of the Notes, which were
payable to the Selling Shareholders, was exchanged for shares of Common Stock.
Subsequently, the Company used approximately $120.0 million of the proceeds
raised in the Private Offerings to redeem all of the shares of Common Stock then
owned by the Selling Shareholders, which included the shares of Common Stock
exchanged for the Notes. As a result, the Selling Shareholders are no longer
affiliated with the Company and the Bank.
Pursuant to the Redemption Agreement, the Selling Stockholders have
made certain representations and warranties to the Company, which
representations and warranties generally will survive for one year after the
date of the Redemption Agreement.
The Purchase Agreement. On April 13, 1998, the Company entered into the
Purchase Agreement with the various purchasers of the Common Stock issued
pursuant to the Private Offerings, which provided, among other things, for the
purchase on such date of an aggregate of $140.0 million of Common Stock. A
closing was held on April 17, 1998 at which the Redemption was consummated.
In connection with the consummation of the transactions contemplated by
the Purchase Agreement and the Redemption Agreement, all of the persons then
serving as directors of the Company and the Bank resigned, and Sau- wing Lam,
Tommy S. Wu, Jonathan H. Downing, Robert Fell and Godwin Wong, all formerly
directors of the Company and/or the Bank, were elected as the directors of the
Company and the Bank. See "Management of the Company and the Bank."
The obligations of the purchasers of the Common Stock issued pursuant
to the Purchase Agreement were subject to the satisfaction or waiver, prior to
the closing of the transaction, of various conditions, including, among other
things: (a) the continued accuracy of all representations and warranties made by
the Company in the Purchase Agreement and the performance in all material
respects of all covenants and agreements to be performed by the Company prior to
the closing of the transaction; (b) the execution by the Company and both of the
Selling Stockholders of the Redemption Agreement and the consummation of the
transaction contemplated thereby; and (c) the Company obtaining the requisite
stockholder approval of an amendment to its Certificate of Incorporation to
increase its authorized Common Stock to 25,000,000 shares, to revise the par
value per share of the Common Stock to $0.01 per share and to authorize
Preferred Stock of 10,000,000 shares and filing with the Secretary of State of
the State of Delaware the appropriate documentation in order to effect such
amendment.
The Agency Agreement provided for the Company to pay Sandler O'Neill &
Partners, L.P. (the "Placement Agent") a fee equal to, in the aggregate, 7% of
the gross proceeds raised with respect to the placement of the Common Stock and
4% of the gross proceeds raised with respect to the placement of the Capital
Securities in the Private Offerings. In addition, the Company reimbursed the
Placement Agent for its actual out-of-pocket expenses pertaining
13
<PAGE>
to its engagement, including legal fees and expenses and indemnified the
Placement Agent against certain liabilities arising out of its engagement,
including certain liabilities under the securities laws.
In connection with the Private Offerings, the Company on April 13, 1998
also entered into the Registration Rights Agreement with the initial purchasers
of the Common Stock, pursuant to which, among other things, the Company agreed
to file within 120 days a shelf registration statement with the Commission
providing for the offer and sale of the Common Stock. The Registration Statement
of which this Prospectus forms a part has been filed in satisfaction of such
requirement. See "Registration Rights."
USE OF PROCEEDS
The Selling Holders will receive all of the proceeds from the Common
Stock sold pursuant to this Prospectus.
Net proceeds from the Private Offerings were approximately $157.7
million after deducting the commission of the Placement Agent and estimated
offering and other expenses payable by the Company. Holdings used $120.0 million
on the net proceeds to repurchase all of the then outstanding common stock,
including those shares of Common Stock received by the Selling Shareholders in
exchange for the Notes, and is using the remainder of the net proceeds for other
general corporate purposes. All of the proceeds from the sale of the Capital
Securities will be invested by the Trust in the Junior Subordinated Debentures.
DIVIDENDS AND MARKET FOR COMMON STOCK
The Board of Directors of the Company does not presently intend to
implement a policy of paying dividends on the Common Stock. Rather, the Company
expects to retain earnings to increase capital. The initiation of a cash
dividend policy will depend upon a number of factors, including investment
opportunities available to the Company or the Bank, capital requirements, the
Company's and the Bank's financial condition and results of operations, tax
considerations, statutory and regulatory limitations and general economic
conditions. No assurances can be given that any dividends will be paid or that,
if paid, will not be reduced or eliminated in future periods. See "Supervision
and Regulation--Savings Institutions Regulation--Restrictions on Dividends and
Other Capital Distributions" and "Description of Capital Stock."
Dividends from the Company will depend principally on the ability of
the Bank to pay dividends to the Company. A Tier 1 institution is authorized to
make capital distributions without OTS approval during a calendar year of up to
the higher of (i) 100 percent of its net income to the date of such distribution
during the calendar year plus the amount that would reduce by one-half its
surplus capital ratio, as defined, at the beginning of the calendar year; or
(ii) 75% of its net income over the most recent four-quarter period. Applicable
regulations require, however, that all savings institutions give the OTS at
least 30 days advance notice of any capital distributions, and the OTS may
prohibit any capital distribution that it determines would constitute an unsafe
or unsound practice. As of March 31, 1998, under applicable regulations of the
OTS, the total capital available for the payment of dividends by the Bank to the
Company was approximately $5.8 million. See "Regulation--Savings Institutions
Regulation--Restrictions on Dividends and Other Capital Distributions."
Any payment of dividends by the Bank to the Company which would be
deemed to be drawn out of the Bank's bad debt reserves would require a payment
of taxes at the then-current tax rate by the Bank on the amount of earnings
deemed to be removed from the reserves for such distribution. If not paid out of
current period earnings, taxes on any such distribution to the extent made out
of such reserves would also be subject to the Company's carryforward of net
operating losses. See "Taxation."
Unlike the Bank, the Company is not subject to the aforementioned
regulatory restrictions on the payment of dividends to its stockholders,
although the source of such dividends may be dependent, in part, upon dividends
from the Bank. The Company is subject, however, to the requirements of Delaware
law, which generally limit dividends to an amount equal to the excess of the net
assets of the Company (the amount by which total assets exceed total
liabilities)
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<PAGE>
over its statutory capital, or if there is no such excess, to its net profits
for the current and/or immediately preceding fiscal year.
Since consummation of the Private Offerings, transactions in the Common
Stock have been limited, and there is no established market for the Common Stock
at this time. The Company has applied to have the Common Stock quoted on the
NASDAQ under the symbol "UCBH." The Company's application will be subject to
approval and compliance with certain conditions, including the presence of at
least three registered and active market makers. The Company will seek to
encourage and assist at least three market makers to make a market in the Common
Stock. Making a market involves maintaining bid and ask quoting and being able,
as principal, to effect transactions in reasonable quantities at those quoted
prices, subject to various securities laws and other regulatory requirements.
Sandler O'Neill & Partners, L.P., has advised the Company that it intends to
make a market in the Common Stock following approval of the listing application,
but it is under no obligation to do so. The development of a liquid public
market depends on the existence of willing buyers and sellers, the presence of
which is not within the control of the Company. Accordingly, the number of
active buyers and sellers of the Common Stock at any particular time may be
limited. Under such circumstances, investors in the Common Stock could have
difficulty disposing of their securities and should not view the Common Stock as
a short-term investment. Accordingly, there can be no assurance that an active
and liquid trading market for the Common Stock will develop or that, if
developed, it will continue, nor is there any assurance that persons purchasing
shares of Common Stock will be able to sell them at or above the purchase price
therefor.
RATIOS OF EARNINGS TO COMBINED FIXED CHARGES
The following table sets forth the ratios of earnings to combined fixed
charges of Holdings on a consolidated basis for the respective periods
indicated.
<TABLE>
<CAPTION>
For the
Three Months
Ended
March 31, For the Year Ended December 31,
---------------- -------------------------------------------------
1998 1997 1997 1996 1996(1) 1995 1994 1993
------ ------ ------ ------ --------- ------ ------ -----
Ratios of Earnings to Combined Fixed
Charges:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Excluding interest on deposits...... 5.21x 4.55x 6.59x 1.25x 2.90x 0.68x 1.30x 1.97x
Including interest on deposits...... 1.16x 1.23x 1.24x 1.02x 1.14x 0.93x 1.09x 1.28x
</TABLE>
- -------------
(1) Represents the respective fixed charge ratios excluding the SAIF
recapitalization assessment.
For purposes of computing the ratios of earnings to combined fixed
charges, earnings represent net income plus applicable income taxes and fixed
charges. Fixed charges, excluding interest on deposits, include gross interest
expense other than on deposits. Fixed charges, including gross interest on
deposits, include all interest expense.
15
<PAGE>
CONSOLIDATED STATEMENT OF OPERATIONS
The following consolidated statement of operations with respect to the
Company's operations for the years ended December 31, 1997, 1996 and 1995 have
been derived from the audited Consolidated Financial Statements and notes
thereto of the Company appearing elsewhere in this Prospectus. This information
should be read in conjunction with such Consolidated Financial Statements and
the notes thereto. The following consolidated statements of operation with
respect to the Company's operations for the three months ended March 31, 1998
and 1997 have been derived from unaudited financial data, and, in the opinion of
management, reflect all adjustments, consisting of normal recurring adjustments,
which are necessary to present fairly the results for such interim periods. The
results of operations for the three months ended March 31, 1998 are not
necessarily indicative of the results of operations that may be expected for the
year ending December 31, 1998.
<TABLE>
<CAPTION>
For the Three Months
Ended March 31, For the Years Ended December 31,
-------------------- --------------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Interest income:
Interest on loans................................. $23,833 $20,467 $86,141 $78,711 $72,742
Interest on funds sold and securities purchased under
agreements to resell.............................. 166 452 2,760 1,417 398
Interest on securities............................ 4,121 4,946 18,690 22,836 25,894
------- ------- ------- ------- -------
Total interest income........................ 28,120 25,865 107,591 102,964 99,034
------- ------- ------- ------- -------
Interest expense:
Interest on deposits............................. 15,669 14,257 61,513 59,273 56,038
Interest on short-term borrowings ............... -- 206 294 998 6,550
Interest on Federal Home Loan Bank advances...... -- 218 620 2,044 5,867
Interest on long-term debt to affiliates ........ 502 431 1,825 1,640 1,741
------- ------- ------- ------- -------
Total interest expense....................... 16,171 15,112 64,252 63,955 70,196
------- ------- ------- ------- -------
Net interest income......................... 11,949 10,753 43,339 39,009 28,838
Provision for loan losses............................. 633 17 1,154 1,476 8,777
------- ------- ------- ------- -------
Net interest income after provision for loan losses 11,316 10,736 42,185 37,533 20,061
------- ------- ------- ------- -------
Noninterest income:
Commercial banking fees.......................... 254 208 977 421 92
Service charges on deposit accounts.............. 218 216 888 615 566
Gain on sale of loans, securities and servicing rights 35 54 155 1,200 1,137
Loan servicing income............................ 44 294 601 680 272
Miscellaneous income............................. 7 90 473 481 1,700
------- ------- ------- ------- -------
Total noninterest income..................... 558 862 3,094 3,397 3,767
------- ------- ------- ------- -------
Noninterest expenses:
Personnel........................................ 4,308 3,786 14,087 14,875 12,000
Occupancy........................................ 1,246 1,159 4,811 4,754 4,355
Data processing.................................. 749 500 2,059 1,859 1,696
Furniture and equipment.......................... 604 386 1,902 1,814 1,357
Deposit insurance................................ 231 572 1,798 3,519 3,051
SAIF recapitalization assessment................. -- -- -- 7,716 --
Communication.................................... 97 85 400 383 317
Professional fees and contracted services........ 454 385 2,342 1,551 1,303
Foreclosed assets expense........................ (32) 168 671 686 2,785
Miscellaneous expense............................ 1,588 1,095 4,220 4,256 3,278
------- ------- ------- ------- -------
Total noninterest expense................... 9,245 8,136 32,190 41,413 30,142
------- ------- ------- ------- -------
Income (loss) before taxes............................ 2,629 3,462 13,089 (483) (6,314)
Income tax expense (benefit).......................... 1,078 1,425 5,790 (177) (3,406)
------- ------- ------- ------- -------
Net income (loss).......................... $ 1,551 $ 2,037 $ 7,299 $ (306) $(2,908)
======= ======= ======= ======= =======
</TABLE>
(See notes to the consolidated financial statements appearing elsewhere herein)
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth in the section entitled
"Risk Factors" and elsewhere in this Prospectus.
The following discussion and analysis is intended to provide details of
the results of operations of the Company for the three months ended March 31,
1998 and 1997 and for the years ended December 31, 1997, 1996 and 1995 and
financial condition at March 31, 1998 and at December 31, 1997 and 1996. The
following discussion should be read in conjunction with the information set
forth in the Company's Consolidated Financial Statements and notes thereto and
other financial data included elsewhere in this Prospectus.
Results of Operations
General. Currently, the Company's primary source of income is net
interest income, which is the difference between interest income from
interest-earning assets and interest paid on interest-bearing liabilities such
as deposits and other borrowings used to fund those assets. The Company's net
interest income is affected by changes in the volume of interest-earning assets
and interest-bearing liabilities as well as by changes in yields earned on
interest-earning assets and rates paid on interest-bearing deposits and other
borrowed funds. The Company also generates noninterest income, including
commercial banking fees and other transactional fees and seeks to generate
additional fees in connection with the shift in its business focus to commercial
banking. The Company's noninterest expenses consist primarily of personnel,
occupancy, and furniture and equipment expenses and other operating expenses.
The Company's results of operations are affected by its provision for loan
losses and may also be significantly affected by other factors including general
economic and competitive conditions, changes in market interest rates,
governmental policies and actions of regulatory agencies.
Net Income. For the three months ended March 31, 1998, net income was
$1.6 million, a decrease of $486,000, or 23.9% from the three months ended March
31, 1997. The decrease in earnings during the three months ended March 31, 1998
resulted primarily from the increased provision for loan losses which was made
as a result of the growth in the loan portfolio, the decrease in loan servicing
income which resulted from the sale of the loan servicing portfolio in 1997, the
increased personnel expenses primarily related to the expansion of the
commercial banking division and the recordation of incentive accruals during the
first quarter of 1998 and nonrecurring expenses related to the computer system
conversion. For the year ended December 31, 1997, net income was $7.3 million,
an increase of $7.6 million from net loss of $306,000 for the year ended
December 31, 1996. For the year ended December 31, 1995, the Company's
operations resulted in a loss of $2.9 million. The Company's annualized return
on average assets was 0.40% for the three months ended March 31, 1998, compared
with 0.54% for the three months ended March 31, 1997. Annualized return on
average assets was 0.47% for the year ended December 31, 1997, compared to
(0.02%) and (0.19%) for the years ended December 31, 1996 and 1995,
respectively. The Company's annualized return on average equity was 9.78% and
14.66% for the three months ended March 31, 1998 and 1997 and 12.33%, (0.48%)
and (4.89%) for the years ended December 31, 1997, 1996 and 1995, respectively.
From 1995 to March 31, 1998, the Company experienced steady growth in
its net interest income. Notwithstanding this improvement in net interest
income, the Company's net income was adversely impacted by a $7.7 million SAIF
recapitalization assessment in 1996 and an $8.8 million provision for loan
losses during 1995. The $8.8 million provision for loan losses in 1995 was $4.1
million greater than the five year average provision for loan losses of $4.7
million and was recorded to address the continued depressed California economy
and real estate market and to significantly increase the Company's overall level
of allowance for loan losses to over 1.00% of gross loans. Without giving effect
to the SAIF recapitalization assessment, in 1996, the Company's net income would
have amounted to $4.3 million as compared to the $306,000 actual net loss.
17
<PAGE>
The decrease in net income for the three months ended March 31, 1998
from the three months ended March 31, 1997 was partially due to the increase in
the provision for loan losses from $17,000 in the first quarter of 1997 to
$633,000 in the same period in 1998. The increased provision in 1998 related to
the increased growth in the loan portfolio during the first quarter of 1998. As
of March 31, 1998, the $12.6 million allowance for loan losses represented 1.01%
of gross loans. The decrease in income during this period also resulted from the
decrease in loan servicing income from $294,000 in the first quarter of 1997 to
$44,000 in the first quarter of 1998 due to the sale of the purchased loan
servicing portfolio; an increase in personnel expenses from $3.8 million in the
first quarter of 1997 to $4.3 million in the same period in 1998 primarily due
to the addition of commercial banking personnel during 1997 and the recordation
of incentive accruals during the first quarter of 1998 and $328,000 of
nonrecurring computer conversion related expenses.
The increase in net income for the year ended December 31, 1997 from
the year ended December 31, 1996 was due to an increase in net interest income
to $43.3 million from $39.0 million, as discussed below, and a reduction in
deposit insurance expense to $1.8 million from $11.2 million, which includes the
SAIF assessment discussed below. In 1996, the Company paid a $7.7 million
onetime SAIF recapitalization assessment levied by the FDIC on all savings
institutions to fully capitalize the SAIF. During 1997, the Company's deposit
insurance premium was reduced to 9.4 basis points of deposits as a result of the
Bank reaching the "well capitalized" core capital ratio of 5.0%. Effective
January 1, 1998, the deposit insurance premium was further reduced to 6.4 basis
points of deposit.
The reduction in the net loss for the year ended December 31, 1996 from
the year ended December 31, 1995 was due to the increase in net interest income
to $39.0 million from $28.8 million, as discussed below, and a reduction in the
provision for loan losses. In 1995, management increased the allowance for loan
losses from 0.78% of gross loans to 1.34% of gross loans to address the
continued depressed California economy and real estate market and to
significantly increase the Company's overall allowance for loan losses to over
1.00% of gross loans. The total provision for loan losses of $1.5 million in
1996 compares with a provision of $8.8 million in 1995. As a result of the
increase in net interest income and the reduction in the provision for loan
losses, the net loss of the Company was $306,000 for the year ended December 31,
1996 compared to a loss of $2.9 million for the year ended December 31, 1995,
notwithstanding the $7.7 million SAIF recapitalization assessment recognized in
1996.
Net Interest Income and Net Interest Margin. The net interest margin
improved to 3.14% for the three months ended March 31, 1998 as opposed to 2.95%
for the three months ended March 31, 1997. For the three months ended March 31,
1998, net interest income was $11.9 million, an increase of $1.2 million, or
11.1%, from $10.8 million for the three months ended March 31, 1997.
Net interest income increased in the first quarter of 1998 primarily as
a result of (i) the increase in average loans outstanding to $1.23 billion from
$1.07 billion, (ii) the increase in the average yield on loans to 7.76% in the
first quarter of 1998 from 7.64% for the same period in the preceding year,
(iii) the reduction in the average balance of lower yielding securities to
$280.9 million from $352.0 million and their replacement with higher yielding
loans, and (iv) the reduction of the average balance of non-interest-earning
assets from $49.4 million for the three months ending March 31, 1997 to $41.0
million in the three months ended March 31, 1998.
The net interest margin improved to 2.89% for the year ended December
31, 1997, compared to 2.68% for the year ended December 31, 1996 and 1.96% for
the year ended December 31, 1995. For the year ended December 31, 1997, net
interest income was $43.3 million, an increase of $4.3 million, or 11.0% from
$39.0 million for the year ended December 31, 1996. Net interest income for the
year ended December 31, 1996 increased $10.2 million, or 35.3% from $28.8
million for the year ended December 31, 1995.
Net interest income increased in 1997 primarily as a result of (i) the
increase in average loans outstanding to $1.12 billion from $1.04 billion, (ii)
the reduction in the average balance of lower yielding securities to $326.7
million from $390.4 million and their replacement with higher yielding loans,
(iii) the reduction of average borrowings to $16.6 million from $49.8 million
and their replacement with lower costing deposits, and (iv) a reduction in the
non-interest-earning assets to $45.7 million from $60.0 million partially due to
the sale or reclassification of non-performing assets.
18
<PAGE>
Net interest income increased to $39.0 million in 1996 from $28.8
million in 1995, or 35.3%, primarily as a result of (i) the increase in average
loans outstanding to $1.04 billion from $1.0 billion, (ii) an increase in the
average yield on loans to 7.60% from 7.25% as a result of upward repricing of
the Bank's COFI-based loan portfolio, (iii) the reduction of average borrowings
to $49.8 million from $194.4 million and their replacement with lower costing
deposits, and (iv) a decrease in the average rate paid on deposit accounts from
4.57% to 4.37%.
19
<PAGE>
The following tables present condensed average balance sheet
information for the Company, together with interest rates earned and paid on the
various sources and uses of funds for each of the periods indicated.
<TABLE>
<CAPTION>
At For the Three Months Ended March 31,
March 31, ------------------------------------------------------------------
1998 1998 1997
------ --------------------------------- -------------------------------
Interest Average Interest Average
Average Income or Yield/ Average Income or Yield/
Yield/Cost Balance Expense Cost Balance Expense Cost
---------- ------- ------- ---- ------- ------- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans(1)........................ 7.74% $1,227,891 $23,833 7.76 $1,071,596 $20,467 7.64%
Securities...................... 5.85 280,856 4,121 5.87 352,048 4,946 5.62
Other........................... 5.95 11,795 166 5.62 34,413 452 5.26
---------- ------- ---------- -------
Total interest-earning assets..... 7.40 1,520,542 28,120 7.40 1,458,057 25,865 7.10
Noninterest-earning assets........ -- 41,043 -- -- 49,449 -- --
---------- ------- ---------- -------
Total assets...................... 7.22 $1,561,585 28,120 7.20 $1,507,506 25,865 6.86
---- ========== ------- ----- ========== ------- ----
Interest-bearing liabilities:
Deposits:
NOW and checking.............. 1.09 $80,331 219 1.09 $78,446 191 0.97
Money market accounts......... 2.48 21,036 127 2.41 22,379 130 2.32
Passbook accounts............. 2.26 209,958 1,179 2.25 213,984 1,243 2.32
Time deposits................. 5.18 1,116,325 14,144 5.07 1,045,359 12,693 4.86
---------- ------- ---------- -------
Total deposits.................... 4.47 1,427,650 15,669 4.39 1,360,168 14,257 4.19
---------- ------- ----- ---------- -------
Borrowings........................ -- 16 -- 5.93 31,585 424 5.37
Long-term debt to affiliates...... 10.00 20,060 502 10.00 17,252 431 10.00
---------- ------- ---------- -------
Total interest-bearing liabilities 4.40 1,447,726 16,171 4.47 1,409,005 15,112 4.29
----- ---------- ------- ----- ------- -----
Noninterest-bearing deposits...... 36,165 30,060
Other noninterest-bearing liabilities 14,231 12,866
Stockholders' equity.............. 63,463 55,574
---------- ----------
Total liabilities and stockholders'
equity............................ $1,561,585 $1,507,506
========== ==========
Net interest income/net interest rate
spread(2)......................... 2.99% $11,949 2.93% $10,753 2.81%
==== ======= ==== ======= ====
Net interest-earning assets/net
interest margin(3).............. 3.21% $72,816 3.14% $49,051 2.95%
==== ======= ==== ======= ====
Ratio of interest-earning assets to
interest-bearing liabilities...... 1.05x 1.05x 1.03x
==== ==== ====
</TABLE>
- -------------------
(1) Non-accrual loans are included in the table for computation purposes, but
the foregone interest on such loans is excluded.
(2) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(3) Net interest margin represents net interest income divided by average
interest-earning assets.
20
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended December 31,
------------------------------------------------------------------
1997 1996
--------------------------------- --------------------------------
Interest Average Interest Average
Average Income or Yield/ Average Income or Yield/
Balance Expense Cost Balance Expense Cost
------- ------- ---- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans(1)........................ $1,123,356 $ 86,141 7.67% $1,036,025 $ 78,711 7.60%
Securities...................... 326,728 18,690 5.72 390,381 22,836 5.85
Other........................... 48,944 2,760 5.64 26,516 1,417 5.34
---------- --------- ---------- --------
Total interest-earning assets..... 1,499,028 107,591 7.18 1,452,922 102,964 7.09
Noninterest-earning assets........ 45,664 -- 60,014 --
---------- ---------- ---------- --------
Total assets...................... $1,544,692 107,591 6.97 $1,512,936 102,964 6.81
========== --------- --- ========== -------- -----
Interest-bearing liabilities:
Deposits:
NOW and checking.............. $78,737 875 1.11 $ 77,710 826 1.06
Money market accounts......... 21,397 517 2.42 23,583 561 2.38
Passbook accounts............. 212,943 4,834 2.27 207,512 4,772 2.30
Time deposits................. 1,090,320 55,287 5.07 1,047,019 53,114 5.07
---------- --------- ---------- --------
Total deposits.................... 1,403,397 61,513 4.38 1,355,824 59,273 4.37
---------- --------- --------
Borrowings........................ 16,551 914 5.52 49,813 3,042 6.11
Long-term debt to affiliates...... 18,398 1,825 9.92 14,868 1,640 11.03
---------- --------- ---------- --------
Total interest-bearing
liabilities..................... 1,438,346 64,252 4.47 1,420,505 63,955 4.53
--------- ---- -------- -----
Noninterest-bearing deposits...... 33,780 23,981
Other noninterest-bearing
liabilities..................... 13,358 13,638
Stockholders' equity.............. 59,208 54,812
---------- ----------
Total liabilities and stockholders'
equity............................ $1,544,692 $1,512,936
========== ==========
Net interest income/net interest rate
spread(2)......................... $ 43,339 2.71% $ 39,009 2.58%
========= ==== ======== ====
Net interest-earning assets/net
interest margin(3).............. $ 60,682 2.89% $ 32,417 2.68%
========== ==== ========== ====
Ratio of interest-earning assets to
interest-bearing liabilities...... 1.04x 1.02x
===== =====
</TABLE>
<PAGE>
1995
-----------------------------------
Interest Average
Average Income or Yield/
Balance Expense Cost
------- ------- ----
Interest-earning assets:
Loans(1)........................ $1,002,662 $72,742 7.25%
Securities...................... 460,165 25,894 5.63
Other........................... 6,864 398 5.80
---------- -------
Total interest-earning assets..... 1,469,691 99,034 6.74
Noninterest-earning assets........ 56,164 --
---------- -------
Total assets...................... $1,525,855 99,034 6.49
========== ------- ----
Interest-bearing liabilities:
Deposits:
NOW and checking.............. $ 75,285 781 1.04
Money market accounts......... 27,732 654 2.36
Passbook accounts............. 215,604 4,797 2.22
Time deposits................. 908,783 49,806 5.48
---------- -------
Total deposits.................... 1,227,404 56,038 4.57
-------
Borrowings........................ 194,365 12,417 6.39
Long-term debt to affiliates...... 13,250 1,741 13.14
---------- -------
Total interest-bearing liabilities 1,435,019 70,196 4.89
---------- ------- -----
Noninterest-bearing deposits...... 16,191
Other noninterest-bearing
liabilities..................... 15,358
Stockholders' equity.............. 59,287
----------
Total liabilities and stockholders'
equity............................ $1,525,855
==========
Net interest income/net interest rate
spread(2)......................... $28,838 1.85%
======= =====
Net interest-earning assets/net
interest margin(3).............. $ 34,672 1.96%
========== =====
Ratio of interest-earning assets to
interest-bearing liabilities......
- -------------------
(1) Non-accrual loans are included in the table for computation purposes, but
the foregone interest on such loans is excluded.
(2) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(3) Net interest margin represents net interest income divided by average
interest-earning assets.
21
<PAGE>
The following table represents the extent to which changes in interest
rates and changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and expense during the
periods indicated. Information is provided for each major component of interest-
earning assets and interest-bearing liabilities with respect to: (i) changes in
volume (changes in volume multiplied by prior rate); (ii) changes attributable
to rate (changes in rate multiplied by prior volume); and (iii) the net change.
The changes attributable to both volume and rate have been allocated
proportionately to the change due to volume and the change due to rate.
<TABLE>
<CAPTION>
For the Three Months Ended For the Year Ended
March 31, 1998 Compared to the December 31, 1997 Compared to the
Three Months Ended March 31, 1997 Year Ended December 31, 1996
----------------------------------- ---------------------------------
Increase Increase
(Decrease) (Decrease)
Due to Due to
----------------------- ---------------------
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans....................................... $3,029 $ 337 $3,366 $6,690 $ 740 $7,430
Securities.................................. (1,057) 232 (825) (3,651) (495) (4,146)
Other....................................... (320) 34 (286) 1,261 82 1,343
------ ----- ------ ------ ------ ------
Total interest income on interest-earning
assets................................... 1,652 603 2,255 4,300 327 4,627
------ ----- ------ ------ ------ ------
Interest expense:
Deposits
NOW and checking accounts................ 5 23 28 11 38 49
Money market accounts.................... (8) 5 (3) (53) 9 (44)
Passbook accounts........................ (23) (40) (63) 122 (60) 62
Time deposits............................ 885 567 1,452 2,196 (23) 2,173
Borrowings.................................. (473) 48 (425) (1,861) (267) (2,128)
Long-term debt to affiliates................ 70 -- 70 264 (79) 185
------ ----- ------ ------ ------ ------
Total interest expense on interest-bearing
liabilities.................................. 456 603 1,059 679 382 297
------ ----- ------ ------ ------ ------
Increase in net interest income................ $1,196 $ -- $1,196 $3,621 $ 709 $4,330
====== ===== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended
December 31, 1996 Compared to the
Year Ended December 31, 1995
---------------------------------
Increase
(Decrease)
Due to
------------------
Volume Rate Net
------ ---- ---
(Dollars in Thousands)
<S> <C> <C> <C>
Interest income:
Loans....................................... $2,468 $3,501 $5,969
Securities.................................. (4,137) 1,079 (3,058)
Other....................................... 1,049 (30) 1,019
------ ------ -------
Total interest income on interest-earning
assets................................... (620) 4,550 3,930
------ ------ -------
Interest expense:
Deposits
NOW and checking accounts................ 26 19 45
Money market accounts.................... (99) 6 (93)
Passbook accounts........................ (249) 224 (25)
Time deposits............................ 6,473 (3,165) 3,308
Borrowings.................................. (8,850) (525) (9,375)
Long-term debt to affiliates................ 126 (227) (101)
------ ------ -------
Total interest expense on interest-bearing
liabilities................................ (2,573) (3,668) (6,241)
------ ------ -------
Increase in net interest income................ $1,953 $8,218 $10,171
====== ====== =======
</TABLE>
22
<PAGE>
Provision For Loan Losses. The provision for loan losses reflects
management's judgment of the current period cost associated with credit risk
inherent in the Company's loan portfolio. Specifically, the provision for loan
losses represents the amount charged against current period earnings to achieve
an allowance for loan losses that in management's judgment is adequate to absorb
losses inherent in the Company's loan portfolio.
For the three months ended March 31, 1998, the provision for loan
losses was $633,000, an increase of $616,000 from the $17,000 provision for the
three months ended March 31, 1997. The allowance for loan losses as of March 31,
1998, as a percentage of total gross loans and as a percentage of non-performing
loans, was 1.01% and 138.9%, respectively, compared to 1.06% and 88.3%,
respectively at March 31, 1997.
For the year ended December 31, 1997, the provision for loan losses was
$1.2 million, a decrease of $303,000, or 20.0% from the $1.5 million provision
for the year ended December 31, 1996. The allowance for loan losses at December
31, 1997, as a percentage of total gross loans and as a percentage of
non-performing loans was 1.00% and 123.2%, respectively, compared to 1.10% and
60.0%, respectively, at December 31, 1996. The provision for loan losses for the
year ended December 31, 1996, was $1.5 million, which represents a decrease of
$7.3 million, or 83.2% from the $8.8 million provision for loan losses for the
year ended December 31, 1995. In 1995, management increased the allowance for
loan losses to address the continued depressed California economy and real
estate market and to significantly increase the Company's overall level of
allowance for loan losses to over 1.00% of gross loans.
Noninterest Income. The following table sets forth the components of
noninterest income for the periods indicated.
<TABLE>
<CAPTION>
For the Three Months
Ended March 31, For the Years Ended December 31,
----------------------- ------------------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Service charges on deposit accounts.... $ 218 $ 216 $ 888 $ 615 $ 566
Commercial banking fees................ 254 208 977 421 92
Gain on sale of servicing rights....... 61 54 1,165 672 755
Gain (loss) on loan sales.............. (26) -- (204) 528 382
Loss on sale of securities............. -- -- (806) (335) --
Gain on branch sale.................... -- -- -- -- 656
Loan servicing income.................. 44 294 601 680 272
Miscellaneous income................... 7 90 473 816 1,044
----- ----- ------ ------ ------
Total noninterest income............... $ 558 $ 862 $3,094 $3,397 $3,767
===== ===== ====== ====== ======
</TABLE>
For the three months ended March 31, 1998, noninterest income was
$558,000, a decrease of $304,000, or 35.3% from $862,000 for the same period of
the preceding year. For the year ended December 31, 1997, noninterest income was
$3.1 million, a decrease of $303,000, or 8.9% from the year ended December 31,
1996. Noninterest income in 1996 of $3.4 million decreased $370,000, or 9.8%
from the $3.8 million recognized during the year ended December 31, 1995.
The decrease in noninterest income for the first quarter of 1998
reflects primarily the reduction in loan servicing income resulting from the
sale of the loan servicing portfolio during 1997.
The decrease in noninterest income for the year ended December 31,
1997, reflects the $806,000 loss incurred in connection with the sale of
COFI-based securities pursuant to the Company's business strategy to reduce its
assets tied to COFI. The $1.2 million gain on sale of servicing rights is a
non-recurring gain recognized as a result of the disposition of such servicing
rights in conjunction with the Bank's decision to close its mortgage banking
division. Additionally, the $601,000 of loan servicing income is substantially
non-recurring since substantially all of the related servicing portfolio was
sold during 1997. Commercial banking fees increased to $977,000 in 1997, or
132.1% from the $421,000 in 1996 as a result of the Company's business focus
shift to commercial banking.
23
<PAGE>
Noninterest income for the year ended December 31, 1996, of $3.4
million is $370,000, or 9.8% less than the $3.8 million of noninterest income
for the year ended December 31, 1995. The noninterest income for the year ended
December 31, 1996, included $335,000 of losses incurred in conjunction with the
disposal of COFI-based securities. Included in noninterest income for the year
ended December 31, 1995, was a gain of $656,000 recognized in connection with
the sale of a retail branch.
Noninterest Expense. The following table sets forth the components of
noninterest expense for the periods indicated.
<TABLE>
<CAPTION>
For the Three Months
Ended March 31, For the Years Ended December 31,
--------------------- ------------------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Personnel.............................. $4,308 $3,786 $14,087 $14,875 $12,000
Occupancy.............................. 1,246 1,159 4,811 4,754 4,355
Data processing........................ 749 500 2,059 1,859 1,696
Furniture and equipment................ 604 386 1,902 1,814 1,357
Deposit insurance...................... 231 572 1,798 3,519 3,051
SAIF recapitalization assessment....... -- -- -- 7,716 --
Communication.......................... 97 85 400 383 317
Professional fees and contracted
services............................. 454 385 2,242 1,551 1,303
Foreclosed assets expense.............. (32) 168 671 686 2,785
Miscellaneous expense.................. 1,588 1,095 4,220 4,256 3,278
------ ------ ------- ------- -------
Total noninterest expense.............. $9,245 $8,136 $32,190 $41,413 $30,142
====== ====== ======= ======= =======
Efficiency ratio....................... 73.92% 70.05% 69.33% 97.66% 92.45%
Efficiency ratio excluding SAIF
recapitalization assessment............ N/A N/A N/A 79.46 N/A
Noninterest expenses to average
assets(1)........................... 2.37% 2.16% 2.08 2.74 1.98
</TABLE>
- ---------------
(1) Annualized for the three months ended March 31, 1998 and 1997.
Noninterest expense increased by $1.1 million, or 13.6% to $9.2 million
for the three months ended March 31, 1998 from $8.1 million for the three months
ended March 31, 1997 primarily as a result of computer conversion expenses and
the cost of increases in the Commercial Banking Division staffing level. During
the first quarter of 1998, the Bank successfully completed a core computer
conversion to a system which is year 2000 compliant. Total conversion expenses
included in the expenses for the three months ended March 31, 1998 are $328,000
of computer conversion related expenses. Personnel expenses of $4.3 million for
the first quarter of 1998 are $522,000, or 13.8%, higher than the $3.8 million
of personnel expenses for the first quarter of 1997. This increase resulted
primarily from the additional staff which was hired to execute the commercial
banking business plan.
Noninterest expense decreased to $32.2 million, or 22.3%, for the year
ended December 31, 1997 from $41.4 million for the year ended December 31, 1996,
primarily as a result of the $7.7 million SAIF recapitalization assessment
recognized in 1996. Deposit insurance premiums of $1.8 million for the year
ended December 31, 1997 compares with $3.5 million for the year ended December
31, 1996, a decrease of 48.9% due to the Bank reaching the "well capitalized"
level. As a result of reaching this capital level, the deposit insurance premium
was reduced from 16.4 basis points to 9.4 basis points on July 1, 1997. The
average deposit insurance premium for 1997 was 12.9 basis points. The deposit
insurance premium was further reduced to 6.4 basis points effective January 1,
1998. During 1997, the Bank began a core computer conversion to a system which
provides the necessary support for the Bank's new commercial banking activities.
Computer conversion related expenses were $390,000 for the year ended December
31, 1997. New equipment purchases for this conversion totaled $1.2 million which
will be amortized over a four year term commencing in 1998. As a result of the
foregoing and the improved net interest margin, the efficiency ratio decreased
to 69.3% in 1997 from 97.7% in 1996.
24
<PAGE>
Noninterest expense increased to $41.4 million for the year ended
December 31, 1996 from $30.1 million for the year ended December 31, 1995 as a
result of (i) the $7.7 million SAIF recapitalization assessment, (ii) a $2.9
million increase in personnel expenses which was primarily the result of the
establishment of the commercial banking division and three new retail branches,
(iii) an increase of $457,000 in furniture and equipment expense and $399,000 in
occupancy expenses, both primarily in conjunction with the establishment of
three new retail branches in 1996, and (iv) a $1.0 million increase of
miscellaneous expense primarily due to additional printing and advertising
expenses relating to the establishment of the commercial banking division and
the establishment of merchant card services. The increase in the foregoing
categories of noninterest expense during 1996 was partially offset by a $2.1
million decline in foreclosed assets expense due, in part, to the reduction in
the Company's non-performing assets.
Provision for Income Taxes. The provision for income taxes of $1.1
million and $1.4 million on the income before taxes of $2.6 million and $3.5
million for the three months ended March 31, 1998 and 1997, respectively,
represents an effective tax rate of 41.0%.
For the year ended December 31, 1997, the provision for income taxes of
$5.8 million on the income before taxes of $13.1 million represents an effective
tax rate of 44.2%. For the year ended December 31, 1996, the Company had a tax
benefit of $177,000 on the loss before taxes of $483,000. For the year ended
December 31, 1995, the Company's tax benefit was $3.4 million on the loss before
taxes of $6.3 million.
In 1997, the IRS concluded an examination of the income tax returns of
the Company for the years 1993 through 1995. The audit resulted in a cash
payment of $500,000, and the partial reversal of previously deferred tax assets
which approximated the allowances provided by the Company for this eventuality.
Financial Condition
General. At March 31, 1998, the Company had total assets of $1.56
billion, consistent with $1.56 billion at December 31, 1997, and total deposits
of $1.46 billion, as compared to $1.47 billion at December 31, 1997. At March
31, 1998, the Company had net loans of $1.23 billion, an increase of $26.0
million, or 2.1%, from December 31, 1997. At March 31, 1998, the Company had
investment securities of $262.4 million compared to $270.1 million at December
31, 1997. At March 31, 1998, the Company continued to have no borrowings,
consistent with December 31, 1997. At March 31, 1998, stockholders' equity
increased $2.0 million, or 3.27%, to $64.6 million from $62.6 million at
December 31, 1997.
At December 31, 1997, the Company had total assets of $1.56 billion and
total deposits of $1.47 billion. Total assets increased from $1.47 billion at
December 31, 1996, and total deposits increased from $1.39 billion at December
31, 1996. At December 31, 1997, the Company had net loans of $1.2 billion, a
14.3% increase from net loans of $1.05 billion at December 31, 1996. At December
31, 1997, the Company had investment securities totaling $270.1 million compared
to $343.7 million at December 31, 1996. At December 31, 1997, the Company had no
borrowings while the stockholders' equity increased to $62.6 million at December
31, 1997 from $54.3 million at December 31, 1996.
Loan Portfolio. In connection with the Bank's balance sheet
restructuring, the Bank closed its mortgage banking division and ceased the
origination of nonconforming mortgages for sale in the secondary market, but
continued to originate conforming residential mortgages (1-4 family) primarily
for portfolio retention. Residential mortgages (1-4 family) originated for sale
in the three months ended March 31, 1998 aggregated $5.0 million as compared to
$4.1 million, $22.4 million, $83.4 million and $87.7 million in the three months
ended March 31, 1997 and the years ended December 31, 1997, 1996 and 1995,
respectively. In addition, with the creation of its commercial banking division
in 1996, new emphasis was placed on the origination of commercial real estate
loans and commercial business loans. Total new commitments for commercial loans
originated in the three months ended March 31, 1998 were $9.3 million as
compared to $4.3 million, $31.9 million and $9.9 million for the three months
ended March 31, 1997 and the years ended December 31, 1997 and 1996,
respectively.
25
<PAGE>
The following table shows the composition of the Bank's loan portfolio
by amount and percentage of total gross loans in each major loan category at the
dates indicated.
<TABLE>
<CAPTION>
At March 31, At December 31,
--------------- ------------------------------------------------------------------
1998 1997 1996 1995
--------------- ---------------- ---------------- ----------------
Amount % Amount % Amount % Amount %
------- --- ------ --- ------- --- ------ ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consumer
Residential mortgage
(1-4 family)(1)..... $ 716,492 57.83% $ 691,167 56.98% $ 541,156 50.79% $ 507,121 49.45%
Home equity........... 16,405 1.32 16,743 1.38 10,673 1.00 1,193 0.12
Other................. 2,142 0.17 2,732 0.23 2,642 0.25 2,981 0.29
---------- ----- ---------- ------ ---------- ----- ---------- ------
Total consumer... 735,039 59.33 710,642 58.59 554,471 52.04 511,295 49.86
---------- ----- ---------- ------ ---------- ----- ---------- ------
Commercial
Secured by real estate -
multi-family........ 336,166 27.13 339,257 27.97 361,591 33.93 376,398 36.70
Secured by real estate -
nonresidential(2) . 112,711 9.10 115,366 9.51 123,003 11.54 131,259 12.80
Construction.......... 32,568 2.63 26,603 2.19 19,892 1.87 6,612 0.64
Commercial business... 22,407 1.81 21,146 1.74 6,595 0.62 -- --
---------- ----- ---------- ------ ---------- ------ ---------- ------
Total commercial. 503,852 40.67 502,372 41.41 511,081 47.96 514,269 50.14
---------- ----- ---------- ------ --------- ------ ---------- ------
Total gross loans.......... 1,238,891 100.00% 1,213,014 100.00% 1,065,552 100.00% 1,025,564 100.00%
====== ====== ====== ======
Net deferred loan origination
costs................... 1,359 1,223 816 44
Allowance for loan losses.. (12,552) (12,142) (11,682) (13,699)
---------- ---------- ---------- ----------
Net loans.................. $1,227,698 $1,202,095 $1,054,686 $1,011,909
========== ========== ========== ==========
</TABLE>
At December 31,
------------------------------------------
1994 1993
---------------- ------------------
Amount % Amount %
------ ---- ------ ----
Consumer
Residential mortgage
(1-4 family)(1)..... $432,045 44.33% $380,570 42.85%
Home equity........... -- -- -- --
Other................. 1,474 0.15 1,929 0.22
-------- ------ -------- ------
Total consumer... 433,519 44.48 382,499 43.07
-------- ------ -------- ------
Commercial
Secured by real estate -
multi-family........ 391,509 40.17 329,401 37.09
Secured by real estate -
nonresidential(2) . 141,995 14.57 151,061 17.01
Construction.......... 7,597 0.78 25,115 2.83
Commercial business... -- -- -- --
-------- ------ -------- ------
Total commercial. 541,101 55.52 505,577 56.93
-------- ------ -------- ------
Total gross loans.......... 974,620 100.00% 888,076 100.00%
====== ======
Net deferred loan origination
costs................... (1,402) (2,075)
Allowance for loan losses.. (7,550) (8,000)
-------- --------
Net loans.................. $965,668 $878,001
======== ========
- ------------
(1) Includes $487.6 million of limited documentation loans at March 31, 1998.
See "Business--Lending Activities--Residential Mortgages (1-4 family).
(2) Includes $73.1 million, $126.0 million, $87.5 million, $123.0
million,$131.3 million, $142.0 million, and $151.0 million of primarily
COFI-based loans at March 31, 1998 and 1997, and at December 31, 1997,
1996, 1995,1994 and 1993, respectively, originated by the Bank during 1988
through 1992.
26
<PAGE>
The following table shows the Bank's loan originations during the periods
indicated.
<TABLE>
<CAPTION>
For the Three Months
Ended March 31, For the Years Ended December 31,
---------------------- ------------------------------------
1998 1997 1997 1996 1995
-------- ------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Consumer
Residential mortgage (1-4 family)
For sale:
GNMA......................... $ -- $ 759 $ 759 $ 33,066 $ 33,875
FHLMC and FNMA............... 4,978 3,297 21,675 50,319 53,819
For portfolio:
Fully documented loans...... 4,441 1,229 7,867 10,675 8,932
Limited documentation loans. 71,178 29,345 244,523 131,548 114,251
Home equity loans...................... 1,068 5,000 13,552 24,703 4,748
-------- ------- -------- -------- --------
Total consumer loans........ 81,665 39,630 288,376 250,311 215,625
-------- ------- -------- -------- --------
Commercial
Secured by real estate - multi-family.. 1,401 2,914 7,461 7,318 842
Secured by real estate -
non-residential...................... 3,159 3,420 23,743 2,655 864
Construction (1)....................... 11,202 8,025 59,569 42,166 15,737
Commercial business.................... 9,256 4,334 31,933 9,901 --
-------- ------- -------- -------- --------
Total commercial loans..... 25,018 18,693 122,706 62,040 17,443
-------- ------- -------- -------- --------
Total loan originations.... $106,683 $58,323 $411,082 $312,351 $233,068
======== ======= ======== ======== ========
</TABLE>
- -------------
(1) Includes loans in process.
Included in the Bank's residential mortgages (1-4 family) as of March
31, 1998 and December 31, 1997, respectively, were $492.1 million and $450.5
million, or 68.1% and 65.2% of limited documentation loans. Beginning in 1993,
the Bank has specialized in this loan product. Because of the less than full
documentation required for such loans, the Bank has emphasized relatively small
average loan size and low average loan-to-value ratios for these loans, as
evidenced by an average loan balance of $164,100 and average loan-to-value
ratios of 64% as of March 31, 1998.
Since it began originating limited documentation loans, the Bank has
experienced no net charge-offs with respect to such loans. At March 31, 1998,
the Bank had two loans more than three payments delinquent with an aggregate
principal balance of $199,000. Moreover, during the third quarter of 1997, the
Bank sold $17.2 million of the limited documentation loans to test the market
reception for this product. The Bank received a price in excess of par value on
the sale of such loans. Notwithstanding the historical performance of this type
of loan, there can be no assurance that such performance will continue.
Total gross loans increased $25.9 million, or 2.13%, to $1.24 billion
at March 31, 1998 from $1.21 billion at December 31, 1997 and 13.9%, from $1.07
billion at December 31, 1996, which was a 3.9% increase from $1.03 billion at
December 31, 1995. Increases in gross loans were the result of increases in
residential (1-4 family) loan production for portfolio retention and commercial
business loan generation resulting from the creation of the Bank's commercial
banking division in 1996.
27
<PAGE>
The following table sets forth the Bank's mortgage loan originations,
purchases, sales and principal repayments of loans and mortgage-backed
securities for the periods indicated.
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, 1998 For the Year Ended December 31,
------------------------- ---------------------------------------------
1998 1997 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Mortgage loans:
Balance at beginning of period............... $1,178,217 $1,045,449 $1,045,449 $1,008,928 $ 964,194
---------- ---------- ---------- ---------- ----------
Mortgage loans originated:
Residential mortgage (1 to 4 family)... 80,597 34,630 274,824 225,608 210,877
Home equity............................ 1,068 5,000 13,552 24,703 4,748
Secured by real estate-multifamily..... 1,401 2,914 7,461 7,318 842
Secured by real estate-nonresidential.. 3,159 3,420 23,743 2,655 864
Construction........................... 11,202 8,025 59,569 42,166 15,737
---------- ---------- ---------- ---------- ----------
Total mortgage loans originated...... 97,427 53,989 379,149 302,449 233,068
Mortgage loans purchased................. 217 361 44,416 7,643 16,677
---------- ---------- ---------- ---------- ----------
Total mortgage loans originated and
purchased.............................. 97,644 54,350 423,565 310,092 249,745
Mortgage loans sold...................... (3,509) (940) (43,554) (478) (8,412)
Principal repayments..................... (68,929) (45,869) (242,930) (271,439) (186,523)
Increased premiums/discounts and
deferred loan fees..................... 136 (50) 407 772 1,446
Net (increase) decrease in allowance for
loan losses............................ (410) 271 (460) 2,017 (6,149)
Mortgage loans transferred to real
estate owned........................... -- (1,780) (4,260) (4,443) (5,373)
---------- ---------- ---------- ---------- ----------
Balance at end of period..................... $1,203,149 $1,051,431 $1,178,217 $1,045,449 $1,008,928
========== ========== ========== ========== ==========
Other loans:
At beginning of period................... $ 23,878 $ 9,237 $ 9,237 $ 2,981 $ 1,474
Other loans originated................... 9,256 4,334 31,933 9,901 --
Other loans sold......................... -- -- (1,113) -- --
Principal repayments..................... (8,585) (2,504) (16,179) (3,645) 1,507
---------- ---------- ---------- ---------- ----------
At end of period............................. $ 24,549 $ 11,067 $ 23,878 $ 9,237 $ 2,981
========== =========== ========== ========== ==========
Mortgage-backed securities:
At beginning of period....................... $266,103 $328,069 $328,069 $372,045 $410,404
Mortgage-backed securities purchased..... -- 100 200 80 55
Mortgage-backed securities sold.......... -- -- (24,301) (9,135) --
Amortization of premiums................. (154) (350) (1,029) (1,002) (1,165)
Net change in unrealized gain (loss) on
mortgage backed securities available
for sale.............................. 842 (950) 1,540 (1,367) (2,258)
Principal repayments..................... (4,364) (11,799) (38,376) (32,552) (34,991)
---------- ---------- ---------- ---------- ----------
At end of period............................. $ 262,427 $ 315,070 $ 266,103 $ 328,069 $ 372,045
========== ========== ========== ========== ==========
</TABLE>
In 1996, management made a strategic decision to reduce its COFI-based
assets and in the fourth quarter of 1996 ceased COFI-based lending. In addition,
the Bank began to reduce its COFI-based loan portfolio through amortization and
sales and replace it with current-index products including adjustable-rate
mortgage loans and loans with an initial rate of interest for a fixed term
(generally 3 to 5 years), the interest rates on which adjust annually thereafter
("intermediate fixed-rate loans"). As a result of this initiative, the Bank's
COFI-based loans declined to $532.3 million at March 31, 1998 from $554.4
million, $641.9 million, and $670.7 million at December 31, 1997, 1996 and 1995,
respectively.
At March 31, 1998, total gross loans included $306.1 million of
intermediate fixed-rate loans compared with $291.5 million at December 31, 1997,
an increase of $14.6 million or 5.0% which was the result of the Bank continuing
to emphasize the origination of intermediate fixed-rate mortgages (1-4 family).
Fixed-rate loans at March 31, 1998 were
28
<PAGE>
$256.3 million compared with $241.5 million at December 31, 1997, an increase of
6.1% which was the result of the origination of primarily fifteen year
mortgages.
As of December 31, 1997, total gross loans included $291.5 million of
intermediate fixed-rate loans compared with $224.3 million as of December 31,
1996, an increase of 30.0% which was the result of the Bank emphasizing the
origination of intermediate fixed-rate residential mortgages (1-4 family) during
1997. Fixed-rate loans as of December 31, 1997 were $241.5 million compared with
$176.8 million as of December 31, 1996, an increase of 36.6% which was the
result of the origination of fifteen and thirty year fixed-rate loans during
1997. To better manage its interest rate risk, the Bank has ceased the
origination of thirty year fixed-rate loans for portfolio retention, except on a
customer accommodation basis.
As of December 31, 1996, total gross loans included $224.3 million of
intermediate fixed-rate loans, compared with $213.4 million as of December 31,
1995, an increase of 5.1%. As of December 31, 1996, total fixed-rate loans were
$176.8 million as compared to $143.9 million as of December 31, 1995. As of
December 31, 1996, the ARM loan portfolio was $664.4 million as compared with
$668.3 million as of December 31, 1995, a decrease of 0.6%.
The following table sets forth the contractual loan maturity of the
Bank's loan portfolio at March 31, 1998. ARM loans are shown in the periods in
which they reprice rather than when they become due. The table does not include
the effect of future principal prepayments. The rate of loan prepayment varies
from time-to-time, depending upon various factors including market interest
rates.
<TABLE>
<CAPTION>
At March 31, 1998
-------------------------------------------------------------------------------
After Ten
After After After Years
One Year Three Years Five Years Through After
Within Through Through Through Twenty Twenty Total
One Year Three Years Five Years Ten Years Years Years -----
-------- ----------- ----------- ----------- --------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Consumer:
Residential mortgage (1-4 family)...... $216,073 $ 98,107 $181,643 $ 7,290 $171,758 $41,622 $ 716,493
Home equity............................ 16,405 -- -- -- -- -- 16,405
Other.................................. 2,142 -- -- -- -- -- 2,142
-------- -------- -------- ------- -------- ------- ----------
Total consumer.................... 234,620 98,107 181,643 7,290 171,758 41,622 735,040
Commercial:
Secured by real estate - multi-family.. 289,478 13,169 19,011 6,696 7,812 -- 336,166
Secured by real estate -
nonresidential...................... 102,392 9 3,736 6,415 159 -- 112,711
Construction........................... 32,568 -- -- -- -- -- 32,568
Commercial business.................... 21,841 -- 508 57 -- -- 22,406
-------- -------- -------- ------- -------- ------- ----------
Total commercial.................. 446,279 13,178 23,255 13,168 7,971 -- 503,851
Total loans....................... $680,899 $111,285 $204,898 $20,458 $179,729 $41,622 1,238,891
======== ======== ======== ======= ======== ======= ----------
Net deferred loan origination costs......... 1,359
Allowance for loan losses................... (12,552)
----------
Net loans................................... $1,227,698
==========
</TABLE>
29
<PAGE>
The following table sets forth at March 31, 1998 the dollar amount of
loans and mortgage-backed securities contractually due or repricing after March
31, 1999 and whether such loans and securities have fixed or adjustable interest
rates.
<TABLE>
<CAPTION>
Due or Repricing After March 31, 1999
---------------------------------------
Fixed Adjustable Total
-------- ---------- --------
(Dollars in Thousands)
<S> <C> <C> <C>
Consumer:
Residential mortgage (1-4 family)......... $214,484 $285,936 $500,420
Home equity............................... -- -- --
Other..................................... -- -- --
-------- -------- --------
Total consumer...................... 214,484 285,936 500,420
Commercial:
Secured by real estate - multi-family..... 27,160 19,527 46,687
Secured by real estate - nonresidential... 10,320 -- 10,320
Construction.............................. -- -- --
Commercial business....................... 565 -- 565
-------- -------- --------
Total commercial.................... 38,045 19,527 57,572
Total loans...................... 252,529 305,464 557,992
-------- -------- --------
Mortgage-backed securities...................... 1 262,425 262,427
-------- -------- --------
Total loans and mortgage-backed securities...... $252,530 $567,889 $820,419
======== ======== ========
</TABLE>
Non-Performing Assets and OREO. Management generally places loans on
non-accrual status when they become 90 days past due, unless they are both well
secured and in the process of collection. When a loan is placed on non-accrual
status, any interest previously accrued but not collected is reversed from
income. Loans are charged off when management determines that collection has
become unlikely. Other real estate owned ("OREO") consists of real property
acquired through foreclosure on the collateral underlying defaulted loans.
The following table sets forth information regarding non-performing
assets at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
At March 31, --------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-accrual loans....................... $ 9,038 $ 9,854 $ 19,477 $ 20,484 $ 11,324 $ 14,591
Other real estate owned (OREO).......... 101 412 1,619 1,803 5,023 14,415
---------- ---------- ---------- ---------- ---------- --------
Total non-performing assets............. $ 9,139 $ 10,266 $ 21,096 $ 22,287 $ 16,347 $ 29,006
========== ========== ========== ========== ========== ========
Non-performing assets to total assets... 0.59% 0.66% 1.43% 1.46% 1.07% 1.99%
Non-accrual loans to total loans........ 0.73 0.81 1.83 2.00 1.16 1.64
Non-performing assets to total loans and
OREO.................................. 0.74 0.85 1.98 2.17 1.67 3.21
Total gross loans....................... $1,238,891 $1,213,014 $1,065,552 $1,025,564 $ 974,620 $888,076
========== ========== ========== ========== ========== ========
Gross income not recognized on
nonaccrual loans..................... $53 $65 $172 $489 $224 N/A
=== === ==== ==== ==== ===
</TABLE>
The Bank records OREO at the lower of carrying value or fair value less
estimated costs to sell. Estimated losses that result from the ongoing periodic
valuation of these properties are charged to earnings with a provision for
losses on foreclosed property in the period in which they are identified. During
the three months ended March 31, 1998, the Bank reduced total non-performing
assets to $9.1 million from $10.3 million at December 31, 1997, a decrease of
$1.2 million or 10.9%. During 1997, the Bank reduced total non-performing assets
to $10.3 million as of December 31, 1997 from $21.1 million as of December 31,
1996, a reduction of $10.8 million or 51.3%. The reduction was the result of the
sale of non-performing loans and the reclassification of other loans which
became current and were
30
<PAGE>
reclassified to performing status. During the three months ended March 31, 1998,
the Bank reduced OREO from $412,000 to $101,000, or 75.4%, as a result of the
sale of assets. During the year ended December 31, 1997, OREO decreased from
$1.6 million to $412,000, or 74.5% as a result of the disposition of the assets.
At March 31, 1998, OREO consisted of one property acquired through foreclosure
with a carrying value of $101,000.
The policy of the Bank is to review each loan in the portfolio to
identify problem credits. There are four classifications for problem loans
"special mention," "substandard," "doubtful" and "loss." Special mention loans
do not yet warrant adverse classification, but possess credit deficiencies or
potential weaknesses requiring the Bank's attention. Substandard loans have one
or more well-defined weaknesses and are characterized by the distinct
possibility that the Bank will sustain some loss if the deficiencies are not
corrected. Doubtful loans have the weaknesses of substandard loans with the
additional characteristic that the weaknesses make collection or liquidation in
full on the basis of currently existing facts, conditions and values
questionable, and there is a high possibility of loss. A loan classified "loss"
is considered uncollectible and its continuance as an asset is not warranted.
The following table sets forth criticized loans at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
At March 31, ----------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
------------ ------- ------- ------- ------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Special mention loans................... $11,199 $ 7,182 $15,902 $ 3,066 $15,226 $11,547
Substandard and doubtful loans.......... 16,096 16,822 19,235 28,462 20,248 25,044
------- ------- ------- ------- ------- -------
Total criticized loans............... $27,295 $24,004 $35,137 $31,528 $35,474 $36,591
======= ======= ======= ======= ======= =======
Total allowance for loan losses......... $12,552 $12,142 $11,682 $13,699 $ 7,550 $ 8,000
======= ======= ======= ======= ======= =======
Special mention loans to total loans.... 0.90% 0.59% 1.49% 0.30% 1.56% 1.30%
Substandard and doubtful loans to total
loans................................ 1.30 1.39 1.80 2.78 2.08 2.83
Criticized loans to total loans......... 2.20 1.98 3.30 3.07 3.65 4.13
Allowance for loan losses to substandard
and doubtful loans................... 77.98 72.18 60.73 48.13 37.29 31.94
Allowance for loan losses to criticized
loans................................ 45.99 50.58 33.25 43.45 21.28 21.86
</TABLE>
With the exception of the criticized loans described above, management
is not aware of any other loans as of March 31, 1998 where the known credit
problems of the borrower would cause management to doubt such borrower's ability
to comply with their present loan repayment terms or that would result in such
loans being included in the non-performing asset table above at some future
date. During the first quarter of 1998, the Bank employed an outside loan review
firm to review the classification of its commercial loan portfolio. There were
no material changes in the classifications as a result of such review.
Management cannot predict the extent to which economic conditions in
the Bank's market area may worsen or the full impact such conditions may have on
the Bank's loan portfolio. Accordingly, there can be no assurance that other
loans will not become 90 days or more past due, be placed on non-accrual status
or become impaired or restructured loans or OREO in the future.
31
<PAGE>
The following table sets forth delinquencies in the Bank's loan
portfolio at the dates indicated:
<TABLE>
<CAPTION>
At December 31, 1998 At December 31, 1997
-------------------------------------- --------------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More
------------------ ------------------ ------------------ -----------------
Principal Principal Principal Principal
Number Balance Number Balance Number Balance Number Balance
------ --------- ------ --------- ------ --------- ------ ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consumer:
Residential mortgages (1-4 family)........ 7 $1,065 14 $2,696 6 $717 16 $3,547
Home equity............................... -- -- 1 29 2 49 1 15
Other..................................... 17 37 10 17 27 35 22 44
-- ------ --- ------ --- ---- --- -------
Total consumer....................... 24 1,102 25 2,742 35 801 39 3,606
--- ------ --- ------ --- --- --- -------
Commercial:
Secured by real estate - multi-family..... -- -- -- -- -- -- -- --
Secured by real estate - non-residential.. -- -- -- -- -- -- 2 2,418
Construction.............................. -- -- -- -- -- -- -- --
Commercial business....................... -- -- -- -- -- -- -- --
Total commercial..................... -- -- -- -- -- -- 2 2,418
-- ------ ---- ------ --- ---- --- -------
Total..................................... 24 $1,102 25 $2,742 35 $801 41 $6,024
== ====== === ====== === ==== === =======
<CAPTION>
At December 31, 1996 At December 31, 1995
-------------------------------------- --------------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More
------------------ ------------------ ------------------ -----------------
Principal Principal Principal Principal
Number Balance Number Balance Number Balance Number Balance
------ --------- ------ --------- ------ --------- ------ ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consumer:
Residential mortgages (1-4 family)........ 9 $1,054 22 $ 4,179 8 $310 32 $ 6,055
Home equity............................... -- -- -- -- -- -- -- --
Other..................................... 19 29 12 14 9 34 12 8
-- ------ -- ------- -- ---- -- -------
Total consumer....................... 28 1,083 34 4,193 17 344 44 6,063
--- ------ --- ------- --- ---- --- -------
Commercial:
Secured by real estate - multi-family..... -- -- 1 940 -- -- 2 1,872
Secured by real estate - non-residential.. -- -- 6 6,054 -- -- 6 3,750
Construction.............................. -- -- -- -- -- -- -- --
Commercial business....................... -- -- -- -- -- -- -- --
Total commercial..................... -- -- 7 6,994 -- -- 8 5,622
--- ------ --- ------- --- ---- --- -------
Total..................................... 28 $1,083 41 $11,187 17 $344 52 $11,683
=== ====== === ======= === ==== === =======
</TABLE>
32
<PAGE>
During the three months ended March 31, 1998, delinquent residential
mortgages (1-4 family) decreased to $3.8 million or 0.52% of gross residential
mortgages (1-4 family) from $4.3 million or 0.62% of gross residential mortgages
(1-4 family) at December 31, 1997. During the year ended December 31, 1997,
delinquent residential mortgages (1-4 family) decreased from $5.2 million, or
0.97% of gross residential mortgages (1-4 family) at December 31, 1996. This
compares with a decrease from $6.4 million as of December 31, 1995, or 1.26% of
gross residential mortgages (1-4 family). Management attributes the reduction in
delinquent loans to a general improvement in the California economy and to the
greater focus by management on the reduction of delinquent loans.
The delinquent mortgage loans secured by nonresidential real estate
decreased to zero at March 31, 1998 from $2.4 million at December 31, 1997 as a
result of the assumption of one of the delinquent nonresidential loans by a
third party. The delinquent mortgage loans secured by nonresidential real estate
decreased to $2.4 million as of December 31, 1997 from $6.1 million as of
December 31, 1996, or by 60.7% as a result of the sale of one delinquent loan
during the period. At March 31, 1998, there were no delinquent mortgage loans
secured by multi-family real estate.
Allowance For Loan Losses. The Bank has established a formalized
process for determining an adequate allowance for loan losses. This process
results in an allowance that consists of two components, allocated and
unallocated. The allocated component includes allowance estimates that result
from analyzing certain individual loans (including impaired loans), and includes
the results of analyzing loans on a pool basis. For loans that are analyzed
individually, third party information such as appraisals may be used to
supplement management's analysis. For loans that are analyzed on a pool basis,
such as residential mortgage loans (1-4 family), management's analysis consists
of reviewing delinquency trends, charge-off experience, economic conditions,
current composition of the loan portfolio, regional collateral value trends, and
other factors. The unallocated component of the allowance for loan losses is
intended to compensate for the subjective nature of estimating an adequate
allowance for loan losses, economic uncertainties, and other factors. In
addition to the assessment performed by management, the Bank's loan portfolio is
subject to an internal asset review function and is examined by its regulators.
The results of these examinations are incorporated into management's assessment
of the allowance for loan losses.
The allowance for loan losses is increased by provisions for loan
losses and reduced by charge-offs, net of recoveries. Loans are charged off to
the extent they are classified as loss either internally or by the Bank's
regulators. For any loan that is past due for more than 90 days, management will
generally charge off the amount by which the recorded loan amount exceeds the
value of the underlying collateral, unless the loan is both well-secured and in
the process of collection. Recoveries of amounts that have previously been
charged off are generally recorded only to the extent that cash is received.
While management uses available evidence in assessing the adequacy of
the allowance for loan losses, future additions to the allowance for loan losses
will be subject to continuing evaluations of the inherent risk in the portfolio.
If the economy declines or asset quality deteriorates, additional provisions for
loan losses could be required. Additionally, the Bank's regulators review the
adequacy of the allowance for loan losses as part of their examination process
and may require the Bank to record additional provisions for loan losses based
on their judgment or information available to them at the time of their
examinations. Management believes that the allowance for loan losses is adequate
to provide for estimated losses inherent in the Bank's loan portfolio.
33
<PAGE>
The following table sets forth information concerning the Bank's
allowance for loan losses for the dates indicated:
<TABLE>
<CAPTION>
For the Three Months
Ended March 31, For the Years Ended December 31,
-------------------- --------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- --------- ------- ------- ------- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Allowance for loan losses:
Balance beginning of period...................... $12,142 $11,682 $11,682 $13,699 $ 7,550 $8,000 $6,979
------- ------- ------- ------- ------- ------ ------
Provision for loan losses........................ 633 17 1,154 1,476 8,777 3,206 8,898
Charge-offs, net of recoveries
Consumer:
Residential mortgage (1-4 family).......... 2 272 564 948 940 3,146 6,747
Other...................................... 51 49 160 194 22 42 52
------- ------- ------- ------- ------- ------ ------
Total consumer........................ 53 321 724 1,142 962 3,188 6,799
------- ------- ------- ------- ------- ------ ------
Commercial:
Secured by real estate - multi-family...... -- (148) 3 416 737 76 208
Secured by real estate - nonresidential.... 170 115 (33) 1,935 930 393 1,087
Construction............................... -- -- -- -- -- -- (154)
Commercial business........................ -- -- -- -- (1) (1) (63)
------- ------- ------- ------- ------- ------ ------
Total commercial...................... 170 (33) (30) 2,351 1,666 468 1,078
------- ------- ------ ------- ------- ------ ------
Total charge-offs, net of recoveries............. 223 288 694 3,493 2,628 3,656 7,877
------- ------- ------- ------- ------- ------ ------
Balance at end of period......................... $12,552 $11,411 $12,142 $11,682 $13,699 $7,550 $8,000
======= ======= ======= ======= ======= ====== ======
Allowance for loan losses to ending loans........ 1.01% 1.06% 1.00% 1.10% 1.34% 0.78% 0.90%
Net charge-offs to average loans outstanding(1).. 0.07 0.11 0.06 0.34 0.26 0.37 0.85
</TABLE>
- -------------
(1) Annualized for the three months ended March 31, 1998 and 1997.
34
<PAGE>
During the three months ended March 31, 1998, the allowance for loan
losses increased to $12.6 million from $12.1 million at December 31, 1997, or by
3.4%, due to the Bank providing additional loss provisions of $633,000 and
recording net charge-offs of $223,000. During the year ended December 31, 1997,
the allowance for loan losses increased to $12.1 million from $11.7 million as
of December 31, 1996, or by 3.4%, due to the Bank providing additional loan loss
provisions of $1.2 million and recording net charge-offs of $694,000 during the
year as California real estate values rebounded. During the year ended December
31, 1996, the allowance for loan losses decreased to $11.7 million from $13.7
million as of December 31, 1995, or by 14.6%, as a result of net charge-offs of
$3.5 million during the year which was partially offset by an additional
provision of $1.5 million. The $8.8 million provision for loan losses for the
year ended December 31, 1995, reflected management's decision to increase the
allowance for loan losses to address the continued depressed California economy
and real estate market and to significantly increase the Company's overall level
of loan loss allowance to over 1.00% of gross loans.
35
<PAGE>
The following table provides a summary of the allocation of the
allowance for loan losses for individual loan categories at the dates indicated.
The allocations presented should not be interpreted as an indication that
charge- offs will be incurred in these amounts or proportions, or that the
portion of the allowance allocated to each loan category represents the total
amount available for losses that may occur within that loan category. The entire
amount of the allowance for loan losses is available to absorb loan losses,
irrespective of the loan category to which any potential charge-off might
relate.
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------
At March 31,
1998 1997 1996 1995
--------------- ---------------- ---------------- ----------------
Amount % Amount % Amount % Amount %
------ --- ------- --- ------- --- ------- ---
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Allocated:
Consumer
Residential mortgage
(1-4 family).................. $ 1,984 15.81% $ 1,982 16.32% $ 1,697 14.53% $ 2,691 19.64%
Home equity..................... 250 1.99 255 2.10 222 1.90 13 0.09
Other........................... 199 1.59 238 1.96 82 0.70 76 0.55
------- ----- ------- ------ ------- ------ ------- ------
Total consumer............. 2,433 19.38 2,475 20.38 2,001 17.13 2,780 20.25
------- ----- ------- ------ ------ ------ ------- ------
Commercial
Secured by real estate -
multi-family................... 2,479 19.75 2,130 17.54 2,533 21.68 2,384 17.40
Secured by real estate -
nonresidential................. 1,921 15.30 1,919 15.80 2,811 24.06 3,323 24.26
Construction loans............... 520 4.14 508 4.18 252 2.16 98 0.72
Commercial business.............. 663 5.28 572 4.71 117 1.00 -- --
------- ------ ------- ------ ------ ------ ------- ------
Total commercial............ 5,583 44.58 5,129 42.23 5,713 48.90 5,805 42.38
Other................................. 82 0.65 83 0.68 141 1.21 275 2.01
------- ------ ------- ------ ------ ------ ------- ------
Total allocated....................... 8,098 64.52 7,687 63.31 7,855 67.24 8,860 64.68
Unallocated........................... 4,454 35.48 4,455 36.69 3,827 32.76 4,839 35.32
------- ------ ------- ------ ------ ------ ------- ------
Total allowance for loan
losses.................... $12,552 100.00% $12,142 100.00% $11,682 100.00% $13,699 100.00%
======= ====== ======= ====== ======= ====== ======= ======
</TABLE>
At December 31,
---------------------------------------
1994 1993
--------------- -----------------
Amount % Amount %
------ --- ------- ---
Allocated:
Consumer
Residential mortgage
(1-4 family).................. $ 1,512 20.03% $ 1,907 23.84%
Home equity..................... -- -- -- --
Other........................... 11 0.15 16 0.20
------- ----- ------- ------
Total consumer............. 1,523 20.17 1,923 24.04
------- ----- ------- ------
Commercial
Secured by real estate -
multi-family................... 2,307 30.56 2,055 25.69
Secured by real estate -
nonresidential................. 2,693 35.67 2,753 34.41
Construction loans............... 259 3.43 447 5.59
Commercial business.............. -- -- -- --
------- ------ ------- ------
Total commercial............ 5,259 69.66 5,255 65.69
Other................................. 162 2.15 501 6.26
------- ------ ------- ------
Total allocated....................... 6,944 91.97 7,679 95.99
Unallocated........................... 606 8.03 321 4.01
------- ------ ------- ------
Total allowance for loan
losses.................... $ 7,550 100.00% $ 8,000 100.00%
======= ====== ======= ======
36
<PAGE>
Securities. The Bank maintains a securities portfolio primarily
consisting of COFI-based multi-family U.S. government agency securities which
reprise on a monthly basis. The following table sets forth the Bank's securities
portfolio at the date indicated.
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------
At March 31, 1998 1997 1996 1995
--------------------- ------------------- ----------------- --------------------
Amortized Market Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value Cost Value
---- ----- ---- ----- ---- ----- ---- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities held to maturity:
FHLB Note............................ $ -- $ -- $ 2,000 $ 1,998 $ 8,670 $ 8,629 $ 12,960 $ 12,873
FHLB Note............................ -- -- 2,000 2,000 2,000 2,000 2,000 2,000
SLMA Step-Up......................... -- -- -- -- -- -- 25,000 25,000
Other................................ -- -- -- -- 5,000 4,988 7,000 6,979
-------- -------- --------- -------- -------- -------- -------- --------
Total............................. $ $ -- $ 4,000 $ 3,998 $ 15,670 $ 15,617 $ 46,960 $ 46,852
======== ======== ========= ======== ======== ======== ======== ========
Investment securities available for sale:
SLMA step-up......................... $ $ -- $ -- $ -- $ -- $ -- $ 10,000 $ 10,000
======== ======== ======== ======== ======== ======== ======== ========
Mortgage-backed securities held to
maturity:
FHLMC................................ $ 47,565 $ 45,984 $ 48,536 $ 46,618 $ 61,629 $ 59,014 $ 70,282 $ 68,503
FNMA................................. 116,198 112,780 117,184 112,788 124,710 119,221 35,432 131,462
Other................................ 15,099 14,677 16,075 15,566 22,216 21,248 27,817 26,574
-------- -------- -------- -------- -------- -------- -------- --------
Total............................. $178,862 $173,441 $181,795 $174,972 $208,555 $199,483 $233,531 $226,539
======== ======== ======== ======== ======== ======== ======== ========
Mortgage-backed securities available for
sale:
FNMA................................. $ 85,652 $ 83,565 $ 87,237 $ 84,308 $123,982 $119,514 $141,616 $138,514
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
As of March 31, 1998, the aggregate amortized cost of the securities
was $264.5 million and the market value was $257.0 million. Of the total $7.5
million unrealized loss on these securities, $2.1 million relates to securities
which are held as available-for-sale. Such unrealized losses, net of the related
tax benefit of $855,000, is reflected as a reduction of stockholders' equity.
The $5.4 million unrealized loss relating to the $178.9 million of securities
held to maturity has not been recognized in the financial statements of the
Bank.
The following table sets forth the carrying value, weighted average
yields and contractual maturities of the Company's securities as of March 31,
1998.
<TABLE>
<CAPTION>
At March 31, 1998
---------------------------------------------------------------------------------------------
After One Year After Five Years
Through Through
Within One Year Five Years Ten Years After Ten Years
--------------------- --------------------- -------------------- ---------------------
Book Weighted Book Weighted Book Weighted Book Weighted
Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield
----- ----- ----- ----- ----- ----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available-for-sale
securities:
FNMA................... $ -- --% $ -- --% $ -- --% $83,565 5.96%
Held-to-maturity
securities:
FHLMC.................. $1,215 6.00% -- -- -- -- 46,350 5.66
FNMA................... -- -- -- -- $2,942 5.80 113,256 5.88
Other.................. -- -- -- -- -- 15,099 5.54
------ ------- ------ -------
Total held-to-maturity-
securities........ $1,215 6.00 -- -- 2,942 5.80 174,705 5.79
------ ------- ------ -------
Total securities..... $1,215 6.00 $ -- -- $2,942 5.80 $258,270 5.85
====== ======= ====== ========
</TABLE>
<PAGE>
At March 31, 1998
----------------------
Total
---------------------
Book Weighted
Carrying Average
Value Yield
----- -----
Available-for-sale
securities:
FNMA................... $ 83,565 5.96%
Held-to-maturity
securities:
FHLMC.................. 47,565 5.67
FNMA................... 116,198 5.88
Other.................. 15,099 5.54
--------
Total held-to-maturity-
securities........ 178,862 5.80
--------
Total securities..... $262,427 5.85%
========
37
<PAGE>
Deposits. Deposits are the Bank's primary source of funding. At March
31, 1998, the Bank had a deposit mix of 75.8% in time deposits, 1.4% in money
market accounts, 14.4% in passbook accounts and 8.3% in NOW and checking
accounts. This compares with a deposit mix of 75.2%, 1.6%, 15.5% and 7.6% at
December 31, 1997, respectively.
The Bank obtains deposits primarily from the communities it serves. No
material portion of its deposits have been obtained from or are dependent on any
one person or industry. At March 31, 1998, less than 2% of the Bank's deposits
were held by customers located outside the United States. In addition, as of
such date, the 100 depositors with the largest aggregate average deposit
balances comprised less than 10% of the Bank's total deposits. The Bank's
business is not seasonal in nature. The Bank accepts deposits in excess of
$100,000 from customers. Included in time deposits as of March 31, 1998, is
$282.6 million, or 19.3% of total deposits, of deposits of $100,000 or greater.
At March 31, 1998, the Bank had no brokered deposits.
The following table sets forth the balances and rates paid for the
major categories of deposits for the periods indicated:
<TABLE>
<CAPTION>
At March 31 At December 31,
-------------------- ------------------------------------------------------------------------
1998 1997 1996 1995
-------------------- ----------------------- -------------------- -------------------
Interest Interest Interest Interest
Amount Rate Amount Rate Amount Rate Amount Rate
------ ------ ------- ------ -------- ------- ------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NOW and checking accounts.... $ 121,878 0.75% $ 111,984 0.80% $ 106,491 0.79% $ 99,912 0.80%
Money market accounts........ 20,926 2.48 20,986 2.48 22,111 2.39 25,425 2.39
Passbook accounts............ 211,109 2.26 212,013 2.11 216,471 2.20 205,017 2.21
Time deposits............... 1,109,410 5.18 1,124,004 5.20 1,048,052 4.95 981,250 5.50
--------- --------- --------- ----------
Total........................ $1,463,323 4.35 $1,468,987 4.38 $1,393,125 4.17 $1,311,604 4.57
========== ========== ========== ==========
</TABLE>
The average cost of deposits during the three months ended March 31,
1998 was 4.39% as compared to 4.19% for the same period in the previous year.
The average cost of deposits was 4.38%, 4.37% and 4.57% during the years ended
December 31, 1997, 1996 and 1995, respectively. At March 31, 1998, the Bank's
average rate paid on deposits was 57 basis points lower than the COFI index.
The following table presents, by various categories, the amount of time
deposit accounts as of March 31, 1998 and the time to maturity of the time
deposit accounts outstanding at March 31, 1998.
<TABLE>
<CAPTION>
Period to Maturity from March 31, 1998
--------------------------------------------------
One Through
Certificate accounts Within One Year Three Years Thereafter At March 31, 1998
--------------- ----------- ---------- -----------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
3.99% or less............... $ 42,528 $ -- $ -- $ 42,528
4.00% to 4.99%.............. 262,925 115 -- 263,040
5.00% to 5.99%.............. 656,116 15,690 1,576 673,382
6.00% to 6.99%.............. 130,055 207 -- 130,262
7.00% to 7.99%.............. -- -- -- --
Over 8.00%.................. 193 -- 5 198
---------- ------- ------ ----------
$1,091,817 $16,012 $1,581 $1,109,410
========== ======= ====== ==========
</TABLE>
38
<PAGE>
At March 31, 1998, the Bank had $282.6 million in certificate accounts
in amounts of $100,000 or more maturing as follows:
Amount
--------------------
Maturity period (Dollars in Thousands)
---------------
Three months or less.................. $143,991
Over 3 through 6 months............... 56,798
Over 6 through 12 months.............. 77,443
Over 12 months........................ 4,372
--------
$282,604
========
Other Borrowings. The following table sets forth certain information
regarding the short-term borrowings of the Bank at or for the dates indicated.
<TABLE>
<CAPTION>
At or for the Three Months
Ended March 31, At or for the Year Ended December 31,
-------------------------- -------------------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
FHLB of San Francisco advances:
Average balance outstanding........................ $16 $16,190 $11,176 $33,973 $29,278
Maximum amount outstanding at any month-end period. -- -- 24,000 53,935 128,600
Balance outstanding at end of period............... -- -- -- -- 128,600
Weighted average interest rate during the period... -- 5.39% 5.55% 6.02% 6.58%
Weighted average interest rate at end of period.... 5.93% -- -- -- 5.90%
Weighted average remaining term to maturity at end
of period (in years)........................... -- -- -- -- --
Securities sold under agreements to repurchase:
Average balance outstanding........................ -- $15,395 $5,375 $15,819 $165,040
Maximum amount outstanding at any month-end during
the period...................................... -- -- -- 74,400 246,500
Balance outstanding at end of period............... -- -- -- -- --
Weighted average interest rate during the period... -- 5.36% 5.47% 6.31% 6.36%
Weighted average interest rate at end of period.... -- -- -- -- --
Weighted average remaining term to maturity at end
of period (in years).............................. -- -- -- -- --
</TABLE>
The Bank maintains a secured credit facility with the FHLB of San
Francisco against which advances may be made. The terms of this credit facility
require the Bank to maintain in safekeeping with the FHLB of San Francisco
eligible collateral of at least 100% of outstanding advances. There were no
advances outstanding at March 31, 1998, and at December 31, 1997 and 1996. At
March 31, 1998, credit availability under this facility was approximately $283.5
million. Although the Bank eliminated its outside borrowings in 1996, the Bank
has utilized borrowings as a funding source in conjunction with its strategy of
leveraging the proceeds from the Offering, consistent with its asset and
liability objectives and the maintenance of its status as a "well capitalized"
institution for regulatory capital purposes. As of May 25, 1998, the Bank had
borrowed $185.0 million in fixed-rate advances from the FHLB in conjunction with
the leverage strategy. Such advances were for ten years and contained provisions
that the FHLB could, at their option, terminate the advances at quarterly
intervals at specified periods ranging from three to five years beyond the
advance dates.
Liquidity. Maintenance of adequate liquidity requires that sufficient
resources be available at all times to meet the cash flow requirements of the
Company. Liquidity in a financial institution is required primarily to provide
for deposit withdrawals and the credit needs of its customers and to take
advantage of investment opportunities as they arise. A financial institution may
achieve desired liquidity from both assets and liabilities. Cash and deposits
held in other banks, federal funds sold, other short term investments, maturing
loans and investments, payments of principal and interest on loans and
investments and potential loan sales are sources of asset liquidity. Deposit
growth and access to credit lines established with correspondent banks and
market sources of funds are sources of liquidity.
39
<PAGE>
At March 31, 1998, the Bank had outstanding commitments (including
unused lines of credit) to originate and/or purchase mortgage and non-mortgage
loans of $160.1 million. Certificates of deposit which are scheduled to mature
within one year totaled $1.09 billion at March 31, 1998. The Bank anticipates
that it will have sufficient funds available to meet its current loan
commitments.
The Company reviews its liquidity position on a regular basis based
upon its current position and expected trends of loans and deposits. Management
believes that the Company maintains adequate sources of liquidity to meet its
needs. The Bank's level of liquidity exceeded the applicable regulatory
guidelines as of March 31, 1998 and December 31, 1997 and 1996.
Market Risk and Net Portfolio Value. Market risk is the risk of loss
from adverse changes in market prices and rates. The Company's market risk
arises primarily from interest rate risk inherent in its lending, investment and
deposit taking activities. The Company's profitability is affected by
fluctuations in interest rates. A sudden and substantial change in interest
rates may adversely impact the Company's earnings to the extent that the
interest rates borne by assets and liabilities do not change at the same speed,
to the same extent or on the same basis. To that end, management actively
monitors and manages its interest rate risk exposure.
The principal objective of the Company's interest rate risk management
is to evaluate the interest rate risk inherent in certain balance sheet
accounts, determine the level of risk appropriate given the Company's business
strategy, operating environment, capital and liquidity requirements and
performance objectives, and manage the risk consistent with the Board of
Directors' approved guidelines. Through such management, the Company seeks to
minimize the vulnerability of its operations to changes in interest rates. The
Company's Board of Directors reviews the Company's interest rate risk position
quarterly. The Company's Asset/Liability Committee is comprised of the Company's
senior management under the direction of the Board of Directors, with senior
management responsible for reviewing with the Board of Directors its activities
and strategies, the effect of those strategies on the Company's net interest
margin, the market value of the portfolio and the effect that changes in
interest rates will have on the Company's portfolio and the Company's exposure
limits.
The Company utilizes the following strategies to manage interest rate
risk: (i) origination and retention of intermediate fixed-rate and
adjustable-rate mortgage loans; (ii) sale of substantially all fixed-rate
mortgage loans with terms of thirty years without recourse; and (iii)
origination of prime-based commercial loans. The Company currently does not
participate in hedging programs, interest rate swaps or other activities
involving the use of off- balance-sheet derivative financial instruments, but
may do so in the future to mitigate interest rate risk.
The Company's interest sensitivity is monitored by management through
the use of a model which estimates the change in the Company's net portfolio
value ("NPV") over a range of interest rate scenarios. NPV is defined as the
current market value of assets, minus the current market value of liabilities,
plus or minus the current value of off-balance-sheet items. Current market
values are estimated through cash flow-based methodologies. The change in NPV
measures an institution's vulnerability to changes in interest rates by
estimating the change in the market value of an institution's assets,
liabilities and off-balance-sheet contracts in response to an instantaneous
change in the general level of interest rates.
The OTS regulatory capital regulations take into account a savings
institution's exposure to the risk of loss from changing interest rates. Under
the regulations, a savings institution with an above normal level of interest
rate risk exposure will be required to deduct an interest rate risk ("IRR")
component from its total capital when determining its compliance with the
risk-based capital requirements. An "above normal" level of interest rate risk
exposure is a projected decline of 2% in the net present value of an
institution's assets and liabilities resulting from a 2% swing in interest
rates. The IRR component will equal one-half of the difference between the
institution's measured interest rate exposure and 2%. Savings institutions are
required to file data with the OTS that the OTS will use to calculate, on a
quarterly basis, the institutions' measured interest rate risk and IRR
components. The IRR component to be deducted from capital is the lowest of the
IRR components for the preceding three quarters. The OTS may waive or defer an
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institution's IRR component on a case-by-case basis. Implementation of the IRR
requirements has been delayed indefinitely.
As market interest rates decrease, the average maturities of the Bank's
loans (and securities) shorten as a result of accelerated prepayment speeds,
causing a relatively moderate increase in the value of such assets. The
relatively minor movements in the repricing of the Bank's deposit accounts in a
downwardly moving interest rate environment result in the value of deposits
decreasing at a more rapid speed than the assets increase in value.
The following table lists the Bank's percentage change in NPV assuming
an immediate change of plus or minus of up to 400 basis points from the level of
interest rates at March 31, 1998. All assets presented in this table are
held-to- maturity or available-for-sale. At March 31, 1998, the Bank had no
trading securities.
<TABLE>
<CAPTION>
Change in Interest Rates in Basis Points
(Rate Shock) Net Portfolio Value
---------------------------------------- -------------------------------------------------
Amount $ Change % Change
------ -------- --------
(Dollars in Thousands)
<S> <C> <C> <C>
400.......................................................... $ 61,285 (52,405) (46)%
300.......................................................... 78,756 (34,934) (31)
200.......................................................... 94,050 (19,640) (17)
100.......................................................... 105,795 (7,895) (7)
0.......................................................... 113,690 -- --
(100)......................................................... 115,548 1,858 2
(200)......................................................... 119,054 5,364 5
(300)......................................................... 126,396 12,706 11
(400)......................................................... 132,869 19,179 17
</TABLE>
As market interest rates rise, the average maturities of the Bank's
loans (and securities) lengthen as a result of decreasing prepayment speeds.
Given the COFI concentration within the Bank's loan and securities portfolios
and the lag effect of movements in the COFI index, the value of these assets
decreases when market rates rise. Decreases in the value of the loans and
securities occur at a more rapid rate in the model than increases in the value
with respect to the Bank's deposits. The value of the increase in the Bank's
deposits increases slowly in an increasing interest rate environment due to the
high concentration of time deposits within the Bank's deposit base for which the
deposit terms are generally one year or less.
Certain shortcomings are inherent in the methodology used in the above
interest rate risk measurements. Modeling changes in NPV require the making of
certain assumptions which may or may not reflect the manner in which actual
yields and costs respond to market interest rates. In this regard, the NPV model
presented assumes that the composition of the Bank's interest sensitive assets
and liabilities existing at the beginning of a period remains constant over the
period being measured. Accordingly, although the NPV measurement and net
interest income models provide an indication of the Bank's interest rate risk
exposure at a particular point in time, such measurements are not intended to
and do not provide a precise forecast of the effect of changes in market
interest rates on the Bank's net interest income and will differ from actual
results. The NPV model presented above does not give effect to the Private
Offerings or to any use of proceeds resulting therefrom.
BUSINESS
Market Area
The Bank concentrates on marketing its services in the San Francisco
Bay area (which includes Oakland), and the Sacramento/Stockton and Los Angeles
metropolitan areas with a particular focus on areas with a high concentration of
ethnic Chinese. The ethnic Chinese markets within the Bank's primary market area
have experienced rapid growth in recent periods. According to 1990 Census data,
management believes there were an estimated 2.7 million Asian and Pacific
Islanders residing in California, and approximately 70% of this population were
in the middle and upper income
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brackets. Based on 1995 and 1996 demographic data, management believes there
were 200,000 Asian and Pacific Islanders living in San Francisco county, which
represented approximately 30% of the total population. In addition, the Bank
anticipates opening a commercial banking office in Pasadena, California to take
advantage of the opportunities in the Los Angeles metropolitan area,
particularly in the ethnic Chinese market. Management has tailored its products
and services to meet the financial needs of these growing Asian and ethnic
Chinese communities within its market area. Management believes that this
approach, combined with the extensive ties of its management and Board of
Directors to the growing Asian and ethnic Chinese communities, provides the Bank
an advantage in competing for customers in its market area. After giving effect
to the recent consolidation activity in California, management believes the Bank
is the tenth largest thrift institution in California and the third largest
financial institution focused on serving the ethnic Chinese market within
California.
Historical Operations
The Bank historically engaged in the origination of residential
mortgages (1-4 family) which were pooled and sold in the secondary market, with
loan servicing rights retained, and the servicing of loans for the Federal Home
Loan Mortgage Corporation ("FHLMC"), the Federal National Mortgage Association
("FNMA"), the Government National Mortgage Association ("GNMA") and private
investors. From time to time, the Bank sold its loan servicing rights and also
purchased agency servicing rights as part of its mortgage banking division
operations. The Bank also originated residential mortgages (1-4 family),
multi-family mortgages and commercial real estate mortgages for portfolio
retention. In addition, since 1993, the Bank has specialized in limited
documentation residential mortgage (1-4 family) lending. Furthermore, because
the Bank does not retain a large volume of fixed-rate mortgages in its permanent
portfolio for interest rate risk considerations, and since the production of
ARMs has been insufficient to provide adequate balance sheet growth, the Bank
has historically relied heavily on loan and securities purchases to complement
its asset base. In 1993, mortgage-backed securities represented approximately
one-third of the Bank's assets.
Historically, the Bank maintained a heavy concentration of ARM assets
whose interest rates were based on COFI. Since adjustments in COFI generally lag
behind market interest rate changes, COFI-based assets can reduce net interest
margins during periods of rapidly increasing deposit and borrowing interest
rates. The Bank experienced such effect in 1994-1995 when its net interest
margin decreased as the COFI adjusted upward more slowly than the cost of the
Bank's deposits and borrowings. During the period from 1990 to 1994, the value
of California real estate collateral declined and the Bank experienced
significant loan losses on a portion of its real estate loans. In 1995, the
Bank's allowance for loan losses was increased from 0.78% of total loans to over
1.00% of total loans. This action was due to a combination of a depressed
California economy and real estate market and to significantly increase the
Company's overall level of allowance for loan losses to over 1.00% of gross
loans. The resulting $8.8 million charge to income, coupled with the diminished
interest income resulting from the 1995 COFI-lag effect resulted in a net loss
of $2.9 million in 1995. During 1996, the Company's net interest income improved
by 35.3% to $39.0 million primarily as a result of the Bank's COFI-based assets
becoming fully indexed and the correction of the COFI-lag impact.
In recent years, the mortgage banking industry has been highly
competitive and, combined with the availability of more efficient delivery
systems through brokers and the Internet, the industry has experienced shrinking
profit margins and reduced loan servicing values. Higher levels of prepayment
activity resulting from a lower interest rate environment and the willingness of
lenders to offer mortgage loans with no points and, in many cases, no fees, have
reduced servicing values. To respond to these market factors and to improve the
long-term prospects of the Bank, the Bank took the following measures:
Responsive Measures
COFI Asset Reduction. In the fourth quarter of 1996, to improve its net
interest margin, the Bank ceased all COFI-based mortgage lending and began to
reduce the Bank's COFI-based mortgage-backed securities portfolio. From December
31, 1996 to March 31, 1998, COFI-based loans have been reduced from 60.2% of the
Bank's total gross loan portfolio to 43.0%. From December 31, 1996 to March 31,
1998, total COFI exposure has been reduced from 64.9% of the Bank's
interest-earning assets to 51.3%.
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Closure of Mortgage Banking Division. In 1997, the Bank closed its
mortgage banking division and ceased the origination of non-conventional
mortgages for sale in the secondary market and sold its agency loan servicing
portfolio. While the Bank no longer engages in this activity, the Bank continues
to originate conventional residential mortgage loans for portfolio retention and
conforming mortgages for resale in the secondary market through its retail
branch network. See "Business--Lending Activities--Residential Mortgages (1-4
family)."
Reduced Non-Performing and Non-Interest Earning Assets. The Bank
reduced its non-performing assets from $22.3 million as of December 31, 1995, to
$9.1 million as of March 31, 1998, and reduced non-interest earning assets from
$68.0 million as of December 31, 1995, to $49.9 million as of March 31, 1998.
Reduced Mismatched Borrowings. The Bank reduced its predominantly high
cost LIBOR-based borrowings (which were mismatched with COFI-based assets) from
$265.3 million at the beginning of 1995 to zero at December 31, 1996 and 1997
and March 31, 1998.
Implementation of Strategy
In conjunction with the implementation of the balance sheet
restructuring described above which returned the Bank to profitability in 1996,
excluding the one-time SAIF recapitalization assessment, to further improve the
Bank's long-term prospects and to take advantage of the Bank's significant
deposit market share and the potential cross-selling opportunities to the ethnic
Chinese and Asian communities within its market area. The Board of Directors
adopted a business strategy to shift the primary business focus of the Bank from
a traditional thrift to a full service commercial bank. To implement its
business strategy, the Bank took the actions and adopted the initiatives
described below.
Management. The Bank realigned management responsibilities and hired
commercial banking officers and SBA business banking officers with lending
experience in the Bank's market area. The management changes included the
following:
o President. In January 1998, Tommy S. Wu became the Bank's
President and Chief Executive Officer and was charged
with the responsibility of implementing the shift of the
Bank's focus to commercial banking services and products.
Prior to that appointment Mr. Wu was the Executive Vice
President and Director of the Bank as of September 25,
1997. Mr. Wu was Senior Vice President and Director of
Retail Banking from 1992 to 1996 and also served the Bank
as Vice President, Regional Manager, of its Southern
California Retail Banking Division from 1991 to 1992.
o Head of Commercial Banking Division. In January 1996,
Sylvia Loh was appointed Head of the Bank's commercial
banking division which was formally formed in 1996. Ms.
Loh has over twenty years of commercial banking and trade
finance experience with major financial institutions,
including administrative and managerial experience in
overseeing over 26 branches. She also has experience
working with the United States EXIM Bank and has had
extensive exposure in the ethnic Chinese markets as well
as the Pacific Rim region. She also is a past President
of the Association of Asian American Bankers from 1996 to
1997.
o Chief Credit Officer. In January 1997, William T.
Goldrick was appointed Senior Vice President and Chief
Credit Officer to provide technical expertise to
formulate the Bank's commercial lending policies and
procedures. He has over 41 years of commercial bank
credit experience and is responsible for the Bank's
regulatory compliance.
Established Commercial Banking Division. In 1996, to take advantage of
the opportunities in the Bank's targeted markets, the Bank established its
commercial banking division to offer an array of commercial bank services and
products to its customers particularly focused on the ethnic Chinese
communities. Since its establishment, the commercial banking division has
originated approximately $101.4 million in commercial loan commitments and has
$70.4 million in outstanding loans as of May 31, 1998. As of June 24, 1998, the
division had a current committed
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<PAGE>
pipeline of approximately $129 million. To support its commercial banking
activities, the Bank acquired a commercial banking data processing system to
replace a system designed for thrift institutions. The new system provides
customer profitability reports, account analysis and other commercial banking
management tracking and reporting mechanisms. The installation of this new
system was completed in February 1998. The Bank installed software to enhance
commercial real estate loan marketing and development. The PC based system
provides key information on substantially all commercial real estate
transactions in the Bank's market area in California. The software provides
information instrumental to identifying lending and refinancing opportunities,
screening potential credit opportunities and evaluating collateral values to
facilitate efficient solicitation of borrowers and related depository
relationships from commercial and multi-family property owners. The Bank
anticipates opening a commercial, construction and SBA lending office in
Pasadena, California during the second quarter of 1998. In addition to other
personnel, the Bank has hired a team of three experienced SBA business banking
officers to staff the Pasadena office. These officers were previously affiliated
with one of the leading lenders focusing on SBA lending to Asians.
Core Deposit Solicitation. To further develop the Bank's core deposit
base, the Bank is evaluating the establishment of mini-branches in or adjacent
to Asian supermarkets in selected target market areas. By continuing to
emphasize multilingual services at its ATMs, through its telephone banking
system and by its customer service and loan officers, the Bank expects to
continue to further its presence in the Asian, and specifically the ethnic
Chinese, markets in California. At March 31, 1998, less than 2% of the Bank's
deposits were held by customers located outside of the United States. In
addition, as of such date, the 100 depositors with the largest aggregate average
deposit balances comprised less than 10% of the Bank's total deposits. The Bank
also expects to increase its business accounts as its commercial lending
portfolio grows and correspondent accounts are established.
Capital Enhancement. At March 31, 1998 the Company's stockholders'
equity was $64.6 million or 4.2% of total assets. In April 1998, the Company
completed the Private Offerings. Following the Private Offering, the Company's
stockholders' equity increased to $94.5 million and the Company's consolidated
Tier I capital increased from $63.9 million at December 31, 1997 to $125.4
million. See "Supervision and Regulation--Savings Institution
Regulations--Regulatory Capital Requirements."
Leverage Strategy. As a result of the proceeds raised by the Private
Offerings, the Bank designed and implemented a plan to leverage such proceeds
through the purchase of U.S. Government agency mortgage-backed securities,
investment grade securities, investment grade municipal bonds and investment
grade residential mortgage (1-4 family) securities. The plan specifies that such
purchases will be funded primarily through intermediate and long-term secured
borrowings, advances from the FHLB and from cash made available from the
proceeds. The plan, which is consistent with the Bank's asset and liability
management policy, further specifies that certain interest rate caps are to be
purchased to reduce the Bank's exposure to increasing market interest rates.
Total assets to be purchased pursuant to the plan are approximately $337
million.
As of June 24, 1998, the Bank purchased approximately $325 million of
such assets and entered into $202 million of long-term borrowings. Additionally,
the Bank had entered into certain interest rate cap agreements in the aggregate
principal amount of $200 million. The average spread on such assets is in the
range of 110 basis points to 120 basis points, including the amortization of the
interest rate caps.
Charter Conversion. In the first quarter of 1998, the Bank changed its
name to United Commercial Bank to reflect the Bank's new emphasis on providing
commercial banking services to its customers. As part of its strategy to shift
its business focus from mortgage banking to commercial banking, management
submitted amended applications to the California Department of Financial
Institutions and the Federal Reserve Bank of San Francisco in June 1998 to
convert the Bank to a California-chartered commercial bank and the Company to a
bank holding company.
As a result of the measures taken to effect the Bank's shift in its
primary business focus from mortgage banking to commercial banking, and the
implementation of its strategic initiatives, management believes that the Bank
is and will continue to be well positioned to take advantage of the
opportunities in its market area and particularly in the growing ethnic Chinese
market in California.
44
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Current Banking Services
Through its network of retail branches, the Bank provides a wide range
of personal and commercial banking services to small- and medium-sized
businesses, business executives, professionals and other individuals. The Bank
offers multilingual services to all of its customers in English, Cantonese and
Mandarin. The Bank offers a variety of deposit products which includes the
traditional range of personal and business checking and savings accounts, time
deposits and individual retirement accounts, as well as a wide range of
specialized services, including international trade services for business
clients, travelers' checks, safe deposit boxes and Master Card and Visa merchant
deposit services.
The Bank engages in a full complement of lending activities, including
residential and commercial real estate, construction, commercial, trade finance,
account receivables, inventory, working capital and SBA loans. In addition to
the origination of residential mortgages, the Bank provides loans to small and
medium-sized developers for the construction of resale housing and interim real
estate loans primarily for construction of single-family residences. The Bank
provides commercial loans for working capital and expansion and account
receivables and inventory financing to small and medium size businesses with
annual revenues that generally range from $500,000 to $20.0 million. The Bank
provides short-term trade finance facilities for terms of less than one year to
U.S. importers, exporters and manufacturers. The Bank also generates loans which
are guaranteed by the SBA, which loans are generally working capital loans
secured by inventories and receivables, and commercial real estate loans secured
by real property. The Bank's commercial borrowers are engaged in a wide variety
of manufacturing, wholesale trade and service businesses.
Lending Activities
Underwriting and Credit Administration. The Bank's lending activities
are guided by the basic lending policies established by the Board of Directors.
The Bank's lending policy requires that loans must meet minimum underwriting
criteria. Lending authority is granted to officers of the Bank on a limited
basis. Loan requests exceeding individual officer approval limits are approved
by the President. All commercial loans are generally ratified by the Credit
Review Committee. Loans in excess of $2.0 million are generally ratified by the
Board of Directors.
The Bank's credit administration function includes an internal asset
credit quality review. The President, Chief Credit Officer and Chief Financial
Officer meet biweekly to review delinquencies, non-performing assets, classified
assets and other pertinent information to evaluate credit risk within the Bank's
loan portfolio. The information reviewed by this group is submitted to the Board
of Directors bimonthly.
Loan Portfolio. At March 31, 1998, approximately $716.5 million, or
57.8% of the Bank's gross loan portfolio was in residential mortgages (1-4
family), $336.2 million or 27.1% of gross loans was in multi-family mortgages,
$112.7 million or 9.1% of gross loans was in commercial real estate loans, $32.6
million or 2.6% of gross loans was in construction loans,$16.4 million or 1.3%
of gross loans was in home equity loans and $22.4 million or 1.8% of gross loans
was in commercial business loans.
Residential Mortgages (1-4 family). The Bank offers fixed-rate and
adjustable rate mortgage loans which include intermediate fixed-rate loans
secured by residential mortgages. Substantially all such loans are secured by
properties located in the Bank's primary market area. Residential mortgage loan
originations are obtained through the Bank's two delivery networks: the retail
branches and the wholesale lending department. In 1997 and the first quarter of
1998, approximately 46% and 41% of all residential mortgage loans were
originated by the Bank's retail branches. The retail branches originate loans by
salaried personnel through customer contact, referral and solicitation. The
wholesale lending department originates loans with commissioned loan officers
through loan brokers. The Bank originates both fully documented loans for which
income and assets are verified with third parties, as well as loans for which
the borrower's stated income and assets are relied upon without independent
verification. The Bank specializes in a limited documentation mortgage loan
product which serves a particular niche of borrowers willing to pay a premium,
in the form of higher interest rates, and provide larger down payments in
exchange for more expedient loan processing by virtue of providing less
documentation.
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<PAGE>
The Bank's underwriting guidelines for loan origination require: (i)
for fully documented loans, up to 80% loan to value ("LTV") for loan amounts up
to $700,000 and up to 70% LTV for loan amounts up to $800,000; (ii) for limited
documentation loans with no income verification, up to 80% LTV for loan amounts
up to $600,000 and up to 65% LTV for loan amounts up to $800,000; (iii) for low
documentation loans with no income or asset verification, up to 80% LTV for loan
amounts up to $450,000 and up to 60% LTV for loan amounts up to $800,000. A
borrower's employment and financial information are verified through third
parties and examination of paycheck stubs, bank statements and tax returns. The
Bank obtains appraisals from licensed appraisers approved by the credit review
committee.
At March 31, 1998, the Bank had approximately 4,309 loans secured by
residential mortgages (1-4 family), which totaled $716.5 million in the
aggregate; as of such date, the Bank's average loan balance with respect to
residential mortgages (1-4 family) amounted to approximately $166,300. Of the
Bank's residential mortgages (1-4 family) at March 31, 1998: $215.3 million, or
30.0% consisted of fixed-rate loans; $216.4 million, or 30.2% consisted of ARMs
with an adjustment date in one year or less; and $284.8 million, or 39.8%
consisted of intermediate fixed-rate loans. The Bank's fixed-rate mortgage loans
are made for terms of 15 years or 30 years. The 30 year, fixed-rate loans are
generally sold in the secondary market on a servicing released basis. Fixed-rate
mortgage loans are originated with due on sale clauses which provide the Bank
with the contractual right to deem the loan immediately due and payable in the
event the borrower transfers ownership of the property without the Bank's
consent. The Bank currently originates 30 year, fixed-rate loans for portfolio
retention only on a customer accommodation basis. The Bank currently offers a
variety of ARM loan programs with interest rates fixed for six months and which
adjust semi-annually thereafter. Intermediate fixed-rate loans have interest
rates fixed for three or five years and adjust annually thereafter. The Bank's
ARM loans generally provide for periodic (not more than 2%) and lifetime (not
more than 6%) caps on the increase or decrease in interest rates over the life
of the loan. The interest rate adjustment on ARM loans currently made by the
Bank is indexed to the one-year U.S. Treasury CMT Index.
Beginning in 1993, the Bank has specialized in the origination of
limited documentation residential mortgages (1-4 family). As of March 31, 1998,
$492.1 million, or 68.7% of the Bank's residential mortgages (1-4 family) were
comprised of limited documentation loans. Because of the less than full
documentation required for such loans, the Bank has emphasized relatively small
average loan size and low average loan-to-value ratios for these loans, as
evidenced by an average loan balance of $163,600 and average loan-to-value
ratios of 64% as of March 31, 1998. Approximately 40% of such loans in 1997 were
originated through the Bank's retail branches.
Since it began originating limited documentation loans in 1993 the Bank
has experienced no net charge-offs with respect to such loans. At March 31,
1998, the Bank had two loans more than three payments delinquent with an
aggregate principal balance of $199,000. Moreover, during the third quarter of
1997, the Bank sold $17.2 million of the limited documentation loans to test the
market reception for this product. The Bank received a price in excess of par
value on the sale of such loans. Notwithstanding the historical performance of
this type of loan, there can be no assurance that such performance will
continue.
The Bank previously offered a variety of adjustable-rate programs,
which provided for interest rates which adjusted periodically based on COFI. In
the fourth quarter of 1996, the Bank ceased all COFI-based mortgage lending.
Nevertheless, at March 31, 1998, $158.5 million or 22.1% of the Bank's
residential mortgage (1-4 family) loan portfolio consisted of COFI-based loans.
Commercial Lending-Generally. The Bank has recently established a
commercial banking division and has hired experienced commercial lending
officers. The Bank also has installed software to identify, market and develop
potential commercial real estate lending opportunities in its market area. The
Bank also offers an array of commercial loan products catering primarily to the
needs of its Chinese ethnic community. Set forth below is a description of the
types of commercial loans offered by the Bank.
Multi-family Mortgages. The Bank originates multi-family mortgages
which are generally secured by five to 36 unit residential buildings. Loans
secured by residential buildings in excess of 36 units are underwritten pursuant
to the Bank's underwriting standards with respect to commercial real estate
loans. Substantially all of the Bank's multi-
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family loan originations are secured by properties located in the Bank's primary
market area. The Bank underwrites multi-family mortgages by obtaining full
credit information on the borrower and through independent verification of the
borrower's income and assets. The borrower's ability to effectively manage the
multi-family property and ability to assume the financial responsibility of the
debt service obligation in the event of unforeseen expenses or increased vacancy
are also taken into consideration in the underwriting process. In making its
assessment of the creditworthiness of the borrower, the Bank generally reviews
the financial statements, employment and credit history of the borrower, as well
as other related documentation. The Bank's current program criteria for
multi-family originations generally provide for debt service coverages of 1.15x
or greater and LTV's of 75% or less. The Bank currently offers fixed-rate and
ARM multi-family mortgages. The Bank's ARM multi-family loans are fixed for six
months and thereafter adjust semi-annually based upon the LIBOR index.
Multi-family loans are generally amortized over 30 years with balloon payments
in 10 or 15 years.
As of March 31, 1998, the Bank had approximately 811 multi-family
mortgages with an aggregate outstanding principal balance of $336.2 million. As
of such date, the Bank's average loan balance with respect to multi-family
mortgages amounted to approximately $414,500. As of March 31, 1998, $300.7
million, or 89.4% of these loans consisted of adjustable-rate loans with
COFI-based interest rates. In order to avoid an over concentration in
multi-family mortgages, the Bank limits its total multi-family mortgage exposure
to not more than 35% of total loans. As of March 31, 1998, the Bank had a 27.1%
concentration in multi-family mortgages. As a result of the Bank's limitations,
market competition and alternative investment opportunities, the Bank has not
originated a significant volume of multi-family mortgages during the past three
years. During 1997, multi-family originations totaled $7.2 million and were made
primarily on a customer accommodation basis.
Commercial Real Estate Construction. The Bank originates construction
loans for the development of single-family residences, multi-family and
commercial properties. Such loans are made primarily to experienced builders and
developers known to the Bank in its primary market area. As of March 31, 1998,
the Bank had approximately 79 outstanding construction loans with an aggregate
outstanding principal balance of $32.6 million. As of such date, the Bank's
average loan balance with respect to construction loans amounted to $412,300.
Construction loans are originated in amounts up to 80% of the lesser of
the appraised value of the property, as improved, or the sales price. Proceeds
for construction loans are disbursed on a percentage of completion basis or as
construction thresholds are met. Generally, if the borrower is a corporation or
partnership, guarantees by the principals are required. Construction loans are
adjustable and tied to the prime rate. Generally, the term of construction loans
is for one year, with a one year renewal option, if necessary.
Construction financing generally involves a higher degree of credit
risk than long-term financing on improved, owner-occupied real estate. The risk
of loss on a construction loan is dependent largely upon the property's value at
completion of the construction compared to the estimated cost, including
interest, of construction. If the estimate of value proves to be inaccurate, the
Bank may be confronted with a completed project, having a value which is
insufficient to assure full repayment.
Commercial Real Estate Non-Residential Mortgages. The Bank originates
medium-term commercial real estate loans secured by commercial or industrial
buildings where the properties are either used by the owner for business
purposes ("owner-user properties") or have income derived from tenants
("investment properties"). The Bank solicits potential borrowers through: (i)
its new database software system, which provides key information on
substantially all commercial real estate loans in its primary market in
California, (ii) referrals from its branches, (iii) direct solicitation of
borrowers and real estate brokers by the commercial banking lending officers,
and (iv) referrals from existing borrowing customers. Upon identification of a
prospective borrower, the Bank then makes a preliminary estimate of the value of
the property based upon the location, age, type of property and market rent. For
owner-user properties, the Bank may use market rent information from such
borrowers for its cash flow analysis. A proposal letter summarizing the
tentative terms of the prospective loan is then submitted to the borrower for
acceptance, at which time the non-refundable fee is paid to the Bank. This
pre-screening process helps the Bank control appraisal costs by reducing the
number of appraisals ordered for loans that ultimately are not approved. Upon
acceptance of the proposal, the Bank then
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performs property appraisal and environmental surveys. The Bank's underwriting
practices generally require the principal balance of the loan to be no more than
65% of the stabilized appraised value of the underlying real estate collateral.
Commercial real estate loans are typically secured by first deeds of trust,
generally have terms of no more than seven to ten years and are amortized up to
25 years. Although substantially all of the commercial real estate loans
currently being originated have interest rates that adjust with changes in the
prime rate or have fixed-rate terms of up to five years, the Bank previously
offered commercial real estate loans with interest rates which adjusted
periodically based on COFI.
At March 31, 1998, the Bank had approximately 150 commercial real
estate loans with an aggregate principal balance of $112.7 million. As of such
date, the average balance with respect to the Bank's commercial real estate
loans amounted to $751,400. As of March 31, 1998, of the Bank's $112.7 million
of commercial real estate loans, $73.2 million, or 64.9% consisted of COFI-based
loans. The Bank's underwriting practice also generally requires that the
properties securing commercial real estate loans have debt service coverage
ratios (the ratio of earnings before debt service to debt service) of at least
1.35. The Bank's loan documentation usually provides the Bank the right to call
the loan in the event that the debt service coverage ratio falls below 1.35x.
The Bank generally requires that all commercial real estate loans made to
corporations, partnerships and other business entities be personally guaranteed
by the principals. The Bank utilizes tax returns to review and verify the income
stream of the borrower. Loan documentation is reviewed by the Bank's in-house
legal department. Such documentation typically requires annual financial
statements and rent rolls of a borrower, to determine covenant compliance.
During the three months ended March 31, 1998, the Bank originated $3.2
million of commercial real estate loans. During the years ended December 31,
1997, 1996 and 1995, the Bank originated $23.7 million, $2.7 million and
$864,000 of commercial real estate loans, respectively. Management believes it
will originate $125.0 million of commercial real estate loans during 1998.
Through May 22, 1998, the Bank had in its pipeline $73.1 million of commercial
real estate loans. Notwithstanding the foregoing, no assurance can be made that
the Bank will achieve its year-end projections or that all of the commercial
real estate loans in the Bank's pipeline as of May 22, 1998, will close.
Loans secured by commercial real estate properties are generally larger
and involve a greater degree of risk than residential mortgages (1-4 family).
Because payments on loans secured by commercial real estate properties are
generally dependent on successful operation or management of the properties,
repayment of such loans is subject to a greater extent than the repayment of
residential mortgages on the then prevailing conditions in the real estate
market or the economy. The Bank seeks to minimize these risks through its
underwriting standards and in the first quarter of 1998, the Bank employed an
outside loan review firm to assist management with respect to internal asset
review of the Bank's commercial loans, including its commercial real estate
loans.
Commercial Business Loans. The Bank provides commercial business loans
to customers for working capital purposes and to finance equipment, account
receivables and inventory. Working capital loans are generally subject to annual
review, and equipment loans have terms up to five years. Interest rates on these
loans are generally based on the prime rate. Working capital loan advances are
generally made against security interests in inventory and account receivables,
and equipment loans are secured by the underlying equipment. When appropriate,
the Bank may require additional collateral on such loans and may further secure
the indebtedness with a lien on real estate. In many cases, personal guarantees
are obtained as additional security.
During the three months ended March 31, 1998, the Bank originated $9.3
million of commercial loans. During the years ended December 31, 1997, 1996 and
1995, the Bank originated $31.9 million, $9.9 million and $0 of commercial
business loans, respectively. Management believes it will originate $55.0
million of commercial business loans during 1998 (not including SBA loans).
Through May 22, 1998, the Bank had in its pipeline $28.9 million of commercial
business loans (not including SBA loans). Notwithstanding the foregoing, no
assurance can be made that the Bank will achieve its year-end projections or
that all of the commercial business loans in the Bank's pipeline as of May 22,
1998, will close.
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<PAGE>
Unlike consumer residential mortgage loans, which generally are made on
the basis of the borrower's ability to make repayment from his or her employment
or other income and which are secured by real property whose value tends to be
more easily ascertainable, commercial business loans are of higher risk and
typically are made on the basis of the borrower's ability to make repayment from
the cash flow of the borrower's business. As a result, the availability of funds
for the repayment of commercial loans may be substantially dependent on the
success of the business itself. Further, any collateral securing such loans may
depreciate over time, may be difficult to appraise and may fluctuate in value
based on the success of the business. The Bank currently utilizes the
unaffiliated firm referenced above to assist management with respect to internal
asset review of the Bank's commercial business loans.
The Bank provides commercial lines of credit to small- and medium-sized
companies to finance their accounts receivable and inventory on a short term
basis (less than one year) and/or to finance their equipment and working capital
on a long term basis (over one year).
Short term financing is structured to enable the borrower to complete
its trade cycle from purchase of inventory to collection of receivables. As
such, the credit line may also include an option for the issuance of letters of
credit to overseas suppliers/sellers in order for the borrower to obtain
inventory. Pursuant to such letters of credit, the Bank extends credit to the
borrower by providing assurance, to the borrower's foreign suppliers, that
payments will be made upon shipment of goods. Upon shipment of goods and when
the letters of credit are negotiated by the foreign suppliers, the borrower's
inventory is financed by the Bank under the pre-approved line of credit
facility.
The underwriting criteria of such short term trade financings often
depends on the quality of the borrowers' inventory and their accounts
receivables. As a general rule, inventory should not be held for more than 60
days, and accounts receivables should not extend beyond 90 days. Total credit
exposure (outstanding loans plus letters of credit) under the line of credit are
monitored monthly by using a borrowing base formula of up to 80% against
eligible receivables aged up to 90 days, and up to 50% against eligible
inventory with or without limits. Aside from the established base formula, the
borrower's overall financial condition is considered, such as consistency in
revenue streams, gross margins, expense ratios, and net income. Another
important underwriting criteria is the adequacy of the borrower's capital in
relation to the financial growth it seeks to achieve. A company with a leverage
ratio below 2.5:1 is acceptable to the Bank.
Fixed assets, such as machinery and equipment, provide long term
financial benefits to the borrowers. Accordingly, loans for these types of
financings are structured for a term longer than one year. Repayment of the
loans are structured to match the income generated over the life expectancy of
the assets. As such, the underwriting criteria is dependent upon the amount of
cash flow (income plus depreciation) the borrower has available to service debt
based on a full amortization schedule, usually between five to seven years. The
maximum amount financed on capital assets is approximately 70% of its value.
Similar to trade finance credits, financial evaluation of revenue,
profitability, expense ratios and capital adequacy are made in considering this
type of credit for approval.
The Bank originates and funds loans qualifying for guarantees issued by
the SBA. The SBA currently guarantees from 75% to 80% of the principal and
accrued interest of such loans. Loans are provided to eligible applicants or
small businesses to finance working capital, the purchase of equipment or real
estate. Depending upon the use of loan proceeds, the loan term may range from
seven to twenty-five years. The Bank typically requires that SBA loans be
secured by inventories and receivables or if commercial real estate is being
financed, secured by real property. Primary underwriting criteria are historical
cash flow to demonstrate repayment capability, experienced business management
and adequate collateral to secure the requested credit. Typically, the SBA
prefers that the applicant inject at least 30%- 33% cash (equity) into the
transaction. The Bank's benefits in originating loans under this program include
limited credit exposure for the Bank as a result of the SBA guaranty, increased
Bank revenues by selling the guaranteed portion of the loan through the
secondary market at a premium, and gaining "Preferred Lender Program" status
with the SBA by producing volume and quality credits while serving the financial
needs of small business communities.
Management believes it will originate approximately $20.0 million of
SBA loans during 1998. Through May 22, 1998, the Bank had in its pipeline $16.1
million of SBA loans. Notwithstanding the foregoing, no assurance can be
49
<PAGE>
made that the Bank will achieve its year-end projections or that all of the SBA
loans in the Bank's pipeline as of May 22, 1998 will close.
Consumer Loans. The Bank's consumer loan portfolio is substantially
comprised of home equity lines of credit which are secured by residential real
estate. These lines of credit generally consist of floating rate loans, tied to
the prime rate.
Deposits
The Bank's deposits are obtained primarily from ethnic Chinese
households, small and medium-sized businesses owned by ethnic Chinese, and
ethnic Chinese business executives, professionals and other individuals. The
Bank offers the traditional range of depository products provided by commercial
banks. Rates paid on deposits vary depending on the deposit size, the term of
deposit, and the type of deposit. The Bank sets its deposit rates based on
deposit needs and market competition. As of March 31, 1998, less than 2% of the
Bank's deposits were held by customers located outside the United States. In
addition, as of such date, the 100 depositors with the largest aggregate average
deposit balances comprised less than 10% of the Bank's total deposits. As of
March 31, 1998, the Bank's weighted average cost of deposits was 4.35%, which
was 57 basis points less than the COFI. The Bank does not solicit brokered
deposits.
Competition
The banking and financial services business in California generally,
and in the Bank's market area specifically, is highly competitive. The
increasingly competitive environment results from changes in regulation, changes
in technology and product delivery systems, and the consolidation among
financial services providers. The Bank competes for loans, deposits and
customers for financial services with other commercial banks, savings and loan
associations, securities and brokerage companies, mortgage companies, insurance
companies, finance companies, money market funds, credit unions, and other
nonbank financial service providers. Many of these competitors are much larger
in total assets and capitalization, have greater access to capital markets and
offer a broader array of financial services than the Bank. To compete with the
other financial services providers, the Bank relies on local promotional
activities, personal relationships established by officers, directors and
employees with its customers, and specialized services tailored to meet its
customers' needs.
The Bank competes for deposits from the ethnic Chinese markets with
other banks serving the Asian community in California. The Bank believes that it
has two major competitors that are targeting the ethnic Chinese market. Such
institutions have branch locations in many of the same neighborhoods as the
Bank, provide similar loan, savings and financial services, and market their
services in similar Asian publications and media in California.
Employees
At March 31, 1998, the Bank had 339 full-time equivalent employees.
None of the employees are covered by a collective bargaining agreement. The Bank
considers its employee relations to be satisfactory.
50
<PAGE>
Properties
The Bank owns the facility that is located at 711 Van Ness Avenue, San
Francisco, California and that serves as the Company's and the Bank's
headquarters. The Bank leases all of its remaining branch facilities under
noncancelable operating leases, many of which contain renewal options and some
of which have escalation clauses. The Bank's branch offices are set forth below:
<TABLE>
<CAPTION>
Total Deposits
Office Location Lease Expiration Date at March 31, 1998
- --------------- --------------------- ------------------
(Dollars in Thousands)
<S> <C> <C>
Alhambra:
1211 East Valley Blvd.
Alhambra, CA 91801...................................... October 2001 $ 43,542
Artesia:
11809 Artesia Blvd.
Artesia, CA 90701....................................... June 1998 51,264
Balboa:
3555 Balboa Street
San Francisco, CA 94121................................. March 1999 37,852
Citrus Heights:
7803 Madison Ave #650
Citrus Heights, CA 95610................................ February 1999 (1)
Clement:
498 Clement Street
San Francisco, CA 94118................................. March 2004 123,656
Cupertino:
20510 Stevens Creek Blvd.
Cupertino, CA 95014..................................... March 2001 31,900
Daly City:
246 Skyline Plaza
Daly City, CA 94015..................................... November 2002 (2)
Freeport:
4790 Freeport Blvd.
Sacramento, CA 95822.................................... April 2009 57,138
Fremont:
34420 Fremont Blvd., Suite F
Fremont, CA 94555....................................... January 1999 29,903
Fresno:
1320 East Shaw Avenue, Suite 160
Fresno, CA 93710....................................... December 1998 (3)
</TABLE>
- ----------------
(1) Facility is a spot construction lending center that does not take deposits.
(2) Facility is a retail branch opened April 17, 1998.
(3) Facility is a construction lending center that does not take deposits.
51
<PAGE>
<TABLE>
<CAPTION>
Total Deposits
Office Location Lease Expiration Date at March 31, 1998
- --------------- --------------------- ------------------
<S> <C> <C>
Geary:
6001 Geary Blvd.
San Francisco, CA 94121................................. June 1999 $ 19,918
Irvine:
15333 Culver Dr., #670
Irvine, CA 92604........................................ January 2001 20,397
Irving:
2219 Irving Street
San Francisco, CA 94122................................. October 1999 24,002
Kearny:
900 Kearny Street
San Francisco, CA 94133................................. November 2011 43,911
Los Angeles Chinatown:
951 No. Broadway
Los Angeles, CA 90012................................... February 2001 47,884
Montebello:
863 N. Wilcox Avenue
Montebello, CA 90640.................................... April 2002 (4)
Monterey Park:
419 No. Atlantic Blvd., #101
Monterey Park, CA 91754................................. November 1998 89,773
Noriega:
1301 Noriega Street
San Francisco, CA 94122................................. August 2005 80,374
Oakland:
367 Eighth Street
Oakland, CA 94607....................................... February 1999 142,535
Oakland-MacArthur:
4148 MacArthur Blvd.
Oakland, CA 94619....................................... August 1998 (4)
Oakland-Webster:
800 Webster Street
Oakland, CA 94607....................................... September 2007 62,754
Pasadena:
199 South Los Robles, Suite 780
Pasadena, CA 91101...................................... June 2003 (5)
</TABLE>
- --------------
(4) Facility is a homeowners center that does not take deposits.
(5) Facility is a commercial loan center that does not take deposits.
52
<PAGE>
<TABLE>
<S> <C> <C>
Paso Robles:
825 Riverside Ave., Suite #2
Paso Robles, CA 93446................................... January 1999 (6)
Rowland Heights:
1015 S. Nogales St., #102
Rowland Heights, CA 91748............................... June 1999 $ 44,509
San Francisco Chinatown:
1066 Grant Avenue
San Francisco, CA 94133................................. September 1998 197,019
San Francisco Van Ness:
711 Van Ness Avenue
San Francisco, CA 94102................................. Company-owned 56,293
San Francisco Stockton:
1318 Stockton Street
San Francisco, CA 94133................................. July 2017 61,096
San Jose:
1663 Lundy Avenue, Suite D
San Jose, CA 95131...................................... January 2001 35,361
San Mateo:
27 East Fourth Avenue
San Mateo, CA 94401..................................... November 2000 14,917
Stockton:
146 E. Market Street
Stockton, CA 95202...................................... December 1998 26,013
Temple City:
5607 N. Rosemead Blvd.
Temple City, CA 91780................................... September 2001 121,312
</TABLE>
- --------------
(6) Facility is a SBA Loan office that does not take deposits.
The Bank believes its present facilities are adequate for its present
needs. However, the Bank may acquire additional properties if needed due to
business expansion. The Bank believes that, if necessary, it could secure
suitable alternative facilities without adversely affecting operations.
53
<PAGE>
Legal Proceedings
The Bank is subject to pending or threatened actions and proceedings
arising in the normal course of business. In the opinion of management, the
ultimate disposition of all pending or threatened actions and proceedings will
not have a material adverse effect on the Bank's operations or financial
condition.
SUPERVISION AND REGULATION
Introduction
Savings and loan holding companies such as Holdings, federal savings
banks such as the Bank, as well as bank holding companies and commercial banks
engaged in the commercial banking business which Holdings and the Bank seek to
engage in are extensively regulated under both federal and state law. Set forth
below is a summary description of certain laws which relate to the present and
possible future regulation of Holdings and the Bank and their successor
institutions in the event that Holdings and the Bank become a bank holding
company and a state chartered bank, respectively. The description below does not
purport to be complete and is qualified in its entirety by reference to
applicable laws and regulations.
Recent Legislative Developments Affecting the Savings and Loan Business
In recent years, measures have been taken to reform the thrift and
banking industries and to strengthen the insurance funds for depository
institutions. The most significant of these measures for savings institutions
was the Financial Institutions Reform, Recovery, and Enforcement Act of 1989
(the "FIRREA"), which has had a major impact on the operation and regulation of
savings associations generally. In 1991, the Federal Deposit Insurance
Corporation Improvement Act of 1991 (the "FDICIA"), became law. Although the
FDICIA's primary purpose was to recapitalize the Bank Insurance Fund (the "BIF")
of the FDIC, which insures the deposits of commercial banks, the FDICIA also
affected the supervision and regulation of all federally insured depository
institutions, including federal savings banks such as the Bank. More recent
legislation has attempted to resolve the problems of SAIF in meeting its minimum
required reserve ratio and the related concern facing SAIF-insured institutions,
such as the Bank, of paying significantly higher deposit insurance premiums than
BIF-insured institutions. Furthermore, proposed legislation would eliminate
federal savings associations and convert to commercial banks. The following
discussion is a summary of the significant provisions of the recent legislation
affecting the savings and loan business.
Rechartering Legislation. The Deposit Insurance Funds Act of 1996 (the
"Funds Act"), enacted in September 1996, provides that the BIF, the fund which
insures most commercial bank deposits, and the SAIF will merge on January 1,
1999, if there are no savings associations, as defined, in existence on that
date. Pursuant to that legislation, the Department of Treasury in May 1997
recommended in a report to Congress that the separate charters for thrifts and
banks be abolished. Various proposals to eliminate the federal thrift charter,
create a uniform financial institutions charter, conform holding company
regulation and abolish the OTS have been introduced in Congress. The House
Committee on Banking and Financial Services has reported a bill that will
require federal savings associations to convert to national banks or some type
of state charter within two years of enactment or they would automatically
become national banks. The bill would also merge the BIF and the SAIF, repeal
the HOLA, abolish the OTS and transfer the regulation of savings associations to
the federal bank regulators and the Federal Reserve Board. Federal thrifts
converted to national banks generally will be permitted to continue to engage in
any activity, including the holding of any asset, lawfully conducted on the date
prior to the enactment. A federal savings association converted to a national
bank may retain all branches established or proposed in a pending application as
of enactment and establish new branches in any state in which it has a branch.
Otherwise it may establish new branches only under national bank rules. In
addition, beginning two years after enactment, national banks will be authorized
to exercise all powers formerly authorized for federal savings associations.
Under the proposal, holding companies for savings associations
converted to national banks generally will become subject to the same regulation
as holding companies that control commercial banks, with a grandfather provision
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<PAGE>
for former unitary savings and loan holding companies. Such grandfathered
companies will be permitted to maintain and establish affiliations with any type
of company and to acquire additional depository institutions, as long as any
acquired depository institution is merged into its converted savings association
and such institution continues to comply with both the qualified thrift lender
test and certain asset and investment limitations to which it was subject as a
federal savings association.
The Financial Services Act of 1998, introduced in March 1998, would
allow securities firms, insurance companies and commercial banks to merge under
a holding company structure. Among other things, the bill would expand the
Federal Reserve's regulatory authority over these financial institutions.
Holdings is unable to predict whether this bill or any other such legislation
will be enacted, what the provisions of such final legislation may be, or the
extent to which the legislation would restrict, disrupt or otherwise have a
material effect on its operations.
Savings and Loan Holding Company Regulation
Transactions with Affiliates. Holdings is a unitary savings and loan
holding company and as such is subject to the OTS regulations, examination,
supervision and reporting requirements pursuant to certain provisions of HOLA
and the Federal Deposit Insurance Act ("FDIA"). As an insured institution and a
subsidiary of a savings and loan holding company, the Bank is subject to
restrictions in its dealings with companies that are "affiliates" of Holdings
under the HOLA, certain provisions of the Federal Reserve Act that were made
applicable to savings institutions by the FIRREA, and the OTS regulations.
Savings institutions' transactions with its affiliates are subject to
the limitations set forth in the HOLA and the OTS regulations, which incorporate
Sections 23A, 23B, 22(g) and 22(h) of the Federal Reserve Act and Regulation O
adopted by the Federal Reserve Board. Affiliates are defined as any company that
controls or is under common control with an institution. Under Section 23A,
Holdings is an "affiliate" of the Bank. The OTS regulations and Sections 23A and
23B require that covered transactions and certain other transactions with
affiliates be on terms and conditions consistent with safe and sound banking
practices or on terms comparable to similar transactions with non-affiliated
parties, and impose quantitative restrictions on the amount of and
collateralization requirements on covered transactions. "Covered transactions"
generally include loans or extensions of credit to an affiliate, purchases of
securities issued by an affiliate, purchases of assets from an affiliate (except
as may be exempted by order or regulation), and certain other transactions. In
addition, a savings institution is prohibited from extending credit to an
affiliate (other than a subsidiary of the institution), unless the affiliate is
engaged only in activities that the Federal Reserve Board has determined, by
regulation, to be permissible for bank holding companies. Sections 22(g) and
22(h) of the Federal Reserve Act impose limitations on loans and extensions of
credit from an institution to its executive officers, directors and principal
stockholders and each of their related interests.
As a condition of approving the holding company application filed by
Chief Investments Limited ("CIL"), one of the two Selling Shareholders, CIL,
Holdings and the Director of OTS executed the Foreign Holding Company Agreement,
which, among other matters, prohibits CIL from selling, pledging, hypothecating,
or otherwise encumbering or disposing of any shares of the outstanding capital
stock of the Bank or any subsidiary companies thereof, owned by Holdings without
the prior written approval of the Director of OTS. In addition, Holdings, an
affiliate of a Selling Shareholder, and the OTS were among the various parties
to a Capital Maintenance/Dividend Agreement, pursuant to which no signatories to
such agreement would accept from the Bank or cause the Bank to pay any dividend
if the Bank's capital is or falls below its fully phased-in capital requirement
under section 5(t) of the HOLA and regulations of the OTS promulgated thereunder
and that such signatories may be required to infuse sufficient capital to bring
the Bank's capital at a level equal to its current capital requirements under
the HOLA and such regulations. Holdings requested and received confirmation from
the OTS that the Redemption did not require any approvals under the Foreign
Holding Company Agreement and provided notice to the OTS of the extinguishment
of the Selling Shareholders' interest, which terminated the Capital
Maintenance/Dividend Agreement.
Activities Limitations. A unitary savings and loan holding company,
such as Holdings, whose sole insured institution subsidiary qualifies as a
qualified thrift lender ("QTL") (described below) generally has the broadest
authority
55
<PAGE>
to engage in various types of business activities. A holding company that
acquires another institution and maintains it as a separate subsidiary or whose
sole subsidiary fails to meet the QTL test will become subject to the activities
limitations applicable to multiple savings and loan holding companies, which are
generally comparable to the activities limitations applicable to bank holding
companies.
Savings Institutions Regulations
Federal savings institutions such as the Bank are chartered by the OTS,
are members of the FHLB system, and have their deposits insured by the SAIF.
They are subject to comprehensive OTS and FDIC regulations that are intended
primarily to protect depositors. SAIF-insured, federally chartered institutions
may not enter into certain transactions unless applicable regulatory tests are
met or they obtain necessary approvals. They are also required to file reports
with the OTS describing their activities and financial condition, and periodic
examinations by the OTS test compliance by institutions with various regulatory
requirements, some of which are described below.
Insurance of Accounts. The FDIC has adopted a risk-based insurance
assessment system. The FDIC assigns an institution to one of three capital
categories based on the institution's financial information, as of the reporting
period ending seven months before the assessment period. The capital categories
are (1) well capitalized, (2) adequately capitalized or (3) undercapitalized. An
institution is also placed in one of three supervisory subcategories within each
capital group. The supervisory subgroup to which an institution is assigned is
based on a supervisory evaluation provided to the FDIC by the institution's
primary federal regulator and information that the FDIC determines to be
relevant to the institution's financial condition and the risk posed to the
deposit insurance funds. An institution's assessment rate depends on the capital
category and supervisory category to which it is assigned with the most well
capitalized, healthy institutions receiving the lowest rates.
Deposits of the Bank are presently insured by the SAIF. Both the SAIF
and the BIF are statutorily required to achieve and maintain a ratio of
insurance reserves to total insured deposits equal to 1.25%. Until recently,
members of the SAIF and BIF were paying average deposit insurance assessments of
between 24 and 25 basis points. The BIF met the required reserve level in 1995,
whereas the SAIF was not expected to meet or exceed the required level until
2002 at the earliest. This situation was primarily due to the statutory
requirement that SAIF members make payments on bonds issued in the late 1980s by
the Financing Corporation ("FICO") to recapitalize the predecessor to the SAIF.
In view of the BIF's achieving the 1.25% ratio, the FDIC ultimately
adopted a new assessment rate schedule ranging from 0-27 basis points under
which 92% of BIF members paid an annual premium of only $2,000. With respect to
SAIF member institutions, the FDIC adopted a final rule retaining the previously
existing assessment rate schedule applicable to SAIF member institutions of 23
to 31 basis points. As long as the premium differential continued, it may have
had adverse consequences for SAIF members, including reduced earnings and an
impaired ability to raise funds in the capital markets. In addition, SAIF
members, such as the Bank, could have been placed at a substantial competitive
disadvantage to BIF members with respect to pricing of loans and deposits and
the ability to achieve lower operating costs.
On September 30, 1996, the President of the United States signed into
law the Funds Act which, among other things, imposed a special one-time
assessment on SAIF member institutions, including the Bank, to recapitalize the
SAIF. As required by the Funds Act, the FDIC imposed a special assessment of
65.7 basis points on SAIF assessable deposits held as of March 31, 1995, payable
November 27, 1996 (the "SAIF Special Assessment"). The SAIF Special Assessment
was recognized by the Bank as an expense in the quarter ended September 30,
1996, and is generally tax deductible. The SAIF Special Assessment recorded by
the Bank amounted to $7.7 million on a pre-tax basis and $4.5 million on an
after-tax basis.
The Funds Act also spread the obligations for payment of the FICO bonds
across all SAIF and BIF members. Beginning on January 1, 1997, BIF deposits were
assessed for a FICO payment of 1.3 basis points, while SAIF deposits pay 6.48
basis points. Full pro rata sharing of the FICO payments between BIF and SAIF
members will occur on the earlier of January 1, 2000, or the date the BIF and
SAIF are merged.
56
<PAGE>
As a result of the Funds Act, the FDIC voted to effectively lower SAIF
assessments to 0-27 basis points as of January 1, 1997, a range comparable to
that of BIF members. SAIF members will also continue to make the FICO payments
described above. The FDIC also lowered the SAIF assessment schedule for the
fourth quarter of 1996 to 18-27 basis points. Management cannot predict the
level of FDIC insurance assessments on an on-going basis, whether the federal
thrift charter will be eliminated or whether the BIF and SAIF will eventually be
merged.
The Bank's assessment rate, effective as of January 1, 1997, was
reduced to 0.164% based upon its current risk classification, and the regular
premium paid for 1997 was $1.8 million. As discussed in further detail under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations--Noninterest Expenses," the Bank's deposit
insurance premium has been reduced to 6.4 basis points, effective as of January
1, 1998.
The FDIC is authorized to raise the assessment rates in certain
circumstances. The FDIC has exercised this authority several times in the past
and may raise insurance premiums in the future. If such action is taken by the
FDIC, it could have an adverse effect on the earnings of the Bank.
Under the FDIA, 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
OTS. The management of the Bank does not know of any practice, condition or
violation that might lead to termination of deposit insurance.
Regulatory Capital Requirements. The OTS has adopted capital standards
under which savings institutions must currently maintain at least the following
minimum capital ratios (i) a tangible capital requirement of 1.5% of adjusted
total assets, (ii) a leverage (or core capital) ratio of 3.0% of adjusted total
assets, and (iii) a risk-based capital requirement of 8.0% of risk-weighted
assets. These requirements (which cannot be less stringent than those applicable
to national banks) apply to the Bank. The OTS has broad discretion to impose
capital requirements in excess of the minimum applicable ratios. Under current
law and regulations, there are no capital requirements directly applicable to
Holdings. However, if Holdings were to become a bank holding company, it would
become subject to the capital adequacy rules of the Federal Reserve Board. The
Private Offerings facilitated Holdings' compliance with the Federal Reserve
Board capital requirements.
Under the current regulations, "tangible capital" includes common
stockholders' equity, certain non-cumulative perpetual preferred stock and
related paid-in capital, certain qualifying non-withdrawable accounts and
pledged deposits, and minority interests in fully consolidated subsidiaries,
less intangible assets (except certain purchased mortgage servicing rights) and
specified percentages of debt and equity investments in certain subsidiaries.
"Core capital" is tangible capital plus limited amounts of intangible assets
meeting designated marketability criteria. The "risk-based capital" requirement
provides that an institution's total capital must equal at least 8% of
risk-weighted assets. Certain institutions will be required to deduct an
interest rate risk component from their total capital, as described below.
"Total capital" equals core capital plus "supplementary capital" (which includes
specified amounts of cumulative preferred stock, certain limited-life preferred
stock, subordinated debt, other capital instruments, and general valuation loan
and lease loss allowances up to a maximum of 1.25% of risk-weighted assets). The
amount of supplementary capital included as part of total capital cannot exceed
100% of core capital. "Risk-weighted assets" are determined by assigning
designated risk weights based on the credit risk associated with the particular
asset. Representative risk weights include: 0% for cash and assets that are
backed by the full faith and credit of the United States; 20% for cash items in
the process of collection, FHLB stock, agency securities not backed by the full
faith and credit of the United States and certain high-quality mortgage-related
securities; 50% for certain revenue bonds, qualifying mortgage loans, certain
non-high-quality mortgage-related securities and certain qualifying residential
construction loans; and 100% for consumer, commercial and other loans,
repossessed assets, assets that are 90 or more days past due, and all other
assets.
As of March 31, 1998, the Bank's tangible and core capital ratios were
5.52% and the risk-based capital ratio was 11.27%.
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The OTS regulatory capital regulations take into account a savings
institution's exposure to the risk of loss from changing interest rates. Under
the regulations, a savings institution with an above normal level of interest
rate risk exposure will be required to deduct an IRR component from its total
capital when determining its compliance with the risk-based capital
requirements. An "above normal" level of interest rate risk exposure is a
projected decline of 2% in the net present value of an institution's assets and
liabilities resulting from a 2% swing in interest rates. The IRR component will
equal one-half of the difference between the institution's measured interest
rate exposure and 2%. Savings institutions are required to file data with the
OTS that the OTS will use to calculate, on a quarterly basis, the institutions'
measured interest rate risk and IRR components. The IRR component to be deducted
from capital is the lowest of the IRR components for the preceding three
quarters. The OTS may waive or defer an institution's IRR component on a
case-by-case basis. Implementation of the IRR requirements has been delayed
indefinitely.
If an institution becomes categorized as "undercapitalized" under the
definitions established by the "prompt corrective action" provisions of the
FDICIA, it will become subject to certain restrictions imposed by the FDICIA.
See "--Prompt Corrective Action."
Prompt Corrective Action. The OTS and other federal banking regulators
have established capital levels for institutions to implement the "prompt
corrective action" provisions of the FDICIA which require certain supervisory
actions against undercapitalized institutions. Based on these capital levels,
insured institutions will be categorized as well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized or critically
undercapitalized. The FDICIA requires federal banking regulators, including the
OTS, to take prompt corrective action to solve the problems of those
institutions that fail to satisfy their applicable minimum capital requirements.
The level of regulatory scrutiny and restrictions imposed become increasingly
severe as an institution's capital level falls.
A "well capitalized" institution must have risk-based capital of 10% or
more, core capital ratio of 5% or more and Tier 1 risk-based capital (based on
the ratio of core capital to risk-weighted assets) of 6% or more and may not be
subject to any written agreement, order, capital directive, or prompt corrective
action directive issued by the OTS. As of December 31, 1997 and thereafter, the
Bank was a well capitalized institution under the definitions. An institution
will be categorized as "adequately capitalized" if it has total risk-based
capital of 8% or more, Tier 1 risk-based capital of 4% or more, and core capital
of 4% or more and does not meet the definition of "well capitalized;"
"undercapitalized" if it has total risk-based capital of less than 8%, or Tier 1
risk-based capital of less than 4%, or core capital of less than 4%;
"significantly undercapitalized" if it has total risk-based capital of less than
6%, or Tier 1 risk-based capital of less than 3%, or core capital of less than
3%; and "critically undercapitalized" if it has a ratio of tangible equity to
total assets that is equal to less than 2%.
In the case of an institution that is categorized as
"undercapitalized," such an institution must submit a capital restoration plan
to the OTS. An undercapitalized depository institution generally will not be
able to acquire other banks or thrifts, establish additional branches, pay
dividends, or engage in any new lines of business unless consistent with its
capital plan. A "significantly undercapitalized" institution will be subject to
additional restrictions on its affiliate transactions, the interest rates paid
by the institution on its deposits, the institution's asset growth, compensation
of senior executive officers, and activities deemed to pose excessive risk to
the institution. Regulators may also order a significantly undercapitalized
institution to hold elections for new directors, terminate any director or
senior executive officer employed for more than 180 days prior to the time the
institution became significantly undercapitalized, or hire qualified senior
executive officers approved by the regulators. The FDICIA provides that an
institution that is "critically undercapitalized" must be placed in
conservatorship or receivership within 90 days of becoming categorized as such
unless the institution's regulator and the FDIC jointly determine that some
other course of action would result in a lower resolution cost to the
institution's insurance fund.
Restrictions on Dividends and Other Capital Distributions. The current
OTS regulation applicable to the payment of dividends or other capital
distributions by savings institutions imposes limits on capital distributions
based on an institution's regulatory capital levels and net income. An
institution that meets or exceeds all of its capital requirements (both before
and after giving effect to the distribution) and is not in need of more than
normal supervision would be a "Tier 1 association." A Tier 1 association may
make capital distributions during a calendar year of up to the
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greater of (i) 100% of net income for the current calendar year plus 50% of its
capital surplus or (ii) the amount permitted for a "Tier 2 association" which is
75% of its net income over the most recent four quarters. Any additional capital
distributions would require prior regulatory approval. The Bank currently
exceeds its fully phased-in capital requirements and qualifies as a Tier 1
association under the regulation. A "Tier 3 association" is defined as an
institution that does not meet all of the minimum regulatory capital
requirements and therefore may not make any capital distributions without the
prior approval of the OTS.
The OTS has proposed regulations that would revise the current capital
distribution restrictions. Under the proposal a savings association may make a
capital distribution without notice to the OTS (unless it is a subsidiary of a
holding company) provided that it has a CAMELS 1 or 2 rating, is not of
supervisory concern, and would remain adequately capitalized (as defined in the
OTS prompt corrective action regulations) following the proposed distribution.
Savings associations that would remain adequately capitalized following the
proposed distribution but do not meet the other noted requirements must notify
the OTS 30 days prior to declaring a capital distribution. The OTS stated it
will generally regard as permissible that amount of capital distributions that
do not exceed 50% of the institution's excess regulatory capital plus net income
to date during the calendar year. As under the current rule, the OTS may object
to a capital distribution if it would constitute an unsafe or unsound practice.
No assurance may be given as to whether or in what form the regulations may be
adopted.
If the Bank became a California state-chartered bank, the deposits of
the Bank would continue to be insured by the FDIC in the manner and to the
extent provided by law, and various requirements and restrictions under the laws
of the State of California and the United States would continue to affect the
operations of the Bank. State and federal statutes and regulations would relate
to many aspects of the Bank's operations, including levels of capital, reserves
against deposits, interest rates payable on deposits, loans, investments,
mergers and acquisitions, borrowings, dividends, locations of branch offices and
capital requirements.
Bank regulatory agencies also have authority to prohibit banks from
engaging in activities that, in their respective opinions, constitute unsafe or
unsound practices in conducting its business. It is possible, depending upon the
financial condition of the Bank and other factors, that the FDIC or the DFI
could assert that the payment of dividends or other payments by the Bank might,
under some circumstances, be such an unsafe or unsound practice. Further, the
bank regulatory agencies have established guidelines with respect to the
maintenance of appropriate levels of capital by banks or bank holding companies
under their jurisdiction. Compliance with the standards set forth in such
guidelines and the restrictions that are or may be imposed under the prompt
corrective action provisions of federal law could limit the amount of dividends
which the Bank or Holdings may pay.
Qualified Thrift Lender Test. A savings institution such as the Bank
will be a QTL if its qualified thrift investments equal or exceed 65% of its
portfolio assets on a monthly average basis in nine of every 12 months.
Qualified thrift investments include primarily residential mortgages and related
investments, including certain mortgage-backed and related securities. Portfolio
assets consist of total assets minus (a) goodwill and other intangible assets,
(b) the value of properties used by the savings institution to conduct its
business, and (c) certain liquid assets in an amount not exceeding 20% of total
assets. Recent legislation has amended the QTL requirements to allow educational
loans, small business loans and credit card loans to count as qualified thrift
assets without limit and to allow loans for personal, family or household
purposes to count as qualified thrift assets in the category limited to 20% of
portfolio assets. Prior to the Budget Act, small business loans were included in
qualified thrift assets only if made in a credit-needy area, and educational and
credit card loans were included subject to a 10% of portfolio assets limit. The
previous limit for loans for personal, family or household purposes was also 10%
of portfolio assets.
Any savings institution that fails to become or remain a QTL must
either convert to a national bank charter or be subject to restrictions
specified in the OTS regulations. At March 31, 1998, the Bank exceeded the QTL
requirements. Any such savings institution that does not become a bank will be:
(i) prohibited from making any new investment or engaging in activities that
would not be permissible for national banks; (ii) prohibited from establishing
any new branch office in a location that would not be permissible for a national
bank in the institution's home state; (iii) ineligible to obtain new advances
from any FHLB; and (iv) subject to limitations on the payment of dividends
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comparable to the statutory and regulatory dividend restrictions applicable to
national banks. Also, beginning three years after the date on which the savings
association ceases to be a QTL, the savings association would be prohibited from
retaining any investment or engaging in any activity not permissible or a
national bank and would be required to repay any outstanding advances to any
FHLB. A savings institution may requalify as a QTL if it thereafter complies
with the QTL test.
Federal Home Loan Bank System. The Bank is a member of the FHLB system,
which consists of 12 regional Federal Home Loan Banks governed and regulated by
the Federal Housing Finance Board. The Federal Home Loan Banks provide a central
credit facility for member institutions. The Bank, as a member of the FHLB of
San Francisco, is required to acquire and hold shares of 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 as of the close of each calendar
year, or 5% of its borrowings from the FHLB of San Francisco (including advances
and letters of credit issued by the FHLB on the Bank's behalf). The Bank is
currently in compliance with this requirement, with a $14.1 million investment
in stock of the FHLB of San Francisco as of March 31, 1998.
The FHLB of San Francisco makes advances to members in accordance with
policies and procedures periodically established by the Federal Housing Finance
Board and the Board of Directors of the FHLB of San Francisco. Currently
outstanding advances from the FHLB of San Francisco are required to be secured
by a member's shares of stock in the FHLB of San Francisco and by certain types
of mortgages and other assets. The FIRREA further limited the eligible
collateral in certain respects. Interest rates charged for advances vary
depending on maturity, the cost of funds to the FHLB of San Francisco and the
purpose of the borrowing. As of March 31, 1998, there were no outstanding
advances from the FHLB of San Francisco to the Bank. The FIRREA restricted the
amount of FHLB advances that a member institution may obtain, and in some
circumstances requires repayment of outstanding advances, if the institution
does not meet the QTL test. See "--Qualified Thrift Lender Test."
Federal Reserve System. The Federal Reserve Board regulations require
savings institutions to maintain non-interest-earning reserves against their
transaction accounts. The Federal Reserve Board regulations generally required
that reserves be maintained against aggregate transaction accounts as follows:
for accounts aggregating $47.8 million or less (subject to adjustment by the
Federal Reserve Board) the reserve requirement is 3%; and for accounts greater
than $47.8 million, the reserve requirement is $1.4 million plus 10% (subject to
adjustment by the Federal Reserve Board between 8% and 14%) against that portion
of total transaction accounts in excess of $47.8 million. The first $4.7 million
of otherwise reservable balances (subject to adjustment by the Federal Reserve
Board) are exempted from the reserve requirements. The Bank is in compliance
with the foregoing requirements. Because required reserves must be maintained in
the form of either vault cash, a non-interest-bearing account at a Federal
Reserve Bank or a pass-through account as defined by the Federal Reserve Board,
the effect of this reserve requirement is to reduce the Bank's interest-earning
assets. FHLB System members are also authorized to borrow from the Federal
Reserve "discount window," but Federal Reserve Board regulations require
institutions to exhaust all FHLB sources before borrowing from a Federal Reserve
Bank.
Liquidity. OTS regulations currently require member savings
institutions to maintain for each calendar month an average daily balance of
liquid assets (cash and certain time deposits, securities of certain mutual
funds, bankers' acceptances, corporate debt securities and commercial paper, and
specified U.S. government, state government and federal agency obligations)
equal to at least 4% of its average daily balance during the preceding calendar
month of net withdrawable deposits and short-term borrowings (generally
borrowings having maturities of one year or less). The Director of the OTS may
vary this liquidity requirement from time to time within a range of 4% to 10%.
Monetary penalties may be imposed for failure to meet liquidity requirements. At
March 31, 1998, the Bank's liquidity ratio was 18.96%.
Community Reinvestment Act. Under the Community Reinvestment Act (the
"CRA"), as implemented by the OTS regulations, a savings institution has a
continuing and affirmative obligation consistent with its safe and sound
operation, to help meet the credit needs of its entire community, including low
and moderate income neighborhoods. The CRA does not establish specific lending
requirements or programs for financial institutions nor does it limit an
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institution's discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with the CRA.
The CRA requires the OTS and the other federal bank regulators, in connection
with its examination of a financial institution, to assess the institution's
record of meeting the credit needs of its community and to take such records
into account in its evaluation of certain applications. The conversion of
Holdings to a bank holding company and the bank to a state chartered bank would
involve such applications. If the Bank became a state chartered bank, it would
continue to be subject to the fair lending requirements and reporting
obligations involving home mortgage lending operations of the CRA. The FIRREA
amended the CRA to require public disclosure of an institution's CRA rating and
to require that the OTS provide a written evaluation of an institution's CRA
performance utilizing a four-tiered descriptive rating system in lieu of the
existing five-tiered numerical rating system. Based upon OTS examinations in
1996 and 1998, the Bank's CRA ratings were "outstanding."
Loans-to-One-Borrower Limitations. The FIRREA provided that
loans-to-one-borrower limits applicable to national banks apply to savings
institutions. Generally, under current limits, loans and extensions of credit
outstanding at one time to a single borrower shall not exceed 15% of the savings
institution's unimpaired capital and unimpaired surplus. Loans and extensions of
credit fully secured by certain readily marketable collateral may represent an
additional 10% of unimpaired capital and unimpaired surplus. As of March 31,
1998, the Bank was in compliance with the loans-to-one-borrower limitations.
Bank Holding Company and Bank Regulation
Holdings. If Holdings were to become a bank holding company, its
regulatory status would change from that of a unitary savings and loan holding
company to that of a bank holding company. As a registered bank holding company,
Holdings would be subject to regulation under the Bank Holding Company Act of
1956, as amended (the "BHCA") and the regulations promulgated by the Federal
Reserve Board pursuant thereto. Holdings would then be required to file with the
Federal Reserve Board quarterly and annual reports and such additional
information as the Federal Reserve Board may require pursuant to the BHCA. The
Federal Reserve Board may conduct examinations of Holdings and its non-bank
subsidiaries. Holdings would also become a bank holding company within the
meaning of Section 3700 of the California Financial Code. As such, Holdings and
its subsidiaries would become subject to examination by, and may be required to
file reports with, the DFI.
The Federal Reserve Board could require that Holdings terminate an
activity or terminate control of or liquidate or divest certain subsidiaries or
affiliates when the Federal Reserve Board believes the activity or the control
of the subsidiary or affiliate constitutes a significant risk to the financial
safety, soundness or stability of a banking subsidiary such as the Bank. The
Federal Reserve Board also has the authority to regulate provisions of certain
bank holding company debt, including authority to impose interest ceilings and
reserve requirements on such debt. Under certain circumstances, Holdings would
be required to file written notice and obtain approval from the Federal Reserve
Board prior to purchasing or redeeming its equity securities. Further, Holdings
would be required by the Federal Reserve Board to maintain certain levels of
capital.
Holdings would be required to obtain the prior approval of the Federal
Reserve Board for the acquisition of more than 5% of the outstanding shares of
any class of voting securities or substantially all of the assets of any bank
(other than the Bank) or bank holding company. Prior approval of the Federal
Reserve Board would also be required for the merger or consolidation of Holdings
and another bank holding company.
Holdings would be prohibited by the BHCA, except in certain statutorily
prescribed instances, from acquiring direct or indirect ownership or control of
more than 5% of the outstanding voting shares of any company that is not a bank
or bank holding company and from engaging directly or indirectly in activities
other than those of banking, managing or controlling banks or furnishing
services to its subsidiaries. However, Holdings, subject to the prior approval
of the Federal Reserve Board, could engage in any, or acquire shares of
companies engaged in, activities that are deemed by the Federal Reserve Board to
be so closely related to banking or managing or controlling banks as to be a
proper incident thereto. In making any such determination, the Federal Reserve
Board would be required to consider whether the performance of such activities
by Holdings or an affiliate could reasonably be expected to produce benefits
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to the public, such as greater convenience, increased competition or gains in
efficiency, that outweigh possible adverse effects, such as undue concentration
of resources, decreased or unfair competition, conflicts of interest or unsound
banking practices. The Federal Reserve Board is also empowered to differentiate
between activities commenced de novo and activities commenced by acquisition, in
whole or in part, of a going concern. In 1996, the Budget Act of 1996 (the
"Budget Act") eliminated the requirement that bank holding companies seek
Federal Reserve Board approval before engaging de novo in permissible nonbanking
activities listed in Federal Reserve Board Regulation Y, which governs bank
holding companies, if the holding company and its lead depository institution
are well managed and well capitalized and certain other criteria specified in
the statute are met. For purposes of determining the capital levels at which a
bank holding company shall be considered well capitalized under this section of
the Budget Act and Regulation Y, the Federal Reserve Board adopted, as a rule,
risk-based capital ratios (on a consolidated basis) that are the same as the
level set for determining that a state member bank is well capitalized under the
provisions established under the prompt corrective action provisions of federal
law. See "--Savings Institution Regulations--Prompt Corrective Action."
Under Federal Reserve Board regulations, a bank holding company is
required to serve as a source of financial and managerial strength to its
subsidiary bank(s) and may not conduct its operations in an unsafe or unsound
manner. In addition, it is the Federal Reserve Board policy that in serving as a
source of strength to its subsidiary bank(s), a bank holding company should
stand ready to use available resources to provide adequate capital funds to its
subsidiary bank(s) during periods of financial stress or adversity and should
maintain the financial flexibility and capital-raising capacity to obtain
additional resources for assisting its subsidiary bank(s). A bank holding
company's failure to meet its obligations to serve as a source of strength to
its subsidiary bank(s) will generally be considered by the Federal Reserve Board
to be an unsafe and unsound banking practice or a violation of the Federal
Reserve Board's regulations or both.
The Bank. If the Bank became a California state-chartered bank, it
would be subject to primary supervision, periodic examination and regulation by
the Commissioner of the California DFI (the "Commissioner") and the FDIC. If, as
a result of an examination of a Bank, either of these Bank regulatory agencies
should determine that the financial condition, capital resources, asset quality,
earnings prospects, management, liquidity or other aspects of the Bank's
operations are unsatisfactory or that the Bank or its management is violating or
has violated any law or regulation, various remedies are available to the bank
regulatory agency. Such remedies include the power to enjoin "unsafe or unsound"
practices, to require affirmative action to correct any conditions resulting
from any violation or practice, to issue an administrative order that can be
judicially enforced, to direct an increase in capital, to restrict the growth of
the bank, to assess civil monetary penalties, to remove officers and directors
and ultimately to terminate a bank's deposit insurance, which would result in a
revocation of the Bank's charter. The Bank has not been the subject of any such
actions by the OTS in the past.
Safety and Soundness Standards. The FDIC and the Federal Reserve Board
have adopted final guidelines establishing standards for safety and soundness,
as required by FDICIA. These standards are designed to identify potential safety
and soundness concerns and ensure that action is taken to address those concerns
before they pose a risk to the deposit insurance funds. The standards relate to:
(i) internal controls, information systems and internal audit systems; (ii) loan
documentation; (iii) credit underwriting; (iv) asset growth; (v) earnings; and
(vi) compensation, fee and benefits. If the FDIC or the Federal Reserve Board
determine that an institution fails to meet any of these standards, the agency
may require the institution to submit to the agency an acceptable plan to
achieve compliance with the standard. In the event the institution fails to
submit an acceptable plan within the time allowed by the agency or fails in any
material respect to implement an accepted plan, the agency must, by order,
require the institution to correct the deficiency. The FDIC or the Federal
Reserve Board agencies have promulgated safety and soundness regulations and
accompanying interagency compliance guidelines on asset quality and earnings
standards. These new guidelines provide six standards for establishing and
maintaining a system to identify problem assets and prevent those assets from
deteriorating. The institution should: (i) conduct periodic asset quality
reviews to identify problem assets; (ii) estimate the inherent losses in those
assets and establish reserves that are sufficient to absorb estimated losses;
(iii) compare problem asset totals to capital; (iv) take appropriate corrective
action to resolve problem assets; (v) consider the size and potential risks of
material asset concentrations; and (vi) provide periodic asset reports with
adequate information for management and the board of directors to assess the
level of asset risk. These new guidelines also set forth standards
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for evaluating and monitoring earnings and for ensuring that earnings are
sufficient for the maintenance of adequate capital and reserves. 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.
Potential Enforcement Actions. Commercial banking organizations, such
as Holdings and the Bank, and their institution-affiliated parties, may be
subject to potential enforcement actions by the Federal Reserve Board, the FDIC
and/or the Commissioner for violations of any law, rule, regulation or any
condition imposed in writing by the agency or any written agreement with the
agency for unsafe or unsound practices in conducting their businesses.
Enforcement actions may include the imposition of a conservator or receiver, the
issuance of a cease-and-desist order that can be judicially enforced, the
termination of insurance of deposits (in the case of the Bank), the imposition
of civil money penalties, the issuance of directives to increase capital, the
issuance of formal and informal agreements, the issuance of removal and
prohibition orders against institution affiliated parties, and the imposition of
restrictions and sanctions under the prompt corrective action provisions of the
FDICIA. Additionally, a holding company's inability to serve as a source of
strength to its subsidiary banking organizations could serve as an additional
basis for a regulatory action against the holding company. Neither Holdings nor
the Bank has been subject to any such enforcement actions.
Interstate Banking and Branching. Under the Interstate Branching Act, a
bank holding company that is adequately capitalized and managed may obtain
approval under the BHCA (via merger) to acquire (via merger) an existing bank
located in another state without regard to state law. A bank holding company is
not permitted to make such an acquisition if, upon consummation, it would
control (a) more than 10% of the total amount of deposits of insured depository
institutions in the United States or (b) 30% or more of the deposits in the
state in which the bank is located. A state may limit the percentage of total
deposits that may be held in that state by any one bank or bank holding company
if application of such limitation does not discriminate against out-of-state
banks or bank holding companies. An out-of-state bank holding company may not
acquire a state bank in existence for less than a minimum length of time that
may be prescribed by state law, except that a state may not impose more than a
five-year age requirement.
The Interstate Branching Act also permits mergers of insured banks
located in different states and conversion of the branches of the acquired bank
into branches of the resulting bank. Each state may adopt legislation to
prohibit interstate mergers after that date in that state or in other states by
that state's banks. The same concentration limits discussed in the preceding
paragraph apply. The Interstate Branching Act also permits a national or state
bank to establish branches in a state other than its home state if permitted by
the laws of that state, subject to the same requirements and conditions as for a
merger transaction.
Under the Interstate Branching Act, the extent of a commercial bank's
ability to branch into a new state will depend on the law of the state.
California has adopted an early "opt in" statute under the Interstate Branching
Act that permits out-of-state banks to acquire California banks that satisfy a
five-year minimum age requirement (subject to exceptions for supervisory
transactions) by means of merger or purchases of assets; although entry through
acquisition of individual branches of California institutions and de novo
branching into California are not permitted. The Interstate Branching Act and
the California branching statute allows out-of-state banks to enter and compete
in the markets in which the Bank operates.
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MANAGEMENT OF THE COMPANY AND THE BANK
In accordance with the Company's bylaws, the Boards of Directors of the
Company consists of five members. In accordance with the Bank's bylaws, the
Board of Directors of the Bank consists of seven members. The directors of the
Company have been elected to the following classes: one class of directors,
consisting of Mr. Fell, has a term expiring at the first annual meeting of
stockholders; the second class, consisting of Messrs. Downing and Lam, has a
term of office expiring at the second annual meeting of stockholders; and the
third class, consisting of Messrs. Wong and Wu, has a term of office expiring at
the third annual meeting of stockholders. The directors of the Bank have been
elected to the following classes: one class of directors, consisting of Messrs.
Wu, Downing and Fell, has a term expiring at the first annual meeting of
stockholders; the second class, consisting of Dr. Wong, has a term of office
expiring at the second annual meeting of stockholders; and the third class,
consisting of Mr. Lam, has a term of office expiring at the third annual meeting
of stockholders. The remaining two vacancies are expected to be filled by the
Board of Directors of the Bank in the near future. There are no arrangements or
understandings between the Company and the Bank and any person pursuant to which
such person has been proposed to be a director, and no director nominee is
related to any other director nominee or executive officer of the Company or the
Bank by blood, marriage or adoption.
Directors and Executive Officers
The directors and executive officers of the Company and the Bank are
set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Directors:
Sau-wing Lam............................................. 45 Chairman of the Boards of Directors
Tommy S. Wu.............................................. 40 President, Chief Executive Officer and Director
Jonathan H. Downing...................................... 46 Senior Vice President, Chief Financial Officer,
Treasurer and Director
Robert Fell.............................................. 77 Director
Godwin Wong.............................................. 48 Director
Executive Officers Who Are Not Directors:
Louis E. Barbarelli...................................... 56 Senior Vice President and Director of Operations
and Systems
William T. Goldrick...................................... 66 Senior Vice President and Chief Credit Officer
Cecilia Lai.............................................. 48 Senior Vice President, Director of Retail
Banking
Dennis Alan Lee.......................................... 55 Vice President and Corporate Counsel
Sylvia Loh............................................... 42 Senior Vice President and Director of Commercial
Banking
Deanne Miller............................................ 50 Senior Vice President and Director of Human
Resources
</TABLE>
Mr. Lam was appointed President, Chief Executive Officer and Vice
Chairman of the Board of Directors of the Bank in December 1996. On December 31,
1997, he retired as President and Chief Executive Officer of the Bank but
remained as Vice Chairman of the Board of Directors. Previously, Mr. Lam served
as President and Chief Executive Officer of Pacific Link Communications Limited
located in Hong Kong, a subsidiary of the First Pacific Group. Mr. Lam was
appointed President, Chief Executive Officer and Director of the Bank in March
1991 and left in 1995 to head up Pacific Link Communications Limited. Mr. Lam's
banking experience began when he joined the International Division of Crocker
National Bank in San Francisco in July 1977. He was transferred to Crocker's
Hong Kong Regional Officer in 1979 where he directed the administration,
correspondent banking and marketing functions. He returned to Crocker's
headquarters in 1983 where he directed Correspondent Banking for the Asia
Pacific Region. In February 1984, he joined The Hibernia Bank in San Francisco,
then a First Pacific Group ("Group") subsidiary, as the head of Trust Banking.
When the Group acquired the Bank in 1986, Mr. Lam was appointed its Chief
Administrative Officer and Senior Vice President, Retail Banking. In 1989, he
was transferred to the Group's headquarters in Hong Kong to
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become the Group Treasurer. Mr. Lam devotes a significant amount of his personal
time on voluntary services in the ethnic Chinese communities. Mr. Lam graduated
with a B.S. degree in Business Administration from California State University
at Fresno in 1975, and a MBA degree in International Finance at the University
of California at Berkeley in 1977.
Mr. Wu was appointed President and Chief Executive Officer of the Bank
effective January 1, 1998. Prior to that appointment, Mr. Wu was the Executive
Vice President and Director of the Bank as of September 25, 1997. Previously,
Mr. Wu was the Director of Customer Care for Pacific Link Communications Limited
in Hong Kong where he managed over 600 employees and was responsible for
formulating and implementing customer care, customer retention, and customer
communications strategies. Mr. Wu served as a director of the Bank from
1995-1996 and was a Senior Vice President, Head of Retail Banking of the Bank
from 1992-1996 when he directed the marketing, public relations, loan
originations, branch administration and operations control functions. Mr. Wu
also served the Bank as Vice President, Regional Manager, of its Southern
California Retail Banking Division from 1991-1992. Prior to joining the Bank in
1991, Mr. Wu was at First Pacific Bank, Hong Kong where he served as Vice
President and Team Leader of its Business Banking Group; Vice President, Deputy
Head, Retail Banking Group; and Assistant Vice President, Retail Banking Group
from 1986-1991. Prior to First Pacific Bank, Mr. Wu's experience included the
following: Assistant Treasurer, and Branch Manager for Chase Manhattan Bank,
N.A., Hong Kong; Assistant Manager, Banque Nationale De Paris, Hong Kong;
Assistant Officer, Standard Chartered Bank, Hong Kong (1977-1986). Mr. Wu has
also served on the Board of Directors of the Self-Help For the Elderly (also a
member of the finance committee) and the PineView Housing Corporation (also
chairperson of the finance committee). Mr. Wu is a graduate of Cognitio College,
Hong Kong and has taken numerous banking and management courses at the
University of California, Berkeley and the Chartered Institute of Bankers.
Mr. Barbarelli has been Senior Vice President and Director of
Operations and Systems of the Bank since August 1993, and served as a member of
the Board of Directors from 1994 to 1998. Prior to 1993, he served for two years
as a Senior Vice President and Chief Auditor of the Bank. Before joining the
Bank, Mr. Barbarelli was the General Auditor at Jackson County Federal Bank in
Medford, Oregon. Mr. Barbarelli has also served at the senior management level
at Hibernia Bancshares (San Francisco, California), Central Bank (Concord,
California), Bank of California, Fireman's Fund Insurance and U.S. Leasing. Mr.
Barbarelli has a B.S. in Information Systems Management from the University of
San Francisco.
Mr. Downing has been Senior Vice President and Chief Financial Officer
of the Bank since 1989. Mr. Downing has served as a director of the Bank since
January 1991. Mr. Downing joined the First Pacific Group in July 1983 as one of
four professionals contracted to create a de novo mortgage banking operation
(FPM Inc.) in California. Mr. Downing served as Chief Financial Officer of FPM
Inc. until it was merged into United Savings Bank in 1986. At that time he
assumed the responsibilities of Director of Secondary Marketing for the Bank and
was appointed its Chief Financial Officer in 1989. Prior to joining the First
Pacific Group, Mr. Downing was with Arthur Andersen and Co. Mr. Downing received
a B.S. in Business Administration from California State University, San Diego.
Mr. Downing is a CPA and a member of the American Institute of Certified Public
Accountants and the California Society of Certified Public Accountants.
Mr. Goldrick has been Senior Vice President and Chief Credit Officer of
the Bank since January 1997. Prior to joining the Bank, Mr. Goldrick was the
Senior Vice President, Senior Credit Officer for America California Bank; Chief
Lending Officer for National American Bank; First Vice President-Manager Loan
Administration for MBANK; Vice President-Credit Policy, Vice President-Senior
Credit Officer for Asia and Vice President-Division Administrator for Crocker
National Bank. Mr. Goldrick has also held various international banking
positions with Crocker National Bank and Citibank. Mr. Goldrick received a B.A.
in Economics from the University of California, Santa Barbara in 1957.
Ms. Lai has served as a member of the Board of Directors from 1997 to
1998, and has served as the Senior Vice President and Director of Retail Banking
since 1997. Prior to holding that position she was Vice President of Credit Risk
Management and Compliance, as well as CRA Officer and Compliance Officer at the
Bank since 1992.
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<PAGE>
From 1988 to 1992, Ms. Lai held a variety of positions (Director of Marketing,
Manager, Market Support Group, Branch Manager and Marketing Analyst) within the
Bank. Prior to joining the Bank, Ms. Lai served as Executive Director of the
Oakland Chinese Community Council and in various positions at Automatic Data
Processing, Underwriters Travelers Insurance., and Allstate Insurance Company.
Ms. Lai received a B.A. and M.A. from Holy Names College.
Mr. Lee has served as Corporate Counsel for the Bank since June, 1993.
Currently, he also serves as Vice President for the Bank. Prior to joining the
Bank, Mr. Lee was a director and General Counsel for Golden Coin Savings and
Loan Association. Prior to this, Mr. Lee was in private practice at the Law
Office of Barkley & Lee. Mr. Lee has also served in a variety of positions in
the legal profession, including City Attorney for the City of Pleasant Hill,
City Attorney for the cities of Martinez and Pleasant Hill, Senior Assistant
City Attorney for the City of Redwood City, Acting City Attorney and Assistant
City Attorney for the City of Berkeley, Judge Pro-Tem at the Berkeley-Albany
Municipal Court and Temporary Court Commissioner. Mr. Lee received an A.A.
degree from Warren Wilson Junior College (Asheville, North Carolina), B.A.
degree from San Francisco State College in 1966 and a J.D. from the University
of California, Hastings College of Law in 1969. Mr. Lee is a member of the State
Bar of California.
Ms. Loh is a Senior Vice President and Director of Commercial Banking
of the Bank and joined the Bank as Vice President and Head of Commercial Banking
in January 1996. Ms. Loh created the commercial banking division for the Bank
and manages three marketing teams which focus on commercial real estate, trade
finance, business banking loan products and SBA. Prior to joining the Bank, Ms.
Loh held the position of Vice President, Relationship Manager, Bank of America,
International Trade Bank from 1992-1996. In this position, she managed an export
portfolio with an annual fee income of $12,000,000 and managed and increased an
import credit portfolio to $45,000,000. From 1988-1992, Ms. Loh was the Vice
President, Team Manager, Commercial Banking, Security Pacific Asian Bank where
she managed a team of loan officers with a focus on trade finance, real estate
investment and private banking. Ms. Loh was the Vice President, Preferred
Banking Manager, Bank of America, Golden Gate Area Management Group from 1987-
1988 where she managed a team of seven Preferred Bankers supporting 26 retail
branches with a focus on high net worth clientele. From 1982-1985, Ms. Loh was
the Assistant Vice President, Credit Administration, San Francisco Main Office
where she was responsible for the credit quality of a $200,000,000 commercial
loan portfolio, assisted the commercial banking officers in credit structuring
and achieved excellent credit examinations for three consecutive years. Ms. Loh
was the Branch Manager, for Bank of America's Mandarin Towers Branch from 1979
- -1982. Ms. Loh received a B.A. degree in Accounting and Finance from the
California State University in San Francisco in 1979 and is a past President of
the Association of Asian American Bankers (1996-1997).
Ms. Miller is Senior Vice President and Director of Human Resources of
the Bank. Ms. Miller joined the Bank in 1986 as Assistant Vice President and
Employment Manager. In 1993 Ms. Miller was promoted to Vice President and
Director of Human Resources, and was promoted to Senior Vice President in 1997.
Prior to joining the Bank, Ms. Miller was a Human Resources Representative at
Crocker National Bank/Wells Fargo Bank, and a Personnel Recruiter for Allan Kent
Personnel Service. Ms. Miller is a graduate of Cedar Rapids Business College,
and completed the Paralegal Studies Program at San Francisco State University
and has taken personnel course work at the University of California, Berkeley.
Mr. Fell was appointed to the Board of the Bank in 1994. Mr. Fell
joined the Board of the FPB Bank Holding Company Limited in August 1993. Mr.
Fell is currently a financial consultant and is Chairman of the International
Securities Consultancy Limited. Mr. Fell is a published author, having written
his personal account of the history of the stock market and banking in Hong Kong
during the last ten years. Mr. Fell is a British subject who currently resides
in London, United Kingdom. He began his Civil Service career after the War with
the British Board of Trade where he concentrated on international trade and
finance. He served for five years in Australia as a Trade Commissioner and five
years in India. From 1967 to 1980 he was in charge of the United Kingdom's
export policy and commercial relations with the United States. He later became
the head of the Export Credits Guarantee Department where he was closely
involved with the United States EXIM Bank and the Department of the Treasury. In
1974 he left government service to become the first Chief Executive of the
London Stock Exchange. In 1981, he was invited by the Hong Kong government to
become a Commissioner for Securities. He was instrumental in the unification of
Hong Kong's three stock exchanges and the creation of a financial futures
market. In 1984 he was appointed Commissioner of Banking and
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<PAGE>
of Deposit-taking Companies. He was directly responsible for the changes in Hong
Kong's banking regulations and the successful rescue of several banks during the
crisis of 1983. After the stock market crash in October 1987, he took over as
Chief Executive of the Hong Kong Stock Exchange and introduced the new
management set up which is still in use today.
Dr. Wong has been a director of the Bank since 1994. Dr. Wong has been
on the Faculty of the Haas School of Business at the University of California at
Berkeley for the last thirteen years. Dr. Wong has also been a tenured professor
of management at Golden Gate University for the last fifteen years. Dr. Wong has
been on the faculty of the Graduate School of Business Administration, Zurich,
Switzerland for the last nine years and lectured in 16 countries to high level
business executives throughout the world. Dr. Wong was appointed by the FDIC,
Federal Home Loan Bank Board, Resolution Trust Corporation and the OTS to be on
the Boards of Directors of various financial institutions, including Gateway
Bank and California National Bank. Dr. Wong has also served on the Boards of
other organizations, including World Affairs Council, International Forum,
Harvard Club and Chinatown Resources Development Center. Dr. Wong graduated with
a Bachelor's degree from the University of Wisconsin, a M.B.A. from the
University of California, Los Angeles and a M.A. and Ph.D from Harvard
University.
Meetings of the Board of Directors and Committees of the Board of Directors of
the Company
The Board of Directors of the Company conducts its business through
meetings of the Board of Directors and through activities of its committees. The
Board of Directors of the Company meets every other month and may have
additional meetings as needed. During the year ended December 31, 1997, the
Board of Directors of the Company acted eight times by unanimous written consent
in lieu of meeting. All of the directors of the Company participated in at least
75% of the total number of the Company's Board meetings held and committee
meetings on which such directors served during 1997. The Board of Directors of
the Company maintains an Audit and Examining Committee, a Credit Policy and
Investment Committee and a Human Resources Committee, the nature and composition
of which are described below:
Audit Committee. The Audit and Examining Committee of the Company and
the Bank consist of Messrs. Fell and Wong. The Audit Committee is responsible
for reporting to the Board on the general financial condition of the Bank and
the results of the annual audit, and is responsible for ensuring that the Bank's
activities are being conducted in accordance with applicable laws and
regulations. The Audit and Examining Committee of the Company was formed in May
1998. The Audit and Examining Committee of the Bank met six times in 1997.
Human Resources Committee. The Human Resources Committee of the Company
consists of Messrs. Lam and Fell. The Human Resources Committee of the Company
reviews and recommends to the Board of Directors compensation for senior
management of the Bank; the adoption, amendment and implementation of incentive
compensation plans, stock option plans, and other benefit plans and programs for
the Company and the Bank. The Human Resources Committee of the Company and the
Bank is also responsible for maintaining on behalf of the Board of Directors a
current senior management succession and contingency plan; charged with the
investigation and resolution of any incident which may be construed as a
potential conflict of interest on behalf of any member of senior management or
other offices of the Company and the Bank wherein Board of Directors oversight
and action are appropriate; and may be required from time to time that senior
management of the Bank and officers and directors of the Company provide
proposals for, or status or progress reports on, policies or programs which may
have a material bearing on the strategic human resources philosophy and
consequent operational direction of the Bank. The Human Resources Committee of
the Company was formed in 1998. The Compensation Committee of the Bank met four
times in 1997.
Credit Policy and Investment Committee. The Credit Policy and
Investment Committee of the Company and the Bank consists of Messrs. Wong,
Downing, Fell, Lam and Wu. The committee is responsible for approving credit
policies, setting parameters for credit risks, monitoring the overall credit
risk profile of the Company and the Bank and the valuation allowance reserve.
The Credit Policy and Investment Committee of the Company was formed in May
1998. The Credit Policy and Investment Committee of the Bank met six times in
1997.
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<PAGE>
Directors' Compensation
Directors' Fees. Currently, all outside directors of the Company and
the Bank each receive an annual retainer of $25,200, while the Chairman of the
Board of Directors of the Company and the Bank receives an annual retainer of
$150,000, for service on the Board of Directors of the Company and the Bank. No
committee meeting fees are paid by the Company or the Bank. Messrs. Wu and
Downing do not receive any additional compensation for serving as directors of
the Company and the Bank.
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<PAGE>
Summary Compensation Table
The following shows, for the year ended December 31, 1997, the cash
compensation paid by the Company and the Bank as well as certain other
compensation paid for that year, to the Chief Executive Officer and the other
five most highly compensated executive officers at the Company.
<TABLE>
<CAPTION>
Long Term Compensation
---------------------------------------
Awards Payouts
---------------------------- -------
Annual Compensation
-------------------------------------
Other Restricted Securities LTIP All
Name and Bonus Annual Stock Underlying Payouts Other
Principal Position Year Salary (3) Compensation Awards Options/SARs (4) Compensation
- ------------------ ---- -------- -------- ------------ ---------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sau-wing Lam (1) 1997 $285,554 $ -- $3,529 $-- -- $-- $--
Chairman of the
Board of Directors
Tommy S. Wu (2) 1997 $47,788 $30,000 $1,334 -- -- -- --
President, Chief
Executive Officer
and Director
Jonathan H. 1997 $159,000 $17,500 $499 -- -- -- --
Downing
Senior Vice
President, Chief
Financial Officer,
Treasurer and
Director
Louis E. Barbarelli 1997 $126,000 $25,000 $242 -- -- -- --
Senior Vice
President and
Director of
Operations and
Systems
Cecilia Lai 1997 $101,246 $20,000 $194
Senior Vice
President and
Director of Retail
Banking
Dennis A. Lee 1997 $117,468 $3,000 $2,697 -- -- -- --
Vice President and
Corporate Counsel
Sylvia Loh 1997 $117,600 $20,000 $220 -- -- -- --
Senior Vice
President and
Director of
Commercial
Banking
</TABLE>
- -----------------------------
69
<PAGE>
(1) Mr. Lam was President and Chief Executive Officer of the Bank and Vice
Chairman of the Board of Directors of the Bank during 1997. Effective
December 31, 1997, Mr. Lam resigned as President and Chief Executive
Officer of the Bank but remained as Vice Chairman of the Board of
Directors. Effective April 17, 1998, Mr. Lam was elected as Chairman of
the Board of Directors of the Bank and the Company.
(2) Mr. Wu re-joined the Bank on September 23, 1997, after spending one
year with a former overseas affiliate. Mr. Wu was named President and
Chief Executive Officer of the Bank effective January 1, 1998. Mr. Wu
was elected President and Chief Executive Officer of the Company
effective March 26, 1998 and as a director of the Company on April 17,
1998.
(3) The referenced bonus represents a performance bonus for the year ended
December 31, 1996 which was paid in the first quarter of 1997.
(4) The former Long-Term Incentive Plan was terminated in conjunction with
the Private Offerings.
Employment and Change in Control Agreements
The Bank and the Company have entered into employment agreements with
Tommy S. Wu, the President and Chief Executive Officer of the Company and the
Bank (the "Executive"). These employment agreements are intended to ensure that
the Bank and the Company will be able to maintain a stable and competent
management base. The continued success of the Bank and the Company depends to a
significant degree on the skills and competence of the Executive.
The employment agreements provide for a three-year term. The Bank
employment agreement provides that, commencing on the first anniversary date and
continuing each anniversary date thereafter, the Board of Directors will review
the agreement and the Executive's performance for purposes of determining
whether to extend the agreement for an additional year so that the remaining
term shall be three years, unless written notice of non-renewal is given by the
Board of Directors after conducting a performance evaluation of the Executive.
The term of the Company employment agreement shall be extended on a daily basis
unless written notice of non-renewal is given by the Board of Directors after
conducting a performance evaluation of the Executive. The agreements provide
that the Executive's base salary will be reviewed annually. In addition to the
base salary, the agreements provide for, among other things, participation in
stock benefit plans and other fringe benefits applicable to executive personnel.
The agreements provide for termination by the Bank or the Company for cause as
would be defined in the agreements, at any time. In the event the Bank or the
Company choose to terminate the Executive's employment for any reasons other
than for cause, or in the event of the Executive's resignation from the Bank and
the Company upon: (i) failure to re-elect the Executive to Executive's current
offices; (ii) a material change in the Executive's functions, duties or
responsibilities; (iii) a relocation of the Executive's principal place of
employment by more than 25 miles; (iv) liquidation or dissolution of the Bank or
the Company; or (v) a breach of the agreement by the Bank or the Company; the
Executive or, in the event of death, the Executive's beneficiary, would be
entitled to receive an amount equal to the remaining base salary payments due to
the Executive and the contributions that would have been made on the Executive's
behalf to any employee benefit plans of the Bank or the Company during the
remaining term of the agreement. The Bank and the Company would also continue
and pay for the Executive's life, health and disability insurance coverage for
the remaining term of the agreement.
Under the agreements, if voluntary or involuntary termination follows a
change in control of the Bank or the Company as defined in the proposed
employment agreements, it is expected that, the Executive, or, in the event of
the Executive's death, his beneficiary, would be entitled to a severance payment
equal to the greater of: (i) the payments due for the remaining terms of the
agreement; or (ii) three times the highest annual compensation paid for the
preceding three years. It is expected that the Bank and the Company would also
continue the Executive's life, health and disability insurance coverage for 36
months.
The Bank and the Company have entered into three-year termination and
change in control agreements ("CIC Agreements") with certain other executive
officers (the "Officers") of the Company and the Bank. The CIC Agreements
provide that commencing on the first anniversary date and continuing on each
anniversary thereafter, the Bank's CIC Agreements may be renewed by the Board of
Directors for an additional year. The Company's CIC Agreements are similar to
the Bank's CIC Agreements except that the term of the Company's CIC Agreements
shall be extended on a
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<PAGE>
daily basis. The CIC Agreements provide that in the event voluntary or
involuntary termination follows a change in control of the Bank or the Company,
the Officer would be entitled to receive a severance payment equal to three
times the Officer's highest annual compensation for the three years preceding
the change in control. The Bank would also continue, and pay for, the Officer's
life, health and disability insurance coverage for the remaining term of the
agreements. Payments to the Officer under the Bank's CIC Agreements are
guaranteed by the Company in the event that payments of benefits are not paid by
the Bank. The CIC Agreements also provide that if an Officer is terminated
during the existence of the CIC Agreement for any reason other than resignation,
cause (as defined in the CIC Agreements), death or permanent disability, but
prior to any change in control of the Company or the Bank, the Officer shall be
paid a severance payment equal to the highest annual compensation paid to such
Officer for the three preceding years.
In the event of a change in control, total payments to executives and
officers under the employment agreements and the CIC Agreements, based solely on
current base salary, would be $3.2 million.
Stock Option Plan
The Board of Directors of the Company has adopted a Stock Option Plan
(the "Stock Option Plan") which provides for the granting of stock options to
eligible officers, employees and directors of the Company and the Bank. The
Company has reserved 653,333 shares of Common Stock to be issued pursuant to the
Stock Option Plan, of which 598,000 were granted at an exercise price of $15.00
and will vest over a three-year period.
The stock option benefits provided under the Stock Option Plan are
designed to attract and retain qualified personnel in key positions, provide
officers, directors and key employees with a proprietary interest in the Company
as an incentive to contribute to the success of the Company, promote the
attention of management to other Stockholders' concerns and reward key employees
for outstanding performance. All employees and directors of the Company and its
subsidiaries are eligible to participate in such plan. The Stock Option Plan
provides for the grant of: (i) options to purchase the Company's Common Stock
intended to qualify as incentive stock options under Section 422 of the Code
("Incentive Stock Options"); or (ii) options that do not so qualify
("Non-Statutory Stock Options"). Unless sooner terminated, the Stock Option Plan
will be in effect for a period of ten years from the date of adoption by the
Board of Directors. The Company intends to grant all future options under the
Stock Option Plan at an exercise price equal to the fair market value of the
underlying Common Stock on the date of grant. Following termination of
employment or service in the event of disability, a change in control or death,
all Non-Statutory Stock Options, whether or not exercisable, shall vest and
become immediately exercisable. In the event of termination for cause or
termination of employment for any other reason including retirement or voluntary
resignation, all vested Non-Statutory Stock Options as of the date of
termination shall remain exercisable for a period of one year, and all unvested
Non-Statutory Stock Options shall become null and void. Following termination of
employment or service in the event of disability, retirement, a change in
control or death, all Incentive Stock Options, whether or not exercisable, shall
vest and become immediately exercisable. In the event of termination for cause
or termination of employment for any other reason including voluntary
resignation, all vested Incentive Stock Options as of the date of termination
shall remain exercisable for a period of one year, and all unvested Incentive
Stock Options shall become null and void. It is anticipated that all options
granted to officers and employees will be intended to be Incentive Stock Options
to the extent permitted under Section 422 of the Code.
Transactions With Certain Related Persons
The Financial Institutions Reform, Recovery and Enforcement Act
("FIRREA") requires that all loans or extensions of credit to executive officers
and directors must be made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with the general public and must not involve more than the normal
risk of repayment or present other unfavorable features. In addition, loans made
to a director or executive officer in excess of the greater of $25,000 or 5% of
the Bank's capital and surplus (up to a maximum of $500,000) must be approved in
advance by a majority of the disinterested members of the Board of Directors.
The Bank's policy provides that no loans may be made by the Bank to its
executive officers and directors.
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<PAGE>
It is the policy of the Company that all transactions between the
Company and holders of 10% or more of the shares of any class of its common
stock and affiliates thereof, contain terms no less favorable to the Company
than could have been obtained by it in arm's-length negotiations with
unaffiliated persons and are required to be approved by a majority of
independent outside directors of the Company not having any interest in the
transaction.
Security Ownership of Management and Other Beneficial Owners
The following table sets forth, as of June 19, 1998, certain
information as to those persons who were known by management to be beneficial
owners of more than 5% of the Company's outstanding shares of Common Stock, each
director, each Named Executive Officer and the shares of Common Stock
beneficially owned by all directors and executive officers of the Company as a
group.
<TABLE>
<CAPTION>
Number Percentage
of Beneficially
Name of Beneficial Owner Position(s) with the Company Shares (1) Owned
- ------------------------ ---------------------------- ---------- ------------
<S> <C> <C> <C>
Sau-wing Lam............................ Chairman of the Board of 50,000 *
Directors
Tommy S. Wu............................. Director, President and Chief 33,333 *
Executive Officer
Jonathan H. Downing..................... Senior Vice President, Chief 16,667 *
Financial Officer, Treasurer
and Director
Robert Fell............................. Director -- *
Godwin Wong............................. Director 20,000 *
Louis E. Barbarelli..................... Senior Vice President and 3,333 *
Director of Operations and
Systems
Cecilia Lai............................. Senior Vice President and 10,000 *
Director of Retail Banking
Dennis Alan Lee......................... Vice President and Corporate 6,667 *
Counsel
Sylvia Loh.............................. Senior Vice President and 16,667 *
Director of Commercial
Banking
All Executive Officers and Directors 163,333 1.75%
as a Group (11 persons)..............
</TABLE>
- ----------
* Does not exceed 1.0% of the Company's voting securities.
(1) The number of shares of Common Stock outstanding and the number owned by
the individuals or entities listed does not include any shares issuable pursuant
to outstanding options, none of which may be exercised until April 17, 1999.
72
<PAGE>
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
General
The Company is authorized to issue 25 million shares of Common Stock
having a par value of $.01 per share and 10 million shares of preferred stock
having a par value of $.01 per share (the "Preferred Stock"). The Company issued
9,333,333 shares of Common Stock and no shares of Preferred Stock in the Private
Offerings. Each share of the Company's Common Stock has the same relative rights
as, and is identical in all respects with, each other share of Common Stock. All
such stock has been duly authorized and is fully paid and non-assessable.
Common Stock
Dividends. The Company can pay dividends out of statutory surplus or
from certain net profits if, as and when declared by its Board of Directors. The
payment of dividends by the Company is subject to limitations which are imposed
by law and applicable regulation. See "Supervision and Regulation." The holders
of Common Stock of the Company are entitled to receive and share equally in such
dividends as may be declared by the Board of Directors of the Company out of
funds legally available therefor. If the Company issues Preferred Stock, the
holders thereof may have a priority over the holders of the Common Stock with
respect to dividends.
Voting Rights. The holders of Common Stock of the Company possess
exclusive voting rights in the Company. They elect the Company's Board of
Directors and act on such other matters as are required to be presented to them
under Delaware law or the Company's Certificate of Incorporation or as are
otherwise presented to them by the Board of Directors. Except as discussed in
"Restrictions on Acquisition," each holder of Common Stock are entitled to one
vote per share and do not have any right to cumulate votes in the election of
directors. If the Company issues Preferred Stock, holders of the Preferred Stock
may also possess voting rights. Certain matters require an 80% stockholder vote.
See "Restrictions on Acquisition."
Voting rights with respect to the Bank are vested exclusively in the
owners of the shares of capital stock of the Bank, which is the Company, and
voted at the direction of the Company's Board of Directors. Consequently, the
holders of the Common Stock do not have direct control of the Bank.
Liquidation. In the event of any liquidation, dissolution or winding up
of the Bank, the Company, as holder of the Bank's capital stock, would be
entitled to receive, after payment or provision for payment of all debts and
liabilities of the Bank, all assets of the Bank available for distribution. In
the event of liquidation, dissolution or winding up of the Company, the holders
of its Common Stock would be entitled to receive, after payment or provision for
payment of all its debts and liabilities, all of the assets of the Company
available for distribution. If Preferred Stock is issued, the holders thereof
may have a priority over the holders of the Common Stock in the event of
liquidation or dissolution.
Preemptive Rights. Holders of Common Stock of the Company are not be
entitled to preemptive rights with respect to any shares which may be issued.
The Common Stock is not subject to redemption.
Preferred Stock
None of the shares of the Company's Preferred Stock have been issued.
Such stock may be issued with such preferences and designations as the Board of
Directors may from time to time determine. The Board of Directors can, without
stockholder approval, issue preferred stock with voting, dividend, liquidation
and conversion rights which could dilute the voting strength of the holders of
the Common Stock and may assist management in impeding an unfriendly takeover or
attempted change in control.
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<PAGE>
RESTRICTIONS ON ACQUISITION
General
Certain provisions in the Company's Certificate of Incorporation and
Bylaws and in its management remuneration, together with provisions of Delaware
corporate law, may have anti-takeover effects. In addition, regulatory
restrictions may make it difficult for persons or companies to acquire control
of either the Company or the Bank.
Restrictions in the Company's Certificate of Incorporation and Bylaws
A number of provisions of the Company's Certificate of Incorporation
and Bylaws deal with matters of corporate governance and certain rights of
stockholders. The following discussion is a general summary of certain
provisions of the Company's Certificate of Incorporation and Bylaws and certain
other statutory and regulatory provisions relating to stock ownership and
transfers, the Board of Directors and business combinations, which might be
deemed to have a potential "anti-takeover" effect. These provisions may have the
effect of discouraging a future takeover attempt, which is not approved by the
Board of Directors but which individual Company stockholders may deem to be in
their best interests or in which stockholders may receive a substantial premium
for their shares over then current market prices. As a result, stockholders who
might desire to participate in such a transaction may not have an opportunity to
do so. Such provisions will also render the removal of the current Board of
Directors or management of the Company more difficult. The following is a
general description of certain of the provisions of the Certificate of
Incorporation and Bylaws of the Company.
Limitation on Voting Rights. The Certificate of Incorporation of the
Company provides that in no event shall any record owner of any outstanding
Common Stock which is beneficially owned, directly or indirectly, by a person
who beneficially owns in excess of 10% of the then outstanding shares of Common
Stock (the "Limit") be entitled or permitted to any vote in respect of the
shares held in excess of the Limit. Beneficial ownership is determined pursuant
to Rule 13d-3 of the General Rules and Regulations promulgated pursuant to the
Exchange Act, and includes shares beneficially owned by such person or any of
his affiliates (as defined in the Certificate of Incorporation), shares which
such person or his affiliates have the right to acquire upon the exercise of
conversion rights or options and shares as to which such person and his
affiliates have or share investment or voting power, but shall not include
shares beneficially owned by directors, officers and employees of the Bank or
Company or shares that are subject to a revocable proxy and that are not
otherwise beneficially owned or deemed by the Company to be beneficially owned,
by such person and his affiliates. The Certificate of Incorporation of the
Company further provides that this provision limiting voting rights may only be
amended upon the vote of 80% of the outstanding shares of voting stock (after
giving effect to the limitation on voting rights).
Board of Directors. The Board of Directors of the Company is divided
into three classes, each of which shall contain approximately one-third of the
whole number of members of the Board. Each class shall serve a staggered term,
with approximately one-third of the total number of directors being elected each
year. The Company's Certificate of Incorporation and Bylaws provide that the
size of the Board shall be determined by a majority of the directors. The
Certificate of Incorporation and the Bylaws provide that any vacancy occurring
in the Board, including a vacancy created by an increase in the number of
directors or resulting from death, resignation, retirement, disqualification,
removal from office or other cause, shall be filled for the remainder of the
unexpired term exclusively by a majority vote of the directors then in office.
The classified Board is intended to provide for continuity of the Board of
Directors and to make it more difficult and time consuming for a stockholder
group to fully use its voting power to gain control of the Board of Directors
without the consent of the incumbent Board of Directors of the Company. The
Certificate of Incorporation of the Company provides that a director may be
removed from the Board of Directors prior to the expiration of his term only for
cause, upon the vote of 80% of the outstanding shares of voting stock.
In the absence of these provisions, the vote of the holders of a
majority of the shares could remove the entire Board, with or without cause, and
replace it with persons of such holders' choice.
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Cumulative Voting, Special Meetings and Action by Written Consent. The
Certificate of Incorporation does not provide for cumulative voting for any
purpose. Moreover, special meetings of stockholders of the Company may be called
only by the Board of Directors of the Company. The Certificate of Incorporation
also provides that any action required or permitted to be taken by the
stockholders of the Company may be taken only at an annual or special meeting
and prohibits stockholder action by written consent in lieu of a meeting.
Authorized Shares. The Certificate of Incorporation authorizes the
issuance of 25 million shares of Common Stock and 10 million shares of Preferred
Stock. The shares of Common Stock and Preferred Stock were authorized to provide
the Company's Board of Directors with as much flexibility as possible to effect,
among other transactions, financings, acquisitions, stock dividends, stock
splits and employee stock options. However, these additional authorized shares
may also be used by the Board of Directors consistent with its fiduciary duty to
deter future attempts to gain control of the Company. The Board of Directors
also has sole authority to determine the terms of any one or more series of
Preferred Stock, including voting rights, conversion rates, and liquidation
preferences. As a result of the ability to fix voting rights for a series of
Preferred Stock the Board has the power, to the extent consistent with its
fiduciary duty, to issue a series of Preferred Stock to persons friendly to
management in order to attempt to block a post-tender offer merger or other
transaction by which a third party seeks control, and thereby assist management
to retain its position. The Company's Board of Directors currently has no plans
for the issuance of additional shares, other than the issuance of additional
shares upon exercise of stock options to be issued pursuant to the terms of the
Stock Option Plan.
Stockholder Vote Required to Approve Business Combinations with
Principal Stockholders. The Certificate of Incorporation requires the approval
of the holders of at least 80% of the Company's outstanding shares of voting
stock to approve certain "Business Combinations," as defined therein, and
related transactions. Under Delaware law, absent this provision, Business
Combinations, including mergers, consolidations and sales of all or
substantially all of the assets of a corporation must, subject to certain
exceptions, be approved by the vote of the holders of only a majority of the
outstanding shares of Common Stock of the Company and any other affected class
of stock. Under the Certificate of Incorporation, at least 80% approval of
stockholders is required in connection with any transaction involving an
Interested Stockholder or (ii) if the proposed transaction meets certain
conditions set forth therein which are designed to afford the stockholders a
fair price in consideration for their shares in which case, if a stockholder
vote is required, approval of only a majority of the outstanding shares of
voting stock would be sufficient. The term "Interested Stockholder" is defined
to include any individual, corporation, partnership or other entity (other than
the Company or its subsidiary) which owns beneficially or controls, directly or
indirectly, 10% or more of the outstanding shares of voting stock of the
Company. This provision of the Certificate of Incorporation applies to any
"Business Combination," which is defined to include (i) any merger or
consolidation of the Company or any of its subsidiaries with or into any
Interested Stockholder or Affiliate (as defined in the Certificate of
Incorporation) of an Interested Stockholder; (ii) any sale, lease, exchange,
mortgage, pledge, transfer, or other disposition to or with any Interested
Stockholder or Affiliate of 25% or more of the assets of the Company or combined
assets of the Company and its subsidiary; (iii) the issuance or transfer to any
Interested Stockholder or its Affiliate by the Company (or any subsidiary) of
any securities of the Company in exchange for any assets, cash or securities of
the Company in exchange for any assets, cash or securities the value of which
equals or exceeds 25% of the fair market value of the Common Stock of the
Company; (iv) the adoption of any plan for the liquidation or dissolution of the
Company proposed by or on behalf of any Interested Stockholder or Affiliate
thereof; and (v) any reclassification of securities, recapitalization, merger or
consolidation of the Company which has the effect of increasing the
proportionate share of Common Stock or any class of equity or convertible
securities of the Company owned directly or indirectly by an Interested
Stockholder or Affiliate thereof.
Evaluation of Offers. The Certificate of Incorporation of the Company
further provides that the Board of Directors of the Company, when evaluating any
offer of another "Person" (as defined therein) to (i) make a tender or exchange
offer for any equity security of the Company, (ii) merge or consolidate the
Company with another corporation or entity, or (iii) purchase or otherwise
acquire all or substantially all of the properties and assets of the Company,
may, in connection with the exercise of its judgment in determining what is in
the best interest of the Company, the Bank and the stockholders of the Company,
give due consideration to all relevant factors, including, without limitation,
the social and economic effects of acceptance of such offer on the Company's
customers and the bank's present and future account holders, borrowers and
employees; on the communities in which the Company and the Bank operate or are
located; and
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on the ability of the Bank to fulfill the objectives of a federally-chartered
stock savings association under applicable statutes and regulations. By having
these standards in the Certificate of Incorporation of the Company, the Board of
Directors may be in a stronger position to oppose such a transaction if the
Board concludes that the transaction would not be in the best interest of the
Company, even if the price offered is significantly greater than the then market
price of any equity security of the Company.
Amendment of Certificate of Incorporation and Bylaws. Amendments to the
Company's Certificate of Incorporation must be approved by a majority vote of
its Board of Directors and also by a majority of the outstanding shares of its
voting stock; provided, however, that an affirmative vote of at least 80% of the
outstanding voting stock entitled to vote (after giving effect to the provision
limiting voting rights) is required to amend or repeal certain provisions of the
Certificate of Incorporation, including the provision limiting voting rights,
the provisions relating to approval of certain business combinations, calling
special meetings, the number and classification of directors, director and
officer indemnification by the Company and amendment of the Company's Bylaws and
Certificate of Incorporation. The Company's Bylaws may be amended by its Board
of Directors, or by a vote of 80% of the total votes eligible to be voted at a
duly constituted meeting of stockholders.
Certain Bylaw Provisions. The Bylaws of the Company also require a
stockholder who intends to nominate a candidate for election to the Board of
Directors, or to raise new business at a stockholder meeting to give at least 90
days advance notice to the Secretary of the Company. The notice provision
requires a stockholder who desires to raise new business to provide certain
information to the Company concerning the nature of the new business, the
stockholder and the stockholder's interest in the business matter. Similarly, a
stockholder wishing to nominate any person for election as a director must
provide the Company with certain information concerning the nominee and the
proposing stockholder.
ANTI-TAKEOVER EFFECTS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND
BYLAWS
AND MANAGEMENT REMUNERATION
The provisions described above are intended to reduce the Company's
vulnerability to takeover attempts and certain other transactions which have not
been negotiated with and approved by members of its Board of Directors. The
provisions of the employment agreements, CIC Agreements and Stock Option Plan
may also discourage takeover attempts by increasing the costs to be incurred by
the Bank and the Company in the event of a takeover. See "Management of the
Company and Bank--Employment and Change in Control Agreements" and "--Stock
Option Plan."
The Company's Board of Directors believes that the provisions of the
Certificate of Incorporation, Bylaws and management remuneration plans are in
the best interest of the Company and its stockholders. An unsolicited
non-negotiated proposal can seriously disrupt the business and management of a
corporation and cause it great expense. Accordingly, the Board of Directors
believes it is in the best interests of the Company and its stockholders to
encourage potential acquirors to negotiate directly with management and that
these provisions will encourage such negotiations and discourage non-negotiated
takeover attempts. It is also the Board of Directors' view that these provisions
should not discourage persons from proposing a merger or other transaction at a
price that reflects the true value of the Company and that otherwise is in the
best interest of all stockholders.
Delaware Corporate Law
The state of Delaware has a statute designed to provide Delaware
corporations with additional protection against hostile takeovers. The takeover
statute, which is codified in Section 203 of the Delaware General Corporate Law
("Section 203"), is intended to discourage certain takeover practices by
impeding the ability of a hostile acquiror to engage in certain transactions
with the target company.
In general, Section 203 provides that a "Person" (as defined therein)
who owns 15% or more of the outstanding voting stock of a Delaware corporation
(an "Interested Stockholder") may not consummate a merger or other business
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combination transaction with such corporation at any time during the three-year
period following the date such "Person" became an Interested Stockholder. The
term "business combination" is defined broadly to cover a wide range of
corporate transactions including mergers, sales of assets, issuances of stock,
transactions with subsidiaries and the receipt of disproportionate financial
benefits.
The statute exempts the following transactions from the requirements of
Section 203; (i) any business combination if, prior to the date a person became
an Interested Stockholder, the Board of Directors approved either the business
combination or the transaction which resulted in the stockholder becoming an
Interested Stockholder; (ii) any business combination involving a person who
acquired at least 85% of the outstanding voting stock in the transaction in
which he became an Interested Stockholder, with the number of shares outstanding
calculated without regard to those shares owned by the corporation's directors
who are also officers and by certain employee stock plans; (iii) any business
combination with an Interested Stockholder that is approved by the Board of
Directors and by a two-thirds vote of the outstanding voting stock not owned by
the Interested Stockholder; and (iv) certain business combinations that are
proposed after the corporation had received other acquisition proposals and
which are approved or not opposed by a majority of certain continuing members of
the Board of Directors. A corporation may exempt itself from the requirements of
the statute by adopting an amendment to its Certificate of Incorporation or
Bylaws electing not to be governed by Section 203. At the present time, the
Board of Directors does not intend to propose any such amendment.
Regulatory Restrictions
Any proposal to acquire 10% of any class of equity security of the
Company generally would be subject to approval by the OTS under the Change in
Bank Control Act. The OTS requires all persons seeking control of a savings
institution and, therefore, indirectly its holding company, to obtain regulatory
approval prior to offering to obtain control. Federal law generally provides
that no "person," acting directly or indirectly or through or in concert with
one or more other persons, may acquire directly or indirectly "control," as that
term is defined in OTS regulations, of a federally-insured savings institution
without giving at least 60 days' written notice to the OTS and providing the OTS
an opportunity to disapprove the proposed acquisition. Such acquisitions of
control may be disapproved if it is determined, among other things, that (i) the
acquisition would substantially lessen competition; (ii) the financial condition
of the acquiring person might jeopardize the financial stability of the savings
institution or prejudice the interests of its depositors; or (iii) the
competency, experience or integrity of the acquiring person or the proposed
management personnel indicates that it would not be in the interest of the
depositors or the public to permit the acquisition of control by such person.
Such change in control restrictions on the acquisition of holding company stock
will apply for as long as the regulations are in effect. Persons holding
revocable or irrevocable proxies may be deemed to be beneficial owners of such
securities under OTS regulations and therefore prohibited from voting all or the
portion of such proxies in excess of the 10% aggregate beneficial ownership
limit. Such regulatory restrictions may prevent or inhibit proxy contests for
control of the Company or the Bank which have not received prior regulatory
approval.
REGISTRATION RIGHTS
In connection with the Private Offerings, the Company on April 13, 1998
entered into the Registration Rights Agreement with the initial purchasers of
the Common Stock, pursuant to which the Company agreed to (i) cause to be filed
with the Commission within 120 days after the original issuance of the Common
Stock pursuant to the Purchase Agreement, a shelf registration statement
providing for the offer and sale of the Common Stock issued in the Private
Offerings, (ii) use its best efforts to cause the shelf registration statement
to be declared effective under the Securities Act as promptly as possible and
(iii) use its best efforts to keep effective the shelf registration statement
until the earlier of the second anniversary of the date such shelf registration
statement is declared effective by the Commission or such time as all of the
Common Stock have been sold thereunder or otherwise may be sold without the need
for the shelf registration statement, as set forth in the Registration Rights
Agreement. The Company agreed to bear the expenses arising out of the filing of
such shelf registration statement. The Registration Statement of which this
Prospectus forms a part has been filed to satisfy the Company's obligations
under the Registration Rights Agreement.
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Pursuant to the terms of the Registration Rights Agreement, a holder of
Common Stock and the Placement Agent desiring to sell some or all of such
securities pursuant to the shelf registration statement shall give the Company
not less than ten days' prior written notice, and the Company will use its best
efforts to promptly file any required amendment(s) to the shelf registration
statement in order to facilitate such sales. Initiating Holders, as defined in
the Registration Rights Agreement to mean one or more holders of not less than
25% of the then-outstanding Common Stock, may elect that the offering of Common
Stock be in the form of an underwritten offering. Under such circumstances, the
Company will provide written notice to all holders of the Common Stock and the
Placement Agent of such underwritten offering and will provide them with an
opportunity to participate in such underwritten offering, under terms and with
such conditions as set forth in the Registration Rights Agreement.
Under the Registration Rights Agreement, a holder that sells Common
Stock pursuant to the shelf registration statement generally will be required to
be named as a selling security holder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Registration Rights Agreement that are applicable
to such a holder (including certain indemnification rights and obligations).
Each holder of Common Stock may be required to deliver information to be used in
connection with the shelf registration statement in order to have such holder's
Common Stock included in the shelf registration statement and to benefit from
the provisions of the succeeding paragraph.
Each of the Common Stock contain a legend to the effect that the holder
thereof, by its acceptance thereof, is deemed to have agreed to be bound by the
provisions of the Registration Rights Agreement. In that regard, each holder is
deemed to have agreed that, upon receipt of notice from the Company of the
occurrence of any event which makes a statement in the prospectus which is part
of the shelf registration statement untrue in any material respect or which
requires the making of any changes in such prospectus in order to make the
statements therein not misleading, such holder will suspend the sale of Common
Stock pursuant to such prospectus until the Company has amended or supplemented
such prospectus to correct such misstatement or omission and has furnished
copies of the amended or supplemented prospectus to such holder or the Company
has given notice that the sale of the Common Stock may be resumed.
The Registration Rights Agreement is governed by, and construed in
accordance with, the laws of the State of Delaware. The summary herein of
certain provisions of the Registration Rights Agreement does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the Registration Rights Agreement.
SELLING HOLDERS
The Common Stock was originally issued and sold by the Company in the
Private Offerings in transactions exempt from the registration requirements of
the Securities Act, to persons reasonably believed by the Company to be
"qualified institutional buyers" (as defined in Rule 144A under the Securities
Act) or other "accredited investors" (as defined in Rule 501(a) under the
Securities Act). The Selling Holders (which term includes their transferees,
pledgees, donees or their successors) may from time to time offer and sell
pursuant to this Prospectus any or all of the Common Stock owned by each of
them.
The following table sets forth information with respect to the Selling
Holders named herein and the shares of Common Stock beneficially owned and
offered hereby by such Selling Holders. Such information has been obtained from
such Selling Holders. Except as otherwise disclosed herein, such Selling Holders
do not have, or within the past three years have not had, any position, office
or other material relationship with the Company or affiliates. Because such
Selling Holders may offer all or some portion of the Common Stock pursuant to
this Prospectus, no estimate can be given as to the amount of the Common Stock
that will be held by such Selling Holders upon termination of any such sales. In
addition, the Selling Holders identified below may have sold, transferred or
otherwise disposed of all or a portion of their Common Stock since the date on
which it provided the information regarding their Common Stock in transactions
exempt from the registration requirements of the Securities Act. Finally, if
required, additional Selling
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<PAGE>
Holders may from time to time be identified and information with respect to such
Selling Holders be provided in a Prospectus Supplement.
Number of Shares of Common Stock
Name of Selling Holder Beneficially Owned and Offered Hereby
The Company has agreed to indemnify the Selling Holders against certain
liabilities arising out of any actual or alleged material misstatements or
omissions in the Registration Statement, other than liabilities arising from
information supplied by the Selling Holders for use in the Registration
Statement. Each Selling Holder, severally but not jointly, has agreed to
indemnify the Company against liabilities arising out of any actual or alleged
material misstatements or omissions in the Registration Statement insofar as
such misstatements or omissions were made in reliance upon written information
furnished to the Company by such Selling Holder expressly for use in the
Registration Statement.
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PLAN OF DISTRIBUTION
The Common Stock offered hereby may be sold from time to time to
purchasers directly by the Selling Holders at market prices or at negotiated
prices. Alternatively, the Selling Holders may from time to time offer the
Common Stock to or through underwriters, dealers or agents who may receive
compensation in the form of underwriting discounts, concessions or commissions
from the Selling Holders or the purchasers of Common Stock, for whom they may
act as agents. The Selling Holders and any underwriters, dealers or agents which
participate in the distribution of Common Stock may be deemed to be
"underwriters" within the meaning of the Securities Act and any profit on the
sale of Common Stock by them and any discounts, commissions, concessions or
other compensation received by any such underwriter, dealer or agent may be
deemed to be underwriting discounts and commissions under the Securities Act.
The Common Stock may be sold from time to time in one or more
transactions at fixed prices, at prevailing market prices at the time of sale,
at varying prices determined at the time of sale or at negotiated prices. The
sale of the Common Stock may be effected in transactions (which may involve
crosses or block transactions) (i) on any national securities exchange or
quotation service on which the Common Stock may be listed or quoted at the time
of sale, (ii) in the over-the-counter market or (iii) in transactions otherwise
than on such exchanges or in the over-the-counter market. At the time a
particular offering of the Common Stock is made, a Prospectus Supplement, if
required, will be distributed which will set forth the aggregate amount and type
of Common Stock being offered and the terms of the offering, including the name
or names of any underwriters, dealers or agents, any discounts, commissions and
other terms constituting compensation from the Selling Holders and any
discounts, commissions or concessions allowed or reallowed or paid to dealers.
To comply with the securities laws of certain jurisdictions, if
applicable, the Common Stock will be offered or sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
jurisdictions the Common Stock may not be offered or sold unless they have been
registered or qualified for sale in such jurisdictions or an exemption from
registration or qualification is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any
person engaged in a distribution of the Common Stock may not simultaneously
engage in market-making activities with respect to such securities for a
restricted period prior to the commencement of such distribution. In addition to
and without limiting the foregoing, each Selling Holder and any other person
participating in a distribution will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including without
limitation Rules 102, 103 and 104, which provisions may limit the timing of
purchases and sales of any of the securities by the Selling Holders or any such
other person. All of the foregoing may affect the marketability of the Common
Stock and brokers' and dealers' ability to engage in market-making activities
with respect to these securities.
Pursuant to the Registration Rights Agreement, all expenses of the
registration of the Common Stock will be paid by the Company, including, without
limitation, Commission filing fees and expenses of compliance with state
securities or "blue sky" laws; provided, however, that the Selling Holders will
pay all underwriting discounts and selling commissions, if any. The Selling
Holders will be indemnified by the Company against certain civil liabilities,
including certain liabilities under the Securities Act, or will be entitled to
contribution in connection therewith. The Company will indemnified by the
Selling Holders against certain civil liabilities, including certain liabilities
under the Securities Act, or will be entitled to contribution in connection
therewith.
SHARES ELIGIBLE FOR FUTURE SALE
As of June 19, 1998, there were 9,333,333 shares of Common Stock of the
Company outstanding. All shares of Common Stock sold in the Offering will be
freely tradable without restriction or further registration under the Securities
Act, except that any shares purchased by affiliates of the Company, as that term
is defined in Rule 144 under the Securities Act, may generally only be resold in
compliance with applicable provisions of Rule 144.
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In general, under Rule 144, as currently in effect, a person (or
persons whose shares are aggregated) who has beneficially owned restricted
shares for at least one year is entitled to sell, within any three-month period,
a number of such shares that does not exceed the greater of (i) 1% of the then
outstanding shares of Common Stock or (ii) the average weekly trading volume in
the Common Stock during the four calendar weeks preceding the date of the notice
filed pursuant to Rule 144. Sales under Rule 144 are also subject to certain
manner of sale restrictions and notice requirements and to the availability of
current public information about the Company. In addition, a person who is
deemed an "affiliate" of the Company must comply with Rule 144 in any sale of
shares of Common Stock not covered by a registration statement (except, in the
case of registered shares acquired by the affiliate on the open market, for the
holding period requirement). A person (or person whose shares are aggregated)
who is not deemed an "affiliate" of the Company and who has beneficially owned
restricted shares for at least two years is entitled to sell such shares under
Rule 144(k) without regard to the volume, notice and other limitations of Rule
144. In meeting the one and two year holding periods described above, a holder
of restricted shares can include the holding periods of a prior owner who was
not an affiliate.
The Company has reserved 653,333 shares for grants under its existing
Stock Option Plan. As of June 19, 1998, the Company had options outstanding to
purchase up to 598,000 shares of Common Stock. See "Management--Stock Option
Plan." The Company intends to file a registration statement under the Securities
Act to register all shares of Common Stock issuable under such Stock Option
Plan. Shares covered by this registration statement will be eligible for sale in
the public market after the effective date of such registration statement.
EXPERTS
The consolidated balance sheets as of December 31, 1997 and 1996 and
the consolidated statements of operations, of stockholders' equity and of cash
flows for the years ended December 31, 1997, 1996 and 1995 included in this
Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the Common Stock will be passed upon for the Company by
Patton Boggs LLP, Washington, D.C., counsel to the Company.
ADDITIONAL INFORMATION
The Company has filed with the SEC a registration statement under the
Securities Act with respect to the Common Stock offered hereby. As permitted by
the rules and regulations of the SEC, this Prospectus does not contain all the
information set forth in the registration statement. Such information can be
examined without charge at the public reference facilities of the SEC located at
450 Fifth Street, N.W., Washington, D.C. 20549, and copies of such material can
be obtained from the SEC at prescribed rates. In addition, the SEC maintains a
web site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the SEC, including the Company. This Prospectus contains a description of
the material terms and features of all material contracts, reports or exhibits
to the Registration Statement required to be described, however, the statements
contained in this Prospectus as to the contents of any contract or other
document filed as an exhibit to the registration statement are, of necessity,
brief descriptions thereof and are not necessarily complete; each such statement
is qualified by reference to such contract or document.
In connection with the Offering, the Company will register its Common
Stock with the SEC under Section 12(g) of the Exchange Act and, upon such
registration, the Company and the holders of its stock will become subject to
the proxy solicitation rules, reporting requirements and restrictions on stock
purchases and sales by directors, officers
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and greater than 10% stockholders, the annual and periodic reporting and certain
other requirements of the Exchange Act.
A copy of the Certificate of Incorporation and the Bylaws of the
Company are available without charge from the Company.
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-------------------
TABLE OF CONTENTS
PAGE
Summary.....................................................................
Selected Consolidated Financial Data........................................
Risk Factors................................................................
The Private Offerings and the Redemption Transactions.......................
Use of Proceeds.............................................................
Dividends and Market for Common Stock.......................................
Consolidated Statements of Operations.......................................
Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................................
Business....................................................................
Supervision and Regulation..................................................
Management of the Company and the Bank......................................
Description of Capital Stock of the Company.................................
Restrictions on Acquisition.................................................
Anti-Takeover Effects of the Company's
Certificate Of Incorporation and Bylaws and
Management Remuneration.................................................
Registration Rights.........................................................
Selling Holders.............................................................
Plan of Distribution........................................................
Shares Eligible for Future Sale.............................................
Experts.....................................................................
Legal Matters...............................................................
Additional Information......................................................
Index to Consolidated Financial Statements..................................
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997................................... F-2
Consolidated Statements of Operations for the Three Months Ended March 31, 1998 and 1997................. F-3
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1998 and 1997................. F-4
Notes to Consolidated Financial Statements for the Three Months Ended March 31, 1998 and 1997............ F-5
Report of Independent Accountants........................................................................ F-7
Consolidated Balance Sheets as of December 31, 1997 and 1996............................................. F-8
Consolidated Statements of Operations For Years Ended December 31, 1997, 1996 and 1995................... F-9
Consolidated Statements of Changes in Stockholders' Equity For Years Ended December 31, 1997, 1996 and
1995................................................................................................... F-10
Consolidated Statements of Cash Flows For Years Ended December 31, 1997, 1996 and 1995................... F-11
Notes to Consolidated Financial Statements For Years Ended December 31, 1997, 1996 and 1995.............. F-13
</TABLE>
F-1
<PAGE>
UCBH HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------ ---------------
UNAUDITED
<S> <C> <C>
ASSETS
Cash and due from banks........................................................... $ 11,214 $ 13,853
Federal funds sold................................................................ 3,000 21,000
Investment securities, at cost (market value $3,998 at December 1997)............. -- 4,000
Mortgage-backed securities available for sale, at market value.................... 83,565 84,308
Mortgage-backed securities, at cost (market value $173,441 at March 31, 1998 and
$174,972 at December 31, 1997).................................................. 178,861 181,795
Federal Home Loan Bank stock...................................................... 14,120 13,914
Loans............................................................................. 1,240,250 1,214,237
Allowance for loan losses......................................................... (12,552) (12,142)
---------- -----------
Net loans......................................................................... 1,227,698 1,202,095
---------- -----------
Accrued interest receivable....................................................... 8,661 8,594
Premises and equipment, net....................................................... 23,405 23,931
Other assets...................................................................... 6,627 8,160
---------- -----------
Total assets................................................................. $1,557,151 $ 1,561,650
========== ===========
LIABILITIES
Deposits.......................................................................... $1,463,323 $ 1,468,987
Accrued interest payable.......................................................... 1,063 452
Long-term debt to affiliates (including capitalized interest)..................... 20,060 20,060
Other liabilities................................................................. 8,106 9,599
----------- -----------
Total liabilities............................................................ 1,492,552 1,499,098
----------- -----------
Commitments and contingent liabilities
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01, 10,000,000 shares authorized, none outstanding at
March 31, 1998; none authorized or outstanding at December 31, 1997............. -- --
Common stock, par value $0.01, authorized 25,000,000 shares; 6,000,000 shares
issued and outstanding at March 31, 1998; par value $0.00167, 18,000,000 shares
authorized, 6,000,000 shares issued and outstanding at December 31, 1997........ 60 10
Additional paid-in capital........................................................ 30,228 30,278
Accumulated other comprehensive income............................................ (1,232) (1,728)
Retained earnings-substantially restricted........................................ 35,543 33,992
---------- -----------
Total stockholders' equity................................................... 64,599 62,552
---------- -----------
Total liabilities and stockholders' equity................................... $1,557,151 $ 1,561,650
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
UCBH HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1998 1997
--------- ---------
UNAUDITED UNAUDITED
<S> <C> <C>
Interest income:
Interest on loans....................................................................... $23,833 $20,467
Interest on funds sold and securities purchased under agreements to resell.............. 166 452
Interest on investment and mortgage-backed securities................................... 4,121 4,946
------- -------
Total interest income................................................................ 28,120 25,865
------- -------
Interest expense:
Interest on deposits.................................................................... 15,669 14,257
Interest on short-term borrowings....................................................... -- 206
Interest on Federal Home Loan Bank advances............................................. -- 218
Interest on long-term debt to affiliates................................................ 502 431
------- -------
Total interest expense............................................................... 16,171 15,112
------- -------
Net interest income.................................................................. 11,949 10,753
Provision for loan losses................................................................. 633 17
------- -------
Net interest income after provision for loan losses.................................. 11,316 10,736
------- -------
Noninterest income:
Commercial banking fees................................................................. 254 208
Service charges on deposit accounts..................................................... 218 216
Gain on sale of loans, securities and servicing rights.................................. 35 54
Loan servicing income................................................................... 44 294
Miscellaneous income.................................................................... 7 90
------- -------
Total noninterest income............................................................. 558 862
------- -------
Noninterest expense:
Personnel............................................................................... 4,308 3,786
Occupancy............................................................................... 1,246 1,159
Data processing......................................................................... 749 500
Furniture and equipment................................................................. 604 386
Deposit insurance....................................................................... 231 572
Communication........................................................................... 97 85
Professional fees and contracted services............................................... 454 385
Foreclosed assets expense............................................................... (32) 168
Miscellaneous expense................................................................... 1,588 1,095
------- -------
Total noninterest expense............................................................ 9,245 8,136
------- -------
Income before taxes....................................................................... 2,629 3,462
Income tax expense ....................................................................... 1,078 1,425
------- -------
Net income......................................................................... $ 1,551 $ 2,037
======= =======
Basic earnings per share.................................................................. $ 0.26 $ 0.34
Diluted earnings per share................................................................ $ 0.23 $ 0.29
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
UCBH HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
1998 1997
-------- --------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net income ............................................................................... $ 1,551 $ 2,037
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization of investment and mortgage-backed securities premium..................... (54) 123
Amortization of loan discount......................................................... (14) (49)
Provision for loan losses............................................................. 633 17
Increase in accrued interest receivable............................................... (67) (141)
Depreciation and amortization of premises and equipment............................... 640 495
Amortization of servicing rights...................................................... 40 157
Decrease (increase) in other assets................................................... 804 (563)
Increase in accrued interest payable.................................................. 612 783
Increase (decrease) in other liabilities.............................................. (1,493) 1,817
Gain on sale of foreclosed assets..................................................... (61) (73)
Gain on sale of loans................................................................. (35) (54)
-------- ---------
Net cash provided by operating activities.......................................... 2,556 4,549
-------- ---------
INVESTING ACTIVITIES
Investments and mortgage-backed securities held to maturity:
Principal payments and maturities....................................................... 6,835 5,723
Purchases............................................................................... -- (100)
Principal payments and maturities on investments and mortgage-backed
securities, available for sale.......................................................... 1,531 6,092
Net decrease in credit card loans......................................................... 299 100
Loans purchased........................................................................... (217) (361)
Loans originated net of principal collections............................................. (29,813) (10,241)
Proceeds from sale of loans............................................................... 3,544 994
Purchases of premises and equipment....................................................... (177) (152)
Proceeds from sale of premises and equipment.............................................. 63 80
Proceeds from sale of foreclosed assets................................................... 404 573
-------- ---------
Net cash used in (provided by) investing activities..................................... (17,531) 2,708
-------- ---------
FINANCING ACTIVITIES
Net increase in NOW accounts, money market accounts and passbook accounts................. 8,930 7,005
Net decrease in time deposits............................................................. (14,594) (12,140)
Net increase in long-term borrowings...................................................... -- 1,500
Increase in capitalized interest component of long-term debt to affiliate.................
-------- ---------
Net cash used in financing activities................................................... (5,664) (3,635)
-------- ---------
Increase (decrease) in cash and cash equivalents............................................ (20,639) 3,622
Cash and cash equivalents at beginning of period............................................ 34,853 18,394
-------- ---------
Cash and cash equivalents at end of period.................................................. $ 14,214 $ 22,016
======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest.................................................. $ 15,560 $ 14,329
Cash paid during the period for income taxes.............................................. 1,956 2,850
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Receivable resulting from sale of servicing rights........................................ 261 --
Real estate acquired through foreclosure.................................................. -- 1,780
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
UCBH HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING
POLICIES
Basis of Presentation
The Consolidated Balance Sheet as of March 31, 1998 and the Consolidated
Statements of Operations and Consolidated Statements of Cash Flows for the three
months ended March 31, 1998 and 1997 have been prepared by the Company and are
not audited.
The unaudited financial statement information presented was prepared on the
same basis as the audited financial statements for the year ended December 31,
1997. In the opinion of management such unaudited financial statements reflect
all adjustments necessary for a fair statement of the results of operations and
balances for the interim periods presented. Such adjustments are of a normal
recurring nature. The results of operations for the three months ended March 31,
1998 are not necessarily indicative of the results to be expected for the full
year.
On April 17, 1998, the Company completed a 6,000-for-1 stock split.
Accordingly, the financial statements for all periods presented have been
restated to reflect the impact of the stock split. On April 17, 1998, the
Company's long-term debt to affiliates was converted to 1,974,000 shares of
common stock, as adjusted for the aforementioned stock split. Given the
occurrence of this conversion, management has considered this long-term debt to
affiliates as convertible debt for purposes of its calculation of diluted
earnings per share.
Principles of Consolidation and Presentation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. There have been no changes in the
subsidiaries of the Company between December 31, 1997 and March 31, 1998. All
significant intercompany balances and transactions have been eliminated in
consolidation.
2. RECENT ACCOUNTING PRONOUNCEMENTS
The provisions of Statement of Financial Accounting Standards ("SFAS") No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," that were deferred by SFAS No. 127, "Deferral
of the Effective Date of Certain Provisions of FASB Statement No. 125--An
Amendment of FASB Statement No. 125," became effective as to repurchase
agreements, dollar rolls, securities lending and certain other transactions
after December 31, 1997. Management does not believe implementation of such
provisions will have a significant effect on the Company's financial position,
results of operations, or capital.
As of December 31, 1997, the Company adopted SFAS No. 128, "Earnings per
Share," which specifies the computation, presentation and disclosure
requirements for earnings per share ("EPS"). Basic EPS is computed by dividing
net income by the weighted average number of shares outstanding during the
period. Diluted EPS considers the possible dilutive effect of instruments such
as convertible debt, convertible preferred stock, and stock options. Prior
period EPS has been expanded to comply with the provisions of SFAS No. 128.
SFAS No. 130, "Reporting Comprehensive Income," is effective for fiscal
years beginning after December 15, 1997. SFAS No. 130 establishes presentation
and disclosure requirements for comprehensive income; however, it does not
affect existing recognition or measurement standards. For the Company,
comprehensive income consists of net income and the change in unrealized gains
and losses on available-for-sale securities. For the three months ended March
31, 1998 and 1997, total comprehensive income was $2.047 million and $1.477
million, respectively.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," is effective for fiscal years beginning after December 15, 1997.
SFAS No. 131 establishes standards for reporting information about operating
segments in annual financial statements and requires reporting of selected
information about operating segments in interim reports issued to shareholders.
It also establishes standards for related disclosures about products and
services, geographic areas, and major customers. SFAS No. 131 does not affect
existing
F-5
<PAGE>
UCBH HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. RECENT ACCOUNTING PRONOUNCEMENTS--(CONTINUED)
recognition or measurement standards. The provisions of SFAS No. 131 need not
be applied to interim financial statements in the initial year of its
application. Accordingly, such disclosures have not been presented herein.
3. EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominator of the
basic and diluted earnings per share:
(Dollars in thousands, except for per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
-----------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Basic:
Net income......................................... $ 1,551 6,000,000 $0.26
Effect of long-term debt to affiliates............... 296 1,974,000
------- ---------
Diluted:
Net income and assumed conversions................. $ 1,847 7,974,000 $0.23
======= =========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997
-----------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Basic:
Net income......................................... $ 2,037 6,000,000 $0.34
Effect of long-term debt to affiliates............... 254 1,974,000
------- ---------
Diluted:
Net income and assumed conversions................. $ 2,291 7,974,000 $0.29
======= =========
</TABLE>
F-6
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of UCBH Holdings, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations and of changes in stockholders'
equity and of cash flows present fairly, in all material respects, the financial
position of UCBH Holdings, Inc. and its subsidiaries at December 31, 1997 and
1996, and the results of their operations and their cash flows for the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
March 30, 1998, except for paragraph 3 of Note 1,
as to which the date is June 26, 1998
F-7
<PAGE>
UCBH HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Cash and due from banks............................................................... $ 13,853 $ 16,044
Federal funds sold.................................................................... 21,000 2,350
Investment securities, at cost (market value $3,998 in 1997 and $15,617 in 1996)...... 4,000 15,670
Mortgage-backed securities available for sale, at market value........................ 84,308 119,514
Mortgage-backed securities, at cost (market value $174,972 in 1997 and $199,483 in
1996)............................................................................... 181,795 208,555
Federal Home Loan Bank stock.......................................................... 13,914 13,082
Loans................................................................................. 1,214,237 1,066,368
Allowance for loan losses............................................................. (12,142) (11,682)
---------- ----------
Net loans............................................................................. 1,202,095 1,054,686
---------- ----------
Accrued interest receivable........................................................... 8,594 8,002
Premises and equipment, net........................................................... 23,931 22,839
Other assets.......................................................................... 8,160 13,875
---------- ----------
Total assets..................................................................... $1,561,650 $1,474,617
========== ==========
LIABILITIES
Deposits.............................................................................. $1,468,987 $1,393,125
Accrued interest payable.............................................................. 452 500
Long-term debt to affiliates (including capitalized interest)......................... 20,060 16,736
Other liabilities..................................................................... 9,599 9,912
---------- ----------
Total liabilities................................................................ 1,499,098 1,420,273
---------- ----------
Commitments and contingent liabilities
STOCKHOLDERS' EQUITY
Common stock, par value $0.00167 authorized 18,000,000 shares; 6,000,000 shares issued
and outstanding..................................................................... 10 10
Additional paid-in capital............................................................ 30,278 30,278
Unrealized loss on mortgage-backed securities available for sale...................... (1,728) (2,637)
Retained earnings-substantially restricted............................................ 33,992 26,693
---------- ----------
Total stockholders' equity....................................................... 62,552 54,344
---------- ----------
Total liabilities and stockholders' equity....................................... $1,561,650 $1,474,617
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
UCBH HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Interest income:
Interest on loans............................................................ $ 86,141 $ 78,711 $72,742
Interest on funds sold and securities purchased under agreements to resell... 2,760 1,417 398
Interest on investment and mortgage-backed securities........................ 18,690 22,836 25,894
-------- -------- -------
Total interest income..................................................... 107,591 102,964 99,034
-------- -------- -------
Interest expense:
Interest on deposits......................................................... 61,513 59,273 56,038
Interest on short-term borrowings............................................ 294 998 6,550
Interest on Federal Home Loan Bank advances.................................. 620 2,044 5,867
Interest on long-term debt to affiliates..................................... 1,825 1,640 1,741
-------- -------- -------
Total interest expense.................................................... 64,252 63,955 70,196
-------- -------- -------
Net interest income....................................................... 43,339 39,009 28,838
Provision for loan losses...................................................... 1,154 1,476 8,777
-------- -------- -------
Net interest income after provision for loan losses....................... 42,185 37,533 20,061
-------- -------- -------
Noninterest income:
Commercial banking fees...................................................... 977 421 92
Service charges on deposit accounts.......................................... 888 615 566
Gain on sale of loans, securities and servicing rights....................... 155 1,200 1,137
Loan servicing income........................................................ 601 680 272
Miscellaneous income......................................................... 473 481 1,700
-------- -------- -------
Total noninterest income.................................................. 3,094 3,397 3,767
-------- -------- -------
Noninterest expense:
Personnel.................................................................... 14,087 14,875 12,000
Occupancy.................................................................... 4,811 4,754 4,355
Data processing.............................................................. 2,059 1,859 1,696
Furniture and equipment...................................................... 1,902 1,814 1,357
Deposit insurance............................................................ 1,798 3,519 3,051
SAIF recapitalization assessment............................................. -- 7,716 --
Communication................................................................ 400 383 317
Professional fees and contracted services.................................... 2,242 1,551 1,303
Foreclosed assets expense.................................................... 671 686 2,785
Miscellaneous expense........................................................ 4,220 4,256 3,278
-------- -------- -------
Total noninterest expense................................................. 32,190 41,413 30,142
-------- -------- -------
Income (loss) before taxes..................................................... 13,089 (483) (6,314)
Income tax expense (benefit)................................................... 5,790 (177) (3,406)
-------- -------- -------
Net income (loss)....................................................... $ 7,299 $ (306) $(2,908)
======== ======== =======
Basic earnings (loss) per share................................................ $ 1.22 $ (0.05) $ (0.48)
======== ======== =======
Diluted earnings (loss) per share.............................................. $ 1.05 $ 0.05 $ (0.48)
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
UCBH HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
ADDITIONAL ON SECURITIES TOTAL
COMMON PAID-IN AVAILABLE RETAINED STOCKHOLDERS'
STOCK CAPITAL FOR SALE EARNINGS EQUITY
------ ---------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994....................... $ 10 $ 30,278 $ (845) $ 29,907 $59,350
Net loss......................................... (2,908) (2,908)
Change in unrealized net loss on securities
available for sale, after applicable taxes.... (985) (985)
---- ------- ------- -------- -------
Balance at December 31, 1995....................... 10 $ 30,278 (1,830) 26,999 55,457
Net loss......................................... (306) (306)
Change in unrealized net loss on securities
available for sale, after applicable taxes.... (807) (807)
---- ------- ------- -------- -------
Balance at December 31, 1996....................... 10 30,278 (2,637) 26,693 54,344
Net income....................................... 7,299 7,299
Change in unrealized net loss on securities
available for sale, after applicable taxes.... 909 909
---- -------- ------- -------- -------
Balance at December 31, 1997....................... $ 10 $ 30,278 $(1,728) $ 33,992 $62,552
==== ======== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
UCBH HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Operating activities
Net income (loss)........................................................... $ 7,299 $ (306) $ (2,908)
Adjustments to reconcile net income to net cash provided by (used for)
operating activities:
Amortization of investment and mortgage-backed securities premium....... 138 193 762
Amortization of loan discount........................................... 66 76 (571)
Provision for loan losses............................................... 1,154 1,476 8,777
Decrease (increase) in accrued interest receivable...................... (592) 1,140 (1,038)
Depreciation and amortization of premises and equipment................. 2,254 1,981 1,576
Amortization of servicing rights........................................ (590) 849 1,527
Decrease in other assets................................................ 2,808 1,439 3,426
Decrease in accrued interest payable.................................... (49) (663) (186)
Increase (decrease) in other liabilities................................ (313) 133 (2,967)
Gain on sale of servicing rights........................................ (1,165) (672) (755)
Gain on sale of foreclosed assets....................................... (401) (602) (684)
Loss on sale of loans................................................... 204 -- 28
Gain on branch sale..................................................... -- -- (656)
Loss on sale of securities.............................................. 806 335 --
--------- --------- ---------
Net cash provided by operating activities............................ 11,619 5,379 6,331
--------- --------- ---------
Investing activities
Investments and mortgage-backed securities held to maturity:
Principal payments and maturities and securities called................... 37,980 56,095 33,899
Purchases................................................................. (200) (80) (75)
Investments and mortgage-backed securities, available for sale:
Principal payments and maturities and securities called................... 12,124 18,217 1,373
Sale of securities........................................................ 23,495 8,800 --
Net increase in credit card loans........................................... (39) (131) (1,121)
Loans purchased............................................................. (44,416) (7,643) (16,677)
Loans originated net of principal collections............................... (151,334) (41,217) (49,698)
Proceeds from sale of loans................................................. 43,350 478 8,384
Purchases of premises and equipment......................................... (3,453) (2,540) (2,035)
Proceeds from sale of premises and equipment................................ 106 61 74
Proceeds from sale of servicing rights...................................... 3,760 672 227
Proceeds from sale of foreclosed assets..................................... 4,280 4,532 6,766
Proceeds from sale of branch deposits....................................... -- -- (28,770)
Purchase of branch deposits................................................. -- -- 10,582
--------- --------- ---------
Net cash (used in) provided by investing activities....................... (74,347) 37,244 (37,071)
--------- --------- ---------
Financing activities
Net increase (decrease) in NOW accounts, money market accounts and passbook
accounts.................................................................. (90) 14,719 (51,794)
Net increase in time deposits............................................... 75,952 66,802 213,993
Net decrease in short-term borrowings....................................... -- (128,600) (136,741)
Increase (decrease) in long-term debt to affiliates......................... 1,500 -- (500)
Increase in capitalized interest component of long-term debt to
affiliates................................................................ 1,825 1,640 --
--------- --------- ---------
Net cash provided by (used in) financing activities....................... 79,187 (45,439) 24,958
--------- --------- ---------
Increase (decrease) in cash and cash equivalents.............................. 16,459 (2,816) (5,782)
Cash and cash equivalents at beginning of year................................ 18,394 21,210 26,992
--------- --------- ---------
Cash and cash equivalents at end of year...................................... $ 34,853 $ 18,394 $ 21,210
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
UCBH HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------------
1997 1996 1995
------- ------- --------
<S> <C> <C> <C>
Supplemental disclosure of cash flow information
Cash paid during the year for interest........................................ $62,475 $62,978 $ 70,098
Cash paid during the year for income taxes.................................... 4,083 832 495
Supplemental schedule of noncash investing and financing activities
Receivable resulting from sale of servicing rights............................ $ 371 $ -- $ 528
Real estate acquired through foreclosure...................................... 4,260 4,443 5,373
Securities transferred to available for sale securities....................... -- -- 125,987
Long-term debt resulting from refinance of long-term debt to affiliates and
related accrued interest................................................... -- 15,048 --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
UCBH HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING
POLICIES
Organization
UCBH Holdings, Inc. (the Company), is a savings institution holding company
that conducts its business through its principal subsidiary, United Commercial
Bank (United), a federally chartered savings bank based in California. Through
December 31, 1997, United was known as United Savings Bank, F.S.B. and through
March 30, 1998, the Company was known as USB Holdings, Inc. The Company is a
wholly-owned subsidiary of Chief Investments, Ltd.
Principles of Consolidation and Presentation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. The Company's business consists primarily of
attracting retail deposits from consumers and business customers and originating
loans. The Company originates loans secured by mortgages on residential real
estate and loans secured by commercial real estate, including multi-family
housing, mixed use properties, retail and other commercial uses. The Company
also offers commercial loans and lines of credit, trade finance lines and other
commercial loans, as well as a variety of consumer loan products. The Company
also provides a variety of fee-generating services to both commercial customers
and consumers. Substantially all loans are originated for portfolio and held for
investment. All significant intercompany balances and transactions have been
eliminated in consolidation. Certain reclassifications have been made to prior
years' consolidated financial statements to conform to the December 31, 1997
presentation.
On April 17, 1998, the Company completed a 6,000-for-1 stock split.
Accordingly, the financial statements for all years presented have been restated
to reflect the impact of the stock split. On April 17, 1998, the Company's
long-term debt to affiliates was converted to 1,974,000 shares of common stock,
as adjusted for the aforementioned stock split. Given the occurrence of this
conversion, management has considered this long-term debt to affiliates as
convertible debt for purposes of its calculation of diluted earnings per share.
Risks and Uncertainties
In the normal course of its business, the Company encounters two
significant types of risk: economic and regulatory. There are three main
components of economic risk: interest rate risk, credit risk and market risk.
The Company is subject to interest rate risk to the degree that its
interest-bearing liabilities mature or reprice at different speeds, or on a
different basis, than its interest-earning assets. Related to interest rate risk
is prepayment risk. Prepayment risk is the risk associated with the prepayment
of assets, and the write-off of premiums associated with those assets, should
interest rates fall dramatically. Credit risk is the risk of default, primarily
in the Company's loan portfolio that results from the borrowers' inability or
unwillingness to make contractually required payments. Market risk reflects
changes in the value of securities, the value of collateral underlying loans
receivable and the valuation of real estate owned.
The Company is subject to the regulations of various governmental agencies.
These regulations change significantly from period to period. Such regulations
can also restrict the growth of the Company and United as a result of capital
requirements. The Company also undergoes periodic examinations by the regulatory
agencies which may subject it to further changes with respect to asset
valuations, amounts of required loss allowances and operating restrictions. Such
changes may result from the regulators' judgments based on information available
to them at the time of their examination.
Use of Estimates in Preparation of Financial Statements
The preparation of 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
F-13
<PAGE>
UCBH HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING
POLICIES--(CONTINUED)
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and noninterest bearing deposits,
federal funds sold and securities purchased under agreements to resell. For
purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments with original maturities when purchased of three months
or less to be cash equivalents.
Securities Purchased Under Agreements to Resell
The Company periodically purchases securities under agreements to resell
(repurchase agreements). The amounts advanced under such agreements represent
short-term loans. During the agreement period, the securities are maintained by
the dealer under a written custodial agreement that explicitly recognizes the
Company's interest in the securities.
Investment and Mortgage-backed Securities
In accordance with Statement of Financial Accounting Standards No. 115
(SFAS 115) "Accounting for Certain Investments in Debt and Equity Securities,"
the Company has designated a portion of the investment and mortgage-backed
securities portfolio as "held to maturity" securities. As such, this portion of
the portfolio is carried at cost, adjusted for the amortization of premiums and
accretion of discounts. Cost is determined on a specific identification basis.
Inasmuch as the Company has the ability and intent to hold the "held to
maturity" securities in its portfolio until maturity, the carrying value has not
been adjusted to reflect decreases in market value from book value, if any. Also
in accordance with SFAS 115, the Company has designated a portion of the
mortgage-backed securities portfolio as "available for sale." Such securities
are carried at fair value. Fair value is the quoted market price. Unrealized
holding gains or losses for "available for sale" securities are excluded from
earnings and reported in a separate component of stockholders' equity, net of
tax. Premiums and discounts on investment and mortgage-backed securities are
amortized against interest income, using the interest method, with the
amortization period extending to the maturity date of the securities. Gains or
losses on the sale of securities are recognized when sold.
In November 1995, the Financial Accounting Standards Board issued a Special
Report, "A Guide to Implementation of Statement 115 on Accounting for Certain
Debt and Equity Securities." Concurrent with the implementation of the Guide,
but not later than December 31, 1995, all institutions could conduct a one time
reassessment of the classification of all securities held at that time. In
accordance with the provisions of the Guide, management elected to transfer
securities with a fair value of $123.3 million and amortized cost of $126
million from the held-to-maturity classification to the available-for-sale
classification. The unrealized holding gain (loss) at the transfer date of $1.6
million (tax effected) has been reflected as a separate component of
shareholder's equity.
Loans
Loans are carried at the principal balance outstanding adjusted for the
amortization of premiums and the accretion of discounts. Premiums and discounts
are recognized as an adjustment of loan yield by the interest method based on
contractual term of the loans. Interest is accrued as earned.
Loans are generally placed on nonaccrual status when the payments become 90
days past due, or earlier if, in management's opinion, the full and timely
collection of principal or interest becomes uncertain. Any accrued and unpaid
interest on such loans is reversed and charged against current income.
F-14
<PAGE>
UCBH HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING
POLICIES--(CONTINUED)
The Company recognizes interest income on impaired loans to the extent
received in cash. However, where there is doubt regarding the ultimate
collectibility of the loan principal, cash receipts, whether designated as
principal or interest, are applied to reduce the carrying value of the loan.
Loan origination fees, net of certain direct origination costs, are
deferred and recognized as an adjustment of the loan yield over the contractual
life of the loan. Amortization of deferred loan fees is discontinued on
nonperforming loans.
Allowance for Loan Losses
The allowance for loan losses is based on management's continuous
evaluation of various factors affecting collectibility of the loan portfolio.
These factors include, but are not limited to, changes in the composition of the
portfolio, current and forecasted economic conditions, overall portfolio
quality, review of specific problem loans, and historical loan-loss experience.
The allowance for loan losses is based on estimates, and ultimate losses may
vary from the current estimates. These estimates are reviewed periodically and,
as adjustments become necessary, they are reported in earnings in the period in
which they become known. The allowance is increased by provisions charged to
expense and reduced by loan losses, net of recoveries.
A portion of the allowance for loan losses is allocated to individual
impaired loans at the difference between the loan amount and the fair value of
collateral less estimated selling costs. The Company considers a loan to be
impaired when, based upon current information and events, it believes it is
probable that the Company will be unable to collect all amounts due according to
the contractual terms of the loan agreement on a timely basis.
The determination of the allowance for loan losses is based on estimates
that are susceptible to changes in the economic environment and market
conditions. Management believes that, as of December 31, 1997 and 1996, the
allowance for loan losses is adequate based on information currently available.
If recent improvements in the economies of the Company's principal market areas
are not sustainable, the Company's loan portfolios could be adversely affected
and higher charge-offs and increases in non-performing assets could result. Such
an adverse impact could also require a larger allowance for loan losses.
Mortgage Banking Activities
Through 1996, the Company operated a mortgage banking division. This
division was closed in early 1997 and mortgage banking activities are no longer
a significant business activity for the Company. The Company periodically sells
some of its mortgage loan production for cash proceeds equal to the market value
of the loans. Gain or loss is recognized to the extent of the difference between
the cash proceeds received and the carrying value of the loans sold. In
addition, for loans sold in which servicing has been retained by the Company,
gain is recognized and an asset is recorded at the time of sale based upon the
present value of amounts expected to be received resulting from the difference
between the borrowers' contractual interest rates and the rates paid to the
investors.
Through December 31, 1996, the Company accounted for its loan servicing
assets in accordance with the provisions of Statement of Financial Standards No.
122 (SFAS 122) "Accounting for Mortgage Servicing Rights," which required that
rights to service mortgage loans be recognized as separate assets, whether
originated or acquired. Management implemented this Statement on December 31,
1995.
On January 1, 1997, the Company adopted Statements of Financial Accounting
Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" (SFAS 125). SFAS 125 requires application of
a financial components approach that focuses on control. Under this approach,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and derecognizes
F-15
<PAGE>
UCBH HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING
POLICIES--(CONTINUED)
liabilities when extinguished. The statement also distinguishes transfers of
financial assets that are sales from transfers of financial assets that are
secured borrowings.
SFAS 125 supersedes the provisions SFAS 122; however, mortgage banking
activities are now an insignificant part of the Company's business, and there
are no significant differences in The Company's accounting for mortgage banking
activities or mortgage servicing rights under SFAS 125.
Implementation of the provisions of SFAS 125 did not have a significant
effect on the Company's financial position or results of operations.
Premises and Equipment
Premises and equipment are carried at cost, less accumulated depreciation
and amortization. Provisions for depreciation and amortization are determined on
a straight-line basis over the lesser of the estimated useful lives or the terms
of the leases. Terms range from three to ten years for furniture, equipment, and
computer software, and from forty to fifty years for premises.
Foreclosed Assets
Foreclosed assets (other real estate owned) consist of properties acquired
through, or in lieu of, foreclosure and are carried at the lower of cost or fair
value (less estimated selling costs). Cost includes the unpaid loan balance
adjusted for applicable accrued interest, unamortized deferred loan fees and
acquisition costs. In the event that the fair value (less estimated selling
costs) is less than cost at the time of acquisition, the shortfall is charged to
the allowance for loan losses. Subsequent write-downs, if any, and disposition
gains and losses are reflected as charges to current operations.
Goodwill
Goodwill resulted from a variety of transactions, including branch
acquisitions and is generally amortized over seven years. Goodwill is included
in other assets.
Securities Sold Under Agreements to Repurchase
The Company periodically enters into sales of securities under agreements
to repurchase (reverse repurchase agreements). Fixed-coupon reverse repurchase
agreements are treated as financings. Accordingly, the securities underlying the
agreement remain in the asset accounts and the obligations to repurchase
securities sold are reflected as a liability in the consolidated balance sheets.
The securities underlying the agreements are delivered to the dealers who
arrange the transactions. Under some agreements, the dealers may sell, lend, or
otherwise dispose of the securities to other parties and agree to resell to the
Company substantially identical securities at the maturities of the agreements.
Interest Rate Swap and Cap Agreements
The Company periodically enters into interest rate swap and cap agreements
as a means of managing its interest rate exposure. The differential to be paid
or received on interest rate swap agreements entered into to reduce the impact
of changes in interest rates is recognized over the life of the agreements.
Premiums paid on cap agreements are amortized over the life of the agreements.
The results of swap and cap transactions are recognized currently as an
adjustment to interest expense.
Accounting for Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes." SFAS 109 requires the recognition of deferred tax assets
F-16
<PAGE>
UCBH HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING
POLICIES--(CONTINUED)
and liabilities for the expected future tax consequences of events that have
been recognized in the Company's financial statements or tax returns. The
Company provides a valuation allowance against net deferred tax assets to the
extent that realization of the assets is not considered more likely than not.
The Company and United file a consolidated federal income tax return and a
combined California tax return. The Company allows all tax benefits generated
within the consolidated group to be retained by United.
Impairment of Long-Lived Assets
On January 1, 1996, the Company adopted prospectively, the provisions of
Statement of Financial Accounting Standards No. 121 (SFAS 121), "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." This Statement establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. Long-lived assets and identifiable
intangibles held by the Company consist of premises and equipment, other real
estate owned, and goodwill. Implementation of SFAS 121 did not have an effect on
the financial position or results of operations of the Company since management
determined that there was no impairment with respect to premises and equipment
or goodwill. The Company's previous accounting treatment of other real estate
owned was substantially identical to the treatment required under SFAS 121.
Accordingly, no adjustment was required in connection with the implementation of
SFAS 121.
2. SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL
Securities purchased under agreements to resell averaged $44.0 million and
$22.1 million during 1997 and 1996, respectively, and the maximum amounts
outstanding at any month-end during 1997 and 1996 were $70 million and $20
million, respectively. At December 31, 1997 and 1996, there were no securities
purchased under agreements to resell.
3. INVESTMENT SECURITIES
The amortized cost and approximate market value of investment securities
classified as held to maturity at December 31, 1997 and 1996 were (dollars in
thousands):
<TABLE>
<CAPTION>
1997
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Held to maturity
FHLB Note................................. $ 2,000 $-- $ 2 $ 1,998
FNMA Note................................. 2,000 -- -- 2,000
------- --- --- -------
$ 4,000 $-- $ 2 $ 3,998
======= === === =======
</TABLE>
<TABLE>
<CAPTION>
1996
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Held to maturity
FHLB Note................................. $ 8,670 $2 $ 43 $ 8,629
FHLB CD................................... 2,000 -- -- 2,000
Other..................................... 5,000 -- 12 4,988
------- --- ---- -------
$15,670 $2 $ 55 $15,617
======= === ==== =======
</TABLE>
F-17
<PAGE>
UCBH HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. INVESTMENT SECURITIES--(CONTINUED)
For 1996, other investments consisted primarily of medium-term notes and
certificates of deposit with financial institutions and medium-term notes with
governmental agencies.
The amortized cost and approximate market value of investment securities
classified as held to maturity at December 31, 1997 and 1996, by contractual
maturity, are shown below (dollars in thousands):
<TABLE>
<CAPTION>
1997
--------------------
AMORTIZED MARKET
COST VALUE
--------- -------
<S> <C> <C>
Held to maturity
Due in one year or less................................. $ 2,000 $ 1,998
Due after one year through five years................... 2,000 2,000
------- -------
$ 4,000 $ 3,998
======= =======
</TABLE>
<TABLE>
<CAPTION>
1996
--------------------
AMORTIZED MARKET
COST VALUE
--------- -------
<S> <C> <C>
Held to maturity
Due in one year or less................................. $11,670 $11,662
Due after one year through five years................... 4,000 3,955
------- -------
$15,670 $15,617
======= =======
</TABLE>
During 1996, $29 million of securities classified as investments held to
maturity were called by the issuer.
4. MORTGAGE-BACKED SECURITIES
The amortized cost and approximate market value of mortgage-backed
securities classified as held to maturity and available for sale at December 31,
1997 and 1996, were (dollars in thousands):
<TABLE>
<CAPTION>
1997
-------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Held to maturity
FHLMC................................... $ 48,536 -- $1,918 $ 46,618
FNMA.................................... 117,184 -- 4,396 112,788
Other................................... 16,075 -- 509 15,566
-------- --- ------ --------
$181,795 $-- $6,823 $174,972
======== === ====== ========
Available for sale
FNMA.................................... $ 87,237 $-- $2,929 $ 84,308
======== === ====== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1996
-------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Held to maturity
FHLMC................................... $ 61,629 -- $2,615 $ 59,014
FNMA.................................... 124,710 -- 5,489 119,221
Other................................... 22,216 -- 968 21,248
-------- --- ---------- --------
$208,555 $-- $9,072 $199,483
======== === ====== ========
Available for sale
FNMA.................................... $123,982 $-- $4,468 $119,514
======== === ====== ========
</TABLE>
F-18
<PAGE>
UCBH HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Approximately $45.6 million and $75.5 million of mortgage-backed securities
have been pledged to secure contractual arrangements entered into by the Company
at December 31, 1997 and 1996, respectively.
Proceeds from the sale of available for sale securities during 1997 and
1996 totaled $23.4 million and $8.8 million, respectively. There were no sales
of available for sale securities during 1995. Gross realized losses totaled
$806,000 and $335,000 for 1997 and 1996, respectively.
Mortgage-backed securities sold under agreements to repurchase as of
December 31, 1997 and 1996 were (dollars in millions):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Book value.................................................... $-- $ --
Market value.................................................. -- --
Obligations................................................... -- --
Weighted average interest rate at end of period............... -- --
Weighted average interest rate during the period.............. 5.47% 6.31%
Average balance during the year............................... 5.3 15.8
Maximum amount outstanding at any month end during the year... -- 74.4
</TABLE>
When the Company enters into these transactions, the obligations generally
mature within one year and generally represent agreements to repurchase the same
securities.
As of December 31, 1997 and 1996, remaining maturities on mortgage-backed
securities classified as held to maturity and available for sale were as follows
(dollars in thousands):
<TABLE>
<CAPTION>
1997
---------------------
AMORTIZED MARKET
COST VALUE
--------- --------
<S> <C> <C>
Held to maturity
In one year or less.................................... $ 1,413 $ 1,406
After one year through five years...................... -- --
After five years through ten year...................... 2,961 2,881
After ten years........................................ 177,421 170,685
--------- --------
$ 181,795 $174,972
========= ========
Available for sale
After ten years........................................ $ 87,237 $ 84,308
========= ========
</TABLE>
<TABLE>
<CAPTION>
1996
---------------------
AMORTIZED MARKET
COST VALUE
--------- --------
<S> <C> <C>
Held to maturity:
In one year or less.................................... $ 4,595 $ 4,485
After one year through five years...................... 1,845 1,820
After five years through ten year...................... 3,096 2,995
After ten years........................................ 199,019 190,183
--------- --------
$ 208,555 $199,483
========= ========
Available for sale
After ten years........................................ $ 123,982 $119,514
========= ========
</TABLE>
F-19
<PAGE>
UCBH HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. LOANS
As of December 31, 1997 and 1996, the composition of the loan portfolio was
as follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Consumer
Residential mortgage (one to four family).......... $ 691,167 $ 541,156
Home equity........................................ 16,743 10,673
Other.............................................. 2,732 2,642
---------- ----------
710,642 554,471
---------- ----------
Commercial
Secured by real estate - multifamily............... 339,257 361,591
Secured by real estate - nonresidential............ 115,366 123,003
Construction....................................... 26,603 19,892
Lines of credit.................................... 21,146 6,595
---------- ----------
502,372 511,081
---------- ----------
Gross loans............................................. 1,213,014 1,065,552
Net deferred loan costs................................. 1,223 816
Allowance for loan losses............................... (12,142) (11,682)
---------- ----------
Net loans............................................... $1,202,095 $1,054,686
========== ==========
</TABLE>
In the table above, construction loans are presented net of undrawn
commitments of $71.0 million and $25.8 million at December 31, 1997 and 1996,
respectively.
As of December 31, 1997, loans at fixed interest rates amounted to $241.5
million, and loans at variable interest rates amounted to $971.5 million. Loans
of approximately $9.9 million and $19.5 million were on nonaccrual status at
December 31, 1997 and 1996, respectively.
As of December 31, 1997, the portfolio above contained $685.0 million of
loans that were interest-rate sensitive within one year, $304.2 million from one
to five years, $12.3 million from five to ten years, $175.2 million from ten to
twenty years and $36.3 million over twenty years.
As of December 31, 1997, loans with a book value and market value of $245.3
million were pledged to secure FHLB advances (see Note 10).
The Company serviced real estate loans for others of $11.0 million and
$300.0 million at December 31, 1997 and 1996, respectively. These loans are not
included in the consolidated balance sheets. In connection therewith, the
Company held trust funds of approximately $2.1 million and $4.7 million as of
December 31, 1997 and 1996, respectively, all of which were segregated in
separate accounts and included in the respective balance sheets.
Some agreements with investors to whom the Company has sold loans have
provisions which could require repurchase of loans under certain circumstances.
Management does not believe that any such repurchases will be significant.
F-20
<PAGE>
UCBH HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. LOANS--(CONTINUED)
The following table sets forth impaired loan disclosures as of and for the
year ended December 31, 1997 and 1996 (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Impaired loans with an allowance................................. $1,359 $2,894
Impaired loans without an allowance.............................. 20 6,218
------ ------
Total impaired loans........................................ $1,379 $9,112
====== ======
Allowance for impaired loans under SFAS 114...................... $ 109 $ 315
====== ======
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Interest income recognized on impaired loans during the period......... $68 $181 $167
=== ==== ====
</TABLE>
In the table above, loans included in the "Impaired loans without an
allowance" category are those loans for which the discounted cash flows,
collateral value (net of estimated selling costs) or market price equals or
exceeds the carrying value of the loan. Such loans do not require an allowance.
For the years ended December 31, 1997, 1996 and 1995, the activity in the
allowance for loan losses was as follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Balance at beginning of year................................. $11,682 $13,699 $ 7,550
Provision for loan losses.................................... 1,154 1,476 8,777
Loans charged off............................................ (1,069) (4,562) (2,696)
Recoveries of loans previously charged off................... 375 1,069 68
------- ------- -------
Balance at end of year....................................... $12,142 $11,682 $13,699
======= ======= =======
</TABLE>
6. PREMISES AND EQUIPMENT
As of December 31, 1997 and 1996, premises and equipment were as follows
(dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Land and buildings........................................... $ 19,054 $ 18,866
Leasehold improvements....................................... 8,420 7,901
Equipment, furniture and fixtures............................ 11,853 9,936
-------- --------
39,327 36,703
Less accumulated depreciation and amortization............... (15,396) (13,864)
-------- --------
Total................................................... $ 23,931 $ 22,839
======== ========
</TABLE>
Depreciation and amortization expense was $2.3 million, $2.0 million and
$1.6 million for the years ended December 31, 1997, 1996 and 1995, respectively.
F-21
<PAGE>
UCBH HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. SERVICING ASSETS
Included in other assets are servicing assets. For the years ended December
31, 1997, 1996 and 1995, activity with respect to servicing assets was as
follows (dollars in thousands):
<TABLE>
<CAPTION>
1997
--------------------------------------
CAPITALIZED PURCHASED ORIGINATED
EXCESS MORTGAGE MORTGAGE
SERVICING SERVICING SERVICING
FEES RIGHTS RIGHTS
----------- --------- ----------
<S> <C> <C> <C>
Beginning balance, net................................... $ 546 $ 1,832 $ 382
Sales............................................... (5) (2,532) (428)
Additions........................................... -- -- 44
Amortization:
Normal......................................... (206) (150) (51)
Decrease in valuation allowance..................... -- 850 147
----- ------- ------
Ending balance, net...................................... $ 335 $ -- $ 94
===== ======= ======
</TABLE>
<TABLE>
<CAPTION>
1996
--------------------------------------
CAPITALIZED PURCHASED ORIGINATED
EXCESS MORTGAGE MORTGAGE
SERVICING SERVICING SERVICING
FEES RIGHTS RIGHTS
----------- --------- ----------
<S> <C> <C> <C>
Beginning balance, net................................... $ 672 $ 2,509 $ --
Additions........................................... -- -- 576
Amortization:
Normal......................................... (126) (627) (47)
Increase in valuation allowance..................... -- (50) (147)
----- ------- ------
Ending balance, net...................................... $ 546 $ 1,832 $ 382
===== ======= ======
</TABLE>
<TABLE>
<CAPTION>
1995
--------------------------------------
CAPITALIZED PURCHASED ORIGINATED
EXCESS MORTGAGE MORTGAGE
SERVICING SERVICING SERVICING
FEES RIGHTS RIGHTS
----------- --------- ----------
<S> <C> <C> <C>
Beginning balance, net................................... $ 902 $ 3,806 $ --
Additions........................................... -- -- --
Amortization:
Normal......................................... (230) (497) --
Increase in valuation allowance..................... -- (800) --
----- ------- ------
Ending balance, net...................................... $ 672 $ 2,509 $ --
===== ======= ======
</TABLE>
For the years ended December 31, 1997, 1996 and 1995, the activity in the
valuation allowance for servicing assets was as follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
----- ---- ----
<S> <C> <C> <C>
Balance, beginning of year............................................ $ 997 $800 $ --
Provision for impairment.............................................. -- 197 800
Reversal of valuation allowance....................................... (997) -- --
Write-downs........................................................... -- -- --
----- ---- ----
Balance, end of year.................................................. $ -- $997 $800
===== ==== ====
</TABLE>
F-22
<PAGE>
UCBH HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. FORECLOSED ASSETS
As of December 31, 1997 and 1996, other assets include $412,000 and $1.6
million, respectively, in real estate acquired through foreclosure.
9. DEPOSITS
As of December 31, 1997 and 1996, deposit balances were as follows (dollars
in thousands):
<TABLE>
<CAPTION>
1997
----------------------
WEIGHTED
AVERAGE
BALANCE RATE
---------- --------
<S> <C> <C>
NOW and checking accounts.................................. $ 111,984 0.80%
Money market accounts...................................... 20,986 2.48%
Passbook accounts.......................................... 212,013 2.11%
Time deposits:
Less than $100,000.................................... 831,292 5.12%
$100,000 or greater................................... 292,712 5.41%
---------- ----
Total................................................. $1,468,987 4.38%
========== ====
</TABLE>
<TABLE>
<CAPTION>
1996
----------------------
WEIGHTED
AVERAGE
BALANCE RATE
---------- --------
<S> <C> <C>
NOW and checking accounts.................................. $ 106,491 0.79%
Money market accounts...................................... 22,111 2.39%
Passbook accounts.......................................... 216,471 2.20%
Time deposits:
Less than $100,000.................................... 773,571 4.87%
$100,000 or greater................................... 274,481 5.16%
---------- ----
Total................................................. $1,393,125 4.17%
========== ====
</TABLE>
As of December 31, 1997, remaining maturities on time deposits were as
follows (dollars in thousands):
<TABLE>
<S> <C>
1998.................................................................. $1,111,927
1999.................................................................. 10,324
2000.................................................................. 1,753
----------
Total................................................................. $1,124,004
==========
</TABLE>
For the years ended December 31, 1997, 1996 and 1995, interest expense on
deposits was as follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
NOW and demand deposit accounts.............................. $ 875 $ 826 $ 781
Money market accounts........................................ 517 561 654
Passbook accounts............................................ 4,834 4,772 4,797
Time deposits................................................ 55,570 53,360 50,046
Less penalties for early withdrawal.......................... (283) (246) (240)
------- ------- -------
Total................................................... $61,513 $59,273 $56,038
======= ======= =======
</TABLE>
F-23
<PAGE>
UCBH HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. DEPOSITS--(CONTINUED)
As of December 31, 1997 and 1996, the composition of deposits by interest
rate was as follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Under 3%................................................ $ 345,473 $ 345,027
3.00% to 3.99%.......................................... 45,148 49,750
4.00% to 4.99%.......................................... 262,607 423,922
5.00% to 5.99%.......................................... 681,977 562,446
6.00% to 6.99%.......................................... 133,313 11,099
7.00% to 7.99%.......................................... -- 251
8.00% to 8.99%.......................................... 469 630
---------- ----------
Total.............................................. $1,468,987 $1,393,125
========== ==========
</TABLE>
10. FEDERAL HOME LOAN BANK ADVANCES
The Company maintains a secured credit facility with the Federal Home Loan
Bank of San Francisco (FHLB-SF) against which the Company may take advances. The
terms of this credit facility require the Company to maintain in safekeeping
with the FHLB-SF eligible collateral of least 100% of outstanding advances.
There were no advances outstanding at December 31, 1997 or 1996. At December 31,
1997, credit availability under this facility was approximately $291 million.
11. LONG-TERM DEBT TO AFFILIATES
The Company has a promissory note to United Holdings Int'l Ltd. (UHIL)
dated April 1, 1996 for a principal sum of $15,548,000. This note refinanced
previous affiliate debt and related accrued interest. Interest is capitalized on
the note through December 31, 1999 and calculated at a compound annual interest
rate of 10%. As of January 1, 2000, accrued interest is payable annually within
60 days after each year end. The Company has an additional promissory note to
Chief Investments Limited (Chief) dated February 28, 1997 for a principal sum of
$1,500,000. Interest is capitalized on the note through December 31, 1999 and
calculated at a compound annual interest rate of 10%. Annual payments
representing the lesser of $1,000,000 or the outstanding balance of the note are
to be paid within 60 days of each calendar year end, effective December 31,
1999. Chief is the Company's parent and UHIL is another related party.
At December 31, 1997, future principal payments (including capitalized
interest) on long term debt are payable as follows (dollars in thousands):
<TABLE>
<S> <C>
1998..................................................................... $ --
1999..................................................................... --
2000..................................................................... 1,000
2001..................................................................... 3,127
2002..................................................................... 3,000
Aggregate thereafter..................................................... 12,933
-------
Total............................................................... $20,060
=======
</TABLE>
F-24
<PAGE>
UCBH HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. STOCKHOLDERS' EQUITY AND REGULATORY CAPITAL REQUIREMENTS
The Company and United are subject to various regulatory requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory--and possibly additional
discretionary--actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, United
must meet specific capital guidelines that involve quantitative measures of
United's assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. United's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require United to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1997, that United
meets all capital adequacy requirements to which it is subject.
As of December 31, 1997, the most recent notification from the Office of
Thrift Supervision categorized United as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized,
United must maintain minimum total risk-based, Tier I risk-based, Tier I
leverage ratios as set forth in the table. There are no conditions or events
since that notification that management believes have changed the institution's
category. As of December 31, 1996, the Office of Thrift Supervision categorized
United as adequately capitalized under the regulatory framework for prompt
corrective action.
United's actual capital amounts and ratios are also presented in the
following table (dollars in thousands):
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
-------------- --------------------- ---------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital (to risk weighted assets)... $94,547 11.15% $67,837 8.00% $84,796 10.00%
Core Capital (to adjusted tangible
assets)................................. 83,927 5.37% 62,519 4.00% 78,148 5.00%
Tier I Capital (to risk weighted
assets)................................. 83,927 9.90% 33,919 4.00% 50,864 6.00%
Tangible Capital (to tangible assets)..... 83,927 5.37% 23,444 1.50% N/A N/A
</TABLE>
The following table is a reconciliation of United's capital under Generally
Accepted Accounting Principles ("GAAP") with its regulatory capital at December
31, 1997 (dollars in thousands):
<TABLE>
<CAPTION>
TANGIBLE CORE RISK-BASED
CAPITAL CAPITAL CAPITAL
-------- ------- ----------
<S> <C> <C> <C>
GAAP Capital.......................................................... $82,556 $82,556 $ 82,556
Nonallowable components:
Unrealized losses on securities available for sale.................. 1,728 1,728 1,728
Goodwill............................................................ (348) (348) (348)
Mortgage servicing rights-excess.................................... (9) (9) (9)
Additional capital components:
Allowance for loan losses--allowable in risk-based capital.......... -- -- 10,620
------- ------- --------
United regulatory capital............................................. $83,927 $83,927 $ 94,547
======= ======= ========
</TABLE>
F-25
<PAGE>
UCBH HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. STOCKHOLDERS' EQUITY AND REGULATORY CAPITAL REQUIREMENTS--(CONTINUED)
The Company, as a savings institution holding company, is not subject to
regulatory capital requirements separate from its subsidiary, United.
United is prohibited by federal regulations from paying dividends if the
payment would reduce United's net worth below certain minimum requirements. The
Company has agreed that United would not declare or pay in any year a dividend
that exceeds 50% of The Company's net operating income (dividends may be
deferred and paid in a subsequent year) without the prior written consent of the
Office of Thrift Supervision (OTS). At December 31, 1997, $5.1 million of
United's retained earnings were available for distribution as dividends to the
Company.
13. FEDERAL AND STATE TAXES ON INCOME
Following is a summary of the provision for taxes on income (dollars in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------
1997 1996 1995
------ ----- -------
<S> <C> <C> <C>
Current tax (benefit) expense:
Federal........................................................ $3,244 $ 174 $ (783)
State.......................................................... 1,881 28 317
------ ----- -------
5,125 202 (466)
------ ----- -------
Deferred tax (benefit) expense:
Federal........................................................ 1,155 (327) (2,199)
State.......................................................... (490) (52) (741)
------ ----- -------
665 (379) (2,940)
------ ----- -------
$5,790 $(177) $(3,406)
====== ===== =======
</TABLE>
F-26
<PAGE>
UCBH HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. FEDERAL AND STATE TAXES ON INCOME--(CONTINUED)
Deferred tax liabilities (assets) are comprised of the following (dollars
in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Deferred loan fees............................................................. $ 3,356 $ 3,812
FHLB dividends................................................................. 2,803 2,456
Amortization of excess servicing fees.......................................... 138 225
Market value adjustments on certain loans and securities....................... 81 1,409
Purchase accounting adjustments................................................ 229 306
Capitalized originated mortgage servicing...................................... 39 153
-------- --------
6,646 8,361
-------- --------
Deferred tax assets:
Net operating loss carryforwards............................................... (84) (3,282)
Loan and OREO loss allowances.................................................. (4,162) (4,028)
Servicing rights impairment allowance.......................................... -- (331)
AMT credit carryover........................................................... (1,166) (1,707)
State taxes.................................................................... (539) (129)
Depreciation................................................................... (396) (270)
Unrealized losses on securities available for sale............................. (1,130) (1,707)
Deferred compensation.......................................................... (132) (211)
Other deferred deduction items................................................. (2,562) (1,749)
-------- --------
(10,171) (13,414)
-------- --------
Deferred tax assets valuation allowance.......................................... -- 286
-------- --------
Net deferred tax assets.......................................................... $ (3,525) $ (4,767)
======== ========
</TABLE>
The following table reconciles the statutory income tax rate to the
consolidated effective income tax rate:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------
1997 1996 1995
---- ----- -----
<S> <C> <C> <C>
Federal income tax rate........................................... 34.0% (34.0)% (34.0)%
State franchise tax rate, net of federal income tax effects....... 7.2% (7.6)% (7.6)%
---- ---- ----
Statutory income tax rate......................................... 41.2% (41.6)% (41.6)%
(Reduction) increase in tax rate resulting from:
Amortization of intangibles..................................... 0.2% 2.0% 0.4%
Reversal of taxes previously provided........................... -- -- (16.0)%
Reversal of valuation allowance................................. (2.2)% -- --
Other items, net................................................ 5.0% 3.0% 3.3%
---- ---- ----
44.2% (36.6)% (53.9)%
==== ==== ====
</TABLE>
F-27
<PAGE>
UCBH HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. FEDERAL AND STATE TAXES ON INCOME--(CONTINUED)
Taxes on income included the following (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1997 1996
------- -------
<S> <C> <C>
Net deferred (asset) liability:
Federal income tax..................................................... $(3,429) $(5,004)
State franchise tax.................................................... (96) 237
------- -------
(3,525) (4,767)
(Prepaid income taxes) taxes payable..................................... 40 (656)
------- -------
$(3,485) $(5,423)
======= =======
</TABLE>
The Company computes its bad debt deduction using the experience method for
Federal and state tax purposes which considers current year charge-offs together
with those from the previous five years.
During 1996, legislation was enacted which eliminated the Company's tax
exposure relating to tax bad debt reserve that arose prior to 1988. In
accordance with SFAS 109, a deferred tax liability of $946,000 had not been
recognized at December 31, 1995 for $2,784,000 of these temporary differences.
Tax years 1996 through 1997 remain open for Internal Revenue Service
purposes and tax years 1994 through 1997 remain open for California Franchise
Tax Board purposes.
At December 31, 1997, the Company had regular Federal net operating loss
carryovers of $248,000 which expire 2005.
14. DERIVATIVE FINANCIAL INSTRUMENTS AND FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK
The Company is a party to derivative financial instruments and financial
instruments with off-balance-sheet risk in the normal course of business to meet
the financing needs of its customers and to reduce its own exposure to
fluctuations in interest rates. The Company does not hold or issue financial
instruments for trading purposes. Financial instruments in the normal course of
business include commitments to extend and purchase credit, forward commitments
to sell loans, long put and call options, letters of credit and interest-rate
swaps and caps. Those instruments involve, to varying degrees, elements of
credit and interest-rate risk in excess of the amount recognized in the
statement of financial position. The contract or notional amounts of those
instruments reflects the extent of involvement the Company has in particular
classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual or notional amount of those instruments. The
Company uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments. For interest-rate swap
and cap transactions and forward commitments to sell loans, the contract or
notional amounts do not represent exposure to credit loss. The Company controls
the credit risk of its interest-rate swap and cap agreements and forward
commitments to sell loans through credit approvals, limits, and monitoring
procedures. The Company does not require collateral or other security to support
interest-rate swap transactions with credit risk.
F-28
<PAGE>
UCBH HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. DERIVATIVE FINANCIAL INSTRUMENTS AND FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK--(CONTINUED)
Contract or notional amounts of derivative financial instruments and
financial instruments with off-balance-sheet risk as of December 31, 1997 and
1996 are as follows (dollars in millions):
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit:
Consumer (including residential mortgage)......................................... $65.0 $47.0
Commercial (excluding construction)............................................... 10.8 16.0
Construction...................................................................... 78.7 29.5
Commitments to purchase loans........................................................ 0.1 0.4
Letters of credit.................................................................... 1.9 1.3
Financial instruments whose notional or contract amounts exceed the amount of credit
risk:
Forward commitments to sell loans.................................................... 3.5 4.2
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses.
The Company evaluates each customer's credit worthiness on a case-by-case basis.
The amount of collateral obtained, if deemed necessary by the Company upon
extension of credit, is based on management's credit evaluation of the
counterparty. Collateral held generally includes residential or commercial real
estate, accounts receivable, or other assets.
Commitments to purchase loans are agreements to buy loans from a primary
broker/dealer as long as there are no violations of any condition established in
the contract. Commitments terminate on the final closing date mutually agreed
upon by the purchaser and seller as defined in the contract. The Company
evaluates each loan's worthiness on a loan-by-loan basis. Each loan is
collateralized by residential real estate.
Letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. These letters of credit are usually
secured by inventories or by deposits held at the Company.
Interest rate swap transactions generally involve the exchange of fixed-
and floating-rate interest payment obligations without the exchange of the
underlying principal amounts. Interest-rate swaps are entered into to reduce the
Company's exposure to interest rate movements and are used as part of
asset/liability management. The Company typically becomes a principal in the
exchange of fixed- and floating-rate interest payment obligations with another
party and, therefore, is exposed to loss if the other party defaults. The
Company minimizes this risk by performing normal credit reviews on its swap
counterparties.
Interest rate caps are interest rate protection instruments that involve
the payment from the seller to the buyer of an interest differential. This
differential represents the difference between current interest rates and
agreed-upon rate applied to a notional principal amount. The Company is a
purchaser of interest rate caps.
Entering into interest-rate swap agreements involves not only the risk of
dealing with counterparties and their ability to meet the terms of the
contracts, but also the interest-rate risk associated with unmatched positions.
Notional principal amounts often are used to express the volume of these
transactions, but the amounts potentially subject to credit risk are much
smaller.
Forward contracts are contracts for delayed delivery of securities or loans
in which the seller agrees to make delivery at a specified future date of a
specified instrument at a specified price or yield. Risks arise from the
possible inability of counterparties to meet the terms of their contracts and
from movements in security values and interest rates. In order to minimize the
exposure arising from forward contracts, the Company entered into
F-29
<PAGE>
UCBH HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. DERIVATIVE FINANCIAL INSTRUMENTS AND FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK--(CONTINUED)
long put options amounting to $1 million and $4 million as of December 31, 1997
and 1996, respectively. The Company had $0.6 million and $1.1 million of long
call options as of December 31, 1997 and 1996, respectively.
Interest rate swaps with a notional amount of $20 million matured in 1996.
For the years ended December 31, 1996 and 1995, costs associated with the
interest rate swaps and caps negatively impacted net interest income by $137,000
and $538,000, respectively.
15. CONCENTRATIONS OF CREDIT RISK
All of the Company's loan activity is with customers located throughout the
State of California. Substantially all residential and commercial real estate
loans are secured by properties located in the State of California. The Company
is required by law to maintain 70% of its portfolio assets--as defined by
regulations--in qualifying residential or small business assets. As of December
31, 1997, 91.1% of the Company's portfolio assets consisted of such qualifying
assets.
Substantially all real estate loans in the portfolio are originated at 80%
loan-to-value or better. Management believes that the risk of significant losses
in excess of underlying collateral value is low.
16. LEASE COMMITMENTS AND CONTINGENT LIABILITIES
Lease Commitments
The Company leases various premises under noncancelable operating leases,
many of which contain renewal options and some of which contain escalation
clauses.
Future minimum rental payments, which do not include common area costs, due
each year under existing operating leases that have initial or remaining
noncancelable lease terms in excess of one year as of December 31, 1997, are
payable as follows (dollars in thousands):
<TABLE>
<S> <C>
1998..................................................................... $ 3,016
1999..................................................................... 2,017
2000..................................................................... 1,853
2001..................................................................... 1,382
2002..................................................................... 1,208
Aggregate thereafter..................................................... 10,642
-------
Total minimum payments required $20,118
=======
</TABLE>
Rental expense was approximately $3.2 million, $3.5 million and $3.0
million for the years ended December 31, 1997, 1996 and 1995, respectively.
Contingent Liabilities
The Company is subject to pending or threatened actions and proceedings
arising in the normal course of business. In the opinion of management, the
ultimate disposition of all pending or threatened actions and proceedings will
not have a material adverse effect on the Company's operations or financial
condition.
17. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instrument," requires all entities to estimate the fair
value of all financial instrument assets, liabilities, and off-balance-sheet
transactions. Fair values are point-in-time estimates that can change
significantly based on
F-30
<PAGE>
UCBH HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. FAIR VALUE OF FINANCIAL INSTRUMENTS--(CONTINUED)
numerous factors. Accordingly, management cannot provide any assurance that the
estimated fair values presented below could actually be realized. The fair value
estimates for financial instruments were determined as of December 31, 1997 and
1996, by application of the described methods and significant assumptions.
Cash and Short-Term Investments
For these short-term instruments, the carrying value of $34,797,000 at
December 31, 1997 and $18,383,000 at December 31, 1996 is a reasonable estimate
of fair value.
Investment And Mortgage-Backed Securities
The aggregate fair value of investment and mortgage-backed securities is
$277,192,000 at December 31, 1997 and $347,696,000 at December 31, 1996. Fair
value equals quoted market price, if available. If a quoted market price is not
available, fair value is estimated using quoted market prices for similar
securities.
Loans Receivable
The aggregate fair value of loans receivable is $1,212,105,000 at December
31, 1997 and $1,036,369,000 at December 31, 1996. Fair value is estimated by
discounting the future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings at the same remaining
maturities. In addition, the allowance for loan losses was considered a
reasonable adjustment for credit risk for the entire portfolio.
Capitalized Servicing Fees
Fair value is estimated by discounting estimated future cash flows using
current rates which are required for similar assets. Fair value is estimated to
be the same as the carrying value of $429,087 at December 31, 1997 and $929,000
at December 31, 1996.
Deposit Liabilities
Fair value of demand deposits, savings accounts, and certain money market
deposits is the amount payable on demand at the reporting date. The fair value
of fixed maturity certificates of deposit is estimated using the rates currently
offered for deposits of similar remaining maturities. The aggregate fair value
of deposits is $1,426,274,000 at December 31, 1997 and $1,392,058,000 at
December 31, 1996.
Federal Home Loan Bank Advances
No Federal Home Loan Bank advances were outstanding at December 31, 1997 or
1996.
Long-term Debt to Affiliates
Due to the related party nature of the Company's long-term debt, management
does not believe that fair value estimates are meaningful. Accordingly, such
estimates have not been presented.
Securities Sold Under Agreement to Repurchase
No securities sold under agreement to repurchase were outstanding at
December 31, 1997 or 1996.
Interest Rate Swap and Cap Agreements
The fair value of the swap and cap agreements used for hedging purposes is
the estimated amount that the Company would receive or pay to terminate the
agreements at the reporting date, taking into account current
F-31
<PAGE>
UCBH HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. FAIR VALUE OF FINANCIAL INSTRUMENTS--(CONTINUED)
interest rates and the current creditworthiness of the swap and cap
counterparties. There were no swap of cap agreements at December 31, 1997 and
1996.
Commitments to Extend Credit, Commitments to Purchase Loans, Securities Sold
But Not Owned, and Options on Interest Rate Futures
The fair value of commitments is estimated using the fees currently charged
to enter into similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counterparties. For
fixed-rate commitments, fair value also considers the difference between current
levels of interest rates and the committed rates. Fair values for securities
sold but not owned and options on interest rate futures are based on quoted
market prices or dealer quotes. The fair value of commitments to extend credit
and commitments to purchase loans cannot be readily determined. The fair value
of put options on interest rate futures is $56,875 at December 31, 1997 and
$50,625 at December 31, 1996. The fair value of call options on interest rate
futures is $28,437 at December 31, 1997 and $11,016 at December 31, 1996.
18. PARENT COMPANY
Condensed unconsolidated financial information of UCBH Holdings, Inc. is
presented below. See Note 11 for information regarding the Company's long-term
debt.
CONDENSED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
------- -------
<S> <C> <C>
ASSETS
Cash and due from banks......................................................... $ 56 $ 11
Investment in subsidiary........................................................ 82,556 71,069
------- -------
Total assets................................................................. $82,612 $71,080
======= =======
LIABILITIES
Long-term debt to affiliates.................................................... $20,060 $16,736
------- -------
Total liabilities............................................................ 20,060 16,736
------- -------
STOCKHOLDERS' EQUITY
Common stock.................................................................... 10 10
Additional paid-in capital...................................................... 30,278 30,278
Unrealized loss on subsidiary's mortgage-backed securities available for sale... (1,728) (2,637)
Retained earnings............................................................... 33,992 26,693
------- -------
Total stockholders' equity................................................... 62,552 54,344
------- -------
Total liabilities and stockholders' equity................................... $82,612 $71,080
======= =======
</TABLE>
F-32
<PAGE>
UCBH HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
18. PARENT COMPANY--(CONTINUED)
CONDENSED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
INCOME
Dividends from subsidiary............................................... $ 250 $ -- $ 354
------- ------- -------
Total income....................................................... 250 -- 354
------- ------- -------
EXPENSE
Interest expense in long-term debt to affiliates........................ 1,825 1,640 1,741
Miscellaneous expense................................................... 205 -- --
------- ------- -------
Total expense...................................................... 2,030 1,640 1,741
------- ------- -------
Loss before taxes and equity in undistributed net income (loss) of
subsidiary............................................................ (1,780) (1,640) (1,387)
Income tax benefit...................................................... -- -- --
Equity in undistributed net income (loss) of subsidiary................. 9,078 1,334 (1,521)
------- ------- -------
Net income......................................................... $ 7,298 $ (306) $(2,908)
======= ======= =======
</TABLE>
CONDENSED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)....................................................... $ 7,298 $ (306) $(2,908)
Adjustment to reconcile net income to net cash provided by (used for)
operating activities:
Equity in undistributed net (income) loss of subsidiary............ (9,078) (1,334) 1,521
Increase in accrued interest payable............................... -- -- 1,457
Decrease in dividends payable...................................... -- -- 417
------- ------- -------
Net cash (used for) provided by operating activities............. (1,780) (1,640) 487
------- ------- -------
INVESTING ACTIVITIES
Capital contribution to subsidiary...................................... (1,500) -- --
------- ------- -------
Net cash used in investing activities............................ (1,500) -- --
------- ------- -------
FINANCING ACTIVITIES
Long-term debt to affiliates issued..................................... 1,500 -- --
Long-term debt to affiliates repaid..................................... -- -- (500)
Increase in capitalized interest component of long-term debt to
affiliates............................................................ 1,825 1,640 --
------- ------- -------
Net cash provided by (used in) financing activities.............. 3,325 1,640 (500)
------- ------- -------
Net increase (decrease) in cash and cash equivalents.................... 45 -- (13)
Cash and cash equivalents beginning of year............................. 11 11 24
------- ------- -------
Cash and cash equivalents end of year................................... $ 56 $ 11 $ 11
======= ======= =======
</TABLE>
F-33
<PAGE>
UCBH HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
19. LEGISLATION ENACTED IN 1996
Legislation was enacted in 1996 to recapitalize the FDIC's Savings
Association Insurance Fund (SAIF). Under this legislation, all institutions with
SAIF-insured deposits, including the Company's subsidiary United, were required
to pay a one-time assessment to recapitalize this insurance fund. For the
United, this assessment was approximately $7.7 million, which resulted in a
charge against 1996 earnings. This assessment was tax deductible and is expected
to substantially reduce the level of future periodic SAIF assessments paid by
United.
20. SUBSEQUENT EVENTS
On March 30, 1998, the Company changed its name from USB Holdings, Inc. to
UCBH Holdings, Inc.
21. EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominator of the
basic and diluted earnings per share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997, 1996 AND 1995
-------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
(Dollars in thousands, except per share amounts)
1997:
Basic:
Net income............................................ $ 7,299 6,000,000 $ 1.22
Effect of long-term debt to affiliates..................... 1,077 1,974,000
------- ---------
Diluted:
Net income and assumed conversions.................... $ 8,376 7,974,000 $ 1.05
======= =========
1996:
Basic:
Net loss.............................................. ($ 306) 6,000,000 ($ 0.05)
Effect of long-term debt to affiliates..................... 968 1,974,000
------- ---------
Diluted:
Net income and assumed conversions.................... $ 662 7,974,000 ($ 0.05)
======= =========
1995:
Basic:
Net loss.............................................. ($2,908) 6,000,000 ($ 0.48)
Effect of long-term debt to affiliates..................... 1,027 1,974,000
Diluted:
------- ---------
Net loss and assumed conversions...................... ($1,881) 7,974,000 ($ 0.48)
======= =========
</TABLE>
For the years ended December 31, 1996 and 1995, the assumed conversions of
long-term debt to affiliates would be considered anti-dilutive. Accordingly,
diluted loss per share for these periods is equal to basic loss per share.
F-34
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.(1)
The following statement sets forth the estimated amount of expenses (other than
the underwriting discounts and commissions) to be incurred in connection with
the issuance and distribution of the securities being registered.
SEC filing fee(1)............................................. $ 41,300
Exchange listing fee(1)....................................... 40,833
Printing and distribution..................................... 25,000
Legal fees and expenses ...................................... 150,000
Accounting fees and expenses.................................. 50,000
Blue Sky fees and expenses.................................... 5,000
Miscellaneous................................................. 2,867
---------
TOTAL......................................................... $315,000
=========
- --------------------
(1) Actual expenses based upon the registration of 9,333,333 shares at $15.00
per share. All other expenses are estimated.
Item 14. Indemnification of Directors and Officers.
In accordance with the General Corporation Law of the State of Delaware (being
Chapter 1 of Title 8 of the Delaware Code), Articles 10 and 11 of the
Registrant's Certificate of Incorporation provide as follows:
TENTH:
A. Each person who was or is made a party or is threatened to be made a party to
or is otherwise involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she is or was a Director or an Officer of the
Corporation or is or was serving at the request of the Corporation as a
Director, Officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a Director, Officer,
employee or agent, or in any other capacity while serving as a Director,
Officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than such law permitted the
Corporation to provide prior to such amendment), against all expense, liability
and loss (including attorneys' fees, judgments, fines, ERISA excise
II-1
<PAGE>
taxes or penalties and amounts paid in settlement) reasonably incurred or
suffered by such indemnitee in connection therewith; provided, however, that,
except as provided in Section C hereof with respect to proceedings to enforce
rights to indemnification, the Corporation shall indemnify any such indemnitee
in connection with a proceeding (or part thereof) initiated by such indemnitee
only if such proceeding (or part thereof) was authorized by the Board of
Directors of the Corporation.
B. The right to indemnification conferred in Section A of this Article TENTH
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition (hereinafter
an "advancement of expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an indemnitee
in his or her capacity as a Director or Officer (and not in any other capacity
in which service was or is rendered by such indemnitee, including, without
limitation, services to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section or otherwise. The rights to indemnification and to the advancement of
expenses conferred in Sections A and B of this Article TENTH shall be contract
rights and such rights shall continue as to an indemnitee who has ceased to be a
Director, Officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators.
C. If a claim under Section A or B of this Article TENTH is not paid in full by
the Corporation within sixty days after a written claim has been received by the
Corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be twenty days, the indemnitee may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim. If successful in whole or in part in any such suit, or in a suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the indemnitee shall be entitled to be paid also the
expenses of prosecuting or defending such suit. In (i) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a suit
brought by the indemnitee to enforce a right to an advancement of expenses) it
shall be a defense that, and (ii) in any suit by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking the Corporation
shall be entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met any applicable standard for indemnification set forth in
the Delaware General Corporation Law. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses under this
Article TENTH or otherwise shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses conferred in
this Article TENTH shall not be exclusive of any other right which any person
may have or hereafter acquire under any statute, the
II-2
<PAGE>
Corporation's Certificate of Incorporation, Bylaws, agreement, vote of
stockholders or Disinterested Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect itself and
any Director, Officer, employee or agent of the Corporation or subsidiary or
Affiliate or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to time by the Board
of Directors, grant rights to indemnification and to the advancement of expenses
to any employee or agent of the Corporation to the fullest extent of the
provisions of this Article TENTH with respect to the indemnification and
advancement of expenses of Directors and Officers of the Corporation.
ELEVENTH:
A Director of this Corporation shall not be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
Director, except for liability: (i) for any breach of the Director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the Director derived an improper personal
benefit. If the Delaware General Corporation Law is amended to authorize
corporate action further eliminating or limiting the personal liability of
Directors, then the liability of a Director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders of the
Corporation shall not adversely affect any right or protection of a Director of
the Corporation existing at the time of such repeal or modification.
Item 15. Recent Sales of Unregistered Securities
In accordance with Item 701 of Regulation S-K, the following information is
presented with respect to securities sold by the Registrant within the past
three years which were not registered under the Securities Act of 1933, as
amended ("Securities Act"):
(a) On April 17, 1998, the Registrant sold in a private placement an
aggregate of 9.3 million share of its common stock, par value $.01 per
share ("Common Stock"). Additionally, on that date, UCBH Trust Co.
(the "Trust"), a statutory business trust formed under the laws of the
State of Delaware and sponsored by the Registrant, sold $30 million
aggregate liquidation amount of its 9 3/8% Capital Securities
(liquidation amount $1,000 per Capital Security) (the "Capital
Securities"). The proceeds from the sale of the Capital Securities and
938 of the Common Securities of the Trust to the Registrant (together,
the "Trust Securities") were used to purchase $30,928,000 principal
amount of the Registrant's 9 3/8% Junior Subordinated Deferrable
Interest Debentures due May 1, 2028.
II-3
<PAGE>
(b) Sandler O'Neill & Partners, L.P. ("Sandler O'Neill") acted as
Placement Agent for the Registrant and the Trust in connection with
the private placement transaction. The Common Stock and the Capital
Securities were offered and sold to institutional and accredited
investors.
(c) The Registrant's Common Stock was sold for an aggregate price of $140
million. The Trust's Capital Securities were sold for an aggregate
price of $30 million. Sandler O'Neill received an aggregate of $11.5
million as compensation in the transaction, plus reimbursement of
expenses.
(d) Based upon representations of the offerees and purchasers, the Common
Stock and the Capital Securities were offered and sold in reliance
upon an exemption from registration under Section 4(2) of the
Securities Act and in compliance with Rules 502 and 506 promulgated
thereunder.
(e) Not applicable.
(f) Not applicable.
Item 16. Exhibits and Financial Statement Schedules
The exhibits and financial statement schedules filed as a part of this
Registration Statement are as follows:
(a) List of Exhibits (Filed herewith unless otherwise noted)
<TABLE>
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of UCBH Holdings, Inc.
3.2 Bylaws of UCBH Holdings, Inc.
4.0 Form of Stock Certificate of UCBH Holdings, Inc.
4.1 Purchase Agreement among UCBH Holdings, Inc., Sandler O'Neill and the Purchasers named
therein, dated April 13, 1998
4.2 Registration Rights Agreement between UCBH Holdings, Inc., Sandler O'Neill and the Purchasers
named therein, dated April 13, 1998
5.0 Opinion of Patton Boggs LLP re: legality
10.1 Employment Agreement between United Commercial Bank and Tommy S. Wu
10.2 Employment Agreement between UCBH Holdings, Inc. and Tommy S. Wu
10.3 Form of Termination and Change in Control Agreement between United
Commercial Bank and certain executive officers
10.4 Form of Termination and Change in Control Agreement between UCBH Holdings, Inc. and certain
executive officers
10.5 UCBH Holdings, Inc. 1998 Stock Option Plan
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Patton Boggs LLP (included in Exhibit 5.0)
24.1 Powers of Attorney (located on the signature page hereto)
27.0 Financial Data Schedule
</TABLE>
II-4
<PAGE>
(b) Financial Statement Schedules
All schedules have been omitted as not applicable or not required under the
rules of Regulation S-X.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any Prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising
after the effective date of the Registration Statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected
in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the Offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, 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 trustee, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
trustee, 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.
II-5
<PAGE>
CONFORMED
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San
Francisco, State of California, on June 30, 1998.
UCBH HOLDINGS, INC.
By: /s/ Tommy S. Wu
-------------------------------------
Tommy S. Wu
President and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Tommy S. Wu and Jonathan H. Downing,
jointly and severally, each in his own capacity, as his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for such person and in such person's name, place and stead, in
any and all capacities, to sign any or all 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 full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to 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 their
substitute or substitutes, may lawfully or do cause to be done by virtue hereof.
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.
<TABLE>
<CAPTION>
Name Date
---- ----
<S> <C> <C>
/s/ Tommy S. Wu President, Chief Executive Officer and June 30, 1998
- ------------------------------------ Director (principal executive officer)
Tommy S. Wu
/s/ Jonathan H. Downing Senior Vice President, Chief June 30, 1998
- ------------------------------------ Financial Officer, Treasurer and
Jonathan H. Downing Director (principal accounting and
financial officer)
/s/ Robert Fell Director June 30, 1998
- ------------------------------------
Robert Fell
/s/ Sau-wing Lam Director June 30, 1998
- ------------------------------------
Sau-wing Lam
/s/ Godwin Wong Director June 30, 1998
- ------------------------------------
Godwin Wong
</TABLE>
II-6
<PAGE>
TABLE OF CONTENTS
List of Exhibits (Filed herewith unless otherwise noted)
<TABLE>
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of UCBH Holdings, Inc.
3.2 Bylaws of UCBH Holdings, Inc.
4.0 Form of Stock Certificate of UCBH Holdings, Inc.
4.1 Purchase Agreement among UCBH Holdings, Inc., Sandler O'Neill and the Purchasers named
therein, dated April 13, 1998
4.2 Registration Rights Agreement between UCBH Holdings, Inc., Sandler O'Neill and the Purchasers
named therein, dated April 13, 1998
5.0 Opinion of Patton Boggs LLP re: legality
10.1 Employment Agreement between United Commercial Bank and Tommy S. Wu
10.2 Employment Agreement between UCBH Holdings, Inc. and Tommy S. Wu
10.3 Form of Termination and Change in Control Agreement between United Commercial Bank and
certain executive officers
10.4 Form of Termination and Change in Control Agreement between UCBH Holdings, Inc. and certain
executive officers
10.5 UCBH Holdings, Inc. 1998 Stock Option Plan
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Patton Boggs LLP (included in Exhibit 5.0)
24.1 Powers of Attorney (located on the signature page hereto)
27.0 Financial Data Schedule
</TABLE>
Exhibit 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
UCBH HOLDINGS, INC.
UCBH HOLDINGS, INC., (the "Corporation"), organized and existing under
and by virtue of the Delaware General Corporation Law, the original Certificate
of Incorporation of which was filed on June 28, 1988, under the name of USB
Holdings, Inc., with the Secretary of State of Delaware,
DOES HEREBY CERTIFY:
1. That the Board of Directors of said corporation, by unanimous written consent
of its members, filed with the minutes of the Board, adopted, in accordance with
the provisions of Section 242 and 245 of the General Corporation Law of the
State of Delaware, the Amended and Restated Certificate of Incorporation as set
forth below.
2. That in lieu of a meeting and vote of stockholders, the sole stockholder has
given written consent to said amendment in accordance with the provisions of
Section 228 of the General Corporation Law of the State of Delaware.
3. Pursuant to Section 242 and 245 of the General Corporation Law of the State
of Delaware, this Amended and Restated Certificate of Incorporation restates and
integrates and further amends the provisions of the Certificate of Incorporation
of the Corporation.
4. The text of the Amended and Restated Certificate of Incorporation is hereby
restated and further amended to read in its entirety as follows:
FIRST: The name of the Corporation is UCBH Holdings, Inc. (hereinafter
sometimes referred to as the "Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle. The name of the registered agent at that
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
FOURTH:
A. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is thirty-five million
(35,000,000) consisting of:
1. Ten million (10,000,000) shares of Preferred Stock, par
value one cent ($.01) per share (the "Preferred Stock");
and
<PAGE>
2. Twenty-five million (25,000,000) shares of Common Stock,
par value one cent ($.01) per share (the "Common Stock").
B. The Board of Directors is authorized, subject to any
limitations prescribed by law, to provide for the issuance of the
shares of Preferred Stock in series, and by filing a certificate
pursuant to the applicable law of the State of Delaware (such
certificate being hereinafter referred to as a "Preferred Stock
Designation"), to establish from time to time the number of shares to
be included in each such series, and to fix the designation, powers,
preferences, and rights of the shares of each such series and any
qualifications, limitations or restrictions thereof. The number of
authorized shares of Preferred Stock may be increased or decreased (but
not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the Common Stock,
without a vote of the holders of the Preferred Stock, or of any series
thereof, unless a vote of any such holders is required pursuant to the
terms of any Preferred Stock Designation.
C. 1. Notwithstanding any other provision of this Certificate
of Incorporation, in no event shall any record owner of
any outstanding Common Stock which is beneficially owned,
directly or indirectly, by a person who, as of any record
date for the determination of stockholders entitled to
vote on any matter, beneficially owns in excess of 10% of
the then-outstanding shares of Common Stock (the "Limit"),
be entitled, or permitted to any vote in respect of the
shares held in excess of the Limit. The number of votes
which may be cast by any record owner by virtue of the
provisions hereof in respect of Common Stock beneficially
owned by such person beneficially owning shares in excess
of the Limit shall be a number equal to the total number
of votes which a single record owner of all Common Stock
beneficially owned by such person would be entitled to
cast, (subject to the provisions of this Article FOURTH)
multiplied by a fraction, the numerator of which is the
number of shares of such class or series which are both
beneficially owned by such person and owned of record by
such record owner and the denominator of which is the
total number of shares of Common Stock beneficially owned
by such person owning shares in excess of the Limit.
2. The following definitions shall apply to this Section C
of this Article FOURTH:
a. "Affiliate" shall have the meaning ascribed to it in
Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended, as
in effect on the date of filing of this Certificate
of Incorporation.
b. "Beneficial ownership" shall be determined pursuant
to Rule 13d-3 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as
amended, (or any successor rule or statutory
provision), or, if said Rule 13d-3 shall be rescinded
and there shall be
2
<PAGE>
no successor rule or provision thereto, pursuant to
said Rule 13d-3 as in effect on the date of filing of
this Certificate of Incorporation; provided, however,
that a person shall, in any event, also be deemed the
"beneficial owner" of any Common Stock:
(1) which such person or any of its affiliates
beneficially owns, directly or indirectly;
or
(2) which such person or any of its affiliates
has: (i) the right to acquire (whether such
right is exercisable immediately or only
after the passage of time), pursuant to any
agreement, arrangement or understanding (but
shall not be deemed to be the beneficial
owner of any voting shares solely by reason
of an agreement, contract, or other
arrangement with this Corporation to effect
any transaction which is described in any
one or more of clauses 1 through 5 of
Section A of Article EIGHTH of this
Certificate of Incorporation ("Article
EIGHTH")), or upon the exercise of
conversion rights, exchange rights,
warrants, or options or otherwise, or (ii)
sole or shared voting or investment power
with respect thereto pursuant to any
agreement, arrangement, understanding,
relationship or otherwise (but shall not be
deemed to be the beneficial owner of any
voting shares solely by reason of a
revocable proxy granted for a particular
meeting of stockholders, pursuant to a
public solicitation of proxies for such
meeting, with respect to shares of which
neither such person nor any such Affiliate
is otherwise deemed the beneficial owner);
or
(3) which are beneficially owned, directly or
indirectly, by any other person with which
such first mentioned person or any of its
Affiliates acts as a partnership, limited
partnership, syndicate or other group
pursuant to any agreement, arrangement or
understanding for the purpose of acquiring,
holding, voting or disposing of any shares
of capital stock of this Corporation; and
provided further, however, that: (1) no
Director or Officer of this Corporation (or
any Affiliate of any such Director or
Officer) shall, solely by reason of any or
all of such Directors or Officers acting in
their capacities as such, be deemed, for any
purposes hereof, to beneficially own any
Common Stock beneficially owned by any other
such Director or Officer (or any Affiliate
thereof); and (2) neither any employee stock
ownership or similar plan of this
Corporation or any subsidiary of this
Corporation, nor any
3
<PAGE>
trustee with respect thereto or any
Affiliate of such trustee (solely by reason
of such capacity of such trustee), shall be
deemed, for any purposes hereof, to
beneficially own any Common Stock held under
any such plan. For purposes only of
computing the percentage of beneficial
ownership of Common Stock of a person, the
outstanding Common Stock shall include
shares deemed owned by such person through
application of this subsection but shall not
include any other Common Stock which may be
issuable by this Corporation pursuant to any
agreement, or upon exercise of conversion
rights, warrants or options, or otherwise.
For all other purposes, the outstanding
Common Stock shall include only Common Stock
then outstanding and shall not include any
Common Stock which may be issuable by this
Corporation pursuant to any agreement, or
upon the exercise of conversion rights,
warrants or options, or otherwise.
c. The "Limit" shall mean 10% of the then-outstanding
shares of Common Stock.
d. A "person" shall include an individual, a firm, a
group acting in concert, a corporation, a
partnership, an association, a joint venture, a pool,
a joint stock company, a trust, an unincorporated
organization or similar company, a syndicate or any
other group formed for the purpose of acquiring,
holding or disposing of securities or any other
entity.
3. The Board of Directors shall have the power to construe
and apply the provisions of this section and to make all
determinations necessary or desirable to implement such
provisions, including but not limited to matters with
respect to: (i) the number of shares of Common Stock
beneficially owned by any person; (ii) whether a person is
an affiliate of another; (iii) whether a person has an
agreement, arrangement, or understanding with another as
to the matters referred to in the definition of beneficial
ownership; (iv) the application of any other definition or
operative provision of the section to the given facts; or
(v) any other matter relating to the applicability or
effect of this section.
4. The Board of Directors shall have the right to demand
that any person who is reasonably believed to beneficially
own Common Stock in excess of the Limit (or holds of
record Common Stock beneficially owned by any person in
excess of the Limit) supply the Corporation with complete
information as to: (i) the record owner(s) of all shares
beneficially owned by such person who is reasonably
believed to own shares in excess of the Limit; and
4
<PAGE>
(ii) any other factual matter relating to the
applicability or effect of this section as may reasonably
be requested of such person.
5. Except as otherwise provided by law or expressly provided
in this Section C, the presence, in person or by proxy, of
the holders of record of shares of capital stock of the
Corporation entitling the holders thereof to cast a
majority of the votes (after giving effect, if required,
to the provisions of this Section C) entitled to be cast
by the holders of shares of capital stock of the
Corporation entitled to vote shall constitute a quorum at
all meetings of the stockholders, and every reference in
this Certificate of Incorporation to a majority or other
proportion of capital stock (or the holders thereof) for
purposes of determining any quorum requirement or any
requirement for stockholder consent or approval shall be
deemed to refer to such majority or other proportion of
the votes (or the holders thereof) then entitled to be
cast in respect of such capital stock.
6. Any constructions, applications, or determinations made
by the Board of Directors pursuant to this section in good
faith and on the basis of such information and assistance
as was then reasonably available for such purpose shall be
conclusive and binding upon the Corporation and its
stockholders.
7. In the event any provision (or portion thereof) of this
Section C shall be found to be invalid, prohibited or
unenforceable for any reason, the remaining provisions (or
portions thereof) of this Section shall remain in full
force and effect, and shall be construed as if such
invalid, prohibited or unenforceable provision had been
stricken herefrom or otherwise rendered inapplicable, it
being the intent of this Corporation and its stockholders
that each such remaining provision (or portion thereof) of
this Section C remain, to the fullest extent permitted by
law, applicable and enforceable as to all stockholders,
including stockholders owning an amount of stock over the
Limit, notwithstanding any such finding.
FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its Directors and stockholders:
A. The business and affairs of the Corporation shall be managed
by or under the direction of the Board of Directors. In addition to the
powers and authority expressly conferred upon them by statute or by
this Certificate of Incorporation or the Bylaws of the Corporation, the
Directors are hereby empowered to exercise all such powers and do all
such acts and things as may be exercised or done by the Corporation.
5
<PAGE>
B. The Directors of the Corporation need not be elected by
written ballot unless the Bylaws so provide.
C. Any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called
annual or special meeting of stockholders of the Corporation and may
not be effected by any consent in writing by such stockholders.
D. Special meetings of stockholders of the Corporation may be
called only by the Board of Directors pursuant to a resolution adopted
by a majority of the Whole Board or as otherwise provided in the
Bylaws. The term "Whole Board" shall mean the total number of
authorized directorships (whether or not there exist any vacancies in
previously authorized directorships at the time any such resolution is
presented to the Board for adoption).
SIXTH:
A. The number of Directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted
by a majority of the Whole Board. The Directors shall be divided into
three classes, as nearly equal in number as reasonably possible, with
the term of office of the first class to expire at the first annual
meeting of stockholders, the term of office of the second class to
expire at the annual meeting of stockholders one year thereafter and
the term of office of the third class to expire at the annual meeting
of stockholders two years thereafter with each Director to hold office
until his or her successor shall have been duly elected and qualified.
At each annual meeting of stockholders following such initial
classification and election, Directors elected to succeed those
Directors whose terms expire shall be elected for a term of office to
expire at the third succeeding annual meeting of stockholders after
their election with each Director to hold office until his or her
successor shall have been duly elected and qualified.
B. Subject to the rights of holders of any series of Preferred
Stock outstanding, the newly created directorships resulting from any
increase in the authorized number of Directors or any vacancies in the
Board of Directors resulting from death, resignation, retirement,
disqualification, removal from office or other cause may be filled only
by a majority vote of the Directors then in office, though less than a
quorum, and Directors so chosen shall hold office for a term expiring
at the annual meeting of stockholders at which the term of office of
the class to which they have been chosen expires. No decrease in the
number of Directors constituting the Board of Directors shall shorten
the term of any incumbent Director.
C. Advance notice of stockholder nominations for the election of
Directors and of business to be brought by stockholders before any
meeting of the stockholders of the Corporation shall be given in the
manner provided in the Bylaws of the Corporation.
D. Subject to the rights of holders of any series of Preferred
Stock then outstanding, any Director, or the entire Board of Directors,
may be removed from office at any time, but
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only for cause and only by the affirmative vote of the holders of at
least 80 percent of the voting power of all of the then-outstanding
shares of capital stock of the Corporation entitled to vote generally
in the election of Directors (after giving effect to the provisions of
Article FOURTH of this Certificate of Incorporation ("Article
FOURTH")), voting together as a single class.
SEVENTH: The Board of Directors is expressly empowered to adopt, amend
or repeal Bylaws of the Corporation. Any adoption, amendment or repeal of the
Bylaws of the Corporation by the Board of Directors shall require the approval
of a majority of the Whole Board. The stockholders shall also have power to
adopt, amend or repeal the Bylaws of the Corporation; provided, however, that,
in addition to any vote of the holders of any class or series of stock of this
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 80 percent of the voting power of
all of the then-outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of Directors (after giving effect to
the provisions of Article FOURTH), voting together as a single class, shall be
required to adopt, amend or repeal any provisions of the Bylaws of the
Corporation.
EIGHTH:
A. In addition to any affirmative vote required by law or this
Certificate of Incorporation, and except as otherwise expressly
provided in this Article EIGHTH:
1. any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with: (i) any Interested
Stockholder (as hereinafter defined); or (ii) any other
corporation (whether or not itself an Interested
Stockholder) which is, or after such merger or consolidation
would be, an Affiliate (as hereinafter defined) of an
Interested Stockholder; or
2. any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of
transactions) to or with any Interested Stockholder, or any
Affiliate of any Interested Stockholder, of any assets of
the Corporation or any Subsidiary having an aggregate Fair
Market Value (as hereinafter defined) equaling or exceeding
25% or more of the combined assets of the Corporation and
its Subsidiaries; or
3. the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions)
of any securities of the Corporation or any Subsidiary to
any Interested Stockholder or any Affiliate of any
Interested Stockholder in exchange for cash, securities or
other property (or a combination thereof) having an
aggregate Fair Market Value (as hereinafter defined)
equaling or exceeding 25% of the combined Fair Market Value
of the outstanding common stock of the Corporation and its
Subsidiaries, except for any issuance or transfer pursuant
to an employee benefit plan of the Corporation or any
Subsidiary thereof; or
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4. the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of
an Interested Stockholder or any Affiliate of any Interested
Stockholder; or
5. any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any
merger or consolidation of the Corporation with any of its
Subsidiaries or any other transaction (whether or not with
or into or otherwise involving an Interested Stockholder)
which has the effect, directly or indirectly, of increasing
the proportionate share of the outstanding shares of any
class of equity or convertible securities of the Corporation
or any Subsidiary which is directly or indirectly owned by
any Interested Stockholder or any Affiliate of any
Interested Stockholder;
shall require the affirmative vote of the holders of at least 80% of
the voting power of the then-outstanding shares of stock of the
Corporation entitled to vote in the election of Directors (the "Voting
Stock") (after giving effect to the provisions of Article FOURTH),
voting together as a single class. Such affirmative vote shall be
required notwithstanding the fact that no vote may be required, or that
a lesser percentage may be specified, by law or by any other provisions
of this Certificate of Incorporation or any Preferred Stock Designation
in any agreement with any national securities exchange or otherwise.
The term "Business Combination" as used in this Article EIGHTH
shall mean any transaction which is referred to in any one or more of
paragraphs 1 through 5 of Section A of this Article EIGHTH.
B. The provisions of Section A of this Article EIGHTH shall not
be applicable to any particular Business Combination, and such Business
Combination shall require only the affirmative vote of the majority of
the outstanding shares of capital stock entitled to vote after giving
effect to the provisions of Article FOURTH, or such vote (if any), as
is required by law or by this Certificate of Incorporation, if, in the
case of any Business Combination that does not involve any cash or
other consideration being received by the stockholders of the
Corporation solely in their capacity as stockholders of the
Corporation, the condition specified in the following paragraph 1 is
met or, in the case of any other Business Combination, all of the
conditions specified in either of the following paragraphs 1 or 2 are
met:
1. The Business Combination shall have been approved by a
majority of the Disinterested Directors (as hereinafter
defined).
2. All of the following conditions shall have been met:
a. The aggregate amount of the cash and the Fair Market
Value as of the date of the consummation of the
Business Combination of consideration other
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than cash to be received per share by the holders of
Common Stock in such Business Combination shall at least
be equal to the higher of the following:
(1) (if applicable) the Highest Per Share Price (as
hereinafter defined), including any brokerage
commissions, transfer taxes and soliciting
dealers' fees, paid by the Interested Stockholder
or any of its Affiliates for any shares of Common
Stock acquired by it: (i) within the two-year
period immediately prior to the first public
announcement of the proposal of the Business
Combination (the "Announcement Date"); or (ii) in
the transaction in which it became an Interested
Stockholder, whichever is higher; or
(2) the Fair Market Value per share of Common Stock on
the Announcement Date or on the date on which the
Interested Stockholder became an Interested
Stockholder (such latter date is referred to in
this Article EIGHTH as the "Determination Date"),
whichever is higher.
b. The aggregate amount of the cash and the Fair Market
Value as of the date of the consummation of the Business
Combination of consideration other than cash to be
received per share by holders of shares of any class of
outstanding Voting Stock other than Common Stock shall
be at least equal to the highest of the following (it
being intended that the requirements of this
subparagraph (b) shall be required to be met with
respect to every such class of outstanding Voting Stock,
whether or not the Interested Stockholder has previously
acquired any shares of a particular class of Voting
Stock):
(1) (if applicable) the Highest Per Share Price (as
hereinafter defined), including any brokerage
commissions, transfer taxes and soliciting
dealers' fees, paid by the Interested Stockholder
for any shares of such class of Voting Stock
acquired by it: (i) within the two-year period
immediately prior to the Announcement Date; or
(ii) in the transaction in which it became an
Interested Stockholder, whichever is higher; or
(2) (if applicable) the highest preferential amount
per share to which the holders of shares of such
class of Voting Stock are entitled in the event of
any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; or
(3) the Fair Market Value per share of such class of
Voting Stock on the Announcement Date or on the
Determination Date, whichever is higher.
9
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c. The consideration to be received by holders of a
particular class of outstanding Voting Stock (including
Common Stock) shall be in cash or in the same form as
the Interested Stockholder has previously paid for
shares of such class of Voting Stock. If the Interested
Stockholder has paid for shares of any class of Voting
Stock with varying forms of consideration, the form of
consideration to be received per share by holders of
shares of such class of Voting Stock shall be either
cash or the form used to acquire the largest number of
shares of such class of Voting Stock previously acquired
by the Interested Stockholder. The price determined in
accordance with subparagraph B.2 of this Article EIGHTH
shall be subject to appropriate adjustment in the event
of any stock dividend, stock split, combination of
shares or similar event.
d. After such Interested Stockholder has become an
Interested Stockholder and prior to the consummation of
such Business Combination: (1) except as approved by a
majority of the Disinterested Directors (as hereinafter
defined), there shall have been no failure to declare
and pay at the regular date therefor any full quarterly
dividends (whether or not cumulative) on any outstanding
stock having preference over the Common Stock as to
dividends or liquidation; (2) there shall have been: (i)
no reduction in the annual rate of dividends paid on the
Common Stock (except as necessary to reflect any
subdivision of the Common Stock), except as approved by
a majority of the Disinterested Directors; and (ii) an
increase in such annual rate of dividends as necessary
to reflect any reclassification (including any reverse
stock split), recapitalization, reorganization or any
similar transaction which has the effect of reducing the
number of outstanding shares of the Common Stock, unless
the failure to so increase such annual rate is approved
by a majority of the Disinterested Directors, and (3)
neither such Interested Stockholder or any of its
Affiliates shall have become the beneficial owner of any
additional shares of Voting Stock except as part of the
transaction which results in such Interested Stockholder
becoming an Interested Stockholder.
e. After such Interested Stockholder has become an
Interested Stockholder, such Interested Stockholder
shall not have received the benefit, directly or
indirectly (except proportionately as a stockholder), of
any loans, advances, guarantees, pledges or other
financial assistance or any tax credits or other tax
advantages provided, directly or indirectly, by the
Corporation, whether in anticipation of or in connection
with such Business Combination or otherwise.
f. A proxy or information statement describing the proposed
Business Combination and complying with the requirements
of the Securities Exchange Act of 1934, as amended, and
the rules and regulations
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thereunder (or any subsequent provisions replacing such
Act, and the rules or regulations thereunder) shall be
mailed to stockholders of the Corporation at least 30
days prior to the consummation of such Business
Combination (whether or not such proxy or information
statement is required to be mailed pursuant to such Act
or subsequent provisions).
C. For the purposes of this Article EIGHTH:
1. A "Person" shall include an individual, a firm, a group
acting in concert, a corporation, a partnership, an
association, a joint venture, a pool, a joint stock
company, a trust, an unincorporated organization or
similar company, a syndicate or any other group formed
for the purpose of acquiring, holding or disposing of
securities or any other entity.
2. "Interested Stockholder" shall mean any person (other
than the Corporation or any Holding Company or
Subsidiary thereof) who or which:
a. is the beneficial owner, directly or indirectly,
of more than 10% of the voting power of the
outstanding Voting Stock; or
b. is an Affiliate of the Corporation and at any time
within the two-year period immediately prior to
the date in question was the beneficial owner,
directly or indirectly, of 10% or more of the
voting power of the then outstanding Voting Stock;
or
c. is an assignee of or has otherwise succeeded to
any shares of Voting Stock which were at any time
within the two-year period immediately prior to
the date in question beneficially owned by any
Interested Stockholder, if such assignment or
succession shall have occurred in the course of a
transaction or series of transactions not
involving a public offering within the meaning of
the Securities Act of 1933, as amended.
3. For purposes of this Article EIGHTH, "beneficial
ownership" shall be determined in the manner provided in
Section C of Article FOURTH hereof.
4. "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the
General Rules and Regulations under the Securities
Exchange Act of 1934, as in effect on the date of filing
of this Certificate of Incorporation.
5. "Subsidiary" means any corporation of which a majority
of any class of equity security is owned, directly or
indirectly, by the Corporation;
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provided, however, that for the purposes of the
definition of Interested Stockholder set forth in
Paragraph 2 of this Section C, the term "Subsidiary"
shall mean only a corporation of which a majority of
each class of equity security is owned, directly or
indirectly, by the Corporation.
6. "Disinterested Director" means any member of the Board
of Directors who is unaffiliated with the Interested
Stockholder and was a member of the Board of Directors
prior to the time that the Interested Stockholder became
an Interested Stockholder, and any Director who is
thereafter chosen to fill any vacancy of the Board of
Directors or who is elected and who, in either event, is
unaffiliated with the Interested Stockholder and in
connection with his or her initial assumption of office
is recommended for appointment or election by a majority
of Disinterested Directors then on the Board of
Directors.
7. "Fair Market Value" means:
a. in the case of stock, the highest closing sales
price of the stock during the 30-day period
immediately preceding the date in question of a
share of such stock on the National Association of
Securities Dealers Automated Quotation System or
any system then in use, or, if such stock is
admitted to trading on a principal United States
securities exchange registered under the
Securities Exchange Act of 1934, as amended, Fair
Market Value shall be the highest sale price
reported during the 30-day period preceding the
date in question, or, if no such quotations are
available, the Fair Market Value on the date in
question of a share of such stock as determined by
the Board of Directors in good faith, in each case
with respect to any class of stock, appropriately
adjusted for any dividend or distribution in
shares of such stock or any stock split or
reclassification of outstanding shares of such
stock into a greater number of shares of such
stock or any combination or reclassification of
outstanding shares of such stock into a smaller
number of shares of such stock; and
b. in the case of property other than cash or stock,
the Fair Market Value of such property on the date
in question as determined by the Board of
Directors in good faith.
8. Reference to "Highest Per Share Price" shall in each
case with respect to any class of stock reflect an
appropriate adjustment for any dividend or distribution
in shares of such stock or any stock split or
reclassification of outstanding shares of such stock
into a greater number of shares of such
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<PAGE>
stock or any combination or reclassification of
outstanding shares of such stock into a smaller number
of shares of such stock.
9. In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other
than cash to be received" as used in Subparagraphs (a)
and (b) of Paragraph 2 of Section B of this Article
EIGHTH shall include the shares of Common Stock and/or
the shares of any other class of outstanding Voting
Stock retained by the holders of such shares.
D. A majority of the Disinterested Directors of the Corporation
shall have the power and duty to determine for the purposes of this
Article EIGHTH, on the basis of information known to them after
reasonable inquiry: (a) whether a person is an Interested Stockholder;
(b) the number of shares of Voting Stock beneficially owned by any
person; (c) whether a person is an Affiliate or Associate of another;
and (d) whether the assets which are the subject of any Business
Combination have, or the consideration to be received for the issuance
or transfer of securities by the Corporation or any Subsidiary in any
Business Combination has an aggregate Fair Market Value equaling or
exceeding 25% of the combined Fair Market Value of the Common Stock of
the Corporation and its Subsidiaries. A majority of the Disinterested
Directors shall have the further power to interpret all of the terms
and provisions of this Article EIGHTH.
E. Nothing contained in this Article EIGHTH shall be construed
to relieve any Interested Stockholder from any fiduciary obligation
imposed by law.
F. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a
lesser vote or no vote, but in addition to any affirmative vote of the
holders of any particular class or series of the Voting Stock required
by law, this Certificate of Incorporation or any Preferred Stock
Designation, the affirmative vote of the holders of at least 80 percent
of the voting power of all of the then-outstanding shares of the Voting
Stock (after giving effect to the provisions of Article FOURTH), voting
together as a single class, shall be required to alter, amend or repeal
this Article EIGHTH.
NINTH: The Board of Directors of the Corporation, when evaluating any
offer of another Person (as defined in Article EIGHTH hereof) to: (A) make a
tender or exchange offer for any equity security of the Corporation; (B) merge
or consolidate the Corporation with another corporation or entity; or (C)
purchase or otherwise acquire all or substantially all of the properties and
assets of the Corporation, may, in connection with the exercise of its judgment
in determining what is in the best interest of the Corporation and its
stockholders, give due consideration to all relevant factors, including, without
limitation, those factors that Directors of any subsidiary of the Corporation
may consider in evaluating any action that may result in a change or potential
change in the control of the subsidiary, and the social and economic effect of
acceptance of such offer: on the Corporation's present and future customers and
employees and those of its Subsidiaries (as defined in Article EIGHTH hereof);
on the communities in which the Corporation and its
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Subsidiaries operate or are located; on the ability of the Corporation to
fulfill its corporate objective under applicable laws and regulations; and on
the ability of its subsidiary savings association to fulfill the objectives of
stock savings association under applicable statutes and regulations.
TENTH:
A. Each person who was or is made a party or is threatened to be
made a party to or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she is
or was a Director or an Officer of the Corporation or is or was serving
at the request of the Corporation as a Director, Officer, employee or
agent of another corporation or of a partnership, joint venture, trust
or other enterprise, including service with respect to an employee
benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a Director,
Officer, employee or agent or in any other capacity while serving as a
Director, Officer, employee or agent, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the
Delaware General Corporation Law, as the same exists or may hereafter
be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader
indemnification rights than such law permitted the Corporation to
provide prior to such amendment), against all expense, liability and
loss (including attorneys' fees, judgments, fines, ERISA excise taxes
or penalties and amounts paid in settlement) reasonably incurred or
suffered by such indemnitee in connection therewith; provided, however,
that, except as provided in Section C hereof with respect to
proceedings to enforce rights to indemnification, the Corporation shall
indemnify any such indemnitee in connection with a proceeding (or part
thereof) initiated by such indemnitee only if such proceeding (or part
thereof) was authorized by the Board of Directors of the Corporation.
B. The right to indemnification conferred in Section A of this
Article TENTH shall include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its
final disposition (hereinafter and "advancement of expenses");
provided, however, that, if the Delaware General Corporation Law
requires, an advancement of expenses incurred by an indemnitee in his
or her capacity as a Director or Officer (and not in any other capacity
in which service was or is rendered by such indemnitee, including,
without limitation, services to an employee benefit plan) shall be made
only upon delivery to the Corporation of an undertaking (hereinafter an
"undertaking"), by or on behalf of such indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final
judicial decision from which there is no further right to appeal
(hereinafter a "final adjudication") that such indemnitee is not
entitled to be indemnified for such expenses under this Section or
otherwise. The rights to indemnification and to the advancement of
expenses conferred in Sections A and B of this Article TENTH shall be
contract rights and such rights shall continue as to an indemnitee who
has ceased to be a Director, Officer, employee or agent and shall inure
to the benefit of the indemnitee's heirs, executors and administrators.
14
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C. If a claim under Section A or B of this Article TENTH is not
paid in full by the Corporation within sixty days after a written claim
has been received by the Corporation, except in the case of a claim for
an advancement of expenses, in which case the applicable period shall
be twenty days, the indemnitee may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim. If
successful in whole or in part in any such suit, or in a suit brought
by the Corporation to recover an advancement of expenses pursuant to
the terms of an undertaking, the indemnitee shall be entitled to be
paid also the expenses of prosecuting or defending such suit. In (i)
any suit brought by the indemnitee to enforce a right to
indemnification hereunder (but not in a suit brought by the indemnitee
to enforce a right to an advancement of expenses) it shall be a defense
that, and (ii) in any suit by the Corporation to recover an advancement
of expenses pursuant to the terms of an undertaking the Corporation
shall be entitled to recover such expenses upon a final adjudication
that, the indemnitee has not met any applicable standard for
indemnification set forth in the Delaware General Corporation Law.
Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made
a determination prior to the commencement of such suit that
indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set
forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) that the indemnitee has
not met such applicable standard of conduct, shall create a presumption
that the indemnitee has not met the applicable standard of conduct or,
in the case of such a suit brought by the indemnitee, be a defense to
such suit. In any suit brought by the indemnitee to enforce a right to
indemnification or to an advancement of expenses hereunder, or by the
Corporation to recover an advancement of expenses pursuant to the terms
of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under
this Article TENTH or otherwise shall be on the Corporation.
D. The rights to indemnification and to the advancement of
expenses conferred in this Article TENTH shall not be exclusive of any
other right which any person may have or hereafter acquire under any
statute, the Corporation's Certificate of Incorporation, Bylaws,
agreement, vote of stockholders or Disinterested Directors or
otherwise.
E. The Corporation may maintain insurance, at its expense, to
protect itself and any Director, Officer, employee or agent of the
Corporation or subsidiary or Affiliate or another corporation,
partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the Corporation would have
the power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law.
15
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F. The Corporation may, to the extent authorized from time to
time by the Board of Directors, grant rights to indemnification and to
the advancement of expenses to any employee or agent of the Corporation
to the fullest extent of the provisions of this Article TENTH with
respect to the indemnification and advancement of expenses of Directors
and Officers of the Corporation.
ELEVENTH: A Director of this Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a Director, except for liability: (i) for any breach of the
Director's duty of loyalty to the Corporation or its stockholders; (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) under Section 174 of the Delaware General
Corporation Law; or (iv) for any transaction from which the Director derived an
improper personal benefit. If the Delaware General Corporation Law is amended to
authorize corporate action further eliminating or limiting the personal
liability of Directors, then the liability of a Director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a Director of the Corporation existing at the time of such repeal
or modification.
TWELFTH: The Corporation reserves the right to amend or repeal any
provision contained in this Certificate of Incorporation in the manner
prescribed by the laws of the State of Delaware and all rights conferred upon
stockholders are granted subject to this reservation; provided, however, that,
notwithstanding any other provision of this Certificate of Incorporation or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any vote of the holders of any class or series of the stock of this
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 80 percent of the voting power of
all of the then-outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of Directors (after giving effect to
the provisions of Article FOURTH), voting together as a single class, shall be
required to amend or repeal this Article TWELFTH, Section C of Article FOURTH,
Sections C or D of Article FIFTH, Article SIXTH, Article SEVENTH, Article EIGHTH
or Article TENTH.
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IN WITNESS WHEREOF, UCBH Holdings, Inc. has caused this Amended and
Restated Certificate of Incorporation, which restates and integrates and amends
the provisions of the Certificate of Incorporation and which has been duly
adopted by the Board of Directors of the Corporation and approved by the
shareholders of the Corporation in accordance with the provisions of Section 242
and 245 of the General Corporation Law of the State of Delaware, to be executed
and attested by its duly authorized officers this 31st day of March, 1998.
UCBH Holdings, Inc.
By: /s/Jonathan H. Downing
--------------------------
Jonathan H. Downing
Senior Vice President and
Chief Financial Officer
17
Exhibit 3.2
UCBH HOLDINGS, INC.
BYLAWS
ARTICLE I - STOCKHOLDERS
Section 1. Annual Meeting.
An annual meeting of the stockholders, for the election of Directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at such place, on such
date, and at such time as the Board of Directors shall each year fix, which date
shall be within thirteen (13) months subsequent to the later of the date of
incorporation or the last annual meeting of stockholders.
Section 2. Special Meetings.
Subject to the rights of the holders of any class or series of
preferred stock of the Corporation, special meetings of stockholders of the
Corporation may be called only by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of Directors which the
Corporation would have if there were no vacancies on the Board of Directors
(hereinafter the "Whole Board").
Section 3. Notice of Meetings.
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to time by
the Delaware General Corporation Law or the Certificate of Incorporation of the
Corporation).
When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date and time
thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the date of any adjourned meeting is more than thirty
(30) days after the date for which the meeting was originally noticed, or if a
new record date is fixed for the adjourned meeting, written notice of the place,
date, and time of the adjourned meeting shall be given in conformity herewith.
At any adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4. Quorum.
At any meeting of the stockholders, the holders of a majority of all of
the shares of the stock entitled to vote at the meeting, present in person or by
proxy (after giving effect to the provisions of Article FOURTH of the
Corporation's Certificate of Incorporation), shall constitute a quorum for all
purposes, unless or except to the extent that the presence of a larger number
may be required by law. Where a separate vote by a class or classes is required,
a majority of the
<PAGE>
shares of such class or classes present in person or represented by proxy (after
giving effect to the provisions of Article FOURTH of the Corporation's
Certificate of Incorporation) shall constitute a quorum entitled to take action
with respect to that vote on that matter.
If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the shares of stock entitled to vote who
are present, in person or by proxy, may adjourn the meeting to another place,
date, or time.
If a notice of any adjourned special meeting of stockholders is sent to
all stockholders entitled to vote thereat, stating that it will be held with
those present in person or by proxy constituting a quorum, then except as
otherwise required by law, those present in person or by proxy at such adjourned
meeting shall constitute a quorum, and all matters shall be determined by a
majority of the votes cast at such meeting.
Section 5. Organization.
Such person as the Board of Directors may have designated or, in the
absence of such a person, the Chairman of the Board of the Corporation or, in
his or her absence, such person as may be chosen by the holders of a majority of
the shares entitled to vote who are present, in person or by proxy, shall call
to order any meeting of the stockholders and act as chairman of the meeting. In
the absence of the Secretary of the Corporation, the secretary of the meeting
shall be such person as the chairman appoints.
Section 6. Conduct of Business.
(a) The chairman of any meeting of stockholders shall
determine the order of business and the procedures at the meeting, including
such regulation of the manner of voting and the conduct of discussion as seem to
him or her in order. The date and time of the opening and closing of the polls
for each matter upon which the stockholders will vote at the meeting shall be
announced at the meeting.
(b) At any annual meeting of the stockholders, only such
business shall be conducted as shall have been brought before the meeting (i) by
or at the direction of the Board of Directors or (ii) by any stockholder of the
Corporation who is entitled to vote with respect thereto and who complies with
the notice procedures set forth in this Section 6(b). For business to be
properly brought before an annual meeting by a stockholder, the business must
relate to a proper subject matter for stockholder action and the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered or mailed to
and received at the principal executive offices of the Corporation not less than
ninety (90) days prior to the date of the annual meeting; provided, however,
that in the event that less than one hundred (100) days' notice or prior public
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be received not later than the close of
business on the 10th day following the day on which such notice of the date of
the annual meeting was mailed or such public disclosure was made. A
stockholder's
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notice to the Secretary shall set forth as to each matter such stockholder
proposes to bring before the annual meeting: (i) a brief description of the
business desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (ii) the name and address, as
they appear on the Corporation's books, of the stockholder proposing such
business, (iii) the class and number of shares of the Corporation's capital
stock that are beneficially owned by such stockholder and, (iv) any material
interest of such stockholder in such business. Notwithstanding anything in these
Bylaws to the contrary, no business shall be brought before or conducted at an
annual meeting except in accordance with the provisions of this Section 6(b).
The Officer of the Corporation or other person presiding over the annual meeting
shall, if the facts so warrant, determine and declare to the meeting that
business was not properly brought before the meeting in accordance with the
provisions of this Section 6(b) and, if he or she should so determine, he or she
shall so declare to the meeting and any such business so determined to be not
properly brought before the meeting shall not be transacted.
At any special meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting by or at the direction
of the Board of Directors.
(c) Only persons who are nominated in accordance with the
procedures set forth in these Bylaws shall be eligible for election as
Directors. Nominations of persons for election to the Board of Directors of the
Corporation may be made at a meeting of stockholders at which directors are to
be elected only: (i) by or at the direction of the Board of Directors or, (ii)
by any stockholder of the Corporation entitled to vote for the election of
Directors at the meeting who complies with the notice procedures set forth in
this Section 6(c). Such nominations, other than those made by or at the
direction of the Board of Directors, shall be made by timely notice in writing
to the Secretary of the Corporation. To be timely, a stockholder's notice shall
be delivered or mailed to and received at the principal executive offices of the
Corporation not less than ninety (90) days prior to the date of the meeting;
provided, however, that in the event that less than one hundred (100) days'
notice or prior disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the 10th day following the day on which such
notice of the date of the meeting was mailed or such public disclosure was made.
Such stockholder's notice shall set forth: (i) as to each person whom such
stockholder proposes to nominate for election or re-election as a Director, all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (including such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); and (ii) as to
the stockholder giving the notice (x) the name and address, as they appear on
the Corporation's books, of such stockholder and (y) the class and number of
shares of the Corporation's capital stock that are beneficially owned by such
stockholder. At the request of the Board of Directors any person nominated by
the Board of Directors for election as a Director shall furnish to the Secretary
of the Corporation that information required to be set forth in a stockholder's
notice of nomination which pertains to the nominee. No person shall be eligible
for election as a Director of the Corporation unless nominated in accordance
with the provisions of this Section 6(c). The Officer of the Corporation
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or other person presiding at the meeting shall, if the facts so warrant,
determine that a nomination was not made in accordance with such provisions and,
if he or she shall so determine, he or she shall so declare to the meeting and
the defective nomination shall be disregarded.
Section 7. Proxies and Voting.
At any meeting of the stockholders, every stockholder entitled to vote
may vote in person or by proxy authorized by an instrument in writing filed in
accordance with the procedure established for the meeting. Any facsimile
telecommunication or other reliable reproduction of the writing or transmission
created pursuant to this paragraph may be substituted or used in lieu of the
original writing or transmission for any and all purposes for which the original
writing or transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission.
All voting, including on the election of Directors but excepting where
otherwise required by law or by the governing documents of the Corporation, may
be made by a voice vote; provided, however, that upon demand therefor by a
stockholder entitled to vote or his or her proxy, a stock vote shall be taken.
Every stock vote shall be taken by ballot, each of which shall state the name of
the stockholder or proxy voting and such other information as may be required
under the procedures established for the meeting. The Corporation shall, in
advance of any meeting of stockholders, appoint one or more inspectors to act at
the meeting and make a written report thereof. The Corporation may designate one
or more persons as alternate inspectors to replace any inspector who fails to
act. If no inspector or alternate is able to act at a meeting of stockholders,
the person presiding at the meeting shall appoint one or more inspectors to act
at the meeting. Each inspector, before entering upon the discharge of his
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his ability.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or the Certificate of Incorporation, all
other matters shall be determined by a majority of the votes cast.
Section 8. Stock List.
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and showing
the address of each such stockholder and the number of shares registered in his
or her name, shall be open to the examination of any such stockholder, for any
purpose germane to the meeting, during ordinary business hours for a period of
at least ten (10) days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or if not so specified, at the place where the meeting is to be
held.
The stock list shall also be kept at the place of the meeting during
the whole time thereof and shall be open to the examination of any such
stockholder who is present. This list shall
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presumptively determine the identity of the stockholders entitled to vote at the
meeting and the number of shares held by each of them.
Section 9. Consent of Stockholders in Lieu of Meeting.
Subject to the rights of the holders of any class or series of
preferred stock of the Corporation, any action required or permitted to be taken
by the stockholders of the Corporation must be effected at an annual or special
meeting of stockholders of the Corporation and may not be effected by any
consent in writing by such stockholders.
ARTICLE II - BOARD OF DIRECTORS
Section 1. General Powers, Number and Term of Office.
The business and affairs of the Corporation shall be under the
direction of its Board of Directors. The number of Directors who shall
constitute the Whole Board shall be such number as the Board of Directors shall
from time to time have designated, except that in the absence of such
designation the number shall be five. The Board of Directors shall annually
elect a Chairman of the Board from among its members who shall, when present,
preside at its meetings.
The Directors, other than those who may be elected by the holders of
any class or series of Preferred Stock, shall be divided, with respect to the
time for which they severally hold office, into three classes, with the term of
office of the first class to expire at the first annual meeting of stockholders,
the term of office of the second class to expire at the annual meeting of
stockholders one year thereafter and the term of office of the third class to
expire at the annual meeting of stockholders two years thereafter, with each
Director to hold office until his or her successor shall have been duly elected
and qualified. At each annual meeting of stockholders, Directors elected to
succeed those Directors whose terms then expire shall be elected for a term of
office to expire at the third succeeding annual meeting of stockholders after
their election, with each Director to hold office until his or her successor
shall have been duly elected and qualified.
Section 2. Vacancies and Newly Created Directorships.
Subject to the rights of the holders of any class or series of
Preferred Stock, and unless the Board of Directors otherwise determines, newly
created directorships resulting from any increase in the authorized number of
directors or any vacancies in the Board of Directors resulting from death,
resignation, retirement, disqualification, removal from office or other cause
may be filled only by a majority vote of the Directors then in office, though
less than a quorum, and Directors so chosen shall hold office for a term
expiring at the annual meeting of stockholders at which the term of office of
the class to which they have been elected expires and until such Director's
successor shall have been duly elected and qualified. No decrease in the
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number of authorized directors constituting the Board shall shorten the term of
any incumbent Director.
Section 3. Regular Meetings.
Regular meetings of the Board of Directors shall be held at such place
or places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all Directors. A
notice of each regular meeting shall not be required.
Section 4. Special Meetings.
Special meetings of the Board of Directors may be called by one-third
(1/3) of the Directors then in office (rounded up to the nearest whole number),
by the Chairman of the Board or the President and shall be held at such place,
on such date, and at such time as they, or he or she, shall fix. Notice of the
place, date, and time of each such special meeting shall be given each Director
by whom it is not waived by mailing written notice not less than five (5) days
before the meeting or by telegraphing or telexing or by facsimile transmission
of the same not less than twenty-four (24) hours before the meeting. Unless
otherwise indicated in the notice thereof, any and all business may be
transacted at a special meeting.
Section 5. Quorum.
At any meeting of the Board of Directors, a majority of the Whole Board
shall constitute a quorum for all purposes. If a quorum shall fail to attend any
meeting, a majority of those present may adjourn the meeting to another place,
date, or time, without further notice or waiver thereof.
Section 6. Participation in Meetings By Conference Telephone.
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
Section 7. Conduct of Business.
At any meeting of the Board of Directors, business shall be transacted
in such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the Directors present,
except as otherwise provided herein or required by law. Action may be taken by
the Board of Directors without a meeting if all members thereof consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors.
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Section 8. Powers.
The Board of Directors may, except as otherwise required by law,
exercise all such powers and do all such acts and things as may be exercised or
done by the Corporation, including, without limiting the generality of the
foregoing, the unqualified power:
(1) To declare dividends from time to time in accordance with
law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such
form as it may determine, of written obligations of every kind,
negotiable or non-negotiable, secured or unsecured, and to do all
things necessary in connection therewith;
(4) To remove any Officer of the Corporation with or without
cause, and from time to time to devolve the powers and duties of any
Officer upon any other person for the time being;
(5) To confer upon any Officer of the Corporation the power to
appoint, remove and suspend subordinate Officers, employees and agents;
(6) To adopt from time to time such stock, option, stock
purchase, bonus or other compensation plans for Directors, Officers,
employees and agents of the Corporation and its subsidiaries as it may
determine;
(7) To adopt from time to time such insurance, retirement, and
other benefit plans for Directors, Officers, employees and agents of
the Corporation and its subsidiaries as it may determine; and,
(8) To adopt from time to time regulations, not inconsistent
with these Bylaws, for the management of the Corporation's business and
affairs.
Section 9. Compensation of Directors.
Directors, as such, may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as Directors,
including, without limitation, their services as members of committees of the
Board of Directors.
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ARTICLE III - COMMITTEES
Section 1. Committees of the Board of Directors.
The Board of Directors, by a vote of a majority of the Board of
Directors, may from time to time designate committees of the Board, with such
lawfully delegable powers and duties as it thereby confers, to serve at the
pleasure of the Board and shall, for these committees and any others provided
for herein, elect a Director or Directors to serve as the member or members,
designating, if it desires, other Directors as alternate members who may replace
any absent or disqualified member at any meeting of the committee. Any committee
so designated may exercise the power and authority of the Board of Directors to
declare a dividend, to authorize the issuance of stock or to adopt a certificate
of ownership and merger pursuant to Section 253 of the Delaware General
Corporation Law if the resolution which designates the committee or a
supplemental resolution of the Board of Directors shall so provide. In the
absence or disqualification of any member of any committee and any alternate
member in his or her place, the member or members of the committee present at
the meeting and not disqualified from voting, whether or not he or she or they
constitute a quorum, may by unanimous vote appoint another member of the Board
of Directors to act at the meeting in the place of the absent or disqualified
member.
Section 2. Conduct of Business.
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings; one-third (1/3) of the members shall
constitute a quorum unless the committee shall consist of one (1) or two (2)
members, in which event one (1) member shall constitute a quorum; and all
matters shall be determined by a majority vote of the members present. Action
may be taken by any committee without a meeting if all members thereof consent
thereto in writing, and the writing or writings are filed with the minutes of
the proceedings of such committee.
Section 3. Nominating Committee.
The Board of Directors shall appoint a Nominating Committee of the
Board, consisting of not less than three (3) members. The Nominating Committee
shall have authority: (a) to review any nominations for election to the Board of
Directors made by a stockholder of the Corporation pursuant to Section 6(c)(ii)
of Article I of these Bylaws in order to determine compliance with such Bylaw,
and (b) to recommend to the Whole Board nominees for election to the Board of
Directors to replace those Directors whose terms expire at the annual meeting of
stockholders next ensuing.
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ARTICLE IV - OFFICERS
Section 1. Generally.
(a) The Board of Directors as soon as may be practicable after
the annual meeting of stockholders shall choose a Chairman of the Board, a Chief
Executive Officer, a President, one or more Vice Presidents, a Secretary and a
Chief Financial Officer and/or Treasurer and from time to time may choose such
other officers as it may deem proper. The Chairman of the Board shall be chosen
from among the Directors. Any number of offices may be held by the same person.
(b) The term of office of all Officers shall be until the next
annual election of Officers and until their respective successors are chosen but
any Officer may be removed from office at any time by the affirmative vote of a
majority of the authorized number of Directors then constituting the Board of
Directors.
(c) All Officers chosen by the Board of Directors shall have
such powers and duties as generally pertain to their respective Offices, subject
to the specific provisions of this ARTICLE IV. Such officers shall also have
such powers and duties as from time to time may be conferred by the Board of
Directors or by any committee thereof.
Section 2. Chairman of the Board of Directors.
The Chairman of the Board, subject to the provisions of these Bylaws
and to the direction of the Board of Directors, unless the Board has designated
another person, when present, shall preside at all meetings of the stockholders
of the Corporation. The Chairman of the Board shall perform all duties and have
all powers which are commonly incident to the office of Chairman of the Board or
which are delegated to him or her by the Board of Directors. He or she shall
have power to sign all stock certificates, contracts and other instruments of
the Corporation which are authorized.
Section 3. President and Chief Executive Officer.
The President and Chief Executive Officer (the "President") shall have
general responsibility for the management and control of the business and
affairs of the Corporation and shall perform all duties and have all powers
which are commonly incident to the offices of President and Chief Executive
Officer or which are delegated to him or her by the Board of Directors. Subject
to the direction of the Board of Directors, the President and Chief Executive
Officer shall have power to sign all stock certificates, contracts and other
instruments of the Corporation which are authorized and shall have general
supervision of all of the other Officers (other than the Chairman of the Board),
employees and agents of the Corporation.
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Section 4. Vice President.
The Vice President or Vice Presidents shall perform the duties of the
President in his absence or during his inability to act. In addition, the Vice
Presidents shall perform the duties and exercise the powers usually incident to
their respective offices and/or such other duties and powers as may be properly
assigned to them by the Board of Directors, the Chairman of the Board or the
President. A Vice President or Vice Presidents may be designated as Executive
Vice President or Senior Vice President.
Section 5. Secretary.
The Secretary or Assistant Secretary shall issue notices of meetings,
shall keep their minutes, shall have charge of the seal and the corporate books,
shall perform such other duties and exercise such other powers as are usually
incident to such office and/or such other duties and powers as are properly
assigned thereto by the Board of Directors, the Chairman of the Board or the
President. Subject to the direction of the Board of Directors, the Secretary
shall have the power to sign all stock certificates.
Section 6. Chief Financial Officer/Treasurer.
The Chief Financial Officer/Treasurer shall be the Comptroller of the
Corporation and shall have the responsibility for maintaining the financial
records of the Corporation. He or she shall make such disbursements of the funds
of the Corporation as are authorized and shall render from time to time an
account of all such transactions and of the financial condition of the
Corporation. The Chief Financial Officer/Treasurer shall also perform such other
duties as the Board of Directors may from time to time prescribe. Subject to the
direction of the Board of Directors, the Chief Financial Officer/Treasurer shall
have the power to sign all stock certificates.
Section 7. Assistant Secretaries and Other Officers.
The Board of Directors may appoint one or more Assistant Secretaries
and such other Officers who shall have such powers and shall perform such duties
as are provided in these Bylaws or as may be assigned to them by the Board of
Directors, the Chairman of the Board or the President.
Section 8. Action with Respect to Securities of Other Corporations.
Unless otherwise directed by the Board of Directors, the President or
any Officer of the Corporation authorized by the President shall have power to
vote and otherwise act on behalf of the Corporation, in person or by proxy, at
any meeting of stockholders of or with respect to any action of stockholders of
any other corporation in which this Corporation may hold securities and
otherwise to exercise any and all rights and powers which this Corporation may
possess by reason of its ownership of securities in such other corporation.
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ARTICLE V - STOCK
Section 1. Certificates of Stock.
Each stockholder shall be entitled to a certificate signed by, or in
the name of the Corporation by, the Chairman of the Board or the President, and
by the Secretary or an Assistant Secretary, or any Treasurer or Assistant
Treasurer, certifying the number of shares owned by him or her. Any or all of
the signatures on the certificate may be by facsimile.
Section 2. Transfers of Stock.
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of Article V of these Bylaws,
an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefor.
Section 3. Record Date.
In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted and which record date shall not be more than
sixty (60) nor less than ten (10) days before the date of any meeting of
stockholders, nor more than sixty (60) days prior to the time for such other
action as hereinbefore described; provided, however, that if no record date is
fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the next day preceding the day
on which the meeting is held, and, for determining stockholders entitled to
receive payment of any dividend or other distribution or allotment or rights or
to exercise any rights of change, conversion or exchange of stock or for any
other purpose, the record date shall be at the close of business on the day on
which the Board of Directors adopts a resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
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Section 4. Lost, Stolen or Destroyed Certificates.
In the event of the loss, theft or destruction of any certificate of
stock, another may be issued in its place pursuant to such regulations as the
Board of Directors may establish concerning proof of such loss, theft or
destruction and concerning the giving of a satisfactory bond or bonds of
indemnity.
Section 5. Regulations.
The issue, transfer, conversion and registration of certificates of
stock shall be governed by such other regulations as the Board of Directors may
establish.
ARTICLE VI - NOTICES
Section 1. Notices.
Except as otherwise specifically provided herein or required by law,
all notices required to be given to any stockholder, Director, Officer, employee
or agent shall be in writing and may in every instance be effectively given by
hand delivery to the recipient thereof, by depositing such notice in the mails,
postage paid, or by sending such notice by prepaid telegram or mailgram or other
courier. Any such notice shall be addressed to such stockholder, Director,
Officer, employee or agent at his or her last known address as the same appears
on the books of the Corporation. The time when such notice is received, if hand
delivered, or dispatched, if delivered through the mails or by telegram or
mailgram or other courier, shall be the time of the giving of the notice.
Section 2. Waivers.
A written waiver of any notice, signed by a stockholder, Director,
Officer, employee or agent, whether before or after the time of the event for
which notice is to be given, shall be deemed equivalent to the notice required
to be given to such stockholder, Director, Officer, employee or agent. Neither
the business nor the purpose of any meeting need be specified in such a waiver.
ARTICLE VII - MISCELLANEOUS
Section 1. Facsimile Signatures.
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these Bylaws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.
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Section 2. Corporate Seal.
The Board of Directors may provide a suitable seal, containing the name
of the Corporation, which seal shall be in the charge of the Secretary. If and
when so directed by the Board of Directors or a committee thereof, duplicates of
the seal may be kept and used by the Treasurer or by an Assistant Secretary or
an assistant to the Treasurer.
Section 3. Reliance Upon Books, Reports and Records.
Each Director, each member of any committee designated by the Board of
Directors, and each Officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its Officers or
employees, or committees of the Board of Directors so designated, or by any
other person as to matters which such Director or committee member reasonably
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Corporation.
Section 4. Fiscal Year.
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
Section 5. Time Periods.
In applying any provision of these Bylaws which requires that an act be
done or not be done a specified number of days prior to an event or that an act
be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be excluded,
and the day of the event shall be included.
ARTICLE VIII - AMENDMENTS
The Board of Directors may amend, alter or repeal these Bylaws at any
meeting of the Board, provided notice of the proposed change was given not less
than two days prior to the meeting. The stockholders shall also have power to
amend, alter or repeal these Bylaws at any meeting of stockholders provided
notice of the proposed change was given in the notice of the meeting; provided,
however, that, notwithstanding any other provisions of the Bylaws or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any affirmative vote of the holders of any particular class or
series of the voting stock required by law, the Certificate of Incorporation,
any Preferred Stock Designation or these Bylaws, the affirmative votes of the
holders of at least 80% of the voting power of all the then-outstanding shares
of the Voting Stock, voting together as a single class, shall be required to
alter, amend or repeal any provisions of these Bylaws.
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The above Bylaws are effective as of March 31, 1998, the date of
adoption by the Board of Directors of UCBH Holdings, Inc.
14
Exhibit 4.0
COMMON STOCK COMMON STOCK
PAR VALUE $.01 SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP
UCBH HOLDINGS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
S P E C I M E N
is the owner of:
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK $.01 PAR VALUE PER SHARE OF
----------------
The shares represented by this certificate are transferable only on the stock
transfer books of the Corporation by the holder of record thereof, or by his
duly authorized attorney or legal representative, upon the surrender of this
certificate properly endorsed. This certificate and the shares represented
hereby are issued and shall be held subject to all the provisions of the
Certificate of Incorporation of the Corporation and any amendments thereto
(copies of which are on file with the Transfer Agent), to all of which
provisions the holder by acceptance hereof, assents.
This certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar.
IN WITNESS THEREOF, UCBH Holdings, Inc. has caused this
certificate to be executed by the facsimile signatures of its duly authorized
officers and has caused a facsimile of its corporate seal to be hereunto
affixed.
Dated: [SEAL]
President Secretary
<PAGE>
----------------
The shares represented by this certificate are subject to a limitation
contained in the Certificate of Incorporation to the effect that in no event
shall any record owner of any outstanding common stock which is beneficially
owned, directly or indirectly, by a person who beneficially owns in excess of
10% of the outstanding shares of common stock (the "Limit") be entitled or
permitted to any vote in respect of shares held in excess of the Limit.
The Board of Directors of the Corporation is authorized by
resolution(s), from time to time adopted, to provide for the issuance of serial
preferred stock in series and to fix and state the voting powers, designations,
preferences and relative, participating, optional, or other special rights of
the shares of each such series and the qualifications, limitations and
restrictions thereof. The Corporation will furnish to any shareholder upon
request and without charge a full description of each class of stock and any
series thereof.
The shares represented by this certificate may not be cumulatively
voted on any matter. The affirmative vote of the holders of at least 80% of the
voting stock of the Corporation, voting together as a single class, shall be
required to approve certain business combinations and other transactions,
pursuant to the Certificate of Incorporation or to amend certain provisions of
the Certificate of Incorporation.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFTS MIN ACT - __________ custodian __________
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors Act
____________________
(State)
JT TEN - as joint tenants with right
of survivorship and not as
tenants in common
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, __________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFICATION NUMBER OF TRANSFEREE
________________________________________________________________________________
Please print or typewrite name and address including postal zip code of assignee
_______________________________________________ shares of the common stock
represented by the within Certificate, and do hereby irrevocably constitute and
appoint _______________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
DATED ________________________
_________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE GUARANTEED: __________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15
Exhibit 4.1
PURCHASE AGREEMENT
Purchase Agreement, dated as of April 13, 1998 (the 'Agreement'), by and
among UCBH Holdings, Inc., a Delaware corporation, and the other parties named
on the signature pages hereof (each of which is acting severally and not jointly
and as to itself only).
The Common Stock and Trust Preferred Securities described in the Private
Offering Memorandum will be sold in a private placement pursuant to Section 4(2)
of the Securities Act and, accordingly, are not being registered under the
Securities Act. The Common Stock and Trust Preferred Securities described
therein are being offered only to a limited number of institutional and other
accredited investors.
The Trust Preferred Securities to be issued by the Trust will be guaranteed
by the Company, to the extent described in the Private Offering Memorandum with
respect to distributions and payments upon liquidation, redemption and otherwise
(the 'Trust Preferred Securities Guarantee') pursuant to the Series A Capital
Securities Guarantee Agreement. The Trust Preferred Securities issued in
book-entry form will be issued to Cede & Co. as nominee of the DTC pursuant to
the DTC Agreement.
The entire proceeds from the sale of the Trust Preferred Securities will be
combined with the entire proceeds from the sale by the Trust to the Company of
the Common Trust Securities, as guaranteed by the Company to the extent set
forth in the Private Offering Memorandum with respect to distributions and
payments upon liquidation, redemption and otherwise (the 'Common Trust
Securities Guarantee') pursuant to the Common Securities Guarantee Agreement
(the Trust Preferred Securities Guarantee and the Common Trust Securities
Guarantee are collectively referred to as the 'Guarantees' and the Series A
Capital Securities Guarantee Agreement and the Common Securities Guarantee
Agreement are collectively referred to as the 'Guarantee Agreements'), and will
be used by the Trust to purchase the Junior Subordinated Debentures issued by
the Company. The Common Trust Securities, the Trust Preferred Securities, the
Trust Preferred Securities Guarantee and the Junior Subordinated Debentures are
collectively referred to herein as the 'Series A Securities.'
The Trust Preferred Securities and the Common Trust Securities will be
issued pursuant to the Trust Agreement. The Junior Subordinated Debentures will
be issued pursuant to the Indenture.
The Registration Rights Agreement with respect to the Trust Preferred
Securities provides, among other things, that the Company and the Trust shall
file with the Commission (i) a registration statement (the 'Exchange Offer
Registration Statement') under the Securities Act relating to trust preferred
securities with the same terms and tenor as the Trust Preferred Securities (the
'Series B Trust Preferred Securities'), the Series B Trust Preferred Securities
Guarantee (the 'Series B Trust Preferred Securities Guarantee'), and junior
subordinated debentures with the same terms and tenor as the Junior Subordinated
Debentures (the 'Series B Junior Subordinated Debentures' and, collectively with
the Series B Trust Preferred Securities and the Series B Trust Preferred
Securities Guarantee, the 'Series B Securities'), to be offered in exchange for
the Series A Trust Preferred Securities (such offer to exchange being referred
to herein as the 'Trust Preferred Securities Exchange Offer') and/or a shelf
registration statement pursuant to Rule 415 under the Securities Act relating to
the resale by certain holders of the Series A Trust Preferred Securities.
In consideration of the mutual covenants and agreements set forth herein
and for good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS. As used in this Agreement, and unless the context
requires a different meaning, the following terms have the meanings indicated:
'Affiliate' means, with respect to any Person, any Person that,
directly or indirectly, controls, is controlled by or is under common
control with such Person. For the purposes of this definition, 'control'
(including, with correlative meanings, the terms 'controlled by' and 'under
common control with') shall
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mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise.
'Agency Agreement' means the Agency Agreement between the Company, the
Bank, the Trust and the Placement Agent with respect to the offering of
Securities, as amended, supplemented or modified from time to time.
'Agreement' means this Purchase Agreement, as amended, supplemented or
modified from time to time.
'Bank' means United Commercial Bank, a federally-chartered savings
bank, together with its successors.
'Business Day' means any day except a Saturday, Sunday or other day on
which commercial banks and savings institutions in the State of California
are authorized or obligated by law to close.
'Capital Securities' of any Person means Capital Stock of the Person
and Stock Equivalents of the Person.
'Capital Stock' of any Person means any and all shares of capital
stock or other equity interest of such Person.
'Closing' has the meaning set forth in Section 2.2.
'Closing Date' has the meaning set forth in Section 2.2.
'Code' means the Internal Revenue Code of 1986, as amended (or any
successor statute in effect from time to time), and the rules and
regulations promulgated thereunder.
'Commission' means the Securities and Exchange Commission and any
successor thereto.
'Common Stock' means the Common Stock, par value $10.00 per share, of
the Company, which par value shall be reduced to $0.01 per share by an
amendment to the Company's Certificate of Incorporation immediately prior
to the Closing.
'Common Trust Securities' means the Common Trust Securities issued by
the Trust to the Company.
'Company' means UCBH Holdings, Inc., a Delaware corporation, together
with its successors.
'DTC' means the Depository Trust Company.
'DTC Agreement' means the DTC Agreement between the DTC and Wilmington
Trust Company, as property trustee.
'Environmental Claim' means any written notice from any governmental
authority or third party alleging potential liability (including without
limitation potential liability for investigating costs, cleanup costs,
governmental response costs, natural resource damages, property damages,
personal injuries or penalties) arising out of, based on, or resulting from
the presence, or release into the environment of any Materials of
Environmental Concern.
'Environmental Laws' means any law, statute, rule or regulation of any
governmental, judicial, legislative, executive, administrative or
regulatory authority of the United States, or of any state, local or
foreign government or any subdivision thereof or of any governmental body
or other regulatory or administrative agency or commission, domestic or
foreign (a 'Law'), relating to pollution or protection of the environment
(including ambient air, surface water, groundwater, land surface or
subsurface strata), including without limitation the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended,
the Resource Conservation and Recovery Act of 1976, as amended, and other
Laws relating to (i) emissions, discharges or releases of pollutants,
contaminants, chemicals, or industrial toxic or hazardous substances or
wastes (collectively known as 'Polluting Substances') or (ii) the handling,
storage, disposal, reclamation, recycling or transportation of Polluting
Substances.
'ERISA' means the Employee Retirement Income Security Act of 1974, as
amended (or any successor statute in effect from time to time).
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'Exchange' means the exchange of Senior Notes by the Selling
Shareholders for shares of Common Stock pursuant to the terms of the
Exchange and Redemption Agreement.
'Exchange and Redemption Agreement' means the agreement to be entered
into among the Company and the Selling Shareholders, whereby the Company
will conduct the Exchange and then redeem all of the issued and outstanding
shares of Common Stock of the Company.
'Exchange Act' means the Securities Exchange Act of 1934, as amended
and in effect from time to time (or any successor statute in effect from
time to time), and the rules and regulations of the Commission promulgated
thereunder.
'FDIA' means the Federal Deposit Insurance Act, as amended (or any
successor statute in effect from time to time).
'FDIC' means the Federal Deposit Insurance Corporation and any
successor thereto.
'Guarantee Agreements' means the Series A Securities Guarantee
Agreement relating to the Trust Preferred Securities between the Company
and Wilmington Trust Company, as guarantee trustee, and the Common
Securities Guarantee Agreement made by the Company with respect to the
Common Trust Securities.
'HOLA' means the Home Owners' Loan Act, as amended (or any successor
statute in effect from time to time).
'Indenture' means the Indenture between the Company and Wilmington
Trust Company, as debenture trustee, as the same may be amended from time
to time in accordance with the terms thereof, providing for the issuance of
the Junior Subordinated Debentures.
'Junior Subordinated Debentures' means the Company's Junior
Subordinated Deferrable Interest Debentures issued by the Company to UCBH
Trust Co. pursuant to the Indenture, as described in the Private Offering
Memorandum.
'Lien' means, with respect to any asset, any mortgage, lien, pledge,
encumbrance, charge or security interest of any kind in respect of such
asset.
'Management' means the following members of the senior management of
the Company: Chairman, President, Chief Executive Officer, Chief Financial
Officer and any Executive Vice President.
'Material Adverse Effect' means a material adverse effect on the
financial condition, business or results of operations of the Company and
the Company Subsidiaries, taken as a whole; provided, however, that
Material Adverse Effect shall not be deemed to include the impact of the
transactions contemplated by this Agreement or any Related Agreement,
including the fees and expenses to be paid in connection with the
consummation of the transactions contemplated by this Agreement and the
Related Agreements or any impact or effect on the Company resulting from
actions taken by the Company after the Closing.
'Materials of Environmental Concern' means pollutants, contaminants,
wastes, toxic substances, petroleum and petroleum products and any other
materials regulated under Environmental Laws.
'Non-performing Assets' means the following consolidated assets of the
Company: (i) loans, securities or other assets with respect to which the
Company or the Bank have ceased recognizing interest under generally
accepted accounting principles or as to which any payments of principal or
interest are past due 90 days or more as of the applicable date and (ii)
Real Estate Owned; and references herein to the amounts of Non-performing
Assets shall mean and refer to the aggregate carrying value of such assets
as stated in the books and financial statements of the Company and the Bank
under generally accepted accounting principles.
'OTS' means the Office of Thrift Supervision and any successor
thereto.
'Person' means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a
government or a political subdivision or an agency or instrumentality
thereof.
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'Placement Agent' means Sandler O'Neill & Partners, L.P., in its
capacity as private placement agent pursuant to the Agency Agreement with
respect to the offering of Securities described in the Private Offering
Memorandum.
'Preferred Stock' means the Preferred Stock, par value $.01 per share,
of the Company, to be authorized by an amendment to the Company's
Certificate of Incorporation immediately prior to the Closing.
'Previously Disclosed' means disclosed either (i) in a letter dated
the date hereof delivered from the Company to the Placement Agent or from a
Purchaser to the Company, as applicable, specifically referring to the
appropriate section of this Agreement and describing in reasonable detail
the matters contained therein, or (ii) in the Private Offering Memorandum.
'Private Offering Memorandum' means the Private Offering Memorandum,
dated March 31, 1998, as amended or supplemented by the Company at any time
prior to the Closing.
'Purchaser' means each Person (other than the Company) listed on the
signature pages of this Agreement, and its permitted successors and assigns
as provided herein, including any Person who becomes a party hereto by
executing and delivering a signature page hereto after the date of this
Agreement.
'Real Estate Owned' means the consolidated properties of the Company
acquired by foreclosure on a loan or deed-in-lieu thereof or otherwise
included in the Company's real estate owned for purposes of reporting asset
quality of the Bank in its reports filed with the OTS.
'Registration Rights Agreements' means the two Registration Rights
Agreements to be entered into among the Company and the Purchasers, as
amended, supplemented or otherwise modified from time to time, one of which
is with respect to the Trust Preferred Securities and the other of which is
with respect to the Common Stock, in each case which are sold pursuant to
the Purchase Agreement.
'Related Agreements' means the Exchange and Redemption Agreement, the
Registration Rights Agreements, the Agency Agreement, the Indenture, the
Guarantee Agreements, the DTC Agreement and the Trust Agreement.
'SAIF' means the Savings Association Insurance Fund administered by
the FDIC, and any successor thereto.
'Securities' means (i) the Trust Preferred Securities and (ii) the
Common Stock, in each case, to be issued and sold by the Company and
purchased by the Purchasers pursuant to this Agreement.
'Securities Act' means the Securities Act of 1933, as amended (or any
successor statute thereto as in effect from time to time), and the rules
and regulations of the Commission promulgated thereunder.
'Selling Shareholders' shall have the meaning set forth in the
Exchange and Redemption Agreement.
'Senior Notes' means the Company's Senior Notes which shall be
exchanged for Common Stock in accordance with the provisions of the
Exchange and Redemption Agreement.
'State' means each of the states of the United States, the District of
Columbia and the Commonwealth of Puerto Rico.
'Stock Equivalents' means, with respect to any Person, options,
warrants, calls, contracts or other rights entered into or issued by such
Person which confer upon the holder thereof the right (whether or not
contingent) to acquire any Capital Stock, voting securities or securities
convertible into or exchangeable for Capital Stock or voting securities of
such Person.
'Subsidiary' of any Person means any entity of which securities or
other ownership interests having ordinary voting power to elect a majority
of the board of directors or other persons performing similar functions are
owned directly or indirectly by such Person.
'Taxes' means all taxes, charges, fees, levies or other governmental
assessments, including, without limitation, all net income, gross income,
gross receipts, sales, use, ad valorem, transfer, franchise, profits,
license, withholding, payroll, employment, excise, estimated, severance,
stamp, occupation, property or
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other taxes, customs, dues, fees, assessments or charges of any kind
whatsoever, together with any interest and any penalties, additions to tax
or additional amounts imposed by any taxing authority (domestic or
foreign).
'Tax Returns' means all foreign, federal, State and local returns
relating to Taxes.
'Trust Agreement' means the Amended and Restated Declaration of Trust
relating to the Trust among the Company, as sponsor, Wilmington Trust
Company, as property trustee, Wilmington Trust Company, as Delaware
trustee, and the Administrative Trustees named therein, as the same may be
amended from time to time in accordance with the terms thereof, providing
for the issuance of the Trust Preferred Securities.
'Trust Preferred Securities' means the trust preferred securities
initially issued by the Trust pursuant to the Trust Agreement, to be sold
to Purchasers pursuant to the Purchase Agreement.
'UCBH Trust Co.' or the 'Trust' means the Delaware trust established
by the Company.
ARTICLE II
PURCHASE AND SALE OF SECURITIES
SECTION 2.1 PURCHASE AND SALE OF SECURITIES. Subject to the terms and
conditions hereof and the representations and warranties contained herein, at
the Closing (as defined below), the Company agrees that it will issue and sell
to each Purchaser and each such Purchaser agrees, severally and not jointly and
as to itself only, that it will purchase from the Company (i) the number of
shares of Common Stock (at a price per share of $15.00), (ii) the number of
shares of Trust Preferred Securities (liquidation amount of $1,000 per security)
or (iii) a combination of Common Stock and Trust Preferred Securities, in each
case as set forth below each such Purchaser's name on the Investor Signature
Page to this Agreement.
SECTION 2.2 CLOSING. The purchase and sale of the Securities will take
place at a closing (the 'Closing') to be held at the offices of the Placement
Agent, New York, New York, on such date as all of the conditions to the parties'
obligations hereunder specified in Article IV of this Agreement (other than the
delivery of certificates, opinions and other instruments and documents to be
delivered at the Closing) have been satisfied or waived, or at such other
location, and on such other Business Day and time as the parties hereto shall
mutually agree. The date on which the Closing is to occur is referred to herein
as the 'Closing Date.'
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as
Previously Disclosed, the Company represents and warrants to, and covenants and
agrees with, the Placement Agent and each of the Purchasers as follows:
(a) Capital Structure. As of the date hereof, the authorized capital
stock of the Company consists of 3,000 shares of Common Stock and no shares
of Preferred Stock. Immediately prior to the Closing, the Company shall
amend its Certificate of Incorporation in order to increase its authorized
capital stock to 25,000,000 shares of Common Stock and 10,000,000 shares of
Preferred Stock. As of the date hereof, there were 1,000 shares of Common
Stock issued and outstanding. Other than the shares of Common Stock which
are to be issued in the Exchange, immediately prior to the Closing on the
Closing Date, the Company's outstanding Capital Stock will be as set forth
in the preceding sentence. As of the date hereof, all outstanding shares of
Common Stock have been duly authorized and validly issued and are fully
paid and nonassessable and none of the outstanding shares of Common Stock
has been issued in violation of the preemptive rights of any Person. There
are no Stock Equivalents authorized, issued or outstanding with respect to
the Capital Stock of the Company as of the date hereof.
(b) Organization, Standing and Authority of the Company. The Company
is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware with full corporate power and
authority to own or lease all of its properties and assets and to carry on
its business as now
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conducted and is duly licensed or qualified to do business and is in good
standing in each jurisdiction in which its ownership or leasing of property
or the conduct of its business requires such licensing or qualification,
except where the failure to be so licensed, qualified or in good standing
would not have a Material Adverse Effect. The Company is registered as a
savings and loan holding company under the HOLA and the regulations of the
OTS thereunder. The Company has heretofore delivered true and complete
copies of the Certificate of Incorporation and Bylaws of the Company as in
effect as of the date hereof to each Purchaser which has made a written
request directly to the Company for the same.
(c) Organization, Standing and Authority of the Trust. The Trust has
been duly created and is validly existing in good standing as a business
trust under the laws of the State of Delaware with the power and authority
to own property and to conduct its business as described in the Private
Offering Memorandum. The Trust is not a party to or otherwise bound by any
material agreement other than the applicable Related Agreements. The Trust
is, and will be, under current law, classified for United States federal
income tax purposes as a grantor trust and not as an association taxable as
a corporation.
(d) Ownership of the Company Subsidiaries. The only direct or
indirect Subsidiaries of the Company consist of the Bank, Credit Card
U.S.A., Inc., U.F. Service Corporation and United Savings Insurance Agency.
Except for (i) Capital Stock of the Company Subsidiaries, (ii) stock in the
Federal Home Loan Bank of San Francisco and (iii) securities and other
interests taken in consideration of debts previously contracted, the
Company does not own or have the right to acquire, directly or indirectly,
any outstanding Capital Stock or other voting securities or ownership
interests of any corporation, bank, savings association, partnership, joint
venture or other organization. The outstanding shares of Capital Stock of
the Company Subsidiaries have been duly authorized and validly issued, are
fully paid and nonassessable, and are directly or indirectly owned by the
Company free and clear of all Liens. No Stock Equivalents are authorized,
issued or outstanding with respect to the Capital Stock of the Company
Subsidiaries and there are no agreements, understandings or commitments
relating to the right of the Company to vote or to dispose of such Capital
Stock.
(e) Organization, Standing and Authority of the Company Subsidiaries.
The Bank is a federally-chartered savings bank duly organized and validly
existing under the laws of the United States, and the other Company
Subsidiaries are corporations duly organized, validly existing and in good
standing under the laws of their respective jurisdictions of incorporation.
The deposit accounts of the Bank are insured by the SAIF to the maximum
extent permitted by the FDIA, and the Bank has paid all premiums and
assessments required by the FDIA and the regulations thereunder. Each of
the Company Subsidiaries has full power and authority to own or lease all
of its respective properties and assets and to carry on its respective
business as now conducted and is duly licensed or qualified to do business
and is in good standing in each jurisdiction in which its ownership or
leasing of property or the conduct of its business requires such
qualification, except where the failure to be so licensed, qualified or in
good standing would not have a Material Adverse Effect. The Company has
heretofore delivered true and complete copies of the Articles of
Incorporation, Charter and Bylaws of each of the Company Subsidiaries as in
effect as of the date hereof to each Purchaser which has made a written
request directly to the Company for the same.
(f) Authority. The Company and the Trust have full corporate power
and authority to perform its obligations under this Agreement and the
Company and the Trust each have full corporate power and authority to
perform their obligations under each of the Related Agreements to which
they will become a party, and the execution, delivery and performance by
the Company and the Trust of each Related Agreement to which they will
become a party has been or, prior to the Closing, will have been duly
authorized by all necessary corporate action on the part of the Company and
the Trust.
(g) Due Execution. This Agreement constitutes, and each of the
Related Agreements to which the Company and the Trust will become a party,
when duly authorized, executed and delivered by the Company and the Trust,
will constitute valid and binding obligations of the Company and the Trust
enforceable against the Company and the Trust in accordance with their
terms, except as (i) rights to indemnity and contribution under the
Registration Rights Agreements may be limited by applicable law, (ii)
enforceability may be limited by bankruptcy, insolvency, moratorium and
similar laws affecting creditors' rights generally
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and (iii) rights of acceleration and the availability of equitable remedies
may be limited by equitable principles of general applicability.
(h) No Conflict. The execution, delivery and performance of this
Agreement and each of the Related Agreements by the Company and the Trust
will not conflict with or constitute a breach of, or a default under (i)
the Certificate of Incorporation, Articles of Incorporation or Charter (or
Trust Agreement in the case of the Trust), as the case may be, or the
Bylaws of the Company or any of the Company Subsidiaries, (ii) any
obligation, agreement, indenture, bond, debenture, note, instrument or any
other evidence of indebtedness to which the Company, the Trust or any of
the Company Subsidiaries is a party or as to which any of their respective
assets are subject, or (iii) any law, ordinance, order, license, rule or
other regulation or demand of any court or governmental agency, arbitration
panel or authority applicable to the Company and the Trust or any of the
Company Subsidiaries, except, in the case of clause (i) above, provided
that the Certificate of Incorporation is amended to modify the
capitalization of the Company in the manner described in the Private
Placement Memorandum and, in the case of clauses (ii) and (iii) above, for
such conflicts, breaches or defaults which would not, individually or in
the aggregate, have a Material Adverse Effect. Except for compliance with
applicable federal and State securities laws in connection with this
Agreement and the performance by the Company of its obligations under the
Registration Rights Agreements, except as Previously Disclosed, no consent,
approval, order or other authorization of any governmental, administrative
or regulatory body or agency is legally required by or on behalf of the
Company, the Trust or the Company Subsidiaries in connection with the
execution, delivery and performance of this Agreement and each of the
Related Agreements to which the Company or the Trust is or will become a
party. The representations and warranties set forth in clause (iii) of the
second preceding sentence and in the preceding sentence, insofar as it
relates to federal and state securities law requirements are made in
reliance on the representations and warranties of the Purchasers contained
in this Agreement.
(i) Status of Certain Securities. The shares of Common Stock, the
Series A Securities and the Series B Securities issuable pursuant to the
Related Agreements have been authorized by all necessary corporate action
on the part of the Company and the Trust. When the Common Stock and the
Trust Preferred Securities are delivered to the Purchasers at the Closing
against payment therefor as provided in the Purchase Agreement, the Common
Stock and the Trust Preferred Securities will each be duly authorized,
validly issued and fully paid and nonassessable and, with respect to the
Series A Securities, will represent undivided beneficial ownership
interests in the assets of the Trust, and the issuance of the Common Stock
and the Series A Securities will not be in violation of the pre-emptive
rights of any Person. When the Common Trust Securities are delivered to the
Company at the Closing against payment therefore as provided in the Trust
Agreement, they will be duly authorized, validly issued and fully paid and
nonassessable, and will not be issued in violation of the preemptive rights
of any Person. When the Series B Securities are issued in accordance with
the Trust Agreement in exchange for the Series A Securities pursuant to the
Trust Preferred Securities Exchange Offer in accordance with the Trust
Agreement and the Registration Rights Agreement with respect to the Trust
Preferred Securities, such Series B Securities will be validly issued and
fully paid and nonassessable, and will represent undivided beneficial
ownership interests in the assets of the Trust, and the issuance of the
Series B Securities will not be in violation of preemptive rights of any
Person. At the Closing Date, the Junior Subordinated Debentures will have
been duly executed by the Company and, when authenticated in the manner
provided for in the Indenture and delivered by the Company to the Trust
against payment therefor as described in the Private Offering Memorandum,
will constitute valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, except to the extent
that (A) enforceability may be limited by bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent transfers),
moratorium and similar laws affecting creditors' rights generally and (B)
enforcement thereof is subject to general principles of equity (regardless
of whether enforcement is considered in a proceeding in equity or at law).
When the Series B Junior Subordinated Debentures are issued in accordance
with the Indenture in exchange for the Junior Subordinated Debentures
pursuant to the Trust Preferred Securities Exchange Offer in accordance
with the Trust Agreement and the Registration Rights Agreement with respect
to the Trust Preferred Securities, such Series B Junior Subordinated
Debentures will have been duly executed by the Company and when
authenticated in the manner provided for in the Indenture and delivered by
the Company to the Trust, will constitute valid and binding obligations of
the Company, enforceable against the
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Company in accordance with their terms, except to the extent that (A)
enforceability may be limited by bankruptcy, insolvency (including, without
limitation, all laws relating to fraudulent transfers), moratorium and similar
laws affecting creditors' rights generally and (B) enforcement thereof is
subject to general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law).
(j) Regulatory Reports. The Company and the Bank have duly filed with
the OTS and the FDIC, as the case may be, in correct form the reports
required to be filed under applicable laws and regulations and such reports
were in all material respects complete and accurate and in compliance with
the requirements of applicable laws and regulations, provided that
information as of a later date shall be deemed to modify information as of
an earlier date; and the Company has previously delivered or made available
to each Purchaser which has requested the same in writing directly to the
Company accurate and complete copies of all such reports. In connection
with the most recent examinations of the Company and the Bank by the OTS,
neither the Company nor the Bank was required to correct or change any
action, procedure or proceeding which the Company or the Bank believes has
not been corrected or changed as requested.
(k) Financial Statements.
(i) The Private Offering Memorandum includes consolidated balance
sheets of the Company as of December 31, 1997 and 1996 and consolidated
statements of operations, stockholders' equity and cash flows of the
Company for each of the years ended December 31, 1997, 1996 and 1995,
accompanied by the related audit report of Price Waterhouse LLP. The
foregoing financial statements, including the related notes where
applicable (the 'Company Financial Statements'), fairly present the
consolidated financial condition of the Company as of the respective
dates set forth therein, and the consolidated results of operations,
stockholders' equity and cash flows of the Company for the respective
periods or as of the respective dates set forth therein.
(ii) The Company Financial Statements have been prepared in
accordance with generally accepted accounting principles consistently
applied during the periods involved, except as stated therein. The books
and records of the Company and the Company Subsidiaries are being
maintained in material compliance with applicable legal and accounting
requirements, and such books and records accurately reflect in all
material respects all dealings and transactions in respect of the
business, assets, liabilities and affairs of the Company and the Company
Subsidiaries.
(iii) Except to the extent (x) reflected, disclosed or provided for
in the consolidated balance sheet of the Company as of December 31, 1997
(including related notes) and (y) of liabilities incurred since such
date in the ordinary course of business, neither the Company nor any of
the Company Subsidiaries has any liabilities, whether absolute, accrued,
contingent or otherwise, which would have a Material Adverse Effect.
(iv) The accountants who certified the Company Financial Statements
included in the Private Offering Memorandum are independent public
accountants within the meaning of the Securities Act.
(l) Material Adverse Change. Since December 31, 1997, (i) neither the
Company nor any of the Company Subsidiaries has incurred any material
liability (on a consolidated basis), except in the ordinary course of
business consistent with past practice (excluding the incurrence of
expenses or obligations in connection with this Agreement, any Related
Agreement or any of the transactions contemplated hereby or thereby) and
except for such liability or liabilities as would not, individually or in
the aggregate, have a Material Adverse Effect, and (ii) no events or
developments involving the Company or the Company Subsidiaries have
occurred which, individually or in the aggregate, (A) have had a Material
Adverse Effect, or (B) materially impair the ability of the Company to
perform its obligations under this Agreement, any Related Agreement to
which it will become a party or any of the Securities.
(m) Environmental Matters.
(i) To the knowledge of the Company, the Company and the Company
Subsidiaries are in compliance with all Environmental Laws, except for
any violations of any Environmental Law which would not, individually or
in the aggregate, have a Material Adverse Effect. Neither the Company
nor any Company Subsidiary has received any communication alleging that
the Company or any Company
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Subsidiary is not in such compliance and, to the knowledge of the
Company, there are no present circumstances that would prevent or
interfere with the continuation of such compliance.
(ii) To the knowledge of the Company, none of the properties owned,
leased or operated by the Company or the Company Subsidiaries has been
or is in violation of or liable under any Environmental Law, except for
any such violations or liabilities which would not individually or in
the aggregate have a Material Adverse Effect.
(iii) To the knowledge of the Company, there are no past or present
actions, activities, circumstances, conditions, events or incidents that
would reasonably form the basis of any Environmental Claim or other
claim or action or governmental investigation that would result in the
imposition of any liability arising under any Environmental Law against
the Company or any Company Subsidiary or against any Person whose
liability for any Environmental Claim the Company or any Company
Subsidiary has or may have retained or assumed either contractually or
by operation of law, except such as would not have a Material Adverse
Effect.
(n) Allowance for Loan Losses. The allowance for loan losses
reflected in the consolidated balance sheets included in the Company
Financial Statements is adequate in all material respects as of their
respective dates under the requirements of generally accepted accounting
principles to provide for reasonably anticipated losses on outstanding
loans net of recoveries. The Real Estate Owned reflected in the
consolidated balance sheets included in the Company Financial Statements is
carried at the lower of cost or fair value, less estimated costs to sell,
as required by generally accepted accounting principles.
(o) Tax Matters. The Company and the Company Subsidiaries have timely
filed all Tax Returns required by applicable law to be filed by them
(including, without limitation, estimated tax returns, income tax returns,
information returns and withholding and employment tax returns) and have
paid, or where payment is not required to have been made, have set up an
adequate reserve or accrual for the payment of, all Taxes required to be
paid in respect of the periods covered by such Tax Returns, except in all
cases where the failure to have timely filed such Tax Returns or have paid
or have set up an adequate reserve or accrual for the payment of all such
Taxes would not have a Material Adverse Effect. As of the date hereof,
there is no audit examination, assessed deficiency, deficiency litigation
or refund litigation with respect to any Taxes of the Company or any of the
Company Subsidiaries. All Taxes due with respect to completed and settled
examinations or concluded litigation relating to the Company have been paid
in full or adequate provision has been made for any such Taxes on the
Company's consolidated balance sheet in accordance with generally accepted
accounting principles. The Company has not executed an extension or waiver
of any statute of limitations on the assessment or collection of any
material tax due that is currently in effect.
(p) ERISA. Each 'employee benefit plan' (as defined in Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended
('ERISA'), other than any 'multiemployer plan' (as defined in Section 3(37)
or Section 4001(a)(3) of ERISA)) that is sponsored, maintained or
contributed to by the Company (a 'Company Plan') is in compliance in all
material respects with all presently applicable provisions of ERISA, except
where any such noncompliance would not reasonably be expected to have a
Material Adverse Effect; no 'reportable event' (as defined in Section 4043
of ERISA or the regulations thereunder), other than an event as to which
the 30- day statutory notice period is waived by regulation, has occurred
with respect to any Company Plan that is a 'pension plan' (as defined in
Section 3(2) of ERISA (each such Company Plan, a 'Company Pension Plan');
the Company has not incurred and does not expect to incur any material
liability with respect to any Company Pension Plan under (i) Title IV of
ERISA (with respect to the termination of, or withdrawal from, any such
plan) or (ii) Sections 412 or 4971 of the Code; and each Company Pension
Plan has received a determination letter from the Internal Revenue Service
regarding the qualification of such plan under Section 401(a) of the Code,
and to the knowledge of the Company, nothing has occurred, whether by
action or by failure to act, that would cause the loss of such
qualification.
(q) Litigation. There are no actions, suits, investigations or legal
proceedings pending against, or to the knowledge of the Company, threatened
against, or affecting the Company or any of the Company Subsidiaries or
their respective properties before any court or governmental body or agency
which would reasonably be expected to have a Material Adverse Effect or
which in any manner challenge the legality,
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validity or enforceability of this Agreement, any of the Related Agreements
or any of the Securities, or which would reasonably be expected to
materially impair the ability or obligation of the Company to perform fully
on a timely basis its obligations under this Agreement, or the Company or
the Trust to perform fully on a timely basis their obligations under any
Related Agreement to which they will become a party.
(r) Compliance with Laws. Each of the Company and the Company
Subsidiaries has all permits, licenses, certificates of authority, orders
and approvals of, and has made all filings, applications and registrations
with, federal, State, local and foreign governmental or regulatory bodies
that are necessary in order to permit it to carry on its business as it is
presently being conducted and the absence of which would have a Material
Adverse Effect; all such permits, licenses, certificates of authority,
orders and approvals are in full force and effect; and to the knowledge of
the Company, no suspension or cancellation of any of the same is
threatened.
(s) No Default or Violation. Neither the Company nor any of the
Company Subsidiaries currently is in violation of its Certificate of
Incorporation, Articles of Incorporation or Charter, as the case may be, or
its Bylaws, and neither the Company nor any of the Company Subsidiaries is
in violation of any applicable federal, state or local law or ordinance or
any order, rule or regulation of any federal, state, local or other
governmental agency or body (including, without limitation, all banking,
securities, safety, health, environmental, zoning, anti-discrimination,
antitrust, and wage and hour laws, ordinances, orders, rules and
regulations), or in default with respect to any order, writ, injunction or
decree of any court, or in default under any order, license, regulation or
demand of any governmental agency, where any of such violations or defaults
would, individually or in the aggregate, reasonably be expected (i) to have
a Material Adverse Effect or (ii) materially adversely impair the ability
of the Company to perform on a timely basis any obligation which it has
under this Agreement, or the Company or the Trust to perform on a timely
basis any obligation which they have under any Related Agreement to which
they will become a party and none of the Company, the Trust nor any of the
Company Subsidiaries has received any notice or communication from any
federal, state or local governmental authority asserting that the Company,
the Trust or such Company Subsidiary is in violation of any of the
foregoing which would reasonably be expected to have any effect set forth
in clauses (i) or (ii) above. Neither the Company, the Trust nor any of the
Company Subsidiaries is subject to any regulatory or supervisory cease and
desist order, agreement, written directive, memorandum of understanding or
written commitment, and none of them has received any written communication
requesting that they enter into any of the foregoing.
(t) Certain Contracts. Neither the Company nor any Company Subsidiary
is in default or in non-compliance, which default or non-compliance would
reasonably be expected to have a Material Adverse Effect, under any
contract, agreement, commitment, arrangement, lease, insurance policy or
other instrument to which it is a party or by which its assets, business or
operations may be bound or affected, whether entered into in the ordinary
course of business or otherwise and whether written or oral, and there has
not occurred any event that with the lapse of time or the giving of notice,
or both, would constitute such a default or non-compliance.
(u) Insurance. The Company and each Company Subsidiary is insured for
reasonable amounts with financially sound and reputable insurance companies
against such risks as companies engaged in a similar business would, in
accordance with good business practice, customarily be insured and has
maintained all insurance required by applicable laws and regulations,
except where the failure to be so insured would not have a Material Adverse
Effect. Neither the Company nor any of the Company Subsidiaries has
received any notice of cancellation or notice of a material amendment of
any such insurance policy or bond or is in default under such policy or
bond, no coverage thereunder is being disputed and all material claims
thereunder have been filed in a timely fashion, except where any such
cancellation, default or dispute would not, individually or in the
aggregate, have a Material Adverse Effect.
(v) Properties. All real and personal property owned by the Company
or any of the Company Subsidiaries or presently used by any of them in
their respective business is in an adequate condition (ordinary wear and
tear excepted) and is sufficient to carry on the business of the Company
and the Company Subsidiaries in the ordinary course of business consistent
with their past practices. The Company and the Company Subsidiaries have
good and marketable title free and clear of all Liens to all of the
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material properties and assets, real and personal, reflected on the
consolidated balance sheet of the Company as of December 31, 1997 included
in the Company Financial Statements or acquired after such date, except (i)
for Liens for current taxes not yet due or payable, (ii) for pledges to
secure deposits and other Liens incurred in the ordinary course of its
banking business, (iii) for such Liens, if any, which would not,
individually or in the aggregate, have a Material Adverse Effect and (iv)
as reflected on the consolidated balance sheet of the Company as of
December 31, 1997 included in the Company Financial Statements. All real
and personal property which is material to the Company's business on a
consolidated basis and leased or licensed by the Company or any Company
Subsidiary is held pursuant to leases or licenses which are valid and
enforceable in accordance with their respective terms and such leases will
not terminate or lapse prior to the Closing Date, except where such
invalidity, unenforceability, termination or lapse would not, individually
or in the aggregate, have a Material Adverse Effect.
(w) Certain Fees. Except for fees and expenses payable by the Company
to the Placement Agent pursuant to the Agency Agreement, no fees or
commissions will be payable by the Company or any of the Company
Subsidiaries to brokers, finders, investment bankers or banks pursuant to
any agreement entered into by the Company or any of the Company
Subsidiaries with respect to the Exchange or the Redemption, the offer and
sale of the Securities of the Company or of any shares of Capital Stock of
the Company Subsidiaries, or any of the other transactions contemplated by
this Agreement or the Related Agreements.
(x) No Debt. Except for (i) the Senior Notes payable to the Selling
Shareholders with an aggregate outstanding principal balance of $17.1
million as of the date hereof, plus accrued and unpaid interest, and (ii)
the Junior Subordinated Debentures to be issued pursuant to the Indenture,
the Company, on an unconsolidated basis, does not have any outstanding
Indebtedness (as defined in the Indenture).
(y) Similar Offerings. Neither the Company nor the Trust has,
directly or indirectly, solicited any offer to buy or offered to sell, and
will not, directly or indirectly, solicit any offer to buy or offer to
sell, in the United States or to any United States citizen or resident, any
security which is or would be integrated with the sale of the Common Stock
and/or Trust Preferred Securities in a manner that would require the Common
Stock and/or the Trust Preferred Securities to be registered under the
Securities Act.
(z) Regulation M. The Company has not taken and will not take,
directly or indirectly, any action designed to, or that might be reasonably
expected to, cause or result in stabilization or manipulation of the price
of the Common Stock and/or the Trust Preferred Securities.
(aa) 144A Eligibility. The Trust Preferred Securities issued to
'qualified institutional buyers,' as defined in Rule 144A of the General
Rules and Regulations of the Commission under the Securities Act, are
eligible for resale pursuant to Rule 144A and will not be, at the Closing
Date, of the same class as securities listed on a national securities
exchange registered under Section 6 of the Exchange Act or quoted in a U.S.
automated inter-dealer quotation system.
(bb) No General Solicitation. None of the Trust, the Company, or any
of their affiliates (as such term is defined in Rule 501(b) under the
Securities Act, 'Affiliates') or any person acting on its or any of their
behalf (other than the Placement Agent, as to whom the Company and the
Trust make no representation) has engaged or will engage, in connection
with the offering of the Securities, in any form of general solicitation or
general advertising within the meaning of Rule 502(c) under the Securities
Act.
(cc) No Registration. It is not necessary in connection with the
offer, sale and delivery of the Securities in the manner contemplated by
this Agreement and the Private Offering Memorandum to register the
Securities under the Securities Act or to qualify the Trust Agreement, the
Indenture or the Guarantee Agreements under the Trust Indenture Act of
1939, as amended.
(dd) Memorandum. The Private Offering Memorandum does not, and at the
Closing Date will not, include an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(ee) Disclosure. None of the representations and warranties of the
Company or any of the information or documents which have been Previously
Disclosed pursuant hereto are false or misleading in any material respect
or contain any untrue statement of a material fact, or omit to state any
material fact required to be
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stated or necessary to make any such information or document, at the time
and in light of the circumstances, not misleading. Copies of all documents
referred to in this Section 3.1 are true, correct and complete copies
thereof and include all amendments, supplements and modifications thereto
and all waivers thereunder.
SECTION 3.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
(a) Investment Intent. Each Purchaser, severally and not jointly and as to
itself only, represents and warrants to, and covenants and agrees with, the
Company that the Securities to be acquired by it hereunder are being acquired
for its own account for investment and with no intention of distributing or
reselling such Securities or any part thereof or interest therein in any
transaction which would be in violation of the securities laws of the United
States of America or any State, without prejudice, however, to a Purchaser's
right, subject to the provisions of this Agreement and the Registration Rights
Agreements, at all times to sell or otherwise dispose of all or any part of such
Securities under an effective registration statement under the Securities Act
and other applicable State securities laws or under an exemption from such
registration requirements, and subject, nevertheless, to the disposition of a
Purchaser's property being at all times within its control. Each Purchaser,
severally and not jointly and as to itself only, further represents and warrants
to the Company that such Purchaser has no present agreement, understanding, plan
or intent to transfer the Securities to be purchased by it to any transferee.
(b) Transfer Restrictions. If a Purchaser should decide to dispose of any
of the Securities purchased pursuant hereto, such Purchaser understands and
agrees that it may do so only pursuant to an effective registration statement
under the Securities Act or as set forth below: (i) to the Company, (ii) to any
Person reasonably believed by such Purchaser to be a 'qualified institutional
buyer' (as defined in Rule 144A under the Securities Act) in compliance with
Rule 144A under the Securities Act, (iii) pursuant to an exemption from
registration set forth in Rule 144 under the Securities Act, (iv) to any Person
who is reasonably believed by such Purchaser to be an 'accredited investor' (as
defined in Rule 501(a) under the Securities Act) and who, prior to such
transfer, furnishes to the Purchaser and the Company a signed letter confirming
its status as an accredited investor and agreeing to the restrictions on
transfer of the Securities set forth in this Agreement or (v) to any Affiliate
of such Purchaser pursuant to an applicable exemption under the Securities Act.
In connection with any transfer of any Securities other than (i) any transfer
pursuant to an effective registration statement or (ii) any transfer by a
qualified institutional buyer, the Company may require that the transferor of
any such Securities provide to the Company an opinion of counsel experienced in
the area of United States securities laws selected by the transferor (which may
include in-house counsel of a transferor), which counsel shall be and the form
and substance of which opinion shall be, reasonably satisfactory to the Company,
to the effect that such transfer does not require registration of such
Securities under the Securities Act or any State securities laws. In connection
with any transfer pursuant to clause (ii) above, the Company may request
reasonable certification as to the status of the transferor's transferee as a
qualified institutional buyer. Each Purchaser agrees to the imprinting, so long
as appropriate, on the certificates representing the shares of Common Stock and
the Trust Preferred Securities, a legend substantially similar to the foregoing
sentences. Such legend may be removed if and when the applicable Securities are
disposed of pursuant to an effective registration statement under the Securities
Act or in the opinion of counsel to the Company experienced in the area of
United States securities laws such legend is no longer required under applicable
requirements of the Securities Act. The certificates evidencing the Securities
also shall bear any other legends required by applicable federal or State
securities laws, which legends may be removed when, in the opinion of counsel to
the Company experienced in the applicable securities laws, the same are no
longer required under the applicable requirements of such securities laws. The
Company agrees that it will provide each Purchaser, upon written request, with a
certificate or certificates evidencing the Securities not bearing such legend at
such time as such legend is no longer applicable.
(c) Stop Transfer Instructions. Each Purchaser agrees that the Company
shall be entitled to make a notation on its records and give instructions to any
transfer agent of the Securities in order to implement the restrictions on
transfer set forth in Section 3.2(b) of this Agreement.
(d) Qualified Institutional Buyer; Accredited Investor; Non-U.S.
Person. Each Purchaser, severally and not jointly and as to itself only,
represents and warrants to, and covenants and agrees with, the Company that (i)
at the time it was offered the Securities, it was, (ii) at the date hereof, it
is, and (iii) at the Closing, it will be, a 'qualified institutional buyer' as
such term is defined in Rule 144A, an 'accredited investor' as defined in
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Rule 501(a) or a non-U.S. person in compliance with the requirements of
Regulation S, in each case, of the General Rules and Regulations of the
Commission under the Securities Act, and has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment, is able to bear the economic
risk of such investment and, at the present time, is able to afford a complete
loss of such investment.
(e) Due Execution. Each Purchaser, severally and not jointly and as to
itself only, represents and warrants to the Company that this Agreement has
been, and each Related Agreement to which it will become a party will be, duly
executed and delivered by it or on its behalf and constitutes, or will
constitute, as applicable, a valid and binding obligation of such Purchaser,
enforceable against the Purchaser in accordance with its terms, except that (i)
rights to indemnity and contribution under the Registration Rights Agreements
may be limited by applicable law, (ii) enforceability may be limited by
bankruptcy, insolvency, moratorium and similar laws affecting creditors' rights
generally and (iii) rights of acceleration and the availability of equitable
remedies may be limited by equitable principles of general applicability.
(f) No Conflict. Each Purchaser, severally and not jointly and as to
itself only, represents and warrants to the Company that (i) the execution,
delivery and performance of this Agreement and each of the Related Agreements to
which it will become a party do not and will not, as applicable, conflict with
or constitute a breach or a default under (i) its articles of incorporation,
charter or other organizational document or bylaws, as applicable, (ii) any
obligation, agreement, indenture, bond, debenture, note, instrument or any other
evidence of indebtedness to which it is a party or as to which its assets are
subject or (iii) any law, ordinance, order, license, rule or other regulation or
demand of any court or governmental agency, arbitration panel or authority
applicable to it.
(g) Access to Information. Each Purchaser acknowledges receipt of the
Private Offering Memorandum and further acknowledges that prior to the date
hereof and, subject to the Company's compliance with its obligations pursuant to
Section 5.1(a) hereof, on and subsequent to the date hereof, it has been
afforded (i) the opportunity to ask such questions as it has deemed necessary
of, and to receive answers from, representatives of the Company concerning the
terms and conditions of the offering of the Securities and the merits and risks
of investing in the Securities and (ii) access to information about the Company
and the Company's financial condition, results of operations, business,
properties, management and prospects sufficient to enable it to evaluate its
investment in the Securities. Each Purchaser also acknowledges that all
information, financial or otherwise, included in the Private Offering Memorandum
has been provided by the Company for evaluation by prospective Purchasers. Each
Purchaser further acknowledges that the information relating to the Company and
the Company Subsidiaries is the sole responsibility of the Company. Each
Purchaser agrees and acknowledges that the Placement Agent has made no
recommendation or warranty and assumes no responsibility as to the accuracy or
completeness of any such information.
(h) Reliance of Others on Purchasers' Representations. Each Purchaser
understands and acknowledges that (i) the Securities are being offered and sold
without registration under the Securities Act in a private placement that is
exempt from the registration provisions of the Securities Act and (ii) such
exemption depends in part on, and that the Company, its counsel and the
Placement Agent will rely upon, the accuracy and truthfulness of the
representations and warranties of such Purchaser set forth in this Agreement,
and such Purchaser hereby consents to such reliance.
(i) Governmental Authorization.
(i) Except for any required compliance by a Purchaser with applicable
federal and State securities laws, each Purchaser, severally and not
jointly and as to itself only, represents and warrants to the Company that
no consent, approval, order or other authorization of any governmental,
administrative or regulatory body or agency is legally required by or on
behalf of the Purchaser in connection with the execution, delivery and
performance of this Agreement and each Related Agreement to which it will
become a party.
(ii) Each Purchaser, severally and not jointly and as to itself only,
represents and warrants that upon consummation of the transactions
contemplated by Section 2.1 hereof, (A) it will not, directly or
indirectly, through one or more subsidiaries or transactions or by acting
in concert with one or more persons or
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companies (whether conclusively or through a rebuttable presumption of
concerted action), be in control of the Company or the Bank, as defined in
12 C.F.R. Section 574.4(a), and will not be subject to a rebuttable
determination of control under 12 C.F.R. Section 574.4(b); and (B) it does
not have any agreements or understandings, written or tacit, with respect
to the exercise of control, directly or indirectly, over the management or
policies of the Company or the Bank, including agreements (except for this
Agreement) relating to voting, acquisition or disposition of the Company's
or the Bank's Capital Stock. Each Purchaser acknowledges that if such
Purchaser is deemed to be so acting in concert with one or more persons or
companies or to have such an agreement or understanding, then such
Purchaser could be in violation of certain federal statutes and
regulations, including, without limitation, bank regulatory and antitrust
laws, and such Purchaser could be subject to fines and other penalties in
respect of such violation.
(iii) Each Purchaser, severally and not jointly and as to itself only,
represents and warrants to the Company that it has not purchased any Trust
Preferred Securities in a block of less than $100,000 liquidation amount
and that it will not sell Trust Preferred Securities to a subsequent
purchaser in a block of less than $100,000 liquidation amount.
(j) Information Provided. Each Purchaser represents and warrants that, in
considering its investment in the Securities, such Purchaser has not relied, and
such Purchaser acknowledges and agrees that it is not entitled to rely, on any
information which is not contained in the Private Offering Memorandum. Each
Purchaser understands and acknowledges that, to the extent he has received or
inspected projections prepared by the Company relating to the future financial
condition and results of operations of the Company and its subsidiaries
(including, without limitation, any business plan of the Company), such
projections are subject to a number of assumptions and conditions, and no
assurance can be made that the Company's future financial condition and results
of operations will not materially deviate from such projections, particularly if
economic or other conditions differ from the assumptions utilized in preparing
such projections (the Purchaser also understands and acknowledges that the
Company does not undertake or assume any obligation to notify the Purchaser or
otherwise amend, revise or supplement such projections in the event such
projections are not realized or the underlying assumptions are changed).
ARTICLE IV
CONDITIONS PRECEDENT TO THE CLOSING
SECTION 4.1 CONDITIONS TO OBLIGATIONS OF THE PARTIES. The respective
obligations of each of the parties hereto to fulfill their obligations under
Section 2.1 hereof at the Closing shall be subject to the satisfaction or waiver
prior to the Closing of the following conditions:
(a) All requirements prescribed by law which are necessary to the
consummation of the transactions contemplated by this Agreement and the
Related Agreements shall have been satisfied.
(b) No party to this Agreement or the Related Agreements shall be
subject to any order, decree or injunction of a court or agency of
competent jurisdiction which enjoins or prohibits the consummation of any
of the transactions contemplated by this Agreement or the Related
Agreements.
(c) No statute, rule or regulation shall have been enacted, entered,
promulgated, interpreted, applied or enforced by any governmental authority
which prohibits, restricts or makes illegal consummation of any of the
transactions contemplated by this Agreement or the Related Agreements.
(d) The Company shall have completed the sale of the Securities as
contemplated by this Agreement and shall have received gross proceeds from
the sale of the Common Stock and the Trust Preferred Securities of at least
$135.0 million and $20.0 million, respectively.
(e) Each of the parties hereto shall have received (i) a counterpart
to this Agreement, duly executed and delivered by the parties hereto, and
(ii) a counterpart of each Related Agreement to which it is a party, in
form and substance satisfactory to the parties, which shall have been duly
executed and delivered by each of the applicable parties.
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SECTION 4.2 CONDITIONS TO OBLIGATIONS OF THE PURCHASERS. The obligations
of each of the Purchasers to fulfill its obligations under Section 2.1 hereof
shall be subject to the satisfaction or waiver prior to the Closing of the
following conditions:
(a) Each of the representations and warranties of the Company
contained in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing Date as if
made on the Closing Date (or on the date when made in the case of any
representation or warranty which specifically relates to an earlier date);
the Company shall have performed, in all material respects, each of its
covenants and agreements contained in this Agreement to be performed prior
to the Closing; and the Placement Agent shall have received a certificate
signed by the Chief Executive Officer and the Chief Financial Officer of
the Company, dated the Closing Date, to the foregoing effect.
(b) Each of the representations and warranties of the Selling
Shareholders contained in the Exchange and Redemption Agreement shall be
true and correct in all material respects as of the date of such agreement
and as of the Closing Date as if made on the Closing Date (or on the date
when made in the case of any representation or warranty which specifically
relates to an earlier date); the Selling Shareholders shall have performed,
in all material respects, each of their covenants and agreements contained
in the Exchange and Redemption Agreement to be performed prior to the
Closing; and the Company shall have received a certificate signed by the
principal executive officer of each of the Selling Shareholders, dated the
Closing Date, to the foregoing effect.
(c) The Company shall have delivered to each Purchaser or its duly
authorized representative a certificate evidencing shares of Common Stock
or Trust Preferred Securities, as the case may be, in each case registered
in the name of the Purchaser, sufficient to evidence the Securities to be
issued and sold by the Company and purchased by the Purchaser, against
payment therefor to the Company, as such investment has been identified on
the Investor Signature Page to this Agreement.
(d) The Company shall have obtained the requisite stockholder approval
of an amendment to its Certificate of Incorporation to increase its
authorized Common Stock to 25,000,000 shares, revise the par value per
share of Common Stock to $0.01 per share and to authorize 10,000,000 shares
of Preferred Stock, and the Company shall have filed with the Secretary of
State of the State of Delaware the appropriate documentation in order to
effect such amendment.
(e) All of the current directors of the Company and the Bank shall
have resigned and Messrs. Lam, Wu, Downing, Fell and Wong shall have been
elected directors of the Company and the Bank.
(f) At the Closing Date, the Placement Agent shall have received the
favorable opinion, dated as of the Closing Date, of Patton Boggs, L.L.P.,
counsel for the Company and the Trust, in form and substance reasonably
satisfactory to counsel for the Placement Agent. Such counsel may state
that, insofar as such opinion involves factual matters, they have relied,
to the extent they deem proper, upon certificates of Trustees of the Trust,
officers of the Company and the Bank and certificates of public officials.
Such counsel may also rely, as to matters of law other than the laws of the
United States, on opinions of counsel reasonably satisfactory to counsel
for the Placement Agent.
(g) At the Closing Date, the Placement Agent shall have received the
favorable opinion, dated as of the Closing Date, of Richards, Layton &
Finger special Delaware counsel for the Company and the Trust, in form and
substance reasonably satisfactory to counsel for the Placement Agent.
(h) At the Closing Date, the Placement Agent shall have received an
opinion, dated as of the Closing Date, of Patton Boggs, L.L.P., special tax
counsel to the Company and the Trust, substantially to the effect that (i)
the Junior Subordinated Debentures will be classified as indebtedness for
United States federal income tax purposes, (ii) the Trust will be
classified as a grantor trust for United States federal income tax
purposes, and (iii) the statements set forth in the Private Offering
Memorandum under the caption 'Certain Federal Income Tax Consequences With
Respect to the Capital Securities' constitute, in all material respects, a
fair and accurate summary of the principal United States federal income tax
consequences of the ownership and disposition of the Series A Trust
Preferred Securities under current law. Such opinion may be conditioned on,
among other things, the initial and continuing accuracy of the facts,
financial and other
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information, covenants and representations set forth in certificates of
officers of the Company and other documents deemed necessary for such
opinion.
(i) At the Closing Time, the Securities will be eligible for quotation
on the Private Offerings, Resales and Trading through Automated Linkages
('PORTAL') System of the National Association of Securities Dealers, Inc.
(j) The Placement Agent shall have received such other certificates,
opinions, documents and instruments related to the transactions
contemplated hereby as may have been reasonably required by it and are
customary for transactions of this type, and all corporate and other
proceedings, and all documents, instruments and other legal matters in
connection with the transactions contemplated by this Agreement, shall be
reasonably satisfactory in form and substance to it and its counsel.
SECTION 4.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations of
the Company to fulfill its obligations under this Agreement, including without
limitation the obligations set forth in Section 2.1 hereof, shall be subject to
the satisfaction, or waiver prior to the Closing, of the following conditions:
(a) Each of the representations and warranties of the Purchasers
contained in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing Date as if
made on the Closing Date. Payment by each Purchaser of the applicable
consideration for each of the Securities to be issued and sold by the
Company shall be deemed an affirmation by each such Purchaser of the
representations and warranties set forth in Section 3.2 of this Agreement.
(b) Each Purchaser shall have delivered to the Company the applicable
consideration for each of the Securities to be issued and sold by the
Company and purchased by the Purchaser pursuant to this Agreement, as set
forth on the Investor Signature Page to this Agreement, such amount to be
payable by wire transfer of immediately available funds to an account with
a bank designated by the Company, by notice to each of the Purchasers to be
provided no later than two Business Days prior to the Closing Date.
(c) No party to this Agreement (other than the Company) shall be in
material breach of this Agreement unless such breach shall have been waived
in writing by each of the other parties to this Agreement.
ARTICLE V
COVENANTS
SECTION 5.1 INVESTIGATION AND CONFIDENTIALITY.
(a) Prior to the Closing, the Company shall permit each Purchaser and its
representatives reasonable access to its properties and personnel, and shall
disclose and make available to each Purchaser all books, papers and records
relating to the assets, stock ownership, properties, operations, obligations and
liabilities of the Company and the Company Subsidiaries, including, but not
limited to, all books of account (including the general ledger), tax records,
minute books of meetings of boards of directors (and any committees thereof) and
shareholders, organizational documents, bylaws, material contracts and
agreements, filings with any regulatory authority, accountants' work papers,
litigation files, loan files, plans affecting employees, and any other business
activities or prospects in which a Purchaser may have a reasonable interest,
provided that such access shall be reasonably related to the transactions
contemplated hereby and not unduly interfere with the Company's normal
operations, and provided further that in the event that any of the foregoing are
in the control of any third party, the Company shall use its best efforts to
cause such third party to provide access to such materials to each Purchaser who
shall request the same. In the event that the Company is prohibited by law from
providing any of the access referred to in the preceding sentence to a
Purchaser, it shall use its best efforts to obtain promptly waivers thereof so
as to permit such access. The Company shall make the directors, officers,
employees and agents and authorized representatives (including counsel and
independent public accountants) of the Company and the Company Subsidiaries
available to confer with a Purchaser and its representatives, provided that such
access shall be reasonably related to the transactions contemplated hereby and
not unduly interfere with normal operations.
(b) All information furnished to a Purchaser by the Company previously in
connection with the transactions contemplated by this Agreement or pursuant
hereto shall be treated as the sole property of the Company and each
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Purchaser covenants, severally and not jointly and as to itself only, that it
shall use its best efforts to keep confidential all such information and shall
not directly or indirectly use such information for any competitive or other
commercial purposes. The obligation to keep such information confidential shall
continue for five years from the date hereof but shall not apply to (i) any
information which (x) a Purchaser can establish by convincing evidence was
already in its possession prior to the disclosure thereof by the Company; (y)
was then generally known to the public; or (z) became known to the public
through no fault of a Purchaser; or (ii) disclosures pursuant to a legal
requirement or in accordance with an order of a court of competent jurisdiction,
provided that a Purchaser shall use its best efforts to give the Company at
least ten Business Days prior notice thereof and shall limit such disclosure to
the minimum amount required by such legal requirement or court order.
SECTION 5.2 RULE 144 AND RULE 144A REPORTING.
With a view to making available to holders of Securities the benefits of
certain rules and regulations of the Commission which may permit the sale of the
Securities to the public without registration, the Company agrees from and after
the Closing at all times to:
(a) make and keep public information available, as those terms are
understood and defined in Rules 144 and 144A under the Securities Act (or
any successors thereto); and
(b) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1 SURVIVAL OF PROVISIONS. The representations, warranties and
covenants of the Company and the Purchasers made herein and each of the
provisions of Articles V and VI shall remain operative and in full force and
effect regardless of (i) any investigation made by or on behalf of any Purchaser
or the Company, as the case may be, (ii) acceptance of any of the Securities and
payment by the Purchasers therefor, or (iii) the transfer of any Securities or
interest therein by any Purchaser, provided that no transferee may claim the
benefit of any such representation or warranty.
SECTION 6.2 TERMINATION. This Agreement may be terminated (as between the
party electing so to terminate it and the counterparty to which termination is
directed) by giving written notice of termination to the applicable counterparty
at any time prior to the Closing:
(a) By the Company (i) if any of the conditions specified in Sections
4.1 and 4.3 of this Agreement has not been met or waived by it pursuant to
the terms of this Agreement by 5:00 p.m., Eastern Time on ___________, 1998
or (ii) if the Placement Agent shall have failed to deliver to the Company
by 5:00 p.m., Eastern Time, on ___________, 1998, validly executed and
delivered signature pages to this Agreement reflecting binding and
enforceable commitments (subject to the terms of this Agreement) on the
part of Purchasers to purchase at least $135.0 million of Common Stock and
$20.0 million of Trust Preferred Securities; provided, however, that no
such commitment from any single purchaser or group of purchasers acting in
concert to purchase Common Stock shall be for a number of shares of Common
Stock which exceeds 9.9% of the aggregate number of shares of Common Stock
for which such signature pages are delivered; and provided further that no
such commitment from any single purchaser to purchase Trust Preferred
Securities is in a block having a liquidation amount less than $100,000; or
(b) By any Purchaser if any of the conditions specified in Sections
4.1 and 4.2 of this Agreement has not been met or waived by such Purchaser
pursuant to the terms of this Agreement by 5:00 p.m., Eastern Time, on
___________, 1998.
SECTION 6.3 WAIVER; AMENDMENTS.
(a) No failure or delay on the part of the Company or any Purchaser in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be
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available to the Company or any Purchaser at law or in equity. No waiver of or
consent to any departure by the Company or any Purchaser from any provision of
this Agreement shall be effective unless signed in writing by the party entitled
to the benefit thereof. Except as otherwise provided herein, no amendment,
modification or termination of any provision of this Agreement shall be
effective unless signed in writing by or on behalf of the Company and each
Purchaser. Any amendment, supplement or modification of or to any of this
Agreement, any waiver of any provision of this Agreement, and any consent to any
departure from the terms of any provision of this Agreement, shall be effective
only in the specific instance and for the specific purpose for which made or
given. Except where notice is specifically required by this Agreement, no notice
to or demand on any party hereto in any case shall entitle another party hereto
to any other or further notice or demand in similar or other circumstances.
(b) The Company shall not, directly or indirectly, pay or cause to be paid
any remuneration, whether by way of dividends, redemption premiums, fees or
otherwise, to any holder of any Securities as consideration for or as an
inducement to any consent, waiver or amendment of any of the terms and
provisions of this Agreement unless such remuneration is paid to all Purchasers;
provided, however, that this Section 6.3(b) does not restrict the Company's
ability to deal individually with any Purchaser or any subsequent holder with
respect to any settlement of a dispute or in the ordinary course of business.
SECTION 6.4 COMMUNICATIONS. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing by hand-delivery,
registered first-class mail, telex, telecopier, or air courier guaranteeing
overnight delivery:
(i) if to any Purchaser, initially at the address set forth below its
name on the Investor Signature Page to this Agreement, and thereafter at
such other address, notice of which is given in accordance with this
Section 6.4;
(ii) if to the Company, initially at 711 Van Ness Avenue, San
Francisco, California 94102, Attention: President; and thereafter at such
other address notice of which is given in accordance with this Section 6.4;
and
(iii) if to the Placement Agent, initially at Two World Trade Center,
104th Floor, New York, New York 10048, Attention: Thomas W. Killian; and
thereafter at such other address notice of which is given in accordance
with this Section 6.4.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being sent by certified mail, return receipt requested, if mailed;
when answered back, if telexed; when receipt is acknowledged, if telecopied; and
on the next Business Day if timely delivered to an air courier guaranteeing
overnight delivery.
SECTION 6.5 COSTS, EXPENSES AND TAXES. The Company agrees to pay all
reasonable costs and expenses incurred by it in connection with the negotiation,
preparation, typing, reproduction, execution, delivery and performance of this
Agreement and the Related Agreements and any amendment or supplement or
modification hereof or thereof (except to the extent otherwise provided in the
Registration Rights Agreements), including without limitation, attorneys fees
and expenses and all reasonable costs and expenses incurred by it in connection
with the Company's administration of this Agreement and any Related Agreement.
The Company shall pay all reasonable costs and expenses (including, without
limitation, attorneys' fees and expenses), if any, incurred by the Purchasers in
connection with any waiver, amendment or modification of any provision of this
Agreement or any Related Agreement with respect to an obligation of, or
requested by, the Company. In addition, the Company shall pay any and all stamp,
transfer and other similar taxes payable in connection with the execution and
delivery of this Agreement or the original issuance of any Securities, and shall
save and hold each Purchaser harmless from and against any and all liabilities
with respect to or resulting from any delay in paying, or omission to pay, such
taxes.
SECTION 6.6 EXECUTION IN COUNTERPARTS. This Agreement may be executed in
any number of counterparts and by different parties hereto on separate
counterparts, each of which counterparts, when so executed and delivered, shall
be deemed to be an original and all of which counterparts, taken together, shall
constitute but one and the same Agreement.
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SECTION 6.7 BINDING EFFECT; ASSIGNMENT. Prior to the Closing, the rights
and obligations of any Purchaser under this Agreement may not be assigned to any
other Person except with the prior written consent of the Company and the
Placement Agent, and after the Closing the rights and obligations of any
Purchaser may be assigned by such Purchaser to any Person purchasing Securities
from the Purchaser contemporaneously with such assignment (provided the rights
so assigned shall apply to the Securities so purchased), subject to the
provisions of Section 3.2(b), provided that the rights of a Purchaser pursuant
to Section 5.2 hereof may not be assigned to any Person other than an Affiliate
of such Purchaser. The rights and obligations of the Company under this
Agreement may not be assigned by the Company without the consent of each
Purchaser. Except as expressly provided in this Agreement, this Agreement shall
not be construed so as to confer any right or benefit upon any Person other than
the parties to this Agreement, and their respective successors and permitted
assigns. This Agreement shall be binding upon the Company and each Purchaser,
and their respective successors and permitted assigns.
SECTION 6.8 GOVERNING LAW. This Agreement shall be deemed to be a contract
made under the laws of the State of Delaware, and for all purposes shall be
construed in accordance with the laws of said state, without regard to
principles of conflict of laws.
SECTION 6.9 SEVERABILITY OF PROVISIONS. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability only without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
SECTION 6.10 HEADINGS AND GENDER. The Article and Section headings and
Table of Contents used or contained in this Agreement are for convenience of
reference only and shall not affect the construction of this Agreement. Use of a
particular gender herein shall be considered to represent the masculine,
feminine or neuter gender whenever appropriate.
SECTION 6.11 INTEGRATION. This Agreement (including documents delivered
pursuant hereto) and the Related Agreements constitute the entire agreement
among the parties with respect to the subject matter thereof and there are no
promises or undertakings with respect thereto not expressly set forth or
referred to herein or therein.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
UCBH HOLDINGS, INC.
By: /s/ Tommy S. Wu
--------------------------
Name: Tommy S. Wu
Title: President and Chief Executive Officer
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Investor Signature Page to the Purchase Agreement
__________________________________
Name of Investor
By: __________________________________
Name:
Title:
Address:__________________________
__________________________________
__________________________________
Number of Shares of Common Stock proposed to be purchased
(at $15.00 per share) ______ shares
Aggregate liquidation amount of Trust Preferred Securities
proposed to be purchased (Minimum purchase $100,00 liquidation
amount and increments of $1,00 thereafter) $____________
A-20
Exhibit 4.2
REGISTRATION RIGHTS AGREEMENT
Registration Rights Agreement (the 'Agreement'), dated as of April 13,
1998, by and among UCBH Holdings, Inc. (the 'Company'), a Delaware corporation,
and each of the undersigned Investors (hereinafter referred to individually as
an 'Investor' and collectively as the 'Investors').
WITNESSETH:
WHEREAS, the Company and each of the Investors have entered into a Purchase
Agreement providing for the purchase by the Investors of, among other things,
shares of the Company's Common Stock, subject to the terms and conditions set
forth therein; and
WHEREAS, the Company desires to provide the Investors with certain
registration rights with respect to the shares of Common Stock issuable pursuant
to the Purchase Agreement;
NOW, THEREFORE, in consideration of the premises and mutual agreements set
forth herein and for other good and valuable consideration, the receipt and the
sufficiency of which are hereby acknowledged, the Company and the Investors,
intending to be legally bound, agree as follows:
SECTION 1. DEFINITIONS.
As used in this Agreement, the following terms shall have the following
meanings:
(a) 'Affiliate' shall mean, with respect to any Person, any Person
that, directly or indirectly, controls, is controlled by or is under common
control with such Person. For the purposes of this definition, 'control'
when used with respect to any specified Person means the power to direct
the management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise; and
the terms 'controlling' and 'controlled' have meanings corresponding to the
foregoing.
(b) 'Agency Agreement' means the Agency Agreement between the Company,
United Commercial Bank, UCBH Trust Co. and the Placement Agent with respect
to, among other things, the Common Stock issued pursuant to the Purchase
Agreement.
(c) 'Business Day' shall mean any day except a Saturday, Sunday or
other day on which commercial banks in the State of California are
authorized or obligated by law to close.
(d) 'Commission' shall mean the Securities and Exchange Commission, or
any other federal agency at the time administering the Securities Act.
(e) 'Common Stock' means the Common Stock, par value $10.00 per share,
of the Company, which par value shall be reduced to $0.01 per share by an
amendment to the Company's Certificate of Incorporation immediately prior
to the Closing.
(f) 'Exchange Act' shall mean the Securities Exchange Act of 1934, as
amended.
(g) 'Holder' shall mean any holder of outstanding Registrable
Securities, including any Person to whom Registrable Securities have been
transferred in compliance with this Agreement.
(h) 'Initiating Holders' shall mean one or more Holders of not less
than 25% of the Registrable Securities then outstanding.
(i) 'Issue Date' shall mean April 17, 1998, the date of original
issuance pursuant to the Purchase Agreement of the shares of Common Stock.
(j) 'Person' shall mean an individual, a corporation, a partnership,
an association, a trust or any other entity or organization, including a
government or political subdivision or an agency or instrumentality
thereof.
(k) 'Placement Agent' means the Placement Agent defined in the Agency
Agreement.
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(l) 'Prospectus' shall mean the prospectus included in a Shelf
Registration Statement, including any preliminary prospectus, and any such
prospectus as amended or supplemented by any prospectus supplement,
including a prospectus supplement with respect to the terms of the offering
of any portion of the Registrable Securities covered by a Shelf
Registration Statement, and by all other amendments and supplements to a
prospectus, including post-effective amendments, and in each case including
all material incorporated by reference therein.
(m) 'Purchase Agreement' shall mean the Purchase Agreement among the
Company and the Investors, as amended, supplemented or otherwise modified
from time to time.
(n) 'Registrable Securities' shall mean (i) the shares of Common Stock
issued pursuant to the Purchase Agreement and (ii) any shares of the
capital stock (or rights to receive capital stock of the Company) issued in
respect of the Common Stock issued pursuant to the Purchase Agreement by
reason of or in connection with any stock dividend, stock distribution,
stock split, purchase in any rights offering or in connection with any
combination of shares, recapitalization, merger or consolidation, or any
other equity securities issued pursuant to any other pro rata distribution
with respect to the Common Stock issued pursuant to the Purchase Agreement.
Notwithstanding the foregoing, Registrable Securities shall not include
otherwise Registrable Securities (i) sold to or through a broker or dealer
or underwriter or (ii) sold in a transaction exempt from the registration
and prospectus delivery requirements of the Securities Act under Section
4(1) thereof, if in any such case all transfer restrictions, and
restrictive legends with respect thereto, if any, are removed upon the
consummation of such sale.
(o) 'Registration Statement' shall mean any registration statement
(including a 'shelf' registration statement) filed with the Commission
pursuant to Sections 3 or 4 of this Agreement.
(p) 'Securities Act' shall mean the Securities Act of 1933, as
amended, and the rules and regulations of the Commission thereunder.
(q) 'Shelf Registration' shall have the meaning set forth in Section 4
of this Agreement.
(r) 'Shelf Registration Statement' shall mean a 'shelf' registration
statement of the Company pursuant to the provisions of Section 4 of this
Agreement which covers all of the Registrable Securities required to be
registered on an appropriate form for purposes of an offering on a
continuous basis pursuant to Rule 415 under the Securities Act, or any
similar rule that may be adopted by the Commission.
(s) 'Underwritten Offering' shall mean a bona fide underwritten public
offering pursuant to a Registration Statement.
SECTION 2. RESTRICTIONS ON TRANSFERABILITY.
The Registrable Securities shall not be sold, transferred or otherwise
disposed of, except in accordance with and subject to (i) the provisions of the
Securities Act and the rules and regulations promulgated thereunder and (ii) the
applicable requirements of Section 3.2(b) of the Purchase Agreement.
SECTION 3. PIGGYBACK REGISTRATION RIGHTS.
(a) If at any time or from time to time following the Issue Date, the
Company shall determine to register any Company securities, for its own account
or the account of any of its stockholders, other than a registration on Form S-4
or Form S-8 or any successor or similar forms thereto, the Company will: (i)
give to each Holder written notice thereof as soon as practicable prior to
filing the Registration Statement; and (ii) include in such registration and in
any underwriting involved therein, all the Registrable Securities specified in a
written request or requests from the Holders, made by one or more Holders within
ten (10) days of mailing of such written notice by the Company. The registration
rights provided hereunder shall be subject to paragraph (b) hereof. In addition,
notwithstanding the foregoing, if, at any time after giving such notice the
Company shall determine for any reason or for no reason not to register or to
delay registration of the securities of the Company which were to be included in
the Registration Statement, the Company may, at its election, give written
notice of such determination to each Holder desiring to include Registrable
Securities in such Registration Statement. In the case of a determination not to
register the securities of the Company, the Company shall be relieved of its
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obligation to register any of such Holders' Registrable Securities in connection
with such registration (but not from its obligations to pay reasonable expenses
incurred in connection therewith, subject to the limitations set forth in
Section 6). In the case of a delay in registering the securities of the Company,
the Company shall be permitted to delay registering any Holders' Registrable
Securities which otherwise qualify for registration pursuant to this Section
3(a) for the same period as the delay in registering such other securities of
the Company. The Company will pay the reasonable expenses in connection with
each registration pursuant to this Section 3, to the extent provided in Section
7.
(b) In the case where the Company is registering securities for the purpose
of an Underwritten Offering, if the managing underwriter of the offering advises
the Company and each Holder desiring to include Registrable Securities in such
Registration Statement in writing that, in its opinion, the number of securities
requested to be included in such registration exceeds the number which can be
sold in such offering without materially and adversely affecting the success of
such offering, the Company will include in such registration only such amount of
securities which the Company is so advised can be sold in such offering, which
shall be determined as follows:
First, the securities proposed by the Company to be sold for its own
account; and
Second, allocated among the Holders desiring to include Registrable
Securities in such Registration Statement pro rata based on the percentage
of Registrable Securities to be included in such Registration Statement by
such Holders.
SECTION 5. SHELF REGISTRATION RIGHTS.
(a) The Company shall, at the Company's cost, subject to Section 6 hereof,
(i) within 120 days after the Issue Date, file with the Commission,
and thereafter use its best efforts to cause to be declared effective as
promptly as practicable, a Shelf Registration Statement relating to the
offer and sale of the Registrable Securities by the Holders from time to
time;
(ii) use its best efforts to keep the Shelf Registration Statement
continuously effective in order to permit the Prospectus forming a part
thereof to be usable by Holders identified as selling security holders in
such Shelf Registration Statement for a period of two years from the date
the Shelf Registration Statement is declared effective by the Commission or
until such earlier date as all Registrable Securities shall have been
disposed of or on which all Registrable Securities shall be saleable
without registration pursuant to Rule 144(k) (or any similar provision then
in effect), or as a result of any changes in the existing registration
requirements under the Securities Act which eliminate the Holders' need for
the Shelf Registration Statement, or upon receipt of an opinion of counsel
satisfactory to the Company which provides that all Registrable Securities
may be resold without registration in a transaction that would result in
the Registrable Securities being freely tradeable provided that the
purchaser is not an affiliate of the Company (the 'Effectiveness Period');
and
(iii) notwithstanding any other provisions hereof, use its best
efforts to ensure that (i) any Shelf Registration Statement and any
amendment thereto and any Prospectus forming a part thereof and any
supplement thereto complies in all material respects with the Securities
Act and the rules and regulations thereunder, (ii) any Shelf Registration
Statement and any amendment thereto does not, when it becomes effective,
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading and (iii) any Prospectus forming a part of any Shelf
Registration Statement, and any supplement to such Prospectus (as amended
or supplemented from time to time), does not include an untrue statement of
a material fact or omit to state a material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading, except that the Company shall be entitled to rely on
the information provided to them by the Holders with respect to such
Holders.
(b) Any Holder desiring to sell Registrable Securities pursuant to the
Shelf Registration Statement shall provide not less than ten (10) days' prior
written notice to the Company. Any such notice shall specify the number of
shares of Common Stock proposed to be sold and the intended method of
disposition thereof. The Company shall use its best efforts to promptly file any
required amendment(s) to the Shelf Registration Statement in order to facilitate
any sales of shares of Common Stock as described above.
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(c) If Initiating Holders so elect, the offering of such Registrable
Securities pursuant to such Shelf Registration shall be in the form of an
Underwritten Offering. If any Shelf Registration is in the form of an
Underwritten Offering, the Initiating Holders will select and retain the
investment banker or investment bankers and manager or managers that will
administer the offering; provided that such investment bankers and managers must
be reasonably satisfactory to the Company.
SECTION 6. UNDERWRITTEN OFFERINGS.
(a) In connection with any public underwriting of Company securities that
are covered by a Registration Statement, the Company agrees, subject to the
requirements of Sections 3 and 4 hereof, to arrange for its underwriters to
include in the securities to be so distributed by it the Registrable Securities
of any Holder who makes such request of the Company. Each such Holder agrees
that any of such Registrable Securities so included shall be distributed and
sold through such underwriters. The Holders of Registrable Securities to be
distributed by such underwriters shall be parties to the underwriting agreement
between the Company and such underwriters and any such underwriting agreement
shall require that the representations and warranties by, and the other
agreements on the part of, the Company to and for the benefit of such
underwriters also shall be made to and for the benefit of such Holders and that
the conditions precedent to the obligations of such underwriters under such
underwriting agreement shall be conditions precedent to the obligations of such
Holders.
(b) No Holder may participate in any Underwritten Offering under Sections
3 and 4 unless such Holder (i) agrees to sell its Registrable Securities on the
basis provided in any underwriting arrangement approved by the Company and (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
securities escrow agreements, underwriting agreements and other documents
required under the terms of such underwriting, and furnishes to the Company such
information as the Company may reasonably request in writing for inclusion in
the Registration Statement (and the prospectus included therein); provided,
however, that no Holder shall be required to make any representations or
warranties to or agreements with the Company or the underwriters other than
representations, warranties or agreements regarding such Holder and such
Holder's intended method of distribution and any other representation required
by law.
(c)(i) The managing underwriter of an Underwritten Offering of the Company
may advise the Company to cause Holders of Registrable Securities to delay the
public sale or distribution of such securities. Each Holder agrees, whether or
not such Holder participates in an Underwritten Offering, if so required by the
managing underwriter, not to effect any public sale or distribution of such
Holder's Registrable Securities or sales of such shares pursuant to Rule 144,
during the fifteen days prior to and the ninety (90) days after any firm
commitment Underwritten Offering pursuant to Section 3 or 4 has become
effective. If the managing underwriter advises the Company in writing that, in
its opinion, no such public sale or distribution should be effected for a
specified period longer than ninety (90) days after such Underwritten Offering
has become effective in order to complete the sale and distribution of
securities included in such registration and the Company gives notice to such
Holder of such advice, such Holders shall not effect any public sale or
distribution or sales pursuant to Rule 144 for a reasonably longer period after
such Underwritten Offering has become effective, but in no event longer than one
hundred twenty (120) days, except as part of such Underwritten Offering.
(ii) The Company agrees, if so required by the managing underwriter, (x)
not to effect any public sale or distribution of its equity securities or
securities convertible into or exchangeable or exercisable for any of such
securities during the fifteen days prior to and the ninety (90) days after any
firm commitment Underwritten Offering pursuant to Section 3 or 4 has become
effective, except as part of such Underwritten Offering and except pursuant to
registrations on Form S-4 and Form S-8 or any successor or similar forms
thereto, and (y) to use its best efforts to cause each holder of its equity
securities or any securities convertible into or exchangeable or exercisable for
any of such securities, in each case purchased from the Company at any time
after the date hereof (other than in a public offering), to agree not to effect
any such public sale or distribution of such securities during such period or,
in either case, if the managing underwriter advises the Company in writing that
in its opinion no such public sale or distribution should be effected for a
specified period longer than ninety (90) days after such Underwritten Offering
has become effective in order to complete the sale and distribution of
securities included in such registration, during a reasonably longer period
after such Underwritten Offering but in no event longer than one hundred twenty
(120) days, except as part of such Underwritten Offering.
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SECTION 7. REGISTRATION EXPENSES.
The Company will pay all reasonable registration expenses in connection
with any registration pursuant to Section 3 or 4 of this Agreement, including
without limitation all registration and filing fees, fees with respect to
filings required to be made with the National Association of Securities Dealers,
fees and expenses of compliance with securities or blue sky laws, printing
expenses, and fees and expenses of counsel for the Company and of the
independent public accountants of the Company (including the expenses of any
'comfort' letters or update thereof required by or incident to the foregoing) in
connection with such registration, except that the following expenses relating
to the Registrable Securities shall not be borne by the Company: underwriting
discounts and commissions, underwriting expenses and transfer taxes, if any
(other than discounts, commissions, expenses and transfer taxes relating to
securities offered and sold by the Company), cost of liability insurance (except
to the extent carried by the Company on its own behalf), and fees and expenses
of any separate counsel or accountant or other agent retained by any Holder with
respect to the sale of Registrable Securities.
SECTION 8. REGISTRATION PROCEDURES.
Whenever the Company seeks to effect the registration of any shares of
Registrable Securities under the Securities Act as provided in Sections 3 and 4,
the Company agrees it will as expeditiously as possible, subject to the terms
and conditions of such sections (including without limitation the Company's
right to terminate or delay a registration pursuant to Sections 3 and 4):
(a) prepare and file with the Commission the requisite Registration
Statement to effect such registration, use its best efforts to cause such
Registration Statement to become effective and promptly notify each Holder
of securities covered by such Registration Statement and any managing
underwriter of the effectiveness thereof;
(b) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in
connection therewith as may be necessary to keep such Registration
Statement effective, notify each Holder of securities covered by such
Registration Statement and any managing underwriter as promptly as
practicable of any request by the Commission for amendments or supplements
to such Registration Statement or related Prospectus or for additional
information and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such Registration
Statement until the earlier of such time as all of such securities have
been disposed of in accordance with the intended methods of disposition by
the seller or sellers thereof set forth in such Registration Statement, but
for no longer than 90 days subsequent to the effective date of such
registration; provided that if less than all the securities covered by the
Registration Statement are withdrawn from registration after the expiration
of such period, the securities so withdrawn shall be allocated pro rata
among the Holders thereof on the basis of the percentage of Registrable
Securities held by them which were included in such registration;
(c) furnish to each seller of shares covered by such Registration
Statement such number of conformed copies of such Registration Statement
and of each such amendment and supplement thereto (in each case including
all exhibits), such number of copies of the Prospectus contained in such
Registration Statement (including each preliminary prospectus and any
summary prospectus) and any other Prospectus filed under Rule 424 under the
Securities Act, in conformity with the requirements of the Securities Act,
and such other documents as such seller or such Holder may reasonably
request;
(d) use its best efforts to register or qualify all shares covered by
such Registration Statement under such other securities or blue sky laws of
such jurisdictions as each seller thereof shall reasonably request, to keep
such registration or qualification in effect for so long as such
Registration Statement remains in effect, and take any other action which
may be reasonably necessary or advisable to enable such seller to
consummate the disposition in such jurisdictions of the securities owned by
such seller, except that the Company shall not for any such purpose be
required to (i) qualify generally to do business as a foreign corporation
in any jurisdiction wherein it would not but for the requirements of this
Section 8(d) be obligated to be so qualified, (ii) subject itself to
taxation in any such jurisdiction or (iii) consent to general service of
process in any such jurisdiction;
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(e) use its best efforts to cause all shares covered by such
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the
seller or sellers thereof to consummate the disposition of such shares;
(f) enter into customary agreements (including, in the case of an
Underwritten Offering, an underwriting agreement in customary form) and
take all other action in connection therewith in order to expedite or
facilitate the distribution of the Registrable Securities included in such
Registration Statement, and, in the case of an Underwritten Offering, make
representations and warranties to the Holders of Registrable Securities
covered by such Registration Statement and to the underwriters in such form
and scope as are customarily made by issuers to underwriters in primary
underwritten offerings and confirm the same to the extent customary if and
when requested;
(g) make available for inspection during normal business hours by a
representative of the Holders of Registrable Securities covered by such
Registration Statement and any managing underwriter, and any attorney or
accountant retained by such Holders or managing underwriter, all financial
and other records, pertinent corporate documents and properties of the
Company, and cause the officers, directors and employees of the Company to
supply all information reasonably requested by such representative,
managing underwriter, attorney or accountant in connection with such
Registration Statement;
(h) in the case of an Underwritten Offering by the Company, use its
best efforts to furnish to each Holder of Registrable Securities covered by
such Registration Statement and the underwriters a signed counterpart,
addressed to such Holder and the underwriters, in each case in identical
form, of
(i) an opinion of counsel for the Company, dated the effective date
of such Registration Statement and dated the date of each closing
under the underwriting agreement, reasonably satisfactory in form and
substance to such Holder, and
(ii) a 'comfort' letter, dated the effective date of such
Registration Statement and the date of each closing under the
underwriting agreement, signed by the independent public accountants
who have certified the Company's financial statements included in such
Registration Statement, covering substantially the same matters with
respect to such Registration Statement (and the Prospectus included
therein) and with respect to events subsequent to the date of such
financial statements, as are customarily covered in accountants'
letters delivered to underwriters in underwritten public offerings of
securities and such other financial matters as such Holder and the
underwriters may reasonably request;
(i) immediately notify each Holder of Registrable Securities covered
by such Registration Statement and any managing underwriter, at any time
when a Prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
Prospectus included in such Registration Statement, as then in effect,
includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under
which they were made, and at the request of any such Holder or any such
managing underwriter, promptly prepare and furnish to such Holder or
managing underwriter a reasonable number of copies of a supplement to or an
amendment of such Prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such securities, such Prospectus shall not
include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which they
were made;
(j) notify each Holder of Registrable Securities covered by such
Registration Statement and any managing underwriter as promptly as
practicable after becoming aware of the issuance by the Commission of any
stop order suspending the effectiveness of such Registration Statement or
the initiation of any proceedings for that purpose or the receipt by the
Company of any notification with respect to the suspension of qualification
of any Registrable Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose and make all
reasonable efforts to obtain as promptly as practicable the withdrawal of
any order or other action suspending the qualification of the Registrable
Securities for sale in any jurisdiction;
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(k) (i) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, (ii) make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months, but not more than eighteen
months, beginning with the first full calendar month after the effective
date of such Registration Statement, which earnings statement shall satisfy
the provisions of Section 11(a) of the Securities Act, and (iii) not file
any Registration Statement or Prospectus or amendment or supplement to such
Registration Statement or Prospectus to which any such Holder of
Registrable Securities covered by any Registration Statement shall have
reasonably objected on the grounds that such amendment or supplement does
not comply in all material respects with the requirements of the Securities
Act, such Holder having been furnished with a copy thereof at least two
Business Days prior to the filing thereof;
(l) provide a transfer agent and registrar for all shares of Common
Stock covered by such Registration Statement not later than the effective
date of such Registration Statement; and
(m) file all reports required to be filed by it under the Exchange Act
and the rules and regulations adopted by the Commission thereunder in a
timely manner and, to the extent the Company's obligation to file such
reports pursuant to Section 15(d) of the Exchange Act expires prior to the
expiration of the Effectiveness Period, the Company shall register the
Registrable Securities under the Exchange Act and shall maintain such
registration through the Effectiveness Period.
(n) use its best efforts to list all shares of Common Stock covered by
such Registration Statement on a securities exchange or national market
system.
The Company may require each holder of Registrable Securities as to which
any registration is being effected to furnish the Company with such information
and undertakings regarding such Holder and the distribution of such securities
as the Company may from time to time reasonably request in writing.
Each Holder of Registrable Securities covered by any Registration Statement
agrees (i) that upon receipt of any notice from the Company of the happening of
any event of the kind described in paragraph (i) of this Section 8, such Holder
will forthwith discontinue such Holder's disposition of Registrable Securities
pursuant to the Registration Statement relating to such Registrable Securities
until such Holder's receipt of the copies of the supplemented or amended
Prospectus contemplated by paragraph (i) of this Section 8 and, if so directed
by the Company, will deliver to the Company (at the Company's expense) all
copies, other than permanent file copies (which shall be conspicuously marked as
such), then in such Holder's possession of the Prospectus relating to such
Registrable Securities current at the time of receipt of such notice and (ii)
that it will immediately notify the Company, at any time when a Prospectus
relating to the registration of such shares is required to be delivered under
the Securities Act, of the happening of any event as a result of which
information previously furnished by such Holder to the Company in writing for
inclusion in such prospectus contains an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
under which they were made.
If, at any time in the good faith reasonable judgment of the Company's
Board of Directors, the disposition of Registrable Securities would require the
premature disclosure of material non-public information which may reasonably be
expected to have an adverse effect on the Company, then the Company shall not be
required to maintain the effectiveness of or amend or supplement the
Registration Statement for a period (a 'Disclosure Delay Period') expiring upon
the earlier to occur of (i) the date on which such material information is
disclosed to the public or ceases to be material or (ii) up to thirty (30)
calendar days after the date on which the Company provides a notice to the
Investors stating that the failure to disclose such non-public information
causes the Prospectus included in the Registration Statement, as then in effect,
to include an untrue statement of a material fact or to omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading. For the avoidance of doubt, in no event shall a Disclosure Delay
Period exceed thirty (30) calendar days.
The Company will give prompt written notice to the Holders of each
Disclosure Delay Period. Advance notice of the Disclosure Delay Period shall be
given to the extent practicable. If practicable, such notice shall estimate the
duration of such Disclosure Delay Period. Each Holder, by accepting Registrable
Securities, agrees that, upon receipt of such notice prior to the Holder's
disposition of all such Registrable Securities, such Holder
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will forthwith discontinue disposition of such Registrable Securities pursuant
to the Registration Statement, and will not deliver any Prospectus forming a
part thereof in connection with any sale of such Registrable Securities until
the expiration of such Disclosure Delay Period. Notwithstanding anything herein
to the contrary, there shall not be more than an aggregate of sixty (60)
calendar days in any twelve (12) month period during which the Company is in a
Disclosure Delay Period nor more than an aggregate of thirty (30) calendar days
in any ninety (90) calendar day period during which the Company is in a
Disclosure Delay Period.
SECTION 8. INDEMNIFICATION.
(a) In connection with the filing of any Shelf Registration Statement, the
Company shall, indemnify and hold harmless the Placement Agent, each Holder,
each underwriter who participates in an offering of the Registrable Securities,
each Person, if any, who controls any of such parties within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act and each of
their respective partners, directors, officers, employees and agents, as
follows:
(i) from and against any and all loss, liability, claim, damage and
expense whatsoever, joint or several, as incurred, arising out of any
untrue statement or alleged untrue statement of a material fact contained
in any Shelf Registration Statement (or any amendment thereto), covering
Registrable Securities including all documents incorporated therein by
reference, or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein
not misleading or arising out of any untrue statement or alleged untrue
statement of a material fact contained in any Prospectus (or any amendment
or supplement thereto) or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
(ii) from and against any and all loss, liability, claim, damage and
expense whatsoever, joint or several, as incurred, to the extent of the
aggregate amount paid in settlement of any litigation, or any investigation
or proceeding by any court or governmental agency or body, commenced or
threatened, or of any claim whatsoever based upon any such untrue statement
or omission, or any such alleged untrue statement or omission, if such
settlement is effected with the prior written consent of the Company; and
(iii) from and against any and all expenses whatsoever, as incurred
(including reasonable fees and disbursements of counsel chosen by such
Holder, or any underwriter (except to the extent otherwise expressly
provided in Section 8(c) hereof)), reasonably incurred in investigating,
preparing or defending against any litigation, or any investigation or
proceeding by any court or governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission, to the extent
that any such expense is not paid under subparagraph (i) or (ii) of this
Section 8(a);
provided, however, that (i) this indemnity does not apply to any loss,
liability, claim, damage or expense to the extent arising out of an untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with information furnished in writing to the Company by
such Holder or any underwriter with respect to such Holder or any underwriter,
as the case may be, expressly for use in a Shelf Registration Statement (or any
amendment thereto) or any Prospectus (or any amendment or supplement thereto)
and (ii) the Company shall not be liable to any such Holder, any underwriter or
controlling person, with respect to any untrue statement or alleged untrue
statement or omission or alleged omission in any preliminary Prospectus to the
extent that any such loss, liability, claim, damage or expense of any Holder,
any underwriter or controlling person results from the fact that such Holder any
underwriter sold Registrable Securities to a person to whom there was not sent
or given, at or prior to the written confirmation of such sale, a copy of the
final Prospectus as then amended or supplemented if the Company had previously
furnished copies thereof to such Holder or underwriter and the loss, liability,
claim, damage or expense of such Holder or underwriter or controlling person
results from an untrue statement or omission of a material fact contained in the
preliminary Prospectus which was corrected in the final Prospectus. Any amounts
advanced by the Company to an indemnified party pursuant to this Section 8 as a
result of such losses shall be returned to the Company if it shall be finally
determined by such a court in a judgment not subject to appeal or final review
that such indemnified party was not entitled to indemnification by the Company.
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(b) Each Holder agrees, severally and not jointly, to indemnify and hold
harmless the Company any underwriter and the other selling Holders and each of
their respective directors, officers (including each officer of the Company who
signed the Shelf Registration Statement), employees and agents and each Person,
if any, who controls the Company, any underwriter or any other selling Holder
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, from and against any and all loss, liability, claim, damage and
expense whatsoever described in the indemnity contained in Section 8(a) hereof,
as incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in a Shelf Registration Statement (or any
amendment thereto) or any Prospectus (or any amendment or supplement thereto) in
reliance upon and in conformity with written information furnished to the
Company by such selling Holder with respect to such Holder expressly for use in
such Shelf Registration Statement (or any amendment thereto), or any such
Prospectus (or any amendment or supplement thereto); provided, however, that no
such Holder shall be liable for any claims hereunder in excess of the amount of
net proceeds received by such Holder from the sale of Registrable Securities
pursuant to such Shelf Registration Statement.
(c) Each indemnified party shall give prompt notice to each indemnifying
party of any action commenced against it in respect of which indemnity may be
sought hereunder, enclosing a copy of all papers properly served on such
indemnified party, but failure to so notify an indemnifying party shall not
relieve such indemnifying party from any liability which it may have under this
Section 8, except to the extent that it is materially prejudiced by such
failure. An indemnifying party may participate at its own expense in the defense
of such action, or, if it so elects within a reasonable time after receipt of
such notice, assume the defense of any suit brought to enforce any such claim;
but if it so elects to assume the defense, such defense shall be conducted by
counsel chosen by it and approved by the indemnified party or parties which
approval shall not be unreasonably withheld. In the event that an indemnifying
party elects to assume the defense of any such suit and retain such counsel, the
indemnified party or parties shall bear the fees and expenses of any additional
counsel thereafter retained by such indemnified party or parties; provided,
however, that the indemnified party or parties shall have the right to employ
counsel (in addition to local counsel) to represent the indemnified party or
parties who may be subject to liability arising out of any action in respect of
which indemnity may be sought against the indemnifying party if, in the
reasonable judgment of counsel for the indemnified party or parties, there may
be legal defenses available to such indemnified party or parties which are
different from or in addition to those available to the indemnifying party, in
which event the fees and expenses of appropriate separate counsel shall be borne
by the indemnifying party. In no event shall the indemnifying parties be liable
for the fees and expenses of more than one counsel (in addition to local
counsel), separate from its own counsel, for all indemnified parties in
connection with any one action or separate but similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances.
No indemnifying party shall, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be sought
under this Section 8 (whether or not the indemnified parties are actual or
potential parties thereto), unless such settlement, compromise or consent (i)
includes an unconditional written release in form and substance satisfactory to
the indemnified parties of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(d) In order to provide for just and equitable contribution in
circumstances under which any of the indemnity provisions set forth in this
Section 8 is for any reason held to be unavailable to the indemnified parties
although applicable in accordance with its terms, the Company, and the Holders
shall contribute to the aggregate losses, liabilities, claims, damages and
expenses of the nature contemplated by such indemnity agreement incurred by the
Company, and the Holders, as incurred; provided that no Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person that was not
guilty of such fraudulent misrepresentation. As between the Company and the
Holders, such parties shall contribute to such aggregate losses, liabilities,
claims, damages and expenses of the nature contemplated by such indemnity
agreement in such proportion as shall be appropriate to reflect the relative
fault of the Company on the one hand, and the Holders, on the other hand, with
respect to the statements or omissions which resulted in such loss, liability,
claim, damage or expense, or action in respect thereof, as well as any other
relevant equitable considerations. The relative fault of the Company on the one
hand, and of the Holders, on the other hand, shall be
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determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the Trust, on
the one hand, or by or on behalf of the Holders, on the other, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the Holders of the
Registrable Securities agree that it would not be just and equitable if
contribution pursuant to this Section 8 were to be determined by pro rata
allocation or by any other method of allocation that does not take into account
the relevant equitable considerations. For purposes of this Section 8, each
Affiliate of a Holder, and each director, officer, employee, agent and Person,
if any, who controls a Holder or such Affiliate within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act shall have the same
rights to contribution as such Holder, and each director of each of the Company,
each officer of each of the Company who signed the Shelf Registration Statement,
and each Person, if any, who controls each of the Company within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act shall have
the same rights to contribution as each of the Company or the Trust.
SECTION 9. TERMINATION OF RIGHTS.
All rights of any particular Holder under this Agreement shall terminate at
5:00 p.m., Eastern Time, on the date two (2) years after the Shelf Registration
Statement is declared effective by the Commission ('Termination Date'), provided
that the provisions of Section 8 hereof shall survive any termination of this
Agreement.
SECTION 10. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by and construed under
the internal substantive laws of the State of Delaware, without regard to its
conflicts of laws principles
(b) SUCCESSORS AND ASSIGNS. The provisions hereof shall inure to the
benefit of, and be binding upon, the parties and their respective successors,
assigns, heirs, executors and administrators. The rights and obligations of any
Investor hereunder may be assigned by such Investor to any Person acquiring
Registrable Securities from the Investor contemporaneously with such assignment,
provided that the rights so assumed shall apply only to the Registrable
Securities so acquired. The rights and obligations of the Company hereunder may
not be assigned by it without the prior written consent of the Investors.
(c) ENTIRE AGREEMENT. This Agreement and the Purchase Agreement constitute
the full and entire understanding and agreement among the parties with regard to
the subject matter hereof and thereof and no party shall be liable or bound to
any other party in any manner by any representations, warranties, covenants or
agreements except as specifically set forth herein or therein. Nothing in this
Agreement, express or implied, is intended to confer upon any party, other than
the parties hereto and their respective successors and assigns, any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
except as expressly provided herein.
(d) SEPARABILITY. Any invalidity, illegality or limitation of the
enforceability of any one or more of the provisions of this Agreement, or any
part thereof, shall in no way affect or impair the validity, legality or
enforceability of the other provisions of this Agreement. In case any provision
of this Agreement shall be invalid, illegal or unenforceable, it shall, to the
extent practicable, be modified so as to make it valid, legal and enforceable
and to retain as nearly as practicable the intent of the parties, and the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
(e) AMENDMENT AND WAIVER. Any provision of this Agreement may be amended
and the observance of any provision of this Agreement may be waived (either
generally or in a particular instance, either retroactively or prospectively,
and either for a specified period of time or indefinitely), with the written
consent of the Company and the Holders of not less than a majority of the
Registrable Securities; provided, however, that no such amendment or waiver
shall reduce the aforesaid percentage of Registrable Securities the Holders of
which are required to consent to any waiver or supplemental agreement without
the consent of the Holders of all outstanding Registrable Securities. Any
amendment or waiver effected in accordance with this paragraph shall be binding
upon the Company and each Holder under this Agreement. Upon the effectuation of
each such amendment or waiver, the Company shall promptly give written notice
thereof to the Holders who have not previously consented thereto in writing.
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(f) DELAYS OR OMISSIONS. No delay or omission to exercise any right, power
or remedy accruing to any Holder, any subsequent Holder of any Registrable
Securities or the Company upon any breach, default or noncompliance under this
Agreement shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of any similar breach, default or noncompliance
thereafter occurring. It is further agreed that any waiver, permit, consent or
approval of any kind or character on the Holders' or the Company's part of any
breach, default or noncompliance under this Agreement or any waiver on the
Holders' or the Company's part of any provisions or conditions of this Agreement
must be in writing and shall be effective only to the extent specifically set
forth in such writing, and that all remedies afforded to the Holders and the
Company under this Agreement shall be cumulative and not alternative.
(g) NOTICES, ETC. All notices, demands and other communications provided
for or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or air courier guaranteeing overnight
delivery:
(i) if to any Holder, initially at the address set forth below its
name on the Holder's signature page to this Agreement, and thereafter at
such other address, notice of which is given in accordance with this
Section 8(g); and
(ii) if to the Company, initially at 711 Van Ness Avenue, San
Francisco, California 94102, Attention: President, and thereafter at such
other address notice of which is given in accordance with this Section
8(g).
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being sent by certified mail, return receipt requested, if mailed;
when answered back, if telexed; when receipt is acknowledged, if telecopied; and
on the next Business Day if timely delivered to an air courier guaranteeing
overnight delivery.
(h) TITLES AND SUBTITLES. The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
(i) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
UCBH HOLDINGS, INC.
By: /s/ Tommy S. Wu
------------------------
Name: Tommy S. Wu
Title: President and Chief Executive Officer
Address: 711 Van Ness Avenue
San Francisco, California 94102
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Investor Signature Page to the Common Stock Registration Rights Agreement
______________________________________
Name of Investor
By: ______________________________________
Name:
Title:
Address:______________________________
______________________________________
______________________________________
C-12
Exhibit 5.0
202-457-6404
July 1, 1998
Board of Directors
UCBH Holdings, Inc.
711 Van Ness Avenue
San Francisco, California 94102
Re: The registration of 9,333,333 shares of UCBH Holdings, Inc.
Common Stock
Gentlemen:
You have requested our opinion concerning certain matters of Delaware
law in connection with the registration with the Securities and Exchange
Commission (the "SEC") of 9,333,333 shares of common stock, par value $.01 per
share (the "Common Stock") of UCBH Holdings, Inc. (the "Company").
In connection with rendering our opinion, the Company has provided to
us and we have reviewed and are relying on the Company's amended and restated
certificate of incorporation filed with the Delaware Secretary of State on March
31, 1998 (the "Certificate of Incorporation") certified by the Secretary of the
Company to be true and correct as of the date hereof; the Company's Bylaws
certified by the Secretary of the Company to be true and correct as of the date
hereof; the Company's registration statement on Form S-1, as filed with the SEC
on July 1, 1998 (the "Registration Statement"); resolutions of the Board of
Directors of the Company (the "Board") concerning the private placement of the
Common Stock (the "Offering") and designation of a Pricing Committee of the
Board (the "Pricing Committee"), and the form of stock certificate approved by
the Board to represent shares of Common Stock; and a resolution of the Pricing
Committee fixing the number of shares of Common Stock to be sold in the
Offering. We have also been furnished a certificate of the Delaware Secretary of
State certifying the Company's good standing as a Delaware corporation. In
addition, we have made such investigations of law and have examined such other
documents and records as we have
<PAGE>
Board of Directors
UCBH Holdings, Inc.
July 1, 1998
Page 2
considered necessary for purposes of this opinion. Capitalized terms used but
not defined herein shall have the meaning given to them in the Certificate of
Incorporation.
We have assumed the genuineness of the signatures on and the
authenticity of all documents submitted to us as originals and the conformity to
the originals of documents submitted to us as certified or photostatic copies.
We have relied as to factual matters upon certificates from officers of the
Company and we have assumed the accuracy and authenticity of the aforementioned
certificates of public officials and officers of the Company. We have also
relied on Company records.
We express no opinion as to the laws of any jurisdiction other than the
General Corporation Law of the State of Delaware.
Based upon and subject to the foregoing, it is our opinion that:
1. The Common Stock has been duly authorized and validly issued, and is
fully paid and nonassessable.
The following provisions of the Certificate of Incorporation may not be
given effect by a court applying Delaware law, but in our opinion the failure to
give effect to such provisions will not affect the duly authorized, validly
issued, fully paid and nonassessable status of the Common Stock:
1. (a) Subsections C.3 and C.6 of Article FOURTH and Section D of
Article EIGHTH, which grant the Board the authority to construe
and apply the provisions of those Articles, subsection C.4 of
Article FOURTH, to the extent that subsection obligates any
person to provide to the Board the information such subsection
authorizes the Board to demand, and the provision of Subsection
C.7 of Article EIGHTH empowering the Board to determine the Fair
Market Value of property offered or paid for the Company's stock
by an Interested Stockholder, in each case to the extent, if
any, that a court applying Delaware law were to impose equitable
limitations upon such authority; and
<PAGE>
Board of Directors
UCBH Holdings, Inc.
July 1, 1998
Page 3
(b) Article NINTH of the Certificate of Incorporation, which
authorizes the Board to consider the effect of any offer to
acquire the Company on constituencies other than stockholders in
evaluating any such offer.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the prospectus that is a part of the Registration Statement. In
giving such consent, we do not thereby concede that we are within the category
of persons whose consent is required under Section 7 of the Securities Act of
1933, as amended, or the rules and regulations of the SEC thereunder.
Very truly yours,
PATTON BOGGS, L.L.P.
/s/ Mary M. Sjoquist
--------------------
By: Mary M. Sjoquist
Exhibit 10.1
UNITED COMMERCIAL BANK
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of April 17, 1998 by
and among United Commercial Bank (the "Bank"), a federally chartered savings
bank, with its principal administrative office at 711 Van Ness Avenue, San
Francisco, California, 94102, UCBH Holdings, a corporation organized under the
laws of the State of Delaware, the holding company for the Bank (the "Holding
Company"), and Tommy S. Wu ("Executive").
WHEREAS, the Bank wishes to assure itself of the services of Executive
for the period provided in this Agreement; and
WHEREAS, Executive is willing to serve in the employ of the Bank on a
full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and upon the other terms and conditions hereinafter provided, the
parties hereby agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive agrees to
serve as President and Chief Executive Officer of the Bank. Executive shall
render administrative and management services to the Bank such as are
customarily performed by persons situated in a similar executive capacity.
During said period, Executive also agrees to serve, if elected, as an officer
and director of the Holding Company or any subsidiary of the Bank.
2. TERMS AND DUTIES.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of thirty-six (36) full calendar months thereafter. Commencing on
the first anniversary date of this Agreement, and continuing on each anniversary
thereafter, the disinterested members of the board of directors of the Bank
("Board") may extend the Agreement an additional year such that the remaining
term of the Agreement shall be thirty-six (36) months unless the Executive
elects not to extend the term of this Agreement by giving written notice in
accordance with Section 8 of this Agreement. The Board will review the Agreement
and Executive's performance annually for purposes of determining whether to
extend the Agreement and the rationale and results thereof shall be included in
the minutes of the Board's meeting. The Board shall give notice to the Executive
as soon as possible after such review as to whether the Agreement is to be
extended.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the faithful performance of his
duties hereunder including activities and services related to the organization,
operation and management of the Bank and participation in community and civic
organizations; provided, however, that, with the approval of the Board, as
evidenced by a resolution of such Board, from time to time, Executive may serve,
or continue to serve, on the boards of directors of, and hold any other offices
or positions in, companies or organizations, which, in such Board's judgment,
will not present any conflict of interest with the Bank, or materially affect
the performance of Executive's duties pursuant to this Agreement.
<PAGE>
(c) Notwithstanding anything herein to the contrary, Executive's
employment with the Bank may be terminated by the Bank or the Executive during
the term of this Agreement, subject to the terms and conditions of this
Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Bank shall pay Executive as compensation a salary of $________
per year ("Base Salary"). Base Salary shall include any amounts of compensation
deferred by Executive under any qualified or unqualified plan maintained by the
Bank. Such Base Salary shall be payable bi-weekly. During the period of this
Agreement, Executive's Base Salary shall be reviewed at least annually; the
first such review will be made no later than one year from the date of this
Agreement. Such review shall be conducted by the Board or by a Committee of the
Board, delegated such responsibility by the Board. The Committee or the Board
may increase Executive's Base Salary. Any increase in Base Salary shall become
the "Base Salary" for purposes of this Agreement. In addition to the Base Salary
provided in this Section 3(a), the Bank shall also provide Executive, at no
premium cost to Executive, with all such other benefits as are provided
uniformly to permanent full-time employees of the Bank.
(b) The Executive shall be entitled to participate in any employee
benefit plans, arrangements and perquisites substantially equivalent to those in
which Executive was participating or otherwise deriving benefit from immediately
prior to the beginning of the term of this Agreement, and the Bank will not,
without Executive's prior written consent, make any changes in such plans,
arrangements or perquisites which would materially adversely affect Executive's
rights or benefits thereunder; except to the extent such changes are made
applicable to all Bank employees on a non-discriminatory basis. Without limiting
the generality of the foregoing provisions of this Subsection (b), Executive
shall be entitled to participate in or receive benefits under any employee
benefit plans including but not limited to, retirement plans, supplemental
retirement plans, pension plans, profit-sharing plans, health-and-accident
plans, medical coverage or any other employee benefit plan or arrangement made
available by the Bank in the future to its senior executives and key management
employees, subject to and on a basis consistent with the terms, conditions and
overall administration of such plans and arrangements. Nothing paid to the
Executive under any such plan or arrangement will be deemed to be in lieu of
other compensation to which the Executive is entitled under this Agreement.
(c) In addition to the Base Salary provided for by paragraph (a) of
this Section 3 and other compensation provided for by paragraph (b) of this
Section 3, the Bank shall pay or reimburse Executive for all reasonable travel
and other reasonable expenses incurred by Executive performing his obligations
under this Agreement and may provide such additional compensation in such form
and such amounts as the Board may from time to time determine.
<PAGE>
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Bank or the Holding Company of Executive's full-time
employment hereunder for any reason other than a termination governed by Section
5(a) hereof, or Termination for Cause, as defined in Section 7 hereof; (ii)
Executive's resignation from the Bank's employ upon any (A) failure to elect or
reelect or to appoint or reappoint Executive as President and Chief Executive
Officer, unless consented to by the Executive, (B) a material change in
Executive's function, duties, or responsibilities, which change would cause
Executive's position to become one of lesser responsibility, importance, or
scope from the position and attributes thereof described in Section 1, above,
unless consented to by Executive, (C) a relocation of Executive's principal
place of employment by more than 25 miles from its location at the effective
date of this Agreement, unless consented to by the Executive, (D) a material
reduction in the benefits and perquisites to the Executive from those being
provided as of the effective date of this Agreement, unless consented to by the
Executive, (E) a liquidation or dissolution of the Bank or Holding Company, or
(F) breach of this Agreement by the Bank. Upon the occurrence of any event
described in clauses (A), (B), (C), (D), (E) or (F), above, Executive shall have
the right to elect to terminate his employment under this Agreement by
resignation upon not less than sixty (60) days prior written notice given within
six full months after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Bank shall be obligated to pay
Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be a sum equal to the sum of: (i)
the amount of the remaining payments that the Executive would have earned if he
had continued his employment with the Bank during the remaining term of this
Agreement at the Executive's Base Salary at the Date of Termination; and (ii)
the amount equal to the annual contributions that would have been made on
Executive's behalf to any employee benefit plans of the Bank or the Holding
Company during the remaining term of this Agreement based on contributions made
(on an annualized basis) at the Date of Termination; provided, however, that any
payments pursuant to this subsection and subsection 4(c) below shall not, in the
aggregate, exceed three times Executive's average annual compensation for the
last three years that Executive has been employed by the Bank or such lesser
number of years in the event that Executive shall have been employed by the Bank
for less than three years. In the event the Bank is not in compliance with its
minimum capital requirements or if such payments pursuant to this subsection (b)
would cause the Bank's capital to be reduced below its minimum regulatory
capital requirements, such payments shall be deferred until such time as the
Bank or successor thereto is in capital compliance. At the election of the
Executive, which election is to be made prior to an Event of Termination, such
payments shall be made in a lump sum as of the Executive's Date of Termination.
In the event that no election is made, payment to Executive will be made on a
monthly basis in approximately equal installments during the remaining term of
the Agreement. Such payments shall not be reduced in the event the Executive
obtains other employment following termination of employment.
<PAGE>
(c) Upon the occurrence of an Event of Termination, the Bank will cause
to be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the Bank or the Holding Company for
Executive prior to his termination at no premium cost to the Executive, except
to the extent such coverage may be changed in its application to all Bank or
Holding Company employees. Such coverage shall cease upon the expiration of the
remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the Bank
or Holding Company shall mean an event of a nature that: (i) would be required
to be reported in response to Item 1 of the current report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"); or (ii) results in a
Change in Control of the Bank or the Holding Company within the meaning of the
Home Owners' Loan Act of 1933, as amended, the Federal Deposit Insurance Act and
the Rules and Regulations promulgated by the Office of Thrift Supervision
("OTS") (or its predecessor agency), as in effect on the date hereof (provided,
that in applying the definition of change in control as set forth under the
rules and regulations of the OTS, the Board shall substitute its judgment for
that of the OTS); or (iii) without limitation such a Change in Control shall be
deemed to have occurred at such time as (A) any "person" (as the term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of voting securities of the Bank or the Holding Company representing
25% or more of the Bank's or the Holding Company's outstanding voting securities
or right to acquire such securities except for any voting securities of the Bank
purchased by the Holding Company and any voting securities purchased by any
employee benefit plan of the Bank or the Holding Company, or (B) individuals who
constitute the Board on the date hereof (the "Incumbent Board") cease for any
reason to constitute at least a majority thereof, provided that any person
becoming a director subsequent to the date hereof whose election was approved by
a vote of at least three-quarters of the directors comprising the Incumbent
Board, or whose nomination for election by the Holding Company's stockholders
was approved by the same Nominating Committee serving under an Incumbent Board,
shall be, for purposes of this clause (B), considered as though he were a member
of the Incumbent Board, or (C) a plan of reorganization, merger, consolidation,
sale of all or substantially all the assets of the Bank or the Holding Company
or similar transaction occurs in which the Bank or Holding Company is not the
resulting entity; provided, however, that such an event listed above will be
deemed to have occurred or to have been effectuated upon the receipt of all
required regulatory approvals not including the lapse of any statutory waiting
periods.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c), and (d) of this Section 5
upon his subsequent termination of employment at any time during the term of
this Agreement due to: (1) Executive's dismissal or (2) Executive's voluntary
resignation following any demotion, loss of title, office or significant
authority or responsibility, material reduction in annual compensation or
benefits or relocation of his principal place of employment by more than 25
miles from its location, unless such termination is because of his death,
permanent disability, or Termination for Cause.
<PAGE>
(c) Upon Executive's entitlement to benefits pursuant to Section 5(b),
the Bank shall pay Executive, or in the event of his subsequent death, his
beneficiary or beneficiaries, or his estate, as the case may be, a sum equal to
the greater of: (1) the payments due for the remaining term of the Agreement; or
(2) three (3) times Executive's highest annual compensation paid for the last
three years that the Executive has been employed by the Bank or such lesser
number of years in the event that Executive shall have been employed by the Bank
for less than three years. Such annual compensation shall exclude any bonus but
shall include Base Salary, commissions, contributions on Executive's behalf to
any pension and/or profit sharing plan, severance payments, retirement payments,
directors or committee fees and fringe benefits paid or to be paid to the
Executive in any such year and payment of any expense items without
accountability or business purpose or that do not meet the Internal Revenue
Service requirements for deductibility by the Bank. In the event the Bank is not
in compliance with its minimum capital requirements or if such payments would
cause the Bank's capital to be reduced below its minimum regulatory capital
requirements, such payments shall be deferred until such time as the Bank or
successor thereto is in capital compliance. At the election of the Executive,
which election is to be made prior to a Change in Control, such payment shall be
made in a lump sum as of the Executive's Date of Termination. In the event that
no election is made, payment to the Executive will be made in approximately
equal installments on a monthly basis over a period of thirty-six (36) months
following the Executive's termination. Such payments shall not be reduced in the
event Executive obtains other employment following termination of employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section
5(b), the Bank will cause to be continued life, medical, dental and disability
coverage substantially identical to the coverage maintained by the Bank for
Executive prior to his severance at no premium cost to the Executive, except to
the extent that such coverage may be changed in its application for all Bank
employees on a non-discriminatory basis. Such coverage and payments shall cease
upon the expiration of thirty-six (36) months following the Date of Termination.
6. CHANGE OF CONTROL RELATED PROVISIONS
Notwithstanding the provisions of Section 5, in no event shall the
aggregate payments or benefits to be made or afforded to Executive under said
paragraphs (the "Termination Benefits") constitute an "excess parachute payment"
under Section 280G of the Internal Revenue Code of 1986, as amended, or any
successor thereto, and in order to avoid such a result, Termination Benefits
will be reduced, if necessary, to an amount (the "Non-Triggering Amount"), the
value of which is one dollar ($1.00) less than an amount equal to three (3)
times Executive's "base amount", as determined in accordance with said Section
280G. The allocation of the reduction required hereby among the Termination
Benefits provided by Section 5 shall be determined by Executive.
<PAGE>
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of an
act or acts of gross misconduct, willful neglect of duties or commission of a
felony or equivalent violation of law. Notwithstanding the foregoing, Executive
shall not be deemed to have been Terminated for Cause unless and until there
shall have been delivered to him a Notice of Termination which shall include a
copy of a resolution duly adopted by the affirmative vote of not less than a
majority of the members of the Board at a meeting of the Board called and held
for that purpose (after reasonable notice to Executive and an opportunity for
him, together with counsel, to be heard before the Board), finding that in the
good faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail.
Executive shall not have the right to receive compensation or other benefits for
any period after the Date of Termination for Cause. During the period beginning
on the date of the Notice of Termination for Cause pursuant to Section 8 hereof
through the Date of Termination for Cause, stock options and related limited
rights granted to Executive under any stock option plan shall be exercisable
only as to those options which have vested as of the Date of Termination for
Cause. At the Date of Termination for Cause, any unvested stock options and
related limited rights and any unvested awards shall become null and void and
shall not be exercisable by or delivered to Executive at any time subsequent to
such Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Bank or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean the date specified in the Notice
of Termination (which, in the case of a Termination for Cause, shall not be less
than thirty days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, the Date of Termination shall
be the date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and,
provided further, that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, in the event the Executive is
terminated for reasons other than Termination for Cause, the Bank will continue
to pay Executive his Base Salary in effect when the notice giving rise to the
dispute was given until the earlier of: (1) the resolution of the dispute in
accordance with this Agreement or (2) the expiration of the remaining term of
this Agreement as determined as of the Date of Termination.
<PAGE>
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Bank. Executive shall, upon reasonable notice,
furnish such information and assistance to the Bank as may reasonably be
required by the Bank in connection with any litigation in which it or any of its
subsidiaries or affiliates is, or may become, a party.
10. NON-DISCLOSURE OF BANK BUSINESS.
Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Bank and affiliates
thereof, as it may exist from time to time, is a valuable, special and unique
asset of the business of the Bank. Executive will not, during or after the term
of his employment, disclose any knowledge of the past, present, planned or
considered business activities of the Bank or affiliates thereof to any person,
firm, corporation, or other entity for any reason or purpose whatsoever.
Notwithstanding the foregoing, Executive may disclose any knowledge of banking,
financial and/or economic principles, concepts or ideas which are not solely and
exclusively derived from the business plans and activities of the Bank. Further,
Executive may disclose information regarding the business activities of the Bank
to the OTS and the Federal Deposit Insurance Corporation ("FDIC") pursuant to a
formal regulatory request. In the event of a breach or threatened breach by
Executive of the provisions of this Section, the Bank will be entitled to an
injunction restraining Executive from disclosing, in whole or in part, the
knowledge of the past, present, planned or considered business activities of the
Bank or affiliates thereof, or from rendering any services to any person, firm,
corporation, other entity to whom such knowledge, in whole or in part, has been
disclosed or is threatened to be disclosed. Nothing herein will be construed as
prohibiting the Bank from pursuing any other remedies available to the Bank for
such breach or threatened breach, including the recovery of damages from
Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in
cash or check from the general funds of the Bank. The Holding Company, however,
unconditionally guarantees payment and provision of all amounts and benefits due
hereunder to Executive and, if such amounts and benefits due from the Bank are
not timely paid or provided by the Bank, such amounts and benefits shall be paid
or provided by the Holding Company.
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement effective April 17, 1998,
between Executive and the Holding Company (the "Holding Company Agreement"),
such compensation payments and benefits paid by the Holding Company will be
subtracted from any amounts due simultaneously to Executive under similar
provisions of this Agreement. Payments pursuant to this Agreement and the
Holding Company Agreement shall be allocated in proportion to the services
rendered and time expended on such activities by Executive as determined by the
Holding Company and the Bank on a quarterly basis. It is the intention of the
parties that the Executive be entitled to the greater benefits and payments when
construing this Agreement and the Holding Company Agreement.
<PAGE>
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the Bank or any
predecessor of the Bank and Executive, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to Executive of
a kind elsewhere provided. No provision of this Agreement shall be interpreted
to mean that Executive is subject to receiving fewer benefits than those
available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Bank and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. REQUIRED PROVISIONS.
(a) The Bank may terminate Executive's employment at any time, but any
termination by the Bank, other than Termination for Cause, shall not prejudice
Executive's right to compensation or other benefits under this Agreement.
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause as defined in Section 7 hereinabove.
<PAGE>
(b) If Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
ss.1818(e)(3) or (g)(1); the Bank 's obligations under this contract shall be
suspended as of the date of service, unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, the Bank may in its discretion: (i)
pay Executive all or part of the compensation withheld while their contract
obligations were suspended; and (ii) reinstate (in whole or in part) any of the
obligations which were suspended.
(c) If Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
ss.1818(e)(4) or (g)(1), all obligations of the Bank under this contract shall
terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
(d) If the Bank is in default as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act, 12 U.S.C. ss.1813(x)(1), all obligations of the
Bank under this contract shall terminate as of the date of default, but this
paragraph shall not affect any vested rights of the contracting parties.
(e) All obligations of the Bank under this contract shall be
terminated, except to the extent determined that continuation of the contract is
necessary for the continued operation of the institution: (i) by the Director of
the OTS (or his designee), or the FDIC, at the time the FDIC enters into an
agreement to provide assistance to or on behalf of the Bank under the authority
contained in Section 13(c) of the Federal Deposit Insurance Act, 12 U.S.C.
ss.1823(c); or (ii) by the Director of the OTS (or his designee) at the time the
Director (or his designee) approves a supervisory merger to resolve problems
related to the operations of the Bank or when the Bank is determined by the
Director to be in an unsafe or unsound condition. Any rights of the parties that
have already vested, however, shall not be affected by such action.
(f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C. ss.
1828(k), 12 C.F.R. Part 359 and 12 C.F.R. ss. 545.121 and any rules and
regulations promulgated thereunder.
16. REINSTATEMENT OF BENEFITS UNDER SECTION 15(b).
In the event Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice described in
Section 15(b) hereof (the "Notice") during the term of this Agreement and a
Change in Control, as defined herein, occurs, the Bank will assume its
obligation to pay and Executive will be entitled to receive all of the
termination benefits provided for under Section 5 of this Agreement upon the
Bank's receipt of a dismissal of charges in the Notice.
<PAGE>
17. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
18. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
19. GOVERNING LAW.
The validity, interpretation, performance and enforcement of this
Agreement shall be governed by the laws of the State of California, but only to
the extent not superseded by federal law.
20. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Bank, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
In the event any dispute or controversy arising under or in connection
with Executive's termination is resolved in favor of Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of all back-pay, including salary and any other cash compensation, fringe
benefits and any compensation and benefits due Executive under this Agreement.
21. PAYMENT OF COSTS AND LEGAL FEES.
All reasonable costs and legal fees paid or incurred by Executive
pursuant to any dispute or question of interpretation relating to this Agreement
shall be paid or reimbursed by the Bank if Executive is successful on the merits
pursuant to a legal judgment, arbitration or settlement.
<PAGE>
22. INDEMNIFICATION.
(a) The Bank shall provide Executive (including his heirs, executors
and administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense and shall indemnify Executive (and his
heirs, executors and administrators) as permitted under federal law against all
expenses and liabilities reasonably incurred by him in connection with or
arising out of any action, suit or proceeding in which he may be involved by
reason of his having been a director or officer of the Bank (whether or not he
continues to be a director or officer at the time of incurring such expenses or
liabilities), such expenses and liabilities to include, but not be limited to,
judgments, court costs and attorneys' fees and the cost of reasonable
settlements.
(b) Any payments made to Executive pursuant to this Section are subject
to and conditioned upon compliance with 12 U.S.C. ss.1828(k), 12 C.F.R. Part 359
and 12 C.F.R. ss.545.121 and any rules or regulations promulgated thereunder.
(c) To the extent not afforded under the terms of a directors' and
officers' liability insurance policy provided by the Holding Company or the
Bank, the Bank will advance to the Executive funds to defray the expenses,
including attorneys fees and court costs, actually and reasonably incurred by
Executive in connection with or arising out of any action, suit or proceeding in
which Executive may be involved by reason of Executive's service as a director
or officer of the Bank, subject to Executive's undertaking to repay such
advances if required in accordance with applicable state and Federal law.
(d) By accepting the benefits of this Agreement, the Executive releases
and discharges the Holding Company, the Bank, the directors, officers,
agents,employees, consultants and affiliated and controlled companies (the
"Released Parties"), from any and all claims, demands and causes of action
arising out of or related to the Executive's employment with the Bank and/or
Holding Company.
23. SUCCESSOR TO THE BANK.
The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank or the Holding Company,
expressly and unconditionally to assume and agree to perform the Bank's
obligations under this Agreement, in the same manner and to the same extent that
the Bank would be required to perform if no such succession or assignment had
taken place.
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, United Commercial Bank and UCBH Holdings, Inc. have
caused this Agreement to be executed and their seals to be affixed hereunto by
their duly authorized officers and directors, and Executive has signed this
Agreement, on the ___ day of ____________, 1998.
ATTEST: United Commercial Bank
_____________________ By:____________________
Sau-wing Lam
Secretary Chairman of the Board
[SEAL]
ATTEST: UCHB Holdings, Inc.
(Guarantor)
_____________________ By:____________________
Sau-wing Lam
Secretary Chairman of the Board
[SEAL]
WITNESS:
---------------------------------
Tommy S. Wu
Executive
Exhibit 10.2
UCBH HOLDINGS, INC.
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of April 17, 1998 by
and between UCBH Holdings, Inc. (the "Holding Company"), a corporation organized
under the laws of Delaware, with its principal offices at 711 Van Ness Avenue,
San Francisco, California, 94102, and Tommy S. Wu ("Executive"). Any reference
to "Institution" herein shall mean United Commercial Bank or any successor
thereto.
WHEREAS, the Holding Company wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Holding
Company on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and upon the other terms and conditions hereinafter provided, the
parties hereby agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of Executive's employment hereunder, Executive agrees
to serve as President and Chief Executive Officer of the Holding Company. The
Executive shall render administrative and management services to the Holding
Company such as are customarily performed by persons in a similar executive
capacity. During said period, Executive also agrees to serve, if elected, as an
officer or director of any subsidiary of the Holding Company.
2. TERMS.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of thirty-six (36) full calendar months thereafter. Commencing on
the date of the execution of this Agreement, the term of this Agreement shall be
extended for one day each day until such time as the board of directors of the
Holding Company (the "Board") or Executive elects not to extend the term of the
Agreement by giving written notice to the other party in accordance with Section
8 of this Agreement, in which case the term of this Agreement shall be fixed and
shall end on the third anniversary of the date of such written notice.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the faithful performance of his
duties hereunder, including activities and services related to the organization,
operation and management of the Holding Company and its direct or indirect
subsidiaries ("Subsidiaries") and participation in community, professional and
civic organizations; provided, however, that, with the approval of the Board, as
evidenced by a resolution of such Board, from time to time, Executive may serve,
or continue to serve, on the boards of directors of, and hold any other offices
or positions in, companies or organizations, which, in such Board's judgment,
will not present any conflict of interest with the Holding Company or its
Subsidiaries, or materially affect the performance of Executive's duties
pursuant to this Agreement.
<PAGE>
(c) Notwithstanding anything herein contained to the contrary,
Executive's employment with the Holding Company may be terminated by the Holding
Company or Executive during the term of this Agreement, subject to the terms and
conditions of this Agreement. However, Executive shall not perform, in any
respect, directly or indirectly, during the pendency of his temporary or
permanent suspension or termination from the Institution, duties and
responsibilities formerly performed at the Institution as part of his duties and
responsibilities as President and Chief Executive Officer of the Holding
Company.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Executive shall be entitled to a salary from the Holding
Company or its Subsidiaries of $_______ per year ("Base Salary"). Base Salary
shall include any amounts of compensation deferred by Executive under any
qualified or unqualified plan maintained by the Holding Company and its
Subsidiaries. Such Base Salary shall be payable bi-weekly. During the period of
this Agreement, Executive's Base Salary shall be reviewed at least annually; the
first such review will be made no later than one year from the date of this
Agreement. Such review shall be conducted by the Board or by a Committee of the
Board delegated such responsibility by the Board. The Committee or the Board may
increase Executive's Base Salary. Any increase in Base Salary shall become the
"Base Salary" for purposes of this Agreement. In addition to the Base Salary
provided in this Section 3(a), the Holding Company shall also provide Executive,
at no premium cost to Executive, with all such other benefits as provided
uniformly to permanent full-time employees of the Holding Company and its
Subsidiaries.
(b) The Executive shall be entitled to participate in any employee
benefit plans, arrangements and perquisites substantially equivalent to those in
which Executive was participating or otherwise deriving benefit from immediately
prior to the beginning of the term of this Agreement, and the Holding Company
and its Subsidiaries will not, without Executive's prior written consent, make
any changes in such plans, arrangements or perquisites which would materially
adversely affect Executive's rights or benefits thereunder, except to the extent
that such changes are made applicable to all Holding Company and Institution
employees eligible to participate in such plans, arrangements and perquisites on
a non-discriminatory basis. Without limiting the generality of the foregoing
provisions of this Subsection (b), Executive shall be entitled to participate in
or receive benefits under any employee benefit plans including, but not limited
to, retirement plans, supplemental retirement plans, pension plans,
profit-sharing plans, health-and-accident plans, medical coverage and any other
employee benefit plan or arrangement made available by the Holding Company and
its Subsidiaries in the future to its senior executives and key management
employees, subject to and on a basis consistent with the terms, conditions and
overall administration of such plans and arrangements. Nothing paid to the
Executive under any such plan or arrangement will be deemed to be in lieu of
other compensation to which the Executive is entitled under this Agreement.
<PAGE>
(c) In addition to the Base Salary provided for by paragraph (a) of
this Section 3 and other compensation provided for by paragraph (b) of this
Section 3, the Holding Company shall pay or reimburse Executive for all
reasonable travel and other reasonable expenses incurred in the performance of
Executive's obligations under this Agreement and may provide such additional
compensation in such form and such amounts as the Board may from time to time
determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Holding Company of Executive's full-time employment hereunder
for any reason other than termination governed by Section 5(a) hereof, or for
Cause, as defined in Section 7 hereof; (ii) Executive's resignation from the
Holding Company's employ, upon (A) any failure to elect or reelect or to appoint
or reappoint Executive as President and Chief Executive Officer unless consented
to by the Executive, (B) a material change in Executive's function, duties, or
responsibilities with the Holding Company or its Subsidiaries, which change
would cause Executive's position to become one of lesser responsibility,
importance, or scope from the position and attributes thereof described in
Section 1, above, unless consented to by the Executive, (C) a relocation of
Executive's principal place of employment by more than 25 miles from its
location at the effective date of this Agreement, unless consented to by the
Executive, (D) a material reduction in the benefits and perquisites to the
Executive from those being provided as of the effective date of this Agreement,
unless consented to by the Executive, (E) a liquidation or dissolution of the
Holding Company or the Institution, or (F) breach of this Agreement by the
Holding Company. Upon the occurrence of any event described in clauses (A), (B),
(C), (D), (E) or (F), above, Executive shall have the right to elect to
terminate his employment under this Agreement by resignation upon not less than
sixty (60) days prior written notice given within six full calendar months after
the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Holding Company shall be obligated to
pay Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, a sum equal to the sum of: (i)
the amount of the remaining payments that the Executive would have earned if he
had continued his employment with the Institution during the remaining term of
this Agreement at the Executive's Base Salary at the Date of Termination; and
(ii) the amount equal to the annual contributions that would have been made on
Executive's behalf to any employee benefit plans of the Institution or the
Holding Company during the remaining term of this Agreement based on
contributions made (on an annualized basis) at the Date of Termination. At the
election of the Executive, which election is to be made prior to an Event of
Termination, such payments shall be made in a lump sum. In the event that no
election is made, payment to the Executive will be made on a monthly basis in
approximately equal installments during the remaining term of the Agreement.
Such payments shall not be reduced in the event the Executive obtains other
employment following termination of employment.
<PAGE>
(c) Upon the occurrence of an Event of Termination, the Holding Company
will cause to be continued life, medical, dental and disability coverage
substantially equivalent to the coverage maintained by the Holding Company or
its Subsidiaries for Executive prior to his termination at no premium cost to
the Executive. Such coverage shall cease upon the expiration of the remaining
term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the
Holding Company or the Institution shall mean an event of a nature that: (i)
would be required to be reported in response to Item 1(a) of the current report
on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a
Change in Control of the Institution or the Holding Company within the meaning
of the Home Owners' Loan Act of 1933, as amended, the Federal Deposit Insurance
Act, and the Rules and Regulations promulgated by the Office of Thrift
Supervision (or its predecessor agency), as in effect on the date hereof
(provided, that in applying the definition of change in control as set forth
under the rules and regulations of the OTS, the Board shall substitute its
judgment for that of the OTS); or (iii) without limitation such a Change in
Control shall be deemed to have occurred at such time as (A) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of voting securities of the Institution or the Holding
Company representing 25% or more of the Institution's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Institution purchased by the Holding Company and any
voting securities purchased by any employee benefit plan of the Holding Company
or its Subsidiaries, or (B) individuals who constitute the Board on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-quarters of
the directors comprising the Incumbent Board, or whose nomination for election
by the Company's stockholders was approved by a Nominating Committee solely
composed of members which are Incumbent Board members, shall be, for purposes of
this clause (B), considered as though he were a member of the Incumbent Board,
or (C) a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Institution or the Holding Company or
similar transaction occurs or is effectuated in which the Institution or Holding
Company is not the resulting entity; provided, however, that such an event
listed above will be deemed to have occurred or to have been effectuated upon
the receipt of all required federal regulatory approvals not including the lapse
of any statutory waiting periods, or (D) a proxy statement has been distributed
soliciting proxies from stockholders of the Holding Company, by someone other
than the current management of the Holding Company, seeking stockholder approval
of a plan of reorganization, merger or consolidation of the Holding Company or
Institution with one or more corporations as a result of which the outstanding
shares of the class of securities then subject to such plan or transaction are
exchanged for or converted into cash or property or securities not issued by the
Institution or the Holding Company shall be distributed, or (E) a tender offer
is made for 25% or more of the voting securities of the Institution or Holding
Company then outstanding.
<PAGE>
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c) and (d) of this Section 5
upon his subsequent termination of employment at any time during the term of
this Agreement due to (i) Executive's dismissal, or (ii) Executive's voluntary
resignation following any demotion, loss of title, office or significant
authority or responsibility, reduction in the annual compensation or reduction
in benefits or relocation of his principal place of employment by more than 25
miles from its location, unless such termination is because of his death,
permanent disability or Termination for Cause.
(c) Upon the Executive's entitlement to benefits pursuant to Section
5(b), the Holding Company shall pay Executive, or in the event of his subsequent
death, his beneficiary or beneficiaries, or his estate, as the case may be, as
severance pay or liquidated damages, or both, a sum equal to the greater of: (i)
the payments due for the remaining term of the Agreement; or (ii) three (3)
times the highest annual compensation paid to the Executive for the last three
years preceding the Change in Control of the Holding Company or the Institution.
Such annual compensation shall exclude any bonus but shall include Base Salary,
commissions, contributions on behalf of Executive to any pension and profit
sharing plan, severance payments, directors or committee fees and fringe
benefits paid or to be paid to the Executive during such years. At the election
of the Executive, which election is to be made prior to a Change in Control,
such payment shall be made in a lump sum. In the event that no election is made,
payment to the Executive will be made on a monthly basis in approximately equal
installments during the remaining term of the Agreement. Such payments shall not
be reduced in the event Executive obtains other employment following termination
of employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section
5(b), the Company will cause to be continued life, medical, dental and
disability coverage substantially equivalent to the coverage maintained by the
Institution for Executive at no premium cost to Executive prior to his
severance. Such coverage and payments shall cease upon the expiration of
thirty-six (36) months following the Change in Control.
6. CHANGE OF CONTROL RELATED PROVISIONS.
(a) Notwithstanding the provisions of Section 5, in the event that:
(i) the aggregate payments or benefits to be made or afforded to
Executive, which are deemed to be parachute payments as defined in
Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code") or any successor thereof, (the "Termination Benefits") would be
deemed to include an "excess parachute payment" under Section 280G of
the Code; and
<PAGE>
(ii) if such Termination Benefits were reduced to an amount (the
"Non-Triggering Amount"), the value of which is one dollar ($1.00) less
than an amount equal to three (3) times Executive's "base amount," as
determined in accordance with said Section 280G and the Non-Triggering
Amount less the product of the marginal rate of any applicable state
and federal income tax and the Non-Triggering Amount would be greater
than the aggregate value of the Termination Benefits (without such
reduction) minus (i) the amount of tax required to be paid by the
Executive thereon by Section 4999 of the Code and further minus (ii)
the product of the Termination Benefits and the marginal rate of any
applicable state and federal income tax,
then the Termination Benefits shall be reduced to the Non-Triggering Amount. The
allocation of the reduction required hereby among the Termination Benefits shall
be determined by the Executive.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because an act
or acts of gross misconduct, willful neglect of duties or commission of a felony
or equivalent violation of law. Notwithstanding the foregoing, Executive shall
not be deemed to have been terminated for Cause unless and until there shall
have been delivered to him a Notice of Termination which shall include a copy of
a resolution duly adopted by the affirmative vote of not less than three-fourths
of the members of the Board at a meeting of the Board called and held for that
purpose (after reasonable notice to Executive and an opportunity for him,
together with counsel, to be heard before the Board), finding that in the good
faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail. The
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause. During the period beginning on the date
of the Notice of Termination for Cause pursuant to Section 8 hereof through the
Date of Termination, stock options and related limited rights granted to
Executive under any stock option plan shall be exercisable only as to those
options which have vested as of the Date of Termination for Cause. At the Date
of Termination for Cause, any unvested stock options and related limited rights
and any unvested awards shall become null and void and shall not be exercisable
by or delivered to Executive at any time subsequent to such Termination for
Cause.
8. NOTICE.
(a) Any purported termination by the Holding Company or by Executive
shall be communicated by Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment under the
provision so indicated.
<PAGE>
(b) "Date of Termination" shall mean the date specified in the Notice
of Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, except upon the occurrence of
a Change in Control and voluntary termination by the Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Holding Company will
continue to pay Executive his full compensation in effect when the notice giving
rise to the dispute was given (including, but not limited to, Base Salary) and
continue him as a participant in all compensation, benefit and insurance plans
in which he was participating when the notice of dispute was given, until the
dispute is finally resolved in accordance with this Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Holding Company. Executive shall, upon
reasonable notice, furnish such information and assistance to the Holding
Company as may reasonably be required by the Holding Company in connection with
any litigation in which it or any of its subsidiaries or affiliates is, or may
become, a party.
10. NON-DISCLOSURE.
Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Holding Company and
its Subsidiaries as it may exist from time to time, is a valuable, special and
unique asset of the business of the Holding Company and its Subsidiaries.
Executive will not, during or after the term of his employment, disclose any
knowledge of the past, present, planned or considered business activities of the
Holding Company and its Subsidiaries thereof to any person, firm, corporation,
or other entity for any reason or purpose whatsoever unless expressly authorized
by the Board of Directors or required by law. Notwithstanding the foregoing,
Executive may disclose any knowledge of banking, financial and/or economic
principles, concepts or ideas which are not solely and exclusively derived from
the business plans and activities of the Holding Company. In the event of a
breach or threatened breach by the Executive of the provisions of this Section,
the Holding Company will be entitled to an injunction restraining Executive from
disclosing, in whole or in part, the knowledge of the past, present, planned or
considered business activities of the Holding Company or its Subsidiaries or
from rendering any services to any person, firm, corporation, other entity to
whom such knowledge, in whole or in part, has been disclosed or is threatened to
be disclosed. Nothing herein will be construed as prohibiting the Holding
Company from pursuing any other remedies available to the Holding Company for
such breach or threatened breach, including the recovery of damages from
Executive.
<PAGE>
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in
cash or check from the general funds of the Holding Company subject to Section
11(b).
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement effective April 17, 1998,
between Executive and the Institution ("Institution Agreement"), such
compensation payments and benefits paid by the Institution will be subtracted
from any amount due simultaneously to Executive under similar provisions of this
Agreement. It is the intention of the parties that the Executive be entitled to
the greater benefits and payments when construing the Institution Agreement and
this Agreement.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the Holding Company
or any predecessor of the Holding Company and Executive, except that this
Agreement shall not affect or operate to reduce any benefit or compensation
inuring to the Executive of a kind elsewhere provided. No provision of this
Agreement shall be interpreted to mean that Executive is subject to receiving
fewer benefits than those available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Holding Company and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
<PAGE>
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
17. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Delaware,
unless otherwise specified herein.
18. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the Executive within
fifty (50) miles from the location of the Institution, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
In the event any dispute or controversy arising under or in connection
with Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of all back-pay, including salary and any other cash compensation, fringe
benefits and any compensation and benefits due Executive under this Agreement.
19. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Holding Company, if Executive is successful pursuant to a
legal judgment, arbitration or settlement.
<PAGE>
20. INDEMNIFICATION.
(a) The Holding Company shall provide Executive (including his heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense and shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under Delaware law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the Holding Company (whether or not he continues to be a director
or officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
(b) Any payments made to Executive pursuant to this Section are subject
to and conditioned upon compliance with 12 U.S.C. Section 1828(k) and 12 C.F.R.
Part 359 and any rules or regulations promulgated thereunder.
(c) To the extent not afforded under the terms of a directors' and
officers' liability insurance policy provided by the Holding Company or the
Institution, the Holding Company will advance to the Executive funds to defray
the expenses, including attorneys fees and court costs, actually and reasonably
incurred by Executive in connection with or arising out of any action, suit or
proceeding in which Executive may be involved by reason of Executive's service
as a director or officer of the Holding Company or the Institution, subject to
Executive's undertaking to repay such advances if required in accordance with
applicable state and Federal law.
(d) By accepting the benefits of this Agreement, the Executive releases
and discharges the Holding Company, the Institution, the directors, officers,
agents,employees, consultants and affiliated and controlled companies (the
"Released Parties"), from any and all claims, demands and causes of action
arising out of or related to the Executive's employment with the Institution
and/or Holding Company.
21. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Holding Company's obligations under this Agreement, in the same manner and to
the same extent that the Holding Company would be required to perform if no such
succession or assignment had taken place.
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, UCBH Holdings, Inc. has caused this Agreement to be
executed and its seal to be affixed hereunto by its duly authorized officer and
its directors, and Executive has signed this Agreement, on the ____ day of
_______, 1998.
ATTEST: UCBH Holdings, Inc.
________________________ By:_____________________
Sau-wing Lam
Secretary Chairman of the Board
For the Entire Board of Directors
[SEAL]
WITNESS:
________________________ By:_____________________
Tommy S. Wu
Secretary Executive
Exhibit 10.3
UNITED COMMERCIAL BANK
CHANGE IN CONTROL AGREEMENT
This AGREEMENT is made effective as of April 17, 1998 by and among
United Commercial Bank (the "Institution"), a federally chartered savings
institution, with its principal administrative office at 711 Van Ness Avenue,
San Francisco, California 94102, __________________ ("Executive"), and UCBH
Holdings, Inc. (the "Holding Company"), a corporation organized under the laws
of the State of Delaware which is the holding company of the Institution.
WHEREAS, the Institution recognizes the substantial contribution
Executive has made to the Institution and wishes to protect Executive's position
therewith for the period provided in this Agreement; and
WHEREAS, Executive has agreed to serve in the employ of the
Institution.
NOW, THEREFORE, in consideration of the contribution and
responsibilities of Executive, and upon the other terms and conditions
hereinafter provided, the parties hereto agree as follows:
1. TERM OF AGREEMENT.
The period of this Agreement shall be deemed to have commenced as of
the date first above written and shall continue for a period of thirty-six (36)
full calendar months thereafter. Commencing on the first anniversary date of
this Agreement and continuing at each anniversary date thereafter, the board of
directors of the Institution (the "Board") may extend the Agreement for an
additional year. The Board will review the Agreement and Executive's performance
annually for purposes of determining whether to extend the Agreement, and the
results thereof shall be included in the minutes of the Board's meeting.
2. CHANGE IN CONTROL.
(a) Upon the occurrence of a Change in Control of the Institution or
the Holding Company (as herein defined) followed at any time during the term of
this Agreement by the termination of Executive's employment, other than for
Cause, as defined in Section 2(c) hereof, the provisions of Section 3 shall
apply. Upon the occurrence of a Change in Control of the Institution of the
Holding Company, Executive shall have the right to elect to voluntarily
terminate his employment at any time during the term of this Agreement following
any demotion, loss of title, office or significant authority, material reduction
in his annual compensation or benefits, or relocation of his principal place of
employment by more than 25 miles from its location unless such termination is
because of death, permanent disability or Termination for Cause.
<PAGE>
(b) For purposes of this Agreement, a "Change in Control" of the
Institution or Holding Company shall mean an event of a nature that: (i) would
be required to be reported in response to Item 1 of the Current Report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); or (ii)
results in a Change in Control of the Institution or the Holding Company within
the meaning of the Home Owners' Loan Act of 1933, as amended, the Federal
Deposit Insurance Act, or Office of Thrift Supervision ("OTS") (or its
predecessor agency), as in effect on the date of this Agreement (provided, that
in applying the definition of change in control as set forth under the Rules and
Regulations of the OTS, the Board shall substitute its judgment for that of the
OTS); or (iii) without limitation such a Change in Control shall be deemed to
have occurred at such time as (A) any "person" (as the term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of voting
securities of the Institution or the Holding Company representing 25% or more of
the Institution's or the Holding Company's outstanding voting securities or
right to acquire such securities except for any voting securities of the
Institution purchased by the Holding Company and any voting securities purchased
by any employee benefit plan of the Institution or the Holding Company, or (B)
individuals who constitute the Board on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors comprising the
Incumbent Board, or whose nomination for election by the Holding Company's
stockholders was approved by the same Nominating Committee serving under an
Incumbent Board, shall be, for purposes of this clause (B), considered as though
he were a member of the Incumbent Board, or (C) a plan of reorganization,
merger, consolidation, sale of all or substantially all the assets of the
Institution or the Holding Company or similar transaction occurs in which the
Institution or Holding Company is not the resulting entity.
(c) Executive shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term "Termination
for Cause" shall mean termination because of an act or acts of gross misconduct,
willful neglect of duties or commission of a felony or equivalent violation of
law. For the purposes of this Section, no act, or the failure to act, on
Executive's part shall be "willful" unless done, or omitted to be done, not in
good faith and without reasonable belief that the action or omission was in the
best interests of the Bank or its affiliates. Notwithstanding the foregoing,
Executive shall not be deemed to have been Terminated for Cause unless and until
there shall have been delivered to him a Notice of Termination which shall
include a copy of a resolution duly adopted by the affirmative vote of not less
than a majority of the members of the Board at a meeting of the Board called and
held for that purpose (after reasonable notice to Executive and an opportunity
for him, together with counsel, to be heard before the Board), finding that in
the good faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail.
Executive shall not have the right to receive compensation or other benefits for
any period after the Date of Termination for Cause. During the period beginning
on the date of the Notice of Termination for Cause pursuant to Section 4 hereof
through the Date of Termination for Cause, stock options and related limited
rights granted to Executive under any stock option plan shall be exercisable
only as to those options which have vested as of the Date of Termination for
Cause. At the Date of Termination for Cause, any unvested stock options and
related limited rights and unvested awards shall become null and void and shall
not be exercisable by or delivered to Executive at any time subsequent to such
Date of Termination for Cause.
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<PAGE>
3. TERMINATION BENEFITS.
(a) Upon the occurrence of a Change in Control, followed at any time
during the term of this Agreement by the termination of the Executive's
employment due to: (1) Executive's dismissal or (2) Executive's voluntary
termination pursuant to Section 2(a), unless such termination is due to
Termination for Cause, the Institution and the Holding Company shall pay
Executive, or in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, a sum equal to three (3) times
Executive's highest annual compensation paid to Executive for the last three
years preceding the Change in Control of the Holding Company or the Institution
or such lesser number of years in the event that Executive shall have been
employed by the Institution for less than three years. Such annual compensation
shall exclude any bonus but shall include base salary, including any amounts of
deferred compensation, commissions, contributions or accruals on behalf of
Executive to any pension and profit sharing plan, benefits received or to be
received under any stock-based benefit plan, severance payments, director or
committee fees and fringe benefits paid or to be paid to the Executive in any
such year and payment of any expense items without accountability or business
purpose or that do not meet the Internal Revenue Service requirements for
deductibility by the Bank. In consideration of the Termination Benefits, the
Executive will not be entitled to receive any benefits under the Institution's
severance policy applicable to all other employees. At the election of
Executive, which election is to be made prior to a Change in Control, such
payment shall be made in a lump sum. In the event that no election is made,
payment to the Executive will be made on a monthly basis in approximately equal
installments over a period of thirty-six (36) months.
(b) Upon the occurrence of a Change in Control of the Institution or
the Holding Company followed at any time during the term of this Agreement by
Executive's voluntary or involuntary termination of employment, other than for
Termination for Cause, the Institution shall cause to be continued life, medical
and disability coverage substantially identical to the coverage maintained by
the Institution or Holding Company for Executive prior to his severance, except
to the extent such coverage may be changed in its application to all Institution
or Holding Company employees on a nondiscriminatory basis. Such coverage and
payments shall cease upon the expiration of thirty-six (36) full calendar months
from the Date of Termination.
(c) Notwithstanding the preceding paragraphs of this Section 3, in no
event shall the aggregate payments or benefits to be made or afforded to
Executive under said paragraphs (the "Termination Benefits") constitute an
"excess parachute payment" under Section 280G of the Code or any successor
thereto, and in order to avoid such a result Termination Benefits will be
reduced, if necessary, to an amount (the "Non-Triggering Amount"), the value of
which is one dollar ($1.00) less than an amount equal to three (3) times
Executive's "base amount," as determined in accordance with said Section 280G.
The allocation of the reduction required hereby among the Termination Benefits
provided by the preceding paragraphs of this Section 3 shall be determined by
Executive.
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<PAGE>
4. NOTICE OF TERMINATION.
(a) Any purported termination by the Institution or by Executive in
connection with a Change in Control shall be communicated by Notice of
Termination to the other party hereto. For purposes of this Agreement, a "Notice
of Termination" shall mean a written notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice
of Termination (which, in the instance of Termination for Cause, shall not be
less than thirty (30) days from the date such Notice of Termination is given);
provided, however, that if a dispute regarding the Executive's termination
exists, the "Date of Termination" shall be determined in accordance with Section
4(c) of this Agreement.
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, the Date of Termination shall
be the date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, in the event that the
Executive is terminated for reasons other than Termination for Cause, the
Institution will continue to pay Executive his full compensation in effect when
the notice giving rise to the dispute was given (including, but not limited to,
his current annual salary) and continue him as a participant in all
compensation, benefit and insurance plans in which he was participating when the
notice of dispute was given, until the earlier of: (1) the resolution of the
dispute in accordance with this Agreement; or (2) the expiration of the
remaining term of this Agreement as determined as of the Date of Termination.
Amounts paid under this Section 4(c) are in addition to all other amounts due
under this Agreement and shall not be offset against or reduce any other amounts
due under this Agreement.
5. SOURCE OF PAYMENTS.
It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the
Institution. Further, the Holding Company guarantees such payment and provision
of all amounts and benefits due hereunder to Executive and, if such amounts and
benefits due from the Institution are not timely paid or provided by the
Institution, such amounts and benefits shall be paid or provided by the Holding
Company. It is the intention of the parties that the Executive be entitled to
the greater benefits and payments when construing this Agreement and the
Agreement between the Executive and the Holding Company.
4
<PAGE>
6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior agreement between the Institution and Executive,
except that this Agreement shall not affect or operate to reduce any benefit or
compensation inuring to Executive of a kind elsewhere provided. No provision of
this Agreement shall be interpreted to mean that Executive is subject to
receiving fewer benefits than those available to him without reference to this
Agreement.
Nothing in this Agreement shall confer upon Executive the right to
continue in the employ of Institution or shall impose on the Institution any
obligation to employ or retain Executive in its employ for any period.
7. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive, the Institution and their respective successors and assigns.
8. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
9. REQUIRED REGULATORY PROVISIONS.
(a) The board of directors may terminate Executive's employment at any
time, but any termination by the board of directors, other than Termination for
Cause, shall not prejudice Executive's right to compensation or other benefits
under this Agreement. Executive shall not have the right to receive compensation
or other benefits for any period after Termination for Cause as defined in
Section 2 hereinabove.
5
<PAGE>
(b) If Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the Institution's affairs by a notice
served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act (12
U.S.C. ss.1818(e)(3) or (g)(1)), the Institution's obligations under this
contract shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the
Institution may in its discretion (i) pay Executive all or part of the
compensation withheld while their contract obligations were suspended and (ii)
reinstate (in whole or in part) any of the obligations which were suspended.
(c) If Executive is removed and/or permanently prohibited from
participating in the conduct of the Institution's affairs by an order issued
under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act (12 U.S.C.
ss.1818(e)(4) or (g)(1)), all obligations of the Institution under this contract
shall terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
(d) If the Institution is in default as defined in Section 3(x)(1) of
the Federal Deposit Insurance Act, all obligations of the Institution under this
contract shall terminate as of the date of default, but this paragraph shall not
affect any vested rights of the contracting parties.
(e) All obligations under this contract shall be terminated, except to
the extent determined that continuation of the contract is necessary for the
continued operation of the institution: (i) by the Director of the Office of
Thrift Supervision (or his or her designee) at the time the Federal Deposit
Insurance Corporation enters into an agreement to provide assistance to or on
behalf of the Institution under the authority contained in Section 13(c) of the
Federal Deposit Insurance Act; or (ii) by the Director of the Office of Thrift
Supervision (or his or her designee) at the time the Director (or his or her
designee) approves a supervisory merger to resolve problems related to operation
of the Institution or when the Institution is determined by the Director to be
in an unsafe or unsound condition. Any rights of the parties that have already
vested, however, shall not be affected by such action.
(f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
ss.1828(k) and any rules and regulations promulgated thereunder.
10. REINSTATEMENT OF BENEFITS UNDER SECTION 9(b).
In the event Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Institution's affairs by a notice described
in Section 9(b) hereof (the "Notice") during the term of this Agreement and a
Change in Control, as defined herein, occurs, the Institution will assume its
obligation to pay and Executive will be entitled to receive all of the
termination benefits provided for under Section 3 of this Agreement upon the
Institution's receipt of a dismissal of charges in the Notice.
6
<PAGE>
11. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
12. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement. In addition, references to the
masculine shall apply equally to the feminine.
13. GOVERNING LAW.
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of California but only to
the extent not preempted by Federal law.
14. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Institution's main office, in accordance
with the rules of the American Arbitration Association then in effect. Judgment
may be entered on the arbitrator's award in any court having jurisdiction;
provided, however, that Executive shall be entitled to seek specific performance
of his right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
15. PAYMENT OF COSTS AND LEGAL FEES.
All reasonable costs and legal fees paid or incurred by Executive
pursuant to any dispute or question of interpretation relating to this Agreement
shall be paid or reimbursed by the Institution (which payments are guaranteed by
the Holding Company pursuant to Section 5 hereof) if Executive is successful
pursuant to a legal judgment, arbitration or settlement.
16. INDEMNIFICATION.
(a) The Institution shall provide Executive (including his heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense and shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under Federal law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the Institution (whether or not he continues to be a director or
officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
7
<PAGE>
(b) Any payments made to Executive pursuant to this Section are subject
to and conditional upon compliance with 12 C.F.R. ss.545.121 and any rules or
regulations promulgated thereunder.
(c) To the extent not afforded under the terms of a directors' and
officers' liability insurance policy provided by the Holding Company or the
Institution, the Institution will advance to Executive funds to defray the
expenses, including attorneys fees and court costs, actually and reasonably
incurred by Executive in connection with or arising out of any action, suit, or
proceeding in which Executive may be involved by reason of Executive's service
as a director or officer of the Institution, subject to Executive's undertaking
to repay such advances if required in accordance with applicable state and
Federal law.
(d) By accepting the benefits of this Agreement, the Executive releases
and discharges the Holding Company, the Institution, the directors, officers,
agents, employees, consultants and affiliated and controlled companies (the
"Related Parties"), from any and all claims, demands and causes of action
arising out of or related to the Executive's employment with the Institution
and/or Holding Company.
17. SUCCESSOR TO THE INSTITUTION.
The Institution shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution, expressly and
unconditionally to assume and agree to perform the Institution's obligations
under this Agreement, in the same manner and to the same extent that the
Institution would be required to perform if no such succession or assignment had
taken place.
18. SEVERANCE PAYMENT.
Notwithstanding the foregoing, in the event that at any time prior to a
Change in Control (as defined in section 2(b) of this Agreement) the Executive's
employment with the Bank or the Holding Company is terminated for reasons other
than Termination for Cause, death, retirement (as defined in the Bank's
qualified employee benefit plan) or permanent disability, the Executive shall be
paid a severance payment equal to the highest annual compensation for the last
three years or such lesser number of years in the event that Executive shall
have been employed by the Institution for less than three years. Such payment
shall be paid in a lump sum on the Date of Termination, unless the Executive
elects prior to the Date of Termination for such payment to be paid in twelve
equal monthly installments. The Institution and the Holding Company shall
continue substantially identical medical and disability coverage for the
Executive for a period of one year from the Date of Termination.
8
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, United Commercial Bank and UCBH Holdings, Inc. have
caused this Agreement to be executed by their duly authorized officers, and
Executive has signed this Agreement, on the ______ day of ____________, 1998.
ATTEST: United Commercial Bank
_______________________________ By: _____________________________________
Tommy S. Wu
Secretary President and Chief Executive Officer
SEAL
ATTEST: UCBH Holdings, Inc.
(Guarantor)
______________________________ By: _____________________________________
Tommy S. Wu
Secretary President and Chief Executive Officer
SEAL
WITNESS:
__________________________________ ___________________________________
Executive
Exhibit 10.4
UCBH HOLDINGS, INC.
CHANGE IN CONTROL AGREEMENT
This AGREEMENT is made effective as of April 17, 1998, by and between
UCBH Holdings, Inc. (the "Holding Company"), a corporation organized under the
laws of the State of Delaware, with its principal office at 711 Van Ness Avenue,
San Francisco, California 94102, and __________ ("Executive"). The term
"Institution" refers to United Commercial Bank, a wholly-owned subsidiary of the
Holding Company or any successor thereto.
WHEREAS, the Holding Company recognizes the substantial contribution
Executive has made to the Holding Company and wishes to protect his position
therewith for the period provided in this Agreement; and
WHEREAS, Executive has agreed to serve in the employ of the Holding
Company or an affiliate thereof.
NOW, THEREFORE, in consideration of the contribution and
responsibilities of Executive, and upon the other terms and conditions
hereinafter provided, the parties hereto agree as follows:
1. TERM OF AGREEMENT.
The period of this Agreement shall be deemed to have commenced as of
the date first above written and shall continue for a period of thirty-six (36)
full calendar months thereafter. Commencing on the date of the execution of this
Agreement, the term of this Agreement shall be extended for one day each day
until such time as the board of directors of the Holding Company (the "Board")
or Executive elects not to extend the term of the Agreement by giving written
notice to the other party in accordance with Section 4 of this Agreement, in
which case the term of this Agreement shall be fixed and shall end on the third
anniversary of the date of such written notice.
2. CHANGE IN CONTROL.
(a) Upon the occurrence of a Change in Control of the Holding Company
(as herein defined) followed at any time during the term of this Agreement by
the termination of Executive's employment, the provisions of Section 3 shall
apply. Upon the occurrence of a Change in Control of the Institution or the
Holding Company, Executive shall have the right to elect to voluntarily
terminate his employment at any time during the term of this Agreement following
any demotion, loss of title, office or significant authority, material reduction
in annual compensation or material reduction in benefits, or relocation of his
principal place of employment by more than 25 miles from its location unless
such termination is because of death, permanent disability, or Termination for
Cause.
<PAGE>
(b) For purposes of this Agreement, a "Change in Control" of the
Holding Company or the Institution shall mean an event of a nature that: (i)
would be required to be reported in response to Item 1(a) of the current report
on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a
Change in Control of the Bank or the Holding Company within the meaning of the
Home Owners' Loan Act of 1933, as amended, the Federal Deposit Insurance Act, or
the Rules and Regulations promulgated by the Office of Thrift Supervision
("OTS") (or its predecessor agency), as in effect on the date hereof (provided,
that in applying the definition of change in control as set forth under the
Rules and Regulations of the OTS, the Board shall substitute its judgment for
that of the OTS); or (iii) without limitation such a Change in Control shall be
deemed to have occurred at such time as (A) any "person" (as the term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of voting securities of the Institution or the Holding Company
representing 25% or more of the Institution's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Institution purchased by the Holding Company and any
voting securities purchased by any employee benefit plan of the Holding Company
or its Subsidiaries, or (B) individuals who constitute the Board on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-quarters of
the directors comprising the Incumbent Board, or whose nomination for election
by the Company's stockholders was approved by a Nominating Committee solely
composed of members which are Incumbent Board members, shall be, for purposes of
this clause (B), considered as though he were a member of the Incumbent Board,
or (C) a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Institution or the Holding Company or
similar transaction occurs or is effectuated in which the Institution or Holding
Company is not the resulting entity; or (D) a proxy statement has been
distributed soliciting proxies from stockholders of the Holding Company, by
someone other than the current management of the Holding Company, seeking
stockholder approval of a plan of reorganization, merger or consolidation of the
Holding Company or Institution with one or more corporations as a result of
which the outstanding shares of the class of securities then subject to such
plan or transaction are exchanged for or converted into cash or property or
securities not issued by the Institution or the Holding Company shall be
distributed, or (E) a tender offer is made for 25% or more of the voting
securities of the Institution or Holding Company then outstanding.
(c) Executive shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term "Termination
for Cause" shall mean termination because of an act or acts of gross misconduct,
willful neglect of duties or commission of a felony or equivalent violation of
law. For the purposes of this Section, no act, or the failure to act, on
Executive's part shall be "willful" unless done, or omitted to be done, not in
good faith and without reasonable belief that the action or omission was in the
best interests of the Bank or its affiliates. Notwithstanding the foregoing,
Executive shall not be deemed to have been Terminated for Cause unless and until
there shall have been delivered to him a copy of a resolution duly adopted by
the affirmative vote of not less than three-fourths of the members of the Board
at a meeting of the Board called and held for that purpose (after reasonable
notice to Executive and an opportunity for him, together with counsel, to be
heard before the Board), finding that in the good faith opinion of the Board,
Executive was guilty of conduct justifying Termination for Cause and specifying
the particulars thereof in detail. Executive shall not have the right to receive
compensation or other benefits for any period after Termination for Cause.
During the period beginning on the date of the Notice of Termination for Cause
pursuant to Section 4 hereof through the Date of Termination for Cause, stock
options and related limited rights granted to Executive under any stock option
plan shall be exercisable only as to those options which have vested as of the
Date of Termination for Cause. At the Date of Termination for Cause, any
unvested stock options and related limited rights and any unvested awards shall
become null and void and shall not be exercisable by or delivered to Executive
at any time subsequent to such Date of Termination for Cause.
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3. TERMINATION BENEFITS.
(a) Upon the occurrence of a Change in Control, followed at any time
during the term of this Agreement by the voluntary or involuntary termination of
Executive's employment, other than for Termination for Cause, the Holding
Company shall be obligated to pay Executive, or in the event of his subsequent
death, his beneficiary or beneficiaries, or his estate, as the case may be, a
sum equal to three (3) times Executive's highest annual compensation paid to the
Executive for the last three years preceding the Change in Control of the
Holding Company or the Institution or such lesser number of years in the event
that Executive shall have been employed by the Institution for less than three
years. Such annual compensation shall exclude any bonus but shall include base
salary, including any amounts of deferred compensation, commissions,
contributions or accruals on behalf of Executive to any pension and profit
sharing plan, severance payments, director or committee fees and fringe benefits
paid or to be paid to the Executive during such years. In consideration of the
Termination Benefit the Executive will not be entitled to receive any benefits
under the Institution's severance policy applicable to all other employees. At
the election of Executive which election is to be made prior to a Change in
Control, such payment shall be made in a lump sum. In the event that no election
is made, payment to Executive will be made on a monthly basis in approximately
equal installments over a period of thirty-six (36) months.
(b) Upon the occurrence of a Change in Control of the Institution or
the Holding Company followed at any time during the term of this Agreement by
Executive's termination of employment, other than for Termination for Cause, the
Holding Company shall cause to be continued life, medical and disability
coverage substantially identical to the coverage maintained by the Institution
for Executive prior to his severance, except to the extent such coverage may be
changed in its application to all Institution employees. Such coverage and
payments shall cease upon expiration of thirty-six (36) full calendar months
following the Date of Termination.
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<PAGE>
(c) Notwithstanding the preceding paragraphs of this Section 3, in the
event that:
(i) the aggregate payments or benefits to be made or afforded to
Executive, which are deemed to be parachute payments as defined in
Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code") or any successor thereof, (the "Termination Benefits")
would be deemed to include an "excess parachute payment" under
Section 280G of the Code; and
(ii) if such Termination Benefits were reduced to an amount (the
"Non-Triggering Amount"), the value of which is one dollar ($1.00)
less than an amount equal to three (3) times Executive's "base
amount," as determined in accordance with said Section 280G and the
Non-Triggering Amount less the product of the marginal rate of any
applicable state and federal income tax and the Non Triggering
Amount would be greater than the aggregate value of the Termination
Benefits (without such reduction) minus (i) the amount of tax
required to be paid by the Executive thereon by Section 4999 of the
Code and further minus (ii) the product of the Termination Benefits
and the marginal rate of any applicable state and federal income
tax,
then the Termination Benefits shall be reduced to the Non-Triggering Amount. The
allocation of the reduction required hereby among the Termination Benefits shall
be determined by the Executive.
4. NOTICE OF TERMINATION.
(a) Any purported termination by the Holding Company, or by Executive
shall be communicated by Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean the date specified in the Notice
of Termination (which, in the case of Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given);
provided, however, that if a dispute regarding the Executive's termination
exists, the "Date of Termination" shall be determined in accordance with Section
4(c) of this Agreement.
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, the Date of Termination shall
be the date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute in connection with a Change in
Control, in the event that the Executive is terminated for reasons other than
Termination for Cause, the Institution will continue to pay Executive the
payments and benefits due under this Agreement in effect when the notice giving
rise to the dispute was given (including, but not limited to his annual salary)
until the earlier of: (1) the resolution of the dispute in accordance with this
Agreement; or (2) the expiration of the remaining term of this Agreement as
determined as of the Date of Termination.
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<PAGE>
5. SOURCE OF PAYMENTS.
It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the Holding
Company. Further, the Holding Company guarantees such payment and provision of
all amounts and benefits due hereunder to Executive and, if such amount and
benefits due from the Institution are not timely paid or provided by the
Institution, such amounts and benefits shall be paid and provided by the Holding
Company.
6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior agreement between the Holding Company and
Executive, except that this Agreement shall not affect or operate to reduce any
benefit or compensation inuring to Executive of a kind elsewhere provided. No
provision of this Agreement shall be interpreted to mean that Executive is
subject to receiving fewer benefits than those available to him without
reference to this Agreement.
Nothing in this Agreement shall confer upon Executive the right to
continue in the employ of the Holding Company or shall impose on the Holding
Company any obligation to employ or retain Executive in its employ for any
period.
7. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive, the Holding Company and their respective successors and assigns.
5
<PAGE>
8. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
9. EFFECT OF ACTION UNDER INSTITUTION AGREEMENT.
Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits are paid to or received by Executive under the
Institution Agreement between Executive and Institution, the amount of such
payments and benefits paid by the Institution will be subtracted from any amount
due simultaneously to Executive under similar provisions of this Agreement. It
is the intention of the parties that the Executive be entitled to the greater
benefits and payments when construing this Agreement and the Agreement between
the Institution and the Executive.
10. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
11. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement. In addition, references herein to the
masculine shall apply to both the masculine and the feminine.
12. GOVERNING LAW.
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of Delaware.
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<PAGE>
13. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Holding Company, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
14. PAYMENT OF COSTS AND LEGAL FEES.
All reasonable costs and legal fees paid or incurred by Executive
pursuant to any dispute or question of interpretation relating to this Agreement
shall be paid or reimbursed by the Holding Company if Executive is successful
pursuant to a legal judgment, arbitration or settlement.
15. INDEMNIFICATION.
(a) The Holding Company shall provide Executive (including his heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense, or in lieu thereof, shall
indemnify Executive (and his heirs, executors and administrators) to the fullest
extent permitted under Delaware law and as provided in the Holding Company's
certificate of incorporation against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the Holding Company (whether or not he continues to be a director
or officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
(b) To the extent not afforded under the terms of a directors' and
officers' liability insurance policy provided by the Holding Company or the
Institution, the Holding Company will advance to Executive funds to defray the
expenses, including attorneys fees and court costs, actually and reasonably
incurred by Executive in connection with or arising out of any action, suit, or
proceeding in which Executive may be involved by reason of Executive's service
as a director or officer of the Holding Company, subject to Executive's
undertaking to repay such advances if required in accordance with applicable
state and Federal law.
(c) By accepting the benefits of this Agreement, the Executive releases
and discharges the Holding Company, the Institution, the directors, officers,
agents, employees, consultants and affiliated and controlled companies (the
"Released Parties"), from any and all claims, demands and causes of action
arising out of or relating to the Executive's employment with the Institution
and/or Holding Company.
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<PAGE>
16. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Holding Company's obligations under this Agreement, in the same manner and to
the same extent that the Holding Company would be required to perform if no such
succession or assignment had taken place.
17. SEVERANCE PAYMENT.
Notwithstanding the foregoing, in the event that at any time prior to a
Change in Control (as defined in section 2(b) of this Agreement) the Executive's
employment with the bank or the Holding Company for reasons other than
Termination for Cause, death, retirement (as defined in the Bank's qualified
employee benefit plan) or permanent disability, the Executive shall be paid a
severance payment equal to the highest annual compensation for the last three
years or such lesser number of years in the event that Executive shall have been
employed by the Institution for less than three years. Such payment shall be
paid in a lump sum on the Date of Termination unless the Executive elects prior
to the Date of Termination for such payment to be paid in twelve equal monthly
installments. The Institution and the Holding Company shall continue
substantially identical medical and disability coverage for the Executive for a
period of one year from the Date of Termination.
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<PAGE>
SIGNATURES
IN WITNESS WHEREOF, UCBH Holdings, Inc. has caused this Agreement to be
executed by its duly authorized officer, and Executive has signed this
Agreement, on the ___ day of ______________, 1998.
ATTEST: UCBH Holdings, Inc.
__________________________________ By: ___________________________
Tommy S. Wu
Secretary President and Chief Executive
Officer
WITNESS:
__________________________________ _________________________________
[NAME]
Executive
Seal
Exhibit 10.5
UCBH HOLDINGS, INC.
1998 STOCK OPTION PLAN
1. DEFINITIONS.
(a) "Affiliate" means (i) a member of a controlled group of
corporations of which the Company is a member or (ii) an unincorporated trade or
business which is under common control with the Company as determined in
accordance with Section 414(c) of the Internal Revenue Code of 1986, as amended,
(the "Code") and the regulations issued thereunder. For purposes hereof, a
"controlled group of corporations" shall mean a controlled group of corporations
as defined in Section 1563(a) of the Code determined without regard to Section
1563(a)(4) and (e)(3)(C).
(b) "Alternate Option Payment Mechanism" refers to one of several
methods available to a Participant to fund the exercise of a stock option set
out in Section 13 hereof. These mechanisms include: broker assisted cashless
exercise and stock for stock exchange.
(c) "Award" means a grant of one or some combination of one or more
Non-statutory Stock Options, Incentive Stock Options and Option related rights
under the provisions of this Plan.
(d) "Bank" means United Commercial Bank.
(e) "Board of Directors" or "Board" means the board of directors of the
Company.
(f) "Change in Control" means a change in control of the Bank or the
Company of a nature that; (i) would be required to be reported in response to
Item 1 of the current report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"); or (ii) results in a Change in Control within the
meaning of the Home Owners' Loan Act of 1933, as amended ("HOLA") and the Rules
and Regulations promulgated by the Office of Thrift Supervision ("OTS") (or its
predecessor agency), as in effect on the date hereof (provided, that in applying
the definition of change in control as set forth under such rules and
regulations the Board shall substitute its judgment for that of the OTS); or
(iii) without limitation such a Change in Control shall be deemed to have
occurred at such time as (A) any "person" (as the term is used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Bank or the Company, representing 25% or more of the Bank's or Company's
outstanding securities except for any securities of the Bank purchased by the
Company formed by the Bank for that purpose in connection with the
reorganization of the Bank and any securities purchased by any tax qualified
employee benefit plan of the Bank or Company; or (B) individuals who constitute
the Board on the date hereof (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided that any person becoming a
director subsequent to the date hereof whose election was approved by a vote of
at least three-quarters of the directors comprising the Incumbent Board, or
whose nomination for election by the Company's stockholders
<PAGE>
was approved by the same Nominating Committee serving under an Incumbent Board,
shall be, for purposes of this clause (B), considered as though he were a member
of the Incumbent Board; or (C) a plan of reorganization, merger, consolidation,
sale of all or substantially all the assets of the Bank or Company or similar
transaction occurs in which the Bank or Company is not the resulting entity; or
(D) a solicitation of shareholders of the Company, by someone other than the
current management of the Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Bank or Company or similar
transaction with one or more corporations, as a result of which the outstanding
shares of the class of securities then subject to the plan are exchanged for or
converted into cash or property or securities not issued by the Bank or Company;
or (E) a tender offer is made for 25% or more of the voting securities of the
Bank or Company.
(g) "Code" means the Internal Revenue Code of 1986, as amended.
(h) "Committee" means a committee consisting of the entire Board of
Directors or consisting solely of two or more members of the Board of Directors
who are non-employee directors as such term is defined under Rule 16b-3(b)(3)(i)
under the Exchange Act as promulgated by the Securities and Exchange Commission.
(i) "Common Stock" means the Common Stock of the Company, par value,
$.01 per share or any stock exchanged for shares of Common Stock pursuant to
Section 14 hereof.
(j) "Company" means UCBH Holdings, Inc.
(k) "Date of Grant" means the effective date of an Award.
(l) "Disability" means the permanent and total inability by reason of
mental or physical infirmity, or both, of a Participant to perform the work
customarily assigned to him, or in the case of a Director, to serve on the
Board. Additionally, a medical doctor selected or approved by the Board of
Directors must advise the Committee that it is either not possible to determine
when such Disability will terminate or that it appears probable that such
Disability will be permanent during the remainder of said Participant's
lifetime.
(m) "Effective Date" means April 17, 1998, the effective date of the
Plan.
(n) "Employee" means any person who is currently employed by the
Company or an Affiliate, including officers, but such term shall not include
Outside Directors.
(o) "Employee Participant" means an Employee who holds an outstanding
Award under the terms of the Plan.
(p) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(q) "Exercise Price" means the purchase price per share of Common Stock
deliverable upon the exercise of each Option in order for the option to be
exchanged for shares of Common Stock.
<PAGE>
(r) "Fair Market Value" means, when used in connection with the Common
Stock on a certain date, the average of the high and low bid prices of the
Common Stock as reported by the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"), the New York Stock Exchange ("NYSE") or
the American Stock Exchange ("AMEX") (as published by the Wall Street Journal,
if published) on such date or if the Common Stock was not traded on such date,
on the next preceding day on which the Common Stock was traded thereon or the
last previous date on which a sale is reported. If the Common Stock is not
reported on the NASDAQ, AMEX or the NYSE, the Fair Market Value of the Common
Stock is the value so determined by the Board in good faith.
(s) "Incentive Stock Option" means an Option granted by the Committee
to a Participant, which Option is designated by the Committee as an Incentive
Stock Option pursuant to Section 7 hereof and is intended to be such under
Section 422 of the Code.
(t) "Limited Right" means the right to receive an amount of cash based
upon the terms set forth in Section 8 hereof.
(u) "Non-statutory Stock Option" means an Option granted by the
Committee to a Participant pursuant to Section 6 hereof, which is not designated
by the Committee as an Incentive Stock Option or which is redesignated by the
Committee under Section 7 as a Non-Statutory Stock Option.
(v) "Option" means the right to buy a fixed amount of Common Stock at
the Exercise Price within a limited period of time designated as the term of the
option as granted under Section 6 or 7 hereof.
(w) "Outside Director" means a member of the Board of Directors of the
Company or its Affiliates, who is not also an Employee.
(x) "Outside Director Participant" means an Outside Director who holds
an outstanding Award under the terms of the Plan.
(y) "Participant" means any Employee or Outside Director who holds an
outstanding Award under the terms of the Plan.
(z) "Retirement" with respect to an Employee Participant means
termination of employment which constitutes retirement under any tax qualified
plan maintained by the Bank or the Company. However, "Retirement" will not be
deemed to have occurred for purposes of this Plan if a Participant continues to
serve on the Board of Directors of the Company or its Affiliates even if such
Participant is receiving retirement benefits under any retirement plan of the
Bank or the Company. With respect to an Outside Director Participant
"Retirement" means the termination of service from the Board of Directors of the
Company or its Affiliates following written notice to the Board as a whole of
such Outside Director's intention to retire or retirement as determined by the
Bank (or the Company's) bylaws, or by reaching age 65, except that an Outside
Director shall not be deemed to have retired for purposes of the Plan in the
event he continues to serve as a consultant to the Board or as an advisory
director.
<PAGE>
(aa) "Termination for Cause" shall mean, in the case of an Outside
Director, removal from the Board of Directors, or, in the case of an Employee,
termination of employment, in both such cases as determined by the Board of
Directors, because of an act or acts of gross misconduct, willful neglect of
duties or commission of a felony or equivalent violation of law. No act, or the
failure to act, on Participant's part shall be "willful" unless done, or omitted
to be done, not in good faith and without reasonable belief that the action or
omission was in the best interest of the Bank or one of its Affiliates.
2. ADMINISTRATION.
(a) The Plan as regards Awards to employees of the Company or its
Affiliates, shall be granted and administered by the Committee. The Committee is
authorized, subject to the provisions of the Plan, to grant awards to Employees
and Outside Directors and to establish such rules and regulations as it deems
necessary for the proper administration of the Plan and to make whatever
determinations and interpretations in connection with the Plan it deems
necessary or advisable. All determinations and interpretations made by the
Committee shall be binding and conclusive on all Participants in the Plan and on
their legal representatives and beneficiaries.
(b) Awards to Outside Directors shall be granted and administered by
the Committee, pursuant to the terms of this Plan.
3. TYPES OF AWARDS AND RELATED RIGHTS.
The following Awards and related rights as described in Sections 6
through 11 hereof may be granted under the Plan:
(a) Non-statutory Stock Options;
(b) Incentive Stock Options;
(c) Limited Rights
4. STOCK SUBJECT TO THE PLAN.
Subject to adjustment as provided in Section 14, the maximum number of
shares reserved for Awards under the Plan is 653,333 shares of the Common Stock.
These shares of Common Stock may be either authorized but unissued shares or
authorized shares previously issued and reacquired by the Company. To the extent
that Awards are granted under the Plan, the shares underlying such Awards will
be unavailable for any other use including future grants under the Plan except
that, to the extent that Awards terminate, expire, are forfeited or are canceled
without having been exercised (in the case of Limited Rights, exercised for
cash), new Awards may be made with respect to these shares.
<PAGE>
5. ELIGIBILITY.
Subject to the terms herein all Employees and Outside Directors shall
be eligible to receive Awards under the Plan.
6. NON-STATUTORY STOCK OPTIONS.
The Committee may, subject to the limitations of the Plan and the
availability of shares reserved but unawarded in the Plan, from time to time,
grant Non-statutory Stock Options to Employees and Outside Directors and, upon
such terms and conditions as the Committee may determine, grant Non-statutory
Stock Options in exchange for and upon surrender of previously granted Awards
under this Plan. Non-statutory Stock Options granted under this Plan are subject
to the following terms and conditions:
(a) Exercise Price. The Exercise Price of each Non-statutory Stock
Option shall be determined by the Committee on the date the option is granted.
Such Exercise Price shall not be less than 100% of the Fair Market Value of the
Common Stock on the Date of Grant. Shares may be purchased only upon full
payment of the Exercise Price or upon operation of an Alternate Option Payment
Mechanism set out in Section 9 hereof.
(b) Terms of Options. The term during which each Non-statutory Stock
Option may be exercised shall be determined by the Committee, but in no event
shall a Non-statutory Stock Option be exercisable in whole or in part more than
10 years from the Date of Grant. The Committee shall determine the date on which
each Non-statutory Stock Option shall become exercisable. The shares comprising
each installment may be purchased in whole or in part at any time during the
term of such Option after such installment becomes exercisable. The Committee
may, in its sole discretion, accelerate the time at which any Non-statutory
Stock Option may be exercised in whole or in part.
The acceleration of any Non-statutory Stock Option under the authority of this
paragraph creates no right, expectation or reliance on the part of any other
Participant or that certain Participant regarding any other unaccelerated
Non-statutory Stock Options.
(c) Termination of Employment or Service. Upon the termination of a
Participant's employment or service in the event of Disability, death or Change
in Control, all Non-statutory Stock Options shall immediately vest and be
exercisable for one year after such termination. In the event of Termination for
Cause or termination of a Participant's employment or service for any other
reason including voluntary resignation, all Non-statutory Stock Options shall be
exercisable for a period of one year only as to those options which have vested
as of the date of the Participant's termination of employment or service. Any
unvested Non-statutory Stock Options shall become null and void and shall not be
exercisable by or delivered to the Participant after such date of termination.
7. INCENTIVE STOCK OPTIONS.
The Committee may, subject to the limitations of the Plan and the
availability of shares reserved but unawarded in the Plan, from time to time,
grant Incentive Stock Options to Employees. Incentive Stock Options granted
pursuant to the Plan shall be subject to the following terms and conditions:
<PAGE>
(a) Exercise Price. The Exercise Price of each Incentive Stock Option
shall be not less than 100% of the Fair Market Value of the Common Stock on the
Date of Grant. However, if at the time an Incentive Stock Option is granted to a
Participant, the Participant owns Common Stock representing more than 10% of the
total combined voting securities of the Bank (or, under Section 424(d) of the
Code, is deemed to own Common Stock representing more than 10% of the total
combined voting power of all classes of stock of the Bank, by reason of the
ownership of such classes of stock, directly or indirectly, by or for any
brother, sister, spouse, ancestor or lineal descendent of such Participant, or
by or for any corporation, partnership, estate or trust of which such
Participant is a shareholder, partner or beneficiary), ("10% Owner"), the
Exercise Price per share of Common Stock deliverable upon the exercise of each
Incentive Stock Option shall not be less than 110% of the Fair Market Value of
the Common Stock on the Date of Grant. Shares may be purchased only upon payment
of the full Exercise Price or upon operation of an Alternate Option Payment
Mechanism set out in Section 9 hereof.
(b) Amounts of Options. Incentive Stock Options may be granted to any
Employee in such amounts as determined by the Committee; provided that the
amount granted is consistent with the terms of Section 422 of the Code. In the
case of an option intended to qualify as an Incentive Stock Option, the
aggregate Fair Market Value (determined as of the time the Option is granted) of
the Common Stock with respect to which Incentive Stock Options granted are
exercisable for the first time by the Participant during any calendar year
(under all plans of the Participant's employer corporation and its parent and
subsidiary corporations) shall not exceed $100,000. The provisions of this
Section 7(b) shall be construed and applied in accordance with Section 422(d) of
the Code and the regulations, if any, promulgated thereunder. To the extent an
award under this Section 7 exceeds this $100,000 limit, the portion of the
Options in excess of such limit shall be deemed a Non-statutory Stock Option.
The Committee shall have discretion to redesignate Options granted as Incentive
Stock Options as Non-Statutory Stock Options. Such redesignation shall not be
deemed to be a new grant or a regrant of such Options. Such Non-statutory Stock
Options shall be subject to Section 6 hereof.
(c) Terms of Options. The term during which each Incentive Stock Option
may be exercised shall be determined by the Committee, but in no event shall an
Incentive Stock Option be exercisable in whole or in part more than 10 years
from the Date of Grant. If at the time an Incentive Stock Option is granted to a
Participant who is a 10% Owner, the Incentive Stock Option granted to such
Employee Participant shall not be exercisable after the expiration of five years
from the Date of Grant. No Incentive Stock Option granted under this Plan is
transferable except by will or the laws of descent and distribution and is
exercisable in his lifetime only by the Employee Participant to whom it is
granted.
The Committee shall determine the date on which each Incentive Stock
Option shall become exercisable. The shares comprising each installment may be
purchased in whole or in part at any time during the term of such option after
such installment becomes exercisable. The Committee may, in its sole discretion,
accelerate the time at which any Incentive Stock Option may be exercised in
whole or in part. The acceleration of any Incentive Stock Option under the
authority of this paragraph creates no right, expectation or reliance on the
part of any other Participant or that certain Participant regarding any other
unaccelerated Incentive Stock Options.
<PAGE>
(d) Termination of Employment. Upon the termination of a Participant's
employment or service in the event of Disability, Retirement, death or Change in
Control, all Incentive Stock Options shall immediately vest and be exercisable
for one year after such termination. In the event of Termination for Cause or
termination of a Participant's employment or service for any other reason
including voluntary resignation, all Incentive Stock Options shall be
exercisable for a period of one year only as to those options which have vested
as of the date of the Participant's termination of employment or service. Any
unvested Incentive Stock Options shall become null and void and shall not be
exercisable by or delivered to the Participant after such date of termination.
(e) Compliance with Code. The Options granted under this Section are
intended to qualify as incentive stock options within the meaning of Section 422
of the Code, but the Company makes no warranty as to the qualification of any
option as an incentive stock option within the meaning of Section 422 of the
Code. All Options that do not so quality shall be treated as Non-statutory Stock
Options.
8. LIMITED RIGHTS.
Simultaneously with the grant of any Option to an Employee, the
Committee may grant a Limited Right with respect to all or some of the shares
covered by such Option. Limited Rights granted under this Plan are subject to
the following terms and conditions:
(a) Terms of Rights. In no event shall a Limited Right be exercisable
in whole or in part before the expiration of six months from the Date of Grant
of the Limited Right. A Limited Right may be exercised only in the event of a
Change in Control.
The Limited Right may be exercised only when the underlying Option is
eligible to be exercised, and only when the Fair Market Value of the underlying
shares on the day of exercise is greater than the Exercise Price of the
underlying Option.
Upon exercise of a Limited Right, the underlying Option shall cease to
be exercisable. Upon exercise or termination of an Option, any related Limited
Rights shall terminate. The Limited Rights may be for no more than 100% of the
difference between the purchase price and the Fair Market Value of the Common
Stock subject to the underlying option. The Limited Right is transferable only
when the underlying option is transferable and under the same conditions.
(b) Payment. Upon exercise of a Limited Right, the holder shall
promptly receive from the Company an amount of cash or some other payment option
found in Section 12, equal to the difference between the Exercise Price of the
underlying option and the Fair Market Value of the Common Stock subject to the
underlying Option on the date the Limited Right is exercised, multiplied by the
number of shares with respect to which such Limited Right is being exercised.
Payments shall be less an applicable tax withholding as set forth in Section 15.
9. ALTERNATE OPTION PAYMENT MECHANISM
The Committee has sole discretion to determine what form of payment it
will accept for the
<PAGE>
exercise of an Option. The Committee may indicate acceptable forms in the Award
Agreement covering such Options or may reserve its decision to the time of
exercise. No Option is to be considered exercised until payment in full is
accepted by the Committee or its agent.
(a) Cash Payment. The exercise price may be paid in cash or by
certified check.
(b) Borrowed Funds. To the extent permitted by law, the Committee may
permit all or a portion of the exercise price of an Option to be paid through
borrowed funds.
(c) Exchange of Common Stock.
(i) The Committee may permit payment by the tendering of previously
acquired shares of Common Stock. This includes the use of "pyramiding
transactions" whereby some number of Options are exercised. The shares gained
through the exercise are then tendered back to the Bank as payment for some
other number of Options. This transaction may be repeated as needed to exercise
all of the Options available.
(ii) Any shares of Common Stock tendered in payment of the exercise
price of an Option shall be valued at the Fair Market Value of the Common Stock
on the date prior to the date of exercise.
10. RIGHTS OF A SHAREHOLDER
No Participant shall have any rights as a shareholder with respect to
any shares covered by an Option until the date of issuance of a stock
certificate for such shares. Nothing in this Plan or in any Award granted
confers on any person any right to continue in the employ or service of the
Company or its Affiliates or interferes in any way with the right of the Company
or its Affiliates to terminate a Participant's services as an officer or other
employee at any time.
11. NON-TRANSFERABILITY
Except to the extent permitted or restricted by the Code, the rules
promulgated under Section 16(b) of the Exchange Act or any successor statutes or
rules:
(i) The recipient of an Award shall not sell, transfer, assign,
pledge, or otherwise encumber shares subject to the Award until full vesting of
such shares has occurred. For purposes of this section, the separation of
beneficial ownership and legal title through the use of any "swap" transaction
is deemed to be a prohibited encumbrance.
(ii) Unless determined otherwise by the Committee and except in the
event of the Participant's death or pursuant to a domestic relations order, an
Award is not transferable and may be earned in his lifetime only by the
Participant to whom it is granted. Upon the death of a Participant, an Award is
transferable by will or the laws of intestate succession. The designation of a
beneficiary does not constitute a transfer.
<PAGE>
(iii) If a recipient of an Award is subject to the provisions of
Section 16 of the Exchange Act, shares of Common Stock subject to such Award may
not, without the written consent of the Committee (which consent may be given in
the Stock Award Agreement), be sold or otherwise disposed of within six months
following the date of grant of the Award.
12. AGREEMENT WITH GRANTEES.
Each Award will be evidenced by a written agreement, executed by the
Participant and the Company or its Affiliates that describes the conditions for
receiving the Awards including the date of Award, the Exercise Price, the terms
or other applicable periods, and other terms and conditions as may be required
or imposed by the Plan, the Committee, the Board of Directors, tax law
considerations or applicable securities law considerations.
13. DESIGNATION OF BENEFICIARY.
A Participant may, with the consent of the Committee, designate a
person or persons to receive, in the event of death, any Award to which the
Participant would then be entitled. Such designation will be made upon forms
supplied by and delivered to the Company and may be revoked in writing. If a
Participant fails effectively to designate a beneficiary, then the Participant's
estate will be deemed to be the beneficiary.
14. DILUTION AND OTHER ADJUSTMENTS.
In the event of any change in the outstanding shares of Common Stock by
reason of any stock dividend or split, recapitalization, merger, consolidation,
spin-off, reorganization, combination or exchange of shares, or other similar
corporate change, or other increase or decrease in such shares without receipt
or payment of consideration by the Company, the Committee will make such
adjustments to previously granted Awards, to prevent dilution or enlargement of
the rights of the Participant including any or all of the following:
(a) adjustments in the aggregate number or kind of shares of
Common Stock that may underlie future Awards under the Plan;
(b) adjustments in the aggregate number or kind of shares of
Common Stock underlying Awards already made under the Plan;
(c) adjustments in the purchase price of outstanding Incentive
and/or Non-statutory Stock Options, or any Limited Rights
attached to such Options.
No such adjustments may, however, materially change the value of
benefits available to a Participant under a previously granted Award. All awards
under this Plan shall be binding upon any successors or assigns of the Company.
<PAGE>
15. TAX WITHHOLDING.
Awards under this Plan shall be subject to tax withholding to the
extent required by any governmental authority. Any withholding shall comply with
Rule 16b-3, if applicable, or any amendment or successor rule. Shares of Common
Stock withheld to pay for tax withholding amounts shall be valued at their Fair
Market Value on the date the Award is deemed taxable to the Participant.
16. AMENDMENT OF THE PLAN.
The Board of Directors may at any time, and from time to time, modify
or amend the Plan in any respect, prospectively or retroactively; provided
however, that provisions governing grants of Incentive Stock Options, unless
permitted by the rules and regulations or staff pronouncements promulgated under
the Code, shall be submitted for shareholder approval to the extent required by
such law, regulation or interpretation.
Failure to ratify or approve amendments or modifications by
shareholders shall be effective only as to the specific amendment or
modification requiring such ratification. Other provisions, sections, and
subsections of this Plan will remain in full force and effect.
No such termination, modification or amendment may affect the rights of
a Participant under an outstanding Award without the written permission of such
Participant.
17. EFFECTIVE DATE OF PLAN.
The Effective Date of the Plan shall be April 17, 1998.
18. TERMINATION OF THE PLAN.
The right to grant Awards under the Plan will terminate upon the
earlier of ten (10) years after the Effective Date of the Plan or the exercise
of Options, or related Limited Rights equivalent to the maximum number of shares
reserved under the Plan as set forth in Section 4. The Board of Directors has
the right to suspend or terminate the Plan at any time, provided that no such
action will, without the consent of a Participant or Outside Director
Participant, adversely affect his vested rights under a previously granted
Award.
19. APPLICABLE LAW.
The Plan will be administered in accordance with the laws of the State
of Delaware to the extent not superseded by federal law.
20. SUCCESSORS AND ASSIGNS.
All awards under this Plan shall be binding upon any successors or
assigns of the Company including any holding company that may be formed by the
Company.
<PAGE>
21. DELEGATION OF AUTHORITY.
The Committee may delegate all authority for: the determination of
forms of payment to be made by or received by the Plan; the execution of Award
Agreements; the determination of Fair Market Value; the determination of all
other aspects of administration of the Plan to the executive officer(s) of the
Company. The Committee may rely on the descriptions, representations, reports
and estimates provided to it by the management of the Company for determinations
to be made pursuant to the Plan.
<PAGE>
IN WITNESS WHEREOF, the Board of Directors of the Company has adopted
this Plan at its regularly scheduled meeting on May 14th, 1998, to be executed
by its duly authorized executive officer and the corporate seal to be affixed
and duly attested.
[CORPORATE SEAL] UCBH Holdings, Inc.
May 14, 1998 By: /s/ Tommy S. Wu
- --------------------------- ----------------------------
Date President and Chief
Executive Officer
ADOPTED BY THE BOARD OF DIRECTORS:
May 14, 1998 By: /s/ Eileen Romero
- --------------------------- ----------------------------
Date Secretary
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated March 30, 1998, relating
to the financial statements of UCBH Holdings, Inc., which appears in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
PricewaterhouseCoopers LLP
San Francisco, California
July 1, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements included in this Form S-1 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<CIK> 0001061580
<NAME> UCBH HOLDINGS, INC.
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
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0
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